Whitestone REIT Annual Report 2022

Plain-text annual report

2022 ANNUAL REPORT CONNECTING COMMUNITY AND CONVENIENCE Communities That Thrive wsr-annual-report-wrap-2022.indd 1 wsr-annual-report-wrap-2022.indd 1 3/22/2023 2:28:32 PM 3/22/2023 2:28:32 PM 2022 HIGHLIGHTS 57 Properties 1,477 Tenants 5.1 M SF Total GLA 93.7% Occupancy 16.6% Leasing Spreads $21.99+ PSF Annual Base Rent TOTAL SHARHOLDER RETURN January 2022 to March 2023 1 wsr-annual-report-wrap-2022.indd 2 wsr-annual-report-wrap-2022.indd 2 3/22/2023 2:28:48 PM 3/22/2023 2:28:48 PM DEAR FELLOW SHAREHOLDERS Reflecting on 2022, Whitestone has had a year of major accomplishments. When the Whitestone Board of Directors elevated me to the CEO position in January 2022, I outlined for the board four initiatives we would be targeting and received unanimous support from the trustees: 1. To improve the operational and financial performance of Whitestone, proving out the Company’s core thesis 2. To dramatically improve Whitestone’s alignment with shareholders, initially focusing on a host of governance improvements 3. To strengthen the Company’s balance sheet and reduce debt leverage 4. To monetize our 81% equity investment in Pillarstone Capital REIT Operating Partnership LP (the “Pillarstone Partnership”) and ensure that Whitestone shareholders receive fair value We possessed the talent and the knowledge to achieve these goals and elevated the right people within the Company. We also focused on providing support to our team and on eliminating distractions. I want to take this opportunity to provide an update on each initiative: what we’ve accomplished, where we currently stand, and the road ahead. Operational and Financial Performance On March 2, 2022, we outlined aggressive targets during our 4th quarter earnings call, including 14 – 19% FFO/Share(1) growth and occupancy of 92 – 93%. Newly appointed Chief Operating Off icer, Christine Mastandrea, and I shared a very strong belief in the Company’s core thesis: By focusing on community and convenience with service-oriented tenants in high-income, sun belt-located shopping centers, Whitestone can achieve earnings growth at or near the top of its peer set. By maintaining attention on high-quality revenue from a diverse set of tenants, the Company is also anticipated to be more resilient than peers during diff erent economic cycles. We took the necessary actions to drive performance:  We increased accountability, streamlining and strengthening the regional leasing and property management teams, providing clear goals and priorities and eliminating micro-management, allowing for faster and better execution  We began the process of restoring relationships within the real estate community, especially with the brokers, dramatically increasing transaction flow These actions allowed morale to improve throughout the Company with employees having more eff ective tools for success and clear objectives that were aligned with the management team, resulting in greater productivity. 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 Kempwood Plaza Lion Square Providence Plaza Shaver Street Center Shops at Williams Trace Sugar Park Plaza Sunridge Center Town Park Plaza West Memorial Westchase Plaza Williams Trace Plaza Woodlands Crossing PHOENIX Ahwatukee Plaza Anthem Marketplace Fountain Hills Plaza Fountain Square Fulton Ranch Towne Center La Mirada Market Street at DC Ranch Marketplace at Central Mercado at Scottsdale Ranch Paradise Plaza 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 2022 ANNUAL REPORT wsr-annual-report-wrap-2022.indd 3 wsr-annual-report-wrap-2022.indd 3 2 3/22/2023 2:28:48 PM 3/22/2023 2:28:48 PM We finished 2022 with outstanding financial and operational performance highlighted by:  FFO per share(1) growth of 20% to $1.03  Same-store NOI(1) growth of 7.9%  Occupancy increased 240bps to 93.7%  Positive leasing spreads of 16.6% and 8.0% on a straight-line and cash basis, respectively  G&A expenses decreased by 20%, or $4.6 million As part of our ongoing asset management, we completed $36 million in dispositions during 2022 at a blended 5.6% cap rate, highlighting the value of Whitestone’s portfolio of properties, which are located in some of the fastest growing and most desirable markets in the country. We utilized $27.5 million of these proceeds to purchase a 3-tenant outparcel at our Dana Park property in Mesa, Arizona and Lake Woodlands Crossing, a thriving 60,246 square foot center in The Woodlands, TX, at a blended 7.0% cap rate. The Woodlands property has a one-mile radius average household income in excess of $250,000 and is ideally located across from an H-E-B grocer and a high-end shopping center. At purchase, the Woodlands center had 11% vacancy and we are in the process of securing 2 great tenants to fill the vacancy within the center. We utilized the remaining proceeds for debt reduction. We will continue to evaluate opportunities for both dispositions and acquisitions that will allow us to advance our objectives to grow earnings and improve our debt metrics and equity market valuation. Whitestone’s Alignment with Shareholders / ESG Perhaps an even more dramatic shift than our financial execution was our determination to fix the foundation of Whitestone, which is the Company’s governance and alignment with shareholders. Few companies improve their ISS Governance score from a 9 to a 3 within a year, which further reflects our commitment. In 2022, we:  Separated the CEO and Chairman of the Board roles,  Terminated Whitestone’s shareholder rights plan (poison pill),  Provided shareholder access to propose and vote on bylaw amendments,  Appointed independent director Amy Shih-Hua Feng to the board, reducing our average board tenure to ~3.5 years and increasing its percentage of women to 33%,  Lowered compensation packages across the management team,  Implemented Environmental Management System (EMS) and completed first GRESB filing, and  Initiated formal board oversight for Whitestone’s ESG Steering Committee. In conjunction with these improvements, we have shift ed from having limited interaction with shareholders to actively reaching out to shareholders and working closely with them to meet their expectations on governance and other matters. The Balance Sheet and Cost of Capital One key piece of feedback we heard from investors was to lower the Company’s leverage and take care of any near-term maturities. Our Debt to EBITDAre(1) stood at 9.1x at year-end 2021. Aft er taking over the CFO role in conjunction with the leadership change, Scott Hogan made a commitment to ensure new investments met criteria to be accretive while simultaneously strengthening our credit metrics. Given the Company’s strong earnings growth, we were able to rapidly improve our Debt to EBITDAre ratio(1), finishing the year at 7.8x. We anticipate we will continue to improve this key ratio in to approximately 7.0x in 2023. This trend is not only well received by investors but was a critical component of locking down attractive financing and improving and extending our $515 million credit facility and receiving an investment grade credit rating in 2022. Our new facility can be increased to $715 million through an accordion feature and extends our maturity dates to 2027 and 2028. The other key to reducing Whitestone’s cost of capital was to limit share issuances and utilize retained earnings and underearning assets (land) for development. We estimate the Company has $125 to $140 million worth of investment opportunities with a portion on underutilized land that we currently own, with attractive enough returns to accelerate our earnings growth while simultaneously strengthening our credit metrics. 3 wsr-annual-report-wrap-2022.indd 4 wsr-annual-report-wrap-2022.indd 4 3/22/2023 2:28:48 PM 3/22/2023 2:28:48 PM Monetization of Pillarstone Equity In 2016, Whitestone engaged in a related-party transaction with Pillarstone Capital REIT (“Pillarstone”), an entity partially owned by our former CEO, and created a partnership and equity investment with the Pillarstone Partnership. I share with our current board members a completely diff erent view of these types of related-party transactions that oft en end up with conflicts of interests. Early in 2022, Whitestone initiated a Delaware lawsuit in order to invalidate a poison pill implemented by Pillarstone solely to frustrate Whitestone’s contractual redemption rights and prevent Whitestone from exiting and monetizing its stake in the Pillarstone Partnership. Whitestone simply wants to receive its fair value for its Pillarstone stake. That stake is currently on the books for approximately $35 million and we anticipate the value Whitestone ultimately realizes will be in excess of that amount. We look forward to the restoration of our contractual redemption rights and movement towards monetization of our equity investment in 2023. 2023—The Path Ahead While Whitestone is on the right track with all of the initiatives above, the work is certainly not done. Here is the outlook for each of them: 1. Operational and Financial Performance: The Company must continue its FFO / Share(1) growth and deliver consistent results. The new management team has delivered four quarters of strong results and understands the value of building on those results. 2. Whitestone’s Alignment with Shareholders / ESG: We are furthest along on this goal. Our team will continue to stay focused on regular engagement with shareholders and improvements to corporate governance. 3. The Balance Sheet and Cost of Capital: We must continue to improve our debt leverage in 2023 and future years and remain disciplined stewards of capital. We recognize the value of a strong balance sheet, and we recognize the importance of reaching the milestones we set. 4. Pillarstone Monetization: We seek to obtain successful outcomes on current litigation and subsequently monetize our equity interest in the Pillarstone Partnership. The management team at Whitestone is pleased with the progress we made in 2022 and believes the future is very bright. We understand that one-year is not a track record, and we look forward to increasing your confidence level over the coming quarters and years. Sincerely, David K. Holeman Whitestone CEO (1) Please refer to the tables at the end of the annual report for a full reconciliation of non-GAAP measures to GAAP measures WHITESTONE REIT 2022 ANNUAL REPORT wsr-annual-report-wrap-2022.indd 5 wsr-annual-report-wrap-2022.indd 5 4 3/22/2023 2:28:48 PM 3/22/2023 2:28:48 PM [This page intentionally left blank] wsr-annual-report-wrap-2022.indd 6 wsr-annual-report-wrap-2022.indd 6 3/22/2023 2:28:49 PM 3/22/2023 2:28:49 PM UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549____________________________________FORM 10-K(Mark One)☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2022OR☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to ____________Commission File Number: 001-34855______________________________WHITESTONE REIT(Exact Name of Registrant as Specified in Its Charter)Maryland76-0594970(State or Other Jurisdiction of Incorporation or(I.R.S. EmployerOrganization)Identification No.)2600 South Gessner, Suite 500, Houston, Texas77063(Address of Principal Executive Offices)(Zip Code)Registrant’s telephone number, including area code: (713) 827-9595Securities registered pursuant to Section 12(b) of the Act:Title of each classTrading Symbol(s)Name of each exchange on which registeredCommon Shares of Beneficial Interest, par value $0.001 pershareWSRNew York Stock ExchangeSecurities registered pursuant to Section 12(g) of the Act:NoneIndicate 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 (orfor 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 thischapter) 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 thedefinitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.Large accelerated filer ☐ Accelerated filer ☒ Non-accelerated filer ☐ Smaller reporting company ☐ Emerging growth 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 accountingstandards 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 underSection 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. ☒If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the corrections of anerror to previously issued financial statements. ☐ Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant'sexecutive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐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, 2022 (the last business day of the registrant’s most recently completed second fiscalquarter) was $529,343,448.As of March 1, 2023, the registrant had 49,424,019 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 forour 2023 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, 2022. WHITESTONE REITFORM 10-KYear Ended December 31, 2022 Page PART I Item 1.Business.1 Item 1A.Risk Factors.6 Item 1B. Unresolved Staff Comments.20 Item 2. Properties.21 Item 3. Legal Proceedings.26 Item 4. Mine Safety Disclosures.26 PART II Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities.27 Item 6.Reserved.28 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.28 Item 7A. Quantitative and Qualitative Disclosures About Market Risk.52 Item 8. Financial Statements and Supplementary Data.53 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.53 Item 9A. Controls and Procedures.53 Item 9B. Other Information.54 Item 9C.Disclosure Regarding Foreign Jurisdiction that Prevent Inspections.54 PART III Item 10. Trustees, Executive Officers and Corporate Governance.55 Item 11.Executive Compensation.55 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters.55 Item 13. Certain Relationships and Related Transactions, and Director Independence.55 Item 14. Principal Accountant Fees and Services.55 PART IV Item 15. Exhibits and Financial Statement Schedules.56 Item 16.Form 10-K Summary56 Index to Exhibits57 SIGNATURES.60 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 itsconsolidated 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 onForm 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 ofour financial condition, anticipated capital expenditures required to complete projects, amounts of anticipated cash distributions to our shareholders in the future andother matters. These forward-looking statements are not historical facts but reflect the intent, belief or current expectations of our management based on its knowledgeand 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 similarexpressions, 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 orforecasted 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 onforward-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 orrevise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results. Factors that couldcause 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 REITstatus; •uncertainties related to the national economy and the real estate industry, both 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 aresurgence of COVID-19 or other public health emergencies on our tenants’ ability to pay their rent, which could result in bad debt allowances or straight-linerent reserve adjustments; •our current geographic concentration in the Houston and Phoenix metropolitan area makes us susceptible to local economic downturns; •natural disasters, such as floods and hurricanes, which may increase as a result of climate change may adversely affect our returns; •increasing focus by stakeholders on environmental, social and governance matters; •increases in interest rates, including as a result of inflation, 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; •harm to our reputation, ability to do business and results of operations as a result of improper conduct by our employees, agents or business partners; •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; •geopolitical conflicts, such as the ongoing conflict between Russia and Ukraine; •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 Form10-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 tobe taxed as a REIT under the Internal Revenue Code of 1986, as amended (the “Code”). We are internally managed and, as of December 31, 2022, we wholly-owned a real estate portfolio of 57 properties that meet our Community Centered Property®strategy containing approximately 5.1 million square feet of gross leasable area (“GLA”), located in Texas, Arizona and Illinois. Our consolidated property portfolio hasa gross book value of approximately $1.2 billion and book equity, including noncontrolling interests, of approximately $424 million as of December 31, 2022. Further, as of December 31, 2022, we, through our equity-method investment in Pillarstone Capital REIT Operating Partnership LP (“Pillarstone” or “PillarstoneOP”), 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 managed the day-to-day operations of Pillarstone OP pursuant to a management agreement, which was terminated on August 18, 2022. In this Annual Report on Form 10-K, unlessotherwise 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 atwww.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 CenteredProperties® as visibly located properties in established or developing culturally diverse neighborhoods in our target markets. We market, lease and manage our centersto match tenants with the shared needs of the surrounding neighborhood. Those needs may include specialty retail, grocery, restaurants, medical, educational, financialservices, entertainment and experiences. Our goal is for each property to become a Whitestone-branded retail community that serves a neighboring five-mile radiusaround 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 ourstrategy include: •Strategically Acquiring Properties. ◦Seeking High Growth Markets. We seek to strategically acquire commercial properties in high-growth markets. Our acquisition targets are located indensely 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, 2022, we wholly-owned 14 properties inHouston, nine properties in Dallas-Fort Worth, three properties in San Antonio, five properties in Austin, 25 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 riskfrom a single market concentration. We intend to continue to focus our expansion efforts on the Austin, Chicago, Dallas-Fort Worth, Houston, Phoenixand San Antonio markets. We believe our management infrastructure and capacity can accommodate substantial growth in those markets. We may alsopursue opportunities in other regions that are consistent with our Community Centered Property® strategy. Markets in which we have developed someknowledge and contacts include Orlando, Florida and Denver, Colorado, both of which have economic, demographic and cultural profiles similar to ourArizona and Texas markets. 1 ◦Capitalizing on Availability of Reasonably Priced Acquisition Opportunities. We believe that currently and during the next several years there willcontinue 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 oron bank watch lists. Many of these assets may benefit from our Community Centered Property® strategy and our management team’s experience in turningaround distressed properties, portfolios and companies. We have extensive relationships with community banks, attorneys, title companies and others inthe 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 valuethrough 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 andbuilding new leasable square footage on excess land; (4) upgrading and renovating existing structures; and (5) investing significant effort in recruiting tenantswhose 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 tomeet our Community Centered Property® strategy and redeploying the sale proceeds into properties that better fit our strategy. Some of our properties that weown (the “non-core properties”) may not fit our Community Centered Property® strategy, and we may look for opportunities to dispose of these properties aswe continue to execute our strategy. •Prudent Management of Capital Structure. Of our 57 properties, we currently have 50 properties that are unencumbered. We may seek to add mortgageindebtedness to existing and newly acquired unencumbered properties to provide additional capital for acquisitions. As a general policy, we intend to maintaina 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 estatepartnership, that is at or less than 60%. As of December 31, 2022, our ratio of debt, net of cash, to undepreciated book value of real estate assets was 50%. •Investing in People. We believe that our people are the heart of our culture, philosophy and strategy. We continually focus on developing associates who areself-disciplined and motivated and display, at all times, a high degree of character and competence. We provide them with equity incentives to align theirinterests 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, 2022, we owned a 98.6% interest in the OperatingPartnership. As of December 31, 2022, we wholly-owned a real estate portfolio consisting of 57 properties located in three states. The aggregate occupancy rate of ourportfolio was 94% based on GLA as of December 31, 2022. We are hands-on owners who directly manage the operations and leasing of our properties. Substantially all of our revenues consist of base rents receivedunder varying term leases. For the year ended December 31, 2022, our total revenues were approximately $139.4 million. Additionally, we, through our equity-method investment in Pillarstone, owned a majority interest in eight properties located in Dallas and Houston, Texas. Theaggregate occupancy rate of the Pillarstone properties was approximately 56% based on GLA as of December 31, 2022. Our largest property, BLVD Place (“BLVD”), a retail community purchased on May 26, 2017 and located in Houston, Texas, accounted for 11.0% of our totalrevenues for the year ended December 31, 2022. BLVD also accounted for 16.0% of our consolidated real estate assets, net of accumulated depreciation, as of the yearended December 31, 2022. 2Competition 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 acquireadditional 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 mayresult 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 acceptablereturn. 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 requiredto 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 couldadversely 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 otherneighborhood 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, internetretailers, 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 upcertain hazardous or toxic substances, asbestos-containing materials, or petroleum product releases at our properties. We may also be held liable to a governmentalentity 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 contaminationon 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 theproperties or to borrow using the properties as collateral. We could also be liable under common law to third parties for damages and injuries resulting fromenvironmental 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 environmentalsite assessment for each new acquisition, which includes a visual survey of the building and the property in an attempt to identify areas of potential environmentalconcerns, visually observing neighboring properties to assess surface conditions or activities that may have an adverse environmental impact on the property, andcontacting local governmental agency personnel and performing a regulatory agency file search in an attempt to determine any known environmental concerns in theimmediate vicinity of the property. A Phase I environmental site assessment does not include any sampling or testing of soil, groundwater or building materials from theproperty. 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 theTexas Commission on Environmental Quality Dry Cleaner Remediation Program (“DCRP”) with respect to four of our properties that currently or previously had a drycleaning 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 ortoxic substances in connection with any of our present or former properties. Nevertheless, it is possible that the environmental assessments conducted thus far andcurrently available to us do not reveal all potential environmental liabilities. It is also possible that subsequent investigations will identify material contamination orother adverse conditions, that adverse environmental conditions have arisen subsequent to the performance of the environmental assessments, or that there are materialenvironmental 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 anduse 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 ADAmay require removal of structural barriers to access by persons with disabilities in public areas of our properties where such removal is readily achievable. We believethat 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 ofthe 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 weserve. 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. Key employees are provided with equity incentives to aligntheir interests with those of our shareholders. Every Whitestone associate is encouraged to be an owner. As of December 31, 2022, we had 75 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 andsensitivity training for management and associates to reiterate the importance within our organization and to ensure that all associates practice this approach bothinternally and externally. We do not tolerate disrespectful or inappropriate behavior, unfair treatment, retaliation or harassment of any kind. In addition, pursuant to ourbylaws, 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 addressingdiversity, any individual who does not satisfy the qualifications above is not eligible for nomination or election as a trustee. This commitment to diversity applies acrossour Company. Employee Retention and Training: We conduct individual annual employee reviews that focus on goal setting as well as informal sessions with associates andexecutive team members. We created the Real Estate Executive Development program for associates that wish to continue their career and expand their knowledge ofWhitestone 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 theireducation, 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 withCompany 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-dateon 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. Ourcompensation package includes market-competitive pay, broad-based stock grants and bonuses, healthcare benefits, pension and retirement savings plans, amongothers. 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 planneron 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 tomake 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 statementswith 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 furnishedpursuant 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 ourwebsite copies of our Environmental, Social, and Governance ("ESG") Report, Audit Committee Charter, Compensation Committee Charter, Nominating and GovernanceCommittee Charter, Corporate Governance Guidelines, Insider Trading Compliance Policy, and Code of Business Conduct and Ethics Policy. In the event of any changesto these documents, revised copies will also be made available on our website. We also use our website as a means of disclosing additional information, including forcomplying with our disclosure obligations under the SEC's Regulation FD (Fair Disclosure). The SEC maintains an internet site that contains reports, proxy andinformation statements, and other information regarding issuers that file electronically with the SEC as we do. The website address is http://www.sec.gov. Materials onour website are not part of our Annual Report on Form 10-K. The contents of these websites are not incorporated into this filing. 4Financial 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 ourbusiness. Our business, financial condition, results of operations or the trading price of our common shares could be materially adversely affected by any of theserisks. 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 favorableterms. Our strategy includes opportunistically selling properties that do not have the potential to meet our Community Centered Property® strategy. However, realestate property investments generally cannot be disposed of quickly. In addition, the Code imposes certain restrictions on the ability of a REIT to dispose of propertiesthat 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 promptlyor 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 aprospective 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 theextent 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 reduceour 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 fundsavailable 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 thatmaterially 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 onthat 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 wouldfurther 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 amaterial adverse effect on our business, financial condition, results of operations, our ability to make distributions to our shareholders and the trading price of ourcommon 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 tosuccessfully 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, includingtheir 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 operatinglicenses 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-19pandemic affected customers’ willingness to frequent some of our tenants’ businesses, which has impacted and may continue to impact their ability to fulfill theirobligations to us in the event of a resurgence of COVID-19 or the rise of a variant of the virus. Although the negative impact of the COVID-19 pandemic appears to bemuch improved, with most tenant businesses operating at pre-pandemic levels, for certain categories of our tenants, such as dry cleaners and fitness tenants, thenegative impact of COVID-19 was more severe and the recovery is still in progress. Cash flow generated by the businesses of certain tenants may not be sufficient forsuch tenants to meet their obligations to us and in some cases we may need to secure replacement tenants. Our financial position could be weakened and our ability tofulfill our obligations under our indebtedness and make distributions to our shareholders could be limited if a number of our tenants were unable to meet theirobligations 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 oneconomically favorable terms. Inflation may adversely affect our financial condition and results of operations. Inflation has become a growing concern. Inflationary price increases could have an adverse effect on consumer spending, which could impact our tenants’sales and, in turn, our tenants’ business operations. This could affect the amount of rent these tenants pay, including if their leases provide for percentage rent orpercentage of sales rent, and their ability to pay rent. Also, inflation could cause increases in operating expenses, which could increase occupancy costs for tenantsand, to the extent that we are unable to recover operating expenses from tenants, could increase operating expenses for us. In addition, if the rate of inflation exceeds thescheduled rent increases included in our leases, then our net operating income and our profitability would decrease. Continued inflation could also result in furtherincreases in market interest rates, which could not only negatively impact consumer spending and tenant investment decisions but would also increase the borrowingcosts associated with our existing or any future variable rate debt, to the extent such rates are not effectively hedged or fixed, or any future debt that we incur. 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 ouracquisition and other investment activities. Disruptions could include price volatility or decreased demand in equity markets, further increasing interest rates, tighteningof underwriting standards by lenders and credit rating agencies and the significant inventory of unsold collateralized mortgage backed securities in the market. As aresult, 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 oradversely affect our returns on investments in development and re-development projects, which may adversely affect our results of operations and distributions toshareholders. Turmoil in the capital markets could adversely impact the overall amount of capital available to invest in real estate, which may result in price or valuedecreases of real estate assets.6 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 taxingauthorities. 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 beunable 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 vacantspace. 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 indicatorsis based on factors such as market conditions, tenant performance and legal structure. If we determine that a significant impairment has occurred, we would be requiredto 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 theperiod 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 theselaws 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 renovationsby 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 bydisabled 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 inwhich 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, wemay 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 couldhave 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, hedgefunds, private equity funds and other private real estate investors with greater financial resources and access to capital. Therefore, we may not be able to competesuccessfully for investments. In addition, the number of entities and the amount of purchasers competing for suitable investments may increase, all of which couldresult 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 andability 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, 2022,24% 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 soundcommercial tenants. A significant economic downturn in the Houston or Phoenix metropolitan area may adversely impact our ability to locate and retain financiallysound tenants, could have an adverse impact on our existing tenants’ revenues, costs and results of operations and may adversely affect their ability to meet theirobligations to us. Likewise, we may be required to lower our rental rates to attract desirable tenants in such an environment. Consequently, because of the geographicconcentration among our current assets, if either the Houston or Phoenix metropolitan area were to experience an economic downturn, our operations and ability to makedistributions to our shareholders could be adversely impacted.7 The COVID-19 pandemic has in the past and may continue to materially and adversely impact and disrupt our business, financial condition, results of operationsand cash flows. Any future outbreak of any COVID-19 variants or any other highly infectious or contagious disease could have a similar impact. The continued impact of COVID-19, including any resurgences or the rise of any variants of the virus, future pandemics or other health crises may heightenother risks discussed herein, which could adversely affect our business, financial condition, results of operations, cash flows and market value. A worsening of theCOVID-19 pandemic or outbreaks of other highly infectious diseases could materially and adversely affect us, particularly if business conditions, the regulatoryenvironment or the public health situation returns to that experienced during the height of the COVID-19 pandemic. These types of health crises may impact ourbusiness in the following ways: •closures of, or other operational issues at, our properties resulting from government or tenant action; •changes in consumer behavior in favor of e-commerce, which could result in reduced economic brick-and-mortar retail activity impacting our tenants' ability tomeet 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, dispose of non-core properties and service our indebtedness; •supply chain disruptions adversely affecting our tenants' operations, as well as general labor shortages; 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, financialcondition, liquidity, prospects and ability to service our debt obligations and our ability to pay dividends and other distributions to our shareholders would beadversely affected if a significant number of tenants are unable to meet their obligations or their revenues decline. The extent to which a resurgence of COVID-19pandemic, or a future pandemic, impacts our operations and those of our tenants will depend on future developments, which are highly uncertain and cannot bepredicted with confidence. We lease our properties to approximately 1,500 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 andcontrol 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 revenuesconsist of base rents received under these leases. As of December 31, 2022, approximately 30% of the aggregate GLA of our properties is subject to leases that expireprior to December 31, 2024. We are subject to the risk that: •tenants may choose not to, or may not have the financial resources to, renew these leases; •we may experience significant costs associated with re-leasing a significant amount of our available space; •we may experience difficulties and significant time lags re-leasing vacated space, which may cause us to fail to meet our occupancy and average base renttargets 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 tothe expiration date of the existing lease. While our early renewal program and other leasing and marketing efforts provide early focus on expiring leases, and havegenerally been effective in producing lease renewals prior to expiration of the leases at rates comparable to or slightly in excess of the current rates, market conditions,including new supply of properties, and macroeconomic conditions in our markets and nationally, including rising interest rates, could adversely impact our renewal rateand/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 adverselyaffected. 8Many 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 ahigher 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 leasesin 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 asuitable 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, orsuccessfully 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 toassume 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 itsproperty. 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 ofthese 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’sbankruptcy 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 ofsmaller tenants may have an adverse impact on our business, financial condition and results of operations, our ability to make distributions to our shareholders and thetrading 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 aslosses due to wars, acts of terrorism, earthquakes, floods, hurricanes, pollution or environmental matters, including as a result of climate change, which are uninsurableor not economically insurable, or may be insured subject to limitations, such as large deductibles or co-payments. Our current geographic concentration in the Houstonmetropolitan area potentially increases the risk of damage to our portfolio due to hurricanes. Insurance risks associated with potential terrorism acts could sharplyincrease the premiums we pay for coverage against property and casualty claims. In some instances, we may be required to provide other financial support, eitherthrough financial assurances or self-insurance, to cover potential losses. We cannot assure you that we will have adequate coverage for these losses. Also, to theextent 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 forthe 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 lawsoften 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 alsomay 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 asbestoscontaining materials into the air. In addition, third parties may seek recovery from owners or operators of real properties for personal injury or property damageassociated 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 GovernmentalRegulations.” 9 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 successdepends in part upon our management’s ability to identify potential Community Centered Properties® and find and maintain the appropriate tenants to create such aproperty. Lack of market acceptance of our Community Centered Property® strategy or our inability to successfully attract and manage a large number of tenantrelationships 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 businessthan 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 theeconomic factors discussed above or otherwise, may have a greater adverse effect on our business and financial condition than if we owned a more diversified realestate portfolio. The market for retail space has been, and could continue to be, adversely affected by weakness in the national, regional and local economies, theadverse financial conditions of some retailing companies, the ongoing consolidation in the retail sector, the excess amount of retail space in a number of markets, healthand safety concerns 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 otherelectronic security breaches. Such cyber-attacks can range from individual attempts to gain unauthorized access to our information technology systems to moresophisticated security threats. We have experienced cyber-attacks, and while to date none of these incidents have been material to our operations, we expect tocontinue to face such threats in the future. We employ a number of measures to prevent, detect and mitigate these threats, but especially in light of increasinglysophisticated techniques used in cybersecurity attacks, there is no guarantee such efforts will be successful in preventing future cyber-attacks where we cannot fullyanticipate, detect, repel, or implement fully effective preventative measures. In addition, cybersecurity incidents could compromise the confidential information of ourtenants, employees and third party vendors that we collect in the ordinary course of our business. Laws and expectations relating to data protection and privacy varyby jurisdiction and continue to evolve, and we believe increased regulation in additional jurisdictions is likely to develop in the future. For example, the CaliforniaConsumer Privacy Act (CCPA) that went into effect on January 1, 2020, as amended to include additional privacy protection for consumers by the California PrivacyRights Act (CPRA) that went into effect on January 1, 2023, requires covered companies to, among other things, provide new disclosures to California consumers, andafford 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 regulationsrelated to cybersecurity and/or data protection and privacy could materially and adversely affect the efficiency of our business operations, which in turn could have amaterial 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, otherstakeholders and the communities in which we do business. We face increasing scrutiny related to environmental, social and governance (“ESG”) activities anddisclosures and risk damage to our reputation if we fail to act appropriately and responsibly in ESG matters, including, among others, environmental stewardship, supplychain management, climate change, human rights, diversity and inclusion, workplace ethics and conduct, philanthropic activity and support for the communities weserve 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 couldnegatively impact our associate hiring, engagement and retention, all of which could have a material adverse effect on our business, results of operations and cashflows. Loss of our key management could adversely affect performance and the value of our common shares. We are dependent on the efforts of our key management. Although we believe qualified replacement could be found for any departures of key executives, theloss of their services could adversely affect our performance and the value of our common shares. 10The 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 eachholder of Pillarstone REIT common stock received one preferred share purchase right (a “Right”) per common share held as of the applicable record date. Each Rightentitles 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 (“PurchasePrice”) 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 REITcommon 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 PillarstoneREIT 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 PartnershipAgreement”), we have the contractual right to have our limited partnership interests in Pillarstone redeemed at our discretion. However, upon receipt of a redemptionnotice, Pillarstone OP has the option to pay the applicable redemption price in cash, based on the market value of Pillarstone REIT common shares, or in Pillarstone REITcommon 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 PillarstoneREIT common shares (and such shares represent 5% or more of the outstanding common shares of Pillarstone REIT), the Rights could become exercisable. To the extentthe 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 besignificantly diluted, which could adversely impact the value of our investment in Pillarstone OP. Because Pillarstone REIT seeks to use the Pillarstone RightsAgreement to prevent Whitestone OP from exercising its contractual Redemption Right, on July 12, 2022, Whitestone OP filed suit against Pillarstone REIT in the Courtof Chancery of the State of Delaware challenging the Pillarstone Rights Agreement due to Pillarstone REIT’s alleged (i) breach of the Pillarstone Partnership Agreement,(ii) breach of its fiduciary duty as general partner of Pillarstone OP to Whitestone OP, and (iii) breach of the implied covenant of good faith and fair dealing under thePillarstone Partnership Agreement. The lawsuit seeks rescission and voiding of the Pillarstone Rights Agreement; a declaration that the Pillarstone Rights Agreement isunenforceable, invalid, and of no force and effect; an order permanently enjoining enforcement of the Pillarstone Rights Agreement; an award of monetary damages; andbroad restrictions on Pillarstone REIT’s ability to conduct its business, including buying properties, enforcing the Rights Agreement, incurring expenses, or engaging intransactions. On September 8, 2022, the Company’s Motion to Preserve the Status Quo was granted by the Court, limiting Pillarstone from engaging in any acts outside theordinary course of business and otherwise imposing restrictions on Pillarstone to ensure that Whitestone’s right of redemption is not impaired while the underlyingdispute is being considered by the Court. While we do not believe the overall impact of the Pillarstone Rights Agreement on the carrying value of our investment inPillarstone OP is material, we cannot reasonably estimate a range of possible loss at this time. Risk associated with the Kroger acquisition of Albertsons. On October 14, 2022, Kroger Co. ("Kroger") announced its intention to acquire Albertsons Companies, Inc. ("Albertsons"). In connection with obtaining theregulatory clearance necessary to close the transaction, Albertsons company is prepared to establish a subsidiary to be spun off to Albertsons' shareholders. Thesubsidiary is anticipated by Kroger to comprise 100 to 375 stores. As of December 31, 2022, Whitestone REIT had 5 grocers owned by Albertsons. Whitestone REIThas no knowledge as to whether any of the Albertsons' stores currently leasing from Whitestone REIT will be part of Albertsons' subsidiary or if spinoff and the mergerwill clear the necessary regulatory hurdles in order to close. 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 atall, which could adversely affect our ability to grow, our interest cost and our results of operations. Turbulence in the United States credit markets have in the past, and may in the future impact liquidity in the debt markets, making financing terms for borrowersless attractive, and may result in the unavailability of various types of debt financing. Reductions in our available borrowing capacity, or inability to refinance ourrevolving credit facility when required or when business conditions warrant, could have a material adverse effect on our business, financial condition and results ofoperations. In addition, we mortgage many of our properties to secure payment of indebtedness. If we are not successful in refinancing our mortgage debt uponmaturity, 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 disadvantageousterms, 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 abilityto 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 expenserelating to that refinanced indebtedness would increase. Higher interest rates on newly incurred debt may negatively impact us as well. If interest rates continue toincrease, our interest costs and overall costs of capital will increase, which could adversely affect our transaction and development activity, financial condition, resultsof 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, further increases ininterest rates on variable rate debt will continue to increase our interest expense, which could reduce net earnings and cash available for payment of our debt obligationsand distributions to our shareholders. 11 We may seek to manage our exposure to interest rate volatility by using interest rate hedging arrangements, such as interest cap agreements and interest rateswap agreements. These agreements involve risks, such as the risk that counterparties may fail to honor their obligations under these arrangements, that thesearrangements 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 thepast, we have used derivative financial instruments to hedge interest rate risks related to our variable rate borrowings. We will not use derivatives for speculative ortrading 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 changethis practice in the future. As of December 31, 2022, we had fixed rate hedges on $265 million of our variable rate unsecured credit facility. We may enter into additionalinterest rate swap agreements for our variable rate debt not currently subject to hedges, which totaled $103.5 million as of December 31, 2022. Hedging may reduce theoverall 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 ourability 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. Inaddition, 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 theREIT distribution requirement described above, or otherwise as may be necessary or advisable to ensure that we maintain our qualification as a REIT for federal incometax purposes. As of December 31, 2022, we had outstanding indebtedness, net of cash, of $619.8 million, including, through our Operating Partnership, $100.0 millionaggregate principal amount of the Notes (as defined below) and $368.5 million drawn on the 2022 Facility (as defined below). As of December 31, 2022, our unusedborrowing capacity under our 2022 Facility was $146.4 million. Obligations under the Notes and the 2022 Facility are guaranteed by the Company and certain subsidiaryguarantors. Our current debt agreements, including the agreements governing the Notes and the 2022 Facility, contain, and any future debt agreements may contain, anumber of restrictive and financial covenants that impose significant operating and financial constraints on us. Such restrictive covenants may significantly limit ourability to: •incur additional debt, including issuing guarantees; •incur liens; •make certain investments; •sell or otherwise dispose of assets; •make acquisitions; •engage in mergers or consolidations or certain other “change of control” transactions; •make distributions to our shareholders; •engage in restructuring activities; •engage in certain sale and leaseback transactions; and •issue or repurchase common shares or other securities. Such agreements may also require us to satisfy other requirements, including maintaining certain financial ratios and condition tests. Our ability to meet theserequirements 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 defaultunder our debt obligations, our financial condition may be materially adversely affected. Further, these restrictions may limit our ability to engage in activities that couldotherwise 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 ofoperations 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 ofDecember 31, 2022, we had approximately $157.5 million of mortgage debt secured by seven of our properties. If there is a shortfall in cash flow, however, the amountavailable for distributions to shareholders may be affected. In addition, incurring mortgage debt increases the risk of loss because defaults on such indebtedness mayresult 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 fora 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 taxbasis 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 formortgage 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 responsibleto 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 thatmore 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 ourshareholders may be adversely affected. For more discussion, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidityand 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 propertyimprovements, 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 toexpend substantial funds for tenant improvements and refurbishments to the vacated space. If we have insufficient working capital reserves, we will have to obtainfinancing from other sources. Because most of our leases provide for tenant reimbursement of operating expenses, we have not established a permanent reserve formaintenance and repairs for our properties. However, to the extent that we have insufficient funds for such purposes, we may establish reserves for maintenance andrepairs 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 otherwiseestablished are insufficient to meet our cash needs, we may have to obtain financing from either affiliated or unaffiliated sources to fund our cash requirements. Wecannot assure you that sufficient financing will be available or, if available, will be available on economically feasible terms or on terms acceptable to us. Additionalborrowing for working capital purposes will increase our interest expense, and therefore our financial condition and our ability to pay cash distributions to ourshareholders may be adversely affected. In addition, we may be required to defer necessary improvements to our properties that may cause our properties to suffer froma 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 thishappens, 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 thatcould 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 aproperty owner contributing property to the Operating Partnership. If we enter into such transactions, in order to induce the contributors of such properties to acceptOP units, rather than cash, in exchange for their properties, it may be necessary for us to provide them with additional incentives. For instance, our OperatingPartnership’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-onebasis. We may, however, enter into additional contractual arrangements with contributors of property under which we would agree to redeem a contributor’s OP units forour 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, itwould 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 toredeem 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 tosatisfy this obligation. Furthermore, we might agree that if distributions the contributor received as a limited partner in our Operating Partnership did not provide thecontributor with a defined return, then upon redemption of the contributor’s OP units, we would pay the contributor an additional amount necessary to achieve thatreturn. 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 thecontribution 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 thecontributor’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 salefavorable to us. 13 The discontinuation and replacement of LIBOR with an alternative reference rate, may adversely affect our interest expense. In September 2022, we, through our Operating Partnership, amended and restated our unsecured credit facility (the “2022 Facility”) to include, among otherthings, a replacement rate for LIBOR. These changes could result in interest obligations that are slightly more than or do not otherwise correlate exactly over time withthe payments that would have been made on such debt if U.S. dollar LIBOR was available in its current form and there can be no assurances as to what other alternativebase rates may be and whether SOFR or any other such base rate will be more or less favorable than LIBOR or if there will be any other unforeseen impacts of thediscontinuation of LIBOR. The Company is monitoring the developments with respect to the phasing out of LIBOR after 2021 and working with its lenders to ensure thetransition away from LIBOR will have minimal impact on its financial condition, but can provide no assurances regarding the impact of the discontinuation of LIBOR onits financial condition. 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 incomeit currently distributes to its shareholders. Qualification as a REIT involves the application of highly technical and complex rules for which there are only limited judicialor administrative interpretations. The determination of various factual matters and circumstances not entirely within our control may affect our ability to continue toqualify as a REIT. In addition, new legislation, new regulations, administrative interpretations or court decisions could significantly change the tax laws, possibly withretroactive 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 reliefunder 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 ourdisqualification. 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 taxableincome (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 theamount, 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 amanner 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 shareholdersconsists of our share of cash distributions made by our Operating Partnership. Because we are the sole general partner of our Operating Partnership, our board oftrustees determines the amount of any distributions made by our Operating Partnership. Our board of trustees may consider a number of factors in authorizingdistributions, 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 expenseswhen determining our taxable income, as well as the effect of nondeductible capital expenditures and the creation of reserves or required debt amortization paymentscould 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 REITdistribution requirement and to avoid the 4% excise tax described above. In these circumstances, we may need to borrow funds to avoid adverse tax consequences evenif our management believes that the then prevailing market conditions generally are not favorable for borrowings or that borrowings would not be advisable in theabsence 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 wouldcease 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 generallyclassifies “publicly traded partnerships” (as defined in Section 7704 of the Code) as associations taxable as corporations (rather than as partnerships), unlesssubstantially all of their taxable income consists of specified types of passive income. In order to minimize the risk that the Code would classify our OperatingPartnership as a “publicly traded partnership” for tax purposes, we placed certain restrictions on the transfer and/or redemption of our OP units. If the Internal RevenueService were to assert successfully that our Operating Partnership is a “publicly traded partnership,” and substantially all of its gross income did not consist of thespecified 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, theimposition of a corporate tax on our Operating Partnership would reduce our amount of cash available for payment of distributions by us to our shareholders. 15Complying 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 natureand 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 toforego 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 securitiesand qualified real estate assets. The remainder of our investment in securities (other than government securities and qualified real estate assets) generally cannotinclude 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. Inaddition, 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 anyone 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 withthese 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 reliefprovisions 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 is20%. Dividends payable by REITs, however, generally are not eligible for the reduced rates on qualified dividend income. Instead, our ordinary dividends generally aretaxed 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 aregenerally allowed to deduct 20% of the aggregate amount of ordinary dividends distributed by us, subject to certain limitations, which would reduce the maximummarginal 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 riskof 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 thosetransactions 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 ofadvantageous hedging techniques or implement those hedges through taxable REIT subsidiaries. This could increase the cost of our hedging activities because anytaxable 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 wouldotherwise want to bear. In addition, losses in taxable REIT subsidiaries will generally not provide any tax benefit, except for being carried forward against future taxableincome in the taxable REIT subsidiaries. 16Changes 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 financialresults. 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 investmentindustry 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 investmentin 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 priceof our common shares) relative to market interest rates. If market interest rates continue to rise, prospective purchasers of shares of our common shares may expect ahigher distribution rate. Higher interest rates would not, however, result in more funds being available for distribution and, in fact, would likely increase our borrowingcosts 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 marketprice 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 acquisitionstatute, 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 votingpower 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 thebeneficial 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 dateon which the person becomes an interested shareholder and thereafter imposes super-majority voting requirements on these combinations. The control shareacquisition statute provides that “control shares” of our Company (defined as shares which, when aggregated with other shares controlled by the shareholder (exceptsolely 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 shareacquisition” (defined as the direct or indirect acquisition of ownership or control of issued and outstanding control shares) have no voting rights except to the extentapproved 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 businesscombination with any person from the business combination statute. The business combination statute (if our board of trustees revokes the foregoing exemption) andthe 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 transactionwould 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 mannerhe 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. Inaddition, 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 trusteeor 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 actuallyreceived; 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 orofficer’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, ourdeclaration of trust authorizes our Company to obligate itself, and our bylaws obligate us, to indemnify and advance expenses to our trustees and officers to themaximum extent permitted by Maryland law. 17 The terms of our employment agreements with our executive officers and severance arrangements with other employees and the terms of certain equity awardsgranted to our employees may deter others from seeking to acquire us or reduce the price of any such acquisition. We have entered into employment agreements with our executive officers and severance arrangements with other of our employees, and have granted equityawards 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 toseverance 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 fromseeking 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. Theseeffects 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. We may issue preferred shares with a preference in distributions over our common shares, and our ability to issue preferred shares and additional common sharesmay 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 mayamend 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 toissue. 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 termsof 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 issuepreferred shares with a distribution preference senior to our common shares, payment of any distribution preferences of outstanding preferred shares would reduce theamount of funds available for the payment of distributions on our common shares. Further, holders of preferred shares are normally entitled to receive a preferencepayment in the event we liquidate, dissolve or wind up before any payment is made to our common shareholders, likely reducing the amount our common shareholderswould otherwise receive upon such an occurrence. In addition, under certain circumstances, the issuance of preferred shares or a separate class or series of commonshares 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. 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 commonshares 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-termnotes, trust preferred securities, senior or subordinated notes and preferred shares. Upon liquidation, holders of our debt securities and preferred shares and lenderswith respect to other borrowings will receive distributions of our available assets prior to the holders of our common shares. Additional equity offerings may dilute theholdings 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 orother protections against dilution. Our preferred shares, if issued, could have a preference on liquidating distributions or a preference on distribution payments thatcould 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 marketconditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings. Thus, our common shareholdersbear 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 economicconditions that impact tenants of our properties or tenant leasing practices. Adverse economic conditions affecting tenant income, such as employment levels, businessconditions, interest rates, tax rates, fuel and energy costs and other matters, could reduce overall tenant leasing or cause tenants to shift their leasing practices. Inaddition, periods of economic slowdown or recession, further increasing interest rates or declining demand for real estate, or the public perception that any of theseevents may occur, could result in a general decline in rents or an increased incidence of defaults under existing leases. In addition, financial markets may againexperience significant and prolonged disruption, including as a result of unanticipated events, or as a result of recent uncertainty regarding legislative and regulatoryshifts 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 inconsumer spending and the level of tenant leasing could adversely affect our ability to maintain our current tenants and gain new tenants, affecting our growth andprofitability. Accordingly, if financial and macroeconomic conditions deteriorate, or if financial markets experience significant disruption, it could have a significantadverse 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 isthe possibility that our properties will not generate income sufficient to meet operating expenses or will generate income and capital appreciation, if any, at rates lowerthan those anticipated or available through investments in comparable real estate or other investments. The following factors may affect income from properties andyields from investments in properties and are generally outside of our control: •conditions in financial markets; •continuing deterioration of the brick-and-mortar retail industry; •over-building in our markets; •a reduction in rental income as the result of the inability to maintain occupancy levels; 18 •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, 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 priceof our common shares. Our ability to expand through acquisitions is integral to our business strategy and requires us to consummate suitable acquisition or investment opportunitiesthat meet our criteria and are compatible with our growth strategy. We may not be successful in consummating acquisitions or investments in properties that meet ouracquisition criteria on satisfactory terms or at all. Failure to consummate acquisitions or investment opportunities, the failure of an acquired property to perform asexpected, or the failure to integrate successfully any acquired properties without substantial expense, delay or other operational or financial problems, would slow ourgrowth, 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 growthprospects; •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. If any of these risks are realized, our business, financial condition and results of operations, our ability to make distributions to our shareholders and thetrading 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 ofoperations. We make no assurances that we will be able to adapt our portfolio management, administrative, accounting and operational systems, or hire and retainsufficient operational staff, to support our growth. Our failure to successfully oversee our current portfolio of properties or any future acquisitions or developmentscould have a material adverse effect on our results of operations and financial condition and our ability to make distributions. 19 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 maydeem 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 toprovide 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 noassurance that rents from our properties will increase, or that future acquisitions of real properties, mortgage loans or our investments in securities will increase our cashavailable for distributions to shareholders. Our actual results may differ significantly from the assumptions used by our board of trustees in establishing the distributionrate 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 ofinternal 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. 20 Item 2. Properties. General As of December 31, 2022, we wholly-owned 57 commercial properties, including 14 properties in Houston, nine properties in Dallas-Fort Worth, three propertiesin San Antonio, five properties in Austin, 25 properties in the Scottsdale and Phoenix, Arizona metropolitan areas, and one property in Buffalo Grove, Illinois, a suburbof Chicago. Our tenants consist of national, regional and local businesses. Our properties generally attract a mix of tenants who provide basic staples, convenience itemsand services tailored to the specific cultures, needs and preferences of the surrounding community. These types of tenants are the core of our strategy of creatingWhitestone-branded Community Centered Properties®. We also believe daily sales of basic items are less sensitive to fluctuations in the business cycle than higherpriced retail items. Our largest tenant represented only 2.2% of our total revenues for the year ended December 31, 2022. 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. Thefollowing table summarizes certain information relating to our properties as of December 31, 2022: Average Average Annualized Base Annualized Base Occupancy as of Rental Revenue Rental Revenue Commercial Properties GLA 12/31/2022 (in thousands) (1) Per Sq. Ft. (2) Whitestone 5,060,899 94% $102,373 $21.52 (1)Calculated as the tenant’s actual December 31, 2022 base rent (defined as cash base rents including abatements) multiplied by 12. Excludes vacant space as ofDecember 31, 2022. Because annualized base rental revenue is not derived from historical results that were accounted for in accordance with Generally AcceptedAccounting Principles ("GAAP"), historical results differ from the annualized amounts. Total abatements for leases in effect as of December 31, 2022 equaledapproximately $249,000 for the month ended December 31, 2022. (2)Calculated as annualized base rent divided by GLA leased as of December 31, 2022. Excludes vacant space as of December 31, 2022. Our largest property, BLVD Place, a retail community purchased on May 26, 2017 and located in Houston, Texas, accounted for 11.0% of our total revenues forthe year ended December 31, 2022. BLVD also accounted for 16.0% of our real estate assets, net of accumulated depreciation, for the year ended December 31, 2022. As of December 31, 2022, approximately $157.5 million of our total debt of $626.0 million was secured by seven of our properties with a combined net book valueof $243.1 million. Location of Properties Of our 57 wholly-owned properties, 14 are located in the greater Houston metropolitan statistical area. These properties represent 24% of our revenue for theyear ended December 31, 2022. An additional 25 of our wholly-owned properties are located in the greater Phoenix metropolitan statistical area and represent 41% of ourrevenue for the year ended December 31, 2022. According to the United States Census Bureau, Houston and Phoenix ranked fifth and tenth, respectively, in the largest United States metropolitan statisticalareas 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 of2022. July Aug. Sept. Oct. Nov. Dec National (1) 3.5% 3.7% 3.5% 3.7% 3.6% 3.5% Houston (2) 4.8% 4.6% 4.2% 4.1% 4.0% 3.9%(P)Phoenix (2) 3.3% 3.4% 3.5% 3.5% 3.0% 2.7%(P) (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, 2022. Whitestone REIT and SubsidiariesProperty DetailsAs of December 31, 2022 Average Percent AnnualizedBase Base Rental Average Net Effective Year Built/ Gross Leasable Occupied at Rental Revenue Revenue Per Annual Base Rent Per Community Name Location Renovated Square Feet 12/31/2022 (in thousands) (1) Sq. Ft. (2) Leased Sq. Ft. (3) Whitestone Properties: Ahwatukee Plaza Phoenix 1979 72,650 81% $816 $13.87 $17.28 Anderson Arbor Austin 2001 89,746 99% 2,007 22.59 24.83 Anthem Marketplace Phoenix 2000 113,293 89% 1,597 15.84 15.78 Anthem Marketplace Phase II Phoenix 2019 6,853 100% 241 35.17 33.85 BLVD Place Houston 2014 216,944 97% 9,124 43.36 44.03 The Citadel Phoenix 2013 28,547 94% 514 19.15 19.01 City View Village San Antonio 2005 17,870 100% 573 32.06 31.28 Dana Park Pad Phoenix 2002 12,000 100% 321 26.75 28.92 Davenport Village Austin 1999 128,934 99% 3,653 28.62 27.99 Eldorado Plaza Dallas 2004 219,287 100% 3,524 16.07 16.18 Fountain Hills Phoenix 2009 111,289 94% 1,708 16.33 16.24 Fountain Square Phoenix 1986 118,209 91% 1,913 17.78 17.45 Fulton Ranch Towne Center Phoenix 2005 120,575 97% 2,257 19.30 19.05 Gilbert Tuscany Village Phoenix 2009 49,415 100% 1,053 21.31 20.84 Heritage Dallas 2006 70,431 96% 1,639 24.24 24.20 HQ Village Dallas 2009 89,134 97% 2,656 30.72 30.79 Keller Place Dallas 2001 93,541 95% 1,031 11.60 11.48 Kempwood Plaza Houston 1974 91,302 95% 1,303 15.02 16.05 La Mirada Phoenix 1997 147,209 92% 3,368 24.87 25.09 Lakeside Market Dallas 2000 162,649 91% 3,773 25.49 26.38 Las Colinas Dallas 2000 104,919 96% 2,914 28.93 29.52 Lion Square Houston 1980 117,592 98% 1,951 16.93 19.74 The MarketPlace at Central Phoenix 2012 111,130 99% 1,153 10.48 9.99 Market Street at DC Ranch Phoenix 2003 244,888 99% 5,684 23.45 25.30 Mercado at Scottsdale Ranch Phoenix 1987 118,730 94% 1,828 16.38 16.46 Paradise Plaza Phoenix 1983 125,898 92% 1,566 13.52 13.58 Parkside Village North Austin 2005 27,045 100% 879 32.50 31.76 Parkside Village South Austin 2012 90,101 100% 2,571 28.53 28.90 Pinnacle of Scottsdale Phoenix 1991 113,108 97% 2,591 23.62 23.08 Pinnacle Phase II Phoenix 2017 27,063 100% 859 31.74 30.41 The Promenade at Fulton Ranch Phoenix 2007 98,792 79% 1,167 14.95 13.94 Providence Houston 1980 90,327 96% 1,161 13.39 13.24 Quinlan Crossing Austin 2012 109,892 95% 2,604 24.94 26.03 Seville Phoenix 1990 90,042 93% 2,806 33.51 33.39 Shaver Houston 1978 21,926 94% 356 17.27 17.22 Shops at Pecos Ranch Phoenix 2009 78,767 100% 1,948 24.73 25.20 Shops at Starwood Dallas 2006 55,385 100% 1,818 32.82 33.46 The Shops at Williams Trace Houston 1985 132,991 95% 2,257 17.86 19.70 Spoerlein Commons Chicago 1987 41,455 98% 736 18.12 19.20 Starwood Phase II Dallas 2016 35,351 90% 1,215 38.19 35.86 The Strand at Huebner Oaks San Antonio 2000 73,920 100% 1,808 24.46 24.30 SugarPark Plaza Houston 1974 95,032 97% 1,324 14.36 14.93 Sunridge Houston 1979 49,359 73% 600 16.65 16.76 Sunset at Pinnacle Peak Phoenix 2000 41,530 96% 809 20.29 20.22 Terravita Marketplace Phoenix 1997 102,733 99% 1,454 14.30 13.94 Town Park Houston 1978 43,526 96% 1,005 24.05 24.77 22Whitestone REIT and SubsidiariesProperty DetailsAs of December 31, 2022 Village Square at Dana Park Phoenix 2009 323,026 85% 6,410 23.35 24.72 Westchase Houston 1978 44,398 87% 621 16.08 16.21 Williams Trace Plaza Houston 1983 129,222 91% 2,539 21.59 22.14 Windsor Park San Antonio 2012 196,458 97% 2,005 10.52 10.82 Woodlake Plaza Houston 1974 106,169 60% 1,049 16.47 15.92 Total/Weighted Average - Whitestone Properties 5,000,653 94% 100,759 21.44 21.89 Development Properties: Lake Woodlands Crossing Houston 2018 60,246 89% 1,614 30.10 32.45 Total/Weighted Average - Development Properties 60,246 89% 1,614 30.10 32.45 Land Held for Development: BLVD Phase II-B Houston N/A — — — — — Dana Park Development Phoenix N/A — — — — — Eldorado Plaza Development Dallas N/A — — — — — Fountain Hills Phoenix N/A — — — — — Market Street at DC Ranch Phoenix N/A — — — — — Total/Weighted Average - Land Held For Development (4) — — — — — Grand Total/Weighted Average - Whitestone Properties 5,060,899 94% $102,373 21.52 21.99 (1)Calculated as the tenant’s actual December 31, 2022 base rent (defined as cash base rents including abatements) multiplied by 12. Excludes vacant space as ofDecember 31, 2022. Because annualized base rental revenue is not derived from historical results that were accounted for in accordance with generally acceptedaccounting principles, historical results differ from the annualized amounts. Total abatements for leases in effect as of December 31, 2022 equaled approximately$249,000 for the month ended December 31, 2022. (2)Calculated as annualized base rent divided by gross leasable area leased as of December 31, 2022. Excludes vacant space as of December 31, 2022. (3)Represents (i) the contractual base rent for leases in place as of December 31, 2022, adjusted to a straight-line basis to reflect changes in rental rates throughout thelease term and amortize free rent periods and abatements, but without regard to tenant improvement allowances and leasing commissions, divided by (ii) squarefootage under commenced leases of December 31, 2022. (4)As of December 31, 2022, 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, 2022, based upon consolidated annualized rental revenues atDecember 31, 2022. Annualized Rental Percentage ofTotal Revenue Annualized BaseRental Tenant Name Location (in thousands) Revenues (1) Initial Lease Date Year Expiring Whole Foods Market Houston $2,247 2.2% 9/3/2014 2035Albertsons Companies, Inc. (2) Austin, Houston andPhoenix 2,214 2.2% 5/8/1991, 7/1/2000, 4/1/2014, 4/1/2014 and10/19/16 2024, 2025, 2025, 2026and 2034Frost Bank Houston 2,027 2.0% 7/1/2014 2024Newmark Real Estate ofHouston LLC Houston 1,285 1.3% 10/1/2015 2026Bashas' Inc. (3) Phoenix 1,010 1.0% 10/9/2004 and 4/1/2009 2024 and 2029Fitness Alliance, LLC Houston 971 1.0% 11/29/2022 2038Walgreens & Co. (5) Houston and Phoenix 955 0.9% 11/14/1982, 11/2/1987, 8/24/1996 and 11/3/1996 2027, 2027, 2049 and2056Verizon Wireless (4) Houston and Phoenix 949 0.9% 8/16/1994, 2/1/2004, 1/27/2006 and 5/1/2014 2023, 2024, 2024 and2038Alamo Drafthouse Cinema Austin 740 0.7% 2/1/2012 2031Wells Fargo & Company (7) Phoenix 625 0.6% 10/24/1996 and 4/16/1999 2023 and 2027Dollar Tree (6) Houston and Phoenix 537 0.5% 8/10/1999, 6/29/2001, 11/8/2009, and12/17/2009 2025, 2025, 2026 and2027Total Wine Houston 512 0.5% 11/27/2018 2029Paul's Ace Hardware Phoenix 490 0.5% 3/1/2008 2033Kroger Co. Dallas 483 0.5% 12/15/2000 2027Regus Corporation Houston 469 0.5% 5/23/2014 2025 $15,514 15.3% (1)Annualized Base Rental Revenues represents the monthly base rent as of December 31, 2022 for each applicable tenant multiplied by 12. (2)As of December 31, 2022, we had five leases with the same tenant occupying space at properties located in Phoenix, Houston and Austin. The annualized rentalrevenue for the lease that commenced on April 1, 2014, and is scheduled to expire in 2034, was $1,047,000, which represents approximately 1.0% of our totalannualized 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, whichrepresents 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 toexpire in 2026, was $344,000, which represents approximately 0.3% of our total annualized base rental revenue. The annualized rental revenue for the lease thatcommenced on July 1, 2000, and is scheduled to expire in 2025, was $353,000, which represents approximately 0.3% of our total annualized base rental revenue. Theannualized 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, 2022, we had two leases with the same tenant occupying space at properties located in Phoenix. The annualized rental revenue for the lease thatcommenced 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 0.7%of our total annualized base rental revenue (4)As of December 31, 2022, we had four leases with the same tenant occupying space at properties located in Phoenix and Houston. The annualized rental revenue forthe 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 rentalrevenue. The annualized rental revenue for the lease that commenced on January 27, 2006, and is scheduled to expire in 2023, was $138,000, which representsapproximately 0.1% of our total annualized base rental revenue. The annualized rental revenue for the lease that commenced on February 1, 2004, and is scheduledto 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 thatcommenced on May 1, 2014, and is scheduled to expire in 2024, was $749,000, which represents approximately 0.7% of our total annualized rental revenue. (5)As of December 31, 2022, we had four leases with the same tenant occupying space at properties located in Phoenix and Houston. The annualized rental revenue forthe 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 baserental 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 representsapproximately 0.2% of our total annualized base rental revenue. The annualized rental revenue for the lease that commenced on November 14, 1982, and isscheduled to expire in 2027, was $190,000, which represents approximately 0.2% of our total annualized base rental revenue. The annualized rental revenue for thelease 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 rentalrevenue. (6)As of December 31, 2022, we had four leases with the same tenant occupying space at properties in Houston and Phoenix. The annualized rental revenue for thelease that commenced on August 10, 1999, and is scheduled to expire in 2025, was $88,000, which represents less than 0.1% of our total annualized base rentalrevenue. The annualized rental revenue for the lease that commenced on December 17, 2009, and is scheduled to expire in 2025, was $118,000, which representsapproximately 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 toexpire in 2026, was $175,000, which represents approximately 0.2% of our total annualized base rental revenue. The annualized rental revenue for the lease thatcommenced on November 8, 2009, and is scheduled to expire in 2027, was $156,000, which represents approximately 0.2% of our total annualized base rental revenue. (7)As of December 31, 2022, we had two leases with the same tenant occupying space at properties located in Phoenix. The annualized rental revenue for the lease thatcommenced on October 24, 1996, and is scheduled to expire in 2027, was $151,000, 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 $474,000, which represents approximately0.5% of our total annualized base rental revenue. 25Lease Expirations The following table lists, on an aggregate basis, all of our consolidated scheduled lease expirations over the next 10 years. Annualized Base Rent GLA as of December 31, 2022 Number of Approximate Percent of Amount Percent of Year Leases Square Feet Total (in thousands) Total 2023 444 724,986 14.3% $14,920,771 14.6%2024 223 796,603 15.7% 17,128,443 16.7%2025 230 833,840 16.5% 16,407,861 16.0%2026 156 526,397 10.4% 11,763,934 11.5%2027 175 585,685 11.6% 13,087,078 12.8%2028 87 359,257 7.1% 7,674,148 7.5%2029 44 243,194 4.8% 5,113,615 5.0%2030 30 90,498 1.8% 2,821,942 2.8%2031 25 127,524 2.5% 3,458,066 3.4%2032 27 119,566 2.4% 2,743,398 2.7%Total 1,441 4,407,550 87.1% $95,119,256 93.0% Insurance We believe that we have property and liability insurance with reputable, commercially rated companies. We also believe that our insurance policies containcommercially reasonable deductibles and limits, adequate to cover our properties. We expect to maintain this type of insurance coverage and to obtain similar coveragewith 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 believeto 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. Whilethe 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 ourfinancial position, results of operations, cash flows or liquidity. See Note 16 Commitments and Contingencies to the accompanying consolidated financial statements formore 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 1, 2023, we had 49,424,019 common shares of beneficial interestoutstanding held by a total of 812 shareholders of record. On March 1, 2023, the closing price of our common shares reported on the NYSE was $9.37 per share. Our current quarterly distribution target is $0.12 per share, however, our future payment of distributions, if any, will be at the discretion of our board of trusteesand will depend upon numerous factors, including our cash flow, financial condition, capital requirements, annual distribution requirements under the REIT provisionsof the Code, the terms and conditions of our Note Agreement, and other factors that our board of trustees deems relevant. For more discussion, see "Management'sDiscussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources - Distributions." 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”), theFinancial Times Stock Exchange (“FTSE”) National Association of Real Estate Investment Trusts (“NAREIT”) Equity REITs Index (“FTSE NAREIT Equity REITsIndex”), and to the FTSE NAREIT Equity Shopping Centers Index from December 31, 2017 to December 31, 2022. The graph assumes that the value of the investment inour 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 31,2017, and all dividends were reinvested. The closing price of our common shares on December 30, 2017 (on which the graph is based) was $14.41. The past shareholderreturn shown on the following graph is not necessarily indicative of future performance. The performance graph and related information shall not be deemed “filed” withthe SEC, nor shall such information be incorporated by reference into any future filing, except to the extent the Company specifically incorporates it by reference intosuch filing. 27 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 statementsand 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, youshould 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. Foundedin 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 CenteredProperties® as visibly located properties in established or developing culturally diverse neighborhoods in our target markets. We market, lease, and manage our centersto match tenants with the shared needs of the surrounding neighborhood. Those needs may include specialty retail, grocery, restaurants and medical, educational andfinancial services. Our goal is for each property to become a Whitestone-branded retail community that serves a neighboring five-mile radius around our property. Weemploy and develop a diverse group of associates who understand the needs of our multicultural communities and tenants. As of December 31, 2022, we wholly-owned 57 commercial properties consisting of: Consolidated Operating Portfolio •51 properties that meet our Community Centered Properties® strategy; and containing approximately 5.0 million square feet of GLA and having a totalcarrying amount (net of accumulated depreciation) of $958.5 million; and Redevelopment, New Acquisitions Portfolio •one wholly owned property, Lake Woodlands Crossing, that meets our Community Centered Properties® strategy containing approximately 0.1 millionsquare feet of GLA and having a total carrying amount (net of accumulated depreciation) of $11.7 million. •five parcels of land held for future development that meet our Community Centered Properties® strategy having a total carrying amount of $20.5million. As of December 31, 2022, we had an aggregate of 1,477 tenants. We have a diversified tenant base with our largest tenant comprising only 2.2% of our totalrevenues for the year ended December 31, 2022. Lease terms for our properties range from less than one year for smaller tenants to more than 15 years for largertenants. Our leases generally include minimum monthly lease payments and tenant reimbursements for taxes, insurance and maintenance. We completed 321 new andrenewal leases during 2022, totaling 932,529 square feet and $118.3 million in total lease value. We employed 75 full-time employees as of December 31, 2022. 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, 2022, we, through our investment in Pillarstone OP, owned a majority interest in eight properties that do not meet our Community CenteredProperty® 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 managed the day-to-day operations of Pillarstone OP pursuant to a management agreement, which wasterminated on August 18, 2022. 28Market 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 theextent 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 andwill 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 adjustrental rates to reflect inflation and other changing market conditions when the leases expire. Consequently, increases due to inflation, as well as ad valorem tax rateincreases, 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 $ 139,421,000 for the yearended December 31, 2022 as compared to $ 125,365,000 for the year ended December 31, 2021, an increase of $ 14,056,000, or 11%. 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 incomegenerated by our properties depends principally on our ability to maintain the occupancy rates of currently leased space and to lease currently available space, newlyacquired properties with vacant space, and space available from unscheduled lease terminations. The amount of rental income we generate also depends on our abilityto maintain or increase rental rates in our submarkets. Included in our adjustments to rental revenue for the years ending December 31, 2022 and 2021, were bad debtadjustments of $0.6 million and $0.1 million, respectively, and a straight-line rent reserve adjustments of $0.3 million and $0.9 million, respectively, related to credit loss forthe conversion of 80 and 59 tenants, respectively, to cash basis revenue as a result of COVID-19 collectability analysis. Scheduled Lease Expirations We tend to lease space to smaller businesses that desire shorter term leases. As of December 31, 2022, approximately 30% of our GLA was subject to leases thatexpire prior to December 31, 2024. Over the last three years, we have renewed expiring leases with respect to approximately 70% of our GLA. We routinely seek to renewleases 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 existinglease. 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 toexpiration 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 marketand submarket rental rate data and through inquiry of property owners and property management companies as to rental rates being quoted at properties that arelocated 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 newtenants and renew leases with our existing tenants at rates we believe to be competitive in the markets for our individual properties. Due to the short term nature of ourleases, 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 newsupply of properties, and macroeconomic conditions in our markets and nationally affecting tenant income, such as employment levels, business conditions, interestrates, 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 monitorour tenants’ operating performances as well as overall economic trends to evaluate any future negative impact on our renewal rates and rental rates, which couldadversely affect our cash flow and ability to make distributions to our shareholders.29 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 haveextensive relationships with community banks, attorneys, title companies and others in the real estate industry, which we believe enables us to take advantage of thesemarket opportunities and maintain an active acquisition pipeline. We market, lease and manage our centers to match tenants with the shared needs of the surroundingneighborhood. Those needs may include specialty retail, grocery and restaurants as well as medical, educational and financial services. Our goal is for each property tobecome a Whitestone-branded business center or retail community that serves a neighboring five-mile radius around our property. Property Acquisitions. On December 21, 2022, we acquired Lake Woodlands Crossing, a property that meets our Community Centered Property® strategy, for $22.5 million in cash andnet prorations. Lake Woodlands Crossing, a 60,246 square foot property, was 89.3% leased at the time of purchase and is located in The Woodlands, Texas. On December 2, 2022 we acquired Dana Park Pad, a property that meets our Community Centered Property® strategy, for $4.9 million in cash and net prorations.Dana Park Pad, a 12,000 square foot property, was 100% leased at the time of purchase and is located in the Mesa submarket of Phoenix, Arizona. Property Dispositions. We seek to continually upgrade our portfolio by opportunistically selling properties that do not have the potential to meet ourCommunity 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 executeour strategy. On November 30, 2022, we completed the sale of Pima Norte, located in Carefree, Arizona, for $3.3 million. We recorded a loss on sale of $4.0 million. On November 21, 2022, we completed the sale of Spoerlein Commons Pad, located in Buffalo Grove, Illinois, for $2.2 million. We recorded a gain on sale of$0.7 million. On November 16, 2022, we completed the sale of Desert Canyon, located in Scottsdale, Arizona, for $9.3 million. We recorded a gain on sale of $5.1 million. On November 14, 2022, we completed the sale of Gilbert Tuscany Village Hard Corner, located in Scottsdale, Arizona, for $2.5 million. We recorded a gain on saleof $0.8 million. On November 10, 2022, we completed the sale of South Richey, located in Houston, Texas, for $13.1 million. We recorded a gain on sale of $9.9 million. On October 31, 2022, we completed the sale of Bissonnet Beltway Plaza, located in Houston, Texas, for $5.4 million. We recorded a gain on sale of $4.4 million. We have not included 2022 sold properties in discontinued operations as they did not meet the definition of discontinued operations. On December 8, 2016, we, through our Operating Partnership, entered into a Contribution Agreement (the “Contribution Agreement”) with Pillarstone andPillarstone 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 ofapproximately $65.9 million of liabilities (collectively, the “Contribution”). As of December 31, 2022, we owned approximately 81.4% of the total outstanding Pillarstone OP Units, which we account for under the equity method. SeeNote 4 Investment in Real Estate Partnership to the accompanying consolidated financial statements for more information on our accounting treatment of our investmentin Pillarstone OP. 30Leasing Activity As of December 31, 2022, we wholly-owned 57 properties with 5,060,899 square feet of GLA, which were approximately 94% occupied. The following is asummary of the Company’s leasing activity for the year ended December 31, 2022: Number ofLeasesSigned GLA Signed WeightedAverageLease Term(2) TI andIncentivesper Sq. Ft. (3) ContractualRent Per Sq.Ft. (4) PriorContractualRent Per Sq.Ft. (5) Straight-lined BasisIncrease(Decrease)Over PriorRent Comparable (1) Renewal Leases 177 497,469 4.0 $2.05 $20.87 $19.26 16.5%New Leases 43 87,381 6.0 12.44 25.49 23.97 16.8%Total 220 584,850 4.3 $3.60 $21.56 $19.96 16.6% Number ofLeases Signed GLA Signed WeightedAverage LeaseTerm (2) TI and Incentivesper Sq. Ft. (3) ContractualRent Per Sq. Ft.(4) Total Renewal Leases 201 558,843 4.1 $2.64 $21.45 New Leases 120 373,686 8.5 23.02 20.39 Total 321 932,529 5.9 $10.81 $21.02 (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 waswithin 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 leasingcommission 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 ourREIT status and satisfy our current quarterly distribution target of $0.12 per share and OP unit, recurring expenditures, such as repairs and maintenance of ourproperties, non-recurring expenditures, such as capital improvements and tenant improvements, debt service requirements, and, potentially, acquisitions of additionalproperties. During the year ended December 31, 2022, our cash provided from operating activities was $44.4 million and our total dividends and distributions paid were$23.3 million. Therefore, we had cash flow from operations in excess of distributions of approximately $21.1 million. The 2022 Facility included a $250 million unsecuredborrowing capacity under a revolving credit facility. The 2022 Facility also included an accordion feature that allowed the Operating Partnership to increase theborrowing capacity by $200 million, upon the satisfaction of certain conditions. We anticipate that cash flows from operating activities and our borrowing capacityunder the 2022 Facility will provide adequate capital for our distributions, working capital requirements, anticipated capital expenditures and scheduled debt payments inthe 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 toqualify 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 potentialacquisitions. We expect to meet our long-term liquidity requirements with net cash from operations, long-term indebtedness, sales of common shares, issuance of OPunits, sales of underperforming and non-core properties and other financing opportunities, including debt financing. We believe we have access to multiple sources ofcapital to fund our long-term liquidity requirements, including the incurrence of additional debt and the issuance of additional equity. However, our ability to incuradditional debt will be dependent on a number of factors, including our degree of leverage, the value of our unencumbered assets and borrowing restrictions that maybe imposed by lenders. As of December 31, 2022, subject to any potential future paydowns or increases in the borrowing base, we have $146.4 million remainingavailability under the revolving credit facility. 31 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 perceptionsabout 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 bediminished. Despite these potential challenges, we believe we have sufficient access to capital for the foreseeable future, but we can provide no assurance that suchcapital 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 existinglenders, 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”), andaccrued 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 grantedforgiveness 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 retainemployees 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 20, 2022, our universal shelf registration statement on Form S-3 was declared effective by the SEC, which registers the issuance and sale by us of up to$500 million in securities from time to time, including common shares, preferred shares, debt securities, depositary shares and subscription rights. On September 9, 2022, we entered into eleven equity distribution agreements for an at-the-market equity distribution program (the “2022 equity distributionagreements”) 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 onForm S-3 (File No. 333-264881). Actual sales will depend on a variety of factors determined by us from time to time, including (among others) market conditions, thetrading price of our common shares, capital needs and our determinations of the appropriate sources of funding for us, and will be made in transactions that will bedeemed 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 timesuspend offers under the 2022 equity distribution agreements or terminate the 2022 equity distribution agreements. We expect that our rental income will increase as we continue to acquire additional properties, subsequently increasing our cash flows generated fromoperating 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 certaindebt 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 (seeNote 8 to the accompanying consolidated financial statements), which is collateralized by our Anthem Marketplace property, we were required by the lenders thereunderto establish a cash management account controlled by the lenders to collect all amounts generated by our Anthem Marketplace property in order to collateralize suchpromissory note. Amounts in the cash management account are classified as restricted cash. 32 Cash and Cash Equivalents We had cash and cash equivalents and restricted cash of approximately $6,355,000 at December 31, 2022, as compared to $15,914,000 at December 31, 2021. Thedecrease of $9,559,000 was primarily the result of the following: Sources of Cash •Cash flow from operations of $44,431,000 for the year ended December 31, 2022 compared to cash flow from operations of $47,040,000 for the year endedDecember 31, 2021; •Net proceeds from sale of properties of $33,723,000 compared to $0; Uses of Cash •Acquisition of real estate of $16,992,000 compared to $81,588,000; •Acquisition of ground lease of $9,786,000 compared to $0; •Payment of dividends and distributions to common shareholders and OP unit holders of $23,304,000 compared to $19,651,000; •Additions to real estate of $13,659,000 compared to $9,642,000; •Payments of notes payable of $3,468,000 compared to $3,261,000; •Repurchase of common shares of $537,000 compared to $691,000; •Net payment of credit facility of $16,000,000 compared to $0; •Payment of loan originations cost of $3,632,000 compared to $0; and •Payment of exchange offering cost of $335,000 compared to $63,000. We place all cash in short-term, highly liquid investments that we believe provide appropriate safety of principal. Equity Offerings On May 20, 2022, our universal shelf registration statement on Form S-3 was declared effective by the SEC, which registers the issuance and sale by us of up to$500 million in securities from time to time, including common shares, preferred shares, debt securities, depositary shares and subscription rights. On September 9, 2022, we entered into eleven equity distribution agreements for an at-the-market equity distribution program (the “2022 equity distributionagreements”) 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 onForm S-3 (File No. 333-264881). Actual sales will depend on a variety of factors determined by us from time to time, including (among others) market conditions, thetrading 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 bedeemed 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 timesuspend offers under the 2022 equity distribution agreements or terminate the 2022 equity distribution agreements. We have used and anticipate using net proceeds from common shares issued pursuant to the 2022 equity distribution agreements for general corporatepurposes, which may include acquisitions of additional properties, the repayment of outstanding indebtedness, capital expenditures, the expansion, redevelopmentand/or re-tenanting of properties in our portfolio, working capital and other general purposes. 33Debt Debt consisted of the following as of the dates indicated (in thousands): December 31, Description 2022 2021 Fixed rate notes $100.0 million, 1.73% plus 1.35% to 1.90% Note (1) $— $100,000 $165.0 million, 2.24% plus 1.35% to 1.90% Note (1) — 165,000 $265.0 million, 3.18% plus 1.45% to 2.10% Note, due January 31, 2028 (2) 265,000 — $80.0 million, 3.72% Note, due June 1, 2027 80,000 80,000 $19.0 million 4.15% Note, due December 1, 2024 18,016 18,358 $20.2 million 4.28% Note, due June 6, 2023 17,375 17,808 $14.0 million 4.34% Note, due September 11, 2024 12,709 12,978 $14.3 million 4.34% Note, due September 11, 2024 13,520 13,773 $15.1 million 4.99% Note, due January 6, 2024 13,635 13,907 $2.6 million 5.46% Note, due October 1, 2023 2,236 2,289 $50.0 million, 5.09% Note, due March 22, 2029 50,000 50,000 $50.0 million, 5.17% Note, due March 22, 2029 50,000 50,000 Floating rate notes Unsecured line of credit, LIBOR plus 1.40% to 1.90%(3) — 119,500 Unsecured line of credit, SOFR plus 1.50% to 2.10%, due September 16, 2026 103,500 — Total notes payable principal 625,991 643,613 Less deferred financing costs, net of accumulated amortization (564) (771)Total notes payable $625,427 $642,842 (1)Loan was fully paid off on September 16, 2022. (2)Promissory note includes an interest rate swap that fixed the SOFR portion of the term loan at an interest rate of 2.16% through October 28, 2022, 2.76% fromOctober 29, 2022 through January 31, 2024, and 3.32% beginning February 1, 2024 through January 31, 2028. (3)Line of credit was paid off on September 16, 2022 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 existinglenders, 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”), andaccrued 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 grantedforgiveness 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 legalrelease 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 withcertain subsidiary guarantors as initial guarantor parties thereto (the “Subsidiary Guarantors”) and The Prudential Insurance Company of America and the various otherpurchasers named therein (collectively, the “Purchasers”) providing for the issuance and sale of $100 million of senior unsecured notes of the Operating Partnership, ofwhich (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 BSenior 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. On December 16, 2022, Whitestone REIT (the “Company”) and its operating partnership, Whitestone REIT Operating Partnership, L.P. (the “OperatingPartnership”), amended its Note Purchase and Guarantee Agreement originally executed on March 22, 2019 (the “Existing Note Agreement”), pursuant to the terms andconditions of an Amendment No. 1 to Note Purchase and Guaranty Agreement, dated as of December 16, 2022 (the Existing Note Purchase Agreement, as so amended,the “Amended Note Agreement”), by and among the Company and the Operating Partnership, together with certain subsidiary guarantors as initial guarantor partiesthereto and The Prudential Insurance Company of America and the various other purchasers named therein. Neither the term of the Existing Note Agreement, the interest rate, nor the principal amounts, were amended. The purpose of the amendment is to conformcertain covenants and defined terms contained in the Amended Note Agreement with the Company’s recently amended unsecured credit facility with the lenders partythereto, Bank of Montreal, as administrative agent, Truist Bank, as syndication agent, and BMO Capital Markets Corp., Truist Bank, Capital One, National Association,and U.S. Bank National Association, as co-lead arrangers and joint book runners. 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 theSeries 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 partialprepayment, 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 ofthe remaining scheduled payments with respect to the Notes being prepaid over the aggregate principal amount of such Notes (as described in the Note Agreement). Inaddition, 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 at100% 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 tothe Operating Partnership’s existing senior revolving credit facility, including limitations on liens, incurrence of investments, acquisitions, loans and advances andrestrictions on dividends and certain other restricted payments. In addition, the Note Agreement contains certain financial covenants substantially similar to theOperating 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 secured recourse debt to total asset value ratio of 0.15 to 1.00; •maintenance of a minimum tangible net worth (adjusted for accumulated depreciation and amortization) of 75% of the Company's total net worth as of December31, 2021 plus 75% of the net proceeds from additional equity offerings (as defined therein); and •minimum adjusted property NOI to implied unencumbered debt service ratio of 1.50 to 1.00. In addition, the Note Agreement contains a financial covenant requiring that maximum unsecured indebtedness not exceed the ratio of unsecured indebtednessto unencumbered asset pool of 0.60 to 1.00. That covenant is substantially similar to the borrowing base concept contained in the Operating Partnership’s existingsenior 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 resultin the Purchasers accelerating the payment of all obligations under the Notes. The financial and restrictive covenants and default provisions in the Note Agreement aresubstantially 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 SecuritiesAct 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 registrationrequirements 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 September 16, 2022, we, through our Operating Partnership, entered into an unsecured credit facility (the “2022 Facility”) with the lenders party thereto,Bank of Montreal, as administrative agent (the “Administrative Agent”), Truist Bank, as syndication agent, and BMO Capital Markets Corp., Truist Bank, Capital One,National Association, and U.S. Bank National Association, as co-lead arrangers and joint book runners. The 2022 Facility amended and restated the Company's previousunsecured revolving credit facility, dated January 31, 2019 (the “2019 Facility”). The 2022 Facility is comprised of the following two tranches: •$250.0 million unsecured revolving credit facility with a maturity date of September 16, 2026 (the “2022 Revolver”); •$265.0 million unsecured term loan with a maturity date of January 31, 2028 (“Term Loan”). 35 Borrowings under the 2022 Facility accrue interest (at the Operating Partnership's option) at a Base Rate or an Adjusted Term Secured Overnight FinancingRate (“SOFR”) plus an applicable margin based upon our then existing leverage. As of December 31, 2022, the interest rate on the 2022 Revolver was 5.79%. Based onour current leverage ratio, the revolver has initial interest rate of SOFR plus 1.60% and a 10 basis point credit spread adjustment. In addition, we entered into interest rateswaps to fix the interest rates on the Term Loan. The Term Loan with the swaps has the following interest rates: •2.16% plus 1.55% through October 28, 2022 •2.80% plus 1.55% from October 29, 2022 through January 31, 2024 •3.42% plus 1.55% from February 1, 2024 through January 31, 2028 •3.42% plus 1.55% from February 1, 2024 through January 31, 2028 The 2022 Facility also has a pricing provision where the applicable margin can be adjusted by an aggregate 0.02% per annum based on the Company’sperformance on certain sustainability performance targets. Base Rate means, for any day, the higher of: (a) the Administrative Agent’s prime commercial rate, (b) thesum of (i) the rate per annum equal to the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System, aspublished by the Federal Reserve Bank of New York for such day, plus (ii) 0.50%, or (c) the sum of (i) Adjusted Term SOFR for a one-month tenor in effect on such dayplus (ii) 1.10%. Adjusted Term SOFR means, for any such day, the sum of (i) the SOFR-based term rate for the day two (2) business days prior and (ii) 0.10%. The 2022 Facility includes an accordion feature that will allow the Operating Partnership to increase the borrowing capacity by $200.0 million, upon thesatisfaction of certain conditions. As of December 31, 2022, subject to any potential future paydowns or increases in the borrowing base, we have $146.4 millionremaining availability under the 2022 Revolver. As of December 31, 2022, $368.5 million was drawn on the 2022 Facility and our unused borrowing capacity was$146.4 million, assuming that we use the proceeds of the 2022 Facility to acquire properties, or to repay debt on properties, that are eligible to be included in theunsecured borrowing base. The Company used $379.5 million of proceeds from the 2022 Facility to repay amounts outstanding under the 2019 Facility. The Company, each direct and indirect material subsidiary of the Operating Partnership and any other subsidiary of the Operating Partnership that is aguarantor under any unsecured ratable debt will serve as a guarantor for funds borrowed by the Operating Partnership under the 2022 Facility. The 2022 Facilitycontains 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 ofliens, dividends and restricted payments. In addition, the 2022 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 $449 million plus 75% of the net proceeds fromadditional equity offerings (as defined therein). The 2022 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 taxstatus. If an event of default occurs and is continuing under the 2022 Facility, the lenders may, among other things, terminate their commitments under the 2022 Facilityand require the immediate payment of all amounts owed thereunder. 36As of December 31, 2022, our $157.5 million in secured debt was collateralized by seven properties with a carrying value of $243.1 million. Our loans containrestrictions that would require the payment of prepayment penalties for the acceleration of outstanding debt and are secured by deeds of trust on certain of ourproperties and by assignment of the rents and leases associated with those properties. As of December 31, 2022, we were in compliance with all loan covenants. Scheduled maturities of our outstanding debt as of December 31, 2022 were as follows (in thousands): Year Amount Due 2023 $28,204 2024 63,573 2025 17,143 2026 120,643 2027 97,143 Thereafter 299,285 Total $625,991 Capital Expenditures We continually evaluate our properties’ performance and value. We may determine it is in our shareholders’ best interest to invest capital in properties webelieve have potential for increasing value. We also may have unexpected capital expenditures or improvements for our existing assets. Additionally, we intend tocontinue investing in similar properties outside of Texas and Arizona in cities with exceptional demographics to diversify market risk, and we may incur significantcapital 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): 2022 2021 Capital expenditures: Tenant improvements and allowances $7,897 $3,306 Developments / redevelopments 2,944 2,081 Leasing commissions and costs 3,068 3,016 Maintenance capital expenditures 2,818 4,255 Total capital expenditures $16,727 $12,658 37Contractual Obligations As of December 31, 2022, we had the following contractual obligations (see Note 8 of our accompanying consolidated financial statements for furtherdiscussion regarding the specific terms of our debt): Payment due by period (in thousands) More than Less than 1 1 - 3 years 3 - 5 years 5 years Consolidated Contractual Obligations Total year (2023) (2024 - 2025) (2026 - 2027) (after 2027) Long-Term Debt - Principal $625,991 $28,204 $80,716 $217,786 $299,285 Long-Term Debt - Fixed Interest 101,004 23,393 40,899 34,398 2,314 Long-Term Debt - Variable Interest (1) 17,992 4,798 9,596 3,598 — Unsecured credit facility - Unused commitment fee (2) 1,373 366 732 275 — Operating Lease Obligations 136 65 70 1 — Finance Lease Obligations 3,087 60 125 129 2,773 Total $749,583 $56,886 $132,138 $256,187 $304,372 (1)As of December 31, 2022, we had one loan totaling $103.5 million which bore interest at a floating rate. The variable interest rate payments are based on SOFRplus 1.60% and a 10 basis point spread adjustment which reflects our new interest rates under our 2022 Facility. The information in the table above reflects ourprojected interest rate obligations for the floating rate payments based on one-month SOFR as of December 31, 2022, of 4.31%. (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 projectedobligations for our unsecured credit facility based on our December 31, 2022 balance of $368.5 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 thededuction 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 ourcash 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 numberof 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 inthe future. 38On February 10, 2021, the Company announced an increase to its quarterly distribution to $0.1075 per common share and OP units, equal to a monthlydistribution of $0.035833, beginning with the March 2021 distribution. On February 22, 2022, the Company announced an increase to its quarterly distribution to 0.12 percommons share and OP unit, equal to a monthly distribution of $0.04, beginning with the April 2022 distribution. During 2022, we paid distributions to our common shareholders and OP unit holders of $23.3 million, compared to $19.7 million in 2021. Common shareholdersand OP unit holders receive monthly distributions. Payments of distributions are declared quarterly and paid monthly. The distributions paid to common shareholdersand OP unit holders were as follows (in thousands, except per share data) for the years ended December 31, 2022 and 2021: Common Shares Noncontrolling OP Unit Holders Total Quarter Paid DistributionsPer CommonShare Amount Paid DistributionsPer OP Unit Amount Paid Amount Paid 2022 Fourth Quarter $0.1200 $5,909 $0.1200 $83 $5,992 Third Quarter 0.1200 5,901 0.1200 88 5,989 Second Quarter 0.1200 5,880 0.1200 92 5,972 First Quarter 0.1075 5,268 0.1075 83 5,351 Total $0.4675 $22,958 $0.4675 $346 $23,304 2021 Fourth Quarter $0.1075 $5,257 $0.1075 $83 $5,340 Third Quarter 0.1075 4,981 0.1075 83 5,064 Second Quarter 0.1075 4,602 0.1075 83 4,685 First Quarter 0.1058 4,480 0.1058 82 4,562 Total $0.4283 $19,320 $0.4283 $331 $19,651 Summary of Critical Accounting Policies and Estimates Our discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements. We prepared thesefinancial statements in conformity with GAAP. The preparation of these financial statements required us to make estimates and assumptions that affect the reportedamounts of assets and liabilities, the disclosure of contingent liabilities at the dates of the financial statements and the reported amounts of revenues and expensesduring the reporting periods. We based our estimates on historical experience and on various other assumptions we believe to be reasonable under thecircumstances. Our results may differ from these estimates. Currently, we believe that our accounting policies do not require us to make estimates using assumptionsabout matters that are highly uncertain. For a better understanding of our accounting policies, you should read Note 2 to our accompanying consolidated financialstatements 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 overthe 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. Recoveriesfrom tenants for taxes, insurance, and other operating expenses are recognized as revenues in the period the corresponding costs are incurred. We combine lease andnonlease components in lease contracts, which includes combining base rent, recoveries, and percentage rents into a single line item, Rental, within the consolidatedstatements of operations and comprehensive income (loss). Additionally, we have tenants who pay real estate taxes directly to the taxing authority. We exclude thesecosts 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 paid us managementfees for property management, leasing and day-to-day advisory and administrative services. Their obligations were satisfied over time. Pillarstone OP was billed monthlyand typically paid quarterly. Revenues were governed by the Management Agreements (as defined in Note 4 to our accompanying consolidated financial statements).The management agreement was terminated on August 18, 2022. Additionally, we recognize lease termination fees in the year that the lease is terminated and collectionof 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 thecustomer and our performance obligation is satisfied. Equity Method. In accordance with Accounting Standards Update (“ASU”) 2014-09 (“Topic 606”) and ASC 610, “Other Income-Gains and Losses from theDerecognition 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 costwhich includes capitalized carrying charges and development costs. Carrying charges (interest, real estate taxes, loan fees, and direct and indirect development costsrelated to buildings under construction), are capitalized as part of construction in progress. The capitalization of such costs ceases when the property, or any completedportion, becomes available for occupancy. For the year ended December 31, 2022, approximately $ 455,000 and $ 281,000 in interest expense and real estate taxes,respectively, were capitalized. For the year ended December 31, 2021, approximately $414,000 and $291,000 in interest expense and real estate taxes, respectively, werecapitalized. For the year ended December 31, 2020, approximately $481,000 and $306,000 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 amountsallocated to acquired out-of-market leases, the value of in-place leases, the value of the ground lease and customer relationship value, if any. We determine fair valuebased on estimated cash flow projections that utilize appropriate discount and capitalization rates and available market information. Estimates of future cash flows arebased on a number of factors including the historical operating results, known trends and specific market and economic conditions that may affect the property. Factorsconsidered by management in our analysis of determining the as-if-vacant property value include an estimate of carrying costs during the expected lease-up periodsconsidering market conditions, and costs to execute similar leases. In estimating carrying costs, management includes real estate taxes, insurance and estimates of lostrentals at market rates during the expected lease-up periods, tenant demand and other economic conditions. Management also estimates costs to execute similar leasesincluding leasing commissions, tenant improvements, legal and other related expenses. Intangibles related to out-of-market leases and in-place lease value are recordedas acquired lease intangibles and are amortized as an adjustment to rental revenue or amortization expense, as appropriate, over the remaining terms of the underlyingleases. Premiums or discounts on acquired out-of-market debt are amortized to interest expense over the remaining term of such debt. The Company also utilizesvaluations from independent real estate appraisal firms. Depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of 3 to 43 years for improvements and buildings. Tenantimprovements 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 ofthe assets, including accrued rental income, may not be recoverable through operations. The first step of the impairment test is to determine whether an indicator ofimpairment is present. If an indicator of impairment is present, 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, aloss 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 impairmentin the carrying value of our real estate assets as of December 31, 2022. Accrued Rents and Accounts Receivable. Included in accrued rents and accounts receivable are base rents, tenant reimbursements and receivables attributableto recording rents on a straight-line basis. We review the collectability of charges under our tenant operating leases on a regular basis, taking into considerationchanges 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 andeconomic conditions in the area where the property is located including the impact of the COVID-19 pandemic on tenants’ businesses and financial condition. Werecognize 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 includesany accrued rental revenues related to the straight-line method of reporting rental revenue. As of December 31, 2022 and 2021, we had an allowance for uncollectibleaccounts of $13.8 million and $14.9 million, respectively. For the years ending December 31, 2022, 2021 and 2020, we recorded an adjustment to rental revenue in theamount of $1.2 million, $(0.1) million and $5.6 million, respectively. Included in the adjustment to rental revenue for the years ending December 31, 2022 and 2021, was abad debt adjustment of $0.6 million and $0.1 million, respectively, and a straight-line rent reserve adjustment of $0.3 million and $0.9 million, respectively, related to creditloss for the conversion of 80 and 59 tenants, respectively, to cash basis revenue as a result of COVID-19 collectability analysis. 40 Unamortized Lease Commissions and Loan Costs. Leasing commissions are amortized using the straight-line method over the terms of the related leaseagreements. Loan costs are amortized on the straight-line method over the terms of the loans, which approximates the interest method. Costs allocated to in-placeleases 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 taxesand 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 generallyare 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 federalincome 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 weintend 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” (“ASC740”) applies to the Texas Margin Tax. As of December 31, 2022, 2021 and 2020, 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 notespayable. 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 aggregateto approximately $579.7 million and $643.6 million as compared to the book value of approximately $626.0 million and $643.6 million as of December 31, 2022 and 2021,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 adiscounted cash flow analysis based on the borrowing rates currently available to us for loans with similar terms and maturities, discounting the future contractualinterest 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 millionand $0.1 million as compared to the book value of approximately $0.1 million and $0.1 million as of December 31, 2022 and 2021, respectively. Disclosure about fair value of financial instruments is based on pertinent information available to management as of December 31, 2022 and 2021. Althoughmanagement is not aware of any factors that would significantly affect the fair value amounts, such amounts have not been comprehensively revalued for purposes ofthese financial statements since December 31, 2022, 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 tofluctuations in interest rates. We have established policies and procedures for risk assessment, and the approval, reporting and monitoring of derivative financialinstruments. 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 fairvalue 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 activemarkets 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, 2022,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 lessorsin 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 theeffects of the COVID-19 pandemic consistent with how those concessions would be accounted for under Topic 842 as though enforceable rights and obligations forthose concessions existed, even if such enforceable rights and obligations are not explicitly contained in the lease contract. Thus, for concessions relating to theCOVID-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 leaseconcessions relating to the effects of the COVID-19 pandemic consistent with how those concessions would be accounted for under Topic 842 as though enforceablerights and obligations for those concessions existed. Therefore, such concessions are not accounted for as a lease modification under Topic 842. In March 2020, the FASB issued Accounting Standards Update No. 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference RateReform on Financial Reporting” (“ASU 2020-04”), which provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships and othertransactions affected by the discontinuation of the London Interbank Offered Rate (“LIBOR”) or by another reference rate expected to be discontinued because ofreference rate reform. In January 2021, the FASB issued Accounting Standards Update No. 2021-01, “Reference Rate Reform (Topic 848): Scope” (“ASU 2021-01”), whichclarified the scope and application of the original guidance. We have elected this option and adopted ASU 2020-04 and ASU 2021-01 effective September 2022. Therewas no material impact on the Company's consolidated financial statement as a result of adopting this guidance. 42 Results of Operations Year Ended December 31, 2022 Compared to Year Ended December 31, 2021 The following table provides a general comparison of our results of operations for the years ended December 31, 2022 and 2021 (dollars in thousands, exceptper share data): Year Ended December 31, 2022 2021 Number of properties owned and operated 57 60 Aggregate GLA (sq. ft.)(1) 5,000,653 5,205,966 Ending occupancy rate - operating portfolio (1) 94% 92%Ending occupancy rate 94% 91% Total revenues $139,421 $125,365 Total operating expenses 93,068 90,897 Total other expense 10,370 24,272 Income before equity investment in real estate partnership and income tax 35,983 10,196 Equity in earnings of real estate partnership 239 609 Provision for income tax (422) (385)Income from continuing operations 35,800 10,420 Gain on sale of property from discontinued operations — 1,833 Net income 35,800 12,253 Less: Net income attributable to noncontrolling interests 530 205 Net income attributable to Whitestone REIT $35,270 $12,048 Funds from operations(2) $52,193 $40,705 Property net operating income(3) 99,261 90,207 Distributions paid on common shares and OP units 23,304 19,651 Distributions per common share and OP unit $0.4675 $0.4283 Distributions paid as a percentage of funds from operations 45% 48% (1)Excludes (i) new acquisitions, through the earlier of attainment of 90% occupancy or 18 months of ownership, and (ii) properties that are undergoing significantredevelopment 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 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 31,2022 to the year ended December 31, 2021, Same Stores include properties owned during the entire period from January 1, 2021 to December 31, 2022. 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 discontinuedoperations. Revenues. The primary components of revenue are detailed in the table below (in thousands, except percentages): Year Ended December 31, Revenue 2022 2021 Change % Change Same Store Rental revenues (1) $93,330 $86,846 $6,484 7%Recoveries (2) 34,919 31,378 3,541 11%Bad debt (3) (993) 101 (1,094) (1083)%Total rental 127,256 118,325 8,931 8%Other revenues 842 875 (33) (4)%Same Store Total 128,098 119,200 8,898 7% Non-Same Store and Management Fees Rental revenues (4) 7,783 4,013 3,770 94%Recoveries (4) 3,324 1,550 1,774 114%Bad debt (4) (163) (11) (152) 1382%Total rental 10,944 5,552 5,392 97%Other revenues (4) 20 45 (25) (56)%Management fees 359 568 (209) (37)%Non-Same Store and Management Fees Total 11,323 6,165 5,158 84% Total revenue $139,421 $125,365 $14,056 11% (1)The Same Store tenant rent increase of $6,484,000 resulted from an increase of $2,571,000 from the increase in the average leased square feet to 4,396,387 from4,269,952, and by the increase of $3,913,000 from the average rent per leased square foot increasing from $20.34 to $21.23. Included in the average rent per leasedsquare feet mentioned above are Same Store rental revenue decreases of $281,000 and $865,000 from straight-line rent write offs during the years ended December31, 2022 and December 31, 2021, respectively, as a result of converting 80 and 59 tenants, respectively, to cash basis accounting. (2)The Same Store recoveries revenue increase of $3,541,000 is primarily attributable to increases in operating and maintenance expenses. Operating expensesgenerally decreased as a result of cost saving initiatives during the COVID-19 pandemic in 2021 and increased back to normal levels in 2022. Our recovery revenuefrom tenants generally increases as the related operating and real estate tax expenses increase. (3)During the year ended December 30, 2022 and 2021, Same Store bad debt includes an adjustment of $570,000 and $142,000, respectively, from cash basis accounting. (4)Non-Same Store rental revenue includes Lakeside Market (acquired on July 8, 2021), Anderson Arbor (acquired on December 1, 2021), Dana Park Pad (acquired onDecember 2, 2022), Lake Woodlands Crossing (acquired on December 21. 2022), Bissonnet/Beltway (sold on October 31, 2022), South Richey (sold on November 10,2022), Desert Canyon (sold on November 16, 2022), Gilbert Tuscany Village Hard Corner (sold on November 14, 2022), and Pima Norte (sold on November 30, 2022).44 Operating expenses. The primary components of operating expenses for the year ended December 31, 2022 and 2021 are detailed in the table below (in thousands, exceptpercentages): Year Ended December 31, Operating Expenses 2022 2021 Change % Change Same Store Operating and maintenance (1) $23,226 $20,427 $2,799 14%Real estate taxes 15,878 15,912 (34) (0)%Same Store total 39,104 36,339 2,765 8% Non-Same Store and affiliated company rents Operating and maintenance (2) 1,991 1,234 757 61%Real estate taxes (2) 1,729 850 879 103%Affiliated company rents (3) 471 899 (428) (48)%Non-Same Store and affiliated company rents total 4,191 2,983 1,208 40%Depreciation and amortization (2) 31,707 28,950 2,757 10%General and administrative (4) 18,066 22,625 (4,559) (20)%Total operating expenses $93,068 $90,897 $2,171 2% (1)The $2,799,000 increase in Same Store operating and maintenance costs included $1,014,000 in increased repairs, $553,000 in increased labor, $485,000 in increasedcontract services, $440,000 in increased utilities, $276,000 in increased insurance costs, $31,000 in other costs. (2)Non-Same Store operating and maintenance and real estate taxes includes Lakeside Market (acquired on July 8, 2021), Anderson Arbor (acquired on December 1,2021), Dana Park Pad (acquired on December 2, 2022), Lake Woodlands Crossing (acquired on December 21. 2022), Bissonnet/Beltway (sold on October 31,2022), South Richey (sold on November 10, 2022), Desert Canyon (sold on November 16, 2022), Gilbert Tuscany Village Hard Corner (sold on November 14, 2022),and Pima Norte (sold on November 30, 2022). (3)Affiliated company rents are spaces that we lease from Pillarstone OP. Eight lease agreements were terminated on August 23, 2022, and the two remaining leases arescheduled to expire on January 31, 2023 and February 28, 2023. (4)The general and administrative expense decrease is attributable to $1,516,000 in increased legal expenses, $227,000 in professional fees, $175,000 in contract labor,and $321,000 in other costs, offset by decreases from $2,338,000 in payroll costs and $4,460,000 in share-based compensation. The increase in legal expenses, andthe decrease in payroll and share based compensation during the year ended December 31, 2022 compared to the year ended December 31, 2021 primarily relate toleadership changes and associated litigations. 45 Other expenses (income). The primary components of other expenses (income) for the year ended December 31, 2022 and 2021 are detailed in the table below (inthousands, except percentages): Year Ended December 31, Other Expenses (Income) 2022 2021 Change % Change Interest expense (1) $27,193 $24,564 $2,629 11%Gain on sale of properties, net (2) (16,950) (266) (16,684) 6272%Loss on disposal of assets, net 192 90 102 113%Interest, dividend and other investment income (65) (116) 51 (44)%Total other expense $10,370 $24,272 $(13,902) (57)% (1)The $2,629,000 increase in interest expense is attributable to a increase in our effective interest rate to 4.07% for the year ended December 31, 2022 as compared to3.71% for the year ended December 31, 2021, resulting in a $2,319,000 increase in interest expense, and an increase in our average outstanding notes payablebalance of $4,389,000 that resulted in $163,000 in increased interest expense. Amortization of loan fees increased interest expense by $3,000 for the year endedDecember 31, 2022 as compared to the year ended December 31, 2021. The interest expense increase is attributable to rising interest rates. We expect interestexpense to increase in the future due to rising interest rates. $147,000 of the increase in interest is attributable to extinguishment of debt costs for the year endedDecember 31, 2021. (2)On October 31, 2022, we completed the sale of Bissonnet Beltway Plaza, located in Houston, Texas, for $5.4 million. We recorded a gain on sale of $4.4 million. On November 10, 2022, we completed the sale of South Richey, located in Houston, Texas, for $13.1 million. We recorded a gain on sale of $9.9 million. On November 14, 2022, we completed the sale of Gilbert Tuscany Village Hard Corner, located in Scottsdale, Arizona, for $2.5 million. We recorded a gain on sale of$0.8 million. On November 16, 2022, we completed the sale of Desert Canyon, located in Scottsdale, Arizona, for $9.3 million. We recorded a gain on sale of $5.1 million. On November 21, 2022, we completed the sale of Spoerlein Commons Pad, located in Buffalo Grove, Illinois, for $2.2 million. We recorded a gain on sale of $0.7million. On November 30, 2022, we completed the sale of Pima Norte, located in Carefree, Arizona, for $3.3 million. We recorded a loss on sale of $4.0 million. 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. In2016, we provided seller-financing for the retail building, Webster Pointe, and deferred the seller-financed portion of the gain until the principal payments werereceived. The purchaser of the building paid the remaining principal balance of $0.3 million during 2021. As of December 31, 2022, we have recognized all of thedeferred gains associated with the retail building. Equity in earnings of real estate partnership. Our estimated equity in earnings of real estate partnership, which is generated from our 81.4% ownership ofPillarstone OP, decreased $370,000 from $609,000 for the year ended December 31, 2021 to $239,000 for the year ended December 31, 2022. Please refer to Note4 (Investment in Real Estate Partnership) to the accompanying consolidated financial statements for more information regarding our investment in Pillarstone OP. 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 ofthree office buildings we completed on December 31, 2014. We provided seller-financing for the office buildings, Zeta, Royal Crest and Featherwood, and deferred thegain 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 during2021. As of December 31, 2022, 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): Year Ended December 31, Increase % Increase 2022 2021 (Decrease) (Decrease) Same Store (48 properties, excluding development land) Property revenues Rental $127,256 $118,325 $8,931 8%Management, transaction and other fees 842 875 (33) (4)%Total property revenues 128,098 119,200 8,898 7% Property expenses Property operation and maintenance 23,226 20,427 2,799 14%Real estate taxes 15,878 15,912 (34) (0)%Total property expenses 39,104 36,339 2,765 8% Total property revenues less total property expenses 88,994 82,861 6,133 7% Same Store straight-line rent adjustments (1,181) (1,371) 190 (14)%Same Store amortization of above/below market rents (949) (832) (117) 14%Same Store lease termination fees (135) (280) 145 (52)% Same Store NOI(1) $86,729 $80,378 $6,351 8% (1)See below for a reconciliation of property net operating income to net income. 47 Year Ended December 31, PROPERTY NET OPERATING INCOME (“NOI”) 2022 2021 Net income attributable to Whitestone REIT $35,270 $12,048 General and administrative expenses 18,066 22,625 Depreciation and amortization 31,707 28,950 Equity in earnings of real estate partnership(1) (239) (609)Interest expense 27,193 24,564 Interest, dividend and other investment income (65) (116)Provision for income taxes 422 385 Gain on sale of property from continuing operations (16,950) (266) Gain on sale of property from discontinued operations — (1,833)Management fee, net of related expenses 112 331 (Gain) loss on sale or disposal of assets, net 192 90 NOI of real estate partnership (pro rata)(1) 3,023 3,833 Net income attributable to noncontrolling interests 530 205 NOI $99,261 $90,207 Non-Same Store NOI (2) (7,244) (3,513)NOI of real estate partnership (pro rata)(1) (3,023) (3,833)NOI less Non-Same Store NOI and NOI of real estate partnership (pro rata) 88,994 82,861 Same Store straight-line rent adjustments (1,181) (1,371)Same Store amortization of above/below market rents (949) (832)Same Store lease termination fees (135) (280)Same Store NOI (3) $86,729 $80,378 (1)We rely on reporting provided to us by our third-party partners for financial information regarding the Company's investment in Pillarstone OP. Because PillarstoneOP financial statements as of December 31, 2022 have not been made available to us, we have estimated equity in earnings and pro rata share of NOI of real estatepartnership based on the information available to us at the time of this report. (2)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 notclassified as discontinued operations. For purposes of comparing the twelve months ended December 31, 2022 to the twelve months ended December 31, 2021, Non-Same Stores include properties acquired between January 1, 2021 and December 31, 2022 and properties sold between January 1, 2021 and December 31, 2022, butnot included in discontinued operations. (3)We define “Same Stores” as properties that have been owned during the entire period being compared. For purposes of comparing the twelve months endedDecember 31, 2022 to the twelve months ended December 31, 2021, Same Stores include properties owned before January 1, 2021 and not sold before December 31,2022. Straight line rent adjustments, above/below market rents, and lease termination fees are excluded. 48 Year Ended December 31, 2021 Compared to Year Ended December 31, 2020 For a discussion and comparison of the results of our operations for the year ended December 31, 2021 with the year ended December 31, 2020, 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, 2021 filed with the SECon March 11, 2022. 49 Reconciliation of Non-GAAP Financial Measures Funds From Operations (NAREIT) (“FFO”) and Normalized FFO The National Association of Real Estate Investment Trusts (“NAREIT”) defines FFO as net income (loss) available to common shareholders computed inaccordance with GAAP, excluding depreciation and amortization related to real estate, gains or losses from the sale of certain real estate assets, gains and losses fromchange in control, and impairment write-downs of certain real estate assets and investments in entities when the impairment is directly attributable to decreases in thevalue of depreciable real estate held by the entity. We calculate FFO in a manner consistent with the NAREIT definition and also include adjustments for ourunconsolidated real estate partnership. Normalized Funds from Operations (“Normalized FFO”) is a non-GAAP measure. We define Normalized FFO as FFO excluding extinguishment of debt costs andgain on loan forgiveness. Management uses FFO as a supplemental measure to conduct and evaluate our business because there are certain limitations associated with using GAAP netincome (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 overtime. Because real estate values instead have historically risen or fallen with market conditions, management believes that the presentation of operating results for realestate companies that use historical cost accounting is insufficient by itself. In addition, securities analysts, investors and other interested parties use FFO as theprimary metric for comparing the relative performance of equity REITs. FFO and Normalized FFO should not be considered as an alternative to net income or other measurements under GAAP, as an indicator of our operatingperformance or to cash flows from operating, investing or financing activities as a measure of liquidity. FFO and Normalized FFO does not reflect working capitalchanges, cash expenditures for capital improvements or principal payments on indebtedness. Although our calculation of FFO is consistent with that of NAREIT, therecan be no assurance that FFO and Normalized FFO presented by us is comparable to similarly titled measures of other REITs. 50 Below are the calculations of FFO and Normalized FFO and the reconciliations to net income, which we believe is the most comparable GAAP financial measure(in thousands): Year Ended December 31, FFO (NAREIT) AND NORMALIZED FFO 2022 2021 2020 Net income attributable to Whitestone REIT $35,270 $12,048 $6,034 Adjustments to reconcile to FFO:(1) Depreciation and amortization of real estate assets 31,538 28,806 28,096 Depreciation and amortization of real estate assets of real estate partnership (pro rata) (2) 1,613 1,674 1,673 Loss on disposal of assets, net 192 90 542 Gain on sale of property from continuing operations, net (16,950) (266) (178)Gain on sale of property from discontinued operations — (1,833) — Loss (gain) on sale or disposal of properties or assets of real estate partnership (pro rata)(2) — (19) 91 Net income attributable to noncontrolling interests 530 205 117 FFO (NAREIT) $52,193 $40,705 $36,375 Early debt extinguishment costs 147 — — Gain on loan forgiveness — — (1,734)Normalized FFO $52,340 $40,705 $34,641 (1)Includes pro-rata share attributable to real estate partnership. (2)We rely on reporting provided to us by our third-party partners for financial information regarding the Company's investment in Pillarstone OP. Because PillarstoneOP financial statements as of December 31, 2022 have not been made available to us, we have estimated depreciation and amortization and loss (gain) on sale ordisposal of properties or assets of real estate partnership based on the information available to us at the time of this report. 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 methodologiesfor calculating NOI and, accordingly, our NOI may not be comparable to other REITs. Because NOI adjusts for general and administrative expenses, depreciation andamortization, equity in earnings of real estate partnership, interest expense, interest dividend and other investment income, provision for income taxes, gain or loss onsale 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 ratashare 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 inoccupancy rates, rental rates and operating costs, providing perspective not immediately apparent from net income. We use NOI to evaluate our operating performancesince 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 toother 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 ameasure of our overall financial performance since it does not reflect general and administrative expenses, depreciation and amortization, interest expense, interestincome, 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 theoperating 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): Year Ended December 31, PROPERTY NET OPERATING INCOME (“NOI”) 2022 2021 2020 Net income attributable to Whitestone REIT $35,270 $12,048 $6,034 General and administrative expenses 18,066 22,625 21,303 Depreciation and amortization 31,707 28,950 28,303 Equity in earnings of real estate partnership(1) (239) (609) (921)Interest expense 27,193 24,564 25,770 Interest, dividend and other investment income (65) (116) (278)Provision for income taxes 422 385 379 Gain on sale of property from continuing operations (16,950) (266) (178)Gain on sale of property from discontinued operations — (1,833) — Management fee, net of related expenses 112 331 334 Loss on disposal of assets, net 192 90 542 Gain on loan forgiveness — — (1,734)NOI of real estate partnership (pro rata)(1) 3,023 3,833 4,232 Net income attributable to noncontrolling interests 530 205 117 NOI $99,261 $90,207 $83,903 (1)We rely on reporting provided to us by our third-party partners for financial information regarding the Company's investment in Pillarstone OP. Because PillarstoneOP financial statements as of December 31, 2022 have not been made available to us, we have estimated equity in earnings and pro rata share of NOI of real estatepartnership based on the information available to us at the time of this report. 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 federalincome 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 taxableincome 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 remainqualified 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 thancould 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 estatepartnership. 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 estatepartnership’s partnership agreement typically provide that we may receive indemnification from the real estate partnership or have the ability to increase our ownershipinterest. See Note 4 to the accompanying consolidated financial statements for information related to our guarantees of our real estate partnership’s debt as of December31, 2022 and 2021. 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 ofloss 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 pricerisk. 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 riskobjective 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 manageour 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 areobtainable. All of our financial instruments were entered into for other than trading purposes. 52 Fixed Interest Rate Debt As of December 31, 2022, $522.5 million, or approximately 83%, of our outstanding debt was subject to fixed interest rates, which limit the risk of fluctuatinginterest 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 totaloutstanding fixed interest rate debt has an average effective interest rate as of December 31, 2022 of approximately 5.12% per annum with expirations ranging from 2022to 2029 (see Note 8 to our accompanying consolidated financial statements for further detail). Holding other variables constant, a 1% increase or decrease in interestrates would cause an $18.9 million decline or increase in the fair value for our fixed rate debt. Variable Interest Rate Debt As of December 31, 2022, $103.5 million, or approximately 17%, of our outstanding debt was subject to floating interest rates of SOFR plus 1.50% to 2.10% andnot 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, ofannual net income of approximately $1.0 million. 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 thisAnnual 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, 2022, an evaluation was performed under the supervision and withthe participation of the Company's management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of the designand operation of our disclosure controls and procedures as defined in Rule 13a-15(e) under the Exchange Act. In performing this evaluation, management reviewed theselection, application and monitoring of our historical accounting policies. Based on that evaluation, the CEO and CFO concluded that as of December 31, 2022, thesedisclosure 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 andprocedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Management is required toapply judgment in evaluating the cost-benefit relationship of possible controls and procedures. We maintain disclosure controls and procedures that are designed toprovide 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, includingour 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 inExchange 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 anevaluation of the effectiveness of its internal control over financial reporting based on the framework in Internal Control - Integrated Framework issued by the Committeeof Sponsoring Organizations of the Treadway Commission. Based on its evaluation under the framework in Internal Control - Integrated Framework (2013), theCompany's management concluded that its internal control over financial reporting was effective as of December 31, 2022. 53 The Company's independent registered public accounting firm has issued a report on the effectiveness of the Company's internal control over financialreporting, 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 fairpresentation of published financial statements in accordance with accounting principles generally accepted in the United States. All internal control systems, no matterhow well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance and may not prevent ordetect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because ofchanges 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, 2022 that havematerially affected, or are reasonably likely to materially affect, our internal control over financial reporting other than the remediation of material weakness discussedabove. 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 our2023 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 our2023 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, 2022: Number of securities remaining availablefor future issuanceunder Number of securitiesto Weighted-average equity compensation be issued uponexercise exercise price of plans (excluding of outstandingoptions, outstanding options, securities reflectedin Plan Category warrants and rights warrants and rights column (a)) (a) (b) (c) Equity compensation plans approved by security holders — (1) $— 1,739,465 (2) Equity compensation plans not approved by security holders — — — (3) Total — $— 1,739,465 (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 to3,433,831 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 Planexpired. (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 our2023 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 our2023 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 our2023 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 torequire 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 Indexattached hereto and incorporated herein by reference. Item 16. Form 10-K Summary. None. 56Exhibit No.Description 1.1Form of Distribution Agreement (previously filed as and incorporated by reference to Exhibit 1.1 to the Registrant's Current Report on Form 8-K, filed September 9, 2022) 3.1.1Articles of Amendment and Restatement of Whitestone REIT (previously filed as and incorporated by reference to Exhibit 3.1 to the Registrant’s CurrentReport on Form 8-K, filed on July 31, 2008) 3.1.2Articles Supplementary (previously filed as and incorporated by reference to Exhibit 3(i).1 to the Registrant’s Current Report on Form 8-K, filed December6, 2006) 3.1.3Articles 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) 3.1.4Articles 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) 3.1.5Articles Supplementary (previously filed as and incorporated by reference to Exhibit 3.3 to the Registrant’s Current Report on Form 8-K, filed on August24, 2010) 3.1.6Articles 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) 3.1.7Articles of Amendment (previously filed as and incorporated by reference to Exhibit 3.1.2 to the Registrant's Current Report on Form 8-K, filed June 27,2012) 3.1.8Articles 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 March2, 2020) 3.1.9Articles Supplementary for Series A Preferred Shares (previously filed as and incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report onForm 8-K, filed on May 15, 2020) 3.2.1Amended and Restated Bylaws of Whitestone REIT (previously filed as and incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report onForm 8-K, filed March 24, 2020) 3.2.2Amendment No. 1 to Amended and Restated Bylaws of Whitestone REIT (previously filed as and incorporated by reference to Exhibit 3.1 to theRegistrant’s Current Report on Form 8-K, filed January 19, 2022) 3.2.3Amendment No. 2 to Amended and Restated Bylaws of Whitestone REIT (previously filed as and incorporated by reference to Exhibit 3.1 to theRegistrant's Current Report on Form 8-K, filed March 30, 2022) 4.1Description of Securities Registered under Section 12 of the Securities Exchange Act of 1934, as amended 4.2.1Rights Agreement, dated May 14, 2020, between Whitestone REIT and American Stock Transfer Trust, LLC, as Rights Agent (previously filed as andincorporated by reference to Exhibit 4.1 to the Registrant's Current Report on Form 8-K, filed on May 15, 2020) 4.2.2First 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) 4.2.3Second Amendment to Rights Agreement, dated February 7, 2022, between Whitestone REIT and American Stock Transfer Trust, LLC, as Rights Agent(previously filed and incorporated by reference to Exhibit 4.1 to the Registrant's Current Report on Form 8-K, filed on February 11, 2022) 10.1Agreement of Limited Partnership of Whitestone REIT Operating Partnership, L.P. (previously filed as and incorporated by reference to Exhibit 10.1 to theRegistrant’s General Form for Registration of Securities on Form 10, filed on April 30, 2003) 10.2Certificate of Formation of Whitestone REIT Operating Partnership II GP, LLC (previously filed as and incorporated by reference to Exhibit 10.3 to theRegistrant’s General Form for Registration of Securities on Form 10, filed on April 30, 2003) 10.3Limited Liability Company Agreement of Whitestone REIT Operating Partnership II GP, LLC (previously filed as and incorporated by reference to Exhibit10.4 to the Registrant’s General Form for Registration of Securities on Form 10, filed on April 30, 2003) 10.4Agreement of Limited Partnership of Whitestone REIT Operating Partnership II, L.P. (previously filed as and incorporated by reference to Exhibit 10.6 to theRegistrant’s General Form for Registration of Securities on Form 10, filed on April 30, 2003) 10.5Amendment to the Agreement of Limited Partnership of Whitestone REIT Operating Partnership, L.P. (previously filed in and incorporated by reference toExhibit 10.1 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-111674, filed on December 31, 2003) 10.6OP Unit Purchase Agreement, dated December 8, 2016, among Whitestone REIT Operating Partnership, L.P., Pillarstone Capital REIT and Pillarstone CapitalREIT Operating Partnership LP (previously filed as and incorporated by reference to Exhibit 10.2 to the Registrant's Current Report on Form 8-K, filedDecember 9, 2016) 10.7Amended and Restated Limited Partnership Agreement of Pillarstone Capital REIT Operating Partnership LP, dated December 8, 2016 (previously filed asand incorporated by reference to Exhibit 10.6 to the Registrant's Current Report on Form 8-K, filed December 9, 2016) 57 10.8+2018 Long-Term Equity Incentive Ownership Plan (previously filed as and incorporated by reference to Exhibit 10.1 to the Registrant's Current Report onForm 8-K, filed on May 12, 2017) 10.9Second Amendment and Restated Credit Agreement, dated as of January 31, 2019, among Whitestone REIT Operating Partnership, L.P., Whitestone REIT,et all., as guarantors, the lenders party thereto, and Bank of Montreal, as Administrative Agent (previously filed as and incorporated by reference toExhibit 10.1 to the Registrant's Current Report on Form 8-K, filed on February 6, 2019) 10.10Third Amended and Restated Credit Agreement, dated as of September 16, 2022, among Whitestone REIT Operating Partnership, L.P., Whitestone REIT, etal., as guarantors, the lenders party thereto, and Bank of Montreal, as Administrative Agent (previously filed as and incorporated by reference to Exhibit10.1 to the Registrant’s Current Report on Form 8-K, filed on September 19, 2022). 10.11Note and Guarantee Agreement, dated March 22, 2019, among Whitestone REIT Operating Partnership, L.P. and Whitestone REIT, the Initial SubsidiaryGuarantors named therein, and the Purchasers named therein (previously filed as and incorporated by reference to Exhibit 10.1 to the Registrant’s CurrentReport on Form 8-K, filed on March 28, 2019). 10.12First Amendment to Note Purchase and Guaranty Agreement, dated December 16, 2022, by and among Whitestone REIT Operating Partnership, L.P. andWhitestone REIT, the Initial Subsidiary Guarantors named therein, and the Purchasers named therein (previously filed as and incorporated by reference toExhibit 10.1 to the Registrant’s Current Report on Form 8-K, filed on December 22, 2022). 10.13+Form of Restricted Common Share Unit Award Agreement (Time-Vested) (previously filed as and incorporated by reference to Exhibit 10.1 to theRegistrant's Quarterly Report on Form 10-Q, filed on October 30, 2020). 10.14+Form of Restricted Common Share Unit Award Agreement (Performance-Vested) (previously filed as and incorporated by reference to Exhibit 10.2 to theRegistrant's Quarterly Report on Form 10-Q, filed on October 30, 2020). 10.15Severance and Change in Control Agreement dated as of May 23, 2022 among Whitestone REIT and David K. Holeman (previously filed as andincorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, filed May 27, 2022). 10.16Severance and Change in Control Agreement dated as of May 23, 2022 among Whitestone REIT and Christine Mastandrea (previously filed as andincorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, filed May 27, 2022) 10.17Severance and Change in Control Agreement dated as of May 23, 2022 among Whitestone REIT and J. Scott Hogan (previously filed as and incorporatedby reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, filed May 27, 2022). 10.18Severance and Change in Control Agreement dated as of May 23, 2022 among Whitestone REIT and Peter A Tropoli (previously filed as and incorporatedby reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, filed May 27, 2022). 10.19Severance and Change in Control Agreement dated as of May 23, 2022 among Whitestone REIT and Soklin “Michelle” Siv (previously filed as andincorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, filed May 27, 2022). 10.20+Form of Restricted Common Share Unit Award Agreement (time-based) (previously filed as and incorporated by reference to Exhibit 10.1 to the Registrant’sQuarterly Report on Form 10-Q, filed on August 6, 2021). 10.21+Form of Restricted Common Share Unit Award Agreement (performance-based) (previously filed as and incorporated by reference to Exhibit 10.2 to theRegistrant’s Quarterly Report on Form 10-Q, filed on August 6, 2021). 58 Exhibit No.Description 21.1*List of subsidiaries of Whitestone REIT 23.1*Consent of Pannell Kerr Forster of Texas, P.C. 24.1Power of Attorney (included on the signature page hereto) 31.1*Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.2*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 101The following financial information of the Registrant for the year ended December 31, 2022, formatted in Inline XBRL (eXtensible Business ReportingLanguage): (i) the Consolidated Balance Sheets as of December 31, 2022 (unaudited) and December 31, 2021, (ii) the Consolidated Statements of Operationsand Comprehensive Income (Loss) for the years ended December 31, 2022, 2021 and 2020 (unaudited), (iii) the Consolidated Statements of Changes in Equityfor the years ended December 31, 2022, 2021 and 2020 (unaudited), (iv) the Consolidated Statement of Cash Flows for the years ended December 31, 2022, 2021and 2020 (unaudited) and (v) the Notes to the Consolidated Financial Statements (unaudited).104Cover Page Interactive Data File - the cover page XBRL tags are embedded within the Inline XBRL document and in Exhibit 101. ________________________ * Filed herewith.** Furnished herewith. + Denotes management contract or compensatory plan or arrangement. 59 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalfby the undersigned, thereunto duly authorized. WHITESTONE REIT Date:March 8, 2023By:/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 andstead, 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 documentsin 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 doand 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 heor 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 orsubstitutes, 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 Registrantand in the capacities and on the dates indicated. March 8, 2023/s/ David K. Holeman David K. Holeman, CEO (Principal Executive Officer) March 8, 2023/s/ John S. Hogan John S. Hogan, Chief Financial Officer (Principal Financial and Principal Accounting Officer) March 8, 2023/s/ David F. Taylor David F. Taylor, Chairman March 8, 2023/s/ Nandita Berry Nandita Berry, Trustee March 8, 2023/s/ Jeffrey A. Jones Jeffrey A. Jones, Trustee March 8, 2023/s/ Paul T. Lambert Paul T. Lambert, Trustee March 8, 2023/s/ Amy S. Feng Amy S. Feng, Trustee 60 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS PageReports of Independent Registered Public Accounting Firm (PCAOB ID 342)2 Consolidated Balance Sheets as of December 31, 2022 and 20215 Consolidated Statements of Operations and Comprehensive Income (Loss) for the Years Ended December 31, 2022, 2021 and 20207 Consolidated Statements of Changes in Equity for the Years Ended December 31, 2022, 2021 and 202010 Consolidated Statements of Cash Flows for the Years Ended December 31, 2022, 2021 and 202012 Notes to Consolidated Financial Statements14 Schedule II – Valuation and Qualifying Accounts43 Schedule III – Real Estate and Accumulated Depreciation44 All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under therelated 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 ofWhitestone 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, 2022 and 2021, and therelated consolidated statements of operations and comprehensive income (loss), changes in equity, and cash flows for each of the years in the three year period endedDecember 31, 2022, and the related notes and financial statement schedules listed in the Index to Consolidated Financial Statements at Item 15 (collectively referred to asthe “Consolidated Financial Statements”). In our opinion, the Consolidated Financial Statements present fairly, in all material respects, the financial position of theCompany as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the years in the three year period ended December 31, 2022,in conformity with accounting principles generally accepted in the United States of America. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internalcontrol over financial reporting as of December 31, 2022, based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee ofSponsoring Organizations of the Treadway Commission (“COSO”), and our report dated March 8, 2023, expressed an unqualified opinion on the Company’s internalcontrol 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’sConsolidated Financial Statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect tothe 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 assuranceabout whether the Consolidated Financial Statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures toassess 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 alsoincluded evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the ConsolidatedFinancial 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 orrequired 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 theConsolidated Financial Statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical auditmatters 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 incircumstances indicate that the carrying amount of the assets, including accrued rental income, may not be recoverable through operations. The first step of theimpairment test is to determine whether an indicator of impairment is present. If an indicator of impairment is present, management determines if an impairment in valuehas occurred by comparing the estimated future cash flows (undiscounted and without interest charges), including the estimated residual value of the property, with thecarrying cost of the property. Actual results could differ from estimates supporting the Company’s impairment analysis. If management’s analysis indicates animpairment, a loss will be recorded for the amount by which the carrying value of the property exceeds its fair value. As of December 31, 2022, the Company had $1billion in real estate assets, net of accumulated depreciation, and $35 million of investment in real estate partnership, with no impairment recognized for the year endedDecember 31, 2022. F-2We identified management’s impairment assessment as a critical audit matter primarily because of the significant estimates involved in management’s impairmentanalysis, as these estimates resulted in audit procedures involving a high degree of auditor judgment and subjectivity and challenges in obtaining and evaluating auditevidence. 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; •evaluating the accuracy of occupancy rates used by management in its impairment analysis; •recalculating individual property net operating income using audited account balances; •evaluating inputs used for undiscounted cash flow assessment, including consideration of occupancy rates and individual property net operating income, asdiscussed above; •evaluating management's analysis of market trends and identification of properties requiring further assessment; •evaluating the use of a specialist for property valuation in accordance with Auditing Standard (“AS”) 1105; •evaluating market and fair value data used by management; and •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 estatepartnership. 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 estimatedcash flow projections that utilize appropriate discount and capitalization rates and available market information. Estimates of future cash flows are based on a number offactors including the historical operating results, known trends, and specific market and economic conditions that may affect the property. During the year endedDecember 31, 2022, the Company acquired Dana Park Pad and Lake Woodlands Crossing for $4.9 million and $22.5 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, asthese 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; and •evaluating the use of a specialist for property valuation and purchase price allocation in accordance with AS 1105. /s/ Pannell Kerr Forster of Texas, P.C. We have served as the Company’s auditors since 2002.Houston, TexasMarch 8, 2023 F-3 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Trustees and Shareholders ofWhitestone REIT: Opinion on Internal Control over Financial Reporting We have audited Whitestone REIT and subsidiaries’ (the “Company’s”) internal control over financial reporting as of December 31, 2022, based on criteria established inInternal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). In our opinion, theCompany maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, 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 balancesheets and the related consolidated statements of operations and comprehensive income (loss), changes in equity, and cash flows of the Company, and our report datedMarch 8, 2023, expressed an unqualified opinion. 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 internalcontrol over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting appearing under Item 9A. Ourresponsibility 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 thePCAOB 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 ofthe 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 assuranceabout whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting includedobtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design andoperating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in thecircumstances. 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 thepreparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financialreporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactionsand dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financialstatements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance withauthorizations 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 effectivenessto 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 orprocedures may deteriorate. /s/ Pannell Kerr Forster of Texas, P.C. Houston, TexasMarch 8, 2023 F-4 Whitestone REIT and SubsidiariesCONSOLIDATED BALANCE SHEETS(in thousands, except per share data) December 31, 2022 2021 ASSETS Real estate assets, at cost Property $1,199,041 $1,196,919 Accumulated depreciation (208,286) (190,333)Total real estate assets 990,755 1,006,586 Investment in real estate partnership 34,826 34,588 Cash and cash equivalents 6,166 15,721 Restricted cash 189 193 Escrows and acquisition deposits 12,827 11,323 Accrued rents and accounts receivable, net of allowance for doubtful accounts 25,570 22,395 Receivable due from related party 1,377 847 Unamortized lease commissions, legal fees and loan costs 12,697 8,442 Prepaid expenses and other assets(1) 7,838 1,995 Finance lease right-of-use assets 10,522 — Total assets $1,102,767 $1,102,090 LIABILITIES AND EQUITY Liabilities: Notes payable $625,427 $642,842 Accounts payable and accrued expenses(2) 36,154 45,777 Payable due to related party 1,561 997 Tenants' security deposits 8,428 8,070 Dividends and distributions payable 6,008 5,366 Finance lease liabilities 735 — Total liabilities 678,313 703,052 Commitments and contingencies: — — Equity: Preferred shares, $0.001 par value per share; 50,000,000 shares authorized; none issued and outstanding as of December31, 2022 and December 31, 2021 — — Common shares, $0.001 par value per share; 400,000,000 shares authorized; 49,422,716 and 49,144,153 issued andoutstanding as of December 31, 2022 and December 31, 2021, respectively 49 48 Additional paid-in capital 624,785 623,462 Accumulated deficit (212,366) (223,973)Accumulated other comprehensive income (loss) 5,980 (6,754)Total Whitestone REIT shareholders' equity 418,448 392,783 Noncontrolling interest in subsidiary 6,006 6,255 Total equity 424,454 399,038 Total liabilities and equity $1,102,767 $1,102,090 See the accompanying notes to consolidated financial statements. F-5 Whitestone REIT and SubsidiariesCONSOLIDATED BALANCE SHEETS(in thousands) December 31, 2022 2021 (1) Operating lease right of use assets (net) $124 $222 (2) Operating lease liabilities $129 $231 See accompanying notes to consolidated financial statements. F-6 Whitestone REIT and SubsidiariesCONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)(in thousands) Year Ended December 31, 2022 2021 2020 Revenues Rental(1) $138,200 $123,877 $115,084 Management, transaction, and other fees 1,221 1,488 2,831 Total revenues 139,421 125,365 117,915 Operating expenses Depreciation and amortization 31,707 28,950 28,303 Operating and maintenance 25,688 22,560 20,563 Real estate taxes 17,607 16,762 18,015 General and administrative 18,066 22,625 21,303 Total operating expenses 93,068 90,897 88,184 Other expenses (income) Interest expense 27,193 24,564 25,770 Gain on sale of properties, net (16,950) (266) (178)Loss on disposal of assets, net 192 90 542 Gain on loan forgiveness — — (1,734)Interest, dividend and other investment income (65) (116) (278)Total other expenses 10,370 24,272 24,122 Income before equity investment in real estate partnership and income tax 35,983 10,196 5,609 Equity in earnings of real estate partnership 239 609 921 Provision for income tax (422) (385) (379)Income from continuing operations 35,800 10,420 6,151 Gain on sale of property from discontinued operations — 1,833 — Income from discontinued operations — 1,833 — Net income 35,800 12,253 6,151 Less: Net income attributable to noncontrolling interests 530 205 117 Net income attributable to Whitestone REIT $35,270 $12,048 $6,034 See the accompanying notes to consolidated financial statements. F-7 Whitestone REIT and SubsidiariesCONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)(in thousands, except per share data) Year Ended December 31, 2022 2021 2020 Basic Earnings Per Share: Income from continuing operations attributable to Whitestone REIT, excluding amounts attributable tounvested restricted shares $0.72 $0.23 $0.14 Income from discontinued operations attributable to Whitestone REIT — 0.03 — Net income attributable to common shareholders, excluding amounts attributable to unvestedrestricted shares $0.72 $0.26 $0.14 Diluted Earnings Per Share: Income from continuing operations attributable to Whitestone REIT, excluding amounts attributable tounvested restricted shares $0.71 0.22 $0.14 Income from discontinued operations attributable to Whitestone REIT — 0.04 — Net income attributable to common shareholders, excluding amounts attributable to unvestedrestricted shares $0.71 $0.26 $0.14 Weighted average number of common shares outstanding: Basic 49,256 45,486 42,244 Diluted 49,950 46,336 42,990 Consolidated Statements of Comprehensive Income (Loss) Net income $35,800 $12,253 $6,151 Other comprehensive income (loss) Unrealized gain (loss) on cash flow hedging activities 12,925 7,803 (9,062) Comprehensive income (loss) 48,725 20,056 (2,911) Less: Net income attributable to noncontrolling interests 530 205 117 Less: Comprehensive income (loss) attributable to noncontrolling interests 191 130 (173) Comprehensive income (loss) attributable to Whitestone REIT $48,004 $19,721 $(2,855) See the accompanying notes to consolidated financial statements. F-8 Whitestone REIT and SubsidiariesCONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)(in thousands) Year Ended December 31, 2022 2021 2020 (1) Rental Rental revenues $101,113 $90,859 $87,291 Recoveries 38,243 32,928 33,442 Bad debt (1,156) 90 (5,649)Total rental $138,200 $123,877 $115,084 See accompanying notes to consolidated financial statements. F-9 Whitestone REIT and SubsidiariesCONSOLIDATED STATEMENTS OF CHANGES IN EQUITY(in thousands, except per share and unit data) Accumulated Additional Other Total Noncontrolling Common Shares Paid-in Accumulated Comprehensive Shareholders’ Interests Total Shares Amount Capital Deficit Gain (Loss) Equity Units Dollars Equity Balance, December 31, 2019 41,492 $41 $554,816 $(204,049) $(5,491) $345,317 909 $7,781 $353,098 Exchange of noncontrolling interest OPunits for common shares 136 1 1,161 — — 1,162 (136) (1,162) — Issuance of common shares underdividend reinvestment plan 11 — 89 — — 89 — — 89 Issuance of common shares - ATMProgram, net of offering costs 171 — 2,241 — — 2,241 — — 2,241 Exchange offer costs — — (43) — — (43) — — (43)Repurchase of common shares (1) (178) — (2,077) — — (2,077) — — (2,077)Share-based compensation 759 — 6,063 — — 6,063 — — 6,063 Distributions — — — (17,794) — (17,794) — (340) (18,134)Unrealized loss on change in fair valueof cash flow hedge — — — — (8,889) (8,889) — (173) (9,062)Reallocation of ownership percentagebetween parent and subsidiary — — — — (20) (20) — 20 — Net income — — — 6,034 — 6,034 — 117 6,151 Balance, December 31, 2020 42,391 $42 $562,250 $(215,809) $(14,400) $332,083 773 $6,243 $338,326 Exchange of noncontrolling interest OPunits for common shares 2 — 18 — — 18 (2) (18) — Issuance of common shares underdividend reinvestment plan 7 — 60 — — 60 — — 60 Issuance of common shares - ATMProgram, net of offering costs 6,287 6 55,975 — — 55,981 — — 55,981 Exchange offer costs — — (63) — — (63) — — (63)Repurchase of common shares (1) (78) — (691) — — (691) — — (691)Share-based compensation 535 — 5,913 — — 5,913 — — 5,913 Distributions — — — (20,212) — (20,212) — (332) (20,544)Unrealized gain on change in fair valueof cash flow hedge — — — — 7,673 7,673 — 130 7,803 Reallocation of ownership percentagebetween parent and subsidiary — — — — (27) (27) — 27 — Net income — — — 12,048 — 12,048 — 205 12,253 Balance, December 31, 2021 49,144 $48 $623,462 $(223,973) $(6,754) $392,783 771 $6,255 $399,038 See the accompanying notes to consolidated financial statements.F-10 Whitestone REIT and SubsidiariesCONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (in thousands, except per share and unit data) Accumulated Additional Other Total Noncontrolling Common Shares Paid-in Accumulated Comprehensive Shareholders’ Interests Total Shares Amount Capital Deficit Gain (Loss) Equity Units Dollars Equity Balance, December 31, 2021 49,144 $48 $623,462 $(223,973) $(6,754) $392,783 771 $6,255 $399,038 Exchange of noncontrolling interest OPunits for common shares 76 1 617 — — 618 (76) (618) — Issuance of common shares underdividend reinvestment plan 6 — 67 — — 67 — — 67 Exchange offer costs — — (335) — — (335) — — (335)Repurchase of common shares (1) (48) — (537) — — (537) — — (537)Share-based compensation 245 — 1,511 — — 1,511 — — 1,511 Distributions — — — (23,663) — (23,663) — (352) (24,015)Unrealized gain on change in fair valueof cash flow hedge — — — — 12,734 12,734 — 191 12,925 Net income — — — 35,270 — 35,270 — 530 35,800 Balance, December 31, 2022 49,423 $49 $624,785 $(212,366) $5,980 $418,448 695 $6,006 $424,454 (1)During the years ended December 31, 2022, 2021 and 2020, the Company acquired common shares held by employees who tendered owned common shares tosatisfy 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 SubsidiariesCONSOLIDATED STATEMENTS OF CASH FLOWS(in thousands) Year Ended December 31, 2022 2021 2020 Cash flows from operating activities: Net income from continuing operations $35,800 $10,420 $6,151 Net income from discontinued operations — 1,833 — Net income 35,800 12,253 6,151 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 31,707 28,950 28,303 Amortization of deferred loan costs 1,100 1,096 1,113 Gain on sale of properties (16,950) (266) (178)Loss on disposal of assets 192 90 542 Gain on loan forgiveness — — (1,734)Bad debt 1,156 (90) 5,649 Share-based compensation 1,511 5,913 6,063 Equity in earnings of real estate partnership (239) (609) (921)Changes in operating assets and liabilities: Escrows and acquisition deposits (1,504) (2,049) (885)Accrued rents and accounts receivable (4,331) 704 (6,055)Receivable due from related party (530) (512) 142 Distributions from real estate partnership — — 1,039 Unamortized lease commissions, legal fees and loan costs (3,386) (3,259) (1,343)Prepaid expenses and other assets 1,749 1,963 2,255 Accounts payable and accrued expenses (2,766) 2,663 2,518 Payable due to related party 564 872 (182)Tenants' security deposits 358 1,154 299 Net cash provided by operating activities 44,431 47,040 42,776 Cash flows from investing activities: Acquisitions of real estate (16,992) (81,588) — Acquisition of ground lease (9,786) — — Additions to real estate (13,659) (9,642) (7,362)Proceeds from sales of properties 33,723 — — Proceeds from note receivable — — 922 Net cash used in investing activities (6,714) (91,230) (6,440)Net cash provided by investing activities of discontinued operations — 1,833 — Cash flows from financing activities: Distributions paid to common shareholders (22,958) (19,320) (25,203)Distributions paid to OP unit holders (346) (331) (511)Proceeds from issuance of common shares, net of offering costs — 55,981 2,241 Payments of exchange offer costs (335) (63) (43)Proceeds from bonds and notes payable — — 1,734 Net proceeds from (payments of) credit facility (16,000) — 10,000 Repayments of notes payable (3,468) (3,261) (12,164)Payments of loan origination costs (3,632) — — Repurchase of common shares (537) (691) (2,077)Net cash provided by (used in) financing activities (47,276) 32,315 (26,023)Net increase (decrease) in cash, cash equivalents and restricted cash (9,559) (10,042) 10,313 Cash, cash equivalents and restricted cash at beginning of period 15,914 25,956 15,643 Cash, cash equivalents and restricted cash at end of period (1) $6,355 $15,914 $25,956 (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 Whitestone REIT and SubsidiariesCONSOLIDATED STATEMENTS OF CASH FLOWSSupplemental Disclosures(in thousands) Year Ended December 31, 2022 2021 2020 Supplemental disclosure of cash flow information: Cash paid for interest $26,493 $23,685 $27,741 Cash paid for taxes $366 $364 $353 Non cash investing and financing activities: Disposal of fully depreciated real estate $454 $297 $88 Financed insurance premiums $1,846 $1,712 $1,431 Value of shares issued under dividend reinvestment plan $67 $60 $89 Value of common shares exchanged for OP units $618 $18 $1,162 Change in fair value of cash flow hedge $12,925 $7,803 $(9,062)Reallocation of ownership percentage between parent and subsidiary $— $(27) $(20)Property received as termination fee $— $— $251 Recognition of finance lease liabilities $735 $— $— December 31, 2022 2021 2020 Cash, cash equivalents and restricted cash Cash and cash equivalents $6,166 $15,721 $25,777 Restricted cash 189 193 179 Total cash, cash equivalents and restricted cash $6,355 $15,914 $25,956 See the accompanying notes to consolidated financial statements. F-13WHITESTONE REIT AND SUBSIDIARIESNotes to Consolidated Financial StatementsDecember 31, 2022 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. InJuly 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 investmenttrust 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 into1.42857 common shares of beneficial interest of the Maryland entity. We serve as the general partner of Whitestone REIT Operating Partnership, L.P. (the “OperatingPartnership” or “WROP” or “OP”), which was formed on December 31, 1998 as a Delaware limited partnership. We currently conduct substantially all of our operationsand activities through the Operating Partnership. As the general partner of the Operating Partnership, we have the exclusive power to manage and conduct thebusiness of the Operating Partnership, subject to certain customary exceptions. As of December 31, 2022, 2021 and 2020, we owned 57, 60, and 58 commercial properties,respectively, in and around Austin, Chicago, Dallas-Fort Worth, Houston, Phoenix and San Antonio. As of December 31, 2022, these properties consist of: Consolidated Operating Portfolio •51 wholly-owned properties that meet our Community Centered Properties® strategy; and Redevelopment, New Acquisitions Portfolio •one wholly owned property, Lake Woodlands Crossing, that meets our Community Centered Properties® containing approximately 0.1 million square feet of GLAand having total carrying amounts (net of accumulated depreciation) of $11.7 million. •five parcels of land held for future development. As of December 31, 2022, 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 managed the day-to-day operations of Pillarstone OP pursuant to a management agreement, which was terminated on August 18, 2022. 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 theextent 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 theOperating Partnership. As of December 31, 2022, 2021 and 2020, we owned a majority of the partnership interests in the Operating Partnership. Consequently, theaccompanying 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 Partnershipallocable to holders of operating partnership interests other than us. Net income or loss is allocated to noncontrolling interests based on the weighted-averagepercentage 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 “OPunits”) changes the percentage of ownership interests of both the noncontrolling interests and Whitestone. F-14WHITESTONE REIT AND SUBSIDIARIESNotes to Consolidated Financial StatementsDecember 31, 2022 Equity Method. In accordance with Accounting Standards Update (“ASU”) 2014-09 (“Topic 606”) and ASC 610, “Other Income-Gains and Losses from theDerecognition of Nonfinancial Assets,” the Company recognizes its investment in Pillarstone OP under the equity method. As of December 31, 2022, we, through our investment in Pillarstone OP, owned a majority interest in eight properties that do not meet our Community CenteredProperty® strategy containing approximately 0.9 million square feet of GLA. We own 81.4% of the total outstanding units of Pillarstone OP. We also managed the day-to-day operations of Pillarstone OP pursuant to a management agreement, which was terminated on August 18, 2022. In this Annual Report on Form 10-K, unlessotherwise 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 arerecorded when incurred. Use of Estimates. The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to makeestimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and thereported amounts of revenues and expenses during the reporting period. Significant estimates that we use include the estimated fair values of properties acquired, theestimated 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 carryingvalues 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 furtheradversely 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 willdirectly or indirectly impact the Company's business, results of operations and financial condition, including revenues, expenses, reserves and allowances, fair valuemeasurements, and asset impairment charges, will depend on future developments that are highly uncertain and difficult to predict. These developments include, but arenot 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 normaleconomic 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 thecurrent 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 lendersthereunder to establish a cash management account controlled by the lenders to collect all amounts generated by our Anthem Marketplace property in order tocollateralize 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 beconverted into common shares, to executive officers and employees under our 2018 Long-Term Equity Incentive Ownership Plan (the “2018 Plan”). Awarded shares andunits vest when certain performance conditions are met. We recognize compensation expense when achievement of the performance conditions is probable based onmanagement’s most recent estimates using the fair value of the shares as of the grant date. We recognized $1.5 million, $5.9 million and $6.1 million in share-basedcompensation expense for the years ended December 31, 2022, 2021 and 2020, 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 to3,433,831 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 Planexpired. F-15WHITESTONE REIT AND SUBSIDIARIESNotes to Consolidated Financial StatementsDecember 31, 2022 Noncontrolling Interests. Noncontrolling interests are the portion of equity in a subsidiary not attributable to a parent. The ownership interests not held bythe parent are considered noncontrolling interests. Accordingly, we have reported noncontrolling interests in equity on the consolidated balance sheets but separatefrom 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 andannual 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 overthe 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. Recoveriesfrom tenants for taxes, insurance, and other operating expenses are recognized as revenues in the period the corresponding costs are incurred. We combine lease andnonlease components in lease contracts, which includes combining base rent, recoveries, and percentage rents into a single line item, Rental, within the consolidatedstatements of operations and comprehensive income (loss). Additionally, we have tenants who pay real estate taxes directly to the taxing authority. We exclude thesecosts 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 paid us managementfees for property management, leasing and day-to-day advisory and administrative services. The management agreement with Pillarstone OP was terminated on August18, 2022. Additionally, we recognize lease termination fees in the year that the lease is terminated and collection of the fee is probable. Amounts recorded within otherproperty 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 cashequivalents. Cash and cash equivalents as of December 31, 2022 and 2021 consisted of demand deposits at commercial banks and brokerage accounts. We may havenet book credit balances in our primary disbursement accounts at the end of a reporting period. We classify such credit balances as accounts payable in ourconsolidated balance sheets as checks presented for payment to these accounts are not payable by our banks under overdraft arrangements, and, therefore, do notrepresent 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 costwhich includes capitalized carrying charges and development costs. Carrying charges (interest, real estate taxes, loan fees, and direct and indirect development costsrelated to buildings under construction) are capitalized as part of construction in progress. The capitalization of such costs ceases when the property, or any completedportion, becomes available for occupancy. For the year ended December 31, 2022, approximately $ 455,000 and $ 281,000 in interest expense and real estate taxes,respectively, were capitalized. For the year ended December 31, 2021, approximately $ 414,000 and $ 291,000 in interest expense and real estate taxes, respectively, werecapitalized. For the year ended December 31, 2020, approximately $481,000 and $306,000 in interest expense and real estate taxes, respectively, were capitalized. F-16WHITESTONE REIT AND SUBSIDIARIESNotes to Consolidated Financial StatementsDecember 31, 2022 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 amountsallocated to acquired out-of-market leases, the value of in-place leases, the value of the ground lease and customer relationship value, if any. We determine fair valuebased on estimated cash flow projections that utilize appropriate discount and capitalization rates and available market information. Estimates of future cash flows arebased on a number of factors including the historical operating results, known trends and specific market and economic conditions that may affect the property. Factorsconsidered by management in our analysis of determining the as-if-vacant property value include an estimate of carrying costs during the expected lease-up periodsconsidering market conditions, and costs to execute similar leases. In estimating carrying costs, management includes real estate taxes, insurance and estimates of lostrentals at market rates during the expected lease-up periods, tenant demand and other economic conditions. Management also estimates costs to execute similar leasesincluding leasing commissions, tenant improvements, legal and other related expenses. Intangibles related to out-of-market leases and in-place lease value are recordedas acquired lease intangibles and are amortized as an adjustment to rental revenue or amortization expense, as appropriate, over the remaining terms of the underlyingleases. Premiums or discounts on acquired out-of-market debt are amortized to interest expense over the remaining term of such debt. The Company also utilizesvaluations from independent real estate appraisal firms. Depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of 3 to 43 years for improvements and buildings. Tenantimprovements 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 ofthe assets, including accrued rental income, may not be recoverable through operations. The first step of the impairment test is to determine whether an indicator ofimpairment is present. If an indicator of impairment is present, 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, aloss 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 impairmentin the carrying value of our real estate assets as of December 31, 2022. Accrued Rents and Accounts Receivable. Included in accrued rents and accounts receivable are base rents, tenant reimbursements and receivables attributableto recording rents on a straight-line basis. We review the collectability of charges under our tenant operating leases on a regular basis, taking into considerationchanges 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 andeconomic conditions in the area where the property is located including the impact of the COVID-19 pandemic on tenants’ businesses and financial condition. Werecognize 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 includesany accrued rental revenues related to the straight-line method of reporting rental revenue. As of December 31, 2022 and 2021, we had an allowance for uncollectibleaccounts of $13.8 million and $14.9 million, respectively. For the years ending December 31, 2022, 2021 and 2020, we recorded an adjustment to rental revenue in theamount of $1.2 million, $(0.1) million and $5.6 million, respectively. Included in the adjustment to rental revenue for the years ending December 31, 2022 and 2021, was abad debt adjustment of $0.6 million and $0.1 million, respectively, and a straight-line rent reserve adjustment of $0.3 million and $0.9 million, respectively, related to creditloss for the conversion of 80 and 59 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 leaseagreements. Loan costs are amortized on the straight-line method over the terms of the loans, which approximates the interest method. Costs allocated to in-placeleases 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 taxesand 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 generallyare 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 federalincome 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 weintend to operate so as to remain qualified as a REIT for federal income tax purposes. F-17WHITESTONE REIT AND SUBSIDIARIESNotes to Consolidated Financial StatementsDecember 31, 2022 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 AccountingStandards Board (“FASB”) ASC 740, “Income Taxes” (“ASC 740”) applies to the Texas Margin Tax. As of December 31, 2022, 2021 and 2020, we recorded a margin taxprovision 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 notespayable. 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 aggregateto approximately $579.7 million and $643.6 million as compared to the book value of approximately $626.0 million and $643.6 million as of December 31, 2022 and 2021,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 futurecontractual 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 cashflow 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 valueof approximately $0.1 million and $0.1 million as of December 31, 2022 and 2021, respectively. Disclosure about fair value of financial instruments is based on pertinent information available to management as of December 31, 2022 and 2021. Althoughmanagement is not aware of any factors that would significantly affect the fair value amounts, such amounts have not been comprehensively revalued for purposes ofthese financial statements since December 31, 2022, 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 tofluctuations in interest rates. We have established policies and procedures for risk assessment, and the approval, reporting and monitoring of derivative financialinstruments. 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 fairvalue 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 activemarkets 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, 2022,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 lessorsin 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 theeffects of the COVID-19 pandemic consistent with how those concessions would be accounted for under Topic 842 as though enforceable rights and obligations forthose concessions existed, even if such enforceable rights and obligations are not explicitly contained in the lease contract. Thus, for concessions relating to theCOVID-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 leaseconcessions relating to the effects of the COVID-19 pandemic consistent with how those concessions would be accounted for under Topic 842 as though enforceablerights and obligations for those concessions existed. Therefore, such concessions are not accounted for as a lease modification under Topic 842. In March 2020, the FASB issued ASU No. 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on FinancialReporting” (“ASU 2020-04”), which provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions affectedby the discontinuation of the London Interbank Offered Rate (“LIBOR”) or by another reference rate expected to be discontinued because of reference rate reform.In January 2021, the FASB issued Accounting Standards Update No. 2021-01, “Reference Rate Reform (Topic 848): Scope” (“ASU 2021-01”), which clarified the scopeand application of the original guidance. We have elected this option and adopted ASU 2020-04 and ASU 2021-01 effective September 2022. There was no materialimpact on the Company's consolidated financial statement as a result of adopting this guidance. F-18WHITESTONE REIT AND SUBSIDIARIESNotes to Consolidated Financial StatementsDecember 31, 2022 3. REAL ESTATE As of December 31, 2022, we owned 57 commercial properties in the Austin, Chicago, Dallas-Fort Worth, Houston, Phoenix and San Antonio areas comprisedof approximately 5.1 million square feet of gross leasable area (“GLA”). Five of the 57 commercial properties are land parcels held for future development. Property Acquisitions. On December 21, 2022, we acquired Lake Woodlands Crossing, a property that meets our Community Centered Property® strategy, for $22.5 million in cash andnet prorations. Lake Woodlands Crossing, a 60,246 square foot property, was 89.3% leased at the time of purchase and is located in The Woodlands, Texas. On December 2, 2022 we acquired Dana Park Pad, a property that meets our Community Centered Property® strategy, for $4.9 million in cash and net prorations.Dana Park Pad, a 12,000 square foot property, was 100% leased at the time of purchase and is located in the Mesa submarket of Phoenix, Arizona. On December 1, 2021 we acquired Anderson Arbor, a property that meets our Community Centered Property® strategy, for $28.1 million in cash and netprorations. 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. Unaudited pro forma results of operations. The following unaudited pro forma results summarized below reflect our consolidated results of operations as if ouracquisitions for the years ended December 31, 2022, 2021 and 2020 were acquired on January 1, 2020. The unaudited consolidated pro forma results of operations is notnecessarily indicative of what the actual results of operations would have been, assuming the transactions had been completed as set forth above, nor do they purportto represent our results of operations for future periods. Year Ended December 31, (in thousands, except per share data) 2022 2021 2020 Total revenues $142,047 $133,175 $128,091 Net income $36,512 $13,205 $6,981 Net income attributable to Whitestone REIT (1) $35,982 $13,000 $6,864 Basic Earnings Per Share: $0.73 $0.29 $0.16 Diluted Earnings Per Share: $0.72 $0.28 $0.16 Weighted-average common shares outstanding: Basic 49,256 45,486 42,244 Diluted 49,950 46,336 42,990 (1)Net income attributable to Whitestone REIT reflects historical ownership percentages. Acquisition costs. Acquisition-related costs of $0.1 million and $0.3 million are capitalized in real estate assets in our balance sheets for the years endedDecember 31, 2022 and 2021, respectively. No acquisition-related costs are included in general and administrative expenses in our statements of operations andcomprehensive income (loss) for the year ended 2020. F-19WHITESTONE REIT AND SUBSIDIARIESNotes to Consolidated Financial StatementsDecember 31, 2022 Property dispositions. On November 30, 2022, we completed the sale of Pima Norte, located in Carefree, Arizona, for $3.3 million. We recorded a loss on sale of $4.0 million. On November 21, 2022, we completed the sale of Spoerlein Commons Pad, located in Buffalo Grove, Illinois, for $2.2 million. We recorded a gain on sale of$0.7 million. On November 16, 2022, we completed the sale of Desert Canyon, located in Scottsdale, Arizona, for $9.3 million. We recorded a gain on sale of $5.1 million. On November 14, 2022, we completed the sale of Gilbert Tuscany Village Hard Corner, located in Scottsdale, Arizona, for $2.5 million. We recorded a gain on saleof $0.8 million. On November 10, 2022, we completed the sale of South Richey, located in Houston, Texas, for $13.1 million. We recorded a gain on sale of $9.9 million. On October 31, 2022, we completed the sale of Bissonnet Beltway Plaza, located in Houston, Texas, for $5.4 million. We recorded a gain on sale of $4.4 million. We have not included 2022 sold properties in discontinued operations as they did not meet the definition of discontinued operations. 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. Werecorded 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 connectionwith 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 indiscontinued operations in the respective years of the principal payment receipts as both met the definition of discontinued operations at the date of sale. As ofDecember 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. Werecorded 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 notmeet 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 andPillarstone 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 ofapproximately $84 million, consisting of (1) approximately $18.1 million of Class A units representing limited partnership interests in Pillarstone OP (“Pillarstone OPUnits”) and (2) the assumption of approximately $65.9 million of liabilities (collectively, the “Contribution”).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 theentities that own the contributed Pillarstone Properties (collectively, the “Management Agreements”). Pursuant to the Management Agreements, Whitestone TRSagreed to provide certain property management, leasing and day-to-day advisory and administrative services. The management agreement was terminated on August18, 2022. Prior to the termination of the Management Agreement, we reported approximately $144,000 in property management fee income on a quarterly basis. F-20WHITESTONE REIT AND SUBSIDIARIESNotes to Consolidated Financial StatementsDecember 31, 2022 In connection with the Contribution, on December 8, 2016, the Operating Partnership entered into a Tax Protection Agreement with Pillarstone REIT andPillarstone OP pursuant to which Pillarstone OP agreed to indemnify the Operating Partnership for certain tax liabilities resulting from its recognition of income or gainprior 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 ifPillarstone 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 taxpurposes. As of December 31, 2022, 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 Companyrecognizes 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): Company’s Investment as of December 31, 2022 December 31, 2021 Real estate partnership Ownership Interest Pillarstone OP(1) 81.4% $34,826 $34,588 Total real estate partnership(2)(3)(4) $34,826 $34,588 (1)The Company managed these real estate partnership investments and, where applicable, earned acquisition fees, leasing commissions, property management fees,and asset management fees. The management agreement was terminated on August 18, 2022. (2)Representing eight property interests and 0.9 million square feet of GLA, as of December 31, 2022 and 2021. (3)On December 26, 2021, the Board of Trustees of Pillarstone REIT adopted a new rights agreement (the “Pillarstone Rights Agreement”), pursuant to which eachholder of Pillarstone REIT common stock received one preferred share purchase right (a “Right”) per common share held as of the applicable record date. Each Rightentitles 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 RightsAgreement, including the acquisition by certain holders of 5% or more of the common shares of Pillarstone REIT (an “Acquiring Person”). Upon the acquisition ofPillarstone 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 anumber of Pillarstone REIT common shares having a market value of two times the Purchase Price. As set forth in the Amended and Restated Limited PartnershipAgreement of Pillarstone OP, dated as of December 8, 2016 (the “Pillarstone Partnership Agreement”), we have the contractual right to have our limited partnershipinterests in Pillarstone redeemed at our discretion. However, upon receipt of a redemption notice, Pillarstone OP has the option of the applicable redemption price incash, 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 inPillarstone OP redeemed and Pillarstone OP elects to pay the applicable redemption price in Pillarstone REIT common shares (and such shares represent 5% or moreof 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 OPunits being redeemed for Pillarstone REIT common shares, our ownership interest in Pillarstone REIT would be significantly diluted, which could adversely impactthe value of our investment in Pillarstone OP. Because the Pillarstone Rights Agreement seeks to prevent Whitestone OP from exercising its contractual RedemptionRight, on July 12, 2022, Whitestone OP filed suit against Pillarstone REIT in the Court of Chancery of the State of Delaware challenging the Pillarstone RightsAgreement due to Pillarstone REIT’s breach of the Pillarstone OP partnership agreement, breach of its fiduciary duty as general partner of Pillarstone OP toWhitestone OP, and breach of the implied covenant of good faith and fair dealing under the Pillarstone OP partnership agreement. The lawsuit seeks rescission andvoiding of the Pillarstone Rights Agreement; a declaration that the Pillarstone Rights Agreement is unenforceable, invalid, and of no force and effect; an orderpermanently enjoining enforcement of the Pillarstone Rights Agreement; an award of monetary damages; and broad restrictions on Pillarstone REIT’s ability toconduct its business, including buying properties, enforcing the Rights Agreement, incurring expenses, or engaging in transactions. On September 8, 2022, theCompany’s Motion to Preserve the Status Quo was granted by the Court, limiting Pillarstone from engaging in any acts outside the ordinary course of business andotherwise imposing restrictions on Pillarstone to ensure that Whitestone’s right of redemption right is not impaired while the underlying dispute is being consideredby the Court. While we do not believe the overall impact of the Pillarstone Rights Agreement on the carrying value of our investment in Pillarstone OP is material,we cannot reasonably estimate a range of possible loss at this time. (4)We rely on reporting provided to us by our third-party partners for financial information regarding the Company's investment in Pillarstone OP. Because PillarstoneOP financial statements as of December 31, 2022 have not been made available to us, we have estimated the value of the investment based on the informationavailable to us at the time of this report. F-21WHITESTONE REIT AND SUBSIDIARIESNotes to Consolidated Financial StatementsDecember 31, 2022 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 realestate partnership, net on the Company’s Consolidated Statements of Operations and Comprehensive Income (Loss) (in thousands): Year Ended December 31, 2022 2021 2020 Pillarstone OP $239 $609 $921 Summarized financial information for the Company’s investment in real estate partnership is as follows (in thousands): December 31, 2022 2021 Assets: Real estate, net $47,727 $48,273 Other assets 9,680 8,790 Total assets(1) 57,407 57,063 Liabilities and equity: Notes payable 14,616 14,920 Other liabilities 3,782 3,200 Equity 39,009 38,943 Total liabilities and equity(2) 57,407 57,063 Company’s share of equity 31,773 31,718 Cost of investment in excess of the Company’s share of underlying net book value 3,053 2,870 Carrying value of investment in real estate partnership(3) $34,826 $34,588 (1)We rely on reporting provided to us by our third-party partners for financial information regarding the Company's investment in Pillarstone OP. Because PillarstoneOP financial statements as of December 31, 2022 have not been made available to us, we have estimated total assets and its components based on the informationavailable to us at the time of this report. (2)We rely on reporting provided to us by our third-party partners for financial information regarding the Company's investment in Pillarstone OP. Because PillarstoneOP financial statements as of December 31, 2022 have not been made available to us, we have estimated total liabilities and equity and its components based on theinformation available to us at the time of this report. (3)We rely on reporting provided to us by our third-party partners for financial information regarding the Company's investment in Pillarstone OP. Because PillarstoneOP financial statements as of December 31, 2022 have not been made available to us, we have estimated the value of the investment based on the informationavailable to us at the time of this report. F-22WHITESTONE REIT AND SUBSIDIARIESNotes to Consolidated Financial StatementsDecember 31, 2022 Year Ended December 31, 2022 2021 2020 Rental revenues $8,930 $9,272 $9,672 Property expenses (7,386) (6,988) (6,858)Other expenses (1,099) (1,407) (1,440)Gain (loss) on sale of properties or disposal of assets (20) 23 (112)Net income(1) $425 $900 $1,262 (1)We rely on reporting provided to us by our third-party partners for financial information regarding the Company's investment in Pillarstone OP. Because PillarstoneOP financial statements as of December 31, 2022 have not been made available to us, we have estimated net income and its components based on the informationavailable to us at the time of this report. 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 December31, 2022 and 2021 was $108,000. The Company amortized the difference into equity in earnings of real estate partnership on the consolidated statements of operationsand 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 toPillarstone OP. Since the date of the Contribution, the Company has not provided financial support to Pillarstone OP that it was not previously contractually required toprovide 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 performanceguarantee, for which ASC 460 contains initial recognition and measurement requirements, and related disclosure requirements. The Company is obligated in tworespects: (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 thespecified triggering event(s) occur; and (ii) the contingent liability, which represents the Company’s obligation to make future payments if those 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 balancesheet as a liability. The Company amortizes the guarantee liability into income over seven years. For the years ended December 31, 2022, 2021, and 2020, the amortizationof the guarantee liability was $37,000, $38,000, and $39,000, respectively. F-23WHITESTONE REIT AND SUBSIDIARIESNotes to Consolidated Financial StatementsDecember 31, 2022 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 receivablesas follows (in thousands): December 31, 2022 2021 Tenant receivables $16,828 $18,410 Accrued rents and other recoveries 22,103 18,681 Allowance for doubtful accounts (13,822) (14,896)Other receivables 461 200 Total $25,570 $22,395 6. UNAMORTIZED LEASE COMMISSIONS, LEGAL FEES AND LOAN COSTS Costs which have been deferred consist of the following (in thousands): December 31, 2022 2021 Leasing commissions $16,364 $13,341 Deferred legal cost 364 365 Deferred financing cost 4,149 3,898 Total cost 20,877 17,604 Less: leasing commissions accumulated amortization (7,649) (6,305)Less: deferred legal cost accumulated amortization (263) (248)Less: deferred financing cost accumulated amortization (268) (2,609)Total cost, net of accumulated amortization $12,697 $8,442 A summary of expected future amortization of deferred costs is as follows (in thousands): Leasing Deferred Deferred Years Ended December 31, Commissions Legal Costs Financing Costs Total 2023 $1,872 $45 $889 $2,806 2024 1,565 17 889 2,471 2025 1,300 15 889 2,204 2026 1,080 15 763 1,858 2027 819 6 387 1,212 Thereafter 2,079 3 64 2,146 Total $8,715 $101 $3,881 $12,697 F-24WHITESTONE REIT AND SUBSIDIARIESNotes to Consolidated Financial StatementsDecember 31, 2022 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 theterms of the related leases. Differences between rental income earned and amounts due per the respective lease agreements are capitalized or charged, as applicable, toaccrued rents and accounts receivable. Percentage rents are recognized as rental income when the thresholds upon which they are based have been met. Recoveriesfrom tenants for taxes, insurance, and other operating expenses are recognized as revenues in the period the corresponding costs are incurred. We combine lease andnonlease components in lease contracts, which includes combining base rent, recoveries, and percentage rents into a single line item, Rental, within the consolidatedstatements 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 Topic842) under noncancelable operating leases in existence as of December 31, 2022 is as follows (in thousands): Years Ended December 31, Minimum FutureRents(1) 2023 $95,724 2024 84,112 2025 67,628 2026 52,776 2027 40,869 Thereafter 124,747 Total $465,856 (1)These amounts do not reflect future rental revenues from the renewal or replacement of existing leases and exclude reimbursements of operating expenses and rentalincreases 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 fiveyears. As of December 31, 2022, the Company had one ground lease with the lease term of 99 years. The lease is classified as a finance lease. The ground leaseprovides for variable rental payments based on CPI adjustment. The following table summarizes the fixed, future minimum rental payments, excluding variable costs, which are discounted by our weighted average incrementalborrowing rates to calculate the lease liabilities for our operating and finance leases in existence as of December 31, 2022 in which we are the lessee (in thousands): Years Ended December 31, Operating Leases Finance Lease 2023 $65 $60 2024 42 62 2025 28 63 2026 1 64 2027 — 65 Thereafter — 2,773 Total undiscounted rental payments 136 3,087 Less imputed interest 7 2,352 Total lease liabilities $129 $735 For the year ended December 31, 2022, the total lease costs for operating and finance leases were $597,000 and $11,000, respectively. The weighted averageremaining lease terms for our operating and finance leases at December 31, 2022 were 2.5 and 99 years, respectively. We do not include renewal options in the lease termfor 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 weightedaverage incremental borrowing rate was 4.5% for operating and 6% for finance leases at December 31, 2022. 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 yearsat 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 orthe lessor has the sole ability to exercise the option. The weighted average incremental borrowing rate was 4.5% at December 31, 2021. F-25WHITESTONE REIT AND SUBSIDIARIESNotes to Consolidated Financial StatementsDecember 31, 2022 8. DEBT Mortgages and other notes payable consist of the following (in thousands): December 31, Description 2022 2021 Fixed rate notes $100.0 million, 1.73% plus 1.35% to 1.90% Note (1) $— $100,000 $165.0 million, 2.24% plus 1.35% to 1.90% Note (1) — 165,000 $265.0 million, 3.18% plus 1.45% to 2.10% Note, due January 31, 2028 (2) 265,000 — $80.0 million, 3.72% Note, due June 1, 2027 80,000 80,000 $19.0 million 4.15% Note, due December 1, 2024 18,016 18,358 $20.2 million 4.28% Note, due June 6, 2023 17,375 17,808 $14.0 million 4.34% Note, due September 11, 2024 12,709 12,978 $14.3 million 4.34% Note, due September 11, 2024 13,520 13,773 $15.1 million 4.99% Note, due January 6, 2024 13,635 13,907 $2.6 million 5.46% Note, due October 1, 2023 2,236 2,289 $50.0 million, 5.09% Note, due March 22, 2029 50,000 50,000 $50.0 million, 5.17% Note, due March 22, 2029 50,000 50,000 Floating rate notes Unsecured line of credit, LIBOR plus 1.40% to 1.90%(3) — 119,500 Unsecured line of credit, SOFR plus 1.50% to 2.10%, due September 16, 2026 103,500 — Total notes payable principal 625,991 643,613 Less deferred financing costs, net of accumulated amortization (564) (771)Total notes payable $625,427 $642,842 (1)Loan was fully paid off on September 16, 2022. (2)Promissory note includes an interest rate swap that fixed the SOFR portion of the term loan at an interest rate of 2.16% through October 28, 2022, 2.76% fromOctober 29, 2022 through January 31, 2024, and 3.32% beginning February 1, 2024 through January 31, 2028. (3)Line of credit was paid off on September 16, 2022. As of December 31, 2022 our debt agreements indexed to LIBOR have been converted to SOFR. 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 existinglenders, 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”), andaccrued 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 grantedforgiveness 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 legalrelease from the U.S. Small Business Administration. F-26WHITESTONE REIT AND SUBSIDIARIESNotes to Consolidated Financial StatementsDecember 31, 2022 On March 22, 2019, we, through our Operating Partnership, entered into a Note Purchase and Guarantee Agreement (the “Note Agreement”) together withcertain subsidiary guarantors as initial guarantor parties thereto (the “Subsidiary Guarantors”) and The Prudential Insurance Company of America and the various otherpurchasers named therein (collectively, the “Purchasers”) providing for the issuance and sale of $100 million of senior unsecured notes of the Operating Partnership, ofwhich (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 BSenior 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. On December 16, 2022, Whitestone REIT (the “Company”) and its operating partnership, Whitestone REIT Operating Partnership, L.P. (the “OperatingPartnership”), amended its Note Purchase and Guarantee Agreement originally executed on March 22, 2019 (the “Existing Note Agreement”), pursuant to the terms andconditions of an Amendment No. 1 to Note Purchase and Guaranty Agreement, dated as of December 16, 2022 (the Existing Note Purchase Agreement, as so amended,the “Amended Note Agreement”), by and among the Company and the Operating Partnership, together with certain subsidiary guarantors as initial guarantor partiesthereto and The Prudential Insurance Company of America and the various other purchasers named therein. Neither the term of the Existing Note Agreement, the interest rate, nor the principal amounts, were amended. The purpose of the amendment is to conformcertain covenants and defined terms contained in the Amended Note Agreement with the Company’s recently amended unsecured credit facility with the lenders partythereto, Bank of Montreal, as administrative agent, Truist Bank, as syndication agent, and BMO Capital Markets Corp., Truist Bank, Capital One, National Association,and U.S. Bank National Association, as co-lead arrangers and joint book runners. 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 theSeries 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 partialprepayment, 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 ofthe remaining scheduled payments with respect to the Notes being prepaid over the aggregate principal amount of such Notes (as described in the Note Agreement). Inaddition, 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 at100% 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 tothe Operating Partnership’s existing senior revolving credit facility, including limitations on liens, incurrence of investments, acquisitions, loans and advances andrestrictions on dividends and certain other restricted payments. In addition, the Note Agreement contains certain financial covenants substantially similar to theOperating 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 secured recourse debt to total asset value ratio of 0.15 to 1.00; •maintenance of a minimum tangible net worth (adjusted for accumulated depreciation and amortization) of 75% of the Company's total net worth as of December31, 2021 plus 75% of the net proceeds from additional equity offerings (as defined therein); and •minimum adjusted property NOI to implied unencumbered debt service ratio of 1.50 to 1.00. In addition, the Note Agreement contains a financial covenant requiring that maximum unsecured indebtedness to unencumbered asset pool of 0.60 to 1.00.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 resultin the Purchasers accelerating the payment of all obligations under the Notes. The financial and restrictive covenants and default provisions in the Note Agreement aresubstantially similar to those contained in the Operating Partnership’s existing credit facility. F-27WHITESTONE REIT AND SUBSIDIARIESNotes to Consolidated Financial StatementsDecember 31, 2022 Net proceeds from the Private Placement were used to refinance existing indebtedness. The Notes have not been and will not be registered under the SecuritiesAct 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 registrationrequirements 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 September 16, 2022, we, through our Operating Partnership, entered into an unsecured credit facility (the “2022 Facility”) with the lenders party thereto,Bank of Montreal, as administrative agent (the “Administrative Agent”), Truist Bank, as syndication agent, and BMO Capital Markets Corp., Truist Bank, Capital One,National Association, and U.S. Bank National Association, as co-lead arrangers and joint book runners. The 2022 Facility amended and restated the Company's previousunsecured revolving credit facility, dated January 31, 2019 (the “2019 Facility”). The 2022 Facility is comprised of the following two tranches: •$250.0 million unsecured revolving credit facility with a maturity date of September 16, 2026 (the “2022 Revolver”); •$265.0 million unsecured term loan with a maturity date of January 31, 2028 (“Term Loan”) Borrowings under the 2022 Facility accrue interest (at the Operating Partnership's option) at a Base Rate or an Adjusted Term Secured Overnight FinancingRate ("SOFR") plus an applicable margin based upon our then existing leverage. As of December 31, 2022, the interest rate on the 2022 Revolver was 5.79%. Based onour current leverage ratio, the revolver has initial interest rate of SOFR plus 1.60% and a 10 basis point credit spread adjustment. In addition, we entered into interest rateswaps to fix the interest rates on the Term Loan. The Term Loan with the swaps has the following interest rates: •2.16% plus 1.55% through October 28, 2022 •2.80% plus 1.55% from October 29, 2022 through January 31, 2024 •3.42% plus 1.55% from February 1, 2024 through January 31, 2028 The 2022 Facility also has a pricing provision where the applicable margin can be adjusted by an aggregate 0.02% per annum based on the Company’sperformance on certain sustainability performance targets. Base Rate means, for any day, the higher of: (a) the Administrative Agent’s prime commercial rate, (b) the sumof (i) the rate per annum equal to the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System, as publishedby the Federal Reserve Bank of New York for such day, plus (ii) 0.50%, or (c) the sum of (i) Adjusted Term SOFR for a one-month tenor in effect on such day plus(ii) 1.10%. Adjusted Term SOFR means, for any such day, the sum of (i) the SOFR-based term rate for the day two (2) business days prior and (ii) 0.10%. The 2022 Facility includes an accordion feature that will allow the Operating Partnership to increase the borrowing capacity by $200.0 million, upon thesatisfaction of certain conditions. As of December 31, 2022, subject to any potential future paydowns or increases in the borrowing base, we have $146.4 millionremaining availability under the 2022 Revolver. As of December 31, 2022, $368.5 million was drawn on the 2022 Facility and our unused borrowing capacity was$146.0 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 theunsecured borrowing base. The Company used $379.5 million of proceeds from the 2022 Facility to repay amounts outstanding under the 2019 Facility. F-28WHITESTONE REIT AND SUBSIDIARIESNotes to Consolidated Financial StatementsDecember 31, 2022 The Company, each direct and indirect material subsidiary of the Operating Partnership and any other subsidiary of the Operating Partnership that is aguarantor under any unsecured ratable debt will serve as a guarantor for funds borrowed by the Operating Partnership under the 2022 Facility. The 2022 Facilitycontains 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 ofliens, dividends and restricted payments. In addition, the 2022 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 $449 million plus 75% of the net proceeds fromadditional equity offerings (as defined therein). The 2022 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 taxstatus. If an event of default occurs and is continuing under the 2022 Facility, the lenders may, among other things, terminate their commitments under the 2022 Facilityand require the immediate payment of all amounts owed thereunder. As of December 31, 2022, our $157.5 million in secured debt was collateralized by seven properties with a carrying value of $243.1 million. Our loans containrestrictions that would require the payment of prepayment penalties for the acceleration of outstanding debt and are secured by deeds of trust on certain of ourproperties and by assignment of the rents and leases associated with those properties. As of December 31, 2022, we were in compliance with all loan covenants. Scheduled maturities of our outstanding debt as of December 31, 2022 were as follows (in thousands): Year Amount Due 2023 $28,204 2024 63,573 2025 17,143 2026 120,643 2027 97,143 Thereafter 299,285 Total $625,991 F-29WHITESTONE REIT AND SUBSIDIARIESNotes to Consolidated Financial StatementsDecember 31, 2022 As of December 31, 2022, we had the following contractual obligations (in thousands): Payment due by period (in thousands) More than Less than 1 1 - 3 years 3 - 5 years 5 years Consolidated Contractual Obligations Total year (2023) (2024 - 2025) (2026 - 2027) (after 2027) Long-Term Debt - Principal $625,991 $28,204 $80,716 $217,786 $299,285 Long-Term Debt - Fixed Interest 101,004 23,393 40,899 34,398 2,314 Long-Term Debt - Variable Interest (1) 17,992 4,798 9,596 3,598 — Unsecured credit facility - Unused commitment fee (2) 1,373 366 732 275 — Operating Lease Obligations 136 65 70 1 — Finance Lease Obligations 3,087 60 125 129 2,773 Total $749,583 $56,886 $132,138 $256,187 $304,372 (1)As of December 31, 2022, we had one loan totaling $103.5 million which bore interest at a floating rate. The variable interest rate payments are based on SOFR plus1.60% and a 10 basis point spread adjustment which reflects our new interest rates under our 2022 Facility. The information in the table above reflects our projectedinterest rate obligations for the floating rate payments based on one-month SOFR as of December 31, 2022, of 4.31%. (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. Thefees 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 forour unsecured credit facility based on our December 31, 2022 balance of $368.5 million. F-30WHITESTONE REIT AND SUBSIDIARIESNotes to Consolidated Financial StatementsDecember 31, 2022 9. DERIVATIVES AND HEDGING ACTIVITIES The estimated fair value of our interest rate swaps is as follows (in thousands): December 31, 2022 Balance Sheet Location Estimated Fair Value Prepaid expenses and other assets $6,065 December 31, 2021 Balance Sheet Location Estimated Fair Value Accounts payable and accrued expenses $(6,860) On September 16, 2022, we, through our Operating Partnership, entered an interest rate swap with Bank of Montreal that fixed the unhedged SOFR portionof Term Loan under the 2022 Facility at 3.32%. The notional amount of the swap begins at $100 million on October 29, 2022, and increases to $265 million on February1, 2024, maturing on January 31, 2028. Pursuant to the terms of the agreement governing the interest rate swap, Bank of Montreal assigned beginning and endingnotionals of $20.7 million and $54.8 million of the swap, respectively, to U.S. Bank, National Association, beginning and ending notionals of $25.4 millionand $67.2 million of the swap, respectively, to Truist Bank, beginning and ending notionals of $20.7 million and $54.8 million of the swap, respectively, to Capital One,National Association, and beginning and ending notionals of $5.9 million and $15.7 million of the swap, respectively, to Associated Bank. See Note 8 (Debt) foradditional information regarding the 2022 Facility. We designated the interest rate swap as a cash flow hedge with the effective portion of the changes in fair valuerecorded in comprehensive income and subsequently reclassified into earnings in the period that the hedged transaction affects earnings. The Companydoes not expect any amount of the existing gains or losses to be reclassified into earnings within the next 12 months. 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 LIBORportion of our $165 million term loan under the 2019 Facility at 2.43%. Pursuant to the terms of the agreement governing the interest rate swap, Bank of Montrealassigned $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. Effective September 7, 2022, Regions Bank novated $29.4 million of the swap to Bank of Montreal. 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. Effective September 16, 2022, ourcontracts indexed to LIBOR were converted to SOFR. We have designated the interest rate swap as a cash flow hedge with the effective portion of the changes infair value to be recorded in comprehensive income and subsequently reclassified into earnings in the period that the hedged transaction affects earnings. Theineffective 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 orlosses to be reclassified into earnings within the next 12 months. On November 19, 2015, we, through our Operating Partnership, entered into a $100 million interest rate swap with Bank of Montreal that fixed the LIBORportion of our $100 million term loan under the 2018 Facility at 1.73%. In the fourth quarter of 2015, pursuant to the terms of the agreement governing the interest rateswap, 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 (Debt) foradditional information regarding the 2018 Facility. The swap began on November 30, 2015 and matured on October 28, 2022. We designated the interest rate swap asa cash flow hedge with the effective portion of the changes in fair value recorded in comprehensive income. F-31WHITESTONE REIT AND SUBSIDIARIESNotes to Consolidated Financial StatementsDecember 31, 2022 A summary of our interest rate swap activity is as follows (in thousands): Amount Recognizedas ComprehensiveIncome (Loss) Location of Income (Loss) Recognized in Earnings Amount of Income(Loss) Recognized inEarnings (1) Year Ended December 31, 2022 $12,925 Interest expense $1,523 Year Ended December 31, 2021 $7,803 Interest expense $5,427 Year Ended December 31, 2020 $(9,062) Interest expense $3,578 (1) There was no ineffective portion of our interest rate swaps recognized in earnings for the years ended December 31, 2022, 2021 and 2020. F-32WHITESTONE REIT AND SUBSIDIARIESNotes to Consolidated Financial StatementsDecember 31, 2022 10. EARNINGS PER SHARE Basic earnings per share for our common shareholders is calculated by dividing income from continuing operations excluding amounts attributable to unvestedrestricted shares and the net income attributable to non-controlling interests by our weighted-average common shares outstanding during the period. Diluted earningsper share is computed by dividing the net income attributable to common shareholders excluding amounts attributable to unvested restricted shares and the net incomeattributable 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 thecomputation of basic and diluted earnings per share. During the years ended December 31, 2022, 2021 and 2020, 737,983, 772,383 and 820,563 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, 2022, 2021 and 2020, distributions of $0, $0 and $0, respectively, were made to the holders of certain restricted commonshares, none of which were charged against earnings. See Note 14 for information related to restricted common shares under the 2008 Plan. Year Ended December 31, (in thousands, except per share data) 2022 2021 2020 Numerator: Income from continuing operations $35,800 $10,420 $6,151 Less: Net income attributable to noncontrolling interests (530) (172) (117)Distributions paid on unvested restricted shares — — — Income from continuing operations attributable to Whitestone REIT excluding amounts attributableto unvested restricted shares 35,270 10,248 6,034 Income from discontinued operations — 1,833 — Less: Net income attributable to noncontrolling interests — (33) — Income from discontinued operations attributable to Whitestone REIT — 1,800 — Net income attributable to common shareholders excluding amounts attributable to unvestedrestricted shares $35,270 $12,048 $6,034 Denominator: Weighted average number of common shares - basic 49,256 45,486 42,244 Effect of dilutive securities: Unvested restricted shares 694 850 746 Weighted average number of common shares - dilutive 49,950 46,336 42,990 Earnings Per Share: Basic: Income from continuing operations attributable to Whitestone REIT excluding amounts attributable tounvested restricted shares $0.72 $0.23 $0.14 Income from discontinued operations attributable to Whitestone REIT — 0.03 — Net income attributable to common shareholders excluding amounts attributable to unvested restrictedshares $0.72 $0.26 $0.14 Diluted: Income from continuing operations attributable to Whitestone REIT excluding amounts attributable tounvested restricted shares $0.71 $0.22 $0.14 Income from discontinued operations attributable to Whitestone REIT — 0.04 — Net income attributable to common shareholders excluding amounts attributable to unvested restrictedshares $0.71 $0.26 $0.14 F-33WHITESTONE REIT AND SUBSIDIARIESNotes to Consolidated Financial StatementsDecember 31, 2022 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 havedistributed and intend to continue to distribute all of our taxable income to our shareholders. Our shareholders include their proportionate taxable income in theirindividual 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 sourcesand 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 anytaxable 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. For federal income tax purposes, the cash distributions to shareholders are characterized as follows for the years ended December 31: 2022 2021 2020 Ordinary income (unaudited) 100.0% 80.7% 59.9%Return of capital (unaudited) — 19.3% 40.1%Capital gain distributions (unaudited) — — — Total 100.0% 100.0% 100.0% 12. RELATED PARTY TRANSACTIONS The Contribution. Prior to his employment termination, January 18, 2022, Mr. James C. Mastandrea, the former Chairman and Chief Executive Officer ofWhitestone REIT, also served as the Chairman and Chief Executive Officer of Pillarstone REIT and beneficially owns approximately 66.7% of the outstanding equity inPillarstone REIT (when calculated in accordance with Rule 13d-3(d)(1) under the Exchange Act of 1934, as amended (the “Exchange Act”)). He resigned as a member ofthe Board of Whitestone REIT on April 18, 2022. Prior to his employment termination, February 9, 2022, Mr. John J. Dee, the Company’s former Chief Operating Officerand Corporate Secretary, also served as the Senior Vice President and Chief Financial Officer of Pillarstone REIT and beneficially owns approximately 20.0% of theoutstanding 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 theCompany, also serves as a Trustee of Pillarstone REIT. The Contribution is pursuant to the Company’s strategy of recycling capital by disposing of Non-Core Properties that do not fit the Company’s CommunityCentered Property® strategy and the terms of the Contribution Agreement, the OP Unit Purchase Agreement, the Tax Protection Agreement and the Contribution weredetermined through arm’s-length negotiations. The Contribution was unanimously approved and recommended by a special committee of independent Trustees of theCompany. 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 had transactions with Pillarstone OP that include, but are not limited to, rental income, interest expense, general andadministrative costs, commissions, management and asset management fees, and property expenses. The management agreement was terminated on August 18, 2022. 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, 2022, 2021 and 2020 (in thousands): Location of Revenue (Expense) 2022 2021 2020 RentOperating and maintenance $(471) $(899) $(932)Property management fee incomeManagement, transaction, and other fees $359 $568 $598 F-34WHITESTONE REIT AND SUBSIDIARIESNotes to Consolidated Financial StatementsDecember 31, 2022 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 upto 50 million preferred shares of beneficial interest, $0.001 par value per share. Equity Offerings On May 20, 2022, our universal shelf registration statement on Form S-3 was declared effective by the SEC, which registers the issuance and sale by us of up to$500 million in securities from time to time, including common shares, preferred shares, debt securities, depositary shares and subscription rights. On September 9, 2022, we entered into eleven equity distribution agreements for an at-the-market equity distribution program (the “2022 equity distributionagreements”) 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 onForm S-3 (File No. 333-264881). Actual sales will depend on a variety of factors determined by us from time to time, including (among others) market conditions, thetrading 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 bedeemed 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 timesuspend offers under the 2022 equity distribution agreements or terminate the 2022 equity distribution agreements. We have in the past, and expect to in the future, enter into at-the-market equity distribution programs providing for the issuance and sale of commonshares. 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 commonshares, 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 of 1933, as amended (the "Securities Act"). For the years ended December 31, 2022 and 2021, we sold 0 and6,287,087 common shares under the equity distribution agreements, with net proceeds to us of $0 and $56.0 million, respectively. In connection with such sales, we paidcompensation of $0 and $853,000, 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 ofDecember 31, 2022, we owned a 98.6% 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 oneOP 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 ofDecember 31, 2022 and 2021, there were 49,996,356 and 49,793,803 OP units outstanding, respectively. We owned 49,301,876 and 49,023,313 OP units as of December 31,2022 and 2021, respectively. The balance of the OP units is owned by third parties, including certain trustees. Our weighted-average share ownership in the OperatingPartnership was approximately 98.6%, 98.3% and 98.1% for the years ended December 31, 2022, 2021 and 2020, respectively. For the years ended December 31, 2022 and2021, 76,010 and 2,285 OP units, respectively, were redeemed for an equal number of common shares. F-35WHITESTONE REIT AND SUBSIDIARIESNotes to Consolidated Financial StatementsDecember 31, 2022 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 (inthousands, except per share data): Common Shares Noncontrolling OP Unit Holders Total Quarter Paid DistributionsPer CommonShare Amount Paid DistributionsPer OP Unit Amount Paid Amount Paid 2022 Fourth Quarter $0.1200 $5,909 $0.1200 $83 $5,992 Third Quarter 0.1200 5,901 0.1200 88 5,989 Second Quarter 0.1200 5,880 0.1200 92 5,972 First Quarter 0.1075 5,268 0.1075 83 5,351 Total $0.4675 $22,958 $0.4675 $346 $23,304 2021 Fourth Quarter $0.1075 $5,257 $0.1075 $83 $5,340 Third Quarter 0.1075 4,981 0.1075 83 5,064 Second Quarter 0.1075 4,602 0.1075 83 4,685 First Quarter 0.1058 4,480 0.1058 82 4,562 Total $0.4283 $19,320 $0.4283 $331 $19,651 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 businessconditions 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 CommonShares 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 (asthe 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 $0.001per 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 equaltreatment of all shareholders by guarding against opportunistic efforts to capitalize on recent macroeconomic conditions, including open market accumulations or othertactics, 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 RightsAgreement, (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 areterminated, and (iv) the time at which the Rights are exchanged pursuant to the Rights Agreement (such earliest date, the “Expiration Date”). F-36WHITESTONE REIT AND SUBSIDIARIESNotes to Consolidated Financial StatementsDecember 31, 2022 On April 21, 2021, the Company entered into the First Amendment to Rights Agreement (the “First Amendment”) with the Rights Agent. The First Amendmentamends 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 fromthe 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 SecondAmendment amends the First Amendment to the Rights Agreement by and between the Company and the Rights Agent, solely to accelerate the expiration date of therights 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 ofshareholders on May 11, 2017, our shareholders voted to approve the 2018 Long-Term Equity Incentive Ownership Plan (the “2018 Plan”). The 2018 Plan provides forthe 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 dayafter 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, includingboth incentive share options and non-qualified share options, as well as share appreciation rights, either with or without a related option. The Compensation Committeeis also authorized to grant restricted common shares, restricted common share units, performance awards and other share-based awards. On September 6, 2017, theCompensation Committee approved the grant of an aggregate of 965,000 performance-based restricted common share units under the 2008 Plan which only vestimmediately 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 ofour 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 shallbe 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 theCIC 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 fairvalue. 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, theremaining 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 performanceperiod. 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 GroupRanking. 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 Carlosimulation 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 theaward grant and calculates the fair value of the award. Expected volatilities utilized in the model were estimated using a historical period consistent with the performanceperiod 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. F-37WHITESTONE REIT AND SUBSIDIARIESNotes to Consolidated Financial StatementsDecember 31, 2022 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 unitsunder the 2018 Plan to certain of our employees. On September 30, 2019, the Compensation Committee approved the grant of 17,069 time-based restricted common shareunits 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 definedin 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 vestedTSR Unit was 0% based on the Company’s TSR Peer Group Ranking. Continued employment is required through the vesting date. The grant date fair value for each TSRUnit 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 grantdate to the end of the performance period, December 31, 2021. The Monte Carlo simulation model utilizes multiple input variables that determine the probability ofsatisfying 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 ahistorical 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 termcommensurate 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 September30, 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 vestannually 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 unitsunder 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 inthe 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 TSRUnit 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 fairvalue 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 fromthe 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 determinethe 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 wereestimated using a historical period consistent with the performance period of approximately three years. The risk-free interest rate was based on the United StatesTreasury 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 vestannually in three equal installments. On December 31, 2022, the remaining unvested 273,500 TSR Units that were granted on July 31, 2020 vested at 0% attainment into 0common shares. 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 ouremployees. 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 unitsunder 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 inthe 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 TSRUnit 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 fairvalue 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 fromthe 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 determinethe 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 wereestimated using a historical period consistent with the performance period of approximately 3 years. The risk-free interest rate was based on the United States Treasuryrate 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 inthree 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 ofthe 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 2018Plan 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. On March 28, 2022, the Compensation Committee approved the grant of an aggregate of 162,556 TSR Units and 162,556 time-based restricted common shareunits 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 definedin 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 vestedTSR 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 datefair value for each TSR Unit of $13.74 was determined using the Monte Carlo simulation method and is being recognized as share-based compensation expense ratablyfrom the June 30, 2022 grant date to the end of the performance period, December 31, 2024. The Monte Carlo simulation model utilizes multiple input variables thatdetermine the probability of satisfying the market condition stipulated in the award grant and calculates the fair value of the award. Expected volatilities utilized in themodel were estimated using a historical period consistent with the performance period of approximately three years. The risk-free interest rate was based on the UnitedStates 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 $9.94 andvest annually in three equal installments. F-38WHITESTONE REIT AND SUBSIDIARIESNotes to Consolidated Financial StatementsDecember 31, 2022 A summary of the share-based incentive plan activity as of and for the year ended December 31, 2022 is as follows: Weighted Average Grant Date Shares Fair Value Non-vested at January 1, 2022 2,716,132 $8.32 Granted 360,334 11.61 Vested (519,003) 6.63 Forfeited (1,336,518) 8.30 Non-vested at December 31, 2022 1,220,945 10.03 Available for grant at December 31, 2022 1,739,465 (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, 2022, 2021 and 2020 is presented below: Shares Granted Shares Vested Non-Vested SharesIssued Weighted AverageGrant-Date FairValue Vested Shares Total Vest-Date FairValue (in thousands) Year Ended December 31, 2022 360,334 $11.61 (519,003) $3,442 Year Ended December 31, 2021 904,215 $5.99 (1,024,808) $9,757 Year Ended December 31, 2020 1,108,014 $5.76 (511,621) $5,566 Total compensation recognized in earnings for share-based payments was $1.5 million, $5.9 million, and $6.1 million for the years ended December 31, 2022,2021, and 2020, respectively. As of December 31, 2022, there were 455,000 CIC Units outstanding that we do not expect to vest before their period of restriction lapses in 21 months becausethe Company considers a Change in Control unlikely on or before September 30, 2024. As of December 31, 2022, there was approximately $2.2 million in unrecognizedcompensation cost related to outstanding non-vested TSR Units, which are expected to vest over a period of 24 months and approximately $2.5 million in unrecognizedcompensation cost related to outstanding non-vested time-based shares, which are expected to be recognized over a period of approximately 30 months beginning onJanuary 1, 2023. We expect to record approximately $4.7 million in share-based compensation subsequent to the year ended December 31, 2022. The unrecognized share-basedcompensation 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 thedenominator 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 Unitsis 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 December31, 2022, the TSR Peer Group Ranking called for 50% and 150% attainment of the TSR Units granted in 2021 and 2022, respectively. The dilutive impact of the CIC Unitsis 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 Unitsare included in the Company’s dilutive shares. F-39WHITESTONE REIT AND SUBSIDIARIESNotes to Consolidated Financial StatementsDecember 31, 2022 15. GRANTS TO TRUSTEES On December 19, 2022, five independent trustees and one trustee emeritus were granted a total of 35,222 common shares, which vest immediately and areprorated based on date appointed. The 35,222 common shares granted to our trustees had a grant fair value of $9.52 per share. The fair value of the shares grantedduring the year ended December 31, 2022 was determined using quoted prices available on the date of grant. On December 13, 2021, five independent trustees and one trustee emeritus were granted a total of 29,825 common shares, which vest immediately and areprorated 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 grantedduring 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 anddid 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 atotal 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. 16. COMMITMENTS AND CONTINGENCIES Litigation between the Company and Pillarstone REIT On September 16, 2022, Pillarstone Capital REIT and Pillarstone Capital REIT Operating Partnership, L.P. filed suit against the Company and certain of itssubsidiaries (Whitestone TRS, Inc. and Whitestone REIT Operating Partnership, L.P.) along with certain of its executives (Peter Tropoli, Christine Mastandrea, andDavid Holeman) in the District Court of Harris County, Texas, alleging claims relating to the limited partnership agreement between Pillarstone Capital REIT andWhitestone REIT Operating Partnership, as well as the termination of Management Agreements between Pillarstone Capital REIT Operating Partnership, L.P. andWhitestone TRS, Inc. On November 25, 2022, the claims against Peter Tropoli, Christine Mastandrea and David Holeman were dismissed. The claimants seek monetaryrelief in excess of $1,000,000 in damages and equitable relief. However, the Company denies the claims, has substantial legal and factual defenses against the claims, andintends 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 itsfinancial position, results of operations, cash flows or liquidity. Therefore, the Company has not recorded a charge as a result of this action. Former CEO Litigation On February 23, 2022, the Company’s former CEO, James Mastandrea, filed suit against the Company and certain of its trustees (Nandita Berry, Jeff Jones, JackMahaffey, and David Taylor) and officers (David Holeman, Christine Mastandrea, Peter Tropoli) in the District Court of Harris County, Texas, alleging claims relating tothe termination of claimant’s employment. Claimant purports to assert claims for breach of contract, breach of fiduciary duties, tortious interference with contract, civilconspiracy, and declaratory judgment. On September 12, 2022, the claim for breach of fiduciary duty was dismissed and a claim for negligence was added. The claimantseeks a maximum of $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 onits financial position, results of operations, cash flows or liquidity. Therefore, the Company has not recorded a charge as a result of this action. Pillarstone Rights Plan On December 26, 2021, the Board of Trustees of Pillarstone REIT adopted a new rights agreement (the “Pillarstone Rights Agreement”), pursuant to which eachholder of Pillarstone REIT common stock received one preferred share purchase right (a “Right”) per common share held as of the applicable record date. Each Rightentitles 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 (“PurchasePrice”) 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 REITcommon 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 PillarstoneREIT 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 PartnershipAgreement”), we have the contractual right to have our limited partnership interests in Pillarstone redeemed at our discretion. However, upon receipt of a redemptionnotice, 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 REITcommon 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 inPillarstone 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 PillarstoneREIT would be significantly diluted, which could adversely impact the value of our investment in Pillarstone OP. Because the Pillarstone Rights Agreement seeks to prevent Whitestone OP from exercising its contractual Redemption Right, on July 12, 2022, Whitestone OPfiled suit against Pillarstone REIT in the Court of Chancery of the State of Delaware challenging the Pillarstone Rights Agreement due to Pillarstone REIT’s breach of thePillarstone OP partnership agreement, breach of its fiduciary duty as general partner of Pillarstone OP to Whitestone OP, and breach of the implied covenant of goodfaith and fair dealing under the Pillarstone OP partnership agreement. The lawsuit seeks rescission and voiding of the Pillarstone Rights Agreement; a declaration thatthe Pillarstone Rights Agreement is unenforceable, invalid, and of no force and effect; an order permanently enjoining enforcement of the Pillarstone Rights Agreement;an award of monetary damages; and broad restrictions on Pillarstone REIT’s ability to conduct its business, including buying properties, enforcing the RightsAgreement, incurring expenses, or engaging in transactions.F-40On September 8, 2022, the Company’s Motion to Preserve the Status Quo was granted by the Court, limiting Pillarstone from engaging in any acts outside the ordinary course of business and otherwise imposing restrictions on Pillarstone to ensure that Whitestone’s right of redemption right is not impaired while the underlying dispute is being considered by the Court. While we do not believe the overall impact of the Pillarstone Rights Agreement on the carrying value of our investment in Pillarstone OP is material, we cannot reasonably estimate a range of possible loss at this time. 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-41 WHITESTONE REIT AND SUBSIDIARIESNotes to Consolidated Financial StatementsDecember 31, 2022 18. SELECTED QUARTERLY FINANCIAL DATA (unaudited) The following is a summary of our unaudited quarterly financial information for the years ended December 31, 2022 and 2021 (in thousands, except per sharedata): First Second Third Fourth Quarter Quarter Quarter Quarter 2022 Revenues $34,123 $34,997 $35,383 $34,918 Net income $7,189 $4,406 $3,975 $20,230 Net income attributable to Whitestone REIT $7,078 $4,338 $3,915 $19,939 Basic Earnings per share: Net income attributable to common shareholders, excluding amounts attributable tounvested restricted shares(1) $0.14 $0.09 $0.08 $0.40 Diluted Earnings per share: Net income attributable to common shareholders, excluding amounts attributable tounvested restricted shares(1) $0.14 $0.09 $0.08 $0.40 2021 Revenues $29,045 $30,618 $32,444 $33,258 Net income $1,441 $5,218 $2,946 $2,648 Net income attributable to Whitestone REIT $1,415 $5,126 $2,899 $2,608 Basic Earnings per share: Income from continuing operations attributable to Whitestone REIT, excluding amountsattributable to unvested restricted shares(1) $0.03 $0.08 $0.06 $0.05 Income from discontinued operations attributable to Whitestone REIT(1) 0.00 $0.04 $0.00 $0.00 Net income attributable to common shareholders, excluding amounts attributable tounvested restricted shares(1) $0.03 $0.12 $0.06 $0.05 Diluted Earnings per share: Income from continuing operations attributable to Whitestone REIT, excluding amountsattributable to unvested restricted shares(1) $0.03 $0.08 $0.06 $0.05 Income from discontinued operations attributable to Whitestone REIT(1) 0.00 $0.04 0.00 0.00 Net income attributable to common shareholders, excluding amounts attributable tounvested restricted shares(1) $0.03 $0.12 $0.06 $0.05 (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 asthe result of each period’s computation being based on the weighted average number of common shares outstanding during that period. F-42WHITESTONE REIT AND SUBSIDIARIESNotes to Consolidated Financial StatementsDecember 31, 2022 19. SUBSEQUENT EVENTS Management evaluated subsequent events through March 8, 2023, which was the date the financial statements were available to be issued, and determinedthat there are no subsequent events to be reported. F-43Whitestone REIT and SubsidiariesSchedule II - Valuation and Qualifying AccountsDecember 31, 2022 (in thousands) Balance at Deductions Balance at Beginning from End of Description of Year Charges(1) Reserves Year Allowance for doubtful accounts: Year ended December 31, 2022 $14,896 $1,156 $(2,230) $13,822 Year ended December 31, 2021 16,426 (90) (1,440) 14,896 Year ended December 31, 2020 11,173 5,649 (396) 16,426 (1)For the year ended December 31, 2022, 2021, and 2020 charges were reductions (additions) to revenue. F-44 Whitestone REIT and SubsidiariesSchedule III - Real Estate and Accumulated DepreciationDecember 31, 2022 Costs Capitalized Subsequent Gross Amount at which Carried at Initial Cost (in thousands) to Acquisition (in thousands) End of Period (in thousands)(1) (2) Building and Improvements Carrying Building and Property Name Land Improvements (net) Costs Land Improvements Total Whitestone Properties: Ahwatukee Plaza $5,126 $4,086 $387 $— $5,126 $4,473 $9,599 Anderson Arbor 4,679 23,545 (3) — 4,679 23,542 28,221 Anthem Marketplace 4,790 17,973 1,851 — 4,790 19,824 24,614 Anthem Marketplace Phase II 204 — 502 — 204 502 706 BLVD Place 63,893 90,942 3,161 — 63,893 94,103 157,996 The Citadel 472 1,777 3,357 — 472 5,134 5,606 City View Village 2,044 4,149 120 — 2,044 4,269 6,313 Dana Park Pad 890 4,034 (87) — 890 3,947 4,837 Davenport Village 11,367 34,101 1,761 — 11,367 35,862 47,229 Eldorado Plaza 16,551 30,746 908 — 16,551 31,654 48,205 Fountain Hills 5,113 15,340 1,110 — 5,113 16,450 21,563 Fountain Square 5,573 9,828 3,078 — 5,573 12,906 18,479 Fulton Ranch Towne Center 7,604 22,612 2,762 — 7,604 25,374 32,978 Gilbert Tuscany Village 1,767 3,233 1,451 — 1,767 4,684 6,451 Heritage Trace Plaza 6,209 13,821 1,151 — 6,209 14,972 21,181 HQ Village 7,171 18,439 2,097 — 7,171 20,536 27,707 Keller Place 5,977 7,577 995 — 5,977 8,572 14,549 Kempwood Plaza 733 1,798 2,422 — 733 4,220 4,953 Lakeside Market 18,116 35,290 789 — 18,116 36,079 54,195 Lake Woodlands Crossing — 12,069 (310) — — 11,759 11,759 La Mirada 12,853 24,464 1,798 — 12,853 26,262 39,115 Las Colinas 16,706 18,098 1,027 — 16,706 19,125 35,831 Lion Square 1,546 4,289 4,774 — 1,546 9,063 10,609 The MarketPlace at Central 1,305 5,324 1,518 — 1,305 6,842 8,147 Market Street at DC Ranch 9,710 26,779 10,063 — 9,710 36,842 46,552 Mercado at Scottsdale Ranch 8,728 12,560 1,939 — 8,728 14,499 23,227 Paradise Plaza 6,155 10,221 1,374 — 6,155 11,595 17,750 Parkside Village North 3,877 8,629 406 — 3,877 9,035 12,912 Parkside Village South 5,562 27,154 983 — 5,562 28,137 33,699 Pinnacle of Scottsdale 6,648 22,466 2,319 — 6,648 24,785 31,433 Pinnacle of Scottsdale Phase II 883 4,659 2,781 — 883 7,440 8,323 The Promenade at Fulton Ranch 5,198 13,367 823 — 5,198 14,190 19,388 Providence 918 3,675 3,062 — 918 6,737 7,655 Quinlan Crossing 9,561 28,683 1,175 — 9,561 29,858 39,419 Seville 6,913 25,518 2,669 — 6,913 28,187 35,100 Shaver 184 633 176 — 184 809 993 Shops at Pecos Ranch 3,781 15,123 1,224 — 3,781 16,347 20,128 Shops at Starwood 4,093 11,487 1,370 — 4,093 12,857 16,950 Starwood Phase III 1,818 7,069 3,633 — 1,818 10,702 12,520 The Shops at Williams Trace 5,920 14,297 2,420 — 5,920 16,717 22,637 Spoerlein Commons 2,340 7,296 984 — 2,340 8,280 10,620 The Strand at Huebner Oaks 5,805 12,335 1,035 — 5,805 13,370 19,175 SugarPark Plaza 1,781 7,125 1,490 — 1,781 8,615 10,396 Sunridge 276 1,186 954 — 276 2,140 2,416 Sunset at Pinnacle Peak 3,610 2,734 873 — 3,610 3,607 7,217 Terravita Marketplace 7,171 9,392 1,675 — 7,171 11,067 18,238 F-45 Whitestone REIT and SubsidiariesSchedule III - Real Estate and Accumulated DepreciationDecember 31, 2022 Costs Capitalized Subsequent Gross Amount at which Carried at Initial Cost (in thousands) to Acquisition (in thousands) End of Period (in thousands)(1) (2) Building and Improvements Carrying Building and Property Name Land Improvements (net) Costs Land Improvements Total Town Park 850 2,911 517 — 850 3,428 4,278 Village Square at Dana Park 10,877 40,250 6,138 — 10,877 46,388 57,265 Westchase 423 1,751 3,480 — 423 5,231 5,654 Williams Trace Plaza 6,800 14,003 1,792 — 6,800 15,795 22,595 Windsor Park 2,621 10,482 8,701 — 2,621 19,183 21,804 Woodlake Plaza 1,107 4,426 3,773 — 1,107 8,199 9,306 Total Whitestone Properties $324,299 $749,746 $104,447 $— $324,299 $854,193 $1,178,492 Land Held for Development: BLVD Place Phase II-B 10,500 — 1,410 2,692 10,500 4,102 14,602 Dana Park Development 4,000 — 25 — 4,000 25 4,025 Eldorado Plaza Development 911 — 30 — 911 30 941 Fountain Hills 277 — — — 277 — 277 Market Street at DC Ranch 704 — — — 704 — 704 Total - Land Held for Development $16,392 $— $1,465 $2,692 $16,392 $4,157 $20,549 Grand Totals - Whitestone Properties $340,691 $749,746 $105,912 $2,692 $340,691 $858,350 $1,199,041 F-46 Whitestone REIT and SubsidiariesSchedule III - Real Estate and Accumulated DepreciationDecember 31, 2022 AccumulatedDepreciation Date of Date Depreciation Property Name Encumbrances (in thousands) Construction Acquired Life (in years) Whitestone Properties: Ahwatukee Plaza $1,321 8/16/2011 3 - 39 Anderson Arbor 629 12/01/2021 3 - 39 Anthem Marketplace (3) 4,847 6/28/2013 3 - 39 Anthem Marketplace Phase II 215 3/1/2019 3 - 39 BLVD Place (4) 14,195 5/26/2017 3 - 39 The Citadel 3,025 9/28/2010 3 - 39 City View Village 888 3/31/2015 3 - 39 Dana Park Pad 6 12/2/2022 3 - 40 Davenport Village 7,808 5/27/2015 3 - 39 Eldorado Plaza 4,711 5/3/2017 3 - 39 Fountain Hills Plaza 3,973 10/7/2013 3 - 39 Fountain Square 4,397 9/21/2012 3 - 39 Fulton Ranch Towne Center 5,518 11/5/2014 3 - 39 Gilbert Tuscany Village 2,090 6/28/2011 3 - 39 Heritage Trace Plaza 3,624 7/1/2014 3 - 39 Headquarters Village (5) 5,708 3/28/2013 3 - 39 Keller Place 1,903 8/26/2015 3 - 39 Kempwood Plaza 2,475 2/2/1999 3 - 39 Lakeside Market 1,373 7/8/2021 3 - 39 Lake Woodlands Crossing 34 12/21/2022 3 - 43 La Mirada 4,921 9/30/2016 3 - 39 Las Colinas Village 1,625 12/6/2019 3 - 39 Lion Square 6,232 1/1/2000 3 - 39 The Marketplace at Central 2,748 11/1/2010 3 - 39 Market Street at DC Ranch 12,129 12/5/2013 3 - 39 Mercado at Scottsdale Ranch 4,142 6/19/2013 3 - 39 Paradise Plaza 3,660 8/8/2012 3 - 39 Parkside Village North 1,826 7/2/2015 3 - 39 Parkside Village South 5,697 7/2/2015 3 - 39 Pinnacle of Scottsdale (6) 7,592 12/22/2011 3 - 39 Pinnacle of Scottsdale Phase II 1,989 3/31/2017 3 - 39 The Promenade at Fulton Ranch 3,287 11/5/2014 3 - 39 Providence 3,550 3/30/2001 3 - 39 Quinlan Crossing 6,059 8/26/2015 3 - 39 Seville 4,680 9/30/2016 3 - 39 Shaver 517 12/17/1999 3 - 39 Shops at Pecos Ranch (7) 4,450 12/28/2012 3 - 39 Shops at Starwood (8) 3,742 12/28/2011 3 - 39 Shops at Starwood Phase III 2,616 12/31/2016 3 - 39 The Shops at Williams Trace 3,574 12/24/2014 3 - 39 Spoerlein Commons 3,265 1/16/2009 3 - 39 The Strand at Huebner Oaks 3,122 9/19/2014 3 - 39 SugarPark Plaza 4,077 9/8/2004 3 - 39 Sunridge 1,210 1/1/2002 3 - 39 Sunset at Pinnacle Peak 1,277 5/29/2012 3 - 39 Terravita Marketplace 3,387 8/8/2011 3 - 39 Town Park 2,623 1/1/1999 3 - 39 F-47 Whitestone REIT and SubsidiariesSchedule III - Real Estate and Accumulated DepreciationDecember 31, 2022 AccumulatedDepreciation Date of Date Depreciation Property Name Encumbrances (in thousands) Construction Acquired Life Village Square at Dana Park (9) 12,981 9/21/2012 3 - 39 Westchase 2,961 1/1/2002 3 - 39 Williams Trace Plaza 3,465 12/24/2014 3 - 39 Windsor Park 11,802 12/16/2003 3 - 39 Woodlake Plaza 4,340 3/14/2005 3 - 39 $208,286 Land Held for Development: BLVD Place Phase II-B — 5/26/2017 Land - NotDepreciated Dana Park Development — 9/21/2012 Land - NotDepreciated Eldorado Plaza Development — 12/29/2017 Land - NotDepreciated Fountain Hills — 10/7/2013 Land - NotDepreciated Market Street at DC Ranch — 12/5/2013 Land - NotDepreciated Total - Land Held For Development $— Grand Totals - Whitestone Properties $208,286 (1)Reconciliations of total real estate carrying value for the three years ended December 31, follows (in thousands): 2022 2021 2020 Balance at beginning of period $1,196,919 $1,106,426 $1,099,955 Additions during the period: Acquisitions 16,992 81,588 — Improvements 13,659 9,642 7,613 30,651 91,230 7,613 Deductions - cost of real estate sold or retired (28,529) (737) (1,142)Balance at close of period $1,199,041 $1,196,919 $1,106,426 (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 portion of this property secures a $2.6 million mortgage note. F-48FFO: Funds From Operations: The National Association of Real Estate Investment Trusts (“NAREIT”) defines FFO as net income (loss) (calculated 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. Whitestone REIT and Subsidiaries RECONCILIATION OF NON-GAAP MEASURES (in thousands, except per share and per unit data) FFO (NAREIT) AND NORMALIZED FFO 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) Loss on disposal of assets, net Gain on sale of properties from continuing operations, net Gain on sale of property from discontinued operations (Gain) loss on sale or disposal of properties or assets of real estate partnership (pro rata)(2) Net income attributable to noncontrolling interests FFO (NAREIT) Adjustments to reconcile to Normalized FFO: Early debt extinguishment costs Normalized FFO FFO PER SHARE AND OP UNIT CALCULATION Numerator: FFO Normalized FFO Denominator: Three Months Ended December 31, Year Ended December 31, 2022 2021 2022 2021 $ 19,939 $ 2,608 $ 35,270 $ 12,048 8,004 404 180 (16,950) — — 291 11,868 7,453 420 1 — — — 40 10,522 31,538 1,613 192 (16,950) — — 530 52,193 28,806 1,674 90 (266) (1,833) (19) 205 40,705 — $ 11,868 — $ 10,522 147 $ 52,340 — $ 40,705 $ 11,868 $ 11,868 $ 10,522 $ 10,522 $ 52,193 $ 52,340 $ 40,705 $ 40,705 Weighted average number of total common shares - basic Weighted average number of total noncontrolling OP units - basic Weighted average number of total common shares and noncontrolling OP units - basic 49,384 695 50,079 49,102 771 49,873 49,256 738 49,994 45,486 772 46,258 Effect of dilutive securities: Unvested restricted shares Weighted average number of total common shares and noncontrolling OP units - diluted 742 50,821 879 50,752 694 50,688 850 47,108 FFO per common share and OP unit - basic FFO per common share and OP unit - diluted $ 0.24 $ 0.23 $ 0.21 $ 0.21 $ 1.04 $ 1.03 $ 0.88 $ 0.86 Normalized FFO per common share and OP unit - basic Normalized FFO per common share and OP unit - diluted $ 0.24 $ 0.23 $ 0.21 $ 0.21 $ 1.05 $ 1.03 $ 0.88 $ 0.86 (1) Includes pro-rata share attributable to real estate partnership. (2) We rely on reporting provided to us by our third-party partners for financial information regarding the Company's investment in Pillarstone OP. Because Pillarstone OP financial statements as of December 31, 2022 have not been made available to us, we have estimated depreciation and amortization of real estate assets based on the information available to us at the time of this Report. 7 wsr-annual-report-wrap-2022.indd 8 wsr-annual-report-wrap-2022.indd 8 3/22/2023 2:28:49 PM 3/22/2023 2:28:49 PM EBITDAre: The National Association of Real Estate Investment Trusts (“NAREIT”) defines EBITDAre as net income computed in accordance with GAAP, plus interest expense, income tax expense, depreciation and amortization and impairment write-downs of depreciable property and of investments in unconsolidated affiliates caused by a decrease in value of depreciable property in the affiliate, plus or minus losses and gains on the disposition of depreciable property, including losses/gains on change in control and adjustments to reflect the entity’s share of EBITDAre of the unconsolidated affiliates and consolidated affiliates with non-controlling interests. The Company calculates EBITDAre in a manner consistent with the NAREIT definition. Management believes that EBITDAre represents a supplemental non-GAAP performance measure that provides investors with a relevant basis for comparing REITs. There can be no assurance the EBITDAre as presented by the Company is comparable to similarly titled measures of other REITs. EBITDAre should not be considered as alternatives to net income or other measurements under GAAP as indicators of operating performance or to cash flows from operating, investing or financing activities as measures of liquidity. EBITDAre does not reflect working capital changes, cash expenditures for capital improvements or principal payments on indebtedness. Net debt: We present net debt, which we define as total debt less cash plus our proportional share of net debt of real estate partnership, and net debt to pro forma EBITDAre, which we define as net debt divided by EBITDAre because we believe they are helpful as supplemental measures in assessing our ability to service our financing obligations and in evaluating balance sheet leverage against that of other REITs. However, net debt and net debt to pro forma EBITDAre should not be viewed as a stand-alone measure of our overall liquidity and leverage. In addition, our REITs may use different methodologies for calculating net debt and net debt to pro forma EBITDAre, and accordingly our net debt and net debt to pro forma EBITDAre may not be comparable to that of other REITs. Whitestone REIT and Subsidiaries RECONCILIATION OF NON-GAAP MEASURES (continued) (in thousands) EARNINGS BEFORE INTEREST, TAX, DEPRECIATION AND AMORTIZATION FOR REAL ESTATE (EBITDAre) Three Months Ended December 31, 2022 2021 Year Ended December 31, 2022 2021 Net income attributable to Whitestone REIT Depreciation and amortization Interest expense Provision for income taxes Net income attributable to noncontrolling interests Equity in earnings of real estate partnership (1) EBITDAre adjustments for real estate partnership (1) Gain on sale of properties from continuing operations, net Gain on sale of property from discontinued operations Loss on disposal of assets, net EBITDAre $ $ $ $ 19,939 8,046 8,082 109 291 65 533 (16,950) — 180 20,295 2,608 7,492 6,147 111 40 (180) 813 — — 1 17,032 35,270 31,707 27,193 422 530 (239) 2,626 (16,950) — 192 80,751 12,048 28,950 24,564 385 205 (609) 3,071 (266) (1,833) 90 66,605 $ $ $ $ (1) We rely on reporting provided to us by our third-party partners for financial information regarding the Company's investment in Pillarstone OP. Because Pillarstone OP financial statements as of December 31, 2022 have not been made available to us, we have estimated equity in earnings and EBITDAre adjustments for real estate partnership based on the information available to us at the time of this Report. Debt/EBITDAre Ratio Outstanding debt, net of insurance financing Less: Cash Add: Proportional share of net debt of unconsolidated real estate partnership (1) Total Net Debt EBITDAre Three Months Ended December 31, Year Ended December 31, 2022 2021 2022 2021 $ 625,991 (6,166) 8,112 $ 627,937 $ 643,613 (15,721) 8,200 $ 636,092 $ 625,991 (6,166) 8,112 $ 627,937 $ 643,613 (15,721) 8,200 $ 636,092 $ 20,295 $ 17,032 $ 80,751 $ 66,605 Effect of partial period acquisitions and dispositions $ 168 $ 301 $ (48) $ 3,176 Pro forma EBITDAre $ 20,463 $ 17,333 $ 80,703 $ 69,781 Pro forma annualized EBITDAre $ 81,852 $ 69,332 $ 80,703 $ 69,781 Ratio of debt to pro forma EBITDAre 7.7 9.2 7.8 9.1 (1) We rely on reporting provided to us by our third-party partners for financial information regarding the Company's investment in Pillarstone OP. Because Pillarstone OP financial statements as of December 31, 2022 have not been made available to us, we have estimated proportional share of net debt and real estate based on the information available to us at the time of this Report. WHITESTONE REIT 2022 ANNUAL REPORT wsr-annual-report-wrap-2022.indd 9 wsr-annual-report-wrap-2022.indd 9 8 3/22/2023 2:28:49 PM 3/22/2023 2:28:49 PM EBITDAre: The National Association of Real Estate Investment Trusts (“NAREIT”) defines EBITDAre as net income computed in accordance with GAAP, plus interest expense, income tax expense, depreciation and amortization and impairment write-downs of depreciable property and of investments in unconsolidated affiliates caused by a decrease in value of depreciable property in the affiliate, plus or minus losses and gains on the disposition of depreciable property, including losses/gains on change in control and adjustments to reflect the entity’s share of EBITDAre of the unconsolidated affiliates and consolidated affiliates with non-controlling interests. The Company calculates EBITDAre in a manner consistent with the NAREIT definition. Management believes that EBITDAre represents a supplemental non-GAAP performance measure that provides investors with a relevant basis for comparing REITs. There can be no assurance the EBITDAre as presented by the Company is comparable to similarly titled measures of other REITs. EBITDAre should not be considered as alternatives to net income or other measurements under GAAP as indicators of operating performance or to cash flows from operating, investing or financing activities as measures of liquidity. EBITDAre does not reflect working capital changes, cash expenditures for capital improvements or principal payments on indebtedness. Net debt: We present net debt, which we define as total debt less cash plus our proportional share of net debt of real estate partnership, and net debt to pro forma EBITDAre, which we define as net debt divided by EBITDAre because we believe they are helpful as supplemental measures in assessing our ability to service our financing obligations and in evaluating balance sheet leverage against that of other REITs. However, net debt and net debt to pro forma EBITDAre should not be viewed as a stand-alone measure of our overall liquidity and leverage. In addition, our REITs may use different methodologies for calculating net debt and net debt to pro forma EBITDAre, and accordingly our net debt and net debt to pro forma EBITDAre may not be comparable to that of other REITs. Whitestone REIT and Subsidiaries RECONCILIATION OF NON-GAAP MEASURES (continued) (in thousands) PROPERTY NET OPERATING INCOME Net income attributable to Whitestone REIT General and administrative expenses Depreciation and amortization Equity in earnings of real estate partnership (1) Interest expense Interest, dividend and other investment income Provision for income taxes Gain on sale of properties from continuing operations, net Gain on sale of property from discontinued operations Management fee, net of related expenses Loss on disposal of assets, net (1) NOI of real estate partnership (pro rata) Net income attributable to noncontrolling interests NOI Non-Same Store NOI (2) 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 (3) Three Months Ended December 31, 2022 2021 Year Ended December 31, 2022 2021 $ 19,939 5,003 8,046 65 8,082 (22) 109 (16,950) — — 180 594 291 $ 25,337 (727) (594) 24,016 (378) (264) (21) $ 23,353 $ 2,608 6,589 7,492 (180) 6,147 (13) 111 — — 85 1 987 40 $ 23,867 (623) (987) 22,257 (238) (198) (14) $ 21,807 $ 35,270 18,066 31,707 (239) 27,193 (65) 422 (16,950) — 112 192 3,023 530 $ 99,261 (7,244) (3,023) 88,994 (1,181) (949) (135) $ 86,729 $ 12,048 22,625 28,950 (609) 24,564 (116) 385 (266) (1,833) 331 90 3,833 205 $ 90,207 (3,513) (3,833) 82,861 (1,371) (832) (280) $ 80,378 (1) We rely on reporting provided to us by our third-party partners for financial information regarding the Company's investment in Pillarstone OP. Because Pillarstone OP financial statements as of December 31, 2022 have not been made available to us, we have estimated equity in earnings and pro rata share of NOI of real estate partnership based on the information available to us at the time of this Report. (2) We define “Non-Same Store” 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 three months ended December 31, 2022 to the three months ended December 31, 2021, Non- Same Store includes properties acquired between October 1, 2021 and December 31, 2022 and properties sold between October 1, 2021 and December 31, 2022, but not included in discontinued operations. For purposes of comparing the twelve months ended December 31, 2022 to the twelve months ended December 31, 2021, Non-Same Store includes properties acquired between January 1, 2021 and December 31, 2022 and properties sold between January 1, 2021 and December 31, 2022, but not included in discontinued operations. (3) We define “Same Store” as properties that have been owned during the entire period being compared. For purposes of comparing the three months ended December 31, 2022 to the three months ended December 31, 2021, Same Store includes properties owned before October 1, 2021 and not sold before December 31, 2022. For purposes of comparing the twelve months ended December 31, 2022 to the twelve months ended December 31, 2021, Same Store includes properties owned before January 1, 2021 and not sold before December 31, 2022. 9 wsr-annual-report-wrap-2022.indd 10 wsr-annual-report-wrap-2022.indd 10 3/22/2023 2:28:49 PM 3/22/2023 2:28:49 PM 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. AMY S. FENG Director of Investor Relations, Shopify, Inc.; Formerly, Managing Director at Joele Frank Wilkinson Brimmer Katcher; Formerly, Executive Vice President with Abernathy MacGregor; Formerly, Managing Director and Senior Research Analyst with JMP Securities; Formerly, Equity Research Senior Analyst for Lehman Brothers; Formerly, board member for the San Francisco chapter of the National Investor Relations Institute; Board member on the Water Council of DigDeep. MICHELLE S. SIV Vice President of Human Resources TIM H. NG Vice President of Acquisitions DAVID L. MORDY Director of Investor Relations DAVID K. HOLEMAN Chief Executive Off icer; Chief Financial Off icer, 2006 to 2021; Chief Financial MATTHEW A. OKMIN Regional Senior Vice President, Arizona Off icer of Whitestone REIT’s former management company; Certified Public Accountant. JEFFREY A. JONES Managing Director of Stephens Inc.; former Co-Head of Blackhill Partners, an investment banking and restructuring firm; current member of the Board of the Alternative Asset Center at Southern Methodist University; current Board Trustee of the First Presbyterian Church of Dallas Foundation; former Board Member of 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. DAVID C. SPAGNOLO Regional Senior Vice President, Dallas/Austin WHITESTONE REIT 2022 ANNUAL REPORT wsr-annual-report-wrap-2022.indd 7 wsr-annual-report-wrap-2022.indd 7 10 3/22/2023 2:28:49 PM 3/22/2023 2:28:49 PM 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 OFFICES Arizona 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 20789 North Pima Road, Suite 210 SEC website: www.sec.gov. Scottsdale, AZ 85255 Phone: 480.584.6181 REGISTRAR & TRANSFER AGENT American Stock Transfer & Trust Company Dallas-Fort Worth 6201 15th Avenue 8240 Preston Road Ste 275 Brooklyn, New York 11219 Plano TX 75024 Phone: 214.824.7888 Austin ACCOUNT MAINTENANCE INQUIRIES SHOULD BE DIRECTED TO AST Shareholder Services Department 3801 North Capital of Texas Highway, 888.999.0027 877.879.8035 Suite E-205 Austin, TX 78746 Phone: 512.992.3037 San Antonio 11225 Huebner Road San Antonio, TX 78230 Phone: 512.992.3037 Rev 03.22.23 WSR NYSE LISTED wsr-annual-report-wrap-2022.indd 11 wsr-annual-report-wrap-2022.indd 11 3/22/2023 2:28:49 PM 3/22/2023 2:28:49 PM

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