UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
| (Mark One) | |
| | QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
| OR |
| | 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
WHITESTONE REIT
(Exact Name of Registrant as Specified in Its Charter)
| | | |
| (State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) |
| | | |
| | ||
| (Address of Principal Executive Offices) | (Zip Code) |
(
(Registrant’s Telephone Number, Including Area Code)
N/A
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| | | |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | | ☒ | |
| Non-accelerated filer | ☐ | Small 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 accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
As of October 28, 2024, there were
PART I - FINANCIAL INFORMATION
| Consolidated Balance Sheets as of September 30, 2024 (Unaudited) and December 31, 2023 |
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| Management's Discussion and Analysis of Financial Condition and Results of Operations. |
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PART II - OTHER INFORMATION
| Unregistered Sales of Equity Securities and Use of Proceeds. |
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Item 1. Financial Statements.
Whitestone REIT and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
| September 30, 2024 | December 31, 2023 | |||||||
| (unaudited) | ||||||||
| ASSETS | ||||||||
| Real estate assets, at cost | ||||||||
| Property | $ | $ | ||||||
| Accumulated depreciation | ( | ) | ( | ) | ||||
| Total real estate assets | ||||||||
| Investment in real estate partnership | ||||||||
| Cash and cash equivalents | ||||||||
| Restricted cash | ||||||||
| Escrows and deposits | ||||||||
| Accrued rents and accounts receivable, net of allowance for doubtful accounts | ||||||||
| Receivable from partnership redemption | ||||||||
| Receivable due from related party | ||||||||
| Unamortized lease commissions, legal fees and loan costs | ||||||||
| Prepaid expenses and other assets(1) | ||||||||
| Finance lease right-of-use assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND EQUITY | ||||||||
| Liabilities: | ||||||||
| Notes payable | $ | $ | ||||||
| Accounts payable and accrued expenses(2) | ||||||||
| Payable due to related party | ||||||||
| Tenants' security deposits | ||||||||
| Dividends and distributions payable | ||||||||
| Finance lease liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies: | — | — | ||||||
| Equity: | ||||||||
| Preferred shares, $ par value per share; shares authorized; issued and outstanding as of September 30, 2024 and December 31, 2023 | ||||||||
| Common shares, $ par value per share; shares authorized; and issued and outstanding as of September 30, 2024 and December 31, 2023, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive income (loss) | ( | ) | ||||||
| Total Whitestone REIT shareholders' equity | ||||||||
| Noncontrolling interest in subsidiary | ||||||||
| Total equity | ||||||||
| Total liabilities and equity | $ | $ | ||||||
See accompanying notes to Consolidated Financial Statements.
Whitestone REIT and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(in thousands)
| September 30, 2024 |
December 31, 2023 |
|||||||
| (unaudited) | ||||||||
| (1) Operating lease right of use assets (net) |
$ | $ | ||||||
| (2) Operating lease liabilities |
$ | $ | ||||||
See accompanying notes to Consolidated Financial Statements.
Whitestone REIT and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(in thousands)
| Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
| 2024 |
2023 |
2024 |
2023 |
|||||||||||||
| Revenues |
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| Rental(1) |
$ | $ | $ | $ | ||||||||||||
| Management, transaction, and other fees |
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| Total revenues |
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| Operating expenses |
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| Depreciation and amortization |
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| Operating and maintenance |
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| Real estate taxes |
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| General and administrative |
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| Total operating expenses |
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| Other expenses (income) |
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| Interest expense |
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| Gain on sale of properties |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Loss on disposal of assets |
||||||||||||||||
| Interest, dividend and other investment income |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Total other expenses |
||||||||||||||||
| Income before equity investment in real estate partnership and income tax |
||||||||||||||||
| Deficit in earnings of real estate partnership |
( |
) | ( |
) | ( |
) | ||||||||||
| Provision for income tax |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Net income |
||||||||||||||||
| Less: Net income attributable to noncontrolling interests |
||||||||||||||||
| Net income attributable to Whitestone REIT |
$ | $ | $ | $ | ||||||||||||
See accompanying notes to Consolidated Financial Statements.
Whitestone REIT and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(in thousands, except per share data)
| Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
| 2024 |
2023 |
2024 |
2023 |
|||||||||||||
| Basic Earnings Per Share: |
||||||||||||||||
| Net income attributable to common shareholders, excluding amounts attributable to unvested restricted shares |
$ | $ | $ | $ | ||||||||||||
| Diluted Earnings Per Share: |
||||||||||||||||
| Net income attributable to common shareholders, excluding amounts attributable to unvested restricted shares |
$ | $ | $ | $ | ||||||||||||
| Weighted average number of common shares outstanding: |
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| Basic |
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| Diluted |
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| Consolidated Statements of Comprehensive Income (Loss) |
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| Net income |
$ | $ | $ | $ | ||||||||||||
| Other comprehensive income (loss) |
||||||||||||||||
| Unrealized gain (loss) on cash flow hedging activities |
( |
) | ( |
) | ||||||||||||
| Comprehensive income (loss) |
( |
) | ||||||||||||||
| Less: Net income attributable to noncontrolling interests |
||||||||||||||||
| Less: Comprehensive income (loss) attributable to noncontrolling interests |
( |
) | ( |
) | ||||||||||||
| Comprehensive income (loss) attributable to Whitestone REIT |
$ | ( |
) | $ | $ | $ | ||||||||||
See accompanying notes to Consolidated Financial Statements.
Whitestone REIT and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(in thousands)
| Three Months Ended September 30, |
Nine Months Ended September 30, |
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| 2024 |
2023 |
2024 |
2023 |
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| (1) Rental |
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| Rental revenues |
$ | $ | $ | $ | ||||||||||||
| Recoveries |
||||||||||||||||
| Bad debt |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Total rental |
$ | $ | $ | $ | ||||||||||||
See accompanying notes to Consolidated Financial Statements.
Whitestone REIT and Subsidiaries
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Unaudited)
(in thousands)
| Accumulated | ||||||||||||||||||||||||||||||||||||
| Additional | Other | Total | Noncontrolling | |||||||||||||||||||||||||||||||||
| Common Shares | Paid-In | Accumulated | Comprehensive | Shareholders’ | Interests | Total | ||||||||||||||||||||||||||||||
| Shares | Amount | Capital | Deficit | Income (Loss) | Equity | Units | Dollars | Equity | ||||||||||||||||||||||||||||
| Balance, December 31, 2023 | $ | $ | $ | ( | ) | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Exchange of noncontrolling interest OP units for common shares | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Issuance of shares under dividend reinvestment plan | ||||||||||||||||||||||||||||||||||||
| Repurchase of common shares (1) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Share-based compensation | — | — | — | — | — | |||||||||||||||||||||||||||||||
| Distributions - $ per common share / OP unit | — | ( | ) | ( | ) | — | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Unrealized gain on change in value of cash flow hedge | — | — | ||||||||||||||||||||||||||||||||||
| Net income | — | — | ||||||||||||||||||||||||||||||||||
| Balance, March 31, 2024 | $ | $ | $ | ( | ) | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Issuance of shares under dividend reinvestment plan | ||||||||||||||||||||||||||||||||||||
| Repurchase of common shares (1) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Share-based compensation | — | — | — | — | — | |||||||||||||||||||||||||||||||
| Distributions - $ per common share / OP unit | — | ( | ) | ( | ) | — | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Unrealized gain on change in value of cash flow hedge | — | — | ||||||||||||||||||||||||||||||||||
| Net income | — | — | ||||||||||||||||||||||||||||||||||
| Balance, June 30, 2024 | $ | $ | $ | ( | ) | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Issuance of common shares - ATM Program, net of offering costs | ||||||||||||||||||||||||||||||||||||
| Exchange offer costs | — | ( | ) | ( | ) | — | ( | ) | ||||||||||||||||||||||||||||
| Issuance of shares under dividend reinvestment plan | ||||||||||||||||||||||||||||||||||||
| Share-based compensation | — | — | — | — | — | — | ||||||||||||||||||||||||||||||
| Distributions - $ per common share / OP unit | — | ( | ) | ( | ) | — | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Unrealized loss on change in value of cash flow hedge | — | ( | ) | ( | ) | — | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Net income | — | — | ||||||||||||||||||||||||||||||||||
| Balance, September 30, 2024 | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||||||
See accompanying notes to Consolidated Financial Statements
Whitestone REIT and Subsidiaries
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Unaudited)
(in thousands)
| Accumulated | ||||||||||||||||||||||||||||||||||||
| Additional | Other | Total | Noncontrolling | |||||||||||||||||||||||||||||||||
| Common Shares | Paid-In | Accumulated | Comprehensive | Shareholders’ | Interests | Total | ||||||||||||||||||||||||||||||
| Shares | Amount | Capital | Deficit | Income (Loss) | Equity | Units | Dollars | Equity | ||||||||||||||||||||||||||||
| Balance, December 31, 2022 | $ | $ | $ | ( | ) | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Issuance of shares under dividend reinvestment plan | ||||||||||||||||||||||||||||||||||||
| Share-based compensation | — | — | — | — | — | — | ||||||||||||||||||||||||||||||
| Distributions - $ per common share / OP unit | — | ( | ) | ( | ) | — | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Unrealized loss on change in value of cash flow hedge | — | ( | ) | ( | ) | — | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Net income | — | — | ||||||||||||||||||||||||||||||||||
| Balance, March 31, 2023 | $ | $ | $ | ( | ) | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Exchange of noncontrolling interest OP units for common shares | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Issuance of shares under dividend reinvestment plan | ||||||||||||||||||||||||||||||||||||
| Repurchase of common shares (1) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Share-based compensation | — | — | — | — | — | |||||||||||||||||||||||||||||||
| Distributions - $ per common share / OP unit | — | ( | ) | ( | ) | — | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Unrealized gain on change in value of cash flow hedge | — | — | ||||||||||||||||||||||||||||||||||
| Net income | — | — | ||||||||||||||||||||||||||||||||||
| Balance, June 30, 2023 | $ | $ | $ | ( | ) | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Exchange of noncontrolling interest OP units for common shares | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Issuance of shares under dividend reinvestment plan | ||||||||||||||||||||||||||||||||||||
| Repurchase of common shares (1) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Share-based compensation | — | — | — | — | — | |||||||||||||||||||||||||||||||
| Distributions - $ per common share / OP unit | — | ( | ) | ( | ) | — | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Unrealized gain on change in value of cash flow hedge | — | — | ||||||||||||||||||||||||||||||||||
| Net income | — | — | ||||||||||||||||||||||||||||||||||
| Balance, September 30, 2023 | $ | $ | $ | ( | ) | $ | $ | $ | $ | |||||||||||||||||||||||||||
(1) The Company acquired common shares held by employees who tendered owned common shares to satisfy the tax withholding on the lapse of certain restrictions on restricted common shares.
See accompanying notes to Consolidated Financial Statements.
Whitestone REIT and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
| Nine Months Ended September 30, |
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| 2024 |
2023 |
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| Cash flows from operating activities: |
||||||||
| Net income |
$ | $ | ||||||
| Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
| Depreciation and amortization |
||||||||
| Amortization of deferred loan costs |
||||||||
| Gain on sale of properties |
( |
) | ( |
) | ||||
| Loss on disposal of assets |
||||||||
| Bad debt |
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| Share-based compensation |
||||||||
| Deficit in earnings of real estate partnership |
||||||||
| Amortization of right-of-use assets - finance leases |
|
|
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| Changes in operating assets and liabilities: |
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| Escrows and deposits |
||||||||
| Accrued rents and accounts receivable |
( |
) | ( |
) | ||||
| Receivable due from related party |
( |
) | ( |
) | ||||
| Unamortized lease commissions, legal fees and loan costs |
( |
) | ( |
) | ||||
| Prepaid expenses and other assets |
||||||||
| Accounts payable and accrued expenses |
( |
) | ( |
) | ||||
| Payable due to related party |
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| Tenants' security deposits |
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| Net cash provided by operating activities |
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| Cash flows from investing activities: |
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| Acquisitions of real estate |
( |
) | ( |
) | ||||
| Additions to real estate |
( |
) | ( |
) | ||||
| Proceeds from sales of properties |
||||||||
| Net cash used in investing activities |
( |
) | ( |
) | ||||
| Cash flows from financing activities: |
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| Distributions paid to common shareholders |
( |
) | ( |
) | ||||
| Distributions paid to OP unit holders |
( |
) | ( |
) | ||||
| Proceeds from issuance of common shares, net of offering costs |
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| Payments of exchange offer costs |
( |
) | ||||||
| Net (payments of) proceeds from credit facility |
( |
) | ||||||
| Repayments of notes payable |
( |
) | ( |
) | ||||
| Proceeds from notes payable |
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| Payments of loan origination costs |
( |
) | ||||||
| Repurchase of common shares |
( |
) | ( |
) | ||||
| Payment of finance lease liability |
( |
) | ( |
) | ||||
| Net cash used in financing activities |
( |
) | ( |
) | ||||
| Net decrease in cash, cash equivalents and restricted cash |
( |
) | ( |
) | ||||
| Cash, cash equivalents and restricted cash at beginning of period |
||||||||
| Cash, cash equivalents and restricted cash at end of period (1) |
$ | $ | ||||||
| (1) | For a reconciliation of cash, cash equivalents and restricted cash, see supplemental disclosures below. |
See accompanying notes to Consolidated Financial Statements.
Whitestone REIT and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
| Nine Months Ended September 30, |
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| 2024 |
2023 |
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| Supplemental disclosure of cash flow information: |
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| Cash paid for interest |
$ | $ | ||||||
| Cash paid for taxes |
$ | $ | ||||||
| Non cash investing and financing activities: |
||||||||
| Disposal of fully depreciated real estate |
$ | $ | ||||||
| Financed insurance premiums |
$ | $ | ||||||
| Value of shares issued under dividend reinvestment plan |
$ | $ | ||||||
| Value of common shares exchanged for OP units |
$ | $ | ||||||
| Change in fair value of cash flow hedge |
$ | ( |
) | $ | ||||
| Accrued capital expenditures |
$ | $ | ||||||
| Receivable from partnership redemption |
$ | $ | ||||||
| Recognition of finance lease liability |
$ | $ | ||||||
| September 30, |
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| 2024 |
2023 |
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| Cash, cash equivalents and restricted cash |
||||||||
| Cash and cash equivalents |
$ | $ | ||||||
| Restricted cash |
||||||||
| Total cash, cash equivalents and restricted cash |
$ | $ | ||||||
See accompanying notes to Consolidated Financial Statements.
The use of the words “we,” “us,” “our,” “Company” or “Whitestone” refers to Whitestone REIT and our consolidated subsidiaries, except where the context otherwise requires.
1. INTERIM FINANCIAL STATEMENTS
The consolidated financial statements included in this report are unaudited; however, amounts presented in the consolidated balance sheet as of December 31, 2023 are derived from our audited consolidated financial statements as of that date. The unaudited consolidated financial statements as of and for the period ended September 30, 2024 have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information on a basis consistent with the annual audited consolidated financial statements and with the instructions to Form 10-Q.
The consolidated financial statements presented herein reflect all adjustments which, in the opinion of management, are necessary for a fair presentation of the financial position of Whitestone and our subsidiaries as of September 30, 2024 and December 31, 2023, and the results of operations for the three and nine month periods ended September 30, 2024 and 2023, the consolidated statements of changes in equity for the three and nine months ended September 30, 2024 and 2023 and cash flows for the nine months ended September 30, 2024 and 2023. All of these adjustments are of a normal recurring nature. The results of operations for the interim periods are not necessarily indicative of the results expected for a full year. The statements should be read in conjunction with the audited consolidated financial statements and the notes thereto which are included in our Annual Report on Form 10-K for the year ended December 31, 2023.
Business. Whitestone was formed as a real estate investment trust (“REIT”) pursuant to the Texas Real Estate Investment Trust Act on August 20, 1998. In July 2004, we changed our state of organization from Texas to Maryland pursuant to a merger where we merged directly with and into a Maryland REIT formed for the sole purpose of the reorganization and the conversion of each of the outstanding common shares of beneficial interest of the Texas entity into
As of September 30, 2024, these properties consist of:
Consolidated Operating Portfolio
| • | |
Redevelopment, New Acquisitions Portfolio
| • | |
Acquired properties are categorized in the new acquisitions portfolio until the earlier of 90% occupancy or 18 months of ownership.
As of September 30, 2024, our ownership in Pillarstone Capital REIT Operating Partnership LP (“Pillarstone” or “Pillarstone OP”) no longer represents a majority interest. On January 25, 2024, the Company exercised its notice of redemption for substantially all of its investment in Pillarstone OP. As of the date of this filing, Whitestone has not received consideration for its redemption of its equity investment in Pillarstone OP as required by the partnership agreement. On March 4, 2024, Pillarstone Capital REIT (“Pillarstone REIT”) authorized and filed a Chapter 11 bankruptcy (the “Pillarstone Bankruptcies”) of itself, Pillarstone OP, and all of its remaining special purpose entities in the United States Bankruptcy Court for the Northern District of Texas (the “Bankruptcy Court”). The Company has filed a claim in the “Pillarstone Bankruptcies” for the value of its redemption claim along with interest and other costs. We intend to pursue collection of amounts due from Pillarstone OP through all means necessary and while we do not know the ultimate amount to be collected, we believe the amount will be in excess of the current carrying value of our receivable, formerly our equity investment in Pillarstone OP. Please refer to Note 6 in this Quarterly Report on form 10-Q for more information regarding the accounting treatment of the redemption of our OP units in Pillarstone OP.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Consolidation. We are the sole general partner of the Operating Partnership and possess full legal control and authority over the operations of the Operating Partnership. As of September 30, 2024 and December 31, 2023, we owned a majority of the partnership interests in the Operating Partnership. Consequently, the accompanying consolidated financial statements include the accounts of the Operating Partnership.
Noncontrolling interest in the accompanying consolidated financial statements represents the share of equity and earnings of the Operating Partnership allocable to holders of partnership interests other than us. Net income or loss is allocated to noncontrolling interests based on the weighted-average percentage ownership of the Operating Partnership during the period. 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 -for-one basis (the “OP units”) changes the percentage of ownership interests of both the noncontrolling interests and Whitestone.
Estimates regarding Pillarstone OP’s financial condition and results of operations. We rely on the reports furnished by our third-party partners for financial information regarding the Company’s investment in Pillarstone OP. As of September 30, 2024 and December 31, 2023, Pillarstone OP’s financial statements have not been made accessible to us. Consequently, we have estimated the financial status and operational outcomes of Pillarstone OP based on the information accessible to us at the time of this report.
Equity Method. In compliance with Accounting Standards Update (“ASU”) 2014-09 (“Topic 606”) and Accounting Standards Codification (“ASC”) 610, “Other Income-Gains and Losses from the Derecognition of Nonfinancial Assets,” the Company previously accounted for its investment in Pillarstone OP using the equity method. However, subsequent to January 25, 2024, the Company ceased utilizing the equity method following the exercise of its notice of redemption for substantially all of its investment in Pillarstone OP. Please refer to Note 6 to the accompanying consolidated financial statements for the full disclosure.
Basis of Accounting. Our financial records are maintained on the accrual basis of accounting whereby revenues are recognized when earned and expenses are recorded when incurred.
Use of Estimates. The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates that we use include the estimated fair values of properties acquired, the estimated useful lives for depreciable and amortizable assets and costs, the grant date fair value of common share units included in share-based compensation expense, the estimated allowance for doubtful accounts, the estimated fair value of interest rate swaps, the estimates supporting our impairment analysis for the carrying values of our real estate assets, the estimates made regarding Pillarstone REIT Operating Partnership LP’s financial condition and results of operations, and the estimated allowance for credit loss. Actual results could differ from those estimates.
Reclassifications. We have reclassified certain prior period amounts in the accompanying consolidated financial statements in order to be consistent with the current period 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 $
Derivative Instruments and Hedging Activities. We utilize derivative financial instruments, principally interest rate swaps, to manage our exposure to fluctuations in interest rates. We have established policies and procedures for risk assessment, and the approval, reporting and monitoring of derivative financial instruments. We recognize our interest rate swaps as cash flow hedges with the effective portion of the changes in fair value recorded in comprehensive income (loss) and subsequently reclassified into earnings in the period that the hedged transaction affects earnings. Any ineffective portion of a cash flow hedges’ change in fair value is recorded immediately into earnings. Our cash flow hedges are determined using Level 2 inputs under ASC 820, “Fair Value Measurements and Disclosures.” Level 2 inputs represent quoted prices in active markets for similar assets or liabilities; quoted prices in markets that are not active; and model-derived valuations in which significant inputs and significant value drivers are observable. As of September 30, 2024, we consider our cash flow hedges to be highly effective.
Development Properties. Land, buildings and improvements are recorded at cost. Expenditures related to the development of real estate are carried at cost which includes capitalized carrying charges and development costs. Carrying charges (interest, real estate taxes, loan fees, and direct and indirect development costs related to buildings under construction) are capitalized as part of construction in progress. The capitalization of such costs ceases when the property, or any completed portion, becomes available for occupancy. For the three months ended September 30, 2024, approximately $
Share-Based Compensation. From time to time, we award nonvested restricted common share awards or restricted common share unit awards, which may be converted into common shares, to executive officers and employees under our 2018 Long-Term Equity Incentive Ownership Plan (the “2018 Plan”). Awarded shares and units vest when certain performance conditions are met. We recognize compensation expense when achievement of the performance conditions is probable based on management’s most recent estimates using the fair value of the shares as of the grant date. We recognized $
Noncontrolling Interests. Noncontrolling interests are the portion of equity in a subsidiary not attributable to a parent. Accordingly, we have reported noncontrolling interests in equity on the consolidated balance sheets but separate from Whitestone’s equity. On the consolidated statements of operations and comprehensive income (loss), subsidiaries are reported at the consolidated amount, including both the amount attributable to Whitestone and noncontrolling interests. The consolidated statements of changes in equity is included for quarterly financial statements, including beginning balances, activity for the period and ending balances for shareholders’ equity, noncontrolling interests and total equity.
Accrued Rents and Accounts Receivable. Included in accrued rents and accounts receivable are base rents, tenant reimbursements and receivables attributable to recording rents on a straight-line basis. We review the collectability of charges under our tenant operating leases on a regular basis, taking into consideration changes in factors such as the tenant’s payment history, the financial condition of the tenant, business conditions in the industry in which the tenant operates and economic conditions in the area where the property is located. We recognize an adjustment to rental revenue if we deem it probable that the receivable will not be collected. Our review of collectability under our operating leases includes any accrued rental revenues related to the straight-line method of reporting rental revenue. As of September 30, 2024 and December 31, 2023, we had an allowance for uncollectible accounts of $
Revenue Recognition. All leases on our properties are classified as operating leases, and the related rental income is recognized on a straight-line basis over the terms of the related leases. Differences between rental income earned and amounts due per the respective lease agreements are capitalized or charged, as applicable, to accrued rents and accounts receivable. Percentage rents are recognized as rental income when the thresholds upon which they are based have been met. Recoveries from tenants for taxes, insurance, and other operating expenses are recognized as revenues in the period the corresponding costs are incurred. We combine lease and nonlease components in lease contracts, which includes combining base rent, recoveries, and percentage rents into a single line item, Rental, within the consolidated statements of operations and comprehensive income (loss). Additionally, we have tenants who pay real estate taxes directly to the taxing authority. We exclude these costs paid directly by the tenant to third parties on our behalf from revenue recognized and the associated property operating expense.
Other property income primarily includes amounts recorded in connection with lease termination fees. We recognize lease termination fees in the year that the lease is terminated and collection of the fee is probable. Amounts recorded within other property income are accounted for at the point in time when control of the goods or services transfers to the customer and our performance obligation is satisfied.
See our Annual Report on Form 10-K for the year ended December 31, 2023 for further discussion on significant accounting policies.
3. LEASES
As a Lessor. All leases on our properties are classified as noncancelable operating leases, and the related rental income is recognized on a straight-line basis over the terms of the related leases. Differences between rental income earned and amounts due per the respective lease agreements are capitalized or charged, as applicable, to accrued rents and accounts receivable. Percentage rents are recognized as rental income when the thresholds upon which they are based have been met. Recoveries from tenants for taxes, insurance, and other operating expenses are recognized as revenues in the period the corresponding costs are incurred. We combine lease and nonlease components in lease contracts, which includes combining base rent, recoveries, and percentage rents into a single line item, Rental, within the consolidated statements of operations and comprehensive income (loss).
A summary of minimum future rents to be received (exclusive of renewals, tenant reimbursements, contingent rents, and collectability adjustments under Topic 842) under noncancelable operating leases in existence as of September 30, 2024 is as follows (in thousands):
| Years Ended December 31, | Minimum Future Rents | |||
| 2024 (remaining) | $ | |||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| Thereafter | ||||
| Total | $ | |||
As a Lessee. We have office space, automobile, and office machine leases, which qualify as operating leases, with remaining lease terms of to years. As of September 30, 2024, the Company had ground lease and office machine lease that were classified as finance leases. The ground lease provides 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 incremental borrowing rates to calculate the lease liabilities for our operating leases in which we are the lessee (in thousands):
| Years Ended December 31, | Operating Leases | Finance Leases | ||||||
| 2024 (remaining) | $ | $ | ||||||
| 2025 | ||||||||
| 2026 | ||||||||
| 2027 | ||||||||
| 2028 | ||||||||
| Thereafter | ||||||||
| Total undiscounted rental payments | ||||||||
| Less imputed interest | ||||||||
| Total lease liabilities | $ | $ | ||||||
For the three months ended September 30, 2024 and 2023, the total lease costs for operating leases were $
The weighted average remaining lease term for our operating leases and our finance leases was and
4. ACCRUED RENTS AND ACCOUNTS RECEIVABLE, NET
Accrued rents and accounts receivable, net consists of amounts accrued, billed and due from tenants, allowance for doubtful accounts and other receivables as follows (in thousands):
| September 30, 2024 |
December 31, 2023 |
|||||||
| Tenant receivables |
$ | $ | ||||||
| Accrued rents and other recoveries |
||||||||
| Allowance for doubtful accounts |
( |
) | ( |
) | ||||
| Other receivables |
||||||||
| Total |
$ | $ | ||||||
5. UNAMORTIZED LEASE COMMISSIONS, LEGAL FEES AND LOAN COSTS
Costs which have been deferred consist of the following (in thousands):
| September 30, 2024 |
December 31, 2023 |
|||||||
| Leasing commissions |
$ | $ | ||||||
| Deferred legal cost |
||||||||
| Deferred financing cost |
||||||||
| Total cost |
||||||||
| Less: leasing commissions accumulated amortization |
( |
) | ( |
) | ||||
| Less: deferred legal cost accumulated amortization |
( |
) | ( |
) | ||||
| Less: deferred financing cost accumulated amortization |
( |
) | ( |
) | ||||
| Total cost, net of accumulated amortization |
$ | $ | ||||||
6. INVESTMENT IN REAL ESTATE PARTNERSHIP
On December 8, 2016, we, through our Operating Partnership, entered into a Contribution Agreement (the “Contribution Agreement”) with Pillarstone OP and Pillarstone Capital REIT (“Pillarstone REIT”) pursuant to which we contributed all of the equity interests in four of our wholly-owned subsidiaries that, at the time, owned
In connection with the Contribution, Whitestone TRS, Inc., a subsidiary of the Company (“Whitestone TRS”), entered into a management agreement with the entities that own the contributed Pillarstone Properties (collectively, the “Management Agreements”). Pursuant to the Management Agreements, Whitestone TRS agreed to provide certain property management, leasing and day-to-day advisory and administrative services. The Management Agreements were terminated on August 18, 2022. Prior to the termination of the Management Agreement, we reported approximately $
The table below presents the real estate partnership investment in which we hold an ownership interest (in thousands):
| Company’s Investment as of | ||||||||||||
| September 30, 2024 | December 31, 2023 | |||||||||||
| Real estate partnership | Ownership Interest | |||||||||||
| Pillarstone OP | | $ | $ | |||||||||
| Total real estate partnership(1)(2)(3) | $ | $ | ||||||||||
| (1) | Representing property interests and |
| (2) | On December 26, 2021, the Board of Trustees of Pillarstone REIT adopted a new shareholder rights agreement (the “Pillarstone Rights Agreement”). Because Pillarstone REIT sought to use the Pillarstone Rights Agreement to prevent us from exercising our contractual Redemption Right, on July 12, 2022, we filed suit against Pillarstone REIT in the Court of Chancery of the State of Delaware challenging the Pillarstone Rights Agreement. On September 8, 2022, our Motion to Preserve the Status Quo was granted by the Court, limiting Pillarstone OP from engaging in any acts outside the ordinary course of business and otherwise imposing restrictions on Pillarstone OP to ensure that our right of redemption is not impaired while the underlying dispute is being considered by the Court. On January 25, 2024, the Delaware Court of Chancery: held that Pillarstone breached the implied covenant of good faith and fair dealing when it adopted the Pillarstone Rights Agreement that thwarted us from exercising the unfettered contractual redemption right we obtained in connection with our investment in the partnership; and the Court held that the Rights Plan was unenforceable as to the limited partner and allowed us to exercise its redemption right; allowed Pillarstone to determine the current value of the Partnership’s assets; and, as necessary, later enter a monetary judgment against Pillarstone for the difference between the amount we would have received in or around December 2021 and the current value. On January 25, 2024, we exercised our notice of redemption for substantially all of its investment in Pillarstone OP. On March 4, 2024, Pillarstone REIT authorized and filed the Pillarstone Bankruptcies. As of the date of this filing, we have not received consideration for its redemption of our equity investment in Pillarstone OP as required by the partnership agreement. We have filed a claim in the Pillarstone Bankruptcies for the value of its redemption claim along with interest and other costs. We intend to pursue collection of amounts due from Pillarstone OP through all means necessary and while we do not know the ultimate amount to be collected, we believe the amount will be in excess of the current carrying value of our equity investment in Pillarstone OP. |
| (3) | We rely on reporting provided to us by Pillarstone OP’s general partner for financial information regarding our investment in Pillarstone OP. Because Pillarstone OP financial statements as of December 31, 2023 have not been made available to us, we have estimated the value of the investment based on the information available to us at the time of this report. |
The table below presents our share of net loss from our investment in the real estate partnership which is included in deficit in earnings of real estate partnership, net on our consolidated statements of operations and comprehensive income (loss) (in thousands):
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Pillarstone OP | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
Summarized financial information for our investment in real estate partnership is as follows (in thousands):
| September 30, 2024 | December 31, 2023 | |||||||
| Assets: | ||||||||
| Real estate, net | $ | $ | ||||||
| Other assets | ||||||||
| Total assets(1) | ||||||||
| Liabilities and equity: | ||||||||
| Notes payable | ||||||||
| Other liabilities | ||||||||
| Equity | ||||||||
| Total liabilities and equity(2) | ||||||||
| Company’s share of equity | ||||||||
| Cost of investment in excess of the Company’s share of underlying net book value | ||||||||
| Carrying value of investment in real estate partnership(3) | $ | $ | ||||||
| (1) | We rely on reporting provided to us by Pillarstone OP’s general partner for financial information regarding our investment in Pillarstone OP. Because Pillarstone OP financial statements as of December 31, 2023 have not been made available to us, we have estimated total assets and its components based on the information available to us at the time of this report. |
| (2) | We rely on reporting provided to us by Pillarstone OP’s general partner for financial information regarding our investment in Pillarstone OP. Because Pillarstone OP financial statements as of December 31, 2023 have not been made available to us, we have estimated total liabilities and equity and its components based on the information available to us at the time of this report. |
| (3) | We rely on reporting provided to us by Pillarstone OP’s general partner for financial information regarding our investment in Pillarstone OP. Because Pillarstone OP financial statements as of December 31, 2023 have not been made available to us, we have estimated the value of the investment based on the information available to us at the time of this report. |
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2024 | 2023 | 01/01/2024-01/25/2024 (2) | 2023 | |||||||||||||
| Revenues | $ | $ | $ | $ | ||||||||||||
| Operating expenses | ( | ) | ( | ) | ( | ) | ||||||||||
| Other expenses | ( | ) | ( | ) | ( | ) | ||||||||||
| Net loss | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| (1) | We rely on reporting provided to us by Pillarstone OP's general partner for financial information regarding our investment in Pillarstone OP. Because Pillarstone OP financial statements for the three and nine months ended September 30, 2024 and 2023 have not been made available to us, we have estimated net loss and its components based on the information available to us at the time of this report. |
| (2) | The estimated net loss and its components are calculated through January 25, 2024, the redemption date. |
The amortization of the basis difference between the cost of investment and our share of underlying net book value for the three months ended September 30, 2024 and 2023 is $
The Company has evaluated its guarantee to Pillarstone OP pursuant to ASC 460, “Guarantees,” and has determined the guarantee to be a performance guarantee, for which ASC 460 contains initial recognition and measurement requirements, and related disclosure requirements. The Company is obligated in two respects: (i) a noncontingent liability, which represents the Company’s obligation to stand ready to perform under the terms of the guarantee in the event that the specified triggering event(s) occur; and (ii) the contingent liability, which represents the Company’s obligation to make future payments if those triggering events occur. The fair value of our loan guarantee to Pillarstone OP is estimated on a Level 3 basis (as provided by ASC 820), using a probability-weighted discounted cash flow analysis based on a discount rate, discounting the loan balance. The Company recognized a noncontingent liability of $
Estimates regarding Pillarstone OP's guarantee. The Company, through its subsidiary Whitestone REIT Operating Partnership, L.P., guaranteed Pillarstone OP’s loan for its Uptown Tower property located in Dallas, Texas, with an aggregate principal amount of $
On December 1, 2023, the Company reached an agreement with the Lender that would avoid foreclosure and secure the release of the lien and discharge of the guarantee, and the Company negotiated and satisfied a payoff as of December 4, 2023, in the amount of $
The DPO Amount included a compromise settlement of approximately $
On December 1, 2023, Pillarstone OP authorized and filed the Chapter 11 bankruptcy of its special purpose entity borrower that owns Uptown Tower (Whitestone Uptown Tower LLC) in the United States Bankruptcy Court for the Northern District of Texas.
On January 25, 2024, the Company exercised its notice of redemption for substantially all of its investment in Pillarstone OP.
On February 9, 2024, the Lender filed suit in New York County, New York against the guarantor Whitestone OP and the Company for alleged amounts due under the guarantee. The compromise settlement is our best estimate of the amount due.
On March 4, 2024, Pillarstone REIT authorized and filed the Pillarstone Bankruptcies. As of the date of this filing, Whitestone has not received consideration for our redemption of our equity investment in Pillarstone OP as required by the partnership agreement. The Company has filed a claim in the Pillarstone Bankruptcies for the value of its redemption claim along with interest and other costs.
On April 24, 2024, the Lender and Pillarstone OP filed a motion with the Bankruptcy Court seeking approval to settle the dispute and dismiss their mutual lawsuits including the lawsuit by the Lender against the Company as Guarantor of the loan. On or before June 10, 2024, Pillarstone OP agreed to pay to the Lender the sum of $
The Company does not believe a probable loss will be incurred, nor does it anticipate a material adverse effect on its financial position, results of operations, cash flows or liquidity. Therefore, the Company has not recorded a charge as a result of the Pillarstone Bankruptcies.
Accounting treatment of the redemption of our OP units in Pillarstone OP. On January 25, 2024, we executed an irrevocable redemption of substantially all our investment in Pillarstone OP, converting our equity investment into a receivable. Pillarstone OP conveyed their intention to forego issuing equity, opting instead to liquidate the properties to satisfy creditors, with Whitestone being significantly the largest creditor. Based on insights from our legal team and advisors, we anticipate that the most probable outcome will involve the liquidation of all Pillarstone properties.
The carrying value of our investment in Pillarstone OP was approximately $
Subsequently, we reclassified our investment in Pillarstone OP to a receivable on our balance sheet after estimating 25 days of our share of the equity investment income. We will assess the credit losses of the receivable on a quarterly basis.
Any gains will be recognized once the proceeds received exceed our receivable.
This is within the scope of ASC 326, “Financial Instruments - Credit Losses.” The value of the unencumbered assets of Pillarstone OP is significantly in excess of Whitestone’s basis in the account receivable, but the precise value cannot be determined at this time. When applying the estimated loss rate method with a zero loss rate, the Current Expected Credit Losses (“CECL”) are zero according to ASC 326. We will continue to monitor our legal team's assessment of the bankruptcy case and the value of the assets of Pillarstone OP to evaluate the credit risk of the receivable.
7. DEBT
Certain subsidiaries of Whitestone are the borrowers under various financing arrangements. These subsidiaries are separate legal entities, and their respective assets and credit are not available to satisfy the debt of Whitestone or any of its other subsidiaries.
Debt consisted of the following as of the dates indicated (in thousands):
| Description | September 30, 2024 | December 31, 2023 | ||||||
| Fixed rate notes | ||||||||
| $ million, % plus % to % Note, due (1) | $ | $ | ||||||
| $ million, % Note, due | ||||||||
| $ million % Note, due | ||||||||
| $ million % Note, due | ||||||||
| $ million % Note, due | ||||||||
| $ million % Note, due | ||||||||
| $ million, % Note, due (Series A) | ||||||||
| $ million, % Note, due (Series B) | ||||||||
| $ million % Note, due | ||||||||
| $ million, % plus % to % Note, due (2) | ||||||||
| $ million, % Note, due | ||||||||
| Floating rate notes | ||||||||
| Unsecured line of credit, plus % to %, due | ||||||||
| Total notes payable principal | ||||||||
| Less deferred financing costs, net of accumulated amortization | ( | ) | ( | ) | ||||
| Total notes payable | $ | $ | ||||||
| (1) | Promissory note includes an interest rate swap that fixes the Secured Overnight Financing Rate (“SOFR”) portion of the term loan at an interest rate of |
| (2) | A portion of the unsecured line of credit includes an interest rate swap to fix the SOFR portion of the loan at |
On June 21, 2024, Whitestone REIT, operating through its subsidiaries Whitestone Strand LLC, Whitestone Las Colinas Village LLC, and Whitestone Seville, LLC (collectively, the “Borrower”), entered into a loan agreement (the “Loan Agreement”) with Nationwide Life Insurance Company (the “Lender”) for a mortgage loan in the principal amount of $
The Loan provides for a fixed interest rate of
The Loan is a non-recourse loan secured by of the Company’s properties including their related equipment, fixtures, personal property, and other assets, and a limited carve-out guarantee by the Company’s operating partnership.
The loan documents contain customary terms and conditions, including without limitation affirmative and negative covenants such as information reporting and insurance requirements. The loan documents also contain customary events of default, including defaults in the payment of principal or interest, defaults in compliance with the covenants, and bankruptcy or other insolvency events. Upon the occurrence of an event of default, the Lender is entitled to accelerate all obligations of the Borrower. The Lender will also be entitled to receive the entire unpaid principal balance at a default rate.
The Loan proceeds will be used to pay down the Borrower’s existing floating rate indebtedness.
On March 22, 2019, we, through our Operating Partnership, entered into a Note Purchase and Guarantee Agreement (as amended from time to time, the “Note Agreement”) together with certain subsidiary guarantors as initial guarantor parties thereto (the “Subsidiary Guarantors”) and The Prudential Insurance Company of America and the various other purchasers named therein (collectively, the “Purchasers”) providing for the issuance and sale of $
On December 16, 2022, we through our Operating Partnership, amended the Note Agreement, pursuant to the terms and conditions of that certain Amendment No. 1 to Note Purchase and Guaranty Agreement, by and among the Company and the Operating Partnership, together with certain subsidiary guarantors as initial guarantor parties thereto and The Prudential Insurance Company of America and the various other purchasers named therein, for the purpose of conforming certain covenants and defined terms contained in the Note Agreement with the 2022 Facility (defined below).
The principal of the Series A Notes began to amortize on March 22, 2023 with annual principal payments of approximately $
The Operating Partnership may prepay at any time all, or from time to time part of, the Notes, in an amount not less than $
The Note Agreement contains representations, warranties, covenants, terms and conditions customary for transactions of this type and substantially similar to the Operating Partnership’s existing senior revolving credit facility, including limitations on liens, incurrence of investments, acquisitions, loans and advances and restrictions on dividends and certain other restricted payments. In addition, the Note Agreement contains certain financial covenants substantially similar to the Operating Partnership’s existing senior revolving credit facility, including the following:
| • | maximum total indebtedness to total asset value ratio of |
| • | maximum secured debt to total asset value ratio of |
| • | minimum EBITDA (earnings before interest, taxes, depreciation, amortization or extraordinary items) to fixed charges ratio of |
| • | maximum secured recourse debt to total asset value ratio of |
| • | maintenance of a minimum tangible net worth (adjusted for accumulated depreciation and amortization) of |
| • | minimum adjusted property NOI to implied unencumbered debt service ratio of |
In addition, the Note Agreement contains a financial covenant requiring that maximum unsecured indebtedness not exceed the ratio of unsecured indebtedness to unencumbered asset pool of
The Note Agreement also contains default provisions, including defaults for non-payment, breach of representations and warranties, insolvency, non-performance of covenants, cross-defaults with other indebtedness and guarantor defaults. The occurrence of an event of default under the Note Agreement could result in the Purchasers accelerating the payment of all obligations under the Notes. The financial and restrictive covenants and default provisions in the Note Agreement are substantially similar to those contained in the Operating Partnership’s existing credit facility.
Net proceeds from the Private Placement were used to refinance existing indebtedness. The Notes have not been and will not be registered under the Securities Act of 1933, as amended (the “Securities Act”), and may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements of the Securities Act. The Notes were sold in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act.
On September 16, 2022, we, through our Operating Partnership, entered into an unsecured credit facility (the “2022 Facility”) pursuant to that certain Third Amended and Restated Credit Agreement, by and among the Operating Partnership, the Company and certain subsidiaries of the Company, as guarantors signatory thereto, 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 (as amended from time to time, the “Credit Agreement”). The 2022 Facility replaced the Company’s previous unsecured revolving credit facility, dated January 31, 2019 (the “2019 Facility”).
On October 7, 2024, we, through our Operating Partnership, entered into the First Amendment to Third Amended and Restated Credit Agreement and Incremental Term Loan Joinder (the “Amendment”) among the Operating Partnership, the Company and certain subsidiaries of the Company, as guarantors signatory thereto, the Administrative Agent, and L/C Issuer and Associated Bank, National Association, which amends the Credit Agreement.
The Amendment, among other things, establishes the Series One Incremental Term Loan (defined below) consistent with the existing Term Loan (defined below). The Series One Incremental Term Loan accrues interest (at the Operating Partnership’s option) at a Base Rate (defined below) or Adjusted Term SOFR (as defined in the Credit Agreement) plus an applicable margin based upon the Operating Partnership’s then existing total leverage and is subject to adjustment as set forth in the Credit Agreement. In addition, the Operating Partnership entered into an interest rate swap to fix the interest rate on the Series One Incremental Term Loan at
The 2022 Facility is comprised of the following three tranches of indebtedness:
| • | $ |
| • | $ |
| • | $ |
Borrowings under the 2022 Facility accrue interest (at the Operating Partnership’s option) at a Base Rate or an Adjusted Term SOFR plus an applicable margin based upon our then existing total leverage. “Base Rate” means, for any day, the higher of: (a) the Administrative Agent’s prime commercial rate, (b) the sum 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, as published by the Federal Reserve Bank of New York for such day, plus (ii)
As of September 30, 2024, the interest rate on the 2022 Revolver was
| • | |
| • | |
| • | |
As of September 30, 2024, the Term Loan with the swaps had a spread of
The Credit Agreement also has a pricing provision where the applicable margin can be adjusted by an aggregate
The 2022 Facility includes an accordion feature that allows the Operating Partnership to increase the borrowing capacity by an aggregate amount equal to $
The Company, each direct and indirect material subsidiary of the Operating Partnership and any other subsidiary of the Operating Partnership that is a guarantor under any unsecured ratable debt will serve as a guarantor for funds borrowed by the Operating Partnership under the 2022 Facility. The Credit Agreement contains customary terms and conditions, including, without limitation, customary representations and warranties and affirmative and negative covenants including, without limitation, information reporting requirements, limitations on investments, acquisitions, loans and advances, mergers, consolidations and sales, incurrence of liens, dividends and restricted payments. In addition, the Credit Agreement contains certain financial covenants including the following:
| • | maximum total indebtedness to total asset value ratio of |
| • | maximum secured debt to total asset value ratio of |
| • | minimum EBITDA (earnings before interest, taxes, depreciation, amortization or extraordinary items) to fixed charges ratio of |
| • | maximum secured recourse debt to total asset value ratio of |
| • | maintenance of a minimum tangible net worth (adjusted for accumulated depreciation and amortization) of $ |
| • | minimum adjusted property net operating income to implied unencumbered debt service of |
| • | maximum unsecured indebtedness to unencumbered asset pool value ratio of |
As of September 30, 2024, our $
Scheduled maturities of our outstanding debt as of September 30, 2024 were as follows (in thousands):
| Year | Amount Due | |||
| 2024 (remaining) | $ | |||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| Thereafter | ||||
| Total | $ | |||
8. DERIVATIVES AND HEDGING ACTIVITIES
The fair value of our interest rate swaps is as follows (in thousands):
| September 30, 2024 | ||||
| Balance Sheet Location | Estimated Fair Value | |||
| Accounts payable and accrued expenses | $ | ( | ) | |
| December 31, 2023 | ||||
| Balance Sheet Location | Estimated Fair Value | |||
| Prepaid expenses and other assets | $ | |||
On March 31, 2023, we, through our Operating Partnership, entered into an interest rate swap of $
On September 16, 2022, we, through our Operating Partnership, entered an interest rate swap with Bank of Montreal that fixed the unhedged SOFR portion of Term Loan under the 2022 Facility at
On January 31, 2019, we, through our Operating Partnership, entered into an interest rate swap of $
A summary of our interest rate swap activity is as follows (in thousands):
| Amount Recognized as Comprehensive Income (Loss) | Location of Income Recognized in Earnings | Amount of Income Recognized in Earnings (1) | |||||||
| Three Months Ended September 30, 2024 | $ | ( | ) |
| $ | ||||
| Three Months Ended September 30, 2023 | $ |
| $ | ||||||
| Nine Months Ended September 30, 2024 | $ | ( | ) |
| $ | ||||
| Nine Months Ended September 30, 2023 | $ |
| $ | ||||||
| (1) | There was |
9. EARNINGS PER SHARE
Basic earnings per share for our common shareholders is calculated by dividing net income excluding the net income attributable to unvested restricted common shares and the net income attributable to noncontrolling interests, by our weighted average common shares outstanding during the period. Diluted earnings per share is computed by dividing the net income attributable to common shareholders, excluding the net income attributable to unvested restricted common shares and the net income attributable to noncontrolling interests, by the weighted average number of common shares including any dilutive unvested restricted common shares.
Certain of our performance-based restricted common shares are considered participating securities that require the use of the two-class method for the computation of basic and diluted earnings per share. During the three months ended September 30, 2024 and 2023,
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| (in thousands, except per share data) | 2024 | 2023 | 2024 | 2023 | ||||||||||||
| Numerator: | ||||||||||||||||
| Net income | $ | $ | $ | $ | ||||||||||||
| Less: Net income attributable to noncontrolling interests | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net income attributable to common shareholders excluding amounts attributable to unvested restricted shares | $ | $ | $ | $ | ||||||||||||
| Denominator: | ||||||||||||||||
| Weighted average number of common shares - basic | ||||||||||||||||
| Effect of dilutive securities: | ||||||||||||||||
| Unvested restricted shares | ||||||||||||||||
| Weighted average number of common shares - dilutive | ||||||||||||||||
| Earnings Per Share: | ||||||||||||||||
| Basic: | ||||||||||||||||
| Net income attributable to common shareholders excluding amounts attributable to unvested restricted shares | $ | $ | $ | $ | ||||||||||||
| Diluted: | ||||||||||||||||
| Net income attributable to common shareholders excluding amounts attributable to unvested restricted shares | $ | $ | $ | $ | ||||||||||||
10. INCOME TAXES
With the exception of our taxable REIT subsidiaries, federal income taxes are generally not provided because we intend to and believe we continue to qualify as a REIT under the provisions of the Internal Revenue Code of 1986, as amended (the “Code”), and because we have distributed and intend to continue to distribute all of our taxable income to our shareholders. As a REIT, we must distribute at least 90% of our REIT taxable income to our shareholders and meet certain income sources and investment restriction requirements. In addition, REITs are subject to a number of organizational and operational requirements. If we fail to qualify as a REIT in any taxable year, we will be subject to federal income tax (including any applicable alternative minimum tax) on our taxable income at regular corporate tax rates.
We are subject to the Texas Margin Tax, which is computed by applying the applicable tax rate (
11. EQUITY
Common Shares
Under our declaration of trust, as amended, we have authority to issue up to
Equity Offerings
On May 20, 2022, our universal shelf registration statement on Form S-3 (File No. 333-264881) was declared effective by the SEC (the “Registration Statement”), which registers the issuance and sale by us of up to $
On September 9, 2022, we entered into eleven equity distribution agreements with certain sales agents names therein for an at-the-market equity distribution program (the “2022 equity distribution agreements”) providing for the issuance and sale of up to an aggregate of $
For both three and nine months ended September 30, 2024, we sold
Operating Partnership Units
Substantially all of our business is conducted through our Operating Partnership. We are the sole general partner of the Operating Partnership. As of September 30, 2024, we owned a
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 OP unit for one common share. Distributions to OP unit holders are paid at the same rate per unit as distributions per share to holders of Whitestone common shares. As of September 30, 2024 and December 31, 2023, there were
Distributions
The following table summarizes the cash distributions paid or payable to holders of common shares and to holders of noncontrolling OP units during each quarter of 2023 and the nine months ended September 30, 2024 (in thousands, except per share/per OP unit data):
| Common Shares | Noncontrolling OP Unit Holders | Total | ||||||||||||||||||
| Quarter Paid | Distributions Per Common Share | Amount Paid | Distributions Per OP Unit | Amount Paid | Amount Paid | |||||||||||||||
| 2024 | ||||||||||||||||||||
| Third Quarter | $ | $ | $ | $ | $ | |||||||||||||||
| Second Quarter | ||||||||||||||||||||
| First Quarter | ||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | |||||||||||||||
| 2023 | ||||||||||||||||||||
| Fourth Quarter | $ | $ | $ | $ | $ | |||||||||||||||
| Third Quarter | ||||||||||||||||||||
| Second Quarter | ||||||||||||||||||||
| First Quarter | ||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | |||||||||||||||
12. INCENTIVE SHARE PLAN
The Company’s 2008 Long-Term Equity Incentive Plan (as amended, the “2008 Plan”) expired in July 2018. At the Company’s annual meeting of shareholders on May 11, 2017, our shareholders voted to approve the 2018 Long-Term Equity Incentive Ownership Plan (the “2018 Plan”). The 2018 Plan provides for the issuance of up to
The Compensation Committee administered the 2008 Plan and administers the 2018 Plan except, in each case, with respect to awards to non-employee trustees, for which the 2008 Plan was and the 2018 Plan is administered by the Board of Trustees. The Compensation Committee is authorized to grant share options, including both incentive share options and non-qualified share options, as well as share appreciation rights, either with or without a related option. The Compensation Committee is also authorized to grant restricted common shares, restricted common share units, performance awards and other share-based awards. On September 6, 2017, the Compensation Committee approved the grant of an aggregate of
On June 30, 2021, the Compensation Committee approved the grant of an aggregate of
On September 30, 2021, the Compensation Committee approved the grant of an aggregate of
On March 28, 2022, the Compensation Committee approved the grant of an aggregate of
On March 7, 2023, the Compensation Committee approved the grant of an aggregate of
On March 4, 2024, the Compensation Committee approved the grant of an aggregate of
A summary of the share-based incentive plan activity as of and for the nine months ended September 30, 2024 is as follows:
| Weighted Average | ||||||||
| Grant Date | ||||||||
| Shares | Fair Value | |||||||
| Non-vested at January 1, 2023 | $ | |||||||
| Granted | ||||||||
| Vested | ( | ) | ||||||
| Forfeited | ( | ) | ||||||
| Non-vested at September 30, 2024 | ||||||||
| Available for grant at September 30, 2024 | ||||||||
A summary of our non-vested and vested shares activity for the nine months ended September 30, 2024 and years ended December 31, 2023 and 2022 is presented below:
| Shares Granted | Shares Vested | |||||||||||||||
| Non-Vested Shares Issued | Weighted Average Grant-Date Fair Value | Vested Shares | Total Vest-Date Fair Value | |||||||||||||
| (in thousands) | ||||||||||||||||
| Nine Months Ended September 30, 2024 | $ | ( | ) | $ | ||||||||||||
| Year Ended December 31, 2023 | $ | ( | ) | $ | ||||||||||||
| Year Ended December 31, 2022 | $ | ( | ) | $ | ||||||||||||
Total compensation recognized in earnings for share-based payments was $
Based on our current financial projections, we expect approximately
We expect to record approximately $
13. GRANTS TO TRUSTEES
On December 20, 2023, independent trustees and trustee emeritus were granted a total of
14. SEGMENT INFORMATION
Historically, our management has not differentiated results of operations by property type or location and, therefore, does not present segment information.
15. REAL ESTATE
Property Acquisitions.
On April 5, 2024, we acquired Scottsdale Commons, a property that meets our Community Centered Property® strategy, for $
On April 1, 2024, we acquired Anderson Arbor Pad, a development parcel that meets our Community Centered Property® strategy, for $
On February 20, 2024, we acquired Garden Oaks Shopping Center, a property that meets our Community Centered Property® strategy, for $
On June 12, 2023, we acquired Arcadia Towne Center, a property that meets our Community Centered Property® strategy, for $
Property dispositions.
On August 9, 2024, we completed the sale of Fountain Hills Plaza along with the adjacent parcel of development land, located in Phoenix, Arizona, for $
On March 27, 2024, we completed the sale of Mercado at Scottsdale Ranch, located in Phoenix, Arizona, for $
On December 20, 2023, we completed the sale of Spoerlein Commons, located in Buffalo Grove, Illinois, for $
On June 30, 2023, we completed the sale of Westchase, located in Houston, Texas, for $
On June 30, 2023, we completed the sale of Sunridge, located in Houston, Texas, for $
16. RELATED PARTY TRANSACTIONS
Former Executives, Trustee, and Their Ownership Interests in Pillarstone REIT. Prior to his employment termination on January 18, 2022, Mr. James C. Mastandrea, the former Chairman and Chief Executive Officer of Whitestone REIT, also served as the Chairman and Chief Executive Officer of Pillarstone REIT and beneficially owns approximately
Pillarstone OP. In connection with the Contribution, Whitestone TRS, Inc., a subsidiary of the Company (“Whitestone TRS”), entered into a management agreement with the entities that own the contributed Pillarstone Properties (collectively, the “Management Agreements”). Pursuant to the Management Agreements, Whitestone TRS agreed to provide certain property management, leasing and day-to-day advisory and administrative services. The Management Agreements were terminated on August 18, 2022.
The Company previously accounted for its investment in Pillarstone OP using the equity method. However, subsequent to January 25, 2024, the Company ceased utilizing the equity method following the exercise of its notice of redemption for the majority of its investment in Pillarstone OP.
The following table presents the revenue and expenses with Pillarstone OP included in our consolidated statements of operations and comprehensive income (loss) for the three and nine months ended September 30, 2024 and 2023 (in thousands):
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||
| Location of Revenue (Expense) | 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Rent | Operating and maintenance | $ | $ | $ | $ | ( | ) | ||||||||||
| Property management fee income | Management, transaction, and other fees | $ | $ | $ | $ | ||||||||||||
17. COMMITMENTS AND CONTINGENCIES
Guarantor for Pillarstone OP’s Loan
The Company, through its subsidiary Whitestone REIT Operating Partnership, L.P., guaranteed Pillarstone OP’s loan for its Uptown Tower property located in Dallas, Texas, with an aggregate principal amount of $
On December 1, 2023, the Company reached an agreement with the Lender that would avoid foreclosure and secure the release of the lien and discharge of the guarantee, and the Company negotiated and satisfied a payoff as of December 4, 2023, in the amount of $
On December 1, 2023, Pillarstone OP authorized and filed the Chapter 11 bankruptcy of its special purpose entity borrower that owns Uptown Tower, in the Bankruptcy Court. On January 25, 2024, the Company exercised its notice of redemption for substantially all of its investment in Pillarstone OP. On February 9, 2024, the Lender filed suit in New York County against the guarantor Whitestone OP and the Company for alleged amounts due under the guarantee. On March 4, 2024, Pillarstone REIT authorized and filed the Pillarstone Bankruptcies.
On April 24, 2024, the Lender and Pillarstone OP filed a motion with the Bankruptcy Court seeking approval to settle the dispute and dismiss their mutual lawsuits including the lawsuit by the Lender against the Company as Guarantor of the loan. On or before June 10, 2024, Pillarstone OP agreed to pay to the Lender the sum of $
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 its subsidiaries (Whitestone TRS, Inc. and Whitestone REIT Operating Partnership, L.P.) along with certain of its executives (Peter Tropoli, Christine Mastandrea, and David Holeman) in the District Court of Harris County, Texas, alleging claims relating to the limited partnership agreement between Pillarstone Capital REIT and Whitestone REIT Operating Partnership, as well as the termination of Management Agreements between Pillarstone Capital REIT Operating Partnership, L.P. and Whitestone TRS, Inc. On November 25, 2022, the claims against Peter Tropoli, Christine Mastandrea and David Holeman were dismissed. The claimants seek monetary relief in excess of $
Former COO Litigation
On May 9, 2023, the Company’s former COO, John Dee, filed suit against the Company in the District Court of Harris County, Texas, purporting to assert claims for breach of his change-in-control agreement arising from the Company’s termination of its former CEO James Mastandrea for cause, and is seeking monetary relief in excess of $
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, Jack Mahaffey, and David Taylor) and officers (David Holeman, Christine Mastandrea, Peter Tropoli) in the District Court of Harris County, Texas, alleging $
On December 6, 2023, the District Court of Harris County, Texas granted summary judgement and dismissed all claims against the Company related to the termination of Mr. Mastandrea. The court also dismissed all claims against certain of the Company’s trustees and officers. The dismissal is subject to appeal. The Company’s counter-claims against Mr. Mastandrea for breach of fiduciary duty, theft, and conversion of company property remain.
Pillarstone Rights Plan
On December 26, 2021, the Board of Trustees of Pillarstone REIT adopted a new shareholder rights agreement (the “Pillarstone Rights Agreement”). Because Pillarstone REIT sought to use the Pillarstone Rights Agreement to prevent Whitestone OP from exercising its contractual Redemption Right, on July 12, 2022, Whitestone OP filed suit against Pillarstone REIT in the Court of Chancery of the State of Delaware challenging the Pillarstone Rights Agreement.
On September 8, 2022, Whitestone OP’s Motion to Preserve the Status Quo was granted by the Court, limiting Pillarstone OP from engaging in any acts outside the ordinary course of business and otherwise imposing restrictions on Pillarstone OP to ensure that Whitestone’s right of redemption is not impaired while the underlying dispute is being considered by the Court.
On January 25, 2024, the Delaware Court of Chancery: held that Pillarstone breached the implied covenant of good faith and fair dealing when it adopted the Pillarstone Rights Agreement that thwarted Whitestone OP from exercising the unfettered contractual redemption right it obtained in connection with its investment in the partnership; and the Court held that the Rights Plan was unenforceable as to the limited partner and allowed Whitestone OP to exercise its redemption right; allowed Pillarstone to determine the current value of the Partnership’s assets; and, as necessary, would later enter a monetary judgment against Pillarstone for the difference between the amount Whitestone would have received in or around December 2021 and the current value.
On January 25, 2024, the Company exercised its notice of redemption for substantially all of its investment in Pillarstone OP.
On March 4, 2024, Pillarstone REIT authorized and filed the Pillarstone Bankruptcies.
As of the date of this filing, Whitestone has not received consideration for its redemption of its equity investment in Pillarstone OP as required by the partnership agreement. The Company has filed a claim in the Pillarstone Bankruptcies for the value of its redemption claim along with interest and other costs. We intend to pursue collection of amounts due from Pillarstone OP through all means necessary and while we do not know the ultimate amount to be collected, we believe the amount will be in excess of the current carrying value of our equity investment in Pillarstone OP.
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.
18. SUBSEQUENT EVENTS
On October 7, 2024, we, through our Operating Partnership, entered into the Amendment, which among other things, establishes the Series One Incremental Term Loan consistent with the existing Term Loan. The Series One Incremental Term Loan accrues interest (at the Operating Partnership’s option) at a Base Rate or Adjusted Term SOFR plus an applicable margin based upon the Operating Partnership’s then existing leverage and is subject to adjustment as set forth in the Credit Agreement. In addition, the Operating Partnership entered into an interest rate swap to fix the interest rate on the Series One Incremental Term Loan at
The proceeds of the Series One Incremental Term Loan were used to pay down a portion of the Operating Partnership’s outstanding Revolving Loan (as defined in the Credit Agreement) borrowings.
Item 2. 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 unaudited consolidated financial statements and the notes thereto included in this Quarterly Report on Form 10-Q (this “Report”), and the consolidated financial statements and the notes thereto and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in our Annual Report on Form 10-K for the year ended December 31, 2023. For more detailed information regarding the basis of presentation for the following information, you should read the notes to the unaudited consolidated financial statements included in this Report.
Forward-Looking Statements
This Report contains forward-looking statements within the meaning of the federal securities laws, including discussion and analysis of our financial condition, pending acquisitions and the impact of such acquisitions on our financial condition and results of operations, anticipated capital expenditures required to complete projects, amounts of anticipated cash distributions to our shareholders in the future and other matters. These forward-looking statements are not historical facts but are the intent, belief or current expectations of our management based on its knowledge and understanding of our business and industry. Forward-looking statements are typically identified by the use of terms such as “may,” “will,” “should,” “potential,” “predicts,” “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates” or the negative of such terms and variations of these words and similar expressions, although not all forward-looking statements include these words. These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, some of which are beyond our control, are difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements.
Forward-looking statements that were true at the time made may ultimately prove to be incorrect or false. You are cautioned not to place undue reliance on forward-looking statements, which reflect our management’s view only as of the date of this Report. We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results.
Factors that could cause actual results to differ materially from any forward-looking statements made in this Report include:
| • |
the imposition of federal income taxes if we fail to qualify as a real estate investment trust (“REIT”) in any taxable year or forego an opportunity to ensure REIT status; |
| • |
uncertainties related to the national economy 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, Dallas, and Phoenix in particular, including the potential impact of public health emergencies on our tenants’ ability to pay their rent, which could result in bad debt allowances or straight-line rent reserve adjustments; |
| • |
our current geographic concentration in the Houston, Dallas, and Phoenix metropolitan area markets makes us susceptible to potential local economic downturns; |
| • |
increases in interest rates, including as a result of inflation, which may increase our operating costs or general and administrative expenses; |
| • |
natural disasters, such as floods and hurricanes, which may increase as a result of climate change may adversely affect our returns and adversely impact our existing and prospective tenants; |
| • |
increasing focus by stakeholders on environmental, social and governance matters; |
| • |
financial institution disruptions; |
| • |
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; |
| • |
risks related to generative artificial intelligence tools and language models, along with the potential interpretations and conclusions they might make regarding our business and prospects, particularly concerning the spread of misinformation; |
| • |
our inability to generate sufficient cash flows due to market conditions, competition, uninsured losses, changes in tax or other applicable laws; |
| • |
geopolitical conflicts, such as the ongoing conflict between Russia and Ukraine, the conflict in the Gaza Strip and unrest in the Middle East; |
| • |
the need to fund tenant improvements or other capital expenditures out of our operating cash flow; |
| • |
the risk that we are unable to raise capital for working capital, acquisitions or other uses on attractive terms or at all; and |
| • |
the ultimate amount we will collect in connection with the redemption of our equity investment in Pillarstone Capital REIT Operating Partnership LP (“Pillarstone” or “Pillarstone OP.”) |
The forward-looking statements should be read in light of these factors and the factors identified in the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2023, as previously filed with the Securities and Exchange Commission (“SEC”).
Overview
We are a fully-integrated real estate company that owns and operates commercial properties in culturally diverse markets in major metropolitan areas. Founded in 1998, we are internally managed with a portfolio of commercial properties in Texas and Arizona.
In October 2006, we adopted a strategic plan to acquire, redevelop, own and operate Community Centered Properties®. We define Community Centered Properties® as visibly located properties in established or developing culturally diverse neighborhoods in our target markets. We market, lease and manage our centers to match tenants with the shared needs of the surrounding neighborhood. Those needs may include specialty retail, grocery, restaurants and medical, educational and financial services. Our goal is for each property to become a Whitestone-branded retail community that serves a neighboring five-mile radius around our property. We employ and develop a diverse group of associates who understand the needs of our multi-cultural communities and tenants.
We serve as the general partner of Whitestone REIT Operating Partnership, L.P. (the “Operating Partnership”), which was formed on December 31, 1998 as a Delaware limited partnership. We currently conduct substantially all of our operations and activities through the Operating Partnership. As the general partner of the Operating Partnership, we have the exclusive power to manage and conduct the business of the Operating Partnership, subject to certain customary exceptions.
As of September 30, 2024, we wholly owned 55 commercial properties consisting of:
Consolidated Operating Portfolio
| • |
50 wholly owned properties that meet our Community Centered Properties® strategy containing approximately 4.9 million square feet of gross leasable area (“GLA”) and having a total carrying amount (net of accumulated depreciation) of $977.0 million; and |
Redevelopment, New Acquisitions Portfolio
| • |
five parcels of land held for future development that meet our Community Centered Properties® strategy having a total carrying value of $22.6 million. |
Acquired properties are categorized in the new acquisitions portfolio until the earlier of 90% occupancy or 18 months of ownership.
As of September 30, 2024, we had an aggregate of 1,466 tenants. We have a diversified tenant base with our largest tenant comprising only 2.1% of our annualized rental revenues for the nine months ended September 30, 2024. Lease terms for our properties range from less than one year for smaller tenants to over 15 years for larger tenants. Our leases include minimum monthly lease payments and generally provide for tenant reimbursements for payment of taxes, insurance and maintenance. We completed 219 new and renewal leases during the nine months ended September 30, 2024, totaling 735,695 square feet and approximately $78.2 million in total lease value. This compares to 223 new and renewal leases totaling 717,777 square feet and approximately $68.6 million in total lease value during the same period in 2023.
We employed 73 full-time employees as of September 30, 2024. 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 September 30, 2024, our ownership in Pillarstone OP no longer represents a majority interest. On January 25, 2024, we exercised our notice of redemption for substantially all of our investment in Pillarstone OP. As of the date of this filing, we have not received consideration for our redemption of our equity investment in Pillarstone OP as required by the partnership agreement. On March 4, 2024, Pillarstone Capital REIT (“Pillarstone REIT”) authorized and filed a Chapter 11 bankruptcy of itself, Pillarstone OP, and all of its remaining special purpose entities in the United States Bankruptcy Court for the Northern District of Texas (the “Pillarstone Bankruptcies”). We have filed a claim in the Pillarstone Bankruptcies for the value of our redemption claim along with interest and other costs. We intend to pursue collection of amounts due from Pillarstone OP through all means necessary, and, while we do not know the ultimate amount to be collected, we believe the amount will be in excess of the current carrying value of our equity investment in Pillarstone OP.
Inflation
We anticipate that the majority of our leases will continue to be triple-net leases or otherwise provide that tenants pay for increases in operating expenses and will contain provisions that we believe will mitigate the effect of inflation. In addition, many of our leases are for terms of less than five years, which allows us to adjust rental rates to reflect inflation and other changing market conditions when the leases expire. Consequently, increases due to inflation, as well as ad valorem tax rate increases, generally do not currently have a significant adverse effect upon our operating results.
Rising Interest Rates
As of September 30, 2024, $79.0 million, or approximately 12% of our outstanding debt, was subject to floating interest rates of Secured Overnight Financing Rate (“SOFR”) plus 1.60% and a 10 basis point credit spread adjustment and not currently subject to a hedge. The impact of a 1% increase or decrease in interest rates on our non-hedged variable rate debt would result in a decrease or increase of annual net income of approximately $0.8 million, respectively.
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 $38.6 million and $37.1 million for the three months ended September 30, 2024 and 2023, respectively, and $113.4 million and $109.4 million for the nine months ended September 30, 2024 and 2023, respectively.
Rental Income
We expect our rental income to increase year-over-year due to the addition of properties and rent increases on renewal leases. The amount of net rental income generated by our properties depends principally on our ability to maintain the occupancy rates of currently leased space and to lease currently available space, newly acquired properties with vacant space, and space available from unscheduled lease terminations. The amount of rental income we generate also depends on our ability to maintain or increase rental rates in our submarkets. During the three months ended September 30, 2024 and 2023, we recorded an adjustment to rental revenue for bad debt, exclusive of straight-line rent reserve adjustments, resulting in a $0.3 million and $0.4 million decrease in revenue, respectively, and during the nine months ended September 30, 2024 and 2023, we recorded an adjustment to rental revenue for bad debt, exclusive of straight-line rent reserve adjustment, resulting in a $1.0 million decrease in revenue during both periods. The three months ended September 30, 2024 included 20 cash basis tenants, resulting in a decrease to rental revenue for straight-line rent adjustments of $0.1 million and a decrease to rental revenue for bad debt adjustments of $0.2 million. The three months ended September 30, 2023 included 17 cash basis tenants, resulting in an increase to rental revenue for straight-line rent adjustment of $0.03 million and a decrease to rental revenue for bad debt adjustments of $0.2 million. The nine months ended September 30, 2024 included 20 cash basis tenants, resulting in a decrease to rental revenue for straight-line rent adjustments of $0.2 million and a decrease to rental revenue for bad debt adjustments of $0.5 million, and the nine months ended September 30, 2023 included 17 cash basis tenants, resulting in a decrease to rental revenue for straight-line rent adjustments of $0.1 million and a decrease to rental revenue for bad debt adjustments of $0.5 million.
Scheduled Lease Expirations
We tend to lease space to smaller businesses that desire shorter term leases. As of September 30, 2024, approximately 20% of our GLA was subject to leases that expire prior to December 31, 2025. Over the last three calendar years, we have renewed expiring leases with respect to approximately 68% of our GLA. We routinely seek to renew leases with our existing tenants prior to their expiration and typically begin discussions with a tenant as early as 24 months prior to the expiration date of the existing lease. Inasmuch as our early renewal program and other leasing and marketing efforts target these expiring leases, we work to re-lease most of that space prior to expiration of the leases. In the markets in which we operate, we obtain and analyze market rental rates through review of third-party publications, which provide market and submarket rental rate data and through inquiry of property owners and property management companies as to rental rates being quoted at properties that are located in close proximity to our properties and we believe display similar physical attributes as our nearby properties. We use this data to negotiate leases with new tenants and renew leases with our existing tenants at rates we believe to be competitive in the markets for our individual properties. Due to the short term nature of our leases, and based upon our analysis of market rental rates, we believe that, in the aggregate, our current leases are at market rates. Market conditions, including new supply of properties and competition, and macroeconomic conditions in our markets and nationally affecting tenant income, such as employment levels, business conditions, interest rates, tax rates, fuel and energy costs and other matters, could adversely impact our renewal rate and/or the rental rates we are able to negotiate. We continue to monitor our tenants’ operating performances as well as overall economic trends to evaluate any future negative impact on our renewal rates and rental rates, which could adversely affect our cash flow and ability to make distributions to our shareholders.
Acquisitions
We seek to grow our GLA through the acquisition of additional properties, and we are carefully evaluating development and redevelopment activities on a case-by-case basis. We have extensive relationships with community banks, attorneys, title companies, and others in the real estate industry, which we believe enables us to take advantage of these market opportunities and maintain an active acquisition pipeline.
Property Acquisitions, Dispositions and Development
We seek to acquire commercial properties in high-growth markets. Our acquisition targets are properties that fit our Community Centered Properties® strategy. We may acquire properties in other high-growth cities in the future. As part of our ongoing commitment to our Community Centered Properties® strategy and in pursuit of expanding our commercial property portfolio in high-growth markets, we have carefully evaluated and identified certain non-core properties for divestment, allowing us to reallocate resources towards acquiring properties that align more closely with our long-term growth objectives.
On April 5, 2024, we acquired Scottsdale Commons, a property that meets our Community Centered Property® strategy, for $22.2 million in cash and net prorations. Scottsdale Commons, a 69,482 square foot property, was 96.6% leased at the time of purchase and is located in Scottsdale, Arizona. The funding for this acquisition was provided by the Company's credit facility. The funding for this acquisition was provided by the Company’s credit facility.
On April 1, 2024, we acquired Anderson Arbor Pad, a development parcel that meets our Community Centered Property® strategy, for $0.9 million in cash and net prorations. Anderson Arbor Pad is located in Austin, Texas. The funding for this acquisition was provided by the Company’s credit facility.
On February 20, 2024, we acquired Garden Oaks Shopping Center, a property that meets our Community Centered Property® strategy, for $27.2 million in cash and net prorations. Garden Oaks Shopping Center, a 106,858 square foot property, was 95.8% leased at the time of purchase and is located in Houston, Texas. The funding for this acquisition was provided by the Company’s credit facility.
On June 12, 2023, we acquired Arcadia Towne Center, a property that meets our Community Centered Property® strategy, for $25.5 million in cash and net prorations. Arcadia Towne Center, a 69,503 square foot property, was 100% leased at the time of purchase and is located in Phoenix, Arizona. The funding for this acquisition was provided by the Company’s credit facility.
On August 9, 2024, we completed the sale of Fountain Hills Plaza along with the adjacent parcel of development land, located in Phoenix, Arizona, for $21.3 million. We recorded a gain on sale of $3.6 million. We have not included Fountain Hills Plaza in discontinued operations as it did not meet the definition of discontinued operations.
On March 27, 2024, we completed the sale of Mercado at Scottsdale Ranch, located in Phoenix, Arizona, for $26.5 million. We recorded a gain on sale of $6.6 million. We have not included Mercado at Scottsdale Ranch in discontinued operations as it did not meet the definition of discontinued operations.
On December 20, 2023, we completed the sale of Spoerlein Commons, located in Buffalo Grove, Illinois, for $7.4 million. We recorded a loss on sale of $0.7 million. We have not included Spoerlein in discontinued operations as it did not meet the definition of discontinued operations.
On June 30, 2023, we completed the sale of Westchase, located in Houston, Texas, for $7.8 million. We recorded a gain on sale of $4.6 million. We have not included Westchase in discontinued operations as it did not meet the definition of discontinued operations.
On June 30, 2023, we completed the sale of Sunridge, located in Houston, Texas, for $6.7 million. We recorded a gain on sale of $5.0 million. We have not included Sunridge in discontinued operations as it did not meet the definition of discontinued operations.
Leasing Activity
As of September 30, 2024, we owned 55 properties with 4,943,761 square feet of GLA and, as of September 30, 2024 and September 30, 2023, our occupancy rate for all properties was approximately 94% and 93%, respectively. The following is a summary of our leasing activity for the nine months ended September 30, 2024:
| Number of Leases Signed |
GLA Signed |
Weighted Average Lease Term (2) |
TI and Incentives per Sq. Ft. (3) |
Contractual Rent Per Sq. Ft. (4) |
Prior Contractual Rent Per Sq. Ft. (5) |
Straight-lined Basis Increase (Decrease) Over Prior Rent |
||||||||||||||||||||||
| Comparable (1) |
||||||||||||||||||||||||||||
| Renewal Leases |
133 | 535,240 | 4.1 | $ | 0.88 | $ | 20.33 | $ | 18.74 | 18.0 | % | |||||||||||||||||
| New Leases |
35 | 74,119 | 5.3 | 18.28 | 32.32 | 28.27 | 28.1 | % | ||||||||||||||||||||
| Total |
168 | 609,359 | 4.2 | $ | 2.99 | $ | 21.78 | $ | 19.90 | 19.8 | % | |||||||||||||||||
| Number of Leases Signed |
GLA Signed |
Weighted Average Lease Term (2) |
TI and Incentives per Sq. Ft. (3) |
Contractual Rent Per Sq. Ft. (4) |
||||||||||||||||
| Total |
||||||||||||||||||||
| Renewal Leases |
139 | 554,951 | 4.0 | $ | 0.87 | $ | 20.46 | |||||||||||||
| New Leases |
80 | 180,744 | 6.4 | 20.36 | 25.33 | |||||||||||||||
| Total |
219 | 735,695 | 4.6 | $ | 5.66 | $ | 21.65 | |||||||||||||
| (1) |
Comparable leases represent leases signed on spaces for which there was a former tenant within the last twelve months and the new or renewal square footage was within 25% of the expired square footage. |
| (2) |
Weighted average lease term is determined on the basis of square footage. |
| (3) |
Estimated amount per signed leases. Actual cost of construction may vary. Does not include first generation costs for tenant improvements (“TI”) and leasing commission costs needed for new acquisitions 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. |
Critical Accounting Policies and Estimates
In preparing the consolidated financial statements, we have made estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenue and expenses during the reported periods. Actual results may differ from these estimates. A summary of our critical accounting policies is included in our Annual Report on Form 10-K for the year ended December 31, 2023, under “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Except for the new accounting policies associated with the Pillarstone OP redemption, there have been no significant changes to policies during the nine months ended September 30, 2024. For disclosure regarding recent accounting pronouncements and the anticipated impact they will have on our operations, please refer to Note 2 to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2023.
Results of Operations
Comparison of the Three Months Ended September 30, 2024 and 2023
The following table provides a general comparison of our results of operations and other metrics for the three months ended September 30, 2024 and 2023 (dollars in thousands, except per share and per OP unit amounts):
| Three Months Ended September 30, |
||||||||
| 2024 |
2023 |
|||||||
| Number of properties owned and operated |
55 | 56 | ||||||
| Aggregate GLA (sq. ft.)(1) |
4,943,761 | 5,036,645 | ||||||
| Ending occupancy rate - operating portfolio (1) |
94 | % | 93 | % | ||||
| Ending occupancy rate |
94 | % | 93 | % | ||||
| Total revenues |
$ | 38,633 | $ | 37,134 | ||||
| Total operating expenses |
25,940 | 25,279 | ||||||
| Total other expense (income) |
4,852 | 8,864 | ||||||
| Income before equity investment in real estate partnership and income tax |
7,841 | 2,991 | ||||||
| Deficit in earnings of real estate partnership |
— | (375 | ) | |||||
| Provision for income tax |
(118 | ) | (95 | ) | ||||
| Net income |
7,723 | 2,521 | ||||||
| Less: Net income attributable to noncontrolling interests |
99 | 35 | ||||||
| Net income attributable to Whitestone REIT |
$ | 7,624 | $ | 2,486 | ||||
| Funds from operations(2) |
$ | 12,976 | $ | 11,693 | ||||
| Property net operating income(3) |
26,492 | 26,246 | ||||||
| Distributions paid on common shares and OP units |
6,274 | 6,011 | ||||||
| Distributions per common share and OP unit |
$ | 0.1238 | $ | 0.1200 | ||||
| Distributions paid as a percentage of funds from operations |
48 | % | 51 | % | ||||
| (1) |
Excludes (i) new acquisitions, through the earlier of attainment of 90% occupancy or 18 months of ownership, and (ii) properties that are undergoing significant redevelopment or re-tenanting. |
| (2) |
For an explanation and reconciliation of funds from operations, a Non-GAAP metric, to net income, see “—Reconciliation of Non-GAAP Financial Measures—Funds From Operations (“FFO”)” below. |
| (3) |
For an explanation and reconciliation of property net operating income, a Non-GAAP metric, to net income, see “—Reconciliation of Non-GAAP Financial Measures—Property Net Operating Income (“NOI”)” below. |
We define “Same Store” as properties that have been owned for the entire period being compared. For purposes of comparing the three months ended September 30, 2024 to the three months ended September 30, 2023, Same Store includes properties owned during the entire period from July 1, 2023 to September 30, 2024. We define “Non-Same Store” as properties acquired since the beginning of the period being compared and properties that have been sold, but not classified as discontinued operations.
Revenues. The primary components of revenue are detailed in the table below (in thousands, except percentages):
| Three Months Ended September 30, |
||||||||||||||||
| Revenue |
2024 |
2023 |
Change |
% Change |
||||||||||||
| Same Store |
||||||||||||||||
| Rental revenues (1) |
$ | 25,920 | $ | 25,431 | $ | 489 | 2 | % | ||||||||
| Recoveries (2) |
11,025 | 10,203 | 822 | 8 | % | |||||||||||
| Bad debt |
(359 | ) | (399 | ) | 40 | (10 | )% | |||||||||
| Total rental |
36,586 | 35,235 | 1,351 | 4 | % | |||||||||||
| Other revenues |
267 | 460 | (193 | ) | (42 | )% | ||||||||||
| Same Store Total |
36,853 | 35,695 | 1,158 | 3 | % | |||||||||||
| Non-Same Store |
||||||||||||||||
| Rental revenues (3) |
1,194 | 1,090 | 104 | 10 | % | |||||||||||
| Recoveries (3) |
313 | 332 | (19 | ) | (6 | )% | ||||||||||
| Bad debt (3) |
14 | 10 | 4 | 40 | % | |||||||||||
| Total rental |
1,521 | 1,432 | 89 | 6 | % | |||||||||||
| Other revenues (3) |
259 | 7 | 252 | 3600 | % | |||||||||||
| Non-Same Store Total |
1,780 | 1,439 | 341 | 24 | % | |||||||||||
| Total revenue |
$ | 38,633 | $ | 37,134 | $ | 1,499 | 4 | % | ||||||||
| (1) |
The Same Store rental revenues increase of $489,000 resulted from an increase of $224,000 from higher average leased square feet from 4,431,758 to 4,470,741, and an increase of $265,000 from higher average rent per leased square foot from $22.95 to $23.19. Same Store rental revenues include straight-line rent write offs for tenants converted to cash basis accounting of a decrease of $130,000 and an increase of $33,000 for the three months ended September 30, 2024 and 2023, respectively. |
|
|
| (2) |
The Same Store recoveries revenue increase of $822,000 is primarily attributable to increases in operating expenses and increases in recoverability of expenses from the increased occupancy at our properties. |
| (3) |
Non-Same Store rental revenue includes Fountain Hills Plaza (sold on August 9, 2024), Scottsdale Commons (acquired on April 5, 2024), Mercado at Scottsdale Ranch (sold on March 27, 2024), Garden Oaks (acquired on February 20, 2024), and Spoerlein Commons (sold on December 20, 2023). |
Operating expenses. The primary components of operating expenses for the three months ended September 30, 2024 and 2023 are detailed in the table below (in thousands, except percentages):
| Three Months Ended September 30, |
||||||||||||||||
| Operating Expenses |
2024 |
2023 |
Change |
% Change |
||||||||||||
| Same Store |
||||||||||||||||
| Operating and maintenance |
$ | 7,050 | $ | 6,586 | $ | 464 | 7 | % | ||||||||
| Real estate taxes |
4,641 | 4,604 | 37 | 1 | % | |||||||||||
| Same Store total |
11,691 | 11,190 | 501 | 4 | % | |||||||||||
| Non-Same Store |
||||||||||||||||
| Operating and maintenance (1) |
253 | 276 | (23 | ) | (8 | )% | ||||||||||
| Real estate taxes (1) |
197 | 89 | 108 | 121 | % | |||||||||||
| Non-Same Store total |
450 | 365 | 85 | 23 | % | |||||||||||
| Depreciation and amortization |
8,921 | 8,332 | 589 | 7 | % | |||||||||||
| General and administrative (2) |
4,878 | 5,392 | (514 | ) | (10 | )% | ||||||||||
| Total operating expenses |
$ | 25,940 | $ | 25,279 | $ | 661 | 3 | % | ||||||||
|
|
|
| (1) |
Non-Same Store rental expenses includes Fountain Hills Plaza (sold on August 9, 2024), Scottsdale Commons (acquired on April 5, 2024), Mercado at Scottsdale Ranch (sold on March 27, 2024), Garden Oaks (acquired on February 20, 2024), and Spoerlein Commons (sold on December 20, 2023). |
| (2) |
The general and administrative expense decrease is attributable to increased payroll cost of $282,000, increased share based compensation of $176,000, increased professional fees of $131,000, and increased other costs of $37,000, offset by decreased legal fees of $1,140,000. |
Other expenses (income). The primary components of other expenses (income) for the three months ended September 30, 2024 and 2023 are detailed in the table below (in thousands, except percentages):
| Three Months Ended September 30, |
||||||||||||||||
| Other Expenses (Income) |
2024 |
2023 |
Change |
% Change |
||||||||||||
| Interest expense (1) |
$ | 8,506 | $ | 8,400 | $ | 106 | 1 | % | ||||||||
| Gain on sale of properties (2) |
(3,762 | ) | (5 | ) | (3,757 | ) | N/A | |||||||||
| Loss on disposal of assets |
111 | 480 | (369 | ) | (77 | )% | ||||||||||
| Interest, dividend and other investment income |
(3 | ) | (11 | ) | 8 | (73 | )% | |||||||||
| Total other expenses |
$ | 4,852 | $ | 8,864 | $ | (4,012 | ) | (45 | )% | |||||||
| (1) |
The $106,000 increase in interest expense is primarily attributable to an increase in our average outstanding notes payable balance of $8,226,000. |
| (2) |
On August 9, 2024, we completed the sale of Fountain Hills Plaza along with the adjacent parcel of development land, located in Phoenix, Arizona, for $21.3 million. We recorded a gain on sale of $3.6 million. |
Deficit in earnings of real estate partnership. As of September 30, 2024, our ownership in Pillarstone OP no longer represents a majority interest. On January 25, 2024, we exercised our notice of redemption for substantially all of our investment in Pillarstone OP. For the three months ended September 30, 2023 our estimated deficit in earnings from the real estate partnership was $375,000. Please refer to Note 6 (Investment in Real Estate Partnership) to the accompanying consolidated financial statements for more information regarding our investment in Pillarstone OP.
Same Store net operating income. The components of Same Store net operating income is detailed in the table below (in thousands):
| Three Months Ended September 30, |
Increase |
% Increase |
||||||||||||||
| 2024 |
2023 |
(Decrease) |
(Decrease) |
|||||||||||||
| Same Store (48 properties, excluding development land) |
||||||||||||||||
| Property revenues |
||||||||||||||||
| Rental |
$ | 36,586 | $ | 35,235 | $ | 1,351 | 4 | % | ||||||||
| Management, transaction and other fees |
267 | 460 | (193 | ) | (42 | )% | ||||||||||
| Total property revenues |
36,853 | 35,695 | 1,158 | 3 | % | |||||||||||
| Property expenses |
||||||||||||||||
| Property operation and maintenance |
7,050 | 6,586 | 464 | 7 | % | |||||||||||
| Real estate taxes |
4,641 | 4,604 | 37 | 1 | % | |||||||||||
| Total property expenses |
11,691 | 11,190 | 501 | 4 | % | |||||||||||
| Total property revenues less total property expenses |
25,162 | 24,505 | 657 | 3 | % | |||||||||||
| Same Store straight-line rent adjustments |
(695 | ) | (833 | ) | 138 | (17 | )% | |||||||||
| Same Store amortization of above/below market rents |
(221 | ) | (214 | ) | (7 | ) | 3 | % | ||||||||
| Same Store lease termination fees |
(30 | ) | (300 | ) | 270 | (90 | )% | |||||||||
| Same Store NOI(1) |
$ | 24,216 | $ | 23,158 | $ | 1,058 | 5 | % | ||||||||
| (1) |
For an explanation and reconciliation of property net operating income, a non-GAAP metric, to net income, see “Reconciliation of Non-GAAP Financial Measures—Property Net Income (“NOI”)” below. |
| Three Months Ended September 30, |
||||||||
| PROPERTY NET OPERATING INCOME (“NOI”) |
2024 |
2023 |
||||||
| Net income attributable to Whitestone REIT |
$ | 7,624 | $ | 2,486 | ||||
| General and administrative expenses |
4,878 | 5,392 | ||||||
| Depreciation and amortization |
8,921 | 8,332 | ||||||
| Deficit in earnings of real estate partnership(1) |
— | 375 | ||||||
| Interest expense |
8,506 | 8,400 | ||||||
| Interest, dividend and other investment income |
(3 | ) | (11 | ) | ||||
| Provision for income taxes |
118 | 95 | ||||||
| Gain on sale of properties |
(3,762 | ) | (5 | ) | ||||
| Loss on disposal of assets |
111 | 480 | ||||||
| NOI of real estate partnership (pro rata)(1) |
— | 667 | ||||||
| Net income attributable to noncontrolling interests |
99 | 35 | ||||||
| NOI |
$ | 26,492 | $ | 26,246 | ||||
| Non-Same Store NOI (2) |
(1,330 | ) | (1,074 | ) | ||||
| NOI of real estate partnership (pro rata)(1) |
— | (667 | ) | |||||
| NOI less Non-Same Store NOI and NOI of real estate partnership (pro rata) |
25,162 | 24,505 | ||||||
| Same Store straight-line rent adjustments |
(695 | ) | (833 | ) | ||||
| Same Store amortization of above/below market rents |
(221 | ) | (214 | ) | ||||
| Same Store lease termination fees |
(30 | ) | (300 | ) | ||||
| Same Store NOI (3) |
$ | 24,216 | $ | 23,158 | ||||
| (1) |
We rely on reporting provided to us by Pillarstone OP’s general partner for financial information regarding the Company’s investment in Pillarstone OP. Because Pillarstone OP financial statements for the three months ended September 30, 2023 have not been made available to us, we have estimated deficit 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. As of September 30, 2024, our ownership in Pillarstone OP no longer represents a majority interest. On January 25, 2024, we exercised our notice of redemption for substantially all of our investment in Pillarstone OP. Please refer to Note 6 to the accompanying consolidated financial statements for the full disclosure. |
| (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 September 30, 2024 to the three months ended September 30, 2023, Non-Same Store includes properties acquired between July 1, 2023 and September 30, 2024 and properties sold between July 1, 2023 and September 30, 2024, 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 September 30, 2024 to the three months ended September 30, 2023, Same Store includes properties owned before July 1, 2023 and not sold before September 30, 2024. Straight-line rent adjustments, above/below market rents, and lease termination fees are excluded. |
Results of Operations
Comparison of the Nine Months Ended September 30, 2024 and 2023
The following table provides a general comparison of our results of operations and other metrics for the nine months ended September 30, 2024 and 2023 (dollars in thousands, except per share and per OP unit amounts):
| Nine Months Ended September 30, |
||||||||
| 2024 |
2023 |
|||||||
| Number of properties owned and operated |
55 | 56 | ||||||
| Aggregate GLA (sq. ft.)(1) |
4,943,761 | 5,036,645 | ||||||
| Ending occupancy rate - operating portfolio (1) |
94 | % | 93 | % | ||||
| Ending occupancy rate |
94 | % | 93 | % | ||||
| Total revenues |
$ | 113,444 | $ | 109,445 | ||||
| Total operating expenses |
77,507 | 74,204 | ||||||
| Total other expense |
15,769 | 15,388 | ||||||
| Income before equity investment in real estate partnership and income tax |
20,168 | 19,853 | ||||||
| Deficit in earnings of real estate partnership |
(28 | ) | (1,627 | ) | ||||
| Provision for income tax |
(327 | ) | (339 | ) | ||||
| Net income |
19,813 | 17,887 | ||||||
| Less: Net income attributable to noncontrolling interests |
257 | 248 | ||||||
| Net income attributable to Whitestone REIT |
$ | 19,556 | $ | 17,639 | ||||
| Funds from operations (2) |
$ | 36,064 | $ | 34,387 | ||||
| Property net operating income (3) |
79,972 | 77,329 | ||||||
| Distributions paid on common shares and OP units |
18,565 | 18,003 | ||||||
| Distributions per common share and OP unit |
$ | 0.3676 | $ | 0.3600 | ||||
| Distributions paid as a percentage of funds from operations |
51 | % | 52 | % | ||||
| (1) |
Excludes (i) new acquisitions, through the earlier of attainment of 90% occupancy or 18 months of ownership, and (ii) properties that are undergoing significant redevelopment or re-tenanting. |
| (2) |
For an explanation and reconciliation of funds from operations, a Non-GAAP metric, to net income, see “—Reconciliation of Non-GAAP Financial Measures—Funds From Operations (“FFO”)” below. |
| (3) |
For an explanation and reconciliation of property net operating income, a non-GAAP metric, to net income, see “—Reconciliation of Non-GAAP Financial Measures—Property Net Operating Income (“NOI”)” below. |
We define “Same Store” as properties that have been owned for the entire period being compared. For purposes of comparing the nine months ended September 30, 2024 to the nine months ended September 30, 2023, Same Store includes properties owned during the entire period from January 1, 2023 to September 30, 2024. We define “Non-Same Store” as properties acquired since the beginning of the period being compared and properties that have been sold, but not classified as discontinued operations.
Revenues. The primary components of revenue are detailed in the table below (in thousands, except percentages):
| Nine Months Ended September 30, |
||||||||||||||||
| Revenue |
2024 |
2023 |
Change |
% Change |
||||||||||||
| Same Store |
||||||||||||||||
| Rental revenues (1) |
$ | 76,179 | $ | 74,324 | $ | 1,855 | 2 | % | ||||||||
| Recoveries (2) |
30,455 | 29,029 | 1,426 | 5 | % | |||||||||||
| Bad debt |
(1,007 | ) | (859 | ) | (148 | ) | 17 | % | ||||||||
| Total rental |
105,627 | 102,494 | 3,133 | 3 | % | |||||||||||
| Other revenues |
856 | 1,025 | (169 | ) | (16 | )% | ||||||||||
| Same Store Total |
106,483 | 103,519 | 2,964 | 3 | % | |||||||||||
| Non-Same Store |
||||||||||||||||
| Rental revenues (3) |
5,171 | 4,456 | 715 | 16 | % | |||||||||||
| Recoveries (3) |
1,554 | 1,542 | 12 | 1 | % | |||||||||||
| Bad debt (3) |
(24 | ) | (87 | ) | 63 | (72 | )% | |||||||||
| Total rental |
6,701 | 5,911 | 790 | 13 | % | |||||||||||
| Other revenues (3) |
260 | 15 | 245 | 1633 | % | |||||||||||
| Non-Same Store Total |
6,961 | 5,926 | 1,035 | 17 | % | |||||||||||
| Total revenue |
$ | 113,444 | $ | 109,445 | $ | 3,999 | 4 | % | ||||||||
| (1) |
The Same Store rental revenues increase of $1,855,000 resulted from an increase of $662,000 from higher average leased square feet from 4,378,624 to 4,417,687, and an increase of $1,193,000 from higher average rent per leased square foot from $22.63 to $22.99. Same Store rental revenues include straight-line rent write offs for tenants converted to cash basis accounting of a decrease of $171,000 and $86,000 for the nine months ended September 30, 2024 and 2023, respectively. |
| (2) |
The Same Store recoveries revenue increase of $1,426,000 is primarily attributable to increases in operating expenses and increases in recoverability of expenses from the increased occupancy at our properties. |
| (3) |
Non-Same Store rental revenue includes Fountain Hills Plaza (sold on August 9, 2024), Scottsdale Commons (acquired on April 5, 2024), Mercado at Scottsdale Ranch (sold on March 27, 2024), Garden Oaks (acquired on February 20, 2024), Sporlein Commons (sold on December 20, 2023, Westchase (sold on June 30, 2023), Sunridge (sold on June 30, 2023), and Arcadia Towne Center (acquired on June 12, 2023). |
Operating expenses. The primary components of operating expenses for the nine months ended September 30, 2024 and 2023 are detailed in the table below (in thousands, except percentages):
| Nine Months Ended September 30, |
||||||||||||||||
| Operating Expenses |
2024 |
2023 |
Change |
% Change |
||||||||||||
| Same Store |
||||||||||||||||
| Operating and maintenance (1) |
$ | 19,633 | $ | 18,665 | $ | 968 | 5 | % | ||||||||
| Real estate taxes (2) |
12,450 | 13,636 | (1,186 | ) | (9 | )% | ||||||||||
| Same Store total |
32,083 | 32,301 | (218 | ) | (1 | )% | ||||||||||
| Non-Same Store and affiliated company rents |
||||||||||||||||
| Operating and maintenance (3) |
1,034 | 1,167 | (133 | ) | (11 | )% | ||||||||||
| Real estate taxes (3) |
538 | 532 | 6 | 1 | % | |||||||||||
| Affiliated company rents (4) |
— | 15 | (15 | ) | (100 | )% | ||||||||||
| Non-Same Store and affiliated company rents total |
1,572 | 1,714 | (142 | ) | (8 | )% | ||||||||||
| Depreciation and amortization (3) |
26,242 | 24,538 | 1,704 | 7 | % | |||||||||||
| General and administrative (5) |
17,610 | 15,651 | 1,959 | 13 | % | |||||||||||
| Total operating expenses |
$ | 77,507 | $ | 74,204 | $ | 3,303 | 4 | % | ||||||||
| (1) |
The $968,000 Same Store operating and maintenance cost increase includes $466,000 in increased insurance cost, $403,000 in increased contract services costs, and $231,000 in increased utilities costs, offset by $132,000 in decreased repair costs and other costs. |
| (2) |
Same Store real estate taxes decrease is primarily from $1,186,000 of real estate property tax reduction from successful property tax protests. |
| (3) |
Non-Same Store rental expenses includes Fountain Hills Plaza (sold on August 9, 2024), Scottsdale Commons (acquired on April 5, 2024), Mercado at Scottsdale Ranch (sold on March 27, 2024), Garden Oaks (acquired on February 20, 2024), Sporlein Commons (sold on December 20, 2023, Westchase (sold on June 30, 2023), Sunridge (sold on June 30, 2023), and Arcadia Towne Center (acquired on June 12, 2023). |
| (4) |
Affiliated company rents are spaces that we leased from Pillarstone OP. |
| (5) |
The general and administrative expense increase is attributable to proxy solicitation fees of $1,757,000, increased payroll costs of $1,103,000, increased share-based compensation of $318,000, and increased other costs of $112,000, offset by decreased legal fees of $1,331,000. |
Other expenses. The primary components of other expenses for the nine months ended September 30, 2024 and 2023 are detailed in the table below (in thousands, except percentages):
| Nine Months Ended September 30, |
||||||||||||||||
| Other Expenses |
2024 |
2023 |
Change |
% Change |
||||||||||||
| Interest expense (1) |
$ | 25,813 | $ | 24,563 | $ | 1,250 | 5 | % | ||||||||
| Gain on sale of properties (2) |
(10,212 | ) | $ | (9,626 | ) | (586 | ) | N/A | ||||||||
| Loss on disposal of assets |
183 | $ | 500 | (317 | ) | (63 | )% | |||||||||
| Interest, dividend and other investment income |
(15 | ) | (49 | ) | 34 | (69 | )% | |||||||||
| Total other expenses |
$ | 15,769 | $ | 15,388 | $ | 381 | 2 | % | ||||||||
| (1) |
The $1,250,000 increase in interest expense is attributable to higher interest rates, which led to an increase in our effective interest rate to 5.16% for the nine months ended September 30, 2024 as compared to 4.99% for the nine months ended September 30, 2023, resulting in a $816,000 increase in interest expense and an increase in our average outstanding notes payable balance of $11,442,000, resulting in a $434,000 increase in interest expense. |
| (2) |
On August 9, 2024, we completed the sale of Fountain Hills Plaza along with the adjacent parcel of development land, located in Phoenix, Arizona, for $21.3 million. We recorded a gain on sale of $3.6 million. On March 27, 2024, we completed the sale of Mercado at Scottsdale Ranch, located in Phoenix, Arizona, for an aggregate $26.5 million. We recorded a gain on sale of $6.6 million. On June 30, 2023, we completed the sale of Sunridge, located in Houston, Texas, for $6.7 million. We recorded a gain on sale of $5.0 million. On June 30, 2023, we completed the sale of Westchase, located in Houston, Texas, for $7.8 million. We recorded a gain on sale of $4.6 million. |
Deficit in earnings of real estate partnership. As of September 30, 2024, our ownership in Pillarstone OP no longer represents a majority interest. On January 25, 2024, we exercised our notice of redemption for substantially all of our investment in Pillarstone OP. For the nine months ended September 30, 2024, our estimated deficit in earnings from the real estate partnership, which was generated through our 81.4% ownership of Pillarstone OP up to the redemption date, amounted to $28,000. For the nine months ended September 30, 2023 our estimated deficit in earnings from the real estate partnership was $1,627,000. Please refer to Note 6 (Investment in Real Estate Partnership) to the accompanying consolidated financial statements for more information regarding our investment in Pillarstone OP.
Same Store net operating income. The components of Same Store net operating income is detailed in the table below (in thousands):
| Nine Months Ended September 30, |
Increase |
% Increase |
||||||||||||||
| 2024 |
2023 |
(Decrease) |
(Decrease) |
|||||||||||||
| Same Store (47 properties, excluding development land) |
||||||||||||||||
| Property revenues |
||||||||||||||||
| Rental |
$ | 105,627 | $ | 102,494 | $ | 3,133 | 3 | % | ||||||||
| Management, transaction and other fees |
856 | 1,025 | (169 | ) | (16 | )% | ||||||||||
| Total property revenues |
106,483 | 103,519 | 2,964 | 3 | % | |||||||||||
| Property expenses |
||||||||||||||||
| Property operation and maintenance |
19,633 | 18,665 | 968 | 5 | % | |||||||||||
| Real estate taxes |
12,450 | 13,636 | (1,186 | ) | (9 | )% | ||||||||||
| Total property expenses |
32,083 | 32,301 | (218 | ) | (1 | )% | ||||||||||
| Total property revenues less total property expenses |
74,400 | 71,218 | 3,182 | 4 | % | |||||||||||
| Same Store straight-line rent adjustments |
(2,581 | ) | (2,390 | ) | (191 | ) | 8 | % | ||||||||
| Same Store amortization of above/below market rents |
(600 | ) | (607 | ) | 7 | (1 | )% | |||||||||
| Same Store lease termination fees |
(298 | ) | (600 | ) | 302 | (50 | )% | |||||||||
| Same Store NOI(1) |
$ | 70,921 | $ | 67,621 | $ | 3,300 | 5 | % | ||||||||
| (1) |
For an explanation and reconciliation of property net operating income, a non-GAAP metric, to net income, see “—Reconciliation of Non-GAAP Measures—Property Net Income (“NOI”)” below. |
| Nine Months Ended September 30, |
||||||||
| PROPERTY NET OPERATING INCOME (“NOI”) |
2024 |
2023 |
||||||
| Net income attributable to Whitestone REIT |
$ | 19,556 | $ | 17,639 | ||||
| General and administrative expenses |
17,610 | 15,651 | ||||||
| Depreciation and amortization |
26,242 | 24,538 | ||||||
| Deficit in earnings of real estate partnership (1) |
28 | 1,627 | ||||||
| Interest expense |
25,813 | 24,563 | ||||||
| Interest, dividend and other investment income |
(15 | ) | (49 | ) | ||||
| Provision for income taxes |
327 | 339 | ||||||
| Gain on sale of properties, net |
(10,212 | ) | (9,626 | ) | ||||
| Management fee, net of related expenses |
— | 16 | ||||||
| Loss on disposal of assets |
183 | 500 | ||||||
| NOI of real estate partnership (pro rata) (1) |
183 | 1,883 | ||||||
| Net income attributable to noncontrolling interests |
257 | 248 | ||||||
| NOI |
$ | 79,972 | $ | 77,329 | ||||
| Non-Same Store NOI (2) |
(5,389 | ) | (4,228 | ) | ||||
| NOI of real estate partnership (pro rata)(1) |
(183 | ) | (1,883 | ) | ||||
| NOI less Non-Same Store NOI and NOI of real estate partnership (pro rata) |
74,400 | 71,218 | ||||||
| Same Store straight-line rent adjustments |
(2,581 | ) | (2,390 | ) | ||||
| Same Store amortization of above/below market rents |
(600 | ) | (607 | ) | ||||
| Same Store lease termination fees |
(298 | ) | (600 | ) | ||||
| Same Store NOI (3) |
$ | 70,921 | $ | 67,621 | ||||
| (1) |
We rely on reporting provided to us by Pillarstone OP’s general partner for financial information regarding the Company’s investment in Pillarstone OP. Because Pillarstone OP financial statements for the nine months ended September 30, 2024 and 2023 have not been made available to us, we have estimated deficit 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. As of September 30, 2024, our ownership in Pillarstone OP no longer represents a majority interest. On January 25, 2024, we exercised our notice of redemption for substantially all of our investment in Pillarstone OP. Please refer to Note 6 to the accompanying consolidated financial statements for the full disclosure. |
| (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 September 30, 2024 to the three months ended September 30, 2023, Non-Same Store includes properties acquired between January 1, 2023 and September 30, 2024 and properties sold between January 1, 2023 and September 30, 2024, 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 September 30, 2024 to the three months ended September 30, 2023, Same Store includes properties owned before January 1, 2023 and not sold before September 30, 2024. Straight-line rent adjustments, above/below market rents, and lease termination fees are excluded. |
Reconciliation of Non-GAAP Financial Measures
Funds From Operations (“FFO”) and Core FFO
The National Association of Real Estate Investment Trusts (“NAREIT”) defines FFO as net income available to Whitestone REIT (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.
Core Funds from Operations (“Core FFO”) is a non-GAAP measure. We define Core FFO as FFO excluding proxy contest costs.
Management uses FFO and Core FFO as a supplemental measure to conduct and evaluate our business because there are certain limitations associated with using GAAP net income 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 and Core FFO should not be considered as alternatives 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 and Core FFO do 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 and Core FFO presented by us is comparable to similarly titled measures of other REITs.
Below are the calculations of FFO and Core FFO, along with the reconciliations to net income, which we believe is the most directly comparable U.S. GAAP financial measure (in thousands):
| Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
| FFO (NAREIT) AND CORE FFO |
2024 |
2023 |
2024 |
2023 |
||||||||||||
| Net income attributable to Whitestone REIT |
$ | 7,624 | $ | 2,486 | $ | 19,556 | $ | 17,639 | ||||||||
| Adjustments to reconcile to FFO:(1) |
||||||||||||||||
| Depreciation and amortization of real estate assets |
8,904 | 8,294 | 26,169 | 24,417 | ||||||||||||
| Depreciation and amortization of real estate assets of real estate partnership (pro rata) (2) |
— | 403 | 111 | 1,209 | ||||||||||||
| Loss on disposal of assets |
111 | 480 | 183 | 500 | ||||||||||||
| Gain on sale of properties |
(3,762 | ) | (5 | ) | (10,212 | ) | (9,626 | ) | ||||||||
| Net income attributable to noncontrolling interests |
99 | 35 | 257 | 248 | ||||||||||||
| FFO (NAREIT) |
$ | 12,976 | $ | 11,693 | $ | 36,064 | $ | 34,387 | ||||||||
| Adjustments to reconcile to Core FFO: |
||||||||||||||||
| Proxy contest costs |
— | — | 1,757 | — | ||||||||||||
| Core FFO |
$ | 12,976 | $ | 11,693 | $ | 37,821 | $ | 34,387 | ||||||||
| (1) |
Includes pro-rata share attributable to real estate partnership for the three and nine months ended months ended September 30, 2023 and for the nine months ended September 30, 2024, through January 25, 2024, the redemption date. |
| (2) |
We rely on reporting provided to us by Pillarstone OP’s general partner for financial information regarding the Company’s investment in Pillarstone OP. Because Pillarstone OP financial statements for the three and nine months ended September 30, 2024 and 2023 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. As of September 30, 2024, our ownership in Pillarstone OP no longer represents a majority interest. On January 25, 2024, we exercised our notice of redemption for substantially all of our investment in Pillarstone OP. Please refer to Note 6 to the accompanying consolidated financial statements for the full disclosure. |
Property Net Operating Income (“NOI”)
Management believes that NOI is a useful measure of our property operating performance. We define NOI as operating revenues (rental and other revenues) less property and related expenses (property operation and maintenance and real estate taxes). Other REITs may use different methodologies for calculating NOI and, accordingly, our NOI may not be comparable to other REITs. Because NOI excludes general and administrative expenses, depreciation and amortization, deficit in earnings of real estate partnership, interest expense, interest, dividend and other investment income, provision for income taxes, (gain) loss on sale of properties, management fee, net of related expenses, loss on disposal of assets, and includes NOI of real estate partnership (pro rata) and net income attributable to noncontrolling interest, it provides a performance measure that, when compared year-over-year, reflects the revenues and expenses directly associated with owning and operating commercial real estate properties and the impact to operations from trends in occupancy rates, rental rates and operating costs, providing perspective not immediately apparent from net income. We use NOI to evaluate our operating performance since NOI allows us to evaluate the impact that factors such as occupancy levels, lease structure, lease rates and tenant base have on our results, margins and returns. In addition, management believes that NOI provides useful information to the investment community about our property and operating performance when compared to other REITs since NOI is generally recognized as a standard measure of property performance in the real estate industry. However, NOI should not be viewed as a measure of our overall financial performance since it does not reflect the level of capital expenditure and leasing costs necessary to maintain the operating performance of our properties, including general and administrative expenses, depreciation and amortization, equity or deficit in earnings of real estate partnership, interest expense, interest, dividend and other investment income, provision for income taxes, (gain) loss on sale of properties, management fee, net of related expenses, and loss on disposal of assets.
Below is the calculation of NOI and the reconciliations to net income, which we believe is the most directly comparable U.S. GAAP financial measure (in thousands):
| Three Months Ended |
Nine Months Ended |
|||||||||||||||
| September 30, |
September 30, |
|||||||||||||||
| PROPERTY NET OPERATING INCOME |
2024 |
2023 |
2024 |
2023 |
||||||||||||
| Net income attributable to Whitestone REIT |
$ | 7,624 | $ | 2,486 | $ | 19,556 | $ | 17,639 | ||||||||
| General and administrative expenses |
4,878 | 5,392 | 17,610 | 15,651 | ||||||||||||
| Depreciation and amortization |
8,921 | 8,332 | 26,242 | 24,538 | ||||||||||||
| Deficit in earnings of real estate partnership |
— | 375 | 28 | 1,627 | ||||||||||||
| Interest expense |
8,506 | 8,400 | 25,813 | 24,563 | ||||||||||||
| Interest, dividend and other investment income |
(3 | ) | (11 | ) | (15 | ) | (49 | ) | ||||||||
| Provision for income taxes |
118 | 95 | 327 | 339 | ||||||||||||
| Gain on sale of properties |
(3,762 | ) | (5 | ) | (10,212 | ) | (9,626 | ) | ||||||||
| Management fee, net of related expenses |
— | — | — | 16 | ||||||||||||
| Loss on disposal of assets |
111 | 480 | 183 | 500 | ||||||||||||
| NOI of real estate partnership (pro rata) (1) |
— | 667 | 183 | 1,883 | ||||||||||||
| Net income attributable to noncontrolling interests |
99 | 35 | 257 | 248 | ||||||||||||
| NOI |
$ | 26,492 | $ | 26,246 | $ | 79,972 | $ | 77,329 | ||||||||
| (1) |
We rely on reporting provided to us by Pillarstone OP’s general partner for financial information regarding the Company’s investment in Pillarstone OP. Because Pillarstone OP financial statements for the three and nine months ended September 30, 2024 and 2023 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. As of September 30, 2024, our ownership in Pillarstone OP no longer represents a majority interest. On January 25, 2024, we exercised our notice of redemption for substantially all of our investment in Pillarstone OP. Please refer to Note 6 for the full disclosure. |
Liquidity and Capital Resources
Our short-term liquidity requirements consist primarily of distributions to holders of our common shares and OP units, including those required to maintain our REIT status and satisfy our current quarterly distribution target of $0.12375 per common share and OP unit, recurring expenditures, such as repairs and maintenance of our properties, non-recurring expenditures, such as capital improvements and tenant improvements, debt service requirements, and, potentially, acquisitions of additional properties.
During the nine months ended September 30, 2024, our cash provided by operating activities was $40,156,000 and our total distributions were $18,565,000. Therefore, we had cash flow from operations in excess of distributions of approximately $21,591,000. We anticipate that cash flows from operating activities and our borrowing capacity under our 2022 Facility will provide adequate capital for our working capital requirements, anticipated capital expenditures, acquisitions and scheduled debt payments in the short term. We also believe that cash flows from operating activities and our borrowing capacity will allow us to make all distributions required for us to continue to qualify to be taxed as a REIT for federal income tax purposes. The funding for the Scottsdale Commons acquisition was provided by the 2022 Facility.
Our long-term capital requirements consist primarily of maturities under our longer-term debt agreements, development and redevelopment costs, and potential acquisitions. We expect to meet our long-term liquidity requirements with net cash from operations, long-term indebtedness, sales of common shares, issuance of OP units, sales of underperforming properties and non-core properties and other financing opportunities, including debt financing. We believe we have access to multiple sources of capital to fund our long-term liquidity requirements, including the incurrence of additional debt and the issuance of additional equity. On March 5, 2024, the Company announced an increase to its quarterly distribution to $0.12375 per common share and OP unit, equal to a monthly distribution of $0.04125, beginning with the April 2024 distribution. The Board will regularly reassess the dividend in light of economic conditions. As of September 30, 2024, subject to any potential future paydowns in the borrowing base, we have $121.0 million remaining availability under the 2022 Revolver.
Our ability to access the capital markets will be dependent on a number of factors as well, including general market conditions for REITs and market perceptions about our Company. In light of the dynamics in the capital markets impacted by macro economic factors and economic uncertainty, our access to capital may be diminished. Despite these potential challenges, we believe we have sufficient access to capital for the foreseeable future, but we can provide no assurance that such capital will be available to us in the future on attractive terms or at all.
On May 20, 2022, our universal shelf registration statement on Form S-3 (File No. 333-264881) was declared effective by the SEC (the “Registration Statement”), 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 with certain sales agents’ names therein for an at-the-market equity distribution program (the “2022 equity distribution agreements”) providing for the issuance and sale of up to an aggregate of $100 million of the Company’s common shares pursuant to our Registration Statement. Actual sales will depend on a variety of factors determined by us from time to time, including (among others) market conditions, the trading price of our common shares, capital needs and our determinations of the appropriate sources of funding for us, and will be 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”). We have no obligation to sell any of our common shares and can at any time suspend offers under the 2022 equity distribution agreements or terminate the 2022 equity distribution agreements. For both the three and nine months ended September 30, 2024, we sold 579,964 common shares under the 2022 equity distribution agreements, with net proceeds to us of approximately $7.6 million. In connection with such sales, we paid compensation of approximately $116,000 to the sales agents. For both the three and nine months ended September 2023, we did not sell shares under the 2022 equity distribution agreements.
To the extent we sell shares in the future under the 2022 equity distribution agreements, we anticipate using net proceeds for general corporate purposes, which may include acquisitions of additional properties, the repayment of outstanding indebtedness, capital expenditures, the expansion, redevelopment and/or re-tenanting of properties in our portfolio, working capital and other general purposes.
We expect that our rental income will increase as we continue to acquire additional properties, subsequently increasing our cash flows generated from operating activities. We intend to finance the continued acquisition of such additional properties through equity issuances and through debt financing.
Our capital structure includes non-recourse mortgage debt that we have assumed or originated on certain properties. We may hedge the future cash flows of certain variable rate debt transactions principally through interest rate swaps with major financial institutions. See Note 8 (Derivatives and Hedging Activities) to the accompanying consolidated financial statements for a description of our current cash flow hedges.
As discussed in Note 2 (Summary of Significant Accounting Policies) to the accompanying consolidated financial statements, pursuant to the terms of our $15.1 million 4.99% Note, due January 6, 2024 (see Note 7 (Debt)) to the accompanying consolidated financial statements), which is collateralized by our Anthem Marketplace property, we were required by the lenders thereunder to establish a cash management account controlled by the lenders to collect all amounts generated by our Anthem Marketplace property in order to collateralize such promissory note. The note was paid off in January 2024. As of September 30, 2024, we had no restricted cash.
Cash, Cash Equivalents and Restricted Cash
We had cash, cash equivalents and restricted cash of approximately $2,534,000 as of September 30, 2024, as compared to $4,640,000 on December 31, 2023. Sources and uses of cash during the nine months ended September 30, 2024 and 2023 were as follows:
Sources of Cash
| • |
Proceeds from notes payable of $56,340,000 for the nine months ended September 30, 2024, compared to $0 for the nine months ended September 30, 2023; |
| • |
Proceeds from sale of properties of $46,444,000 for the nine months ended September 30, 2024, compared to $13,447,000 for the nine months ended September 30, 2023; |
| • | Cash flow from operations of $40,156,000 for the nine months ended September 30, 2024, compared to $35,854,000 for the nine months ended September 30, 2023; |
| • |
Proceeds from issuance of common shares, net of offering costs of $7,620,000 for the nine months ended September 30, 2024, compared to $0 for the nine months ended September 30, 2023; |
Uses of Cash
| • |
Acquisition of real estate of $50,137,000 for the nine months ended September 30, 2024, compared to $25,474,000 for the nine months ended September 30, 2023; |
| • |
Payments of notes payable of $47,950,000 for the nine months ended September 30, 2024, compared to $29,823,000 for the nine months ended September 30, 2023; |
| • |
Payment of distributions to common shareholders and OP unit holders of $18,565,000 for the nine months ended September 30, 2024, compared to $18,003,000 for the nine months ended September 30, 2023; |
| • |
Net payment of credit facility of $17,000,000 for the nine months ended September 30, 2024, compared to net proceeds from the credit facility of $34,000,000 for the nine months ended September 30, 2023; |
| • |
Additions to real estate of $15,485,000 for the nine months ended September 30, 2024, compared to $12,748,000 for the nine months ended September 30, 2023; |
| • |
Repurchase of common shares from employees to satisfy tax withholding obligations upon vesting of equity awards of $2,641,000 for the nine months ended September 30, 2024, compared to $525,000 for the nine months ended September 30, 2023; |
| • |
Payment of loan origination costs of $789,000 for the nine months ended September 30, 2024, compared to $0 for the nine months ended September 30, 2023; |
| • |
Payment of finance lease liability of $18,000 for the nine months ended September 30, 2024, compared to $10,000 for the nine months ended September 30, 2023 and; |
| • |
Payment of exchange offering costs of $81,000 for the nine months ended September 30, 2024, compared to $0 for the nine months ended September 30, 2023. |
We place all cash in short-term, highly liquid investments that we believe provide appropriate safety of principal.
Debt
Debt consisted of the following as of the dates indicated (in thousands):
| Description |
September 30, 2024 |
December 31, 2023 |
||||||
| Fixed rate notes |
||||||||
| $265.0 million, 3.18% plus 1.45% to 2.10% Note, due January 31, 2028 (1) |
$ | 265,000 | $ | 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 |
17,383 | 17,658 | ||||||
| $14.0 million 4.34% Note, due September 11, 2024 |
— | 12,427 | ||||||
| $14.3 million 4.34% Note, due September 11, 2024 |
— | 13,257 | ||||||
| $15.1 million 4.99% Note, due January 6, 2024 |
— | 13,350 | ||||||
| $50.0 million, 5.09% Note, due March 22, 2029 (Series A) |
35,714 | 42,857 | ||||||
| $50.0 million, 5.17% Note, due March 22, 2029 (Series B) |
50,000 | 50,000 | ||||||
| $2.5 million 7.79% Note, due February 28, 2025 |
1,133 | — | ||||||
| $50.0 million, 3.71% plus 1.50% to 2.10% Note, due September 16, 2026 (2) |
50,000 | 50,000 | ||||||
| $56.3 million, 6.23% Note, due July 31, 2031 |
56,340 | — | ||||||
| Floating rate notes |
||||||||
| Unsecured line of credit, SOFR plus 1.50% to 2.10%, due September 16, 2026 |
79,000 | 96,000 | ||||||
| Total notes payable principal |
634,570 | 640,549 | ||||||
| Less deferred financing costs, net of accumulated amortization |
(1,018 | ) | (377 | ) | ||||
| Total notes payable |
$ | 633,552 | $ | 640,172 | ||||
| (1) |
Promissory note includes an interest rate swap that fixes the SOFR portion of the term loan at an interest rate of 2.16% through October 28, 2022, 2.76% from October 29, 2022 through January 31, 2024, and 3.32% beginning February 1, 2024 through January 31, 2028. |
| (2) |
A portion of the unsecured line of credit includes an interest rate swap to fix the SOFR portion of the loan at 3.71%. |
Scheduled maturities of our outstanding debt as of September 30, 2024 were as follows (in thousands):
| Year |
Amount Due |
|||
| 2024 (remaining) |
$ | 18,062 | ||
| 2025 |
17,596 | |||
| 2026 |
146,143 | |||
| 2027 |
97,414 | |||
| 2028 |
282,823 | |||
| Thereafter |
72,532 | |||
| Total |
$ | 634,570 | ||
On June 21, 2024, Whitestone REIT, operating through its subsidiaries Whitestone Strand LLC, Whitestone Las Colinas Village LLC, and Whitestone Seville, LLC (collectively, the “Borrower”), entered into a loan agreement (the “Loan Agreement”) with Nationwide Life Insurance Company (the “Lender”) for a mortgage loan in the principal amount of $56,340,000 (the “Loan”).
The Loan provides for a fixed interest rate of 6.23% per annum. Payments commence on August 1, 2024, and are due on the first day of each calendar month thereafter through July 1, 2031, with interest-only payments for the first 36 months. Monthly payments consist of principal and interest based on a 30-year amortization schedule beginning on August 1, 2027. The Loan may be prepaid in full but not in part, provided that, as conditions precedent, Borrower: (i) gives Lender not less than fifteen (15) days prior notice of Borrower’s intention to prepay the Loan; (ii) pays to Lender the prepayment premium as set forth in the Loan Agreement, if any, then due and payable to Lender; and (iii) pays to Lender all other amounts then due under the loan documents. No prepayment premium is required for prepayments in full made on or after six months prior to the maturity date.
The Loan is a non-recourse loan secured by three of the Company’s properties including their related equipment, fixtures, personal property, and other assets, and a limited carve-out guarantee by the Company’s operating partnership.
The loan documents contain customary terms and conditions, including without limitation affirmative and negative covenants such as information reporting and insurance requirements. The loan documents also contain customary events of default, including defaults in the payment of principal or interest, defaults in compliance with the covenants, and bankruptcy or other insolvency events. Upon the occurrence of an event of default, the Lender is entitled to accelerate all obligations of the Borrower. The Lender will also be entitled to receive the entire unpaid principal balance at a default rate.
The Loan proceeds will be used to pay down the Borrower’s existing floating rate indebtedness.
On September 16, 2022 we, through our Operating Partnership, entered into an unsecured credit facility (the “2022 Facility”) pursuant to that certain Third Amended and Restated Credit Agreement, by and among the Operating Partnership, the Company and certain subsidiaries of the Company, as guarantors signatory thereto, 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 (as amended from time to time, the “Credit Agreement”). The 2022 Facility replaced the Company’s previous unsecured revolving credit facility, dated January 31, 2019.
On October 7, 2024, we, through our Operating Partnership, entered into the First Amendment to Third Amended and Restated Credit Agreement and Incremental Term Loan Joinder (the “Amendment”) among the Operating Partnership, the Company and certain subsidiaries of the Company, as guarantors signatory thereto, the Administrative Agent, and L/C Issuer and Associated Bank, National Association, which amends the Credit Agreement.
The Amendment, among other things, establishes the Series One Incremental Term Loan (defined below) consistent with the existing Term Loan (defined below). The Series One Incremental Term Loan accrues interest (at the Operating Partnership’s option) at a Base Rate (defined below) or Adjusted Term SOFR (as defined in the Credit Agreement) plus an applicable margin based upon the Operating Partnership’s then existing total leverage and is subject to adjustment as set forth in the Credit Agreement. In addition, the Operating Partnership entered into an interest rate swap to fix the interest rate on the Series One Incremental Term Loan at 3.665% plus bank credit spreads (that are currently 1.5%, through January 31, 2028), or an all-in rate of 5.165%.
The 2022 Facility is comprised of the following three 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 (the “Term Loan”); |
| • |
$20.0 million unsecured term loan with a maturity date of January 31, 2028 (the “Series One Incremental Term Loan”), effective October 7, 2024. |
Borrowings under the 2022 Facility accrue interest (at the Operating Partnership’s option) at a Base Rate or Adjusted Term SOFR plus an applicable margin based upon our then existing total leverage as set forth in the Credit Agreement. “Base Rate” means, for any day, the higher of: (a) the Administrative Agent’s prime commercial rate, (b) the sum 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, as published 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 day plus (ii) 1.10%.
As of September 30, 2024, the interest rate on the 2022 Revolver was 6.80%. In addition, we entered into interest rate swaps to fix the interest rates on the Term Loan. The Term Loan with the swaps has the following interest rates:
| • | 2.16% plus spreads ranging from 1.35% to 2%, through October 28, 2022 |
| • |
2.80% plus spreads ranging from 1.35% to 2%, from October 29, 2022 through January 31, 2024 |
| • |
3.42% plus spreads ranging from 1.35% to 2%, from February 1, 2024 through January 31, 2028 |
As of September 30, 2024, the Term Loan with the swaps had a spread of 1.40%.
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’s performance on certain sustainability performance targets.
The 2022 Facility includes an accordion feature that allows the Operating Partnership to increase the borrowing capacity by an aggregate principal amount not to exceed $200.0 million, upon the satisfaction of certain conditions. As of September 30, 2024, subject to any potential future paydowns or increases in the borrowing base, we have $121.0 million remaining availability under the 2022 Revolver. As of September 30, 2024, $394.0 million was drawn on the 2022 Facility and our unused borrowing capacity was $121.0 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 the unsecured borrowing base.
The Company, each direct and indirect material subsidiary of the Operating Partnership and any other subsidiary of the Operating Partnership that is a guarantor under any unsecured ratable debt will serve as a guarantor for funds borrowed by the Operating Partnership under the 2022 Facility. The 2022 Facility contains customary terms and conditions, including, without limitation, customary representations and warranties and affirmative and negative covenants including, without limitation, information reporting requirements, limitations on investments, acquisitions, loans and advances, mergers, consolidations and sales, incurrence of liens, dividends and restricted payments. In addition, the 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 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 $449 million plus 75% of the net proceeds from additional equity offerings (as defined therein); |
| • |
minimum adjusted property net operating income to implied unencumbered debt service of 1.50 to 1.00; and |
| • |
maximum unsecured indebtedness to unencumbered asset pool value of 0.60 to 1.00. |
On March 22, 2019, we, through our Operating Partnership, entered into a Note Purchase and Guarantee Agreement (as amended from time to time, the “Note Agreement”) together with certain subsidiary guarantors as initial guarantor parties thereto (the “Subsidiary Guarantors”) and The Prudential Insurance Company of America and the various other purchasers named therein (collectively, the “Purchasers”) providing for the issuance and sale of $100 million of senior unsecured notes of the Operating Partnership, of which (i) $50 million are designated as 5.09% Series A Senior Notes due March 22, 2029 (the “Series A Notes”) and (ii) $50 million are designated as 5.17% Series B Senior Notes due March 22, 2029 (the “Series B Notes” and, together with the Series A Notes, the “Notes”) pursuant to a private placement that closed on March 22, 2019 (the “Private Placement”). Obligations under the Notes are unconditionally guaranteed by the Company and by the Subsidiary Guarantors.
On December 16, 2022, we, through our Operating Partnership, amended the Note Agreement, pursuant to the terms and conditions of that certain Amendment No. 1 to Note Purchase and Guaranty Agreement, by and among the Company and the Operating Partnership, together with certain subsidiary guarantors as initial guarantor parties thereto and The Prudential Insurance Company of America and the various other purchasers named therein, for the purposes of conforming certain covenants and defined terms contained in the Note Agreement with the 2022 Facility.
The principal of the Series A Notes began to amortize on March 22, 2023, with annual principal payments of approximately $7.1 million. The principal of the Series B Notes will begin to amortize on March 22, 2025 with annual principal payments of $10.0 million. The Notes will pay interest quarterly on the 22nd day of March, June, September and December in each year until maturity.
The Operating Partnership may prepay at any time all, or from time to time part of, the Notes, in an amount not less than $1,000,000 in the case of a partial prepayment, at 100% of the principal amount so prepaid, plus a make-whole amount. The make-whole amount is equal to the excess, if any, of the discounted value of the remaining scheduled payments with respect to the Notes being prepaid over the aggregate principal amount of such Notes (as described in the Note Agreement). In addition, in connection with a Change of Control (as defined in the Note Agreement), the Operating Partnership is required to offer to prepay the Notes at 100% of the principal amount plus accrued and unpaid interest thereon.
The Note Agreement contains representations, warranties, covenants, terms and conditions customary for transactions of this type and substantially similar to the Operating Partnership’s existing senior revolving credit facility, including limitations on liens, incurrence of investments, acquisitions, loans and advances and restrictions on dividends and certain other restricted payments. In addition, the Note Agreement contains certain financial covenants substantially similar to the Operating Partnership’s existing senior revolving credit facility, including the following:
| • |
maximum total indebtedness to total asset value ratio of 0.60 to 1.00; |
| • |
maximum secured debt to total asset value ratio of 0.40 to 1.00; |
| • |
minimum EBITDA (earnings before interest, taxes, depreciation, amortization or extraordinary items) to fixed charges ratio of 1.50 to 1.00; |
| • |
maximum 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 December 31, 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 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 result in the Purchasers accelerating the payment of all obligations under the Notes. The financial and restrictive covenants and default provisions in the Note Agreement are substantially similar to those contained in the Operating Partnership’s existing credit facility.
Net proceeds from the Private Placement were used to refinance existing indebtedness. The Notes have not been and will not be registered under the Securities Act and may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements of the Securities Act. The Notes were sold in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act.
As of September 30, 2024, our $153.72 million in secured debt was collateralized by five properties with a carrying value of $242.7 million. Our loans contain restrictions that would require the payment of prepayment penalties for the acceleration of outstanding debt and are secured by deeds of trust on certain of our properties and by assignment of the rents and leases associated with those properties. As of September 30, 2024, we were in compliance with all loan covenants.
Refer to Note 7 (Debt) to the accompanying consolidated financial statements for additional information regarding debt.
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 that we believe have potential for increasing value. We also may have unexpected capital expenditures or improvements for our existing assets. Additionally, we intend to continue investing in similar properties outside of the markets on which we focus in cities with exceptional demographics to diversify market risk, and we may incur significant capital expenditures or make improvements in connection with any properties we may acquire.
The following is a summary of the Company's capital expenditures for the three and nine month periods ended September 30, 2024 and 2023 (in thousands):
| Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
| 2024 |
2023 |
2024 |
2023 |
|||||||||||||
| Capital expenditures: |
||||||||||||||||
| Tenant improvements and allowances |
$ | 2,838 | $ | 997 | $ | 9,112 | $ | 4,452 | ||||||||
| Developments / redevelopments |
641 | 932 | 2,850 | 2,817 | ||||||||||||
| Leasing commissions and costs |
662 | 617 | 2,142 | 1,682 | ||||||||||||
| Maintenance capital expenditures |
3,268 | 1,711 | 4,962 | 5,142 | ||||||||||||
| Total capital expenditures (1) |
$ | 7,409 | $ | 4,257 | $ | 19,066 | $ | 14,093 | ||||||||
| (1) |
Total capital expenditures include the non cash accrued capital expenditures line item as reported in the consolidated statements of cash flows. |
Distributions
U.S. federal income tax law generally requires that a REIT distribute annually to its shareholders at least 90% of its REIT taxable income, without regard to the deduction for dividends paid and excluding net capital gains, and that it pay tax at regular corporate rates on any taxable income that it does not distribute. We currently, and intend to continue to, accrue distributions quarterly and make distributions in three monthly installments following the end of each quarter. For a discussion of our cash flow as compared to dividends, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources.”
The timing and frequency of our distributions are authorized and declared by our Board of Trustees in exercise of its business judgment based upon a number of factors, including:
| • |
our funds from operations; |
| • |
our debt service requirements; |
| • |
our capital expenditure requirements for our properties; |
| • |
our taxable income, combined with the annual distribution requirements necessary to maintain REIT qualification; |
| • |
requirements of Maryland law; |
| • |
our overall financial condition; and |
| • |
other factors deemed relevant by our Board of Trustees. |
Any distributions we make will be at the discretion of our Board of Trustees and we cannot provide assurance that our distributions will be made or sustained in the future.
On March 5, 2024, the Company announced an increase to its quarterly distribution to $0.12375 per common share and OP unit, equal to a monthly distribution of $0.04125, beginning with the April 2024 distribution. The Board will continue to regularly reassess the dividend level.
During the nine months ended September 30, 2024, we paid distributions to our common shareholders and OP unit holders of $18.6 million, compared to $18.0 million in the nine months ended September 30, 2023. Common shareholders and OP unit holders receive monthly distributions. Payments of distributions are declared quarterly and paid monthly. The following table summarizes the cash distributions paid or payable to holders of our common shares and noncontrolling OP units during each quarter of 2023 and the nine months ended September 30, 2024 (in thousands, except per share data):
| Common Shares |
Noncontrolling OP Unit Holders |
Total |
||||||||||||||||||
| Quarter Paid |
Distributions Per Common Share |
Amount Paid |
Distributions Per OP Unit |
Amount Paid |
Amount Paid |
|||||||||||||||
| 2024 |
||||||||||||||||||||
| Third Quarter |
$ | 0.1238 | $ | 6,194 | $ | 0.1238 | $ | 80 | $ | 6,274 | ||||||||||
| Second Quarter |
0.1238 | 6,162 | 0.1238 | 80 | 6,242 | |||||||||||||||
| First Quarter |
0.1200 | 5,969 | 0.1200 | 80 | 6,049 | |||||||||||||||
| Total |
$ | 0.3676 | $ | 18,325 | $ | 0.3676 | $ | 240 | $ | 18,565 | ||||||||||
| 2023 |
||||||||||||||||||||
| Fourth Quarter |
$ | 0.1200 | $ | 5,930 | $ | 0.1200 | $ | 83 | $ | 6,013 | ||||||||||
| Third Quarter |
0.1200 | 5,928 | 0.1200 | 83 | 6,011 | |||||||||||||||
| Second Quarter |
0.1200 | 5,913 | 0.1200 | 83 | 5,996 | |||||||||||||||
| First Quarter |
0.1200 | 5,913 | 0.1200 | 83 | 5,996 | |||||||||||||||
| Total |
$ | 0.4800 | $ | 23,684 | $ | 0.4800 | $ | 332 | $ | 24,016 | ||||||||||
Taxes
We elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended, beginning with our taxable year ended December 31, 1999. As a REIT, we generally are not subject to federal income tax on income that we distribute to our shareholders. If we fail to qualify as a REIT in any taxable year, we will be subject to federal income tax on our taxable income at regular corporate rates. We believe that we are organized and operate in a manner to qualify and be taxed as a REIT, and we intend to operate so as to remain qualified as a REIT for federal income tax purposes.
Environmental Matters
Our properties are subject to environmental laws and regulations adopted by various governmental authorities in the jurisdictions in which our operations are conducted. From our inception, we have incurred no significant environmental costs, accrued liabilities or expenditures to mitigate or eliminate future environmental contamination.
Off-Balance Sheet Arrangements
Guarantees. We may guarantee the debt of a real estate partnership primarily because it allows the real estate partnership to obtain funding at a lower cost than could be obtained otherwise. This results in a higher return for the real estate partnership on its investment, and a higher return on our investment in the real estate partnership. We may receive a fee from the real estate partnership for providing the guarantee. Additionally, when we issue a guarantee, the terms of the real estate partnership’s partnership agreement typically provide that we may receive indemnification from the real estate partnership or have the ability to increase our ownership interest. See Note 6 (Investment in Real Estate Partnership) to the accompanying consolidated financial statements for information related to our former guarantee of the real estate partnership’s debt, which is no longer in effect.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Our future income, cash flows and fair value relevant to our financial instruments depend upon prevailing market interest rates. Market risk refers to the risk of loss from adverse changes in market prices and interest rates. Based upon the nature of our operations, we are not subject to foreign exchange rate or commodity price risk. The principal market risk to which we are exposed is the risk related to interest rate fluctuations. Many factors, including governmental monetary and tax policies, domestic and international economic and political considerations, and other factors that are beyond our control contribute to interest rate risk. Our interest rate risk objective is to limit the impact of interest rate fluctuations on earnings and cash flows and to lower our overall borrowing costs. To achieve this objective, we manage our exposure to fluctuations in market interest rates for our borrowings through the use of fixed rate debt instruments to the extent that reasonably favorable rates are obtainable.
All of our financial instruments were entered into for other than trading purposes.
Fixed Interest Rate
As of September 30, 2024, $555.6 million, or approximately 88% of our total outstanding debt, was subject to fixed interest rates, which limit the risk of fluctuating interest rates. Although a change in the market interest rates affects the fair market value of our fixed interest rate debt, it does not impact net income to shareholders or cash flows. Our total outstanding fixed interest rate debt had an average effective interest rate as of September 30, 2024 of approximately 4.87% per annum with scheduled maturities ranging from 2024 to 2031. See Note 7 (Debt) to the accompanying consolidated financial statements for further detail. Holding other variables constant, a 1% increase or decrease in interest rates would cause a $14.3 million decline or increase, respectively, in the fair value for our fixed rate debt.
Variable Interest Rate Debt
As of September 30, 2024, $79.0 million, or approximately 12% of our outstanding debt, was subject to floating interest rates of SOFR plus 1.50% to 2.10% and not currently subject to a hedge. The impact of a 1% increase or decrease in interest rates on our non-hedged variable rate debt would result in a decrease or increase of annual net income of approximately $0.8 million, respectively.
Credit Risk
Credit risk may be increased as a result of macroeconomic factors such as inflation, rising interest rates, and financial institution disruptions. Actions taken by the U.S. and international governments to decrease the impact of inflation, including rising interest rates, may result in a continued decline in global economic activity generally, and may adversely affect the financial condition of our tenants in particular. Although the full extent of the adverse impacts on our tenants cannot be predicted, in future periods we may experience reductions in on-time payments or closures of tenants’ businesses, which could have a material adverse effect on our results of operations, cash flows and financial condition.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
The Company’s management is responsible for establishing and maintaining adequate disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Disclosure controls and procedures means controls and other procedures of the Company that are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act, is recorded, processed, summarized, and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Based on the evaluation of our disclosure controls and procedures as of September 30, 2024, our principal executive and financial officers have concluded that such disclosure controls and procedures were effective.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting during the nine months ended September 30, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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 or liquidity.
As disclosed in Note 17 to the Notes to Consolidated Financial Statements included in this Quarterly Report on Form 10-Q, we are engaged in certain legal proceedings, and the disclosure set forth in Note 17 is incorporated herein by reference.
There has been no material change in our risk factors from those previously disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2023 other than the following.
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 the regulatory clearance necessary to close the transaction, C&S Wholesale Grocers has entered into a definitive agreement to purchase 579 stores. As of September 30, 2024, the Company had 3 grocery stores owned by Albertsons as the Company's tenants, and 2 grocery stores in shadow space adjacent to Company properties. If the acquisition is approved by regulating authorities, any of the Albertsons' stores currently leasing from Whitestone REIT could be purchased by C&S Wholesale Grocers, and such assignment could potentially result in adverse changes to the traffic and profitability of the shopping center in which it is located.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
| (a) |
During the period covered by this Quarterly Report on Form 10-Q, we did not sell any equity securities that were not registered under the Securities Act of 1933, as amended. |
| (b) |
Not applicable. |
| (c) |
During the three months ended September 30, 2024, certain of our employees tendered owned common shares to satisfy the tax withholding on the lapse of certain restrictions on restricted common shares issued under the 2018 Plan. The following table summarizes all of these repurchases during the three months ended September 30, 2024. |
| Period |
Total Number of Shares Purchased (1) |
Average Price Paid Per Share |
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs |
Maximum Number of Shares that May Yet be Purchased Under the Plans or Programs |
||||||||||||
| July 1, 2024 - July 31, 2024 |
— | $ | — | N/A | N/A | |||||||||||
| August 1, 2024 - August 31, 2024 |
— | — | N/A | N/A | ||||||||||||
| September 1, 2024 - September 30, 2024 |
— | N/A | N/A | |||||||||||||
| Total |
— | |||||||||||||||
| (1) |
The number of shares purchased represents common shares held by employees who tendered owned common shares to satisfy the tax withholding on the lapse of certain restrictions on restricted common shares issued under the 2018 Plan. With respect to these shares, the price paid per share is based on the fair market value at the time of tender. |
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
During the nine months ended September 30, 2024, trustee or officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.
The exhibits listed on the accompanying Exhibit Index are filed, furnished and incorporated by reference (as stated therein) as part of this Report.
| Exhibit No. |
Description |
| Certificate of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| Certificate of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| 101 |
The following financial information of the Registrant for the quarter ended September 30, 2024, formatted in Inline XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets as of September 30, 2024 (unaudited) and December 31, 2023, (ii) the Consolidated Statements of Operations and Comprehensive Income (Loss) for the three and nine month periods ended September 30, 2024 and 2023 (unaudited), (iii) the Consolidated Statements of Changes in Equity for the three and nine month periods ended September 30, 2024 and 2023 (unaudited), (iv) the Consolidated Statement of Cash Flows for the nine months ended September 30, 2024 and 2023 (unaudited) and (v) the Notes to the Consolidated Financial Statements (unaudited). |
| 104 |
Cover Page Interactive Data File - the cover page XBRL tags are embedded within the Inline XBRL document and in Exhibit 101. |
________________________
| * |
Filed herewith. |
| ** |
Furnished herewith. |
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| WHITESTONE REIT |
||||
| Date: |
October 31, 2024 | /s/ David K. Holeman |
||
| David K. Holeman |
||||
| Chief Executive Officer |
||||
| (Principal Executive Officer) |
| Date: |
October 31, 2024 | /s/ John S. Hogan |
||
| John S. Hogan |
||||
| Chief Financial Officer |
||||
| (Principal Financial and Principal Accounting Officer) |
Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
I, David K. Holeman, certify that:
|
1. |
I have reviewed this quarterly report on Form 10-Q, for the period ended September 30, 2024, of Whitestone REIT; |
|
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
|
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
|
4. |
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
|
(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
(b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
(c) |
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
(d) |
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
|
5. |
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
|
(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
|
(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
|
Date: October 31, 2024 |
|
|
|
|
|
|
|
|
|
|
|
/s/ David K. Holeman |
|
|
|
|
David K. Holeman Chief Executive Officer |
|
Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
I, John S. Hogan, certify that:
|
1. |
I have reviewed this quarterly report on Form 10-Q, for the period ended September 30, 2024, of Whitestone REIT; |
|
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
|
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
|
4. |
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
|
(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
(b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
(c) |
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
(d) |
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
|
5. |
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
|
(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
|
(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
|
Date: October 31, 2024 |
|
|
|
|
|
|
|
|
|
|
|
/s/ John S. Hogan |
|
|
|
|
John S. Hogan Chief Financial Officer |
|
|
|
|
|
|
Exhibit 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of Whitestone REIT, a Maryland real estate investment trust (the “Company”) on Form 10-Q for the period ended September 30, 2024, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, David K. Holeman, Chief Executive Officer of the Company, certify pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:
|
1. |
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
|
2. |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
|
/s/ David K. Holeman |
||
|
David K. Holeman |
||
|
Chief Executive Officer |
Date: October 31, 2024
Exhibit 32.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of Whitestone REIT, a Maryland real estate investment trust (the “Company”) on Form 10-Q for the period ended September 30, 2024, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, John S. Hogan, Chief Financial Officer of the Company, certify pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:
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1. |
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
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2. |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
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/s/ John S. Hogan |
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John S. Hogan |
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Chief Financial Officer |
Date: October 31, 2024
Consolidated Balance Sheets (Current Period Unaudited) - USD ($) $ in Thousands |
Sep. 30, 2024 |
Dec. 31, 2023 |
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|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Property | $ 1,243,067 | $ 1,221,466 | ||||||||||
| Accumulated depreciation | (243,500) | (229,767) | ||||||||||
| Total real estate assets | 999,567 | 991,699 | ||||||||||
| Investment in real estate partnership | [1],[2],[3] | 0 | 31,671 | |||||||||
| Cash and cash equivalents | 2,534 | 4,572 | ||||||||||
| Restricted cash | 0 | 68 | ||||||||||
| Escrows and deposits | 3,667 | 24,148 | ||||||||||
| Accrued rents and accounts receivable, net of allowance for doubtful accounts | 32,541 | 30,592 | ||||||||||
| Unamortized lease commissions, legal fees and loan costs | 14,148 | 13,783 | ||||||||||
| Prepaid expenses and other assets(1) | [4] | 2,826 | 4,765 | |||||||||
| Finance lease right-of-use assets | 10,449 | 10,428 | ||||||||||
| Total assets(1) | 1,112,561 | 1,113,239 | ||||||||||
| Liabilities: | ||||||||||||
| Notes payable | 633,552 | 640,172 | ||||||||||
| Accounts payable and accrued expenses(2) | [5] | 36,185 | 36,513 | |||||||||
| Tenants' security deposits | 9,175 | 8,614 | ||||||||||
| Dividends and distributions payable | 6,279 | 6,025 | ||||||||||
| Finance lease liabilities | 789 | 721 | ||||||||||
| Total liabilities | 687,557 | 693,622 | ||||||||||
| Commitments and contingencies: | ||||||||||||
| Equity: | ||||||||||||
| Preferred shares, $0.001 par value per share; 50,000,000 shares authorized; none issued and outstanding as of September 30, 2024 and December 31, 2023 | 0 | 0 | ||||||||||
| Common shares, $0.001 par value per share; 400,000,000 shares authorized; 50,645,877 and 49,610,831 issued and outstanding as of September 30, 2024 and December 31, 2023, respectively | 51 | 50 | ||||||||||
| Additional paid-in capital | 636,192 | 628,079 | ||||||||||
| Accumulated deficit | (216,044) | (216,963) | ||||||||||
| Accumulated other comprehensive income (loss) | (679) | 2,576 | ||||||||||
| Total Whitestone REIT shareholders' equity | 419,520 | 413,742 | ||||||||||
| Noncontrolling interest in subsidiary | 5,484 | 5,875 | ||||||||||
| Total equity | 425,004 | 419,617 | ||||||||||
| Total liabilities and equity(2) | 1,112,561 | 1,113,239 | ||||||||||
| (1) Operating lease right of use assets (net) | 67 | 109 | ||||||||||
| (2) Operating lease liabilities | 67 | 112 | ||||||||||
| Related Party [Member] | ||||||||||||
| Receivable from partnership redemption | 15,186 | 1,513 | ||||||||||
| Other receivables | 15,186 | 1,513 | ||||||||||
| Related Parties [Member] | ||||||||||||
| Liabilities: | ||||||||||||
| Other liabilities | 1,577 | 1,577 | ||||||||||
| Partnership Redemption [Member ] | ||||||||||||
| Receivable from partnership redemption | 31,643 | 0 | ||||||||||
| Other receivables | $ 31,643 | $ 0 | ||||||||||
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Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) - $ / shares |
Sep. 30, 2024 |
Dec. 31, 2023 |
|---|---|---|
| Preferred stock, par value (in dollars per share) | $ 0.001 | $ 0.001 |
| Preferred stock, shares authorized (in shares) | 50,000,000 | 50,000,000 |
| Preferred stock, shares issued (in shares) | 0 | 0 |
| Preferred stock, shares outstanding (in shares) | 0 | 0 |
| Common stock, par value (in dollars per share) | $ 0.001 | $ 0.001 |
| Common stock, authorized (in shares) | 400,000,000 | 400,000,000 |
| Common stock, issued (in shares) | 50,645,877 | 49,610,831 |
| Common stock, outstanding (in shares) | 50,645,877 | 49,610,831 |
Consolidated Statements of Changes in Equity (Unaudited) (Parentheticals) - $ / shares |
3 Months Ended | |||||
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Sep. 30, 2024 |
Jun. 30, 2024 |
Mar. 31, 2024 |
Sep. 30, 2023 |
Jun. 30, 2023 |
Mar. 31, 2023 |
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| Distributions per common share (in dollars per share) | $ 0.1238 | $ 0.1238 | $ 0.12 | $ 0.12 | $ 0.12 | $ 0.12 |
Consolidated Statements of Cash Flows (Unaudited) - USD ($) |
9 Months Ended | |||
|---|---|---|---|---|
Sep. 30, 2024 |
Sep. 30, 2023 |
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| Cash flows from operating activities: | ||||
| Net income | $ 19,813,000 | $ 17,887,000 | ||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||
| Depreciation and amortization | 26,242,000 | 24,538,000 | ||
| Amortization of deferred loan costs | 823,000 | 820,000 | ||
| Gain on sale of properties | (10,212,000) | (9,626,000) | ||
| Loss on disposal of assets | 183,000 | 500,000 | ||
| Bad debt | 1,031,000 | 946,000 | ||
| Share-based compensation | 2,805,000 | 2,485,000 | ||
| Deficit in earnings of real estate partnership | 28,000 | 1,627,000 | ||
| Amortization of right-of-use assets - finance leases | 65,000 | 72,000 | ||
| Changes in operating assets and liabilities: | ||||
| Escrows and deposits | 6,238,000 | 2,282,000 | ||
| Accrued rents and accounts receivable | (2,980,000) | (4,359,000) | ||
| Receivable due from related party | (40,000) | (128,000) | ||
| Unamortized lease commissions, legal fees and loan costs | (1,992,000) | (2,644,000) | ||
| Prepaid expenses and other assets | 1,705,000 | 2,432,000 | ||
| Accounts payable and accrued expenses | (4,114,000) | (1,011,000) | ||
| Payable due to related party | 0 | 16,000 | ||
| Tenants' security deposits | 561,000 | 17,000 | ||
| Net cash provided by operating activities | 40,156,000 | 35,854,000 | ||
| Cash flows from investing activities: | ||||
| Acquisitions of real estate | (50,137,000) | (25,474,000) | ||
| Additions to real estate | (15,485,000) | (12,748,000) | ||
| Proceeds from sales of properties | 46,444,000 | 13,447,000 | ||
| Net cash used in investing activities | (19,178,000) | (24,775,000) | ||
| Cash flows from financing activities: | ||||
| Distributions paid to common shareholders | (18,325,000) | (17,754,000) | ||
| Distributions paid to OP unit holders | (240,000) | (249,000) | ||
| Proceeds from issuance of common shares, net of offering costs | 7,620,000 | 0 | ||
| Payments of exchange offer costs | (81,000) | 0 | ||
| Net (payments of) proceeds from credit facility | (17,000,000) | 34,000,000 | ||
| Repayments of notes payable | (47,950,000) | (29,823,000) | ||
| Proceeds from notes payable | 56,340,000 | 0 | ||
| Payments of loan origination costs | (789,000) | 0 | ||
| Repurchase of common shares | (2,641,000) | (525,000) | ||
| Payment of finance lease liability | (18,000) | (10,000) | ||
| Net cash used in financing activities | (23,084,000) | (14,361,000) | ||
| Net decrease in cash, cash equivalents and restricted cash | (2,106,000) | (3,282,000) | ||
| Cash, cash equivalents and restricted cash at beginning of period | 4,640,000 | 6,355,000 | ||
| Cash, cash equivalents and restricted cash at end of period (1) | [1] | 2,534,000 | 3,073,000 | |
| Supplemental disclosure of cash flow information: | ||||
| Cash paid for interest | 25,384,000 | 23,223,000 | ||
| Cash paid for taxes | 432,000 | 435,000 | ||
| Non cash investing and financing activities: | ||||
| Disposal of fully depreciated real estate | 29,000 | 864,000 | ||
| Financed insurance premiums | 2,638,000 | 3,002,000 | ||
| Value of shares issued under dividend reinvestment plan | 56,000 | 55,000 | ||
| Change in fair value of cash flow hedge | (3,296,000) | 6,602,000 | ||
| Accrued capital expenditures | 1,439,000 | 0 | ||
| Receivable from partnership redemption | 31,643,000 | 0 | ||
| Recognition of finance lease liability | 86,000 | 0 | ||
| Cash, cash equivalents and restricted cash | ||||
| Cash and cash equivalents | 2,534,000 | 2,976,000 | ||
| Restricted cash | 0 | 97,000 | ||
| Total cash, cash equivalents and restricted cash | 2,534,000 | 3,073,000 | ||
| Conversion of OP Units to Common Stock [Member] | ||||
| Non cash investing and financing activities: | ||||
| Value of common shares exchanged for OP units | $ 355,000 | $ 16,000 | ||
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Note 1 - Interim Financial Statements |
9 Months Ended | ||||||
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Sep. 30, 2024 | |||||||
| Notes to Financial Statements | |||||||
| Organization, Consolidation and Presentation of Financial Statements Disclosure [Text Block] |
1. INTERIM FINANCIAL STATEMENTS
The consolidated financial statements included in this report are unaudited; however, amounts presented in the consolidated balance sheet as of December 31, 2023 are derived from our audited consolidated financial statements as of that date. The unaudited consolidated financial statements as of and for the period ended September 30, 2024 have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information on a basis consistent with the annual audited consolidated financial statements and with the instructions to Form 10-Q.
The consolidated financial statements presented herein reflect all adjustments which, in the opinion of management, are necessary for a fair presentation of the financial position of Whitestone and our subsidiaries as of September 30, 2024 and December 31, 2023, and the results of operations for the three and nine month periods ended September 30, 2024 and 2023, the consolidated statements of changes in equity for the three and nine months ended September 30, 2024 and 2023 and cash flows for the nine months ended September 30, 2024 and 2023. All of these adjustments are of a normal recurring nature. The results of operations for the interim periods are not necessarily indicative of the results expected for a full year. The statements should be read in conjunction with the audited consolidated financial statements and the notes thereto which are included in our Annual Report on Form 10-K for the year ended December 31, 2023.
Business. Whitestone was formed as a real estate investment trust (“REIT”) pursuant to the Texas Real Estate Investment Trust Act on August 20, 1998. In July 2004, we changed our state of organization from Texas to Maryland pursuant to a merger where we merged directly with and into a Maryland REIT formed for the sole purpose of the reorganization and the conversion of each of the outstanding common shares of beneficial interest of the Texas entity into 1.42857 common shares of beneficial interest of the Maryland entity. We serve as the general partner of Whitestone REIT Operating Partnership, L.P. (the “Operating Partnership”), which was formed on December 31, 1998 as a Delaware limited partnership. We currently conduct substantially all of our operations and activities through the Operating Partnership. As the general partner of the Operating Partnership, we have the exclusive power to manage and conduct the business of the Operating Partnership, subject to certain customary exceptions. For both periods ended September 30, 2024 and December 31, 2023, Whitestone wholly owned 55 commercial properties in and around Austin, Dallas-Fort Worth, Houston, Phoenix and San Antonio.
As of September 30, 2024, these properties consist of:
Consolidated Operating Portfolio
Redevelopment, New Acquisitions Portfolio
Acquired properties are categorized in the new acquisitions portfolio until the earlier of 90% occupancy or 18 months of ownership.
As of September 30, 2024, our ownership in Pillarstone Capital REIT Operating Partnership LP (“Pillarstone” or “Pillarstone OP”) no longer represents a majority interest. On January 25, 2024, the Company exercised its notice of redemption for substantially all of its investment in Pillarstone OP. As of the date of this filing, Whitestone has not received consideration for its redemption of its equity investment in Pillarstone OP as required by the partnership agreement. On March 4, 2024, Pillarstone Capital REIT (“Pillarstone REIT”) authorized and filed a Chapter 11 bankruptcy (the “Pillarstone Bankruptcies”) of itself, Pillarstone OP, and all of its remaining special purpose entities in the United States Bankruptcy Court for the Northern District of Texas (the “Bankruptcy Court”). The Company has filed a claim in the “Pillarstone Bankruptcies” for the value of its redemption claim along with interest and other costs. We intend to pursue collection of amounts due from Pillarstone OP through all means necessary and while we do not know the ultimate amount to be collected, we believe the amount will be in excess of the current carrying value of our receivable, formerly our equity investment in Pillarstone OP. Please refer to Note 6 in this Quarterly Report on form 10-Q for more information regarding the accounting treatment of the redemption of our OP units in Pillarstone OP.
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Note 2 - Summary of Significant Accounting Policies |
9 Months Ended |
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Sep. 30, 2024 | |
| Notes to Financial Statements | |
| Significant Accounting Policies [Text Block] |
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Consolidation. We are the sole general partner of the Operating Partnership and possess full legal control and authority over the operations of the Operating Partnership. As of September 30, 2024 and December 31, 2023, we owned a majority of the partnership interests in the Operating Partnership. Consequently, the accompanying consolidated financial statements include the accounts of the Operating Partnership.
Noncontrolling interest in the accompanying consolidated financial statements represents the share of equity and earnings of the Operating Partnership allocable to holders of partnership interests other than us. Net income or loss is allocated to noncontrolling interests based on the weighted-average percentage ownership of the Operating Partnership during the period. 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 -for-one basis (the “OP units”) changes the percentage of ownership interests of both the noncontrolling interests and Whitestone.
Estimates regarding Pillarstone OP’s financial condition and results of operations. We rely on the reports furnished by our third-party partners for financial information regarding the Company’s investment in Pillarstone OP. As of September 30, 2024 and December 31, 2023, Pillarstone OP’s financial statements have not been made accessible to us. Consequently, we have estimated the financial status and operational outcomes of Pillarstone OP based on the information accessible to us at the time of this report.
Equity Method. In compliance with Accounting Standards Update (“ASU”) 2014-09 (“Topic 606”) and Accounting Standards Codification (“ASC”) 610, “Other Income-Gains and Losses from the Derecognition of Nonfinancial Assets,” the Company previously accounted for its investment in Pillarstone OP using the equity method. However, subsequent to January 25, 2024, the Company ceased utilizing the equity method following the exercise of its notice of redemption for substantially all of its investment in Pillarstone OP. Please refer to Note 6 to the accompanying consolidated financial statements for the full disclosure.
Basis of Accounting. Our financial records are maintained on the accrual basis of accounting whereby revenues are recognized when earned and expenses are recorded when incurred.
Use of Estimates. The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates that we use include the estimated fair values of properties acquired, the estimated useful lives for depreciable and amortizable assets and costs, the grant date fair value of common share units included in share-based compensation expense, the estimated allowance for doubtful accounts, the estimated fair value of interest rate swaps, the estimates supporting our impairment analysis for the carrying values of our real estate assets, the estimates made regarding Pillarstone REIT Operating Partnership LP’s financial condition and results of operations, and the estimated allowance for credit loss. Actual results could differ from those estimates.
Reclassifications. We have reclassified certain prior period amounts in the accompanying consolidated financial statements in order to be consistent with the current period 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 (see Note 7 (Debt)), which was collateralized by our Anthem Marketplace property, we were required by the lenders thereunder to establish a cash management account controlled by the lenders to collect all amounts generated by our Anthem Marketplace property in order to collateralize such promissory note. The note was paid off in January 2024. As of September 30, 2024, we had no restricted cash.
Derivative Instruments and Hedging Activities. We utilize derivative financial instruments, principally interest rate swaps, to manage our exposure to fluctuations in interest rates. We have established policies and procedures for risk assessment, and the approval, reporting and monitoring of derivative financial instruments. We recognize our interest rate swaps as cash flow hedges with the effective portion of the changes in fair value recorded in comprehensive income (loss) and subsequently reclassified into earnings in the period that the hedged transaction affects earnings. Any ineffective portion of a cash flow hedges’ change in fair value is recorded immediately into earnings. Our cash flow hedges are determined using Level 2 inputs under ASC 820, “Fair Value Measurements and Disclosures.” Level 2 inputs represent quoted prices in active markets for similar assets or liabilities; quoted prices in markets that are not active; and model-derived valuations in which significant inputs and significant value drivers are observable. As of September 30, 2024, we consider our cash flow hedges to be highly effective.
Development Properties. Land, buildings and improvements are recorded at cost. Expenditures related to the development of real estate are carried at cost which includes capitalized carrying charges and development costs. Carrying charges (interest, real estate taxes, loan fees, and direct and indirect development costs related to buildings under construction) are capitalized as part of construction in progress. The capitalization of such costs ceases when the property, or any completed portion, becomes available for occupancy. For the three months ended September 30, 2024, approximately $ 150,000 and $ 15,000 in interest expense and real estate taxes, respectively, were capitalized, and for the nine months ended September 30, 2024, approximately $ 434,000 and $ 137,000 in interest expense and real estate taxes, respectively, were capitalized. For the three months ended September 30, 2023, approximately $ 142,000 and $ 85,000 in interest expense and real estate taxes, respectively, were capitalized and for the nine months ended September 30, 2023, approximately $ 413,000 and $ 230,000 in interest expense and real estate taxes, respectively, were capitalized.
Share-Based Compensation. From time to time, we award nonvested restricted common share awards or restricted common share unit awards, which may be converted into common shares, to executive officers and employees under our 2018 Long-Term Equity Incentive Ownership Plan (the “2018 Plan”). Awarded shares and units vest when certain performance conditions are met. We recognize compensation expense when achievement of the performance conditions is probable based on management’s most recent estimates using the fair value of the shares as of the grant date. We recognized $ 1,281,000 and $ 1,083,000 in share-based compensation net of forfeitures for the three months ended September 30, 2024 and 2023, respectively, and we recognized $ 3,105,000 and $ 2,712,000 in share-based compensation net of forfeitures for the nine months ended September 30, 2024 and 2023, respectively.
Noncontrolling Interests. Noncontrolling interests are the portion of equity in a subsidiary not attributable to a parent. Accordingly, we have reported noncontrolling interests in equity on the consolidated balance sheets but separate from Whitestone’s equity. On the consolidated statements of operations and comprehensive income (loss), subsidiaries are reported at the consolidated amount, including both the amount attributable to Whitestone and noncontrolling interests. The consolidated statements of changes in equity is included for quarterly financial statements, including beginning balances, activity for the period and ending balances for shareholders’ equity, noncontrolling interests and total equity.
Accrued Rents and Accounts Receivable. Included in accrued rents and accounts receivable are base rents, tenant reimbursements and receivables attributable to recording rents on a straight-line basis. We review the collectability of charges under our tenant operating leases on a regular basis, taking into consideration changes in factors such as the tenant’s payment history, the financial condition of the tenant, business conditions in the industry in which the tenant operates and economic conditions in the area where the property is located. We recognize an adjustment to rental revenue if we deem it probable that the receivable will not be collected. Our review of collectability under our operating leases includes any accrued rental revenues related to the straight-line method of reporting rental revenue. As of September 30, 2024 and December 31, 2023, we had an allowance for uncollectible accounts of $14.5 million and $13.6 million, respectively. During the three months ended September 30, 2024 and 2023, we recorded an adjustment to rental revenue for bad debt, exclusive of straight-line rent reserve adjustments, resulting in a $0.3 million and $0.4 million decrease in revenue, respectively, and during the nine months ended September 30, 2024 and 2023, we recorded an adjustment to rental revenue for bad debt, exclusive of straight-line rent reserve adjustment, resulting in a $1.0 million decrease in revenue during both periods. The three months ended September 30, 2024 included 20 cash basis tenants, resulting in a decrease to rental revenue for straight-line rent adjustments of $0.1 million and a decrease to rental revenue for bad debt adjustments of $0.2 million. The three months ended September 30, 2023 included 17 cash basis tenants, resulting in an increase to rental revenue for straight-line rent adjustment of $0.03 million and a decrease to rental revenue for bad debt adjustments of $0.2 million. The nine months ended September 30, 2024 included 20 cash basis tenants, resulting in a decrease to rental revenue for straight-line rent adjustments of $0.2 million and a decrease to rental revenue for bad debt adjustments of $0.5 million, and the nine months ended September 30, 2023 included 17 cash basis tenants, resulting in a decrease to rental revenue for straight-line rent adjustments of $0.1 million and a decrease to rental revenue for bad debt adjustments of $0.5 million.
Revenue Recognition. All leases on our properties are classified as operating leases, and the related rental income is recognized on a straight-line basis over the terms of the related leases. Differences between rental income earned and amounts due per the respective lease agreements are capitalized or charged, as applicable, to accrued rents and accounts receivable. Percentage rents are recognized as rental income when the thresholds upon which they are based have been met. Recoveries from tenants for taxes, insurance, and other operating expenses are recognized as revenues in the period the corresponding costs are incurred. We combine lease and nonlease components in lease contracts, which includes combining base rent, recoveries, and percentage rents into a single line item, Rental, within the consolidated statements of operations and comprehensive income (loss). Additionally, we have tenants who pay real estate taxes directly to the taxing authority. We exclude these costs paid directly by the tenant to third parties on our behalf from revenue recognized and the associated property operating expense.
Other property income primarily includes amounts recorded in connection with lease termination fees. We recognize lease termination fees in the year that the lease is terminated and collection of the fee is probable. Amounts recorded within other property income are accounted for at the point in time when control of the goods or services transfers to the customer and our performance obligation is satisfied.
See our Annual Report on Form 10-K for the year ended December 31, 2023 for further discussion on significant accounting policies.
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Note 3 - Leases |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2024 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Notes to Financial Statements | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Lessee and Lessor, Operating Leases [Text Block] |
3. LEASES
As a Lessor. All leases on our properties are classified as noncancelable operating leases, and the related rental income is recognized on a straight-line basis over the terms of the related leases. Differences between rental income earned and amounts due per the respective lease agreements are capitalized or charged, as applicable, to accrued rents and accounts receivable. Percentage rents are recognized as rental income when the thresholds upon which they are based have been met. Recoveries from tenants for taxes, insurance, and other operating expenses are recognized as revenues in the period the corresponding costs are incurred. We combine lease and nonlease components in lease contracts, which includes combining base rent, recoveries, and percentage rents into a single line item, Rental, within the consolidated statements of operations and comprehensive income (loss).
A summary of minimum future rents to be received (exclusive of renewals, tenant reimbursements, contingent rents, and collectability adjustments under Topic 842) under noncancelable operating leases in existence as of September 30, 2024 is as follows (in thousands):
As a Lessee. We have office space, automobile, and office machine leases, which qualify as operating leases, with remaining lease terms of to years. As of September 30, 2024, the Company had ground lease and office machine lease that were classified as finance leases. The ground lease provides 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 incremental borrowing rates to calculate the lease liabilities for our operating leases in which we are the lessee (in thousands):
For the three months ended September 30, 2024 and 2023, the total lease costs for operating leases were $ 6,000 and $ 23,000, respectively, and for the finance leases were $ 27,000 and $ 21,000, respectively. For the nine months ended September 30, 2024 and 2023, the total lease costs for operating leases were $ 35,000 and $ 64,000 respectively, and for the finance leases were $ and $ 72,000, respectively.
The weighted average remaining lease term for our operating leases and our finance leases was and 94 years, respectively, at September 30, 2024. We do not include renewal options in the lease term for calculating the lease liability unless we are reasonably certain we will exercise the option or the lessor has the sole ability to exercise the option. The weighted average incremental borrowing rate was 4.5% for our operating leases and 6.1% for our finance leases at September 30, 2024.
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Note 4 - Accrued Rents and Accounts Receivable, Net |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2024 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Notes to Financial Statements | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Loans, Notes, Trade and Other Receivables Disclosure [Text Block] |
4. ACCRUED RENTS AND ACCOUNTS RECEIVABLE, NET
Accrued rents and accounts receivable, net consists of amounts accrued, billed and due from tenants, allowance for doubtful accounts and other receivables as follows (in thousands):
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Note 5 - Unamortized Lease Commissions, Legal Fees and Loan Costs |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2024 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Notes to Financial Statements | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Unamortized Lease Commissions and Loan Costs [Text Block] |
5. UNAMORTIZED LEASE COMMISSIONS, LEGAL FEES AND LOAN COSTS
Costs which have been deferred consist of the following (in thousands):
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Note 6 - Investment in Real Estate Partnership |
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| Equity Method Investments and Joint Ventures Disclosure [Text Block] |
6. INVESTMENT IN REAL ESTATE PARTNERSHIP
On December 8, 2016, we, through our Operating Partnership, entered into a Contribution Agreement (the “Contribution Agreement”) with Pillarstone OP and Pillarstone Capital REIT (“Pillarstone REIT”) pursuant to which we contributed all of the equity interests in four of our wholly-owned subsidiaries that, at the time, owned 14 non-core properties that did not fit our Community Centered Property® strategy (the “Pillarstone Properties”), to Pillarstone OP for aggregate consideration of approximately $84 million, consisting of (1) approximately $18.1 million of Class A units representing limited partnership interests in Pillarstone OP (“Pillarstone OP Units”) and (2) the assumption of approximately $65.9 million of liabilities (collectively, the “Contribution”). As of September 30, 2024, our ownership in Pillarstone OP no longer represents a majority interest. On January 25, 2024, the Company exercised its notice of redemption for substantially all of its investment in Pillarstone OP. As of the date of this filing, we have not received consideration for our redemption of our equity investment in Pillarstone OP as required by the partnership agreement. The Company has filed a claim in the Pillarstone Bankruptcies for the value of its redemption claim along with interest and other costs. We intend to pursue collection of amounts due from Pillarstone OP through all means necessary and while we do not know the ultimate amount to be collected, we believe the amount will be in excess of the current carrying value of our equity investment in Pillarstone OP.
In connection with the Contribution, Whitestone TRS, Inc., a subsidiary of the Company (“Whitestone TRS”), entered into a management agreement with the entities that own the contributed Pillarstone Properties (collectively, the “Management Agreements”). Pursuant to the Management Agreements, Whitestone TRS agreed to provide certain property management, leasing and day-to-day advisory and administrative services. The Management Agreements were terminated on August 18, 2022. Prior to the termination of the Management Agreement, we reported approximately $144,000 in property management fee income on a quarterly basis.
The table below presents the real estate partnership investment in which we hold an ownership interest (in thousands):
The table below presents our share of net loss from our investment in the real estate partnership which is included in deficit in earnings of real estate partnership, net on our consolidated statements of operations and comprehensive income (loss) (in thousands):
Summarized financial information for our investment in real estate partnership is as follows (in thousands):
The amortization of the basis difference between the cost of investment and our share of underlying net book value for the three months ended September 30, 2024 and 2023 is $0 and $27,000 respectively, and for the nine months ended September 30, 2024 and 2023 is $7,000 and $81,000. We fully amortized the difference into deficit in earnings of real estate partnership on the consolidated statements of operations and comprehensive income (loss).
The Company has evaluated its guarantee to Pillarstone OP pursuant to ASC 460, “Guarantees,” and has determined the guarantee to be a performance guarantee, for which ASC 460 contains initial recognition and measurement requirements, and related disclosure requirements. The Company is obligated in two respects: (i) a noncontingent liability, which represents the Company’s obligation to stand ready to perform under the terms of the guarantee in the event that the specified triggering event(s) occur; and (ii) the contingent liability, which represents the Company’s obligation to make future payments if those triggering events occur. The fair value of our loan guarantee to Pillarstone OP is estimated on a Level 3 basis (as provided by ASC 820), using a probability-weighted discounted cash flow analysis based on a discount rate, discounting the loan balance. The Company recognized a noncontingent liability of $462,000 at the inception of the guarantee at fair value which is recorded on the Company’s consolidated balance sheets, net of accumulated amortization. The Company amortized the guarantee liability into income over years. For both three months ended September 30, 2024 and 2023, the amortization of the guarantee liability was $ 0. For the nine months ended September 30, 2024 and 2023, the amortization of the guarantee liability was $ 0 and $ 18,000, respectively.
Estimates regarding Pillarstone OP's guarantee. The Company, through its subsidiary Whitestone REIT Operating Partnership, L.P., guaranteed Pillarstone OP’s loan for its Uptown Tower property located in Dallas, Texas, with an aggregate principal amount of $14.4 million as of September 30, 2023. The loan was also secured by the Uptown Tower property. The debt matured on October 4, 2023, and was in default, as Pillarstone OP failed to refinance the loan. On October 24, 2023, the Lender provided notice of a planned foreclosure sale on December 5, 2023. The Lender also claimed that an additional sum of $4.6 million was due which included default interest of approximately $6.3 million and net credits from escrowed funds and other charges of approximately $1.7 million.
On December 1, 2023, the Company reached an agreement with the Lender that would avoid foreclosure and secure the release of the lien and discharge of the guarantee, and the Company negotiated and satisfied a payoff as of December 4, 2023, in the amount of $13,632,764 (the “DPO Amount”). We paid the DPO amount and will be entitled to assert a subrogation claim against Pillarstone OP. As of September 30, 2024, the DPO amount was recorded as an asset in our financial statement line receivable due from related party.
The DPO Amount included a compromise settlement of approximately $1,688,000 for the disputed default interest and other fees.
On December 1, 2023, Pillarstone OP authorized and filed the Chapter 11 bankruptcy of its special purpose entity borrower that owns Uptown Tower (Whitestone Uptown Tower LLC) in the United States Bankruptcy Court for the Northern District of Texas.
On January 25, 2024, the Company exercised its notice of redemption for substantially all of its investment in Pillarstone OP.
On February 9, 2024, the Lender filed suit in New York County, New York against the guarantor Whitestone OP and the Company for alleged amounts due under the guarantee. The compromise settlement is our best estimate of the amount due.
On March 4, 2024, Pillarstone REIT authorized and filed the Pillarstone Bankruptcies. As of the date of this filing, Whitestone has not received consideration for our redemption of our equity investment in Pillarstone OP as required by the partnership agreement. The Company has filed a claim in the Pillarstone Bankruptcies for the value of its redemption claim along with interest and other costs.
On April 24, 2024, the Lender and Pillarstone OP filed a motion with the Bankruptcy Court seeking approval to settle the dispute and dismiss their mutual lawsuits including the lawsuit by the Lender against the Company as Guarantor of the loan. On or before June 10, 2024, Pillarstone OP agreed to pay to the Lender the sum of $1,123,950.24 plus all attorneys’ fees and costs (not to exceed $20,000.00) incurred by the Lender from April 10, 2024 through the date of receipt of such payment. Upon timely receipt of the cash payment from Pillarstone OP, the Lender applied the $13,632,764 tendered to it by Whitestone REIT Operating Partnership, L.P., and the guaranty was subsequently released. On October 2, 2024, the Bankruptcy Court affirmed the Company’s right of subrogation and allowed the Company’s secured claim for the DPO amount.
The Company does not believe a probable loss will be incurred, nor does it anticipate a material adverse effect on its financial position, results of operations, cash flows or liquidity. Therefore, the Company has not recorded a charge as a result of the Pillarstone Bankruptcies.
Accounting treatment of the redemption of our OP units in Pillarstone OP. On January 25, 2024, we executed an irrevocable redemption of substantially all our investment in Pillarstone OP, converting our equity investment into a receivable. Pillarstone OP conveyed their intention to forego issuing equity, opting instead to liquidate the properties to satisfy creditors, with Whitestone being significantly the largest creditor. Based on insights from our legal team and advisors, we anticipate that the most probable outcome will involve the liquidation of all Pillarstone properties.
The carrying value of our investment in Pillarstone OP was approximately $31.6 million as of January 25, 2024. We assert a claim of $70 million, inclusive of the $13 million default interest payment and accrued interest. It is anticipated that the claim and proceeds from liquidation will surpass the carrying value of our receivable for the redemption of our former equity investment in Pillarstone OP.
Subsequently, we reclassified our investment in Pillarstone OP to a receivable on our balance sheet after estimating 25 days of our share of the equity investment income. We will assess the credit losses of the receivable on a quarterly basis.
Any gains will be recognized once the proceeds received exceed our receivable.
This is within the scope of ASC 326, “Financial Instruments - Credit Losses.” The value of the unencumbered assets of Pillarstone OP is significantly in excess of Whitestone’s basis in the account receivable, but the precise value cannot be determined at this time. When applying the estimated loss rate method with a zero loss rate, the Current Expected Credit Losses (“CECL”) are zero according to ASC 326. We will continue to monitor our legal team's assessment of the bankruptcy case and the value of the assets of Pillarstone OP to evaluate the credit risk of the receivable.
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Note 7 - Debt |
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| Debt Disclosure [Text Block] |
7. DEBT
Certain subsidiaries of Whitestone are the borrowers under various financing arrangements. These subsidiaries are separate legal entities, and their respective assets and credit are not available to satisfy the debt of Whitestone or any of its other subsidiaries.
Debt consisted of the following as of the dates indicated (in thousands):
On June 21, 2024, Whitestone REIT, operating through its subsidiaries Whitestone Strand LLC, Whitestone Las Colinas Village LLC, and Whitestone Seville, LLC (collectively, the “Borrower”), entered into a loan agreement (the “Loan Agreement”) with Nationwide Life Insurance Company (the “Lender”) for a mortgage loan in the principal amount of $56,340,000 (the “Loan”).
The Loan provides for a fixed interest rate of 6.23% per annum. Payments commence on August 1, 2024, and are due on the first day of each calendar month thereafter through July 1, 2031, with interest-only payments for the first 36 months. Monthly payments consist of principal and interest based on a 30-year amortization schedule beginning on August 1, 2027. The Loan may be prepaid in full but not in part, provided that, as conditions precedent, Borrower: (i) gives Lender not less than fifteen (15) days prior notice of Borrower’s intention to prepay the Loan; (ii) pays to Lender the prepayment premium as set forth in the Loan Agreement, if any, then due and payable to Lender; and (iii) pays to Lender all other amounts then due under the loan documents. No prepayment premium is required for prepayments in full made on or after six months prior to the maturity date.
The Loan is a non-recourse loan secured by of the Company’s properties including their related equipment, fixtures, personal property, and other assets, and a limited carve-out guarantee by the Company’s operating partnership.
The loan documents contain customary terms and conditions, including without limitation affirmative and negative covenants such as information reporting and insurance requirements. The loan documents also contain customary events of default, including defaults in the payment of principal or interest, defaults in compliance with the covenants, and bankruptcy or other insolvency events. Upon the occurrence of an event of default, the Lender is entitled to accelerate all obligations of the Borrower. The Lender will also be entitled to receive the entire unpaid principal balance at a default rate.
The Loan proceeds will be used to pay down the Borrower’s existing floating rate indebtedness.
On March 22, 2019, we, through our Operating Partnership, entered into a Note Purchase and Guarantee Agreement (as amended from time to time, the “Note Agreement”) together with certain subsidiary guarantors as initial guarantor parties thereto (the “Subsidiary Guarantors”) and The Prudential Insurance Company of America and the various other purchasers named therein (collectively, the “Purchasers”) providing for the issuance and sale of $100 million of senior unsecured notes of the Operating Partnership, of which (i) $50 million are designated as 5.09% Series A Senior Notes due March 22, 2029 (the “Series A Notes”) and (ii) $50 million are designated as 5.17% Series B Senior Notes due March 22, 2029 (the “Series B Notes” and, together with the Series A Notes, the “Notes”) pursuant to a private placement that closed on March 22, 2019 (the “Private Placement”). Obligations under the Notes are unconditionally guaranteed by the Company and by the Subsidiary Guarantors.
On December 16, 2022, we through our Operating Partnership, amended the Note Agreement, pursuant to the terms and conditions of that certain Amendment No. 1 to Note Purchase and Guaranty Agreement, by and among the Company and the Operating Partnership, together with certain subsidiary guarantors as initial guarantor parties thereto and The Prudential Insurance Company of America and the various other purchasers named therein, for the purpose of conforming certain covenants and defined terms contained in the Note Agreement with the 2022 Facility (defined below).
The principal of the Series A Notes began to amortize on March 22, 2023 with annual principal payments of approximately $7.1 million. The principal of the Series B Notes will begin to amortize on March 22, 2025 with annual principal payments of $10.0 million. The Notes will pay interest quarterly on the 22nd day of March, June, September and December in each year until maturity.
The Operating Partnership may prepay at any time all, or from time to time part of, the Notes, in an amount not less than $1,000,000 in the case of a partial prepayment, at 100% of the principal amount so prepaid, plus a make-whole amount. The make-whole amount is equal to the excess, if any, of the discounted value of the remaining scheduled payments with respect to the Notes being prepaid over the aggregate principal amount of such Notes (as described in the Note Agreement). In addition, in connection with a Change of Control (as defined in the Note Agreement), the Operating Partnership is required to offer to prepay the Notes at 100% of the principal amount plus accrued and unpaid interest thereon.
The Note Agreement contains representations, warranties, covenants, terms and conditions customary for transactions of this type and substantially similar to the Operating Partnership’s existing senior revolving credit facility, including limitations on liens, incurrence of investments, acquisitions, loans and advances and restrictions on dividends and certain other restricted payments. In addition, the Note Agreement contains certain financial covenants substantially similar to the Operating Partnership’s existing senior revolving credit facility, including the following:
In addition, the Note Agreement contains a financial covenant requiring that maximum unsecured indebtedness not exceed the ratio of 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 result in the Purchasers accelerating the payment of all obligations under the Notes. The financial and restrictive covenants and default provisions in the Note Agreement are substantially similar to those contained in the Operating Partnership’s existing credit facility.
Net proceeds from the Private Placement were used to refinance existing indebtedness. The Notes have not been and will not be registered under the Securities Act of 1933, as amended (the “Securities Act”), and may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements of the Securities Act. The Notes were sold in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act.
On September 16, 2022, we, through our Operating Partnership, entered into an unsecured credit facility (the “2022 Facility”) pursuant to that certain Third Amended and Restated Credit Agreement, by and among the Operating Partnership, the Company and certain subsidiaries of the Company, as guarantors signatory thereto, 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 (as amended from time to time, the “Credit Agreement”). The 2022 Facility replaced the Company’s previous unsecured revolving credit facility, dated January 31, 2019 (the “2019 Facility”).
On October 7, 2024, we, through our Operating Partnership, entered into the First Amendment to Third Amended and Restated Credit Agreement and Incremental Term Loan Joinder (the “Amendment”) among the Operating Partnership, the Company and certain subsidiaries of the Company, as guarantors signatory thereto, the Administrative Agent, and L/C Issuer and Associated Bank, National Association, which amends the Credit Agreement.
The Amendment, among other things, establishes the Series One Incremental Term Loan (defined below) consistent with the existing Term Loan (defined below). The Series One Incremental Term Loan accrues interest (at the Operating Partnership’s option) at a Base Rate (defined below) or Adjusted Term SOFR (as defined in the Credit Agreement) plus an applicable margin based upon the Operating Partnership’s then existing total leverage and is subject to adjustment as set forth in the Credit Agreement. In addition, the Operating Partnership entered into an interest rate swap to fix the interest rate on the Series One Incremental Term Loan at 3.665% plus bank credit spreads (that are currently 1.5%, through January 31, 2028), or an all-in rate of 5.165%.
The 2022 Facility is comprised of the following three tranches of indebtedness:
Borrowings under the 2022 Facility accrue interest (at the Operating Partnership’s option) at a Base Rate or an Adjusted Term SOFR plus an applicable margin based upon our then existing total leverage. “Base Rate” means, for any day, the higher of: (a) the Administrative Agent’s prime commercial rate, (b) the sum 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, as published 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 day plus (ii) 1.10%.
As of September 30, 2024, the interest rate on the 2022 Revolver was 6.80%. Based on our current leverage ratio, the revolver has an interest rate of Adjusted Term SOFR plus 1.45%. In addition, we entered into interest rate swaps to fix the interest rates on the Term Loan. The Term Loan with the swaps has the following interest rates:
As of September 30, 2024, the Term Loan with the swaps had a spread of 1.40%.
The Credit Agreement also has a pricing provision where the applicable margin can be adjusted by an aggregate 0.02% per annum based on the Company’s performance on certain sustainability performance targets.
The 2022 Facility includes an accordion feature that allows the Operating Partnership to increase the borrowing capacity by an aggregate amount equal to $200.0 million, upon the satisfaction of certain conditions. As of September 30, 2024, subject to any potential future paydowns or increases in the borrowing base, we have $121.0 million remaining availability under the 2022 Revolver. As of September 30, 2024, $394.0 million was drawn on the 2022 Facility and our unused borrowing capacity was $121.0 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 the unsecured borrowing base.
The Company, each direct and indirect material subsidiary of the Operating Partnership and any other subsidiary of the Operating Partnership that is a guarantor under any unsecured ratable debt will serve as a guarantor for funds borrowed by the Operating Partnership under the 2022 Facility. The Credit Agreement contains customary terms and conditions, including, without limitation, customary representations and warranties and affirmative and negative covenants including, without limitation, information reporting requirements, limitations on investments, acquisitions, loans and advances, mergers, consolidations and sales, incurrence of liens, dividends and restricted payments. In addition, the Credit Agreement contains certain financial covenants including the following:
As of September 30, 2024, our $153.72 million in secured debt was collateralized by properties with a carrying value of $242.7 million. Our loans contain restrictions that would require the payment of prepayment penalties for the acceleration of outstanding debt and are secured by deeds of trust on certain of our properties and by assignment of the rents and leases associated with those properties. As of September 30, 2024, we were in compliance with all loan covenants.
Scheduled maturities of our outstanding debt as of September 30, 2024 were as follows (in thousands):
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Note 8 - Derivatives and Hedging Activities |
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| Derivative Instruments and Hedging Activities Disclosure [Text Block] |
8. DERIVATIVES AND HEDGING ACTIVITIES
The fair value of our interest rate swaps is as follows (in thousands):
On March 31, 2023, we, through our Operating Partnership, entered into an interest rate swap of $50 million (“Revolver Swap”) with Bank of Montreal that fixed the unhedged SOFR portion of the variable rate debt at 3.71%. Pursuant to the terms of the agreement governing the interest rate swap, Bank of Montreal assigned $10.0 million of the swap to U.S. Bank, $10.0 million of the swap to Capital One, $12.5 million of the swap to SunTrust Bank, and $2.5 million of the swap to Associated Bank. The swap began on March 31, 2023 and will mature on September 16, 2026. We designated the interest rate swap as a cash flow hedge with the effective portion of the changes in fair value recorded in comprehensive income (loss) and subsequently reclassified into earnings in the period that the hedged transaction affects earnings. The Company does not expect any amount of the existing gains or losses to be reclassified into earnings within the next 12 months.
On September 16, 2022, we, through our Operating Partnership, entered an interest rate swap with Bank of Montreal that fixed the unhedged SOFR portion of 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 February 1, 2024, maturing on January 31, 2028. Pursuant to the terms of the agreement governing the interest rate swap, Bank of Montreal assigned beginning and ending notionals 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 million and $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 7 (Debt) for additional 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 value recorded in comprehensive income (loss) and subsequently reclassified into earnings in the period that the hedged transaction affects earnings. The Company does not expect any amount of the existing gains or losses to be reclassified into earnings within the next 12 months.
On January 31, 2019, we, through our Operating Partnership, entered into an interest rate swap of $165 million with Bank of Montreal that fixed the LIBOR portion of 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 Montreal assigned $32.6 million of the swap to U.S. Bank, National Association, $29.4 million of the swap to Regions Bank, $40.0 million of the swap to SunTrust Bank, and $15.0 million of the swap to Associated Bank. Effective September 7, 2022, Regions Bank novated $29.4 million of the swap to Bank of Montreal. See Note 7 (Debt) for additional information regarding the 2019 Facility. The swap began on February 8, 2021 and matured on January 31, 2024. Effective September 16, 2022, our contracts indexed to LIBOR were converted to . We designated the interest rate swap as a cash flow hedge with the effective portion of the changes in fair value to be recorded in comprehensive income (loss) and subsequently reclassified into earnings in the period that the hedged transaction affects earnings.
A summary of our interest rate swap activity is as follows (in thousands):
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Note 9 - Earnings Per Share |
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| Earnings Per Share [Text Block] |
9. EARNINGS PER SHARE
Basic earnings per share for our common shareholders is calculated by dividing net income excluding the net income attributable to unvested restricted common shares and the net income attributable to noncontrolling interests, by our weighted average common shares outstanding during the period. Diluted earnings per share is computed by dividing the net income attributable to common shareholders, excluding the net income attributable to unvested restricted common shares and the net income attributable to noncontrolling interests, by the weighted average number of common shares including any dilutive unvested restricted common shares.
Certain of our performance-based restricted common shares are considered participating securities that require the use of the two-class method for the computation of basic and diluted earnings per share. During the three months ended September 30, 2024 and 2023, 649,200 and 693,595 OP units, respectively, were excluded from the calculation of diluted earnings per share because their effect would be anti-dilutive, and during the nine months ended September 30, 2024 and 2023, 653,990 and 694,054 OP units, respectively, were excluded from the calculation of diluted earnings per share because their effect would be anti-dilutive
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Note 10 - Income Taxes |
9 Months Ended |
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Sep. 30, 2024 | |
| Notes to Financial Statements | |
| Income Tax Disclosure [Text Block] |
10. INCOME TAXES
With the exception of our taxable REIT subsidiaries, federal income taxes are generally not provided because we intend to and believe we continue to qualify as a REIT under the provisions of the Internal Revenue Code of 1986, as amended (the “Code”), and because we have distributed and intend to continue to distribute all of our taxable income to our shareholders. As a REIT, we must distribute at least 90% of our REIT taxable income to our shareholders and meet certain income sources and investment restriction requirements. In addition, REITs are subject to a number of organizational and operational requirements. If we fail to qualify as a REIT in any taxable year, we will be subject to federal income tax (including any applicable alternative minimum tax) on our taxable income at regular corporate tax rates.
We are subject to the Texas Margin Tax, which is computed by applying the applicable tax rate (0.75% 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” applies to the Texas Margin Tax. For the three months ended September 30, 2024 and 2023, we recognized approximately $ 117,000 and $ 95,000, respectively, in margin tax provision, and for the nine months ended September 30, 2024 and 2023, we recognized approximately $ 348,000 and $ 339,000, respectively.
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Note 11 - Equity |
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| Equity [Text Block] |
11. EQUITY
Common Shares
Under our declaration of trust, as amended, we have authority to issue up to 400,000,000 common shares of beneficial interest, $0.001 par value per share, and up to 50,000,000 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 (File No. 333-264881) was declared effective by the SEC (the “Registration Statement”), 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 with certain sales agents names therein for an at-the-market equity distribution program (the “2022 equity distribution agreements”) providing for the issuance and sale of up to an aggregate of $100 million of the Company’s common shares pursuant to our Registration Statement. Actual sales will depend on a variety of factors determined by us from time to time, including (among others) market conditions, the trading price of our common shares, capital needs and our determinations of the appropriate sources of funding for us, and will be made in transactions that will be deemed to be “at-the-market” offerings as defined in Rule 415 under the Securities Act. We have no obligation to sell any of our common shares and can at any time suspend offers under the 2022 equity distribution agreements or terminate the 2022 equity distribution agreements.
For both three and nine months ended September 30, 2024, we sold 579,964 common shares under the 2022 equity distribution agreement, with net proceeds to us of approximately $7.6 million. In connection with such sales, we paid compensation of approximately $116,000 to the sales agents. For both three and nine months ended September 2023, we did sell shares under the 2022 equity distribution agreements.
Operating Partnership Units
Substantially all of our business is conducted through our Operating Partnership. We are the sole general partner of the Operating Partnership. As of September 30, 2024, we owned a 98.7% 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 OP unit for one common share. Distributions to OP unit holders are paid at the same rate per unit as distributions per share to holders of Whitestone common shares. As of September 30, 2024 and December 31, 2023, there were 51,174,240 and 50,182,938 OP units outstanding, respectively. We owned 50,525,040 and 49,489,991 OP units as of September 30, 2024 and December 31, 2023, respectively. The balance of the OP units is owned by third parties, including certain members of our Board of Trustees. Our weighted average share ownership in the Operating Partnership was approximately 98.7% and 98.6% for the three months ended September 30, 2024 and 2023, respectively, and approximately 98.7% and 98.6% for the nine months ended September 30, 2024 and 2023, respectively. During the three months ended September 30, 2024 and 2023, 0 and 548 OP units, respectively, were redeemed for an equal number of common shares, and during the nine months ended September 30, 2024 and 2023, 43,747 and 1,423 OP units, respectively, were redeemed for an equal number of common shares.
Distributions
The following table summarizes the cash distributions paid or payable to holders of common shares and to holders of noncontrolling OP units during each quarter of 2023 and the nine months ended September 30, 2024 (in thousands, except per share/per OP unit data):
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Note 12 - Incentive Share Plan |
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| Share-Based Payment Arrangement [Text Block] |
12. INCENTIVE SHARE PLAN
The Company’s 2008 Long-Term Equity Incentive Plan (as amended, the “2008 Plan”) expired in July 2018. At the Company’s annual meeting of shareholders on May 11, 2017, our shareholders voted to approve the 2018 Long-Term Equity Incentive Ownership Plan (the “2018 Plan”). The 2018 Plan provides for the issuance of up to 3,433,831 common shares and OP units pursuant to awards under the 2018 Plan. The 2018 Plan became effective on July 30, 2018, which is the day after the 2008 Plan expired.
The Compensation Committee administered the 2008 Plan and administers the 2018 Plan except, in each case, with respect to awards to non-employee trustees, for which the 2008 Plan was and the 2018 Plan is administered by the Board of Trustees. The Compensation Committee is authorized to grant share options, including both incentive share options and non-qualified share options, as well as share appreciation rights, either with or without a related option. The Compensation Committee is also authorized to grant restricted common shares, restricted common share units, performance awards and other share-based awards. On September 6, 2017, the Compensation Committee approved the grant of an aggregate of 965,000 performance-based restricted common share units under the 2008 Plan. These units, which only vest immediately prior to the consummation of a Change in Control (as defined in the 2008 Plan) occurring on or before September 30, 2024 (the “CIC Units”), were granted to certain of our employees. Since the Change in Control did not occur on or before September 30, 2024, all 455,000 CIC Units have been forfeited.
On June 30, 2021, the Compensation Committee approved the grant of an aggregate of 433,200 TSR Units and 433,200 time-based restricted common share units under the 2018 Plan to certain of our employees. Vesting of the TSR Units is contingent upon achieving Total Shareholder Return relative to the peer group defined in the TSR Unit award agreements over a -year performance period. At the end of the performance period, the number of common shares awarded for each vested TSR Unit will vary from 0% to 200% depending on the Company’s TSR Peer Group Ranking. Continued employment is required through the vesting date. The grant date fair value for each TSR Unit of $4.17 was determined using the Monte Carlo simulation method and is being recognized as share-based compensation expense ratably from the June 30, 2021 grant date to the end of the performance period, December 31, 2023. The Monte Carlo simulation model utilizes multiple input variables that determine the probability of satisfying the market condition stipulated in the award grant and calculates the fair value of the award. Expected volatilities utilized in the model were estimated using a historical period consistent with the performance period of approximately years. The risk-free interest rate was based on the United States Treasury rate for a term commensurate with the expected life of the grant. The time-based restricted common share units have a grant date fair value of $7.51 and vest annually in equal installments. The 433,200 TSR Units granted on June 30, 2021 include 111,465 TSR Units that will be converted into the right to receive cash in the amount of the fair market value of the common shares to the extent that common shares are not available for issuance under the 2018 Plan. On January 1, 2024, the remaining unvested 210,400 TSR units that were granted on June 30, 2021 vested at 200% achievement into 420,800 common shares.
On September 30, 2021, the Compensation Committee approved the grant of an aggregate of 5,500 time-based restricted common share units under the 2018 Plan to certain of our employees. The time-based common share units had a grant date fair value of $9.06 each and vest annually in 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 share units under the 2018 Plan to certain of our employees. Vesting of the TSR Units is contingent upon achieving Total Shareholder Return relative to the peer group defined in the TSR Unit award agreements over a -year performance period. At the end of the performance period, the number of common shares awarded for each vested TSR Unit will vary from 0% to 200% depending on the Company’s TSR Peer Group Ranking. Continued employment is required through the vesting date. The grant date fair value for each TSR Unit of $13.74 was determined using the Monte Carlo simulation method and is being recognized as share-based compensation expense ratably from 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 that determine the probability of satisfying the market condition stipulated in the award grant and calculates the fair value of the award. Expected volatilities utilized in the model were estimated using a historical period consistent with the performance period of approximately years. The risk-free interest rate was based on the United States Treasury rate for a term commensurate with the expected life of the grant. The time-based restricted common share units have a grant date fair value of $9.94 and vest annually in three equal installments.
On March 7, 2023, the Compensation Committee approved the grant of an aggregate of 228,025 TSR Units and 228,025 time-based restricted common share units under the 2018 Plan to certain of our employees. Vesting of the TSR Units is contingent upon achieving Total Shareholder Return relative to the peer group defined in the TSR Unit award agreements over a -year performance period. At the end of the performance period, the number of common shares awarded for each vested TSR Unit will vary from 0% to 200% depending on the Company’s TSR Peer Group Ranking. Continued employment is required through the vesting date. The grant date fair value for each TSR Unit of $9.55 was determined using the Monte Carlo simulation method and is being recognized as share-based compensation expense ratably from the June 30, 2023 grant date to the end of the performance period, December 31, 2025. The Monte Carlo simulation model utilizes multiple input variables that determine the probability of satisfying the market condition stipulated in the award grant and calculates the fair value of the award. Expected volatilities utilized in the model were estimated using a historical period consistent with the performance period of approximately three years. The risk-free interest rate was based on the United States Treasury rate for a term commensurate with the expected life of the grant. The time-based restricted common share units have a grant date fair value of $8.72 and vest annually in three equal installments.
On March 4, 2024, the Compensation Committee approved the grant of an aggregate of 203,518 TSR Units and 169,065 time-based restricted common share units under the 2018 Plan to certain of our employees. Vesting of the TSR Units is contingent upon achieving Total Shareholder Return relative to the peer group defined in the TSR Unit award agreements over a three-year performance period. At the end of the performance period, the number of common shares awarded for each vested TSR Unit will vary from 0% to 200% depending on the Company’s TSR Peer Group Ranking. Continued employment is required through the vesting date. The grant date fair value for each TSR Unit of $15.12 was determined using the Monte Carlo simulation method and is being recognized as share-based compensation expense ratably from the June 30, 2024 grant date to the end of the performance period, December 31, 2026. The Monte Carlo simulation model utilizes multiple input variables that determine the probability of satisfying the market condition stipulated in the award grant and calculates the fair value of the award. Expected volatilities utilized in the model were estimated using a historical period consistent with the performance period of approximately three years. The risk-free interest rate was based on the United States Treasury rate for a term commensurate with the expected life of the grant. The time-based restricted common share units have a grant date fair value of $12.29 and vest annually in three equal installments.
A summary of the share-based incentive plan activity as of and for the nine months ended September 30, 2024 is as follows:
A summary of our non-vested and vested shares activity for the nine months ended September 30, 2024 and years ended December 31, 2023 and 2022 is presented below:
Total compensation recognized in earnings for share-based payments was $ 1,281,000 and $ 1,083,000 for the three months ended September 30, 2024 and 2023, respectively, and $ 3,105,000 and $ 2,712,000 for the nine months ended September 30, 2024 and 2023, respectively.
Based on our current financial projections, we expect approximately 100% of the unvested awards to vest over the next 33 months. As of September 30, 2024, there was approximately $4.0 million in unrecognized compensation cost related to outstanding non-vested TSR Units, which are expected to vest over a period of 27 months, and approximately $3.4 million in unrecognized compensation cost related to outstanding non-vested time-based shares, which are expected to be recognized over a period of approximately 33 months beginning on October 1, 2024.
We expect to record approximately $4.5 million in non-cash share-based compensation expense in 2024 and $6.3 million subsequent to 2024. The unrecognized share-based compensation cost is expected to vest over a weighted average period of 25 months. The dilutive impact of the performance-based shares will be included in the denominator of the earnings per share calculation beginning in the period that the performance conditions are expected to be met. The dilutive impact of the TSR Units is based on the Company’s TSR Peer Group Ranking as of the reporting date and weighted according to the number of days outstanding in the period. As of September 30, 2024, the TSR Peer Group Ranking called for attainment of 200%, 150%, and 0% for the shares issued in 2022, 2023, and 2024, respectively.
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Note 13 - Grants to Trustees |
9 Months Ended |
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Sep. 30, 2024 | |
| Notes to Financial Statements | |
| Trustee Incentive Shares [Text Block] |
13. GRANTS TO TRUSTEES
On December 20, 2023, independent trustees and trustee emeritus were granted a total of 24,134 common shares, which vest immediately and are prorated based on date appointed. The 24,134 common shares granted to our trustees had a grant fair value of $12.44 per share. The fair value of the shares granted during the year ended December 31, 2023 was determined using quoted prices available on the date of grant.
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Note 14 - Segment Information |
9 Months Ended |
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Sep. 30, 2024 | |
| Notes to Financial Statements | |
| Segment Reporting Disclosure [Text Block] |
14. SEGMENT INFORMATION
Historically, our management has not differentiated results of operations by property type or location and, therefore, does not present segment information.
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Note 15 - Real Estate |
9 Months Ended |
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Sep. 30, 2024 | |
| Notes to Financial Statements | |
| Real Estate Disclosure [Text Block] |
15. REAL ESTATE
Property Acquisitions.
On April 5, 2024, we acquired Scottsdale Commons, a property that meets our Community Centered Property® strategy, for $22.2 million in cash and net prorations. Scottsdale Commons, a 69,482 square foot property, was 96.6% leased at the time of purchase and is located in Scottsdale, Arizona. The funding for this acquisition was provided by the Company’s credit facility.
On April 1, 2024, we acquired Anderson Arbor Pad, a development parcel that meets our Community Centered Property® strategy, for $0.9 million in cash and net prorations. Anderson Arbor Pad is located in Austin, Texas. The funding for this acquisition was provided by the Company’s credit facility.
On February 20, 2024, we acquired Garden Oaks Shopping Center, a property that meets our Community Centered Property® strategy, for $27.2 million in cash and net prorations. Garden Oaks Shopping Center, a 106,858 square foot property, was 95.8% leased at the time of purchase and is located in Houston, Texas. The funding for this acquisition was provided by the Company’s credit facility.
On June 12, 2023, we acquired Arcadia Towne Center, a property that meets our Community Centered Property® strategy, for $25.5 million in cash and net prorations. Arcadia Towne Center, a 69,503 square foot property, was 100% leased at the time of purchase and is located in Phoenix, Arizona. The funding for this acquisition was provided by the Company’s credit facility.
Property dispositions.
On August 9, 2024, we completed the sale of Fountain Hills Plaza along with the adjacent parcel of development land, located in Phoenix, Arizona, for $21.3 million. We recorded a gain on sale of $3.6 million. We have not included Fountain Hills Plaza in discontinued operations as it did not meet the definition of discontinued operations.
On March 27, 2024, we completed the sale of Mercado at Scottsdale Ranch, located in Phoenix, Arizona, for $26.5 million. We recorded a gain on sale of $6.6 million. We have not included Mercado at Scottsdale Ranch in discontinued operations as it did not meet the definition of discontinued operations.
On December 20, 2023, we completed the sale of Spoerlein Commons, located in Buffalo Grove, Illinois, for $7.4 million. We recorded a loss on sale of $0.7 million. We have not included Spoerlein in discontinued operations as it did not meet the definition of discontinued operations.
On June 30, 2023, we completed the sale of Westchase, located in Houston, Texas, for $7.8 million. We recorded a gain on sale of $4.6 million. We have not included Westchase in discontinued operations as it did not meet the definition of discontinued operations.
On June 30, 2023, we completed the sale of Sunridge, located in Houston, Texas, for $6.7 million. We recorded a gain on sale of $5.0 million. We have not included Sunridge in discontinued operations as it did not meet the definition of discontinued operations.
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Note 16 - Related Party Transactions |
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| Related Party Transactions Disclosure [Text Block] |
16. RELATED PARTY TRANSACTIONS
Former Executives, Trustee, and Their Ownership Interests in Pillarstone REIT. Prior to his employment termination on January 18, 2022, Mr. James C. Mastandrea, the former Chairman and Chief Executive Officer of Whitestone REIT, also served as the Chairman and Chief Executive Officer of Pillarstone REIT and beneficially owns approximately 66.7% of the outstanding equity in Pillarstone REIT (when calculated in accordance with Rule 13d-3(d)(1) under the Exchange Act of 1934, as amended (the “Exchange Act”)). He resigned as a member of the Board of Whitestone REIT on April 18, 2022. Prior to his employment termination on February 9, 2022, Mr. John J. Dee, the Company’s former Chief Operating Officer and Corporate Secretary, also served as the Senior Vice President and Chief Financial Officer of Pillarstone REIT and beneficially owns approximately 20.0% of the outstanding equity in Pillarstone REIT (when calculated in accordance with Rule 13d-3(d)(1) under the Exchange Act). In addition, Mr. Paul T. Lambert, a Trustee of the Company, until expiration of his term on May 12, 2023, also served as a Trustee of Pillarstone REIT.
Pillarstone OP. In connection with the Contribution, Whitestone TRS, Inc., a subsidiary of the Company (“Whitestone TRS”), entered into a management agreement with the entities that own the contributed Pillarstone Properties (collectively, the “Management Agreements”). Pursuant to the Management Agreements, Whitestone TRS agreed to provide certain property management, leasing and day-to-day advisory and administrative services. The Management Agreements were terminated on August 18, 2022.
The Company previously accounted for its investment in Pillarstone OP using the equity method. However, subsequent to January 25, 2024, the Company ceased utilizing the equity method following the exercise of its notice of redemption for the majority of its investment in Pillarstone OP.
The following table presents the revenue and expenses with Pillarstone OP included in our consolidated statements of operations and comprehensive income (loss) for the three and nine months ended September 30, 2024 and 2023 (in thousands):
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Note 17 - Commitments and Contingencies |
9 Months Ended |
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Sep. 30, 2024 | |
| Notes to Financial Statements | |
| Commitments and Contingencies Disclosure [Text Block] |
17. COMMITMENTS AND CONTINGENCIES
Guarantor for Pillarstone OP’s Loan
The Company, through its subsidiary Whitestone REIT Operating Partnership, L.P., guaranteed Pillarstone OP’s loan for its Uptown Tower property located in Dallas, Texas, with an aggregate principal amount of $14.4 million as of September 30, 2023. The loan was also secured by the Uptown Tower property. The debt matured on October 4, 2023, and was in default, as Pillarstone OP failed to refinance the loan. On October 24, 2023, the Lender provided notice of a planned foreclosure sale on December 5, 2023. The Lender also claimed that an additional sum of $4.6 million was due which included default interest of approximately $6.3 million and net credits from escrowed funds and other charges of approximately $1.7 million.
On December 1, 2023, the Company reached an agreement with the Lender that would avoid foreclosure and secure the release of the lien and discharge of the guarantee, and the Company negotiated and satisfied a payoff as of December 4, 2023, in the amount of $13,632,764 (the “DPO Amount”). The DPO Amount included a compromise settlement of approximately $1,688,000 for the disputed default interest and other fees. The Company's share of it was recorded in the 4th quarter of fiscal year 2023 in the financial statement line equity (deficit) in earnings of real estate partnership. Per the agreement, this payment would satisfy the loan. The Company wired the DPO Amount to Lender on December 4, 2023, with accompanying releases as required by Lender, fully satisfying the agreement.
On December 1, 2023, Pillarstone OP authorized and filed the Chapter 11 bankruptcy of its special purpose entity borrower that owns Uptown Tower, in the Bankruptcy Court. On January 25, 2024, the Company exercised its notice of redemption for substantially all of its investment in Pillarstone OP. On February 9, 2024, the Lender filed suit in New York County against the guarantor Whitestone OP and the Company for alleged amounts due under the guarantee. On March 4, 2024, Pillarstone REIT authorized and filed the Pillarstone Bankruptcies.
On April 24, 2024, the Lender and Pillarstone OP filed a motion with the Bankruptcy Court seeking approval to settle the dispute and dismiss their mutual lawsuits including the lawsuit by the Lender against the Company as Guarantor of the loan. On or before June 10, 2024, Pillarstone OP agreed to pay to the Lender the sum of $1,123,950.24 plus all attorneys’ fees and costs (not to exceed $20,000.00) incurred by the Lender from April 10, 2024 through the date of receipt of such payment. Upon timely receipt of the cash payment from Pillarstone OP, the Lender applied the $13,632,764 tendered to it by Whitestone REIT Operating Partnership, L.P., and the guaranty was subsequently released. The Company is pursuing collection of the DPO amount from Pillarstone in the Pillarstone Bankruptcies through a subrogation claim against Pillarstone OP. On October 2, 2024, the Bankruptcy Court affirmed the Company’s right of subrogation and allowed the Company’s secured claim for the guaranty payment in the amount of $13,632,764 million.
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 its subsidiaries (Whitestone TRS, Inc. and Whitestone REIT Operating Partnership, L.P.) along with certain of its executives (Peter Tropoli, Christine Mastandrea, and David Holeman) in the District Court of Harris County, Texas, alleging claims relating to the limited partnership agreement between Pillarstone Capital REIT and Whitestone REIT Operating Partnership, as well as the termination of Management Agreements between Pillarstone Capital REIT Operating Partnership, L.P. and Whitestone TRS, Inc. On November 25, 2022, the claims against Peter Tropoli, Christine Mastandrea and David Holeman were dismissed. The claimants seek monetary relief 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, and intends to vigorously defend against the claims. The Company does not believe a probable loss will be incurred, nor does it anticipate a material adverse effect on its financial position, results of operations, cash flows or liquidity. Therefore, the Company has not recorded a charge as a result of this action.
Former COO Litigation
On May 9, 2023, the Company’s former COO, John Dee, filed suit against the Company in the District Court of Harris County, Texas, purporting to assert claims for breach of his change-in-control agreement arising from the Company’s termination of its former CEO James Mastandrea for cause, and is seeking monetary relief in excess of $1,000,000 in damages and equitable relief. The Company denies the claims, has substantial legal and factual defenses against the claims, and intends to vigorously defend against the claims. The Company does not believe a probable loss will be incurred, nor does it anticipate a material adverse effect on its financial position, results of operations, cash flows or liquidity. Therefore, the Company has not recorded a charge as a result of this action.
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, Jack Mahaffey, and David Taylor) and officers (David Holeman, Christine Mastandrea, Peter Tropoli) in the District Court of Harris County, Texas, alleging $25 million in damages and equitable relief claims relating to the termination of his employment, including breach of his employment contract, negligence, tortious interference with contract, civil conspiracy, and declaratory judgment. On September 12, 2022, the claim for breach of fiduciary duty was dismissed and a claim for negligence was added (as to the trustee defendants).
On December 6, 2023, the District Court of Harris County, Texas granted summary judgement and dismissed all claims against the Company related to the termination of Mr. Mastandrea. The court also dismissed all claims against certain of the Company’s trustees and officers. The dismissal is subject to appeal. The Company’s counter-claims against Mr. Mastandrea for breach of fiduciary duty, theft, and conversion of company property remain.
Pillarstone Rights Plan
On December 26, 2021, the Board of Trustees of Pillarstone REIT adopted a new shareholder rights agreement (the “Pillarstone Rights Agreement”). Because Pillarstone REIT sought to use the Pillarstone Rights Agreement to prevent Whitestone OP from exercising its contractual Redemption Right, on July 12, 2022, Whitestone OP filed suit against Pillarstone REIT in the Court of Chancery of the State of Delaware challenging the Pillarstone Rights Agreement.
On September 8, 2022, Whitestone OP’s Motion to Preserve the Status Quo was granted by the Court, limiting Pillarstone OP from engaging in any acts outside the ordinary course of business and otherwise imposing restrictions on Pillarstone OP to ensure that Whitestone’s right of redemption is not impaired while the underlying dispute is being considered by the Court.
On January 25, 2024, the Delaware Court of Chancery: held that Pillarstone breached the implied covenant of good faith and fair dealing when it adopted the Pillarstone Rights Agreement that thwarted Whitestone OP from exercising the unfettered contractual redemption right it obtained in connection with its investment in the partnership; and the Court held that the Rights Plan was unenforceable as to the limited partner and allowed Whitestone OP to exercise its redemption right; allowed Pillarstone to determine the current value of the Partnership’s assets; and, as necessary, would later enter a monetary judgment against Pillarstone for the difference between the amount Whitestone would have received in or around December 2021 and the current value.
On January 25, 2024, the Company exercised its notice of redemption for substantially all of its investment in Pillarstone OP.
On March 4, 2024, Pillarstone REIT authorized and filed the Pillarstone Bankruptcies.
As of the date of this filing, Whitestone has not received consideration for its redemption of its equity investment in Pillarstone OP as required by the partnership agreement. The Company has filed a claim in the Pillarstone Bankruptcies for the value of its redemption claim along with interest and other costs. We intend to pursue collection of amounts due from Pillarstone OP through all means necessary and while we do not know the ultimate amount to be collected, we believe the amount will be in excess of the current carrying value of our equity investment in Pillarstone OP.
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.
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Note 18 - Subsequent Events |
9 Months Ended |
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Sep. 30, 2024 | |
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| Subsequent Events [Text Block] |
18. SUBSEQUENT EVENTS
On October 7, 2024, we, through our Operating Partnership, entered into the Amendment, which among other things, establishes the Series One Incremental Term Loan consistent with the existing Term Loan. The Series One Incremental Term Loan accrues interest (at the Operating Partnership’s option) at a Base Rate or Adjusted Term SOFR plus an applicable margin based upon the Operating Partnership’s then existing leverage and is subject to adjustment as set forth in the Credit Agreement. In addition, the Operating Partnership entered into an interest rate swap to fix the interest rate on the Series One Incremental Term Loan at 3.665% plus (that are currently 1.5%, through January 31, 2028), or an all-in rate of 5.165%. See Note 7 (Debt) for additional information regarding the Amendment and the 2022 Facility.
The proceeds of the Series One Incremental Term Loan were used to pay down a portion of the Operating Partnership’s outstanding Revolving Loan (as defined in the Credit Agreement) borrowings.
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Insider Trading Arrangements |
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Sep. 30, 2024 |
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During the nine months ended September 30, 2024, trustee or officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K. |
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| Rule 10b5-1 Arrangement Adopted [Flag] | false | |
| Rule 10b5-1 Arrangement Terminated [Flag] | false | |
| Non-Rule 10b5-1 Arrangement Terminated [Flag] | false | |
| Non-Rule 10b5-1 Arrangement Adopted [Flag] | false |
Significant Accounting Policies (Policies) |
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| Accounting Policies [Abstract] | |
| Consolidation, Policy [Policy Text Block] | Basis of Consolidation. We are the sole general partner of the Operating Partnership and possess full legal control and authority over the operations of the Operating Partnership. As of September 30, 2024 and December 31, 2023, we owned a majority of the partnership interests in the Operating Partnership. Consequently, the accompanying consolidated financial statements include the accounts of the Operating Partnership.
Noncontrolling interest in the accompanying consolidated financial statements represents the share of equity and earnings of the Operating Partnership allocable to holders of partnership interests other than us. Net income or loss is allocated to noncontrolling interests based on the weighted-average percentage ownership of the Operating Partnership during the period. 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 -for-one basis (the “OP units”) changes the percentage of ownership interests of both the noncontrolling interests and Whitestone.
Estimates regarding Pillarstone OP’s financial condition and results of operations. We rely on the reports furnished by our third-party partners for financial information regarding the Company’s investment in Pillarstone OP. As of September 30, 2024 and December 31, 2023, Pillarstone OP’s financial statements have not been made accessible to us. Consequently, we have estimated the financial status and operational outcomes of Pillarstone OP based on the information accessible to us at the time of this report.
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| Equity Method Investments [Policy Text Block] | Equity Method. In compliance with Accounting Standards Update (“ASU”) 2014-09 (“Topic 606”) and Accounting Standards Codification (“ASC”) 610, “Other Income-Gains and Losses from the Derecognition of Nonfinancial Assets,” the Company previously accounted for its investment in Pillarstone OP using the equity method. However, subsequent to January 25, 2024, the Company ceased utilizing the equity method following the exercise of its notice of redemption for substantially all of its investment in Pillarstone OP. Please refer to Note 6 to the accompanying consolidated financial statements for the full disclosure.
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| Basis of Accounting, Policy [Policy Text Block] | Basis of Accounting. Our financial records are maintained on the accrual basis of accounting whereby revenues are recognized when earned and expenses are recorded when incurred.
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| Use of Estimates, Policy [Policy Text Block] | Use of Estimates. The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates that we use include the estimated fair values of properties acquired, the estimated useful lives for depreciable and amortizable assets and costs, the grant date fair value of common share units included in share-based compensation expense, the estimated allowance for doubtful accounts, the estimated fair value of interest rate swaps, the estimates supporting our impairment analysis for the carrying values of our real estate assets, the estimates made regarding Pillarstone REIT Operating Partnership LP’s financial condition and results of operations, and the estimated allowance for credit loss. Actual results could differ from those estimates.
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| Reclassification, Comparability Adjustment [Policy Text Block] | Reclassifications. We have reclassified certain prior period amounts in the accompanying consolidated financial statements in order to be consistent with the current period presentation. These reclassifications had no effect on net income, total assets, total liabilities or equity.
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| Cash and Cash Equivalents, Restricted Cash and Cash Equivalents, Policy [Policy Text Block] | 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 (see Note 7 (Debt)), which was collateralized by our Anthem Marketplace property, we were required by the lenders thereunder to establish a cash management account controlled by the lenders to collect all amounts generated by our Anthem Marketplace property in order to collateralize such promissory note. The note was paid off in January 2024. As of September 30, 2024, we had no restricted cash.
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| Derivatives, Policy [Policy Text Block] | Derivative Instruments and Hedging Activities. We utilize derivative financial instruments, principally interest rate swaps, to manage our exposure to fluctuations in interest rates. We have established policies and procedures for risk assessment, and the approval, reporting and monitoring of derivative financial instruments. We recognize our interest rate swaps as cash flow hedges with the effective portion of the changes in fair value recorded in comprehensive income (loss) and subsequently reclassified into earnings in the period that the hedged transaction affects earnings. Any ineffective portion of a cash flow hedges’ change in fair value is recorded immediately into earnings. Our cash flow hedges are determined using Level 2 inputs under ASC 820, “Fair Value Measurements and Disclosures.” Level 2 inputs represent quoted prices in active markets for similar assets or liabilities; quoted prices in markets that are not active; and model-derived valuations in which significant inputs and significant value drivers are observable. As of September 30, 2024, we consider our cash flow hedges to be highly effective.
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| Real Estate Held for Development and Sale, Policy [Policy Text Block] | Development Properties. Land, buildings and improvements are recorded at cost. Expenditures related to the development of real estate are carried at cost which includes capitalized carrying charges and development costs. Carrying charges (interest, real estate taxes, loan fees, and direct and indirect development costs related to buildings under construction) are capitalized as part of construction in progress. The capitalization of such costs ceases when the property, or any completed portion, becomes available for occupancy. For the three months ended September 30, 2024, approximately $ 150,000 and $ 15,000 in interest expense and real estate taxes, respectively, were capitalized, and for the nine months ended September 30, 2024, approximately $ 434,000 and $ 137,000 in interest expense and real estate taxes, respectively, were capitalized. For the three months ended September 30, 2023, approximately $ 142,000 and $ 85,000 in interest expense and real estate taxes, respectively, were capitalized and for the nine months ended September 30, 2023, approximately $ 413,000 and $ 230,000 in interest expense and real estate taxes, respectively, were capitalized.
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| Share-Based Payment Arrangement [Policy Text Block] | Share-Based Compensation. From time to time, we award nonvested restricted common share awards or restricted common share unit awards, which may be converted into common shares, to executive officers and employees under our 2018 Long-Term Equity Incentive Ownership Plan (the “2018 Plan”). Awarded shares and units vest when certain performance conditions are met. We recognize compensation expense when achievement of the performance conditions is probable based on management’s most recent estimates using the fair value of the shares as of the grant date. We recognized $ 1,281,000 and $ 1,083,000 in share-based compensation net of forfeitures for the three months ended September 30, 2024 and 2023, respectively, and we recognized $ 3,105,000 and $ 2,712,000 in share-based compensation net of forfeitures for the nine months ended September 30, 2024 and 2023, respectively.
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| Consolidation, Subsidiaries or Other Investments, Consolidated Entities, Policy [Policy Text Block] | Noncontrolling Interests. Noncontrolling interests are the portion of equity in a subsidiary not attributable to a parent. Accordingly, we have reported noncontrolling interests in equity on the consolidated balance sheets but separate from Whitestone’s equity. On the consolidated statements of operations and comprehensive income (loss), subsidiaries are reported at the consolidated amount, including both the amount attributable to Whitestone and noncontrolling interests. The consolidated statements of changes in equity is included for quarterly financial statements, including beginning balances, activity for the period and ending balances for shareholders’ equity, noncontrolling interests and total equity.
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| Receivable [Policy Text Block] | Accrued Rents and Accounts Receivable. Included in accrued rents and accounts receivable are base rents, tenant reimbursements and receivables attributable to recording rents on a straight-line basis. We review the collectability of charges under our tenant operating leases on a regular basis, taking into consideration changes in factors such as the tenant’s payment history, the financial condition of the tenant, business conditions in the industry in which the tenant operates and economic conditions in the area where the property is located. We recognize an adjustment to rental revenue if we deem it probable that the receivable will not be collected. Our review of collectability under our operating leases includes any accrued rental revenues related to the straight-line method of reporting rental revenue. As of September 30, 2024 and December 31, 2023, we had an allowance for uncollectible accounts of $14.5 million and $13.6 million, respectively. During the three months ended September 30, 2024 and 2023, we recorded an adjustment to rental revenue for bad debt, exclusive of straight-line rent reserve adjustments, resulting in a $0.3 million and $0.4 million decrease in revenue, respectively, and during the nine months ended September 30, 2024 and 2023, we recorded an adjustment to rental revenue for bad debt, exclusive of straight-line rent reserve adjustment, resulting in a $1.0 million decrease in revenue during both periods. The three months ended September 30, 2024 included 20 cash basis tenants, resulting in a decrease to rental revenue for straight-line rent adjustments of $0.1 million and a decrease to rental revenue for bad debt adjustments of $0.2 million. The three months ended September 30, 2023 included 17 cash basis tenants, resulting in an increase to rental revenue for straight-line rent adjustment of $0.03 million and a decrease to rental revenue for bad debt adjustments of $0.2 million. The nine months ended September 30, 2024 included 20 cash basis tenants, resulting in a decrease to rental revenue for straight-line rent adjustments of $0.2 million and a decrease to rental revenue for bad debt adjustments of $0.5 million, and the nine months ended September 30, 2023 included 17 cash basis tenants, resulting in a decrease to rental revenue for straight-line rent adjustments of $0.1 million and a decrease to rental revenue for bad debt adjustments of $0.5 million.
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| Revenue from Contract with Customer [Policy Text Block] | Revenue Recognition. All leases on our properties are classified as operating leases, and the related rental income is recognized on a straight-line basis over the terms of the related leases. Differences between rental income earned and amounts due per the respective lease agreements are capitalized or charged, as applicable, to accrued rents and accounts receivable. Percentage rents are recognized as rental income when the thresholds upon which they are based have been met. Recoveries from tenants for taxes, insurance, and other operating expenses are recognized as revenues in the period the corresponding costs are incurred. We combine lease and nonlease components in lease contracts, which includes combining base rent, recoveries, and percentage rents into a single line item, Rental, within the consolidated statements of operations and comprehensive income (loss). Additionally, we have tenants who pay real estate taxes directly to the taxing authority. We exclude these costs paid directly by the tenant to third parties on our behalf from revenue recognized and the associated property operating expense.
Other property income primarily includes amounts recorded in connection with lease termination fees. We recognize lease termination fees in the year that the lease is terminated and collection of the fee is probable. Amounts recorded within other property income are accounted for at the point in time when control of the goods or services transfers to the customer and our performance obligation is satisfied.
See our Annual Report on Form 10-K for the year ended December 31, 2023 for further discussion on significant accounting policies. |
Note 3 - Leases (Tables) |
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Note 4 - Accrued Rents and Accounts Receivable, Net (Tables) |
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Note 5 - Unamortized Lease Commissions, Legal Fees and Loan Costs (Tables) |
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Note 6 - Investment in Real Estate Partnership (Tables) |
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Note 7 - Debt (Tables) |
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Note 8 - Derivatives and Hedging Activities (Tables) |
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Note 9 - Earnings Per Share (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2024 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Schedule of Earnings Per Share, Basic and Diluted [Table Text Block] |
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Note 11 - Equity (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Note 12 - Incentive Share Plan (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2024 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Note 16 - Related Party Transactions (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Note 1 - Interim Financial Statements (Details Textual) |
9 Months Ended | ||
|---|---|---|---|
Sep. 30, 2024 |
Dec. 31, 2023 |
Jul. 31, 2004 |
|
| Reorganization and Conversion, Number of Common Shares | 1.42857 | ||
| Wholly Owned Properties [Member] | |||
| Number of Real Estate Properties | 55 | 55 | |
| Wholly Owned Properties [Member] | Community Centered Properties [Member] | |||
| Number of Real Estate Properties | 50 | ||
| Wholly Owned Properties [Member] | Parcels Held for Future Development [Member] | |||
| Asset Acquisition, Number of Properties Acquired During Period | 5 |
Note 2 - Summary of Significant Accounting Policies (Details Textual) |
3 Months Ended | 9 Months Ended | |||||
|---|---|---|---|---|---|---|---|
|
Sep. 30, 2024
USD ($)
$ / shares
|
Sep. 30, 2023
USD ($)
|
Sep. 30, 2024
USD ($)
$ / shares
|
Sep. 30, 2023
USD ($)
|
Mar. 31, 2024
$ / shares
|
Dec. 31, 2023
USD ($)
|
Dec. 31, 2015
USD ($)
|
|
| Conversion Ratio for Class Common Stock to OP Unit (in dollars per share) | $ / shares | $ 1 | $ 1 | $ 1 | ||||
| Real Estate Inventory, Capitalized Interest Costs Incurred | $ 150,000 | $ 142,000 | $ 434,000 | $ 413,000 | |||
| Real Estate Taxes, Capitalized | 15,000 | 85,000 | 137,000 | 230,000 | |||
| Share-Based Payment Arrangement, Expense | 1,281,000 | 1,083,000 | 3,105,000 | 2,712,000 | |||
| Accounts Receivable, Allowance for Credit Loss | 14,451,000 | 14,451,000 | $ 13,570,000 | ||||
| Net Investment in Lease, Credit Loss Expense (Reversal) | $ 345,000 | $ 389,000 | $ 1,031,000 | $ 946,000 | |||
| Accounts Receivable, Credit Loss Expense (Reversal), Number of Tenants, COVID-19 | 20 | 17 | 20 | 17 | |||
| Straight Line Rent Adjustments, COVID-19 | $ 100,000 | $ 30,000.00 | $ 200,000 | $ 100,000 | |||
| Accounts Receivable, Credit Loss Expense (Reversal), COVID-19 | $ 200,000 | $ 200,000 | $ 500,000 | $ 500,000 | |||
| Anthem Marketplace Note [Member] | |||||||
| Debt Instrument, Face Amount | $ 15,100,000 | ||||||
| Debt Instrument, Interest Rate, Stated Percentage | 4.99% | ||||||
Note 3 - Leases (Details Textual) |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
|
Sep. 30, 2024
USD ($)
|
Sep. 30, 2023
USD ($)
|
Sep. 30, 2024
USD ($)
|
Sep. 30, 2023
USD ($)
|
|
| Operating Lease, Cost | $ 6,000 | $ 23,000 | $ 35,000 | $ 64,000 |
| Finance Lease, Right-of-Use Asset, Amortization | $ 27,000 | $ 21,000 | $ 65,000 | $ 72,000 |
| Operating Lease, Weighted Average Remaining Lease Term (Year) | 2 years | 2 years | ||
| Finance Lease, Weighted Average Remaining Lease Term (Year) | 94 years | 94 years | ||
| Operating Lease, Weighted Average Discount Rate, Percent | 4.50% | 4.50% | ||
| Finance Lease, Weighted Average Discount Rate, Percent | 6.10% | 6.10% | ||
| Ground Lease [Member] | ||||
| Number of Ground Leases | 1 | 1 | ||
| Office Machine Lease [Member] | ||||
| Number of Office Machine Leases | 1 | 1 | ||
| Minimum [Member] | Office Space, Automobile, and Office Machine [Member] | ||||
| Lessee, Operating Lease, Remaining Lease Term (Year) | 1 year | 1 year | ||
| Maximum [Member] | Office Space, Automobile, and Office Machine [Member] | ||||
| Lessee, Operating Lease, Remaining Lease Term (Year) | 5 years | 5 years | ||
Note 3 - Leases - Summary of Minimum Future Rents to be Received (Details) $ in Thousands |
Sep. 30, 2024
USD ($)
|
|---|---|
| 2024 (remaining) | $ 25,841 |
| 2025 | 97,335 |
| 2026 | 82,891 |
| 2027 | 69,491 |
| 2028 | 55,006 |
| Thereafter | 155,061 |
| Total | $ 485,625 |
Note 3 - Leases - Summary of Future Minimum Rental Payments (Details) - USD ($) $ in Thousands |
Sep. 30, 2024 |
Dec. 31, 2023 |
|---|---|---|
| 2024 (remaining), operating leases | $ 9 | |
| 2024 (remaining), finance lease | 21 | |
| 2025, operating leases | 30 | |
| 2025, finance lease | 82 | |
| 2026, operating leases | 24 | |
| 2026, finance lease | 83 | |
| 2027, operating leases | 7 | |
| 2027, finance lease | 85 | |
| 2028, operating leases | 1 | |
| 2028, finance lease | 86 | |
| Thereafter, operating leases | 0 | |
| Thereafter, finance lease | 2,723 | |
| Total undiscounted rental payments, operating leases | 71 | |
| Total undiscounted rental payments, finance lease | 3,080 | |
| Less imputed interest, operating leases | 4 | |
| Less imputed interest, finance lease | 2,291 | |
| Total lease liabilities, operating leases | 67 | $ 112 |
| Total lease liabilities, finance lease | $ 789 | $ 721 |
Note 4 - Accrued Rents and Accounts Receivable, Net - Schedule of Accrued Rents and Accounts Receivable, Net (Details) - USD ($) $ in Thousands |
Sep. 30, 2024 |
Dec. 31, 2023 |
|---|---|---|
| Tenant receivables | $ 17,064 | $ 16,287 |
| Accrued rents and other recoveries | 28,312 | 26,751 |
| Allowance for doubtful accounts | (14,451) | (13,570) |
| Total | 32,541 | 30,592 |
| Trade Accounts Receivable [Member] | ||
| Other receivables | $ 1,616 | $ 1,124 |
Note 5 - Unamortized Lease Commissions, Legal Fees and Loan Costs - Deferred Costs (Details) - USD ($) $ in Thousands |
Sep. 30, 2024 |
Dec. 31, 2023 |
|---|---|---|
| Leasing commissions | $ 20,737 | $ 19,462 |
| Deferred legal cost | 293 | 356 |
| Deferred financing cost | 4,149 | 4,149 |
| Total cost | 25,179 | 23,967 |
| Less: leasing commissions accumulated amortization | (8,930) | (8,744) |
| Less: deferred legal cost accumulated amortization | (258) | (272) |
| Less: deferred financing cost accumulated amortization | (1,843) | (1,168) |
| Total cost, net of accumulated amortization | $ 14,148 | $ 13,783 |
Note 6 - Investment in Real Estate Partnership (Details Textual) |
3 Months Ended | 8 Months Ended | 9 Months Ended | 24 Months Ended | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Apr. 24, 2024
USD ($)
|
Jan. 25, 2024
USD ($)
|
Dec. 01, 2023
USD ($)
|
Sep. 30, 2024
USD ($)
|
Mar. 31, 2024
USD ($)
|
Sep. 30, 2023
USD ($)
|
Aug. 18, 2022
USD ($)
|
Sep. 30, 2024
USD ($)
|
Sep. 30, 2023
USD ($)
|
Dec. 08, 2018
USD ($)
|
Dec. 31, 2023
USD ($)
ft²
|
Oct. 24, 2023
USD ($)
|
Dec. 08, 2016 |
|||||||
| Equity Method Investment, Difference Between Carrying Amount And Underlying Equity, Amortization | $ 0 | $ 27,000 | $ 7,000 | $ 81,000 | |||||||||||||||
| Equity Method Investments | [1],[2],[3] | 0 | 0 | $ 31,671,000 | |||||||||||||||
| Bankruptcy of Whitestone Uptown Tower LLC [Member] | Settled Litigation [Member] | |||||||||||||||||||
| Litigation Settlement, Amount Awarded to Other Party | $ 13,632,764 | ||||||||||||||||||
| Litigation Settlement Interest | $ 1,688,000 | ||||||||||||||||||
| Bankruptcy of Whitestone Uptown Tower LLC [Member] | Settled Litigation [Member] | Pillarstone OP [Member] | |||||||||||||||||||
| Litigation Settlement, Amount Awarded to Other Party | $ 1,123,950.24 | ||||||||||||||||||
| Bankruptcy of Whitestone Uptown Tower LLC [Member] | Settled Litigation [Member] | Pillarstone OP [Member] | Maximum [Member] | |||||||||||||||||||
| Legal Fees | $ 20,000 | ||||||||||||||||||
| Irrevocable Redemption of Investment in Pillarstone OP [Member] | Pending Litigation [Member] | |||||||||||||||||||
| Litigation Settlement Interest | $ 13,000,000 | ||||||||||||||||||
| Equity Method Investments | 31,600,000 | ||||||||||||||||||
| Gain Contingency, Unrecorded Amount | $ 70,000,000 | ||||||||||||||||||
| Performance Guarantee [Member] | |||||||||||||||||||
| Guarantees, Fair Value Disclosure | $ 462,000 | ||||||||||||||||||
| Guarantee Liability, Amortization Period (Year) | 7 years | ||||||||||||||||||
| Amortization of Guarantee Liability | $ 0 | 0 | $ 0 | 18,000 | |||||||||||||||
| Uptown Tower [Member] | |||||||||||||||||||
| Property Management Fee Revenue | $ 144,000 | ||||||||||||||||||
| Uptown Tower [Member] | Performance Guarantee [Member] | Guarantee Obligations [Member] | |||||||||||||||||||
| Guarantee Obligation, Additional Amount Due | $ 4,600,000 | ||||||||||||||||||
| Interest Payable | 6,300,000 | ||||||||||||||||||
| Escrow Deposit | $ 1,700,000 | ||||||||||||||||||
| Uptown Tower [Member] | Performance Guarantee [Member] | Pillarstone OP Uptown Loan [Member] | |||||||||||||||||||
| Debt Instrument, Face Amount | $ 14,400,000 | $ 14,400,000 | |||||||||||||||||
| Pillarstone Capital REIT and Pillarstone Capital REIT Operating Partnership, L.P. vs Company and Certain Subsidiaries and Certain Executives [Member] | Unconsolidated Properties [Member] | |||||||||||||||||||
| Number of Real Estate Properties | 8 | ||||||||||||||||||
| Area of Real Estate Property (Square Foot) | ft² | 926,798 | ||||||||||||||||||
| Variable Interest Entity, Primary Beneficiary [Member] | |||||||||||||||||||
| Number of Non-core Properties Contributed to Variable Interest Entity | 14 | ||||||||||||||||||
| Variable Interest Entity, Consideration, Amount | $ 84,000,000 | ||||||||||||||||||
| Variable Interest Entity, Consideration, Limited Partnership Interest | 18,100,000 | ||||||||||||||||||
| Variable Interest Entity, Consideration, Liabilities Assumed | $ 65,900,000 | ||||||||||||||||||
| |||||||||||||||||||
Note 6 - Investment in Real Estate Partnership - Real Estate Partnership Investment (Details) - USD ($) $ in Thousands |
Sep. 30, 2024 |
Dec. 31, 2023 |
||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Equity Method Investments | [1],[2],[3] | $ 0 | $ 31,671 | |||||||
| Pillarstone OP [Member] | ||||||||||
| Ownership interest | 81.40% | |||||||||
| Equity Method Investments | [4] | $ 0 | $ 31,671 | |||||||
| ||||||||||
Note 6 - Investment in Real Estate Partnership - Net Income from Investment (Details) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2024 |
Sep. 30, 2023 |
Sep. 30, 2024 |
Sep. 30, 2023 |
Dec. 31, 2023 |
|||||||||||||
| Real estate, net | $ 999,567 | $ 999,567 | $ 991,699 | ||||||||||||||
| Total assets(1) | 1,112,561 | 1,112,561 | 1,113,239 | ||||||||||||||
| Notes payable | 633,552 | 633,552 | 640,172 | ||||||||||||||
| Equity | 419,520 | 419,520 | 413,742 | ||||||||||||||
| Total liabilities and equity(2) | 1,112,561 | 1,112,561 | 1,113,239 | ||||||||||||||
| Carrying value of investment in real estate partnership(3) | [1],[2],[3] | 0 | 0 | 31,671 | |||||||||||||
| Revenues | 38,633 | $ 37,134 | 113,444 | $ 109,445 | |||||||||||||
| Operating expenses | 25,940 | 25,279 | 77,507 | 74,204 | |||||||||||||
| Other expenses | (4,852) | (8,864) | (15,769) | (15,388) | |||||||||||||
| Net loss | 7,624 | 2,486 | 19,556 | 17,639 | |||||||||||||
| Pillarstone OP [Member] | |||||||||||||||||
| Pillarstone OP | 0 | (375) | (28) | (1,627) | |||||||||||||
| Company’s share of equity | 0 | 0 | 28,885 | ||||||||||||||
| Cost of investment in excess of the Company’s share of underlying net book value | 0 | 0 | 2,786 | ||||||||||||||
| Carrying value of investment in real estate partnership(3) | [4] | 0 | 0 | 31,671 | |||||||||||||
| Pillarstone OP [Member] | |||||||||||||||||
| Real estate, net | 0 | 0 | 47,115 | ||||||||||||||
| Other assets | 0 | 0 | 6,680 | ||||||||||||||
| Total assets(1) | [5] | 0 | 0 | 53,795 | |||||||||||||
| Notes payable | 0 | 0 | 14,292 | ||||||||||||||
| Other liabilities | 0 | 0 | 4,040 | ||||||||||||||
| Equity | 0 | 0 | 35,463 | ||||||||||||||
| Total liabilities and equity(2) | [6] | 0 | 0 | $ 53,795 | |||||||||||||
| Revenues | 0 | 2,152 | 591 | 6,307 | |||||||||||||
| Operating expenses | 0 | (2,372) | (559) | (7,584) | |||||||||||||
| Other expenses | 0 | (207) | (56) | (621) | |||||||||||||
| Net loss | $ 0 | $ (427) | $ (24) | $ (1,898) | |||||||||||||
| |||||||||||||||||
Note 7 - Debt (Details Textual) |
9 Months Ended | 12 Months Ended | 15 Months Ended | 48 Months Ended | ||||||
|---|---|---|---|---|---|---|---|---|---|---|
|
Oct. 07, 2024
USD ($)
|
Oct. 28, 2022 |
Sep. 16, 2022
USD ($)
|
Mar. 22, 2019
USD ($)
|
Sep. 30, 2024
USD ($)
|
Dec. 31, 2023
USD ($)
|
Jan. 31, 2024 |
Jan. 31, 2028 |
Jun. 21, 2024
USD ($)
|
Mar. 31, 2024 |
|
| Secured Debt | $ 153,720,000 | |||||||||
| Asset Pledged as Collateral [Member] | Secured Debt [Member] | ||||||||||
| Number of Real Estate Properties | 5 | |||||||||
| Real Estate Investments, Net | $ 242,700,000 | |||||||||
| The 265 Million Note Due January 31, 2028 [Member] | ||||||||||
| Debt Instrument, Interest Rate, Stated Percentage | 2.16% | 3.18% | 3.18% | 2.76% | ||||||
| Debt Instrument, Face Amount | $ 265,000,000 | $ 265,000,000 | ||||||||
| The 265 Million Note Due January 31, 2028 [Member] | Maximum [Member] | ||||||||||
| Debt Instrument, Basis Spread on Variable Rate | 2.10% | 2.10% | ||||||||
| The 265 Million Note Due January 31, 2028 [Member] | Minimum [Member] | ||||||||||
| Debt Instrument, Basis Spread on Variable Rate | 1.45% | 1.45% | ||||||||
| The 265 Million Note Due January 31, 2028 [Member] | Forecast [Member] | ||||||||||
| Debt Instrument, Interest Rate, Stated Percentage | 3.32% | |||||||||
| The $50 Million Debt Facility Maturing September 16, 2026 [Member] | ||||||||||
| Debt Instrument, Interest Rate, Stated Percentage | 3.71% | |||||||||
| Loan Agreement [Member] | ||||||||||
| Debt Instrument, Interest Rate, Stated Percentage | 6.23% | |||||||||
| Debt Instrument, Face Amount | $ 56,340,000 | |||||||||
| Number of Real Estate Properties | 3 | |||||||||
| The Series A and Series B Notes [Member] | ||||||||||
| Debt Instrument, Face Amount | $ 100,000,000 | |||||||||
| Debt Instrument, Minimum Partial Prepayment | $ 1,000,000 | |||||||||
| Debt Instrument, Redemption Price, Percentage | 100.00% | |||||||||
| Debt Instrument, Covenant, Maximum Total Indebtedness to Total Asset Value Ratio | 0.6 | |||||||||
| Debt Instrument, Covenant, Maximum Secured Debt to Total Asset Value Ratio | 0.4 | |||||||||
| Debt Instrument, Covenant, Minimum EBITDA to Fixed Charges Ratio | 1.5 | |||||||||
| Debt Instrument, Covenant, Maximum Secured Recourse Debt to Total Asset Value | 0.15 | |||||||||
| Debt Instrument, Covenant, Tangible Net Worth Threshold Before Percentage of Aggregate Net Proceeds, Percent | 75.00% | |||||||||
| Debt Instrument, Covenant, Tangible Net Worth, Percentage of Aggregate Net Proceeds, Minimum | 75.00% | |||||||||
| Debt Instrument, Covenant, Minimum Adjusted Property NOI To Implied Unencumbered Debt Service Ratio | 1.5 | |||||||||
| Debt Instrument, Covenant, Maximum Unsecured Debt to Unencumbered Assets | 0.6 | |||||||||
| The Series A Notes [Member] | ||||||||||
| Debt Instrument, Interest Rate, Stated Percentage | 5.09% | |||||||||
| Debt Instrument, Face Amount | $ 50,000,000 | |||||||||
| Debt Instrument, Annual Principal Payment | $ 7,100,000 | |||||||||
| The Series B Notes [Member] | ||||||||||
| Debt Instrument, Interest Rate, Stated Percentage | 5.17% | |||||||||
| Debt Instrument, Face Amount | $ 50,000,000 | |||||||||
| Debt Instrument, Annual Principal Payment | $ 10,000,000 | |||||||||
| Series One Incremental Term Loan [Member] | Subsequent Event [Member] | ||||||||||
| Debt Instrument, Interest Rate, Stated Percentage | 3.665% | |||||||||
| Debt Instrument, Face Amount | $ 20,000,000 | |||||||||
| Debt Instrument, Basis Spread on Variable Rate | 1.50% | |||||||||
| Series One Incremental Term Loan [Member] | Subsequent Event [Member] | Maximum [Member] | ||||||||||
| Debt Instrument, Interest Rate, Stated Percentage | 5.165% | |||||||||
| Series One Incremental Term Loan [Member] | Subsequent Event [Member] | Bank Credit Spreads [Member] | Maximum [Member] | ||||||||||
| Debt Instrument, Basis Spread on Variable Rate | 5.165% | |||||||||
| The 2022 Facility [Member] | ||||||||||
| Debt Instrument, Covenant, Maximum Total Indebtedness to Total Asset Value Ratio | 0.6 | |||||||||
| Debt Instrument, Covenant, Maximum Secured Debt to Total Asset Value Ratio | 0.4 | |||||||||
| Debt Instrument, Covenant, Minimum EBITDA to Fixed Charges Ratio | 1.5 | |||||||||
| Debt Instrument, Covenant, Tangible Net Worth, Percentage of Aggregate Net Proceeds, Minimum | 75.00% | |||||||||
| Debt Instrument, Covenant, Minimum Adjusted Property NOI To Implied Unencumbered Debt Service Ratio | 1.5 | |||||||||
| Debt Instrument, Covenant, Maximum Unsecured Debt to Unencumbered Assets | 0.6 | |||||||||
| Debt Instrument, Basis Spread on Variable Rate | 1.50% | 1.50% | ||||||||
| Debt Instrument, Applicable Margin Adjustment per Annum | 0.02% | |||||||||
| Debt Instrument, Covenant, Maximum Other Recourse Debt to Total Asset Value Ratio | 0.15 | |||||||||
| Debt Instrument, Covenant, Tangible Net Worth Threshold Before Percentage of Aggregate Net Proceeds, Amount | $ 449,000,000 | |||||||||
| The 2022 Facility [Member] | Term Loans [Member] | ||||||||||
| Debt Instrument, Interest Rate, Stated Percentage | 2.16% | 6.80% | 2.80% | |||||||
| Debt Instrument, Face Amount | 265,000,000 | |||||||||
| The 2022 Facility [Member] | Revolving Credit Facility [Member] | ||||||||||
| Line of Credit Facility, Maximum Borrowing Capacity | 250,000,000 | |||||||||
| Line of Credit Facility, Accordion Feature, Increase Limit | $ 200,000,000 | |||||||||
| Line of Credit Facility, Remaining Borrowing Capacity | $ 121,000,000 | |||||||||
| Long-Term Line of Credit | 394,000,000 | |||||||||
| Debt Instrument, Unused Borrowing Capacity, Amount | $ 121,000,000 | |||||||||
| The 2022 Facility [Member] | Fed Funds Effective Rate Overnight Index Swap Rate [Member] | ||||||||||
| Debt Instrument, Basis Spread on Variable Rate | 0.50% | |||||||||
| The 2022 Facility [Member] | Adjusted Term SOFR for One Month Tenor in Effect [Member] | ||||||||||
| Debt Instrument, Basis Spread on Variable Rate | 1.10% | |||||||||
| The 2022 Facility [Member] | Adjusted Term SOFR for 2 Business Days Prior [Member] | ||||||||||
| Debt Instrument, Basis Spread on Variable Rate | 1.45% | |||||||||
| The 2022 Facility [Member] | Secured Overnight Financing Rate (SOFR) Overnight Index Swap Rate [Member] | Term Loans [Member] | ||||||||||
| Debt Instrument, Basis Spread on Variable Rate | 1.40% | |||||||||
| The 2022 Facility [Member] | Secured Overnight Financing Rate (SOFR) Overnight Index Swap Rate [Member] | Maximum [Member] | Term Loans [Member] | ||||||||||
| Debt Instrument, Basis Spread on Variable Rate | 2.00% | 2.00% | ||||||||
| The 2022 Facility [Member] | Secured Overnight Financing Rate (SOFR) Overnight Index Swap Rate [Member] | Minimum [Member] | Term Loans [Member] | ||||||||||
| Debt Instrument, Basis Spread on Variable Rate | 1.35% | 1.35% | ||||||||
| The 2022 Facility [Member] | Forecast [Member] | Term Loans [Member] | ||||||||||
| Debt Instrument, Interest Rate, Stated Percentage | 3.42% | |||||||||
| The 2022 Facility [Member] | Forecast [Member] | Secured Overnight Financing Rate (SOFR) Overnight Index Swap Rate [Member] | Maximum [Member] | Term Loans [Member] | ||||||||||
| Debt Instrument, Basis Spread on Variable Rate | 2.00% | |||||||||
| The 2022 Facility [Member] | Forecast [Member] | Secured Overnight Financing Rate (SOFR) Overnight Index Swap Rate [Member] | Minimum [Member] | Term Loans [Member] | ||||||||||
| Debt Instrument, Basis Spread on Variable Rate | 1.35% |
Note 7 - Debt - Schedule of Debt (Details) - USD ($) $ in Thousands |
Sep. 30, 2024 |
Dec. 31, 2023 |
||||
|---|---|---|---|---|---|---|
| Notes payable principal | $ 634,570 | $ 640,549 | ||||
| Less deferred financing costs, net of accumulated amortization | (1,018) | (377) | ||||
| Notes Payable [Member] | ||||||
| Total notes payable | 633,552 | 640,172 | ||||
| The 265 Million Note Due January 31, 2028 [Member] | ||||||
| Notes payable principal | [1] | 265,000 | 265,000 | |||
| The 80 Million Note Due June 1, 2027 [Member] | ||||||
| Notes payable principal | 80,000 | 80,000 | ||||
| The 19 Million Note Due December 1, 2024 [Member] | ||||||
| Notes payable principal | 17,383 | 17,658 | ||||
| The 14 Million Note Due September 11, 2024 [Member] | ||||||
| Notes payable principal | 0 | 12,427 | ||||
| The 14.3 Million Note Due September 11, 2024 [Member] | ||||||
| Notes payable principal | 0 | 13,257 | ||||
| The 15.1 Million Note Due January 6, 2024 [Member] | ||||||
| Notes payable principal | 0 | 13,350 | ||||
| The 50.0 Million Series A Note Due March 22, 2029 [Member] | ||||||
| Notes payable principal | 35,714 | 42,857 | ||||
| The 50.0 Million Series B Note Due March 22, 2029 [Member] | ||||||
| Notes payable principal | 50,000 | 50,000 | ||||
| The 2.5 Million Note Due February 28, 2025 [Member] | ||||||
| Notes payable principal | 1,133 | 0 | ||||
| The $50 Million Note Due September 16, 2026 [Member] | ||||||
| Notes payable principal | [2] | 50,000 | 50,000 | |||
| The $56.3 Million Note Due July 31, 2031 [Member] | ||||||
| Notes payable principal | 56,340 | 0 | ||||
| The 2022 Facility [Member] | ||||||
| Notes payable principal | $ 79,000 | $ 96,000 | ||||
| ||||||
Note 7 - Debt - Schedule of Debt (Details) (Parentheticals) - USD ($) $ in Millions |
9 Months Ended | 12 Months Ended | |||
|---|---|---|---|---|---|
Oct. 07, 2024 |
Sep. 30, 2024 |
Dec. 31, 2023 |
Jan. 31, 2024 |
Oct. 28, 2022 |
|
| Debt Instrument, Variable Interest Rate, Type [Extensible Enumeration] | Bank Credit Spreads [Member] | Secured Overnight Financing Rate (SOFR) [Member] | Secured Overnight Financing Rate (SOFR) [Member] | ||
| The 265 Million Note Due January 31, 2028 [Member] | |||||
| Face amount | $ 265.0 | $ 265.0 | |||
| Interest rate, stated | 3.18% | 3.18% | 2.76% | 2.16% | |
| Maturity date | Jan. 31, 2028 | Jan. 31, 2028 | |||
| The 265 Million Note Due January 31, 2028 [Member] | Minimum [Member] | |||||
| Interest rate, variable | 1.45% | 1.45% | |||
| The 265 Million Note Due January 31, 2028 [Member] | Maximum [Member] | |||||
| Interest rate, variable | 2.10% | 2.10% | |||
| The 80 Million Note Due June 1, 2027 [Member] | |||||
| Face amount | $ 80.0 | $ 80.0 | |||
| Interest rate, stated | 3.72% | 3.72% | |||
| Maturity date | Jun. 01, 2027 | Jun. 01, 2027 | |||
| The 19 Million Note Due December 1, 2024 [Member] | |||||
| Face amount | $ 19.0 | $ 19.0 | |||
| Interest rate, stated | 4.15% | 4.15% | |||
| Maturity date | Dec. 01, 2024 | Dec. 01, 2024 | |||
| The 14 Million Note Due September 11, 2024 [Member] | |||||
| Face amount | $ 14.0 | $ 14.0 | |||
| Interest rate, stated | 4.34% | 4.34% | |||
| Maturity date | Sep. 11, 2024 | Sep. 11, 2024 | |||
| The 14.3 Million Note Due September 11, 2024 [Member] | |||||
| Face amount | $ 14.3 | $ 14.3 | |||
| Interest rate, stated | 4.34% | 4.34% | |||
| Maturity date | Sep. 11, 2024 | Sep. 11, 2024 | |||
| The 15.1 Million Note Due January 6, 2024 [Member] | |||||
| Face amount | $ 15.1 | $ 15.1 | |||
| Interest rate, stated | 4.99% | 4.99% | |||
| Maturity date | Jan. 06, 2024 | Jan. 06, 2024 | |||
| The 50.0 Million Series A Note Due March 22, 2029 [Member] | |||||
| Face amount | $ 50.0 | $ 50.0 | |||
| Interest rate, stated | 5.09% | 5.09% | |||
| Maturity date | Mar. 22, 2029 | Mar. 22, 2029 | |||
| The 50.0 Million Series B Note Due March 22, 2029 [Member] | |||||
| Face amount | $ 50.0 | $ 50.0 | |||
| Interest rate, stated | 5.17% | 5.17% | |||
| Maturity date | Mar. 22, 2029 | Mar. 22, 2029 | |||
| The 2.5 Million Note Due February 28, 2025 [Member] | |||||
| Face amount | $ 2.5 | ||||
| Interest rate, stated | 7.79% | ||||
| Maturity date | Feb. 28, 2025 | ||||
| The $50 Million Note Due September 16, 2026 [Member] | |||||
| Face amount | $ 50.0 | $ 50.0 | |||
| Interest rate, stated | 3.71% | 3.71% | |||
| Maturity date | Sep. 16, 2026 | Sep. 16, 2026 | |||
| The $50 Million Note Due September 16, 2026 [Member] | Minimum [Member] | |||||
| Interest rate, variable | 1.50% | 1.50% | |||
| The $50 Million Note Due September 16, 2026 [Member] | Maximum [Member] | |||||
| Interest rate, variable | 2.10% | 2.10% | |||
| The $56.3 Million Note Due July 31, 2031 [Member] | |||||
| Face amount | $ 56.3 | ||||
| Interest rate, stated | 6.23% | ||||
| Maturity date | Jul. 31, 2031 | ||||
| The 2022 Facility [Member] | |||||
| Interest rate, variable | 1.50% | 1.50% | |||
| Maturity date | Sep. 16, 2026 | Sep. 16, 2026 | |||
| Basis Point Credit Spread Adjustment | 2.10% | 2.10% |
Note 7 - Debt - Scheduled Maturities of Outstanding Debt (Details) - USD ($) $ in Thousands |
Sep. 30, 2024 |
Dec. 31, 2023 |
|---|---|---|
| 2024 (remaining) | $ 18,062 | |
| 2025 | 17,596 | |
| 2026 | 146,143 | |
| 2027 | 97,414 | |
| 2028 | 282,823 | |
| Thereafter | 72,532 | |
| Total | $ 634,570 | $ 640,549 |
Note 8 - Derivatives and Hedging Activities (Details Textual) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | |||||||
|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2024 |
Jun. 30, 2023 |
Jun. 30, 2024 |
Jun. 30, 2023 |
Jan. 31, 2028 |
Mar. 31, 2023 |
Sep. 16, 2022 |
Sep. 07, 2022 |
Jan. 31, 2019 |
|
| Investment, Variable Interest Rate, Type [Extensible Enumeration] | Secured Overnight Financing Rate (SOFR) [Member] | ||||||||
| Interest Rate Swap [Member] | |||||||||
| Derivative, Notional Amount | $ 50,000 | ||||||||
| Derivative, Variable Interest Rate | 3.71% | ||||||||
| Derivative Instruments, Gain (Loss) Recognized in Income, Ineffective Portion and Amount Excluded from Effectiveness Testing, Net, Total | $ 0 | $ 0 | $ 0 | $ 0 | |||||
| Interest Rate Swap [Member] | U.S. Bank, Capital One [Member] | |||||||||
| Derivative, Notional Amount | $ 10,000 | ||||||||
| Interest Rate Swap [Member] | Capital One, National Association [Member] | |||||||||
| Derivative, Notional Amount | 10,000 | ||||||||
| Interest Rate Swap [Member] | SunTrust Bank [Member] | |||||||||
| Derivative, Notional Amount | 12,500 | ||||||||
| Interest Rate Swap [Member] | Associated Bank [Member] | |||||||||
| Derivative, Notional Amount | $ 2,500 | ||||||||
| Interest Rate Swap Three [Member] | Designated as Hedging Instrument [Member] | Cash Flow Hedging [Member] | |||||||||
| Derivative, Notional Amount | $ 100,000 | ||||||||
| Derivative, Fixed Interest Rate | 3.32% | ||||||||
| Interest Rate Swap Three [Member] | Designated as Hedging Instrument [Member] | Cash Flow Hedging [Member] | Forecast [Member] | |||||||||
| Derivative, Notional Amount | $ 265,000 | ||||||||
| Interest Rate Swap Three [Member] | Capital One, National Association [Member] | Designated as Hedging Instrument [Member] | Cash Flow Hedging [Member] | |||||||||
| Derivative, Notional Amount | $ 20,700 | ||||||||
| Interest Rate Swap Three [Member] | Capital One, National Association [Member] | Designated as Hedging Instrument [Member] | Cash Flow Hedging [Member] | Forecast [Member] | |||||||||
| Derivative, Notional Amount | 54,800 | ||||||||
| Interest Rate Swap Three [Member] | Associated Bank [Member] | Designated as Hedging Instrument [Member] | Cash Flow Hedging [Member] | |||||||||
| Derivative, Notional Amount | 5,900 | ||||||||
| Interest Rate Swap Three [Member] | Associated Bank [Member] | Designated as Hedging Instrument [Member] | Cash Flow Hedging [Member] | Forecast [Member] | |||||||||
| Derivative, Notional Amount | 15,700 | ||||||||
| Interest Rate Swap Three [Member] | U.S. Bank, National Association [Member] | Designated as Hedging Instrument [Member] | Cash Flow Hedging [Member] | |||||||||
| Derivative, Notional Amount | 20,700 | ||||||||
| Interest Rate Swap Three [Member] | U.S. Bank, National Association [Member] | Designated as Hedging Instrument [Member] | Cash Flow Hedging [Member] | Forecast [Member] | |||||||||
| Derivative, Notional Amount | 54,800 | ||||||||
| Interest Rate Swap Three [Member] | Truist Bank [Member] | Designated as Hedging Instrument [Member] | Cash Flow Hedging [Member] | |||||||||
| Derivative, Notional Amount | $ 25,400 | ||||||||
| Interest Rate Swap Three [Member] | Truist Bank [Member] | Designated as Hedging Instrument [Member] | Cash Flow Hedging [Member] | Forecast [Member] | |||||||||
| Derivative, Notional Amount | $ 67,200 | ||||||||
| Interest Rate Swap Two [Member] | Designated as Hedging Instrument [Member] | Cash Flow Hedging [Member] | |||||||||
| Derivative, Notional Amount | $ 165,000 | ||||||||
| Derivative, Fixed Interest Rate | 2.43% | ||||||||
| Interest Rate Swap Two [Member] | SunTrust Bank [Member] | Designated as Hedging Instrument [Member] | Cash Flow Hedging [Member] | |||||||||
| Derivative, Notional Amount | $ 40,000 | ||||||||
| Interest Rate Swap Two [Member] | Associated Bank [Member] | Designated as Hedging Instrument [Member] | Cash Flow Hedging [Member] | |||||||||
| Derivative, Notional Amount | 15,000 | ||||||||
| Interest Rate Swap Two [Member] | U.S. Bank, National Association [Member] | Designated as Hedging Instrument [Member] | Cash Flow Hedging [Member] | |||||||||
| Derivative, Notional Amount | 32,600 | ||||||||
| Interest Rate Swap Two [Member] | Regions Bank [Member] | Designated as Hedging Instrument [Member] | Cash Flow Hedging [Member] | |||||||||
| Derivative, Notional Amount | $ 29,400 | ||||||||
| Interest Rate Swap Two [Member] | Bank of Montreal [Member] | Designated as Hedging Instrument [Member] | Cash Flow Hedging [Member] | |||||||||
| Derivative, Notional Amount | $ 29,400 | ||||||||
Note 8 - Derivatives and Hedging Activities - Fair Value of Interest Rate Swaps (Details) - Interest Rate Swap [Member] - USD ($) $ in Thousands |
Sep. 30, 2024 |
Dec. 31, 2023 |
|---|---|---|
| Accounts Payable and Accrued Liabilities [Member] | ||
| Interest rate swaps, liabilities | $ (682) | |
| Prepaid Expenses and Other Current Assets [Member] | ||
| Interest rate swaps, assets | $ 2,613 |
Note 8 - Derivatives and Hedging Activities - Summary of Interest Rate Swap Activity (Details) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2024 |
Jun. 30, 2024 |
Mar. 31, 2024 |
Sep. 30, 2023 |
Jun. 30, 2023 |
Mar. 31, 2023 |
Sep. 30, 2024 |
Sep. 30, 2023 |
|||
| Income Statement [Abstract] | ||||||||||
| Income (Loss) from Continuing Operations, Net of Tax, Including Portion Attributable to Noncontrolling Interest | $ 7,723 | $ 2,521 | $ 19,813 | $ 17,887 | ||||||
| Interest Expense, Nonoperating | 8,506 | 8,400 | 25,813 | 24,563 | ||||||
| Amount Recognized as Comprehensive income | $ (8,946) | $ 643 | $ 5,007 | $ 4,094 | $ 7,095 | $ (4,587) | $ (3,296) | $ 6,602 | ||
| Derivative, Gain (Loss), Statement of Income or Comprehensive Income [Extensible Enumeration] | Interest Expense, Nonoperating | Interest Expense, Nonoperating | Interest Expense, Nonoperating | Interest Expense, Nonoperating | ||||||
| Interest Rate Swap [Member] | ||||||||||
| Amount Recognized as Comprehensive income | $ (8,946) | $ 4,094 | $ (3,296) | $ 6,602 | ||||||
| Amount of Income (Loss) Recognized in Earnings | [1] | $ 1,556 | $ 1,929 | $ 4,804 | $ 4,833 | |||||
| ||||||||||
Note 9 - Earnings Per Share (Details Textual) - shares |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2024 |
Sep. 30, 2023 |
Sep. 30, 2024 |
Sep. 30, 2023 |
|
| OP Units [Member] | ||||
| Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount (in shares) | 649,200 | 693,595 | 653,990 | 694,054 |
Note 9 - Earnings Per Share - Computation of Basic and Diluted Earnings Per Share (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2024 |
Sep. 30, 2023 |
Sep. 30, 2024 |
Sep. 30, 2023 |
|
| Net income | $ 7,723 | $ 2,521 | $ 19,813 | $ 17,887 |
| Less: Net income attributable to noncontrolling interests | (99) | (35) | (257) | (248) |
| Net income attributable to common shareholders excluding amounts attributable to unvested restricted shares | $ 7,624 | $ 2,486 | $ 19,556 | $ 17,639 |
| Basic (in shares) | 50,297 | 49,534 | 50,067 | 49,472 |
| Unvested restricted shares (in shares) | 1,008 | 1,103 | 1,039 | 927 |
| Weighted average number of common shares - dilutive (in shares) | 51,305 | 50,637 | 51,106 | 50,399 |
| Net income attributable to common shareholders excluding amounts attributable to unvested restricted shares (in dollars per share) | $ 0.15 | $ 0.05 | $ 0.39 | $ 0.36 |
| Net income attributable to common shareholders, excluding amounts attributable to unvested restricted shares (in dollars per share) | $ 0.15 | $ 0.05 | $ 0.38 | $ 0.35 |
Note 10 - Income Taxes (Details Textual) - USD ($) |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2024 |
Sep. 30, 2023 |
Sep. 30, 2024 |
Sep. 30, 2023 |
|
| Applicable Tax Rate Used to Determine State Margin Tax | 0.75% | 0.75% | ||
| Margin Tax Provision Recognized | $ 117,000 | $ 95,000 | $ 348,000 | $ 339,000 |
Note 11 - Equity (Details Textual) - USD ($) |
3 Months Ended | 9 Months Ended | ||||||
|---|---|---|---|---|---|---|---|---|
Sep. 30, 2024 |
Sep. 30, 2023 |
Sep. 30, 2024 |
Sep. 30, 2023 |
Mar. 31, 2024 |
Dec. 31, 2023 |
May 20, 2022 |
May 31, 2019 |
|
| Common Stock, Shares Authorized (in shares) | 400,000,000 | 400,000,000 | 400,000,000 | |||||
| Common Stock, Par or Stated Value Per Share (in dollars per share) | $ 0.001 | $ 0.001 | $ 0.001 | |||||
| Preferred Stock, Shares Authorized (in shares) | 50,000,000 | 50,000,000 | 50,000,000 | |||||
| Preferred Stock, Par or Stated Value Per Share (in dollars per share) | $ 0.001 | $ 0.001 | $ 0.001 | |||||
| Issuance and Sale of Securities, Maximum | $ 500,000,000 | |||||||
| Proceeds from Issuance of Common Stock | $ 7,620,000 | $ 0 | ||||||
| Payments of Stock Issuance Costs | $ 81,000 | $ (0) | ||||||
| Conversion Ratio for Class Common Stock to OP Unit (in dollars per share) | $ 1 | $ 1 | $ 1 | |||||
| Conversion of OP Units to Common Stock [Member] | ||||||||
| Conversion of Stock, Shares Converted (in shares) | 0 | 548 | 43,747 | 1,423 | ||||
| OP Units [Member] | ||||||||
| Units of Partnership Interest, Amount (in shares) | 51,174,240 | 51,174,240 | 50,182,938 | |||||
| General Partners' Capital Account, Units Outstanding (in shares) | 50,525,040 | 50,525,040 | 49,489,991 | |||||
| Operating Partnership [Member] | ||||||||
| Limited Liability Company (LLC) or Limited Partnership (LP), Managing Member or General Partner, Ownership Interest | 98.70% | |||||||
| Weighted-Average Share Ownership | 98.70% | 98.60% | 98.70% | 98.60% | ||||
| The 2019 Equity Distribution Agreements [Member] | ||||||||
| Equity Distribution Agreements, Authorized Amount | $ 100,000,000 | |||||||
| The 2022 Equity Distribution Agreement [Member] | ||||||||
| Stock Issued During Period, Shares, New Issues (in shares) | 579,964 | 0 | 579,964 | 0 | ||||
| Proceeds from Issuance of Common Stock | $ 7,600,000 | $ 7,600,000 | ||||||
| Payments of Stock Issuance Costs | $ 116,000 | $ 116,000 | ||||||
Note 11 - Equity - Cash Distributions Paid or Payable (Details) - Cash Distribution [Member] - USD ($) $ / shares in Units, $ in Thousands |
3 Months Ended | 9 Months Ended | 12 Months Ended | ||||||
|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2024 |
Jun. 30, 2024 |
Mar. 31, 2024 |
Dec. 31, 2023 |
Sep. 30, 2023 |
Jun. 30, 2023 |
Mar. 31, 2023 |
Sep. 30, 2024 |
Dec. 31, 2023 |
|
| Amount Paid | $ 6,274 | $ 6,242 | $ 6,049 | $ 6,013 | $ 6,011 | $ 5,996 | $ 5,996 | $ 18,565 | $ 24,016 |
| Common Stock [Member] | |||||||||
| Distributions Per Common Share (in dollars per share) | $ 0.1238 | $ 0.1238 | $ 0.12 | $ 0.12 | $ 0.12 | $ 0.12 | $ 0.12 | $ 0.3676 | $ 0.48 |
| Amount Paid | $ 6,194 | $ 6,162 | $ 5,969 | $ 5,930 | $ 5,928 | $ 5,913 | $ 5,913 | $ 18,325 | $ 23,684 |
| OP Units [Member] | |||||||||
| Distributions Per Common Share (in dollars per share) | $ 0.1238 | $ 0.1238 | $ 0.12 | $ 0.12 | $ 0.12 | $ 0.12 | $ 0.12 | $ 0.3676 | $ 0.48 |
| Amount Paid | $ 80 | $ 80 | $ 80 | $ 83 | $ 83 | $ 83 | $ 83 | $ 240 | $ 332 |
Note 12 - Incentive Share Plan (Details Textual) - USD ($) |
3 Months Ended | 9 Months Ended | 12 Months Ended | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 07, 2024 |
Mar. 04, 2024 |
Jan. 01, 2024 |
Mar. 07, 2023 |
Dec. 19, 2022 |
Mar. 28, 2022 |
Sep. 30, 2021 |
Jun. 30, 2021 |
Sep. 06, 2017 |
Sep. 30, 2024 |
Sep. 30, 2023 |
Sep. 30, 2024 |
Sep. 30, 2023 |
Dec. 31, 2025 |
Dec. 31, 2024 |
Dec. 31, 2023 |
Dec. 31, 2022 |
May 11, 2017 |
|
| Share-Based Compensation Arrangement by Share-Based Payment Award, Equity Instruments Other than Options, Grants in Period (in shares) | 24,134 | 372,583 | 480,184 | 360,334 | ||||||||||||||
| Share-Based Compensation Arrangement by Share-Based Payment Award, Award Vesting Period (Year) | 33 months | |||||||||||||||||
| Share-Based Compensation Arrangement by Share-Based Payment Award, Equity Instruments Other than Options, Grants in Period, Weighted Average Grant Date Fair Value (in dollars per share) | $ 12.44 | $ 13.84 | $ 9.3 | $ 11.61 | ||||||||||||||
| Share-Based Compensation Arrangement by Share-Based Payment Award, Equity Instruments Other than Options, Vested in Period (in shares) | 404,171 | 231,600 | 519,003 | |||||||||||||||
| Share-Based Payment Arrangement, Expense | $ 1,281,000 | $ 1,083,000 | $ 3,105,000 | $ 2,712,000 | ||||||||||||||
| Share-Based Compensation Arrangement by Share-Based Payment Award, Award Vesting Rights, Percentage | 100.00% | |||||||||||||||||
| Forecast [Member] | ||||||||||||||||||
| Share-Based Payment Arrangement, Expense | $ 6,300,000 | $ 4,500,000 | ||||||||||||||||
| Share-Based Payment Arrangement, Nonvested Award, Cost Not yet Recognized, Period for Recognition (Month) | 25 months | |||||||||||||||||
| Market Based Vesting TSR Units [Member] | ||||||||||||||||||
| Share-Based Payment Arrangement, Nonvested Award, Cost Not yet Recognized, Amount | $ 4,000,000 | $ 4,000,000 | ||||||||||||||||
| Share-Based Payment Arrangement, Nonvested Award, Cost Not yet Recognized, Period for Recognition (Month) | 27 months | |||||||||||||||||
| Market Based Vesting TSR Units [Member] | Issued 2022 [Member] | ||||||||||||||||||
| Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Rights, Percentage Awarded Based on Ranking | 200.00% | 200.00% | ||||||||||||||||
| Market Based Vesting TSR Units [Member] | Issued 2023 [Member] | ||||||||||||||||||
| Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Rights, Percentage Awarded Based on Ranking | 150.00% | 150.00% | ||||||||||||||||
| Market Based Vesting TSR Units [Member] | Issued 2024 [Member] | ||||||||||||||||||
| Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Rights, Percentage Awarded Based on Ranking | 0.00% | 0.00% | ||||||||||||||||
| Time-based Restricted Common Share Units [Member] | ||||||||||||||||||
| Share-Based Payment Arrangement, Nonvested Award, Cost Not yet Recognized, Amount | $ 3,400,000 | $ 3,400,000 | ||||||||||||||||
| Share-Based Payment Arrangement, Nonvested Award, Cost Not yet Recognized, Period for Recognition (Month) | 33 months | |||||||||||||||||
| The 2018 Plan [Member] | ||||||||||||||||||
| Share-Based Compensation Arrangement by Share-Based Payment Award, Number of Shares Authorized (in shares) | 3,433,831 | |||||||||||||||||
| Share-Based Compensation Arrangement by Share-Based Payment Award, Equity Instruments Other than Options, Nonvested, Number (in shares) | 945,241 | 945,241 | 1,452,433 | |||||||||||||||
| The 2018 Plan [Member] | Market Based Vesting TSR Units [Member] | Share-Based Payment Arrangement, Employee [Member] | ||||||||||||||||||
| Share-Based Compensation Arrangement by Share-Based Payment Award, Equity Instruments Other than Options, Grants in Period (in shares) | 203,518 | 228,025 | 162,556 | 433,200 | ||||||||||||||
| Share-Based Compensation Arrangement by Share-Based Payment Award, Award Vesting Period (Year) | 3 years | 3 years | ||||||||||||||||
| Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Rights, Percentage Awarded Based on Ranking | 200.00% | |||||||||||||||||
| Share-Based Compensation Arrangement by Share-Based Payment Award, Equity Instruments Other than Options, Grants in Period, Weighted Average Grant Date Fair Value (in dollars per share) | $ 15.12 | $ 9.55 | $ 13.74 | $ 4.17 | ||||||||||||||
| Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Options to be Converted to Cash (in shares) | 111,465 | |||||||||||||||||
| Share-Based Compensation Arrangement by Share-Based Payment Award, Equity Instruments Other than Options, Vested in Period (in shares) | 210,400 | |||||||||||||||||
| Shares Issued, Shares, Share-Based Payment Arrangement, after Forfeiture (in shares) | 420,800 | |||||||||||||||||
| The 2018 Plan [Member] | Market Based Vesting TSR Units [Member] | Share-Based Payment Arrangement, Employee [Member] | Minimum [Member] | ||||||||||||||||||
| Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Rights, Percentage Awarded Based on Ranking | 0.00% | 0.00% | 0.00% | 0.00% | ||||||||||||||
| The 2018 Plan [Member] | Market Based Vesting TSR Units [Member] | Share-Based Payment Arrangement, Employee [Member] | Maximum [Member] | ||||||||||||||||||
| Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Rights, Percentage Awarded Based on Ranking | 200.00% | 200.00% | 200.00% | 200.00% | ||||||||||||||
| The 2018 Plan [Member] | Time-based Restricted Common Share Units [Member] | Share-Based Payment Arrangement, Employee [Member] | ||||||||||||||||||
| Share-Based Compensation Arrangement by Share-Based Payment Award, Equity Instruments Other than Options, Grants in Period (in shares) | 169,065 | 228,025 | 162,556 | 5,500 | 433,200 | |||||||||||||
| Share-Based Compensation Arrangement by Share-Based Payment Award, Award Vesting Period (Year) | 3 years | 3 years | 3 years | |||||||||||||||
| Share-Based Compensation Arrangement by Share-Based Payment Award, Equity Instruments Other than Options, Grants in Period, Weighted Average Grant Date Fair Value (in dollars per share) | $ 8.72 | $ 12.29 | $ 9.94 | $ 9.06 | $ 7.51 | |||||||||||||
| The 2008 Plan [Member] | Performance-based Restricted Common Share Units [Member] | Immediate Vesting Upon Change in Control [Member] | ||||||||||||||||||
| Share-Based Compensation Arrangement by Share-Based Payment Award, Equity Instruments Other than Options, Grants in Period (in shares) | 965,000 | |||||||||||||||||
| Share-Based Compensation Arrangement by Share-Based Payment Award, Equity Instruments Other than Options, Nonvested, Number (in shares) | 455,000 | 455,000 | ||||||||||||||||
Note 12 - Incentive Share Plan - Summary of Share-based Incentive Plan Activity (Details) - The 2018 Plan [Member] |
9 Months Ended |
|---|---|
|
Sep. 30, 2024
$ / shares
shares
| |
| Non-vested at January 1, 2023 (in shares) | 1,452,433 |
| Non-vested at January 1, 2023 (in dollars per share) | $ / shares | $ 10.12 |
| Granted, shares (in shares) | 372,583 |
| Granted, weighted average grant date fair value (in dollars per share) | $ / shares | $ 13.84 |
| Vested, shares (in shares) | (404,171) |
| Vested, weighted average grant date fair value (in dollars per share) | $ / shares | $ 6.3 |
| Forfeited, shares (in shares) | (475,604) |
| Forfeited, weighted average grant date fair value (in dollars per share) | $ / shares | $ 12.94 |
| Non-vested, shares (in shares) | 945,241 |
| Non-vested, weighted average grant date fair value (in dollars per share) | $ / shares | $ 11.8 |
| Available for grant, shares (in shares) | 772,581 |
Note 12 - Incentive Share Plan - Summary of Non-vested and Vested Shares Activity (Details) - USD ($) $ / shares in Units, $ in Thousands |
9 Months Ended | 12 Months Ended | ||
|---|---|---|---|---|
Dec. 19, 2022 |
Sep. 30, 2024 |
Dec. 31, 2023 |
Dec. 31, 2022 |
|
| Non-Vested Shares Issued (in shares) | 24,134 | 372,583 | 480,184 | 360,334 |
| Weighted Average Grant- Date Fair Value (in dollars per share) | $ 12.44 | $ 13.84 | $ 9.3 | $ 11.61 |
| Vested Shares (in shares) | (404,171) | (231,600) | (519,003) | |
| Total Vest-Date Fair Value | $ 2,546 | $ 1,841 | $ 3,442 | |
Note 13 - Grants to Trustees (Details Textual) |
9 Months Ended | 12 Months Ended | ||
|---|---|---|---|---|
|
Dec. 19, 2022
$ / shares
shares
|
Sep. 30, 2024
$ / shares
shares
|
Dec. 31, 2023
$ / shares
shares
|
Dec. 31, 2022
$ / shares
shares
|
|
| Number of Independent Trustees | 5 | |||
| Number of Trustee Emeritus | 1 | |||
| Share-Based Compensation Arrangement by Share-Based Payment Award, Equity Instruments Other than Options, Grants in Period (in shares) | shares | 24,134 | 372,583 | 480,184 | 360,334 |
| Share-Based Compensation Arrangement by Share-Based Payment Award, Equity Instruments Other than Options, Grants in Period, Weighted Average Grant Date Fair Value (in dollars per share) | $ / shares | $ 12.44 | $ 13.84 | $ 9.3 | $ 11.61 |
Note 15 - Real Estate (Details Textual) $ in Thousands |
3 Months Ended | 9 Months Ended | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Aug. 09, 2024
USD ($)
|
Apr. 05, 2024
USD ($)
ft²
|
Apr. 01, 2024
USD ($)
|
Mar. 27, 2024
USD ($)
|
Feb. 20, 2024
USD ($)
ft²
|
Dec. 20, 2023
USD ($)
|
Jun. 30, 2023
USD ($)
|
Jun. 12, 2023
USD ($)
ft²
|
Sep. 30, 2024
USD ($)
|
Sep. 30, 2023
USD ($)
|
Sep. 30, 2024
USD ($)
|
Sep. 30, 2023
USD ($)
|
|
| Gain (Loss) on Disposition of Property Plant Equipment, Excluding Oil and Gas Property and Timber Property | $ 3,762 | $ 5 | $ 10,212 | $ 9,626 | ||||||||
| Fountain Hills Plaza in Phoenix Arizona [Member] | ||||||||||||
| Proceeds from Sale of Productive Assets | $ 21,300 | |||||||||||
| Gain (Loss) on Disposition of Property Plant Equipment, Excluding Oil and Gas Property and Timber Property | $ 3,600 | |||||||||||
| Mercado at Scottsdale Ranch [Member] | Disposal Group, Disposed of by Sale, Not Discontinued Operations [Member] | ||||||||||||
| Proceeds from Sale of Productive Assets | $ 26,500 | |||||||||||
| Gain (Loss) on Disposition of Property Plant Equipment, Excluding Oil and Gas Property and Timber Property | $ 6,600 | |||||||||||
| Spoerlein Commons [Member] | Disposal Group, Disposed of by Sale, Not Discontinued Operations [Member] | ||||||||||||
| Proceeds from Sale of Productive Assets | $ 7,400 | |||||||||||
| Gain (Loss) on Disposition of Property Plant Equipment, Excluding Oil and Gas Property and Timber Property | $ 700 | |||||||||||
| Westchase [Member] | Disposal Group, Disposed of by Sale, Not Discontinued Operations [Member] | ||||||||||||
| Proceeds from Sale of Productive Assets | $ 7,800 | |||||||||||
| Gain (Loss) on Disposition of Property Plant Equipment, Excluding Oil and Gas Property and Timber Property | 4,600 | |||||||||||
| Sunridge [Member] | Disposal Group, Disposed of by Sale, Not Discontinued Operations [Member] | ||||||||||||
| Proceeds from Sale of Productive Assets | 6,700 | |||||||||||
| Gain (Loss) on Disposition of Property Plant Equipment, Excluding Oil and Gas Property and Timber Property | $ 5,000 | |||||||||||
| Scottsdale Commons [Member] | ||||||||||||
| Payments to Acquire Productive Assets | $ 22,200 | |||||||||||
| Area of Real Estate Property (Square Foot) | ft² | 69,482 | |||||||||||
| Asset Acquisition Percent of Property Leased | 96.60% | |||||||||||
| Anderson Arbor Pad [Member] | ||||||||||||
| Payments to Acquire Productive Assets | $ 900 | |||||||||||
| Garden Oaks Shopping Center [Member] | ||||||||||||
| Payments to Acquire Productive Assets | $ 27,200 | |||||||||||
| Area of Real Estate Property (Square Foot) | ft² | 106,858 | |||||||||||
| Asset Acquisition Percent of Property Leased | 95.80% | |||||||||||
| Arcadia Towne Center [Member] | ||||||||||||
| Payments to Acquire Productive Assets | $ 25,500 | |||||||||||
| Area of Real Estate Property (Square Foot) | ft² | 69,503 | |||||||||||
| Asset Acquisition Percent of Property Leased | 100.00% | |||||||||||
Note 16 - Related Party Transactions (Details Textual) - Beneficial Owner [Member] - Pillarstone REIT [Member] |
9 Months Ended |
|---|---|
Sep. 30, 2024 | |
| Chief Executive Officer [Member] | |
| Variable Interest Entity, Qualitative or Quantitative Information, Ownership Percentage | 66.70% |
| Chief Operating Officer [Member] | |
| Variable Interest Entity, Qualitative or Quantitative Information, Ownership Percentage | 20.00% |
Note 16 - Related Party Transactions - Related Party Transactions (Details) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2024 |
Sep. 30, 2023 |
Sep. 30, 2024 |
Sep. 30, 2023 |
|
| Rent | $ (7,303) | $ (6,862) | $ (20,667) | $ (19,847) |
| Pillarstone OP [Member] | Rent [Member] | ||||
| Rent | 0 | 0 | 0 | (15) |
| Pillarstone OP [Member] | Property Management Fee Income [Member] | Management, Transaction, and Other Fees [Member] | ||||
| Property Management Fee Revenue | $ 0 | $ 0 | $ 0 | $ 0 |
Note 17 - Commitments and Contingencies (Details Textual) - USD ($) |
Apr. 24, 2024 |
Dec. 01, 2023 |
May 09, 2023 |
Sep. 16, 2022 |
Feb. 23, 2022 |
Oct. 24, 2023 |
Sep. 01, 2023 |
|---|---|---|---|---|---|---|---|
| Bankruptcy of Whitestone Uptown Tower LLC [Member] | Settled Litigation [Member] | |||||||
| Litigation Settlement, Amount Awarded to Other Party | $ 13,632,764 | ||||||
| Litigation Settlement Interest | $ 1,688,000 | ||||||
| Bankruptcy of Whitestone Uptown Tower LLC [Member] | Settled Litigation [Member] | Pillarstone OP [Member] | |||||||
| Litigation Settlement, Amount Awarded to Other Party | $ 1,123,950.24 | ||||||
| Bankruptcy of Whitestone Uptown Tower LLC [Member] | Settled Litigation [Member] | Pillarstone OP [Member] | Maximum [Member] | |||||||
| Legal Fees | $ 20,000 | ||||||
| Litigation Between Company and Former COO [Member] | Pending Litigation [Member] | |||||||
| Loss Contingency, Damages Sought, Value | $ 1,000,000 | ||||||
| Litigation between the Company and Pillarstone REIT [Member] | Pending Litigation [Member] | |||||||
| Loss Contingency, Damages Sought, Value | $ 1,000,000 | ||||||
| Mastandrea V Whitestone R E I T And Certain Company Trustees [Member] | Pending Litigation [Member] | |||||||
| Loss Contingency, Damages Sought, Value | $ 25,000,000 | ||||||
| Property Located at 4144 North Central Expressway in Dallas [Member] | |||||||
| Guarantor Obligations, Maximum Exposure, Undiscounted | $ 14,400,000 | ||||||
| Uptown Tower [Member] | Performance Guarantee [Member] | Guarantee Obligations [Member] | |||||||
| Guarantee Obligation, Additional Amount Due | $ 4,600,000 | ||||||
| Interest Payable | 6,300,000 | ||||||
| Escrow Deposit | $ 1,700,000 |
Note 18 - Subsequent Events (Details Textual) |
9 Months Ended | 12 Months Ended | |
|---|---|---|---|
Oct. 07, 2024 |
Sep. 30, 2024 |
Dec. 31, 2023 |
|
| Debt Instrument, Variable Interest Rate, Type [Extensible Enumeration] | Bank Credit Spreads [Member] | Secured Overnight Financing Rate (SOFR) [Member] | Secured Overnight Financing Rate (SOFR) [Member] |
| Subsequent Event [Member] | Series One Incremental Term Loan [Member] | |||
| Debt Instrument, Interest Rate, Stated Percentage | 3.665% | ||
| Debt Instrument, Basis Spread on Variable Rate | 1.50% | ||
| Subsequent Event [Member] | Series One Incremental Term Loan [Member] | Maximum [Member] | |||
| Debt Instrument, Interest Rate, Stated Percentage | 5.165% |
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