Note 7 - Debt

9 Months Ended

Sep. 30, 2024

Notes to Financial Statements

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):

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 Secured Overnight Financing Rate (“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%.

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 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:

• 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 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:

• $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 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 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:

• 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 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:

• 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 ratio of 0.60 to 1.00.

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.

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