UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
| | 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
PILLARSTONE CAPITAL REIT
(Exact name of registrant as specified in its charter)
| | | |
| (State or other jurisdiction of | (IRS Employer | |
| incorporation or organization) | Identification No.) |
(Address of principal executive offices)
(
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
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 (Section 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 | ☐ | Accelerated filer | ☐ |
| | ☒ | Smaller reporting company | |
| Emerging growth company | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new ore revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
The Registrant had
INDEX
ITEM 1. FINANCIAL STATEMENTS
| CONDENSED CONSOLIDATED BALANCE SHEETS |
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| (in thousands, except share and per share data) |
| June 30, 2022 | December 31, 2021 | |||||||
| (unaudited) | ||||||||
| ASSETS (a) | ||||||||
| Real estate assets, at cost | ||||||||
| Property | $ | | $ | |||||
| Accumulated depreciation | ( | ) | ( | ) | ||||
| Total real estate assets | ||||||||
| Cash and cash equivalents | ||||||||
| Escrows and utility deposits | ||||||||
| Accrued rents and accounts receivable, net of allowance for doubtful accounts | ||||||||
| Receivable due from related party | ||||||||
| Unamortized lease commissions and deferred legal cost, net | ||||||||
| Prepaid expenses and other assets | ||||||||
| Total assets | $ | | $ | |||||
| LIABILITIES AND EQUITY (b) | ||||||||
| Liabilities: | ||||||||
| Notes payable | $ | $ | ||||||
| Accounts payable and accrued expenses | ||||||||
| Payable due to related party | ||||||||
| Convertible notes payable - related parties | ||||||||
| Accrued interest payable | ||||||||
| Tenants' security deposits | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies: | ||||||||
| Shareholders' Equity: | ||||||||
| Preferred A Shares - $ par value, authorized: Class A cumulative convertible shares issued and outstanding at June 30, 2022 and December 31, 2021, $ per share liquidation preference | ||||||||
| Preferred C Shares - $ par value, authorized: Class C cumulative convertible shares issued and outstanding at June 30, 2022 and December 31, 2021, $ per share liquidation preference | ||||||||
| Common Shares - $ par value, authorized: shares issued and outstanding at June 30, 2022 and December 31, 2021 | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Treasury stock, at cost, shares | ( | ) | ( | ) | ||||
| Total Pillarstone Capital REIT shareholders' equity | ||||||||
| Noncontrolling interest in subsidiary | ||||||||
| Total equity | ||||||||
| Total liabilities and equity | $ | $ | ||||||
The accompanying notes are an integral part of the condensed consolidated financial statements.
Pillarstone Capital REIT and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS - Continued
(in thousands)
| June 30, 2022 |
December 31, 2021 |
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| (unaudited) |
||||||||
| (a) Assets of condensed consolidated Variable Interest Entity included in the total assets above: |
||||||||
| Real estate assets, at cost |
||||||||
| Property |
$ | $ | ||||||
| Accumulated depreciation |
( |
) | ( |
) | ||||
| Total real estate assets |
||||||||
| Cash and cash equivalents |
||||||||
| Escrows and utility deposits |
||||||||
| Accrued rents and accounts receivable, net of allowance for doubtful accounts |
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| Receivable due from related party |
||||||||
| Unamortized lease commissions and deferred legal cost, net |
||||||||
| Prepaid expenses and other assets |
||||||||
| Total assets |
$ | $ | ||||||
| (b) Liabilities of condensed consolidated Variable Interest Entity included in the total liabilities above: |
||||||||
| Notes payable |
$ | $ | ||||||
| Accounts payable and accrued expenses |
||||||||
| Payable due to related party |
||||||||
| Accrued interest payable |
||||||||
| Tenants' security deposits |
||||||||
| Total liabilities |
$ | $ | ||||||
The accompanying notes are an integral part of the condensed consolidated financial statements.
Pillarstone Capital REIT and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands, except share and per share data)
| Three Months Ended June 30, |
Six Months Ended June 30, |
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| 2022 |
2021 |
2022 |
2021 |
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| Revenues |
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| Rental (1) |
$ | $ | $ | $ | ||||||||||||
| 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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| Management fees |
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| Total operating expenses |
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| Other expenses (income) |
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| Interest expense, net |
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| Other income | ||||||||||||||||
| Total other expenses |
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| Income (loss) before income taxes |
( |
) | ||||||||||||||
| Provision for income tax benefit |
||||||||||||||||
| Net income (loss) |
( |
) |
|
|||||||||||||
| Less: Noncontrolling interest in subsidiary |
||||||||||||||||
| Net loss attributable to Common Shareholders |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| Loss Per Share: |
||||||||||||||||
| Basic loss per Common Share: |
||||||||||||||||
| Net loss available to Common Shareholders |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| Diluted loss per Common Share: |
||||||||||||||||
| Net loss available to Common Shareholders |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| Weighted average number of Common Shares outstanding: |
||||||||||||||||
| Basic: |
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| Diluted: |
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The accompanying notes are an integral part of the condensed consolidated financial statements.
Pillarstone Capital REIT and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - Continued
(unaudited)
(in thousands)
| Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
| 2022 |
2021 |
2022 |
2021 |
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| (1) Rental |
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| Rental revenues |
$ | $ | $ | $ | ||||||||||||
| Recoveries |
||||||||||||||||
| Bad debt |
( |
) | ( |
) | ( |
) | ||||||||||
| Total rental |
$ | $ | $ | $ | ||||||||||||
The accompanying notes are an integral part of the condensed consolidated financial statements.
Pillarstone Capital REIT and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (DEFICIT)
(unaudited)
(in thousands)
| Class A Preferred Shares |
Class C Preferred Shares |
Common Shares |
Additional Paid-in Capital |
Accumulated Deficit |
Cost of Shares Held in Treasury |
Total Shareholders' Equity (Deficit) |
Noncontrolling Interest |
Total Equity |
||||||||||||||||||||||||||||
| Balance, December 31, 2021 |
$ | $ | $ | $ | $ | ( |
) | $ | ( |
) | $ | $ | $ | |||||||||||||||||||||||
| Net income (loss) |
( |
) | ( |
) | ||||||||||||||||||||||||||||||||
| Balance, March 31, 2022 |
( |
) | ( |
) | ||||||||||||||||||||||||||||||||
| Net income (loss) |
( |
) | ( |
) | ||||||||||||||||||||||||||||||||
| Balance, June 30, 2022 |
$ | $ | $ | $ | $ | ( |
) | $ | $ | $ | $ | |||||||||||||||||||||||||
| Class A Preferred Shares |
Class C Preferred Shares |
Common Shares |
Additional Paid-in Capital |
Accumulated Deficit |
Cost of Shares Held in Treasury |
Total Shareholders' Equity (Deficit) |
Noncontrolling Interest |
Total Equity |
||||||||||||||||||||||||||||
| Balance, December 31, 2020 |
$ | $ | $ | $ | $ | ( |
) | $ | ( |
) | $ | $ | $ | |||||||||||||||||||||||
| Share-based compensation |
||||||||||||||||||||||||||||||||||||
| Net income (loss) |
( |
) | ( |
) | ||||||||||||||||||||||||||||||||
| Balance, March 31, 2021 |
|
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| Share-based compensation |
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| Net income (loss) |
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| Balance, June 30, 2021 |
$ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
The accompanying notes are an integral part of the condensed consolidated financial statements.
Pillarstone Capital REIT and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
| Six Months Ended June 30, |
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| 2022 |
2021 |
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| Cash flows from operating activities: |
||||||||
| Net income |
$ | $ | ||||||
| Adjustments to reconcile net income to net cash used in operating activities: |
||||||||
| Depreciation and amortization |
||||||||
| Amortization of deferred loan costs |
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| Bad debt |
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| Share-based compensation |
||||||||
| Changes in operating assets and liabilities: |
||||||||
| Accrued rents and accounts receivable |
( |
) | ||||||
| Receivable due from related party |
( |
) | ( |
) | ||||
| Escrows and utility deposits |
( |
) | ||||||
| Unamortized lease commissions and deferred legal cost |
( |
) | ( |
) | ||||
| Prepaid expenses and other assets |
( |
) | ||||||
| Accounts payable and accrued expenses |
( |
) | ( |
) | ||||
| Payable due to related party |
||||||||
| Tenants' security deposits |
( |
) | ||||||
| Net cash provided by operating activities |
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| Cash flows from investing activities: |
||||||||
| Additions to real estate |
( |
) | ( |
) | ||||
| Net cash used in investing activities |
( |
) | ( |
) | ||||
| Cash flows from financing activities: |
||||||||
| Repayments of notes payable |
( |
) | ( |
) | ||||
| Net cash used in financing activities |
( |
) | ( |
) | ||||
| Net change in cash and cash equivalents |
( |
) | ( |
) | ||||
| Cash and cash equivalents at beginning of period |
||||||||
| Cash and cash equivalents at end of period |
$ | $ | ||||||
| Supplemental disclosure of cash flow information: |
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| Cash paid for interest |
$ | $ | ||||||
| Cash paid for taxes | $ |
|
$ | |
||||
| Non cash investing activities: |
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| Disposal of fully depreciated real estate |
$ | $ | ||||||
| Financed insurance premium |
$ | $ | ||||||
The accompanying notes are an integral part of the condensed consolidated financial statements.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Income taxes. Because we have not elected to be taxed as a REIT for federal income tax purposes, we account for income taxes using the asset and liability method under which deferred tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and liabilities using enacted tax rates in effect for the period in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. We are also subject to certain state and local income, excise and franchise taxes. The provision for state and local taxes has been reflected in provision for income taxes in the condensed consolidated statements of operations and has not been separately stated due to its insignificance.
The Company evaluates potential uncertain tax positions on an annual basis in conjunction with the board of trustees and its tax accountants. Authoritative literature provides a two-step approach to recognize and measure tax benefits when realization of the benefits is uncertain. The first step is to determine whether the benefit meets the more-likely-than-not condition for recognition and the second step is to determine the amount to be recognized based on the cumulative probability that exceeds
As of June 30, 2022, we had a net operating loss carry-forward of approximately $
Recent accounting pronouncements. In April 2020, the Financial Accounting Standards Board ("FASB") issued guidance on the application of Topic 842, relating to concessions being made by lessors in response to the COVID-19 pandemic. The guidance notes that it would be acceptable for entities to make an election to account for lease concessions relating to the effects of the COVID-19 pandemic consistent with how those concessions would be accounted for under Topic 842 as though enforceable rights and obligations for those concessions existed, even if such enforceable rights and obligations are not explicitly contained in the lease contract. Thus, for concessions relating to COVID-19, an entity would not have to analyze each contract to determine whether enforceable rights and obligations for concessions exist in the contract, and would have the option to apply, or not to apply, the general lease modification guidance in Topic 842 as it stands. We have elected this option to account for lease concessions relating to the effects of the COVID-19 pandemic consistent with how those concessions would be accounted for under Topic 842 as though enforceable rights and obligations for those concessions existed. Therefore, such concessions are not accounted for as a lease modification under Topic 842.
2. 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):
| June 30, 2022 | December 31, 2021 | |||||||
| Tenant receivables | $ | $ | ||||||
| Accrued rents and other recoveries | ||||||||
| Allowance for doubtful accounts | ( | ) | ( | ) | ||||
| Total | $ | $ | ||||||
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, if applicable, 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 condensed consolidated statements of operations.
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 June 30, 2022 is as follows (in thousands):
| Years Ended December 31, | Minimum Future Rents(1) | |||
| 2022 (remaining) | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Thereafter | ||||
| Total | $ | |||
(1) These amounts do not reflect future rental revenues from the renewal or replacement of existing leases and exclude reimbursements of operating expenses and rental increases that are not fixed.
As a Lessee. On June 8, 2021, Pillarstone's lease became month to month with Whitestone for the premises located at 2600 S. Gessner Road, Suite 555 Houston, Texas 77063. The rentable area of the premises is approximately 678 square feet. Total rent expense for the three and six months ended June 30, 2022 was $
4. UNAMORTIZED LEASE COMMISSIONS AND DEFERRED LEGAL COST, NET
Costs which have been deferred consist of the following (in thousands):
| June 30, 2022 | December 31, 2021 | |||||||
| Leasing commissions | $ | $ | ||||||
| Deferred legal cost | ||||||||
| Total cost | ||||||||
| Less: leasing commissions accumulated amortization | ( | ) | ( | ) | ||||
| Less: deferred legal cost accumulated amortization | ( | ) | ( | ) | ||||
| Total cost, net of accumulated amortization | $ | $ | ||||||
5. VARIABLE INTEREST ENTITY
On December 8, 2016, Pillarstone and Pillarstone OP, entered into a Contribution Agreement (the “Contribution Agreement”) with Whitestone REIT Operating Partnership, L.P. (“Whitestone OP”), a subsidiary and the operating partnership of Whitestone REIT (“Whitestone”), both of which are related parties to Pillarstone and Pillarstone OP. Pursuant to the terms of the Contribution Agreement, Whitestone OP contributed to Pillarstone OP all of the equity interests in of its wholly-owned subsidiaries (the “Subsidiaries”): Whitestone CP Woodland Ph. 2, LLC, a Delaware limited liability company; Whitestone Industrial-Office, LLC, a Texas limited liability company; Whitestone Offices, LLC, a Texas limited liability company; and Whitestone Uptown Tower, LLC, a Delaware limited liability company (“Uptown Tower”) that owned 14 real estate assets (the “Real Estate Assets” and, together with the Subsidiaries, the “Property”) for aggregate consideration of approximately $
In connection with the Contribution Agreement, on December 8, 2016, the Company, as the general partner of Pillarstone OP, entered into an Amended and Restated Agreement of Limited Partnership of Pillarstone OP (as amended and restated, the “Amended and Restated Agreement of Limited Partnership”). Pursuant to the Amended and Restated Agreement of Limited Partnership, subject to certain protective rights of the limited partners described below, the general partner has full, exclusive and complete responsibility and discretion in the management and control of Pillarstone OP, including the ability to cause Pillarstone OP to enter into certain major transactions including a merger of Pillarstone OP or a sale of substantially all of the assets of Pillarstone OP. The limited partners have no power to remove the general partner without the general partner's consent. In addition, pursuant to the Amended and Restated Agreement of Limited Partnership, the general partner may not conduct any business without the consent of a majority of the limited partners other than in connection with certain actions described therein. The Company is deemed to exercise significant influence over Pillarstone OP as it has the power to direct the activities that most significantly impact Pillarstone OP's economic performance and the Company's right to receive benefits based on its ownership percentage in Pillarstone OP. Accordingly, the Company accounts for Pillarstone OP as a Variable Interest Entity.
The Amended and Restated Agreement of Limited Partnership designates two classes of units of limited partnership interest in Pillarstone OP: the OP Units and LTIP units. In general, LTIP units are similar to the OP Units and will receive the same quarterly per-unit profit distributions as the OP Units. The rights, privileges, and obligations related to each series of LTIP units will be established at the time the LTIP units are issued. As profits interests, LTIP units initially will not have full parity, on a per-unit basis, with OP Units with respect to liquidating distributions. Upon the occurrence of specified events, LTIP units can over time achieve full parity with the OP Units and therefore accrete to an economic value for the holder equivalent to OP Units. If such parity is achieved, vested LTIP units may be converted on a -for-one basis into OP Units, which in turn are redeemable by the holder for cash or, at the Company’s election, exchangeable for Common Shares on a -for-one basis.
The carrying amounts and classification of certain assets and liabilities for Pillarstone OP in our condensed consolidated balance sheets as of June 30, 2022 and December 31, 2021 consists of the following (in thousands):
| June 30, 2022 | December 31, 2021 | |||||||
| (unaudited) | ||||||||
| Real estate assets, at cost | ||||||||
| Property | $ | $ | ||||||
| Accumulated depreciation | ( | ) | ( | ) | ||||
| Total real estate assets | ||||||||
| Cash and cash equivalents | ||||||||
| Escrows and utility deposits | ||||||||
| Accrued rents and accounts receivable, net of allowance for doubtful accounts | ||||||||
| Receivable due from related party (1) | ||||||||
| Unamortized lease commissions and deferred legal cost, net | ||||||||
| Prepaid expenses and other assets | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities | ||||||||
| Notes payable | $ | $ | ||||||
| Accounts payable and accrued expenses | ||||||||
| Payable due to related party | ||||||||
| Accrued interest payable | ||||||||
| Tenants' security deposits | ||||||||
| Total liabilities | $ | $ | ||||||
| (1) | Excludes approximately $ |
6. REAL ESTATE
As of June 30, 2022, Pillarstone OP owned
7. DEBT
Mortgages and other notes payable consist of the following (in thousands):
| Description | June 30, 2022 | December 31, 2021 | ||||||
| Fixed rate notes | ||||||||
| $16.5 million 4.97% Note, due September 26, 2023 | $ | $ | ||||||
| $0.3 million 3.15% Note, due December 28, 2022 | | |||||||
| Total notes payable principal | ||||||||
| Less deferred financing costs, net of accumulated amortization | ( | ) | ( | ) | ||||
| Total notes payable | $ | $ | ||||||
Our mortgage debt was collateralized by
Scheduled maturities of notes payable as of June 30, 2022 were as follows (in thousands):
| Year | Amount Due | |||
| 2022 (remaining) | $ | |||
| 2023 | ||||
| Total | $ | |||
8. CONVERTIBLE NOTES PAYABLE - RELATED PARTIES
On November 20, 2015,
9. EARNINGS (LOSS) PER SHARE
The Company applies the guidance of ASC 260, "Earnings Per Share," for all periods presented herein. Net earnings (loss) per weighted average Common Share outstanding, basic and diluted, is computed based on the weighted average number of Common Shares outstanding for the period. The following table shows the weighted average number of Common Shares outstanding and reconciles the numerator and denominator of earnings per Common Share calculations for the three and six month periods ended June 30, 2022 and 2021.
For the three and six month periods ended June 30, 2022 and 2021, Class A Preferred Shares and Class C Preferred Shares were not included in net loss per weighted average number of Common Share outstanding-diluted, because the effect of the conversion would be anti-dilutive.
During the three and six month periods ended June 30, 2022 and 2021, the Company had $
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| (in thousands, except share and per share data) | 2022 | 2021 | 2022 | 2021 | ||||||||||||
| Numerator: | ||||||||||||||||
| Net loss attributable to common shareholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Denominator: | ||||||||||||||||
| Weighted average number of common shares - basic | ||||||||||||||||
| Weighted average number of common shares - dilutive | ||||||||||||||||
| Loss Per Share: | ||||||||||||||||
| Basic loss per common share: | ||||||||||||||||
| Net loss available to common shareholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Diluted loss per common share: | ||||||||||||||||
| Net loss available to common shareholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
10. RELATED PARTY TRANSACTIONS
On December 8, 2016, the Company entered into the Contribution Agreement with Whitestone OP, a related party, resulting in the contribution of an equity ownership interest in Pillarstone OP by the Company valued at $
Pursuant to the Contribution Agreement, the Company agreed to file with the Securities and Exchange Commission (the "SEC") on or prior to June 8, 2018, a shelf registration statement to register for sale under the Securities Act of 1933, as amended, the issuance of the common shares in the Company that may be issued upon redemption of the OP Units issued pursuant to the Contribution Agreement and the offer and resale of such common shares by the holders thereof. In addition, pursuant to the Contribution Agreement, in the event of a Change of Control (as defined therein) of Whitestone, Pillarstone OP shall have the right, but not the obligation, to repurchase the OP Units issued thereunder from Whitestone OP at their initial issue price of $
During the ordinary course of business, we have transactions with Whitestone that include, but are not limited to, rental income, interest expense, general and administrative costs, commissions, management and asset management fees, and property expenses.
In connection with the Contribution Agreement, on December 8, 2016, the Company entered into a Management Agreement (collectively, the “Management Agreements”) with Whitestone TRS, Inc., a subsidiary of Whitestone (“Whitestone TRS"). Pursuant to the Management Agreements with respect to each property, other than Uptown Tower, Whitestone TRS agreed to provide certain property management, leasing and day-to-day advisory and administrative services to such properties in exchange for (1) a monthly property management fee equal to
The following table presents the revenue and expenses with Whitestone included in our condensed consolidated statement of operations for the three and six months ended June 30, 2022 and 2021 (in thousands):
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||
| Location of Revenue (Expense) | 2022 | 2021 | 2022 | 2021 | ||||||||||||||
| Rent | Rental | $ | $ | $ | $ | |||||||||||||
| Property management fees | Management fees | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||
| Asset management fees | Management fees | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||
| Rent expense | Office expenses | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||
Receivables due from and payables due to related parties consisted of the following as of June 30, 2022 and December 31, 2021 (in thousands):
| Location of Receivable (Payable) | June 30, 2022 | December 31, 2021 | ||||||||
| Tenant receivables and other receivables | Receivable due from related party | $ | $ | |||||||
| Accrued interest due to related party | Accrued interest payable | ( | ) | ( | ) | |||||
| Other payables due to related party | Payable due to related party | ( | ) | ( | ) | |||||
11. INCENTIVE EQUITY PLAN
At the 2016 Annual Meeting of Shareholders, our shareholders approved the 2016 Equity Plan ("2016 Plan").
The 2016 Plan provides that awards may be made in Common Shares of the Company or units in the Company’s operating partnership, which may be converted into Common Shares. Subject to adjustment as provided by the terms of the 2016 Plan, the maximum aggregate number of Common Shares with respect to which awards may be granted under the 2016 Plan will be increased based on future issuances of Common Shares and units of the operating partnership, including issuances pursuant to the 2016 Plan, so that at any time the maximum number of shares that may be issued under the 2016 Plan shall equal
The Management, Organization and Compensation Committee (the “Committee”) administers the 2016 Plan, except with respect to awards to non-employee trustees, for which the 2016 plan is administered by the board of trustees. Subject to the terms of the 2016 Plan, the Committee is authorized to select participants, determine the type and number of awards to be granted, determine and later amend (subject to certain limitations) the terms and conditions of any award, interpret and specify the rules and regulations relating to the 2016 Plan, and make all other determinations which may be necessary or desirable for the administration of the 2016 Plan. The 2016 Plan includes the types of awards for grants and types of financial performance measures.
As of the six months ended June 30, 2022, the following shares are available for grant:
| Description | Shares | |||
| Available for grant at June 30, 2022 | ||||
For the three and six months ended June 30, 2022, the Company did recognize any stock-based compensation expense for trustee compensation or employee stock-based compensation.. For the three and six months ended June 30, 2021, the Company recognized approximately $
12. SUBSEQUENT EVENTS
During the first quarter of 2022, based on a legal review of the Pillarstone OP operating partnership agreement dated December 8, 2016, between Pillarstone, as general partner, and Whitestone OP, as limited partner, Pillarstone determined that its operating and administrative expenses should be reimbursed by Pillarstone OP on a historical and on-going basis. Accordingly, Pillarstone notified Whitestone OP, which manages Pillarstone OP's properties and provides the accounting function for both Pillarstone and Pillarstone OP, to transfer cash of $
After Pillarstone notified Whitestone of the $
In April 2022, Pillarstone determined the expense reimbursement of $
In July 2022, Pillarstone determined the expense reimbursement of $
On July 12, 2022, Pillarstone was named as a defendant in a lawsuit filed in the Court of Chancery of the State of Delaware by Whitestone OP. The suit challenges Pillarstone’s rights agreement, dated as of December 27, 2021 (as the same may be amended from time to time, the “Rights Agreement”), between Pillarstone and American Stock Transfer & Trust Company, LLC, as rights agent, and claims that Pillarstone’s adoption of the Rights Agreement breached the Amended and Restated Agreement of Limited Partnership, and that Pillarstone breached its fiduciary duties as general partner of Pillarstone OP to Whitestone OP and breached the implied covenant of good faith and fair dealing under the Amended and Restated Agreement of Limited Partnership. On July 21, 2022, Whitestone OP filed a Motion to Preserve the Status Quo requesting broad restrictions on Pillarstone’s ability to conduct its business, including buying properties, enforcing the Rights Agreement, incurring expenses, or engaging in transactions. Pillarstone believes that these allegations are without merit, intends to vigorously defend against them, and is considering its rights and potential courses of action with respect to the lawsuit. However, an unfavorable outcome of this lawsuit is unpredictable and could result in substantial costs to Pillarstone.
On July 19, 2022, Pillarstone received written notice that Whitestone TRS confirmed termination of the management agreements for the Pillarstone OP’s Real Estate Assets. Whitestone TRS is a subsidiary of Whitestone REIT, which owns Whitestone OP, the holder of
On July 21, 2022, before receiving Whitestone OP’s filed Motion to Preserve the Status Quo requesting broad restrictions on Plllarstone’s ability to conduct its business (see above), Pillarstone’s board of trustees increased the size of the board from five to six trustees and appointed Bradford Johnson as Pillarstone’s President and Chief Executive Officer and to the board to serve as a Class I trustee with a term expiring at Pillarstone’s annual meeting of shareholders to be held in 2025. Mr. Johnson replaces James C. Mastandrea as President and Chief Executive Officer. Mr. Mastandrea, who had been Pillarstone’s Chairman, President and Chief Executive Officer since 2003, ended his term as President and Chief Executive Officer and continues to serve in his role as Chairman and trustee of Pillarstone. In addition, the board appointed Daniel P. Kovacevic as Pillarstone’s Chief Financial Officer. Mr. Kovacevic replaces John J. Dee as Chief Financial Officer. Mr. Dee, who had been Pillarstone’s Senior Vice President, Chief Financial Officer, Secretary and a trustee since 2003, ended his term as Chief Financial Officer and continues to serve in his role as a trustee of Pillarstone. The board also appointed William J. Carter as Pillarstone’s Chief Operating Officer. Pillarstone is proceeding to internalize management and become a self-directed, self-managed real estate company.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Unless the context otherwise requires, all references in this report to the “Company,” “we,” “us” or “our” are to Pillarstone Capital REIT and its consolidated subsidiaries.
Forward-Looking Statements
The following discussion should be read in conjunction with our unaudited condensed consolidated financial statements and the notes thereto in this Quarterly Report on Form 10-Q.
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the federal securities laws, including discussion and analysis of our financial condition, anticipated capital expenditures required to complete projects, amounts of anticipated cash distributions to our shareholders in the future and other matters. These forward-looking statements are not historical facts but are the intent, belief or current expectations of our management based on its knowledge and understanding of our business and industry. Forward-looking statements are typically identified by the use of terms such as “may,” “will,” “should,” “potential,” “predicts,” “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates” or the negative of such terms and variations of these words and similar expressions, although not all forward-looking statements include these words. These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, some of which are beyond our control, are difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements.
Forward-looking statements that were true at the time made may ultimately prove to be incorrect or false. You are cautioned not to place undue reliance on forward-looking statements, which reflect our management’s view only as of the date of this Quarterly Report on Form 10-Q. 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:
| • |
uncertainties related to the COVID-19 pandemic, including the unknown duration and economic, operational and financial impacts of the COVID-19 pandemic and the actions taken or contemplated by U.S. and local governmental authorities or others in response to the pandemic on our business, employees and tenants, including, among others, (a) changes in tenant demand for our properties; (b) financial challenges confronting tenants, including as a result of decreased customers’ willingness to visit our tenants' businesses, and potential renewed mandated shelter in place orders that may prevent customers from visiting some of our tenants’ businesses and the impact of these issues on our ability to collect rent from our tenants; (c) limited ability to access the capital markets and other sources of financing on attractive terms or at all, and (d) prolonged measures to contain the spread of COVID-19; |
| • |
legislative or regulatory changes, including the impact of the legislation commonly known as the Tax Cuts and Jobs Act; |
| • |
adverse economic or real estate developments or conditions in Texas, including as a result of a surge in COVID-19 cases in such areas and the impact on our tenants' ability to pay their rent, which could result in bad debt allowances or straight-line rent reserve adjustments; |
| • |
increases in interest rates and operating costs; |
| • |
availability and terms of capital and financing, both to fund our operations and to refinance our indebtedness as it matures, in each case, on terms favorable to the Company; |
| • |
decreases in rental rates or increases in vacancy rates; |
| • |
litigation risks, including risks relating to the lawsuit discussed under the heading "Lawsuit and Termination of Management Agreements" is below; |
| • |
lease-up risks, including leasing risks arising from exclusivity and consent provisions in leases with significant tenants; |
| • |
the impact of public health crises and pandemics, such as the COVID-19 outbreak; |
| • |
cybersecurity attacks, loss of confidential information and other business disruptions; |
| • |
our inability to renew tenants or obtain new tenants upon the expiration of existing leases; |
| • |
our inability to generate sufficient cash flows due to market conditions, competition, uninsured losses, changes in tax or other applicable laws; and |
| • |
risks related to our internalization of the management discussed under the heading "Lawsuit and Termination of Management Agreements" below. |
In addition, an investment in the Company involves numerous risks that potential investors should consider carefully, including, without limitation:
| • |
our cash resources are limited; |
| • |
we have a history of losses; |
| • |
we have not raised funds through a public equity offering; |
| • |
our trustees control a significant percentage of our voting shares; |
| • |
shareholders could experience possible future dilution through the issuance of additional shares; |
| • |
we are dependent on a small number of key senior professionals who are part-time employees; and |
| • |
we currently do not plan to distribute dividends to the holders of our shares. |
Overview
The Company is a Maryland real estate investment trust ("REIT") engaged in investing in, owning and operating commercial properties. Future real estate opportunities may include (i) acquisition and development of retail, office, office warehouse, industrial, multifamily, hotel and other commercial properties, (ii) acquisition of or merger with a REIT or real estate operating company, (iii) sales of existing properties, (iv) redevelopment of existing properties, and (v) joint venture investments. Substantially all of our business is conducted through our operating partnership Pillarstone OP. We are the sole general partner of Pillarstone OP. As of June 30, 2022, we owned approximately 18.6% of the outstanding equity in Pillarstone OP and we fully consolidate it on our condensed consolidated financial statements.
As of June 30, 2022, the Company is a smaller reporting company current in its quarterly and annual financial statement filings with the SEC, that may make future real estate investments. There can be no assurance that we will be able to close additional transactions. Even if our management is successful in closing additional transactions, investors may not value the transactions or the Company in the same manner as we do, and investors may not value the transactions as they would value other transactions or alternatives. Failure to obtain additional sources of capital will materially and adversely affect the Company’s ability to continue operations, as well as its liquidity and financial results.
Brief History
Pillarstone was formed on March 15, 1994 as a Maryland REIT. The Company operated as a traditional REIT by buying, selling, owning and operating commercial and residential properties through December 31, 1999. In 2000, the Company purchased a software technology company, resulting in the Company not meeting the qualifications to be a REIT under the Code. In 2002, the Company discontinued the operations of the technology segment, and from 2003 through 2006, pursued a value-added business plan primarily focused on acquiring well located, under-performing multifamily residential properties, including affordable housing communities, and repositioning them through renovation, leasing, improved management and branding. From 2006 until December 2016, the Company continued its existence as a corporate shell current in its SEC filings.
On December 8, 2016, Pillarstone and Pillarstone OP entered into the Contribution Agreement with Whitestone OP, a subsidiary and the operating partnership of Whitestone, both of which are related parties to Pillarstone and Pillarstone OP, pursuant to which Whitestone OP contributed to Pillarstone OP all of the equity interests in four of its wholly-owned subsidiaries: Whitestone CP Woodland Ph. 2, LLC, a Delaware limited liability company (“CP Woodland”); Whitestone Industrial-Office, LLC, a Texas limited liability company (“Industrial-Office”); Whitestone Offices, LLC, a Texas limited liability company (“Whitestone Offices”); and Whitestone Uptown Tower, LLC, a Delaware limited liability company (“Uptown Tower”) that owned 14 real estate assets (the "Real Estate Assets") 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 issued at a price of $1.331 per OP Unit; and (2) the assumption of approximately $65.9 million of liabilities by Pillarstone OP (collectively, the “Acquisition”). Whitestone OP is the 81.4% limited partner of Pillarstone OP.
In connection with the Contribution Agreement, on December 8, 2016, Pillarstone entered into management agreements with Whitestone TRS, Inc., a subsidiary of Whitestone (“Whitestone TRS"). Pursuant to the management agreements with respect to each property, other than Uptown Tower, Whitestone TRS agreed to provide certain property management, leasing and day-to-day advisory and administrative services to such properties in exchange for (1) a monthly property management fee equal to 5.0% of the monthly revenues of each property and (2) a monthly asset management fee equal to 0.125% of GAV (as defined in each Management Agreement as, generally, the purchase price of the respective property based upon the purchase price allocations determined pursuant to the Contribution Agreement, excluding all indebtedness, liabilities or claims of any nature) of such property. Pursuant to the Management Agreement with respect to Uptown Tower, Whitestone TRS agreed to provide certain property management, leasing and day-to-day advisory and administrative services in exchange for (1) a monthly property management fee equal to 3.0% of the monthly revenues of Uptown Tower and (2) a monthly asset management fee equal to 0.125% of GAV of Uptown Tower.
Lawsuit and Termination of Management Agreements
On July 12, 2022, after the quarterly period ended June 30, 2022, Pillarstone was named as a defendant in a lawsuit filed in the Court of Chancery of the State of Delaware by Whitestone OP. The suit challenges Pillarstone’s rights agreement, dated as of December 27, 2021 (as the same may be amended from time to time, the “Rights Agreement”), between Pillarstone and American Stock Transfer & Trust Company, LLC, as rights agent, and claims that Pillarstone’s adoption of the Rights Agreement breached the Amended and Restated Agreement of Limited Partnership, and that Pillarstone breached its fiduciary duties as general partner of Pillarstone OP to Whitestone OP and breached the implied covenant of good faith and fair dealing under the Amended and Restated Agreement of Limited Partnership. On July 21, 2022, Whitestone OP filed a Motion to Preserve the Status Quo requesting broad restrictions on Pillarstone’s ability to conduct its business, including buying properties, enforcing the Rights Agreement, incurring expenses, or engaging in transactions. Pillarstone believes that these allegations are without merit, intends to vigorously defend against them, and is considering its rights and potential claims for affirmative relief with respect to the lawsuit. However, an unfavorable outcome of this lawsuit is unpredictable and could result in substantial costs to Pillarstone.
On July 19, 2022, Pillarstone received written notice that Whitestone TRS confirmed termination of the management agreements for the Real Estate Assets. Pillarstone had previously communicated to Whitestone its plan to internalize the management of the Real Estate Assets, but Pillarstone had not made efforts to terminate the management agreements. However, Whitestone TRS stated in its notice letter that while it had not received written notice of the termination of the management agreements, it “confirms receipt of your intent to terminate, and hereby confirms termination of the Agreements effective 30 days from” July 19, 2022. Following the transition of management from Whitestone TRS, Pillarstone intends to internalize the management of its Real Estate Assets and to continue to pursue its business without the management services provided by Whitestone TRS under the management agreements.
Prior to receiving the termination notice, Pillarstone had anticipated an orderly transition of the management of the Real Estate Assets over an appropriate timeframe. The management agreements provided for Whitestone TRS to provide such services, or in certain cases contracting with other providers to perform such services, as:
| ● |
providing management, leasing, and maintenance personnel to operate the Real Estate Assets; |
| ● |
maintaining the Real Estate Assets; |
| ● |
maintaining connected utility services at the Real Estate Assets; |
| ● |
invoice and collect the monthly rent from the tenants; default and pursue collection for delinquent tenants; |
| ● |
pay monthly invoices to vendors, including loan payments to lenders; |
| ● |
maintain monthly accounting records and provide monthly operating statements for each Real Estate Asset; |
| ● |
perform an annual audit of the financial statements, prepare workpapers for the annual audit, and assist the auditors to complete the annual audit; |
| ● |
assist in the preparation of the annual tax returns for Pillarstone, Pillarstone OP and the owners of the Real Estate Assets; and |
| ● |
assist in the preparation of the Pillarstone SEC financial reports and other filings. |
The services under the management agreements are extensive and material to the operation of Pillarstone’s business and financial reporting. Pillarstone believes the management functions as operated by Whitestone were deeply integrated with Whitestone’s management functions for its own business and may be difficult, expensive, and time-consuming to separate. If the timeframe to internalize the management functions based on the termination notice is too short, and if Whitestone does not cooperate with an orderly transfer of the management of the Real Estate Assets, Pillarstone’s business, income, cash flow, results of operations, financial condition, liquidity, and prospects could be materially and adversely affected.
Impact of COVID-19
The ongoing COVID-19 pandemic has in the past and may continue to materially and adversely impact and disrupt our business, financial condition, results of operations and cash flows. Any future outbreak of any COVID-19 variants or any other highly infectious or contagious disease could have a similar impact.
The impact of COVID-19, including any resurgences, future pandemics or other health crises may adversely affect our business, financial condition, results of operations, cash flows and market value. These type of health crises may impact our business in the following ways:
| • |
closures of, or other operational issues at, our properties resulting from government or tenant action; |
|
| • |
reduced economic activity impacting our tenants' ability to meet their rental and other obligations to us in full or at all; |
|
| • |
the ability of our tenants who have been granted rent deferrals to timely pay deferred rent; |
|
| • |
an inability to renew leases or lease vacant space on favorable terms or at all; |
|
| • |
tenant bankruptcies; |
|
| • |
liquidity issues resulting from reduced cash flows from operations; |
|
| • |
negative impacts to the credit and/or capital markets making it difficult to access capital on favorable terms or at all; |
|
| • |
impairment in value of our properties; |
|
| • |
a general decline in business activity and demand for real estate transactions adversely affecting our portfolio of properties and our ability to service our indebtedness; |
|
| • |
supply chain disruptions adversely affecting our tenants' operations; and |
|
| • |
impacts on the health of our personnel and a disruption in the continuity of our business. |
Because substantially all of our income is derived from rentals of commercial real property, our business, income, cash flow, results of operations, financial condition, liquidity, prospects and ability to service our debt obligation would be adversely affected if a significant number of tenants are unable to meet their obligations or their revenues decline. The extent to which the COVID-19 pandemic, or a future pandemic, impacts our operations and those of our tenants will depend on future developments, which are highly uncertain and cannot be predicted with confidence.
Results of Operations
The following is a discussion of our results of operations for the three and six months ended June 30, 2022 and 2021 and our financial condition, including:
| • |
Explanation of changes in the results of operations in the Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2022 and 2021. |
| • |
Our critical accounting policies and estimates that require our subjective judgment and are important to the presentation of our financial condition and results of operations. |
| • |
Our primary sources and uses of cash for the six month periods ended June 30, 2022 and 2021, and how we intend to generate cash for long-term capital needs. |
| • |
Our current income tax status. |
The following discussion and analysis should be read in conjunction with the condensed consolidated financial statements and notes thereto appearing elsewhere in this Quarterly Report.
Comparison of the Six Month Periods Ended June 30, 2022 and 2021
Leasing Activity
For the six month period ended June 30, 2022, we executed 32 leases for a total lease value of $1.7 million compared to 46 leases for a total lease value of $3.2 million for the six month period ended June 30, 2021.
Results of Operations
The following provides a general comparison of our results of operations for the six month periods ended June 30, 2022 and 2021 (dollars in thousands):
| Six Months Ended June 30, |
||||||||
| 2022 |
2021 |
|||||||
| Number of properties |
8 | 8 | ||||||
| Aggregate GLA (sq. ft.) |
926,798 | 926,798 | ||||||
| Ending occupancy rate |
56 | % | 61 | % | ||||
| Total revenues |
$ | 4,604 | $ | 4,462 | ||||
| Total operating expenses |
4,009 | 3,922 | ||||||
| Total other expenses |
399 | 383 | ||||||
| Provision for income tax expense (benefit) |
(5 | ) | (12 | ) | ||||
| Net income |
201 | 169 | ||||||
| Less: Non-controlling interest in subsidiary |
293 | 314 | ||||||
| Net loss available to Common Shareholders |
$ | (92 | ) | $ | (145) | |||
Revenues from Operations
We had total revenues for the six month periods ended June 30, 2022 and 2021 of approximately $4,604,000 and $4,462,000, respectively, for an increase of approximately $142,000, or 3%. The difference was comprised of a decrease of approximately $74,000 in rental revenues, an increase of $216,000 in expense reimbursements, an increase of $10,000 in other revenue, and an increase of $10,000 in bad debt, which is classified as a part of revenue. The majority of the overall increase was due to higher reimbursements from common area maintenance and unbilled recoveries from the prior year.
Expenses from Operations
Our operating expenses were approximately $4,009,000 for the six months ended June 30, 2022 compared to approximately $3,922,000 for the six months ended June 30, 2021, an increase of approximately $87,000, or 2%. The overall increase was primarily due to increases in miscellaneous repairs, contract services, and electricity usage at our properties, offset by a decrease in real estate taxes for the six months ended June 30, 2022, compared to the six months ended June 30, 2021. The primary components of operating expenses are detailed in the table below (in thousands):
| Six Months Ended June 30, |
||||||||||||||||
| 2022 |
2021 |
Change |
% Change |
|||||||||||||
| Depreciation and amortization |
$ | 990 | $ | 999 | $ | (9 | ) | (1 | )% | |||||||
| Operating and maintenance |
1,623 | 1,454 | 169 | 12 | % | |||||||||||
| Real estate taxes |
741 | 802 | (61 | ) | (8 | )% | ||||||||||
| General and administrative |
372 | 383 | (11 | ) | (3 | )% | ||||||||||
| Management fees |
283 | 284 | (1 | ) | 0 | % | ||||||||||
| Total operating expenses |
$ | 4,009 | $ | 3,922 |
$ | 87 | 2 | % | ||||||||
Comparison of the Three Month Periods Ended June 30, 2022 and 2021
Leasing Activity
For the three month period ended June 30, 2022, we executed 15 leases for a total lease value of $700,000 compared to 23 leases for a total lease value of $1.9 million for the three month period ended June 30, 2021.
Results of Operations
The following provides a general comparison of our results of operations for the three month periods ended June 30, 2022 and 2021 (dollars in thousands):
| Three Months Ended June 30, |
||||||||
| 2022 |
2021 |
|||||||
| Number of properties |
8 | 8 | ||||||
| Aggregate GLA (sq. ft.) |
926,798 | 926,798 | ||||||
| Ending occupancy rate |
56 | % | 61 | % | ||||
| Total revenues |
$ | 2,278 | $ | 2,272 | ||||
| Total operating expenses |
2,099 | 1,952 | ||||||
| Total other expenses |
202 | 180 | ||||||
| Provision for income tax expense (benefit) |
(12 | ) | (5 | ) | ||||
| Net income |
(11) | 145 | ||||||
| Less: Non-controlling interest in subsidiary |
64 | 205 | ||||||
| Net loss available to Common Shareholders |
$ | (75 | ) | $ | (60 | ) | ||
Revenues from Operations
We had total revenues for the three month periods ended June 30, 2022 and 2021 of approximately $2,278,000 and $2,272,000, respectively, for an increase of approximately $6,000. The difference was comprised of a decrease of approximately $50,000 in rental revenues, an increase of $87,000 in expense reimbursements, an increase of $4,000 in other revenue, and an increase of $35,000 in bad debt, which is classified as a part of revenue. The majority of the overall increase was due to higher reimbursements from common area maintenance and unbilled recoveries from the prior year.
Expenses from Operations
Our operating expenses were approximately $2,099,000 for the three months ended June 30, 2022 compared to approximately $1,952,000 for the three months ended June 30, 2021, an increase of approximately $147,000, or 8%. The overall increase was primarily due to increases in miscellaneous repairs, contract services, and electricity usage at our properties for the three months ended June 30, 2022, compared to the three months ended June 30, 2021. The primary components of operating expenses are detailed in the table below (in thousands):
| Three Months Ended June 30, |
||||||||||||||||
| 2022 |
2021 |
Change |
% Change |
|||||||||||||
| Depreciation and amortization |
$ | 506 | $ | 502 | $ | 4 | 1 | % | ||||||||
| Operating and maintenance |
852 | 736 | 116 | 16 | % | |||||||||||
| Real estate taxes |
413 | 393 | 20 | 5 | % | |||||||||||
| General and administrative |
185 | 176 | 9 | 5 | % | |||||||||||
| Management fees |
143 | 145 | (2 | ) | (1 | )% | ||||||||||
| Total operating expenses |
$ | 2,099 | $ | 1,952 | $ | 147 | 8 | % | ||||||||
Liquidity and Capital Resources
Cash Flows
As of June 30, 2022, our unrestricted cash resources were approximately $4,796,000. We are dependent on cash generated by our ownership of the eight Real Estate Assets to meet our liquidity needs.
During the six months ended June 30, 2022, the Company's cash balance decreased by $410,000 from $5,206,000 at December 31, 2021 to $4,796,000 at June 30, 2022. This decrease in cash was due to cash provided by operating activities of approximately $608,000, cash used in investing activities of approximately $700,000 and cash used in financing activities of approximately $318,000.
During the first quarter of 2022, Pillarstone Capital REIT (“Pillarstone REIT”) determined that it should be reimbursed for its operating and administrative expenses from Pillarstone OP on a historical and ongoing basis in accordance with the Pillarstone OP operating partnership agreement in which Pillarstone REIT is the general partner and Whitestone OP is the limited partner. Whitestone and Whitestone OP contested the reimbursement of expenses of approximately $1.8 million for the years ended 2017 through 2021 and Pillarstone REIT intends to pursue the reimbursement from Pillarstone OP. The funds are in bank accounts currently controlled by affiliates of Whitestone and Whitestone OP pursuant to Pillarstone OP management agreements with those Whitestone affiliates, and the parties are in the process of transitioning the accounts to Pillarstone's control. For financial reporting purposes, Pillarstone REIT and Pillarstone OP report on a consolidated basis, therefore, the reimbursement of Pillarstone REIT's expenses would not change net income but only the allocations between controlling and noncontrolling interests. For the three months ended March 31, 2022, Pillarstone OP reimbursed Pillarstone REIT in May 2022 approximately $117,000 for a portion of operating and administrative expenses and Pillarstone REIT will pursue reimbursement from Pillarstone OP for the remaining amount of approximately $59,000 that Whitestone and Whitestone OP have contested. For the three months ended June 30, 2022, Pillarstone determined approximately $95,000 of its operating and administrative expenses should be reimubursed by Pillarstone OP, of which Whitestone and Whitestone OP contested approximately $62,000. Pillarstone OP will reimburse Pillarstone approximately $33,000 for the uncontested expenses in the third quarter of 2022 and Pillarstone will pursue the contested expenses based on the provisions in the Amended and Restated Agreement of Limited Partnership.
.
When Pillarstone REIT made its determination for reimbursement of its operating and administrative expenses from Pillarstone OP for the years ended 2017 through 2021, Whitestone and Whitestone OP determined Whitestone OP should be reimbursed for construction and lease commissions of approximately $1.4 million that it paid on behalf of Pillarstone OP for 2017 and 2018. Pillarstone REIT and Pillarstone OP requested additional information from Whitestone and Whitestone OP for these expenditures. If any reimbursement is made to Whitestone OP, then Pillarstone OP would have less cash available for operations and distributions to its partners and Pillarstone OP’s investment account with Whitestone OP would be reduced.
Our ability to access the capital markets will be dependent on a number of factors, including general market conditions and market perceptions about our Company.
Future Obligations
None.
Long Term Liquidity and Operating Strategies
Historically, we have financed our long term capital needs, including acquisitions, as follows:
| • |
borrowings from new loans; |
| • |
additional equity issuances of our common and preferred shares and operating partnership units; and |
| • |
proceeds from the sales of our Real Estate Assets. |
From 2006 until December 2016, the Company continued its existence as a corporate shell filing its periodic reports with the SEC so that it could be used for future real estate transactions or sold to another company. During this time, the Company was funded by its trustees who contributed $500,000 in exchange for 125,000 Preferred C Shares and $197,780 in exchange for convertible notes payable.
Subsequent to the Acquisition, Pillarstone has been developing strategies for the Real Estate Assets in order to create value for the enterprise and our shareholders and selling assets to pay off some of its debt. To implement the strategy to create value with the Real Estate Assets, additional capital will need to be raised.
Current Tax Status
As of June 30, 2022 and December 31, 2021, we had net deferred tax liabilities of approximately $11,000 and $36,000, respectively. As of June 30, 2022, we have an operating loss carryforward of approximately $139,000 available to be carried to future periods.
The income tax expense (benefit) included in the condensed consolidated statements of operations for the three and six months ended June 30, 2022 and 2021 was comprised of the following components (in thousands):
| Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
| 2022 |
2021 |
2022 |
2021 |
|||||||||||||
| Federal |
$ | (19) | $ | (17 | ) | $ | (24 | ) | $ | (35 | ) | |||||
| Texas franchise tax |
7 | 12 | 19 | 23 | ||||||||||||
| Provision for income tax expense (benefit) |
$ | (12 | ) | $ | (5 | ) | $ | (5 | ) | $ | (12 | ) | ||||
Interest Rates
The Company was not significantly affected by interest rates during the periods presented in this report due primarily to the Company having approximately 100% of its debt with fixed rates as of June 30, 2022.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have, or are likely to have, a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
Application of Critical Accounting Estimates
Our condensed consolidated financial statements are prepared in accordance with GAAP, which require us to make certain estimates and assumptions. The following section is a summary of certain estimates that both require our most subjective judgment and are most important to the presentation of our financial condition and results of operations. It is possible that the use of different estimates or assumptions in making these judgments could result in materially different amounts being reported in our condensed consolidated financial statements.
Revenue recognition. 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. For the three months ended June 30, 2022, we did not have a straight-line rent reserve adjustment. For the six months ended June 30, 2022, we had a straight-line rent reserve adjustment of $1,000 for the conversion of one tenant to cash basis as a result of our COVID-19 collectibility analysis. For the three and six months ended June 30, 2021, we had a straight-line rent reserve adjustment of $1,000 for the conversion of one tenant to cash basis as a result of our COVID-19 collectibility analysis. 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. 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 and recoveries into a single line item, Rental, within the condensed consolidated statements of operations. We recognize lease termination fees in the year that the lease is terminated and collection of the fee is reasonably assured.
Acquired Properties and Acquired Lease Intangibles. We allocate the purchase price of the acquired properties to land, building and improvements, identifiable intangible assets and to the acquired liabilities based on their respective fair values at the time of purchase. Identifiable intangibles include amounts allocated to acquired out-of-market leases, the value of in-place leases and customer relationship value, if any. We determine fair value based on estimated cash flow projections that utilize appropriate discount and capitalization rates and available market information. Estimates of future cash flows are based on a number of factors including the historical operating results, known trends and specific market and economic conditions that may affect the property. Factors considered by management in our analysis of determining the as-if-vacant property value include an estimate of carrying costs during the expected lease-up periods considering market conditions, and costs to execute similar leases. In estimating carrying costs, management includes real estate taxes, insurance and estimates of lost rentals at market rates during the expected lease-up periods, tenant demand and other economic conditions. Management also estimates costs to execute similar leases including leasing commissions, tenant improvements, legal and other related expenses. Intangibles related to out-of-market leases and in-place lease value are recorded as acquired lease intangibles and are amortized as an adjustment to rental revenue or amortization expense, as appropriate, over the remaining terms of the underlying leases. Premiums or discounts on acquired out-of-market debt are amortized to interest expense over the remaining term of such debt.
Depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of 5 to 39 years for improvements and buildings. Tenant improvements are depreciated using the straight-line method over the life of the improvement or remaining term of the lease, whichever is shorter.
Impairment. We review our properties for impairment at least annually or whenever events or changes in circumstances indicate that the carrying amount of the assets, including accrued rental income, may not be recoverable through operations. We determine whether an impairment in value has occurred by comparing the estimated future cash flows (undiscounted and without interest charges), including the estimated residual value of the property, with the carrying cost of the property. If impairment is indicated, a loss will be recorded for the amount by which the carrying value of the property exceeds its fair value. Management has determined that there has been no impairment in the carrying value of our real estate assets as of June 30, 2022.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, under the supervision and with the participation of our principal executive and financial officers, has evaluated the effectiveness of our disclosure controls and procedures in ensuring that the information required to be disclosed in our filings under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, including ensuring that such information is accumulated and communicated to its management, as appropriate, to allow timely decisions regarding required disclosure.
Based on such evaluation, our principal executive and financial officers have concluded that such disclosure controls and procedures were effective as of June 30, 2022 (the end of the period covered by this Quarterly Report).
Changes in Internal Control Over Financial Reporting
There have been no significant changes in our internal control over financial reporting during the three months ended June 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
On July 12, 2022, after the quarterly period ended June 30, 2022, Pillarstone was named as a defendant in a lawsuit filed in the Court of Chancery of the State of Deleware by Whitestone OP. The lawsuit is described in Part I, Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations", under the heading "Lawsuit and Termination of Management Agreements". We may from time to time become a party to legal proceedings and claims that arise in the ordinary course of our business. These matters are generally covered by insurance. While the frequency and resolutions of any such matters cannot be predicted with certainty, we believe that occurrence and outcomes of these matters will not have a material effect on our financial position, results of operations or cash flows.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
None.
| Exhibit Number |
Exhibit Description |
|
| 3.1 |
||
| 3.2 |
||
| 31.1 |
Section 302 Certification pursuant to the Sarbanes-Oxley Act of 2002 - Chief Executive Officer. |
|
| 31.2 |
Section 302 Certification pursuant to the Sarbanes-Oxley Act of 2002 - Chief Financial Officer. |
|
| 32.1 |
CEO/CFO Certification under Section 906 of Sarbanes-Oxley Act of 2002. |
|
| 101 |
The following financial information of the Registrant for the quarter ended June 30, 2022, formatted in Inline XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets as of June 30, 2022 (unaudited) and December 31, 2021, (ii) Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2022 and 2021 (unaudited), (iii) Condensed Consolidated Statements of Shareholders' Equity (Deficit) for the three months ended March 31 and June 30, 2022 and 2021 (unaudited), (iv) Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2022 and 2021 (unaudited) and (iv) Notes to Condensed Consolidated Financial Statements (unaudited). |
|
| 104 |
Cover Page Interactive Data File - the cover page XBRL tags are embedded within the Inline XBRL document. |
In accordance with the requirements of the Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| PILLARSTONE CAPITAL REIT |
|||
| By: |
/s/ Bradford D. Johnson |
||
| Date: |
August 12, 2022 |
Bradford D. Johnson Chief Executive Officer (Principal executive officer) |
|
| PILLARSTONE CAPITAL REIT |
|||
| By: |
/s/ Daniel P. Kovacevic |
||
| Date: |
August 12, 2022 | Daniel P. Kovacevic Chief Financial Officer (Principal financial and accounting officer) |
|
Exhibit 31.1
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Bradford D. Johnson, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Pillarstone Capital REIT (the “Registrant”);
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 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 subsidiary, 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 that has materially affected, or is reasonably likely to materially effect, the Registrant’s internal control over financial reporting; and |
5. The Registrant’s other certifying officer 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 trustees (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: August 12, 2022
By: /s/ Bradford D. Johnson
Bradford D. Johnson
Chief Executive Officer
(Principal executive officer)
Exhibit 31.2
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Daniel P. Kovacevic, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Pillarstone Capital REIT (the “Registrant”);
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 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 subsidiary, 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 that has materially affected, or is reasonably likely to materially effect, the Registrant’s internal control over financial reporting; and |
5. The Registrant’s other certifying officer 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 trustees (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: August 12, 2022
By: /s/ Daniel P. Kovacevic
Daniel P. Kovacevic
Chief Financial Officer
(Principal financial and accounting officer)
Exhibit 32.1
CERTIFICATION 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 filing of the quarterly report of Pillarstone Capital REIT (the “Company”) on Form 10-Q for the period ending June 30, 2022 (the “Report”) with the Securities and Exchange Commission, I, Bradford D. Johnson, Chief Executive Officer and I, Daniel P. Kovacevic, 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:
|
(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 result of operations of the Company. |
|
PILLARSTONE CAPITAL REIT |
|||
|
By: |
/s/ Bradford D. Johnson |
||
|
Date: |
August 12, 2022 |
Bradford D. Johnson Chief Executive Officer |
|
|
PILLARSTONE CAPITAL REIT |
|||
|
By: |
/s/ Daniel P. Kovacevic |
||
|
Date: |
August 12, 2022 |
Daniel P. Kovacevic Chief Financial Officer |
|
Condensed Consolidated Statements of Operations (Unaudited) - USD ($) |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2022 |
Jun. 30, 2021 |
Jun. 30, 2022 |
Jun. 30, 2021 |
|
| Rental (1) | $ 2,261,000 | $ 2,259,000 | $ 4,571,000 | $ 4,439,000 |
| Transaction and other fees | 17,000 | 13,000 | 33,000 | 23,000 |
| Total revenues | 2,278,000 | 2,272,000 | 4,604,000 | 4,462,000 |
| Depreciation and amortization | 506,000 | 502,000 | 990,000 | 999,000 |
| Operating and maintenance | 852,000 | 736,000 | 1,623,000 | 1,454,000 |
| Real estate taxes | 413,000 | 393,000 | 741,000 | 802,000 |
| General and administrative | 185,000 | 176,000 | 372,000 | 383,000 |
| Management fees | 143,000 | 145,000 | 283,000 | 284,000 |
| Total operating expenses | 2,099,000 | 1,952,000 | 4,009,000 | 3,922,000 |
| Interest expense, net | 202,000 | 204,000 | 399,000 | 407,000 |
| Other income | 0 | (24,000) | 0 | (24,000) |
| Total other expenses | 202,000 | 180,000 | 399,000 | 383,000 |
| Income (loss) before income taxes | (23,000) | 140,000 | 196,000 | 157,000 |
| Provision for income tax benefit | 12,000 | 5,000 | 5,000 | 12,000 |
| Net income (loss) | (11,000) | 145,000 | 201,000 | 169,000 |
| Less: Noncontrolling interest in subsidiary | (64,000) | (205,000) | (293,000) | (314,000) |
| Net loss attributable to Common Shareholders | $ (75,000) | $ (60,000) | $ (92,000) | $ (145,000) |
| Basic loss per Common Share: | ||||
| Net loss available to Common Shareholders (in dollars per share) | $ (0.11) | $ (0.10) | $ (0.14) | $ (0.24) |
| Diluted loss per Common Share: | ||||
| Net loss available to Common Shareholders (in dollars per share) | $ (0.11) | $ (0.10) | $ (0.14) | $ (0.24) |
| Weighted average number of Common Shares outstanding: | ||||
| Basic: (in shares) | 657,084 | 595,000 | 657,084 | 595,000 |
| Diluted: (in shares) | 657,084 | 595,000 | 657,084 | 595,000 |
| Rental revenues | $ 1,987,000 | $ 2,037,000 | $ 4,005,000 | $ 4,079,000 |
| Recoveries | 298,000 | 211,000 | 605,000 | 389,000 |
| Bad debt | (24,000) | 11,000 | (39,000) | (29,000) |
| Total rental | $ 2,261,000 | $ 2,259,000 | $ 4,571,000 | $ 4,439,000 |
Condensed Consolidated Statements of Changes in Equity (Deficit) (Unaudited) - USD ($) $ in Thousands |
Preferred Stock [Member]
Series A Preferred Stock [Member]
|
Preferred Stock [Member]
Series C Preferred Stock [Member]
|
Common Stock [Member] |
Additional Paid-in Capital [Member] |
Retained Earnings [Member] |
Treasury Stock [Member] |
Parent [Member] |
Noncontrolling Interest [Member] |
Total |
|---|---|---|---|---|---|---|---|---|---|
| Balance at Dec. 31, 2020 | $ 3 | $ 2 | $ 6 | $ 28,494 | $ (23,623) | $ (801) | $ 4,081 | $ 34,361 | $ 38,442 |
| Net income (loss) | 0 | 0 | 0 | 0 | (85) | 0 | (85) | 109 | 24 |
| Share-based compensation | 0 | 0 | 0 | 15 | 0 | 0 | 15 | 0 | 15 |
| Balance at Mar. 31, 2021 | 3 | 2 | 6 | 28,509 | (23,708) | (801) | 4,011 | 34,470 | 38,481 |
| Balance at Dec. 31, 2020 | 3 | 2 | 6 | 28,494 | (23,623) | (801) | 4,081 | 34,361 | 38,442 |
| Net income (loss) | 169 | ||||||||
| Net income (loss) | 314 | ||||||||
| Balance at Jun. 30, 2021 | 3 | 2 | 6 | 28,511 | (23,768) | (801) | 3,953 | 34,675 | 38,628 |
| Balance at Mar. 31, 2021 | 3 | 2 | 6 | 28,509 | (23,708) | (801) | 4,011 | 34,470 | 38,481 |
| Net income (loss) | 0 | 0 | 0 | 0 | (60) | 0 | (60) | 145 | |
| Net income (loss) | 205 | 205 | |||||||
| Share-based compensation | 0 | 0 | 0 | 2 | 0 | 0 | 2 | 0 | 2 |
| Balance at Jun. 30, 2021 | 3 | 2 | 6 | 28,511 | (23,768) | (801) | 3,953 | 34,675 | 38,628 |
| Balance at Dec. 31, 2021 | 3 | 2 | 7 | 28,493 | (23,882) | (801) | 3,822 | 35,094 | 38,916 |
| Net income (loss) | 0 | 0 | 0 | 0 | (17) | 0 | (17) | 229 | 212 |
| Balance at Mar. 31, 2022 | 3 | 2 | 7 | 28,493 | (23,899) | (801) | 3,805 | 35,323 | 39,128 |
| Balance at Dec. 31, 2021 | 3 | 2 | 7 | 28,493 | (23,882) | (801) | 3,822 | 35,094 | 38,916 |
| Net income (loss) | 201 | ||||||||
| Net income (loss) | 293 | ||||||||
| Balance at Jun. 30, 2022 | 3 | 2 | 7 | 28,493 | (23,974) | (801) | 3,730 | 35,387 | 39,117 |
| Balance at Mar. 31, 2022 | 3 | 2 | 7 | 28,493 | (23,899) | (801) | 3,805 | 35,323 | 39,128 |
| Net income (loss) | 0 | 0 | 0 | 0 | (75) | 0 | (75) | (11) | |
| Net income (loss) | 64 | 64 | |||||||
| Balance at Jun. 30, 2022 | $ 3 | $ 2 | $ 7 | $ 28,493 | $ (23,974) | $ (801) | $ 3,730 | $ 35,387 | $ 39,117 |
Note 1 - Summary of Significant Accounting Pronouncements |
6 Months Ended |
|---|---|
Jun. 30, 2022 | |
| Notes to Financial Statements | |
| Significant Accounting Policies [Text Block] |
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting. Pillarstone Capital REIT's (the “Company,” “Pillarstone,” “we,” “our,” or “us”) 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. In order to conform with generally accepted accounting principles in the United States ("U.S. GAAP"), management, in preparation of our condensed consolidated financial statements, is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of June 30, 2022 and December 31, 2021, and the reported amounts of revenues and expenses for the three and six months ended June 30, 2022 and 2021. Actual results could differ from those estimates. Significant estimates that we use include the estimated fair value of properties acquired, allowance for doubtful accounts, impairment, the estimated useful lives for depreciable and amortizable assets and costs, and deferred taxes and the related valuation allowance for deferred taxes.
Cash and cash equivalents. We consider all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Cash and cash equivalents as of June 30, 2022 and December 31, 2021 consisted of demand deposits at a commercial bank and a brokerage account. We maintain our cash in bank accounts that are federally insured.
Acquired Properties and Acquired Lease Intangibles. We allocate the purchase price of the acquired properties to land, building and improvements, identifiable intangible assets and to the acquired liabilities based on their respective fair values at the time of purchase. Identifiable intangibles include amounts allocated to acquired out-of-market leases, the value of in-place leases and customer relationship value, if any. We determine fair value based on estimated cash flow projections that utilize appropriate discount and capitalization rates and available market information. Estimates of future cash flows are based on a number of factors including the historical operating results, known trends and specific market and economic conditions that may affect the property. Factors considered by management in our analysis of determining the as-if-vacant property value include an estimate of carrying costs during the expected lease-up periods considering market conditions, and costs to execute similar leases. In estimating carrying costs, management includes real estate taxes, insurance and estimates of lost rentals at market rates during the expected lease-up periods, tenant demand and other economic conditions. Management also estimates costs to execute similar leases including leasing commissions, tenant improvements, legal and other related expenses. Intangibles related to out-of-market leases and in-place lease value are recorded as acquired lease intangibles and are amortized as an adjustment to rental revenue or amortization expense, as appropriate, over the remaining terms of the underlying leases. Premiums or discounts on acquired out-of-market debt are amortized to interest expense over the remaining term of such debt.
Depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of 5 to 39 years for improvements and buildings. Tenant improvements are depreciated using the straight-line method over the life of the improvement or remaining term of the lease, whichever is shorter.
Impairment. We review our properties for impairment at least annually or whenever events or changes in circumstances indicate that the carrying amount of the assets, including accrued rental income, may not be recoverable through operations. We determine whether an impairment in value has occurred by comparing the estimated future cash flows (undiscounted and without interest charges), including the estimated residual value of the property, with the carrying cost of the property. If impairment is indicated, a loss will be recorded for the amount by which the carrying value of the property exceeds its fair value. Management has determined that there has been no impairment in the carrying value of our real estate assets as of June 30, 2022.
Accrued Rents and Accounts Receivable. Included in accrued rent and accounts receivable are base rents, tenant reimbursements and receivables attributable to recording rents on a straight-line basis. We review the collectability of charges under our tenant operating leases on a regular basis, taking into consideration changes in factors such as the tenant’s payment history, the financial condition of the tenant, business conditions in the industry in which the tenant operates and economic conditions in the area where the property is located, including the impact of the COVID-19 pandemic on tenants' businesses and financial condition. We recognize an adjustment to rental revenue if we deem it probable that the receivable will not be collected. Our review of collectability under our operating leases includes any accrued rental revenues related to the straight-line method of reporting rental revenue. As of June 30, 2022 and December 31, 2021, we had an allowance for uncollectible accounts of approximately $577,000 and $538,000, respectively. For the three and six months ended June 30, 2022, we recorded an adjustment to rental revenue in the amount of approximately $24,000 and $39,000, respectively. For the three months ended June 30, 2022, there was no bad debt adjustment related to a potential credit loss from our COVID-19 collectibility analysis. For the six months ended June 30, 2022 there was approximately $40,000 related to a credit loss for the conversion of two tenants to cash basis revenue as a result of our COVID-19 collecitibility analysis. For the three and six months ended June 30, 2021, we recorded an adjustment to rental revenue in the amount of approximately $(11,000) and $29,000, respectively. Included in our adjustments to rental revenue for the three and six months ended June 30, 2021 was a bad debt adjustment of $10,913 and $51,174, respectively, related to a potential credit loss for the conversion of three tenants to cash basis revenue as a result of our COVID-19 collectibility analysis.
Unamortized Lease Commissions and Deferred Legal Cost. Leasing commissions and deferred legal cost are amortized using the straight-line method over the terms of the related lease agreements. Costs allocated to in-place leases whose terms differ from market terms related to acquired properties are amortized over the remaining life of the respective leases.
Prepaid expenses and Other assets. Prepaid expenses and other assets include escrows established pursuant to certain mortgage financing arrangements for real estate taxes and insurance.
Noncontrolling Interests. Noncontrolling interests are the portion of equity in a subsidiary not attributable to a parent. Accordingly, we have reported noncontrolling interest in equity on the condensed consolidated balance sheets but separate from Pillarstone’s equity. On the condensed consolidated statements of operations, subsidiaries are reported at the consolidated amount, including both the amount attributable to Pillarstone and noncontrolling interest.
Revenue recognition. 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. For the three months ended June 30, 2022, we did have a straight-line rent reserve adjustment. For the six months ended June 30, 2022, we had a straight-line rent reserve adjustment of $1,000 for the conversion of one tenant to cash basis as a result of our COVID-19 collectibility analysis. For the three and six months ended June 30, 2021 we had a straight-line rent reserve adjustment of $1,000 for the conversion of one tenant to cash basis as a result of our COVID-19 collectibility analysis. 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. 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 and recoveries into a single line item, Rental, within the condensed consolidated statements of operations. We recognize lease termination fees in the year that the lease is terminated and collection of the fee is reasonably assured.
Stock-based compensation. The Company accounts for stock-based compensation in accordance with ASC No. 718, "Compensation - Stock Compensation," which addresses the accounting for stock-based payment transactions in which an enterprise receives employee services in exchange for (a) equity instruments of the enterprise or (b) liabilities that are based on the fair value of the enterprise’s equity instruments or that may be settled by the issuance of such equity instruments. ASC No.718 generally requires that these transactions be accounted for using a fair-value-based method. The Company uses the Black-Scholes option-pricing model to determine the fair-value of stock-based awards.
Income taxes. Because we have not elected to be taxed as a REIT for federal income tax purposes, we account for income taxes using the asset and liability method under which deferred tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and liabilities using enacted tax rates in effect for the period in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. We are also subject to certain state and local income, excise and franchise taxes. The provision for state and local taxes has been reflected in provision for income taxes in the condensed consolidated statements of operations and has not been separately stated due to its insignificance.
The Company evaluates potential uncertain tax positions on an annual basis in conjunction with the board of trustees and its tax accountants. Authoritative literature provides a two-step approach to recognize and measure tax benefits when realization of the benefits is uncertain. The first step is to determine whether the benefit meets the more-likely-than-not condition for recognition and the second step is to determine the amount to be recognized based on the cumulative probability that exceeds 50%.
As of June 30, 2022, we had a net operating loss carry-forward of approximately $139,000, and as of June 30, 2022 and December 31, 2021, we had net deferred tax liabilities of approximately $11,000 and $36,000, respectively.
Concentration of Risk. Substantially all of our revenues are obtained from office and warehouse locations in the Dallas and Houston metropolitan areas. We maintain cash accounts in major U.S. financial institutions. The terms of these deposits are on demand to minimize risk. The balances of these accounts sometimes exceed the federally insured limits, although no losses have been incurred in connection with these deposits.
Recent accounting pronouncements. In April 2020, the Financial Accounting Standards Board ("FASB") issued guidance on the application of Topic 842, relating to concessions being made by lessors in response to the COVID-19 pandemic. The guidance notes that it would be acceptable for entities to make an election to account for lease concessions relating to the effects of the COVID-19 pandemic consistent with how those concessions would be accounted for under Topic 842 as though enforceable rights and obligations for those concessions existed, even if such enforceable rights and obligations are not explicitly contained in the lease contract. Thus, for concessions relating to COVID-19, an entity would not have to analyze each contract to determine whether enforceable rights and obligations for concessions exist in the contract, and would have the option to apply, or not to apply, the general lease modification guidance in Topic 842 as it stands. We have elected this option to account for lease concessions relating to the effects of the COVID-19 pandemic consistent with how those concessions would be accounted for under Topic 842 as though enforceable rights and obligations for those concessions existed. Therefore, such concessions are not accounted for as a lease modification under Topic 842.
|
Note 2 - Accrued Rents and Accounts Receivable, Net |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||
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| Loans, Notes, Trade and Other Receivables Disclosure [Text Block] |
2. 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 3 - Leases |
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| Lessee, 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, if applicable, 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 condensed consolidated statements of operations.
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 June 30, 2022 is as follows (in thousands):
(1) These amounts do not reflect future rental revenues from the renewal or replacement of existing leases and exclude reimbursements of operating expenses and rental increases that are not fixed.
As a Lessee. On June 8, 2021, Pillarstone's lease became month to month with Whitestone for the premises located at 2600 S. Gessner Road, Suite 555 Houston, Texas 77063. The rentable area of the premises is approximately 678 square feet. Total rent expense for the three and six months ended June 30, 2022 was $5,670 and $11,340, respectively. Total rent expense for the three and six months ended June 30, 2021 was $10,051 and $17,611, respectively.
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Note 4 - Unamortized Lease Commissions and Deferred Legal Cost, Net |
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| Unamortized Lease Commissions and Loan Costs [Text Block] |
4. UNAMORTIZED LEASE COMMISSIONS AND DEFERRED LEGAL COST, NET
Costs which have been deferred consist of the following (in thousands):
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Note 5 - Variable Interest Entity |
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| Equity Method Investments and Joint Ventures Disclosure [Text Block] |
5. VARIABLE INTEREST ENTITY
On December 8, 2016, Pillarstone and Pillarstone OP, entered into a Contribution Agreement (the “Contribution Agreement”) with Whitestone REIT Operating Partnership, L.P. (“Whitestone OP”), a subsidiary and the operating partnership of Whitestone REIT (“Whitestone”), both of which are related parties to Pillarstone and Pillarstone OP. Pursuant to the terms of the Contribution Agreement, Whitestone OP contributed to Pillarstone OP all of the equity interests in of its wholly-owned subsidiaries (the “Subsidiaries”): Whitestone CP Woodland Ph. 2, LLC, a Delaware limited liability company; Whitestone Industrial-Office, LLC, a Texas limited liability company; Whitestone Offices, LLC, a Texas limited liability company; and Whitestone Uptown Tower, LLC, a Delaware limited liability company (“Uptown Tower”) that owned 14 real estate assets (the “Real Estate Assets” and, together with the Subsidiaries, the “Property”) 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 (“OP Units”), issued at a price of $1.331 per OP Unit; and (2) the assumption of approximately $65.9 million of liabilities by Pillarstone OP. Pursuant to the Contribution Agreement, Pillarstone became the general partner of Pillarstone OP with an equity ownership interest in Pillarstone OP totaling approximately an 18.6% interest valued at $4.1 million as of the date of the Contribution Agreement.
In connection with the Contribution Agreement, on December 8, 2016, the Company, as the general partner of Pillarstone OP, entered into an Amended and Restated Agreement of Limited Partnership of Pillarstone OP (as amended and restated, the “Amended and Restated Agreement of Limited Partnership”). Pursuant to the Amended and Restated Agreement of Limited Partnership, subject to certain protective rights of the limited partners described below, the general partner has full, exclusive and complete responsibility and discretion in the management and control of Pillarstone OP, including the ability to cause Pillarstone OP to enter into certain major transactions including a merger of Pillarstone OP or a sale of substantially all of the assets of Pillarstone OP. The limited partners have no power to remove the general partner without the general partner's consent. In addition, pursuant to the Amended and Restated Agreement of Limited Partnership, the general partner may not conduct any business without the consent of a majority of the limited partners other than in connection with certain actions described therein. The Company is deemed to exercise significant influence over Pillarstone OP as it has the power to direct the activities that most significantly impact Pillarstone OP's economic performance and the Company's right to receive benefits based on its ownership percentage in Pillarstone OP. Accordingly, the Company accounts for Pillarstone OP as a Variable Interest Entity.
The Amended and Restated Agreement of Limited Partnership designates two classes of units of limited partnership interest in Pillarstone OP: the OP Units and LTIP units. In general, LTIP units are similar to the OP Units and will receive the same quarterly per-unit profit distributions as the OP Units. The rights, privileges, and obligations related to each series of LTIP units will be established at the time the LTIP units are issued. As profits interests, LTIP units initially will not have full parity, on a per-unit basis, with OP Units with respect to liquidating distributions. Upon the occurrence of specified events, LTIP units can over time achieve full parity with the OP Units and therefore accrete to an economic value for the holder equivalent to OP Units. If such parity is achieved, vested LTIP units may be converted on a -for-one basis into OP Units, which in turn are redeemable by the holder for cash or, at the Company’s election, exchangeable for Common Shares on a -for-one basis.
The carrying amounts and classification of certain assets and liabilities for Pillarstone OP in our condensed consolidated balance sheets as of June 30, 2022 and December 31, 2021 consists of the following (in thousands):
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Note 6 - Real Estate |
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Jun. 30, 2022 | |
| Notes to Financial Statements | |
| Real Estate Disclosure [Text Block] |
6. REAL ESTATE
As of June 30, 2022, Pillarstone OP owned eight Real Estate Assets in the Dallas and Houston areas comprised of approximately 0.9 million square feet of gross leasable area.
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Note 7 - Debt |
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| Debt Disclosure [Text Block] |
7. DEBT
Mortgages and other notes payable consist of the following (in thousands):
Our mortgage debt was collateralized by one operating property as of June 30, 2022 and December 31, 2021 with a net book value of $21.3 million. Our loan contains restrictions that would require the payment of prepayment penalties for the acceleration of outstanding debt and is secured by a deed of trust on our property and the assignment of certain rents and leases associated with the property. Our loan is subject to customary covenants. During the period ending June 30, 2022, we also entered into an additional loan related to our commercial property insurance policy. As of June 30, 2022, we were in compliance with all loan covenants.
Scheduled maturities of notes payable as of June 30, 2022 were as follows (in thousands):
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Note 8 - Convertible Notes Payable - Related Parties |
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Jun. 30, 2022 | |
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| Debt Disclosure, Related Party [Text Block] |
8. CONVERTIBLE NOTES PAYABLE - RELATED PARTIES
On November 20, 2015, five trustees on our board of trustees loaned $197,780 to the Company in exchange for convertible notes payable. The convertible notes payable accrue interest at 10% per annum and originally matured on November 20, 2018. In 2019, our board of trustees approved an extension of the maturity date to November 20, 2021. In 2021, the noteholders agreed to extend the maturity date to November 30, 2022. The convertible notes payable can be converted by the noteholders into Common Shares at the rate of $1.331 per Common Share at any time. At maturity or when the Company chooses to call the convertible notes payable, the noteholders have the option to receive cash plus accrued interest or convert the convertible notes payable into Common Shares at per Common Share. Accrued interest on these related convertible notes was approximately $131,000 as of June 30, 2022 compared with approximately $121,000 as of December 31, 2021.
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Note 9 - Earnings (Loss) Per Share |
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| Earnings Per Share [Text Block] |
9. EARNINGS (LOSS) PER SHARE
The Company applies the guidance of ASC 260, "Earnings Per Share," for all periods presented herein. Net earnings (loss) per weighted average Common Share outstanding, basic and diluted, is computed based on the weighted average number of Common Shares outstanding for the period. The following table shows the weighted average number of Common Shares outstanding and reconciles the numerator and denominator of earnings per Common Share calculations for the three and six month periods ended June 30, 2022 and 2021.
For the three and six month periods ended June 30, 2022 and 2021, Class A Preferred Shares and Class C Preferred Shares were not included in net loss per weighted average number of Common Share outstanding-diluted, because the effect of the conversion would be anti-dilutive.
During the three and six month periods ended June 30, 2022 and 2021, the Company had $197,780 of convertible notes payable as discussed in Note 8. The convertible notes payable were not included in the computation of diluted loss per share for the three and six months ended June 30, 2022 and 2021 because the effect of the conversion would be anti-dilutive. For the three and six month periods ended June 30, 2022 and 2021, Restricted Common Shares awarded pursuant to the 2016 plan (defined in Note 11 below) were not included in net loss per weighted average number of Common Share outstanding-dilutive, because the effect of the conversion would be anti-dilutive.
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Note 10 - Related Party Transactions |
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| Related Party Transactions Disclosure [Text Block] |
10. RELATED PARTY TRANSACTIONS
On December 8, 2016, the Company entered into the Contribution Agreement with Whitestone OP, a related party, resulting in the contribution of an equity ownership interest in Pillarstone OP by the Company valued at $4,121,312 and representing approximately 18.6% of the outstanding equity in Pillarstone OP. The terms of the Contribution Agreement were determined through arm's-length negotiations and were recommended to the board of trustees by a special committee of the board of trustees consisting solely of disinterested trustees of the Company and approved by the full board.
Pursuant to the Contribution Agreement, the Company agreed to file with the Securities and Exchange Commission (the "SEC") on or prior to June 8, 2018, a shelf registration statement to register for sale under the Securities Act of 1933, as amended, the issuance of the common shares in the Company that may be issued upon redemption of the OP Units issued pursuant to the Contribution Agreement and the offer and resale of such common shares by the holders thereof. In addition, pursuant to the Contribution Agreement, in the event of a Change of Control (as defined therein) of Whitestone, Pillarstone OP shall have the right, but not the obligation, to repurchase the OP Units issued thereunder from Whitestone OP at their initial issue price of $1.331 per OP Unit. Pillarstone and Whitestone agreed to extend the filing of the shelf registration statement to the date that the Company closes a public equity offering.
During the ordinary course of business, we have transactions with Whitestone that include, but are not limited to, rental income, interest expense, general and administrative costs, commissions, management and asset management fees, and property expenses.
In connection with the Contribution Agreement, on December 8, 2016, the Company entered into a Management Agreement (collectively, the “Management Agreements”) with Whitestone TRS, Inc., a subsidiary of Whitestone (“Whitestone TRS"). Pursuant to the Management Agreements with respect to each property, other than Uptown Tower, Whitestone TRS agreed to provide certain property management, leasing and day-to-day advisory and administrative services to such properties in exchange for (1) a monthly property management fee equal to 5.0% of the monthly revenues of each property and (2) a monthly asset management fee equal to 0.125% of GAV (as defined in each Management Agreement as, generally, the purchase price of the respective property based upon the purchase price allocations determined pursuant to the Contribution Agreement, excluding all indebtedness, liabilities or claims of any nature) of such property. Pursuant to the Management Agreement with respect to Uptown Tower, Whitestone TRS agreed to provide certain property management, leasing and day-to-day advisory and administrative services in exchange for (1) a monthly property management fee equal to 3.0% of the monthly revenues of Uptown Tower and (2) a monthly asset management fee equal to of GAV of Uptown Tower. On July 19, 2022, Pillarstone received written notice that Whitestone TRS confirmed termination of the Management Agreements for the Pillarstone OP Real Estate Assets even though neither Pillarstone and Pillarstone OP had made any efforts to terminate the Management Agreements. See Note 12-Subesequent Events for additional information.
The following table presents the revenue and expenses with Whitestone included in our condensed consolidated statement of operations for the three and six months ended June 30, 2022 and 2021 (in thousands):
Receivables due from and payables due to related parties consisted of the following as of June 30, 2022 and December 31, 2021 (in thousands):
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Note 11 - Incentive Equity Plan |
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| Notes to Financial Statements | |||||||||||
| Stockholders' Equity Note Disclosure [Text Block] |
11. INCENTIVE EQUITY PLAN
At the 2016 Annual Meeting of Shareholders, our shareholders approved the 2016 Equity Plan ("2016 Plan").
The 2016 Plan provides that awards may be made in Common Shares of the Company or units in the Company’s operating partnership, which may be converted into Common Shares. Subject to adjustment as provided by the terms of the 2016 Plan, the maximum aggregate number of Common Shares with respect to which awards may be granted under the 2016 Plan will be increased based on future issuances of Common Shares and units of the operating partnership, including issuances pursuant to the 2016 Plan, so that at any time the maximum number of shares that may be issued under the 2016 Plan shall equal 12.5% of the aggregate number of Common Shares and units of the operating partnership issued and outstanding (other than treasury shares and/or units issued to or held by the Company).
The Management, Organization and Compensation Committee (the “Committee”) administers the 2016 Plan, except with respect to awards to non-employee trustees, for which the 2016 plan is administered by the board of trustees. Subject to the terms of the 2016 Plan, the Committee is authorized to select participants, determine the type and number of awards to be granted, determine and later amend (subject to certain limitations) the terms and conditions of any award, interpret and specify the rules and regulations relating to the 2016 Plan, and make all other determinations which may be necessary or desirable for the administration of the 2016 Plan. The 2016 Plan includes the types of awards for grants and types of financial performance measures.
As of the six months ended June 30, 2022, the following shares are available for grant:
For the three and six months ended June 30, 2022, the Company did recognize any stock-based compensation expense for trustee compensation or employee stock-based compensation.. For the three and six months ended June 30, 2021, the Company recognized approximately $2,000 and $17,000 in employee stock-based compensation, respectively. For the three and six months ended June 30, 2021, the Company did recognize any stock-based compensation expense for trustee compensation.
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Note 12 - Subsequent Events |
6 Months Ended |
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Jun. 30, 2022 | |
| Notes to Financial Statements | |
| Subsequent Events [Text Block] |
12. SUBSEQUENT EVENTS
During the first quarter of 2022, based on a legal review of the Pillarstone OP operating partnership agreement dated December 8, 2016, between Pillarstone, as general partner, and Whitestone OP, as limited partner, Pillarstone determined that its operating and administrative expenses should be reimbursed by Pillarstone OP on a historical and on-going basis. Accordingly, Pillarstone notified Whitestone OP, which manages Pillarstone OP's properties and provides the accounting function for both Pillarstone and Pillarstone OP, to transfer cash of $1,819,729 from Pillarstone OP to Pillarstone as reimbursement for Pillarstone's operating and administrative expenses for the years ended 2017 through 2021. In April 2022, Whitestone and Whitestone OP contested the expense reimbursement. Pillarstone and Pillarstone OP recorded the expense reimbursement of with a reserve of on each company’s separate books and records in the first quarter 2022 although these amounts are eliminated in the consolidated financial statements herein. The reserve was recorded due to Whitestone and Whitestone OP's contesting the expense reimbursement. Pillarstone intends to pursue the collection of the expense reimbursement from Pillarstone OP based on the provisions of the Amended and Restated Agreement of Limited Partnership.
After Pillarstone notified Whitestone of the $1,819,729 expense reimbursement required from Pillarstone OP, Whitestone and Whitestone OP made a claim to Pillarstone and Pillarstone OP to be reimbursed for construction and lease commission expenditures of $1,425,972 paid by Whitestone OP on behalf of Pillarstone OP during 2017 and 2018. Pillarstone requested additional information for the $1,425,972 expenditures to determine if any of the items claimed should have been prorated between Pillarstone OP and Whitestone OP when the December 8, 2016 transaction occurred for Pillarstone OP’s acquisition of the Real Estate Assets. Whitestone OP is an 81.4% limited partner of Pillarstone OP and Pillarstone is the general partner owning the remaining 18.6% of Pillarstone OP. The $1,425,972 expenditures were recorded on Pillarstone OP in 2017 and 2018 as an increase in the Whitestone OP limited partner investment account and as assets of Pillarstone OP that have been depreciated and amortized to expense over their useful lives. The amount due Whitestone OP for these expenditures, if any, has not been determined. If Pillarstone OP reimburses any amounts to Whitestone OP, the payment would reduce the Whitestone OP limited partner investment account.
In April 2022, Pillarstone determined the expense reimbursement of $176,593 was due from Pillarstone OP for Pillarstone's operating and administrative expenses for the first quarter of 2022. Pillarstone OP transferred $117,186 to Pillarstone in May 2022. The difference of $59,407 between the expense reimbursement and the cash transferred are Pillarstone expenses contested by Whitestone and Whitestone OP. Pillarstone and Pillarstone OP recorded the expense reimbursement of with an allowance of on each company’s separate books and records in the first quarter 2022 although these amounts are eliminated in the consolidated financial statements herein. Pillarstone intends to pursue reimbursement of the contested expenses based on the provisions of the Amended and Restated Agreement of Limited Partnership.
In July 2022, Pillarstone determined the expense reimbursement of $94,550 was due from Pillarstone OP for Pillarstone’s operating and administrative expenses for the second quarter of 2022 of which Whitestone and Whitestone OP contested expenses of $61,724. Pillarstone and Pillarstone OP recorded the expense reimbursement of $94,550 with an allowance of $61,724 on each company’s separate books and records in the second quarter 2022 although these amounts are eliminated in the consolidated financial statements herein. Pillarstone OP will transfer $32,826 of uncontested expenses to Pillarstone in the third quarter of 2022 and Pillarstone intends to pursue reimbursement of the contested expenses based on the provisions of the Amended and Restated Agreement of Limited Partnership.
On July 12, 2022, Pillarstone was named as a defendant in a lawsuit filed in the Court of Chancery of the State of Delaware by Whitestone OP. The suit challenges Pillarstone’s rights agreement, dated as of December 27, 2021 (as the same may be amended from time to time, the “Rights Agreement”), between Pillarstone and American Stock Transfer & Trust Company, LLC, as rights agent, and claims that Pillarstone’s adoption of the Rights Agreement breached the Amended and Restated Agreement of Limited Partnership, and that Pillarstone breached its fiduciary duties as general partner of Pillarstone OP to Whitestone OP and breached the implied covenant of good faith and fair dealing under the Amended and Restated Agreement of Limited Partnership. On July 21, 2022, Whitestone OP filed a Motion to Preserve the Status Quo requesting broad restrictions on Pillarstone’s ability to conduct its business, including buying properties, enforcing the Rights Agreement, incurring expenses, or engaging in transactions. Pillarstone believes that these allegations are without merit, intends to vigorously defend against them, and is considering its rights and potential courses of action with respect to the lawsuit. However, an unfavorable outcome of this lawsuit is unpredictable and could result in substantial costs to Pillarstone.
On July 19, 2022, Pillarstone received written notice that Whitestone TRS confirmed termination of the management agreements for the Pillarstone OP’s Real Estate Assets. Whitestone TRS is a subsidiary of Whitestone REIT, which owns Whitestone OP, the holder of 81.4% of the total outstanding Class A units representing limited partnership interests in Pillarstone OP. Substantially all of Pillarstone’s business is conducted through Pillarstone OP. Pillarstone is the sole general partner of Pillarstone OP and owns 18.6% of the outstanding equity in Pillarstone OP. Pursuant to the management agreements with respect to each Real Estate Asset (other than the Uptown Tower Real Estate Asset), Whitestone TRS agreed to provide certain property management, leasing and day-to-day advisory and administrative services to such Real Estate Asset in exchange for (x) a monthly property management fee equal to 5.0% of the monthly revenues of such Real Estate Asset and (y) a monthly asset management fee equal to 0.125% of GAV (as defined in each management agreement as, generally, the purchase price of the respective Real Estate Asset based upon the purchase price allocations determined pursuant to the contribution agreement pursuant to which Pillarstone OP acquired the equity interests of the entities that owned the Real Estate Assets) of such Real Estate Asset. Pursuant to the management agreement with respect to the Uptown Tower Real Estate Asset, Whitestone TRS agreed to provide certain property management, leasing and day-to-day advisory and administrative services to Pillarstone OP in exchange for (x) a monthly property management fee equal to 3.0% of the monthly revenues of Uptown Tower and (y) a monthly asset management fee equal to 0.125% of GAV of Uptown Tower. Pillarstone had previously communicated to Whitestone REIT its plan to internalize the management of the Real Estate Assets, but Pillarstone had not made efforts to terminate the management agreements. However, Whitestone TRS stated in its notice letter that while it had not received written notice of the termination of the management agreements, it “confirms receipt of your intent to terminate, and hereby confirms termination of the Agreements effective 30 days from” July 19, 2022. Following the transition of management from Whitestone TRS, Pillarstone intends to internalize the management of its Real Estate Assets and to continue to pursue its business without the management services provided by Whitestone TRS under the management agreements.
On July 21, 2022, before receiving Whitestone OP’s filed Motion to Preserve the Status Quo requesting broad restrictions on Plllarstone’s ability to conduct its business (see above), Pillarstone’s board of trustees increased the size of the board from five to six trustees and appointed Bradford Johnson as Pillarstone’s President and Chief Executive Officer and to the board to serve as a Class I trustee with a term expiring at Pillarstone’s annual meeting of shareholders to be held in 2025. Mr. Johnson replaces James C. Mastandrea as President and Chief Executive Officer. Mr. Mastandrea, who had been Pillarstone’s Chairman, President and Chief Executive Officer since 2003, ended his term as President and Chief Executive Officer and continues to serve in his role as Chairman and trustee of Pillarstone. In addition, the board appointed Daniel P. Kovacevic as Pillarstone’s Chief Financial Officer. Mr. Kovacevic replaces John J. Dee as Chief Financial Officer. Mr. Dee, who had been Pillarstone’s Senior Vice President, Chief Financial Officer, Secretary and a trustee since 2003, ended his term as Chief Financial Officer and continues to serve in his role as a trustee of Pillarstone. The board also appointed William J. Carter as Pillarstone’s Chief Operating Officer. Pillarstone is proceeding to internalize management and become a self-directed, self-managed real estate company.
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Significant Accounting Policies (Policies) |
6 Months Ended |
|---|---|
Jun. 30, 2022 | |
| Accounting Policies [Abstract] | |
| Basis of Accounting, Policy [Policy Text Block] | Basis of Accounting. Pillarstone Capital REIT's (the “Company,” “Pillarstone,” “we,” “our,” or “us”) 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, Policy [Policy Text Block] | Use of estimates. In order to conform with generally accepted accounting principles in the United States ("U.S. GAAP"), management, in preparation of our condensed consolidated financial statements, is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of June 30, 2022 and December 31, 2021, and the reported amounts of revenues and expenses for the three and six months ended June 30, 2022 and 2021. Actual results could differ from those estimates. Significant estimates that we use include the estimated fair value of properties acquired, allowance for doubtful accounts, impairment, the estimated useful lives for depreciable and amortizable assets and costs, and deferred taxes and the related valuation allowance for deferred taxes. |
| Cash and Cash Equivalents, Policy [Policy Text Block] | Cash and cash equivalents. We consider all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Cash and cash equivalents as of June 30, 2022 and December 31, 2021 consisted of demand deposits at a commercial bank and a brokerage account. We maintain our cash in bank accounts that are federally insured. |
| Business Combinations Policy [Policy Text Block] | Acquired Properties and Acquired Lease Intangibles. We allocate the purchase price of the acquired properties to land, building and improvements, identifiable intangible assets and to the acquired liabilities based on their respective fair values at the time of purchase. Identifiable intangibles include amounts allocated to acquired out-of-market leases, the value of in-place leases and customer relationship value, if any. We determine fair value based on estimated cash flow projections that utilize appropriate discount and capitalization rates and available market information. Estimates of future cash flows are based on a number of factors including the historical operating results, known trends and specific market and economic conditions that may affect the property. Factors considered by management in our analysis of determining the as-if-vacant property value include an estimate of carrying costs during the expected lease-up periods considering market conditions, and costs to execute similar leases. In estimating carrying costs, management includes real estate taxes, insurance and estimates of lost rentals at market rates during the expected lease-up periods, tenant demand and other economic conditions. Management also estimates costs to execute similar leases including leasing commissions, tenant improvements, legal and other related expenses. Intangibles related to out-of-market leases and in-place lease value are recorded as acquired lease intangibles and are amortized as an adjustment to rental revenue or amortization expense, as appropriate, over the remaining terms of the underlying leases. Premiums or discounts on acquired out-of-market debt are amortized to interest expense over the remaining term of such debt. |
| Depreciation, Depletion, and Amortization [Policy Text Block] | Depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of 5 to 39 years for improvements and buildings. Tenant improvements are depreciated using the straight-line method over the life of the improvement or remaining term of the lease, whichever is shorter. |
| Property, Plant and Equipment, Impairment [Policy Text Block] | Impairment. We review our properties for impairment at least annually or whenever events or changes in circumstances indicate that the carrying amount of the assets, including accrued rental income, may not be recoverable through operations. We determine whether an impairment in value has occurred by comparing the estimated future cash flows (undiscounted and without interest charges), including the estimated residual value of the property, with the carrying cost of the property. If impairment is indicated, a loss will be recorded for the amount by which the carrying value of the property exceeds its fair value. Management has determined that there has been no impairment in the carrying value of our real estate assets as of June 30, 2022. |
| Receivables, Trade and Other Accounts Receivable, Allowance for Doubtful Accounts, Policy [Policy Text Block] | Accrued Rents and Accounts Receivable. Included in accrued rent and accounts receivable are base rents, tenant reimbursements and receivables attributable to recording rents on a straight-line basis. We review the collectability of charges under our tenant operating leases on a regular basis, taking into consideration changes in factors such as the tenant’s payment history, the financial condition of the tenant, business conditions in the industry in which the tenant operates and economic conditions in the area where the property is located, including the impact of the COVID-19 pandemic on tenants' businesses and financial condition. We recognize an adjustment to rental revenue if we deem it probable that the receivable will not be collected. Our review of collectability under our operating leases includes any accrued rental revenues related to the straight-line method of reporting rental revenue. As of June 30, 2022 and December 31, 2021, we had an allowance for uncollectible accounts of approximately $577,000 and $538,000, respectively. For the three and six months ended June 30, 2022, we recorded an adjustment to rental revenue in the amount of approximately $24,000 and $39,000, respectively. For the three months ended June 30, 2022, there was no bad debt adjustment related to a potential credit loss from our COVID-19 collectibility analysis. For the six months ended June 30, 2022 there was approximately $40,000 related to a credit loss for the conversion of two tenants to cash basis revenue as a result of our COVID-19 collecitibility analysis. For the three and six months ended June 30, 2021, we recorded an adjustment to rental revenue in the amount of approximately $(11,000) and $29,000, respectively. Included in our adjustments to rental revenue for the three and six months ended June 30, 2021 was a bad debt adjustment of $10,913 and $51,174, respectively, related to a potential credit loss for the conversion of three tenants to cash basis revenue as a result of our COVID-19 collectibility analysis. |
| Unamortized Lease Commissions and Loan Costs Policy [Policy Text Block] | Unamortized Lease Commissions and Deferred Legal Cost. Leasing commissions and deferred legal cost are amortized using the straight-line method over the terms of the related lease agreements. Costs allocated to in-place leases whose terms differ from market terms related to acquired properties are amortized over the remaining life of the respective leases. |
| Prepaids and Other Assets [Policy Text Block] | Prepaid expenses and Other assets. Prepaid expenses and other assets include escrows established pursuant to certain mortgage financing arrangements for real estate taxes and insurance. |
| 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 interest in equity on the condensed consolidated balance sheets but separate from Pillarstone’s equity. On the condensed consolidated statements of operations, subsidiaries are reported at the consolidated amount, including both the amount attributable to Pillarstone and noncontrolling interest. |
| Revenue from Contract with Customer [Policy Text Block] | Revenue recognition. 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. For the three months ended June 30, 2022, we did have a straight-line rent reserve adjustment. For the six months ended June 30, 2022, we had a straight-line rent reserve adjustment of $1,000 for the conversion of one tenant to cash basis as a result of our COVID-19 collectibility analysis. For the three and six months ended June 30, 2021 we had a straight-line rent reserve adjustment of $1,000 for the conversion of one tenant to cash basis as a result of our COVID-19 collectibility analysis. 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. 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 and recoveries into a single line item, Rental, within the condensed consolidated statements of operations. We recognize lease termination fees in the year that the lease is terminated and collection of the fee is reasonably assured. |
| Share-Based Payment Arrangement [Policy Text Block] | Stock-based compensation. The Company accounts for stock-based compensation in accordance with ASC No. 718, "Compensation - Stock Compensation," which addresses the accounting for stock-based payment transactions in which an enterprise receives employee services in exchange for (a) equity instruments of the enterprise or (b) liabilities that are based on the fair value of the enterprise’s equity instruments or that may be settled by the issuance of such equity instruments. ASC No.718 generally requires that these transactions be accounted for using a fair-value-based method. The Company uses the Black-Scholes option-pricing model to determine the fair-value of stock-based awards. |
| Income Tax, Policy [Policy Text Block] | Income taxes. Because we have not elected to be taxed as a REIT for federal income tax purposes, we account for income taxes using the asset and liability method under which deferred tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and liabilities using enacted tax rates in effect for the period in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. We are also subject to certain state and local income, excise and franchise taxes. The provision for state and local taxes has been reflected in provision for income taxes in the condensed consolidated statements of operations and has not been separately stated due to its insignificance.
The Company evaluates potential uncertain tax positions on an annual basis in conjunction with the board of trustees and its tax accountants. Authoritative literature provides a two-step approach to recognize and measure tax benefits when realization of the benefits is uncertain. The first step is to determine whether the benefit meets the more-likely-than-not condition for recognition and the second step is to determine the amount to be recognized based on the cumulative probability that exceeds 50%.
As of June 30, 2022, we had a net operating loss carry-forward of approximately $139,000, and as of June 30, 2022 and December 31, 2021, we had net deferred tax liabilities of approximately $11,000 and $36,000, respectively. |
| Concentration Risk, Credit Risk, Policy [Policy Text Block] | Concentration of Risk. Substantially all of our revenues are obtained from office and warehouse locations in the Dallas and Houston metropolitan areas. We maintain cash accounts in major U.S. financial institutions. The terms of these deposits are on demand to minimize risk. The balances of these accounts sometimes exceed the federally insured limits, although no losses have been incurred in connection with these deposits. |
| New Accounting Pronouncements, Policy [Policy Text Block] | Recent accounting pronouncements. In April 2020, the Financial Accounting Standards Board ("FASB") issued guidance on the application of Topic 842, relating to concessions being made by lessors in response to the COVID-19 pandemic. The guidance notes that it would be acceptable for entities to make an election to account for lease concessions relating to the effects of the COVID-19 pandemic consistent with how those concessions would be accounted for under Topic 842 as though enforceable rights and obligations for those concessions existed, even if such enforceable rights and obligations are not explicitly contained in the lease contract. Thus, for concessions relating to COVID-19, an entity would not have to analyze each contract to determine whether enforceable rights and obligations for concessions exist in the contract, and would have the option to apply, or not to apply, the general lease modification guidance in Topic 842 as it stands. We have elected this option to account for lease concessions relating to the effects of the COVID-19 pandemic consistent with how those concessions would be accounted for under Topic 842 as though enforceable rights and obligations for those concessions existed. Therefore, such concessions are not accounted for as a lease modification under Topic 842.
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Note 2 - Accrued Rents and Accounts Receivable, Net (Tables) |
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| Schedule of Accounts, Notes, Loans and Financing Receivable [Table Text Block] |
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Note 3 - Leases (Tables) |
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Note 4 - Unamortized Lease Commissions and Deferred Legal Cost, Net (Tables) |
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Note 5 - Variable Interest Entity (Tables) |
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| Schedule of Variable Interest Entities [Table Text Block] |
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Note 7 - Debt (Tables) |
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| Schedule of Maturities of Long-Term Debt [Table Text Block] |
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Note 9 - Earnings (Loss) Per Share (Tables) |
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Note 10 - Related Party Transactions (Tables) |
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Note 11 - Incentive Equity Plan (Tables) |
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Note 1 - Summary of Significant Accounting Pronouncements (Details Textual) - USD ($) |
3 Months Ended | 6 Months Ended | |||
|---|---|---|---|---|---|
Jun. 30, 2022 |
Jun. 30, 2021 |
Jun. 30, 2022 |
Jun. 30, 2021 |
Dec. 31, 2021 |
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| Impairment of Real Estate | $ 0 | ||||
| Accounts Receivable, Allowance for Credit Loss, Ending Balance | $ 577,000 | 577,000 | $ 538,000 | ||
| Operating Lease, Lease Income Bad Debt Expense | 24,000 | $ (11,000) | 39,000 | $ 29,000 | |
| Operating Lease, Lease Income, Bad Debt Expense, COVID 19 | 0 | 10,913 | 40,000 | 51,174 | |
| Straight Line Rent Adjustments | 0 | $ 1,000 | $ 1,000 | $ 1,000 | |
| Uncertain Tax Position to Be Recognized Based on Maximum Cumulative Probability Percentage | 50.00% | ||||
| Operating Loss Carryforwards | 139,000 | $ 139,000 | |||
| Deferred Tax Liabilities, Net, Total | $ 11,000 | $ 11,000 | $ 36,000 | ||
| Minimum [Member] | Building and Building Improvements [Member] | |||||
| Property, Plant and Equipment, Useful Life (Year) | 5 years | ||||
| Maximum [Member] | Building and Building Improvements [Member] | |||||
| Property, Plant and Equipment, Useful Life (Year) | 39 years | ||||
Note 2 - Accrued Rents and Accounts Receivable, Net - Schedule of Accrued Rents and Accounts Receivable, Net (Details) - USD ($) |
Jun. 30, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Tenant receivables | $ 815,000 | $ 733,000 |
| Accrued rents and other recoveries | 1,030,000 | 1,065,000 |
| Allowance for doubtful accounts | (577,000) | (538,000) |
| Total | $ 1,268,000 | $ 1,260,000 |
Note 3 - Leases (Details Textual) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2022 |
Jun. 30, 2021 |
Jun. 30, 2022 |
Jun. 30, 2021 |
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| 2600 S. Gessner Road, Suite 555 Houston, Texas 77063 [Member] | ||||
| Operating Lease, Cost | $ 5,670 | $ 10,051 | $ 11,340 | $ 17,611 |
Note 3 - Leases - Schedule of Minimum Future Rent Payments (Details) $ in Thousands |
Jun. 30, 2022
USD ($)
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| 2022 (remaining) | $ 3,559 | [1] | ||
| 2023 | 5,276 | [1] | ||
| 2024 | 3,186 | [1] | ||
| 2025 | 1,558 | [1] | ||
| 2026 | 917 | |||
| Thereafter | 299 | [1] | ||
| Total | $ 14,795 | [1] | ||
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Note 4 - Unamortized Lease Commissions and Deferred Legal Cost, Net - Tabular Disclosure of Unamortized Lease Commissions (Details) - USD ($) $ in Thousands |
Jun. 30, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Leasing commissions | $ 1,349 | $ 1,364 |
| Deferred legal cost | 12 | 12 |
| Total cost | 1,361 | 1,376 |
| Less: leasing commissions accumulated amortization | (947) | (901) |
| Less: deferred legal cost accumulated amortization | (12) | (11) |
| Total cost, net of accumulated amortization | $ 402 | $ 464 |
Note 6 - Real Estate (Details Textual) ft² in Millions |
Jun. 30, 2022
ft²
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|---|---|
| Number of Real Estate Properties | 8 |
| Net Rentable Area (Square Foot) | 0.9 |
Note 7 - Debt (Details Textual) $ in Thousands |
Jun. 30, 2022
USD ($)
|
Dec. 31, 2021
USD ($)
|
|---|---|---|
| Number of Real Estate Properties | 8 | |
| Real Estate Investment Property, at Cost, Total | $ 57,401 | $ 57,027 |
| Secured Debt [Member] | ||
| Number of Real Estate Properties | 1 | 1 |
| Real Estate Investment Property, at Cost, Total | $ 21,300 | $ 21,300 |
Note 7 - Debt - Schedule of Debt (Details) - USD ($) $ in Thousands |
Jun. 30, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Less deferred financing costs, net of accumulated amortization | $ (34) | $ (48) |
| Total notes payable | 14,927 | 14,920 |
| Notes Payable to Banks [Member] | ||
| Total, debt payable | 14,961 | 14,968 |
| Notes Payable to Banks [Member] | Four Point Nine Seven Percent Fixed Rate Note Maturing September 2023 [Member] | ||
| Total, debt payable | 14,814 | 14,968 |
| Notes Payable to Banks [Member] | Three Point One Five Percent Fixed Rate Note Maturing December 2022 [Member] | ||
| Total, debt payable | $ 147 | $ 0 |
Note 7 - Debt - Schedule of Debt Maturities (Details) - Notes Payable to Banks [Member] - USD ($) $ in Thousands |
Jun. 30, 2022 |
Dec. 31, 2021 |
|---|---|---|
| 2022 (remaining), debt payable | $ 302 | |
| 2023, debt payable | 14,659 | |
| Total, debt payable | $ 14,961 | $ 14,968 |
Note 8 - Convertible Notes Payable - Related Parties (Details Textual) |
Jun. 30, 2022
USD ($)
|
Dec. 31, 2021
USD ($)
|
Jun. 30, 2021
USD ($)
|
Nov. 20, 2015
USD ($)
$ / shares
|
|---|---|---|---|---|
| Debt Instrument, Number of Trustees | 5 | |||
| Convertible Notes Payable, Total | $ 197,780 | $ 198,000 | $ 197,780 | |
| Convertible Notes Payable [Member] | ||||
| Convertible Notes Payable, Total | $ 197,780 | |||
| Debt Instrument, Interest Rate, Stated Percentage | 10.00% | |||
| Debt Instrument, Convertible, Conversion Price (in dollars per share) | $ / shares | $ 1.331 | |||
| Accrued Interest, Related Parties | $ 131,000 | $ 121,000 |
Note 9 - Earnings (Loss) Per Share (Details Textual) - USD ($) |
Jun. 30, 2022 |
Dec. 31, 2021 |
Jun. 30, 2021 |
|---|---|---|---|
| Convertible Notes Payable, Total | $ 197,780 | $ 198,000 | $ 197,780 |
Note 9 - Earnings (Loss) Per Share - Schedule of Earnings Per Share, Basic and Diluted (Details) - USD ($) $ / shares in Units, $ in Thousands |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2022 |
Jun. 30, 2021 |
Jun. 30, 2022 |
Jun. 30, 2021 |
|
| Net loss attributable to common shareholders | $ (75) | $ (60) | $ (92) | $ (145) |
| Weighted average number of common shares - basic (in shares) | 657,084 | 595,000 | 657,084 | 595,000 |
| Weighted average number of common shares - dilutive (in shares) | 657,084 | 595,000 | 657,084 | 595,000 |
| Net loss available to common shareholders (in dollars per share) | $ (0.11) | $ (0.10) | $ (0.14) | $ (0.24) |
| Net loss available to common shareholders (in dollars per share) | $ (0.11) | $ (0.10) | $ (0.14) | $ (0.24) |
Note 10 - Related Party Transactions (Details Textual) - Whitestone [Member] - USD ($) |
6 Months Ended | |
|---|---|---|
Jun. 30, 2022 |
Dec. 08, 2016 |
|
| Variable Interest Entity, Consideration, Limited Partnership Interest Unit Price (in dollars per share) | $ 1.331 | |
| Property Management Fee, Percent Fee | 5.00% | |
| Asset Management Fee, Percentage | 0.125% | |
| Uptown Tower [Member] | ||
| Property Management Fee, Percent Fee | 3.00% | |
| Asset Management Fee, Percentage | 0.125% | |
| Pillarstone Capital REIT Operating Partnership LP [Member] | ||
| Equity Method Investments | $ 4,121,312 | |
| Equity Method Investment, Ownership Percentage | 18.60% |
Note 10 - Related Party Transactions - Schedule of Related Party Transactions (Details) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | |||
|---|---|---|---|---|---|
Jun. 30, 2022 |
Jun. 30, 2021 |
Jun. 30, 2022 |
Jun. 30, 2021 |
Dec. 31, 2021 |
|
| Asset management fees | $ (143) | $ (145) | $ (283) | $ (284) | |
| Accounts Receivable Related Parties [Member] | |||||
| Tenant receivables and other receivables | 1,404 | 1,404 | $ 1,011 | ||
| Interest Payable [Member] | |||||
| Accrued interest due to related party | (131) | (131) | (121) | ||
| Accounts Payable Related Parties [Member] | |||||
| Other payables due to related party | (1,175) | (1,175) | $ (846) | ||
| Whitestone OP [Member] | |||||
| Asset management fees | (45) | (45) | (90) | (90) | |
| Whitestone OP [Member] | Rental Revenue [Member] | |||||
| Rent | 174 | 226 | 366 | 451 | |
| Whitestone OP [Member] | Property Operations and Maintenance [Member] | |||||
| Property management fees | (99) | (100) | (194) | (194) | |
| Whitestone OP [Member] | Office Expenses [Member] | |||||
| Rent expense | $ (6) | $ (10) | $ (11) | $ (18) | |
Note 11 - Incentive Equity Plan (Details Textual) |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
|
Jun. 30, 2022
USD ($)
|
Jun. 30, 2021
USD ($)
|
Jun. 30, 2022
USD ($)
|
Jun. 30, 2021
USD ($)
|
|
| Share-Based Payment Arrangement, Nonemployee [Member] | ||||
| Share-Based Payment Arrangement, Expense | $ 0 | $ 0 | $ 0 | $ 0 |
| Share-Based Payment Arrangement, Employee [Member] | ||||
| Share-Based Payment Arrangement, Expense | $ 0 | $ 2,000 | $ 17,000 | |
| The 2016 Equity Plan [Member] | ||||
| Percent of Shares Authorized Under Plan, Aggregate Shares Issued and Outstanding | 12.5 | 12.5 | ||
Note 11 - Incentive Equity Plan - Shares Available for Grant (Details) |
Jun. 30, 2022
shares
|
|---|---|
| The 2016 Equity Plan [Member] | |
| Shares, available for grant (in shares) | 2,086,655 |
Note 12 - Subsequent Events (Details Textual) - USD ($) |
1 Months Ended | 3 Months Ended | 6 Months Ended | ||||
|---|---|---|---|---|---|---|---|
Jul. 19, 2022 |
Jul. 31, 2022 |
May 31, 2022 |
Apr. 30, 2022 |
Sep. 30, 2022 |
Mar. 31, 2022 |
Jun. 30, 2022 |
|
| Subsequent Event [Member] | |||||||
| Monthly Property Management Fee, Percent of Monthly Revenue of Real Estate Asset | 5.00% | ||||||
| Monthly Asset Management Fee, Percent of GAV of Real Estate Asset | 0.125% | ||||||
| Monthly Property Management Fee, Percent of Monthly Revenue of Uptown Tower | 3.00% | ||||||
| Monthly Asset Management Fee, Percent of GAV of Uptown Tower | 0.125% | ||||||
| Whitestone OP [Member] | Limited Partner [Member] | |||||||
| Limited Liability Company or Limited Partnership, Members or Limited Partners, Ownership Interest | 81.40% | 81.40% | |||||
| Pillarstone [Member] | General Partner [Member] | |||||||
| Limited Liability Company (LLC) or Limited Partnership (LP), Managing Member or General Partner, Ownership Interest | 18.60% | 18.60% | |||||
| Whitestone And Whitestone OP [Member] | |||||||
| Related Party Transaction, Legal Reserve | $ 1,819,729 | ||||||
| Operating And Administrative Expense For 2017 Through 2021 [Member] | |||||||
| Related Party Transaction, Amounts of Transaction | $ 1,819,729 | ||||||
| Operating And Administrative Expense For 2017 Through 2021 [Member] | Whitestone And Whitestone OP [Member] | |||||||
| Related Party Transaction, Expenses from Transactions with Related Party | 1,819,729 | ||||||
| Construction And Lease Commission Expenditures During 2017 and 2018 [Member] | Whitestone And Whitestone OP [Member] | |||||||
| Related Party Transaction, Expenses from Transactions with Related Party | 1,425,972 | ||||||
| Expense Reimbursement For Operating And Administrative Expenses [Member] | |||||||
| Related Party Transaction, Amounts of Transaction | $ 117,186 | 117,186 | |||||
| Expense Reimbursement For Operating And Administrative Expenses [Member] | Whitestone And Whitestone OP [Member] | Subsequent Event [Member] | |||||||
| Related Party Transaction, Amounts of Transaction | $ 94,550 | ||||||
| Expense Reimbursement For Operating And Administrative Expenses [Member] | Pillarstone OP [Member] | |||||||
| Related Party Transaction, Amounts of Transaction | 176,593 | ||||||
| Expense Reimbursement For Operating And Administrative Expenses [Member] | Pillarstone OP [Member] | Subsequent Event [Member] | |||||||
| Related Party Transaction, Amounts of Transaction | 94,550 | ||||||
| Contested Expense Reimbursements [Member] | Whitestone And Whitestone OP [Member] | Subsequent Event [Member] | |||||||
| Related Party Transaction, Amounts of Transaction | $ 61,724 | ||||||
| Contested Expense Reimbursements [Member] | Pillarstone OP [Member] | |||||||
| Related Party Transaction, Amounts of Transaction | $ 59,407 | ||||||
| Uncontested Expense [Member] | Pillarstone OP [Member] | Forecast [Member] | |||||||
| Related Party Transaction, Amounts of Transaction | $ 32,826 | ||||||