wstr20230630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

	(Mark One)
☒	QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2023

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________ to ____________

Commission File Number 001-34855

WHITESTONE REIT

(Exact Name of Registrant as Specified in Its Charter)

Maryland

76-0594970

(State or Other Jurisdiction of

Incorporation or Organization)

(I.R.S. Employer

Identification No.)

2600 South Gessner, Suite 500		77063
Houston, Texas
(Address of Principal Executive Offices)		(Zip Code)

(713) 827-9595

(Registrant’s Telephone Number, Including Area Code)

N/A

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Shares of Beneficial Interest, par value $0.001 per share	WSR	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒Yes ☐No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒Yes ☐No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐	Small reporting company	☐

Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐Yes ☒ No

As of July 28, 2023, there were 49,520,721 common shares of beneficial interest, $0.001 par value per share, outstanding.

Table of Contents

PART I - FINANCIAL INFORMATION

Item 1.	Financial Statements.	1
	Consolidated Balance Sheets as of June 30, 2023 (Unaudited) and December 31, 2022	1
	Consolidated Statements of Operations and Comprehensive Income (Unaudited) for the Three and Six Months Ended June 30, 2023 and 2022	3
	Consolidated Statements of Changes in Equity (Unaudited) for the Three and Six Months Ended June 30, 2023 and 2022	6
	Consolidated Statements of Cash Flows (Unaudited) for the Six Months Ended June 30, 2023 and 2022	8
	Notes to Consolidated Financial Statements (Unaudited)	10
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations.	31
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	57
Item 4.	Controls and Procedures.	57

PART II - OTHER INFORMATION

Item 1.	Legal Proceedings.	58
Item 1A.	Risk Factors.	58
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	59
Item 3.	Defaults Upon Senior Securities.	59
Item 4.	Mine Safety Disclosures.	59
Item 5.	Other Information.	59
Item 6.	Exhibits.	59
	Exhibit Index	60
	Signatures	61

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

Whitestone REIT and Subsidiaries

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

	*June 30, 2023*			*December 31, 2022*
	(unaudited)
*ASSETS*
Real estate assets, at cost
Property	$	1,224,195		$	1,199,041
Accumulated depreciation		(218,007	)		(208,286	)
Total real estate assets		1,006,188			990,755
Investment in real estate partnership		33,574			34,826
Cash and cash equivalents		2,927			6,166
Restricted cash		122			189
Escrows and acquisition deposits		22,292			12,827
Accrued rents and accounts receivable, net of allowance for doubtful accounts		27,027			25,570
Receivable due from related party		1,436			1,377
Unamortized lease commissions, legal fees and loan costs		12,854			12,697
Prepaid expenses and other assets⁽¹⁾		11,945			7,838
Finance lease right-of-use assets		10,471			10,522
Total assets	$	1,128,836		$	1,102,767

*LIABILITIES AND EQUITY*
Liabilities:
Notes payable	$	650,024		$	625,427
Accounts payable and accrued expenses⁽²⁾		30,571			36,154
Payable due to related party		1,577			1,561
Tenants' security deposits		8,403			8,428
Dividends and distributions payable		6,020			6,008
Finance lease liabilities		729			735
Total liabilities		697,324			678,313
Commitments and contingencies:		—			—
Equity:
Preferred shares, $0.001 par value per share; 50,000,000 shares authorized; none issued and outstanding as of June 30, 2023 and December 31, 2022		—			—
Common shares, $0.001 par value per share; 400,000,000 shares authorized; 49,519,919 and 49,422,716 issued and outstanding as of June 30, 2023 and December 31, 2022, respectively		50			49
Additional paid-in capital		626,022			624,785
Accumulated deficit		(209,087	)		(212,366	)
Accumulated other comprehensive income		8,453			5,980
Total Whitestone REIT shareholders' equity		425,438			418,448
Noncontrolling interest in subsidiary		6,074			6,006
Total equity		431,512			424,454
Total liabilities and equity	$	1,128,836		$	1,102,767

See accompanying notes to Consolidated Financial Statements.

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Whitestone REIT and Subsidiaries

CONSOLIDATED BALANCE SHEETS

(in thousands)

	*June 30, 2023*		*December 31, 2022*
	(unaudited)
(1) Operating lease right of use assets (net)	$	93	$	124
(2) Operating lease liabilities	$	98	$	129

See accompanying notes to Consolidated Financial Statements.

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Whitestone REIT and Subsidiaries

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(Unaudited)

(in thousands)

	*Three Months Ended June 30,*						*Six Months Ended June 30,*
	*2023*			*2022*			*2023*			*2022*
Revenues
Rental⁽¹⁾	$	36,241		$	34,663		$	71,738		$	68,471
Management, transaction, and other fees		219			334			573			649
Total revenues		36,460			34,997			72,311			69,120

Operating expenses
Depreciation and amortization		8,360			7,862			16,206			15,772
Operating and maintenance		6,899			6,211			12,985			11,936
Real estate taxes		4,767			4,987			9,475			9,354
General and administrative		5,175			5,182			10,259			8,231
Total operating expenses		25,201			24,242			48,925			45,293

Other expenses (income)
Interest expense		8,260			6,234			16,163			12,295
Gain on sale of properties		(9,621	)		—			(9,621	)		—
(Gain) loss on disposal of assets, net		14			(10	)		20			5
Interest, dividend and other investment income		(18	)		(16	)		(38	)		(30	)
Total other expenses (income)		(1,365	)		6,208			6,524			12,270

Income before equity investment in real estate partnership and income tax		12,624			4,547			16,862			11,557

Equity (deficit) in earnings of real estate partnership		(1,034	)		(41	)		(1,252	)		239
Provision for income tax		(125	)		(100	)		(244	)		(201	)
Net income		11,465			4,406			15,366			11,595

Less: Net income attributable to noncontrolling interests		159			68			213			179

Net income attributable to Whitestone REIT	$	11,306		$	4,338		$	15,153		$	11,416

See accompanying notes to Consolidated Financial Statements.

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Whitestone REIT and Subsidiaries

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(Unaudited)

(in thousands, except per share data)

	*Three Months Ended June 30,*				*Six Months Ended June 30,*
	*2023*		*2022*		*2023*		*2022*
Basic Earnings Per Share:
Net income attributable to common shareholders, excluding amounts attributable to unvested restricted shares	$	0.23	$	0.09	$	0.31	$	0.23
Diluted Earnings Per Share:
Net income attributable to common shareholders, excluding amounts attributable to unvested restricted shares	$	0.22	$	0.09	$	0.30	$	0.23

Weighted average number of common shares outstanding:
Basic		49,426		49,147		49,425		49,147
Diluted		50,259		50,047		50,262		50,177

Consolidated Statements of Comprehensive Income

Net income	$	11,465	$	4,406	$	15,366	$	11,595

Other comprehensive income

Unrealized gain on cash flow hedging activities		7,095		2,675		2,508		8,661

Comprehensive income		18,560		7,081		17,874		20,256

Less: Net income attributable to noncontrolling interests		159		68		213		179
Less: Comprehensive income attributable to noncontrolling interests		99		41		35		133

Comprehensive income attributable to Whitestone REIT	$	18,302	$	6,972	$	17,626	$	19,944

See accompanying notes to Consolidated Financial Statements.

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Whitestone REIT and Subsidiaries

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(Unaudited)

(in thousands)

	*Three Months Ended June 30,*					*Six Months Ended June 30,*
	*2023*			*2022*		*2023*			*2022*
⁽¹⁾ Rental
Rental revenues	$	26,519		$	24,935	$	52,259		$	49,779
Recoveries		9,955			9,603		20,036			18,940
Bad debt		(233	)		125		(557	)		(248	)
Total rental	$	36,241		$	34,663	$	71,738		$	68,471

See accompanying notes to Consolidated Financial Statements.

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Whitestone REIT and Subsidiaries

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Unaudited)

(in thousands)

												*Accumulated*
						*Additional*						*Other*			*Total*			*Noncontrolling*
	*Common Shares*					*Paid-In*			*Accumulated*			*Comprehensive*			*Shareholders’*			*Interests*						*Total*
	*Shares*			*Amount*		*Capital*			*Deficit*			*Gain (Loss)*			*Equity*			*Units*			*Dollars*			*Equity*

Balance, December 31, 2022		49,423		$	49	$	624,785		$	(212,366	)	$	5,980		$	418,448			695		$	6,006		$	424,454
Issuance of shares under dividend reinvestment plan		2			—		17			—			—			17			—			—			17
Share-based compensation		—			—		755			—			—			755			—			—			755
Distributions - $0.1200 per common share / OP unit		—			—		—			(5,931	)		—			(5,931	)		—			(83	)		(6,014	)
Unrealized loss on change in value of cash flow hedge		—			—		—			—			(4,523	)		(4,523	)		—			(64	)		(4,587	)
Net income		—			—		—			3,847			—			3,847			—			54			3,901
Balance, March 31, 2023		49,425		$	49	$	625,557		$	(214,450	)	$	1,457		$	412,613			695		$	5,913		$	418,526
Exchange of noncontrolling interest OP units for common shares		1			1		10			—			—			11			(1	)		(11	)		—
Issuance of shares under dividend reinvestment plan		2			—		19			—			—			19			—			—			19
Repurchase of common shares (1)		(30	)		—		(289	)		—			—			(289	)		—			—			(289	)
Share-based compensation		122			—		725			—			—			725			—			—			725
Distributions - $0.1200 per common share / OP unit		—			—		—			(5,943	)		—			(5,943	)		—			(86	)		(6,029	)
Unrealized gain on change in value of cash flow hedge		—			—		—			—			6,996			6,996			—			99			7,095
Net income		—			—		—			11,306			—			11,306			—			159			11,465
Balance, June 30, 2023		49,520		$	50	$	626,022		$	(209,087	)	$	8,453		$	425,438			694		$	6,074		$	431,512

See accompanying notes to Consolidated Financial Statements

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Whitestone REIT and Subsidiaries

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Unaudited)

(in thousands)

												*Accumulated*
						*Additional*						*Other*			*Total*			*Noncontrolling*
	*Common Shares*					*Paid-In*			*Accumulated*			*Comprehensive*			*Shareholders’*			*Interests*						*Total*
	*Shares*			*Amount*		*Capital*			*Deficit*			*Gain (Loss)*			*Equity*			*Units*			*Dollars*			*Equity*

Balance, December 31, 2021		49,144		$	48	$	623,462		$	(223,973	)	$	(6,754	)	$	392,783			771		$	6,255		$	399,038
Exchange of noncontrolling interest OP units for common shares		1			—		—			—			—			—			(1	)		—			—
Issuance of shares under dividend reinvestment plan		1			—		15			—			—			15			—			—			15
Share-based compensation		—			—		(1,413	)		—			—			(1,413	)		—			—			(1,413	)
Distributions - $0.1075 per common share / OP unit		—			—		—			(5,897	)		—			(5,897	)		—			(92	)		(5,989	)
Unrealized gain on change in value of cash flow hedge		—			—		—			—			5,894			5,894			—			92			5,986
Net income		—			—		—			7,078			—			7,078			—			111			7,189
Balance, March 31, 2022		49,146		$	48	$	622,064		$	(222,792	)	$	(860	)	$	398,460			770		$	6,366		$	404,826
Exchange of noncontrolling interest OP units for common shares		—			1		7			—			—			8			—			(8	)		—
Issuance of shares under dividend reinvestment plan		2			—		17			—			—			17			—			—			17
Repurchase of common shares (1)		(26	)		—		(278	)		—			—			(278	)		—			—			(278	)
Share-based compensation		119			—		783			—			—			783			—			—			783
Distributions - $0.1200 per common share / OP unit		—			—		—			(5,909	)		—			(5,909	)		—			(94	)		(6,003	)
Unrealized gain on change in value of cash flow hedge		—			—		—			—			2,634			2,634			—			41			2,675
Net income		—			—		—			4,338			—			4,338			—			68			4,406
Balance, June 30, 2022		49,241		$	49	$	622,593		$	(224,363	)	$	1,774		$	400,053			770		$	6,373		$	406,426

⁽¹⁾ The Company acquired common shares held by employees who tendered owned common shares to satisfy the tax withholding on the lapse of certain restrictions on restricted common shares.

See accompanying notes to Consolidated Financial Statements.

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Whitestone REIT and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)

	*Six Months Ended June 30,*
	*2023*			*2022*
Cash flows from operating activities:
Net income	$	15,366		$	11,595
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		16,206			15,772
Amortization of deferred loan costs		550			548
Gain on sale of properties		(9,621	)		—
Loss on disposal of assets		20			5
Bad debt		557			247
Share-based compensation		1,480			(630	)
(Equity) deficit in earnings of real estate partnership		1,252			(239	)
Amortization of right-of-use assets - finance leases		51			—
Changes in operating assets and liabilities:
Escrows and acquisition deposits		3,982			651
Accrued rents and accounts receivable		(2,014	)		(997	)
Receivable due from related party		(59	)		(373	)
Unamortized lease commissions, legal fees and loan costs		(1,894	)		(1,402	)
Prepaid expenses and other assets		1,430			708
Accounts payable and accrued expenses		(5,586	)		(8,254	)
Payable due to related party		16			438
Tenants' security deposits		(25	)		244
Net cash provided by operating activities		21,711			18,313
Cash flows from investing activities:
Acquisitions of real estate		(25,455	)		—
Additions to real estate		(8,771	)		(7,196	)
Proceeds from sales of properties		13,447			—
Reverse 1031 exchange		(13,447	)		—
Net cash used in investing activities		(34,226	)		(7,196	)
Cash flows from financing activities:
Distributions paid to common shareholders		(11,826	)		(11,148	)
Distributions paid to OP unit holders		(166	)		(175	)
Net proceeds from (payments of) credit facility		48,000			(5,000	)
Repayments of notes payable		(26,504	)		(1,782	)
Repurchase of common shares		(289	)		(278	)
Payment of finance lease liability		(6	)		—
Net cash provided by (used in) financing activities		9,209			(18,383	)
Net decrease in cash, cash equivalents and restricted cash		(3,306	)		(7,266	)
Cash, cash equivalents and restricted cash at beginning of period		6,355			15,914
Cash, cash equivalents and restricted cash at end of period ⁽¹⁾	$	3,049		$	8,648

⁽¹⁾	For a reconciliation of cash, cash equivalents and restricted cash, see supplemental disclosures below.

See accompanying notes to Consolidated Financial Statements.

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Whitestone REIT and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)

	*Six Months Ended June 30,*
	*2023*		*2022*
Supplemental disclosure of cash flow information:
Cash paid for interest	$	15,219	$	11,790
Cash paid for taxes	$	435	$	366
Non cash investing and financing activities:
Disposal of fully depreciated real estate	$	864	$	25
Financed insurance premiums	$	3,002	$	1,846
Value of shares issued under dividend reinvestment plan	$	36	$	32
Value of common shares exchanged for OP units	$	11	$	8
Change in fair value of cash flow hedge	$	2,508	$	8,661

	*June 30,*
	*2023*		*2022*
Cash, cash equivalents and restricted cash
Cash and cash equivalents	$	2,927	$	8,464
Restricted cash		122		184
Total cash, cash equivalents and restricted cash	$	3,049	$	8,648

See accompanying notes to Consolidated Financial Statements.

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WHITESTONE REIT AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2023

(Unaudited)

The use of the words “we,” “us,” “our,” “Company” or “Whitestone” refers to Whitestone REIT and our consolidated subsidiaries, except where the context otherwise requires.

1. INTERIM FINANCIAL STATEMENTS

The consolidated financial statements included in this report are unaudited; however, amounts presented in the consolidated balance sheet as of December 31, 2022 are derived from our audited consolidated financial statements as of that date. The unaudited consolidated financial statements as of and for the period ended June 30, 2023 have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information on a basis consistent with the annual audited consolidated financial statements and with the instructions to Form 10-Q.

The consolidated financial statements presented herein reflect all adjustments which, in the opinion of management, are necessary for a fair presentation of the financial position of Whitestone and our subsidiaries as of June 30, 2023 and December 31, 2022, and the results of operations for the three and six month periods ended June 30, 2023 and 2022, the consolidated statements of changes in equity for the three and six months ended June 30, 2023 and 2022 and cash flows for the six months ended June 30, 2023 and 2022. All of these adjustments are of a normal recurring nature. The results of operations for the interim periods are not necessarily indicative of the results expected for a full year. The statements should be read in conjunction with the audited consolidated financial statements and the notes thereto which are included in our Annual Report on Form 10-K for the year ended December 31, 2022.

Business. Whitestone was formed as a real estate investment trust (“REIT”) pursuant to the Texas Real Estate Investment Trust Act on August 20, 1998. In July 2004, we changed our state of organization from Texas to Maryland pursuant to a merger where we merged directly with and into a Maryland REIT formed for the sole purpose of the reorganization and the conversion of each of the outstanding common shares of beneficial interest of the Texas entity into 1.42857 common shares of beneficial interest of the Maryland entity. We serve as the general partner of Whitestone REIT Operating Partnership, L.P. (the “Operating Partnership”), which was formed on December 31, 1998 as a Delaware limited partnership. We currently conduct substantially all of our operations and activities through the Operating Partnership. As the general partner of the Operating Partnership, we have the exclusive power to manage and conduct the business of the Operating Partnership, subject to certain customary exceptions. As of June 30, 2023 and December 31, 2022, Whitestone wholly owned 56 and 57 commercial properties, respectively, in and around Austin, Chicago, Dallas-Fort Worth, Houston, Phoenix and San Antonio.

As of June 30, 2023, these properties consist of:

Consolidated Operating Portfolio

•

51 wholly owned properties that meet our Community Centered Properties® strategy; and

Redevelopment, New Acquisitions Portfolio

•

five parcels of land held for future development.

Acquired properties are categorized in the new acquisitions portfolio until the earlier of 90% occupancy or 18 months of ownership.

As of June 30, 2023, we, through our investment in Pillarstone Capital REIT Operating Partnership LP (“Pillarstone” or “Pillarstone OP”), owned a majority interest in eight properties that do not meet our Community Centered Property® strategy containing approximately 0.9 million square feet of GLA (the “Pillarstone Properties”). We own 81.4% of the total outstanding units of Pillarstone OP, which we account for using the equity method.

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WHITESTONE REIT AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2023

(Unaudited)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Consolidation. We are the sole general partner of the Operating Partnership and possess full legal control and authority over the operations of the Operating Partnership. As of June 30, 2023 and December 31, 2022, we owned a majority of the partnership interests in the Operating Partnership. Consequently, the accompanying consolidated financial statements include the accounts of the Operating Partnership.

Noncontrolling interest in the accompanying consolidated financial statements represents the share of equity and earnings of the Operating Partnership allocable to holders of partnership interests other than us. Net income or loss is allocated to noncontrolling interests based on the weighted-average percentage ownership of the Operating Partnership during the period. Issuance of additional common shares of beneficial interest in Whitestone (the “common shares”) and units of limited partnership interest in the Operating Partnership that are convertible into cash or, at our option, common shares on a one-for-one basis (the “OP units”) changes the percentage of ownership interests of both the noncontrolling interests and Whitestone.

Equity Method. In accordance with ASU 2014-09 (“Topic 606”) and ASC 610, “Other Income-Gains and Losses from the Derecognition of Nonfinancial Assets,” the Company recognizes its investment in Pillarstone OP under the equity method.

Basis of Accounting. Our financial records are maintained on the accrual basis of accounting whereby revenues are recognized when earned and expenses are recorded when incurred.

Use of Estimates. The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates that we use include the estimated fair values of properties acquired, the estimated useful lives for depreciable and amortizable assets and costs, the grant date fair value of common share units included in share-based compensation expense, the estimated allowance for doubtful accounts, the estimated fair value of interest rate swaps, the estimates supporting our impairment analysis for the carrying values of our real estate assets, and the estimates made regarding Pillarstone REIT Operating Partnership LP’s financial condition and results of operations. Actual results could differ from those estimates.

Reclassifications. We have reclassified certain prior period amounts in the accompanying consolidated financial statements in order to be consistent with the current period presentation. These reclassifications had no effect on net income, total assets, total liabilities or equity.

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WHITESTONE REIT AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2023

(Unaudited)

Restricted Cash. We classify all cash pledged as collateral to secure certain obligations and all cash whose use is limited as restricted cash. During 2015, pursuant to the terms of our $15.1 million 4.99% Note, due January 6, 2024 (see Note 7 (Debt)), which is collateralized by our Anthem Marketplace property, we were required by the lenders thereunder to establish a cash management account controlled by the lenders to collect all amounts generated by our Anthem Marketplace property in order to collateralize such promissory note.

Derivative Instruments and Hedging Activities. We utilize derivative financial instruments, principally interest rate swaps, to manage our exposure to fluctuations in interest rates. We have established policies and procedures for risk assessment, and the approval, reporting and monitoring of derivative financial instruments. We recognize our interest rate swaps as cash flow hedges with the effective portion of the changes in fair value recorded in comprehensive income and subsequently reclassified into earnings in the period that the hedged transaction affects earnings. Any ineffective portion of a cash flow hedges’ change in fair value is recorded immediately into earnings. Our cash flow hedges are determined using Level 2 inputs under ASC 820, “Fair Value Measurements and Disclosures.” Level 2 inputs represent quoted prices in active markets for similar assets or liabilities; quoted prices in markets that are not active; and model-derived valuations in which significant inputs and significant value drivers are observable. As of June 30, 2023, we consider our cash flow hedges to be highly effective.

Development Properties. Land, buildings and improvements are recorded at cost. Expenditures related to the development of real estate are carried at cost which includes capitalized carrying charges and development costs. Carrying charges (interest, real estate taxes, loan fees, and direct and indirect development costs related to buildings under construction), are capitalized as part of construction in progress. The capitalization of such costs ceases when the property, or any completed portion, becomes available for occupancy. For the three months ended June 30, 2023, approximately $ 137,000 and $ 72,000 in interest expense and real estate taxes, respectively, were capitalized and for the six months ended June 30, 2023, approximately $ 271,000 and $ 145,000 in interest expense and real estate taxes, respectively, were capitalized. For the three months ended June 30, 2022, approximately $ 105,000 and $ 75,000 in interest expense and real estate taxes, respectively, were capitalized, and for the six months ended June 30, 2022 approximately $ 204,000 and $ 150,000 in interest expense and real estate taxes, respectively, were capitalized.

Share-Based Compensation. From time to time, we award nonvested restricted common share awards or restricted common share unit awards, which may be converted into common shares, to executive officers and employees under our 2018 Long-Term Equity Incentive Ownership Plan (the “2018 Plan”). Awarded shares and units vest when certain performance conditions are met. We recognize compensation expense when achievement of the performance conditions is probable based on management’s most recent estimates using the fair value of the shares as of the grant date. We recognized $ 800,000 and $ 841,000 in share-based compensation net of forfeitures for the three months ended June 30, 2023 and 2022, respectively, and we recognized $ 1,629,000 and $ (488,000) in share-based compensation net of forfeitures for the six months ended June 30, 2023 and 2022, respectively. On January 18, 2022, the Board of Trustees terminated James Mastandrea, with cause, from his position as Chief Executive Officer. Mr. Mastandrea was also replaced as Chairman of the Board. Following his termination, the Board of Trustees appointed Dave Holeman, previously our Chief Financial Officer, as Chief Executive Officer. The Company also recently replaced its Chief Operating Officer and Executive Vice President of Acquisitions and Asset Management. As a result of these changes, we recognized a reduction of share-based compensation of $2.2 million during the three months ended March 31, 2022 due to forfeitures. We recognize forfeitures as they occur.

Noncontrolling Interests. Noncontrolling interests are the portion of equity in a subsidiary not attributable to a parent. Accordingly, we have reported noncontrolling interests in equity on the consolidated balance sheets but separate from Whitestone’s equity. On the consolidated statements of operations and comprehensive income, subsidiaries are reported at the consolidated amount, including both the amount attributable to Whitestone and noncontrolling interests. The consolidated statements of changes in equity is included for quarterly financial statements, including beginning balances, activity for the period and ending balances for shareholders’ equity, noncontrolling interests and total equity.

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Accrued Rents and Accounts Receivable. Included in accrued rents and accounts receivable are base rents, tenant reimbursements and receivables attributable to recording rents on a straight-line basis. We review the collectability of charges under our tenant operating leases on a regular basis, taking into consideration changes in factors such as the tenant’s payment history, the financial condition of the tenant, business conditions in the industry in which the tenant operates and economic conditions in the area where the property is located. We recognize an adjustment to rental revenue if we deem it probable that the receivable will not be collected. Our review of collectability under our operating leases includes any accrued rental revenues related to the straight-line method of reporting rental revenue. As of June 30, 2023 and December 31, 2022, we had an allowance for uncollectible accounts of $13.7 million and $13.8 million, respectively. During the three months ending June 30, 2023 and 2022, we recorded an adjustment to rental revenue for bad debt, exclusive of straight-line rent reserve adjustments, in the amount of a $0.2 million decrease to revenue and a $0.1 million increase to revenue, respectively, and during the six months ending June 30, 2023 and 2022, we recorded an adjustment to rental revenue for bad debt, exclusive of straight-line rent reserve adjustment, in the amount of a $0.6 million and $0.2 million, respectively. Both adjustments resulted in a decrease in revenue. The three months ended June 30, 2023 included 18 cash basis tenants, resulting in an increase to rental revenue for straight-line rent adjustments of $0.1 million and a decrease to rental revenue for bad debt adjustments of $0.1 million, and the three months ended June 30, 2022 included 76 cash basis tenants, resulting in decreases to rental revenue for straight-line rent adjustments of $0.2 million and a decrease to rental revenue for bad debt adjustments of $0.1 million, respectively. The six months ended June 30, 2023 included 18 cash basis tenants, resulting in a decrease to rental revenue for straight-line rent adjustments of $0.2 million and a decrease to rental revenue for bad debt adjustments of $0.3 million, and the six months ended June 30, 2022 included 76 cash basis tenants, resulting in decreases to rental revenue for straight-line rent adjustments $0.6 million and a decrease to rental revenue for bad debt adjustments of $0.3 million, respectively.

Revenue Recognition. All leases on our properties are classified as operating leases, and the related rental income is recognized on a straight-line basis over the terms of the related leases. Differences between rental income earned and amounts due per the respective lease agreements are capitalized or charged, as applicable, to accrued rents and accounts receivable. Percentage rents are recognized as rental income when the thresholds upon which they are based have been met. Recoveries from tenants for taxes, insurance, and other operating expenses are recognized as revenues in the period the corresponding costs are incurred. We combine lease and nonlease components in lease contracts, which includes combining base rent, recoveries, and percentage rents into a single line item, Rental, within the consolidated statements of operations and comprehensive income. Additionally, we have tenants who pay real estate taxes directly to the taxing authority. We exclude these costs paid directly by the tenant to third parties on our behalf from revenue recognized and the associated property operating expense.

Other property income primarily includes amounts recorded in connection with management fees and lease termination fees. Pillarstone OP paid us management fees for property management, leasing and day-to-day advisory and administrative services. The management agreement with Pillarstone OP was terminated on August 18, 2022. We recognize lease termination fees in the year that the lease is terminated and collection of the fee is probable. Amounts recorded within other property income are accounted for at the point in time when control of the goods or services transfers to the customer and our performance obligation is satisfied.

Reverse 1031 Exchange. From time to time, we may acquire properties utilizing a reverse like-kind exchange under Section 1031 of the Internal Revenue Code (“Reverse 1031 Exchange”) in order to defer taxable gains on the subsequent sale of real estate properties. On June 12, 2023, we acquired Arcadia Towne Center for a total purchase price of approximately $25.5 million in cash and net prorations as part of a Reverse 1031 Exchange. On June 30, 2023 we sold Westchase and Sunridge and received net proceeds of $13.4 million. The acquired property and the net proceeds from the sold properties are in the possession of a limited liability company whose legal equity interest is owned by a qualified intermediary engaged to execute the Reverse 1031 Exchange until the Reverse 1031 Exchange is completed or terminated. The limited liability company was deemed to be a variable interest entity (“VIE”) for which we are deemed to be the primary beneficiary as we have the ability to direct the activities of the entity that most significantly impact its economic performance and we have all of the risks and rewards of ownership. As such, the VIE, including the acquired property and net proceeds, was included in our consolidated financial statements as a consolidated VIE until legal title and net proceeds were transferred to us upon the completion of the Reverse 1031 Exchange on July 12, 2023. There was one consolidated VIE on the consolidated financial statements as of June 30, 2023.

See our Annual Report on Form 10-K for the year ended December 31, 2022 for further discussion on significant accounting policies.

Recent Accounting Pronouncements.

In March 2020, the FASB issued Accounting Standards Update No. 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting” (“ASU 2020-04”), which provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions affected by the discontinuation of the London Interbank Offered Rate (“LIBOR”) or by another reference rate expected to be discontinued because of reference rate reform. In January 2021, the FASB issued Accounting Standards Update No. 2021-01, “Reference Rate Reform (Topic 848): Scope” (“ASU 2021-01”), which clarified the scope and application of the original guidance. We have elected this option and adopted ASU 2020-04 and ASU 2021-01 effective September 2022. There was no material impact on the Company's consolidated financials statements as a result of adopting this guidance.

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3. LEASES

As a Lessor. All leases on our properties are classified as noncancelable operating leases, and the related rental income is recognized on a straight-line basis over the terms of the related leases. Differences between rental income earned and amounts due per the respective lease agreements are capitalized or charged, as applicable, to accrued rents and accounts receivable. Percentage rents are recognized as rental income when the thresholds upon which they are based have been met. Recoveries from tenants for taxes, insurance, and other operating expenses are recognized as revenues in the period the corresponding costs are incurred. We combine lease and nonlease components in lease contracts, which includes combining base rent, recoveries, and percentage rents into a single line item, Rental, within the consolidated statements of operations and comprehensive income.

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, 2023 is as follows (in thousands):

Years Ended December 31,	Minimum Future Rents⁽¹⁾
2023 (remaining)	$	49,188
2024		90,774
2025		74,547
2026		59,608
2027		47,388
Thereafter		138,755
Total	$	460,260

⁽¹⁾	These amounts do not reflect future rental revenues from the renewal or replacement of existing leases and exclude reimbursements of operating expenses and rental increases that are not fixed.

As a Lessee. We have office space, automobile, and office machine leases, which qualify as operating leases, with remaining lease terms of one to three years. As of June 30, 2023 the Company had one ground lease with the lease term of 99 years. The lease is classified as a finance lease. The ground lease provides for variable rental payments based on CPI adjustment.

The following table summarizes the fixed, future minimum rental payments, excluding variable costs, which are discounted by our weighted average incremental borrowing rates to calculate the lease liabilities for our operating leases in which we are the lessee (in thousands):

Years Ended December 31,	*Operating Leases*		*Finance Lease*
2023 (remaining)	$	31	$	30
2024		43		61
2025		28		62
2026		1		64
2027		—		65
Thereafter		—		2,773
Total undiscounted rental payments		103		3,055
Less imputed interest		5		2,326
Total lease liabilities	$	98	$	729

For the three months ended June 30, 2023 and 2022, the total lease costs for operating leases were $ 8,000 and $ 201,000, respectively, and for the finance lease were $ 22,000 and $0, respectively. For the six months ended June 30, 2023 and 2022, the total lease costs for operating leases were $ 41,000 and $ 430,000 respectively, and for the finance lease were $51,000 and $0, respectively. The weighted average remaining lease term for our operating and finance leases was 2.2 and 98 years, respectively, at June 30, 2023. We do not include renewal options in the lease term for calculating the lease liability unless we are reasonably certain we will exercise the option or the lessor has the sole ability to exercise the option. The weighted average incremental borrowing rate was 4.5% for operating and 6% for finance leases at June 30, 2023.

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4. ACCRUED RENTS AND ACCOUNTS RECEIVABLE, NET

Accrued rents and accounts receivable, net consists of amounts accrued, billed and due from tenants, allowance for doubtful accounts and other receivables as follows (in thousands):

	*June 30, 2023*			*December 31, 2022*
Tenant receivables	$	16,889		$	16,828
Accrued rents and other recoveries		22,741			22,103
Allowance for doubtful accounts		(13,729	)		(13,822	)
Other receivables		1,126			461
Total	$	27,027		$	25,570

5. UNAMORTIZED LEASE COMMISSIONS, LEGAL FEES AND LOAN COSTS

Costs which have been deferred consist of the following (in thousands):

	*June 30, 2023*			*December 31, 2022*
Leasing commissions	$	17,310		$	16,364
Deferred legal cost		359			364
Deferred financing cost		4,149			4,149
Total cost		21,818			20,877
Less: leasing commissions accumulated amortization		(7,977	)		(7,649	)
Less: deferred legal cost accumulated amortization		(269	)		(263	)
Less: deferred financing cost accumulated amortization		(718	)		(268	)
Total cost, net of accumulated amortization	$	12,854		$	12,697

6. INVESTMENT IN REAL ESTATE PARTNERSHIP

On December 8, 2016, we, through our Operating Partnership, entered into a Contribution Agreement (the “Contribution Agreement”) with Pillarstone OP and Pillarstone Capital REIT (“Pillarstone REIT”) pursuant to which we contributed all of the equity interests in four of our wholly-owned subsidiaries that, at the time, owned 14 non-core properties that did not fit our Community Centered Property® strategy (the “Pillarstone Properties”), to Pillarstone OP for aggregate consideration of approximately $84 million, consisting of (1) approximately $18.1 million of Class A units representing limited partnership interests in Pillarstone OP (“Pillarstone OP Units”) and (2) the assumption of approximately $65.9 million of liabilities (collectively, the “Contribution”).

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In connection with the Contribution, Whitestone TRS, Inc., a subsidiary of the Company (“Whitestone TRS”), entered into a management agreement with the entities that own the contributed Pillarstone Properties (collectively, the “Management Agreements”). Pursuant to the Management Agreements, Whitestone TRS agreed to provide certain property management, leasing and day-to-day advisory and administrative services. The management agreement was terminated on August 18, 2022. Prior to the termination of the Management Agreement, we reported approximately $144,000 in property management fee income on a quarterly basis.

In connection with the Contribution, on December 8, 2016, the Operating Partnership entered into a Tax Protection Agreement with Pillarstone REIT and Pillarstone OP pursuant to which Pillarstone OP agreed to indemnify the Operating Partnership for certain tax liabilities resulting from its recognition of income or gain prior to December 8, 2021 if such liabilities result from a transaction involving a direct or indirect taxable disposition of all or a portion of the Pillarstone Properties or if Pillarstone OP fails to maintain and allocate to the Operating Partnership for taxation purposes minimum levels of liabilities as specified in the Tax Protection Agreement, the result of which causes such recognition of income or gain and the Company incurs taxes that must be paid to maintain its REIT status for federal income tax purposes.

We rely on reporting from Pillarstone OP's general partner, Pillarstone Capital REIT (“PRLE”), for financial information regarding the Company’s investment in Pillarstone OP. PRLE is a public company that is delinquent in its SEC reporting obligations, having yet to file its Quarterly Report on Form 10-Q for the three and nine months ended September 30, 2022, and its Annual Report on Form 10-K for the year ended December 31, 2022. Despite numerous attempts by us to obtain this information as required by the limited partnership agreement between Pillarstone Capital REIT and Whitestone REIT Operating Partnership, PRLE has failed to produce such information. As a result, we have relied on other publicly available information as a basis to estimate the net income, depreciation and amortization, and other metrics used in our financial reporting. We also estimated certain expenses, such as legal and professional fees based on information publicly disclosed by PRLE, allocating such expenses based on what we believe can be charged to Pillarstone OP and which expenses cannot be charged to Pillarstone OP pursuant to the limited partnership agreement between Pillarstone Capital REIT and Whitestone REIT Operating Partnership. We have requested for PRLE to characterize the fees and notify us of which fees they intend to charge to Pillarstone OP, but PRLE has not provided the information. To the extent PRLE provides updated financial information as required and requested, we will adjust our financial reporting for Pillarstone OP as appropriate. There can be no assurance that PRLE actual financial results will not differ materially from our estimates.

The table below presents the real estate partnership investment in which the Company holds an ownership interest (in thousands):

			*Company’s Investment as of*
			*June 30, 2023*		*December 31, 2022*
Real estate partnership	*Ownership Interest*
Pillarstone OP		81.4%	$	33,574	$	34,826
Total real estate partnership(1)(2)(3)			$	33,574	$	34,826

⁽¹⁾	Representing eight property interests and 926,798 square feet of GLA, as of June 30, 2023 and December 31, 2022.

⁽²⁾

On December 26, 2021, the Board of Trustees of Pillarstone REIT adopted a new rights agreement (the “Pillarstone Rights Agreement”), pursuant to which each holder of Pillarstone REIT common stock received one preferred share purchase right (a “Right”) per common share held as of the applicable record date. Each Right entitles the registered holder to purchase from Pillarstone REIT one one-thousandth (a “Unit”) of a series D preferred share of Pillarstone at a purchase price (“Purchase Price”) of $7.00 per Unit, subject to adjustment. The Rights are exercisable upon the occurrence of certain events as described in the Pillarstone Rights Agreement, including the acquisition by certain holders of 5% or more of the common shares of Pillarstone REIT (an “Acquiring Person”). Upon the acquisition of Pillarstone REIT common shares by an Acquiring Person, each holder of a Right (other than an Acquiring Person), will have the right to receive upon exercise a number of Pillarstone REIT common shares having a market value of two times the Purchase Price. As set forth in the Amended and Restated Limited Partnership Agreement of Pillarstone OP, dated as of December 8, 2016 (the “Pillarstone Partnership Agreement”), we have the contractual right to have our limited partnership interests in Pillarstone redeemed at our discretion. However, upon receipt of a redemption notice, Pillarstone OP has the option to pay the applicable redemption price in cash, based on the market value of Pillarstone REIT common shares, or in Pillarstone REIT common shares. To the extent we seek to have our partnership units in Pillarstone OP redeemed and Pillarstone OP elects to pay the applicable redemption price in Pillarstone REIT common shares (and such shares represent 5% or more of the outstanding common shares of Pillarstone REIT), the Rights could become exercisable. To the extent the Rights are exercised as a result of our Pillarstone OP units being redeemed for Pillarstone REIT common shares, our ownership interest in Pillarstone REIT would be significantly diluted, which could adversely impact the value of our investment in Pillarstone OP. Because Pillarstone REIT seeks to use the Pillarstone Rights Agreement to prevent Whitestone OP from exercising its contractual Redemption Right, on July 12, 2022, Whitestone OP filed suit against Pillarstone REIT in the Court of Chancery of the State of Delaware challenging the Pillarstone Rights Agreement due to Pillarstone REIT’s alleged (i) breach of the Pillarstone Partnership Agreement, (ii) breach of its fiduciary duty as general partner of Pillarstone OP to Whitestone OP, (iii) and breach of the implied covenant of good faith and fair dealing under the Pillarstone Partnership Agreement. The lawsuit seeks rescission and voiding of the Pillarstone Rights Agreement; a declaration that the Pillarstone Rights Agreement is unenforceable, invalid, and of no force and effect; an order permanently enjoining enforcement of the Pillarstone Rights Agreement; an award of monetary damages; and broad restrictions on Pillarstone REIT’s ability to conduct its business, including buying properties, enforcing the Rights Agreement, incurring expenses, or engaging in transactions. On September 8, 2022, Whitestone OP's Motion to Preserve the Status Quo was granted by the Court, limiting Pillarstone OP from engaging in any acts outside the ordinary course of business and otherwise imposing restrictions on Pillarstone OP to ensure that Whitestone’s right of redemption is not impaired while the underlying dispute is being considered by the Court. Trial was held on July 17-18, 2023. Based on the currently anticipated schedule, post-trial briefing is expected to conclude in the fall of 2023 and the Court can then choose to have post-trial argument. Thereafter, the Court will issue a decision on Whitestone OP’s outstanding claims. Whitestone OP is asking the Court to declare the Pillarstone Rights Agreement unenforceable and to permit Whitestone OP to tender a Notice of Redemption. In addition (or alternatively), Whitestone OP seeks an award of monetary damages of at least $51,200,600 based on the amount that Pillarstone's misconduct precluded Whitestone OP from receiving in or around December 2021, as well as an award of pre- and post-judgment interest at the statutory rate.

⁽³⁾

We rely on reporting provided to us by Pillarstone OP's general partner for financial information regarding the Company's investment in Pillarstone OP. Because Pillarstone OP financial statements as of June 30, 2023 have not been made available to us, we have estimated the value of the investment based on the information available to us at the time of this report.

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The table below presents the Company’s share of net income (loss) from its investment in the real estate partnership which is included in equity (deficit) in earnings of real estate partnership, net on the Company’s consolidated statements of operations and comprehensive income (in thousands):

	*Three Months Ended June 30,*						*Six Months Ended June 30,*
	*2023*			*2022*			*2023*			*2022*

Pillarstone OP	$	(1,034	)	$	(41	)	$	(1,252	)	$	239

Summarized financial information for the Company’s investment in real estate partnership is as follows (in thousands):

	*June 30, 2023*		*December 31, 2022*
Assets:
Real estate, net	$	47,421	$	47,727
Other assets		9,680		9,680
Total assets⁽¹⁾		57,101		57,407
Liabilities and equity:
Notes payable		14,454		14,616
Other liabilities		3,911		3,782
Equity		38,736		39,009
Total liabilities and equity⁽²⁾		57,101		57,407
Company’s share of equity		31,550		31,773
Cost of investment in excess of the Company’s share of underlying net book value		2,024		3,053
Carrying value of investment in real estate partnership⁽³⁾	$	33,574	$	34,826

⁽¹⁾

We rely on reporting provided to us by Pillarstone OP's general partner for financial information regarding the Company's investment in Pillarstone OP. Because Pillarstone OP financial statements as of June 30, 2023 have not been made available to us, we have estimated total assets and its components based on the information available to us at the time of this report.

⁽²⁾

We rely on reporting provided to us by Pillarstone OP's general partner for financial information regarding the Company's investment in Pillarstone OP. Because Pillarstone OP financial statements as of June 30, 2023 have not been made available to us, we have estimated total liabilities and equity and its components based on the information available to us at the time of this report.

⁽³⁾

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	*Three Months Ended June 30,*						*Six Months Ended June 30,*
	*2023*			*2022*			*2023*			*2022*

Revenues	$	2,152		$	2,278		$	4,155		$	4,604
Operating expenses		(3,180	)		(1,946	)		(5,212	)		(3,551	)
Other expenses		(208	)		(349	)		(414	)		(693	)
Net income (loss) (1)	$	(1,236	)	$	(17	)	$	(1,471	)	$	360

⁽¹⁾

We rely on reporting provided to us by Pillarstone OP's general partner for financial information regarding the Company's investment in Pillarstone OP. Because Pillarstone OP financial statements as of June 30, 2023 have not been made available to us, we have estimated net income (loss) and its components based on the information available to us at the time of this report. Please refer to Note 6 for the full disclosure.

The amortization of the basis difference between the cost of investment and the Company's share of underlying net book value for both of the three months ended June 30, 2023 and 2022 is $ 27,000 and for both of the six months ended June 30, 2023 and 2022 is $ 54,000. The Company amortized the difference into equity in earnings of real estate partnership on the consolidated statements of operations and comprehensive income.

The Company has evaluated its guarantee to Pillarstone OP pursuant to ASC 460, “Guarantees,” and has determined the guarantee to be a performance guarantee, for which ASC 460 contains initial recognition and measurement requirements, and related disclosure requirements. The Company is obligated in two respects: (i) a noncontingent liability, which represents the Company’s obligation to stand ready to perform under the terms of the guarantee in the event that the specified triggering event(s) occur; and (ii) the contingent liability, which represents the Company’s obligation to make future payments if those triggering events occur. The fair value of our loan guarantee to Pillarstone OP is estimated on a Level 3 basis (as provided by ASC 820), using a probability-weighted discounted cash flow analysis based on a discount rate, discounting the loan balance. The Company recognized a noncontingent liability of $462,000 at the inception of the guarantee at fair value which is recorded on the Company’s consolidated balance sheets, net of accumulated amortization. The Company will amortize the guarantee liability into income over seven years. For the three months ended June 30, 2023 and 2022, the amortization of the guarantee liability was approximately $ 9,000 and $ 10,000, respectively, and for the six months ended June 30, 2023 and 2022, the amortization of the guarantee liability was $ 18,000 and $ 19,000, respectively.

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7. DEBT

Certain subsidiaries of Whitestone are the borrowers under various financing arrangements. These subsidiaries are separate legal entities, and their respective assets and credit are not available to satisfy the debt of Whitestone or any of its other subsidiaries.

Debt consisted of the following as of the dates indicated (in thousands):

Description	*June 30, 2023*			*December 31, 2022*
Fixed rate notes
$265.0 million, 3.18% plus 1.45% to 2.10% Note, due January 31, 2028 ⁽¹⁾	$	265,000		$	265,000
$80.0 million, 3.72% Note, due June 1, 2027		80,000			80,000
$19.0 million 4.15% Note, due December 1, 2024		17,838			18,016
$20.2 million 4.28% Note, due June 6, 2023		—			17,375
$14.0 million 4.34% Note, due September 11, 2024		12,569			12,709
$14.3 million 4.34% Note, due September 11, 2024		13,389			13,520
$15.1 million 4.99% Note, due January 6, 2024		13,493			13,635
$2.6 million 5.46% Note, due October 1, 2023		2,209			2,236
$50.0 million, 5.09% Note, due March 22, 2029		42,857			50,000
$50.0 million, 5.17% Note, due March 22, 2029		50,000			50,000
$3.0 million 6.78% Note, due December 28, 2023		1,634			—
$50.0 million, 3.71% plus 1.50% to 2.10% Note, due September 16, 2026 (2)		50,000			—
Floating rate notes
Unsecured line of credit, SOFR plus 1.50% to 2.10%, due September 16, 2026		101,500			103,500
Total notes payable principal		650,489			625,991
Less deferred financing costs, net of accumulated amortization		(465	)		(564	)
Total notes payable	$	650,024		$	625,427

⁽¹⁾	Promissory note includes an interest rate swap that fixes the SOFR portion of the term loan at an interest rate of 2.16% through October 28, 2022, 2.76% from October 29, 2022 through January 31, 2024, and 3.32% beginning February 1, 2024 through January 31, 2028.

⁽²⁾	A portion of the unsecured line of credit includes an interest rate swap to fix the SOFR portion of the loan at 3.71%.

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(Unaudited)

On March 22, 2019, we, through our Operating Partnership, entered into a Note Purchase and Guarantee Agreement (the “Note Agreement”) together with certain subsidiary guarantors as initial guarantor parties thereto (the “Subsidiary Guarantors”) and The Prudential Insurance Company of America and the various other purchasers named therein (collectively, the “Purchasers”) providing for the issuance and sale of $100 million of senior unsecured notes of the Operating Partnership, of which (i) $50 million are designated as 5.09% Series A Senior Notes due March 22, 2029 (the “Series A Notes”) and (ii) $50 million are designated as 5.17% Series B Senior Notes due March 22, 2029 (the “Series B Notes” and, together with the Series A Notes, the “Notes”) pursuant to a private placement that closed on March 22, 2019 (the “Private Placement”). Obligations under the Notes are unconditionally guaranteed by the Company and by the Subsidiary Guarantors.

On December 16, 2022, Whitestone REIT (the “Company”) and its operating partnership, Whitestone REIT Operating Partnership, L.P. (the “Operating Partnership”), amended its Note Purchase and Guarantee Agreement originally executed on March 22, 2019 (the “Existing Note Agreement”), pursuant to the terms and conditions of an Amendment No. 1 to Note Purchase and Guaranty Agreement, dated as of December 16, 2022 (the Existing Note Purchase Agreement, as so amended, the “Amended Note Agreement”), by and among the Company and the Operating Partnership, together with certain subsidiary guarantors as initial guarantor parties thereto and The Prudential Insurance Company of America and the various other purchasers named therein.

Neither the term of the Existing Note Agreement, the interest rate, nor the principal amounts, were amended. The purpose of the amendment is to conform certain covenants and defined terms contained in the Amended Note Agreement with the Company’s recently amended unsecured credit facility with the lenders party thereto, Bank of Montreal, as administrative agent, Truist Bank, as syndication agent, and BMO Capital Markets Corp., Truist Bank, Capital One, National Association, and U.S. Bank National Association, as co-lead arrangers and joint book runners.

The principal of the Series A Notes began to amortize on March 22, 2023 with annual principal payments of approximately $7.1 million. The principal of the Series B Notes will begin to amortize on March 22, 2025 with annual principal payments of $10.0 million. The Notes will pay interest quarterly on the 22nd day of March, June, September and December in each year until maturity.

The Operating Partnership may prepay at any time all, or from time to time part of, the Notes, in an amount not less than $1,000,000 in the case of a partial prepayment, at 100% of the principal amount so prepaid, plus a make-whole amount. The make-whole amount is equal to the excess, if any, of the discounted value of the remaining scheduled payments with respect to the Notes being prepaid over the aggregate principal amount of such Notes (as described in the Note Agreement). In addition, in connection with a Change of Control (as defined in the Note Purchase Agreement), the Operating Partnership is required to offer to prepay the Notes at 100% of the principal amount plus accrued and unpaid interest thereon.

The Note Agreement contains representations, warranties, covenants, terms and conditions customary for transactions of this type and substantially similar to the Operating Partnership’s existing senior revolving credit facility, including limitations on liens, incurrence of investments, acquisitions, loans and advances and restrictions on dividends and certain other restricted payments. In addition, the Note Agreement contains certain financial covenants substantially similar to the Operating Partnership’s existing senior revolving credit facility, including the following:

•

maximum total indebtedness to total asset value ratio of 0.60 to 1.00;

•

maximum secured debt to total asset value ratio of 0.40 to 1.00;

•

minimum EBITDA (earnings before interest, taxes, depreciation, amortization or extraordinary items) to fixed charges ratio of 1.50 to 1.00;

•

maximum secured recourse debt to total asset value ratio of 0.15 to 1.00;

•

maintenance of a minimum tangible net worth (adjusted for accumulated depreciation and amortization) of 75% of the Company's total net worth as of December 31, 2021 plus 75% of the net proceeds from additional equity offerings (as defined therein); and

•

minimum adjusted property NOI to implied unencumbered debt service ratio of 1.50 to 1.00.

In addition, the Note Agreement contains a financial covenant requiring that maximum unsecured indebtedness not exceed the ratio of unsecured indebtedness to unencumbered asset pool of 0.60 to 1.00. That covenant is substantially similar to the borrowing base concept contained in the Operating Partnership’s existing senior revolving credit facility.

The Note Agreement also contains default provisions, including defaults for non-payment, breach of representations and warranties, insolvency, non-performance of covenants, cross-defaults with other indebtedness and guarantor defaults. The occurrence of an event of default under the Note Agreement could result in the Purchasers accelerating the payment of all obligations under the Notes. The financial and restrictive covenants and default provisions in the Note Agreement are substantially similar to those contained in the Operating Partnership’s existing credit facility.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2023

(Unaudited)

Net proceeds from the Private Placement were used to refinance existing indebtedness. The Notes have not been and will not be registered under the Securities Act of 1933, as amended (the “Securities Act”), and may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements of the Securities Act. The Notes were sold in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act.

On September 16, 2022, we, through our Operating Partnership, entered into an unsecured credit facility (the “2022 Facility”) with the lenders party thereto, Bank of Montreal, as administrative agent (the “Administrative Agent”), Truist Bank, as syndication agent, and BMO Capital Markets Corp., Truist Bank, Capital One, National Association, and U.S. Bank National Association, as co-lead arrangers and joint book runners. The 2022 Facility amended and restated the Company's previous unsecured revolving credit facility, dated January 31, 2019 (the “2019 Facility”).

The 2022 Facility is comprised of the following two tranches:

•

$250.0 million unsecured revolving credit facility with a maturity date of September 16, 2026 (the “2022 Revolver”);

•

$265.0 million unsecured term loan with a maturity date of January 31, 2028 (“Term Loan”).

Borrowings under the 2022 Facility accrue interest (at the Operating Partnership's option) at a Base Rate or an Adjusted Term Secured Overnight Financing Rate (“SOFR”) plus an applicable margin based upon our then existing leverage. As of June 30, 2023, the interest rate on the 2022 Revolver was 6.85%. Based on our current leverage ratio, the revolver has initial interest rate of SOFR plus 1.60% and a 10 basis point credit spread adjustment. In addition, we entered into interest rate swaps to fix the interest rates on the Term Loan. The Term Loan with the swaps has the following interest rates:

•

2.16% plus 1.55% through October 28, 2022

•

2.80% plus 1.55% from October 29, 2022 through January 31, 2024

•

3.42% plus 1.55% from February 1, 2024 through January 31, 2028

The 2022 Facility also has a pricing provision where the applicable margin can be adjusted by an aggregate 0.02% per annum based on the Company’s performance on certain sustainability performance targets. Base Rate means, for any day, the higher of: (a) the Administrative Agent’s prime commercial rate, (b) the sum of (i) the rate per annum equal to the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System, as published by the Federal Reserve Bank of New York for such day, plus (ii) 0.50%, or (c) the sum of (i) Adjusted Term SOFR for a one-month tenor in effect on such day plus (ii) 1.10%. Adjusted Term SOFR means, for any such day, the sum of (i) the SOFR-based term rate for the day two (2) business days prior and (ii) 0.10%.

The 2022 Facility includes an accordion feature that will allow the Operating Partnership to increase the borrowing capacity by $200.0 million, upon the satisfaction of certain conditions. As of June 30, 2023, subject to any potential future paydowns or increases in the borrowing base, we have $98.5 million remaining availability under the 2022 Revolver. As of June 30, 2023, $416.5 million was drawn on the 2022 Facility and our unused borrowing capacity was $98.5 million, assuming that we use the proceeds of the 2022 Facility to acquire properties, or to repay debt on properties, that are eligible to be included in the unsecured borrowing base. The Company used $379.5 million of proceeds from the 2022 Facility to repay amounts outstanding under the 2019 Facility.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2023

(Unaudited)

The Company, each direct and indirect material subsidiary of the Operating Partnership and any other subsidiary of the Operating Partnership that is a guarantor under any unsecured ratable debt will serve as a guarantor for funds borrowed by the Operating Partnership under the 2022 Facility. The 2022 Facility contains customary terms and conditions, including, without limitation, customary representations and warranties and affirmative and negative covenants including, without limitation, information reporting requirements, limitations on investments, acquisitions, loans and advances, mergers, consolidations and sales, incurrence of liens, dividends and restricted payments. In addition, the 2022 Facility contains certain financial covenants including the following:

•

maximum total indebtedness to total asset value ratio of 0.60 to 1.00;

•

maximum secured debt to total asset value ratio of 0.40 to 1.00;

•

minimum EBITDA (earnings before interest, taxes, depreciation, amortization or extraordinary items) to fixed charges ratio of 1.50 to 1.00;

•

maximum other recourse debt to total asset value ratio of 0.15 to 1.00;

•

maintenance of a minimum tangible net worth (adjusted for accumulated depreciation and amortization) of 75% of the Company's total net worth as of December 31, 2021 plus 75% of the net proceeds from additional equity offerings (as defined therein); and

•

minimum adjusted property NOI to implied unencumbered debt service ratio of 1.50 to 1.00.

We serve as the guarantor for funds borrowed by the Operating Partnership under the 2022 Facility. The 2022 Facility contains customary terms and conditions, including, without limitation, affirmative and negative covenants such as information reporting requirements, maximum secured indebtedness to total asset value, minimum EBITDA (earnings before interest, taxes, depreciation, amortization or extraordinary items) to fixed charges, and maintenance of a minimum net worth. The 2022 Facility also contains customary events of default with customary notice and cure, including, without limitation, nonpayment, breach of covenant, misrepresentation of representations and warranties in a material respect, cross-default to other major indebtedness, change of control, bankruptcy and loss of REIT tax status.

As of June 30, 2023, our $139.5 million in secured debt was collateralized by six properties with a carrying value of $218.0 million. Our loans contain restrictions that would require the payment of prepayment penalties for the acceleration of outstanding debt and are secured by deeds of trust on certain of our properties and by assignment of the rents and leases associated with those properties. As of June 30, 2023, we were in compliance with all loan covenants.

Scheduled maturities of our outstanding debt as of June 30, 2023 were as follows (in thousands):

Year	*Amount Due*
2023 (remaining)	$	4,701
2024		63,573
2025		17,143
2026		168,643
2027		97,143
Thereafter		299,286
Total	$	650,489

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2023

(Unaudited)

8. DERIVATIVES AND HEDGING ACTIVITIES

The fair value of our interest rate swaps is as follows (in thousands):

	*June 30, 2023*
Balance Sheet Location	*Estimated Fair Value*
Prepaid expenses and other assets	$	8,574

	*December 31, 2022*
Balance Sheet Location	*Estimated Fair Value*
Prepaid expenses and other assets	$	6,065

On March 31, 2023, we, through our Operating Partnership, entered into an interest rate swap of $50 million (“Revolver Swap”) with Bank of Montreal that fixed the unhedged SOFR portion of the variable rate debt at 3.71%. Pursuant to the terms of the agreement governing the interest rate swap, Bank of Montreal assigned $10.0 million of the swap to U.S. Bank, $10.0 million of the swap to Capital One, $12.5 million of the swap to SunTrust Bank, and $2.5 million of the swap to Associated Bank. The swap began on March 31, 2023 and will mature on September 16, 2026. We designated the interest rate swap as a cash flow hedge with the effective portion of the changes in fair value recorded in comprehensive income and subsequently reclassified into earnings in the period that the hedged transaction affects earnings. The Company does not expect any amount of the existing gains or losses to be reclassified into earnings within the next 12 months.

On September 16, 2022, we, through our Operating Partnership, entered an interest rate swap with Bank of Montreal that fixed the unhedged SOFR portion of Term Loan under the 2022 Facility at 3.32%. The notional amount of the swap begins at $100 million on October 29, 2022, and increases to $265 million on February 1, 2024, maturing on January 31, 2028. Pursuant to the terms of the agreement governing the interest rate swap, Bank of Montreal assigned beginning and ending notionals of $20.7 million and $54.8 million of the swap, respectively, to U.S. Bank, National Association, beginning and ending notionals of $25.4 million and $67.2 million of the swap, respectively, to Truist Bank, beginning and ending notionals of $20.7 million and $54.8 million of the swap, respectively, to Capital One, National Association, and beginning and ending notionals of $5.9 million and $15.7 million of the swap, respectively, to Associated Bank. See Note 7 (Debt) for additional information regarding the 2022 Facility. We designated the interest rate swap as a cash flow hedge with the effective portion of the changes in fair value recorded in comprehensive income and subsequently reclassified into earnings in the period that the hedged transaction affects earnings. The Company does not expect any amount of the existing gains or losses to be reclassified into earnings within the next 12 months.

On January 31, 2019, we, through our Operating Partnership, entered into an interest rate swap of $165 million with Bank of Montreal that fixed the LIBOR portion of our $165 million term loan under the 2019 Facility at 2.43%. Pursuant to the terms of the agreement governing the interest rate swap, Bank of Montreal assigned $32.6 million of the swap to U.S. Bank, National Association, $29.4 million of the swap to Regions Bank, $40.0 million of the swap to SunTrust Bank, and $15.0 million of the swap to Associated Bank. Effective September 7, 2022, Regions Bank novated $29.4 million of the swap to Bank of Montreal. See Note 7 (Debt) for additional information regarding the 2019 Facility. The swap began on February 8, 2021 and will mature on January 31, 2024. Effective September 16, 2022, our contracts indexed to LIBOR were converted to SOFR. We have designated the interest rate swap as a cash flow hedge with the effective portion of the changes in fair value to be recorded in comprehensive income and subsequently reclassified into earnings in the period that the hedged transaction affects earnings. The ineffective portion of the change in fair value, if any, will be recognized directly in earnings. The Company does not expect any amount of the existing gains or losses to be reclassified into earnings within the next 12 months.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2023

(Unaudited)

A summary of our interest rate swap activity is as follows (in thousands):

	*Amount Recognized as Comprehensive Income*		*Location of Income (Loss) Recognized in Earnings*	*Amount of Income (Loss) Recognized in Earnings (1)*
Three Months Ended June 30, 2023	$	7,095	Interest expense	$	1,701
Three Months Ended June 30, 2022	$	2,675	Interest expense	$	(998	)

Six Months Ended June 30, 2023	$	2,508	Interest expense	$	2,904
Six Months Ended June 30, 2022	$	8,661	Interest expense	$	(2,329	)

⁽¹⁾	There was no ineffective portion of our interest rate swaps to recognize in earnings for the three and six months ended June 30, 2023 and 2022.

9. EARNINGS PER SHARE

Basic earnings per share for our common shareholders is calculated by dividing net income excluding the net income attributable to unvested restricted common shares and the net income attributable to noncontrolling interests, by our weighted average common shares outstanding during the period. Diluted earnings per share is computed by dividing the net income attributable to common shareholders, excluding the net income attributable to unvested restricted common shares and the net income attributable to noncontrolling interests, by the weighted average number of common shares including any dilutive unvested restricted common shares.

Certain of our performance-based restricted common shares are considered participating securities that require the use of the two-class method for the computation of basic and diluted earnings per share. During the three months ended June 30, 2023 and 2022, 694,297 and 769,848 OP units, respectively, were excluded from the calculation of diluted earnings per share because their effect would be anti-dilutive and during the six months ended June 30, 2023 and 2022, 694,298 and 770,000 OP units, respectively, were excluded from the calculation of diluted earnings per share because their effect would be anti-dilutive.

	*Three Months Ended June 30,*						*Six Months Ended June 30,*
(in thousands, except per share data)	*2023*			*2022*			*2023*			*2022*
Numerator:
Net income	$	11,465		$	4,406		$	15,366		$	11,595
Less: Net income attributable to noncontrolling interests		(159	)		(68	)		(213	)		(179	)
Net income attributable to common shareholders excluding amounts attributable to unvested restricted shares	$	11,306		$	4,338		$	15,153		$	11,416

Denominator:
Weighted average number of common shares - basic		49,426			49,147			49,425			49,147
Effect of dilutive securities:
Unvested restricted shares		833			900			837			1,030
Weighted average number of common shares - dilutive		50,259			50,047			50,262			50,177

Earnings Per Share:
Basic:
Net income attributable to common shareholders excluding amounts attributable to unvested restricted shares	$	0.23		$	0.09		$	0.31		$	0.23
Diluted:
Net income attributable to common shareholders excluding amounts attributable to unvested restricted shares	$	0.22		$	0.09		$	0.30		$	0.23

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2023

(Unaudited)

10. INCOME TAXES

With the exception of our taxable REIT subsidiaries, federal income taxes are generally not provided because we intend to and believe we continue to qualify as a REIT under the provisions of the Internal Revenue Code of 1986, as amended (the “Code”), and because we have distributed and intend to continue to distribute all of our taxable income to our shareholders. As a REIT, we must distribute at least 90% of our REIT taxable income to our shareholders and meet certain income sources and investment restriction requirements. In addition, REITs are subject to a number of organizational and operational requirements. If we fail to qualify as a REIT in any taxable year, we will be subject to federal income tax (including any applicable alternative minimum tax) on our taxable income at regular corporate tax rates.

We are subject to the Texas Margin Tax, which is computed by applying the applicable tax rate (0.75% for us) to the profit margin, which generally will be determined for us as total revenue less a 30% standard deduction. Although the Texas Margin Tax is not an income tax, FASB ASC 740, “Income Taxes” applies to the Texas Margin Tax. For the three months ended June 30, 2023 and 2022, we recognized approximately $ 125,000 and $ 100,000, respectively, in margin tax provision and for the six months ended June 30, 2023 and 2022, we recognized approximately $ 244,000 and $ 201,000, respectively.

11. EQUITY

Common Shares

Under our declaration of trust, as amended, we have authority to issue up to 400,000,000 common shares of beneficial interest, $0.001 par value per share, and up to 50,000,000 preferred shares of beneficial interest, $0.001 par value per share.

Equity Offerings

On May 20, 2022, our universal shelf registration statement on Form S-3 was declared effective by the SEC, which registers the issuance and sale by us of up to $500 million in securities from time to time, including common shares, preferred shares, debt securities, depositary shares and subscription rights.

On September 9, 2022, we entered into eleven equity distribution agreements for an at-the-market equity distribution program (the “2022 equity distribution agreements”) providing for the issuance and sale of up to an aggregate of $100 million of the Company’s common shares pursuant to our Registration Statement on Form S-3 (File No. 333-264881). Actual sales will depend on a variety of factors determined by us from time to time, including (among others) market conditions, the trading price of our common shares, capital needs and our determinations of the appropriate sources of funding for us, and were made in transactions that will be deemed to be “at-the-market” offerings as defined in Rule 415 under the Securities Act. We have no obligation to sell any of our common shares and can at any time suspend offers under the 2022 equity distribution agreements or terminate the 2022 equity distribution agreements.

We have in the past, and expect to in the future, enter into at-the-market equity distribution programs providing for the issuance and sale of common shares. Actual sales will depend on a variety of factors determined by us from time to time, including (among others) market conditions, the trading price of our common shares, capital needs and our determinations of the appropriate sources of funding for us, and were made in transactions that will be deemed to be “at-the-market” offerings as defined in Rule 415 under the Securities Act of 1933, as amended (the "Securities Act"). For the three and six months ended June 30, 2023 and 2022, we did not sell shares under the equity distribution agreements.

Operating Partnership Units

Substantially all of our business is conducted through our Operating Partnership. We are the sole general partner of the Operating Partnership. As of June 30, 2023, we owned a 98.6% interest in the Operating Partnership.

Limited partners in the Operating Partnership holding OP units have the right to redeem their OP units for cash or, at our option, common shares at a ratio of one OP unit for one common share. Distributions to OP unit holders are paid at the same rate per unit as distributions per share to holders of Whitestone common shares. As of June 30, 2023 and December 31, 2022, there were 50,092,684 and 49,996,356 OP units outstanding, respectively. We owned 49,399,079 and 49,301,876 OP units as of June 30, 2023 and December 31, 2022, respectively. The balance of the OP units is owned by third parties, including certain members of our board of trustees. Our weighted average share ownership in the Operating Partnership was approximately 98.6% and 98.5% for the three months ended June 30, 2023 and 2022, respectively, and approximately 98.6% and 98.5% for the six months ended June 30, 2023 and 2022, respectively. During the three months ended June 30, 2023 and 2022, 864 and 341 OP units, respectively, were redeemed for an equal number of common shares, and during the six months ended June 30, 2023 and 2022, 875 and 953 OP units, respectively, were redeemed for an equal number of common shares.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2023

(Unaudited)

Distributions

The following table summarizes the cash distributions paid or payable to holders of common shares and to holders of noncontrolling OP units during each quarter of 2022 and the six months ended June 30, 2023 (in thousands, except per share/per OP unit data):

	*Common Shares*				*Noncontrolling OP Unit Holders*				*Total*
Quarter Paid	*Distributions Per Common Share*		*Amount Paid*		*Distributions Per OP Unit*		*Amount Paid*		*Amount Paid*
2023
Second Quarter	$	0.1200	$	5,913	$	0.1200	$	83	$	5,996
First Quarter		0.1200		5,913		0.1200		83		5,996
Total	$	0.2400	$	11,826	$	0.2400	$	166	$	11,992

2022
Fourth Quarter	$	0.1200	$	5,909	$	0.1200	$	83	$	5,992
Third Quarter		0.1200		5,901		0.1200		88		5,989
Second Quarter		0.1200		5,880		0.1200		92		5,972
First Quarter		0.1075		5,268		0.1075		83		5,351
Total	$	0.4675	$	22,958	$	0.4675	$	346	$	23,304

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2023

(Unaudited)

12. INCENTIVE SHARE PLAN

The Company's 2008 Long-Term Equity Incentive Plan (as amended, the “2008 Plan“) expired in July 2018. At the Company’s annual meeting of shareholders on May 11, 2017, our shareholders voted to approve the 2018 Long-Term Equity Incentive Ownership Plan (the “2018 Plan“). The 2018 Plan provides for the issuance of up to 3,433,831 common shares and OP units pursuant to awards under the 2018 Plan. The 2018 Plan became effective on July 30, 2018, which is the day after the 2008 Plan expired.

The Compensation Committee administered the 2008 Plan and administers the 2018 Plan except, in each case, with respect to awards to non-employee trustees, for which the 2008 Plan was and the 2018 Plan is administered by the board of trustees. The Compensation Committee is authorized to grant share options, including both incentive share options and non-qualified share options, as well as share appreciation rights, either with or without a related option. The Compensation Committee is also authorized to grant restricted common shares, restricted common share units, performance awards and other share-based awards. On September 6, 2017, the Compensation Committee approved the grant of an aggregate of 965,000 performance-based restricted common share units under the 2008 Plan which only vest immediately prior to the consummation of a Change in Control (as defined in the 2008 Plan) that occurs on or before September 30, 2024 (the “CIC Units”) to certain of our employees. Continued employment is required through the vesting date. If a Change in Control does not occur on or before September 30, 2024, the CIC Units shall be immediately forfeited. The Company considers a Change in Control on or before September 30, 2024 to be improbable, and no expense has been recognized for the CIC Units. If a Change in Control occurs, any outstanding CIC Units would be expensed immediately on the date of the Change in Control using the grant date fair value. The grant date fair value for each CIC Unit of $13.05 was determined based on the Company’s closing share price on the grant date. As of June 30, 2023, 455,000 CIC Units remained outstanding.

On July 31, 2020, the Compensation Committee approved the grant of an aggregate of 545,000 Total Shareholder Return Units (“TSR Units“) and 530,000 time-based restricted common share units under the 2018 Plan to certain of our employees. Vesting of the TSR Units is contingent upon achieving Total Shareholder Return relative to the peer group defined in the TSR Unit award agreements over a three-year performance period. At the end of the performance period, the number of common shares awarded for each vested TSR Unit will vary from 0% to 200% depending on the Company’s TSR Peer Group Ranking. Continued employment is required through the vesting date. The grant date fair value for each TSR Unit of $5.55 was determined using the Monte Carlo simulation method and is being recognized as share-based compensation expense ratably from the July 31, 2020 grant date to the end of the performance period, December 31, 2022. The Monte Carlo simulation model utilizes multiple input variables that determine the probability of satisfying the market condition stipulated in the award grant and calculates the fair value of the award. Expected volatilities utilized in the model were estimated using a historical period consistent with the performance period of approximately three years. The risk-free interest rate was based on the United States Treasury rate for a term commensurate with the expected life of the grant. On December 31, 2022, the remaining unvested 273,500 TSR Units that were granted on July 31, 2020 vested at 0% attainment into 0 common shares. The time-based restricted common share units have a grant date fair value of $5.83 and vest annually in three equal installments.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2023

(Unaudited)

On June 30, 2021, the Compensation Committee approved the grant of an aggregate of 433,200 TSR Units and 433,200 time-based restricted common share units under the 2018 Plan to certain of our employees. Vesting of the TSR Units is contingent upon achieving Total Shareholder Return relative to the peer group defined in the TSR Unit award agreements over a three-year performance period. At the end of the performance period, the number of common shares awarded for each vested TSR Unit will vary from 0% to 200% depending on the Company’s TSR Peer Group Ranking. Continued employment is required through the vesting date. The grant date fair value for each TSR Unit of $4.17 was determined using the Monte Carlo simulation method and is being recognized as share-based compensation expense ratably from the June 30, 2021 grant date to the end of the performance period, December 31, 2023. The Monte Carlo simulation model utilizes multiple input variables that determine the probability of satisfying the market condition stipulated in the award grant and calculates the fair value of the award. Expected volatilities utilized in the model were estimated using a historical period consistent with the performance period of approximately three years. The risk-free interest rate was based on the United States Treasury rate for a term commensurate with the expected life of the grant. The time-based restricted common share units have a grant date fair value of $7.51 and vest annually in three equal installments. The 433,200 TSR Units granted on June 30, 2021 include 111,465 TSR Units that will be converted into the right to receive cash in the amount of the fair market value of the common shares to the extent that common shares are not available for issuance under the 2018 Plan.

On September 30, 2021, the Compensation Committee approved the grant of an aggregate of 5,500 time-based restricted common share units under the 2018 Plan to certain of our employees. The time-based common share units had a grant date fair value of $9.06 each and vest annually in three equal installments.

On March 28, 2022, the Compensation Committee approved the grant of an aggregate of 162,556 TSR Units and 162,556 time-based restricted common share units under the 2018 Plan to certain of our employees. Vesting of the TSR Units is contingent upon achieving Total Shareholder Return relative to the peer group defined in the TSR Unit award agreements over a three-year performance period. At the end of the performance period, the number of common shares awarded for each vested TSR Unit will vary from 0% to 200% depending on the Company’s TSR Peer Group Ranking. Continued employment is required through the vesting date. The grant date fair value for each TSR Unit of $13.74 was determined using the Monte Carlo simulation method and is being recognized as share-based compensation expense ratably from the June 30, 2022 grant date to the end of the performance period, December 31, 2024. The Monte Carlo simulation model utilizes multiple input variables that determine the probability of satisfying the market condition stipulated in the award grant and calculates the fair value of the award. Expected volatilities utilized in the model were estimated using a historical period consistent with the performance period of approximately three years. The risk-free interest rate was based on the United States Treasury rate for a term commensurate with the expected life of the grant. The time-based restricted common share units have a grant date fair value of $9.94 and vest annually in three equal installments.

On March 7, 2023, the Compensation Committee approved the grant of an aggregate of 228,025 TSR Units and 228,025 time-based restricted common share units under the 2018 Plan to certain of our employees. Vesting of the TSR Units is contingent upon achieving Total Shareholder Return relative to the peer group defined in the TSR Unit award agreements over a three-year performance period. At the end of the performance period, the number of common shares awarded for each vested TSR Unit will vary from 0% to 200% depending on the Company’s TSR Peer Group Ranking. Continued employment is required through the vesting date. The grant date fair value for each TSR Unit of $9.55 was determined using the Monte Carlo simulation method and is being recognized as share-based compensation expense ratably from the June 30, 2023 grant date to the end of the performance period, December 31, 2025. The Monte Carlo simulation model utilizes multiple input variables that determine the probability of satisfying the market condition stipulated in the award grant and calculates the fair value of the award. Expected volatilities utilized in the model were estimated using a historical period consistent with the performance period of approximately three years. The risk-free interest rate was based on the United States Treasury rate for a term commensurate with the expected life of the grant. The time-based restricted common share units have a grant date fair value of $8.72 and vest annually in three equal installments.

A summary of the share-based incentive plan activity as of and for the six months ended June 30, 2023 is as follows:

				*Weighted Average*
				*Grant Date*
	*Shares*			*Fair Value*
Non-vested at January 1, 2023		1,220,945		$	10.03
Granted		456,050			9.14
Vested		(122,301	)		8.55
Forfeited		(17,096	)		10.01
Non-vested at June 30, 2023		1,537,598			9.88
Available for grant at June 30, 2023		1,110,823

A summary of our non-vested and vested shares activity for the six months ended June 30, 2023 and years ended December 31, 2022 and 2021 is presented below:

	*Shares Granted*				*Shares Vested*
	*Non-Vested Shares Issued*		*Weighted Average Grant-Date Fair Value*		*Vested Shares*			*Total Vest-Date Fair Value*
								(in thousands)
Six Months Ended June 30, 2023		456,050	$	9.14		(122,301	)	$	1,045
Year Ended December 31, 2022		360,334	$	11.61		(519,003	)	$	3,442
Year Ended December 31, 2021		904,215	$	5.99		(1,024,808	)	$	9,757

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WHITESTONE REIT AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2023

(Unaudited)

Total compensation recognized in earnings for share-based payments was $800,000 and $841,000 for the three months ended June 30, 2023 and 2022, respectively, and $1,629,000 and $(488,000) for the six months ended June 30, 2023 and 2022, respectively.

Based on our current financial projections, we expect approximately 100% of the unvested awards, exclusive of 455,000 CIC Units, to vest over the next 36 months. As of June 30, 2023, there was approximately $3.6 million in unrecognized compensation cost related to outstanding non-vested TSR Units, which are expected to vest over a period of 30 months, and approximately $3.6 million in unrecognized compensation cost related to outstanding non-vested time-based shares, which are expected to be recognized over a period of approximately 36 months beginning on July 1, 2023.

We expect to record approximately $3.7 million in non-cash share-based compensation expense in 2023 and $5.3 million subsequent to 2023. The unrecognized share-based compensation cost is expected to vest over a weighted average period of 27 months. The dilutive impact of the performance-based shares will be included in the denominator of the earnings per share calculation beginning in the period that the performance conditions are expected to be met. The dilutive impact of the TSR Units is based on the Company’s TSR Peer Group Ranking as of the reporting date and weighted according to the number of days outstanding in the period. As of June 30, 2023, the TSR Peer Group Ranking called for attainment of 100%, 150%, and 100% for the shares issued in 2021, 2022, and 2023, respectively. The dilutive impact of the CIC Units is based on the probability of a Change in Control. Because the Company considers a Change in Control on or before September 30, 2024 to be improbable, no CIC Units are included in the Company’s dilutive shares.

13. GRANTS TO TRUSTEES

On December 19, 2022, five independent trustees and one trustee emeritus were granted a total of 35,222 common shares, which vest immediately and are prorated based on date appointed. The 35,222 common shares granted to our trustees had a grant fair value of $9.52 per share. The fair value of the shares granted during the year ended December 31, 2022 was determined using quoted prices available on the date of grant.

14. SEGMENT INFORMATION

Historically, our management has not differentiated results of operations by property type or location and, therefore, does not present segment information.

15. REAL ESTATE

Property Acquisitions.

On June 12, 2023, we acquired Arcadia Towne Center, a property that meets our Community Centered Property® strategy, for $25.5 million in cash and net prorations. Arcadia Towne Center, a 69,503 square foot property, was 100% leased at the time of purchase and is located in Phoenix, Arizona.

On December 21, 2022, we acquired Lake Woodlands Crossing, a property that meets our Community Centered Property® strategy, for $22.5 million in cash and net prorations. Lake Woodlands Crossing, a 60,246 square foot property, was 89.3% leased at the time of purchase and is located in The Woodlands, Texas.

On December 2, 2022 we acquired Dana Park Pad, a property that meets our Community Centered Property® strategy, for $4.9 million in cash and net prorations. Dana Park Pad, a 12,000 square foot property, was 100% leased at the time of purchase and is located in the Mesa submarket of Phoenix, Arizona.

Property dispositions.

On June 30, 2023, we completed the sale of Westchase, located in Houston, Texas, for $7.8 million. We recorded a gain on sale of $4.6 million. We have not included Westchase in discontinued operations as it did not meet the definition of discontinued operations.

On June 30, 2023, we completed the sale of Sunridge, located in Houston, Texas, for $6.7 million. We recorded a gain on sale of $5.0 million. We have not included Sunridge in discontinued operations as it did not meet the definition of discontinued operations.

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WHITESTONE REIT AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2023

(Unaudited)

16. RELATED PARTY TRANSACTIONS

The Contribution. Prior to his employment termination on January 18, 2022, Mr. James C. Mastandrea, the former Chairman and Chief Executive Officer of Whitestone REIT, also served as the Chairman and Chief Executive Officer of Pillarstone REIT and beneficially owns approximately 66.7% of the outstanding equity in Pillarstone REIT (when calculated in accordance with Rule 13d-3(d)(1) under the Exchange Act of 1934, as amended (the “Exchange Act”)). He resigned as a member of the Board of Whitestone REIT on April 18, 2022. Prior to his employment termination on February 9, 2022, Mr. John J. Dee, the Company’s former Chief Operating Officer and Corporate Secretary, also served as the Senior Vice President and Chief Financial Officer of Pillarstone REIT and beneficially owns approximately 20.0% of the outstanding equity in Pillarstone REIT (when calculated in accordance with Rule 13d-3(d)(1) under the Exchange Act). In addition, Mr. Paul T. Lambert, a Trustee of the Company, until expiration of his term on May 12, 2023, also served as a Trustee of Pillarstone REIT.

Pillarstone OP. The Company accounts for its investment in Pillarstone OP under the equity method.

During the ordinary course of business, we had transactions with Pillarstone OP that include, but are not limited to, rental income, interest expense, general and administrative costs, commissions, management and asset management fees, and property expenses. The management agreement was terminated on August 18, 2022.

The following table presents the revenue and expenses with Pillarstone OP included in our consolidated statements of operations and comprehensive income for the three and six months ended June 30, 2023 and 2022 (in thousands):

		*Three Months Ended June 30,*					*Six Months Ended June 30,*
	*Location of Revenue (Expense)*	*2023*		*2022*			*2023*			*2022*
Rent	Operating and maintenance	$	—	$	(174	)	$	(15	)	$	(366	)
Property management fee income	Management, transaction, and other fees	$	—	$	144		$	—		$	284

17. COMMITMENTS AND CONTINGENCIES

Former COO Litigation

On May 9, 2023, the Company’s former COO, John Dee, filed suit against the Company in the District Court of Harris County, Texas. Claimant purports to assert claims for breach of his change-in-control agreement arising from the Company’s termination of its former CEO James Mastandrea for cause, and is seeking monetary relief in excess of $1,000,000 in damages and equitable relief. The Company denies the claims, has substantial legal and factual defenses against the claims, and intends to vigorously defend against the claims. The Company does not believe a probable loss will be incurred, nor does it anticipate a material adverse effect on its financial position, results of operations, cash flows or liquidity. Therefore, the Company has not recorded a charge as a result of this action.

Litigation between the Company and Pillarstone REIT

On September 16, 2022, Pillarstone Capital REIT and Pillarstone Capital REIT Operating Partnership, L.P. filed suit against the Company and certain of its subsidiaries (Whitestone TRS, Inc. and Whitestone REIT Operating Partnership, L.P.) along with certain of its executives (Peter Tropoli, Christine Mastandrea, and David Holeman) in the District Court of Harris County, Texas, alleging claims relating to the limited partnership agreement between Pillarstone Capital REIT and Whitestone REIT Operating Partnership, as well as the termination of Management Agreements between Pillarstone Capital REIT Operating Partnership, L.P. and Whitestone TRS, Inc. On November 25, 2022, the claims against Peter Tropoli, Christine Mastandrea and David Holeman were dismissed. The claimants seek monetary relief in excess of $1,000,000 in damages and equitable relief. However, the Company denies the claims, has substantial legal and factual defenses against the claims, and intends to vigorously defend against the claims. The Company does not believe a probable loss will be incurred, nor does it anticipate a material adverse effect on its financial position, results of operations, cash flows or liquidity. Therefore, the Company has not recorded a charge as a result of this action.

Former CEO Litigation

On February 23, 2022, the Company’s former CEO, James Mastandrea, filed suit against the Company and certain of its trustees (Nandita Berry, Jeff Jones, Jack Mahaffey, and David Taylor) and officers (David Holeman, Christine Mastandrea, Peter Tropoli) in the District Court of Harris County, Texas, alleging claims relating to the termination of his employment. Claimant purports to assert claims for breach of his employment contract, negligence, tortious interference with contract, civil conspiracy, and declaratory judgment. On September 12, 2022, the claim for breach of fiduciary duty was dismissed and a claim for negligence was added. The claimant seeks a maximum of $25 million in damages and equitable relief. However, the Company denies the claims, has substantial legal and factual defenses against the claims, and intends to vigorously defend against the claims. The Company does not believe a probable loss will be incurred, nor does it anticipate a material adverse effect on its financial position, results of operations, cash flows or liquidity. Therefore, the Company has not recorded a charge as a result of this action.

Pillarstone Rights Plan

As set forth in the Amended and Restated Limited Partnership Agreement of Pillarstone OP, dated as of December 8, 2016 (the “Pillarstone Partnership Agreement”), we have the contractual right to have our limited partnership interests in Pillarstone redeemed at our discretion. However, upon receipt of a redemption notice, Pillarstone OP has the option to pay the applicable redemption price in cash, based on the market value of Pillarstone REIT common shares, or in Pillarstone REIT common shares. To the extent we seek to have our partnership units in Pillarstone OP redeemed and Pillarstone OP elects to pay the applicable redemption price in Pillarstone REIT common shares (and such shares represent 5% or more of the outstanding common shares of Pillarstone REIT), the Rights could become exercisable. To the extent the Rights are exercised as a result of our Pillarstone OP units being redeemed for Pillarstone REIT common shares, our ownership interest in Pillarstone REIT would be significantly diluted, which could adversely impact the value of our investment in Pillarstone OP.

Because Pillarstone REIT seeks to use the Pillarstone Rights Agreement to prevent Whitestone OP from exercising its contractual Redemption Right, on July 12, 2022, Whitestone OP filed suit against Pillarstone REIT in the Court of Chancery of the State of Delaware challenging the Pillarstone Rights Agreement due to Pillarstone REIT’s alleged (i) breach of the Pillarstone Partnership Agreement, (ii) breach of its fiduciary duty as general partner of Pillarstone OP to Whitestone OP, (iii) and breach of the implied covenant of good faith and fair dealing under the Pillarstone Partnership Agreement. The lawsuit seeks rescission and voiding of the Pillarstone Rights Agreement; a declaration that the Pillarstone Rights Agreement is unenforceable, invalid, and of no force and effect; an order permanently enjoining enforcement of the Pillarstone Rights Agreement; an award of monetary damages; and broad restrictions on Pillarstone REIT’s ability to conduct its business, including buying properties, enforcing the Rights Agreement, incurring expenses, or engaging in transactions.

On September 8, 2022, Whitestone OP’s Motion to Preserve the Status Quo was granted by the Court, limiting Pillarstone OP from engaging in any acts outside the ordinary course of business and otherwise imposing restrictions on Pillarstone OP to ensure that Whitestone’s right of redemption is not impaired while the underlying dispute is being considered by the Court.

Trial was held on July 17-18, 2023. Based on the currently anticipated schedule, post-trial briefing is expected to conclude in the fall of 2023 and the Court can then choose to have post-trial argument. Thereafter, the Court will issue a decision on Whitestone OP’s outstanding claims.

Whitestone OP is asking the Court to declare the Pillarstone Rights Agreement unenforceable and to permit Whitestone OP to tender a Notice of Redemption. In addition (or alternatively), Whitestone OP seeks an award of monetary damages of at least $51,200,600 based on the amount that Pillarstone's misconduct precluded Whitestone OP from receiving in or around December 2021, as well as an award of pre- and post-judgment interest at the statutory rate.

We are subject to various legal proceedings and claims that arise in the ordinary course of business. These matters are generally covered by insurance. While the resolution of these matters cannot be predicted with certainty, management believes the final outcome of such matters will not have a material adverse effect on our financial position, results of operations, cash flows or liquidity.

18. SUBSEQUENT EVENTS

None.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

You should read the following discussion of our financial condition and results of operations in conjunction with our unaudited consolidated financial statements and the notes thereto included in this Quarterly Report on Form 10-Q (this “Report”), and the consolidated financial statements and the notes thereto and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in our Annual Report on Form 10-K for the year ended December 31, 2022. For more detailed information regarding the basis of presentation for the following information, you should read the notes to the unaudited consolidated financial statements included in this Report.

Forward-Looking Statement

This Report contains forward-looking statements within the meaning of the federal securities laws, including discussion and analysis of our financial condition, pending acquisitions and the impact of such acquisitions on our financial condition and results of operations, anticipated capital expenditures required to complete projects, amounts of anticipated cash distributions to our shareholders in the future and other matters. These forward-looking statements are not historical facts but are the intent, belief or current expectations of our management based on its knowledge and understanding of our business and industry. Forward-looking statements are typically identified by the use of terms such as “may,” “will,” “should,” “potential,” “predicts,” “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates” or the negative of such terms and variations of these words and similar expressions, although not all forward-looking statements include these words. These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, some of which are beyond our control, are difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements.

Forward-looking statements that were true at the time made may ultimately prove to be incorrect or false. You are cautioned not to place undue reliance on forward-looking statements, which reflect our management’s view only as of the date of this Report. We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results.

Factors that could cause actual results to differ materially from any forward-looking statements made in this Report include:

•

the imposition of federal income taxes if we fail to qualify as a real estate investment trust (“REIT”) in any taxable year or forego an opportunity to ensure REIT status;

•

uncertainties related to the national economy and the real estate industry, both in general and in our specific markets;

•

legislative or regulatory changes, including changes to laws governing REITs;

•

adverse economic or real estate developments or conditions in Texas or Arizona, Houston and Phoenix in particular, including the potential impact of public health emergencies such as COVID-19 on our tenants’ ability to pay their rent, which could result in bad debt allowances or straight-line rent reserve adjustments;

•

our current geographic concentration in the Houston and Phoenix metropolitan area makes us susceptible to local economic downturns;

•

increases in interest rates, including as a result of inflation, operating costs or general and administrative expenses;

•

natural disasters, such as floods and hurricanes, which may increase as a result of climate change may adversely affect our returns;

•

increasing focus by stakeholders on environmental, social and governance matters;

•

financial institution disruptions;

•

availability and terms of capital and financing, both to fund our operations and to refinance our indebtedness as it matures;

•

decreases in rental rates or increases in vacancy rates;

•

harm to our reputation, ability to do business and results of operations as a result of improper conduct by our employees, agents or business partners;

•

litigation risks;

•

lease-up risks, including leasing risks arising from exclusivity and consent provisions in leases with significant tenants;

•

our inability to renew tenant leases or obtain new tenant leases upon the expiration of existing leases;

•

our inability to generate sufficient cash flows due to market conditions, competition, uninsured losses, changes in tax or other applicable laws;

•

geopolitical conflicts, such as the ongoing conflict between Russia and Ukraine;

•

the need to fund tenant improvements or other capital expenditures out of operating cash flow;

•

the risk that we are unable to raise capital for working capital, acquisitions or other uses on attractive terms or at all; and

•

the extent to which our estimates regarding Pillarstone OP's financial condition and results of operations differ from actual results.

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The forward-looking statements should be read in light of these factors and the factors identified in the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2022, as previously filed with the Securities and Exchange Commission (“SEC”) and of this Report below.

Overview

We are a fully-integrated real estate company that owns and operates commercial properties in culturally diverse markets in major metropolitan areas. Founded in 1998, we are internally managed with a portfolio of commercial properties in Texas, Arizona and Illinois.

In October 2006, we adopted a strategic plan to acquire, redevelop, own and operate Community Centered Properties®. We define Community Centered Properties® as visibly located properties in established or developing culturally diverse neighborhoods in our target markets. We market, lease and manage our centers to match tenants with the shared needs of the surrounding neighborhood. Those needs may include specialty retail, grocery, restaurants and medical, educational and financial services. Our goal is for each property to become a Whitestone-branded retail community that serves a neighboring five-mile radius around our property. We employ and develop a diverse group of associates who understand the needs of our multi-cultural communities and tenants.

We serve as the general partner of Whitestone REIT Operating Partnership, L.P. (the “Operating Partnership”), which was formed on December 31, 1998 as a Delaware limited partnership. We currently conduct substantially all of our operations and activities through the Operating Partnership. As the general partner of the Operating Partnership, we have the exclusive power to manage and conduct the business of the Operating Partnership, subject to certain customary exceptions.

As of June 30, 2023, we wholly owned 56 commercial properties consisting of:

Consolidated Operating Portfolio

•

51 wholly owned properties that meet our Community Centered Properties® strategy containing approximately 5.0 million square feet of gross leasable area (“GLA”) and having a total carrying amount (net of accumulated depreciation) of $985.2 million; and

Redevelopment, New Acquisitions Portfolio

•

five parcels of land held for future development that meet our Community Centered Properties® strategy having a total carrying value of $21.0 million.

Acquired properties are categorized in the new acquisitions portfolio until the earlier of 90% occupancy or 18 months of ownership.

As of June 30, 2023, we had an aggregate of 1,466 tenants. We have a diversified tenant base with our largest tenant comprising only 2.2% of our annualized rental revenues for the six months ended June 30, 2023. Lease terms for our properties range from less than one year for smaller tenants to over 15 years for larger tenants. Our leases include minimum monthly lease payments and generally provide for tenant reimbursements for payment of taxes, insurance and maintenance. We completed 136 new and renewal leases during the six months ended June 30, 2023, totaling 367,391 square feet and approximately $41.8 million in total lease value. This compares to 175 new and renewal leases totaling 484,477 square feet and approximately $52.1 million in total lease value during the same period in 2022.

We employed 77 full-time employees as of June 30, 2023. As an internally managed REIT, we bear our own expenses of operations, including the salaries, benefits and other compensation of our employees, office expenses, legal, accounting, and investor relations expenses and other overhead costs.

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Real Estate Partnership

As of June 30, 2023, we, through our investment in Pillarstone OP, owned a majority interest in eight properties that do not meet our Community Centered Property® strategy containing approximately 926,798 square feet of GLA (the “Pillarstone Properties”). We own 81.4% of the total outstanding units of Pillarstone OP, which we account for using the equity method.

Inflation

We anticipate that the majority of our leases will continue to be triple-net leases or otherwise provide that tenants pay for increases in operating expenses and will contain provisions that we believe will mitigate the effect of inflation. In addition, many of our leases are for terms of less than five years, which allows us to adjust rental rates to reflect inflation and other changing market conditions when the leases expire. Consequently, increases due to inflation, as well as ad valorem tax rate increases, generally do not have a significant adverse effect upon our operating results.

Rising Interest Rates

As of June 30, 2023, $101.5 million, or approximately 16% of our outstanding debt, was subject to floating interest rates of SOFR plus 1.60% and a 10 basis point credit spread adjustment and not currently subject to a hedge. The impact of a 1% increase or decrease in interest rates on our non-hedged variable rate debt would result in a decrease or increase of annual net income of approximately $1.0 million, respectively.

How We Derive Our Revenue

Substantially all of our revenue is derived from rents received from leases at our properties. We had total revenues of approximately $36.5 million and $35.0 million for the three months ended June 30, 2023 and 2022, respectively, and $72.3 million and $69.1 million for the six months ended June 30, 2023 and 2022, respectively.

Rental Income

We expect our rental income to increase year-over-year due to the addition of properties and rent increases on renewal leases. The amount of net rental income generated by our properties depends principally on our ability to maintain the occupancy rates of currently leased space and to lease currently available space, newly acquired properties with vacant space, and space available from unscheduled lease terminations. The amount of rental income we generate also depends on our ability to maintain or increase rental rates in our submarkets. Included in our adjustments to rental revenue for the conversion of18 tenants to cash basis revenue was an increase to rental revenue for straight-line rent reserve adjustment of $0.1 million and a decrease to rental revenue for bad debt adjustment of $0.1 million for the three months ending June 30, 2023, and a decrease to rental revenue for straight-line rent reserve of $0.2 million and a decrease to rental revenue for bad debt of $0.3 million for the six months ended June 30, 2023.

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Scheduled Lease Expirations

We tend to lease space to smaller businesses that desire shorter term leases. As of June 30, 2023, approximately 25% of our GLA was subject to leases that expire prior to December 31, 2024. Over the last three calendar years, we have renewed expiring leases with respect to approximately 67% of our GLA. We routinely seek to renew leases with our existing tenants prior to their expiration and typically begin discussions with tenants as early as 24 months prior to the expiration date of the existing lease. Inasmuch as our early renewal program and other leasing and marketing efforts target these expiring leases, we work to re-lease most of that space prior to expiration of the leases. In the markets in which we operate, we obtain and analyze market rental rates through review of third-party publications, which provide market and submarket rental rate data and through inquiry of property owners and property management companies as to rental rates being quoted at properties that are located in close proximity to our properties and we believe display similar physical attributes as our nearby properties. We use this data to negotiate leases with new tenants and renew leases with our existing tenants at rates we believe to be competitive in the markets for our individual properties. Due to the short term nature of our leases, and based upon our analysis of market rental rates, we believe that, in the aggregate, our current leases are at market rates. Market conditions, including new supply of properties, and macroeconomic conditions in our markets and nationally affecting tenant income, such as employment levels, business conditions, interest rates, tax rates, fuel and energy costs and other matters, could adversely impact our renewal rate and/or the rental rates we are able to negotiate. We continue to monitor our tenants’ operating performances as well as overall economic trends to evaluate any future negative impact on our renewal rates and rental rates, which could adversely affect our cash flow and ability to make distributions to our shareholders.

Acquisitions

We seek to grow our GLA through the acquisition of additional properties, and we are carefully evaluating development and redevelopment activities on a case-by-case basis. We have extensive relationships with community banks, attorneys, title companies, and others in the real estate industry, which we believe enables us to take advantage of these market opportunities and maintain an active acquisition pipeline.

Property Acquisitions, Dispositions and Development

We seek to acquire commercial properties in high-growth markets. Our acquisition targets are properties that fit our Community Centered Properties® strategy. We may acquire properties in other high-growth cities in the future. As part of our ongoing commitment to our Community Centered Properties® strategy and in pursuit of expanding our commercial property portfolio in high-growth markets, we have carefully evaluated and identified certain non-core properties for divestment, allowing us to reallocate resources towards acquiring properties that align more closely with our long-term growth objectives.

On June 12, 2023, we acquired Arcadia Towne Center, a property that meets our Community Centered Property® strategy, for $25.5 million in cash and net prorations. Arcadia Towne Center, a 69,503 square foot property, was 100% leased at the time of purchase and is located in Phoenix, Arizona.

On December 21, 2022, we acquired Lake Woodlands Crossing, a property that meets our Community Centered Property® strategy, for $22.5 million in cash and net prorations. Lake Woodlands Crossing, a 60,246 square foot property, was 89.3% leased at the time of purchase and is located in The Woodlands, Texas.

On December 2, 2022 we acquired Dana Park Pad, a property that meets our Community Centered Property® strategy, for $4.9 million in cash and net prorations. Dana Park Pad, a 12,000 square foot property, was 100% leased at the time of purchase and is located in the Mesa submarket of Phoenix, Arizona.

On June 30, 2023, we completed the sale of Westchase, located in Houston, Texas, for $7.8 million. We recorded a gain on sale of $4.6 million. We have not included Westchase in discontinued operations as it did not meet the definition of discontinued operations.

On June 30, 2023, we completed the sale of Sunridge, located in Houston, Texas, for $6.7 million. We recorded a gain on sale of $5.0 million. We have not included Sunridge in discontinued operations as it did not meet the definition of discontinued operations.

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Leasing Activity

As of June 30, 2023, we owned 56 properties with 5,036,645 square feet of GLA and, as of June 30, 2023 and June 30, 2022, our occupancy rate for all properties was approximately 93% and 91%, respectively. The following is a summary of the Company’s leasing activity for the six months ended June 30, 2023:

	Number of Leases Signed		GLA Signed		Weighted Average Lease Term (2)		TI and Incentives per Sq. Ft. (3)		Contractual Rent Per Sq. Ft. (4)		Prior Contractual Rent Per Sq. Ft. (5)		Straight-lined Basis Increase (Decrease) Over Prior Rent
Comparable ⁽¹⁾
Renewal Leases		78		211,829		3.2	$	1.56	$	25.29	$	23.19		18.7	%
New Leases		22		33,329		6.4		20.61		29.99		29.12		23.4	%
Total		100		245,158		3.7	$	4.15	$	25.93	$	24.00		19.5	%

	Number of Leases Signed		GLA Signed		Weighted Average Lease Term (2)		TI and Incentives per Sq. Ft. (3)		Contractual Rent Per Sq. Ft. (4)
Total
Renewal Leases		90		271,306		3.1	$	2.23	$	22.26
New Leases		46		96,085		6.4		20.39		24.47
Total		136		367,391		3.9	$	6.98	$	22.84

⁽¹⁾	Comparable leases represent leases signed on spaces for which there was a former tenant within the last twelve months and the new or renewal square footage was within 25% of the expired square footage.

⁽²⁾	Weighted average lease term is determined on the basis of square footage.

⁽³⁾	Estimated amount per signed leases. Actual cost of construction may vary. Does not include first generation costs for tenant improvements (“TI”) and leasing commission costs needed for new acquisitions or redevelopment of a property to bring to operating standards for its intended use.

⁽⁴⁾	Contractual minimum rent under the new lease for the first month, excluding concessions.

⁽⁵⁾	Contractual minimum rent under the prior lease for the final month.

Critical Accounting Policies and Estimates

In preparing the consolidated financial statements, we have made estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenue and expenses during the reported periods. Actual results may differ from these estimates. A summary of our critical accounting policies is included in our Annual Report on Form 10-K for the year ended December 31, 2022, under “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” There have been no significant changes to these policies during the six months ended June 30, 2023 except for the estimates made regarding Pillarstone REIT Operating Partnership LP's financial condition and results of operations. For disclosure regarding recent accounting pronouncements and the anticipated impact they will have on our operations, please refer to Note 2 to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2022.

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Results of Operations

Comparison of the Three Months Ended June 30, 2023 and 2022

The following table provides a general comparison of our results of operations and other metrics for the three months ended June 30, 2023 and 2022 (dollars in thousands, except per share and per OP unit amounts):

	Three Months Ended June 30,
	2023			2022
Number of properties owned and operated		56			60
Aggregate GLA (sq. ft.)⁽¹⁾		5,036,645			5,211,176
Ending occupancy rate - operating portfolio ⁽¹⁾		93	%		91	%
Ending occupancy rate		93	%		91	%

Total revenues	$	36,460		$	34,997
Total operating expenses		25,201			24,242
Total other expense (income)		(1,365	)		6,208
Income before equity investment in real estate partnership and income tax		12,624			4,547
Deficit in earnings of real estate partnership		(1,034	)		(41	)
Provision for income tax		(125	)		(100	)
Net income		11,465			4,406
Less: Net income attributable to noncontrolling interests		159			68
Net income attributable to Whitestone REIT	$	11,306		$	4,338

Funds from operations⁽²⁾	$	10,579		$	12,628
Property net operating income⁽³⁾		25,462			24,537
Distributions paid on common shares and OP units		5,996			5,972
Distributions per common share and OP unit	$	0.1200		$	0.1200
Distributions paid as a percentage of funds from operations		57	%		47	%

⁽¹⁾	Excludes (i) new acquisitions, through the earlier of attainment of 90% occupancy or 18 months of ownership, and (ii) properties that are undergoing significant redevelopment or re-tenanting.

⁽²⁾	For an explanation and reconciliation of funds from operations, a Non-GAAP metric, to net income, see “—Reconciliation of Non-GAAP Financial Measures—Funds From Operations (“FFO”)” below.

⁽³⁾	For an explanation and reconciliation of property net operating income, a non-GAAP metric, to net income, see “—Reconciliation of Non-GAAP Financial Measures—Property Net Operating Income (“NOI”)” below.

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We define “Same Store” as properties that have been owned for the entire period being compared. For purposes of comparing the three months ended June 30, 2023 to the three months ended June 30, 2022, Same Store includes properties owned during the entire period from April 1, 2022 to June 30, 2023. We define “Non-Same Store” as properties acquired since the beginning of the period being compared and properties that have been sold, but not classified as discontinued operations.

Revenues. The primary components of revenue are detailed in the table below (in thousands, except percentages):

	Three Months Ended June 30,
Revenue	2023			2022			Change			% Change
Same Store
Rental revenues ⁽¹⁾	$	25,556		$	24,044		$	1,512			6	%
Recoveries ⁽²⁾		9,576			9,122			454			5	%
Bad debt ⁽³⁾		(160	)		132			(292	)		(221	)%
Total rental		34,972			33,298			1,674			5	%
Other revenues		220			186			34			18	%
Same Store Total		35,192			33,484			1,708			5	%

Non-Same Store and Management Fees
Rental revenues ⁽⁴⁾		963			891			72			8	%
Recoveries ⁽⁴⁾		379			481			(102	)		(21	)%
Bad debt ⁽⁴⁾		(73	)		(7	)		(66	)		943	%
Total rental		1,269			1,365			(96	)		(7	)%
Other revenues ⁽⁴⁾		(1	)		3			(4	)		(133	)%
Management fees		—			145			(145	)		(100	)%
Non-Same Store and Management Fees Total		1,268			1,513			(245	)		(16	)%

Total revenue	$	36,460		$	34,997		$	1,463			4	%

⁽¹⁾

The Same Store rental revenues increase of $1,512,000 resulted from an increase of $390,000 from higher average leased square feet from 4,486,330 to 4,559,010, and an increase of $1,122,000 from higher average rent per leased square foot from $21.44 to $22.42. Same Store rental revenues include straight-line rent write offs for tenants converted to cash basis accounting of an increase of $100,000 and a decrease of $186,000 for the three months ended June 30, 2023 and 2022, respectively.

⁽²⁾	The Same Store recoveries revenue increase of $454,000 is primarily attributable to increases in operating and maintenance expenses. Our recovery revenue from tenants generally increases as the related operating and real estate tax expenses increase.

⁽³⁾	During the three months ended June 30, 2023 and 2022, Same Store bad debt includes an adjustment of $100,000 and $100,000, respectively, from cash basis accounting.

⁽⁴⁾

Non-Same Store rental revenue includes Arcadia Towne Center (acquired on June 12, 2023), Dana Park Pad (acquired on December 2, 2022), Lake Woodlands Crossing (acquired on December 21. 2022), Westchase (sold on June 30, 2023), Sunridge (sold of June 30, 2023), Bissonnet/Beltway (sold on October 31, 2022), South Richey (sold on November 10, 2022), Desert Canyon (sold on November 16, 2022), Gilbert Tuscany Village Hard Corner (sold on November 14, 2022), and Pima Norte (sold on November 30, 2022).

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Operating expenses. The primary components of operating expenses for the three months ended June 30, 2023 and 2022 are detailed in the table below (in thousands, except percentages):

	Three Months Ended June 30,
Operating Expenses	2023		2022		Change			% Change
Same Store
Operating and maintenance ⁽¹⁾	$	6,697	$	5,573	$	1,124			20	%
Real estate taxes ⁽²⁾		4,602		4,777		(175	)		(4	)%
Same Store total		11,299		10,350		949			9	%

Non-Same Store and affiliated company rents
Operating and maintenance ⁽³⁾		202		464		(262	)		(56	)%
Real estate taxes ⁽³⁾		165		210		(45	)		(21	)%
Affiliated company rents ⁽⁴⁾		—		174		(174	)		(100	)%
Non-Same Store and affiliated company rents total		367		848		(481	)		(57	)%
Depreciation and amortization		8,360		7,862		498			6	%
General and administrative		5,175		5,182		(7	)		(0	)%
Total operating expenses	$	25,201	$	24,242	$	959			4	%

⁽¹⁾	The $1,124,000 Same Store operating and maintenance cost increase included $355,000 in increased repair cost, $286,000 in increased insurance costs, $235,000 in increased labor costs, $230,000 in increased contract services costs, and $18,000 in other costs.

⁽²⁾	Same Store real estate taxes decrease includes $175,000 more of real estate property tax refunds from successful property tax protests.

⁽³⁾

Non-Same Store operating expenses include Arcadia Towne Center (acquired on June 12, 2023), Dana Park Pad (acquired on December 2, 2022), Lake Woodlands Crossing (acquired on December 21. 2022), Westchase (sold on June 30, 2023), Sunridge (sold of June 30, 2023), Bissonnet/Beltway (sold on October 31, 2022), South Richey (sold on November 10, 2022), Desert Canyon (sold on November 16, 2022), Gilbert Tuscany Village Hard Corner (sold on November 14, 2022), and Pima Norte (sold on November 30, 2022).

⁽⁴⁾	Affiliated company rents are spaces that we lease from Pillarstone OP.

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Other expenses (income). The primary components of other expenses (income) for the three months ended June 30, 2023 and 2022 are detailed in the table below (in thousands, except percentages):

	Three Months Ended June 30,
Other Expenses (Income)	2023			2022			Change			% Change

Interest expense ⁽¹⁾	$	8,260		$	6,234		$	2,026			32	%
Gain on sale of properties ⁽²⁾		(9,621	)		—			(9,621	)		N/A
(Gain) loss on disposal of assets, net		14			(10	)		24			(240	)%
Interest, dividend and other investment income		(18	)		(16	)		(2	)		13	%
Total other expenses (income)	$	(1,365	)	$	6,208		$	(7,573	)		(122	)%

⁽¹⁾

The $2,026,000 increase in interest expense is attributable to rising interest rates, which led to an increase in our effective interest rate to 4.99% for the three months ended June 30, 2023 as compared to 3.72% for the three month ended June 30, 2022, resulting in a $2,034,000 increase in interest expense partially offset by a decrease in our average outstanding notes payable balance of $727,000.

⁽²⁾	On June 30, 2023, we completed the sale of Sunridge, located in Houston, Texas, for $6.7 million. We recorded a gain on sale of $5.0 million. On June 30, 2023, we completed the sale of Westchase, located in Houston, Texas, for $7.8 million. We recorded a gain on sale of $4.6 million.

Equity (deficit) in earnings of real estate partnership. Our estimated equity (deficit) in earnings of real estate partnership, which is generated from our 81.4% ownership of Pillarstone OP, decreased $993,000 from deficit of $41,000 for the three months ended June 30, 2022 to a deficit of $1,034,000 for the three months ended June 30, 2023. Please refer to Note 6 (Investment in Real Estate Partnership) to the accompanying consolidated financial statements for more information regarding our investment in Pillarstone OP.

Same Store net operating income. The components of Same Store net operating income is detailed in the table below (in thousands):

	Three Months Ended June 30,						Increase			% Increase
	2023			2022			(Decrease)			(Decrease)
Same Store (48 properties, excluding development land)
Property revenues
Rental	$	34,972		$	33,298		$	1,674			5	%
Management, transaction and other fees		220			186			34			18	%
Total property revenues		35,192			33,484			1,708			5	%

Property expenses
Property operation and maintenance		6,697			5,573			1,124			20	%
Real estate taxes		4,602			4,777			(175	)		(4	)%
Total property expenses		11,299			10,350			949			9	%

Total property revenues less total property expenses		23,893			23,134			759			3	%

Same Store straight-line rent adjustments		(995	)		(370	)		(625	)		169	%
Same Store amortization of above/below market rents		(211	)		(236	)		25			(11	)%
Same Store lease termination fees		(87	)		(13	)		(74	)		569	%

Same Store NOI⁽¹⁾	$	22,600		$	22,515		$	85			0	%

⁽¹⁾	See below for a reconciliation of property net operating income to net income.

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	Three Months Ended June 30,
PROPERTY NET OPERATING INCOME (“NOI”)	2023			2022
Net income attributable to Whitestone REIT	$	11,306		$	4,338
General and administrative expenses		5,175			5,182
Depreciation and amortization		8,360			7,862
Deficit in earnings of real estate partnership⁽¹⁾		1,034			41
Interest expense		8,260			6,234
Interest, dividend and other investment income		(18	)		(16	)
Provision for income taxes		125			100
Gain on sale of properties		(9,621	)		—
Management fee, net of related expenses		—			29
(Gain) loss on disposal of assets, net		14			(10	)
NOI of real estate partnership (pro rata)⁽¹⁾		668			709
Net income attributable to noncontrolling interests		159			68
NOI	$	25,462		$	24,537
Non-Same Store NOI ⁽²⁾		(901	)		(694	)
NOI of real estate partnership (pro rata)⁽¹⁾		(668	)		(709	)
NOI less Non-Same Store NOI and NOI of real estate partnership (pro rata)		23,893			23,134
Same Store straight-line rent adjustments		(995	)		(370	)
Same Store amortization of above/below market rents		(211	)		(236	)
Same Store lease termination fees		(87	)		(13	)
Same Store NOI ⁽³⁾	$	22,600		$	22,515

⁽¹⁾

We rely on reporting provided to us by Pillarstone OP's general partner for financial information regarding the Company's investment in Pillarstone OP. Because Pillarstone OP financial statements as of June 30, 2023 have not been made available to us, we have estimated equity in earnings and pro rata share of NOI of real estate partnership based on the information available to us at the time of this report. Please refer to Note 6 for the full disclosure.

⁽²⁾

We define “Non-Same Store” as properties that have been acquired since the beginning of the period being compared and properties that have been sold, but not classified as discontinued operations. For purposes of comparing the three months ended June 30, 2023 to the three months ended June 30, 2022, Non-Same Store includes properties acquired between April 1, 2022 and June 30, 2023 and properties sold between April 1, 2022 and June 30, 2023, but not included in discontinued operations.

⁽³⁾

We define “Same Store” as properties that have been owned during the entire period being compared. For purposes of comparing the three months ended June 30, 2023 to the three months ended June 30, 2022, Same Store includes properties owned before April 1, 2022 and not sold before June 30, 2023. Straight-line rent adjustments, above/below market rents, and lease termination fees are excluded.

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Comparison of the Six Months Ended June 30, 2023 and 2022

The following table provides a general comparison of our results of operations and other metrics for the six months ended June 30, 2023 and 2022 (dollars in thousands, except per share and per OP unit amounts):

	Six Months Ended June 30,
	2023			2022
Number of properties owned and operated		56			60
Aggregate GLA (sq. ft.)⁽¹⁾		5,036,645			5,211,176
Ending occupancy rate - operating portfolio ⁽¹⁾		93	%		91	%
Ending occupancy rate		93	%		91	%

Total revenues	$	72,311		$	69,120
Total operating expenses		48,925			45,293
Total other expense		6,524			12,270
Income before equity investment in real estate partnership and income tax		16,862			11,557
Equity in earnings of real estate partnership		(1,252	)		239
Provision for income tax		(244	)		(201	)
Net income		15,366			11,595
Less: Net income attributable to noncontrolling interests		213			179
Net income attributable to Whitestone REIT	$	15,153		$	11,416

Funds from operations ⁽²⁾	$	22,694		$	28,094
Property net operating income ⁽³⁾		51,083			49,617
Distributions paid on common shares and OP units		11,992			11,323
Distributions per common share and OP unit	$	0.2400		$	0.2275
Distributions paid as a percentage of funds from operations		53	%		40	%

⁽¹⁾	Excludes (i) new acquisitions, through the earlier of attainment of 90% occupancy or 18 months of ownership, and (ii) properties that are undergoing significant redevelopment or re-tenanting.

⁽²⁾	For an explanation and reconciliation of funds from operations, a Non-GAAP metric, to net income, see “—Reconciliation of Non-GAAP Financial Measures—Funds From Operations (“FFO”)” below.

⁽³⁾	For an explanation and reconciliation of property net operating income, a non-GAAP metric, to net income, see “—Reconciliation of Non-GAAP Financial Measures—Property Net Operating Income (“NOI”)” below.

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We define “Same Store” as properties that have been owned for the entire period being compared. For purposes of comparing the six months ended June 30, 2023 to the six months ended June 30, 2022, Same Store includes properties owned during the entire period from January 1, 2022 to June 30, 2023. We define “Non-Same Store” as properties acquired since the beginning of the period being compared and properties that have been sold, but not classified as discontinued operations.

Revenues. The primary components of revenue are detailed in the table below (in thousands, except percentages):

	Six Months Ended June 30,
Revenue	2023			2022			Change			% Change
Same Store
Rental revenues ⁽¹⁾	$	50,474		$	47,976		$	2,498			5	%
Recoveries ⁽²⁾		19,295			18,041			1,254			7	%
Bad debt ⁽³⁾		(492	)		(241	)		(251	)		104	%
Total rental		69,277			65,776			3,501			5	%
Other revenues		569			359			210			58	%
Same Store Total		69,846			66,135			3,711			6	%

Non-Same Store and Management Fees
Rental revenues (4)		1,785			1,803			(18	)		(1	)%
Recoveries (4)		741			899			(158	)		(18	)%
Bad debt (4)		(65	)		(7	)		(58	)		829	%
Total rental		2,461			2,695			(234	)		(9	)%
Other revenues ⁽⁴⁾		4			5			(1	)		(20	)%
Management fees		—			285			(285	)		(100	)%
Non-Same Store and Management Fees Total		2,465			2,985			(520	)		(17	)%

Total revenue	$	72,311		$	69,120		$	3,191			5	%

⁽¹⁾

The Same Store rental revenues increase of $2,498,000 resulted from an increase of $940,000 from higher average leased square feet from 4,493,781 to 4,582,123, and an increase of $1,558,000 from higher average rent per leased square foot from $21.35 to $22.03. Same Store rental revenues include straight-line rent write offs for tenants converted to cash basis accounting of a decrease of $200,000 and a decrease of $592,000 for the six months ended June 30, 2023 and 2022, respectively.

⁽²⁾	The Same Store recoveries revenue increase of $1,254,000 is primarily attributable to increases in operating and maintenance expenses. Our recovery revenue from tenants generally increases as the related operating and real estate tax expenses increase.

⁽³⁾	During the six months ended June 30, 2023 and 2022, Same Store bad debt includes an adjustment of $300,000 and $325,000 respectively, from cash basis accounting.

⁽⁴⁾

Non-Same Store rental revenue includes Arcadia Towne Center (acquired on June 12, 2023) Dana Park Pad (acquired on December 2, 2022), Lake Woodlands Crossing (acquired on December 21. 2022), Westchase (sold on June 30, 2023), Sunridge (sold on June 30, 2023), Bissonnet/Beltway (sold on October 31, 2022), South Richey (sold on November 10, 2022), Desert Canyon (sold on November 16, 2022), Gilbert Tuscany Village Hard Corner (sold on November 14, 2022), and Pima Norte (sold on November 30, 2022).

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Operating expenses. The primary components of operating expenses for the six months ended June 30, 2023 and 2022 are detailed in the table below (in thousands, except percentages):

	Six Months Ended June 30,
Operating Expenses	2023		2022		Change			% Change
Same Store
Operating and maintenance ⁽¹⁾	$	12,528	$	10,775	$	1,753			16	%
Real estate taxes		9,145		8,956		189			2	%
Same Store total		21,673		19,731		1,942			10	%

Non-Same Store and affiliated company rents
Operating and maintenance ⁽²⁾		441		795		(354	)		(45	)%
Real estate taxes ⁽²⁾		330		398		(68	)		(17	)%
Affiliated company rents ⁽³⁾		16		366		(350	)		(96	)%
Non-Same Store and affiliated company rents total		787		1,559		(772	)		(50	)%
Depreciation and amortization ⁽²⁾		16,206		15,772		434			3	%
General and administrative ⁽⁴⁾		10,259		8,231		2,028			25	%
Total operating expenses	$	48,925	$	45,293	$	3,632			8	%

⁽¹⁾	The $1,753,000 Same Store operating and maintenance cost increase included $501,000 in increased repair costs, $474,000 in increased labor costs, $445,000 in increased contract services costs, and $431,000 in increased insurance costs and offset by decrease from $98,000 in other costs.

⁽²⁾

⁽³⁾	Affiliated company rents are spaces that we lease from Pillarstone OP.

⁽⁴⁾

The general and administrative expense increase is attributable to increased share based compensation of $2,111,000 and $534,000 in legal expenses, offset by decreases from $471,000 in payroll costs, $86,000 in professional fees, and $60,000 in other costs. The increase in share based compensation during the six months ended June 30, 2023 compared to the prior year period primarily relates to forfeitures from the leadership changes in 2022.

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Other expenses (income). The primary components of other expenses (income) for the six months ended June 30, 2023 and 2022 are detailed in the table below (in thousands, except percentages):

	Six Months Ended June 30,
Other Expenses (Income)	2023			2022			Change			% Change

Interest expense ⁽¹⁾	$	16,163		$	12,295		$	3,868			31	%
Gain on sale of properties ⁽²⁾		(9,621	)		—			(9,621	)		N/A
Loss on disposal of assets, net		20			5			15			300	%
Interest, dividend and other investment income		(38	)		(30	)		(8	)		27	%
Total other expense	$	6,524		$	12,270		$	(5,746	)		(47	)%

⁽¹⁾

The $3,868,000 increase in interest expense is attributable to rising interest rates, which led to an increase in our effective interest rate to 4.92% for the six months ended June 30, 2023 as compared to 3.66% for the six months ended June 30, 2022. This resulted in a $3,981,000 increase in interest expense. Additionally, a decrease of $6,290,000 in our average outstanding notes payable balance contributed to lower interest expense, partially offsetting the impact of rising interest rates.

⁽²⁾	On June 30, 2023, we completed the sale of Sunridge, located in Houston, Texas, for $6.7 million. We recorded a gain on sale of $5.0 million. On June 30, 2023, we completed the sale of Westchase, located in Houston, Texas, for $7.8 million. We recorded a gain on sale of $4.6 million.

Equity (deficit) in earnings of real estate partnership. Our estimated equity (deficit) in earnings of real estate partnership, which is generated from our 81.4% ownership of Pillarstone OP, decreased $1,491,000 from equity of $239,000 for the six months ended June 30, 2022 to a deficit of $1,252,000 for the six months ended June 30, 2023. Please refer to Note 6 (Investment in Real Estate Partnership) to the accompanying consolidated financial statements for more information regarding our investment in Pillarstone OP.

Same Store net operating income. The components of Same Store net operating income is detailed in the table below (in thousands):

	Six Months Ended June 30,						Increase			% Increase
	2023			2022			(Decrease)			(Decrease)
Same Store (48 properties, excluding development land)
Property revenues
Rental	$	69,277		$	65,776		$	3,501			5	%
Management, transaction and other fees		569			359			210			58	%
Total property revenues		69,846			66,135			3,711			6	%

Property expenses
Property operation and maintenance		12,528			10,775			1,753			16	%
Real estate taxes		9,145			8,956			189			2	%
Total property expenses		21,673			19,731			1,942			10	%

Total property revenues less total property expenses		48,173			46,404			1,769			4	%

Same Store straight-line rent adjustments		(1,433	)		(684	)		(749	)		110	%
Same Store amortization of above/below market rents		(429	)		(453	)		24			(5	)%
Same Store lease termination fees		(301	)		(22	)		(279	)		1268	%

Same Store NOI⁽¹⁾	$	46,010		$	45,245		$	765			2	%

⁽¹⁾	See below for a reconciliation of property net operating income to net income.

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	Six Months Ended June 30,
PROPERTY NET OPERATING INCOME (“NOI”)	2023			2022
Net income attributable to Whitestone REIT	$	15,153		$	11,416
General and administrative expenses		10,259			8,231
Depreciation and amortization		16,206			15,772
(Equity) deficit in earnings of real estate partnership ⁽¹⁾		1,252			(239	)
Interest expense		16,163			12,295
Interest, dividend and other investment income		(38	)		(30	)
Provision for income taxes		244			201
Gain on sale of properties		(9,621	)		—
Management fee, net of related expenses		16			81
Loss on disposal of assets, net		20			5
NOI of real estate partnership (pro rata) ⁽¹⁾		1,216			1,706
Net income attributable to noncontrolling interests		213			179
NOI	$	51,083		$	49,617
Non-Same Store NOI ⁽²⁾		(1,694	)		(1,507	)
NOI of real estate partnership (pro rata)⁽¹⁾		(1,216	)		(1,706	)
NOI less Non-Same Store NOI and NOI of real estate partnership (pro rata)		48,173			46,404
Same Store straight-line rent adjustments		(1,433	)		(684	)
Same Store amortization of above/below market rents		(429	)		(453	)
Same Store lease termination fees		(301	)		(22	)
Same Store NOI ⁽³⁾	$	46,010		$	45,245

⁽¹⁾

We rely on reporting provided to us by Pillarstone OP's general partner for financial information regarding the Company's investment in Pillarstone OP. Because Pillarstone OP financial statements as of June 30, 2023 have not been made available to us, we have estimated equity in earnings and pro rata share of NOI of real estate partnership based on the information available to us at the time of this report. Please refer to Note 6 for the full disclosure.

⁽²⁾

We define “Non-Same Store” as properties that have been acquired since the beginning of the period being compared and properties that have been sold, but not classified as discontinued operations. For purposes of comparing the six months ended June 30, 2023 to the six months ended June 30, 2022, Non-Same Store includes properties acquired between January 1, 2022 and June 30, 2023 and properties sold between January 1, 2022 and June 30, 2023, but not included in discontinued operations.

⁽³⁾

We define “Same Store” as properties that have been owned during the entire period being compared. For purposes of comparing the six months ended June 30, 2023 to the six months ended June 30, 2022, Same Store includes properties owned before January 1, 2022 and not sold before June 30, 2023. Straight-line rent adjustments, above/below market rents, and lease termination fees are excluded.

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Reconciliation of Non-GAAP Financial Measures

Funds From Operations (NAREIT) (“FFO”)

The National Association of Real Estate Investment Trusts (“NAREIT”) defines FFO as net income available to Whitestone REIT (calculated in accordance with GAAP), excluding depreciation and amortization related to real estate, gains or losses from the sale of certain real estate assets, gains and losses from change in control, and impairment write-downs of certain real estate assets and investments in entities when the impairment is directly attributable to decreases in the value of depreciable real estate held by the entity. We calculate FFO in a manner consistent with the NAREIT definition and also include adjustments for our unconsolidated real estate partnership.

Management uses FFO as a supplemental measure to conduct and evaluate our business because there are certain limitations associated with using GAAP net income alone as the primary measure of our operating performance.

Historical cost accounting for real estate assets in accordance with GAAP implicitly assumes that the value of real estate assets diminishes predictably over time. Because real estate values instead have historically risen or fallen with market conditions, management believes that the presentation of operating results for real estate companies that use historical cost accounting is insufficient by itself. In addition, securities analysts, investors and other interested parties use FFO as the primary metric for comparing the relative performance of equity REITs.

FFO should not be considered as an alternative to net income or other measurements under GAAP, as an indicator of our operating performance or to cash flows from operating, investing or financing activities as a measure of liquidity. FFO does not reflect working capital changes, cash expenditures for capital improvements or principal payments on indebtedness. Although our calculation of FFO is consistent with that of NAREIT, there can be no assurance that FFO presented by us is comparable to similarly titled measures of other REITs.

Below are the calculations of FFO and the reconciliations to net income, which we believe is the most comparable U.S. GAAP financial measure (in thousands):

	Three Months Ended June 30,						Six Months Ended June 30,
FFO (NAREIT)	2023			2022			2023			2022
Net income attributable to Whitestone REIT	$	11,306		$	4,338		$	15,153		$	11,416
Adjustments to reconcile to FFO:⁽¹⁾
Depreciation and amortization of real estate assets		8,318			7,820			16,123			15,688
Depreciation and amortization of real estate assets of real estate partnership (pro rata) ⁽²⁾		403			412			806			806
(Gain) loss on disposal of assets, net		14			(10	)		20			5
Gain on sale of properties		(9,621	)		—			(9,621	)		—
Net income attributable to noncontrolling interests		159			68			213			179
FFO (NAREIT)	$	10,579		$	12,628		$	22,694		$	28,094

⁽¹⁾	Includes pro-rata share attributable to real estate partnership.

⁽²⁾

We rely on reporting provided to us by Pillarstone OP's general partner for financial information regarding the Company's investment in Pillarstone OP. Because Pillarstone OP financial statements as of June 30, 2023 have not been made available to us, we have estimated depreciation and amortization of real estate assets based on the information available to us at the time of this report. Please refer to Note 6 for the full disclosure.

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Property Net Operating Income (“NOI”)

Management believes that NOI is a useful measure of our property operating performance. We define NOI as operating revenues (rental and other revenues) less property and related expenses (property operation and maintenance and real estate taxes). Other REITs may use different methodologies for calculating NOI and, accordingly, our NOI may not be comparable to other REITs. Because NOI excludes general and administrative expenses, depreciation and amortization, equity or deficit in earnings of real estate partnership, interest expense, interest, dividend and other investment income, provision for income taxes, gain on sale of properties, management fee (net of related expenses) and gain or loss on sale or disposition of assets, and includes NOI of real estate partnership (pro rata) and net income attributable to noncontrolling interest, it provides a performance measure that, when compared year-over-year, reflects the revenues and expenses directly associated with owning and operating commercial real estate properties and the impact to operations from trends in occupancy rates, rental rates and operating costs, providing perspective not immediately apparent from net income. We use NOI to evaluate our operating performance since NOI allows us to evaluate the impact that factors such as occupancy levels, lease structure, lease rates and tenant base have on our results, margins and returns. In addition, management believes that NOI provides useful information to the investment community about our property and operating performance when compared to other REITs since NOI is generally recognized as a standard measure of property performance in the real estate industry. However, NOI should not be viewed as a measure of our overall financial performance since it does not reflect the level of capital expenditure and leasing costs necessary to maintain the operating performance of our properties, including general and administrative expenses, depreciation and amortization, equity or deficit in earnings of real estate partnership, interest expense, interest, dividend and other investment income, provision for income taxes, gain on sale of properties, management fee (net of related expenses) and gain or loss on sale or disposition of assets.

Below is the calculation of NOI and the reconciliations to net income, which we believe is the most comparable U.S. GAAP financial measure (in thousands):

	Three Months Ended						Six Months Ended
	June 30,						June 30,
PROPERTY NET OPERATING INCOME	2023			2022			2023			2022
Net income attributable to Whitestone REIT	$	11,306		$	4,338		$	15,153		$	11,416
General and administrative expenses		5,175			5,182			10,259			8,231
Depreciation and amortization		8,360			7,862			16,206			15,772
(Equity) deficit in earnings of real estate partnership		1,034			41			1,252			(239	)
Interest expense		8,260			6,234			16,163			12,295
Interest, dividend and other investment income		(18	)		(16	)		(38	)		(30	)
Provision for income taxes		125			100			244			201
Gain on sale of properties		(9,621	)		—			(9,621	)		—
Management fee, net of related expenses		—			29			16			81
(Gain) loss on disposal of assets, net		14			(10	)		20			5
NOI of real estate partnership (pro rata) ⁽¹⁾		668			709			1,216			1,706
Net income attributable to noncontrolling interests		159			68			213			179
NOI	$	25,462		$	24,537		$	51,083		$	49,617

⁽¹⁾

We rely on reporting provided to us by Pillarstone OP's general partner for financial information regarding the Company's investment in Pillarstone OP. Because Pillarstone OP financial statements as of June 30, 2023 have not been made available to us, we have estimated equity in earnings and pro rata share of NOI of real estate partnership based on the information available to us at the time of this report. Please refer to Note 6 for the full disclosure.

Liquidity and Capital Resources

Our short-term liquidity requirements consist primarily of distributions to holders of our common shares and OP units, including those required to maintain our REIT status and satisfy our current quarterly distribution target of $0.1200 per common share and OP unit, recurring expenditures, such as repairs and maintenance of our properties, non-recurring expenditures, such as capital improvements and tenant improvements, debt service requirements, and, potentially, acquisitions of additional properties.

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During the six months ended June 30, 2023, our cash provided by operating activities was $21,711,000 and our total distributions were $11,992,000. Therefore, we had cash flow from operations in excess of distributions of approximately $9,719,000. We anticipate that cash flows from operating activities and our borrowing capacity under our 2022 Facility will provide adequate capital for our working capital requirements, anticipated capital expenditures and scheduled debt payments in the short term. We also believe that cash flows from operating activities and our borrowing capacity will allow us to make all distributions required for us to continue to qualify to be taxed as a REIT for federal income tax purposes.

Our long-term capital requirements consist primarily of maturities under our longer-term debt agreements, development and redevelopment costs, and potential acquisitions. We expect to meet our long-term liquidity requirements with net cash from operations, long-term indebtedness, sales of common shares, issuance of OP units, sales of underperforming properties and non-core properties and other financing opportunities, including debt financing. We believe we have access to multiple sources of capital to fund our long-term liquidity requirements, including the incurrence of additional debt and the issuance of additional equity. On February 22, 2022, the Company announced an increase to its quarterly distribution to $0.12 per common share and OP unit, equal to a monthly distribution of $0.04, beginning with the April 2022 distribution. The Board will regularly reassess the dividend in light of economic conditions. As of June 30, 2023, subject to any potential future paydowns in the borrowing base, we have $98.5 million remaining availability under the 2022 Revolver.

Our ability to access the capital markets will be dependent on a number of factors as well, including general market conditions for REITs and market perceptions about our Company. In light of the dynamics in the capital markets impacted by macro economic factors and economic uncertainty, our access to capital may be diminished. Despite these potential challenges, we believe we have sufficient access to capital for the foreseeable future, but we can provide no assurance that such capital will be available to us on attractive terms or at all.

On May 20, 2022, our universal shelf registration statement on Form S-3 was declared effective by the SEC, which registers the issuance and sale by us of up to $500 million in securities from time to time, including common shares, preferred shares, debt securities, depositary shares and subscription rights.

On September 9, 2022, we entered into eleven equity distribution agreements for an at-the-market equity distribution program (the “2022 equity distribution agreements”) providing for the issuance and sale of up to an aggregate of $100 million of the Company’s common shares pursuant to our Registration Statement on Form S-3 (File No. 333-264881). Actual sales will depend on a variety of factors determined by us from time to time, including (among others) market conditions, the trading price of our common shares, capital needs and our determinations of the appropriate sources of funding for us, and will be made in transactions that will be deemed to be “at-the-market” offerings as defined in Rule 415 under the Securities Act. We have no obligation to sell any of our common shares and can at any time suspend offers under the 2022 equity distribution agreements or terminate the 2022 equity distribution agreements. For the six months ended June 30, 2023 and 2022, we did not sell shares under the 2022 equity distribution agreements.

To the extent we sell shares in the future under the 2022 equity distribution agreements, we anticipate using net proceeds for general corporate purposes, which may include acquisitions of additional properties, the repayment of outstanding indebtedness, capital expenditures, the expansion, redevelopment and/or re-tenanting of properties in our portfolio, working capital and other general purposes.

We expect that our rental income will increase as we continue to acquire additional properties, subsequently increasing our cash flows generated from operating activities. We intend to finance the continued acquisition of such additional properties through equity issuances and through debt financing.

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Our capital structure includes non-recourse mortgage debt that we have assumed or originated on certain properties. We may hedge the future cash flows of certain variable rate debt transactions principally through interest rate swaps with major financial institutions. See Note 8 (Derivatives and Hedging Activities) to the accompanying consolidated financial statements for a description of our current cash flow hedges.

As discussed in Note 2 (Summary of Significant Accounting Policies) to the accompanying consolidated financial statements, pursuant to the terms of our $15.1 million 4.99% Note, due January 6, 2024 (see Note 7 (Debt) to the accompanying consolidated financial statements), which is collateralized by our Anthem Marketplace property, we were required by the lenders thereunder to establish a cash management account controlled by the lenders to collect all amounts generated by our Anthem Marketplace property in order to collateralize such promissory note. Amounts in the cash management account are classified as restricted cash.

Cash, Cash Equivalents and Restricted Cash

We had cash, cash equivalents and restricted cash of approximately $3,049,000 as of June 30, 2023, as compared to $6,355,000 on December 31, 2022. Sources and uses of cash during the six months ended June 30, 2023 and 2022 were as follows:

Sources of Cash

•

Cash flow from operations of $21,711,000 for the six months ended June 30, 2023, compared to $18,313,000 for the six months ended June 30, 2022;

•

Proceeds from credit facility of $48,000,000 for the six months ended June 30, 2023, compared to payments of the credit facility of $5,000,000 for the six months ended June 30, 2022;

Uses of Cash

•

Acquisition of real estate of $25,455,000 for the six months ended June 30, 2023, compared to $0 for the six months ended June 30, 2022;

•

Payment of distributions to common shareholders and OP unit holders of $11,992,000 for the six months ended June 30, 2023, compared to $11,323,000 for the six months ended June 30, 2022;

•

Additions to real estate of $8,771,000 for the six months ended June 30, 2023, compared to $7,196,000 for the six months ended June 30, 2022;

•

Payments of notes payable of $26,504,000 for the six months ended June 30, 2023, compared to $1,782,000 for the six months ended June 30, 2022;

•

Payment of finance lease liability of $6,000 for the six months ended June 30, 2023, compared to $0 for the six months ended June 30, 2022; and

•

Repurchase of common shares of $289,000 or the six months ended June 30, 2023, compared to $278,000 for the six months ended June 30, 2022.

We place all cash in short-term, highly liquid investments that we believe provide appropriate safety of principal.

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Debt

Debt consisted of the following as of the dates indicated (in thousands):

Description	June 30, 2023			December 31, 2022
Fixed rate notes
$265.0 million, 3.18% plus 1.45% to 2.10% Note, due January 31, 2028 ⁽¹⁾	$	265,000		$	265,000
$80.0 million, 3.72% Note, due June 1, 2027		80,000			80,000
$19.0 million 4.15% Note, due December 1, 2024		17,838			18,016
$20.2 million 4.28% Note, due June 6, 2023		—			17,375
$14.0 million 4.34% Note, due September 11, 2024		12,569			12,709
$14.3 million 4.34% Note, due September 11, 2024		13,389			13,520
$15.1 million 4.99% Note, due January 6, 2024		13,493			13,635
$2.6 million 5.46% Note, due October 1, 2023		2,209			2,236
$50.0 million, 5.09% Note, due March 22, 2029		42,857			50,000
$50.0 million, 5.17% Note, due March 22, 2029		50,000			50,000
$3.0 million 6.78% Note, due December 28, 2023		1,634			—
$50.0 million, 3.71% plus 1.50% to 2.10% Note, due September 16, 2026 (2)		50,000			—
Floating rate notes
Unsecured line of credit, SOFR plus 1.50% to 2.10%, due September 16, 2026		101,500			103,500
Total notes payable principal		650,489			625,991
Less deferred financing costs, net of accumulated amortization		(465	)		(564	)
Total notes payable	$	650,024		$	625,427

⁽¹⁾	Promissory note includes an interest rate swap that fixes the SOFR portion of the term loan at an interest rate of 2.16% through October 28, 2028, 2.76% from October 29, 2022 through January 31, 2024, and 3.32% beginning February 1, 2024 through January 31, 2028.

⁽²⁾	A portion of the unsecured line of credit includes an interest rate swap to fix the SOFR portion of the loan at 3.71%.

Scheduled maturities of our outstanding debt as of June 30, 2023 were as follows (in thousands):

Year	Amount Due
2023 (remaining)	$	4,701
2024		63,573
2025		17,143
2026		168,643
2027		97,143
Thereafter		299,286
Total	$	650,489

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On September 16, 2022 we, through our Operating Partnership, entered into an unsecured credit facility (the “2022 Facility”) with the lenders party thereto, Bank of Montreal, as administrative agent (the “Administrative Agent”), Truist Bank, as syndication agent, and BMO Capital Markets Corp., Truist Bank, Capital One, National Association, and U.S. Bank National Association, as co-lead arrangers and joint book runners. The 2022 Facility amended and restated the Company's previous unsecured revolving credit facility, dated January 31, 2019 (the "2019 Facility").

The 2022 Facility is comprised of the following three tranches:

•

$250.0 million unsecured revolving credit facility with a maturity date of September 16, 2026 (the “2022 Revolver”);

•

$265.0 million unsecured term loan with a maturity date of January 31, 2028 (“Term Loan”).

Borrowings under the 2022 Facility accrue interest (at the Operating Partnership's option) at a Base Rate or an Adjusted Term SOFR plus an applicable margin based upon our then existing leverage. As of June 30, 2023, the interest rate on the 2022 Revolver was 6.85%. Based on our current leverage ratio, the revolver has initial interest rate of SOFR plus 1.60% and a 10 basis point credit spread adjustment. In addition, we entered into interest rate swaps to fix the interest rates on the Term Loan. The Term Loan with the swaps has the following interest rates:

•

2.16% plus 1.55% through October 28, 2022

•

2.80% plus 1.55% from October 29, 2022 through January 31, 2024

•

3.42% plus 1.55% from February 1, 2024 through January 31, 2028

The 2022 Facility also has a pricing provision where the applicable margin can be adjusted by an aggregate 0.02% per annum based on the Company’s performance on certain sustainability performance targets. Base Rate means, for any day, the higher of: (a) the Administrative Agent’s prime commercial rate, (b) the sum of (i) the rate per annum equal to the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System, as published by the Federal Reserve Bank of New York for such day, plus (ii) 0.50%, or (c) the sum of (i) Adjusted Term SOFR for a one-month tenor in effect on such day plus (ii) 1.10%. Adjusted Term SOFR means, for any such day, the sum of (i) the SOFR-based term rate for the day two (2) business days prior and (ii) 0.10%.

The 2022 Facility includes an accordion feature that will allow the Operating Partnership to increase the borrowing capacity by $200.0 million, upon the satisfaction of certain conditions. As of June 30, 2023, subject to any potential future paydowns or increases in the borrowing base, we have $98.5 millionremaining availability under the 2022 Revolver. As of June 30, 2023, $416.5 million was drawn on the 2022 Facility and our unused borrowing capacity was $98.5 million, assuming that we use the proceeds of the 2022 Facility to acquire properties, or to repay debt on properties, that are eligible to be included in the unsecured borrowing base. The Company used $379.5 million of proceeds from the 2022 Facility to repay amounts outstanding under the 2019 Facility.

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The Company, each direct and indirect material subsidiary of the Operating Partnership and any other subsidiary of the Operating Partnership that is a guarantor under any unsecured ratable debt will serve as a guarantor for funds borrowed by the Operating Partnership under the 2022 Facility. The 2022 Facility contains customary terms and conditions, including, without limitation, customary representations and warranties and affirmative and negative covenants including, without limitation, information reporting requirements, limitations on investments, acquisitions, loans and advances, mergers, consolidations and sales, incurrence of liens, dividends and restricted payments. In addition, the 2022 Facility contains certain financial covenants including the following:

•

maximum total indebtedness to total asset value ratio of 0.60 to 1.00;

•

maximum secured debt to total asset value ratio of 0.40 to 1.00;

•

minimum EBITDA (earnings before interest, taxes, depreciation, amortization or extraordinary items) to fixed charges ratio of 1.50 to 1.00;

•

maximum secured recourse debt to total asset value ratio of 0.15 to 1.00;

•

maintenance of a minimum tangible net worth (adjusted for accumulated depreciation and amortization) of 75% of the Company's total net worth as of December 31, 2021 plus 75% of the net proceeds from additional equity offerings (as defined therein); and

•

minimum adjusted property NOI to implied unencumbered debt service ratio of 1.50 to 1.00.

We serve as the guarantor for funds borrowed by the Operating Partnership under the 2022 Facility. The 2022 Facility contains customary terms and conditions, including, without limitation, affirmative and negative covenants such as information reporting requirements, maximum secured indebtedness to total asset value, minimum EBITDA (earnings before interest, taxes, depreciation, amortization or extraordinary items) to fixed charges, and maintenance of a minimum net worth. The 2022 Facility also contains customary events of default with customary notice and cure, including, without limitation, nonpayment, breach of covenant, misrepresentation of representations and warranties in a material respect, cross-default to other major indebtedness, change of control, bankruptcy and loss of REIT tax status.

On March 22, 2019, we, through our Operating Partnership, entered into a Note Purchase and Guarantee Agreement (the “Note Agreement”) together with certain subsidiary guarantors as initial guarantor parties thereto (the “Subsidiary Guarantors”) and The Prudential Insurance Company of America and the various other purchasers named therein (collectively, the “Purchasers”) providing for the issuance and sale of $100 million of senior unsecured notes of the Operating Partnership, of which (i) $50 million are designated as 5.09% Series A Senior Notes due March 22, 2029 (the “Series A Notes”) and (ii) $50 million are designated as 5.17% Series B Senior Notes due March 22, 2029 (the “Series B Notes” and, together with the Series A Notes, the “Notes”) pursuant to a private placement that closed on March 22, 2019 (the “Private Placement”). Obligations under the Notes are unconditionally guaranteed by the Company and by the Subsidiary Guarantors.

On December 16, 2022, Whitestone REIT (the “Company”) and its operating partnership, Whitestone REIT Operating Partnership, L.P. (the “Operating Partnership”), amended its Note Purchase and Guarantee Agreement originally executed on March 22, 2019 (the “Existing Note Agreement”), pursuant to the terms and conditions of an Amendment No. 1 to Note Purchase and Guaranty Agreement, dated as of December 16, 2022 (the Existing Note Purchase Agreement, as so amended, the “Amended Note Agreement”), by and among the Company and the Operating Partnership, together with certain subsidiary guarantors as initial guarantor parties thereto and The Prudential Insurance Company of America and the various other purchasers named therein.

The principal of the Series A Notes began to amortize on March 22, 2023 with annual principal payments of approximately $7.1 million. The principal of the Series B Notes will begin to amortize on March 22, 2025 with annual principal payments of $10.0 million. The Notes will pay interest quarterly on the 22nd day of March, June, September and December in each year until maturity.

The Operating Partnership may prepay at any time all, or from time to time part of, the Notes, in an amount not less than $1,000,000 in the case of a partial prepayment, at 100% of the principal amount so prepaid, plus a make-whole amount. The make-whole amount is equal to the excess, if any, of the discounted value of the remaining scheduled payments with respect to the Notes being prepaid over the aggregate principal amount of such Notes (as described in the Note Agreement). In addition, in connection with a Change of Control (as defined in the Note Purchase Agreement), the Operating Partnership is required to offer to prepay the Notes at 100% of the principal amount plus accrued and unpaid interest thereon.

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•

maximum total indebtedness to total asset value ratio of 0.60 to 1.00;

•

maximum secured debt to total asset value ratio of 0.40 to 1.00;

•

minimum EBITDA (earnings before interest, taxes, depreciation, amortization or extraordinary items) to fixed charges ratio of 1.50 to 1.00;

•

maximum secured recourse debt to total asset value ratio of 0.15 to 1.00;

•

minimum adjusted property NOI to implied unencumbered debt service ratio of 1.50 to 1.00.

In addition, the Note Agreement contains a financial covenant requiring that maximum unsecured indebtedness not exceed the ratio of unsecured indebtedness to unencumbered asset pool of 0.60 to 1.00. That covenant is substantially similar to the borrowing base concept contained in the Operating Partnership’s existing senior revolving credit facility.

Net proceeds from the Private Placement were used to refinance existing indebtedness. The Notes have not been and will not be registered under the Securities Act, and may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements of the Securities Act. The Notes were sold in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act.

As of June 30, 2023, our $139.5 million in secured debt was collateralized by six properties with a carrying value of $218.0 million. Our loans contain restrictions that would require the payment of prepayment penalties for the acceleration of outstanding debt and are secured by deeds of trust on certain of our properties and by assignment of the rents and leases associated with those properties. As of June 30, 2023, we were in compliance with all loan covenants.

Refer to Note 7 (Debt) to the accompanying consolidated financial statements for additional information regarding debt.

Capital Expenditures

We continually evaluate our properties’ performance and value. We may determine it is in our shareholders’ best interest to invest capital in properties that we believe have potential for increasing value. We also may have unexpected capital expenditures or improvements for our existing assets. Additionally, we intend to continue investing in similar properties outside of the markets on which we focus in cities with exceptional demographics to diversify market risk, and we may incur significant capital expenditures or make improvements in connection with any properties we may acquire.

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The following is a summary of the Company's capital expenditures for the three and six month periods ended June 30, 2023 and 2022 (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Capital expenditures:
Tenant improvements and allowances	$	1,992	$	2,022	$	3,455	$	4,614
Developments / redevelopments		1,342		845		1,885		1,230
Leasing commissions and costs		651		663		1,065		1,296
Maintenance capital expenditures		1,908		1,009		3,431		1,352
Total capital expenditures	$	5,893	$	4,539	$	9,836	$	8,492

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Distributions

U.S. federal income tax law generally requires that a REIT distribute annually to its shareholders at least 90% of its REIT taxable income, without regard to the deduction for dividends paid and excluding net capital gains, and that it pay tax at regular corporate rates on any taxable income that it does not distribute. We currently, and intend to continue to, accrue distributions quarterly and make distributions in three monthly installments following the end of each quarter. For a discussion of our cash flow as compared to dividends, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources.”

The timing and frequency of our distributions are authorized and declared by our board of trustees in exercise of its business judgment based upon a number of factors, including:

•

our funds from operations;

•

our debt service requirements;

•

our capital expenditure requirements for our properties;

•

our taxable income, combined with the annual distribution requirements necessary to maintain REIT qualification;

•

requirements of Maryland law;

•

our overall financial condition; and

•

other factors deemed relevant by our board of trustees.

Any distributions we make will be at the discretion of our board of trustees and we cannot provide assurance that our distributions will be made or sustained in the future.

On February 22, 2022, the Company announced an increase to its quarterly distribution to $0.12 per common share and OP unit, equal to a monthly distribution of $0.04, beginning with the April 2022 distribution. The Board will continue to regularly reassess the dividend level.

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During the six months ended June 30, 2023, we paid distributions to our common shareholders and OP unit holders of $12.0 million, compared to $11.3 million in the six months ended June 30, 2022. Common shareholders and OP unit holders receive monthly distributions. Payments of distributions are declared quarterly and paid monthly. The following table summarizes the cash distributions paid or payable to holders of our common shares and noncontrolling OP units during each quarter of 2022 and the six months ended June 30, 2023 (in thousands, except per share data):

	Common Shares				Noncontrolling OP Unit Holders				Total
Quarter Paid	Distributions Per Common Share		Amount Paid		Distributions Per OP Unit		Amount Paid		Amount Paid
2023
Second Quarter	$	0.1200	$	5,913	$	0.1200	$	83	$	5,996
First Quarter		0.1200		5,913		0.1200		83		5,996
Total	$	0.2400	$	11,826	$	0.2400	$	166	$	11,992

2022
Fourth Quarter	$	0.1200	$	5,909	$	0.1200	$	83	$	5,992
Third Quarter		0.1200		5,901		0.1200		88		5,989
Second Quarter		0.1200		5,880		0.1200		92		5,972
First Quarter		0.1075		5,268		0.1075		83		5,351
Total	$	0.4675	$	22,958	$	0.4675	$	346	$	23,304

Taxes

We elected to be taxed as a REIT under the Code beginning with our taxable year ended December 31, 1999. As a REIT, we generally are not subject to federal income tax on income that we distribute to our shareholders. If we fail to qualify as a REIT in any taxable year, we will be subject to federal income tax on our taxable income at regular corporate rates. We believe that we are organized and operate in a manner to qualify and be taxed as a REIT, and we intend to operate so as to remain qualified as a REIT for federal income tax purposes.

Environmental Matters

Our properties are subject to environmental laws and regulations adopted by various governmental authorities in the jurisdictions in which our operations are conducted. From our inception, we have incurred no significant environmental costs, accrued liabilities or expenditures to mitigate or eliminate future environmental contamination.

Off-Balance Sheet Arrangements

Guarantees. We may guarantee the debt of a real estate partnership primarily because it allows the real estate partnership to obtain funding at a lower cost than could be obtained otherwise. This results in a higher return for the real estate partnership on its investment, and a higher return on our investment in the real estate partnership. We may receive a fee from the real estate partnership for providing the guarantee. Additionally, when we issue a guarantee, the terms of the real estate partnership’s partnership agreement typically provide that we may receive indemnification from the real estate partnership or have the ability to increase our ownership interest. See Note 6 (Investment in Real Estate Partnership) to the accompanying consolidated financial statements for information related to our guarantee of our real estate partnership’s debt.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Our future income, cash flows and fair value relevant to our financial instruments depend upon prevailing market interest rates. Market risk refers to the risk of loss from adverse changes in market prices and interest rates. Based upon the nature of our operations, we are not subject to foreign exchange rate or commodity price risk. The principal market risk to which we are exposed is the risk related to interest rate fluctuations. Many factors, including governmental monetary and tax policies, domestic and international economic and political considerations, and other factors that are beyond our control contribute to interest rate risk. Our interest rate risk objective is to limit the impact of interest rate fluctuations on earnings and cash flows and to lower our overall borrowing costs. To achieve this objective, we manage our exposure to fluctuations in market interest rates for our borrowings through the use of fixed rate debt instruments to the extent that reasonably favorable rates are obtainable.

All of our financial instruments were entered into for other than trading purposes.

Fixed Interest Rate

As of June 30, 2023, $549.0 million, or approximately 84% of our total outstanding debt, was subject to fixed interest rates, which limit the risk of fluctuating interest rates. Although a change in the market interest rates affects the fair market value of our fixed interest rate debt, it does not impact net income to shareholders or cash flows. Our total outstanding fixed interest rate debt had an average effective interest rate as of June 30, 2023 of approximately 4.70% per annum with scheduled maturities ranging from 2023 to 2029. See Note 7 (Debt) to the accompanying consolidated financial statements for further detail. Holding other variables constant, a 1% increase or decrease in interest rates would cause a $17.6 million decline or increase, respectively, in the fair value for our fixed rate debt.

Variable Interest Rate Debt

As of June 30, 2023, $101.5 million, or approximately 16% of our outstanding debt, was subject to floating interest rates of SOFR plus 1.50% to 2.10% and not currently subject to a hedge. The impact of a 1% increase or decrease in interest rates on our non-hedged variable rate debt would result in a decrease or increase of annual net income of approximately $1.0 million, respectively.

Credit Risk

Credit risk may be increased as a result of macroeconomic factors such as inflation, rising interest rates, and financial institution disruptions. Actions taken by the U.S. and international governments to decrease the impact of inflation, including rising interest rates, may result in a continued decline in global economic activity generally, and may adversely affect the financial condition of our tenants in particular. Although the full extent of the adverse impacts on our tenants cannot be predicted, in future periods we may experience reductions in on-time payments or closures of tenants’ businesses, which could have a material adverse effect on our results of operations, cash flows and financial condition.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

The Company’s management is responsible for establishing and maintaining adequate disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Disclosure controls and procedures means controls and other procedures of the Company that are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act, is recorded, processed, summarized, and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Based on the evaluation of our disclosure controls and procedures as of June 30, 2023, our principal executive and financial officers have concluded that such disclosure controls and procedures were effective.

Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting during the six months ended June 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

We are subject to various legal proceedings and claims that arise in the ordinary course of business. These matters are generally covered by insurance. While the resolution of these matters cannot be predicted with certainty, management believes the final outcome of such matters will not have a material adverse effect on our financial position, results of operations or liquidity.

Former COO Litigation

On May 9, 2023, the Company’s former COO, John Dee, filed suit against the Company in the District Court of Harris County, Texas. Claimant purports to assert claims for breach of his change-in-control agreement arising from the Company’s termination of its former CEO James Mastandrea for cause, and is seeking monetary relief in excess of $1,000,000 in damages and equitable relief. The Company denies the claims, has substantial legal and factual defenses against the claims, and intends to vigorously defend against the claims. The Company does not believe a probable loss will be incurred, nor does it anticipate a material adverse effect on its financial position, results of operations, cash flows or liquidity. Therefore, the Company has not recorded a charge as a result of this action.

Litigation between the Company and Pillarstone REIT

On September 16, 2022, Pillarstone Capital REIT and Pillarstone Capital REIT Operating Partnership, L.P. filed suit against the Company and certain of its subsidiaries (Whitestone TRS, Inc. and Whitestone REIT Operating Partnership, L.P.) along with certain of its executives (Peter Tropoli, Christine Mastandrea, and David Holeman) in the District Court of Harris County, Texas, alleging claims relating to the limited partnership agreement between Pillarstone Capital REIT and Whitestone REIT Operating Partnership, as well as the termination of Management Agreements between Pillarstone Capital REIT Operating Partnership, L.P. and Whitestone TRS, Inc. On November 25, 2022, the claims against Peter Tropoli, Christine Mastandrea and David Holeman were dismissed. The claimants seek monetary relief in excess of $1,000,000 in damages and equitable relief. However, the Company denies the claims, has substantial legal and factual defenses against the claims, and intends to vigorously defend against the claims. The Company does not believe a probable loss will be incurred, nor does it anticipate a material adverse effect on its financial position, results of operations, cash flows or liquidity. Therefore, the Company has not recorded a charge as a result of this action.

Former CEO Litigation

On February 23, 2022, the Company’s former CEO, James Mastandrea, filed suit against the Company and certain of its trustees (Nandita Berry, Jeff Jones, Jack Mahaffey, and David Taylor) and officers (David Holeman, Christine Mastandrea, Peter Tropoli) in the District Court of Harris County, Texas, alleging claims relating to the termination of his employment. Claimant purports to assert claims for breach of his employment contract, negligence, tortious interference with contract, civil conspiracy, and declaratory judgment. On September 12, 2022, the claim for breach of fiduciary duty was dismissed and a claim for negligence was added. The claimant seeks a maximum of $25 million in damages and equitable relief. However, the Company denies the claims, has substantial legal and factual defenses against the claims, and intends to vigorously defend against the claims. The Company does not believe a probable loss will be incurred, nor does it anticipate a material adverse effect on its financial position, results of operations, cash flows or liquidity. Therefore, the Company has not recorded a charge as a result of this action.

Pillarstone Rights Plan

On December 26, 2021, the Board of Trustees of Pillarstone REIT adopted a new rights agreement (the “Pillarstone Rights Agreement”), pursuant to which each holder of Pillarstone REIT common stock received one preferred share purchase right (a “Right”) per common share held as of the applicable record date. Each Right entitles the registered holder to purchase from Pillarstone REIT one one-thousandth (a “Unit”) of a series D preferred share of Pillarstone at a purchase price (“Purchase Price”) of $7.00 per Unit, subject to adjustment. The Rights are exercisable upon the occurrence of certain events as described in the Pillarstone Rights Agreement, including the acquisition by certain holders of 5% or more of the common shares of Pillarstone REIT (an “Acquiring Person”). Upon the acquisition of Pillarstone REIT common shares by an Acquiring Person, each holder of a Right (other than an Acquiring Person), will have the right to receive upon exercise a number of Pillarstone REIT common shares having a market value of two times the Purchase Price.

As set forth in the Amended and Restated Limited Partnership Agreement of Pillarstone OP, dated as of December 8, 2016 (the “Pillarstone Partnership Agreement”), we have the contractual right to have our limited partnership interests in Pillarstone redeemed at our discretion. However, upon receipt of a redemption notice, Pillarstone OP has the option to pay the applicable redemption price in cash, based on the market value of Pillarstone REIT common shares, or in Pillarstone REIT common shares.To the extent we seek to have our partnership units in Pillarstone OP redeemed and Pillarstone OP elects to pay the applicable redemption price in Pillarstone REIT common shares (and such shares represent 5% or more of the outstanding common shares of Pillarstone REIT), the Rights could become exercisable. To the extent the Rights are exercised as a result of our Pillarstone OP units being redeemed for Pillarstone REIT common shares, our ownership interest in Pillarstone REIT would be significantly diluted, which could adversely impact the value of our investment in Pillarstone OP.

Because Pillarstone REIT seeks to use the Pillarstone Rights Agreement to prevent Whitestone OP from exercising its contractual Redemption Right, on July 12, 2022, Whitestone OP filed suit against Pillarstone REIT in the Court of Chancery of the State of Delaware challenging the Pillarstone Rights Agreement due to Pillarstone REIT’s alleged (i) breach of the Pillarstone Partnership Agreement, (ii) breach of its fiduciary duty as general partner of Pillarstone OP to Whitestone OP, (iii) and breach of the implied covenant of good faith and fair dealing under the Pillarstone Partnership Agreement. The lawsuit seeks rescission and voiding of the Pillarstone Rights Agreement; a declaration that the Pillarstone Rights Agreement is unenforceable, invalid, and of no force and effect; an order permanently enjoining enforcement of the Pillarstone Rights Agreement; an award of monetary damages; and broad restrictions on Pillarstone REIT’s ability to conduct its business, including buying properties, enforcing the Rights Agreement, incurring expenses, or engaging in transactions.

On September 8, 2022, Whitestone OP’s Motion to Preserve the Status Quo was granted by the Court, limiting Pillarstone OP from engaging in any acts outside the ordinary course of business and otherwise imposing restrictions on Pillarstone OP to ensure that Whitestone’s right of redemption is not impaired while the underlying dispute is being considered by the Court.

Trial was held on July 17-18, 2023. Based on the currently anticipated schedule, post-trial briefing is expected to conclude in the fall of 2023 and the Court can then choose to have post-trial argument. Thereafter, the Court will issue a decision on Whitestone OP’s outstanding claims.

Whitestone OP is asking the Court to declare the Pillarstone Rights Agreement unenforceable and to permit Whitestone OP to tender a Notice of Redemption. In addition (or alternatively), Whitestone OP seeks an award of monetary damages of at least $51,200,600 based on the amount that Pillarstone's misconduct precluded Whitestone OP from receiving in or around December 2021, as well as an award of pre- and post-judgment interest at the statutory rate.

Item 1A. Risk Factors.

There has been no material change in our risk factors from those previously disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2022.

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

(a)

During the period covered by this Quarterly Report on Form 10-Q, we did not sell any equity securities that were not registered under the Securities Act of 1933, as amended.

(b)

Not applicable.

(c)

During the three months ended June 30, 2023, certain of our employees tendered owned common shares to satisfy the tax withholding on the lapse of certain restrictions on restricted common shares issued under the 2018 Plan. The following table summarizes all of these repurchases during the three months ended June 30, 2023.

Period	Total Number of Shares Purchased (1)		Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Number of Shares that May Yet be Purchased Under the Plans or Programs
April 1, 2023 - April 30, 2023		—	$	—		N/A		N/A
May 1, 2023 - May 31, 2023		—		—		N/A		N/A
June 1, 2023 - June 30, 2023		29,889		9.70		N/A		N/A
Total		29,889	$	9.70

⁽¹⁾

The number of shares purchased represents common shares held by employees who tendered owned common shares to satisfy the tax withholding on the lapse of certain restrictions on restricted common shares issued under the 2018 Plan. With respect to these shares, the price paid per share is based on the fair market value at the time of tender.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

Item 6. Exhibits.

The exhibits listed on the accompanying Exhibit Index are filed, furnished and incorporated by reference (as stated therein) as part of this Report.

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EXHIBIT INDEX

Exhibit No.

Description

3.1.1

Articles of Amendment and Restatement of Whitestone REIT (previously filed as and incorporated by reference to Exhibit 3.1 to the Registrant's Current Report on Form 8-K, filed on July 31, 2008)

3.1.2

Articles Supplementary (previously filed as and incorporated by reference to Exhibit 3(i).1 to the Registrant's Current Report on Form 8-K, filed on December 6, 2006)

3.1.3

Articles of Amendment (previously filed as and incorporated by reference to Exhibit 3.1 to the Registrant's Current Report on Form 8-K, filed on August 24, 2010)

3.1.4

Articles of Amendment (previously filed as and incorporated by reference to Exhibit 3.2 to the Registrant's Current Report on Form 8-K, filed on August 24, 2010)

3.1.5

Articles Supplementary (previously filed as and incorporated by reference to Exhibit 3.3 to the Registrant's Current Report on Form 8-K, filed on August 24, 2010)

3.1.6

Articles of Amendment (previously filed as and incorporated by reference to Exhibit 3.1.1 to the Registrant's Current Report on Form 8-K, filed on June 27, 2012)

3.1.7

Articles of Amendment (previously filed as and incorporated by reference to Exhibit 3.1.2 to the Registrant's Current Report on Form 8-K, filed on June 27, 2012)

3.1.8

Articles of Amendment (previously filed as and incorporated by reference to Exhibit 3.1.8 to the Registrant’s Annual Report on Form 10-K, filed on March 2, 2020)

3.1.9

Articles Supplementary for Series A Preferred Shares (previously filed and incorporated by reference to Exhibit 3.1. to the Registrant’s Current Report on Form 8-K filed on May 15, 2020)

3.2.1

Amended and Restated Bylaws of Whitestone REIT (previously filed as and incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K, filed on March 24,2020)

3.2.2

Amendment No. 1 to Amended and Restated Bylaws of Whitestone REIT (previously filed as and incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K, filed January 19, 2022

3.2.3

Amendment No. 2 to Amended and Restated Bylaws of Whitestone REIT (previously filed as and incorporated by reference to Exhibit 3.1 to the Registrant's Current Report on Form 8-K, filed March 30, 2022)

31.1*

Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2*

Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1**

Certificate of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2**

Certificate of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101

The following financial information of the Registrant for the quarter ended June 30, 2023, formatted in Inline XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets as of June 30, 2023 (unaudited) and December 31, 2022, (ii) the Consolidated Statements of Operations and Comprehensive Income for the three and six month periods ended June 30, 2023 and 2022 (unaudited), (iii) the Consolidated Statements of Changes in Equity for the three and six month periods ended June 30, 2023 and 2022 (unaudited), (iv) the Consolidated Statement of Cash Flows for the six months ended June 30, 2023 and 2022 (unaudited) and (v) the Notes to the Consolidated Financial Statements (unaudited).

104	Cover Page Interactive Data File - the cover page XBRL tags are embedded within the Inline XBRL document and in Exhibit 101.

________________________

*	Filed herewith.

**	Furnished herewith.

+	Denotes management contract or compensatory plan or arrangement.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		WHITESTONE REIT
Date:	August 2, 2023	/s/ David K. Holeman
		David K. Holeman
		Chief Executive Officer
		(Principal Executive Officer)

Date:	August 2, 2023	/s/ John S. Hogan
		John S. Hogan
		Chief Financial Officer
		(Principal Financial and Principal Accounting Officer)