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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 September 30, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________

Commission File Number 001-34855
WHITESTONE REIT
(Exact Name of Registrant as Specified in Its Charter)
 
Maryland76-0594970
(State or Other Jurisdiction of
Incorporation or Organization)
(I.R.S. Employer
Identification No.)
2600 South Gessner,Suite 50077063
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 classTrading Symbol(s)Name of each exchange on which registered
Common Shares of Beneficial Interest, par value $0.001 per shareWSRNew York Stock Exchange
Preferred Stock Purchase RightsN/ANew 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 filerAccelerated filer
Non-accelerated filerSmall 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 October 29, 2020, there were 42,354,265 common shares of beneficial interest, $0.001 par value per share, outstanding.







PART I - FINANCIAL INFORMATION
Item 1.
Item 2.
Item 3.
Item 4.

PART II - OTHER INFORMATION
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.



Table of Contents
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Whitestone REIT and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
September 30, 2020December 31, 2019
(unaudited)
ASSETS
Real estate assets, at cost
Property$1,104,963 $1,099,955 
Accumulated depreciation(157,303)(137,933)
Total real estate assets947,660 962,022 
Investment in real estate partnership34,849 34,097 
Cash and cash equivalents38,990 15,530 
Restricted cash128 113 
Escrows and acquisition deposits7,866 8,388 
Accrued rents and accounts receivable, net of allowance for doubtful accounts23,604 22,854 
Receivable due from related party1,302 477 
Unamortized lease commissions, legal fees and loan costs8,082 8,960 
Prepaid expenses and other assets(1)
2,444 3,819 
Total assets$1,064,925 $1,056,260 
LIABILITIES AND EQUITY
Liabilities:
Notes payable$666,516 $644,699 
Accounts payable and accrued expenses(2)
49,861 39,336 
Payable due to related party845 307 
Tenants' security deposits6,915 6,617 
Dividends and distributions payable4,528 12,203 
Total liabilities728,665 703,162 
Commitments and contingencies:  
Equity:
Preferred shares, $0.001 par value per share; 50,000,000 shares authorized; none issued and outstanding as of September 30, 2020 and December 31, 2019  
Common shares, $0.001 par value per share; 400,000,000 shares authorized; 42,353,309 and 41,492,117 issued and outstanding as of September 30, 2020 and December 31, 2019, respectively42 41 
Additional paid-in capital560,129 554,816 
Accumulated deficit(214,468)(204,049)
Accumulated other comprehensive loss(15,707)(5,491)
Total Whitestone REIT shareholders' equity329,996 345,317 
Noncontrolling interest in subsidiary6,264 7,781 
Total equity336,260 353,098 
Total liabilities and equity$1,064,925 $1,056,260 

See accompanying notes to Consolidated Financial Statements.
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Table of Contents
Whitestone REIT and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(in thousands)

September 30, 2020December 31, 2019
(unaudited)
(1) Operating lease right of use assets (net)
$813 $1,328 
(2) Operating lease liabilities
$819 $1,331 



See accompanying notes to Consolidated Financial Statements.


2

Table of Contents
Whitestone REIT and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(in thousands)
Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
Revenues
Rental(1)
$28,868 $29,368 $86,116 $87,527 
Management, transaction, and other fees1,032 511 1,965 1,624 
Total revenues29,900 29,879 88,081 89,151 
Operating expenses
Depreciation and amortization7,171 6,789 21,112 19,865 
Operating and maintenance5,029 5,118 15,021 14,760 
Real estate taxes4,670 4,410 13,591 12,474 
General and administrative5,860 5,597 15,604 16,514 
Total operating expenses22,730 21,914 65,328 63,613 
Other expenses (income)
Interest expense6,400 6,679 19,561 19,738 
Loss on sale or disposal of assets and assets held for sale18  882 115 
Interest, dividend and other investment income(71)(141)(206)(550)
Total other expense6,347 6,538 20,237 19,303 
Income before equity investments in real estate partnerships and income tax
823 1,427 2,516 6,235 
Equity in earnings of real estate partnership196 524 752 1,480 
Provision for income tax(105)(102)(288)(324)
Income from continuing operations914 1,849 2,980 7,391 
Gain on sale of property from discontinued operations   701 
Income from discontinued operations   701 
Net income914 1,849 2,980 8,092 
Less: Net income attributable to noncontrolling interests14 42 58 184 
Net income attributable to Whitestone REIT$900 $1,807 $2,922 $7,908 


See accompanying notes to Consolidated Financial Statements.
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Table of Contents
Whitestone REIT and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(in thousands, except per share data)
Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
Basic Earnings Per Share:
Income from continuing operations attributable to Whitestone REIT, excluding amounts attributable to unvested restricted shares
$0.02 $0.04 $0.07 $0.18 
Income from discontinued operations attributable to Whitestone REIT
0.00 0.00 0.00 0.02 
Net income attributable to common shareholders, excluding amounts attributable to unvested restricted shares
$0.02 $0.04 $0.07 $0.20 
Diluted Earnings Per Share:
Income from continuing operations attributable to Whitestone REIT, excluding amounts attributable to unvested restricted shares
$0.02 $0.04 $0.07 $0.17 
Income from discontinued operations attributable to Whitestone REIT
0.00 0.00 0.00 0.02 
Net income attributable to common shareholders, excluding amounts attributable to unvested restricted shares
$0.02 $0.04 $0.07 $0.19 
Weighted average number of common shares outstanding:
Basic42,346 40,187 42,202 39,942 
Diluted43,440 41,446 43,040 41,084 
Consolidated Statements of Comprehensive Income (Loss)
Net income$914 $1,849 $2,980 $8,092 
Other comprehensive income (loss)
Unrealized gain (loss) on cash flow hedging activities1,241 (2,235)(10,395)(11,740)
Comprehensive income (loss)2,155 (386)(7,415)(3,648)
Less: Net income attributable to noncontrolling interests14 42 58 184 
Less: Comprehensive income (loss) attributable to noncontrolling interests43 (51)(203)(266)
Comprehensive income (loss) attributable to Whitestone REIT$2,098 $(377)$(7,270)$(3,566)




See accompanying notes to Consolidated Financial Statements.
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Table of Contents

Whitestone REIT and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(in thousands)


Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
    (1) Rental
Rental revenues$21,808 $21,623 $65,591 $64,752 
Recoveries8,339 8,240 24,976 23,701 
Bad debt(1,279)(495)(4,451)(926)
Total rental$28,868 $29,368 $86,116 $87,527 


See accompanying notes to Consolidated Financial Statements.




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Table of Contents
Whitestone REIT and Subsidiaries
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Unaudited)
(in thousands)
Accumulated
AdditionalOtherTotalNoncontrolling
Common SharesPaid-InAccumulatedComprehensiveShareholders’InterestsTotal
SharesAmountCapitalDeficitGain (Loss)EquityUnitsDollarsEquity
Balance, December 31, 2019
41,492 $41 $554,816 $(204,049)$(5,491)$345,317 909 $7,781 $353,098 
Exchange of noncontrolling interest OP units for common shares
5 — 44 — — 44 (5)(44) 
Issuance of common shares - ATM Program, net of offering costs
171 — 2,241 — — 2,241 — — 2,241 
Exchange offer costs
— — (32)— — (32)— — (32)
Issuance of shares under dividend reinvestment plan
4 — 42 — — 42 — — 42 
Repurchase of common shares (1)
(153)— (1,630)— — (1,630)— — (1,630)
Share-based compensation
616 — 1,248 — — 1,248 — — 1,248 
Distributions - $0.285 per common share / OP unit
— — — (4,449)— (4,449)— (95)(4,544)
Unrealized loss on change in value of cash flow hedge
— — — — (10,721)(10,721)— (231)(10,952)
Net income
— — — 1,612 — 1,612 — 35 1,647 
Balance, March 31, 202042,135 41 556,729 (206,886)(16,212)333,672 904 7,446 341,118 
Exchange of noncontrolling interest OP units for common shares
127 1 1,082 — — 1,083 (127)(1,083) 
Exchange offer costs
— — (11)— — (11)— — (11)
Issuance of shares under dividend reinvestment plan
2 — 16 — — 16 — — 16 
Repurchase of common shares (1)
(23)— (440)— — (440)— — (440)
Share-based compensation
103 — 1,140 — — 1,140 — — 1,140 
Distributions - $0.105 per common share / OP unit
— — — (4,446)— (4,446)— (81)(4,527)
Unrealized loss on change in value of cash flow hedge
— — — — (669)(669)— (15)(684)
Reallocation of ownership between parent and subsidiary
— — — 1 (34)(33)— 33  
Net income
— — — 410 — 410 — 9 419 
Balance, June 30, 202042,344 42 558,516 (210,921)(16,915)330,722 777 6,309 337,031 
Exchange of noncontrolling interest OP units for common shares
1 — 11 — — 11 (1)(11) 
Exchange offer costs
— — — — — — — —  
Issuance of shares under dividend reinvestment plan
3 — 16 — — 16 — — 16 
Repurchase of common shares (1)
(2)— (6)— — (6)— — (6)
Share-based compensation
7 — 1,592 — — 1,592 — — 1,592 
Distributions - $0.105 per common share / OP unit
— — — (4,446)— (4,446)— (82)(4,528)
Unrealized gain on change in value of cash flow hedge— — — — 1,198 1,198 — 43 1,241 
Reallocation of ownership between parent and subsidiary
— — — (1)10 9 — (9) 
Net income
— — — 900 — 900 — 14 914 
Balance, September 30, 202042,353 $42 $560,129 $(214,468)$(15,707)$329,996 776 $6,264 $336,260 


See accompanying notes to Consolidated Financial Statements.


6

Table of Contents
Whitestone REIT and Subsidiaries
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Unaudited)
(in thousands)
Accumulated
AdditionalOtherTotalNoncontrolling
Common SharesPaid-InAccumulatedComprehensiveShareholders’InterestsTotal
SharesAmountCapitalDeficitGain (Loss)EquityUnitsDollarsEquity
Balance, December 31, 2018
39,778 $39 $527,662 $(181,361)$4,116 $350,456 929 $8,694 $359,150 
Exchange of noncontrolling interest OP units for common shares
1 — 5 — — 5 (1)(5) 
Stock issuance costs
— — (6)— — (6)— — (6)
Issuance of shares under dividend reinvestment plan
3 — 34 — — 34 — — 34 
Repurchase of common shares (1)
(64)— (762)— — (762)— — (762)
Share-based compensation
111 1 1,882 — — 1,883 — — 1,883 
Distributions - $0.285 per common share / OP unit
— — — (11,351)— (11,351)— (264)(11,615)
Unrealized loss on change in value of cash flow hedge
— — — — (3,390)(3,390)— (80)(3,470)
Net income
— — — 2,774 — 2,774 — 65 2,839 
Balance, March 31, 201939,829 40 528,815 (189,938)726 339,643 928 8,410 348,053 
Exchange of noncontrolling interest OP units for common shares
— — 5 — — 5 — (5) 
Issuance of common shares - ATM Program, net of offering costs
305 — 3,716 — — 3,716 — — 3,716 
Stock issuance costs
— — 1 — — 1 — — 1 
Issuance of shares under dividend reinvestment plan
2 — 35 — — 35 — — 35 
Repurchase of common shares (1)
— — (14)— — (14)— — (14)
Share-based compensation
— — 1,025 — — 1,025 — — 1,025 
Distributions - $0.285 per common share / OP unit
— — — (11,445)— (11,445)— (265)(11,710)
Unrealized loss on change in value of cash flow hedge
— — — — (5,898)(5,898)— (137)(6,035)
Net income
— — — 3,327 — 3,327 — 77 3,404 
Balance, June 30, 201940,136 40 533,583 (198,056)(5,172)330,395 928 8,080 338,475 
Exchange of noncontrolling interest OP units for common shares
3 — 27 — — 27 (3)(27) 
Issuance of common shares - ATM Program, net of offering costs
374 — 4,830 — — 4,830 — — 4,830 
Issuance of shares under dividend reinvestment plan
3 — 35 — — 35 — — 35 
Share-based compensation
1 — 1,641 — — 1,641 — — 1,641 
Distributions - $0.285 per common share / OP unit
— — — (11,575)— (11,575)— (263)(11,838)
Unrealized loss on change in value of cash flow hedge
— — — — (2,184)(2,184)— (51)(2,235)
Net income
— — — 1,807 — 1,807 — 42 1,849 
Balance, September 30, 201940,517 $40 $540,116 $(207,824)$(7,356)$324,976 925 $7,781 $332,757