[PART I - FINANCIAL INFORMATION](index=4&type=section&id=PART%20I%20-%20FINANCIAL%20INFORMATION) This section provides a comprehensive overview of the company's financial performance and position, including detailed statements, notes, management's analysis, and market risk disclosures [Item 1. Financial Statements.](index=4&type=section&id=Item%201.%20Financial%20Statements.) This section presents the unaudited consolidated financial statements, including balance sheets, statements of operations and comprehensive income, statements of changes in equity, and statements of cash flows, along with detailed notes explaining significant accounting policies, lease arrangements, debt, equity, and other financial commitments [Consolidated Balance Sheets](index=4&type=section&id=Consolidated%20Balance%20Sheets) This statement provides a snapshot of the company's assets, liabilities, and equity at specific points in time, highlighting changes over the period Total Assets, Liabilities, and Equity (in thousands) | Metric | September 30, 2023 (Unaudited) (in thousands) | December 31, 2022 (in thousands) | | :-------------------------------- | :--------------------------------------- | :------------------------------- | | Total assets | $1,117,549 | $1,102,767 | | Total liabilities | $684,667 | $678,313 | | Total equity | $432,882 | $424,454 | - Total assets increased by **$14.782 million** from December 31, 2022, to September 30, 2023. Total liabilities increased by **$6.354 million**, and total equity increased by **$8.428 million** over the same period[10](index=10&type=chunk) [Consolidated Statements of Operations and Comprehensive Income](index=6&type=section&id=Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Income) This statement details the company's revenues, expenses, net income, and comprehensive income over specific reporting periods Key Financial Metrics (in thousands) | Metric | Three Months Ended Sep 30, 2023 (in thousands) | Three Months Ended Sep 30, 2022 (in thousands) | Nine Months Ended Sep 30, 2023 (in thousands) | Nine Months Ended Sep 30, 2022 (in thousands) | | :--------------------------------------- | :--------------------------------------------- | :--------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Total revenues | $37,134 | $35,383 | $109,445 | $104,503 | | Total operating expenses | $25,279 | $24,551 | $74,204 | $69,844 | | Net income attributable to Whitestone REIT | $2,486 | $3,915 | $17,639 | $15,331 | | Basic Earnings Per Share | $0.05 | $0.08 | $0.36 | $0.31 | | Diluted Earnings Per Share | $0.05 | $0.08 | $0.35 | $0.31 | | Comprehensive income attributable to Whitestone REIT | $6,524 | $9,787 | $24,150 | $29,731 | - For the three months ended September 30, 2023, total revenues increased by **4.95% YoY**, while net income attributable to Whitestone REIT decreased by **36.5% YoY**. Basic and diluted EPS also decreased from **$0.08 to $0.05 YoY**[14](index=14&type=chunk)[17](index=17&type=chunk) - For the nine months ended September 30, 2023, total revenues increased by **4.73% YoY**, and net income attributable to Whitestone REIT increased by **15.05% YoY**. Basic EPS increased from **$0.31 to $0.36**, and diluted EPS increased from **$0.31 to $0.35 YoY**[14](index=14&type=chunk)[17](index=17&type=chunk) [Consolidated Statements of Changes in Equity](index=9&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Equity) This statement tracks the changes in the company's equity components, including common shares, additional paid-in capital, and accumulated deficit, over the reporting period Equity Components (in thousands) | Metric | Balance, December 31, 2022 (in thousands) | Balance, September 30, 2023 (in thousands) | | :-------------------------------- | :---------------------------------------- | :--------------------------------------- | | Common Shares (Amount) | $49 | $50 | | Additional Paid-In Capital | $624,785 | $626,815 | | Accumulated Deficit | $(212,366) | $(212,551) | | Accumulated Other Comprehensive Gain (Loss) | $5,980 | $12,491 | | Total Shareholders' Equity | $418,448 | $426,805 | | Noncontrolling Interests (Dollars) | $6,006 | $6,077 | | Total Equity | $424,454 | $432,882 | - Equity increased by **$8.428 million** from December 31, 2022, to September 30, 2023, driven by net income and unrealized gains on cash flow hedges, partially offset by distributions[22](index=22&type=chunk) [Consolidated Statements of Cash Flows](index=11&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) This statement categorizes cash inflows and outflows into operating, investing, and financing activities, providing insights into liquidity and solvency Cash Flow Activities (in thousands) | Cash Flow Activity | Nine Months Ended Sep 30, 2023 (in thousands) | Nine Months Ended Sep 30, 2022 (in thousands) | | :-------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Net cash provided by operating activities | $35,854 | $33,459 | | Net cash used in investing activities | $(24,775) | $(10,118) | | Net cash used in financing activities | $(14,361) | $(29,688) | | Net decrease in cash, cash equivalents and restricted cash | $(3,282) | $(6,347) | | Cash, cash equivalents and restricted cash at end of period | $3,073 | $9,567 | - Net cash provided by operating activities increased by **$2.395 million YoY** for the nine months ended September 30, 2023. Net cash used in investing activities significantly increased due to real estate acquisitions, while net cash used in financing activities decreased due to net proceeds from the credit facility[28](index=28&type=chunk) [Notes to Consolidated Financial Statements](index=13&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) This section provides detailed explanations and disclosures for the figures presented in the financial statements, covering accounting policies, commitments, and contingencies [1. Interim Financial Statements](index=13&type=section&id=1.%20INTERIM%20FINANCIAL%20STATEMENTS) This note clarifies the basis of preparation for the unaudited interim financial statements and the company's operational structure as a REIT - The consolidated financial statements are unaudited and prepared in accordance with U.S. GAAP for interim financial information, consistent with annual audited statements[35](index=35&type=chunk) - Whitestone REIT operates as a Maryland REIT, conducting operations through its Operating Partnership. As of September 30, 2023, it wholly owned **56 commercial properties**, including **51 Community Centered Properties®** and **five parcels** for future development[37](index=37&type=chunk)[38](index=38&type=chunk)[39](index=39&type=chunk) [2. Summary of Significant Accounting Policies](index=14&type=section&id=2.%20SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20POLICIES) This note outlines the key accounting principles and estimates used in preparing the financial statements, including consolidation, revenue recognition, and share-based compensation - The Company consolidates the Operating Partnership where it holds a majority interest and uses the equity method for its investment in Pillarstone OP[42](index=42&type=chunk)[44](index=44&type=chunk) - Significant estimates include fair values of acquired properties, useful lives of assets, share-based compensation, allowance for doubtful accounts, and fair value of interest rate swaps[45](index=45&type=chunk) - Share-based compensation expense recognized for the three months ended September 30, 2023, was **$1,083,000** (vs. $943,000 in 2022) and for the nine months was **$2,712,000** (vs. $455,000 in 2022)[52](index=52&type=chunk) - The allowance for uncollectible accounts was **$14.2 million** as of September 30, 2023, up from **$13.8 million** at December 31, 2022[55](index=55&type=chunk) - The Company adopted ASU 2020-04 and ASU 2021-01 regarding reference rate reform, with no material impact on financial statements[60](index=60&type=chunk)[61](index=61&type=chunk) [3. Leases](index=18&type=section&id=3.%20LEASES) This note details the company's lease arrangements as both a lessor and lessee, including future minimum rents and total lease costs Minimum Future Rents to be Received (Lessor) (in thousands) | Years Ended December 31, | Minimum Future Rents | | :----------------------- | :------------------- | | 2023 (remaining) | $24,923 | | 2024 | $94,137 | | 2025 | $78,458 | | 2026 | $63,066 | | 2027 | $50,484 | | Thereafter | $147,552 | | **Total** | **$458,620** | Total Lease Costs (Lessee) (in thousands) | Lease Type | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :---------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Operating leases | $23 | $122 | $64 | $552 | | Finance lease | $21 | $0 | $72 | $0 | [4. Accrued Rents and Accounts Receivable, Net](index=19&type=section&id=4.%20ACCURUED%20RENTS%20AND%20ACCOUNTS%20RECEIVABLE,%20NET) This note provides a breakdown of tenant receivables, accrued rents, and the allowance for doubtful accounts, reflecting amounts due from tenants Accrued Rents and Accounts Receivable, Net (in thousands) | Component | September 30, 2023 | December 31, 2022 | | :---------------------------------------- | :----------------- | :---------------- | | Tenant receivables | $16,719 | $16,828 | | Accrued rents and other recoveries | $24,989 | $22,103 | | Allowance for doubtful accounts | $(14,184) | $(13,822) | | Other receivables | $1,459 | $461 | | **Total** | **$28,983** | **$25,570** | [5. Unamortized Lease Commissions, Legal Fees and Loan Costs](index=19&type=section&id=5.%20UNAMORTIZED%20LEASE%20COMMISSIONS,%20LEGAL%20FEES%20AND%20LOAN%20COSTS) This note presents the deferred costs associated with leasing commissions, legal fees, and financing, net of accumulated amortization Deferred Costs, Net of Accumulated Amortization (in thousands) | Cost Type | September 30, 2023 | December 31, 2022 | | :---------------------------------------- | :----------------- | :---------------- | | Leasing commissions, net | $9,446 | $8,715 | | Deferred legal cost, net | $89 | $101 | | Deferred financing cost, net | $3,206 | $3,881 | | **Total cost, net of accumulated amortization** | **$12,741** | **$12,697** | [6. Investment in Real Estate Partnership](index=19&type=section&id=6.%20INVESTMENT%20IN%20REAL%20ESTATE%20PARTNERSHIP) This note describes the company's equity method investment in Pillarstone OP, including its financial performance and related legal disputes - Whitestone REIT owns an **81.4% majority interest** in Pillarstone OP, accounted for using the equity method. The investment value was estimated at **$33.2 million** as of September 30, 2023, down from **$34.826 million** at December 31, 2022[75](index=75&type=chunk) Company's Share of Net Income (Loss) from Pillarstone OP (in thousands) | Period | 2023 | 2022 | | :-------------------------------- | :----- | :----- | | Three Months Ended September 30 | $(375) | $65 | | Nine Months Ended September 30 | $(1,627) | $304 | - Pillarstone OP's general partner is delinquent in SEC reporting, leading Whitestone to estimate financial information for its investment. A lawsuit was filed by Whitestone OP against Pillarstone REIT challenging a Rights Agreement that could dilute Whitestone's ownership, seeking to declare the agreement unenforceable and/or monetary damages of at least **$51.2 million**[74](index=74&type=chunk)[76](index=76&type=chunk)[77](index=77&type=chunk) - The Company has a limited 'bad boy' carve-out guarantee on Pillarstone OP's **$14.4 million** Uptown Tower loan, which is currently in default. The lender has initiated foreclosure proceedings, claiming an additional **$4.6 million** is due, which is disputed by Whitestone[84](index=84&type=chunk) [7. Debt](index=24&type=section&id=7.%20DEBT) This note details the company's debt structure, including notes payable, credit facilities, and compliance with financial covenants Total Notes Payable (in thousands) | Metric | September 30, 2023 | December 31, 2022 | | :-------------------------------- | :----------------- | :---------------- | | Total notes payable principal | $633,171 | $625,991 | | Less deferred financing costs, net | $(421) | $(564) | | **Total notes payable** | **$632,750** | **$625,427** | Scheduled Debt Maturities (in thousands) | Year | Amount Due | | :---------------- | :----------- | | 2023 (remaining) | $1,383 | | 2024 | $63,573 | | 2025 | $17,143 | | 2026 | $154,643 | | 2027 | $97,143 | | Thereafter | $299,286 | | **Total** | **$633,171** | - The Company entered into a new **$515.0 million** unsecured credit facility (2022 Facility) in September 2022, comprising a **$250.0 million** revolving credit facility and a **$265.0 million** term loan. As of September 30, 2023, **$402.5 million** was drawn, with **$112.5 million** remaining availability under the revolver[102](index=102&type=chunk)[105](index=105&type=chunk)[104](index=104&type=chunk) - The 2022 Facility and Note Agreement contain financial covenants, including maximum total indebtedness to total asset value ratio of **0.60 to 1.00** and minimum EBITDA to fixed charges ratio of **1.50 to 1.00**. The Company was in compliance with all loan covenants as of September 30, 2023[98](index=98&type=chunk)[108](index=108&type=chunk)[109](index=109&type=chunk) [8. Derivatives and Hedging Activities](index=29&type=section&id=8.%20DERIVATIVES%20AND%20HEDGING%20ACTIVITIES) This note explains the company's use of interest rate swaps to manage exposure to interest rate fluctuations and their impact on financial results Fair Value of Interest Rate Swaps (in thousands) | Date | Estimated Fair Value | | :---------------- | :------------------- | | September 30, 2023 | $12,668 | | December 31, 2022 | $6,065 | Interest Rate Swap Activity (in thousands) | Period | Amount Recognized as Comprehensive Income | Income (Loss) Recognized in Earnings | | :-------------------------------- | :-------------------------------------- | :----------------------------------- | | Three Months Ended Sep 30, 2023 | $4,094 | $1,929 | | Three Months Ended Sep 30, 2022 | $5,962 | $52 | | Nine Months Ended Sep 30, 2023 | $6,602 | $4,833 | | Nine Months Ended Sep 30, 2022 | $14,623 | $(2,276) | - The Company uses interest rate swaps as cash flow hedges to manage exposure to interest rate fluctuations, with changes in fair value recorded in comprehensive income. New swaps were entered in March 2023 (**$50 million Revolver Swap**) and September 2022 (**$265 million Term Loan swap**) to fix SOFR portions of variable rate debt[112](index=112&type=chunk)[113](index=113&type=chunk) [9. Earnings Per Share](index=30&type=section&id=9.%20EARNINGS%20PER%20SHARE) This note provides the calculation of basic and diluted earnings per share, considering net income attributable to common shareholders and weighted average shares outstanding Earnings Per Share (in thousands, except per share data) | Metric | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :-------------------------------------------------------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net income attributable to common shareholders excluding amounts attributable to unvested restricted shares | $2,486 | $3,915 | $17,639 | $15,331 | | Weighted average number of common shares - basic | 49,534 | 49,274 | 49,472 | 49,211 | | Weighted average number of common shares - dilutive | 50,637 | 50,129 | 50,399 | 49,916 | | Basic EPS | $0.05 | $0.08 | $0.36 | $0.31 | | Diluted EPS | $0.05 | $0.08 | $0.35 | $0.31 | - OP units were excluded from diluted EPS calculation due to their anti-dilutive effect: **693,595 units** for Q3 2023 and **694,054 units** for the nine months ended September 30, 2023[117](index=117&type=chunk) [10. Income Taxes](index=31&type=section&id=10.%20INCOME%20TAXES) This note outlines the company's tax status as a REIT and its provisions for income taxes, primarily focusing on the Texas Margin Tax - The Company intends to qualify as a REIT, generally exempting it from federal income tax on distributed income[120](index=120&type=chunk) Texas Margin Tax Provision (in thousands) | Period | 2023 | 2022 | | :-------------------------------- | :----- | :----- | | Three Months Ended September 30 | $95 | $114 | | Nine Months Ended September 30 | $339 | $315 | [11. Equity](index=31&type=section&id=11.%20EQUITY) This note details the components of the company's equity, including common shares, operating partnership units, and cash distributions paid - As of September 30, 2023, **49,584,705 common shares** were issued and outstanding. The Company has a universal shelf registration statement for up to **$500 million** in securities[10](index=10&type=chunk)[123](index=123&type=chunk) - Whitestone REIT owned a **98.6% interest** in the Operating Partnership as of September 30, 2023. Limited partners can redeem OP units for cash or common shares[126](index=126&type=chunk)[127](index=127&type=chunk) Cash Distributions Paid (in thousands, except per share/unit data) | Period | Distributions Per Common Share/OP Unit | Amount Paid (Common Shares) | Amount Paid (Noncontrolling OP Unit Holders) | Total Amount Paid | | :---------------- | :------------------------------------- | :-------------------------- | :------------------------------------------- | :---------------- | | Q3 2023 | $0.1200 | $5,928 | $83 | $6,011 | | Q2 2023 | $0.1200 | $5,913 | $83 | $5,996 | | Q1 2023 | $0.1200 | $5,913 | $83 | $5,996 | | **Total 9M 2023** | **$0.3600** | **$17,754** | **$249** | **$18,003** | | **Total 9M 2022** | **$0.3475** | **$17,049** | **$263** | **$17,312** | [12. Incentive Share Plan](index=34&type=section&id=12.%20INCENTIVE%20SHARE%20PLAN) This note describes the company's long-term equity incentive plan, including the types of awards granted and associated compensation expenses - The 2018 Long-Term Equity Incentive Ownership Plan authorizes issuance of up to **3,433,831 common shares** and OP units. Awards include performance-based restricted common share units (CIC Units, TSR Units) and time-based restricted common share units[131](index=131&type=chunk)[132](index=132&type=chunk)[133](index=133&type=chunk) Share-Based Compensation Expense (in thousands) | Period | 2023 | 2022 | | :-------------------------------- | :----- | :----- | | Three Months Ended September 30 | $1,083 | $943 | | Nine Months Ended September 30 | $2,712 | $455 | - As of September 30, 2023, there was approximately **$3.1 million** in unrecognized compensation cost for TSR Units (expected to vest over 27 months) and **$3.1 million** for time-based shares (expected to vest over 33 months)[144](index=144&type=chunk) [13. Grants to Trustees](index=37&type=section&id=13.%20GRANTS%20TO%20TRUSTEES) This note reports on the issuance of common shares to independent trustees and a trustee emeritus as part of their compensation - On December 19, 2022, five independent trustees and one trustee emeritus were granted a total of **35,222 common shares**, vesting immediately, with a grant fair value of **$9.52 per share**[146](index=146&type=chunk) [14. Segment Information](index=37&type=section&id=14.%20SEGMENT%20INFORMATION) This note clarifies that the company does not report segment information as it does not differentiate operations by property type or location - The Company does not differentiate results of operations by property type or location and therefore does not present segment information[147](index=147&type=chunk) [15. Real Estate](index=37&type=section&id=15.%20REAL%20ESTATE) This note provides details on the company's property acquisitions and dispositions, including purchase prices, sale proceeds, and recognized gains - Acquisitions in 2023 include Arcadia Towne Center for **$25.5 million** (June 12, 2023). Acquisitions in 2022 include Lake Woodlands Crossing for **$22.5 million** (December 21, 2022) and Dana Park Pad for **$4.9 million** (December 2, 2022)[148](index=148&type=chunk)[149](index=149&type=chunk)[150](index=150&type=chunk) - Dispositions in 2023 include Westchase for **$7.8 million** (gain of **$4.6 million**) and Sunridge for **$6.7 million** (gain of **$5.0 million**), both on June 30, 2023[151](index=151&type=chunk)[152](index=152&type=chunk) [16. Related Party Transactions](index=39&type=section&id=16.%20RELATED%20PARTY%20TRANSACTIONS) This note discloses transactions with related parties, specifically the management agreement with Pillarstone OP and associated revenues and expenses - The management agreement with Pillarstone OP was terminated on August 18, 2022. Prior to termination, the Company reported property management fee income[72](index=72&type=chunk)[156](index=156&type=chunk) Revenue and Expenses with Pillarstone OP (in thousands) | Item | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :---------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Rent (Operating & Maintenance) | $0 | $(105) | $(15) | $(471) | | Property management fee | $0 | $75 | $0 | $359 | [17. Commitments and Contingencies](index=39&type=section&id=17.%20COMMITMENTS%20AND%20CONTINGENCIES) This note outlines the company's significant commitments and potential liabilities, including loan guarantees and ongoing litigation - The Company has a limited 'bad boy' carve-out guarantee on Pillarstone OP's **$14.4 million** Uptown Tower loan, which is in default. A foreclosure sale is planned for December 5, 2023, with a disputed additional claim of **$4.6 million**[158](index=158&type=chunk)[290](index=290&type=chunk) - Ongoing litigation includes lawsuits from the former COO (John Dee) and former CEO (James Mastandrea) alleging breach of contract and other claims, seeking significant monetary relief. The Company denies these claims and is vigorously defending them[159](index=159&type=chunk)[162](index=162&type=chunk)[291](index=291&type=chunk)[293](index=293&type=chunk) - Whitestone OP filed a lawsuit against Pillarstone REIT challenging a Rights Agreement that could dilute Whitestone's investment. A trial was held in July 2023, with post-trial briefing in October 2023, and a decision is pending. Whitestone seeks to void the agreement and/or monetary damages of at least **$51.2 million**[166](index=166&type=chunk)[168](index=168&type=chunk)[169](index=169&type=chunk)[297](index=297&type=chunk)[299](index=299&type=chunk)[300](index=300&type=chunk) [18. Subsequent Events](index=41&type=section&id=18.%20SUBSEQUENT%20EVENTS) This note reports on events occurring after the balance sheet date that may have a material impact on the financial statements - There were no material subsequent events reported[171](index=171&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.](index=42&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations.) This section provides management's perspective on the Company's financial condition, operational performance, and future outlook, including an overview of its business strategy, revenue drivers, leasing activities, and a detailed comparison of financial results for the three and nine months ended September 30, 2023 and 2022 [Forward-Looking Statement](index=42&type=section&id=Forward-Looking%20Statement) This section highlights that the report contains forward-looking statements subject to various risks and uncertainties - The report contains forward-looking statements subject to risks and uncertainties, including those related to REIT status, economic conditions, interest rates, and litigation[174](index=174&type=chunk)[176](index=176&type=chunk) - Readers are cautioned not to place undue reliance on forward-looking statements, which reflect management's view only as of the report date[175](index=175&type=chunk) [Overview](index=44&type=section&id=Overview) This section provides a high-level summary of Whitestone REIT's business, property portfolio, and tenant base - Whitestone REIT is an internally managed real estate company owning and operating **56 commercial properties** (**51 Community Centered Properties®** and **5 development parcels**) in Texas, Arizona, and Illinois as of September 30, 2023[179](index=179&type=chunk)[182](index=182&type=chunk)[183](index=183&type=chunk) - The Company has a diversified tenant base of **1,455 tenants**, with the largest tenant comprising only **2.2%** of annualized rental revenues[184](index=184&type=chunk) - The majority of leases are triple-net or provide for tenant reimbursement of operating expenses, mitigating inflation effects. A **1% increase** in interest rates on non-hedged variable rate debt (**$87.5 million**) would decrease annual net income by approximately **$0.9 million**[188](index=188&type=chunk)[189](index=189&type=chunk) [How We Derive Our Revenue](index=45&type=section&id=How%20We%20Derive%20Our%20Revenue) This section explains the primary sources of the company's revenue, mainly rental income, and factors influencing its growth Total Revenues (in millions) | Period | 2023 | 2022 | | :-------------------------------- | :----- | :----- | | Three Months Ended September 30 | $37.1 | $35.4 | | Nine Months Ended September 30 | $109.4 | $104.5 | - Rental income is expected to increase due to property additions and rent increases on renewal leases. Adjustments for cash basis tenants included a **$0.03 million increase** for straight-line rent reserve and a **$0.2 million decrease** for bad debt for Q3 2023[191](index=191&type=chunk) [Scheduled Lease Expirations](index=46&type=section&id=Scheduled%20Lease%20Expirations) This section provides an overview of the company's lease expiration schedule and historical renewal rates - Approximately **20%** of the Company's Gross Leasable Area (GLA) is subject to leases expiring prior to December 31, 2024. Over the last three calendar years, approximately **70%** of expiring leases were renewed[192](index=192&type=chunk) [Acquisitions](index=46&type=section&id=Acquisitions) This section outlines the company's strategy for growth through property acquisitions and development activities - The Company aims to grow GLA through acquisitions of Community Centered Properties® in high-growth markets and is evaluating development/redevelopment activities[193](index=193&type=chunk)[194](index=194&type=chunk) [Property Acquisitions, Dispositions and Development](index=46&type=section&id=Property%20Acquisitions,%20Dispositions%20and%20Development) This section details specific property transactions, including recent acquisitions and dispositions - Acquired Arcadia Towne Center for **$25.5 million** in June 2023. Sold Westchase for **$7.8 million** (gain of **$4.6 million**) and Sunridge for **$6.7 million** (gain of **$5.0 million**) in June 2023[195](index=195&type=chunk)[198](index=198&type=chunk)[199](index=199&type=chunk) [Leasing Activity](index=47&type=section&id=Leasing%20Activity) This section reports on the company's occupancy rates and details of new and renewal lease agreements - Occupancy rate for all properties was **93%** as of September 30, 2023, up from **92%** in the prior year[200](index=200&type=chunk) Leasing Activity for Nine Months Ended September 30, 2023 (Comparable Leases) | Lease Type | Number of Leases Signed | GLA Signed (sq. ft.) | Weighted Average Lease Term (years) | TI and Incentives per Sq. Ft. | Contractual Rent Per Sq. Ft. (New) | Straight-lined Basis Increase (Decrease) Over Prior Rent | | :---------------- | :---------------------- | :------------------- | :---------------------------------- | :---------------------------- | :--------------------------------- | :------------------------------------------------------- | | Renewal Leases | 134 | 482,013 | 3.5 | $1.10 | $19.53 | 21.2% | | New Leases | 36 | 69,986 | 6.3 | $15.50 | $26.65 | 23.5% | | **Total** | **170** | **551,999** | **3.9** | **$2.92** | **$20.43** | **21.6%** | [Critical Accounting Policies and Estimates](index=47&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) This section discusses the key accounting policies and estimates that require significant judgment and their potential impact on financial results - No significant changes to critical accounting policies during the nine months ended September 30, 2023, except for estimates regarding Pillarstone REIT Operating Partnership LP's financial condition and results of operations[202](index=202&type=chunk) [Results of Operations](index=48&type=section&id=Results%20of%20Operations) This section provides a detailed analysis of the company's financial performance, comparing revenues and expenses across different periods [Comparison of the Three Months Ended September 30, 2023 and 2022](index=48&type=section&id=Comparison%20of%20the%20Three%20Months%20Ended%20September%2030,%202023%20and%202022) This section compares the company's financial performance for the third quarter of 2023 against the same period in 2022 Key Financial Metrics (Three Months Ended September 30, in thousands) | Metric | 2023 | 2022 | Change | % Change | | :--------------------------------------- | :----- | :----- | :----- | :------- | | Total revenues | $37,134 | $35,383 | $1,751 | 5% | | Total operating expenses | $25,279 | $24,551 | $728 | 3% | | Net income attributable to Whitestone REIT | $2,486 | $3,915 | $(1,429) | (36)% | | Funds from operations (FFO) | $11,693 | $12,231 | $(538) | (4)% | | Property net operating income (NOI) | $26,246 | $24,307 | $1,939 | 8% | | Same Store NOI | $23,210 | $22,122 | $1,088 | 5% | - Same Store rental revenues increased by **$1.207 million (5%)** due to higher average leased square feet and higher average rent per leased square foot. Same Store recoveries increased by **$0.516 million (5%)** due to increased operating expenses[207](index=207&type=chunk)[208](index=208&type=chunk) - Interest expense increased by **$1.584 million (23%)** due to rising interest rates, increasing the effective interest rate to **5.07%** in Q3 2023 from **4.01%** in Q3 2022[212](index=212&type=chunk) - Equity (deficit) in earnings of real estate partnership decreased by **$0.440 million**, moving from an equity position of **$0.065 million** in Q3 2022 to a deficit of **$0.375 million** in Q3 2023[214](index=214&type=chunk) [Comparison of the Nine Months Ended September 30, 2023 and 2022](index=53&type=section&id=Comparison%20of%20the%20Nine%20Months%20Ended%20September%2030,%202023%20and%202022) This section compares the company's financial performance for the first nine months of 2023 against the same period in 2022 Key Financial Metrics (Nine Months Ended September 30, in thousands) | Metric | 2023 | 2022 | Change | % Change | | :--------------------------------------- | :----- | :----- | :----- | :------- | | Total revenues | $109,445 | $104,503 | $4,942 | 5% | | Total operating expenses | $74,204 | $69,844 | $4,360 | 6% | | Net income attributable to Whitestone REIT | $17,639 | $15,331 | $2,308 | 15% | | Funds from operations (FFO) | $34,387 | $40,325 | $(5,938) | (15)% | | Property net operating income (NOI) | $77,329 | $73,924 | $3,405 | 5% | | Same Store NOI | $69,220 | $67,366 | $1,854 | 3% | - Same Store rental revenues increased by **$3.704 million (5%)** due to higher average leased square feet and higher average rent per leased square foot. Same Store recoveries increased by **$1.770 million (6%)** due to increased operating and maintenance expenses[221](index=221&type=chunk)[222](index=222&type=chunk) - General and administrative expenses increased by **$2.588 million (20%)** primarily due to increased share-based compensation (**$2.248 million**) and legal expenses (**$1.143 million**)[224](index=224&type=chunk) - The Company recorded a net gain on sale of properties of **$9.626 million** in 2023, compared to a loss of **$0.007 million** in 2022, primarily from the sale of Sunridge (**$5.0 million gain**) and Westchase (**$4.6 million gain**)[225](index=225&type=chunk) - Equity (deficit) in earnings of real estate partnership decreased by **$1.931 million**, moving from an equity position of **$0.304 million** in 9M 2022 to a deficit of **$1.627 million** in 9M 2023[226](index=226&type=chunk) [Reconciliation of Non-GAAP Financial Measures](index=58&type=section&id=Reconciliation%20of%20Non-GAAP%20Financial%20Measures) This section reconciles non-GAAP financial measures, such as FFO and NOI, to their most directly comparable GAAP measures [Funds From Operations (NAREIT) ("FFO") and Normalized FFO](index=58&type=section&id=Funds%20From%20Operations%20(NAREIT)%20(%22FFO%22)%20and%20Normalized%20FFO) This section defines and reconciles FFO and Normalized FFO, key metrics for evaluating REIT operating performance - FFO and Normalized FFO are non-GAAP measures used to evaluate operating performance, excluding depreciation, gains/losses from property sales, and impairment write-downs[230](index=230&type=chunk)[231](index=231&type=chunk)[232](index=232&type=chunk) FFO and Normalized FFO (in thousands) | Metric | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :-------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net income attributable to Whitestone REIT | $2,486 | $3,915 | $17,639 | $15,331 | | FFO (NAREIT) | $11,693 | $12,231 | $34,387 | $40,325 | | Normalized FFO | $11,693 | $12,378 | $34,387 | $40,472 | [Property Net Operating Income ("NOI")](index=59&type=section&id=Property%20Net%20Operating%20Income%20(%22NOI%22)) This section defines and reconciles Property Net Operating Income (NOI), a non-GAAP measure used to assess property-level performance - NOI is a non-GAAP measure defined as operating revenues less property and related expenses, used to evaluate property operating performance[235](index=235&type=chunk) Property Net Operating Income (NOI) (in thousands) | Metric | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :-------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net income attributable to Whitestone REIT | $2,486 | $3,915 | $17,639 | $15,331 | | **NOI** | **$26,246** | **$24,307** | **$77,329** | **$73,924** | [Liquidity and Capital Resources](index=59&type=section&id=Liquidity%20and%20Capital%20Resources) This section discusses the company's ability to generate and manage cash to meet its short-term and long-term financial obligations and investment needs - Short-term liquidity needs are met by cash from operations and the 2022 Facility. Cash provided by operating activities was **$35.854 million** for the nine months ended September 30, 2023, exceeding total distributions of **$18.003 million**[238](index=238&type=chunk) - Long-term liquidity will be funded by net cash from operations, long-term indebtedness, equity issuances, and property sales. The Company has **$112.5 million** remaining availability under its 2022 Revolver as of September 30, 2023[239](index=239&type=chunk) - Cash, cash equivalents, and restricted cash decreased from **$6.355 million** at December 31, 2022, to **$3.073 million** at September 30, 2023[248](index=248&type=chunk) [Debt](index=62&type=section&id=Debt) This section provides a detailed overview of the company's debt structure, including outstanding notes, credit facilities, and compliance with covenants Total Notes Payable (in thousands) | Metric | September 30, 2023 | December 31, 2022 | | :-------------------------------- | :----------------- | :---------------- | | Total notes payable principal | $633,171 | $625,991 | | Less deferred financing costs, net | $(421) | $(564) | | **Total notes payable** | **$632,750** | **$625,427** | Scheduled Debt Maturities (in thousands) | Year | Amount Due | | :---------------- | :----------- | | 2023 (remaining) | $1,383 | | 2024 | $63,573 | | 2025 | $17,143 | | 2026 | $154,643 | | 2027 | $97,143 | | Thereafter | $299,286 | | **Total** | **$633,171** | - The 2022 Facility includes a **$250.0 million** unsecured revolving credit facility and a **$265.0 million** unsecured term loan. The interest rate on the 2022 Revolver was **7.03%** as of September 30, 2023[255](index=255&type=chunk) - The Company's **$137.0 million** in secured debt was collateralized by **six properties** with a carrying value of **$212.9 million** as of September 30, 2023. The Company was in compliance with all loan covenants[270](index=270&type=chunk) [Capital Expenditures](index=66&type=section&id=Capital%20Expenditures) This section details the company's investments in property improvements, developments, and leasing-related costs Capital Expenditures (in thousands) | Type | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :-------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Tenant improvements and allowances | $997 | $2,266 | $4,452 | $6,880 | | Developments / redevelopments | $932 | $475 | $2,817 | $1,705 | | Leasing commissions and costs | $617 | $831 | $1,682 | $2,127 | | Maintenance capital expenditures | $1,711 | $1,206 | $5,142 | $2,558 | | **Total capital expenditures** | **$4,257** | **$4,778** | **$14,093** | **$13,270** | - Total capital expenditures for the nine months ended September 30, 2023, increased by **$0.823 million YoY**, primarily driven by higher maintenance capital expenditures and developments/redevelopments[274](index=274&type=chunk) [Distributions](index=68&type=section&id=Distributions) This section outlines the company's distribution policy and amounts paid to shareholders and OP unit holders - REITs are generally required to distribute at least **90%** of their taxable income annually. The Board of Trustees determines distributions based on FFO, debt service, capital expenditures, and REIT qualification requirements[275](index=275&type=chunk)[277](index=277&type=chunk) - The quarterly distribution was increased to **$0.12 per common share** and OP unit, effective April 2022. Total distributions paid for the nine months ended September 30, 2023, were **$18.0 million**, up from **$17.3 million** in the prior year[276](index=276&type=chunk)[278](index=278&type=chunk) [Taxes](index=69&type=section&id=Taxes) This section describes the company's tax status as a REIT and its implications for federal income tax - The Company elected to be taxed as a REIT and intends to operate to maintain this qualification, generally avoiding federal income tax on distributed income[279](index=279&type=chunk) [Environmental Matters](index=69&type=section&id=Environmental%20Matters) This section addresses the company's environmental liabilities and expenditures - The Company has incurred no significant environmental costs, accrued liabilities, or expenditures to mitigate future environmental contamination[280](index=280&type=chunk) [Off-Balance Sheet Arrangements](index=69&type=section&id=Off-Balance%20Sheet%20Arrangements) This section discloses any material off-balance sheet arrangements that could affect the company's financial condition - The Company may guarantee the debt of real estate partnerships, such as the limited guarantee on Pillarstone OP's Uptown Tower loan, to facilitate lower funding costs[281](index=281&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk.](index=70&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk.) This section details the Company's exposure to market risks, primarily interest rate fluctuations and credit risk, and its strategies for managing these risks - The principal market risk is interest rate fluctuations. As of September 30, 2023, **86% ($545.7 million)** of total outstanding debt was subject to fixed interest rates, and **14% ($87.5 million)** was subject to floating interest rates[284](index=284&type=chunk)[285](index=285&type=chunk) - A **1% increase or decrease** in interest rates on non-hedged variable rate debt would result in an approximate **$0.9 million decrease or increase** in annual net income, respectively[285](index=285&type=chunk) - Credit risk is increased by macroeconomic factors like inflation and rising interest rates, potentially affecting tenant payments and business closures[286](index=286&type=chunk) [Item 4. Controls and Procedures.](index=70&type=section&id=Item%204.%20Controls%20and%20Procedures.) This section confirms the effectiveness of the Company's disclosure controls and procedures and reports no material changes in internal control over financial reporting - The Company's disclosure controls and procedures were effective as of September 30, 2023[287](index=287&type=chunk) - There have been no material changes in internal control over financial reporting during the nine months ended September 30, 2023[288](index=288&type=chunk) [PART II - OTHER INFORMATION](index=71&type=section&id=PART%20II%20-%20OTHER%20INFORMATION) This section provides additional information not covered in the financial statements, including legal proceedings, risk factors, equity sales, and exhibits [Item 1. Legal Proceedings.](index=71&type=section&id=Item%201.%20Legal%20Proceedings.) This section outlines various legal proceedings and claims, including a loan guarantee for Pillarstone OP, litigation involving former executives, and a lawsuit against Pillarstone REIT, with management asserting no probable material adverse effect on the Company's financial position - The Company has a limited guarantee on Pillarstone OP's **$14.4 million** Uptown Tower loan, which is in default, with a foreclosure sale scheduled for December 5, 2023. The lender claims an additional **$4.6 million** is due, which is disputed[290](index=290&type=chunk) - Lawsuits are ongoing with the Company's former COO (John Dee) and former CEO (James Mastandrea) for breach of contract and other claims, seeking significant monetary relief. The Company denies these claims and is vigorously defending them[291](index=291&type=chunk)[293](index=293&type=chunk) - Whitestone OP filed a lawsuit against Pillarstone REIT challenging a Rights Agreement that could dilute Whitestone's investment. A trial was held in July 2023, and a decision is pending on Whitestone OP's claims for unenforceability and/or monetary damages of at least **$51.2 million**[297](index=297&type=chunk)[299](index=299&type=chunk)[300](index=300&type=chunk) [Item 1A. Risk Factors.](index=72&type=section&id=Item%201A.%20Risk%20Factors.) This section states that there have been no material changes to the Company's risk factors from those previously disclosed in its Annual Report on Form 10-K for the year ended December 31, 2022 - No material change in risk factors from those previously disclosed in the Annual Report on Form 10-K for the year ended December 31, 2022[301](index=301&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.](index=73&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds.) This section details the Company's repurchases of common shares from employees to satisfy tax withholding obligations related to restricted common shares - During the three months ended September 30, 2023, the Company purchased **22,831 common shares** from employees at an average price of **$10.32 per share** to satisfy tax withholding on restricted common shares[304](index=304&type=chunk) [Item 3. Defaults Upon Senior Securities.](index=73&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities.) This section confirms that there were no defaults upon senior securities during the reporting period - No defaults upon senior securities were reported[305](index=305&type=chunk) [Item 4. Mine Safety Disclosures.](index=73&type=section&id=Item%204.%20Mine%20Safety%20Disclosures.) This section states that mine safety disclosures are not applicable to the Company's operations - Mine safety disclosures are not applicable[306](index=306&type=chunk) [Item 5. Other Information.](index=73&type=section&id=Item%205.%20Other%20Information.) This section reports that no trustee or officer adopted or terminated a Rule 10b5-1 trading arrangement during the third quarter of 2023 - No trustee or officer adopted or terminated a "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement" during the three months ended September 30, 2023[307](index=307&type=chunk) [Item 6. Exhibits.](index=73&type=section&id=Item%206.%20Exhibits.) This section lists all exhibits filed, furnished, and incorporated by reference as part of this report, including articles of amendment, bylaws, certifications, and financial information in XBRL format - The exhibit index includes various corporate governance documents, officer certifications (Sarbanes-Oxley Act Sections 302 and 906), and financial information in Inline XBRL format[311](index=311&type=chunk) [Signatures](index=76&type=section&id=Signatures) This section contains the duly authorized signatures of the Company's Chief Executive Officer and Chief Financial Officer, affirming the submission of the report - The report is signed by David K. Holeman, Chief Executive Officer, and John S. Hogan, Chief Financial Officer, on November 1, 2023[315](index=315&type=chunk)

Financial Data and Key Metrics Changes - Revenue grew by 4.9% compared to Q3 2022, with funds from operations per share at $0.23, down from $0.24 a year ago due to higher interest and legal expenses [9][24] - Same-store net operating income increased by 4.9% year-over-year, marking six consecutive quarters with straight-line leasing spreads exceeding 17% [6][9] - Total occupancy reached 92.7%, up 20 basis points from the previous year, with guidance reiterated at 93.5% to 94.5% for the year [9][15] Business Line Data and Key Metrics Changes - Combined straight-line leasing spreads were 24.4%, with cash basis leasing spreads at 10.5% [6] - Leasing spreads for new leases were 23.6% and 24.6% for renewals [15] - Occupancy for spaces over 10,000 square feet was 96%, while smaller spaces had an occupancy of 90.8% [15] Market Data and Key Metrics Changes - The company is well-positioned in markets with high job growth, driven by migration trends and limited supply of neighborhood retail centers due to higher interest rates and building costs [22] - The demand for smaller spaces and the value of local tenants have been recognized as key trends in the industry [10][12] Company Strategy and Development Direction - The company aims to focus on quality revenue and operate neighborhood centers that deliver strong leasing spreads and NOI growth over the next five years [7][8] - Plans include reducing general and administrative expenses, achieving best-in-class same-store growth, and exploring disciplined accretive acquisitions [7][21] - The strategy emphasizes the importance of tenant quality and community engagement to enhance overall center performance [17][20] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the ability to navigate a higher inflationary environment and potential economic downturns due to the tenant base's resilience [11][12] - There are no current signs of distress among tenants, although caution is maintained regarding those with high leverage in the private equity sector [32][36] - The company anticipates a positive earnings trajectory and lower G&A levels as litigation expenses decrease [26][47] Other Important Information - The company has signed an agreement with Tesla to install charging stations at a location in Houston, which is expected to drive traffic [14] - The company has been actively involved in community support initiatives, such as supporting local organizations for children with special needs [23] Q&A Session Summary Question: Can you provide some perspective on the change in occupancy quarter-over-quarter? - Management indicated that the guidance range remains comfortable, with intentional remerchandising efforts to improve tenant quality [28][30] Question: Is there any trend suggesting distress among tenants? - Management noted no significant distress, with concerns primarily around tenants with high leverage in private equity [32][36] Question: Were there any asset sales this quarter? - No asset sales occurred this quarter, but the company continues to explore recycling opportunities [38][39] Question: Is the company expecting lower G&A levels? - Management confirmed that legal expenses related to litigation will decrease, leading to lower G&A levels in the future [45][46]

Table of Contents 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 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) Maryland ...

[PART I - FINANCIAL INFORMATION](index=4&type=section&id=PART%20I%20-%20FINANCIAL%20INFORMATION) This section provides the unaudited consolidated financial statements and management's analysis of Whitestone REIT's financial condition and results of operations for the first quarter of 2023 [Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements.) This section presents Whitestone REIT's unaudited consolidated financial statements for Q1 2023, including balance sheets, income statements, equity changes, cash flows, and detailed notes [Consolidated Balance Sheets](index=4&type=section&id=Consolidated%20Balance%20Sheets) As of March 31, 2023, total assets were $1.09 billion, a slight decrease from $1.10 billion at year-end 2022. Total liabilities decreased marginally to $675.4 million, while total equity decreased to $418.5 million from $424.5 million, primarily due to an unrealized loss on cash flow hedges and distributions paid Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | **Total Assets** | **$1,093,893** | **$1,102,767** | | Total real estate assets | $986,966 | $990,755 | | Cash and cash equivalents | $3,479 | $6,166 | | **Total Liabilities** | **$675,367** | **$678,313** | | Notes payable | $630,409 | $625,427 | | **Total Equity** | **$418,526** | **$424,454** | [Consolidated Statements of Operations and Comprehensive Income (Loss)](index=6&type=section&id=Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Income%20(Loss)) For the first quarter of 2023, total revenues increased to $35.9 million from $34.1 million in the prior-year period. However, net income attributable to Whitestone REIT decreased significantly to $3.8 million from $7.1 million, driven by higher general & administrative and interest expenses. This resulted in a diluted EPS of $0.08, down from $0.14 in Q1 2022 Q1 2023 vs. Q1 2022 Performance (in thousands, except per share data) | Metric | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Total Revenues | $35,851 | $34,123 | | Total Operating Expenses | $23,724 | $21,051 | | Net Income Attributable to Whitestone REIT | $3,847 | $7,078 | | Diluted EPS | $0.08 | $0.14 | - The decrease in net income was primarily due to a **$2.0 million** increase in general and administrative expenses and a **$1.8 million** increase in interest expense compared to the prior year period[14](index=14&type=chunk) [Consolidated Statements of Changes in Equity](index=9&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Equity) Total equity decreased by $6.0 million during the first quarter of 2023. The decline was primarily driven by distributions of $6.0 million and an unrealized loss on cash flow hedges of $4.6 million, which were partially offset by net income of $3.9 million Changes in Equity - Q1 2023 (in thousands) | Item | Amount | | :--- | :--- | | Balance, December 31, 2022 | $424,454 | | Net income | $3,901 | | Distributions | ($6,014) | | Unrealized loss on cash flow hedge | ($4,587) | | Other (Share-based comp, etc.) | $772 | | **Balance, March 31, 2023** | **$418,526** | [Consolidated Statements of Cash Flows](index=11&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) For the three months ended March 31, 2023, net cash provided by operating activities was stable at $4.9 million. Net cash used in investing activities was $3.5 million for additions to real estate. Net cash used in financing activities was $4.1 million, reflecting $6.0 million in distributions offset by net proceeds from debt. This resulted in a net decrease in cash of $2.7 million Cash Flow Summary - Q1 2023 vs Q1 2022 (in thousands) | Activity | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $4,915 | $4,915 | | Net cash used in investing activities | ($3,529) | ($3,359) | | Net cash used in financing activities | ($4,069) | ($6,214) | | **Net decrease in cash** | **($2,683)** | **($4,658)** | [Notes to Consolidated Financial Statements](index=13&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes provide detailed information on significant accounting policies, property portfolio, Pillarstone investment, debt structure, and other financial disclosures - The company owns **57 commercial properties**, primarily focused on a 'Community Centered Properties®' strategy in markets like Austin, Chicago, Dallas-Fort Worth, Houston, Phoenix, and San Antonio[35](index=35&type=chunk)[36](index=36&type=chunk) - The company's **81.4% investment** in Pillarstone OP is accounted for using the equity method. Financial reporting for this investment relies on estimates, as Pillarstone's general partner (PRLE) is delinquent in its SEC filings[37](index=37&type=chunk)[73](index=73&type=chunk) - Whitestone is involved in litigation with Pillarstone REIT over a 'poison pill' rights agreement that could dilute Whitestone's investment, and with its former CEO over his employment termination. The company does not believe a probable loss will be incurred from these matters[156](index=156&type=chunk)[157](index=157&type=chunk)[161](index=161&type=chunk) - As of March 31, 2023, total debt was **$630.4 million**. The company was in compliance with all loan covenants[86](index=86&type=chunk)[108](index=108&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=39&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations.) Management discusses Q1 2023 financial performance, including revenue growth, operational results, liquidity, and debt management, with analysis of non-GAAP measures [Results of Operations](index=45&type=section&id=Results%20of%20Operations) Total revenues for Q1 2023 increased by 5% to $35.9 million compared to Q1 2022, driven by a 6% rise in Same Store revenues from higher occupancy and rental rates. However, total operating expenses grew 13%, largely due to a 67% increase in G&A expenses related to share-based compensation and a 30% rise in interest expense from higher rates. Same Store NOI increased by 3% to $23.7 million Revenue Breakdown - Q1 2023 vs Q1 2022 (in thousands) | Revenue Source | Q1 2023 | Q1 2022 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Same Store Total | $35,147 | $33,137 | $2,010 | 6% | | Non-Same Store & Mgmt Fees | $704 | $986 | ($282) | (29)% | | **Total Revenue** | **$35,851** | **$34,123** | **$1,728** | **5%** | Operating Expense Breakdown - Q1 2023 vs Q1 2022 (in thousands) | Expense Category | Q1 2023 | Q1 2022 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Same Store Property Expenses | $10,623 | $9,588 | $1,035 | 11% | | General and administrative | $5,084 | $3,049 | $2,035 | 67% | | Depreciation and amortization | $7,846 | $7,910 | ($64) | (1)% | | **Total Operating Expenses** | **$23,724** | **$21,051** | **$2,673** | **13%** | - Same Store Net Operating Income (NOI) increased by **3%** to **$23.7 million** in Q1 2023 from $23.0 million in Q1 2022[206](index=206&type=chunk) - The company's occupancy rate for its operating portfolio increased to **93%** as of March 31, 2023, compared to 91% as of March 31, 2022[196](index=196&type=chunk) [Reconciliation of Non-GAAP Financial Measures](index=50&type=section&id=Reconciliation%20of%20Non-GAAP%20Financial%20Measures) This section provides reconciliations for key non-GAAP metrics. Funds From Operations (FFO) for Q1 2023 was $12.1 million, a decrease from $15.5 million in Q1 2022. Property Net Operating Income (NOI) for Q1 2023 was $25.6 million, a slight increase from $25.1 million in the prior-year period FFO (NAREIT) Reconciliation (in thousands) | Metric | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Net income attributable to Whitestone REIT | $3,847 | $7,078 | | Depreciation and amortization (real estate) | $7,805 | $7,868 | | Pro-rata D&A from real estate partnership | $403 | $394 | | Other adjustments | $60 | $126 | | **FFO (NAREIT)** | **$12,115** | **$15,466** | NOI Reconciliation (in thousands) | Metric | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Net income attributable to Whitestone REIT | $3,847 | $7,078 | | Add back: G&A, D&A, Interest, etc. | $21,210 | $17,092 | | Add: Pro-rata NOI of real estate partnership | $548 | $997 | | Add: Net income attributable to noncontrolling interests | $54 | $111 | | **NOI** | **$25,605** | **$25,080** | [Liquidity and Capital Resources](index=51&type=section&id=Liquidity%20and%20Capital%20Resources) The company's primary liquidity sources are cash flow from operations and its unsecured credit facility. In Q1 2023, cash from operations was $4.9 million, while distributions totaled $6.0 million. The company maintains a $100 million at-the-market (ATM) equity program, though no shares were sold during the quarter. As of March 31, 2023, $136.9 million remained available under the revolving credit facility - Cash flow from operations of **$4.9 million** was less than the **$6.0 million** paid in distributions during Q1 2023[221](index=221&type=chunk)[259](index=259&type=chunk) - The company has **$136.9 million** of remaining availability under its revolving credit facility as of March 31, 2023[222](index=222&type=chunk)[240](index=240&type=chunk) - No shares were sold under the **$100 million** ATM equity program during Q1 2023[225](index=225&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=61&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk.) The company's principal market risk is from interest rate fluctuations. To mitigate this, approximately 90% of its total outstanding debt is at fixed interest rates. The remaining 10% is subject to floating rates, creating some exposure to rate changes - As of March 31, 2023, **$567.9 million**, or **90%** of total debt, was fixed-rate[266](index=266&type=chunk) - The remaining **$63.0 million (10%)** of debt is variable-rate. A **1%** change in interest rates would impact annual net income by approximately **$0.6 million**[267](index=267&type=chunk) [Controls and Procedures](index=61&type=section&id=Item%204.%20Controls%20and%20Procedures.) Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of March 31, 2023. There were no material changes to the company's internal control over financial reporting during the quarter - The principal executive and financial officers concluded that disclosure controls and procedures were effective as of March 31, 2023[269](index=269&type=chunk) - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, internal controls[270](index=270&type=chunk) [PART II - OTHER INFORMATION](index=62&type=section&id=PART%20II%20-%20OTHER%20INFORMATION) This section provides additional information including legal proceedings, risk factors, equity sales, and other required disclosures [Legal Proceedings](index=62&type=section&id=Item%201.%20Legal%20Proceedings.) The company is involved in multiple legal proceedings, including disputes with Pillarstone REIT and its former CEO, with management expecting no material adverse financial impact - Pillarstone Capital REIT has sued the company seeking over **$1 million** in damages related to partnership and management agreements. The company denies the claims and is defending against them[272](index=272&type=chunk) - Former CEO James Mastandrea has sued the company for up to **$25 million** in damages related to his termination. The company denies the claims and is defending vigorously[273](index=273&type=chunk) - Whitestone has sued Pillarstone REIT to void a rights agreement that it alleges improperly restricts its contractual redemption rights and breaches fiduciary duties[276](index=276&type=chunk) [Risk Factors](index=63&type=section&id=Item%201A.Risk%20Factors.) There have been no material changes in the company's risk factors from those previously disclosed in its Annual Report on Form 10-K for the year ended December 31, 2022 - No material change in risk factors from the previously filed 2022 Form 10-K[279](index=279&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=64&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds.) During the first quarter of 2023, the company did not sell any unregistered equity securities or conduct any formal share repurchases, with only employee tax-related share tenders occurring - No equity securities were sold that were not registered under the Securities Act[287](index=287&type=chunk) - Share repurchases during the quarter were solely for employees to satisfy tax withholding on vested restricted shares and not part of a formal buyback program[282](index=282&type=chunk)[287](index=287&type=chunk) [Defaults Upon Senior Securities](index=64&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities.) The company reported no defaults upon senior securities during the period - The company reported no defaults upon senior securities during the period[283](index=283&type=chunk) [Mine Safety Disclosures](index=64&type=section&id=Item%204.%20Mine%20Safety%20Disclosures.) This item is not applicable to the company's operations - This item is not applicable to the company[284](index=284&type=chunk) [Other Information](index=64&type=section&id=Item%205.%20Other%20Information.) The company reported no other material information for this item - The company reported no other information for this item[285](index=285&type=chunk) [Exhibits](index=64&type=section&id=Item%206.%20Exhibits.) This section lists the exhibits filed with the report, including certifications by the CEO and CFO and financial data formatted in Inline XBRL - The exhibits filed with this report include Sarbanes-Oxley Act certifications from the CEO and CFO, and Inline XBRL data files[286](index=286&type=chunk)[290](index=290&type=chunk)

Whitestone REIT (NYSE:WSR) Q1 2023 Earnings Conference Call May 3, 2023 8:00 AM ET Company Participants David Mordy - Director of Investor Relations Dave Holeman - Chief Executive Officer Christine Mastandrea - Chief Operating Officer Scott Hogan - Chief Financial Officer Conference Call Participants Anthony Hou - Truist Securities Mitch Germain - JMP Securities Craig Kucera - B. Riley Securities Gaurav Mehta - EF Hutton Michael Diana - Maxim Group Operator Greetings, and welcome to the Whitestone REIT Firs ...

CONNECTING COMMUNITY AND CONVENIENCE W WHITESTONE REIT EARNINGS PRESENTATION Q1 2023 IMPROVING METRICS ACROSS THE BOARD Strong Results Driven By A Consistent Strategy Revenue ($'s in millions) + 5.1% $35.9 $34.1 FFO Per Share - 20.0%* $0.24* $0.30* Ratio of Debt to Pro Forma EBITDAre - 5.5%* 7.8x* 7.3x* Same Store NOI ($'s in millions) + 2.8% $23.7 $23.0 Occupancy + 170 Basis Points 92.7% 91.0% Annual Net Effective Average Base Rent ("ABR") + 4.7% $22.22 $21.23 Leasing Spreads (Straight Line) New: 9.5% Rene ...

Part I [Business Overview](index=5&type=section&id=Item%201.%20Business.) Whitestone REIT operates 57 community-centered properties in Texas, Arizona, and Illinois, with 94% occupancy and $139.4 million in 2022 revenues - Whitestone REIT operates as an internally managed Maryland REIT, specializing in owning and operating commercial properties in culturally diverse markets[19](index=19&type=chunk) - As of December 31, 2022, the company's wholly-owned real estate portfolio comprised 57 properties with approximately **5.1 million square feet** of gross leasable area (GLA), primarily located in Texas, Arizona, and Illinois[20](index=20&type=chunk) - The company's 'Community Centered Property®' strategy focuses on acquiring, redeveloping, and operating visibly located properties in established or developing culturally diverse neighborhoods, aiming for **90% or higher occupancy**[23](index=23&type=chunk)[30](index=30&type=chunk) Key Portfolio and Financial Metrics (as of December 31, 2022) | Metric | Value | | :--- | :--- | | Wholly-owned Properties | 57 | | Gross Leasable Area (GLA) | 5.1 million sq ft | | Aggregate Occupancy Rate | 94% | | Gross Book Value of Portfolio | ~$1.2 billion | | Book Equity (including noncontrolling interests) | ~$424 million | | Total Revenues (Year Ended Dec 31, 2022) | ~$139.4 million | [Risk Factors](index=10&type=section&id=Item%201A.%20Risk%20Factors.) The company faces risks from illiquid real estate, tenant dependence, inflation, geographic concentration, lease expirations, and debt covenants - Real estate investments are illiquid, and the company's ability to dispose of properties on favorable terms may be restricted by market conditions and REIT regulations[48](index=48&type=chunk)[50](index=50&type=chunk) - A significant portion of the company's GLA (**24%** in Houston, **45%** in Phoenix as of December 31, 2022) is concentrated in two metropolitan areas, making it susceptible to local economic downturns[60](index=60&type=chunk) - Approximately **30%** of the company's GLA is subject to leases expiring prior to December 31, 2024, posing risks related to non-renewal, re-leasing costs, and potential difficulties in meeting occupancy targets[63](index=63&type=chunk) - Failure to qualify as a REIT would result in corporate-level taxation, significantly reducing cash available for distributions to shareholders[94](index=94&type=chunk)[95](index=95&type=chunk) - The company's debt agreements contain restrictive and financial covenants, which could limit its operational and financial flexibility, including the ability to incur additional debt, make investments, or pay distributions[87](index=87&type=chunk)[88](index=88&type=chunk) [Unresolved Staff Comments](index=27&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments.) The company reported no unresolved staff comments from the SEC - There are no unresolved staff comments[130](index=130&type=chunk) [Properties](index=28&type=section&id=Item%202.%20Properties.) Whitestone REIT's portfolio includes 57 wholly-owned commercial properties, 5.1 million sq ft GLA, 94% occupancy, concentrated in Houston and Phoenix - As of December 31, 2022, the company wholly-owned 57 commercial properties, primarily in Texas, Arizona, and Illinois, with an aggregate occupancy rate of **94%** based on GLA[132](index=132&type=chunk)[134](index=134&type=chunk) - The portfolio's revenue is geographically concentrated, with **24%** from Houston and **41%** from Phoenix for the year ended December 31, 2022[136](index=136&type=chunk) - The largest tenant, Whole Foods Market, represented **2.2%** of total revenues for the year ended December 31, 2022, indicating a diversified tenant base[133](index=133&type=chunk)[150](index=150&type=chunk) Portfolio Summary (as of December 31, 2022) | Metric | Value | | :--- | :--- | | Total GLA | 5,060,899 sq ft | | Occupancy Rate | 94% | | Annualized Base Rental Revenue | $102,373,000 | | Average Base Rental Revenue Per Sq. Ft. | $21.52 | Scheduled Lease Expirations (GLA and Annualized Base Rent as of December 31, 2022) | Year | Approximate Square Feet | Percent of Total GLA | Annualized Base Rent (in thousands) | Percent of Total Annualized Base Rent | | :--- | :--- | :--- | :--- | :--- | | 2023 | 724,986 | 14.3% | $14,920,771 | 14.6% | | 2024 | 796,603 | 15.7% | $17,128,443 | 16.7% | | 2025 | 833,840 | 16.5% | $16,407,861 | 16.0% | | Total (2023-2025) | 2,355,429 | 46.5% | $48,457,075 | 47.3% | [Legal Proceedings](index=34&type=section&id=Item%203.%20Legal%20Proceedings.) The company is involved in ordinary course legal proceedings, generally covered by insurance, with no material adverse effect expected - The company is subject to various legal proceedings and claims in the ordinary course of business, which are generally covered by insurance[156](index=156&type=chunk) - Management believes the final outcome of these legal matters will not have a material adverse effect on the company's financial position, results of operations, cash flows, or liquidity[156](index=156&type=chunk) [Mine Safety Disclosures](index=34&type=section&id=Item%204.%20Mine%20Safety%20Disclosures.) Mine Safety Disclosures are not applicable to the company's operations - Mine Safety Disclosures are not applicable to the company[157](index=157&type=chunk) Part II [Market for Common Equity and Shareholder Matters](index=35&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Shareholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities.) Whitestone REIT's common shares trade on NYSE (WSR), with 49.4 million shares outstanding and a $0.12 quarterly distribution target - Whitestone REIT's common shares are traded on the New York Stock Exchange (NYSE) under the ticker symbol "WSR"[159](index=159&type=chunk) - As of March 1, 2023, the company had **49,424,019 common shares** of beneficial interest outstanding[8](index=8&type=chunk) - The current quarterly distribution target is **$0.12 per share**, with future payments subject to board discretion and various financial factors[161](index=161&type=chunk) [Item 6. Reserved.](index=37&type=section&id=Item%206.%20Reserved.) This item is reserved and contains no information [Management's Discussion and Analysis](index=37&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations.) Net income rose to $35.3 million in 2022, total revenues grew 11% to $139.4 million, with strong liquidity and reduced debt Key Financial Highlights (Year Ended December 31, 2022 vs. 2021) | Metric | 2022 (in thousands) | 2021 (in thousands) | Change (in thousands) | % Change | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $139,421 | $125,365 | $14,056 | 11% | | Net Income Attributable to Whitestone REIT | $35,270 | $12,048 | $23,222 | 193% | | Funds From Operations (FFO) | $52,193 | $40,705 | $11,488 | 28% | | Property Net Operating Income (NOI) | $99,261 | $90,207 | $9,054 | 10% | | Distributions Paid on Common Shares and OP Units | $23,304 | $19,651 | $3,653 | 19% | - Same Store rental revenues increased by **$6.5 million (7%)** in 2022, driven by higher average leased square feet and increased average rent per leased square foot[261](index=261&type=chunk) - The company acquired Lake Woodlands Crossing for **$22.5 million** and Dana Park Pad for **$4.9 million** in 2022, while disposing of six non-core properties for **$33.7 million**, resulting in a net gain on sale of properties of **$16.9 million**[179](index=179&type=chunk)[180](index=180&type=chunk)[182](index=182&type=chunk)[183](index=183&type=chunk)[264](index=264&type=chunk) - Cash flow from operations was **$44.4 million** in 2022, exceeding total distributions paid by **$21.1 million**, and the company had **$146.4 million** remaining availability under its 2022 Revolver[189](index=189&type=chunk)[190](index=190&type=chunk) Debt Summary (as of December 31, 2022 vs. 2021) | Description | 2022 (in thousands) | 2021 (in thousands) | | :--- | :--- | :--- | | Total Notes Payable Principal | $625,991 | $643,613 | | Fixed Rate Notes | $522,500 | $377,135 | | Floating Rate Notes | $103,500 | $119,500 | | Total Notes Payable (net of deferred financing costs) | $625,427 | $642,842 | [Market Risk Disclosures](index=64&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk.) Primary market risk is interest rate fluctuations, with 83% of debt fixed, and a 1% rate change impacting net income by $1.0 million - The principal market risk for the company is interest rate fluctuations[287](index=287&type=chunk) - As of December 31, 2022, **83% ($522.5 million)** of the company's outstanding debt was subject to fixed interest rates, limiting the risk of fluctuating rates[289](index=289&type=chunk) - The remaining **17% ($103.5 million)** of outstanding debt was subject to floating interest rates (SOFR plus **1.50%** to **2.10%**), where a **1% increase or decrease** would result in an approximate **$1.0 million change** in annual net income[290](index=290&type=chunk) [Item 8. Financial Statements and Supplementary Data.](index=65&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data.) Audited consolidated financial statements and related notes are incorporated by reference from page F-1 of the Form 10-K - The required financial statements and supplementary data are incorporated by reference from page F-1 of the Annual Report on Form 10-K[291](index=291&type=chunk) [Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.](index=65&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20With%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure.) No changes in or disagreements with accountants on accounting and financial disclosure matters were reported - There are no changes in or disagreements with accountants on accounting and financial disclosure[292](index=292&type=chunk) [Controls and Procedures](index=65&type=section&id=Item%209A.%20Controls%20and%20Procedures.) Management concluded disclosure controls and internal control over financial reporting were effective as of December 31, 2022 - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of December 31, 2022[293](index=293&type=chunk) - Management concluded that the internal control over financial reporting was effective as of December 31, 2022, based on the COSO framework[294](index=294&type=chunk) - The independent registered public accounting firm issued an unqualified opinion on the effectiveness of the company's internal control over financial reporting[295](index=295&type=chunk) - No significant changes in internal control over financial reporting occurred during the quarter ended December 31, 2022, other than remediation of material weakness[297](index=297&type=chunk) [Other Information](index=66&type=section&id=Item%209B.%20Other%20Information.) No other information is reported under this item - No other information is reported under this item[298](index=298&type=chunk) [Foreign Jurisdiction Disclosure](index=66&type=section&id=Item%209C.%20Disclosure%20Regarding%20Foreign%20Jurisdiction%20that%20Prevent%20Inspections.) No disclosures regarding foreign jurisdictions that prevent inspections - No disclosures regarding foreign jurisdictions that prevent inspections[299](index=299&type=chunk) Part III [Trustees, Executive Officers and Governance](index=67&type=section&id=Item%2010.%20Trustees%2C%20Executive%20Officers%20and%20Corporate%20Governance.) Information on trustees, executive officers, and corporate governance is incorporated by reference from the 2023 proxy statement - Information on trustees, executive officers, and corporate governance is incorporated by reference from the 2023 Annual Meeting of Shareholders proxy statement[301](index=301&type=chunk) [Executive Compensation](index=67&type=section&id=Item%2011.%20Executive%20Compensation.) Executive compensation information is incorporated by reference from the 2023 Annual Meeting of Shareholders proxy statement - Executive compensation information is incorporated by reference from the 2023 Annual Meeting of Shareholders proxy statement[302](index=302&type=chunk) [Security Ownership and Related Shareholder Matters](index=67&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Shareholder%20Matters.) Details on equity compensation plans and security ownership are incorporated by reference from the 2023 proxy statement Equity Compensation Plan Information (as of December 31, 2022) | Plan Category | Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) | Weighted average exercise price of outstanding options, warrants and rights (b) | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c) | | :--- | :--- | :--- | :--- | | Equity compensation plans approved by security holders | — | $— | 1,739,465 | | Equity compensation plans not approved by security holders | — | $— | — | | Total | — | $— | 1,739,465 | - Other information on security ownership of certain beneficial owners and management is incorporated by reference from the 2023 Annual Meeting of Shareholders proxy statement[304](index=304&type=chunk) [Related Transactions and Director Independence](index=67&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence.) Information on related transactions and director independence is incorporated by reference from the 2023 proxy statement - Information on certain relationships, related transactions, and director independence is incorporated by reference from the 2023 Annual Meeting of Shareholders proxy statement[305](index=305&type=chunk) [Principal Accountant Fees](index=67&type=section&id=Item%2014.%20Principal%20Accountant%20Fees%20and%20Services.) Information on principal accountant fees and services is incorporated by reference from the 2023 proxy statement - Information on principal accountant fees and services is incorporated by reference from the 2023 Annual Meeting of Shareholders proxy statement[306](index=306&type=chunk) Part IV [Exhibits and Financial Statement Schedules](index=68&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules.) This section lists financial statements, schedules (II, III), and exhibits filed with the Annual Report on Form 10-K - The section lists financial statements, financial statement schedules (Schedule II and Schedule III), and exhibits filed with the Annual Report on Form 10-K[307](index=307&type=chunk)[308](index=308&type=chunk)[310](index=310&type=chunk) [Form 10-K Summary](index=68&type=section&id=Item%2016.%20Form%2010-K%20Summary.) No Form 10-K Summary is provided - No Form 10-K Summary is provided[309](index=309&type=chunk) [Signatures](index=73&type=section&id=SIGNATURES.) The report is duly signed by the company's authorized officers and trustees, as required by the Securities Exchange Act of 1934 - The report is duly signed on behalf of Whitestone REIT by its CEO and CFO, and by its trustees, as required by the Securities Exchange Act of 1934[318](index=318&type=chunk)[320](index=320&type=chunk)[322](index=322&type=chunk)[323](index=323&type=chunk) [Index to Financial Statements](index=74&type=section&id=INDEX%20TO%20CONSOLIDATED%20FINANCIAL%20STATEMENTS.) The index lists consolidated financial statements and schedules included in the Annual Report on Form 10-K - The index lists the Consolidated Balance Sheets, Statements of Operations and Comprehensive Income (Loss), Statements of Changes in Equity, Statements of Cash Flows, Notes to Consolidated Financial Statements, and Schedules II and III[325](index=325&type=chunk) [Independent Auditor's Report](index=75&type=section&id=REPORT%20OF%20INDEPENDENT%20REGISTERED%20PUBLIC%20ACCOUNTING%20FIRM.) Pannell Kerr Forster issued unqualified opinions on financial statements and internal controls, with real estate asset impairment and acquisition accounting as critical audit matters - Pannell Kerr Forster of Texas, P.C. issued an unqualified opinion on the company's consolidated financial statements for the years ended December 31, 2022 and 2021[328](index=328&type=chunk) - The independent auditor also expressed an unqualified opinion on the effectiveness of the company's internal control over financial reporting as of December 31, 2022[329](index=329&type=chunk)[339](index=339&type=chunk) - Critical audit matters included the impairment assessment of real estate assets and the accounting for acquisitions of real estate assets, both involving significant estimates and auditor judgment[333](index=333&type=chunk)[334](index=334&type=chunk)[335](index=335&type=chunk) [Consolidated Balance Sheets](index=78&type=section&id=CONSOLIDATED%20BALANCE%20SHEETS.) Balance sheets show total assets of $1,102.8 million, liabilities of $678.3 million, and equity of $424.5 million as of December 31, 2022 Consolidated Balance Sheet Highlights (in thousands) | Metric | December 31, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Total Real Estate Assets, net | $990,755 | $1,006,586 | | Investment in Real Estate Partnership | $34,826 | $34,588 | | Cash and Cash Equivalents | $6,166 | $15,721 | | Total Assets | $1,102,767 | $1,102,090 | | Notes Payable | $625,427 | $642,842 | | Total Liabilities | $678,313 | $703,052 | | Total Whitestone REIT Shareholders' Equity | $418,448 | $392,783 | | Total Equity | $424,454 | $399,038 | [Consolidated Statements of Operations](index=80&type=section&id=CONSOLIDATED%20STATEMENTS%20OF%20OPERATIONS%20AND%20COMPREHENSIVE%20INCOME%20(LOSS).) Net income rose to $35.3 million in 2022, total revenues increased 11% to $139.4 million, with basic EPS at $0.72 Consolidated Statements of Operations Highlights (in thousands) | Metric | Year Ended Dec 31, 2022 | Year Ended Dec 31, 2021 | Year Ended Dec 31, 2020 | | :--- | :--- | :--- | :--- | | Total Revenues | $139,421 | $125,365 | $117,915 | | Total Operating Expenses | $93,068 | $90,897 | $88,184 | | Total Other Expenses | $10,370 | $24,272 | $24,122 | | Net Income Attributable to Whitestone REIT | $35,270 | $12,048 | $6,034 | | Basic Earnings Per Share | $0.72 | $0.26 | $0.14 | | Diluted Earnings Per Share | $0.71 | $0.26 | $0.14 | Rental Revenue Breakdown (in thousands) | Component | Year Ended Dec 31, 2022 | Year Ended Dec 31, 2021 | Year Ended Dec 31, 2020 | | :--- | :--- | :--- | :--- | | Rental Revenues | $101,113 | $90,859 | $87,291 | | Recoveries | $38,243 | $32,928 | $33,442 | | Bad Debt | $(1,156) | $90 | $(5,649) | | Total Rental | $138,200 | $123,877 | $115,084 | [Consolidated Statements of Changes in Equity](index=83&type=section&id=CONSOLIDATED%20STATEMENTS%20OF%20CHANGES%20IN%20EQUITY.) Total shareholders' equity increased to $418.4 million in 2022, driven by net income and hedging gains, with 98.6% ownership in the Operating Partnership Consolidated Statements of Changes in Equity Highlights (in thousands) | Metric | December 31, 2022 | December 31, 2021 | December 31, 2020 | | :--- | :--- | :--- | :--- | | Total Whitestone REIT Shareholders' Equity | $418,448 | $392,783 | $332,083 | | Net Income | $35,270 | $12,048 | $6,034 | | Distributions | $(23,663) | $(20,212) | $(17,794) | | Unrealized Gain (Loss) on Cash Flow Hedge | $12,734 | $7,673 | $(8,889) | | Share-based Compensation | $1,511 | $5,913 | $6,063 | | Repurchase of Common Shares | $(537) | $(691) | $(2,077) | - The company's weighted-average share ownership in the Operating Partnership was approximately **98.6%** for the year ended December 31, 2022[508](index=508&type=chunk) [Consolidated Statements of Cash Flows](index=86&type=section&id=CONSOLIDATED%20STATEMENTS%20OF%20CASH%20FLOWS.) Operating cash flow was $44.4 million in 2022, investing activities used $6.7 million, and financing activities used $47.3 million Consolidated Statements of Cash Flows Highlights (in thousands) | Metric | Year Ended Dec 31, 2022 | Year Ended Dec 31, 2021 | Year Ended Dec 31, 2020 | | :--- | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $44,431 | $47,040 | $42,776 | | Net Cash Used in Investing Activities | $(6,714) | $(91,230) | $(6,440) | | Net Cash Provided by (Used in) Financing Activities | $(47,276) | $32,315 | $(26,023) | | Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash | $(9,559) | $(10,042) | $10,313 | | Cash, Cash Equivalents and Restricted Cash at End of Period | $6,355 | $15,914 | $25,956 | - Proceeds from sales of properties significantly increased to **$33.7 million** in 2022 from **$0** in 2021, contributing to the reduction in net cash used in investing activities[201](index=201&type=chunk)[365](index=365&type=chunk) - Net payments on the credit facility amounted to **$16.0 million** in 2022, a shift from no net payments in 2021[201](index=201&type=chunk)[365](index=365&type=chunk) [Notes to Financial Statements](index=88&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements.) Notes detail business, accounting policies, property portfolio, debt structure, equity, and ongoing litigation, ensuring REIT tax compliance - Whitestone REIT's portfolio includes 51 wholly-owned Community Centered Properties®, one development property, and five parcels of land held for future development, totaling approximately **5.1 million square feet** of GLA[372](index=372&type=chunk) - The company holds an **81.4% equity-method investment** in Pillarstone Capital REIT Operating Partnership LP, which owns eight properties not aligned with Whitestone's core strategy[373](index=373&type=chunk)[379](index=379&type=chunk)[431](index=431&type=chunk) - In 2022, the company acquired Lake Woodlands Crossing for **$22.5 million** and Dana Park Pad for **$4.9 million**, and sold six non-core properties, recording a net gain on sale of **$16.9 million**[413](index=413&type=chunk)[414](index=414&type=chunk)[422](index=422&type=chunk)[423](index=423&type=chunk) - The company entered into a new **$250.0 million** unsecured revolving credit facility and a **$265.0 million** unsecured term loan in September 2022, replacing its previous facility and converting LIBOR-indexed debt to SOFR[470](index=470&type=chunk)[471](index=471&type=chunk) - Ongoing litigation includes a suit filed by Pillarstone Capital REIT against Whitestone and a separate suit by the company's former CEO, with management believing no probable loss will be incurred[540](index=540&type=chunk)[541](index=541&type=chunk)[546](index=546&type=chunk) [Schedule II - Valuation and Qualifying Accounts](index=123&type=section&id=Schedule%20II%20-%20Valuation%20and%20Qualifying%20Accounts.) Schedule II details the allowance for doubtful accounts, which decreased to $13.8 million in 2022 from $14.9 million in 2021 Allowance for Doubtful Accounts (in thousands) | Year Ended December 31, | Balance at Beginning of Year | Charges (Reductions to Revenue) | Deductions from Reserves | Balance at End of Year | | :--- | :--- | :--- | :--- | :--- | | 2022 | $14,896 | $1,156 | $(2,230) | $13,822 | | 2021 | $16,426 | $(90) | $(1,440) | $14,896 | | 2020 | $11,173 | $5,649 | $(396) | $16,426 | [Schedule III - Real Estate and Depreciation](index=124&type=section&id=Schedule%20III%20-%20Real%20Estate%20and%20Accumulated%20Depreciation.) Schedule III details real estate assets, with a total carrying value of $1,199.0 million and accumulated depreciation of $208.3 million in 2022 Real Estate Carrying Value Reconciliation (in thousands) | Metric | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Balance at Beginning of Period | $1,196,919 | $1,106,426 | $1,099,955 | | Additions (Acquisitions + Improvements) | $30,651 | $91,230 | $7,613 | | Deductions (Cost of Real Estate Sold or Retired) | $(28,529) | $(737) | $(1,142) | | Balance at Close of Period | $1,199,041 | $1,196,919 | $1,106,426 | - As of December 31, 2022, the total accumulated depreciation for Whitestone Properties was **$208.3 million**[566](index=566&type=chunk) - The aggregate cost of real estate for federal income tax purposes was **$1.2 billion** as of December 31, 2022[566](index=566&type=chunk)

Financial Data and Key Metrics Changes - Whitestone REIT achieved a FFO per share of $1.03 in 2022, representing a nearly 20% increase from the previous year [11] - The company improved its debt-to-EBITDA ratio to 7.8x from 9.1x a year ago, indicating significant progress in financial health [12] - G&A expenses were reduced by $4.6 million compared to 2021, contributing positively to the overall financial performance [12][29] Business Line Data and Key Metrics Changes - The company reported a same-store NOI growth of nearly 8% for 2022, with a 7.9% increase specifically noted [11][19] - Occupancy rates improved by 240 basis points to 93.7%, with nearly 60% of properties achieving 95% or greater occupancy by year-end [11][14] - Straight-line leasing spreads were reported at 16.6% for the year and 23.5% for the fourth quarter, indicating strong leasing performance [12] Market Data and Key Metrics Changes - The company benefited from macroeconomic trends such as hybrid work and migration to suburban markets, which supported demand for its properties [9][10] - The focus on smaller spaces, which comprise over 60% of leasable square footage, is expected to drive higher demand and premium rents [14][15] Company Strategy and Development Direction - Whitestone REIT aims to create value through a focus on convenience-oriented shopping centers in growing markets, emphasizing a mix of tenants that meet community needs [7][8] - The company plans to continue its disciplined approach to acquisitions and dispositions, with a focus on recycling capital to improve leverage and FFO per share [17][35] - The strategy includes remerchandising properties to better align with community needs and enhance tenant success [20][24] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the disconnect between the current strong economic environment and the expectations of Fed-focused investors, emphasizing a focus on long-term strategies [16] - The company anticipates continued positive momentum in 2023, driven by strong tenant demand and operational discipline [10][25] Other Important Information - Whitestone REIT received an investment-grade credit rating, which is expected to improve access to debt markets and potentially lower borrowing costs in the future [13][42] - The company is committed to corporate responsibility, with improvements in governance and ESG scores recognized by ISS [13] Q&A Session Summary Question: Inquiry about leverage reduction outlook - Management indicated that leverage reduction will primarily come from improved earnings and operating cash flow, with some capital recycling planned for 2023 [32][33] Question: Strategy on acquisitions and dispositions - The company plans to be patient and disciplined regarding acquisitions, focusing on recycling capital from properties where value has been maximized [34][35] Question: Expectations for bad debt in 2023 - Management forecasted bad debt to be between 0.75% to 1.5%, with no significant downward pressure on collections observed so far [36] Question: Insights on Pillarstone assets - Management expressed a desire to monetize their interest in Pillarstone, with ongoing legal activities to advance this effort [38] Question: Leasing spreads for 2023 guidance - The company expects strong leasing spreads similar to the previous year, with a focus on remerchandising to enhance traffic and rents [39][40] Question: Impact of investment-grade rating on credit pricing - While there is no immediate pricing break from the investment-grade rating, management anticipates improved access to debt markets and potential pricing reductions in the future [42][43]

Table of Contents 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, 2022 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) Mar ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q For the quarterly period ended June 30, 2022 (Mark One) OR ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 ☐ 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 ...