# Whitestone REIT (WSR) FY 2024 MD&A

Verbatim Item 7 Management's Discussion and Analysis from Whitestone REIT's 10-K for fiscal year 2024.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1175535/000143774925007990/wstr20241231_10k.htm
Accession: 0001437749-25-007990
Filing date: 2025-03-17
Report date: 2024-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Published MD&A gate trimmed front/tail over-capture.
Confidence: high

Company profile: /company/WSR/
All MD&A years: /company/WSR/mda/
Previous year: /company/WSR/mda/fy2023/ (FY 2023)
Next year: /company/WSR/mda/fy2025/ (FY 2025)

Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations.

You should read the following discussion of our financial condition and results of operations in conjunction with our audited consolidated financial statements and the notes thereto included in this Annual Report on Form 10-K.  For more detailed information regarding the basis of presentation for the following information, you should read the notes to our audited consolidated financial statements included in this Annual Report on Form 10-K.

Overview of Our Company

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

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

As of December 31, 2024, we wholly-owned 55 commercial properties consisting of:

Consolidated Operating Portfolio

[[GREPCENT_TABLE]]
[["","\u2022","50 properties that meet our Community Centered Properties\u00ae strategy; and containing approximately 4.9 million square feet of GLA and having a total carrying amount (net of accumulated depreciation) of $978.9 million; and"]]
[[/GREPCENT_TABLE]]

Redevelopment, New Acquisitions Portfolio

[[GREPCENT_TABLE]]
[["","\u2022","five parcels of land held for future development that meet our Community Centered Properties\u00ae strategy having a total carrying amount of $22.8 million."]]
[[/GREPCENT_TABLE]]

As of December 31, 2024, we had an aggregate of 1,445 tenants.  We have a diversified tenant base with our largest tenant comprising only 2.2% of our total revenues for the year ended December 31, 2024.  Lease terms for our properties range from less than one year for smaller tenants to more than 15 years for larger tenants.  Our leases generally include minimum monthly lease payments and tenant reimbursements for taxes, insurance and maintenance.  We completed 298 new and renewal leases during 2024, totaling 1,026,389 square feet and $134.8 million in total lease value.

We had 72 employees as of December 31, 2024.  As an internally managed REIT, we bear our own expenses of operations, including the salaries, benefits and other compensation of our employees, office expenses, legal, accounting and investor relations expenses and other overhead costs.

Real Estate Partnership

As of December 31, 2024, our ownership in Pillarstone OP no longer represents a majority interest.  On January 25, 2024, we exercised our notice of redemption for substantially all of our investment in Pillarstone OP. As of the date of this filing, we have not received consideration for our redemption of our equity investment in Pillarstone OP as required by the partnership agreement. On March 4, 2024, Pillarstone Capital REIT (“Pillarstone REIT”) authorized and filed a Chapter 11 bankruptcy of itself, Pillarstone OP, and all of its remaining special purpose entities in the United States Bankruptcy Court for the Northern District of Texas (the “Pillarstone Bankruptcies”). We have filed a claim in the Pillarstone Bankruptcies for the value of our redemption claim along with interest and other costs. We intend to pursue collection of amounts due from Pillarstone OP through all means necessary, and while we do not know the ultimate amount to be collected, we believe the amount will be in excess of the current carrying value of our receivable, formerly our equity investment in Pillarstone OP. 

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Market Conditions 

Inflation

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

Rising Interest Rates

As of December 31, 2024, $75.0 million, or approximately 12% of our outstanding debt, was subject to floating interest rates of Secured Overnight Financing Rate (“SOFR”) plus 1.50% to 2.10% and a 10 basis point credit spread adjustment and not currently subject to a hedge. The impact of a 1% increase or decrease in interest rates on our non-hedged variable rate debt would result in a decrease or increase of annual net income of approximately $0.8 million, respectively.

Refer to “Item 1A - Risk Factors” in this Annual Report on Form 10-K for additional information.

How We Derive Our Revenue

Substantially all of our revenue is derived from rents received from leases at our properties. We had total revenues of approximately $ 154,282,000 for the year ended December 31, 2024 as compared to $ 146,969,000 for the year ended December 31, 2023, an increase of $ 7,313,000, or 5%.

Known Trends in Our Operations; Outlook for Future Results

Rental Income 

We expect our rental income to increase year-over-year due to the addition of properties and rent increases on renewal leases. The amount of net rental income generated by our properties depends principally on our ability to maintain the occupancy rates of currently leased space and to lease currently available space, newly acquired properties with vacant space, and space available from unscheduled lease terminations. The amount of rental income we generate also depends on our ability to maintain or increase rental rates in our submarkets. Included in our adjustments to rental revenue for the years ending December 31, 2024 and 2023, were bad debt adjustments of $0.2 million and $0.3 million, respectively, and a straight-line rent reserve adjustments of $0.05 million and $(0.002) million, respectively, related to credit loss for the conversion of 11 and 20 tenants, respectively, to cash basis revenue as a result of collectability analysis. 

Scheduled Lease Expirations

We tend to lease space to smaller businesses that desire shorter term leases. As of December 31, 2024, approximately 29% of our GLA was subject to leases that expire prior to December 31, 2026.  Over the last three years, we have renewed expiring leases with respect to approximately 69% of our GLA. We routinely seek to renew leases with our existing tenants prior to their expiration and typically begin discussions with tenants as early as 18 months prior to the expiration date of the existing lease. Inasmuch as our early renewal program and other leasing and marketing efforts target these expiring leases, we hope to re-lease most of that space prior to expiration of the leases. In the markets in which we operate, we obtain and analyze market rental rates through review of third-party publications, which provide market and submarket rental rate data and through inquiry of property owners and property management companies as to rental rates being quoted at properties that are located in close proximity to our properties and we believe display similar physical attributes as our nearby properties. We use this data to negotiate leases with new tenants and renew leases with our existing tenants at rates we believe to be competitive in the markets for our individual properties. Due to the short term nature of our leases, and based upon our analysis of market rental rates, we believe that, in the aggregate, our current leases are at market rates. Market conditions, including new supply of properties and competition, and macroeconomic conditions in our markets and nationally affecting tenant income, such as employment levels, business conditions, interest rates, tax rates, fuel and energy costs and other matters, could adversely impact our renewal rate and/or the rental rates we are able to negotiate. We continue to monitor our tenants’ operating performances as well as overall economic trends to evaluate any future negative impact on our renewal rates and rental rates, which could adversely affect our cash flow and ability to make distributions to our shareholders.

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Property Acquisitions and Dispositions 

We seek to acquire commercial properties in high-growth markets. Our acquisition targets are properties that fit our Community Centered Properties® strategy, primarily in and around Phoenix, Dallas-Fort Worth, San Antonio and Houston.  We may acquire properties in other high growth metropolitan areas in the future. We have extensive relationships with community banks, attorneys, title companies and others in the real estate industry, which we believe enables us to take advantage of these market opportunities and maintain an active acquisition pipeline. We market, lease and manage our centers to match tenants with the shared needs of the surrounding neighborhood.  Those needs may include specialty retail, grocery and restaurants as well as medical, educational and financial services.  Our goal is for each property to become a Whitestone-branded business center or retail community that serves a neighboring five-mile radius around each property.

Property Acquisitions.

On December 12, 2024, we acquired Village Shops at Dana Park, a property that meets our Community Centered Property® strategy, for $5.6 million in cash and net prorations. Village Shops at Dana Park, a 10,128 square foot property, was 100% leased at the time of purchase and is located in the Mesa submarket of Phoenix, Arizona. The funding for this acquisition was partially obtained through a 1031 exchange transaction, utilizing the proceeds from the sale of our Providence property in accordance with Section 1031 of the Internal Revenue Code.

On April 5, 2024, we acquired Scottsdale Commons, a property that meets our Community Centered Property® strategy, for $22.2 million in cash and net prorations. Scottsdale Commons, a 69,482 square foot property, was 96.6% leased at the time of purchase and is located in Scottsdale, Arizona. The funding for this acquisition was provided by the Company’s credit facility.

On April 1, 2024, we acquired Anderson Arbor Pad, a development parcel that meets our Community Centered Property® strategy, for $0.9 million in cash and net prorations. Anderson Arbor Pad is located in Austin, Texas. The funding for this acquisition was provided by the Company’s credit facility.

On February 20, 2024, we acquired Garden Oaks Shopping Center, a property that meets our Community Centered Property® strategy, for $27.2 million in cash and net prorations. Garden Oaks Shopping Center, a 106,858 square foot property, was 95.8% leased at the time of purchase and is located in Houston, Texas. The funding for this acquisition was provided by the Company’s credit facility.

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

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

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

Property Dispositions. We seek to continually upgrade our portfolio by opportunistically selling properties that do not have the potential to meet our Community Centered Property® strategy and redeploying the sale proceeds into properties that better fit our strategy. Some of our properties that we own (the “non-core properties”) may not fit our Community Centered Property® strategy, and we may look for opportunities to dispose of these properties as we continue to execute our strategy.

On November 6, 2024, we completed the sale of Providence, located in Houston, Texas, for $16.3 million. We recorded a gain on sale of $11.9 million. 

On August 9, 2024, we completed the sale of Fountain Hills Plaza along with the adjacent parcel of development land, located in Phoenix, Arizona, for $21.3 million. We recorded a gain on sale of $3.6 million. 

On March 27, 2024, we completed the sale of Mercado at Scottsdale Ranch, located in Phoenix, Arizona, for $26.5 million. We recorded a gain on sale of $6.6 million. 

On December 20, 2023 we completed the sale of Spoerlein Commons, located in Buffalo Grove, Illinois, for $7.4 million. We recorded a loss on sale of $0.7 million. 

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

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

On November 30, 2022, we completed the sale of Pima Norte, located in Carefree, Arizona, for $3.3 million. We recorded a loss on sale of $4.0 million.

On November 21, 2022, we completed the sale of Spoerlein Commons Pad, located in Buffalo Grove, Illinois, for $2.2 million. We recorded a gain on sale of $0.7 million.

On November 16, 2022, we completed the sale of Desert Canyon, located in Scottsdale, Arizona, for $9.3 million. We recorded a gain on sale of $5.1 million. 

On November 14, 2022, we completed the sale of Gilbert Tuscany Village Hard Corner, located in Scottsdale, Arizona, for $2.5 million. We recorded a gain on sale of $0.8 million. 

On November 10, 2022, we completed the sale of South Richey, located in Houston, Texas, for $13.1 million. We recorded a gain on sale of $9.9 million.

On October 31, 2022, we completed the sale of Bissonnet Beltway Plaza, located in Houston, Texas, for $5.4 million. We recorded a gain on sale of $4.4 million.  

We have not included 2024, 2023, and 2022 sold properties in discontinued operations as they did not meet the definition of discontinued operations.

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Leasing Activity

As of December 31, 2024, we wholly-owned 55 properties with 4,863,562 square feet of GLA, which were approximately 94% occupied. The following is a summary of the Company’s leasing activity for the year ended December 31, 2024:

[[GREPCENT_TABLE]]
[["","","Number of Leases Signed","","","GLA Signed","","","Weighted Average Lease Term (2)","","","TI and Incentives per Sq. Ft. (3)","","","Contractual Rent Per Sq. Ft. (4)","","","Prior Contractual Rent Per Sq. Ft. (5)","","","Straight-lined Basis Increase (Decrease) Over Prior Rent"],["Comparable (1)"],["Renewal Leases","","","179","","","","689,339","","","","4.1","","","$","1.01","","","$","21.21","","","$","19.69","","","","18.3","%"],["New Leases","","","47","","","","96,267","","","","5.6","","","","20.47","","","","33.64","","","","29.47","","","","30.1","%"],["Total","","","226","","","","785,606","","","","4.2","","","$","3.39","","","$","22.73","","","$","20.89","","","","20.3","%"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","","Number of Leases Signed","","","GLA Signed","","","Weighted Average Lease Term (2)","","","TI and Incentives per Sq. Ft. (3)","","","Contractual Rent Per Sq. Ft. (4)"],["Total"],["Renewal Leases","","","189","","","","722,063","","","","4.0","","","$","1.00","","","$","21.37"],["New Leases","","","109","","","","304,326","","","","8.0","","","","39.19","","","","37.71"],["Total","","","298","","","","1,026,389","","","","5.2","","","$","12.33","","","$","26.21"]]
[[/GREPCENT_TABLE]]

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

[[GREPCENT_TABLE]]
[["(2)","Weighted average lease term (in years) is determined on the basis of square footage."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(3)","Estimated amount per signed leases. Actual cost of construction may vary. Does not include first generation costs for tenant improvements (\u201cTI\u201d) and leasing commission costs needed for new acquisitions, development or redevelopment of a property to bring to operating standards for its intended use."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(4)","Contractual minimum rent under the new lease for the first month, excluding concessions."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(5)","Contractual minimum rent under the prior lease for the final month."]]
[[/GREPCENT_TABLE]]

Liquidity and Capital Resources

Our short-term liquidity requirements consist primarily of distributions to holders of our common shares and OP units, including those required to maintain our REIT status and satisfy our current quarterly distribution target of $0.135 per share and OP unit, recurring expenditures, such as repairs and maintenance of our properties, non-recurring expenditures, such as capital improvements and tenant improvements, debt service requirements, and, potentially, acquisitions of additional properties.

During the year ended December 31, 2024, our cash provided from operating activities was $58.2 million and our total dividends and distributions paid were $24.9 million. Therefore, we had cash flow from operations in excess of distributions of approximately $33.3 million. The 2022 Facility included a $250 million unsecured borrowing capacity under a revolving credit facility. The 2022 Facility also included an accordion feature that allowed the Operating Partnership to increase the borrowing capacity by $200 million, upon the satisfaction of certain conditions. We anticipate that cash flows from operating activities and our borrowing capacity under the 2022 Facility will provide adequate capital for our distributions, working capital requirements, anticipated capital expenditures and scheduled debt payments in the short term. We also believe that cash flows from operating activities and our borrowing capacity will allow us to make all distributions required for us to continue to qualify to be taxed as a REIT for federal income tax purposes.

Our long-term capital requirements consist primarily of maturities under our longer-term debt agreements, development and redevelopment costs, and potential acquisitions. We expect to meet our long-term liquidity requirements with net cash from operations, long-term indebtedness, sales of common shares, issuance of OP units, sales of underperforming and non-core properties and other financing opportunities, including debt financing. We believe we have access to multiple sources of capital to fund our long-term liquidity requirements, including the incurrence of additional debt and the issuance of additional equity. However, our ability to incur additional debt will be dependent on a number of factors, including our degree of leverage, the value of our unencumbered assets and borrowing restrictions that may be imposed by lenders. As of December 31, 2024, subject to any potential future paydowns or increases in the borrowing base, we have $125.0 million remaining availability under the revolving credit facility.

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

On May 20, 2022, our universal shelf registration statement on Form S-3 (File No. 333-264881) was declared effective by the SEC (the “Registration Statement”), which registers the issuance and sale by us of up to $500 million in securities from time to time, including common shares, preferred shares, debt securities, depositary shares and subscription rights.

On September 9, 2022, we entered into eleven equity distribution agreements with certain sales agents names therein for an at-the-market equity distribution program (the “2022 equity distribution agreements”) providing for the issuance and sale of up to an aggregate of $100 million of the Company’s common shares pursuant to our Registration Statement. Actual sales will depend on a variety of factors determined by us from time to time, including (among others) market conditions, the trading price of our common shares, capital needs and our determinations of the appropriate sources of funding for us, and will be made in transactions that will be deemed to be “at-the-market” offerings as defined in Rule 415 under the Securities Act of 1933, as amended (the “Securities Act”). We have no obligation to sell any of our common shares and can at any time suspend offers under the 2022 equity distribution agreements or terminate the 2022 equity distribution agreements.

During the year ended December 31, 2024, we sold 579,964 common shares under the 2022 equity distribution agreement, with net proceeds to us of approximately $7.6 million. In connection with such sales, we paid compensation of approximately $116,000 to the sales agents. During the years ended 2023 and 2022, we did not sell shares under the 2022 equity distribution agreements. 

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

Our capital structure includes non-recourse secured debt that we assumed or originated on certain properties. We may hedge the future cash flows of certain debt transactions principally through interest rate swaps with major financial institutions.

As discussed in Note 2 to the accompanying consolidated financial statements, pursuant to the terms of our $15.1 million 4.99% Note, due January 6, 2024 (see Note 8 to the accompanying consolidated financial statements), which was collateralized by our Anthem Marketplace property, we were required by the lenders thereunder to establish a cash management account controlled by the lenders to collect all amounts generated by our Anthem Marketplace property in order to collateralize such promissory note. For the year ended December 2023 and 2022, amounts in the cash management account were classified as restricted cash. The note was paid off in January 2024.

During the year ended December 31, 2024, the Company sold Providence as part of a like-kind exchange under Section 1031 of the Internal Revenue Code. In accordance with exchange requirements, the proceeds were deposited into an escrow account with a Qualified Intermediary (“QI”) and are restricted for the acquisition of a replacement property. On December 12, 2024, a portion of these escrowed funds was used to acquire Village Shops at Dana Park as a qualifying replacement property under the 1031 exchange. As of December 31, 2024, the Company had a remaining balance in escrow, classified as Restricted Cash on the balance sheet. These funds are legally restricted and cannot be used for general corporate purposes.

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Cash and Cash Equivalents

We had cash and cash equivalents and restricted cash of approximately $15,370,000 at December 31, 2024, as compared to $4,640,000 at December 31, 2023.  The increase of $10,730,000 was primarily the result of the following:

Sources of Cash

[[GREPCENT_TABLE]]
[["","\u2022","Proceeds from notes payable of $76,340,000 for the year ended December 31, 2024, compared to $0 for the for the year ended December 31, 2023;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","Cash flow from operations of $58,227,000 for the year ended December 31, 2024, compared to cash flow from operations of $47,600,000 for the year ended December 31, 2023;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","Net proceeds from sale of properties of $52,004,000 for the year ended December 31, 2024, compared to $19,847,000 for the year ended December 31, 2023;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","Proceeds from sale of property held in restricted cash (1031 exchange) of $10,146,000 for the year ended December 31, 2024, compared to $0 for the year ended December 31, 2023;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","Proceeds from issuance of common shares, net of offering costs of $7,620,000 for the year ended December 31, 2024 , compared to $0 for the year ended December 31, 2023."]]
[[/GREPCENT_TABLE]]

Uses of Cash

[[GREPCENT_TABLE]]
[["","\u2022","Payments of notes payable of $66,016,000 compared to $30,945,000;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","Acquisition of real estate of $55,751,000 compared to $25,474,000;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","Payment of dividends and distributions to common shareholders and OP unit holders of $24,893,000 compared to $24,016,000;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","Additions to real estate of $22,410,000 compared to $17,055,000;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","Repurchase of common shares of $2,641,000 compared to $525,000;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","Net (proceeds from) payment of credit facility of $21,000,000 compared to ($42,500,000);"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","Payment of loan originations cost of $789,000 compared to $0;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","Payment of exchange offering cost of $81,000 compared to $0; and"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","Payment of finance lease liability of $26,000 compared to $14,000."]]
[[/GREPCENT_TABLE]]

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

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Debt

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

[[GREPCENT_TABLE]]
[["Description","","December 31, 2024","","","December 31, 2023"],["Fixed rate notes"],["$265.0 million, 3.18% plus 1.45% to 2.10% Note, due January 31, 2028 (1)","","$","265,000","","","$","265,000"],["$20.0 million, 3.67% plus 1.50% Note, due January 31, 2028 (3)","","","20,000","","","","\u2014"],["$80.0 million, 3.72% Note, due June 1, 2027","","","80,000","","","","80,000"],["$19.0 million, 4.15% Note, due December 1, 2024","","","\u2014","","","","17,658"],["$14.0 million, 4.34% Note, due September 11, 2024","","","\u2014","","","","12,427"],["$14.3 million, 4.34% Note, due September 11, 2024","","","\u2014","","","","13,257"],["$15.1 million, 4.99% Note, due January 6, 2024","","","\u2014","","","","13,350"],["$50.0 million, 5.09% Note, due March 22, 2029 (Series A)","","","35,714","","","","42,857"],["$50.0 million, 5.17% Note, due March 22, 2029 (Series B)","","","50,000","","","","50,000"],["$2.5 million, 7.79% Note, due February 28, 2025","","","429","","","","\u2014"],["$50.0 million, 3.71% plus 1.50% to 2.10% Note, due September 16, 2026 (2)","","","50,000","","","","50,000"],["$56.3 million, 6.23% Note, due July 31, 2031","","","56,340","","","","\u2014"],["Floating rate notes"],["Unsecured line of credit, SOFR plus 1.50% to 2.10%, due September 16, 2026","","","75,000","","","","96,000"],["Total notes payable principal","","","632,483","","","","640,549"],["Less deferred financing costs, net of accumulated amortization","","","(965",")","","","(377",")"],["Total notes payable","","$","631,518","","","$","640,172"]]
[[/GREPCENT_TABLE]]

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

[[GREPCENT_TABLE]]
[["(2)","A portion of the unsecured line of credit includes an interest rate swap to fix the SOFR portion of the loan at 3.71%."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(3)","Series One Incremental Term Loan includes an interest rate swap that fixed the term loan rate at 5.165% through January 31, 2028."]]
[[/GREPCENT_TABLE]]

On June 21, 2024, Whitestone REIT, operating through its subsidiaries Whitestone Strand LLC, Whitestone Las Colinas Village LLC, and Whitestone Seville, LLC (collectively, the “Borrower”), entered into a loan agreement (the “Loan Agreement”) with Nationwide Life Insurance Company (the “Lender”) for a mortgage loan in the principal amount of $56,340,000 (the “Loan”).

The Loan provides for a fixed interest rate of 6.23% per annum. Payments commence on August 1, 2024, and are due on the first day of each calendar month thereafter through July 1, 2031, with interest-only payments for the first 36 months. Monthly payments consist of principal and interest based on a 30-year amortization schedule beginning on August 1, 2027. The Loan may be prepaid in full but not in part, provided that, as conditions precedent, Borrower: (i) gives Lender not less than fifteen (15) days prior notice of Borrower’s intention to prepay the Loan; (ii) pays to Lender the prepayment premium as set forth in the Loan Agreement, if any, then due and payable to Lender; and (iii) pays to Lender all other amounts then due under the loan documents. No prepayment premium is required for prepayments in full made on or after six months prior to the maturity date.

The Loan is a non-recourse loan secured by three of the Company’s properties including their related equipment, fixtures, personal property, and other assets, and a limited carve-out guarantee by the Company’s operating partnership.

The loan documents contain customary terms and conditions, including without limitation affirmative and negative covenants such as information reporting and insurance requirements. The loan documents also contain customary events of default, including defaults in the payment of principal or interest, defaults in compliance with the covenants, and bankruptcy or other insolvency events. Upon the occurrence of an event of default, the Lender is entitled to accelerate all obligations of the Borrower. The Lender will also be entitled to receive the entire unpaid principal balance at a default rate.

The Loan proceeds were used to pay down the Borrower’s existing floating rate indebtedness.

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

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

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

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

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

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

[[GREPCENT_TABLE]]
[["","\u2022","maximum total indebtedness to total asset value ratio of 0.60 to 1.00;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","maximum secured debt to total asset value ratio of 0.40 to 1.00;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","minimum EBITDA (earnings before interest, taxes, depreciation, amortization or extraordinary items) to fixed charges ratio of 1.50 to 1.00;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","maximum secured recourse debt to total asset value ratio of 0.15 to 1.00;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","maintenance of a minimum tangible net worth (adjusted for accumulated depreciation and amortization) of 75% of the Company's total net worth as of December 31, 2021 plus 75% of the net proceeds from additional equity offerings (as defined therein); and"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","minimum adjusted property NOI to implied unencumbered debt service ratio of 1.50 to 1.00."]]
[[/GREPCENT_TABLE]]

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

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

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

On September 16, 2022, we, through our Operating Partnership, entered into an unsecured credit facility (the “2022 Facility”) pursuant to that certain Third Amended and Restated Credit Agreement, by and among the Operating Partnership, the Company and certain subsidiaries of the Company, as guarantors signatory thereto, the lenders party thereto, Bank of Montreal, as administrative agent (the “Administrative Agent”), Truist Bank, as syndication agent, and BMO Capital Markets Corp., Truist Bank, Capital One, National Association, and U.S. Bank National Association, as co-lead arrangers and joint book runners (as amended from time to time, the “Credit Agreement”). The 2022 Facility replaced the Company’s previous unsecured revolving credit facility, dated January 31, 2019 (the “2019 Facility”). 

On October 7, 2024, we, through our Operating Partnership, entered into the First Amendment to Third Amended and Restated Credit Agreement and Incremental Term Loan Joinder (the “Amendment”) among the Operating Partnership, the Company and certain subsidiaries of the Company, as guarantors signatory thereto, the Administrative Agent, and L/C Issuer and Associated Bank, National Association, which amends the Credit Agreement.

The Amendment, among other things, establishes the Series One Incremental Term Loan (defined below) consistent with the existing Term Loan (defined below). The Series One Incremental Term Loan accrues interest (at the Operating Partnership’s option) at a Base Rate (defined below) or Adjusted Term SOFR (as defined in the Credit Agreement) plus an applicable margin based upon the Operating Partnership’s then existing total leverage and is subject to adjustment as set forth in the Credit Agreement. In addition, the Operating Partnership entered into an interest rate swap to fix the interest rate on the Series One Incremental Term Loan at 3.665% plus bank credit spreads (that are currently 1.5%, through January 31, 2028), or an all-in rate of 5.165%.

The 2022 Facility is comprised of the following three tranches:

[[GREPCENT_TABLE]]
[["","\u2022","$250.0 million unsecured revolving credit facility with a maturity date of September 16, 2026 (the \u201c2022 Revolver\u201d);"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","$265.0 million unsecured term loan with a maturity date of January 31, 2028 (\u201cTerm Loan\u201d); and"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","$20.0 million unsecured term loan with a maturity date of January 31, 2028 (the \u201cSeries One Incremental Term Loan\u201d), effective October 7, 2024."]]
[[/GREPCENT_TABLE]]

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Borrowings under the 2022 Facility accrue interest (at the Operating Partnership's option) at a Base Rate or an Adjusted Term Secured Overnight Financing Rate (“SOFR”) plus an applicable margin based upon our then existing total leverage as set forth in the Credit Agreement. As of December 31, 2024, the interest rate on the 2022 Revolver was 6.12%. Based on our current leverage ratio, the revolver has initial interest rate of SOFR plus 1.45% and a 10 basis point credit spread adjustment. In addition, we entered into interest rate swaps to fix the interest rates on the Term Loan. The Term Loan with the swaps has the following interest rates:

[[GREPCENT_TABLE]]
[["","\u2022","2.16% plus spreads ranging from 1.45% to 2.10% through October 28, 2022"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","2.80% plus spreads ranging from 1.45% to 2.10% from October 29, 2022 through January 31, 2024"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","3.42% plus spreads ranging from 1.45% to 2.10% from February 1, 2024 through January 31, 2028"]]
[[/GREPCENT_TABLE]]

As of December 31, 2024, the Term Loan with the swap had a spread of 1.40% and a 10 basis point credit spread adjustment.      

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

The 2022 Facility includes an accordion feature that will allow the Operating Partnership to increase the borrowing capacity by an aggregate principal amount not to exceed $200.0 million, upon the satisfaction of certain conditions. As of December 31, 2024, subject to any potential future paydowns or increases in the borrowing base, we have $125.0 million remaining availability under the 2022 Revolver. As of December 31, 2024, $410.0 million was drawn on the 2022 Facility and our unused borrowing capacity was $125.0 million, assuming that we use the proceeds of the 2022 Facility to acquire properties, or to repay debt on properties, that are eligible to be included in the unsecured borrowing base. The Company used $379.5 million of proceeds from the 2022 Facility to repay amounts outstanding under the 2019 Facility.

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

[[GREPCENT_TABLE]]
[["","\u2022","maximum total indebtedness to total asset value ratio of 0.60 to 1.00;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","maximum secured debt to total asset value ratio of 0.40 to 1.00;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","minimum EBITDA (earnings before interest, taxes, depreciation, amortization or extraordinary items) to fixed charges ratio of 1.50 to 1.00;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","maximum other recourse debt to total asset value ratio of 0.15 to 1.00;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","maintenance of a minimum tangible net worth (adjusted for accumulated depreciation and amortization) of $449 million plus 75% of the net proceeds from additional equity offerings (as defined therein);"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","minimum adjusted property net operating income to implied unencumbered debt service of 1.50 to 1.00; and"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","maximum unsecured indebtedness to unencumbered asset pool value ratio of 0.60 to 1.00."]]
[[/GREPCENT_TABLE]]

The 2022 Facility also contains customary events of default with customary notice and cure, including, without limitation, nonpayment, breach of covenant, misrepresentation of representations and warranties in a material respect, cross-default to other major indebtedness, change of control, bankruptcy and loss of REIT tax status. If an event of default occurs and is continuing under the 2022 Facility, the lenders may, among other things, terminate their commitments under the 2022 Facility and require the immediate payment of all amounts owed thereunder. 

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As of December 31, 2024, our $136.3 million in secured debt was collateralized by four properties with a carrying value of $221.6 million.  Our loans contain restrictions that would require the payment of prepayment penalties for the acceleration of outstanding debt and are secured by deeds of trust on certain of our properties and by assignment of the rents and leases associated with those properties. As of December 31, 2024, we were in compliance with all loan covenants.

Scheduled maturities of our outstanding debt as of December 31, 2024 were as follows (in thousands):

[[GREPCENT_TABLE]]
[["Year","","Amount Due"],["2025","","$","17,572"],["2026","","","142,143"],["2027","","","97,414"],["2028","","","302,823"],["2029","","","17,867"],["Thereafter","","","54,664"],["Total","","$","632,483"]]
[[/GREPCENT_TABLE]]

Capital Expenditures 

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

The following is a summary of the Company’s capital expenditures, excluding property acquisitions, for the years ended December 31 (in thousands):

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["","","2024","","","2023"],["Capital expenditures:"],["Tenant improvements and allowances","","$","12,382","","","$","5,920"],["Developments / redevelopments","","","3,727","","","","4,470"],["Leasing commissions and costs","","","3,653","","","","3,540"],["Maintenance capital expenditures","","","9,112","","","","6,665"],["Total capital expenditures (1)","","$","28,874","","","$","20,595"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(1)","Total capital expenditures include the non cash accrued capital expenditures line item as reported in the consolidated statements of cash flows."]]
[[/GREPCENT_TABLE]]

36

Table of Contents

Contractual Obligations

As of December 31, 2024, we had the following contractual obligations (see Note 8 of our accompanying consolidated financial statements for further discussion regarding the specific terms of our debt):

[[GREPCENT_TABLE]]
[["","","","","","","Payment due by period (in thousands)"],["","","","","","","","","","","","","","","","","","","More than"],["","","","","","","Less than 1","","","1 - 3 years","","","3 - 5 years","","","5 years"],["Consolidated Contractual Obligations","","Total","","","year (2025)","","","(2026 - 2027)","","","(2028 - 2029)","","","(after 2029)"],["Long-Term Debt - Principal","","$","632,483","","","$","17,572","","","$","239,557","","","$","320,690","","","$","54,664"],["Long-Term Debt - Fixed Interest","","","86,384","","","","26,512","","","","45,510","","","","9,305","","","","5,057"],["Long-Term Debt - Variable Interest (1)","","","8,036","","","","4,592","","","","3,444","","","","\u2014","","","","\u2014"],["Unsecured credit facility - Unused commitment fee (2)","","","438","","","","250","","","","188","","","","\u2014","","","","\u2014"],["Operating Lease Obligations","","","61","","","","30","","","","30","","","","1","","","","\u2014"],["Finance Lease Obligations","","","3,059","","","","82","","","","168","","","","167","","","","2,642"],["Total","","$","730,461","","","$","49,038","","","$","288,897","","","$","330,163","","","$","62,363"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","(1)","As of December 31, 2024, we had one loan totaling $75.0 million which bore interest at a floating rate. The variable interest rate payments are based on SOFR plus 1.45% and a 10 basis point spread adjustment which reflects our new interest rates under our 2022 Facility. The information in the table above reflects our projected interest rate obligations for the floating rate payments based on one-month SOFR as of December 31, 2024, of 4.49%."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","(2)","The unused commitment fees on our unsecured credit facility, payable quarterly, are based on the average daily unused amount of our unsecured credit facility. The fees are 0.20% for facility usage greater than 50% or 0.25% for facility usage less than 50%. The information in the table above reflects our projected obligations for our unsecured credit facility based on our December 31, 2024 balance of $410.0 million."]]
[[/GREPCENT_TABLE]]

Distributions

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

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

[[GREPCENT_TABLE]]
[["","\u2022","our funds from operations;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","our debt service requirements;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","our capital expenditure requirements for our properties;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","our taxable income, combined with the annual distribution requirements necessary to maintain REIT qualification;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","requirements of Maryland law;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","our overall financial condition; and"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","other factors deemed relevant by our board of trustees."]]
[[/GREPCENT_TABLE]]

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

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On February 22, 2022, the Company announced an increase to its quarterly distribution to $0.12 per commons share and OP unit, equal to a monthly distribution of $0.04, beginning with the April 2022 distribution.

On March 5, 2024, the Company announced an increase to its quarterly distribution to $0.12375 per common share and OP unit, equal to a monthly distribution of $0.04125, beginning with the April 2024 distribution.

On December 4, 2024, the Company announced an increase to its quarterly distribution to $0.135 per common share and OP unit, equal to a monthly distribution of $0.045, beginning with the January 2025 distribution.

During 2024, we paid distributions to our common shareholders and OP unit holders of $24.9 million, compared to $24.0 million in 2023.  Common shareholders and OP unit holders receive monthly distributions.  Payments of distributions are declared quarterly and paid monthly.  The distributions paid to common shareholders and OP unit holders were as follows (in thousands, except per share data) for the years ended December 31, 2024 and 2023: 

[[GREPCENT_TABLE]]
[["","","Common Shares","","","Noncontrolling OP Unit Holders","","","Total"],["Quarter Paid","","Distributions Per Common Share","","","Amount Paid","","","Distributions Per OP Unit","","","Amount Paid","","","Amount Paid"],["2024"],["Fourth Quarter","","$","0.1238","","","$","6,247","","","$","0.1238","","","$","81","","","$","6,328"],["Third Quarter","","","0.1238","","","","6,194","","","","0.1238","","","","80","","","","6,274"],["Second Quarter","","","0.1238","","","","6,162","","","","0.1238","","","","80","","","","6,242"],["First Quarter","","","0.1200","","","","5,969","","","","0.1200","","","","80","","","","6,049"],["Total","","$","0.4914","","","$","24,572","","","$","0.4914","","","$","321","","","$","24,893"],["2023"],["Fourth Quarter","","$","0.1200","","","$","5,930","","","$","0.1200","","","$","83","","","$","6,013"],["Third Quarter","","","0.1200","","","","5,928","","","","0.1200","","","","83","","","","6,011"],["Second Quarter","","","0.1200","","","","5,913","","","","0.1200","","","","83","","","","5,996"],["First Quarter","","","0.1200","","","","5,913","","","","0.1200","","","","83","","","","5,996"],["Total","","$","0.4800","","","$","23,684","","","$","0.4800","","","$","332","","","$","24,016"]]
[[/GREPCENT_TABLE]]

Summary of Critical Accounting Policies and Estimates 

Our discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements.  We prepared these financial statements in conformity with GAAP.  The preparation of these financial statements required us to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods.  We based our estimates on historical experience and on various other assumptions we believe to be reasonable under the circumstances.  Our results may differ from these estimates. For a better understanding of our accounting policies, you should read Note 2 to our accompanying consolidated financial statements in conjunction with this “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

We have described below the critical accounting policies and estimates that we believe could impact our consolidated financial statements most significantly.

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

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Table of Contents

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

Estimates regarding Pillarstone OP’s financial condition and results of operations and guarantee. We relied on the reports furnished by our third-party partners for financial information regarding the Company’s investment in Pillarstone OP.  As of December 31, 2023, and 2022, Pillarstone OP’s financial statements were not made accessible to us. Consequently, we estimated its financial condition and results of operations based on the information available to us. For the first 25 days of 2024, we have also estimated Pillarstone OP’s results using the best available data at the time of this report.

The Company, through its subsidiary Whitestone REIT Operating Partnership, L.P., guaranteed Pillarstone OP’s loan for its Uptown Tower property located in Dallas, Texas, with an aggregate principal amount of $14.4 million as of September 30, 2023.  The loan was also secured by the Uptown Tower property.  The debt matured on October 4, 2023, and was in default, as Pillarstone OP failed to refinance the loan.  On October 24, 2023, the Lender provided notice of a planned foreclosure sale on December 5, 2023.  The Lender also claimed that an additional sum of $4.6 million was due which included default interest of approximately $6.3 million and net credits from escrowed funds and other charges of approximately $1.7 million. 

On December 1, 2023, the Company reached an agreement with the Lender that would avoid foreclosure and secure the release of the lien and discharge of the guarantee, and the Company negotiated and satisfied a payoff as of December 4, 2023, in the amount of $13,632,764 (the “DPO Amount”). We paid the DPO amount and will be entitled to assert a subrogation claim against Pillarstone OP. As of December 31, 2024, the DPO amount was recorded as an asset in our financial statement line receivable due from related party.  

Accounting treatment of the redemption of our OP units in Pillarstone OP.  On January 25, 2024, we executed an irrevocable redemption of substantially all our investment in Pillarstone OP, converting our equity investment into a receivable. Pillarstone OP conveyed their intention to forego issuing equity, opting instead to liquidate the properties to satisfy creditors, with Whitestone being significantly the largest creditor. Based on insights from our legal team and advisors, we anticipate that the most probable outcome will involve the liquidation of all Pillarstone properties. 

The carrying value of our investment in Pillarstone OP was approximately $31.6 million as of January 25, 2024. We assert a claim of $70 million, inclusive of the $13 million default interest payment and accrued interest. It is anticipated that the claim and proceeds from liquidation will surpass the carrying value of our receivable for the redemption of our former equity investment in Pillarstone OP.

Subsequently, we reclassified our investment in Pillarstone OP to a receivable on our balance sheet after estimating 25 days of our share of the equity investment income. We will assess the credit losses of the receivable on a quarterly basis.

Any gains will be recognized once the proceeds received exceed our receivable.

This is within the scope of ASC 326, “Financial Instruments - Credit Losses.” The value of the unencumbered assets of Pillarstone OP is significantly in excess of Whitestone’s basis in the account receivable, but the precise value cannot be determined at this time. When applying the estimated loss rate method with a zero loss rate, the Current Expected Credit Losses (“CECL”) are zero according to ASC 326.  We will continue to monitor our legal team's assessment of the bankruptcy case and the value of the assets of Pillarstone OP to evaluate the credit risk of the receivable.

Equity Method. In compliance with Accounting Standards Update (“ASU”) 2014-09 (“Topic 606”) and Accounting Standards Codification (“ASC”) 610, “Other Income-Gains and Losses from the Derecognition of Nonfinancial Assets,” the Company previously accounted for its investment in Pillarstone OP using the equity method. However, subsequent to January 25, 2024, the Company ceased utilizing the equity method following the exercise of its notice of redemption for substantially all of its investment in Pillarstone OP. Please refer to Note 4 to the accompanying consolidated financial statements for the full disclosure.

Development Properties.  Land, buildings and improvements are recorded at cost. Expenditures related to the development of real estate are carried at cost which includes capitalized carrying charges and development costs. Carrying charges (interest, real estate taxes, loan fees, and direct and indirect development costs related to buildings under construction), are capitalized as part of construction in progress. The capitalization of such costs ceases when the property, or any completed portion, becomes available for occupancy. For the year ended December 31, 2024, approximately $ 564,000 and $ 182,000 in interest expense and real estate taxes, respectively, were capitalized. For the year ended December 31, 2023, approximately $552,000 and $262,000 in interest expense and real estate taxes, respectively, were capitalized. For the year ended December 31, 2022, approximately $455,000 and $281,000 in interest expense and real estate taxes, respectively, were capitalized.

39

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Acquired Properties and Acquired Lease Intangibles.  We allocate the purchase price of the acquired properties to land, building and improvements, identifiable intangible assets and to the acquired liabilities based on their respective fair values at the time of purchase. Identifiable intangibles include amounts allocated to acquired out-of-market leases, the value of in-place leases, the value of the ground lease and customer relationship value, if any. We determine fair value based on estimated cash flow projections that utilize appropriate discount and capitalization rates and available market information. Estimates of future cash flows are based on a number of factors including the historical operating results, known trends and specific market and economic conditions that may affect the property. Factors considered by management in our analysis of determining the as-if-vacant property value include an estimate of carrying costs during the expected lease-up periods considering market conditions, and costs to execute similar leases. In estimating carrying costs, management includes real estate taxes, insurance and estimates of lost rentals at market rates during the expected lease-up periods, tenant demand and other economic conditions. Management also estimates costs to execute similar leases including leasing commissions, tenant improvements, legal and other related expenses. Intangibles related to out-of-market leases and in-place lease value are recorded as acquired lease intangibles and are amortized as an adjustment to rental revenue or amortization expense, as appropriate, over the remaining terms of the underlying leases. Premiums or discounts on acquired out-of-market debt are amortized to interest expense over the remaining term of such debt. The Company also utilizes valuations from independent real estate appraisal firms. 

Depreciation.  Depreciation is computed using the straight-line method over the estimated useful lives of 3 to 43 years for improvements and buildings.  Tenant improvements are depreciated using the straight-line method over the life of the improvement or remaining term of the lease, whichever is shorter.

Impairment.  We review our properties and other long-lived assets for impairment at least annually or whenever events or changes in circumstances indicate that the carrying amount of the assets, including accrued rental income, may not be recoverable through operations. The first step of the impairment test is to determine whether an indicator of impairment is present. If an indicator of impairment is present, we determine whether an impairment in value has occurred by comparing the estimated future cash flows (undiscounted and without interest charges), including the estimated residual value of the property, with the carrying cost of the property.  If impairment is indicated, a loss will be recorded for the amount by which the carrying value of the property exceeds its fair value.  Management has determined that there has been no impairment in the carrying value of our real estate assets as of December 31, 2024.

Accrued Rents and Accounts Receivable. Included in accrued rents and accounts receivable are base rents, tenant reimbursements and receivables attributable to recording rents on a straight-line basis. We review the collectability of charges under our tenant operating leases on a regular basis, taking into consideration changes in factors such as the tenant’s payment history, the financial condition of the tenant, business conditions in the industry in which the tenant operates and economic conditions in the area where the property is located. We recognize an adjustment to rental revenue if we deem it probable that the receivable will not be collected. Our review of collectability under our operating leases includes any accrued rental revenues related to the straight-line method of reporting rental revenue.  As of December 31, 2024 and 2023, we had an allowance for uncollectible accounts of $14.7 million and $13.6 million, respectively. For the years ending December 31, 2024, 2023 and 2022, we recorded an adjustment to rental revenue in the amount of $1.0 million, $1.0 million and $1.2 million, respectively. Included in the adjustment to rental revenue for the years ending December 31, 2024, 2023 and 2022, was a bad debt adjustment of $0.2 million, $0.3 million, and $0.6 million, respectively, and a straight-line rent reserve adjustment of $0.05 million, $(0.002) million, and $0.3 million, respectively, related to credit loss for the conversion of 11, 20, and 80 tenants, respectively, to cash basis revenue.

40

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Unamortized Lease Commissions and Loan Costs.  Leasing commissions are amortized using the straight-line method over the terms of the related lease agreements.  Loan costs are amortized on the straight-line method over the terms of the loans, which approximates the interest method.  Costs allocated to in-place leases whose terms differ from market terms related to acquired properties are amortized over the remaining life of the respective leases.

Prepaids and Other Assets.  Prepaids and other assets include escrows established pursuant to certain mortgage financing arrangements for real estate taxes and insurance and acquisition deposits which include earnest money deposits on future acquisitions.

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

State Taxes.  We are subject to the Texas Margin Tax which is computed by applying the applicable tax rate (1% for us) to the profit margin, which, generally, will be determined for us as total revenue less a 30% standard deduction.  Although the Texas Margin Tax is not an income tax, Financial Accounting Standards Board (“FASB”) ASC 740, “Income Taxes” (“ASC 740”) applies to the Texas Margin Tax.  As of December 31, 2024, 2023 and 2022, we recorded a margin tax provision of $0.5 million, $0.5 million and $0.4 million, respectively.

Fair Value of Financial Instruments.  Our financial instruments consist primarily of cash, cash equivalents, accounts receivable and accounts and notes payable.  The carrying value of cash, cash equivalents, accounts receivable and accounts payable are representative of their respective fair values due to their short-term nature.  The fair value of our long-term debt, consisting of fixed rate secured notes, variable rate secured notes and an unsecured revolving credit facility aggregate to approximately $614.3 million and $612.4 million as compared to the book value of approximately $632.5 million and $640.5 million as of December 31, 2024 and 2023, respectively. The fair value of our long-term debt is estimated on a Level 2 basis (as provided by ASC 820, “Fair Value Measurements and Disclosures”), using a discounted cash flow analysis based on the borrowing rates currently available to us for loans with similar terms and maturities, discounting the future contractual interest and principal payments.

The fair value of our loan guarantee to Pillarstone OP is estimated on a Level 3 basis (as provided by ASC 820), using a probability-weighted discounted cash flow analysis based on a discount rate, discounting the loan balance. The fair value and book value of the loan guarantee were both $0 as of December 31, 2024 and 2023.

Disclosure about fair value of financial instruments is based on pertinent information available to management as of December 31, 2024 and 2023. Although management is not aware of any factors that would significantly affect the fair value amounts, such amounts have not been comprehensively revalued for purposes of these financial statements since December 31, 2024, and current estimates of fair value may differ significantly from the amounts presented herein.

Derivative Instruments and Hedging Activities. We utilize derivative financial instruments, principally interest rate swaps, to manage our exposure to fluctuations in interest rates. We have established policies and procedures for risk assessment, and the approval, reporting and monitoring of derivative financial instruments. We recognize our interest rate swaps as cash flow hedges with the effective portion of the changes in fair value recorded in comprehensive income (loss) and subsequently reclassified into earnings in the period that the hedged transaction affects earnings. Any ineffective portion of a cash flow hedge’s change in fair value is recorded immediately into earnings. Our cash flow hedges are determined using Level 2 inputs under ASC 820. Level 2 inputs represent quoted prices in active markets for similar assets or liabilities; quoted prices in markets that are not active; and model-derived valuations whose inputs are observable. As of December 31, 2024, we consider our cash flow hedges to be highly effective.

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

In November 2023, the FASB issued ASU No. 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures.” This update enhances segment reporting by requiring the disclosure of significant segment information. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, with early adoption permitted. We adopted this guidance as of January 1, 2024, and it did not have a material impact on our consolidated financial statements. For new disclosures related to the adoption of ASU 2023-07, refer to Note 17, “Segment Reporting.”

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Results of Operations

Year Ended December 31, 2024 Compared to Year Ended December 31, 2023

The following table provides a general comparison of our results of operations for the years ended December 31, 2024 and 2023 (dollars in thousands, except per share data):

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["","","2024","","","2023"],["Number of properties owned and operated","","","55","","","","55"],["Aggregate GLA (sq. ft.)","","","4,863,562","","","","4,995,190"],["Ending occupancy rate","","","94","%","","","94","%"],["Total revenues","","$","154,282","","","$","146,969"],["Total operating expenses","","","104,061","","","","99,583"],["Total other expense","","","12,370","","","","24,331"],["Income before equity investment in real estate partnership and income tax","","","37,851","","","","23,055"],["Deficit in earnings of real estate partnership","","","(28",")","","","(3,155",")"],["Provision for income tax","","","(450",")","","","(450",")"],["Net income","","","37,373","","","","19,450"],["Less: Net income attributable to noncontrolling interests","","","480","","","","270"],["Net income attributable to Whitestone REIT","","$","36,893","","","$","19,180"],["Funds from operations (1)","","$","50,717","","","$","45,390"],["Property net operating income (2)","","","108,487","","","","103,574"],["Distributions paid on common shares and OP units","","","24,893","","","","24,016"],["Distributions per common share and OP unit","","$","0.4914","","","$","0.4800"],["Distributions paid as a percentage of funds from operations","","","49","%","","","53","%"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(1)","For an explanation and reconciliation of funds from operations, a non-GAAP metric, to net income, see \u201cFunds From Operations\u201d below."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(2)","For an explanation and reconciliation of property net operating income, a non-GAAP metric, to net income, see \u201cProperty Net Operating Income\u201d below."]]
[[/GREPCENT_TABLE]]

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Table of Contents

We define “Same Stores” as properties that have been owned for the entire period being compared. For purposes of comparing the year ended December 31, 2024 to the year ended December 31, 2023, Same Stores include properties owned during the entire period from January 1, 2023 to December 31, 2024. We define “Non-Same Stores” as properties acquired since the beginning of the period being compared and properties that have been sold, but not classified as discontinued operations.

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

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["Revenue","","2024","","","2023","","","Change","","","% Change"],["Same Store"],["Rental revenues (1)","","$","101,217","","","$","98,360","","","$","2,857","","","","3","%"],["Recoveries (2)","","","41,180","","","","38,450","","","","2,730","","","","7","%"],["Bad debt (3)","","","(1,168",")","","","(849",")","","","(319",")","","","38","%"],["Total rental","","","141,229","","","","135,961","","","","5,268","","","","4","%"],["Other revenues (4)","","","2,740","","","","1,286","","","","1,454","","","","113","%"],["Same Store Total","","","143,969","","","","137,247","","","","6,722","","","","5","%"],["Non-Same Store"],["Rental revenues (5)","","","7,713","","","","7,134","","","","579","","","","8","%"],["Recoveries (5)","","","2,378","","","","2,659","","","","(281",")","","","(11",")%"],["Bad debt (5)","","","(60",")","","","(102",")","","","42","","","","(41",")%"],["Total rental","","","10,031","","","","9,691","","","","340","","","","4","%"],["Other revenues (5)","","","282","","","","31","","","","251","","","","810","%"],["Non-Same Store Total","","","10,313","","","","9,722","","","","591","","","","6","%"],["Total revenue","","$","154,282","","","$","146,969","","","$","7,313","","","","5","%"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(1)","The Same Store tenant rent increase of $2,857,000 resulted from an increase of $42,000 from the increase in the average leased square feet to 4,331,527 from 4,328,356, and by the increase of $2,815,000 from the average rent per leased square foot increasing from $22.72 to $23.37."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(2)","The Same Store recoveries revenue increase of $2,730,000 is primarily due to a higher recovery rate and from the increased average occupancy at our properties."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(3)","During the year ended December 31, 2024 and 2023, Same Store bad debt includes an adjustment of $201,000 and $340,000, respectively, from cash basis accounting."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(4)","During the year ended December 31, 2024 and 2023, Same Store other revenues includes $1,961,000 and $687,000 in termination fee income, respectively."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(5)","Non-Same Store rental revenue includes Village Shops at Dana Park (acquired on December 12, 2024), Providence (sold on November 6, 2024), Fountain Hills Plaza (sold on August 9, 2024), Scottsdale Commons (acquired on April 5, 2024), Mercado at Scottsdale Ranch (sold on March 27, 2024), Garden Oaks (acquired on February 20, 2024), Sporlein Commons (sold on December 20, 2023), Westchase (sold on June 30, 2023), Sunridge (sold on June 30, 2023), and Arcadia Towne Center (acquired on June 12, 2023)."]]
[[/GREPCENT_TABLE]]

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Table of Contents

Operating expenses. The primary components of operating expenses for the year ended December 31, 2024 and 2023 are detailed in the table below (in thousands, except percentages):

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["Operating Expenses","","2024","","","2023","","","Change","","","% Change"],["Same Store"],["Operating and maintenance (1)","","$","26,725","","","$","25,948","","","$","777","","","","3","%"],["Real estate taxes","","","16,941","","","","17,141","","","","(200",")","","","(1",")%"],["Same Store total","","","43,666","","","","43,089","","","","577","","","","1","%"],["Non-Same Store and affiliated company rents"],["Operating and maintenance (2)","","","1,480","","","","1,985","","","","(505",")","","","(25",")%"],["Real estate taxes (2)","","","832","","","","875","","","","(43",")","","","(5",")%"],["Affiliated company rents (3)","","","\u2014","","","","15","","","","(15",")","","","(100",")%"],["Non-Same Store and affiliated company rents total","","","2,312","","","","2,875","","","","(563",")","","","(20",")%"],["Depreciation and amortization (2)","","","34,894","","","","32,966","","","","1,928","","","","6","%"],["General and administrative (4)","","","23,189","","","","20,653","","","","2,536","","","","12","%"],["Total operating expenses","","$","104,061","","","$","99,583","","","$","4,478","","","","4","%"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(1)","The $777,000 increase in Same Store operating and maintenance costs included $617,000 in increased contract services, $555,000 in increased insurance costs, and $261,000 in increased utilities costs, offset by $494,000 in decreased repairs and maintenance costs, and $162,000 in decreased other costs."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(2)","Non-Same Store operating and maintenance, real estate taxes, and depreciation and amortization expenses include Village Shops at Dana Park (acquired on December 12, 2024), Providence (sold on November 6, 2024), Fountain Hills Plaza (sold on August 9, 2024), Scottsdale Commons (acquired on April 5, 2024), Anderson Arbor Pad (acquired on April 1, 2024), Mercado at Scottsdale Ranch (sold on March 27, 2024), Garden Oaks (acquired on February 20, 2024), Sporlein Commons (sold on December 20, 2023), Westchase (sold on June 30, 2023), Sunridge (sold on June 30, 2023), and Arcadia Towne Center (acquired on June 12, 2023)."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(3)","Affiliated company rents are spaces that we lease from Pillarstone OP. Eight lease agreements were terminated on August 23, 2022, and the two remaining leases expired on January 31, 2023 and February 28, 2023."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(4)","The general and administrative expense increase is attributable to increased proxy solicitation fees of $1,757,000, increased employee bonuses of $1,539,000, increased share based compensation of $539,000, increased professional fees of $369,000 and increased other costs of $162,000, offset by decreased legal expenses of $1,830,000 (see Note 16 to the accompanying consolidated financial statements for more details)."]]
[[/GREPCENT_TABLE]]

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Table of Contents

Other expenses (income). The primary components of other expenses (income) for the year ended December 31, 2024 and 2023 are detailed in the table below (in thousands, except percentages):

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["Other Expenses","","2024","","","2023","","","Change","","","% Change"],["Interest expense (1)","","$","34,035","","","$","32,866","","","$","1,169","","","","4","%"],["Gain on sale of properties, net (2)","","","(22,125",")","","","(9,006",")","","","(13,119",")","","","146","%"],["Loss on disposal of assets, net","","","547","","","","522","","","","25","","","","5","%"],["Interest, dividend and other investment income","","","(87",")","","","(51",")","","","(36",")","","","71","%"],["Total other expenses","","$","12,370","","","$","24,331","","","$","(11,961",")","","","(49",")%"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(1)","The $1,169,000 increase in interest expense is attributable to rising interest rates, which led to an increase in our effective interest rate to 5.12% for the year ended 2024 as compared to 5.00% for the year ended 2023 resulting in an increase of $778,000 in interest expense and an increase in our average outstanding notes payable balance of $7,423,000, resulting in a $391,000 increase in interest expense."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(2)","On November 6, 2024, we completed the sale of Providence, located in Houston, Texas, for $16.3 million. We recorded a gain on sale of $11.9 million. On August 9, 2024, we completed the sale of Fountain Hills Plaza along with the adjacent parcel of development land, located in Phoenix, Arizona, for $21.3 million. We recorded a gain on sale of $3.6 million. On March 27, 2024, we completed the sale of Mercado at Scottsdale Ranch, located in Phoenix, Arizona, for an aggregate $26.5 million. We recorded a gain on sale of $6.6 million. On December 20, 2023 we completed the sale of Spoerlein Commons, located in Buffalo Grove, Illinois, for $7.4 million. We recorded a loss on sale of $0.7 million. On June 30, 2023, we completed the sale of Sunridge, located in Houston, Texas, for $6.7 million. We recorded a gain on sale of $5.0 million. On June 30, 2023, we completed the sale of Westchase, located in Houston, Texas, for $7.8 million. We recorded a gain on sale of $4.6 million."]]
[[/GREPCENT_TABLE]]

Deficit in earnings of real estate partnership. As of December 31, 2024, our ownership in Pillarstone OP no longer represents a majority interest. On January 25, 2024, we exercised our notice of redemption for substantially all of our investment in Pillarstone OP. For the year ended December 31, 2024, our estimated deficit in earnings from the real estate partnership, which was generated through our 81.4% ownership of Pillarstone OP up to the redemption date, decreased $3,127,000 from $3,155,000 for the year ended December 31, 2023 to $28,000 for the year ended December 31, 2024. Please refer to Note 4 (Investment in Real Estate Partnership) to the accompanying consolidated financial statements for more information regarding our former investment in Pillarstone OP.

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Table of Contents

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

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,","","","Increase","","","% Increase"],["","","2024","","","2023","","","(Decrease)","","","(Decrease)"],["Same Store (46 properties, excluding development land)"],["Property revenues"],["Rental","","$","141,229","","","$","135,961","","","$","5,268","","","","4","%"],["Management, transaction and other fees","","","2,740","","","","1,286","","","","1,454","","","","113","%"],["Total property revenues","","","143,969","","","","137,247","","","","6,722","","","","5","%"],["Property expenses"],["Property operation and maintenance","","","26,725","","","","25,948","","","","777","","","","3","%"],["Real estate taxes","","","16,941","","","","17,141","","","","(200",")","","","(1",")%"],["Total property expenses","","","43,666","","","","43,089","","","","577","","","","1","%"],["Total property revenues less total property expenses","","","100,303","","","","94,158","","","","6,145","","","","7","%"],["Same Store straight-line rent adjustments","","","(2,981",")","","","(2,602",")","","","(379",")","","","15","%"],["Same Store amortization of above/below market rents","","","(748",")","","","(808",")","","","60","","","","(7",")%"],["Same Store lease termination fees","","","(1,961",")","","","(687",")","","","(1,274",")","","","185","%"],["Same Store NOI(1)","","$","94,613","","","$","90,061","","","$","4,552","","","","5","%"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(1)","See below for a reconciliation of property net operating income to net income."]]
[[/GREPCENT_TABLE]]

46

Table of Contents

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["PROPERTY NET OPERATING INCOME (\u201cNOI\u201d)","","2024","","","2023"],["Net income attributable to Whitestone REIT","","$","36,893","","","$","19,180"],["General and administrative expenses","","","23,189","","","","20,653"],["Depreciation and amortization","","","34,894","","","","32,966"],["Deficit in earnings of real estate partnership (1)","","","28","","","","3,155"],["Interest expense","","","34,035","","","","32,866"],["Interest, dividend and other investment income","","","(87",")","","","(51",")"],["Provision for income taxes","","","450","","","","450"],["Gain on sale of properties, net","","","(22,125",")","","","(9,006",")"],["Management fee, net of related expenses","","","\u2014","","","","16"],["Loss on disposal of assets, net","","","547","","","","522"],["NOI of real estate partnership (pro rata) (1)","","","183","","","","2,553"],["Net income attributable to noncontrolling interests","","","480","","","","270"],["NOI","","$","108,487","","","$","103,574"],["Non-Same Store NOI (2)","","","(8,001",")","","","(6,863",")"],["NOI of real estate partnership (pro rata)(1)","","","(183",")","","","(2,553",")"],["NOI less Non-Same Store NOI and NOI of real estate partnership (pro rata)","","","100,303","","","","94,158"],["Same Store straight-line rent adjustments","","","(2,981",")","","","(2,602",")"],["Same Store amortization of above/below market rents","","","(748",")","","","(808",")"],["Same Store lease termination fees","","","(1,961",")","","","(687",")"],["Same Store NOI (3)","","$","94,613","","","$","90,061"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(1)","We rely on reporting provided to us by our third-party partners for financial information regarding the Company's investment in Pillarstone OP. Because Pillarstone OP financial statements as of and for the years ended December 31, 2024 and 2023 have not been made available to us, we have estimated equity in earnings and pro rata share of NOI of real estate partnership based on the information available to us at the time of this report."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(2)","We define \u201cNon-Same Stores\u201d as properties that have been acquired since the beginning of the period being compared and properties that have been sold, but not classified as discontinued operations. For purposes of comparing the twelve months ended December 31, 2024 to the twelve months ended December 31, 2023, Non-Same Stores include properties acquired between January 1, 2023 and December 31, 2024 and properties sold between January 1, 2023 and December 31, 2024, but not included in discontinued operations."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(3)","We define \u201cSame Stores\u201d as properties that have been owned during the entire period being compared. For purposes of comparing the twelve months ended December 31, 2024 to the twelve months ended December 31, 2023, Same Stores include properties owned before January 1, 2023 and not sold before December 31, 2024. Straight line rent adjustments, above/below market rents, and lease termination fees are excluded."]]
[[/GREPCENT_TABLE]]

47

Table of Contents

Year Ended December 31, 2023 Compared to Year Ended December 31, 2022

For a discussion and comparison of the results of our operations for the year ended December 31, 2023 with the year ended December 31, 2022, refer to “Management's Discussion and Analysis of Financial Conditions and Results of Operations” in our Form 10-K for the year ended December 31, 2023 filed with the SEC on March 13, 2024.

48

Table of Contents

Reconciliation of Non-GAAP Financial Measures

Funds From Operations (NAREIT) (“FFO”) and Core FFO

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

Core Funds from Operations (“Core FFO”) is a non-GAAP measure. From time to time, we report or provide guidance with respect to “Core FFO” which removes the impact of certain non-recurring and non-operating transactions or other items we do not consider to be representative of our core operating results including, without limitation, default interest on debt of real estate partnership, extinguishment of debt cost, gains or losses associated with litigation involving the Company that is not in the normal course of business, and proxy contest professional fees. 

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

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

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

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

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["FFO (NAREIT) AND CORE FFO","","2024","","","2023","","","2022"],["Net income attributable to Whitestone REIT","","$","36,893","","","$","19,180","","","$","35,270"],["Adjustments to reconcile to FFO:(1)"],["Depreciation and amortization of real estate assets","","","34,811","","","","32,811","","","","31,538"],["Depreciation and amortization of real estate assets of real estate partnership (pro rata) (2)","","","111","","","","1,613","","","","1,613"],["Loss on disposal of assets, net","","","547","","","","522","","","","192"],["Gain on sale of properties, net","","","(22,125",")","","","(9,006",")","","","(16,950",")"],["Net income attributable to noncontrolling interests","","","480","","","","270","","","","530"],["FFO (NAREIT)","","$","50,717","","","$","45,390","","","$","52,193"],["Early debt extinguishment costs","","","\u2014","","","","\u2014","","","","147"],["Default interest on debt of real estate partnership (pro rata) (1)(2)","","","\u2014","","","","1,375","","","","\u2014"],["Proxy contest costs","","","1,757","","","","\u2014","","","","\u2014"],["Core FFO","","$","52,474","","","$","46,765","","","$","52,340"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(1)","Includes pro-rata share attributable to real estate partnership."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(2)","We rely on reporting provided to us by our third-party partners for financial information regarding the Company's investment in Pillarstone OP. Because Pillarstone OP financial statements as of and for the years ended December 31, 2024, 2023 and 2022 have not been made available to us, we have estimated depreciation and amortization, loss (gain) on sale or disposal of properties or assets of real estate partnership, and default interest on debt of real estate partnership based on the information available to us at the time of this report."]]
[[/GREPCENT_TABLE]]

Property Net Operating Income (“NOI”)

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

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

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["PROPERTY NET OPERATING INCOME (\u201cNOI\u201d)","","2024","","","2023","","","2022"],["Net income attributable to Whitestone REIT","","$","36,893","","","$","19,180","","","$","35,270"],["General and administrative expenses","","","23,189","","","","20,653","","","","18,066"],["Depreciation and amortization","","","34,894","","","","32,966","","","","31,707"],["Deficit (equity) in earnings of real estate partnership (1)","","","28","","","","3,155","","","","(239",")"],["Interest expense","","","34,035","","","","32,866","","","","27,193"],["Interest, dividend and other investment income","","","(87",")","","","(51",")","","","(65",")"],["Provision for income taxes","","","450","","","","450","","","","422"],["Gain on sale of properties, net","","","(22,125",")","","","(9,006",")","","","(16,950",")"],["Management fee, net of related expenses","","","\u2014","","","","16","","","","112"],["Loss on disposal of assets, net","","","547","","","","522","","","","192"],["NOI of real estate partnership (pro rata) (1)","","","183","","","","2,553","","","","3,023"],["Net income attributable to noncontrolling interests","","","480","","","","270","","","","530"],["NOI","","$","108,487","","","$","103,574","","","$","99,261"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(1)","We rely on reporting provided to us by our third-party partners for financial information regarding the Company's investment in Pillarstone OP. Because Pillarstone OP financial statements as of and for the years ended December 31, 2024, 2023 and 2022 have not been made available to us, we have estimated deficit in earnings and pro rata share of NOI of real estate partnership based on the information available to us at the time of this report."]]
[[/GREPCENT_TABLE]]

Taxes

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

Off-Balance Sheet Arrangements

Guarantees We may guarantee the debt of a real estate partnership primarily because it allows the real estate partnership to obtain funding at a lower cost than could be obtained otherwise. This results in a higher return for the real estate partnership on its investment, and a higher return on our investment in the real estate partnership. We may receive a fee from the real estate partnership for providing the guarantee. Additionally, when we issue a guarantee, the terms of the real estate partnership’s partnership agreement typically provide that we may receive indemnification from the real estate partnership or have the ability to increase our ownership interest. See Note 4 to the accompanying consolidated financial statements for information related to our guarantees of our real estate partnership’s debt as of December 31, 2024 and 2023.