UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One) | |
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2022
OR |
☐ | |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the transition period from ____________ to ____________ |
Commission File Number 001-34855
WHITESTONE REIT
(Exact Name of Registrant as Specified in Its Charter)
Maryland | 76-0594970 | |
(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) | |
2600 South Gessner, Suite 500 | 77063 | |
Houston, Texas | ||
(Address of Principal Executive Offices) | (Zip Code) |
(713) 827-9595
(Registrant'sRegistrant’s Telephone Number, Including Area Code)
N/A
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Shares of Beneficial Interest, par value $0.001 per share | WSR | New York Stock Exchange |
Indicate by check mark whether the registrant:registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” andfiler,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer | ☐ | Accelerated filer | ☒ | |
Non-accelerated filer | ☐ | Small reporting company | ☐ | |
Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
As of November 1, 2017,2, 2022, there were 38,486,707 49,386,066 common shares of beneficial interest, $0.001 par value per share, outstanding.
PART II - OTHER INFORMATION Item 1. Financial Statements. Whitestone REIT and Subsidiaries CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share data) September 30, 2022 December 31, 2021 (unaudited) ASSETS Real estate assets, at cost Property Accumulated depreciation Total real estate assets Investment in real estate partnership Cash and cash equivalents Restricted cash Escrows and acquisition deposits Accrued rents and accounts receivable, net of allowance for doubtful accounts Receivable due from related party Unamortized lease commissions, legal fees and loan costs Prepaid expenses and other assets(1) Total assets LIABILITIES AND EQUITY Liabilities: Notes payable Accounts payable and accrued expenses(2) Payable due to related party Tenants' security deposits Dividends and distributions payable Total liabilities Commitments and contingencies: Equity: Preferred shares, $0.001 par value per share; 50,000,000 shares authorized; none issued and outstanding as of September 30, 2022 and December 31, 2021 Common shares, $0.001 par value per share; 400,000,000 shares authorized; 49,382,809 and 49,144,153 issued and outstanding as of September 30, 2022 and December 31, 2021, respectively Additional paid-in capital Accumulated deficit Accumulated other comprehensive income (loss) Total Whitestone REIT shareholders' equity Noncontrolling interest in subsidiary Total equity Total liabilities and equity See accompanying notes to Consolidated Financial Statements. Whitestone REIT and Subsidiaries CONSOLIDATED BALANCE SHEETS (in thousands) September 30, 2022 December 31, 2021 (unaudited) (1) Operating lease right of use assets (net) (2) Operating lease liabilities See accompanying notes to Consolidated Financial Statements. CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (Unaudited) (in Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Revenues Rental(1) Management, transaction, and other fees Total revenues Operating expenses Depreciation and amortization Operating and maintenance Real estate taxes General and administrative Total operating expenses Other expenses (income) Interest expense (Gain) loss on sale or disposal of assets, net Interest, dividend and other investment income Total other expenses Income before equity investment in real estate partnership and income tax Equity in earnings of real estate partnership Provision for income tax Income from continuing operations Gain on sale of property from discontinued operations Income from discontinued operations Net income Less: Net income attributable to noncontrolling interests Net income attributable to Whitestone REIT See accompanying notes to Consolidated Financial Statements. CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (Unaudited) (in thousands, except per share data) Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Basic Earnings Per Share: Income from continuing operations attributable to Whitestone REIT, excluding amounts attributable to unvested restricted shares Income from discontinued operations attributable to Whitestone REIT Net income attributable to common shareholders, excluding amounts attributable to unvested restricted shares Diluted Earnings Per Share: Income from continuing operations attributable to Whitestone REIT, excluding amounts attributable to unvested restricted shares Income from discontinued operations attributable to Whitestone REIT Net income attributable to common shareholders, excluding amounts attributable to unvested restricted shares Weighted average number of common shares outstanding: Basic Diluted Consolidated Statements of Comprehensive Income Net income Other comprehensive income Unrealized gain on cash flow hedging activities Comprehensive income Less: Net income attributable to noncontrolling interests Less: Comprehensive income attributable to noncontrolling interests Comprehensive income attributable to Whitestone REIT See accompanying notes to Consolidated Financial Statements. CONSOLIDATED (Unaudited) (in thousands) Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 (1) Rental Rental revenues Recoveries Bad debt Total rental See accompanying notes to Consolidated Financial Statements. CONSOLIDATED STATEMENTS OF (Unaudited) (in thousands) Accumulated Additional Other Total Noncontrolling Common Shares Paid-In Accumulated Comprehensive Shareholders’ Interests Total Shares Amount Capital Deficit Gain (Loss) Equity Units Dollars Equity Balance, December 31, 2021 Exchange of noncontrolling interest OP units for common shares Issuance of shares under dividend reinvestment plan Repurchase of common shares (1) Share-based compensation Distributions - $0.1075 per common share / OP unit Unrealized gain on change in value of cash flow hedge Net income Balance, March 31, 2022 Exchange of noncontrolling interest OP units for common shares Issuance of shares under dividend reinvestment plan Repurchase of common shares (1) Share-based compensation Distributions - $0.1200 per common share / OP unit Unrealized gain on change in value of cash flow hedge Net income Balance, June 30, 2022 Exchange of noncontrolling interest OP units for common shares Issuance of shares under dividend reinvestment plan Repurchase of common shares (1) Share-based compensation Distributions - $0.1200 per common share / OP unit Unrealized gain on change in value of cash flow hedge Net income Balance, September 30, 2022 See accompanying notes to Consolidated Financial Statements Whitestone REIT and Subsidiaries CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (Unaudited) (in thousands) Accumulated Additional Other Total Noncontrolling Common Shares Paid-In Accumulated Comprehensive Shareholders’ Interests Total Shares Amount Capital Deficit Gain (Loss) Equity Units Dollars Equity Balance, December 31, 2020 Issuance of shares under dividend reinvestment plan Repurchase of common shares (1) Share-based compensation Distributions - $0.1058 per common share / OP unit Unrealized gain on change in value of cash flow hedge Net income Balance, March 31, 2021 Issuance of common shares - ATM Program, net of offering costs Exchange offer costs Issuance of shares under dividend reinvestment plan Repurchase of common shares (1) Share-based compensation Distributions - $0.1075 per common share / OP unit Unrealized gain on change in value of cash flow hedge Reallocation of ownership between parent and subsidiary Net income Balance, June 30, 2021 Issuance of common shares - ATM Program, net of offering costs Exchange offer costs Issuance of shares under dividend reinvestment plan Repurchase of common shares (1) Share-based compensation Distributions - $0.1075 per common share / OP unit Unrealized gain on change in value of cash flow hedge Reallocation of ownership between parent and subsidiary Net income Balance, September 30, 2021 (1) The Company acquired common shares held by employees who tendered owned common shares to satisfy the tax withholding on the lapse of certain restrictions on restricted common shares. See accompanying notes to Consolidated Financial Statements. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands) Nine Months Ended September 30, 2022 2021 Cash flows from operating activities: Net income from continuing operations Net income from discontinued operations Net income Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization Amortization of deferred loan costs (Gain) loss on sale or disposal of assets, net Bad debt Share-based compensation Equity in earnings of real estate partnership Changes in operating assets and liabilities: Escrows and acquisition deposits Accrued rents and accounts receivable Receivable due from related party Unamortized lease commissions, legal fees and loan costs Prepaid expenses and other assets Accounts payable and accrued expenses Payable due to related party Tenants' security deposits Net cash provided by operating activities Cash flows from investing activities: Acquisitions of real estate Additions to real estate Net cash used in investing activities Net cash provided by investing activities of discontinued operations Cash flows from financing activities: Distributions paid to common shareholders Distributions paid to OP unit holders Proceeds from issuance of common shares, net of offering costs Payments of exchange offer costs Net payments of credit facility Repayments of notes payable Payments of loan origination costs Repurchase of common shares Net cash provided by (used in) financing activities Net decrease in cash, cash equivalents and restricted cash Cash, cash equivalents and restricted cash at beginning of period Cash, cash equivalents and restricted cash at end of period (1) (1) For a reconciliation of cash, cash equivalents and restricted cash, see supplemental disclosures below. See accompanying notes to Consolidated Financial Statements. Whitestone REIT and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands) Nine Months Ended September 30, 2022 2021 Supplemental disclosure of cash flow information: Cash paid for interest Cash paid for taxes Non cash investing and financing activities: Disposal of fully depreciated real estate Financed insurance premiums Value of shares issued under dividend reinvestment plan Value of common shares exchanged for OP units Change in fair value of cash flow hedge September 30, 2022 2021 Cash, cash equivalents and restricted cash Cash and cash equivalents Restricted cash Total cash, cash equivalents and restricted cash See accompanying notes to Consolidated Financial Statements. The use of the words “we,” “us,” “our,” “Company” or “Whitestone” refers to Whitestone REIT and our consolidated subsidiaries, except where the context otherwise requires. 1.INTERIM FINANCIAL STATEMENTS The consolidated financial statements included in this report are unaudited; however, amounts presented in the consolidated balance sheet as of December 31, The consolidated financial statements presented herein reflect all adjustments which, in the opinion of management, are necessary for a fair presentation of the financial position of Whitestone and our subsidiaries as of September 30, Business As of September 30, 2022, these properties consist of: Consolidated Operating Portfolio • 55 wholly owned properties that meet our Community Centered Redevelopment, New Acquisitions Portfolio • five parcels of land held for future development. As of The global health crisis caused by COVID-19 and the related responses intended to control its spread may continue to adversely affect business activity, particularly relating to our retail tenants, across the markets in which we operate. In light of the changing nature of the COVID-19 pandemic, we are unable to predict the extent that its impact will have on our financial condition, results of operations and cash flows. 2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Consolidation. Noncontrolling interest in the accompanying consolidated financial statements represents the share of equity and earnings of the Operating Partnership allocable to holders of partnership interests other than us. Net income or loss is allocated to noncontrolling interests based on the weighted-average percentage ownership of the Operating Partnership during the period. Issuance of additional common shares of beneficial interest in Whitestone (the “common shares”) and units of limited partnership interest in the Operating Partnership that are convertible into cash or, at our option, common shares on a Equity Method. In accordance with ASU 2014-09 (“Topic 606”) and ASC 610, “Other Income-Gains and Losses from the Derecognition of Nonfinancial Assets,” the Company recognizes its investment in Pillarstone OP under the equity method. Basis of Accounting. Use of Estimates. Reclassifications. Restricted Cash. We classify all cash pledged as collateral to secure certain obligations and all cash whose use is limited as restricted cash. During 2015, pursuant to the terms of our $15.1 million 4.99% Note, due January 6, 2024 Derivative Instruments and Hedging Activities. Development Properties. Share-Based Compensation. Noncontrolling Interests. 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, including the impact of the COVID-19 pandemic on tenants’ businesses and financial condition. We recognize an adjustment to rental revenue if we deem it probable that the receivable will not be collected. Our review of collectability under our operating leases includes any accrued rental revenues related to the straight-line method of reporting rental revenue. As of September 30, 2022 and December 31, 2021, we had an allowance for uncollectible accounts of $15.6 million and $14.9 million, respectively. During the three months ending September 30, 2022 and 2021, we recorded an adjustment to rental revenue for bad debt, exclusive of straight-line rent reserve adjustments, in the amount of a $0.4 million decrease to revenue and a $0.2 million increase to revenue, respectively, and during the nine months ended September 30, 2022 and 2021, we recorded a decrease to rental revenue for bad debt, exclusive of straight-line rent reserve adjustment, in the amount of $0.6 million and $0.5 million, respectively. The three months ended September 30, 2022 included 77 cash basis tenants, resulting in a decrease to rental revenue for straight-line rent adjustments of $0.03 million and an increase to rental revenue for bad debt adjustments of $0.2 million, and the three months ended September 30, 2021 included 63 cash basis tenants, resulting in decreases to rental revenue for bad debt and straight-line rent adjustments of $0.2 million and $0.3 million, respectively. The nine months ended September 30, 2022 included 77 cash basis tenants, resulting in decrease to rental revenue for bad debt and straight line rent adjustment of $0.4 million and $0.4 million, respectively, and the nine months ended September 30, 2021 included 63 cash basis tenants, resulting in decreases to rental revenue for bad debt and straight line rent adjustments of $0.6 million and $0.5 million, respectively. Revenue Recognition. All leases on our properties are classified as operating leases, and the related rental income is recognized on a straight-line basis over the terms of the related leases. Differences between rental income earned and amounts due per the respective lease agreements are capitalized or charged, as applicable, to accrued rents and accounts receivable. Percentage rents are recognized as rental income when the thresholds upon which they are based have been met. Recoveries from tenants for taxes, insurance, and other operating expenses are recognized as revenues in the period the corresponding costs are incurred. We combine lease and nonlease components in lease contracts, which includes combining base rent, recoveries, and percentage rents into a single line item, Rental, within the consolidated statements of operations and comprehensive income. Additionally, we have tenants who pay real estate taxes directly to the taxing authority. We exclude these costs paid directly by the tenant to third parties on our behalf from revenue recognized and the associated property operating expense. Other property income primarily includes amounts recorded in connection with management fees and lease termination fees. Pillarstone OP paid us management fees for property management, leasing and day-to-day advisory and administrative services. The management agreement with Pillarstone OP was terminated on August 18, 2022. We recognize lease termination fees in the year that the lease is terminated and collection of the fee is probable. Amounts recorded within other property income are accounted for at the point in time when control of the goods or services transfers to the customer and our performance obligation is satisfied. See our Annual Report on Form Recent Accounting 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 3.LEASES As a Lessor. All leases on our properties are classified as noncancelable operating leases, and the related rental income is recognized on a straight-line basis over the terms of the related leases. Differences between rental income earned and amounts due per the respective lease agreements are capitalized or charged, as applicable, to accrued rents and accounts receivable. Percentage rents are recognized as rental income when the thresholds upon which they are based have been met. Recoveries from tenants for taxes, insurance, and other operating expenses are recognized as revenues in the period the corresponding costs are incurred. We combine lease and nonlease components in lease contracts, which includes combining base rent, recoveries, and percentage rents into a single line item, Rental, within the consolidated statements of operations and comprehensive income. A summary of minimum future rents to be received (exclusive of renewals, tenant reimbursements, contingent rents, and collectability adjustments under Topic 842) under noncancelable operating leases in existence as of September 30, 2022 is as follows (in thousands): Years Ended December 31, Minimum Future Rents(1) 2022 (remaining) 2023 2024 2025 2026 Thereafter Total (1) These amounts do not reflect future rental revenues from the renewal or replacement of existing leases and exclude reimbursements of operating expenses and rental increases that are not fixed. As a Lessee. We have office space, automobile, and office machine leases, which qualify as operating leases, with remaining lease terms of one to three years. The following table summarizes the fixed, future minimum rental payments, excluding variable costs, which are discounted by our weighted average incremental borrowing rates to calculate the lease liabilities for our operating leases in which we are the lessee (in thousands): Years Ended December 31, September 30, 2022 2022 (remaining) 2023 2024 2025 2026 Thereafter Total undiscounted rental payments Less imputed interest Total lease liabilities For the three months ended September 30, 4. ACCRUED RENTS AND ACCOUNTS RECEIVABLE, NET Accrued rents and accounts receivable, net consists of amounts accrued, billed and due from tenants, allowance for doubtful accounts and other receivables as follows (in thousands): September 30, 2022 December 31, 2021 Tenant receivables Accrued rents and other recoveries Allowance for doubtful accounts Other receivables Total 5. UNAMORTIZED LEASE COMMISSIONS, LEGAL FEES AND LOAN COSTS Costs which have been deferred consist of the following (in thousands): September 30, 2022 December 31, 2021 Leasing commissions Deferred legal cost Deferred financing cost Total cost Less: leasing commissions accumulated amortization Less: deferred legal cost accumulated amortization Less: deferred financing cost accumulated amortization Total cost, net of accumulated amortization 6. On December 8, 2016, we, through our Operating Partnership, entered into a Contribution Agreement (the “Contribution Agreement”) with Pillarstone In connection with the Contribution, In connection with the Contribution, on December 8, 2016, the Operating Partnership entered into a Tax Protection Agreement with Pillarstone REIT and Pillarstone OP pursuant to which Pillarstone OP agreed to indemnify the Operating Partnership for certain tax liabilities resulting from its recognition of income or gain prior to December 8, 2021 if such liabilities result from a transaction involving a direct or indirect taxable disposition of all or a portion of the Pillarstone Properties or if Pillarstone OP fails to maintain and allocate to the Operating Partnership for taxation purposes minimum levels of liabilities as specified in the Tax Protection Agreement, the result of which causes such recognition of income or gain and the Company incurs taxes that must be paid to maintain its REIT status for federal income tax purposes. The table below presents the real estate partnership investment in which the Company holds an ownership interest (in thousands): Company’s Investment as of September 30, 2022 December 31, 2021 Real estate partnership Ownership Interest Pillarstone OP(1) 81.4% Total real estate partnership(2)(3) (1) Representing eight property interests and 926,798 square feet of GLA, as of September 30, 2022 and December 31, 2021. (2) On December 26, 2021, the Board of Trustees of Pillarstone REIT adopted a new rights agreement (the “Pillarstone Rights Agreement”), pursuant to which each holder of Pillarstone REIT common stock received one preferred share purchase right (a “Right”) per common share held as of the applicable record date. Each Right entitles the registered holder to purchase from Pillarstone REIT one one-thousandth (a “Unit”) of a series D preferred share of Pillarstone at a purchase price (“Purchase Price”) of $7.00 per Unit, subject to adjustment. The Rights are exercisable upon the occurrence of certain events as described in the Pillarstone Rights Agreement, including the acquisition by certain holders of 5% or more of the common shares of Pillarstone REIT (an “Acquiring Person”). Upon the acquisition of Pillarstone REIT common shares by an Acquiring Person, each holder of a Right (other than an Acquiring Person), will have the right to receive upon exercise a number of Pillarstone REIT common shares having a market value of two times the Purchase Price.As set forth in the Amended and Restated Limited Partnership Agreement of Pillarstone OP, dated as of December 8, 2016 (the “Pillarstone Partnership Agreement”), we have the contractual right to have our limited partnership interests in Pillarstone redeemed at our discretion. However, upon receipt of a redemption notice, Pillarstone OP has the option of the applicable redemption price in cash, based on the market value of Pillarstone REIT common shares, or in Pillarstone REIT common shares. To the extent we seek to have our partnership units in Pillarstone OP redeemed and Pillarstone OP elects to pay the applicable redemption price in Pillarstone REIT common shares (and such shares represent 5% or more of the outstanding common shares of Pillarstone REIT), the Rights could become exercisable. To the extent the Rights are exercised as a result of our Pillarstone OP units being redeemed for Pillarstone REIT common shares, our ownership interest in Pillarstone REIT would be significantly diluted, which could adversely impact the value of our investment in Pillarstone OP. Because the Pillarstone Rights Agreement seeks to prevent Whitestone OP from exercising its contractual Redemption Right, on July 12, 2022, Whitestone OP filed suit against Pillarstone REIT in the Court of Chancery of the State of Delaware challenging the Pillarstone Rights Agreement due to Pillarstone REIT’s breach of the Pillarstone OP partnership agreement, breach of its fiduciary duty as general partner of Pillarstone OP to Whitestone OP, and breach of the implied covenant of good faith and fair dealing under the Pillarstone OP partnership agreement. The lawsuit seeks rescission and voiding of the Pillarstone Rights Agreement; a declaration that the Pillarstone Rights Agreement is unenforceable, invalid, and of no force and effect; an order permanently enjoining enforcement of the Pillarstone Rights Agreement; an award of monetary damages; and broad restrictions on Pillarstone REIT’s ability to conduct its business, including buying properties, enforcing the Rights Agreement, incurring expenses, or engaging in transactions.On September 8, 2022, the Company’s Motion to Preserve the Status Quo was granted by the Court, limiting Pillarstone from engaging in any acts outside the ordinary course of business and otherwise imposing restrictions on Pillarstone to ensure that Whitestone’s right of redemption right is not impaired while the underlying dispute is being considered by the Court.While we do not believe the overall impact of the Pillarstone Rights Agreement on the carrying value of our investment in Pillarstone OP is material, we cannot reasonably estimate a range of possible loss at this time. (3) 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 September 30, 2022 have not been made available to us, we have estimated the value of the investment based on the information available to us at the time of this report. The table below presents the Company’s share of net income (loss) from its investment in the real estate partnership which is included in equity in earnings of real estate partnership, net on the Company’s consolidated statements of operations and comprehensive income (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Pillarstone OP Summarized financial information for the Company’s investment in real estate partnership is as follows (in thousands): September 30, 2022 December 31, 2021 Assets: Real estate, net Other assets Total assets(1) Liabilities and equity: Notes payable Other liabilities Equity Total liabilities and equity(2) Company’s share of equity Cost of investment in excess of the Company’s share of underlying net book value Carrying value of investment in real estate partnership(3) (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 September 30, 2022 have not been made available to us, we have estimated total assets and its components based on the information available to us at the time of this report. (2) We rely on reporting provided to us by our third-party partners for financial information regarding the Company's investment in Pillarstone OP. Because Pillarstone OP financial statements as of September 30, 2022 have not been made available to us, we have estimated total liabilities and equity and its components based on the information available to us at the time of this report. (3) 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 September 30, 2022 have not been made available to us, we have estimated the value of the investment based on the information available to us at the time of this report. Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Revenues Operating expenses Other expenses Net income(1) (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 September 30, 2022 have not been made available to us, we have estimated net income and its components based on the information available to us at the time of this report. The amortization of the The Company has evaluated its guarantee to Pillarstone 7. DEBT Certain subsidiaries of Whitestone are the borrowers under various financing arrangements. These subsidiaries are separate legal entities, and their respective assets and credit are not available to satisfy the debt of Whitestone or any of its other subsidiaries. Debt consisted of the following as of the dates indicated (in thousands): Description September 30, 2022 December 31, 2021 Fixed rate notes $100.0 million, 1.73% plus 1.35% to 1.90% Note (1) $165.0 million, 2.24% plus 1.35% to 1.90% Note (1) $265.0 million, 3.18% plus 1.45% to 2.10% Note, due January 31, 2028 (2) $80.0 million, 3.72% Note, due June 1, 2027 $19.0 million 4.15% Note, due December 1, 2024 $20.2 million 4.28% Note, due June 6, 2023 $14.0 million 4.34% Note, due September 11, 2024 $14.3 million 4.34% Note, due September 11, 2024 $15.1 million 4.99% Note, due January 6, 2024 $2.6 million 5.46% Note, due October 1, 2023 $50.0 million, 5.09% Note, due March 22, 2029 $50.0 million, 5.17% Note, due March 22, 2029 $1.8 million 3.15% Note, due November 28, 2022 Floating rate notes Unsecured line of credit, SOFR plus 1.50% to 2.10%, due September 16, 2026 Total notes payable principal Less deferred financing costs, net of accumulated amortization Total notes payable (1) Loan was fully paid off on September 16, 2022. Promissory note includes an interest rate swap that A number of our current debt agreements have an 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. The principal of the Series A Notes will begin to amortize on March 22, 2023 with annual principal payments of approximately $7.1 million. The principal of the Series B Notes will begin to amortize on March 22, 2025 with annual principal payments of $10.0 million. The Notes will pay interest quarterly on the 22nd day of March, June, September and December in each year until maturity. The Operating Partnership may prepay at any time all, or from time to time part of, the Notes, in an amount not less than $1,000,000 in the case of a partial prepayment, at 100% of the principal amount so prepaid, plus a make-whole amount. The make-whole amount is equal to the excess, if any, of the discounted value of the remaining scheduled payments with respect to the Notes being prepaid over the aggregate principal amount of such Notes (as described in the Note Agreement). In addition, in connection with a Change of Control (as defined in the Note Purchase Agreement), the Operating Partnership is required to offer to prepay the Notes at 100% of the principal amount plus accrued and unpaid interest thereon. The Note Agreement contains representations, warranties, covenants, terms and conditions customary for transactions of this type and substantially similar to the Operating Partnership’s existing senior revolving credit facility, including limitations on liens, incurrence of investments, acquisitions, loans and advances and restrictions on dividends and certain other restricted payments. In addition, the Note Agreement contains certain financial covenants substantially similar to the Operating Partnership’s existing senior revolving credit facility, including the following: • maximum total indebtedness to total asset value ratio of 0.60 to 1.00; • maximum secured debt to total asset value ratio of 0.40 to 1.00; • minimum EBITDA (earnings before interest, taxes, depreciation, amortization or extraordinary items) to fixed charges ratio of 1.50 to 1.00; • maximum other recourse debt to total asset value ratio of 0.15 to 1.00; and • maintenance of a minimum tangible net worth (adjusted for accumulated depreciation and amortization) of $372 million plus 75% of the net proceeds from additional equity offerings (as defined therein). In addition, the Note Agreement contains a financial covenant requiring that maximum unsecured debt not exceed the lesser of (i) an amount equal to 60% of the aggregate unencumbered asset value and (ii) the debt service coverage amount (as described in the Note Agreement). 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 of 1933, as amended (the “Securities Act”), and may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements of the Securities Act. The Notes were sold in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act. On The 2022 Facility • $250.0 million unsecured revolving credit facility with a maturity date of September 16,2026 (the “2022 Revolver”); • $265.0 million unsecured term loan with a maturity date of January 31, 2028 (“Term Loan”). Borrowings under the • 2.16% plus 1.55% through October 28, 2022 • 2.80% plus 1.55% from October 29, 2022 through January 31, 2024 • 3.42% plus 1.55% from February 1, 2024 through January 31, 2028 The 2022 Facility also has a pricing provision where the applicable margin The 2022 Facility includes an accordion feature that will allow the Operating Partnership to increase the borrowing capacity by $200.0 million, upon the satisfaction of certain conditions. As of September 30, 2022, subject to any potential future paydowns or increases in the borrowing base, we have $126.4 million remaining availability under the 2022 Revolver. As of September 30, 2022, $379.5 million was drawn on the 2022 Facility and our unused borrowing capacity was $135.0 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: • maximum total indebtedness to total asset value ratio of 0.60 to 1.00; • maximum secured debt to total asset value ratio of 0.40 to 1.00; • minimum EBITDA (earnings before interest, taxes, depreciation, amortization or extraordinary items) to fixed charges ratio of 1.50 to 1.00; • maximum other recourse debt to total asset value ratio of 0.15 to 1.00; and • 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). We serve as the guarantor for funds borrowed by the Operating Partnership under the 2022Facility. The2022 Facility contains customary terms and conditions, including, without limitation, affirmative and negative covenants such as information reporting requirements, maximum secured indebtedness to total asset value, minimum EBITDA (earnings before interest, taxes, depreciation, amortization or extraordinary items) to fixed charges, and maintenance of a minimum net worth. The 2022Facility also contains customary events of default with customary notice and cure, including, without limitation, nonpayment, breach of covenant, misrepresentation of representations and warranties in a material respect, cross-default to other major indebtedness, change of control, bankruptcy and loss of REIT tax status. As of September 30, Scheduled maturities of our outstanding debt as of September 30, Year Amount Due 2022 (remaining) 2023 2024 2025 2026 Thereafter Total 8.DERIVATIVES AND HEDGING ACTIVITIES The fair value of our interest rate swaps is as follows (in thousands): September 30, 2022 Balance Sheet Location Estimated Fair Value Prepaid expenses and other assets December 31, 2021 Balance Sheet Location Estimated Fair Value Accounts payable and accrued expenses On On November 19, 2015, we, through our Operating Partnership, entered into On A summary of our interest rate swap activity is as follows (in thousands): Location of Income (Loss) Recognized in Earnings Amount of Income (Loss) Recognized in Earnings (1) Three Months Ended September 30, 2022 Interest expense Three Months Ended September 30, 2021 Interest expense Nine Months Ended September 30, 2022 Interest expense Nine Months Ended September 30, 2021 Interest expense (1) There was no ineffective portion of our interest rate swaps to recognize in earnings for the three and nine months ended 9.EARNINGS PER SHARE Basic earnings per share for our common shareholders is calculated by dividing net income Certain of our performance-based restricted common shares are considered participating securities that require the use of the Three Months Ended September 30, Nine Months Ended September 30, (in thousands, except per share data) 2022 2021 2022 2021 Numerator: Income from continuing operations Less: Net income attributable to noncontrolling interests Income from continuing operations attributable to Whitestone REIT excluding amounts attributable to unvested restricted shares Income from discontinued operations Less: Net income attributable to noncontrolling interests Income from discontinued operations attributable to Whitestone REIT Net income attributable to common shareholders excluding amounts attributable to unvested restricted shares Denominator: Weighted average number of common shares - basic Effect of dilutive securities: Unvested restricted shares Weighted average number of common shares - dilutive Earnings Per Share: Basic: Income from continuing operations attributable to Whitestone REIT excluding amounts attributable to unvested restricted shares Income from discontinued operations attributable to Whitestone REIT Net income attributable to common shareholders excluding amounts attributable to unvested restricted shares Diluted: Income from continuing operations attributable to Whitestone REIT excluding amounts attributable to unvested restricted shares Income from discontinued operations attributable to Whitestone REIT Net income attributable to common shareholders excluding amounts attributable to unvested restricted shares 10. INCOME TAXES With the exception of our taxable REIT subsidiaries, federal income taxes are generally not provided because we intend to and believe we continue to qualify as a REIT under the provisions of the Internal Revenue Code of 1986, as amended (the “Code”), and because we have distributed and intend to continue to distribute all of our taxable income to our shareholders. As a REIT, we must distribute at least 90% of our REIT taxable income to our shareholders and meet certain income sources and investment restriction requirements. In addition, REITs are subject to a number of organizational and operational requirements. If we fail to qualify as a REIT in any taxable year, we will be subject to federal income tax (including any applicable alternative minimum tax) on our taxable income at regular corporate tax rates. We are subject to the Texas Margin Tax, which is computed by applying the applicable tax rate 11.EQUITY Common Shares Under our declaration of trust, as amended, we have authority to issue up to Equity Offerings On On We have in the past, and expect to in the future, enter into at-the-market equity distribution programs providing for the issuance and sale of common shares. Actual sales will depend on a variety of factors determined by us from time to time, including (among others) market conditions, the trading price of our common shares, capital needs and our determinations of the appropriate sources of funding for us, and were made in transactions that will be deemed to be “at-the-market” offerings as defined in Rule 415 under the Securities Act of 1933, as amended (the "Securities Act"). For the three and nine months ended September 30, 2022, we did not sell Operating Partnership Units Substantially all of our business is conducted through our Operating Partnership. We are the sole general partner of the Operating Partnership. As of September 30, Limited partners in the Operating Partnership holding OP units have the right to redeem their OP units for cash or, at our option, common shares at a ratio of Distributions The following table summarizes the cash distributions paid or payable to holders of common shares and to holders of noncontrolling OP units during each quarter Common Shares Noncontrolling OP Unit Holders Total Quarter Paid Distributions Per Common Share Amount Paid Distributions Per OP Unit Amount Paid Amount Paid 2022 Third Quarter Second Quarter First Quarter Total 2021 Fourth Quarter Third Quarter Second Quarter First Quarter Total The Board will regularly reassess the dividend, particularly as there is more clarity on the duration and severity of the COVID-19 pandemic and as business conditions improve. 12.INCENTIVE SHARE PLAN The Company’s 2008 Long-Term Equity Incentive Ownership Plan (as amended, the “2008 Plan”) expired in July The Compensation Committee On March 16, 2018, the Compensation Committee approved the grant of an aggregate of 387,499 time-based restricted common share units under the 2008 Plan, which vest annually in three equal installments, and 4,300 performance-based restricted common share units to certain of our employees. On December 1, 2018, the Compensation Committee approved the grant of an aggregate of 229,684 performance-based restricted common share units with market-based vesting conditions (“TSR Units”) under the 2018 Plan to certain of our employees. Vesting is contingent upon achieving Total Shareholder Return relative to the peer group defined in the TSR Unit award agreements over a three-year performance period. At the end of the performance period, the number of common shares awarded for each vested TSR Unit will vary from 0% to 200% depending on the Company’s TSR Peer Group Ranking. Continued employment is required through the vesting date. The grant date fair value for each TSR Unit of $14.89 was determined using the Monte Carlo simulation method and was recognized as share-based compensation expense ratably from the December 1, 2018 grant date to the end of the performance period, December 31, 2020. The Monte Carlo simulation model utilizes multiple input variables that determine the probability of satisfying the market condition stipulated in the award grant and calculates the fair value of the award. Expected volatilities utilized in the model were estimated using a historical period consistent with the performance period of approximately three years. The risk-free interest rate was based on the United States Treasury rate for a term commensurate with the expected life of the grant. On January 1, 2021, the remaining unvested 208,210 TSR Units that were granted on December 1, 2018 vested at a 50% achievement into 104,105 common shares. On June 30, 2019, the Compensation Committee approved the grant of an aggregate of 405,417 TSR Units and 317,184 time-based restricted common share units under the 2018 Plan to certain of our employees. On September 30, 2019, the Compensation Committee approved the grant of 17,069 time-based restricted common share units under the 2018 Plan to certain of our employees. Vesting of the TSR Units is contingent upon achieving Total Shareholder Return relative to the peer group defined in the TSR Unit award agreements over a three-year performance period. At the end of the performance period, the number of common shares awarded for each vested TSR Unit will vary from 0% to 200% depending on the Company’s TSR Peer Group Ranking. Continued employment is required through the vesting date. The grant date fair value for each TSR Unit of $8.22 was determined using the Monte Carlo simulation method and is being recognized as share-based compensation expense ratably from the June 30, 2019 grant date to the end of the performance period, December 31, 2021. The Monte Carlo simulation model utilizes multiple input variables that determine the probability of satisfying the market condition stipulated in the award grant and calculates the fair value of the award. Expected volatilities utilized in the model were estimated using a historical period consistent with the performance period of approximately three years. The risk-free interest rate was based on the United States Treasury rate for a term commensurate with the expected life of the grant. On December 31, 2021, the remaining unvested 385,648 TSR Units that were granted on June 30, 2019 and September 30, 2019 vested at 0% attainment into 0 common shares. The time-based restricted common share units have a grant date fair value of $10.63 and $11.69 and vest annually in three equal installments for the June 30, 2019 and September 30, 2019 grants, respectively. On July 31, 2020, the Compensation Committee approved the grant of an aggregate of 545,000 TSR Units and 530,000 time-based restricted common share units under the 2018 Plan to certain of our employees. Vesting of the TSR Units is contingent upon achieving Total Shareholder Return relative to the peer group defined in the TSR Unit award agreements over a three-year performance period. At the end of the performance period, the number of common shares awarded for each vested TSR Unit will vary from 0% to 200% depending on the Company’s TSR Peer Group Ranking. Continued employment is required through the vesting date. The grant date fair value for each TSR Unit of $5.55 was determined using the Monte Carlo simulation method and is being recognized as share-based compensation expense ratably from the July 31, 2020 grant date to the end of the performance period, December 31, 2022. The Monte Carlo simulation model utilizes multiple input variables that determine the probability of satisfying the market condition stipulated in the award grant and calculates the fair value of the award. Expected volatilities utilized in the model were estimated using a historical period consistent with the performance period of approximately three years. The risk-free interest rate was based on the United States Treasury rate for a term commensurate with the expected life of the grant. The time-based restricted common share units have a grant date fair value of $5.83 and vest annually in three equal installments. On March 17, 2021, the Compensation Committee approved the grant of an aggregate of 2,490 common share units under the 2018 Plan to certain of our employees. The common share units had a grant date fair value of $10.04 each and vested immediately. On June 30, 2021, the Compensation Committee approved the grant of an aggregate of 433,200 TSR Units and 433,200 time-based restricted common share units under the 2018 Plan to certain of our employees. Vesting of the TSR Units is contingent upon achieving Total Shareholder Return relative to the peer group defined in the TSR Unit award agreements over a three-year performance period. At the end of the performance period, the number of common shares awarded for each vested TSR Unit will vary from 0% to 200% depending on the Company’s TSR Peer Group Ranking. Continued employment is required through the vesting date. The grant date fair value for each TSR Unit of $4.17 was determined using the Monte Carlo simulation method and is being recognized as share-based compensation expense ratably from the June 30, 2021 grant date to the end of the performance period, December 31, 2023. The Monte Carlo simulation model utilizes multiple input variables that determine the probability of satisfying the market condition stipulated in the award grant and calculates the fair value of the award. Expected volatilities utilized in the model were estimated using a historical period consistent with the performance period of approximately three years. The risk-free interest rate was based on the United States Treasury rate for a term commensurate with the expected life of the grant. The time-based restricted common share units have a grant date fair value of $7.51 and vest annually in three equal installments. The 433,200 TSR Units granted on June 30, 2021 include 111,465 TSR Units that will be converted into the right to receive cash in the amount of the fair market value of the common shares to the extent that common shares are not available for issuance under the 2018 Plan. On September 30, 2021, the Compensation Committee approved the grant of an aggregate of 5,500 time-based restricted common share units under the 2018 Plan to certain of our employees. The time-based common share units had a grant date fair value of $9.06 each and vest annually in three equal installments. On March 28, 2022, the Compensation Committee approved the grant of an aggregate of 162,556 TSR Units and 162,556 time-based restricted common share units under the 2018 Plan to certain of our employees. Vesting of the TSR Units is contingent upon achieving Total Shareholder Return relative to the peer group defined in the TSR Unit award agreements over a three-year performance period. At the end of the performance period, the number of common shares awarded for each vested TSR Unit will vary from 0% to 200% depending on the Company’s TSR Peer Group Ranking. Continued employment is required through the vesting date. The grant date fair value for each TSR Unit of $13.74 was determined using the Monte Carlo simulation method and is being recognized as share-based compensation expense ratably from the June 30, 2022 grant date to the end of the performance period, December 31, 2024. The Monte Carlo simulation model utilizes multiple input variables that determine the probability of satisfying the market condition stipulated in the award grant and calculates the fair value of the award. Expected volatilities utilized in the model were estimated using a historical period consistent with the performance period of approximately three years. The risk-free interest rate was based on the United States Treasury rate for a term commensurate with the expected life of the grant. The time-based restricted common share units have a grant date fair value of $9.94 and vest annually in three equal installments. A summary of the share-based incentive plan activity as of and for the nine months ended September 30, Weighted Average Grant Date Shares Fair Value Non-vested at January 1, 2022 Granted Vested Forfeited Non-vested at September 30, 2022 Available for grant at September 30, 2022 A summary of our non-vested and vested shares activity for the nine months ended September 30, Shares Granted Shares Vested Non-Vested Shares Issued Vested Shares Total Vest-Date Fair Value (in thousands) Nine Months Ended September 30, 2022 Year Ended December 31, 2021 Year Ended December 31, 2020 Total compensation recognized in earnings for share-based payments was Based on our current financial projections, we expect approximately We expect to record approximately 13. GRANTS TO TRUSTEES On December 14. SEGMENT INFORMATION Historically, our management has not differentiated results of operations by property type or location and, therefore, does not present segment information. 15. REAL ESTATE Property On 16.RELATED PARTY TRANSACTIONS The Contribution. Prior to his employment termination, January 18, 2022, Mr. James C. Mastandrea, the former Chairman and Chief Executive Officer of Whitestone REIT, also served as the Chairman and Chief Executive Officer of Pillarstone REIT and beneficially owns approximately 66.7% of the outstanding equity in Pillarstone REIT (when calculated in accordance with Rule 13d-3(d)(1) under the Exchange Act of 1934, as amended (the “Exchange Act”)). He resigned as a member of the Board of Whitestone REIT on April 18, 2022. Prior to his employment termination, February 9, 2022, Mr. John J. Dee, the Company’s former Chief Operating Officer and Corporate Secretary, also served as the Senior Vice President and Chief Financial Officer of Pillarstone REIT and beneficially owns approximately 20.0% of the outstanding equity in Pillarstone REIT (when calculated in accordance with Rule 13d-3(d)(1) under the Exchange Act). In addition, Mr. Paul T. Lambert, a Trustee of the Company, also serves as a Trustee of Pillarstone REIT. Pillarstone OP. The Company accounts for its investment in Pillarstone OP under the equity method. During the ordinary course of business, we had transactions with Pillarstone OP that include, but are not limited to, rental income, interest expense, general and administrative costs, commissions, management and asset management fees, and property expenses. The management agreement was terminated on August 18, 2022. The following Three Months Ended September 30, Nine Months Ended September 30, Location of Revenue (Expense) 2022 2021 2022 2021 Rent Operating and maintenance Property management fee income Management, transaction, and other fees 17.COMMITMENTS AND CONTINGENCIES Litigation between the Company and Pillarstone REIT On September 16, 2022, Pillarstone Capital REIT and Pillarstone Capital REIT Operating Partnership, L.P. filed suit against the Company and certain of its subsidiaries (Whitestone TRS, Inc. and Whitestone REIT Operating Partnership, L.P.) along with certain of its executives (Peter Tropoli, Christine Mastandrea, and David Holeman) in the District Court of Harris County, Texas, alleging claims relating to the limited partnership agreement between Pillarstone Capital REIT and Whitestone REIT Operating Partnership, as Former CEO Litigation On February 23, 2022, the Company’s former CEO, James Mastandrea, filed suit against the Company and certain of its trustees (Nandita Berry, Jeff Jones, Jack Mahaffey, and David Taylor) and officers (David Holeman, Christine Mastandrea, Peter Tropoli) in the District Court of Harris County, Texas, alleging claims relating to the termination of claimant’s employment. Claimant purports to assert claims for breach of contract, breach of fiduciary duties, tortious interference with contract, civil conspiracy, and declaratory judgment. The claimant seeks a maximum of $25 million in damages and equitable relief. However, the Company denies the claims, has substantial legal and factual defenses against the claims, and intends to vigorously defend against the claims. The Company does not believe a probable loss will be incurred, nor does it anticipate a material adverse effect on its financial position, results of operations, cash flows or liquidity. Therefore, the Company has not recorded a charge as a result of this action. Pillarstone Rights Plan On December 26, 2021, the Board of Trustees of Pillarstone REIT adopted a new rights agreement (the “Pillarstone Rights Agreement”), pursuant to which each holder of Pillarstone REIT common stock received one preferred share purchase right (a “Right”) per common share held as of the applicable record date. Each Right entitles the registered holder to purchase from Pillarstone REIT one one-thousandth (a “Unit”) of a series D preferred share of Pillarstone at a purchase price (“Purchase Price”) of $7.00 per Unit, subject to adjustment. The Rights are exercisable upon the occurrence of certain events as described in the Pillarstone Rights Agreement, including the acquisition by certain holders of 5% or more of the common shares of Pillarstone REIT (an “Acquiring Person”). Upon the acquisition of As set forth in the Amended and Restated Limited Partnership Agreement of Pillarstone OP, dated as of December 8, 2016 (the “Pillarstone Partnership Agreement”), we have the contractual right to have our limited partnership interests in Pillarstone redeemed at our discretion. However, upon receipt of a redemption notice, Pillarstone OP has the option of the applicable redemption price in cash, based on Because the Pillarstone Rights Agreement seeks to prevent Whitestone OP from exercising its contractual Redemption Right, on July 12, 2022, Whitestone OP filed suit against Pillarstone REIT in the Court of Chancery of the State of Delaware challenging the Pillarstone Rights Agreement due to Pillarstone REIT’s breach of the Pillarstone OP partnership agreement, breach of its fiduciary duty as general partner of Pillarstone OP to Whitestone OP, and On September 8, 2022, the Company’s Motion to Preserve the Status Quo was granted by the Court, limiting Pillarstone from engaging in any acts outside the ordinary course of business and otherwise imposing restrictions on Pillarstone to ensure that Whitestone’s right of redemption right is not impaired while the underlying dispute is being considered by the Court. While we do not believe the overall impact of the Pillarstone Rights Agreement on the carrying value of our investment in Pillarstone OP is material, we cannot reasonably estimate a range of possible loss at this time. We are subject to various legal proceedings and claims that arise in the ordinary course of business. These matters are generally covered by insurance. While the resolution of these matters cannot be predicted with certainty, management believes the final outcome of such matters will not have 18.SUBSEQUENT EVENTS On October 31, On November 4, 2022, we had three properties and one pad site under the contract to sell. We expect to complete the sale of these properties by December 1, 2022. Item 2. You should read the following discussion of our financial condition and results of operations in conjunction with our unaudited consolidated financial statements and the notes thereto included in this Quarterly Report on Form 10-Q Forward-Looking Statement This Report contains forward-looking statements within the meaning of the federal securities laws, including discussion and analysis of our financial condition, pending acquisitions and the impact of such acquisitions on our financial condition and results of operations, anticipated capital expenditures required to complete projects, amounts of anticipated cash distributions to our shareholders in the future and other matters. These forward-looking statements are not historical facts but are the intent, belief or current expectations of our management based on its knowledge and understanding of our business and industry. Forward-looking statements are typically identified by the use of terms such as “may,” “will,” “should,” “potential,” “predicts,” “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates” or the negative of such terms and variations of these words and similar expressions, although not all forward-looking statements include these words. These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, some of which are beyond our control, are difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements. Forward-looking statements that were true at the time made may ultimately prove to be incorrect or false. You are cautioned not to place undue reliance on forward-looking statements, which reflect our Factors that could cause actual results to differ materially from any forward-looking statements made in this Report include: • the imposition of federal income taxes if we fail to qualify as a real estate investment trust (“REIT”) in any taxable year or forego an opportunity to ensure REIT status; • uncertainties related to the national economy, the real estate industry in general and in our specific markets; • legislative or regulatory changes, including changes to laws governing REITs; • adverse economic or real estate developments or conditions in Texas or Arizona, Houston and Phoenix in particular, including the potential impact of COVID-19 on our tenants’ ability to pay their rent, which could result in bad debt allowances or straight-line rent reserve adjustments; • inflation and increases in interest rates, operating costs or general and administrative expenses; • availability and terms of capital and financing, both to fund our operations and to refinance our indebtedness as it matures; • decreases in rental rates or increases in vacancy rates; • litigation risks; • lease-up risks, including leasing risks arising from exclusivity and consent provisions in leases with significant tenants; • our inability to renew tenant leases or obtain new tenant leases upon the expiration of existing leases; • our inability to generate sufficient cash flows due to market conditions, competition, uninsured losses, changes in tax or other applicable laws; • geopolitical conflicts, such as the ongoing conflict between Russia and Ukraine; • the need to fund tenant improvements or other capital expenditures out of operating cash flow; and • the risk that we are unable to raise capital for working capital, acquisitions or other uses on attractive terms or at all. The forward-looking statements should be read in light of these factors and the factors identified in the “Risk Factors” Overview We are a fully-integrated real estate company that In October 2006, We serve as the general partner of Whitestone REIT Operating Partnership, L.P. (the “Operating Partnership”), which was formed on December 31, 1998 as a Delaware limited partnership. We currently conduct substantially all of our operations and activities through the Operating Partnership. As the general partner of the Operating Partnership, we have the exclusive power to manage and conduct the business of the Operating Partnership, subject to certain customary exceptions. As of September 30, Consolidated Operating Portfolio • 55 wholly owned properties that meet our Community Centered Redevelopment, New Acquisitions Portfolio • five parcels of land held for future development that meet our Community Centered As of September 30, We employed Real Estate Partnership As of September 30, 2022, we, COVID-19 The global health crisis caused by COVID-19 and the Inflation We anticipate that the majority of our leases will continue to be triple-net leases or otherwise provide that tenants pay for increases in operating expenses and will contain provisions that we believe will mitigate the effect of inflation. In addition, many of our leases are for terms of less than five years, which allows us to adjust rental rates to reflect inflation and other changing market conditions when the leases expire. Consequently, increases due to inflation, as well as ad valorem tax rate increases, generally do not have a significant adverse effect upon our operating results. Rising Interest Rates As of September 30, 2022, $114.5 million, or approximately 18% of our outstanding debt, was subject to floating interest rates of SOFR plus 1.60% and a 10 basis point credit spread adjustment and not currently subject to a hedge. The impact of a 1% increase or decrease in interest rates on our non-hedged variable rate debt would result in a decrease or increase of annual net income of approximately $1.1 million, respectively. How We Derive Our Revenue Substantially all of our revenue is derived from rents received from leases at our properties. We had 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. We tend to lease space to smaller businesses that desire shorter term leases. As of September 30, Acquisitions We Property Acquisitions, Dispositions and Development We seek to acquire commercial properties in high-growth markets. Our acquisition targets are properties that fit our Community Centered On December On Leasing Activity As of September 30, 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 New Leases Total Number of Leases Signed GLA Signed Weighted Average Lease Term (2) TI and Incentives per Sq. Ft. (3) Contractual Rent Per Sq. Ft. (4) Non-Comparable Renewal Leases New Leases Total (1) Comparable leases represent leases signed on spaces for which there was a former tenant within the last twelve months and the new or renewal square footage was within 25% of the expired square footage. (2) Weighted average lease term is determined on the basis of square footage. (3) Estimated amount per signed leases. Actual cost of construction may vary. Does not include first generation costs for tenant improvements (“TI”) and leasing commission costs needed for new acquisitions or redevelopment of a property to bring to operating standards for its intended use. (4) Contractual minimum rent under the new lease for the first month, excluding concessions. (5) Contractual minimum rent under the prior lease for the final month. Critical Accounting Policies In preparing the consolidated financial statements, we have made estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenue and expenses during the reported periods. Actual results may differ from these estimates. A summary of our critical accounting policies is included in our Annual Report on Form 10-K for the year ended December 31, Comparison of the Three Months EndedSeptember 30, The following table provides a Three Months Ended September 30, 2022 2021 Number of properties owned and operated Aggregate GLA (sq. ft.)(1) Ending occupancy rate - operating portfolio (1) Ending occupancy rate Total revenues Total operating expenses Total other expense Income before equity investment in real estate partnership and income tax Equity (deficit) in earnings of real estate partnership Provision for income tax Income from continuing operations Gain on sale of property from discontinued operations Net income Less: Net income attributable to noncontrolling interests Net income attributable to Whitestone REIT Funds from operations(2) Property net operating income(3) Distributions paid on common shares and OP units Distributions per common share and OP unit Distributions paid as a percentage of funds from operations (1) Excludes (i) new acquisitions, through the earlier of attainment of 90% occupancy or 18 months of ownership, and (ii) properties that are undergoing significant redevelopment or re-tenanting. (2) For (3) For We Revenues. The primary components of Three Months Ended September 30, Revenue 2022 2021 Change % Change Same Store Rental revenues (1) Recoveries (2) Bad debt (3) Total rental Other revenues Same Store Total Non-Same Store and Management Fees Rental revenues (4) Recoveries (4) Bad debt (4) Total rental Other revenues (4) Management fees Non-Same Store and Management Fees Total Total revenue (1) The Same Store rental revenues increase of $1,413,000 resulted from an increase of $733,000 from higher average leased square feet from 4,459,582 to 4,558,628, and an increase of $680,000 from higher average rent per leased square foot from $20.32 to $20.92. Same Store rental revenues include straight-line rent write offs for tenants converted to cash basis accounting of an increase of $28,000 and a decrease of $254,000 for the three months ended September 30, 2022 and 2021, respectively. (2) The Same Store recoveries revenue increase of $1,100,000 is primarily attributable to increases in operating and maintenance expenses. Operating expenses generally decreased as a result of cost saving initiatives during the COVID-19 pandemic in 2021 and increased back to normal levels in 2022. Our recovery revenue from tenants generally increases as the related operating and real estate tax expenses increase. (3) During the three months ended September 30, 2022 and 2021, Same Store bad debt includes an adjustment of $247,000 and $24,000, respectively, from cash basis accounting. (4) Non-Same Store rental revenue includes Lakeside Market (acquired on July 8, 2021) and Anderson Arbor (acquired on December 1, 2021). Operating expenses. The Three Months Ended September 30, Operating Expenses 2022 2021 Change % Change Same Store Operating and maintenance (1) Real estate taxes (2) Same Store total Non-Same Store and affiliated company rents Operating and maintenance (3) Real estate taxes (3) Affiliated company rents (4) Non-Same Store and affiliated company rents total Depreciation and amortization General and administrative (5) Total operating expenses (1) The $1,491,000 Same Store operating and maintenance cost increase included $531,000 in increased labor, $443,000 in increased repair costs, $228,000 in increased utilities costs, $210,000 in increased contract services costs, $79,000 in other costs. Cost saving initiatives implemented by the Company in 2021 in response to the COVID-19 pandemic generally lowered operating and maintenance costs during three months ended September 30, 2021. Operating and maintenance costs were closer to normal levels during the three months ended September 30, 2022. (2) Same Store real estate taxes decrease includes $297,000 in real estate taxes decreases due to reduced property tax rates. (3) Non-Same Store rental expenses includes Lakeside Market (acquired on July 8, 2021) and Anderson Arbor (acquired on December 1, 2021). (4) 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 are scheduled to expire on January 31, 2023 and February 28, 2023. (5) The general and administrative expense decrease is attributable to $389,000 in increased legal expenses and $98,000 in other costs, offset by decreases from $634,000 in payroll costs, $622,000 in share based compensation and $71,000 in professional fees. The increase in legal expenses, and the decrease in payroll and share based compensation during the three months ended September 30, 2022 compared to the prior year period primarily relate to leadership changes and associated litigations. Other expenses Three Months Ended September 30, Other Expenses (Income) 2022 2021 Change % Change Interest expense (1) (Gain) loss on sale or disposal of assets, net Interest, dividend and other investment income Total other expense (1) Equity in earnings Same Store Three Months Ended September 30, Increase % Increase 2022 2021 (Decrease) (Decrease) Same Store (53 properties, excluding development land) Property revenues Rental Management, transaction and other fees Total property revenues Property expenses Property operation and maintenance Real estate taxes Total property expenses Total property revenues less total property expenses Same Store straight-line rent adjustments Same Store amortization of above/below market rents Same Store lease termination fees Same Store NOI(1) (1) See below for a reconciliation of property net operating income to net income. Three Months Ended September 30, PROPERTY NET OPERATING INCOME (“NOI”) 2022 2021 Net income attributable to Whitestone REIT General and administrative expenses Depreciation and amortization Equity in earnings of real estate partnership(1) Interest expense Interest, dividend and other investment income Provision for income taxes Gain on sale of property from discontinued operations Management fee, net of related expenses Loss on sale or disposal of assets, net NOI of real estate partnership (pro rata)(1) Net income attributable to noncontrolling interests NOI Non-Same Store NOI (2) NOI of real estate partnership (pro rata)(1) NOI less Non-Same Store NOI and NOI of real estate partnership (pro rata) Same Store straight-line rent adjustments Same Store amortization of above/below market rents Same Store lease termination fees Same Store NOI (3) (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 September 30, 2022 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. (2) We define “Non-Same Store” as properties that have been acquired since the beginning of the period being compared and properties that have been sold, but not classified as discontinued operations. For purposes of comparing the three months ended September 30, 2022 to the three months ended September 30, 2021, Non-Same Store includes properties acquired between July 1, 2021 and September 30, 2022 and properties sold between July 1, 2021 and September 30, 2022, but not included in discontinued operations. (3) We define “Same Store” as properties that have been owned during the entire period being compared. For purposes of comparing the three months ended September 30, 2022 to the three months ended September 30, 2021, Same Store includes properties owned before July 1, 2021 and not sold before September 30, 2022. Straight-line rent adjustments, above/below market rents, and lease termination fees are excluded. Comparison of the Nine Months Ended September 30, The following table provides a Nine Months Ended September 30, 2022 2021 Number of properties owned and operated Aggregate GLA (sq. ft.)(1) Ending occupancy rate - operating portfolio (1) Ending occupancy rate Total revenues Total operating expenses Total other expense Income before equity investment in real estate partnership and income tax Equity in earnings of real estate partnership Provision for income tax Income from continuing operations Gain on sale of property from discontinued operations Net income Less: Net income attributable to noncontrolling interests Net income attributable to Whitestone REIT Funds from operations(2) Property net operating income(3) Distributions paid on common shares and OP units Distributions per common share and OP unit Distributions paid as a percentage of funds from operations (1) Excludes (i) new acquisitions, through the earlier of attainment of 90% occupancy or 18 months of ownership, and (ii) properties that are undergoing significant redevelopment or re-tenanting. (2) For (3) For We Revenues. The primary components of Nine Months Ended September 30, Revenue 2022 2021 Change % Change Same Store Rental revenues (1) Recoveries (2) Bad debt (3) Total rental Other revenues Same Store Total Non-Same Store and Management Fees Rental revenues (4) Recoveries (4) Bad debt (4) Total rental Other revenues (4) Management fees Non-Same Store and Management Fees Total Total revenue (1) The Same Store rental revenues increase of $4,606,000 resulted from an increase of $2,143,000 from higher average leased square feet from 4,417,754 to 4,560,769, and an increase of $2,463,000 from higher average rent per leased square foot from $20.01 to $20.73. Same Store rental revenues include straight-line rent write offs for tenants converted to cash basis accounting of $435,000 and $482,000 for the nine months ended September 30, 2022 and 2021, respectively. (2) The Same Store recoveries revenue increase of $3,599,000 is primarily attributable to increases in operating and maintenance expenses. Operating expenses generally decreased as a result of cost saving initiatives during the COVID-19 pandemic in 2021 and increased back to normal levels in 2022. Our recovery revenue from tenants generally increases as the related operating and real estate tax expenses increase. (3) During the nine months ended September 30, 2022 and 2021, Same Store bad debt includes an adjustment of $413,000 and $602,000, respectively, from cash basis accounting. (4) Non-Same Store rental revenue includes Lakeside Market (acquired on July 8, 2021) and Anderson Arbor (acquired on December 1, 2021). Operating expenses. The Nine Months Ended September 30, Operating Expenses 2022 2021 Change % Change Same Store Operating and maintenance (1) Real estate taxes Same Store total Non-Same Store and affiliated company rents Operating and maintenance (2) Real estate taxes (2) Affiliated company rents (3) Non-Same Store and affiliated company rents total Depreciation and amortization General and administrative (4) Total operating expenses (1) The $2,734,000 Same Store operating and maintenance cost increase included $907,000 in increased repair costs, $741,000 in increased labor costs, $516,000 in increased contract services costs, $430,000 in increased utilities costs, and $140,000 in increased other costs. Cost saving initiatives implemented by the Company in 2021 in response to the COVID-19 pandemic generally lowered operating and maintenance costs during nine months ended September 30, 2021. Operating and maintenance costs were closer to normal levels during the nine months ended September 30, 2022. (2) Non-Same Store rental expenses includes Lakeside Market (acquired on July 8, 2021) and Anderson Arbor (acquired on December 1, 2021). (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 are scheduled to expire on January 31, 2023 and February 28, 2023. (4) The general and administrative expense decrease is attributable to decreases in share based compensation of $3,826,000 and $2,007,000 in payroll costs, offset by increased legal expenses of $2,303,000 and other G&A expenses of $557,000. The increases in legal and G&A expenses, and the decrease in payroll and share based compensation during the nine months ended September 30, 2022 compared to the prior year period primarily relate to previously disclosed leadership changes and associated litigations Other expenses Nine Months Ended September 30, Other Expenses (Income) 2022 2021 Change % Change Interest expense (1) (Gain) loss on sale or disposal of assets, net Interest, dividend and other investment income Total other expense (1) Equity in earnings Same Store Nine Months Ended September 30, Increase % Increase 2022 2021 (Decrease) (Decrease) Same Store (53 properties, excluding development land) Property revenues Rental Management, transaction and other fees Total property revenues Property expenses Property operation and maintenance Real estate taxes Total property expenses Total property revenues less total property expenses Same Store straight-line rent adjustments Same Store amortization of above/below market rents Same Store lease termination fees Same Store NOI(1) (1) See below for a reconciliation of property net operating income to net income. Nine Months Ended September 30, PROPERTY NET OPERATING INCOME (“NOI”) 2022 2021 Net income attributable to Whitestone REIT General and administrative expenses Depreciation and amortization Equity in earnings of real estate partnership(1) Interest expense Interest, dividend and other investment income Provision for income taxes Gain on sale of property from discontinued operations Management fee, net of related expenses (Gain) loss on sale or disposal of assets, net NOI of real estate partnership (pro rata)(1) Net income attributable to noncontrolling interests NOI Non-Same Store NOI (2) NOI of real estate partnership (pro rata)(1) NOI less Non-Same Store NOI and NOI of real estate partnership (pro rata) Same Store straight-line rent adjustments Same Store amortization of above/below market rents Same Store lease termination fees Same Store NOI (3) (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 September 30, 2022 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. (2) We define “Non-Same Store” as properties that have been acquired since the beginning of the period being compared and properties that have been sold, but not classified as discontinued operations. For purposes of comparing the nine months ended September 30, 2022 to the nine months ended September 30, 2021, Non-Same Store includes properties acquired between January 1, 2021 and September 30, 2022 and properties sold between January 1, 2021 and September 30, 2022, but not included in discontinued operations. (3) We define “Same Store” as properties that have been owned during the entire period being compared. For purposes of comparing the nine months ended September 30, 2022 to the nine months ended September 30, 2021, Same Store includes properties owned before January 1, 2021 and not sold before September 30, 2022. Straight-line rent adjustments, above/below market rents, and lease termination fees are excluded. Reconciliation of Non-GAAP Financial Measures Funds From Operations The National Association of Real Estate Investment Trusts (“NAREIT”) defines FFO as net income Normalized Funds from Operations (“Normalized FFO”) is a non-GAAP measure. We define Normalized FFO as FFO excluding extinguishment of debt costs. Management uses FFO and Normalized FFO as a supplemental measure to conduct and evaluate our business because there are certain limitations associated with using Historical cost accounting for real estate assets in accordance with FFO and Normalized FFO should not be considered as an alternative to net income or other measurements under Below are the calculations of FFO and Normalized FFO Three Months Ended September 30, Nine Months Ended September 30, FFO (NAREIT) AND NORMALIZED FFO 2022 2021 2022 2021 Net income attributable to Whitestone REIT Adjustments to reconcile to FFO:(1) Depreciation and amortization of real estate Depreciation and amortization of real estate assets of real estate partnership (pro rata)(2) (Gain) loss on sale or disposal of assets, net Gain on sale of property from discontinued operations (Gain) loss on sale or disposal of properties or assets of real estate partnership (pro rata) Net income attributable to noncontrolling interests FFO (NAREIT) Adjustments to reconcile to Normalized FFO: Extinguishment of debt costs Normalized FFO (1) Includes pro-rata share attributable to (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 September 30, 2022 have not been made available to us, we have estimated depreciation and amortization of real estate assets based on the information available to us at the time of this report. Management believes that NOI is a useful measure of our property operating Below is the calculation of NOI and the reconciliations to net income, which we believe is the most comparable U.S. GAAP financial measure (in thousands): Three Months Ended Nine Months Ended September 30, September 30, PROPERTY NET OPERATING INCOME 2022 2021 2022 2021 Net income attributable to Whitestone REIT General and administrative expenses Depreciation and amortization Equity in earnings of real estate partnership(1) Interest expense Interest, dividend and other investment income Provision for income taxes Gain on sale of property from discontinued operations Management fee, net of related expenses (Gain) loss on sale or disposal of assets, net NOI of real estate partnership (pro rata)(1) Net income attributable to noncontrolling interests NOI (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 September 30, 2022 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. 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 During the nine months ended September 30, Our long-term capital requirements consist primarily of maturities under our longer-term debt agreements, development and redevelopment costs, and potential acquisitions. We expect to meet our long-term liquidity requirements with net cash from operations, long-term indebtedness, sales of common shares, issuance of OP units, sales of underperforming properties and non-core properties and other financing opportunities, including debt financing. We believe we have access to multiple sources of capital to fund our long-term liquidity requirements, including the incurrence of additional debt and the issuance of additional equity. Our ability to access the On May We We have used and anticipate using net proceeds from common shares issued pursuant to Our capital structure includes non-recourse mortgage debt that we have assumed or originated on certain properties. We may hedge the future cash flows of certain variable rate debt transactions principally through interest rate swaps with major financial institutions. See Note 8 (Derivatives and Hedging Activities) to the accompanying consolidated financial statements for a description of our current cash flow hedges. As discussed in Note 2 (Summary of Significant Accounting Policies) to the accompanying consolidated financial statements, pursuant to the terms of our $15.1 million 4.99% Note, due January 6, 2024 (see Note 7 (Debt) to the accompanying consolidated financial statements), which is collateralized by our Anthem Marketplace property, we were required by the lenders thereunder to establish a cash management account controlled by the lenders to collect all amounts generated by our Anthem Marketplace property in order to collateralize such promissory note. Amounts in the cash management account are classified as restricted cash. Cash, We had cash, Sources of Cash • Cash flow from operations of $33,459,000 for the nine months ended September 30, 2022, compared to $31,703,000 for the nine months ended September 30, 2021; Uses of Cash • Payment of distributions to common shareholders and OP unit holders of $17,312,000 for the nine months ended September 30, 2022, compared to $14,311,000 for the nine months ended September 30, 2021; • Additions to real estate of $10,118,000 for the nine months ended September 30, 2022, compared to $6,058,000 for the nine months ended September 30, 2021; • Repurchase of common shares of $527,000 for the nine months ended September 30, 2022, compared to $678,000 for the nine months ended September 30, 2021; • Payments of notes payable of $2,705,000 for the nine months ended September 30, 2022, compared to $2,403,000 for the nine months ended September 30, 2021; Net payments of credit facility $5,000,000 for the nine months ended September 30, 2022, compared to $25,000,000 for the nine months ended September 30, 2021; and • Payment of loan origination costs of $4,144,000 for the nine months ended September 30, 2022, compared to $0 for the nine months ended September 30, 2021. We place all cash in short-term, highly liquid investments that we believe provide appropriate safety of principal. Debt consisted of the following as of the dates indicated (in thousands): Description September 30, 2022 December 31, 2021 Fixed rate notes $100.0 million, 1.73% plus 1.35% to 1.90% Note (1) $165.0 million, 2.24% plus 1.35% to 1.90% Note (1) $265.0 million, 3.18% plus 1.45% to 2.10% Note, due January 31, 2028 (2) $80.0 million, 3.72% Note, due June 1, 2027 $19.0 million 4.15% Note, due December 1, 2024 $20.2 million 4.28% Note, due June 6, 2023 $14.0 million 4.34% Note, due September 11, 2024 $14.3 million 4.34% Note, due September 11, 2024 $15.1 million 4.99% Note, due January 6, 2024 $2.6 million 5.46% Note, due October 1, 2023 $50.0 million, 5.09% Note, due March 22, 2029 $50.0 million, 5.17% Note, due March 22, 2029 $1.8 million 3.15% Note, due November 28, 2022 Floating rate notes Unsecured line of credit, SOFR plus 1.50% to 2.10%, due September 16, 2026 Total notes payable principal Less deferred financing costs, net of accumulated amortization Total notes payable (1) Loan was fully paid off on September 16, 2022. (2) Promissory note includes an interest rate swap that Scheduled maturities of our outstanding debt as of September 30, 2022 were as follows (in thousands): Year Amount Due 2022 (remaining) 2023 2024 2025 2026 Thereafter Total On The 2022 Facility • $250.0 million unsecured revolving credit facility with a maturity date of September 16, 2026 (the “2022 Revolver”); • $265.0 million unsecured term loan with a maturity date of January 31, 2028 (“Term Loan”). Borrowings under the 2.16% plus 1.55% through October 28, 2022 • 2.80% plus 1.55% from October 29, 2022 through January 31, 2024 • 3.42% plus 1.55% from February 1, 2024 through January 31, 2028 The 2022 Facility also has a pricing provision where the applicable margin The 2022 Facility includes an accordion feature that will allow the Operating Partnership to increase the borrowing capacity by $200.0 million, upon the satisfaction of certain conditions. As of September 30, 2022, subject to any potential future paydowns or increases in the borrowing base, we have $126.4 millionremaining availability under the 2022 Revolver. As of September 30, 2022, $379.5 million was drawn on the 2022 Facility and our unused borrowing capacity was $135.0 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: • maximum total indebtedness to total asset value ratio of 0.60 to 1.00; • maximum secured debt to total asset value ratio of 0.40 to 1.00; • minimum EBITDA (earnings before interest, taxes, depreciation, amortization or extraordinary items) to fixed charges ratio of 1.50 to 1.00; • maximum other recourse debt to total asset value ratio of 0.15 to 1.00; and • 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). We serve as the guarantor for funds borrowed by the Operating Partnership under the 2022 Facility. The 2022 Facility contains customary terms and conditions, including, without limitation, affirmative and negative covenants such as information reporting requirements, maximum secured indebtedness to total asset value, minimum EBITDA (earnings before interest, taxes, depreciation, amortization or extraordinary items) to fixed charges, and maintenance of a minimum net worth. The 2022 Facility also contains customary events of default with customary notice and cure, including, without limitation, nonpayment, breach of covenant, misrepresentation of representations and warranties in a material respect, cross-default to other major indebtedness, change of control, bankruptcy and loss of REIT tax status. On March 22, 2019, we, through our Operating Partnership, entered into a Note Purchase and Guarantee Agreement (the “Note Agreement”) together with certain subsidiary guarantors as initial guarantor parties thereto (the “Subsidiary Guarantors”) and The The principal of the Series A Notes will begin to amortize on March 22, 2023 with annual principal payments of approximately $7.1 million. The principal of the Series B Notes will begin to amortize on March 22, 2025 with annual principal payments of $10.0 million. The Notes will pay interest quarterly on the 22nd day of March, June, September and December in each year until maturity. The Operating Partnership may prepay at any time all, or from time to time part of, the Notes, in an amount not less than $1,000,000 in the case of a partial prepayment, at 100% of the principal amount so prepaid, plus a make-whole amount. The make-whole amount is equal to the excess, if any, of the discounted value of the remaining scheduled payments with respect to the Notes being prepaid over the aggregate principal amount of such Notes (as described in the Note Agreement). In addition, in connection with a Change of Control (as defined in the Note Purchase Agreement), the Operating Partnership is required to offer to prepay the Notes at 100% of the principal amount plus accrued and unpaid interest thereon. The Note Agreement contains representations, warranties, covenants, terms and conditions customary for transactions of this type and substantially similar to the Operating Partnership’s existing senior revolving credit facility, including limitations on liens, incurrence of investments, acquisitions, loans and advances and restrictions on dividends and certain other restricted payments. In addition, the Note Agreement contains certain financial covenants substantially similar to the Operating Partnership’s existing senior revolving credit facility, including the following: • maximum total indebtedness to total asset value ratio of 0.60 to 1.00; • maximum secured debt to total asset value ratio of 0.40 to 1.00; • minimum EBITDA (earnings before interest, taxes, depreciation, amortization or extraordinary items) to fixed charges ratio of 1.50 to 1.00; • maximum other recourse debt to total asset value ratio of 0.15 to 1.00; and • maintenance of a minimum tangible net worth (adjusted for accumulated depreciation and amortization) of $372 million plus 75% of the net proceeds from additional equity offerings (as defined therein). In addition, the Note Agreement contains a financial covenant requiring that maximum unsecured debt not exceed the lesser of (i) an amount equal to 60% of the aggregate unencumbered asset value and (ii) the debt service coverage amount (as described in the Note Agreement). That covenant is substantially similar to the borrowing 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 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 As of September 30, Refer to Note 7 (Debt) to the accompanying consolidated financial statements for additional information regarding debt. Capital Expenditures We continually evaluate our properties’ performance and value. We may determine it is in our shareholders’ best interest to invest capital in properties that we believe have potential for increasing value. We also may have unexpected capital expenditures or improvements for our existing assets. Additionally, we intend to continue investing in similar properties outside of the markets on which we focus in cities with exceptional demographics to diversify market risk, and we may incur significant capital expenditures or make improvements in connection with any properties we may acquire. The following is a summary of the Company's capital expenditures for the three and nine month periods ended September 30, 2022 and 2021 (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Capital expenditures: Tenant improvements and allowances Developments / redevelopments Leasing commissions and costs Maintenance capital expenditures Total capital expenditures Distributions U.S. federal income tax law generally requires that a REIT distribute annually to its shareholders at least 90% of its REIT taxable income, without regard to the deduction for dividends paid and excluding net capital gains, and that it pay tax at regular corporate rates on any taxable income that it does not distribute. We currently, and intend to continue to, accrue distributions quarterly and make distributions in three monthly installments following the end of each quarter. For a discussion of our cash flow as compared to dividends, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources.” The timing and frequency of our distributions are authorized and declared by our board of trustees in exercise of its business judgment based upon a number of factors, including: • our funds from operations; • our debt service requirements; • our capital expenditure requirements for our properties; • our taxable income, combined with the annual distribution requirements necessary to maintain REIT qualification; • requirements of Maryland law; • our overall financial condition; and • other factors deemed relevant by our board of trustees. Any distributions we make will be at the discretion of our board of trustees and we cannot provide assurance that our distributions will be made or sustained in the future. On February 12, 2021, the Company announced an increase to its quarterly distribution to $0.1075 per common share and OP unit, equal to a monthly distribution of $0.035833, beginning with the March 2021 distribution. On February 22, 2022, the Company announced an increase to its quarterly distribution to $0.12 per common share and OP unit, equal to a monthly distribution of $0.04, beginning with the April 2022 distribution. The Board will continue to regularly reassess the dividend level. During the nine months ended September 30, Common Shares Noncontrolling OP Unit Holders Total Quarter Paid Distributions Per Common Share Amount Paid Distributions Per OP Unit Amount Paid Amount Paid 2022 Third Quarter Second Quarter First Quarter Total 2021 Fourth Quarter Third Quarter Second Quarter First Quarter Total Taxes We elected to be taxed as a REIT under the Code beginning with our taxable year ended December 31, 1999. As a REIT, we generally are not subject to federal income tax on income that we distribute to our shareholders. If we fail to qualify as a REIT in any taxable year, we will be subject to federal income tax on our taxable income at regular corporate rates. We believe that we are organized and operate in a manner to qualify and be taxed as a REIT, and we intend to operate so as to remain qualified as a REIT for federal income tax purposes. Environmental Matters Our properties are subject to environmental laws and regulations adopted by various governmental authorities in the jurisdictions in which our operations are conducted. From our inception, we have incurred no significant environmental costs, accrued liabilities or expenditures to mitigate or eliminate future environmental contamination. Off-Balance Sheet Arrangements Guarantees. We Our future income, cash flows and fair value relevant to our financial instruments depend upon prevailing market interest rates. Market risk refers to the risk of loss from adverse changes in market prices and interest rates. Based upon the nature of our operations, we are not subject to foreign exchange rate or commodity price risk. The principal market risk to which we are exposed is the risk related to interest rate fluctuations. Many factors, including governmental monetary and tax policies, domestic and international economic and political considerations, and other factors that are beyond our control contribute to interest rate risk. Our interest rate risk objective is to limit the impact of interest rate fluctuations on earnings and cash flows and to lower our overall borrowing costs. To achieve this objective, we manage our exposure to fluctuations in market interest rates for our borrowings through the use of fixed rate debt instruments to the extent that reasonably favorable rates are obtainable. All of our financial instruments were entered into for other than trading purposes. Fixed Interest Rate As of September 30, Variable Interest Rate Debt As of September 30, Credit Risk Credit risk may be increased as a result of the COVID-19 pandemic. We expect that the actions taken by the U.S. and international governments to decrease the impact of the COVID-19 pandemic and inflation, including rising interest rates, will result in a continued decline in global economic activity generally, and may adversely affect the financial condition of our tenants in particular. Although the full extent of the adverse impacts on our tenants cannot be predicted, in future periods we may experience reductions in on-time payments or closures of tenants’ businesses, which could have a material adverse effect on our results of operations, cash flows and financial condition. Evaluation of Disclosure Controls and Procedures The Company’s management Changes in Internal Control Over Financial Reporting There have been no significant changes in our internal control over financial reporting during the nine months ended September 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. We are subject to various legal proceedings and claims that arise in the ordinary course of business. These matters are generally covered by insurance. While the resolution of these matters cannot be predicted with certainty, management believes the final outcome of such matters will not have a material adverse effect on our financial position, results of operations or liquidity. Litigation between the Company and Pillarstone REIT On September 16, 2022, Pillarstone Capital REIT and Pillarstone Capital REIT Operating Partnership, L.P. filed suit against the Company and certain of its subsidiaries (Whitestone TRS, Inc. and Whitestone REIT Operating Partnership, L.P.) along with certain of its executives (Peter Tropoli, Christine Mastandrea, and David Holeman) in the District Court of Harris County, Texas, alleging claims relating to the limited partnership agreement between Pillarstone Capital REIT and Whitestone REIT Operating Partnership, as well as the termination of Management Agreements between Pillarstone Capital REIT Operating Partnership, L.P. and Whitestone TRS, Inc. The claimants seeks monetary relief in excess of $1,000,000 million in damages and equitable relief. However, the Company denies the claims, has substantial legal and factual defenses against the claims, and intends to vigorously defend against the claims. The Company does not believe a probable loss will be incurred, nor does it anticipate a material adverse effect on its financial position, results of operations, cash flows or liquidity. Therefore, the Company has not recorded a charge as a result of this action. Former CEO Litigation On February 23, 2022, the Company’s former CEO, James Mastandrea, filed suit against the Company and certain of its trustees (Nandita Berry, Jeff Jones, Jack Mahaffey, and David Taylor) and officers (David Holeman, Christine Mastandrea, Peter Tropoli) in the District Court of Harris County, Texas, alleging claims relating to the termination of claimant’s employment. Claimant purports to assert claims for breach of contract, breach of fiduciary duties, tortious interference with contract, civil conspiracy, and declaratory judgment. The claimant seeks a maximum of $25 million in damages and equitable relief. However, the Company denies the claims, has substantial legal and factual defenses against the claims, and intends to vigorously defend against the claims. The Company does not believe a probable loss will be incurred, nor does it anticipate a material adverse effect on its financial position, results of operations, cash flows or liquidity. Therefore, the Company has not recorded a charge as a result of this action. Pillarstone Rights Plan On December 26, 2021, the Board of Trustees of Pillarstone REIT adopted a new rights agreement (the “Pillarstone Rights Agreement”), pursuant to which each holder of Pillarstone REIT common stock received one preferred share purchase right (a “Right”) per common share held as of the applicable record date. Each Right entitles the registered holder to purchase from Pillarstone REIT one one-thousandth (a “Unit”) of a series D preferred share of Pillarstone at a purchase price (“Purchase Price”) of $7.00 per Unit, subject to adjustment. The Rights are exercisable upon the occurrence of certain events as described in the Pillarstone Rights Agreement, including the acquisition by certain holders of 5% or more of the common shares of Pillarstone REIT (an “Acquiring Person”). Upon the acquisition of Pillarstone REIT common shares by an Acquiring Person, each holder of a Right (other than an Acquiring Person), will have the right to receive upon exercise a number of Pillarstone REIT common shares having a market value of two times the Purchase Price. As set forth in the Amended and Restated Limited Partnership Agreement of Pillarstone OP, dated as of December 8, 2016 (the “Pillarstone Partnership Agreement”), we have the contractual right to have our limited partnership interests in Pillarstone redeemed at our discretion. However, upon receipt of a redemption notice, Pillarstone OP has the option of the applicable redemption price in cash, based on the market value of Pillarstone REIT common shares, or in Pillarstone REIT common shares. To the extent we seek to have our partnership units in Pillarstone OP redeemed and Pillarstone OP elects to pay the applicable redemption price in Pillarstone REIT common shares (and such shares represent 5% or more of the outstanding common shares of Pillarstone REIT), the Rights could become exercisable. To the extent the Rights are exercised as a result of our Pillarstone OP units being redeemed for Pillarstone REIT common shares, our ownership interest in Pillarstone REIT would be significantly diluted, which could adversely impact the value of our investment in Pillarstone OP. Because the Pillarstone Rights Agreement seeks to prevent Whitestone OP from exercising its contractual Redemption Right, on July 12, 2022, Whitestone OP filed suit against Pillarstone REIT in the Court of Chancery of the State of Delaware challenging the Pillarstone Rights Agreement due to Pillarstone REIT’s breach of the Pillarstone OP partnership agreement, breach of its fiduciary duty as general partner of Pillarstone OP to Whitestone OP, and breach of the implied covenant of good faith and fair dealing under the Pillarstone OP partnership agreement. The lawsuit seeks rescission and voiding of the Pillarstone Rights Agreement; a declaration that the Pillarstone Rights Agreement is unenforceable, invalid, and of no force and effect; an order permanently enjoining enforcement of the Pillarstone Rights Agreement; an award of monetary damages; and broad restrictions on Pillarstone REIT’s ability to conduct its business, including buying properties, enforcing the Rights Agreement, incurring expenses, or engaging in transactions. On September 8, 2022, the Company’s Motion to Preserve the Status Quo was granted by the Court, limiting Pillarstone from engaging in any acts outside the ordinary course of business and otherwise imposing restrictions on Pillarstone to ensure that Whitestone’s right of redemption right is not impaired while the underlying dispute is being considered by the Court. While we do not believe the overall impact of the Pillarstone Rights Agreement on the carrying value of our investment in Pillarstone OP is material, we cannot reasonably estimate a range of possible loss at this time. There has been no material (a) During the period covered by this Quarterly Report on Form 10-Q, we did not sell any equity securities that were not registered under the Securities Act of 1933, as amended. (b) Not applicable. (c) During the three months ended September 30, 2022, certain of our employees tendered owned common shares to satisfy the tax withholding on the lapse of certain restrictions on restricted common shares issued under the 2018 Plan. The following table summarizes all of these repurchases during the three months ended September 30, 2022. Period Total Number of Shares Purchased (1) Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Number of Shares that May Yet be Purchased Under the Plans or Programs July 1, 2022 - July 31, 2022 August 1, 2022 - August 31, 2022 September 1, 2022 - September 30, 2022 Total (1) The number of shares purchased represents common shares held by employees who tendered owned common shares to satisfy the tax withholding on the lapse of certain restrictions on restricted common shares issued under the 2018 Plan. With respect to these shares, the price paid per share is based on the fair market value at the time of tender. None. Not applicable. None. The exhibits listed on the accompanying Exhibit Index are filed, furnished and incorporated by reference (as stated therein) as part of this Report. Exhibit No. Description 101 The following financial information of the Registrant for the quarter ended September 30, 2022, formatted in Inline XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets as of September 30, 2022 (unaudited) and December 31, 2021, (ii) the Consolidated Statements of Operations and Comprehensive Income for the three and nine month periods ended September 30, 2022 and 2021 (unaudited), (iii) the Consolidated Statements of Changes in Equity for the three months ended March 31, June 30 and September 30, 2022 and 2021 (unaudited), (iv) the Consolidated Statement of Cash Flows for the nine months ended September 30, 2022 and 2021 (unaudited) and (v) the Notes to the Consolidated Financial Statements (unaudited). 104 Cover Page Interactive Data File - the cover page XBRL tags are embedded within the Inline XBRL document and in Exhibit 101. ________________________ * Filed herewith. ** Furnished herewith. + Denotes management contract or compensatory plan or arrangement. Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. WHITESTONE REIT Date: /s/ David K. Holeman David K. Holeman Chief Executive Officer (Principal Executive Date: November 4, 2022 /s/ John S. Hogan John S. Hogan Chief Financial Officer (Principal Financial and Principal Accounting Officer) Item 1.Item 1A.Item 2. $ 1,206,605 $ 1,196,919 (212,084 ) (190,333 ) 994,521 1,006,586 34,891 34,588 9,504 15,721 63 193 12,329 11,323 25,183 22,395 1,333 847 12,131 8,442 9,978 1,995 $ 1,099,933 $ 1,102,090 $ 637,138 $ 642,842 35,797 45,777 1,560 997 8,443 8,070 6,004 5,366 688,942 703,052 — — — — 49 48 623,838 623,462 (226,374 ) (223,973 ) 7,646 (6,754 ) 405,159 392,783 5,832 6,255 410,991 399,038 $ 1,099,933 $ 1,102,090 September 30, 2017 December 31, 2016 (unaudited) Real estate assets, at cost Property $ 1,144,558 $ 920,310 Accumulated depreciation (124,268 ) (107,258 ) Total real estate assets 1,020,290 813,052 Cash and cash equivalents 6,338 4,168 Restricted cash 105 56 Marketable securities 242 517 Escrows and acquisition deposits 9,116 6,620 Accrued rents and accounts receivable, net of allowance for doubtful accounts 22,212 19,951 Unamortized lease commissions and loan costs 8,397 8,083 Prepaid expenses and other assets 3,448 2,762 Total assets $ 1,070,148 $ 855,209 Liabilities: Notes payable $ 662,675 $ 544,020 Accounts payable and accrued expenses 35,041 28,692 Tenants' security deposits 6,746 6,125 Dividends and distributions payable 11,401 8,729 Total liabilities 715,863 587,566 Commitments and contingencies: — — Equity: Preferred shares, $0.001 par value per share; 50,000,000 shares authorized; none issued and outstanding as of September 30, 2017 and December 31, 2016, respectively — — Common shares, $0.001 par value per share; 400,000,000 shares authorized; 38,524,480 and 29,468,563 issued and outstanding as of September 30, 2017 and December 31, 2016, respectively 38 29 Additional paid-in capital 509,774 396,494 Accumulated deficit (167,397 ) (141,695 ) Accumulated other comprehensive gain 1,004 859 Total Whitestone REIT shareholders' equity 343,419 255,687 Noncontrolling interests: Redeemable operating partnership units 11,002 11,941 Noncontrolling interest in Consolidated Partnership (136 ) 15 Total noncontrolling interests 10,866 11,956 Total equity 354,285 267,643 Total liabilities and equity $ 1,070,148 $ 855,209 Whitestone REIT and Subsidiaries CONSOLIDATED BALANCE SHEETS - Continued (in thousands, except share and per share data) September 30, 2017 December 31, 2016 (unaudited) Real estate assets, at cost Property $ 93,505 $ 92,338 Accumulated depreciation (35,089 ) (32,533 ) Total real estate assets 58,416 59,805 Cash and cash equivalents 2,246 1,236 Escrows and acquisition deposits 2,087 2,274 Accrued rents and accounts receivable, net of allowance for doubtful accounts 2,556 2,313 Unamortized lease commissions and loan costs 1,180 1,150 Prepaid expenses and other assets 130 82 Total assets $ 66,615 $ 66,860 Notes payable $ 49,137 $ 50,001 Accounts payable and accrued expenses 3,480 3,481 Tenants' security deposits 1,129 996 Distributions payable 112 — Total liabilities $ 53,858 $ 54,478 $ 145 $ 222 $ 150 $ 231 thousands, except per share data)thousands) $ 35,029 $ 32,069 $ 103,500 $ 90,916 354 375 1,003 1,191 35,383 32,444 104,503 92,107 7,889 7,340 23,661 21,458 7,317 5,789 19,253 16,072 4,513 4,589 13,867 12,787 4,832 5,672 13,063 16,036 24,551 23,390 69,844 66,353 6,816 6,142 19,111 18,417 7 48 12 (177 ) (13 ) (31 ) (43 ) (103 ) 6,810 6,159 19,080 18,137 4,022 2,895 15,579 7,617 65 151 304 429 (112 ) (100 ) (313 ) (274 ) 3,975 2,946 15,570 7,772 — — — 1,833 — — — 1,833 3,975 2,946 15,570 9,605 60 47 239 165 $ 3,915 $ 2,899 $ 15,331 $ 9,440 Three Months Ended September 30, Nine Months Ended September 30, 2017 2016 2017 2016 Property revenues Rental revenues $ 24,891 $ 19,844 $ 69,197 $ 58,915 Other revenues 8,762 5,664 22,931 17,157 Total property revenues 33,653 25,508 92,128 76,072 Property expenses Property operation and maintenance 6,104 4,904 16,973 14,381 Real estate taxes 5,181 3,414 13,588 10,072 Total property expenses 11,285 8,318 30,561 24,453 Other expenses (income) General and administrative 5,581 6,218 17,598 16,467 Depreciation and amortization 7,247 5,449 19,936 16,362 Interest expense 6,376 4,669 17,158 14,221 Interest, dividend and other investment income (142 ) (164 ) (381 ) (339 ) Total other expense 19,062 16,172 54,311 46,711 Income before gain (loss) on sale or disposal of properties or assets and income taxes 3,306 1,018 7,256 4,908 Provision for income taxes (126 ) (80 ) (296 ) (247 ) Gain on sale of properties — — 16 2,890 Gain (loss) on sale or disposal of assets (40 ) 26 (135 ) 10 Net income 3,140 964 6,841 7,561 Redeemable operating partnership units 84 15 201 131 Non-controlling interests in Consolidated Partnership 63 — 228 — Less: Net income attributable to noncontrolling interests 147 15 429 131 Net income attributable to Whitestone REIT $ 2,993 $ 949 $ 6,412 $ 7,430 $ 0.08 $ 0.06 $ 0.31 $ 0.17 — — — 0.04 $ 0.08 $ 0.06 $ 0.31 $ 0.21 $ 0.08 $ 0.06 $ 0.31 $ 0.17 — — — 0.04 $ 0.08 $ 0.06 $ 0.31 $ 0.21 49,274 46,883 49,211 44,268 50,129 47,825 49,916 45,108 $ 3,975 $ 2,946 $ 15,570 $ 9,605 5,962 1,273 14,623 4,783 9,937 4,219 30,193 14,388 60 47 239 165 90 20 223 82 $ 9,787 $ 4,152 $ 29,731 $ 14,141 Three Months Ended September 30, Nine Months Ended September 30, 2017 2016 2017 2016 Basic Earnings Per Share: Net income attributable to common shareholders excluding amounts attributable to unvested restricted shares $ 0.07 $ 0.03 $ 0.18 $ 0.25 Diluted Earnings Per Share: Net income attributable to common shareholders excluding amounts attributable to unvested restricted shares $ 0.07 $ 0.03 $ 0.17 $ 0.25 Weighted average number of common shares outstanding: Basic 37,992 28,195 34,406 27,210 Diluted 38,589 29,024 35,211 28,013 Distributions declared per common share / OP unit $ 0.2850 $ 0.2850 $ 0.8550 $ 0.8550 Consolidated Statements of Comprehensive Income Net income $ 3,140 $ 964 $ 6,841 $ 7,561 Other comprehensive gain (loss) Unrealized gain (loss) on cash flow hedging activities 172 1,529 124 (6,962 ) Unrealized gain (loss) on available-for-sale marketable securities (7 ) (11 ) 26 20 Comprehensive income 3,305 2,482 6,991 619 Less: Net income attributable to noncontrolling interests 147 15 429 131 Less: Comprehensive gain (loss) attributable to noncontrolling interests 5 26 5 (120 ) Comprehensive income attributable to Whitestone REIT $ 3,153 $ 2,441 $ 6,557 $ 608 STATEMENTSTATEMENTS OF CHANGES IN EQUITY $ 25,244 $ 23,177 $ 75,023 $ 67,041 10,152 8,720 29,092 24,375 (367 ) 172 (615 ) (500 ) $ 35,029 $ 32,069 $ 103,500 $ 90,916 Noncontrolling Interests General Accumulated Redeemable Partners' Additional Other Total Operating Interest in Common Shares Paid-In Accumulated Comprehensive Shareholders' Partnership Consolidated Total Shares Amount Capital Deficit Gain Equity Units Dollars Partnership Equity Balance, December 31, 2016 29,468 $ 29 $ 396,494 $ (141,695 ) $ 859 $ 255,687 1,103 $ 11,941 $ 15 $ 267,643 Exchange of noncontrolling interest OP units for common shares 19 — 206 — — 206 (19 ) (206 ) — — �� Issuance of shares under dividend reinvestment plan 7 — 95 — — 95 — — — 95 Issuance of common shares - ATM Program, net of offering costs 567 1 7,723 — — 7,724 — — — 7,724 Issuance of common shares - Overnight, net of offering costs 8,019 8 99,887 — — 99,895 — — — 99,895 (154 ) — (1,987 ) — — (1,987 ) — — — (1,987 ) Share-based compensation 598 — 7,347 — — 7,347 — — — 7,347 Distributions — — — (32,114 ) — (32,114 ) — (930 ) (379 ) (33,423 ) Unrealized gain on change in fair value of available-for-sale marketable securities — — — — 25 25 — 1 — 26 Unrealized gain on change in value of cash flow hedge — — — — 120 120 — 4 — 124 Reallocation of ownership percentage between parent and subsidiary — — 9 — — 9 — (9 ) — — Net income — — — 6,412 — 6,412 — 201 228 6,841 Balance, September 30, 2017 38,524 $ 38 $ 509,774 $ (167,397 ) $ 1,004 $ 343,419 1,084 $ 11,002 $ (136 ) $ 354,285 (1)During the nine months ended September 30, 2017, the Company acquired common shares held by employees who tendered owned common shares to satisfy the tax withholding on the lapse of certain restrictions on restricted common shares.CASH FLOWS 49,144 $ 48 $ 623,462 $ (223,973 ) $ (6,754 ) $ 392,783 771 $ 6,255 $ 399,038 1 — — — — — (1 ) — — 1 — 15 — — 15 — — 15 — — — — — — — — — — — (1,413 ) — — (1,413 ) — — (1,413 ) — — — (5,897 ) — (5,897 ) — (92 ) (5,989 ) — — — — 5,894 5,894 — 92 5,986 — — — 7,078 — 7,078 — 111 7,189 49,146 $ 48 $ 622,064 $ (222,792 ) $ (860 ) $ 398,460 770 $ 6,366 $ 404,826 — 1 7 — — 8 — (8 ) — 2 — 17 — — 17 — — 17 (26 ) — (278 ) — — (278 ) — — (278 ) 119 — 783 — — 783 — — 783 — — — (5,909 ) — (5,909 ) — (94 ) (6,003 ) — — — — 2,634 2,634 — 41 2,675 — — — 4,338 — 4,338 — 68 4,406 49,241 $ 49 $ 622,593 $ (224,363 ) $ 1,774 $ 400,053 770 $ 6,373 $ 406,426 75 — 608 — — 608 (75 ) (608 ) — 2 — 17 — — 17 — — 17 (21 ) — (249 ) — — (249 ) — — (249 ) 86 — 869 — — 869 — — 869 — — — (5,926 ) — (5,926 ) — (83 ) (6,009 ) — — — — 5,872 5,872 — 90 5,962 — — — 3,915 — 3,915 — 60 3,975 49,383 $ 49 $ 623,838 $ (226,374 ) $ 7,646 $ 405,159 695 $ 5,832 $ 410,991 Nine Months Ended September 30, 2017 2016 Cash flows from operating activities: Net income $ 6,841 $ 7,561 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 19,936 16,362 Amortization of deferred loan costs 953 1,202 Amortization of notes payable discount 447 241 Gain on sale of marketable securities (5 ) — Loss (gain) on sale or disposal of assets and properties 119 (2,900 ) Bad debt expense 1,442 1,298 Share-based compensation 7,347 6,874 Changes in operating assets and liabilities: Escrows and acquisition deposits (2,496 ) 485 Accrued rent and accounts receivable (3,703 ) (2,802 ) Unamortized lease commissions (2,196 ) (2,126 ) Prepaid expenses and other assets 411 725 Accounts payable and accrued expenses (1,718 ) 261 Tenants' security deposits 621 812 Net cash provided by operating activities 27,999 27,993 Cash flows from investing activities: Acquisitions of real estate (124,557 ) (60,616 ) Additions to real estate (13,499 ) (15,362 ) Proceeds from sales of properties 26 3,957 Proceeds from sales of marketable securities 306 — Net cash used in investing activities (137,724 ) (72,021 ) Cash flows from financing activities: Distributions paid to common shareholders (29,494 ) (23,606 ) Distributions paid to OP unit holders (932 ) (415 ) Distributions paid to noncontrolling interest in Consolidated Partnership (379 ) — Proceeds from issuance of common shares, net of offering costs 107,619 26,686 Net proceeds from credit facility 40,600 64,000 Repayments of notes payable (2,788 ) (13,552 ) Payments of loan origination costs (695 ) — Change in restricted cash (49 ) 18 Repurchase of common shares (1,987 ) (2,904 ) Net cash provided by financing activities 111,895 50,227 Net increase in cash and cash equivalents 2,170 6,199 Cash and cash equivalents at beginning of period 4,168 2,587 Cash and cash equivalents at end of period $ 6,338 $ 8,786 42,391 $ 42 $ 562,250 $ (215,809 ) $ (14,400 ) $ 332,083 773 $ 6,243 $ 338,326 2 — 15 — — 15 — — 15 (37 ) — (324 ) — — (324 ) — — (324 ) 223 1 1,397 — — 1,398 — — 1,398 — — — (4,622 ) — (4,622 ) — (83 ) (4,705 ) — — — — 2,180 2,180 — 41 2,221 — — — 1,415 — 1,415 — 26 1,441 42,579 $ 43 $ 563,338 $ (219,016 ) $ (12,220 ) $ 332,145 773 $ 6,227 $ 338,372 3,025 2 25,369 — — 25,371 — — 25,371 — — (31 ) — — (31 ) — — (31 ) 1 — 15 — — 15 — — 15 (13 ) — (104 ) — — (104 ) — — (104 ) 101 — 1,177 — — 1,177 — — 1,177 — — — (4,952 ) — (4,952 ) — (83 ) (5,035 ) — — — — 1,268 1,268 — 21 1,289 — — — — (14 ) (14 ) — 14 — — — — 5,126 — 5,126 — 92 5,218 45,693 $ 45 $ 589,764 $ (218,842 ) $ (10,966 ) $ 360,001 773 $ 6,271 $ 366,272 2,991 3 27,961 — — 27,964 — — 27,964 — — (18 ) — — (18 ) — — (18 ) 2 — 15 — — 15 — — 15 (28 ) — (250 ) — — (250 ) — — (250 ) 182 — 1,491 — — 1,491 — — 1,491 — — — (5,334 ) — (5,334 ) — (83 ) (5,417 ) — — — — 1,253 1,253 — 20 1,273 — — — — (13 ) (13 ) — 13 — — — — 2,899 2,899 — 47 2,946 48,840 $ 48 $ 618,963 $ (221,277 ) $ (9,726 ) $ 388,008 773 $ 6,268 $ 394,276 $ 15,570 $ 7,772 — 1,833 15,570 9,605 23,661 21,458 824 822 12 (177 ) 615 500 239 4,066 (304 ) (429 ) (1,006 ) (1,163 ) (3,403 ) 518 (486 ) (316 ) (1,575 ) (2,531 ) (6,266 ) 1,548 4,642 (1,572 ) 563 405 373 802 33,459 31,703 — (53,364 ) (10,118 ) (6,058 ) (10,118 ) (59,422 ) — 1,833 (17,049 ) (14,063 ) (263 ) (248 ) — 53,335 — (49 ) (5,000 ) (25,000 ) (2,705 ) (2,403 ) (4,144 ) — (527 ) (678 ) (29,688 ) 10,894 (6,347 ) (14,992 ) 15,914 25,956 $ 9,567 $ 10,964 Nine Months Ended September 30, 2017 2016 Supplemental disclosure of cash flow information: Cash paid for interest $ 16,311 $ 13,700 Cash paid for taxes $ 329 $ 284 Non cash investing and financing activities: Disposal of fully depreciated real estate $ 995 $ 544 Financed insurance premiums $ 1,115 $ 1,060 Value of shares issued under dividend reinvestment plan $ 95 $ 83 Value of common shares exchanged for OP units $ 206 $ 125 Change in fair value of available-for-sale securities $ 26 $ 20 Change in fair value of cash flow hedge $ 124 $ (6,962 ) Acquisition of real estate in exchange for OP units $ — $ 8,738 Reallocation of ownership percentage between parent and subsidiary $ 9 $ — $ 18,980 $ 17,732 $ 366 $ 364 $ 80 $ 284 $ 1,846 $ 1,712 $ 49 $ 45 $ 616 $ — $ 14,623 $ 4,783 $ 9,504 $ 10,858 63 106 $ 9,567 $ 10,964 THE CONSOLIDATED FINANCIAL STATEMENTS2017202220162021 are derived from our audited consolidated financial statements as of that date. The unaudited consolidated financial statements as of and for the period ended September 30, 20172022 have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information on a basis consistent with the annual audited consolidated financial statements and with the instructions to Form 10-Q.2017,2022 and December 31, 2021, and the results of operations for the three and nine month periods ended September 30, 2017 2022 and 2016,2021, the consolidated statements of changes in equity for the ninethree month periodperiods ended March 31, June 30, and September 30, 20172022 and 2021 and cash flows for the nine month periods months ended September 30, 2017 2022 and 2016.2021. All of these adjustments are of a normal recurring nature. The results of operations for the interim periods are not necessarily indicative of the results expected for a full year. The statements should be read in conjunction with the audited consolidated financial statements and the notes thereto which are included in our Annual Report on Form 10-K10-K for the year ended December 31, 2016.20172022 and December 31, 2016,2021, Whitestone wholly owned or held a majority interest in 72 and 6960 commercial properties respectively, in and around Austin, Chicago, Dallas-Fort Worth, Houston, Phoenix and San Antonio.These51 wholly-ownedProperties®Properties® strategy; and•through our 81.4% majority interest in our consolidated subsidiary, Pillarstone Capital REIT Operating Partnership LP (“Pillarstone OP”) an interest in 14 consolidated properties that do not meet our Community Centered Properties® strategy.•two retail properties that meet our Community Centered Properties® strategy; andfive parcelsland heldSeptember 30, 2022, we, through our investment in Pillarstone Capital REIT Operating Partnership LP (“Pillarstone” or “Pillarstone OP”), owned a majority interest in eight properties that do not meet our Community Centered Property® strategy containing approximately 0.9 million square feet of GLA (the “Pillarstone Properties”). We own 81.4% of the total outstanding units of Pillarstone OP, which we account for future development.8 THE CONSOLIDATED FINANCIAL STATEMENTS2017202220172022 and December 31, 2016,2021, we owned a majority of the partnership interests in the Operating Partnership. Consequently, the accompanying consolidated financial statements include the accounts of the Operating Partnership. We also consolidate a variable interest entity (“VIE”) when we are determined to be the primary beneficiary. Determination of the primary beneficiary is based on whether an entity has (1) the power to direct activities that most significantly impact the economic performance of the VIE and (2) the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE. Our determination of the primary beneficiary considers all relationships between us and the VIE, including management and other contractual agreements. See Note 6 for additional disclosure on our VIE.one-for-oneone-for-one basis (the “OP units”) changes the percentage of ownership interests of both the noncontrolling interests and Whitestone.(see(see Note 7)7 (Debt)), which is collateralized by our Anthem Marketplace property, we were required by the lenders thereunder to establish a cash management account controlled by the lenders to collect all amounts generated by our Anthem Marketplace property in order to collateralize such promissory note. As a result, these amounts are reported in the consolidated statements of cash flows under cash flows from financing activities as change in restricted cash.Marketable Securities. We classify our existing marketable equity securities as available-for-sale in accordance with the Financial Accounting Standards Board's (“FASB”) Investments-Debt and Equity Securities guidance. These securities are carried at fair value with unrealized gains and losses reported in equity as a component of accumulated other comprehensive income or loss. The fair value of the marketable securities is determined using Level 1 inputs under FASB Accounting Standards Codification (“ASC”) 820, “Fair Value Measurements and Disclosures.” Level 1 inputs represent quoted prices available in an active market for identical investments as of the reporting date. Gains and losses on securities sold are based on the specific identification method, and are reported as a component of interest, dividend and other investment income.9WHITESTONE REIT AND SUBSIDIARIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSSeptember 30, 2017(Unaudited)hedges'hedges’ change in fair value is recorded immediately into earnings. Our cash flow hedges are determined using Level 2 inputs under ASC 820.820, “Fair Value Measurements and Disclosures.” Level 2 inputs represent quoted prices in active markets for similar assets or liabilities; quoted prices in markets that are not active; and model-derived valuations whosein which significant inputs and significant value drivers are observable. As of September 30, 2017,2022, we consider our cash flow hedges to be highly effective.2017,2022, approximately $146,000$ 112,000 and $96,000$ 72,000 in interest expense and real estate taxes, respectively, were capitalized and for the nine months ended September 30, 2017,2022, approximately $302,000$ 316,000 and $189,000$ 222,000 in interest expense and real estate taxes, respectively, were capitalized. For the three months ended September 30, 2016,2021, approximately $103,000$ 109,000 and $16,000$ 75,000 in interest expense and real estate taxes, respectively, were capitalized, and for the nine months ended September 30, 2016,2021, approximately $235,000$ 312,000 and $48,000$ 225,000 in interest expense and real estate taxes, respectively, were capitalized.Real Estate Held for Sale and Discontinued Operations. We consider a commercial property to be held for sale when it meets all of the criteria established under ASC 205, “Presentation of Financial Statements.” For commercial properties classified as held for sale, assets and liabilities are presented separately for all periods presented.In accordance with ASC 205,a discontinued operation may include a component of an entity or a group of components of an entity. A disposal of a component of an entity or a group of components of an entity is reported in discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on an entity's operations and financial results when the component of an entity or group of components of an entity is classified as held for sale, disposed of by sale or disposed of other than by sale, respectively. In addition, ASC 205 requires us to provide additional disclosures about both discontinued operations and the disposal of an individually significant component of an entity that does not meet the criteria for a discontinued operation.awardgrant nonvested restricted common share awards or restricted common share unit awards, which may be converted into common shares, to executive officers and employees under our 20082018 Long-Term Equity Incentive Ownership Plan (the “2008“2018 Plan”). The vast majority of the awardedAwarded shares and units vest when certain performance conditions are met. We recognize compensation expense when achievement of the performance conditions is probable based on management'smanagement’s most recent estimates using the fair value of the shares as of the grant date. We recognized $2,704,000$ 943,000 and $3,042,000$ 1,563,000 in share-based compensation net of forfeitures for the three months ended September 30, 2022 and 2021, respectively, and we recognized $ 455,000 and $ 4,275,000 in share-based compensation for the threenine months ended September 30, 2017 2022 and 2016, respectively,2021, respectively. On January 18, 2022, the Board of Trustees terminated James Mastandrea, with cause, from his position as Chief Executive Officer. Mr. Mastandrea was also replaced as Chairman of the Board. Following his termination, the Board of Trustees appointed Dave Holeman, previously our Chief Financial Officer, as Chief Executive Officer. The Company also recently replaced its Chief Operating Officer and Executive Vice President of Acquisitions and Asset Management. As a result of these changes, we recognized $7,545,000 and $6,886,000 ina reduction of share-based compensation forof $2.2 million during the ninethree months ended September 30, 2017 and 2016, respectively.isare the portion of equity in a subsidiary not attributable to a parent. The ownership interests not held by the parent are considered noncontrolling interests. Accordingly, we have reported noncontrolling interests in equity on the consolidated balance sheets but separate from Whitestone'sWhitestone’s equity. On the consolidated statements of operations and comprehensive income, subsidiaries are reported at the consolidated amount, including both the amount attributable to Whitestone and noncontrolling interests. The consolidated statementstatements of changes in equity is included for quarterly financial statements, including beginning balances, activity for the period and ending balances for shareholders'shareholders’ equity, noncontrolling interests and total equity.10-K10-K for the year ended December 31, 20162021 for further discussion on significant accounting policies.10WHITESTONE REIT AND SUBSIDIARIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSSeptember 30, 2017(Unaudited)Pronouncements. Pronouncements. In February 2016, April 2020, the FASB issued guidance requiring lesseeson the application of Topic 842, relating to recognizeconcessions being made by lessors in response to the COVID-19 pandemic. The guidance notes that it would be acceptable for entities to make an election to account for lease concessions relating to the effects of the COVID-19 pandemic consistent with how those concessions would be accounted for under Topic 842 as though enforceable rights and obligations for those concessions existed, even if such enforceable rights and obligations are not explicitly contained in the lease contract. Thus, for concessions relating to the COVID-19 pandemic, an entity would not have to analyze each contract to determine whether enforceable rights and obligations for concessions exist in the contract, and would have the option to apply, or not to apply, the general lease modification guidance in Topic 842 as it stands. We have elected this option to account for lease concessions relating to the effects of the COVID-19 pandemic consistent with how those concessions would be accounted for under Topic 842 as though enforceable rights and obligations for those concessions existed. Therefore, such concessions are not accounted for as a lease liabilitymodification under Topic 842.a right-of-use assetexceptions for all leases. Lessor accounting will remain largely unchanged withapplying GAAP to contracts, hedging relationships and other transactions affected by the exceptiondiscontinuation of changes relatedthe London Interbank Offered Rate (“LIBOR”) or by another reference rate expected to costsbe 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 qualify as initial direct costs. The guidance will also require new qualitativeclarified the scope and quantitative disclosures to help financial statement users better understandapplication of the timing, amountoriginal guidance. We have elected this option and uncertaintyadopted ASU 2020-04 and ASU 2021-01. We evaluated the potential impact of cash flows arising from leases. This guidance will be effective for reporting periods beginning on or after December 15, 2018, with early adoption permitted. We are currently evaluating the impact ofadopting this guidance and itsdo not expect it to have a material impact on our consolidated financial statements.In March 2016, the FASB issued guidance simplifying the accounting for share-based payment transactions, including the income tax consequences, balance sheet classification of awards and the classification on the statement of cash flows. We have adopted this guidance as of January 1, 2017. The main provision regarding excess tax benefits did not have an impact on our consolidated financial statements due to our status as a REIT for taxation purposes. We have elected to continue estimating the number of shares expected to vest in order to determine compensation cost, and we will continue to classify cash paid by us for employee taxes when common shares were repurchased to cover minimum statutory requirements as financing activity.In November 2016, the FASB issued guidance requiring that the statement of cash flows explain the change during the period in the total cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. This guidance will become effective for the reporting periods beginning on or after December 15, 2017, and interim periods within those fiscal years. We are currently evaluating the impact of this guidance and its impact on our consolidated financial statements.In January 2017, the FASB issued guidance clarifying the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. This guidance will become effective for the reporting periods beginning on or after December 15, 2017, and interim periods within those fiscal years. We are currently evaluating the impact of this guidance and its impact on our consolidated financial statements.In February 2017, the FASB issued guidance clarifying the scope of asset derecognition guidance, adds guidance for partial sales of nonfinancial assets and clarifies recognizing gains and losses from the transfer of nonfinancial assets in contracts with noncustomers. This guidance will become effective for the reporting periods beginning on or after December 15, 2017, and interim periods within those fiscal years. We are currently evaluating the impact of this guidance and its impact on our consolidated financial statements.3. MARKETABLE SECURITIESAll of our marketable securities were classified as available-for-sale securities as of September 30, 2017 and December 31, 2016. Available-for-sale securities consisted of the following (in thousands): September 30, 2017 Amortized Cost Gains in Accumulated Other Comprehensive Income Losses in Accumulated Other Comprehensive Income Estimated Fair Value Real estate sector common stock $ 353 $ — $ (111 ) $ 242 Total available-for-sale securities $ 353 $ — $ (111 ) $ 242 11 THE CONSOLIDATED FINANCIAL STATEMENTS20172022 December 31, 2016 Amortized Cost Gains in Accumulated Other Comprehensive Income Losses in Accumulated Other Comprehensive Income Estimated Fair Value Real estate sector common stock $ 654 $ — $ (137 ) $ 517 Total available-for-sale securities $ 654 $ — $ (137 ) $ 517 During $ 24,444 93,917 80,285 63,598 48,308 139,948 $ 450,500 $ 23 65 43 27 1 — 159 9 $ 150 2017, available-for-sale securities2022 and 2021, the total lease costs were sold$ 122,000 and $ 253,000, respectively, and for total proceeds of $306,000. The gross realized gain on these sales during the threenine months ended September 30, 20172022 and 2021, the total lease costs were $ 552,000 and $ 778,000, respectively. The weighted average remaining lease term for our operating leases was $5,000. During the three and nine months ended 2.6 years at September 30, 2016, no available-for-sale securities were sold. For purposes of determining gross realized gains and losses, the cost of securities sold is based on specific identification. A net unrealized holding loss on available-for-sale securities2022. We do not include renewal options in the amount of $111,000 and $198,000lease term for calculating the nine months ended lease liability unless we are reasonably certain we will exercise the option or the lessor has the sole ability to exercise the option. The weighted average incremental borrowing rate was 4.5% at September 30, 2017 and 2016, respectively, has been included in accumulated other comprehensive income.2022. $ 18,867 $ 18,410 21,341 18,681 (15,627 ) (14,896 ) 602 200 $ 25,183 $ 22,395 September 30, 2017 December 31, 2016 Tenant receivables $ 14,420 $ 12,972 Accrued rents and other recoveries 15,996 14,237 Allowance for doubtful accounts (8,204 ) (7,258 ) Total $ 22,212 $ 19,951 $ 15,377 $ 13,341 391 365 4,149 3,898 19,917 17,604 (7,469 ) (6,305 ) (273 ) (248 ) (44 ) (2,609 ) $ 12,131 $ 8,442 September 30, 2017 December 31, 2016 Leasing commissions $ 10,263 $ 8,720 Deferred legal cost 326 — Deferred financing cost 4,071 4,071 Total cost 14,660 12,791 Less: leasing commissions accumulated amortization (4,394 ) (3,597 ) Less: deferred legal cost accumulated amortization (45 ) — Less: deferred financing cost accumulated amortization (1,824 ) (1,111 ) Total cost, net of accumulated amortization $ 8,397 $ 8,083 12WHITESTONE REIT AND SUBSIDIARIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSSeptember 30, 2017(Unaudited) VARIABLE INTEREST ENTITIESCapital REIT Operating Partnership LP (“Pillarstone,” “Pillarstone OP” or the “Consolidated Partnership”)OP and Pillarstone Capital REIT (“Pillarstone REIT”) pursuant to which we contributed all of the equity interests in four of our wholly-owned subsidiaries: Whitestone CP Woodland Ph. 2, LLC, a Delaware limited liability company (“CP Woodland”); Whitestone Industrial-Office, LLC, a Texas limited liability company (“Industrial-Office”); Whitestone Offices, LLC, a Texas limited liability company (“Whitestone Offices”); and Whitestone Uptown Tower, LLC, a Delaware limited liability company (“Uptown Tower,” and together with CP Woodland, Industrial-Office and Whitestone Offices,subsidiaries that, at the “Entities”) that owntime, owned 14 non-core properties that do did not fit our Community Centered Property®Property® strategy (the “Pillarstone Properties”), to Pillarstone OP for aggregate consideration of approximately $84 million, consisting of (1)(1) approximately 18.1$18.1 million of Class A units representing limited partnership interests in Pillarstone OP (“Pillarstone OP Units”), issued at a price of $1.331 per Pillarstone OP Unit; and (2)(2) the assumption of approximately $65.9 million of liabilities consisting of (a) approximately $15.5 million of our liability under the 2014 Facility (as defined in Note 7); (b) an approximately $16.3 million promissory note of Uptown Tower under the Loan Agreement, dated as of September 26, 2013, between Uptown Tower, as borrower, and U.S. Bank, National Association, as successor to Morgan Stanley Mortgage Capital Holdings LLC, as lender; and (c) an approximately $34.1 million promissory note (the “Industrial-Office Promissory Note”) of Industrial-Office issued under the Loan Agreement, dated as of November 26, 2013 (the “Industrial-Office Loan Agreement”), between Industrial-Office, as borrower, and Jackson National Life Insurance Company, as lender (collectively, the “Contribution”). on December 8, 2016, the Operating Partnership entered into an OP Unit Purchase Agreement (the “OP Unit Purchase Agreement”) with Pillarstone REIT and Pillarstone OP pursuant to which the Operating Partnership agreed to purchase up to an aggregate of $3.0 million of Pillarstone OP Units at a price of $1.331 per Pillarstone OP Unit over the two-year term of the OP Unit Purchase Agreement on the terms set forth therein. The OP Unit Purchase Agreement contains customary closing conditions and the parties have made certain customary representations, warranties and indemnifications to each other in the OP Unit Purchase Agreement. In addition, pursuant to the OP Unit Purchase Agreement, in the event of a Change of Control (as defined therein) of the Company, Pillarstone OP shall have the right, but not the obligation, to repurchase the Pillarstone OP Units issued thereunder from the Operating Partnership at their initial issue price of $1.331 per Pillarstone OP Unit.In connection with the Contribution, (1) with respect to each Pillarstone Property (other than Uptown Tower), Whitestone TRS, Inc., a subsidiary of the Company (“Whitestone TRS”), entered into a Management Agreementmanagement agreement with the Entityentities that owns suchown the contributed Pillarstone Property and (2) with respect to Uptown Tower, Whitestone TRS entered into a Management Agreement with Pillarstone OPProperties (collectively, the “Management Agreements”). Pursuant to the Management Agreements, with respect to each Pillarstone Property (other than Uptown Tower), Whitestone TRS agreed to provide certain property management, leasing and day-to-day advisory and administrative servicesservices. The management agreement was terminated on August 18, 2022. Prior to such Pillarstone Propertythe termination of the Management Agreement, we reported approximately $144,000 in exchange for (x) a monthly property management fee equal to 5.0% of the monthly revenues of such Pillarstone Property and (y)income on a monthly asset management fee equal to 0.125% of GAV (as defined in each Management Agreement as, generally, the purchase price of the respective Pillarstone Property based upon the purchase price allocations determined pursuant to the Contribution Agreement, excluding all indebtedness, liabilities or claims of any nature) of such Pillarstone Property. Pursuant to the Management Agreement with respect to Uptown Tower, Whitestone TRS agreed to provide certain property management, leasing and day-to-day advisory and administrative services to Pillarstone OP in exchange for (x) a monthly property management fee equal to 3.0% of the monthly revenues of Uptown Tower and (y) a monthly asset management fee equal to 0.125% of GAV of Uptown Tower. $ 34,891 $ 34,588 $ 34,891 $ 34,588 13 THE CONSOLIDATED FINANCIAL STATEMENTS20172022 $ 65 $ 151 $ 304 $ 429 $ 47,880 $ 48,273 9,680 8,790 57,560 57,063 14,757 14,920 3,653 3,200 39,150 38,943 57,560 57,063 31,888 31,718 3,003 2,870 $ 34,891 $ 34,588 As of 2017, we owned approximately 81.4%2022 $ 2,288 $ 2,379 $ 6,892 $ 6,843 (1,895 ) (1,787 ) (5,446 ) (5,184 ) (281 ) (351 ) (974 ) (1,033 ) $ 112 $ 241 $ 472 $ 626 total outstanding unitsbasis difference between the cost of investment and the Company's share of underlying net book value for the three months period ended September 30, 2022 and 2021 is $ 27,000 and $ 45,000, respectively, and for both of the nine months periods ended September 30, 2022 and 2021 is $ 81,000. The Company amortized the difference into equity in earnings of real estate partnership on the consolidated statements of operations and comprehensive income.OP. Additionally, certainOP pursuant to ASC 460, “Guarantees,” and has determined the guarantee to be a performance guarantee, for which ASC 460 contains initial recognition and measurement requirements, and related disclosure requirements. The Company is obligated in two respects: (i) a noncontingent liability, which represents the Company’s obligation to stand ready to perform under the terms of the guarantee in the event that the specified triggering event(s) occur; and (ii) the contingent liability, which represents the Company’s obligation to make future payments if those triggering events occur. The fair value of our officers and trustees serve as officers and trustees of Pillarstone REIT. We have determined that we are the primary beneficiary ofloan guarantee to Pillarstone OP through our power to direct the activities of Pillarstone OP, additional working capital requiredis estimated on a Level 3 basis (as provided by Pillarstone OP under the OP Unit Purchase Agreement and our obligation to absorb losses and receive benefitsASC 820), using a probability-weighted discounted cash flow analysis based on our ownership percentage. Accordingly, we account for Pillarstone OP as a VIE and fully consolidate in our consolidated financial statements.carrying amounts and classificationCompany recognized a noncontingent liability of certain assets and liabilities for Pillarstone OP in our$462,000 at the inception of the guarantee at fair value which is recorded on the Company’s consolidated balance sheets, asnet of accumulated amortization. The Company will amortize the guarantee liability into income over seven years. For the three months ended September 30, 2017 2022 and December 31, 2016 consists2021, the amortization of the following (in thousands):guarantee liability was approximately $ 9,000 and $ 18,000, respectively, and for both of the nine months ended September 30, 2022 and 2021, the amortization of the guarantee liability is $ 28,000. September 30, 2017 December 31, 2016 Real estate assets, at cost Property $ 93,505 $ 92,338 Accumulated depreciation (35,089 ) (32,533 ) Total real estate assets 58,416 59,805 Cash and cash equivalents 2,246 1,236 Escrows and acquisition deposits 2,087 2,274 2,556 2,313 Unamortized lease commissions and loan costs 1,180 1,150 130 82 Total assets $ 66,615 $ 66,860 Liabilities $ 49,137 $ 50,001 3,480 3,481 Tenants' security deposits 1,129 996 112 — Total liabilities $ 53,858 $ 54,478 (1)Excludes approximately $2.1 million and $0.5 million in accounts receivable due from Whitestone that were eliminated in consolidation as of September 30, 2017 and December 31, 2016, respectively.(2)Excludes approximately $0.9 million in prepaid expenses due from Whitestone that were eliminated in consolidation as of December 31, 2016.(3)Excludes approximately $15.5 million and $15.5 million in notes payable due to Whitestone that were eliminated in consolidation as of September 30, 2017 and December 31, 2016, respectively.(4)Excludes approximately $1.3 million and $0.3 million in accounts payable due to Whitestone that were eliminated in consolidation as of September 30, 2017 and December 31, 2016, respectively.(5)Excludes approximately $0.5 million in distributions payable to Whitestone that were eliminated in consolidation as of September 30, 2017.14WHITESTONE REIT AND SUBSIDIARIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSSeptember 30, 2017(Unaudited)Description September 30, 2017 December 31, 2016 Fixed rate notes $ 9,800 $ 9,980 50,000 50,000 50,000 50,000 100,000 100,000 $80.0 million, 3.72% Note, due June 1, 2027 80,000 — 33,406 34,166 $6.5 million 3.80% Note, due January 1, 2019 5,887 6,019 $19.0 million 4.15% Note, due December 1, 2024 19,000 19,000 $20.2 million 4.28% Note, due June 6, 2023 19,449 19,708 $14.0 million 4.34% Note, due September 11, 2024 14,000 14,000 $14.3 million 4.34% Note, due September 11, 2024 14,300 14,300 16,119 16,298 $15.1 million 4.99% Note, due January 6, 2024 14,919 15,060 7,844 7,869 $2.6 million 5.46% Note, due October 1, 2023 2,483 2,512 $1.1 million 2.97% Note, due November 28, 2017 217 — Floating rate notes 227,200 186,600 Total notes payable principal 664,624 545,512 Less deferred financing costs, net of accumulated amortization (1,949 ) (1,492 ) Total notes payable $ 662,675 $ 544,020 $ — $ 100,000 — 165,000 265,000 — 80,000 80,000 18,103 18,358 17,485 17,808 12,778 12,978 13,585 13,773 13,705 13,907 2,250 2,289 50,000 50,000 50,000 50,000 349 — 114,500 119,500 637,755 643,613 (617 ) (771 ) $ 637,138 $ 642,842 (1)(2)fixedfixes the interest rate at 3.55% for the durationSOFR portion of the term.(2)Promissory note includesterm loan at an interest rate swap that fixed the LIBOR portion of Term Loan2.16% through October 28, 2022, 2.76% from October 29, 2022 through January 31, 2024, and 3.32% beginning February 1, (as defined below) at 0.84% 2024 through February 3, 2017 and 1.75% beginning February 3, 2017 through October 30, 2020.January 31, 2028. (3)Promissory note includes interest rate swap that fixed the LIBOR portion of Term Loan 2 (as defined below) at 1.50%.(4)Promissory note includes an interest rate swap that fixed the LIBOR portion of Term Loan 3 (as defined below) at 1.73%,(5)Promissory notes were assumed by Pillarstone in December 2016.(6)Promissory note includes an interest rate swap that fixed the interest rate at 5.72% for the duration of the term. As part of our acquisition of Paradise Plaza in August 2012, we recorded a discount on the note of $1.3 million, which amortizes into interest expense over the life of the loan and results in an imputed interest rate of 4.13%.(7)Unsecured line of credit includes certain Pillarstone Properties (as defined and described in more detail below) in determining the amount of credit available under the Facility (as defined and described in more detail below).On May 26, 2017, we, through our subsidiary, Whitestone Houston BLVD Place LLC, a Delaware limited liability company, issued a $80.0 million promissory note to American General Life Insurance Company (the “BLVD Note”). The BLVD Note has a fixed interest rate tied to LIBOR. Some of 3.72%these agreements provide procedures for determining an alternative base rate in the event that LIBOR is discontinued, but not all do so. Regardless, there can be no assurances as to what alternative base rates may be and a maturity date of June 1, 2027. Proceeds from the BLVD Note were used to fund a portionwhether such base rate will be more or less favorable than LIBOR and any other unforeseen impacts of the purchase pricediscontinuation of LIBOR. The Company is monitoring the developments with respect to the phasing out of LIBOR after 2021 and working with its lenders to ensure any transition away from LIBOR will have minimal impact on its financial condition, but can provide no assurances regarding the impact of the acquisitiondiscontinuation of BLVD Place (See Note 15 below).15 THE CONSOLIDATED FINANCIAL STATEMENTS20172022November 7, 2014,September 16,2022, we, through our Operating Partnership, entered into an unsecured revolving credit facility (the “2014“2022 Facility”) with the lenders party thereto, withBank of Montreal, as administrative agent (the “Administrative Agent”), Truist Bank, as syndication agent, and BMO Capital Markets Wells Fargo Securities, LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated,Corp., Truist Bank, Capital One, National Association, and U.S. Bank National Association, as co-lead arrangers and joint book runners, and Bank of Montreal, as administrative agent (the “Agent”).runners. The 20142022 Facility amended and restated ourthe Company's previous unsecured revolving credit facility. On October 30, 2015, we, through our Operating Partnership, entered into facility, dated January 31, 2019 (the First Amendment to the 2014"2019 Facility"). (the “First Amendment”) with the guarantors party thereto, the lenders party thereto and the Agent. We refer to the 2014 Facility, as amended by the First Amendment, as the “Facility.”Pursuant to the First Amendment, the Company madeis comprised of the following amendments to the 2014 Facility:extended the maturity date of the $300two tranches:2014 Facility (the “Revolver”) to October 30, 2019 from November 7, 2018;converted $100 million of outstanding borrowings under the Revolver to a new $100 million unsecured term loan under the 2014 Facility (“Term Loan 3”) with a maturity date of October 30, 2022;extended the maturity date of the first $50 million unsecured term loan under the 2014 Facility (“Term Loan 1”) to October 30, 2020 from February 17, 2017; andextended the maturity date of the second $50 million unsecured term loan under the 2014 Facility (“Term Loan 2” and together with Term Loan 1 and Term Loan 3, the “Term Loans”) to January 29, 2021 from November 7, 2019.Borrowings under the2022 Facility accrue interest (at the Operating Partnership's option) at a Base Rate or an Adjusted LIBORTerm Secured Overnight Financing Rate ("SOFR") plus an applicable margin based upon our then existing leverage. As of September 30, 2022, the interest rate on the 2022 Revolver was 4.62%. Based on our current leverage ratio, the revolver has initial interest rate of SOFR plus 1.60% and a 10 basis point credit spread adjustment. In addition, we entered into interest rate swaps to fix the interest rates on the Term Loan. The Term Loan with the swaps has the following interest rates:for Adjusted LIBOR borrowings ranges from 1.40% to 1.95% forcan be adjusted by an aggregate 0.02% per annum based on the Revolver and 1.35% to 2.25% for the Term Loans.Company’s performance on certain sustainability performance targets. Base Rate means, for any day, the higher of: (a) the Agent'sAdministrative Agent’s prime commercial rate, (b) the sum of (i) the rate per annum equal to the weighted average rate quoted byof the Agent by two or morerates on overnight federal funds brokers selected by the Agent for sale to the Agent at face value of federal funds in the secondary market in an amount equal or comparable to the principal amount for which such rate is being determined, plus (ii) 1/2 of 1.00%, and (c) the LIBOR rate for such day plus 1.00%. Adjusted LIBOR means LIBOR divided by one minus the Eurodollar Reserve Percentage. The Eurodollar Reserve Percentage means the maximum reserve percentage at which reserves are imposed by the Board of Governorstransactions 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 eurocurrency liabilities.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 Facility includes an accordion feature that will allow the Operating Partnership to increase the borrowing capacity to $700 million, upon the satisfaction of certain conditions, including new commitments from lenders. 2017, $427.2 million was drawn on the Facility, and2022, our remaining borrowing capacity was $72.8 million. Proceeds from the Facility were used for general corporate purposes, including property acquisitions, debt repayment, capital expenditures, the expansion, redevelopment and retenanting of properties in our portfolio and working capital. We intend to use the additional proceeds from the Facility for general corporate purposes, including property acquisitions, debt repayment, capital expenditure, the expansion, redevelopment and re-tenanting of properties in our portfolio and working capital.16WHITESTONE REIT AND SUBSIDIARIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSSeptember 30, 2017(Unaudited)On December 8, 2016, in connection with the Contribution, the Operating Partnership entered into the Second Amendment to the Facility and Reaffirmation of Guaranties (the “Second Amendment”) with Pillarstone, the Company and the other Guarantors party thereto, the lenders party thereto and the Agent. Pursuant to the Second Amendment, following the Contribution, Whitestone Offices, LLC and Whitestone CP Woodland Ph. 2, LLC were permitted to remain Material Subsidiaries (as defined in the Facility) and Guarantors under the Facility and their respective Pillarstone Properties were each permitted to remain an Eligible Property (as defined in the Facility) and be included in the Borrowing Base (as defined in the Facility) under the Facility. In addition, on December 8, 2016, Pillarstone entered into the Limited Guarantee (the “Limited Guarantee”) with the Agent, pursuant to which Pillarstone agreed to be joined as a party to the Facility to provide a limited guarantee up to the amount of availability generated by the Pillarstone Properties owned by Whitestone Offices, LLC and Whitestone CP Woodland Ph. 2, LLC. As of September 30, 2017, Pillarstone accounted for approximately $15.5 million of the total amount drawn on the Facility.As of September 30, 2017, our $237.2$157.9 million in secured debt was collateralized by 20seven properties with a carrying value of $342.0$243.5 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 September 30, 2017,2022, we were in compliance with all loan covenants.20172022 were as follows (in thousands): $ 1,104 27,863 63,573 17,143 131,643 396,429 $ 637,755 Year Amount Due 2017 $ 8,767 2018 12,136 2019 235,249 2020 82,827 2021 51,918 Thereafter 273,727 Total $ 664,624 Balance Sheet Location Estimated Fair Value Interest rate swaps: September 30, 2017 Accounts payable and accrued expenses $ (1,050 ) December 31, 2016 Accounts payable and accrued expenses $ (662 ) $ 7,764 $ (6,860 ) November 19, 2015, January 31, 2019, we, through our Operating Partnership, entered into an interest rate swap of $165 million with Bank of Montreal that fixed the LIBOR portion of Term Loan 3our $165 million term loan under the 2019Facility at 1.725%2.43%. In the fourth quarter of 2015, pursuantPursuant to the terms of the agreement governing the interest rate swap, Bank of Montreal assigned $35.0$32.6 million of the swap to U.S. Bank, National Association, $29.4 million of the swap to Regions Bank, $40.0 million of the swap to SunTrust Bank, and $15.0 million of the swap to SunTrustAssociated Bank. Effective September 7, 2022, Regions Bank novated $29.4 million of the swap to Bank of Montreal. See Note 7 (Debt) for additional information regarding the 2019Facility. The swap began on November 30, 2015 February 8, 2021 and will mature on October 28, 2022. January 31, 2024. We have designated the interest rate swap as a cash flow hedge with the effective portion of the changes in fair value to be recorded in comprehensive income and subsequently reclassified into earnings in the period that the hedged transaction affects earnings. The ineffective portion of the change in fair value, if any, will be recognized directly in earnings.17WHITESTONE REIT AND SUBSIDIARIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSSeptember 30, 2017(Unaudited)ana $100 million interest rate swap with Bank of Montreal that fixed the LIBOR portion of Term Loan 1our $100 million term loan under the 2018Facility at 1.75%1.73%. In the fourth quarter of 2015, pursuant to the terms of the agreement governing the interest rate swap, Bank of Montreal assigned $3.8 million of the swap to Regions Bank, $6.5$35.0 million of the swap to U.S. Bank, National Association, $14.0 million of the swap to Wells Fargo Bank, National Association, $14.0 million of the swap to Bank of America, N.A., and $5.0$15.0 million of the swap to SunTrust Bank. See Note 7 (Debt) for additional information regarding the 2018Facility. The swap began on February 3, 2017 November 30, 2015 and will mature on October 30, 2020. 28, 2022. We have designated the interest rate swap as a cash flow hedge with the effective portion of the changes in fair value to be recorded in comprehensive income and subsequently reclassified into earnings in the period that the hedged transaction affects earnings. The ineffective portion of the change in fair value, if any, will be recognized directly in earnings.November 19, 2015, September 16, 2022, we, through our Operating Partnership, entered into an interest rate swap with Bank of Montreal that fixed the LIBORunhedged SOFR portion of Term Loan 2 under the 2022Facility at 1.50%3.32%. In The notional amount of the fourth quarter of 2015, pursuantswap begins at $100 million on October 29, 2022, and increases to $265 million on February 1, 2024, maturing on January 31, 2028. Pursuant to the terms of the agreement governing the interest rate swap, Bank of Montreal assigned $3.8beginning and ending notionals of $20.7 million and $54.8 million of the swap, to Regions Bank, $6.5 million of the swaprespectively, to U.S. Bank, National Association, $14.0beginning and ending notionals of $25.4 million and $67.2 million of the swap, respectively, to Wells FargoTruist Bank, National Association, $14.0beginning and ending notionals of $20.7 million and $54.8 million of the swap, respectively, to BankCapital One, National Association, and beginning and ending notionals of America, N.A.,$5.9 million and $5.0$15.7 million of the swap, respectively, to SunTrustAssociated Bank. See Note 7 (Debt) for additional information regarding the 2022Facility. The swap began on December 7, 2015 and will mature on January 29, 2021. We have designated the interest rate swap as a cash flow hedge with the effective portion of the changes in fair value to be recorded in comprehensive income and subsequently reclassified into earnings in the period that the hedged transaction affects earnings. The ineffective portionCompany does not expect any amount of the change in fair value, if any, willexisting gains or losses to be recognized directly in earnings.reclassified into earnings within the next 12 months. Amount Recognized as Comprehensive Income Location of Loss Recognized in Earnings Three months ended September 30, 2017 $ 172 Interest expense $ (317 ) Three months ended September 30, 2016 $ 1,529 Interest expense $ (602 ) Nine months ended September 30, 2017 $ 124 Interest expense $ (1,266 ) Nine months ended September 30, 2016 $ (6,962 ) Interest expense $ (1,810 ) Amount Recognized as Comprehensive income $ 5,962 $ 52 $ 1,273 $ (1,401 ) $ 14,623 $ (2,276 ) $ 4,783 $ (4,057 ) (1)20172022 and 20162021. from continuing operations excluding the net income attributable to unvested restricted common shares and the net income attributable to noncontrolling interests, by our weighted average common shares outstanding during the period. Diluted earnings per share is computed by dividing the net income attributable to common shareholders, excluding the net income attributable to unvested restricted common shares and the net income attributable to noncontrolling interests, by the weighted average number of common shares including any dilutive unvested restricted common shares.two-classtwo-class method for the computation of basic and diluted earnings per share. During the three months ended September 30, 2017 2022 and 2016, 1,083,6472021, 752,327 and 487,090772,775 OP units, respectively, were excluded from the calculation of diluted earnings per share because their effect would be anti-dilutive, and during the nine months ended September 30, 2017 2022 and 2016, 1,089,8762021, 752,634 and 487,510772,775 OP units, respectively, were excluded from the calculation of diluted earnings per share because their effect would be anti-dilutive. $ 3,975 $ 2,946 $ 15,570 $ 7,772 (60 ) (47 ) (239 ) (132 ) 3,915 2,899 15,331 7,640 — — — 1,833 — — — (33 ) — — — 1,800 $ 3,915 $ 2,899 $ 15,331 $ 9,440 49,274 46,883 49,211 44,268 855 942 705 840 50,129 47,825 49,916 45,108 $ 0.08 $ 0.06 $ 0.31 $ 0.17 — — — 0.04 $ 0.08 $ 0.06 $ 0.31 $ 0.21 $ 0.08 $ 0.06 $ 0.31 $ 0.17 — — — 0.04 $ 0.08 $ 0.06 $ 0.31 $ 0.21 18 THE CONSOLIDATED FINANCIAL STATEMENTS20172022For the three months ended September 30, 2017 and 2016, distributions of $152,000 and $158,000, respectively, were made to holders of certain restricted common shares, $4,000 and $12,000, respectively, of which were charged against earnings, and for the nine months ended September 30, 2017 and 2016, distributions of $356,000 and $510,000, respectively, were made to holders of certain restricted common shares, $12,000 and $12,000, respectively, of which were charged against earnings See Note 12 for information related to restricted common shares under the 2008 Plan. Three Months Ended Nine Months Ended September 30, September 30, (in thousands, except per share data) 2017 2016 2017 2016 Numerator: Net income $ 3,140 $ 964 $ 6,841 $ 7,561 Less: Net income attributable to noncontrolling interests (147 ) (15 ) (429 ) (131 ) Distributions paid on unvested restricted shares (148 ) (146 ) (344 ) (498 ) Net income attributable to common shareholders excluding amounts attributable to unvested restricted shares $ 2,845 $ 803 $ 6,068 $ 6,932 Denominator: Weighted average number of common shares - basic 37,992 28,195 34,406 27,210 Effect of dilutive securities: Unvested restricted shares 597 829 805 803 Weighted average number of common shares - dilutive 38,589 29,024 35,211 28,013 Earnings Per Share: Basic: Net income attributable to common shareholders excluding amounts attributable to unvested restricted shares $ 0.07 $ 0.03 $ 0.18 $ 0.25 Diluted: Net income attributable to common shareholders excluding amounts attributable to unvested restricted shares $ 0.07 $ 0.03 $ 0.17 $ 0.25 Income earned by our taxable REIT subsidiary, Whitestone Davenport TRS LLC (“Davenport TRS”), is subject to federal income tax. For the nine months ended September 30, 2016, we recognized $45,000 in income tax expense related to Davenport TRS taxable year. Davenport TRS was dissolved in the fourth quarter of 2016.(0.75%(0.75% for us) to the profit margin, which generally will be determined for us as total revenue less a 30% standard deduction. Although the Texas Margin Tax is not an income tax, FASB ASC 740, “Income Taxes” applies to the Texas Margin Tax. For the three months ended September 30, 2017 2022 and 2016,2021, we recognized approximately $122,000$ 114,000 and $75,000$ 99,000 in margin tax provision, respectively, and for the nine months ended September 30, 2017 2022 and 2016,2021, we recognized approximately $292,000$ 315,000 and $237,000 in margin tax provision,$ 273,000, respectively.19WHITESTONE REIT AND SUBSIDIARIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSSeptember 30, 2017(Unaudited)$0.001$0.001 par value per share, and up to 50,000,000 preferred shares of beneficial interest, $0.001$0.001 par value per share.April 25, 2017, we completedMay 20, 2022, our universal shelf registration statement on Form S-3 was declared effective by the SEC, which registers the issuance and sale by us of 8,018,500up to $500 million in securities from time to time, including common shares, including 1,018,500 commonpreferred shares, purchased by the underwriters upon exercise of their option to purchase additional commondebt securities, depositary shares at a public offering price per share of $13.00 (the “April Offering”). Total net proceeds from the April Offering, after deducting offering expenses, were approximately $99.9 million, which we contributed to the Operating Partnership in exchange for OP units. The Operating Partnership used the net proceeds from the April Offering to repay a portion of the Facility and for general corporate purposes, including funding a portion of the purchase price of BLVD Place and Eldorado Plaza.June 4, 2015, September 9, 2022, we entered into six amended and restatedeleven equity distribution agreements for an at-the-market equity distribution program (the “2015“2022 equity distribution agreements”). Pursuant to providing for the termsissuance and conditionssale of the 2015 equity distribution agreements, we can issue and sell up to an aggregate of $50$100 million of the Company’s common shares pursuant to our common shares.Registration Statement on Form S-3 (File No.333-264881). Actual sales will depend on a variety of factors to be 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 bewere made in transactions that will be deemed to be “at-the-market” offerings as defined in Rule 415 under the Securities Act. We have no obligation to sell any of our common shares and can at any time suspend offers under the 20152022 equity distribution agreements or terminate the 20152022 equity distribution agreements.anyshares under the equity distribution agreements. During the three months ended September 30,2021, we sold 2,991,168 common shares under the 20152019 equity distribution agreements, duringwhich provided for the three months ended September 30, 2017. Duringissuance and sale of up to an aggregate of $100 million of the nine months ended September 30, 2017, we sold 567,302Company's common shares under the 2015 equity distribution agreements,pursuant to our Registration Statement on Form S-3 (File No.333-225007), with net proceeds to us of approximately $7.7$28.0 million. In connection with such sales, we paid compensation of approximately $139,000$426,000 to the sales agents. During the threenine months ended September 30, 2016,2021, we sold 1,083,9266,016,148 common shares under the 20152019 equity distribution agreements, with net proceeds to us of approximately $16.1$53.3 million. In connection with such sales, we paid compensation of approximately $246,000$812,000 to the sales agents. During the nine months ended September 30, 2016, we sold 1,819,681 common shares under the 2015 equity distribution agreements, with net proceeds to us of approximately $26.7 million. In connection with such sales, we paid compensation of approximately $408,000 to the sales agents.2017,2022, we owned a 97.3%98.6% interest in the Operating Partnership.20172022 and December 31, 2016,2021, there were 39,487,30549,956,634 and 30,450,37749,793,803 OP units outstanding, respectively. We owned 38,403,65849,261,969 and 29,347,74149,023,313 OP units as of September 30, 20172022 and December 31, 2016,2021, respectively. The balance of the OP units is owned by third parties, including certain members of our board of trustees. Our weighted average share ownership in the Operating Partnership was approximately 97.3%98.5% and 98.4% for the three months ended September 30, 2022 and 2021, respectively, and approximately 98.5% and 98.3% for the threenine months ended September 30, 2017 2022 and 2016, respectively, and approximately 97.0% and 98.3% for2021, respectively. During the ninethree months ended September 30, 2017 2022 and 2016. During the three months ended September 30, 20172021, 74,872 and 2016, 0 and 2,434 OP units, respectively, were redeemed for an equal number of common shares, and during the nine months ended September 30, 2017 and 2016, 18,989 and 15,450 OP units, respectively, were redeemed for an equal number of common shares, and during the nine months ended September 30, 2022 and 2021, 75,825 and 0 OP units, respectively, were redeemed for an equal number of common shares.20 THE CONSOLIDATED FINANCIAL STATEMENTS20172022during 2016of 2021 and the nine months ended September 30, 20172022 (in thousands, except per share/and per OP unit data): $ 0.1200 $ 5,901 $ 0.1200 $ 88 $ 5,989 0.1200 5,880 0.1200 92 5,972 0.1075 5,268 0.1075 83 5,351 $ 0.3475 $ 17,049 $ 0.3475 $ 263 $ 17,312 $ 0.1075 $ 5,257 $ 0.1075 $ 83 $ 5,340 0.1075 4,981 0.1075 83 5,064 0.1075 4,602 0.1075 83 4,685 0.1058 4,480 0.1058 82 4,562 $ 0.4283 $ 19,320 $ 0.4283 $ 331 $ 19,651 Common Shares Noncontrolling OP Unit Holders Total Quarter Paid Distributions Per Common Share Amount Paid Distributions Per OP Unit Amount Paid Amount Paid 2017 Third Quarter $ 0.2850 $ 10,948 $ 0.2850 $ 309 $ 11,257 Second Quarter 0.2850 10,093 0.2850 310 10,403 First Quarter 0.2850 8,453 0.2850 313 8,766 Total $ 0.8550 $ 29,494 $ 0.8550 $ 932 $ 30,426 2016 Fourth Quarter $ 0.2850 $ 8,305 $ 0.2850 $ 314 $ 8,619 Third Quarter 0.2850 8,109 0.2850 138 8,247 Second Quarter 0.2850 7,786 0.2850 138 7,924 First Quarter 0.2850 7,711 0.2850 139 7,850 Total $ 1.1400 $ 31,911 $ 1.1400 $ 729 $ 32,640 On 29, 2008, 2018. At the Company’s annual meeting of shareholders on May 11, 2017, our shareholders approvedvoted to approve the 2008 Plan. On December 22, 2010, our board of trustees amended2018 Long-Term Equity Incentive Ownership Plan (the “2018 Plan”). The 2018 Plan provides for the 2008 Plan to allow for awards in or related to Class B common shares pursuant to the 2008 Plan. On June 27, 2012, our Class B common shares were redesignated as “common shares.” The 2008 Plan, as amended, provides that awards may be made with respect to common shares of Whitestone or OP units, which may be redeemed for cash or, at our option, common shares of Whitestone. The maximum aggregate number of common shares that may be issued under the 2008 Plan is increased upon each issuance of up to 3,433,831 common shares by Whitestone so that at any time the maximum number of common shares that may be issued under the 2008 Plan shall equal 12.5% of the aggregate number of common shares of Whitestone and OP units issued and outstanding (other than common shares and/or OP units issuedpursuant to or held by Whitestone).of our board of trusteesadministered the 2008 Plan and administers the 20082018 Plan except, in each case, with respect to awards to non-employee trustees, for which the 2008 Plan was and the 2018 Plan is administered by ourthe board of trustees. The Compensation Committee is authorized to grant share options, including both incentive share options and non-qualified share options, as well as share appreciation rights, either with or without a related option. The Compensation Committee is also authorized to grant restricted common shares, restricted common share units, performance awards and other share-based awards. April 2, 2014, the Compensation Committee approved the modification of the vesting provisions with respect to awards of an aggregate of 633,704 restricted common shares and restricted common share units for certain of our employees. The modified time-based shares will vest annually in three equal installments. The modified performance-based restricted common shares and restricted common share units were modified to include performance-based vesting based on achievement of certain absolute financial goals, as well as one to two years of time-based vesting post achievement of financial goals. Continued employment is required through the applicable vesting date. Additionally, 2,049,116 restricted performance-based common share units were granted with the same vesting conditions as the modified performance-based grants described above. If the performance targets are not met prior to December 31, 2018, any unvested performance-based restricted common shares and restricted common share units will be forfeited.21WHITESTONE REIT AND SUBSIDIARIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSSeptember 30, 2017(Unaudited)The Compensation Committee approved the grant of an aggregate of 320,000 and 143,000 time-based restricted common share units on June 30, 2016 and 2015, respectively, to James C. Mastandrea and David K. Holeman.On September 6, 2017, the Compensation Committee approved the grant of an aggregate of 267,783 performance-based restricted common share units under the 2008 Plan with market-based vesting conditions (the “TSR Units”) to certain of our employees. Vesting is contingent upon achieving Total Shareholder Return relative to the peer group defined in the TSR Unit award agreements over a three-year performance period. At the end of the performance period, the number of common shares awarded for each vested TSR Unit will vary from 0% to 200% depending on the Company's ranking in the peer group (the “TSR Peer Group Ranking”). Continued employment is required through the vesting date. The grant date fair value for each TSR Unit of $12.37 was determined using the Monte Carlo simulation method and is being recognized as share-based compensation expense ratably from the September 30, 2017 grant date to the end of the performance period, December 31, 2019. The Monte Carlo simulation model utilizes multiple input variables that determine the probability of satisfying the market condition stipulated in the award grant and calculates the fair value of the award. Expected volatilities utilized in the model were estimated using a historical period consistent with the performance period of approximately three years. The risk-free interest rate was based on the United States Treasury rate for a term commensurate with the expected life of the grant.On September 6, 2017, the Compensation Committee approved the grant of an aggregate of 965,000 performance-based restricted common share units under the 2008 Plan which only vest immediately prior to the consummation of a Change in Control (as defined in the 2008 Plan) that occurs on or before September 30, 2024 (the(the “CIC Units”) to certain of our employees. Continued employment is required through the vesting date. If a Change in Control does not occur on or before September 30, 2024, the CIC Units shall be immediately forfeited. The Company considers a Change in Control on or before September 30, 2024 to be improbable, and no expense has been recognized for the CIC Units. If a Change in Control occurs, any outstanding CIC Units would be expensed immediately on the date of the Change in Control using the grant date fair value. The grant date fair value for each CIC Unit of $13.05 was determined based on the Company'sCompany’s closing share price on the grant date.20172022 is as follows: Shares Non-vested at January 1, 2017 2,044,334 $ 14.48 Granted 1,335,933 12.90 Vested (399,005 ) 14.62 Forfeited (31,883 ) 14.43 Non-vested at September 30, 2017 2,949,379 $ 13.74 Available for grant at September 30, 2017 775,050 2,716,132 $ 8.32 325,112 11.84 (205,281 ) 7.46 (1,336,518 ) 8.30 1,499,445 9.22 1,226,469 20172022 and years ended December 31, 2016, 2015 2021 and 20142020 is presented below: Weighted Average Grant-Date Fair Value 325,112 $ 11.84 (205,281 ) $ 1,531 904,215 $ 5.99 (1,024,808 ) $ 9,757 1,108,014 $ 5.76 (511,621 ) $ 5,566 Shares Granted Shares Vested Non-Vested Shares Issued Weighted Average Grant-Date Fair Value Vested Shares Total Vest-Date Fair Value (in thousands) Nine Months Ended September 30, 2017 1,335,933 $ 12.90 (399,005 ) $ 5,832 Year Ended December 31, 2016 545,778 $ 14.85 (734,261 ) $ 10,577 Year Ended December 31, 2015 327,122 $ 13.49 (348,786 ) $ 4,969 Year Ended December 31, 2014 2,058,930 $ 14.40 (133,774 ) $ 1,721 22 THE CONSOLIDATED FINANCIAL STATEMENTS20172022$2,704,000$943,000 and $3,042,000$1,563,000 for the three months ended September 30, 2017 2022 and 2016,2021, respectively, and $7,545,000$455,000 and $6,886,000$4,275,000 for the nine months ended September 30, 2017 2022 and 2016,2021, respectively.83%100% of the unvested awards, exclusive of 965,000455,000 CIC Units, to vest over the next 2733 months. As of 2017,2022, there was approximately $2.8 million in unrecognized compensation cost related to outstanding non-vested performance-based shares, which are expected to vest over a period of 18 months, $3.1$2.7 million in unrecognized compensation cost related to outstanding non-vested TSR Units, which are expected to vest over a period of 2733 months, and approximately $2.1$3.0 million in unrecognized compensation cost related to outstanding non-vested time-based shares, which are expected to be recognized over a period of approximately six33 months beginning on October 1, 2017.$10.0$1.4 million in non-cash share-based compensation expense in 20172022 and $5.5$4.8 million subsequent to 2017.2022. The unrecognized share-based compensation cost is expected to vest over a weighted average period of 1827 months. Company'sCompany’s TSR Peer Group Ranking as of the reporting date and weighted according to the number of days outstanding in the period. As of September 30, 2017,2022, the TSR Peer Group Ranking called for attainment of 0%, 50%, and 200% attainment.for the shares issued in 2020,2021, and 2022, respectively. The dilutive impact of the CIC Units is based on the probability of a Change in Control. Because the Company considers a Change in Control on or before September 30, 2024 to be improbable, no CIC Units are included in the Company'sCompany’s dilutive shares.At our annual meeting of shareholders on May 11, 2017, our shareholders voted to approve the 2018 Long-Term Equity Incentive Ownership Plan (the “2018 Plan”). The 2018 Plan provides for the issuance of up to 3,433,831 common shares and OP units pursuant to awards under the 2018 Plan. The 2018 Plan will become effective on July 30, 2018, which is the day after the 2008 Plan expires.21, 2016, each of our four13, 2021, five independent trustees and one trustee emeritus were granted 1,500a total of 29,825 common shares, which vested immediately.vest immediately and are prorated based on date appointed. The 7,50029,825 common shares granted to our trustees had a grant date fair value of $14.07$9.32 per share. On December 21, 2016, two of our independent trustees elected to receive a total of 3,128 common shares with a grant dateThe fair value of $14.07 in lieu of cash for board fees. The fair values of the shares granted wereduring the year ended December 31, 2021 was determined using quoted prices available on the date of grant.acquisitions. May 26, 2017, December 1, 2021 we acquired BLVD Place,Anderson Arbor, a property that meets our Community Centered Property®Property® strategy, for $158.0 million, including $80.0 million of asset level mortgage financing and $78.0$28.1 million in cash and net prorations using borrowings under our Facility andprorations. Anderson Arbor, a portion of the net proceeds from the April Offering. BLVD Place, a 216,94489,746 square foot property, was 99%89% leased at the time of purchase and is located in Houston,Austin, Texas. Included in the purchase of BLVD Place is approximately 1.43 acres of developable land.May 3, 2017, July 8, 2021, we acquired Eldorado Plaza,Lakeside Market, a property that meets our Community Centered Property®Property® strategy, for $46.6$53.2 million in cash and net prorations using borrowings under our Facility andprorations. Lakeside Market, a portion of the net proceeds from the April Offering. Eldorado Plaza, a 221,577162,649 square foot property, was 96%80.5% leased at the time of purchase and is located in McKinney, Texas, a suburb of Dallas,Plano, Texas.On September 30, 2016, we acquired La Mirada and Seville, properties that meet our Community Centered Property® strategy, for 621,053 OP units and $60.7 million in cash and net prorations. The OP units are redeemable for cash or, at our option, Whitestone REIT common shares on a one-for-one basis, subject to certain restrictions. La Mirada, a 147,209 square foot property, was 90% leased at the time of purchase. Seville, a 90,042 square foot property, was 88% leased at the time of purchase. Both properties are located in Scottsdale, Arizona.23 THE CONSOLIDATED FINANCIAL STATEMENTS20172022Unaudited pro forma financial information.unaudited pro formatable presents the revenue and expenses with Pillarstone OP included in our consolidated operating data is presentedstatements of operations and comprehensive income for the three and nine months ended September 30, 20172022 and 2016,2021 (in thousands): $ (105 ) $ (225 ) $ (471 ) $ (672 ) $ 75 $ 142 $ 359 $ 426 ifwell as the termination of Management Agreements between Pillarstone Capital REIT Operating Partnership, L.P. and Whitestone TRS, Inc. The claimants seeks monetary relief in excess of $1,000,000 million in damages and equitable relief. However, the Company denies the claims, has substantial legal and factual defenses against the claims, and intends to vigorously defend against the claims. The Company does not believe a probable loss will be incurred, nor does it anticipate a material adverse effect on its financial position, results of operations, cash flows or liquidity. Therefore, the Company has not recorded a charge as a result of this action.BLVD Place had occurredPillarstone REIT common shares by an Acquiring Person, each holder of a Right (other than an Acquiring Person), will have the right to receive upon exercise a number of Pillarstone REIT common shares having a market value of two times the Purchase Price.January 1, 2016. Revenuethe market value of Pillarstone REIT common shares, or in Pillarstone REIT common shares. To the extent we seek to have our partnership units in Pillarstone OP redeemed and net income attributablePillarstone OP elects to BLVD Placepay the applicable redemption price in Pillarstone REIT common shares (and such shares represent 5% or more of $3.9 millionthe outstanding common shares of Pillarstone REIT), the Rights could become exercisable. To the extent the Rights are exercised as a result of our Pillarstone OP units being redeemed for Pillarstone REIT common shares, our ownership interest in Pillarstone REIT would be significantly diluted, which could adversely impact the value of our investment in Pillarstone OP.$2.1 million, respectively,breach of the implied covenant of good faith and fair dealing under the Pillarstone OP partnership agreement. The lawsuit seeks rescission and voiding of the Pillarstone Rights Agreement; a declaration that the Pillarstone Rights Agreement is unenforceable, invalid, and of no force and effect; an order permanently enjoining enforcement of the Pillarstone Rights Agreement; an award of monetary damages; and broad restrictions on Pillarstone REIT’s ability to conduct its business, including buying properties, enforcing the Rights Agreement, incurring expenses, or engaging in transactions.been included ina material adverse effect on our financial position, results of operations, for the three months ended September 30, 2017, and revenue and net income attributable to BLVD Place of $5.4 million and $3.0 million, respectively, have been included in our results of operations for the nine months ended September 30, 2017. The related acquisition expenses of $0.4 million for the nine months ended September 30, 2017 have been reflected as a pro forma expense as of January 1, 2016. The unaudited pro forma consolidated operating data is not necessarily indicative of what the actual results of operations of the Company would have been, assuming the transaction had been completed as set forth above, nor do they purport to represent the Company's results of operations for future periods. Three Months Ended September 30, Nine Months Ended September 30, (in thousands, except per share data) 2017 2016 2017 2016 Total property revenues $ 33,653 $ 29,051 $ 97,924 $ 86,701 Net income $ 3,140 $ 1,717 $ 9,079 $ 10,588 $ 2,993 $ 1,689 $ 8,582 $ 10,405 Basic Earnings Per Share: $ 0.07 $ 0.04 $ 0.22 $ 0.28 Diluted Earnings Per Share: $ 0.07 $ 0.04 $ 0.21 $ 0.27 Weighted-average common shares outstanding: 37,992 36,214 37,755 35,229 38,589 37,043 38,560 36,032 (1)Net income attributable to Whitestone REIT reflects historical ownership percentages and does not reflect the effects of the April Offering, assuming the sale of the common shares took place on January 1, 2016, as the related impact on ownership percentage is minimal.(2)Pro forma weighted averages reflect the April Offering, assuming the sale of the common shares took place on January 1, 2016.Development properties. As of March2017, we had substantially completed construction at our Pinnacle of Scottsdale Phase II property. As of September 30, 2017, we had incurred approximately $5.2 million in construction costs, including approximately $0.5 million in previously capitalized interest and real estate taxes. The 27,063 square foot Community Centered Property® was 91% leased as of September 30, 2017 and is located in Scottsdale, Arizona, and adjacent to Pinnacle of Scottsdale.On December 31, 2016, we had substantially completed construction at our Shops at Starwood Phase III property. As of September 30, 2017, we had incurred approximately $8.0 million in construction costs, including approximately $0.9 million in previously capitalized interest and real estate taxes. The 35,351 square foot Community Centered Property® was 63% leased as of September 30, 2017 and is located in Frisco, Texas, a northern suburb of Dallas, Texas, and adjacent to Shops at Starwood.Property dispositions. On March 3, 2016, 2022, we completed the sale of Brookhill,Bissonnet/Beltway, located in Houston, Texas, for $3.1$5.4 million. This disposition was pursuant to our strategy of recycling capital by disposing of non-core properties, primarily properties that we owned at the time our current management team assumed the management of the Company, that do not fit our Community Centered Property® strategy. We recorded a gain on sale of $1.9 million. The sale was structured as a like-kind exchange within the meaning of Section 1031 of the Code and sales proceeds were deposited into a Section 1031 exchange escrow account with a qualified intermediary and subsequently distributed for general corporate purposes. We have not included BrookhillBissonnet/Beltway in discontinued operations as it did not meet the definition of discontinued operations.24WHITESTONE REIT AND SUBSIDIARIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSSeptember 30, 2017(Unaudited)On February 17, 2016, we completed the sale of approximately 0.5 acres of our 4.5 acre Pinnacle Phase II development parcel, located in Scottsdale, Arizona, for $1.1 million. We recorded a gain on sale of $1.0 million. Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operations.(the(this “Report”), and the consolidated financial statements and the notes thereto and “Management's“Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in our Annual Report on Form 10-K for the year ended December 31, 2016.2021. For more detailed information regarding the basis of presentation for the following information, you should read the notes to the unaudited consolidated financial statements included in this Report.management'smanagement’s view only as of the date of this Report. We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results.uncertainties related to the national economy, the real estate industry in general and in our specific markets;legislative or regulatory changes, including changes to laws governing REITs;adverse economic or real estate developments or natural disasters in Texas, Arizona or Illinois;increases in interest rates and operating costs;availability and terms of capital and financing, both to fund our operations and to refinance our indebtedness as it matures;decreases in rental rates or increases in vacancy rates;litigation risks;lease-up risks, including leasing risks arising from exclusivity and consent provisions in leases with significant tenants;our ability to successfully finance and complete acquisitions and related development projects and, if completed, the ability of such newly acquired and new development properties to perform as we expect;our inability to renew tenant leases or obtain new tenant leases upon the expiration of existing leases;our inability to generate sufficient cash flows due to market conditions, competition, uninsured losses, changes in tax or other applicable laws; andthe need to fund tenant improvements or other capital expenditures out of operating cash flow.sectionssection of our Annual Report on Form 10-K for the year ended December 31, 2016,2021, as previously filed with the Securities and Exchange Commission (“SEC”) and of this Report below.primarily owns manages, and redevelops high quality retailoperates commercial properties whichin culturally diverse markets in major metropolitan areas. Founded in 1998, we refer to as Community Centered Properties®. Ourare internally managed with a portfolio of commercial properties are located in attractiveTexas, Arizona and affluent neighborhoods within high growth markets located primarily in the Sunbelt, such as Austin, Dallas-Fort Worth, Houston, Phoenix and San Antonio. We believe that gaining critical mass within these target markets, combined with our local market intelligence, existing platform, access to capital and broad network of industry relationships, gives us a competitive advantage and allows us to generate long-term return opportunities and added value for our shareholders.our current management team joined the Company andwe adopted a strategic plan to acquire, redevelop, own and operate Community Centered Properties®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, and entertainment.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 our property. We employ and develop a diverse group of associates who understand the needs of our multiculturalmulti-cultural communities and tenants.2017,2022, we wholly owned or had a majority interest in 7260 commercial properties consisting of:51 wholly-ownedProperties®Properties® strategy containing approximately 4.95.2 million square feet of gross leasable area (“GLA”) and having a total carrying amount (net of accumulated depreciation) of $901.7$974.1 million; and •as a result of the Contribution (as defined below), a majority interest in 14 consolidated properties that do not meet our Community Centered Properties® strategy containing approximately 1.5 million square feet of GLA and having a total carrying amount (net of accumulated depreciation) of $60.0 million; plustwo retail propertiesProperties®Properties® strategy containing approximately 0.1 million square feet of GLA and having a total carrying value (net of accumulated depreciation) of $42.7 million; andfive parcels of land held for future development having a total carrying value of $15.9 million.2017,2022, we had an aggregate of 1,6491,555 tenants. We have a diversified tenant base with our largest tenant comprising only 2.6%2.5% of our annualized rental revenues for the nine months ended September 30, 2017.2022. Lease terms for our properties range from less than one year for smaller tenants to over 15 years for larger tenants. Our leases include minimum monthly lease payments and generally provide for tenant reimbursements for payment of taxes, insurance and maintenance. We completed 272261 new and renewal leases during the nine months ended September 30, 2017,2022, totaling 727,223703,749 square feet and approximately $56.4$81.1 million in total lease value. This compares to 336289 new and renewal leases totaling 863,936720,564 square feet and approximately $57.1$93.7 million in total lease value during the same period in 2016.10981 full-time employees as of September 30, 2017.2022. 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.April OfferingOn April 25, 2017,completedthrough our investment in Pillarstone OP, owned a majority interest in eight properties that do not meet our Community Centered Property® strategy containing approximately 926,798 square feet of GLA (the “Pillarstone Properties”). We own 81.4% of the saletotal outstanding units of 8,018,500 common shares, including 1,018,500 common shares purchased by the underwriters upon exercise of their option to purchase additional common shares, at a public offering price per share of $13.00 (the “April Offering”). Total net proceeds from the April Offering, after deducting offering expenses, were approximately $99.9 million,Pillarstone OP, which we contributedaccount for using the equity method. We also managed the day to day operations of Pillarstone OP pursuant to a management agreement, which was terminated on August 18, 2022.Operating Partnershiprelated responses intended to control its spread may continue to adversely affect business activity, particularly relating to our retail tenants, across the markets in exchange for OP units. The Operating Partnership used the net proceeds from the April Offering to repay a portionwhich we operate. In light of the Facility and for general corporate purposes, including funding a portionchanging nature of the purchase priceCOVID-19 pandemic, we are unable to predict the extent that its impact will have on our financial condition, results of BLVD Placeoperations and Eldorado Plaza.rental income and tenant reimbursementstotal revenues of approximately $33.7$35.4 million and $25.5$32.4 million for the three months ended September 30, 20172022 and 2016,2021, respectively, and $92.1 million$104.5 and $76.1$92.1 million for the nine months ended September 30, 20172022 and 2016,2021, respectively.Known Trends in Our Operations; Outlook for Future ResultsOver the past two years, we have seen modest improvement in the overall economyIncluded in our markets, which has allowed usadjustments to maintain overall occupancy rates, with slight increases in occupancy at certainrental revenue for the conversion of our properties,77 tenants to cash basis revenue was a straight-line rent reserve adjustment of $0.03 million and to recognize modest increases in rental rates. We expect this trend to continue in 2017.a bad debt adjustment of $0.2 million for the three months ending September 30, 2022, and a bad debt adjustment of $0.4 million and a straight-line rent reserve adjustment of $0.4 million for the nine months ended September 30, 2022.2017,2022, approximately 21%18% of our GLA was subject to leases that expire prior to December 31, 2018.2023. Over the last twothree calendar years, we have renewed expiring leases coveringwith respect to approximately 77%70% of the square footage subject to expiring leases.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 1824 months prior to the expiration date of the existing lease. WhileInasmuch as our early renewal program and other leasing and marketing efforts target these expiring leases, we hopework to re-lease most of that space prior to expiration of the leases. In the markets in which we operate, we obtain and analyze market rental rates through review of third-party publications, which provide market and submarket rental rate data and through inquiry of property owners and property management companies as to rental rates being quoted at properties that are located in close proximity to our properties and we believe display similar physical attributes as our nearby properties. We use this data to negotiate leases with new tenants and renew leases with our existing tenants at rates we believe to be competitive in the markets for our individual properties. Due to the short term nature of our leases, and based upon our analysis of market rental rates, we believe that, in the aggregate, our current leases are at market rates. Market conditions, including new supply of properties, and macroeconomic conditions in our markets and nationally affecting tenant income, such as employment levels, business conditions, interest rates, tax rates, fuel and energy costs and other matters, could adversely impact our renewal rate and/or the rental rates we are able to negotiate. We continue to monitor our tenants'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.have continuedseek to successfully grow our GLA through the acquisition of additional properties, and we expect to actively pursueare carefully evaluating development and consummate additional acquisitions in the foreseeable future. We believe that over the next few years we will continue to have excellent opportunities to acquire quality properties at historically attractive prices.redevelopment activities on a case-by-case basis. We have extensive relationships with community banks, attorneys, title companies, and others in the real estate industry, which we believe enables us to take advantage of these market opportunities and maintain an active acquisition pipeline.Properties®Properties® strategy. We define Community Centered Properties® as visibly located properties in established or developing, culturally diverse neighborhoods in our target markets, primarily in and around Austin, Dallas-Fort Worth, Houston, Phoenix and San Antonio. We may acquire properties in other high-growth cities in the future. 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, medical, educational and financial services and entertainment. Our goal is for each property to become a Whitestone-branded business center or retail community that serves a neighboring five-mile radius around our property.Property dispositions.8, 2016, we, through our Operating Partnership, entered into a Contribution Agreement (the “Contribution Agreement”) with Pillarstone Capital REIT Operating Partnership LP (“Pillarstone," "Pillarstone OP" or the "Consolidated Partnership") and Pillarstone Capital REIT (“Pillarstone REIT”) pursuant to which we contributed all of the equity interests in four of our wholly-owned subsidiaries: Whitestone CP Woodland Ph. 2, LLC, a Delaware limited liability company (“CP Woodland”); Whitestone Industrial-Office, LLC, a Texas limited liability company (“Industrial-Office”); Whitestone Offices, LLC, a Texas limited liability company (“Whitestone Offices”); and Whitestone Uptown Tower, LLC, a Delaware limited liability company (“Uptown Tower,” and together with CP Woodland, Industrial-Office and Whitestone Offices, the “Entities”) that own 14 non-core properties that do not fit our Community Centered Property® strategy (the “Pillarstone Properties”), to Pillarstone for aggregate consideration of approximately $84 million, consisting of (1) approximately $18.1 million Class A units representing limited partnership interests in Pillarstone (“Pillarstone OP Units”), issued at a price of $1.331 per Pillarstone OP Unit; and (2) the assumption of approximately $65.9 million of liabilities, consisting of (a) approximately $15.5 million of our liability under the 2014 Facility (See Note 7 (Debt) to the accompanying consolidated financial statements); (b) an approximately $16.3 million promissory note of Uptown Tower under the Loan Agreement, dated as of September 26, 2013, between Uptown Tower, as borrower, and U.S. Bank, National Association, as successor to Morgan Stanley Mortgage Capital Holdings LLC, as lender; and (c) an approximately $34.1 million promissory note (the “Industrial-Office Promissory Note”) of Industrial-Office issued under the Loan Agreement, dated as of November 26, 2013 (the “Industrial-Office Loan Agreement”), between Industrial-Office, as borrower, and Jackson National Life Insurance Company, as lender (collectively, the “Contribution”).In connection with the Contribution, on December 8, 2016, the Operating Partnership entered into an OP Unit Purchase Agreement (the “OP Unit Purchase Agreement”) with Pillarstone REIT and Pillarstone pursuant to which the Operating Partnership agreed to purchase up to an aggregate of $3.0 million of Pillarstone OP Units at a price of $1.331 per Pillarstone OP Unit over the two-year term of the OP Unit Purchase Agreement on the terms set forth therein. The OP Unit Purchase Agreement contains customary closing conditions and the parties have made certain customary representations, warranties and indemnifications to each other in the OP Unit Purchase Agreement. In addition, pursuant to the OP Unit Purchase Agreement, in the event of a Change of Control (as defined therein) of the Company, Pillarstone shall have the right, but not the obligation, to repurchase the Pillarstone OP Units issued thereunder from the Operating Partnership at their initial issue price of $1.331 per Pillarstone OP Unit.In connection with the Contribution, (1) with respect to each Pillarstone Property (other than Uptown Tower), Whitestone TRS, Inc., a subsidiary of the Company (“Whitestone TRS”), entered into a Management Agreement with the Entity that owns such Pillarstone Property and (2) with respect to Uptown Tower, Whitestone TRS entered into a Management Agreement with Pillarstone (collectively, the “Management Agreements”). Pursuant to the Management Agreements with respect to each Pillarstone Property (other than Uptown Tower), Whitestone TRS agreed to provide certain property management, leasing and day-to-day advisory and administrative services to such Pillarstone Property in exchange for (x) a monthly property management fee equal to 5.0% of the monthly revenues of such Pillarstone Property and (y) a monthly asset management fee equal to 0.125% of GAV (as defined in each Management Agreement as, generally, the purchase price of the respective Pillarstone Property based upon the purchase price allocations determined pursuant to the Contribution Agreement, excluding all indebtedness, liabilities or claims of any nature) of such Pillarstone Property. Pursuant to the Management Agreement with respect to Uptown Tower, Whitestone TRS agreed to provide certain property management, leasing and day-to-day advisory and administrative services to Pillarstone in exchange for (x) a monthly property management fee equal to 3.0% of the monthly revenues of Uptown Tower and (y) a monthly asset management fee equal to 0.125% of GAV of Uptown Tower.In connection with the Contribution, on December 8, 2016, the Operating Partnership entered into a Tax Protection Agreement with Pillarstone REIT and Pillarstone pursuant to which Pillarstone agreed to indemnify the Operating Partnership for certain tax liabilities resulting from its recognition of income or gain prior to December 8,1, 2021 if such liabilities result from a transaction involving a direct or indirect taxable disposition of all or a portion of the Pillarstone Properties or if Pillarstone fails to maintain and allocate to the Operating Partnership for taxation purposes minimum levels of liabilities as specified in the Tax Protection Agreement, the result of which causes such recognition of income or gain and the Company incurs taxes that must be paid to maintain its REIT status for federal income tax purposes.As of September 30, 2017, we owned approximately 81.4% of the total outstanding Pillarstone OP Units. Accordingly, we account for Pillarstone OP as a VIE and fully consolidate in our consolidated balance sheets and related consolidated statement of operations and comprehensive income.Property acquisitions. On May 26, 2017, we acquired BLVD Place,Anderson Arbor, a property that meets our Community Centered Property®Property® strategy, for $158.0 million, including $80.0 million of asset level mortgage financing and $78.0$28.1 million in cash and net prorations using borrowings under our Facility andprorations. Anderson Arbor, a portion of the net proceeds from the April Offering. BLVD Place, a 216,94489,746 square foot property, was 99%89% leased at the time of purchase and is located in Houston,Austin, Texas. Included in the purchase of BLVD Place is approximately 1.43 acres of developable land.May 3, 2017,July 8, 2021, we acquired Eldorado Plaza,Lakeside Market, a property that meets our Community Centered Property®Property® strategy, for $46.6$53.2 million in cash and net prorations using borrowings under our Facility andprorations. Lakeside Market, a portion of the net proceeds from the April Offering. Eldorado Plaza, a 221,577162,649 square foot property, was 96%80.5% leased at the time of purchase and is located in McKinney, Texas, a suburbPlano, Texas.On September 30, 2016, we acquired La Mirada and Seville, properties that meet our Community Centered Property® strategy, for 621,053 OP units and $60.7 million in cash and net prorations. The OP units are redeemable for cash or, at our option, Whitestone REIT common shares on a one-for-one basis, subject to certain restrictions. La Mirada, a 147,209 square foot property, was 90% leased at the time of purchase. Seville, a 90,042 square foot property, was 88% leased at the time of purchase. Both properties are located in Scottsdale, Arizona.Development properties. As of March 31, 2017, we had substantially completed construction at our Pinnacle of Scottsdale Phase II property. 2017, we had incurred approximately $5.2 million in construction costs, including approximately $0.5 million in previously capitalized interest and real estate taxes. The 27,063 square foot Community Centered Property® was 91% leased as of September 30, 2017 and is located in Scottsdale, Arizona, and adjacent to Pinnacle of Scottsdale.On December 31, 2016, we had substantially completed construction at our Shops at Starwood Phase III property. As of September 30, 2017, we had incurred approximately $8.0 million in construction costs, including approximately $0.9 million in previously capitalized interest and real estate taxes. The 35,351 square foot Community Centered Property® was 63% leased as of September 30, 2017 and is located in Frisco, Texas, a northern suburb of Dallas, Texas, and adjacent to Shops at Starwood.Leasing ActivityAs of September 30, 2017,2022, we owned or held a majority interest in 7260 properties with 6,554,9525,205,242 square feet of GLA and our occupancy rate for all properties was approximately 87%92% and 90% occupied as of both September 30, 20172022 and September 30, 2016.2021, respectively. The following is a summary of the Company'sCompany’s leasing activity for the nine months ended September 30, 2017: Number of Leases Signed GLA Signed Straight-lined Basis Increase Over Prior Rent Renewal Leases 159 415,175 3.3 $ 1.61 $ 15.72 $ 15.30 7.9 % New Leases 33 100,437 4.2 3.85 15.43 16.44 6.1 % Total 192 515,612 3.5 $ 2.05 $ 15.66 $ 15.52 7.5 % Number of Leases Signed GLA Signed Non-Comparable Renewal Leases 5 18,865 3.5 $ 6.50 $ 19.38 New Leases 75 200,173 6.0 10.37 17.92 Total 80 219,038 5.8 $ 10.03 $ 18.05 146 436,597 4.0 $ 1.95 $ 20.15 $ 18.83 15.3 % 37 69,256 5.9 11.30 25.35 24.14 14.8 % 183 505,853 4.2 $ 3.23 $ 20.86 $ 19.56 15.3 % 17 38,879 6.9 $ 8.89 $ 24.44 61 159,017 8.5 17.51 20.82 78 197,896 8.2 $ 15.81 $ 21.53 Contractual ExpendituresThe following is a summary of the Company's capital expenditures for the three and nine months ended September 30, 2017 and 2016 (in thousands): Three Months Ended Nine Months Ended September 30, September 30, 2017 2016 2017 2016 Capital expenditures: Tenant improvements and allowances $ 1,944 $ 1,478 $ 4,821 $ 3,996 Developments / redevelopments 2,608 2,211 5,548 9,421 Leasing commissions and costs 869 1,004 2,407 2,015 Maintenance capital expenditures 668 756 3,130 1,945 Total capital expenditures $ 6,089 $ 5,449 $ 15,906 $ 17,377 2016,2021, under “Management's“Management’s Discussion and Analysis of Financial Condition and Results of Operations.”2017.2022. For disclosure regarding recent accounting pronouncements and the anticipated impact they will have on our operations, please refer to Note 2 to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2016.2021.20172022 and 2016summarygeneral comparison of our results of operations and other metrics for the three months ended September 30, 20172022 and 20162021 (dollars in thousands, except per share and per OP unit amounts): Three Months Ended September 30, 2017 2016 Number of properties wholly-owned and operated 58 57 5,023,215 4,587,268 90 % 90 % Ending occupancy rate - all wholly-owned properties 90 % 89 % Number of properties managed and consolidated 14 14 Aggregate GLA (sq. ft.) 1,531,737 1,531,737 Ending occupancy rate - managed and consolidated operating portfolio 80 % 81 % Total property revenues $ 33,653 $ 25,508 Total property expenses 11,285 8,318 Total other expenses 19,062 16,172 Provision for income taxes 126 80 Gain on sale of properties — — (Gain) loss on disposal of assets 40 (26 ) Net income 3,140 964 Less: Net income attributable to noncontrolling interests 147 15 Net income attributable to Whitestone REIT $ 2,993 $ 949 $ 10,129 $ 6,343 13,097 9,812 22,368 17,190 Distributions paid on common shares and OP units 11,257 8,247 Distributions per common share and OP unit $ 0.2850 $ 0.2850 Distributions paid as a percentage of funds from operations core 86 % 84 % 60 59 5,205,242 5,116,220 92 % 90 % 92 % 90 % $ 35,383 $ 32,444 24,551 23,390 6,810 6,159 4,022 2,895 65 151 (112 ) (100 ) 3,975 2,946 — — 3,975 2,946 60 47 $ 3,915 $ 2,899 $ 12,231 $ 10,740 24,307 23,152 5,989 5,064 $ 0.1200 $ 0.1075 49 % 47 % (1) (2) aan explanation and reconciliation of funds from operations, a Non-GAAP metric, to net income, see “—Reconciliation of Non-GAAP Financial Measures—Funds From Operations (“FFO”)” below.(3) a reconciliation of funds from operations core to net income, see “—Reconciliation of Non-GAAP Financial Measures—FFO Core” below.(4) For aan explanation and reconciliation of property net operating income, a non-GAAP metric, to net income, see “—Reconciliation of Non-GAAP Financial Measures—Property Net Operating Income (“NOI”)” below.Property revenues.had rental income and tenant reimbursementsdefine “Same Store” as properties that have been owned for the entire period being compared. For purposes of approximately $33,653,000 forcomparing the three months ended September 30, 2017 as compared2022 to $25,508,000 for the three months ended September 30, 2016, an increase of $8,145,000, or 32%. The three months ended2021, Same Store includes properties owned during the entire period from July 1, 2021 to September 30, 2017 included $6,510,000 in increased revenues from Non-Same Store operations and $57,000 in increased revenues from our Consolidated Partnership.2022. We define “Non-Same Stores”Store” as properties acquired since the beginning of the period being compared and properties that have been sold, but not classified as discontinued operations. Same Store revenues increased $1,578,000 for the three months ended September 30, 2017 as compared to the same period in the prior year. We define “Same Stores” as properties that have been owned for the entire period being compared. For purposes of comparing the three months ended September 30, 2017 to the three months ended September 30, 2016, Same Stores include properties owned during the entire period from July 1, 2016 to September 30, 2017. Same Store revenue increased $156,000 for the three months ended September 30, 2017 as compared to the three months ended September 30, 2016 as the result of an increase in the average leased square feet to 3,870,000 from 3,842,000. The Same Store average revenue per leased square foot increased $1.47 for the three months ended September 30, 2017 to $23.85 per leased square foot as compared to the average revenue per leased square foot of $22.38 for the three months ended September 30, 2016, resulting in an increase of Same Store revenues of $1,422,000.Property expenses. Our property expenses were approximately $11,285,000 for the three months ended September 30, 2017 as compared to $8,318,000 for the three months ended September 30, 2016, an increase of $2,967,000, or 36%. property expensesrevenue are detailed in the table below (in thousands, except percentages): $ 23,836 $ 22,423 $ 1,413 6 % 9,550 8,450 1,100 13 % (327 ) 183 (510 ) (279 )% 33,059 31,056 2,003 6 % 278 231 47 20 % 33,337 31,287 2,050 7 % 1,408 754 654 87 % 602 270 332 123 % (40 ) (11 ) (29 ) 264 % 1,970 1,013 957 94 % 2 1 1 100 % 74 143 (69 ) (48 )% 2,046 1,157 889 77 % $ 35,383 $ 32,444 $ 2,939 9 % Three Months Ended September 30, Overall Property Expenses 2017 2016 Change % Change Real estate taxes $ 5,181 $ 3,414 $ 1,767 52 % Utilities 1,594 1,354 240 18 % Contract services 1,930 1,513 417 28 % Repairs and maintenance 1,119 713 406 57 % Bad debt 535 535 — — % Labor and other 926 789 137 17 % Total property expenses $ 11,285 $ 8,318 $ 2,967 36 % Three Months Ended September 30, Same Store Property Expenses 2017 2016 Change % Change Real estate taxes $ 3,346 $ 2,812 $ 534 19 % Utilities 1,096 963 133 14 % Contract services 1,300 1,247 53 4 % Repairs and maintenance 833 585 248 42 % Bad debt 327 436 (109 ) (25 )% Labor and other 606 580 26 4 % Total property expenses $ 7,508 $ 6,623 $ 885 13 % Three Months Ended September 30, Non-Same Store Property Expenses 2017 2016 Change % Change Real estate taxes $ 934 $ 12 $ 922 Not meaningful Utilities 244 11 233 Not meaningful Contract services 347 5 342 Not meaningful Repairs and maintenance 108 9 99 Not meaningful Bad debt 148 (2 ) 150 Not meaningful Labor and other 102 16 86 Not meaningful Total property expenses $ 1,883 $ 51 $ 1,832 Not meaningful Real estate taxes. Real estate taxes increased approximately $1,767,000, or 52%, during the three months ended September 30, 2017 as compared to the same period in 2016. real estate tax increase was comprisedprimary components of increases of $534,000, $311,000 and $922,000 in our Same Store, Consolidated Partnership and Non-Same Store properties, respectively. The increase in Same Store real estate tax expense was primarily attributable to increased assessments with tax authorities in our Texas markets resulting in largeroperating expenses for 2017 taxes. Many of the tax assessments on our properties are still under protest for 2016, and we expect to achieve further reductions through the litigation process. We actively work to keep our valuations and resulting taxes low because a majority of these taxes are charged to our tenants through triple net leases, and we strive to keep these charges to our tenants as low as possible.Utilities. Utilities expenses increased approximately $240,000, or 18%, during the three months ended September 30, 2017 as compared to the same period in 2016. Utility expense increased $233,000 and $133,000 in our Non-Same Store and Same Store properties, respectively, and was offset by a $126,000 decrease in such expense from our Consolidated Partnership properties.Contract services. Contract services expenses increased approximately $417,000, or 28%, during the three months ended September 30, 2017 as compared to the same period in 2016. The contract services increase was comprised of $342,000, $53,000 and $22,000 increases in our Non-Same Store, Same Store and Consolidated Partnership properties, respectively.Repairs and maintenance. Repairs and maintenance expenses increased approximately $406,000, or 57%, during the three months ended September 30, 2017 as compared to the same period in 2016. The repairs and maintenance increase was comprised of increases of $248,000 in Same Store properties, $99,000 in our Non-Same Store properties and $59,000 in our Consolidated Partnership properties.Bad debt. Bad debt expenses were $535,000 for the three months ended September 30, 20172022 and 2016. Bad debt expense increased $150,000 for Non-Same Store properties and decreased $109,000 and $41,000 for Same Store and Consolidated Partnership properties, respectively.Labor and other. Labor and other expenses increased approximately $137,000, or 17%, during the three months ended September 30, 2017 as compared to the same period in 2016. The increased labor and other expense was comprised of $86,000, $26,000 and $25,000 increases in our Non-Same Store, Same Store and Consolidated Partnership properties, respectively.Same Store, Non-Same Store and Consolidated Partnership net operating income. The components of Same Store, Non-Same Store, Consolidated Partnership and total property net operating income and net income are detailed in the table below (in thousands): Three Months Ended September 30, Percent 2017 2016 Change Change Same Store (49 properties, exclusive of land held for development) Property revenues Rental revenues $ 16,998 $ 16,471 $ 527 3 % Other revenues 6,076 5,025 1,051 21 % Total property revenues 23,074 21,496 1,578 7 % Property expenses Property operation and maintenance 4,162 3,811 351 9 % Real estate taxes 3,346 2,812 534 19 % Total property expenses 7,508 6,623 885 13 % Total Same Store net operating income 15,566 14,873 693 5 % Non-Same Store (4 Properties, exclusive of land held for development) Property revenues Rental revenues 4,677 128 4,549 Not meaningful Other revenues 1,996 35 1,961 Not meaningful Total property revenues 6,673 163 6,510 Not meaningful Property expenses Property operation and maintenance 949 39 910 Not meaningful Real estate taxes 934 12 922 Not meaningful Total property expenses 1,883 51 1,832 Not meaningful Total Non-Same Store net operating income 4,790 112 4,678 Not meaningful Consolidated Partnership properties (14 Properties) Property revenues Rental revenues 3,216 3,245 (29 ) (1 )% Other revenues 690 604 86 14 % Total property revenues 3,906 3,849 57 1 % Property expenses Property operation and maintenance 993 1,054 (61 ) (6 )% Real estate taxes 901 590 311 53 % Total property expenses 1,894 1,644 250 15 % Three Months Ended September 30, Percent 2017 2016 Change Change Total Consolidated Partnership properties net operating income 2,012 2,205 (193 ) (9 )% Total property net operating income 22,368 17,190 5,178 30 % Less total other expenses, provision for income taxes, gain on sale of properties and gain (loss) on disposal of assets 19,228 16,226 3,002 19 % Net income $ 3,140 $ 964 $ 2,176 226 % Other expenses. Our other expenses were approximately $19,062,000 for the three months ended September 30, 2017, as compared to $16,172,000 for the three months ended September 30, 2016, an increase of $2,890,000, or 18%. The primary components of other expenses2021 are detailed in the table below (in thousands, except percentages): $ 6,951 $ 5,460 $ 1,491 27 % 4,111 4,408 (297 ) (7 )% 11,062 9,868 1,194 12 % 261 104 157 151 % 402 181 221 122 % 105 225 (120 ) (53 )% 768 510 258 51 % 7,889 7,340 549 7 % 4,832 5,672 (840 ) (15 )% $ 24,551 $ 23,390 $ 1,161 5 % Three Months Ended September 30, 2017 2016 Change % Change General and administrative $ 5,581 $ 6,218 $ (637 ) (10 )% Depreciation and amortization 7,247 5,449 1,798 33 % Interest expense 6,376 4,669 1,707 37 % Interest, dividend and other investment income (142 ) (164 ) 22 (13 )% Total other expenses $ 19,062 $ 16,172 $ 2,890 18 % decreased approximately $637,000, or 10%,(income). The primary components of other expenses (income) for the three months ended September 30, 2017 as compared to2022 and 2021 are detailed in the same period in 2016. The decrease was comprised of $338,000 in decreased share-based compensation expense, $240,000 in decreased professional fees and $109,000 in decreased acquisition expenses, offset by $50,000 in increased other expenses.Total compensation recognizedtable below (in thousands, except percentages): $ 6,816 $ 6,142 $ 674 11 % 7 48 (41 ) (85 )% (13 ) (31 ) 18 (58 )% $ 6,810 $ 6,159 $ 651 11 % The interest expense increase is attributable to rising interest rates. We expect interest expense to increase in the future due to rising interest rates. $147,000 of the increase in interest is attributable to extinguishment of debt costs for the three months ended September 30, 2022. for share-based payments was $2,704,000 and $3,042,000of real estate partnership. Our estimated equity in earnings of real estate partnership, which is generated from our 81.4% ownership of Pillarstone OP, decreased $86,000 from $151,000 for the three months ended September 30, 2017 and 2016, respectively.We expect2021 to record approximately $10.0 million in non-cash share-based compensation expense in 2017 and $5.5 million subsequent to 2017. The unrecognized share-based compensation cost is expected to vest over a weighted average period of 18 months.Depreciation and amortization. Depreciation and amortization increased $1,798,000, or 33%,$65,000 for the three months ended September 30, 2017 as compared2022. Please refer to Note 6 (Investment in Real Estate Partnership) to the same periodaccompanying consolidated financial statements for more information regarding our investment in 2016. Depreciation for improvements to Pillarstone OP.properties increased $578,000 for the three months ended September 30, 2017 as compared to the same period in 2016. Depreciation for Non-Samenet operating income. The components of Same Store properties increased $1,085,000 and depreciation for Consolidated Partnership properties increased $64,000. Lease commission amortization and depreciation of corporate assets increased $71,000 for the three months ended September 30, 2017 as compared to the same period in 2016.Interest expense. Interest expense increased approximately $1,707,000, or 37%, for the three months ended September 30, 2017 as compared to the same period in 2016. The increase in interest expensenet operating income is comprised of approximately $1,128,000 in increased interest expense resulting from a $136,365,000 increase in our average notes payable balance, a $564,000 increase in interest expense resulting from an increasedetailed in the average effective interest rate on our average notes payable from 3.31% to 3.65% and an increase in amortized loan fees included in interest expensetable below (in thousands): $ 33,059 $ 31,056 $ 2,003 6 % 278 231 47 20 % 33,337 31,287 2,050 7 % 6,951 5,460 1,491 27 % 4,111 4,408 (297 ) (7 )% 11,062 9,868 1,194 12 % 22,275 21,419 856 4 % (366 ) (507 ) 141 (28 )% (224 ) (177 ) (47 ) 27 % (96 ) (79 ) (17 ) 22 % $ 21,589 $ 20,656 $ 933 5 % $ 3,915 $ 2,899 4,832 5,672 7,889 7,340 (65 ) (151 ) 6,816 6,142 (13 ) (31 ) 112 100 — — 31 83 7 48 723 1,003 60 47 $ 24,307 $ 23,152 (1,309 ) (730 ) (723 ) (1,003 ) 22,275 21,419 (366 ) (507 ) (224 ) (177 ) (96 ) (79 ) $ 21,589 $ 20,656 Interest, dividend and other investment income. Interest, dividend and other investment income decreased approximately $22,000, or 13%, for the three months ended September 30, 2017 as compared to the same period in 2016. The decrease in interest, dividend and other investment income for the three months ended September 30, 2017 as compared to the same period in 2016 is comprisedResults of Operations20172022 and 2016summarygeneral comparison of our results of operations and other metrics for the nine months ended September 30, 20172022 and 20162021 (dollars in thousands, except per share and per OP unit amounts): Nine Months Ended September 30, 2017 2016 Number of properties wholly-owned and operated 58 57 5,023,215 4,587,268 90 % 90 % Ending occupancy rate - all wholly-owned properties 90 % 89 % Number of properties managed and consolidated 14 14 Aggregate GLA (sq. ft.) 1,531,737 1,531,737 Ending occupancy rate - managed and consolidated operating portfolio 80 % 81 % Total property revenues $ 92,128 $ 76,072 Total property expenses 30,561 24,453 Total other expenses 54,311 46,711 Provision for income taxes 296 247 Gain on sale of properties (16 ) (2,890 ) (Gain) loss on disposal of assets 135 (10 ) Net income 6,841 7,561 Less: Net income attributable to noncontrolling interests 429 131 Net income attributable to Whitestone REIT $ 6,412 $ 7,430 $ 25,982 $ 20,856 34,925 28,732 61,567 51,619 Distributions paid on common shares and OP units 30,426 24,021 Distributions per common share and OP unit $ 0.8550 $ 0.8550 Distributions paid as a percentage of funds from operations core 87 % 84 % 60 59 5,205,242 5,116,220 92 % 90 % 92 % 90 % $ 104,503 $ 92,107 69,844 66,353 19,080 18,137 15,579 7,617 304 429 (313 ) (274 ) 15,570 7,772 — 1,833 15,570 9,605 239 165 $ 15,331 $ 9,440 $ 40,325 $ 30,183 73,924 66,340 17,312 14,311 $ 0.3475 $ 0.3209 43 % 47 % (1) (2) aan explanation and reconciliation of funds from operations, a Non-GAAP metric, to net income, see “—Reconciliation of Non-GAAP Financial Measures—Funds From Operations (“FFO”)” below.(3) a reconciliation of funds from operations core to net income, see “—Reconciliation of Non-GAAP Financial Measures—FFO Core” below.(4) For aan explanation and reconciliation of property net operating income, a non-GAAP metric, to net income, see “—Reconciliation of Non-GAAP Financial Measures—Property Net Operating Income (“NOI”)” below.had rental income and tenant reimbursementsdefine “Same Store” as properties that have been owned for the entire period being compared. For purposes of approximately $92,128,000 forcomparing the nine months ended September 30, 2017 as compared2022 to $76,072,000 for the nine months ended September 30, 2016, an increase of $16,056,000, or 21%. The nine months ended2021, Same Store includes properties owned during the entire period from January 1, 2021 to September 30, 2017 included $11,993,000 in increased revenues from Non-Same Store operations and $230,000 in increased revenues from our Consolidated Partnership.2022. We define “Non-Same Stores”Store” as properties acquired since the beginning of the period being compared and properties that have been sold, but not classified as discontinued operations. Same Store revenues increased $3,833,000 for the nine months ended September 30, 2017 as compared to the same period in the prior year. We define “Same Stores” as properties that have been owned for the entire period being compared. For purposes of comparing the nine months ended September 30, 2017 to the nine months ended September 30, 2016, Same Stores include properties owned during the entire period from January 1, 2016 to September 30, 2017. Same Store revenue increased $615,000 for the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016 as the result of an increase in the average leased square feet to 3,866,000 from 3,830,000. The Same Store average revenue per leased square foot increased $1.11 for the nine months ended September 30, 2017 to $23.46 per leased square foot as compared to the average revenue per leased square foot of $22.35 for the nine months ended September 30, 2016, resulting in an increase of Same Store revenues of $3,218,000.Property expenses. Our property expenses were approximately $30,561,000 for the nine months ended September 30, 2017 as compared to $24,453,000 for the nine months ended September 30, 2016, an increase of $6,108,000, or 25%. property expensesrevenue are detailed in the table below (in thousands, except percentages): $ 70,893 $ 66,287 $ 4,606 7 % 27,327 24,105 3,222 13 % (594 ) (489 ) (105 ) 21 % 97,626 89,903 7,723 9 % 635 764 (129 ) (17 )% 98,261 90,667 7,594 8 % 4,130 754 3,376 448 % 1,765 270 1,495 554 % (21 ) (11 ) (10 ) 91 % 5,874 1,013 4,861 480 % 3 1 2 200 % 365 426 (61 ) (14 )% 6,242 1,440 4,802 333 % $ 104,503 $ 92,107 $ 12,396 13 % Nine Months Ended September 30, Overall Property Expenses 2017 2016 Change % Change Real estate taxes $ 13,588 $ 10,072 $ 3,516 35 % Utilities 4,091 3,590 501 14 % Contract services 5,361 4,507 854 19 % Repairs and maintenance 3,212 2,445 767 31 % Bad debt 1,442 1,298 144 11 % Labor and other 2,867 2,541 326 13 % Total property expenses $ 30,561 $ 24,453 $ 6,108 25 % Nine Months Ended September 30, Same Store Property Expenses 2017 2016 Change % Change Real estate taxes $ 9,883 $ 8,382 $ 1,501 18 % Utilities 2,800 2,597 203 8 % Contract services 3,799 3,746 53 1 % Repairs and maintenance 2,428 1,946 482 25 % Bad debt 1,107 1,170 (63 ) (5 )% Labor and other 1,941 1,900 41 2 % Total property expenses $ 21,958 $ 19,741 $ 2,217 11 % Nine Months Ended September 30, Non-Same Store Property Expenses 2017 2016 Change % Change Real estate taxes $ 1,537 $ 56 $ 1,481 Not meaningful Utilities 403 38 365 Not meaningful Contract services 678 22 656 Not meaningful Repairs and maintenance 237 (2 ) 239 Not meaningful Bad debt 213 (25 ) 238 Not meaningful Labor and other 231 84 147 Not meaningful Total property expenses $ 3,299 $ 173 $ 3,126 Not meaningful Real estate taxes. Real estate taxes increased approximately $3,516,000, or 35%, during the nine months ended September 30, 2017 as compared to the same period in 2016. real estate tax increase was comprised of increases of $1,501,000, $534,000 and $1,481,000 in our Same Store, Consolidated Partnership and Non-Same Store properties, respectively. The increase in Same Store real estate tax expense was primarily attributable to increased assessments with tax authorities in our Texas markets resulting in larger expenses for 2017 taxes. Many of the tax assessments on our properties are still under protest for 2016, and we expect to achieve further reductions through the litigation process. We actively work to keep our valuations and resulting taxes low because a majority of these taxes are charged to our tenants through triple net leases, and we strive to keep these charges to our tenants as low as possible.Utilities. Utilities expenses increased approximately $501,000, or 14%, during the nine months ended September 30, 2017 as compared to the same period in 2016. The utility expense increase was comprised of $365,000 and $203,000 in our Non-Same Store and Same Store properties, respectively, offset by a decrease of $67,000 in our Consolidated Partnership properties.Contract services. Contract services expenses increased approximately $854,000, or 19%, during the nine months ended September 30, 2017 as compared to the same period in 2016. The contract services increase was comprised of $656,000, $145,000 and $53,000 in our Non-Same Store, Consolidated Partnership and Same Store properties, respectively.Repairs and maintenance. Repairs and maintenance expenses increased approximately $767,000, or 31%, during the nine months ended September 30, 2017 as compared to the same period in 2016. The repairs and maintenance increase was comprised of increases of $482,000 in Same Store properties, $239,000 in our Non-Same Store properties and $46,000 in our Consolidated Partnership properties.Bad debt. Bad debt expenses increased approximately $144,000, or 11%, during the nine months ended September 30, 2017 as compared to the same period in 2016. The bad debt expense increase was comprised of a $238,000 increase in our Non-Same Store properties, offset by decreases of $63,000 and $31,000 in our Same Store and Consolidated Partnership properties, respectively.Labor and other. Labor and other expenses increased approximately $326,000, or 13%, during the nine months ended September 30, 2017 as compared to the same period in 2016. The labor and other expense increase was comprised of $138,000, $147,000 and $41,000 in our Consolidated Partnership, Non-Same Store and Same Store properties, respectively.Same Store, Non-Same Store and Consolidated Partnership net operating income. Theprimary components of Same Store, Non-Same Store, Consolidated Partnership and total property net operating income and net income are detailed in the table below (in thousands): Nine Months Ended September 30, Percent 2017 2016 Change Change Same Store (49 properties, exclusive of land held for development) Property revenues Rental revenues $ 50,486 $ 48,869 $ 1,617 3 % Other revenues 17,547 15,331 2,216 14 % Total property revenues 68,033 64,200 3,833 6 % Property expenses Property operation and maintenance 12,075 11,359 716 6 % Real estate taxes 9,883 8,382 1,501 18 % Total property expenses 21,958 19,741 2,217 11 % Total Same Store net operating income 46,075 44,459 1,616 4 % Non-Same Store (4 Properties, exclusive of land held for development) Property revenues Rental revenues 9,082 387 8,695 Not meaningful Other revenues 3,438 140 3,298 Not meaningful Total property revenues 12,520 527 11,993 Not meaningful Property expenses Property operation and maintenance 1,762 117 1,645 Not meaningful Real estate taxes 1,537 56 1,481 Not meaningful Total property expenses 3,299 173 3,126 Not meaningful Total Non-Same Store net operating income 9,221 354 8,867 Not meaningful Consolidated Partnership properties (14 Properties) Property revenues Rental revenues 9,629 9,659 (30 ) 0 % Other revenues 1,946 1,686 260 15 % Total property revenues 11,575 11,345 230 2 % Property expenses Property operation and maintenance 3,136 2,905 231 8 % Real estate taxes 2,168 1,634 534 33 % Total property expenses 5,304 4,539 765 17 % Nine Months Ended September 30, Percent 2017 2016 Change Change Total Consolidated Partnership properties net operating income 6,271 6,806 (535 ) (8 )% Total property net operating income 61,567 51,619 9,948 19 % Less total other expenses, provision for income taxes, gain on sale of properties and gain (loss) on disposal of assets 54,726 44,058 10,668 24 % Net income $ 6,841 $ 7,561 $ (720 ) (10 )% Other expenses. Our other expenses were approximately $54,311,000 for the nine months ended September 30, 2017, as compared to $46,711,000 for the nine months ended September 30, 2016, an increase of $7,600,000, or 16%. The primary components of other expenses2022 and 2021 are detailed in the table below (in thousands, except percentages): $ 18,031 $ 15,297 $ 2,734 18 % 12,837 12,606 231 2 % 30,868 27,903 2,965 11 % 751 103 648 629 % 1,030 181 849 469 % 471 672 (201 ) (30 )% 2,252 956 1,296 136 % 23,661 21,458 2,203 10 % 13,063 16,036 (2,973 ) (19 )% $ 69,844 $ 66,353 $ 3,491 5 % Nine Months Ended September 30, 2017 2016 Change % Change General and administrative $ 17,598 $ 16,467 $ 1,131 7 % Depreciation and amortization 19,936 16,362 3,574 22 % Interest expense 17,158 14,221 2,937 21 % Interest, dividend and other investment income (381 ) (339 ) (42 ) 12 % Total other expenses $ 54,311 $ 46,711 $ 7,600 16 % increased approximately $1,131,000, or 7%,(income). The primary components of other expenses (income) for the nine months ended September 30, 2017 as compared to2022 and 2021 are detailed in the same period in 2016. The increase was comprised of $659,000 in increased share-based compensation expense, $357,000 in increased salaries and benefits, $103,000 in increased acquisition costs, and $12,000 in increased other expenses.Total compensation recognizedtable below (in thousands, except percentages): $ 19,111 $ 18,417 $ 694 4 % 12 (177 ) 189 (107 )% (43 ) (103 ) 60 (58 )% $ 19,080 $ 18,137 $ 943 5 % The interest expense increase is attributable to rising interest rates. We expect interest expense to increase in the future due to rising interest rates. $147,000 of the increase in interest is attributable to extinguishment of debt costs for the nine months ended September 30, 2022. for share-based payments was $7,545,000 and $6,886,000of real estate partnership. Our estimated equity in earnings of real estate partnership, which is generated from our 81.4% ownership of Pillarstone OP, decreased $125,000 from $429,000 for the nine months ended September 30, 2017 and 2016, respectively.We expect2021 to record approximately $10.0 million in non-cash share-based compensation expense in 2017 and $5.5 million subsequent to 2017. The unrecognized share-based compensation cost is expected to vest over a weighted average period of 18 months.Depreciation and amortization. Depreciation and amortization increased $3,574,000, or 22%,$304,000 for the nine months ended September 30, 2017 as compared2022. Please refer to Note 6 (Investment in Real Estate Partnership) to the same periodaccompanying consolidated financial statements for more information regarding our investment in 2016. Depreciation for improvements to Pillarstone OP.properties increased $1,364,000 for the nine months ended September 30, 2017 as compared to the same period in 2016. Depreciation for Non-Samenet operating income. The components of Same Store properties increased $1,885,000 and depreciation for Consolidated Partnership properties increased $194,000. Lease commission amortization and depreciation of corporate assets increased $131,000 for the nine months ended September 30, 2017 as compared to the same period in 2016.Interest expense. Interest expense increased approximately $2,937,000, or 21%, for the nine months ended September 30, 2017 as compared to the same period in 2016. The increase in interest expensenet operating income is comprised of approximately $2,373,000 in increased interest expense resulting from a $92,065,000 increase in our average notes payable balance, a $555,000 increase in interest expense resulting from an increasedetailed in the average effective interest rate on our average notes payable from 3.44% to 3.56% and an increase in amortized loan fees included in interest expensetable below (in thousands): $ 97,626 $ 89,903 $ 7,723 9 % 635 764 (129 ) (17 )% 98,261 90,667 7,594 8 % 18,031 15,297 2,734 18 % 12,837 12,606 231 2 % 30,868 27,903 2,965 11 % 67,393 62,764 4,629 7 % (845 ) (1,201 ) 356 (30 )% (686 ) (618 ) (68 ) 11 % (118 ) (306 ) 188 (61 )% $ 65,744 $ 60,639 $ 5,105 8 % $ 15,331 $ 9,440 13,063 16,036 23,661 21,458 (304 ) (429 ) 19,111 18,417 (43 ) (103 ) 313 274 — (1,833 ) 112 246 12 (177 ) 2,429 2,846 239 165 $ 73,924 $ 66,340 (4,102 ) (730 ) (2,429 ) (2,846 ) 67,393 62,764 (845 ) (1,201 ) (686 ) (618 ) (118 ) (306 ) $ 65,744 $ 60,639 Interest, dividend and other investment income. Interest, dividend and other investment income increased approximately $42,000, or 12%, for the nine months ended September 30, 2017 as compared to the same period in 2016. The increase in interest, dividend and other investment income for the nine months ended September 30, 2017 as compared to the same period in 2016 is comprised(“FFO”(NAREIT) (“FFO”)(loss) available to common shareholders computedWhitestone REIT (calculated in accordance with U.S. GAAP,GAAP), excluding depreciation and amortization related to real estate, gains or losses from salesthe sale of operatingcertain real estate assets, gains and losses from change in control, and impairment charges on properties held for investment and extraordinary items, plus depreciation and amortizationwrite-downs of operating properties, including our share of unconsolidatedcertain real estate joint venturesassets and partnerships.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.U.S. GAAP net income (loss) alone as the primary measure of our operating performance. U.S. 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 and Normalized FFO as the primary metric for comparing the relative performance of equity REITs. U.S. 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 Normalized 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 Normalized FFO presented by us is comparable to similarly titled measures of other REITs.Funds From Operations Core (“FFO Core”)Management believes that the computation of FFO in accordance with NAREIT's definition includes certain itemsthat are not indicative of the results provided by our operating portfolio and affect the comparability of our period-over-period performance. These items include, but are not limited to, non-cash share-based compensation expense and acquisition costs. Therefore, in addition to FFO, management uses FFO Core, which we define to exclude such items. Management believes that these adjustments are appropriate in determining FFO Core as they are not indicative of the operating performance of our assets. In addition, we believe that FFO Core is a useful supplemental measure for the investing community to use in comparing us to other REITs as many REITs provide some form of adjusted or modified FFO. However, there can be no assurance that FFO Core presented by us is comparable to the adjusted or modified FFO of other REITs. Core and the reconciliations to net income, which we believe is the most comparable U.S. GAAP financial measure (in thousands): Three Months Ended Nine Months Ended September 30, September 30, FFO and FFO CORE 2017 2016 2017 2016 Net income attributable to Whitestone REIT $ 2,993 $ 949 $ 6,412 $ 7,430 Depreciation and amortization of real estate assets 7,015 5,405 19,255 16,195 (Gain) loss on sale or disposal of assets and properties 37 (26 ) 114 (2,900 ) Net income attributable to redeemable operating partnership units 84 15 201 131 FFO 10,129 6,343 25,982 20,856 Adjustments to reconcile to FFO Core: Share-based compensation expense 2,704 3,042 7,545 6,886 Acquisition costs 264 427 1,398 990 FFO Core $ 13,097 $ 9,812 $ 34,925 $ 28,732 $ 3,915 $ 2,899 $ 15,331 $ 9,440 7,846 7,305 23,534 21,353 403 440 1,209 1,254 7 48 12 (177 ) — — — (1,833 ) — 1 — (19 ) 60 47 239 165 12,231 10,740 40,325 30,183 147 — 147 — $ 12,378 $ 10,740 $ 40,472 $ 30,183 Pillarstone.real estate partnership.performance and is useful to securities analysts in estimating the relative net asset values of REITs.performance. We define NOI as operating revenues (rental and other revenues) less property and related expenses (property operation and maintenance and real estate taxes). Other REITs may use different methodologies for calculating NOI and, accordingly, our NOI may not be comparable to other REITs. Because NOI excludes general and administrative expenses, depreciation and amortization, involuntary conversion,equity or deficit in earnings of real estate partnership, interest expense, interest, dividend and other investment income, provision for income taxes, gain on sale of property from discontinued operations, management fee (net of related expenses) and gain or loss on sale or disposition of assets, and includes NOI of real estate partnership (pro rata) and net income attributable to noncontrolling interest, it provides a performance measure that, when compared year over year,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, involuntary conversion, interest expense, interest income, provision for income taxes and gain or loss on sale or disposition of assets, the level of capital expendituresexpenditure and leasing costs necessary to maintain the operating performance of our properties. Three Months Ended Nine Months Ended September 30, September 30, PROPERTY NET OPERATING INCOME 2017 2016 2017 2016 Net income attributable to Whitestone REIT $ 2,993 $ 949 $ 6,412 $ 7,430 General and administrative expenses 5,581 6,218 17,598 16,467 Depreciation and amortization 7,247 5,449 19,936 16,362 Interest expense 6,376 4,669 17,158 14,221 Interest, dividend and other investment income (142 ) (164 ) (381 ) (339 ) Provision for income taxes 126 80 296 247 Gain on sale of properties — — (16 ) (2,890 ) (Gain) loss on disposal of assets 40 (26 ) 135 (10 ) Net income attributable to noncontrolling interests 147 15 429 131 NOI $ 22,368 $ 17,190 $ 61,567 $ 51,619 $ 3,915 $ 2,899 $ 15,331 $ 9,440 4,832 5,672 13,063 16,036 7,889 7,340 23,661 21,458 (65 ) (151 ) (304 ) (429 ) 6,816 6,142 19,111 18,417 (13 ) (31 ) (43 ) (103 ) 112 100 313 274 — — — (1,833 ) 31 83 112 246 7 48 12 (177 ) 723 1,003 2,429 2,846 60 47 239 165 $ 24,307 $ 23,152 $ 73,924 $ 66,340 $0.2850$0.1200 per common share and OP unit, recurring expenditures, such as repairs and maintenance of our properties, non-recurring expenditures, such as capital improvements and tenant improvements, debt service requirements, and, potentially, acquisitions of additional properties.2017,2022, our cash provided fromby operating activities was $27,999,000$33,459,000 and our total distributions were $30,805,000.$17,312,000. Therefore, we had distributions in excess of cash flow from operations in excess of distributions of approximately $2,806,000.$16,147,000. We anticipate that cash flows from operating activities and our borrowing capacity under our unsecured revolving credit facility will provide adequate capital for our working capital requirements, anticipated capital expenditures and scheduled debt payments in the short term. We also believe that cash flows from operating activities and our borrowing capacity will allow us to make all distributions required for us to continue to qualify to be taxed as a REIT for federal income tax purposes.However, our abilityOn February 22, 2022, the Company announced an increase to incur additional debtits quarterly distribution to $0.12 per common share and OP unit, equal to a monthly distribution of $0.04, beginning with the April 2022 distribution. The Board will be dependent on a numberregularly reassess the dividend in light of factors, including our degreeeconomic conditions. As of leverage,September 30, 2022, subject to any potential future paydowns in the value of our unencumbered assets and borrowing restrictions that may be imposed by lenders. base, we have $126.4 million remaining availability under the revolving credit facility.equitycapital markets will be dependent on a number of factors as well, including general market conditions for REITs and market perceptions about our Company.We expect In light of the dynamics in the capital markets impacted by the COVID-19 pandemic and the economic slowdown, 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 our rental incomesuch capital will increase as we continuebe available to acquire additional properties, subsequently increasing our cash flows generated from operating activities. We intend to continue acquiring such additional properties that meet our Community Centered Property® strategy through equity issuances and debt financing. For example,us on April 25, 2017, we completed the April Offering. attractive terms or at all.3, 2017, we acquired Eldorado Plaza. 20, 2022, our universal shelf registration statement on Form S-3 was declared effective by the SEC, which registers the issuance and sale by us of up to $500 million in securities from time to time, including common shares, preferred shares, debt securities, depositary shares and subscription rights.funded the purchase price of Eldorado Plaza and related transaction expenses with borrowings under our Facility and a portion of the net proceeds from the April Offering. On May 26, 2017, we acquired BLVD Place. We funded the purchase price of BLVD Place and related transaction expenses through a combination of borrowings under our Facility and the BLVD Note (as defined below) and a portion of the net proceeds from the April Offering. Includedhave in the purchase of Eldorado Plaza was approximately 1.86 acres of developable land that will give us the abilitypast, and expect to build an estimated 24,000 square feet of additional leasable space for an estimated cost to acquire and develop the land parcel of approximately $4.0 million, based on current plans. Further, included in the purchase of BLVD Place was approximately 1.43 acres of developable land. We currently intend to develop a six-story, 137,000 square foot mixed-use building, which we refer to as the BLVD Phase II-B development, on the developable land at BLVD Place, for an estimated cost to acquire and develop the land parcel of $55 million, including the $10.5 million of the aggregate purchase price of BLVD Place allocated to the acquisition of the land parcel.As discussed in Note 11 (Equity) to the accompanying consolidated financial statements, on June 4, 2015, we enteredfuture, enter into the 2015at-the-market equity distribution agreements. Pursuantprograms providing for the issuance and sale of common shares. Actual sales will depend on a variety of factors determined by us from time to time, including (among others) market conditions, the terms and conditions of the 2015 equity distribution agreements, we can issue and sell up to an aggregate of $50 milliontrading price of our common shares, intocapital needs and our determinations of the existing trading market at current market prices or at negotiated prices throughappropriate sources of funding for us, and were made in transactions that will be deemed to be “at-the-market” offerings as defined in Rule 415 under the placement agents over a periodSecurities Act of time1933, as amended (the "Securities Act"). For the three and from time to time. Wenine months ended September 30, 2022, we did not sell any common shares under the 2015 equity distribution agreements duringagreements. During the three months ended September 30, 2017. During the nine months ended September 30, 2017,2021, we sold 567,3022,991,168 common shares under the 20152019 equity distribution agreements, which provided for the issuance and sale of up to an aggregate of $100 million of the Company's common shares pursuant to our Registration Statement on Form S-3 (File No. 333-225007), with net proceeds to us of approximately $7.7$28.0 million. In connection with such sales, we paid compensation of approximately $139,000$426,000 to the sales agents. During the nine months ended September 30, 2021, we sold 6,016,148 common shares under the 2019 equity distribution agreements, with net proceeds to us of approximately $53.3 million. In connection with such sales, we paid compensation of approximately $812,000 to the sales agents. the 2015 equity distribution agreements for general corporate purposes, which may include acquisitions of additional properties, the repayment of outstanding indebtedness, capital expenditures, the expansion, redevelopment and/or re-tenanting of properties in our portfolio, working capital and other general purposes.As discussed in Note 7 (Debt) to the accompanying consolidated financial statements, on May 26, 2017, we, through our subsidiary, Whitestone Houston BLVD Place LLC, a Delaware limited liability company, issued a $80.0 million promissory note to American General Life Insurance Company (the “BLVD Note”). The BLVD Note has a fixed interest rate of 3.72% and a maturity date of June 1, 2027. The BLVD Notes requires interest only payments with all principal repayable upon maturity. The BLVD Note is a non-recourse loan secured by the real property located at BLVD Place, including the related equipment, fixtures, personal property and other assets, with a limited carve-out guarantee by the Operating Partnership. Proceeds from the BLVD Note were used to fund a portion of the BLVD Place acquisition. and Cash Equivalentsand cash equivalents and restricted cash of approximately $6,338,000$9,567,000 as of September 30, 2017,2022, as compared to $4,168,000$15,914,000 on December 31, 2016.2021. The increasedecrease of $2,170,000$6,347,000 during the nine months ended September 30, 2022 was primarily the result of the following:Cash flow from operations of $27,999,000 for the nine months ended September 30, 2017;Net proceeds of $40,600,000 from the Facility;Net proceeds of $107,619,000 from issuance of common shares;Proceeds of $26,000 from sale of property;Proceeds of $306,000 from sale of marketable securities;Payment of distributions to common shareholders, OP unit holders and noncontrolling interests in Consolidated Partnership of $30,805,000;Acquisitions of real estate of $124,557,000;Additions to real estate of $13,499,000;Change in restricted cash of $49,000;Payments of loan origination costs of $695,000;Repurchase of common shares of $1,987,000; andPayments of notes payable of $2,788,000.• Description September 30, 2017 December 31, 2016 Fixed rate notes $ 9,800 $ 9,980 50,000 50,000 50,000 50,000 100,000 100,000 $80.0 million, 3.72% Note, due June 1, 2027 80,000 — 33,406 34,166 $6.5 million 3.80% Note, due January 1, 2019 5,887 6,019 $19.0 million 4.15% Note, due December 1, 2024 19,000 19,000 $20.2 million 4.28% Note, due June 6, 2023 19,449 19,708 $14.0 million 4.34% Note, due September 11, 2024 14,000 14,000 $14.3 million 4.34% Note, due September 11, 2024 14,300 14,300 16,119 16,298 $15.1 million 4.99% Note, due January 6, 2024 14,919 15,060 7,844 7,869 $2.6 million 5.46% Note, due October 1, 2023 2,483 2,512 $1.1 million 2.97% Note, due November 28, 2017 217 — Floating rate notes 227,200 186,600 Total notes payable principal 664,624 545,512 Less deferred financing costs, net of accumulated amortization (1,949 ) (1,492 ) $ 662,675 $ 544,020 $ — $ 100,000 — 165,000 265,000 — 80,000 80,000 18,103 18,358 17,485 17,808 12,778 12,978 13,585 13,773 13,705 13,907 2,250 2,289 50,000 50,000 50,000 50,000 349 — 114,500 119,500 637,755 643,613 (617 ) (771 ) $ 637,138 $ 642,842 fixedfixes the interest rate at 3.55% for the durationSOFR portion of the term.(2)Promissory note includesterm loan at an interest rate swap that fixed the LIBOR portion of Term Loan 1 (as defined below) at 0.84%2.16% through February 3, 2017October 28, 2028, 2.76% from October 29, 2022 through January 31, 2024, and 1.75%3.32% beginning February 3, 20171, 2024 through October 30, 2020.January 31, 2028. (3)Promissory note includes an interest rate swap that fixed the LIBOR portion of Term Loan 2 (as defined below) at 1.50%. $ 1,104 27,863 63,573 17,143 131,643 396,429 $ 637,755 (4)Promissory note includes an interest rate swap that fixed the LIBOR portion of Term Loan 3 (as defined below) at 1.73%,(5)Promissory notes were assumed by Pillarstone in December 2016.(6)Promissory note includes an interest rate swap that fixed the interest rate at 5.72% for the duration of the term. As part of our acquisition of Paradise Plaza in August 2012, we recorded a discount on the note of $1.3 million, which amortizes into interest expense over the life of the loan and results in an imputed interest rate of 4.13%.(7)Unsecured line of credit includes certain Pillarstone Properties described in more detail below in determining the amount of credit available under the Facility.May 26, 2017, we, through our subsidiary, Whitestone Houston BLVD Place LLC, a Delaware limited liability company, issued a $80.0 million promissory note to American General Life Insurance Company (the “BLVD Note”). The BLVD Note has a fixed interest rate of 3.72% and a maturity date of June 1, 2027. Proceeds from the BLVD Note were used to fund a portion of the purchase price of the acquisition of BLVD Place.On November 7, 2014,September 16, 2022 we, through our Operating Partnership, entered into an unsecured revolving credit facility (the “2014“2022 Facility”) with the lenders party thereto, withBank of Montreal, as administrative agent (the “Administrative Agent”), Truist Bank, as syndication agent, and BMO Capital Markets Wells Fargo Securities, LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated,Corp., Truist Bank, Capital One, National Association, and U.S. Bank National Association, as co-lead arrangers and joint book runners, and Bank of Montreal, as administrative agent (the “Agent”).runners. The 20142022 Facility amended and restated ourthe Company's previous unsecured revolving credit facility. On October 30, 2015, we, through our Operating Partnership, entered into the First Amendment to the 2014facility, dated January 31, 2019 (the "2019 Facility").(the “First Amendment”) with the guarantors party thereto, the lenders party thereto and the Agent. We refer to the 2014 Facility, as amended by the First Amendment, as the “Facility.”Pursuant to the First Amendment, the Company madeis comprised of the following amendments to the 2014 Facility:extended the maturity date of the $300three tranches:2014 Facility (the “Revolver”) to October 30, 2019 from November 7, 2018;converted $100 million of outstanding borrowings under the Revolver to a new $100 million unsecured term loan under the 2014 Facility (“Term Loan 3”) with a maturity date of October 30, 2022;extended the maturity date of the first $50 million unsecured term loan under the 2014 Facility (“Term Loan 1”) to October 30, 2020 from February 17, 2017; andextended the maturity date of the second $50 million unsecured term loan under the 2014 Facility (“Term Loan 2” and together with Term Loan 1 and Term Loan 3, the “Term Loans”) to January 29, 2021 from November 7, 2019.Borrowings under the2022 Facility accrue interest (at the Operating Partnership's option) at a Base Rate or an Adjusted LIBORTerm SOFR plus an applicable margin based upon our then existing leverage. As of September 30, 2022, the interest rate on the 2022 Revolver was 4.62%. Based on our current leverage ratio, the revolver has initial interest rate of SOFR plus 1.60% and a 10 basis point credit spread adjustment. In addition, we entered into interest rate swaps to fix the interest rates on the Term Loan. The Term Loan with the swaps has the following interest rates:• for Adjusted LIBOR borrowings ranges from 1.40% to 1.95% forcan be adjusted by an aggregate 0.02% per annum based on the Revolver and 1.35% to 2.25% for the Term Loans.Company’s performance on certain sustainability performance targets. Base Rate means, for any day, the higher of: (a) the Agent'sAdministrative Agent’s prime commercial rate, (b) the sum of (i) the rate per annum equal to the weighted average rate quoted byof the Agent by two or morerates on overnight federal funds brokers selected by the Agent for sale to the Agent at face value of federal funds in the secondary market in an amount equal or comparable to the principal amount for which such rate is being determined, plus (ii) 1/2 of 1.00%, and (c) the LIBOR rate for such day plus 1.00%. Adjusted LIBOR means LIBOR divided by one minus the Eurodollar Reserve Percentage. The Eurodollar Reserve Percentage means the maximum reserve percentage at which reserves are imposed by the Board of Governorstransactions 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 eurocurrency liabilities.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%.Facility includes an accordion feature that will allowPrudential 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 increasea 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.capacitybase concept contained in the Operating Partnership’s existing senior revolving credit facility.$700 million, uponthose contained in the satisfactionOperating Partnership’s existing credit facility.certain conditions, including new commitmentsthe Securities Act. The Notes were sold in reliance on the exemption from lenders. registration provided by Section 4(a)(2) of the Securities Act.2017, $427.2 million was drawn on the Facility, and2022, our remaining borrowing capacity was $72.8 million. Proceeds from the Facility were used for general corporate purposes, including property acquisitions, debt repayment, capital expenditures, the expansion, redevelopment and retenanting of properties in our portfolio and working capital. We intend to use the additional proceeds from the Facility for general corporate purposes, including property acquisitions, debt repayment, capital expenditure, the expansion, redevelopment and re-tenanting of properties in our portfolio and working capital.On December 8, 2016, in connection with the Contribution, the Operating Partnership entered into the Second Amendment to the Facility and Reaffirmation of Guaranties (the “Second Amendment”) with Pillarstone, the Company and the other Guarantors party thereto, the lenders party thereto and the Agent. Pursuant to the Second Amendment, following the Contribution, Whitestone Offices, LLC and Whitestone CP Woodland Ph. 2, LLC were permitted to remain Material Subsidiaries (as defined in the Facility) and Guarantors under the Facility and their respective Pillarstone Properties were each permitted to remain an Eligible Property (as defined in the Facility) and be included in the Borrowing Base (as defined in the Facility) under the Facility. In addition, on December 8, 2016, Pillarstone entered into the Limited Guarantee (the “Limited Guarantee”) with the Agent, pursuant to which Pillarstone agreed to be joined as a party to the Facility to provide a limited guarantee up to the amount of availability generated by the Pillarstone Properties owned by Whitestone Offices, LLC and Whitestone CP Woodland Ph. 2, LLC. As of September 30, 2017, Pillarstone accounted for approximately $15.5 million of the total amount drawn on the Facility.As of September 30, 2017, our $237.2$157.9 million in secured debt was collateralized by 20seven properties with a carrying value of $342.0$243.5 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 September 30, 2017,2022, we were in compliance with all loan covenants.Scheduled maturities of our outstanding debt as of September 30, 2017 were as follows (in thousands): Year Amount Due 2017 $ 8,767 2018 12,136 2019 235,249 2020 82,827 2021 51,918 Thereafter 273,727 Total $ 664,624 $ 2,266 $ 463 $ 6,880 $ 1,423 475 371 1,705 1,107 831 632 2,127 2,360 1,206 1,725 2,558 3,528 $ 4,778 $ 3,191 $ 13,270 $ 8,418 2017, there were no material changes outside2022, we paid distributions to our common shareholders and OP unit holders of $17.3 million, compared to $14.3 million in the ordinary coursenine months ended September 30, 2021. Common shareholders and OP unit holders receive monthly distributions. Payments of business to the information regarding specified contractual obligations contained in our Annual Report on Form 10-K for the year ended December 31, 2016.Distributionsduring 2016of 2021 and the nine months ended September 30, 20172022 (in thousands, except per share data): Common Shares Noncontrolling OP Unit Holders Total Quarter Paid Distributions Per Common Share Amount Paid Distributions Per OP Unit Amount Paid Amount Paid 2017 Third Quarter $ 0.2850 $ 10,948 $ 0.2850 $ 309 $ 11,257 Second Quarter 0.2850 10,093 0.2850 310 10,403 First Quarter 0.2850 8,453 0.2850 313 8,766 Total $ 0.8550 $ 29,494 $ 0.8550 $ 932 $ 30,426 2016 Fourth Quarter $ 0.2850 $ 8,305 $ 0.2850 $ 314 $ 8,619 Third Quarter 0.2850 8,109 0.2850 138 8,247 Second Quarter 0.2850 7,786 0.2850 138 7,924 First Quarter 0.2850 7,711 0.2850 139 7,850 Total $ 1.1400 $ 31,911 $ 1.1400 $ 729 $ 32,640 $ 0.1200 $ 5,901 $ 0.1200 $ 88 $ 5,989 0.1200 5,880 0.1200 92 5,972 0.1075 5,268 0.1075 83 5,351 $ 0.3475 $ 17,049 $ 0.3475 $ 263 $ 17,312 $ 0.1075 $ 5,257 $ 0.1075 $ 83 $ 5,340 0.1075 4,981 0.1075 83 5,064 0.1075 4,602 0.1075 83 4,685 0.1058 4,480 0.1058 82 4,562 $ 0.4283 $ 19,320 $ 0.4283 $ 331 $ 19,651 Income earned by our taxable REIT subsidiary, Whitestone Davenport TRS LLC (“Davenport TRS”), is subject to federal income tax. For the nine months ended September 30, 2016, we recognized $45,000 in income tax expense related to Davenport TRS taxable year. Davenport TRS was dissolved in the fourth quarter of 2016.had no significant off-balance sheet arrangements asmay guarantee the debt of September 30, 2017a 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 December 31, 2016.a higher return on our investment in the real estate partnership. We may receive a fee from the real estate partnership for providing the guarantee. Additionally, when we issue a guarantee, the terms of the real estate partnership’s partnership agreement typically provide that we may receive indemnification from the real estate partnership or have the ability to increase our ownership interest. See Note 6 (Investment in Real Estate Partnership) to the accompanying consolidated financial statements for information related to our guarantee of our real estate partnership’s debt. Debt2017, $437.42022, $523.3 million, or approximately 66%82% of our total outstanding debt, was subject to fixed interest rates, which limit the risk of fluctuating interest rates. ThoughAlthough a change in the market interest rates affects the fair market value of our fixed interest rate debt, it does not impact net income to shareholders or cash flows. Our total outstanding fixed interest rate debt had an average effective interest rate as of September 30, 20172022 of approximately 3.82%4.53% per annum with scheduled maturities ranging from 20172022 to 2027 (see2029. See Note 7 (Debt) to the accompanying consolidated financial statements for further detail).detail. Holding other variables constant, a 1% increase or decrease in interest rates would cause a $17.7$18.9 million decline or increase, respectively, in the fair value for our fixed rate debt.2017, $227.22022, $114.5 million, or approximately 34%18% of our outstanding debt, was subject to floating interest rates of LIBOR plus 1.40% to 1.95%1.90% 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 $2.3$1.1 million, respectively.of Whitestone REIT, under the supervisionis responsible for establishing and with the participation of our principal executive and financial officers, has evaluated the effectiveness of ourmaintaining adequate disclosure controls and procedures as defined in ensuring that the information required to be disclosed in our filingsRules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Disclosure controls and procedures means controls and other procedures of the Company that are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act, is recorded, processed, summarized, and reported, within the time periods specified in the SEC'sSEC’s rules and forms, including ensuringforms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that such information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to Whitestone REIT'sthe Company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Based on suchthe evaluation of our disclosure controls and procedures as of September 30, 2022, our principal executive and financial officers have concluded that such disclosure controls and procedures were effective as of September 30, 2017 (the end of the period covered by this Report).During the three months ended September 30, 2017, there wereOther than the addition of the risk factor below, there havechanges from thechange in our risk factors from those previously disclosed in the “Risk Factors” sectionsPart I, Item 1A of Whitestone’sour Annual Report on Form 10-K for the year ended December 31, 2016 and Quarterly Report on Form 10-Q for the period ended March 31, 2017.2021.Because a majorityA majority of our assets and revenues are currently derived from properties located in the Houston and Phoenix metropolitan areas. As of December 31, 2016, on a pro forma basis giving effect to the acquisition of Eldorado Plaza and BLVD Place, approximately 29% of our wholly-owned GLA and 29% of our retail NOI would have been located in Houston, approximately 46% of our wholly-owned GLA and 42% of our retail NOI would have been located in Phoenix and approximately 11% of our wholly-owned GLA and 13% of our retail NOI would have been located in Dallas. Our results of operations are directly affected by our ability to attract financially sound commercial tenants. A significant economic downturn in Houston, including as a result of the recent or future significant decline in oil prices, or as a result of Hurricane Harvey or other natural disasters which may significantly impact our tenants, their customers and suppliers and, as a result, their businesses, Dallas or the Phoenix metropolitan area may adversely impact our ability to locate and retain financially sound tenants, could have an adverse impact on our existing tenants' revenues, costs and results of operations and may adversely affect their ability to meet their obligations to us. Likewise, we may be required to lower our rental rates to attract desirable tenants in such an environment. Consequently, because of the geographic concentration among our current assets, if the Houston, Dallas or Phoenix metropolitan area experiences an economic downturn, our operations and ability to make distributions to our shareholders could be adversely impacted. In addition, a substantial component of the Houston and Dallas economy is the oil and gas industry, and the current low prices of oil and natural gas could adversely affect companies in that industry and their employees, which could adversely affect the businesses of our Houston and Dallas tenants. 22,418 $ 11.23 N/A N/A — — N/A N/A — — N/A N/A 22,418 $ 11.23 (c)Not applicable.31.1*31.2*32.1**32.2**101.INS***XBRL Instance Document101.SCH***XBRL Taxonomy Extension Schema Document101.CAL***XBRL Taxonomy Extension Calculation Linkbase Document101.LAB***XBRL Taxonomy Extension Label Linkbase Document101.PRE***XBRL Taxonomy Extension Presentation Linkbase Document101.DEF***XBRL Taxonomy Extension Definition Linkbase Document ________________________* Filed herewith.** Furnished herewith.Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.November 4, 2022 WHITESTONE REITDate:November 3, 2017/s/ James C. Mastandrea James C. Mastandrea ChiefOfficerOfficer) (Principal Executive Officer)Date:November 3, 2017/s/ David K. Holeman David K. Holeman Chief Financial Officer57