10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2016

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 Houston, Texas	77063
(Address of Principal Executive Offices)	(Zip Code)

(713) 827-9595

(Registrant's Telephone Number, Including Area Code)

N/A

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

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

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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  ýYes    ¨No

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

Large accelerated filer ¨                                                                                      Accelerated filer ý

Non-accelerated filer ¨                                                                                       Smaller reporting company ¨

(Do not check if a smaller reporting company)

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

As of July 25, 2016, there were 28,588,283 common shares of beneficial interest, $0.001 par value per share, outstanding.

PART I - FINANCIAL INFORMATION

Item 1.	Financial Statements.	1
	Consolidated Balance Sheets as of June 30, 2016 (Unaudited) and December 31, 2015	1
	Consolidated Statements of Operations and Comprehensive Income (Loss) (Unaudited) for the Three and Six Months Ended June 30, 2016 and 2015	2
	Consolidated Statement of Changes in Equity (Unaudited) for the Six Months Ended June 30, 2016	4
	Consolidated Statements of Cash Flows (Unaudited) for the Six Months Ended June 30, 2016 and 2015	5
	Notes to Consolidated Financial Statements (Unaudited)	7
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations.	22
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	45
Item 4.	Controls and Procedures.	46

PART II - OTHER INFORMATION

Item 1.	Legal Proceedings.	47
Item 1A.	Risk Factors.	47
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	47
Item 3.	Defaults Upon Senior Securities.	48
Item 4.	Mine Safety Disclosures.	48
Item 5.	Other Information.	48
Item 6.	Exhibits.	49
	Signatures	50
	Exhibit Index	51

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

Whitestone REIT and Subsidiaries

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

	June 30, 2016			December 31, 2015
	(unaudited)
ASSETS
Real estate assets, at cost
Property	$	844,807		$	835,538
Accumulated depreciation	(99,004		)	(89,580		)
Total real estate assets	745,803			745,958
Cash and cash equivalents	5,927			2,587
Restricted cash	117			121
Marketable securities	467			435
Escrows and acquisition deposits	5,824			6,668
Accrued rents and accounts receivable, net of allowance for doubtful accounts	16,717			15,466
Unamortized lease commissions and loan costs	8,039			8,178
Prepaid expenses and other assets	3,129			2,672
Total assets	$	786,023		$	782,085
LIABILITIES AND EQUITY
Liabilities:
Notes payable	$	500,553		$	497,955
Accounts payable and accrued expenses	30,182			24,051
Tenants' security deposits	5,578			5,254
Dividends and distributions payable	8,169			7,834
Total liabilities	544,482			535,094
Commitments and contingencies:	—			—
Equity:
Preferred shares, $0.001 par value per share; 50,000,000 shares authorized; none issued and outstanding as of June 30, 2016 and December 31, 2015, respectively	—			—
Common shares, $0.001 par value per share; 400,000,000 shares authorized; 28,138,047 and 26,991,493 issued and outstanding as of June 30, 2016 and December 31, 2015, respectively	28			27
Additional paid-in capital	372,650			359,971
Accumulated deficit	(126,300		)	(116,895		)
Accumulated other comprehensive loss	(8,448		)	(129		)
Total Whitestone REIT shareholders' equity	237,930			242,974
Noncontrolling interest in subsidiary	3,611			4,017
Total equity	241,541			246,991
Total liabilities and equity	$	786,023		$	782,085

See accompanying notes to Consolidated Financial Statements

1

Whitestone REIT and Subsidiaries

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(Unaudited)

(in thousands, except per share data)

	Three Months Ended June 30,						Six Months Ended June 30,
	2016			2015			2016			2015
Property revenues
Rental revenues	$	19,649		$	17,176		$	39,071		$	33,641
Other revenues	5,480			4,794			11,493			9,581
Total property revenues	25,129			21,970			50,564			43,222
Property expenses
Property operation and maintenance	4,683			4,339			9,477			8,422
Real estate taxes	3,304			2,925			6,658			5,829
Total property expenses	7,987			7,264			16,135			14,251
Other expenses (income)
General and administrative	5,413			4,998			10,249			9,483
Depreciation and amortization	5,521			4,675			10,913			9,239
Interest expense	4,748			3,516			9,552			6,924
Interest, dividend and other investment income	(78		)	(162		)	(175		)	(171		)
Total other expense	15,604			13,027			30,539			25,475
Income from continuing operations before gain on sale or disposal of properties or assets and income taxes	1,538			1,679			3,890			3,496
Provision for income taxes	(11		)	(91		)	(167		)	(174		)
Gain on sale of properties	—			—			2,890			—
Gain (loss) on sale or disposal of assets	(18		)	5			(16		)	(100		)
Income from continuing operations	1,509			1,593			6,597			3,222
Loss from discontinued operations	—			(33		)	—			(41		)
Loss from discontinued operations	—			(33		)	—			(41		)
Net income	1,509			1,560			6,597			3,181
Less: Net income attributable to noncontrolling interests	25			26			116			53
Net income attributable to Whitestone REIT	$	1,484		$	1,534		$	6,481		$	3,128

See accompanying notes to Consolidated Financial Statements

2

Whitestone REIT and Subsidiaries

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(Unaudited)

(in thousands, except per share data)

	Three Months Ended June 30,						Six Months Ended June 30,
	2016			2015			2016			2015
Basic Earnings Per Share:
Income from continuing operations attributable to Whitestone REIT excluding amounts attributable to unvested restricted shares	$	0.05		$	0.06		$	0.23		$	0.13
Income from discontinued operations attributable to Whitestone REIT	0.00			0.00			0.00			0.00
Net income attributable to common shareholders excluding amounts attributable to unvested restricted shares	$	0.05		$	0.06		$	0.23		$	0.13
Diluted Earnings Per Share:
Income from continuing operations attributable to Whitestone REIT excluding amounts attributable to unvested restricted shares	$	0.05		$	0.06		$	0.22		$	0.12
Income from discontinued operations attributable to Whitestone REIT	0.00			0.00			0.00			0.00
Net income attributable to common shareholders excluding amounts attributable to unvested restricted shares	$	0.05		$	0.06		$	0.22		$	0.12
Weighted average number of common shares outstanding:
Basic	26,819			22,869			26,712			22,724
Diluted	27,513			23,401			27,501			23,314
Distributions declared per common share / OP unit	$	0.2850		$	0.2850		$	0.5700		$	0.5700
Consolidated Statements of Comprehensive Income (Loss)
Net income	$	1,509		$	1,560		$	6,597		$	3,181
Other comprehensive gain (loss)
Unrealized gain (loss) on cash flow hedging activities	(2,450		)	43			(8,491		)	(276		)
Unrealized gain (loss) on available-for-sale marketable securities	36			(139		)	31			(98		)
Comprehensive income (loss)	(905		)	1,464			(1,863		)	2,807
Less: Comprehensive income (loss) attributable to noncontrolling interests	(16		)	24			(33		)	47
Comprehensive income (loss) attributable to Whitestone REIT	$	(889	)	$	1,440		$	(1,830	)	$	2,760

See accompanying notes to Consolidated Financial Statements

3

Whitestone REIT and Subsidiaries

CONSOLIDATED STATEMENT 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			Loss			Equity			Units		Dollars			Equity
Balance, December 31, 2015	26,991		$	27	$	359,971		$	(116,895	)	$	(129	)	$	242,974		497		$	4,017		$	246,991
Exchange of noncontrolling interest OP units for common shares	13		—		105			—			(7		)	98			(13	)	(98		)	—
Issuance of shares under dividend reinvestment plan	4		—		53			—			—			53			—		—			53
Issuance of common shares, net of offering costs	736		1		10,599			—			—			10,600			—		—			10,600
Repurchase of common shares (1)	(139	)	—		(1,922		)	—			—			(1,922		)	—		—			(1,922		)
Share-based compensation	533		—		3,844			—			—			3,844			—		—			3,844
Distributions	—		—		—			(15,886		)	—			(15,886		)	—		(276		)	(16,162		)
Unrealized loss on change in value of cash flow hedge	—		—		—			—			(8,342		)	(8,342		)	—		(149		)	(8,491		)
Unrealized gain on change in fair value of available-for-sale marketable securities	—		—		—			—			30			30			—		1			31
Net income	—		—		—			6,481			—			6,481			—		116			6,597
Balance, June 30, 2016	28,138		$	28	$	372,650		$	(126,300	)	$	(8,448	)	$	237,930		484		$	3,611		$	241,541

⁽¹⁾  During the six months ended June 30, 2016, 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

4

Whitestone REIT and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)

	Six Months Ended June 30,
	2016			2015
Cash flows from operating activities:
Net income from continuing operations	$	6,597		$	3,222
Net income (loss) from discontinued operations	—			(41		)
Net income	6,597			3,181
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	10,913			9,239
Amortization of deferred loan costs	784			601
Amortization of notes payable discount	145			149
Gain on sale of marketable securities	—			(44		)
Loss (gain) on sale or disposal of assets and properties	(2,874		)	100
Bad debt expense	763			771
Share-based compensation	3,844			3,359
Changes in operating assets and liabilities:
Escrows and acquisition deposits	844			(772		)
Accrued rent and accounts receivable	(2,014		)	(1,767		)
Unamortized lease commissions	(1,133		)	(610		)
Prepaid expenses and other assets	459			323
Accounts payable and accrued expenses	(2,537		)	(235		)
Tenants' security deposits	324			267
Net cash provided by operating activities	16,115			14,603
Net cash used in operating activities of discontinued operations	—			(41		)
Cash flows from investing activities:
Acquisitions of real estate	—			(51,800		)
Additions to real estate	(11,055		)	(5,009		)
Proceeds from sales of properties	3,957			—
Proceeds from sales of marketable securities	—			496
Net cash used in investing activities	(7,098		)	(56,313		)
Net cash used in investing activities of discontinued operations	—			—
Cash flows from financing activities:
Distributions paid to common shareholders	(15,497		)	(13,127		)
Distributions paid to OP unit holders	(277		)	(224		)
Proceeds from issuance of common shares, net of offering costs	10,600			49,725
Proceeds from revolving credit facility, net	3,000			9,500
Repayments of notes payable	(1,585		)	(1,336		)
Change in restricted cash	4			—
Repurchase of common shares	(1,922		)	(772		)
Net cash provided by (used in) financing activities	(5,677		)	43,766
Net cash used in financing activities of discontinued operations	—			—
Net increase in cash and cash equivalents	3,340			2,015
Cash and cash equivalents at beginning of period	2,587			4,236
Cash and cash equivalents at end of period	$	5,927		$	6,251

See accompanying notes to Consolidated Financial Statements

5

Whitestone REIT and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)

	Six Months Ended June 30,
	2016		2015
Supplemental disclosure of cash flow information:
Cash paid for interest	$	9,169	$	6,409
Cash paid for taxes	$	284	$	315
Non cash investing and financing activities:
Disposal of fully depreciated real estate	$	253	$	48
Financed insurance premiums	$	1,060	$	1,057
Value of shares issued under dividend reinvestment plan	$	53	$	47
Value of common shares exchanged for OP units	$	98	$	81
Change in fair value of available-for-sale securities	$	31	$	(98	)
Change in fair value of cash flow hedge	$	8,491	$	(276	)

See accompanying notes to Consolidated Financial Statements

6

WHITESTONE REIT AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2016

(Unaudited)

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

1.  INTERIM FINANCIAL STATEMENTS

The consolidated financial statements included in this report are unaudited; however, amounts presented in the consolidated balance sheet as of December 31, 2015 are derived from our audited consolidated financial statements as of that date.  The unaudited financial statements as of and for the period ended June 30, 2016 have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information on a basis consistent with the annual audited consolidated financial statements and with the instructions to Form 10-Q.

The consolidated financial statements presented herein reflect all adjustments which, in the opinion of management, are necessary for a fair presentation of the financial position of Whitestone and our subsidiaries as of June 30, 2016, and the results of operations for the three and six month periods ended June 30, 2016 and 2015, the consolidated statements of changes in equity for the six month period ended June 30, 2016 and cash flows for the six month periods ended June 30, 2016 and 2015.  All of these adjustments are of a normal recurring nature.  The results of operations for the interim periods are not necessarily indicative of the results expected for a full year.  The statements should be read in conjunction with the audited consolidated financial statements and the notes thereto which are included in our Annual Report on Form 10-K for the year ended December 31, 2015.

Business.  Whitestone was formed as a real estate investment trust (“REIT”) pursuant to the Texas Real Estate Investment Trust Act on August 20, 1998.  In July 2004, we changed our state of organization from Texas to Maryland pursuant to a merger where we merged directly with and into a Maryland REIT formed for the sole purpose of the reorganization and the conversion of each of the outstanding common shares of beneficial interest of the Texas entity into 1.42857 common shares of beneficial interest of the Maryland entity.  We serve as the general partner of Whitestone REIT Operating Partnership, L.P. (the “Operating Partnership”), which was formed on December 31, 1998 as a Delaware limited partnership.  We currently conduct substantially all of our operations and activities through the Operating Partnership.  As the general partner of the Operating Partnership, we have the exclusive power to manage and conduct the business of the Operating Partnership, subject to certain customary exceptions.  As of June 30, 2016 and December 31, 2015, Whitestone owned and operated 69 and 70 commercial properties, respectively, in and around Austin, Chicago, Dallas-Fort Worth, Houston, Phoenix and San Antonio.

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Consolidation.  We are the sole general partner of the Operating Partnership and possess full legal control and authority over the operations of the Operating Partnership.  As of June 30, 2016 and December 31, 2015, 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.  All significant inter-company balances have been eliminated. Noncontrolling interests in the accompanying consolidated financial statements represents the share of equity and earnings of the Operating Partnership allocable to holders of partnership interests other than us.  Net income or loss is allocated to noncontrolling interests based on the weighted average percentage ownership of the Operating Partnership during the period.  Issuance of additional common shares of beneficial interest in Whitestone (the “common shares”) and units of limited partnership interest in the Operating Partnership that are convertible into cash or, at our option, common shares on a one-for-one basis (the “OP units”) changes the ownership interests of both the noncontrolling interests and Whitestone.

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

Use of Estimates.   The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates that we use include the estimated fair values of properties acquired, the estimated useful lives for depreciable and amortizable assets and costs, the estimated allowance for doubtful accounts, the estimated fair value of interest rate swaps and the estimates supporting our impairment analysis for the carrying values of our real estate assets.  Actual results could differ from those estimates.

7

WHITESTONE REIT AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2016

(Unaudited)

Reclassifications.  We have reclassified certain prior period amounts in the accompanying consolidated financial statements in order to be consistent with the current period presentation.  During the six months ended June 30, 2016, we reclassified certain deferred financing costs, previously classified as an asset as a direct reduction from the carrying amount of certain debt liabilities for all periods presented. Deferred financing costs related to our unsecured line of credit have not been reclassified. See Note 6 for additional information. These reclassifications had no effect on net income or equity.

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 million4.99% Note, due January 6, 2024 (See Note 6), 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.

Derivative Instruments and Hedging Activities. We utilize derivative financial instruments, principally interest rate swaps, to manage our exposure to fluctuations in interest rates. We have established policies and procedures for risk assessment, and the approval, reporting and monitoring of derivative financial instruments. We recognize our interest rate swaps as cash flow hedges with the effective portion of the changes in fair value recorded in comprehensive income (loss) and subsequently reclassified into earnings in the period that the hedged transaction affects earnings. Any ineffective portion of a cash flow hedges' change in fair value is recorded immediately into earnings. Our cash flow hedges are determined using Level 2 inputs under ASC 820. Level 2 inputs represent quoted prices in active markets for similar assets or liabilities; quoted prices in markets that are not active; and model-derived valuations whose inputs are observable. As of June 30, 2016, we consider our cash flow hedges to be highly effective.

Development Properties. Land, buildings and improvements are recorded at cost. Expenditures related to the development of real estate are carried at cost which includes capitalized carrying charges and development costs. Carrying charges (interest, real estate taxes, loan fees, and direct and indirect development costs related to buildings under construction), are capitalized as part of construction in progress. The capitalization of such costs ceases when the property, or any completed portion, becomes available for occupancy. For the three months ended June 30, 2016, approximately $105,000 and $16,000 in interest expense and real estate taxes, respectively, were capitalized, and for the six months ended June 30, 2016, approximately $132,000 and $32,000 in interest expense and real estate taxes, respectively, were capitalized. For the three months ended June 30, 2015, approximately $32,000 and $21,000 in interest expense and real estate taxes, respectively, were capitalized, and for the six months ended June 30, 2015, approximately $58,000 and $37,000 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.

8

WHITESTONE REIT AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2016

(Unaudited)

Share-Based Compensation.   From time to time, we award nonvested restricted common share awards or restricted common share unit awards, which may be converted into common shares, to executive officers and employees under our 2008 Long-Term Equity Incentive Ownership Plan (the “2008 Plan”).  The vast majority of the awarded shares and units vest when certain performance conditions are met.  We recognize compensation expense when achievement of the performance conditions is probable based on management's most recent estimates using the fair value of the shares as of the grant date. We recognized $1,819,000 and $1,669,000 in share-based compensation for the three months ended June 30, 2016 and 2015, respectively, and we recognized $3,844,000 and $3,343,000 in share-based compensation for the six months ended June 30, 2016 and 2015, respectively.

Noncontrolling Interests.  Noncontrolling interests is 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's equity.  On the consolidated statements of operations, subsidiaries are reported at the consolidated amount, including both the amount attributable to Whitestone and noncontrolling interests.  The consolidated statement of changes in equity is included for quarterly financial statements, including beginning balances, activity for the period and ending balances for shareholders' equity, noncontrolling interests and total equity.

See our Annual Report on Form 10-K for the year ended December 31, 2015 for further discussion on significant accounting policies.

Recent Accounting Pronouncements.  In April 2015, the FASB issued guidance requiring that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct reduction from the carrying amount of that debt liability, consistent with the presentation of debt discounts. In August 2015, the FASB issued guidance to clarify that debt issuance costs related to line-of-credit agreements may still be presented as an asset and subsequently amortized ratably over the term of such arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit. This guidance was effective for reporting periods beginning on or after December 15, 2015 and is to be applied retrospectively. We have adopted this guidance for all periods presented.

In February 2016, the FASB issued guidance requiring lessees to recognize a lease liability and a right-of-use asset for all leases. Lessor accounting will remain largely unchanged. The guidance will also require new qualitative and quantitative disclosures to help financial statement users better understand the timing, amount and uncertainty 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 of this guidance and its 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. This guidance will be effective for reporting periods beginning on or after December 15, 2016, 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 SECURITIES

All of our marketable securities were classified as available-for-sale securities as of June 30, 2016 and December 31, 2015. Available-for-sale securities consisted of the following (in thousands):

	June 30, 2016
	Amortized Cost		Gains in Accumulated Other Comprehensive Income (Loss)		Losses in Accumulated Other Comprehensive Income (Loss)			Estimated Fair Value
Real estate sector common stock	$	654	$	—	$	(187	)	$	467
Total available-for-sale securities	$	654	$	—	$	(187	)	$	467

9

WHITESTONE REIT AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2016

(Unaudited)

	December 31, 2015
	Amortized Cost		Gains in Accumulated Other Comprehensive Income (Loss)		Losses in Accumulated Other Comprehensive Income (Loss)			Estimated Fair Value
Real estate sector common stock	$	654	$	—	$	(219	)	$	435
Total available-for-sale securities	$	654	$	—	$	(219	)	$	435

During the three and six months ended June 30, 2016, no available-for-sale securities were sold. During the three and six months ended June 30, 2015, available-for-sale securities were sold for total proceeds of $496,000. The gross realized gain on these sales during the three months ended June 30, 2015 was $44,000. 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 securities in the amount of $187,000 and $232,000 for the six months ended June 30, 2016 and 2015, respectively, has been included in accumulated other comprehensive income (loss).

4. ACCRUED RENTS AND ACCOUNTS RECEIVABLE, NET

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

	June 30, 2016			December 31, 2015
Tenant receivables	$	12,832		$	10,494
Accrued rents and other recoveries	11,212			11,619
Allowance for doubtful accounts	(7,327		)	(6,647		)
Total	$	16,717		$	15,466

5. UNAMORTIZED LEASE COMMISSIONS AND LOAN COSTS

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

	June 30, 2016			December 31, 2015
Lease commissions	$	7,921		$	7,226
Deferred financing cost	4,070			4,070
Total cost	11,991			11,296
Less: lease commissions accumulated amortization	(3,318		)	(2,960		)
Less: deferred financing cost accumulated amortization	(634		)	(158		)
Total cost, net of accumulated amortization	$	8,039		$	8,178

6. 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.

10

WHITESTONE REIT AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2016

(Unaudited)

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

Description	June 30, 2016			December 31, 2015
Fixed rate notes
$10.5 million, LIBOR plus 2.00% Note, due September 24, 2018 (1)	$	10,100		$	10,220
$50.0 million, 0.84% plus 1.35% to 1.90% Note, due October 30, 2020 (2)	50,000			50,000
$50.0 million, 1.50% plus 1.35% to 1.90% Note, due January 29, 2021 (3)	50,000			50,000
$100.0 million, 1.73% plus 1.65% to 2.25% Note, due October 30, 2022 (4)	100,000			100,000
$37.0 million 3.76% Note, due December 1, 2020	34,661			35,146
$6.5 million 3.80% Note, due January 1, 2019	6,105			6,190
$19.0 million 4.15% Note, due December 1, 2024	19,000			19,000
$20.2 million 4.28% Note, due June 6, 2023	19,876			20,040
$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
$16.5 million 4.97% Note, due September 26, 2023	16,412			16,450
$15.1 million 4.99% Note, due January 6, 2024	15,060			15,060
$9.2 million, Prime Rate less 2.00% Note, due December 29, 2017 (5)	7,878			7,886
$2.6 million 5.46% Note, due October 1, 2023	2,531			2,550
$11.1 million 5.87% Note, due August 6, 2016	11,152			11,305
$1.1 million 2.97% Note, due November 28, 2016	517			—
Floating rate notes
Unsecured line of credit, LIBOR plus 1.40% to 1.95%, due October 30, 2019	130,600			127,600
Total notes payable principal	502,192			499,747
Less deferred financing costs, net of accumulated amortization	(1,639		)	(1,792		)
Total notes payable	$	500,553		$	497,955

⁽¹⁾  Promissory note includes an interest rate swap that fixed the interest rate at 3.55% for the duration of the term.

⁽²⁾  Promissory note includes an interest rate swap that fixed the LIBOR portion of Term Loan 1 (as defined below) at 0.84% through February 3, 2017 and 1.75% beginning February 3, 2017 through October 30, 2020.

⁽³⁾  Promissory note includes an 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 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%.

On November 7, 2014, we, through our Operating Partnership, entered into an unsecured revolving credit facility (the “2014 Facility”) with the lenders party thereto, with BMO Capital Markets, Wells Fargo Securities, LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated, and U.S. Bank, National Association, as co-lead arrangers and joint book runners, and Bank of Montreal, as administrative agent (the “Agent”). The 2014 Facility amended and restated our previous unsecured revolving credit facility. On October 30, 2015, we, through our Operating Partnership, entered into the First Amendment to the 2014 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.”

11

WHITESTONE REIT AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2016

(Unaudited)

Pursuant to the First Amendment, the Company made the following amendments to the 2014 Facility:

• extended the maturity date of the $300 million unsecured revolving credit facility under the 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; and

• extended 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 the Facility accrue interest (at the Operating Partnership's option) at a Base Rate or an Adjusted LIBOR plus an applicable margin based upon our then existing leverage. The applicable margin for Adjusted LIBOR borrowings ranges from 1.40% to 1.95% for the Revolver and 1.35% to 2.25% for the Term Loans. Base Rate means the higher of: (a) the Agent's prime commercial rate, (b) the sum of (i) the average rate quoted by the Agent by two or more 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 Governors of the Federal Reserve System on eurocurrency liabilities.

We serve as the guarantor for funds borrowed by the Operating Partnership under the Facility. The 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 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.

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. As of June 30, 2016, $330.6 million was drawn on the Facility, and our remaining borrowing capacity was $169.4 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.

As of June 30, 2016, our $171.1 million in secured debt was collateralized by 20 properties with a carrying value of $212.6 million.  Our loans contain restrictions that would require the payment of prepayment penalties for the acceleration of outstanding debt and are secured by deeds of trust on certain of our properties and by assignment of the rents and leases associated with those properties.  As of June 30, 2016, we were in compliance with all loan covenants.

12

WHITESTONE REIT AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2016

(Unaudited)

Scheduled maturities of our outstanding debt as of June 30, 2016 were as follows (in thousands):

Year	Amount Due
2016	$	12,722
2017	10,213
2018	12,136
2019	138,649
2020	82,827
Thereafter	245,645
Total	$	502,192

7.  DERIVATIVES AND HEDGING ACTIVITIES

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

	Balance Sheet Location	Estimated Fair Value
Interest rate swaps:
June 30, 2016	Accounts payable and accrued expenses	$	8,933
December 31, 2015	Accounts payable and accrued expenses	$	617

On November 19, 2015, we, through our Operating Partnership, entered into an interest rate swap with Bank of Montreal that fixed the LIBOR portion of Term Loan 3 under the Facility at 1.725%. In the fourth quarter of 2015, pursuant to the terms of the agreement governing the interest rate swap, Bank of Montreal assigned $35.0 million of the swap to U.S. Bank, National Association, and $15.0 million of the swap to SunTrust Bank. See Note 6 for additional information regarding the Facility. The swap began on November 30, 2015 and will mature on October 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 (loss) 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.

On November 19, 2015, we, through our Operating Partnership, entered into an interest rate swap with Bank of Montreal that fixed the LIBOR portion of Term Loan 1 under the Facility at 1.75%. 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 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 million of the swap to SunTrust Bank. See Note 6 for additional information regarding the Facility. The swap will begin on February 3, 2017 and will mature on October 30, 2020. 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 (loss) 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.

On November 19, 2015, we, through our Operating Partnership, entered into an interest rate swap with Bank of Montreal that fixed the LIBOR portion of Term Loan 2 under the Facility at 1.50%. 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 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 million of the swap to SunTrust Bank. See Note 6 for additional information regarding the Facility. 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 (loss) 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.

13

WHITESTONE REIT AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2016

(Unaudited)

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

	Amount Recognized as Comprehensive Income (Loss)			Location of Loss Recognized in Earnings	Amount of Loss Recognized in Earnings (1)
Three months ended June 30, 2016	$	(2,450	)	Interest expense	$	(614	)
Three months ended June 30, 2015	$	43		Interest expense	$	(203	)
Six months ended June 30, 2016	$	(8,491	)	Interest expense	$	(1,208	)
Six months ended June 30, 2015	$	(276	)	Interest expense	$	(410	)

⁽¹⁾  We did not recognize any ineffective portion of our interest rate swaps in earnings for the three and six months ended June 30, 2016 and 2015.

8.  EARNINGS PER SHARE

Basic earnings per share for our common shareholders is calculated by dividing income from continuing operations excluding amounts 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 amounts attributable to unvested restricted common shares and the net income attributable to noncontrolling interests by the weighted average number of common shares including any dilutive unvested restricted common shares.

Certain of our performance-based restricted common shares are considered participating securities that require the use of the two-class method for the computation of basic and diluted earnings per share.  During the three months ended June 30, 2016 and 2015, 484,422 and 390,323 OP units, respectively, were excluded from the calculation of diluted earnings per share because their effect would be anti-dilutive, and during the six months ended June 30, 2016 and 2015, 487,722 and 391,455 OP units, respectively, were excluded from the calculation of diluted earnings per share because their effect would be anti-dilutive.

For the three months ended June 30, 2016 and 2015, distributions of $197,000 and $172,000, respectively, were made to holders of certain restricted common shares, $0 and $9,000, respectively, of which were charged against earnings. For the six months ended June 30, 2016 and 2015, distributions of $352,000 and $288,000, respectively, were made to holders of certain restricted common shares, $0 and $18,000, respectively, of which were charged against earnings. See Note 11 for information related to restricted common shares under the 2008 Plan.

14

WHITESTONE REIT AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2016

(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
(in thousands, except per share data)	2016			2015			2016			2015
Numerator:
Income from continuing operations	$	1,509		$	1,593		$	6,597		$	3,222
Less: Net income attributable to noncontrolling interests	(25		)	(26		)	(116		)	(54		)
Distributions paid on unvested restricted shares	(197		)	(163		)	(352		)	(270		)
Income from continuing operations attributable to Whitestone REIT excluding amounts attributable to unvested restricted shares	1,287			1,404			6,129			2,898
Income from discontinued operations	—			(33		)	—			(41		)
Less: Net income attributable to noncontrolling interests	—			—			—			1
Income from discontinued operations attributable to Whitestone REIT	—			(33		)	—			(40		)
Net income attributable to common shareholders excluding amounts attributable to unvested restricted shares	$	1,287		$	1,371		$	6,129		$	2,858
Denominator:
Weighted average number of common shares - basic	26,819			22,869			26,712			22,724
Effect of dilutive securities:
Unvested restricted shares	694			532			789			590
Weighted average number of common shares - dilutive	27,513			23,401			27,501			23,314
Earnings Per Share:
Basic:
Income from continuing operations attributable to Whitestone REIT excluding amounts attributable to unvested restricted shares	$	0.05		$	0.06		$	0.23		$	0.13
Income from discontinued operations attributable to Whitestone REIT	0.00			0.00			0.00			0.00
Net income attributable to common shareholders excluding amounts attributable to unvested restricted shares	$	0.05		$	0.06		$	0.23		$	0.13
Diluted:
Income from continuing operations attributable to Whitestone REIT excluding amounts attributable to unvested restricted shares	$	0.05		$	0.06		$	0.22		$	0.12
Income from discontinued operations attributable to Whitestone REIT	0.00			0.00			0.00			0.00
Net income attributable to common shareholders excluding amounts attributable to unvested restricted shares	$	0.05		$	0.06		$	0.22		$	0.12

9. INCOME TAXES

With the exception of our taxable REIT subsidiaries, federal income taxes are generally not provided because we intend to and believe we qualify as a REIT under the provisions of the Internal Revenue Code (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.

15

WHITESTONE REIT AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2016

(Unaudited)

Income earned by our taxable REIT subsidiary, Whitestone Davenport TRS LLC (“Davenport TRS”), is subject to federal income tax. For the six months ended June 30, 2016, we recognized $54,000 in income tax expense related to Davenport TRS for the 2016 taxable year.

Taxable income differs from net income for financial reporting purposes principally due to differences in the timing of recognition of interest, real estate taxes, depreciation and rental revenue. We recorded $49,000 in credits to tax expense during the six months ended June 30, 2016 for the 2015 taxable year.

We are subject to the Texas Margin Tax, which is computed by applying the applicable tax rate (0.75% for us) to the profit margin, which generally will be determined for us as total revenue less a 30% standard deduction.  Although the Texas Margin Tax is not an income tax, FASB ASC 740, “Income Taxes” applies to the Texas Margin Tax.  For the three months ended June 30, 2016 and 2015, we recognized approximately $48,000 and $106,000 in margin tax provision, respectively, and for the six months ended June 30, 2016 and 2015, we recognized approximately $162,000 and $188,000 in margin tax provision, respectively.

10.  EQUITY

Common Shares

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

Equity Offerings

On June 26, 2015, we completed the sale of 3,750,000 common shares, $0.001 par value per share, at a purchase price of $13.3386 per share. Total net proceeds from the offering, after deducting offering expenses, were approximately $49.7 million, which we contributed to the Operating Partnership in exchange for OP units. The Operating Partnership used the net proceeds from the offering to repay a portion of the Facility and for general corporate purposes.

On June 4, 2015, we entered into six amended and restated equity distribution agreements for an at-the-market equity distribution program (the “2015 equity distribution agreements”). Pursuant to the terms and conditions of the 2015 equity distribution agreements, we can issue and sell up to an aggregate of $50 million of our common shares. 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 be made in transactions that will be deemed to be “at-the-market” offerings as defined in Rule 415 under the Securities Act. We have no obligation to sell any of our common shares, and can at any time suspend offers under the 2015 equity distribution agreements or terminate the 2015 equity distribution agreements. During the three and six months ended June 30, 2016, we sold 735,755 common shares under the 2015 equity distribution agreements, with net proceeds to us of approximately $10.6 million. In connection with such sales, we paid compensation of approximately $0.2 million to the sales agents. We had not sold any common shares under the 2015 equity distribution agreements as of June 30, 2015.

Operating Partnership Units

Substantially all of our business is conducted through our Operating Partnership.  We are the sole general partner of the Operating Partnership.  As of June 30, 2016, we owned a 98.3% interest in the Operating Partnership.

16

WHITESTONE REIT AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2016

(Unaudited)

Limited partners in the Operating Partnership holding OP units have the right to redeem their OP units for cash or, at our option, common shares at a ratio of one OP unit for one common share.  Distributions to OP unit holders are paid at the same rate per unit as distributions per share to holders of Whitestone common shares.  As of June 30, 2016 and December 31, 2015, there were 28,501,242 and 27,367,704 OP units outstanding, respectively.  We owned 28,017,225 and 26,870,671 OP units as of June 30, 2016 and December 31, 2015, respectively. The balance of the OP units is owned by third parties, including certain members of our board of trustees.  Our weighted average share ownership in the Operating Partnership was approximately 98.3% and 98.4% for the three months ended June 30, 2016 and 2015, respectively, and 98.2% and 98.3% for the six months ended June 30, 2016 and 2015, respectively. During the three months ended June 30, 2016 and 2015, 915 and 802 OP units, respectively, were redeemed for an equal number of common shares, and during thesix months ended June 30, 2016 and 2015, 13,016 and 8,584 OP units, respectively, were redeemed for an equal number of common shares.

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 during 2015 and the six months ended June 30, 2016 (in thousands, except per share/unit data):

	Common Shares				Noncontrolling OP Unit Holders				Total
Quarter Paid	Distributions Per Common Share		Amount Paid		Distributions Per OP Unit		Amount Paid		Amount Paid
2016
Second Quarter	$	0.2850	$	7,786	$	0.2850	$	138	$	7,924
First Quarter	0.2850		7,711		0.2850		139		7,850
Total	$	0.5700	$	15,497	$	0.5700	$	277	$	15,774
2015
Fourth Quarter	$	0.2850	$	7,666	$	0.2850	$	143	$	7,809
Third Quarter	0.2850		7,664		0.2850		122		7,786
Second Quarter	0.2850		6,601		0.2850		111		6,712
First Quarter	0.2850		6,526		0.2850		113		6,639
Total	$	1.1400	$	28,457	$	1.1400	$	489	$	28,946

11.  INCENTIVE SHARE PLAN

On July 29, 2008, our shareholders approved the 2008 Plan. On December 22, 2010, our board of trustees amended 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 converted into 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 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 issued to or held by Whitestone).

The Compensation Committee of our board of trustees administers the 2008 Plan, except with respect to awards to non-employee trustees, for which the 2008 Plan is administered by our 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. 

17

WHITESTONE REIT AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2016

(Unaudited)

On 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 51 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.

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.

A summary of the share-based incentive plan activity as of and for the six months ended June 30, 2016 is as follows:

	Shares		Weighted Average Grant Date Fair Value
Non-vested at January 1, 2016	2,288,260		$	14.34
Granted	514,150		14.81
Vested	(371,143	)	14.42
Forfeited	(30,564	)	14.13
Non-vested at June 30, 2016	2,400,703		$	14.43
Available for grant at June 30, 2016	579,241

A summary of our non-vested and vested shares activity for the six months ended June 30, 2016 and years ended December 31, 2015, 2014 and 2013 is presented below:

	Shares Granted			Shares Vested
	Non-Vested Shares Issued	Weighted Average Grant-Date Fair Value		Vested Shares		Total Vest-Date Fair Value
						(in thousands)
Six Months Ended June 30, 2016	514,150	$	14.81	(371,143	)	$	5,353
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
Year Ended December 31, 2013	328,005	15.43		(15,270	)	224

Total compensation recognized in earnings for share-based payments was $1,819,000 and $1,669,000 for the three months ended June 30, 2016 and 2015, respectively, and $3,844,000 and $3,343,000 for the six months ended June 30, 2016 and 2015, respectively.

Based on our current financial projections, we expect approximately 83%of the unvested awards to vest over the next36months. As ofJune 30, 2016, there was approximately $7.5 million in unrecognized compensation cost related to outstanding non-vested performance-based shares, which are expected to vest over a period of 36 months and approximately $8.3 million in unrecognized compensation cost related to outstanding non-vested time-based shares, which are expected to be recognized over a period of approximately 18 months beginning on July 1, 2016.

We expect to record approximately $9.4 millionin non-cash share-based compensation expense in 2016 and$10.2 millionsubsequent to 2016. The unrecognized share-based compensation cost is expected to vest over a weighted average period of22months.The dilutive impact of the performance-based shares will be included in the denominator of the earnings per share calculation beginning in the period that the performance conditions are expected to be met.

18

WHITESTONE REIT AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2016

(Unaudited)

12. GRANTS TO TRUSTEES

On December 21, 2015, each of our four independent trustees and one trustee emeritus was granted 1,500 common shares, which vested immediately. The 7,500 common shares granted to our trustees had a grant fair value of $12.10 per share. On December 21, 2015, one of our independent trustees elected to receive a total of 992 common shares with a grant date fair value of $12.10 in lieu of cash for board fees. The fair value of the shares granted were determined using quoted prices available on the date of grant.

19

WHITESTONE REIT AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2016

(Unaudited)

13. SEGMENT INFORMATION

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

14. REAL ESTATE

Property Acquisitions. On August 28, 2015, we acquired the hard corner at our Gilbert Tuscany Village property for approximately $1.7 million in cash and net prorations. The 14,603 square foot single-tenant property was vacant at the time of purchase and is located in Gilbert, Arizona.

On August 26, 2015, we acquired two parcels of undeveloped land totaling 3.12 acres for 120,000 OP units. The OP units, are convertible on a one-for-one basis for Whitestone REIT common shares, subject to certain restrictions. The undeveloped land parcels are adjacent to our Keller Place property.

On August 26, 2015, we acquired Keller Place, a property that meets our Community Centered Property™ strategy, for approximately $12.0 million in cash and net prorations. The 93,541 square foot property was 92% leased at the time of purchase and is located in the Keller suburb of Fort Worth, Texas.

On August 26, 2015, we acquired Quinlan Crossing, a property that meets our Community Centered Property™ strategy, for approximately $37.5 million in cash and net prorations. The 109,892 square foot property was 95% leased at the time of purchase and is located in Austin, Texas.

On July 2, 2015, we acquired Parkside Village North, a property that meets our Community Centered Property™ strategy, for approximately $12.5 million in cash and net prorations. The 27,045 square foot property was 100% leased at the time of purchase and is located in Austin, Texas.

On July 2, 2015, we acquired Parkside Village South, a property that meets our Community Centered Property™ strategy, for approximately $32.5 million in cash and net prorations. The 90,101 square foot property was 100% leased at the time of purchase and is located in Austin, Texas.

On May 27, 2015, we acquired Davenport Village, a property that meets our Community Centered Property™ strategy, for approximately $45.5 million in cash and net prorations. The 128,934 square foot property was 85% leased at the time of purchase and is located in Austin, Texas.

On March 31, 2015, we acquired City View Village, a property that meets our Community Centered Property™ strategy, for approximately $6.3 million in cash and net prorations. The 17,870 square foot property was 100% leased at the time of purchase and is located in San Antonio, Texas.

Property Dispositions. On March 3, 2016, we completed the sale of Brookhill, located in Houston, Texas, for $3.1 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 Brookhill in discontinued operations as it did not meet the definition of discontinued operations.

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.

20

WHITESTONE REIT AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2016

(Unaudited)

Discontinued Operations. On December 31, 2014, we completed the sale of three office buildings (Zeta, Royal Crest and Featherwood), located in the Clear Lake suburb of Houston, Texas, for $10.3 million. This disposition was pursuant to our strategy of recycling capital by disposing of non-core properties that do not fit our Community Centered Property™ strategy. As part of the transaction, we provided short-term seller financing of $2.5 million. We recorded a gain on sale of $4.4 million, including recognizing a $1.9 million gain on sale for the year ended December 31, 2014 and deferring the remaining $2.5 million gain on sale to be recognized upon receipt of principal payments on the financing provided by us.

The operating results for properties classified as discontinued operations consists of the following (in thousands):

	Three Months Ended June 30,					Six Months Ended June 30,
	2016		2015			2016		2015
Property revenues	$	—	$	—		$	—	$	1
Property expenses	—		36			—		44
Depreciation and amortization	—		—			—		—
Interest expense	—		—			—		—
Provision for income taxes	—		(2		)	—		(2		)
Gain on sale or disposal of assets	—		(1		)	—		—
Income from discontinued operations	$	—	$	(33	)	$	—	$	(41	)

21

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

You should read the following discussion of our financial condition and results of operations in conjunction with our unaudited consolidated financial statements and the notes thereto included in this Quarterly Report on Form 10-Q (the “Report”), and the consolidated financial statements and the notes thereto and “Management's Discussion and Analysis of Financial Condition and Results of Operations” contained in our Annual Report on Form 10-K for the year ended December 31, 2015.  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.

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

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

• the imposition of federal taxes if we fail to qualify as a 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 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 dispose of our non-core assets on attractive terms, on the time frame we expect, or at all;

• our inability to renew tenants or obtain new tenants 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; and

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

The forward-looking statements should be read in light of these factors and the factors identified in the “Risk Factors” sections of our Annual Report on Form 10-K for the year ended December 31, 2015, as previously filed with the Securities and Exchange Commission (“SEC”) and of this Report below.

Overview

We are a self-managed, fully-integrated real estate company that primarily owns, manages, and redevelops high quality retail properties, which we refer to as Community Centered Properties™. Our properties are located in attractive and affluent neighborhoods within high growth Sunbelt markets 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.

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In October 2006, our current management team joined the Company and adopted a strategic plan to acquire, redevelop, own and operate Community Centered Properties^TM.  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.  We employ and develop a diverse group of associates who understand the needs of our multicultural communities and tenants.

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

As of June 30, 2016, we owned and operated 69 commercial properties consisting of:

Operating Portfolio

• 47 retail properties containing approximately 4.1 million square feet of gross leasable area and having a total carrying value (net of accumulated depreciation) of $610.0 million;

• four office properties containing approximately 0.5 million square feet of gross leasable area and having a total carrying value (net of accumulated depreciation) of $36.1 million; and

• 10 office/flex properties containing approximately 1.1 million square feet of gross leasable area and having a total carrying value (net of accumulated depreciation) of $35.0 million.

Redevelopment, New Acquisitions Portfolio

• two retail properties containing approximately 0.1 million square feet of gross leasable area and having a total carrying value (net of accumulated depreciation) of $46.3 million; and

• six parcels of land held for future development having a total carrying value of $18.4 million.

As of June 30, 2016, we had an aggregate of 1,478 tenants.  We have a diversified tenant base with our largest tenant comprising only 3.2% of our annualized rental revenues for the six months ended June 30, 2016.  Lease terms for our properties range from less than one year for smaller tenants to over 15 years for larger tenants.  Our leases generally include minimum monthly lease payments and tenant reimbursements for payment of taxes, insurance and maintenance.  We completed 223 new and renewal leases during the six months ended June 30, 2016, totaling 594,182 square feet and approximately $40.8 million in total lease value.  This compares to 193 new and renewal leases totaling 463,466 square feet and approximately $24.5 million in total lease value during the same period in 2015.

We employed 95 full-time employees as of June 30, 2016.  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.

How We Derive Our Revenue

Substantially all of our revenue is derived from rents received from leases at our properties. We had rental income and tenant reimbursements of approximately $25.1 million and $22.0 million for the three months ended June 30, 2016 and 2015, respectively, and $50.6 million and $43.2 million for the six months ended June 30, 2016 and 2015, respectively.

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Known Trends in Our Operations; Outlook for Future Results

Rental Income

We expect our rental income to increase year-over-year due to the addition of properties and rent increases on renewal leases. The amount of net rental income generated by our properties depends principally on our ability to maintain the occupancy rates of currently leased space and to lease currently available space, newly acquired properties with vacant space, and space available from unscheduled lease terminations. The amount of rental income we generate also depends on our ability to maintain or increase rental rates in our submarkets. Over the past two years, we have seen modest improvement in the overall economy in our markets, which has allowed us to maintain overall occupancy rates, with slight increases in occupancy at certain of our properties, and to recognize modest increases in rental rates. We expect this trend to continue in 2016.

Scheduled Lease Expirations

We tend to lease space to smaller businesses that desire shorter term leases. As of June 30, 2016, approximately 24% of our gross leasable area was subject to leases that expire prior to December 31, 2017.  Over the last two years, we have renewed leases covering approximately 76% of the square footage subject to expiring leases. We routinely seek to renew leases with our existing tenants prior to their expiration and typically begin discussions with tenants as early as 18 months prior to the expiration date of the existing lease. While our early renewal program and other leasing and marketing efforts target these expiring leases, we hope to re-lease most of that space prior to expiration of the leases. In the markets in which we operate, we obtain and analyze market rental rates through review of third-party publications, which provide market and submarket rental rate data and through inquiry of property owners and property management companies as to rental rates being quoted at properties that are located in close proximity to our properties and we believe display similar physical attributes as our nearby properties. We use this data to negotiate leases with new tenants and renew leases with our existing tenants at rates we believe to be competitive in the markets for our individual properties. Due to the short term nature of our leases, and based upon our analysis of market rental rates, we believe that, in the aggregate, our current leases are at market rates. Market conditions, including new supply of properties, and macroeconomic conditions in our markets and nationally affecting tenant income, such as employment levels, business conditions, interest rates, tax rates, fuel and energy costs and other matters, could adversely impact our renewal rate and/or the rental rates we are able to negotiate. We continue to monitor our tenants' operating performances as well as overall economic trends to evaluate any future negative impact on our renewal rates and rental rates, which could adversely affect our cash flow and ability to make distributions to our shareholders.

Capital Recycling and Becoming a Pure-Play Retail REIT

We seek to continually upgrade our portfolio by opportunistically selling properties that do not have the potential to meet our Community Centered Property™ strategy. We previously announced our intention to recycle our non-core office and office/flex properties as we transition to becoming a pure-play owner of neighborhood retail centers. As of June 30, 2016, our non-core assets had an aggregate carrying value (net of accumulated depreciation) of approximately $71.1 million.

Acquisitions

We have continued to successfully grow our gross leasable area through the acquisition of additional properties, and we expect to actively pursue 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. We have extensive relationships with community banks, attorneys, title companies and others in the real estate industry, which we believe enables us to take advantage of these market opportunities and maintain an active acquisition pipeline.

Property Acquisitions

We seek to acquire commercial properties in high-growth markets. Our acquisition targets are properties that fit our Community Centered Properties^TM strategy.  We define Community Centered Properties^TM 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.

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On August 28, 2015, we acquired the hard corner at our Gilbert Tuscany Village property for approximately $1.7 million in cash and net prorations. The 14,603 square foot single-tenant property was vacant at the time of purchase and is located in Gilbert, Arizona.

On August 26, 2015, we acquired two parcels of undeveloped land totaling 3.12 acres for 120,000 OP units. The OP units, are convertible on a one-for-one basis for Whitestone REIT common shares, subject to certain restrictions. The undeveloped land parcels are adjacent to our Keller Place property.

On August 26, 2015, we acquired Keller Place, a property that meets our Community Centered Property™ strategy, for approximately $12.0 million in cash and net prorations. The 93,541 square foot property was 92% leased at the time of purchase and is located in the Keller suburb of Fort Worth, Texas.

On August 26, 2015, we acquired Quinlan Crossing, a property that meets our Community Centered Property™ strategy, for approximately $37.5 million in cash and net prorations. The 109,892 square foot property was 95% leased at the time of purchase and is located in Austin, Texas.

On July 2, 2015, we acquired Parkside Village North, a property that meets our Community Centered Property™ strategy, for approximately $12.5 million in cash and net prorations. The 27,045 square foot property was 100% leased at the time of purchase and is located in Austin, Texas.

On July 2, 2015, we acquired Parkside Village South, a property that meets our Community Centered Property™ strategy, for approximately $32.5 million in cash and net prorations. The 90,101 square foot property was 100% leased at the time of purchase and is located in Austin, Texas.

On May 27, 2015, we acquired Davenport Village, a property that meets our Community Centered Property™ strategy, for approximately $45.5 million in cash and net prorations. The 128,934 square foot property was 85% leased at the time of purchase and is located in Austin, Texas.

On March 31, 2015, we acquired City View Village, a property that meets our Community Centered Property^TM strategy, for approximately $6.3 million in cash and net prorations. The 17,870 square foot property was 100% leased at the time of purchase and is located in San Antonio, Texas.

Leasing Activity

As of June 30, 2016, we owned 69 properties with 5,881,754 square feet of gross leasable area, which were approximately 87% occupied. Our occupancy rate for all properties was approximately 87% and 86% occupied as of June 30, 2016 and June 30, 2015, respectively. The following is a summary of the Company's leasing activity for the six months ended June 30, 2016:

	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 Over Prior Rent
Comparable (1)
Renewal Leases	130	336,019	3.0	$	2.02	$	14.80	$	14.30	9.9	%
New Leases	26	57,985	4.1	3.99		14.15		14.42		8.0	%
Total	156	394,004	3.1	$	2.31	$	14.71	$	14.32	9.6	%
	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	2	5,026	6.3	$	22.41	$	20.28
New Leases	65	233,416	5.7	9.46		12.89
Total	67	238,442	5.7	$	9.74	$	13.04

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⁽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.

Contractual Expenditures

The following is a summary of the Company's capital expenditures for the three and six months ended June 30, 2016 and 2015 (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2016		2015		2016		2015
Capital expenditures:
Tenant improvements and allowances	$	1,434	$	701	$	2,518	$	2,104
Developments / redevelopments	4,521		667		7,210		1,626
Leasing commissions and costs	575		328		1,011		570
Maintenance capital expenditures	736		765		1,327		1,279
Total capital expenditures	$	7,266	$	2,461	$	12,066	$	5,579

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, 2015, under “Management's Discussion and Analysis of Financial Condition and Results of Operations.”There have been no significant changes to these policies during the six months ended June 30, 2016.  For disclosure regarding recent accounting pronouncements and the anticipated impact they will have on our operations, please refer to Note 2 in our Annual Report on Form 10-K for the year ended December 31, 2015.

26

Results of Operations

Comparison of the Three Months Ended June 30, 2016 and 2015

The following table provides a summary comparison of our results of operations for the three months ended June 30, 2016 and 2015 (dollars in thousands, except per share and OP unit amounts):

	Three Months Ended June 30,
	2016			2015
Number of properties owned and operated	69			65
Aggregate gross leasable area (sq. ft.)	5,881,754			5,632,597
Ending occupancy rate - operating portfolio(1)	87		%	87		%
Ending occupancy rate - all properties	87		%	86		%
Total property revenues	$	25,129		$	21,970
Total property expenses	7,987			7,264
Total other expenses	15,604			13,027
Provision for income taxes	11			91
Loss (gain) on disposal of assets	18			(5		)
Income from continuing operations	1,509			1,593
Loss from discontinued operations, net of taxes	—			(33		)
Net income	1,509			1,560
Less:  Net income attributable to noncontrolling interests	25			26
Net income attributable to Whitestone REIT	$	1,484		$	1,534
Funds from operations core (2)	$	9,218		$	8,463
Property net operating income (3)	17,142			14,706
Distributions paid on common shares and OP units	7,924			6,712
Distributions per common share and OP unit	$	0.2850		$	0.2850
Distributions paid as a percentage of funds from operations core	86		%	79		%

⁽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 a reconciliation of funds from operations core to net income, see “—Reconciliation of Non-GAAP Financial Measures—Funds From Operations (“FFO”) Core” below.

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

27

Property revenues. We had rental income and tenant reimbursements of approximately $25,129,000 for the three months ended June 30, 2016 as compared to $21,970,000 for the three months ended June 30, 2015, an increase of $3,159,000, or 14%. The three months ended June 30, 2016 included $2,804,000 in increased revenues from Non-Same Store operations. We define “Non-Same Stores” as properties that were not owned for the entire period being compared. For purposes of comparing the three months ended June 30, 2016 to the three months ended June 30, 2015, Non-Same Stores include properties that were not owned for the entire period between April 1, 2015 and June 30, 2016. Same Store revenues increased $355,000 for the three months ended June 30, 2016 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 June 30, 2016 to the three months ended June 30, 2015, Same Stores include properties owned during the entire period from April 1, 2015 to June 30, 2016. Same Store revenue increased $85,000 for the three months ended June 30, 2016 as compared to the three months ended June 30, 2015 as the result of an increase in the average occupancy to 86.7% from 86.2%. The Same Store average revenue per leased square foot increased $0.23 for the three months ended June 30, 2016 to $18.60 per leased square foot as compared to the average revenue per leased square foot of $18.37 for the three months ended June 30, 2015, resulting in an increase of Same Store revenues of $270,000.

Property expenses.  Our property expenses were approximately $7,987,000 for the three months ended June 30, 2016 as compared to $7,264,000 for the three months ended June 30, 2015, an increase of $723,000, or 10%.  The primary components of total property expenses are detailed in the table below (in thousands, except percentages):

	Three Months Ended June 30,
Overall Property Expenses	2016		2015		Change			% Change
Real estate taxes	$	3,304	$	2,925	$	379		13	%
Utilities	1,140		1,069		71			7	%
Contract services	1,569		1,273		296			23	%
Repairs and maintenance	773		680		93			14	%
Bad debt	389		589		(200		)	(34	)%
Labor and other	812		728		84			12	%
Total property expenses	$	7,987	$	7,264	$	723		10	%

	Three Months Ended June 30,
Same Store Property Expenses	2016		2015		Change			% Change
Real estate taxes	$	2,693	$	2,823	$	(130	)	(5	)%
Utilities	1,055		1,056		(1		)	—	%
Contract services	1,431		1,263		168			13	%
Repairs and maintenance	713		671		42			6	%
Bad debt	282		573		(291		)	(51	)%
Labor and other	715		708		7			1	%
Total property expenses	$	6,889	$	7,094	$	(205	)	(3	)%

	Three Months Ended June 30,
Non-Same Store Property Expenses	2016		2015		Change		% Change
Real estate taxes	$	611	$	102	$	509	Not meaningful
Utilities	85		13		72		Not meaningful
Contract services	138		10		128		Not meaningful
Repairs and maintenance	60		9		51		Not meaningful
Bad debt	107		16		91		Not meaningful
Labor and other	97		20		77		Not meaningful
Total property expenses	$	1,098	$	170	$	928	Not meaningful

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Real estate taxes.  Real estate taxes increased approximately $379,000, or 13%, during the three months ended June 30, 2016 as compared to the same period in 2015. Real estate taxes for Non-Same Store properties increased approximately $509,000 for the three months ended June 30, 2016. Same Store real estate taxes decreased approximately $130,000 during the three months ended June 30, 2016 as compared to the same period in 2015. The decrease in Same Store real estate tax expense was primarily attributable to favorable settlements with tax authorities resulting in a larger expense reduction for refunds during the three months ended June 30, 2016 as compared to the same period in 2015. 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 $71,000, or 7%, during the three months ended June 30, 2016 as compared to the same period in 2015. Utilities expense increases attributable to Non-Same Store properties were approximately $72,000 for the three months ended June 30, 2016. Same Store utilities expenses decreased approximately $1,000 during the three months ended June 30, 2016 as compared to the same period in 2015.

Contract services.  Contract services expenses increased approximately $296,000, or 23%, during the three months ended June 30, 2016 as compared to the same period in 2015. The increase in contract service expenses included $128,000 in increases for Non-Same Store properties for the three months ended June 30, 2016. Same Store contract service expenses increased approximately $168,000 during the three months ended June 30, 2016 as compared to the same period in 2015. The Same Store contract service expense increase of $168,000 was primarily attributable to increased security and security monitoring on several of our properties.

Repairs and maintenance. Repairs and maintenance expenses increased approximately $93,000, or 14%, during the three months ended June 30, 2016 as compared to the same period in 2015. Repairs and maintenance expenses for the three months ended June 30, 2016 included approximately $51,000 in increases for Non-Same Store properties. Same Store repairs and maintenance expenses increased approximately $42,000 during the three months ended June 30, 2016 as compared to the same period in 2015. The Same Store increase in repairs and maintenance was primarily attributable to routine parking lot surface repairs.

Bad debt.  Bad debt expenses decreased approximately $200,000, or 34%, during the three months ended June 30, 2016 as compared to the same period in 2015. Bad debt expenses for the three months ended June 30, 2016 included approximately $91,000 in increases for Non-Same Store properties. Same Store bad debt decreased approximately $291,000 during the three months ended June 30, 2016 as compared to the same period in 2015.

Labor and other.  Labor and other expenses increased approximately $84,000, or 12%, during the three months ended June 30, 2016 as compared to the same period in 2015. Labor and other expenses for the three months ended June 30, 2016 included approximately $77,000 in increased cost for Non-Same Store properties. Same Store labor and other expenses increased approximately $7,000 during the three months ended June 30, 2016 as compared to the same period in 2015.

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Same Store and Non-Same Store net operating income. The components of Same Store, Non-Same Store and total property net operating income and net income are detailed in the table below (in thousands):

	Three Months Ended June 30,								Percent
	2016		2015			Change			Change
Same Store (57 properties, exclusive of land held for development)
Property revenues
Rental revenues	$	17,212	$	16,837		$	375		2	%
Other revenues	4,637		4,657			(20		)	—	%
Total property revenues	21,849		21,494			355			2	%
Property expenses
Property operation and maintenance	4,196		4,271			(75		)	(2	)%
Real estate taxes	2,693		2,823			(130		)	(5	)%
Total property expenses	6,889		7,094			(205		)	(3	)%
Total Same Store net operating income	14,960		14,400			560			4	%
Non-Same Store (6 properties, exclusive of land held for development)
Property revenues
Rental revenues	2,437		339			2,098			Not meaningful
Other revenues	843		137			706			Not meaningful
Total property revenues	3,280		476			2,804			Not meaningful
Property expenses
Property operation and maintenance	487		68			419			Not meaningful
Real estate taxes	611		102			509			Not meaningful
Total property expenses	1,098		170			928			Not meaningful
Total Non-Same Store net operating income	2,182		306			1,876			Not meaningful
Total property net operating income	17,142		14,706			2,436			17	%
Less total other expenses, provision for income taxes, gain on sale of properties and loss on disposal of assets	15,633		13,113			2,520			19	%
Income from continuing operations	1,509		1,593			(84		)	(5	)%
Income (loss) from discontinued operations, net of taxes	—		(33		)	33			(100	)%
Net income	$	1,509	$	1,560		$	(51	)	(3	)%

30

Other expenses.  Our other expenses were approximately $15,604,000 for the three months ended June 30, 2016, as compared to $13,027,000 for the three months ended June 30, 2015, an increase of $2,577,000, or 20%.  The primary components of other expenses are detailed in the table below (in thousands, except percentages):

	Three Months Ended
	June 30,
	2016			2015			Change		% Change
General and administrative	$	5,413		$	4,998		$	415	8	%
Depreciation and amortization	5,521			4,675			846		18	%
Interest expense	4,748			3,516			1,232		35	%
Interest, dividend and other investment income	(78		)	(162		)	84		(52	)%
Total other expenses	$	15,604		$	13,027		$	2,577	20	%

General and administrative. General and administrative expenses increased approximately $415,000, or 8%, for the three months ended June 30, 2016 as compared to the same period in 2015. The increase was comprised of $330,000 in increased legal fees expense, $150,000 in increased share-based compensation, $146,000 in increased salaries and benefits, $146,000 in increased other expenses and was offset by $357,000 in decreased acquisition transaction expenses.

Total compensation recognized in earnings for share-based payments was $1,819,000 and $1,669,000 for the three months ended June 30, 2016 and 2015, respectively.

Based on our current financial projections, we expect approximately 83%of the unvested awards to vest over the next36months. As ofJune 30, 2016, there was approximately $7.5 million in unrecognized compensation cost related to outstanding non-vested performance-based shares, which are expected to vest over a period of 36 months and approximately $8.3 million in unrecognized compensation cost related to outstanding non-vested time-based shares, which are expected to be recognized over a period of approximately 18 months beginning on July 1, 2016.

We expect to record approximately $9.4 millionin non-cash share-based compensation expense in 2016 and$10.2 millionsubsequent to 2016. The unrecognized share-based compensation cost is expected to vest over a weighted average period of22months.The dilutive impact of the performance-based shares will be included in the denominator of the earnings per share calculation beginning in the period that the performance conditions are expected to be met.

Depreciation and amortization. Depreciation and amortization increased $846,000, or 18%, for the three months ended June 30, 2016 as compared to the same period in 2015. Depreciation for improvements to Same Store properties increased $160,000 for the three months ended June 30, 2016 as compared to the same period in 2015. Lease commission amortization and depreciation of corporate assets increased $58,000 for the three months ended June 30, 2016 as compared to the same period in 2015. Depreciation for Non-Same Store properties increased $628,000.

Interest expense. Interest expense increased approximately $1,232,000, or 35%, for the three months ended June 30, 2016 as compared to the same period in 2015. The increase in interest expense is comprised of approximately $807,000 in increased interest expense resulting from a $101,217,000 increase in our average notes payable balance, $411,000 in increased interest expense resulting from an increase in the average effective interest rate on our average notes payable from 3.19% to 3.51% and an increase in amortized loan fees included in interest expense of $14,000.

Interest, dividend and other investment income. Interest, dividend and other investment income decreased approximately $84,000, or 52%, for the three months ended June 30, 2016 as compared to the same period in 2015. The decrease in interest, dividend and other investment income for the three months ended June 30, 2016 as compared to the same period in 2015 is comprised of approximately $44,000 in decreased gains on sales of available-for-sale marketable securities, $42,000 in decreased interest income, and was offset by a $2,000 increase in dividend income.

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The primary components of discontinued operations are detailed in the table below (in thousands):

	Three Months Ended June 30,
	2016		2015
Property revenues
Rental revenues	$	—	$	—
Other revenues	—		—
Total property revenues	—		—
Property expenses
Property operation and maintenance	—		33
Real estate taxes	—		—
Total property expenses	—		33
Other expenses
Interest expense	—		—
Depreciation and amortization	—		—
Total other expense	—		—
Income before loss on disposal of assets and income taxes	—		(33		)
Provision for income taxes	—		—
Gain on sale or disposal of property or assets in discontinued operations	—		—
Income from discontinued operations	$	—	$	(33	)

32

Results of Operations

Comparison of the Six Months Ended June 30, 2016 and 2015

The following table provides a summary comparison of our results of operations for the six months ended June 30, 2016 and 2015 (dollars in thousands, except per share and OP unit amounts):

	Six Months Ended June 30,
	2016			2015
Number of properties owned and operated	69			65
Aggregate gross leasable area (sq. ft.)	5,881,754			5,632,597
Ending occupancy rate - operating portfolio(1)	87		%	87		%
Ending occupancy rate - all properties	87		%	86		%
Total property revenues	$	50,564		$	43,222
Total property expenses	16,135			14,251
Total other expenses	30,539			25,475
Provision for income taxes	167			174
Gain on sale of properties	(2,890		)	—
Loss (gain) on disposal of assets	16			100
Income from continuing operations	6,597			3,222
Loss from discontinued operations, net of taxes	—			(41		)
Net income	6,597			3,181
Less:  Net income attributable to noncontrolling interests	116			53
Net income attributable to Whitestone REIT	$	6,481		$	3,128
Funds from operations core (2)	$	18,920		$	16,647
Property net operating income (3)	34,429			28,971
Distributions paid on common shares and OP units	15,774			13,351
Distributions per common share and OP unit	$	0.5700		$	0.5700
Distributions paid as a percentage of funds from operations core	83		%	80		%

⁽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 a reconciliation of funds from operations core to net income, see “—Reconciliation of Non-GAAP Financial Measures—Funds From Operations (“FFO”) Core” below.

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

33

Property revenues. We had rental income and tenant reimbursements of approximately $50,564,000 for the six months ended June 30, 2016 as compared to $43,222,000 for the six months ended June 30, 2015, an increase of $7,342,000, or 17%. The six months ended June 30, 2016 included $6,319,000 in increased revenues from Non-Same Store operations. We define “Non-Same Stores” as properties that were not owned for the entire the period being compared. For purposes of comparing the six months ended June 30, 2016 to the six months ended June 30, 2015, Non-Same Stores include properties that were not owned during the entire period from January 1, 2015 to June 30, 2016. Same Store revenues increased $1,023,000 for the six months ended June 30, 2016 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 six months ended June 30, 2016 to the six months ended June 30, 2015, Same Stores include properties that were owned for the entire period from January 1, 2015 to June 30, 2016. Same Store revenue increased $38,000 for the six months ended June 30, 2016 as compared to the six months ended June 30, 2015 as the result of an increase in the average occupancy to 86.9% from 86.6%. The Same Store average revenue per leased square foot increased $0.42 for the six months ended June 30, 2016 to $18.54 per leased square foot as compared to the average revenue per leased square foot of $18.12 for the six months ended June 30, 2015, resulting in an increase of Same Store revenues of $985,000.

Property expenses.  Our property expenses were approximately $16,135,000 for the six months ended June 30, 2016 as compared to $14,251,000 for the six months ended June 30, 2015, an increase of $1,884,000, or 13%.  The primary components of total property expenses are detailed in the table below (in thousands, except percentages):

	Six Months Ended June 30,
Overall Property Expenses	2016		2015		Change			% Change
Real estate taxes	$	6,658	$	5,829	$	829		14	%
Utilities	2,236		2,128		108			5	%
Contract services	2,994		2,511		483			19	%
Repairs and maintenance	1,729		1,330		399			30	%
Bad debt	763		800		(37		)	(5	)%
Labor and other	1,755		1,653		102			6	%
Total property expenses	$	16,135	$	14,251	$	1,884		13	%

	Six Months Ended June 30,
Same Store Property Expenses	2016		2015		Change			% Change
Real estate taxes	$	5,375	$	5,706	$	(331	)	(6	)%
Utilities	2,037		2,107		(70		)	(3	)%
Contract services	2,713		2,498		215			9	%
Repairs and maintenance	1,614		1,321		293			22	%
Bad debt	547		771		(224		)	(29	)%
Labor and other	1,510		1,574		(64		)	(4	)%
Total property expenses	$	13,796	$	13,977	$	(181	)	(1	)%

	Six Months Ended June 30,
Non-Same Store Property Expenses	2016		2015		Change		% Change
Real estate taxes	$	1,283	$	123	$	1,160	Not meaningful
Utilities	199		21		178		Not meaningful
Contract services	281		13		268		Not meaningful
Repairs and maintenance	115		9		106		Not meaningful
Bad debt	216		29		187		Not meaningful
Labor and other	245		79		166		Not meaningful
Total property expenses	$	2,339	$	274	$	2,065	Not meaningful

34

Real estate taxes.  Real estate taxes increased approximately $829,000, or 14%, during the six months ended June 30, 2016 as compared to the same period in 2015. Real estate taxes for Non-Same Store properties increased approximately $1,160,000 for the six months ended June 30, 2016. Same Store real estate taxes decreased approximately $331,000 during the six months ended June 30, 2016 as compared to the same period in 2015. The decrease in Same Store real estate tax expense was primarily attributable to favorable settlements with tax authorities resulting in a larger expense reduction for refunds and lower valuations during the six months ended June 30, 2016 as compared to the same period in 2015. 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 $108,000, or 5%, during the six months ended June 30, 2016 as compared to the same period in 2015. Utilities expense increases attributable to Non-Same Store properties were approximately $178,000 for the six months ended June 30, 2016. Same Store utilities expenses decreased approximately $70,000, during the six months ended June 30, 2016 as compared to the same period in 2015.

Contract services.  Contract services expenses increased approximately $483,000, or 19%, during the six months ended June 30, 2016 as compared to the same period in 2015. The increase in contract service expenses included $268,000 in increases for Non-Same Store properties for the six months ended June 30, 2016. Same Store contract service expenses increased approximately $215,000 during the six months ended June 30, 2016 as compared to the same period in 2015. The Same Store contract service expense increase of $215,000 was primarily attributable to increased security and security monitoring on several of our properties.

Repairs and maintenance. Repairs and maintenance expenses increased approximately $399,000, or 30%, during the six months ended June 30, 2016 as compared to the same period in 2015. Repairs and maintenance expenses for the six months ended June 30, 2016 included approximately $106,000 in increases for Non-Same Store properties. Same Store repairs and maintenance expenses increased approximately $293,000 during the six months ended June 30, 2016 as compared to the same period in 2015. The Same Store increase in repairs and maintenance was primarily attributable to routine parking lot surface and life safety system repairs.

Bad debt.  Bad debt expenses decreased approximately $37,000, or 5%, during the six months ended June 30, 2016 as compared to the same period in 2015. Bad debt expenses for the six months ended June 30, 2016 included approximately $187,000 in increases for Non-Same Store properties. Same Store bad debt decreased approximately $224,000 during the six months ended June 30, 2016 as compared to the same period in 2015.

Labor and other.  Labor and other expenses increased approximately $102,000, or 6%, during the six months ended June 30, 2016 as compared to the same period in 2015. Labor and other expenses for the six months ended June 30, 2016 included approximately $166,000 in increased cost for Non-Same Store properties. Same Store labor and other expenses decreased approximately $64,000 during the six months ended June 30, 2016 as compared to the same period in 2015.

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Same Store and Non-Same Store net operating income. The components of Same Store, Non-Same Store and total property net operating income and net income are detailed in the table below (in thousands):

	Six Months Ended June 30,								Percent
	2016		2015			Change			Change
Same Store (56 properties, exclusive of land held for development)
Property revenues
Rental revenues	$	33,953	$	33,121		$	832		3	%
Other revenues	9,532		9,341			191			2	%
Total property revenues	43,485		42,462			1,023			2	%
Property expenses
Property operation and maintenance	8,430		8,292			138			2	%
Real estate taxes	5,366		5,685			(319		)	(6	)%
Total property expenses	13,796		13,977			(181		)	(1	)%
Total Same Store net operating income	29,689		28,485			1,204			4	%
Non-Same Store (7 properties, exclusive of land held for development)
Property revenues
Rental revenues	5,118		520			4,598			Not meaningful
Other revenues	1,961		240			1,721			Not meaningful
Total property revenues	7,079		760			6,319			Not meaningful
Property expenses
Property operation and maintenance	1,047		130			917			Not meaningful
Real estate taxes	1,292		144			1,148			Not meaningful
Total property expenses	2,339		274			2,065			Not meaningful
Total Non-Same Store net operating income	4,740		486			4,254			Not meaningful
Total property net operating income	34,429		28,971			5,458			19	%
Less total other expenses, provision for income taxes, gain on sale of properties and loss on disposal of assets	27,832		25,749			2,083			8	%
Income from continuing operations	6,597		3,222			3,375			105	%
Income (loss) from discontinued operations, net of taxes	—		(41		)	41			(100	)%
Net income	$	6,597	$	3,181		$	3,416		107	%

36

Other expenses.  Our other expenses were approximately $30,539,000 for the six months ended June 30, 2016, as compared to $25,475,000 for the six months ended June 30, 2015, an increase of $5,064,000, or 20%.  The primary components of other expenses are detailed in the table below (in thousands, except percentages):

	Six Months Ended
	June 30,
	2016			2015			Change			% Change
General and administrative	$	10,249		$	9,483		$	766		8	%
Depreciation and amortization	10,913			9,239			1,674			18	%
Interest expense	9,552			6,924			2,628			38	%
Interest, dividend and other investment income	(175		)	(171		)	(4		)	2	%
Total other expenses	$	30,539		$	25,475		$	5,064		20	%

General and administrative. General and administrative expenses increased approximately $766,000, or 8%, for the six months ended June 30, 2016 as compared to the same period in 2015. The increase was comprised of $501,000 in increased share-based compensation expense, $438,000 in increased salaries and benefits and $317,000 in increased legal fees and was offset by $411,000 in decreased acquisition transaction expenses and $79,000 in decreased other expenses.

Total compensation recognized in earnings for share-based payments was $3,844,000 and $3,343,000 for the six months ended June 30, 2016 and 2015, respectively.

Based on our current financial projections, we expect approximately 83%of the unvested awards to vest over the next36months. As ofJune 30, 2016, there was approximately $7.5 million in unrecognized compensation cost related to outstanding non-vested performance-based shares, which are expected to vest over a period of 36 months and approximately $8.3 million in unrecognized compensation cost related to outstanding non-vested time-based shares, which are expected to be recognized over a period of approximately 18 months beginning on July 1, 2016.

We expect to record approximately $9.4 millionin non-cash share-based compensation expense in 2016 and$10.2 millionsubsequent to 2016. The unrecognized share-based compensation cost is expected to vest over a weighted average period of22months.The dilutive impact of the performance-based shares will be included in the denominator of the earnings per share calculation beginning in the period that the performance conditions are expected to be met.

Depreciation and amortization. Depreciation and amortization increased $1,674,000, or 18%, for the six months ended June 30, 2016 as compared to the same period in 2015. Depreciation for improvements to Same Store properties increased $158,000 for the six months ended June 30, 2016 as compared to the same period in 2015. Lease commission amortization and depreciation of corporate assets increased $170,000 for the six months ended June 30, 2016 as compared to the same period in 2015. Depreciation for Non-Same Store properties increased $1,346,000.

Interest expense. Interest expense increased approximately $2,628,000, or 38%, for the six months ended June 30, 2016 as compared to the same period in 2015. The increase in interest expense is comprised of approximately $1,622,000 in increased interest expense resulting from a $102,696,000 increase in our average notes payable balance, $977,000 in increased interest expense resulting from an increase in the average effective interest rate on our average notes payable from 3.16% to 3.55% and an increase in amortized loan fees included in interest expense of $29,000.

Interest, dividend and other investment income. Interest, dividend and other investment income increased approximately $4,000, or 2%, for the six months ended June 30, 2016 as compared to the same period in 2015. The increase in interest, dividend and other investment income for the six months ended June 30, 2016 as compared to the same period in 2015 was comprised of approximately $49,000 in increased interest income and was offset by a decrease of $44,000 in gains realized from the sale of available-for-sale securities and a $1,000 decrease in dividend income.

37

Property Dispositions. On March 3, 2016, we completed the sale of Brookhill, located in Houston, Texas, for $3.1 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 may be used as consideration for future acquisitions. We have not included Brookhill in discontinued operations as it did not meet the definition of discontinued operations.

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.

The primary components of discontinued operations are detailed in the table below (in thousands):

	Six Months Ended June 30,
	2016		2015
Property revenues
Rental revenues	$	—	$	—
Other revenues	—		—
Total property revenues	—		—
Property expenses
Property operation and maintenance	—		41
Real estate taxes	—		—
Total property expenses	—		41
Other expenses
Interest expense	—		—
Depreciation and amortization	—		—
Total other expense	—		—
Income before loss on disposal of assets and income taxes	—		(41		)
Provision for income taxes	—		—
Gain on sale or disposal of property or assets in discontinued operations	—		—
Income from discontinued operations	$	—	$	(41	)

38

Reconciliation of Non-GAAP Financial Measures

Funds From Operations (“FFO”)

The National Association of Real Estate Investment Trusts (“NAREIT”) defines FFO as net income (loss) available to common shareholders computed in accordance with U.S. GAAP, excluding gains or losses from sales of operating real estate assets, impairment charges on properties held for investment and extraordinary items, plus depreciation and amortization of operating properties, including our share of unconsolidated real estate joint ventures and partnerships.  We calculate FFO in a manner consistent with the NAREIT definition.

Management uses FFO as a supplemental measure to conduct and evaluate our business because there are certain limitations associated with using U.S. GAAP net income (loss) alone as the primary measure of our operating performance. Historical cost accounting for real estate assets in accordance with 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 as the primary metric for comparing the relative performance of equity REITs.  

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

Funds From Operations Core (“FFO Core”)

Management believes that the computation of FFO in accordance with NAREIT's definition includes certain items

that 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, legal settlements, non-cash share-based compensation expense, rent support agreement payments received from sellers on acquired assets 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.

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

	Three Months Ended June 30,					Six Months Ended June 30,
FFO AND FFO CORE	2016		2015			2016			2015
Net income attributable to Whitestone REIT	$	1,484	$	1,534		$	6,481		$	3,128
Depreciation and amortization of real estate assets	5,479		4,643			10,790			9,183
(Gain) loss on sale or disposal of assets and properties	18		(5		)	(2,874		)	100
Net income attributable to noncontrolling interests	25		26			116			53
FFO	7,006		6,198			14,513			12,464
Non cash share-based compensation expense	1,819		1,669			3,844			3,343
Acquisition costs	393		596			563			840
FFO Core	$	9,218	$	8,463		$	18,920		$	16,647

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Property Net Operating Income (“NOI”)

Management believes that NOI is a useful measure of our property operating performance and is useful to securities analysts in estimating the relative net asset values of REITs. 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, interest expense, interest income, provision for income taxes and gain or loss on sale or disposition of assets, it provides a performance measure that, when compared year over year, reflects the revenues and expenses directly associated with owning and operating commercial real estate properties and the impact to operations from trends in occupancy rates, rental rates and operating costs, providing perspective not immediately apparent from net income. We use NOI to evaluate our operating performance since NOI allows us to evaluate the impact that factors such as occupancy levels, lease structure, lease rates and tenant base have on our results, margins and returns. In addition, management believes that NOI provides useful information to the investment community about our property and operating performance when compared to other REITs since NOI is generally recognized as a standard measure of property performance in the real estate industry. However, NOI should not be viewed as a measure of our overall financial performance since it does not reflect general and administrative expenses, depreciation and amortization, involuntary conversion, interest expense, interest income, provision for income taxes and gain or loss on sale or disposition of assets, the level of capital expenditures and leasing costs necessary to maintain the operating performance of our properties.

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 June 30,						Six Months Ended June 30,
PROPERTY NET OPERATING INCOME	2016			2015			2016			2015
Net income attributable to Whitestone REIT	$	1,484		$	1,534		$	6,481		$	3,128
General and administrative expenses	5,413			4,998			10,249			9,483
Depreciation and amortization	5,521			4,675			10,913			9,239
Interest expense	4,748			3,516			9,552			6,924
Interest, dividend and other investment income	(78		)	(162		)	(175		)	(171		)
Provision for income taxes	11			91			167			174
Gain on sale of properties	—			—			(2,890		)	—
(Gain) loss on disposal of assets	18			(5		)	16			100
Loss from discontinued operations	—			33			—			41
Net income attributable to noncontrolling interests	25			26			116			53
NOI	$	17,142		$	14,706		$	34,429		$	28,971

Liquidity and Capital Resources

Our short-term liquidity requirements consist primarily of distributions to holders of our common shares and OP units, including those required to maintain our REIT status and satisfy our current quarterly distribution target of $0.2850 per share and OP unit, recurring expenditures, such as repairs and maintenance of our properties, non-recurring expenditures, such as capital improvements and tenant improvements, debt service requirements, and, potentially, acquisitions of additional properties.

     During the six months ended June 30, 2016, our cash provided from operating activities was $16,115,000 and our total distributions were $15,774,000.  Therefore, we had cash flow from operations in excess of distributions of approximately $341,000. 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.

40

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. However, our ability to incur additional debt will be dependent on a number of factors, including our degree of leverage, the value of our unencumbered assets and borrowing restrictions that may be imposed by lenders. Our ability to access the equity 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 that our rental income will increase as we continue to acquire additional properties, subsequently increasing our cash flows generated from operating activities. We intend to continue acquiring such additional properties that meet our Community Centered Property™ strategy through equity issuances and debt financing.

As discussed in Note 10 (Equity) to the accompanying consolidated financial statements, on June 26, 2015, we completed the sale of 3,750,000 common shares at a purchase price of $13.3386 per share. Total net proceeds from the offering, after deducting offering expenses, were approximately $49.7 million, which we contributed to the Operating Partnership in exchange for OP units. The Operating Partnership used the net proceeds from this offering to repay a portion of the Facility and for general corporate purposes. In addition, on June 4, 2015, we entered into the 2015 equity distribution agreements, as discussed in Note 10 to the accompanying consolidated financial statements.  Pursuant to the terms and conditions of the 2015 equity distribution agreements, we can issue and sell up to an aggregate of $50 million of our common shares into the existing trading market at current market prices or at negotiated prices through the placement agents over a period of time and from time to time. During the three and six months ended June 30, 2016, we sold 735,755 common shares under the 2015 equity distribution agreements, with net proceeds to us of approximately $10.6 million. In connection with such sales, we paid compensation of approximately $0.2 million to the sales agents. We had not sold any common shares under the 2015 equity distribution agreements as of June 30, 2015.  We have used and anticipate using net proceeds from common shares issued pursuant to 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.

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 7 (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 million4.99% Note, due January 6, 2024 (see Note 6 (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 and Cash Equivalents

We had cash and cash equivalents of approximately $5,927,000 as of June 30, 2016, as compared to $2,587,000 on December 31, 2015.  The increase of $3,340,000 was primarily the result of the following:

Sources of Cash

• Cash flow from operations of $16,115,000 for the six months ended June 30, 2016;

• Net proceeds of $3,000,000 from the Facility;

• Net proceeds of $10,600,000 from issuance of common shares;

• Change in restricted cash of $4,000;

• Proceeds of $3,957,000 from sales of properties;

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Uses of Cash

• Payment of distributions to common shareholders and OP unit holders of $15,774,000;

• Additions to real estate of $11,055,000;

• Repurchase of common shares of $1,922,000; and

• Payments of notes payable of $1,585,000.

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

Debt

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

Description	June 30, 2016			December 31, 2015
Fixed rate notes
$10.5 million, LIBOR plus 2.00% Note, due September 24, 2018 (1)	$	10,100		$	10,220
$50.0 million, 0.84% plus 1.35% to 1.90% Note, due October 30, 2020 (2)	50,000			50,000
$50.0 million, 1.50% plus 1.35% to 1.90% Note, due January 29, 2021 (3)	50,000			50,000
$100.0 million, 1.73% plus 1.65% to 2.25% Note, due October 30, 2022 (4)	100,000			100,000
$37.0 million 3.76% Note, due December 1, 2020	34,661			35,146
$6.5 million 3.80% Note, due January 1, 2019	6,105			6,190
$19.0 million 4.15% Note, due December 1, 2024	19,000			19,000
$20.2 million 4.28% Note, due June 6, 2023	19,876			20,040
$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
$16.5 million 4.97% Note, due September 26, 2023	16,412			16,450
$15.1 million 4.99% Note, due January 6, 2024	15,060			15,060
$9.2 million, Prime Rate less 2.00% Note, due December 29, 2017 (5)	7,878			7,886
$2.6 million 5.46% Note, due October 1, 2023	2,531			2,550
$11.1 million 5.87% Note, due August 6, 2016	11,152			11,305
$1.1 million 2.97% Note, due November 28, 2016	517			—
Floating rate notes
Unsecured line of credit, LIBOR plus 1.40% to 1.95%, due October 30, 2019	130,600			127,600
Total notes payable principal	502,192			499,747
Less deferred financing costs, net of accumulated amortization	(1,639		)	(1,792		)
	$	500,553		$	497,955

⁽¹⁾  Promissory note includes an interest rate swap that fixed the interest rate at 3.55% for the duration of the term.

⁽²⁾  Promissory note includes an interest rate swap that fixed the LIBOR portion of Term Loan 1 (as defined below) at 0.84% through February 3, 2017 and 1.75% beginning February 3, 2017 through October 30, 2020.

⁽³⁾  Promissory note includes an 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 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%.

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On November 7, 2014, we, through our Operating Partnership, entered into an unsecured revolving credit facility (the “2014 Facility”) with the lenders party thereto, with BMO Capital Markets, Wells Fargo Securities, LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated, and U.S. Bank, National Association, as co-lead arrangers and joint book runners, and Bank of Montreal, as administrative agent (the “Agent”). The 2014 Facility amended and restated our previous unsecured revolving credit facility. On October 30, 2015, we, through our Operating Partnership, entered into the First Amendment to the 2014 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 made the following amendments to the 2014 Facility:

• extended the maturity date of the $300 million unsecured revolving credit facility under the 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; and

• extended 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 the Facility accrue interest (at the Operating Partnership's option) at a Base Rate or an Adjusted LIBOR plus an applicable margin based upon our then existing leverage. The applicable margin for Adjusted LIBOR borrowings ranges from 1.40% to 1.95% for the Revolver and 1.35% to 2.25% for the Term Loans. Base Rate means the higher of: (a) the Agent's prime commercial rate, (b) the sum of (i) the average rate quoted by the Agent by two or more 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 Governors of the Federal Reserve System on eurocurrency liabilities.

We serve as the guarantor for funds borrowed by the Operating Partnership under the Facility. The 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 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.

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. As of June 30, 2016, $330.6 million was drawn on the Facility, and our remaining borrowing capacity was $169.4 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.

As of June 30, 2016, our $171.1 million in secured debt was collateralized by 20 properties with a carrying value of $212.6 million.  Our loans contain restrictions that would require the payment of prepayment penalties for the acceleration of outstanding debt and are secured by deeds of trust on certain of our properties and by assignment of the rents and leases associated with those properties.  As of June 30, 2016, we were in compliance with all loan covenants.

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Scheduled maturities of our outstanding debt as of June 30, 2016 were as follows (in thousands):

Year	Amount Due
2016	$	12,722
2017	10,213
2018	12,136
2019	138,649
2020	82,827
Thereafter	245,645
Total	$	502,192

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.

Contractual Obligations

During the six months ended June 30, 2016, there were no material changes outside of the ordinary course of business to the information regarding specified contractual obligations contained in our Annual Report on Form 10-K for the year ended December 31, 2015.

Distributions

The following table summarizes the cash distributions paid or payable to holders of our common shares and noncontrolling OP units during each quarter during 2015 and the six months ended June 30, 2016 (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
2016
Second Quarter	$	0.2850	$	7,786	$	0.2850	$	138	$	7,924
First Quarter	0.2850		7,711		0.2850		139		7,850
Total	$	0.5700	$	15,497	$	0.5700	$	277	$	15,774
2015
Fourth Quarter	$	0.2850	$	7,666	$	0.2850	$	143	$	7,809
Third Quarter	0.2850		7,664		0.2850		122		7,786
Second Quarter	0.2850		6,601		0.2850		111		6,712
First Quarter	0.2850		6,526		0.2850		113		6,639
Total	$	1.1400	$	28,457	$	1.1400	$	489	$	28,946

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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.

Income earned by our taxable REIT subsidiary, Whitestone Davenport TRS LLC (“Davenport TRS”), is subject to federal income tax. For the six months ended June 30, 2016, we recognized $54,000 in income tax expense related to Davenport TRS for the 2016 taxable year.

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

We had no significant off-balance sheet arrangements as of June 30, 2016 and December 31, 2015.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk.

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

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

Fixed Interest Rate Debt

As of June 30, 2016, $371.6 million, or approximately 74% of our outstanding debt, was subject to fixed interest rates, which limit the risk of fluctuating interest rates. Though a change in the market interest rates affects the fair market value of our fixed interest rate debt, it does not impact net income to shareholders or cash flows. Our total outstanding fixed interest rate debt had an average effective interest rate as of June 30, 2016 of approximately 3.82% per annum with scheduled maturities ranging from 2016 to 2024 (see Note 6 (Debt) to the accompanying consolidated financial statements for further detail). Holding other variables constant, a 1% increase or decrease in interest rates would cause a $15.5 million decline or increase, respectively, in the fair value for our fixed rate debt.

Variable Interest Rate Debt

As of June 30, 2016, $130.6 million, or approximately 26% of our outstanding debt, was subject to floating interest rates of LIBOR plus 1.40% to 1.95% 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 $1.3 million, respectively.

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Item 4.  Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

The management of Whitestone REIT, under the supervision and with the participation of our principal executive and financial officers, has evaluated the effectiveness of our disclosure controls and procedures in ensuring that the information required to be disclosed in our filings under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, including ensuring that such information is accumulated and communicated to Whitestone REIT's management, as appropriate, to allow timely decisions regarding required disclosure. Based on such evaluation, our principal executive and financial officers have concluded that such disclosure controls and procedures were effective as of June 30, 2016 (the end of the period covered by this Report).

Changes in Internal Control Over Financial Reporting

During the three months ended June 30, 2016, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

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

Item 1A. Risk Factors.

Other than the addition of the risk factors below, there have been no material changes from the risk factors disclosed in the “Risk Factors” section of Whitestone's Annual Report on Form 10-K for the year ended December 31, 2015.

There can be no assurance that we will be able to dispose of our non-core properties in a timely manner, on attractive terms, or at all.

We currently expect to dispose of certain of our non-core properties that we believe are not consistent with our Community Centered Property™ strategy in order to improve the overall quality of our portfolio. We can provide no assurance that we will in fact be able to consummate such dispositions at all or at prices that we would otherwise expect to achieve. Factors that could limit our ability to successfully dispose of our non-core properties include:

• the possible lack of financing available to potential buyers;

• our ability to successfully execute a disposition plan that is significant in size; and

• other sellers marketing competing properties.

The failure to successfully execute our strategy could have a material adverse effect on our financial condition, liquidity, results of operations and distributions to our shareholders.

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

(a) During the period covered by this 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) Issuer Purchases of Equity Securities

During the three months ended June 30, 2016, 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 2008 Plan. The following table summarizes all of these repurchases during the three months ended June 30, 2016.

Period	Total Number of Shares Purchased (1)	Average Price Paid for Shares		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares that May Yet be Purchased Under the Plans or Programs
April 1, 2016 through April 30, 2016	22,369	$	12.54	N/A	N/A
May 1, 2016 through May 31, 2016	—	—		N/A	N/A
June 1, 2016 through June 30, 2016	69,910	15.08		N/A	N/A
Total	92,279	$	14.46

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⁽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 2008 Plan. With respect to these shares, the price paid per share is based on the fair market value at the time of tender.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

The U.S. Treasury Department issued temporary Regulations on June 7, 2016 which extended the period during which a REIT is subject to tax in respect of built-in gains recognized on property acquired from a C corporation from five years to ten years.  This extension will only apply to assets with built-in gains acquired on or after August 8, 2016.  This change is temporary and is set to expire on June 7, 2019. Therefore, if we acquire any asset from a C corporation, or a corporation that generally is subject to full corporate level tax, in a merger or other transaction in which we acquire a basis in the asset that is determined by reference either to the C corporation’s basis in the asset or to another asset, we will pay tax at the highest U.S. federal corporate income tax rate applicable if we recognize gain on the sale or disposition of the asset during the 5 year period (10-year period for acquisitions on or after August 8, 2016) after we acquire the asset.

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Item 6. Exhibits.

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

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SIGNATURES

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

		WHITESTONE REIT
Date:	July 29, 2016	/s/ James C. Mastandrea
		James C. Mastandrea
		Chief Executive Officer
		(Principal Executive Officer)

Date:	July 29, 2016	/s/ David K. Holeman
		David K. Holeman
		Chief Financial Officer
		(Principal Financial and Principal Accounting Officer)

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EXHIBIT INDEX

Exhibit No. Description

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

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

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

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

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

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

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

3.2 Amended and Restated Bylaws (previously filed as and incorporated by reference to Exhibit 3.1 to the Registrant's Current Report on Form 8-K, filed on October 9, 2008)

12.1* Statement of Calculation of Consolidated Ratio of Earnings to Fixed Charges.

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

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

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

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

101.INS***	XBRL Instance Document
101.SCH***	XBRL Taxonomy Extension Schema Document
101.CAL***	XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB***	XBRL Taxonomy Extension Label Linkbase Document
101.PRE***	XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF***	XBRL Taxonomy Extension Definition Linkbase Document

 ________________________

*       Filed herewith.

**     Furnished herewith.

***    The following financial information of the Registrant for the quarter ended June 30, 2016, formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets as of June 30, 2016 (unaudited) and December 31, 2015, (ii) the Consolidated Statements of Operations and Comprehensive Income (Loss) for the three and six months ended June 30, 2016 and 2015 (unaudited), (iii) the Consolidated Statements of Changes in Equity for the six months ended June 30, 2016 (unaudited), (iv) the Consolidated Statement of Cash Flows for the six months ended June 30, 2016 and 2015 (unaudited) and (v) the Notes to the Consolidated Financial Statements (unaudited).

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.

EX-12.1

Exhibit 12.1

Whitestone REIT

Calculation of Consolidated Ratio of Earnings to Fixed Charges

(dollars in thousands)

	Six Months
	Ended June 30,		Year Ended December 31,
	2016		2015		2014		2013		2012
Earnings
Income (loss) from continuing operations	$	6,597	$	6,854	$	5,349	$	3,621	$	(165	)
Plus: Taxes	167		372		282		293		275
Plus: Fixed charges	9,817		15,122		10,672		10,089		9,084
Total earnings	$	16,581	$	22,348	$	16,303	$	14,003	$	9,194
Fixed charges
Interest expense	$	9,055	$	13,804	$	9,680	$	8,929	$	7,482
Plus: Capitalized Interest	132		106		93		114		176
Plus: Amortization of deferred financing costs	630		1,212		899		1,046		1,426
Total fixed charges	$	9,817	$	15,122	$	10,672	$	10,089	$	9,084
Ratio of earnings to fixed charges	1.69		1.48		1.53		1.39		1.01

EX-31.1

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I, James C. Mastandrea, certify that:

1. I have reviewed this quarterly report on Form 10-Q, for the period ended June 30, 2016, of Whitestone REIT;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: July 29, 2016

/s/ James C. Mastandrea

James C. Mastandrea

Chairman and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, David K. Holeman, certify that:

1. I have reviewed this quarterly report on Form 10-Q, for the period ended June 30, 2016, of Whitestone REIT;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: July 29, 2016

/s/ David K. Holeman

David K. Holeman

Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the quarterly report of Whitestone REIT, a Maryland real estate investment trust (the “Company”) on Form 10-Q for the period ended June 30, 2016, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, James C. Mastandrea, Chief Executive Officer of the Company, certify pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ James C. Mastandrea

James C. Mastandrea

Chairman and Chief Executive Officer

Date: July 29, 2016

EX-32.2

Exhibit 32.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the quarterly report of Whitestone REIT, a Maryland real estate investment trust (the “Company”) on Form 10-Q for the period ended June 30, 2016, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, David K. Holeman, Chief Financial Officer of the Company, certify pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ David K. Holeman

David K. Holeman

Chief Financial Officer

Date: July 29, 2016

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Document and Entity Information - shares	6 Months Ended
	Jun. 30, 2016	Jul. 25, 2016
Document and Entity Information [Abstract]
Entity Registrant Name	Whitestone REIT
Entity Central Index Key	0001175535
Current Fiscal Year End Date	--12-31
Entity Filer Category	Accelerated Filer
Document Type	10-Q
Document Period End Date	Jun. 30, 2016
Document Fiscal Year Focus	2016
Document Fiscal Period Focus	Q2
Amendment Flag	false
Entity Common Stock, Shares Outstanding		28,588,283

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Consolidated Balance Sheets - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
Real estate assets, at cost
Property	$ 844,807	$ 835,538
Accumulated depreciation	(99,004)	(89,580)
Total real estate assets	745,803	745,958
Cash and cash equivalents	5,927	2,587
Restricted cash	117	121
Marketable securities	467	435
Escrows and acquisition deposits	5,824	6,668
Accrued rents and accounts receivable, net of allowance for doubtful accounts	16,717	15,466
Unamortized lease commissions and loan costs	8,039	8,178
Prepaid expenses and other assets	3,129	2,672
Total assets	786,023	782,085
Liabilities:
Notes payable	500,553	497,955
Accounts payable and accrued expenses	30,182	24,051
Tenants' security deposits	5,578	5,254
Dividends and distributions payable	8,169	7,834
Total liabilities	544,482	535,094
Commitments and contingencies:	0	0
Equity:
Preferred shares, $0.001 par value per share; 50,000,000 shares authorized; none issued and outstanding as of June 30, 2016 and December 31, 2015, respectively	0	0
Common shares, $0.001 par value per share; 400,000,000 shares authorized; 28,138,047 and 26,991,493 issued and outstanding as of June 30, 2016 and December 31, 2015, respectively	28	27
Additional paid-in capital	372,650	359,971
Accumulated deficit	(126,300)	(116,895)
Accumulated other comprehensive loss	(8,448)	(129)
Total Whitestone REIT shareholders' equity	237,930	242,974
Noncontrolling interest in subsidiary	3,611	4,017
Total equity	241,541	246,991
Total liabilities and equity	$ 786,023	$ 782,085

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Consolidated Balance Sheets (Parenthetical) - $ / shares	Jun. 30, 2016	Dec. 31, 2015
Statement of Financial Position [Abstract]
Preferred shares, par value per share (in dollars per share)	$ 0.001	$ 0.001
Preferred shares, shares authorized (in shares)	50,000,000	50,000,000
Preferred shares, shares issued (in shares)	0	0
Preferred shares, shares outstanding (in shares)	0	0
Common shares, par value per share (in dollars per share)	$ 0.001	$ 0.001
Common shares, authorized (in shares)	400,000,000	400,000,000
Common shares, issued (in shares)	28,138,047	26,991,493
Common shares, outstanding (in shares)	28,138,047	26,991,493

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Consolidated Statements of Operations and Comprehensive Income (Loss) - USD ($) shares in Thousands, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Property revenues
Rental revenues	$ 19,649	$ 17,176	$ 39,071	$ 33,641
Other revenues	5,480	4,794	11,493	9,581
Total property revenues	25,129	21,970	50,564	43,222
Property expenses
Property operation and maintenance	4,683	4,339	9,477	8,422
Real estate taxes	3,304	2,925	6,658	5,829
Total property expenses	7,987	7,264	16,135	14,251
Other expenses (income)
General and administrative	5,413	4,998	10,249	9,483
Depreciation and amortization	5,521	4,675	10,913	9,239
Interest expense	4,748	3,516	9,552	6,924
Interest, dividend and other investment income	(78)	(162)	(175)	(171)
Total other expense	15,604	13,027	30,539	25,475
Income from continuing operations before gain on sale or disposal of properties or assets and income taxes	1,538	1,679	3,890	3,496
Provision for income taxes	(11)	(91)	(167)	(174)
Gain on sale of properties	0	0	2,890	0
Gain (loss) on sale or disposal of assets	(18)	5	(16)	(100)
Income from continuing operations	1,509	1,593	6,597	3,222
Loss from discontinued operations	0	(33)	0	(41)
Loss from discontinued operations	0	(33)	0	(41)
Net income	1,509	1,560	6,597	3,181
Less: Net income attributable to noncontrolling interests	25	26	116	53
Net income attributable to Whitestone REIT	$ 1,484	$ 1,534	$ 6,481	$ 3,128
Basic Earnings Per Share:
Income from continuing operations attributable to Whitestone REIT excluding amounts attributable to unvested restricted shares (in dollars per share)	$ 0.05	$ 0.06	$ 0.23	$ 0.13
Income from discontinued operations attributable to Whitestone REIT (in dollars per share)	0.00	0.00	0.00	0.00
Net income attributable to common shareholders excluding amounts attributable to unvested restricted shares (in dollars per share)	0.05	0.06	0.23	0.13
Diluted Earnings Per Share:
Income from continuing operations attributable to Whitestone REIT excluding amounts attributable to unvested restricted shares (in dollars per share)	0.05	0.06	0.22	0.12
Income from discontinued operations attributable to Whitestone REIT (in dollars per share)	0.00	0.00	0.00	0.00
Net income attributable to common shareholders excluding amounts attributable to unvested restricted shares (in dollars per share)	$ 0.05	$ 0.06	$ 0.22	$ 0.12
Weighted average number of common shares outstanding:
Basic (in shares)	26,819	22,869	26,712	22,724
Diluted (in shares)	27,513	23,401	27,501	23,314
Distributions declared per common share / OP unit (in dollars per share)	$ 0.285	$ 0.285	$ 0.57	$ 0.57
Consolidated Statements of Comprehensive Income (Loss)
Net income	$ 1,509	$ 1,560	$ 6,597	$ 3,181
Other comprehensive gain (loss)
Unrealized gain (loss) on cash flow hedging activities	(2,450)	43	(8,491)	(276)
Unrealized gain (loss) on available-for-sale marketable securities	36	(139)	31	(98)
Comprehensive income (loss)	(905)	1,464	(1,863)	2,807
Less: Comprehensive income (loss) attributable to noncontrolling interests	(16)	24	(33)	47
Comprehensive income (loss) attributable to Whitestone REIT	$ (889)	$ 1,440	$ (1,830)	$ 2,760

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Consolidated Statement of Changes in Equity - 6 months ended Jun. 30, 2016 - USD ($) $ in Thousands		Total	Common Shares [Member]	Additional Paid-In Capital [Member]	Accumulated Deficit [Member]	Accumulated Other Comprehensive Income (Loss) [Member]	Total Shareholders' Equity [Member]	Noncontrolling Interests [Member]
Beginning Balance, at Dec. 31, 2015		$ 246,991	$ 27	$ 359,971	$ (116,895)	$ (129)	$ 242,974	$ 4,017
Beginning Balance (in shares), at Dec. 31, 2015		26,991,493	26,991,000
Beginning Balance (in units), at Dec. 31, 2015								497,000
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Exchange of noncontrolling interest OP units for common shares (in shares)			13,000					13,000
Exchange of noncontrolling interest OP units for common shares		$ 0		105		(7)	98	$ (98)
Issuance of shares under dividend reinvestment plan (in shares)			4,000
Issuance of common shares, net of offering costs		10,600	$ 1	10,599			10,600
Issuance of common shares, net of offering costs (in shares)			736,000
Issuance of shares under dividend reinvestment plan		53		53			53
Repurchase of common shares (in shares)	[1]		(139,000)
Repurchase of common shares	[1]	(1,922)		(1,922)			(1,922)
Share-based compensation (in shares)			533,000
Share-based compensation		3,844		3,844			3,844
Distributions		(16,162)			(15,886)		(15,886)	(276)
Unrealized loss on change in value of cash flow hedge		(8,491)				(8,342)	(8,342)	(149)
Unrealized gain on change in fair value of available-for-sale marketable securities		31				30	30	1
Net income		6,597			6,481		6,481	116
Ending Balance, at Jun. 30, 2016		$ 241,541	$ 28	$ 372,650	$ (126,300)	$ (8,448)	$ 237,930	$ 3,611
Ending Balance (in shares), at Jun. 30, 2016		28,138,047	28,138,000
Ending Balance (in units), at Jun. 30, 2016								484,000

[1] During the six months ended June 30, 2016, 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.

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Consolidated Statements of Cash Flows - USD ($)	6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015
Cash flows from operating activities:
Net income from continuing operations	$ 6,597,000	$ 3,222,000
Loss from discontinued operations	0	(41,000)
Net income	6,597,000	3,181,000
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	10,913,000	9,239,000
Amortization of deferred loan costs	784,000	601,000
Amortization of notes payable discount	145,000	149,000
Gain on sale of marketable securities	0	(44,000)
Loss (gain) on sale or disposal of assets and properties	(2,874,000)	100,000
Bad debt expense	763,000	771,000
Share-based compensation	3,844,000	3,359,000
Changes in operating assets and liabilities:
Escrows and acquisition deposits	844,000	(772,000)
Accrued rent and accounts receivable	(2,014,000)	(1,767,000)
Unamortized lease commissions	(1,133,000)	(610,000)
Prepaid expenses and other assets	459,000	323,000
Accounts payable and accrued expenses	(2,537,000)	(235,000)
Tenants' security deposits	324,000	267,000
Net cash provided by operating activities	16,115,000	14,603,000
Net cash used in operating activities of discontinued operations	0	(41,000)
Cash flows from investing activities:
Acquisitions of real estate	0	(51,800,000)
Additions to real estate	(11,055,000)	(5,009,000)
Proceeds from sales of properties	3,957,000	0
Proceeds from sales of marketable securities	0	496,000
Net cash used in investing activities	(7,098,000)	(56,313,000)
Net cash used in investing activities of discontinued operations	0	0
Cash flows from financing activities:
Distributions paid to common shareholders	(15,497,000)	(13,127,000)
Distributions paid to OP unit holders	(277,000)	(224,000)
Proceeds from issuance of common shares, net of offering costs	10,600,000	49,725,000
Proceeds from revolving credit facility, net	3,000,000	9,500,000
Repayments of notes payable	(1,585,000)	(1,336,000)
Change in restricted cash	4,000	0
Repurchase of common shares	(1,922,000)	(772,000)
Net cash provided by (used in) financing activities	(5,677,000)	43,766,000
Net cash used in financing activities of discontinued operations	0	0
Net increase in cash and cash equivalents	3,340,000	2,015,000
Cash and cash equivalents at beginning of period	2,587,000	4,236,000
Cash and cash equivalents at end of period	5,927,000	6,251,000
Supplemental disclosure of cash flow information:
Cash paid for interest	9,169,000	6,409,000
Non cash investing and financing activities:
Disposal of fully depreciated real estate	253,000	48,000
Financed insurance premiums	1,060,000	1,057,000
Value of shares issued under dividend reinvestment plan	53,000	47,000
Value of common shares exchanged for OP units	98,000	81,000
Change in fair value of available-for-sale securities	31,000	(98,000)
Change in fair value of cash flow hedge	$ 8,491,000	$ (276,000)

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Interim Financial Statements

6 Months Ended

Jun. 30, 2016

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Interim Financial Statements

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, 2015 are derived from our audited consolidated financial statements as of that date.  The unaudited financial statements as of and for the period ended June 30, 2016 have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information on a basis consistent with the annual audited consolidated financial statements and with the instructions to Form 10-Q.

The consolidated financial statements presented herein reflect all adjustments which, in the opinion of management, are necessary for a fair presentation of the financial position of Whitestone and our subsidiaries as of June 30, 2016, and the results of operations for the three and six month periods ended June 30, 2016 and 2015, the consolidated statements of changes in equity for the six month period ended June 30, 2016 and cash flows for the six month periods ended June 30, 2016 and 2015.  All of these adjustments are of a normal recurring nature.  The results of operations for the interim periods are not necessarily indicative of the results expected for a full year.  The statements should be read in conjunction with the audited consolidated financial statements and the notes thereto which are included in our Annual Report on Form 10-K for the year ended December 31, 2015.

Business.  Whitestone was formed as a real estate investment trust (“REIT”) pursuant to the Texas Real Estate Investment Trust Act on August 20, 1998.  In July 2004, we changed our state of organization from Texas to Maryland pursuant to a merger where we merged directly with and into a Maryland REIT formed for the sole purpose of the reorganization and the conversion of each of the outstanding common shares of beneficial interest of the Texas entity into 1.42857 common shares of beneficial interest of the Maryland entity.  We serve as the general partner of Whitestone REIT Operating Partnership, L.P. (the “Operating Partnership”), which was formed on December 31, 1998 as a Delaware limited partnership.  We currently conduct substantially all of our operations and activities through the Operating Partnership.  As the general partner of the Operating Partnership, we have the exclusive power to manage and conduct the business of the Operating Partnership, subject to certain customary exceptions.  As of June 30, 2016 and December 31, 2015, Whitestone owned and operated 69 and 70 commercial properties, respectively, in and around Austin, Chicago, Dallas-Fort Worth, Houston, Phoenix and San Antonio.

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Summary of Significant Accounting Policies

6 Months Ended

Jun. 30, 2016

Accounting Policies [Abstract]

Significant Accounting Policies

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Consolidation.  We are the sole general partner of the Operating Partnership and possess full legal control and authority over the operations of the Operating Partnership.  As of June 30, 2016 and December 31, 2015, 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.  All significant inter-company balances have been eliminated. Noncontrolling interests in the accompanying consolidated financial statements represents the share of equity and earnings of the Operating Partnership allocable to holders of partnership interests other than us.  Net income or loss is allocated to noncontrolling interests based on the weighted average percentage ownership of the Operating Partnership during the period.  Issuance of additional common shares of beneficial interest in Whitestone (the “common shares”) and units of limited partnership interest in the Operating Partnership that are convertible into cash or, at our option, common shares on a one-for-one basis (the “OP units”) changes the ownership interests of both the noncontrolling interests and Whitestone.

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

Use of Estimates.   The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates that we use include the estimated fair values of properties acquired, the estimated useful lives for depreciable and amortizable assets and costs, the estimated allowance for doubtful accounts, the estimated fair value of interest rate swaps and the estimates supporting our impairment analysis for the carrying values of our real estate assets.  Actual results could differ from those estimates.

Reclassifications.  We have reclassified certain prior period amounts in the accompanying consolidated financial statements in order to be consistent with the current period presentation.  During the six months ended June 30, 2016, we reclassified certain deferred financing costs, previously classified as an asset as a direct reduction from the carrying amount of certain debt liabilities for all periods presented. Deferred financing costs related to our unsecured line of credit have not been reclassified. See Note 6 for additional information. These reclassifications had no effect on net income or equity.

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 million4.99% Note, due January 6, 2024 (See Note 6), 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.

Derivative Instruments and Hedging Activities. We utilize derivative financial instruments, principally interest rate swaps, to manage our exposure to fluctuations in interest rates. We have established policies and procedures for risk assessment, and the approval, reporting and monitoring of derivative financial instruments. We recognize our interest rate swaps as cash flow hedges with the effective portion of the changes in fair value recorded in comprehensive income (loss) and subsequently reclassified into earnings in the period that the hedged transaction affects earnings. Any ineffective portion of a cash flow hedges' change in fair value is recorded immediately into earnings. Our cash flow hedges are determined using Level 2 inputs under ASC 820. Level 2 inputs represent quoted prices in active markets for similar assets or liabilities; quoted prices in markets that are not active; and model-derived valuations whose inputs are observable. As of June 30, 2016, we consider our cash flow hedges to be highly effective.

Development Properties. Land, buildings and improvements are recorded at cost. Expenditures related to the development of real estate are carried at cost which includes capitalized carrying charges and development costs. Carrying charges (interest, real estate taxes, loan fees, and direct and indirect development costs related to buildings under construction), are capitalized as part of construction in progress. The capitalization of such costs ceases when the property, or any completed portion, becomes available for occupancy. For the three months ended June 30, 2016, approximately $105,000 and $16,000 in interest expense and real estate taxes, respectively, were capitalized, and for the six months ended June 30, 2016, approximately $132,000 and $32,000 in interest expense and real estate taxes, respectively, were capitalized. For the three months ended June 30, 2015, approximately $32,000 and $21,000 in interest expense and real estate taxes, respectively, were capitalized, and for the six months ended June 30, 2015, approximately $58,000 and $37,000 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.

Share-Based Compensation.   From time to time, we award nonvested restricted common share awards or restricted common share unit awards, which may be converted into common shares, to executive officers and employees under our 2008 Long-Term Equity Incentive Ownership Plan (the “2008 Plan”).  The vast majority of the awarded shares and units vest when certain performance conditions are met.  We recognize compensation expense when achievement of the performance conditions is probable based on management's most recent estimates using the fair value of the shares as of the grant date. We recognized $1,819,000 and $1,669,000 in share-based compensation for the three months ended June 30, 2016 and 2015, respectively, and we recognized $3,844,000 and $3,343,000 in share-based compensation for the six months ended June 30, 2016 and 2015, respectively.

Noncontrolling Interests.  Noncontrolling interests is 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's equity.  On the consolidated statements of operations, subsidiaries are reported at the consolidated amount, including both the amount attributable to Whitestone and noncontrolling interests.  The consolidated statement of changes in equity is included for quarterly financial statements, including beginning balances, activity for the period and ending balances for shareholders' equity, noncontrolling interests and total equity.

See our Annual Report on Form 10-K for the year ended December 31, 2015 for further discussion on significant accounting policies.

Recent Accounting Pronouncements.  In April 2015, the FASB issued guidance requiring that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct reduction from the carrying amount of that debt liability, consistent with the presentation of debt discounts. In August 2015, the FASB issued guidance to clarify that debt issuance costs related to line-of-credit agreements may still be presented as an asset and subsequently amortized ratably over the term of such arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit. This guidance was effective for reporting periods beginning on or after December 15, 2015 and is to be applied retrospectively. We have adopted this guidance for all periods presented.

In February 2016, the FASB issued guidance requiring lessees to recognize a lease liability and a right-of-use asset for all leases. Lessor accounting will remain largely unchanged. The guidance will also require new qualitative and quantitative disclosures to help financial statement users better understand the timing, amount and uncertainty 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 of this guidance and its 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. This guidance will be effective for reporting periods beginning on or after December 15, 2016, and interim periods within those fiscal years. We are currently evaluating the impact of this guidance and its impact on our consolidated financial statements.

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Marketable Securities

6 Months Ended

Jun. 30, 2016

Investments, Debt and Equity Securities [Abstract]

Marketable Securities

MARKETABLE SECURITIES

All of our marketable securities were classified as available-for-sale securities as of June 30, 2016 and December 31, 2015. Available-for-sale securities consisted of the following (in thousands):

	June 30, 2016
	Amortized Cost		Gains in Accumulated Other Comprehensive Income (Loss)		Losses in Accumulated Other Comprehensive Income (Loss)			Estimated Fair Value
Real estate sector common stock	$	654	$	—	$	(187	)	$	467
Total available-for-sale securities	$	654	$	—	$	(187	)	$	467

	December 31, 2015
	Amortized Cost		Gains in Accumulated Other Comprehensive Income (Loss)		Losses in Accumulated Other Comprehensive Income (Loss)			Estimated Fair Value
Real estate sector common stock	$	654	$	—	$	(219	)	$	435
Total available-for-sale securities	$	654	$	—	$	(219	)	$	435

During the three and six months ended June 30, 2016, no available-for-sale securities were sold. During the three and six months ended June 30, 2015, available-for-sale securities were sold for total proceeds of $496,000. The gross realized gain on these sales during the three months ended June 30, 2015 was $44,000. 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 securities in the amount of $187,000 and $232,000 for the six months ended June 30, 2016 and 2015, respectively, has been included in accumulated other comprehensive income (loss).

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Accrued Rents and Accounts Receivable, Net

6 Months Ended

Jun. 30, 2016

Receivables [Abstract]

Accrued Rent and Accounts Receivable, Net

ACCRUED RENTS AND ACCOUNTS RECEIVABLE, NET

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

	June 30, 2016			December 31, 2015
Tenant receivables	$	12,832		$	10,494
Accrued rents and other recoveries	11,212			11,619
Allowance for doubtful accounts	(7,327		)	(6,647		)
Total	$	16,717		$	15,466

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Unamortized Leasing Commissions and Loan Costs

6 Months Ended

Jun. 30, 2016

Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]

Unamortized Leasing Comissions and Loan Costs

UNAMORTIZED LEASE COMMISSIONS AND LOAN COSTS

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

	June 30, 2016			December 31, 2015
Lease commissions	$	7,921		$	7,226
Deferred financing cost	4,070			4,070
Total cost	11,991			11,296
Less: lease commissions accumulated amortization	(3,318		)	(2,960		)
Less: deferred financing cost accumulated amortization	(634		)	(158		)
Total cost, net of accumulated amortization	$	8,039		$	8,178

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Debt

6 Months Ended

Jun. 30, 2016

Debt Disclosure [Abstract]

Debt Disclosure

DEBT

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

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

Description	June 30, 2016			December 31, 2015
Fixed rate notes
$10.5 million, LIBOR plus 2.00% Note, due September 24, 2018 (1)	$	10,100		$	10,220
$50.0 million, 0.84% plus 1.35% to 1.90% Note, due October 30, 2020 (2)	50,000			50,000
$50.0 million, 1.50% plus 1.35% to 1.90% Note, due January 29, 2021 (3)	50,000			50,000
$100.0 million, 1.73% plus 1.65% to 2.25% Note, due October 30, 2022 (4)	100,000			100,000
$37.0 million 3.76% Note, due December 1, 2020	34,661			35,146
$6.5 million 3.80% Note, due January 1, 2019	6,105			6,190
$19.0 million 4.15% Note, due December 1, 2024	19,000			19,000
$20.2 million 4.28% Note, due June 6, 2023	19,876			20,040
$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
$16.5 million 4.97% Note, due September 26, 2023	16,412			16,450
$15.1 million 4.99% Note, due January 6, 2024	15,060			15,060
$9.2 million, Prime Rate less 2.00% Note, due December 29, 2017 (5)	7,878			7,886
$2.6 million 5.46% Note, due October 1, 2023	2,531			2,550
$11.1 million 5.87% Note, due August 6, 2016	11,152			11,305
$1.1 million 2.97% Note, due November 28, 2016	517			—
Floating rate notes
Unsecured line of credit, LIBOR plus 1.40% to 1.95%, due October 30, 2019	130,600			127,600
Total notes payable principal	502,192			499,747
Less deferred financing costs, net of accumulated amortization	(1,639		)	(1,792		)
Total notes payable	$	500,553		$	497,955

⁽¹⁾  Promissory note includes an interest rate swap that fixed the interest rate at 3.55% for the duration of the term.

⁽²⁾  Promissory note includes an interest rate swap that fixed the LIBOR portion of Term Loan 1 (as defined below) at 0.84% through February 3, 2017 and 1.75% beginning February 3, 2017 through October 30, 2020.

⁽³⁾  Promissory note includes an 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 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%.

On November 7, 2014, we, through our Operating Partnership, entered into an unsecured revolving credit facility (the “2014 Facility”) with the lenders party thereto, with BMO Capital Markets, Wells Fargo Securities, LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated, and U.S. Bank, National Association, as co-lead arrangers and joint book runners, and Bank of Montreal, as administrative agent (the “Agent”). The 2014 Facility amended and restated our previous unsecured revolving credit facility. On October 30, 2015, we, through our Operating Partnership, entered into the First Amendment to the 2014 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 made the following amendments to the 2014 Facility:

• extended the maturity date of the $300 million unsecured revolving credit facility under the 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; and

• extended 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 the Facility accrue interest (at the Operating Partnership's option) at a Base Rate or an Adjusted LIBOR plus an applicable margin based upon our then existing leverage. The applicable margin for Adjusted LIBOR borrowings ranges from 1.40% to 1.95% for the Revolver and 1.35% to 2.25% for the Term Loans. Base Rate means the higher of: (a) the Agent's prime commercial rate, (b) the sum of (i) the average rate quoted by the Agent by two or more 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 Governors of the Federal Reserve System on eurocurrency liabilities.

We serve as the guarantor for funds borrowed by the Operating Partnership under the Facility. The 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 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.

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. As of June 30, 2016, $330.6 million was drawn on the Facility, and our remaining borrowing capacity was $169.4 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.

As of June 30, 2016, our $171.1 million in secured debt was collateralized by 20 properties with a carrying value of $212.6 million.  Our loans contain restrictions that would require the payment of prepayment penalties for the acceleration of outstanding debt and are secured by deeds of trust on certain of our properties and by assignment of the rents and leases associated with those properties.  As of June 30, 2016, we were in compliance with all loan covenants.

Scheduled maturities of our outstanding debt as of June 30, 2016 were as follows (in thousands):

Year	Amount Due
2016	$	12,722
2017	10,213
2018	12,136
2019	138,649
2020	82,827
Thereafter	245,645
Total	$	502,192

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Derivatives and Hedging Activities

6 Months Ended

Jun. 30, 2016

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivatives and Hedging Activities

DERIVATIVES AND HEDGING ACTIVITIES

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

	Balance Sheet Location	Estimated Fair Value
Interest rate swaps:
June 30, 2016	Accounts payable and accrued expenses	$	8,933
December 31, 2015	Accounts payable and accrued expenses	$	617

On November 19, 2015, we, through our Operating Partnership, entered into an interest rate swap with Bank of Montreal that fixed the LIBOR portion of Term Loan 3 under the Facility at 1.725%. In the fourth quarter of 2015, pursuant to the terms of the agreement governing the interest rate swap, Bank of Montreal assigned $35.0 million of the swap to U.S. Bank, National Association, and $15.0 million of the swap to SunTrust Bank. See Note 6 for additional information regarding the Facility. The swap began on November 30, 2015 and will mature on October 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 (loss) 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.

On November 19, 2015, we, through our Operating Partnership, entered into an interest rate swap with Bank of Montreal that fixed the LIBOR portion of Term Loan 1 under the Facility at 1.75%. 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 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 million of the swap to SunTrust Bank. See Note 6 for additional information regarding the Facility. The swap will begin on February 3, 2017 and will mature on October 30, 2020. 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 (loss) 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.

On November 19, 2015, we, through our Operating Partnership, entered into an interest rate swap with Bank of Montreal that fixed the LIBOR portion of Term Loan 2 under the Facility at 1.50%. 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 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 million of the swap to SunTrust Bank. See Note 6 for additional information regarding the Facility. 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 (loss) 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.

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

	Amount Recognized as Comprehensive Income (Loss)			Location of Loss Recognized in Earnings	Amount of Loss Recognized in Earnings (1)
Three months ended June 30, 2016	$	(2,450	)	Interest expense	$	(614	)
Three months ended June 30, 2015	$	43		Interest expense	$	(203	)
Six months ended June 30, 2016	$	(8,491	)	Interest expense	$	(1,208	)
Six months ended June 30, 2015	$	(276	)	Interest expense	$	(410	)

⁽¹⁾  We did not recognize any ineffective portion of our interest rate swaps in earnings for the three and six months ended June 30, 2016 and 2015.

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Earnings (Loss) Per Share

6 Months Ended

Jun. 30, 2016

Earnings Per Share [Abstract]

Earnings Per Share

EARNINGS PER SHARE

Basic earnings per share for our common shareholders is calculated by dividing income from continuing operations excluding amounts 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 amounts attributable to unvested restricted common shares and the net income attributable to noncontrolling interests by the weighted average number of common shares including any dilutive unvested restricted common shares.

Certain of our performance-based restricted common shares are considered participating securities that require the use of the two-class method for the computation of basic and diluted earnings per share.  During the three months ended June 30, 2016 and 2015, 484,422 and 390,323 OP units, respectively, were excluded from the calculation of diluted earnings per share because their effect would be anti-dilutive, and during the six months ended June 30, 2016 and 2015, 487,722 and 391,455 OP units, respectively, were excluded from the calculation of diluted earnings per share because their effect would be anti-dilutive.

For the three months ended June 30, 2016 and 2015, distributions of $197,000 and $172,000, respectively, were made to holders of certain restricted common shares, $0 and $9,000, respectively, of which were charged against earnings. For the six months ended June 30, 2016 and 2015, distributions of $352,000 and $288,000, respectively, were made to holders of certain restricted common shares, $0 and $18,000, respectively, of which were charged against earnings. See Note 11 for information related to restricted common shares under the 2008 Plan.

	Three Months Ended June 30,						Six Months Ended June 30,
(in thousands, except per share data)	2016			2015			2016			2015
Numerator:
Income from continuing operations	$	1,509		$	1,593		$	6,597		$	3,222
Less: Net income attributable to noncontrolling interests	(25		)	(26		)	(116		)	(54		)
Distributions paid on unvested restricted shares	(197		)	(163		)	(352		)	(270		)
Income from continuing operations attributable to Whitestone REIT excluding amounts attributable to unvested restricted shares	1,287			1,404			6,129			2,898
Income from discontinued operations	—			(33		)	—			(41		)
Less: Net income attributable to noncontrolling interests	—			—			—			1
Income from discontinued operations attributable to Whitestone REIT	—			(33		)	—			(40		)
Net income attributable to common shareholders excluding amounts attributable to unvested restricted shares	$	1,287		$	1,371		$	6,129		$	2,858
Denominator:
Weighted average number of common shares - basic	26,819			22,869			26,712			22,724
Effect of dilutive securities:
Unvested restricted shares	694			532			789			590
Weighted average number of common shares - dilutive	27,513			23,401			27,501			23,314
Earnings Per Share:
Basic:
Income from continuing operations attributable to Whitestone REIT excluding amounts attributable to unvested restricted shares	$	0.05		$	0.06		$	0.23		$	0.13
Income from discontinued operations attributable to Whitestone REIT	0.00			0.00			0.00			0.00
Net income attributable to common shareholders excluding amounts attributable to unvested restricted shares	$	0.05		$	0.06		$	0.23		$	0.13
Diluted:
Income from continuing operations attributable to Whitestone REIT excluding amounts attributable to unvested restricted shares	$	0.05		$	0.06		$	0.22		$	0.12
Income from discontinued operations attributable to Whitestone REIT	0.00			0.00			0.00			0.00
Net income attributable to common shareholders excluding amounts attributable to unvested restricted shares	$	0.05		$	0.06		$	0.22		$	0.12

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Income Taxes

6 Months Ended

Jun. 30, 2016

Income Tax Disclosure [Abstract]

Income Taxes

INCOME TAXES

With the exception of our taxable REIT subsidiaries, federal income taxes are generally not provided because we intend to and believe we qualify as a REIT under the provisions of the Internal Revenue Code (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.

Income earned by our taxable REIT subsidiary, Whitestone Davenport TRS LLC (“Davenport TRS”), is subject to federal income tax. For the six months ended June 30, 2016, we recognized $54,000 in income tax expense related to Davenport TRS for the 2016 taxable year.

Taxable income differs from net income for financial reporting purposes principally due to differences in the timing of recognition of interest, real estate taxes, depreciation and rental revenue. We recorded $49,000 in credits to tax expense during the six months ended June 30, 2016 for the 2015 taxable year.

We are subject to the Texas Margin Tax, which is computed by applying the applicable tax rate (0.75% for us) to the profit margin, which generally will be determined for us as total revenue less a 30% standard deduction.  Although the Texas Margin Tax is not an income tax, FASB ASC 740, “Income Taxes” applies to the Texas Margin Tax.  For the three months ended June 30, 2016 and 2015, we recognized approximately $48,000 and $106,000 in margin tax provision, respectively, and for the six months ended June 30, 2016 and 2015, we recognized approximately $162,000 and $188,000 in margin tax provision, respectively.

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Equity

6 Months Ended

Jun. 30, 2016

Stockholders' Equity Note [Abstract]

Equity

EQUITY

Common Shares

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

Equity Offerings

On June 26, 2015, we completed the sale of 3,750,000 common shares, $0.001 par value per share, at a purchase price of $13.3386 per share. Total net proceeds from the offering, after deducting offering expenses, were approximately $49.7 million, which we contributed to the Operating Partnership in exchange for OP units. The Operating Partnership used the net proceeds from the offering to repay a portion of the Facility and for general corporate purposes.

On June 4, 2015, we entered into six amended and restated equity distribution agreements for an at-the-market equity distribution program (the “2015 equity distribution agreements”). Pursuant to the terms and conditions of the 2015 equity distribution agreements, we can issue and sell up to an aggregate of $50 million of our common shares. 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 be made in transactions that will be deemed to be “at-the-market” offerings as defined in Rule 415 under the Securities Act. We have no obligation to sell any of our common shares, and can at any time suspend offers under the 2015 equity distribution agreements or terminate the 2015 equity distribution agreements. During the three and six months ended June 30, 2016, we sold 735,755 common shares under the 2015 equity distribution agreements, with net proceeds to us of approximately $10.6 million. In connection with such sales, we paid compensation of approximately $0.2 million to the sales agents. We had not sold any common shares under the 2015 equity distribution agreements as of June 30, 2015.

Operating Partnership Units

Substantially all of our business is conducted through our Operating Partnership.  We are the sole general partner of the Operating Partnership.  As of June 30, 2016, we owned a 98.3% interest in the Operating Partnership.

Limited partners in the Operating Partnership holding OP units have the right to redeem their OP units for cash or, at our option, common shares at a ratio of one OP unit for one common share.  Distributions to OP unit holders are paid at the same rate per unit as distributions per share to holders of Whitestone common shares.  As of June 30, 2016 and December 31, 2015, there were 28,501,242 and 27,367,704 OP units outstanding, respectively.  We owned 28,017,225 and 26,870,671 OP units as of June 30, 2016 and December 31, 2015, respectively. The balance of the OP units is owned by third parties, including certain members of our board of trustees.  Our weighted average share ownership in the Operating Partnership was approximately 98.3% and 98.4% for the three months ended June 30, 2016 and 2015, respectively, and 98.2% and 98.3% for the six months ended June 30, 2016 and 2015, respectively. During the three months ended June 30, 2016 and 2015, 915 and 802 OP units, respectively, were redeemed for an equal number of common shares, and during thesix months ended June 30, 2016 and 2015, 13,016 and 8,584 OP units, respectively, were redeemed for an equal number of common shares.

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 during 2015 and the six months ended June 30, 2016 (in thousands, except per share/unit data):

	Common Shares				Noncontrolling OP Unit Holders				Total
Quarter Paid	Distributions Per Common Share		Amount Paid		Distributions Per OP Unit		Amount Paid		Amount Paid
2016
Second Quarter	$	0.2850	$	7,786	$	0.2850	$	138	$	7,924
First Quarter	0.2850		7,711		0.2850		139		7,850
Total	$	0.5700	$	15,497	$	0.5700	$	277	$	15,774
2015
Fourth Quarter	$	0.2850	$	7,666	$	0.2850	$	143	$	7,809
Third Quarter	0.2850		7,664		0.2850		122		7,786
Second Quarter	0.2850		6,601		0.2850		111		6,712
First Quarter	0.2850		6,526		0.2850		113		6,639
Total	$	1.1400	$	28,457	$	1.1400	$	489	$	28,946

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Incentive Share Plan

6 Months Ended

Jun. 30, 2016

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Employee Incentive Share Plan

INCENTIVE SHARE PLAN

On July 29, 2008, our shareholders approved the 2008 Plan. On December 22, 2010, our board of trustees amended 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 converted into 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 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 issued to or held by Whitestone).

The Compensation Committee of our board of trustees administers the 2008 Plan, except with respect to awards to non-employee trustees, for which the 2008 Plan is administered by our board of trustees.  The Compensation Committee is authorized to grant share options, including both incentive share options and non-qualified share options, as well as share appreciation rights, either with or without a related option. The Compensation Committee is also authorized to grant restricted common shares, restricted common share units, performance awards and other share-based awards. 

On 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 51 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.

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.

A summary of the share-based incentive plan activity as of and for the six months ended June 30, 2016 is as follows:

	Shares		Weighted Average Grant Date Fair Value
Non-vested at January 1, 2016	2,288,260		$	14.34
Granted	514,150		14.81
Vested	(371,143	)	14.42
Forfeited	(30,564	)	14.13
Non-vested at June 30, 2016	2,400,703		$	14.43
Available for grant at June 30, 2016	579,241

A summary of our non-vested and vested shares activity for the six months ended June 30, 2016 and years ended December 31, 2015, 2014 and 2013 is presented below:

	Shares Granted			Shares Vested
	Non-Vested Shares Issued	Weighted Average Grant-Date Fair Value		Vested Shares		Total Vest-Date Fair Value
						(in thousands)
Six Months Ended June 30, 2016	514,150	$	14.81	(371,143	)	$	5,353
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
Year Ended December 31, 2013	328,005	15.43		(15,270	)	224

Total compensation recognized in earnings for share-based payments was $1,819,000 and $1,669,000 for the three months ended June 30, 2016 and 2015, respectively, and $3,844,000 and $3,343,000 for the six months ended June 30, 2016 and 2015, respectively.

Based on our current financial projections, we expect approximately 83%of the unvested awards to vest over the next36months. As ofJune 30, 2016, there was approximately $7.5 million in unrecognized compensation cost related to outstanding non-vested performance-based shares, which are expected to vest over a period of 36 months and approximately $8.3 million in unrecognized compensation cost related to outstanding non-vested time-based shares, which are expected to be recognized over a period of approximately 18 months beginning on July 1, 2016.

We expect to record approximately $9.4 millionin non-cash share-based compensation expense in 2016 and$10.2 millionsubsequent to 2016. The unrecognized share-based compensation cost is expected to vest over a weighted average period of22months.The dilutive impact of the performance-based shares will be included in the denominator of the earnings per share calculation beginning in the period that the performance conditions are expected to be met.

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Grants to Trustees

6 Months Ended

Jun. 30, 2016

Grants to Trustees [Abstract]

Grants To Trustees

GRANTS TO TRUSTEES

On December 21, 2015, each of our four independent trustees and one trustee emeritus was granted 1,500 common shares, which vested immediately. The 7,500 common shares granted to our trustees had a grant fair value of $12.10 per share. On December 21, 2015, one of our independent trustees elected to receive a total of 992 common shares with a grant date fair value of $12.10 in lieu of cash for board fees. The fair value of the shares granted were determined using quoted prices available on the date of grant.

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Segment Information

6 Months Ended

Jun. 30, 2016

Segment Reporting [Abstract]

Segment Information

SEGMENT INFORMATION

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

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Real Estate

6 Months Ended

Jun. 30, 2016

Real Estate [Abstract]

Real Estate Disclosure

REAL ESTATE

Property Acquisitions. On August 28, 2015, we acquired the hard corner at our Gilbert Tuscany Village property for approximately $1.7 million in cash and net prorations. The 14,603 square foot single-tenant property was vacant at the time of purchase and is located in Gilbert, Arizona.

On August 26, 2015, we acquired two parcels of undeveloped land totaling 3.12 acres for 120,000 OP units. The OP units, are convertible on a one-for-one basis for Whitestone REIT common shares, subject to certain restrictions. The undeveloped land parcels are adjacent to our Keller Place property.

On August 26, 2015, we acquired Keller Place, a property that meets our Community Centered Property™ strategy, for approximately $12.0 million in cash and net prorations. The 93,541 square foot property was 92% leased at the time of purchase and is located in the Keller suburb of Fort Worth, Texas.

On August 26, 2015, we acquired Quinlan Crossing, a property that meets our Community Centered Property™ strategy, for approximately $37.5 million in cash and net prorations. The 109,892 square foot property was 95% leased at the time of purchase and is located in Austin, Texas.

On July 2, 2015, we acquired Parkside Village North, a property that meets our Community Centered Property™ strategy, for approximately $12.5 million in cash and net prorations. The 27,045 square foot property was 100% leased at the time of purchase and is located in Austin, Texas.

On July 2, 2015, we acquired Parkside Village South, a property that meets our Community Centered Property™ strategy, for approximately $32.5 million in cash and net prorations. The 90,101 square foot property was 100% leased at the time of purchase and is located in Austin, Texas.

On May 27, 2015, we acquired Davenport Village, a property that meets our Community Centered Property™ strategy, for approximately $45.5 million in cash and net prorations. The 128,934 square foot property was 85% leased at the time of purchase and is located in Austin, Texas.

On March 31, 2015, we acquired City View Village, a property that meets our Community Centered Property™ strategy, for approximately $6.3 million in cash and net prorations. The 17,870 square foot property was 100% leased at the time of purchase and is located in San Antonio, Texas.

Property Dispositions. On March 3, 2016, we completed the sale of Brookhill, located in Houston, Texas, for $3.1 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 Brookhill in discontinued operations as it did not meet the definition of discontinued operations.

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.

Discontinued Operations. On December 31, 2014, we completed the sale of three office buildings (Zeta, Royal Crest and Featherwood), located in the Clear Lake suburb of Houston, Texas, for $10.3 million. This disposition was pursuant to our strategy of recycling capital by disposing of non-core properties that do not fit our Community Centered Property™ strategy. As part of the transaction, we provided short-term seller financing of $2.5 million. We recorded a gain on sale of $4.4 million, including recognizing a $1.9 million gain on sale for the year ended December 31, 2014 and deferring the remaining $2.5 million gain on sale to be recognized upon receipt of principal payments on the financing provided by us.

The operating results for properties classified as discontinued operations consists of the following (in thousands):

	Three Months Ended June 30,					Six Months Ended June 30,
	2016		2015			2016		2015
Property revenues	$	—	$	—		$	—	$	1
Property expenses	—		36			—		44
Depreciation and amortization	—		—			—		—
Interest expense	—		—			—		—
Provision for income taxes	—		(2		)	—		(2		)
Gain on sale or disposal of assets	—		(1		)	—		—
Income from discontinued operations	$	—	$	(33	)	$	—	$	(41	)

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Summary of Significant Accounting Policies (Policies)

6 Months Ended

Jun. 30, 2016

Accounting Policies [Abstract]

Basis of Consolidation

Basis of Consolidation.  We are the sole general partner of the Operating Partnership and possess full legal control and authority over the operations of the Operating Partnership.  As of June 30, 2016 and December 31, 2015, 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.  All significant inter-company balances have been eliminated. Noncontrolling interests in the accompanying consolidated financial statements represents the share of equity and earnings of the Operating Partnership allocable to holders of partnership interests other than us.  Net income or loss is allocated to noncontrolling interests based on the weighted average percentage ownership of the Operating Partnership during the period.  Issuance of additional common shares of beneficial interest in Whitestone (the “common shares”) and units of limited partnership interest in the Operating Partnership that are convertible into cash or, at our option, common shares on a one-for-one basis (the “OP units”) changes the ownership interests of both the noncontrolling interests and Whitestone.

Basis of Accounting

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

Use of Estimates

Use of Estimates.   The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates that we use include the estimated fair values of properties acquired, the estimated useful lives for depreciable and amortizable assets and costs, the estimated allowance for doubtful accounts, the estimated fair value of interest rate swaps and the estimates supporting our impairment analysis for the carrying values of our real estate assets.  Actual results could differ from those estimates.

Reclassifications

Reclassifications.  We have reclassified certain prior period amounts in the accompanying consolidated financial statements in order to be consistent with the current period presentation.  During the six months ended June 30, 2016, we reclassified certain deferred financing costs, previously classified as an asset as a direct reduction from the carrying amount of certain debt liabilities for all periods presented. Deferred financing costs related to our unsecured line of credit have not been reclassified. See Note 6 for additional information. These reclassifications had no effect on net income or equity.

Marketable Securities

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.

Restricted Cash

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 million4.99% Note, due January 6, 2024 (See Note 6), 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.

Derivative Instruments and Hedging Activities

Derivative Instruments and Hedging Activities. We utilize derivative financial instruments, principally interest rate swaps, to manage our exposure to fluctuations in interest rates. We have established policies and procedures for risk assessment, and the approval, reporting and monitoring of derivative financial instruments. We recognize our interest rate swaps as cash flow hedges with the effective portion of the changes in fair value recorded in comprehensive income (loss) and subsequently reclassified into earnings in the period that the hedged transaction affects earnings. Any ineffective portion of a cash flow hedges' change in fair value is recorded immediately into earnings. Our cash flow hedges are determined using Level 2 inputs under ASC 820. Level 2 inputs represent quoted prices in active markets for similar assets or liabilities; quoted prices in markets that are not active; and model-derived valuations whose inputs are observable. As of June 30, 2016, we consider our cash flow hedges to be highly effective.

Development Properties

Development Properties. Land, buildings and improvements are recorded at cost. Expenditures related to the development of real estate are carried at cost which includes capitalized carrying charges and development costs. Carrying charges (interest, real estate taxes, loan fees, and direct and indirect development costs related to buildings under construction), are capitalized as part of construction in progress. The capitalization of such costs ceases when the property, or any completed portion, becomes available for occupancy. For the three months ended June 30, 2016, approximately $105,000 and $16,000 in interest expense and real estate taxes, respectively, were capitalized, and for the six months ended June 30, 2016, approximately $132,000 and $32,000 in interest expense and real estate taxes, respectively, were capitalized. For the three months ended June 30, 2015, approximately $32,000 and $21,000 in interest expense and real estate taxes, respectively, were capitalized, and for the six months ended June 30, 2015, approximately $58,000 and $37,000 in interest expense and real estate taxes, respectively, were capitalized.

Real Estate Held for Sale and Discontinued Operations

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.

Share-Based Compensation

Share-Based Compensation.   From time to time, we award nonvested restricted common share awards or restricted common share unit awards, which may be converted into common shares, to executive officers and employees under our 2008 Long-Term Equity Incentive Ownership Plan (the “2008 Plan”).  The vast majority of the awarded shares and units vest when certain performance conditions are met.  We recognize compensation expense when achievement of the performance conditions is probable based on management's most recent estimates using the fair value of the shares as of the grant date. We recognized $1,819,000 and $1,669,000 in share-based compensation for the three months ended June 30, 2016 and 2015, respectively, and we recognized $3,844,000 and $3,343,000 in share-based compensation for the six months ended June 30, 2016 and 2015, respectively.

Noncontrolling Interests

Noncontrolling Interests.  Noncontrolling interests is 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's equity.  On the consolidated statements of operations, subsidiaries are reported at the consolidated amount, including both the amount attributable to Whitestone and noncontrolling interests.  The consolidated statement of changes in equity is included for quarterly financial statements, including beginning balances, activity for the period and ending balances for shareholders' equity, noncontrolling interests and total equity.

Recent Accounting Pronouncements

Recent Accounting Pronouncements.  In April 2015, the FASB issued guidance requiring that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct reduction from the carrying amount of that debt liability, consistent with the presentation of debt discounts. In August 2015, the FASB issued guidance to clarify that debt issuance costs related to line-of-credit agreements may still be presented as an asset and subsequently amortized ratably over the term of such arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit. This guidance was effective for reporting periods beginning on or after December 15, 2015 and is to be applied retrospectively. We have adopted this guidance for all periods presented.

In February 2016, the FASB issued guidance requiring lessees to recognize a lease liability and a right-of-use asset for all leases. Lessor accounting will remain largely unchanged. The guidance will also require new qualitative and quantitative disclosures to help financial statement users better understand the timing, amount and uncertainty 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 of this guidance and its 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. This guidance will be effective for reporting periods beginning on or after December 15, 2016, and interim periods within those fiscal years. We are currently evaluating the impact of this guidance and its impact on our consolidated financial statements.

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Marketable Securities (Tables)

6 Months Ended

Jun. 30, 2016

Investments, Debt and Equity Securities [Abstract]

Schedule of Available-for-Sale Securities

All of our marketable securities were classified as available-for-sale securities as of June 30, 2016 and December 31, 2015. Available-for-sale securities consisted of the following (in thousands):

	June 30, 2016
	Amortized Cost		Gains in Accumulated Other Comprehensive Income (Loss)		Losses in Accumulated Other Comprehensive Income (Loss)			Estimated Fair Value
Real estate sector common stock	$	654	$	—	$	(187	)	$	467
Total available-for-sale securities	$	654	$	—	$	(187	)	$	467

	December 31, 2015
	Amortized Cost		Gains in Accumulated Other Comprehensive Income (Loss)		Losses in Accumulated Other Comprehensive Income (Loss)			Estimated Fair Value
Real estate sector common stock	$	654	$	—	$	(219	)	$	435
Total available-for-sale securities	$	654	$	—	$	(219	)	$	435

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Accrued Rents and Accounts Receivable, Net (Tables)

6 Months Ended

Jun. 30, 2016

Receivables [Abstract]

Schedule of Accrued Rent and Accounts Receivable, Net

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

	June 30, 2016			December 31, 2015
Tenant receivables	$	12,832		$	10,494
Accrued rents and other recoveries	11,212			11,619
Allowance for doubtful accounts	(7,327		)	(6,647		)
Total	$	16,717		$	15,466

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Unamortized Leasing Commissions and Loan Costs (Tables)

6 Months Ended

Jun. 30, 2016

Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]

Schedule of Unamortized Leasing Comissions and Loan Costs

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

	June 30, 2016			December 31, 2015
Lease commissions	$	7,921		$	7,226
Deferred financing cost	4,070			4,070
Total cost	11,991			11,296
Less: lease commissions accumulated amortization	(3,318		)	(2,960		)
Less: deferred financing cost accumulated amortization	(634		)	(158		)
Total cost, net of accumulated amortization	$	8,039		$	8,178

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Debt (Tables)

6 Months Ended

Jun. 30, 2016

Debt Disclosure [Abstract]

Schedule of Debt

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

Description	June 30, 2016			December 31, 2015
Fixed rate notes
$10.5 million, LIBOR plus 2.00% Note, due September 24, 2018 (1)	$	10,100		$	10,220
$50.0 million, 0.84% plus 1.35% to 1.90% Note, due October 30, 2020 (2)	50,000			50,000
$50.0 million, 1.50% plus 1.35% to 1.90% Note, due January 29, 2021 (3)	50,000			50,000
$100.0 million, 1.73% plus 1.65% to 2.25% Note, due October 30, 2022 (4)	100,000			100,000
$37.0 million 3.76% Note, due December 1, 2020	34,661			35,146
$6.5 million 3.80% Note, due January 1, 2019	6,105			6,190
$19.0 million 4.15% Note, due December 1, 2024	19,000			19,000
$20.2 million 4.28% Note, due June 6, 2023	19,876			20,040
$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
$16.5 million 4.97% Note, due September 26, 2023	16,412			16,450
$15.1 million 4.99% Note, due January 6, 2024	15,060			15,060
$9.2 million, Prime Rate less 2.00% Note, due December 29, 2017 (5)	7,878			7,886
$2.6 million 5.46% Note, due October 1, 2023	2,531			2,550
$11.1 million 5.87% Note, due August 6, 2016	11,152			11,305
$1.1 million 2.97% Note, due November 28, 2016	517			—
Floating rate notes
Unsecured line of credit, LIBOR plus 1.40% to 1.95%, due October 30, 2019	130,600			127,600
Total notes payable principal	502,192			499,747
Less deferred financing costs, net of accumulated amortization	(1,639		)	(1,792		)
Total notes payable	$	500,553		$	497,955

⁽¹⁾  Promissory note includes an interest rate swap that fixed the interest rate at 3.55% for the duration of the term.

⁽²⁾  Promissory note includes an interest rate swap that fixed the LIBOR portion of Term Loan 1 (as defined below) at 0.84% through February 3, 2017 and 1.75% beginning February 3, 2017 through October 30, 2020.

⁽³⁾  Promissory note includes an 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 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%.

Schedule of Maturities of Debt

Scheduled maturities of our outstanding debt as of June 30, 2016 were as follows (in thousands):

Year	Amount Due
2016	$	12,722
2017	10,213
2018	12,136
2019	138,649
2020	82,827
Thereafter	245,645
Total	$	502,192

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Derivatives and Hedging Activities (Tables)

6 Months Ended

Jun. 30, 2016

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Schedule of activity and fair value of interest rate swaps

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

	Balance Sheet Location	Estimated Fair Value
Interest rate swaps:
June 30, 2016	Accounts payable and accrued expenses	$	8,933
December 31, 2015	Accounts payable and accrued expenses	$	617

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

	Amount Recognized as Comprehensive Income (Loss)			Location of Loss Recognized in Earnings	Amount of Loss Recognized in Earnings (1)
Three months ended June 30, 2016	$	(2,450	)	Interest expense	$	(614	)
Three months ended June 30, 2015	$	43		Interest expense	$	(203	)
Six months ended June 30, 2016	$	(8,491	)	Interest expense	$	(1,208	)
Six months ended June 30, 2015	$	(276	)	Interest expense	$	(410	)

⁽¹⁾  We did not recognize any ineffective portion of our interest rate swaps in earnings for the three and six months ended June 30, 2016 and 2015.

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Earnings (Loss) Per Share (Tables)

6 Months Ended

Jun. 30, 2016

Earnings Per Share [Abstract]

Schedule of Earnings Per Share

	Three Months Ended June 30,						Six Months Ended June 30,
(in thousands, except per share data)	2016			2015			2016			2015
Numerator:
Income from continuing operations	$	1,509		$	1,593		$	6,597		$	3,222
Less: Net income attributable to noncontrolling interests	(25		)	(26		)	(116		)	(54		)
Distributions paid on unvested restricted shares	(197		)	(163		)	(352		)	(270		)
Income from continuing operations attributable to Whitestone REIT excluding amounts attributable to unvested restricted shares	1,287			1,404			6,129			2,898
Income from discontinued operations	—			(33		)	—			(41		)
Less: Net income attributable to noncontrolling interests	—			—			—			1
Income from discontinued operations attributable to Whitestone REIT	—			(33		)	—			(40		)
Net income attributable to common shareholders excluding amounts attributable to unvested restricted shares	$	1,287		$	1,371		$	6,129		$	2,858
Denominator:
Weighted average number of common shares - basic	26,819			22,869			26,712			22,724
Effect of dilutive securities:
Unvested restricted shares	694			532			789			590
Weighted average number of common shares - dilutive	27,513			23,401			27,501			23,314
Earnings Per Share:
Basic:
Income from continuing operations attributable to Whitestone REIT excluding amounts attributable to unvested restricted shares	$	0.05		$	0.06		$	0.23		$	0.13
Income from discontinued operations attributable to Whitestone REIT	0.00			0.00			0.00			0.00
Net income attributable to common shareholders excluding amounts attributable to unvested restricted shares	$	0.05		$	0.06		$	0.23		$	0.13
Diluted:
Income from continuing operations attributable to Whitestone REIT excluding amounts attributable to unvested restricted shares	$	0.05		$	0.06		$	0.22		$	0.12
Income from discontinued operations attributable to Whitestone REIT	0.00			0.00			0.00			0.00
Net income attributable to common shareholders excluding amounts attributable to unvested restricted shares	$	0.05		$	0.06		$	0.22		$	0.12

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Equity (Tables)

6 Months Ended

Jun. 30, 2016

Stockholders' Equity Note [Abstract]

Schedule 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 during 2015 and the six months ended June 30, 2016 (in thousands, except per share/unit data):

	Common Shares				Noncontrolling OP Unit Holders				Total
Quarter Paid	Distributions Per Common Share		Amount Paid		Distributions Per OP Unit		Amount Paid		Amount Paid
2016
Second Quarter	$	0.2850	$	7,786	$	0.2850	$	138	$	7,924
First Quarter	0.2850		7,711		0.2850		139		7,850
Total	$	0.5700	$	15,497	$	0.5700	$	277	$	15,774
2015
Fourth Quarter	$	0.2850	$	7,666	$	0.2850	$	143	$	7,809
Third Quarter	0.2850		7,664		0.2850		122		7,786
Second Quarter	0.2850		6,601		0.2850		111		6,712
First Quarter	0.2850		6,526		0.2850		113		6,639
Total	$	1.1400	$	28,457	$	1.1400	$	489	$	28,946

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Incentive Share Plan (Tables)

6 Months Ended

Jun. 30, 2016

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Schedule of Share-Based Incentive Plan Activity

A summary of the share-based incentive plan activity as of and for the six months ended June 30, 2016 is as follows:

	Shares		Weighted Average Grant Date Fair Value
Non-vested at January 1, 2016	2,288,260		$	14.34
Granted	514,150		14.81
Vested	(371,143	)	14.42
Forfeited	(30,564	)	14.13
Non-vested at June 30, 2016	2,400,703		$	14.43
Available for grant at June 30, 2016	579,241

Schedule of Nonvested and Vested Shares Activity

A summary of our non-vested and vested shares activity for the six months ended June 30, 2016 and years ended December 31, 2015, 2014 and 2013 is presented below:

	Shares Granted			Shares Vested
	Non-Vested Shares Issued	Weighted Average Grant-Date Fair Value		Vested Shares		Total Vest-Date Fair Value
						(in thousands)
Six Months Ended June 30, 2016	514,150	$	14.81	(371,143	)	$	5,353
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
Year Ended December 31, 2013	328,005	15.43		(15,270	)	224

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Real Estate (Tables)

6 Months Ended

Jun. 30, 2016

Real Estate [Abstract]

Schedule of operating results for properties classified as discontinued operations

The operating results for properties classified as discontinued operations consists of the following (in thousands):

	Three Months Ended June 30,					Six Months Ended June 30,
	2016		2015			2016		2015
Property revenues	$	—	$	—		$	—	$	1
Property expenses	—		36			—		44
Depreciation and amortization	—		—			—		—
Interest expense	—		—			—		—
Provision for income taxes	—		(2		)	—		(2		)
Gain on sale or disposal of assets	—		(1		)	—		—
Income from discontinued operations	$	—	$	(33	)	$	—	$	(41	)

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Interim Financial Statements (Details)	1 Months Ended
	Jul. 31, 2004 shares	Jun. 30, 2016 CommercialProperties	Dec. 31, 2015 CommercialProperties
Real Estate Properties [Line Items]
Reorganization and conversion, number of common shares (in shares) | shares	1.42857
Wholly Owned Properties [Member]
Real Estate Properties [Line Items]
Number of commercial properties | CommercialProperties		69	70

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Summary of Significant Accounting Policies (Details) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Accounting Policies [Abstract]
Conversion basis for common shares to OP units	1		1
Debt Instrument [Line Items]
Interest expense capitalized	$ 105,000	$ 32,000	$ 132,000	$ 58,000
Real estate tax capitalized	16,000	21,000	32,000	37,000
Share-based compensation	1,819,000	$ 1,669,000	3,844,000	$ 3,343,000
Anthem Marketplace Note [Member]
Debt Instrument [Line Items]
Face amount of debt	$ 15,100,000		$ 15,100,000
Stated interest rate	4.99%		4.99%

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Marketable Securities (Details) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015	Dec. 31, 2015
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	$ 654,000		$ 654,000		$ 654,000
Gains in Accumulated Other Comprehensive Income (Loss)	0		0		0
Losses in Accumulated Other Comprehensive Income (Loss)	(187,000)		(187,000)		(219,000)
Estimated Fair Value	467,000		467,000		435,000
Proceeds from sales of marketable securities	0	$ 496,000	0	$ 496,000
Gain on sale of marketable securities	44,000		0	44,000
Net unrealized holding loss on available-for-sale securities			(187,000)	$ (232,000)
Real Estate Common Stock [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	654,000		654,000		654,000
Gains in Accumulated Other Comprehensive Income (Loss)	0		0		0
Losses in Accumulated Other Comprehensive Income (Loss)	(187,000)		(187,000)		(219,000)
Estimated Fair Value	$ 467,000		$ 467,000		$ 435,000

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Accrued Rents and Accounts Receivable, Net (Details) - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
Receivables [Abstract]
Tenant receivables	$ 12,832	$ 10,494
Accrued rents and other recoveries	11,212	11,619
Allowance for doubtful accounts	(7,327)	(6,647)
Total	$ 16,717	$ 15,466

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Unamortized Leasing Commissions and Loan Costs (Details) - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]
Lease commissions	$ 7,921	$ 7,226
Deferred financing cost	4,070	4,070
Total cost	11,991	11,296
Less: lease commissions accumulated amortization	(3,318)	(2,960)
Less: deferred financing cost accumulated amortization	(634)	(158)
Total cost, net of accumulated amortization	$ 8,039	$ 8,178

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Debt (Schedule of Debt) (Details) - USD ($) $ in Thousands		6 Months Ended		12 Months Ended
	Nov. 07, 2014	Jun. 30, 2016	Jun. 30, 2015	Dec. 31, 2015	Dec. 31, 2014	Feb. 03, 2017	Aug. 08, 2012
Debt Instrument [Line Items]
Total notes payable principal		$ 502,192		$ 499,747
Less deferred financing costs, net of accumulated amortization		(1,639)		(1,792)
Total notes payable		500,553		497,955
Fixed rate notes | $10.5 million, LIBOR plus 2.00% Note, due September 24, 2018 | LIBOR Rate
Debt Instrument [Line Items]
Total notes payable principal		10,100		10,220
Face amount of debt		$ 10,500		10,500
Basis spread on variable rate		2.00%	2.00%
Fixed rate notes | $50.0 million, 0.84% plus 1.35% to 1.90% Note, due October 30, 2020
Debt Instrument [Line Items]
Total notes payable principal		$ 50,000		50,000
Face amount of debt				$ 50,000	$ 50,000
Imputed interest rate				0.84%	0.84%
Fixed rate notes | $50.0 million, 0.84% plus 1.35% to 1.90% Note, due October 30, 2020 | Minimum
Debt Instrument [Line Items]
Basis spread on variable rate				1.35%	1.35%
Fixed rate notes | $50.0 million, 0.84% plus 1.35% to 1.90% Note, due October 30, 2020 | Maximum
Debt Instrument [Line Items]
Basis spread on variable rate				1.90%	1.90%
Fixed rate notes | $50.0 million, 1.50% plus 1.35% to 1.90% Note, due January 29, 2021
Debt Instrument [Line Items]
Total notes payable principal		50,000		$ 50,000
Face amount of debt				$ 50,000	$ 50,000
Imputed interest rate				1.50%	1.50%
Fixed rate notes | $50.0 million, 1.50% plus 1.35% to 1.90% Note, due January 29, 2021 | Minimum
Debt Instrument [Line Items]
Basis spread on variable rate				1.35%	1.35%
Fixed rate notes | $50.0 million, 1.50% plus 1.35% to 1.90% Note, due January 29, 2021 | Maximum
Debt Instrument [Line Items]
Basis spread on variable rate				1.90%	1.90%
Fixed rate notes | $100.0 million, 1.73% plus 1.65% to 2.25% Note, due October 30, 2022
Debt Instrument [Line Items]
Total notes payable principal		100,000		$ 100,000
Face amount of debt				$ 100,000	$ 100,000
Imputed interest rate				1.73%	1.73%
Fixed rate notes | $100.0 million, 1.73% plus 1.65% to 2.25% Note, due October 30, 2022 | Minimum
Debt Instrument [Line Items]
Basis spread on variable rate				1.65%	1.65%
Fixed rate notes | $100.0 million, 1.73% plus 1.65% to 2.25% Note, due October 30, 2022 | Maximum
Debt Instrument [Line Items]
Basis spread on variable rate				2.25%	2.25%
Fixed rate notes | $37.0 million 3.76% Note, due December 1, 2020
Debt Instrument [Line Items]
Total notes payable principal		$ 34,661		$ 35,146
Stated interest rate		3.76%		3.76%
Face amount of debt		$ 37,000		$ 37,000
Fixed rate notes | $6.5 million 3.80% Note, due January 1, 2019
Debt Instrument [Line Items]
Total notes payable principal		$ 6,105		$ 6,190
Stated interest rate		3.80%		3.80%
Face amount of debt		$ 6,500		$ 6,500
Fixed rate notes | $19.0 million 4.15% Note, due December 1, 2024
Debt Instrument [Line Items]
Total notes payable principal		$ 19,000		$ 19,000
Stated interest rate		4.15%		4.15%
Face amount of debt		$ 19,000		$ 19,000
Fixed rate notes | $20.2 million 4.28% Note, due June 6, 2023
Debt Instrument [Line Items]
Total notes payable principal		$ 19,876		$ 20,040
Stated interest rate		4.28%		4.28%
Face amount of debt		$ 20,200		$ 20,200
Fixed rate notes | $14.0 million 4.34% Note, due September 11, 2024
Debt Instrument [Line Items]
Total notes payable principal		$ 14,000		$ 14,000
Stated interest rate		4.34%		4.34%
Face amount of debt		$ 14,000		$ 14,000
Fixed rate notes | $14.3 million 4.34% Note, due September 11, 2024
Debt Instrument [Line Items]
Total notes payable principal		$ 14,300		$ 14,300
Stated interest rate		4.34%		4.34%
Face amount of debt		$ 14,300		$ 14,300
Fixed rate notes | $16.5 million 4.97% Note, due September 26, 2023
Debt Instrument [Line Items]
Total notes payable principal		$ 16,412		$ 16,450
Stated interest rate		4.97%		4.97%
Face amount of debt		$ 16,500		$ 16,500
Fixed rate notes | $15.1 million 4.99% Note, due January 6, 2024
Debt Instrument [Line Items]
Total notes payable principal		$ 15,060		$ 15,060
Stated interest rate		4.99%		4.99%
Face amount of debt		$ 15,100		$ 15,100
Fixed rate notes | $9.2 million, Prime Rate less 2.00% Note, due December 29, 2017
Debt Instrument [Line Items]
Unamortized discount							$ 1,300
Imputed interest rate							4.13%
Fixed rate notes | $9.2 million, Prime Rate less 2.00% Note, due December 29, 2017 | Prime Rate
Debt Instrument [Line Items]
Total notes payable principal		7,878		7,886
Face amount of debt		$ 9,200		9,200
Basis spread on variable rate		2.00%	2.00%
Fixed rate notes | $2.6 million 5.46% Note, due October 1, 2023
Debt Instrument [Line Items]
Total notes payable principal		$ 2,531		$ 2,550
Stated interest rate		5.46%		5.46%
Face amount of debt		$ 2,600		$ 2,600
Fixed rate notes | $11.1 million 5.87% Note, due August 6, 2016
Debt Instrument [Line Items]
Total notes payable principal		$ 11,152		$ 11,305
Stated interest rate		5.87%		5.87%
Face amount of debt		$ 11,100		$ 11,100
Fixed rate notes | $1.1 million 2.97% Note, due November 28, 2016
Debt Instrument [Line Items]
Total notes payable principal		$ 517		$ 0
Stated interest rate		2.97%		2.97%
Face amount of debt		$ 1,100		$ 1,100
Floating rate notes | Unsecured line of credit, LIBOR plus 1.40% to 1.95%, due October 30, 2019 | LIBOR Rate
Debt Instrument [Line Items]
Total notes payable principal		$ 130,600		$ 127,600
Floating rate notes | Unsecured line of credit, LIBOR plus 1.40% to 1.95%, due October 30, 2019 | Minimum | LIBOR Rate
Debt Instrument [Line Items]
Basis spread on variable rate		1.40%	1.40%
Floating rate notes | Unsecured line of credit, LIBOR plus 1.40% to 1.95%, due October 30, 2019 | Maximum | LIBOR Rate
Debt Instrument [Line Items]
Basis spread on variable rate		1.95%	1.95%
Interest rate swap | $10.5 million, LIBOR plus 2.00% Note, due September 24, 2018
Debt Instrument [Line Items]
Stated interest rate		3.55%
Interest rate swap | $50.0 million, 0.84% plus 1.35% to 1.90% Note, due October 30, 2020
Debt Instrument [Line Items]
Stated interest rate		0.84%
Interest rate swap | $50.0 million, 0.84% plus 1.35% to 1.90% Note, due October 30, 2020 | Scenario, Forecast [Member]
Debt Instrument [Line Items]
Stated interest rate						1.75%
Interest rate swap | $50.0 million, 1.50% plus 1.35% to 1.90% Note, due January 29, 2021
Debt Instrument [Line Items]
Stated interest rate		1.50%
Interest rate swap | $100.0 million, 1.73% plus 1.65% to 2.25% Note, due October 30, 2022
Debt Instrument [Line Items]
Stated interest rate		1.73%
Interest rate swap | $9.2 million, Prime Rate less 2.00% Note, due December 29, 2017
Debt Instrument [Line Items]
Stated interest rate		5.72%
Term loan | Minimum | LIBOR Rate
Debt Instrument [Line Items]
Basis spread on variable rate	1.35%
Term loan | Maximum | LIBOR Rate
Debt Instrument [Line Items]
Basis spread on variable rate	2.25%

XML

Debt (Narrative) (Details)	Nov. 07, 2014 USD ($)	Jun. 30, 2016 USD ($) CollateralizedProperties
Debt Instrument [Line Items]
Secured debt		$ 171,100,000
Number of collateralized properties (in collateralized properties) | CollateralizedProperties		20
Carrying value of collateralized properties		$ 212,600,000
Revolving credit facility
Debt Instrument [Line Items]
Credit facility, maximum borrowing capacity	$ 300,000,000
Credit facility, expanded maximum borrowing capacity		700,000,000
Line of credit outstanding		330,600,000
Credit facility, remaining borrowing capacity		$ 169,400,000
Revolving credit facility | LIBOR Rate
Debt Instrument [Line Items]
Basis spread on variable rate	1.00%
Revolving credit facility | LIBOR Rate | Minimum
Debt Instrument [Line Items]
Basis spread on variable rate	1.40%
Revolving credit facility | LIBOR Rate | Maximum
Debt Instrument [Line Items]
Basis spread on variable rate	1.95%
Term loan | LIBOR Rate | Minimum
Debt Instrument [Line Items]
Basis spread on variable rate	1.35%
Term loan | LIBOR Rate | Maximum
Debt Instrument [Line Items]
Basis spread on variable rate	2.25%
Term loan | Term Loan 1 [Member]
Debt Instrument [Line Items]
Face amount of debt	$ 50,000,000
Term loan | Term Loan 2 [Member]
Debt Instrument [Line Items]
Face amount of debt	50,000,000
Term loan | Term Loan 3 [Member]
Debt Instrument [Line Items]
Face amount of debt	$ 100,000,000

XML

Debt (Schedule of Maturities of Debt) (Details) - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
Debt Disclosure [Abstract]
2016	$ 12,722
2017	10,213
2018	12,136
2019	138,649
2020	82,827
Thereafter	245,645
Total	$ 502,192	$ 499,747

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Derivatives and Hedging Activities (Details) - USD ($) $ in Thousands	3 Months Ended			6 Months Ended
	Jun. 30, 2016	Dec. 31, 2015	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015	Nov. 19, 2015
Term Loan 1 [Member]
Derivative [Line Items]
Interest Rate Swap Assigned to Counterparty		$ 14,000
U.S. Bank National Association [Member] | Term Loan 3 [Member]
Derivative [Line Items]
Interest Rate Swap Assigned to Counterparty		35,000
U.S. Bank National Association [Member] | Term Loan 1 [Member]
Derivative [Line Items]
Interest Rate Swap Assigned to Counterparty		6,500
U.S. Bank National Association [Member] | Term Loan 2 [Member]
Derivative [Line Items]
Interest Rate Swap Assigned to Counterparty		6,500
Wells Fargo Bank, National Association [Member] | Term Loan 1 [Member]
Derivative [Line Items]
Interest Rate Swap Assigned to Counterparty		14,000
Wells Fargo Bank, National Association [Member] | Term Loan 2 [Member]
Derivative [Line Items]
Interest Rate Swap Assigned to Counterparty		14,000
Bank of American, N.A. [Member] | Term Loan 2 [Member]
Derivative [Line Items]
Interest Rate Swap Assigned to Counterparty		14,000
SunTrust Bank [Member] | Term Loan 3 [Member]
Derivative [Line Items]
Interest Rate Swap Assigned to Counterparty		15,000
SunTrust Bank [Member] | Term Loan 1 [Member]
Derivative [Line Items]
Interest Rate Swap Assigned to Counterparty		5,000
SunTrust Bank [Member] | Term Loan 2 [Member]
Derivative [Line Items]
Interest Rate Swap Assigned to Counterparty		5,000
Regions Bank [Member] | Term Loan 1 [Member]
Derivative [Line Items]
Interest Rate Swap Assigned to Counterparty		3,800
Regions Bank [Member] | Term Loan 2 [Member]
Derivative [Line Items]
Interest Rate Swap Assigned to Counterparty		3,800
Interest Rate Swaps [Member] | Interest Expense [Member]
Derivative [Line Items]
Amount Recognized as Comprehensive Income (Loss)	$ (2,450)		$ 43	$ (8,491)	$ (276)
Amount of Gain (Loss) Recognized in Earnings	(614)		$ (203)	(1,208)	$ (410)
Interest Rate Swaps [Member] | Cash Flow Hedging [Member] | Term Loan 3 [Member]
Derivative [Line Items]
Derivative, Fixed Interest Rate						1.725%
Interest Rate Swaps [Member] | Cash Flow Hedging [Member] | Term Loan 1 [Member]
Derivative [Line Items]
Derivative, Fixed Interest Rate						1.75%
Interest Rate Swaps [Member] | Cash Flow Hedging [Member] | Term Loan 2 [Member]
Derivative [Line Items]
Derivative, Fixed Interest Rate						1.50%
Accounts Payable and Accrued Expenses [Member] | Interest Rate Swaps [Member]
Derivative [Line Items]
Estimated Fair Value	$ 8,933	$ 617		$ 8,933

XML

Earnings (Loss) Per Share (Details) - USD ($)	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015	Dec. 31, 2013
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Distributions to holders of certain restricted common shares charged against earnings	$ 1,819,000	$ 1,669,000	$ 3,844,000	$ 3,343,000
Numerator:
Income from continuing operations	1,509,000	1,593,000	6,597,000	3,222,000
Less: Net income attributable to noncontrolling interests	(25,000)	(26,000)	(116,000)	(54,000)
Distributions paid on unvested restricted shares	(197,000)	(163,000)	(352,000)	(270,000)
Income from continuing operations attributable to Whitestone REIT excluding amounts attributable to unvested restricted shares	1,287,000	1,404,000	6,129,000	2,898,000
Loss from discontinued operations	0	(33,000)	0	(41,000)
Less: Net income attributable to noncontrolling interests	0	0		1,000	$ 0
Income from discontinued operations attributable to Whitestone REIT	0	(33,000)	0	(40,000)
Income from continuing operations attributable to Whitestone REIT excluding amounts attributable to unvested restricted shares	$ 1,287,000	$ 1,371,000	$ 6,129,000	$ 2,858,000
Denominator:
Weighted average number of common shares - basic (in shares)	26,819,000	22,869,000	26,712,000	22,724,000	26,712,000
Effect of dilutive securities:
Unvested restricted shares (in shares)	694,000	532,000	789,000	590,000
Weighted average number of common shares - dilutive (in shares)	27,513,000	23,401,000	27,501,000	23,314,000
Basic:
Income from continuing operations attributable to Whitestone REIT excluding amounts attributable to unvested restricted shares (in dollars per share)	$ 0.05	$ 0.06	$ 0.23	$ 0.13
Income from discontinued operations attributable to Whitestone REIT (in dollars per share)	0.00	0.00	0.00	0.00
Net income attributable to common shareholders excluding amounts attributable to unvested restricted shares (in dollars per share)	0.05	0.06	0.23	0.13
Diluted:
Income from continuing operations attributable to Whitestone REIT excluding amounts attributable to unvested restricted shares (in dollars per share)	0.05	0.06	0.22	0.12
Income from discontinued operations attributable to Whitestone REIT (in dollars per share)	0.00	0.00	0.00	0.00
Net income attributable to common shareholders excluding amounts attributable to unvested restricted shares (in dollars per share)	$ 0.05	$ 0.06	$ 0.22	$ 0.12
OP Units [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
OP units excluded from diluted earnings per share because their effect would be anti-dilutive	484,422	390,323	487,722	391,455
Restricted Stock [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Distributions to holders of certain restricted common shares	$ 197,000	$ 172,000	$ 352,000	$ 288,000
Distributions to holders of certain restricted common shares charged against earnings	$ 0	$ 9,000	$ 0	$ 18,000

XML

Income Taxes (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Income Tax Contingency [Line Items]
Provision for income taxes	$ 11	$ 91	$ 167	$ 174
Credits to tax expense due to timing of recognition of interest, real estate taxes, depreciation, and rental revenue			$ 49
Texas [Member]
Income Tax Contingency [Line Items]
Applicable tax rate used to determine state margin tax			0.75%
Standard deduction rate used to determine state margin tax			30.00%
Margin tax provision recognized	$ 48	$ 106	$ 162	$ 188
Davenport TRS [Member]
Income Tax Contingency [Line Items]
Provision for income taxes			$ 54

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Equity (Details) $ / shares in Units, $ in Thousands		3 Months Ended						6 Months Ended		12 Months Ended
	Jun. 26, 2015 USD ($) $ / shares shares	Jun. 30, 2016 USD ($) $ / shares shares	Mar. 31, 2016 USD ($) $ / shares	Dec. 31, 2015 USD ($) $ / shares shares	Sep. 30, 2015 USD ($) $ / shares	Jun. 30, 2015 USD ($) $ / shares shares	Mar. 31, 2015 USD ($) $ / shares	Jun. 30, 2016 USD ($) $ / shares shares	Jun. 30, 2015 USD ($) shares	Dec. 31, 2015 USD ($) $ / shares shares	Jun. 04, 2015 USD ($) agreement
Class of Stock [Line Items]
Common shares, authorized (in shares)		400,000,000		400,000,000				400,000,000		400,000,000
Common shares, par value per share (in dollars per share) | $ / shares	$ 0.001	$ 0.001		$ 0.001				$ 0.001		$ 0.001
Preferred shares, shares authorized (in shares)		50,000,000		50,000,000				50,000,000		50,000,000
Preferred shares, par value per share (in dollars per share) | $ / shares		$ 0.001		$ 0.001				$ 0.001		$ 0.001
Common shares, issued (in shares)	3,750,000	28,138,047		26,991,493				28,138,047		26,991,493
Share price (in dollars per share) | $ / shares	$ 13.3386
Proceeds from issuance of common shares, net of offering costs | $	$ 49,700							$ 10,600	$ 49,725
Equity distribution agreements, authorized amount | $											$ 50,000
Number of equity distribution agreements | agreement											6
Ownership interest in operating partnership								98.30%
Conversion basis for common shares to OP units		1						1
Weighted-average share ownership in operating partnership		98.30%				98.40%		98.20%	98.30%
Preferred Stock [Member]
Class of Stock [Line Items]
Preferred shares, shares authorized (in shares)		50,000,000						50,000,000
Preferred shares, par value per share (in dollars per share) | $ / shares		$ 0.001						$ 0.001
OP Units [Member]
Class of Stock [Line Items]
OP units outstanding (in shares)		28,501,242		27,367,704				28,501,242		27,367,704
OP units owned (in shares)		28,017,225		26,870,671				28,017,225		26,870,671
Conversion of stock, shares converted (in shares)		915				802		13,016	8,584
2015 Equity Distribution Agreement [Member]
Class of Stock [Line Items]
Issuance of common shares, net of offering costs (in shares)		735,755						735,755
Proceeds from issuance of common shares, net of offering costs | $		$ 10,600						$ 10,600
Payments for compensation to sales agents | $								200
Cash Distribution [Member]
Class of Stock [Line Items]
Cash distribution paid | $		$ 7,924	$ 7,850	$ 7,809	$ 7,786	$ 6,712	$ 6,639	$ 15,774		$ 28,946
Cash Distribution [Member] | Common Stock [Member]
Class of Stock [Line Items]
Cash distribution paid (in dollars per share) | $ / shares		$ 0.2850	$ 0.2850	$ 0.2850	$ 0.2850	$ 0.2850	$ 0.2850	$ 0.5700		$ 1.1400
Cash distribution paid | $		$ 7,786	$ 7,711	$ 7,666	$ 7,664	$ 6,601	$ 6,526	$ 15,497		$ 28,457
Cash Distribution [Member] | OP Units [Member]
Class of Stock [Line Items]
Cash distribution paid (in dollars per share) | $ / shares		$ 0.2850	$ 0.2850	$ 0.2850	$ 0.2850	$ 0.2850	$ 0.2850	$ 0.5700		$ 1.1400
Cash distribution paid | $		$ 138	$ 139	$ 143	$ 122	$ 111	$ 113	$ 277		$ 489

XML

Incentive Share Plan (Narrative) (Details)				3 Months Ended		6 Months Ended
	Jun. 30, 2016 USD ($) shares	Jun. 30, 2015 shares	Apr. 02, 2014 employee shares	Jun. 30, 2016 USD ($)	Jun. 30, 2015 USD ($)	Jun. 30, 2016 USD ($)	Jun. 30, 2015 USD ($)	Dec. 22, 2010
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based compensation				$ 1,819,000	$ 1,669,000	$ 3,844,000	$ 3,343,000
Minimum | Time-Based Vesting [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Award vesting period			1 year
Maximum | Time-Based Vesting [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Award vesting period			2 years
Restricted Common Shares and Restricted Share Units [Member] | Time and Performance-Based Vesting [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of employees granted an award | employee			51
Aggregate shares granted (in shares) | shares			633,704
Restricted Common Shares and Restricted Share Units [Member] | Time-Based Vesting [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Aggregate shares granted (in shares) | shares	320,000	143,000
Restricted Common Shares and Restricted Share Units [Member] | Performance Vesting [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Aggregate shares granted (in shares) | shares			2,049,116
Non-Cash Share Based Compensation in 2014 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Unrecognized compensation cost	$ 9,400,000			9,400,000		9,400,000
Non-Cash Share Based Compensation Subsequent to 2014 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Unrecognized compensation cost	$ 10,200,000			$ 10,200,000		$ 10,200,000
Unrecognized compensation cost, period for recognition						22 months
2008 Long-Term Equity Incentive Ownership Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Percentage of maximum number of shares issued under plan to aggregate shares								12.50%
2008 Long-Term Equity Incentive Ownership Plan [Member] | Restricted Common Shares and Restricted Share Units [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting percentage	83.00%			83.00%		83.00%
2008 Long-Term Equity Incentive Ownership Plan [Member] | Performance Shares [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Unrecognized compensation cost	$ 7,500,000			$ 7,500,000		$ 7,500,000
Award vesting period						36 months
2008 Long-Term Equity Incentive Ownership Plan [Member] | Non-Vested Time Based Shares [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Unrecognized compensation cost	$ 8,300,000			$ 8,300,000		$ 8,300,000
Unrecognized compensation cost, period for recognition						18 months

XML

Incentive Share Plan (Schedule of Share-Based Incentive Plan Activity) (Details) - 2008 Long-Term Equity Incentive Ownership Plan [Member] - $ / shares	6 Months Ended	12 Months Ended
	Jun. 30, 2016	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding [Roll Forward]
Shares, Non-vested (in shares)	2,288,260
Weighted-Average Grant Date Fair Value, Non-vested (in dollars per share)	$ 14.34
Shares, Granted (in shares)	514,150	327,122	2,058,930	328,005
Weighted-Average Grant Date Fair Value, Granted (in dollars per share)	$ 14.81	$ 13.49	$ 14.40	$ 15.43
Shares, Vested (in shares)	(371,143)	(348,786)	(133,774)	(15,270)
Weighted-Average Grant Date Fair Value, Vested (in dollars per share)	$ 14.42
Shares, Forfeited (in shares)	(30,564)
Weighted-Average Grant Date Fair Value, Forfeited (in dollars per share)	$ 14.13
Shares, Non-vested (in shares)	2,400,703	2,288,260
Weighted-Average Grant Date Fair Value, Non-vested (in dollars per share)	$ 14.43	$ 14.34
Shares, Available for grant (in shares)	579,241

XML

Incentive Share Plan (Schedule of Nonvested and Vested Shares Activity) (Details) - 2008 Long-Term Equity Incentive Ownership Plan [Member] - USD ($) $ / shares in Units, $ in Thousands	6 Months Ended	12 Months Ended
	Jun. 30, 2016	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Shares, Granted, Non-Vested Shares Isused (in shares)	514,150	327,122	2,058,930	328,005
Shares Granted, Weighted-Average Grant Date Fair Value, Granted (in dollars per share)	$ 14.81	$ 13.49	$ 14.40	$ 15.43
Shares, Vested (in shares)	(371,143)	(348,786)	(133,774)	(15,270)
Shares Vested, Total Vest-Date Fair Value	$ 5,353	$ 4,969	$ 1,721	$ 224

XML

Grants to Trustees (Details)	Dec. 21, 2015 trustee $ / shares shares
Individual Trustee Grant Agreements 1 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of independent trustees (in trustees) | trustee	4
Number of trustee emeritus (in trustees) | trustee	1
Individual Trustee Grant Agreements 1 [Member] | Common Stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Restricted stock granted to each trustee (in shares) | shares	7,500
Restricted stock granted to trustees, vested in period (in shares) | shares	1,500
Restricted stock granted to trustees, weighted-average grant date fair value (in dollars per share) | $ / shares	$ 12.10
Individual Trustee Grant Agreements 2 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of independent trustees (in trustees) | trustee	1
Individual Trustee Grant Agreements 2 [Member] | Common Stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Restricted stock granted to each trustee (in shares) | shares	992
Restricted stock granted to trustees, weighted-average grant date fair value (in dollars per share) | $ / shares	$ 12.10

XML

Real Estate (Details) $ in Thousands								3 Months Ended		6 Months Ended		12 Months Ended
	Mar. 03, 2016 USD ($)	Feb. 17, 2016 USD ($) a	Aug. 28, 2015 USD ($) ft²	Aug. 26, 2015 USD ($) ft² a parcel shares	Jul. 02, 2015 USD ($) ft²	May 27, 2015 USD ($) ft²	Mar. 31, 2015 USD ($)	Jun. 30, 2016 USD ($) shares	Jun. 30, 2015 USD ($) ft²	Jun. 30, 2016 USD ($) shares	Jun. 30, 2015 USD ($) ft²	Dec. 31, 2014 USD ($) property
Real Estate [Line Items]
Payments to acquire property										$ 0	$ 51,800
Conversion basis for common shares to OP units | shares								1		1
Gain on sale of properties								$ 0	$ 0	$ 2,890	0
Loss (gain) on sale or disposal of assets and properties										2,874	(100)
Schedule of operating results for properties classified as discontinued operations
Property revenues								0	0	0	1
Property expenses								0	36	0	44
Interest expense								0	0	0	0
Interest expense								0	0	0	0
Provision for income taxes								0	(2)	0	(2)
Gain on sale or disposal of assets								0	(1)	0	0
Income from discontinued operations								$ 0	$ (33)	$ 0	$ (41)
Gilbert Tuscany Village [Member]
Real Estate [Line Items]
Payments to acquire property			$ 1,700
Gross leasable area (in square feet) | ft²			14,603
Keller Place [Member]
Real Estate [Line Items]
Payments to acquire property				$ 12,000
Gross leasable area (in square feet) | ft²				93,541
Property percentage occupied				92.00%
Number of undeveloped parcels | parcel				2
Area of land (in acres) | a				3.12
Issuance of OP units (in shares) | shares				120,000
Conversion basis for common shares to OP units | shares								1		1
Quinlan Crossing [Member]
Real Estate [Line Items]
Payments to acquire property				$ 37,500
Gross leasable area (in square feet) | ft²				109,892
Property percentage occupied				95.00%
Parkside Village North [Member]
Real Estate [Line Items]
Payments to acquire property					$ 12,500
Gross leasable area (in square feet) | ft²					27,045
Property percentage occupied					100.00%
Parkside Village South [Member]
Real Estate [Line Items]
Payments to acquire property					$ 32,500
Gross leasable area (in square feet) | ft²					90,101
Property percentage occupied					100.00%
Davenport Village [Member]
Real Estate [Line Items]
Payments to acquire property						$ 45,500
Gross leasable area (in square feet) | ft²						128,934
Property percentage occupied						85.00%
City View Village [Member]
Real Estate [Line Items]
Payments to acquire property							$ 6,300
Gross leasable area (in square feet) | ft²									17,870		17,870
Property percentage occupied									100.00%		100.00%
Brookhill [Member]
Real Estate [Line Items]
Proceeds from the sale of real estate	$ 3,100
Gain on sale of properties	$ 1,900
Pinnacle Phase II [Member]
Real Estate [Line Items]
Area of land (in acres) | a		4.5
Proceeds from the sale of real estate		$ 1,100
Area of Land Sold | a		0.5
Gain on sale of properties		$ 1,000
Zeta, Royal Crest and Featherwood [Member]
Real Estate [Line Items]
Proceeds from the sale of real estate												$ 10,300
Number of commercial properties | property												3
Seller provided financing												$ 2,500
Loss (gain) on sale or disposal of assets and properties												4,400
Gain on sale of properties												1,900
Deferred gain on sale of property												$ 2,500