EX-99.2 10 exhibit992proformadatanonc.htm EXHIBIT 99.2 Exhibit
Exhibit 99.2

Unaudited Pro Forma Consolidated Financial Statements

On December 8, 2016, Whitestone REIT Operating Partnership, L.P. (the “Operating Partnership”), a subsidiary and the operating partnership of Whitestone REIT (the “Company”), entered into a Contribution Agreement (the “Contribution Agreement”) with Pillarstone Capital REIT Operating Partnership LP (“Pillarstone OP”) and Pillarstone Capital REIT (“Pillarstone REIT”) pursuant to which the Operating Partnership contributed all of the equity interests in four of its wholly-owned subsidiaries: Whitestone CP Woodland Ph. 2, LLC, a Delaware limited liability company (“CP Woodland”); Whitestone Industrial-Office, LLC, a Texas limited liability company (“Industrial-Office”); Whitestone Offices, LLC, a Texas limited liability company (“Whitestone Offices”); and Whitestone Uptown Tower, LLC, a Delaware limited liability company (“Uptown Tower”, and together with CP Woodland, Industrial-Office and Whitestone Offices, the “Entities”) that own fourteen (14) non-core properties (the “Non-Core Properties” and, together with the Entities, the “Property”) to Pillarstone OP for aggregate consideration of approximately $84.0 million, consisting of (1) approximately $18.1 million Class A units representing limited partnership interests in Pillarstone OP (“Pillarstone OP Units”), issued at a price of $1.331 per Pillarstone OP Unit; and (2) the assumption by Pillarstone OP of approximately $65.9 million of liabilities, consisting of (a) approximately $15.4 million of the Operating Partnership’s liability under that certain Amended and Restated Credit Agreement, dated as of November 7, 2014, as amended, among the Bank of Montreal, as Administrative Agent, the lenders party thereto, BMO Capital Markets, Wells Fargo Securities, LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated, and U.S. Bank, National Association, the Operating Partnership, as borrower, and the Company and certain subsidiaries of the Operating Partnership, as guarantors; (b) an approximately $16.45 million promissory note of Uptown Tower issued under the Loan Agreement, dated as of September 26, 2013, between Uptown Tower, as borrower, and U.S. Bank National Association, as successor to Morgan Stanley Mortgage Capital Holdings LLC, as lender, and (c) an approximately $37.0 million promissory note of Industrial-Office issued under the Loan Agreement, dated as of November 26, 2013, between Industrial-Office, as borrower, and Jackson National Life Insurance Company, as lender (collectively, the “Disposition”). Following the Disposition, it is expected that the Company will consolidate Pillarstone OP on its financial statements due to its significant equity ownership of approximately 84% of the outstanding equity in Pillarstone OP immediately following the Disposition.

The foregoing description of the Contribution Agreement is not complete and is subject to and qualified in its entirety by reference to the Contribution Agreement, which is attached as Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission (“SEC”) on December 8, 2016.

The accompanying unaudited Pro Forma Consolidated Balance Sheets of Whitestone REIT and Subsidiaries are presented as if the Non-Core Properties had been disposed of on September 30, 2016. The accompanying unaudited Pro Forma Consolidated Statements of Operations of Whitestone REIT and Subsidiaries for the nine-month period ended September 30, 2016 and the year ended December 31, 2015 are presented as if the Non-Core Properties had been disposed of on January 1, 2015. The unaudited Pro Forma Consolidated Balance Sheets are segregated into separate components as follows:

1)
the historical Consolidated Balance Sheets of the Company;
2)
the elimination of the historical combined financial position of the Non-Core Properties and certain debt that is assumed by Pillarstone OP;
3)
the reconsolidation of Pillarstone OP and the related noncontrolling interests;
4)
the Pro Forma Consolidated Balance Sheets of the Company.

The unaudited Pro Forma Consolidated Statements of Operations are segregated into separate components as follows:

1)
the historical Consolidated Statements of Operations of the Company;
2)
the elimination of the historical combined operations of the Non-Core Properties including an allocation of interest expense associated with certain debt assumed by Pillarstone OP;
3)
the addition of the operating results of Pillarstone OP assuming the Company has an 84% ownership interest, including the interest expense associated with certain debt assumed by Pillarstone OP and expenses resulting from property management fees and an asset management fee paid by Pillarstone OP to the Company;
4)
the addition of property management fees and an asset management fees paid by Pillarstone OP to the Company;
5)
the elimination of intercompany transactions between Pillarstone OP and the Company; and
6)
the Pro Forma Consolidated Statements of Operations of the Company.



These Unaudited Pro Forma Consolidated Financial Statements should be read in conjunction with the Company’s historical consolidated financial statements and notes thereto as of and for the nine-month period ended September 30, 2016, included in the Company’s Quarterly Report on Form 10-Q filed with the SEC on November 2, 2016 and the Company’s historical consolidated financial statements and notes thereto as of and for the year ended December 31, 2015, included in the Company’s Annual Report on Form 10-K filed with the SEC on February 29, 2016.

In management’s opinion, all adjustments necessary to reflect the Disposition have been made. The following unaudited Pro Forma Consolidated Balance Sheets do not purport to represent the future financial position of the Company. The unaudited Pro Forma Consolidated Statements of Operations are not necessarily indicative of what the actual results of operations would have been for the nine-month period ended September 30, 2016 or for the year ended December 31, 2015 assuming the transaction had been consummated on January 1, 2015, nor do they purport to represent the future results of operations of the Company.





Whitestone REIT and Subsidiaries
Unaudited Pro Forma Consolidated Balance Sheet
As of September 30, 2016
(in thousands, except share data)

 
 
 
 
(2)
 
 
 
 
 
 
(1)
 
Non-Core
 
 
 
 
 
 
Historical
 
Properties
 
(3)
 
(4)
 
 
Balances
 
Disposition
 
Pillarstone OP
 
Pro Forma
ASSETS
 
 
 
 
 
 
Real estate assets, at cost
 
 
 
 
 
 
 
 
Property
 
$
918,562

 
$
(91,701
)
 
$
91,701

 
$
918,562

Accumulated depreciation
 
(103,721
)
 
31,749

 
(31,749
)
 
(103,721
)
Total real estate assets
 
814,841

 
(59,952
)
 
59,952

 
814,841

Cash and cash equivalents
 
8,786

 
—

 
—

 
8,786

Restricted cash
 
103

 
—

 
—

 
103

Marketable securities
 
456

 
—

 
—

 
456

Escrows and acquisition deposits
 
6,183

 
(1,661
)
 
1,661

 
6,183

Accrued rents and accounts receivable, net of allowance for doubtful accounts
 
16,970

 
—

 
—

 
16,970

Unamortized lease commissions and loan costs
 
8,340

 
—

 
—

 
8,340

Prepaid expenses and other assets
 
2,808

 
—

 
—

 
2,808

Total assets
 
$
858,487

 
$
(61,613
)
 
$
61,613

 
$
858,487

 
 
 
 
 
 
 
 
 
LIABILITIES AND EQUITY
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
Notes payable
 
$
549,671

 
$
(66,244
)
 
$
66,244

 
$
549,671

Accounts payable and accrued expenses
 
31,920

 
(2,362
)
 
2,362

 
31,920

Tenants' security deposits
 
6,066

 
(1,314
)
 
1,314

 
6,066

Dividends and distributions payable
 
8,647

 
—

 
—

 
8,647

Total liabilities
 
596,304

 
(69,920
)
 
69,920

 
596,304

Commitments and contingencies:
 
—

 
—

 
—

 
—

Equity:
 
 
 
 
 
 
 
 
Preferred shares, $0.001 par value per share; 50,000,000 shares authorized; none issued and outstanding as of September 30, 2016 and December 31, 2015, respectively
 
—

 
—

 
—

 
—

Common shares, $0.001 par value per share; 400,000,000 shares authorized; 29,218,531 and 26,991,493 issued and outstanding as of September 30, 2016 and December 31, 2015, respectively
 
29

 
—

 
—

 
29

Additional paid-in capital
 
390,966

 
—

 
—

 
390,966

Accumulated deficit
 
(133,779
)
 
7,658

 
(6,387
)
 
(132,508
)
Accumulated other comprehensive loss
 
(6,951
)
 
—

 
—

 
(6,951
)
Total Whitestone REIT shareholders' equity
 
250,265

 
7,658

 
(6,387
)
 
251,536

Noncontrolling interest in subsidiary
 
11,918

 
649

 
(1,920
)
 
10,647

Total equity
 
262,183

 
8,307

 
(8,307
)
 
262,183

Total liabilities and equity
 
$
858,487

 
$
(61,613
)
 
$
61,613

 
$
858,487


Whitestone REIT and Subsidiaries
Unaudited Pro Forma Consolidated Balance Sheet
As of September 30, 2016


Notes to Pro Forma Consolidated Balance Sheets

1)
Historical Balances - reflects the consolidated balance sheet of the Company as included in the Company’s Quarterly Report on Form 10-Q as of September 30, 2016.

2)
Non-Core Properties - reflects the financial position of the Non-Core Properties as of September 30, 2016, including the assumption of approximately $66.2 million of debt by Pillarstone OP as listed below:

a.
approximately $15.5 million of the Operating Partnership’s liability under that certain Amended and Restated Credit Agreement, dated as of November 7, 2014, as amended, among the Bank of Montreal, as Administrative Agent, the lenders party thereto, BMO Capital Markets, Wells Fargo Securities, LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated, and U.S. Bank, National Association, the Operating Partnership, as borrower, and the Company and certain subsidiaries of the Operating Partnership, as guarantors;
b.
approximately $16.3 million promissory note of Uptown Tower issued under the Loan Agreement, dated as of September 26, 2013, between Uptown Tower, as borrower, and U.S. Bank National Association, as successor to Morgan Stanley Mortgage Capital Holdings LLC, as lender, and
c.
approximately $34.4 million promissory note of Industrial-Office issued under the Loan Agreement, dated as of November 26, 2013, between Industrial-Office, as borrower, and Jackson National Life Insurance Company, as lender.

3)
Pillarstone OP - reflects the financial position of Pillarstone OP as of September 30, 2016, including the $66.2 million of debt assumed by Pillarstone OP from the Company.

Noncontrolling interests in Historical Balances and Non-Core Properties include noncontrolling interest owners in the Operating Partnership. Noncontrolling interests in Pillarstone OP include noncontrolling interest owners in Pillarstone OP and the Operating Partnership.




3

Whitestone REIT and Subsidiaries
Unaudited Pro Forma Consolidated Statements of Operations
For the Nine Months Ended September 30, 2016
(in thousands, except per share data)

 
 
 
 
(2)
 
 
 
 
 
 
 
 
 
 
(1)
 
Non-Core
 
 
 
(4)
 
(5)
 
 
 
 
Historical
 
Properties
 
(3)
 
Management
 
Intercompany
 
 
 
 
Balances
 
Disposition
 
Pillarstone OP
 
Fees
 
Eliminations
 
Pro Forma
Property revenues
 
 
 
 
 
 
 
 
 
 
 
 
Rental revenues
 
$
58,915

 
$
(10,063
)
 
$
10,063

 
$
—

 
$
—

 
$
58,915

Other revenues
 
17,157

 
(1,686
)
 
1,686

 
—

 
—

 
17,157

Intercompany management fees
 
—

 
—

 
—

 
796

 
(796
)
 
—

Total property revenues
 
76,072

 
(11,749
)
 
11,749

 
796

 
(796
)
 
76,072

 
 
 
 
 
 
 
 
 
 
 
 
 
Property expenses
 
 
 
 
 
 
 
 
 
 
 
 
Property operation and maintenance
 
14,381

 
(2,979
)
 
2,979

 
—

 
—

 
14,381

Real estate taxes
 
10,072

 
(1,634
)
 
1,634

 
—

 
—

 
10,072

Intercompany management fees
 
—

 
—

 
796

 
—

 
(796
)
 
—

Total property expenses
 
24,453

 
(4,613
)
 
5,409

 
—

 
(796
)
 
24,453

 
 
 
 
 
 
 
 
 
 
 
 
 
Other expenses (income)
 
 
 
 
 
 
 
 
 
 
 
 
General and administrative
 
16,467

 
—

 
—

 
—

 
—

 
16,467

Depreciation and amortization
 
16,362

 
(2,708
)
 
2,708

 
—

 
—

 
16,362

Interest expense
 
14,221

 
(1,855
)
 
1,855

 
—

 
—

 
14,221

Interest, dividend and other investment income
 
(339
)
 
—

 
—

 
—

 
—

 
(339
)
Total other expense
 
46,711

 
(4,563
)
 
4,563

 
—

 
—

 
46,711

 
 
 
 
 
 
 
 
 
 
 
 
 
Income from continuing operations before gain on sale or disposal of properties or assets and income taxes
 
4,908

 
(2,573
)
 
1,777

 
796

 
—

 
4,908

 
 
 
 
 
 
 
 
 
 
 
 
 
Provision for income taxes
 
(247
)
 
29

 
(29
)
 
—

 
—

 
(247
)
Gain on sale of properties
 
2,890

 
—

 
—

 
—

 
—

 
2,890

Gain (loss) on sale or disposal of assets
 
10

 
32

 
(32
)
 
—

 
—

 
10

 
 
 
 
 
 
 
 
 
 
 
 
 
Net income
 
7,561

 
(2,512
)
 
1,716

 
796

 
—

 
7,561

 
 
 
 
 
 
 
 
 
 
 
 
 
Less: Net income attributable to noncontrolling interests
 
131

 
(44
)
 
305

 
14

 
—

 
406

 
 
 
 
 
 
 
 
 
 
 
 
 
Net income attributable to Whitestone REIT
 
$
7,430

 
$
(2,468
)
 
$
1,411

 
$
782

 
$
—

 
$
7,155


4

Whitestone REIT and Subsidiaries
Unaudited Pro Forma Consolidated Statements of Operations
For the Nine Months Ended September 30, 2016
(in thousands, except per share data)


 
 
 
 
(2)
 
 
 
 
 
 
 
 
 
 
(1)
 
Non-Core
 
 
 
(4)
 
(5)
 
 
 
 
Historical
 
Properties
 
(3)
 
Management
 
Intercompany
 
 
 
 
Balances
 
Disposition
 
Pillarstone OP
 
Fees
 
Eliminations
 
Pro Forma
Basic Earnings Per Share:
 
 
 
 
 
 
 
 
 
 
 
 
Net income attributable to common shareholders excluding amounts attributable to unvested restricted shares
 
$
0.25

 
 
 
 
 
 
 
 
 
$
0.24

Diluted Earnings Per Share:
 
 
 
 
 
 
 
 
 
 
 
 
Net income attributable to common shareholders excluding amounts attributable to unvested restricted shares
 
$
0.25

 
 
 
 
 
 
 
 
 
$
0.24

 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted average number of common shares outstanding:
 
 
 
 
 
 
 
 
 
 
 
 
Basic
 
27,210

 
 
 
 
 
 
 
 
 
27,210

Diluted
 
28,013

 
 
 
 
 
 
 
 
 
28,013

 
 
 
 
 
 
 
 
 
 
 
 
 
Net income attributable to Whitestone REIT
 
$
7,430

 
 
 
 
 
 
 
 
 
$
7,155

Distributions paid on unvested restricted shares
 
(498
)
 
 
 
 
 
 
 
 
 
(498
)
Net income attributable to common shareholders excluding amounts attributable to unvested restricted shares
 
$
6,932

 
 
 
 
 
 
 
 
 
$
6,657



5

Whitestone REIT and Subsidiaries
Unaudited Pro Forma Consolidated Statements of Operations
For the Year Ended December 31, 2015
(in thousands, except per share data)

 
 
 
 
(2)
 
 
 
 
 
 
 
 
 
 
(1)
 
Non-Core
 
 
 
(4)
 
(5)
 
 
 
 
Historical
 
Properties
 
(3)
 
Management
 
Intercompany
 
 
 
 
Balances
 
Disposition
 
Pillarstone OP
 
Fees
 
Eliminations
 
Pro Forma
Property revenues
 
 
 
 
 
 
 
 
 
 
 
 
Rental revenues
 
$
71,843

 
$
(13,255
)
 
$
13,255

 
$
—

 
$
—

 
$
71,843

Other revenues
 
21,573

 
(2,591
)
 
2,591

 
—

 
—

 
21,573

Intercompany management fees
 
—

 
—

 
—

 
1,058

 
(1,058
)
 
—

Total property revenues
 
93,416

 
(15,846
)
 
15,846

 
1,058

 
(1,058
)
 
93,416

 
 
 
 
 
 
 
 
 
 
 
 
 
Property expenses
 
 
 
 
 
 
 
 
 
 
 
 
Property operation and maintenance
 
18,698

 
(4,607
)
 
4,607

 
—

 
—

 
18,698

Real estate taxes
 
12,637

 
(2,438
)
 
2,438

 
—

 
—

 
12,637

Intercompany management fees
 
—

 
—

 
1,058

 
—

 
(1,058
)
 
—

Total property expenses
 
31,335

 
(7,045
)
 
8,103

 
—

 
(1,058
)
 
31,335

 
 
 
 
 
 
 
 
 
 
 
 
 
Other expenses (income)
 
 
 
 
 
 
 
 
 
 
 
 
General and administrative
 
20,312

 
—

 
—

 
—

 
—

 
20,312

Depreciation and amortization
 
19,761

 
(3,753
)
 
3,753

 
—

 
—

 
19,761

Interest expense
 
14,910

 
(2,474
)
 
2,474

 
—

 
—

 
14,910

Interest, dividend and other investment income
 
(313
)
 
—

 
—

 
—

 
—

 
(313
)
Total other expense
 
54,670

 
(6,227
)
 
6,227

 
—

 
—

 
54,670

 
 
 
 
 
 
 
 
 
 
 
 
 
Income from continuing operations before loss on sale or disposal of assets and income taxes
 
7,411

 
(2,574
)
 
1,516

 
1,058

 
—

 
7,411

 
 
 
 
 
 
 
 
 
 
 
 
 
Provision for income taxes
 
(372
)
 
112

 
(112
)
 
—

 
—

 
(372
)
Gain (loss) on sale or disposal of assets
 
(185
)
 
(68
)
 
68

 
—

 
—

 
(185
)
Income from continuing operations
 
6,854

 
(2,530
)
 
1,472

 
1,058

 
—

 
6,854

 
 
 
 
 
 
 
 
 
 
 
 
 
Income from discontinued operations
 
11

 
—

 
—

 
—

 
—

 
11

Income from discontinued operations
 
11

 
—

 
—

 
—

 
—

 
11

 
 
 
 
 
 
 
 
 
 
 
 
 
Net income
 
6,865

 
(2,530
)
 
1,472

 
1,058

 
—

 
6,865

 
 
 
 
 
 
 
 
 
 
 
 
 
Less: Net income attributable to noncontrolling interests
 
116

 
(43
)
 
261

 
18

 
—

 
352

 
 
 
 
 
 
 
 
 
 
 
 
 
Net income attributable to Whitestone REIT
 
$
6,749

 
$
(2,487
)
 
$
1,211

 
$
1,040

 
$
—

 
$
6,513


6

Whitestone REIT and Subsidiaries
Unaudited Pro Forma Consolidated Statements of Operations
For the Year Ended December 31, 2015
(in thousands, except per share data)

 
 
 
 
(2)
 
 
 
 
 
 
 
 
 
 
(1)
 
Non-Core
 
 
 
(4)
 
(5)
 
 
 
 
Historical
 
Properties
 
(3)
 
Management
 
Intercompany
 
 
 
 
Balances
 
Disposition
 
Pillarstone OP
 
Fees
 
Eliminations
 
Pro Forma
Basic Earnings Per Share:
 
 
 
 
 
 
 
 
 
 
 
 
Income from continuing operations attributable to Whitestone REIT excluding amounts attributable to unvested restricted shares
 
$
0.25

 
 
 
 
 
 
 
 
 
$
0.24

Income from discontinued operations attributable to Whitestone REIT
 
0.00

 
 
 
 
 
 
 
 
 
0.00

Net income attributable to common shareholders excluding amounts attributable to unvested restricted shares
 
$
0.25

 
 
 
 
 
 
 
 
 
$
0.24

Diluted Earnings Per Share:
 
 
 
 
 
 
 
 
 
 
 
 
Income from continuing operations attributable to Whitestone REIT excluding amounts attributable to unvested restricted shares
 
$
0.24

 
 
 
 
 
 
 
 
 
$
0.23

Income from discontinued operations attributable to Whitestone REIT
 
0.00

 
 
 
 
 
 
 
 
 
0.00

Net income attributable to common shareholders excluding amounts attributable to unvested restricted shares
 
$
0.24

 
 
 
 
 
 
 
 
 
$
0.23

 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted average number of common shares outstanding:
 
 
 
 
 
 
 
 
 
 
 
 
Basic
 
24,631

 
 
 
 
 
 
 
 
 
24,631

Diluted
 
25,683

 
 
 
 
 
 
 
 
 
25,683

 
 
 
 
 
 
 
 
 
 
 
 
 
Income from continuing operations
 
$
6,854

 
 
 
 
 
 
 
 
 
$
6,854

Less: Net income attributable to noncontrolling interests
 
(116
)
 
 
 
 
 
 
 
 
 
(352
)
Distributions paid on unvested restricted shares
 
(528
)
 
 
 
 
 
 
 
 
 
(528
)
Income from continuing operations attributable to Whitestone REIT excluding amounts attributable to unvested restricted shares
 
6,210

 
 
 
 
 
 
 
 
 
5,974

Income from discontinued operations
 
11

 
 
 
 
 
 
 
 
 
11

Net income attributable to common shareholders excluding amounts attributable to unvested restricted shares
 
$
6,221

 
 
 
 
 
 
 
 
 
$
5,985


7

Whitestone REIT and Subsidiaries
Unaudited Pro Forma Consolidated Statements of Operations


Notes to Pro Forma Consolidated Statements of Operations


1)
Historical Balances - reflects the consolidated statements of operations of the Company as included in the Company’s Quarterly Report on Form 10-Q for the nine months ended September 30, 2016 and as included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015.

2)
Non-Core Properties - reflects the operating results of the Non-Core Properties for the nine months ended September 30, 2016 and the year ended December 31, 2015, including an allocation of interest expense associated with certain debt assumed by Pillarstone OP.

3)
Pillarstone OP - reflects the addition of the operating results of Pillarstone OP for the nine months ended September 30, 2016 and the year ended December 31, 2016 assuming Pillarstone OP results are the same as the Non-Core Properties results, including the interest expense associated with certain debt assumed by Pillarstone OP and additional expenses resulting from property management fees and an asset management fee paid by Pillarstone OP to the Company.

4)
Management Fees - reflects management fees payable from Pillarstone OP to the Company under the management agreement.

5)
Intercompany Eliminations - reflects the elimination of intercompany management fees paid from Pillarstone OP to the Company.

Noncontrolling interests in Historical Balances, Non-Core Properties and Management Fees include noncontrolling interest owners in the Operating Partnership. Noncontrolling interests in Pillarstone OP include noncontrolling interest owners in Pillarstone OP and the Operating Partnership.


8