10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2007

OR

c 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  000-50256

WHITESTONE REIT

(Exact name of registrant as specified in its charter)

Maryland	76-0594970
(State or other jurisdiction of	(IRS Employer
incorporation or organization)	Identification No.)

2600 South Gessner, Suite 500

Houston, Texas 77063

(Address of principal executive offices)

(713) 827-9595

(Registrant’s telephone number, including area code)

 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.

Yes x No o

 Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act

Large Accelerated Filer o Accelerated Filer o Non-Accelerated Filer x

 Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No x

 The number of the registrant’s Common Shares of Beneficial Interest outstanding at November 8, 2007, was 10,001,269.

		Page
PART I--FINANCIAL INFORMATION
Item 1.	Financial Statements	2
	Consolidated Balance Sheets as of September 30, 2007 (unaudited) and December 31, 2006	2
	Consolidated Statements of Operations for the Three and Nine Months Ended
	September 30, 2007 and 2006 (unaudited)	3
	Consolidated Statements of Changes in Shareholders' Equity for the Nine Months Ended
	September 30, 2007 (unaudited)	4
	Consolidated Statements of Cash Flows for the Nine Months Ended
	September 30, 2007 and 2006 (unaudited)	5
	Notes to Consolidated Financial Statements (unaudited)	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	33
Item 4T.	Controls and Procedures	33
PART II--OTHER INFORMATION
Item 1.	Legal Proceedings	35
Item 1A.	Risk Factors	36
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	36
Item 3.	Defaults Upon Senior Securities	36
Item 4.	Submission of Matters to a Vote of Security Holders	36
Item 5.	Other Information	36
Item 6.	Exhibits	37

i

PART I – FINANCIAL INFORMATION

Item 1.  Financial Statements

WHITESTONE REIT AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(in thousands except share data)
	September 30,			December 31,
	2007			2006
	(unaudited)
ASSETS
Property	$	174,161		$	173,858
Accumulated depreciation		(27,168	)		(24,259	)
Property, net		146,993			149,599
Cash and cash equivalents		19,880			8,298
Escrows and acquisition deposits		606			382
Note receivable		-			604
Accrued rent and accounts receivable, net of allowance for
doubtful accounts		5,358			4,762
Unamortized lease commissions and loan costs		2,868			2,890
Prepaid expenses and other assets		512			552
TOTAL ASSETS	$	176,217		$	167,087
LIABILITIES AND SHAREHOLDERS' EQUITY
Notes payable	$	83,610		$	66,363
Accounts payable and accrued expenses		4,551			6,246
Tenants' security deposits		1,619			1,455
Dividends and distributions payable		2,403			2,400
TOTAL LIABILITIES		92,183			76,464
Minority interests of unit holders in Operating Partnership;
5,808,337 units at September 30, 2007 and December 31, 2006		29,195			31,709
Shareholders' equity
Preferred shares, $0.001 par value per share; 50,000,000
shares authorized; none issued and outstanding
at September 30, 2007 and December 31, 2006		-			-
Common shares, $0.001 par value per share; 400,000,000
shares authorized; 10,001,269 and 9,974,362 issued and
outstanding at September 30, 2007 and December 31, 2006, respectively		10			10
Additional paid-in-capital		72,273			72,012
Accumulated deficit		(17,444	)		(13,108	)
TOTAL SHAREHOLDERS' EQUITY		54,839			58,914
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	176,217		$	167,087

See notes to consolidated financial statements

2

WHITESTONE REIT AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
	Three Months Ended September 30,						Nine Months Ended September 30,
	2007			2006			2007			2006
	(unaudited)						(unaudited)
Revenues
Rental income	$	6,453		$	6,318		$	18,699		$	18,452
Tenants' reimbursements		1,338			1,123			4,071			3,723
Other income		14			175			148			347
Total revenues		7,805			7,616			22,918			22,522
Operating expenses
Property operation and maintenance		2,358			1,919			6,531			5,505
Real estate taxes		1,021			921			2,932			2,756
Property management and asset
management fees to an affiliate		-			556			-			1,360
General and administrative		1,413			372			4,898			1,110
Depreciation and amortization		1,622			1,506			4,851			4,780
Total operating expenses		6,414			5,274			19,212			15,511
Operating income		1,391			2,342			3,706			7,011
Other income (expense)
Interest income		157			60			449			245
Interest expense		(1,375	)		(1,229	)		(4,007	)		(3,939	)
Gain on sale of real estate		148			-			148			-
Change in fair value of derivative instrument		(45	)		(199	)		(29	)		(4	)
Income before minority interests		276			974			267			3,313
Minority interests in income of Operating Partnership		(104	)		(371	)		(100	)		(1,288	)
Net income	$	172		$	603		$	167		$	2,025
Net income per common share	$	0.017		$	0.061		$	0.017		$	0.212
Weighted-average shares outstanding		10,001			9,830			9,998			9,548

See notes to consolidated financial statements

3

WHITESTONE REIT AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(in thousands)
					Additional
	Common Shares				Paid-in		Accumulated
	Shares		Amount		Capital		Deficit			Total
Balance, December 31, 2006		9,974	$	10	$	72,012	$	(13,108	)	$	58,914
Issuance of shares under dividend
reinvestment plan at $9.50 per share		27		-		261		-			261
Net loss		-		-		-		167			167
Dividends		-		-		-		(4,503	)		(4,503	)
Balance, September 30, 2007 (unaudited)		10,001	$	10	$	72,273	$	(17,444	)	$	54,839

See notes to consolidated financial statements

4

WHITESTONE REIT AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
	Nine Months Ended September 30,
	2007			2006
	(unaudited)
Cash flows from operating activities:
Net income	$	167		$	2,025
Adjustments to reconcile net income to
net cash provided by (used in) operating activities:
Depreciation		3,915			3,811
Amortization		936			969
Minority interests in income of Operating Partnership		100			1,288
Gain on sale of real estate		(148	)		-
Bad debt expense		563			247
Change in fair value of derivative instrument		29			(4	)
Changes in operating assets and liabilities:
Escrows and acquisition deposits		(254	)		3,927
Receivables		(1,159	)		(382	)
Unamortized lease commissions and loan costs		(767	)		(777	)
Prepaid expenses and other assets		40			(118	)
Accounts payable and accrued expenses		(1,520	)		(8	)
Tenants' security deposits		164			64
Prepaid rent		(175	)		135
Net cash provided by operating activities		1,891			11,177
Cash flows from investing activities:
Additions to real estate		(1,435	)		(1,228	)
Proceeds from the sale of real estate		275			-
Repayment of note receivable		604			12
Net cash used in investing activities		(556	)		(1,216	)
Cash flows from financing activities:
Dividends paid		(4,466	)		(4,553	)
Distributions paid to OP unit holders		(2,648	)		(2,925	)
Proceeds from issuance of common shares		261			8,724
Decrease in stock offering proceeds escrowed		-			(1,091	)
Proceeds from notes payable		22,769			35,281
Repayments of notes payable		(5,522	)		(41,704	)
Payments of loan origination costs		(147	)		(120	)
Net cash provided by (used in) financing activities		10,247			(6,388	)
Net increase in cash and cash equivalents		11,582			3,573
Cash and cash equivalents at beginning of period		8,298			849
Cash and cash equivalents at end of period	$	19,880		$	4,422
Supplemental disclosure of cash flow information:
Cash paid for interest	$	4,047		$	3,915

See notes to consolidated financial statements

5

WHITESTONE REIT AND SUBSIDIARY

Notes to Consolidated Financial Statements

September 30, 2007

Note 1    –    Interim Financial Statements

The consolidated financial statements included in this report are unaudited; however, amounts presented in the balance sheet as of December 31, 2006 are derived from our audited consolidated financial statements at that date.  The unaudited financial statements at September 30, 2007 have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information on a basis consistent with the annual audited consolidated financial statements and with the instructions to Form 10-Q.  Accordingly, they do not include all of the information and notes required by U.S. generally accepted accounting principles for complete financial statements.  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 REIT (“Whitestone”, “us”, “we”, and “our”), formerly known as Hartman Commercial Properties REIT, and our subsidiary as of September 30, 2007 and results of operations and cash flows for the three and nine month periods ended September 30, 2007.  All of these adjustments are of a normal recurring nature.  The results of operations for the interim period 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 notes which are included in our Annual Report on Form 10-K.

Business

Whitestone was formed as a real estate investment trust, pursuant to the Texas Real Estate Investment Trust Act on August 20, 1998.  In July 2004, Whitestone changed its state of organization from Texas to Maryland pursuant to a merger of Whitestone directly with and into a Maryland real estate investment trust formed for the sole purpose of the reorganization and the conversion of each outstanding common share of beneficial interest of the Texas entity into 1.42857 common shares of beneficial interest of the Maryland entity.  Whitestone serves as the general partner of Whitestone REIT Operating Partnership, L.P. (the “Operating Partnership” or “WROP” or “OP”), formerly known as Hartman REIT Operating Partnership L.P., which was formed on December 31, 1998 as a Delaware limited partnership.  Whitestone currently conducts substantially all of its operations and activities through the Operating Partnership.  As the general partner of the Operating Partnership, Whitestone has the exclusive power to manage and conduct the business of the Operating Partnership, subject to certain customary exceptions.  As of September 30, 2007 and December 31, 2006, we owned and operated 36 retail, warehouse and office properties in and around Houston, Dallas and San Antonio, Texas.

Note 2   –    Summary of Significant Accounting Policies

Basis of presentation

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 September 30, 2007 and December 31, 2006, 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.  Minority interest in the accompanying consolidated financial statements represents the share of equity and earnings of the Operating Partnership allocable to holders of partnership interests other than us.  Net income is allocated to minority interests based on the weighted-average percentage ownership of the Operating Partnership during the year.  Issuance of additional common shares of beneficial interest in Whitestone (“common shares”) and units of limited partnership interest in the Operating Partnership that are convertible into common shares on a one for one basis (“OP Units”) changes the ownership interests of both the minority interests and Whitestone.

Our financial records are maintained on the accrual basis of accounting under which revenues are recognized when earned, and expenses are recorded when incurred.

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at 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 useful lives for depreciable and amortizable assets and costs, the estimated allowance for doubtful accounts, and the estimated fair value of interest rate swaps.  Actual results could differ from those estimates.

6

WHITESTONE REIT AND SUBSIDIARY

Notes to Consolidated Financial Statements

September 30, 2007

Revenue recognition

All leases on our properties are classified as operating leases, and the related rental income is recognized on a straight-line basis over the terms of the related leases.  Differences between rental income earned and amounts due per the respective lease agreements are capitalized or charged, as applicable, to accrued rent receivable.  Percentage rents are recognized as rental income when the thresholds upon which they are based have been met.  Recoveries from tenants for taxes, insurance, and other operating expenses are recognized as revenues in the period the corresponding costs are incurred.  We have established an allowance for doubtful accounts against the portion of tenant accounts receivable which is estimated to be uncollectible.

Real estate

Real estate properties are recorded at cost, net of accumulated depreciation.  Improvements, major renovations, and certain costs directly related to the acquisition, improvement, and leasing of real estate are capitalized.  Expenditures for repairs and maintenance are charged to operations as incurred.  Depreciation is computed using the straight-line method over the estimated useful lives of 5 to 39 years for the buildings and improvements.  Tenant improvements are depreciated using the straight-line method over the life of the lease.

Management reviews our properties for impairment annually or whenever events or changes in circumstances indicate that the carrying amount of the assets, including accrued rental income, may not be recoverable through operations.  Management determines whether an impairment in value has occurred by comparing the estimated future cash flows (undiscounted and without interest charges), including the estimated residual value of the property, with the carrying cost of the property.  If impairment is indicated, a loss will be recorded for the amount by which the carrying value of the property exceeds its fair value.  No impairment was recorded for both the three and nine months ended September 30, 2007 and 2006.

Cash and cash equivalents

We consider all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents.  Cash and cash equivalents at September 30, 2007 and December 31, 2006 consist of demand deposits at commercial banks and money market funds.

Escrows and acquisition deposits

Escrow deposits include escrows established pursuant to certain mortgage financing arrangements for real estate taxes and insurance.  Acquisition deposits include earnest money deposits on future acquisitions.

Unamortized lease commissions and loan costs

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

7

WHITESTONE REIT AND SUBSIDIARY

Notes to Consolidated Financial Statements

September 30, 2007

Federal income taxes

We qualify as a real estate investment trust (“REIT”) under the Internal Revenue Code of 1986 and are therefore not subject to Federal income taxes provided we meet all conditions specified by the Internal Revenue Code for retaining our REIT status.  We believe we have continuously met these conditions since reaching 100 shareholders in 1999 (see Note 9).

Derivative instruments

We have initiated a program designed to manage exposure to interest rate fluctuations and ensure compliance with debt covenants on our credit facility.  We entered into an interest rate swap agreement in March 2006 with respect to amounts borrowed under certain of our credit facilities, which effectively exchanges existing obligations to pay interest based on floating LIBOR rates for obligations to pay interest based on fixed rates.  This interest rate swap was terminated on September 28, 2007.

Changes in the market value of the derivative instruments and in the market value of the hedged items are recorded in earnings each reporting period.  For items that are appropriately classified as cash flow hedges in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 133, “Accounting forDerivative Instruments and Hedging Activities,” changes in the market value of the instruments and in the market value of the hedged items are recorded as other comprehensive income with the exception of the portion of the hedged items that are considered ineffective.  The derivative instruments are reported at fair value as other assets or other liabilities as applicable.  At September 30, 2007, we had no active derivative instruments included in the consolidated balance sheet.

Additionally, approximately $0.05 million and $0.03 million are included in other expense on the consolidated statements of operations for the three and nine months ended September 30, 2007 related to the change in fair value of the derivative instrument which was terminated on September 28, 2007.

Fair value of financial instruments

Our financial instruments consist primarily of cash, cash equivalents, accounts receivable, derivative instruments, accounts and notes payable.  The carrying value of cash, cash equivalents, accounts receivable and accounts payable are representative of their respective fair values due to the short-term nature of these instruments.   The fair value of our debt obligations is representative of its carrying value based upon current rates offered for similar types of borrowing arrangements.  The fair value of interest rate swaps (used for hedging purposes) is the estimated amount that the financial institution would receive or pay to terminate the swap agreements at the reporting date, taking into account current interest rates and the current credit worthiness of the swap counterparties.

Accrued rent and accounts receivable

Receivable balances outstanding include base rents, tenant reimbursements and receivables attributable to the straight lining of rental commitments.  An allowance for the uncollectible portion of accounts receivable is determined based upon an analysis of balances outstanding, historical bad debt levels, customer credit worthiness and current economic trends.

Recent accounting pronouncements

In September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 157, “Fair Value Measurements” (“SFAS 157”).  SFAS 157 defines fair value, establishes a framework for measuring fair value under U.S. generally accepted accounting principles and requires enhanced disclosures about fair value measurements. It does not require any new fair value measurements.  SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. 

8

WHITESTONE REIT AND SUBSIDIARY

Notes to Consolidated Financial Statements

September 30, 2007

We are required to adopt SFAS 157 in the first quarter of 2008, and we are currently evaluating the impact that this Statement will have on our financial position, results of operations or cash flows.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities-Including an amendment of FASB Statement No. 115” (“SFAS 159”).  SFAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions.  SFAS 159 is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years.  We have not decided if we will choose to measure any eligible financial assets and liabilities at fair value under the provisions of SFAS 159.

Concentration of risk

Substantially all of our revenues are generated from office, warehouse and retail locations in the Houston, Dallas and San Antonio, Texas metropolitan areas.  We maintain cash accounts in major U.S. financial institutions.  The terms of these deposits are on demand to minimize risk.  The balances of these accounts occasionally exceed the federally insured limits, although no losses have been incurred in connection with these deposits.

Reclassification

We have reclassified certain prior fiscal year amounts in the accompanying financial statements in order to be consistent with the current fiscal year presentation. During the first quarter of 2007, we have reclassified certain amounts due from Hartman Management, LP, the former advisor, from due to affiliates to accrued rent and accounts receivable.  We have also reclassified interest expense from operating expense to other expense and interest income from revenues to other income in the Consolidated Statements of Operations for the three and nine months ended September 30, 2007.  The reclassification of interest income and expense decreased revenues and operating expenses and increased other income and expense but had no impact on net income.

Comprehensive income

We follow SFAS No. 130, “Reporting Comprehensive Income,” which establishes standards for reporting and display of comprehensive income and its components.  For the periods presented, we did not have significant amounts of other comprehensive income.

Note 3    –    Interest Rate Swap

Effective March 16, 2006, we executed an interest rate swap used to mitigate the risks associated with adverse movements in interest rates which might affect expenditures.  We did not designate this derivative contract as a hedge, and as such, the change in the fair value of the derivative is recognized currently in earnings.  This derivative instrument has a total notional amount of $30 million, is at a fixed rate of 5.09% plus the LIBOR margin, and matures monthly through March 2008.  We terminated this derivative instrument on September 28, 2007 and as such, no amount is included in prepaid expenses and other assets in our consolidated balance sheet at September 30, 2007.

Approximately $0.05 million and $0.03 million are included in other expense in our consolidated statement of operations for the three and nine months ended September 30, 2007 as a result of a decrease in value during those periods.

On October 1, 2007, we executed an interest rate swap used to mitigate the risks associated with adverse movements in interest rates which might affect expenditures.  We have designated this derivative contract as a cash flow hedge, and as such, the change in the fair value of the derivative will be recognized in other comprehensive income.  This derivative instrument has a total notional amount of $70 million, is at a fixed rate of 4.767% plus the LIBOR margin, and matures monthly through October 1, 2008.

9

WHITESTONE REIT AND SUBSIDIARY

Notes to Consolidated Financial Statements

September 30, 2007

 Note 4    –    Real Estate

We account for real estate acquisitions pursuant to SFAS 141, “Business Combinations.” Accordingly, we allocate the purchase price of the acquired properties to land, building and improvements, identifiable intangible assets and to the acquired liabilities based on their respective fair values. Identifiable intangibles include amounts allocated to acquired out-of-market leases, the value of in-place leases and customer relationship value, if any. We determine fair value based on estimated cash flow projections that utilize appropriate discount and capitalization rates and available market information. Estimates of future cash flows are based on a number of factors including the historical operating results, known trends and specific market and economic conditions that may affect the property. Factors considered by management in our analysis of determining the as-if-vacant property value include an estimate of carrying costs during the expected lease-up periods considering market conditions, and costs to execute similar leases. In estimating carrying costs, management includes real estate taxes, insurance and estimates of lost rentals at market rates during the expected lease-up periods, tenant demand and other economic conditions. Management also estimates costs to execute similar leases including leasing commissions, tenant improvements, and legal and other related expenses. Intangibles related to out-of-market leases and in-place lease value are recorded as acquired lease intangibles and are amortized as an adjustment to rental revenue or amortization expense, as appropriate, over the remaining terms of the underlying leases. Premiums or discounts on acquired out-of-market debt are amortized to interest expense over the remaining term of such debt.

On July 26, 2007, we sold a 2.4 acre parcel of vacant land adjacent to our South Shaver retail property located in Houston, Texas for a sales price of $0.3 million.  A gain of $0.1 million was generated from this sale, which is reflected in our consolidated financial statements for the three and nine months ended September 30, 2007.  It is anticipated that the funds received from this sale will be used for future acquisitions and/or capital improvements to existing properties.

At September 30, 2007, we owned 36 commercial properties in the Houston, Dallas and San Antonio, Texas areas comprising approximately 3,093,000 square feet of gross leasable area.

Note 5    –    Note Receivable

In January 2003, we partially financed the sale of a property we had previously sold and for which we had taken a note receivable of $0.4 million as part of the consideration.  We advanced $0.3 million and renewed and extended the balance of $0.4 million still due from the original sale.

The original principal amount of the note receivable, dated January 10, 2003, is $0.7 million.  The note had monthly installments of $6,382, including interest at 7% per annum, for the first two years, and therafter monthly installments of $7,489 with interest at 10% per annum until maturity on January 10, 2018.

This note was paid in full on August 30, 2007.

10

WHITESTONE REIT AND SUBSIDIARY

Notes to Consolidated Financial Statements

September 30, 2007

Note 6    –    Accrued Rent and Accounts Receivable, net

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

	September 30,			December 31,
	2007			2006
Tenant receivables	$	2,303		$	1,941
Accrued rent		3,365			3,035
Allowance for doubtful accounts		(1,032	)		(641	)
Insurance claim receivable		465			427
Other receivables		257			-
Totals	$	5,358		$	4,762

Note 7    –    Debt

Mortgages and other notes payable consist of the following (in thousands):

	September 30,		December 31,
	2007		2006
Mortgages and other notes payable	$	10,085	$	5,138
Revolving loan secured by properties		73,525		61,225
Totals	$	83,610	$	66,363

As of September 30, 2007, we have two active loans which are described below:

Revolving Credit Facility

We have a revolving credit facility with a consortium of banks.  The credit facility is secured by a pledge of the partnership interests in Whitestone REIT Operating Partnership III LP (“WROP III”), a wholly owned subsidiary of the Operating Partnership that was formed to hold title to the properties comprising the borrowing base pool for the facility.  At September 30, 2007, WROP III owns 35 properties.

As of September 30, 2007 and December 31, 2006, the balance outstanding under the credit facility was $73.5 million and $61.2 million, respectively, and the availability to draw was $1.5 million and $13.8 million, respectively.

Outstanding amounts under the credit facility accrue interest computed (at our option) at either the LIBOR or the Alternative Base Rate on the basis of a 360 day year, plus the applicable margin as determined from the following table:

		Alternative Base
Total Leverage Ratio	LIBOR Margin	Rate Margin
Less than 60% but greater than or equal to 50%	2.40%	1.150%
Less than 50% but greater than or equal to 45%	2.15%	1.025%
Less than 45%	1.90%	1.000%

The Alternative Base Rate is a floating rate equal to the higher of the bank’s base rate or the Federal Funds Rate plus 0.5%.  LIBOR Rate loans will be available in one, two, three or six month periods, with a maximum of nine contracts at any time. The effective interest rate as of September 30, 2007 was 7.03% per annum.

11

WHITESTONE REIT AND SUBSIDIARY

Notes to Consolidated Financial Statements

September 30, 2007

Interest only is payable monthly under the loan with the total amount of principal due at maturity on March 11, 2008.  The loan may be prepaid at any time in part or in whole, provided that the credit facility is not in default.  If LIBOR pricing is elected, there is a prepayment penalty based on a “make-whole” calculation for all costs associated with prepaying a LIBOR borrowing.

The revolving credit facility is supported by a pool of eligible properties referred to as the borrowing base pool.  The borrowing base pool must meet the following criteria:

· We will provide a negative pledge on the borrowing base pool and may not provide a negative pledge of the borrowing base pool to any other lender.

· The properties must be free of all liens, unless otherwise permitted.

· All eligible properties must be retail, office-warehouse, or office properties, must be free and clear of material environmental concerns and must be in good repair.

· The aggregate physical occupancy of the borrowing base pool must remain above 80% at all times.

· No property may comprise more than 15% of the value of the borrowing base pool with the exception of Corporate Park Northwest, which is allowed into the borrowing base pool.

· The borrowing base pool must at all times be comprised of at least ten properties.

· The borrowing base pool properties may not contain development or redevelopment projects.

Properties can be added to and removed from the borrowing base pool at any time provided no defaults would occur as a result of the removal.  If a property does not meet the criteria of an eligible property and we want to include it in the borrowing base pool, a majority vote of the bank consortium is required for inclusion in the borrowing base pool.

Covenants, tested quarterly, relative to the borrowing base pool are as follows:

· We will not permit any liens on the properties in the borrowing base pool unless otherwise permitted.

· The ratio of aggregate net operating income from the borrowing base pool to debt service shall at all times exceed 1.5 to 1.0.  For any quarter, debt service shall be equal to the average loan balance for the past quarter times an interest rate which is the greater of (a) the then current annual yield on ten year United States Treasury notes over 25 years plus 2%; (b) a 6.5% constant; or (c) the actual interest rate for the facility.

· The ratio of the value of the borrowing base pool to total funded loan balance must always exceed 1.67 to 1.00.  The value of the borrowing base pool is defined as aggregate net operating income for the preceding four quarters, less a $0.15 per square foot per annum capital expenditure reserve, divided by a 9.25% capitalization rate.

  Other covenants, tested quarterly, relative to us are as follows:

· We will not permit our total indebtedness to exceed 60% of the fair market value of our real estate assets at the end of any quarter.  Total indebtedness is defined as all our liabilities, including this facility and all other secured and unsecured debt, including letters of credit and guarantees.  Fair market value of real estate assets is defined as aggregate net operating income for the preceding four quarters, less a $0.15 per square foot per annum capital expenditure reserve, divided by a 9.25% capitalization rate.

· The ratio of consolidated rolling four-quarter earnings before interest, income tax, depreciation and amortization expenses to total interest expense, including capitalized interest, shall not be less than 2.0 to 1.0.

· The ratio of consolidated earnings before interest, income tax, depreciation and amortization expenses to total interest expense, including capitalized interest, principal amortization, capital expenditures and preferred stock dividends shall not be less than 1.5 to 1.0.  Capital expenditures shall be deemed to be $0.15 per square foot per annum.

· The ratio of secured debt to fair market value of real estate assets shall not be greater than 40%.

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WHITESTONE REIT AND SUBSIDIARY

Notes to Consolidated Financial Statements

September 30, 2007

· The ratio of declared dividends to funds from operations shall not be greater than 95%.  This has been amended to 105% through March 11, 2008,

· The ratio of development assets to fair market value of real estate assets shall not be greater than 20%.

· We must maintain our status as a REIT for income tax purposes.

· Total other investments shall not exceed 30% of total asset value.  Other investments shall include investments in joint ventures, unimproved land, marketable securities and mortgage notes receivable.  Additionally, the preceding investment categories shall not comprise greater than 30%, 15%, 10% and 20%, respectively, of total other investments.

· We must maintain a consolidated tangible net worth of not less than $30 million plus 75% of the value of stock and OP units issued in conjunction with an offering or with the acquisition of an asset or stock.  Consolidated tangible net worth is defined as shareholders equity less intangible assets.

Mortgage Loan on Windsor Park Centre

On March 1, 2007, we obtained a $10 million loan to pay off the loan obtained upon the acquisition of the Windsor Park property and to provide funds for future acquisitions.  The mortgage loan is secured by the Windsor Park property which is owned by Whitestone REIT Operating Company IV LLC (“WROC IV”), a wholly owned subsidiary of the Operating Partnership that was formed to hold title to the Windsor Park property.  On March 1, 2007, we conveyed ownership of the Windsor Park property from the Operating Partnership to WROC IV in order to secure the $10 million mortgage loan.

The note is payable in equal monthly installments of principal and interest of $60,212, with interest at the rate of 6.04% per annum.  The balance of the note is payable in full on March 1, 2014.  The loan balance is approximately $9.9 million at September 30, 2007.

Annual maturities of notes payable as of September 30, 2007, including the revolving loan, are as follows (in thousands):

Year Ended
September 30,
2008	$	73,680
2014		9,930
	$	83,610

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WHITESTONE REIT AND SUBSIDIARY

Notes to Consolidated Financial Statements

September 30, 2007

Note 8    –    Earnings Per Share

Basic earnings per share is computed using net income (loss) available to common shareholders and the weighted average number of common shares outstanding.  Diluted earnings per share reflects common shares issuable from the assumed conversion of OP Units.  Only those items that have a dilutive impact on basic earnings per share are included in the diluted earnings per share.  Accordingly, excluded from the earnings per share calculation for each of the three and nine months ended September 30, 2007 and 2006 are 5,808,337 OP Units as their inclusion would be anti-dilutive.

	Three Months Ended September 30,				Nine Months Ended September 30,
	2007		2006		2007		2006
Basic and diluted earnings per share:
Net income (in thousands)	$	172	$	603	$	167	$	2,025
Basic and diluted earnings
per share	$	0.017	$	0.061	$	0.017	$	0.212
Weighted average common
shares outstanding (in thousands)		10,001		9,830		9,998		9,548

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WHITESTONE REIT AND SUBSIDIARY

Notes to Consolidated Financial Statements

September 30, 2007

Note 9    –    Federal Income Taxes

Federal income taxes are not provided because we intend to and believe we qualify as a REIT under the provisions of the Internal Revenue Code.  Our shareholders include their proportionate taxable income in their individual tax returns.  As a REIT, we must distribute at least 90% of our ordinary 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.

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.

Note 10    –   Related-Party Transactions

Prior to October 2006, our day-to-day operations and portfolio of properties were managed by Hartman Management through property management and advisory agreements. Mr. Hartman, our former President, Secretary, Chief Executive Officer, and Chairman of the Board, is the sole limited partner of Hartman Management, as well as the president, secretary, sole trustee and sole shareholder of the general partner of Hartman Management.

Mr. Hartman was removed by our Board as our President, Secretary, and Chief Executive Officer on October 2, 2006, and he resigned from our Board on October 27, 2006.

In October 2006, our Board terminated for cause our property management agreement with Hartman Management.  Hartman Management turned over all property management functions to us on November 14, 2006.

In addition, our Board elected not to renew our advisory agreement, dated August 31, 2004, with Hartman Management.  This agreement had been extended on a month-to-month basis and ultimately expired on September 30, 2006.

Transactions between us, Hartman Management, and Mr. Hartman are considered related party transactions and are discussed in the following paragraphs.

In January 1999, we entered into a property management agreement with Hartman Management.  Effective September 1, 2004, this agreement was amended and restated.  Prior to September 1, 2004, in consideration for supervising the management and performing various day-to-day affairs, we paid Hartman Management a management fee of 5% and a partnership management fee of 1% based on effective gross revenues from the properties, as defined in the agreement.  After September 1, 2004, we paid Hartman Management property management fees in an amount not to exceed the fees customarily charged in arm’s length transactions by others rendering similar services in the same geographic area, as determined by a survey of brokers and agents in that area.   These fees have ranged between approximately 2% and 4% of gross revenues (as defined in the amended and restated agreement) for the management of office buildings and approximately 5% of gross revenues for the management of retail and warehouse properties.

Effective September 1, 2004, we entered into an advisory agreement with Hartman Management which provided that we pay Hartman Management a quarterly fee of one-fourth of .25% of gross asset value (as defined in the advisory agreement) for asset management services.  In addition, the advisory agreement provided for the payment of a deferred performance fee, payable in certain events, including termination of the advisory agreement, based upon appreciation in the value of certain of our real estate assets.  The advisory agreement expired by its terms on September 30, 2006.

We incurred total management, partnership and asset management fees of $0.6 million and $1.4 million, under the advisory and management agreements for the three and nine months ended September 30, 2006.  We incurred no such fee for the three months and nine months ended September 30, 2007.  No management fees were payable at September 30, 2007 or December 31, 2006.  We have not accrued any deferred performance fees, as we believe the amount of these fees, if any are owing, cannot be determined with reasonable certainty at this time.

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WHITESTONE REIT AND SUBSIDIARY

Notes to Consolidated Financial Statements

September 30, 2007

In consideration of leasing the properties, we historically paid Hartman Management leasing commissions for leases originated by Hartman Management and for expansions and renewals of existing leases.  We incurred total leasing commissions to Hartman Management of $0.2 million and $0.8 million for the three and nine months ended September 30, 2006.  No such fees were incurred for the three and nine months ended September 30, 2007.  No such amounts were payable at September 30, 2007 and December 31, 2006.

In connection with our public offering described in Note 11, we have reimbursed Hartman Management up to 2.5% of the gross selling price of all common shares sold for organization and offering expenses (excluding selling commissions and a dealer manager fee) incurred by Hartman Management on our behalf.  We have paid our dealer manager, through Hartman Management by agreement between them, a fee of up to 2.5% of the gross selling price of all common shares sold in the offering.  We incurred total fees of $0.03 million and $0.1 million for the three and nine months ended September 30, 2006.  No such fees were incurred for the three and nine months ended September 30, 2007.  These fees have been treated as offering costs and netted against the proceeds from the sale of common shares.  On October 2, 2006, our Board elected to terminate the public offering described in Note 11.

Also in connection with our public offering described in Note 11, Hartman Management has historically received an acquisition fee equal to 2% of the gross selling price of all common shares sold for services in connection with the selection, purchase, development or construction of properties for us.  The advisory agreement expired by its terms on September 30, 2006.  On September 30, 2006, $0.2 million of acquisition fees paid to Hartman Management had been capitalized and not yet allocated to the purchase price of a property.  In accordance with the advisory agreement, Hartman Management is obligated to reimburse us for any acquisition fee that has not been allocated to the purchase price of our properties as provided for in our declaration of trust.  A letter demanding payment was sent to Hartman Management on December 21, 2006, and $0.2 million is included in accrued rent and accounts receivables on our consolidated balance sheet at September 30, 2007 as reclassified from December 31, 2006 as described in Note 2 – Reclassification.

We incurred total acquisition fees to Hartman Management of $0.02 million and $0.1 million for the three and nine months ended September 30, 2006.  No such fees were incurred for the three and nine months ended September 30, 2007.  No such amounts were payable at September 30, 2007 and December 31, 2006.

Hartman Management was billed $0.02 million and $0.03 million for office space for the three months ended September 30, 2007 and 2006, respectively, and $0.07 million and $0.08 for the nine months ended  September 30, 2007 and 2006, respectively.  These amounts are included in rental income in our consolidated statements of operations.

Mr. Hartman our former President, Secretary, Chief Executive Officer, and Chairman was owed $0.04 million in dividends payable on his common shares at September 30, 2007 and December 31, 2006.  Mr. Hartman owned 2.9% of our issued and outstanding common shares as of September 30, 2007 and December 31, 2006.

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WHITESTONE REIT AND SUBSIDIARY

Notes to Consolidated Financial Statements

September 30, 2007

Note 11    –    Shareholders Equity

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

On September 15, 2004, our Registration Statement on Form S-11, with respect to our public offering of up to 10 million common shares of beneficial interest offered at a price of $10 per share was declared effective under the Securities Act of 1933.  The Registration Statement also covered up to 1 million shares available pursuant to our dividend reinvestment plan offered at a price of $9.50 per share.  The shares were offered to investors on a best efforts basis. Post-Effective Amendments No. 1, 2 and 3 to the Registration Statement were declared effective by the SEC on June 27, 2005, March 9, 2006 and May 3, 2006, respectively.

On October 2, 2006, our Board terminated the public offering.  On March 27, 2007, we gave the required ten day notice to participants informing them that we intend to terminate our dividend reinvestment plan.  As a result, our dividend reinvestment plan terminated on April 6, 2007.

As of September 30, 2007, 2.8 million shares had been issued pursuant to our public offering with net offering proceeds received of $24.6 million.  An additional 165,000 shares had been issued pursuant to the dividend reinvestment plan in lieu of dividends totaling $1.6 million.  Shareholders that received shares pursuant to our dividend reinvestment plan on or after October 2, 2006 may have recission rights.

All net proceeds of our public offering were contributed to the Operating Partnership in exchange for OP Units.  The Operating Partnership used the proceeds to acquire additional properties and for general working capital.  In accordance with the Operating Partnership’s Agreement of Limited Partnership, in exchange for the contribution of net proceeds from sales of stock, we received an equivalent number of OP Units as shares of stock that are sold.

At September 30, 2007 and December 31, 2006, Mr. Hartman owned 2.9% of our outstanding shares.  At September 30, 2007 and December 31, 2006, our Board collectively owned 2.6% of our outstanding shares.

Operating Partnership Units

Substantially all of our business is conducted through the Operating Partnership.  We are the sole general partner of the Operating Partnership.  As of September 30, 2007, we owned a 62.4% interest in the Operating Partnership.

Limited partners in the Operating Partnership holding OP Units have the right to convert their OP Units into 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 dividends per share of Whitestone.  Subject to certain restrictions, OP Units are not convertible into common shares until the later of one year after acquisition or an initial public offering of the common shares.  As of September 30, 2007 and December 31, 2006, there were 15,448,118 and 15,421,212 OP Units outstanding, respectively.  We owned 9,639,781 and 9,612,875 OP Units as of September 30, 2007 and December 31, 2006, respectively. The balance of the OP Units is owned by third parties, including Mr. Hartman and certain trustees.  Our weighted-average share ownership in the Operating Partnership was approximately 62.40%, and 61.99% for the three months ended September 30, 2007 and 2006, respectively, and 62.39% and 61.26% for the nine months ended September 30, 2007 and 2006, respectively.   At September 30, 2007 and December 31, 2006, Mr. Hartman owned 6.9% of the Operating Partnership’s outstanding units.  At September 30, 2007 and December 31, 2006, our Board collectively owned 0.4% of the Operating Partnership’s outstanding units.

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WHITESTONE REIT AND SUBSIDIARY

Notes to Consolidated Financial Statements

September 30, 2007

Dividends and distributions

The following tables summarize the cash dividends/distributions paid to holders of common shares and holders of OP Units (after giving effect to the recapitalization) during the year ended December 31, 2006 and the quarters ended March 31, 2007, June 30, 2007and September 30, 2007.

Whitestone Shareholders
Dividend		Date Dividend	Total Amount
per Common Share		Paid	Paid (in thousands)
	$  0.1768	Qtr  ended 03/31/06		$   1,526
	$  0.1768	Qtr  ended 06/30/06		$   1,632
	$  0.1500	Qtr  ended 09/30/06		$   1,443
	$  0.1500	Qtr  ended 12/31/06		$   1,477
	$  0.1500	Qtr  ended 03/31/07		$   1,466
	$  0.1500	Qtr  ended 06/30/07		$   1,500
	$  0.1500	Qtr  ended 09/30/07		$   1,500
OP Unit Holders Including Minority Unit Holders
Distribution		Date Distribution	Total Amount
per OP Unit		Paid	Paid (in thousands)
	$  0.1768	Qtr  ended 03/31/06		$   2,488
	$  0.1768	Qtr  ended 06/30/06		$   2,594
	$  0.1500	Qtr  ended 09/30/06		$   2,260
	$  0.1500	Qtr  ended 12/31/06		$   2,294
	$  0.1500	Qtr  ended 03/31/07		$   2,372
	$  0.1500	Qtr  ended 06/30/07		$   2,371
	$  0.1500	Qtr  ended 09/30/07		$   2,371

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WHITESTONE REIT AND SUBSIDIARY

Notes to Consolidated Financial Statements

September 30, 2007

Note 12    –    Commitments and Contingencies

The nature of our business exposes us to the risk of lawsuits for damages or penalties relating to, among other things, breach of contract and employment disputes.  We are currently involved in the following litigation.

Hartman Commercial Properties REIT and Hartman REIT Operating Partnership, L.P. v. Allen R. Hartman and Hartman Management, L.P.,

in the 333^rd Judicial District Court of Harris County, Texas

In October 2006, we initiated this action against our former Chief Executive Officer, Allen R. Hartman, and our former manager and advisor Hartman Management, L.P.  We are seeking damages for breach of contract, fraudulent inducement and breach of fiduciary duties.

In November 2006, Mr. Hartman and Hartman Management filed a counterclaim against us, the members of our Board, and our Chief Operating Officer, John J. Dee.  The counterclaim has since been amended to drop the claims against the individual defendants with the exception of our current Chief Executive Officer, James C. Mastandrea, and Mr. Dee.  The amended counterclaim asserts claims against us for alleged breach of contract and alleges that we owe Mr. Hartman and Hartman Management fees for the termination of an advisory agreement.  The amended counterclaim asserts claims against Messrs. Mastandrea and Dee for tortuous interference with the advisory agreement and a management agreement and conspiracy to seize control of us for their own financial gains.  We have indemnified Messrs. Mastandrea and Dee to the extent allowed by our governing documents and Maryland law.  The amended counterclaim also asserts claims against our prior outside law firm and one of its partners.

Hartman has non-suited without prejudice our prior outside law firm and its partner.

On October 2, 2007, Mr. Hartman and Hartman Management L.P. filed their Second Amended Answer and Second Amended Counterclaim which deleted the claims for negligence, fraud and breach of fiduciary duty.  However, this pleading asserts claims for tortuous interference with prospective relations and a cause of action against Mr. Mastandrea for defamation.  The new claims are closely linked and basically allege that Mr. Mastandrea and Mr. Dee have defamed Mr. Hartman and have attempted to destroy his ability to continue to obtain investors and generally ruined his reputation in the commercial real estate community.  Mr. Hartman and Hartman Management L.P. seek exemplary damages for these causes of action.

Limited discovery has been conducted in this case as of the date of this report, especially on the newly raised claims, and therefore, it is too early to express an opinion regarding the likelihood of an adverse outcome on the counterclaim, although we intend to vigorously defend against those claims and vigorously prosecute our affirmative claims.

Hartman Commercial Properties REIT v. Allen R. Hartman, et al; in the United States District Court for the Southern District of Texas

In December 2006, we initiated this action complaining of the attempt by Mr. Hartman and Hartman Management to solicit written consents from shareholders to replace our Board.

Mr. Hartman and Hartman Management filed a counterclaim claiming that certain changes to our bylaws and declaration of trust are invalid and that their enactment is a breach of fiduciary duty.  They were seeking a declaration that the changes to our bylaws and declaration of trust are invalid and an injunction barring their enforcement.  These changes, among other things, stagger the terms of our Board members over three years, require two-thirds vote of the outstanding common shares to remove a Board member and provide that our secretary may call a special meeting of shareholders only on the written request of a majority of outstanding common shares.  A group of shareholders filed a request to intervene in this action seeking to assert claims similar to those of Mr. Hartman and Hartman Management.  We opposed the intervention.

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WHITESTONE REIT AND SUBSIDIARY

Notes to Consolidated Financial Statements

September 30, 2007

Both parties have filed Motions for Temporary Injunction.   The REIT sought to prevent Mr. Hartman’s continued attempts to solicit written consents to replace our Board and Mr. Hartman sought to prohibit the changes in the REIT’s bylaws described above.  On April 6, 2007, the trial Court granted our Motion for Temporary Injunction and denied the Motion for Temporary Injunction filed by Mr. Hartman.  The Court found that the changes to the bylaws and declaration of trust were valid.  The Court granted our Motion to Dismiss, dismissing many of Hartman and Hartman Management’s claims.  After the ruling, the group of shareholders who were seeking to intervene dismissed their intervention.

On October 26, 2007, the Court of Appeals for the Fifth Circuit issued an opinion affirming the above referenced judgment of the Federal District Court.

However, because the opinion of the Court of Appeals is so recent, and counsel for both parties have not had the opportunity to discuss the effect of this opinion, it is too early to express an opinion concerning the likelihood  of whether either party will pursue any further action in this matter.

Other

We are a participant in various other legal proceedings and claims that arise in the ordinary course of our business.  These matters are generally covered by insurance.  While the resolution of these matters cannot be predicted with certainty, we believe that the final outcome of these matters will not have a material effect on our financial position, results of operations, or cash flows.

Note 13    –   Segment Information

Our management historically has not differentiated results of operations by property type nor location and therefore does not present segment information.

Note 14    –    Subsequent Events

In October 2007, we acquired a 33,405 square foot commercial property in Carefree, Arizona which is adjacent to North Scottsdale.  The property, which is called Pima Norte,  is a newly constructed one and two story class “A” executive office/medical office building containing 43,437 square feet.  Approximately 10,032 square feet had previously been sold to others including an architectural firm, insurance agency, and a health and beauty treatment center.

The buildings at Pima Norte are nearly complete, with only the interiors remaining to be completed.  We intend to lease Pima Norte on a triple net basis.

The purchase price was $8.3 million and was funded from our bank line of credit.  We estimate that we will have approximately $10.2 million invested in the property after the remaining build out is completed.

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Unless the context otherwise requires, all references in this report to “Whitestone,” “we,” “us” or “our” are to Whitestone REIT and our subsidiary.

Forward-Looking Statements

This quarterly report contains forward-looking statements, 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.  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 to not place undue reliance on forward-looking statements, which reflect our management’s view only as of the date of this Form 10-Q.  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 Form 10-Q include:

· changes in general economic conditions;

· changes in real estate conditions;

· construction costs that may exceed estimates;

· construction delays;

· increases in interest rates;

· availability of credit;

· litigation risks;

· lease-up risks;

· inability to obtain new tenants upon the expiration of existing leases; and

· the potential 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 Form 10-K and our Registration Statement on Form S-11, as amended, as previously filed with the Securities and Exchange Commission.

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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 financial statements and the notes thereto included in this report.  For more detailed information regarding the basis of presentation for the following information, you should read the notes to the consolidated financial statements included in this report.

Overview and Outlook

We are a real estate investment trust (“REIT”) engaged in owning and operating income-producing real properties.  Our investments include retail, office and warehouse properties located in the Houston, Dallas and San Antonio, Texas metropolitan areas.  Our properties consist of:

· 19 retail properties containing approximately 1.3 million square feet of leasable space and having a total carrying amount (net of accumulated depreciation) of $67.5 million.

· 6 office properties containing approximately 0.6 million square feet of leasable space and having a total carrying amount (net of accumulated depreciation) of $36.3 million.

· 11 office/warehouse properties containing approximately 1.2 million square feet of leasable space and having a total carrying amount (net of accumulated depreciation) of $43.2 million.

Our primary source of income and cash is rents associated with commercial leases.  Our business objective is to increase shareholder value by employing a disciplined investment strategy.  This strategy is focused on growing assets in desirable markets, achieving diversification by property type and location, and adhering to targeted returns in acquiring properties.

As of September 30, 2007, we had 714 total tenants.  We have a diversified tenant base with our largest tenant compromising only 1.50% and 1.95% of our total revenues for the three and nine months ended September 30, 2007, respectively.  Lease terms for our properties range from less than one year for our smaller tenants to over fifteen years for larger tenants.  Our leases generally include minimum monthly lease payments and tenant reimbursements for payment of taxes, insurance and maintenance.

We are a self-managed REIT, employing 50 full-time employees as of September 30, 2007.  As a self-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.

Prior to November 14, 2006, our properties and day-to-day operations were externally managed by Hartman Management, LP (“the External Manager”) under an advisory agreement and a management agreement.  Under this arrangement we were charged fees based on percentages of gross revenues, asset values, capital raised, and expenses submitted for reimbursement. Our advisory agreement expired at the end of September 2006 and our Board terminated our property management agreement in October 2006.  The External Manager turned over all property management functions to us on November 14, 2006.

We believe that one of the most key measures of our performance is property occupancy.   Occupancy for the total portfolio was 84.5% at September 30, 2007, compared to 82.9% at September 30, 2006  We completed 194 new and renewal leases during the first nine months of 2007 totaling 0.7 million square feet and $33.1 million in total lease value.  We measure occupancy when the tenant has taken possession of the space.  Additionally, leases approximating 83,000 square feet were completed during the first nine months of 2007 and not included in our occupancy as of September 30, 2007.  These tenants are scheduled to take possession of their respective spaces in the fourth quarter of 2007.

In the fourth quarter of 2006, our Board approved our five year business plan.  The key elements of the plan are as follows:

· Maximize value in current properties through operational focus and redevelopment of eleven properties

· Grow through strategic acquisitions of commercial properties in high potential markets, including properties outside of Texas

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· Dispose of non-core properties and reinvest the capital in redevelopment of existing properties or acquisition of core properties in high potential markets

· Raise capital using a combination of the private and public equity and debt markets, as well as joint ventures

· Bring liquidity to our stock by listing on a national stock exchange

During 2007, we have begun progress on the execution of this five year plan as described in the following sections on  redevelopment, acquisitions and dispositions.

Redevelopment

We will begin redevelopment in November 2007 to add 5,000 square feet of office space and upgrade the Westchase Plaza Retail and Office Center located in Houston, Texas.

We expect to redevelop an additional ten properties over the next 15 months to improve their asset values and returns.

Acquisitions

In October of 2007, we acquired a 33,405 square foot commercial property in Carefree, Arizona which is adjacent to North Scottsdale.  The property, which is called Pima Norte,  is a newly constructed one and two story class “A” executive office/medical office building.

Dispositions

On July 26, 2007, we sold a 2.4 acre parcel of vacant land next to our South Shaver retail property located in Houston, Texas for a sales price of $0.3 million.

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 at 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, 2006, in Management’s Discussion and Analysis of Financial Condition and Results of Operations.  There have been no significant changes to these policies during the first nine months of 2007.  For disclosure regarding recent accounting pronouncements and the anticipated impact they will have on our operations, please refer to Note 2 of the consolidated financial statements.

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Results of Operations

Comparison of the Three Month Periods Ended September 30, 2007 and 2006

General.

The following tables provide a general comparison of our results of operations for the three months ended September 30, 2007 and 2006:

	Three Months ended September 30,
	2007			2006
Number of properties owned and operated		36			37
Aggregate gross leasable area (sq. ft.)		3,093,063			3,121,037
Ending occupancy rate		84.5	%		82.9	%
	(in thousands, except per share data)
Total revenues	$	7,805		$	7,616
Total operating expenses		6,414			5,274
Operating income		1,391			2,342
Other income (expense), net		(1,115	)		(1,368	)
Income before minority interests		276			974
Minority interests in the Operating Partnership		(104	)		(371	)
Net income	$	172		$	603
Funds from operations (1)	$	1,689		$	2,446
Adjusted funds from operations (1)		1,007			2,137
Dividends paid on common shares and OP Units		2,371			2,260
Per common share and OP unit	$	0.15		$	0.15
Dividends paid as a % of AFFO		235	%		106	%
(1) In accordance with Regulation G, "reconciliation of non-GAAP measures," see "Funds From Operations and Adjusted Funds From Operations" below.

Revenues

Substantially all of our revenue is derived from rents received for the use of our properties. We had rental income and tenant reimbursements of approximately $7.8 million for the three months ended September 30, 2007, as compared to $7.6 million for the three months ended September 30, 2006, an increase of $0.2 million or 3%.  Our occupancy rate was 84.5% and 82.9% as of September 30, 2007 and 2006, respectively.  Our average annualized revenue was $10.43 and $9.58 per square foot for the three months ended September 30, 2007 and 2006, respectively.  This increase in average annualized revenue was offset by a decrease in average leasable square footage of approximately 28,000 square feet.

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Operating Expenses

 Our total operating expenses were $6.4 million for the three months ended September 30, 2007, as compared to $5.3 million for the three months ended September 30, 2006, an increase of $1.1 million, or 21%.  The primary components of operating expense are detailed in the table below (in thousands):

	Three months ended September 30,
	2007		2006
Property operations and maintenance	$	1,384	$	974
Real estate taxes and insurance		1,195		1,091
Electricity, water and gas utilities		605		646
Property management and asset management
fees to an affiliate		-		556
General and administrative expense		1,413		372
Depreciation		1,301		1,272
Amortization		321		234
Bad Debt		195		129
Total Operating Expenses	$	6,414	$	5,274

Property operations and maintenance. The increase in property operations and maintenance expenses for the three months ended September 30, 2007, as compared to the three months ended September 30, 2006, is primarily the result of increased repair and maintenance costs for our properties.  The majority of these costs relate to work that had been deferred prior to our managing our own properties.  While these costs decreased our earnings for the three months ended September 30, 2007, we believe that they will ultimately result in higher tenant satisfaction, lower tenant attrition and higher occupancy levels.

Property management and asset management fees paid to an affiliate.  On September 30, 2006, our advisory agreement with our external manager expired. On November 14, 2006, all property management functions were transferred to us from our external manager.  As such, no external management fees were charged after November 13, 2006.

General and Administrative Expense.  Prior to October 2, 2006, we were externally managed, which makes a comparison of costs difficult given the different nature of the expenses incurred by an externally-managed REIT versus an internally-managed one.  As an externally-managed REIT, we were charged fees based on percentages of gross revenues, asset values, capital raised, and expenses submitted for reimbursement. U. S. generally accepted accounting principles allowed for many of these fees to be capitalized as an asset or accounted for as a reduction in equity.

Subsequent to October 2, 2006, we operated as an internally-managed REIT and many of the costs that were previously capitalized or recorded as a reduction in equity are now charged to general and administrative expense and reflected in the Consolidated Statements of Operations.  Additionally, significant legal expense has been incurred in 2007 related to the ongoing litigation with our former external manager.  For a detailed discussion of the litigation, please refer to Note 12 of the consolidated financial statements.

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The chart below is a comparison of the total costs incurred for general and administrative services between the three months ended September 30, 2007 and 2006.  Excluding legal costs related to the litigation with our former external manager, costs for general and administrative services for the three months ended September 30, 2007 increased by approximately $0.05 million or 4% over the three months ended September 30, 2006.

	Capitalized in				Charged to
	Balance Sheet				Statement of Operations				Total
	Three Months Ended September 30,				Three Months Ended September 30,				Three Months Ended September 30,
	2007		2006		2007		2006		2007		2006
	(unaudited)				(unaudited)				(unaudited)
Personnel Cost	$	-	$	-	$	737	$	-	$	737	$	-
Office Expense		-		-		229		-		229		-
Professional Fees (Acctg, Legal, etc.)				-		113		372		113		372
Offering Costs:
Selling Commissions		-		76		-		-		-		76
Discounts		-		-		-		-		-		-
Dealer Manager Fee		-		27		-		-		-		27
Expense Reimbursements		-		27		-		-		-		27
Acquisition Fees		-		22		-		-		-		22
Leasing Fees		213		160		-		-		213		160
Property Management Fees		-		-		-		556		-		556
Total, excluding litigation cost	$	213	$	312	$	1,079	$	928	$	1,292	$	1,240
Litigation Cost		-		-		334		-		334		-
Total, including litigation cost	$	213	$	312	$	1,413	$	928	$	1,626	$	1,240

Operating Income.  Operating income was $1.4 million for the three months ended September 30, 2007, as compared to $2.3 million for the three months ended September 30, 2006, a decrease of $0.9 million or 39%.   The primary reasons for the decrease are detailed above in Revenues and Operating Expenses.

Net Income.  Income before minority interests was $0.3 million and $1.0 million for the three months ended September 30, 2007 and 2006, respectively.  Net income was $0.2 million and $0.6 million for the three months ended September 30, 2007 and 2006, respectively.  The decrease in net income was the result of the items discussed above in Revenues and Operating Expenses .

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Comparison of the Nine Month Periods Ended September 30, 2007 and 2006

General.

The following tables provide a general comparison of our results of operations for the nine months ended September 30, 2007 and 2006:

	Nine Months Ended September 30,
	2007			2006
Number of properties owned and operated		36			37
Aggregate gross leasable area (sq. ft.)		3,093,063			3,121,037
Ending occupancy rate		84.5	%		82.9	%
	(in thousands, except per share data)
Total revenues	$	22,918		$	22,522
Total operating expenses		19,212			15,511
Operating income		3,706			7,011
Other income (expense), net		(3,439	)		(3,698	)
Income before minority interests		267			3,313
Minority interests in the Operating Partnership		(100	)		(1,288	)
Net income	$	167		$	2,025
Funds from operations (1)	$	4,790		$	7,992
Adjusted funds from operations (1)		3,280			6,401
Dividends paid on common shares and OP Units		7,114			7,342
Per common share and OP unit	$	0.45		$	0.50
Dividends paid as a % of AFFO		217	%		115	%
(1) In accordance with Regulation G, "reconciliation of non-GAAP measures" see "Funds From Operations and Adjusted Funds From Operations" below.

Revenues.   Substantially all of our revenue is derived from rents received for the use of our properties. We had rental income and tenant reimbursements of approximately $22.9 million for the nine months ended September 30, 2007, as compared to $22.5 million for the nine months ended September 30, 2006, an increase of $0.4 million or 2%.  Our occupancy rate was 84.5% and 82.9% as of September 30, 2007 and 2006, respectively.  Our average annualized revenue was $10.12 per square foot for the nine months ended September 30, 2007, as compared to our average annualized revenue of $9.72 per square foot for the nine months ended September 30, 2006.  This increase in average annualized revenue was offset by a decrease in average leasable square footage of approximately 28,000 square feet.

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Operating Expenses.  Our total operating expenses were $19.2 million for the nine months ended September 30, 2007, as compared to $15.5 million for the nine months ended September 30, 2006, an increase of $3.7 million, or 24%.  The primary components of operating expense are detailed in the table below (in thousands):

	Nine months ended September 30,
	2007		2006
Property operations and maintenance	$	3,792	$	3,049
Real estate taxes and insurance		3,405		3,206
Electricity, water and gas utilities		1,703		1,759
Property management and asset management
fees to an affiliate		-		1,360
General and administrative expenses		4,898		1,110
Depreciation		3,915		3,811
Amortization		936		969
Bad Debt		563		247
Total Operating Expenses	$	19,212	$	15,511

Property operations and maintenance. The increase in property operations and maintenance expenses for the nine months ended September 30, 2007, as compared to the nine months ended September 30, 2006, is primarily the result of increased repair and maintenance costs for our properties.  The majority of these costs relate to work that had been deferred prior to our managing our own properties.  While these costs decreased our earnings for the nine months ended September 30, 2007, we believe that they will ultimately result in higher tenant satisfaction, lower tenant attrition and higher occupancy levels.

Property management and asset management fees paid to an affiliate.  On September 30, 2006, our advisory agreement with our external manager expired. On November 14, 2006, all property management functions were transferred to us from our external manager.  As such, no external management fees were charged after November 13, 2006.

General and Administrative Expense.  Prior to October 2, 2006, we were externally managed, which makes a comparison of costs difficult given the different nature of the expenses incurred by an externally-managed REIT versus and internally-managed one.  As an externally-managed REIT, we were charged fees based on percentages of gross revenues, asset values, capital raised, and expenses submitted for reimbursement. Generally Accepted Accounting Principles allowed for many of theses fees to be capitalized as an asset or accounted for as a reduction in equity.

Subsequent to October 2, 2006, we operated as an internally-managed REIT and many of the costs that were previously capitalized or recorded as a reduction in equity are now charged to general and administrative expense and reflected in the Consolidated Statement of Operations.  Additionally, significant legal expense has been incurred in 2007 related to the ongoing litigation with our former external manager.  For a detailed discussion of the litigation, please refer to Note 12 of the consolidated financial statements.

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The chart below is a comparison of the total costs incurred for general and administrative services between the nine months ended September 30, 2007 and 2006.  Excluding legal costs related to the litigation with our former external manager, costs for general and administrative services for the nine months ended September 30, 2007 increased by approximately $0.2 million or 5% over the nine months ended September 30, 2006.

	Capitalized in				Charged to
	Balance Sheet				Statement of Operations				Total
	Nine Months Ended September 30,				Nine Months Ended September 30,				Nine Months Ended September 30,
	2007		2006		2007		2006		2007		2006
	(Unaudited)				(Unaudited)				(Unaudited)
Personnel Cost	$	-	$	-	$	2,041	$	-	$	2,041	$	-
Office Expense		-		-		655		-		655		-
Professional Fees (Acctg, Legal, etc.)				-		689		1,110		689		1,110
Offering Costs:
Selling Commissions		-		344		-		-		-		344
Discounts		-		14		-		-		-		14
Dealer Manager Fee		-		126		-		-		-		126
Expense Reimbursements		-		126		-		-		-		126
Acquisition Fees		-		101		-		-		-		101
Leasing Fees		772		777		-		-		772		777
Property Management Fees		-		-		-		1,360		-		1,360
Total, excluding litigation cost	$	772	$	1,488	$	3,385	$	2,470	$	4,157	$	3,958
Litigation Cost		-		-		1,513		-		1,513		-
Total, including litigation cost	$	772	$	1,488	$	4,898	$	2,470	$	5,670	$	3,958

Bad Debt.  The increase in bad debt of $0.3 million is primarily a result of additional bad debt reserves recorded due to an increase in the accounts receivable balance of $0.6 million at September 30, 2007, as compared to the balance at September 30, 2006.

Operating Income.  Operating income was $3.7 million for the nine months ended September 30, 2007, as compared to $7.0 million for the nine months ended September 30, 2006, a decrease of $3.3 million or 47%.   The primary reasons for the decrease are detailed above in Revenues and Operating Expenses.

Net Income.   Income before minority interests was $0.3 million and $3.3 million for the nine months ended September 30, 2007 and 2006, respectively.  Net income was $0.2 million and $2.0 million for the nine months ended September 30, 2007 and 2006, respectively.  The decrease in net income was the result of the items discussed above in expenses and revenue.

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Funds From Operations and Adjusted Funds From Operations

We believe that Funds From Operations (“FFO”) and Adjusted Funds From Operations (“AFFO”) are appropriate supplemental measures of operating performance because these measures help investors compare our operating performance relative to other REITs.  The National Association of Real Estate Investment Trusts (“NAREIT”) defines FFO as net income (loss) available to common shareholders computed in accordance with GAAP, excluding gains or losses from sales of operating properties and extraordinary items, plus depreciation and amortization of real estate assets, including our share of unconsolidated partnerships and joint ventures.  We calculate FFO in a manner consistent with the NAREIT definition.

We calculate AFFO by subtracting from FFO both (1) normalized recurring expenditures that are capitalized by the REIT and then amortized, but which are necessary to maintain a REIT's properties and its revenue stream (e.g., leasing expenses and tenant improvement expenditures) and (2) "straight-lining" of rents. This calculation also is called Cash Available for Distribution (CAD) or Funds Available for Distribution (FAD). AFFO is primarily a measure of a real estate company's funds generated by operations.

There can be no assurance that FFO or AFFO as presented by us are comparable to similarly titled measures of other REITs.  We consider FFO and AFFO to be an alternative to net income or other measurements under GAAP as an indicator of our operating performance or to cash flows from operating, investing, or financing activities as a measure of liquidity.  These measures do not reflect working capital changes, cash expenditures for capital improvements or principal payments on indebtedness.  Below is the calculation of FFO and AFFO and the reconciliation to net income, which we believe is the most comparable GAAP financial measure (in thousands):

Reconciliation of Non-GAAP Financial Measures
	Three Months Ended September 30,						Nine Months Ended September 30,
	2007			2006			2007			2006
Net income	$	172		$	603		$	167		$	2,025
Minority interest in income of operating partnership		104			371			100			1,288
Depreciation and amortization of real estate assets		1,561			1,472			4,671			4,679
Gain on sale of real estate		(148	)		-			(148	)		-
FFO		1,689			2,446			4,790			7,992
Tenant improvements		(259	)		(231	)		(497	)		(629	)
Leasing commissions		(213	)		(160	)		(772	)		(777	)
Change in fair value of derivatives		45			199			29			4
Straight-line rents		(275	)		(141	)		(330	)		(245	)
Above (below) market lease value		20			24			60			56
AFFO	$	1,007		$	2,137		$	3,280		$	6,401

Liquidity and Capital Resources

Overview

Our primary liquidity demands are distributions to the holders of our common shares and OP Units, capital improvements and repairs and maintenance for our properties, acquisition of additional properties, tenant improvements and debt repayments.

 Primary sources of capital for funding our acquisitions and redevelopment programs are our $75 million revolving credit facility, cash generated from sales of properties that no longer meet investment criteria, cash flow generated from operating activities and bank debt.

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

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During the nine months ended September 30, 2007, our cash provided from operating activities was $1.9 million and our total distributions were $7.1 million.  Therefore we had a cash flow shortage of approximately $5.2 million. We funded this shortage from cash by borrowing from our KeyBank credit facility and the increase in the debt on our Windsor Park Centre mortgage loan.

     During the first nine months of 2007, we incurred approximately $1.5 million in legal costs as a result of the ongoing litigation with Mr. Hartman and Hartman Management, LP.  We do not know when this litigation will be fully resolved.  The continued legal cost associated with this litigation may have a significant impact on our cash flow.  We anticipate that cash flows from operating activities and our borrowing capacity will provide adequate capital for our working capital requirements, anticipated capital expenditures, litigation costs and scheduled debt payments during the next twelve months.  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.

Sources and Use of Capital

As of September 30, 2007, we had two active loans:

Revolving Credit Facility

We have a revolving credit facility with a consortium of banks.  The credit facility is secured by a pledge of the partnership interests in WROP III, a wholly owned subsidiary of the Operating Partnership that was formed to hold title to the properties comprising the borrowing base pool for the facility.  At September 30, 2007, WROP III owned 35 properties.

As of September 30, 2007 and December 31, 2006, the balance outstanding under the credit facility was $73.5 million and $61.2 million, respectively, and the availability to draw was $1.5 million and $13.8 million, respectively.

Outstanding amounts under the credit facility accrue interest computed (at our option) at either the LIBOR or the Alternative Base Rate on the basis of a 360 day year, plus the applicable margin as determined from the following table:

		Alternative Base
Total Leverage Ratio	LIBOR Margin	Rate Margin
Less than 60% but greater than or equal to 50%	2.40%	1.150%
Less than 50% but greater than or equal to 45%	2.15%	1.025%
Less than 45%	1.90%	1.000%

The Alternative Base Rate is a floating rate equal to the higher of the bank’s base rate or the Federal Funds Rate plus 0.5%.  LIBOR Rate loans will be available in one, two, three or six month periods, with a maximum of nine contracts at any time. The effective interest rate as of September 30, 2007 was 7.03% per annum.

Interest only is payable monthly under the loan with the total amount of principal due at maturity on March 11, 2008.  The loan may be prepaid at any time in part or in whole, provided that the credit facility is not in default.  If LIBOR pricing is elected, there is a prepayment penalty based on a “make-whole” calculation for all costs associated with prepaying a LIBOR borrowing.

We expect to renew this revolving credit facility prior to maturity.

                Mortgage Loan on Windsor Park Centre

On March 1, 2007, we obtained a $10 million loan to pay off the loan obtained upon the acquisition of the Windsor Park property and to provide funds for future acquisitions.  The mortgage loan is secured by the Windsor Park property which is owned by WROC IV, a wholly owned subsidiary of the Operating Partnership that was formed to hold title to the Windsor Park property.  On March 1, 2007, we conveyed ownership of the Windsor Park property from the Operating Partnership to WROC IV in order to secure the $10 million mortgage loan.

The note is payable in equal monthly installments of principal and interest of $60,212, with interest at the rate of 6.04% per annum.  The balance of the note is payable in full on March 1, 2014.  The loan balance is approximately $9.9 million at September 30, 2007.

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Cash and cash equivalents on September 30, 2007 totaled $19.9 million, compared to $8.3 million  on December 31, 2006.  The net increase in cash and cash equivalents during this period was $11.6 million.  Net cash provided by operations during this period was $1.9 million, net cash used for investing activities during this period was $0.5 million and net cash provided by financing activities during this period was $10.2 million.  On September 28, 2007 we drew $8.3 million on our line of credit which was used for the purchase of the Pima Norte Asset on October 4, 2007.  For further discussion of this acquisition see Note 14 to the consolidated financial statements.

Capital Expenditures.  Currently, we are evaluating all of our properties to determine a strategy for each property.  We may determine it is best to invest capital in properties we believe have potential for increasing value.  We also may have unexpected capital expenditures or improvements for our existing assets.  Additionally, we intend to invest in similar properties outside of Texas 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.

Total Contractual Cash Obligations.  A summary of our contractual cash obligations, as of September 30, 2007, is as follows (in thousands):

			Payment due by period
			Less than		1 to 3		3 to 5		More than
Contractual Obligations	Total		1Year		Years		Years		5 Years
Long-Term Debt Obligations	$	83,610	$	73,680	$	-	$	-	$	9,930
Capital Lease Obligations		-		-		-		-		-
Operating Lease Obligations		-		-		-		-		-
Purchase Obligations		-		-		-		-		-
Other Long-Term Liabilities
Reflected on the Registrant’s
Balance Sheet under GAAP		-		-		-		-		-
Total	$	83,610	$	73,680	$	-	$	-	$	9,930

Property Acquisitions.  During the first nine months of 2007 and the year ended December 31, 2006, we have acquired no properties.  Subsequent to September 30, 2007, we acquired a 33,405 square foot commercial property in Carefree, Arizona which is adjacent to North Scottsdale.  The property, which is called Pima Norte, was purchased for $8.3 million and was funded from our bank line of credit.  We estimate that we will have approximately $10.2 million invested in the property after the remaining build out is completed.

Property Redevelopment.   We will begin redevelopment in November of 2007 to add 5,000 square feet of space and upgrade the Westchase Plaza Retail and Office Center located in Houston, Texas.

  We expect to redevelop an additional ten properties over the next 15 months to improve their asset values and returns.

Property Dispositions.  On July 26, 2007 we sold a 2.4 acre parcel of vacant land adjacent to our South Shaver retail property located in Houston, Texas for a sales price of $0.3 million.

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Distributions – the following distributions for common shares and OP units were paid or declared payable during the three months ended September 30, 2007 and 2006 (in thousands):

		2007	Per Share	2006	Per Share
Period	Status	Amount	/OP Unit	Amount	/OP Unit
July - September	Paid	$2,371	$         0.15	$2,260	$        0.15
October - December	Payable	$2,371	$         0.15	$2,294	$        0.15

Taxes

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

Inflation

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

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 have no significant off-balance sheet arrangements as of September 30, 2007 and December 31, 2006.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

Market risk is the risk of loss arising from adverse changes in market rates and prices.  The principal market risk to which we are exposed is the risk related to interest rate fluctuations.  Based upon the nature of our operations, we are not subject to foreign exchange or commodity risk.  We use fixed and variable-rate debt to finance our capital requirements.  These transactions expose us to market risk related to changes in interest rates.  Interest rate swaps with major financial institutions are used to manage a portion of this risk  These swap agreements expose us to credit risk in the event of non-performance by the counter-parties to the swaps.  At September 30, 2007, we had fixed-rate debt of $80.1 million and variable rate debt of $3.5 million, after adjusting for the net effect of $70 million notional amount of interest rate swaps.  At December 31, 2006 we had fixed-rate debt of $35.1 million and variable rate debt of $31.2 million, after adjusting for the net effect of $30 million notional amount of interest rate swaps.

Item 4T.  Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed pursuant to Rule 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Management necessarily applied its judgment in assessing the costs and benefits of such controls and procedures which, by their nature, can provide only reasonable assurance regarding management’s control objectives.

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As reported in our annual report on Form 10-K for the year ended December 31, 2006, our independent registered public accounting firm, in the course of the audit of our financial statements, brought to management’s attention two material weaknesses in our internal controls:  (1) inadequate controls and procedures in place to effectively monitor and record non-routine transactions and (2) inadequate controls and procedures in place to effectively manage certain spreadsheets that support the financial reporting process.  Controls over completeness, accuracy, validity, and review of certain spreadsheet information that supports the financial reporting process either were not designed appropriately or did not operate as designed.  As a result of these deficiencies, our accounting personnel may not process and record transactions or compile data appropriately that require recognition in our financial accounting records.  Accordingly, errors in our accounting for certain revenues and other profit and loss items may occur and may not be detected.  A material weakness (within the meaning of the Public Company Accounting Oversight Board Accounting Standard No. 2) is a control deficiency, or aggregation of control deficiencies, that result in more than a remote risk that a material misstatement in the Company’s annual or interim financial statements will not be prevented or detected.

We are in the process of remediating the material weakness through the following action plan:

· Engagement of external consultant to assist in documenting and establishing processes and controls that support financial reporting.

· Elimination of several spreadsheets which support financial reporting processes through implementation of a fixed asset software and further utilization of our accounting and billing software.

We began our work with the external consultant in the 2^nd quarter of 2007.  We have made significant progress on the material weakness action plan and believe the weakness will be remediated by the end of 2007.

As of the end of the period covered by this report, an evaluation was carried out under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to the Exchange Act. Based upon that evaluation, the material weakness described above, and the progress made on remediation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are not effective in timely alerting them to material information relating to the Company (including its consolidated subsidiaries) that is required to be included in the Company’s Exchange Act filings. 

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

The nature of our business exposes us to the risk of lawsuits for damages or penalties relating to, among other things, breach of contract and employment disputes.  We are currently involved in the following litigation.

Hartman Commercial Properties REIT and Hartman REIT Operating Partnership, L.P. v. Allen R. Hartman and Hartman Management, L.P., in the 333^rd Judicial District Court of Harris County, Texas

In October 2006, we initiated this action against our former Chief Executive Officer, Allen R. Hartman, and our former manager and advisor Hartman Management, L.P.  We are seeking damages for breach of contract, fraudulent inducement and breach of fiduciary duties.

In November 2006, Mr. Hartman and Hartman Management filed a counterclaim against us, the members of our Board, and our Chief Operating Officer, John J. Dee.  The counterclaim has since been amended to drop the claims against the individual defendants with the exception of our current Chief Executive Officer, James C. Mastandrea, and Mr. Dee.  The amended counterclaim asserts claims against us for alleged breach of contract and alleges that we owe Mr. Hartman and Hartman Management fees for the termination of an advisory agreement.  The amended counterclaim asserts claims against Messrs. Mastandrea and Dee for tortuous interference with the advisory agreement and a management agreement and conspiracy to seize control of us for their own financial gains.  We have indemnified Messrs. Mastandrea and Dee to the extent allowed by our governing documents and Maryland law.  The amended counterclaim also asserts claims against our prior outside law firm and one of its partners.

Hartman has non-suited without prejudice our prior outside law firm and its partner.

On October 2, 2007, Mr. Hartman and Hartman Management L.P. filed their Second Amended Answer and Second Amended Counterclaim which deleted the claims for negligence, fraud and breach of fiduciary duty.  However, this pleading asserts claims for tortuous Interference with prospective relations and a cause of action against Mr. Mastandrea for Defamation.  The new claims are closely linked and basically allege that Mr. Mastandrea and Mr. Dee have defamed Mr. Hartman and have attempted to destroy his ability to continue to obtain investors and generally ruined his reputation in the commercial real estate community.  Mr. Hartman and Hartman Management L.P. seek exemplary damages for these causes of action.

Limited discovery has been conducted in this case as of the date of this report, especially on the newly raised claims, and therefore, it is too early to express an opinion regarding the likelihood of an adverse outcome on the counterclaim, although we intend to vigorously defend against those claims and vigorously prosecute our affirmative claims.

Hartman Commercial Properties REIT v. Allen R. Hartman, et al; in the United States District Court for the Southern District of Texas

In December 2006, we initiated this action complaining of the attempt by Mr. Hartman and Hartman Management to solicit written consents from shareholders to replace our Board.

Mr. Hartman and Hartman Management filed a counterclaim claiming that certain changes to our bylaws and declaration of trust are invalid and that their enactment is a breach of fiduciary duty.  They were seeking a declaration that the changes to our bylaws and declaration of trust are invalid and an injunction barring their enforcement.  These changes, among other things, stagger the terms of our Board members over three years, require two-thirds vote of the outstanding common shares to remove a Board member and provide that our secretary may call a special meeting of shareholders only on the written request of a majority of outstanding common shares.  A group of shareholders filed a request to intervene in this action seeking to assert claims similar to those of Mr. Hartman and Hartman Management.  We opposed the intervention.

Both parties have filed Motions for Temporary Injunction.   The REIT sought to prevent Mr. Hartman’s continued attempts to solicit written consents to replace our Board and Hartman sought to prohibit the changes in the REIT’s bylaws described above.  On April 6, 2007, the trial Court granted our Motion for Temporary Injunction and denied the Motion for Temporary Injunction filed by Mr. Hartman.  The Court found that the changes to the bylaws and declaration of trust were valid.  The Court granted our Motion to Dismiss, dismissing many of Mr. Hartman and Hartman Management’s claims.  After the ruling, the group of shareholders who were seeking to intervene dismissed their intervention.

35

On October 26, 2007, the Court of Appeals for the Fifth Circuit issued an opinion affirming the above referenced judgment of the Federal District Court.

However, because the opinion of the Court of Appeals is so recent, and counsel for both parties have not had the opportunity to discuss the effect of this opinion, it is too early to express an opinion concerning the likelihood  of whether either party will pursue any further action in this matter.

Other

We are a participant in various other legal proceedings and claims that arise in the ordinary course of our business.  These matters are generally covered by insurance.  While the resolution of these matters cannot be predicted with certainty, we believe that the final outcome of these matters will not have a material effect on our financial position, results of operations or cash flows.

Item 1A. Risk Factors

As of September 30, 2007, there have been no material changes to the risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2006.

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

Market Information

There is no established trading market for our common shares of beneficial interest. As of October 31, 2007, we had 10,001,269 common shares of beneficial interest outstanding held by a total of approximately 1,428 shareholders.

Public Offering Proceeds

On September 15, 2004, our Registration Statement on Form S-11, with respect to our public offering of up to 10,000,000 common shares of beneficial interest to be offered at a price of $10 per share was declared effective under the Securities Act of 1933.  The Registration Statement also covered up to 1,000,000 shares available pursuant to our dividend reinvestment plan to be offered at a price of $9.50 per share.  The shares were offered to investors on a best efforts basis. Post-Effective Amendments No. 1, 2 and 3 to the Registration Statement were declared effective by the SEC on June 27, 2005, March 9, 2006 and May 3, 2006, respectively.

On October 2, 2006, our Board terminated the public offering.  On March 27, 2007, we gave the required ten day notice to plan participants informing them that we intend to terminate our dividend reinvestment plan.  As a result, our dividend reinvestment plan terminated on April 6, 2007.

No shares were offered to investors during the 3rd quarter of 2007.

Item 3.  Defaults Upon Senior Securities

None.

Item 4.  Submission of Matters to a Vote of Security Holders

None

Item 5.  Other Information

None.

36

Item 6.  Exhibits

Exhibit No.  Description

3.1 Declaration of Trust of Whitestone REIT (formerly Hartman Commercial Properties REIT), a Maryland real estate investment trust (previously filed as and incorporated by reference to Exhibit 3.1 to the Registrant’s Registration Statement on Form S-11/A, Commission File No. 333-111674, filed on May 24, 2004)

3.2 Articles of Amendment and Restatement of Declaration of Trust of Whitestone REIT (formerly Hartman Commercial Properties REIT) (previously filed as and incorporated by reference to Exhibit 3.2 to the Registrant’s Registration Statement on Form S-11/A, Commission File No. 333-111674, filed on July 29, 2004)

3.3 Articles Supplementary (previously filed as and incorporated by reference to Exhibit 3(i).1 to the Registrant’s Current Report on Form 8-K, Commission File No. 000-50256, filed on December 6, 2006)

3.4 Bylaws (previously filed as and incorporated by reference to Exhibit 3.2 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-111674, filed on December 31, 2003)

3.5 First Amendment to Bylaws (previously filed as and incorporated by reference to Exhibit 3(ii).1 to the Registrant’s Current Report on Form 8-K, Commission File No. 000-50256, filed on December 6, 2006)

4.1 Specimen certificate for common shares of beneficial interest, par value $.001 (previously filed as and incorporated by reference to Exhibit 4.2 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-111674, filed on December 31, 2003)

10.24 Amendment No. 2, dated May 19, 2006, between Hartman REIT Operating Partnership, L.P., Hartman REIT Operating Partnership III, L.P., and KeyBank National Association, as agent for the consortium of lenders (previously filed and incorporated by reference to Exhibit 10.24 to the Registrant’s Annual Report of Form 10-K for the year ended December 31, 2006, filed on March 30, 2007)

10.25 Promissory Note between HCP REIT Operating Company IV LLC and MidFirst Bank, dated March 1, 2007 (previously filed and incorporated by reference to Exhibit 10.25 to the Registrant’s Annual Report of Form 10-K for the year ended December 31, 2006, filed on March 30, 2007)

10.26 Amendment No. 3, dated March 26, 2007, between Hartman REIT Operating Partnership, L.P., Hartman REIT Operating Partnership III, L.P., and KeyBank National Association, as agent for the consortium of lenders (previously filed and incorporated by reference to Exhibit 10.26 to the Registrant’s Annual Report of Form 10-K for the year ended December 31, 2006, filed on March 30, 2007)

10.27* Amendment No. 5, dated October 31, 2007, between Hartman REIT Operating Partnership, L.P., Hartman REIT Operating Partnership III, L.P., and KeyBank National Association, as agent for the consortium of lenders

14.1* Code of Business Conduct and Ethics effective May 14, 2007

99.1* Insider Trading Compliance Policy effective May 14, 2007

99.2* Nominating and Governance Committee Charter effective May 14, 2007

99.3* Audit Committee Charter effective May 14, 2007

37

99.4* Compensation Committee Charter effective May 14, 2007

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

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

32.1* Certificate pursuant to 18 U.S.C., Section 1350, as adopted pursuant to Section 906  of the Sarbanes-Oxley Act of 2002 (Chief Executive Officer)

32.2* Certificate pursuant to 18 U.S.C., Section 1350, as adopted pursuant to Section 906  of the Sarbanes-Oxley Act of 2002 (Chief Financial Officer)

________________________

*   Filed herewith.

+   Denotes management contract or compensatory plan or arrangement.

38

SIGNATURE

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: November 14, 2007	/s/ James C. Mastandrea
	James C. Mastandrea
	Chief Executive Officer
	(Principal Executive Officer)

Date: November 14, 2007	/s/ David K. Holeman
	David K. Holeman
	Chief Financial Officer
	(Principal Financial Officer)

39

EX-10.27

Exhibit 10.27

AMENDMENT NO. 5 TO REVOLVING CREDIT AGREEMENT

This Amendment No. 5 (this “Amendment No. 5”) to Revolving Credit Agreement is made and entered into and has an effective date as of the ___ day of October, 2007, by and among WHITESTONE REIT f/k/a HARTMAN REIT OPERATING PARTNERSHIP, L.P. (“Whitestone OP”), WHITESTONE REIT OPERATING PARTNERSHIP III, L.P. f/k/a HARTMAN REIT OPERATING PARTNERSHIP III, L.P. (“WHITESTONE III”) and the Subsidiaries of Whitestone OP and/or Whitestone III which are listed on Schedule 1 (as such Schedule 1 may be amended from time to time) (Whitestone OP, Whitestone III and any such Subsidiary being hereinafter referred to collectively as the “Borrower” unless referred to in their individual capacities) to a certain Revolving Credit Agreement (as amended, the “Credit Agreement”) dated as of March 11, 2005, each having its principal place of business at 1450 West Sam Houston Parkway North, Suite 100, Houston, Texas 77043, KEYBANK NATIONAL ASSOCIATION (“KeyBank”), having a principal place of business at 127 Public Square, Cleveland, Ohio 44114, and certain other lenders individually and in certain agent capacities (collectively with KeyBank, the “Lenders”) and KeyBank, as administrative agent for itself and each other Lender (the “Agent”).

WHEREAS, the Borrower has requested certain amendments to the Credit Agreement, as set forth herein.

NOW, THEREFORE, in consideration of One Dollar ($1.00) and other good and valuable consideration by each of the parties hereto, the receipt and sufficiency of which are hereby acknowledged, it is agreed as follows:

1. Capitalized terms used but not defined herein shall have the respective meanings assigned to such terms in the Credit Agreement.

2. Effective from and after May 25, 2007:

(a) The term Loan Documents shall include this Amendment No. 5 to Credit Agreement, dated as of October __, 2007, among the Borrower, the Lenders and the Agent.

(b) Section 1.1 of the Credit Agreement is amended by inserting, in the appropriate alphabetical order, the following new definition:

“G and A Expenses.  All payroll and other employment-related expenses incurred by the Trust in connection with becoming a self-managed REIT.”

-1-

(b) Section 9.6(a) of the Credit Agreement is amended to read in its entirety as follows:

“(a) The Borrower will not declare or make (i) annual Distributions in excess of (x) 105% of “funds from operations” for the fiscal quarters ended March 31, 2007, June 30, 2007, September 30, 2007, December 31, 2007 and March 31, 2008 or (y) 95% of “funds from operations” for any fiscal quarter thereafter; or (ii) any Distributions during any period after any Event of Default has occurred; provided, however, (a) that the Borrower may at all times (including while an Event of Default is continuing) make Distributions to the extent (after taking into account all available funds of the Trust from all other sources) required in order to enable the Trust to continue to qualify as a REIT and (b) in the event that the Borrower cures any such Event of Default in clause (ii) above and the Agent has accepted such cure prior to accelerating the Loan, the limitation of clause (ii) above shall cease to apply with respect to such Event of Default.”

(b) Section 9.6(c) of the Credit Agreement is amended to read in its entirety as follows:

“(c)           Notwithstanding the definition of “funds from operations” by the Board of Governors of the National Association of Real Estate Investment Trusts, for purposes of determining the Distributions permitted to be declared under Section 9.6(a)(i), (i) for any fiscal period ending on or after December 31, 2006 through December 31, 2007, Excluded Litigation Fees shall not reduce “funds from operations” and (ii) “funds from operations” shall be calculated in a manner consistent with its calculation prior to the Trust becoming a self-managed fund and shall not be reduced by G and A Expenses.”

3. The Borrower hereby represents and warrants as follows:

(a)  Representations in Credit Agreement.  Both before and after giving effect to this Amendment No. 5, each of the representations and warranties made by or on behalf of the Borrower, the Trust or any of their respective Subsidiaries contained in the Credit Agreement or any of the other Loan Documents, was true when made and is true on and as of the date hereof with the same full force and effect as if each of such representations and warranties had been made on the date hereof and in this Amendment No. 5, except to the extent that such representations and warranties relate expressly to an earlier date.

-2-

(b)  No Events of Default.  No Default or Event of Default exists on the date hereof (both before and after giving effect to this Amendment No. 5).

(c)  Binding Effect of Documents.  This Amendment No. 5 has been duly executed and delivered by the Borrower and the Trust and is in full force and effect as of the date hereof, and the agreements and obligations of the Borrower contained herein constitute legal, valid and binding obligations of the Borrower enforceable against the Borrower in accordance with their respective terms.

4. Provisions of General Application.

(a)  No Other Changes.  Except as otherwise expressly provided by this Amendment No. 5, all of the terms, conditions and provisions of the Credit Agreement and each of the other Loan Documents remain unaltered.  The Credit Agreement and this Amendment No. 5 shall be read and construed as one agreement.

(b)  Governing Law.  This Amendment No. 5 is intended to take effect as a sealed instrument and shall be deemed to be a contract under the laws of the State of Ohio.  This Amendment No. 5 and the rights and obligations of each of the parties hereto shall be governed by and interpreted and determined in accordance with the laws of the State of Ohio.

(c)  Binding Effect; Assignment.  This Amendment No. 5 shall be binding upon and inure to the benefit of each of the parties hereto and their respective successors in title and assigns.

(d)  Counterparts.  This Amendment No. 5 may be executed in any number of counterparts, but all such counterparts shall together constitute but one and the same agreement.  In making proof of this Amendment No. 5, it shall not be necessary to produce or account for more than one counterpart thereof signed by each of the parties hereto.

(e)  Conflict with Other Agreements.  If any of the terms of this Amendment No. 5 shall conflict in any respect with any of the terms of any of the Credit Agreement or any other Loan Document, the terms of this Amendment No. 5 shall be controlling.

(f)  Condition Precedent.  The effectiveness of this Amendment No. 5 is subject to the condition precedent that the Agent shall have received, in form and substance satisfactory to it, an executed original of this Amendment No. 5 from each Borrower and from the Majority Lenders.

-3-

WITNESS the execution hereof, under seal, as of the day and year first written above

KEYBANK NATIONAL ASSOCIATION,

as Administrative Agent

By: _________________________

Name:

Title:

(Signatures continued on next page)

-4-

WHITESTONE REIT

By: Whitestone Commercial Properties REIT, a Maryland real estate investment trust, its sole general partner

By: _________________________

James C. Mastandrea, CEO

WHITESTONE REIT OPERATING PARTNERSHIP III LP

By: Whitestone REIT Operating Partnership III GP LLC, a Texas limited liability company, its sole general partner

By: Whitestone REIT, a Maryland real estate investment trust, its sole member

By: Whitestone Commercial Properties REIT, a Maryland real estate investment trust, its sole general partner

By: _________________________

James C. Mastandrea, CEO

WHITESTONE REIT OPERATING PARTNERSHIP III GP LLC, a Texas limited liability company

By: Whitestone REIT, a Maryland real estate investment trust, its sole member

By: Whitestone Commercial Properties REIT, a Maryland Real estate investment trust, its sole general partner

By: ____________________________

James C. Mastandrea, CEO

-5-

WHITESTONE REIT OPERATING PARTNERSHIP III LP LTD, a Texas limited partnership

By: Whitestone REIT Operating Partnership III GP LLC, a Texas limited liability company, its sole general partner

By: Whitestone REIT, a Maryland real estate investment trust, its sole member

By: Whitestone Commercial Properties REIT, a Maryland Real estate investment trust, its sole general partner

By: _________________________

James C. Mastandrea, CEO

ACCEPTED AND AGREED AS OF

THE DATE FIRST WRITTEN ABOVE:

WHITESTONE COMMERCIAL PROPERTIES REIT, a

Maryland real estate investment trust, Guarantor

By: _________________________________

James C. Mastandrea, CEO

-6-

EX-14.1

Exhibit 14.1

WHITESTONE REIT

Code of Business Conduct and Ethics

Effective as of May 14, 2007

Introduction

This Code of Business Conduct and Ethics (this “Code”) embodies the commitment of Whitestone REIT (the “REIT”) and Whitestone REIT Operating Partnership, L.P. (together with the REIT, the “Company”) to conduct their business in accordance with all applicable laws, rules and regulations and the highest ethical standards.  All employees and members of the Board of Trustees (the “Board”) of the REIT are expected to adhere to the principles and procedures set forth in this Code that apply to them.

For purposes of Section 406 of the Sarbanes-Oxley Act of 2002 and the rules promulgated thereunder, Section I of this Code shall be our code of ethics for our President and Chief Executive Officer, Chief Operating Officer, Chief Financial Officer, controller or other chief accounting officer, and any other senior executive or financial officers performing similar functions and so designated from time to time by the Chief Executive Officer of the Company (collectively, the “Senior Executive and Financial Officers”), although this entire Code shall apply to Senior Executive and Financial Officers for all other purposes.  Each employee of the Company also should read and be familiar with the Company’s Employee Handbook, as it may be modified from time to time (the “Employee Handbook”).  With respect to the Company’s employees, this Code does not supersede the standards set forth in the Employee Handbook, but rather should be read together with the Employee Handbook.

SECTION I.

A.General

The policy of the Company is to comply with all laws governing its operations and to conduct its affairs in keeping with the highest moral, legal and ethical standards.  In particular, Senior Executive and Financial Officers hold an important and elevated role in demonstrating and promoting a commitment to (i) honest and ethical conduct, (ii) full, fair, accurate, timely and understandable disclosure in the Company’s public communications, (iii) compliance with applicable governmental rules and regulations, (iv) prompt internal reporting of violations of this Code to appropriate persons, and (v) accountability for adherence to this Code.  To assist in accomplishing these goals, the Company has adopted this Code.  This Code shall be approved initially by the Board and thereafter periodically by the Audit Committee (the “Audit Committee”) of the Board and disbursed to the public by means of one of the methods described in the rules and regulations promulgated by the Securities and Exchange Commission (the “SEC”).  Once approved by the Board, this Code shall supersede any other code of business conduct approved by the Board prior to the effective date of this Code.

B.Honest and Ethical Conduct

Employees and trustees are expected to exhibit and promote the highest standards of honest and ethical conduct, by, among other things, their adherence to the following policies and procedures:

·   they shall engage in only honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships;

·   they shall inform the Company’s Chief Operating Officer of (a) any deviations in practice from policies and procedures governing honest and ethical behavior that comes to their attention or (b) any material transaction or relationship that comes to their attention that could reasonably be expected to create a conflict of interest;

·   Senior Executive and Financial Officers shall demonstrate personal support for the policies and procedures set forth in this Code through periodic communications reinforcing these principles and standards throughout the Company; and

·   they shall respect the confidentiality of information acquired in performance of one’s responsibilities and shall not use confidential information for personal advantage.

C.Financial Records and Periodic Reports

The Company is committed to full, fair, accurate, timely and understandable disclosure in reports and documents that it files with, or submits to, the SEC and in other public communications made by the Company.  In support of this commitment, the Company has, among other measures, required the maintenance of accurate and complete records, the prohibition of false, misleading or artificial entries on its books and records, and the full and complete documentation and recording of transactions in the Company’s accounting records.  In addition to performing their duties and responsibilities under these requirements, all employees involved in the Company’s SEC reporting process, including each of the Senior Executive and Financial Officers, will establish and manage the Company’s reporting systems and procedures with due care and diligence to ensure that:

·   reports filed with or submitted to the SEC and other public communications contain information that is full, fair, accurate, timely and understandable and do not misrepresent or omit material facts;

·   business transactions are properly authorized and completely and accurately recorded in all material respects on the Company’s books and records in accordance with generally accepted accounting principles and the Company’s established financial policies; and

·   retention or disposal of Company records is in accordance with applicable legal and regulatory requirements.

D.Compliance with Applicable Laws, Rules and Regulations

All employees and trustees will comply with all applicable governmental laws, rules and regulations.

E.Off the Job Conduct

As a general matter, the Company does not seek to regulate the personal, off-the-job conduct of its employees.  However, employees will be subject to disciplinary action (including separation from the Company where deemed appropriate) for engaging in off-the-job conduct that threatens to or does adversely impact an employee’s job performance, the safety or performance of other employees, or other legitimate business interests or the reputation of the Company.  When entertaining individuals in connection with the performance of their duties, employees are expected to maintain conduct standards consistent with on-the-job expectations.

SECTION II.

A.Corporate Opportunities

Employees and trustees owe a duty to the Company to advance the Company’s legitimate business interests when the opportunity to do so arises.  Employees and trustees are prohibited from:

·   taking for themselves or family members or affiliates business or other opportunities that are discovered or that arise through the use of trust information, property or position; and

·   using trust information, property or position for direct or indirect personal gain.

2

Sometimes the line between personal and Company benefits is difficult to draw, and sometimes both personal and Company benefits may be derived from certain activities.  The only prudent course of conduct for our employees and trustees is to make sure that any use of Company assets that is not solely for the benefit of the Company is approved beforehand bythe Company’s Chief Operating Officer.

B.Confidentiality

In carrying out the Company’s business, employees and trustees often learn confidential or proprietary information about the Company, its tenants, prospective tenants or other third parties.  Employees and trustees must maintain the confidentiality of all information so entrusted to them, except when disclosure is authorized or legally mandated.  Confidential or proprietary information includes, among other things, any non-public information concerning the Company, including its businesses, financial performance, results or prospects, and any non-public information provided by a third party with the expectation that the information will be kept confidential and used solely for the business purpose for which it was conveyed.

C.Fair Dealing

The Company strives for success through honest business competition.  We do not seek competitive advantages through illegal or unethical business practices.  Each employee and trustee should endeavor to deal fairly with the Company’s tenants, vendors, service providers, suppliers, competitors and employees.  No employee or trustee should take unfair advantage of anyone through manipulation, concealment, abuse of privileged information, misrepresentation of material facts, or any unfair dealing practice.

D.Protection and Proper Use of Company Assets

All employees should protect the Company’s assets and ensure their efficient use.  All Company assets should be used for legitimate business purposes only.  The Company assets include, but are not limited to, all property, equipment, products and other tangible assets, and all proprietary information such as trade secrets, patents, trademarks, and copyrights, as well as business, marketing and service plans, tenant and leasing information, property acquisition and disposition plans, engineering and manufacturing ideas, designs, databases, records, salary information and any unpublished financial data and reports.  As noted above, the only prudent course of conduct for our employees and trustees is to make sure that any use of Company assets that is not solely for the benefit of the Company is approved beforehand by the Company’s Chief Operating Officer.

E.Workplace Environment

In order to maintain a productive, safe and respectful environment, employees are required to adhere to the following policies and procedures:

·   they shall not offer or accept bribes or kickbacks either directly or indirectly;

·   they shall report to work in condition to perform their duties, free from the influence of alcohol or illegal drugs;

·   they shall respect the diversity of all employees and not engage in wrongful discrimination or harassment; and

·   they shall maintain a safe and healthy workplace for all employees by following safety and health rules and practices and reporting accidents, injuries and unsafe equipment, practices or conditions.

3

SECTION III.

A.Reporting Concerns

Employees and trustees of the Company are encouraged to and should strive to identify and raise potential issues before they lead to problems, and should ask about the application of this Code whenever in doubt.  Any employee or trustee who becomes aware of any existing or potential violation of this Code should promptly notify the Company’s Chief Operating Officer.  The Company has implemented a reporting procedure to enable employees and trustees to communicate confidentially to the Company’s Chief Operating Officer any observations, concerns or complaints relating to behavior or conduct that is unethical, illegal or inappropriate.  Details of this procedure will be made available to all employees and trustees.  The Company’s Chief Operating Officershall take all action he or she considers appropriate to investigate any reported violations.  The Company will take such disciplinary or preventive action as it deems appropriate to address any existing or potential violation of this Code brought to its attention.

Retaliation against any employee or trustee, who, in good faith, reports a concern to the Company about illegal or unethical conduct, or a violation of this Code, will not be tolerated under any circumstances.  Any employee or trustee who retaliates against an employee or trustee who reports a claim or participates in an investigation under this Code shall be disciplined up to and including termination.

Any questions relating to how these policies should be interpreted or applied should be addressed to your supervisor, a member of the executive staff or the Company’s Chief Operating Officer.

B.Administration

This Code shall be administered and monitored by the Company’s Chief Operating Officer.  The Audit Committee, however, shall have the ultimate responsibility for ensuring compliance with this Code.

The Company’s Chief Operating Officerwill handle day-to-day compliance matters, including:

·   receiving, reviewing, investigating and resolving concerns and reports on the matters described in this Code;

·   interpreting and providing guidance on the meaning and application of this Code; and

·   reporting periodically and as matters arise to the Audit Committee on the implementation and effectiveness of this Code and other compliance matters, and recommending any updates or amendments to this Code that he or she deems necessary or advisable.

The Company’s Chief Operating Officermay seek the advice of the Audit Committee as to interpretation of this Code.

Failure of an employee or trustee to comply with this Code will result in disciplinary action up to and including termination.

C.Waivers of This Code

Generally, waivers of this Code will only be granted under extenuating circumstances.  Any employee or trustee who believes that a waiver may be called for should discuss the matter with the Company’s Chief Operating Officer.  Waivers for executive officers (including Senior Executive and Financial Officers) or trustees of the Company may be made only by the full Board and shall be promptly disclosed to the Company’s shareholders in accordance with all applicable rules and regulations.  Any other waiver must be approved by our President and Chief Executive Officer or Chief Operating Officer.

4

EX-31.1

Exhibit 31.1

CHIEF EXECUTIVE OFFICER

CERTIFICATION

I, James C. Mastandrea, certify that:

1.           I have reviewed this quarterly report on Form 10-Q 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)) 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.           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

c.           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:           November 14, 2007

/s/ James C. Mastandrea

James C. Mastandrea, Chief Executive Officer

EX-31.2

Exhibit 31.2

CHIEF FINANCIAL OFFICER

CERTIFICATION

I, David K. Holeman, certify that:

1.           I have reviewed this quarterly report on Form 10-Q 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)) 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.           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

c.           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:           November 14, 2007

/s/ David K. Holeman

David K. Holeman, Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

(18 U.S.C. SECTION 1350)*

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 September 30, 2007, 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 § 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.

Dated this November 14, 2007	/s/ James C. Mastandrea
	James C. Mastandrea
	Chief Executive Officer

*           In accordance with SEC Release No. 34-47986, this Exhibit is furnished to the SEC as an accompanying document and is not deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that Section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933.  A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2

 Exhibit 32.2

CERTIFICATION PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

(18 U.S.C. SECTION 1350)*

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 September 30, 2007, 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 § 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.

Dated this November 14, 2007	/s/ David K. Holeman
	David K. Holeman
	Chief Financial Officer

*           In accordance with SEC Release No. 34-47986, this Exhibit is furnished to the SEC as an accompanying document and is not deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that Section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933.  A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

EX-99.1

Exhibit 99.1

WHITESTONE REIT

Insider Trading Compliance Policy

Effective as of May 14, 2007

The Board of Trustees (the “Board”) of Whitestone REIT (the “REIT”) adopted this Insider Trading Compliance Policy (this “Policy”) on May 14, 2007.  This Policy concerns the handling of material, non-public information relating to the REIT, Whitestone REIT Operating Partnership, L.P. (together with the REIT, the “Company”) or other companies with which with Company deals and with the buying and selling of shares and other securities of the Company and such other companies.

I.   Insider Trading Prohibited

General Rule. No employee, officer or trustee of the Company may purchase or sell Company securities while he or she is in possession of material, nonpublic information relating to the Company.  This restriction does not apply to certain “Permitted Transactions,” which are discussed in Section V.

Employees, Officers andTrustees.  This Policy applies to all employees, officers and trustees of the Company.  Each provision of this Policy that applies to an employee, officer and trustee also applies to:

·   members of their immediate families with whom they share a household;

·   other persons with whom they share a household;

·   persons who principally rely on the employee, officer or trustee for their financial support, regardless of where those persons reside; and

·   any person or entity over which they have control or influence with respect to a transaction in securities (i.e., a trustee of a trust or an executor of an estate).

Likewise, references to “you” in this Policy also refer to each of the people listed above with respect to you.  Because the people listed above are covered by this Policy, you will be responsible for their transactions in Company securities and, in order to maintain your compliance with this Policy, you should ensure that those people do not purchase or sell Company securities without your clearance.

Other Persons.  It may be appropriate, in some circumstances, for persons who are not employed by the Company (in addition to those listed above) to be subject to the same restrictions as Company employees and other “insiders.”  If you are aware of a situation in which a consultant, advisor or other person not employed by the Company will have access to material, nonpublic information about the Company, you should bring this situation to the attention of the Chief Financial Officer, who will make appropriate arrangements to protect the Company.

Material, Nonpublic Information.

Material.  Information is considered “material” if:

·   a reasonable investor would consider it important in making a decision on whether to buy, sell or hold the security;

·   a reasonable investor would view the information as significantly altering the total mix of information in the marketplace about the company that issued the security; or

·   the information could reasonably be expected to have a substantial effect on the price of the security.

Nonpublic.  Information is nonpublic until it has been “publicly disclosed,” meaning that it:

·   is published in such a way as to provide broad, non-exclusionary distribution of the information to the public; and

·   has been in the public domain for a sufficient period of time to be absorbed by the market and reflected in the price of the related securities.

Examples of public disclosure include the issuance of a press release or the filing of an appropriate report with the Securities and Exchange Commission (the “SEC”).  The period in which information is considered to be “nonpublic” varies in length depending on the type of information released, the market’s expectations relating to the subject matter of the release, and the market’s reaction after the information is released.

Examples of material, nonpublic information might include information about:

·   the Company’s financial or operating results, whether for completed periods or expectations for future periods;

·   the gain or loss of a substantial tenant or any significant change in a business relationship;

·   a material impairment or change in the value of the Company’s assets;

·   the filing of litigation or claims against the Company, developments in pending litigation or other contingent liabilities affecting the Company;

·   negotiations involving a joint venture, merger or acquisition;

·   changes in top management;

·   significant accounting developments; and

·   the offering of additional securities.

Information may be material whether it is favorable or unfavorable to the Company.  The list of examples provided above is merely illustrative, and there are many other types of information and events that may be material at any particular time, depending on the circumstances.  Where there is any possibility that an item may be considered “material,” you should treat it as such and you should confer with the Chief Financial Officer for a definitive ruling.

Other Companies.  While this Policy prohibits trading in Company securities while you are in possession of material, nonpublic information about the Company, it also prohibits trading in securities of any other companies about which you learn material, nonpublic information in the course of performing your duties for the Company.  For example, you may be involved in a transaction in which the Company expects to enter into (or terminate) a substantial business relationship with another company.  Even though the size of the transaction may be immaterial to the Company, it may be material to the other company.  This Policy prohibits you from trading in the securities of that company while aware of this nonpublic information or from tipping others regarding the information.

Securities; All Transactions.  This Policy prohibits certain transactions in the “securities” of the Company.  Any securities that the Company issues, including any debt securities, common shares or partnership units, are subject to this Policy.  This Policy also applies to any derivatives related to Company securities, as discussed below.  Purchases and sales of Company securities are subject to the insider trading laws and the provisions of this Policy, whether they are executed in the public markets or in private transactions, and whether you execute the transaction directly or indirectly through another person or entity.

Investments.  The Company expects its employees, officers and trustees not to engage in speculative transactions that are designed to result in profit based on short-term fluctuations in the price of our securities.  If you do purchase Company securities, you are strongly encouraged to do so with the expectation of owning those securities for an extended period of time — at a minimum, for six months.  The Company recognizes, of course, that your personal circumstances may change due to unforeseen events, in which case you may be forced to more quickly liquidate Company securities that you originally purchased with the intent of holding as a long-term investment.

Short Sales.  A “short sale” generally is a transaction involving securities that the seller does not own at the time of sale.  Selling securities “short” is consistent with an expectation that the price of the securities will decline in the near future and is often speculative in nature.  Short selling will arouse suspicion in the eyes of the SEC that the person was trading on the basis of inside information, particularly when the trading occurs before a major company announcement or event.  Accordingly, our employees, officers, and trustees are prohibited from engaging in “short sales” of Company securities.

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Derivative Securities.  Derivative securities are securities whose value varies in relation to the price of Company securities.  For example, derivative securities would include exchange-traded put or call options, as well as individually arranged derivative transactions.  Our employees, officers, and trustees are generally prohibited from purchasing or selling derivative securities relating to Company securities.  However, you may enter into long-term forward sales and other long-term transactions that are used to hedge your existing ownership positions in Company securities.  If you have any question as to whether a particular hedging or derivative transaction is permitted under this Policy, you should contact the Chief Financial Officer.  In addition, any restrictions under this Policy that apply to you when purchasing or selling Company securities also apply to you when entering into a permitted hedging transaction.

Pledged Shares; Margin Loans.  Sales of Company shares that you have pledged as security for a loan have no special exemption from insider trading laws or this Policy.  Accordingly, you should be extremely careful when utilizing a margin loan in a brokerage account or otherwise using your Company securities as collateral for a loan.

Under margin arrangements, a broker is entitled to sell shares which you have deposited as collateral for loans, if the value of your securities falls below the brokerage firm’s margin requirements.  Even though you did not initiate the sale or control its timing, because it is still a sale for your benefit, you may be subject to liability under insider trading laws if the sale is made at a time when you are in possession of material, nonpublic information.  Accordingly, such a sale must be made in compliance with the restrictions under this Policy that apply to you, such as trading windows or pre-clearance requirements.  As a result, if you use Company securities to secure a margin loan, you may be forced to take actions (for instance, depositing additional money or selling other securities) to satisfy margin requirements to prevent your broker from selling your Company securities at a time that would result in a violation of insider trading laws or this Policy.  Similar cautions apply to a bank or other loan for which you have pledged Company securities as collateral.

Safest Time for Transactions. All employees, whether or not subject to the trading windows or pre-clearance procedures described in this Policy, are reminded that the safest time for transactions in Company securities will generally be a few days after the Company’s release of financial information relating to a completed quarter.  The appearance of improper trading may increase as the end of the next fiscal quarter approaches.

II. Unauthorized Disclosure of Material, Nonpublic Information Prohibited

General Rule.  No employee, officer or trustee may disclose material, nonpublic information about the Company or any company with which the Company deals to anyone outside of the Company, unless authorized to do so.

Tipping.  Under the federal securities laws, you can be held responsible not only for your own insider trading, but also for securities transactions by anyone to whom you disclose material, nonpublic information.  Even if those to whom you disclose such information do not trade while aware of the information, you can be responsible for the trades of persons who received material, nonpublic information indirectly from you, if you are the ultimate source of their information.

Discussing or Recommending Company Securities. The Company recognizes that employee enthusiasm for the Company and its business prospects is a vital element of its success.  You should, however, use extreme caution when discussing our business or our securities with anyone outside of the Company.  In the course of discussing our business or our securities, accidental disclosure of material, nonpublic information can occur and can be viewed as “tipping.”  Likewise, recommendations of our securities can also result in embarrassing situations for you or the Company if you make a recommendation at a time when there is a pending announcement of material, nonpublic information by the Company, even if you are unaware of that information.

Chat Rooms and Internet Postings. No employee, officer or trustee may disclose information about the Company on the Internet (regardless of whether such information is material or already public), and, more specifically, in discussion forums or chat rooms where companies and their prospects are discussed.  Messages in these forums are typically made by unsophisticated investors who are sometimes poorly informed, and generally are carelessly stated or, in some cases, malicious or manipulative and intended to benefit their own share positions.  In addition, disclosures of material nonpublic information through this type of forum may amount to a “tip” or leak of such information, in violation of this Policy and applicable law.  Accordingly, no employee, officer or trustee of the Company may discuss Company-related information in such a forum, regardless of the situation.  Despite any inaccuracies that may exist in these forums, postings in these forums can result in the disclosure of information that may be harmful to the Company and expose you to liability for violating federal securities laws.

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Authorization to Disclose Material, Nonpublic Information.  Only certain employees, officers and trustees are authorized to make public disclosures of material, nonpublic information or to confer with persons outside the Company regarding such information (for example, our auditors, outside counsel and other advisors).  Unless you are authorized to do so by the President and Chief Executive Officer or the Chief Financial Officer, you should refrain from discussing material, nonpublic information with anyone outside of the Company.  Even in discussions with others subject to this Policy, you should consider the consequences of disclosing material, nonpublic information to them.  For example, by doing so, you would preclude those persons from trading in the Company’s securities until the information is publicly disclosed.  Accordingly, you should restrict the communication of material, nonpublic information to those employees, officers, and trustees having a need to know in order to serve the Company’s interests.

Non-Disclosure Agreements.  Employees, officers and trustees involved in transactions or other negotiations that require disclosure of material, nonpublic information with parties outside the Company should generally have those to whom such information is being disclosed sign a non-disclosure agreement.  The non-disclosure agreement will require that the recipient of information not disclose the information to others and require the recipient not to trade in Company securities while in possession of such information.  You should confer with the Chief Financial Officer whenever a non-disclosure agreement may be needed.

III.Trading Windows

Standard Trading Windows.  Members of the Pre-Clear Group, defined in Section IV below, and certain additional employees as may be designated and notified by the Chief Financial Officer, the names of whom will be provided to the Board (collectively with the Pre-Clear Group, the “Window Group”), may only purchase or sell the Company’s securities:

·   during the trading windows described below, and

·   when the individual is not in possession of material, nonpublic information.

Outside of the trading windows, members of the Window Group may not purchase or sell Company securities, even if they are not personally aware of any material, nonpublic information.  However, members of the Window Group may engage in Permitted Transactions (described in Section V below) outside of the trading windows.

Subject to the last sentence of this paragraph, each trading window will open one full trading day after the Company’s quarterly release of earnings and will close 20 days prior to the end of the following quarter.  By way of example, if the Company released information regarding its results for the first quarter after the close of business on May 2, the trading window would open on the morning of May 4, and would remain open through June 10.  However, you should not expect that the window will open on any particular date or remain open for any minimum period of time.  Significant corporate developments may require changes to the schedule, including closing the window at the Company’s option at any time.

Do not confuse the applicability of the trading windows with the broader prohibition on trading when you are in possession of material, nonpublic information.  Regardless of whether the trading window is open or closed, you may not trade in Company securities if you are in possession of material, nonpublic information about the Company.

Standing Orders; Limit Orders. Purchases or sales resulting from standing orders or limit orders may result in the execution of orders without your control over the transaction or your awareness of the timing of the transaction.  You must be certain that this type of order will not be executed while you are in possession of material, nonpublic information about the Company or, if you are a member of the Window Group, at any time other than during a trading window.  Accordingly, any standing orders should be used only for a very brief period and with detailed instructions to the broker who will execute the transaction.  Standing orders under an approved Rule 10b5-1 Trading Plan, described below, will not be subject to these limitations.

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IV.           Pre-Clearance of Transactions

General.  Before purchasing or selling Company securities, any of our trustees, officers and certain employees as may be designated and notified by the Chief Financial Officer, the names of whom shall be provided to the Board (the “Pre-Clear Group”), must obtain clearance of the transaction from the Chief Financial Officer.  This clearance must be obtained before you place the order for, or otherwise initiate, any transaction in Company securities.  Any pre-clearance that you obtain will be valid for a transaction executed within two business days, unless either the pre-clearance is granted for a shorter period or you learn of material, nonpublic information during that time.  Whether or not your request for pre-clearance is granted, you must not inform anyone else of the results of your request.  In addition, the Company’s Chief Executive Officer and Chief Financial Officer must notify the chairperson of the Nominating and Corporate Governance Committee of the Board prior to initiating any transaction in Company securities.

Do not confuse pre-clearance of transactions with the broader prohibition on trading when you are in possession of material, nonpublic information described in Section I.  Regardless of whether you have received pre-clearance for a transaction or whether a trading window is open or closed, you may not trade in Company securities if you are in actual possession of material, nonpublic information about the Company.

Permitted Transactions. Members of the Pre-Clear Group are required to receive pre-clearance prior to exercising any options or making any gifts of Company securities.  Pre-clearance is not required prior to entering into any other Permitted Transaction.

V. Permitted Transactions

The following are “Permitted Transactions”:

·   acceptance or receipt of an option, restricted shares or similar grants of securities under one of the Company’s employee benefit plans (including elections to acquire options in lieu of other compensation) or the cancellation or forfeiture of options or restricted shares pursuant to the Company’s plans;

·   election to participate in, cease participation in or purchase securities under a Company employee share purchase plan, if such a plan is in effect (see further discussion which follows);

·   earning or vesting of options or restricted shares and any related share withholding;

·   exercise of options issued under the Company’s option plans in a cash exercise or payment of the exercise price in shares and any related share withholding transactions, but not the sale of any shares acquired in the option exercise (see further discussion which follows);

·   transferring shares to an entity that does not involve a change in the beneficial ownership of the shares, for example, to an inter vivos trust of which you are the sole beneficiary during your lifetime (see further discussion which follows);

·   bona fide gifts of shares, but not (1) where you anticipate that the recipient will sell the securities immediately upon or shortly after their receipt or (2) where you are delivering the shares in payment of a previous commitment to make a cash gift (see further discussion which follows);

·   with respect to officers only, execution of a transaction pursuant to a contract, instruction, or plan described in Rule 10b5-1 of the Securities Exchange Act of 1934, or a “Trading Plan,” as discussed below (see further discussion which follows); or

·   any other transaction designated by the Board or senior management as a Permitted Transaction.

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Employee Benefit Plan Transactions.  Included in the definition of Permitted Transactions are most of the ongoing transactions you might enter into under a Company sponsored equity-based benefit plan.  For example, although your ongoing participation in a plan may involve the regular purchase of the Company’s common shares, either directly pursuant to an investment election or indirectly through an employer matching contribution, those purchases are Permitted Transactions.  Please note, however, that the movement of balances in those plans into or out of Company securities or changes in your investment direction under those plans are not Permitted Transactions.  This means that you may not make such transfers or elections while you are in possession of material, nonpublic information and that such transfers or elections must be made in compliance with any other restrictions under this Policy that apply to you (for instance, such transfers or elections could only be made during an open trading window if you are in the Window Group and with pre-clearance if you are in the Pre-Clear Group).

Transactions in employee options also are considered Permitted Transactions if there is no related sale to a person other than the Company.  Please note, however, that a sale of shares following or in connection with an option exercise is not a transaction with the Company and is, therefore, not a Permitted Transaction.  Thus, you may engage in a cash exercise of an option as long as you retain the shares you buy in the exercise.  You also may engage in share-for-share exercises or elect share withholding without violating the Policy.  However, it would not be a Permitted Transaction for you to exercise an option, sell the resulting shares and then use the proceeds from that sale to pay for the exercise of additional options in a same day sale.

Transactions in Which There is No Change in Beneficial Ownership.  Certain transactions involve merely a change in the form in which you own securities.  For example, you may transfer shares to a trust if you are the only beneficiary of the trust during your lifetime.

Gifts of Company Securities. Bona fide gifts of Company securities, whether to charitable institutions or to friends and family members, are generally considered to be Permitted Transactions.  However, if you believe that the recipient will sell the shares either immediately or shortly after receiving them (within six months) or if you are making the gift to satisfy a previous commitment to make a cash gift, then the gift would not be a Permitted Transaction and the normal restrictions would be applicable.  This policy is designed to avoid the embarrassment of having one of our employees make a gift of shares that ends up being sold into the market at a time when the employee could not sell the shares directly and to avoid employees making gifts of shares when the gift will satisfy a previous pledge of cash.  Although bona fide gifts of shares are Permitted Transfers, members of the Pre-Clear Group must pre-clear all gifts of shares.

Trading Plans. The SEC has enacted a rule (Rule 10b5-1 under the Securities Exchange Act of 1934) that provides an affirmative defense against violations of the insider trading laws if you enter into a contract, provide instructions, or adopt a written plan for a transaction in securities when you are not in possession of material, nonpublic information, even if it turns out that you had such information when the transaction is actually completed.  The contract, instructions, or plan must:

·   specify the amount, price and date of the transaction;

·   specify an objective method for determining the amount, price and date of the transaction; or

·   place the discretion for determining the amount, price, and date of the transaction in another person who is not, at the time of the transaction, in possession of material, nonpublic information.

You may not exercise discretion or influence over the amount, price, and date of the transaction after entering into the arrangement.  These arrangements are referred to in this Policy as “Trading Plans.”  The rules regarding Trading Plans are complex and must be complied with completely to be effective.  You should consider consultation with your own legal advisor before proceeding with entering into any Trading Plan.

Only officers of the Company may enter into a Trading Plan.  In order to enter into a Trading Plan, an officer must pre-clear the Trading Plan with the Chief Financial Officer and obtain the prior approval of the Board.  Any restrictions under this Policy that apply to you when purchasing or selling Company securities also apply to you when establishing a Trading Plan.  Therefore, you may not establish a Trading Plan when you are in possession of material, nonpublic information about the Company, and trading window restrictions must be complied with in connection with establishing a Trading Plan. The Company may from time to time adopt additional rules for the establishment and operation of Trading Plans, and you will need to comply with these rules in order to utilize a Trading Plan.  Once a Trading Plan has been pre-cleared by the Chief Financial Officer and approved by the Board, transactions executed pursuant to that Trading Plan do not require further approval.

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In establishing any Trading Plan, you should carefully consider the timing of your transactions under the Trading Plan.  Even though transactions executed in accordance with a Trading Plan are exempt from the insider trading rules, the trades may nonetheless occur at times shortly before the Company announces material news, and the media may not understand the nuances of trading pursuant to a Trading Plan.

VI.          Other Securities Matters

Executive officers, trustees and holders of 10% or more of the Company’s securities may be liable for “short-swing” profits from purchases and sales of the Company’s securities under Section 16(b) of the Securities Exchange Act of 1934.  This section provides that any such person who makes both a purchase and a sale or a sale and a purchase of the Company’s securities within a period of six months must, unless an available exemption applies, pay to the Company the excess of the sale price over the purchase price even if no real profit was made.  Section 16(b) continues to be applicable to officers and trustees for a six month period after they cease to serve in that capacity.  If you are, or were within the preceding six months, an executive officer or trustee of the Company, prior to effecting any transaction in Company securities you should consult with the Chief Financial Officer regarding the implications of Section 16(b).

If you hold “restricted securities” (securities that cannot be resold unless (a) registered under the Securities Act of 1933, (b) sold pursuant to Rule 144 under the Securities Act or (c) disposed of pursuant to another exception from the registration requirements of the Securities Act), you should consult with the Chief Financial Officer prior to selling any of those securities.

VII.         Sanctions for Violations of this Policy

The SEC, the stock exchanges and plaintiffs’ lawyers focus on uncovering insider trading, and use sophisticated technologies to investigate suspicious activity.

A breach of the insider trading laws could expose the insider to criminal fines of up to $5,000,000 and imprisonment of up to 20 years, in addition to civil penalties (up to three times the profits realized or loss avoided), and injunctive actions.  In addition, punitive damages may be imposed under applicable state laws.  Securities laws also subject controlling persons to civil penalties for illegal insider trading by employees.  Controlling persons include trustees, officers and supervisors.  These persons may be subject to fines of up to the greater of $1,000,000 or three times the profit realized or loss avoided by the insider.  Accordingly, it is incumbent on all Company employees to comply with this policy and applicable securities laws and to ensure that those employees who they supervise also comply.

Inside information does not belong to any of the Company’s individual employees, officers or trustees.  This information is an asset of the Company.  For any person to use such information for personal benefit or to disclose it to others outside of the Company violates the Company’s Code of Business Conduct and Ethics, this Policy and federal securities laws.  More particularly, insider trading is a fraud against members of the investing public and against the Company.  Whether or not there is any actual trading of our securities, any violation of this Policy will be grounds for discipline, including termination of employment for cause.

VIII.        Administration of this Policy

Administration by the Chief Financial Officer.  The day-to-day administration of this Policy will be carried out by the Chief Financial Officer.  If you have any questions concerning the interpretation of this Policy, you should direct your questions to the Chief Financial Officer.

Reporting Violations. If you become aware of any violation of this Policy, you should report it immediately to the Chief Financial Officer.

Exemptions.  An individual subject to the trading windows described in Section III may request the Chief Financial Officer to grant him or her a hardship exemption from those restrictions if he or she is not otherwise prohibited from trading under Section I.  However, it is anticipated that these exemptions will be given very rarely and only in extreme circumstances.

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Amendment of the Policy. The Board reserves the right to amend this Policy from time to time.  If they do so, you will be provided with the substance of any such changes through normal communication channels.

Please remember that the ultimate responsibility for complying with this Policy and applicable laws and regulations rests with you.  The consequences to you of non-compliance could be severe.  You should use your best judgment and consult with the Chief Financial Officer, and your legal and financial advisors, as needed.

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EX-99.2

Exhibit 99.2

WHITESTONE REIT

Charter of Nominating and Corporate Governance Committee

Effective as of May 14, 2007

The Board of Trustees (the “Board”) of Whitestone REIT (the “REIT”) adopted this Charter of the Nominating and Corporate Governance Committee of the Board (the “Committee”) on May 14, 2007 (the “Effective Date”).  This Charter supersedes any other Committee charter adopted by the Board prior to the Effective Date.

Purpose

With respect to the REIT and Whitestone REIT Operating Partnership, L.P. (together with the REIT, the “Company”), the primary purposes of the Committee are to assist the Board in fulfilling its responsibilities relating to:

·   identification of individuals qualified to become Board members and recommendation of trustee nominees to the Board prior to each annual meeting of shareholders;

·   recommendation of nominees for committees of the Board; and

·   matters concerning corporate governance practices.

Composition

The Committee shall be comprised of at least three members, each of whom shall:

·   qualify as “independent” under the Listing Standards (the “Listing Standards”) of The Nasdaq Stock Market, Inc.; and

·   be otherwise free from any relationship that, in the opinion of the Board, would interfere with the exercise of his or her independent judgment as a member of the Committee.

Members shall be appointed by the Board based on nominations recommended by the Committee, and shall serve at the pleasure of the Board and for such term or terms as the Board may determine.

Meetings

The Committee shall meet as often as its members deem necessary to perform the Committee’s duties.  Members of the Committee may participate in a meeting of the Committee by conference call or similar communications equipment by means of which all persons participating in the meeting can hear each other.

Duties and Powers

To carry out its purposes, the Committee shall have the following duties and powers:

Nominating

·   Retain, as deemed necessary, and terminate any search firm to be used to identify trustee candidates.  Retain, as deemed necessary, and terminate any other advisors.  The Committee shall have sole authority to select such search firm and other advisors and approve their fees and other retention terms.

·   Determine desired board skills and attributes.  The Committee shall consider personal and professional integrity, ability and judgment and such other factors deemed appropriate.

·   Actively seek individuals whose skills and attributes reflect those desired and evaluate and propose nominees for election to the Board.

·   Review the slate of trustees who are to be re-nominated to determine whether they are meeting the Board’s expectations of them.

·   Make recommendations to the full Board for appointments to fill vacancies of any unexpired term on the Board.

·   Annually recommend to the Board nominees for submission to shareholders for approval at the time of the annual meeting of shareholders.

·   Annually review committee chairs and membership and recommend any changes to the full Board.

Governance

·   Evaluate and recommend to the Board the resignation of individual trustees for appropriate reasons, as determined by the Committee in its discretion.

·   Review any questions regarding the independence of Board members in accordance with the Listing Standards and other applicable rules and regulations.

·   Advise and make recommendations to the Board on matters concerning corporate governance and directorship practices.

·   Review potential or actual conflicts of interest between Board members and between the Company and other companies on which a Board member of the Company may serve.

·   Oversee the evaluation of the Board through an annual review of the performance of the Board and its committees, and provide the evaluation, together with any recommendations, to the Board.

General

·   Report periodically to the Board and propose any necessary action to the Board.

·   Annually review the adequacy of this Charter and recommend any proposed changes to the Board for approval.

·   Annually evaluate the performance of the Committee.

·   Perform any other activities consistent with this Charter, the Company’s amended and restated declaration of trust and bylaws and applicable laws, as the Committee deems appropriate or as requested by the Board.

Resources and Authority

The Committee shall have the resources and authority appropriate to discharge its responsibilities, including the authority to engage and approve fees and other retention terms of special or independent counsel or other advisors, as it deems appropriate to carry out its duties, without seeking approval of the Board or management.  The Company will provide for appropriate funding, as determined by the Committee, for the payment of (a) compensation to any advisors employed by the Committee under the preceding sentence, and (b) ordinary administrative expenses of the Committee that are necessary or appropriate in carrying out its duties.

Delegation to Subcommittee

To the extent permitted by applicable law, the Committee may, in its discretion, delegate all or a portion of its duties and responsibilities to a subcommittee of the Committee; provided, however, that any actions taken pursuant to any such delegation shall be reported to the Committee at its next meeting.

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EX-99.3

Exhibit 99.3

WHITESTONE REIT

Charter of Audit Committee

Effective as of August 13, 2007

The Board of Trustees (the “Board”) of Whitestone REIT (the “REIT”) adopted this Charter of the Audit Committee of the Board (the “Committee”) on August 13, 2007 (the “Effective Date”).  This Charter supersedes any other Committee charter adopted by the Board prior to the Effective Date.

Purpose

With respect to the REIT and Whitestone REIT Operating Partnership, L.P. (together with the REIT, the “Company”), the primary purposes of the Committee are to:

· oversee the Company’s accounting and financial reporting process, the audits of its financial statements; and

· to assist the Board in monitoring:

- the integrity of the Company’s financial statements and financial reporting processes and systems of internal controls;

- the qualifications and independence of the Company’s independent accountants;

- the performance of the Company’s independent accountants; and

- the Company’s compliance with legal and regulatory requirements.

Composition

Members shall be appointed by the Board based on the recommendations of the Nominating and Corporate Governance Committee of the Board, and shall serve at the pleasure of the Board and for such term or terms as the Board may determine.  The Committee will have no less than three members, each of whom:

· is a trustee of the Company;

· is “independent” under the rules of the Nasdaq Stock Market, Inc. and the rules and regulations of the Securities and Exchange Commission (the “SEC”);

· has not participated in the preparation of the financial statements of the Company or any current subsidiary of the Company at any time during the past three years: and

· is able to read and understand fundamental financial statements, including the Company’s balance sheet, income statement and cash flow statement.

At least one member of the Committee will have past employment experience in finance or accounting, requisite professional certification in accounting or any other comparable experience or background that results in such member’s financial sophistication, including being or having been a chief executive officer, chief financial officer or other senior officer with financial oversight responsibilities.  In addition, unless the Board determines otherwise, at least one member of the Committee will be an “audit committee financial expert” as such term is defined under the rules and regulations of the SEC.

No trustee may serve as a member of the Committee if such trustee serves on the audit committee of more than two other public companies, unless the Board determines that such simultaneous service would not impair the ability of such trustee to effectively serve on the Committee.

Meetings

The Committee shall meet once every fiscal quarter, or more frequently if circumstances dictate, (a) to discuss with management and the Company’s independent accountants the annual audited financial statements or quarterly financial statements, as applicable, including the Company’s disclosures under Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”), prior to filing with the SEC and (b) to perform any other activities consistent with this Charter, the Company’s bylaws and applicable law, as the Committee or the Board deems appropriate.  Periodically, the Committee should meet separately with management and the Company’s independent accountants to discuss any matters that the Committee or any of these persons or firms believe should be discussed privately. The Committee may request any officer or employee of the Company or the Company’s outside counsel or independent accountants to attend a meeting of the Committee or to meet with any members of, or consultants to, the Committee.  Members of the Committee may participate in a meeting of the Committee by means of conference call or similar communications equipment by means of which all persons participating in the meeting can hear each other.

Duties and Powers

To carry out its purposes, the Committee shall directly have the following duties and powers:

Oversight of the Company’s Relationship with its Independent Accountants

· Appoint, compensate, retain, evaluate, terminate and oversee the work of any registered public accounting firm engaged for the purpose of preparing or issuing any audit report or performing other audit, review or attest services for the Company, including resolution of any disagreements between management and such accountants regarding financial reporting.

· Pre-approve all audit engagement fees and terms and all non-audit engagements permitted by Section 10A of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

· Obtain and review, at least annually, a report by the independent accountants (the “Accountants’ Statement”) regarding (a) the independent accountants’ internal quality-control procedures, (b) any material issues raised by the most recent internal quality-control review, or peer review, of the independent accountants, or by any inquiry or investigation by governmental or professional authorities, within the preceding five years, respecting one or more independent audits carried out by the independent accountants, (c) any steps taken to deal with any such issues and (d) (in order to assess the accountants’ independence) all relationships between the independent accountants and the Company, including, at a minimum, each non-audit service provided to the Company and the matters set forth in Independence Standards Board Standard No. 1.

· Discuss with the independent accountants any relationships or services disclosed in the Accountants’ Statement that may impact the quality of audit services or the objectivity and independence of the Company’s independent accountants.

· If applicable, consider whether the independent accountants’ provision of (a) audit-related services, (b) tax compliance, tax advisory or tax planning services or (c) other non-audit services to the Company is compatible with maintaining the independence of the independent accountants.

· After reviewing the Accountants’ Statement and the independent accountants’ work throughout the year, evaluate the qualifications, performance and independence of the independent accountants.

· In making the evaluations described above, ensure the rotation of the lead audit partner and the concurring partner as required by law, discuss with management the timing and process for implementing the rotation, and consider whether there should be a regular rotation of the audit firm itself.

· Take into account the opinions of management in assessing the independent accountants’ qualifications, performance and independence.

· Instruct the independent accountants that they are ultimately accountable to the Committee.

Financial reporting principles and policies and internal controls and procedures

· Advise management and the independent accountants that they are expected to provide to the Committee a timely analysis of significant financial reporting issues and practices.

· Consider any reports or communications (and management’s responses thereto) submitted to the Committee by the independent accountants required by or referred to in Statement on Auditing Standards No. 61 (as codified by AU Section 380), as may be modified or supplemented, and to receive a report from the independent accountants on, among other things, critical accounting policies and alternative treatments of financial information that have been discussed with management.

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· Meet with management and the independent accountants to:

- discuss the scope of the annual audit;

- discuss with management, with respect to each critical accounting estimate included in the Company’s MD&A, the development and selection of the accounting estimate and the disclosure about the estimate;

- review and discuss the annual audited financial statements and quarterly financial statements, including the Company’s disclosures under MD&A, prior to filing with the SEC and recommend to the Board, if appropriate, that the Company’s annual audited financial statements be included in the Company’s annual report on Form 10-K for filing with the SEC;

- discuss earnings press releases, including the use of “pro forma” or “adjusted” non-GAAP information, as well as financial information and earnings guidance provided to analysts, rating agencies and other third parties; provided, however, that these discussions may be held generally (i.e., discussion of the types of information to be disclosed and the type of presentation to be made) and the Committee need not discuss in advance each earnings release or each instance in which the Company may provide earnings guidance;

- discuss any significant matters arising from any audit, including any audit problems or difficulties, whether raised by management or the independent accountants, relating to the Company’s financial statements;

- review with the independent accountants any problems or difficulties the independent accountants encountered in the course of the audit, including any restrictions on their activities or access to requested information and any significant disagreements with management, and management’s response;

- review with the independent accountants any accounting adjustments that were noted or proposed by the independent accountants but were “passed” (as immaterial or otherwise), any communications between the audit team and their national office with respect to auditing or accounting issues presented by the engagement and any “management” or “internal control” letter issued, or proposed to be issued, by the independent accountants to the Company;

- review the form of opinion the independent accountants propose to render to the Board and shareholders;

- discuss and review any significant changes to the Company’s auditing and accounting principles, policies, controls, procedures and practices proposed or contemplated by the independent accountants or management;

- review, as appropriate, (a) any major issues regarding accounting principles and financial statement presentations, including any significant changes in the Company’s selection or application of accounting principles, and major issues as to the adequacy of the Company’s internal controls and any special audit steps adopted in light of material control deficiencies, (b) analyses prepared by management or the independent accountants setting forth significant financial reporting issues and judgments made in connection with the preparation of the financial statements including analyses of the effects of alternative GAAP methods on the financial statements and (c) the effect of regulatory and accounting initiatives, as well as off-balance sheet structures, on the financial statements of the Company; and

- review with the applicable members of management how they are meeting their obligations under the certification requirements of Sections 302 and 906 of Sarbanes-Oxley and provide for those members of management to disclose to the Committee and the independent accountants (a) all significant deficiencies and material weaknesses in the design or operation of “internal control over financial reporting” that are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial data and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.

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· Discuss guidelines and policies governing the process by which senior management of the Company and the relevant departments of the Company assess and manage the Company’s exposure to risk and discuss the Company’s major financial risk exposures and the steps management has taken to monitor and control such exposures.

· Obtain from the independent accountants assurance that the audit was conducted in a manner consistent with Section 10A of the Exchange Act, which sets forth certain procedures to be followed in any audit of financial statements required under the Exchange Act.

· Discuss with the Company’s counsel any significant legal, compliance or regulatory matters that may have a material effect on the financial statements or the Company’s business, financial statement or compliance policies, including material notices to or inquiries received from governmental agencies.

· Establish hiring policies for employees or former employees of the independent accountants.

· Establish procedures for:

- the receipt, retention, treatment, investigation and resolution of complaints received by the Company regarding accounting, internal accounting controls or auditing matters; and

- the confidential, anonymous submission by employees of the Company of concerns regarding questionable accounting or auditing matters.

· Review (a) the internal control report prepared by management, including management’s assessment of the effectiveness of the Company’s internal control structure and procedures for financial reporting and (b) the independent accountants’ attestation, and report, on the assessment made by management.

· Provide oversight for the Company’s code of business conduct and ethics including (a) review of any change in or waiver of the Company’s code of business conduct and ethics and (b) review and approval of any disclosure made on Form 8-K or the Company’s website regarding such change or waiver.

Oversight of the Company’s Internal Audit Function

· Review the appointment and replacement of any senior internal auditing personnel or, at the discretion of the Board, select and contract with an outside auditor (other than the Company’s independent accountants) to perform the function of an internal auditing department.  The senior internal auditing executive (or any outside auditor performing the function of an internal auditing department) shall report directly to the Committee, and the Committee shall direct the scope and duties of the internal audit function.

· Review the regular reports to management prepared by the internal auditing department (or any outside auditor performing the function of an internal auditing department) and management’s responses.

· Discuss with the independent accountants and management the responsibilities, budget and staffing of the internal auditing department (or any outside auditor performing the function of an internal auditing department), and any recommended changes in the planned scope of the internal audit.

Reporting and Recommendations

· Prepare any report or other disclosures, including any recommendation of the Committee, required by the rules of the SEC to be included in the Company’s annual proxy statement.

· Review this Charter at least annually and recommend any changes to the Board.

· Report its activities to the Board on a regular basis and make such recommendations with respect to the above and other matters as the Committee may deem appropriate.

· Annually evaluate the performance of the Committee.

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Resources and Authority

The Committee shall have the resources and authority appropriate to discharge its responsibilities, including the authority to select, engage, terminate, and approve the fees and other retention terms of special or independent counsel, accountants or other advisers, as it deems appropriate to carry out its duties, without seeking approval of the Board or management.  The Company will provide for appropriate funding, as determined by the Committee without seeking approval of the Board or management, for payment of (a) compensation to any registered public accounting firm engaged for the purpose of preparing or issuing an audit report or performing other audit, review or attest services for the Company, (b) compensation to any advisors employed by the Committee under the preceding sentence and (c) ordinary administrative expenses of the Committee that are appropriate in carrying out its duties.

Delegation to Subcommittee

To the extent permitted by applicable law, the Committee may, in its discretion, delegate any of its duties and responsibilities to a subcommittee of the Committee; provided, however, that any actions taken pursuant to any such delegation shall be reported to the Committee at its next meeting.

Limitation of Committee’s Role

While the Committee has the responsibilities and powers set forth in this Charter, it is not the duty of the Committee to plan or conduct audits or to determine that the Company’s financial statements and disclosures are complete and accurate and are in accordance with generally accepted accounting principles and applicable rules and regulations.  These are the responsibilities of management and the independent accountants.

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EX-99.4

Exhibit 99.4

WHITESTONE REIT

Charter of Compensation Committee

Effective as of May 14, 2007

The Board of Trustees (the “Board”) of Whitestone REIT (the “REIT”) adopted this Charter of the Compensation Committee of the Board (the “Committee”) on May 14, 2007 (the “Effective Date”).  This Charter supersedes any other Committee charter adopted by the Board prior to the Effective Date.

Purpose

With respect to the REIT and Whitestone REIT Operating Partnership, L.P. (together with the REIT, the “Company”), the primary purposes of the Committee are to:

· assist the Board in discharging the Board’s responsibilities relating to compensation of the Company’s trustees and executives and the Company’s overall compensation and benefits structure; and

· produce an annual report on executive compensation for inclusion in the Company’s annual meeting proxy statement in accordance with applicable rules and regulations.

Composition

The Committee shall be comprised of at least three members, each of whom shall:

· qualify as “independent” under the Listing Standards of The Nasdaq Stock Market, Inc.;

· be a “non-employee director” within the meaning of Rule 16b-3 under the Securities Exchange Act of 1934, as amended;

· be an “outside director” under § 162(m) of the Internal Revenue Code of 1986, as amended; and

· otherwise be free from any relationship that, in the opinion of the Board, would interfere with the exercise of his or her independent judgment as a member of the Committee.

Members shall be appointed by the Board based on nominations recommended by the Nominating and Corporate Governance Committee, and shall serve at the pleasure of the Board and for such term or terms as the Board may determine.

Meetings

The Committee shall meet as often as its members deem necessary to perform the Committee’s duties.  Members of the Committee may participate in a meeting of the Committee by means of conference call or similar communications equipment by means of which all persons participating in the meeting can hear each other.

Duties and Powers

To carry out its purposes, the Committee shall have the following duties and powers:

Compensation

· Annually review and approve the Company’s goals and objectives relevant to chief executive officer (“CEO”) and executive compensation, including as the Committee deems appropriate, consideration of the Company’s performance and relative shareholder return, the value of similar incentive awards to officers at comparable companies, the awards given to officers in past years and such other factors as the Committee deems relevant, and evaluate the CEO’s and the other executives’ performance in light of those goals and objectives.  Annually review and approve all compensation, including special or supplemental benefits or perquisites, for the CEO and the other executives of the Company.

· Review and approve, for the CEO and other executives, employment agreements, severance arrangements and change in control agreements/provisions, in each case as, when and if appropriate.

· Annually review and make recommendations to the Board concerning the adoption, terms and operation of the Company’s compensation plans for all trustees, officers and other executives, including incentive compensation plans.

· Grant discretionary awards under the Company’s compensation plans and determine the form of agreement and terms of such awards.

· Perform the administrative functions assigned to the Committee by the Board or the provisions of any incentive compensation plan or other employee benefit plan.

· Retain, as deemed necessary, and terminate any compensation consultant to be used to assist in the evaluation of trustee, CEO or executive compensation.   The Committee shall have sole authority to select such consultant and approve the consultant’s fees and other retention terms.

· Retain, as deemed necessary, and terminate any other advisors.

General

· Report periodically to the Board and propose any necessary action to the Board.

· Annually review the adequacy of this Charter and recommend any proposed changes to the Board for approval.

· Assist the Board in developing and evaluating candidates for executive positions, including the CEO, and oversee the development of executive succession plans.

· Annually prepare a report on executive compensation for inclusion in the Company’s proxy statement in accordance with applicable rules and regulations.

· Annually evaluate the performance of the Committee.

· Perform any other activities consistent with this Charter, the Company’s amended and restated declaration of trust and bylaws and applicable laws, as the Committee deems appropriate or as requested by the Board.

Resources and Authority

The Committee shall have the resources and authority appropriate to discharge its responsibilities, including the authority to engage and approve fees and other retention terms of special or independent counsel or other advisors, as it deems appropriate to carry out its duties, without seeking approval of the Board or management.  The Company will provide for appropriate funding, as determined by the Committee, for the payment of (a) compensation to any advisors employed by the Committee under the preceding sentence, and (b) ordinary administrative expenses of the Committee that are necessary or appropriate in carrying out its duties.

Delegation to Subcommittee

To the extent permitted by applicable law, the Committee may, in its discretion, delegate all or a portion of its duties and responsibilities to a subcommittee of the Committee; provided, however, that any actions taken pursuant to any such delegation shall be reported to the Committee at its next meeting.

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