[X] | QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
[ ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Maryland | 39-6594066 | |
(State or other jurisdiction of | (IRS Employer | |
incorporation or organization) | Identification No.) |
Large accelerated filer [ ] | Accelerated filer [ ] | |
Non-accelerated filer [ ] | Smaller reporting company [X] | |
Emerging growth company [ ] |
PART I. Financial Information | |||
Part II. Other Information | |||
Pillarstone Capital REIT and Subsidiaries | ||||||||
CONSOLIDATED BALANCE SHEETS | ||||||||
September 30, 2017 | December 31, 2016 | |||||||
(unaudited) | ||||||||
ASSETS | ||||||||
Cash and cash equivalents | $ | 80,905 | $ | 7,445 | ||||
Marketable securities | 100 | 100 | ||||||
Equity investment in Pillarstone Capital REIT Operating Partnership LP | — | 14,776 | ||||||
Distribution receivable | 112,492 | — | ||||||
Other assets | 1,641 | 14,499 | ||||||
Fixed assets | 3,398 | — | ||||||
Total assets | $ | 198,536 | $ | 36,820 | ||||
LIABILITIES AND EQUITY (DEFICIT) | ||||||||
Liabilities: | ||||||||
Accounts payable and accrued expenses | $ | 45,074 | $ | 27,541 | ||||
Accounts payable - related party | 316,103 | 316,103 | ||||||
Convertible notes payable - related parties | 197,780 | 197,780 | ||||||
Accrued interest payable - related parties | 36,847 | 22,108 | ||||||
Negative equity investment in Pillarstone Capital REIT Operating Partnership LP | 145,495 | — | ||||||
Total liabilities | 741,299 | 563,532 | ||||||
Commitments and contingencies | — | — | ||||||
Shareholders' Equity (Deficit): | ||||||||
Preferred A Shares - $0.01 par value, 1,518,000 authorized: 256,636 Class A cumulative convertible shares issued and outstanding at September 30, 2017 and December 31, 2016, $10.00 per share liquidation preference | 2,567 | 2,567 | ||||||
Preferred C Shares - $0.01 par value, 300,000 authorized: 244,444 Class C cumulative convertible shares issued and outstanding at September 30, 2017 and December 31, 2016, $10.00 per share liquidation preference | 2,444 | 2,444 | ||||||
Common Shares - $0.01 par value, 400,000,000 authorized: 443,299 shares issued and 405,169 outstanding at September 30, 2017 and December 31, 2016 | 4,052 | 4,052 | ||||||
Additional paid-in capital | 28,146,986 | 28,146,986 | ||||||
Accumulated deficit | (27,898,077 | ) | (27,882,026 | ) | ||||
Treasury shares, at cost, 38,130 shares | (800,735 | ) | (800,735 | ) | ||||
Total Pillarstone Capital REIT shareholders' deficit | (542,763 | ) | (526,712 | ) | ||||
Total liabilities and equity (deficit) | $ | 198,536 | $ | 36,820 |
Pillarstone Capital REIT and Subsidiaries | ||||||||||||||||
CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||||||||||
(unaudited) | ||||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Revenues | ||||||||||||||||
Interest and dividend income | $ | — | $ | — | $ | — | $ | — | ||||||||
Total revenues | — | — | — | — | ||||||||||||
Expenses | ||||||||||||||||
General and administrative | 40,875 | 247,278 | 220,010 | 352,305 | ||||||||||||
Interest | 4,986 | 4,985 | 14,739 | 14,847 | ||||||||||||
Total expenses | 45,861 | 252,263 | 234,749 | 367,152 | ||||||||||||
Loss from operations | (45,861 | ) | (252,263 | ) | (234,749 | ) | (367,152 | ) | ||||||||
Equity in income of Pillarstone Capital REIT Operating Partnership LP | 60,084 | — | 218,698 | — | ||||||||||||
Net income (loss) attributable to common shareholders | $ | 14,223 | $ | (252,263 | ) | $ | (16,051 | ) | $ | (367,152 | ) | |||||
Earnings (Loss) Per Share: | ||||||||||||||||
Basic income (loss) per common share: | ||||||||||||||||
Net income (loss) available to common shareholders | $ | 0.04 | $ | (0.62 | ) | $ | (0.04 | ) | $ | (0.91 | ) | |||||
Diluted income (loss) per common share: | ||||||||||||||||
Net income (loss) available to common shareholders | $ | 0.01 | $ | (0.62 | ) | $ | (0.04 | ) | $ | (0.91 | ) | |||||
Weighted average number of common shares outstanding: | ||||||||||||||||
Basic | 405,169 | 405,169 | 405,169 | 405,127 | ||||||||||||
Diluted | 3,079,538 | 405,169 | 405,169 | 405,127 |
Pillarstone Capital REIT and Subsidiaries | ||||||||
CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||
(unaudited) | ||||||||
Nine Months Ended September 30, | ||||||||
2017 | 2016 | |||||||
Cash flows from operating activities: | ||||||||
Net loss | $ | (16,051 | ) | $ | (367,152 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Equity in income of Pillarstone Capital REIT Operating Partnership LP | (218,698 | ) | — | |||||
Distributions received from Pillarstone Capital REIT Operating Partnership LP | 120,982 | — | ||||||
Changes in operating assets and liabilities: | ||||||||
Other assets | 12,858 | 6,247 | ||||||
Accounts payable and accrued expenses | 32,272 | 244,383 | ||||||
Net cash used in operations | (68,637 | ) | (116,522 | ) | ||||
Cash flows from investing activities: | ||||||||
Excess distributions received from Pillarstone Capital REIT Operating Partnership LP | 145,495 | — | ||||||
Purchases of fixed assets | (3,398 | ) | — | |||||
Net cash provided by investing activities | 142,097 | — | ||||||
Cash flows from financing activities: | ||||||||
Net cash provided by financing activities | — | — | ||||||
Net increase (decrease) in cash and cash equivalents | 73,460 | (116,522 | ) | |||||
Cash and cash equivalents at beginning of period | 7,445 | 174,283 | ||||||
Cash and cash equivalents at end of period | $ | 80,905 | $ | 57,761 |
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
Condensed income statement information: | 2017 | 2016 | 2017 | 2016 | ||||||||||||
Property revenues | $ | 4,082 | $ | — | $ | 12,135 | $ | — | ||||||||
Property expenses | 2,064 | — | 5,874 | — | ||||||||||||
Other expenses | 1,646 | — | 4,941 | — | ||||||||||||
Provision for income taxes | 20 | — | 65 | — | ||||||||||||
Loss on sale or disposal of assets | 14 | — | 25 | — | ||||||||||||
Net income | $ | 338 | $ | — | $ | 1,230 | $ | — | ||||||||
Pillarstone's equity in earnings of Pillarstone OP | $ | 62 | $ | — | $ | 228 | $ | — |
Condensed balance sheet information: | September 30, 2017 | December 31, 2016 | ||||||
Real estate assets, net of accumulated depreciation | $ | 58,416 | $ | 59,805 | ||||
Other assets | 10,695 | 8,434 | ||||||
Total assets | $ | 69,111 | $ | 68,239 | ||||
Notes payable | $ | 64,998 | $ | 65,474 | ||||
Other liabilities | 6,541 | 4,742 | ||||||
Total liabilities | 71,539 | 70,216 | ||||||
Total equity (deficit) | (2,428 | ) | (1,977 | ) | ||||
Total liabilities and equity (deficit) | $ | 69,111 | $ | 68,239 |
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Numerator: | ||||||||||||||||
Net income (loss) available to common shareholders | $ | 14,223 | $ | (252,263 | ) | $ | (16,051 | ) | $ | (367,152 | ) | |||||
Dilutive effect of interest from convertible notes payable | 4,986 | — | — | — | ||||||||||||
Net income (loss) available to common shareholders with assumed conversion | $ | 19,209 | $ | (252,263 | ) | $ | (16,051 | ) | $ | (367,152 | ) | |||||
Denominator: | ||||||||||||||||
Weighted average number of common shares - basic | 405,169 | 405,169 | 405,169 | 405,127 | ||||||||||||
Effect of dilutive securities: | ||||||||||||||||
Assumed conversion of Preferred A Shares | 53,610 | — | — | — | ||||||||||||
Assumed conversion of Preferred C Shares | 2,444,440 | — | — | — | ||||||||||||
Assumed conversion of convertible notes payable and accrued interest | 176,319 | — | — | — | ||||||||||||
Weighted average number of common shares - dilutive | 3,079,538 | 405,169 | 405,169 | 405,127 | ||||||||||||
Earnings (Loss) Per Share: | ||||||||||||||||
Basic income (loss) per common share: | ||||||||||||||||
Net income (loss) available to common shareholders | $ | 0.04 | $ | (0.62 | ) | $ | (0.04 | ) | $ | (0.91 | ) | |||||
Diluted income (loss) per common share: | ||||||||||||||||
Net income (loss) available to common shareholders | $ | 0.01 | $ | (0.62 | ) | $ | (0.04 | ) | $ | (0.91 | ) |
• | uncertainties related to the national economy, the real estate industry in general and in our specific markets; |
• | legislative or regulatory changes; |
• | adverse economic conditions in Texas; |
• | adverse changes in governmental rules and fiscal policies; |
• | increases in interest rates and operating costs; |
• | availability and terms of capital and financing, both to fund our operations and to refinance our indebtedness as it matures; |
• | decreases in rental rates or increases in vacancy rates; |
• | litigation risks; |
• | lease-up risks, including leasing risks arising from exclusivity and consent provisions in leases with significant tenants; |
• | our inability to renew tenants or obtain new tenants upon the expiration of existing leases; and |
• | our cash resources are limited; | |
• | we have a history of losses; | |
• | we have not raised funds through a public equity offering; | |
• | our trustees control a significant percentage of our voting shares; | |
• | shareholders could experience possible future dilution through the issuance of additional equity; | |
• | we are dependent on a small number of key senior professionals who are part-time employees; and | |
• | we currently do not plan to distribute dividends to the holders of our shares. |
• | Explanation of changes in the results of operations in the Consolidated Statements of Operations for the nine month period ended September 30, 2017 compared to the nine month period ended September 30, 2016. |
• | Explanation of changes in the results of operations in the Consolidated Statements of Operations for the three month period ended September 30, 2017 compared to the three month period ended September 30, 2016. |
• | Our critical accounting policies and estimates that require our subjective judgment and are important to the presentation of our financial condition and results of operations. |
• | Our primary sources and uses of cash for the nine month periods ended September 30, 2017 and 2016, and how we intend to generate cash for long-term capital needs. |
• | Our current income tax status. |
• | borrowings from new loans; |
• | additional equity issuances of our common and preferred shares; and |
• | proceeds from the sales of our marketable securities. |
Exhibit Number | Exhibit Description | |
101.INS* | XBRL Instance Document | |
101.SCH* | XBRL Taxonomy Extension Schema Document | |
101.CAL* | XBRL Taxonomy Extension Calculation Linkbase Document | |
101.LAB* | XBRL Taxonomy Extension Label Linkbase Document | |
101.PRE* | XBRL Taxonomy Extension Presentation Linkbase Document | |
101.DEF* | XBRL Taxonomy Extension Definition Linkbase Document |
PILLARSTONE CAPITAL REIT | |||
By: | /s/ James C. Mastandrea | ||
Date: | November 13, 2017 | James C. Mastandrea Chief Executive Officer (Principal executive officer) |
PILLARSTONE CAPITAL REIT | |||
By: | /s/ John J. Dee | ||
Date: | November 13, 2017 | John J. Dee Chief Financial Officer (Principal financial and accounting officer) |
1. | I have reviewed this Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2017 of Pillarstone Capital REIT (the “Registrant”); |
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 and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially effect, the Registrant’s internal control over financial reporting; and |
5. | The Registrant’s other certifying officer 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 trustees (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. |
1. | I have reviewed this Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2017 of Pillarstone Capital REIT (the “Registrant”); |
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 and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially effect, the Registrant’s internal control over financial reporting; and |
5. | The Registrant’s other certifying officer 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 trustees (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. |
(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 result of operations of the Company. |
PILLARSTONE CAPITAL REIT | |||||
By: | /s/ James C. Mastandrea | ||||
Date: | November 13, 2017 | James C. Mastandrea Chairman, Chief Executive Officer and President |
PILLARSTONE CAPITAL REIT | |||||
By: | /s/ John J. Dee | ||||
Date: | November 13, 2017 | John J. Dee Chief Financial Officer and Senior Vice President |
Document and Entity Information - shares |
9 Months Ended | |
---|---|---|
Sep. 30, 2017 |
Nov. 10, 2017 |
|
Document and Entity Information [Abstract] | ||
Entity Registrant Name | PILLARSTONE CAPITAL REIT | |
Entity Central Index Key | 0000928953 | |
Document Type | 10-Q | |
Document Period End Date | Sep. 30, 2017 | |
Amendment Flag | false | |
Current Fiscal Year End Date | --12-31 | |
Entity Filer Category | Smaller Reporting Company | |
Document Fiscal Period Focus | Q3 | |
Document Fiscal Year Focus | 2017 | |
Entity Common Stock, Shares Outstanding | 405,169 |
Summary of Significant Accounting Policies |
9 Months Ended |
---|---|
Sep. 30, 2017 | |
Accounting Policies [Abstract] | |
Summary of Significant Accounting Policies | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Introduction. The use of the words "we," "us," "our," "Company" or "Pillarstone" refers to Pillarstone Capital REIT and our consolidated subsidiaries, except where the context otherwise requires. Business. Pillarstone Capital REIT is a Maryland real estate investment trust ("REIT") engaged in investing in, owning and operating commercial properties. We serve as the general partner of Pillarstone Capital REIT Operating Partnership LP ("Pillarstone OP"), which was formed on September 23, 2016 as a Delaware limited partnership. We currently conduct substantially all operations and activities through Pillarstone OP. As the general partner of Pillarstone OP, we have the exclusive power to manage and conduct the business of Pillarstone OP, subject to certain customary exceptions. Future real estate investments may include (i) acquisition and development of retail, office, office warehouse, industrial, multifamily, hotel, and other commercial properties, (ii) acquisition of or merger with a REIT or a real estate operating company, and (iii) joint venture investments. Basis of Presentation. The consolidated financial statements included in this report are unaudited; however, amounts presented in the consolidated balance sheet as of December 31, 2016 are derived from our audited consolidated financial statements as of that date. The unaudited financial statements as of and for the periods ended September 30, 2017 and 2016 have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information on a basis consistent with the annual audited consolidated financial statements and with the instructions to Form 10-Q. Certain information and footnote disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). However, we believe that the included disclosures are adequate to make the information presented not misleading. 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 Pillarstone and our subsidiary as of September 30, 2017, the results of operations for the three and nine months ended September 30, 2017 and 2016 and cash flows for the nine month periods ended September 30, 2017 and 2016. All of these adjustments are of a normal recurring nature. The results of operations for the interim periods are not necessarily indicative of the results expected for a full year. The statements should be read in conjunction with the audited consolidated financial statements and the notes thereto which are included in our Annual Report on Form 10-K for the year ended December 31, 2016, as filed with the SEC on March 22, 2017 (the “2016 Form 10-K”). Basis of consolidation. The Company presents its financial statements on a consolidated basis because it combines its accounts with a wholly-owned subsidiary that ceased operations in 2002. All significant intercompany transactions are eliminated in consolidation. Going concern. The financial statements have been prepared assuming the Company will continue as a going concern, which contemplates continued operations as a public company and paying liabilities in the normal course of business. The Company, through Pillarstone OP, acquired 14 real estate assets in December 2016, and its receipt of cash distributions from Pillarstone OP are expected to be sufficient for the Company to continue as a going concern. Recent accounting pronouncements. In August 2016, the Financial Accounting Standards Board issued guidance on the classification of certain cash receipts and payments in the statement of cash flows, including distributions received from equity method investments. This guidance will become effective retrospectively for the reporting periods beginning on or after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, provided that all of the amendments are adopted in the same period. We have adopted this guidance for all periods presented and have chosen to classify distributions received from Pillarstone OP using the cumulative earnings approach. Under this approach, any distributions received up to the cumulative equity earnings are considered a return on investment and are classified as operating activities. Any excess distributions are considered a return of investment and are classified as investing activities. |
Marketable Securities |
9 Months Ended |
---|---|
Sep. 30, 2017 | |
Marketable Securities [Abstract] | |
Marketable Securities | MARKETABLE SECURITIES As of September 30, 2017, our marketable securities had a fair market value of $100. This value was determined using Level 1 inputs and is based on the amount of cash in an insured deposit account at the brokerage firm. During the three and nine month periods ended September 30, 2017, there were no transfers to the operating account from the brokerage firm, and there was no interest income earned in the account at the brokerage firm. |
Equity Method Investment |
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Equity Method Investment | EQUITY METHOD INVESTMENT On December 8, 2016, Pillarstone and Pillarstone OP, entered into a Contribution Agreement (the “Contribution Agreement”) with Whitestone REIT Operating Partnership, L.P. (“Whitestone OP”), a subsidiary and the operating partnership of Whitestone REIT (“Whitestone”), both of which are related parties to Pillarstone and Pillarstone OP, pursuant to which Whitestone OP contributed to Pillarstone OP all of the equity interests in four of its wholly-owned subsidiaries: Whitestone CP Woodland Ph. 2, LLC, a Delaware limited liability company (“CP Woodland”); Whitestone Industrial-Office, LLC, a Texas limited liability company (“Industrial-Office”); Whitestone Offices, LLC, a Texas limited liability company (“Whitestone Offices”); and Whitestone Uptown Tower, LLC, a Delaware limited liability company (“Uptown Tower” and together with CP Woodland, Industrial-Office and Whitestone Offices, the “Entities”) that together own 14 real estate assets (the “Real Estate Assets” and, together with the Entities, the “Property”) for aggregate consideration of approximately $84 million, consisting of (i) approximately $18.1 million of Class A units representing limited partnership interests in Pillarstone OP (“OP Units”), issued at a price of $1.331 per OP Unit; and (ii) the assumption of approximately $65.9 million of liabilities by Pillarstone OP. Pillarstone is the general partner of Pillarstone OP and, as a result of the Contribution Agreement, has equity ownership interest in Pillarstone OP totaling approximately 18.6% valued at $4,121,312 as of the date of the agreement. In connection with the Contribution Agreement, on December 8, 2016, Pillarstone, as the general partner of Pillarstone OP, entered into an Amended and Restated Agreement of Limited Partnership of Pillarstone OP (as amended and restated, the “Limited Partnership Agreement”). Pursuant to the Limited Partnership Agreement, subject to certain protective rights of the limited partners described below, the general partner has full, exclusive and complete responsibility and discretion in the management and control of Pillarstone OP, including the ability to cause Pillarstone OP to enter into certain major transactions including a merger of Pillarstone OP or a sale of substantially all of the assets of Pillarstone OP. The limited partners have no power to remove the general partner without the general partner's consent. In addition, pursuant to the Limited Partnership Agreement, the general partner may not conduct any business other than in connection with the ownership, acquisition and disposition of Pillarstone OP's interest and management of its business without the consent of a majority of the limited partners other than in connection with certain actions described therein. As such, the Company is deemed to exercise significant influence but not complete control over Pillarstone OP. Additionally, we determined that we are not the primary beneficiary under the variable interest entity rules prescribed by GAAP, and thus the investment in Pillarstone OP qualifies for usage of the equity method of accounting. The equity method of accounting requires our investment in Pillarstone OP be shown on our Balance Sheets as a single amount. Pillarstone's investment in Pillarstone OP amounted to an 18.6% ownership interest and carrying values of $(145,495) and $14,776 as of September 30, 2017 and December 31, 2016, respectively. As of September 30, 2017, the $(145,495) carrying value of our equity investment exceeded our equity in the underlying net assets of Pillarstone OP by approximately $307,000 and included equity in earnings of Pillarstone OP of $60,084 and $218,698 for the three and nine month periods then ended, offset by distributions declared totaling $112,492 and $378,969 for the three and nine month periods ended September 30, 2017, respectively. This difference arose due to the $4,121,312 distribution in kind we received during December 2016, and the difference between the carrying value attributed to the assets and liabilities transferred to Pillarstone OP under common control accounting rules and their fair values. We are amortizing the difference over 25 years based on the estimate of the remaining useful lives of the properties acquired. Amortization of the difference is $2,560 and $9,480 for the three and nine month periods ended September 30, 2017, respectively. There was no amortization during 2016. Pillarstone's investment in Pillarstone OP is negative as of September 30, 2017 due to the reductions in the balance from distributions received from Pillarstone OP and amortization offset by increases in the balance from equity in earnings from Pillarstone OP. The combined results of operations and financial position of Pillarstone OP are summarized below (in thousands):
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Convertible Notes Payable - Related Parties |
9 Months Ended |
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Sep. 30, 2017 | |
Debt Disclosure [Abstract] | |
Convertible Notes Payable - Related Parties | CONVERTIBLE NOTES PAYABLE - RELATED PARTIES On November 20, 2015, five trustees on our board of trustees loaned $197,780 to the Company in exchange for convertible notes payable. The convertible notes payable accrue interest at 10% per annum, mature on November 20, 2018 and can be converted by the noteholders into common shares at the rate of $1.331 per common share at any time. After six months, the Company can convert the notes payable and accrued interest into common shares and as of September 30, 2017, the Company did not intend to convert the notes payable and accrued interest into common shares. At maturity or when the Company chooses to convert the notes payable and accrued interest into common shares, the noteholders have the option to receive cash plus accrued interest or convert the notes and accrued interest into common shares. |
Earnings (Loss) Per Share |
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Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Earnings (Loss) Per Share | EARNINGS (LOSS) PER SHARE Basic earnings (loss) per share is determined by dividing net income (loss) available to common shareholders by the weighted average number of common shares outstanding during the period. Dilutive earnings (loss) per share reflects the potential dilution that could occur if Class A Cumulative Convertible Preferred Shares (the “Preferred Class A Shares”), Class C Cumulative Convertible Preferred Shares (the “Preferred Class C Shares”), and convertible notes payable were converted into common stock. We had 2,674,369 potentially convertible securities based on Preferred Class A Shares, Preferred Class C Shares and convertible notes payable and accrued interest that were included in the calculation of dilutive earnings (loss) per share for the three month period ended September 30, 2017. We had 2,610,275 potentially convertible securities based on Preferred Class A Shares, Preferred Class C Shares and convertible notes payable and accrued interest that were excluded from the calculation of dilutive earnings (loss) per share for the three month period ended September 30, 2016, as they were anti-dilutive, and 2,674,369 and 2,610,275 potentially convertible securities based on Preferred Class A Shares, Preferred Class C Shares and convertible notes payable and accrued interest that were excluded from the calculation of dilutive earnings (loss) per share for the nine month periods ended September 30, 2017 and 2016, respectively, as they were anti-dilutive. Options for 667 common shares have been excluded from the calculation of dilutive earnings per share due to the exercise price being significantly higher than the market price of the common shares.
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Incentive Equity Plan |
9 Months Ended |
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Sep. 30, 2017 | |
Equity [Abstract] | |
2016 Equity Plan | 2016 EQUITY PLAN At the 2016 Annual Meeting of Shareholders, our shareholders approved the 2016 Equity Plan (“2016 Plan”). The 2016 Plan provides that awards may be made in common shares of the Company or in OP Units, which may be converted into common shares. Subject to adjustment as provided by the terms of the 2016 Plan, the maximum aggregate number of common shares with respect to which awards may be granted under the 2016 Plan will be increased based on future issuances of common shares of the Company and OP Units of Pillarstone OP, including issuances pursuant to the 2016 Plan, so that at any time the maximum number of shares that may be issued under the 2016 Plan shall equal 12.5% of the aggregate number of common shares of the Company and OP Units issued and outstanding (other than treasury shares or units issued to or held by the Company). The Management, Organization and Compensation Committee (the “Committee”) administers the 2016 Plan, except with respect to awards to non-employee trustees, for which the 2016 Plan is administered by the board of trustees. Subject to the terms of the 2016 Plan, the Committee is authorized to select participants, determine the type and number of awards to be granted, determine and later amend (subject to certain limitations) the terms and conditions of any award, interpret and specify the rules and regulations relating to the 2016 Plan, and make all other determinations which may be necessary or desirable for the administration of the 2016 Plan. The 2016 Plan includes the types of awards for grants and the types of financial performance measures. As of September 30, 2017, the maximum number of common shares of the Company or OP Units available to be granted based on 3,079,538 potentially converted common shares and 13,591,764 potentially converted OP Units is 2,381,614, and no grants have been issued under the 2016 Plan. |
Summary of Significant Accounting Policies (Policies) |
9 Months Ended |
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Sep. 30, 2017 | |
Accounting Policies [Abstract] | |
Basis of Presentation | Basis of Presentation. The consolidated financial statements included in this report are unaudited; however, amounts presented in the consolidated balance sheet as of December 31, 2016 are derived from our audited consolidated financial statements as of that date. The unaudited financial statements as of and for the periods ended September 30, 2017 and 2016 have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information on a basis consistent with the annual audited consolidated financial statements and with the instructions to Form 10-Q. Certain information and footnote disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). However, we believe that the included disclosures are adequate to make the information presented not misleading. 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 Pillarstone and our subsidiary as of September 30, 2017, the results of operations for the three and nine months ended September 30, 2017 and 2016 and cash flows for the nine month periods ended September 30, 2017 and 2016. All of these adjustments are of a normal recurring nature. The results of operations for the interim periods are not necessarily indicative of the results expected for a full year. The statements should be read in conjunction with the audited consolidated financial statements and the notes thereto which are included in our Annual Report on Form 10-K for the year ended December 31, 2016, as filed with the SEC on March 22, 2017 (the “2016 Form 10-K”). |
Basis of consolidation | Basis of consolidation. The Company presents its financial statements on a consolidated basis because it combines its accounts with a wholly-owned subsidiary that ceased operations in 2002. All significant intercompany transactions are eliminated in consolidation. |
Recent accounting pronouncements | Recent accounting pronouncements. In August 2016, the Financial Accounting Standards Board issued guidance on the classification of certain cash receipts and payments in the statement of cash flows, including distributions received from equity method investments. This guidance will become effective retrospectively for the reporting periods beginning on or after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, provided that all of the amendments are adopted in the same period. We have adopted this guidance for all periods presented and have chosen to classify distributions received from Pillarstone OP using the cumulative earnings approach. Under this approach, any distributions received up to the cumulative equity earnings are considered a return on investment and are classified as operating activities. Any excess distributions are considered a return of investment and are classified as investing activities. |
Equity Method Investment (Tables) |
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Equity Method Investments and Joint Ventures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Equity Method Investment | The combined results of operations and financial position of Pillarstone OP are summarized below (in thousands):
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Earnings (Loss) Per Share (Tables) |
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Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Earnings Per Share, Basic and Diluted |
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Schedule of Weighted Average Number of Shares |
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Summary of Significant Accounting Policies (Details Narrative) |
1 Months Ended |
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Dec. 31, 2016
property
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Accounting Policies [Abstract] | |
Number of real estate assets acquired | 14 |
Marketable Securities (Details Narrative) - USD ($) |
9 Months Ended | |
---|---|---|
Sep. 30, 2017 |
Dec. 31, 2016 |
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Marketable Securities [Abstract] | ||
Marketable securities | $ 100 | $ 100 |
Proceeds from the sale of marketable securities | 0 | |
Interest earned on cash | $ 0 |
Equity Method Investment (Schedules) (Details) - Pillarstone OP [Member] - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | |||
---|---|---|---|---|---|
Sep. 30, 2017 |
Sep. 30, 2016 |
Sep. 30, 2017 |
Sep. 30, 2016 |
Dec. 31, 2016 |
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Condensed income statement information: | |||||
Property revenues | $ 4,082 | $ 0 | $ 12,135 | $ 0 | |
Property expenses | 2,064 | 0 | 5,874 | 0 | |
Other expenses | 1,646 | 0 | 4,941 | 0 | |
Provision for income taxes | 20 | 0 | 65 | 0 | |
Loss on sale or disposal of assets | 14 | 0 | 25 | 0 | |
Net income | 338 | 0 | 1,230 | 0 | |
Pillarstone's equity in earnings of Pillarstone OP | 62 | $ 0 | 228 | $ 0 | |
Condensed balance sheet information: | |||||
Real estate assets, net of accumulated depreciation | 58,416 | 58,416 | $ 59,805 | ||
Other assets | 10,695 | 10,695 | 8,434 | ||
Total assets | 69,111 | 69,111 | 68,239 | ||
Notes payable | 64,998 | 64,998 | 65,474 | ||
Other liabilities | 6,541 | 6,541 | 4,742 | ||
Total liabilities | 71,539 | 71,539 | 70,216 | ||
Total equity (deficit) | (2,428) | (2,428) | (1,977) | ||
Total liabilities and equity (deficit) | $ 69,111 | $ 69,111 | $ 68,239 |
Convertible Notes Payable - Related Parties (Details Narrative) |
Sep. 30, 2017
USD ($)
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Dec. 31, 2016
USD ($)
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Nov. 20, 2015
USD ($)
trustee
$ / shares
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Debt Disclosure [Abstract] | |||
Number of trustees | trustee | 5 | ||
Convertible notes payable - related parties | $ | $ 197,780 | $ 197,780 | $ 197,780 |
Interest rate | 10.00% | ||
Conversion price (in dollars per share) | $ / shares | $ 1.331 |
2016 Equity Plan (Details) - 2016 Plan [Member] - shares |
9 Months Ended | 12 Months Ended |
---|---|---|
Sep. 30, 2017 |
Dec. 31, 2016 |
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Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
Percent of total shares authorized | 12.50% | |
Shares authorized (in shares) | 2,381,614 | |
Shares granted (in shares) | 0 | |
Common Stock [Member] | ||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
Shares authorized (in shares) | 3,079,538 | |
OP Units [Member] | ||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
Shares authorized (in shares) | 13,591,764 |
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