|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pillarstone Capital REIT and Subsidiaries
|
CONDENSED CONSOLIDATED BALANCE SHEETS - Continued
|
(in thousands)
|
|
|
|
|
|
|
|
September 30, 2021
|
|
December 31, 2020
|
|
|
(unaudited)
|
|
|
(1) Operating lease right of use assets (net)
|
|
$
|
—
|
|
|
$
|
7
|
|
(2) Operating lease liabilities
|
|
$
|
—
|
|
|
$
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2021
|
|
December 31, 2020
|
|
|
(unaudited)
|
|
|
(a) Assets of condensed consolidated Variable Interest Entity included in the total assets above:
|
Real estate assets, at cost
|
|
|
|
|
Property
|
|
$
|
56,850
|
|
|
$
|
56,290
|
|
Accumulated depreciation
|
|
(8,287)
|
|
|
(7,177)
|
|
Total real estate assets
|
|
48,563
|
|
|
49,113
|
|
Cash and cash equivalents
|
|
4,634
|
|
|
4,321
|
|
Escrows and utility deposits
|
|
1,608
|
|
|
1,449
|
|
Accrued rents and accounts receivable, net of allowance for doubtful accounts
|
|
1,060
|
|
|
1,201
|
|
Receivable due from related party
|
|
535
|
|
|
132
|
|
Unamortized lease commissions and deferred legal cost, net
|
|
476
|
|
|
490
|
|
Prepaid expenses and other assets
|
|
93
|
|
|
37
|
|
Total assets
|
|
$
|
56,969
|
|
|
$
|
56,743
|
|
|
|
|
|
|
(b) Liabilities of condensed consolidated Variable Interest Entity included in the total liabilities above:
|
Notes payable
|
|
$
|
14,988
|
|
|
$
|
15,185
|
|
Accounts payable and accrued expenses
|
|
1,846
|
|
|
2,333
|
|
Payable due to related party
|
|
632
|
|
|
319
|
|
Accrued interest payable
|
|
62
|
|
|
63
|
|
Tenants' security deposits
|
|
809
|
|
|
825
|
|
Total liabilities
|
|
$
|
18,337
|
|
|
$
|
18,725
|
|
The accompanying notes are an integral part of the condensed consolidated financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pillarstone Capital REIT and Subsidiaries
|
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
|
(unaudited)
|
(in thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
Rental (1)
|
$
|
2,371
|
|
|
$
|
2,353
|
|
|
$
|
6,810
|
|
|
$
|
7,358
|
|
Transaction and other fees
|
10
|
|
|
17
|
|
|
33
|
|
|
38
|
|
Total revenues
|
2,381
|
|
|
2,370
|
|
|
6,843
|
|
|
7,396
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
Depreciation and amortization
|
541
|
|
|
476
|
|
|
1,540
|
|
|
1,551
|
|
Operating and maintenance
|
759
|
|
|
638
|
|
|
2,213
|
|
|
1,986
|
|
Real estate taxes
|
430
|
|
|
534
|
|
|
1,232
|
|
|
1,384
|
|
General and administrative
|
167
|
|
|
153
|
|
|
550
|
|
|
828
|
|
Management fees
|
143
|
|
|
145
|
|
|
427
|
|
|
449
|
|
Total operating expenses
|
2,040
|
|
|
1,946
|
|
|
5,962
|
|
|
6,198
|
|
|
|
|
|
|
|
|
|
Other expenses (income)
|
|
|
|
|
|
|
|
Interest expense, net
|
200
|
|
|
209
|
|
|
607
|
|
|
615
|
|
Loss on disposal of assets
|
1
|
|
|
30
|
|
|
1
|
|
|
96
|
|
Other income
|
—
|
|
|
—
|
|
|
(24)
|
|
|
—
|
|
Total other expenses
|
201
|
|
|
239
|
|
|
584
|
|
|
711
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
140
|
|
|
185
|
|
|
297
|
|
|
487
|
|
|
|
|
|
|
|
|
|
Provision for income tax benefit (expense)
|
—
|
|
|
(2)
|
|
|
12
|
|
|
34
|
|
|
|
|
|
|
|
|
|
Net income
|
140
|
|
|
183
|
|
|
309
|
|
|
521
|
|
|
|
|
|
|
|
|
|
Less: Noncontrolling interest in subsidiary
|
196
|
|
|
217
|
|
|
510
|
|
|
828
|
|
Net loss attributable to Common Shareholders
|
$
|
(56)
|
|
|
$
|
(34)
|
|
|
$
|
(201)
|
|
|
$
|
(307)
|
|
|
|
|
|
|
|
|
|
Loss Per Share:
|
|
|
|
|
|
|
|
Basic loss per Common Share:
|
|
|
|
|
|
|
|
Net loss available to Common Shareholders
|
$
|
(0.09)
|
|
|
$
|
(0.07)
|
|
|
$
|
(0.34)
|
|
|
$
|
(0.71)
|
|
Diluted loss per Common Share:
|
|
|
|
|
|
|
|
Net loss available to Common Shareholders
|
$
|
(0.09)
|
|
|
$
|
(0.07)
|
|
|
$
|
(0.34)
|
|
|
$
|
(0.71)
|
|
|
|
|
|
|
|
|
|
Weighted average number of Common Shares outstanding:
|
|
|
|
|
|
|
|
Basic:
|
604,641
|
|
|
482,394
|
|
|
598,249
|
|
|
431,098
|
|
Diluted:
|
604,641
|
|
|
482,394
|
|
|
598,249
|
|
|
431,098
|
|
The accompanying notes are an integral part of the condensed consolidated financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pillarstone Capital REIT and Subsidiaries
|
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - Continued
|
(unaudited)
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
|
|
|
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
(1) Rental
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental revenues
|
|
|
|
|
|
|
$
|
2,136
|
|
|
$
|
2,140
|
|
|
$
|
6,215
|
|
|
$
|
6,662
|
|
Recoveries
|
|
|
|
|
|
|
254
|
|
|
268
|
|
|
643
|
|
|
882
|
|
Bad debt
|
|
|
|
|
|
|
(19)
|
|
|
(55)
|
|
|
(48)
|
|
|
(186)
|
|
Total rental
|
|
|
|
|
|
|
$
|
2,371
|
|
|
$
|
2,353
|
|
|
$
|
6,810
|
|
|
$
|
7,358
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the condensed consolidated financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pillarstone Capital REIT and Subsidiaries
|
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (DEFICIT)
|
(unaudited)
|
(in thousands)
|
|
|
Class A Preferred Shares
|
|
Class C Preferred Shares
|
|
Common Shares
|
|
Additional Paid-in Capital
|
|
Accumulated Deficit
|
|
Cost of Shares Held in Treasury
|
|
Total Shareholders' Equity (Deficit)
|
|
Noncontrolling Interest
|
|
Total Equity
|
Balance, December 31, 2020
|
|
$
|
3
|
|
|
$
|
2
|
|
|
$
|
6
|
|
|
$
|
28,494
|
|
|
$
|
(23,623)
|
|
|
$
|
(801)
|
|
|
$
|
4,081
|
|
|
$
|
34,361
|
|
|
$
|
38,442
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation
|
|
—
|
|
|
—
|
|
|
—
|
|
|
15
|
|
|
—
|
|
|
—
|
|
|
15
|
|
|
—
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(85)
|
|
|
—
|
|
|
(85)
|
|
|
109
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2021
|
|
3
|
|
2
|
|
6
|
|
28,509
|
|
(23,708)
|
|
|
(801)
|
|
|
4,011
|
|
34,470
|
|
38,481
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2
|
|
|
—
|
|
|
—
|
|
|
2
|
|
|
—
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(60)
|
|
|
—
|
|
|
(60)
|
|
|
205
|
|
|
145
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2021
|
|
3
|
|
|
2
|
|
|
6
|
|
|
28,511
|
|
|
(23,768)
|
|
|
(801)
|
|
|
3,953
|
|
|
34,675
|
|
|
38,628
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase of Common Shares (1)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(10)
|
|
|
—
|
|
|
—
|
|
|
(10)
|
|
|
—
|
|
|
(10)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation
|
|
—
|
|
|
—
|
|
|
—
|
|
|
9
|
|
|
—
|
|
|
—
|
|
|
9
|
|
|
—
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(56)
|
|
|
—
|
|
|
(56)
|
|
|
196
|
|
|
140
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2021
|
|
$
|
3
|
|
|
$
|
2
|
|
|
$
|
6
|
|
|
$
|
28,510
|
|
|
$
|
(23,824)
|
|
|
$
|
(801)
|
|
|
$
|
3,896
|
|
|
$
|
34,871
|
|
|
$
|
38,767
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A Preferred Shares
|
|
Class C Preferred Shares
|
|
Common Shares
|
|
Additional Paid-in Capital
|
|
Accumulated Deficit
|
|
Cost of Shares Held in Treasury
|
|
Total Shareholders' Equity (Deficit)
|
|
Noncontrolling Interest
|
|
Total Equity
|
Balance, December 31, 2019
|
|
$
|
3
|
|
|
$
|
2
|
|
|
$
|
4
|
|
|
$
|
28,203
|
|
|
$
|
(23,252)
|
|
|
$
|
(801)
|
|
|
$
|
4,159
|
|
|
$
|
34,371
|
|
|
$
|
38,530
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation
|
|
—
|
|
|
—
|
|
|
—
|
|
|
13
|
|
|
—
|
|
|
—
|
|
|
13
|
|
|
—
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(59)
|
|
|
—
|
|
|
(59)
|
|
|
218
|
|
|
159
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2020
|
|
3
|
|
2
|
|
4
|
|
28,216
|
|
(23,311)
|
|
|
(801)
|
|
|
4,113
|
|
34,589
|
|
38,702
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation
|
|
—
|
|
|
—
|
|
|
—
|
|
|
23
|
|
|
—
|
|
|
—
|
|
|
23
|
|
|
—
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(214)
|
|
|
—
|
|
|
(214)
|
|
|
393
|
|
179
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2020
|
|
3
|
|
|
2
|
|
|
4
|
|
|
28,239
|
|
|
(23,525)
|
|
|
(801)
|
|
|
3,922
|
|
|
34,982
|
|
|
38,904
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation
|
|
—
|
|
|
—
|
|
|
1
|
|
|
180
|
|
|
—
|
|
|
—
|
|
|
181
|
|
|
—
|
|
|
181
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(34)
|
|
|
—
|
|
|
(34)
|
|
|
217
|
|
|
183
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2020
|
|
$
|
3
|
|
|
$
|
2
|
|
|
$
|
5
|
|
|
$
|
28,419
|
|
|
$
|
(23,559)
|
|
|
$
|
(801)
|
|
|
$
|
4,069
|
|
|
$
|
35,199
|
|
|
$
|
39,268
|
|
(1) During the quarter ended September 30, 2021, the Company acquired common shares held by an employee who tendered owned common shares to satisfy the tax withholding on the lapse of certain restrictions on restricted shares.
The accompanying notes are an integral part of the condensed consolidated financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pillarstone Capital REIT and Subsidiaries
|
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
|
(unaudited)
|
(in thousands)
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
2021
|
|
2020
|
|
|
|
|
|
Cash flows from operating activities:
|
|
|
|
|
Net income
|
|
$
|
309
|
|
|
$
|
521
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
Depreciation and amortization
|
|
1,540
|
|
|
1,551
|
|
Amortization of deferred loan costs
|
|
14
|
|
|
22
|
|
Loss on disposal of assets
|
|
1
|
|
|
96
|
|
Bad debt
|
|
48
|
|
|
186
|
|
Share-based compensation
|
|
16
|
|
|
217
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
Accrued rents and accounts receivable
|
|
93
|
|
|
(120)
|
|
Receivable due from related party
|
|
(403)
|
|
|
(661)
|
|
Escrows and utility deposits
|
|
(159)
|
|
|
(637)
|
|
Unamortized lease commissions and deferred legal cost
|
|
(131)
|
|
|
(62)
|
|
Prepaid expenses and other assets
|
|
(26)
|
|
|
(45)
|
|
Accounts payable and accrued expenses
|
|
(507)
|
|
|
(225)
|
|
Payable due to related party
|
|
315
|
|
|
954
|
|
Tenants' security deposits
|
|
(16)
|
|
|
(60)
|
|
Net cash provided provided by operating activities
|
|
1,094
|
|
|
1,737
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
Additions to real estate
|
|
(839)
|
|
|
(607)
|
|
Net cash used in investing activities
|
|
(839)
|
|
|
(607)
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
Repayments of notes payable
|
|
(218)
|
|
|
(206)
|
|
Net cash used in financing activities
|
|
(218)
|
|
|
(206)
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
37
|
|
|
924
|
|
Cash and cash equivalents at beginning of period
|
|
5,109
|
|
|
4,624
|
|
Cash and cash equivalents at end of period
|
|
$
|
5,146
|
|
|
$
|
5,548
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
Cash paid for interest
|
|
$
|
595
|
|
|
$
|
601
|
|
Cash paid for taxes
|
|
$
|
51
|
|
|
$
|
195
|
|
Non cash investing activities:
|
|
|
|
|
Disposal of fully depreciated real estate
|
|
$
|
233
|
|
|
$
|
76
|
|
The accompanying notes are an integral part of the condensed consolidated financial statements.
Pillarstone Capital REIT
Notes to Condensed Consolidated Financial Statements
(unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting. Pillarstone Capital REIT's (the “Company,” “Pillarstone,” “we,” “our,” or “us”) financial records are maintained on the accrual basis of accounting whereby revenues are recognized when earned and expenses are recorded when incurred.
Use of estimates. In order to conform with generally accepted accounting principles in the United States ("U.S. GAAP"), management, in preparation of our condensed consolidated financial statements, is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of September 30, 2021 and December 31, 2020, and the reported amounts of revenues and expenses for the three and nine months ended September 30, 2021 and 2020. Actual results could differ from those estimates. In particular, the COVID-19 pandemic has adversely impacted and is likely to further adversely impact the Company's business and markets, including the Company's operations and the operations of its tenants. The full extent to which the pandemic will directly or indirectly impact the Company's business, results of operations and financial condition, including revenues, expenses, reserves and allowances, fair value measurements, and asset impairment charges, will depend on future developments that are highly uncertain and difficult to predict. These developments include, but are not limited to, the duration and spread of the pandemic, its severity in our markets and elsewhere, governmental actions to contain the spread of the pandemic and respond to the reduction in global economic activity, and how quickly and to what extent normal economic and operating conditions can resume.
Cash and cash equivalents. We consider all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Cash and cash equivalents as of September 30, 2021 and December 31, 2020 consisted of demand deposits at a commercial bank and a brokerage account. We maintain our cash in bank accounts that are federally insured.
Acquired Properties and Acquired Lease Intangibles. 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 at the time of purchase. 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, 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. Due to the effects of the COVID-19 pandemic, we are carefully evaluating acquisitions, development and redevelopment opportunities on an individual basis.
Depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of 5 to 39 years for improvements and buildings. Tenant improvements are depreciated using the straight-line method over the life of the improvement or remaining term of the lease, whichever is shorter.
Impairment. We review our properties for impairment at least 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. We determine 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. Management has determined that there has been no impairment in the carrying value of our real estate assets as of September 30, 2021.
Pillarstone Capital REIT
Notes to Condensed Consolidated Financial Statements
(unaudited)
Accrued Rents and Accounts Receivable. Included in accrued rent and accounts receivable are base rents, tenant reimbursements and receivables attributable to recording rents on a straight-line basis. We review the collectability of charges under our tenant operating leases on a regular basis, taking into consideration changes in factors such as the tenant’s payment history, the financial condition of the tenant, business conditions in the industry in which the tenant operates and economic conditions in the area where the property is located, including the impact of the COVID-19 pandemic on tenants' businesses and financial condition. We recognize an adjustment to rental revenue if we deem it probable that the receivable will not be collected. Our review of collectability under our operating leases includes any accrued rental revenues related to the straight-line method of reporting rental revenue. As of September 30, 2021 and December 31, 2020, we had an allowance for uncollectible accounts of approximately $448,000 and $398,000, respectively. For the three and nine months ended September 30, 2021, we recorded an adjustment to rental revenue in the amount of approximately $19,000 and $48,000, respectively. Included in our adjustments to rental revenue for the three and nine months ended September 30, 2021 was a bad debt adjustment of $6,341 and $57,515, respectively, related to a potential credit loss for the conversion of four tenants to cash basis revenue as a result of our COVID-19 collectability analysis. For the three and nine months ended September 30, 2020, we recorded an adjustment to rental revenue in the amount of approximately $55,000 and $186,000, respectively. Included in the adjustment to rental revenue for the three and nine months ended September 30, 2020 was an adjustment of approximately $21,000 and $55,000, respectively, related to credit loss for the conversion of approximately four and seven tenants, respectively, to cash basis revenue as a result of our COVID-19 collectability analysis.
We anticipate that the ongoing global health crisis caused by COVID-19 and the related responses intended to control its spread, including as a result of the Delta variant or other strains, will continue to adversely affect business activity, particularly relating to our retail tenants, across the markets in which we operate. Any such impacts may be material in nature. As part of the initial response to the virus, many governmental authorities implemented measures such as enhanced screenings, quarantine or shelter in place requirements and travel restrictions, including local governments in Texas, where all our properties are located. In May 2020, parts of the U.S. began to ease certain restrictions and allow for the reopening of businesses but with required or recommended safety protocols. While as of the date of this Quarterly Report on Form 10-Q, service businesses are permitted to be fully open in Texas, there can be no assurance that service businesses will remain open in the near term, or that state and local governments will not take additional measures to control a resurgence of COVID-19 as a result of new strains or variants, in Texas and worldwide, any of which may materially and adversely impact our or our tenants’ businesses and their ability to pay their rental payments or otherwise continue to occupy their space. In light of the changing nature of the COVID-19 pandemic, we are unable to predict the extent that its impact will have on our financial condition, results of operations and cash flows due to numerous uncertainties including, but not limited to, the duration of the pandemic and spread of the disease, its severity in our markets and elsewhere, governmental actions to contain the spread of the disease and respond to the reduction in global economic activity, the unknown timing or effectiveness of treatments, adoption of vaccines, resurgences of COVID-19 cases in future periods and how quickly and to what extent normal economic and operating conditions can resume. The Company is closely monitoring the impact of the COVID-19 pandemic on all aspects of its business and markets, including how it will impact the businesses of its tenants.
Unamortized Lease Commissions and Deferred Legal Cost. Leasing commissions and deferred legal cost are amortized using the straight-line method over the terms of the related lease agreements. 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.
Prepaid expenses and Other assets. Prepaid expenses and other assets include escrows established pursuant to certain mortgage financing arrangements for real estate taxes and insurance.
Noncontrolling Interests. Noncontrolling interests are the portion of equity in a subsidiary not attributable to a parent. Accordingly, we have reported noncontrolling interest in equity on the condensed consolidated balance sheets but separate from Pillarstone’s equity. On the condensed consolidated statements of operations, subsidiaries are reported at the consolidated amount, including both the amount attributable to Pillarstone and noncontrolling interest.
Pillarstone Capital REIT
Notes to Condensed Consolidated Financial Statements
(unaudited)
Revenue recognition. All leases on our properties are classified as noncancelable operating leases, and the related rental income is recognized on a straight-line basis over the terms of the related leases. For the three and nine months ended September 30, 2021, we recognized a straight-line rent reserve adjustment decreasing rental revenue by approximately $21,942 and $22,878, respectively, for the conversion of one tenant to cash basis as a result of our COVID-19 collectibility analysis. For the nine months ended September 30, 2020, we recognized a straight-line rent reserve adjustment decreasing rental revenue by approximately $50,000 for the conversion of four tenants to cash basis as a result of our COVID-19 collectibility analysis. For the three months ended September 30, 2020, we did not recognize a straight-line rent reserve adjustment. Differences between rental income earned and amounts due per the respective lease agreements are capitalized or charged, as applicable, to accrued rents and accounts receivable. Recoveries from tenants for taxes, insurance, and other operating expenses are recognized as revenues in the period the corresponding costs are incurred. We combine lease and nonlease components in lease contracts, which includes combining base rent and recoveries into a single line item, Rental, within the condensed consolidated statements of operations. We recognize lease termination fees in the year that the lease is terminated and collection of the fee is reasonably assured.
Stock-based compensation. The Company accounts for stock-based compensation in accordance with ASC No. 718, "Compensation - Stock Compensation," which addresses the accounting for stock-based payment transactions in which an enterprise receives employee services in exchange for (a) equity instruments of the enterprise or (b) liabilities that are based on the fair value of the enterprise’s equity instruments or that may be settled by the issuance of such equity instruments. ASC No.718 generally requires that these transactions be accounted for using a fair-value-based method. The Company uses the Black-Scholes option-pricing model to determine the fair-value of stock-based awards.
Income taxes. Because we have not elected to be taxed as a REIT for federal income tax purposes, we account for income taxes using the asset and liability method under which deferred tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and liabilities using enacted tax rates in effect for the period in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. We are also subject to certain state and local income, excise and franchise taxes. The provision for state and local taxes has been reflected in provision for income taxes in the condensed consolidated statements of operations and has not been separately stated due to its insignificance.
The Company evaluates potential uncertain tax positions on an annual basis in conjunction with the board of trustees and its tax accountants. Authoritative literature provides a two-step approach to recognize and measure tax benefits when realization of the benefits is uncertain. The first step is to determine whether the benefit meets the more-likely-than-not condition for recognition and the second step is to determine the amount to be recognized based on the cumulative probability that exceeds 50%.
As of September 30, 2021, we had a net operating loss carry-forward of $251,000, and as of September 30, 2021 and December 31, 2020, we had net deferred tax liabilities of $34,000 and $82,000, respectively.
Concentration of Risk. Substantially all of our revenues are obtained from office and warehouse locations in the Dallas and Houston 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 sometimes exceed the federally insured limits, although no losses have been incurred in connection with these deposits.
Recent accounting pronouncements. In April 2020, the Financial Accounting Standards Board ("FASB") issued guidance on the application of Topic 842, relating to concessions being made by lessors in response to the COVID-19 pandemic. The guidance notes that it would be acceptable for entities to make an election to account for lease concessions relating to the effects of the COVID-19 pandemic consistent with how those concessions would be accounted for under Topic 842 as though enforceable rights and obligations for those concessions existed, even if such enforceable rights and obligations are not explicitly contained in the lease contract. Thus, for concessions relating to COVID-19, an entity would not have to analyze each contract to determine whether enforceable rights and obligations for concessions exist in the contract, and would have the option to apply, or not to apply, the general lease modification guidance in Topic 842 as it stands. We have elected this option to account for lease concessions relating to the effects of the COVID-19 pandemic consistent with how those concessions would be accounted for under Topic 842 as though enforceable rights and obligations for those concessions existed. Therefore, such concessions are not accounted for as a lease modification under Topic 842.
Pillarstone Capital REIT
Notes to Condensed Consolidated Financial Statements
(unaudited)
2. ACCRUED RENTS AND ACCOUNTS RECEIVABLE, NET
Accrued rents and accounts receivable, net consists of amounts accrued, billed and due from tenants, allowance for doubtful accounts and other receivables as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2021
|
|
December 31, 2020
|
Tenant receivables
|
|
$
|
577
|
|
|
$
|
558
|
|
Accrued rents and other recoveries
|
|
1,003
|
|
|
1,113
|
|
Allowance for doubtful accounts
|
|
(448)
|
|
|
(398)
|
|
Total
|
|
$
|
1,132
|
|
|
$
|
1,273
|
|
3. LEASES
As a Lessor. All leases on our properties are classified as noncancelable operating leases, and the related rental income is recognized on a straight-line basis over the terms of the related leases. Differences between rental income earned and amounts due per the respective lease agreements are capitalized or charged, as applicable, to accrued rents and accounts receivable. Percentage rents, if applicable, are recognized as rental income when the thresholds upon which they are based have been met. Recoveries from tenants for taxes, insurance, and other operating expenses are recognized as revenues in the period the corresponding costs are incurred. We combine lease and nonlease components in lease contracts, which includes combining base rent, recoveries, and percentage rents into a single line item, Rental, within the condensed consolidated statements of operations.
A summary of minimum future rents to be received (exclusive of renewals, tenant reimbursements, contingent rents, and collectability adjustments under Topic 842) under noncancelable operating leases in existence as of September 30, 2021 is as follows (in thousands):
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
Minimum Future Rents(1)
|
2021 (remaining)
|
|
$
|
1,888
|
|
2022
|
|
5,838
|
|
2023
|
|
4,195
|
|
2024
|
|
2,530
|
|
2025
|
|
1,249
|
|
Thereafter
|
|
958
|
|
Total
|
|
$
|
16,658
|
|
(1) These amounts do not reflect future rental revenues from the renewal or replacement of existing leases and exclude reimbursements of operating expenses and rental increases that are not fixed.
As a Lessee. On June 8, 2021, Pillarstone's lease became month to month with Whitestone for the premises located at 2600 S. Gessner Road, Suite 555 Houston, Texas 77063. The rentable area of the premises is approximately 678 square feet. Total rent expense for the three and nine months ended September 30, 2021 was ($6,272) and $11,340, respectively, compared to $3,780 and $13,588, for the three and nine months ended September 30, 2020, respectively.
Pillarstone Capital REIT
Notes to Condensed Consolidated Financial Statements
(unaudited)
4. UNAMORTIZED LEASE COMMISSIONS AND DEFERRED LEGAL COST, NET
Costs which have been deferred consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2021
|
|
December 31, 2020
|
Leasing commissions
|
|
$
|
1,345
|
|
|
$
|
1,290
|
|
Deferred legal cost
|
|
12
|
|
|
12
|
|
Total cost
|
|
1,357
|
|
|
1,302
|
|
Less: leasing commissions accumulated amortization
|
|
(870)
|
|
|
(802)
|
|
Less: deferred legal cost accumulated amortization
|
|
(11)
|
|
|
(10)
|
|
Total cost, net of accumulated amortization
|
|
$
|
476
|
|
|
$
|
490
|
|
5. VARIABLE INTEREST ENTITY
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 the terms of the Contribution Agreement, Whitestone OP contributed to Pillarstone OP all of the equity interests in four of its wholly-owned subsidiaries (the “Subsidiaries”): Whitestone CP Woodland Ph. 2, LLC, a Delaware limited liability company; Whitestone Industrial-Office, LLC, a Texas limited liability company; Whitestone Offices, LLC, a Texas limited liability company; and Whitestone Uptown Tower, LLC, a Delaware limited liability company (“Uptown Tower”) that owned 14 real estate assets (the “Real Estate Assets” and, together with the Subsidiaries, the “Property”) for aggregate consideration of approximately $84 million, consisting of (1) 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 (2) the assumption of approximately $65.9 million of liabilities by Pillarstone OP. Pursuant to the Contribution Agreement, Pillarstone became the general partner of Pillarstone OP with an equity ownership interest in Pillarstone OP totaling approximately an 18.6% interest valued at $4.1 million as of the date of the Contribution Agreement.
In connection with the Contribution Agreement, on December 8, 2016, the Company, 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 “Amended and Restated Agreement of Limited Partnership”). Pursuant to the Amended and Restated Agreement of Limited Partnership, 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 Amended and Restated Agreement of Limited Partnership, the general partner may not conduct any business without the consent of a majority of the limited partners other than in connection with certain actions described therein. The Company is deemed to exercise significant influence over Pillarstone OP as it has the power to direct the activities that most significantly impact Pillarstone OP's economic performance and the Company's right to receive benefits based on its ownership percentage in Pillarstone OP. Accordingly, the Company accounts for Pillarstone OP as a Variable Interest Entity.
The Amended and Restated Agreement of Limited Partnership designates two classes of units of limited partnership interest in Pillarstone OP: the OP Units and LTIP units. In general, LTIP units are similar to the OP Units and will receive the same quarterly per-unit profit distributions as the OP Units. The rights, privileges, and obligations related to each series of LTIP units will be established at the time the LTIP units are issued. As profits interests, LTIP units initially will not have full parity, on a per-unit basis, with OP Units with respect to liquidating distributions. Upon the occurrence of specified events, LTIP units can over time achieve full parity with the OP Units and therefore accrete to an economic value for the holder equivalent to OP Units. If such parity is achieved, vested LTIP units may be converted on a one-for-one basis into OP Units, which in turn are redeemable by the holder for cash or, at the Company’s election, exchangeable for Common Shares on a one-for-one basis.
Pillarstone Capital REIT
Notes to Condensed Consolidated Financial Statements
(unaudited)
The carrying amounts and classification of certain assets and liabilities for Pillarstone OP in our condensed consolidated balance sheets as of September 30, 2021 and December 31, 2020 consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2021
|
|
December 31, 2020
|
|
|
(unaudited)
|
|
|
Real estate assets, at cost
|
|
|
|
|
Property
|
|
$
|
56,850
|
|
|
$
|
56,290
|
|
Accumulated depreciation
|
|
(8,287)
|
|
|
(7,177)
|
|
Total real estate assets
|
|
48,563
|
|
|
49,113
|
|
Cash and cash equivalents
|
|
4,634
|
|
|
4,321
|
|
Escrows and utility deposits
|
|
1,608
|
|
|
1,449
|
|
Accrued rents and accounts receivable, net of allowance for doubtful accounts
|
|
1,060
|
|
|
1,201
|
|
Receivable due from related party (1)
|
|
535
|
|
|
132
|
|
Unamortized lease commissions and deferred legal cost, net
|
|
476
|
|
|
490
|
|
Prepaid expenses and other assets
|
|
93
|
|
|
37
|
|
Total assets
|
|
$
|
56,969
|
|
|
$
|
56,743
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
Notes payable
|
|
$
|
14,988
|
|
|
$
|
15,185
|
|
Accounts payable and accrued expenses
|
|
1,846
|
|
|
2,333
|
|
Payable due to related party
|
|
632
|
|
|
319
|
|
Accrued interest payable
|
|
62
|
|
|
63
|
|
Tenants' security deposits
|
|
809
|
|
|
825
|
|
Total liabilities
|
|
$
|
18,337
|
|
|
$
|
18,725
|
|
(1) Excludes approximately $0.03 million in accounts receivable due from Pillarstone that was eliminated in consolidation as of September 30, 2021 and December 31, 2020.
6. REAL ESTATE
As of September 30, 2021, Pillarstone OP owned eight Real Estate Assets in the Dallas and Houston areas comprised of approximately 0.9 million square feet of gross leasable area.
Pillarstone Capital REIT
Notes to Condensed Consolidated Financial Statements
(unaudited)
7. DEBT
Mortgages and other notes payable consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description
|
|
September 30, 2021
|
|
December 31, 2020
|
Fixed rate notes
|
|
|
|
|
$16.5 million 4.97% Note, due September 26, 2023
|
|
$
|
15,043
|
|
|
$
|
15,262
|
|
Total notes payable principal
|
|
15,043
|
|
|
15,262
|
|
Less deferred financing costs, net of accumulated amortization
|
|
(55)
|
|
|
(77)
|
|
Total notes payable
|
|
$
|
14,988
|
|
|
$
|
15,185
|
|
Our mortgage debt was collateralized by one operating property as of September 30, 2021 and December 31, 2020 with a net book value of $21.6 million and $21.8 million, respectively. Our loan contains restrictions that would require the payment of prepayment penalties for the acceleration of outstanding debt and is secured by a deed of trust on our property and the assignment of certain rents and leases associated with the property. Our loan is subject to customary covenants. As of September 30, 2021, we were in compliance with all loan covenants.
Scheduled maturities of notes payable as of September 30, 2021 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
Year
|
|
Amount Due
|
2021 (remaining)
|
|
$
|
73
|
|
2022
|
|
311
|
|
2023
|
|
14,659
|
|
Total
|
|
$
|
15,043
|
|
8. 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 and originally matured on November 20, 2018. In 2019, our board of trustees approved an extension of the maturity date to November 20, 2021. The convertible notes payable can be converted by the noteholders into Common Shares at the rate of $1.331 per Common Share at any time. At maturity or when the Company chooses to call the convertible notes payable, the noteholders have the option to receive cash plus accrued interest or convert the convertible notes payable into Common Shares at $1.331 per Common Share. Accrued interest on these related convertible notes was approximately $116,000 as of September 30, 2021 compared with approximately $101,000 as of December 31, 2020.
9. EARNINGS (LOSS) PER SHARE
The Company applies the guidance of ASC 260, "Earnings Per Share," for all periods presented herein. Net earnings (loss) per weighted average Common Share outstanding, basic and diluted, is computed based on the weighted average number of Common Shares outstanding for the period. The following table shows the weighted average number of Common Shares outstanding and reconciles the numerator and denominator of earnings per Common Share calculations for the three and nine month periods ended September 30, 2021 and 2020.
For the three and nine month periods ended September 30, 2021 and 2020, Class A Preferred Shares and Class C Preferred Shares were not included in net loss per weighted average number of Common Share outstanding-diluted, because the effect of the conversion would be anti-dilutive. For the three and nine month periods ended September 30, 2021 and 2020, Restricted Common Shares awarded pursuant to the 2016 plan (defined in Note 11 below) were not included in net loss per weighted average number of Common Share outstanding-dilutive, because the effect of the conversion would be anti-dilutive.
Pillarstone Capital REIT
Notes to Condensed Consolidated Financial Statements
(unaudited)
During the three and nine month periods ended September 30, 2021 and 2020, the Company had $197,780 of convertible notes payable as discussed in Note 8. The convertible notes payable were not included in the computation of diluted loss per share for the three and nine months ended September 30, 2021 and 2020 because the effect of the conversion would be anti-dilutive.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
|
(in thousands, except share and per share data)
|
|
|
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to common shareholders
|
|
|
|
|
|
$
|
(56)
|
|
|
$
|
(34)
|
|
|
$
|
(201)
|
|
|
$
|
(307)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares - basic
|
|
|
|
|
|
604,641
|
|
|
482,394
|
|
|
598,249
|
|
|
431,098
|
|
|
|
|
|
Weighted average number of common shares - dilutive
|
|
|
|
|
|
604,641
|
|
|
482,394
|
|
|
598,249
|
|
|
431,098
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss Per Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic loss per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss available to common shareholders
|
|
|
|
|
|
$
|
(0.09)
|
|
|
$
|
(0.07)
|
|
|
$
|
(0.34)
|
|
|
$
|
(0.71)
|
|
|
|
|
|
Diluted loss per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss available to common shareholders
|
|
|
|
|
|
$
|
(0.09)
|
|
|
$
|
(0.07)
|
|
|
$
|
(0.34)
|
|
|
$
|
(0.71)
|
|
|
|
|
|
10. RELATED PARTY TRANSACTIONS
On December 8, 2016, the Company entered into the Contribution Agreement with Whitestone OP, a related party, resulting in the contribution of an equity ownership interest in Pillarstone OP by the Company valued at $4,121,312 and representing approximately 18.6% of the outstanding equity in Pillarstone OP. The terms of the Contribution Agreement were determined through arm's-length negotiations and were recommended to the board of trustees by a special committee of the board of trustees consisting solely of disinterested trustees of the Company and approved by the full board.
Pursuant to the Contribution Agreement, the Company agreed to file with the Securities and Exchange Commission (the "SEC") on or prior to June 8, 2018, a shelf registration statement to register for sale under the Securities Act of 1933, as amended, the issuance of the common shares in the Company that may be issued upon redemption of the OP Units issued pursuant to the Contribution Agreement and the offer and resale of such common shares by the holders thereof. In addition, pursuant to the Contribution Agreement, in the event of a Change of Control (as defined therein) of Whitestone, Pillarstone OP shall have the right, but not the obligation, to repurchase the OP Units issued thereunder from Whitestone OP at their initial issue price of $1.331 per OP Unit. Pillarstone and Whitestone agreed to extend the filing of the shelf registration statement to the date that the Company closes a public equity offering.
In connection with the Contribution Agreement, on December 8, 2016, the Company and Pillarstone OP entered into a Tax Protection Agreement (the “Tax Protection Agreement”) with Whitestone OP pursuant to which Pillarstone OP agreed to indemnify Whitestone OP for certain tax liabilities resulting from its recognition of income or gain prior to December 8, 2021 if such liabilities result from a transaction involving a direct or indirect taxable disposition of all or a portion of the Property or if Pillarstone OP fails to maintain and allocate to Whitestone OP for taxation purposes minimum levels of liabilities as specified in the Tax Protection Agreement, the result of which causes such recognition of income or gain and Whitestone incurs taxes that must be paid to maintain its REIT status for federal tax purposes. In December 2018, Pillarstone OP sold three of the Real Estate Assets, which did not create additional tax liabilities for Whitestone OP. In addition, the sale of three more Real Estate Assets in 2019 also did not create additional tax liabilities for Whitestone OP.
Pillarstone Capital REIT
Notes to Condensed Consolidated Financial Statements
(unaudited)
During the ordinary course of business, we have transactions with Whitestone that include, but are not limited to, rental income, interest expense, general and administrative costs, commissions, management and asset management fees, and property expenses.
In connection with the Contribution Agreement, on December 8, 2016, the Company entered into a Management Agreement (collectively, the “Management Agreements”) with Whitestone TRS, Inc., a subsidiary of Whitestone (“Whitestone TRS"). Pursuant to the Management Agreements with respect to each property, other than Uptown Tower, Whitestone TRS agreed to provide certain property management, leasing and day-to-day advisory and administrative services to such properties in exchange for (1) a monthly property management fee equal to 5.0% of the monthly revenues of each property and (2) a monthly asset management fee equal to 0.125% of GAV (as defined in each Management Agreement as, generally, the purchase price of the respective property based upon the purchase price allocations determined pursuant to the Contribution Agreement, excluding all indebtedness, liabilities or claims of any nature) of such property. Pursuant to the Management Agreement with respect to Uptown Tower, Whitestone TRS agreed to provide certain property management, leasing and day-to-day advisory and administrative services in exchange for (1) a monthly property management fee equal to 3.0% of the monthly revenues of Uptown Tower and (2) a monthly asset management fee equal to 0.125% of GAV of Uptown Tower.
The following table presents the revenue and expenses with Whitestone included in our condensed consolidated statement of operations for the three and nine months ended September 30, 2021 and 2020 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
|
|
|
Location of Revenue (Expense)
|
|
|
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
|
|
|
Rent
|
|
Rental
|
|
|
|
|
|
$
|
225
|
|
|
$
|
220
|
|
|
$
|
676
|
|
|
$
|
701
|
|
|
|
|
|
Property management fees
|
|
Management fees
|
|
|
|
|
|
(97)
|
|
|
(99)
|
|
|
(291)
|
|
|
(320)
|
|
|
|
|
|
Asset management fees
|
|
Management fees
|
|
|
|
|
|
(45)
|
|
|
(46)
|
|
|
(135)
|
|
|
(129)
|
|
|
|
|
|
Rent expense
|
|
Office expenses
|
|
|
|
|
|
6
|
|
|
(4)
|
|
|
(11)
|
|
|
(14)
|
|
|
|
|
|
Receivables due from and payables due to related parties consisted of the following as of September 30, 2021 and December 31, 2020 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location of Receivable (Payable)
|
|
September 30, 2021
|
|
December 31, 2020
|
Tenant receivables and other receivables
|
Receivable due from related party
|
|
$
|
535
|
|
|
$
|
132
|
|
Accrued interest due to related party
|
Accrued interest payable
|
|
(116)
|
|
|
(101)
|
|
Other payables due to related party
|
Payable due to related party
|
|
(650)
|
|
|
(335)
|
|
11. INCENTIVE 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 units in the Company’s operating partnership, 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 and units of the operating partnership, 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 and units of the operating partnership issued and outstanding (other than treasury shares and/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
Pillarstone Capital REIT
Notes to Condensed Consolidated Financial Statements
(unaudited)
the administration of the 2016 Plan. The 2016 Plan includes the types of awards for grants and types of financial performance measures.
On July 1, 2019, the Committee approved the grant of 45,031 Restricted Common Share Units (the "Units") subject to the restrictions, terms and conditions set forth in the Restricted Unit Award Agreement (the "Award"). These Units are time-based shares that vest ratably each year over the three years following July 1, 2019 and will be fully vested on July 1, 2022.
On July 1, 2019, the Committee approved the grant of 45,031 Units subject to the restrictions and terms and conditions set forth in the Award. These Units are performance-based shares linked to five specific goals set forth in the Award. If the Company does not attain the performance goals before July 1, 2022, the Units still subject to restriction will be forfeited to the Company.
On August 7, 2020, three independent members of the Company's Board of Trustees were issued 122,665 Common Share Units which vested immediately. The fair value of the shares was based on the closing market price on the day preceding issuance.
On December 17, 2020, three independent members of the Company's Board of Trustees were issued 56,607 Common Share Units which vested immediately. The fair value of the shares was based on the closing market price on the day preceding issuance.
As of September 30, 2021, the maximum number of Common Shares or OP Units available to be granted is 2,078,137. During the nine months ended September 30, 2021, the following shares were granted and the following shares vested:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description
|
|
Shares
|
|
Weighted-Average Grant Date Fair Value (1)
|
Non-vested at January 1, 2021
|
|
75,052
|
|
|
$
|
2.18
|
|
Vested
|
|
(15,010)
|
|
|
$
|
2.13
|
|
Non-vested at September 30, 2021
|
|
60,042
|
|
|
$
|
2.19
|
|
Available for grant at September 30, 2021
|
|
2,078,137
|
|
|
|
(1) The fair value of the shares granted on July 1, 2019 were determined based on the share activity from the date of the three property sales on December 27, 2018 until the grant date July 1, 2019. The fair value of the shares issued on August 12, 2020 and December 27, 2020 were determined by the market price on the dates of issuance.
As of September 30, 2021, per the Award granted July 1, 2019, the Company has determined that the time-based shares and the performance-based shares will fully vest by July 1, 2022. Time-based shares granted on July 1, 2019 are amortized over their respective amortization periods. The performance-based shares granted on July 1, 2019 will be amortized for three years. Performance-based shares that have not been achieved as of July 1, 2022 will be forfeited to the Company.
The total value of the time-based and performance-based shares granted on July 1, 2019 is approximately $196,000. The Company recognized approximately $9,000 and $26,000 in stock-based compensation expense for the three and nine months ended September 30, 2021, respectively, and recognized approximately $16,000 and $52,000 for the three and nine months ended September 30, 2020, respectively.
The total value of the Company's Board of Trustee's shares issued on August 7, 2020 and December 17, 2020 was approximately $166,000 and $65,000, respectively. The Company did not recognize any stock-based compensation expense for trustee compensation for the three and nine months ended September 30, 2021. The Company recognized approximately $165,000 in stock-based compensation expense for trustee compensation for the three and nine months ended September 30, 2020.
Pillarstone Capital REIT
Notes to Condensed Consolidated Financial Statements
(unaudited)
12. SUBSEQUENT EVENTS
Management has evaluated subsequent events through November 12, 2021, the date the condensed consolidated financial statements were available to be issued and has determined that there are no subsequent events to be reported.