v3.25.2
Note 6 - Variable Interest Entity
9 Months Ended
Sep. 30, 2022
Notes to Financial Statements  
Equity Method Investments and Joint Ventures Disclosure [Text Block]

6.

Variable Interest Entity

 

Pillarstone became the general partner of Pillarstone OP with an equity ownership interest in Pillarstone OP totaling approximately 18.6% pursuant to the Contribution Agreement. 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 that owned 14 real estate assets at that time. In connection with the Contribution Agreement, the Company, as the general partner of Pillarstone OP, entered into an 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.

 

The carrying amounts and classification of certain assets and liabilities for Pillarstone OP in our consolidated balance sheets consists of the following (in thousands):

 

  

September 30,

2022

  

December 31,

2021

 
  

(unaudited)

     

Real estate assets, at cost

        

Property

 $57,278  $57,023 

Accumulated depreciation

  (9,794)  (8,751)

Total real estate assets

  47,484   48,272 

Cash and cash equivalents

  5,079   4,900 

Escrows and utility deposits

  1,928   1,243 

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

  952   1,104 

Receivable due from related party

  263   1,011 

Unamortized lease commissions and deferred legal cost, net

  368   464 

Prepaid expenses and other assets

  129   33 

Total assets

 $56,203  $57,027 
         
         

Liabilities

        

Notes payable

 $14,757  $14,920 

Accounts payable and accrued expenses

  1,794   1,483 

Payable due to related party

  -   827 

Accrued interest payable

  -   64 

Tenants' security deposits

  779   827 

Total liabilities

 $17,330  $18,121