Managerial Agreements. From December 8, 2016 through August 18, 2022, we contracted with Whitestone TRS for managerial services. 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.

On July 19, 2022, Pillarstone received written notice that Whitestone TRS confirmed termination of the Management Agreements for the Pillarstone OP Real Estate Assets. Pillarstone had previously communicated to Whitestone its plan to internalize the management of the Real Estate Assets, but Pillarstone had not made efforts to terminate the management agreements. However, Whitestone TRS stated in its notice letter that while it had not received written notice of the termination of the management agreements, it “confirms receipt of your intent to terminate, and hereby confirms termination of the Agreements effective 30 days from” July 19, 2022.

On August 18, 2022, Whitestone TRS ceased all managerial services without providing any transition services. Pillarstone has worked since that time to internalize the management of its Real Estate Assets and to continue to pursue its business without the management services provided by Whitestone TRS.

Expense Reimbursements. Under the Amended and Restated Agreement of Limited Partnership dated December 8, 2016, Pillarstone OP is responsible for administrative and operating costs and expenses incurred by the Company as General Partner of Pillarstone OP, including, without limitation, all expenses relating to the General Partner’s (i) continued existence and subsidiary operations, (ii) offerings and registration of securities, (iii) preparation and filing of any periodic or other reports and communications required under federal, state or local laws and regulations, (iv) compliance with laws, rules and regulations promulgated by any regulatory body, and (v) operating or administrative costs incurred in the ordinary course of business on behalf of the Partnership; provided, however, that such costs and expenses shall not include any administrative or operating costs of the General Partner attributable to assets owned by the General Partner directly and not through Pillarstone OP or its Subsidiaries.

Indemnification provisions within the Amended and Restated Agreement of Limited Partnership also provide for reimbursement of all losses, claims, damages, liabilities, joint or several, expenses (including, without limitation, attorneys fees and other legal fees and expenses), judgments, fines, settlements and other amounts, arising from or in connection with any and all claims, demands, actions, suits or proceedings, whether civil, criminal, administrative or investigative, relating to Pillarstone OP or the General Partner or the operation of, or the ownership of property.

These reimbursement provisions provide the Company with critical sources of cash and liquidity to maintain our operations. Following Whitestone’s abrupt termination of managerial services to Pillarstone OP, we have incurred significant costs to internalize management, and to select and implement an enterprise-wide system of our own. We have also incurred substantial legal costs in our litigation with Whitestone.

The Company has no assets, activities or operations other than those related to Pillarstone OP. Hence, all of our costs and expenses are reimbursable under the applicable provisions of the Amended and Restated Agreement of Limited Partnership.

We determined that Whitestone, as operational manager until August 2022 was not making appropriate reimbursement of the Company’s operating and administrative expenses from Pillarstone OP. During the first quarter of 2022, we recorded $1.8 million as reimbursement of expenses for the years ended 2017 through 2021. We recorded reimbursements from Pillarstone OP totaling $216 thousand and $487 thousand during the three and nine months ended September 30, 2022, respectively, for operating and administrative expenses incurred in 2022.

The reimbursements initially reported in our Quarterly Reports on Forms 10-Q for the periods ended March 31, 2022 and June 30, 2022 were offset by reserves totaling $1.8 million because the amounts were disputed by Whitestone. As the manager responsible for all day-to-day operations, Whitestone maintained financial records and access to all cash balances of the Company. The reserves were necessary then in recognition that significant efforts, including litigation, may have been necessary to collect these amounts.

Following Whitestone’s termination of managerial services in August 2022, we internalized management of the Company. This includes maintenance of the Company’s financial records and direct access to all cash balances of the Company. Based on this and our rights to the full reimbursement as provided by the Amended and Restated Agreement of Limited Partnership, we reversed the reserves in August 2022.

Whitestone has notified us that they will contest some or all of these reimbursements. We intend to vigorously defend these reimbursements as they are permitted under provisions of the Amended and Restated Agreement of Limited Partnership dated December 8, 2016.

For financial reporting purposes, Pillarstone REIT and Pillarstone OP report on a consolidated basis, therefore, the reimbursement of our expenses does not change net income but only the allocations between controlling and noncontrolling interests.

Whitestone Claim for Expenses. After we notified Whitestone of the $1.8 million reimbursement required from Pillarstone OP, Whitestone and Whitestone OP made a claim to Pillarstone and Pillarstone OP to be reimbursed for construction and lease commission expenditures of $1.4 million paid by Whitestone OP on behalf of Pillarstone OP during 2017 and 2018. Pillarstone requested additional information for the $1.4 million expenditures to determine if any of the items claimed should have been prorated between Pillarstone OP and Whitestone OP in our transaction with Whitestone and Whitestone OP on December 8, 2016 for the initial acquisition of the Real Estate Assets. These expenditures were recorded on Pillarstone OP in 2017 and 2018 as an increase in the Whitestone OP limited partner investment account and as assets of Pillarstone OP that have been depreciated and amortized to expense over their useful lives. The amount due Whitestone OP for these expenditures, if any, has not been determined. If Pillarstone OP reimburses any amounts to Whitestone OP, the payment would reduce the Whitestone OP limited partner investment account.

Summary. The following table presents the revenue and expenses with related parties included in our consolidated statement of operations (in thousands):

Receivables due from and payables due to related parties consisted of the following (in thousands):