Note 2 - Pillarstone Capital REIT Operating Partnership LP's Bankruptcy and Deconsolidation

12 Months Ended

Dec. 31, 2024

Notes to Financial Statements

Reorganization under Chapter 11 of US Bankruptcy Code Disclosure [Text Block]

2.	Pillarstone Capital REIT Operating Partnership LP’s Bankruptcy and Deconsolidation

On March 4, 2024, bankruptcy cases were filed Pillarstone OP, as well as Whitestone CP Woodland Ph. 2, LLC, Whitestone Industrial-Office, LLC and Whitestone Offices, LLC, the subsidiaries owning our Real Estate Assets other than Uptown Tower, which were consolidated into the jointly administered cases styled In re: Whitestone Industrial-Office, LLC, et. al., Case No. 24-30653-mvl-11, in the United States Bankruptcy Court for the Northern District of Texas, Dallas Division.

As required under U.S. GAAP, we deconsolidated Pillarstone OP and its subsidiaries from our consolidated financial statements effective March 4, 2024, the date of the bankruptcy filings. As such, Pillarstone OP and its subsidiaries’ financial condition and results of operations are no longer presented in our consolidated financial statements after this date.

In the first quarter of 2025, we recognized a receivable of $4.05 million representing the estimated fair value of our interest in Pillarstone OP and its subsidiaries and an associated gain on deconsolidation of $864 thousand. In December 2025, we received $4.05 million as part of the settlement in the jointly administered bankruptcies of Pillarstone OP, Whitestone CP Woodland Ph. 2, LLC, Whitestone Industrial-Office, LLC and Whitestone Offices, LLC.

The following table summarizes the effects of the deconsolidation of Pillarstone OP and its subsidiaries on the consolidated balance sheets:

Real estate assets, at cost		$	(25,868	)
Cash and cash equivalents			(1,759	)
Escrows and utility deposits			(14	)
Accrued rents and accounts receivable, net of allowance for doubtful accounts			(273	)
Receivable due from related party			(888	)
Unamortized lease commissions and deferred legal cost, net			(118	)
Prepaid expenses and other assets			(15	)
Reduction of total assets		$	(28,935	)
Accounts payable and accrued expenses		$	(1,754	)
Tenants' security deposits			(496	)
Noncontrolling interest in subsidiary			(26,685	)
Reduction in total liabilities and equity		$	(28,935	)

Pillarstone OP and its subsidiaries’ financial condition and results of operations for periods presented before its deconsolidation are presented as discontinued operations in our consolidated financial statements. The following is a summary of the carrying amounts of major classes of assets and liabilities presented as discontinued operations in the consolidated balance sheets as of December 31, 2023:

		December 31,
		2023

Assets:
Real estate assets, at cost		$	26,032
Cash and cash equivalents			1,189
Escrows and utility deposits			14
Accrued rents and accounts receivable, net of allowance for doubtful accounts			315
Receivable due from related party			2,795
Unamortized lease commissions and deferred legal cost, net			130
Prepaid expenses and other assets			91
Total assets of discontinued operations		$	30,566

Liabilities:
Accounts payable and accrued expenses		$	1,534
Tenants' security deposits			488
Total liabilities of discontinued operations		$	2,022

The following is a summary of the major classes of line items constituting loss on discontinued operations shown in the consolidated statements of operations:

		Year Ended December 31,
		2024				2023
Revenues:
Rental		$	851			$	7,966
Transaction and other fees			1				21
Total revenues			852				7,987

Operating expenses:
Depreciation and amortization			142				1,679
Operating and maintenance			371				3,003
Real estate taxes			202				1,715
General and administrative			-				3,340
Management fees			56				1,391
Total operating expenses			771				11,128

Other expenses-
Interest expense, net			-				483
Loss on deconsolidation of Whitestone Uptown Tower LLC			-				377
Total other expenses			-				860

Income (loss) before income taxes			81				(4,001	)
Provision for income taxes			-				569

Income (loss) from discontinued operations, net of income taxes		$	81			$	(3,432	)

Significant accounting policies applicable to the discontinued operations include:

Revenue recognition. All leases on our properties were classified as noncancelable operating leases, and the related rental income was 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 were capitalized or charged, as applicable, to accrued rents and accounts receivable.

Real estate. Land, buildings and improvements were recorded at cost. Expenditures related to the development of real estate are carried at cost. Depreciation was computed using the straight-line method over the estimated useful lives of 5 to 39 years for improvements and buildings. Tenant improvements were depreciated using the straight-line method over the life of the improvement or remaining term of the lease, whichever was shorter.

Accrued Rents and Accounts Receivable. Included in accrued rent and accounts receivable were base rents, tenant reimbursements and receivables attributable to recording rents on a straight-line basis. We reviewed 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 was located. We recognized an adjustment to rental revenue if we deem it probable that the receivable would not be collected.

Unamortized Lease Commissions and Deferred Legal Cost. Leasing commissions and deferred legal cost were amortized using the straight-line method over the terms of the related lease agreements. Costs allocated to in-place leases whose terms differed from market terms related to acquired properties are amortized over the remaining life of the respective leases.