Pillarstone Capital REIT (the “Company,” “Pillarstone,” “we,” “our,” or “us”) is a Maryland real estate investment trust ("REIT") engaged in investing in, owning and operating commercial properties.

Liquidity and Financial Resources. On December 8, 2016, we and Pillarstone Capital REIT Operating Partnership LP (“Pillarstone OP”), a limited partnership of which we are General Partner and owner of 18.6% of the OP Units during the period covered by these unaudited consolidated financial statements, 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, both of which were 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 18.6% valued at $4.1 million as of the date of the Contribution Agreement. As the general partner of Pillarstone OP, we have had the exclusive power to manage and conduct the business of Pillarstone OP, subject to certain customary exceptions.

At June 30, 2025, Uptown Tower owned one office building in the Dallas metropolitan area and subsidiaries of Pillarstone OP owned four office/warehouse and retail locations in the Houston metropolitan area. Following the period covered by this report, these remaining Real Estate Assets were sold pursuant to the plan of liquidation in the bankruptcy case of us and our subsidiaries other than Uptown Tower and the plan of reorganization in the Uptown Tower bankruptcy case.

Pursuant to the Contribution Agreement, Pillarstone agreed to file with 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), 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, (1) with respect to each Real Estate Asset (other than the Real Property Asset owned by Uptown Tower), Whitestone TRS, Inc. (“Whitestone TRS”), a subsidiary of Whitestone, entered into a Management Agreement with Pillarstone OP who owns such Real Estate Asset and (2) with respect to Uptown Tower, Whitestone TRS entered into a Management Agreement with Pillarstone OP (collectively, the “Management Agreements”). Pursuant to the Management Agreements with respect to each Real Estate Asset (other than Uptown Tower), Whitestone TRS agreed to provide certain property management, leasing and day-to-day advisory and administrative services to such Real Estate Asset in exchange for (x) a monthly property management fee equal to 5.0% of the monthly revenues of such Real Estate Asset and (y) a monthly asset management fee equal to 0.125% of gross asset value ("GAV") (as defined in each Management Agreement as, generally, the purchase price of the respective Real Estate Asset based upon the purchase price allocations determined pursuant to the Contribution Agreement, excluding all indebtedness, liabilities or claims of any nature) of such Real Estate Asset. 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 to Pillarstone OP in exchange for (x) a monthly property management fee equal to 3.0% of the monthly revenues of Uptown Tower and (y) a monthly asset management fee equal to 0.125% of GAV of Uptown Tower. These activities were conducted by Whitestone TRS and Whitestone REIT using their own employees, processes, and systems and in some cases, third-party providers for services they sub-contracted to perform.

As a result of the Contribution Agreement, Whitestone OP acquired approximately 81.4% with Pillarstone owning approximately 18.6% of the outstanding equity in Pillarstone OP.

On July 19, 2022, we received written notice that Whitestone TRS confirmed termination of the Management Agreements for the Real Estate Assets. We had previously communicated to Whitestone REIT our plan to internalize the management of our Real Estate Assets, but we had not made efforts to terminate the Management Agreements or transition the management activities. However, Whitestone REIT 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.

Prior to receiving the termination notice, we had anticipated an orderly transition of the management of the Real Estate Assets over an appropriate timeframe, particularly as Whitestone OP owned 81.4% of Pillarstone OP as a limited partner. As a result, we were materially and adversely affected by Whitestone’s abrupt termination of the Management Agreements, incomplete and inadequate delivery of books and records, our website and other materials required to be delivered under the Management Agreements, and the failure to provide for an appropriate transition. We had no way to continue our accounting and financial reporting responsibilities as a public company. Further, for several months following the abrupt termination of services by Whitestone, we were unable to systematically invoice our tenants and pursue collection of delinquent accounts.

Within days after the termination of the Management Agreements by Whitestone, we internalized management and began to manage the Real Estate Assets and our business without an external management company. This process involved commencing a selection process for an enterprise resource planning, or ERP, system of our own. We immediately hired an experienced management team with prior experience working with our property portfolio, including former Whitestone senior staff. Our newly assembled leadership team quickly engaged consultants (a) to assist us in implementing the newly selected ERP system, (b) to analyze, reconcile and transform historical data obtained from Whitestone REIT into a usable format for our new system and (c) to design procedures for regular accounting closes and preparation of accurate and reliable financial statements for our shareholders and other stakeholders.

In 2023, our work to restore operations that were disrupted by Whitestone’s abrupt termination as manager of our Real Estate Assets continued. In that time, we were working to extend the maturity date or to find new financing for mortgage indebtedness secured by our Uptown Tower office building or a buyer for the Uptown Tower property. The borrower, Whitestone Uptown Tower, LLC, Pillarstone OP’s subsidiary that owned the Uptown Tower office building, was not in compliance with loan covenants. These efforts were unsuccessful and soon after the mortgage’s maturity on October 1, 2023, the lender delivered a notice of foreclosure sale to the borrower.

On December 1, 2023, Whitestone Uptown Tower, LLC filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Northern District of Texas in the case styled In re: Whitestone Uptown Tower, LLC a/a/ Pillarstone Capital REIT Operating Partnership, Case No. 23-32832-mvl-11, in the United States Bankruptcy Court for the Northern District of Texas, Dallas Division.

On March 4, 2024, bankruptcy cases were filed for us and 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, the same court as the Whitestone Uptown Tower, LLC bankruptcy case.

Following the period covered by this report, we sold Real Estate Assets under the Whitestone Uptown Tower, LLC plan of reorganization and the plan of liquidation for the other Pillarstone entities (see Note 10).

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. We expect no further settlements related to Pillarstone OP and its subsidiaries in the jointly administered bankruptcy cases.

Going Concern. The accompanying consolidated financial statements have been prepared assuming that we will continue as a going concern. In addition to the events described above, we have incurred significant losses and have an accumulated deficit of approximately $24.9 million as of June 30, 2025 and need to raise substantial amounts of additional funds to meet our obligations and afford us time to implement our business plan and resume profitable operations. These conditions raise substantial doubt about the Company's ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

To implement our business strategy, additional capital will need to be raised. Our ability to access the capital markets will be dependent on a number of factors, including general market conditions and market perceptions about our Company. There can be no assurance that we will be able to raise capital, obtain debt financing, or improve operating results sufficiently to continue as a going concern, if at all. The consolidated financial statements included in this report do not include any adjustments that might result from the outcome of this uncertainty.

Basis of presentation. The accompanying unaudited consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting.

As required under U.S. GAAP, we deconsolidated our Pillarstone OP, Whitestone CP Woodland Ph. 2, LLC, Whitestone Industrial-Office, LLC and Whitestone Offices, LLC subsidiaries from our consolidated financial statements effective with their bankruptcy filings on March 4, 2024. We previously deconsolidated Whitestone Uptown Tower, LLC effective with its bankruptcy filing on December 1, 2023.

The financial condition and results of operations of the bankrupt subsidiaries are no longer presented in our consolidated financial statements after the effective date of their filings. For periods before the deconsolidation, the Company’s consolidated financial condition and results of operations include those of the deconsolidated subsidiaries as discontinued operations.

Noncontrolling interest in the accompanying consolidated financial statements represents the share of equity and earnings of Pillarstone OP allocable to holders of partnership interests other than us.

The consolidated balance sheet as of December 31, 2024 included herein was derived from the audited consolidated financial statements as of that date, but does not include all disclosures, including certain notes required by GAAP on an annual reporting basis. In management’s opinion, the unaudited consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the balance sheets and statements of operations, comprehensive income, stockholders’ equity, and cash flows for the interim periods, but are not necessarily indicative of the results of operations to be anticipated for the full fiscal year or any future period.

These unaudited consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements and notes included in its Annual Report on Form 10-K for the year ended December 31, 2024.

Use of estimates. The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include the estimated fair value of receivable from Pillarstone OP, and deferred taxes and the related valuation allowance for deferred taxes.

Segment reporting. Operating segments are components of an enterprise for which separate financial information is available and is evaluated regularly by the chief operating decision maker (“CODM”) in deciding how to allocate resources and assess performance. The Company’s CODM is its Chief Executive Officer, who reviews financial information presented on a consolidated basis, including consolidated net income (loss), to make operating decisions, assess financial performance, and allocate resources. Based on the information regularly reviewed by the CODM, the Company has determined that it operates in one operating and reportable segment. The measure of segment profit or loss regularly reviewed by the CODM is consolidated net income (loss), as reported in the accompanying consolidated statements of operations. The significant segment expense categories regularly provided to the CODM and included in the reported measure of segment profit or loss are general and administrative expenses and interest expense, each of which is presented as a separate line item in the accompanying consolidated statements of operations. All of the Company’s assets are located within the United States.

Recent accounting pronouncements. In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”). The amendments in ASU 2023-09 require reporting entities to disclose annual income taxes paid, net of refunds, disaggregated by federal, state, and foreign taxes and to provide additional disaggregated information for individual jurisdictions that equal or exceed 5% of total income taxes paid, net of refunds. ASU 2023-09 also requires public business entities to disclose additional categories of information about federal, state, and foreign income taxes in their annual rate reconciliation table and provide more information about some categories if the quantitative threshold is met. The ASU will also require disclosure of amounts and percentages in the annual rate reconciliation table, rather than amounts or percentages, and will eliminate certain existing disclosure requirements related to uncertain tax positions and unrecognized deferred tax liabilities. We will adopt ASU 2023-09 starting with the Company’s 2025 annual financial statements and will be making prospective disclosures in those financial statements.

In November 2024, the FASB issued ASU 2024-03, Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses (“ASU 2024-03”). The amendments in ASU 2024-03 require public business entities to disclose in the notes to the financial statements, among other things, specific information about certain costs and expenses including purchases of inventory, employee compensation, and depreciation, amortization, and depletion expenses for each caption on the income statement where such expenses are included. ASU 2024-03 is effective starting with the Company’s 2027 annual consolidated financial statements and on a quarterly basis thereafter. Early adoption is permitted, and the amendments may be applied prospectively to reporting periods after the effective date or retrospectively to all periods presented in the financial statements. The Company is currently evaluating the extent to which its disclosures will be affected by the ASU.