Whitestone REIT (Form: 10-Q, Received: 08/04/2017 16:50:44)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



	(Mark One)
[x]	QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2017



[ ]	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________ to ____________

Commission file number 001-34855

WHITESTONE REIT

(Exact Name of Registrant as Specified in Its Charter)



Maryland		76-0594970
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)



2600 South Gessner, Suite 500 Houston, Texas		77063
(Address of Principal Executive Offices)		(Zip Code)

(713) 827-9595

(Registrant's Telephone Number, Including Area Code)

N/A

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ý Yes ¨ No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ý Yes ¨ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ¨ Accelerated filer ý

Non-accelerated filer ¨ (Do not check if a smaller reporting company) Smaller reporting company ¨

Emerging growth company ¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨ Yes ý No

As of August 1, 2017 , there were 38,523,055 common shares of beneficial interest, $0.001 par value per share, outstanding.

PART I - FINANCIAL INFORMATION



Item 1.	Financial Statements .	1
	Consolidated Balance Sheets as of June 30, 2017 (Unaudited) and December 31, 2016	1
	Consolidated Statements of Operations and Comprehensive Income (Loss) (Unaudited) for the Three and Six Months Ended June 30, 2017 and 2016	3
	Consolidated Statement of Changes in Equity (Unaudited) for the Six Months Ended June 30, 2017	5
	Consolidated Statements of Cash Flows (Unaudited) for the Six Months Ended June 30, 2017 and 2016	6
	Notes to Consolidated Financial Statements (Unaudited)	8
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations .	24
Item 3.	Quantitative and Qualitative Disclosures About Market Risk .	49
Item 4.	Controls and Procedures .	50

PART II - OTHER INFORMATION



Item 1.	Legal Proceedings .	51
Item 1A.	Risk Factors .	51
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds .	51
Item 3.	Defaults Upon Senior Securities .	51
Item 4.	Mine Safety Disclosures .	52
Item 5.	Other Information .	52
Item 6.	Exhibits .	53
	Signatures	54
	Exhibit Index	55

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

Whitestone REIT and Subsidiaries

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)



	June 30, 2017			December 31, 2016
	(unaudited)
ASSETS ⁽¹⁾
Real estate assets, at cost
Property	$	1,140,299		$	920,310
Accumulated depreciation	(118,442		)	(107,258		)
Total real estate assets	1,021,857			813,052
Cash and cash equivalents	9,267			4,168
Restricted cash	127			56
Marketable securities	550			517
Escrows and acquisition deposits	7,408			6,620
Accrued rents and accounts receivable, net of allowance for doubtful accounts	20,482			19,951
Unamortized lease commissions and loan costs	8,283			8,083
Prepaid expenses and other assets	3,431			2,762
Total assets	$	1,071,405		$	855,209

LIABILITIES AND EQUITY ⁽²⁾
Liabilities:
Notes payable	$	663,480		$	544,020
Accounts payable and accrued expenses	30,206			28,692
Tenants' security deposits	6,600			6,125
Dividends and distributions payable	11,289			8,729
Total liabilities	711,575			587,566
Commitments and contingencies:	—			—
Equity:
Preferred shares, $0.001 par value per share; 50,000,000 shares authorized; none issued and outstanding as of June 30, 2017 and December 31, 2016, respectively	—			—
Common shares, $0.001 par value per share; 400,000,000 shares authorized; 38,526,489 and 29,468,563 issued and outstanding as of June 30, 2017 and December 31, 2016, respectively	38			29
Additional paid-in capital	507,227			396,494
Accumulated deficit	(159,413		)	(141,695		)
Accumulated other comprehensive gain	845			859
Total Whitestone REIT shareholders' equity	348,697			255,687
Noncontrolling interests:
Redeemable operating partnership units	11,219			11,941
Noncontrolling interest in Consolidated Partnership	(86		)	15
Total noncontrolling interests	11,133			11,956
Total equity	359,830			267,643
Total liabilities and equity	$	1,071,405		$	855,209

See accompanying notes to Consolidated Financial Statements

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Whitestone REIT and Subsidiaries
CONSOLIDATED BALANCE SHEETS - Continued
(in thousands, except share and per share data)

	June 30, 2017			December 31, 2016
	(unaudited)
⁽¹⁾ Assets of consolidated Variable Interest Entities included in the total assets above:
Real estate assets, at cost
Property	$	93,776		$	92,338
Accumulated depreciation	(34,998		)	(32,533		)
Total real estate assets	58,778			59,805
Cash and cash equivalents	2,088			1,236
Escrows and acquisition deposits	1,442			2,274
Accrued rents and accounts receivable, net of allowance for doubtful accounts	2,316			2,313
Unamortized lease commissions and loan costs	1,117			1,150
Prepaid expenses and other assets	195			82
Total assets	$	65,936		$	66,860

⁽²⁾ Liabilities of consolidated Variable Interest Entities included in the total liabilities above:
Notes payable	$	49,427		$	50,001
Accounts payable and accrued expenses	2,550			3,481
Tenants' security deposits	1,074			996
Total liabilities	$	53,051		$	54,478

See the accompanying notes to consolidated financial statements.

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Whitestone REIT and Subsidiaries

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(Unaudited)

(in thousands, except per share data)



	Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016
Property revenues
Rental revenues	$	23,010		$	19,649		$	44,306		$	39,071
Other revenues	7,198			5,480			14,169			11,493
Total property revenues	30,208			25,129			58,475			50,564

Property expenses
Property operation and maintenance	5,375			4,683			10,869			9,477
Real estate taxes	4,487			3,304			8,407			6,658
Total property expenses	9,862			7,987			19,276			16,135

Other expenses (income)
General and administrative	5,848			5,413			12,017			10,249
Depreciation and amortization	6,681			5,521			12,689			10,913
Interest expense	5,629			4,748			10,782			9,552
Interest, dividend and other investment income	(101		)	(78		)	(239		)	(175		)
Total other expense	18,057			15,604			35,249			30,539

Income before gain (loss) on sale or disposal of properties or assets and income taxes	2,289			1,538			3,950			3,890

Provision for income taxes	(89		)	(11		)	(170		)	(167		)
Gain on sale of properties	16			—			16			2,890
Loss on sale or disposal of assets	(72		)	(18		)	(95		)	(16		)

Net income	2,144			1,509			3,701			6,597

Redeemable operating partnership units	60			25			114			116
Non-controlling interests in Consolidated Partnership	101			—			165			—
Less: Net income attributable to noncontrolling interests	161			25			279			116

Net income attributable to Whitestone REIT	$	1,983		$	1,484		$	3,422		$	6,481

See accompanying notes to Consolidated Financial Statements

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Whitestone REIT and Subsidiaries

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(Unaudited)

(in thousands, except per share data)



	Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016
Basic Earnings Per Share:
Net income attributable to common shareholders excluding amounts attributable to unvested restricted shares	$	0.05		$	0.05		$	0.10		$	0.23
Diluted Earnings Per Share:
Net income attributable to common shareholders excluding amounts attributable to unvested restricted shares	$	0.05		$	0.05		$	0.10		$	0.22

Weighted average number of common shares outstanding:
Basic	35,716			26,819			32,583			26,712
Diluted	36,544			27,513			33,493			27,501

Distributions declared per common share / OP unit	$	0.2850		$	0.2850		$	0.5700		$	0.5700

Consolidated Statements of Comprehensive Income (Loss)

Net income	$	2,144		$	1,509		$	3,701		$	6,597

Other comprehensive gain (loss)

Unrealized loss on cash flow hedging activities	(780		)	(2,450		)	(48		)	(8,491		)
Unrealized gain on available-for-sale marketable securities	33			36			33			31

Comprehensive income (loss)	1,397			(905		)	3,686			(1,863		)

Less: Net income attributable to noncontrolling interests	161			26			279			116
Less: Comprehensive loss attributable to noncontrolling interests	(22		)	(42		)	(1		)	(149		)

Comprehensive income (loss) attributable to Whitestone REIT	$	1,258		$	(889	)	$	3,408		$	(1,830	)

See accompanying notes to Consolidated Financial Statements

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Whitestone REIT and Subsidiaries

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

(Unaudited)

(in thousands)



																	Noncontrolling Interests
																						General
											Accumulated						Redeemable					Partners'
					Additional						Other			Total			Operating					Interest in
	Common Shares				Paid-In			Accumulated			Comprehensive			Shareholders'			Partnership					Consolidated			Total
	Shares		Amount		Capital			Deficit			Loss			Equity			Units		Dollars			Partnership			Equity

Balance, December 31, 2016	29,468		$	29	$	396,494		$	(141,695	)	$	859		$	255,687		1,103		$	11,941		$	15		$	267,643

Exchange of noncontrolling interest OP units for common shares	19		—		206			—			—			206			(19	)	(206		)	—			—

Issuance of shares under dividend reinvestment plan	5		—		63			—			—			63			—		—			—			63

Issuance of common shares - ATM Program, net of offering costs	567		1		7,723			—			—			7,724			—		—			—			7,724

Issuance of common shares - Overnight, net of offering costs	8,019		8		99,887			—			—			99,895			—		—			—			99,895

Repurchase of common shares ⁽¹⁾	(154	)	—		(1,987		)	—			—			(1,987		)	—		—			—			(1,987		)

Share-based compensation	602		—		4,833			—			—			4,833			—		—			—			4,833

Distributions	—		—		—			(21,140		)	—			(21,140		)	—		(621		)	(266		)	(22,027		)

Unrealized gain on change in fair value of available-for-sale marketable securities	—		—		—			—			32			32			—		1			—			33

Unrealized loss on change in value of cash flow hedge	—		—		—			—			(46		)	(46		)	—		(2		)	—			(48		)

Reallocation of ownership percentage between parent and subsidiary	—		—		8			—			—			8			—		(8		)	—			—

Net income	—		—		—			3,422			—			3,422			—		114			165			3,701

Balance, June 30, 2017	38,526		$	38	$	507,227		$	(159,413	)	$	845		$	348,697		1,084		$	11,219		$	(86	)	$	359,830


⁽¹⁾	During the six months ended June 30, 2017 , the Company acquired common shares held by employees who tendered owned common shares to satisfy the tax withholding on the lapse of certain restrictions on restricted common shares.

See accompanying notes to Consolidated Financial Statements

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Whitestone REIT and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)



	Six Months Ended
	June 30,
	2017			2016
Cash flows from operating activities:
Net income	$	3,701		$	6,597
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	12,689			10,913
Amortization of deferred loan costs	624			784
Amortization of notes payable discount	298			145
Loss (gain) on sale or disposal of assets and properties	79			(2,874		)
Bad debt expense	907			763
Share-based compensation	4,833			3,844
Changes in operating assets and liabilities:
Escrows and acquisition deposits	(788		)	844
Accrued rent and accounts receivable	(1,438		)	(2,014		)
Unamortized lease commissions	(1,431		)	(1,133		)
Prepaid expenses and other assets	511			459
Accounts payable and accrued expenses	(6,756		)	(2,537		)
Tenants' security deposits	475			324
Net cash provided by operating activities	13,704			16,115
Cash flows from investing activities:
Acquisitions of real estate	(124,557		)	—
Additions to real estate	(8,279		)	(11,055		)
Proceeds from sales of properties	26			3,957
Net cash used in investing activities	(132,810		)	(7,098		)
Cash flows from financing activities:
Distributions paid to common shareholders	(18,546		)	(15,497		)
Distributions paid to OP unit holders	(623		)	(277		)
Distributions paid to noncontrolling interest in Consolidated Partnership	(266		)	—
Proceeds from issuance of common shares, net of offering costs	107,619			10,600
Net proceeds from credit facility	40,600			3,000
Repayments of notes payable	(1,826		)	(1,585		)
Payments of loan origination costs	(695		)	—
Change in restricted cash	(71		)	4
Repurchase of common shares	(1,987		)	(1,922		)
Net cash provided by (used in) financing activities	124,205			(5,677		)

Net increase in cash and cash equivalents	5,099			3,340
Cash and cash equivalents at beginning of period	4,168			2,587
Cash and cash equivalents at end of period	$	9,267		$	5,927

See accompanying notes to Consolidated Financial Statements

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Whitestone REIT and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)



	Six Months Ended
	June 30,
	2017			2016
Supplemental disclosure of cash flow information:
Cash paid for interest	$	10,341		$	9,169
Cash paid for taxes	$	329		$	284
Non cash investing and financing activities:
Disposal of fully depreciated real estate	$	232		$	253
Financed insurance premiums	$	1,115		$	1,060
Value of shares issued under dividend reinvestment plan	$	63		$	53
Value of common shares exchanged for OP units	$	206		$	98
Change in fair value of available-for-sale securities	$	33		$	31
Change in fair value of cash flow hedge	$	(48	)	$	(8,491	)
Reallocation of ownership percentage between parent and subsidiary	$	8		$	—

See accompanying notes to Consolidated Financial Statements

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WHITESTONE REIT AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2017

(Unaudited)

The use of the words “we,” “us,” “our,” “Company” or “Whitestone” refers to Whitestone REIT and our consolidated subsidiaries, except where the context otherwise requires.

1. INTERIM FINANCIAL STATEMENTS

The consolidated financial statements included in this report are unaudited; however, amounts presented in the consolidated balance sheet as of December 31, 2016 are derived from our audited consolidated financial statements as of that date. The unaudited financial statements as of and for the period ended June 30, 2017 have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information on a basis consistent with the annual audited consolidated financial statements and with the instructions to Form 10-Q.

The consolidated financial statements presented herein reflect all adjustments which, in the opinion of management, are necessary for a fair presentation of the financial position of Whitestone and our subsidiaries as of June 30, 2017 , and the results of operations for the three and six month periods ended June 30, 2017 and 2016 , the consolidated statements of changes in equity for the six month period ended June 30, 2017 and cash flows for the six month periods ended June 30, 2017 and 2016 . All of these adjustments are of a normal recurring nature. The results of operations for the interim periods are not necessarily indicative of the results expected for a full year. The statements should be read in conjunction with the audited consolidated financial statements and the notes thereto which are included in our Annual Report on Form 10-K for the year ended December 31, 2016 .

Business . Whitestone was formed as a real estate investment trust (“REIT”) pursuant to the Texas Real Estate Investment Trust Act on August 20, 1998. In July 2004, we changed our state of organization from Texas to Maryland pursuant to a merger where we merged directly with and into a Maryland REIT formed for the sole purpose of the reorganization and the conversion of each of the outstanding common shares of beneficial interest of the Texas entity into 1.42857 common shares of beneficial interest of the Maryland entity. We serve as the general partner of Whitestone REIT Operating Partnership, L.P. (the “Operating Partnership”), which was formed on December 31, 1998 as a Delaware limited partnership. We currently conduct substantially all of our operations and activities through the Operating Partnership. As the general partner of the Operating Partnership, we have the exclusive power to manage and conduct the business of the Operating Partnership, subject to certain customary exceptions. As of June 30, 2017 and December 31, 2016 , Whitestone owned or held a majority interest in 72 and 69 commercial properties, respectively, in and around Austin, Chicago, Dallas-Fort Worth, Houston, Phoenix and San Antonio.

These properties consist of:

Consolidated Operating Portfolio


•	49 wholly-owned properties that meet our Community Centered Properties™ strategy; and


•	through our 81.4% majority interest in our consolidated subsidiary, Pillarstone Capital REIT Operating Partnership LP, or Pillarstone OP, an interest in 14 consolidated properties that do not meet our Community Centered Properties™ strategy.

Redevelopment, New Acquisitions Portfolio


•	four retail properties that meet our Community Centered Properties™ strategy; and


•	five parcels of land held for future development.

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WHITESTONE REIT AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2017

(Unaudited)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Consolidation. We are the sole general partner of the Operating Partnership and possess full legal control and authority over the operations of the Operating Partnership. As of June 30, 2017 and December 31, 2016 , we owned a majority of the partnership interests in the Operating Partnership. Consequently, the accompanying consolidated financial statements include the accounts of the Operating Partnership. We also consolidate a variable interest entity (“VIE”) when we are determined to be the primary beneficiary. Determination of the primary beneficiary is based on whether an entity has (1) the power to direct activities that most significantly impact the economic performance of the VIE and (2) the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE. Our determination of the primary beneficiary considers all relationships between us and the VIE, including management and other contractual agreements. See Note 6 for additional disclosure on our VIE.

Noncontrolling interest in the accompanying consolidated financial statements represents the share of equity and earnings of the Operating Partnership allocable to holders of partnership interests other than us. Net income or loss is allocated to noncontrolling interests based on the weighted-average percentage ownership of the Operating Partnership during the period. Issuance of additional common shares of beneficial interest in Whitestone (the “common shares”) and units of limited partnership interest in the Operating Partnership that are convertible into cash or, at our option, common shares on a one -for- one basis (the “OP units”) changes the percentage of ownership interests of both the noncontrolling interests and Whitestone.

Basis of Accounting. Our 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. The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates that we use include the estimated fair values of properties acquired, the estimated useful lives for depreciable and amortizable assets and costs, the estimated allowance for doubtful accounts, the estimated fair value of interest rate swaps and the estimates supporting our impairment analysis for the carrying values of our real estate assets. Actual results could differ from those estimates.

Reclassifications. We have reclassified certain prior period amounts in the accompanying consolidated financial statements in order to be consistent with the current period presentation. These reclassifications had no effect on net income, total assets, total liabilities or equity.

Restricted Cash. We classify all cash pledged as collateral to secure certain obligations and all cash whose use is limited as restricted cash. During 2015, pursuant to the terms of our $15.1 million 4.99% Note, due January 6, 2024 (See Note 7), which is collateralized by our Anthem Marketplace property, we were required by the lenders thereunder to establish a cash management account controlled by the lenders to collect all amounts generated by our Anthem Marketplace property in order to collateralize such promissory note. As a result, these amounts are reported in the consolidated statements of cash flows under cash flows from financing activities as change in restricted cash.

Marketable Securities. We classify our existing marketable equity securities as available-for-sale in accordance with the Financial Accounting Standards Board's (“FASB”) Investments-Debt and Equity Securities guidance. These securities are carried at fair value with unrealized gains and losses reported in equity as a component of accumulated other comprehensive income or loss. The fair value of the marketable securities is determined using Level 1 inputs under FASB Accounting Standards Codification (“ASC”) 820, “ Fair Value Measurements and Disclosures.” Level 1 inputs represent quoted prices available in an active market for identical investments as of the reporting date. Gains and losses on securities sold are based on the specific identification method, and are reported as a component of interest, dividend and other investment income.

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WHITESTONE REIT AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2017

(Unaudited)

Derivative Instruments and Hedging Activities. We utilize derivative financial instruments, principally interest rate swaps, to manage our exposure to fluctuations in interest rates. We have established policies and procedures for risk assessment, and the approval, reporting and monitoring of derivative financial instruments. We recognize our interest rate swaps as cash flow hedges with the effective portion of the changes in fair value recorded in comprehensive income (loss) and subsequently reclassified into earnings in the period that the hedged transaction affects earnings. Any ineffective portion of a cash flow hedges' change in fair value is recorded immediately into earnings. Our cash flow hedges are determined using Level 2 inputs under ASC 820. Level 2 inputs represent quoted prices in active markets for similar assets or liabilities; quoted prices in markets that are not active; and model-derived valuations whose inputs are observable. As of June 30, 2017 , we consider our cash flow hedges to be highly effective.

Development Properties. Land, buildings and improvements are recorded at cost. Expenditures related to the development of real estate are carried at cost which includes capitalized carrying charges and development costs. Carrying charges (interest, real estate taxes, loan fees, and direct and indirect development costs related to buildings under construction), are capitalized as part of construction in progress. The capitalization of such costs ceases when the property, or any completed portion, becomes available for occupancy. For the three months ended June 30, 2017 , approximately $84,000 and $64,000 in interest expense and real estate taxes, respectively, were capitalized, and for the six months ended June 30, 2017 , approximately $156,000 and $93,000 in interest expense and real estate taxes, respectively, were capitalized. For the three months ended June 30, 2016 , approximately $105,000 and $16,000 in interest expense and real estate taxes, respectively, were capitalized, and for the six months ended June 30, 2016 , approximately $132,000 and $32,000 in interest expense and real estate taxes, respectively, were capitalized.

Real Estate Held for Sale and Discontinued Operations. We consider a commercial property to be held for sale when it meets all of the criteria established under ASC 205, “Presentation of Financial Statements.” For commercial properties classified as held for sale, assets and liabilities are presented separately for all periods presented.

In accordance with ASC 205, a discontinued operation may include a component of an entity or a group of components of an entity. A disposal of a component of an entity or a group of components of an entity is reported in discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on an entity's operations and financial results when the component of an entity or group of components of an entity is classified as held for sale, disposed of by sale or disposed of other than by sale, respectively. In addition, ASC 205 requires us to provide additional disclosures about both discontinued operations and the disposal of an individually significant component of an entity that does not meet the criteria for a discontinued operation.

Share-Based Compensation. From time to time, we award nonvested restricted common share awards or restricted common share unit awards, which may be converted into common shares, to executive officers and employees under our 2008 Long-Term Equity Incentive Ownership Plan (the “2008 Plan”). The vast majority of the awarded shares and units vest when certain performance conditions are met. We recognize compensation expense when achievement of the performance conditions is probable based on management's most recent estimates using the fair value of the shares as of the grant date. We recognized $2,390,000 and $1,819,000 in share-based compensation for the three months ended June 30, 2017 and 2016 , respectively, and we recognized $4,841,000 and $3,844,000 in share-based compensation for the six months ended June 30, 2017 and 2016 , respectively.

Noncontrolling Interests. Noncontrolling interests is the portion of equity in a subsidiary not attributable to a parent. The ownership interests not held by the parent are considered noncontrolling interests. Accordingly, we have reported noncontrolling interests in equity on the consolidated balance sheets but separate from Whitestone's equity. On the consolidated statements of operations, subsidiaries are reported at the consolidated amount, including both the amount attributable to Whitestone and noncontrolling interests. The consolidated statement of changes in equity is included for quarterly financial statements, including beginning balances, activity for the period and ending balances for shareholders' equity, noncontrolling interests and total equity.

See our Annual Report on Form 10-K for the year ended December 31, 2016 for further discussion on significant accounting policies.

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WHITESTONE REIT AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2017

(Unaudited)

Recent Accounting Pronouncements . In February 2016, the FASB issued guidance requiring lessees to recognize a lease liability and a right-of-use asset for all leases. Lessor accounting will remain largely unchanged with the exception of changes related to costs which qualify as initial direct costs. The guidance will also require new qualitative and quantitative disclosures to help financial statement users better understand the timing, amount and uncertainty of cash flows arising from leases. This guidance will be effective for reporting periods beginning on or after December 15, 2018, with early adoption permitted. We are currently evaluating the impact of this guidance and its impact on our consolidated financial statements.

In March 2016, the FASB issued guidance simplifying the accounting for share-based payment transactions, including the income tax consequences, balance sheet classification of awards and the classification on the statement of cash flows. We have adopted this guidance as of January 1, 2017. The main provision regarding excess tax benefits did not have an impact on our consolidated financial statements due to our status as a REIT for taxation purposes. We have elected to continue estimating the number of shares expected to vest in order to determine compensation cost, and we will continue to classify cash paid by us for employee taxes when common shares were repurchased to cover minimum statutory requirements as financing activity.

In November 2016, the FASB issued guidance requiring that the statement of cash flows explain the change during the period in the total cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. This guidance will become effective for the reporting periods beginning on or after December 15, 2017, and interim periods within those fiscal years. We are currently evaluating the impact of this guidance and its impact on our consolidated financial statements.

In January 2017, the FASB issued guidance clarifying the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. This guidance will become effective for the reporting periods beginning on or after December 15, 2017, and interim periods within those fiscal years. We are currently evaluating the impact of this guidance and its impact on our consolidated financial statements.

In February 2017, the FASB issued guidance clarifying the scope of asset derecognition guidance, adds guidance for partial sales of nonfinancial assets and clarifies recognizing gains and losses from the transfer of nonfinancial assets in contracts with noncustomers. This guidance will become effective for the reporting periods beginning on or after December 15, 2017, and interim periods within those fiscal years. We are currently evaluating the impact of this guidance and its impact on our consolidated financial statements.

3. MARKETABLE SECURITIES

All of our marketable securities were classified as available-for-sale securities as of June 30, 2017 and December 31, 2016 . Available-for-sale securities consisted of the following (in thousands):



	June 30, 2017
	Amortized Cost		Gains in Accumulated Other Comprehensive Income (Loss)		Losses in Accumulated Other Comprehensive Income (Loss)			Estimated Fair Value
Real estate sector common stock	$	654	$	—	$	(104	)	$	550
Total available-for-sale securities	$	654	$	—	$	(104	)	$	550

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June 30, 2017

(Unaudited)



	December 31, 2016
	Amortized Cost		Gains in Accumulated Other Comprehensive Income (Loss)		Losses in Accumulated Other Comprehensive Income (Loss)			Estimated Fair Value
Real estate sector common stock	$	654	$	—	$	(137	)	$	517
Total available-for-sale securities	$	654	$	—	$	(137	)	$	517

During the three and six months ended June 30, 2017 and 2016, no available-for-sale securities were sold. For purposes of determining gross realized gains and losses, the cost of securities sold is based on specific identification. A net unrealized holding loss on available-for-sale securities in the amount of $104,000 and $187,000 for the six months ended June 30, 2017 and 2016 , respectively, has been included in accumulated other comprehensive income (loss).

4. 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):



	June 30, 2017			December 31, 2016

Tenant receivables	$	14,710		$	12,972
Accrued rents and other recoveries	13,813			14,237
Allowance for doubtful accounts	(8,041		)	(7,258		)
Total	$	20,482		$	19,951

5. UNAMORTIZED LEASE COMMISSIONS, LEGAL FEES AND LOAN COSTS

Costs which have been deferred consist of the following (in thousands):



	June 30, 2017			December 31, 2016

Leasing commissions	$	9,708		$	8,720
Deferred legal cost	275			—
Deferred financing cost	4,071			4,071
Total cost	14,054			12,791
Less: leasing commissions accumulated amortization	(4,137		)	(3,597		)
Less: deferred legal cost accumulated amortization	(44		)	—
Less: deferred financing cost accumulated amortization	(1,590		)	(1,111		)
Total cost, net of accumulated amortization	$	8,283		$	8,083

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June 30, 2017

(Unaudited)

6. VARIABLE INTEREST ENTITIES

On December 8, 2016, we, through our Operating Partnership, entered into a Contribution Agreement (the “Contribution Agreement”) with Pillarstone Capital REIT Operating Partnership LP (“Pillarstone,” “Pillarstone OP” or the “Consolidated Partnership”) and Pillarstone Capital REIT (“Pillarstone REIT”) pursuant to which we contributed all of the equity interests in four of our wholly-owned subsidiaries: Whitestone CP Woodland Ph. 2, LLC, a Delaware limited liability company (“CP Woodland”); Whitestone Industrial-Office, LLC, a Texas limited liability company (“Industrial-Office”); Whitestone Offices, LLC, a Texas limited liability company (“Whitestone Offices”); and Whitestone Uptown Tower, LLC, a Delaware limited liability company (“Uptown Tower,” and together with CP Woodland, Industrial-Office and Whitestone Offices, the “Entities”) that own 14 non-core properties that do not fit our Community Centered Property™ strategy (the “Pillarstone Properties”), to Pillarstone OP for aggregate consideration of approximately $84 million , consisting of (1) approximately 18.1 million Class A units representing limited partnership interests in Pillarstone OP (“Pillarstone OP Units”), issued at a price of $1.331 per Pillarstone OP Unit; and (2) the assumption of approximately $65.9 million of liabilities, consisting of (a) approximately $15.5 million of our liability under the 2014 Facility (as defined in Note 9); (b) an approximately $16.3 million promissory note of Uptown Tower under the Loan Agreement, dated as of September 26, 2013, between Uptown Tower, as borrower, and U.S. Bank, National Association, as successor to Morgan Stanley Mortgage Capital Holdings LLC, as lender; and (c) an approximately $34.1 million promissory note (the “Industrial-Office Promissory Note”) of Industrial-Office issued under the Loan Agreement, dated as of November 26, 2013 (the “Industrial-Office Loan Agreement”), between Industrial-Office, as borrower, and Jackson National Life Insurance Company, as lender (collectively, the “Contribution”).

In connection with the Contribution, on December 8, 2016, the Operating Partnership entered into an OP Unit Purchase Agreement (the “OP Unit Purchase Agreement”) with Pillarstone REIT and Pillarstone OP pursuant to which the Operating Partnership agreed to purchase up to an aggregate of $3.0 million of Pillarstone OP Units at a price of $1.331 per Pillarstone OP Unit over the two -year term of the OP Unit Purchase Agreement on the terms set forth therein. The OP Unit Purchase Agreement contains customary closing conditions and the parties have made certain customary representations, warranties and indemnifications to each other in the OP Unit Purchase Agreement. In addition, pursuant to the OP Unit Purchase Agreement, in the event of a Change of Control (as defined therein) of the Company, Pillarstone OP shall have the right, but not the obligation, to repurchase the Pillarstone OP Units issued thereunder from the Operating Partnership at their initial issue price of $1.331 per Pillarstone OP Unit.

In connection with the Contribution, (1) with respect to each Pillarstone Property (other than Uptown Tower), Whitestone TRS, Inc., a subsidiary of the Company (“Whitestone TRS”), entered into a Management Agreement with the Entity that owns such Pillarstone Property 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 Pillarstone Property (other than Uptown Tower), Whitestone TRS agreed to provide certain property management, leasing and day-to-day advisory and administrative services to such Pillarstone Property in exchange for (x) a monthly property management fee equal to 5.0% of the monthly revenues of such Pillarstone Property and (y) 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 Pillarstone Property based upon the purchase price allocations determined pursuant to the Contribution Agreement, excluding all indebtedness, liabilities or claims of any nature) of such Pillarstone 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 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.

In connection with the Contribution, on December 8, 2016, the Operating Partnership entered into a Tax Protection Agreement with Pillarstone REIT and Pillarstone pursuant to which Pillarstone agreed to indemnify the Operating Partnership 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 Pillarstone Properties or if Pillarstone fails to maintain and allocate to the Operating Partnership 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 the Company incurs taxes that must be paid to maintain its REIT status for federal tax purposes.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2017

(Unaudited)

As of June 30, 2017 , we owned approximately 81.4% of the total outstanding units of Pillarstone OP. Additionally, certain of our officers and trustees serve as officers and trustees of Pillarstone REIT. We have determined that we are the primary beneficiary of Pillarstone OP, through our power to direct the activities of Pillarstone OP, additional working capital required by Pillarstone OP under the OP Unit Purchase Agreement and our obligation to absorb losses and receive benefits based on our ownership percentage. Accordingly, we account for Pillarstone OP as a VIE and fully consolidate in our consolidated financial statements.

The carrying amounts and classification of certain assets and liabilities for Pillarstone OP in our consolidated balance sheets as of June 30, 2017 and December 31, 2016 consists of the following (in thousands):



	June 30, 2017			December 31, 2016
Real estate assets, at cost
Property	$	93,776		$	92,338
Accumulated depreciation	(34,998		)	(32,533		)
Total real estate assets	58,778			59,805
Cash and cash equivalents	2,088			1,236
Escrows and acquisition deposits	1,442			2,274
Accrued rents and accounts receivable, net of allowance for doubtful accounts ⁽¹⁾	2,316			2,313
Unamortized lease commissions and loan costs	1,117			1,150
Prepaid expenses and other assets ⁽²⁾	195			82
Total assets	$	65,936		$	66,860

Liabilities
Notes payable ⁽³⁾	$	49,427		$	50,001
Accounts payable and accrued expenses ⁽⁴⁾	2,550			3,481
Tenants' security deposits	1,074			996
Total liabilities	$	53,051		$	54,478


⁽¹⁾	Excludes approximately $1.1 million and $0.5 million in accounts receivable due from Whitestone that were eliminated in consolidation as of June 30, 2017 and December 31, 2016 , respectively.


⁽²⁾	Excludes approximately $0.9 million in prepaid expenses due from Whitestone that were eliminated in consolidation as of December 31, 2016 .


⁽³⁾	Excludes approximately $15.5 million and $15.5 million in notes payable due to Whitestone that were eliminated in consolidation as of June 30, 2017 and December 31, 2016 , respectively.


⁽⁴⁾	Excludes approximately $0.8 million and $0.3 million in accounts payable due to Whitestone that were eliminated in consolidation as of June 30, 2017 and December 31, 2016 , respectively.

7. DEBT

Certain subsidiaries of Whitestone are the borrowers under various financing arrangements. These subsidiaries are separate legal entities, and their respective assets and credit are not available to satisfy the debt of Whitestone or any of its other subsidiaries.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2017

(Unaudited)

Debt consisted of the following as of the dates indicated (in thousands):



Description	June 30, 2017			December 31, 2016
Fixed rate notes
$10.5 million, LIBOR plus 2.00% Note, due September 24, 2018 ⁽¹⁾	$	9,860		$	9,980
$50.0 million, 0.84% plus 1.35% to 1.90% Note, due October 30, 2020 ⁽²⁾	50,000			50,000
$50.0 million, 1.50% plus 1.35% to 1.90% Note, due January 29, 2021 ⁽³⁾	50,000			50,000
$100.0 million, 1.73% plus 1.65% to 2.25% Note, due October 30, 2022 ⁽⁴⁾	100,000			100,000
$80.0 million, 3.72% Note, due June 1, 2027	80,000			—
$37.0 million 3.76% Note, due December 1, 2020 ⁽⁵⁾	33,662			34,166
$6.5 million 3.80% Note, due January 1, 2019	5,931			6,019
$19.0 million 4.15% Note, due December 1, 2024	19,000			19,000
$20.2 million 4.28% Note, due June 6, 2023	19,535			19,708
$14.0 million 4.34% Note, due September 11, 2024	14,000			14,000
$14.3 million 4.34% Note, due September 11, 2024	14,300			14,300
$16.5 million 4.97% Note, due September 26, 2023 ⁽⁵⁾	16,178			16,298
$15.1 million 4.99% Note, due January 6, 2024	14,971			15,060
$9.2 million, Prime Rate less 2.00% Note, due December 29, 2017 ⁽⁶⁾	7,852			7,869
$2.6 million 5.46% Note, due October 1, 2023	2,492			2,512
$1.1 million 2.97% Note, due November 28, 2017	543			—
Floating rate notes
Unsecured line of credit, LIBOR plus 1.40% to 1.95%, due October 30, 2019 ⁽⁷⁾	227,200			186,600
Total notes payable principal	665,524			545,512
Less deferred financing costs, net of accumulated amortization	(2,044		)	(1,492		)
Total notes payable	$	663,480		$	544,020


⁽¹⁾	Promissory note includes an interest rate swap that fixed the interest rate at 3.55% for the duration of the term.


⁽²⁾	Promissory note includes an interest rate swap that fixed the LIBOR portion of Term Loan 1 (as defined below) at 0.84% through February 3, 2017 and 1.75% beginning February 3, 2017 through October 30, 2020.


⁽³⁾	Promissory note includes an interest rate swap that fixed the LIBOR portion of Term Loan 2 (as defined below) at 1.50% .


⁽⁴⁾	Promissory note includes an interest rate swap that fixed the LIBOR portion of Term Loan 3 (as defined below) at 1.73% ,


⁽⁵⁾	Promissory notes were assumed by Pillarstone in December 2016.


⁽⁶⁾	Promissory note includes an interest rate swap that fixed the interest rate at 5.72% for the duration of the term. As part of our acquisition of Paradise Plaza in August 2012, we recorded a discount on the note of $1.3 million , which amortizes into interest expense over the life of the loan and results in an imputed interest rate of 4.13% .


⁽⁷⁾	Unsecured line of credit includes certain Pillarstone Properties described in more detail below.

On May 26, 2017, we, through our subsidiary, Whitestone Houston BLVD Place LLC, a Delaware limited liability company, issued a $80.0 million promissory note to American General Life Insurance Company (the “BLVD Note”). The BLVD Note has a fixed interest rate of 3.72% and a maturity date of June 1, 2027. Proceeds from the BLVD Note were used to fund a portion of the purchase price of the acquisition of BLVD Place (See Note 15 below).

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2017

(Unaudited)

On November 7, 2014, we, through our Operating Partnership, entered into an unsecured revolving credit facility (the “2014 Facility”) with the lenders party thereto, with BMO Capital Markets, Wells Fargo Securities, LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated, and U.S. Bank, National Association, as co-lead arrangers and joint book runners, and Bank of Montreal, as administrative agent (the “Agent”). The 2014 Facility amended and restated our previous unsecured revolving credit facility. On October 30, 2015, we, through our Operating Partnership, entered into the First Amendment to the 2014 Facility (the “First Amendment”) with the guarantors party thereto, the lenders party thereto and the Agent. We refer to the 2014 Facility, as amended by the First Amendment, as the “Facility.”

Pursuant to the First Amendment, the Company made the following amendments to the 2014 Facility:


•	extended the maturity date of the $300 million unsecured revolving credit facility under the 2014 Facility (the “Revolver”) to October 30, 2019 from November 7, 2018;


•	converted $100 million of outstanding borrowings under the Revolver to a new $100 million unsecured term loan under the 2014 Facility (“Term Loan 3”) with a maturity date of October 30, 2022;


•	extended the maturity date of the first $50 million unsecured term loan under the 2014 Facility (“Term Loan 1”) to October 30, 2020 from February 17, 2017; and


•	extended the maturity date of the second $50 million unsecured term loan under the 2014 Facility (“Term Loan 2” and together with Term Loan 1 and Term Loan 3, the “Term Loans”) to January 29, 2021 from November 7, 2019.

Borrowings under the Facility accrue interest (at the Operating Partnership's option) at a Base Rate or an Adjusted LIBOR plus an applicable margin based upon our then existing leverage. The applicable margin for Adjusted LIBOR borrowings ranges from 1.40% to 1.95% for the Revolver and 1.35% to 2.25% for the Term Loans. Base Rate means the higher of: (a) the Agent's prime commercial rate, (b) the sum of (i) the average rate quoted by the Agent by two or more federal funds brokers selected by the Agent for sale to the Agent at face value of federal funds in the secondary market in an amount equal or comparable to the principal amount for which such rate is being determined, plus (ii) 1/2 of 1.00% , and (c) the LIBOR rate for such day plus 1.00% . Adjusted LIBOR means LIBOR divided by one minus the Eurodollar Reserve Percentage. The Eurodollar Reserve Percentage means the maximum reserve percentage at which reserves are imposed by the Board of Governors of the Federal Reserve System on eurocurrency liabilities.

We serve as the guarantor for funds borrowed by the Operating Partnership under the Facility. The Facility contains customary terms and conditions, including, without limitation, affirmative and negative covenants such as information reporting requirements, maximum secured indebtedness to total asset value, minimum EBITDA (earnings before interest, taxes, depreciation, amortization or extraordinary items) to fixed charges, and maintenance of a minimum net worth. The Facility also contains customary events of default with customary notice and cure, including, without limitation, nonpayment, breach of covenant, misrepresentation of representations and warranties in a material respect, cross-default to other major indebtedness, change of control, bankruptcy and loss of REIT tax status.

The Facility includes an accordion feature that will allow the Operating Partnership to increase the borrowing capacity to $700 million , upon the satisfaction of certain conditions, including new commitments from lenders. As of June 30, 2017 , $427.2 million was drawn on the Facility, and our remaining borrowing capacity was $72.8 million . Proceeds from the Facility were used for general corporate purposes, including property acquisitions, debt repayment, capital expenditures, the expansion, redevelopment and retenanting of properties in our portfolio and working capital. We intend to use the additional proceeds from the Facility for general corporate purposes, including property acquisitions, debt repayment, capital expenditure, the expansion, redevelopment and re-tenanting of properties in our portfolio and working capital.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2017

(Unaudited)

On December 8, 2016, in connection with the Contribution, the Operating Partnership entered into the Second Amendment to the Facility and Reaffirmation of Guaranties (the “Second Amendment”) with Pillarstone, the Company and the other Guarantors party thereto, the lenders party thereto and the Agent. Pursuant to the Second Amendment, following the Contribution, Whitestone Offices, LLC and Whitestone CP Woodland Ph. 2, LLC were permitted to remain Material Subsidiaries (as defined in the Facility) and Guarantors under the Facility and their respective Pillarstone Properties were each permitted to remain an Eligible Property (as defined in the Facility) and be included in the Borrowing Base (as defined in the Facility) under the Facility. In addition, on December 8, 2016, Pillarstone entered into the Limited Guarantee (the “Limited Guarantee”) with the Agent, pursuant to which Pillarstone agreed to be joined as a party to the Facility to provide a limited guarantee up to the amount of availability generated by the Pillarstone Properties owned by Whitestone Offices, LLC and Whitestone CP Woodland Ph. 2, LLC. As of June 30, 2017 , Pillarstone accounted for approximately $15.5 million of the total amount drawn on the Facility.

As of June 30, 2017 , our $237.8 million in secured debt was collateralized by 20 properties with a carrying value of $343.5 million . Our loans contain restrictions that would require the payment of prepayment penalties for the acceleration of outstanding debt and are secured by deeds of trust on certain of our properties and by assignment of the rents and leases associated with those properties. As of June 30, 2017 , we were in compliance with all loan covenants.

Scheduled maturities of our outstanding debt as of June 30, 2017 were as follows (in thousands):



Year	Amount Due

2017	$	9,667
2018	12,136
2019	235,249
2020	82,827
2021	51,918
Thereafter	273,727
Total	$	665,524

8. DERIVATIVES AND HEDGING ACTIVITIES

The fair value of our interest rate swaps is as follows (in thousands):



	Balance Sheet Location	Estimated Fair Value
Interest rate swaps:
June 30, 2017	Accounts payable and accrued expenses	$	(790	)
December 31, 2016	Accounts payable and accrued expenses	$	(662	)

On November 19, 2015, we, through our Operating Partnership, entered into an interest rate swap with Bank of Montreal that fixed the LIBOR portion of Term Loan 3 under the Facility at 1.725% . In the fourth quarter of 2015, pursuant to the terms of the agreement governing the interest rate swap, Bank of Montreal assigned $35.0 million of the swap to U.S. Bank, National Association, and $15.0 million of the swap to SunTrust Bank. See Note 7 for additional information regarding the Facility. The swap began on November 30, 2015 and will mature on October 28, 2022. We have designated the interest rate swap as a cash flow hedge with the effective portion of the changes in fair value to be recorded in comprehensive income (loss) and subsequently reclassified into earnings in the period that the hedged transaction affects earnings. The ineffective portion of the change in fair value, if any, will be recognized directly in earnings.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2017

(Unaudited)

On November 19, 2015, we, through our Operating Partnership, entered into an interest rate swap with Bank of Montreal that fixed the LIBOR portion of Term Loan 1 under the Facility at 1.75% . In the fourth quarter of 2015, pursuant to the terms of the agreement governing the interest rate swap, Bank of Montreal assigned $3.8 million of the swap to Regions Bank, $6.5 million of the swap to U.S. Bank, National Association, $14.0 million of the swap to Wells Fargo Bank, National Association, $14.0 million of the swap to Bank of America, N.A., and $5.0 million of the swap to SunTrust Bank. See Note 7 for additional information regarding the Facility. The swap began on February 3, 2017 and will mature on October 30, 2020. We have designated the interest rate swap as a cash flow hedge with the effective portion of the changes in fair value to be recorded in comprehensive income (loss) and subsequently reclassified into earnings in the period that the hedged transaction affects earnings. The ineffective portion of the change in fair value, if any, will be recognized directly in earnings.

On November 19, 2015, we, through our Operating Partnership, entered into an interest rate swap with Bank of Montreal that fixed the LIBOR portion of Term Loan 2 under the Facility at 1.50% . In the fourth quarter of 2015, pursuant to the terms of the agreement governing the interest rate swap, Bank of Montreal assigned $3.8 million of the swap to Regions Bank, $6.5 million of the swap to U.S. Bank, National Association, $14.0 million of the swap to Wells Fargo Bank, National Association, $14.0 million of the swap to Bank of America, N.A., and $5.0 million of the swap to SunTrust Bank. See Note 7 for additional information regarding the Facility. The swap began on December 7, 2015 and will mature on January 29, 2021. We have designated the interest rate swap as a cash flow hedge with the effective portion of the changes in fair value to be recorded in comprehensive income (loss) and subsequently reclassified into earnings in the period that the hedged transaction affects earnings. The ineffective portion of the change in fair value, if any, will be recognized directly in earnings.

A summary of our interest rate swap activity is as follows (in thousands):



	Amount Recognized as Comprehensive Income (Loss)			Location of Loss Recognized in Earnings	Amount of Loss Recognized in Earnings ⁽¹⁾
Three months ended June 30, 2017	$	(780	)	Interest expense	$	(441	)
Three months ended June 30, 2016	$	(2,450	)	Interest expense	$	(614	)

Six months ended June 30, 2017	$	(48	)	Interest expense	$	(949	)
Six months ended June 30, 2016	$	(8,491	)	Interest expense	$	(1,208	)


⁽¹⁾	There was no ineffective portion of our interest rate swaps to recognize in earnings for the three and six months ended June 30, 2017 and 2016 .

9. EARNINGS PER SHARE

Basic earnings per share for our common shareholders is calculated by dividing income from continuing operations excluding amounts attributable to unvested restricted common shares and the net income attributable to noncontrolling interests by our weighted average common shares outstanding during the period. Diluted earnings per share is computed by dividing the net income attributable to common shareholders excluding amounts attributable to unvested restricted common shares and the net income attributable to noncontrolling interests by the weighted average number of common shares including any dilutive unvested restricted common shares.

Certain of our performance-based restricted common shares are considered participating securities that require the use of the two-class method for the computation of basic and diluted earnings per share. During the three months ended June 30, 2017 and 2016 , 1,086,332 and 484,422 OP units, respectively, were excluded from the calculation of diluted earnings per share because their effect would be anti-dilutive, and during the six months ended June 30, 2017 and 2016 , 1,093,042 and 487,722 OP units, respectively, were excluded from the calculation of diluted earnings per share because their effect would be anti-dilutive.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2017

(Unaudited)

For the three months ended June 30, 2017 and 2016 , distributions of $109,000 and $197,000 , respectively, were made to holders of certain restricted common shares, $4,000 and $0 , respectively, of which were charged against earnings, and for the six months ended June 30, 2017 and 2016 , distributions of $204,000 and $352,000 , respectively, were made to holders of certain restricted common shares, $8,000 and $0 , respectively, of which were charged against earnings See Note 12 for information related to restricted common shares under the 2008 Plan.



	Three Months Ended						Six Months Ended
	June 30,						June 30,
(in thousands, except per share data)	2017			2016			2017			2016
Numerator:
Net income	$	2,144		$	1,509		$	3,701		$	6,597
Less: Net income attributable to noncontrolling interests	(161		)	(25		)	(279		)	(116		)
Distributions paid on unvested restricted shares	(105		)	(197		)	(196		)	(352		)
Net income attributable to common shareholders excluding amounts attributable to unvested restricted shares	$	1,878		$	1,287		$	3,226		$	6,129

Denominator:
Weighted average number of common shares - basic	35,716			26,819			32,583			26,712
Effect of dilutive securities:
Unvested restricted shares	828			694			910			789
Weighted average number of common shares - dilutive	36,544			27,513			33,493			27,501

Earnings Per Share:
Basic:
Net income attributable to common shareholders excluding amounts attributable to unvested restricted shares	$	0.05		$	0.05		$	0.10		$	0.23
Diluted:
Net income attributable to common shareholders excluding amounts attributable to unvested restricted shares	$	0.05		$	0.05		$	0.10		$	0.22

10. INCOME TAXES

With the exception of our taxable REIT subsidiaries, federal income taxes are generally not provided because we intend to and believe we qualify as a REIT under the provisions of the Internal Revenue Code (the “Code”) and because we have distributed and intend to continue to distribute all of our taxable income to our shareholders. As a REIT, we must distribute at least 90% of our REIT taxable income to our shareholders and meet certain income sources and investment restriction requirements. In addition, REITs are subject to a number of organizational and operational requirements. If we fail to qualify as a REIT in any taxable year, we will be subject to federal income tax (including any applicable alternative minimum tax) on our taxable income at regular corporate tax rates.

Income earned by our taxable REIT subsidiary, Whitestone Davenport TRS LLC (“Davenport TRS”), is subject to federal income tax. For the six months ended June 30, 2016 , we recognized $54,000 in income tax expense related to Davenport TRS taxable year. Davenport TRS was dissolved in the fourth quarter of 2016.

We are subject to the Texas Margin Tax, which is computed by applying the applicable tax rate ( 0.75% for us) to the profit margin, which generally will be determined for us as total revenue less a 30% standard deduction. Although the Texas Margin Tax is not an income tax, FASB ASC 740, “ Income Taxes ” applies to the Texas Margin Tax. For the three months ended June 30, 2017 and 2016 , we recognized approximately $89,000 and $48,000 in margin tax provision, respectively, and for the six months ended June 30, 2017 and 2016 , we recognized approximately $170,000 and $162,000 in margin tax provision, respectively.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2017

(Unaudited)

11. EQUITY

Common Shares

Under our declaration of trust, as amended, we have authority to issue up to 400,000,000 common shares of beneficial interest, $0.001 par value per share, and up to 50,000,000 preferred shares of beneficial interest, $0.001 par value per share.

Equity Offerings

On April 25, 2017, we completed the sale of 8,018,500 common shares, including 1,018,500 common shares purchased by the underwriters upon exercise of their option to purchase additional common shares, at a public offering price per share of $13.00 (the “April Offering”). Total net proceeds from the April Offering, after deducting offering expenses, were approximately $99.9 million , which we contributed to the Operating Partnership in exchange for OP units. The Operating Partnership used the net proceeds from the April Offering to repay a portion of the Facility and for general corporate purposes, including funding a portion of the purchase price of BLVD Place and Eldorado Plaza.

On June 4, 2015, we entered into six amended and restated equity distribution agreements for an at-the-market equity distribution program (the “2015 equity distribution agreements”). Pursuant to the terms and conditions of the 2015 equity distribution agreements, we can issue and sell up to an aggregate of $50 million of our common shares. Actual sales will depend on a variety of factors to be determined by us from time to time, including (among others) market conditions, the trading price of our common shares, capital needs and our determinations of the appropriate sources of funding for us, and will be made in transactions that will be deemed to be “at-the-market” offerings as defined in Rule 415 under the Securities Act. We have no obligation to sell any of our common shares, and can at any time suspend offers under the 2015 equity distribution agreements or terminate the 2015 equity distribution agreements. During the three months ended June 30, 2017 , we sold 176,576 common shares under the 2015 equity distribution agreements, with net proceeds to us of approximately $2.4 million . In connection with such sales, we paid compensation of approximately $27,000 to the sales agents. During the six months ended June 30, 2017 , we sold 567,302 common shares under the 2015 equity distribution agreements, with net proceeds to us of approximately $7.7 million . In connection with such sales, we paid compensation of approximately $139,000 to the sales agents. We did not sell any common shares under the 2015 equity distribution agreements during the three and six months ended June 30, 2016 .

Operating Partnership Units

Substantially all of our business is conducted through our Operating Partnership. We are the sole general partner of the Operating Partnership. As of June 30, 2017 , we owned a 97.3% interest in the Operating Partnership.

Limited partners in the Operating Partnership holding OP units have the right to redeem their OP units for cash or, at our option, common shares at a ratio of one OP unit for one common share. Distributions to OP unit holders are paid at the same rate per unit as distributions per share to holders of Whitestone common shares. As of June 30, 2017 and December 31, 2016 , there were 39,489,314 and 30,450,377 OP units outstanding, respectively. We owned 38,405,667 and 29,347,741 OP units as of June 30, 2017 and December 31, 2016 , respectively. The balance of the OP units is owned by third parties, including certain members of our board of trustees. Our weighted average share ownership in the Operating Partnership was approximately 97.1% and 98.3% for the three months ended June 30, 2017 and 2016 , respectively and approximately 96.8% and 98.2% for the six months ended June 30, 2017 and 2016 . During the three months ended June 30, 2017 and 2016 , 11,634 and 915 OP units, respectively, were redeemed for an equal number of c ommon shares, and during the six months ended June 30, 2017 and 2016 , 18,989 and 13,016 OP units, respectively, were redeemed for an equal number of common shares.

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WHITESTONE REIT AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2017

(Unaudited)

Distributions

The following table summarizes the cash distributions paid or payable to holders of common shares and to holders of noncontrolling OP units during each quarter during 2016 and the six months ended June 30, 2017 (in thousands, except per share/unit data):



	Common Shares				Noncontrolling OP Unit Holders				Total
Quarter Paid	Distributions Per Common Share		Amount Paid		Distributions Per OP Unit		Amount Paid		Amount Paid
2017
Second Quarter	$	0.2850	$	10,093	$	0.2850	$	310	$	10,403
First Quarter	0.2850		8,453		0.2850		313		8,766
Total	$	0.5700	$	18,546	$	0.5700	$	623	$	19,169

2016
Fourth Quarter	$	0.2850	$	8,305	$	0.2850	$	314	$	8,619
Third Quarter	0.2850		8,109		0.2850		138		8,247
Second Quarter	0.2850		7,786		0.2850		138		7,924
First Quarter	0.2850		7,711		0.2850		139		7,850
Total	$	1.1400	$	31,911	$	1.1400	$	729	$	32,640

12. INCENTIVE SHARE PLAN

On July 29, 2008, our shareholders approved the 2008 Plan. On December 22, 2010, our board of trustees amended the 2008 Plan to allow for awards in or related to Class B common shares pursuant to the 2008 Plan. On June 27, 2012, our Class B common shares were redesignated as “common shares.” The 2008 Plan, as amended, provides that awards may be made with respect to common shares of Whitestone or OP units, which may be redeemed for cash or, at our option, common shares of Whitestone. The maximum aggregate number of common shares that may be issued under the 2008 Plan is increased upon each issuance of common shares by Whitestone so that at any time the maximum number of common shares that may be issued under the 2008 Plan shall equal 12.5% of the aggregate number of common shares of Whitestone and OP units issued and outstanding (other than common shares and/or OP units issued to or held by Whitestone).

The Compensation Committee of our board of trustees administers the 2008 Plan, except with respect to awards to non-employee trustees, for which the 2008 Plan is administered by our board of trustees. The Compensation Committee is authorized to grant share options, including both incentive share options and non-qualified share options, as well as share appreciation rights, either with or without a related option. The Compensation Committee is also authorized to grant restricted common shares, restricted common share units, performance awards and other share-based awards.

On April 2, 2014, the Compensation Committee approved the modification of the vesting provisions with respect to awards of an aggregate of 633,704 restricted common shares and restricted common share units for 51 of our employees. The modified time-based shares will vest annually in three equal installments. The modified performance-based restricted common shares and restricted common share units were modified to include performance-based vesting based on achievement of certain absolute financial goals, as well as one to two years of time-based vesting post achievement of financial goals. Continued employment is required through the applicable vesting date. Additionally, 2,049,116 restricted performance-based common share units were granted with the same vesting conditions as the modified performance-based grants described above. If the performance targets are not met prior to December 31, 2018, any unvested performance-based restricted common shares and restricted common share units will be forfeited.

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WHITESTONE REIT AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2017

(Unaudited)

The Compensation Committee approved the grant of an aggregate of 320,000 and 143,000 time-based restricted common share units on June 30, 2016 and 2015, respectively, to James C. Mastandrea and David K. Holeman.

A summary of the share-based incentive plan activity as of and for the six months ended June 30, 2017 is as follows:



	Shares		Weighted Average Grant Date Fair Value
Non-vested at January 1, 2017	2,044,334		$	14.48
Granted	85,650		12.90
Vested	(399,005	)	14.62
Forfeited	(11,327	)	14.18
Non-vested at June 30, 2017	1,719,652		$	14.37
Available for grant at June 30, 2017	2,004,432

A summary of our non-vested and vested shares activity for the six months ended June 30, 2017 and years ended December 31, 2016, 2015 and 2014 is presented below:



	Shares Granted			Shares Vested
	Non-Vested Shares Issued	Weighted Average Grant-Date Fair Value		Vested Shares		Total Vest-Date Fair Value
						(in thousands)
Six Months Ended June 30, 2017	85,650	$	12.90	(399,005	)	$	5,832
Year Ended December 31, 2016	545,778	$	14.85	(734,261	)	$	10,577
Year Ended December 31, 2015	327,122	$	13.49	(348,786	)	$	4,969
Year Ended December 31, 2014	2,058,930	$	14.40	(133,774	)	$	1,721

Total compensation recognized in earnings for share-based payments was $2,390,000 and $1,819,000 for the three months ended June 30, 2017 and 2016 , respectively, and $4,841,000 and $3,844,000 for the six months ended June 30, 2017 and 2016, respectively.

Based on our current financial projections, we expect approximately 82% of the unvested awards to vest over the next 21 months. As of June 30, 2017 , there was approximately $3.1 million in unrecognized compensation cost related to outstanding non-vested performance-based shares, which are expected to vest over a period of 21 months and approximately $3.8 million in unrecognized compensation cost related to outstanding non-vested time-based shares, which are expected to be recognized over a period of approximately nine months beginning on July 1, 2017.

We expect to record approximately $9.1 million in non-cash share-based compensation expense in 2017 and $2.8 million subsequent to 2017. The unrecognized share-based compensation cost is expected to vest over a weighted average period of 14 months. The dilutive impact of the performance-based shares will be included in the denominator of the earnings per share calculation beginning in the period that the performance conditions are expected to be met.

At our annual meeting of shareholders on May 11, 2017, our shareholders voted to approve the 2018 Long-Term Equity Incentive Ownership Plan (the “2018 Plan”). The 2018 Plan provides for the issuance of up to 3,433,831 common shares and OP units pursuant to awards under the 2018 Plan. The 2018 Plan will become effective on July 30, 2018, which is the day after the 2008 Plan expires.

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WHITESTONE REIT AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2017

(Unaudited)

13. GRANTS TO TRUSTEES

On December 21, 2016, each of our four independent trustees and one trustee emeritus was granted 1,500 common shares, which vested immediately. The 7,500 common shares granted to our trustees had a grant date fair value of $14.07 per share. On December 21, 2016, two of our independent trustees elected to receive a total of 3,128 common shares with a grant date fair value of $14.07 in lieu of cash for board fees. The fair values of the shares granted were determined using quoted prices available on the date of grant.

14. SEGMENT INFORMATION

Historically, our management has not differentiated results of operations by property type or location and, therefore, does not present segment information.

15. REAL ESTATE

Property acquisitions. On May 26, 2017, we acquired BLVD Place, a property that meets our Community Centered Property™ strategy, for $158.0 million , including $80.0 million of asset level mortgage financing and $78.0 million in cash and net prorations using borrowings under our Facility. BLVD Place, a 216,944 square foot property, was 99% leased at the time of purchase and is located in Houston, Texas. Included in the purchase of BLVD Place is approximately 1.43 acres of developable land.

On May 3, 2017, we acquired Eldorado Plaza, a property that meets our Community Centered Property™ strategy, for $46.6 million in cash and net prorations using borrowings under our Facility. Eldorado Plaza, a 221,577 square foot property, was 96% leased at the time of purchase and is located in McKinney, Texas, a suburb of Dallas, Texas.

On September 30, 2016, we acquired La Mirada and Seville, properties that meet our Community Centered Property™ strategy, for 621,053 OP units and $60.7 million in cash and net prorations. The OP units are redeemable for cash or, at our option, Whitestone REIT common shares on a one -for- one basis, subject to certain restrictions. La Mirada, a 147,209 square foot property, was 90% leased at the time of purchase. Seville, a 90,042 square foot property, was 88% leased at the time of purchase. Both properties are located in Scottsdale, Arizona.

Unaudited pro forma financial information. The following unaudited pro forma consolidated operating data is presented for the three and six months ended June 30, 2017 and 2016 , as if the acquisition of BLVD Place had occurred on January 1, 2016. Revenue and net income attributable to BLVD Place of $1.5 million and $0.9 million , respectively, have been included in our results of operations for the three and six months ended June 30, 2017 . The related acquisition expenses of $0.4 million for the three and six months ended June 30, 2017 have been reflected as a pro forma expense as of January 1, 2016. The unaudited pro forma consolidated operating data is not necessarily indicative of what the actual results of operations of the Company would have been, assuming the transaction had been completed as set forth above, nor do they purport to represent the Company's results of operations for future periods.

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WHITESTONE REIT AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2017

(Unaudited)



	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands, except per share data)	2017		2016		2017		2016
Total property revenues	$	32,407	$	28,672	$	64,271	$	57,648
Net income	$	3,231	$	2,262	$	5,939	$	8,486
Net income attributable to Whitestone REIT ⁽¹⁾	$	3,038	$	2,224	$	5,588	$	8,337

Basic Earnings Per Share:	$	0.08	$	0.06	$	0.14	$	0.23

Diluted Earnings Per Share:	$	0.08	$	0.06	$	0.14	$	0.22

Weighted-average common shares outstanding:
Basic ⁽²⁾	37,831		34,838		37,634		34,731
Diluted ⁽²⁾	38,659		35,532		38,544		35,520


⁽¹⁾	Net income attributable to Whitestone REIT reflects historical ownership percentages and does not reflect the effects of the April Offering, assuming the sale of the common shares took place on January 1, 2016, as the related impact on ownership percentage is minimal.


⁽²⁾	Pro forma weighted averages reflect the April Offering, assuming the sale of the common shares took place on January 1, 2016.

Development properties. As of March 31, 2017, we had substantially completed construction at our Pinnacle of Scottsdale Phase II property. As of June 30, 2017, we had incurred approximately $4.8 million in construction costs, including approximately $0.5 million in previously capitalized interest and real estate taxes. The 27,063 square foot Community Centered Property™ was 91% leased as of June 30, 2017 and is located in Scottsdale, Arizona, and adjacent to Pinnacle of Scottsdale.

On December 31, 2016, we had substantially completed construction at our Shops at Starwood Phase III property. As of June 30, 2017, we had incurred approximately $7.8 million in construction costs, including approximately $0.9 million in previously capitalized interest and real estate taxes. The 35,351 square foot Community Centered Property™ was 63% leased as of June 30, 2017 and is located in Frisco, Texas, a northern suburb of Dallas, Texas, and adjacent to Shops at Starwood.

Property dispositions. On March 3, 2016, we completed the sale of Brookhill, located in Houston, Texas, for $3.1 million . This disposition was pursuant to our strategy of recycling capital by disposing of non-core properties, primarily properties that we owned at the time our current management team assumed the management of the Company, that do not fit our Community Centered Property™ strategy. We recorded a gain on sale of $1.9 million . The sale was structured as a like-kind exchange within the meaning of Section 1031 of the Code and sales proceeds were deposited into a Section 1031 exchange escrow account with a qualified intermediary and subsequently distributed for general corporate purposes. We have not included Brookhill in discontinued operations as it did not meet the definition of discontinued operations.

On February 17, 2016, we completed the sale of approximately 0.5 acres of our 4.5 acre Pinnacle Phase II development parcel, located in Scottsdale, Arizona, for $1.1 million . We recorded a gain on sale of $1.0 million .

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

You should read the following discussion of our financial condition and results of operations in conjunction with our unaudited consolidated financial statements and the notes thereto included in this Quarterly Report on Form 10-Q (the “Report”), and the consolidated financial statements and the notes thereto and “Management's Discussion and Analysis of Financial Condition and Results of Operations” contained in our Annual Report on Form 10-K for the year ended December 31, 2016 . For more detailed information regarding the basis of presentation for the following information, you should read the notes to the unaudited consolidated financial statements included in this Report.

This Report contains forward-looking statements within the meaning of the federal securities laws, including discussion and analysis of our financial condition, pending acquisitions and the impact of such acquisitions on our financial condition and results of operations, anticipated capital expenditures required to complete projects, amounts of anticipated cash distributions to our shareholders in the future and other matters. These forward-looking statements are not historical facts but are the intent, belief or current expectations of our management based on its knowledge and understanding of our business and industry. Forward-looking statements are typically identified by the use of terms such as “may,” “will,” “should,” “potential,” “predicts,” “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates” or the negative of such terms and variations of these words and similar expressions, although not all forward-looking statements include these words. These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, some of which are beyond our control, are difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements.

Forward-looking statements that were true at the time made may ultimately prove to be incorrect or false. You are cautioned not to place undue reliance on forward-looking statements, which reflect our management's view only as of the date of this Report. We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results. Factors that could cause actual results to differ materially from any forward-looking statements made in this Report include:


•	the imposition of federal taxes if we fail to qualify as a REIT in any taxable year or forego an opportunity to ensure REIT status;


•	uncertainties related to the national economy, the real estate industry in general and in our specific markets;


•	legislative or regulatory changes, including changes to laws governing REITs;


•	adverse economic or real estate developments in Texas, Arizona or Illinois;


•	increases in interest rates and operating costs;


•	availability and terms of capital and financing, both to fund our operations and to refinance our indebtedness as it matures;


•	decreases in rental rates or increases in vacancy rates;


•	litigation risks;


•	lease-up risks, including leasing risks arising from exclusivity and consent provisions in leases with significant tenants;


•	our ability to successfully finance and complete acquisitions and related development projects and, if completed, the ability of such newly acquired and new development properties to perform as we expect;


•	our inability to renew tenant leases or obtain new tenant leases upon the expiration of existing leases;


•	our inability to generate sufficient cash flows due to market conditions, competition, uninsured losses, changes in tax or other applicable laws; and


•	the need to fund tenant improvements or other capital expenditures out of operating cash flow.

The forward-looking statements should be read in light of these factors and the factors identified in the “Risk Factors” sections of our Annual Report on Form 10-K for the year ended December 31, 2016 , as previously filed with the Securities and Exchange Commission (“SEC”) and of this Report below.

Overview

We are a fully-integrated real estate company that primarily owns, manages, and redevelops high quality retail properties, which we refer to as Community Centered Properties™. Our properties are located in attractive and affluent neighborhoods within high growth markets located primarily in the Sunbelt, such as Austin, Dallas-Fort Worth, Houston, Phoenix and San Antonio. We believe that gaining critical mass within these target markets, combined with our local market intelligence, existing platform, access to capital and broad network of industry relationships, gives us a competitive advantage and allows us to generate long-term return opportunities and added value for our shareholders.

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In October 2006, our current management team joined the Company and adopted a strategic plan to acquire, redevelop, own and operate Community Centered Properties ^TM . We market, lease and manage our centers to match tenants with the shared needs of the surrounding neighborhood. Those needs may include specialty retail, grocery, restaurants, medical, educational and financial services, and entertainment. Our goal is for each property to become a Whitestone-branded business center or retail community that serves a neighboring five-mile radius around our property. We employ and develop a diverse group of associates who understand the needs of our multicultural communities and tenants.

We serve as the general partner of Whitestone REIT Operating Partnership, L.P. (the “Operating Partnership”), which was formed on December 31, 1998 as a Delaware limited partnership. We currently conduct substantially all of our operations and activities through the Operating Partnership. As the general partner of the Operating Partnership, we have the exclusive power to manage and conduct the business of the Operating Partnership, subject to certain customary exceptions.

As of June 30, 2017 , we owned or had a majority interest in 72 commercial properties consisting of:

Consolidated Operating Portfolio


•	49 wholly-owned properties that meet our Community Centered Properties™ strategy containing approximately 4.9 million square feet of gross leasable area (“GLA”) and having a total carrying amount (net of accumulated depreciation) of $895.3 million ; and


•	as a result of the Contribution (as defined below), a majority interest in 14 consolidated properties that do not meet our Community Centered Properties™ strategy containing approximately 1.5 million square feet of GLA and having a total carrying amount (net of accumulated depreciation) of $60.0 million ; and

Redevelopment, New Acquisitions Portfolio


•	four retail properties that meet our Community Centered Properties™ strategy containing approximately 0.2 million square feet of GLA and having a total carrying value (net of accumulated depreciation) of $50.7 million ; and


•	five parcels of land held for future development having a total carrying value of $15.9 million .

As of June 30, 2017 , we had an aggregate of 1,625 tenants. We have a diversified tenant base with our largest tenant comprising only 2.6% of our annualized rental revenues for the six months ended June 30, 2017 . Lease terms for our properties range from less than one year for smaller tenants to over 15 years for larger tenants. Our leases generally include minimum monthly lease payments and tenant reimbursements for payment of taxes, insurance and maintenance. We completed 180 new and renewal leases during the six months ended June 30, 2017 , totaling 451,537 square feet and approximately $37.3 million in total lease value. This compares to 223 new and renewal leases totaling 594,182 square feet and approximately $40.8 million in total lease value during the same period in 2016 .

We employed 106 full-time employees as of June 30, 2017 . As an internally managed REIT, we bear our own expenses of operations, including the salaries, benefits and other compensation of our employees, office expenses, legal, accounting and investor relations expenses and other overhead costs.

April Offering

How We Derive Our Revenue

Substantially all of our revenue is derived from rents received from leases at our properties. We had rental income and tenant reimbursements of approximately $30.2 million and $25.1 million for the three months ended June 30, 2017 and 2016 , respectively, and $58.5 million and $50.6 million for the six months ended June 30, 2017 and 2016 , respectively.

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Known Trends in Our Operations; Outlook for Future Results

Rental Income

We expect our rental income to increase year-over-year due to the addition of properties and rent increases on renewal leases. The amount of net rental income generated by our properties depends principally on our ability to maintain the occupancy rates of currently leased space and to lease currently available space, newly acquired properties with vacant space, and space available from unscheduled lease terminations. The amount of rental income we generate also depends on our ability to maintain or increase rental rates in our submarkets. Over the past two years, we have seen modest improvement in the overall economy in our markets, which has allowed us to maintain overall occupancy rates, with slight increases in occupancy at certain of our properties, and to recognize modest increases in rental rates. We expect this trend to continue in 2017.

Scheduled Lease Expirations

We tend to lease space to smaller businesses that desire shorter term leases. As of June 30, 2017 , approximately 24% of our GLA was subject to leases that expire prior to December 31, 2018. Over the last two years, we have renewed leases covering approximately 77% of the square footage subject to expiring leases. We routinely seek to renew leases with our existing tenants prior to their expiration and typically begin discussions with tenants as early as 18 months prior to the expiration date of the existing lease. While our early renewal program and other leasing and marketing efforts target these expiring leases, we hope to re-lease most of that space prior to expiration of the leases. In the markets in which we operate, we obtain and analyze market rental rates through review of third-party publications, which provide market and submarket rental rate data and through inquiry of property owners and property management companies as to rental rates being quoted at properties that are located in close proximity to our properties and we believe display similar physical attributes as our nearby properties. We use this data to negotiate leases with new tenants and renew leases with our existing tenants at rates we believe to be competitive in the markets for our individual properties. Due to the short term nature of our leases, and based upon our analysis of market rental rates, we believe that, in the aggregate, our current leases are at market rates. Market conditions, including new supply of properties, and macroeconomic conditions in our markets and nationally affecting tenant income, such as employment levels, business conditions, interest rates, tax rates, fuel and energy costs and other matters, could adversely impact our renewal rate and/or the rental rates we are able to negotiate. We continue to monitor our tenants' operating performances as well as overall economic trends to evaluate any future negative impact on our renewal rates and rental rates, which could adversely affect our cash flow and ability to make distributions to our shareholders.

Acquisitions

We have continued to successfully grow our GLA through the acquisition of additional properties, and we expect to actively pursue and consummate additional acquisitions in the foreseeable future. We believe that over the next few years we will continue to have excellent opportunities to acquire quality properties at historically attractive prices. We have extensive relationships with community banks, attorneys, title companies and others in the real estate industry, which we believe enables us to take advantage of these market opportunities and maintain an active acquisition pipeline.

Property Acquisitions, Dispositions and Development

We seek to acquire commercial properties in high-growth markets. Our acquisition targets are properties that fit our Community Centered Properties ^TM strategy. We define Community Centered Properties ^TM as visibly located properties in established or developing, culturally diverse neighborhoods in our target markets, primarily in and around Austin, Dallas-Fort Worth, Houston, Phoenix and San Antonio. We may acquire properties in other high-growth cities in the future. We market, lease and manage our centers to match tenants with the shared needs of the surrounding neighborhood. Those needs may include specialty retail, grocery, restaurants, medical, educational and financial services and entertainment. Our goal is for each property to become a Whitestone-branded business center or retail community that serves a neighboring five-mile radius around our property.

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Property dispositions. On December 8, 2016, we, through our Operating Partnership, entered into a Contribution Agreement (the “Contribution Agreement”) with Pillarstone Capital REIT Operating Partnership LP (“Pillarstone," "Pillarstone OP" or the "Consolidated Partnership") and Pillarstone Capital REIT (“Pillarstone REIT”) pursuant to which we contributed all of the equity interests in four of our wholly-owned subsidiaries: Whitestone CP Woodland Ph. 2, LLC, a Delaware limited liability company (“CP Woodland”); Whitestone Industrial-Office, LLC, a Texas limited liability company (“Industrial-Office”); Whitestone Offices, LLC, a Texas limited liability company (“Whitestone Offices”); and Whitestone Uptown Tower, LLC, a Delaware limited liability company (“Uptown Tower,” and together with CP Woodland, Industrial-Office and Whitestone Offices, the “Entities”) that own 14 non-core properties that do not fit our Community Centered Property™ strategy (the “Pillarstone Properties”), to Pillarstone for aggregate consideration of approximately $84 million, consisting of (1) approximately $18.1 million Class A units representing limited partnership interests in Pillarstone (“Pillarstone OP Units”), issued at a price of $1.331 per Pillarstone OP Unit; and (2) the assumption of approximately $65.9 million of liabilities, consisting of (a) approximately $15.5 million of our liability under the 2014 Facility (See Note 7 (Debt) to the accompanying consolidated financial statements); (b) an approximately $16.3 million promissory note of Uptown Tower under the Loan Agreement, dated as of September 26, 2013, between Uptown Tower, as borrower, and U.S. Bank, National Association, as successor to Morgan Stanley Mortgage Capital Holdings LLC, as lender; and (c) an approximately $34.1 million promissory note (the “Industrial-Office Promissory Note”) of Industrial-Office issued under the Loan Agreement, dated as of November 26, 2013 (the “Industrial-Office Loan Agreement”), between Industrial-Office, as borrower, and Jackson National Life Insurance Company, as lender (collectively, the “Contribution”).

In connection with the Contribution, on December 8, 2016, the Operating Partnership entered into an OP Unit Purchase Agreement (the “OP Unit Purchase Agreement”) with Pillarstone REIT and Pillarstone pursuant to which the Operating Partnership agreed to purchase up to an aggregate of $3.0 million of Pillarstone OP Units at a price of $1.331 per Pillarstone OP Unit over the two-year term of the OP Unit Purchase Agreement on the terms set forth therein. The OP Unit Purchase Agreement contains customary closing conditions and the parties have made certain customary representations, warranties and indemnifications to each other in the OP Unit Purchase Agreement. In addition, pursuant to the OP Unit Purchase Agreement, in the event of a Change of Control (as defined therein) of the Company, Pillarstone shall have the right, but not the obligation, to repurchase the Pillarstone OP Units issued thereunder from the Operating Partnership at their initial issue price of $1.331 per Pillarstone OP Unit.

In connection with the Contribution, (1) with respect to each Pillarstone Property (other than Uptown Tower), Whitestone TRS, Inc., a subsidiary of the Company (“Whitestone TRS”), entered into a Management Agreement with the Entity that owns such Pillarstone Property and (2) with respect to Uptown Tower, Whitestone TRS entered into a Management Agreement with Pillarstone (collectively, the “Management Agreements”). Pursuant to the Management Agreements with respect to each Pillarstone Property (other than Uptown Tower), Whitestone TRS agreed to provide certain property management, leasing and day-to-day advisory and administrative services to such Pillarstone Property in exchange for (x) a monthly property management fee equal to 5.0% of the monthly revenues of such Pillarstone Property and (y) 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 Pillarstone Property based upon the purchase price allocations determined pursuant to the Contribution Agreement, excluding all indebtedness, liabilities or claims of any nature) of such Pillarstone 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 to Pillarstone 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.

As of June 30, 2017 , we owned approximately 81.4% of the total outstanding Pillarstone OP Units. Accordingly, we account for Pillarstone OP as a VIE and fully consolidate in our consolidated balance sheets and related consolidated statement of operations and comprehensive income.

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Development properties. As of March 31, 2017, we had substantially completed construction at our Pinnacle of Scottsdale Phase II property. As of June 30, 2017, we had incurred approximately $4.8 million in construction costs, including approximately $0.5 million in previously capitalized interest and real estate taxes. The 27,063 square foot Community Centered Property was 91% leased as of June 30, 2017 and is located in Scottsdale, Arizona, and adjacent to Pinnacle of Scottsdale.

On December 31, 2016, we had substantially completed construction at our Shops at Starwood Phase III property. As of June 30, 2017, we had incurred approximately $7.8 million in construction costs, including approximately $0.9 million in previously capitalized interest and real estate taxes. The 35,351 square foot Community Centered Property was 63% leased as of June 30, 2017 and is located in Frisco, Texas, a northern suburb of Dallas, Texas, and adjacent to Shops at Starwood.

Leasing Activity

As of June 30, 2017 , we owned or held a majority interest in 72 properties with 6,554,746 square feet of GLA and our occupancy rate for all properties was approximately 87% occupied as of both June 30, 2017 and June 30, 2016 . The following is a summary of the Company's leasing activity for the six months ended June 30, 2017 :



	Number of Leases Signed	GLA Signed	Weighted Average Lease Term ⁽²⁾	TI and Incentives per Sq. Ft. ⁽³⁾		Contractual Rent Per Sq. Ft ⁽⁴⁾		Prior Contractual Rent Per Sq. Ft. ⁽⁵⁾		Straight-lined Basis Increase Over Prior Rent
Comparable ⁽¹⁾
Renewal Leases	111	276,152	3.1	$	1.64	$	15.01	$	14.93	6.6	%
New Leases	16	28,108	4.5	5.22		17.16		17.19		3.5	%
Total	127	304,260	3.2	$	1.97	$	15.21	$	15.14	6.3	%

	Number of Leases Signed	GLA Signed	Weighted Average Lease Term ⁽²⁾	TI and Incentives per Sq. Ft. ⁽³⁾		Contractual Rent Per Sq. Ft ⁽⁴⁾
Non-Comparable
Renewal Leases	4	17,467	3.7	$	6.90	$	19.65
New Leases	49	136,957	6.7	12.74		19.07
Total	53	154,424	6.3	$	13.68	$	19.14


⁽¹⁾	Comparable leases represent leases signed on spaces for which there was a former tenant within the last twelve months and the new or renewal square footage was within 25% of the expired square footage.


⁽²⁾	Weighted average lease term is determined on the basis of square footage.

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⁽³⁾	Estimated amount per signed leases. Actual cost of construction may vary. Does not include first generation costs for tenant improvements (“TI”) and leasing commission costs needed for new acquisitions or redevelopment of a property to bring to operating standards for its intended use.


⁽⁴⁾	Contractual minimum rent under the new lease for the first month, excluding concessions.


⁽⁵⁾	Contractual minimum rent under the prior lease for the final month.

Contractual Expenditures

The following is a summary of the Company's capital expenditures for the three and six months ended June 30, 2017 and 2016 (in thousands):



	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2017		2016		2017		2016
Capital expenditures:
Tenant improvements and allowances	$	1,323	$	1,434	$	2,877	$	2,518
Developments / redevelopments	698		4,521		2,940		7,210
Leasing commissions and costs	1,084		575		1,538		1,011
Maintenance capital expenditures	1,702		736		2,462		1,327
Total capital expenditures	$	4,807	$	7,266	$	9,817	$	12,066

Critical Accounting Policies

In preparing the consolidated financial statements, we have made estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenue and expenses during the reported periods. Actual results may differ from these estimates. A summary of our critical accounting policies is included in our Annual Report on Form 10-K for the year ended December 31, 2016 , under “Management's Discussion and Analysis of Financial Condition and Results of Operations.” There have been no significant changes to these policies during the six months ended June 30, 2017 . For disclosure regarding recent accounting pronouncements and the anticipated impact they will have on our operations, please refer to Note 2 to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2016 .

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Results of Operations

Comparison of the Three Months Ended June 30, 2017 and 2016

The following table provides a summary comparison of our results of operations for the three months ended June 30, 2017 and 2016 (dollars in thousands, except per share and OP unit amounts):



	Three Months Ended June 30,
	2017			2016
Number of properties wholly-owned and operated	58			55
Aggregate GLA (sq. ft.) ⁽¹⁾	5,023,009			4,350,017
Ending occupancy rate - wholly-owned operating portfolio ⁽¹⁾	90		%	90		%
Ending occupancy rate - all wholly-owned properties	89		%	89		%

Number of properties managed and consolidated	14			14
Aggregate GLA (sq. ft.)	1,531,737			1,531,737
Ending occupancy rate - managed and consolidated operating portfolio	78		%	81		%

Total property revenues	$	30,208		$	25,129
Total property expenses	9,862			7,987
Total other expenses	18,057			15,604
Provision for income taxes	89			11
Gain on sale of properties	(16		)	—
Loss on disposal of assets	72			18
Net income	2,144			1,509
Less: Net income attributable to noncontrolling interests	161			25
Net income attributable to Whitestone REIT	$	1,983		$	1,484

Funds from operations core ⁽²⁾	$	11,649		$	9,218
Property net operating income ⁽³⁾	20,346			17,142
Distributions paid on common shares and OP units	10,403			7,924
Distributions per common share and OP unit	$	0.2850		$	0.2850
Distributions paid as a percentage of funds from operations core	89		%	86		%


⁽¹⁾	Excludes (i) new acquisitions, through the earlier of attainment of 90% occupancy or 18 months of ownership, and (ii) properties that are undergoing significant redevelopment or re-tenanting.


⁽²⁾	For a reconciliation of funds from operations core to net income, see “—Reconciliation of Non-GAAP Financial Measures—Funds From Operations (“FFO”) Core” below.


⁽³⁾	For a reconciliation of property net operating income to net income, see “—Reconciliation of Non-GAAP Financial Measures—Property Net Operating Income (“NOI”)” below.

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Property revenues. We had rental income and tenant reimbursements of approximately $30,208,000 for the three months ended June 30, 2017 as compared to $25,129,000 for the three months ended June 30, 2016 , an increase of $5,079,000 , or 20% . The three months ended June 30, 2017 included $3,694,000 in increased revenues from Non-Same Store operations and $150,000 in increased revenues from our Consolidated Partnership. We define “Non-Same Stores” as properties acquired since the beginning of the period being compared and properties that have been sold, but not classified as discontinued operations. Same Store revenues increased $1,235,000 for the three months ended June 30, 2017 as compared to the same period in the prior year. We define “Same Stores” as properties that have been owned for the entire period being compared. For purposes of comparing the three months ended June 30, 2017 to the three months ended June 30, 2016 , Same Stores include properties owned during the entire period from April 1, 2016 to June 30, 2017. Same Store revenue increased $160,000 for the three months ended June 30, 2017 as compared to the three months ended June 30, 2016 as the result of an increase in the average leased square feet to 3,839,000 from 3,810,000 . The Same Store average revenue per leased square foot increased $1.12 for the three months ended June 30, 2017 to $23.47 per leased square foot as compared to the average revenue per leased square foot of $22.35 for the three months ended June 30, 2016 , resulting in an increase of Same Store revenues of $1,075,000 .

Property expenses. Our property expenses were approximately $9,862,000 for the three months ended June 30, 2017 as compared to $7,987,000 for the three months ended June 30, 2016 , an increase of $1,875,000 , or 23% . The primary components of property expenses are detailed in the table below (in thousands, except percentages):



	Three Months Ended June 30,
Overall Property Expenses	2017		2016		Change			% Change
Real estate taxes	$	4,487	$	3,304	$	1,183		36	%
Utilities	1,260		1,140		120			11	%
Contract services	1,794		1,569		225			14	%
Repairs and maintenance	967		773		194			25	%
Bad debt	298		389		(91		)	(23	)%
Labor and other	1,056		812		244			30	%
Total property expenses	$	9,862	$	7,987	$	1,875		23	%



	Three Months Ended June 30,
Same Store Property Expenses	2017		2016		Change			% Change
Real estate taxes	$	3,371	$	2,762	$	609		22	%
Utilities	860		830		30			4	%
Contract services	1,283		1,333		(50		)	(4	)%
Repairs and maintenance	726		606		120			20	%
Bad debt	236		369		(133		)	(36	)%
Labor and other	621		623		(2		)	—	%
Total property expenses	$	7,097	$	6,523	$	574		9	%



	Three Months Ended June 30,
Non-Same Store Property Expenses	2017		2016			Change		% Change
Real estate taxes	$	489	$	14		$	475	Not meaningful
Utilities	90		12			78		Not meaningful
Contract services	217		6			211		Not meaningful
Repairs and maintenance	78		(3		)	81		Not meaningful
Bad debt	46		(5		)	51		Not meaningful
Labor and other	76		12			64		Not meaningful
Total property expenses	$	996	$	36		$	960	Not meaningful

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Real estate taxes. Real estate taxes increased approximately $1,183,000 , or 36% , during the three months ended June 30, 2017 as compared to the same period in 2016 . The real estate tax increase was comprised of increases of $609,000 , $99,000 and $475,000 in our Same Store, Consolidated Partnership and Non-Same Store properties, respectively. The increase in Same Store real estate tax expense was primarily attributable to increased assessments with tax authorities in our Texas markets resulting in larger expenses for 2017 taxes. Many of the tax assessments on our properties are still under protest for 2016, and we expect to achieve further reductions through the litigation process. We actively work to keep our valuations and resulting taxes low because a majority of these taxes are charged to our tenants through triple net leases, and we strive to keep these charges to our tenants as low as possible.

Utilities. Utilities expenses increased approximately $120,000 , or 11% , during the three months ended June 30, 2017 as compared to the same period in 2016 . The utility expense increase was comprised of $78,000 , $12,000 and $30,000 in our Non-Same Store, Consolidated Partnership and Same Store properties, respectively.

Contract services. Contract services expenses increased approximately $225,000 , or 14% , during the three months ended June 30, 2017 as compared to the same period in 2016 . The contract services increase was comprised of $211,000 and $64,000 increases in our Non-Same Store and Consolidated Partnership properties, respectively, and offset by a $50,000 decrease in Same Store properties. The $50,000 decrease in Same Store property contract services expense was primarily comprised of decreased security costs.

Repairs and maintenance. Repairs and maintenance expenses increased approximately $194,000 , or 25% , during the three months ended June 30, 2017 as compared to the same period in 2016 . The repairs and maintenance increase was comprised of increases of $120,000 in Same Store properties and $81,000 in our Non-Same Store properties, offset by a decrease of $7,000 in our Consolidated Partnership properties. The Same Store properties increase was primarily comprised of parking lot and plumbing repairs.

Bad debt. Bad debt expenses decreased approximately $91,000 , or 23% , during the three months ended June 30, 2017 as compared to the same period in 2016 . The bad debt expense decrease was comprised of $133,000 in decreases from Same Store properties and $9,000 in decreases from our Consolidated Partnership properties and offset by an increase from our Non-Same Store properties of $51,000 .

Labor and other. Labor and other expenses increased approximately $244,000 , or 30% , during the three months ended June 30, 2017 as compared to the same period in 2016 . The increased labor and other expense was comprised of $182,000 and $64,000 increases in our Consolidated Partnership and Non-Same Store properties, respectively, and offset by a $2,000 decrease in our Same Store properties.

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Same Store, Non-Same Store and Consolidated Partnership net operating income. The components of Same Store, Non-Same Store, Consolidated Partnership and total property net operating income and net income are detailed in the table below (in thousands):



	Three Months Ended June 30,							Percent
	2017		2016		Change			Change
Same Store (49 properties, exclusive of land held for development)
Property revenues
Rental revenues	$	16,820	$	16,315	$	505		3	%
Other revenues	5,706		4,976		730			15	%
Total property revenues	22,526		21,291		1,235			6	%

Property expenses
Property operation and maintenance	3,726		3,761		(35		)	(1	)%
Real estate taxes	3,371		2,762		609			22	%
Total property expenses	7,097		6,523		574			9	%

Total Same Store net operating income	15,429		14,768		661			4	%

Non-Same Store (4 Properties, exclusive of land held for development)
Property revenues
Rental revenues	3,004		111		2,893			Not meaningful
Other revenues	841		40		801			Not meaningful
Total property revenues	3,845		151		3,694			Not meaningful

Property expenses
Property operation and maintenance	507		22		485			Not meaningful
Real estate taxes	489		14		475			Not meaningful
Total property expenses	996		36		960			Not meaningful

Total Non-Same Store net operating income	2,849		115		2,734			Not meaningful

Consolidated Partnership properties (14 Properties)
Property revenues
Rental revenues	3,186		3,223		(37		)	(1	)%
Other revenues	651		464		187			40	%
Total property revenues	3,837		3,687		150			4	%

Property expenses
Property operation and maintenance	1,142		900		242			27	%
Real estate taxes	627		528		99			19	%
Total property expenses	1,769		1,428		341			24	%

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	Three Months Ended June 30,							Percent
	2017		2016		Change			Change
Total Consolidated Partnership properties net operating income	2,068		2,259		(191		)	(8	)%


Total property net operating income	20,346		17,142		3,204			19	%

Less total other expenses, provision for income taxes, gain on sale of properties and loss on disposal of assets	18,202		15,633		2,569			16	%


Net income	$	2,144	$	1,509	$	635		42	%

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Other expenses. Our other expenses were approximately $18,057,000 for the three months ended June 30, 2017 , as compared to $15,604,000 for the three months ended June 30, 2016 , an increase of $2,453,000 , or 16% . The primary components of other expenses are detailed in the table below (in thousands, except percentages):



	Three Months Ended
	June 30,
	2017			2016			Change			% Change
General and administrative	$	5,848		$	5,413		$	435		8	%
Depreciation and amortization	6,681			5,521			1,160			21	%
Interest expense	5,629			4,748			881			19	%
Interest, dividend and other investment income	(101		)	(78		)	(23		)	29	%
Total other expenses	$	18,057		$	15,604		$	2,453		16	%

General and administrative. General and administrative expenses increased approximately $435,000 , or 8% , for the three months ended June 30, 2017 as compared to the same period in 2016 . The increase was comprised of $571,000 in increased share-based compensation expense, $203,000 in increased acquisition expenses and offset by $326,000 in decreased legal fees and $13,000 in decreased other expenses .

Total compensation recognized in earnings for share-based payments was $2,390,000 and $1,819,000 for the three months ended June 30, 2017 and 2016 , respectively.

Depreciation and amortization. Depreciation and amortization increased $1,160,000 , or 21% , for the three months ended June 30, 2017 as compared to the same period in 2016 . Depreciation for improvements to Same Store properties increased $522,000 for the three months ended June 30, 2017 as compared to the same period in 2016 . Depreciation for Non-Same Store properties increased $530,000 and depreciation for Consolidated Partnership properties increased $57,000 . Lease commission amortization and depreciation of corporate assets increased $51,000 for the three months ended June 30, 2017 as compared to the same period in 2016 .

Interest expense. Interest expense increased approximately $881,000 , or 19% , for the three months ended June 30, 2017 as compared to the same period in 2016 . The increase in interest expense is comprised of approximately $927,000 in increased interest expense resulting from a $105,528,000 increase in our average notes payable balance offset by a $45,000 decrease in interest expense resulting from a decrease in the average effective interest rate on our average notes payable from 3.51% to 3.48% and a decrease in amortized loan fees included in interest expense of $1,000.

Interest, dividend and other investment income. Interest, dividend and other investment income increased approximately $23,000 , or 29% , for the three months ended June 30, 2017 as compared to the same period in 2016 . The increase in interest, dividend and other investment income for the three months ended June 30, 2017 as compared to the same period in 2016 is comprised of approximately $23,000 in increased interest income.

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Results of Operations

Comparison of the Six Months Ended June 30, 2017 and 2016

The following table provides a summary comparison of our results of operations for the six months ended June 30, 2017 and 2016 (dollars in thousands, except per share and OP unit amounts):



	Six Months Ended June 30,
	2017			2016
Number of properties wholly-owned and operated	58			55
Aggregate GLA (sq. ft.) ⁽¹⁾	5,023,009			4,350,017
Ending occupancy rate - wholly-owned operating portfolio ⁽¹⁾	90		%	90		%
Ending occupancy rate - all wholly-owned properties	89		%	89		%

Number of properties managed and consolidated	14			14
Aggregate GLA (sq. ft.)	1,531,737			1,531,737
Ending occupancy rate - managed and consolidated operating portfolio	78		%	81		%

Total property revenues	$	58,475		$	50,564
Total property expenses	19,276			16,135
Total other expenses	35,249			30,539
Provision for income taxes	170			167
Gain on sale of properties	(16		)	(2,890		)
Loss on disposal of assets	95			16
Net income	3,701			6,597
Less: Net income attributable to noncontrolling interests	279			116
Net income attributable to Whitestone REIT	$	3,422		$	6,481

Funds from operations core ⁽²⁾	$	21,828		$	18,920
Property net operating income ⁽³⁾	39,199			34,429
Distributions paid on common shares and OP units	19,169			15,774
Distributions per common share and OP unit	$	0.5700		$	0.5700
Distributions paid as a percentage of funds from operations core	88		%	83		%


⁽¹⁾	Excludes (i) new acquisitions, through the earlier of attainment of 90% occupancy or 18 months of ownership, and (ii) properties that are undergoing significant redevelopment or re-tenanting.


⁽²⁾	For a reconciliation of funds from operations core to net income, see “—Reconciliation of Non-GAAP Financial Measures—Funds From Operations (“FFO”) Core” below.


⁽³⁾	For a reconciliation of property net operating income to net income, see “—Reconciliation of Non-GAAP Financial Measures—Property Net Operating Income (“NOI”)” below.

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Property revenues. We had rental income and tenant reimbursements of approximately $58,475,000 for the six months ended June 30, 2017 as compared to $50,564,000 for the six months ended June 30, 2016, an increase of $7,911,000 , or 16% . The six months ended June 30, 2017 included $5,483,000 in increased revenues from Non-Same Store operations and $172,000 in increased revenues from our Consolidated Partnership. We define “Non-Same Stores” as properties acquired since the beginning of the period being compared and properties that have been sold, but not classified as discontinued operations. Same Store revenues increased $2,256,000 for the six months ended June 30, 2017 as compared to the same period in the prior year. We define “Same Stores” as properties that have been owned for the entire period being compared. For purposes of comparing the six months ended June 30, 2017 to the six months ended June 30, 2016, Same Stores include properties owned during the entire period from January 1, 2016 to June 30, 2017. Same Store revenue increased $367,000 for the six months ended June 30, 2017 as compared to the six months ended June 30, 2016 as the result of an increase in the average leased square feet to 3,854,000 from 3,822,000 . The Same Store average revenue per leased square foot increased $0.98 for the six months ended June 30, 2017 to $23.33 per leased square foot as compared to the average revenue per leased square foot of $22.35 for the six months ended June 30, 2016, resulting in an increase of Same Store revenues of $1,889,000 .

Property expenses. Our property expenses were approximately $19,276,000 for the six months ended June 30, 2017 as compared to $16,135,000 for the six months ended June 30, 2016, an increase of $3,141,000 , or 19% . The primary components of property expenses are detailed in the table below (in thousands, except percentages):



	Six Months Ended June 30,
Overall Property Expenses	2017		2016		Change		% Change
Real estate taxes	$	8,407	$	6,658	$	1,749	26	%
Utilities	2,496		2,236		260		12	%
Contract services	3,430		2,994		436		15	%
Repairs and maintenance	2,094		1,729		365		21	%
Bad debt	907		763		144		19	%
Labor and other	1,942		1,755		187		11	%
Total property expenses	$	19,276	$	16,135	$	3,141	19	%



	Six Months Ended June 30,
Same Store Property Expenses	2017		2016		Change		% Change
Real estate taxes	$	6,537	$	5,571	$	966	17	%
Utilities	1,704		1,634		70		4	%
Contract services	2,499		2,498		1		—	%
Repairs and maintenance	1,595		1,348		247		18	%
Bad debt	780		733		47		6	%
Labor and other	1,335		1,334		1		—	%
Total property expenses	$	14,450	$	13,118	$	1,332	10	%



	Six Months Ended June 30,
Non-Same Store Property Expenses	2017		2016			Change		% Change
Real estate taxes	$	603	$	44		$	559	Not meaningful
Utilities	158		26			132		Not meaningful
Contract services	329		18			311		Not meaningful
Repairs and maintenance	130		—			130		Not meaningful
Bad debt	65		(22		)	87		Not meaningful
Labor and other	131		57			74		Not meaningful
Total property expenses	$	1,416	$	123		$	1,293	Not meaningful

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Real estate taxes. Real estate taxes increased approximately $1,749,000 , or 26% , during the six months ended June 30, 2017 as compared to the same period in 2016. The real estate tax increase was comprised of increases of $966,000 , $224,000 and $559,000 in our Same Store, Consolidated Partnership and Non-Same Store properties, respectively. The increase in Same Store real estate tax expense was primarily attributable to increased assessments with tax authorities in our Texas markets resulting in larger expenses for 2017 taxes. Many of the tax assessments on our properties are still under protest for 2016, and we expect to achieve further reductions through the litigation process. We actively work to keep our valuations and resulting taxes low because a majority of these taxes are charged to our tenants through triple net leases, and we strive to keep these charges to our tenants as low as possible.

Utilities. Utilities expenses increased approximately $260,000 , or 12% , during the six months ended June 30, 2017 as compared to the same period in 2016. The utility expense increase was comprised of $132,000 , $58,000 and $70,000 in our Non-Same Store, Consolidated Partnership and Same Store properties, respectively. The majority of the Same Store increase was from increased electricity costs in our Houston market.

Contract services. Contract services expenses increased approximately $436,000 , or 15% , during the six months ended June 30, 2017 as compared to the same period in 2016. The contract services increase was comprised of $311,000 , $124,000 and $1,000 in our Non-Same Store, Consolidated Partnership and Same Store properties, respectively.

Repairs and maintenance. Repairs and maintenance expenses increased approximately $365,000 , or 21% , during the six months ended June 30, 2017 as compared to the same period in 2016. The repairs and maintenance increase was comprised of increases of $247,000 in Same Store properties and $130,000 in our Non-Same Store properties, offset by a decrease of $12,000 in our Consolidated Partnership properties. The Same Store properties increase was primarily comprised of parking lot and exterior landscaping repairs.

Bad debt. Bad debt expenses increased approximately $144,000 , or 19% , during the six months ended June 30, 2017 as compared to the same period in 2016. The bad debt expense increase was comprised of $47,000 , $87,000 and $10,000 in our Same Store, Non-Same Store and Consolidated Partnership properties, respectively.

Labor and other. Labor and other expenses increased approximately $187,000 , or 11% , during the six months ended June 30, 2017 as compared to the same period in 2016. The labor and other expense increase was comprised of $112,000 , $74,000 and $1,000 in our Consolidated Partnership, Non-Same Store and Same Store properties, respectively.

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	Six Months Ended June 30,							Percent
	2017		2016		Change			Change
Same Store (49 properties, exclusive of land held for development)
Property revenues
Rental revenues	$	33,488	$	32,398	$	1,090		3	%
Other revenues	11,472		10,306		1,166			11	%
Total property revenues	44,960		42,704		2,256			5	%

Property expenses
Property operation and maintenance	7,913		7,547		366			5	%
Real estate taxes	6,537		5,571		966			17	%
Total property expenses	14,450		13,118		1,332			10	%

Total Same Store net operating income	30,510		29,586		924			3	%

Non-Same Store (4 Properties, exclusive of land held for development)
Property revenues
Rental revenues	4,405		259		4,146			Not meaningful
Other revenues	1,442		105		1,337			Not meaningful
Total property revenues	5,847		364		5,483			Not meaningful

Property expenses
Property operation and maintenance	813		79		734			Not meaningful
Real estate taxes	603		44		559			Not meaningful
Total property expenses	1,416		123		1,293			Not meaningful

Total Non-Same Store net operating income	4,431		241		4,190			Not meaningful

Consolidated Partnership properties (14 Properties)
Property revenues
Rental revenues	6,413		6,414		(1		)	—	%
Other revenues	1,255		1,082		173			16	%
Total property revenues	7,668		7,496		172			2	%

Property expenses
Property operation and maintenance	2,143		1,851		292			16	%
Real estate taxes	1,267		1,043		224			21	%
Total property expenses	3,410		2,894		516			18	%

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	Six Months Ended June 30,							Percent
	2017		2016		Change			Change
Total Consolidated Partnership properties net operating income	4,258		4,602		(344		)	(7	)%


Total property net operating income	39,199		34,429		4,770			14	%

Less total other expenses, provision for income taxes, gain on sale of properties and loss on disposal of assets	35,498		27,832		7,666			28	%


Net income	$	3,701	$	6,597	$	(2,896	)	(44	)%

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Other expenses. Our other expenses were approximately $35,249,000 for the six months ended June 30, 2017, as compared to $30,539,000 for the six months ended June 30, 2016, an increase of $4,710,000 , or 15% . The primary components of other expenses are detailed in the table below (in thousands, except percentages):



	Six Months Ended
	June 30,
	2017			2016			Change			% Change
General and administrative	$	12,017		$	10,249		$	1,768		17	%
Depreciation and amortization	12,689			10,913			1,776			16	%
Interest expense	10,782			9,552			1,230			13	%
Interest, dividend and other investment income	(239		)	(175		)	(64		)	37	%
Total other expenses	$	35,249		$	30,539		$	4,710		15	%

General and administrative. General and administrative expenses increased approximately $1,768,000 , or 17% , for the six months ended June 30, 2017 as compared to the same period in 2016. The increase was comprised of $997,000 in increased share-based compensation expense and $269,000 in increased salaries and benefits , $212,000 in increased acquisition costs , $161,000 in increased other professional fees and $129,000 in increased other expenses .

Total compensation recognized in earnings for share-based payments was $4,841,000 and $3,844,000 for the six months ended June 30, 2017 and 2016, respectively.

Depreciation and amortization. Depreciation and amortization increased $1,776,000 , or 16% , for the six months ended June 30, 2017 as compared to the same period in 2016. Depreciation for improvements to Same Store properties increased $782,000 for the six months ended June 30, 2017 as compared to the same period in 2016. Depreciation for Non-Same Store properties increased $800,000 and depreciation for Consolidated Partnership properties increased $130,000 . Lease commission amortization and depreciation of corporate assets increased $64,000 for the six months ended June 30, 2017 as compared to the same period in 2016.

Interest expense. Interest expense increased approximately $1,230,000 , or 13%, for the six months ended June 30, 2017 as compared to the same period in 2016. The increase in interest expense is comprised of approximately $1,518,000 in increased interest expense resulting from a $85,607,000 increase in our average notes payable balance offset by a $282,000 decrease in interest expense resulting from a decrease in the average effective interest rate on our average notes payable from 3.55% to 3.45% and a decrease in amortized loan fees included in interest expense of $6,000.

Interest, dividend and other investment income. Interest, dividend and other investment income increased approximately $64,000 , or 37% , for the six months ended June 30, 2017 as compared to the same period in 2016. The increase in interest, dividend and other investment income for the six months ended June 30, 2017 as compared to the same period in 2016 is comprised of approximately $65,000 in increased interest income and was offset by a $1,000 decrease in dividend income.

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Reconciliation of Non-GAAP Financial Measures

Funds From Operations (“FFO”)

The National Association of Real Estate Investment Trusts (“NAREIT”) defines FFO as net income (loss) available to common shareholders computed in accordance with U.S. GAAP, excluding gains or losses from sales of operating real estate assets, impairment charges on properties held for investment and extraordinary items, plus depreciation and amortization of operating properties, including our share of unconsolidated real estate joint ventures and partnerships. We calculate FFO in a manner consistent with the NAREIT definition.

Management uses FFO as a supplemental measure to conduct and evaluate our business because there are certain limitations associated with using U.S. GAAP net income (loss) alone as the primary measure of our operating performance. Historical cost accounting for real estate assets in accordance with U.S. GAAP implicitly assumes that the value of real estate assets diminishes predictably over time. Because real estate values instead have historically risen or fallen with market conditions, management believes that the presentation of operating results for real estate companies that use historical cost accounting is insufficient by itself. In addition, securities analysts, investors and other interested parties use FFO as the primary metric for comparing the relative performance of equity REITs.

FFO should not be considered as an alternative to net income or other measurements under U.S. GAAP, as an indicator of our operating performance or to cash flows from operating, investing or financing activities as a measure of liquidity. FFO does not reflect working capital changes, cash expenditures for capital improvements or principal payments on indebtedness. Although our calculation of FFO is consistent with that of NAREIT, there can be no assurance that FFO presented by us is comparable to similarly titled measures of other REITs.

Funds From Operations Core (“FFO Core”)

Management believes that the computation of FFO in accordance with NAREIT's definition includes certain items

that are not indicative of the results provided by our operating portfolio and affect the comparability of our period-over-period performance. These items include, but are not limited to, legal settlements, non-cash share-based compensation expense, rent support agreement payments received from sellers on acquired assets and acquisition costs. Therefore, in addition to FFO, management uses FFO Core, which we define to exclude such items. Management believes that these adjustments are appropriate in determining FFO Core as they are not indicative of the operating performance of our assets. In addition, we believe that FFO Core is a useful supplemental measure for the investing community to use in comparing us to other REITs as many REITs provide some form of adjusted or modified FFO. However, there can be no assurance that FFO Core presented by us is comparable to the adjusted or modified FFO of other REITs.

Below are the calculations of FFO and FFO Core and the reconciliations to net income, which we believe is the most comparable U.S. GAAP financial measure (in thousands):



	Three Months Ended				Six Months Ended
	June 30,				June 30,
FFO and FFO CORE	2017		2016		2017		2016
Net income attributable to Whitestone REIT	$	1,983	$	1,484	$	3,422	$	6,481
Adjustments to reconcile to FFO: ⁽¹⁾
Depreciation and amortization of real estate assets	6,445		5,479		12,240		10,790
(Gain) loss on sale or disposal of assets and properties	55		18		77		(2,874		)
Net income attributable to noncontrolling interests	60		25		114		116
FFO	8,543		7,006		15,853		14,513

Adjustments to reconcile to FFO Core:
Share-based compensation expense	2,390		1,819		4,841		3,844
Acquisition costs	716		393		1,134		563
FFO Core	$	11,649	$	9,218	$	21,828	$	18,920


⁽¹⁾	Includes pro-rata share attributable to Pillarstone.

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Property Net Operating Income (“NOI”)

Management believes that NOI is a useful measure of our property operating performance and is useful to securities analysts in estimating the relative net asset values of REITs. We define NOI as operating revenues (rental and other revenues) less property and related expenses (property operation and maintenance and real estate taxes). Other REITs may use different methodologies for calculating NOI and, accordingly, our NOI may not be comparable to other REITs. Because NOI excludes general and administrative expenses, depreciation and amortization, involuntary conversion, interest expense, interest income, provision for income taxes and gain or loss on sale or disposition of assets, it provides a performance measure that, when compared year over year, reflects the revenues and expenses directly associated with owning and operating commercial real estate properties and the impact to operations from trends in occupancy rates, rental rates and operating costs, providing perspective not immediately apparent from net income. We use NOI to evaluate our operating performance since NOI allows us to evaluate the impact that factors such as occupancy levels, lease structure, lease rates and tenant base have on our results, margins and returns. In addition, management believes that NOI provides useful information to the investment community about our property and operating performance when compared to other REITs since NOI is generally recognized as a standard measure of property performance in the real estate industry. However, NOI should not be viewed as a measure of our overall financial performance since it does not reflect general and administrative expenses, depreciation and amortization, involuntary conversion, interest expense, interest income, provision for income taxes and gain or loss on sale or disposition of assets, the level of capital expenditures and leasing costs necessary to maintain the operating performance of our properties.

Below is the calculation of NOI and the reconciliations to net income, which we believe is the most comparable U.S. GAAP financial measure (in thousands):



	Three Months Ended						Six Months Ended
	June 30,						June 30,
PROPERTY NET OPERATING INCOME	2017			2016			2017			2016
Net income attributable to Whitestone REIT	$	1,983		$	1,484		$	3,422		$	6,481
General and administrative expenses	5,848			5,413			12,017			10,249
Depreciation and amortization	6,681			5,521			12,689			10,913
Interest expense	5,629			4,748			10,782			9,552
Interest, dividend and other investment income	(101		)	(78		)	(239		)	(175		)
Provision for income taxes	89			11			170			167
Gain on sale of properties	(16		)	—			(16		)	(2,890		)
Loss on disposal of assets	72			18			95			16
Net income attributable to noncontrolling interests	161			25			279			116
NOI	$	20,346		$	17,142		$	39,199		$	34,429

Liquidity and Capital Resources

Our short-term liquidity requirements consist primarily of distributions to holders of our common shares and OP units, including those required to maintain our REIT status and satisfy our current quarterly distribution target of $0.2850 per share and OP unit, recurring expenditures, such as repairs and maintenance of our properties, non-recurring expenditures, such as capital improvements and tenant improvements, debt service requirements, and, potentially, acquisitions of additional properties.

During the six months ended June 30, 2017 , our cash provided from operating activities was $13,704,000 and our total distributions were $19,435,000 . Therefore, we had distributions in excess of cash flow from operations of approximately $5,731,000 . We anticipate that cash flows from operating activities and our borrowing capacity under our unsecured revolving credit facility will provide adequate capital for our working capital requirements, anticipated capital expenditures and scheduled debt payments in the short term. We also believe that cash flows from operating activities and our borrowing capacity will allow us to make all distributions required for us to continue to qualify to be taxed as a REIT for federal income tax purposes.

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Our long-term capital requirements consist primarily of maturities under our longer-term debt agreements, development and redevelopment costs, and potential acquisitions. We expect to meet our long-term liquidity requirements with net cash from operations, long-term indebtedness, sales of common shares, issuance of OP units, sales of underperforming properties and non-core properties and other financing opportunities, including debt financing. We believe we have access to multiple sources of capital to fund our long-term liquidity requirements, including the incurrence of additional debt and the issuance of additional equity. However, our ability to incur additional debt will be dependent on a number of factors, including our degree of leverage, the value of our unencumbered assets and borrowing restrictions that may be imposed by lenders. Our ability to access the equity markets will be dependent on a number of factors as well, including general market conditions for REITs and market perceptions about our Company.

We expect that our rental income will increase as we continue to acquire additional properties, subsequently increasing our cash flows generated from operating activities. We intend to continue acquiring such additional properties that meet our Community Centered Property™ strategy through equity issuances and debt financing. For example, on April 25, 2017, we completed the April Offering. On May 3, 2017, we acquired Eldorado Plaza. We funded the purchase price of Eldorado Plaza and related transaction expenses with borrowings under our Facility and a portion of the net proceeds from the April Offering. On May 26, 2017, we acquired BLVD Place. We funded the purchase price of BLVD Place and related transaction expenses through a combination of borrowings under our Facility and the BLVD Note (as defined below) and a portion of the net proceeds from the April Offering. Included in the purchase of Eldorado Plaza was approximately 1.86 acres of developable land that will give us the ability to build an estimated 24,000 square feet of additional leasable space for an estimated cost to acquire and develop the land parcel of approximately $4.0 million, based on current plans. Further, included in the purchase of BLVD Place was approximately 1.43 acres of developable land. We currently intend to develop a six-story, 137,000 square foot mixed-use building, which we refer to as the BLVD Phase II-B development, on the developable land at BLVD Place, for an estimated cost to acquire and develop the land parcel of $55 million, including the $10.5 million of the aggregate purchase price of BLVD Place allocated to the acquisition of the land parcel, based on current plans.

As discussed in Note 11 (Equity) to the accompanying consolidated financial statements, on June 4, 2015, we entered into the 2015 equity distribution agreements. Pursuant to the terms and conditions of the 2015 equity distribution agreements, we can issue and sell up to an aggregate of $50 million of our common shares into the existing trading market at current market prices or at negotiated prices through the placement agents over a period of time and from time to time. During the three months ended June 30, 2017 , we sold 176,576 common shares under the 2015 equity distribution agreements, with net proceeds to us of approximately $2.4 million . In connection with such sales, we paid compensation of approximately $27,000 to the sales agents. During the six months ended June 30, 2017 , we sold 567,302 common shares under the 2015 equity distribution agreements, with net proceeds to us of approximately $7.7 million . In connection with such sales, we paid compensation of approximately $139,000 to the sales agents. We have used and anticipate using net proceeds from common shares issued pursuant to the 2015 equity distribution agreements for general corporate purposes, which may include acquisitions of additional properties, the repayment of outstanding indebtedness, capital expenditures, the expansion, redevelopment and/or re-tenanting of properties in our portfolio, working capital and other general purposes.

Our capital structure includes non-recourse mortgage debt that we have assumed or originated on certain properties. We may hedge the future cash flows of certain variable rate debt transactions principally through interest rate swaps with major financial institutions. See Note 8 (Derivatives and Hedging Activities) to the accompanying consolidated financial statements for a description of our current cash flow hedges.

As discussed in Note 7 (Debt) to the accompanying consolidated financial statements, on May 26, 2017, we, through our subsidiary, Whitestone Houston BLVD Place LLC, a Delaware limited liability company, issued a $80.0 million promissory note to American General Life Insurance Company (the “BLVD Note”). The BLVD Note has a fixed interest rate of 3.72% and a maturity date of June 1, 2027. The BLVD Notes requires interest only payments with all principal repayable upon maturity. The BLVD Note is a non-recourse loan secured by the real property located at BLVD Place, including the related equipment, fixtures, personal property and other assets, with a limited carve-out guarantee by the Operating Partnership. Proceeds from the BLVD Note were used to fund a portion of the BLVD Place acquisition.

As discussed in Note 2 (Summary of Significant Accounting Policies) to the accompanying consolidated financial statements, pursuant to the terms of our $15.1 million 4.99% Note, due January 6, 2024 (see Note 7 (Debt) to the accompanying consolidated financial statements), which is collateralized by our Anthem Marketplace property, we were required by the lenders thereunder to establish a cash management account controlled by the lenders to collect all amounts generated by our Anthem Marketplace property in order to collateralize such promissory note. Amounts in the cash management account are classified as restricted cash.

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Cash and Cash Equivalents

We had cash and cash equivalents of approximately $9,267,000 as of June 30, 2017 , as compared to $4,168,000 on December 31, 2016 . The increase of $5,099,000 was primarily the result of the following:

Sources of Cash


•	Cash flow from operations of $13,704,000 for the six months ended June 30, 2017 ;


•	Net proceeds of $40,600,000 from the Facility;


•	Net proceeds of $107,619,000 from issuance of common shares;


•	Proceeds of $26,000 from sale of property;

Uses of Cash


•	Payment of distributions to common shareholders, OP unit holders and noncontrolling interests in Consolidated Partnership of $19,435,000 ;


•	Acquisitions of real estate of $124,557,000 ;


•	Additions to real estate of $8,279,000 ;


•	Change in restricted cash of $71,000 ;


•	Payments of loan origination costs of $695,000 ;


•	Repurchase of common shares of $1,987,000 ; and


•	Payments of notes payable of $1,826,000 .

We place all cash in short-term, highly liquid investments that we believe provide appropriate safety of principal.

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Debt

Debt consisted of the following as of the dates indicated (in thousands):



Description	June 30, 2017			December 31, 2016
Fixed rate notes
$10.5 million, LIBOR plus 2.00% Note, due September 24, 2018 ⁽¹⁾	$	9,860		$	9,980
$50.0 million, 0.84% plus 1.35% to 1.90% Note, due October 30, 2020 ⁽²⁾	50,000			50,000
$50.0 million, 1.50% plus 1.35% to 1.90% Note, due January 29, 2021 ⁽³⁾	50,000			50,000
$100.0 million, 1.73% plus 1.65% to 2.25% Note, due October 30, 2022 ⁽⁴⁾	100,000			100,000
$80.0 million, 3.72% Note, due June 1, 2027	80,000			—
$37.0 million 3.76% Note, due December 1, 2020 ⁽⁵⁾	33,662			34,166
$6.5 million 3.80% Note, due January 1, 2019	5,931			6,019
$19.0 million 4.15% Note, due December 1, 2024	19,000			19,000
$20.2 million 4.28% Note, due June 6, 2023	19,535			19,708
$14.0 million 4.34% Note, due September 11, 2024	14,000			14,000
$14.3 million 4.34% Note, due September 11, 2024	14,300			14,300
$16.5 million 4.97% Note, due September 26, 2023 ⁽⁵⁾	16,178			16,298
$15.1 million 4.99% Note, due January 6, 2024	14,971			15,060
$9.2 million, Prime Rate less 2.00% Note, due December 29, 2017 ⁽⁶⁾	7,852			7,869
$2.6 million 5.46% Note, due October 1, 2023	2,492			2,512
$1.1 million 2.97% Note, due November 28, 2017	543			—
Floating rate notes
Unsecured line of credit, LIBOR plus 1.40% to 1.95%, due October 30, 2019 ⁽⁷⁾	227,200			186,600
Total notes payable principal	665,524			545,512
Less deferred financing costs, net of accumulated amortization	(2,044		)	(1,492		)
	$	663,480		$	544,020


⁽¹⁾	Promissory note includes an interest rate swap that fixed the interest rate at 3.55% for the duration of the term.


⁽²⁾	Promissory note includes an interest rate swap that fixed the LIBOR portion of Term Loan 1 (as defined below) at 0.84% through February 3, 2017 and 1.75% beginning February 3, 2017 through October 30, 2020.


⁽³⁾	Promissory note includes an interest rate swap that fixed the LIBOR portion of Term Loan 2 (as defined below) at 1.50% .


⁽⁴⁾	Promissory note includes an interest rate swap that fixed the LIBOR portion of Term Loan 3 (as defined below) at 1.73% ,


⁽⁵⁾	Promissory notes were assumed by Pillarstone in December 2016.


⁽⁶⁾	Promissory note includes an interest rate swap that fixed the interest rate at 5.72% for the duration of the term. As part of our acquisition of Paradise Plaza in August 2012, we recorded a discount on the note of $1.3 million , which amortizes into interest expense over the life of the loan and results in an imputed interest rate of 4.13% .


⁽⁷⁾	Unsecured line of credit includes certain Pillarstone Properties described in more detail below.

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Pursuant to the First Amendment, the Company made the following amendments to the 2014 Facility:


•	extended the maturity date of the $300 million unsecured revolving credit facility under the 2014 Facility (the “Revolver”) to October 30, 2019 from November 7, 2018;


•	converted $100 million of outstanding borrowings under the Revolver to a new $100 million unsecured term loan under the 2014 Facility (“Term Loan 3”) with a maturity date of October 30, 2022;


•	extended the maturity date of the first $50 million unsecured term loan under the 2014 Facility (“Term Loan 1”) to October 30, 2020 from February 17, 2017; and


•	extended the maturity date of the second $50 million unsecured term loan under the 2014 Facility (“Term Loan 2” and together with Term Loan 1 and Term Loan 3, the “Term Loans”) to January 29, 2021 from November 7, 2019.

The Facility includes an accordion feature that will allow the Operating Partnership to increase the borrowing capacity to $700 million , upon the satisfaction of certain conditions. As of June 30, 2017 , $427.2 million was drawn on the Facility, and our remaining borrowing capacity was $72.8 million . Proceeds from the Facility were used for general corporate purposes, including property acquisitions, debt repayment, capital expenditures, the expansion, redevelopment and retenanting of properties in our portfolio and working capital. We intend to use the additional proceeds from the Facility for general corporate purposes, including property acquisitions, debt repayment, capital expenditure, the expansion, redevelopment and re-tenanting of properties in our portfolio and working capital.

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Scheduled maturities of our outstanding debt as of June 30, 2017 were as follows (in thousands):




Year	Amount Due

2017	$	9,667
2018	12,136
2019	235,249
2020	82,827
2021	51,918
Thereafter	273,727
Total	$	665,524

Capital Expenditures

We continually evaluate our properties’ performance and value. We may determine it is in our shareholders’ best interest to invest capital in properties that we believe have potential for increasing value. We also may have unexpected capital expenditures or improvements for our existing assets. Additionally, we intend to continue investing in similar properties outside of the markets on which we focus in cities with exceptional demographics to diversify market risk, and we may incur significant capital expenditures or make improvements in connection with any properties we may acquire.

Contractual Obligations

During the six months ended June 30, 2017 , there were no material changes outside of the ordinary course of business to the information regarding specified contractual obligations contained in our Annual Report on Form 10-K for the year ended December 31, 2016 .

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Distributions

The following table summarizes the cash distributions paid or payable to holders of our common shares and noncontrolling OP units during each quarter during 2016 and the six months ended June 30, 2017 (in thousands, except per share data):



	Common Shares				Noncontrolling OP Unit Holders				Total
Quarter Paid	Distributions Per Common Share		Amount Paid		Distributions Per OP Unit		Amount Paid		Amount Paid
2017
Second Quarter	$	0.2850	$	10,093	$	0.2850	$	310	$	10,403
First Quarter	0.2850		8,453		0.2850		313		8,766
Total	$	0.5700	$	18,546	$	0.5700	$	623	$	19,169

2016
Fourth Quarter	$	0.2850	$	8,305	$	0.2850	$	314	$	8,619
Third Quarter	0.2850		8,109		0.2850		138		8,247
Second Quarter	0.2850		7,786		0.2850		138		7,924
First Quarter	0.2850		7,711		0.2850		139		7,850
Total	$	1.1400	$	31,911	$	1.1400	$	729	$	32,640

Taxes

We elected to be taxed as a REIT under the Code beginning with our taxable year ended December 31, 1999. As a REIT, we generally are not subject to federal income tax on income that we distribute to our shareholders. If we fail to qualify as a REIT in any taxable year, we will be subject to federal income tax on our taxable income at regular corporate rates. We believe that we are organized and operate in a manner to qualify and be taxed as a REIT, and we intend to operate so as to remain qualified as a REIT for federal income tax purposes.

Income earned by our taxable REIT subsidiary, Whitestone Davenport TRS LLC (“Davenport TRS”), is subject to federal income tax. For the six months ended 2016 , we recognized $54,000 in income tax expense related to Davenport TRS taxable year. Davenport TRS was dissolved in the fourth quarter of 2016.

Environmental Matters

Our properties are subject to environmental laws and regulations adopted by various governmental authorities in the jurisdictions in which our operations are conducted. From our inception, we have incurred no significant environmental costs, accrued liabilities or expenditures to mitigate or eliminate future environmental contamination.

Off-Balance Sheet Arrangements

We had no significant off-balance sheet arrangements as of June 30, 2017 and December 31, 2016 .

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Our future income, cash flows and fair value relevant to our financial instruments depend upon prevailing market interest rates. Market risk refers to the risk of loss from adverse changes in market prices and interest rates. Based upon the nature of our operations, we are not subject to foreign exchange rate or commodity price risk. The principal market risk to which we are exposed is the risk related to interest rate fluctuations. Many factors, including governmental monetary and tax policies, domestic and international economic and political considerations, and other factors that are beyond our control contribute to interest rate risk. Our interest rate risk objective is to limit the impact of interest rate fluctuations on earnings and cash flows and to lower our overall borrowing costs. To achieve this objective, we manage our exposure to fluctuations in market interest rates for our borrowings through the use of fixed rate debt instruments to the extent that reasonably favorable rates are obtainable.

All of our financial instruments were entered into for other than trading purposes.

Fixed Interest Rate Debt

As of June 30, 2017 , $438.3 million , or approximately 66% of our outstanding debt, was subject to fixed interest rates, which limit the risk of fluctuating interest rates. Though a change in the market interest rates affects the fair market value of our fixed interest rate debt, it does not impact net income to shareholders or cash flows. Our total outstanding fixed interest rate debt had an average effective interest rate as of June 30, 2017 of approximately 3.82% per annum with scheduled maturities ranging from 2017 to 2027 (see Note 7 (Debt) to the accompanying consolidated financial statements for further detail). Holding other variables constant, a 1% increase or decrease in interest rates would cause a $18.5 million decline or increase, respectively, in the fair value for our fixed rate debt.

Variable Interest Rate Debt

As of June 30, 2017 , $227.2 million , or approximately 34% of our outstanding debt, was subject to floating interest rates of LIBOR plus 1.40% to 1.95% and not currently subject to a hedge. The impact of a 1% increase or decrease in interest rates on our non-hedged variable rate debt would result in a decrease or increase of annual net income of approximately $2.3 million , respectively.

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Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

The management of Whitestone REIT, under the supervision and with the participation of our principal executive and financial officers, has evaluated the effectiveness of our disclosure controls and procedures in ensuring that the information required to be disclosed in our filings under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, including ensuring that such information is accumulated and communicated to Whitestone REIT's management, as appropriate, to allow timely decisions regarding required disclosure. Based on such evaluation, our principal executive and financial officers have concluded that such disclosure controls and procedures were effective as of June 30, 2017 (the end of the period covered by this Report).

Changes in Internal Control Over Financial Reporting

During the three months ended June 30, 2017 , there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

We are subject to various legal proceedings and claims that arise in the ordinary course of business. These matters are generally covered by insurance. While the resolution of these matters cannot be predicted with certainty, management believes the final outcome of such matters will not have a material adverse effect on our financial position, results of operations or liquidity.

Item 1A. Risk Factors.

There have been no material changes from the risk factors disclosed in the “Risk Factors” sections of Whitestone’s Annual Report on Form 10-K for the year ended December 31, 2016 and Quarterly Report on Form 10-Q for the period ended March 31, 2017.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.


(a)	During the period covered by this Form 10-Q, we did not sell any equity securities that were not registered under the Securities Act of 1933, as amended.


(b)	Not applicable.


(c)	Issuer Purchases of Equity Securities

During the three months ended June 30, 2017 , certain of our employees tendered owned common shares to satisfy the tax withholding on the lapse of certain restrictions on restricted common shares issued under the 2008 Plan. The following table summarizes all of these repurchases during the three months ended June 30, 2017 .



Period	Total Number of Shares Purchased ⁽¹⁾	Average Price Paid for Shares		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares that May Yet be Purchased Under the Plans or Programs
April 1, 2017 through April 30, 2017	22,814	$	13.84	N/A	N/A
May 1, 2017 through May 31, 2017	—	—		N/A	N/A
June 1, 2017 through June 30, 2017	88,304	12.25		N/A	N/A
Total	111,118	$	12.58

⁽¹⁾ The number of shares purchased represents common shares held by employees who tendered owned common shares to satisfy the tax withholding on the lapse of certain restrictions on restricted common shares issued under the 2008 Plan. With respect to these shares, the price paid per share is based on the fair market value at the time of tender.

Item 3. Defaults Upon Senior Securities.

None.

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Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

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Item 6. Exhibits.

The exhibits listed on the accompanying Exhibit index are filed, furnished and incorporated by reference (as stated therein) as part of this Report.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



		WHITESTONE REIT
Date:	August 4, 2017	/s/ James C. Mastandrea
		James C. Mastandrea
		Chief Executive Officer
		(Principal Executive Officer)



Date:	August 4, 2017	/s/ David K. Holeman
		David K. Holeman
		Chief Financial Officer
		(Principal Financial and Principal Accounting Officer)

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EXHIBIT INDEX



Exhibit No.	Description



3.1.1	Articles of Amendment and Restatement of Declaration of Trust (previously filed as and incorporated by reference to Exhibit 3.1 to the Registrant's Current Report on Form 8-K, filed on July 31, 2008)



3.1.2	Articles Supplementary (previously filed as and incorporated by reference to Exhibit 3(i).1 to the Registrant's Current Report on Form 8-K, filed on December 6, 2006)



3.1.3	Articles of Amendment (previously filed as and incorporated by reference to Exhibit 3.1 to the Registrant's Current Report on Form 8-K, filed on August 24, 2010)



3.1.4	Articles of Amendment (previously filed as and incorporated by reference to Exhibit 3.2 to the Registrant's Current Report on Form 8-K, filed on August 24, 2010)



3.1.5	Articles Supplementary (previously filed as and incorporated by reference to Exhibit 3.3 to the Registrant's Current Report on Form 8-K, filed on August 24, 2010)



3.1.6	Articles of Amendment (previously filed as and incorporated by reference to Exhibit 3.1.1 to the Registrant's Current Report on Form 8-K, filed on June 27, 2012)



3.1.7	Articles of Amendment (previously filed as and incorporated by reference to Exhibit 3.1.2 to Registrant's Current Report on Form 8-K, filed on June 27, 2012)



3.2	Amended and Restated Bylaws (previously filed as and incorporated by reference to Exhibit 3.1 to the Registrant's Current Report on Form 8-K, filed on October 9, 2008)



10.1*	Agreement of Purchase and Sale, dated as of March 21, 2017, between Whitestone REIT Operating Partnership, L.P. and Phase II Boulevard Place, LP



10.2*	First Amendment to Agreement of Purchase and Sale, dated as of April 17, 2017, between Whitestone REIT Operating Partnership, L.P. and Phase II Boulevard Place, LP



10.3*	Second Amendment to Agreement of Purchase and Sale, dated as of May 19, 2017, between Whitestone REIT Operating Partnership, L.P. and Phase II Boulevard Place, LP



10.4	2018 Long-Term Equity Incentive Ownership Plan (previously filed as and incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K, filed on May 12, 2017)



12.1*	Statement of Calculation of Consolidated Ratio of Earnings to Fixed Charges.



31.1*	Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002



31.2*	Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002



32.1**	Certificate of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002



32.2**	Certificate of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002



101.INS***	XBRL Instance Document

101.SCH***	XBRL Taxonomy Extension Schema Document

101.CAL***	XBRL Taxonomy Extension Calculation Linkbase Document

101.LAB***	XBRL Taxonomy Extension Label Linkbase Document

101.PRE***	XBRL Taxonomy Extension Presentation Linkbase Document

101.DEF***	XBRL Taxonomy Extension Definition Linkbase Document

________________________

* Filed herewith.

** Furnished herewith.

*** The following financial information of the Registrant for the quarter ended June 30, 2017 , formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets as of June 30, 2017 (unaudited) and December 31, 2016 , (ii) the Consolidated Statements of Operations and Comprehensive Income (Loss) for the three and six months ended June 30, 2017 and 2016 (unaudited), (iii) the Consolidated Statements of Changes in Equity for the six months ended June 30, 2017 (unaudited), (iv) the Consolidated Statement of Cash Flows for the six months ended June 30, 2017 and 2016 (unaudited) and (v) the Notes to the Consolidated Financial Statements (unaudited).

Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

EXECUTION VERSION

AGREEMENT OF PURCHASE AND SALE

between

PHASE II BOULEVARD PLACE, LP, a Texas limited partnership,

as SELLER,

and

WHITESTONE REIT OPERATING PARTNERSHIP, L.P., a Delaware limited partnership (subsidiary of WHITESTONE REIT), as BUYER

Dated: as of March 21, 2017

1700 Post Oak Boulevard, Houston, Texas

TABLE OF CONTENTS

Page


ARTICLE I PURCHASE AND SALE OF PROPERTY	1


Section 1.1	Sale. 1


Section 1.2	Purchase Price; Default. 2


ARTICLE II CONDITIONS	4


Section 2.1	Buyer’s Conditions Precedent. 4


Section 2.2	Contingency Period. 5


Section 2.3	Buyer’s Right to Terminate. 5


Section 2.4	Conditions to Closing. 6


ARTICLE III Representations and warranties	7


Section 3.1	Representations and Warranties of Seller. 7


Section 3.2	No Liability for Exception Matters. 9


Section 3.3	Survival of Representations and Warranties of Seller. 10


Section 3.4	Seller’s Knowledge. 11


Section 3.5	Representations and Warranties of Buyer. 11


Section 3.6	No Reliance. 12


Section 3.7	Disclaimer; 13


Section 3.8	Release. 14


Section 3.9	Survival. 15


ARTICLE IV BUYER’S INSPECTIONS; TITLE AND SURVEY	15


Section 4.1	Buyer’s Independent Investigation. 15


Section 4.2	Permitted Exceptions. 20


Section 4.3	Evidence of Title. 22


ARTICLE V RISK OF LOSS AND INSURANCE PROCEEDS	22


Section 5.1	Minor Loss. 22


Section 5.2	Major Loss. 23


ARTICLE VI BROKERS AND EXPENSES	24


Section 6.1	Brokers. 24


Section 6.2	Expenses. 24


ARTICLE VII LEASES AND OTHER AGREEMENTS	24


Section 7.1	Buyer’s Approval of New Leases and Agreements Affecting the Property. 24


Section 7.2	Tenant Improvement Costs, Leasing Commissions and Concessions. 25


Section 7.3	Tenant Notices. 26


Section 7.4	Maintenance of Improvements and Operation of Property; Removal of Tangible Personal Property. 26

TABLE OF CONTENTS

(continued)

Page


Section 7.5	Service Contracts. 26


Section 7.6	Post Closing Cooperation. 27


Section 7.7	SEC S-X 3-14 Audit. 27


ARTICLE VIII CLOSING AND ESCROW	28


Section 8.1	Escrow Instructions. 28


Section 8.2	Closing. 28


Section 8.3	Deposit of Documents. 28


Section 8.4	Estoppel Certificates. 31


Section 8.5	Prorations. 33


ARTICLE IX MISCELLANEOUS	37


Section 9.1	Notices. 37


Section 9.2	Entire Agreement. 38


Section 9.3	Intentionally Omitted. 38


Section 9.4	Time; Business Days. 38


Section 9.5	Attorneys’ Fees. 38


Section 9.6	Assignment. 39


Section 9.7	Counterparts. 39


Section 9.8	Governing Law. 39


Section 9.9	Confidentiality and Return of Documents. 39


Section 9.10	Interpretation of Agreement. 41


Section 9.11	Limited Liability. 41


Section 9.12	Amendments. 41


Section 9.13	No Recording. 41


Section 9.14	Drafts Not an Offer to Enter into a Legally Binding

Contract. 42


Section 9.15	Intentionally Omitted. 42


Section 9.16	No Partnership. 42


Section 9.17	No Third Party Beneficiary. 42


Section 9.18	Waiver of Jury Trial. 42


Section 9.19	Limitation on Liability. 42


Section 9.20	Survival. 43


Section 9.21	Survival of Article IX. 44


Section 9.22	Utility Service Notice. 44


Section 9.23	Severability. 44

INDEX OF DEFINED TERMS


Additional Deposit	3


Assignment of Leases	28


Assignment of Service Contracts	28


Bailard Fund	42


Breach Notice	10


Broker	23


Buyer Group	14


Buyer’s Notice	20


CAP Amount	42


Closing	27


Closing Date	28


Closing Payment	3


Contingency Period	5


Deed	21


Deed Restrictions Notice	28


Delivery Period	4


Deposit	3


Disclosure Items	6


Discovery Date	10


Due Diligence Inspections	15


Embargoed Person	9


Environmental Laws	19


Escrow Conditions	27


Estoppel Threshold	31


Exception Instruments	19


Exception Matter	9


Floor Amount	42


Governmental Authority	17


Hazardous Materials	19


Improvements	1


Indemnified Party	23


Independent Consideration	2


Initial Deposit	2


Intangible Personal Property	2


Joinder	42


Land	1


Leases	4


Liens	20


Limitation Period	10


List	8


Local Property Manager	1

iii

TABLE OF CONTENTS

(continued)

Page


Major Tenants	31


OFAC	8


Other Documents	42


Owner’s Affidavit	28


Permitted Exceptions	21


person	40


Phase IIB Land	2


Protected Information	15


Purchase Price	2


Real Property	1


Rent Roll	7


Reporting Person	30


Rule 3-14	27


SEC	27


SEC Filing Information	27


Seller Group	17


Seller’s Response	20


Seller’s Response Period	20


Service Contracts	4


SP Notice	3


Survey	19


Tangible Personal Property	1


Title Company	2


Title Policy	21


Title Report	19


Title Report Update	20


Title Review Date	20


Title Update Review Period	20


U.S. Publicly-Traded Entity	9

-iv-

28892061v.6

38044743v.2

AGREEMENT OF PURCHASE AND SALE

This Agreement of Purchase and Sale (this “ Agreement ”), dated as of March 21, 2017 (the “ Effective Date ”), is between PHASE II BOULEVARD PLACE, L.P. , a Texas limited partnership (“ Seller ”), and WHITESTONE REIT OPERATING PARTNERSHIP, L.P., a Delaware limited partnership (“ Buyer ”).

ARTICLE I

PURCHASE AND SALE OF PROPERTY

Section 1.1 Sale.

Seller agrees to sell to Buyer, and Buyer agrees to purchase from Seller, subject to the terms, covenants and conditions set forth herein, all of Seller’s right, title and interest in and to the following property (collectively, the “ Property ”):

(a) Real Property . That certain real property commonly known as “1 and 2 BLVD Place” and located at 1700 Post Oak Boulevard, Houston, Texas, together with the Frost Bank Motor Bank, located at 1718 Sky Lark Lane, Houston, Texas, all as more particularly described as Tracts 1, and 3 more particularly described in Exhibit A attached hereto and made a part hereof (the “ Land ”), together with (1) all improvements located thereon (the “ Improvements ”), (2) all of Seller’s right, title and interest, if any, in and to the rights, benefits, privileges, easements (including the easement rights described as Tract 2 on Exhibit A , tenements, hereditaments, rights-of-way and other appurtenances thereon or in any way appertaining thereto, including all mineral rights, development rights, air and water rights, and (3) all strips and gores and any land lying in the bed of any street, road or alley, open or proposed, adjoining such Land (collectively, the “ Real Property ”);

(b) Leases . All of the landlord’s interest in and to all of the Leases (as defined in Section 2.1(b) below) of the Real Property, including Leases entered into after the date of this Agreement as permitted by this Agreement, and all related files, correspondence and other documents in the possession of Seller or Wulfe & Co. (the “ Local Property Manager ”);

(c) Tangible Personal Property . All of the tools, equipment, machinery, furniture, furnishings, supplies, brochures, models, marketing and leasing materials, other collateral items, and other tangible personal property of any kind, if any, owned by Seller and now or hereafter located on and used exclusively or primarily in the operation, ownership, maintenance, marketing or publicization of the Real Property (collectively, the “ Tangible Personal Property ”), but specifically excluding from the Tangible Personal Property (1) any items of personal property owned by tenants of the Property and (2) proprietary computer software, systems and equipment and related licenses used in connection with the operation or management of the Property; and

(d) Intangible Personal Property . To the extent transferrable and assignable at no cost to Seller and without representation or warranty of any kind, express or implied, all good will and intangible personal property, if any, owned by Seller and related to the Real Property and

the Improvements, including, without limitation: any rights (exclusive or non-exclusive) of Seller to use the name BLVD Place, BLVD Place Phase II or 2, and all other trademarks, service marks, and logos, if any, used solely and exclusively in connection with the Real Estate (it being understood that Seller makes no representations or warranty with respect to Buyer's right to use any such names, marks and logos); any plans and specifications and other architectural and engineering drawings (including, without limitation, "as built" drawings) for the Improvements and any other plans and specifications, renderings, studies, reports, entitlements, utility capacities, or engineering drawings in contemplation of possible future development with the Real Property; surveys, environmental reports, traffic studies, geotechnical reports and any and other studies and reports, guaranties and warranties in Seller’s possession relating to the Real Property; any Service Contracts (as defined in Section 2.1(b) below that Buyer is required or elects to assume under the terms of this Agreement) and other contract rights related to the Property; development and approval rights and all other rights presently held by Seller (or any affiliate of Seller excluding 6 Blvd Place, LP, which shall be deemed not to be an affiliate of Seller for all purposes hereunder) under all instruments affecting the Property, including under the Property Declarations (as defined in Section 8.3(e) below); all governmental permits, approvals and licenses; and any websites, domain names and addresses, web pages and web content, and social media sites, used exclusively or primarily with respect to the Property; (collectively, the “ Intangible Personal Property ”). For the avoidance of doubt, the Intangible Property shall include all of Seller’s rights, titles and interest in any plans, studies, specifications, entitlements, utility capacity and other rights in connection with or related to the development of the Phase IIB Land (as defined in Section 1.2(a) below).

Section 1.2 Purchase Price; Default.

(a) The purchase price of the Property is One Hundred Fifty Eight Million and 00/100 Dollars ($158,000,000.00) (the “ Purchase Price ”). For purposes of this Agreement, the parties have agreed that $10,500,000.00 of the Purchase Price is allocated to the undeveloped portion of the Land (the “ Phase IIB Land ”) depicted as the Phase IIB Land on Exhibit A-1 attached hereto. Ten ($10.00) Dollars and no additional consideration is allocated to any portion of the personal property included in the definition of Property and the balance of the consideration is allocated to the Real Property.

(b) The Purchase Price shall be paid as follows:

(1) Within five (5) Business Days after the Effective Date, Buyer shall deposit in escrow with Charter Title Company, 811 Main, Suite 1575, Houston, Texas 77002; Attn: Garry Carr, telephone 713-331-3070; email: gcarr@chartertitle.com ), as agent for Commonwealth Land Title Insurance Company (the “ Title Company ”), cash or other immediately available funds in the amount of Nine Hundred Fifty Thousand Dollars ($950,000.00) (the “ Initial Deposit ”).

(2) One Hundred and No/100 Dollars ($100.00) shall be considered separate and independent consideration (the “ Independent Consideration ”)”) for granting Buyer the right and privilege to terminate this Agreement pursuant to Section 2.3 below. The Independent Consideration shall be paid to Seller in accordance with Section 2.3, provided that in the event the transaction contemplated by this Agreement closes, such amount shall be applied to the Purchase Price.

(3) If Buyer fails to deliver a notice of termination pursuant to Section 2.3 below on or prior to the expiration of the Contingency Period, then within one (1) business day of the expiration of the Contingency Period, Buyer shall deposit in escrow with the Title Company cash or other immediately available funds in the amount of Three Million Dollars ($3,000,000.00) (the “ Additional Deposit ;” the Initial Deposit together with the Additional Deposit, are referred to herein collectively as the “ Deposit ”). Failure to deliver the Additional Deposit after delivering a Notice to Proceed shall constitute a default by Buyer hereunder. At Closing, the Deposit shall be transferred to the Company; provided, however, that if Closing does not occur, then the Deposit shall be paid to Seller or Buyer as provided in this Agreement.

(4) At Closing, Buyer shall deliver to Seller by wire transfer of other immediately available funds an amount equal to the remainder of the Purchase Price (the “ Closing Payment ”), as adjusted in accordance with the terms hereof.

(1) If the sale of the Property is not consummated due to Seller’s default hereunder, and Buyer is not in default hereunder, then Buyer may elect, as Buyer’s sole and exclusive remedy, either to: (A) terminate this Agreement and receive a refund of the Deposit, in which event neither party shall have any further rights or obligations hereunder except for those obligations that expressly survive termination of this Agreement, or (B) enforce specific performance of this Agreement; provided, however, that Buyer must give Seller written notice (the “ SP Notice ”) of Buyer’s election to enforce specific performance within thirty (30) days after scheduled Closing Date or Buyer shall be deemed to have elected option (A). Any such action for specific performance must be brought within 90 days after the scheduled Closing Date, provided that an SP Notice has been timely given in accordance with the immediately preceding sentence. Buyer shall not have any other rights or remedies hereunder as a result of any default by Seller in failing to consummate Closing due to Seller’s default, and Buyer hereby waives any other such remedy as a result of a default hereunder by Seller. IN THE EVENT SELLER FAILS TO CONSUMMATE CLOSING DUE TO SELLER’S DEFAULT THEN EXCEPT AS EXPRESSLY PROVIDED ABOVE, BUYER HEREBY WAIVES ANY RIGHT TO PURSUE A CLAIM FOR DAMAGES (INCLUDING, WITHOUT LIMITATION, ACTUAL, SPECIAL, CONSEQUENTIAL, INCIDENTAL, PUNITIVE, AND EXEMPLARY DAMAGES), AND ALL OTHER REMEDIES AVAILABLE, AT LAW AND IN EQUITY, IN CONNECTION WITH THIS AGREEMENT AND THE TRANSACTION CONTEMPLATED HEREBY. Notwithstanding the foregoing, in the event Buyer elects option (A) above and Seller’s breach of this Agreement was willful and intentional, then Seller shall reimburse Buyer for an amount equal to its reasonable and actual, third-party out-of-pocket expenses and costs incurred in connection with this Agreement, including, but not limited to, the costs of conducting its due diligence investigation of the Property, not to exceed an aggregate amount of $150,000.00. The foregoing is not intended to limit Seller’s obligations that expressly survive termination as provided herein.

(d) IF THE SALE IS NOT CONSUMMATED DUE TO ANY DEFAULT BY BUYER HEREUNDER, THEN THE DEPOSIT SHALL BE PAID TO SELLER AS LIQUIDATED DAMAGES AND AS SELLER’S SOLE AND EXCLUSIVE REMEDY. THE

PARTIES HAVE AGREED THAT SELLER’S ACTUAL DAMAGES, IN THE EVENT OF A FAILURE TO CONSUMMATE THIS SALE DUE TO BUYER’S DEFAULT PRIOR TO CLOSING, WOULD BE EXTREMELY DIFFICULT OR IMPRACTICABLE TO DETERMINE. AFTER NEGOTIATION, THE PARTIES HAVE AGREED THAT, CONSIDERING ALL THE CIRCUMSTANCES EXISTING ON THE DATE OF THIS AGREEMENT, THE AMOUNT OF THE DEPOSIT IS A REASONABLE ESTIMATE OF THE DAMAGES THAT SELLER WOULD INCUR IN SUCH EVENT. EACH PARTY SPECIFICALLY CONFIRMS THE ACCURACY OF THE STATEMENTS MADE ABOVE AND THE FACT THAT EACH PARTY WAS REPRESENTED BY COUNSEL WHO EXPLAINED, AT THE TIME THIS AGREEMENT WAS MADE, THE CONSEQUENCES OF THIS LIQUIDATED DAMAGES PROVISION. THE FOREGOING IS NOT INTENDED TO LIMIT BUYER’S OBLIGATIONS THAT EXPRESSLY SURVIVE TERMINATION AS PROVIDED HEREIN.

ARTICLE II

CONDITIONS

Section 2.1 Buyer’s Conditions Precedent.

Subject to the provisions of Section 4.1 hereof, Seller has provided and shall continue to provide Buyer and its consultants and other agents and representatives with access to the Property to perform Buyer’s inspections and review and determine the present condition of the Property, at all times prior to Closing or termination of this Agreement. Seller has delivered or made available to Buyer, or shall within the Delivery Period (as defined below) deliver or make available to Buyer, copies of all Due Diligence Materials (as defined in Section 2.1(b) below) in Seller’s or Seller’s Local Property Manager’s possession, except as otherwise specifically provided herein. Notwithstanding anything to the contrary contained herein, the Due Diligence Materials shall expressly exclude “Protected Information” as defined in Section 4.1. The “ Delivery Period ” shall mean the period which ends two (2) business days following the Effective Date. Buyer’s obligation to purchase the Property is conditioned upon Buyer’s review and approval of the following, within the Contingency Period:

(a) Title to the Property and survey matters in accordance with Article IV below.

(b) The materials required to be provided or made available to Buyer pursuant to this Section 2.1 or the other provisions of this Agreement (collectively, the “ Due Diligence Materials ”) including, but not limited to, tenant leases, any guaranties thereof and any other occupancy agreements, and all amendments and modifications thereof (collectively, the “ Leases ”) affecting the Property, all notice letters and correspondence to or from actual and prospective tenants, all tenant prospect lists, letters of intent, term sheets and other documents relating to prospective or potential deals with current or potential future tenants, and all contracts pertaining to the operation of the Property, including all management, leasing, service and maintenance agreements, and equipment leases (collectively, the “ Service Contracts ”) and all other items of due diligence information to be provided to Buyer by Seller, to the extent in Seller’s or Seller’s Local Property Manager’s possession, listed under clause (e) below.

(d) The zoning, land use, building, environmental and other statutes, rules, or regulations applicable to the Property.

(e) The tenant correspondence files, operating statements and books and records pertaining to the operation of the Property in each case for each of the three (3) most recent years during which the Property has been owned by Seller and for the current year (to the extent available), real estate tax bills for the current, and three prior, years, real estate tax files and related documentation of Seller pertaining to real estate taxes on the Property for the current or prior years, any warranties, licenses, permits, certificates of occupancy, plans and specifications, and any current rent roll, current accounts receivable schedule and list of Tangible Personal Property in such form as Seller shall have in its possession for the Property, and other agreements or documents pertaining to the Property which will be binding on Buyer after Closing. If requested by Buyer, Seller shall request that its tax consultants, make available to Buyer information in their possession related to the Property.

(f) Any other matters Buyer deems relevant to the Property.

Section 2.2 Contingency Period.

Buyer shall have until 5:00 p.m. Central time, on the date that is thirty (30) days following the Effective Date (the “ Contingency Period ”) to review and approve the matters described in Sections 2.1(b)-(f) above in Buyer’s sole discretion (title and survey review and approval shall be governed by the provisions of Section 4.2 below).

Section 2.3 Buyer’s Right to Terminate.

Buyer shall have the right, in its sole and absolute discretion and for any reason or no reason, to terminate this Agreement by giving written notice to Seller prior to the expiration of the Contingency Period. If Buyer delivers to Seller notice of termination of this Agreement before the end of the Contingency Period, then the Deposit (other than the Independent Consideration ) shall be returned to Buyer, the Independent Consideration shall be paid to Seller and neither party shall have any further rights or obligations hereunder except as otherwise provided herein. If Buyer fails to deliver such notice of termination of this Agreement prior to the expiration of the Contingency Period, then Buyer shall be deemed to have approved all of the matters described in Sections 2.1(a)-(f) above (subject to the provisions of Section 4.2 below as to title and survey matters and the express representations and warranties provided for in this Agreement), including, without limitation, all Due Diligence Materials, and the Deposit shall become nonrefundable except as expressly provided herein. The provisions of this Section shall survive the termination of this Agreement.

Section 2.4 Conditions to Closing.

(a) The obligation of Buyer hereunder to purchase the Property from Seller is subject to the satisfaction, at or prior to the Closing, of each of the following conditions (any of

which may be waived in whole or in part by Buyer at or prior to the Closing): (a) Seller shall have performed, observed and complied in all material respects with all of the covenants, agreements and conditions required by this Agreement to be performed, observed and complied with by it prior to or as of the Closing; (b) all representations and warranties of Seller in this Agreement shall be true and correct in all material respects as of the Closing Date except as otherwise expressly provided for in this Agreement; and (c) the Title Company shall have committed at Closing to issue the final Title Policy (as defined below) without any Schedule B exceptions to any matters other than Permitted Exceptions and the standard pre-printed exceptions required to be included therein.

(b) In the event any of the above conditions are not satisfied as of the Closing Date, Buyer shall have the right (but without limiting Buyer’s rights under Section 1.2(c) above to the extent applicable) to either waive any such condition in writing and proceed to Closing or elect to terminate this Agreement, in which event the Deposit (less the Independent Consideration) shall be returned to Buyer and this Agreement shall be null and void and of no further force or effect except with respect to those matters that expressly survive termination hereof. If Buyer completes the Closing, then any conditions set forth herein shall be deemed to have been fully satisfied or waived as a condition to Closing.

(c) The obligation of Seller hereunder to sell the Property to Buyer is subject to the satisfaction, at or prior to the Closing, of each of the following conditions (any of which may be waived in whole or in part by Seller at or prior to the Closing): (a) Buyer shall have performed, observed and complied in all material respects with all of the covenants, agreements and conditions required by this Agreement to be performed, observed and complied with by it prior to or as of the Closing and, (b) all representations and warranties of Buyer in this Agreement shall be true and correct in all material respects as of the Closing Date except as otherwise expressly provided for in this Agreement. In the event any of the above conditions are not satisfied as of the Closing Date, Seller shall have the right to either waive any such condition in writing and proceed to Closing or elect to terminate this Agreement, in which event the Deposit shall be paid to Seller and this Agreement shall be null and void and of no further force or effect except with respect to those matters that expressly survive termination hereof. If Seller completes the Closing, then any conditions set forth herein shall be deemed to have been fully satisfied or waived.

ARTICLE III

REPRESENTATIONS AND WARRANTIES

Section 3.1 Representations and Warranties of Seller.

Subject to the disclosures contained in Schedule 3.1 attached hereto and made a part hereof (the “ Disclosure Items ”) and to all matters disclosed in the Due Diligence Materials actually delivered to Buyer on or prior to the Effective Date (or posted on the due diligence website to which Buyer has been provided access prior to the Effective Date and which was posted on such website as of the Effective Date), Seller hereby makes the following representations and warranties with respect to the Property as of the date hereof and, except (x) as otherwise disclosed in writing in Seller’s Certificate delivered at Closing, such representations and warranties shall be deemed remade effective as of the Closing Date as provided in the Seller’s Certificate and (y) that references to the

Rent Roll, Receivables Report and schedule of Service Contracts in such updated certificate shall be to the Seller’s then current Rent Roll, Receivables Report and schedule of Service Contracts to be attached to such Seller’s Certificate. Notwithstanding anything to the contrary contained herein or in any document delivered in connection herewith, Seller shall have no liability with respect to the Disclosure Items except to the extent the existence of any additional Disclosure Items not listed on Schedule 3.1 on the Effective Date and arising following the Effective Date constitutes a material breach of Seller’s covenants set forth in this Agreement.

(a) Seller is a limited partnership validly existing, and in good standing in the State of Texas.

(b) (i) This Agreement has been, and all documents executed by Seller which are to be delivered to Buyer at Closing will be, duly authorized, executed and delivered by Seller, and (ii) this Agreement does not and such other documents will not violate any provision of any agreement or judicial order to which Seller is a party or to which Seller or the Property is subject.

(c) Seller has the power and authority to enter into this Agreement and all documents executed by Seller which are to be delivered to Buyer at Closing and to perform its obligations hereunder and thereunder.

(d) Seller has not (i) made a general assignment for the benefit of creditors, (ii) filed any voluntary petition in bankruptcy or suffered the filing of any involuntary petition by Seller’s creditors, (iii) suffered the appointment of a receiver to take possession of all, or substantially all, of Seller’s assets, (iv) suffered the attachment or other judicial seizure of all, or substantially all, of Seller’s assets, (v) admitted in writing its inability to pay its debts as they come due, or (vi) made an offer of settlement, extension or composition to its creditors generally.

(e) Seller is not a “foreign person” as defined in Section 1445 of the Internal Revenue Code of 1986, as amended (the “ Code ”) and any related regulations.

(f) Exhibit B includes a complete list of all Leases, including all lease amendments, and lease guarantees. Seller has not entered into (and, to Seller’s knowledge, Seller is not aware of) any leases, tenancies, licenses, or other rights of occupancy or use for any portion of the Property currently in effect other than (i) the tenants listed on Exhibit B ; (ii) the easement, parking and other rights and matters affecting the Property recorded in the Real Property Records of Harris County, Texas, (iii) rights pursuant to Service Contracts listed on Exhibit B-3 ; and (iv) as otherwise provided herein. None of the rents or other amounts now or hereafter payable to Seller under the Leases have been assigned, pledged or encumbered except pursuant to assignments that will be released at Closing. The Due Diligence Materials contain true, correct and complete copies of all Leases, together with all amendments and guarantees thereto.

(g) The Rent Roll attached hereto as Exhibit B-1 (“ Rent Roll ”), which includes the amount of security deposit, if any, posted by each tenant, and the aged-receivables report (“ Receivables Report ”) attached hereto as Exhibit B-2 , respectively, are the Rent Roll and Receivables Report as used and maintained by Seller in connection with the ordinary course of operation of the Property.

(h) Seller has received no written notice of a default by Seller under the Leases which has not been cured.

(i) The only Service Contracts (other than agreements recorded of record and included in the Permitted Exceptions) in effect for the Property are set forth in Exhibit B-4 . Seller has provided, or will provide on or prior to the end of the Delivery Period, true, correct and complete copies of all Service Contracts except for the management and leasing agreements to be terminated at or prior to Closing.

(j) There is no litigation or governmental proceeding (including, but not limited to any condemnation proceeding) pending or, to the best of Seller’s knowledge, threatened with respect to the Property, or with respect to Seller which impairs Seller’s ability to perform its obligations under this Agreement, except for a dispute related to the 2016 assessment of the Property and any personal injury or property damage action for which there is adequate insurance coverage and which is not in rem in nature and is listed on the insurance loss report delivered as part of the Due Diligence Materials. Seller has disclosed to Buyer that a portion of the Land, totaling approximately 0.0388 acres (1,690 square feet) of land, was conveyed by Seller to the City of Houston pursuant to Deed dated May 25, 2016, recorded in the Real Property Records of Harris County, Texas under Clerk’s File No. 2016223965 in lieu of condemnation and such 0.0388 acres is no longer part of the Land to be conveyed hereunder.

(k) Seller has received no written notice from any governmental authority of any violation of any law applicable to the Property (including, without limitation, any Environmental Law as defined in Section 4.1(m)(2) below) that has not been corrected.

(l) To the best of Seller’s knowledge, there are no underground storage tanks located on or under the Property.

(m) Seller has received no written notice that there is any proceeding pending or threatened for the reduction of the assessed valuation of any portion of the Property or that any special assessment is pending or threatened in respect to the Property, whether or not a lien thereon.

(n) To the best of Seller’s knowledge, (A) Seller and each person or entity owning any direct interest in Seller is (x) not currently identified on the Specially Designated Nationals and Blocked Persons List maintained by the Office of Foreign Assets Control, Department of the Treasury (“ OFAC ”)”) and/or on any other similar list maintained by OFAC pursuant to any authorizing statute, executive order or regulation (collectively, the “ List ”), and (y) not a person or entity with whom a citizen of the United States is prohibited to engage in transactions by any trade embargo, economic sanction, or other prohibition of United States law, regulation, or Executive Order of the President of the United States, (B) none of the funds or other assets of Seller constitute property of, or are beneficially owned, directly or indirectly, by any Embargoed Person (as hereinafter defined), (C) no Embargoed Person has any interest of any nature whatsoever in Seller (whether directly or indirectly), and (D) Seller has implemented procedures, and will consistently apply those procedures, to ensure the foregoing representations and warranties remain true and correct at all times.

The term “ Embargoed Person ” means any person, entity or government subject to trade restrictions under U.S. law, including but not limited to, the International Emergency Economic Powers Act, 50 U.S.C. §1701 et seq., The Trading with the Enemy Act, 50 U.S.C. App. 1 et seq., and any Executive Orders or regulations promulgated thereunder with the result that the investment in Seller is prohibited by law or Seller is in violation of law.

Seller also shall require, and shall take reasonable measures to ensure compliance with the requirement, that no person who owns any other direct interest in Seller is or shall be listed on any of the Lists or is or shall be an Embargoed Person. This Section shall not apply to any person to the extent that such person’s interest in the Seller is through a U.S. Publicly-Traded Entity. As used in this Agreement, “ U.S. Publicly-Traded Entity ” means a Person (other than an individual) whose securities are listed on a national securities exchange, or quoted on an automated quotation system, in the United States, or a wholly-owned subsidiary of such a person.

(o) Except as shown on Schedule 3.1, there are no unpaid leasing commissions, tenant improvement allowances and other Lease costs contemplated by Section 7.2 which are due or which may become due, in respect of Leases and renewals, extension or other modifications thereof, which were executed on or before the Effective Date, except as shown on Schedule 3.1.

Section 3.2 No Liability for Exception Matters.

As used herein, the term “ Exception Matter ” shall refer to a matter which would make a representation or warranty of Seller contained in this Agreement untrue or incorrect and which is disclosed in the Due Diligence Materials delivered to Buyer (or posted on the due diligence website to which Buyer has been provided access) or otherwise discovered by Buyer before the Closing, including, without limitation, matters disclosed in any reports or other materials obtained by Buyer in connection with its due diligence, including, but not limited to, matters disclosed in any tenant estoppel certificate or from interviews with tenants, property managers or any other person. For the avoidance of doubt, for purposes of this Agreement and the documents to be executed at Closing, Buyer shall be deemed to have knowledge of all matters contained in the Due Diligence Materials actually delivered to Buyer (or posted on the due diligence website to which Buyer has been provided access). If Buyer first obtains knowledge of any Exception Matter after the close of the Contingency Period and prior to Closing, Buyer’s sole remedy shall be to terminate this Agreement on the basis thereof, upon written notice to Seller within ten (10) days following Buyer’s discovery of such Exception Matter or the Closing, whichever occurs first, in which event the Deposit shall be returned to Buyer, unless within five (5) days after receipt of such notice or the Closing, whichever occurs first, as the case may be, Seller notifies Buyer in writing that it elects to cure or remedy such Exception Matter. Seller shall be entitled to extend the Closing Date (as defined in Section 8.2 below) for up to fifteen (15) business days in order to cure or remedy any Exception Matter. Buyer’s failure to give notice within ten (10) days after it has obtained knowledge of an Exception Matter or the Closing, whichever occurs first, described in the immediately preceding sentence shall be deemed a waiver by Buyer of such Exception Matter. Seller shall have no obligation to cure or remedy any Exception Matter, even if Seller has notified Buyer of Seller’s election to cure or remedy any Exception Matter (except as specifically provided in Section 4.2(c) hereof), and, subject to Buyer’s right to terminate this Agreement as set forth above, Seller shall have no liability whatsoever

to Buyer with respect to any Exception Matters. Upon any termination of this Agreement, neither party shall have any further rights nor obligations hereunder, except for those matters that expressly survive termination hereunder. If Buyer obtains knowledge of any Exception Matter before the Closing, but nonetheless elects to proceed with the acquisition of the Property, Seller shall have no liability with respect to such Exception Matter, notwithstanding any contrary provision, covenant, representation or warranty contained in this Agreement or in any Other Documents (as defined in Section 9.19 below). Notwithstanding anything herein to the contrary, Seller makes no representation, warranty or covenant that any tenant shall be or remain solvent and/or in occupancy following the Effective Date or that any of the Leases shall remain in effect following the Effective Date. The default or termination of any such Leases shall not constitute a default by Seller or give Buyer the right to terminate this Agreement except as provided in Section 2.3 above. During the Contingency Period, Buyer shall make such investigations as it may deem appropriate with respect to the creditworthiness of tenants, subject to the terms of this Agreement.

Section 3.3 Survival of Representations and Warranties of Seller.

The representations and warranties of Seller contained herein, in any Seller estoppel delivered pursuant to ‎Section 8.4 below or in any Other Documents shall survive for a period of twelve (12) months after the Closing (the “ Limitation Period ”). If the Buyer first discovers a breach or misrepresentation of any of Seller’s representations or warranties set forth in this Agreement on a date (the “ Discovery Date ”) subsequent to the Closing Date, but prior to the end of the Limitation Period, Buyer must give Seller written notice (the “ Breach Notice ”) of the breach and the Discovery Date within ninety (90) days after the Discovery Date in order for such breach to form the basis of an action by Buyer against Seller. Any such action must be brought within two (2) years and one (1) day after the Discovery Date, provided that a Breach Notice has been timely given in accordance with the immediately preceding sentence. The acceptance of the Deed (as hereinafter defined) by Buyer at Closing shall from and after the Limitation Period be deemed to be a full performance and discharge of every representation, warranty and covenant made by Seller in this subsection and every agreement and obligation on the part of Seller to be performed in this Agreement except as to claims timely asserted in a Breach Notice and where a suit is filed against Seller not later two (2) years and one (1) day after the Discovery Date. The provisions of this Section 3.3 shall be inapplicable to (i) the special warranty of title set forth in the Deed, which shall survive indefinitely, and (ii) claims and actions thereunder

Section 3.4 Seller’s Knowledge.

For purposes of this Agreement and any document delivered at Closing, whenever the phrase “ to the best of Seller’s knowledge ” or the “ knowledge ” of Seller or words of similar import are used, they shall be deemed to mean and are limited to the current actual knowledge only of Bob Sellingsloh and Preston R. Sargent, at the times indicated only, and not any implied, imputed or constructive knowledge of such individual(s) or of Seller or any other Seller Related Parties (as defined in Section 3.8 below), and without any independent investigation or inquiry having been made or any implied duty to investigate, make any inquiries or review the Due Diligence Materials. Furthermore, it is understood and agreed that such individual(s) shall have no personal liability in any manner whatsoever hereunder or otherwise related to the transactions contemplated hereby.

Section 3.5 Representations and Warranties of Buyer.

Buyer represents and warrants to Seller as follows:

(a) Buyer represents and warrants to Seller that this Agreement and all documents executed by Buyer which are to be delivered to Seller at Closing do not and at the time of Closing will not violate any provision of any agreement or judicial order to which Buyer is a party or to which Buyer is subject.

(b) Buyer represents and warrants to Seller that Buyer has not (i) made a general assignment for the benefit of creditors, (ii) filed any voluntary petition in bankruptcy or suffered the filing of any involuntary petition by Buyer’s creditors, (iii) suffered the appointment of a receiver to take possession of all, or substantially all, of Buyer’s assets, (iv) suffered the attachment or other judicial seizure of all, or substantially all, of Buyer’s assets, (v) admitted in writing its inability to pay its debts as they come due, or (vi) made an offer of settlement, extension or composition to its creditors generally.

(c) Buyer has been duly organized, is validly existing and is in good standing in the state in which it was formed, and at Closing, the Buyer (or permitted assignee of Buyer to take title to the Property) will be qualified to do business in the state in which the Real Property is located. This Agreement has been, and all documents executed by Buyer which are to be delivered to Seller at Closing will be, duly authorized, executed and delivered by Buyer.

(d) Buyer is purchasing the Property as investment rental property, and not intended for Buyer’s own operations or use (other than office space incidental to property management operations of Buyer).

(e) Buyer is not a party in interest with respect to any employee benefit or other plan within the meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended (“ ERISA ”), or of Section 4975(e)(1) of the Code, which is subject to ERISA or Section 4975 of the Code and which is an investor in Seller.

(f) Other than Seller’s Broker (as defined in Section 6.1 below) Buyer has had no contact with any broker or finder with respect to the Property.

(g) Buyer represents and warrants that (i) Buyer and its affiliates (A) are not currently identified on the List, and (B) are not persons or entities with whom a citizen of the United States is prohibited to engage in transactions by any trade embargo, economic sanction, or other prohibition of United States law, regulation, or Executive Order of the President of the United States, (ii) none of the funds or other assets of Buyer constitute property of, or are beneficially owned, directly or indirectly, by any Embargoed Person, and (iii) Buyer has implemented procedures, and will consistently apply those procedures, to ensure the foregoing representations and warranties remain true and correct at all times.

Buyer also shall require, and shall take reasonable measures to ensure compliance with the requirement, that no person who owns any other direct interest in Buyer is or shall be listed

on any of the Lists or is or shall be an Embargoed Person. This Section shall not apply to any person to the extent that such person’s interest in the Buyer is through a U.S. Publicly-Traded Entity.

Each of the representations and warranties of Buyer contained in this Section shall be deemed remade by Buyer as of the Closing and shall survive the Closing.

Section 3.6 No Reliance.

EXCEPT AS EXPRESSLY STATED HEREIN, SELLER MAKES NO, AND HEREBY DISCLAIMS ANY, REPRESENTATION OR WARRANTY AS TO THE TRUTH, ACCURACY OR COMPLETENESS OF ANY MATERIALS, DATA OR INFORMATION DELIVERED BY SELLER TO BUYER IN CONNECTION WITH THE TRANSACTION CONTEMPLATED HEREBY, INCLUDING BUT NOT LIMITED TO, THE DUE DILIGENCE MATERIALS. EXCEPT AS OTHERWISE EXPRESSLY REPRESENTED, WARRANTED OR PROVIDED FOR IN THIS AGREEMENT, Buyer acknowledges and agrees that all materials, data and information delivered by Seller to Buyer in connection with the transaction contemplated hereby are provided to Buyer as a convenience only and that any reliance on or use of such materials, data or information by Buyer shall be at the sole risk of Buyer, except as otherwise expressly stated herein. Without limiting the generality of the foregoing provisions, EXCEPT AS OTHERWISE EXPRESSLY REPRESENTED, WARRANTED OR PROVIDED FOR IN THIS AGREEMENT, Buyer acknowledges and agrees that (a) any environmental or other report with respect to the Property which is delivered by Seller to Buyer shall be for general informational purposes only, (b) Buyer shall not have any right to rely on any such report delivered by Seller to Buyer (except pursuant to any reliance letter obtained between Buyer and the applicable environmental consultant (in no event shall Seller have any liability thereunder)), but rather will rely on its own inspections and investigations of the Property and any reports commissioned by Buyer with respect thereto, (c) neither Seller, any affiliate of Seller nor the person or entity which prepared any such report delivered by Seller to Buyer shall have any liability to Buyer for any inaccuracy in or omission from any such report (except pursuant to any reliance letter obtained between Buyer and the applicable third party consultant (in no event shall Seller have any liability thereunder)); and (d) the failure to deliver any report as to the environmental or other condition of the Property, including any proposal for work at the Property which was not performed by Seller, shall not be actionable by Buyer under this Agreement or otherwise. Seller agrees, at no cost to Seller, to provide reasonable cooperation to Buyer upon request in regards to any efforts by Buyer to seek reliance letters as to any or all reports prepared for Seller and furnished or made available by Seller to Buyer under this Agreement.

Section 3.7 Disclaimer;

AS IS. EXCEPT AS EXPRESSLY SET FORTH IN SECTION 3.1 ABOVE AND ELSEWHERE IN THIS AGREEMENT, BUYER SPECIFICALLY ACKNOWLEDGES AND AGREES THAT SELLER IS SELLING AND BUYER IS PURCHASING THE PROPERTY ON AN “AS IS WITH ALL FAULTS” BASIS AND THAT BUYER IS NOT RELYING ON ANY REPRESENTATIONS OR WARRANTIES OF ANY KIND WHATSOEVER, EXPRESS OR IMPLIED, FROM SELLER, ANY SELLER RELATED

PARTIES, OR THEIR AGENTS OR BROKERS, OR ANY OTHER PERSON ACTING OR PURPORTING TO ACT ON BEHALF OF SELLER, AS TO ANY MATTERS CONCERNING THE PROPERTY, INCLUDING WITHOUT LIMITATION: (I) THE QUALITY, NATURE, ADEQUACY AND PHYSICAL CONDITION AND ASPECTS OF THE PROPERTY, INCLUDING, BUT NOT LIMITED TO, THE STRUCTURAL ELEMENTS, SEISMIC ASPECTS OF THE PROPERTY, FOUNDATION, ROOF, APPURTENANCES, ACCESS, LANDSCAPING, PARKING FACILITIES AND THE ELECTRICAL, MECHANICAL, HVAC, PLUMBING, SEWAGE, AND UTILITY SYSTEMS, FACILITIES AND APPLIANCES, THE SQUARE FOOTAGE WITHIN THE IMPROVEMENTS ON THE REAL PROPERTY AND WITHIN EACH TENANT SPACE THEREIN, (II) THE QUALITY, NATURE, ADEQUACY, AND PHYSICAL CONDITION OF SOILS, GEOLOGY AND ANY GROUNDWATER, (III) THE EXISTENCE, QUALITY, NATURE, ADEQUACY AND PHYSICAL CONDITION OF UTILITIES SERVING THE PROPERTY, (IV) THE DEVELOPMENT POTENTIAL OF THE PROPERTY, AND THE PROPERTY’S USE, HABITABILITY, MERCHANTABILITY, OR FITNESS, SUITABILITY, VALUE OR ADEQUACY OF THE PROPERTY FOR ANY PARTICULAR PURPOSE, (V) THE ZONING OR OTHER LEGAL STATUS OF THE PROPERTY OR ANY OTHER PUBLIC OR PRIVATE RESTRICTIONS ON USE OF THE PROPERTY, (VI) THE COMPLIANCE OF THE PROPERTY OR ITS OPERATION WITH ANY APPLICABLE CODES, LAWS, REGULATIONS, STATUTES, ORDINANCES, COVENANTS, CONDITIONS AND RESTRICTIONS OF ANY GOVERNMENTAL OR QUASI-GOVERNMENTAL ENTITY OR OF ANY OTHER PERSON OR ENTITY, (VII) THE PRESENCE OF HAZARDOUS MATERIALS ON, UNDER OR ABOUT THE PROPERTY OR THE ADJOINING OR NEIGHBORING PROPERTY, (VIII) THE QUALITY OF ANY LABOR AND MATERIALS USED IN ANY IMPROVEMENTS ON THE REAL PROPERTY, (IX) THE CONDITION OF TITLE TO THE PROPERTY, (X) THE LEASES, SERVICE CONTRACTS, OR OTHER DOCUMENTS OR AGREEMENTS AFFECTING THE PROPERTY, OR ANY INFORMATION CONTAINED IN ANY RENT ROLL FURNISHED TO BUYER FOR THE PROPERTY, (XI) THE VALUE, ECONOMICS OF THE OPERATION OR INCOME POTENTIAL OF THE PROPERTY, OR (XII) ANY OTHER FACT OR CONDITION WHICH MAY AFFECT THE PROPERTY, INCLUDING WITHOUT LIMITATION, THE PHYSICAL CONDITION, VALUE, ECONOMICS OF OPERATION OR INCOME POTENTIAL OF THE PROPERTY. EXCEPT AS OTHERWISE EXPRESSLY SET FORTH HEREIN, SELLER IS UNDER NO DUTY TO MAKE AFFIRMATIVE DISCLOSURES OR INQUIRY REGARDING ANY MATTER WHICH MAY OR MAY NOT BE KNOWN TO SELLER AND SELLER SHALL HAVE NO LEGAL OBLIGATION TO APPRISE BUYER REGARDING ANY EVENT OR OTHER MATTER INVOLVING THE PROPERTY WHICH OCCURS AFTER THE EFFECTIVE DATE OR TO OTHERWISE UPDATE THE DUE DILIGENCE MATERIALS, UNLESS AND UNTIL AN EVENT OR OTHER MATTER WHICH WOULD CAUSE SELLER TO BE UNABLE TO REMAKE ANY OF ITS REPRESENTATIONS OR WARRANTIES CONTAINED IN THIS AGREEMENT OCCURS

Section 3.8 Release.

WITHOUT LIMITING THE ABOVE, AND SUBJECT TO THE REPRESENTATIONS, WARRANTIES AND COVENANTS OF SELLER EXPRESSLY CONTAINED IN THIS AGREEMENT, BUYER ON BEHALF OF ITSELF AND ITS SUCCESSORS AND ASSIGNS WAIVES ITS RIGHT TO RECOVER FROM, AND FOREVER RELEASES AND DISCHARGES, SELLER, SELLER’S AFFILIATES, SELLER’S INVESTMENT ADVISOR, THE PARTNERS, TRUSTEES, BENEFICIARIES, SHAREHOLDERS, MEMBERS, MANAGERS, DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS AND REPRESENTATIVES OF EACH OF THEM, AND THEIR RESPECTIVE HEIRS, SUCCESSORS, PERSONAL REPRESENTATIVES AND ASSIGNS (COLLECTIVELY, THE “SELLER RELATED PARTIES”), FROM ANY AND ALL DEMANDS, CLAIMS, LEGAL OR ADMINISTRATIVE PROCEEDINGS, LOSSES, LIABILITIES, DAMAGES, PENALTIES, FINES, LIENS, JUDGMENTS, COSTS OR EXPENSES WHATSOEVER (INCLUDING, WITHOUT LIMITATION, COURT COSTS AND ATTORNEYS’ FEES AND DISBURSEMENTS), WHETHER DIRECT OR INDIRECT, KNOWN OR UNKNOWN, FORESEEN OR UNFORESEEN, THAT MAY ARISE ON ACCOUNT OF OR IN ANY WAY BE CONNECTED WITH (I) THE PHYSICAL CONDITION OF THE PROPERTY INCLUDING, WITHOUT LIMITATION, ALL STRUCTURAL AND SEISMIC ELEMENTS, ALL MECHANICAL, ELECTRICAL, PLUMBING, SEWAGE, HEATING, VENTILATING, AIR CONDITIONING AND OTHER SYSTEMS, THE ENVIRONMENTAL CONDITION OF THE PROPERTY AND THE PRESENCE OF HAZARDOUS MATERIALS ON, UNDER OR ABOUT THE PROPERTY, OR (II) ANY LAW OR REGULATION APPLICABLE TO THE PROPERTY, INCLUDING, WITHOUT LIMITATION, ANY ENVIRONMENTAL LAW AND ANY OTHER FEDERAL, STATE OR LOCAL LAW.

Section 3.9 Survival.

The provisions of this Article III shall survive the Closing subject to the limitations and qualifications contained in such provisions and in Sections 9.11 and 9.19 hereof. The provisions of Sections 3.7 and 3.8 shall be incorporated into the Deed.

ARTICLE IV

BUYER’S INSPECTIONS; TITLE AND SURVEY

Section 4.1 Buyer’s Independent Investigation.

(a) Inspections . Subject to the terms of this Agreement, Seller grants to Buyer and Buyer’s members, partners, shareholders, directors, officers, employees, agents, contractors, representatives, attorneys, consultants, accountants, affiliates, prospective and current lenders, investors and partners (collectively, the “ Buyer Group ”) during the Contingency Period, and thereafter prior to Closing, the right of access, at Buyer’s sole risk, cost and expense, (i) to the Property for the purpose of conducting non-physically invasive investigations, inspections, audits, analyses, surveys, tests, examinations, studies and appraisals of the Property subject to the terms hereof, (ii) to conduct tenant interviews (subject to the provisions of this Section 4.1 below); and (iii) to Seller’s records to examine all applicable information, that is not Protected Information,

relating to the Property and the operation and maintenance thereof, as Buyer deems necessary or desirable, including, but not limited to, the Due Diligence Materials. The purpose of such access shall be for Buyer, on its own behalf and not as an agent, representative or broker of any undisclosed party, to determine if the Property is suitable for Buyer’s purposes, in Buyer’s sole discretion.

(b) Protected Information . Notwithstanding anything herein to the contrary, Buyer acknowledges that the information provided by Seller will specifically exclude (i) those portions of the Due Diligence Materials that would disclose Seller’s cost of acquisition of the Real Property, or cost of construction of the Improvements and related soft costs, (ii) any reports, presentations, summaries and the like prepared for any of Seller’s boards, committees, partners or investors in connection with its consideration of the acquisition of the Real Property, construction of the Improvements or sale of the Property, (iii) any proposals, letters of intent, draft contracts or the like prepared by or for other prospective purchasers of the Property or any part thereof, (iv) Seller’s internal memoranda, attorney-client privileged materials, internal appraisals, structural, environmental or other physical inspection reports, projections and budgets; and (v) any information which is the subject of a confidentiality agreement between Seller and a third party (the items described in clauses (i), (ii) (iii), (iv) and (v) being collectively referred to as the “ Protected Information ”). The investigations and other matters described in this Section 4.1 are referred to collectively as “ Due Diligence Inspections ” and shall be subject to the terms and conditions set forth below. Buyer shall cause Seller to be named as a beneficiary of all third party vendor reports and studies obtained by Buyer prior to Closing regarding the Property and to provide copies thereof to Seller.

(c) Access . All entries upon the Property by Buyer and the Buyer Group shall be at reasonable times during normal business hours and after not less than 24 hours’ prior notice to Seller, which notice shall include the names and addresses of Buyer’s agents, contractors and representatives to be entering upon the Property and the general scope of work to be accomplished during such entry. Buyer shall provide such notice, which may be by telephonic means, to Rusty Tamlyn (telephone number: (713) 852-3561) on behalf of Seller, prior to conducting any inspection on, to or at the Property. If Buyer is unable to reach Mr. Tamlyn in person or by telephone, Buyer shall then provide such telephonic notice to Preston Sargent (telephone number: (650) 571-5800), on behalf of Seller. Notwithstanding the foregoing, Buyer shall have the right, following two (2) business days’ notice to Seller and the Local Property Manager (which notice may be delivered telephonically in the manner provided above), to interview the Local Property Manager and review and make copies of all Property related files of Seller and the Local Property Manager pertaining to the Property, including tenant correspondence files (but excluding any Protected Information). Seller shall have the right to participate in such interview by telephone or in person and will cooperate with Buyer in scheduling such interview. Buyer shall conduct such independent inspections by using engineers, consultants and others of Buyer’s choice who are trained and qualified to inspect commercial real property. Buyer shall give Seller telephonic notice of any inspection, and Seller or its representative shall have the right to accompany Buyer and the Buyer Group during any such inspection. Prior to Closing or termination of this Agreement, upon request of Buyer, Seller agrees, at no cost or liability to Seller, to provide reasonable cooperation to cause its consultants, including architectural, engineering, land use planning, design, development and tax consultants, to deliver or make available to Buyer documentation related to the Property as may be in their possession.

Seller shall make its representatives available upon reasonable advance notice for purpose of participating in meetings or interviews contemplated by this Section 4.1 related to Buyer’s Due Diligence Inspections.

(d) Permission to Enter Building . Subject to the provisions of this Agreement, Buyer and the Buyer Group shall have the right to enter and inspect the Property, but with respect to the interior tenant spaces of the Improvements, only if such entry and inspection is permitted by (or otherwise not restricted by) the terms of the tenant leases or the tenants or occupants thereof consent to such entry and inspection (if required under the terms of such tenant leases). Seller shall use commercially reasonable efforts to obtain any tenant consent to such entry, to the extent required under the tenant’s lease. During any such entry and inspection, Buyer and/or the Buyer Group shall minimize any inconvenience or interference with the use, operation, maintenance and occupancy of the Improvements by any tenants or occupants thereof, and additionally, shall: (i) not damage any part of the Property or any personal property owned or held by any tenant; (ii) not injure or otherwise cause bodily harm to Seller, its agents, contractors and employees or any tenant; (iii) promptly pay when due the costs of all tests, investigations and examinations done with regard to the Property; (iv) not permit any liens to attach to the Property by reason of the exercise of its rights hereunder; (v) restore the improvements and the surface of the Property as close as reasonably practicable to the condition in which the same was found before any such inspection or tests were undertaken, to the extent such inspection or tests affected the condition of the Property.

(e) No Invasive Testing. Notwithstanding anything herein to the contrary, neither Buyer nor the Buyer Group shall undertake or perform any physically invasive tests or physical testing, drilling, boring, sampling of, on or through the surface of the Property or any part or portion thereof (including, but not limited to, any roof core cuts, asbestos or other sampling, or the performance of a Phase II environmental study), except (i) upon the prior written consent of Seller, which may be given or withheld by Seller in its sole and absolute discretion, (ii) in the presence of Seller or its expressly authorized representative(s) for this purpose and (iii) subject to such reasonable conditions and restrictions as Seller shall determine in its sole and absolute discretion.

(f) Contact with Tenants . Seller agrees to allow Buyer to contact and interview tenants at the Property, provided that Seller’s representatives shall coordinate the scheduling of such contacts and interviews with Buyer and such tenants and a representative of Seller must be present at any such contact or interview. Seller shall cooperate with Buyer in scheduling and coordinating such interviews and will make any such representative(s) reasonably available for such purpose. Notwithstanding anything herein to the contrary, except pursuant to this Section 4.1(f), neither Buyer nor anyone acting on behalf of Buyer may discuss Buyer’s potential interest in the Property or any other matter related to the Property with any tenant or other occupant of the Property, prior to Closing.

(g) Contact with Governmental Authorities . Except in connection with the preparation of a non-invasive “Phase I” environmental site assessment for the Property, Buyer shall not contact any federal, state, municipal or other governmental or quasi-governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign (a “ Governmental Authority ”) regarding Hazardous Materials (as defined in Section 4.1(m)(2) below) on, or the

environmental condition of, the Property, without Seller’s prior written consent thereto, which consent shall not be unreasonably withheld, conditioned or delayed. If Seller’s consent to contact any such Governmental Authority is obtained by Buyer, a representative of Seller must be present when Buyer has any such contact with any Governmental Authority, and Seller shall reasonably cooperate with Buyer in scheduling such contacts with Governmental Authorities and shall make its representatives reasonably available for such purpose.

(h) Insurance . Before any such entry on the Property by Buyer or the Buyer Group, Buyer shall, at no expense to Seller, provide and maintain, or cause to be provided and maintained by such member of the Buyer Group seeking access to the Property, (i) workers’ compensation insurance, to the extent required under the Workers’ Compensation Law of the State of Texas, and (ii) commercial liability insurance, from an insurer reasonably acceptable to Seller, in the amount of One Million and No/100 Dollars ($1,000,000.00) combined single limit for personal injury and property damage per occurrence ($2,000,000.00, in the aggregate). All such insurance shall be in form and with deductible limits reasonably satisfactory to Seller and with insurance companies authorized to do business in the state in which the Property is located. Buyer’s liability insurance shall include blanket contractual liability coverage insuring the indemnity obligations of Buyer under this Agreement. All such insurance shall be written on an occurrence basis and name Seller, its Local Property Manager, lender and others as required by Seller, provided that the names of such parties are provided to Buyer by Seller prior to the Effective Date, as additional insureds, which insurance shall provide coverage against any claim for personal liability or property damage caused by the Buyer or its agents, employees or contractors in connection with such inspections and tests. Prior to Buyer’s or the Buyer Group’s first entry on any portion of the Property, Buyer shall furnish certificates of insurance to Seller, in form and substance reasonably satisfactory to Seller, evidencing the coverage required under clauses (i) and (ii) above, which certificates will provide that such insurance shall not be cancelled or changed until at least thirty (30) days’ written notice is given to Seller.

(i) Buyer Risk . In consideration for the rights granted to Buyer by Seller hereunder, Buyer accepts such rights with the full understanding of the risk of loss of life, personal injury or property loss or damage that may arise out of Buyer’s exercise of its rights as set forth herein, and Buyer shall exercise its rights hereunder at its own risk. Buyer shall not hold the Seller Group, and their respective successors or assigns, liable for (and hereby releases the Seller Group, and their respective successors or assigns from any liability for) any loss, injury, claim or damage that may occur to Buyer or the Buyer Group or Buyer’s property (unless and to the extent such loss, injury, claim or damage results from the gross negligence or willful misconduct of any particular member or members of the Seller Group). As used herein, the term “Seller Group ” means Seller, its current and former affiliates and related business entities, the Local Property Manager and each of their respective shareholders, members, partners, trustees, agents, employees, officers, directors, successors, assigns, attorneys, insurers, mortgagees and representatives of every kind whatsoever. The provisions of this paragraph shall survive the Closing or any termination of this Agreement.

(j) Indemnification . BUYER AGREES TO INDEMNIFY, DEFEND AND HOLD HARMLESS ALL MEMBERS OF THE SELLER GROUP, AGAINST ANY AND ALL LIENS, CLAIMS, DAMAGES OF ANY KIND OR NATURE WHATSOEVER,

DEMANDS, ACTIONS OR CAUSES OF ACTION, ASSESSMENTS, LOSSES, COSTS, EXPENSES, LIABILITIES, INTEREST, PENALTIES AND REASONABLE ATTORNEYS’ FEES (“CLAIMS”), SUFFERED OR INCURRED BY THE SELLER GROUP, OR ANY OF THEM, RESULTING FROM INJURY OR DAMAGE TO PERSONS OR PROPERTY CAUSED BY BUYER’S OR THE BUYER GROUP’S ENTRY ONTO OR PRESENCE OR ACTIVITIES ON THE PROPERTY IN CONNECTION WITH THE DUE DILIGENCE INSPECTIONS; PROVIDED HOWEVER, BUYER SHALL HAVE NO LIABILITY OR RESPONSIBILITY FOR ANY PRE-EXISTING CONDITIONS AFFECTING THE PROPERTY, EXCEPT TO THE EXTENT THAT THE SAME ARE EXACERBATED BY THE ACTIONS OF BUYER OR THE BUYER GROUP. THE FOREGOING INDEMNITY SHALL APPLY REGARDLESS OF WHETHER ANY SUCH CLAIMS ARE CAUSED BY THE ACTIVE OR PASSIVE, JOINT, CONCURRENT OR COMPARATIVE NEGLIGENCE OR TORT OF THE INDEMNIFIED PARTY OR LIABILITY WITHOUT FAULT OR STRICT LIABILITY, BUT NOT TO THE EXTENT OF THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF ANY SUCH INDEMNIFIED PARTY. IT IS THE INTENT OF THE PARTIES THAT THE SELLER GROUP BE INDEMNIFIED AGAINST THE CONSEQUENCES OF THEIR OWN NEGLIGENCE (BUT NOT GROSS NEGLIGENCE OF WILLFUL MISCONDUCT). The provisions of this paragraph shall survive the Closing or any termination of this Agreement.

(k) Buyer Repair. If Buyer terminates this Agreement as provided in Section 2.3 above, for any reason, then Buyer’s inspection rights shall immediately terminate and Buyer shall promptly repair any damage to the Property caused by Buyer or the Buyer Group in the conduct of the Due Diligence Inspections and restore any portion of the Property damaged by the Due Diligence Inspections as close as reasonably practicable to the condition that existed prior to Buyer’s or the Buyer Group’s first entry on the Property pursuant to this Agreement. The provisions of this paragraph shall survive the Closing or any termination of this Agreement.

(l) Payment of Liens. Buyer shall promptly pay and discharge on or before the due date any claim or obligation for labor or materials furnished at the direction of Buyer, which if not paid or discharged would result in a lien on all or any portion of the Property. Specifically, and without limiting the foregoing, if Buyer shall cause labor or materials to be furnished to the Property, and if a lien arises out of such work or material furnished, then Buyer shall promptly cause such lien to be satisfied or bonded over and shall indemnify, defend and hold harmless Seller therefor. The provisions of this paragraph shall survive the Closing or any termination of this Agreement.

(m) Acknowledgement of Opportunity to Inspect . Unless Buyer terminates this Agreement in accordance with Section 2.3 above, Buyer will be deemed to have acknowledged and agreed that it has been given a full opportunity to inspect and investigate each and every aspect of the Property, either independently or through agents of Buyer’s choosing, including, without limitation:

(1) All matters relating to title and survey, together with all governmental and other legal requirements such as taxes, assessments, zoning, use permit requirements and building codes.

(2) The physical condition and aspects of the Property, including, without limitation, the interior, the exterior, the square footage within the improvements on the Real Property and within each tenant space therein, the structure, seismic aspects of the Property, the foundation, roof, paving, parking facilities, utilities, and all other physical and functional aspects of the Property. Such examination of the physical condition of the Property shall include an examination for the presence or absence of Hazardous Materials, as defined below, which shall be performed or arranged by Buyer (subject to the provisions hereof) at Buyer’s sole expense. For purposes of this Agreement, “ Hazardous Materials ” shall mean inflammable explosives, radioactive materials, asbestos, asbestos–containing materials, polychlorinated biphenyls, lead, lead-based paint, radon, under and/or above ground tanks, hazardous materials, hazardous wastes, hazardous substances, oil, or related materials, which are listed or regulated in the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended (42 U.S.C. Sections 9601, et seq.), the Resource Conservation and Recovery Act of 1976 (42 U.S.C. Section 6901, et seq.), the Federal Pollution Control Act (33 U.S.C. Section 1251, et seq.), the Safe Drinking Water Act (42 U.S.C. Section 300f, et seq.), the Hazardous Materials Transportation Act (49 U.S.C. Section 5101, et seq.), the Toxic Substances Control Act (15 U.S.C. Section 2601, et seq.) and any other applicable federal, state or local laws (collectively, “ Environmental Laws ”).

(3) Any easements and/or access rights affecting the Property.

(4) The Leases and all matters in connection therewith, including, without limitation, the ability of the tenants to pay the rent and the economic viability of the tenants.

(5) The Service Contracts and any other documents or agreements of significance affecting the Property.

(6) All other matters of material significance affecting the Property.

Section 4.2 Permitted Exceptions.

(a) On or prior to the Effective Date, Seller shall request that the Title Company prepare and deliver to Buyer a title commitment (the “ Title Report ”) together with copies of all underlying documents relating to title exceptions referred to therein (“ Exception Instruments ”). In addition, Buyer shall have the right to obtain an updated survey of the Property complying with the ALTA/NSPS 2016 standards (the “ Survey ”). Buyer shall provide a copy of the Survey, which shall be certified to the Title Company, Buyer and Seller, to Seller. Buyer shall pay the entire cost of the Survey. Buyer shall have the right to object to any matters shown on the Title Report or Survey, or in the Exception Instruments, by notice to Seller at any time during the Contingency Period, which objections shall be deemed to be included within the Objections provided for in Section 4.2(b). Seller shall not be obligated to cure any such matters, except as may be otherwise provided in Section 4.2(c) or elsewhere in this Agreement or as may be agreed in writing by Seller.

(b) Not later than (i) five (5) business days after Buyer’s receipt of the Title Report, Exception Instruments and Survey, or (ii) seven (7) days prior to the last day of the

Contingency Period, whichever occurs first (the “ Title Review Date ”), Buyer shall furnish Seller with a written statement of objections, if any, to the title to the Property, including, without limitation, any objections to any matter shown on the Survey (collectively, “ Objections ”). In the event the Title Company amends or updates the Title Report after the Effective Date (each, a “ Title Report Update ”), Buyer shall furnish Seller with a written statement of any Objections to any matter first raised in a Title Report Update within three (3) days after its receipt of such Title Report Update (each, a “ Title Update Review Period ”). Should Buyer fail to notify Seller in writing of any Objections to any matter first disclosed in a Title Report Update prior to the Title Update Review Period, as applicable, Buyer shall be deemed to have approved such matters which shall be considered to be “Permitted Exceptions” as defined in Section 4.3 below.

(c) If Seller receives a timely Objection in accordance with Section 4.2(b) (“ Buyer’s Notice ”), Seller shall have the right, but not the obligation (except as hereafter provided), within three (3) days after receipt of Buyer’s Notice (“ Seller’s Response Period ”), to elect to cure any such matter upon written notice to Buyer (“ Seller’s Response ”), and may extend the Closing Date for up to fifteen (15) business days to allow such cure. If Seller does not give any Seller’s Response within such 3-day period, Seller shall be deemed to have elected not to cure any such matters. Notwithstanding the foregoing or the provisions of Section 4.2(d), or any other provision of this Agreement, to the contrary, Seller shall in any event be obligated (whether or not Buyer objects to same) to cure and satisfy at or before Closing all matters, items or requirements (collectively, “ Liens ”) (i) that are mortgage or deed of trust liens or security interests against the Property, in each case granted by Seller (and not tenants of the Property or other third parties); (ii) real estate tax liens, other than liens for taxes and assessments not yet delinquent, or (iii) that have been voluntarily placed against the Property by Seller, or that are any other monetary lien of a liquidated amount encumbering the Property created by Seller or resulting from any work performed at the direction of Seller (and not tenants of the Property or other third parties) and that are not otherwise permitted pursuant to the provisions hereof. Seller shall be entitled to apply the Purchase Price towards the payment or satisfaction of such liens at Closing, and may cure any Objection to a monetary lien by filing the appropriate bond (provided such bond enables the Title Company to remove such exception from the Title Policy or to insure against such matter) or causing the Title Company, at Seller’s sole cost and expense, to fully insure against such matters.

(d) If Seller elects (or is deemed to have elected) not to cure any Objections (other than Liens) raised in any Buyer’s Notice timely delivered by Buyer to Seller pursuant to Section 4.2(b) or if Seller notifies Buyer that it elects to cure any such Objection (other than Liens) but then does not for any reason effect such cure on or before the Closing Date as it may be extended hereunder, then Buyer, as its sole and exclusive remedy, shall have the option to either (A) waive such Objection by delivering written notice thereof to Seller within three (3) days after (as applicable) (i) its receipt of Seller’s Response stating that Seller will not cure any such Objection or (ii) the expiration of Seller’s Response Period if Seller does not deliver a Seller’s Response or (iii) Seller’s failure to cure by the Closing Date (as it may be extended hereunder) any Objection which Seller has previously elected to cure pursuant to a Seller’s Response or (B) terminate this Agreement (if Buyer fails to deliver written notice waiving the objection within such 3-day period under clause (A) above, then Buyer shall be deemed to have elected to terminate this Agreement). In the event of such a termination, the Deposit shall be returned to Buyer, and neither party shall have any further

rights or obligations hereunder except for those matters that survive termination as herein provided. If Seller receives notice by Buyer of waiver of such Objections hereunder (or Buyer actually consummates Closing without such Objections having been cured), then such Objections shall be deemed to have waived and those waived Objections shall become “Permitted Exceptions” under Section 4.3. If the Closing is not consummated for any reason other than Seller’s default hereunder, Buyer shall be responsible for any title or escrow cancellation charges.

(e) At the Closing, Seller shall convey title to the Property to Buyer by Special Warranty Deed in the form of Exhibit C attached hereto (the “ Deed ”). Subject to the terms and conditions contained elsewhere in this Agreement, by acceptance of the Deed and the Closing of the purchase and sale of the Property, (x) Buyer agrees it is assuming for the benefit of Seller all of the obligations of Seller first accruing and arising from and after Closing with respect to the Property under the Permitted Exceptions; and (y) Buyer agrees that Seller shall have conclusively satisfied its obligations with respect to title to the Property. The provisions of this Section shall survive the Closing.

Section 4.3 Evidence of Title.

Delivery of title in accordance with the foregoing shall be evidenced by the willingness of the Title Company to issue, at Closing, its Owner’s TLTA Policy of Title Insurance in the amount of the Purchase Price showing title to the Real Property vested in Buyer, subject to the Permitted Exceptions (the “ Title Policy ”). The Title Policy may contain such endorsements as reasonably required by Buyer provided that the issuance of such endorsements shall not be a condition to Buyer’s obligations hereunder. Seller shall pay the cost of the basic owner’s Title Policy, and Buyer shall pay the cost of survey coverage and any endorsements requested by Buyer. Seller shall have no obligation to provide any indemnity or agreement to the Title Company or Buyer to support the issuance of the Title Policy or any such endorsements other than an affidavit as to the existing tenants of the Property and any ongoing or recent construction work at the Property and such other matters as set forth in the form of affidavit attached as Exhibit E-3 . The following shall constitute the “ Permitted Exceptions :”

(i) Interests of tenants in possession under the Leases including any new leases or lease modifications entered into pursuant to the terms of this Agreement;

(ii) Matters created by or with the written consent of Buyer;

(iii) Non-delinquent liens for real estate taxes and assessments;

(iv) The matters shown on Schedule B to the Title Report, including the Property Declarations, except for any matters which Seller is required to cure pursuant to this Agreement; and

(v) Any exceptions (other than Liens) disclosed by any Title Report Update which is approved or deemed approved by Buyer in accordance with this Article IV above, and any other exceptions to title disclosed by the Survey (or if no Survey is obtained, would otherwise be disclosed by an inspection and/or survey of the Property).

ARTICLE V

RISK OF LOSS AND INSURANCE PROCEEDS

Section 5.1 Minor Loss.

Buyer shall be bound to purchase the Property for the full Purchase Price as required by the terms hereof, without regard to the occurrence or effect of any damage to the Property or destruction of any improvements thereon or condemnation of any portion of the Property, provided that: (a) the cost to repair any such damage or destruction does not exceed $2,500,000.00 in the estimate of an architect or contractor selected by Seller and reasonably acceptable to Buyer or in the case of a condemnation, the diminution in the value of the remaining Property as a result of a partial condemnation is not material (as hereinafter defined) and no such damage or destruction or condemnation permits any tenant under a Lease to terminate its Lease or abate rent (other than any temporary rental abatements for which Buyer receives a credit against the Purchase Price in the amount of the abatement that the tenant is entitled to take after the Closing or an assignment of rent loss insurance at Closing sufficient to cover the period of abatement prior to restoration of the applicable improvements) on account thereof under the terms of the existing Leases; and (b) upon the Closing, there shall be a credit against the Purchase Price due hereunder equal to the amount of any insurance proceeds or condemnation awards, as applicable, collected by Seller as a result of any such damage or destruction or condemnation, plus the amount of any insurance deductible or uninsured or underinsured component of such loss in excess of insurance proceeds actually payable to cover such loss, less any sums expended by Seller toward the restoration or repair of the Property (the nature of which restoration or repairs, but not the right of Seller to effect such restoration or repairs, shall be subject to the approval of Buyer, which approval shall not be unreasonably withheld, conditioned or delayed). If the proceeds or awards have not been collected as of the Closing, then such proceeds or awards shall be assigned to Buyer, except to the extent needed to reimburse Seller for sums expended to repair or restore the Property, and Seller shall retain the rights to such proceeds and awards to such extent and shall pay over to Buyer any proceeds or awards paid to Seller in excess of such extent. The terms of this provision shall survive Closing to the extent applicable to payment of any proceeds or awards after Closing. Seller will take such action as reasonably requested by Buyer to fully effect the provisions of this paragraph provided, however, that Seller shall not be required to incur material cost or liability in connection with any such action requested by Buyer unless Buyer agrees to be responsible for such cost or liability.

Section 5.2 Major Loss.

If the cost to repair the damage or destruction as specified above exceeds $2,500,000.00 in the estimate of an architect or contractor selected by Seller and reasonably acceptable to Buyer or the diminution in the value of the remaining Property as a result of a condemnation is material or any such damage or destruction or condemnation otherwise permits any tenant under a Lease to terminate its Lease or abate rent (other than any temporary rental abatements for which Buyer receives a credit against the Purchase Price in the amount of the abatement that the tenant is entitled to take after the Closing or an assignment of rent loss insurance at Closing sufficient to cover the period of abatement prior to restoration of the applicable improvements) on account thereof under the terms of the existing Leases, then Buyer may, at its option to be exercised within ten (10) business

days of Seller’s notice of the occurrence of the damage or destruction or the commencement of condemnation proceedings, either terminate this Agreement or consummate the purchase for the full Purchase Price as required by the terms hereof. If Buyer elects to terminate this Agreement by delivering written notice thereof to Seller or fails to give Seller notice within such ten (10) day period that Buyer will proceed with the purchase, then this Agreement shall terminate, the Deposit shall be returned to Buyer and neither party shall have any further rights or obligations hereunder except for those matters that expressly survive termination hereunder. If Buyer elects to proceed with the purchase, then upon the Closing, there shall be a credit against the Purchase Price due hereunder equal to the amount of any insurance proceeds or condemnation awards collected by Seller as a result of any such damage or destruction or condemnation, plus the amount of any insurance deductible, less any sums expended by Seller toward the collection of such proceeds or awards or to restoration or repair of the Property (the nature of which restoration or repairs, but not the right of Seller to effect such restoration or repairs, shall be subject to the approval of Buyer, which approval shall not be unreasonably withheld, conditioned or delayed). If the proceeds or awards have not been collected as of the Closing, then such proceeds or awards shall be assigned to Buyer, except to the extent needed to reimburse Seller for sums expended to collect such proceeds or awards or to repair or restore the Property, and Seller shall retain the rights to such proceeds and awards to such extent and shall pay over to Buyer any proceeds or awards paid to Seller in excess of such extent. A condemnation shall be “material” for purposes of this provision, if it permits any Major Tenant to terminate its Lease or permanently abate rent, any portion of the building improvements are taken; or if access to the Property is permanently denied. The terms of this provision shall survive Closing to the extent applicable to payment of any proceeds or awards after Closing.

ARTICLE VI

BROKERS AND EXPENSES

Section 6.1 Brokers.

The parties represent and warrant to each other that no broker or finder was instrumental in arranging or bringing about this transaction except for HFF (the “ Broker ”). At Closing, Seller shall pay the commission due to the Broker pursuant to separate written agreement between Seller and Broker. Seller shall indemnify and hold Buyer harmless from and against any claims by the Broker (unless under any separate agreement, if any, entered into by Buyer with Broker). If any other person brings a claim for a commission or finder’s fee based upon any contact, dealings or communication with Buyer or Seller, then the party who is alleged to have such contract, dealings or communications resulting in such commission obligation shall defend the other party (the “ Indemnified Party ”) from such claim, and shall indemnify the Indemnified Party and hold the Indemnified Party harmless from any and all costs, damages, claims, liabilities or expenses (including without limitation, court costs and reasonable attorneys’ fees and disbursements) incurred by the Indemnified Party in defending against the claim. The provisions of this Section 6.1 shall survive the Closing or, if the purchase and sale is not consummated, any termination of this Agreement.

Section 6.2 Expenses.

Except as provided in Article IV above, and Sections 8.5(b) and 9.5 below, each party hereto shall pay its own expenses incurred in connection with this Agreement and the transactions contemplated hereby.

ARTICLE VII

LEASES AND OTHER AGREEMENTS

Section 7.1 Buyer’s Approval of New Leases and Agreements Affecting the Property.

Between the Effective Date and the Closing, Seller shall not enter into any new Lease, or modify or terminate any existing Lease (unless otherwise required to do so by the terms of any Lease), including entering into any renewal or extension of a Lease that is not otherwise exercisable by right by an applicable tenant under a Lease without Seller’s consent, or enter into or modify any other agreement that would be binding upon the Buyer or the Property upon Closing, without Buyer’s consent, which shall not be unreasonably withheld, conditioned or delayed. In such case of Buyer’s disapproval, Buyer shall specify in detail the reasons for its disapproval of any such proposed action. If Buyer fails to give Seller notice of its approval or disapproval of any such proposed action requiring its approval under this ‎Section 7.1 within five (5) business days after Seller notifies Buyer of Seller’s desire to take such action, then Buyer shall be deemed to have given its approval. Any new Lease or other agreement or amendment shall be on Seller’s standard forms for such documents unless otherwise approved by Buyer. Buyer agrees to cooperate with Seller in enabling Seller to complete any such proposed transaction requiring Buyer’s approval. Any request for approval by Seller shall include all material details of the proposed transaction including any financial obligations (e.g. tenant improvement allowances, brokerage commissions, etc.) which would be the obligation of Buyer upon Closing if such proposed Lease or agreement, or modification thereof, is approved by Buyer. Seller agrees to communicate to Buyer with respect to any proposed Lease or agreement, or modification thereof, and the details thereof, promptly after Seller becomes aware thereof, and Seller shall also provide updates as to the status of any proposed Lease or agreement or any modification thereof, to Buyer from time to time upon request and to advise Buyer of any written notices of default received by Seller from Tenants or issued by Seller to Tenants.

Section 7.2 Tenant Improvement Costs, Leasing Commissions and Concessions.

Seller shall provide Buyer a credit against the Purchase Price for all tenant improvement allowances and other concessions that are available to Tenants under the Leases in effect as of the Effective Date with respect to the current term of each of such Leases and that have not been fully disbursed as of the Closing Date (to the extent after Closing, it is determined that any such credits were not for the full amount due or were in excess of the full amount due to the applicable Tenants, then Seller and Buyer agree to reconcile and adjust such amount between them upon request by either party). Seller shall also pay or provide a credit for all unpaid leasing commissions due and payable as of Closing. With respect to any new Lease or Lease modification entered into by Seller between Effective Date and the Closing Date, which Lease or Lease modification is approved by Buyer under Section 7.1 above (but excluding any renewal or extension of any Lease through the exercise of an option that is currently available to a tenant under an existing Lease), all tenant

improvement work, leasing commissions, legal fees and other related expenses, or grants of any free rent period or other concessions shall be prorated over the term of the lease, renewal or extension. Seller’s share of such costs shall be based on the portion of the lease term, renewal or extension, as the case may be, occurring prior to Closing, which amount shall be a credit against the Purchase Price, and Buyer shall be responsible for the remainder of such costs. Buyer shall reimburse Seller for all such costs incurred by Seller to the extent Buyer is obligated therefor pursuant to the provisions hereof. Pursuant to the Assignment of Leases Buyer shall assume any then outstanding obligations with respect to such tenant improvements, leasing commissions and concessions under existing Leases (subject to the credit to be provided by Seller as set forth above and Seller’s obligation to cash out and discharge all leasing commission obligations, if any, under the existing Leases that are due and payable at Closing) and under any new Lease or Lease modification for which Buyer is otherwise responsible under the foregoing provisions. The provisions of this Section shall survive the Closing.

Section 7.3 Tenant Notices.

At the Closing, Seller shall furnish Buyer with a signed notice to be given to each tenant of the Property. The notice shall disclose that the Property has been sold to Buyer, that, after the Closing, all rents should be paid to Buyer and that Buyer has received and shall be responsible for all the tenant’s security deposit and pre-paid rents credited to Buyer, the dollar amount of which shall be specifically set forth in such notice. The form of the notice shall be otherwise reasonably acceptable to the parties. Buyer shall, immediately after Closing, deliver such notice letters to each tenant. Buyer shall be liable for (and Buyer hereby expressly assumes all liability for) all such security deposits that are transferred from Seller to Buyer (or for which a credit is provided to Buyer) regardless of whether notice is given to the tenants of the Property in accordance with the provisions of this Section 7.3. The provisions of this Section 7.3 shall survive Closing.

Section 7.4 Maintenance of Improvements and Operation of Property; Removal of Tangible Personal Property.

Seller agrees to keep its customary property insurance covering the Property in effect until the Closing (provided, however, that the terms of any such coverage maintained in blanket form may be modified as Seller deems necessary). Seller shall maintain all Improvements substantially in their present condition (ordinary wear and tear and casualty excepted), and shall operate and manage the Property in a manner consistent with Seller’s practices in effect prior to the Effective Date, provided that Seller shall in no event be obligated to make any capital expenditures or repairs of a capital nature. Seller shall not remove any Tangible Personal Property, except as may be required for necessary repair or replacement, and replacement shall be of approximately equal quality and quantity as the removed item of Tangible Personal Property.

After the Effective Date, Seller will not (i) mortgage, pledge or voluntarily subject any of the Property or any part thereof to an unbonded lien or other encumbrance, which is not in existence as of the Effective Date or will not be discharged on or prior to Closing, or (ii) permit any mechanic’s or materialmen’s lien for work performed at the instance of Seller to attach against any of the Property which is not discharged at Closing. Seller will pay or cause to be paid all debts, taxes, fees, assessments and other obligations related to the use and ownership of the Property up to the date

of Closing, except for those items for which a proration is agreed upon in accordance with the provisions of this Agreement, including, but not limited to all real estate, personal property and other taxes of every kind and all charges for consumption of utilities. Buyer shall pay or cause to be paid all debts, taxes, fees, assessments and other obligations first arising and accruing after Closing and related to the use and ownership of the Property by Buyer from and after the Closing Date.

Section 7.5 Service Contracts.

Within three (3) business days prior to the expiration of the Contingency Period, Buyer will advise Seller in writing which Service Contracts Buyer will assume and which Service Contracts Buyer requests be terminated at Closing, provided Seller shall have no obligation to terminate, and Buyer shall be obligated to assume, any Service Contracts which by their terms cannot be terminated on not more than thirty (30) days’ notice, without penalty or payment of a fee or other cost to Seller and references to “Service Contracts” in the Assignment of Service Contracts delivered at Closing shall only include those Service Contracts to be assumed by Buyer under the terms of this Agreement. Seller shall deliver at Closing notices of termination of all Service Contracts that are not so assumed and Seller shall be responsible for any costs of such termination. Buyer shall be responsible for any charges applicable to periods commencing with the Closing under all assumed Service Contracts. Notwithstanding the foregoing, Seller shall terminate, as of the Closing Date, all existing management and leasing agreements with respect to the Property and Buyer shall not assume same.

Section 7.6 Post Closing Cooperation.

Following Closing, Seller shall reasonably cooperate with Buyer in order to coordinate the transition of ownership and management of the Property. In addition, upon request from time to time at any time within one (1) year from the Closing Date, each of the parties agrees, whenever and as often as reasonably requested so to do by the other party or Title Company, to execute, acknowledge, and deliver, or cause to be executed, acknowledged, or delivered, any and all such further conveyances, assignments, confirmations, satisfactions, releases, instruments, or other documents as may be reasonably necessary in order to complete any and all conveyances, transfers, sales and assignments herein provided and to do any and all other acts and to execute, acknowledge and deliver any and all documents as so requested in order to carry out the intent and purpose of this Agreement. For the avoidance of doubt, such reasonable cooperation shall include (i) the transfer of all Seller websites and social media sites to Buyer, (ii) any use of such websites to redirect web traffic to Buyer’s own websites, and (iii) the effective transfer into Buyer of all Intangible Personal Property of Seller relating to the potential development of all or any portion of the Real Property. The provisions of this Section 7.6 shall survive Closing.

Section 7.7 SEC S-X 3-14 Audit.

In order to enable Buyer to comply with the reporting requirements of the Securities and Exchange Commission (the “ SEC ”), Seller agrees to provide Buyer and its representatives information sufficient for Buyer to comply with Rule 3-14 of Regulation S-X (“ Rule 3-14 ”) under the Securities Act of 1933, as amended, including (a) each of the documents and information identified on Exhibit H attached hereto, but only to the extent such documents and information

exist and are in the custody and control of Seller (Seller agrees, however, to promptly notify Buyer as to any such items which do not exist or are not in the custody or control of Seller), (b) Seller’s most current financial statements relating to the financial operation of the Property for the current fiscal year and the most recent pre-acquisition fiscal year, and (c) upon request, support for certain operating revenues and expenses specific to the Property (collectively, the “ SEC Filing Information ”). Seller understands that certain of the SEC Filing Information may be included in filings required to be made by Buyer with the SEC, and acknowledges that such disclosure shall not violate the confidentiality provisions of this Agreement. Seller agrees, at no cost to Seller, to reasonably cooperate in providing SEC Filing Information and to be available, upon reasonable advance notice, to answer questions with respect to SEC Filing Information as they arise, both before and after the expiration of the Inspection Period. This Section 7.7 shall survive Closing for a period of one (1) year. Buyer shall reimburse Seller for any actual, reasonable, third party, out-of-pocket costs and expenses that Seller incurs in connection with fulfilling Seller’s obligations under this Section 7.7 with respect to requests for such access made by Buyer after the Closing Date.

ARTICLE VIII

CLOSING AND ESCROW

Section 8.1 Escrow Instructions.

Upon execution of this Agreement, the parties hereto shall deposit an executed counterpart of this Agreement with the Title Company, and this instrument shall serve as the instructions to the Title Company as the escrow holder for consummation of the purchase and sale contemplated hereby. Seller and Buyer agree to the escrow conditions attached as Exhibit K (“ Escrow Conditions ”). Seller and Buyer agree to execute such reasonable additional and supplementary escrow instructions as may be appropriate to enable the Title Company to comply with the terms of this Agreement; provided, however, that in the event of any conflict between the provisions of this Agreement and any supplementary escrow instructions, the terms of this Agreement shall control.

Section 8.2 Closing.

The closing of the transaction contemplated hereby (the “ Closing ”) shall be held and delivery of all items to be made at the Closing under the terms of this Agreement shall be made through an escrow closing at the offices of the Title Company or as otherwise mutually agreed before 2:00 p.m. Central time on the date that is fifteen (15) days following the expiration of the Contingency Period; provided, however, that Buyer shall have the right, after the expiration of the Contingency Period, to extend the date of Closing by ten (10) business days, by giving at least three (3) business days’ advance notice to Seller; and provided, further, that Buyer shall have the right to accelerate the date of Closing to an earlier business day by giving at least three (3) business days’ advance notice to Seller. The date of Closing required hereunder is hereinafter called the “ Closing Date .” Notwithstanding the foregoing, unless the delivery of Buyer’s funds by Escrow Agent is received on the Closing Date with sufficient time for Escrow Agent to complete the subsequent wire transfer of funds by Escrow Agent such that proceeds are received by Seller (or Seller’s lender) on the same

day, then Escrow Agent shall hold such funds and the Closing shall be delayed until the next business day. Except as expressly provided herein, the Closing Date and time may not be extended without the prior written approval of both Seller and Buyer.

Section 8.3 Deposit of Documents.

(a) At or prior to the Closing, Seller shall deposit into escrow with Escrow Agent the following items:

(1) the duly executed and acknowledged Deed in the form attached hereto as Exhibit C conveying the Real Property to Buyer;

(2) four (4) duly executed counterparts of the Bill of Sale in the form attached hereto as Exhibit D (the “ Bill of Sale ”);

(3) four (4) duly executed counterparts of each of (i) an Assignment and Assumption of Leases in the form attached hereto as Exhibit E (the “ Assignment of Leases ”); and (ii) an Assignment and Assumption of Service Contracts in the form attached hereto as Exhibit E-1 (the “ Assignment of Service Contracts ”), pursuant to the terms of which Buyer shall assume all of Seller’s obligations under the Leases and assumed Service Contracts under this Agreement, respectively, from and after the Effective Date;

(4) an affidavit pursuant to Section 1445(b)(2) of the Code, and on which Buyer is entitled to rely, that Seller is not a “foreign person” within the meaning of Section 1445(f)(3) of the Code and will provide Escrow Agent such information as required to permit Escrow Agent to report this transaction on a 1099-S Form;

(5) four (4) duly executed counterparts of a Municipal Utility District Notice;

(6) four (4) duly executed counterparts of a Deed Restrictions Notice (in a form as required to comply with City of Houston Ordinance 89-1312, a certified copy of which is recorded under Harris County Clerk's File No. M337573, and pertaining only to existing deed restrictions included in the Permitted Exceptions)(“ Deed Restrictions Notice ”) ;

(7) an owner’s affidavit in the form attached as Exhibit E-3 (“ Owner’s Affidavit ”);

(8) A certificate, executed by Seller as of the Closing Date, certifying that all representations and warranties made by Seller in Section 3.1 of this Agreement are true and correct in all material respects as if such statements were made as of the Closing Date (provided, however, that the references to the Rent Roll, Receivables Report and schedule of Service Contracts referenced in Section 3.1 shall be to the updated Rent Roll, Receivables Report and schedule of Service Contracts to be attached to such certificate) or, if no longer true, a statement excepting to any Exception Matters to such representations and warranties as of the Closing Date;

(9) Evidence of Seller’s authority, good standing and existence, as reasonably required the Title Company, including evidence of Seller's authority to execute and deliver the deed and other documents contemplated hereby; and

(10) All other documents reasonably necessary to effectuate the transaction.

(b) At or before Closing, Buyer shall deposit into escrow the following items:

(1) immediately available funds in the amount of the Closing Payment and funds sufficient to pay Buyer’s closing costs and share of prorations hereunder;

(2) four (4) duly executed counterparts of the Assignment of Service Contracts;

(3) four (4) duly executed counterparts of the Assignment of Leases;

(4) four (4) duly executed counterparts of the Municipal Utility District Notice;

(5) four (4) duly executed counterparts of the Deed Restrictions Notice.

(6) A certificate, executed by Buyer as of the Closing Date, certifying that all representations and warranties made by Buyer in Section 3.5 of this Agreement are true and correct in all material respects as if such statements were made as of the Closing Date or, if no longer true, a statement excepting to any Exceptions Matter to such representations and warranties as of the Closing Date;

(7) Evidence of Buyer’s authority, good standing and existence, as reasonably required the Title Company, including evidence of Buyer’s authority to execute and deliver the documents contemplated hereby;

(8) All other documents reasonably required in order to effectuate the transaction.

(c) Seller and Buyer shall each execute and deposit a closing statement, such transfer tax declarations and such other instruments as are reasonably required by the Title Company or otherwise required to close the escrow and consummate the acquisition of the Property in accordance with the terms hereof. Seller and Buyer hereby designate Title Company as the “ Reporting Person ” for the transaction pursuant to Section 6045(e) of the Code and the regulations promulgated thereunder and agree to execute such documentation as is reasonably necessary to effectuate such designation.

(d) Within five (5) business days after the Closing Date, Seller shall deliver or make available at the Property to Buyer: originals of the Leases to the extent in Seller’s possession or copies of any Leases not in Seller’s possession, copies of the tenant correspondence files, to the

extent such exists in Seller's possession or control, any architectural drawings and renderings, building plans and specifications, and any and all municipal, county, state or local permits or licenses in Seller’s possession or control in connection with the Property, and originals of any other items which Seller was required to furnish Buyer copies of or make available at the Property pursuant to Sections 2.1(b) or (d) above, to the extent in Seller’s possession, except for Seller’s general ledger and other internal books or records which shall be retained by Seller (but Seller will provide copies as reasonably requested by Buyer) and excluding any Protected Information. Seller shall deliver possession of the Property to Buyer as required hereunder and shall deliver to Buyer or make available at the Property a set of keys and all combination or access codes to the Property on the Closing Date. The provisions of this Section 8.3(d) shall survive Closing.

(e) Seller and Buyer shall execute and deliver to each other one or more agreements in recordable form pursuant to which Seller assigns to Buyer, and Buyer assumes, all rights and obligations of Seller accruing and arising from and after the Closing Date, under the following documents: (1) Declaration of Covenants, Conditions and Restrictions (Boulevard Place), recorded under Clerk’s File No. 20080248193 in the Real Property Records of Harris County, Texas; (2) Declaration of Covenants, Conditions and Restrictions recorded under Clerk’s File No. 20120239028 in the Real Property Records of Harris County, Texas as amended by First Amendment to Declaration of Covenants, Conditions and Restrictions, dated December 26, 2013, between Boulevard Place, L.P., BLPL Holdings, LLC and PO Boulevard Apartment Developers I LP recorded under Clerk’s File No. 20140113608 in the Real Property Records of Harris County, Texas; (3) Declaration of Covenants, Conditions and Restrictions (Boulevard Place), recorded under Clerk’s File No. 20120470858 in the Real Property Records of Harris County, Texas; and (4) Supplemental Parking Agreement recorded under Clerk’s File No. 20150326040 (5) Declaration of Covenants, Conditions and Restrictions recorded under Clerk’s File No. RP-2016-22035 in the Real Property Records of Harris County, Texas; and (6) Temporary Crane Swing Easement Agreement executed by Boulevard Place, L.P. And BLPL Holdings LLC, recorded May 31, 2012, Harris County Clerk's File No. 20120239031 (collectively, “ Property Declarations ”) of record in the Real Property Records of Harris County, Texas, and as such obligations pertain to the Property or to the owner of the Property only, as well as any notices of assignment required under any such agreements. Seller shall indemnify, defend and hold Buyer harmless from and against any defaults by Seller under the Property Declarations first arising and accruing prior to the Closing. Buyer shall indemnify, defend and hold Seller harmless from and against any defaults by Buyer under the Property Declarations first arising and accruing after Closing. The provisions of this Section 8.3(e) shall survive Closing.

(f) If and to the extent to which any Property intended to be conveyed hereby includes Property owned by an affiliate of Seller, the Closing documents conveying such items shall be modified accordingly.

Section 8.4 Estoppel Certificates.

(a) If in accordance with Article II of this Agreement Buyer elects to proceed with the purchase of the Property, then Seller shall use commercially reasonable efforts to obtain estoppel certificates from each tenant of the Property substantially in the form attached hereto as Exhibit F or, if a tenant’s lease requires a different form, in the form required by the tenant’s lease,

or as otherwise provided in this paragraph below (but in any event such estoppel form shall be issued to Buyer, its successors and/or assigns, and lenders). It shall be a condition to Buyer’s obligation to close the sale and purchase of the Property that on or before the Closing, Buyer is able to obtain an estoppel certificate substantially in such form from all of the Major Tenants (as defined below) (the “ Estoppel Threshold ”). All estoppel certificates shall be dated no more than forty-five (45) days prior to the Closing Date. An estoppel certificate, even though not in the required estoppel form, will be deemed reasonably acceptable to Buyer if it (i) contains the following information: confirming rent, security deposit, and termination date; that no rent has been paid more than one month in advance; that the Lease is in full force and effect and that a true and correct copy of the Lease with all amendments and modifications is attached; and that all work to be performed by landlord has been performed and that the tenant has no knowledge of any landlord default, (ii) is on the form required by the Lease, or (iii) is on the standard form of a tenant which customarily issues its own form if an alternative form is not otherwise required by the Lease.

(b) As used herein, the term “ Major Tenants ” shall mean Whole Foods, Frost Bank, Verizon Wireless, Newmark Real Estate of Houston, LLC (NGKF), Regus/Business Suites, Ceviche Trainera, FRC True Food Houston and FRC North Houston.

(c) Prior to the expiration of the Contingency Period, Seller will complete the estoppel form attached as Exhibit F for each of the tenants under the Leases (or such other form required under any Leases) and provide a draft thereof to Buyer (electronically in Word format) for its review and comment prior to sending same to the tenants under the Leases. Buyer shall review such draft estoppels and provide any comments thereto, within five (5) business days following receipt thereof. If Buyer fails to provide Seller with written notice of any comments to any estoppel, then the draft provided by Seller shall be deemed approved by Buyer. Promptly upon Buyer confirming approval (or being deemed to have approved) of such forms, Seller will send out the completed estoppel forms to each of the tenants in the approved form together with a written request that each such applicable tenant execute and deliver such estoppel certificate issued to Seller and to Buyer, its successors and/or assigns, or lenders, in such form or such alternative form as may otherwise be required under the applicable Lease. Promptly, but in any event within two (2) business days of receipt thereof, Seller will deliver to Buyer copies of each signed estoppel letter received by Seller (whether or not required to satisfy the Estoppel Threshold) from a tenant under the Leases.

(d) If Seller is unable to obtain and deliver sufficient tenant estoppel certificates as required under ‎Section 8.4(a), or if the certificates received or substituted Seller estoppels contain affirmative statements that contradict or vary in any materially adverse manner from the information completed by Seller in the form estoppel attached as Exhibit F for such applicable tenant or otherwise vary in any material adverse manner from and are contrary to the information contained in the Leases (as delivered to Buyer by Seller) or the representations and warranties set forth in this Agreement, or if any of the estoppel letters obtained by Seller indicate any defaults by landlord that are not cured or curable to Buyer’s reasonable satisfaction prior to Closing and Buyer objects thereto by written notice to Seller within five (5) business days after receipt by Buyer of the objectionable estoppel, but in any event on or before the Closing Date, then Seller will not be in default by reason thereof, and Seller may elect to extend the Closing Date by up to thirty (30) days in order to satisfy the requirement or cure such item. If Seller still cannot satisfy the requirement

at the end of such extended period, then Seller will not be in default by reason thereof, but Buyer may, by written notice given to Seller before the Closing, elect as its sole remedy to terminate this Agreement and receive a refund of the Deposit or waive said condition and proceed to Closing. If no such notice is timely delivered by Buyer, Buyer shall be deemed to have waived such condition. If Buyer so elects to terminate this Agreement, neither party shall have any further rights or obligations hereunder except for those obligations that expressly survive termination of this Agreement. Notwithstanding anything herein to the contrary, Seller shall have no liability under any such Seller estoppels for any matters first arising and accruing from and after the date of such Seller estoppel. With respect to Whole Foods, the existence of a dispute regarding 2016 CAM, taxes and insurance shall not constitute a default provided Seller agrees to indemnify Buyer from any liability related to such dispute with Whole Foods related to 2016 reconciliations.

(e) Seller agrees upon request by Buyer to send estoppel certificates, in such forms as Buyer may reasonably request, to, and to request execution thereof by, other parties (including but not limited to other parties to or beneficiaries of the Property Declarations) under contracts in force related to the development, use, leasing, management, maintenance or operation of the Property and which will survive Closing. In no event shall receipt of such estoppels be a condition to Closing and, in the event such estoppels are not delivered, Seller shall not be in default hereunder, there shall be no extension of the Closing Date and Buyer shall have no right to terminate this Agreement. Seller advises Purchaser that the Property Declarations do not include provisions requiring the delivery of estoppels related thereto.

Section 8.5 Prorations.

(a) Rents, including, without limitation, percentage rents, and all other income from the operation of the Property, if any, and any additional charges and expenses payable by tenants under Leases, and assessments and charges payable to and collectable by the owner of the Property under the Property Declarations, all as and when actually collected; real property taxes (based on Title Company estimates, in the event that real property taxes for the year of Closing are not fully ascertained as of the Closing Date) and assessments (on a cash basis); water, sewer and utility charges; and amounts payable under any Service Contracts to be assumed by Buyer at Closing; and any other ordinary and recurring expenses of the operation and maintenance of the Property and with respect to which Seller shall receive a credit at Closing in the amount of the prepaid or unamortized portion thereof), shall all be prorated as of 12:01 a.m. on the date of Closing (i.e., Buyer is entitled to the income and responsible for the expenses of the entire day of Closing and all subsequent periods, and Seller is entitled to the income and responsible for expenses attributable to all periods prior to the day of Closing), on the basis of a 365-day year. Buyer shall reimburse Seller for the tenant improvement costs, leasing commissions, legal fees and other expenses, and free rent and other concessions for which Buyer is responsible, as provided in Section 7.2.

All rents and income collected after the Closing shall be applied and paid as provided in this ‎Section 8.5(a). Buyer shall have no obligation to Seller to collect any such unpaid rents or other charges (but agrees to invoice same to the applicable tenant as otherwise provided below), and all rents and other charges collected shall be first applied to current rents and charges due, next to rents and charges past due (in reverse order to which they become past due) for the period after

the Closing Date through the then current rent period, and lastly to rents and charges past due for the period prior to the Closing Date. If a tenant shall specifically designate a payment as being attributable to, or if it is readily ascertainable that a payment received from a tenant is attributable to a specific period of time or for a specific purpose, including, without limitation, for operating expenses or real estate tax payments which were not paid or were underpaid by such tenant or for reimbursement for work performed by Seller on the tenant’s premises, such payment shall be so applied provided no other amounts payable for the period from and after Closing are past-due. If there is no such designation or if not so readily ascertainable, any payment received from a tenant after Closing shall be deemed a payment of rent due after the Closing until the tenant is current on rents and sums due under the applicable Lease on or after the Closing, and then such payments shall be paid to Seller to the extent of any rent or other sums owing to Seller for periods prior to Closing. For a period of up to ninety (90) days after Closing, Buyer agrees to remit invoices prepared by Seller (in the name of Buyer) in order to bill items payable by tenant’s under Leases, but Buyer shall not be required to take any other action to collect such amounts due unless it chooses to take such action and Buyer may deduct the reasonable apportioned third-party costs of collection from any such amounts collected before remitting the balance due Seller. Seller retains the right to collect any such rents and other sums from tenants after Closing; provided, however, that Seller shall have no right to cause any such tenant to be evicted, to execute against the assets of such tenant required for operation in the Property, or to exercise any other landlord remedy against such tenant other than to sue for collection. To the extent Seller collects rents and charges for Leases after the Closing Date, Seller agrees to hold all collections in trust, and to promptly turn over such collections to Buyer, and Buyer shall apply such funds between Buyer and Seller in the manner provided herein.

Reconciliations of taxes, insurance charges and other expenses owed by tenants under Leases for the calendar year (or fiscal year if different from the calendar year) in which the Closing occurs shall be prepared by Buyer with the cooperation of Seller within 180 days following the end of such year in accordance with the requirements set forth in the Leases and as provided in this ‎Section 8.5(a). For those Leases in which tenants pay a proportionate share of taxes, insurance charges or other expenses over a base year amount or expense stop or up to an expense cap, the proration between the parties of the income received from tenants over such base year amount or expense stop or up to an expense cap shall be calculated by multiplying the total reimbursement payable by the applicable tenant (after taking into account the applicable base year, expense stop or expense cap) for such applicable billing period by a fraction the numerator of which is the total expenses incurred by the applicable party (i.e. Seller or Buyer, as applicable) with respect to its applicable period of ownership with respect to such applicable billing items (to which such base year, expense stop or expense cap apply, but without regard to the amount of any base year, expense stop or expense cap amounts), and the denominator of which is the total amount of such expenses for the Property incurred by both Seller and Buyer combined for the entire calendar (or, if applicable, fiscal) year within such billing period and billing items and otherwise in accordance with this ‎Section 8.5(a) (and after taking into account any estimated payments of rent actually collected by Seller and Buyer respectively for their respective period of ownership). By way of illustration but without limiting the foregoing, if: (i) the Closing occurs on June 1, 2016, (ii) during Seller’s period of ownership of the Property during the year 2016 (151 days), Seller incurred expenses of $450,000, (iii) during Buyer’s period of ownership of the Property during the year 2016 (214 days), Buyer incurred expenses of $500,000, (iv) total expenses for such year recovered from tenants under Leases is

$400,000 (e.g., $950,000 total expenses minus a total base year amount of $550,000), then Seller would be entitled to $165,479.45 of such income ($400,000/365 days = $1,095.89 per diem multiplied by 151 days) and Buyer would be entitled to $234,520.55 of such income ($1,095.89 per diem multiplied by 214 days), regardless of the actual amount of expenses actually incurred by each party (which would have instead resulted in Seller receiving $189,473.68 of such income and Buyer receiving $210,526.32 of such income). For Leases which do not have a base year amount or expense stop or expense cap on expense reimbursements, the proration between the parties of income received from tenants from reconciliations of expenses under the Leases shall be calculated by multiplying the total reimbursable expenses for each tenant by a fraction the numerator of which is the total expenses incurred by the applicable party (i.e. Seller or Buyer, as applicable) with respect to its applicable period of ownership with respect to such applicable billing items, and the denominator of which is the total amount of such expenses for the Property incurred by both Seller and Buyer combined for the entire calendar (or, if applicable, fiscal) year within such billing period and billing items and otherwise in accordance with this Section 8.5(a) (and after taking into account any estimated payments of rent actually collected by Seller and Buyer respectively for their respective period of ownership). If any Lease is in effect for less than an entire year, then such proration and calculation of expense shall only be with respect to the applicable billing period under the applicable Lease.

Notwithstanding the above, (i) any amounts of rent or additional rent due to or from tenants with respect to Leases terminated before the Date of Closing shall be the sole obligation/benefit of Seller, and (ii) any amounts of rent or additional rent due to or from tenants with respect to Leases for which rent first commences on or after the date of Closing shall be the sole obligation/benefit of Buyer and shall not be subject to proration or adjustment under the above provisions.

All adjustments set forth above shall be calculated on a tenant by tenant basis. In calculating prorations, no expenses shall be included within the numerator or denominator unless such expenses are reimbursable under the applicable Lease without giving effect to any lease provisions creating a base year, expense stop or expense cap with respect to the total amount of such expenses that are reimbursable to landlord.

Notwithstanding anything herein to the contrary, except as provided in the second sentence of this paragraph, Seller shall be solely responsible, at Seller's sole cost and expense, for all tenant reimbursements, payments, credits and reconciliations due tenants for the period prior to Closing based on funds collected by Seller prior to Closing (and for all reconciliation periods prior to the current reconciliation period in which the Closing Date occurs, as applicable), whether such amounts are determined to be due as a result of an audit exercisable by a tenant under a Lease that is exercised after Closing or otherwise, and Seller shall indemnify and defend and hold Buyer harmless from and against all costs, expenses, liabilities and credits that may be due or become due to tenants attributable to any such prior periods (and for all reconciliation periods which ended prior to the Closing Date). In the event any tenants are due reimbursements, payments, credits or reconciliations attributable to such prior periods prior to Closing and such credits are known to and not disputed at Closing by Seller, Buyer shall receive a credit at Closing against the Purchase Price in the amount of such outstanding reimbursements, payments, credits or reconciliations due tenants and Buyer shall be responsible for paying same due tenants to the extent, but only to the extent, of the credit

given Buyer by Seller hereunder at Closing. This provision shall survive Closing without limitation as to time.

The amount of any cash security deposits and pre-paid rents attributable to periods following the Closing, if any, held by Seller under Leases shall be credited against the Purchase Price (and Seller shall be entitled to retain such cash security deposits and such pre-paid rent). Seller will use commercially reasonable efforts (including payment of any reasonable issuer fees not otherwise payable by the applicable tenant) to cause any letters of credit held as security deposits to be transferred to, or reissued in, the name of Buyer at Closing. With respect to any such letters of credit held as security deposits that are not so transferred or reissued into the name of Buyer as of Closing, Seller shall continue to hold such letters of credit on behalf of Buyer and shall act as lawfully directed by Buyer following Closing with respect to any such letters of credit; provided, however, that Buyer shall defend, indemnify and hold harmless Seller from and against any and all claims, losses, damages, costs, expenses, obligations and liabilities (including, without limitation, court costs and reasonable attorneys’ fees and disbursements) incurred by Seller arising out of any action taken by Seller with respect to any such letter of credit in accordance with instructions as Buyer may direct.

Seller shall receive credits at Closing for the amount of any utility or other deposits with respect to the Property to the extent such accounts are transferred to Buyer and Buyer receives the benefit of same. Buyer and Seller shall cooperate to cause all utilities to be transferred into Buyer’s name and account, or, at the option of either party, to cause Seller’s existing accounts to be closed and to cause a new account to be opened in Buyer’s name, at the time of or immediately upon Closing in which event Seller shall be entitled to any refunds of any such utility or other deposits. Notwithstanding any provision above to the contrary, utility charges (including, but not limited to, water rates and sewer charges or rentals), if metered shall not be apportioned at Closing, but Seller shall cause all utility meters to be read not more than two (2) days before Closing Date, and Seller agrees to pay promptly after receipt all utility bills and charges accruing up to and including the day preceding the Closing Date and Buyer agrees to pay all charges from and after Closing.

Seller and Buyer hereby agree that if any of the aforesaid prorations and credits are based on estimates, or cannot be calculated accurately on the Closing Date, or in the case of rents or other charges received from tenants or other assessments due to or payable by the owner of the Property under the Property Declarations, such amount have not been collected, then the same shall be calculated as soon as reasonably practicable after the Closing Date, or the date actual amounts or known, or the date such amounts have been collected, as applicable, and either party owing the other party a sum of money based on such subsequent proration(s) or credits shall pay said sum to the other party within thirty (30) days thereafter. Any amounts not paid within such thirty (30) days after written demand by the other party (or any other amount due by one party to the other for the period after Closing under this Agreement not paid within thirty (30) days after demand by the party to who payment is owed) shall bear interest from the date actually received by the payor until paid at the greater of (i) the rate of ten percent (10%) per annum or (ii) the prime rate (or base rate) reported from time to time in the “Money Rates” column or section of The Wall Street Journal as being the base rate on corporate loans at larger United States money center commercial banks plus two (2) percent. Upon request of either party, the parties shall provide a detailed and accurate written statement signed by such party certifying as to the payments received by such party from

tenants or third parties under the Property Declarations (but subject to proration hereunder) prior to or from and after Closing and to the manner in which such payments were applied, and shall make their books and records available for inspection by the other party during ordinary business hours upon reasonable advance notice.

(b) All title charges (including survey coverage and other endorsements and reinsurance charges to the Title Policy and the lender’s title policy, but excluding the basic premium for the Title Policy), survey costs and recording fees shall be paid by Buyer at Closing. Seller shall be responsible for the basic premium for the Title Policy. Any escrow or closing fees shall be split equally between Seller and Buyer. The parties will execute and deliver any required transfer or other similar tax declarations to the appropriate governmental entity at Closing.

(c) Any percentage rent received in the year in which Closing occurs shall be prorated based upon the number of days of Seller’s and Buyer’s respective ownership of the Property, regardless of whether such sales occur during the portion of the lease year allocable to Seller’s and Buyer’s respective ownership of the Property.

(d) The provisions of this Section 8.5 shall survive the Closing.

ARTICLE IX

MISCELLANEOUS

Section 9.1 Notices.

Any notices required or permitted to be given hereunder shall be given in writing and shall be delivered (a) in person, (b) by e-mail with confirmation of receipt, or (d) by a commercial overnight courier that guarantees next day delivery and provides a receipt, and such notices shall be addressed as follows:



To Buyer:	Whitestone REIT Operating Partnership 2600 S. Gessner Road, Suite 500 Houston, TX 77063-3223 Attn: Attn: Bradford D. Johnson, Vice President Acquisitions & Asset Management Email: bjohnson@whitestonereit.com
with copies to:	Whitestone REIT Operating Partnership 2600 S. Gessner Road, Suite 500 Houston, TX 77063-3223 Attn: Attn: Doug Pyne, Corporate Counsel Email: dpyne@whitestonereit.com Locke Lord LLP 600 Travis Suite 2800 Houston, Texas 77002 Attn: Scott Hunsaker Email: shunsaker@lockelord.com
To Seller:	Phase II Boulevard Place, LP c/o Bailard 950 Tower Lane, Suite 1900 Foster City, CA 94404-2131 Attn: Preston Sargent, Executive Vice President Email: psargent@bailard.com
With a copy to:	HFF 9 Greenway Plaza, Suite 700 Houston, TX 77046 Attn: Rusty Tamlyn, Senior Managing Director Email: rtamlyn@hfflp.com
And to:	Seyfarth Shaw, LLP 700 Milam, Suite 1400 Houston, TX 77002 Attn: Peter M. Oxman Email: poxman@seyfarth.com

or to such other address as either party may from time to time specify in writing to the other party. Any notice shall be effective only upon receipt or the date of written evidence that acceptance of delivery has been refused; provided, for purposes of a party timely giving notice under this Agreement (particularly as to notice of continuation of this Agreement beyond the end of the Contingency Period, notice given by email shall be deemed effective as of the date sent (even without confirmation of receipt) if a copy of such notice is also deposited with an overnight courier for next day delivery in the manner described in clause (d) above on the same day as the email is

sent, but any time period for the party receiving any such notice deemed effective under this provision shall not commence to run until actual receipt of such notice or the date of written evidence that acceptance of delivery has been refused.

Section 9.2 Entire Agreement.

This Agreement, together with the Exhibits and schedules hereto, contains all representations, warranties and covenants made by Buyer and Seller and constitutes the entire understanding between the parties hereto with respect to the subject matter hereof. Any prior correspondence, memoranda or agreements are replaced in total by this Agreement together with the Exhibits and schedules hereto.

Section 9.3 Intentionally Omitted.

Section 9.4 Time; Business Days.

Time is of the essence in the performance of each of the parties’ respective obligations contained herein. If the final date of any period which is set out in this Agreement falls upon a Saturday, Sunday or legal holiday on which national banks in Houston, Texas are closed for business, then, and in such event, the time of such period shall be extended to the next day which is not a Saturday, Sunday or legal holiday. For clarification, the term “legal holiday” shall include any date that national banks in Houston, Texas are closed due to an emergency.

Section 9.5 Attorneys’ Fees.

If either party hereto fails to perform any of its obligations under this Agreement or if any dispute arises between the parties hereto concerning the meaning or interpretation of any provision of this Agreement, whether prior to or after Closing, or if any party defaults in payment of its post-Closing financial obligations under this Agreement, then the defaulting party or the party not prevailing in such dispute, as the case may be, shall pay any and all reasonable costs and expenses incurred by the other party on account of such default and/or in enforcing or establishing its rights hereunder, including, without limitation, court costs and reasonable attorneys’ fees and disbursements.

Section 9.6 Assignment.

Buyer’s rights and obligations hereunder shall not be assignable without the prior written consent of Seller in Seller’s sole discretion. Notwithstanding the foregoing, after deposit of the Deposit, Buyer shall have the right, without the necessity of obtaining Seller’s consent but with prior written notice to Seller, to assign its right, title and interest in and to this Agreement to an affiliate of Buyer, provided that such assignee assumes the obligations of Buyer hereunder and provided, further, that Buyer shall in no event be released from any of its obligations or liabilities hereunder in connection with any assignment. However, in no event shall Buyer have the right to assign its rights or obligations hereunder to any party which could not make the representations and warranties contained in Sections 3.5(e) and (g) above, and in connection with any assignment pursuant to the terms hereof, the assignee shall reconfirm in a written instrument reasonably

acceptable to Seller and delivered to Seller prior to the effective date of the assignment said representation and warranty as applied to the assignee and that all other terms and conditions of this Agreement shall apply to such assignee. Subject to the provisions of this Section, this Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective successors and assigns.

Section 9.7 Counterparts.

This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same instrument. Signatures hereto transmitted by electronic means such as e-mail shall be binding on the parties hereto.

Section 9.8 Governing Law.

This Agreement shall be governed by and construed in accordance with the laws of the State in which the Real Property is located.

Section 9.9 Confidentiality and Return of Documents.

Buyer and Seller shall each hold, and shall cause it’s respective members, partners, shareholders, directors, officers, employees, agents, contractors, representatives, attorneys, consultants, accountants, affiliates, prospective and current lenders, investors and partners (such persons or entities related to Buyer are herein called the “ Buyer Group ;” and such persons or entities related to Seller are herein called the “ Seller Group ”) to hold, in strict confidence, and not disclose to any other person without the prior written consent of the other party hereto, (a) confidential information (marked as such) regarding the other party, (b) the terms of this Agreement, and (c) any of the information with respect to the Property (items (a)-(c) above are collectively referred to as the “ Confidential Information ”); provided, however, the term “Confidential Information” shall not mean any information that (i) Buyer or Seller (the party making or seeking to make such disclosure is herein called the “ Disclosing Party ” and the other party is herein called the “ Non-Disclosing Party ”) can prove was already in the Disclosing Party’s possession prior to such disclosure and not already subject to a confidentiality agreement restricting such disclosure, or (ii) becomes generally available to the public other than as a result of a disclosure by the Disclosing Party in violation of this Agreement or any other confidentiality agreement to which such parties are bound; or (iii) becomes available to a party from a source other than the Disclosing Party; provided that such source is not known by the party making such disclosure to be bound by a confidentiality agreement with or other obligation of secrecy to the Non-Disclosing Party by a third party (any information that is not otherwise Confidential Information shall not be subject to the confidentiality provisions of this Section 9.9. Notwithstanding anything to the contrary hereinabove set forth, a Disclosing Party may disclose such information (i) on a need-to-know basis to the Buyer Group or Seller Group, as applicable, but subject to such individuals or entities being bound by the confidentiality provisions of this paragraph, (ii) as any Governmental Authority may require in order to comply with applicable laws, provided that the Disclosing Party shall give the Non-Disclosing Party at least two (2) Business Days’ prior written notice before the Disclosing Party discloses such information to such Governmental Authority, and (iii) to the extent that such information is a matter of public record other than as a result of a disclosure by the Disclosing Party.

In addition, the confidentiality restrictions contained in this paragraph shall not apply to any disclosures required by law or regulatory requirement, by court order or subpoena, or in the event of litigation between the parties arising out of this Agreement. In no event shall Seller be required to disclose or provide to Buyer any Protected Information. Notwithstanding the foregoing, upon Closing, all confidential information about the Property (other than Protected Information) shall be the property of Buyer and Buyer shall no longer by bound by this provision after Closing with respect to disclosure of confidential information pertaining to the Property. Except as may be required by law, Buyer will not divulge any Confidential Information of Seller to other persons or entities including, without limitation, appraisers, real estate brokers, or competitors of Seller. Notwithstanding the foregoing, Buyer shall have the right to disclose information with respect to the Property to the members of the Buyer Group, permitted assignees under this Agreement and other consultants to the extent necessary or desirable for Buyer to evaluate its acquisition of the Property provided that all such persons are told that such information is confidential and agree (in writing for any third party engineers, environmental auditors or other consultants) to keep such information confidential. Buyer and Seller each shall have the right to disclose this Agreement or transaction as reasonably required to carry out the terms of this Agreement, including disclosing its identity as a prospective purchaser in conducting tenant interviews or as otherwise required by law.

If Buyer acquires the Property from Seller, Seller and Buyer each shall have the right, subsequent to the Closing of such acquisition, to publicize the transaction, including the Purchase Price (but not the identity of the other party to, or any other specific economics of, the transaction) in whatever manner it deems appropriate; provided that any press release or other public disclosure regarding this Agreement or the transactions contemplated herein, and the wording of same, must be approved in advance by both parties (which approval shall not be unreasonably withheld). The provisions of this paragraph shall survive the Closing or any termination of this Agreement. In the event the transaction contemplated by this Agreement does not close as provided herein, upon the request of Seller, Buyer shall promptly return to Seller all Due Diligence Materials and other documents and copies obtained by Buyer in connection with the purchase of the Property hereunder.

Section 9.10 Interpretation of Agreement.

The article, section and other headings of this Agreement are for convenience of reference only and shall not be construed to affect the meaning of any provision contained herein. Where the context so requires, the use of the singular shall include the plural and vice versa and the use of the masculine shall include the feminine and the neuter. The term “ person ” shall include any individual, partnership, joint venture, corporation, trust, unincorporated association, any other entity and any government or any department or agency thereof, whether acting in an individual, fiduciary or other capacity. This Agreement has been jointly prepared by Seller and Buyer and it should not be interpreted in favor of or against either Buyer or Seller.

Section 9.11 Limited Liability.

The obligations of Seller under this Agreement and under all of the Other Documents are intended to be binding only on Seller and the property of Seller and shall not be personally binding upon, nor shall any resort be had to, the private properties of any Seller Related Parties (other than

Seller and the Bailard Fund under the Joinder attached to this Agreement or either of their respective successors and/or assigns). Without limiting the generality of the foregoing, Buyer agrees that it does not have, will not have and unconditionally releases and discharges any claims or causes of action against any of the Seller Related Parties (other than Seller and the Bailard Fund under the Joinder attached to this Agreement or either of their respective successors and/or assigns) or any of their respective disclosed or undisclosed officers, directors, employees, trustees, shareholders, partners, principals, parents, subsidiaries or other affiliates, arising out of or in connection with this Agreement or the transactions contemplated hereby, INCLUDING ALL SUCH CLAIMS OR CAUSES OF ACTION BASED ON THE ACTUAL OR ALLEGED NEGLIGENCE AND/OR STRICT LIABILITY OF ANY SELLER RELATED PARTIES (other than Seller or its successors and/or assigns under this Agreement). Buyer agrees to look solely to Seller and its assets for the satisfaction of any liability or obligation arising under this Agreement or the transactions contemplated hereby, or for the performance of any of the covenants, warranties or other agreements contained herein, except as provided in the Joinder. The provisions of this Section shall survive the termination of this Agreement and the Closing.

Section 9.12 Amendments.

This Agreement may be amended or modified only by a written instrument signed by Buyer and Seller.

Section 9.13 No Recording.

Neither this Agreement or any memorandum or short form thereof may be recorded. If this Agreement or any memorandum or affidavit of this Agreement is filed for record by Buyer, notwithstanding any provision hereof, Seller shall have the sole and exclusive right to terminate this Agreement by written notice filed of record, whereupon the Deposit shall be paid to Seller as liquidated damages, and in addition, Buyer agrees to immediately execute a release of this Agreement in recordable form, and all parties hereto shall thereupon automatically be fully and finally released from all provisions of this Agreement, other than the provisions which survive termination of this Agreement.

Section 9.14 Drafts Not an Offer to Enter into a Legally Binding Contract.

The parties hereto agree that the submission of a draft of this Agreement by one party to another is not intended by either party to be an offer to enter into a legally binding contract with respect to the purchase and sale of the Property. The parties shall be legally bound with respect to the purchase and sale of the Property pursuant to the terms of this Agreement only if and when the parties have been able to negotiate all of the terms and provisions of this Agreement in a manner acceptable to each of the parties in their respective sole discretion, and both Seller and Buyer have fully executed and delivered to each other a counterpart of this Agreement (or a copy by email pdf or facsimile transmission).

Section 9.15 Intentionally Omitted .

Section 9.16 No Partnership.

The relationship of the parties hereto is solely that of Seller and Buyer with respect to the Property and no joint venture or other partnership exists between the parties hereto. Neither party has any fiduciary relationship hereunder to the other.

Section 9.17 No Third Party Beneficiary.

The provisions of this Agreement are not intended to benefit any third parties.

Section 9.18 Waiver of Jury Trial.

EACH OF SELLER AND BUYER HEREBY WAIVE TRIAL BY JURY IN ANY ACTION ARISING OUT OF MATTERS RELATED TO THIS AGREEMENT, WHICH WAIVER IS INFORMED AND VOLUNTARY .

Section 9.19 Limitation on Liability.

(a) Notwithstanding anything to the contrary contained herein, after the Closing: (i) the maximum aggregate liability of Seller, and the maximum aggregate amount which may be awarded to and collected by Buyer (including, without limitation, for any breach of any representation, warranty and/or covenant by Seller) under this Agreement or any documents executed pursuant hereto or in connection herewith, including, without limitation, the Deed, the Bill of Sale, the Assignment of Leases and any Seller estoppel certificate (collectively, the “ Other Documents ”, shall under no circumstances whatsoever exceed Four Million Five Hundred Thousand and No/100 Dollars ($4,500,000.00) (as applicable, “ CAP Amount ”);”); and (ii) no claim by Buyer alleging a breach by Seller of any representation, warranty and/or covenant of Seller contained herein or in any of the Other Documents may be made, and Seller shall not be liable for any judgment in any action based upon any such claim, unless and until such claim, either alone or together with any other claims by Buyer alleging a breach by Seller of any such representation, warranty and/or covenant is for an aggregate amount in excess of Seventy-Five Thousand Dollars ($75,000) (the “ Floor Amount ”), in which event Seller’s liability respecting any final judgment concerning such claim or claims shall be for the entire amount thereof, subject to the limitation set forth in clause (i) above; provided, however, that if any such final judgment is for an amount that is less than or equal to the Floor Amount, then Seller shall have no liability with respect thereto.

(b) Notwithstanding any provision above to the contrary, however, neither the CAP Amount nor the Floor Amount shall be applied to limit Seller’s liability to Buyer under the following provisions (and any sums payable under such provisions shall not be included in calculation of the CAP Amount or Floor Amount): (i) to make post-Closing prorations and adjustments and to pay Buyer any amounts due on account thereof under the express provisions of this Agreement; (ii) to remit rents and other charges under Leases or Property Declarations collected by Seller that are due to Buyer under this Agreement; (iii) to pay or perform any obligation of Seller under the provisions of Sections 5.1 (as to payment of proceeds and awards), 5.2 (as to payment of proceeds and awards), 6.1, 7.2, 8.3(a)(10), (e), 8.5, and 9.5; (iv) any actual fraud and (v) the special warranty of title set

forth in the Deed. The provisions of this Section 9.19 will survive the Closing and the delivery of the Deed.

(c) Pursuant to that certain Joinder (the “ Joinder ”) attached hereto, Bailard, Biehl & Kaiser Properties II, Inc., a Maryland corporation (the “ Bailard Fund ”), agrees to guaranty for the benefit of Buyer (but not any successor or assign of Buyer, other than entities owned or controlled by Buyer, or owning or controlling Buyer, or under common ownership or control with Buyer, and Buyer’s and such entities’ current and future lender(s), and such lenders’ respective successors and assigns, including but not limited to any person or entity who may acquire the Property or any portion thereof by foreclosure or deed in lieu) the obligations of Seller to Buyer following Closing for any breach of representation, warranty and/or covenant by Seller under this Agreement that survives Closing; provided, however, that (i) the Bailard Fund shall have no liability whatsoever under such Joinder if the Closing does not occur; (ii) notwithstanding the provisions of Section 9.19(b), the liability of the Bailard Fund under the Joinder shall in all instances be subject to the CAP Amount and the Floor Amount; and (iii) the Bailard Fund’s obligations under the Joinder shall only apply to claims first discovered by Buyer after Closing and as to which written notice is given by Buyer to Seller prior to the earlier to occur of (A) ninety (90) days following the Discovery Date or (B) the expiration of the Limitation Period. The obligations of the Bailard Fund under the Joinder shall terminate on the first anniversary of the Closing Date except with respect to claims timely made by Buyer in accordance with clause (iii) above.

Section 9.20 Survival.

Except as expressly set forth to the contrary herein, no representations, warranties, covenants or agreements of Seller contained herein shall survive the Closing.

Section 9.21 Survival of Article IX.

The provisions of Sections 9.1, 9.2, 9.4, 9.5, 9.8, 9.9, 9.10, 9.11, 9.12, 9.13, 9.15, 9.16, 9.17, 9.18, 9.19, 9.20, and 9.23 of this Article IX shall survive the Closing.

Section 9.22 Utility Service Notice .

In accordance with Section 13.257 of the Texas Water Code, Seller hereby notifies Buyer as follows:

“The real property described below, that you are about to purchase may be located in a certificated water or sewer service area, which is authorized by law to provide water or sewer service to the properties in the certificated area. If your property is located in a certificated area there may be special costs or charges that you will be required to pay before you can receive water or sewer service. There may be a period required to construct lines or other facilities necessary to provide water or sewer service to your property. You are advised to determine if the property is in a certificated area and contact the utility service provider to determine the cost that you will be required to pay and the period, if any, that is required to provide water or service to your property.

“The undersigned purchaser acknowledges receipt of the foregoing notice at or before the execution of a binding contract for the purchase of the real property described in the notice or at closing of purchase of the real property.

Section 9.23 Severability.

If any provision of this Agreement, or the application thereof to any person or circumstance, shall be invalid or unenforceable, at any time or to any extent, then the remainder of this Agreement, or the application of such provision to persons or circumstances other than those as to which it is invalid or unenforceable, shall not be affected thereby. Each provision of this Agreement shall be valid and enforced to the fullest extent permitted by law.

[signature pages follow next]

The parties hereto have executed this Agreement as of the date set forth in the first paragraph of this Agreement.



SELLER :	PHASE II BOULEVARD PLACE, LP, a Texas limited partnership By: Phase II Boulevard Place GP, LLC, a Texas limited liability company, its general partner By: Boulevard Place, L.P., a Texas limited partnership, its manager By: Wulfe Boulevard Venture, LLC, a Texas limited liability company, its general partner By: /s/ Edmond D. Wulfe Name: Edmond D. Wulfe Title: President

[Signature Page of Seller]



BUYER :	WHITESTONE REIT OPERATING PARTNERSHIP, L.P., a Delaware limited partnership By: Whitestone REIT, a Maryland real estate investment trust, its general partner By: /s/ James C. Mastandrea Name: James C. Mastandrea Title: Chairman and Chief Executive Officer

[Signature Page of Buyer]

LIST OF JOINDERS, EXHIBITS AND SCHEDULES

Joinder

Joinder of Bailard

Exhibits


Exhibit A	Real Property Description


Exhibit A-1	Depiction of Phase IIB Land


Exhibit B	Lease Schedule


Exhibit B-1	Rent Roll


Exhibit B-2	Receivables Report


Exhibit B-3	List of Service Contracts


Exhibit C	Deed


Exhibit D	Bill of Sale


Exhibit E	Assignment of Leases


Exhibit E-1	Assignment of Service Contracts


Exhibit E-2	Form of FIRPTA Certificate


Exhibit E-3	Form of Owner’s Affidavit


Exhibit F	Estoppel Certificate


Exhibit G	Escrow Conditions


Exhibit H	SEC Rule 3-14 Information

Schedule


Schedule 3.1	Disclosure Items

List of Joinders, Exhibits and Schedules

JOINDER OF BAILARD

Agreement of Purchase and Sale ( the “Agreement”)

between

PHASE II BOULEVARD PLACE, L.P. ,

a Texas limited partnership (“ Seller ”),

and

WHITESTONE REIT OPERATING PARTNERSHIP, L.P.,

a Delaware limited partnership (“ Buyer ”)

1. Capitalized terms used but not defined in this Joinder (this “ Joinder ”) shall have the meanings given such terms in the Agreement.

2. The Bailard Fund hereby joins in the execution of the Agreement solely for the purpose of agreeing, if Closing occurs and subject to the provisions of Section 9.19(c) of the Agreement, to guaranty for the benefit of Buyer, the payment of amounts due by Seller to Buyer following Closing for any breach of representation, warranty and/or covenant by Seller under the Agreement that survives Closing (the “ Guaranteed Obligations ”) provided, however, that (i) the Bailard Fund shall have no liability whatsoever hereunder if the Closing does not occur; (ii) notwithstanding the provisions of Section 9.19(b) of the Agreement, the liability of the Bailard Fund to pay Guaranteed Obligations shall in all instances be subject to the CAP Amount and the Floor Amount; and (iii) the Bailard Fund’s obligations under the Joinder shall only apply to claims first discovered by Buyer after Closing and as to which written notice is given by Buyer to Seller prior to the earlier to occur of (A) ninety (90) days following the Discovery Date or (B) the expiration of the Limitation Period. The obligations of the Bailard Fund under the Joinder shall terminate on the first anniversary of the Closing Date except with respect to claims timely made by Buyer in accordance with clause (iii) above.

3. The obligations of the Bailard Fund under this Joinder are limited to the Guaranteed Obligations, as the same are limited by the provisions of Section 9.19(c) of the Agreement and no additional obligations of the Bailard Fund shall be implied hereunder. Notwithstanding any provision of this Joinder to the contrary other than in Section 5 of this Joinder below, but without limiting the conditions set forth in Section 2 of this Joinder above, the Bailard Fund shall have the same defenses, set-offs and claims, if any, with respect to the enforcement of any Guaranteed Obligations as would Seller with respect to such Guaranteed Obligations.

4. Except as provided herein, this Joinder is unconditional and absolute, and if for any reason all or any portion of the Guaranteed Obligations shall not be paid or performed promptly when due, the Bailard Fund will immediately pay or perform the same to Buyer or other person or entity entitled thereto, regardless of whether Buyer or any other person or entity shall have taken any steps to enforce any rights against Seller to enforce or collect such Guaranteed Obligations, and regardless of any other condition or contingency other than the limitations set forth in Section 9.19(c) of the Agreement and this Joinder. This Joinder shall also cover interest on the Guaranteed Obligations in accordance with applicable law, and all

Joinder of Bailard

reasonable expenses (including without limitation reasonable attorneys' fees and expenses, and court costs) incurred by Buyer or such other person or entity enforcing this Joinder in enforcing payment or performance of the Guaranteed Obligations, this Joinder, or both.

5. The obligations, covenants, agreements and duties of the Bailard Fund under this Joinder shall in no way be affected or impaired by reason of the voluntary or involuntary liquidation, dissolution, sale of any collateral, marshaling of assets and liabilities, receivership, insolvency, bankruptcy, assignment for the benefit of creditors, reorganization, arrangement, composition or readjustment of debt of, or other similar proceedings affecting, Seller or any of the assets of Seller.

6. The Bailard Fund hereby waives marshaling of assets and liabilities, notice of acceptance of this Joinder and of any liability to which it applies or may apply, presentment, demand for payment, protest, notice of nonpayment, and notice of dishonor.

7. This is a guaranty of payment and performance and not of collection, and the Bailard Fund waives any right to require that any action be brought against Seller, or that a judgment previously be rendered against Seller or that Seller be joined in such cause or that a separate action be brought against Seller; the obligations of the Bailard Fund hereunder are several from those of Seller and are primary obligations concerning which the Bailard Fund is a principal obligor.

8. The Bailard Fund acknowledges and warrants that the Bailard Fund expects to derive financial benefit, directly or indirectly, from the sale of the Property to Buyer as contemplated by the Agreement.

9. Notices pursuant to this Joinder shall be given in the manner prescribed for notices under the Agreement. The address of the Bailard Fund for notice purposes shall be as follows (unless changed in accordance with the provisions of this Agreement):

Bailard, Biehl & Kaiser Properties II, Inc.

c/o Bailard

950 Tower Lane, Suite 1900

Foster City, CA 94404-2131

Attn: Preston Sargent, Executive Vice President

Email: psargent@bailard.com

with a copy to:

Seyfarth Shaw, LLP

700 Milam, Suite 1400

Houston, TX 77002

Attn: Peter M. Oxman

Email: poxman@seyfarth.com

The provisions of this Joinder shall bind all of the respective successors and assigns of the Bailard Fund and shall inure solely to the benefit of Buyer (but not any successor or assign of Buyer,

Joinder of Bailard

other than entities owned or controlled by Buyer, or owning or controlling Buyer or under common ownership or control with Buyer and Buyer’s and such entities’ current and future lender(s) holding a deed of trust lien on the Property, and such lenders’ respective successors and assigns, including but not limited to any person or entity who may acquire the Property or any portion thereof by foreclosure or deed in lieu), and shall terminate automatically upon the transfer of the Property to any other entity that is not wholly owned or controlled, directly or indirectly by Buyer.

10. This Joinder shall be governed by the laws of the State of Texas. The provisions of this Joinder shall survive the Closing but only as to claims timely made in accordance with Section 9.19(c) of the Agreement and subject to the limitations set forth in Section 9.19(c) of the Agreement and herein.

[signature page follows next]

Joinder of Bailard

EXECUTED as of the ___ day of March, 2017, to be effective upon the Closing Date.

BAILARD, BIEHL & KAISER PROPERTIES II, INC., a Maryland corporation

By: /s/ Preston R. Sargent

Name: Preston R. Sargent

Title: President

Exhibit A

REAL PROPERTY DESCRIPTION

TRACT 1:

All that certain 7.0296 acre tract of land being all of Reserve "A", Boulevard Place Sec. 3 Partial Replat No. 1 according to the plat thereof filed at Film Code Number 672045 Harris County Map Records, all coordinates and bearings being referenced to the Texas Coordinate System of 1983.

BEGINNING at a found "x" in concrete in the south right-of-way line of San Felipe Road (width varies) marking the north end of a cut-back corner for the east right-of-way line of South Post Oak Lane (width varies) having coordinates of Y=13839058.94 X=3091117.43;

THENCE N 85° 29' 28" E - 61.90', with said south right-of-way line to a found 5/8" iron rod with cap marking the Point of Curvature of a curve to the right having a central angle of 2° 20' 36", a radius of 1948.85', a chord which bears N 86° 39' 46" E - 79.70';

THENCE with said curve, continuing with said south right-of-way line for an arc distance of 79.70' to a found "x" in concrete;

THENCE N 87° 50' 03" E - 264.12', continuing with said south right-of-way line to a found "x" in concrete marking a point on a curve to the right having a central angle of 38° 55' 53", a radius of 71.82', a chord which bears S 22° 18' 39" E - 47.87';

THENCE with said curve and with the west right-of-way line of South Post Oak Boulevard (width varies) for an arc distance of 48.80' to a found 5/8" iron rod with cap for angle point;

THENCE S 3° 52' 21" E - 533.86', continuing with said west right-of-way line to a found 5/8" iron rod with cap for angle point;

THENCE S 3° 54' 46" E - 37.50' continuing with said west right-of-way line to a found "x' in concrete for corner;

THENCE S 85° 59' 01" W - 567.84' to a found "x" in concrete for corner;

THENCE N 4° 06' 11" W - 41.63', with the aforementioned east right-of-way line of South Post Oak Lane to a found 5/8" iron rod with cap marking the Point of Curvature of a curve to the right having a central angle of 19° 55' 39", a radius of 265.00', a chord which bears N 5° 51' 27" E 91.70;

THENCE with said curve, continuing with said east right-of-way line for an arc distance of 92.17' to a found 5/8" iron rod with cap marking the Point of Tangency;

THENCE N 15° 49' 16" E - 308.29', continuing with said east right-of-way line to a found "x" in concrete marking the Point of Curvature of a curve to the left having a central angle of 19° 22' 54", a radius of 335.00', a chord which bears N 6° 07' 49" E - 112.78';

THENCE with said curve, continuing with said east right-of-way line for an arc distance of 113.32' to a found 5/8" iron rod with cap marking the Point of Tangency;

THENCE N 3° 33' 38" W - 84.94' continuing with said east right-of-way line to a found "x" in concrete for angle point;

THENCE N 41° 02' 00" E - 11.06', with the aforementioned cut-back corner for the south right-of- way line of San Felipe Road to the POINT OF BEGINNING containing 7.0296 acres (306,208 square feet) of land more or less.

LESS AND EXCEPT that 0.0388 acre portion conveyed to CITY OF HOUSTON, TEXAS, a municipal corporation by deed recorded on May 26, 2016 under Clerk's File No. 2016-223965 .

TRACT 2:

Easement (Boulevard Place Drive Easement) appurtenant to Tract 1 as set forth in Declaration of Covenants, Conditions and Restrictions recorded under Clerk's File No. 20120239028 of the Real Property Records of Harris County, Texas, and covering the southern one-half of the following described 39,749 square foot tract:

All that certain 39,749 square feet for Boulevard Place Drive Easement out of Unrestricted Reserve "A",

Boulevard Place Sec 3 Subdivision according to the plat thereof filed at Film Code 639159 Harris County

Map Records and being more particularly described by metes and bounds as follows, all coordinates and bearings being referred to the Texas Coordinate System of 1983, South Central Zone, all distances shown are surface and may be converted to grid by multiplying by a combined scale factor of .99987000.

COMMENCING at a found "X" in concrete in the west right-of-way line of South Post Oak Boulevard marking the southeast corner of said Unrestricted Reserve "A" having coordinates of Y=13837882.41, X=3091618.88, THENCE N 3° 49' 23" W - 203.82', with said west right-of-way line to an angle point,

THENCE N 3° 54' 48" W - 344.20', continuing with said west right-of-way line to a set 5/8" iron rod with cap marking the POINT OF BEGINNING of the herein described tract;

THENCE S 85° 59' 02" W - 567.71' to a set 5/8" iron rod with cap for corner;

THENCE N 4° 06' 23" W - 70.00', with the east right-of-way line of South Post Oak Lane (70' wide) to a set 5/8" iron rod with cap for corner;

THENCE N 85° 59' 02" E - 567.95' to a set 5/8" iron rod with cap for corner;

THENCE S 3° 54' 48" E - 70.00', with the aforementioned west right-of-way line of South Post Oak Boulevard to the POINT OF BEGINNING containing 39,749 square feet (0.9125 acres) for Boulevard Place Drive Easement more or less.

TRACT 3:

All that certain 0.3615 acre tract of land being all of Unrestricted Reserve "A" Sky Lark Reserve A according to the plat thereof filed at Film Code Number 647241 Harris County Map Records and being more particularly described by metes and bounds as follows, all coordinates and bearings being referenced to the Texas Coordinate System of 1983. All coordinates reflect grid values and may be converted to surface values by applying a scale factor of 0.99987000.

BEGINNING at a found 5/8" iron rod with cap in the west right-of-way line of Sky Lark Lane (60' wide) at its intersection with the north line of said Unrestricted Reserve "A", having coordinates of Y=13,838,779.45, X=3,090,778.35;

THENCE S 03° 28' 14" E - 140.00', with Said west right-of-way line to a set 5/8" iron rod with cap for corner;

THENCE S 87° 15' 28" W - 112.61', with the north line of Unrestricted Reserve "A", Hanover Post Oak, according to the plat thereof filed at Film Code Number 650077 Harris County Map Records to a found 5/8" iron rod with cap;

THENCE N 03° 21' 24" W - 140.00', with the east line of a called 5.8739 acre tract described in a deed dated 01-18-1980 from P.F. Barnhart, Trustee to L. Irvin Barnhart, et al filed in the Official Public Records of Real Property of Harris County, Texas at Clerk File Number G425108 , to a found 5/8" iron rod with cap for corner;

THENCE N 87° 15' 31" E - 112.33', with the south line of Block 1, Lot 3, Azalea Terrace according to the plat thereof filed at Volume 33, Page 39 Harris County Map Records to the POINT OF BEGINNING, containing 0.3615 acres, (15,745 square feet) of land more or less.

Signature Page to Joinder of Bailard

Exhibit A-1

Depiction of the Phase IIB Land

Exhibit A-1

Exhibit B

LEASE SCHEDULE

Exhibit B

Exhibit B

Exhibit B

Exhibit B-1

RENT ROLL

Exhibit B-1

Exhibit B-1

Exhibit B-2

RECEIVABLES REPORT

Exhibit B-2

Exhibit B-3

LIST OF SERVICE CONTRACTS

Exhibit C

DEED

AFTER RECORDING RETURN TO:

_______________________________

NOTICE OF CONFIDENTIALITY RIGHTS: IF YOU ARE A NATURAL PERSON, YOU MAY REMOVE OR STRIKE ANY OR ALL OF THE FOLLOWING INFORMATION FROM ANY INSTRUMENT THAT TRANSFERS AN INTEREST IN REAL PROPERTY BEFORE IT IS FILED FOR RECORD IN THE PUBLIC RECORDS: YOUR SOCIAL SECURITY NUMBER OR YOUR DRIVER’S LICENSE NUMBER.

SPECIAL WARRANTY DEED

THE STATE OF TEXAS    §
                §    KNOW ALL MEN BY THESE PRESENTS:
COUNTY OF HARRIS    §

THAT, ______________________, ____________________ (“ Grantor ”), for and in consideration of the sum of Ten and No/100 Dollars ($10.00) and other good and valuable consideration in hand paid to Grantor by ____________________________ (“ Grantee ”), whose mailing address is _________________, _______________________________, Attention: ___________________, the receipt and sufficiency of such consideration being hereby acknowledged, has GRANTED, SOLD AND CONVEYED, and by these presents does GRANT, SELL AND CONVEY unto Grantee that certain real property being more particularly described in Exhibit A attached hereto and made a part hereof for all purposes, together with all improvements, structures and fixtures situated thereon (collectively, the “ Property ”); subject, however, to all matters of record (other than encumbrances or conveyances of the Property or any part thereof by Grantor subsequent to the execution and delivery of that certain Agreement of Purchase and Sale dated as of March 21, 2016 between Grantor and Whitestone REIT Operating Partnership, L.P. (the “ PSA ”) in violation of the PSA), to the extent, but no further, that same are in effect and affect title to the Property and subject to any matters that would be shown by an current survey of the Property (collectively, to such extent, the “ Permitted Exceptions ”).

Grantor further conveys to Grantee, without warranty, all of Grantor’s right, title and interest in and to the rights, tenements, hereditaments, easements, appendages, privileges and appurtenances pertaining thereto, including but not limited to all sewer and wastewater discharge capacity allocated or reserved thereto, all potable water capacity allocated or reserved thereto, all other utility rights allocated or reserved thereto, all development rights with respect thereto, rights to oil, gas and other minerals, rights to water, and any right, title and interest of Seller in and to strips, gores, adjacent streets, alleys and rights-of-way.

TO HAVE AND TO HOLD the Property, together with all and singular the rights, and appurtenances thereto in anywise belonging, unto Grantee, its successors and assigns forever, subject to the Permitted Exceptions; and Grantor does hereby bind itself and its successors to WARRANT AND FOREVER DEFEND all and singular the Property, subject to the Permitted Exceptions, unto Grantee, its successors and assigns, against every person whomsoever lawfully claiming, or claim the same, or any part thereof, by, through, or under Grantor, but not otherwise.

BY ITS ACCEPTANCE OF THIS DEED, GRANTEE ACKNOWLEDGES AND AGREES THAT, EXCEPT FOR THE EXPRESS REPRESENTATIONS, WARRANTIES AND COVENANTS OF GRANTOR SET FORTH IN THE PSA (THE “EXPRESS WARRANTIES”), GRANTOR SPECIFICALLY DISCLAIMS ANY REPRESENTATION, WARRANTY (OTHER THAN THE EXPRESS WARRANTIES AND THE WARRANTIES OF TITLE AS EXPRESSLY PROVIDED AND LIMITED HEREIN), PROMISE, AGREEMENT OR GUARANTY OF ANY KIND OR CHARACTER WHATSOEVER, WHETHER EXPRESS OR IMPLIED, ORAL OR WRITTEN CONCERNING OR WITH RESPECT TO: (a) THE VALUE, QUALITY OR CONDITION OF THE PROPERTY; (b) THE SUITABILITY OF THE PROPERTY FOR ANY AND ALL ACTIVITIES AND USES WHICH GRANTEE MAY CONDUCT THEREON; (c) THE COMPLIANCE OF THE PROPERTY WITH ANY APPLICABLE LAWS OR RESTRICTIVE COVENANTS; (d) THE HABITABILITY, SUITABILITY, MERCHANTABILITY, MARKETABILITY OR FITNESS FOR PARTICULAR PURPOSE OF THE PROPERTY; (e) THE MANNER OR QUALITY OF THE CONSTRUCTION OR MATERIALS INCORPORATED INTO THE PROPERTY; (f) THE MANNER, QUALITY, STATE OF REPAIR OR LACK OF REPAIR OF THE PROPERTY; OR (g) ANY OTHER MATTER OF ANY KIND WITH RESPECT TO THE PROPERTY. EXCEPT FOR THE EXPRESS REPRESENTATIONS, WARRANTIES AND COVENANTS OF GRANTOR, GRANTEE FURTHER ACKNOWLEDGES AND AGREES THAT TO THE MAXIMUM EXTENT PERMITTED BY LAW, THE SALE OF THE PROPERTY AS PROVIDED FOR HEREIN IS MADE ON AN “AS IS” AND “WITH ALL FAULTS” CONDITION AND BASIS WITH ALL FAULTS AND DEFECTS.

WITHOUT LIMITING THE ABOVE, AND SUBJECT TO THE EXPRESS WARRANTIES OF GRANTOR, GRANTEE ON BEHALF OF ITSELF AND ITS SUCCESSORS AND ASSIGNS WAIVES ITS RIGHT TO RECOVER FROM, AND FOREVER RELEASES AND DISCHARGES, GRANTOR, GRANTOR’S AFFILIATES, GRANTOR’S INVESTMENT ADVISOR, THE PARTNERS, TRUSTEES, BENEFICIARIES, SHAREHOLDERS, MEMBERS, MANAGERS, DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS AND REPRESENTATIVES OF EACH OF THEM, AND THEIR RESPECTIVE HEIRS, SUCCESSORS, PERSONAL REPRESENTATIVES AND ASSIGNS, FROM ANY AND ALL DEMANDS, CLAIMS, LEGAL OR ADMINISTRATIVE PROCEEDINGS, LOSSES, LIABILITIES, DAMAGES, PENALTIES, FINES, LIENS, JUDGMENTS, COSTS OR EXPENSES WHATSOEVER (INCLUDING, WITHOUT LIMITATION, COURT COSTS AND ATTORNEYS’ FEES AND DISBURSEMENTS), WHETHER DIRECT OR INDIRECT, KNOWN OR UNKNOWN, FORESEEN OR UNFORESEEN, THAT MAY ARISE ON ACCOUNT OF OR IN ANY WAY BE CONNECTED WITH (I) THE PHYSICAL CONDITION OF THE PROPERTY INCLUDING, WITHOUT LIMITATION, ALL STRUCTURAL AND SEISMIC ELEMENTS, ALL MECHANICAL, ELECTRICAL, PLUMBING, SEWAGE, HEATING, VENTILATING, AIR CONDITIONING AND OTHER SYSTEMS, THE ENVIRONMENTAL CONDITION OF THE PROPERTY AND THE PRESENCE OF HAZARDOUS MATERIALS ON, UNDER OR ABOUT THE PROPERTY, OR (II) ANY LAW OR REGULATION APPLICABLE TO THE PROPERTY, INCLUDING, WITHOUT LIMITATION, ANY ENVIRONMENTAL LAW AND ANY OTHER FEDERAL, STATE OR LOCAL LAW.

IN WITNESS WHEREOF, this instrument has been executed as of (but not necessarily on) this _____ day of ____________________, 2017.

GRANTOR :

By:____________________________________
Name:
Title:

THE STATE OF _____________ §

COUNTY OF _______________ §

This instrument was acknowledged before me on ___________________, 201_, by ____________________________________, a ________________________, on behalf of such ___________________.


My Commission Expires:	________________________________________


_____________________	Notary Public, State of ______________

________________________________________
Notary’s name printed:

Exhibit D

BILL OF SALE AND ASSIGNMENT

This Bill of Sale and Assignment (the “ Bill of Sale ”) is made and entered into ____________, 20__, by and between ____________________(“ Assignor ”), and __________________(“ Assignee ”).

In consideration of the sum of Ten Dollars ($10) and other good and valuable consideration paid by Assignee to Assignor, the receipt and sufficiency of which are hereby acknowledged, Assignor does hereby assign, transfer, convey and deliver to Assignee, its successors and assigns, all items of Tangible Personal Property and Intangible Personal Property (all as such terms defined in the Agreement referred to below), if any, owned by Assignor, including, without limitation, the Tangible Personal Property and Intangible Personal Property identified in Exhibit B , if any, attached hereto and made a part hereof for all purposes (the Tangible Personal Property and Intangible Personal Property are collectively referred to as the “ Personal Property ”).

Assignee acknowledges and agrees that, except as expressly provided in this Bill of Sale, and subject to the limitations contained in, that certain Agreement of Purchase and Sale dated _______________, 2017, by and between Assignor and Assignee (the “ Agreement ”) with respect to the Real Property (as defined in the Agreement) and more particularly described on Exhibit A attached hereto and made a part hereof for all purposes, Assignor has not made, does not make and specifically disclaims any representations, warranties, promises, covenants, agreements or guaranties of any kind or character whatsoever, whether express or implied, oral or written, past, present or future, of, as to, concerning or with respect to (a) the nature, quality or conditions of the personal property, (b) the income to be derived from the personal property, (c) the suitability of the personal property for any and all activities and uses which Assignee may conduct thereon, (d) the compliance of or by the personal property or its operation with any laws, rules, ordinances or regulations of any applicable governmental authority or body, (e) the quality, habitability, merchantability or fitness for a particular purpose of any of the personal property, or (f) any other matter with respect to the personal property. Assignee further acknowledges and agrees that, having been given the opportunity to inspect the personal property, Assignee is relying solely on its own investigation of the personal property and not on any information provided or to be provided by Assignor, except as specifically provided in the Agreement. Assignee further acknowledges and agrees that any information provided or to be provided with respect to the personal property was obtained from a variety of sources and that Assignor has not made any independent investigation or verification of such information. Assignee further acknowledges and agrees that the sale of the personal property as provided for herein is made on an “as is, where is” condition and basis “with all faults,” except as specifically provided in, and subject to the limitations contained in, the Agreement.

TO HAVE AND TO HOLD THE PERSONAL PROPERTY UNTO ASSIGNEE, ITS SUCCESSORS AND ASSIGNS FOREVER, SUBJECT TO THE PERMITTED EXCEPTIONS AS SET FORTH IN THE AGREEMENT; AND ASSIGNOR DOES HEREBY BIND ITSELF AND ITS SUCCESSORS TO WARRANT AND FOREVER DEFEND ALL AND SINGULAR THE TANGIBLE PERSONAL PROPERTY, UNTO ASSIGNEE, ITS SUCCESSORS AND ASSIGNS, AGAINST EVERY PERSON WHOMSOEVER LAWFULLY CLAIMING, OR CLAIM THE SAME, OR ANY PART THEREOF, BY, THROUGH, OR UNDER ASSIGNOR, BUT NOT OTHERWISE.

The obligations of Assignor are intended to be binding only on the Assignor and property of Assignor and shall not be personally binding upon, nor shall any resort be had to, the private properties of any Seller Related Parties (as defined in the Agreement) other than Assignor, its successors and/or assigns.

IN WITNESS WHEREOF, Assignor and Assignee have caused this Bill of Sale to be executed on the date and year first above written.



Assignor:	, a
	By: Its:
Assignee:
	a
	By:
	Its:
	By:
	Its:

Exhibit E

ASSIGNMENT OF LEASES

This Assignment of Leases (this “ Assignment ”) is made and entered into _______________, 20__, by and between _____________________________ (“ Assignor ”), ____________________________________ _____________________________________________ (“ Assignee ”).

For good and valuable consideration paid by Assignee to Assignor, the receipt and sufficiency of which are hereby acknowledged, Assignor does hereby assign, transfer, set over and deliver unto Assignee all of Assignor’s right, title, and interest in and to the following (collectively, the “ Assigned Items ”): (i) those certain leases (the “ Leases ”) listed on Exhibit A attached hereto and made a part hereof for all purposes and together with all rents, issues, and profits under the Leases except for Seller’s right to collect delinquent rent and other delinquent sums owing under such Leases for the period prior to the date hereof in accordance with the Agreement (as defined below); (ii) all guaranty agreements with respect to the Leases; and (iii) all security deposits and pre-paid rent under the Leases attributable to periods from and after the date hereof.

ASSIGNEE ACKNOWLEDGES AND AGREES, BY ITS ACCEPTANCE HEREOF, THAT, EXCEPT AS EXPRESSLY PROVIDED IN THIS ASSIGNMENT, AND SUBJECT TO THE LIMITATIONS CONTAINED IN, THAT CERTAIN AGREEMENT OF PURCHASE AND SALE, DATED AS OF _______________, 2017, BY AND BETWEEN ASSIGNOR AND ASSIGNEE (THE “ AGREEMENT ”), THE ASSIGNED ITEMS ARE CONVEYED “AS IS, WHERE IS” AND IN THEIR PRESENT CONDITION WITH ALL FAULTS, AND THAT ASSIGNOR HAS NOT MADE, DOES NOT MAKE AND SPECIFICALLY DISCLAIMS ANY REPRESENTATIONS, WARRANTIES, PROMISES, COVENANTS, AGREEMENTS OR GUARANTIES OF ANY KIND OR CHARACTER WHATSOEVER, WHETHER EXPRESS OR IMPLIED, ORAL OR WRITTEN, PAST, PRESENT OR FUTURE, OF, AS TO, CONCERNING OR WITH RESPECT TO THE NATURE, QUALITY OR CONDITION OF THE ASSIGNED ITEMS, THE INCOME TO BE DERIVED THEREFROM, OR THE ENFORCEABILITY, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF THE ASSIGNED ITEMS.

TO HAVE AND TO HOLD THE ASSIGNED ITEMS, UNTO ASSIGNEE, ITS SUCCESSORS AND ASSIGNS FOREVER, SUBJECT TO THE PERMITTED EXCEPTIONS (AS DEFINED IN THE AGREEMENT); AND ASSIGNOR DOES HEREBY BIND ITSELF AND ITS SUCCESSORS AND ASSIGNS TO WARRANTY AND FOREVER DEFEND ALL AND SINGULAR THE ASSIGNED ITEMS, UNTO ASSIGNEE, ITS SUCCESSORS AND ASSIGNS, AGAINST EVERY PERSON WHOMSOEVER LAWFULLY CLAIMING OR TO CLAIM THE SAME, OR ANY PART THEREOF, BY THROUGH OR UNDER ASSIGNOR, BUT NOT OTHERWISE.

Except as otherwise expressly provided in the Agreement or as provided below, by accepting this Assignment and by its execution hereof, Assignee assumes the payment and performance of, and agrees to pay, perform and discharge, all the debts, duties and obligations to be paid, performed or discharged first arising and accruing from and after the Closing Date (as defined in the Agreement) by the “landlord” or the “lessor” under the terms, covenants and conditions of the Leases, including, without limitation, brokerage commissions and compliance with the terms of the Leases relating to tenant improvements and security deposits. Assignee agrees to indemnify, hold harmless and defend Assignor from and against any and all claims, losses, liabilities, damages, costs and expenses (including, without limitation, court costs and reasonable attorneys’ fees and disbursements) resulting by reason of the failure of Assignee to pay, perform or discharge any of the debts, duties or obligations assumed or agreed to be assumed by Assignee hereunder arising out of or relating to, directly or indirectly, in whole or in part, the Assigned Items, first arising and accruing from and after the Closing Date. Except as otherwise expressly provided in the Agreement and subject to the provisions of Sections 3.2, 3.3 and 9.19 of the Agreement (which provisions are not modified in any way by the following indemnity), Assignor agrees to protect, indemnify, defend and hold Assignee harmless from and against all claims, losses, damages, costs, expenses, obligations and liabilities (including, without limitation, court costs and reasonable attorneys’ fees and disbursements) (collectively, “ Claims ”) arising out of or relating to, directly or indirectly, in whole or in part, the Leases, or any default under the Leases, first arising or accruing prior to the Closing Date or which otherwise are retained obligations of Assignor under the Agreement with respect to the Leases.

The obligations of Assignor are intended to be binding only on the property of Assignor and shall not be personally binding upon, nor shall any resort be had to, the private properties of any Seller Related Parties other than Assignor, its successors and/or assigns.

All of the covenants, terms and conditions set forth herein shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns.

IN WITNESS WHEREOF, Assignor and Assignee have caused this Assignment to be executed on the day and year first above written.



Assignor:	, a
	By: Its:
Assignee:
	a
	By:
	Its:

Exhibit E-1

ASSIGNMENT OF SERVICE CONTRACTS

This Assignment of Service Contracts (this “ Assignment ”) is made and entered into _______________, 20__, by and between _____________________________ (“ Assignor ”), ____________________________________ _____________________________________________ (“ Assignee ”).

ASSIGNEE ACKNOWLEDGES AND AGREES, BY ITS ACCEPTANCE HEREOF, THAT, EXCEPT AS EXPRESSLY PROVIDED IN THIS ASSIGNMENT OR IN, AND SUBJECT TO THE LIMITATIONS CONTAINED IN, THAT CERTAIN AGREEMENT OF PURCHASE AND SALE, DATED AS OF _______________, 2017, BY AND BETWEEN ASSIGNOR AND ASSIGNEE (THE “ AGREEMENT ”), THE ASSIGNED ITEMS ARE CONVEYED “AS IS, WHERE IS” AND IN THEIR PRESENT CONDITION WITH ALL FAULTS, AND THAT ASSIGNOR HAS NOT MADE, DOES NOT MAKE AND SPECIFICALLY DISCLAIMS ANY REPRESENTATIONS, WARRANTIES, PROMISES, COVENANTS, AGREEMENTS OR GUARANTIES OF ANY KIND OR CHARACTER WHATSOEVER, WHETHER EXPRESS OR IMPLIED, ORAL OR WRITTEN, PAST, PRESENT OR FUTURE, OF, AS TO, CONCERNING OR WITH RESPECT TO THE NATURE, QUALITY OR CONDITION OF THE ASSIGNED ITEMS, THE INCOME TO BE DERIVED THEREFROM, OR THE ENFORCEABILITY, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF THE ASSIGNED ITEMS.

TO HAVE AND TO HOLD THE ASSIGNED ITEMS, UNTO ASSIGNEE, ITS SUCCESSORS AND ASSIGNS FOREVER, SUBJECT TO THE PERMITTED EXCEPTIONS (AS DEFINED IN THE AGREEMENT); AND ASSIGNOR DOES HEREBY BIND ITSELF AND ITS SUCCESSORS TO WARRANT AND FOREVER DEFEND ALL AND SINGULAR THE ASSIGNED ITEMS, UNTO ASSIGNEE, ITS SUCCESSORS AND ASSIGNS, AGAINST EVERY PERSON WHOMSOEVER LAWFULLY CLAIMING, OR CLAIM THE SAME, OR ANY PART THEREOF, BY, THROUGH, OR UNDER ASSIGNOR, BUT NOT OTHERWISE.

Except as otherwise expressly provided in the Agreement or as provided below, by accepting this Assignment and by its execution hereof, Assignee assumes the payment and performance of, and agrees to pay, perform and discharge, all the debts, duties and obligations to be paid, performed or discharged first arising and accruing from and after the Closing Date (as defined in the Agreement) by the “owner”, or similar party reference to the owner of the Property under the Agreement, under the terms, covenants and conditions of the Service Contracts. Assignee agrees to indemnify, hold harmless and defend Assignor from and against any and all claims, losses, liabilities, damages, costs and expenses (including, without limitation, court costs and reasonable attorneys’ fees and disbursements) resulting by reason of the failure of Assignee to pay, perform or discharge any of the debts, duties or obligations assumed or agreed to be assumed by Assignee hereunder arising out of or relating to, directly or indirectly, in whole or in part, the Assigned Items, first accruing from and after the Closing Date. Except as otherwise expressly provided in the Agreement and subject to the provisions of Sections 3.2, 3.3 and 9.19 of the Agreement (which provisions are not modified in any way by the following indemnity), Assignor agrees to protect, indemnify, defend and hold Assignee harmless from and against all claims, losses, damages, costs, expenses, obligations and liabilities (including, without limitation, court costs and reasonable attorneys’ fees and disbursements) (collectively, “ Claims ”) arising out of or relating to, directly or indirectly, in whole or in part, the Service Contracts, or any default under the Service Contracts, first accruing prior to the Closing Date or which otherwise are retained obligations of Seller under the Agreement with respect to the Assigned Items.

The obligations of Assignor are intended to be binding only on the Assignor and the property of Assignor and shall not be personally binding upon, nor shall any resort be had to, the private properties of any Seller Related Parties other than Assignor, its successors and/or assigns.

All of the covenants, terms and conditions set forth herein shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns.

IN WITNESS WHEREOF, Assignor and Assignee have caused this Assignment to be executed on the day and year first above written.



Assignor:	, a
	By: Its:
Assignee:
	a
	By:
	Its:

Exhibit B-3

Exhibit E-2

FORM OF

CERTIFICATE OF NON-FOREIGN STATUS
[Pursuant to 26 U.S.C. §1445 and 26 C.F.R. §1.1445-2(b)(2)(iv)(B)]

Section 1445 of the Internal Revenue Code provides that a transferee of a U.S. real property interest must withhold tax if the transferor is a foreign person. For U.S. tax purposes (including §1445), the owner of a disregarded entity (which has legal title to a U.S. real property interest under local law) will be the transferor of the property and not the disregarded entity. To inform ____________________ ("Transferee"), that withholding of tax is not required upon the disposition of a U.S. real property interest by Phase II Boulevard Place, LP, a Texas limited partnership ("Transferor"), the undersigned hereby certifies the following on behalf of Transferor:


1.	Transferor is not a foreign corporation, foreign partnership, foreign trust, or foreign estate (as those terms are defined in the Internal Revenue Code and Income Tax Regulations);


2.	Transferor is not a disregarded entity as defined in § 1.1445-2(b)(2)(iii);


3.	Transferor's U.S. employer identification number is _______________; and


4.	Transferor's office address is: 1700 Post Oak Boulevard, Suite 400, Houston, Texas 77056.

Transferor understands that this certification may be disclosed to the Internal Revenue Service by Transferee and that any false statement contained herein could be punished by fine, imprisonment, or both.

Under penalties of perjury I declare that I have examined this certification and to the best of my knowledge and belief it is true, correct, and complete, and I further declare that I have authority to sign this document on behalf of Transferor.

[End of Page; Signature Begins on Following Page]

TRANSFEROR:

PHASE II BOULEVARD PLACE, LP, a Texas limited partnership

By: Phase II Boulevard Place GP, LLC, a Texas limited liability company, its general partner

By: Boulevard Place, L.P., a Texas

limited partnership, its manager

By: Wulfe Boulevard Venture, LLC,

a Texas limited liability company, its general partner

By:____________________

Name: Edmond D. Wulfe

Title: Manager

Dated: ________________, 2017

Exhibit E-2

Exhibit E-3

SELLER’S AFFIDAVIT

Title Insurance Company

The undersigned, in his capacity as Manager of the general partner of the entity stated below (“ Seller ”), and not individually, being duly sworn, hereby says, as of the date hereof and to Seller’s knowledge, as follows:

1. The sale of the real property (the “ Property ”), as more particularly described in Exhibit A hereto and in the Commitment for Title Insurance dated _____________, 2017, covering the Property and issued by Stewart Title Guaranty Company (the “ Title Company ”), has been duly authorized by Seller.

2. No person is entitled to occupy the Property except pursuant to leases or rental agreements known by _______________ (“ Purchaser ”) or Title Company or previously disclosed to Purchaser.

3. All labor, services and materials supplied to the Property for improvements, fixtures and furnishing at the request of Seller have been, or will in the ordinary course of business be, paid in full except: None.

4. Seller is not a “foreign person” as that term is defined in Section 1445 of the Internal Revenue Code, as amended.

This Affidavit is given to Title Company on behalf of Seller in order to induce Title Company to issue an Owner’s Policy of Title Insurance and required endorsements.

The phrase “ to Seller’s knowledge ” means the actual, present knowledge (excluding constructive or imputed knowledge) and conscious awareness of Edmond D. Wulfe (the “ Knowledge Party ”). This affidavit shall survive until six months after the date hereof, at which time the provisions hereof (and any cause of action resulting from any breach not then in litigation) shall terminate; and to the extent the Title Company shall have knowledge as of the date hereof that any of the statements contained herein is false or inaccurate, then Seller shall have no liability with respect to the same. The Title Company shall be deemed to have knowledge of any matter in the public record.

Neither the Knowledge Party nor any present or future member, advisor, trustee, director, officer, employee, beneficiary, shareholder, participant, direct or indirect partner or agent of Seller, shall have any personal liability, directly or indirectly, under or in connection with this affidavit; and the Title Company and its successors and assigns and co-insurers, and, without limitation, all other persons and entities, shall look solely to the Seller for the payment of any claim or for any performance.

Exhibit E-3

Executed as of ___________ ____, 2017.

PHASE II BOULEVARD PLACE, LP, a Texas limited partnership

By: Phase II Boulevard Place GP, LLC, a Texas limited liability company, its general partner

By: Boulevard Place, L.P., a Texas

limited partnership, its manager

By: Wulfe Boulevard Venture, LLC,

a Texas limited liability company, its general partner

By:____________________

Name: Edmond D. Wulfe

Title: Manager

SWORN TO AND SUBSCRIBED BEFORE ME by Edmond D. Wulfe, as Manager, of Wulfe Boulevard Venture, LLC, a Texas limited liability company, the general partner of Boulevard Place, L.P., a Texas limited partnership, the manager of Phase II Boulevard Place GP, LLC, a Texas limited liability company, the general partner of Phase II Boulevard Place, LP, a Texas limited partnership on behalf of said limited liability companies and limited partnerships, on _____________, 2017.

Notary Public, State of Texas

EXHIBIT A

LEGAL DESCRIPTION OF PROPERTY

Exhibit F

TENANT ESTOPPEL

The undersigned (“ Tenant ”) hereby certifies to _____________________ (“ Seller ”) and to ______________________ (“ Buyer ”, together with its lenders, and their respective successors and/or assigns), in connection with Buyer’s proposed purchase of that certain project commonly known as BLVD Place (inclusive of the Frost Bank Motor Bank) (“ Project ”) that:

1. Tenant is the lessee of certain space (the “ Premises ”) in the Project, containing approximately _________ net rentable square feet and known as Suite No. ____, under a lease dated __________, ______ entered into between Tenant and ___________________________, as lessor (“ Lessor ”)[, as amended or modified by ___________________.](collectively, the “ Lease ”). Lessor, and any successor landlord under the Lease, including but not limited to Seller, are herein called “Landlord”.

2. The Lease is presently in full force and effect and Tenant is not in default thereunder.

3. The Lease, in the form of Exhibit A attached hereto, constitutes the entire agreement between Landlord and Tenant and there has been no amendment, written or oral, to the Lease except as listed in Paragraph 1 above and included in Exhibit A . Tenant neither expects nor has been promised any inducement, concession or consideration for entering into the Lease, except as stated therein, and there are no side agreements or understandings between Landlord and Tenant. There is no outstanding free rent or other rent concessions and no offsets or credits against rentals or other monetary obligations under the Lease; there are no outstanding claims or defenses to enforcement of the Lease; and all tenant allowances, concessions, rebates or other Landlord's obligations of an inducement nature or as a condition to payment of rent have been fully fulfilled. [Note: To be revised to reflect the obligation to pay TI’s to New 1960 Enterprises Company d/b/a Sozo Sushi if not paid]

4. Tenant has accepted, and is in possession of and conducting business from, the Premises and is paying rent under the Lease. All work to the Premises or other areas required of Landlord under the Lease has been fully completed as required under the Lease and such work and the Premises were accepted as satisfactory.

5. The term of the Lease commenced on _______________, ____, and will end on ____________, with ___ options to extend of successive periods of _______ years each, there being no additional options to either renew or extend. Tenant has no early termination option pursuant to the Lease, except as may be expressly provided in the Lease due to casualty or condemnation. The current monthly base or minimum rental for lease year _____ - _____ is ____________________________ Dollars ($__________). Tenant currently pays $__________ per month in addition to its base or minimum rent. If this additional rent is based on the tenant paying its pro rata share and this amount is required under the Lease to be reconciled with actual charges, then Tenant has received all reconciliation statements (including payments of any amounts due) for reconciliations of additional rent for all calendar years or billing periods prior to the current year. If additional rent is subject to a base year expense stop or to an expense cap, the current amount of such base year expense stop or expense cap is $___________________, as applicable under the Lease.

If Percentage Rent is payable under the Lease, Percentage Rent is equal to _____ percent. Tenant's year-to-date gross sales for January 1, 201_ through _________________ are $_________ and were $____________ for January 1, 201_ through December 31, 201_.

6. Tenant is required to pay its pro rata share of operating expenses of the Building and its pro rata share of the Building’s real property taxes and insurance costs.

7. As of the date of this certificate, to the knowledge of Tenant, Landlord is not in default under the Lease.

8. The amount of the security deposit paid under the terms of the Lease is ___________________________ Dollars ($__________). Such security deposit is a [cash] [letter of credit] deposit. No rent under the Lease has been paid more than one month in advance, and no other sums have been deposited with Lessor.

9. Tenant has not entered into any sublease, assignment or any other agreement transferring any of its interest in the Lease or the Premises, and there exists no sublease, assignment or other such agreement affecting any of its interest in the Lease or the Premises, except as follows: _________________________________.

10. Tenant does not have an option to acquire the Premises or any other portion of the Project.

11. Tenant does not have any first right of refusal or first right of offer with respect to any other space in the Project [FOR BASECOAT, VIRAGE CAPITAL, NGKF ADD, except a first right of offer to lease additional space as set forth in the Lease].

12. There are no leasing commission agreements between Tenant and any representative with respect to the Lease that could result in a commission payable by Landlord with respect to the Lease or any renewal or extension thereof.

13. All Notices to Tenant under the Lease should be sent to the following address for Tenant:____________________________________________________. Tenant’s federal taxpayer identification number is:_________________.

14. All exhibits attached hereto are by this reference incorporated fully herein. The terms “this certificate” shall be considered to include all such exhibits. Tenant makes this statement for the Buyer’s and Seller’s, and Buyer’s lender’s (if any) benefit and protection with the understanding that Buyer (and any assignee of Buyer’s right to purchase the Premises) and its lender, if any, intend to rely upon this statement in connection with Buyer’s or its assignee’s intended purchase (and its lender’s financing of the purchase) of the above described Project containing the Premises from Seller. Tenant agrees that it will, upon receipt of written notice from Seller, commence to pay all rents to the Buyer (or its assignee) or to any agent acting on behalf of the Buyer or its assignee.

15. Tenant represents and warrants that (a) the undersigned person signing for Tenant is duly authorized and empowered in all respects to execute and deliver this certificate on behalf of Tenant, and (b) this certificate is binding upon Tenant and enforceable against Tenant in accordance with its terms.



EXECUTED: _______________ , 2017.	TENANT:

	By:
	Its:

Exhibit G

ESCROW CONDITIONS

(1) In performing any of its duties hereunder, Escrow Agent shall not incur any liability to anyone for any damages, losses, or expenses, unless such action or omission is negligent, willful or inconsistent with the provisions of this Agreement. Escrow Agent may rely upon any instrument as being duly executed, valid, and effective, and as containing accurate information and genuine signatures.

(2) Buyer and Seller shall, and do hereby, jointly and severally indemnify, defend, and hold Escrow Agent harmless from, against, and in respect of: (i) any and all demands, judgments, expenses, costs, losses, injuries, or claims of any kind whatsoever whether existing on the date hereof or hereafter arising, incurred by Escrow Agent by reason of, from, or in connection with this agreement or any action taken or not taken by Escrow Agent under or in connection with this agreement; and (ii) any and all counsel fees, expenses, disbursements of counsel, amounts of judgments, demands, assessments, costs, fines, or penalties, and amounts paid in compromise or settlement, incurred or sustained by Escrow Agent by reason of, in connection with, or as a result of any claim, demand, action, suit, investigation, or proceeding (or any appeal thereof or relating thereto or other review thereof) incident to the matters covered by the immediately preceding clause (i).

(3) If Escrow Agent shall notify Seller and Buyer of its desire to be relieved of any further duties and liabilities hereunder, then Escrow Agent shall deliver the Deposit to a successor escrow agent (in the case of any letter of credit, Escrow Agent shall transfer such letter of credit to such successor in accordance with the transfer terms of the letter of credit) designated by Seller and Buyer. If Seller and Buyer shall fail to agree upon and designate a successor escrow agent within ten (10) days after having been requested by Escrow Agent to do so, then Escrow Agent shall in its discretion designate the successor escrow agent. The successor escrow agent designated by Seller and Buyer or by Escrow Agent, as the case may be, shall be a bank or trust company having trust powers in good standing and located in either the state where the office of Escrow Agent is located or the state where the Property is located, and shall agree to be bound by all the terms and conditions of this agreement. Immediately upon agreement by the successor escrow agent to be bound by all the terms and conditions of this agreement, the original Escrow Agent shall be relieved of any and all duties and liabilities under or in connection with this agreement; provided , however, that no successor escrow agent shall assume any liability for the acts or omissions of its predecessor escrow agent(s) hereunder.

(4) If at any time Seller is entitled to the Deposit on the terms and conditions of this Agreement, Escrow Agent shall upon receipt of written demand from Seller (on which Buyer is copied) do the following: (i) send a copy of Seller’s written demand to Buyer; (ii) if Buyer fails to dispute Seller’s entitlement to receive the Deposit within five (5) business days after Escrow Agent has given Buyer a copy of Seller’s written demand, then Escrow Agent shall immediately disburse the Deposit to Seller pursuant to payment instructions delivered by Seller to Escrow Agent (on which Buyer is copied); and (iii) if Buyer objects, then Escrow Agent shall continue to hold the Deposit until receipt of joint written instructions by Buyer and Seller regarding disbursement or a court order directing disbursement. If at any time Buyer is entitled to a return of the Deposit on the terms and conditions of this Agreement, Escrow Agent shall upon receipt of written demand from Buyer (on which Seller is copied) do the following: (i) send a copy of Buyer’s written demand to Seller; (ii) if Seller fails to dispute Buyer’s entitlement to receive a return of the Deposit within five (5) business days after Escrow Agent has given Seller a copy of Buyer’s written demand, then Escrow Agent shall immediately disburse the Deposit to Buyer pursuant to payment instructions delivered by Buyer to Escrow Agent (on which Buyer is copied); and (iii) if Seller objects, then Escrow Agent shall continue to hold the Deposit until receipt of joint written instructions by Buyer and Seller regarding disbursement or a court order directing disbursement.

(5) The address for the receipt of notices and other communications by Escrow Agent hereunder is as set forth in the Agreement.

Exhibit H

SEC REGULATION S-X RULE 3-14 INFORMATION TO BE PROVIDED BY SELLER



Notes		Required Information	Date to Be Provided by Seller
	1	Income Statement for the most recent full year	Pre Closing
	2	Balance Sheet as of the end of the most recent full year	Pre Closing
	3	Income Statement for the current year through most recent quarter	Pre Closing
	4	Balance Sheet as of the end of the most recent quarter	Pre Closing
	5	General Ledger for the most recent full year (Balance Sheet and Income Statement Accounts)	Pre Closing
	6	General Ledger for the current year through most recent quarter (Balance Sheet and Income Statement Accounts	Pre Closing
	7	Trial Balance for the most recent full year and preceding two years	Pre Closing
^(A)	8	Copies of all Bank Statements for all 12 months of the most recent full year	Pre Closing
^(A)	9	Copies of all Bank Statements for all months of the current year through the most recent quarter	Pre Closing
	10	Rent Rolls for each of the 12 months during the most recent full year	Pre Closing
	11	Rent Rolls for each of the months during the current year through the most recent quarter	Pre Closing
	12	Copy of the Management Agreement in place for the most recent full year and the current year	Pre Closing
	13	Copies of all tenant leases in effect at any time during the most recent full year.	Pre Closing
	14	Copies of all tenant leases in effect at any time during current year through the most recent quarter.	Pre Closing
	15	Budgeted income and expense figures for the current year, most recent full year and next year	Pre Closing
	16	Property tax expense detail along with tax statements from appropriate taxing authorities for the most recent full year and current year	Pre Closing
	17	If Debt is to be assumed - Listing of outstanding debt throughout the most recent full year and current year and copies of these debt agreements.	Pre Closing
	18	Income Statement for the current year through closing date	Post Closing - 10 days from close date
	19	Balance Sheet as of the closing date	Post Closing - 10 days from close date
	20	General Ledger for the current year through closing date (Balance Sheet and Income Statement Accounts)	Post Closing - 10 days from close date
^(A)	21	Copies of all Bank Statements for all months of the current year through closing	Post Closing - 10 days from close date
	22	Rent Rolls for each of the months during the current year through closing	Post Closing - 10 days from close date
	23	Copies of all tenant leases in effect at any time during current year through the closing date.	Post Closing - 10 days from close date
	24	Copies of checks and invoices for expense selections by External Auditors	Post Closing - 10 Days from request by Whitestone
	25	Copies of deposits for revenue selections by External Auditors	Post Closing - 10 Days from request by Whitestone
	26	Additional information and documentation that may be unique to the subject property. Availability to answer questions from Whitestone External Auditors regarding requested items	Post Closing - 10 Days from request by Whitestone

Notes


^(A)	If this is not practical as the cash accounts have been commingled with other properties, please provide the bank statements along with other additional support to be able to segregate deposits by property for the corresponding period.

Schedule 3.1

DISCLOSURE ITEMS

Whole Foods is disputing the calculation of Whole Foods share of common area maintenance, taxes and insurance and is currently in arrears for approximately $250,000.00 relating to calendar year 2016.

$229,000 in tenant improvement allowance remains payable pursuant to the Lease with New 1960 Enterprises Company d/b/a Sozo Sushi.

Seller is disputing property taxes for calendar year 2016.

38044743v.12

Exhibit E-3

FIRST AMENDMENT TO AGREEMENT OF PURCHASE AND SALE

This First Amendment to Agreement of Purchase and Sale (" Amendment ") is made and entered into as of April 17, 2017, by and between Phase II Boulevard Place, LP, a Texas limited partnership (" Seller "), and Whitestone REIT Operating Partnership, L.P., a Delaware limited partnership (" Buyer ").

Recitals :

Seller and Buyer entered into an Agreement of Purchase and Sale dated as of March 21, 2017 (the " Agreement "), and covering certain real and personal property, located in Houston, Harris County, Texas, more fully described therein.

Seller and Buyer now desire to confirm and ratify certain amendments heretofore entered into by Seller's and Buyer's legal counsel on their behalf, as more fully set forth hereinafter.

Amendments :

In consideration of the mutual agreements herein set forth, Seller and Buyer hereby agree as follows:

1. Title and Survey Objections . Seller and Buyer confirm and agree that the first sentence of Section 4.2(d) of the Agreement has been and is amended by changing the phrase "then Buyer shall be deemed to have elected to terminate this Agreement" therein to read "then Buyer shall be deemed to have elected to waive such Objections, subject as may be otherwise provided in this Agreement".

2. Tenant Estoppel Letters . Seller and Buyer confirm and agree that Section 8.4(c) of the Agreement has been and is amended to provide that in no event shall Buyer be obligated to provide any comments to any draft estoppel letters any earlier than 5:00 o'clock p.m. C.D.T. on Wednesday, April 19, 2017.

3. Miscellaneous . Except as expressly amended by this Amendment, all terms, conditions, and agreements set forth in the Agreement shall remain in full force and effect. In the event of an irreconcilable conflict between the terms of this Amendment and the terms of the Agreement, the terms of this Amendment shall control. This Amendment (i) shall be binding upon Seller and Buyer and their respective successors and permitted assigns; (ii) shall be governed by and·construed in accordance with the laws of the State of Texas and the United States of America; and (iii) may be executed in several counterparts, and each counterpart when so executed and delivered shall constitute an original agreement, and all such separate counterparts shall constitute one and the same agreement. Scanned signatures to this Amendment shall have the same effect as original signatures. The Agreement, as amended by this Amendment, embodies the entire agreement and understanding between the parties with respect to the subject matter hereof and supersedes all prior agreements, consents and understandings relating to such subject matter. All capitalized terms used herein and not otherwise defined herein, which are defined in the Agreement, shall have the meanings ascribed to them in the Agreement. The term "Agreement" as used in the Agreement or in any other instrument, document or writing executed in connection therewith or herewith shall mean the Agreement as amended by this Amendment, unless clearly otherwise required by the context. Time is of the essence of the exercise and performance by the parties of their rights and obligations, respectively, under the Agreement.

IN WITNESS WHEREOF, this Amendment has been executed in multiple counterparts as of the date first above written.



SELLER :	PHASE II BOULEVARD PLACE, LP, a Texas limited partnership By: Phase II Boulevard Place GP, LLC, a Texas limited liability company, its general partner By: Boulevard Place, L.P., a Texas limited partnership, its manager By: Wulfe Boulevard Venture, LLC, a Texas limited liability company, its general partner By: /s/ Edmond D. Wulfe Name: Edmond D. Wulfe Title: President



BUYER :	WHITESTONE REIT OPERATING PARTNERSHIP, L.P., a Delaware limited partnership By: Whitestone REIT, a Maryland real estate investment trust, its general partner By: /s/ Bradford D. Johnson Name: Bradford D. Johnson Title: Vice President - Acquisitions

Exhibit 12.1

Whitestone REIT

Calculation of Consolidated Ratio of Earnings to Fixed Charges

(dollars in thousands)



	Six Months
	Ended June 30,		Year Ended December 31,
	2017		2016		2015		2014		2013		2012
Earnings
Income (loss) from continuing operations	$	3,701	$	8,128	$	6,854	$	5,349	$	3,621	$	(165	)
Plus: Taxes	170		289		372		282		293		275
Plus: Fixed charges	11,094		20,189		15,122		10,672		10,089		9,084
Total earnings	$	14,965	$	28,606	$	22,348	$	16,303	$	14,003	$	9,194

Fixed charges
Interest expense	$	10,314	$	18,311	$	13,804	$	9,680	$	8,929	$	7,482
Plus: Capitalized Interest	156		324		106		93		114		176
Plus: Amortization of deferred financing costs	624		1,554		1,212		899		1,046		1,426
Total fixed charges	$	11,094	$	20,189	$	15,122	$	10,672	$	10,089	$	9,084

Ratio of earnings to fixed charges	1.35		1.42		1.48		1.53		1.39		1.01

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I, James C. Mastandrea, certify that:


1.	I have reviewed this quarterly report on Form 10-Q, for the period ended June 30, 2017 , of Whitestone REIT;


2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.	The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


(c)	Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


(d)	Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and


5.	The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):


(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and


(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: August 4, 2017

/s/ James C. Mastandrea

James C. Mastandrea

Chairman and Chief Executive Officer

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, David K. Holeman, certify that:


1.	I have reviewed this quarterly report on Form 10-Q, for the period ended June 30, 2017 , of Whitestone REIT;


2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.	The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


(c)	Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


(d)	Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and


5.	The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):


(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and


(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: August 4, 2017

/s/ David K. Holeman

David K. Holeman

Chief Financial Officer

Exhibit 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the quarterly report of Whitestone REIT, a Maryland real estate investment trust (the “Company”) on Form 10-Q for the period ended June 30, 2017 , as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, James C. Mastandrea, Chief Executive Officer of the Company, certify pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:


1.	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and


2.	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ James C. Mastandrea

James C. Mastandrea

Chairman and Chief Executive Officer

Date: August 4, 2017

Exhibit 32.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the quarterly report of Whitestone REIT, a Maryland real estate investment trust (the “Company”) on Form 10-Q for the period ended June 30, 2017 , as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, David K. Holeman, Chief Financial Officer of the Company, certify pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:


1.	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and


2.	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ David K. Holeman

David K. Holeman

Chief Financial Officer

Date: August 4, 2017