Whitestone REIT Commitments Disclosure

16.  COMMITMENTS AND CONTINGENCIES

 

Guarantor for Pillarstone OP’s Loan

 

The Company, through its subsidiary Whitestone REIT Operating Partnership, L.P., guaranteed Pillarstone OP’s loan for its Uptown Tower property located in Dallas, Texas, with an aggregate principal amount of $14.4 million as of  September 30, 2023.  The loan was also secured by the Uptown Tower property.  The debt matured on  October 4, 2023, and was in default, as Pillarstone OP failed to refinance the loan.  On  October 24, 2023, the Lender provided notice of a planned foreclosure sale on  December 5, 2023.  The Lender also claimed that an additional sum of $4.6 million was due which included default interest of approximately $6.3 million and net credits from escrowed funds and other charges of approximately $1.7 million. 

 

On  December 1, 2023, Whitestone OP reached an agreement with the Lender that would avoid foreclosure and secure the release of the lien and discharge of the guarantee, and negotiated and satisfied a payoff as of  December 4, 2023, in the amount of $13.6 million (the “DPO Amount”). We paid the DPO amount and asserted a subrogation claim against Pillarstone OP. As of  December 31, 2024, the DPO amount was recorded as an asset in our financial statement line receivable due from related party. 

 

On  December 1, 2023, Pillarstone OP filed the Chapter 11 bankruptcy of its special purpose entity borrower that owns Uptown Tower, in the Bankruptcy Court of the Northern District of Texas (the “Bankruptcy Court”). On  January 25, 2024, the Company exercised its notice of redemption for substantially all of its investment in Pillarstone OP. On  February 9, 2024, the Lender filed suit in New York County against the guarantor Whitestone OP and the Company for alleged amounts due under the guarantee.  On  March 4, 2024, Pillarstone REIT authorized and all of its entities to file bankruptcy.

 

On  April 24, 2024, the Lender and Pillarstone OP filed a motion with the Bankruptcy Court seeking approval to settle the dispute and dismiss their mutual lawsuits including the lawsuit by the Lender against Whitestone OP as Guarantor of the loan. On or before  June 10, 2024, Pillarstone OP agreed to pay to the Lender the sum of $1.1 million plus all attorneys’ fees and costs (not to exceed $20,000) incurred by the Lender from  April 10, 2024 through the date of receipt of such payment. Upon timely receipt of the cash payment from Pillarstone OP, the Lender applied the $13.6 million tendered to it by Whitestone OP, and the guaranty was subsequently released. The Company pursued collection of the DPO Amount from Pillarstone in the Pillarstone Bankruptcies through a subrogation claim against Pillarstone OP. On  October 2, 2024, the Bankruptcy Court affirmed the Company’s right of subrogation and allowed the Company’s secured claim for the guaranty payment in the amount of $13.6 million. On October 28, 2024, Pillarstone OP, through a subsidiary, filed a notice of appeal of the Bankruptcy Court’s order affirming Whitestone OP’s right of subrogation. On July 17, 2025, Pillarstone OP sold the Uptown Tower Property for net proceeds of approximately $17.3 million.

 

Following the sale of the Uptown Tower property, Whitestone OP filed in the Bankruptcy court a Motion to Compel the payment of $13.6 million from the Uptown Tower closing proceeds relating to Whitestone OP’s subrogation claim as guarantor, which was a secured claim. Following a hearing on  August 18, 2025, the Bankruptcy Court ordered Pillarstone to pay Whitestone OP to the amount of $13.6 million on  September 8, 2025, and Pillarstone paid $13.6 million to Whitestone OP for its subrogation claim as guarantor. On  September 10, 2025, Pillarstone filed a Notice of Appeal of the Court’s order. On  September 15, 2025, the Bankruptcy Court denied Pillarstone’s Motion for Stay Pending Appeal.

 

Litigation between the Company and Pillarstone REIT

 

On  September 16, 2022, Pillarstone Capital REIT and Pillarstone OP filed suit against the Company and certain of its subsidiaries (Whitestone TRS, Inc. and Whitestone OP) along with certain of its executives (Peter Tropoli, Christine Mastandrea,  and David Holeman) in the District Court of Harris County, Texas, alleging claims relating to the limited partnership agreement between Pillarstone Capital REIT and Whitestone OP, as well as the termination of Management Agreements between Pillarstone OP and Whitestone TRS, Inc. On   November 25, 2022, the claims against Peter Tropoli, Christine Mastandrea and David Holeman were dismissed. The claimants seek monetary relief in excess of $1 million in damages and equitable relief. However, the Company denies the claims, has substantial legal and factual defenses against the claims, and intends to vigorously defend against the claims. The Company does not believe a probable loss will be incurred, nor does it anticipate a material adverse effect on its financial position, results of operations, cash flows or liquidity. Therefore, the Company has not recorded a charge as a result of this action. This litigation is subject to the Settlement Agreement discussed below in the section headed “Pillarstone Rights Plan.”

 

Former COO Litigation

 

On  May 9, 2023, the Company’s former COO, John Dee, filed suit against the Company in the District Court of Harris County, Texas, purporting to assert claims for breach of his change-in-control agreement arising from the Company’s termination of its former CEO James Mastandrea for cause, and is seeking monetary relief in excess of $1 million in damages and equitable relief. On December 23, 2024, Mr. Dee filed a Notice of Appeal of the court's order denying his intervention in the James Mastandrea v. Whitestone REIT case. The Company denies the claims, has substantial legal and factual defenses against the claims, and intends to vigorously defend against the claims. The Company does not believe a probable loss will be incurred, nor does it anticipate a material adverse effect on its financial position, results of operations, cash flows or liquidity. Therefore, the Company has not recorded a charge as a result of this action.

 

Former CEO Litigation

 

On  February 23, 2022, the Company’s former CEO, James Mastandrea, filed suit against the Company and certain of its trustees (Nandita Berry, Jeff Jones, Jack Mahaffey, and David Taylor) and executives (David Holeman, Christine Mastandrea, and Peter Tropoli) in the District Court of Harris County, Texas, alleging $25 million in damages and equitable relief claims relating to the termination of his employment, including breach of his employment contract, negligence, tortious interference with contract, civil conspiracy, and declaratory judgment. On  September 12, 2022, the claim for breach of fiduciary duty was dismissed and a claim for negligence was added (as to the trustee defendants). 

 

On  December 6, 2023, the District Court of Harris County, Texas granted summary judgement in favor of the Company and dismissed all claims against the Company related to the termination of Mr. Mastandrea.  The court also dismissed all claims against certain of the Company’s trustees and executives. The Court subsequently denied Mr. Mastandrea’s Motion for Reconsideration and For New Trial. On December 4, 2024, Mr. Mastandrea filed a Notice of Appeal with the 14th Court of Appeals of the State of Texas and filed an appeal brief on July 28, 2025.

 

The matter was submitted to the 14th Court of Appeals on January 8, 2026, and a decision is pending.

 

The Company denies the claims, has substantial legal and factual defenses against the claims, and intends to vigorously defend against the claims. The Company does not believe a probable loss will be incurred, nor does it anticipate a material adverse effect on its financial position, results of operations, cash flows or liquidity. Therefore, the Company has not recorded a charge as a result of this action.

 

Pillarstone Rights Plan

 

On   December 26, 2021, the Board of Trustees of Pillarstone REIT adopted a new shareholder rights agreement (the “Pillarstone Rights Agreement”). Because Pillarstone REIT sought to use the Pillarstone Rights Agreement to prevent Whitestone OP from exercising its contractual Redemption Right, on  July 12, 2022, Whitestone OP filed suit against Pillarstone REIT in the Court of Chancery of the State of Delaware challenging the Pillarstone Rights Agreement.

 

On   September 8, 2022, Whitestone OP’s Motion to Preserve the Status Quo was granted by the Court, limiting Pillarstone OP from engaging in any acts outside the ordinary course of business and otherwise imposing restrictions on Pillarstone OP to ensure that Whitestone’s right of redemption is not impaired while the underlying dispute is being considered by the Court. 

 

On  January 25, 2024, the Delaware Court of Chancery: held that Pillarstone breached the implied covenant of good faith and fair dealing when it adopted the Pillarstone Rights Agreement that thwarted Whitestone OP from exercising the unfettered contractual redemption right it obtained in connection with its investment in the partnership; and the Court held that the Rights Plan was unenforceable as to the limited partner and allowed Whitestone OP to exercise its redemption right; allowed Pillarstone to determine the current value of the Partnership’s assets; and, as necessary, would later enter a monetary judgment against Pillarstone for the difference between the amount Whitestone would have received in or around   December 2021 and the current value.

 

On  January 25, 2024, the Company exercised its notice of redemption for substantially all of its investment in Pillarstone OP.

 

On  March 4, 2024, Pillarstone REIT filed the Pillarstone Bankruptcies. The automatic stay that temporarily prevents creditors from trying to collect money or seize property from debtors in bankruptcy was lifted in November 2024 following the Court-approved Plan of Liquidation, and the Company continues to pursue its redemption claim in Delaware.

 

As of  July 23, 2025, the Pillarstone Debtors completed the sale of all of the Pillarstone OP’s properties for net proceeds in the amount of approximately $60 million.

 

A third-party Bankruptcy Plan Agent was appointed and granted the sole and exclusive authority to administer the claims related to the Pillarstone Bankruptcy, including the authority to object to the allowance of claims and to enforce, assert, and settle retained causes of action and to direct and cause the Pillarstone Debtors to make all payments and distributions under the bankruptcy plan. Whitestone OP and the Plan Agent negotiated a resolution of all pending disputes in the Pillarstone Bankruptcies, and on October 18, 2025, filed a settlement agreement with the Bankruptcy Court to resolve and confirm all issues regarding the Pillarstone Bankruptcies including all claims and causes of action asserted by or that could have been asserted by the Pillarstone Debtors against Whitestone OP and by Whitestone OP against the Pillarstone Debtors including Whitestone OP’s Delaware litigation against Pillarstone REIT and the litigation between Pillarstone OP and the Company (the “Settlement Agreement”). The Settlement Agreement requires Court approval under Bankruptcy Rule 9019. If the Court enters a Final Order approving the Settlement Agreement (the “9019 Order”), the Settlement Agreement shall be effective and binding on the Parties-and each of their respective successors and assigns as of the date of entry (the “Settlement Effective Date”).

 

On December 10, 2025 the Court approved the Settlement and directed Pillarstone debtors to distribute all funds remaining in the partnership estate following the satisfaction of the claims and Reserve Funds noted above to Whitestone. On December 12, 2025, the Company received $33.4 million from Pillarstone. Remaining in the debtor’s estate are approximately $6.5 million in cash and reserves for administrative claims, taxes, and general unsecured claims, any excess of which shall be distributed to the Company.         

 

The Settlement Agreement directs the Partnership to distribute all funds remaining after the payment of $4.05 million to Pillarstone Capital REIT and a reserve of $2.5 million for claims, taxes and administrative expenses to Whitestone. The Settlement Agreement establishes three reserve funds using the partnership estate funds in the aggregate amount of $2.5 million to support the Plan Agent's claim administration process (the “Reserve Funds”). Remaining in the Pillarstone estate, after the $33.4 million distribution to Whitestone and the $4.05 million distribution to Pillarstone Capital REIT, is approximately $4.0 million in cash and $2.5 million in reserves. Whitestone expects to receive approximately $4.0 million in cash and any excess from the $2.5 million in reserves in 2026. These amounts are in addition to a $13.6 million payment made to Whitestone related to Whitestone’s secured claim for the Uptown Tower guaranty payment.

 

On December 12, 2025, The Company received $33.4 million from Pillarstone Capital REIT Operating Partnership, L.P. (the “Partnership”) following the Bankruptcy court’s, approval of the settlement agreement under Bankruptcy Rule 9019.

 

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, cash flows or liquidity.