8-K 1 preit8-kassetdisposition20.htm 8-K Document


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549


FORM 8-K


Current Report Pursuant to Section 13 Or 15(d) of
The Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): October 8, 2019

Pillarstone Capital REIT
(Exact name of registrant as specified in charter)

Maryland
 
001-15409
 
39-6594066
(State or other jurisdiction
of incorporation)
 
(Commission File Number)
 
(IRS Employer Identification No.)

2600 South Gessner, Suite 555
 
 
Houston, Texas
 
77063
(Address of principal executive offices)
 
(Zip Code)

Registrant's telephone number, including area code: (832) 810-0100
Not Applicable
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
 
 
o
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
 
Emerging growth company o
 
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. o





Item 2.01 Completion of Acquisition or Disposition of Assets.
On October 8, 2019, Pillarstone Capital REIT (the “Company”, “we”, “our” or “us”), through an indirect wholly owned subsidiary, Whitestone Industrial-Office, LLC, a Texas limited liability company, sold a portfolio of three properties in Houston, Texas consisting of Corporate Park West located at 1718 N. Fry Road, Plaza Park located at 7503 South Freeway, and Corporate Park Woodland located at 210-240 Spring Hill Drive (collectively, the "Portfolio") to HMC Fuller Corporate Park West, LLC, HMC Fuller Plaza Park, LLC and HMC Fuller Corporate Park Woodland, LLC, respectively, (collectively, the "Buyer") for $39.7 million in the aggregate (the "Disposition"). The Buyer is an unaffiliated third party. The Company does not have a material relationship with the Buyer, and the Disposition was not an affiliated transaction.

Net proceeds, after customary closing deductions, were used to pay $25.1 million of mortgage debt secured by the Portfolio and other properties, and after the Disposition, the Company paid the remaining $5.7 million balance of the Company’s $15.5 million loan from Whitestone REIT Operating Partnership, LP, a company affiliated with certain members of the Company's management team and Board of Trustees.


Item 9.01 Financial Statements and Exhibits.

(b) Pro Forma Financial Information
Set forth in this Item 9.01(b) are the following unaudited pro forma consolidated financial statements illustrating the estimated effect of the Disposition described in Item 2.01 above as if the Disposition had previously occurred on the dates specified below:


•
The accompanying Unaudited Pro Forma Consolidated Balance Sheet as of June 30, 2019 has been prepared as if the Disposition had occurred as of that date.

•
The accompanying Unaudited Pro Forma Consolidated Statements of Operations for the six months ended June 30, 2019 and the year ended December 31, 2018 have been prepared as if the Disposition occurred as of January 1, 2018.





Pillarstone Capital REIT and Subsidiaries
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
As of June 30, 2019
(in thousands, except per share data)
 
 
 
 
 
 
 
 
 
Pillarstone Capital REIT and Subsidiaries(a)
 
Pro Forma Adjustments(b)
 
Pro Forma Total
 
 
 
 
 
 
 
ASSETS
Real estate assets, at cost
 
 
 
 
 
 
Property
 
$
78,919

 
$
(23,626
)
 
$
55,293

Accumulated depreciation
 
(6,623
)
 
2,006

 
(4,617
)
Total real estate assets
 
72,296

 
(21,620
)
 
50,676

Cash and cash equivalents
 
1,740

 
13,436

 
15,176

Escrows and utility deposits
 
1,353

 
(1,139
)
 
214

Accrued rents and accounts receivable, net of allowance for doubtful accounts
 
1,643

 
(701
)
 
942

Receivable due from related party
 
89

 
—

 
89

Unamortized lease commissions and deferred legal costs, net
 
1,097

 
(307
)
 
790

Prepaid expenses and other assets
 
183

 
(28
)
 
155

Total assets
 
$
78,401

 
$
(10,359
)
 
$
68,042

 
 
 
 
 
 
 
LIABILITIES AND EQUITY
Liabilities:
 
 
 
 
 
 
Notes payable
 
$
46,544

 
$
(25,129
)
(c) 
$
21,415

Accounts payable and accrued expenses
 
2,132

 
(541
)
 
1,591

Payable due to related party
 
597

 
—

 
597

Convertible notes payable - related parties
 
198

 
—

 
198

Accrued interest payable
 
269

 
(79
)
 
190

Tenants' security deposits
 
1,313

 
(426
)
 
887

Total liabilities
 
51,053

 
(26,175
)
 
24,878

Shareholders' Equity:
 
 
 
 
 
 
Preferred A Shares - $0.01 par value, 1,518,000 authorized: 256,636 Class A cumulative convertible shares issued and outstanding at June 30, 2019, $10.00 per share liquidation preference
 
3

 
—

 
3

Preferred C Shares - $0.01 par value, 300,000 authorized: 231,944 Class C cumulative convertible shares issued and outstanding, $10.00 per share liquidation preference at June 30, 2019
 
2

 
—

 
2

Common Shares - $0.01 par value, 400,000,000 authorized: 443,299 shares issued and 405,169 outstanding at June 30, 2019
 
4

 
—

 
4

Additional paid-in capital
 
28,147

 
—

 
28,147

Accumulated deficit
 
(26,242
)
 
2,934

 
(23,308
)
Treasury stock, at cost, 38,130 shares
 
(801
)
 
—

 
(801
)
Total Pillarstone Capital REIT shareholders' equity
 
1,113

 
2,934

 
4,047

Noncontrolling interest in subsidiary
 
26,235

 
12,882

 
39,117

Total equity
 
27,348

 
15,816

 
43,164

Total liabilities and equity
 
$
78,401

 
$
(10,359
)
 
$
68,042





Pillarstone Capital REIT and Subsidiaries

NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET

As of June 30, 2019

(a)    Historical financial information derived from the Company's Form 10-Q as of June 30, 2019.

(b)    Unless otherwise noted, represents adjustments to reflect the disposition of the Portfolio. The sale price of the
Portfolio was $39.7 million.

(c)    Represents the reduction of debt from repaying $25.1 million of mortgage debt.
  






Pillarstone Capital REIT and Subsidiaries
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 2019
(in thousands, except share and per share data)
 
 
 
 
 
 
 
Pillarstone Capital REIT and Subsidiaries(a)
 
Pro Forma Adjustments(b)
 
Pro Forma Total
 
 
 
 
 
 
 
Revenues
 
 
 
 
 
 
Rental
 
$
7,650

 
$
(2,192
)
 
$
5,458

Transaction and other fees
 
23

 
(3
)
 
20

Total revenues
 
7,673

 
(2,195
)
 
5,478

 
 
 
 
 
 
 
Operating expenses
 
 
 
 
 
 
Depreciation and amortization
 
1,559

 
(513
)
 
1,046

Operating and maintenance
 
1,722

 
(279
)
 
1,443

Real estate taxes
 
1,295

 
(429
)
 
866

General and administrative
 
374

 
—

 
374

Management fees
 
436

 
(138
)
 
298

Total operating expenses
 
5,386

 
(1,359
)
 
4,027

 
 
 
 
 
 
 
Other expenses
 
 
 
 
 
 
Interest expense
 
1,045

 
(472
)
(c) 
573

Loss on disposal of assets
 
8

 
—

 
8

Total other expense
 
1,053

 
(472
)
 
581

 
 
 
 
 
 
 
Income before income taxes
 
1,234

 
(364
)
 
870

 
 
 
 
 
 
 
Provision for income taxes
 
(98
)
 
11

 
(87
)
 
 
 
 
 
 
 
Net income
 
1,136

 
(353
)
 
783

 
 
 
 
 
 
 
Less: Noncontrolling interest in subsidiary
 
1,059

 
(287
)
 
772

 
 
 
 
 
 
 
Net income attributable to Common Shareholders
 
$
77

 
$
(66
)
 
$
11

 
 
 
 
 
 
 
Earnings Per Share:
 
 
 
 
 
 
Basic income per Common Share:
 
 
 
 
 
 
Net income available to Common Shareholders
 
$
0.19

 
 
 
$
0.03

Diluted income per Common Share:
 
 
 
 
 
 
Net income available to Common Shareholders
 
$
0.03

 
 
 
$
—

 
 
 
 
 
 
 
Weighted average number of Common Shares outstanding:
 
 
 
 
 
 
Basic:
 
405,169

 
 
 
405,169

Diluted:
 
2,778,219

 
 
 
2,778,219






Pillarstone Capital REIT and Subsidiaries

NOTES TO UNAUDITED PRO FORMA STATEMENT OF OPERATIONS

For the Six Months Ended June 30, 2019

(a)    Historical financial information derived from the Company's Form 10-Q for the six months ended June 30, 2019.

(b)    Unless otherwise noted, amounts represent the historical operations of the Portfolio as reflected in the historical
statement of operations of the Company for the six months ended June 30, 2019.

(c)    Represents the reduction of interest expense from repaying $25.1 million of mortgage debt.
  







Pillarstone Capital REIT and Subsidiaries
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the Year Ended December 31, 2018
(in thousands, except share and per share data)
 
 
 
 
 
 
 
Pillarstone Capital REIT and Subsidiaries(a)
 
Pro Forma Adjustments(b)
 
Pro Forma Total
 
 
 
 
 
 
 
Revenues
 
 
 
 
 
 
Rental
 
$
17,072

 
$
(4,453
)
 
$
12,619

Transaction and other fees
 
108

 
(23
)
 
85

Total revenues
 
17,180

 
(4,476
)
 
12,704

 
 
 
 
 
 
 
Operating expenses
 
 
 
 
 
 
Depreciation and amortization
 
3,566

 
(1,004
)
 
2,562

Operating and maintenance
 
3,966

 
(640
)
 
3,326

Real estate taxes
 
2,720

 
(767
)
 
1,953

General and administrative
 
776

 
(59
)
 
717

Management fees
 
1,008

 
(276
)
 
732

Total operating expenses
 
12,036

 
(2,746
)
 
9,290

 
 
 
 
 
 
 
Other expenses (income)
 
 
 
 
 
 
Interest expense
 
2,832

 
(945
)
(c) 
1,887

Gain on sale of properties
 
(7,778
)
 
—

 
(7,778
)
Loss on disposal of assets
 
55

 
—

 
55

Total other expense
 
(4,891
)
 
(945
)
 
(5,836
)
 
 
 
 
 
 
 
Income before income taxes
 
10,035

 
(785
)
 
9,250

 
 
 
 
 
 
 
Provision for income taxes
 
(229
)
 
22

 
(207
)
 
 
 
 
 
 
 
Net income
 
9,806

 
(763
)
 
9,043

 
 
 
 
 
 
 
Less: Noncontrolling interest in subsidiary
 
8,490

 
(621
)
 
7,869

 
 
 
 
 
 
 
Net income attributable to Common Shareholders
 
$
1,316

 
$
(142
)
 
$
1,174

 
 
 
 
 
 
 
Earnings Per Share:
 
 
 
 
 
 
Basic income per Common Share:
 
 
 
 
 
 
Net income available to Common Shareholders
 
$
3.25

 
 
 
$
2.90

Diluted income per Common Share:
 
 
 
 
 
 
Net income available to Common Shareholders
 
$
0.44

 
 
 
$
0.38

 
 
 
 
 
 
 
Weighted average number of Common Shares outstanding:
 
 
 
 
 
 
Basic:
 
405,169

 
 
 
405,169

Diluted:
 
3,066,027

 
 
 
3,066,027





Pillarstone Capital REIT and Subsidiaries

NOTES TO UNAUDITED PRO FORMA STATEMENT OF OPERATIONS

For the Year Ended December 31, 2018

(a)    Historical financial information derived from the Company's Form 10-K ended December 31,2018. Expenses within
categories have been reclassified for consistency in the Company's Form 10-Q for June 30, 2019. The
reclassifications had no effect on the reported results of operations.

(b)    Unless otherwise noted, amounts represent the historical operations of the Portfolio as reflected in the historical
statement of operations of the Company for the year ended December 31, 2018.

(c)    Represents the reduction of interest expense from repaying $25.1 million of mortgage debt.
  




SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
 
 
PILLARSTONE CAPITAL REIT
 
 
 
 
Date:
October 11, 2019
 
By: /s/ John J. Dee
 
 
 
Name: John J. Dee
Title:   Chief Financial Officer and Senior Vice President