PILLARSTONE CAPITAL REIT - FORM 8-K - January 3, 2019



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): December 27, 2018

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 December 27, 2018, 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 Main Park located at 11205 S. Main Street, Dairy Ashford Business Park located at 12654-12674 Goar Road, and Westbelt Plaza located at 1450 W. Sam Houston Parkway North (collectively, the "Portfolio") to HMC Fuller Main Park, LLC, HMC Filler Dairy Ashford, LLC and HMC Fuller Westbelt, LLC, respectively, (collectively, the "Buyer") for $15.8 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 off mortgage debt on the Portfolio, and after the Disposition, the Company repaid $8.0 million of the Company’s $14.5 million loan from Whitestone REIT Operating Partnership, a company affiliated with certain members of 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 September 30, 2018 has been prepared as if the Disposition had occurred as of that date.

•
The accompanying Unaudited Pro Forma Consolidated Statements of Operations for the nine months ended September 30, 2018 and the year ended December 31, 2017 have been prepared as if the Disposition occurred as of January 1, 2017.





Pillarstone Capital REIT and Subsidiaries
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
As of September 30, 2018
(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
 
$
85,309

 
$
(7,454
)
 
$
77,855

Accumulated depreciation
 
(5,205
)
 
590

 
(4,615
)
Total real estate assets
 
80,104

 
(6,864
)
 
73,240

Cash and cash equivalents
 
988

 
7,436

 
8,424

Escrows and utility deposits
 
2,549

 
—

 
2,549

Accrued rents and accounts receivable, net of allowance for doubtful accounts
 
1,469

 
(216
)
 
1,253

Receivable due from related party
 
1,276

 
—

 
1,276

Unamortized lease commissions and deferred legal costs, net
 
1,341

 
(151
)
 
1,190

Prepaid expenses and other assets
 
117

 
(10
)
 
107

Total assets
 
$
87,844

 
$
195

 
$
88,039

 
 
 
 
 
 
 
LIABILITIES AND EQUITY
Liabilities:
 
 
 
 
 
 
Notes payable
 
$
62,412

 
$
(6,227
)
(c) 
$
56,185

Accounts payable and accrued expenses
 
3,322

 
(448
)
 
2,874

Payable due to related party
 
297

 
—

 
297

Convertible notes payable - related parties
 
198

 
—

 
198

Accrued interest payable
 
226

 
(17
)
 
209

Tenants' security deposits
 
1,410

 
(248
)
 
1,162

Total liabilities
 
67,865

 
(6,940
)
 
60,925

Commitments and contingencies
 
—

 
—

 
—

Shareholders' Equity:
 
 
 
 
 
 
Preferred A Shares - $0.01 par value, 1,518,000 authorized: 256,636 Class A cumulative convertible shares issued and outstanding at September 30, 2018 and December 31, 2017, $10.00 per share liquidation preference
 
3

 
—

 
3

Preferred C Shares - $0.01 par value, 300,000 authorized: 244,444 Class C cumulative convertible shares issued and outstanding, $10.00 per share liquidation preference at September 30, 2018 and December 31, 2017
 
2

 
—

 
2

Common Shares - $0.01 par value, 400,000,000 authorized: 443,299 shares issued and 405,169 outstanding at September 30, 2018 and December 31, 2017
 
4

 
—

 
4

Additional paid-in capital
 
28,147

 
—

 
28,147

Accumulated deficit
 
(27,574
)
 
1,324

 
(26,250
)
Treasury stock, at cost, 38,130 shares
 
(801
)
 
—

 
(801
)
Total Pillarstone Capital REIT shareholders' (deficit) equity
 
(219
)
 
1,324

 
1,105

Noncontrolling interest in subsidiary
 
20,198

 
5,811

 
26,009

Total equity
 
19,979

 
7,135

 
27,114

Total liabilities and equity
 
$
87,844

 
$
195

 
$
88,039





Pillarstone Capital REIT and Subsidiaries

NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET

As of September 30, 2018

(a)    Historical financial information derived from the Company's Form 10-Q as of September 30, 2018.

(b)    Represents adjustments to reflect the disposition of the Portfolio. The sales price of the Portfolio was $15.8 million.

(c)    Represents the reduction of debt from paying down $6.2 million of mortgage debt.
  






Pillarstone Capital REIT and Subsidiaries
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the Nine Months Ended September 30, 2018
(in thousands, except share and per share data)
 
 
 
 
 
 
 
Pillarstone Capital REIT and Subsidiaries(a)
 
Pro Forma Adjustments(b)
 
Pro Forma Total
 
 
 
 
 
 
 
Property revenues
 
 
 
 
 
 
Rental revenues
 
$
10,768

 
$
(1,143
)
 
$
9,625

Other revenues
 
2,223

 
(318
)
 
1,905

Total property revenues
 
12,991

 
(1,461
)
 
11,530

 
 
 
 
 
 
 
Property expenses
 
 
 
 
 
 
Property operation and maintenance
 
3,630

 
(433
)
 
3,197

Real estate taxes
 
2,135

 
(289
)
 
1,846

Total property expenses
 
5,765

 
(722
)
 
5,043

 
 
 
 
 
 
 
Other expenses
 
 
 
 
 
 
General and administrative
 
578

 
—

 
578

Depreciation and amortization
 
2,612

 
(287
)
 
2,325

Interest expense
 
2,051

 
(176
)
(c) 
1,875

Total other expense
 
5,241

 
(463
)
 
4,778

 
 
 
 
 
 
 
Income before loss on disposal of assets and income taxes
 
1,985

 
(276
)
 
1,709

 
 
 
 
 
 
 
Loss on disposal of assets
 
(12
)
 
—

 
(12
)
Provision for income taxes
 
(67
)
 
9

 
(58
)
 
 
 
 
 
 
 
Net income
 
1,906

 
(267
)
 
1,639

 
 
 
 
 
 
 
Less: Non-controlling interest in subsidiary
 
1,842

 
(218
)
 
1,624

 
 
 
 
 
 
 
Net income attributable to Common Shareholders
 
$
64

 
$
(49
)
 
$
15

 
 
 
 
 
 
 
Earnings Per Share:
 
 
 
 
 
 
Basic income per Common Share:
 
 
 
 
 
 
Net income available to Common Shareholders
 
$
0.16

 
 
 
$
0.04

Diluted income per Common Share:
 
 
 
 
 
 
Net income available to Common Shareholders
 
$
0.02

 
 
 
$
0.01

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

 
 
 
405,169

Diluted:
 
2,903,219

 
 
 
2,903,219






Pillarstone Capital REIT and Subsidiaries

NOTES TO UNAUDITED PRO FORMA STATEMENT OF OPERATIONS

For the Nine Months Ended September 30, 2018

(a)    Historical financial information derived from the Company's Form 10-Q for the nine months ended September 30, 2018.

(b)    Amounts represent the historical operations of the Portfolio as reflected in the historical statement of operations of the Company for the nine months ended September 30, 2018.

(c)    Represents the reduction of interest expense from paying down $6.2 million of mortgage debt.
  






Pillarstone Capital REIT and Subsidiaries
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the Year Ended December 31, 2017
(in thousands, except share and per share data)
 
 
 
 
 
 
 
Pillarstone Capital REIT and Subsidiaries(a)
 
Pro Forma Adjustments(b)
 
Pro Forma Total
 
 
 
 
 
 
 
Property revenues
 
 
 
 
 
 
Rental revenues
 
$
14,218

 
$
(1,250
)
 
$
12,968

Other revenues
 
2,550

 
(364
)
 
2,186

Total property revenues
 
16,768

 
(1,614
)
 
15,154

 
 
 
 
 
 
 
Property expenses
 
 
 
 
 
 
Property operation and maintenance
 
5,029

 
(487
)
 
4,542

Real estate taxes
 
2,672

 
(349
)
 
2,323

Total property expenses
 
7,701

 
(836
)
 
6,865

 
 
 
 
 
 
 
Other expenses
 
 
 
 
 
 
General and administrative
 
508

 
—

 
508

Depreciation and amortization
 
3,268

 
(382
)
 
2,886

Interest expense
 
2,725

 
(234
)
(c) 
2,491

Total other expense
 
6,501

 
(616
)
 
5,885

 
 
 
 
 
 
 
Income before loss on disposal of assets and income taxes
 
2,566

 
(162
)
 
2,404

 
 
 
 
 
 
 
Loss on disposal of assets
 
(31
)
 
9

 
(22
)
Provision for income taxes
 
(88
)
 
8

 
(80
)
 
 
 
 
 
 
 
Net income
 
2,447

 
(145
)
 
2,302

 
 
 
 
 
 
 
Less: Non-controlling interest in subsidiary
 
2,232

 
(118
)
 
2,114

 
 
 
 
 
 
 
Net income attributable to Common Shareholders
 
$
215

 
$
(27
)
 
$
188

 
 
 
 
 
 
 
Earnings Per Share:
 
 
 
 
 
 
Basic income per Common Share:
 
 
 
 
 
 
Net income available to Common Shareholders
 
$
0.53

 

 
$
0.46

Diluted income per Common Share:
 
 
 
 
 
 
Net income available to Common Shareholders
 
$
0.07

 
 
 
$
0.06

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

 
 
 
405,169

Diluted:
 
2,903,219

 
 
 
2,903,219







Pillarstone Capital REIT and Subsidiaries

NOTES TO UNAUDITED PRO FORMA STATEMENT OF OPERATIONS

For the Year Ended December 31, 2017

(a)    Historical financial information derived from the Company's Form 10-K for the year ended December 31,2017.

(b)    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, 2017.

(c)    Represents the reduction of interest expense from paying down $6.2 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:
January 3, 2019
 
By: /s/ John J. Dee
 
 
 
Name: John J. Dee
Title:   Chief Financial Officer and Senior Vice President



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