UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

____________________________________

FORM 10-K

(Mark One)

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, ~~2012~~2013

o 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: 000-53966

______________________________

WHITESTONE REIT OPERATING PARTNERSHIP, L.P.

(Exact Name of Registrant as Specified in Its Charter)



Delaware		76-0594968
(State or Other Jurisdiction of Incorporation or		(I.R.S. Employer
Organization)		Identification No.)

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

Registrant's telephone number, including area code: (713) 827-9595

Securities registered pursuant to Section 12(b) of the Act:

None

Securities registered pursuant to Section 12(g) of the Act:

Units of Limited Partnership Interest

(Title of Class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No x

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. Yes x No o

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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

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

Large accelerated filer o Accelerated filer o Non-accelerated filer x Smaller reporting company o

(Do not check if a smaller reporting company)

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

As of ~~March~~February 1126, ~~2013~~2014, the registrant had 1722,~~510~~389,~~007~~134 units of limited partnership interest outstanding. There is no established market for such units.

DOCUMENTS INCORPORATED BY REFERENCE: We incorporate by reference in Part III of this Annual Report on Form 10-K portions of the definitive proxy statement for the ~~2013~~2014 Annual Meeting of Shareholders of Whitestone REIT, the general partner of the Registrant, towhich proxy statement will be filed ~~subsequently~~no ~~with~~later than 120 days after the ~~Securities~~end ~~and~~of ~~Exchange~~our ~~Commission~~fiscal year ended December 31, 2013.

WHITESTONE REIT OPERATING PARTNERSHIP, L.P.

FORM 10-K

Year Ended December 31, ~~2012~~2013

Page
PART I
	Item 1.	Business.	1
	Item 1A.	Risk Factors.	65
	Item 1B.	Unresolved Staff Comments.	2019
	Item 2.	Properties.	2019
	Item 3.	Legal Proceedings.	25
	Item 4.	Mine Safety Disclosures.	2526

PART II
	Item 5.	Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities.	2627
	Item 6.	Selected Financial Data.	2830
	Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	3032
	Item 7A.	Quantitative and Qualitative Disclosures About Market Risk.	5054
	Item 8.	Financial Statements and Supplementary Data.	5054
	Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.	5054
	Item 9A.	Controls and Procedures.	5054
	Item 9B.	Other Information.	5155

PART III
	Item 10.	Trustees, Executive Officers and Corporate Governance.	5256
	Item 11.	Executive Compensation.	5256
	Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters.	5256
	Item 13.	Certain Relationships and Related Transactions, and Director Independence.	5256
	Item 14.	Principal Accountant Fees and Services.	5256

PART IV
	Item 15.	Exhibits and Financial Statement Schedules.	5357
		SIGNATURES.	5458

Table of Contents

Unless the context otherwise requires, all references in this report to “we,” “us,” "“our,” "“the Operating Partnership,"” "“WROP,"” and "“OP"” refer to Whitestone REIT Operating Partnership, L.P., and unless the context otherwise requires, our direct and indirect subsidiaries. "“Whitestone,"” "“the Trust"” and "“the General Partner"” refer to Whitestone REIT.

Forward-Looking Statements

~~This~~The ~~Annual~~following ~~Report on Form 10-K contains forward-looking statements, including~~ discussion ~~and~~should ~~analysis~~be ofread ~~our~~in ~~financial~~conjunction ~~condition,~~with ~~anticipated capital expenditures required to complete projects, amounts of anticipated cash distributions to~~ our ~~partners~~audited inconsolidated ~~the~~financial ~~future~~statements and ~~other matters. These forward-looking statements are not historical facts but are~~ the ~~intent,~~notes ~~belief~~thereto orin ~~current~~this ~~expectations~~Annual ofReport ~~our management based~~ on ~~its~~Form ~~knowledge and understanding of our business and industry. Forward~~10-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 expressionsK. 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~~This Annual Report on Form 10-K contains forward-looking statements ~~that~~within ~~were~~the ~~true~~meaning atof the ~~time~~federal ~~made~~securities ~~may~~laws, ~~ultimately~~including ~~prove~~discussion and analysis of our financial condition, anticipated capital expenditures required to becomplete ~~incorrect~~projects, oramounts ~~false. You~~of ~~are~~anticipated ~~cautioned~~cash distributions to ~~not~~our ~~place~~partners ~~undue~~in ~~reliance~~the onfuture and other matters. These forward-looking statements are not historical facts but are the intent, ~~which~~belief ~~reflect~~or current expectations of our management’s ~~view~~based ~~only~~on asits knowledge and understanding of our business and industry. Forward-looking statements are typically identified by the ~~date~~use of ~~this~~terms ~~Annual~~such ~~Report~~as on“may,” ~~Form~~“will,” ~~10-K. We~~“should,” ~~undertake~~“potential,” no“predicts,” ~~obligation~~“anticipates,” to“expects,” ~~update~~“intends,” “plans,” “believes,” “seeks,” “estimates” or ~~revise~~the negative of such terms and variations of these words and similar expressions, although not all forward-looking statements toinclude ~~reflect~~these ~~changed~~words. These ~~assumptions,~~statements ~~the~~are ~~occurrence~~not guarantees of ~~unanticipated~~future ~~events~~performance orand ~~changes~~are subject to ~~future~~risks, ~~operating~~uncertainties ~~results. Factors~~and ~~that~~other factors, some of which are beyond our control, are difficult to predict and could cause actual results to differ materially from ~~any~~those ~~forward-looking~~expressed ~~statements~~or ~~made~~forecasted in ~~this~~the ~~Annual Report on Form 10~~forward-Klooking ~~include:~~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 Annual Report on Form 10-K. While we may elect to update forward-looking statements at some point in the future, we specifically disclaim any obligation to do so, even if our expectations change or unanticipated events occur. Factors that could cause actual results to differ materially from any forward-looking statements made in this Annual Report on Form 10-K include:


•	the imposition of federal corporate-level income taxes on our General Partner if it fails to qualify as a real estate investment trust ("REIT") in any taxable year or foregoes an opportunity to ensure its 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 our General Partner;

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


•	increases in interest rates and operating costs;

• ~~inability~~availability toand ~~obtain~~terms ~~necessary~~of ~~outside~~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 inability to renew tenants or obtain new tenants 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” section of this Annual Report on Form 10-K.

Table of Contents

PART I

Item 1. Business.

General

We own and operate commercial properties in culturally diverse markets in major metropolitan areas. We are a subsidiary of Whitestone, and together, our real estate portfolio of 5160 properties contains approximately 45.30 million square feet of gross leasable area, located in Texas, Arizona and Illinois. The portfolio has a gross book value of approximately $~~410~~546 million and book partners' capital of approximately $~~173~~221 million as of December 31, ~~2012~~2013.

We were formed under the terms of a limited partnership agreement, or the Agreement, dated December 31, 1998 in the state of Delaware. We are controlled and managed by Whitestone in its capacity as our sole general partner. In addition, Whitestone owned 9697.15% of our outstanding units of limited partnership interest ("OP units"), as of December 31, ~~2012~~2013, with the remaining 32.95% of our outstanding OP units held by other limited partners.

All of our limited partners own limited partnership interests in the form of OP units, which may be redeemed for cash or, at the option of Whitestone, Whitestone common shares on a one-for-one basis. Holders of our OP units, receive distributions from us at the same rate per OP unit as dividends per common share of Whitestone. On August 24, 2010, Whitestone amended its declaration of trust to (i) change the name of all of its common shares of beneficial interest, par value $0.001 to “Class A common shares” (the “Class A common shares”) and (ii) effect a 1-for-3 reverse share split of its Class A common shares and our OP units. In addition, Whitestone created a new class of common shares of beneficial interest, par value $0.001, entitled “Class B common shares” (“Class B common shares,” and, together with the Class A common shares, the "common shares"). For purposes of this Annual Report on Form 10-K, unless otherwise indicated, Class A common shares and OP units are reported after the 1-for-3 reverse share split was effected.

Whitestone currently conducts substantially all of its operations and activities through us and our wholly-owned subsidiaries. As our sole general partner, Whitestone has the exclusive power to manage and conduct our business, subject to certain customary exceptions. Whitestone is a Maryland REIT and was founded in 1998. Whitestone has elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended (the “"Code”").

Our OP units are not traded on a national securities exchange. Whitestone's common shares of beneficial interest, par value $0.001 per share, are ~~currently~~ traded on the New York Stock Exchange (the "NYSE") under the ticker symbol "WSR." Our offices are located at 2600 South Gessner, Suite 500, Houston, Texas 77063. Our telephone number is (713) 827-9595 and Whitestone maintains a website at www.whitestonereit.com. The contents of Whitestone's website are not incorporated into this filing.

Our Strategy

In October 2006, Whitestone's current management team joined the company and adopted a strategic plan to acquire, redevelop, own and operate Community Centered Properties. We define Community Centered Properties as visibly located properties in established or developing culturally diverse neighborhoods in our target markets. We market, lease and manage our centers to match tenants with the shared needs of the surrounding neighborhood. ~~Those~~We ~~needs~~have ~~may~~a ~~include~~diversified ~~specialty~~tenant ~~retail,~~base ~~grocery,~~concentrated ~~restaurants~~on ~~and~~service offerings including medical, educational, casual dining and ~~financial~~convenience services. 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. Whitestone employs and develops a diverse group of associates who understand the needs of our multicultural communities and tenants.

Our primary business objective is to increase partner value by acquiring, owning and operating Community Centered Properties. The key elements of our strategy include:


•	Strategically Acquiring Properties.


◦	Seeking High Growth Markets. We seek to strategically acquire commercial properties in high-growth markets. Our acquisition targets are located in densely populated, culturally diverse neighborhoods, primarily in and around Phoenix, Chicago, Dallas, San Antonio and Houston.

◦

Diversifying Geographically. Our current portfolio is concentrated in Houston and Phoenix. We believe that continued geographic diversification in markets where we have substantial knowledge and experience will help offset the economic risk from a single market concentration. We intend to continue to focus our expansion efforts on the Phoenix, Chicago, Dallas and San Antonio markets. We believe our management infrastructure and capacity can accommodate substantial growth in those markets. We may also pursue opportunities in other Southwestern and Western regions that are consistent with our Community Centered Property strategy.

◦ ~~Diversifying~~Capitalizing ~~Geographically.~~on ~~Our~~Availability ~~current~~of ~~portfolio~~Distressed ~~is concentrated in Houston~~Assets. We believe that ~~continued~~currently ~~geographic~~and ~~diversification~~during inthe ~~markets~~next ~~where~~several weyears ~~have~~there ~~substantial~~will ~~knowledge~~continue ~~and~~to ~~experience~~be ~~will~~excellent ~~help~~opportunities ~~offset~~in ~~the~~our ~~economic~~target ~~risk~~markets ~~from~~to aacquire ~~single~~quality ~~market~~properties ~~concentration~~at historically attractive prices. We intend to ~~continue~~acquire todistressed ~~focus~~assets ~~our~~directly ~~expansion~~from ~~efforts~~owners onor ~~the~~financial ~~Phoenix,~~institutions ~~Chicago,~~holding ~~Dallas~~foreclosed real estate and ~~San~~debt ~~Antonio~~instruments ~~markets~~that are either in default or on bank watch lists. WeMany ~~believe~~of these assets may benefit from our ~~management~~corporate ~~infrastructure~~strategy and ~~capacity~~the ~~can~~experience ~~accommodate~~of ~~substantial~~Whitestone's ~~growth~~management team in ~~those~~turning ~~markets~~around distressed properties, portfolios and companies. We ~~may~~have ~~also~~extensive ~~pursue~~relationships ~~opportunities~~with incommunity ~~other~~banks, ~~Southwestern~~attorneys, title companies, and ~~Western~~others ~~regions~~in ~~that~~the ~~are~~real ~~consistent~~estate industry with ~~our~~whom ~~Community~~we ~~Centered~~regularly ~~Property~~work ~~strategy~~to identify properties for potential acquisition.

◦ Capitalizing on Availability of Distressed Assets. We believe that during the next several years there will continue to be excellent opportunities in our target markets to acquire quality properties at historically attractive prices. We intend to acquire distressed assets directly from owners or financial institutions holding foreclosed real estate and debt instruments that are either in default or on bank watch lists. Many of these assets may benefit from our corporate strategy and the experience of Whitestone's management team in turning around distressed properties, portfolios and companies. We have extensive relationships with community banks, attorneys, title companies, and others in the real estate industry with whom we regularly work to identify properties for potential acquisition.

•

Redeveloping and Re-tenanting Existing Properties. We “turn around” properties and seek to add value through renovating and re-tenanting our properties to create Whitestone-branded Community Centered Properties. We seek to accomplish this by (1) stabilizing occupancy, with per property occupancy goals of 90% or higher; (2) adding leasable square footage to existing structures; (3) developing and building on excess land; (4) upgrading and renovating existing structures; and (5) investing significant effort in recruiting tenants whose goods and services meet the needs of the surrounding neighborhood.

•

Recycling Capital for Greater Returns. We seek to continually upgrade our portfolio by opportunistically selling properties that do not have the potential to meet our Community Centered Property strategy and redeploying the sale proceeds into properties that better fit our strategy. Some of our properties that were acquired prior to the tenure of Whitestone's current management team may not fit our Community Centered Property strategy, and we may look for opportunities to dispose of these properties as we continue to execute our strategy.

• Prudent Management of Capital Structure. We currently have 2441 properties that are not mortgaged. We may seek to add mortgage indebtedness to existing and newly acquired unencumbered properties to provide additional capital for acquisitions. As a general policy, we intend to maintain a ratio of total indebtedness to undepreciated book value of real estate assets that is less than 60%. As of December 31, ~~2012~~2013, our ratio of total indebtedness to undepreciated book value of real estate assets was 4748%.


•	Investing in People. We believe that our people are the heart of our culture, philosophy and strategy. Whitestone continually focuses on developing associates who are self-disciplined and motivated and display at all times a high degree of character and competence. Whitestone provides them with equity incentives to align their interests with those of its shareholders and our partners.

Our Structure

Substantially all of Whitestone's business is conducted through us. Whitestone is our sole general partner. As of December 31, ~~2012~~2013, Whitestone owned an approximate 9697.15% interest in us.

As of December 31, ~~2012~~2013, we owned a real estate portfolio consisting of 5160 properties located in three states. As of December 31, ~~2012~~2013 and ~~2011~~2012, our Operating Portfolio Occupancy Rate was 88% and 87%, respectively, based on gross leasable area. We define Operating Portfolio Occupancy Rate as physical occupancy on all properties, excluding (i) new acquisitions, through the earlier of attainment of 90% occupancy or 18 months of ownership, and (ii) properties that are undergoing significant redeveloping or re-tenanting.

Whitestone directly manages the operations and leasing of our properties. Substantially all of our revenues consist of base rents received under ~~long-~~varying term leases. For the year ended December 31, ~~2012~~2013, our total revenues were approximately $4662.61 million. Approximately 6260% of our existing leases contain “step up” rental clauses that provide for increases in the base rental payments.

As of December 31, 2013, we had two properties that when combined, accounted for more than 10% of total gross revenue and real estate assets. Uptown Tower is an office building located in Dallas, Texas that accounted for 5.9% of our total revenue for the year ended December 31, 2013. Uptown Tower also accounted for 3.3% of our real estate assets, net of accumulated depreciation, for the year ended December 31, 2013. Village Square at Dana Park ("Dana Park"), a retail community purchased on September 21, 2012 and located in the Mesa submarket of Phoenix, Arizona, accounted for 9.2% of our total revenue for the year ended December 31, 2013. Dana Park also accounted for 9.5% of our real estate assets, net of accumulated depreciation, for the year ended December 31, 2013. Of our 60 properties, 31 are located in the Houston, Texas metropolitan area.

As of December 31, 2012, we had two properties that when combined, accounted for more than 10% of total gross revenue and real estate assets. Uptown Tower is an office building located in Dallas, Texas that accounted for 7.8% of our total revenue for the year ended December 31, 2012. Uptown Tower also accounted for 4.5% of our real estate assets, net of accumulated depreciation, for the year ended December 31, 2012. Village Square at Dana Park, or Dana Park, a retail community purchased on September 21, 2012 and located in the Mesa submarket of Phoenix, Arizona, accounted for 3.3% of our total revenue for the year ended December 31, 2012. Dana Park also accounted for 13.0% of our real estate assets, net of accumulated depreciation, for the year ended December 31, 2012. Of our 51 properties, 30 are located in the Houston, Texas metropolitan area.

Economic Factors

The recent challenging economic ~~recession~~conditions ~~continues~~continue to negatively impact the volume of real estate transactions, occupancy levels, tenants’ ability to pay rent and cap rates. Each of these factors could negatively impact the value of public real estate companies, including ours. However, the ~~vast~~ majority of our retail properties are located in densely populated metropolitan areas and are occupied by tenants that generally provide basic necessity-type items and services ~~and~~which ~~tend~~have tended to be less affected by economic changes. Furthermore, our portfolio is primarily positioned in metropolitan areas in Texas that have been impacted less by the economic ~~slow~~slowdown ~~down~~ compared to other metropolitan areas.

Competition

All of our properties are located in areas that include competing properties. The amount of competition in a particular area could impact our ability to acquire additional real estate, sell current real estate, lease space and the amount of rent we are able to charge. We may be competing with owners, developers and operators, including, but not limited to, real estate investors, REITs, insurance companies and pension funds.

Should we decide to dispose of a property, we may compete with third-party sellers of similar types of commercial properties for suitable purchasers, which may result in our receiving lower net proceeds from a sale or in our not being able to dispose of such property at a time of our choosing due to the lack of an acceptable return. In operating and managing our properties, we compete for tenants based upon a number of factors including, but not limited to, location, rental rates, security, flexibility, expertise to design space to meet prospective tenants' needs and the manner in which the property is operated, maintained and marketed. We may be required to provide rent concessions, incur charges for tenant improvements and other inducements, or we may not be able to timely lease vacant space, all of which ~~would~~could adversely impact our results of operations.

Many of our competitors have greater financial and other resources than us and also may have more operating experience. Generally, there are other neighborhood and community retail centers within relatively close proximity to each of our properties. There is, however, no dominant competitor in the Houston, Dallas, San Antonio, Phoenix or Chicago metropolitan areas. Our retail tenants also face increasing competition from outlet malls, internet ~~discount shopping clubs~~retailers, catalog companies, direct mail and telemarketing.

Compliance with Governmental Regulations

Under various federal and state environmental laws and regulations, as an owner or operator of real estate, we may be required to investigate and clean up certain hazardous or toxic substances, asbestos-containing materials, or petroleum product releases at our properties. We may also be held liable to a governmental entity or to third parties for property damage and for investigation and cleanup costs incurred by those parties in connection with ~~the~~any such contamination. In addition, some environmental laws create a lien on ~~the~~a contaminated site in favor of the government for damages and costs itthe government incurs in connection with contamination on the ~~contamination~~site. The presence of contamination or the failure to remediate contaminations at any of our properties may adversely affect our ability to sell or lease the properties or to borrow using the properties as collateral. We could also be liable under common law to third parties for damages and injuries resulting from environmental contamination coming from our properties.

We will not purchase any property unless we are generally satisfied with the environmental status of the property. We may obtain a Phase I environmental site assessment, which includes a visual survey of the building and the property in an attempt to identify areas of potential environmental concerns, visually observing neighboring properties to assess surface conditions or activities that may have an adverse environmental impact on the property, and contacting local governmental agency personnel and performing a regulatory agency file search in an attempt to determine any known environmental concerns in the immediate vicinity of the property. A Phase I environmental site assessment does not generally include any sampling or testing of soil, groundwater or building materials from the property.

We believe that our properties are in compliance in all material respects with all applicable federal, state and local laws and regulations regarding the handling, discharge and emission of hazardous or toxic substances. Because release of chlorinated solvents can occur as a result of dry cleaning operations, we participate in the Texas Commission on Environmental Quality Dry Cleaner Remediation Program ("DCRP") with respect to four of our properties that currently or previously had a dry cleaning facility as a tenant. The DCRP administers the Dry Cleaning Remediation fund to assist with remediation of contamination caused by dry cleaning solvents.

We ~~believe~~have ~~that~~not ~~our~~been ~~properties~~notified ~~are~~by inany ~~compliance~~governmental ~~in all material respects with all federal~~authority, ~~state~~ and ~~local~~are ~~ordinances~~not ~~and~~otherwise ~~regulations~~aware ~~regarding~~of ~~the~~any ~~handling~~material noncompliance, ~~discharge~~liability ~~and~~or ~~emission~~claim ofrelating to hazardous or toxic substances~~. During~~ ~~the~~in ~~re-financing~~connection ofwith ~~twenty-one~~any of our ~~properties~~present inor ~~late~~former ~~2008 and early 2009, Phase I environmental site assessments were completed at those~~ properties. ~~These~~Nevertheless, ~~assessments~~it ~~revealed~~is possible that ~~five of~~ the ~~twenty-one~~environmental ~~properties~~assessments ~~currently~~conducted orthus ~~previously~~far ~~had~~and acurrently ~~dry~~available ~~cleaning~~to ~~facility~~us asdo anot ~~tenant. Since~~reveal ~~release of chlorinated solvents can occur as a result of dry cleaning operations, a Phase II subsurface investigation was conducted at the five identified properties, and~~ all ~~such~~potential ~~investigations~~environmental ~~revealed the presence of chlorinated solvents~~liabilities. ~~Based~~It onis ~~the~~also ~~findings~~possible ofthat ~~the~~subsequent ~~Phase II subsurface~~ investigations, wewill ~~promptly~~identify ~~applied~~material ~~for~~contamination ~~entry into the Texas Commission on Environmental Quality Dry Cleaner Remediation Program,~~ or ~~DCRP,~~other ~~for~~adverse ~~four of the identified properties and were accepted. Upon entry~~conditions, ~~and~~that ~~continued~~adverse ~~good~~environmental ~~standing~~conditions ~~with~~have ~~the~~arisen ~~DCRP,~~subsequent ~~the~~to ~~DCRP administers~~ the ~~Dry~~performance ~~Cleaning Remediation fund to assist with remediation~~ of ~~contamination caused by dry cleaning solvents. The response actions associated with~~ the ~~ongoing~~environmental ~~investigation~~assessments, ~~and~~or ~~subsequent~~that ~~remediation,~~there ifare ~~necessary,~~material ~~have~~environmental ~~not~~liabilities ~~been~~of ~~determined~~which atmanagement ~~this~~is ~~time~~unaware.

~~However,~~Under wethe ~~believe~~Americans ~~that~~with ~~the~~Disabilities ~~costs~~Act ("ADA"), all places of ~~such~~public ~~response~~accommodation ~~actions~~are ~~will~~required beto ~~immaterial,~~meet ~~and~~certain ~~therefore~~federal norequirements ~~liability~~related ~~has~~to ~~been~~access ~~recorded~~and inuse ~~our~~by ~~financial~~disabled ~~statements~~persons. WeOur ~~have~~properties ~~not~~must ~~been~~comply ~~notified~~with bythe ~~any~~ADA ~~governmental~~to ~~authority,~~the ~~and~~extent that they are ~~not~~considered ~~otherwise~~“public ~~aware,~~accommodations” ~~other~~as ~~than~~defined by the ~~five~~ADA. The ~~identified~~ADA ~~properties~~may ~~described~~require ~~above,~~removal of ~~any~~structural ~~material~~barriers ~~noncompliance, liability or claim relating~~ to ~~hazardous~~access orby ~~toxic~~persons ~~substances~~with disabilities in ~~connection~~public ~~with~~areas ~~any~~ of our ~~present~~properties orwhere ~~former~~such ~~properties. Nevertheless,~~removal it is ~~possible~~readily ~~that~~achievable. We ~~the~~believe ~~environmental~~that ~~assessments~~our ~~conducted~~properties ~~thus~~are ~~far~~in ~~and~~substantial ~~currently~~compliance ~~available~~with tothe usADA doand ~~not~~that ~~reveal~~we ~~all~~will ~~potential~~not ~~environmental~~be ~~liabilities. It~~required isto ~~also~~make ~~possible~~substantial ~~that~~capital ~~subsequent~~expenditures ~~investigations~~to ~~will~~address ~~identify~~the ~~material~~requirements ~~contamination~~of orthe ~~other~~ADA. In ~~adverse conditions~~addition, ~~that~~we ~~adverse~~will ~~environmental~~continue ~~conditions~~to ~~have~~assess ~~arisen~~our ~~subsequent~~compliance towith the ~~performance~~ADA ofand ~~the~~to ~~environmental~~make ~~assessments,~~alterations orto ~~that~~our ~~there~~properties ~~are~~as ~~material environmental liabilities of which management is unaware~~required.

Under the Americans with Disabilities Act, or ADA, all places of public accommodation are required to meet certain federal requirements related to access and use by disabled persons. Our properties must comply with the ADA to the extent that they are considered “public accommodations” as defined by the ADA. The ADA may require removal of structural barriers to access by persons with disabilities in public areas of our properties where such removal is readily achievable. We believe that our properties are in substantial compliance with the ADA and that we will not be required to make substantial capital expenditures to address the requirements of the ADA. In addition, we will continue to assess our compliance with the ADA and to make alterations to our properties as required.

Employees

As of December 31, ~~2012~~2013, we had no employees, and Whitestone employed 68 ~~employees~~persons. We rely on Whitestone for management ~~services~~ and administrative services. As the management and employees of Whitestone work for the benefit of the Operating Partnership, the costs and expenses of Whitestone have been presented in this report in a manner consistent with Whitestone's presentation in its Annual Report on Form 10-K.

Materials Available on Our Website

Copies of our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to those reports, as well as Reports on Forms 3, 4 and 5 regarding Whitestone's management's officers, trustees or any of our 10% beneficial owners, filed or furnished pursuant to Section 13(a), 15(d) or 16(a) of the Securities Exchange Act of 1934 (the "Exchange Acts") are available on the website of the Securities and Exchange Commission's (“"SEC”") at www.sec.gov. You may also read and copy any materials we file with the SEC at the SEC's Public Reference Room at 100 F Street, NE, Washington, D.C. 20549, on official business days during the hours of 10:00 am to 3:00 pm Eastern. You may obtain information on the operation of the SEC's Public Reference Room by calling the SEC at 1-800-SEC-0330.

Copies of Whitestone's Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports, as well as Reports on Forms 3, 4 and 5 regarding Whitestone's officers, trustees or 10% beneficial owners, filed or furnished pursuant to Section 13(a), 15(d) or 16(a) of the Exchange Act are also available free of charge through its website at www.whitestonereit.com, as soon as reasonably practicable after it electronically files the material with, or furnishes it to, the SEC. Whitestone has also made available on its website copies of its Audit Committee Charter, Compensation Committee Charter, Nominating and Governance Committee Charter, Insider Trading Compliance Policy, and Code of Business Conduct and Ethics Policy. In the event of any changes to these charters or the code or guidelines, changed copies will also be made available on Whitestone's website. Materials on Whitestone's website are not part of its Annual Report on Form 10-K and will not be part of our Annual Report on Form 10-K and such materials are not incorporated herein by reference.

Financial Information

Additional financial information related to us is included in Item 8 “Financial Statements and Supplementary Data.”

Table of Contents

Item 1A. Risk Factors.

In addition to the other information contained in this Annual Report on Form 10-K, the following risk factors should be considered carefully in evaluating our business. Our business, financial condition, results of operations or the trading price of Whitestone's common shares could be materially adversely affected by any of these risks. Please note that additional risks not presently known to us or which we currently consider immaterial may also impair our business and operations.

Risks Associated with Real Estate

Recent market disruptions may significantly and adversely affect our financial condition and results of operations.

The U.S. economy is still experiencing weakness from recent economic conditions, which resulted in increased unemployment, weakening of tenant financial condition, large-scale business failures and tight credit markets. Our results of operations may be sensitive to changes in overall economic conditions that impact tenants of our properties or tenant leasing practices. Adverse economic conditions affecting tenant income, such as employment levels, business conditions, interest rates, tax rates, fuel and energy costs and other matters, could reduce overall tenant leasing or cause tenants to shift their leasing practices. In addition, periods of economic slowdown or recession, rising interest rates or declining demand for real estate, or the public perception that any of these events may occur, could result in a general decline in rents or an increased incidence of defaults under existing leases. Although the U.S. economy isappears ~~beginning~~ to ~~emerge~~have emerged from the worst aspects of the recent recession, high levels of unemployment have persisted, and rental rates and valuations for retail space have not fully recovered to pre-recession levels and may not for a number of years. At this time, it is difficult to determine the breadth and duration of the impact of the economic and financial market problems and the many ways in which they could affect our tenants and our business in general. A general reduction in consumer spending and the level of tenant leasing could adversely affect our ability to maintain our current tenants and gain new tenants, affecting our growth and profitability. Accordingly, continuation or further worsening of these difficult financial and macroeconomic conditions could have a significant adverse effect on our cash flows, profitability, results of operations and the trading price of Whitestone's common shares.

Real estate property investments are illiquid due to a variety of factors and therefore we may not be able to dispose of properties when appropriate or on favorable terms.

Our strategy includes opportunistically selling properties that do not have the potential to meet our Community Centered Property strategy. However, real estate property investments generally cannot be disposed of quickly. In addition, the Code imposes certain restrictions on the ability of a REIT to dispose of properties that are not applicable to other types of real estate companies. Therefore, we may not be able to vary our portfolio in response to economic or other conditions promptly or on favorable terms, which could cause us to incur extended losses, reduce our cash flows and adversely affect distributions to partners.

We cannot predict whether we will be able to sell any property for the price or on the terms set by us or whether any price or other terms offered by a prospective purchaser would be acceptable to us. We also cannot predict the length of time needed to find a willing purchaser and to close the sale of a property. To the extent we are unable to sell any properties for our book value, we may be required to take a non-cash impairment charge or loss on the sale, either of which would reduce our net income.

We may be required to expend funds and time to correct defects or to make improvements before a property can be sold. We cannot assure you that we will have funds available to correct those defects or to make those improvements, which may impede our ability to sell a property. Further, we may agree to transfer restrictions that materially restrict us from selling a property for a period of time or impose other restrictions, such as a limitation on the amount of debt that can be placed or repaid on that property. These transfer restrictions ~~would~~could impede our ability to sell a property even if we deem it necessary or appropriate. These facts and any others that would further contribute to the illiquid character of real estate properties and impede our ability to respond to adverse changes in the performance of our properties may have a material adverse effect on our business, financial condition, results of operations, our ability to make distributions to our partners and the trading price of Whitestone's common shares.

Table of Contents

Our business is dependent upon our tenants successfully operating their businesses, and their failure to do so could have a material adverse effect on our ability to successfully and profitably operate our business.

We depend on our tenants to operate their businesses in a manner which generates revenues sufficient to allow them to meet their obligations to us, including their obligations to pay rent, maintain certain insurance coverage, pay real estate taxes and maintain the properties in a manner so as not to jeopardize their operating licenses or regulatory status. The ability of our tenants to fulfill their obligations under our leases may depend, in part, upon the overall profitability of their operations. Cash flow generated by certain tenant businesses may not be sufficient for a tenant to meet its obligations to us. Our financial position could be weakened and our ability to fulfill our obligations under our indebtedness could be limited if a number of our tenants were unable to meet their obligations to us or failed to renew or extend their relationship with us as their lease terms expire, or if we were unable to lease or re-lease our properties on economically favorable terms. These adverse developments could arise due to a number of factors, including those described in the risk factors discussed in this Annual Report on Form 10-K.

Turmoil in capital markets could adversely impact acquisition activities and pricing of real estate assets.

Volatility in capital markets could adversely affect acquisition activities by impacting certain factors, including the tightening of underwriting standards by lenders and credit rating agencies and the significant inventory of unsold collateralized mortgage backed securities in the market. These factors directly affect a lender's ability to provide debt financing as well as increase the cost of available debt financing. As a result, we may not be able to obtain favorable debt financing in the future or at all. This may impair our ability to acquire properties or result in future acquisitions generating lower overall economic returns, which may adversely affect our results of operations and distributions to partners. Furthermore, any turmoil in the capital markets could adversely impact the overall amount of capital available to invest in real estate, which may result in price or value decreases of real estate assets.

The value of investments in our OP units will be directly affected by general economic and regulatory factors we cannot control or predict.

Investments in real estate typically involve a high level of risk as the result of factors we cannot control or predict. One of the risks of investing in real estate is the possibility that our properties will not generate income sufficient to meet operating expenses or will generate income and capital appreciation, if any, at rates lower than those anticipated or available through investments in comparable real estate or other investments. The following factors may affect income from properties and yields from investments in properties and are generally outside of our control:


•	conditions in financial markets;


•	over-building in our markets;


•	a reduction in rental income as the result of the inability to maintain occupancy levels;


•	adverse changes in applicable tax, real estate, environmental or zoning laws;

• changes in general economic conditions or economic conditions in our markets;


•	a taking of any of our properties by eminent domain;


•	adverse local conditions (such as changes in real estate zoning laws that may reduce the desirability of real estate in the area);


•	acts of God, such as hurricanes, earthquakes or floods and other uninsured losses;


•	changes in supply of or demand for similar or competing properties in an area;


•	changes in interest rates and availability of permanent debt capital, which may render the sale of a property difficult or unattractive; and


•	periods of high interest rates, inflation or tight money supply.

Table of Contents

Some or all of these factors may affect our properties, which could adversely affect our operations and ability to ~~pay~~make distributions to partners.

We may face significant competition in our efforts to acquire financially distressed properties and debt.

Our acquisition strategy includes acquiring distressed commercial real estate, and we could face significant competition from other investors, REITs, hedge funds, private equity funds and other private real estate investors with greater financial resources and access to capital than us. Therefore, we may not be able to compete successfully for investments. In addition, the number of entities and the amount of purchasers competing for suitable investments may increase, all of which could result in competition for accretive acquisition opportunities and adversely affect our business plan and our ability to maintain our current distribution rate.

All of our properties are subject to property taxes that may increase in the future, which could adversely affect our cash flow.

Our properties are subject to property taxes that may increase as property tax rates change and as the properties are assessed or reassessed by taxing authorities. As the owner of the properties we are ultimately responsible for payment of the taxes to the government. If property taxes increase, our tenants may be unable to make the required tax payments, ultimately requiring us to pay the taxes. In addition, we will generally be responsible for property taxes related to any vacant space in our properties.

Our assets may be subject to impairment charges.

We periodically evaluate our real estate investments and other assets for impairment indicators. The judgment regarding the existence of impairment indicators is based on factors such as market conditions, tenant performance and legal structure. If we determine that a significant impairment has occurred, we would be required to make an adjustment to the net carrying value of the asset, which could have a material adverse effect on our results of operations and funds from operations in the period in which the write-off occurs.

Compliance or failure to comply with laws requiring access to our properties by disabled persons could result in substantial cost.

The ADA and other federal, state and local laws generally require public accommodations be made accessible to disabled persons. Noncompliance could result in the imposition of fines by the government or the award of damages to private litigants. These laws may require us to modify our existing properties. These laws may also restrict renovations by requiring improved access to such buildings by disabled persons or may require us to add other structural features which increase our construction costs. Legislation or regulations adopted in the future may impose further ~~burdens~~obligations or restrictions on us with respect to improved access by disabled persons. We may incur unanticipated expenses that may be material to our financial condition or results of operations to comply with ADA and other federal, state and local laws, or in connection with lawsuits brought by private litigants.

We face intense competition, which may decrease, or prevent increases of, the occupancy and rental rates of our properties.

We compete with a number of developers, owners and operators of commercial real estate, many of whom own properties similar to ours in the same markets in which our properties are located. If our competitors offer space at rental rates below current market rates, or below the rental rates we currently charge our tenants, we may lose existing or potential tenants and we may be pressured to reduce our rental rates below those we currently charge or to offer more substantial rent abatements, tenant improvements, early termination rights or below-market renewal options in order to retain tenants when our tenants' leases expire. This competitive environment could have a material adverse effect on our ability to lease our properties or any newly developed or acquired property, as well as on the rents charged.

Table of Contents

Risks Associated with Our Operations

Because a majority of our gross leasable area is in the Houston and Phoenix metropolitan ~~area~~areas, an economic downturn in ~~the~~either ~~Houston metropolitan~~ area could adversely impact our operations and ability to ~~pay~~make distributions to our partners.

The majority of our assets and revenues are currently derived from properties located in the Houston and Phoenix metropolitan area. As of December 31, ~~2012~~2013, we had 5548% and 37% of our gross leasable area in Houston and Phoenix, respectively. Our results of operations are directly contingent on our ability to attract financially sound commercial tenants. A significant economic downturn in the Houston or Phoenix metropolitan area may adversely impact our ability to locate and retain financially sound tenants and could have an adverse impact on our tenants' revenues, costs and results of operations and may adversely affect their ability to meet their obligations to us. Likewise, we may be required to lower our rental rates to attract desirable tenants in such an environment. Consequently, because of the geographic concentration among our current assets, if the Houston or Phoenix metropolitan area experiences an economic downturn, our operations and ability to ~~pay~~make distributions to our partners could be adversely impacted.

We lease our properties to approximately 1,~~100~~200 tenants, with leases for approximately 10% to 20% of our gross leasable area expiring annually. Each year we face the risk of non-renewal of a material percentage of our leases and the cost of re-leasing a significant amount of our available space, and our failure to meet leasing targets and control the cost of re-leasing our properties could adversely affect our rental revenue, operating expenses and results of operations.

The nature of our business model warrants shorter term leases to smaller, non-national tenants, and substantially all of our revenues consist of base rents received under these leases. As of December 31, ~~2012~~2013, approximately 3435% of the aggregate gross leasable area of our properties is subject to leases that expire prior to December 31, ~~2014~~2015. We are subject to the risk that:


•	tenants may choose not to, or may not have the financial resources to, renew these leases;


•	we may experience significant costs associated with re-leasing a significant amount of our available space;


•	we may not be able to easily re-lease the space subject to these leases, which may cause us to fail to meet our leasing targets or control the costs of re-leasing; and


•	the terms of any renewal or re-lease may be less favorable than the terms of the current 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, and while we hope to re-lease most of that space prior to expiration of the leases at rates comparable to or slightly in excess of the current rates, market conditions, including new supply of properties, and macroeconomic conditions in our markets and nationally could adversely impact our renewal rate and/or the rental rates we are able to negotiate. If any of these risks materialize, our rental revenue, operating expenses and results of operations could be adversely affected.

Many of our tenants are small businesses, which may have a higher risk of bankruptcy or insolvency.

Many of our tenants are small businesses that depend primarily on cash flows from their ~~businesses~~operations to pay their rent and without other resources could be at a higher risk of bankruptcy or insolvency than larger, national tenants. If tenants are unable to comply with the terms of our leases, we may be forced to modify the leases in ways that are unfavorable to us. Alternatively, the failure of a tenant to perform under a lease could require us to declare a default, repossess the space and find a suitable replacement tenant. There is no assurance that we would be able to lease the space on substantially equivalent or better terms than the prior lease, or at all, or successfully reposition the space for other uses. If one or more of our tenants files for bankruptcy relief, the Bankruptcy Code provides that a debtor has the option to assume or reject the unexpired lease within a certain period of time.

If one or more of our tenants files for bankruptcy relief, the Bankruptcy Code provides that a debtor has the option to assume or reject the unexpired lease within a certain period of time. For example, on November 10, 2008, one of our tenants, Circuit City, which leased space at one of our properties and represented approximately 1.1% of our total rent for the year ended December 31, 2008, filed for reorganization under Chapter 11 of the Bankruptcy Code. The tenant elected to reject our lease.

Table of Contents

Any bankruptcy filing by or relating to one or more of our tenants could bar all efforts by us to collect pre-bankruptcy debts from that tenant or seize its property. A tenant bankruptcy could also delay our efforts to collect past due balances under the lease and could ultimately preclude collection of all or a portion of these sums. It is possible that we may recover substantially less than the full value of any unsecured claims we hold, if any. Furthermore, dealing with a tenant's bankruptcy or other default may divert management's attention and cause us to incur substantial legal and other costs. The bankruptcy or insolvency of a number of smaller tenants may have an adverse impact on our business, financial condition and results of operations, our ability to make distributions to our partners and the trading price of Whitestone's common shares.

Table of Contents

Uninsured losses relating to real property or excessively expensive premiums for insurance coverage may adversely affect our returns.

We attempt to adequately insure all of our properties to cover casualty losses. However, there are types of losses, generally catastrophic in nature, such as losses due to wars, acts of terrorism, earthquakes, floods, hurricanes, pollution or environmental matters, which are uninsurable or not economically insurable, or may be insured subject to limitations, such as large deductibles or co-payments. Our current geographic concentration in the Houston metropolitan area potentially increases the risk of damage to our portfolio due to hurricanes. Insurance risks associated with potential terrorism acts could sharply increase the premiums we pay for coverage against property and casualty claims. In some instances, we may be required to provide other financial support, either through financial assurances or self-insurance, to cover potential losses. We cannot assure you that we will have adequate coverage for these losses. Also, to the extent we must pay unexpectedly large insurance premiums, we could suffer reduced earnings that would result in less cash to be distributed to partners.

Discovery of previously undetected environmentally hazardous conditions may adversely affect our operating results.

Under various federal, state and local environmental laws, ordinances and regulations, a current or previous owner or operator of real property may be liable for the cost of removal or remediation of hazardous or toxic substances on, under or in its property. The costs of removal or remediation could be substantial. These laws often impose liability whether or not the owner or operator knew of, or was responsible for, the presence of any hazardous or toxic substances. Environmental laws also may impose restrictions on the manner in which property may be used or businesses may be operated, and these restrictions may require substantial expenditures. Environmental laws provide for sanctions in the event of noncompliance and may be enforced by governmental agencies or, in certain circumstances, by private parties. Certain environmental laws and common law principles could be used to impose liability for release of and exposure to hazardous substances, including asbestos containing materials into the air. In addition, third parties may seek recovery from owners or operators of real properties for personal injury or property damage associated with exposure to released hazardous substances. The cost of defending against claims of liability, of compliance with environmental regulatory requirements, of remediating any contaminated property, or of paying personal injury claims could materially adversely affect our business, assets or results of operations and, consequently, amounts available for distributions to our partners.

Certain of our properties currently include or have in the past included a dry cleaning facility as a tenant. See "Business - Compliance with Governmental Regulations."

We may not be successful in consummating suitable acquisitions or investment opportunities, which may impede our growth and adversely affect our results of operations.

Our ability to expand through acquisitions is integral to our business strategy and requires us to consummate suitable acquisition or investment opportunities that meet our criteria and are compatible with our growth strategy. We may not be successful in consummating acquisitions or investments in properties that meet our acquisition criteria on satisfactory terms or at all. Failure to consummate acquisitions or investment opportunities, the failure of an acquired property to perform as expected, or the failure to integrate successfully any acquired properties without substantial expense, delay or other operational or financial problems, would slow our growth, which could in turn adversely affect the trading price of Whitestone's common shares.

Our ability to acquire properties on favorable terms may be constrained by the following significant risks:


•	competition from other real estate investors with significant capital, including REITs and institutional investment funds;


•	competition from other potential acquirers which may significantly increase the purchase price for a property we acquire, which could reduce our growth prospects;


•	unsatisfactory results of our due diligence investigations or failure to meet other customary closing conditions; and

Table of Contents


•	failure to finance an acquisition on favorable terms or at all.

If any of these risks are realized, our business, financial condition and results of operations, our ability to make distributions to our partners and the trading price of Whitestone's common shares may be materially and adversely affected.

Table of Contents

Our success depends in part on our ability to execute our Community Centered Property strategy.

Our Community Centered Property strategy requires intensive management of a large number of small spaces and small tenant relationships. Our success depends in part upon Whitestone's management's ability to identify potential Community Centered Properties and find and maintain the appropriate tenants to create such a property. Lack of market acceptance of our Community Centered Property strategy or our inability to successfully attract and manage a large number of tenant relationships could adversely affect our occupancy rates, operating results and distribution rate.

Our business is significantly influenced by demand for retail space generally, and a decrease in such demand may have a greater adverse effect on our business than if we owned a more diversified real estate portfolio.

Because our portfolio of properties consists primarily of community and neighborhood shopping centers, a decrease in the demand for retail space, due to the economic factors discussed above or otherwise, may have a greater adverse effect on our business and financial condition than if we owned a more diversified real estate portfolio. The market for retail space has been, and could continue to be, adversely affected by weakness in the national, regional and local economies, the adverse financial conditions of some retailing companies, the ongoing consolidation in the retail sector, the excess amount of retail space in a number of markets, and increasing consumer purchases.

Loss of Whitestone's key personnel, particularly Whitestone's senior managers, could threaten our ability to execute our strategy and operate our business successfully.

We are dependent on the experience and knowledge of Whitestone's key executive personnel, particularly certain of its senior managers who have been instrumental in setting our strategic direction, operating our business, identifying, recruiting and training key personnel and arranging necessary financing. Losing the services of any of these individuals could adversely affect our business until qualified replacements could be found. We also believe that they could not quickly be replaced with managers of equal experience and capabilities and their successors may not be as effective.

Our systems may not be adequate to support our growth, and our failure to successfully oversee our portfolio of properties could adversely affect our results of operations.

We make no assurances that we will be able to adapt our portfolio management, administrative, accounting and operational systems, or hire and retain sufficient operational staff, to support our growth. Our failure to successfully oversee our current portfolio of properties or any future acquisitions or developments could have a material adverse effect on our results of operations and financial condition and our ability to make distributions.

There can be no assurance that we will be able to pay or maintain cash distributions or that distributions will increase over time.

There are many factors that can affect the availability and timing of cash distributions to partners. Distributions are based upon our funds from operations, financial condition, cash flows and liquidity, debt service requirements, capital expenditure requirements for our properties and other matters Whitestone's board of trustees may deem relevant from time to time. If we do not have sufficient cash available for distributions, we may need to fund the shortage out of working capital or borrow to provide funds for such distributions, which would reduce the amount of capital available for real estate investments and increase our future interest costs.

We can give no assurance that we will be able to continue to pay distributions or that distributions will increase over time. In addition, we can give no assurance that rents from our properties will increase, or that future acquisitions of real properties, mortgage loans or ~~out~~our investments in securities will increase our cash available for distributions to partners. Our actual results may differ significantly from the assumptions used by ~~Whitestone~~Whitstone's board of trustees in establishing the distribution rate to partners. ~~Our~~Whitestone's inability to make distributions, or to make distributions at expected levels, could result in a decrease in the trading price of Whitestone's common shares.

~~Any~~ weaknesses identified in Whitestone's system of internal controls by Whitestone and its independent registered public accounting firm pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 could have an adverse effect on our business. 10

Section 404 of the Sarbanes-Oxley Act of 2002 requires that public companies evaluate and report on their systems of internal control over financial reporting. In addition, Whitestone's independent registered public accounting firm must report on management's evaluation of those controls. In future periods, Whitestone may identify deficiencies in its system of internal controls over financial reporting that may require remediation. There can be no assurances that any such future deficiencies identified may not be material weaknesses that would be required to be reported in future periods.

Table of Contents

Any weaknesses identified in Whitestone's system of internal controls by Whitestone and its independent registered public accounting firm pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 could have an adverse effect on our business.

Risks Associated with Our Indebtedness and Financing

Current market conditions could adversely affect our ability to refinance existing indebtedness or obtain additional financing for growth on acceptable terms or at all, which could adversely affect our ability to grow, our interest cost and our results of operations.

The United States credit markets have experienced significant dislocations and liquidity disruptions, including the bankruptcy, insolvency or restructuring of certain financial institutions. These circumstances have materially impacted liquidity in the debt markets, making financing terms for borrowers less attractive, and in certain cases have resulted in the unavailability of various types of debt financing. Reductions in our available borrowing capacity, or inability to refinance our revolving credit facility when required or when business conditions warrant, could have a material adverse effect on our business, financial condition and results of operations. In addition, we mortgage many of our properties to secure payment of indebtedness. If we are not successful in refinancing our mortgage debt upon maturity, then the property could be foreclosed upon or transferred to the mortgagee, or we might be forced to dispose of some of our properties upon disadvantageous terms, with a consequent loss of income and asset value. A foreclosure or disadvantageous disposal on one or more of our properties could adversely affect our ability to grow, financial condition, interest cost, results of operations, cash flow and ability to ~~pay~~make distributions to our partners.

Furthermore, if prevailing interest rates or other factors at the time of refinancing result in higher interest rates upon refinancing, then the interest expense relating to that refinanced indebtedness would increase. Higher interest rates on newly incurred debt may negatively impact us as well. If interest rates increase, our interest costs and overall costs of capital will increase, which could adversely affect our transaction and development activity, financial condition, results of operation, cash flow, our ability to pay principal and interest on our debt and our ability to ~~pay~~make distributions to our partners.

If we invest in mortgage loans, these investments may be affected by unfavorable real estate market conditions, including interest rate fluctuations, which could decrease the value of those loans and the return on your investment.

If we invest in mortgage loans, we will be at risk of defaults by the borrowers on those mortgage loans as well as interest rate risks. To the extent we incur delays in liquidating such defaulted mortgage loans, we may not be able to recover all amounts due to us under the mortgage loans. Further, we will not know whether the values of the properties securing the mortgage loans will remain at the levels existing on the dates of origination of those mortgage loans or the dates of our investment in the loans. If the values of the underlying properties fall, our risk will increase because of the lower value of the security associated with such loans.

Our failure to hedge effectively against interest rate changes may adversely affect results of operations.

We currently have mortgages that bear interest at a variable rate and we may incur additional variable rate debt in the future. Accordingly, increases in interest rates on variable rate debt would increase our interest expense, which could reduce net earnings and cash available for payment of our debt obligations and distributions to our partners.

We may seek to manage our exposure to interest rate volatility by using interest rate hedging arrangements, such as interest cap agreements and interest rate swap agreements. These agreements involve risks, such as the risk that counterparties may fail to honor their obligations under these arrangements, that these arrangements may not be effective in reducing our exposure to interest rate changes and that a court could rule that such an agreement is not legally enforceable. In the past, we have used derivative financial instruments to hedge interest rate risks related to our variable rate borrowings. We will not use derivatives for speculative or trading purposes and intend only to enter into contracts with major financial institutions based on their credit rating and other factors, but we may choose to change this practice in the future. As of December 31, 2012, we had a fixed rate hedge on $7.9 million of our variable rate debt. We may enter into additional interest rate swap agreements for our variable rate debt not currently subject to hedges, which totaled $92.7 million as of December 31, 2012. Hedging may reduce the overall returns on our investments. Failure to hedge effectively against interest rate changes may materially adversely affect our results of operations.11

Table of Contents

We may seek to manage our exposure to interest rate volatility by using interest rate hedging arrangements, such as interest cap agreements and interest rate swap agreements. These agreements involve risks, such as the risk that counterparties may fail to honor their obligations under these arrangements, that these arrangements may not be effective in reducing our exposure to interest rate changes and that a court could rule that such an agreement is not legally enforceable. In the past, we have used derivative financial instruments to hedge interest rate risks related to our variable rate borrowings. We will not use derivatives for speculative or trading purposes and intend only to enter into contracts with major financial institutions based on their credit rating and other factors, but we may choose to change this practice in the future. As of December 31, 2013, we had fixed rate hedges on $68.4 million of our variable rate debt, including $50 million of our unsecured credit facility. We may enter into additional interest rate swap agreements for our variable rate debt not currently subject to hedges, which totaled $84.8 million as of December 31, 2013. Hedging may reduce the overall returns on our investments. Failure to hedge effectively against interest rate changes may materially adversely affect our results of operations.

We currently have and may incur additional mortgage indebtedness and other borrowings, which may increase our business risks and may adversely affect our ability to make distributions to our partners.

If itwe isdetermine ~~determined~~it to be in our best interests, we may, in some instances, acquire real properties by using either existing financing or borrowing new funds. In addition, we may incur or increase our current mortgage debt to obtain funds to acquire additional properties. We may also borrow funds if necessary to satisfy Whitestone's REIT distribution requirement described above, or otherwise as may be necessary or advisable to ~~assure~~ensure that Whitestone maintains its qualification as a REIT for federal income tax purposes.

On February 4, 2013, we entered into an unsecured credit facility (the "2013 Facility"). We ~~will~~intend to use the 2013 Facility for acquisitions, redevelopment of value-add properties in our portfolio and general corporate purposes. The 2013 Facility amends and restates the $125 million unsecured revolving credit facility we entered into on February 27, 2012. In addition to retaining a $125 million unsecured revolving loan, the 2013 Facility also includes a $50 million term loan and permits us to increase the borrowing capacity under the 2013 Facility to a total of $225 million, upon the satisfaction of certain conditions. The 2013 Facility will mature on February 4, 2017. As of December 31, 2012, $69.0 million was drawn on our previous credit facility. On February 4, 2013, we drew $69.0 million on the 2013 Facility, which replaced the $69.0 million drawn on the previous credit facility. Like our previous credit facility, the 2013 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 amount available to us and our ability to borrow from time to time under the 2013 Facility is subject to our compliance with these requirements. Maintaining compliance with these covenants could limit our ability to implement our business plan effectively, or at all.

We may also incur mortgage debt on a particular property if we believe the property's projected cash flow is sufficient to service the mortgage debt. As of December 31, ~~2012~~2013, we had approximately $~~121~~129.65 million of mortgage debt secured by 2719 of our properties. If there is a shortfall in cash flow, however, the amount available for distributions to partners may be affected. In addition, incurring mortgage debt increases the risk of loss because defaults on such indebtedness may result in loss of property in foreclosure actions initiated by lenders. For tax purposes, a foreclosure of any of our properties would be treated as a sale of the property for a purchase price equal to the outstanding balance of the debt secured by the mortgage. If the outstanding balance of the debt secured by the mortgage exceeds our tax basis in the property, we would recognize taxable income on foreclosure, but would not receive any cash proceeds. We may give lenders full or partial guarantees for mortgage debt incurred by the entities that own our properties. When we give a guaranty on behalf of an entity that owns one of our properties, we will be responsible to the lender for satisfaction of the debt if it is not paid by that entity. If any mortgages contain cross-collateralization or cross-default provisions, there is a risk that more than one property may be affected by a default. If any of our properties are foreclosed upon due to a default, our ability to pay cash distributions to our partners may be adversely affected. For more discussion, see “Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources.”

Table of Contents

If we set aside insufficient working capital or are unable to secure funds for future tenant improvements, we may be required to defer necessary property improvements, which could adversely impact our ability to pay cash distributions to our partners.

When tenants do not renew their leases or otherwise vacate their space, it is possible that, in order to attract replacement tenants, we may be required to expend substantial funds for tenant improvements and tenant refurbishments to the vacated space. If we have insufficient working capital reserves, we will have to obtain financing from other sources. Because most of our leases provide for tenant reimbursement of operating expenses, we have not established a permanent reserve for maintenance and repairs for our properties. However, to the extent that we have insufficient funds for such purposes, we may establish reserves for maintenance and repairs of our properties out of cash flow generated by operating properties or out of non-liquidating net sale proceeds. If these reserves or any reserves otherwise established are insufficient to meet our cash needs, we may have to obtain financing from either affiliated or unaffiliated sources to fund our cash requirements. We cannot assure you that sufficient financing will be available or, if available, will be available on economically feasible terms or on terms acceptable to us. Additional borrowing for working capital purposes will increase our interest expense, and therefore our financial condition and our ability to pay cash distributions to our partners may be adversely affected. In addition, we may be required to defer necessary improvements to our properties that may cause our properties to suffer from a greater risk of obsolescence or a decline in value, or a greater risk of decreased cash flow as a result of fewer potential tenants being attracted to our properties. If this happens, we may not be able to maintain projected rental rates for affected properties, and our results of operations may be negatively impacted.

Table of Contents

We may structure acquisitions of property in exchange for our OP units on terms that could limit our liquidity or our flexibility.

We may acquire properties by issuing our OP units in exchange for a property owner contributing property to us. If we enter into such transactions, in order to induce the contributors of such properties to accept our OP units, rather than cash, in exchange for their properties, it may be necessary for us to provide them with additional incentives. For instance, our limited partnership agreement provides that any holder of OP units may redeem such units for cash, or, at Whitestone's option, Whitestone's common shares on a one-for-one basis. We may, however, enter into additional contractual arrangements with contributors of property under which we would agree to redeem a contributor's OP units for Whitestone's common shares or cash, at the option of the contributor, at set times. If the contributor required us to redeem OP units for cash pursuant to such a provision, it would limit our liquidity and thus our ability to use cash to make other investments, satisfy other obligations or pay distributions. Moreover, if we were required to redeem OP units for cash at a time when we did not have sufficient cash to fund the redemption, we might be required to sell one or more properties to raise funds to satisfy this obligation. Furthermore, we might agree that if distributions the contributor received as a limited partner did not provide the contributor with a defined return, then upon redemption of the contributor's OP units, we would pay the contributor an additional amount necessary to achieve that return. Such a provision could further negatively impact our liquidity and flexibility. Finally, in order to allow a contributor of a property to defer taxable gain on the contribution of property to the Operating Partnership, we might agree not to sell a contributed property for a defined period of time or until the contributor redeemed the contributor's OP units for cash or Whitestone's common shares. Such an agreement would prevent us from selling those properties, even if market conditions made such a sale favorable to us.

Whitestone may issue preferred shares with a preference in distributions over its common shares, and its ability to issue preferred shares and additional common shares may deter or prevent a sale of its common shares in which its shareholders could profit.

Whitestone's declaration of trust authorizes its board of trustees to issue up to 400,000,000 common shares and 50,000,000 preferred shares. Whitestone's board of trustees may amend its declaration of trust from time to time to increase or decrease the aggregate number of shares or the number of any class or series that it has authority to issue. In addition, Whitestone's board of trustees may classify or reclassify any unissued common shares or preferred shares and may set the preferences, rights and other terms of the classified or reclassified shares. The terms of preferred shares could include a preference in distributions senior to Whitestone's common shares. If Whitestone authorizes and issues preferred shares with a distribution preference senior to its common shares, payment of any distribution preferences of outstanding preferred shares would reduce the amount of funds available for the payment of distributions on its common shares. Further, holders of preferred shares are normally entitled to receive a preference payment in the event Whitestone liquidates, dissolves or winds up before any payment is made to its common shareholders, likely reducing the amount its common shareholders would otherwise receive upon such an occurrence. In addition, under certain circumstances, the issuance of preferred shares or a separate class or series of common shares may render more difficult or tend to discourage:


•	a merger, tender offer or proxy contest;

Table of Contents


•	assumption of control by a holder of a large block of Whitestone's shares; or


•	removal of incumbent management.

Risks Associated with Income Tax Laws

If Whitestone fails to qualify as a REIT, our operations and distributions to our partners would be adversely impacted.

Whitestone intends to continue to be organized and to operate so as to qualify as a REIT under the Code. A REIT generally is not taxed at the corporate level on income it currently distributes to its shareholders. Qualification as a REIT involves the application of highly technical and complex rules for which there are only limited judicial or administrative interpretations. The determination of various factual matters and circumstances not entirely within Whitestone's control may affect its ability to continue to qualify as a REIT. In addition, new legislation, new regulations, administrative interpretations or court decisions could significantly change the tax laws, possibly with retroactive effect, with respect to qualification as a REIT or the federal income tax consequences of such qualification.

If Whitestone were to fail to qualify as a REIT in any taxable year:


•	Whitestone would not be allowed to deduct its distributions to shareholders when computing its taxable income;

Table of Contents


•	Whitestone would be subject to federal income tax (including any applicable alternative minimum tax) on its taxable income at regular corporate rates;


•	Whitestone would be disqualified from being taxed as a REIT for the four taxable years following the year during which qualification was lost, unless entitled to relief under certain statutory provisions;

• Whitestone's cash available for ~~dividends~~distributions to shareholders would be reduced; and


•	Whitestone may be required to borrow additional funds or sell some of our assets in order to pay corporate tax obligations that it may incur as a result of its disqualification.

If the Internal Revenue Service, or IRS, were to determine that (i) Whitestone failed the 5% asset test for the first quarter of its 2009 taxable year and (ii) Whitestone's failure of that test was not attributable to reasonable cause, but rather, willful neglect, Whitestone would fail to qualify as a REIT for its 2009 taxable year, which would adversely affect our operations and our partners.

In 2010, Whitestone discovered that it may have inadvertently violated the 5% asset test for the quarter ended March 31, 2009 as a result of utilizing a certain cash management arrangement with a commercial bank. If that investment in a commercial paper investment account is not treated as cash, and is instead treated as a security for purposes of the quarterly 5% asset test applicable to REITs, then Whitestone would have failed that test for the first quarter of its 2009 taxable year.

If the IRS were to assert that Whitestone failed the 5% asset test for the first quarter of its 2009 taxable year and that such failure was not due to reasonable cause, and the courts were to sustain that position, Whitestone's status as a REIT would terminate as of December 31, 2008. Whitestone would not be eligible to again elect REIT status until its 2014 taxable year. Consequently, Whitestone would be subject to federal income tax on its taxable income at regular corporate rates and its cash available for distributions to shareholders would be reduced.

Additionally, if Whitestone in fact failed the 5% test, but failure is considered due to reasonable cause and not willful neglect, Whitestone would be subject to a tax equal to the greater of $50,000 or 35% of the net income from the commercial paper investment account during the period in which it failed to satisfy the 5% asset test. The amount of such tax is $50,000 and Whitestone paid such tax on April 27, 2010.

Whitestone may need to incur additional borrowings to meet the REIT minimum distribution requirement and to avoid excise tax.

In order to maintain its qualification as a REIT, Whitestone is required to distribute to its shareholders at least 90% of its annual real estate investment trust taxable income (excluding any net capital gain and before application of the dividends paid deduction). In addition, Whitestone is subject to a 4% nondeductible excise tax on the amount, if any, by which certain distributions paid by Whitestone with respect to any calendar year are less than the sum of (i) 85% of its ordinary income for that year, (ii) 95% of its net capital gain for that year and (iii) 100% of its undistributed taxable income from prior years. Although Whitestone intends to pay distributions to its shareholders in a manner that allows it to meet the 90% distribution requirement and avoid this 4% excise tax, Whitestone cannot assure you that it will always be able to do so.

Whitestone's income consists almost solely of its share of our income, and the cash available for distribution by Whitestone to its shareholders consists of its share of cash distributions made by us. Because Whitestone is our sole general partner, its board of trustees determines the amount of any distributions made by us. Whitestone's board of trustees may consider a number of factors in authorizing distributions, including:


•	the amount of the cash available for distribution;


•	our financial condition;


•	our capital expenditure requirements; and


•	Whitestone's annual distribution requirements necessary to maintain its qualification as a REIT.

1514

Table of Contents

Differences in timing between the actual receipt of income and actual payment of deductible expenses and the inclusion of income and deduction of expenses when determining ~~our~~Whitestone's taxable income, as well as the effect of nondeductible capital expenditures and the creation of reserves or required debt amortization payments could require Whitestone to borrow funds on a short-term or long-term basis or make taxable distributions to its shareholders of its shares or debt securities to meet the REIT distribution requirement and to avoid the 4% excise tax described above. In these circumstances, Whitestone may need to borrow funds to avoid adverse tax consequences even if its management believes that the then prevailing market conditions generally are not favorable for borrowings or that borrowings would not be advisable in the absence of the tax consideration.

If we were classified as a “publicly traded partnership” taxable as a corporation for federal income tax purposes under the Code, Whitestone would cease to qualify as a REIT and would suffer other adverse tax consequences.

Whitestone structured the Operating Partnership so that we would be classified as a partnership for federal income tax purposes. In this regard, the Code generally classifies “publicly traded partnerships” (as defined in Section 7704 of the Code) as associations taxable as corporations (rather than as partnerships), unless substantially all of their taxable income consists of specified types of passive income. In order to minimize the risk that the Code would classify us as a “publicly traded partnership” for tax purposes, Whitestone placed certain restrictions on the transfer and/or redemption of our partnership units. If the ~~IRS~~Internal Revenue Service were to assert successfully that we are a “publicly traded partnership,” and substantially all of our gross income did not consist of the specified types of passive income, the Code would treat us as an association taxable as a corporation.

In such event, the character of Whitestone's assets and items of gross income would change and would prevent Whitestone from continuing to qualify as a REIT. In addition, the imposition of a corporate tax on us would reduce our amount of cash available for payment of distributions to Whitestone and its shareholders and our unit holders.

Complying with REIT requirements may cause Whitestone to forego otherwise attractive opportunities or liquidate otherwise attractive investments.

To qualify as a REIT for federal income tax purposes, Whitestone must continually satisfy tests concerning, among other things, the sources of its income, the nature and diversification of its assets, the amounts it distributes to its shareholders and the ownership of its shares. In order to meet these tests, Whitestone may be required to forego investments it might otherwise make. Thus, compliance with the REIT requirements may hinder Whitestone's performance.

In particular, Whitestone must ensure that at the end of each calendar quarter, at least 75% of the value of its assets consists of cash, cash items, government securities and qualified real estate assets. The remainder of its investment in securities (other than government securities and qualified real estate assets) generally cannot include more than 10% of the outstanding voting securities of any one issuer or more than 10% of the total value of the outstanding securities of any one issuer. In addition, in general, no more than 5% of the value of Whitestone's assets (other than government securities and qualified real estate assets) can consist of the securities of any one issuer, and no more than 25% of the value of its total assets can be represented by the securities of one or more taxable REIT subsidiaries. If Whitestone fails to comply with these requirements at the end of any calendar quarter, it must correct the failure within 30 days after the end of the calendar quarter or qualify for certain statutory relief provisions to avoid losing its REIT qualification and suffering adverse tax consequences. As a result, Whitestone may be required to liquidate otherwise attractive investments. These actions could have the effect of reducing its income and amounts available for distribution to its shareholders.

We may be subject to adverse legislative or regulatory tax changes that could reduce the market price of Whitestone's common shares.

At any time, the federal income tax laws governing REITs or the administrative interpretations of those laws may be amended. We cannot predict when or if any new federal income tax law, regulation, or administrative interpretation, or any amendment to any existing federal income tax law, regulation or administrative interpretation, will be adopted, promulgated or become effective and any such law, regulation, or interpretation may take effect retroactively. Whitestone and its shareholders could be adversely affected by any such change in, or any new, federal income tax law, regulation or administrative interpretation.

1615

Table of Contents

Dividends payable by REITs do not qualify for the reduced tax rates available for some dividends.

The American Taxpayer Relief Act of 2012 ("ATRA") was enacted on January 3, 2013. Under ATRA, for taxable years beginning in 2013, for non-corporate taxpayers the maximum tax rate applicable to ~~income from~~ “qualified ~~dividends~~dividend income” ~~payable~~paid by regular "C" corporations to U.S. shareholders ~~that~~generally ~~are~~is ~~individuals~~20%, ~~trusts~~ and ~~estates~~there is ~~20%~~no certainty as to how long this rate will be applicable. Dividends payable by REITs, however, generally are not eligible for the current reduced ~~rates~~rate. Although ~~the~~ATRA ~~reduced~~does ~~rates do~~ not adversely affect the taxation of REITs or dividends payable by REITs, ~~the~~it ~~more favorable rates applicable to regular corporate qualified dividends~~ could cause ~~investors~~non-corporate ~~who~~taxpayers ~~are individuals, trusts and estates~~ to perceive investments in REITs to be relatively less attractive than investments in the stocks of ~~non-REIT~~regular "C" corporations that pay dividends, which could adversely affect the value of the shares of REITs, including Whitestone's common shares.

Complying with REIT requirements may limit Whitestone's ability to hedge effectively and may cause it to incur tax liabilities.

The REIT provisions of the Code substantially limit Whitestone's ability to hedge its liabilities. Any income from a hedging transaction that Whitestone enters into to manage risk of interest rate changes, price changes or currency fluctuations with respect to borrowings made or to be made to acquire or carry real estate assets does not constitute “gross income” for purposes of the 75% or 95% gross income tests. To the extent that Whitestone enters into other types of hedging transactions, the income from those transactions is likely to be treated as non-qualifying income for purposes of both of the gross income tests. As a result of these rules, Whitestone may need to limit its use of advantageous hedging techniques or implement those hedges through taxable REIT subsidiaries. This could increase the cost of its hedging activities because any taxable REIT subsidiary that Whitestone may form would be subject to tax on gains or expose Whitestone to greater risks associated with changes in interest rates than it would otherwise want to bear. In addition, losses in taxable REIT subsidiaries will generally not provide any tax benefit, except for being carried forward against future taxable income in the taxable REIT subsidiaries.

Risks Related to Ownership of Whitestone's Common Shares

Increases in market interest rates may result in a decrease in the value of Whitestone's common shares.

One of the factors that may influence the price of Whitestone's common shares will be the distribution rate on the common shares (as a percentage of the price of Whitestone's common shares) relative to market interest rates. If market interest rates rise, prospective purchasers of shares of Whitestone's common shares may expect a higher distribution rate. Higher interest rates would not, however, result in more funds being available for distribution and, in fact, would likely increase our borrowing costs and might decrease our funds available for distribution. Whitestone therefore may not be able, or weit may not choose, to provide a higher distribution rate. As a result, prospective purchasers may decide to purchase other securities rather than Whitestone's common shares, which would reduce the demand for, and result in a decline in the market price of, its common shares.

Broad market fluctuations could negatively impact the market price of Whitestone's common shares.

The stock market has experienced extreme price and volume fluctuations that have affected the market price of many companies in industries similar or related to Whitestone's and that have been unrelated to these companies' operating performances. These broad market fluctuations could reduce the market price of Whitestone's common shares. Furthermore, Whitestone's operating results and prospects may be below the expectations of public market analysts and investors or may be lower than those of companies with comparable market capitalizations. Either of these factors could lead to a material decline in the market price of Whitestone's common shares.

1716

Table of Contents

Maryland takeover statutes may deter others from seeking to acquire Whitestone and prevent shareholders from making a profit in such transactions.

The Maryland General Corporation Law, ~~or the~~ ("MGCL,") contains many provisions, such as the business combination statute and the control share acquisition statute, that are designed to prevent, or have the effect of preventing, someone from acquiring control of Whitestone. The business combination statute, subject to limitations, prohibits certain business combinations between Whitestone and an “interested shareholder” (defined generally as any person who beneficially owns 10% or more of the voting power of ~~our~~Whitestone's outstanding voting shares or an affiliate or associate of ~~our~~Whitestone ~~company~~ who, at any time within the two-year period prior to the date in question, was the beneficial owner of 10% or more of the voting power of ~~our~~Whitestone's then outstanding shares) or an affiliate of an interested shareholder for five years after the most recent date on which the person becomes an interested shareholder and thereafter imposes super-majority voting requirements on these combinations. The control share acquisition statute provides that “control shares” of Whitestone (defined as shares which, when aggregated with other shares controlled by the shareholder (except solely by virtue of a revocable proxy), entitle the shareholder to exercise one of three increasing ranges of voting power in electing trustees) acquired in a “control share acquisition” (defined as the direct or indirect acquisition of ownership or control of issued and outstanding control shares) have no voting rights except to the extent approved by Whitestone's shareholders by the affirmative vote of at least two-thirds of all the votes entitled to be cast on the matter, excluding all interested shares.

Whitestone is currently subject to the control share acquisition statute, although its board of trustees may amend its Amended and Restated Bylaws, or the bylaws, without shareholder approval, to exempt any acquisition of its shares from the statute. Whitestone's board of trustees has adopted a resolution exempting any business combination with any person from the business combination statute. The business combination statute (if Whitestone's board of trustees revokes the foregoing exemption) and the control share acquisition statute could delay or prevent offers to acquire Whitestone and increase the difficulty of consummating any such offers, even if such a transaction would be in Whitestone's shareholders' best interest.

The MGCL, the Maryland REIT Law and Whitestone's organizational documents limit shareholders' rights to bring claims against its officers and trustees.

The MGCL and the Maryland REIT Law provide that a trustee will not have any liability as a trustee so long as he performs his duties in good faith, in a manner he reasonably believes to be in Whitestone's best interests, and with the care that an ordinarily prudent person in a like position would use under similar circumstances. In addition, Whitestone's declaration of trust provides that no trustee or officer will be liable to Whitestone or to any shareholder for money damages except to the extent that (a) the trustee or officer actually received an improper benefit or profit in money, property or services, for the amount of the benefit or profit in money, property, or services actually received; or (b) a judgment or the final adjudication adverse to the trustee or officer is entered in a proceeding based on a finding in the proceeding the trustee's or officer's action or failure to act was the result of active and deliberate dishonesty and was material to the cause of action adjudicated in the proceeding. Finally, Whitestone's declaration of trust authorizes it to obligate itself, and its bylaws obligate it, to indemnify and advance expenses to its trustees and officers to the maximum extent permitted by Maryland law.

Whitestone's classified board of trustees may prevent others from effecting a change in the control of its board of trustees.

We believe that classification of Whitestone's board of trustees will help to assure the continuity and stability of our business strategies and policies as determined by its board of trustees. However, the classified board provision could have the effect of making the replacement of incumbent trustees more time-consuming and difficult. At least two annual meetings of shareholders, instead of one, will generally be required to effect a change in a majority of Whitestone's board of trustees. Thus, the classified board provision could increase the likelihood that incumbent trustees will retain their positions. The staggered terms of trustees may delay, defer or prevent a transaction or a change in control that might involve a premium price for Whitestone's common shares or otherwise be in the best interest of ~~the~~ Whitestone's shareholders.

1817

Table of Contents

Future offerings of debt, which would be senior to Whitestone's common shares upon liquidation, and/or preferred equity securities that may be senior to Whitestone's common shares for purposes of distributions or upon liquidation, may adversely affect the market price of Whitestone's common shares.

In the future, Whitestone may attempt to increase its capital resources by making additional offerings of debt or preferred equity securities, including medium-term notes, trust preferred securities, senior or subordinated notes and preferred shares. Upon liquidation, holders of Whitestone's debt securities and preferred shares and lenders with respect to other borrowings will receive distributions of Whitestone's available assets prior to the holders of its common shares. Additional equity offerings may dilute the holdings of Whitestone's existing shareholders or reduce the market price of Whitestone's common shares, or both. Holders of Whitestone's common shares are not entitled to preemptive rights or other protections against dilution. Whitestone's preferred shares, if issued, could have a preference on liquidating distributions or a preference on distribution payments that could limit its ability to pay distributions to the holders of its common shares. Because its decision to issue securities in any future offering will depend on market conditions and other factors beyond its control, Whitestone cannot predict or estimate the amount, timing or nature of its future offerings. Thus, its common shareholders bear the risk of its future offerings reducing the market price of its common shares and diluting their share holdings in Whitestone.

1918

Table of Contents

Item 1B. Unresolved Staff Comments.

None.

Item 2. Properties.

General

As of December 31, ~~2012~~2013, we owned 5160 commercial properties, including 3031 properties in Houston, ~~four~~five properties in Dallas, one property in Windcrest, Texas, a suburb of San Antonio, 1522 properties in the Scottsdale and Phoenix, Arizona metropolitan areas, and one property in Buffalo Grove, Illinois, a suburb of Chicago.

Our tenants consist of national, regional and local businesses. Our properties generally attract a mix of tenants who provide basic staples, convenience items and services tailored to the specific cultures, needs and preferences of the surrounding community. These types of tenants are the core of our strategy of creating Whitestone-branded Community Centered Properties. We also believe daily sales of these basic items are less sensitive to fluctuations in the business cycle than higher priced retail items. Our largest tenant represented only 1.2.0% of our total revenues for the year ended December 31, ~~2012~~2013.

Whitestone directly manages the operations and leasing of our properties. Substantially all of our revenues consist of base rents received under leases that generally have terms that range from less than one year to 15 years. Approximately 6260% of our existing leases as of December 31, ~~2012~~2013 contain “step up” rental clauses that provide for increases in the base rental payments. The following table summarizes certain information relating to our properties as of December 31, ~~2012~~2013:

Commercial Properties	Gross Leasable Area	AverageOccupancy as of 12/31/1213		Annualized BaseRental Revenue (in thousands) (1)		AverageAnnualized BaseRental RevenuePer Sq. Ft. (2)
Retail	12,~~970~~333,~~460~~147	8890	%	$	2127,~~170~~382	$	1213.2104
Office/Flex	1,201,672	8991	%	8,~~034~~517		~~7.51~~$	7.79
Office	~~631~~633,~~841~~534	7875	%	87,~~264~~960		~~16.77~~$	16.75
Total - Operating Portfolio	34,~~803~~168,~~973~~353	8788	%	3743,~~468~~859		11.3296
Redevelopment, New Acquisitions (3)	~~470~~797,~~718~~977	7080	%	510,~~520~~567		16.7555
Total	4,~~274~~966,~~691~~330	8587	%	$	4254,~~988~~426	$	1112.8360

(1) Calculated as the tenant's actual December 31, ~~2012~~2013 base rent (defined as cash base rents including abatements) multiplied by 12. Excludes vacant space as of December 31, ~~2012~~2013. Because annualized base rental revenue is not derived from historical results that were accounted for in accordance with generally accepted accounting principles, historical results differ from the annualized amounts. Total abatements for leases in effect as of December 31, ~~2012~~2013 equaled approximately $96101,000 for the month ended December 31, ~~2012~~2013.

(2) Calculated as annualized base rent divided by gross leasable area leased as of December 31, ~~2012~~2013. Excludes vacant space as of December 31, ~~2012~~2013.


⁽³⁾	Includes (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.

As of December 31, ~~2012~~2013, we had two properties that when combined, accounted for more than 10% of total gross revenue and/or real estate assets. Uptown Tower is an office building located in Dallas, Texas that accounted for 75.89% of our total revenue for the year ended December 31, ~~2012~~2013. Uptown Tower also accounted for 43.53% of our real estate assets, net of accumulated depreciation, for the year ended December 31, ~~2012~~2013. Dana Park, a retail community purchased on September 21, 2012 and located in the Mesa submarket of Phoenix, Arizona, accounted for 39.32% of our total revenue for the year ended December 31, ~~2012~~2013. Dana Park also accounted for 139.05% of our real estate assets, net of accumulated depreciation, for the year ended December 31, ~~2012~~2013.

2019

Table of Contents

As of December 31, ~~2012~~2013, approximately $~~121~~129.65 million of our total debt of $~~190~~264.63 million was secured by 27 19 of our operating properties with a combined net book value of $161.81 million.

Location of Properties

Of our 5160 properties, 3531 are located in ~~Texas~~the greater Houston metropolitan statistical area. These 31 properties represent 42% of our revenue for the year ended December 31, ~~with~~2013. An 30additional ~~being~~22 properties are located in the greater ~~Houston~~Phoenix metropolitan statistical area~~. These~~ 30and ~~properties~~ represent 5440% of our revenue for the year ended December 31, ~~2012~~2013.

~~The Houston workforce is concentrated in energy, chemicals, information technology, aerospace sciences and medical sciences.~~ According to the United States Census Bureau, Houston and Phoenix ranked ~~4th~~5th and 12th, respectively, in the largest United States ~~cities~~metropolitan statistical areas as of July 1, ~~2011~~2012. In the Census Bureau’s Estimates of Population Change for Metropolitan Statistical Areas and Rankings: July 1, ~~2010~~2011 to July 1, ~~2011~~2012, Houston and Phoenix ranked ~~second~~2nd and 7th, respectively, in population growth out of 366 metropolitan statistical areas. According to the Bureau of Labor Statistics, the unemployment rate in Houston and Phoenix was frequently less than the national average induring ~~each of~~ the last six months of ~~2012~~2013.

	July		Aug.		Sept.		Oct.		Nov.		Dec.
National (1)	87.23	%	87.12	%	7.82	%	7.92	%	7.80	%	76.87	%
Houston (2)	76.5	%	76.01	%	6.32	%	65.29	%	5.86	%	65.05	%	(3)
Phoenix (2)	7.0	%	7.4	%	7.1	%	6.7	%	6.0	%	6.2	%	(3)


⁽¹⁾	Seasonally adjusted.


⁽²⁾	Not seasonally adjusted.


⁽³⁾	Represents estimate.

Source: Bureau of Labor Statistics

2120

Table of Contents

General Physical and Economic Attributes

The following table sets forth certain information relating to each of our properties owned as of December 31, ~~2012~~2013.

Whitestone REIT Operating Partnership, L.P. and SubsidiariesProperty DetailsAs of December 31, 2012
Whitestone REIT Operating Partnership, L.P. and SubsidiariesProperty DetailsAs of December 31, 2013
Community Name	Location	Year Built/Renovated	Gross LeasableSquare Feet	PercentOccupied at12/31/~~2012~~2013		Annualized BaseRental Revenue (in thousands) (1)		AverageBase RentalRevenue PerSq. Ft. (2)		Average Net Effective Annual Base Rent Per Leased Sq. Ft.(3)
Retail Communities:
Ahwatukee Plaza	Phoenix	1979	72,650	100	%	$	~~871~~942	$	1112.9997	$	12.4259
Bellnot Square	Houston	1982	73,930	41	%	293		9.67		9.70
Anthem Marketplace	Phoenix	2000	113,293	100	%	1,505		13.28		13.28
Bissonnet Beltway	Houston	1978	29,205	100	%	331		11.33		9.11
Bellnott Square	Houston	1982	73,930	41	%	321		10.59		10.82
Centre South	Houston	1974	39,134	79	%	279		9.02		8.70
Bissonnet Beltway	Houston	1978	29,205	100	%	337		11.54		11.44
The Citadel	Phoenix	1985	28,547	82	%	335		14.31		21.57
Centre South	Houston	1974	39,134	94	%	289		7.86		9.00
Desert Canyon	Phoenix	2000	62,533	73	%	568		12.44		12.49
The Citadel	Phoenix	1985	28,547	83	%	374		15.78		22.07
Gilbert Tuscany Village	Phoenix	2009	49,415	49	%	400		16.52		19.37
Desert Canyon	Phoenix	2000	62,533	83	%	554		10.67		11.68
Holly Knight	Houston	1984	20,015	100	%	351		17.54		17.39
Gilbert Tuscany Village	Phoenix	2009	49,415	65	%	510		15.88		17.34
Kempwood Plaza	Houston	1974	101,008	100	%	873		8.64		8.46
Holly Knight	Houston	1984	20,015	100	%	368		18.39		18.12
Lion Square	Houston	1980	117,592	100	%	1,090		9.27		9.92
Headquarters Village	Dallas	2009	89,134	94	%	2,211		26.39		27.59
The Marketplace at Central	Phoenix	2000	111,130	45	%	428		8.56		8.78
Kempwood Plaza	Houston	1974	101,008	94	%	814		8.57		8.80
Paradise Plaza	Phoenix	1983	125,898	89	%	1,263		11.27		12.65
Lion Square	Houston	1980	117,592	78	%	987		10.76		10.90
Pinnacle of Scottsdale	Phoenix	1991	113,108	99	%	2,152		19.22		19.30
The Marketplace at Central	Phoenix	2000	111,130	86	%	429		4.49		6.62
Providence	Houston	1980	90,327	88	%	731		9.20		8.44
Mercado at Scottsdale Ranch	Phoenix	1987	118,730	97	%	1,632		14.17		14.17
Shaver	Houston	1978	21,926	93	%	252		12.36		12.55
Paradise Plaza	Phoenix	1983	125,898	97	%	1,698		13.90		16.80
Shops at Starwood	Dallas	2006	55,385	100	%	1,468		26.51		27.86
Pinnacle of Scottsdale	Phoenix	1991	113,108	95	%	1,915		17.82		18.78
Shops at Pecos Ranch	Phoenix	2009	78,767	100	%	1,353		17.18		17.18
Providence	Houston	1980	90,327	87	%	652		8.30		8.27
South Richey	Houston	1980	69,928	81	%	385		6.80		9.00
Shaver	Houston	1978	21,926	93	%	203		9.96		12.36
Spoerlein Commons	Chicago	1987	41,455	92	%	770		20.19		20.45
Shops at Pecos Ranch	Phoenix	2009	78,767	93	%	1,509		20.60		20.60
SugarPark Plaza	Houston	1974	95,032	100	%	1,010		10.63		10.38
Shops at Starwood	Dallas	2006	55,385	100	%	1,424		25.71		28.13
Sunridge	Houston	1979	49,359	99	%	462		9.45		9.35
South Richey	Houston	1980	69,928	98	%	636		9.28		9.15
Terravita Marketplace	Phoenix	1997	102,733	93	%	1,292		13.52		13.64
Spoerlein Commons	Chicago	1987	41,455	90	%	751		20.13		20.10
Torrey Square	Houston	1983	105,766	91	%	691		7.18		7.02
SugarPark Plaza	Houston	1974	95,032	100	%	1,036		10.90		10.72
Town Park	Houston	1978	43,526	100	%	808		18.56		18.24
Sunridge	Houston	1979	49,359	92	%	431		9.49		9.56
Webster Pointe	Houston	1984	26,060	79	%	219		10.64		10.01
Sunset at Pinnacle Peak	Phoenix	2000	41,530	70	%	544		18.71		18.71
Westchase	Houston	1978	49,573	88	%	518		11.87		12.42
Terravita Marketplace	Phoenix	1997	102,733	96	%	1,341		13.60		13.72
Windsor Park	San Antonio	1992	196,458	97	%	1,977		10.37		10.00
Torrey Square	Houston	1983	105,766	83	%	722		8.22		7.86
Total/Weighted Average			1,970,460	88	%	21,170		12.21		12.48
Town Park	Houston	1978	43,526	100	%	826		18.98		18.79
Webster Pointe	Houston	1984	26,060	79	%	223		10.83		10.15
Westchase	Houston	1978	49,573	88	%	545		12.49		12.42
Windsor Park	San Antonio	1992	196,458	97	%	1,653		8.67		9.33
Total/Weighted Average			2,333,147	90	%	27,382		13.04		13.65
Office Communities:
9101 LBJ Freeway	Dallas	1985	125,874	7058	%	$	1,~~337~~015	$	1513.1790	$	1514.2844
Featherwood	Houston	1983	49,760	8986	%	~~820~~762		1817.5281		1918.1355
Pima Norte	Phoenix	2007	3335,~~417~~110	2026	%	~~127~~150		1916.0043		1816.5510
Royal Crest	Houston	1984	24,900	65	%	~~244~~196		1512.0811		1411.0980
Uptown Tower	Dallas	1982	253,981	8381	%	3,~~649~~834		1718.3164		17.0588
Woodlake Plaza	Houston	1974	106,169	9091	%	1,~~562~~457		1615.3508		1613.3284
Zeta Building	Houston	1982	37,740	7985	%	~~525~~546		17.6102		1715.0143
Total/Weighted Average			~~631~~633,~~841~~534	7875	%	87,~~264~~960		16.7775		16.6520

Table of Contents

Whitestone REIT Operating Partnership, L.P. and Subsidiaries Property Details As of December 31, 2013 (continued)

Community Name	Location	Year Built/ Renovated	Gross Leasable Square Feet	Percent Occupied at 12/31/2013		Annualized Base Rental Revenue (in thousands) ⁽¹⁾		Average Base Rental Revenue Per Sq. Ft. ⁽²⁾		Average Net Effective Annual Base Rent Per Leased Sq. Ft.⁽³⁾
Office/Flex Communities:
Brookhill	Houston	1979	74,757	87	%	$	243	$	3.74	$	3.72
Corporate Park Northwest	Houston	1981	185,627	82	%	1,543		10.14		11.34
Corporate Park West	Houston	1999	175,665	93	%	1,538		9.41		9.13
Corporate Park Woodland	Houston	2000	99,937	100	%	954		9.55		9.39
Dairy Ashford	Houston	1981	42,902	99	%	271		6.38		6.19
Holly Hall Industrial Park	Houston	1980	90,000	100	%	757		8.41		8.26
Interstate 10 Warehouse	Houston	1980	151,000	99	%	723		4.84		4.83
Main Park	Houston	1982	113,410	90	%	713		6.99		6.99
Plaza Park	Houston	1982	105,530	67	%	699		9.89		9.74
Westbelt Plaza	Houston	1978	65,619	84	%	487		8.84		8.29
Westgate Service Center	Houston	1984	97,225	100	%	589		6.06		6.01
Total/Weighted Average			1,201,672	91	%	8,517		7.79		7.84

Total/Weighted Average - Operating Portfolio			4,168,353	88	%	43,859		11.96		12.25

Corporate Park Woodland II	Houston	1972	16,220	87	%	$	240	$	17.01	$	17.01
Fountain Hills Plaza	Phoenix	2009	111,289	89	%	1,594		16.09		19.52
Fountain Square	Phoenix	1986	118,209	73	%	1,296		15.02		18.04
Market Street at DC Ranch	Phoenix	2003	241,280	81	%	3,434		17.57		17.57
Village Square at Dana Park	Phoenix	2009	310,979	78	%	4,003		16.50		17.39
Total/Weighted Average - Development Portfolio			797,977	80	%	10,567		16.55		17.83

Anthem Marketplace	Phoenix	N/A	—	—		—		—		—
Dana Park Development	Phoenix	N/A	—	—		—		—		—
Fountain Hills	Phoenix	N/A	—	—		—		—		—
Market Street at DC Ranch	Phoenix	N/A	—	—		—		—		—
Pinnacle Phase II	Phoenix	N/A	—	—		—		—		—
Shops at Starwood Phase III	Dallas	N/A	—	—		—		—		—
Total/Weighted Average - Property Held For Development ⁽⁴⁾			—	—		—		—		—

Grand Total/Weighted Average			4,966,330	87	%	$	54,426	$	12.60	$	13.03

⁽¹⁾

Calculated as the tenant's actual December 31, 2013 base rent (defined as cash base rents including abatements) multiplied by 12. Excludes vacant space as of December 31, 2013. Because annualized base rental revenue is not derived from historical results that were accounted for in accordance with generally accepted accounting principles, historical results differ from the annualized amounts. Total abatements for leases in effect as of December 31, 2013 equaled approximately $101,000 for the month ended December 31, 2013.


⁽²⁾	Calculated as annualized base rent divided by gross leasable area leased as of December 31, 2013. Excludes vacant space as of December 31, 2013.


⁽³⁾	Represents (i) the contractual base rent for leases in place as of December 31, 2013, adjusted to a straight-line basis to reflect changes in rental rates throughout the lease term and amortize free rent periods and abatements, but without regard to tenant improvement allowances and leasing commissions, divided by (ii) square footage under commenced leases of December 31, 2013.

Table of Contents

Whitestone REIT Operating Partnership, L.P. and SubsidiariesProperty DetailsAs of December 31, 2012(continued)
Community Name	Location	Year Built/Renovated	Gross LeasableSquare Feet	PercentOccupied at12/31/2012		Annualized BaseRental Revenue (in thousands) (1)		AverageBase RentalRevenue PerSq. Ft. (2)		Average Net Effective Annual Base Rent Per Leased Sq. Ft.(3)
Office/Flex Communities:
Brookhill	Houston	1979	74,757	81	%	$	231	$	3.81	$	3.77
Corporate Park Northwest	Houston	1981	185,627	79	%	1,624		11.07		10.35
Corporate Park West	Houston	1999	175,665	96	%	1,288		7.64		7.36
Corporate Park Woodland	Houston	2000	99,937	100	%	839		8.40		8.28
Dairy Ashford	Houston	1981	42,902	99	%	241		5.67		5.53
Holly Hall	Houston	1980	90,000	100	%	737		8.19		8.29
Interstate 10	Houston	1980	151,000	82	%	718		5.80		5.97
Main Park	Houston	1982	113,410	96	%	619		5.69		6.74
Plaza Park	Houston	1982	105,530	79	%	757		9.08		9.16
West Belt Plaza	Houston	1978	65,619	80	%	378		7.20		6.88
Westgate	Houston	1984	97,225	100	%	602		6.19		5.98
Total/Weighted Average			1,201,672	89	%	8,034		7.51		7.46
Total/Weighted Average - Operating Portfolio			3,803,973	87	%	37,468		11.32		11.43
Shops at Pinnacle Peak	Phoenix	2000	41,530	76	%	$	575	$	18.22	$	18.85
Fountain Square	Phoenix	1986	118,209	63	%	1,232		16.54		16.54
Village Square at Dana Park	Phoenix	2009	310,979	72	%	3,713		16.58		17.61
Total/Weighted Average - Development Portfolio			470,718	70	%	5,520		16.75		17.51
Pinnacle Phase II	Phoenix	N/A	—	—		—		—		—
Village Square at Dana Park	Phoenix	N/A	—	—		—		—		—
Shops at Starwood Phase III	Dallas	N/A	—	—		—		—		—
Total/Weighted Average - Property Held For Development (4)			—	—		—		—		—
Grand Total/Weighted Average			4,274,691	85	%	$	42,988	$	11.83	$	12.00


⁽⁴⁾	As of December 31, 2013, these parcels of land were held for development and, therefore, had no gross leasable area.

(1) Calculated as the tenant's actual December 31, 2012 base rent (defined as cash base rents including abatements) multiplied by 12. Excludes vacant space as of December 31, 2012. Because annualized base rental revenue is not derived from historical results that were accounted for in accordance with generally accepted accounting principles, historical results differ from the annualized amounts. Total abatements for leases in effect as of December 31, 2012 equaled approximately $96,000 for the month ended December 31, 2012.

(2) Calculated as annualized base rent divided by gross leasable area leased as of December 31, 2012. Excludes vacant space as of December 31, 2012.

(3) Represents (i) the contractual base rent for leases in place as of December 31, 2012, adjusted to a straight-line basis to reflect changes in rental rates throughout the lease term and amortize free rent periods and abatements, but without regard to tenant improvement allowances and leasing commissions, divided by (ii) square footage under commenced leases of December 31, 2012.

(4) As of December 31, 2012, these parcels of land were held for development and, therefore, had no gross leasable area.

Table of Contents

Significant Tenants

The following table sets forth information about our ~~fifteen~~15 largest tenants as of December 31, ~~2012~~2013, based upon annualized rental revenues at December 31, ~~2012~~2013.

Tenant Name	Location	Annualized Rental Revenue (in thousands)		Percentage of Total Annualized Base Rental Revenues (1)		Initial Lease Date	Year Expiring
University of Phoenix	San Antonio	$	500	1.2	%	10/18/2010	2018
Safeway Stores Incorporated (2)	Phoenix	$	1,061	2.0	%	7/12/2000, 5/8/1991 and 7/1/2000	2020, 2020 and 2021
Sports Authority	San Antonio	495		1.2	%	1/1/2004	2015
Bashas' Inc. (3)	Phoenix	859		1.6	%	12/9/1993, 10/9/2004 and 4/1/2009	2014, 2024 and 2029
Air Liquide America, L.P.	Dallas	387		0.9	%	8/1/2001	2013
Wells Fargo & Company (4)	Phoenix	627		1.2	%	10/24/1996 and 4/16/1999	2016 and 2018
Safeway Stores, Incorporated	Phoenix	344		0.8	%	12/22/2011	2021
University of Phoenix	San Antonio	500		0.9	%	10/18/2010	2018
British American Restaurant, LLC	Phoenix	334		0.8	%	9/21/2012	2019
Sports Authority	San Antonio	495		0.9	%	1/1/2004	2015
Barnes & Noble Booksellers, Inc	Phoenix	314		0.7	%	9/21/2012	2014
Walgreens Co. (5)	Phoenix	448		0.8	%	11/3/1996 and 11/2/1987	2049 and 2027
X-Ray Press Corporation	Houston	280		0.7	%	7/1/1998	2019
Paul's Ace Hardware	Phoenix	400		0.7	%	3/1/2008	2018
Walgreens #3766	Phoenix	279		0.6	%	8/9/2011	2049
Super Bravo, Inc.	Houston	349		0.6	%	6/15/2011	2023
Sterling Jewelers Inc	Phoenix	277		0.6	%	9/21/2012	2020
Rock Solid Images	Houston	342		0.6	%	4/1/2004	2015
Rock Solid Images	Houston	266		0.6	%	4/1/2004	2013
Sterling Jewelers, Inc.	Phoenix	326		0.6	%	11/23/2004	2020
Skechers USA, Inc (1)	Multiple locations	250		0.6	%	Multiple dates	2017
KinderCare Learning Centers LLC (6)	Phoenix	322		0.6	%	5/7/2001 and 7/15/2000	2021 and 2035
Phoenix Children's Academy	Phoenix	249		0.6	%	12/28/2012	2019
Midland Financial Co.	Phoenix	315		0.6	%	1/1/2006	2015
Marshall's	Houston	248		0.6	%	5/12/1983	2018
Barnes & Noble Booksellers, Inc.	Phoenix	314		0.6	%	4/5/2004	2015
Merrill Corporation	Dallas	248		0.6	%	12/10/2001	2014
X-Ray X-Press Corporation	Houston	291		0.5	%	7/1/1998	2019
Albertson's #979	Phoenix	235		0.5	%	8/9/2011	2022
Air Liquide America, L.P.	Dallas	275		0.5	%	8/1/2001	2018
		$	46,~~706~~924	1112.07	%

(1) AtAnnualized ~~December~~Base ~~31,~~Rental ~~2012,~~Revenues we had two leases with tenant at properties located in San Antonio and Houston. The San Antonio lease commenced on May 25, 2012 and expires in 2017. The annualized rental revenue for this location was $120,000, which represents ~~0.3%~~the ofmonthly ~~our total annualized~~ base ~~rental~~rent ~~revenue.~~as ~~The~~of ~~Houston~~December ~~lease commenced on February 17~~31, ~~2012~~2013 ~~and~~for ~~expires~~each inapplicable ~~2017.~~tenant ~~The~~multiplied ~~annualized~~by ~~rental revenue was $129,500, which represents 0~~12.~~3% of our total annualized base rental revenue.~~

⁽²⁾

As of December 31, 2013, we had three leases with the same tenant occupying space at properties located in Phoenix. The annualized rental revenue for the lease that commenced on July 12, 2000, and is scheduled to expire in 2020, was $425,000, which represents 0.8% of our total annualized base rental revenue. The annualized rental revenue for the lease that commenced on May 8, 1991, and is scheduled to expire in 2021, was $344,000, which represents 0.7% of our total annualized base rental revenue. The annualized rental revenue for the lease that commenced on July 1, 2000, and is scheduled to expire in 2020, was $292,000, which represents 0.5% of our total annualized base rental revenue.

⁽³⁾

As of December 31, 2013, we had three leases with the same tenant occupying space at properties located in Phoenix. The annualized rental revenue for the lease that commenced on December 9, 1993, and is scheduled to expire in 2014, was $61,000, which represents 0.1% of our total annualized base rental revenue. The annualized rental revenue for the lease that commenced on October 9, 2004, and is scheduled to expire in 2024, was $119,000, which represents 0.2% of our total annualized base rental revenue. The annualized rental revenue for the lease that commenced on April 1, 2009, and is scheduled to expire in 2029, was $679,000, which represents 1.3% of our total annualized base rental revenue.

Table of Contents

⁽⁴⁾

As of December 31, 2013, we had two leases with the same tenant occupying space at properties located in Phoenix. The annualized rental revenue for the lease that commenced on October 24, 1996, and is scheduled to expire in 2016, was $114,000, which represents 0.2% of our total annualized base rental revenue. The annualized rental revenue for the lease that commenced on April 16, 1999, and is scheduled to expire in 2018, was $513,000, which represents 1.0% of our total annualized base rental revenue.

⁽⁵⁾

As of December 31, 2013, we had two leases with the same tenant occupying space at properties located in Phoenix. The annualized rental revenue for the lease that commenced on November 3, 1996, and is scheduled to expire in 2049, was $279,000, which represents 0.5% of our total annualized base rental revenue. The annualized rental revenue for the lease that commenced on November 2, 1987, and is scheduled to expire in 2027, was $169,000, which represents 0.3% of our total annualized base rental revenue.

⁽⁶⁾

As of December 31, 2013, we had two leases with the same tenant occupying space at properties located in Phoenix. The annualized rental revenue for the lease that commenced on May 7, 2001, and is scheduled to expire in 2021, was $267,000, which represents 0.5% of our total annualized base rental revenue. The annualized rental revenue for the lease that commenced on July 15, 2000, and is scheduled to expire in 2035, was $55,000, which represents 0.1% of our total annualized base rental revenue.

Lease Expirations

The following table lists, on an aggregate basis, all of our scheduled lease expirations over the next 10 years.

					Annualized Base Rent
		Gross Leasable Area			as of December 31, ~~2012~~2013
Year	Number ofLeases	ApproximateSquare Feet	~~Percentof~~Percent ~~Total~~ofTotal		Amount(in thousands)		Percent ofTotal
2013	321	720,665	16.9	%	$	9,471	22.0	%
2014	414	996,649	20.1	%	$	12,536	23.0	%
2014	231	712,450	16.7	%	8,328		19.4	%
2015	233	733,611	14.8	%	9,025		16.6	%
2015	164	532,043	12.4	%	5,735		13.4	%
2016	206	587,016	11.8	%	7,647		14.0	%
2016	122	384,853	9.0	%	4,851		11.3	%
2017	132	430,480	8.7	%	6,106		11.2	%
2017	106	363,579	8.5	%	4,732		11.0	%
2018	121	537,445	10.8	%	7,210		13.2	%
2018	37	245,603	5.7	%	2,299		5.3	%
2019	44	219,993	4.4	%	2,690		4.9	%
2019	19	139,106	3.3	%	1,997		4.7	%
2020	22	199,911	4.0	%	2,326		4.3	%
2020	14	71,545	1.7	%	1,082		2.5	%
2021	16	143,907	2.9	%	1,817		3.3	%
2021	13	127,812	3.0	%	1,377		3.2	%
2022	23	159,310	3.2	%	1,949		3.6	%
2022	19	151,031	3.5	%	1,601		3.7	%
2023	13	135,753	2.7	%	833		1.5	%
Total	1,~~046~~224	34,~~448~~144,~~687~~075	8083.74	%	$	4152,~~473~~139	9695.56	%

Insurance

We believe that we have property and liability insurance with reputable, commercially rated companies. We also believe that our insurance policies contain commercially reasonable deductibles and limits, adequate to cover our properties. We expect to maintain this type of insurance coverage and to obtain similar coverage with respect to any additional properties we acquire in the near future. Further, we have title insurance relating to our properties in an aggregate amount that we believe to be adequate.

Item 3. Legal Proceedings.

We are a participant in various legal proceedings and claims that arise in the ordinary course of our business. These matters are generally covered by insurance. While the resolution of these matters cannot be predicted with certainty, we believe that the final outcome of these matters will not have a material effect on our financial position, results of operations or cash flows.

Item 4. Mine Safety Disclosures.

Not applicable.

2526

Table of Contents

PART II

Item 5. Market for Registrant’s OP Units, Related Partner Matters and Issuer Purchases of Equity Securities.

Market Information

OP Units

There is no established trading market for our OP units. As of ~~March 11~~February 26, ~~2013~~2014, we had 1722,~~510~~389,~~007~~134 OP units outstanding, including ~~639~~553,~~200~~666 OP units not held by Whitestone, which are held by a total of approximately ~~460~~370 limited partners.

As of December 31, ~~2012~~2013, there were no outstanding options, warrants to purchase our OP units or securities convertible into our OP units. In addition, as of December 31, ~~2012~~2013, there were no OP units that could be sold pursuant to Rule 144 under the Securities Act or that we have agreed to register under the Securities Act for sale by our participants and there were no OP units that were being, or were publicly proposed to be, publicly offered by us.

Distributions

Distributions are generally not taxable to our partners; however, our partners generally must recognize their allocable share of our income, gain, deductions and losses in computing their federal income tax liabilities. We currently accrue distributions in three monthly installments following the end of the quarter. In order to remain qualified as a REIT, Whitestone is required to distribute at least 90% of its annual taxable income to its shareholders. For a discussion of our cash flow as compared to distributions, see “Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources.”

The timing and frequency of our distributions are authorized and declared by Whitestone's board of trustees in exercise of its business judgment based upon a number of factors, including:


•	our funds from operations;


•	our debt service requirements;


•	our capital expenditure requirements for our properties;


•	Whitestone's taxable income, combined with its annual distribution requirements necessary to maintain REIT qualification;


•	requirements of applicable law;


•	our overall financial condition; and


•	other factors deemed relevant by Whitestone's board of trustees.

Any distributions we make will be at the discretion of Whitestone's board of trustees and we cannot provide assurance that our distributions will be made or sustained in the future. Whitestone pays distributions to holders of its common shares based on distributions we make to it.

2627

Table of Contents

The following table reflects the total distributions we have paid (including the total amount paid and the amount paid per unit) in each indicated quarter (in thousands, except per unit data):

	Whitestone				Limited Partners Other Than Whitestone				Total
Quarter Paid	Distribution Per Unit		Total Amount Paid		Distribution Per Unit		Total Amount Paid		Total Amount Paid
2013
Fourth Quarter	$	0.2850	$	5,790	$	0.2850	$	163	$	5,953
Third Quarter	0.2850		4,865		0.2850		165		5,030
Second Quarter	0.2850		4,832		0.2850		169		5,001
First Quarter	0.2850		4,807		0.2850		194		5,001
Total	$	1.1400	$	20,294	$	1.1400	$	691	$	20,985
2012
Fourth Quarter	$	0.2850	$	4,781	$	0.2850	$	221	$	5,002
Third Quarter	0.2850		3,859		0.2850		224		4,083
Second Quarter	0.2850		3,362		0.2850		258		3,620
First Quarter	0.2850		3,322		0.2850		301		3,623
Total	$	1.1400	$	15,324	$	1.1400	$	1,004	$	16,328
2011
Fourth Quarter	$	0.2850	$	3,193	$	0.2850	$	430	$	3,623
Third Quarter	0.2850		3,115		0.2850		514		3,629
Second Quarter	0.2850		2,121		0.2850		515		2,636
First Quarter	0.2850		1,616		0.2850		515		2,131
Total	$	1.1400	$	10,045	$	1.1400	$	1,974	$	12,019

Equity Compensation Plan Information

Please refer to Item 12 of this report for information concerning securities authorized under ~~our~~Whitestone's equity incentive plan.

2728

Table of Contents

Performance Graph

The following graph compares the total shareholder returns of Whitestone's common shares to the Standard & Poor's 500 Index (“S&P 500”) and to the Morgan Stanley Capital International US REIT Index ("REIT Index") from August 25, 2010 to December 31, 2013. The graph assumes that the value of the investment in Whitestone's common shares and in the S&P 500 and REIT indices was $100 at August 25, 2010 and that all dividends were reinvested. The price of Whitestone's common shares on August 25, 2010 (on which the graph is based) was $12.00. The past shareholder return shown on the following graph is not necessarily indicative of future performance. The performance graph and related information shall not be deemed "filed" with the SEC, nor shall such information be incorporated by reference into any future filing, except to the extent Whitestone specifically incorporates it by reference into such filing.

Table of Contents

Item 6. Selected Financial Data.

The following table sets forth our selected consolidated financial information and should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our audited consolidated financial statements and the notes thereto, both of which appear elsewhere in this report.

	Year Ended December 31,
	(in thousands, except per unit data)
	2012			2011			2010			2009			2008
	2013			2012			2011			2010			2009
Operating Data:
Revenues	$	4662,~~554~~145		$	3446,~~915~~554		$	3134,~~533~~915		$	3231,~~685~~533		$	3132,~~201~~685
Property expenses	1723,~~639~~510			1317,~~327~~639			1213,~~283~~327			12,~~991~~283			12,~~835~~991
General and administrative	710,~~616~~912			67,~~648~~616			46,~~992~~648			64,~~072~~992			6,~~708~~072
Depreciation and amortization	1013,~~229~~429			710,~~749~~229			67,~~805~~749			6,~~518~~805			56,~~787~~518
Involuntary conversion	—			—			(558		)	(1,542		)	358
Executive relocation expense	—			2,177			—			—			—
Interest expense	8,732			6,344			6,040			6,189			6,929
Involuntary conversion	—			—			—			(558		)	(1,542		)
Interest, dividend and other investment income	(290		)	(460		)	(28		)	(36		)	(182		)
Interest expense	10,150			8,732			6,344			6,040			6,189
Executive relocation expense	2,177			—			—			—			—
Interest, dividend and other investment income	(136		)	(290		)	(460		)	(28		)	(36		)
Income (loss) from continuing operations before loss on disposal of assets and income taxes	451			1,307			1,999			2,493			(1,234		)
Income from continuing operations before loss on disposal of assets and income taxes	4,280			451			1,307			1,999			2,493
Provision for income taxes	(~~286~~305		)	(~~225~~286		)	(~~264~~225		)	(~~222~~264		)	(~~219~~222		)
Loss on disposal of assets	(~~112~~56		)	(~~146~~112		)	(~~160~~146		)	(~~196~~160		)	(~~223~~196		)
Income (loss) from continuing operations	53			936			1,575			2,075			(1,676		)
Income from continuing operations	3,919			53			936			1,575			2,075
Loss from discontinued operations	—			—			—			—			(188		)
Gain on sale of property	—			—			397			—			—
Gain on sale of property	—			397			—			—			—
Net income	$	3,919		$	53		$	1,333		$	1,575		$	2,075
Gain on sale of properties from discontinued operations	—			—			—			—			3,619
Net income	$	53		$	1,333		$	1,575		$	2,075		$	1,755



	Year Ended December 31,
	(in thousands, except per unit data)
	2013			2012			2011			2010			2009
Earnings per unit - basic
Income excluding amounts attributable to unvested restricted shares	$	0.21		$	0.00		$	0.12		$	0.27		$	0.41
Earnings per unit - diluted
Income excluding amounts attributable to unvested restricted shares	$	0.20		$	0.00		$	0.12		$	0.27		$	0.40
Balance Sheet Data:
Real estate (net)	$	480,266		$	355,749		$	246,888		$	165,398		$	158,398
Other assets	27,708			29,622			26,605			31,047			23,602
Total assets	$	507,974		$	385,371		$	273,493		$	196,445		$	182,000
Liabilities	$	287,059		$	212,484		$	142,786		$	112,162		$	115,141
General Partners' Capital	215,818			166,031			115,958			62,708			43,590
Limited Partners' Capital	5,097			6,856			14,749			21,575			23,269
	$	507,974		$	385,371		$	273,493		$	196,445		$	182,000
Other Data:
Proceeds from issuance of OP units	$	63,887		$	58,679		$	59,683		$	22,970		$	—
Acquisitions of and additions to real estate	137,024			118,207			88,903			12,768			12,855
Distributions per unit⁽¹⁾	1.12			1.12			1.09			1.17			1.59
Funds from operations⁽²⁾	17,314			10,273			8,707			8,432			8,618
Operating Portfolio Occupancy at year end	88		%	87		%	87		%	86		%	82		%
Average aggregate gross leasable area	4,537			3,833			3.366			3,058			3,039
Average rent per square foot	$	12.60		$	11.86		$	10.37		$	10.31		$	10.76

Table of Contents

	Year Ended December 31,
	(in thousands, except per unit data)
	2012			2011			2010			2009			2008
Earnings per unit - basic
Income (loss) excluding amounts attributable to unvested restricted shares	$	0.00		$	0.12		$	0.27		$	0.41		$	(0.33	)
Income from discontinued operations	—			—			—			—			0.68
Net income excluding amounts attributable to unvested restricted shares	$	0.00		$	0.12		$	0.27		$	0.41		$	0.35
Earnings per unit - diluted
Income (loss) excluding amounts attributable to unvested restricted shares	$	0.00		$	0.12		$	0.27		$	0.40		$	(0.33	)
Income from discontinued operations	—			—			—			—			0.68
Net income excluding amounts attributable to unvested restricted shares	$	0.00		$	0.12		$	0.27		$	0.40		$	0.35
Balance Sheet Data:
Real estate (net)	$	355,749		$	246,888		$	165,398		$	158,398		$	150,847
Other assets	29,622			26,605			31,047			23,602			27,098
Total assets	$	385,371		$	273,493		$	196,445		$	182,000		$	177,945
Liabilities	$	212,484		$	142,786		$	112,162		$	115,141		$	110,773
General Partners' Capital	166,031			115,958			62,708			43,590			45,891
Limited Partners' Capital	6,856			14,749			21,575			23,269			21,281
	$	385,371		$	273,493		$	196,445		$	182,000		$	177,945
Other Data:
Proceeds from issuance of OP units	$	58,679		$	59,683		$	22,970		$	—		$	—
Acquisitions of and additions to real estate	118,207			88,903			12,768			12,855			5,153
Distributions per unit (1)	1.12			1.09			1.17			1.35			1.59
Funds from operations (2)	10,273			8,707			8,432			8,618			4,236
Operating Portfolio Occupancy at year end	87		%	87		%	86		%	82		%	84		%
Average aggregate gross leasable area	3,833			3,366			3,058			3,039			3,008
Average rent per square foot	$	11.86		$	10.37		$	10.31		$	10.76		$	10.37



⁽¹⁾The distributions per unit represent total cash payments divided by weighted average units.

⁽²⁾ We believe that Funds From Operations (“FFO”) is an appropriate supplemental measure of operating performance because it helps our investors compare our operating performance relative to other REITs. The National Association of Real Estate Investment Trusts (“NAREIT”) defines FFO as net income (loss) available to common shareholders computed in accordance with GAAP, excluding gains or losses from sales of operating properties and extraordinary items, plus depreciation and amortization of real estate assets, including our share of unconsolidated partnerships and joint ventures. We calculate FFO in a manner consistent with the NAREIT definition. For more information, see "Management's Discussion and Analysis of Financial Condition and Results of Operations - Reconciliation of Non-GAAP Financial Measures."

The following table sets forth a reconciliation of ~~FFO to~~ net income to FFO, the nearest GAAP measure, for the periods presented:

	Year Ended December 31,
	(in thousands, except per unit data)
	2012		2011			2010			2009		2008
	2013		2012			2011			2010		2009
Net income	$	533,919	$	~~1,333~~53		$	1,~~575~~333		$	21,~~075~~575	$	12,~~755~~075
Depreciation and amortization of real estate assets (1)	1013,~~108~~339		710,~~625~~108			67,~~697~~625			6,~~347~~697		56,~~877~~347
(Gain) loss on sale or disposal of assets (1)	~~112~~56		~~(251~~112		)	~~160~~(251		)	~~196~~160		~~(3,396~~196		)
FFO	$	1017,~~273~~314	$	810,~~707~~273		$	8,~~432~~707		$	8,~~618~~432	$	48,~~236~~618

⁽¹⁾ Including amounts for discontinued operations.

2931

Table of Contents

Item 7. 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 audited consolidated financial statements and the notes thereto included in this annual report. For more detailed information regarding the basis of presentation for the following information, you should read the notes to our audited consolidated financial statements included in this Annual Report on Form 10-K.

Overview of Our Company

We are a Delaware limited partnership and majority-owned subsidiary of Whitestone, a fully integrated real estate company that owns and operates commercial properties in culturally diverse markets in major metropolitan areas. Founded in 1998, Whitestone is internally managed with a portfolio of commercial properties in Texas, Arizona and Illinois.

In October 2006, Whitestone's current management team joined Whitestone and adopted a strategic plan to acquire, redevelop, own and operate Community Centered Properties. We define Community Centered Properties as visibly located properties in established or developing culturally diverse neighborhoods in our target markets. We market, lease, and manage our centers to match tenants with the shared needs of the surrounding neighborhood. ~~Those~~We ~~needs~~have ~~may~~a ~~include~~diversified ~~specialty~~tenant ~~retail,~~base ~~grocery,~~concentrated ~~restaurants~~on ~~and~~service offerings including medical, educational, casual dining and ~~financial~~convenience services. 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. Whitestone employs and develops a diverse group of associates who understand the needs of our multicultural communities and tenants.

As of December 31, ~~2012~~2013, we owned and operated 5160 commercial properties consisting of:

Operating Portfolio

• 2731 retail properties containing approximately 2.03 million square feet of gross leasable area and having a total carrying amount (net of accumulated depreciation) of $~~198~~270.01 million;

• seven office properties containing approximately 0.6 million square feet of gross leasable area and having a total carrying amount (net of accumulated depreciation) of $42.93 million; and

• 11 office/flex properties containing approximately 1.2 million square feet of gross leasable area and having a total carrying amount (net of accumulated depreciation) of $3938.75 million.

Redevelopment, New Acquisitions Portfolio

• ~~three~~five retail properties containing approximately 0.58 million square feet of leasable space and having a total carrying amount (net of accumulated depreciation) of $68120.08 million; and

• ~~three~~six parcels of land held for future development having a total carrying amount of $78.26 million.

As of December 31, ~~2012~~2013, we had an aggregate of 1,~~066~~243 tenants. We have a diversified tenant base with our largest tenant comprising only 1.2.0% of our total revenues for the year ended December 31, ~~2012~~2013. Lease terms for our properties range from less than one year for smaller tenants to ~~over~~more than 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 ~~323~~347 new and renewal leases during ~~2012~~2013, totaling ~~685~~834,~~030~~920 square feet and $3544.2 million in total lease value.

As of December 31, ~~2012~~2013, we had no employees, and Whitestone employed 68 full-time employees ~~as of December 31, 2012~~. As an internally managed REIT, Whitestone bears its own expenses of operations, including the salaries, benefits and other compensation of its employees, office expenses, legal, accounting and investor relations expenses and other overhead costs. As the management and employees of Whitestone work for the benefit of the Operating Partnership, the costs and expenses of Whitestone have been presented in this report in a manner consistent with Whitestone's presentation in its Annual Report on Form 10-K for the period ended December 31, ~~2012~~2013.

3032

Table of Contents

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 $4662,~~554~~145,000 for the year ended December 31, ~~2012~~2013 as compared to $3446,~~915~~554,000 for the year ended December 31, ~~2011~~2012, an increase of $1115,~~639~~591,000, or 33%. The twelve months ended December 31, ~~2012~~2013 included $1115,~~164~~179,000 in increased revenues from New Store operations. We define "New Stores" as properties acquired during the period being compared. For the purposes of comparing the twelve months ended December 31, ~~2012~~2013 to the twelve months ended December 31, ~~2011~~2012, this includes properties acquired between January 1, ~~2011~~2012 and December 31, ~~2012~~2013. During the twelve months ended December 31, 2013, Same Store revenues increased $~~475~~412,000 in the aggregate. We define "Same Stores" as properties that were owned at the beginning of the period being compared. For the purposes of comparing the twelve months ended December 31, ~~2012~~2013 to the twelve months ended December 31, ~~2011~~2012, this includes properties owned before January 1, ~~2011~~2012. Same Store average occupancy increased from 8385.92% for the twelve months ended December 31, ~~2011~~2012 to 8486.87% for the twelve months ended December 31, ~~2012~~2013, increasing Same Store revenue $~~262~~786,000. ~~The~~Partially offsetting the increase in Same Store average occupancy, the Same Store revenue rate per average leased square foot ~~increased~~decreased $0.0812 for the twelve months ended December 31, ~~2012~~2013 to $1214.6002 per average leased square foot as compared to the twelve ~~month~~months ended December 31, ~~2011~~2012 revenue rate per average leased square foot of $1214.5214, ~~increasing~~decreasing Same Store revenue $~~213~~374,000.

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. 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. Negative trends in one or more of these factors could adversely affect our rental income in future periods, although we expect modest continued improvement in the overall economy in our markets to provide slight increases in occupancy at certain of our properties.

Scheduled Lease Expirations

We tend to lease space to smaller businesses that desire shorter term leases. As of December 31, ~~2012~~2013, approximately 3435% of our gross leasable area was subject to leases that expire prior to December 31, ~~2014~~2015. Over the last three years we have renewed approximately 7274% of our square footage expiring as a result of lease maturities. 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. During the year ended December 31, 2012, our revenue rate per square foot for renewals and new leases for comparable spaces increased 2% when compared to the expiring revenue rate per square foot for previous leases. As such, we expect the 2013 and 2014 expiring square footage to lease at rates which are at, or near, their current 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 ~~pay~~make distributions to our partners.

Acquisitions

We expect to actively seek 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.

3133

Table of Contents

Property Acquisitions

We seek to acquire commercial properties in high-growth markets. Our acquisition targets are properties that fit our Community Centered Properties strategy. We define Community Centered Properties as visibly located properties in established or developing, culturally diverse neighborhoods in our target markets, primarily in and around Phoenix, Chicago, Dallas, San Antonio and Houston. We market, lease and manage our centers to match tenants with the shared needs of the surrounding neighborhood. ~~Those~~We ~~needs~~have ~~may~~a ~~include~~diversified ~~specialty~~tenant ~~retail,~~base ~~grocery,~~concentrated ~~restaurants,~~on service offerings including medical, educational, casual dining and ~~financial~~convenience services. 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.

Property Acquisitions. On December 285, ~~2012~~2013, we acquired ~~the~~Market ~~Shops~~Street at ~~Pecos~~DC Ranch, a property that meets our Community Centered Property strategy, for approximately $1937.04 million in cash and net prorations. The 78241,~~767~~280 square foot property was ~~100~~80% leased at the time of purchase and is located in ~~Chandler~~Scottsdale, Arizona~~, a suburb of Phoenix~~. The property is ~~within~~located ~~close~~in ~~proximity~~the toDC ~~Intel~~Ranch ~~Corporation's~~master ~~new~~planned ~~corporate~~community ~~682-acre~~with ~~campus~~a ~~that~~mix isof ~~scheduled~~retail toand beoffice ~~completed~~space inwith ~~2013~~national ~~and~~credit ~~should~~tenants ~~employ~~including ~~approximately~~Safeway 11Supermakets,~~000~~ ~~employees~~Wells Fargo, Grimaldi's Pizza, McCormick & Co., Edward Jones and Fleming's Steakhouse.

On ~~September~~October 2117, ~~2012~~2013, we acquired ~~Village Square at Dana Park,~~ a ~~property~~2.50 ~~that~~acre ~~meets~~parcel ~~our Community Centered Property strategy,~~ for ~~approximately~~ $462.58 million in cash and net prorations. The ~~310,979~~parcel ~~square~~is ~~foot~~located ~~property~~in ~~was~~Spring, ~~71%~~Texas, ~~leased~~a atsuburb ~~the time~~ of ~~purchase~~Houston, and is ~~located~~contiguous into ~~the~~our ~~Mesa~~Corporate ~~submarket~~Park ofWoodland ~~Phoenix, Arizona~~property. InAt the ~~same~~time of purchase, we ~~also~~the ~~acquired an adjacent development~~ parcel ofhad ~~4.7~~16,220 ~~acres~~square ~~for~~feet ~~approximately~~and ~~$4.0~~was ~~million~~63% ~~in cash~~leased. The property ~~houses~~is ~~specialty~~located ~~boutique,~~on ~~dining~~Interstate ~~and~~45 ~~daily~~in ~~needs~~north ~~service~~Houston ~~tenants~~and ~~within~~is ain ~~contemporary~~close ~~Main~~proximity ~~Street~~to ~~setting~~the ~~featuring~~385-acre ~~expansive~~Exxon ~~palm~~Mobil ~~tree~~campus ~~lined,~~scheduled ~~cobblestone~~to ~~paved~~bring ~~pedestrian~~approximately ~~walkways~~10,000 ~~and~~employees ~~eight~~by ~~courtyard fountains with shaded seating areas~~2015.

On ~~September~~October 217, ~~2012~~2013, we acquired Fountain ~~Square~~Hills Plaza, a property that meets our Community Centered Property strategy, for approximately $1520.46 million in cash and net prorations. The ~~118~~111,~~209~~289 square foot property was 7687% leased at the time of purchase and is located in ~~Scottsdale~~Fountain Hills, Arizona, a suburb of Phoenix. The property ~~includes~~is ~~tenants~~located ~~such~~in asthe ~~a 20~~10,000 ~~square~~household ~~foot~~master-planned ~~fitness~~community ~~center,~~of ~~salons,~~Fountain ~~restaurants,~~Hills ~~medical~~ and ~~educational service providers and~~ is ~~also shadow~~dual-anchored by ~~Safeway~~a ~~Supermarket~~49,000 ~~McDonalds~~square foot Bashas' and ~~Sleep~~a ~~America~~27,000 square foot Ace Hardware.

On ~~August~~June 828, ~~2012~~2013, we acquired ~~Paradise~~Anthem ~~Plaza~~Marketplace, a property that meets our Community Centered Property strategy, for approximately $1623.3 million, ~~including~~in ~~the~~cash ~~assumption of a $9.2 million non-recourse loan,~~ and ~~cash~~net ~~of $7~~prorations.~~1 million.~~ The ~~125~~113,~~898~~293 square foot property was 100% leased at the time of purchase and is located in ~~Paradise Valley~~Phoenix, Arizona. In the same purchase, awe ~~suburb~~also acquired an adjacent development pad site of ~~Phoenix~~0.83 acres. ~~Tenants~~The ~~at the~~ property ~~cater~~serves tothe ~~families~~Anthem ~~with~~and ~~children~~adjacent ~~and~~Tramonto ~~include~~family-oriented ~~pediatric~~master-planned ~~medical/health~~communities ~~care~~in ~~service~~North ~~providers,~~Phoenix ~~educational~~and ~~providers,~~includes a ~~well-known~~broad ~~community~~tenant ~~theater,~~mix ~~children's~~of ~~furniture~~dining ~~dealers,~~establishments ~~bicycle~~and ~~shops~~personal care services and aretailers ~~variety~~and ofis ~~other~~anchored ~~convenience~~by ~~providers~~Safeway Supermarket.

On ~~May~~June 2919, ~~2012~~2013, we acquired ~~the~~Mercado ~~Shops~~ at ~~Pinnacle~~Scottsdale ~~Peak~~Ranch, a property that meets our Community Centered Property strategy, for approximately $621.43 million, inincluding ~~cash~~the assumption of a $11.1 million non-recourse loan, a $0.9 million interest rate supplement and ~~net~~cash ~~prorations~~of $9.3 million. The 41118,~~530~~730 square foot property was 76100% leased at the time of purchase and is located in ~~North~~ Scottsdale, Arizona. ~~Tenants~~The ~~include~~property ~~restaurants,~~is ~~medical/health~~located ~~care~~within ~~providers~~the upscale Scottsdale Ranch neighborhood and is anchored by A.J's Fine Foods, a ~~variety~~13,000 ofsquare ~~other~~foot ~~convenience~~fitness ~~service~~center ~~providers~~and Walgreens.

On ~~December~~March 28, ~~2011~~2013, we acquired ~~the~~Headquarters ~~Shops~~Village atShopping ~~Starwood~~Center, a property that meets our Community Centered Property strategy, for approximately $1525.7 million in cash and net prorations. The 5589,~~385~~134 square foot ~~Class A~~ property was 98100% leased at the time of purchase and is located in ~~Frisco~~Plano, Texas. The property is located within the Preston Road Retail Corridor, aadjacent ~~northern~~to ~~suburb~~the of2,665 ~~Dallas. The~~acre ~~Shops~~Legacy atin ~~Starwood~~Plano ~~has~~master-planned acommunity ~~complementary~~and ~~tenant~~serves ~~mix~~the ofnorth ~~restaurants,~~Dallas ~~fashion~~trade ~~boutiques~~area, ~~salons~~home ~~and~~to ~~second-level~~several ~~office~~Fortune ~~space~~500 companies.

On December 28, 2011, we acquired Starwood Phase III, a 2.73 acre parcel of undeveloped land adjacent to the Shops at Starwood, for approximately $1.9 million, including a non-recourse loan we assumed for $1.4 million, secured by the land, and cash of $0.5 million. The Phase III development site fronts the Dallas North Tollway within the Tollway Overlay District, which grants the highest allowed density of any zoning district. No revenue or income for this development property has been included in our results of operations for the year ended December 31, 2012 since the date of acquisition.34

On December 28, 2011, we acquired Pinnacle of Scottsdale Phase II, or Pinnacle Phase II, a 4.45 acre parcel of developed land adjacent to Pinnacle for approximately $1.0 million in cash and net prorations. Pinnacle Phase II has approximately 400 linear feet of frontage on Scottsdale Road and the potential for additional retail and office development. No revenue or income for this development property has been included in our results of operations for the year ended December 31, 2012 since the date of acquisition.

Table of Contents

On December 22, 2011, we acquired Phase I of Pinnacle of Scottsdale, or Pinnacle, a property that meets our Community Centered Property strategy, for approximately $28.8 million, including a non-recourse loan we assumed for $14.1 million that is secured by the property, and cash of $14.7 million. The 113,108 square foot Class A property was 100% leased at the time of purchase and is located in North Scottsdale, Arizona. The tenants include Safeway, Ace Hardware, Starbucks, Subway, Shell Oil and a variety of other convenience service providers.

On August 16, 2011, we acquired Ahwatukee Plaza Shopping Center, a property that meets our Community Centered Property strategy, for approximately $9.3 million in cash and net prorations. The 72,650 square foot property was 100% leased at the time of purchase and is located in the affluent high density Ahwatukee Foothills neighborhood in south Phoenix, Arizona. The property is anchored by Gold's Gym.

On August 8, 2011, we acquired Terravita Marketplace, a property that meets our Community Centered Property strategy, for approximately $16.1 million in cash and net prorations. The 102,733 square foot property, inclusive of 51,434 square feet leased to two tenants pursuant to ground leases, was 100% leased at the time of purchase and is located in Scottsdale, Arizona. Terravita Marketplace is adjacent to the gated golf course residential community of Terravita, which was developed by DelWebb Corporation/Pulte, with homes ranging in price from $250,000 to $1 million.

On June 28, 2011, we acquired Gilbert Tuscany Village, a property that meets our Community Centered Property strategy, or approximately $5.0 million in cash and net prorations. The 49,415 square foot property was 16% leased at the time of purchase and is located in Gilbert, Arizona. Gilbert Tuscany Village is surrounded by densely populated, high-end residential developments and is located approximately one mile from Banner Gateway Medical Center, a 60-acre medical complex that is partnering with MD Anderson to add a new 120,000 square foot cancer outpatient center.

On April 13, 2011, we acquired Desert Canyon Shopping Center, a property that meets our Community Centered Property strategy, for approximately $3.7 million in cash and net prorations. The 62,533 square foot property, inclusive of 12,960 square feet leased to two tenants pursuant to ground leases, was 65% leased at the time of purchase and is located in McDowell Mountain Ranch in northern Scottsdale, Arizona.

On November 1, 2010, we acquired Marketplace at Central, a property that meets our Community Centered Property strategy, for approximately $6.4 million in cash and net prorations. The 111,130 square foot property was 49% leased at the time of purchase and is located in central Phoenix, Arizona. The property is situated in an ideal location across the street from John C. Lincoln Hospital, the major employer in the area, and within a quarter mile from Sunnyslope High School.

On September 28, 2010, we acquired The Citadel, a property that meets our Community Centered Property strategy, for approximately $2.2 million in cash and net prorations. The 28,547 square foot property was 16% leased at the time of purchase and is located in Scottsdale, Arizona. The property is strategically located at a prime intersection at Pinnacle Peak and Pima Roads.

Property dispositions. On July 22, 2011, we sold Greens Road Plaza, located in Houston, Texas, for $1.8 million in cash and net prorations. We have reinvested the proceeds from the sale of the 20,607 square foot property located in northeast Houston in acquisitions of Community Centered Properties in our target markets. As a result of the transaction, we recorded a gain on sale of property of $0.4 million for the year ended December 31, 2011.

Table of Contents

Summary of Critical Accounting Policies

Our discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements. We prepared these financial statements in conformity with U.S. generally accepted accounting principles, or ("GAAP"). The preparation of these financial statements required us to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. We based our estimates on historical experience and on various other assumptions we believe to be reasonable under the circumstances. Our results may differ from these estimates. Currently, we believe that our accounting policies do not require us to make estimates using assumptions about matters that are highly uncertain. For a better understanding of our accounting policies, you should read Note 2, “Summary of Significant Accounting Policies,” to our accompanying consolidated financial statements in conjunction with this "Management’s Discussion and Analysis of Financial Condition and Results of Operations."

We have described below the critical accounting policies that we believe could impact our consolidated financial statements most significantly.

Revenue Recognition. All leases on our properties are classified as operating leases, and the related rental income is recognized on a straight-line basis over the terms of the related leases. Differences between rental income earned and amounts due per the respective lease agreements are capitalized or charged, as applicable, to accrued rents and accounts receivable. Percentage rents are recognized as rental income when the thresholds upon which they are based have been met. Recoveries from tenants for taxes, insurance, and other operating expenses are recognized as revenues in the period the corresponding costs are incurred. We have established an allowance for doubtful accounts against the portion of tenant accounts receivable which is estimated to be uncollectible.

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, primarily interest, real estate taxes and loan acquisition costs, 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 thereof, becomes available for occupancy. Prior to that time, we expense these costs as acquisition expense. For the year ended December 31, 2013, approximately $114,000 and $100,000 in interest expense and real estate taxes, respectively, were capitalized. For the year ended December 31, 2012, approximately $176,000 and $147,000 in interest expense and real estate taxes, respectively, were capitalized. No interest ~~was~~or real estate taxes were capitalized for the ~~years~~year ended December 31, 2011 ~~and 2010~~.

Acquired Properties and Acquired Lease Intangibles. We allocate the purchase price of the acquired properties to land, building and improvements, identifiable intangible assets and to the acquired liabilities based on their respective fair values at the time of purchase. Identifiable intangibles include amounts allocated to acquired out-of-market leases, the value of in-place leases and customer relationship value, if any. We determine fair value based on estimated cash flow projections that utilize appropriate discount and capitalization rates and available market information. Estimates of future cash flows are based on a number of factors including the historical operating results, known trends and specific market and economic conditions that may affect the property. Factors considered by management in our analysis of determining the as-if-vacant property value include an estimate of carrying costs during the expected lease-up periods considering market conditions, and costs to execute similar leases. In estimating carrying costs, management includes real estate taxes, insurance and estimates of lost rentals at market rates during the expected lease-up periods, tenant demand and other economic conditions. Management also estimates costs to execute similar leases including leasing commissions, tenant improvements, legal and other related expenses. Intangibles related to out-of-market leases and in-place lease value are recorded as acquired lease intangibles and are amortized as an adjustment to rental revenue or amortization expense, as appropriate, over the remaining terms of the underlying leases. Premiums or discounts on acquired out-of-market debt are amortized to interest expense over the remaining term of such debt.

Depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of 5 to 39 years for improvements and buildings, respectively. Tenant improvements are depreciated using the straight-line method over the life of the improvement or remaining term of the lease, whichever is shorter.

~~Impairment. We~~ review our properties for impairment at least annually or whenever events or changes in circumstances indicate that the carrying amount of the assets, including accrued rental income, may not be recoverable through operations. We determine whether an impairment in value has occurred by comparing the estimated future cash flows (undiscounted and without interest charges), including the estimated residual value of the property, with the carrying cost of the property. If impairment is indicated, a loss will be recorded for the amount by which the carrying value of the property exceeds its fair value. Management has determined that there has been no impairment in the carrying value of our real estate assets as of December 31, 2012.35

Table of Contents

~~Accrued Rents and Accounts Receivable~~Impairment. ~~Included~~We inreview ~~accrued~~our ~~rent~~properties ~~and~~for ~~accounts~~impairment ~~receivable~~at ~~are~~least ~~base~~annually ~~rents,~~or ~~tenant~~whenever ~~reimbursements~~events ~~and~~or ~~receivables~~changes ~~attributable~~in tocircumstances ~~recording~~indicate ~~rents~~that onthe acarrying ~~straight-line~~amount ~~basis. An~~of ~~allowance for~~ the ~~uncollectible~~assets, ~~portion~~including of accrued ~~rents~~rental ~~and~~income, ~~accounts~~may ~~receivable~~not isbe ~~determined~~recoverable ~~based~~through ~~upon~~operations. We ~~customer~~determine ~~credit-worthiness~~whether ~~(including~~an ~~expected~~impairment ~~recovery~~in ofvalue ~~our~~has ~~claim~~occurred ~~with~~by ~~respect~~comparing tothe ~~any~~estimated ~~tenants~~future incash ~~bankruptcy),~~flows ~~historical~~(undiscounted ~~bad~~and ~~debt~~without ~~levels~~interest charges), ~~and~~including ~~current~~the ~~economic~~estimated ~~trends. As~~residual value of ~~December 31,~~the ~~2012 and 2011~~property, wewith ~~had~~the ancarrying ~~allowance~~cost ~~for uncollectible accounts~~ of ~~$2.3~~the ~~million and $1~~property.4 If ~~million,~~impairment ~~respectively. As~~is ~~of December 31~~indicated, ~~2012,~~a ~~2011~~loss ~~and~~will ~~2010,~~be we recorded ~~bad~~for ~~debt expense in~~ the amount ofby ~~$1.0~~which ~~million,~~the ~~$0.6~~carrying ~~million~~value ~~and~~of ~~$0.5~~the ~~million,~~property ~~respectively,~~exceeds ~~related~~its tofair ~~tenant~~value. Management ~~receivables~~has determined that wethere ~~specifically~~has ~~identified~~been asno ~~potentially~~impairment ~~uncollectible~~in ~~based~~the oncarrying ~~our~~value ~~assessment~~ of ~~each~~our ~~tenant’s~~real ~~credit-worthiness. Bad~~estate ~~debt~~assets ~~expenses~~as ~~and~~of ~~any~~December 31, ~~related recoveries are included in property operation and maintenance expense~~2013.

Accrued Rents and Accounts Receivable. Included in accrued rent and accounts receivable are base rents, tenant reimbursements and receivables attributable to recording rents on a straight-line basis. An allowance for the uncollectible portion of accrued rents and accounts receivable is determined based upon customer credit-worthiness (including expected recovery of our claim with respect to any tenants in bankruptcy), historical bad debt levels, and current economic trends. As of December 31, 2013 and 2012, we had an allowance for uncollectible accounts of $3.7 million and $2.3 million, respectively. As of December 31, 2013, 2012 and 2011, we recorded bad debt expense in the amount of $1.7 million, $1.0 million and $0.6 million, respectively, related to tenant receivables that we specifically identified as potentially uncollectible based on our assessment of each tenant’s credit-worthiness. Bad debt expenses and any related recoveries are included in property operation and maintenance expense.

Unamortized Lease Commissions and Loan Costs. Leasing commissions are amortized using the straight-line method over the terms of the related lease agreements. Loan costs are amortized on the straight-line method over the terms of the loans, which approximates the interest method. Costs allocated to in-place leases whose terms differ from market terms related to acquired properties are amortized over the remaining life of the respective leases.

Prepaids and Other Assets. Prepaids and other assets include escrows established pursuant to certain mortgage financing arrangements for real estate taxes and insurance and acquisition deposits which include earnest money deposits on future acquisitions. As part of our executive relocation arrangement, as discussed in Note 1112 to our accompanying consolidated financial statements, we issued a note receivable for $975,000 to the buyer~~. The~~, ~~note~~with ~~bears~~an interest ~~at a~~ rate of 4.5% and ~~matures~~a onmaturity of December 31, 2013. On December 5, 2013, the note was renewed through June 30, 2014 and bears interest at a rate of 5.2% during the renewal period.

Federal Income Taxes. As a partnership, any federal income tax liability is passed through to our partners. Whitestone elected to be taxed as a REIT under the Code beginning with its taxable year ended December 31, 1999. As a REIT, Whitestone generally is not subject to federal income tax on income that it distributes to its shareholders. If it fails to qualify as a REIT in any taxable year, it will be subject to federal income tax on its taxable income at regular corporate rates. Whitestone believes that it is organized and operates in such a manner as to qualify to be taxed as a REIT, and it intends to operate so as to remain qualified as a REIT for federal income tax purposes.

State Taxes. We are subject to the Texas Margin Tax which is computed by applying the applicable tax rate (1% 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, Financial Accounting Standards Board (“FASB”) ASC 740, “Income Taxes” (“ASC 740”) applies to the Texas Margin Tax. We have recorded a margin tax expense of $0.3 million for the Texas Margin Tax for each of the years ended December 31, ~~2012~~2013, and ~~2010~~2012 and $0.2 million for the year ended December 31, 2011 .

~~Recent~~Fair ~~accounting~~Value ~~pronouncements. In~~of ~~December~~Financial ~~2010,~~Instruments. Our ~~the~~financial ~~FASB~~instruments ~~issued~~consist ~~new~~primarily ~~guidance~~of ~~clarifying~~cash, ~~that~~cash ~~the~~equivalents, ~~disclosure~~accounts ofreceivable, ~~supplementary~~accounts ~~pro~~and ~~forma~~notes ~~information~~payable ~~for~~and ~~business~~investments ~~combinations~~in ~~should~~marketable besecurities. The ~~presented~~carrying ~~such~~value ~~that~~of ~~revenues~~cash, ~~and~~cash ~~earnings~~equivalents, ofaccounts ~~the~~receivable ~~combined~~and ~~entity~~accounts payable are ~~calculated~~representative asof ~~though~~their ~~the~~respective ~~relevant~~fair ~~business~~values ~~combinations~~due ~~that~~to ~~occurred~~their ~~during~~short-term ~~the~~nature. The ~~current~~fair ~~reporting~~value ~~period~~of ~~had~~our ~~occurred~~long-term asdebt, consisting of ~~the~~fixed ~~beginning~~rate ofsecured ~~the~~notes, ~~comparable~~variable ~~prior~~rate ~~annual~~secured ~~reporting~~notes ~~period. The~~and ~~guidance~~an ~~also~~unsecured ~~improves~~revolving ~~the~~credit ~~usefulness~~facility ofaggregate ~~the~~to ~~supplementary~~approximately ~~pro~~$262.0 ~~forma~~million ~~information~~and by$192.4 ~~requiring~~million aas ~~description~~compared ofto the ~~nature~~book ~~and~~value ~~amount~~ of ~~material,~~approximately ~~non-recurring~~$264.3 ~~pro~~million ~~forma~~and ~~adjustments~~$190.6 ~~that~~million ~~are~~as ~~directly~~of ~~attributable~~December 31, to2013 ~~the~~and ~~business~~2012, ~~combinations~~respectively. WeThe ~~adopted~~fair ~~these~~value ~~provisions~~of ~~for~~ our ~~consolidated~~long-term ~~financial~~debt ~~statements~~is ~~beginning~~estimated ~~with~~on ~~the~~a ~~year~~Level ~~ended~~2 ~~December~~basis 31(as provided by ASC 820, ~~2011. Thus~~"Fair ~~the~~Value ~~application~~Measurements ofand ~~these~~Disclosures"), ~~provisions~~using isa ~~reflected~~discounted incash flow analysis based on the ~~supplementary~~borrowing ~~pro~~rates ~~forma~~currently ~~disclosures~~available to us for ~~our~~loans ~~acquisitions,~~with assimilar ~~described~~terms inand ~~Note~~maturities, 4discounting tothe ~~our~~future ~~accompanying~~contractual ~~consolidated~~interest ~~financial~~and ~~statements~~principal payments.

InDisclosure ~~June~~about ~~2011,~~fair ~~the~~value ~~FASB~~of ~~issued~~financial ~~guidance~~instruments ~~eliminating~~is ~~the~~based ~~option~~on topertinent ~~present~~information ~~components~~available ofto ~~other~~management ~~comprehensive income solely~~ as ~~part~~ of ~~the~~December ~~statement~~31, of2013 ~~shareholders' equity~~ and ~~requires~~2012. Although ~~the~~management ~~presentation~~is ofnot ~~components~~aware of ~~net~~any ~~income~~factors ~~and~~that ~~components~~would ofsignificantly ~~other~~affect ~~comprehensive~~the ~~income~~fair ~~either~~value ~~in a single continuous statement of comprehensive income or in two separate but consecutive statements. In December 2011~~amounts, ~~the~~such ~~FASB~~amounts ~~deferred~~have ~~the~~not ~~requirement~~been tocomprehensively ~~present~~revalued ~~reclassification adjustments~~ for ~~each~~purposes ~~component~~ of ~~accumulated~~these ~~other~~financial ~~comprehensive~~statements ~~income~~since inDecember ~~both~~31, ~~net~~2013 ~~income~~ and ~~other~~current ~~comprehensive~~estimates ~~income on the face~~ of ~~the~~fair ~~financial~~value ~~statements. We~~may ~~adopted~~differ ~~these~~significantly ~~provisions~~from ~~for our consolidated financial statements beginning with~~ the ~~quarter~~amounts ~~ended~~presented ~~June 30, 2011~~herein.

In February 2013, the FASB issued guidance requiring entities to disclose certain information relating to amounts reclassified out of accumulated other comprehensive income. We do not expect the pronouncement to have a significant impact on our consolidated financial statements.36

Table of Contents

Derivative Instruments and Hedging Activities. We occasionally 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 December 31, 2013, we consider our cash flow hedges to be highly effective.

Recent accounting pronouncements. In February 2013, the FASB issued guidance requiring entities to disclose certain information relating to amounts reclassified out of accumulated other comprehensive income. The guidance was effective prospectively for reporting periods beginning on or after December 15, 2012. We do not expect the pronouncement to have a significant impact on our consolidated financial statements.

In July 2013, the FASB issued guidance permitting the Fed Funds Effective Swap Rate to be used as a U.S. benchmark interest rate for hedge accounting purposes under ASC 815 ("Derivatives and Hedging"), in addition to the interest rates on direct Treasury obligations of the U.S. government and LIBOR. This guidance is effective prospectively for qualifying new or redesignated hedging relationships entered into on or after July 17, 2013. We do not expect the pronouncement to have a significant impact on our consolidated financial statements.

Table of Contents

Liquidity and Capital Resources

Our short-term liquidity requirements consist primarily of distributions to holders of our OP units, including those required for Whitestone, our general partner, to maintain its REIT status and satisfy its current quarterly distribution target of $0.2850 per share, 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 year ended December 31, ~~2012~~2013, our cash provided from operating activities was $1123,~~218~~884,000 and our total distributions paid were $1620,~~328~~985,000. Therefore, we had ~~distributions in excess of~~ cash flow from operations in excess of distributions of approximately $52,~~110~~899,000. On February 4, 2013, we ~~amended~~entered ~~and~~into ~~restated~~the ~~our~~2013 Facility. In addition to a $125 million unsecured ~~revolving~~borrowing ~~credit~~capacity ~~facility~~under ~~and~~the ~~entered~~revolving ~~into~~loan, ~~our~~the 2013 Facility, ~~which~~also weincludes ~~will~~a ~~use~~$50 ~~for~~million ~~general~~term ~~corporate~~loan ~~purposes,~~and ~~including~~permits ~~acquisitions~~the ~~and~~Operating ~~redevelopment~~Partnership ofto ~~existing~~increase ~~properties~~the inborrowing ~~our~~capacity ~~portfolio. The~~under ~~new~~the ~~facility~~2013 ~~replaced~~Facility ~~our~~to ~~existing~~a ~~unsecured~~total ~~revolving~~of ~~credit~~$225 ~~facility~~million, upon the satisfaction of certain conditions. We anticipate that cash flows from operating activities and our borrowing capacity under ~~our~~the 2013 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 Whitestone to continue to qualify to be taxed as a REIT for federal income tax purposes.

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, Whitestone's sales of common shares, issuances of OP units, sales of underperforming 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 by Whitestone. 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. Whitestone's 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~~finance ~~acquiring~~the continued acquisition of such additional properties through Whitestone's equity issuances and through debt financing.

Our capital structure includes non-recourse secured debt that we assumed or originated on certain properties. We may hedge the future cash flows of certain debt transactions principally through interest rate swaps with major financial institutions.

Cash and Cash Equivalents

We had cash and cash equivalents of approximately $6,~~544~~491,000 at December 31, ~~2012~~2013, as compared to $56,~~695~~544,000 at December 31, ~~2011~~2012. The ~~increase~~decrease of $~~849~~53,000 was primarily the result of the following:

Sources of Cash

• Cash flow from operations of $1123,~~218~~884,000 for the year ended December 31, ~~2012~~2013;

• Net proceeds of $5863,~~679~~887,000 from Whitestone's issuance of common shares;

• Net proceeds of $5665,~~312~~800,000 from ~~issuance~~our ofrevolving ~~notes~~credit ~~payable net of origination costs~~facility;

• ~~Proceeds~~Net proceeds of $102,914,000 from ~~sales~~issuance of ~~marketable~~notes ~~securities~~payable net of ~~$5,508,000~~origination costs;


•	Proceeds from sales of marketable securities of $747,000;

Uses of Cash

• Payment of distributions to OP unit holders of $1620,~~328~~985,000;

• ~~Investments~~Real inestate ~~marketable~~acquisitions ~~securities~~ of $~~750~~119,102,000;

• ~~Real~~Additions ~~estate~~to ~~acquisitions~~real estate of $986,~~350~~291,000;

• ~~Additions~~Payments toof ~~real~~loans ~~estate~~ of $10110,~~815~~867,000;

• Payments of ~~loans~~exchange offer costs of $440,~~146,~~000;.

• ~~Payments of exchange offer costs of $479,000.~~38

Table of Contents

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

Equity ~~Offering~~Offerings

On ~~August~~October 288, ~~2012~~2013, Whitestone completed the sale of 4,~~830~~000,000 common shares, $0.001 par value per share, ~~including~~and ~~630,000~~on ~~common~~October ~~shares~~28, ~~pursuant~~2013, toupon the underwriters' exercise of the ~~underwriters'~~ over-allotment option, Whitestone completed the sale of 600,000 additional common shares, at a price to the public of $1213.8054 per share. Total net proceeds from the offering, including the over-allotment shares, and after deducting the underwriting discount and offering expenses, were approximately $5859.7 million, which weWhitestone contributed to us in exchange for OP units. We used the net proceeds from this offering for general corporate purposes, ~~including~~which ~~property~~included acquisitions of additional properties, ~~debt~~the repayment of outstanding indebtedness, capital expenditures (including tenant improvements), the expansion, redevelopment and/or ~~retenanting~~re-tenanting of properties in our portfolio, working capital and other general ~~corporate~~ purposes.

On June 19, 2013, Whitestone entered into five equity distribution agreements for an at-the-market distribution program. Pursuant to the terms and conditions of the agreements, Whitestone can issue and sell up to an aggregate of $50 million of its common shares. Actual sales will depend on a variety of factors to be determined by Whitestone from time to time, including (among others) market conditions, the trading price of its common shares, capital needs and its determinations of the appropriate sources of funding for Whitestone, 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 of 1933, as amended. Whitestone has no obligation to sell any of its common shares, and could at any time suspend offers under the agreements or terminate the agreements. For the year ended December 31, 2013, Whitestone sold 282,239 common shares under the equity distribution program, with net proceeds to it of approximately $4.2 million, which Whitestone contributed to us in exchange for OP units. In connection with such sales, Whitestone paid compensation of $0.2 million to the sales agents.

Table of Contents

Debt

Mortgages and other notes payable consist of the following (in thousands):

	December 31,
Description	~~2012~~2013		~~2011~~2012
Fixed rate notes
$1.1 million 4.71% Note, due 2013 (1)	$	1,087	$	1,318
$1.1 million 4.71% Note, due December 31, 2013	$	1,087	$	1,087
$14.1 million 5.695% Note, due 2013	13,850		14,110
$20.2 million 4.28% Note, due June 6, 2023 (1)	20,200		13,850
$3.0 million 6.00% Note, due 2021 (2)	2,943		2,978
$3.0 million 6.00% Note, due March 31, 2021 (2)	2,905		2,943
$10.0 million 6.04% Note, due 2014	9,142		9,326
$10.0 million 6.04% Note, due March 1, 2014	—		9,142
$1.5 million 6.50% Note, due 2014	1,444		1,471
$1.5 million 6.50% Note, due March 1, 2014	—		1,444
$11.2 million 6.52% Note, due 2015	10,609		10,763
$11.2 million 6.52% Note, due September 1, 2015	—		10,609
$21.4 million 6.53% Notes, due 2013	18,865		19,524
$21.4 million 6.53% Notes, due October 1, 2013	—		18,865
$24.5 million 6.56% Note, due 2013	23,135		23,597
$24.5 million 6.56% Note, due October 1, 2013	—		23,135
$9.9 million 6.63% Notes, due 2014	8,925		9,221
$9.9 million 6.63% Notes, due March 1, 2014	—		8,925
$0.7 million 2.97% Note, due 2013	15		23
$9.2 million, Prime Rate less 2.00%, due December 29, 2017 (3)	7,875		7,854
$11.1 million 5.87% Note, due August 6, 2016	11,900		—
$10.5 million, LIBOR plus 2.00% Note, due September 24, 2018 (4)	10,500		—
$16.5 million 4.97% Note, due September 26, 2023	16,450		—
$37.0 million 3.76% Note, due December 1, 2020	37,000		—
$6.5 million 3.80% Note, due January 1, 2019	6,500		—
$15.1 million 4.99% Note, due January 6, 2024	15,060		—
$50.0 million, 0.84% plus 1.75% to 2.50% Note, due February 3, 2017 (5)	50,000		—
$0.7 million 2.97% Note, due November 28, 2013	—		15
Floating rate notes
Unsecured line of credit, LIBOR plus 2.75% to 3.75%, due 2015	69,000		11,000
Unsecured credit facility, LIBOR plus 1.75% to 2.50%, due February 3, 2017	84,800		69,000
$9.2 million, Prime Rate less 2.00%, due 2017	7,854		—
$26.9 million, LIBOR plus 2.86% Note, due December 1, 2013	—		23,739
$26.9 million, LIBOR plus 2.86% Note, due 2013	23,739		24,559
	$	264,277	$	190,608
	$	190,608	$	127,890

(1) AsPromissory ~~of December 31, 2011, promissory~~ note had aan original balance of $114.41 million and an interest rate of 5.0695%, due in ~~2012.~~2013, ~~See~~which ~~Note~~was 8refinanced toin ~~the~~May ~~accompanying~~2013. ~~consolidated~~See ~~financial~~below ~~statements~~ for ~~additional~~further discussion of ~~this~~the ~~note~~Pinnacle Note.

(2) The 6.00% interest rate is fixed through March 30, 2016. On March 31, 2016, the interest rate will reset to the rate of interest for a five-year balloon note with a thirty-year amortization as published by the Federal Home Loan Bank.

~~Our~~(3) ~~mortgage~~Promissory ~~debt~~note ~~was~~includes ~~collateralized~~an byinterest 27rate ~~operating~~swap properties as of December 31, 2012 with a combined net book value of $161.8 million and 26 operating properties as of December 31, 2011 with a combined net book value of $143.2 million. Our loans contain restrictions that ~~would~~fixed ~~require~~ the ~~payment~~interest ofrate ~~prepayment~~at ~~penalties~~5.72% for the ~~acceleration~~duration of ~~outstanding debt and are secured by deeds of trust on certain of our properties and~~ the ~~assignment of certain rents and leases associated with those properties~~term.

On(4) ~~August~~Promissory ~~8, 2012, we assumed a $9.2 million variable rate~~ note asincludes ~~part~~an ofinterest ~~our acquisition of Paradise Plaza. See Note 4 to the accompanying consolidated financial statements for further discussion. The variable~~ rate isswap ~~based~~that onfixed the ~~prime rate less 2.00% and matures on December 27, 2017. We consider the variable rate to be below-market and have imputed an~~ interest rate ofat 43.1355%, ~~which~~for ~~we consider to be an appropriate market rate. As a result, we recorded a discount on~~ the ~~note~~duration of ~~$1.3 million, which will amortize into interest expense over~~ the ~~life of the loan~~term. ~~See Note 2 to the accompanying consolidated financial statements for a discussion of the interest rate swap included with this note.~~

(5) 37We have entered into an interest rate swap that fixed the LIBOR portion of our $50 million term loan under our unsecured credit facility at 0.84%. The swap began on January 7, 2014.

Our mortgage debt was collateralized by 19 operating properties as of December 31, 2013 with a combined net book value of $161.1 million and 27 operating properties as of December 31, 2012 with a combined net book value of $161.8 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 the assignment of certain rents and leases associated with those properties.

On December 23, 2013, we, operating through our subsidiary, Whitestone Woodlake Plaza, LLC, a Delaware limited liability company, entered into a $6.5 million promissory note (the "Woodlake Note"), with a fixed interest rate of 3.80% payable to Western Reserve Life Assurance Company of Ohio and a maturity of January 1, 2019. Proceeds from the Woodlake Note were used to repay a portion of our unsecured revolving credit facility.

Table of Contents

On ~~February~~December 2716, ~~2012~~2013, we, ~~entered~~operating ~~into~~through aour ~~three-year~~subsidiary, ~~$125~~Whitestone ~~million~~Anthem ~~unsecured~~Marketplace, ~~revolving~~LLC, ~~credit~~a ~~facility~~Delaware ~~(the~~limited ~~"2012~~liability ~~Facility"). As~~company, ofentered ~~December 31,~~into ~~2012,~~ a $6915.01 million ~~was~~promissory ~~drawn~~note on (the ~~2012~~"Anthem ~~Facility~~Note"), ~~and~~with ~~our~~a ~~remaining~~fixed ~~borrowing~~interest ~~capacity~~rate ~~was~~of ~~$56~~4.099% ~~million. On~~payable ~~February~~to 4,Citigroup ~~2013,~~Global weMarkets ~~entered~~Realty ~~into~~Corporation anand ~~unsecured~~a ~~credit~~maturity ~~facility~~of ~~that~~January ~~amends~~6, ~~and~~2024. Proceeds ~~restates~~from the ~~Facility. See~~Anthem Note 19were used to ~~the~~repay ~~accompanying~~a ~~consolidated~~portion ~~financial~~of ~~statements~~our ~~for~~unsecured ~~further~~revolving ~~discussion~~credit facility.

On ~~February~~November 426, 2013, we ~~entered into our 2013 Facility~~, ~~which~~operating ~~amended~~through ~~and restated~~ our ~~2012 Facility. We will use the 2013 Facility for acquisitions~~subsidiary, ~~redevelopment~~Whitestone ~~of value~~Industrial-~~add~~Office ~~properties~~LLC, ina ~~our~~Texas ~~portfolio~~limited ~~and~~liability ~~general~~company ~~corporate~~("Whitestone ~~purposes. In~~Industrial"), ~~addition~~entered tointo a $~~125~~37.0 million ~~unsecured~~promissory ~~borrowing~~note ~~capacity under~~ (the ~~revolving~~"Industrial ~~loan~~Note"), ~~the~~with ~~2013 Facility also includes~~ a ~~$50~~fixed ~~million~~interest ~~term~~rate ~~loan~~of ~~and~~3.76% ~~permits~~payable us to ~~increase~~Jackson ~~the~~Life ~~borrowing~~National ~~capacity~~Insurance ~~under~~Company ~~the~~and ~~2013 Facility to~~ a ~~total~~maturity of ~~$225~~December ~~million~~1, ~~upon the satisfaction of certain conditions~~2020. OnProceeds ~~February~~from 4,the ~~2013,~~Industrial weNote ~~drew~~were ~~down~~used ~~$69.0~~to ~~million~~repay onour ~~the~~existing ~~2013 Facility, which replaced the~~ $6926.09 million ~~drawn~~floating onrate ~~the~~loan ~~2012~~that ~~Facility. Like~~matured ~~our~~on ~~2012~~December ~~Facility~~1, ~~the~~ 2013 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 ~~amount~~remainder ~~available~~of ~~to us and our ability to borrow from time to time under~~ the ~~2013~~proceeds ~~Facility~~were isused ~~subject~~ to ~~our~~pay ~~compliance~~off ~~with~~approximately ~~these requirements~~$10. ~~See~~1 ~~Note~~million 19in tofixed ~~the~~rate ~~accompanying~~indebtedness ~~consolidated~~maturing ~~financial~~in ~~statements for further discussion~~2014.

On ~~March~~September 826, 2013, we, ~~entered~~operating ~~into~~through anour ~~interest~~subsidiary, ~~rate~~Whitestone ~~swap~~Uptown ~~with~~Tower, ~~U.S.~~LLC, ~~Bank~~a ~~National~~Delaware ~~Association~~limited ~~that~~liability ~~fixes~~company ~~the~~("Whitestone ~~LIBOR~~Uptown"), ~~portion~~entered ofinto ~~our~~a $5016.5 million ~~term~~promissory ~~loan~~note ~~under~~(the ~~our~~"Uptown ~~2013 Facility at 0.84%. The swap starts on January 7~~Note"), ~~2014~~with ~~and~~a ~~will~~fixed ~~mature on February 3, 2017. We have designated the~~ interest rate ~~swap as a cash flow hedge with the effective portion~~ of ~~the~~4.97% ~~changes~~payable ~~in fair value~~ to beMorgan ~~recorded~~Stanley inCapital ~~comprehensive~~Holdings ~~income~~LLC ~~(loss)~~ and ~~subsequently~~a ~~reclassified~~maturity ~~into~~of ~~earnings~~September in26, ~~the period that the hedged transaction affects earnings~~2023. ~~The~~Proceeds ~~ineffective~~from ~~portion~~the ofUptown ~~the~~Note ~~change~~were inused ~~fair~~to ~~value,~~repay ifa ~~any,~~portion ~~will~~of beour ~~recognized~~unsecured ~~directly~~revolving incredit ~~earnings~~facility.

~~Certain~~On ~~other~~September of24, 2013, we, operating through our ~~loans~~subsidiary, ~~are~~Whitestone ~~subject~~Terravita toMarketplace, ~~customary~~LLC, ~~covenants~~a Delaware limited liability company ("Whitestone Terravita"), entered into a $10. As5 million promissory note (the "Terravita Note"), with an applicable interest rate of ~~December 31~~LIBOR plus 2.00%, ~~2012~~payable to Bank of America, weN.A. ~~were~~and ina ~~compliance~~maturity ~~with~~of ~~all~~September ~~loan~~24, ~~covenants~~2018. Proceeds from the Terravita Note were used to repay a portion of our unsecured revolving credit facility.

~~Annual~~On ~~maturities~~June of19, ~~notes~~2013, ~~payable~~we assumed a $11.1 million promissory note as part of ~~December 31~~our acquisition of Mercado at Scottsdale Ranch (see Note 8 to our accompanying consolidated financial statements). The 5.87% fixed interest rate note matures on August 16, ~~2012~~2016. In ~~are~~conjunction ~~due~~with ~~during~~our acquisition, we received an interest rate supplement from the ~~following~~seller ~~years:~~in the amount of $932,000, which we will accrete into expense over the life of the note. As a result of the supplement, the imputed interest rate is 3.052%, which we consider to be an appropriate market rate.

	Amount Due
Year	(in thousands)
2013	$	81,396
2014	19,172
2015	10,317
2016	73
2017	76,936
Thereafter	2,714
Total	$	190,608

On May 31, 2013, we, operating through our subsidiary, Whitestone Pinnacle of Scottsdale, LLC, a Delaware limited liability company ("Whitestone Pinnacle"), refinanced our $14.1 million promissory note, with an applicable interest rate of 5.695% and a maturity of June 1, 2013, with a $20.2 million promissory note (the "Pinnacle Note") payable to Cantor Commercial Real Estate Lending, L.P. with an applicable interest rate of 4.2805%, and a maturity of June 6, 2023.

The 2013 Facility, which is available to us for acquisitions of properties and working capital, is our primary source of additional credit. As of December 31, 2013, $134.8 million was drawn on the 2013 Facility, and our borrowing capacity was $40.2 million, assuming that we use proceeds of the 2013 Facility to acquire properties, or to repay debt on properties, that are eligible to be included in the unsecured borrowing base. Proceeds from the 2013 Facility were used for general corporate purposes, including property acquisitions, debt repayment, capital expenditures, the expansion, redevelopment and re-tenanting of properties in our portfolio and working capital. Additional proceeds from the 2013 Facility will be used for general corporate purposes, including property acquisitions, debt repayment, capital expenditures, the expansion, redevelopment and re-tenanting of properties in our portfolio and working capital. The 2013 Facility currently bears interest at our election, at a rate of LIBOR plus 1.75% to 2.50%, and matures on February 3, 2017. As of December 31, 2013, the interest rate was 2.167%. We have an interest rate swap that fixes the LIBOR portion of our $50 million term loan under the 2013 Facility at 0.84%. The swap began on January 7, 2014 and will mature on February 3, 2017.

Certain other of our loans are subject to customary covenants. As of December 31, 2013, we were in compliance with all loan covenants.

Table of Contents

Annual maturities of notes payable as of December 31, 2013 are due during the following years:



	Amount Due
Year	(in thousands)

2014	$	2,499
2015	1,866
2016	13,277
2017	144,972
2018	11,911
Thereafter	89,752
Total	$	264,277

Capital Expenditures

We continually evaluate our properties’ performance and value. We may determine it is in our partners’ best interest to invest capital in properties 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 Texas 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.

Table of Contents

Contractual Obligations

As of December 31, ~~2012~~2013, we had the following contractual obligations (see Note 8 of our accompanying consolidated financial statements for further discussion regarding the specific terms of our debt):

			Payment due by period (in thousands)
Contractual Obligations	Total		Less than 1year (~~2013~~2014)		1 - 3 years(~~2014~~2015 - ~~2015~~2016)		3 - 5 years(~~2016~~2017 - ~~2017~~2018)		More than5 years(after ~~2017~~2018)
Long-Term Debt - Principal	$	~~190~~264,~~608~~277	$	812,~~396~~499	$	2915,~~489~~143	$	77156,~~009~~883	$	289,~~714~~752
Long-Term Debt - Fixed Interest	741,~~596~~066		46,~~515~~367		212,~~034~~493		~~535~~8,916		~~512~~13,290
Long-Term Debt - Variable Interest (1)	75,~~794~~909		21,~~320~~928		3,~~421~~675		~~2,053~~306		—
Unsecured revolving credit facility - Unused commitment fee (2)	1,855		371		742		742		—
Unsecured credit facility - Unused commitment fee (2)	404		101		202		101		—
Operating Lease Obligations	33135		2841		560		—34		—
Total	$	~~207~~311,~~886~~791	$	8810,~~630~~936	$	3531,~~691~~573	$	80166,~~339~~240	$	3103,~~226~~042

(1) As of December 31, ~~2012~~2013, we had ~~two~~one ~~loans~~loan totaling $9284.78 million which bore interest at a floating rate~~, including borrowings under our 2012 Facility~~. The variable interest rate payments are based on LIBOR plus 1.75% to LIBOR plus 2.50%, which reflects our new interest rates under our 2013 Facility. The information in the table above reflects our projected interest rate obligations for the floating rate payments based on one-month LIBOR as of December 31, ~~2012~~2013, of 0.2117%.

(2) The unused commitment fees on our unsecured ~~revolving~~ credit facility, payable quarterly, are based on the average daily unused amount of our unsecured ~~revolving~~ credit facility. The fees, ~~which reflect our new fees under our 2013 Facility,~~ are 0.25% for facility usage greater than 50% or 0.35% for facility usage less than 50%. The information in the table above reflects our projected obligations for our unsecured ~~revolving~~ credit facility based on our December 31, ~~2012~~2013 balance of $69134.08 million.

3942

Table of Contents

Distributions

During ~~2012~~2013, we paid distributions to our OP unit holders of $1621.30 million, compared to $1216.03 million in ~~2011~~2012. OP unit holders receive monthly distributions. Payments of distributions are declared quarterly and paid monthly. The distributions paid to OP unit holders were as follows (in thousands, except per unit data) for the years ended December 31, ~~2012~~2013 and ~~2011~~2012:

	Whitestone				Limited Partners Other Than Whitestone				Total
Quarter Paid	~~Distribution~~Distributions Per Unit		Total Amount Paid		~~Distribution~~Distributions Per Unit		Total Amount Paid		Total Amount Paid
2013
Fourth Quarter	$	0.2850	$	5,790	$	0.2850	$	163	$	5,953
Third Quarter	0.2850		4,865		0.2850		165		5,030
Second Quarter	0.2850		4,832		0.2850		169		5,001
First Quarter	0.2850		4,807		0.2850		194		5,001
Total	$	1.1400	$	20,294	$	1.1400	$	691	$	20,985
2012
Fourth Quarter	$	0.2850	$	4,781	$	0.2850	$	221	$	5,002
Third Quarter	0.2850		3,859		0.2850		224		4,083
Second Quarter	0.2850		3,362		0.2850		258		3,620
First Quarter	0.2850		3,322		0.2850		301		3,623
Total	$	1.1400	$	15,324	$	1.1400	$	1,004	$	16,328
2011
Fourth Quarter	$	0.2850	$	3,193	$	0.2850	$	430	$	3,623
Third Quarter	0.2850		3,115		0.2850		514		3,629
Second Quarter	0.2850		2,121		0.2850		515		2,636
First Quarter	0.2850		1,616		0.2850		515		2,131
Total	$	1.1400	$	10,045	$	1.1400	$	1,974	$	12,019

4043

Table of Contents

Results of Operations

Year Ended December 31, 2013 Compared to Year Ended December 31, 2012

The following table provides a general comparison of our results of operations for the years ended December 31, 2013 and December 31, 2012 (dollars in thousands, except per unit data):



	Year Ended December 31,
	2013			2012
Number of properties owned and operated	60			51
Aggregate gross leasable area (sq. ft.)	4,966,330			4,274,691
Ending occupancy rate - operating portfolio⁽¹⁾	88		%	87		%
Ending occupancy rate - all properties	87		%	85		%

Total property revenues	$	62,145		$	46,554
Total property expenses	23,510			17,639
Total other expenses	34,355			28,464
Provision for income taxes	305			286
Loss on disposal of assets	56			112
Net income	$	3,919		$	53

Funds from operations ⁽²⁾	$	17,314		$	10,273
Property net operating income ⁽³⁾	38,635			28,915
Distributions paid OP Units	20,985			16,328
Distributions per Whitestone common share and OP unit	$	1.14		$	1.14
Distributions paid as a percentage of funds from operations	121		%	159		%


⁽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 an explanation and reconciliation of funds from operations to net income, see "Funds From Operations" below.


⁽³⁾	For an explanation and reconciliation of property net operating income to net income, see "Property Net Operating Income" below.

Property revenues. We had rental income and tenant reimbursements of approximately $62,145,000 for the year ended December 31, 2013 as compared to $46,554,000 for the year ended December 31, 2012, an increase of $15,591,000, or 33%. The year ended December 31, 2013 included $15,179,000 in increased revenues from New Store operations. During the twelve months ended December 31, 2013, Same Store revenues increased $412,000 in the aggregate. Same Store average occupancy increased from 85.2% for the year ended December 31, 2012 to 86.7% for the year ended December 31, 2013, increasing Same Store revenue $786,000. Partially offsetting the increase in Same Store average occupancy, the Same Store revenue rate per average leased square foot decreased $0.12 for the year ended December 31, 2013 to $14.02 per average leased square foot as compared to the year ended December 31, 2012 revenue rate per average leased square foot of $14.14, decreasing Same Store revenue $374,000. The revenue rate per average leased square feet is calculated by dividing the total revenue by the average square feet leased during the period.

Table of Contents

Property expenses. Our property expenses were $23,510,000 for the year ended December 31, 2013, as compared to $17,639,000 for the year ended December 31, 2012, an increase of $5,871,000, or 33%. The primary components of total property expenses, Same Store property expenses and New Store property expenses are detailed in the tables below (in thousands):



	Year Ended December 31,				Increase		% Increase
Overall Property Expenses	2013		2012		(Decrease)		(Decrease)
Real estate taxes	$	8,767	$	6,384	$	2,383	37	%
Utilities	3,683		3,025		658		22	%
Contract services	3,759		2,786		973		35	%
Repairs and maintenance	2,268		1,800		468		26	%
Bad debt	1,669		1,004		665		66	%
Labor and other	3,364		2,640		724		27	%
Total	$	23,510	$	17,639	$	5,871	33	%



	Year Ended December 31,				Increase		% Increase
Same Store Property Expenses	2013		2012		(Decrease)		(Decrease)
Real estate taxes	$	6,066	$	5,853	$	213	4	%
Utilities	2,930		2,877		53		2	%
Contract services	2,675		2,557		118		5	%
Repairs and maintenance	1,726		1,677		49		3	%
Bad debt	1,289		874		415		47	%
Labor and other	2,597		2,527		70		3	%
Total	$	17,283	$	16,365	$	918	6	%



	Year Ended December 31,				Increase		% Increase
New Store Property Expenses	2013		2012		(Decrease)		(Decrease)
Real estate taxes	$	2,701	$	531	$	2,170	409	%
Utilities	753		148		605		409	%
Contract services	1,084		229		855		373	%
Repairs and maintenance	542		123		419		341	%
Bad debt	380		130		250		192	%
Labor and other	767		113		654		579	%
Total	$	6,227	$	1,274	$	4,953	389	%

Real estate taxes. Real estate taxes increased $2,383,000, or 37%, during the year ended December 31, 2013 as compared to 2012, primarily as a result of New Stores real estate taxes, which increased $2,170,000. Same Store real estate taxes increased $213,000 for the year ended December 31, 2013 as compared to the year ended December 31, 2012. The Same Store increase was primarily attributable to increases in 2013 property values of several of our Houston properties. 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 increased $658,000, or 22%, during the year ended December 31, 2013 as compared to 2012. The increase in utility expenses was primarily attributed to New Store increases of $605,000 for the year ended December 31, 2013. Same Store utilities expenses increased approximately $53,000, or 2%, during the year ended December 31, 2013 as compared to 2012. The majority of the Same Store increase was attributable to increased electricity usage and related charges.

Contract services. Contract services increased $973,000, or 35%, during the year ended December 31, 2013 as compared to 2012, primarily as a result of New Store contract services, which increased $855,000. Same Store contract services increased $118,000, or 5%.

Table of Contents

Repairs and maintenance. Repairs and maintenance increased $468,000, or 26%, during the year ended December 31, 2013 as compared to 2012. New Store repairs and maintenance increased $419,000 for the year ended December 31, 2013 as compared to 2012. Same Store repairs and maintenance increased $49,000, or 3%, during year ended December 31, 2013 as compared to 2012.

Bad debt. Bad debt for the year ended December 31, 2013 increased $665,000, or 66%, as compared to 2012. The increase for the year ended December 31, 2013 as compared to the year ended December 31, 2012 was comprised of $250,000 from New Store bad debt and $415,000 from Same Store bad debt. The overall bad debt expense was approximately 3% of revenue for the year ended December 31, 2013 and approximately 2% of revenue for the year ended December 31, 2012. We vigorously pursue past due accounts, but expect collection of rents to continue to be challenging for the foreseeable future.

Labor and other. Labor and other expenses increased $724,000, or 27%, for year ended December 31, 2013 as compared to 2012. New Store labor and other expenses increased $654,000 for the year ended December 31, 2013 as compared to 2012. Same Store labor and other expenses increased $70,000, or 3%, during year ended December 31, 2013 as compared to 2012.

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



	Year Ended December 31,
	Same Store				New Store				Total
	2013		2012		2013		2012		2013		2012
Property revenues	$	43,758	$	43,346	$	18,387	$	3,208	$	62,145	$	46,554
Property expenses	17,283		16,365		6,227		1,274		23,510		17,639
Property net operating income	$	26,475	$	26,981	$	12,160	$	1,934	$	38,635	$	28,915

Other expenses. Our other expenses were $34,355,000 for the year ended December 31, 2013, as compared to $28,464,000 for the year ended December 31, 2012, an increase of $5,891,000, or 21%. The primary components of other expenses, net are detailed in the table below (in thousands):



	Year Ended December 31,						Increase			% Increase
	2013			2012			(Decrease)			(Decrease)
General and administrative	$	10,912		$	7,616		$	3,296		43	%
Depreciation & amortization	13,429			10,229			3,200			31	%
Executive relocation expense	—			2,177			(2,177		)	(100	)%
Interest expense	10,150			8,732			1,418			16	%
Interest, dividend and other investment income	(136		)	(290		)	154			(53	)%
Total other expenses	$	34,355		$	28,464		$	5,891		21	%

General and administrative. General and administrative expenses increased approximately $3,296,000, or 43%, for the year ended December 31, 2013 as compared to 2012. The increase in general and administrative expenses included increased share-based compensation costs of $1,573,000, increased payroll of costs of $732,000, increased office expenses of $368,000, increased travel expenses of $316,000, increased legal fees of $240,000 and increased other expenses of $67,000. The increase in share-based compensation is due to expense related to additional employee grants and expenses related to the expected vesting of performance-based shares. As of December 31, 2013, there was approximately $1.9 million in unrecognized compensation cost related to outstanding nonvested performance-based and time-based shares that are expected to be recognized over a weighted-average period of approximately 13 months.

Executive relocation expense. The executive relocation expense of $2,177,000 for the year ended December 31, 2012 relates to the disposition of an executive's residence and our obligation to pay certain expenses incurred in connection therewith pursuant to the relocation arrangement entered into with such executive. See Note 12 to the accompanying consolidated financial statements for further discussion.

Table of Contents

Depreciation and amortization. Depreciation and amortization increased $3,200,000, or 31%, for the year ended December 31, 2013 as compared to 2012. New Store depreciation increased $2,385,000 and Same Store depreciation increased $793,000. The increase in Same Store depreciation is attributable to redevelopment and re-tenanting investments. Depreciation on corporate assets and amortization of commission costs increased $22,000.

Interest expense. Interest expense increased $1,418,000, or 16%, for the year ended December 31, 2013 as compared to 2012. An increase in our average outstanding notes payable balance of $88,782,000 accounted for $4,505,000 in increased interest expense, offset by a decrease in our effective interest rate to 3.71% for the year ended December 31, 2013 versus 5.07% for the year ended December 31, 2012, resulting in a $3,289,000 decrease in interest expense. Early extinguishment of debt fees of $169,000 and increased amortized loan fees of $33,000 both increased interest expense for the year ended December 31, 2013 as compared to the year ended December 31, 2012.

Interest, dividend and other investment income. Interest, dividend and other investment income decreased $154,000, or 53%, for the year ended December 31, 2013 as compared to 2012. During the year ended December 31, 2013, our gains on sales of investments in available-for-sale securities decreased $70,000, our dividend income decreased $122,000 and our interest income increased $38,000 as compared to the amounts realized during the year ended December 31, 2012.

Table of Contents

Year Ended December 31, 2012 Compared to Year Ended December 31, 2011

The following table provides a general comparison of our results of operations for the years ended December 31, 2012 and December 31, 2011 (dollars in thousands, except per unit data):

	Year Ended December 31,
	2012			2011
Number of properties owned and operated	51			45
Aggregate gross leasable area (sq. ft.)	4,274,691			3,597,337
Ending occupancy rate - operating portfolio(1)	87		%	87		%
Ending occupancy rate - all properties	85		%	84		%
Total property revenues	$	46,554		$	34,915
Total property expenses	17,639			13,327
Total other expenses	28,464			20,281
Provision for income taxes	286			225
Loss on disposal of assets	112			146
Income from continuing operations	53			936
Gain on sale of property	—			397
Net income	$	53		$	1,333
Funds from operations (2)	$	10,273		$	8,707
Property net operating income (3)	28,~~918~~915			21,~~798~~588
Distributions paid on OP units	16,328			12,019
Distributions per Whitestone common share and OP unit	$	1.14		$	1.14
Distributions paid as a percentage of funds from operations	159		%	138		%


⁽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 an explanation and reconciliation of funds from operations to net income, see "Funds From Operations" below.


⁽³⁾	For an explanation and reconciliation of property net operating income to net income, see "Property Net Operating Income" below.

Property revenues. We had rental income and tenant reimbursements of approximately $46,554,000 for the year ended December 31, 2012 as compared to $34,915,000 for the year ended December 31, 2011, an increase of $11,639,000, or 33%. The year ended December 31, 2012 included $11,164,000 in increased revenues from New Store operations. Same Store revenues increased $475,000 in the aggregate. Same Store average occupancy increased from 83.9% for the year ended December 31, 2011 to 84.8% for the year ended December 31, 2012, increasing Same Store revenue $262,000. The Same Store revenue rate per average leased square foot increased $0.08 for the year ended December 31, 2012 to $12.60 per average leased square foot as compared to the year ended December 31, 2011 revenue rate per average leased square foot of $12.52, increasing Same Store revenue $213,000. The revenue rate per average leased square feet is calculated by dividing the total revenue by the average square feet leased during the period.

Table of Contents

Property expenses. Our property expenses were $17,639,000 for the year ended December 31, 2012, as compared to $13,327,000 for the year ended December 31, 2011, an increase of $4,312,000, or 32%. The primary components of total property expenses, Same Store property expenses and New Store property expenses are detailed in the tables below (in thousands):

Table of Contents



	Year Ended December 31,				Increase		% Increase
Overall Property Expenses	2012		2011		(Decrease)		(Decrease)
Real estate taxes	$	6,384	$	4,668	$	1,716	37	%
Utilities	3,025		2,510		515		21	%
Contract services	2,786		2,312		474		21	%
Repairs and maintenance	1,800		1,222		578		47	%
Bad debt	1,004		615		389		63	%
Labor and other	2,640		2,000		640		32	%
Total	$	17,639	$	13,327	$	4,312	32	%



	Year Ended December 31,				Increase		% Increase
Same Store Property Expenses	2012		2011		(Decrease)		(Decrease)
Real estate taxes	$	4,617	$	4,418	$	199	5	%
Utilities	2,477		2,403		74		3	%
Contract services	2,264		2,225		39		2	%
Repairs and maintenance	1,290		1,172		118		10	%
Bad debt	753		588		165		28	%
Labor and other	2,241		1,912		329		17	%
Total	$	13,642	$	12,718	$	924	7	%



	Year Ended December 31,				Increase		% Increase
New Store Property Expenses	2012		2011		(Decrease)		(Decrease)
Real estate taxes	$	1,767	$	250	$	1,517	607	%
Utilities	548		107		441		412	%
Contract services	522		87		435		500	%
Repairs and maintenance	510		50		460		920	%
Bad debt	251		27		224		830	%
Labor and other	399		88		311		353	%
Total	$	3,997	$	609	$	3,388	556	%

Real estate taxes. Real estate taxes increased $1,716,000, or 37%, during the year ended December 31, 2012 as compared to 2011, primarily as a result of New Stores real estate taxes, which increased $1,517,000. Same Store real estate taxes increased $199,000 for the year ended December 31, 2012 as compared to the year ended December 31, 2011. The ~~Sames~~Same Store increase was the result of increases in 2011 property values of several of our Houston properties that were under dispute with the taxing authority and increased assessed values from the various appraisal districts during 2012. Approximately $100,000 of the increase related to 2011 valuations, which we do not expect to repeat in future periods. 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 increased $515,000, or 21%, during the year ended December 31, 2012 as compared to 2011. The increase in utility expenses was primarily attributed to New Store increases of $441,000 for the year ended December 31, 2012. Same Store utilities expenses increased approximately $74,000 during the year ended December 31, 2012 as compared to 2011. The majority of the Same Store increase was attributable to a new drainage utility fee with respect to our Houston properties charged by the City of Houston, which took effect July 1, 2011.

Table of Contents

Contract services. Contract services increased $474,000, or 21%, during the year ended December 31, 2012 as compared to 2011, primarily as a result of New Store contract services, which increased $435,000. Same Store contract services increased $39,000, or 2%.

Table of Contents

Repairs and maintenance. Repairs and maintenance increased $578,000, or 47%, during the year ended December 31, 2012 as compared to 2011. New Store repairs and maintenance increased $460,000 for the year ended December 31, 2012 as compared to 2011. Same Store repairs and maintenance increased $118,000, or 10%, during year ended December 31, 2012 as compared to 2011. The increase is primarily comprised of increases in electrical and lighting repairs of $40,000, HVAC repair and supply costs of $31,000, and roofing repairs of $28,000 and other net increased repair and maintenance costs of $19,000.

Bad debt. Bad debt for the year ended December 31, 2012 increased $389,000, or 63%, as compared to 2011. The increase for the year ended December 31, 2012 as compared to the year ended December 31, 2011 was comprised of $224,000 from New Store bad debt and $165,000 from Same Store bad debt. The overall bad debt expense was approximately 2% of revenue for both years. We vigorously pursue past due accounts, but expect collection of rents to continue to be challenging for the foreseeable future.

Labor and other. Labor and other expenses increased $640,000, or 32%, for year ended December 31, 2012 as compared to 2011. New Store labor and other expenses increased $311,000 for the year ended December 31, 2012 as compared to 2011. Same Store labor and other expenses increased $329,000, or 17%, during year ended December 31, 2012 as compared to 2011. The increase in Same Store labor and other expenses is primarily comprised of increased insurance premiums of $197,000, increased non-recoverable repairs of $49,000, increased office expenses of $44,000 and other net increased labor and other expenses of $39,000.

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



	Year Ended December 31,
	Same Store				New Store				Total
	2012		2011		2012		2011		2012		2011
Property revenues	$	33,564	$	33,089	$	12,990	$	1,826	$	46,554	$	34,915
Property expenses	13,642		12,718		3,997		609		17,639		13,327
Property net operating income	$	19,922	$	20,371	$	8,993	$	1,217	$	28,915	$	21,588

Other expenses. Our other expenses were $28,464,000 for the year ended December 31, 2012, as compared to $20,281,000 for the year ended December 31, 2011, an increase of $8,183,000, or 40%. The primary components of other expenses, net are detailed in the table below (in thousands):

	Year Ended December 31,						Increase		% Increase
	2012			2011			(Decrease)		(Decrease)
General and administrative	$	7,616		$	6,648		$	968	15	%
Depreciation & amortization	10,229			7,749			2,480		32	%
Executive relocation expense	2,177			—			2,177		100	%
Interest expense	8,732			6,344			2,388		38	%
Interest, dividend and other investment income	(290		)	(460		)	170		(37	)%
Total other expenses	$	28,464		$	20,281		$	8,183	40	%

4350

Table of Contents

General and administrative. General and administrative expenses increased approximately $968,000, or 15%, for the year ended December 31, 2012 as compared to 2011. The increase in general and administrative expenses included increased share-based compensation costs of $401,000, increased payroll of costs of $390,000, a separation arrangement cost of $107,000 and other expenses of $70,000. The increase in share-based compensation is due to expense related to additional employee grants and expenses related to the expected vesting of performance-based shares. As of December 31, 2012, there was approximately $1,092,000 in unrecognized compensation cost related to outstanding non-vested performance-based shares, which are expected to to vest over a period of twelve months and approximately $60,000 in unrecognized compensation cost related to outstanding non-vested time-based shares, which are expected to be recognized over a weighted-average period of approximately eight months. The increase in payroll costs is due to an increase in the number of ~~Whitestone~~ employees from 62 as of December 31, 2011 to 68 as of December 31, 2012.

Executive relocation expense. The executive relocation expense of $2,177,000 relates to the disposition of an executive's residence and our obligation to pay certain expenses incurred in connection therewith pursuant to the relocation arrangement entered into with such executive. See Note 1112 to the accompanying consolidated financial statements for further discussion.

Depreciation and amortization. Depreciation and amortization increased $2,480,000, or 32%, for the year ended December 31, 2012 as compared to 2011. New Store depreciation increased $1,716,000 and Same Store depreciation increased $749,000. The increase in Same Store depreciation is attributable to redevelopment and re-tenanting investments, most notably at our Windsor and Lion Square locations. Depreciation on corporate assets and amortization of commission costs increased $15,000.

Interest expense. Interest expense increased $2,388,000, or 38%, for the year ended December 31, 2012 as compared to 2011. An increase in our average outstanding notes payable balance of $44,540,000 accounted for $2,372,000 in increased interest expense, offset by a decrease in our effective interest rate to 5.07% for the year ended December 31, 2012 versus 5.32% for the year ended December 31, 2011, resulting in a $381,000 decrease in interest expense. Amortized loan fees included in interest expense increased $397,000 for the year ended December 31, 2012 with the addition of new debt and our 2012 Facility to $1,013,000 as compared to $616,000 for the year ended December 31, 2011.

Interest, dividend and other investment income. Interest, dividend and other investment income ~~increased~~decreased $170,000, or 37%, for the year ended December 31, 2012 as compared to 2011. During the year ended December 31, 2012, our gains on sales of investments in available-for-sale securities decreased $82,000, our dividend income decreased $57,000 and our interest income decreased $31,000 as compared to the amounts realized during the year ended December 31, 2011.

4451

Table of Contents

Year Ended December 31, 2011 Compared to Year Ended December 31, 2010

The following table provides a general comparison of our results of operations for the years ended December 31, 2011 and December 31, 2010 (dollars in thousands, except per unit data):

	Year Ended December 31,
	2011			2010
Number of properties owned and operated	45			38
Aggregate gross leasable area (sq. ft.)(1)	3,597,337			3,162,020
Ending occupancy rate - operating portfolio(2)	87		%	86		%
Ending occupancy rate - all properties	84		%	84		%
Total property revenues	$	34,915		$	31,533
Total property expenses	13,327			12,283
Total other expenses	20,281			17,251
Provision for income taxes	225			264
Loss on disposal of assets	146			160
Income from continuing operations	936			1,575
Gain on sale of property	397			—
Net income	$	1,333		$	1,575
Funds from operations (3)	$	8,707		$	8,432
Property net operating income (4)	21,588			19,250
Distributions paid on OP units	12,019			7,407
Per Whitestone Class A common share and OP unit	$	1.14		$	1.25
Per Whitestone Class B common share (5)	$	1.14		$	0.38
Distributions paid as a percentage of funds from operations	138		%	88		%

(1) During the first quarter of 2010, we concluded that approximately 25,000 square feet at our Kempwood Plaza and Centre South locations were no longer leasable, therefore, such area is no longer included in the gross leasable area.

(2) 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.

(3) For an explanation and reconciliation of funds from operations to net income, see "Funds From Operations" below.

(4) For an explanation and reconciliation of property net operating income to net income, see "Property Net Operating Income" below.

(5) Distribution rate is the same as Class A, but represents a partial year during 2010 for Class B common shares issued August 26, 2010. Effective June 27, 2012, all issued and unissued Class A common shares were reclassified as Class B common shares, and the Class B common shares were redesignated as "common shares."

Property revenues. We had rental income and tenant reimbursements of approximately $34,915,000 for the year ended December 31, 2011 as compared to $31,533,000 for the year ended December 31, 2010, an increase of $3,382,000, or 11%. The year ended December 31, 2011 included $2,504,000 in increased revenues from New Store operations. Same Store revenues increased $878,000. Same Store average occupancy increased from 83.9% for the year ended December 31, 2010 to 85.7% for the year ended December 31, 2011, increasing Same Store revenue $461,000. The Same Store revenue rate per average leased square foot increased $0.16 for the year ended December 31, 2011 to $12.51 per average leased square foot as compared to the year ended December 31, 2010 revenue rate per average leased square foot of $12.35, increasing Same Store revenue $417,000. The revenue rate per average leased square feet is calculated by dividing the total revenue by the average square feet leased during the period.

Table of Contents

Property expenses. Our property expenses were $13,327,000 for the year ended December 31, 2011, as compared to $12,283,000 for the year ended December 31, 2010, an increase of $1,044,000, or 8%. The primary components of total property expenses are detailed in the table below (in thousands):

	Year Ended December 31,				Increase			% Increase
	2011		2010		(Decrease)			(Decrease)
Real estate taxes	$	4,668	$	3,925	$	743		19	%
Utilities	2,510		2,277		233			10	%
Contract services	2,312		2,140		172			8	%
Repairs and maintenance	1,222		1,403		(181		)	(13	)%
Bad debt	615		536		79			15	%
Labor and other	2,000		2,002		(2		)	—	%
Total property expenses	$	13,327	$	12,283	$	1,044		8	%

Real estate taxes. Real estate taxes increased $743,000, or 19%, during the year ended December 31, 2011 as compared to 2010, primarily as a result of New Stores real estate taxes, which increased $492,000. Same Store real estate taxes increased $251,000 for the year ended December 31, 2011 as compared to the year ended December 31, 2010. The Sames Store increase was primarily as a result of our increased assessed values from the various appraisal districts. We actively work to keep our valuations and resulting taxes as low as possible as most of these taxes are passed through to our tenants through triple net leases.

Utilities. Utilities increased $233,000, or 10%, during the year ended December 31, 2011 as compared to 2010. The increase in utility expenses was primarily attributed to New Store increases of $195,000 for the year ended December 31, 2011.

Contract services. Contract services increased $172,000, or 8%, during the year ended December 31, 2011 as compared to 2010, primarily as a result of New Store contract services, which increased $161,000.

Repairs and maintenance. Repairs and maintenance decreased $181,000, or 13%, during the year ended December 31, 2011 as compared to 2010. New Store repairs and maintenance increased $76,000 for the year ended December 31, 2011 as compared to 2010. Same Store repair and maintenance decreased $257,000 during year ended December 31, 2011 as compared to the same period in 2010. The decrease is primarily comprised of decreases in parking lot repairs of $123,000, HVAC repair and supply costs of $70,000, and hard surface repairs of $53,000 and other net reduced repair and maintenance costs of $11,000.

Bad debt. Bad debt for the year ended December 31, 2011 increased $79,000, or 15%, as compared to 2010. The increase for the year ended December 31, 2011 as compared to the year ended December 31, 2010 was comprised of $11,000 from New Store bad debt and $68,000 in Same Store bad debt. We vigorously pursue past due accounts, but expect collection of rents to continue to be challenging for the foreseeable future.

Labor and other. Labor and other expenses decreased $2,000 for year ended December 31, 2011 as compared to 2010.

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

	Year Ended December 31,
	Same Store				New Store					Total
	2011		2010		2011		2010			2011		2010
Property revenues	$	32,297	$	31,419	$	2,618	$	114		$	34,915	$	31,533
Property expenses	12,062		12,117		1,265		166			13,327		12,283
Property net operating income (loss)	$	20,235	$	19,302	$	1,353	$	(52	)	$	21,588	$	19,250

Table of Contents

Other expenses. Our other expenses were $20,281,000 for the year ended December 31, 2011, as compared to $17,251,000 for the year ended December 31, 2010, an increase of $3,030,000, or 18%. The primary components of other expenses, net are detailed in the table below (in thousands):

	Year Ended December 31,						Increase			% Increase
	2011			2010			(Decrease)			(Decrease)
General and administrative	$	6,648		$	4,992		$	1,656		33	%
Depreciation & amortization	7,749			6,805			944			14	%
Involuntary conversion	—			(558		)	558			(100	)%
Interest expense	6,344			6,040			304			5	%
Interest, dividend and other investment income	(460		)	(28		)	(432		)	1,543	%
Total other expenses	$	20,281		$	17,251		$	3,030		18	%

General and administrative. General and administrative expenses increased approximately $1,656,000, or 33%, for the year ended December 31, 2011 as compared to 2010. The increase in general and administrative expenses included increases in salaries and benefits of $552,000, legal and other professional fees of $458,000, acquisition-related expenses of $456,000, travel and entertainment expenses of $95,000, corporate office expenses of $54,000 and other expenses of $41,000. The increase in salaries and benefits is due to the addition of nine full-time Whitestone employees and related increased health insurance, 401(k) and relocation costs. The employees were added to our office in Arizona to manage our recent property acquisitions. Legal and professional fees are primarily attributable to litigation with a contractor at our Windsor Park Center in San Antonio and litigation with two former tenants regarding damages to our properties. Acquisition-related expenses and travel increased due to our eight recent acquisitions. Corporate office expenses include software, phone systems and dues and subscription expenses.

Depreciation and amortization. Depreciation and amortization increased $944,000, or 14%, for the year ended December 31, 2011 as compared to 2010. New Store depreciation increased $357,000 and Same Store depreciation increased $574,000. Our Windsor Park property in San Antonio, Uptown Plaza property in Dallas and Westchase property in Houston comprised the majority of our Same Store depreciation increase. We expect depreciation and amortization to increase as we acquire properties.

Involuntary conversion. Involuntary conversion gain was $558,000 for the year ended December 31, 2010. The involuntary conversion gain recognized during the year ended December 31, 2010 represents the completion of the repairs to the 31 properties impacted by Hurricane Ike at costs that were lower than we estimated as of December 31, 2009. The estimated costs were sensitive to the scope requirements of our lenders and labor and material costs of our vendors, and the final costs incurred were more favorable than we anticipated. During the year ended December 31, 2009, we completed a settlement of our insurance claims related to our 31 properties damaged by Hurricane Ike. The settlement was $7,000,000 in its entirety, with $6,500,000 allocated to casualty claims and approximately $500,000 allocated to loss of rents claims. For the year ended December 31, 2009, the $6,500,000 in insurance proceeds allocated to casualty losses were offset by accrued repair costs of $5,100,000 resulting in a gain of $1,400,000. The remaining $100,000 in involuntary conversion gain for the year ended December 31, 2009 was realized on an insurance settlement we completed during 2009 on a chiller unit at our Uptown Tower property in Dallas, Texas.

Interest expense. Interest expense increased $304,000, or 5%, for the year ended December 31, 2011 as compared to 2010. An increase in our average outstanding notes payable balance of $6,016,000 accounted for $333,000 in increased interest expense, offset by a decrease in our effective interest rate to 5.32% for the year ended December 31, 2011 versus 5.53% for the year ended December 31, 2010, resulting in a $225,000 decrease in interest expense. Amortized loan fees included in interest expense increased $196,000 for the year ended December 31, 2011 to $616,000 with the addition of new debt and our revolving credit facility as compared to $420,000 for the year ended December 31, 2010.

Interest, dividend and other investment income. Interest, dividend and other investment income increased $432,000 during the year ended December 31, 2011 as compared to 2010. During the year ended December 31, 2011, we realized gains on sales of investments in available-for-sale securities of $192,000, received $226,000 in dividend income and received $42,000 in interest income as compared to $28,000 in interest income we received during the year ended December 31, 2010.

Table of Contents

Reconciliation of Non-GAAP Financial Measures

Funds From Operations ("FFO")

The National Association of Real Estate Investment Trusts, or ("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 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. 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.

~~FFO~~Historical ~~should~~cost ~~not~~accounting befor ~~considered~~real asestate anassets ~~alternative~~in toaccordance ~~net~~with ~~income~~U.S. orGAAP ~~other~~implicitly ~~measurements~~assumes ~~under~~that ~~GAAP,~~the asvalue anof ~~indicator~~real ofestate ~~our~~assets ~~operating~~diminishes ~~performance~~predictably orover totime. Because ~~cash~~real ~~flows~~estate ~~from~~values ~~operating,~~instead ~~investing~~have historically risen or ~~financing~~fallen ~~activities~~with asmarket aconditions, ~~measure~~management believes that the presentation of ~~liquidity~~operating results for real estate companies that use historical cost accounting is insufficient by itself. ~~FFO~~In ~~does~~addition, ~~not~~securities ~~reflect~~analysts, ~~working~~investors ~~capital~~and ~~changes,~~other ~~cash~~interested ~~expenditures~~parties use FFO as the primary metric for ~~capital~~comparing ~~improvements~~the orrelative ~~principal~~performance ~~payments~~of onequity ~~indebtedness~~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.

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 Whitestone 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 GAAP financial measure (in thousands):

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, gains and losses on insurance claim settlements, legal and professional fees and acquisition costs. Therefore, in addition to FFO, management uses FFO Core, which we define to exclude such items.



	Year Ended December 31,
	2013		2012			2011
FFO AND FFO CORE
Net income	$	3,919	$	53		$	1,333
Depreciation and amortization of real estate assets	13,339		10,108			7,625
Loss (gain) on disposal of assets	56		112			(251		)
FFO	$	17,314	$	10,273		$	8,707

Non cash share-based compensation expense	$	2,284	$	725		$	310
Acquisition costs	1,010		698			666
Rental support payments received	188		—			—
Relocation arrangement	—		2,177			—
Legal settlement (recoveries), net	—		(131		)	254
FFO Core	$	20,796	$	13,742		$	9,937

~~Below~~ ~~are the calculations of FFO and FFO Core and the reconciliations to net income, which we believe is the most comparable GAAP financial measure (in thousands):~~52

	Year Ended December 31,
	2012			2011			2010
FFO AND FFO CORE
Net income	$	53		$	1,333		$	1,575
Depreciation and amortization of real estate assets	10,108			7,625			6,697
Loss (gain) on disposal of assets	112			(251		)	160
FFO	$	10,273		$	8,707		$	8,432
Acquisition costs	$	698		$	666		$	46
Relocation arrangement	2,177			—			—
Gain on insurance claim settlement	—			—			(558		)
Legal and professional costs (recoveries), net	(131		)	254			—
FFO Core	$	13,017		$	9,627		$	7,920

Table of Contents

Property Net Operating Income ("NOI")

Management believes that NOI is a useful measure of our property operating performance. 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 ~~only~~not be ~~used~~viewed as a ~~supplemental~~ measure of our overall financial performance since it does not reflect ~~certain~~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 reconciliation to net income, which we believe is the most comparable GAAP financial measure (in thousands):



	Year Ended December 31,
PROPERTY NET OPERATING INCOME ("NOI")	2013			2012			2011
Net income	$	3,919		$	53		$	1,333
General and administrative expenses	10,912			7,616			6,648
Depreciation and amortization	13,429			10,229			7,749
Executive relocation expense	—			2,177			—
Interest expense	10,150			8,732			6,344
Interest, dividend and other investment income	(136		)	(290		)	(460		)
Provision for income taxes	305			286			225
Loss on sale or disposal of assets	56			112			146
Gain on sale of property	—			—			(397		)
NOI	$	38,635		$	28,915		$	21,588

	Year Ended December 31,
PROPERTY NET OPERATING INCOME ("NOI")	2012			2011			2010
Net income	$	53		$	1,333		$	1,575
General and administrative expenses	7,616			6,648			4,992
Depreciation and amortization	10,229			7,749			6,805
Executive relocation expense	2,177			—			—
Involuntary conversion	—			—			(558		)
Interest expense	8,732			6,344			6,040
Interest, dividend and other investment income	(290		)	(460		)	(28		)
Provision for income taxes	286			225			264
Loss on sale or disposal of assets	112			146			160
Gain on sale of property	—			(397		)	—
NOI	$	28,915		$	21,588		$	19,250

Taxes

As a partnership, any federal income tax liability is passed through to our partners. Whitestone elected to be taxed as a REIT under the Internal Revenue Code beginning with its taxable year ended December 31, 1999. As a REIT, Whitestone generally is not subject to federal income tax on income that it distributes to its shareholders. If Whitestone fails to qualify as a REIT in any taxable year, it will be subject to federal income tax on its taxable income at regular corporate rates. Whitestone believes that it is organized and operates in a manner to qualify and be taxed as a REIT, and it intends to operate so as to remain qualified as a REIT for federal income tax purposes.

Inflation

We anticipate that the majority of our leases will continue to be triple-net leases or otherwise provide that tenants pay for increases in operating expenses and will contain provisions that we believe will mitigate the effect of inflation. In addition, many of our leases are for terms of less than five years, which allows us to adjust rental rates to reflect inflation and other changing market conditions when the leases expire. Consequently, increases due to inflation, as well as ad valorem tax rate increases, generally do not have a significant adverse effect upon our operating results.

Off-Balance Sheet Arrangements

We ~~have~~had no significant off-balance sheet arrangements as of December 31, ~~2012~~2013.

4953

Table of Contents

Item 7A. 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 December 31, ~~2012~~2013, $97179.95 million, or approximately 5168%, of our outstanding debt was subject to fixed interest rates, which limit the risk of fluctuating interest rates. ~~Included in our total fixed interest rate debt is $7.9 million of variable rate debt, subject to a hedge, which fixes the interest rate for the term of the note.~~ Though a change in the market interest rates affects the fair market value, it does not impact net income or cash flows. Our total outstanding fixed interest rate debt has an average effective interest rate at this time of approximately 6.3.50% per annum with expirations ranging from 2013 to ~~2021~~2024 (see Note 8 to our accompanying consolidated financial statements for further detail). Holding other variables constant, a 1% increase or decrease in interest rates would cause a $17.09 million decline or increase, respectively, in the fair value for our fixed rate debt.

Variable Interest Rate Debt

As of December 31, ~~2012~~2013, ~~we had~~ $9284.78 million ~~of loans~~, or approximately 4932%, of our outstanding debt, was subject to floating interest rates of LIBOR plus 21.75% to 32.7550% and not currently subject to a hedge. AsThe impact of ~~December 31,~~a ~~2012,~~1% weincrease ~~had~~or adecrease ~~fixed~~in ~~rate~~interest ~~hedge~~rates on ~~$7.9~~our ~~million~~floating ~~of variable~~ rate debt, ~~which~~would isresult ~~not~~in ~~subject~~a todecrease ~~interest~~or ~~rate~~increase ~~fluctuations~~of ~~due~~annual tonet ~~the~~income ~~hedge~~of inapproximately ~~place~~$0.8 ~~for~~million, ~~the~~respectively. We ~~term~~have ofan ~~the~~interest ~~note. The~~rate ~~impact~~swap ofthat afixes 1%the ~~increase~~LIBOR orportion ~~decrease~~of inour ~~interest~~$50 ~~rates~~million onterm ~~our~~loan ~~floating~~under ~~rate~~the ~~debt~~2013 ~~would~~Facility ~~result~~at in0.84%. The aswap ~~decrease~~began oron ~~increase~~January of7, ~~annual~~2014 ~~net~~and ~~income~~will ofmature ~~approximately~~on ~~$0.9~~February ~~million~~3, ~~respectively~~2017.

Item 8. Financial Statements and Supplementary Data.

The information required by this Item 8 is incorporated by reference to our Financial Statements beginning on page F-1 of this Annual Report on Form 10-K.

Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

None.

Item 9A. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

In connection with the preparation of this Annual Report on Form 10-K, as of December 31, ~~2012~~2013, an evaluation was performed under the supervision and with the participation of ~~the Company~~Whitestone's management, including Whitestone's Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rule 13a-15(e) under the Exchange Act. In performing this evaluation, management reviewed the selection, application and monitoring of our historical accounting policies. Based on that evaluation, Whitestone's CEO and CFO concluded that as of December 31, ~~2012~~2013, these disclosure controls and procedures were effective and designed to ensure that the information required to be disclosed in our reports filed with the SEC is recorded, processed, summarized and reported on a timely basis. In designing and evaluating disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Management is required to apply judgment in evaluating the cost-benefit relationship of possible controls and procedures.

5054

Management’s Annual Report on Internal Control Over Financial Reporting

The management of Whitestone is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of Whitestone's management, it conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control—Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on its evaluation under this framework, Whitestone's management concluded that our internal control over financial reporting was effective as of December 31, ~~2012~~2013.

Changes in Internal Control Over Financial Reporting

There have been no changes during the ~~Company~~Operating Partnership's quarter ended December 31, ~~2012~~2013, in the ~~Company~~Operating Partnership's internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, the ~~Company~~Operating Partnership's internal control over ~~financing~~financial reporting.

Item 9B. Other Information.

None.

5155

Table of Contents

PART III

Item 10. Trustees, Executive Officers and Corporate Governance.

The information required by Item 10 of Form 10-K is incorporated herein by reference to such information as set forth in Whitestone's definitive proxy statement for its ~~2013~~2014 annual meeting of shareholders.

Item 11. Executive Compensation.

The information required by Item 11 of Form 10-K is incorporated herein by reference to such information as set forth in Whitestone's definitive proxy statement for its ~~2013~~2014 annual meeting of shareholders.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters.

The following table provides information regarding Whitestone's equity compensation plans, pursuant to which Whitestone common shares, OP units or other equity securities may be granted from time to time, as of December 31, ~~2012~~2013:

Plan Category	Number of securities to be issued upon exercise of outstanding options, warrants and rights			Weighted-average exercise price of outstanding options, warrants and rights		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
	(a)			(b)		(c)
Equity compensation plans approved by security holders	—	(1	)	$	—	12,~~888~~348,~~534~~221	(2)
Equity compensation plans not approved by security holders	—			—		—	(3)
Total	—			$	—	12,~~888~~348,~~534~~221

(1) Excludes ~~632~~1,~~589~~060,291 common shares subject to outstanding restricted common share units granted pursuant to Whitestone's 2008 Long-Term Equity Incentive Ownership Plan, as amended (the "Plan").

⁽²⁾

Pursuant the Plan, the maximum aggregate number of common shares that may be issued under the Plan will be increased upon each issuance of common shares by Whitestone so that at any time the maximum number of shares that may be issued under the Plan shall equal 12.5% of the aggregate number of common shares of Whitestone and our OP units issued and outstanding (other than units issued to or held by Whitestone).


⁽³⁾	Excludes 8,333 restricted common shares issued to trustees outside the Plan.

The remaining information required by Item 12 of Form 10-K is incorporated by reference to such information as set forth in Whitestone's definitive proxy statement for its ~~2013~~2014 annual meeting of shareholders.

Item 13. Certain Relationships and Related Transactions, and Director Independence.

The information required by Item 13 of Form 10-K is incorporated herein by reference to such information as set forth in Whitestone's definitive proxy statement for its ~~2013~~2014 annual meeting of shareholders.

Item 14. Principal Accountant Fees and Services.

The information required by Item 14 of Form 10-K is incorporated herein by reference to such information as set forth in Whitestone's definitive proxy statement for its ~~2013~~2014 annual meeting of shareholders.

5256

Table of Contents

PART IV

Item 15. Exhibits and Financial Statement Schedules.


1.	Financial Statements. The list of our financial statements filed as part of this Annual Report on Form 10-K is set forth on page F-1 herein.


2.	Financial Statement Schedules.


a.	Schedule II - Valuation and Qualifying Accounts


b.	Schedule III - Real Estate and Accumulated Depreciation

All other financial statement schedules have been omitted because the required information of such schedules is not present, is not present in amounts sufficient to require a schedule or is included in the consolidated financial statements.


3.	Exhibits. The list of exhibits filed as part of this Annual Report on Form 10-K in response to Item 601 of Regulation S-K is submitted on the Exhibit Index attached hereto and incorporated herein by reference.

5357

Table of Contents

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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 OPERATING PARTNERSHIP, L.P.
			(Registrant)
		By:	Whitestone REIT, its General Partner
Date:	~~April~~March 114, ~~2013~~2014	By:	/s/ James C. Mastandrea
			James C. Mastandrea, Chairman and CEO

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENT, that each person whose signature appears below constitutes and appoints James C. Mastandrea and David K. Holeman, and each of them, acting individually, as his attorney-in-fact, each with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

April 1, 2013	/s/ James C. Mastandrea
March 14, 2014	/s/ James C. Mastandrea
	James C. Mastandrea, Chairman of the Board of Trustees of Whitestone REIT and CEO of Whitestone REIT
	(Principal Executive Officer)
April 1, 2013	/s/ David K. Holeman
March 14, 2014	/s/ David K. Holeman
	David K. Holeman, Chief Financial Officer of Whitestone REIT
	(Principal Financial and Principal Accounting Officer)
April 1, 2013	/s/ Daryl J. Carter
March 14, 2014	/s/ Daryl J. Carter
	Daryl J. Carter, Trustee of Whitestone REIT
April 1, 2013	/s/ Daniel G. DeVos
March 14, 2014	/s/ Donald F. Keating
	Daniel G. DeVos, Trustee of Whitestone REIT
April 1, 2013	/s/ Donald F. Keating
	Donald F. Keating, Trustee of Whitestone REIT
April 1, 2013	/s/ Jack L. Mahaffey
March 14, 2014	/s/ Paul T. Lambert
	Paul T. Lambert, Trustee of Whitestone REIT
March 14, 2014	/s/ Jack L. Mahaffey
	Jack L. Mahaffey, Trustee of Whitestone REIT

5458

Table of Contents

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
		Page
	Report of Independent Registered Public Accounting Firm	F- 2
	Consolidated Balance Sheets as of December 31, 2012 and 2011	F- 3
	Consolidated Balance Sheets as of December 31, 2013 and 2012	F- 3
	Consolidated Statements of Operations and Comprehensive Income for theYears Ended December 31, 2012, 2011 and 2010	F- 4
	Consolidated Statements of Operations and Comprehensive Income for theYears Ended December 31, 2013, 2012 and 2011	F- 4
	Consolidated Statements of Changes in Partners' Capital for the Years EndedDecember 31, 2012, 2011 and 2010	F- 6
	Consolidated Statements of Changes in Partners' Capital for the Years EndedDecember 31, 2013, 2012 and 2011	F- 6
	Consolidated Statements of Cash Flows for the Years Ended December 31, 2012,2011 and 2010	F- 7
	Consolidated Statements of Cash Flows for the Years Ended December 31, 2013,2012 and 2011	F- 7
	Notes to Consolidated Financial Statements	F- 9
	Schedule II – Valuation and Qualifying Accounts	F- 28
	Schedule III – Real Estate and Accumulated Depreciation	F- 29

All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted.

F- 1

Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Partners of

Whitestone REIT Operating Partnership, L.P.:

We have audited the accompanying consolidated balance sheets of Whitestone REIT Operating Partnership, L.P. and subsidiaries (the “Partnership”) as of December 31, ~~2012~~2013 and ~~2011~~2012, and the related consolidated statements of operations and comprehensive income, ~~changes in~~ partners' capital and cash flows for each of the years in the three year period ended December 31, ~~2012~~2013. In connection with our audits of the consolidated financial statements, we have also audited the financial statement schedules as listed in the accompanying index. These consolidated financial statements and financial statement schedules are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Partnership as of December 31, ~~2012~~2013 and ~~2011~~2012, and the consolidated results of their operations and their cash flows for each of the years in the three year period ended December 31, ~~2012~~2013 in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.

/s/ Pannell Kerr Forster of Texas, P.C.

Houston, Texas

~~April~~March 114, ~~2013~~2014

F- 2

Table of Contents

Whitestone REIT Operating Partnership, L.P. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(in thousands, except per unit data)
	December 31,
	2012			2011
	2013			2012
ASSETS
Real estate assets, at cost
Property	$	~~409~~546,~~669~~274		$	~~292~~409,~~360~~669
Accumulated depreciation	(5366,~~920~~008		)	(4553,~~472~~920		)
Total real estate assets	~~355~~480,~~749~~266			~~246~~355,~~888~~749
Cash and cash equivalents	6,~~544~~491			56,~~695~~544
Marketable securities	~~1,403~~877			51,~~131~~403
Escrows and acquisition deposits	62,~~672~~095			46,~~996~~672
Accrued rents and accounts receivable, net of allowance for doubtful accounts	79,~~947~~929			67,~~053~~947
Related party receivable	~~652~~—			—652
Unamortized lease commissions and loan costs	46,~~160~~227			34,~~755~~160
Prepaid expenses and other assets	2,~~244~~089			~~975~~2,244
Total assets	$	~~385~~507,~~371~~974		$	~~273~~385,~~493~~371
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Notes payable	$	~~190~~264,~~608~~277		$	~~127~~190,~~890~~608
Accounts payable and accrued expenses	1312,~~824~~773			913,~~017~~824
Tenants' security deposits	3,~~024~~591			23,~~232~~024
Distributions payable	56,~~028~~418			35,~~647~~028
Total liabilities	~~212~~287,~~484~~059			~~142~~212,~~786~~484
Commitments and contingencies:	—			—
Partners' Capital:
General Partner, 16,822,293 and 11,317,042 units outstanding as of December 31, 2012 and December 31, 2011, respectively	166,296			117,077
General Partner, 21,822,878 and 16,822,293 units outstanding as of December 31, 2013 and 2012, respectively	215,744			166,296
Limited Partners, 685,486 and 1,360,927 units outstanding as of December 31, 2012 and December 31, 2011, respectively	6,999			14,959
Limited Partners, 562,092 and 685,486 units outstanding as of December 31, 2013 and 2012, respectively	5,226			6,999
Accumulated other comprehensive loss	(~~408~~55		)	(~~1,329~~408		)
Total partners' capital	~~172~~220,~~887~~915			~~130~~172,~~707~~887
Total liabilities and partners' capital	$	~~385~~507,~~371~~974		$	~~273~~385,~~493~~371

See the accompanying notes to consolidated financial statements.

F- 3

Table of Contents

Whitestone REIT Operating Partnership, L.P. and Subsidiaries

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(in thousands, except per unit data)

	Year Ended December 31,
	2012			2011			2010
	2013			2012			2011
Property revenues
Rental revenues	$	3648,~~131~~862		$	2736,~~814~~131		$	2527,~~901~~814
Other revenues	1013,~~423~~283			710,~~101~~423			57,~~632~~101
Total property revenues	4662,~~554~~145			3446,~~915~~554			3134,~~533~~915
Property expenses
Property operation and maintenance	1114,~~255~~743			811,~~659~~255			8,~~358~~659
Real estate taxes	68,~~384~~767			46,~~668~~384			34,~~925~~668
Total property expenses	1723,~~639~~510			1317,~~327~~639			1213,~~283~~327
Other expenses (income)
General and administrative	710,~~616~~912			67,~~648~~616			46,~~992~~648
Depreciation and amortization	1013,~~229~~429			710,~~749~~229			67,~~805~~749
Executive relocation expense	~~2,177~~—			—2,177			—
Involuntary conversion	—			—			(558		)
Interest expense	10,150			8,732			6,344
Interest expense	8,732			6,344			6,040
Interest, dividend and other investment income	(136		)	(290		)	(460		)
Interest, dividend and other investment income	(290		)	(460		)	(28		)
Total other expense	34,355			28,464			20,281
Total other expense	28,464			20,281			17,251
Income before loss on sale or disposal of assets and income taxes	4,280			451			1,307
Income before loss on sale or disposal of assets and income taxes	451			1,307			1,999
Provision for income taxes	(305		)	(286		)	(225		)
Provision for income taxes	(286		)	(225		)	(264		)
Loss on sale or disposal of assets	(56		)	(112		)	(146		)
Loss on sale or disposal of assets	(112		)	(146		)	(160		)
Income before gain on sale of property	3,919			53			936
Income before gain on sale of property	53			936			1,575
Gain on sale of property	—			—			397
Gain on sale of property	—			397			—
Net income	$	3,919		$	53		1,333
Net income	$	53		$	1,333		$	1,575

See the accompanying notes to consolidated financial statements.

F- 4

Table of Contents

Whitestone REIT Operating Partnership, L.P. and Subsidiaries

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(in thousands, except per unit data)

	Year Ended December 31,
	2012		2011			2010
	2013		2012			2011
Basic and Diluted Earnings Per Unit:
Basic Earnings Per Unit:
Net income excluding amounts attributable to unvested restricted shares	$	0.0021	$	0.1200		$	0.2712
Diluted Earnings Per Unit:
Net income excluding amounts attributable to unvested restricted shares	$	0.20	$	0.00		$	0.12
Weighted average number of units outstanding:
Basic	1418,~~394~~654		1014,~~799~~394			510,~~705~~799
Diluted	1418,~~511~~900		1014,~~813~~511			510,~~734~~813
Distributions declared per unit	$	1.1400	$	1.1400		$	01.~~8550~~1400
Consolidated Statements of Comprehensive Income
Net income	$	533,919	$	~~1,333~~53		$	1,~~575~~333
Other comprehensive gain (loss)
Unrealized gain on cash flow hedging activities	1173		—1			—
Unrealized gain (loss) on available-for-sale marketable securities	~~920~~180		~~(1,329~~920		)	—(1,329		)
Comprehensive income	$	~~974~~4,272	$	4974		$	~~1,575~~4

See the accompanying notes to consolidated financial statements.

F- 5

Table of Contents

Whitestone REIT Operating Partnership, L.P. and Subsidiaries

Whitestone REIT Operating Partnership, L.P. and Subsidiaries CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (in thousands)

										Accumulated
	General	General			Limited		Limited			Other			Total
	Partner	Partner			Partner		Partner			Comprehensive			Partners'
	Units	Unitholders			Units		Unitholders			Loss			Capital

Balance, December 31, 2010	5,550	$	62,708		1,815		$	21,575		$	—		$	84,283

Issuance of OP units ⁽¹⁾	5,310	59,683			—		—			—			59,683

Exchange of OP units for common shares	454	4,972			(454	)	(4,972		)	—			—

Issuance of common shares under distribution reinvestment plan	3	6			—		—			—			6

Share-based compensation	—	114			—		—			—			114

Distributions	—	(11,529		)	—		(1,854		)	—			(13,383		)

Unrealized loss on change in fair value of available-for-sale marketable securities	—	—			—		—			(1,329		)	(1,329		)

Net income	—	1,123			—		210			—			1,333

Balance, December 31, 2011	11,317	117,077			1,361		14,959			(1,329		)	130,707

Exchange of OP units for common shares	676	7,146			(676	)	(7,146		)	—			—

Exchange offer costs	—	(479		)	—		—			—			(479		)

Filing Compare · Whitestone REIT Operating Partnership, L.P.