WSR 8-K (2012-11-30) Dana Park Acquisition Audit



 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 8-K/A
(Amendment No. 1)

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

Date of Report (Date of earliest event reported): December 3, 2012 (September 21, 2012)

Whitestone REIT
(Exact Name of Registrant as Specified in Charter)
 
 
 
 
 
Maryland
 
000-50256
 
76-0594970
 
 
 
 
 
(State or Other Jurisdiction
 of incorporation)
 
(Commission
 File Number)
 
(IRS Employer
 Identification No.)

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

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

Not Applicable
 
(Former Name or Former Address, if Changed Since Last Report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 
 
 
o
 
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 
 
 
o
 
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 
 
 
o
 
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 
 
 
o
 
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
 
 




Explanatory Note.

On September 25, 2012, Whitestone REIT (the "Company") filed a Current Report on Form 8-K (the “Original 8-K”) to report the completion of the acquisition of Village Square at Dana Park on September 21, 2012. This amendment is being filed for the sole purpose of filing the financial statements and pro forma financial information required by Item 9.01 of Form 8-K, and should be read in conjunction with the Original 8-K. After reasonable inquiry, the Company is not aware of any other material factors relating to the property that would cause the reported financial information not to be necessarily indicative of future operating results.

Item 9.01. Financial Statements and Exhibits
 
 
 
 
 
(a)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(b)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(d)
 
 
 
 
 
 
 
 
 
 
 
 





Report of Independent Registered Public Accounting Firm

To the Board of Trustees and Shareholders of
Whitestone REIT

We have audited the accompanying Statement of Revenues and Certain Operating Expenses (the “Historical Summary”) of Village Square at Dana Park (the “Property”) for the year ended December 31, 2011. This Historical Summary is the responsibility of the management of the Property. Our responsibility is to express an opinion on this financial statement based on our audit.
 
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statement is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statement. 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 audit provides a reasonable basis for our opinion.

The accompanying Historical Summary was prepared as described in Note 2, for the purpose of complying with the rules and regulations of the Securities and Exchange Commission for inclusion in the Form 8-K/A of Whitestone REIT and Whitestone REIT Operating Partnership, L.P., and is not intended to be a complete presentation of the Property's revenue and expenses.

In our opinion, the Historical Summary referred to above presents fairly, in all material respects, the Revenues and Certain Operating Expenses of the Property for the year ended December 31, 2011, in conformity with U.S. generally accepted accounting principles.

/s/ PANNELL KERR FORSTER OF TEXAS, P.C.

Houston, Texas
December 3, 2012


1



VILLAGE SQUARE AT DANA PARK
STATEMENTS OF REVENUES AND CERTAIN OPERATING EXPENSES
For the Six Months Ended June 30, 2012 (unaudited) and Year Ended December 31, 2011
(in thousands)


 
 
Six months ended June 30, 2012 (unaudited)
 
Year ended December 31, 2011
Revenues:
 
 
 
 
Rental income
 
$
2,391

 
$
4,459

Other income
 
437

 
902

Total revenue
 
2,828

 
5,361

 
 
 
 
 
Certain operating expenses:
 
 
 
 
Operating expenses
 
499

 
1,200

Real estate taxes
 
610

 
1,028

Total certain operating expenses
 
1,109

 
2,228

 
 
 
 
 
Excess of revenues over certain operating expenses
 
$
1,719

 
$
3,133





See accompanying notes to statements of revenues and certain operating expenses.

2



VILLAGE SQUARE AT DANA PARK
NOTES TO STATEMENTS OF REVENUES AND CERTAIN OPERATING EXPENSES
For the Six Months Ended June 30, 2012 (unaudited) and Year Ended December 31, 2011

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

1.  BUSINESS
 
On September 21, 2012, we, through a subsidiary of Whitestone REIT Operating Partnership, L.P., acquired Village Square at Dana Park (the “Property”), a Community Centered Property containing 310,979 square feet of gross leasable area, located in the Mesa submarket of Phoenix, Arizona for approximately $46.5 million in cash and net prorations. The Property was 71% occupied as of the date of purchase. In the same purchase, we also acquired an adjacent development parcel of 4.7 acres for approximately $4.0 million in cash.

In assessing the Property, we considered the Property's revenue sources including those that have been affected and are expected to be affected in the future by factors including, but not limited to, demand, supply and competitive factors present in the local and national markets for retail properties and the ability of tenants to make payments when due. We also considered the Property's expenses including, but not limited to, utility costs, tax rates and other expenses, and the portion of such expenses that may be recovered from tenants.
 
2.  BASIS OF PRESENTATION
 
The Statements of Revenues and Certain Operating Expenses (the “Historical Summary”) has been prepared for the purpose of complying with Rule 3-14 of Regulation S-X, promulgated by the Securities and Exchange Commission, and is not intended to be a complete presentation of the Property's revenues and expenses. The Historical Summary has been prepared on the accrual basis of accounting and requires management to make estimates and assumptions that affect the reported amounts of the revenue and expenses during the reporting period. Actual results may differ from those estimates.

The unaudited Historical Summary for the six months ended June 30, 2012 has been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information. Accordingly, it does not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included.
 
3. REVENUE

The Property leases retail space under various lease agreements with its tenants. All leases are accounted for as noncancelable operating leases. The leases include provisions under which the Property is reimbursed for common area maintenance, real estate taxes and insurance costs. Pursuant to the lease agreements, income related to these reimbursed costs is recognized in the period the applicable costs are incurred. Certain leases contain renewal options at various periods at various rental rates.

Although certain leases may provide for tenant occupancy during periods for which no rent is due and/or increases exist in minimum lease payments over the term of the lease, rental income is recognized for the full period of occupancy on the straight-line basis.


3


VILLAGE SQUARE AT DANA PARK
NOTES TO STATEMENTS OF REVENUES AND CERTAIN OPERATING EXPENSES
For the Six Months Ended June 30, 2012 (unaudited) and Year Ended December 31, 2011


3. REVENUE (continued)

The weighted average remaining lease terms for tenants at the Property was 6.2 years as of December 31, 2011. Minimum rents to be received from tenants under operating leases, exclusive of tenant expense recoveries, as of December 31, 2011, were as follows (in thousands):

Years Ended December 31,
 
Minimum Future Rents
2012
 
$
3,073

2013
 
2,931

2014
 
2,670

2015
 
2,184

2016
 
1,842

Thereafter
 
5,518

Total
 
$
18,218


There were no tenants that individually comprised 10% or more of the annualized base rental income of the Property as of December 31, 2011.

4. CERTAIN OPERATING EXPENSES

Certain operating expenses include only those expenses expected to be comparable to the proposed future operations of the Property. Repairs and maintenance expenses are charged to operations as incurred. Expenses such as depreciation and amortization are excluded from the accompanying Historical Summary.

5. SUBSEQUENT EVENTS

Subsequent to December 31, 2011 and through December 3, 2012, management did not identify any subsequent events requiring additional disclosure.


4


UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION

The following pro forma financial statements have been prepared to provide pro forma information with regard to the acquisition of Village Square at Dana Park (the “Property”), which Whitestone REIT (“Whitestone”), through Whitestone REIT Operating Partnership, L.P., its majority-owned subsidiary, acquired from an unrelated party on September 21, 2012.

The unaudited pro forma condensed consolidated statements of income for Whitestone and the Property for the twelve months ended December 31, 2011 and the six months ended June 30, 2012, give effect to Whitestone's acquisition of the Property, as if it had occurred on the first day of the earliest period presented. The pro forma adjustments column presented on the pro forma consolidated statements of income for the year ended December 31, 2011 includes the financial information for the Property for the entire year. The pro forma adjustments column presented on the pro forma consolidated statements of income for the six months ended June 30, 2012, includes the financial information for the Property for the full six months, as the Property was acquired subsequent to June 30, 2012 and therefore was not included in Whitestone's historical financial statements. The Property is included in the condensed consolidated financial statements included in Whitestone's Quarterly Report on Form 10-Q for the quarter ended September 30, 2012, as filed with the Securities and Exchange Commission on November 8, 2012.

The unaudited pro forma condensed consolidated financial statements have been prepared by Whitestone's management based upon the historical financial statements of Whitestone REIT and subsidiaries and of the acquired Property. These pro forma statements may not be indicative of the results that actually would have occurred had the acquisitions been in effect on the dates indicated or which may be obtained in the future.

In management's opinion, all adjustments necessary to reflect the effects of the Property acquisition have been made. These unaudited pro forma statements are for informational purposes only and should be read in conjunction with the historical financial statements of Whitestone REIT and subsidiaries, including the related notes thereto, which were filed with the Securities and Exchance Commisiion as part of Whitestone's Annual Report on Form 10-K for the year ended December 31, 2011 and its Quarterly Report on Form 10-Q for the quarter ended June 30, 2012.



5



WHITESTONE REIT AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 2012
(unaudited)
(in thousands, except per share data)

 
 
Whitestone REIT
 
Pro Forma Adjustments
 
Pro Forma Consolidated
 
 
(A)
 
(B)
 
 
Property revenues
 
 
 
 
 
 
Rental revenue
 
$
16,651

 
$
2,391

 
$
19,042

Other revenues
 
4,762

 
437

 
5,199

Total property revenues
 
21,413

 
2,828

 
24,241

 
 
 
 
 
 
 
Property expenses
 
 
 
 
 
 
Property operation and maintenance
 
5,111

 
499

 
5,610

Real estate taxes
 
2,813

 
610

 
3,423

Total property expenses
 
7,924

 
1,109

 
9,033

 
 
 
 
 
 
 
Other expense (income)
 
 
 
 
 
 
General and administrative
 
3,504

 
—

 
3,504

Depreciation and amortization (C)
 
5,207

 
486

 
5,693

Interest expense
 
3,446

 
—

 
3,446

Interest income
 
(153
)
 
—

 
(153
)
Total other expense, net
 
12,004

 
486

 
12,490

 
 
 
 
 
 
 
Income before loss on sale or disposal of assets and income taxes
 
1,485

 
1,233

 
2,718

 
 
 
 
 
 
 
Provision for income taxes
 
(135
)
 
—

 
(135
)
Loss on sale or disposal of assets
 
(28
)
 
—

 
(28
)
 
 
 
 
 
 
—

Net Income
 
1,322

 
1,233

 
2,555

 
 
 
 
 
 
 
Less: Net income attributable to noncontrolling interests
 
98

 
91

 
189

 
 
 
 
 
 
 
Net Income attributable to Whitestone REIT
 
$
1,224

 
$
1,142

 
$
2,366

 
 
 
 
 
 
 
Earnings per share - basic and diluted
 
 
 
 
 
 
Net income attributable to common shareholders excluding amounts attributable to unvested restricted shares
 
$
0.10

 
$
0.10

 
$
0.20







See accompanying note to unaudited pro forma condensed consolidated financial statements.

6



WHITESTONE REIT AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 2011
(unaudited)
(in thousands, except per share data)

 
 
Whitestone REIT
 
Pro Forma Adjustments
 
Pro Forma Consolidated
 
 
(D)
 
(E)
 
 
Property revenues
 
 
 
 
 
 
Rental revenue
 
$
27,814

 
$
4,459

 
$
32,273

Other revenues
 
7,101

 
902

 
8,003

Total property revenues
 
34,915

 
5,361

 
40,276

 
 
 
 
 
 
 
Property expenses
 
 
 
 
 
 
Property operation and maintenance
 
8,659

 
1,200

 
9,859

Real estate taxes
 
4,668

 
1,028

 
5,696

Total property expenses
 
13,327

 
2,228

 
15,555

 
 
 
 
 
 
 
Other expense (income)
 
 
 
 
 
 
General and administrative
 
6,648

 
—

 
6,648

Depreciation and amortization (C)
 
8,365

 
971

 
9,336

Interest expense
 
5,728

 
—

 
5,728

Interest income
 
(460
)
 
—

 
(460
)
Total other expense, net
 
20,281

 
971

 
21,252

 
 
 
 
 
 
 
Income before loss on sale or disposal of assets and income taxes
 
1,307

 
2,162

 
3,469

 
 
 
 
 
 
 
Provision for income taxes
 
(225
)
 
—

 
(225
)
Loss on sale or disposal of assets
 
(146
)
 
—

 
(146
)
Income before gain on sale of property
 
936

 
2,162

 
3,098

 
 
 
 
 
 
 
Gain on sale of property
 
397

 
—

 
397

 
 
 
 
 
 
 
Net Income
 
1,333

 
2,162

 
3,495

 
 
 
 
 
 
 
Less: Net income attributable to noncontrolling interests
 
210

 
341

 
551

 
 
 
 
 
 
 
Net Income attributable to Whitestone REIT
 
$
1,123

 
$
1,821

 
$
2,944

 
 
 
 
 
 
 
Earnings per share - basic and diluted
 
 
 
 
 
 
Net income attributable to common shareholders excluding amounts attributable to unvested restricted shares
 
$
0.12

 
$
0.20

 
$
0.32






See accompanying note to unaudited pro forma condensed consolidated financial statements.





7



WHITESTONE REIT AND SUBSIDIARIES
NOTE TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

1. STATEMENTS OF INCOME

A.
Reflects the historical condensed consolidated statements of operations of Whitestone for the six months ended June 30, 2012. Please refer to Whitestone's historical consolidated financial statements and notes thereto included in Whitestone's Quarterly Report on Form 10-Q for the six months ended June 30, 2012.

B.
Figures reflect the historical operations of the Property for the six months ended June 30, 2012, unless otherwise noted.

C.
The figure for the Property represents the depreciation of the buildings (over 39 years) based on the purchase price allocation in accordance with U.S. generally accepted accounting principles, assuming acquisition of the Property took place on January 1, 2011.

D.
Reflects the historical condensed consolidated statements of operations of Whitestone REIT for the year ended December 31, 2011. Please refer to the Whitestone REIT historical consolidated financial statements and notes thereto included in Whitestone's Annual Report on Form 10-K for the year ended December 31, 2011.

E.
Figures reflect the historical operations of the Property for the year ended December 31, 2011, unless otherwise noted.



8


SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
 
 
 
 
 
Whitestone REIT
 
 
(Registrant)
 
 
 
December 3, 2012
 
/s/   David K. Holeman
(Date)
 
David K. Holeman
  Chief Financial Officer






EXHIBIT INDEX

 Exhibit No.
Exhibit
23.1
Consent of Independent Registered Public Accounting Firm.