Pillarstone Capital REIT (OTCMKTS:PRLE) Files An 8-K Completion of Acquisition or Disposition of Assets

Pillarstone Capital REIT (OTCMKTS:PRLE) Files An 8-K Completion of Acquisition or Disposition of Assets
Item 2.01 Completion of Acquisition or Disposition of Assets.

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On December 27, 2018, Pillarstone Capital REIT (the “Company”, “we”, “our” or “us”), through an indirect wholly owned subsidiary, Whitestone Industrial-Office, LLC, a Texas limited liability company, sold a portfolio of three properties in Houston, Texas consisting of Main Park located at 11205 S. Main Street, Dairy Ashford Business Park located at 12654-12674 Goar Road, and Westbelt Plaza located at 1450 W. Sam Houston Parkway North (collectively, the “Portfolio”) to HMC Fuller Main Park, LLC, HMC Filler Dairy Ashford, LLC and HMC Fuller Westbelt, LLC, respectively, (collectively, the “Buyer”) for $15.8 million in the aggregate (the “Disposition”). The Buyer is an unaffiliated third party. The Company does not have a material relationship with the Buyer, and the Disposition was not an affiliated transaction.

Net proceeds, after customary closing deductions, were used to pay off mortgage debt on the Portfolio, and after the Disposition, the Company repaid $8.0 million of the Company’s $14.5 million loan from Whitestone REIT Operating Partnership, a company affiliated with certain members of Company’s management team and Board of Trustees.

Item 9.01 Financial Statements and Exhibits.

(b) Pro Forma Financial Information

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

The accompanying Unaudited Pro Forma Consolidated Balance Sheet as of September30, 2018 has been prepared as if the Disposition had occurred as of that date.

The accompanying Unaudited Pro Forma Consolidated Statements of Operations for the nine months ended September30, 2018 and the year ended December31, 2017 have been prepared as if the Disposition occurred as of January1, 2017.

Pillarstone Capital REIT and Subsidiaries

UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET

As of September 30, 2018

(in thousands, except per share data)

Pillarstone Capital REIT and Subsidiaries(a)

Pro Forma Adjustments(b)

Pro Forma Total

ASSETS

Real estate assets, at cost

Property

$

85,309

$

(7,454

)

$

77,855

Accumulated depreciation

(5,205

)

(4,615

)

Total real estate assets

80,104

(6,864

)

73,240

Cash and cash equivalents

7,436

8,424

Escrows and utility deposits

2,549

2,549

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

1,469

(216

)

1,253

Receivable due from related party

1,276

1,276

Unamortized lease commissions and deferred legal costs, net

1,341

(151

)

1,190

Prepaid expenses and other assets

(10

)

Total assets

$

87,844

$

$

88,039

LIABILITIES AND EQUITY

Liabilities:

Notes payable

$

62,412

$

(6,227

)

(c)

$

56,185

Accounts payable and accrued expenses

3,322

(448

)

2,874

Payable due to related party

Convertible notes payable – related parties

Accrued interest payable

(17

)

Tenants’ security deposits

1,410

(248

)

1,162

Total liabilities

67,865

(6,940

)

60,925

Commitments and contingencies

Shareholders’ Equity:

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

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

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

Additional paid-in capital

28,147

28,147

Accumulated deficit

(27,574

)

1,324

(26,250

)

Treasury stock, at cost, 38,130 shares

(801

)

(801

)

Total Pillarstone Capital REIT shareholders’ (deficit) equity

(219

)

1,324

1,105

Noncontrolling interest in subsidiary

20,198

5,811

26,009

Total equity

19,979

7,135

27,114

Total liabilities and equity

$

87,844

$

$

88,039

Pillarstone Capital REIT and Subsidiaries

NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET

As of September 30, 2018

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

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

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

Pillarstone Capital REIT and Subsidiaries

UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS

For the Nine Months Ended September 30, 2018

(in thousands, except share and per share data)

Pillarstone Capital REIT and Subsidiaries(a)

Pro Forma Adjustments(b)

Pro Forma Total

Property revenues

Rental revenues

$

10,768

$

(1,143

)

$

9,625

Other revenues

2,223

(318

)

1,905

Total property revenues

12,991

(1,461

)

11,530

Property expenses

Property operation and maintenance

3,630

(433

)

3,197

Real estate taxes

2,135

(289

)

1,846

Total property expenses

5,765

(722

)

5,043

Other expenses

General and administrative

Depreciation and amortization

2,612

(287

)

2,325

Interest expense

2,051

(176

)

(c)

1,875

Total other expense

5,241

(463

)

4,778

Income before loss on disposal of assets and income taxes

1,985

(276

)

1,709

Loss on disposal of assets

(12

)

(12

)

Provision for income taxes

(67

)

(58

)

Net income

1,906

(267

)

1,639

Less: Non-controlling interest in subsidiary

1,842

(218

)

1,624

Net income attributable to Common Shareholders

$

$

(49

)

$

Earnings Per Share:

Basic income per Common Share:

Net income available to Common Shareholders

$

0.16

$

0.04

Diluted income per Common Share:

Net income available to Common Shareholders

$

0.02

$

0.01

Weighted average number of Common Shares outstanding:

Basic:

405,169

405,169

Diluted:

2,903,219

2,903,219

Pillarstone Capital REIT and Subsidiaries

NOTES TO UNAUDITED PRO FORMA STATEMENT OF OPERATIONS

For the Nine Months Ended September 30, 2018

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

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

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

Pillarstone Capital REIT and Subsidiaries

UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS

For the Year Ended December 31, 2017

(in thousands, except share and per share data)

Pillarstone Capital REIT and Subsidiaries(a)

Pro Forma Adjustments(b)

Pro Forma Total

Property revenues

Rental revenues

$

14,218

$

(1,250

)

$

12,968

Other revenues

2,550

(364

)

2,186

Total property revenues

16,768

(1,614

)

15,154

Property expenses

Property operation and maintenance

5,029

(487

)

4,542

Real estate taxes

2,672

(349

)

2,323

Total property expenses

7,701

(836

)

6,865

Other expenses

General and administrative

Depreciation and amortization

3,268

(382

)

2,886

Interest expense

2,725

(234

)

(c)

2,491

Total other expense

6,501

(616

)

5,885

Income before loss on disposal of assets and income taxes

2,566

(162

)

2,404

Loss on disposal of assets

(31

)

(22

)

Provision for income taxes

(88

)

(80

)

Net income

2,447

(145

)

2,302

Less: Non-controlling interest in subsidiary

2,232

(118

)

2,114

Net income attributable to Common Shareholders

$

$

(27

)

$

Earnings Per Share:

Basic income per Common Share:

Net income available to Common Shareholders

$

0.53

$

0.46

Diluted income per Common Share:

Net income available to Common Shareholders

$

0.07

$

0.06

Weighted average number of Common Shares outstanding:

Basic:

405,169

405,169

Diluted:

2,903,219

2,903,219

Pillarstone Capital REIT and Subsidiaries

NOTES TO UNAUDITED PRO FORMA STATEMENT OF OPERATIONS

For the Year Ended December 31, 2017

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

(b)Amounts represent the historical operations of the Portfolio as reflected in the historical statement of operations of the Company for the year ended December 31, 2017.

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

About Pillarstone Capital REIT (OTCMKTS:PRLE)

Pillarstone Capital REIT, formerly Paragon Real Estate Equity and Investment Trust, is a shell company. The Company is a real estate investment trust (REIT). The Company focuses on maintaining its trust existence and Securities and Exchange Commission (SEC) reporting history to enable it in the future to raise additional capital and make real estate investments. The Company focuses on making real estate investments, which include acquisition and development of retail, office, office warehouse, industrial, multifamily, hotel, and other commercial properties; acquisition of or merger with a REIT or a real estate operating company, and joint venture investments. The Company focuses on investing its excess funds in marketable securities of other real estate companies. The Company has not generated any revenues.

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