Whitestone REIT (NYSE:WSR) Files An 8-K Entry into a Material Definitive Agreement

The information under the headings Contribution Agreement, OP
Unit Purchase Agreement and Tax Protection Agreement in Item 2.01
of this Current Report on Form 8-K is incorporated herein by
reference.

Item 1.02. Termination of a Material Definitive Agreement.

The information under the heading Contribution Agreement in Item
2.01 of this Current Report on Form 8-K regarding the assumption
by Pillarstone Capital REIT Operating Partnership LP (Pillarstone
OP) of the Industrial-Office Loan Documents (as defined below) is
incorporated herein by reference. The Industrial-Office Loan
Documents provide for a mortgage loan in the principal amount of
$37.0 million with a fixed interest rate of 3.76% per annum.
Payments commenced on January 1, 2014 and are due on the first
day of each calendar month thereafter through December 1, 2020.
Monthly payments consist of principal and interest based on a
25-year amortization schedule. The Company used the proceeds from
the Industrial-Office Promissory Note (as defined below) to repay
its $26.9 million floating rate loan that matured on December 1,
2013 and to pay off approximately $10.1 million in fixed rate
indebtedness maturing in 2014.

Item 2.01. Completion of Acquisition or Disposition of Assets.

Contribution Agreement

On December 8, 2016, Whitestone REIT Operating Partnership, L.P.
(the Operating Partnership), a subsidiary and the operating
partnership of Whitestone REIT (the Company), entered into a
Contribution Agreement (the Contribution Agreement) with
Pillarstone OP and Pillarstone Capital REIT (Pillarstone REIT) to
which the Operating Partnership contributed all of the equity
interests in four of its wholly-owned subsidiaries: Whitestone CP
Woodland Ph. 2, LLC, a Delaware limited liability company (CP
Woodland); Whitestone Industrial-Office, LLC, a Texas limited
liability company (Industrial-Office); Whitestone Offices, LLC, a
Texas limited liability company (Whitestone Offices); and
Whitestone Uptown Tower, LLC, a Delaware limited liability company
(Uptown Tower, and together with CP Woodland, Industrial-Office and
Whitestone Offices, the Entities) that own fourteen (14) non-core
properties (the Non-Core Properties and, together with the
Entities, the Property) to Pillarstone OP for aggregate
consideration of approximately $84.0 million, consisting of (1)
approximately $18.1 million Class A units representing limited
partnership interests in Pillarstone OP (Pillarstone OP Units),
issued at a price of $1.331 per Pillarstone OP Unit; and (2) the
assumption of approximately $65.9 million of liabilities,
consisting of (a) approximately $15.4 million of the Operating
Partnerships liability under that certain Amended and Restated
Credit Agreement, dated as of November 7, 2014, as amended, among
the Bank of Montreal, as Administrative Agent (the Agent), the
lenders party thereto, BMO Capital Markets, Wells Fargo Securities,
LLC, Merrill Lynch, Pierce, Fenner Smith Incorporated, and U.S.
Bank, National Association, the Operating Partnership, as borrower,
and the Company and certain subsidiaries of the Operating
Partnership, as guarantors (as amended, the Credit Agreement); (b)
an approximately $16.45 million promissory note of Uptown Tower
issued under the Loan Agreement, dated as of September 26, 2013,
between Uptown Tower, as borrower, and U.S. Bank National
Association, as successor to Morgan Stanley Mortgage Capital
Holdings LLC, as lender, and (c) an approximately $37.0 million
promissory note (the Industrial-Office Promissory Note) of
Industrial-Office issued under the Loan Agreement, dated as of
November 26, 2013 (the Industrial-Office Loan Agreement), between
Industrial-Office, as borrower, and Jackson National Life Insurance
Company, as lender (collectively, the Disposition). Following the
Disposition, it is expected that the Company will consolidate
Pillarstone OP on its financial statements due to its significant
equity ownership of approximately 84% of the outstanding equity in
Pillarstone OP immediately following the Disposition.

to the Contribution Agreement, Pillarstone REIT has agreed to file
with the Securities and Exchange Commission on or prior to June 8,
2018, a shelf registration statement to register for sale under the
Securities Act of 1933, as amended (the Securities Act), the
issuance of the common shares of beneficial interest in Pillarstone
REIT (Pillarstone Common Shares) that may be issued upon redemption
of Pillarstone OP Units issued to each of the Contribution
Agreement and the OP Unit Purchase Agreement (as defined below) and
the offer and resale of such Pillarstone Common Shares by the
holders thereof. The Contribution Agreement contains customary
closing conditions and the parties have made certain customary
representations, warranties and indemnifications to each other in
the Contribution Agreement. In addition, to the Contribution
Agreement, in the event of a Change of Control (as defined therein)
of the Company, Pillarstone OP shall have the right, but not the
obligation, to repurchase the Pillarstone OP Units issued
thereunder from the Operating Partnership at their initial issue
price of $1.331 per Pillarstone OP Unit.

OP Unit Purchase Agreement

In connection with the Disposition, on December 8, 2016, the
Operating Partnership entered into an OP Unit Purchase Agreement
(the OP Unit Purchase Agreement) with Pillarstone REIT and
Pillarstone OP to which the Operating Partnership agrees to
purchase up to an aggregate of $3.0 million of Pillarstone OP Units
at a price of $1.331 per Pillarstone OP Unit over the two-year term
of the OP Unit Purchase Agreement on the terms set forth therein.
The OP Unit Purchase Agreement contains customary closing
conditions and the parties have made certain customary
representations, warranties and indemnifications to each other in
the OP Unit Purchase Agreement. In addition, to the OP Unit
Purchase Agreement, in the event of a Change of Control (as defined
therein) of the Company, Pillarstone OP shall have the right, but
not the obligation, to repurchase the Pillarstone OP Units issued
thereunder from the Operating Partnership at their initial issue
price of $1.331 per Pillarstone OP Unit.

Tax Protection Agreement

In connection with the Disposition, on December 8, 2016, the
Operating Partnership entered into a Tax Protection Agreement (the
Tax Protection Agreement) with Pillarstone REIT and Pillarstone OP
to which Pillarstone OP agreed to indemnify the Operating
Partnership for certain tax liabilities resulting from its
recognition of income or gain prior to December 8, 2021 if such
liabilities result from a transaction involving a direct or
indirect taxable disposition of all or a portion of the Property or
if Pillarstone OP fails to maintain and allocate to the Operating
Partnership for taxation purposes minimum levels of liabilities as
specified in the Tax Protection Agreement, the result of which
causes such recognition of income or gain and the Company incurs
taxes that must be paid to maintain its REIT status for federal tax
purposes.

Second Amendment to Credit Agreement

In connection with the Disposition, on December 8, 2016, the
Operating Partnership entered into the Second Amendment to Amended
and Restated Credit Agreement, Joinder and Reaffirmation of
Guaranties (the Second Amendment) with Pillarstone OP, the Company
and the other Guarantors party thereto, the lenders party thereto
and the Agent. to the Second Amendment, following the Disposition,
Whitestone Offices and CP Woodland were permitted to remain
Material Subsidiaries (as defined in the Credit Agreement) and
Guarantors under the Credit Agreement and their respective Non-Core
Properties were each permitted to remain an Eligible Property (as
defined in the Credit Agreement) and be included in the Borrowing
Base (as defined in the Credit Agreement) under the Credit
Agreement. In addition, on December 8, 2016, Pillarstone OP entered
into the Limited Guarantee (the Limited Guarantee) with the Agent,
to which the Pillarstone OP agreed to be joined as a party to the
Credit Agreement to provide a limited guarantee up to the amount of
availability generated by the Non-Core Properites owned by
Whitestone Offices and CP Woodland.

Amended and Restated Agreement of Limited Partnership>

In connection with the Disposition, on December 8, 2016, the
Operating Partnership, as a limited partner of Pillarstone OP,
entered into the Amended and Restated Agreement of Limited
Partnership of Pillarstone OP (as amended and restated, the Amended
and Restated Agreement of Limited Partnership). to the Amended and
Restated Agreement of Limited Partnership, subject to certain
protective rights of the limited partners described below, the
general partner, has full, exclusive and complete responsibility
and discretion in the management and control of Pillarstone OP,
including the ability to cause Pillarstone OP to enter into certain
major transactions including a merger of Pillarstone OP or a sale
of substantially all of the assets of Pillarstone OP. The limited
partners have no power to remove the general partner without the
general partner’s consent. In addition, to the Amended and
Restated Agreement of Limited Partnership, the general partner may
not conduct any business without the consent of a majority of the
limited partners other than in connection with certain actions
described therein.

The Amended and Restated Agreement of Limited Partnership
designates two classes of units of limited partnership interest in
Pillarstone OP: the Pillarstone OP Units and LTIP units. In
general, LTIP units are similar to the Pillarstone OP Units and
will receive the same quarterly per-unit profit distributions as
the Pillarstone OP Units. The rights, privileges, and obligations
related to each series of LTIP units will be established at the
time the LTIP units are issued. As profits interests, LTIP units
initially will not have full parity, on a per-unit basis, with
Pillarstone OP Units with respect to liquidating distributions.
Upon the occurrence of specified events, LTIP units can over time
achieve full parity with the Pillarstone OP Units and therefore
accrete to an economic value for the holder equivalent to
Pillarstone OP Units. If such parity is achieved, vested LTIP units
may be converted on a one-for-one basis into Pillarstone OP Units,
which in turn are redeemable by the holder for cash or, at
Pillarstones election, exchangeable for Pillarstone Common Shares
on a one-for-one basis.

Management Agreements

In connection with the Disposition, (1) with respect to each
Non-Core Property (other than Uptown Tower), Whitestone TRS, Inc.,
a subsidiary of the Company (Whitestone TRS), entered into a
Management Agreement with the Entity that owns such Non-Core
Property and (2) with respect to Uptown Tower, Whitestone TRS
entered into a Management Agreement with Pillarstone OP
(collectively, the Management Agreements). to the Management
Agreements with respect to each Non-Core Property (other than
Uptown Tower), Whitestone TRS agreed to provide certain property
management, leasing and day-to-day advisory and administrative
services to such Non-Core Property in exchange for (x) a monthly
property management fee equal to 5.0% of the monthly revenues of
such Non-Core Property and (y) a monthly asset management fee equal
to 0.125% of GAV (as defined in each Management Agreement as,
generally, the purchase price of the respective Non-Core Property
based upon the purchase price allocations determined to the
Contribution Agreement) of such Non-Core Property. to the
Management Agreement with respect to Uptown Tower, Whitestone TRS
agreed to provide certain property management, leasing and
day-to-day advisory and administrative services to Pillarstone OP
in exchange for (x) a monthly property management fee equal to 3.0%
of the monthly revenues of Uptown Tower and (y) a monthly asset
management fee equal to 0.125% of GAV of Uptown Tower. >

Disposition

Mr. James C. Mastandrea, the Chairman and Chief Executive Officer
of the Company, also serves as the Chairman and Chief Executive
Officer of Pillarstone and beneficially owns approximately 77.9% of
the outstanding equity in Pillarstone (when calculated in
accordance with Rule 13d-3(d)(1) under the Exchange Act of 1934, as
amended (the Exchange Act)). Mr. John J. Dee, the Chief Operating
Officer and Corporate Secretary of the Company, also serves as the
Senior Vice President and Chief Financial Officer of Pillarstone
and beneficially owns approximately 26.3% of the outstanding equity
in Pillarstone (when calculated in accordance with Rule 13d-3(d)(1)
under the Exchange Act). In addition, Mr. Daryl J. Carter and Mr.
Paul T. Lambert, Trustees of the Company, also serve as Trustees of
Pillarstone REIT. The Disposition is to the Companys strategy of
recycling capital by disposing of non-core properties that do not
fit the Companys Community Centered Property strategy and the terms
of the Contribution Agreement, the OP Unit Purchase Agreement, the
Tax Protection Agreement and the Disposition were determined
through arms-length negotiations. The Disposition was unanimously
approved and recommended by a special committee of independent
Trustees of the Company.

The following table provides the names and locations of the
Property:

The foregoing descriptions of the Contribution Agreement, the OP
Unit Purchase Agreement, the Tax Protection Agreement, the Second
Amendment, the Limited Guarantee, the Amended and Restated
Agreement of Limited Partnership and the Management Agreements are
not complete and are subject to and qualified in their entirety by
reference to the Contribution Agreement, the OP Unit Purchase
Agreement, the Tax Protection Agreement, the Second Amendment, the
Limited Guarantee, the Amended and Restated Agreement of Limited
Partnership and the Management Agreements, respectively, which are
attached as Exhibit 10.1, Exhibit 10.2, Exhibit 10.3, Exhibit 10.4,
Exhibit 10.5, Exhibit 10.6 and Exhibit 10.7, respectively, to this
Current Report on Form 8-K and are incorporated herein by
reference.

Item 7.01 Regulation FD Disclosure.

On December 8, 2016, the Company issued a press release with regard
to the Disposition. A copy of the press release is furnished as
Exhibit 99.1 hereto and shall not be deemed filed with the
Securities and Exchange Commission nor incorporated by reference
into any registration statement filed or to be filed by the Company
under the Securities Act.

Forward-Looking Statements

Certain statements contained in this Current Report on Form 8-K
constitute forward-looking statements within the meaning of Section
27A of the Securities Act and Section 21E of the Securities
Exchange Act of 1934, as amended (the Exchange Act). The Company
intends for all such forward-looking statements to be covered by
the safe-harbor provisions for forward-looking statements contained
in Section 27A of the Securities Act and Section 21E of the
Exchange Act, as applicable. Such information is subject to certain
risks and uncertainties, as well as known and unknown risks, which
could cause actual results to differ materially from those
projected or anticipated. Therefore, such statements are not
intended to be a guarantee of the Companys performance in future
periods. Such forward-looking statements can generally be
identified by the Companys use of forward-looking terminology, such
as may, will, plan, expect, intend, anticipate, believe, continue
or similar words or phrases that are predictions of future events
or trends and which do not relate solely to historical matters ,
and include, without limitation, the Companys beliefs and
intentions regarding the consummation of the Disposition and the
use of proceeds therefrom and other factors detailed in the
Company’s most recent Annual Report on Form 10-K, Quarterly
Reports on Form 10-Q and other documents the Company files with the
Securities and Exchange Commission. Readers are cautioned not to
place undue reliance on these forward-looking statements, which
speak only as of the date of this Current Report on Form 8-K. The
Company cannot guarantee the accuracy of any such forward-looking
statements contained in this Current Report on Form 8-K, and the
Company does not intend to publicly update or revise any
forward-looking statements, whether as a result of new information,
future events, or otherwise.

Item 9.01 Exhibits

(b) Pro Forma Financial Information.

Certain required pro forma financial information related to the
Disposition is attached hereto as Exhibit 99.2 and incorporated
herein by reference.

(d) Exhibits.