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EX-31.2 - EXHIBIT 31.2 - Whitestone REIT Operating Partnership, L.P.exhibit312principalfinanci.htm
EX-31.1 - EXHIBIT 31.1 - Whitestone REIT Operating Partnership, L.P.exhibit311principalexecuti.htm
EX-32.2 - EXHIBIT 32.2 - Whitestone REIT Operating Partnership, L.P.exhibit322cfocertification.htm
EX-32.1 - EXHIBIT 32.1 - Whitestone REIT Operating Partnership, L.P.exhibit321ceocertification.htm
EX-21.1 - EXHIBIT 21.1 - Whitestone REIT Operating Partnership, L.P.exhibit211listofsubsidiari.htm
EXCEL - IDEA: XBRL DOCUMENT - Whitestone REIT Operating Partnership, L.P.Financial_Report.xls
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q
 
(Mark One)
[x]
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2011

OR

[ ]
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 Organization)
 
(I.R.S. Employer
Identification No.)

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

(713) 827-9595
(Registrant's Telephone Number, Including Area Code)
 
N/A
(Former name, former address and former fiscal year, if changed since last report)

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.  ýYes     ¨No

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) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  
ýYes    ¨No
 
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 ¨                                                                                           Accelerated filer ¨
Non-accelerated filer (Do not check if a smaller reporting company) ý           Smaller reporting company ¨

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



PART I - FINANCIAL INFORMATION


PART II - OTHER INFORMATION




PART I. FINANCIAL INFORMATION
Item 1. Financial Statements

Whitestone REIT Operating Partnership, L.P. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(in thousands, except unit data)
 
 
June 30,
 
December 31,
 
 
2011
 
2010
 
 
(unaudited)
 
 
ASSETS
Real estate assets, at cost:
 
 
 
 
Property
 
$
213,889

 
$
203,223

Accumulated depreciation
 
(42,185
)
 
(38,989
)
Net operating real estate assets
 
171,704

 
164,234

Real estate assets held-for-sale, net
 
1,168

 
1,164

Total real estate assets
 
172,872

 
165,398

Cash and cash equivalents
 
57,776

 
17,591

Marketable securities
 
9,381

 

Escrows and acquisition deposits
 
2,491

 
4,385

Accrued rents and accounts receivable, net of allowance for doubtful accounts
 
4,998

 
4,691

Unamortized lease commissions and loan costs
 
3,684

 
3,574

Prepaid expenses and other assets
 
840

 
746

Other assets - discontinued operations
 
86

 
60

Total assets
 
$
252,128

 
$
196,445

LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
 
 
 
 
Notes payable
 
$
103,050

 
$
100,941

Accounts payable and accrued expenses
 
5,825

 
7,208

Tenants' security deposits
 
1,824

 
1,768

Distributions payable
 
3,647

 
2,133

Other liabilities - discontinued operations
 
68

 
112

Total liabilities
 
114,414

 
112,162

Commitments and contingencies:
 
 
 
 
Partners' Capital:
 
 
 
 
General Partner, 10,860,344 and 5,550,374 units outstanding as of June 30, 2011 and
 
 
 
 
December 31, 2010, respectively
 
117,381

 
62,708

Limited Partners, 1,814,569 units outstanding as of June 30, 2011 and
 
 
 
 
December 31, 2010
 
20,542

 
21,575

Accumulated other comprehensive loss
 
(209
)
 

Total partners' capital
 
137,714

 
84,283

Total liabilities and partners' capital
 
$
252,128

 
$
196,445


See accompanying notes to Consolidated Financial Statements

3


Whitestone REIT Operating Partnership, L.P. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(in thousands)

 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2011
 
2010
 
2011
 
2010
Property revenues
 
 
 
 
 
 
 
 
Rental revenues
 
$
6,657

 
$
6,369

 
$
13,279

 
$
12,721

Other revenues
 
1,338

 
1,397

 
2,711

 
2,659

Total property revenues
 
7,995

 
7,766

 
15,990

 
15,380

 
 
 
 
 
 
 
 
 
Property expenses
 
 
 
 
 
 
 
 
Property operation and maintenance
 
1,966

 
2,106

 
3,883

 
3,862

Real estate taxes
 
1,096

 
889

 
2,108

 
2,030

Total property expenses
 
3,062

 
2,995

 
5,991

 
5,892

 
 
 
 
 
 
 
 
 
Other expenses (income)
 
 
 
 
 
 
 
 
General and administrative
 
1,778

 
1,272

 
3,242

 
2,472

Depreciation and amortization
 
1,961

 
1,745

 
3,936

 
3,465

Interest expense
 
1,445

 
1,402

 
2,847

 
2,809

Interest, dividend and other investment income
 
(55
)
 
(5
)
 
(115
)
 
(12
)
Total other expense
 
5,129

 
4,414

 
9,910

 
8,734

 
 
 
 
 
 
 
 
 
Income (loss) from continuing operations before loss on disposal of
 
 
 
 
 
 
 
 
assets and income taxes
 
(196
)
 
357

 
89

 
754

 
 
 
 
 
 
 
 
 
Provision for income taxes
 
(58
)
 
(102
)
 
(110
)
 
(155
)
Loss on sale or disposal of assets
 

 
(8
)
 
(18
)
 
(41
)
 
 
 
 
 
 
 
 
 
Income (loss) from continuing operations
 
(254
)
 
247

 
(39
)
 
558

 
 
 
 
 
 
 
 
 
Income from discontinued operations
 
16

 
8

 
47

 
32

 
 
 
 
 
 
 
 
 
Net income (loss)
 
$
(238
)
 
$
255

 
$
8

 
$
590











See accompanying notes to Consolidated Financial Statements

4


Whitestone REIT Operating Partnership, L.P. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(in thousands, except per unit data)

 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2011
 
2010
 
2011
 
2010
 
 
 
 
 
 
 
 
 
Earnings per unit - basic
 
 
 
 
 
 
 
 
Income (loss) from continuing operations attributable to unitholders
 
 
 
 
 
 
 
 
excluding amount attributable to unvested restricted shares
 
$
(0.02
)
 
$
0.05

 
$
(0.01
)
 
$
0.11

Income from discontinued operations attributable to unitholders
 

 

 
0.01

 
0.01

Net income (loss) attributable to unitholders excluding amounts
 
 
 
 
 
 
 
 
attributable to unvested restricted shares
 
$
(0.02
)
 
$
0.05

 
$

 
$
0.12

 
 
 
 
 
 
 
 
 
Earnings per unit - diluted
 
 
 
 
 
 
 
 
Income (loss) from continuing operations attributable to unitholders
 
 
 
 
 
 
 
 
excluding amount attributable to unvested restricted shares
 
$
(0.02
)
 
$
0.05

 
$
(0.01
)
 
$
0.11

Income from discontinued operations attributable to unitholders
 

 

 
0.01

 
0.01

Net income (loss) attributable to unitholders excluding amounts
 
 
 
 
 
 
 
 
attributable to unvested restricted shares
 
$
(0.02
)
 
$
0.05

 
$

 
$
0.12

 
 
 
 
 
 
 
 
 
Weighted average number of units outstanding:
 
 
 
 
 
 
 
 
Basic
 
10,399

 
4,975

 
8,890

 
4,955

Diluted
 
10,399

 
4,993

 
8,890

 
4,994

 
 
 
 
 
 
 
 
 
Distributions declared per unit
 
$
0.2850

 
$
0.2850

 
$
0.5700

 
$
0.6225

 
 
 
 
 
 
 
 
 
Consolidated Statements of Comprehensive Income (Loss)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss)
 
$
(238
)
 
$
255

 
$
8

 
$
590

 
 
 
 
 
 
 
 
 
Other comprehensive gain (loss):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Unrealized loss on available-for-sale marketable securities
 
(209
)
 

 
(209
)
 

 
 
 
 
 
 
 
 
 
Comprehensive income (loss)
 
$
(447
)
 
$
255

 
$
(201
)
 
$
590








See accompanying notes to Consolidated Financial Statements


5


Whitestone REIT Operating Partnership, L.P. and Subsidiaries
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' CAPITAL
For the Six Months Ended June 30, 2011
(Unaudited)
(in thousands)

 
 
 
 
 
 
 
 
 
 
Accumulated
 
 
 
 
General
 
General
 
Limited
 
Limited
 
Other
 
Total
 
 
Partner's
 
Partner's
 
Partners'
 
Partners'
 
Comprehensive
 
Partners'
 
 
Units
 
Capital
 
Units
 
Capital
 
Loss
 
Capital
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, December 31, 2010
 
5,550

 
$
62,708

 
1,815

 
21,575

 
$

 
$
84,283

 
 
 
 
 
 
 
 
 
 
 
 
 
Issuance of OP Units
 
5,310

 
59,761

 

 

 

 
59,761

 
 
 
 
 
 
 
 
 
 
 
 
 
Share-based compensation
 

 
57

 

 

 

 
57

 
 
 
 
 
 
 
 
 
 
 
 
 
Distributions
 

 
(5,152
)
 

 
(1,034
)
 

 
(6,186
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Unrealized loss on change in fair value of
 
 
 
 
 
 
 
 
 
 
 
 
available-for-sale marketable securities
 

 

 

 

 
(209
)
 
(209
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income
 

 
7

 

 
1

 

 
8

 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, June 30, 2011
 
10,860

 
$
117,381

 
1,815

 
20,542

 
$
(209
)
 
$
137,714



See accompanying notes to Consolidated Financial Statements


6


Whitestone REIT Operating Partnership, L.P. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
 
 
Six Months Ended June 30,
 
 
2011
 
2010
Cash flows from operating activities:
 
 
 
 
Income (loss) from continuing operations
 
$
(39
)
 
$
558

Income from discontinued operations
 
47

 
32

Net income
 
8

 
590

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Depreciation and amortization
 
3,936

 
3,465

Gain on sale of marketable securities
 
(38
)
 

Loss on sale or disposal of assets
 
18

 
41

Bad debt expense
 
214

 
206

Share-based compensation
 
155

 
143

Changes in operating assets and liabilities:
 
 
 
 
Escrows and acquisition deposits
 
1,986

 
2,006

Accrued rent and accounts receivable
 
(518
)
 
(204
)
Unamortized lease commissions and loan costs
 
(401
)
 
(362
)
Prepaid expenses and other assets
 
496

 
265

Accounts payable and accrued expenses
 
(1,721
)
 
(2,374
)
Tenants' security deposits
 
56

 
36

Net cash provided by operating activities
 
4,144

 
3,780

Net cash provided by operating activities of discontinued operations
 
4

 
38

 
 
 
 
 
Cash flows from investing activities:
 
 
 
 
Additions to real estate
 
(2,035
)
 
(929
)
Real estate acquisitions
 
(8,650
)
 

Investments in marketable securities
 
(10,461
)
 

Proceeds from sales of marketable securities
 
909

 

Net cash used in investing activities
 
(20,237
)
 
(929
)
Net cash used in investing activities of discontinued operations
 
(31
)
 

 
 
 
 
 
Cash flows from financing activities:
 
 
 
 
Distributions paid to OP unit holders
 
(4,767
)
 
(3,558
)
Proceeds from issuance of OP Units
 
60,066

 

Proceeds from notes payable
 
2,905

 

Repayments of notes payable
 
(1,540
)
 
(1,447
)
Payments of loan origination costs
 
(359
)
 

Repurchase of common shares
 

 
(249
)
Net cash provided by (used in) financing activities
 
56,305

 
(5,254
)
 
 
 
 
 
Net increase (decrease) in cash and cash equivalents
 
40,185

 
(2,365
)
Cash and cash equivalents at beginning of period
 
17,591

 
6,275

Cash and cash equivalents at end of period
 
$
57,776

 
$
3,910


See accompanying notes to Consolidated Financial Statements




7


Whitestone REIT Operating Partnership, L.P. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)

 
 
Six Months Ended June 30,
 
 
2011
 
2010
 
 
 
 
 
Supplemental disclosure of cash flow information:
 
 
 
 
Cash paid for interest
 
$
2,838

 
$
2,872

Cash paid for taxes
 
215

 
262

 
 
 
 
 
Non cash Investing and financing activities:
 
 
 
 
Disposal of fully depreciated real estate
 
$
21

 
$
437

Financed insurance premiums
 
649

 
502

Accrued offering costs
 
305

 
666

Change in fair value of available-for-sale securities
 
(209
)
 




































See accompanying notes to Consolidated Financial Statements


8

WHITESTONE REIT OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2011
(Unaudited)

The use of the words “we,” “us,” “our,” the "Operating Partnership" or the “Partnership” refers to Whitestone REIT Operating Partnership, L.P. and our consolidated subsidiaries, except where the context otherwise requires. The use of the words "Whitestone," "the General Partner," "Management," or the "Company" refers to Whitestone REIT, except where the context otherwise requires.

1.  INTERIM FINANCIAL STATEMENTS
 
The consolidated financial statements included in this report are unaudited; however, amounts presented in the consolidated balance sheet as of December 31, 2010 are derived from our audited consolidated financial statements at that date.  The unaudited financial statements as of June 30, 2011 have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information on a basis consistent with the annual audited consolidated financial statements and with the instructions to Form 10-Q.
 
The consolidated financial statements presented herein reflect all adjustments which, in the opinion of management, are necessary for a fair presentation of the financial position of the Partnership and our subsidiaries as of June 30, 2011, and the results of operations for the three and six month periods ended June 30, 2011 and 2010, the consolidated statement of changes in partners' capital for the six month period ended June 30, 2011 and cash flows for the six month periods ended June 30, 2011 and 2010.  All of these adjustments are of a normal recurring nature with the exception of a retroactive restatement of share and unit counts and per share and unit amounts to reflect our 1-for-3 reverse share split in August 2010.  The results of operations for the interim period are not necessarily indicative of the results expected for a full year.  The statements should be read in conjunction with the audited consolidated financial statements and the notes thereto which are included in our Annual Report on Form 10-K for the year ended December 31, 2010.
 
Business.  Whitestone REIT Operating Partnership, L.P., a Delaware limited partnership, was formed on December 31, 1998 to conduct, together with it subsidiaries, substantially all of the operations for its sole general partner, Whitestone REIT. Whitestone was formed as a real estate investment trust (“REIT”), pursuant to the Texas Real Estate Investment Trust Act on August 20, 1998.  In July 2004, Whitestone changed its state of organization from Texas to Maryland pursuant to a merger of Whitestone directly with and into a Maryland REIT formed for the sole purpose of the reorganization and the conversion of each outstanding common share of beneficial interest of the Texas entity into 1.42857 Class A common shares of beneficial interest (the "Class A common shares") of the Maryland entity.  As the general partner of the Partnership, Whitestone has the exclusive power to manage and conduct the business of the Partnership, subject to certain customary exceptions.  As of June 30, 2011 and December 31, 2010, we owned and operated 40 and 38 commercial properties, respectively, in and around Houston, Dallas, San Antonio, Chicago and Phoenix.

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
Basis of Consolidation.  The accompanying consolidated financial statements include the accounts of the Partnership and its subsidiaries. All net income (loss) is allocated between the General Partner and the limited partners based on the weighted-average percentage ownership of the Partnership during the year. Issuance of additional Class A or Class B common shares of beneficial interest in Whitestone (collectively, the "common shares") and units of limited partnership interest in the Partnership that are convertible into cash or, at Whitestone's option, common shares on a one-for-one basis ("OP Units") changes the ownership interests of both the Partnership and Whitestone.
  
Basis of Accounting.  Our financial records are maintained on the accrual basis of accounting whereby revenues are recognized when earned and expenses are recorded when incurred.
 
Use of Estimates.   The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Significant estimates that we use include the estimated fair values of properties acquired, the estimated useful lives for depreciable and amortizable assets and costs, the estimated allowance for doubtful accounts and estimates supporting our impairment analysis for the carrying values of our real estate assets.  Actual results could differ from those estimates.
 
Reclassifications.  We have reclassified certain prior fiscal year amounts in the accompanying consolidated financial

9

WHITESTONE REIT OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2011
(Unaudited)

statements in order to be consistent with the current fiscal year presentation.  These reclassifications had no effect on net income or equity.
 
Marketable Securities. We classify our existing marketable equity securities as available-for-sale in accordance with the Financial Accounting Standards Board's ("FASB") Investments-Debt and Equity Securities guidance. These securities are carried at fair value with unrealized gains and losses reported in partners' capital as a component of accumulated other comprehensive income or loss. The fair value of the marketable securities is determined using Level 1 inputs under FASB Accounting Standards Codification ("ASC") 820, "Fair Value Measurements and Disclosures." Level 1 inputs represent quoted prices available in an active market for identical investments as of the reporting date. Gains and losses on securities sold are based on the specific identification method, and are reported as a component of interest, dividend and other investment income. We recognized a gain on marketable securities sold of approximately $38,000 and $0 for the six months ended June 30, 2011 and 2010, respectively. No gain or loss was recognized for the three months ended June 30, 2011 and 2010. As of June 30, 2011, our investment in available-for-sale marketable securities was approximately $9.4 million, which includes an aggregate unrealized loss of approximately $0.2 million.

Share-Based Compensation.   From time to time, Whitestone awards nonvested restricted common share awards or restricted common share unit awards which may be converted into common shares, to trustees, executive officers and employees under its 2008 Long-Term Equity Incentive Ownership Plan (the “2008 Plan”).  The vast majority of the awarded shares and units vest when certain performance conditions are met.  We recognize compensation expense when achievement of the performance conditions is probable based on Whitestone's most recent estimates using the fair value of the shares as of the grant date.  For the three months ended June 30, 2011 and 2010, we recognized $77,000 and $72,000 in share-based compensation expense, respectively, and for the six months ended June 30, 2011 and 2010, we recognized $155,000 and $143,000, respectively.
   
See our Annual Report on Form 10-K for the year ended December 31, 2010 for further discussion on significant accounting policies.
 
Recent Accounting Pronouncements.  There are no new unimplemented accounting pronouncements that are expected to have a material impact on our results of operations, financial position or cash flows.

3. ACCRUED RENT AND ACCOUNTS RECEIVABLE, NET

Accrued rent and accounts receivable, net consists of amounts accrued, billed and due from tenants, allowance for doubtful accounts and other receivables as follows (in thousands):

 
 
June 30, 2011
 
December 31, 2010
 
 
 
 
 
Tenant receivables
 
$
1,547

 
$
1,700

Accrued rent and other recoveries
 
4,475

 
4,256

Allowance for doubtful accounts
 
(1,024
)
 
(1,265
)
Total
 
$
4,998

 
$
4,691



4. UNAMORTIZED LEASING COMMISSIONS AND LOAN COSTS

Costs which have been deferred consist of the following (in thousands):

10

WHITESTONE REIT OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2011
(Unaudited)

 
 
June 30, 2011
 
December 31, 2010
 
 
 
 
 
Leasing commissions
 
$
5,265

 
$
4,939

Deferred financing cost
 
2,681

 
2,307

Total cost
 
7,946

 
7,246

Less: leasing commissions accumulated amortization
 
(3,023
)
 
(2,661
)
Less: deferred financing cost accumulated amortization
 
(1,239
)
 
(1,011
)
Total cost, net of accumulated amortization
 
$
3,684

 
$
3,574



5. DEBT

Debt consists of the following (in thousands):
Description
 
June 30, 2011
 
December 31, 2010
Fixed rate notes
 
 
 
 
$3.0 million 6.00% Note, due 2021 (1)
 
$
2,995

 
$

$10.0 million 6.04% Note, due 2014
 
9,412

 
9,498

$1.5 million 6.50% Note, due 2014
 
1,484

 
1,496

$11.2 million 6.52% Note, due 2015
 
10,837

 
10,908

$21.4 million 6.53% Notes, due 2013
 
19,838

 
20,142

$24.5 million 6.56% Note, due 2013
 
23,817

 
24,030

$9.9 million 6.63% Notes, due 2014
 
9,362

 
9,498

$0.5 million 5.05% Notes, due 2011
 
344

 
13

Floating rate note
 
 
 
 

$26.9 million LIBOR + 2.86% Note, due 2013
 
24,961

 
25,356

 
 
$
103,050

 
$
100,941


(1)    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.

As of June 30, 2011, our debt was collateralized by 24 properties with a carrying value of $111.6 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 by assignment of certain rents and leases associated with those properties.  As of June 30, 2011, we are in compliance with all loan covenants.

On June 14, 2011, Whitestone, through the Partnership entered into an agreement with Harris Bank, part of BMO Financial Group, effective June 13, 2011 for an unsecured revolving credit facility (the "Facility") with an initial committed amount of $20 million. The Facility is expandable to $75 million and matures two years from closing, with a 12-month extension available upon lender approval. Whitestone will use the Facility for general corporate purposes, including acquisitions and redevelopment of existing properties in our portfolio. As of June 30, 2011, no amounts were drawn on the Facility.

The Facility contains an annual administrative fee of $35,000 and a quarterly commitment fee on the average undrawn balance. If the average undrawn balance is greater than 50% of the commitment, the fee is paid quarterly based on an annual rate of 0.75% of the average undrawn balance. If the average undrawn balance is less than or equal to 50% of the commitment, the fee is paid quarterly based on an annual rate of 0.50% of the average undrawn balance.

Borrowings under the Facility accrue interest (at our option) at either the Eurodollar Loan Rate or the Base Rate, plus the applicable margin as determined from the following table:

11

WHITESTONE REIT OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2011
(Unaudited)

Total Indebtedness to Total Asset Value Ratio
 
Base Rate Margin
 
Eurodollar Loan Margin
Greater than 0.55 to 1.00
 
3.50%
 
4.50%
Less than or equal to 0.55 to 1.00, but greater than 0.50 to 1.00
 
3.25%
 
4.25%
Less than or equal to 0.50 to 1.00, but greater than 0.45 to 1.00
 
2.75%
 
3.75%
Less than or equal to 0.45 to 1.00
 
2.50%
 
3.50%

Base Rate means the higher of: (i) (a) the bank's prime commercial rate, (b) the average rate quoted the bank by two or more Federal funds brokers selected by the bank for sale to the bank at face value of Federal funds in the secondary market in an amount equal or comparable to the principal amount for which such rate is being determined, plus (ii) 1/2 of 1%, and (c) the LIBOR rate for such day plus 1.00%.

Eurodollar Loan Rate means LIBOR divided by the Eurodollar Reserve Percentage. The Eurodollar Reserve Percentage means the maximum reserve percentage at which reserves are imposed by the Board of Governors of the Federal Reserve System.
The Facility contains customary terms and conditions, including, without limitation, affirmative and negative covenants, such as information reporting requirements, maximum total indebtedness to total asset value, minimum earnings before interest, tax, depreciation and amortization ("EBITDA") to fixed charges, and maintenance of net worth. The Facility also contains customary events of default with customary cure and notice, including, without limitation, nonpayment, breach of covenant, misrepresentation of representations and warranties in a material respect, cross-default to other major indebtedness, change of control, bankruptcy, and loss of Whitestone's REIT tax status. Whitestone is currently in compliance with these covenants. The financial covenants for the Facility are as follows:
Covenant
 
Must Be
Total Indebtedness to Total Asset Value (“TAV”)
 
< 60%
Secured Debt to TAV
 
<55%
EBITDA to Fixed Charges
 
>1.65X
Other Recourse Debt to TAV
 
<10%
Tangible Net Worth (in thousands)
 
>$120,000
Floating Rate Debt to TAV
 
<25%
Property NOI to Total Indebtedness
 
>15%
Cross-Collateralized Secured Debt to TAV
 
<25%

For a full description of the Facility's covenants refer to the credit agreement dated as of June 13, 2011 filed as an exhibit to the Company's Current Report on Form 8-K dated June 17, 2011.

12

WHITESTONE REIT OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2011
(Unaudited)



Annual maturities of our debt as of June 30, 2011 are due during the following years (in thousands):
 
 
Amount Due
Year
 
(in thousands)
 
 
 
2011
 
$
1,612

2012
 
2,639

2013
 
66,485

2014
 
19,191

2015
 
10,315

2016 and thereafter
 
2,808

Total
 
$
103,050



6.  EARNINGS PER OP UNIT
 
Basic earnings per OP Unit for the Partnership's unitholders is calculated by dividing income (loss) from continuing operations excluding amounts attributable to unvested restricted shares and income from discontinued operations by the Partnership's weighted-average OP Units outstanding during the period.  Diluted earnings per unit for the Partnership's unitholders is computed by dividing income (loss) from continuing operations excluding amounts attributable to unvested restricted shares and income from discontinued operations by the weighted-average number of OP Units including any dilutive unvested restricted shares.
 
Certain of Whitestone's performance-based restricted common shares are considered participating securities which require the use of the two-class method for the computation of basic and diluted earnings per unit.  For the three and six months ended June 30, 2011, diluted weighted average OP Units do not include the impact of approximately 13,000 and 16,000 unvested restricted shares, respectively, because the effect of these items on diluted earnings per unit would be anti-dilutive.
 
For the three and six months ended June 30, 2011, distributions of $53,000 and $108,000, respectively, were made to the holders of certain restricted common shares, $49,000 and $98,000 of which were charged against earnings for the three and six months ended June 30, 2011, respectively.  For the three and six months ended June 30, 2010, distributions of $67,000 and $138,000, respectively, were made to the holders of certain restricted common shares, $62,000 and $123,000 of which were charged against earnings for the three and six months ended June 30, 2010, respectively.  See Note 11 for information related to restricted common shares under the 2008 Plan.


13

WHITESTONE REIT OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2011
(Unaudited)

 
 
Three Months Ended
 
Six Months Ended
 
 
June 30,
 
June 30,
 
 
2011
 
2010
 
2011
 
2010
(in thousands, except per unit data)
 
 
 
 
 
 
 
 
Numerator:
 
 
 
 
 
 
 
 
Income (loss) continuing operations
 
$
(254
)
 
$
247

 
$
(39
)
 
$
558

Dividends paid on unvested restricted shares
 
(4
)
 
(5
)
 
(10
)
 
(15
)
Undistributed earnings attributable to unvested restricted shares
 

 

 

 

Income (loss) from continuing operations excluding amounts
 
 
 
 
 
 
 
 
attributable to unvested restricted shares
 
(258
)
 
242

 
(49
)
 
543

Income from discontinued operations
 
16

 
8

 
47

 
32

 
 
 
 
 
 
 
 
 
Net income (loss) excluding amounts attributable to unvested
 
 
 
 
 
 
 
 
restricted shares
 
$
(242
)
 
$
250

 
$
(2
)
 
$
575

 
 
 
 
 
 
 
 
 
Denominator:
 
 
 
 
 
 
 
 
Weighted average number of units - basic
 
10,399

 
4,975

 
8,890

 
4,955

Effect of dilutive securities:
 
 
 
 
 
 
 
 
Unvested restricted shares
 

 
18

 

 
39

Weighted average number of units - dilutive
 
10,399

 
4,993

 
8,890

 
4,994

 
 
 
 
 
 
 
 
 
Earnings Per Unit:
 
 
 
 
 
 
 
 
Basic:
 
 
 
 
 
 
 
 
Income (loss) from continuing operations excluding amounts attributable
 
 
 
 
 
 
 
 
to unvested restricted shares
 
$
(0.02
)
 
$
0.05

 
$
(0.01
)
 
$
0.11

Income from discontinued operations
 

 

 
0.01

 
0.01

Net income (loss) excluding amounts attributable to unvested restricted
 
 
 
 
 
 
 
 
shares
 
$
(0.02
)
 
$
0.05

 
$

 
$
0.12

Diluted:
 
 
 
 
 
 
 
 
Income (loss) from continuing operations excluding amounts attributable
 
 
 
 
 
 
 
 
to unvested restricted shares
 
$
(0.02
)
 
$
0.05

 
$
(0.01
)
 
$
0.11

Income from discontinued operations
 

 

 
0.01

 
0.01

Net income (loss) excluding amounts attributable to unvested restricted
 
 
 
 
 
 
 
 
shares
 
$
(0.02
)
 
$
0.05

 
$

 
$
0.12


7. INCOME TAXES
 
Federal income taxes are not provided because we are taxed as a partnership and the liability incurred is that of our partners. Federal taxes are not provided for Whitestone because it intends to and believes it qualifies as a REIT under the provisions of the Internal Revenue Code (the "Code") and because it has distributed and intends to continue to distribute all of its taxable income to its shareholders.  Whitestone's shareholders include their proportionate taxable income in their individual tax returns.  As a REIT, Whitestone must distribute at least 90% of its real estate investment trust taxable income to its shareholders and meet certain income sources and investment restriction requirements.  In addition, REITs are subject to a number of organizational and operational requirements.  If Whitestone fails to qualify as a REIT in any taxable year, Whitestone will be subject to federal income tax (including any applicable alternative minimum tax) on its taxable income at regular corporate tax rates.
 

14

WHITESTONE REIT OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2011
(Unaudited)

During 2010, Whitestone discovered that it may have inadvertently violated the “5% asset test,” as set forth in Section 856(c)(4)(B)(iii)(I) of the Code, for the quarter ended March 31, 2009 as a result of utilizing a certain cash management arrangement with a commercial bank. If its investment in a commercial paper investment sweep account through such cash management agreement is not treated as cash, and is instead treated as a security of a single issuer for purposes of the “5% asset test,” then it failed the “5% asset test” for the first quarter of its 2009 taxable year. Whitestone believes, however, that if it failed the “5% asset test,” its failure would be considered due to reasonable cause and not willful neglect and, therefore, it would not be disqualified as a REIT for its 2009 taxable year. It would be, however, subject to certain reporting requirements and 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 was $50,000, and it paid such tax on April 27, 2010.     
    
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, it would be subject to federal income tax on its taxable income at regular corporate rates without the benefit of the dividends-paid deduction, and cash available for distributions to its shareholders and our partners would be reduced.

Taxable income differs from net income for financial reporting purposes principally due to differences in the timing of recognition of interest, real estate taxes, depreciation and rental revenue. 

In May 2006, the State of Texas adopted the Texas Margin Tax effective with franchise tax reports filed on or after January 1, 2008. The Texas Margin Tax 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 House Bill 3 states that the Texas Margin Tax is not an income tax, SFAS No. 109, “Accounting for Income Taxes” (“SFAS No. 109”) which is codified in FASB ASC 740, Income Taxes (“ASC 740”) applies to the Texas Margin Tax.  For the three months ended June 30, 2011 and 2010, we recognized $58,000 and $52,000 in margin tax provision, respectively, and for the six months ended June 30, 2011 and 2010, we recognized $110,000 and $105,000 in margin tax provision, respectively.


8.  RELATED PARTY TRANSACTIONS
 
Executive Relocation. On July 9, 2010, upon the unanimous recommendation of Whitestone's Compensation Committee, Whitestone entered into an arrangement with Mr. Mastandrea, Whitestone's chief executive officer, with respect to the disposition of his residence in Cleveland, Ohio. Mr. Mastandrea listed the residence in the second half of 2007 and has had no offers. In the meantime, Mr. Mastandrea has continued to pay for security, taxes, insurance and maintenance expenses related to the residence. In May 2010, Whitestone engaged a professional relocation firm to market the home and assist in moving the Mastandrea family to Houston. Since the engagement of the relocation firm, no offers on the home have been received. Under the relocation arrangement, Whitestone will pay Mr. Mastandrea the shortfall, if any, in the amount realized from the sale of the Cleveland residence, below $2,450,000, not to exceed $700,000, plus tax on the amount of such payment at the maximum federal income tax rate. The first $450,000 plus any taxes will be paid in cash. Any amount payable in excess of $450,000 will be paid in Whitestone's common shares at the market value of the shares, as determined in the reasonable judgment of Whitestone's Board of Trustees, as of the time of the sale of the residence.

The common shares payable to Mr. Mastandrea, if any, will be delivered over four consecutive quarters in equal installments. In addition, the arrangement requires Whitestone to continue paying the previously agreed upon cost of housing expenses for the Mastandrea family in Houston, Texas for a period of one year following the date of sale of the residence. Whitestone has previously agreed to reimburse Mr. Mastandrea for out of pocket moving costs including packing, temporary storage, transportation and moving supplies.


9.  PARTNERS' CAPITAL
 
Under its declaration of trust, as amended, Whitestone has authority to issue up to 50,000,000 Class A common shares of beneficial interest, $0.001 par value per share, up to 350,000,000 Class B common shares of beneficial interest, $0.001 par value per share, and up to 50,000,000 preferred shares of beneficial interest, $0.001 par value per share.
  

15

WHITESTONE REIT OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2011
(Unaudited)

Secondary Offering
On May 10, 2011, Whitestone completed the public offering of 5,000,000 Class B common shares and the exercise of the underwriters' over-allotment option to purchase an additional 310,000 Class B common shares. The public offering price was $12 per Class B common share.
Net proceeds, after payment of underwriting commissions and transaction costs, were approximately $59.8 million.
Whitestone contributed the net proceeds from this offering to the Partnership in exchange for a 5,310,000 OP Units, thereby increasing its ownership interest in the Partnership. The Partnership intends to use the net proceeds from the offering (1) to acquire commercial properties in our target markets, directly from owners or by acquiring loans with the intent to acquire the underlying property through foreclosure or deed in lieu of foreclosure within a short period of time, (2) to redevelop and re-tenant existing properties to create Whitestone-branded Community Centered Properties and (3) for general corporate purposes.
Operating Partnership Units
 
The Partnership conducts substantially all of Whitestone's business. Whitestone is the sole general partner of the Operating Partnership.  As of June 30, 2011, Whitestone owned an 85.7% interest in the Operating Partnership.
 
Limited partners in the Operating Partnership holding OP Units have the right to convert their OP Units into cash or, at Whitestone's option, Class A common shares at a ratio of one OP Unit for one Class A common share.  Distributions to OP Unit holders are paid at the same rate per unit as dividends per share of Whitestone.  As of June 30, 2011 and December 31, 2010, there were 12,674,913 and 7,364,943 OP Units outstanding, respectively.  Whitestone owned 10,860,344 and 5,550,374 OP Units as of June 30, 2011 and December 31, 2010, respectively. The balance of the OP Units is owned by third parties, including certain of Whitestone's trustees.  Whitestone's weighted-average share ownership in the Partnership was approximately 80.1% and 64.9% for the six months ended June 30, 2011 and June 30, 2010, respectively, and 83.4% and 65.0% for the three months ended June 30, 2011 and June 30, 2010, respectively.
 
 Dividends and distributions
 
The following table summarizes the cash distributions paid or payable to holders of OP Units during the four quarters of 2010 and the quarters ended March 31, 2011 and June 30, 2011.

 
 
Whitestone
 
Limited Partners Other Than Whitestone
 
Total
Quarter Paid (in thousands, except per unit data)
 
Distribution Per OP Unit
 
Total Amount Paid
 
Distribution Per OP Unit
 
Total Amount Paid
 
Total Amount Paid
2011
 
 
 
 
 
 
 
 
 
 
Second Quarter
 
$
0.2850

 
$
2,121

 
$
0.2850

 
$
515

 
$
2,636

First Quarter
 
0.2850

 
1,616

 
0.2850

 
515

 
2,131

Total
 
$
0.5700

 
$
3,737

 
$
0.5700

 
$
1,030

 
$
4,767

 
 
 
 
 
 
 
 
 
 
 
2010
 
 
 
 
 
 
 
 
 
 
Fourth Quarter
 
$
0.2850

 
$
1,616

 
$
0.2850

 
$
514

 
$
2,130

Third Quarter
 
0.2850

 
1,203

 
0.2850

 
515

 
1,718

Second Quarter
 
0.3375

 
1,176

 
0.3375

 
610

 
1,786

First Quarter
 
0.3375

 
1,163

 
0.3375

 
610

 
1,773

Total
 
$
1.2450

 
$
5,158

 
$
1.2450

 
$
2,249

 
$
7,407


10.  COMMITMENTS AND CONTINGENCIES
 

16

WHITESTONE REIT OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2011
(Unaudited)

We are subject to various legal proceedings and claims that arise in the ordinary course of business.  These matters are generally covered by insurance.  While the resolution of these matters cannot be predicted with certainty, management believes the final outcome of such matters will not have a material adverse effect on our consolidated financial statements.
 
Executive Relocation. On July 9, 2010, upon the unanimous recommendation of Whitestone's Compensation Committee, Whitestone entered into an arrangement with Mr. Mastandrea with respect to the disposition of his residence in Cleveland, Ohio. Mr. Mastandrea listed the residence in the second half of 2007 and has had no offers. In the meantime, Mr. Mastandrea has continued to pay for security, taxes, insurance and maintenance expenses related to the residence. In May 2010, Whitestone engaged a professional relocation firm to market the home and assist in moving the Mastandrea family to Houston. Since the engagement of the relocation firm, no offers on the home have been received. Under the relocation arrangement, Whitestone will pay Mr. Mastandrea the shortfall, if any, in the amount realized from the sale of the Cleveland residence, below $2,450,000, not to exceed $700,000, plus tax on the amount of such payment at the maximum federal income tax rate. The first $450,000 plus any taxes will be paid in cash. Any amount payable in excess of $450,000 will be paid in Whitestone's common shares at the market value of the shares, as determined in the reasonable judgment of Whitestone's Board of Trustees, as of the time of the sale of the residence.

The common shares payable to Mr. Mastandrea, if any, will be delivered over four consecutive quarters in equal installments. In addition, the arrangement requires Whitestone to continue paying the previously agreed upon cost of housing expenses for the Mastandrea family in Houston, Texas for a period of one year following the date of sale of the residence. Whitestone has previously agreed to reimburse Mr. Mastandrea for out of pocket moving costs including packing, temporary storage, transportation and moving supplies.

11.  INCENTIVE SHARE PLAN
 
On July 29, 2008, Whitestone's shareholders approved the 2008 Long-Term Equity Incentive Ownership Plan (the “2008 Plan”). On December 22, 2010, Whitestone's Board of Trustees amended the 2008 Plan to allow for awards in or related to Class B common shares pursuant to the 2008 Plan. The 2008 Plan, as amended, provides that awards may be made with respect to Class B common shares of Whitestone or units of the Operating Partnership, which may be converted into Class A common shares of Whitestone. The maximum aggregate number of Class B common shares that may be issued under the 2008 Plan is increased upon each issuance of Class A or Class B common shares by Whitestone (including issuances pursuant to the 2008 Plan) so that at any time the maximum number of shares that may be issued under the 2008 Plan shall equal 12.5% of the aggregate number of Class A and Class B common shares of Whitestone and units of the Operating Partnership issued and outstanding (other than treasury shares and/or units issued to or held by Whitestone).

The Compensation Committee of Whitestone’s Board of Trustees administers the 2008 Plan, except with respect to awards to non-employee trustees, for which the 2008 Plan is administered by Whitestone’s Board of Trustees.  The Compensation Committee is authorized to grant stock options, including both incentive stock options and non-qualified stock options, as well as stock appreciation rights, either with or without a related option. The Compensation Committee is also authorized to grant restricted Class B common shares, restricted Class B common share units, performance awards and other share-based awards. 
 
On January 6, 2009, the Compensation Committee, pursuant to the 2008 Plan, granted to certain of Whitestone's officers restricted Class A common shares and restricted Class A common share units subject to certain restrictions. The restricted Class A common shares and restricted Class A common share units will vest based on certain performance goals (as specified in the award agreement). The grantee is the record owner of the restricted Class A common shares and has all rights of a shareholder with respect to the restricted Class A common shares, including the right to vote the restricted Class A common shares and to receive dividends and distributions with respect to the restricted Class A common shares. The grantee has no rights of a Whitestone shareholder with respect to the restricted Class A common share units, including no right to vote the restricted Class A common share units and no right to receive current dividends and distributions with respect to the restricted Class A common share units until the restricted Class A common share units are fully vested and convertible to Class A common shares of Whitestone.

A summary of the share-based incentive plan activity as of and for the six months ended June 30, 2011 is as follows:


17

WHITESTONE REIT OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2011
(Unaudited)

 
 
Shares
 
Weighted-Average
Grant Date
Fair Value (1)
Non-vested at January 1, 2011
 
522,441

 
$
12.48

Granted
 

 

Vested
 
(5,169
)
 
15.45

Forfeited
 
(6,523
)
 
11.15

Non-vested at June 30, 2011
 
510,749

 
$
12.46

Available for grant at June 30, 2011
 
1,238,908

 
 

(1)    The fair value of the Class A common shares granted were determined based on observable market transactions occurring near the date of the grants.

A summary of Whitestone's nonvested and vested shares activity for the six months ended June 30, 2011 and years ended December 31, 2010, and 2009 is presented below:
 
 
Shares Granted
 
Shares Vested
 
 
Non-Vested Shares Issued
 
Weighted-Average Grant-Date Fair Value
 
Vested Shares
 
Total Vest-Date Fair Value
 
 
 
 
 
 
 
 
(in thousands)
Six months ended June 30, 2011
 

 
$

 
(5,169
)
 
$
80

Year ended December 31, 2010
 
31,858

 
14.09

 
(55,699
)
 
695

Year ended December 31, 2009
 
600,731

 
12.37

 

 


Total compensation recognized in earnings for share-based payments was $69,000 and $47,000 for the three months ended June 30, 2011 and June 30, 2010, respectively, and $139,000 and $110,000 for the six months ended June 30, 2011 and June 30, 2010, respectively, which represents achievement of the first performance-based target and anticipated vesting of certain restricted shares with time-based vesting.  With our current asset base, Whitestone's management does not expect to achieve the next performance-based target.  Should we increase our asset base, Whitestone's management may achieve the next performance-based target.  As of June 30, 2011, there was no unrecognized compensation cost related to outstanding nonvested performance-based shares based on management's current estimates. As of June 30, 2011, there was approximately $154,000 in unrecognized compensation cost related to outstanding nonvested time-based shares which are expected to be recognized over a weighted-average period of approximately two years. The fair value of the shares granted during the years ended December 31, 2010 and 2009 was determined based on observable market transactions occurring near the date of the grants.

12. GRANTS TO TRUSTEES
On March 25, 2009, each of Whitestone's independent trustees was granted 1,667 restricted Class A common shares which vest in equal installments in 2010, 2011, and 2012. During the six months ended June 30, 2011, 2,224 of these restricted shares vested. These restricted shares were granted pursuant to individual grant agreements and not pursuant to Whitestone's 2008 Plan.
The 8,333 Class A common shares granted to Whitestone's independent trustees had a weighted average grant date fair value of $14.81 per share, resulting in total unrecognized compensation cost of approximately $24,000 as of June 30, 2011, which is expected to be recognized over a weighted-average period of approximately one year. The fair value of the shares granted during 2009 was determined based on observable market transactions occurring near the date of the grants.

13. SEGMENT INFORMATION

Historically, management has not differentiated results of operations by property type or location and therefore does

18

WHITESTONE REIT OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2011
(Unaudited)

not present segment information.

14. REAL ESTATE

Property Acquisitions. On June 28, 2011, we acquired Gilbert Tuscany Village, a property that meets our Community Centered Property strategy, containing 49,415 leasable square feet, located in Gilbert, Arizona for approximately $5.0 million in cash and net prorations. 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 $3.65 million in cash and net prorations. The center contains 62,533 leasable square feet, inclusive of 12,960 square feet leased to two tenants under ground leases, and is located in Mcdowell Mountain Ranch in northern Scottsdale, Arizona. Situated at a prime intersection at East McDowell Mountain Ranch Road and 105th Street, Desert Canyon is the nearest retail and office space to McDowell Mountain Elementary and Junior High Schools. Located adjacent to the Sonora Mountain Desert Preserve, a lighted trail and jogging path wind directly into the Desert Canyon site and provide access from the surrounding upscale residential neighborhoods.

Discontinued Operations. On July 22, 2011, we sold Greens Road Plaza, located in Houston, Texas, for $1,750,000 in cash and net prorations. We expect to reinvest the proceeds from the sale of the 20,607 square foot property located in Northeast Houston in acquisitions of Community Centered Properties in its target markets in Arizona, Texas, and Illinois. As a result of the transaction, we have identified the financial results for the three and six months ended June 30, 2011.
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(in thousands)
 
2011
 
2010
 
2011
 
2010
Property revenues
 
 
 
 
 
 
 
 
Rental revenues
 
$
48

 
$
38

 
$
97

 
$
90

Other revenues
 
27

 
28

 
69

 
71

Total property revenues
 
75

 
66

 
166

 
161

 
 
 
 
 
 
 
 
 
Property expenses
 
 
 
 
 
 
 
 
Property operation and maintenance
 
32

 
39

 
69

 
84

Real estate taxes
 
12

 
5

 
20

 
16

Total property expenses
 
44

 
44

 
89

 
100

 
 
 
 
 
 
 
 
 
Other expenses (income)
 
 
 
 
 
 
 
 
General and administrative
 

 

 

 

Depreciation and amortization
 
15

 
14

 
29

 
28

Total other expense
 
15

 
14

 
29

 
28

 
 
 
 
 
 
 
 
 
Income before loss on disposal of assets and income taxes
 
16

 
8

 
48

 
33

 
 
 
 
 
 
 
 
 
Provision for income taxes
 

 

 
(1
)
 
(1
)
Loss on sale or disposal of assets
 

 

 

 

 
 
 
 
 
 
 
 
 
Income from discontinued operations
 
$
16

 
$
8

 
$
47

 
$
32





19

WHITESTONE REIT OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2011
(Unaudited)

15. SUBSEQUENT EVENTS

On July 22, 2011, we sold Greens Road Plaza, located in Houston, Texas, for $1,750,000 in an all-cash transaction. We expect to reinvest the proceeds from the sale of the 20,607 square foot property located in Northeast Houston in acquisitions of Community Centered Properties in its target markets in Arizona, Texas, and Illinois.

On August 8, 2011, we acquired Terravita Marketplace, a property that meets our Community Centered Property strategy, containing 102,733 leasable square feet, inclusive of 51,434 square feet leased to two tenants under ground leases. Terravita Marketplace, which is located in North Scottsdale, Arizona was purchased for approximately $16.1 million in cash and net prorations. Terravita Marketplace is surrounded by the gated golf course residential community of Terravita. Additionally, the Center provides retail goods and services to the North Scottsdale and Carefree high-end trade area that includes several other affluent communities including Whispering Rock Estates, Desert Mountain and the Boulders Community.
    

20


Item 2.  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 unaudited consolidated financial statements and the notes thereto included in this quarterly report on Form 10-Q (the “Report”), and the consolidated financial statements and the notes thereto and Management's Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the year ended December 31, 2010.  For more detailed information regarding the basis of presentation for the following information, you should read the notes to the unaudited consolidated financial statements included in this Report.

This Report contains forward-looking statements within the meaning of the federal securities laws, including discussion and analysis of our financial condition, anticipated capital expenditures required to complete projects, amounts of anticipated cash distributions to our unitholders in the future and other matters.  These forward-looking statements are not historical facts but are the intent, belief or current expectations of management based on its knowledge and understanding of our business and industry.  Forward-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 expressions, although not all forward-looking statements include these words.  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-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 management's view only as of the date of this Report.  We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results.  Factors that could cause actual results to differ materially from any forward-looking statements made in this Report include:

the imposition of federal taxes if Whitestone fails to qualify as a REIT in any taxable year or forego an opportunity to ensure 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 REITs;
adverse economic or real estate developments in Texas, Arizona or Illinois;
increases in interest rates and operating costs;
inability to obtain necessary outside financing;
decreases in rental rates or increases in vacancy rates;
litigation risks;
lease-up risks;
inability to renew tenant or obtain new tenants upon the expiration of existing leases;
inability to generate sufficient cash flows due to market conditions, competition, uninsured losses, changes in tax or other applicable laws; and
the potential 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 our Annual Report on Form 10-K for the year ended December 31, 2010, as previously filed with the Securities and Exchange Commission (the “SEC”).
 
Overview

We are a Delaware limited partnership formed in 1998 and a majority-owned subsidiary of Whitestone, a fully integrated real estate company that owns and operates Community Centered Properties in culturally diverse markets in major metropolitan areas.  We define Community Centered Properties as visibly located properties in established or developing culturally diverse neighborhoods in our target markets.  Also founded in 1998, Whitestone, our general partner, 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.  Management markets, leases, and manages our centers to match tenants with the shared needs of the surrounding neighborhood.  Those needs may include specialty retail, grocery, restaurants and medical, educational and financial 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.

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As of June 30, 2011, we owned and operated 40 commercial properties consisting of:

Operating Portfolio
eighteen retail centers containing approximately 1.2 million square feet of leasable space and having a total carrying amount (net of accumulated depreciation) of $69.7 million;
seven office centers containing approximately 0.6 million square feet of leasable space and having a total carrying amount (net of accumulated depreciation) of $44.4 million;
eleven office/flex centers containing approximately 1.2 million square feet of leasable space and having a total carrying amount (net of accumulated depreciation) of $41.1 million; and
Redevelopment, New Acquisitions Portfolio
four retail Community Centered properties containing approximately 0.3 million square feet of leasable space and having a total carrying amount (net of accumulated depreciation) of $17.7 million.
As of June 30, 2011, we had a total of 813 tenants.  We have a diversified tenant base with our largest tenant comprising only 1.9% of our annualized rental revenues for the six months ended June 30, 2011.  Lease terms for our properties range from less than one year for smaller tenants to over 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 157 new and renewal leases during the six months ended June 30, 2011 totaling approximately 484,000 square feet and approximately $19.8 million in total lease value.  This compares to 137 new and renewal leases totaling approximately 326,000 square feet and approximately $14.6 million in total lease value during the same period in 2010.

As of June 30, 2011, we had no employees and Whitestone employed 56 full-time employees. 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 Form 10-Q for the period ended June 30, 2011.

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 $8.0 million for the three months ended June 30, 2011 as compared to $7.8 million for the three months ended June 30, 2010, an increase of $0.2 million, or 3%.  Rental income and tenant reimbursements for the six months ended June 30, 2011 and 2010 were approximately $16.0 million and $15.4 million, respectively, an increase of $0.6 million, or 4%. Revenue for the three and six months ended June 30, 2011 included approximately $0.4 million and $0.5 million, respectively, in revenue from properties acquired subsequent to June 30, 2010. A decrease in the average annual revenue rate of approximately $0.51 per square foot accounted for a decrease in same store tenant rental and reimbursement revenues of approximately $0.2 million for the three months ended June 30, 2011 as compared to the three months ended June 30, 2010.  Same store tenant rental and reimbursement revenues increased approximately $0.1 million for the six months ended June 30, 2011 as compared to the six months ended June 30, 2010. The increase was driven by a higher occupancy rate. Our Operating Portfolio Occupancy Rate as of June 30, 2011 was 84%, as compared to 82% as of June 30, 2010. 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 which are undergoing significant redeveloping or re-tenanting.

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

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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 Houston 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 June 30, 2011, approximately 24% of our gross leasable square footage is subject to leases that expire prior to December 31, 2012.  Over the last two years we have renewed approximately 75% 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 work toward re-leasing most of that space prior to expiration of the leases. In the markets in which we operate, we obtain and analyze market rental rates by reviewing third-party publications, which provide market and submarket rental rate data, and by inquiry of property owners and property management companies as to rental rates being quoted at properties located in close proximity to our properties and which 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.  The aggregate average rental rate per square foot on leases which expire prior to December 31, 2011 is slightly lower than the aggregate average rental rates per square foot of our total portfolio.  As such, we expect to renew these expiring leases at rates which are at, or near, their current rates. Market conditions, including new supply of properties, and macroeconomic conditions in Houston 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 distributions to our unitholders.
 
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. Our General Partner has extensive relationships with community banks, attorneys, title companies and others in the real estate industry which we believe will enable us to take advantage of these market opportunities and maintain an active acquisition pipeline.
 
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.  Management markets, leases and manages our centers to match tenants with the shared needs of the surrounding neighborhood.  Those needs may include specialty retail, grocery, restaurants, medical, educational and financial 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.
 
On June 28, 2011, we acquired Gilbert Tuscany Village, a property that meets our Community Centered Property strategy, containing 49,415 leasable square feet, located in Gilbert, Arizona for approximately $5.0 million in cash and net prorations. 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 $3.65 million in cash and net prorations. The center contains 62,533 leasable square feet, inclusive of 12,960 square feet leased to two tenants under ground leases, and is located in Mcdowell Mountain Ranch in northern Scottsdale, Arizona. Situated at a prime intersection at East McDowell Mountain Ranch Road and 105th Street, Desert Canyon is the nearest retail and office space to McDowell Mountain Elementary and Junior High Schools. Located adjacent to the Sonora Mountain Desert Preserve, a lighted trail and jogging path wind directly into the Desert Canyon site and provide access from the surrounding upscale residential neighborhoods.

In November 2010, we acquired MarketPlace at Central, a property that meets our Community Centered Property

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strategy, containing 111,130 leasable square feet, located in central Phoenix, Arizona for approximately $6.4 million in cash and net prorations. 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.

In September 2010, we acquired The Citadel, a property that meets our Community Centered Property strategy, containing 28,547 leasable square feet located in Scottsdale, Arizona for approximately $2.2 million in cash and net prorations. The property is strategically located at a prime intersection at Pinnacle Peak and Pima Roads.
    
Property Dispositions

We did not dispose of any properties during the three months ended June 30, 2011. On July 22, 2011, the Company sold Greens Road Plaza, located in Houston, Texas, for $1,750,000 in cash and net prorations. The Company expects to reinvest the proceeds from the sale of the 20,607 square foot property located in Northeast Houston in acquisitions of Community Centered Properties in its target markets in Arizona, Texas, and Illinois.

Critical Accounting Policies

In preparing the consolidated financial statements, we have made estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reported periods. Actual results may differ from these estimates.  A summary of our critical accounting policies is included in our Form 10-K for the year ended December 31, 2010, under Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.  There have been no significant changes to these policies during the three and six months ended June 30, 2011.  For disclosure regarding any recent accounting pronouncements and the anticipated impact they will have on our operations, please refer to Note 2 of the unaudited financial statements.

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Results of Operations

Comparison of the Three Month Periods Ended June 30, 2011 and 2010
 
The following table provides a general comparison of our results of operations for the three months ended June 30, 2011 and June 30, 2010:

 
 
Three Months Ended June 30,
 
 
2011
 
2010
Number of properties owned and operated
 
40

 
36

Aggregate gross leasable area (sq. ft.)(1)
 
3,273,968

 
3,014,264

Ending occupancy rate - operating portfolio(2)
 
84
%
 
82
%
Ending occupancy rate - all properties
 
81
%
 
82
%
 
 
 
 
 
Total property revenues
 
$
7,995

 
$
7,766

Total property expenses
 
3,062

 
2,995

Total other expenses
 
5,129

 
4,414

Provision for income taxes
 
58

 
102

Loss on disposal of assets
 

 
8

Income (loss) from continuing operations
 
(254
)
 
247

Income from discontinued operations
 
16

 
8

Net income (loss)
 
$
(238
)
 
$
255

 
 
 
 
 
Funds from operations (3)
 
$
1,589

 
$
1,895

Property net operating income (4)
 
4,949

 
4,779

Distributions paid on OP Units
 
2,636

 
1,785

Per OP Unit
 
$
0.2850

 
$
0.3375

Distributions paid as a percentage of funds from operations
 
166
%
 
94
%

(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 which are undergoing significant redevelopment or re-tenanting.
(3)     For a reconciliation of funds from operations to net income, see "Funds From Operations" below.
(4)     For a 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 $8.0 million for the three months ended June 30, 2011 as compared to $7.8 million for the three months ended June 30, 2010, an increase of $0.2 million, or 3%.  Revenue for the three months ended June 30, 2011 included approximately $0.4 million in revenue from properties acquired subsequent to June 30, 2010. A decrease in the average annual revenue rate of approximately $0.51 per square foot accounted for a decrease in same store tenant rental and reimbursement revenues of approximately $0.2 million for the three months ended June 30, 2011 as compared to the three months ended June 30, 2010.

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Property expenses.  Our property expenses were approximately $3.1 million and $3.0 million for the three months ended June 30, 2011 and 2010, respectively, an increase of $0.1 million, or 2%.  The primary components of total property expenses are detailed in the table below (in thousands):
 
 
Three Months Ended June 30,
 
Increase /
 
% Increase /
 
 
2011
 
2010
 
(Decrease)
 
(Decrease)
Real estate taxes
 
$
1,096

 
$
889

 
$
207

 
23
 %
Utilities
 
583

 
551

 
32

 
6
 %
Contract services
 
547

 
543

 
4

 
1
 %
Repairs and maintenance
 
250

 
306

 
(56
)
 
(18
)%
Bad debt
 
147

 
190

 
(43
)
 
(23
)%
Labor and other
 
439

 
516

 
(77
)
 
(15
)%
Total property expenses
 
$
3,062

 
$
2,995

 
$
67

 
2
 %

Real estate taxes.  Real estate taxes increased $207,000, or 23%, during the three months ended June 30, 2011 as compared to the same period in 2010. Real estate taxes for properties added subsequent to June 30, 2010 were approximately $100,000 for the three months ended June 30, 2011. Increased valuations from appraisal districts on certain of our properties were the primary reason for the remaining $107,000 increase during the three months ended June 30, 2011 as compared to the same period in 2010. Management works actively 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 expense increased $32,000, or 6%, during the three months ended June 30, 2011 as compared to the same period in 2010. Utility expenses for properties acquired subsequent to June 30, 2010 were approximately $36,000. Same store utilities expense decreased approximately $4,000 during the three months ended June 30, 2011 as compared to the same period in 2010.
 
Contract Services.  Contract services increased $4,000, or 1%, during the three months ended June 30, 2011 as compared to the same period in 2010. The increase in contract services expense included $31,000 in contract expenses for properties acquired subsequent to June 30, 2010. Same store contract service expenses decreased approximately $27,000 during the three months ended June 30, 2011 as compared to the same period in 2010. The $27,000 decrease in same store contract service expenses is primarily attributable to a one-time credit received on janitorial services during the three months ended June 30, 2011.
  
Repairs and maintenance. Repairs and maintenance decreased $56,000, or 18%, during the three months ended June 30, 2011 as compared to the same period in 2010. Repairs and maintenance for the three months ended June 30, 2011 included approximately $9,000 for properties acquired subsequent to June 30, 2010. Same store repairs and maintenance decreased approximately $65,000 during the three months ended June 30, 2011 as compared to the same period in 2010. The $65,000 decrease in same store repair and maintenance is primarily attributable to lower HVAC and parking lot repair expenses during the three months ended June 30, 2011.
 
Bad debt.  Bad debt for the three months ended June 30, 2011 decreased $43,000, or 23%, as compared to the same period in 2010. Management vigorously pursues past due accounts, but expects collection of rents to continue to be challenging for the foreseeable future.
 
Labor and other.  Labor and other decreased $77,000, or 15%, during the three months ended June 30, 2011, as compared to the same period in 2010. The decrease is primarily the result of decreases in non-recoverable property expenses, including expenses related to our lease with the US Census Bureau, which was terminated during the fourth quarter of 2010.

Other expenses.  Our other expenses were $5.1 million for the three months ended June 30, 2011, as compared to $4.4 million for the year ended June 30, 2010, an increase of $0.7 million, or 16%.  The primary components of other expenses, net are detailed in the table below (in thousands):
 

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Three Months Ended June 30,
 
Increase /
 
% Increase /
 
 
2011
 
2010
 
(Decrease)
 
(Decrease)
General and administrative
 
$
1,778

 
$
1,272

 
$
506

 
40
%
Depreciation and amortization
 
1,961

 
1,745

 
216

 
12
%
Interest expense
 
1,445

 
1,402

 
43

 
3
%
Interest, dividend and other investment income
 
(55
)
 
(5
)
 
(50
)
 
1,000
%
Total other expenses
 
$
5,129

 
$
4,414

 
$
715

 
16
%

General and administrative.  General and administrative expenses increased approximately $506,000, or 40%, for the three months ended June 30, 2011 as compared to the same period in 2010. The increases in general and administrative expenses included legal and other professional fees of $166,000, salaries and benefits of $127,000, accounting and other professional fees of $72,000 and acquisition-related expenses of $141,000. The increase in legal and professional fees is 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. No benefit from these legal efforts has been included in our operating results for the three months ended June 30, 2011 and, should we be able to prevail in these matters, the benefit and potential recovery of legal expenses would be included in our operating results when it is determinable. Salaries and benefits increased due to Whitestone's addition of 4 full time employees and increased health insurance, 401(k) and executive relocation costs. Whitestone's employees were added to our office in Arizona to manage our recent property acquisitions. Accounting fees are higher due to an acceleration of certain tax work, and the increase in other professional fees include costs related to investor relations and transfer agent fees.
 
Depreciation and amortization.  Depreciation and amortization increased $216,000, or 12%, for the three months ended June 30, 2011 as compared to the three months ended June 30, 2010. Depreciation for improvements to same store properties increased $128,000 for the three months ended June 30, 2011 as compared to the same period in 2010, and amortization of capitalized loan fees and depreciation of corporate assets increased $16,000 for the three months ended June 30, 2011 as compared to the three months ended June 30, 2010. Depreciation for properties added subsequent to June 30, 2010 was $65,000.

Interest expense. Interest expense increased $43,000, or 3%, for the three months ended June 30, 2011 as compared to the three months ended June 30, 2010. The increase in interest expense is comprised of approximately $23,000 from an approximately $1.7 million increase in the average notes payable balance during the three months ended June 30, 2011 as compared to the three months ended June 30, 2010 and $20,000 from an increase in the effective interest rate from 5.51% to 5.59% during three months ended June 30, 2011 as compared to the three months ended June 30, 2010.

Interest, dividend and other investment income. Interest, dividend and other investment income increased $50,000 for the three months ended June 30, 2011 as compared to the three months ended June 30, 2010. The three months ended June 30, 2011 included $42,000 in dividend income from our investments in marketable securities that was not included in the three months ended June 30, 2010.

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Discontinued operations. Greens Road Plaza, located in Houston, Texas, was sold on July 22, 2011 for $1,750,000 in cash and net prorations and met the criteria for "held-for-sale" classification. As such, the operations of Greens Road Plaza have been classified as discontinued operations. Below is a summary of income from discontinued operations (in thousands):

 
 
Three Months Ended June 30,
 
 
2011
 
2010
Property revenues
 
 
 
 
Rental revenues
 
$
48

 
$
38

Other revenues
 
27

 
28

Total property revenues
 
75

 
66

 
 
 
 
 
Property expenses
 
 
 
 
Property operation and maintenance
 
32

 
39

Real estate taxes
 
12

 
5

Total property expenses
 
44

 
44

 
 
 
 
 
Other expenses
 
 
 
 
General and administrative
 

 

Depreciation and amortization
 
15

 
14

Total other expense
 
15

 
14

 
 
 
 
 
Income before loss on disposal of assets and income taxes
 
16

 
8

 
 
 
 
 
Provision for income taxes
 

 

Loss on sale or disposal of assets
 

 

 
 
 
 
 
Income from discontinued operations
 
$
16

 
$
8



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Comparison of the Six Month Periods Ended June 30, 2011 and 2010
 
The following table provides a general comparison of our results of operations for the six months ended June 30, 2011 and June 30, 2010:

 
 
Six Months Ended June 30,
 
 
2011
 
2010
Number of properties owned and operated
 
40