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		Document

September 11, 2018

Via EDGAR Submission and Overnight Delivery

U.S. Securities and Exchange Commission

Division of Corporation Finance

100 F. Street, NE

Washington, D.C. 20549

Attn: Isaac Esquivel, Accountant

Office of Real Estate & Commodities

RE:     Whitestone REIT

Form 10-Q for the Quarterly Period ended June 30, 2018

Filed August 9, 2018

File No. 001-34855

Dear Mr. Esquivel:

Whitestone REIT (the “Company”) is submitting this letter in response to comments from the staff of the Division of Corporation Finance (the “Staff”) of the Securities and Exchange Commission (the “Commission”) in a letter dated August 27, 2018 (the “Comment Letter”) with respect to the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2018 (the “Quarterly Report”). For your convenience, the Staff’s numbered comments set forth in the Comment Letter have been reproduced in bold and italics herein with responses immediately following each comment. Defined terms used but not otherwise defined herein have the meanings given to them in the Quarterly Report.

Note 6. Investment in Real Estate Partnership, page 13

1.

 We note your determination that the Contribution in December 2016 did not meet the requirements for derecognition of the underlying assets. Please provide us with a detailed analysis of how you reached your conclusion for the period beginning on January 1, 2018, citing relevant accounting literature.

Response to Comment No. 1

The Company acknowledges the Staff’s comment and respectfully advises the Staff that, on January 1, 2018, the Company adopted the following new accounting pronouncements:

•

 Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers, and related amendments (“ASU 2014-09”).  ASU 2014-09 amended the Accounting Standards

2600 South Gessner Suite 500   Houston, Texas  77063  Toll Free  866.789.7348  Fax 713.465.8847  www.whitestonereit.com

Codification (“ASC”) to include a new section, ASC 610-20, Gains and Losses from the Derecognition of non-financial assets (“ASC 610-20”).  ASC 610-20 addresses the recognition and transfer of non-financial assets and “in-substance non-financial assets”(1)  for contracts with non-customers and superseded industry specific real estate guidance in ASC 360-20, Real Estate Sales, which applied to the Contribution in previous periods.  However, ASC 610-20 specifically excluded businesses from its scope.

•

 ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business (“ASU 2017-01”).  ASU 2017-01 amended and narrowed the definition of a business by excluding from the definition a business transaction that involves assets where substantially all of the fair value of the assets is concentrated in a single identifiable asset or a group of similar identifiable assets.

a. Transition to the New Guidance

The Company adopted ASU 2014-09 using the modified retrospective method and the practical expedient included in ASC 606-10-65-1 (h), which allowed the Company to consider only contracts that were not completed as of the transition date (January 1, 2018).  In accordance with ASC 606-10-65-1 (c)(2), a completed contract is a contract for which all (or substantially all) of the revenue was recognized in accordance with revenue guidance that is in effect before the date of initial application.

As of the transition date, the Company had not recognized any revenue associated with the Contribution and it was not considered a completed contract for purposes of the transition guidance.  Under the modified retrospective method, an entity must recognize the cumulative effect of initially applying the new revenue recognition guidance as an adjustment to the opening balance of retained earnings (or other appropriate components of equity or net assets in the statement of financial position) for the annual reporting period that includes the date of initial application.

(1) In accordance with ASC 610-20-15-5, an in-substance nonfinancial asset is a financial asset (for example, a receivable) promised to a counterparty in a contract if substantially all of the fair value of the assets (recognized and unrecognized) that are promised to the counterparty in the contract is concentrated in nonfinancial assets. If substantially all of the fair value of the assets that are promised to a counterparty in a contract is concentrated in nonfinancial assets, then all of the financial assets promised to the counterparty in the contract are in-substance nonfinancial assets. For purposes of this evaluation, when a contract includes the transfer of ownership interests in one or more consolidated subsidiaries that is not a business, an entity shall evaluate the underlying assets in those

subsidiaries.

2600 South Gessner Suite 500   Houston, Texas  77063  Toll Free  866.789.7348  Fax 713.465.8847  www.whitestonereit.com

The Company considered the adoption of the new standards and the impact on the accounting for the Contribution as of the transition date and determined that the assets transferred in the Contribution did not meet the definition of a business in accordance with ASU 2017-01, and that the Contribution was not a contract with a customer and was outside the scope of ASC 606.  In making these determinations, the Company considered the following:

•

 Not a Business: In accordance with ASC 805-10-55-5A, “If substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets, the set is not considered a business. Gross assets acquired should exclude cash and cash equivalents, deferred tax assets, and goodwill resulting from the effects of deferred tax liabilities.”  The Company determined that over 98% of the value of the Contribution was concentrated in the Pillarstone Properties, which the Company considered to be a group of similar identifiable assets under the standard.

•

 Not a Contract with a Customer:  ASC 606-10-15-3 defines a customer as “a party that has contracted with an entity to obtain goods or services that are an output of the entity’s ordinary activities in exchange for consideration.” As such, contracts with a counterparty other than a customer do not fall within the scope of ASC 606.  As further described in the Quarterly Report, the Company is a Maryland real estate investment trust (“REIT”) engaged in owning and operating Community Centered Properties®, which the Company defines as visibly located properties in established or developing culturally diverse neighborhoods in its target markets.  The Pillarstone Properties represented non-core properties that did not fit the Company’s Community Centered Property® strategy and were primarily properties that were owned when the Company’s current management team assumed the management of the Company in 2006.  Therefore, the transfer of the Pillarstone Properties was not an output of the Company’s ordinary activities.  Further, Pillarstone Capital REIT Operating Partnership LP (“Pillarstone OP”) is not a customer of the Company.

Consequently, the Company determined that the Contribution was an uncompleted contract for an “in-substance nonfinancial asset” and therefore the Contribution should be assessed based on the new guidance in ASC 610-20.  ASC 610-20-15-2 applies to gains or losses recognized upon the derecognition of nonfinancial assets and in-substance nonfinancial assets. Nonfinancial assets within the scope of ASC 610-20-15-2 include intangible assets, land, buildings, or materials and supplies and may have a zero carrying value.

b. Assessment of ASC 610-20

In accordance with ASC 610-20-25-2 through 25-4, an entity shall first evaluate whether it has (or continues to have) a controlling financial interest in the legal entity that holds the nonfinancial assets and/or in-substance nonfinancial assets that have been transferred by applying the guidance in Topic 810 on consolidation. If an entity determines it has (or continues to have) a controlling financial interest in the legal entity that holds the nonfinancial assets or in-substance nonfinancial assets, it shall not derecognize those assets and shall apply the guidance in paragraphs 810-10-45-21A through 45-24.  Any nonfinancial assets or in-substance nonfinancial assets transferred that are held in a legal entity in which the entity does not have (or ceases to have) a controlling financial interest shall be further evaluated in accordance with the guidance in paragraphs 610-20-25-5 through 25-7.

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As further described in Note 6 to the consolidated financial statements included in the Quarterly Report, after discussions with the Staff and the Office of the Chief Accountant of the SEC (“OCA”), and consideration of the facts and circumstances, the Company determined that it does NOT have a controlling financial interest in the entities that own the Pillarstone Properties in accordance with Topic 810, and further concluded that ASC 610-20 was applicable.

In accordance with ASC 610-20-25-5, “after applying the guidance in paragraphs 610-20-25-2 through 25-4, an entity shall next evaluate a contract in accordance with the guidance in paragraphs 606-10-25-1 through 25-8. If a contract does not meet all of the criteria in paragraph 606-10-25-1, an entity shall not derecognize the nonfinancial assets or in-substance nonfinancial assets transferred, and it shall apply the guidance in paragraph 350-10-40-3 to any intangible assets and the guidance in paragraph 360-10-40-3C to any property, plant, and equipment. An entity shall follow the guidance in paragraphs 606-10-25-6 through 25-8 to determine if and when a contract subsequently meets all of the criteria in paragraph 606-10-25-1.”

As such, the Company assessed whether the contract existence criteria in ASC 606 was met before a sale could be recorded.    Under ASC 606-10-25-1 (e), collectability of substantially all of the consideration to which the entity expects to be entitled affects the evaluation of whether a contract exists. Upon a determination that it is not probable that the entity will collect substantially all of the consideration to which it will be entitled (i.e., a determination that the collectability threshold is not met), no contract is deemed to exist, and no sale can be recorded.

As consideration for the Contribution, the Company received Pillarstone OP Units, which may be tendered to Pillarstone OP for redemption for cash at a future date, and the assumption of an aggregate of $50.4 million of the Company’s liabilities by Pillarstone OP.  Also, as part of the Contribution, the Company provided a $15.5 million loan to Pillarstone OP and provided guarantees to the third-party lenders owed the $50.4 million of liabilities assumed by Pillarstone OP.  The Company believes that, due to the current liquidity and cash flow of Pillarstone OP, collectability of the expected proceeds from the contract is not probable, as Pillarstone OP does not have cash sufficient to redeem the Pillarstone OP Units, repay the $15.5 million loan due to the Company, or to replace the guarantees required by the third-party lenders on the liabilities assumed by Pillarstone OP.

Management concluded that the Contribution had not met the collectability requirement in ASC 606-10-25-1 (e) as of the date of adoption and such condition continued as of June 30, 2018.  As such, the Company concluded it should not derecognize the in-substance nonfinancial assets associated with the Contribution as of January 1, 2018 and June 30, 2018

Without regard to the collectability assessment, the Company also evaluated the Contribution in accordance with ASC 610-20-25-6 through 25-7, which states that if an entity has not retained a controlling financial interest in a subsidiary, it should derecognize the nonfinancial asset or in-substance nonfinancial asset when it transfers control of the assets in a manner consistent with the principles in ASC 606 as follows:

•ASC 610-20-25-6 provides: “Once a contract meets all of the criteria in paragraph 606-10-25-1, an entity shall identify each distinct nonfinancial asset and distinct in-substance nonfinancial asset promised to a counterparty in accordance with the guidance in paragraphs 606-10-25-19 through 25-22. An entity shall derecognize each distinct asset when it transfers control of the asset in accordance with paragraph 606-10-25-30. In some cases, control of each asset may transfer at the same time such that an entity may not need to separate and allocate

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consideration to each distinct nonfinancial asset and in-substance nonfinancial asset. That may be the case, for example, when a parent transfers ownership interests in a consolidated subsidiary that holds nonfinancial assets (or nonfinancial assets and in-substance nonfinancial assets) and ceases to have a controlling financial interest in the subsidiary in accordance with Topic 810. However, control of each asset may not transfer at the same time if the parent has control of some of the assets in accordance with paragraph 606-10-25-30 (for example, through repurchase agreements).”

•ASC 610-20-25-7  provides “For purposes of evaluating the indicators of the transfer of control in paragraph 606-10-25-30, if an entity has (or continues to have) a noncontrolling interest in the legal entity that holds the nonfinancial assets or in-substance nonfinancial assets as a result of the transaction, the entity shall evaluate the point in time at which the legal entity holding the assets obtains (or has) control (for example, by evaluating whether the legal entity can direct the use of, and obtain substantially all of the benefits from, each distinct  nonfinancial asset or in-substance nonfinancial asset within it)…”

i. Assessment of ASC 606-10-25-30

The Company assessed the Contribution as of the adoption date to determine if control had passed to Pillarstone OP using the control definition in ASC 606.  For purposes of determining whether control has passed in the transfer of a non-financial asset or an in-substance nonfinancial asset, ASC 606-10-25-25 defines control as an entity’s ability to direct the use of and obtain substantially all of the remaining benefits of an asset. In accordance with ASC 606-10-25-30, an entity shall consider indicators of the transfer of control, which include, but are not limited to, the following:

a.    “The entity has a present right to payment for the asset-If a customer presently is obliged to pay for an asset, then that may indicate that the customer has obtained the ability to direct the use of, and obtain substantially all of the remaining benefits from, the asset in exchange.”

The Contribution did not involve the transfer of any cash.  The consideration included the issuance of Pillarstone OP Units to the Company that may be tendered to Pillarstone OP for redemption for cash at a future point in time.  As of December 31, 2017, and June 30, 2018, Pillarstone OP did not have cash sufficient to redeem the Pillarstone OP Units.  In addition, Pillarstone OP did not have cash sufficient to repay the $15.5 million note payable to the Company or the ability to provide the guarantees to the third-party lenders for the $50.4 million owed by Pillarstone OP.  Therefore, due to Pillarstone’s current financial position, the Company’s present right to payment from Pillarstone OP is non-substantive.

b.    “The customer has legal title to the asset-Legal title may indicate which party to a contract has the ability to direct the use of, and obtain substantially all of the remaining benefits from, an asset or to restrict the access of other entities to those benefits. Therefo