What changed in this filing

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Item 1. Financial Statements

2020-08-10 compared with 2020-06-25 · 170 added, 101 removed, 288 unchanged (48% of the section changed)

34 unchanged sentences

STRATUS PROPERTIES INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME (Unaudited)

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited)

(In Thousands, Except Per Share Amounts)

Three Months Ended

Three Months Ended Six Months Ended

June 30, June 30,

2020 2019 2020 2019

Real estate operations $ 1,893 $ 4,129 $ 14,229 $ 7,077

11 unchanged sentences

General and administrative expenses 3,103 2,919 5,918 6,118

Gain on sale of assets — ( 2,113 )

Income from forfeited earnest money ( 15,000 ) — ( 15,000 ) —

Loss (gain) on sale of assets — 161 — ( 1,952 )

Total 445 23,297 29,227 39,352

Operating (loss) income ( 648 ) 3,643

Operating income 8,486 427 7,838 4,070

Interest expense, net ( 3,666 ) ( 2,911 ) ( 7,581 ) ( 5,483 )

Loss on interest rate derivative instruments ( 121 ) ( 59 )

Gain (loss) on interest rate derivative instruments 42 ( 123 ) ( 79 ) ( 182 )

Loss on early extinguishment of debt — — — ( 16 )

Other income, net 89 12 108 311

(Loss) income before income taxes

Income (loss) before income taxes and equity in unconsolidated affiliates' loss

4,951 ( 2,595 ) 286 ( 1,300 )

Benefit from (provision for) income taxes 2,518 ( 433 )

Net (loss) income and total comprehensive (loss) income

Equity in unconsolidated affiliates' loss — ( 13 ) — ( 13 )

(Provision for) benefit from income taxes ( 1,148 ) 218 1,370 ( 215 )

Net income (loss) and total comprehensive income (loss)

3,803 ( 2,390 ) 1,656 ( 1,528 )

Total comprehensive loss attributable to noncontrolling interests in subsidiaries

Net (loss) income and total comprehensive (loss) income attributable to common stockholders

331 1 1,408 1

Net (loss) income per share attributable to common stockholders:

Net income (loss) and total comprehensive income (loss) attributable to common stockholders

$ 4,134 $ ( 2,389 ) $ 3,064 $ ( 1,527 )

Diluted $ ( 0.13 ) $ 0.10

Basic and diluted net income (loss) per share attributable to common stockholders

$ 0.50 $ ( 0.29 ) $ 0.37 $ ( 0.19 )

Weighted-average common shares outstanding:

8,210 8,177 8,205 8,172

Diluted 8,228 8,177 8,230 8,172

3 unchanged sentences

(In Thousands)

Three Months Ended

Six Months Ended

Cash flow from operating activities:

Net (loss) income $ ( 2,147 ) $ 862

Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:

Net income (loss) $ 1,656 $ ( 1,528 )

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

Depreciation 7,010 5,333

1 unchanged sentence

Gain on sale of assets — ( 1,952 )

Loss on interest rate derivative contracts 121 59

Loss on interest rate derivative instruments 79 182

Loss on early extinguishment of debt — 16

Amortization of debt issuance costs and stock-based compensation 1,095 546

(Decrease) increase in deposits ( 185 ) 108

Equity in unconsolidated affiliates' loss — 13

Increase in deposits 46 185

Deferred income taxes 2,731 ( 38 )

1 unchanged sentence

Municipal utility district reimbursements applied to real estate under development

Increase in other assets ( 3,967 ) ( 928 )

Decrease (increase) in other assets 1,215 ( 1,636 )

Decrease in accounts payable, accrued liabilities and other ( 8,464 ) ( 2,187 )

Net cash (used in) provided by operating activities ( 4,434 ) 691

Net cash provided by (used in) operating activities 5,445 ( 1,578 )

Cash flow from investing activities:

3 unchanged sentences

Purchase of noncontrolling interest in consolidated subsidiary — ( 4,589 )

Other, net — ( 4 )

Net cash used in investing activities ( 5,088 ) ( 47,179 )

7 unchanged sentences

Financing costs ( 423 ) ( 231 )

Net cash provided by financing activities 6,164 25,587

Net cash (used in) provided by financing activities ( 4,076 ) 43,477

Net decrease in cash, cash equivalents and restricted cash ( 3,719 ) ( 5,280 )

5 unchanged sentences

(In Thousands)

THREE MONTHS ENDED JUNE 30

Stockholders’ Equity

2 unchanged sentences

of Shares At Par

Balance at March 31, 2020 9,347 $ 93 $ 186,244 $ ( 44,637 ) 1,137 $ ( 21,600 ) $ 120,100 $ 11,906 $ 132,006

Stock-based compensation — — 178 — — — 178 — 178

Total comprehensive income (loss) — — — 4,134 — — 4,134 ( 331 ) 3,803

Balance at June 30, 2020 9,347 $ 93 $ 186,422 $ ( 40,503 ) 1,137 $ ( 21,600 ) $ 124,412 $ 11,575 $ 135,987

Balance at March 31, 2019 9,305 $ 93 $ 186,424 $ ( 40,241 ) 1,128 $ ( 21,360 ) $ 124,916 $ 18,076 $ 142,992

Stock-based compensation — — ( 90 ) — — — ( 90 ) — ( 90 )

Total comprehensive loss — — — ( 2,389 ) — — ( 2,389 ) ( 1 ) ( 2,390 )

Balance at June 30, 2019 9,305 $ 93 $ 186,334 $ ( 42,630 ) 1,128 $ ( 21,360 ) $ 122,437 $ 18,075 $ 140,512

STRATUS PROPERTIES INC.

CONSOLIDATED STATEMENTS OF EQUITY (Unaudited)

(In Thousands)

SIX MONTHS ENDED JUNE 30

Stockholders’ Equity

Held in Treasury Total Stockholders' Equity

Common Stock Capital in Excess of Par Value Accum-ulated Deficit Noncontrolling Interests in Subsidiaries

of Shares At Par

Balance at December 31, 2019 9,330 $ 93 $ 186,082 $ ( 43,567 ) 1,133 $ ( 21,509 ) $ 121,099 $ 12,983 $ 134,082

3 unchanged sentences

— — — — 4 ( 91 ) ( 91 ) — ( 91 )

Total comprehensive loss — — — ( 1,070 ) — — ( 1,070 ) ( 1,077 ) ( 2,147 )

Balance at March 31, 2020 9,347 $ 93 $ 186,244 $ ( 44,637 ) 1,137 $ ( 21,600 ) $ 120,100 $ 11,906 $ 132,006

Total comprehensive income (loss) — — — 3,064 — — 3,064 ( 1,408 ) 1,656

Balance at June 30, 2020 9,347 $ 93 $ 186,422 $ ( 40,503 ) 1,137 $ ( 21,600 ) $ 124,412 $ 11,575 $ 135,987

Balance at December 31, 2018 9,288 $ 93 $ 186,256 $ ( 41,103 ) 1,124 $ ( 21,260 ) $ 123,986 $ 22,665 $ 146,651

5 unchanged sentences

— — — — — — — ( 4,589 ) ( 4,589 )

Total comprehensive income — — — 862 — — 862 — 862

Balance at March 31, 2019 9,305 $ 93 $ 186,424 $ ( 40,241 ) 1,128 $ ( 21,360 ) $ 124,916 $ 18,076 $ 142,992

Total comprehensive loss — — — ( 1,527 ) — — ( 1,527 ) ( 1 ) ( 1,528 )

Balance at June 30, 2019 9,305 $ 93 $ 186,334 $ ( 42,630 ) 1,128 $ ( 21,360 ) $ 122,437 $ 18,075 $ 140,512

The accompanying Notes to Consolidated Financial Statements (Unaudited) are an integral part of these consolidated financial statements.

3 unchanged sentences

The information furnished herein reflects all adjustments that are, in the opinion of management, necessary for a fair statement of the results for the interim periods reported and consist of normal recurring adjustments.

Operating results for the three-month period ended March 31, 2020, are not necessarily indicative of the results that may be expected for the year ending December 31, 2020.

In particular, the impact of the COVID-19 pandemic intensified late in the first quarter of 2020, has continued into the second quarter of 2020 and is expected to continue beyond the second quarter of 2020.

Operating results for the second quarter of 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020.

In particular, the impact of the COVID-19 pandemic intensified late in the first quarter of 2020 and has continued during and subsequent to the second quarter of 2020.

As a result, this interim period, as well as future interim periods in 2020, will not be comparable to past performance or indicative of future performance.

The preparation of Stratus’ consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions, including potential impacts arising from the COVID-19 pandemic and related government actions, that affect the amounts reported in these financial statements and accompanying notes.

The preparation of Stratus’ consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions, including those related to the potential impacts arising from the COVID-19 pandemic and related government actions, that affect the amounts reported in these financial statements and accompanying notes.

Actual results could differ materially from those estimates.

As the impact of the COVID-19 pandemic continues to evolve, and the extent of its impact cannot be determined with certainty, estimates and assumptions about future events and their effects require increased judgement.

Stratus’ future assessment of the magnitude and duration of the COVID-19 pandemic and related economic disruption, as well as other factors, could result in material changes to the estimates and material impacts to Stratus’ consolidated financial statements in future reporting periods.

Block 21 Update.

Stratus’ assessment of the future magnitude and duration of the COVID-19 pandemic and related economic disruption, as well as other factors, could result in material changes to the estimates used in and material impacts to Stratus’ consolidated financial statements in future reporting periods.

Terminated Block 21 Sale.

Block 21 is Stratus’ wholly owned mixed-use real estate development and entertainment business in downtown Austin, Texas that contains the 251 -room W Austin Hotel and is home to Austin City Limits Live at the Moody Theater, a 2,750 -seat entertainment venue that serves as the location for the filming of Austin City Limits, the longest running music series in American television history.

3 unchanged sentences

Ryman deposited $ 15.0 million in earnest money to secure its performance under the agreements governing the sales.

As this represented a strategic shift for Stratus, the assets and liabilities of Block 21 were previously classified as held for sale - discontinued operations in the consolidated balance sheet at December 31, 2019.

As previously disclosed, on May 21, 2020, Ryman delivered a termination letter, which was agreed to and accepted by Stratus, terminating the agreements to sell Block 21 and authorizing the release of Ryman's $ 15.0 million in earnest money to Stratus .

Stratus used $ 13.8 million of the $ 15.0 million earnest money to pay down its Comerica Bank revolving credit facility and used the remaining $ 1.2 million for Block 21 debt service and required monthly reserves.

Stratus will record the $ 15.0 million as income in the second quarter of 2020.

As a result of the termination of the agreements to sell Block 21, Stratus has concluded that such assets and liabilities no longer qualified as held for sale as of March 31, 2020.

The carrying amounts as of December 31, 2019, of Block 21’s major classes of assets and liabilities, which were previously classified as held for sale - discontinued operations in the consolidated balance sheet follow (in thousands):

As the proposed sale represented a strategic shift for Stratus, the assets and liabilities of Block 21 were classified as held for sale - discontinued operations in the consolidated balance sheet of Stratus' 2019 Form 10-K.

On May 21, 2020, Ryman delivered a termination letter, which was agreed to and accepted by Stratus, terminating the agreements to sell Block 21 and authorizing the release of Ryman's $ 15.0 million in earnest money to Stratus.

During the second quarter of 2020, Stratus recorded the $ 15.0 million as operating income, used $ 13.8 million of the $ 15.0 million earnest money to pay down its Comerica Bank revolving credit facility and used the remaining $ 1.2 million for Block 21 debt service and required monthly reserves.

As a result of the termination of the agreements to sell Block 21, Stratus has concluded that such assets and liabilities no longer qualified as held for sale.

Cash and cash equivalents $ 10,408

10 unchanged sentences

The pandemic has resulted in government restrictions of various degrees and effective at various times, including stay-at-home orders, bans on travel, limitations on the size of gatherings, limitations on the operations of businesses deemed non-essential, closures of work facilities, schools, public buildings and businesses, cancellation of events (including entertainment events, conferences and meetings), quarantines and social distancing measures.

Beginning in mid-June 2020, there have been reports of increasing numbers of new COVID-19 cases throughout the United States, and in particular, Texas, resulting in some governments extending or re-imposing restrictions.

The pandemic and responses to it have also caused a steep increase in unemployment in the U.S.

As a result, the pandemic has had a significant adverse impact on Stratus' business and operations.

As mentioned above, Stratus' previously announced transaction to sell Block 21 was terminated by Ryman as a result of the capital markets and economic environment caused by the COVID-19 pandemic.

Additionally, Stratus is deferring progress on development projects pending improvements in health and market conditions, but Stratus continues to advance its land planning, engineering and permitting activities.

As mentioned above, Stratus' previously disclosed transaction to sell Block 21 was terminated by Ryman as a result of the capital markets and economic environment caused by the COVID-19 pandemic.

Additionally, Stratus is continuing to defer progress on development projects pending improvements in health and market conditions, but Stratus continues to advance its land planning, engineering and permitting activities.

Because the pandemic is unprecedented in recent history, and its severity, duration and future economic consequences are difficult to predict, Stratus cannot predict its future impact on the company with any certainty.

Stratus’ revenue, operating income and cash flow in its hotel and entertainment segments were adversely impacted in the first quarter of 2020, have been more adversely impacted in the second quarter of 2020 and are expected to continue to be adversely impacted beyond second-quarter 2020.

For example, while the hotel has remained open throughout the pandemic, average occupancy for the second quarter through June 21, 2020, was 12 percent, with June having the highest occupancy in the second quarter, averaging 24 percent.

As a result of the COVID-19 pandemic, many of Stratus’ retail leasing tenants, other than grocery and liquor stores, closed or were operating at significantly reduced capacity beginning late in the first quarter of 2020 and continuing into the second quarter of 2020.

Stratus’ revenue, operating income and cash flow in its hotel and entertainment segments were adversely impacted in the first quarter of 2020, were more adversely impacted in the second quarter of 2020 and are expected to continue to be adversely impacted beyond second-quarter 2020.

For example, while the hotel has remained open throughout the pandemic, average occupancy in the second quarter of 2020 was 12 percent.

Stratus' entertainment venue, ACL Live, remains closed.

All second-quarter 2020 scheduled events at ACL Live were either rescheduled or cancelled as a result of the COVID-19 pandemic.

Additionally, Stratus' smaller capacity venue, 3TEN ACL Live, hosted only 15 events in second-quarter 2020.

Beginning in April 2020, Stratus agreed, generally, to 90 -day base rent deferrals with a majority of these tenants.

The deferred rent will be amortized over a 12 -month or 24 -month period starting in January 2021.

These rent deferrals have resulted in a reduction of scheduled base rent collections of approximately 30 percent for the second quarter through June 22, 2020.

As of mid-June, most of Stratus’ retail tenants have reopened.

At its multi-family properties, Stratus has granted rent deferral accommodations on a case-by-case basis, which as of June 22, 2020, had resulted in a reduction of scheduled rent collections of approximately two percent of contractual rents, with no material decline in occupancy.

In the aggregate, Stratus’ second-quarter retail and multi-family rent collections are 15 percent less than scheduled rent as of June 22, 2020.

Stratus will assess these deferred rents for potential credit losses at June 30, 2020.

The deferred rents are scheduled to be collected over a 12 -month or 24 -month period starting in January 2021.

These rent deferrals resulted in a reduction of scheduled base rent collections of 23 percent during the second quarter of 2020.

As of June 30, 2020, most of Stratus’ retail tenants had reopened.

At its multi-family properties, Stratus has granted rent deferral accommodations on a case-by-case basis, which during the second quarter of 2020 resulted in a reduction of scheduled rent collections of less than one percent of contractual rents, with no material decline in occupancy.

In the aggregate, Stratus’ second-quarter retail and multi-family rent collections were 10 percent less than scheduled rents.

Stratus assessed its rents receivable for potential credit losses as of June 30, 2020, and recorded a $ 1.4 million charge for estimated uncollectible rents receivable and unrealizable deferred costs.

The following is an update to Stratus' revenue recognition accounting policy included in Note 1 of its 2019 Form 10-K.

Stratus recognizes its rental income on a straight-line basis based on the terms of its signed leases with tenants.

Recoveries from tenants for taxes, insurance and other commercial property operating expenses are recognized as revenues in the period the related costs are incurred.

If upon, or subsequent to, lease commencement, the assessed collectability of lease payments is not probable, recognized lease income is limited to collected lease payments.

In addition, any previously recognized rents receivable and deferred lease costs associated with that lease are charged to cost of sales in the period that assessed collectability is considered not probable.

In response to the COVID-19 pandemic, the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act) was signed into law on March 27, 2020.

The CARES Act provides retroactive tax provisions and other stimulus measures to affected companies including the ability to carryback net operating losses, raising the limitation on the deductibility of interest expense, technical corrections to accelerate tax depreciation for qualified improvement property, and delaying the payment of employer payroll taxes.

On April 22, 2020, Stratus received a $ 4.0 million loan under the Paycheck Protection Program of the CARES Act.

The loan bears interest at one percent and matures April 15, 2022.

The CARES Act provides retroactive tax provisions and other stimulus measures to affected companies including the ability to carry back net operating losses, raising the limitation on the deductibility of interest expense, technical corrections to accelerate tax depreciation for qualified improvement property, and delaying the payment of employer payroll taxes.

On April 22, 2020, Stratus received a $ 4.0 million loan under the Paycheck Protection Program (PPP loan) of the CARES Act.

The PPP loan bears interest at one percent and matures April 15, 2022, except for the portion that may be forgiven.

The proceeds from the loan must be used to retain workers and maintain payroll or make mortgage interest payments, lease payments and utility payments.

As of June 25, 2020, Stratus has not used the funds.

Refer to Note 8 for further discussion of income tax benefits.

EARNINGS PER SHARE

Stratus’ basic net (loss) income per share of common stock was calculated by dividing the net (loss) income attributable to common stockholders by the weighted-average shares of common stock outstanding during the period.

A reconciliation of net (loss) income and weighted-average shares of common stock outstanding for purposes of calculating diluted net (loss) income per share (in thousands, except per share amounts) follows:

Three Months Ended

Net (loss) income and total comprehensive (loss) income attributable to common stockholders

Stratus’ basic net income (loss) per share of common stock was calculated by dividing the net income (loss) attributable to common stockholders by the weighted-average shares of common stock outstanding during the period.

A reconciliation of net income (loss) and weighted-average shares of common stock outstanding for purposes of calculating diluted net income (loss) per share (in thousands, except per share amounts) follows:

Three Months Ended Six Months Ended

June 30, June 30,

2020 2019 2020 2019

Net income (loss) and total comprehensive income (loss) attributable to common stockholders

$ 4,134 $ ( 2,389 ) $ 3,064 $ ( 1,527 )

Basic weighted-average shares of common stock outstanding

8,210 8,177 8,205 8,172

Add shares issuable upon exercise or vesting of dilutive stock options and restricted stock units (RSUs)

Diluted weighted-average shares of common stock outstanding

Net (loss) income per share attributable to common stockholders:

8,228 8,177 8,230 8,172

Basic and diluted net income (loss) per share attributable to common stockholders

$ 0.50 $ ( 0.29 ) $ 0.37 $ ( 0.19 )

Excludes 78 thousand shares of common stock associated with RSUs and stock options that were anti-dilutive as a result of the net loss.

Excludes 31 thousand shares of common stock associated with RSUs that were anti-dilutive.

Excludes 59 thousand shares for second-quarter 2020 and 37 thousand shares for the first six months of 2020 of common stock associated with RSUs that were anti-dilutive.

Excludes 94 thousand shares for second-quarter 2019 and 95 thousand shares for the first six months of 2019 of common stock associated with RSUs and stock options that were anti-dilutive as a result of the net loss.

RELATED PARTY TRANSACTIONS

5 unchanged sentences

Stratus Kingwood Place, L.P.

On August 3, 2018, Stratus Kingwood Place, L.P., a Texas limited partnership and a subsidiary of Stratus (the Kingwood, L.P.), completed a $ 10.7 million private placement, approximately $ 7 million of which, combined with a $ 6.75 million loan from Comerica Bank, was used to purchase a 54 -acre tract of land located in Kingwood, Texas for $ 13.5 million, for the development of Kingwood Place, a new H-E-B, L.P.

(HEB)-anchored, mixed-use development project (Kingwood Place).

As one of the participants in the private placement offering, LCHM purchased Class B limited partnership interests initially representing an 8.8 percent equity interest in the Kingwood, L.P.

11 unchanged sentences

(in thousands):

March 31, 2020 December 31, 2019

June 30, 2020 December 31, 2019

Cash and cash equivalents $ 2,525 $ 1,110

10 unchanged sentences

Stratus has an arrangement with Austin Retail Partners for services provided by a consultant of Austin Retail Partners who is the son of Stratus' President and Chief Executive Officer.

Payments to Austin Retail Partners for the consultant's general consulting services related to the entitlement and development of properties and expense reimbursements totaled approximately $ 39 thousand in first-quarter 2020 and $ 27 thousand in first-quarter 2019.

Payments to Austin Retail Partners for the consultant's general consulting services related to the entitlement and development of properties and expense reimbursements totaled approximately $ 26 thousand in second-quarter 2020, $ 29 thousand in second-quarter 2019, $ 65 thousand for the first six months of 2020 and $ 56 thousand for the first six months of 2019.

Refer to Note 2 of the Stratus 2019 Form 10-K for further discussion.

In January 2019, Stratus sold a retail pad subject to a ground lease located in the Circle C community for $ 3.2 million.

Stratus used a portion of the proceeds from the sale to repay $ 2.5 million of its Comerica Bank credit facility borrowings and recorded a gain on this sale totaling $ 2.1 million in first-quarter 2019.

Stratus used a portion of the proceeds from the sale to repay $ 2.5 million of its Comerica Bank credit facility borrowings and, after adjustments recorded in second-quarter 2019, recorded a gain on this sale totaling $ 2.0 million for the first six months of 2019.

FAIR VALUE MEASUREMENTS

3 unchanged sentences

A summary of the carrying amount and fair value of Stratus' other financial instruments follows (in thousands):

March 31, 2020 December 31, 2019

June 30, 2020 December 31, 2019

Value Carrying

7 unchanged sentences

The interest rate swap agreement with Comerica Bank was entered into in 2013, is effective through December 31, 2020, and has a fixed interest rate of 2.3 percent compared to the variable rate based on the one-month LIBOR.

As of March 31, 2020, the agreement had a notional amount of $ 15.2 million, which will amortize to $ 14.8 million by the end of the agreement, and as of December 31, 2019, the agreement had a notional amount of $ 15.3 million.

The interest rate cap and swap agreements do not qualify for hedge accounting so changes in the agreements' fair values are recorded in the consolidated statements of comprehensive (loss) income.

of June 30, 2020, the agreement had a notional amount of $ 15.0 million, which will amortize to $ 14.8 million by the end of the agreement, and as of December 31, 2019, the agreement had a notional amount of $ 15.3 million.

The interest rate cap and swap agreements do not qualify for hedge accounting so changes in the agreements' fair values are recorded in the consolidated statements of comprehensive income (loss).

Stratus uses an interest rate pricing model that relies on market observable inputs such as LIBOR to measure the fair value of both agreements.

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The components of Stratus' debt are as follows (in thousands):

March 31, 2020 December 31, 2019

Goldman Sachs loan $ 140,643 $ 141,184

June 30, 2020 December 31, 2019

Block 21 loan $ 140,115 $ 141,184

The Santal loan 74,158 73,972

1 unchanged sentence

New Caney land loan 4,929 4,908

PPP loan 3,988 —

Construction loans:

9 unchanged sentences

$ 363,849 $ 365,749

Includes net reductions for unamortized debt issuance costs of $ 3.1 million at March 31, 2020, and $ 3.5 million at December 31, 2019.

As of March 31, 2020, Stratus had $ 10.6 million available under its $ 60.0 million Comerica Bank credit facility, with $ 150 thousand of letters of credit committed against the credit facility.

Effective April 14, 2020, Stratus and Comerica Bank agreed to modify the Comerica Bank credit facility to (i) extend the maturity date of the credit facility from June 29, 2020, to September 27, 2020, and (ii) revise the definition of LIBOR to provide for an increase in the LIBOR floor from zero percent to one percent.

On June 12, 2020, the Company entered into a further amendment to its credit facility agreement with Comerica Bank to extend the maturity date of the facility to September 27, 2022.

Includes net reductions for unamortized debt issuance costs of $ 2.8 million at June 30, 2020, and $ 3.5 million at December 31, 2019.

As of June 30, 2020, Stratus had $ 25.9 million available under its $ 60.0 million Comerica Bank credit facility, with $ 150 thousand of letters of credit committed against the credit facility.

On June 12, 2020, Stratus entered into a further amendment to its credit facility agreement with Comerica Bank to extend the maturity date of the facility to September 27, 2022.

During second-quarter 2020, Stratus entered into amendments to the Lantana Place and West Killeen Market construction loans in which Stratus was granted waivers of the debt service coverage ratio covenants for the quarters needed such that it believes that it will be able to remain in compliance if rent payments do not further deteriorate materially as currently anticipated.

In January 2020, the Kingwood Place construction loan was modified to increase the loan amount by $ 2.5 million to a total of $ 35.4 million.

The increase is being used to fund the construction of a retail building on an existing Kingwood Place retail pad.

The increase was used to fund the construction of a retail building on an existing Kingwood Place retail pad.

For a description of Stratus' other debt, refer to Note 6 in the Stratus 2019 Form 10-K.

Interest Expense and Capitalization.

Interest costs (before capitalized interest) totaled $ 5.2 million in first-quarter 2020 and $ 4.6 million in first-quarter 2019.

Stratus' capitalized interest totaled $ 1.3 million in first-quarter 2020 and $ 2.1 million in first-quarter 2019, primarily related to development activities at Barton Creek.

The 2019 period also included capitalized interest related to development activities at Kingwood Place and The Saint Mary.

Interest costs (before capitalized interest) totaled $ 4.9 million in second-quarter 2020, $ 5.1 million in second-quarter 2019, $ 10.1 million for the first six months of 2020 and $ 9.7 million for the first six months of 2019.

Stratus' capitalized interest totaled $ 1.2 million in second-quarter 2020, $ 2.1 million in second-quarter 2019, $ 2.5 million for the first six months of 2020 and $ 4.2 million for the first six months of 2019, primarily related to development activities at Barton Creek.

The 2019 periods also included capitalized interest related to development activities at Kingwood Place and The Saint Mary.

PROFIT PARTICIPATION INCENTIVE PLAN

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Refer to Note 8 of the Stratus 2019 Form 10-K for further discussion.

During first-quarter 2020, Stratus recorded a $ 49 thousand reduction to the accrued liability for the Plan of which $ 4 thousand reduced project development costs and $ 45 thousand reduced general and administrative expenses.

During first-quarter 2019, Stratus accrued $ 0.2 million to project development costs and $ 0.3 million in general and administrative expenses related to the Plan.

The accrued liability for the Plan totaled $ 2.4 million at March 31, 2020, and $ 2.5 million at December 31, 2019 (included in other liabilities).

As of March 31, 2020, no amounts had been paid to participants under the Plan.

During second-quarter 2020, Stratus recorded a $ 0.4 million increase to the accrued liability for the Plan of which $ 0.2 million increased project development costs and $ 0.2 million increased general and administrative expenses.

During second-quarter 2019, Stratus accrued $ 0.2 million to project development costs and $ 0.2 million in general and administrative expenses related to the Plan.

During the first six months of 2020, Stratus accrued $ 0.2 million to project development costs and $ 0.2 million in general and administrative expense related to the Plan.

During the first six months of 2019, Stratus accrued $ 0.4 million to project development costs and $ 0.5 million in general and administrative expense related to the Plan.

The accrued liability for the Plan totaled $ 2.9 million at June 30, 2020, and $ 2.5 million at December 31, 2019 (included in other liabilities).

As of June 30, 2020, no amounts had been paid to participants under the Plan.

Stratus’ accounting policy for and other information regarding its income taxes is further described in Notes 1 and 7 in the Stratus 2019 Form 10-K.

Stratus had deferred tax assets (net of deferred tax liabilities) totaling $ 9.8 million at March 31, 2020 , and $ 12.3 million at December 31, 2019.

Stratus had deferred tax assets (net of deferred tax liabilities) totaling $ 9.6 million at June 30, 2020 , and $ 12.3 million at December 31, 2019.

Stratus’ future results of operations may be negatively impacted by an inability to realize a tax benefit for future tax losses or for items that will generate additional deferred tax assets.

The difference between Stratus' consolidated effective income tax rate for the first three months of 2020 and the U.S.

Federal statutory income tax rate of 21 percent, was primarily attributable to the CARES Act, which allows Stratus to carryback losses to 2017 when the U.S.

corporate tax rate was 35 percent among other impacts, resulting in a first-quarter 2020 tax benefit of $ 1.3 million, and the Texas state margin tax.

The difference between Stratus' consolidated effective income tax rate for the first three months of 2019 and the U.S.

Federal statutory income tax rate of 21 percent, was primarily attributable to the Texas state margin tax and permanent differences.

The difference between Stratus' consolidated effective income tax rate for the first six months of 2020 and the U.S.

Federal statutory income tax rate of 21 percent, was primarily attributable to the CARES Act, which, among other impacts, allows Stratus to carry back losses to 2017 when the U.S.

corporate tax rate was 35 percent, resulting in a discrete tax benefit of $ 1.4 million, and the Texas state margin tax.

The difference between Stratus' consolidated effective income tax rate for the first six months of 2019 and the U.S.

Federal statutory income tax rate of 21 percent, was primarily attributable to the Texas state margin tax and the Tax Cuts and Jobs Act's executive compensation deductibility limitation.

BUSINESS SEGMENTS

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Stratus' revenues from contracts with customers follow (in thousands):

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2020 2019 2020 2019

Real Estate Operations:

1 unchanged sentence

Commissions and other 61 81 89 195

1,893 4,129 14,229 7,077

Leasing Operations:

Rental revenue 5,718 4,413 11,450 8,042

5,718 4,413 11,450 8,042

Rooms, food and beverage 932 8,445 6,007 16,182

Other 98 517 934 1,105

1,030 8,962 6,941 17,287

Entertainment:

1 unchanged sentence

Other ( 3 ) 622 594 1,194

290 6,220 4,445 11,016

Total revenues from contracts with customers $ 8,931 $ 23,724 $ 37,065 $ 43,422

2 unchanged sentences

Leasing Operations Hotel Entertainment Corporate, Eliminations and Other b

Three Months Ended March 31, 2020:

Three Months Ended June 30, 2020:

Unaffiliated customers $ 1,893 $ 5,718 $ 1,030

$ 290 $ — $ 8,931

Intersegment 4 216 16 ( 1 ) ( 235 ) —

1 unchanged sentence

1,305 ( 67 ) 8,965

Depreciation 59 2,047 1,105 c

Depreciation 57 2,034 931 404 ( 49 ) 3,377

General and administrative expenses — — — — 3,103 3,103

Operating income (loss) $ 2,099 $ 824 $ ( 1,054 ) $ 461 $ ( 2,978 ) $ ( 648 )

Income from forfeited earnest money

— — — — ( 15,000 ) e

Operating (loss) income $ ( 46 ) $ ( 174 ) $ ( 1,652 ) $ ( 1,420 ) $ 11,778 $ 8,486

Capital expenditures and purchases and development of real estate properties

$ 2,433 $ 1,682 $ 283 $ 104 $ — $ 4,502

Total assets at March 31, 2020 160,691 235,734 96,484 42,639 23,390 558,938

Total assets at June 30, 2020 163,900 233,268 94,359 36,784 23,394 551,705

Leasing Operations Hotel Entertainment Corporate, Eliminations and Other b

Three Months Ended March 31, 2019:

Three Months Ended June 30, 2019:

Unaffiliated customers $ 4,129 $ 4,413 $ 8,962 $ 6,220 $ — $ 23,724

Intersegment 4 229 80 45 ( 358 ) —

Cost of sales, excluding depreciation 46 d

2,144 6,698 3,607 ( 156 ) 12,339

Cost of sales, excluding depreciation 3,795 2,451 6,868 4,585 ( 185 ) 17,514

64 1,388 899 396 ( 44 ) 2,703

General and administrative expenses — — — — 2,919 2,919

Gain on sales of assets — ( 2,113 ) e

Loss on sale of assets — 161 f

Operating income (loss)

$ 274 $ 642 $ 1,275 $ 1,284 $ ( 3,048 ) $ 427

Capital expenditures and purchases and development of real estate properties

$ 2,458 $ 15,391 $ 156 $ — $ — $ 18,005

Total assets at June 30, 2019 205,265 174,258 97,464 45,396 20,348 542,731

Six Months Ended June 30, 2020:

Unaffiliated customers $ 14,229 $ 11,450 $ 6,941 $ 4,445 $ — $ 37,065

Intersegment 8 443 64 14 ( 529 ) —

Cost of sales, excluding depreciation 12,068 7,162 c

4,531 ( 137 ) 31,299

Depreciation 116 4,081 2,036 g

( 110 ) 7,010

General and administrative expenses — — — — 5,918 5,918

Income from forfeited earnest money — — — — ( 15,000 ) e

Operating income (loss) $ 2,053 $ 650 $ ( 2,706 ) $ ( 959 ) $ 8,800 $ 7,838

Capital expenditures and purchases and development of real estate properties

$ 8,655 $ 3,965 $ 310 $ 122 $ — $ 13,052

Six Months Ended June 30, 2019:

Unaffiliated customers $ 7,077 $ 8,042 $ 17,287 $ 11,016 $ — $ 43,422

Intersegment 9 459 127 74 ( 669 ) —

Cost of sales, excluding depreciation 3,841 h

4,595 13,566 8,192 ( 341 ) 29,853

Depreciation 125 2,795 1,799 790 ( 176 ) 5,333

General and administrative expenses — — — — 6,118 6,118

Gain on sale of assets — ( 1,952 ) f

— — — ( 1,952 )

Operating income (loss) $ 3,120 $ 3,063 $ 2,049 $ 2,108 $ ( 6,270 ) $ 4,070

Capital expenditures and purchases and development of real estate properties

$ 5,756 $ 44,611 $ 254 $ 125 $ — $ 50,746

Municipal utility district (MUD) reimbursements classified as a reduction of real estate under development d

Municipal utility district (MUD) reimbursements applied to real estate under development h

920 — — — — 920

Total assets at March 31, 2019 198,447 164,811 98,503 43,846 23,176 528,783

Includes sales commissions and other revenues together with related expenses.

Includes consolidated general and administrative expenses and eliminations of intersegment amounts.

Includes a $ 1.4 million charge for estimated uncollectible rents receivable and unrealizable deferred costs.

Refer to Note 1.

Includes a $ 0.8 million credit related to a business interruption insurance claim filed as a result of water and smoke damage in the W Austin hotel in January 2018.

Represents income from earnest money received as a result of Ryman's termination of the agreements to sell Block 21.

Relates to the first-quarter 2019 sale of a retail pad subject to a ground lease located in the Circle C community, including adjustments recorded in second-quarter 2019.

Refer to Note 4.

Includes a $ 202 thousand adjustment in the Hotel segment and an $ 89 thousand adjustment in the Entertainment segment for the period in December 2019 when the hotel and entertainment venues were held for sale and, therefore, not depreciated.

In the first quarter of 2019, Stratus received $ 4.6 million of proceeds related to MUD reimbursements of infrastructure costs incurred for development of Barton Creek.

Of the total amount, Stratus recorded $ 0.9 million as a reduction of real estate under development on the consolidated balance sheets, and $ 3.4 million as a reduction in real estate cost of sales and $ 0.3 million in other income, net in the consolidated statements of comprehensive (loss) income.

Of the total amount, Stratus recorded $ 0.9 million as a reduction of real estate

under development on the consolidated balance sheets, and $ 3.4 million as a reduction in real estate cost of sales and $ 0.3 million in other income, net in the consolidated statements of comprehensive income (loss).

Refer to Note 1 of the Stratus 2019 Form 10-K for further discussion of Stratus' accounting policy for MUD reimbursements.

Relates to the first-quarter 2019 sale of a retail pad subject to a ground lease located in the Circle C community.

Refer to Note 4.

SUBSEQUENT EVENTS

In June 2020, Stratus received $ 0.8 million related to a business interruption insurance claim that it filed as a result of water and smoke damage in the W Austin hotel in January 2018.

Stratus will recognize these proceeds as a reduction of hotel costs of sales in the second quarter of 2020.

Stratus evaluated events after March 31, 2020, and through the date the financial statements were issued, and determined any events or transactions occurring during this period that would require recognition or disclosure are appropriately addressed in these financial statements.

Stratus evaluated events after June 30, 2020, and through the date the financial statements were issued, and determined any events or transactions occurring during this period that would require recognition or disclosure are appropriately addressed in these financial statements.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements