STRATUS PROPERTIES INC 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations . In Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A), “we,” “us,” “our” and "Stratus" refer to Stratus Properties Inc. and all entities owned or controlled by Stratus Properties Inc. You should read the following discussion in conjunction with our consolidated financial statements and accompanying notes, related MD&A and discussion of our business and properties included in our Annual Report on Form 10-K for the year ended December 31, 2019 (2019 Form 10-K) filed with the United States (U.S.) Securities and Exchange Commission (SEC) and the unaudited consolidated financial statements and accompanying notes included in this Form 10-Q. The results of operations reported and summarized below are not necessarily indicative of future operating results, and future results could differ materially from those anticipated in forward-looking statements (refer to “Cautionary Statement” and Part II, Item 1A. "Risk Factors" herein and Part I, Item 1A. “Risk Factors” of our 2019 Form 10-K for further discussion). 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. Stratus expects continued uncertainty in its business and the global economy as a result of the duration and intensity of the COVID-19 pandemic and its related effects. All subsequent references to “Notes” refer to Notes to Consolidated Financial Statements (Unaudited) located in Part I, Item 1. “Financial Statements” herein, unless otherwise stated. We are a diversified real estate company with headquarters in Austin, Texas. We are engaged primarily in the acquisition, entitlement, development, management, operation and sale of commercial, and multi-family and single-family residential real estate properties, real estate leasing, and the operation of hotel and entertainment businesses located in the Austin, Texas area, and other select, fast-growing markets in Texas. We generate revenues and cash flows from the sale of our developed properties, rental income from our leased properties and from our hotel and entertainment operations. Refer to Note 9 for further discussion of our operating segments. BUSINESS STRATEGY Our portfolio consists of approximately 1,700 acres of undeveloped acreage and acreage under development for commercial, multi-family and single-family residential projects, plus several completed retail and residential projects. Our W Austin Hotel and our ACL Live and 3TEN ACL Live entertainment venues are located in downtown Austin and are central to the city's world-renowned, vibrant music scene. Our primary business objective is to create value for stockholders by methodically developing and enhancing the value of our properties and then selling them profitably. Our full cycle development program of acquiring properties, securing and maintaining development entitlements, developing and stabilizing, and then preparing them for sale or refinancing is a key element of our strategy. We currently have projects in certain of these stages as described below in “Development Activities - Current Residential Activities” and “Development Activities - Current Commercial Activities.” We believe that Austin and other select, fast-growing markets in Texas continue to be desirable locations. Many of our developments are in locations where development approvals have historically been subject to regulatory constraints, which has made it difficult to obtain entitlements. Our Austin properties, which are located in desirable areas with significant regulatory constraints, are entitled and have utility capacity for full buildout. As a result, we believe that through strategic planning, development and marketing, we can maximize and fully realize their value. Our development plans require significant additional capital, which we may pursue through joint ventures or other arrangements. Our business strategy requires us to rely on cash flow from operations and debt financing as our primary sources of funding for our liquidity needs. We have also, from time to time, relied on project-level equity financing of our subsidiaries. We have formed strategic relationships as part of our overall strategy for particular development projects and may enter into other similar arrangements in the future. OVERVIEW OF THE IMPACTS OF THE COVID-19 PANDEMIC Since January 2020, the COVID-19 outbreak has caused substantial disruption in international and U.S. economies and markets, intensifying in the latter part of the first quarter of 2020 and continuing during and subsequent to the second quarter of 2020, and its impact is expected to continue beyond the third quarter of 2020. On March 11, 2020, the World Health Organization designated the COVID-19 outbreak a pandemic. The pandemic has resulted in government restrictions of various degrees and effective at various times, including stay-at-home orders, bans on 16 Table of Contents 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. For example, on March 6, 2020, the annual South by Southwest music festival in Austin, Texas was cancelled, on July 1, 2020, the annual Austin City Limits music festival in Austin, Texas was cancelled, and on July 24, 2020, the Formula 1 U.S. Grand Prix planned to be held in Austin, Texas was cancelled. The pandemic and responses to it have also caused a steep increase in unemployment in the U.S. As a result, the pandemic is having, and we believe will continue to have, a significant adverse impact on our business and operations, as discussed further below. State and local governments in Texas have implemented phased reopening processes, often with reduced capacity and social distancing restrictions. 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 remains complex and rapidly-evolving. For example, in June 2020, the city of Austin extended its Stay-at-Home order through August 15, 2020. On July 24, 2020, the city of Austin extended the moratorium on evictions through September 30, 2020. Because the pandemic is unprecedented in recent history, and its severity, duration and future economic consequences are difficult to predict, we cannot predict its future impact on our company with any certainty. Termination of Sale of Block 21 As previously disclosed, our transaction to sell Block 21, which contains the W Austin Hotel and the ACL Live and 3TEN ACL Live entertainment venues, to Ryman Hospitality Properties, Inc. (Ryman) was terminated by Ryman on May 21, 2020. As a result of Ryman’s termination of the transaction, Ryman forfeited to us its $15.0 million of earnest money. We used $13.8 million of the earnest money to pay down our Comerica Bank credit facility and used the remaining $1.2 million for Block 21 debt service and required monthly reserves. We recorded the $15.0 million as operating income during the second quarter of 2020. Impacts on our Business As a result of the COVID-19 pandemic, we are deferring progress on development projects, including our previously disclosed Magnolia Place project, pending improvements in health and market conditions, but we continue to advance our land planning, engineering and permitting activities. Many of our 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 during and subsequent to the second quarter of 2020. Beginning in April 2020, we agreed, generally, to 90-day base rent deferrals with a majority of these tenants. The deferred rents are expected 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. As of June 30, 2020, most of our retail tenants had reopened. At our multi-family properties, we have 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, our second-quarter 2020 retail and multi-family rent collections were 10 percent less than scheduled rents. We also terminated one lease during second-quarter 2020 and recorded charges related to this lease totaling $1.3 million, primarily related to uncollectible rents receivable and unrealizable deferred costs. Subsequently, in July 2020, we entered into a new lease agreement with this tenant. Our revenue, operating income and cash flow from our hotel and entertainment segments were adversely impacted in the second quarter of 2020 and are expected to continue to be adversely impacted beyond second-quarter 2020. For example, while our hotel has remained open throughout the pandemic, average occupancy in the second quarter of 2020 was 12 percent, with June having the highest occupancy in the second quarter, averaging 22 percent. The average occupancy during July 2020 was 10 percent. We have implemented measures such as increased sanitizing, physical distancing and remote work arrangements, with the goal of protecting employees, tenants, guests, customers and suppliers. The impacts of the COVID-19 pandemic on each of our segments are described below in more detail in “Results of Operations.” Our current plans call for us to focus on protecting existing cash flows from our Leasing Operations properties, advancing our land planning, engineering and permitting activities for our development projects, ramping up operations at Block 21 as health and market conditions permit and assessing new opportunities for future projects. 17 Table of Contents Impacts on our Liquidity and Capital Resources On June 12, 2020, we extended the maturity date of our $60 million revolving credit facility to September 27, 2022. As of June 30, 2020, we had $25.9 million available under our $60.0 million Comerica Bank credit facility, with $150 thousand of letters of credit committed against the credit facility. As discussed in more detail below, we project that we will be able to meet our debt service and other cash obligations for at least the next 12 months, without any significant asset sales or reductions in general and administrative expenses. However, our projections are based on many detailed and complex underlying assumptions, including that our hotel and entertainment businesses will not improve in 2020 and will gradually ramp up to a break-even point in the first half of 2021, and that current conditions in our leasing operations will not further deteriorate materially. No assurances can be given that the results anticipated by our projections will occur. See “Capital Resources and Liquidity ” below, “Risk Factors” included in Part II, Item 1A. herein and “Risk Factors” included in Part I, Item 1A. of our 2019 Form 10-K, for further discussion. We are continuing to closely monitor health and market conditions and are prepared to make further adjustments to our business strategy if and when appropriate. OVERVIEW OF FINANCIAL RESULTS FOR SECOND-QUARTER 2020 Our net income attributable to common stockholders totaled $4.1 million, $0.50 per share, in second-quarter 2020, compared with a net loss of $2.4 million, $0.29 per share, in second-quarter 2019. During the first six months of 2020 our net income attributable to common stockholders totaled $3.1 million, $0.37 per share, compared with a net loss of $1.5 million, $0.19 per share, during the first six months of 2019. Our net income attributable to common stockholders in the 2020 periods, compared to our net losses in the 2019 periods, is primarily the result of $15.0 million in income from earnest money received as a result of the termination of the Block 21 transaction, partially offset by (i) operating losses from our hotel and entertainment segments in the 2020 periods, primarily as a result of the COVID-19 pandemic, (ii) municipal utility district (MUD) reimbursements and a gain on sale of assets being recognized in the first six months of 2019 (as discussed below) and (iii) higher interest expense related to higher average debt balances in the 2020 periods and lower capitalized interest as projects under development are completed. Our revenues totaled $8.9 million in second-quarter 2020, compared with $23.7 million in second-quarter 2019. During the first six months of 2020, our revenues totaled $37.1 million, compared with $43.4 million, during the first six months of 2019. The decrease in revenues in the 2020 periods, compared to the 2019 periods, primarily reflects the decrease in revenue from our hotel and entertainment segments caused by the COVID-19 pandemic, partially offset by an increase in revenue from leasing operations. Revenue during the first six months of 2020 also benefited from the sales of two homes built on Amarra Drive Phase III lots and an increase in lot sales. During the first six months of 2019, we received $4.6 million of proceeds related to Travis County MUD reimbursements of infrastructure costs incurred for development of Barton Creek. Of the total amount, we recorded $0.9 million as a reduction of real estate under development on the consolidated balance sheet, and $3.4 million as a reduction in real estate cost of sales and $0.3 million in other income, net in the consolidated statement of comprehensive income (loss). The first six months of 2019 also included a gain on the sale of assets totaling $2.0 million, primarily related to the sale of a retail pad subject to a ground lease located in the Circle C community. DEVELOPMENT ACTIVITIES Current Residential Activities. In second-quarter 2020, we sold two Amarra Drive Phase II lots and one Amarra Drive Phase III lot for a total of $1.8 million. During the first six months of 2020, we sold four Amarra Drive Phase II lots, seven Amarra Drive Phase III lots and two homes built on Amarra Drive Phase III lots for a total of $14.1 million. Sales include lots sold under the new homebuilder contract discussed below. As of June 30, 2020, 10 developed Amarra Drive Phase III lots and 3 developed Amarra Drive Phase II lots remained unsold, of which 3 Phase III lots and 2 Phase II lots were subject to the new homebuilder contract discussed below. In September 2019, we amended a contract previously entered into in March 2018, pursuant to which we agreed to sell 2 Amarra Drive Phase II lots and 15 Amarra Drive Phase III lots to a homebuilder for a total of $11.6 million (the original homebuilder contract). In January 2020, the original homebuilder contract was terminated and replaced with a similar contract with the same homebuilder in which we agreed to sell the three remaining Amarra Drive Phase III 18 Table of Contents lots under the original contract as well as three new Amarra Drive Phase II lots and two new Amarra Drive Phase III lots for $5.2 million (the new homebuilder contract). In accordance with the new homebuilder contract the parties are required to close on the sale of these lots ratably before March 31, 2021. If the purchaser fails to close on the sale of the minimum number of lots by any of the specified closing dates, we may elect to terminate the homebuilder contract but would retain the related $45 thousand earnest money. In second-quarter 2020, in accordance with the contract, we sold one Amarra Drive Phase II lot and one Amarra Drive Phase III lot for a total of $1.3 million under the terms of the new homebuilder contract. During the first six months of 2020, we sold one Amarra Drive Phase II lot and two Amarra Drive Phase III lots for a total of $2.0 million under the terms of the new homebuilder contract. As of June 30, 2020, pursuant to the new homebuilder contract, we had contracts to sell five Amarra Drive lots totaling $3.2 million, not yet recognized in revenue. Subsequent to June 30, 2020, and through August 4, 2020, we signed two new contracts for Amarra Drive lot sales for a total of $1.5 million, bringing the total contracts up to $4.7 million. The Villas at Amarra Drive (Amarra Villas) townhome project is a 20-unit development in the Barton Creek community for which we completed construction of the first seven townhomes during 2017 and 2018. We sold the last two completed townhomes in 2019. We began construction of the next two Amarra Villas townhomes during the first quarter of 2020. The Santal, a multi-family project consisting of 448 units in Section N in the Barton Creek community, is fully leased and stabilized. The Saint Mary, a multi-family project consisting of 240 units in the Circle C community, was approximately 80 percent leased as of June 30, 2020. For further discussion of our multi-family and single-family residential properties, see MD&A in our 2019 Form 10-K. Current Commercial Activities. During 2019, we completed construction of two retail buildings totaling 41,000 square feet and a 103,000-square-foot H-E-B, L.P. (HEB) grocery store at Kingwood Place, an HEB-anchored, mixed-use development in Kingwood, Texas. An 8,000-square-foot retail building was completed in July 2020, and we have signed ground leases on two of the retail pads. As of June 30, 2020, we had signed leases for approximately 90 percent of the retail space, including the HEB grocery store. We continue to advance the potential multi-family project at Kingwood Place, which is currently planned for 261 units. In March 2019, we finalized the lease for the HEB store at New Caney, an HEB-anchored, mixed-use development in New Caney, Texas, and acquired HEB's interest in the partnership for approximately $5 million. We currently do not anticipate commencing construction on the New Caney project prior to 2021. Lantana Place is a partially developed, mixed-use development project located in southwest Austin. As of June 30, 2020, we had signed leases for approximately 40 percent of the retail space after our lease with the anchor tenant, Moviehouse & Eatery (Moviehouse), was terminated in June 2020. A new lease agreement was signed with Moviehouse in July 2020, at which point we had signed leases for approximately 80 percent of the retail space. We also have a ground lease for an AC Hotel by Marriott. Construction of the hotel began in May 2019 and is expected to be completed in January 2021. We rezoned a portion of the Lantana property for a potential multi-family development of up to 350 units. As of June 30, 2020, we had signed leases for approximately 95 percent of the retail space at the first phase of Jones Crossing, an HEB-anchored, mixed-use development located in College Station, Texas, and approximately 70 percent of the retail space at West Killeen Market, our retail project located in Killeen, Texas, shadow-anchored by an adjacent HEB grocery store. For further discussion of our commercial properties, see MD&A in our 2019 Form 10-K. Projects in Planning. We are deferring progress on our development projects, including the previously disclosed first phase of development of Magnolia Place, a mixed-use project in Magnolia, Texas, currently planned for 133,605 square feet of commercial space; 7 pad sites; 2 hotel sites; and 96 single-family lots and 588 multi-family units, pending improvements in health and market conditions. 19 Table of Contents We are advancing the planning and permitting process for development of future phases of Barton Creek, including residential Section KLO and commercial and multi-family Section N. We redesigned Section KLO using a combination of single family lots and residential condominium lots, which is expected to increase our density from 154 to approximately 420 home sites. The city of Austin and Travis County approved initial subdivision permit applications for Section KLO in October 2019. The engineering for roads and utilities for the initial phases of Section KLO is in process. Using a conceptual approach similar to that used for Section KLO, we are also evaluating a redesign of Section N, our approximately 570 acre tract located along Southwest Parkway in the southern portion of the Barton Creek community. If successful, this new project would be designed as a dense, mid-rise, mixed-use project surrounded by an extensive greenspace amenity and result in an increase in potential densities. These potential development projects require extensive additional permitting and will be dependent on market conditions. Because of the nature and cost of the approval and development process and uncertainty regarding market demand for a particular use, there is uncertainty regarding the nature of the final development plans and whether we will be able to successfully execute the plans. In addition, our development plans for Section KLO and Section N will require significant capital, which we may pursue through debt and/or equity financings, joint ventures, commercial, partner or other arrangements. RESULTS OF OPERATIONS We are continually evaluating the development and sale potential of our properties and will continue to consider opportunities to enter into transactions involving our properties, including possible sales, joint ventures or other arrangements. As a result, and because of the COVID-19 pandemic and numerous other factors affecting our business activities as described herein and in our 2019 Form 10-K, our past operating results are not necessarily indicative of our future results. We use operating income or loss to measure the performance of each operating segment. Corporate, eliminations and other includes consolidated general and administrative expenses, which primarily consist of employee salaries and other costs. The following table summarizes our results (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2020 2019 2020 2019 Operating income (loss): Real Estate Operations a $ (46) $ 274 $ 2,053 $ 3,120 b Leasing Operations (174) c 642 650 c 3,063 Hotel (1,652) 1,275 (2,706) 2,049 Entertainment (1,420) 1,284 (959) 2,108 Corporate, eliminations and other d 11,778 e (3,048) 8,800 e (6,270) Operating income $ 8,486 $ 427 $ 7,838 $ 4,070 Interest expense, net $ (3,666) $ (2,911) $ (7,581) $ (5,483) Net income (loss) attributable to common stockholders $ 4,134 $ (2,389) $ 3,064 $ (1,527) a. Includes sales commissions and other revenues together with related expenses. b. Includes $3.4 million of MUD reimbursements, which were recorded as a reduction of cost of sales. c. Includes a $1.4 million charge for estimated uncollectible rents receivable and unrealizable deferred costs. d. Includes consolidated general and administrative expenses and eliminations of intersegment amounts. e. Includes $15.0 million in income from earnest money received as a result of Ryman's termination of the agreements to sell Block 21. We have four operating segments: Real Estate Operations, Leasing Operations, Hotel and Entertainment (refer to Note 9). The following is a discussion of our operating results by segment. Real Estate Operations COVID-19 Pandemic Impact The pandemic is negatively affecting our real estate operations. We are deferring progress on development projects as we continue to monitor developments in the market, but we continue to advance our land planning, engineering and permitting activities. We cannot predict when we will be able to recommence the active pursuit of our development projects. For further discussion, see Part II, Item 1A. "Risk Factors." 20 Table of Contents Second-Quarter Results The following table summarizes our Real Estate Operations results (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2020 2019 2020 2019 Revenues: Developed property sales $ 1,833 $ 4,048 $ 14,140 $ 6,882 Commissions and other 64 85 97 204 Total revenues 1,897 4,133 14,237 7,086 Cost of sales, including depreciation 1,943 3,859 12,184 3,966 a Operating (loss) income $ (46) $ 274 $ 2,053 $ 3,120 a. Includes $3.4 million credit related to MUD reimbursements. Developed Property Sales. The following table summarizes our developed property sales (dollars in thousands): Three Months Ended June 30, 2020 2019 Lots/Homes Revenues Average Cost Per Lot/Home Lots/Homes Revenues Average Cost Per Lot/Home Barton Creek Amarra Drive: Phase II lots 2 $ 1,183 $ 179 — — — Phase III lots 1 650 257 4 $ 2,283 $ 230 Amarra Villas townhomes — — — 1 1,765 1,627 Total Residential 3 $ 1,833 5 $ 4,048 Six Months Ended June 30, 2020 2019 Lots/Units Revenues Average Cost Per Lot/Unit Lots/Units Revenues Average Cost Per Lot/Unit Barton Creek Amarra Drive: Phase II lots 4 $ 2,372 $ 193 — $ — $ — Phase III lots 7 4,590 306 6 3,432 229 Homes built on Phase III lots 2 7,178 3,273 — — — Amarra Villas townhomes — — — 2 3,450 1,607 Total Residential 13 $ 14,140 8 $ 6,882 Real Estate Revenues. The decrease in revenues in second-quarter 2020, compared to second-quarter 2019, primarily reflects a decrease in the number of lot sales and the sale of an Amarra Villas townhome in second-quarter 2019. The increase in revenues in the first six months of 2020, compared to the first six months of 2019, primarily reflects the sales of two homes built on Amarra Drive Phase III lots and an increase in lot sales in the first six months of 2020. Cost of Sales. Cost of sales includes costs of property sold, project operating and marketing expenses and allocated overhead costs, partly offset by reductions for certain MUD reimbursements. Cost of sales decreased to $1.9 million in second-quarter 2020 from $3.9 million in second-quarter 2019, primarily reflecting a decrease in real estate sales. Cost of sales increased to $12.2 million for the first six months of 2020 from $4.0 million for the first six months of 2019, primarily reflecting the sales of two homes in first-quarter 2020 built on Phase III lots, which have a higher average cost, and an increase in the number of lots sold during the first six months of 2020. The increase also results from $3.4 million in MUD reimbursements received in the first six months of 2019 recorded as a reduction in real estate cost of sales as the reimbursed property had previously been sold. 21 Table of Contents Leasing Operations COVID-19 Pandemic Impact The pandemic is negatively affecting our leasing operations, primarily at our retail properties. Tenants at our retail locations are diverse and include grocery and liquor stores, which have remained open and have paid rent owed to-date, and restaurants, healthcare services, fitness centers, a movie house and other retail products and services, many of which were closed or operating at significantly reduced capacity beginning late in the first quarter of 2020 and continuing during and subsequent to the second quarter of 2020. Beginning in April 2020, Stratus agreed, generally, to 90-day base rent deferrals with a majority of these tenants. The deferred rents are expected 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 our retail tenants had reopened. At our multi-family properties, we have 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. We will continue to consider rent deferral accommodations on a case-by-case basis. In the aggregate, our second-quarter 2020 retail and multi-family rent collections were 10 percent less than scheduled rents. As a result of these rent deferral arrangements, and as a result of some other tenants not paying rent, our rental collections in our leasing segment declined significantly in the second quarter of 2020. We cannot assure you that our tenants will recommence rental payments in accordance with our agreements when the deferral period ends nor whether tenants will request additional accommodations or be willing or able to meet future lease obligations. For further discussion, see Part II, Item 1A. "Risk Factors." Second-Quarter Results The following table summarizes our Leasing Operations results (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2020 2019 2020 2019 Rental revenue $ 5,934 $ 4,642 $ 11,893 $ 8,501 Rental cost of sales, excluding depreciation 4,074 a 2,451 7,162 a 4,595 Depreciation 2,034 1,388 4,081 2,795 Loss (gain) on sale of assets — 161 — (1,952) Operating (loss) income $ (174) $ 642 $ 650 $ 3,063 a. Includes a $1.4 million charge for estimated uncollectible rents receivable and unrealizable deferred costs. Rental Revenue. Rental revenue primarily includes revenue from The Santal, Lantana Place, Jones Crossing, The Saint Mary, Kingwood Place, the office and retail space at the W Austin Hotel & Residences, and West Killeen Market. The increase in rental revenue in the 2020 periods, compared with the 2019 periods, primarily reflects the commencement of new leases at The Saint Mary, Kingwood Place and The Santal. Rental Cost of Sales and Depreciation. Rental cost of sales and depreciation expense increased in the 2020 periods, compared with the 2019 periods, primarily as a result of the completion of construction and the start of leasing operations at The Saint Mary and Kingwood Place. During the second-quarter of 2020, our lease with Moviehouse, our anchor tenant at Lantana Place, was terminated and we charged $1.3 million to cost of sales to write off uncollectible rents receivable and unrealizable deferred costs associated with this lease. Subsequently, in July 2020, we entered into a new lease agreement with Moviehouse. Loss (Gain) on Sale of Assets. In January 2019, we sold a retail pad subject to a ground lease located in the Circle C community for $3.2 million. We used a portion of the proceeds from the sale to repay $2.5 million of our Comerica Bank credit facility borrowings and, after adjustments recorded in second-quarter 2019, recorded a gain of $2.0 million for the first six months of 2019. 22 Table of Contents Hotel COVID-19 Pandemic Impact The pandemic has had, and we believe will continue to have, a significant adverse impact on the hospitality industry, as it has resulted in dramatically curtailed business and leisure travel and caused cancellations of events or rescheduling of events until later in 2020 and beyond. Accordingly, the pandemic has resulted in a significant decrease in revenue and expected revenue from our hotel rooms, conference facilities and hotel amenities. For example, while our hotel has remained open throughout the pandemic, average occupancy in the second quarter of 2020 was 12 percent, with June having the highest occupancy in the second quarter, averaging 22 percent. The average occupancy during July 2020 was 10 percent. As a result of the pandemic, hotel revenue for the three and six months ended June 30, 2020, was significantly lower than in the prior-year periods and hotel revenue for the third quarter of 2020 will be significantly lower than hotel revenue in the prior-year quarter. We incurred a significant operating loss in the three and six months ended June 30, 2020, and expect to incur significant operating losses in the segment during the third quarter of 2020. We are working with the hotel operator on plans to gradually ramp up hotel operations to a break-even point in the first half of 2021, health and market conditions permitting. The pandemic is expected to continue to negatively affect our hotel business, and the extent to which such adverse impacts continue depends on numerous evolving factors that we cannot predict. Moreover, even as travel advisories and restrictions are lifted, travel demand may remain weak for a significant length of time and attractions and events that previously brought visitors to the city of Austin may not proceed or may proceed with limited capacity. We cannot predict if or when our hotel will return to pre-pandemic demand or pricing. For further discussion, see Part II, Item 1A. "Risk Factors." Second-Quarter Results The following table summarizes our Hotel results (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2020 2019 2020 2019 Hotel revenue $ 1,046 $ 9,042 $ 7,005 $ 17,414 Hotel cost of sales, excluding depreciation 1,767 a 6,868 7,675 a 13,566 Depreciation 931 899 2,036 1,799 Operating (loss) income $ (1,652) $ 1,275 $ (2,706) $ 2,049 a. 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. Hotel Revenue. Hotel revenue primarily includes revenue from W Austin Hotel room reservations and food and beverage sales. The decrease in Hotel revenues in the 2020 periods, compared to the 2019 periods, is primarily a result of lower room reservations and food and beverage sales as a result of the COVID-19 pandemic. Revenue per available room (RevPAR), which is calculated by dividing total room revenue by the average total rooms available, was $29 in second-quarter 2020 and $89 for the first six months of 2020, compared with $242 in second-quarter 2019 and $240 for the first six months of 2019. Hotel Cost of Sales. The decrease in Hotel cost of sales, excluding depreciation, in the 2020 periods, compared to the 2019 periods, is primarily a result of lower room reservations and food and beverage sales. The increase in depreciation during the first six months of 2020, compared to the first six months of 2019, is primarily because of a$202 thousand adjustment for the period in December 2019 when the hotel was held for sale and, therefore, not depreciated. Hotel Renovation. We are considering proceeding with a modest renovation of the hotel guest rooms and public spaces, subject to various approvals, including from our lender, and coordination with the hotel operator. We expect to use approximately $7 million of reserves previously set aside for hotel improvements under our agreement with the hotel operator and reflected in restricted cash on our balance sheet. Entertainment COVID-19 Pandemic Impact The pandemic has had, and we believe will continue to have, a significant adverse impact on the entertainment industry and our entertainment operations. Our entertainment venue, ACL Live, remains closed. Many events previously scheduled during the remainder of 2020 have been rescheduled and some have been cancelled. As a result of the pandemic, our Entertainment revenue for the three and six months ended June 30, 2020 was 23 Table of Contents significantly lower than in the prior-year periods and entertainment revenue for the third quarter of 2020 will be significantly lower than in the prior-year period. It is also unclear whether and to what extent pandemic-related concerns will continue to impact the use of and/or demand for our entertainment venues, even as government restrictions are modified or lifted. We have several events scheduled at our venues later in the year, but we expect that most, if not all, of our remaining events will be cancelled or rescheduled unless health conditions improve. Our scheduled programs will occur only to the extent health and safety conditions, and regulations, permit. We incurred a significant operating loss in the three and six months ended June 30, 2020, and expect to incur operating losses in the segment during the third quarter of 2020. For further discussion, see Part II, Item 1A. "Risk Factors." Second-Quarter Results The following table summarizes our Entertainment results (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2020 2019 2020 2019 Entertainment revenue $ 289 $ 6,265 $ 4,459 $ 11,090 Entertainment cost of sales, excluding depreciation 1,305 4,585 4,531 8,192 Depreciation 404 396 887 790 Operating (loss) income $ (1,420) $ 1,284 $ (959) $ 2,108 Entertainment Revenue. Entertainment revenue primarily reflects the results of operations for ACL Live, including ticket sales, revenue from private events, sponsorships, personal seat license and suite sales, and sales of concessions and merchandise. Entertainment revenue also reflects revenues associated with events hosted at 3TEN ACL Live. Revenues from the Entertainment segment vary from period to period as a result of factors such as the price of tickets and number of tickets sold, as well as the number and type of events hosted at ACL Live and 3TEN ACL Live. Entertainment revenues decreased in the 2020 periods, compared to the 2019 periods, primarily as a result of a decrease in the number of events hosted at ACL Live and 3TEN ACL Live, as many scheduled events in the first six months of 2020 were cancelled or rescheduled as a result of the COVID-19 pandemic, including all events scheduled in the second quarter of 2020 for ACL Live and most events scheduled in the second quarter of 2020 for 3TEN ACL Live. Certain key operating statistics specific to the concert and event hosting industry are included below to provide additional information regarding our ACL Live and 3TEN ACL Live operating performance. Three Months Ended June 30, Six Months Ended June 30, 2020 2019 2020 2019 ACL Live Events: Events hosted — 69 38 133 Estimated attendance — 79,813 45,446 144,212 Ancillary net revenue per attendee $ — $ 45.41 $ 61.04 $ 45.73 Ticketing: Number of tickets sold — 68,153 37,703 116,901 Gross value of tickets sold (in thousands) $ — $ 3,736 $ 1,881 $ 6,259 3TEN ACL Live Events: Events hosted 15 52 51 102 Estimated attendance 777 9,528 8,232 18,490 Ancillary net revenue per attendee $ 62.69 $ 35.75 $ 34.82 $ 36.49 Ticketing: Number of tickets sold — 7,271 5,278 12,325 Gross value of tickets sold (in thousands) $ — $ 175 $ 126 $ 296 24 Table of Contents Entertainment Cost of Sales. The decrease in Entertainment cost of sales, excluding depreciation, in the 2020 periods, compared to the 2019 periods, reflects that many scheduled events in the first six months of 2020, including all ACL Live events in the second-quarter of 2020, were rescheduled or cancelled as a result of the COVID-19 pandemic. The increase in depreciation for the first six months of 2020, compared to the first six months of 2019, is primarily because of an $89 thousand adjustment for the period in December 2019 when the entertainment venues were held for sale and, therefore, not depreciated. Corporate, Eliminations and Other Corporate, eliminations and other (refer to Note 9) includes consolidated general and administrative expenses, which primarily consist of employee salaries and other costs. Consolidated general and administrative expenses increased to $3.1 million in second-quarter 2020 from $2.9 million in second-quarter 2019, primarily reflecting increased legal fees incurred in connection with the Block 21 sale that ultimately did not close, partially offset by lower incentive compensation accruals. Consolidated general and administrative expenses decreased to $5.9 million for the first six months of 2020 compared to $6.1 million for the first six months of 2019, primarily reflecting lower incentive compensation for the first six months of 2020, including those related to our Profit Participation Incentive Plan. Refer to Note 7 for further discussion of the Profit Participation Incentive Plan. Corporate, eliminations and other also includes eliminations of intersegment transactions among the four operating segments. For the second quarter and first six months of 2020, corporate, eliminations and other includes $15.0 million in income from earnest money that was received from Ryman in May 2020 upon their termination of the agreements to acquire Block 21. Non-Operating Results Interest Expense, Net. Interest costs (before capitalized interest) totaled $4.9 million in second-quarter 2020 and $10.1 million for the first six months of 2020, compared with $5.1 million in second-quarter 2019 and $9.7 million for the first six months of 2019. Interest costs in second-quarter 2020 were lower, compared to second-quarter 2019, primarily reflecting a decrease in average interest rates. Interest costs for the first six months of 2020 were higher, compared to the first six months of 2019, primarily reflecting higher average debt to finance development activities, partially offset by a decrease in average interest rates. Capitalized interest totaled $1.2 million in second-quarter 2020 and $2.5 million for the first six months of 2020, compared with $2.1 million in second-quarter 2019 and $4.2 million for the first six months of 2019, and is primarily related to development activities at Barton Creek. Other Income, Net. Other income, net of $108 thousand for the first six months of 2020 decreased, compared with $311 thousand for the first six months of 2019, as a result of receiving proceeds in first-quarter 2019 related to MUD reimbursements of infrastructure costs incurred for development of Barton Creek. Of the total MUD reimbursements received in first-quarter 2019, we recorded $0.3 million as interest income in other income, net in the consolidated statements of comprehensive income (loss). (Provision for) Benefit from Income Taxes. We recorded a (provision for) benefit from income taxes of $(1.1) million in second-quarter 2020 and $1.4 million for the first six months of 2020, compared with $0.2 million in second-quarter 2019 and $(0.2) million for the first six months of 2019. Refer to Note 8 for further discussion of income taxes. Total Comprehensive Loss Attributable to Noncontrolling Interests in Subsidiaries . Our partners' share of losses totaled $0.3 million in second-quarter 2020 and $1.4 million for the first six months of 2020 for projects that began operations in late 2019, primarily The Saint Mary. Of the total share of losses for the six months of 2020, $573 thousand relates to losses incurred prior to 2020. CAPITAL RESOURCES AND LIQUIDITY Volatility in the real estate market, including the markets in which we operate, can impact the timing of and proceeds received from sales of our properties, which may cause uneven cash flows from period to period. Our cash flows have also been, and will continue for some time to be, adversely affected by the pandemic, as discussed throughout this report. However, we believe that the unique nature and location of our assets will provide us positive cash flows over time. 25 Table of Contents Comparison of Cash Flows for the Six Months Ended June 30, 2020 and 2019 Operating Activities. Cash provided by (used in) operating activities totaled $5.4 million for the first six months of 2020, compared with $(1.6) million for the first six months of 2019. Expenditures for purchases and development of real estate properties totaled $8.7 million for the first six months of 2020 and $5.8 million for the first six months of 2019, primarily related to development of our Barton Creek properties. The cash outflow resulting from the decrease in accounts payable, accrued liabilities and other for the first six months of 2020 is primarily related to the timing of property tax payments as well contractor retention payments associated with the completion of The Saint Mary and Kingwood Place. During the first six months of 2019, our operating cash flows included MUD reimbursements totaling $4.6 million related to infrastructure costs incurred in Barton Creek (of which $3.7 million increased net income before taxes for the period and $0.9 million reduced purchases and development of real estate properties). Investing Activities. Cash used in investing activities totaled $5.1 million for the first six months of 2020 and $47.2 million for the first six months of 2019. Capital expenditures totaled $4.4 million for the first six months of 2020, primarily related to development of the Kingwood Place, Lantana Place and Jones Crossing projects, and $45.0 million for the first six months of 2019, primarily related to development of the Kingwood Place and The Saint Mary projects. Capital expenditures were lower in the first six months of 2020, compared to the first six months of 2019, primarily as a result of the completion of The Saint Mary and Kingwood Place in late 2019 and the deferral of progress on development projects because of the COVID-19 pandemic. During the first six months of 2019, we recorded a purchase of noncontrolling interest totaling $4.6 million as a result of our acquisition of HEB's interests in the New Caney partnership in which we and HEB collectively purchased a tract of land for the future development of an HEB-anchored mixed-use project in New Caney, Texas. We also made payments totaling $0.7 million for the first six months of 2020 and $0.8 million for the first six months of 2019 under our master lease obligations associated with the 2017 sale of The Oaks at Lakeway. Financing Activities. Cash (used in) provided by financing activities totaled $(4.1) million for the first six months of 2020 and $43.5 million for the first six months of 2019. During the first six months of 2020, net repayments on the Comerica Bank credit facility totaled $8.5 million, reflecting the use of $13.8 million of the $15.0 million earnest money to pay down the revolving credit facility, compared to net repayments of $1.6 million for the first six months of 2019. Net borrowings from project and term loans totaled $5.0 million for the first six months of 2020, primarily from the Paycheck Protection Program loan (refer to Note 1 for further information) and for the Kingwood and The Saint Mary projects, partially offset by repayment of the Amarra Villas credit facility, compared with net borrowings of $45.4 million for the first six months of 2019, primarily for The Saint Mary, Kingwood Place, Jones Crossing and New Caney projects. See “Credit Facility, Other Financing Arrangements and Liquidity Outlook” below for a discussion of our outstanding debt at June 30, 2020. Credit Facility, Other Financing Arrangements and Liquidity Outlook At June 30, 2020, the total principal amount of our outstanding debt was $366.6 million, compared with $369.2 million at December 31, 2019. We had borrowings of $34.0 million under the $60.0 million Comerica Bank revolving credit facility, $25.9 million of which was available at June 30, 2020, net of $150 thousand of letters of credit committed against the credit facility. On June 12, 2020, we amended our credit facility agreement with Comerica Bank to extend the maturity date from September 27, 2020, to September 27, 2022. Refer to Note 6 in our 2019 Form 10-K for further discussion of our outstanding debt. Refer to “Debt Maturities and Other Contractual Obligations” below for a table illustrating the timing of principal payments due on our outstanding debt as of June 30, 2020. Several of our financing instruments contain customary financial covenants. The West Killeen Market construction loan includes a requirement that we maintain a minimum total stockholders’ equity balance of $110.0 million. The Santal loan includes a requirement that we maintain liquid assets, as defined in the agreement, of not less than $7.5 million. The Saint Mary construction loan and the New Caney land loan include a requirement that we maintain liquid assets, as defined in each agreement, of not less than $10 million. The Comerica Bank credit facility, the Lantana Place construction loan, the Jones Crossing construction loan, The Saint Mary construction loan, the Amarra Villas credit facility, the Kingwood Place construction loan, the New Caney land loan and The Santal loan include a requirement that we maintain a net asset value, as defined in each agreement, of $125 million. The Comerica Bank credit facility, the Amarra Villas credit facility and the Kingwood Place construction loan also include a requirement that we maintain a promissory note debt-to-gross asset value, as defined in the agreement, of less 26 Table of Contents than 50 percent. The Santal loan, the West Killeen Market construction loan, and the Lantana Place construction loan each include a financial covenant to maintain a debt service coverage ratio as defined in each agreement. In addition, our loan agreements with Comerica Bank require Comerica Bank’s prior written consent for any common stock repurchases in excess of $1.0 million or dividend payments. As of June 30, 2020, we were in compliance with all of our financial covenants except for the debt service coverage ratio covenant under the Block 21 loan as discussed below. We proactively engaged and will continue to proactively engage with our project lenders in connection with formulating rent deferral arrangements for tenants at our projects as a result of the pandemic. Each of our projects is expected to generate sufficient revenue to pay debt service. During second-quarter 2020, we entered into amendments to the Lantana Place and West Killeen Market construction loans in which we were granted waivers of the debt service coverage ratio covenants for the quarters needed such that we believe we will be able to remain in compliance if rent payments do not further deteriorate materially as currently anticipated. The Block 21 loan agreement secured by the Block 21 assets contains financial covenant requirements that we maintain (i) a net worth in excess of $125 million, (ii) liquid assets of not less than $10 million and (iii) a trailing-12-month debt service coverage ratio, tested quarterly, each as defined in the agreement. If any of these financial covenants are not met, a “Trigger Period”, which is not a default, results. As a result of the pandemic, we did not meet the debt service coverage ratio test on the June 30, 2020, test date, resulting in a Trigger Period. During a Trigger Period, any cash generated from Block 21's hotel, entertainment and office and retail space in excess of amounts necessary to fund loan obligations, budgeted operating expenses and specified reserves would not be available to be distributed to us until after we meet a higher debt service coverage ratio requirement for two consecutive quarters. As the ratio is calculated on a trailing-12-month basis, we currently do not expect the Trigger Period to terminate before early 2022. The Block 21 loan agreement requires us to contribute cash to our Block 21 subsidiary if funds from Block 21’s operations are insufficient to fund all payments and reserves as required under our loan agreement. Additionally, under our hotel operating agreement, the hotel operator may request funds from us if it reasonably determines that such funds are required in order to fund the operation of the hotel and specified reserves. We have been required to contribute such funds during 2020, and our projections reflect that we will be required to do so in future periods in 2020 and early 2021. As of June 30, 2020, we had $6.0 million of liabilities for deferred income and deposits that primarily related to ticket and sponsorship presales at our venues. We have refunded amounts related to events that have been cancelled, and we may refund additional amounts if more events are cancelled in the future. We project that we will be able to meet our debt service and other cash obligations for at least the next 12 months, without any significant asset sales or reductions in general and administrative expenses. Prior to the start of the pandemic, our retail and multi-family projects were in advanced lease-up phases, and we expect that they will generate sufficient revenue to pay debt service. We have no significant principal maturities of debt during the remainder of 2020. In addition, we have no material commitments for capital expenditures and have deferred progress on development projects as we continue to evaluate market conditions. Our projections are based on many detailed and complex underlying assumptions, including that our hotel and entertainment businesses will not improve in 2020 and will gradually ramp up to a break-even point in the first half of 2021, and that current conditions in our leasing operations will not further deteriorate materially. No assurances can be given that the results anticipated by our projections will occur. See “Risk Factors” included in Part II, Item 1A. herein and “Risk Factors” included in Part I, Item 1A. of our 2019 Form 10-K , for further discussion. 27 Table of Contents DEBT MATURITIES AND OTHER CONTRACTUAL OBLIGATIONS The following table summarizes our debt maturities based on the principal amounts outstanding as of June 30, 2020 (in thousands): 2020 2021 2022 2023 2024 Thereafter Total Block 21 loan $ 1,173 $ 2,470 $ 2,613 $ 2,765 $ 2,904 $ 128,967 $ 140,892 The Santal loan a — — 75,000 — — — 75,000 Comerica Bank credit facility b — — 33,977 — — — 33,977 New Caney land loan c — 5,000 — — — — 5,000 PPP loan — — 3,988 — — — 3,988 Construction loans: Kingwood Place a — — 28,534 — — — 28,534 The Saint Mary a — 25,395 — — — — 25,395 Lantana Place 42 497 513 23,193 — — 24,245 Jones Crossing — 281 392 21,660 — — 22,333 West Killeen Market 73 151 7,039 — — — 7,263 Amarra Villas credit facility — — 5 — — — 5 Total $ 1,288 $ 33,794 $ 152,061 $ 47,618 $ 2,904 $ 128,967 $ 366,632 a. We have the option to extend the maturity date for two additional 12-month periods, subject to certain conditions. b. Refer to Note 6 for further information, including the June 2020 amendment to extend the maturity to September 27, 2022. c. We have the option to extend the maturity date for one additional 12-month period, subject to certain conditions. Other than debt transactions (as discussed in Note 6), there have been no material changes in our contractual obligations since December 31, 2019. Refer to Part II, Items 7. and 7A. in our 2019 Form 10-K for further information regarding our contractual obligations. CRITICAL ACCOUNTING ESTIMATES There have been no changes in our critical accounting estimates from those discussed in our 2019 Form 10-K. NEW ACCOUNTING STANDARDS There have been no changes in new accounting standards from those discussed in Note 1 to the financial statements included in our 2019 Form 10-K. OFF-BALANCE SHEET ARRANGEMENTS There have been no material changes in our off-balance sheet arrangements since December 31, 2019. Refer to Note 9 in our 2019 Form 10-K for further information. CAUTIONARY STATEMENT This Quarterly Report on Form 10-Q contains forward-looking statements in which we discuss factors we believe may affect our future performance. Forward-looking statements are all statements other than statements of historical fact, such as plans, projections or expectations related to the impacts of the COVID-19 pandemic, its duration and its economic effects, rent deferrals or other concessions to our tenants, our ability to collect rents timely, our ability to ramp-up operations at Block 21 according to our currently anticipated timeline, our ability to open and hold events at our venues, future cash flows and liquidity, our ability to comply with or obtain waivers of financial and other covenants in debt agreements and to meet other cash obligations, the planning, financing, development, construction, completion and stabilization of our development projects, plans to sell, recapitalize or refinance properties, operational and financial performance, MUD reimbursements for infrastructure costs, regulatory matters, leasing activities, estimated costs and timeframes for development and stabilization of properties, tax rates, the impact of interest rate changes, capital expenditures, financing plans, possible joint ventures, partnerships, strategic relationships or other arrangements, our projections with respect to our obligations under the master lease agreements entered into in connection with the 2017 sale of The Oaks at Lakeway, other plans and objectives of management for future operations and development projects, future dividend payments and 28 Table of Contents share repurchases. The words “anticipate,” “may,” “can,” “plan,” “believe,” “potential,” “estimate,” “expect,” “project,” "target," “intend,” “likely,” “will,” “should,” “to be” and any similar expressions and/or statements that are not historical facts are intended to identify those assertions as forward-looking statements. Under our loan agreements with Comerica Bank, we are not permitted to pay dividends on common stock without Comerica Bank’s prior written consent. The declaration of dividends is at the discretion of our Board, subject to restrictions under our loan agreements with Comerica Bank, and will depend on our financial results, cash requirements, projected compliance with covenants in our debt agreements, outlook and other factors deemed relevant by the Board. We caution readers that forward-looking statements are not guarantees of future performance and actual results may differ materially from those anticipated, expected, projected or assumed in the forward-looking statements. Important factors that can cause our actual results to differ materially from those anticipated in the forward-looking statements include, but are not limited to, evolving risks relative to the COVID-19 pandemic and its economic effects, including the impact of the actions taken by governmental authorities to contain the virus or address the impact of the virus on the economy, fear of the further spread or further accelerated spread of COVID-19, the duration and scope of the COVID-19 pandemic and impact thereof including the pace of recovery, the effects of the COVID-19 pandemic on us and the hospitality and entertainment industries generally, including the demand for travel, hotel rooms, group gathering and events at our venues, our ability to pay or refinance our debt or comply with or obtain waivers of financial and other covenants in debt agreements and to meet other cash obligations, the availability and terms of financing for development projects and other corporate purposes, our ability to enter into and maintain joint ventures, partnerships, strategic relationships or other arrangements, our ability to effect our business strategy successfully, including our ability to develop, construct and sell properties at prices our Board considers acceptable, market conditions or corporate developments that could preclude, impair or delay any opportunities with respect to plans to sell, recapitalize or refinance properties, our ability to obtain various entitlements and permits, a decrease in the demand for real estate in select markets in Texas where we operate, changes in economic, market and business conditions, reductions in discretionary spending by consumers and businesses, competition from other real estate developers, hotel operators and/or entertainment venue operators and promoters, our ability to open and hold events at our venues, challenges associated with booking events and selling tickets and event cancellations at Stratus’ entertainment venues, which may result in refunds to customers, the termination of sales contracts or letters of intent because of, among other factors, the failure of one or more closing conditions or market changes, our ability to secure qualifying tenants for the space subject to the master lease agreements entered into in connection with the 2017 sale of The Oaks at Lakeway and to assign such leases to the purchaser and remove the corresponding property from the master leases, the failure to attract customers or tenants for our developments or such customers’ or tenants’ failure to satisfy their purchase commitments or leasing obligations, grants of rent deferral accommodations or other concessions to our tenants and ability of our tenants to resume rent payments as agreed, our ability to collect rents timely, increases in interest rates and the phase out of the London Interbank Offered Rate, declines in the market value of our assets, increases in operating costs, including real estate taxes and the cost of building materials and labor, our ability to ramp-up operations at Block 21 according to our currently anticipated timeline, changes in external perception of the W Austin Hotel, unanticipated issues experienced by the third-party operator of the W Austin Hotel, changes in consumer preferences, industry risks, changes in laws, regulations or the regulatory environment affecting the development of real estate, opposition from special interest groups or local governments with respect to development projects, weather-related risks, loss of key personnel, cybersecurity incidents and other factors described in more detail under the heading “Risk Factors” in Part I, Item 1A. of our 2019 Form 10-K, filed with the SEC, and “Risk Factors” included in Part II, Item 1A. herein. Investors are cautioned that many of the assumptions upon which our forward-looking statements are based are likely to change after the forward-looking statements are made, some of which we may not be able to control. Further, we may make changes to our business plans that could affect our results. We caution investors that we do not intend to update our forward-looking statements more frequently than quarterly notwithstanding any changes in our assumptions, business plans, actual experience, or other changes, and we undertake no obligation to update any forward-looking statements. Item 3. Quantitative and Qualitative Disclosures About Market Risk . Not applicable. 29