We are supplementing the risk factors described under “Item 1A.
−Removed: Risk Factors” in our 2019 Form 10-K with the additional risk factor set forth below, which should be read in conjunction with the risk factors and other disclosures in this report and in our 2019 Form 10-K.
−Removed: The COVID-19 pandemic has had a significant adverse impact on our business, financial condition, results of operation and liquidity, such impact worsened during and subsequent to the second quarter of 2020, and could continue to last with unknown severity and for an unknown period of time.
+Added: Risk Factors” in our 2019 Form 10-K with the additional risk factors set forth below, which should be read in conjunction with the risk factors and other disclosures in this report and in our 2019 Form 10-K.
+Added: The COVID-19 pandemic has had a significant adverse impact on our business, financial condition, results of operation and liquidity and could continue to last with unknown severity and for an unknown period of time.
On March 11, 2020, the World Health Organization declared COVID-19 a pandemic, and on March 13, 2020, the U.S.
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State and local governments have implemented phased reopening processes, often with reduced capacity and social distancing restrictions.
−Removed: Beginning in mid-June, 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.
−Removed: In June, the city of Austin extended its Stay-at-Home order through August 15, 2020.
+Added: Recently, 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.
+Added: In August, the city of Austin extended its Stay Home, Mask and Otherwise Be Safe Order through December 15, 2020.
The pandemic has caused a sharp global slowdown of economic activity resulting in a recession, a steep increase in unemployment in the U.S.
and significant volatility and disruption of financial markets.
−Removed: The pandemic had a significant adverse impact on our company in the first and second quarters of 2020 and is expected to continue to adversely impact our company beyond second-quarter 2020.
+Added: The pandemic had a significant adverse impact on our company during the first nine months of 2020 and is expected to continue to adversely impact our company beyond third-quarter 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.
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• Risks Related to our Liquidity .
−Removed: Although we project that we will be able to meet our debt service and other cash obligations for at least the next 12 months, our projections depend 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.
+Added: Although we project that we will be able to meet our debt service and other cash obligations for at least the next 12 months, our projections are based on many detailed and complex underlying assumptions, including (1) that operating income for our Block 21 businesses will gradually ramp up to a break-even point in the first half of 2021 and that Block 21 will generate sufficient cash to cover debt service by late 2021, (2) that current conditions in our leasing operations will not further deteriorate materially, (3) that we continue to close on routine asset sales, and (4) that we sell or refinance The Saint Mary on terms consistent with our expectations.
No assurances can be given that the results anticipated by our projections will occur.
If we later determine that we will likely not be able to meet our debt service and other cash obligations, or will likely not be able to meet covenants under our debt agreements, we may seek further amendments to, waivers of provisions of, or restructuring of our debt agreements, seek to sell assets, seek to reduce operating expenses, and/or seek to raise additional capital, any or all of which actions may not be successful.
−Removed: If we cannot meet our debt service obligations, or otherwise default under a debt agreement, our lenders may declare all amounts outstanding under
−Removed: the loans due and payable, seek to foreclose on the collateral securing the loans and/or seek to force us into involuntary bankruptcy proceedings.
+Added: If we cannot meet our debt service obligations, or otherwise default under a debt agreement, our lenders may declare all amounts outstanding under the loans due and payable, seek to foreclose on the collateral securing the loans and/or seek to force us into involuntary bankruptcy proceedings.
+Added: Refer to Note 6 for further discussion.
• Risks Related to our Hotel Operations .
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It is unclear whether and to what extent pandemic-related concerns will impact the use of and/or demand for our entertainment venues as government restrictions are modified or lifted.
−Removed: Prolonged repercussions from the pandemic and government-mandated restrictions or other factors could continue to negatively affect our entertainment venues and the financial performance of our entertainment operations, and the extent to which such adverse impacts continue depends on numerous evolving factors that we cannot predict, including if or when our entertainment operations will return to pre-pandemic demand.
+Added: Prolonged repercussions from the pandemic and government-mandated restrictions or other factors could continue to
+Added: negatively affect our entertainment venues and the financial performance of our entertainment operations, and the extent to which such adverse impacts continue depends on numerous evolving factors that we cannot predict, including if or when our entertainment operations will return to pre-pandemic demand.
• Risks Related to our Leasing Operations .
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The pandemic has negatively affected our real estate and development operations, as discussed throughout this report.
−Removed: We may be unable to sell assets in the current economic environment at a price that we find acceptable or at all.
−Removed: We have deferred progress on our development projects as we continue to monitor developments in the market.
−Removed: We cannot predict when we will be able to recommence the active pursuit of our development projects.
+Added: We may be unable to sell or refinance assets in the current economic environment at a price that we find acceptable or at all.
+Added: While 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.
Also, the economic downturn caused by the pandemic could diminish the demand for and value of our properties for an indeterminate period.
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Prolonged inability to pursue our development plans will have a negative effect on our business and future profits.
+Added: Stratus’ potential conversion from a C-Corporation to a REIT is subject to various risks and uncertainties.
+Added: As previously announced, our Board has approved an in-depth exploration of a conversion from a C-Corporation to a real estate investment trust (REIT).
+Added: We can provide no assurance as to when, if at all, we will convert to a REIT.
+Added: There are several implementation, operational, financing and tax complexities to be addressed before we decide whether to pursue a REIT conversion.
+Added: Our ability to qualify as a REIT involves the application of highly technical and complex provisions of the Internal Revenue Code of 1986, as amended, and Stratus may not qualify as a REIT.
+Added: Further, if we determine to convert to a REIT, we cannot give any assurance that we will remain qualified as a REIT.
+Added: We may not be able to complete all of the necessary steps that must be taken in order to convert to a REIT, in the anticipated timeframe, or at all.
+Added: There could be significant costs related to converting to and operating a REIT.
+Added: Even if, after an in-depth exploration, it is determined that there are no impediments to a REIT conversion, we cannot provide any assurance that our Board will approve a REIT conversion.
+Added: Even if our Board approves a conversion from a C-Corporation to a REIT, our shareholders may not approve changes to Stratus’ organizational documents consistent with a public REIT structure.
+Added: Additionally, the REIT conversion would require consent from our major lenders and amendments to our major loan agreements, among other third-party consents.
+Added: We cannot provide any assurance that we will receive the necessary consents to move forward with the REIT conversion.
+Added: If we elect to convert to a REIT, we can provide no assurance that our Board will declare, or that we will be able to make, future distributions to shareholders.
+Added: Further, if we convert from a C-Corporation to a REIT, we cannot provide any assurance that the anticipated benefits will be realized by us or our shareholders.
These and other impacts of the COVID-19 pandemic could also have the effect of heightening many of the other risks described in Part I, Item 1A.
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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.