What changed in this filing

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Item 1. Financial Statements

2021-05-17 compared with 2020-11-09 · 149 added, 238 removed, 227 unchanged (63% of the section changed)

3 unchanged sentences

(In Thousands)

September 30,

2021 December 31,

6 unchanged sentences

Lease right-of-use assets 10,784 10,871

Deferred tax assets 34 12,311

Other assets 19,927 20,144

Assets held for sale - The Saint Mary — 36,516

Total assets $ 501,871 $ 544,016

6 unchanged sentences

Other liabilities 15,585 17,233

Liabilities held for sale - The Saint Mary — 25,607

Total liabilities 388,337 434,252

11 unchanged sentences

STRATUS PROPERTIES INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (Unaudited)

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited)

(In Thousands, Except Per Share Amounts)

Three Months Ended Nine Months Ended

September 30, September 30,

2020 2019 2020 2019

Three Months Ended

Real estate operations $ 6,621 $ 12,336

11 unchanged sentences

General and administrative expenses 4,544 2,815

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

Gain on sale of assets ( 22,931 ) —

Total ( 4,455 ) 28,782

Operating (loss) income ( 4,224 ) 69 3,614 4,139

Operating income (loss) 18,970 ( 648 )

Interest expense, net ( 3,035 ) ( 3,915 )

Gain (loss) on interest rate derivative instruments 82 ( 9 ) 3 ( 191 )

Loss on interest rate derivative instruments — ( 121 )

Loss on early extinguishment of debt ( 63 ) —

Other income, net 3 19

Loss before income taxes and equity in unconsolidated affiliates' loss

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

15,875 ( 4,665 )

Equity in unconsolidated affiliates' loss ( 9 ) ( 7 ) ( 9 ) ( 20 )

(Provision for) benefit from income taxes ( 207 ) 2,518

Net loss and total comprehensive loss

Equity in unconsolidated affiliates' loss ( 2 ) —

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

15,666 ( 2,147 )

Total comprehensive loss attributable to noncontrolling interests in subsidiaries

Total comprehensive (income) loss attributable to noncontrolling interests in subsidiaries

( 6,722 ) 1,077

Net loss and total comprehensive loss attributable to common stockholders

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

$ 8,944 $ ( 1,070 )

Basic and diluted net loss per share attributable to common stockholders $ ( 1.84 ) $ ( 0.36 ) $ ( 1.46 ) $ ( 0.55 )

Basic and diluted weighted-average common shares outstanding

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

$ 1.09 $ ( 0.13 )

Diluted $ 1.08 $ ( 0.13 )

Weighted-average common shares outstanding:

Diluted 8,273 8,200

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

2 unchanged sentences

(In Thousands)

Nine Months Ended

September 30,

Three Months Ended

Cash flow from operating activities:

Net loss $ ( 13,615 ) $ ( 4,490 )

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

Net income (loss) $ 15,666 $ ( 2,147 )

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

Depreciation 3,002 3,633

1 unchanged sentence

Gain on sale of assets ( 22,931 ) —

(Gain) loss on interest rate derivative instruments ( 3 ) 191

Loss on early extinguishment of debt 63 —

1 unchanged sentence

Equity in unconsolidated affiliates' loss 2 —

Increase in deposits 93 645

Deferred income taxes — 2,477

Loss on interest rate derivative instruments — 121

Purchases and development of real estate properties ( 2,489 ) ( 6,222 )

Municipal utility district reimbursements applied to real estate under development

Increase in other assets ( 2,971 ) ( 3,529 )

Decrease in deposits ( 20 ) ( 185 )

Decrease (increase) in other assets 238 ( 3,967 )

Decrease in accounts payable, accrued liabilities and other ( 7,543 ) ( 6,828 )

Net cash provided by (used in) operating activities 459 ( 3,993 )

Net cash used in operating activities ( 10,371 ) ( 4,434 )

Cash flow from investing activities:

2 unchanged sentences

Payments on master lease obligations ( 270 ) ( 287 )

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

Other, net ( 5 ) —

Net cash used in investing activities ( 6,430 ) ( 53,812 )

Net cash provided by (used in) investing activities 58,204 ( 2,615 )

Cash flow from financing activities:

3 unchanged sentences

Payments on project and term loans ( 28,708 ) ( 6,380 )

Cash dividend paid on vested stock-based awards ( 4 ) ( 8 )

Stock-based awards net payments ( 153 ) ( 91 )

Distributions to noncontrolling interests ( 13,087 ) —

Financing costs ( 53 ) ( 81 )

Net cash provided by financing activities 429 68,630

Net (decrease) increase in cash, cash equivalents and restricted cash ( 5,542 ) 10,825

Net cash (used in) provided by financing activities ( 50,774 ) 6,164

Net decrease in cash, cash equivalents and restricted cash ( 2,941 ) ( 885 )

Cash, cash equivalents and restricted cash at beginning of year 34,183 38,591

4 unchanged sentences

(In Thousands)

THREE MONTHS ENDED SEPTEMBER 30

Stockholders’ Equity

2 unchanged sentences

of Shares At Par

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

Exercised and vested stock-based awards 11 — 22 — — — 22 — 22

Stock-based compensation — — 176 — — — 176 — 176

Total comprehensive loss — — — ( 15,078 ) — — ( 15,078 ) ( 193 ) ( 15,271 )

Balance at September 30, 2020 9,358 $ 93 $ 186,620 $ ( 55,581 ) 1,137 $ ( 21,600 ) $ 109,532 $ 11,382 $ 120,914

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

Exercised and vested stock-based awards 26 — 15 — — — 15 — 15

Stock-based compensation — — 156 — — — 156 — 156

Forfeited dividends — — 11 — — — 11 — 11

Tender of shares for stock-based awards

— — — — 5 ( 149 ) ( 149 ) — ( 149 )

Total comprehensive loss — — — ( 2,960 ) — — ( 2,960 ) ( 2 ) ( 2,962 )

Balance at September 30, 2019 9,331 $ 93 $ 186,516 $ ( 45,590 ) 1,133 $ ( 21,509 ) $ 119,510 $ 18,073 $ 137,583

STRATUS PROPERTIES INC.

CONSOLIDATED STATEMENTS OF EQUITY (Unaudited)

(In Thousands)

NINE MONTHS ENDED SEPTEMBER 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, 2020 9,358 $ 94 $ 186,777 $ ( 66,357 ) 1,137 $ ( 21,600 ) $ 98,914 $ 10,850 $ 109,764

1 unchanged sentence

Stock-based compensation — — 182 — — — 182 — 182

Grant of restricted stock units under the Profit Participation Incentive Plan — — 1,162 — — — 1,162 — 1,162

Tender of shares for stock-based awards

— — — — 6 ( 153 ) ( 153 ) — ( 153 )

Total comprehensive loss — — — ( 12,014 ) — — ( 12,014 ) ( 1,601 ) ( 13,615 )

Balance at September 30, 2020 9,358 $ 93 $ 186,620 $ ( 55,581 ) 1,137 $ ( 21,600 ) $ 109,532 $ 11,382 $ 120,914

Distributions to noncontrolling interests — — — — — — — ( 13,087 ) ( 13,087 )

Total comprehensive income — — — 8,944 — — 8,944 6,722 15,666

Balance at March 31, 2021 9,377 $ 94 $ 188,121 $ ( 57,413 ) 1,143 $ ( 21,753 ) $ 109,049 $ 4,485 $ 113,534

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

1 unchanged sentence

Stock-based compensation — — 162 — — — 162 — 162

Forfeited dividends — — 11 — — — 11 — 11

Tender of shares for stock-based awards

— — — — 4 ( 91 ) ( 91 ) — ( 91 )

Purchase of noncontrolling interest in consolidated subsidiary

— — — — — — — ( 4,589 ) ( 4,589 )

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

Balance at September 30, 2019 9,331 $ 93 $ 186,516 $ ( 45,590 ) 1,133 $ ( 21,509 ) $ 119,510 $ 18,073 $ 137,583

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

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

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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 third 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 continues to affect Stratus' operations.

Operating results for the first quarter of 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021.

In particular, Stratus recognized a $ 22.9 million gain on the sale of assets in the first quarter of 2021 and the COVID-19 pandemic continued to affect Stratus' operations.

As a result, this interim period, as well as future interim periods while the COVID-19 pandemic is ongoing, will not be comparable to past performance or indicative of future performance.

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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’ assessment of the future magnitude and duration of the COVID-19 pandemic and related economic disruption, as well as other factors, have contributed to the recognition of a $ 9.6 million valuation allowance on Stratus' deferred tax assets at September 30, 2020, and could result in other material changes to the estimates used in and material impacts to Stratus’ consolidated financial statements in future reporting periods.

Real Estate Investment Trust Exploration.

On September 21, 2020, Stratus' Board of Directors (Board) announced its approval of the initiation of an in-depth exploration of a conversion from a C-Corporation to a real estate investment trust (REIT).

Stratus has engaged financial, tax, accounting and legal advisors, and the Board will closely monitor and evaluate the findings to ultimately determine if conversion to a REIT is in the best interest of Stratus' shareholders.

If the Board determines to move forward, Stratus expects the conversion would likely occur in 2022, subject to a variety of factors, including its ability to complete the steps that must be taken in order to convert to a REIT and the timing thereof, and whether its shareholders will approve changes to Stratus’ organizational documents consistent with a public REIT structure.

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.

Block 21 also includes Class A office space, retail space and the 3TEN ACL Live entertainment venue and business.

On December 9, 2019, Stratus entered into definitive agreements to sell Block 21 to Ryman Hospitality Properties, Inc.

(Ryman) for $ 275 million.

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

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 concluded that such assets and liabilities no longer qualified as held for sale.

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 of Stratus' 2019 Form 10-K follow (in thousands):

Cash and cash equivalents $ 10,408

Restricted cash 13,574

Real estate held for investment 131,286

Other assets 3,480

Total assets $ 158,748

Accounts payable and accrued liabilities, including taxes $ 7,005

Other liabilities 7,036

Total liabilities $ 155,225

COVID-19 Impact.

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.

COVID-19 Pandemic Impact.

Since January 2020, the COVID-19 pandemic has caused substantial disruption in international and U.S.

economies and markets.

The World Health Organization designated the COVID-19 outbreak a pandemic in mid-March 2020.

The impacts of the pandemic are expected to continue during 2021 but are anticipated to lessen through the year.

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.

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.

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, particularly on the hotel and entertainment segments.

As mentioned above, Stratus' previously disclosed transaction to sell Block 21 for $ 275 million was terminated by Ryman as a result of the capital markets and economic environment caused by the COVID-19 pandemic.

The COVID-19 pandemic and related economic disruption, as well as other factors, have contributed to the recognition of a $ 9.6 million valuation allowance on Stratus' deferred tax assets at September 30, 2020.

Stratus continues to advance its land planning, engineering and permitting activities.

All major construction projects have been completed and no new construction is scheduled until the first quarter of 2021 and may be deferred if health and market conditions warrant.

Effective March 10, 2021, the Governor of Texas issued an executive order lifting the mask mandate in Texas and increasing the capacity of all businesses and facilities in the state to 100 percent.

Businesses in Texas may still limit capacity or implement additional safety protocols at their own discretion.

While Stratus is ramping up its hotel and entertainment operations, it will continue to increase capacity gradually and safely and in compliance with all applicable regulations.

As a result, the pandemic has had, and is expected to continue to have, a significant adverse impact on Stratus' business and operations, particularly on the hotel and entertainment segments.

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 during the first three quarters of 2020 and are expected to continue to be adversely impacted beyond third-quarter 2020.

For example, while the hotel has remained open throughout the pandemic, average occupancy in the third quarter of 2020 was 16 percent.

Stratus' entertainment venues, ACL Live and 3TEN ACL Live, hosted a limited number of events with restricted capacity during third-quarter 2020 as most events were either rescheduled or cancelled as a result of the COVID-19 pandemic.

As a result of the COVID-19 pandemic, many of Stratus’ retail leasing tenants, other than grocery and liquor stores, closed or have been operating at significantly reduced capacity since late in the first 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 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 17 percent during the period from April through September 2020.

As of September 30, 2020, all of Stratus’ retail tenants who were open prior to the pandemic had reopened, although operating with capacity restrictions.

At its multi-family properties, Stratus has granted rent deferral accommodations on a case-by-case basis, which during the period from April through September 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’ retail and multi-family rent collections were eight percent less than scheduled rents during the period from April through September 2020.

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.

Stratus again assessed its rents receivable for potential credit losses as of September 30, 2020, and concluded that no additional charges for estimated uncollectible rents receivable and unrealizable deferred costs were required.

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 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.

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

Stratus’ revenue, operating income and cash flow in its hotel and entertainment segments were adversely impacted beginning late in the first quarter of 2020 and through the first quarter of 2021, and are expected to continue to be adversely impacted during 2021, although the adverse impacts are currently anticipated to lessen through the year.

For example, while the hotel has remained open throughout the pandemic, average occupancy in the first quarter of 2021 was 21 percent, compared to 50 percent in the first quarter of 2020.

However, the average occupancy in the first quarter of 2021 was higher than the average occupancy in the fourth quarter of 2020, which was 13 percent.

Stratus' entertainment venues, ACL Live and 3TEN ACL Live, hosted a limited number of events with restricted capacity during first-quarter 2021.

Refer to Note 1 of the Stratus 2020 Form 10-K for further discussion of the pandemic's impacts on Stratus' business.

Subsequent Events.

Stratus evaluated events after March 31, 2021, 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.

EARNINGS PER SHARE

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

The weighted-average shares exclude approximately 90 thousand shares of common stock for third-quarter 2020, 83 thousand shares for third-quarter 2019, 86 thousand shares for the first nine months of 2020 and 91 thousand shares for the first nine months of 2019 associated with restricted stock units and outstanding stock options that were anti-dilutive as a result of the net losses for the periods.

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

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

$ 8,944 $ ( 1,070 )

Basic weighted-average shares of common stock outstanding

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

Diluted weighted-average shares of common stock outstanding

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

$ 1.09 $ ( 0.13 )

Diluted net income (loss) per share attributable to common stockholders

$ 1.08 $ ( 0.13 )

Excludes 16 thousand shares of common stock associated with RSUs that were anti-dilutive.

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

RELATED PARTY TRANSACTIONS

The Saint Mary, L.P.

On June 19, 2018, The Saint Mary, L.P., a Texas limited partnership and a subsidiary of Stratus, completed a series of financing transactions to develop The Saint Mary, a 240 -unit luxury, garden-style apartment project in the Circle C community in Austin, Texas.

In June 2018, The Saint Mary, L.P., a Texas limited partnership and a subsidiary of Stratus, completed a series of financing transactions to develop The Saint Mary, a 240 -unit luxury, garden-style apartment project in the Circle C community in Austin, Texas.

The financing transactions included a $ 26.0 million construction loan with Texas Capital Bank, National Association and an $ 8.0 million private placement.

1 unchanged sentence

Refer to Note 2 of the Stratus 2020 Form 10-K for further discussion.

The Saint Mary, L.P.

sold The Saint Mary property in January 2021.

In connection with the sale, The Saint Mary, L.P.

distributed $ 1.8 million to LCHM.

Refer to Note 4 for further discussion.

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.-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.

In August 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 H-E-B, L.P.-anchored, mixed-use development project (Kingwood Place).

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

Refer to Note 2 of the Stratus 2020 Form 10-K for further discussion.

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and the Kingwood, L.P.’s results are consolidated in Stratus’ financial statements.

Stratus’ consolidated balance sheets include the following combined assets and liabilities of The Saint Mary, L.P.

and the Kingwood, L.P.

Stratus’ consolidated balance sheets include the following assets and liabilities of the Kingwood, L.P.

(in thousands).

September 30, 2020 December 31, 2019

The assets and liabilities of The Saint Mary (primarily the real estate held for investment and the related debt) are presented as held for sale in Stratus' consolidated balance sheets as of December 31, 2020.

March 31, 2021 December 31, 2020

Cash and cash equivalents $ 437 $ 745

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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 $ 28 thousand in both third-quarter 2020 and third-quarter 2019, $ 93 thousand for the first nine months of 2020 and $ 84 thousand for the first nine 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, after adjustments recorded in the second and third quarters of 2019, recorded a gain on this sale totaling $ 2.0 million for the first nine months of 2019.

Payments to Austin Retail Partners for the consultant's consulting services and expense reimbursements totaled $ 37 thousand in first-quarter 2021 and $ 39 thousand in first-quarter 2020.

The Saint Mary.

In January 2021, The Saint Mary, L.P.

sold The Saint Mary for $ 60.0 million.

After closing costs and payment of the outstanding construction loan, the sale generated net proceeds of approximately $ 34 million.

After establishing a reserve for remaining costs of the partnership, Stratus received $ 20.9 million from the subsidiary in connection with the sale and $ 12.9 million of the net proceeds were distributed to the noncontrolling interest owners.

Stratus recognized a gain on the sale of $ 22.9 million ($ 16.2 million net of noncontrolling interests) in the first quarter of 2021.

Stratus also recognized a $ 63 thousand loss on extinguishment of debt related to the repayment of The Saint Mary construction loan.

Stratus reported the assets and liabilities of The Saint Mary as held for sale in its December 31, 2020, consolidated balance sheet.

The carrying amounts of the major classes of assets and liabilities for The Saint Mary as of December 31, 2020, follow (in thousands):

Real estate held for investment, net $ 36,341

Other assets 175

Total assets held for sale $ 36,516

Accrued liabilities $ 68

Other liabilities 220

Total liabilities held for sale $ 25,607

The Saint Mary had rental revenue of $ 0.1 million in first-quarter 2021 prior to the sale and $ 0.7 million in first-quarter 2020.

Interest expense, net of capitalized amounts, related to The Saint Mary construction loan was less than $ 0.1 million in first-quarter 2021 and $ 0.3 million in first-quarter 2020.

FAIR VALUE MEASUREMENTS

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

September 30, 2020 December 31, 2019

March 31, 2021 December 31, 2020

Value Carrying

Interest rate cap agreement $ — $ — $ 3 $ 3

Debt $ 339,213 $ 342,214 $ 351,055 $ 354,380

Interest rate swap agreement 108 108 114 114

Interest Rate Cap and Swap Agreements.

In September 2019, a Stratus subsidiary paid $ 24 thousand to enter into an interest rate cap agreement, which caps the maximum London Interbank Offered Rate (LIBOR) at 3.0 percent, on a total notional amount of $ 75.0 million (the principal amount of The Santal loan).

The interest rate cap agreement provides that the Stratus subsidiary will collect the difference between 3.0 percent and one-month LIBOR if one-month LIBOR is greater than 3.0 percent (refer to Note 6 in the Stratus 2019 Form 10-K for further discussion of The Santal loan).

The interest rate cap agreement terminates on October 5, 2021.

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.

of September 30, 2020, the agreement had a notional amount of $ 14.9 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.

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

Stratus also evaluated the counterparty credit risk associated with both agreements, which is considered a Level 3 input, but did not consider such risk to be significant.

Therefore, the interest rate cap and swap agreements are classified within Level 2 of the fair value hierarchy.

Stratus' debt is recorded at cost and is not actively traded.

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

September 30, 2020 December 31, 2019

March 31, 2021 December 31, 2020

Block 21 loan $ 138,417 $ 139,013

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New Caney land loan 4,485 4,949

PPP loan 3,987 —

Paycheck Protection Program (PPP) loan

Construction loans:

Kingwood Place 31,469 31,215

The Saint Mary

Jones Crossing

22,370 22,377

1 unchanged sentence

21,926 24,051

Jones Crossing

22,301 21,354

West Killeen Market

1 unchanged sentence

$ 339,213 $ 351,055

Includes net reductions for unamortized debt issuance costs of $ 2.5 million at September 30, 2020, and $ 3.5 million at December 31, 2019.

As of September 30, 2020, Stratus had $ 24.5 million available under its $ 60.0 million Comerica Bank credit facility, with a $ 150 thousand letter 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, 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.

The Saint Mary construction loan matures June 19, 2021.

Stratus expects to refinance the loan or sell The Saint Mary prior to the maturity date.

The New Caney land loan matures March 8, 2021.

Stratus expects to exercise its option to extend the loan for an additional 12 months, which requires a principal payment of approximately $ 500 thousand.

Effective November 2, 2020, the West Killeen Market construction loan was modified to replace the financial covenant that Stratus maintain a minimum total stockholders’ equity balance of $ 110.0 million with a financial covenant that Stratus maintain a minimum net asset value, as defined in the agreement, of $ 125 million.

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 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.

Includes net reductions for unamortized debt issuance costs of $ 1.9 million at March 31, 2021, and $ 2.2 million at December 31, 2020.

As of March 31, 2021, Stratus had $ 25.8 million available under its $ 60.0 million Comerica Bank credit facility, with a $ 150 thousand letter of credit committed against the credit facility.

In January 2021, Stratus entered into an amendment to the Lantana Place construction loan in which Stratus' Lantana Place subsidiary was granted a waiver of the debt service coverage ratio covenant until September 30, 2021, at which point the ratio is measured by reference to the three-month period then ended, and subsequently builds each quarter until measured by reference to the 12-month period ending June 30, 2022, and then on a trailing 12-month period for each quarter thereafter.

As part of the January 2021 amendment, Stratus repaid $ 2.0 million in principal on the Lantana Place construction loan.

In March 2021, Stratus exercised its option to extend the New Caney land loan for an additional 12 months from March 8, 2021, to March 8, 2022, which required a principal payment of $ 0.5 million.

In April 2021, Stratus entered into an amendment to The Santal loan to (i) extend the maturity date from October 5, 2022, to October 5, 2024 (and remove two options to extend the maturity date for an additional 12 months);

(ii) revise the interest rate from LIBOR (or, if applicable, a replacement rate) plus 2.85 percent, with a 4.80 percent floor, to LIBOR (or, if applicable, a replacement rate) plus 3.25 percent, with a 3.40 percent floor;

(iii) eliminate the requirement that Stratus' Santal subsidiary make minimum amortization payments beginning in November 2022;

(iv) extend the period during which The Santal loan may not be prepaid from April 2020 to June 2022;

and (v) revise certain events or circumstances that would qualify as an event of default or violate the prohibition on conveyances under the applicable provisions.

In April 2020, Stratus received a $ 4.0 million loan under the Paycheck Protection Program (PPP loan) of the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act), which was signed into law on March 27, 2020.

The PPP loan accrues interest at one percent and will mature on April 15, 2022, except for the portion that may be forgiven.

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

Stratus intends to apply for forgiveness of its PPP loan prior to the June 2021 deadline;

however, no assurance of full forgiveness can be provided.

For additional information regarding Stratus' debt, refer to Note 6 in the Stratus 2020 Form 10-K.

Interest Expense and Capitalization.

Interest costs (before capitalized interest) totaled $ 4.7 million in third-quarter 2020, $ 5.2 million in third-quarter 2019, $ 14.8 million for the first nine months of 2020 and $ 14.9 million for the first nine months of 2019.

Stratus' capitalized interest totaled $ 1.1 million in third-quarter 2020, $ 2.0 million in third-quarter 2019, $ 3.6 million for the first nine months of 2020 and $ 6.2 million for the first nine 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.

Interest costs (before capitalized interest) totaled $ 4.3 million in first-quarter 2021 and $ 5.2 million in first-quarter 2020.

Stratus' capitalized interest totaled $ 1.3 million in both first-quarter 2021 and first-quarter 2020, primarily related to development activities at Barton Creek.

PROFIT PARTICIPATION INCENTIVE PLAN

In July 2018, the Stratus Compensation Committee of the Board of Directors (the Committee) unanimously adopted the Stratus Profit Participation Incentive Plan (the Plan), which provides participants with economic incentives tied to the success of the development projects designated by the Committee as approved projects under the Plan.

In July 2018, the Compensation Committee of Stratus' Board of Directors (the Committee) unanimously adopted the Stratus Profit Participation Incentive Plan (the Plan), which provides participants with economic incentives tied to the success of the development projects designated by the Committee as approved projects under the Plan.

Estimates related to the awards may change over time as a result of differences between projected and actual development progress and costs, market conditions and the timing of capital transactions or valuation events.

Refer to Note 8 of the Stratus 2020 Form 10-K for further discussion.

During third-quarter 2020, Stratus recorded a $ 0.3 million increase to the accrued liability for the Plan of which $ 0.1 million increased project development costs and $ 0.2 million increased general and administrative expenses.

During third-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 nine months of 2020, Stratus accrued $ 0.3 million to project development costs and $ 0.4 million in general and administrative expense related to the Plan.

During the first nine months of 2019, Stratus accrued $ 0.6 million to project development costs and $ 0.7 million in general and administrative expense related to the Plan.

The accrued liability for the Plan totaled $ 3.2 million at September 30, 2020, and $ 2.5 million at December 31, 2019 (included in other liabilities).

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

During first-quarter 2021, Stratus added $ 0.2 million to project development costs and charged $ 0.5 million to general and administrative expense related to the Plan.

In March 2021, Stratus granted 53,411 stock-settled RSUs with a grant-date value of $ 1.5 million, based on Stratus' stock price on the date of issuance, under the Plan for West Killeen Market, which reached a valuation event under the Plan in October 2020.

Stratus transferred the $ 1.2 million accrued liability balance under the Plan for West Killeen Market to capital in excess of par value and will amortize the $ 0.3 million balance of the grant date value with a charge to general and administrative expenses and a credit to capital in excess of par value over the three-year vesting period of the RSUs.

The sale of The Saint Mary in January 2021, was a capital transaction under the Plan.

The accrued liability under the Plan related to The Saint Mary project totaled $ 2.2 million at March 31, 2021, and is expected to be paid in cash to eligible participants no later than March 15, 2022.

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 administrative expenses.

The accrued liability for the Plan totaled $ 5.7 million at March 31, 2021, and $ 6.2 million at December 31, 2020 (included in other liabilities).

As of March 31, 2021, no amounts had been paid in cash 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 2020 Form 10-K.

Stratus had deferred tax assets (net of deferred tax liabilities) totaling $ 34 thousand at September 30, 2020 , and $ 12.3 million at December 31, 2019.

The decrease in Stratus' net deferred tax assets is primarily attributed to a valuation allowance recorded in the third quarter of 2020 totaling $ 9.6 million.

In evaluating the recoverability of the deferred tax assets, management considered available positive and negative evidence, giving greater weight to the recent current losses and uncertainty regarding projected future financial results.

Stratus had deferred tax assets (net of deferred tax liabilities and valuation allowances) totaling $ 44 thousand at March 31, 2021 , and December 31, 2020.

Stratus' deferred tax assets had valuation allowances totaling $ 11.9 million at March 31, 2021, and $ 10.7 million at December 31, 2020.

In evaluating the recoverability of the deferred tax assets, management considered available positive and negative evidence, giving greater weight to the recent current cumulative losses and uncertainty regarding projected future financial results.

Upon a change in facts and circumstances, management may conclude that sufficient positive evidence exists to support a reversal of, or decrease in, the valuation allowance in the future, which would favorably impact Stratus' results of operations.

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 of ( 83 ) percent for the first nine months of 2020 and the U.S.

Federal statutory income tax rate of 21 percent was primarily attributable to the discrete tax charge of $ 9.6 million to record a valuation allowance on Stratus' deferred tax assets;

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 of four percent for the first nine 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.

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 that are not more likely than not to be realized.

The difference between Stratus' consolidated effective income tax rate of 1 percent for the first three months of 2021 and the U.S.

Federal statutory income tax rate of 21 percent was primarily attributable to a forecasted taxable loss for 2021, noncontrolling interests in subsidiaries, the presence of a full valuation allowance against U.S.

Federal deferred tax assets, and the Texas state margin tax.

The difference between Stratus' consolidated effective income tax rate of 54 percent 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 allowed 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.

BUSINESS SEGMENTS

Stratus currently has four operating segments:

Stratus has four operating segments:

Real Estate Operations, Leasing Operations, Hotel and Entertainment.

2 unchanged sentences

the Lantana community, including a portion of Lantana Place planned for a future multi-family phase;

and one condominium unit at the W Austin Hotel & Residences);

and one condominium unit at the W Austin Residences in Block 21, which was sold in February 2021);

in Lakeway, Texas, located in the greater Austin area (Lakeway);

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and in Magnolia, Texas (Magnolia Place), Kingwood, Texas (land for future multi-family development and vacant pad sites) and New Caney, Texas (New Caney), located in the greater Houston area.

The Leasing Operations segment is comprised of Stratus’ real estate assets, both residential and commercial, that are leased or available for lease and includes The Santal, West Killeen Market, The Saint Mary, office and retail space at the W Austin Hotel & Residences and completed portions of Lantana Place, Jones Crossing and Kingwood Place.

The Hotel segment includes the W Austin Hotel located at the W Austin Hotel & Residences in downtown Austin, Texas.

The Entertainment segment includes ACL Live, a live music and entertainment venue, and 3TEN ACL Live, both located at the W Austin Hotel & Residences.

The Leasing Operations segment is comprised of Stratus’ real estate assets, both residential and commercial, that are leased or available for lease and includes The Santal, West Killeen Market, office and retail space at Block 21 and completed portions of Lantana Place, Jones Crossing and Kingwood Place.

The Saint Mary was included in Leasing Operations until it was sold in January 2021 (see Notes 3 and 4 for further discussion).

The Hotel segment includes the W Austin Hotel located at Block 21 in downtown Austin, Texas.

The Entertainment segment includes ACL Live, a live music and entertainment venue, and 3TEN ACL Live, both located at Block 21.

In addition to hosting concerts and private events, ACL Live is the home of Austin City Limits, the longest running music series in American television history.

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

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

Three Months Ended March 31,

Real Estate Operations:

Developed property sales $ 4,040 $ 12,308

Undeveloped property sales 2,500 —

Commissions and other 81 28

5,025 2,616 19,254 9,693

Leasing Operations:

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Other 358 836

1,596 8,696 8,537 25,983

Entertainment:

Event revenue 595 3,558

Other — 708 594 1,902

373 5,919 4,818 16,935

Total revenues from contracts with customers $ 14,515 $ 28,134

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Leasing Operations Hotel Entertainment Corporate, Eliminations and Other b

Three Months Ended

September 30, 2020:

Three Months Ended March 31, 2021:

Unaffiliated customers $ 6,621 $ 5,167 $ 2,118 $ 609 $ — $ 14,515

$ 373 $ — $ 12,801

Intersegment 4 230 32 — ( 266 ) —

Cost of sales, excluding depreciation 4,333 2,381 2,902 1,425 ( 111 ) 10,930

1,242 ( 109 ) 10,828

Depreciation 56 1,711 880 401 ( 46 ) 3,002

General and administrative expenses — — — — 4,544 4,544

Operating income (loss) $ 1,388 $ 1,186 $ ( 2,594 ) $ ( 1,267 ) $ ( 2,937 ) $ ( 4,224 )

Capital expenditures and purchases and development of real estate properties

$ 2,952 $ 716 $ 213 $ 2 $ — $ 3,883

Total assets at September 30, 2020 160,890 236,970 93,666 35,495 16,198 543,219

Three Months Ended

September 30, 2019:

Unaffiliated customers $ 2,616 $ 5,024 $ 8,696 $ 5,919 $ — $ 22,255

Intersegment 4 219 68 307 ( 598 ) —

Cost of sales, excluding depreciation 2,352 2,495 6,931 4,770 ( 185 ) 16,363

57 1,529 903 393 ( 47 ) 2,835

General and administrative expenses — — — — 3,025 3,025

Gain on sale of assets — ( 22,931 ) c

Operating income (loss)

— — — ( 22,931 )

Capital expenditures and purchases and development of real estate properties

$ 3,110 $ 5,871 $ 294 $ 12 $ — $ 9,287

Total assets at September 30, 2019 193,421 197,052 97,414 43,810 36,235 567,932

Nine Months Ended

September 30, 2020:

Unaffiliated customers $ 19,254 $ 17,257 $ 8,537 $ 4,818 $ — $ 49,866

Intersegment 13 666 82 8 ( 769 ) —

Cost of sales, excluding depreciation 15,653 9,955 d

5,773 ( 246 ) 42,127

Depreciation 173 6,132 2,927 f

( 172 ) 10,339

General and administrative expenses — — — — 8,786 8,786

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

Operating income (loss) $ 2,236 $ 24,236 $ ( 1,632 ) $ ( 1,217 ) $ ( 4,653 ) $ 18,970

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$ 2,489 $ 919 $ 72 $ 18 $ — $ 3,498

Leasing Operations Hotel Entertainment Corporate, Eliminations and Other b

Nine Months Ended

September 30, 2019:

Total assets at March 31, 2021 161,471 195,234 91,191 32,787 21,188 501,871

Three Months Ended March 31, 2020:

Unaffiliated customers $ 12,336 $ 5,732 $ 5,911 $ 4,155 $ — $ 28,134

Intersegment 4 227 48 15 ( 294 ) —

Cost of sales, excluding depreciation 6,193 h

Cost of sales, excluding depreciation 10,182

3,088 5,908 3,226 ( 70 ) 22,334

Depreciation 182 4,324 2,702 1,183 ( 223 ) 8,168

Depreciation 59 2,047 1,105 d

General and administrative expenses — — — — 2,815 2,815

Gain on sale of assets — ( 1,989 ) c

— — — ( 1,989 )

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

1 unchanged sentence

$ 6,222 $ 2,283 $ 27 $ 18 $ — $ 8,550

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

Total assets at March 31, 2020 160,691 235,734 e

96,484 42,639 23,390 558,938

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

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 the third-quarter of 2019.

Refer to Note 4.

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 the gain on the January 2021 sale of The Saint Mary.

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.

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

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.

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

SUBSEQUENT EVENTS

Stratus evaluated events after September 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.

Includes assets held for sale at The Saint Mary, which totaled $ 37.1 million at March 31, 2020.

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