STRATUS PROPERTIES INC 10-Q

Item 1. Financial Statements . STRATUS PROPERTIES INC. CONSOLIDATED BALANCE SHEETS (Unaudited) (In Thousands) March 31, 2021 December 31, 2020 ASSETS Cash and cash equivalents $ 12,560 $ 12,434 Restricted cash 18,682 21,749 Real estate held for sale 2,000 4,204 Real estate under development 110,464 98,137 Land available for development 43,555 53,432 Real estate held for investment, net 283,899 286,529 Lease right-of-use assets 10,784 10,871 Other assets 19,927 20,144 Assets held for sale - The Saint Mary — 36,516 Total assets $ 501,871 $ 544,016 LIABILITIES AND EQUITY Liabilities: Accounts payable $ 8,659 $ 8,047 Accrued liabilities, including taxes 5,477 12,868 Debt 339,213 351,055 Lease liabilities 13,467 13,269 Deferred gain 5,936 6,173 Other liabilities 15,585 17,233 Liabilities held for sale - The Saint Mary — 25,607 Total liabilities 388,337 434,252 Commitments and contingencies Equity: Stockholders’ equity: Common stock 94 94 Capital in excess of par value of common stock 188,121 186,777 Accumulated deficit ( 57,413 ) ( 66,357 ) Common stock held in treasury ( 21,753 ) ( 21,600 ) Total stockholders’ equity 109,049 98,914 Noncontrolling interests in subsidiaries 4,485 10,850 Total equity 113,534 109,764 Total liabilities and equity $ 501,871 $ 544,016 The accompanying Notes to Consolidated Financial Statements (Unaudited) are an integral part of these consolidated financial statements. 2 Table of Contents STRATUS PROPERTIES INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited) (In Thousands, Except Per Share Amounts) Three Months Ended March 31, 2021 2020 Revenues: Real estate operations $ 6,621 $ 12,336 Leasing operations 5,167 5,732 Hotel 2,118 5,911 Entertainment 609 4,155 Total revenues 14,515 28,134 Cost of sales: Real estate operations 4,344 10,255 Leasing operations 2,377 3,082 Hotel 2,902 5,899 Entertainment 1,307 3,098 Depreciation 3,002 3,633 Total cost of sales 13,932 25,967 General and administrative expenses 4,544 2,815 Gain on sale of assets ( 22,931 ) — Total ( 4,455 ) 28,782 Operating income (loss) 18,970 ( 648 ) Interest expense, net ( 3,035 ) ( 3,915 ) Loss on interest rate derivative instruments — ( 121 ) Loss on early extinguishment of debt ( 63 ) — Other income, net 3 19 Income (loss) before income taxes and equity in unconsolidated affiliates' loss 15,875 ( 4,665 ) (Provision for) benefit from income taxes ( 207 ) 2,518 Equity in unconsolidated affiliates' loss ( 2 ) — Net income (loss) and total comprehensive income (loss) 15,666 ( 2,147 ) Total comprehensive (income) loss attributable to noncontrolling interests in subsidiaries ( 6,722 ) 1,077 Net income (loss) and total comprehensive income (loss) attributable to common stockholders $ 8,944 $ ( 1,070 ) Net income (loss) per share attributable to common stockholders: Basic $ 1.09 $ ( 0.13 ) Diluted $ 1.08 $ ( 0.13 ) Weighted-average common shares outstanding: Basic 8,223 8,200 Diluted 8,273 8,200 The accompanying Notes to Consolidated Financial Statements (Unaudited) are an integral part of these consolidated financial statements. 3 Table of Contents STRATUS PROPERTIES INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In Thousands) Three Months Ended March 31, 2021 2020 Cash flow from 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 Cost of real estate sold 3,112 8,146 Gain on sale of assets ( 22,931 ) — Loss on early extinguishment of debt 63 — Amortization of debt issuance costs and stock-based compensation 529 538 Equity in unconsolidated affiliates' loss 2 — Deferred income taxes — 2,477 Loss on interest rate derivative instruments — 121 Purchases and development of real estate properties ( 2,489 ) ( 6,222 ) 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 used in operating activities ( 10,371 ) ( 4,434 ) Cash flow from investing activities: Capital expenditures ( 1,009 ) ( 2,328 ) Proceeds from sale of assets 59,488 — Payments on master lease obligations ( 270 ) ( 287 ) Other, net ( 5 ) — Net cash provided by (used in) investing activities 58,204 ( 2,615 ) Cash flow from financing activities: Borrowings from credit facility 17,000 12,500 Payments on credit facility ( 26,227 ) ( 5,681 ) Borrowings from project loans 458 5,905 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 (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 Cash, cash equivalents and restricted cash at end of period $ 31,242 $ 37,706 The accompanying Notes to Consolidated Financial Statements (Unaudited), which include information regarding noncash transactions, are an integral part of these consolidated financial statements. 4 Table of Contents STRATUS PROPERTIES INC. CONSOLIDATED STATEMENTS OF EQUITY (Unaudited) (In Thousands) Stockholders’ Equity Common Stock Held in Treasury Total Stockholders' Equity Common Stock Capital in Excess of Par Value Accum-ulated Deficit Noncontrolling Interests in Subsidiaries Number of Shares At Par Value Number of Shares At Cost Total Equity Balance at December 31, 2020 9,358 $ 94 $ 186,777 $ ( 66,357 ) 1,137 $ ( 21,600 ) $ 98,914 $ 10,850 $ 109,764 Exercised and vested stock-based awards 19 — — — — — — — — 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 ) 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 Exercised and vested stock-based awards 17 — — — — — — — — Stock-based compensation — — 162 — — — 162 — 162 Tender of shares for stock-based awards — — — — 4 ( 91 ) ( 91 ) — ( 91 ) Total comprehensive loss — — — ( 1,070 ) — — ( 1,070 ) ( 1,077 ) ( 2,147 ) Balance at March 31, 2020 9,347 $ 93 $ 186,244 $ ( 44,637 ) 1,137 $ ( 21,600 ) $ 120,100 $ 11,906 $ 132,006 The accompanying Notes to Consolidated Financial Statements (Unaudited) are an integral part of these consolidated financial statements. 5 Table of Contents STRATUS PROPERTIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. GENERAL The unaudited consolidated financial statements, and the accompanying notes, are prepared in accordance with generally accepted accounting principles in the United States (GAAP) and should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2020, included in Stratus Properties Inc.’s (Stratus) Annual Report on Form 10-K for the year ended December 31, 2020 (Stratus 2020 Form 10-K) filed with the United States (U.S.) Securities and Exchange Commission. 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 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. The preparation of Stratus’ consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions, including those related to the potential impacts arising from the COVID-19 pandemic and related government actions, that affect the amounts reported in these financial statements and accompanying notes. Actual results could differ materially from those estimates. As the impact of the COVID-19 pandemic continues to evolve, and the extent of its impact cannot be determined with certainty, estimates and assumptions about future events and their effects require increased judgement. Stratus’ 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. 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 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. 6 Table of Contents 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. 2. EARNINGS PER SHARE 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 March 31, 2021 2020 Net income (loss) and total comprehensive income (loss) attributable to common stockholders $ 8,944 $ ( 1,070 ) Basic weighted-average shares of common stock outstanding 8,223 8,200 Add shares issuable upon exercise or vesting of dilutive stock options and restricted stock units (RSUs) 50 a — b Diluted weighted-average shares of common stock outstanding 8,273 8,200 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 ) a. Excludes 16 thousand shares of common stock associated with RSUs that were anti-dilutive. b. Excludes 78 thousand shares of common stock associated with RSUs and stock options that were anti-dilutive as a result of the net loss. 3. RELATED PARTY TRANSACTIONS The Saint Mary, L.P. 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. As one of the participants in the private placement offering, LCHM Holdings, LLC (LCHM), a related party as a result of its greater than 5 percent beneficial ownership of Stratus’ common stock, purchased limited partnership interests representing a 6.1 percent equity interest in The Saint Mary, L.P. 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. 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. Stratus has performed evaluations and concluded that The Saint Mary, L.P. and the Kingwood, L.P. are variable interest entities and that Stratus is the primary beneficiary. Stratus will continue to evaluate which entity is the primary beneficiary of The Saint Mary, L.P. and the Kingwood, L.P. in accordance with applicable accounting guidance. The Saint Mary, L.P. and the Kingwood, L.P.’s results are consolidated in Stratus’ financial statements. 7 Table of Contents Stratus’ consolidated balance sheets include the following assets and liabilities of the Kingwood, L.P. (in thousands). 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 Assets: Cash and cash equivalents $ 437 $ 745 Real estate under development 2,380 2,380 Land available for development 8,155 8,143 Real estate held for investment 31,810 31,962 Other assets 2,060 2,195 Total assets 44,842 45,425 Liabilities: Accounts payable and accrued liabilities 669 850 Debt 31,469 31,215 Total liabilities 32,138 32,065 Net assets $ 12,704 $ 13,360 Other Transactions. 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 consulting services and expense reimbursements totaled $ 37 thousand in first-quarter 2021 and $ 39 thousand in first-quarter 2020. 4. DISPOSITIONS 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): Assets: Real estate held for investment, net $ 36,341 Other assets 175 Total assets held for sale $ 36,516 Liabilities: Accrued liabilities $ 68 Debt 25,319 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. 5. FAIR VALUE MEASUREMENTS Fair value accounting guidance includes a hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 inputs) and the lowest priority to unobservable inputs (Level 3 inputs). The carrying value for certain Stratus financial instruments (i.e., cash and cash equivalents, restricted cash, accounts payable and accrued liabilities) approximates fair value because of their short-term nature and generally negligible credit losses. 8 Table of Contents A summary of the carrying amount and fair value of Stratus' other financial instruments follows (in thousands): March 31, 2021 December 31, 2020 Carrying Value Fair Value Carrying Value Fair Value Liabilities: Debt $ 339,213 $ 342,214 $ 351,055 $ 354,380 Debt. Stratus' debt is recorded at cost and is not actively traded. Fair value is estimated based on discounted future expected cash flows at estimated current market interest rates. Accordingly, Stratus' debt is classified within Level 2 of the fair value hierarchy. The fair value of debt does not represent the amounts that will ultimately be paid upon the maturities of the loans. 6. DEBT The components of Stratus' debt are as follows (in thousands): March 31, 2021 December 31, 2020 Block 21 loan $ 138,417 $ 139,013 The Santal loan 74,439 74,343 Comerica Bank credit facility 34,077 43,304 New Caney land loan 4,485 4,949 Paycheck Protection Program (PPP) loan 3,987 3,987 Construction loans: Kingwood Place 31,469 31,215 Jones Crossing 22,370 22,377 Lantana Place 21,926 24,051 West Killeen Market 6,674 6,707 Amarra Villas credit facility 1,369 1,109 Total debt a $ 339,213 $ 351,055 a. 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. 9 Table of Contents 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 $ 4.3 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. 7. PROFIT PARTICIPATION INCENTIVE 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 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. 8. INCOME TAXES 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 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 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. 10 Table of Contents 9. BUSINESS SEGMENTS Stratus has four operating segments: Real Estate Operations, Leasing Operations, Hotel and Entertainment. The Real Estate Operations segment is comprised of Stratus’ real estate assets (developed for sale, under development and available for development), which consists of its properties in Austin, Texas (including the Barton Creek community; the Circle C community; the Lantana community, including a portion of Lantana Place planned for a future multi-family phase; 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); in College Station, Texas (a portion of Jones Crossing and vacant pad sites); in Killeen, Texas (vacant pad sites at West Killeen Market); 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, 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. Stratus uses operating income or loss to measure the performance of each segment. General and administrative expenses, which primarily consist of employee salaries, wages and other costs, are managed on a consolidated basis and are not allocated to Stratus’ operating segments. The following segment information reflects management determinations that may not be indicative of what the actual financial performance of each segment would be if it were an independent entity. Revenues from Contracts with Customers. Stratus' revenues from contracts with customers follow (in thousands): Three Months Ended March 31, 2021 2020 Real Estate Operations: Developed property sales $ 4,040 $ 12,308 Undeveloped property sales 2,500 — Commissions and other 81 28 6,621 12,336 Leasing Operations: Rental revenue 5,167 5,732 Hotel: Rooms, food and beverage 1,760 5,075 Other 358 836 2,118 5,911 Entertainment: Event revenue 595 3,558 Other 14 597 609 4,155 Total revenues from contracts with customers $ 14,515 $ 28,134 11 Table of Contents Financial Information by Business Segment. The following segment information was prepared on the same basis as Stratus’ consolidated financial statements (in thousands). Real Estate Operations a Leasing Operations Hotel Entertainment Corporate, Eliminations and Other b Total Three Months Ended March 31, 2021: Revenues: Unaffiliated customers $ 6,621 $ 5,167 $ 2,118 $ 609 $ — $ 14,515 Intersegment 4 230 32 — ( 266 ) — Cost of sales, excluding depreciation 4,333 2,381 2,902 1,425 ( 111 ) 10,930 Depreciation 56 1,711 880 401 ( 46 ) 3,002 General and administrative expenses — — — — 4,544 4,544 Gain on sale of assets — ( 22,931 ) c — — — ( 22,931 ) Operating income (loss) $ 2,236 $ 24,236 $ ( 1,632 ) $ ( 1,217 ) $ ( 4,653 ) $ 18,970 Capital expenditures and purchases and development of real estate properties $ 2,489 $ 919 $ 72 $ 18 $ — $ 3,498 Total assets at March 31, 2021 161,471 195,234 91,191 32,787 21,188 501,871 Three Months Ended March 31, 2020: Revenues: Unaffiliated customers $ 12,336 $ 5,732 $ 5,911 $ 4,155 $ — $ 28,134 Intersegment 4 227 48 15 ( 294 ) — Cost of sales, excluding depreciation 10,182 3,088 5,908 3,226 ( 70 ) 22,334 Depreciation 59 2,047 1,105 d 483 d ( 61 ) 3,633 General and administrative expenses — — — — 2,815 2,815 Operating income (loss) $ 2,099 $ 824 $ ( 1,054 ) $ 461 $ ( 2,978 ) $ ( 648 ) Capital expenditures and purchases and development of real estate properties $ 6,222 $ 2,283 $ 27 $ 18 $ — $ 8,550 Total assets at March 31, 2020 160,691 235,734 e 96,484 42,639 23,390 558,938 a. Includes sales commissions and other revenues together with related expenses. b. Includes consolidated general and administrative expenses and eliminations of intersegment amounts. c. Represents the gain on the January 2021 sale of The Saint Mary. d. 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. e. Includes assets held for sale at The Saint Mary, which totaled $ 37.1 million at March 31, 2020. 12 Table of Contents