What changed in this filing

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Item 1. Financial Statements

2021-08-16 compared with 2021-05-17 · 218 added, 97 removed, 279 unchanged (53% of the section changed)

35 unchanged sentences

STRATUS PROPERTIES INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited)

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME (Unaudited)

(In Thousands, Except Per Share Amounts)

Three Months Ended

Three Months Ended Six Months Ended

June 30, June 30,

2021 2020 2021 2020

Real estate operations $ 775 $ 1,893 $ 7,396 $ 14,229

11 unchanged sentences

General and administrative expenses 6,399 3,103 10,943 5,918

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

Gain on sale of assets — — ( 22,931 ) —

Total 18,777 445 14,322 29,227

Operating income (loss) 18,970 ( 648 )

Operating (loss) income ( 7,201 ) 8,486 11,769 7,838

Interest expense, net ( 2,772 ) ( 3,666 ) ( 5,807 ) ( 7,581 )

Loss on interest rate derivative instruments — ( 121 )

Loss on early extinguishment of debt ( 163 ) — ( 226 ) —

Other income, net 1 131 4 29

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

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

( 10,135 ) 4,951 5,740 286

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

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

15,666 ( 2,147 )

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

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

( 10,204 ) 3,803 5,462 1,656

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

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

41 331 ( 6,681 ) 1,408

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

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

$ ( 10,163 ) $ 4,134 $ ( 1,219 ) $ 3,064

Diluted $ 1.08 $ ( 0.13 )

Basic and diluted net (loss) income per share attributable to common stockholders $ ( 1.23 ) $ 0.50 $ ( 0.15 ) $ 0.37

Weighted-average common shares outstanding:

8,235 8,210 8,229 8,205

Diluted 8,235 8,228 8,229 8,230

3 unchanged sentences

(In Thousands)

Three Months Ended

Six Months Ended

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:

Net income $ 5,462 $ 1,656

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

Depreciation 5,926 7,010

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Deferred income taxes — 2,731

Loss on interest rate derivative instruments — 121

Purchases and development of real estate properties ( 4,879 ) ( 8,655 )

Decrease in deposits ( 20 ) ( 185 )

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

Increase in deposits 358 46

(Increase) decrease in other assets ( 1,309 ) 1,215

Decrease in accounts payable, accrued liabilities and other ( 2,162 ) ( 8,385 )

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

Net cash (used in) provided by operating activities ( 14,990 ) 5,445

Cash flow from investing activities:

13 unchanged sentences

Financing costs ( 1,106 ) ( 423 )

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

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

Net cash used in financing activities ( 38,813 ) ( 4,076 )

Net increase (decrease) in cash, cash equivalents and restricted cash 2,701 ( 3,719 )

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

4 unchanged sentences

(In Thousands)

THREE MONTHS ENDED JUNE 30

Stockholders’ Equity

Held in Treasury Total Stockholders' Equity

Held in Treasury Total

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

of Shares At Par

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

Stock-based compensation — — 202 — — — 202 — 202

Total comprehensive loss — — — ( 10,163 ) — — ( 10,163 ) ( 41 ) ( 10,204 )

Balance at June 30, 2021 9,377 $ 94 $ 188,323 $ ( 67,576 ) 1,143 $ ( 21,753 ) $ 99,088 $ 4,444 $ 103,532

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

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

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

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

STRATUS PROPERTIES INC.

CONSOLIDATED STATEMENTS OF EQUITY (Unaudited)

(In Thousands)

SIX MONTHS ENDED JUNE 30

Stockholders’ Equity

Held in Treasury Total

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

5 unchanged sentences

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

Total comprehensive (loss) income — — — ( 1,219 ) — — ( 1,219 ) 6,681 5,462

Balance at June 30, 2021 9,377 $ 94 $ 188,323 $ ( 67,576 ) 1,143 $ ( 21,753 ) $ 99,088 $ 4,444 $ 103,532

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

3 unchanged sentences

— — — — 4 ( 91 ) ( 91 ) — ( 91 )

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

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

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

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

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

3 unchanged sentences

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

Operating results for the 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.

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

In particular, 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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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.

The impacts of the pandemic are continuing during 2021 but began to lessen as vaccines became widely available in the U.S.

during the first quarter of 2021, although there has been a recent rise in the number of cases in the U.S.

as a result of vaccine hesitancy and the spread of COVID-19 variants.

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 of the spread of the COVID-19 variants and resurgence in infections, on July 27, 2021, the U.S.

Centers for Disease Control and Prevention (CDC) changed its mask guidance to, among other things, recommend that fully vaccinated individuals wear masks indoors in areas of “substantial” or “high transmission,” which according to the CDC include Austin and much of Texas.

Stratus cannot predict the extent to which individuals may decide to restrict their activities as a result of these developments nor what impact these developments may have on its business.

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.

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 second quarter of 2021, and are expected to continue to be adversely impacted during the second half of 2021, although the adverse impacts began to lessen during the first quarter of 2021.

The hotel has remained open throughout the pandemic and the 33 percent average occupancy rate in the second quarter of 2021 was higher than the 12 percent average occupancy rate in the second quarter of 2020 and the 21 percent average occupancy rate in the first quarter of 2021.

While Stratus' entertainment venues, ACL Live and 3TEN ACL Live, were able to host events during second-quarter 2021 and the first six months of 2021, capacity remained limited.

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.

The Saint June L.P.

On June 2, 2021, The Saint June, L.P., a Texas limited partnership and a subsidiary of Stratus, entered into a construction loan to develop The Saint June, a 182 -unit, multi-family luxury garden-style apartment project within the Amarra subdivision of the Barton Creek community in Austin, Texas.

Refer to Note 6 for further discussion of this loan.

On July 1, 2021, an unrelated equity investor contributed $ 16.3 million to The Saint June, L.P.

partnership for a 65.87 percent interest.

Stratus has a 34.13 percent interest in The Saint June, L.P.

following its contribution of land, development to date and $ 1.1 million of cash.

The Saint June, L.P.

is governed by a limited partnership agreement between Stratus and the equity investor, and a wholly owned subsidiary of Stratus serves as the general partner.

The general partner will manage The Saint June, L.P.

in exchange for an asset management fee of $ 210 thousand per year beginning two years after construction of The Saint June, which began in July 2021, and will earn a development management fee of 4 percent of certain construction costs for The Saint June.

The partnership agreement also contains a buy-sell option pursuant to which at any time either party will have the right to initiate a buy-sell of the other party’s interests.

Terminated Block 21 Sale.

In December 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.

In May 2020, Ryman delivered a termination letter, which was agreed to and accepted by Stratus, terminating the agreements to purchase 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.

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

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

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

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

Three Months Ended Six Months Ended

June 30, June 30,

2021 2020 2021 2020

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

$ ( 10,163 ) $ 4,134 $ ( 1,219 ) $ 3,064

Basic weighted-average shares of common stock outstanding

8,235 8,210 8,229 8,205

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

8,235 8,228 8,229 8,230

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

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

$ ( 1.23 ) $ 0.50 $ ( 0.15 ) $ 0.37

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.

Excludes 147 thousand shares for second-quarter 2021 and 128 thousand shares for the first six months of 2021 of common stock associated with RSUs and stock options that were anti-dilutive as a result of the net loss.

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

RELATED PARTY TRANSACTIONS

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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.

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, LP (H-E-B)-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 Kingwood, L.P.

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

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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

June 30, 2021 December 31, 2020

Cash and cash equivalents $ 698 $ 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 consulting services and expense reimbursements totaled $ 37 thousand in first-quarter 2021 and $ 39 thousand in first-quarter 2020.

Payments to Austin Retail Partners for the consultant's consulting services and expense reimbursements totaled $ 29 thousand in second-quarter 2021, $ 26 thousand in second-quarter 2020, $ 66 thousand for the first six months of 2021 and $ 65 thousand for the first six months of 2020.

The Saint Mary.

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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 recognized a gain on the sale of $ 22.9 million ($ 16.2 million net of noncontrolling interests) for the first six months of 2021.

Stratus also recognized a $ 63 thousand loss on extinguishment of debt for the first six months of 2021 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.

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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.

The Saint Mary had rental revenue prior to the sale of $ 0.1 million in first-quarter 2021, $ 0.7 million in second-quarter 2020, and $ 1.4 million for the first six months of 2020.

Interest expense, net of capitalized amounts, related to The Saint Mary construction loan was less than $ 0.1 million in first-quarter 2021, $ 0.3 million in second-quarter 2020 and $ 0.6 million for the first six months of 2020.

FAIR VALUE MEASUREMENTS

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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.

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

March 31, 2021 December 31, 2020

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

June 30, 2021 December 31, 2020

Value Carrying

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The fair value of debt does not represent the amounts that will ultimately be paid upon the maturities of the loans.

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

March 31, 2021 December 31, 2020

The components of Stratus' debt follow (in thousands):

June 30, 2021 December 31, 2020

Block 21 loan $ 137,855 $ 139,013

1 unchanged sentence

Comerica Bank credit facility 45,526 43,304

Jones Crossing loan 23,995 —

New Caney land loan 4,489 4,949

Paycheck Protection Program (PPP) loan

Paycheck Protection Program loan

Construction loans:

Kingwood Place 31,715 31,215

Jones Crossing

22,370 22,377

Lantana Place

2 unchanged sentences

Amarra Villas credit facility 1,580 1,109

Jones Crossing — 22,377

$ 352,096 $ 351,055

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;

Includes net reductions for unamortized debt issuance costs of $ 2.1 million at June 30, 2021, and $ 2.2 million at December 31, 2020.

As of June 30, 2021, Stratus had $ 14.3 million available under its $ 60.0 million Comerica Bank credit facility, with a $ 150 thousand letter of credit committed against the credit facility.

The Santal Loan.

In April 2021, a Stratus subsidiary 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 London Interbank Offered Rate (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;

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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.

Jones Crossing Loan.

In June 2021, a Stratus subsidiary entered into a $ 24.5 million loan with Regions Bank (the Jones Crossing loan).

Of the proceeds from the Jones Crossing loan, $ 22.2 million was used to repay in full the original Jones Crossing construction loan.

The repayment of the Jones Crossing construction loan resulted in Stratus recognizing a $ 163 thousand loss on the early extinguishment of debt representing the write-off of unamortized debt issuance costs related to the construction loan.

The Jones Crossing loan has a maturity date of June 17, 2026, and bears interest at LIBOR plus 2.25 percent, provided LIBOR shall not be less than 0.15 percent.

Payments of interest only on the Jones Crossing loan are due monthly through the term of the loan with the outstanding principal due at maturity.

If the debt service coverage ratio falls below 1.15 to 1.00 for any fiscal quarter beginning with the quarter ending September 30, 2022, a “Cash Sweep Period” (as defined in the Jones Crossing loan) results, which limits Stratus’ ability to receive cash from its Jones Crossing subsidiary.

The Jones Crossing loan is secured by the Jones Crossing project, and Stratus has provided a guaranty limited to non-recourse carve-out obligations and environmental indemnification.

In addition, any default under the ground leases, which grant Stratus the right to occupy the Jones Crossing property, would trigger the carve-out guaranty.

The Jones Crossing loan contains certain financial covenants, including a requirement that Stratus maintain liquid assets of at least $ 2.0 million.

New Caney Land 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 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;

The PPP loan accrues interest at 1 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 and make mortgage interest payments.

Stratus' PPP loan forgiveness application is currently under review by the Small Business Administration;

however, no assurance of full forgiveness can be provided.

Lantana Place Construction Loan.

In January 2021, a Stratus subsidiary 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.

The Saint June Construction Loan.

In June 2021, The Saint June, L.P.

entered into a construction loan with Texas Capital Bank to finance approximately 55 percent of the estimated $ 55 million cost of the development and construction of The Saint June.

Available borrowings under the loan total the least of (i) $ 30.3 million, (ii) 60 percent of the total construction costs, or (iii) 55 percent of the as-stabilized appraised value of the property.

As of June 30, 2021, no amounts were outstanding under this loan.

The loan matures on October 2, 2024, with two options to extend the maturity for an additional 12 months, subject to satisfying specified conditions and the payment of an extension fee for each extension.

The loan bears interest at 30-day LIBOR plus 2.75 percent, with a floor of 3.50 percent.

Payments of interest only on the loan are due monthly through October 2, 2024, with the outstanding principal due at maturity.

The loan is secured by The Saint June project and is fully guaranteed by Stratus, including customary carve-out obligations and environmental indemnity.

However, the guaranty will convert to a 50 percent repayment guaranty upon completion of construction of The Saint June.

Further, once The Saint June, L.P.

is able to maintain a debt service coverage ratio of 1.25 to 1.00, the repayment guaranty will be eliminated.

Stratus is also required to maintain a net asset value, as defined by the guaranty, of $ 125 million and liquid assets of at least $ 10 million.

The Saint June, L.P.

is not permitted to make distributions to its partners until completion of The Saint June project and after the project achieves a debt service coverage ratio of at least 1.00 for three consecutive months.

Magnolia Place Construction Loan.

In August 2021, a Stratus subsidiary entered into a $ 14.8 million construction loan with Veritex Community Bank secured by the Magnolia Place project.

The loan matures on August 12, 2024, with two options to extend the maturity for an additional 12 months, subject to satisfying specified conditions and the payment of an extension fee.

The loan bears interest at 30-day LIBOR plus 3.25 percent (or, if applicable, a replacement rate), with a floor of 3.50 percent.

Payments of interest only are due monthly through August 12, 2024, with the outstanding principal due at maturity.

Stratus provided a completion guaranty and 25 -percent-limited-payment guaranty.

The loan agreement contains financial covenants, including that Stratus is required to maintain a net asset value, as defined in the loan agreement, of $ 125 million and liquid assets of at least $ 7.5 million.

Refer to Note 10 for further discussion of the Magnolia Place project and construction loan.

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.

Interest costs (before capitalized interest) totaled $ 4.0 million in second-quarter 2021, $ 4.9 million in second-quarter 2020, $ 8.3 million for the first six months of 2021 and $ 10.1 million for the first six months of 2020.

Stratus' capitalized interest totaled $ 1.2 million in second-quarter 2021 and 2020, and $ 2.5 million for each of the first six months of 2021 and 2020.

Capitalized interest is primarily related to development activities at Barton Creek.

PROFIT PARTICIPATION INCENTIVE PLAN

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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.

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.

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

The accrued liability under the Plan related to The Saint Mary project totaled $ 2.2 million at June 30, 2021, and is expected to be paid in cash to eligible participants no later than March 15, 2022.

A summary of Plan costs follows (in millions):

Three Months Ended Six Months Ended

June 30, June 30,

2021 2020 2021 2020

Charged to general and administrative expense

$ 0.3 $ 0.2 $ 0.8 $ 0.2

Capitalized to project development costs 0.2 0.2 0.4 0.2

Total Plan costs

$ 0.5 $ 0.4 $ 1.2 $ 0.4

The accrued liability for the Plan totaled $ 6.2 million at June 30, 2021, and December 31, 2020 (included in other liabilities).

As of June 30, 2021, no amounts had been paid in cash to participants under the Plan.

Stratus’ accounting policy for and other information regarding its income taxes are 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 June 30, 2021 , and December 31, 2020.

Stratus' deferred tax assets had valuation allowances totaling $ 12.6 million at June 30, 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.

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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.

The difference between Stratus' consolidated effective income tax rate of less than 1 percent for the first six 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.

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

Federal statutory income tax rate of 21 percent, was primarily attributable to the CARES Act, which 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.

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

BUSINESS SEGMENTS

3 unchanged sentences

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);

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

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

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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.

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

Three Months Ended March 31,

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

2021 2020 2021 2020

Real Estate Operations:

2 unchanged sentences

Commissions and other 200 61 281 89

775 1,893 7,396 14,229

Leasing Operations:

2 unchanged sentences

Other 465 98 823 934

3,935 1,030 6,053 6,941

Entertainment:

Event revenue 1,055 293 1,650 3,851

Other 603 ( 3 ) 617 594

1,658 290 2,267 4,445

Total revenues from contracts with customers $ 11,576 $ 8,931 $ 26,091 $ 37,065

2 unchanged sentences

Leasing Operations Hotel Entertainment Corporate, Eliminations and Other b

Three Months Ended March 31, 2021:

Three Months Ended June 30, 2021:

Unaffiliated customers $ 775 $ 5,208 $ 3,935 $ 1,658 $ — $ 11,576

2 unchanged sentences

Depreciation 47 1,692 877 347 ( 39 ) 2,924

General and administrative expenses — — — — 6,399 c

Operating (loss) income $ ( 770 ) $ 1,234 $ ( 776 ) $ ( 359 ) $ ( 6,530 ) $ ( 7,201 )

Capital expenditures and purchases and development of real estate properties

$ 2,390 $ 1,216 $ 143 $ 10 $ — $ 3,759

Total assets at June 30, 2021 165,607 194,696 91,878 33,884 24,276 510,341

Leasing Operations Hotel Entertainment Corporate, Eliminations and Other b

Three Months Ended June 30, 2020:

Unaffiliated customers $ 1,893 $ 5,718 $ 1,030 $ 290 $ — $ 8,931

Intersegment 4 216 16 ( 1 ) ( 235 ) —

Cost of sales, excluding depreciation 1,886 4,074 d

1,305 ( 67 ) 8,965

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

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

Gain on sale of assets — ( 22,931 ) c

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

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

Capital expenditures and purchases and development of real estate properties

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

Total assets at June 30, 2020 163,900 233,268 g

94,359 36,784 23,394 551,705

Six Months Ended June 30, 2021:

Unaffiliated customers $ 7,396 $ 10,375 $ 6,053 $ 2,267 $ — $ 26,091

Intersegment 9 476 60 — ( 545 ) —

Cost of sales, excluding depreciation 5,836 4,909 6,764 3,095 ( 220 ) 20,384

Depreciation 103 3,403 1,757 748 ( 85 ) 5,926

General and administrative expenses — — — — 10,943 c

Gain on sale of assets — ( 22,931 ) h

— — — ( 22,931 )

Operating income (loss) $ 1,466 $ 25,470 $ ( 2,408 ) $ ( 1,576 ) $ ( 11,183 ) $ 11,769

1 unchanged sentence

$ 4,879 $ 2,135 $ 215 $ 28 $ — $ 7,257

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

Three Months Ended March 31, 2020:

Six Months Ended June 30, 2020:

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

2 unchanged sentences

4,531 ( 137 ) 31,299

Depreciation 59 2,047 1,105 d

116 4,081 2,036 i

( 110 ) 7,010

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

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

Operating income (loss)

Capital expenditures and purchases and development of real estate properties

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

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

Capital expenditures and purchases and development of real estate properties

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

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

The increases from the comparable prior year periods are primarily the result of increased consulting, legal and public relation costs for Stratus' successful proxy contest and the ongoing REIT exploration process totaling $ 3.3 million and $ 4.4 million in second-quarter 2021 and for the first six months of 2021, respectively.

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

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

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

Includes assets held for sale at The Saint Mary, which totaled $ 36.6 million at June 30, 2020.

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.

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

SUBSEQUENT EVENTS

In August 2021, Stratus announced its new project development plans and completed construction financing for the first phase of development of Magnolia Place, an H-E-B grocery shadow-anchored, mixed-use project in Magnolia, Texas.

Magnolia Place is currently planned to consist of 4 retail buildings totaling approximately 35,000 square feet, 5 retail pad sites to be sold or ground leased, 194 single-family lots and approximately 500 multi-family units.

The first phase of development is expected to consist of 2 retail buildings totaling approximately 19,000 square feet, all 5 pad sites, and the road, utility and drainage infrastructure necessary to support the entire development.

H-E-B recently began construction on its 95,000 -square-foot grocery store on an adjoining 18 -acre site owned by H-E-B.

Stratus entered into a $ 14.8 million, three-year construction loan to finance the first phase of development of Magnolia Place.

Refer to Note 6 for further discussion of the Magnolia Place construction loan.

The remaining estimated project costs are being funded by equity contributed by Stratus.

Stratus evaluated events after June 30, 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.

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