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Item 2. Management’s Discussion and Analysis

2021-11-15 compared with 2021-08-16 · 216 added, 181 removed, 276 unchanged (59% of the section changed)

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You should read the following discussion in conjunction with our consolidated financial statements and accompanying notes, related MD&A and discussion of our business and properties included in our Annual Report on Form 10-K for the year ended December 31, 2020 (2020 Form 10-K) filed with the United States (U.S.) Securities and Exchange Commission (SEC) and the unaudited consolidated financial statements and accompanying notes included in this Form 10-Q.

The results of operations reported and summarized below are not necessarily indicative of future operating results, and future results could differ materially from those anticipated in forward-looking statements (refer to “Cautionary Statement” herein and Part I, Item 1A.

"Risk Factors" herein and Part I, Item 1A.

“Risk Factors” of our 2020 Form 10-K for further discussion).

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We generate revenues and cash flows from the sale of our developed properties, rental income from our leased properties and from our hotel and entertainment operations.

In September 2021, we entered into an agreement to sell The Santal, our wholly owned 448-unit garden-style, multi-family luxury apartment complex located in Barton Creek, for $152.0 million.

In October 2021, we entered into new agreements to sell Block 21, our wholly owned mixed-use development in downtown Austin, Texas, that contains the W Austin Hotel and office, retail and entertainment space, for $260.0 million.

As discussed further below, these sales, if completed, would result in significant after-tax cash proceeds to us.

In addition, the sale of Block 21 would eliminate our Hotel and Entertainment segments.

Refer to Note 9 for further discussion of our operating segments and “Business Strategy” below for a discussion of our business strategy.

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Our full cycle development program of acquiring properties, securing and maintaining development entitlements, developing and stabilizing properties, and selling them or holding them as part of our leasing operations is a key element of our strategy.

We may also seek to refinance properties, in order to benefit from the increased value of the property, from lower interest rates or for other reasons.

We may also seek to

refinance properties, in order to benefit from the increased value of the property, from lower interest rates or for other reasons.

We believe that Austin and other select, fast-growing markets in Texas continue to be attractive locations.

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We have formed strategic relationships as part of our overall strategy for particular development projects and may enter into other similar arrangements in the future.

In October 2021, we entered into new agreements to sell Block 21 to Ryman Hospitality Properties, Inc.

(Ryman) for $260.0 million.

The purchase price includes Ryman's assumption of approximately $138 million of existing mortgage debt and is subject to downward adjustments up to $5.0 million.

The transaction is targeted to close near year-end 2021, subject to the timely satisfaction or waiver of various closing conditions.

After closing costs and assumption of the outstanding Block 21 loan, the sale is expected to generate net pre-tax proceeds of approximately $115 million before prorations and including $6.9 million to be escrowed for 12 months after closing.

We expect to record a pre-tax gain of approximately $110 million upon the closing of the sale.

In September 2021, we entered into an agreement to sell The Santal for $152.0 million.

The sale is expected to close in December 2021, subject to the satisfaction or waiver of customary closing conditions.

After closing costs and payment of the outstanding Santal loan, the sale is expected to generate net pre-tax proceeds of approximately $70 million.

We expect to record a pre-tax gain on the sale of approximately $80 million in the fourth quarter of 2021.

In January 2021, we sold The Saint Mary, a 240-unit luxury garden-style apartment project in the Circle C community, for $60.0 million.

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After establishing a reserve for remaining costs of the partnership, we 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.

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

Refer to Notes 1, 6 and 10 for a discussion of financing transactions we entered into during 2021, including for the construction and development of The Saint June and Magnolia Place, and the refinancing of The Santal and Jones Crossing projects.

Our Board of Directors (Board) has authorized an in-depth exploration of a conversion from a C-Corporation to a real estate investment trust (REIT).

We have 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 our stockholders.

If the Board determines to move forward, we expect the conversion would occur no earlier than 2022.

We believe that the REIT conversion would require consent from our major lenders and amendments to our major debt agreements, among other third-party consents.

We also expect to seek stockholder approval to implement provisions in our organizational documents consistent with a public REIT structure, if the Board ultimately determines that a REIT conversion is in stockholders’ best interests.

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

Refer to Note 4 for further discussion of our property dispositions.

Refer to Note 3 and Note 6 for a discussion of financing transactions we entered into during 2021, including for the construction and development of The Saint June and Magnolia Place, and the refinancing of The Santal and Jones Crossing projects.

If completed, the sales of The Santal and Block 21 will result in us receiving substantial cash proceeds, estimated to be approximately $145 million after tax (approximately $50 million relating to The Santal and $95 million relating to Block 21, including $6.9 million to be escrowed).

Our Board of Directors (Board) and management team are engaged in a strategic planning process, which includes consideration of the uses of proceeds from the sales and of our long-term business strategy.

Potential uses of proceeds may include a combination of further deleveraging, returning cash to shareholders and reinvesting in our robust project pipeline.

These factors may impact our evaluation of a potential conversion to a real estate investment trust (REIT).

OVERVIEW OF THE IMPACTS OF THE COVID-19 PANDEMIC

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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.

during the first quarter of 2021, although there have been periodic increases in the number of cases in the U.S.

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

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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.

Businesses in Texas

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

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.

We 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 our business.

We are optimistic about a post-pandemic recovery and are encouraged by indications that the vaccines are effective and by the rising levels of economic activity in our markets.

Although the pandemic has had an adverse impact on our hotel and entertainment operations, our residential properties and opportunities have been positively impacted.

Despite the pandemic, we have retained substantially all of our pre-pandemic retail tenants, added new tenants, and all of our tenants are currently paying rent per their leases, as well as monthly payments pursuant to previously disclosed base rent deferral arrangements if applicable, as further discussed below.

Although the pandemic has had an adverse impact on our hotel and entertainment operations, which have seen improvements over the last two quarters, our residential properties and opportunities have been positively impacted, as discussed in more detail throughout this report.

Impacts on our Business

The COVID-19 pandemic has had, and is expected to continue to have, a significant adverse impact on our business and operations, particularly on the hotel and entertainment segments which were adversely impacted beginning late in the first quarter of 2020 and to date in 2021, and are expected to continue to be adversely impacted during the second half of 2021, although the impacts continued to lessen during second-quarter 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.

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

The COVID-19 pandemic has had, and is expected to continue to have, an impact on our business and operations, particularly on our Hotel and Entertainment segments which were adversely impacted beginning late in the first quarter of 2020 and to date in 2021, and are expected to continue to be adversely impacted during the remainder of 2021, although the impacts continued to lessen during third-quarter 2021.

The hotel has remained open throughout the pandemic and the 40 percent average occupancy in the third quarter of 2021 was higher than the 16 percent average occupancy in the third quarter of 2020 and the 33 percent average occupancy in the second quarter of 2021.

While our entertainment venues, ACL Live and 3TEN ACL Live, were able to host events during third-quarter 2021 and the first nine months of 2021, capacity remained limited at our entertainment venues until opening up to full capacity in August 2021.

The extent to which the adverse impacts of the pandemic continue depends on numerous evolving factors that we cannot predict.

Moreover, even as travel advisories and restrictions are lifted, travel and entertainment demand may remain weak for a significant length of time, and attractions and events that previously brought visitors and artists to the city of Austin may not proceed or may proceed with limited capacity.

Moreover, even as travel advisories and restrictions are lifted, travel and entertainment demand may remain weak for a significant length of time.

The Austin market, as well as the other Texas markets where we operate, continue to rebound from pandemic lows.

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Demand for residential properties is strong in our markets, currently exceeding available supply.

For example, we have sold almost all of our single-family lot inventory at Barton Creek at attractive prices, and we have been able to increase rents on apartments with renewing lease terms at The Santal.

After the successful sale of The Saint Mary multi-family project in the first quarter of 2021, we began construction on The Saint June multi-family project in July 2021 and we have announced

and are currently seeking financing for our Holden Hills residential project.

We believe we have attractive opportunities to develop or sell residential components of our projects at Magnolia Place, Lantana Place, Kingwood Place, Jones Crossing and our remaining land in Lakeway.

However, with increased demand and construction activity in our markets, we have also experienced cost increases in certain construction materials.

For example, we have sold almost all of our single-family lot inventory at Barton Creek at attractive prices, and we have been able to increase rents on apartments at The Santal.

After the successful sale of The Saint Mary multi-family project in the first quarter of 2021, we began construction on The Saint June, a 182-unit multi-family project in Barton Creek, and closed on a construction loan for the project (refer to Note 6).

In April 2021, we announced development plans for Holden Hills, a new residential development formerly known as Section KLO, in the Barton Creek community.

The project consists of 495 acres and the community is designed to feature 475 unique residences to be developed in multiple phases with a focus on sustainability and energy conservation.

We also purchased the land for Block 150, now known as The Annie B, a proposed luxury multi-family high-rise development with ground-level retail in downtown Austin, Texas.

We believe we have attractive opportunities to develop or sell residential components of our projects at Magnolia Place, Lantana Place, Jones Crossing and our remaining land in Lakeway.

Our multi-family tract of land at Kingwood Place is currently under contract to sell for $5.5 million.

However, with increased demand and construction activity in our markets, and industry-wide material and labor supply constraints, we have also experienced certain cost increases.

We continue to actively manage and monitor these costs.

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Despite the COVID-19 pandemic, we have continued to advance our land planning, engineering, permitting and development activities.

In August 2021, we closed on a construction loan and began construction on the first phase of development of Magnolia Place, an H-E-B, LP (H-E-B) grocery shadow-anchored, mixed-use project in Magnolia, Texas (see Notes 6 and 10).

During the second quarter of 2021, we began site work on The Saint June, a 182-unit multi-family project in Barton Creek, and closed on a construction loan for the project (see Note 6).

In July 2021, an unrelated equity investor acquired a 65.87 percent interest in The Saint June partnership for $16.3 million (see Note 1) and construction began on The Saint June.

In April 2021, we announced development plans for Holden Hills, a new residential development formerly known as Section KLO, in the Barton Creek community.

The project consists of 495 acres and the community is designed to feature 475 unique residences to be developed in multiple phases with a focus on sustainability and energy conservation.

In addition to the projects discussed above, in August 2021, we closed on a construction loan and began construction on the first phase of development of Magnolia Place, an H-E-B, LP (H-E-B) grocery shadow-anchored, mixed-use project in Magnolia, Texas (refer to Note 6).

In July 2021, an unrelated equity investor acquired a 65.87 percent interest in The Saint June partnership for $16.3 million (refer to Note 3).

As a result of the COVID-19 pandemic, and beginning in April 2020, we agreed, generally, to 90-day base rent deferrals with a majority of our retail leasing tenants, which had closed or were operating at significantly reduced capacities.

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During the first quarter of 2021, we began collecting these rent deferrals.

Further, we have retained substantially all of our pre-pandemic retail tenants, added new tenants, and all of our tenants are currently paying rent per their leases, as well as monthly payments pursuant to previously disclosed base rent deferral arrangements if applicable.

previously disclosed base rent deferral arrangements as applicable.

At our multi-family properties, we have granted rent deferral accommodations on a case-by-case basis, with no material decline in rent collections or occupancy.

Our previously disclosed transaction to sell Block 21 for $275 million was terminated by Ryman Hospitality Properties, Inc.

(Ryman) in May 2020 as a result of the negative impact on capital markets and the overall economic environment caused by the COVID-19 pandemic.

Our 2019 agreements to sell Block 21 for $275 million were terminated by Ryman in May 2020 as a result of the negative impact on capital markets and the overall economic environment caused by the COVID-19 pandemic.

As a result of Ryman’s termination of the transaction, it forfeited to us $15.0 million of earnest money.

We recorded the $15.0 million as operating income during the second quarter of 2020.

Because the pandemic is unprecedented in recent history, and its severity, duration and future economic consequences are difficult to predict, we cannot predict its future impact on the company with any certainty.

At this time, we continue our focus on maintaining liquidity and controlling costs.

As previously discussed, we are also moving forward to secure financing for our Holden Hills development.

As discussed above, in October 2021, we entered into new agreements to sell Block 21 to Ryman for $260.0 million.

Impacts on our Liquidity and Capital Resources

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

As of September 30, 2021, we had $5.6 million available under our $60.0 million Comerica Bank credit facility, with a $150 thousand letter of credit committed against the credit facility.

During the pandemic we have proactively engaged with our project lenders in connection with formulating rent deferral arrangements for our tenants, receiving waivers of and amendments to certain financial covenants for specific project loans and extending maturity dates on project loans with near-term maturities.

See Note 6 for further discussion.

Refer to Note 6 for further discussion.

With respect to our Block 21 loan, Stratus Block 21, LLC, our wholly owned subsidiary that owns Block 21 (the Block 21 subsidiary) continues to not meet the quarterly debt service coverage ratio test resulting in a "Trigger Period," which is not a default but restricts our ability to receive cash distributions from the project.

Although the Block 21 loan agreement is a non-recourse loan, we may contribute cash to our Block 21 subsidiary in order to prevent our Block 21 subsidiary from defaulting under the Block 21 loan agreement.

Although the Block 21 loan agreement is a non-recourse loan, we may contribute cash to our Block 21 subsidiary in order to prevent it from defaulting under the Block 21 loan agreement.

Additionally, under our subsidiary’s hotel operating agreement, the hotel operator has and may continue to request funds from us if it reasonably determines that such funds are required in order to fund the operation of the hotel and specified reserves.

Pursuant to such provisions, we contributed $6.3 million during 2020 and $9.1 million during the first six months of 2021, including $4.1 million during the second quarter.

Based on current projections, additional contributions are expected to total $4.4 million through early 2022.

Pursuant to such provisions, we contributed $6.3 million during 2020 and $13.0 million during the first nine months of 2021, including $3.9 million during the third quarter.

Depending on the timing of the sale of Block 21, we expect additional contributions to total as much as $1.1 million through early 2022.

We project that we will be able to meet our debt service and other cash obligations for at least the next 12 months.

Our projections are based on many detailed and complex underlying assumptions, including (1) that our Block 21 businesses will generate positive operating income in the second half of 2021 and that Block 21 will generate sufficient cash to cover debt service by early 2022, (2) that current conditions in our leasing operations will not deteriorate materially, (3) that we close on projected asset sales in our real estate operations segment, including certain land sales at our mixed-use properties, on anticipated terms, (4) that we are able to secure anticipated financing for certain development projects, and (5) that we can repay, extend or refinance debt coming due in the next 12 months, including loans at Amarra Villas, West Killeen Market and New Caney.

No assurances can be given that the results anticipated by our projections will occur.

See Note 6 and “Capital Resources and Liquidity” below for further discussion.

Refer to Note 6 and “Capital Resources and Liquidity” below for further discussion.

We are continuing to closely monitor health and market conditions and are prepared to make further adjustments to our business strategy if and when appropriate.

OVERVIEW OF FINANCIAL RESULTS FOR SECOND-QUARTER 2021

Our net loss attributable to common stockholders totaled $10.2 million, or $1.23 per share, in second-quarter 2021, compared with net income of $4.1 million, or $0.50 per share, in second-quarter 2020.

During the first six months of 2021 our net loss attributable to common stockholders totaled $1.2 million, or $0.15 per share, compared with net income attributable to common stockholders of $3.1 million, or $0.37 per share, during the first six months of 2020.

Our results for the first six months of 2021 were positively impacted by the $22.9 million gain on the sale of The Saint Mary in January 2021 ($16.2 million net of noncontrolling interests).

Our net losses attributable to common stockholders in the 2021 periods include charges to general and administrative expenses for consulting, legal and public relation costs incurred in connection with our successful proxy contest and our ongoing REIT exploration process.

The net income reported in the 2020 periods includes $15.0 million in income from earnest money received as a result of the termination of the Block 21 transaction in second-quarter 2020.

Our revenues totaled $11.6 million in second-quarter 2021 and $26.1 million for the first six months of 2021, compared with $8.9 million in second-quarter 2020 and $37.1 million for the first six months of 2020.

The increase in revenues in second-quarter 2021, compared to second-quarter 2020, primarily reflects increases in revenue from our hotel and entertainment segments as the negative impacts from the COVID-19 pandemic continued to lessen during second-quarter 2021.

The decrease in revenue for the first six months of 2021, compared to the first six months of 2020, primarily reflects a decrease in the number of developed residential lots and homes sold as available inventory decreased.

See "Results of Operations" below for further discussion of our segments.

OVERVIEW OF FINANCIAL RESULTS FOR THIRD-QUARTER 2021

Our net loss attributable to common stockholders totaled $3.8 million, or $0.46 per share, in third-quarter 2021, compared to $15.1 million, or $1.84 per share, in third-quarter 2020.

During the first nine months of 2021 our net loss attributable to common stockholders totaled $5.0 million, or $0.61 per share, compared to $12.0 million, or $1.46 per share, during the first nine months of 2020.

Our results for the first nine months of 2021 were positively impacted by the $22.9 million gain on the sale of The Saint Mary in January 2021 ($16.2 million net of noncontrolling interests).

Our net losses attributable to common stockholders in the 2021 periods include (i) increases in charges to general and administrative expenses for incentive compensation costs associated with our Profit Participation Incentive Plan (PPIP) resulting primarily from an increased valuation for The Santal (third-quarter and nine-month period), and for consulting, legal and public relation costs incurred in connection with our successful proxy contest and our REIT exploration process (nine month period), partly offset by (ii) a $3.7 million gain related to forgiveness of substantially all of our Paycheck Protection Program (PPP) loan (third-quarter and nine-month period).

The net losses in the 2020 periods include a non-cash tax charge of $9.6 million in third-quarter 2020 to record a valuation allowance on our deferred tax assets.

The net loss for the first nine months of 2020 is net of $15.0 million in income from forfeited earnest money received as a result of the termination of the 2019 Block 21 transaction in second-quarter 2020.

Our revenues totaled $15.5 million in third-quarter 2021 and $41.6 million for the first nine months of 2021, compared with $12.8 million in third-quarter 2020 and $49.9 million for the first nine months of 2020.

The increase in revenues in third-quarter 2021, compared to third-quarter 2020, primarily reflects increases in revenue from our Hotel and Entertainment segments as the negative impacts from the COVID-19 pandemic continued to lessen during third-quarter 2021.

The decrease in revenue for the first nine months of 2021, compared to the first nine months of 2020, primarily reflects a decrease in the number of developed residential lots and homes sold as available inventory decreased.

Refer to "Results of Operations" below for further discussion of our segments.

UPDATE ON PROJECT AND DEVELOPMENT ACTIVITIES

Current Residential Activities

In second-quarter 2021, we sold one Amarra Drive Phase III lot for $0.6 million.

During the first six months of 2021, we sold three Amarra Drive Phase III lots, a five-acre multi-family tract of land in Amarra Drive and our last remaining condominium unit at the W Austin Residences for a total of $7.1 million.

For further discussion, see "Results of Operations — Real Estate Operations." As of June 30, 2021, two developed Amarra Drive Phase III lots remained unsold.

During the first nine months of 2021, we sold three Amarra Drive Phase III lots, a five-acre multi-family tract of land in Amarra Drive and our last remaining condominium unit at the W Austin Residences for a total of $7.1 million.

For further discussion, refer to "Results of Operations — Real Estate Operations." As of September 30, 2021, two developed Amarra Drive Phase III lots remained unsold.

The Villas at Amarra Drive (Amarra Villas) project is a 20-unit development in the Barton Creek community for which we completed construction of the first seven homes during 2017 and 2018.

We sold the last two completed homes in 2019.

We began construction of the next two Amarra Villas homes during the first quarter of 2020, which are expected to be completed later in 2021.

As of August 13, 2021, one of these homes was under contract.

We began construction of the next two Amarra Villas homes during the first quarter of 2020, which are expected to be completed in early 2022.

As of November 12, 2021, one of these homes was under contract.

In addition, a contract had been signed to sell a second home on which we began construction in second-quarter 2021.

As of August 13, 2021, a total of 11 units (1 of which is under construction and 10 of which construction has not started) remain available of the initial 20-unit development.

As of November 12, 2021, a total of 11 units (1 of which is under construction and 10 of which construction has not started) remain available of the initial 20-unit development.

The Santal, a garden-style luxury apartment complex consisting of 448 units in Section N in the Barton Creek community, is fully leased and stabilized.

In second-quarter 2021, we began site work on The Saint June, after the completion of financing.

The Saint June is a 182-unit multi-family project within the Amarra subdivision.

See Note 1 for a discussion of project financing.

The first units of The Saint June are currently expected to be completed in third-quarter 2022 with final completion of the project expected in first-quarter 2023.

For further discussion of our multi-family and single-family residential properties, see MD&A in our 2020 Form 10-K.

In September 2021, we entered into an agreement to sell The Santal for $152.0 million.

The sale is expected to close in December 2021, subject to the satisfaction or waiver of customary closing conditions.

In third-quarter 2021, after completion of financing, we began construction on The Saint June.

The Saint June is a 182-unit multi-family project within the Amarra subdivision in the Barton Creek community.

Refer to Notes 3 and 6 for a discussion of project financing.

The first units of The Saint June are currently expected to be completed in third-quarter 2022 with completion of the project expected in first-quarter 2023.

We also expect this property to achieve an Austin Energy Green Building rating.

For further discussion of our multi-family and single-family residential properties, refer to MD&A in our 2020 Form 10-K.

Current Commercial Activities

In August 2021, we announced new development plans for Magnolia Place, an H-E-B grocery shadow-anchored, mixed-use project in Magnolia, Texas that is fully owned by Stratus.

In August 2021, we announced new development plans for Magnolia Place, an H-E-B grocery shadow-anchored, mixed-use project in Magnolia, Texas that is wholly owned by Stratus.

We began construction on the first phase of development of Magnolia Place in August 2021.

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Three pad sites remain available for lease.

As of June 30, 2021, we had signed leases for approximately 85 percent of the retail space, including the H-E-B grocery store.

We continue to advance the potential multi-family project at Kingwood Place, which is currently planned for approximately 275 units.

As of September 30, 2021, we had signed leases for approximately 85 percent of the retail space, including the H-E-B grocery store.

In September 2021, we entered into a contract to sell a multi-family tract of land at Kingwood Place, which is currently planned for approximately 275 multi-family units, for $5.5 million.

We recorded a $625 thousand impairment charge in third-quarter 2021 to reduce the land's carrying value to its fair value based on the contractual sale price less estimated selling costs.

If consummated, the sale is expected to close in mid-2022.

Lantana Place is a partially developed, mixed-use development project located in southwest Austin.

As of June 30, 2021, we had signed leases for approximately 85 percent of the retail space in the first phase, including the anchor tenant, Moviehouse & Eatery (Moviehouse).

As of September 30, 2021, we had signed leases for approximately 85 percent of the retail space in the first phase, including the anchor tenant, Moviehouse & Eatery (Moviehouse).

In July 2020, we entered into a new six-month lease agreement, which was further extended through July 31, 2021, with Moviehouse in which rent was based on a percentage of Moviehouse's revenue.

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We also have a ground lease for an AC Hotel by Marriott.

Construction of the hotel began in May 2019 and is expected to be completed in September 2021.

We rezoned a portion of the Lantana property for a potential multi-family development of up to 320 units.

As of June 30, 2021, we had signed leases for substantially all of the retail space at the first phase of Jones Crossing, an H-E-B-anchored, mixed-use development located in College Station, Texas, and approximately 70 percent of the retail space at West Killeen Market, our retail project located in Killeen, Texas, shadow-anchored by an adjacent H-E-B grocery store.

Block 21's Class A leasable office space was approximately 60 percent leased as of June 30, 2021, including 9,000 square feet occupied by our corporate office, and the retail space was substantially fully leased as of June 30, 2021.

Construction of the hotel began in May 2019, and it is expected to open in fourth-quarter 2021.

We rezoned a portion of the Lantana property for a potential multi-family development of up to 320 units and expect to begin construction in second-quarter 2022.

As of September 30, 2021, we had signed leases for substantially all of the retail space at the first phase of Jones Crossing, an H-E-B-anchored, mixed-use development located in College Station, Texas, and approximately 70 percent of the retail space at West Killeen Market, our retail project located in Killeen, Texas, shadow-anchored by an adjacent H-E-B grocery store.

During third-quarter 2021, we sold a pad site at West Killeen Market for $750 thousand and only one unsold pad site remains at West Killeen Market.

During second-quarter 2021, we refinanced the Jones Crossing project to improve loan terms and take advantage of the low-interest-rate market.

For further discussion of our commercial properties, see MD&A in our 2020 Form 10-K.

Block 21's Class A leasable office space was approximately 60 percent leased as of September 30, 2021, including 9,000 square feet occupied by our corporate office, and the retail space was substantially fully leased as of September 30, 2021.

For further discussion of our commercial properties, refer to MD&A in our 2020 Form 10-K.

Projects in Planning

In September 2021, we announced plans for The Annie B, a proposed luxury high-rise rental project in downtown Austin.

Based on preliminary plans, The Annie B would be developed as a 400-foot tower, consisting of approximately 420,000 square feet with 300 luxury multi-family units for lease and ground level retail.

The project includes the historic AO Watson house, which will be renovated and expanded to offer amenities that may include a restaurant, pool and garden, while preserving the property’s historic and architectural features.

We closed the land purchase on September 1, 2021, and we expect to finalize development plans over the next 12 to 18 months.

The Annie B is expected to achieve an Austin Energy Green Building rating.

We are advancing the planning and permitting process for development of future phases of Barton Creek, including Holden Hills, a new residential development formerly known as Section KLO, and commercial and multi-family Section N.

Holden Hills, our final large residential development within the Barton Creek community, consists of 495 acres and the community is designed to feature 475 unique residences to be developed in multiple phases with a focus on sustainability and energy conservation.

The city of Austin and Travis County approved initial subdivision permit applications for Holden Hills in October 2019 and the engineering for roads and utilities for the initial phase has been completed.

We anticipate securing final permits to start construction in the first quarter of 2022.

We currently expect to complete site work for phase one, including the construction of road, utility, drainage and other required infrastructure, approximately 17 months from the issuance of the final permits.

Accordingly, our projections anticipate that we would begin sales in Holden Hills in late 2022 or early 2023.

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The following table summarizes our operating results (in thousands):

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

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

2021 2020 2021 2020

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Real Estate Operations a

$ (770) $ (46) $ 1,466 $ 2,053

Leasing Operations 1,234 (174) b

$ 1,388 $ (195) b

Leasing Operations 1,823 1,186 27,293 c

Hotel 46 (2,594) (2,362) (5,300)

Entertainment 409 (1,267) (1,167) (2,226)

Corporate, eliminations and other d

(6,530) 11,778 e

(11,183) 8,800 e

Corporate, eliminations and other e

(5,621) (2,937) (16,804) 5,863 f

Operating (loss) income $ (5,004) $ (4,224) $ 6,765 $ 3,614

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$ 433 $ 193 $ (6,248) $ 1,601

Net (loss) income attributable to common stockholders

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

Net loss attributable to common stockholders

Includes sales commissions and other revenues together with related expenses.

Includes a $625 thousand impairment charge for the multi-family tract of land at Kingwood Place that is under contract to sell for $5.5 million.

Includes a $22.9 million gain on the January 2021 sale of The Saint Mary.

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

Includes a $22.9 million gain on the sale of The Saint Mary.

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

The increases in general and administrative expenses 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 in second-quarter 2021 and $4.4 million for the first six months of 2021.

Includes $15.0 million in income from earnest money received as a result of Ryman's termination of the agreements to purchase Block 21.

The increase in third-quarter 2021, compared to third-quarter 2020, is primarily the result of a $2.6 million increase in employee incentive compensation costs associated with our PPIP resulting primarily from an increased valuation for The Santal.

The increase for the first nine months of 2021, compared to the first nine months of 2020, is primarily the result of a $4.0 million increase in employee incentive compensation costs, including those associated with our PPIP, and increased consulting, legal and public relation costs for Stratus' successful proxy contest and the REIT exploration process totaling $3.8 million.

Includes $15.0 million in income from earnest money received as a result of Ryman's termination in May 2020 of the 2019 agreements to purchase Block 21.

Includes a $3.7 million gain related to forgiveness of our PPP loan.

Includes a $9.6 million tax charge to record a valuation allowance on our deferred tax assets.

We have four operating segments:

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The following table summarizes our Real Estate Operations results (in thousands):

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

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

2021 2020 2021 2020

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Cost of sales, including depreciation 1,991 3,642 7,930 15,826

Impairment of real estate 625 — 625 —

Operating (loss) income $ (1,661) $ 1,388 $ (195) $ 3,441

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The following table summarizes our developed property sales (dollars in thousands):

Three Months Ended June 30,

Three Months Ended September 30,

Lots Revenues Average Cost Per Lot Lots Revenues Average Cost Per Lot

Amarra Drive:

Phase II lots — $ — $ — 2 $ 1,183 $ 179

Phase III lots — — — 4 $ 5,001 $ 535

Total Residential — — 4 $ 5,001

Six Months Ended June 30,

Nine Months Ended September 30,

Lots/Units Revenues Average Cost Per Lot/Unit Lots/Homes Revenues Average Cost Per Lot/Home

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Total Residential 4 $ 4,615 17 $ 19,141

The decrease in revenues in second-quarter 2021 and for the first six months of 2021, compared to the 2020 periods, reflects a decrease in the number of lots and homes sold in 2021 as available inventory decreased.

The decrease in revenues in third-quarter 2021 and for the first nine months of 2021, compared to the 2020 periods, reflects a decrease in the number of lots and homes sold in 2021 as available inventory decreased.

Undeveloped Property Sales.

During the first six months of 2021, we sold a five-acre multi-family tract of land in Amarra Drive for $2.5 million.

In third-quarter 2021 we sold a pad site at West Killeen Market for $750 thousand.

During the first nine months of 2021, we also sold a five-acre multi-family tract of land in Amarra Drive for $2.5 million.

Cost of Sales.

Cost of sales includes costs of property sold, project operating and marketing expenses and allocated overhead costs, partly offset by reductions for certain municipal utility district (MUD) reimbursements.

Cost of sales decreased to $1.6 million in second-quarter 2021 from $1.9 million in second-quarter 2020, primarily reflecting a decrease in the number of lots sold during second-quarter 2021.

Cost of sales decreased to $5.9 million for first six months of 2021 from $12.2 million for first six months of 2020, primarily reflecting a decrease in the number of lots and homes sold during the first six months of 2021.

The first six months of 2020 included the sale of two homes built on Amarra Drive Phase III lots that had higher average costs.

Cost of sales decreased to $2.0 million in third-quarter 2021 and $7.9 million for the first nine months of 2021 from $3.6 million in third-quarter 2020 and $15.8 million for the first nine months of 2020, primarily reflecting a decrease in the number of lots and homes sold during the 2021 periods, partly offset by the sale of our last condominium unit at Block 21 during the first nine months of 2021.

Impairment of Real Estate.

In September 2021, we entered into a contract to sell the multi-family land at Kingwood Place planned for multi-family units for $5.5 million.

At the time of entering into the contract, the fair value of the land based on the contractual sale price less estimated selling costs was less than its carrying value, and we recorded a $625 thousand impairment charge in the third quarter of 2021.

Leasing Operations

The following table summarizes our Leasing Operations results (in thousands):

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

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

2021 2020 2021 2020

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Gain on sale of assets — — (22,931) —

Operating income (loss) $ 1,234 $ (174) $ 25,470 $ 650

Operating income $ 1,823 $ 1,186 $ 27,293 $ 1,836

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

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Rental revenue primarily includes revenue from The Santal, Lantana Place, Jones Crossing, Kingwood Place, the office and retail space at Block 21, West Killeen Market, and The Saint Mary until its sale in January 2021.

The decrease in rental revenue in the 2021 periods, compared with the 2020 periods, primarily reflects the sale of The Saint Mary.

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

The decrease in rental revenue in the 2021 periods, compared with the 2020 periods, primarily reflects the sale of The Saint Mary, partly offset by increased revenue at Lantana Place.

The Saint Mary had rental revenue of $0.1 million in first-quarter 2021 prior to the sale compared to $0.9 million in third-quarter 2020 and $2.3 million during the first nine months of 2020.

Rental Cost of Sales and Depreciation.

Rental cost of sales and depreciation expense decreased in second-quarter 2021 and for the first six months of 2021, compared with the 2020 periods, primarily as a result of the $1.4 million charge in second-quarter 2020 for estimated uncollectible rents receivable and unrealizable deferred costs, as well as the sale of The Saint Mary.

Rental cost of sales and depreciation expense decreased in third-quarter 2021 and for the first nine months of 2021, compared with the 2020 periods, primarily as a result of the sale of The Saint Mary.

The decrease during the first nine months of 2021, compared to the first nine months of 2020, was further impacted by a $1.4 million charge in second-quarter 2020 for estimated uncollectible rents receivable and unrealizable deferred costs.

During the second quarter of 2020, our lease with Moviehouse, our anchor tenant at Lantana Place, was terminated and we charged $1.3 million to cost of sales to write off uncollectible rents receivable and unrealizable deferred costs associated with this lease.

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

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

The pending sale of Block 21 will include the sale of the office and retail space at Block 21.

The pending sale of The Santal will also impact this segment.

Refer to Note 4 for further discussion.

The following table summarizes our Hotel results (in thousands):

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

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

2021 2020 2021 2020

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Depreciation 878 891 2,635 2,927

Operating loss $ (776) $ (1,652) $ (2,408) $ (2,706)

Operating income (loss) $ 46 $ (2,594) $ (2,362) $ (5,300)

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.

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Hotel revenue primarily includes revenue from W Austin Hotel room reservations and food and beverage sales.

The increase in Hotel revenues in second-quarter 2021, compared to second-quarter 2020, is primarily a result of higher room reservations and food and beverage sales as the impacts of the COVID-19 pandemic continued to lessen during second-quarter 2021.

The decrease in revenue during the first six months of 2021, compared to the first six months of 2020, is a result of the COVID-19 pandemic having a less significant impact in the first three months of 2020.

The hotel's average occupancy rate in the second quarter of 2021 was 33 percent, compared to the 12 percent average occupancy rate in the second quarter of 2020.

Revenue per available room (RevPAR), which is calculated by dividing total room revenue by the average total rooms available, was $95 in second-quarter 2021 and $73 for the first six months of 2021, compared with $29 in second-quarter 2020 and $89 for the first six months of 2020.

The increase in Hotel revenues in the 2021 periods, compared to the 2020 periods, is primarily a result of higher room reservations and food and beverage sales as the impacts of the COVID-19 pandemic continued to lessen during third-quarter 2021.

The hotel's average occupancy in the third quarter of 2021 was 40 percent, compared to the 16 percent average occupancy in the third quarter of 2020 and 33 percent average occupancy in the second quarter of 2021.

Revenue per available room (RevPAR), which is calculated by dividing total room revenue by the average total rooms available, was $121 in third-quarter 2021 and $89 for the first nine months of 2021, compared with $36 in third-quarter 2020 and $71 for the first nine months of 2020.

Hotel Cost of Sales.

The increase in Hotel cost of sales, excluding depreciation, in second-quarter 2021, compared to second-quarter 2020, is primarily a result of higher room reservations and food and beverage sales as the impacts of the COVID-19 pandemic continued to lessen during second-quarter 2021.

The decrease in Hotel cost of sales, excluding depreciation, in the first six months of 2021, compared to the first six months of 2020, is primarily a result of the COVID-19 pandemic having a less significant impact in the first three months of 2020.

The decrease in depreciation during the first six months of 2021, compared to the first six months of 2020, is primarily because of a $202 thousand adjustment made in first-quarter 2020 for the period in December 2019 when the hotel was held for sale and, therefore, not depreciated.

The increase in Hotel cost of sales, excluding depreciation, in third-quarter 2021, compared to third-quarter 2020, is primarily a result of higher room reservations and food and beverage sales as the impacts of the COVID-19 pandemic continued to lessen during third-quarter 2021.

The decrease in depreciation during the first nine months of 2021, compared to the first nine months of 2020, is primarily because of a $202 thousand adjustment made in first-quarter 2020 for the period in December 2019 when the hotel was held for sale and, therefore, not depreciated.

The pending sale of Block 21 will include the sale of the W Austin Hotel.

Entertainment

The following table summarizes our Entertainment results (in thousands):

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

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

2021 2020 2021 2020

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Depreciation 346 392 1,094 1,279

Operating loss $ (359) $ (1,420) $ (1,576) $ (959)

Operating income (loss) $ 409 $ (1,267) $ (1,167) $ (2,226)

Entertainment Revenue.

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Revenues from the Entertainment segment vary from period to period as a result of factors such as the price of tickets and number of tickets sold, as well as the number and type of events hosted at ACL Live and 3TEN ACL Live.

Entertainment revenues increased in second-quarter 2021, compared to second-quarter 2020, primarily reflecting an increase in the number of events hosted at ACL Live and 3TEN ACL Live as the impacts of the COVID-19 pandemic continued to lessen during second-quarter 2021.

Entertainment revenues increased in third-quarter 2021 and during the first nine months of 2021, compared to the 2020 periods, primarily reflecting an increase in the number of events hosted at ACL Live and 3TEN ACL Live as the impacts of the COVID-19 pandemic continued to lessen during third-quarter 2021.

As of August 2021, ACL Live and 3TEN ACL Live are operating at full capacity.

In addition, we resumed recognizing revenue from sponsorships and sales of personal seat licenses and suites in second-quarter 2021, which had been suspended during the period in which the entertainment venues were closed.

Revenue from sponsorships and sales of personal seat licenses and suites in second-quarter 2021 totaled $535 thousand compared to none in second-quarter 2020.

Entertainment revenues decreased in the first six months of 2021, compared to the first six months of 2020, which primarily reflects the COVID-19 pandemic having a less significant impact in the first three months of 2020.

The COVID-19 pandemic also prevented a full show schedule in the first six months of 2020, with government restrictions on gatherings forcing ACL Live to close.

Revenue from sponsorships and sales of personal seat licenses and suites totaled $606 thousand in third-quarter 2021 and $1.1 million during the first nine months of 2021 compared to none in third-quarter 2020 and $521 thousand during the first nine months of 2020.

The COVID-19 pandemic prevented a full show schedule in the first nine months of 2020, with government restrictions on gatherings forcing ACL Live to close.

Certain key operating statistics specific to the concert and event hosting industry are included below to provide additional information regarding our ACL Live and 3TEN ACL Live operating performance.

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

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

2021 2020 2021 2020

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Entertainment Cost of Sales.

The increase in Entertainment cost of sales, excluding depreciation, in second-quarter 2021, compared to second-quarter 2020, reflects an increase in the number of events hosted.

The decrease in Entertainment cost of sales, excluding depreciation, during the first six months of 2021, compared to the first six months of 2020, reflects a decrease in the attendance of events hosted by ACL Live as a result of reduced capacities.

The decrease in depreciation for the first six months of 2021, compared to the first six months of 2020, is primarily because of an $89 thousand adjustment made for the period in December 2019 when the entertainment venues were held for sale and, therefore, not depreciated.

The increase in Entertainment cost of sales, excluding depreciation, in third-quarter 2021 and for the first nine months of 2021, compared to the 2020 periods, reflects an increase in the number of events hosted.

The decrease in depreciation for the first nine months of 2021, compared to the first nine months of 2020, is primarily because of an $89 thousand adjustment made for the period in December 2019 when the entertainment venues were held for sale and, therefore, not depreciated.

The pending sale of Block 21 will include the sale of ACL Live and 3TEN ACL Live.

Corporate, Eliminations and Other

Corporate, eliminations and other (refer to Note 9) includes consolidated general and administrative expenses, which primarily consist of employee compensation and other costs.

Consolidated general and administrative expenses increased to $6.4 million in second-quarter 2021 from $3.1 million in second-quarter 2020, primarily reflecting a $3.3 million increase in consulting, legal and public relation costs for our successful proxy contest and our ongoing REIT exploration process and a $0.2 million increase in incentive compensation costs.

Second-quarter 2020 costs included $0.4 million in legal fees associated with the Block 21 sales agreements and subsequent termination.

Consolidated general and administrative expenses increased to $10.9 million for the first six months of 2021 from $5.9 million for the first six months of 2020, primarily reflecting a $4.4 million increase in consulting, legal and public relation costs mostly for our successful proxy contest and our ongoing REIT exploration process.

The remaining increase is primarily the result of an increase of $1.3 million in employee incentive compensation costs during the first six months of 2021 as the first six months 2020 included significant reductions to estimated incentive compensation accruals.

The first six months of 2020 included $0.6 million in legal fees associated with the Block 21 sales agreements and subsequent termination.

Consolidated general and administrative expenses increased to $5.4 million in third-quarter 2021 from $2.9 million in third-quarter 2020, primarily reflecting a $2.6 million increase in employee incentive compensation costs associated with our PPIP resulting primarily from an increased valuation for The Santal.

Additional expense of up to $4.0 million may be recognized upon the closing of the sale of the property.

Consolidated general and administrative expenses increased to $16.4 million for the first nine months of 2021 from $8.8 million for the first nine months of 2020, primarily reflecting a $4.0 million increase in employee incentive compensation costs, including those associated with our PPIP, and increased consulting, legal and public relation costs for our successful proxy contest and the REIT exploration process totaling $3.8 million.

The first nine months of 2020 included $0.6 million in legal fees associated with the 2019 Block 21 sales agreements and subsequent termination.

For the first nine months of 2020, corporate, eliminations and other also included $15.0 million in income from earnest money that was received from Ryman in May 2020 upon its termination of the 2019 agreements to purchase Block 21.

Corporate, eliminations and other also includes eliminations of intersegment transactions among the four operating segments.

For the second quarter and first six months of 2020, corporate, eliminations and other includes $15.0 million in income from earnest money that was received from Ryman in May 2020 upon its termination of the agreements to purchase Block 21.

Non-Operating Results

Interest Expense, Net.

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

Interest costs in the 2021 periods were lower, compared to the 2020 periods, primarily reflecting decreases in average interest rates.

Capitalized interest totaled $1.2 million in second-quarter 2021 and $2.5 million for the first six months of 2021 compared to $1.2 million in second-quarter 2020 and $2.5 million for the first six months of 2020.

Interest costs (before capitalized interest) totaled $4.2 million in third-quarter 2021 and $12.5 million for the first nine months of 2021 compared with $4.7 million in third-quarter 2020 and $14.8 million for the first nine months of 2020.

Interest costs in the 2021 periods were lower, compared to the 2020 periods, primarily reflecting decreases in average interest rates and the repayment of The Saint Mary construction loan upon the sale of the property.

Capitalized interest totaled $1.3 million in third-quarter 2021 and $3.8 million for the first nine months of 2021 compared to $1.1 million in third-quarter 2020 and $3.6 million for the first nine months of 2020.

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

Loss on Early Extinguishment of Debt.

We recorded a $163 thousand loss on early extinguishment of debt in second-quarter 2021 and $226 thousand for the first six months of 2021 associated with the repayment of The Saint Mary construction loan upon the sale of the property in first-quarter 2021 and the refinancing of the Jones Crossing construction loan in second-quarter 2021.

(Provision for) Benefit from Income Taxes.

We recorded a (provision for) benefit from income taxes of $(0.1) million in second-quarter 2021 and $(0.3) million for the first six months of 2021, compared to $(1.1) million in second-quarter 2020 and $1.4 million for the first six months of 2020.

Net Gain on Extinguishment of Debt.

We recorded a $3.7 million gain on extinguishment of debt in third-quarter 2021 and $3.5 million for the first nine months of 2021 primarily associated with the forgiveness of substantially all of our PPP loan in third quarter 2021.

This gain was partly offset by losses on the extinguishment of debt associated with the repayment of The Saint Mary construction loan upon the sale of the property in first-quarter 2021 and the refinancing of the Jones Crossing construction loan in second-quarter 2021, which resulted in the write-off of unamortized deferred financing costs.

Provision for Income Taxes.

We recorded a provision for income taxes of $0.1 million in third-quarter 2021 and $0.4 million for the first nine months of 2021, compared to $7.5 million in third-quarter 2020 and $6.2 million for the first nine months of 2020.

The third quarter and first nine months of 2020 included a $9.6 million non-cash tax charge to record a valuation allowance on our deferred tax assets.

Refer to Note 8 for further discussion of income taxes.

Total Comprehensive Loss (Income) Attributable to Noncontrolling Interests in Subsidiaries .

Our partners' share of losses (income) totaled $41 thousand in second-quarter 2021 and $(6.7) million for the first six months of 2021, compared to $0.3 million in second-quarter 2020 and $1.4 million for the first six months of 2020.

For the first six months of 2021, our partners were allocated $6.7 million of the gain from the sale of The Saint Mary.

For the first six months of 2020, $0.6 million of the losses were incurred prior to 2020.

Our partners' share of losses (income) totaled $0.4 million in third-quarter 2021 and $(6.2) million for the first nine months of 2021, compared to $0.2 million in third-quarter 2020 and $1.6 million for the first nine months of 2020.

For the first nine months of 2021, our partners were allocated $6.7 million of the gain from the sale of The Saint Mary.

For the first nine months of 2020, $0.6 million of the losses were incurred prior to 2020.

CAPITAL RESOURCES AND LIQUIDITY

Volatility in the real estate market, including the markets in which we operate, can impact the timing of and proceeds received from sales of our properties, which may cause uneven cash flows from period to period.

Our cash flows have also been, and will continue for some time to be, adversely affected by the pandemic, as discussed throughout this report.

However, we believe that the unique nature and location of our assets will provide us positive cash flows over time.

Comparison of Cash Flows for the Six Months Ended June 30, 2021 and 2020

Comparison of Cash Flows for the Nine Months Ended September 30, 2021 and 2020

Operating Activities.

Cash (used in) provided by operating activities totaled $(15.0) million for the first six months of 2021, compared with $5.4 million for the first six months of 2020.

Expenditures for purchases and development of real estate properties totaled $4.9 million for the first six months of 2021 and $8.7 million for the first six months of 2020, primarily related to development of our Barton Creek properties, including Amarra Villas.

The cash outflows resulting from the decrease in accounts payable, accrued liabilities and other for the first six months of 2021 and 2020 are primarily related to the timing of property tax payments.

The first six months of 2020 include $15.0 million from earnest money received as a result of Ryman's termination of the agreements to purchase Block 21.

Cash (used in) provided by operating activities totaled $(36.4) million for the first nine months of 2021, compared with $0.5 million for the first nine months of 2020.

Expenditures for purchases and development of real estate properties totaled $30.8 million for the first nine months of 2021, primarily related to the purchase of the land for The Annie B and the development of our Barton Creek properties, including Amarra Villas, and $11.6 million for the first nine months of 2020, primarily related to the development of our Barton Creek properties, including Amarra Villas, and the purchase of an office building in Austin.

The first nine months of 2020 also includes $15.0 million from earnest money received as a result of Ryman's termination in May 2020 of the 2019 agreements to purchase Block 21.

The cash inflow from the increase in accounts payable, accrued liabilities, deposits and other during the first nine months of 2021, compared to the cash outflow from the decrease in accounts payable, accrued liabilities, deposits and other during the first nine months of 2020, is primarily a result of the timing of payments, including contractor retention payments associated with the completion of The Saint Mary and Kingwood Place in 2020.

Investing Activities.

Cash provided by (used in) investing activities totaled $56.5 million for the first six months of 2021 and $(5.1) million for the first six months of 2020.

Capital expenditures totaled $2.4 million for the first six months of 2021, primarily related to the Lantana Place and Magnolia Place projects, and $4.4 million for the first six months of 2020, primarily related to the Kingwood Place, Lantana Place and Jones Crossing projects.

During the first six months of 2021, we received proceeds, net of closing costs, from the sale of The Saint Mary of $59.5 million.

We also made payments totaling $0.6 million for the first six months of 2021 and $0.7 million for the first six months of 2020 under our master lease obligations associated with the 2017 sale of The Oaks at Lakeway.

Cash provided by (used in) investing activities totaled $51.8 million for the first nine months of 2021 and $(6.4) million for the first nine months of 2020.

Capital expenditures totaled $6.7 million for the first nine months of 2021, primarily related to The Saint June, Lantana Place and Magnolia Place projects, and $5.3 million for the first nine months of 2020, primarily related to the Kingwood Place and Lantana Place projects.

During the first nine months of 2021, we received proceeds, net of closing costs, from the sale of The Saint Mary of $59.5 million.

Financing Activities.

Cash used in financing activities totaled $38.8 million for the first six months of 2021 and $4.1 million for the first six months of 2020.

During the first six months of 2021, net borrowings on the Comerica Bank credit facility totaled $2.2 million, compared with net repayments of $8.5 million for the first six months of 2020, reflecting the use of $13.8 million of the $15.0 million earnest money received from Ryman in 2020 to pay down the revolving credit facility.

During the first six months of 2021, net repayments on other project and term loans totaled $26.7 million, primarily reflecting the repayment of The Saint Mary construction loan upon the sale of the project.

During the first six months of 2020, net borrowings on other project and term loans totaled $5.0 million, primarily reflecting borrowings from the Paycheck Protection Program loan (PPP loan) (refer to Note 6 for further information) and borrowings for the Kingwood Place and The Saint Mary projects, partially offset by repayment of the Amarra Villas credit facility.

See “Credit Facility, Other Financing Arrangements and Liquidity Outlook” below for a discussion of our outstanding debt at June 30, 2021.

During the first six months of 2021, we paid distributions to noncontrolling interest owners of $13.1 million, primarily related to the sale of The Saint Mary.

Cash provided by financing activities totaled $10.0 million for the first nine months of 2021 and $0.4 million for the first nine months of 2020.

During the first nine months of 2021, net borrowings on the Comerica Bank credit facility totaled $10.9 million, compared with net repayments of $7.2 million for the first nine months of 2020, reflecting the use of $13.8 million of the $15.0 million earnest money received from Ryman in 2020 to pay down the revolving credit facility.

During the first nine months of 2021, net repayments on other project and term loans totaled $13.9 million, primarily reflecting the repayment of The Saint Mary construction loan upon the sale of the project.

During the first nine months of 2020, net borrowings on other project and term loans totaled $8.1 million, primarily reflecting borrowings from the PPP loan (refer to Note 6 for further information) and borrowings for the Kingwood Place and The Saint Mary projects, partly offset by repayment of the Amarra Villas credit facility.

Refer to “Credit Facility, Other Financing Arrangements and Liquidity Outlook” below for a discussion of our outstanding debt at September 30, 2021.

During the first nine months of 2021, we paid distributions to noncontrolling interest owners of $13.2 million, primarily related to the sale of The Saint Mary, and received contributions from noncontrolling interest owners of $28.0 million, related to The Saint June and Block 150 limited partnerships.

Credit Facility, Other Financing Arrangements and Liquidity Outlook

At June 30, 2021, the total principal amount of our outstanding debt was $354.2 million, compared with $353.2 million at December 31, 2020.

We had borrowings of $45.5 million under our $60.0 million Comerica Bank revolving credit facility, $14.3 million of which was available at June 30, 2021, net of a $150 thousand letter of credit committed against the credit facility.

At September 30, 2021, the total principal amount of our outstanding debt was $297.0 million, compared with $278.2 million at December 31, 2020.

Consolidated debt at both dates excluded The Santal loan of approximately $75 million, and at December 31, 2020, also excluded The Saint Mary construction loan of approximately $25 million, as a result of these properties being classified as held for sale at those dates.

We had borrowings of $54.2 million under our $60.0 million Comerica Bank revolving credit facility, $5.6 million of which was available at September 30, 2021, net of a $150 thousand letter of credit committed against the credit facility.

Refer to Note 6 in this report and in our 2020 Form 10-K for further discussion.

Refer to “Debt Maturities and Other Contractual Obligations” below for a table illustrating the timing of principal payments due on our outstanding debt as of June 30, 2021.

Refer to “Debt Maturities and Other Contractual Obligations” below for a table illustrating the timing of principal payments due on our outstanding debt as of September 30, 2021.

Our debt agreements require compliance with specified financial covenants.

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The New Caney land loan and The Saint June construction loan include a requirement that we maintain liquid assets, as defined in the agreements, of not less than $10 million.

The Comerica Bank credit facility, the Lantana Place construction loan, the Amarra Villas credit facility, the Kingwood Place construction loan, the West Killeen Market construction loan, the New Caney land loan, The Saint June construction loan, The Santal loan and the Magnolia Place construction loan include a requirement that we maintain a net asset value, as defined in each agreement, of $125 million.

The Comerica Bank credit facility, the Amarra Villas credit facility and the Kingwood Place construction loan also include a requirement that we maintain a debt-to-gross asset value, as defined in the agreements, of less than 50 percent.

The Comerica Bank credit facility, the Lantana Place construction loan, the Amarra Villas credit facility, the Kingwood

Place construction loan, the West Killeen Market construction loan, the New Caney land loan, The Saint June construction loan, The Santal loan, the Magnolia Place construction loan, and The Annie B land loan include a requirement that we maintain a net asset value, as defined in each agreement, of $125 million.

The Comerica Bank credit facility, the Amarra Villas credit facility, the Kingwood Place construction loan, and The Annie B land loan also include a requirement that we maintain a debt-to-gross asset value, as defined in the agreements, of less than 50 percent.

The Santal loan, the West Killeen Market construction loan, the Jones Crossing loan, the Lantana Place construction loan, and The Saint June construction loan each include a financial covenant requiring the applicable Stratus subsidiary to maintain a debt service coverage ratio as defined in each agreement.

As of June 30, 2021, we were in compliance with all of our financial covenants;

however, for the last three quarters of 2020 and the first two quarters of 2021, our Block 21 subsidiary did not pass the debt service coverage ratio financial test under the Block 21 loan, which, though not a financial covenant, caused the Block 21 subsidiary to enter into a “Trigger Period” as discussed below.

As of September 30, 2021, we were in compliance with all of our financial covenants;

however, for the last three quarters of 2020 and the first three quarters of 2021, our Block 21 subsidiary did not pass the debt service coverage ratio financial test under the Block 21 loan, which, though not a financial covenant, caused the Block 21 subsidiary to enter into a “Trigger Period” as discussed below.

Stratus’ and its subsidiaries’ debt arrangements contain significant limitations that may restrict Stratus’ and its subsidiaries’ ability to, among other things:

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and engage in mergers, consolidations or other business combinations.

Our Comerica Bank credit facility requires Comerica Bank’s prior written consent for any common stock repurchases in excess of $1.0 million or any dividend payments.

Our Comerica Bank credit facility and The Annie B land loan require Comerica Bank’s prior written consent for any common stock repurchases in excess of $1.0 million or any dividend payments.

Our project loans are generally secured by all or substantially all of the assets of the project, and our Comerica Bank credit facility is secured by substantially all of our assets other than those encumbered by separate project financing.

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Refer to Note 6 in our 2020 Form 10-K for additional discussion.

The Block 21 loan agreement, secured by the Block 21 assets, contains financial tests that we must meet in order to avoid a “Trigger Period” (as described below).

Specifically, we must maintain (i) a net worth in excess of $125 million and (ii) liquid assets having a market value of at least $10 million, each as defined in the Block 21 loan agreement.

The Block 21 loan agreement, secured by the Block 21 assets, contains financial tests that we must meet in order to avoid a “Trigger Period.” Specifically, we must maintain (i) a net worth in excess of $125 million and (ii) liquid assets having a market value of at least $10 million, each as defined in the Block 21 loan agreement.

Additionally, our Block 21 subsidiary must maintain a trailing-12-month debt service coverage ratio, tested quarterly, as defined in the Block 21 loan agreement.

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As a result of the pandemic, our Block 21 subsidiary has not met the debt service coverage ratio test each quarter beginning with the June 30, 2020, test date, resulting in a "Trigger Period." During a "Trigger Period," any cash generated from the Block 21 project in excess of amounts necessary to fund loan obligations, budgeted operating expenses and specified reserves would not be available to be distributed to us until after we meet a higher debt service coverage ratio requirement for two consecutive quarters.

As the ratio is

calculated on a trailing-12-month basis, we currently expect the "Trigger Period" to continue through the end of 2022.

As the ratio is calculated on a trailing-12-month basis, we currently expect the "Trigger Period" to continue through the end of 2022, or until the earlier closing of the sale of Block 21.

Although the Block 21 loan agreement is a non-recourse loan, we may contribute cash to our Block 21 subsidiary in order to prevent it from defaulting under the Block 21 loan agreement.

Pursuant to such provisions, we contributed $6.3 million during 2020 and $9.1 million during the first six months of 2021, including $4.1 million in the second quarter.

Based on current projections, additional contributions are expected to total $4.4 million through early 2022.

As of June 30, 2021, we had $7.5 million of liabilities for deferred income and deposits that primarily related to ticket and sponsorship presales at our venues.

Pursuant to such provisions, we contributed $6.3 million during 2020 and $13.0 million during the first nine months of 2021, including $3.9 million in the third quarter.

Depending on the timing of the sale of Block 21, we expect additional contributions to total as much as $1.1 million through early 2022.

As of September 30, 2021, we had $7.8 million of liabilities for deferred income and deposits that primarily related to ticket and sponsorship presales at our venues.

We have refunded amounts related to events that have been cancelled, and we may refund additional amounts if more events are cancelled in the future.

We project that we will be able to meet our debt service and other cash obligations for at least the next 12 months.

Our projections are based on many assumptions, including that we complete the sales of Block 21 and The Santal or, regardless of completion of such dispositions, that we are able to extend or refinance the Comerica Bank credit facility and loans at West Killeen and New Caney, which we believe we will be able to do.

No assurances can be given that the results anticipated by our projections will occur.

See Note 6 in our 2020 Form 10-K and “Risk Factors” included in Part I, Item 1A.

Refer to Note 6 in our 2020 Form 10-K, “Risk Factors”

included in Part II, Item 1A.

herein and “Risk Factors” included in Part I, Item 1A.

of our 2020 Form 10-K, for further discussion.

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DEBT MATURITIES AND OTHER CONTRACTUAL OBLIGATIONS

The following table summarizes our debt maturities based on the principal amounts outstanding as of June 30, 2021 (in thousands):

The following table summarizes our debt maturities based on the principal amounts outstanding as of September 30, 2021 (in thousands):

2021 2022 2023 2024 2025 Thereafter Total

Block 21 loan $ 1,242 $ 2,613 $ 2,765 $ 2,904 $ 3,094 $ 125,872 $ 138,490

The Santal loan — — — 75,000 — — 75,000

Comerica Bank credit facility

Block 21 loan a

$ 636 $ 2,613 $ 2,765 $ 2,904 $ 3,094 $ 125,872 $ 137,884

Jones Crossing loan

Comerica Bank credit facility

— 54,226 — — — — 54,226

The Annie B land loan — — 14,000 — — — 14,000

New Caney land loan — 4,500 — — — — 4,500

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Construction loans:

Kingwood Place a

Kingwood Place b

— 32,078 — — — — 32,078

Jones Crossing

— — — — — 24,500 24,500

Lantana Place

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Amarra Villas credit facility — 1,593 — — — — 1,593

Total $ 1,730 $ 97,619 $ 23,465 $ 77,904 $ 3,094 $ 150,372 $ 354,184

Total $ 1,002 $ 102,090 $ 37,553 $ 2,904 $ 3,094 $ 150,372 $ 297,015 c

The Block 21 loan is expected to be assumed by Ryman as part of the sale of Block 21.

Refer to Note 4 for further discussion of the pending Block 21 sale.

We have the option to extend the maturity date for two additional 12-month periods, subject to certain debt service coverage conditions.

Total does not include $75.0 million of debt at September 30, 2021, associated with The Santal, which is reflected as held for sale.

Other than the debt transactions discussed in Note 4 and Note 6, there have been no material changes in our contractual obligations since December 31, 2020.

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This Quarterly Report on Form 10-Q contains forward-looking statements in which we discuss factors we believe may affect our future performance.

Forward-looking statements are all statements other than statements of historical fact, such as plans, projections or expectations related to the impacts of the COVID-19 pandemic, our ability to meet our future debt service and other cash obligations, our ability to ramp-up operations at Block 21 according to our currently anticipated timeline, our ability to open and hold events at our venues, our ability to collect rents timely, future cash flows and liquidity, our ability to comply with or obtain waivers of financial and other covenants in debt agreements, our ongoing in-depth exploration of conversion to a REIT, potential steps necessary prior to conversion to a REIT, the potential timing of any REIT conversion, our expectations about the Austin and Texas real estate markets, the planning, financing, development, construction, completion and stabilization of our development projects, plans to sell, recapitalize, or refinance properties, future operational and financial performance, MUD reimbursements for infrastructure costs, regulatory matters, leasing activities, tax rates, the impact of interest rate changes, future capital expenditures and financing plans, possible joint ventures, partnerships, or other strategic relationships, our projections with respect to our obligations under the master lease agreements entered into in connection with the 2017 sale of The Oaks at Lakeway, other plans and objectives of management for future operations and development projects, and future dividend payments and share repurchases.

Forward-looking statements are all statements other than statements of historical fact, such as plans, projections or expectations related to whether and when the sale of Block 21 and The Santal will be completed, our estimated gains and net cash proceeds from the sales of Block 21 and The Santal and potential uses of such proceeds, the impacts of the COVID-19 pandemic, our ability to meet our future debt service and other cash obligations, our ability to ramp-up operations at Block 21 according to our currently anticipated timeline, our ability to continue to hold events at our venues, our ability to collect rents timely, future cash flows and liquidity, our ability to comply with or obtain waivers of financial and other covenants in debt agreements, the results of our Board’s strategic planning process, our expectations about the Austin and Texas real estate markets, the planning, financing, development, construction, completion and stabilization of our development projects, plans to sell, recapitalize, or refinance properties, future operational and financial performance, MUD reimbursements for infrastructure costs, regulatory matters, leasing activities, tax rates, the impact of interest rate changes, future capital expenditures and financing plans, possible joint ventures, partnerships, or other strategic relationships, our projections with respect to our obligations under the master lease agreements entered into in connection with the 2017 sale of The Oaks at Lakeway, other plans and objectives of management for future operations and development projects, and future dividend payments and share repurchases.

The words “anticipate,” “may,” “can,” “plan,” “believe,” “potential,” “estimate,” “expect,” “project,” "target," “intend,” “likely,” “will,” “should,” “to be” and any similar expressions and/or statements are intended to identify those assertions as forward-looking statements.

Under our Comerica Bank credit facility, we are not permitted to pay dividends on common stock without Comerica Bank's prior written consent.

The declaration of dividends is at the discretion of our Board, subject to restrictions under our Comerica Bank credit facility, and will depend on our financial results, cash requirements, projected compliance with covenants in our debt agreements, outlook and other factors deemed relevant by the Board.

Under our Comerica Bank credit facility, we are not permitted to repurchase our common stock in excess of $1.0 million or pay dividends on our common stock without Comerica Bank's prior written consent.

The declaration of dividends or decision to repurchase our common stock is at the discretion of our Board, subject to restrictions under our Comerica Bank credit facility, and will depend on our financial results, cash requirements, projected compliance with covenants in our debt agreements, outlook and other factors deemed relevant by the Board.

We caution readers that forward-looking statements are not guarantees of future performance, and our actual results may differ materially from those anticipated, expected, projected or assumed in the forward-looking statements.

Important factors that can cause our actual results to differ materially from those anticipated in the forward-looking statements include, but are not limited to, evolving risks relative to the COVID-19 pandemic (including the recent resurgences related to the spread of COVID-19 variants) and its economic effects, our ability to pay or refinance our debt or comply with or obtain waivers of financial and other covenants in debt agreements and to meet other cash obligations, our ability to ramp up operations at Block 21, collect anticipated rental payments and close projected asset sales, the availability and terms of financing for development projects and other corporate purposes, the implementation, operational, financing and tax complexities to be evaluated and addressed before our Board decides whether to recommend a REIT conversion to shareholders, our ability to qualify as a REIT, which involves the application of highly technical and complex provisions of the Internal Revenue Code of 1986, as amended, our ability to complete the steps that must be taken in order to convert to a REIT and the timing thereof, the potential costs of converting to and operating as a REIT, whether our Board will determine that conversion to a REIT is in the best interests of our shareholders, whether shareholders will approve changes to our organizational documents consistent with a public REIT structure, our ability to enter into and maintain joint ventures, partnerships, or other strategic relationships, our ability to implement our business strategy successfully, including our ability to develop, construct and sell or lease properties on terms our Board considers acceptable, market conditions or corporate developments that could preclude, impair or delay any opportunities with respect to plans to sell, recapitalize or refinance properties, our ability to obtain various entitlements and permits, a decrease in the demand for real estate in select markets in Texas where we operate, changes in economic, market and business conditions,

reductions in discretionary spending by consumers and businesses, competition from other real estate developers, hotel operators and/or entertainment venue operators and promoters, our ability to hold events and increase attendance at our venues, challenges associated with booking events and selling tickets and event cancellations at our entertainment venues, which may result in refunds to customers, the termination of sales contracts or letters of intent because of, among other factors, the failure of one or more closing conditions or market changes, our ability to secure qualifying tenants for the space subject to the master lease agreements entered into in connection with the 2017 sale of The Oaks at Lakeway and to assign such leases to the purchaser and remove the corresponding property from the master leases, the failure to attract customers or tenants for our developments or such customers’ or tenants’ failure to satisfy their purchase commitments or leasing obligations, increases in interest rates and the phase out of the London Interbank Offered Rate, declines in the market value of our assets, increases in operating costs, including real estate taxes and the cost of building materials and labor, changes in external perception of the W Austin Hotel, unanticipated issues experienced by the third-party operator of the W Austin Hotel, changes in consumer preferences, industry risks, changes in laws, regulations or the regulatory environment affecting the development of real estate, opposition from special interest groups or local governments with respect to development projects, weather-related risks, loss of key personnel, cybersecurity incidents and other factors described in more detail under the heading “Risk Factors” in Part I, Item 1A.

of our 2020 Form 10-K, filed with the SEC.

Important factors that can cause our actual results to differ materially from those anticipated in the forward-looking statements include, but are not limited to, the occurrence of any event, change or other circumstance that could delay the closing of the sale of Block 21 or The Santal, or result in the termination of the agreements to sell Block 21 or The Santal, risks relative to the COVID-19 pandemic (including any resurgences related to the spread of COVID-19 variants) and its economic effects, the results of our Board’s strategic planning process, our ability to pay or refinance our debt or comply with or obtain waivers of financial and other covenants in debt agreements and to meet other cash obligations, our ability to ramp up operations at Block 21, collect anticipated rental payments and close projected asset sales, the availability and terms of financing for development projects and other corporate purposes, the implementation, operational, financing and tax complexities to be evaluated and addressed before our Board decides whether to recommend a REIT conversion to shareholders, our ability to qualify as a REIT, which involves the application of highly technical and complex provisions of the Internal Revenue Code of 1986, as amended, our ability to complete the steps that must be taken in order to convert to a REIT and the timing thereof, the potential costs of converting to and operating as a REIT, whether our Board will determine that conversion to a REIT is in the best interests of our shareholders, whether shareholders will approve changes to our organizational documents consistent with a public REIT structure, our ability to enter into and maintain joint ventures, partnerships, or other strategic relationships, our ability to implement our business strategy successfully, including our ability to develop, construct and sell or lease properties on terms our Board considers acceptable, market conditions or corporate developments that could preclude, impair or delay any opportunities with respect to plans to sell, recapitalize or refinance properties, our ability to obtain various entitlements and permits, a decrease in the demand for real estate in select markets in Texas where we operate, changes in economic, market and business conditions, reductions in discretionary spending by consumers and businesses, competition from other real estate developers, hotel operators and/or entertainment venue operators and promoters, our ability to increase and/or maintain attendance at our venues, challenges associated with booking events and selling tickets and event cancellations at our entertainment venues, which may result in refunds to customers, the termination of sales contracts or letters of intent because of, among other factors, the failure of one or more closing conditions or market changes, our ability to secure qualifying tenants for the space subject to the master lease agreements entered into in connection with the 2017 sale of The Oaks at Lakeway and to assign such leases to the purchaser and remove the corresponding property from the master leases, the failure to attract customers or tenants for our developments or such customers’ or tenants’ failure to satisfy their purchase commitments or leasing obligations, increases in interest rates and the phase out of the London Interbank Offered Rate, declines in the market value of

our assets, increases in operating costs, including real estate taxes and the cost of building materials and labor, changes in external perception of the W Austin Hotel, unanticipated issues experienced by the third-party operator of the W Austin Hotel, changes in consumer preferences, industry risks, changes in laws, regulations or the regulatory environment affecting the development of real estate, opposition from special interest groups or local governments with respect to development projects, weather-related risks, loss of key personnel, cybersecurity incidents and other factors described in more detail under the heading “Risk Factors” in Part I, Item 1A.

of our 2020 Form 10-K, filed with the SEC, and “Risk Factors” included in Part II, Item 1A.

We can provide no assurance as to when, if at all, we will convert to a REIT.

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What changed 10-Q

Item 2. Management’s Discussion and Analysis