What changed in this filing

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Item 1. Financial Statements

2022-05-16 compared with 2021-11-15 · 201 added, 358 removed, 239 unchanged (70% of the section changed)

3 unchanged sentences

(In Thousands)

September 30,

2022 December 31,

6 unchanged sentences

Lease right-of-use assets 10,460 10,487

Deferred tax assets 4,843 6,009

Other assets 22,621 17,214

Assets held for sale 67,264 105,727

Assets held for sale - discontinued operations 151,172 151,053

Total assets $ 544,768 $ 541,226

6 unchanged sentences

Other liabilities 10,381 17,894

Liabilities held for sale 75,174 100,644

Liabilities held for sale - discontinued operations 149,717 153,097

Total liabilities 334,208 332,613

11 unchanged sentences

STRATUS PROPERTIES INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (Unaudited)

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

(In Thousands, Except Per Share Amounts)

Three Months Ended Nine Months Ended

September 30, September 30,

2021 2020 2021 2020

Three Months Ended

Real estate operations $ 19 $ 6,556

Leasing operations 3,080 4,818

Hotel 5,198 1,596 11,251 8,537

Entertainment 3,659 373 5,926 4,818

Total revenues 3,099 11,374

2 unchanged sentences

Leasing operations 984 2,052

Hotel 4,312 3,318 11,076 10,983

Entertainment 2,781 1,143 5,646 5,449

Depreciation 873 1,586

1 unchanged sentence

General and administrative expenses 3,167 4,324

Impairment of real estate 625 — 625 —

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

Gain on sale of assets ( 4,812 ) ( 22,931 )

Total 1,578 ( 10,609 )

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

Operating income 1,521 21,983

Interest expense, net ( 15 ) ( 1,056 )

Net gain on extinguishment of debt 3,680 — 3,454 —

Loss on extinguishment of debt — ( 63 )

Other income, net 6 3

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

( 4,113 ) ( 7,726 ) 1,627 ( 7,440 )

Provision for income taxes ( 82 ) ( 7,536 ) ( 351 ) ( 6,166 )

Income before income taxes and equity in unconsolidated affiliates' loss

Benefit from (provision for) income taxes 302 ( 2,691 )

Equity in unconsolidated affiliates' loss ( 2 ) ( 2 )

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

Net income from continuing operations

Net income (loss) from discontinued operations

375 ( 2,508 )

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

Net income and total comprehensive income

Total comprehensive loss (income) attributable to noncontrolling interests

Net income and total comprehensive income attributable to common stockholders

$ 2,272 $ 8,944

Net loss and total comprehensive loss attributable to common stockholders

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

Continuing operations

$ 0.23 $ 1.39

Basic and diluted net loss per share attributable to common stockholders $ ( 0.46 ) $ ( 1.84 ) $ ( 0.61 ) $ ( 1.46 )

Basic and diluted weighted-average common shares outstanding

Discontinued operations 0.05 ( 0.30 )

$ 0.28 $ 1.09

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

Continuing operations

$ 0.23 $ 1.38

Discontinued operations 0.04 ( 0.30 )

$ 0.27 $ 1.08

Weighted-average shares of common stock outstanding:

Diluted 8,355 8,273

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

2 unchanged sentences

(In Thousands)

Nine Months Ended

September 30,

Three Months Ended

Cash flow from operating activities:

Net income (loss) $ 1,265 $ ( 13,615 )

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

Net income $ 2,187 $ 15,666

Adjustments to reconcile net income to net cash used in operating activities:

Depreciation 873 3,002

Cost of real estate sold — 3,112

Impairment of real estate 625 —

Gain on sale of assets ( 4,812 ) ( 22,931 )

Net gain on extinguishment of debt ( 3,454 ) —

Amortization of debt issuance costs and stock-based compensation 1,468 1,601

Loss on extinguishment of debt — 63

Debt issuance cost amortization and stock-based compensation 515 529

Equity in unconsolidated affiliates' loss 2 2

1 unchanged sentence

Purchases and development of real estate properties ( 4,864 ) ( 2,489 )

Increase in other assets ( 997 ) ( 2,974 )

Increase (decrease) in accounts payable, accrued liabilities, deposits and other 5,699 ( 6,263 )

Net cash (used in) provided by operating activities ( 36,369 ) 459

(Increase) decrease in other assets ( 5,559 ) 238

Decrease in accounts payable, accrued liabilities and other ( 7,629 ) ( 7,563 )

Net cash used in operating activities ( 18,120 ) ( 10,371 )

Cash flow from investing activities:

3 unchanged sentences

Other, net — ( 5 )

Net cash provided by (used in) investing activities 51,797 ( 6,430 )

Net cash (used in) provided by investing activities ( 14,906 ) 58,204

Cash flow from financing activities:

5 unchanged sentences

Distributions to noncontrolling interests — ( 13,087 )

Noncontrolling interests’ contributions 27,977 —

Financing costs ( 17 ) ( 53 )

Net cash provided by financing activities 10,010 429

Net increase (decrease) in cash, cash equivalents and restricted cash 25,438 ( 5,542 )

Net cash provided by (used in) financing activities 13,470 ( 50,774 )

Net decrease in cash, cash equivalents and restricted cash ( 19,556 ) ( 2,941 )

Cash, cash equivalents and restricted cash at beginning of year 70,139 34,183

4 unchanged sentences

(In Thousands)

THREE MONTHS ENDED SEPTEMBER 30

Stockholders’ Equity

2 unchanged sentences

of Shares At Par

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

Exercised and vested stock-based awards 11 — 25 — — — 25 — 25

Stock-based compensation — — 205 — — — 205 — 205

Distributions to noncontrolling interests — — — — — — — ( 140 ) ( 140 )

Noncontrolling interests’ contributions — — — — — — — 27,977 27,977

Total comprehensive loss — — — ( 3,764 ) — — ( 3,764 ) ( 433 ) ( 4,197 )

Balance at September 30, 2021 9,388 $ 94 $ 188,553 $ ( 71,340 ) 1,143 $ ( 21,753 ) $ 95,554 $ 31,848 $ 127,402

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

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

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

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

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

STRATUS PROPERTIES INC.

CONSOLIDATED STATEMENTS OF EQUITY (Unaudited)

(In Thousands)

NINE MONTHS ENDED SEPTEMBER 30

Stockholders’ Equity

Held in Treasury Total

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

of Shares At Par

Balance at December 31, 2021 9,388 $ 94 $ 188,759 $ ( 8,963 ) 1,143 $ ( 21,753 ) $ 158,137 $ 50,476 $ 208,613

1 unchanged sentence

Stock-based compensation — — 212 — — — 212 — 212

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

Tender of shares for stock-based awards

— — — — 11 ( 452 ) ( 452 ) — ( 452 )

Distributions to noncontrolling interests — — — — — — — ( 13,227 ) ( 13,227 )

Noncontrolling interests’ contributions — — — — — — — 27,977 27,977

Total comprehensive (loss) income — — — ( 4,983 ) — — ( 4,983 ) 6,248 1,265

Balance at September 30, 2021 9,388 $ 94 $ 188,553 $ ( 71,340 ) 1,143 $ ( 21,753 ) $ 95,554 $ 31,848 $ 127,402

Total comprehensive income (loss) — — — 2,272 — — 2,272 ( 85 ) 2,187

Balance at March 31, 2022 9,427 $ 94 $ 188,971 $ ( 6,691 ) 1,154 $ ( 22,205 ) $ 160,169 $ 50,391 $ 210,560

Balance at December 31, 2020 9,358 $ 94 $ 186,777 $ ( 66,357 ) 1,137 $ ( 21,600 ) $ 98,914 $ 10,850 $ 109,764

1 unchanged sentence

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

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

Tender of shares for stock-based awards

— — — — 6 ( 153 ) ( 153 ) — ( 153 )

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

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

Distributions to noncontrolling interests

— — — — — — — ( 13,087 ) ( 13,087 )

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

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

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

3 unchanged sentences

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

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

In particular, the COVID-19 pandemic continued to affect Stratus' operations.

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

Also, in September and October 2021, Stratus entered into agreements to sell The Santal and Block 21, respectively.

Refer to Note 4 for further discussion.

The preparation of Stratus’ consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions, including those related to the potential impacts arising from the COVID-19 pandemic and related government actions, that affect the amounts reported in these financial statements and accompanying notes.

Actual results could differ materially from those estimates.

As the impact of the COVID-19 pandemic continues to evolve, and the extent of its impact cannot be determined with certainty, estimates and assumptions about future events and their effects require increased judgement.

Stratus’ assessment of the future magnitude and duration of the COVID-19 pandemic and related economic disruption, as well as other factors could result in material changes to the estimates used in and material impacts to Stratus’ consolidated financial statements in future reporting periods.

COVID-19 Pandemic Impact.

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

economies and markets.

The 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 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.

The pandemic has resulted in government restrictions of various degrees and effective at various times, including stay-at-home orders, bans on travel, limitations on the size of gatherings, limitations on the operations of businesses deemed non-essential, closures of work facilities, schools, public buildings and businesses, cancellation of events (including entertainment events, conferences and meetings), quarantines, mask mandates and social distancing measures.

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

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

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, as of November 12, 2021, includes much of Texas, although Austin and Houston are currently areas of “moderate” transmission.

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

As a result, the pandemic has had, and is expected to continue to have, an impact on Stratus' business and operations, particularly on its Hotel and Entertainment segments.

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

Stratus’ revenue, operating income and cash flow in its Hotel and Entertainment segments were adversely impacted beginning late in the first quarter of 2020 and through the first nine months of 2021, and are expected to continue to be adversely impacted during the remainder of 2021, although the adverse impacts began to lessen during the first quarter of 2021.

The hotel has remained open throughout the pandemic and the 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 Stratus' 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 until opening up to full capacity in August 2021.

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

Operating results for the first quarter of 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022.

Refer to Note 4 for a discussion of Stratus' discontinued operations.

Related Party Transactions.

Refer to Note 3 for discussion of LCHM Holdings, LLC (LCHM), its manager, and JBM Trust, which are related parties as a result of LCHM’s greater than 5 percent beneficial ownership of Stratus’ common stock and representation on Stratus’ Board of Directors.

LCHM and JBM Trust have invested in certain of Stratus' limited partnerships.

Stratus has an arrangement with Austin Retail Partners for services provided by a consultant of Austin Retail Partners who is the son of Stratus' President and Chief Executive Officer.

Payments to Austin Retail Partners for the consultant's consulting services and expense reimbursements totaled $ 27 thousand in third-quarter 2021, $ 28 thousand in third-quarter 2020 and $ 93 thousand for the first nine months of 2021 and the first nine months of 2020.

During the first quarter of 2022, Stratus had an arrangement with Whitefish Partners, LLC (Whitefish Partners), formerly known as Austin Retail Partners, LLC, for services provided by a consultant of Whitefish Partners who is the son of Stratus' President and Chief Executive Officer.

Payments to Whitefish Partners for the consultant's consulting services and expense reimbursements totaled $ 173 thousand in first-quarter 2022 and $ 37 thousand in first-quarter 2021.

The first quarter of 2022 included a cash payment under Stratus’ Profit Participation Incentive Plan (PPIP).

As of March 31, 2022, the consultant has one outstanding award under the PPIP.

In addition, during first-quarter 2022, the Compensation Committee of Stratus' Board of Directors (the Compensation Committee) approved an award to be granted to the consultant under the PPIP related to another development project.

Refer to Note 7 for discussion of the PPIP.

In April 2022, Stratus hired the consultant as an employee at the same annual salary as his compensation under the contract with Whitefish Partners.

As an employee, he is eligible for the same health and retirement benefits provided to all Stratus employees.

EARNINGS PER SHARE

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

The weighted-average shares of common stock exclude approximately 145 thousand shares for third-quarter 2021, 90 thousand shares for third-quarter 2020, 134 thousand shares for the first nine months of 2021 and 86 thousand shares for the first nine months of 2020 associated with restricted stock units (RSUs) and outstanding stock options that were anti-dilutive as a result of the net losses for the periods.

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

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

Three Months Ended

Income from continuing operations $ 1,812 $ 18,174

Net income (loss) from discontinued operations 375 ( 2,508 )

Net income 2,187 15,666

Net loss (income) attributable to noncontrolling interests in subsidiaries 85 ( 6,722 )

Net income attributable to Stratus common stockholders

$ 2,272 $ 8,944

Basic weighted-average shares of common stock outstanding

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

Diluted weighted-average shares of common stock outstanding

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

Continuing operations $ 0.23 $ 1.39

Discontinued operations 0.05 ( 0.30 )

$ 0.28 $ 1.09

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

Continuing operations $ 0.23 $ 1.38

Discontinued operations 0.04 ( 0.30 )

$ 0.27 $ 1.08

Excludes 4 thousand shares of common stock for the three months ended March 31, 2022, and 16 thousand shares of common stock for the three months ended March 31, 2021, associated with RSUs that were anti-dilutive.

LIMITED PARTNERSHIPS

The Saint June, L.P.

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

Refer to Note 6 for further discussion of this loan.

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

partnership for a 65.87 percent interest.

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

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

The Saint June, L.P.

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

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

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

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

Stratus Block 150, L.P.

In September 2021, Stratus Block 150, L.P., a Texas limited partnership and a subsidiary of Stratus, completed financing transactions from which a portion of the proceeds were used to purchase 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.

The proceeds will also be used to fund predevelopment costs of the project.

These financing transactions included (i) a $ 14.0 million land loan and (ii) $ 11.7 million from the sale of Class B limited partnership interests in a private placement offering, along with $ 3.9 million in cash and pursuit costs contributed by wholly owned subsidiaries of Stratus.

Refer to Note 6 for further discussion of the land loan.

Upon completion of the private placement offering, Stratus holds, in the aggregate, a 25 percent indirect equity interest in Stratus Block 150, L.P.

No individual Class B limited partner has an equity interest greater than 25 percent.

One of the participants in the private placement offering, JBM Trust, which purchased a limited partnership interest initially representing a 6.4 percent equity interest in Stratus Block 150, L.P., has a trustee who also serves as sole manager of LCHM.

Stratus, through its subsidiaries, is a partner in the following limited partnerships:

The Saint George Apartments, L.P., Stratus Block 150, L.P., The Saint June, L.P., Stratus Kingwood Place, L.P.

and The Saint Mary, L.P.

For additional information regarding Stratus' partnerships, refer to Note 2 in the Stratus 2021 Form 10-K.

Stratus Block 150, L.P.

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

Stratus plans to capitalize The Annie B in a two-phase process consisting of the initial land partnership phase and potentially followed by a development partnership phase.

No asset management fee will be paid to the general partner during the land partnership phase.

If the general partner determines to proceed with the development partnership phase, the general partner would continue to manage Stratus Block 150, L.P.

and would begin to receive an asset management fee to be agreed on at that time.

During the development partnership phase, the general partner would receive a development management fee of approximately 4 percent of certain construction costs for The Annie B.

The Saint Mary, L.P.

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

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

Two of the participants in the private placement offering, LCHM and JBM Trust, each purchased limited partnership interests initially representing a 6.1 percent equity interest in The Saint Mary, L.P.

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

The Saint Mary, L.P.

sold The Saint Mary property in January 2021.

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

distributed $ 1.8 million each to LCHM and JBM Trust.

Refer to Note 4 for further discussion.

Stratus Kingwood Place, L.P.

In August 2018, Stratus Kingwood Place, L.P., a Texas limited partnership and a subsidiary of Stratus (Kingwood, L.P.), completed a $ 10.7 million private placement, approximately $ 7 million of which, combined with a $ 6.8 million loan from Comerica Bank, was used to purchase a 54 -acre tract of land located in Kingwood, Texas for $ 13.5 million, for the development of Kingwood Place, a H-E-B, LP-anchored, mixed-use development project.

Two of the participants in the private placement offering, LCHM and JBM Trust, each purchased limited partnership interests initially representing an 8.8 percent equity interest in Kingwood, L.P.

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

In the first quarter of 2022, pursuant to the limited partnership agreement, wholly owned subsidiaries of Stratus contributed an additional $ 1.4 million in cash to Stratus Block 150, L.P.

No additional capital contributions are required to be made by the partners.

As of March 31, 2022, Stratus holds, in the aggregate, a 31.0 percent indirect controlling equity interest in Stratus Block 150, L.P.

As of March 31, 2022, JBM Trust, a related party to Stratus, holds a 5.9 percent equity interest in Stratus Block 150, L.P.

For additional information regarding Stratus' related parties, including JBM Trust, refer to Notes 1 and 2 in the Stratus 2021 Form 10-K.

Accounting for Limited Partnerships.

Stratus has performed evaluations and concluded that The Saint June, L.P., Stratus Block 150, L.P., The Saint Mary, L.P.

and Kingwood, L.P.

Stratus has performed evaluations and concluded that The Saint George Apartments, L.P., Stratus Block 150, L.P., The Saint June, L.P., Stratus Kingwood, L.P.

and The Saint Mary, L.P.

are variable interest entities and that Stratus is the primary beneficiary.

1 unchanged sentence

Stratus will continue to evaluate which entity is the primary beneficiary of these partnerships in accordance with applicable accounting guidance.

Stratus’ consolidated balance sheets include the following assets and liabilities of the partnerships (in thousands), except those related to The Saint Mary.

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

September 30, 2021 December 31, 2020

Stratus’ consolidated balance sheets include the following assets and liabilities of the partnerships (in thousands):

March 31, 2022 December 31, 2021

Cash and cash equivalents $ 8,504 $ 7,432

9 unchanged sentences

Net assets $ 72,500 $ 71,376

In December 2019, Stratus entered into agreements to sell Block 21, a mixed-use development in downtown Austin, Texas, that contains the W Austin Hotel and office, retail and entertainment space, to Ryman Hospitality Properties, Inc.

Block 21 Pending Sale - Discontinued Operations.

Block 21 is Stratus’ wholly owned mixed-use real estate property in downtown Austin, Texas.

Block 21 contains the 251 -room W Austin Hotel and is home to Austin City Limits Live at the Moody Theater, a 2,750 -seat entertainment venue that serves as the location for the filming of Austin City Limits, the longest running music series in American television history.

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

In December 2019, Stratus announced that it had agreed to sell Block 21 to Ryman Hospitality Properties, Inc.

(Ryman) for $ 275.0 million.

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

As a result of the negative impact on capital markets and the overall economic environment caused by the COVID-19 pandemic, in May 2020, Ryman delivered a termination letter, which was agreed to and accepted by Stratus, terminating the agreements to purchase Block 21 and authorizing the release of Ryman’s $ 15.0 million in earnest money to Stratus.

During the second quarter of 2020, Stratus recorded the $ 15.0 million as operating income.

In May 2020, Ryman delivered a termination letter, which was agreed to and accepted by Stratus, terminating the agreements to sell Block 21 and authorizing the release of Ryman’s $ 15.0 million in earnest money to Stratus, which Stratus recorded as operating income in 2020.

In October 2021, Stratus entered into new agreements to sell Block 21 to Ryman for $ 260.0 million.

The purchase price includes Ryman’s assumption of approximately $ 138 million of existing Block 21 mortgage debt and is subject to downward adjustments up to $ 5.0 million.

The purchase price includes Ryman’s assumption of approximately $ 137 million of existing Block 21 mortgage debt and is subject to an expected downward adjustment of $ 5.0 million.

The remainder of the purchase price will be paid in cash.

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

conditions, including the consent of the loan servicer to the purchaser’s assumption of the existing mortgage loan;

The transaction is expected to close prior to June 1, 2022, but remains subject to the timely satisfaction or waiver of various closing conditions, including the consent of the loan servicer to the purchaser’s assumption of the existing mortgage loan;

the consent of the hotel operator, an affiliate of Marriott, to the purchaser’s assumption of the hotel operating agreement;

4 unchanged sentences

Of the total purchase price, $ 6.9 million will be held in escrow for 12 months after the closing, subject to a longer retention period with respect to any required reserve for pending claims.

In accordance with accounting guidance, Stratus reported the results of operations of Block 21 as discontinued operations in the consolidated statements of comprehensive income because the disposal represents a strategic shift that had a major effect on operations, and presented the assets and liabilities of Block 21 as held for sale - discontinued operations in the consolidated balance sheets for all periods presented.

Block 21 did not have any other comprehensive income and Stratus' consolidated statements of cash flows are reported on a combined basis without separately presenting discontinued operations.

The carrying amounts of Block 21's major classes of assets and liabilities in the consolidated balance sheets follow (in thousands):

September 30, 2021 December 31, 2020

March 31, 2022 December 31, 2021

Cash and cash equivalents $ 9,509 $ 9,172

Restricted cash a

17,942 18,444

Real estate held for investment, net 120,634 120,452

2 unchanged sentences

Accounts payable and accrued liabilities, including taxes $ 4,268 $ 6,200

Debt 137,284 139,013

136,054 136,684

Other liabilities 9,395 10,213

1 unchanged sentence

Most restricted cash would be received by Ryman upon the closing of the sale.

Block 21’s results of operations in the consolidated statements of comprehensive loss consists of the following (in thousands):

Three Months Ended Nine Months Ended

September 30, September 30,

2021 2020 2021 2020

In 2016, Stratus completed the refinancing of the W Austin Hotel & Residences.

Goldman Sachs Mortgage Company provided a $ 150.0 million, ten-year, non-recourse term loan with a fixed interest rate of 5.58 percent per annum and payable monthly based on a 30-year amortization.

Balances include net reductions for unamortized debt issuance costs of $ 0.5 million at March 31, 2022, and $ 0.6 million at December 31, 2021.

Block 21’s results of operations in the consolidated statements of comprehensive income consists of the following (in thousands):

Three Months Ended March 31,

Hotel $ 5,871 $ 2,118

6 unchanged sentences

Leasing operations and other 471 337

Depreciation 1,360 1,423 4,134 4,671

Depreciation — b

Total cost of sales 9,353 5,933

General and administrative expenses 100 220

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

Operating income (loss) 2,484 ( 3,013 )

Interest expense, net ( 1,945 ) ( 1,979 )

Other income, net — — — 27

Provision for income taxes ( 52 ) ( 111 ) ( 106 ) ( 109 )

Net (loss) income $ ( 1,632 ) $ ( 6,170 ) $ ( 9,992 ) $ 24

In September 2021, Stratus entered into an agreement to sell The Santal for $ 152.0 million, which was subsequently amended to provide the purchaser a $ 0.7 million repair credit and to extend the closing date to no later than December 10, 2021.

The Santal is Stratus’ wholly owned 448 -unit garden-style, multi-family luxury apartment complex located in Section N of Austin’s upscale Barton Creek community.

In connection with entering into the agreement to sell The Santal, Stratus amended the loan agreement with the project lender to enable prepayment of the loan, subject to a prepayment fee.

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

The transaction will terminate if all conditions to closing are not satisfied or waived by the parties.

The purchaser has deposited $ 3.5 million in earnest money toward the purchase price of The Santal.

Stratus guaranteed the obligations of its subsidiary under the purchase agreement, up to a liability cap of $ 2.3 million for any claims related thereto up to a period of two years after the transaction closes.

Stratus reported the assets and liabilities of The Santal as held for sale in its consolidated balance sheets.

The carrying amounts of the major classes of assets and liabilities for The Santal follow (in thousands):

September 30, 2021 December 31, 2020

Real estate held for investment, net $ 67,236 $ 69,160

Other assets 28 51

Total assets held for sale $ 67,264 $ 69,211

Accrued liabilities $ 113 $ 170

Debt 74,523 74,343

Other liabilities 538 524

Total liabilities held for sale $ 75,174 $ 75,037

The Santal had rental revenue of $ 2.3 million in third-quarter 2021, $ 2.2 million in third-quarter 2020, $ 6.8 million for the first nine months of 2021 and $ 6.5 million for the first nine months of 2020.

Interest expense related to The Santal loan was $ 0.7 million in third-quarter 2021, $ 1.0 million in third-quarter 2020, $ 2.4 million for the first nine months of 2021 and $ 3.0 million for the first nine months of 2020.

(Provision for) benefit from income taxes ( 164 ) 2,484

Net income (loss) $ 375 $ ( 2,508 )

In accordance with accounting guidance, amounts are net of eliminations of intercompany sales totaling $ 321 thousand in first-quarter 2022 and $ 262 thousand in first-quarter 2021.

In accordance with accounting guidance, depreciation is not recognized subsequent to classification as assets held for sale, which occurred in the fourth quarter of 2021.

Capital expenditures associated with discontinued operations totaled $ 182 thousand in first-quarter 2022 and $ 107 thousand in first-quarter 2021.

The Oaks at Lakeway.

In 2017, Stratus sold The Oaks at Lakeway to FHF I Oaks at Lakeway, LLC for $ 114.0 million in cash.

The Oaks at Lakeway is an H-E-B, L.P.-anchored retail project located in Lakeway, Texas.

The parties entered into three master lease agreements at closing:

(1) one covering unleased in-line retail space, with a 5 -year term (the In-line Master Lease), (2) one covering the hotel pad with a 99 -year term (the Hotel Master Lease) and (3) one covering four unleased pad sites, three of which have 10 -year terms, and one of which has a 15 -year term (the Pad Site Master Lease).

For additional information, refer to Note 9 in the Stratus 2021 Form 10-K under the heading “Deferred Gain on Sale of The Oaks at Lakeway.”

The In-Line Master Lease expired in February 2022 and the Hotel Master Lease was terminated in November 2020.

As such, Stratus has no further obligations under these two master leases.

With respect to the Pad Site Master Lease, Stratus has leased the one pad site with a 15-year term, reducing the monthly rent payment net of rent collections for this pad site to approximately $ 2,500 .

Stratus may assign this lease to the purchaser and terminate the obligation under the Pad Site Master Lease for this pad site with a payment of $ 560,000 to the purchaser.

The lease term for the remaining three unleased pad sites under the Pad Site Master Lease expires in February 2027.

To the extent leases are executed for the remaining three unleased pad sites, tenants open for business, and the leases are then assigned to the purchaser, the master lease obligation could be reduced further.

In the first quarter of 2022, Stratus reassessed its plans with respect to construction of the remaining buildings on the three remaining unleased pad sites and determined that, rather than execute leases and build the buildings, it is less costly to continue to pay the monthly rent (approximately $ 77 thousand per month) pursuant to the Pad Site Master Lease until the lease expires in February 2027.

In connection with this determination, Stratus reversed an accrual of costs to lease and construct these buildings, resulting in recognition of an additional $ 4.8 million of gain in first-quarter 2022.

A contract liability of $ 4.3 million is presented as a deferred gain in the consolidated balance sheets at March 31, 2022, compared with $ 4.8 million at December 31, 2021.

The reduction in the deferred gain balance primarily reflects master lease payments.

The remaining deferred gain balance is expected to be reduced primarily by future master lease payments.

The Saint Mary.

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

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

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

Stratus also recognized a $ 63 thousand loss on extinguishment of debt for the first nine months of 2021 related to the repayment of The Saint Mary construction loan.

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

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

Real estate held for investment, net $ 36,341

Other assets 175

Total assets held for sale $ 36,516

Accrued liabilities $ 68

Other liabilities 220

Total liabilities held for sale $ 25,607

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

Interest expense, net of capitalized amounts, related to The Saint Mary construction loan was less than $ 0.1 million in first-quarter 2021, $ 0.2 million in third-quarter 2020 and $ 0.8 million for the first nine months of 2020.

Kingwood Place Land.

In first-quarter 2021, after establishing a reserve for remaining costs of the partnership, Stratus received $ 20.9 million from the subsidiary in connection with the sale and $ 12.9 million of the net proceeds were distributed to the noncontrolling interest owners.

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

Stratus also recognized a $ 63 thousand loss on extinguishment of debt in first-quarter 2021 related to the repayment of The Saint Mary construction loan.

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

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

Kingwood Place Pending Land Sale.

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

The sale, if consummated, is expected to close by mid-2022.

Upon entering into the contract, Stratus recorded a $ 625 thousand impairment charge in the third quarter of 2021 to reduce the carrying value of the land to its fair value based on the contractual sale price less estimated selling costs.

FAIR VALUE MEASUREMENTS

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

September 30, 2021 December 31, 2020

March 31, 2022 December 31, 2021

Value Carrying

5 unchanged sentences

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

September 30, 2021 December 31, 2020

Block 21 loan a

$ 137,284 $ 139,013

March 31, 2022 December 31, 2021

Comerica Bank credit facility $ 10,000 $ —

7 unchanged sentences

21,997 22,098

Magnolia Place 6,542 2,077

West Killeen Market

Amarra Villas credit facility 2,166 1,605

Jones Crossing — 22,377

$ 121,446 $ 106,648

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.

Includes net reductions for unamortized debt issuance costs of $ 1.6 million at September 30, 2021, and $ 1.5 million at December 31, 2020.

Total debt does not include debt associated with The Santal or The Saint Mary, which is reflected in liabilities held for sale.

Includes net reductions for unamortized debt issuance costs of $ 1.1 million at March 31, 2022, and $ 1.2 million at December 31, 2021.

Total debt does not include debt associated with Block 21, which is reflected in liabilities held for sale.

Refer to Note 4 for further discussion.

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

Jones Crossing Loan.

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

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

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

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

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

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

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

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

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

The Annie B Land Loan.

In September 2021, a Stratus subsidiary entered into an 18-month, $ 14.0 million land loan with Comerica Bank to acquire The Annie B (The Annie B land loan).

The loan matures on March 1, 2023, and bears interest at LIBOR plus 3.0 percent, provided LIBOR shall not be less than 0.5 percent.

Payments of interest only on the loan are due monthly through February 2023, with the outstanding principal due at maturity.

The Annie B land loan is guaranteed by Stratus and secured by The Annie B project.

The loan agreement contains financial covenants, including a requirement that Stratus maintain a net asset value, as defined in the agreement, of $ 125.0 million and an aggregate debt-to-gross asset value of less than 50 percent.

The Annie B land loan requires Comerica Banks’ prior written consent for any Stratus common stock repurchases in excess of $ 1.0 million.

Comerica Bank credit facility.

As of March 31, 2022, Stratus had $ 49.7 million available under its $ 60.0 million Comerica Bank credit facility, with letters of credit totaling $ 347 thousand committed against the credit facility.

In April 2022, Stratus borrowed $ 20.0 million on the credit facility, of which the majority of the funds were used to make a U.S.

Federal tax payment for Stratus’ 2021 tax liability.

In May 2022, Stratus and Comerica Bank entered into an amendment to extend the maturity date of the Comerica Bank credit facility from September 27, 2022, to December 26, 2022, increase the letter of credit sublimit from $ 7.5 million to $ 11.5 million and change the benchmark rate from the London Interbank Offered Rate (LIBOR) to the Bloomberg Short-Term Bank Yield Index (BSBY) Rate.

Advances under the credit facility now bear interest at the one-month BSBY Rate (with a floor of 0.0 percent) plus 4.0 percent.

New Caney land loan.

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

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

The PPP loan accrues interest at 1 percent and will mature on April 15, 2022, except for the portion that was forgiven.

Stratus' PPP loan forgiveness application was accepted and approved in August 2021 and the outstanding balance and accrued interest were forgiven with the exception of $ 0.3 million.

As such, Stratus recognized a gain on extinguishment of debt of $ 3.7 million during third-quarter 2021.

In March 2022, Stratus extended the maturity of the loan for an additional 12 months to March 8, 2023, which required a principal payment of $ 0.2 million and will require a second principal payment of $ 0.2 million in September 2022.

Stratus also entered into an amendment to the New Caney land loan to convert the benchmark rate from LIBOR to the Secured Overnight Financing Rate (SOFR).

The loan now bears interest at SOFR plus 3.0 percent, subject to the applicable margin adjustment.

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

The PPP loan matured and the remaining balance was repaid by Stratus on April 15, 2022.

Of the original loan amount, $ 3.7 million was forgiven in August 2021.

Lantana Place construction loan.

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

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

The Saint June Construction Loan.

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

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

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

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

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

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

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

The loan is secured by The Saint June project and is fully guaranteed by Stratus.

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

Further, once The Saint June, L.P.

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

Notwithstanding the foregoing, Stratus will remain liable for customary carve-out obligations and environmental indemnity.

Stratus is also required to maintain a net asset value, as defined by the guaranty, of $ 125.0 million and liquid assets of at least $ 10.0 million.

The Saint June, L.P.

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

Magnolia Place Construction Loan.

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

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

The loan bears interest at 30-day LIBOR plus 3.25 percent (or, if applicable, a

replacement rate), with a floor of 3.50 percent.

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

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

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

The loan agreement contains financial covenants, including that Stratus is required to maintain a net asset value, as defined in the loan agreement, of $ 125.0 million and liquid assets of at least $ 7.5 million.

In January 2022, Stratus entered into an amendment to the Lantana Place construction loan to extend the date through which Stratus can request advances under the loan through December 31, 2022.

Amarra Villas credit facility.

In March 2022, Stratus subsidiaries and Comerica Bank agreed to an extension of the maturity date to June 19, 2022, while they negotiate a modification of this facility.

For additional information regarding Stratus' debt, refer to Note 6 in the Stratus 2021 Form 10-K.

Interest Expense and Capitalization.

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

Stratus' capitalized interest totaled $ 1.3 million in third-quarter 2021, $ 1.1 million in third-quarter 2020, $ 3.8 million for the first nine months of 2021, and $ 3.6 million for the first nine months of 2020.

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

Interest costs (before capitalized interest) totaled $ 1.1 million in first-quarter 2022 and $ 2.3 million in first-quarter 2021.

Stratus' capitalized interest totaled $ 1.1 million in first-quarter 2022 and $ 1.3 million in first-quarter 2021.

Capitalized interest is primarily related to development activities at Barton Creek, The Annie B, The Saint George and Magnolia Place.

PROFIT PARTICIPATION INCENTIVE PLAN

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

In July 2018, the Compensation Committee unanimously adopted the PPIP, which provides participants with economic incentives tied to the success of the development projects designated by the Compensation Committee as approved projects under the PPIP.

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

During the first quarter of 2022, the Compensation Committee designated The Saint June as an approved project under the PPIP although no awards for this project were granted as of March 31, 2022.

Refer to Note 8 of the Stratus 2021 Form 10-K for further discussion.

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

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

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

The accrued liability under the PPIP related to The Saint Mary project totaled $ 2.1 million at September 30, 2021, and is expected to be paid in cash to eligible participants no later than March 15, 2022.

In September 2021, Lantana Place reached a valuation event under the PPIP and Stratus plans to obtain an appraisal of the property to determine the payout under the PPIP.

The accrued liability under the PPIP related to Lantana Place totaled $ 1.5 million at September 30, 2021, and, subject to adjustment based on the appraisal, is expected to be settled in RSUs awarded to eligible participants in the first half of 2022.

The expected sale of The Santal in December 2021 will be a capital transaction under the PPIP.

The accrued liability under the PPIP related to The Santal totaled $ 2.8 million at September 30, 2021, but may increase by as much as approximately $ 4 million upon a sale closing.

The award is expected to be paid in cash to eligible participants no later than March 15, 2022, subject to the PPIP’s limits on cash compensation paid to certain officers.

Specifically, if the total cash payments made with respect to development projects under the PPIP for 2021 to an executive officer exceed four times the executive officer’s base salary, any amounts due under the PPIP in excess of that amount will be converted to an equivalent number of RSUs with a one-year vesting period.

Any such RSUs would be awarded in the first half of 2022.

A summary of PPIP costs (credits) follows (in thousands):

Three Months Ended Nine Months Ended

September 30, September 30,

2021 2020 2021 2020

During February 2022, $ 2.1 million was paid in cash to eligible participants.

In September 2021, Lantana Place reached a valuation event under the PPIP.

The profit pool was $ 3.9 million, of which $ 0.2 million was paid in cash during February 2022.

The remaining accrued liability under the PPIP related to Lantana Place totaled $ 3.7 million at March 31, 2022, and is expected to be settled in RSUs awarded to eligible participants in the first half of 2022.

The sale of The Santal in December 2021 was a capital transaction under the PPIP.

During February 2022, $ 5.0 million was paid in cash to eligible participants, subject to the PPIP’s limits on cash compensation paid to certain officers.

Amounts due under the PPIP above the limits are converted to an equivalent number of RSUs with a one-year vesting period.

The remaining accrued liability under the PPIP related to The Santal totaled $ 1.7 million at March 31, 2022, and is expected to be settled in RSUs awarded to eligible participants in the first half of 2022.

A summary of PPIP costs follows (in thousands):

Three Months Ended March 31,

Charged to general and administrative expense

$ 2,751 $ 190 $ 3,495 $ 401

Capitalized to project development costs 51 224

Total PPIP costs

$ 2,691 $ 324 $ 3,862 $ 716

The accrued liability for the PPIP totaled $ 8.9 million at September 30, 2021, and $ 6.2 million at December 31, 2020 (included in other liabilities).

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

The accrued liability for the PPIP totaled $ 7.9 million at March 31, 2022, and $ 15.2 million at December 31, 2021 (included in other liabilities).

Stratus’ accounting policy for and other information regarding its income taxes are further described in Notes 1 and 7 in the Stratus 2021 Form 10-K.

Stratus had deferred tax assets (net of deferred tax liabilities and valuation allowances) totaling $ 44 thousand at September 30, 2021 , and December 31, 2020.

Stratus' deferred tax assets had valuation allowances totaling $ 12.9 million at September 30, 2021, and $ 10.7 million at December 31, 2020.

In the third quarter of 2020, Stratus recorded a valuation allowance on its deferred tax assets of $ 9.6 million.

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

Stratus had deferred tax assets (net of deferred tax liabilities) totaling $ 11.3 million at March 31, 2022 and $ 12.4 million at December 31, 2021.

Stratus' deferred tax assets had valuation allowances totaling $ 6.5 million at March 31, 2022, and $ 6.4 million at December 31, 2021.

Management has concluded that the pending sale of Block 21 is sufficient positive evidence to support the ability to realize certain deferred tax assets expected to be realized from the sale, which resulted in Stratus recording a $ 4.2 million non-cash tax credit in the fourth quarter of 2021 to reduce the related valuation allowance.

Stratus continues to maintain a valuation allowance on its remaining deferred tax assets.

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

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

Stratus’ future results of operations may be negatively impacted by an inability to realize a tax benefit for future tax losses or for items that will generate additional deferred tax assets that are not more likely than not to be realized.

Stratus' consolidated effective income tax rate of 22 percent for the first nine months of 2021 approximates the U.S.

Federal statutory income tax rate of 21 percent.

The difference was primarily attributable to a full valuation allowance against U.S.

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

The difference between Stratus' consolidated effective income tax rate of ( 83 ) percent for the first nine months of 2020 and the U.S.

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

the CARES Act, which allowed Stratus to carryback losses to 2017 when the U.S.

corporate tax rate was 35 percent, among other impacts, resulting in a discrete tax benefit of $ 1.4 million;

and the Texas state margin tax.

The difference between Stratus' consolidated effective income tax rate of ( 20 ) percent in first-quarter 2022 and the U.S.

Federal statutory income tax rate of 21 percent was primarily attributable to the release of a reserve on uncertain tax positions related to the 2015 through 2017 U.S.

Federal tax audit, which was closed in the first quarter of 2022.

The difference between Stratus' consolidated effective income tax rate of 13 percent in first-quarter 2021 and the U.S.

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

Federal deferred tax assets as of March 31, 2021, and the Texas state margin tax.

BUSINESS SEGMENTS

Stratus has four operating segments:

Real Estate Operations, Leasing Operations, Hotel and Entertainment.

As a result of the pending sale of Block 21, Stratus has two operating segments:

Real Estate Operations and Leasing Operations.

Block 21, which encompassed Stratus’ hotel and entertainment segments, along with some leasing operations, is reflected as discontinued operations.

The Real Estate Operations segment is comprised of Stratus’ real estate assets (developed for sale, under development and available for development), which consists of its properties in Austin, Texas (including the Barton Creek community;

the Circle C community;

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

the Lantana community, including a portion of Lantana Place planned for a multi-family phase now known as The Saint Julia, and the land for The Saint George and The Annie B);

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

in College Station, Texas (a portion of Jones Crossing and vacant pad sites);

in Killeen, Texas (a vacant pad site at West Killeen Market);

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

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

In September 2021, Stratus 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.

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

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

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

In October 2021, Stratus entered into new agreements to sell Block 21 for $ 260.0 million.

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

The sale of Block 21 will include the W Austin Hotel, ACL Live, 3TEN ACL Live and the office and retail space at Block 21.

in Killeen, Texas (one vacant pad site at West Killeen Market);

and in Magnolia, Texas (Magnolia Place), Kingwood, Texas (land for future multi-family development, for which a sale is pending, and a vacant pad site) and New Caney, Texas (New Caney), located in the greater Houston area.

The Leasing Operations segment is comprised of Stratus’ real estate assets, both residential and commercial, that are leased or available for lease and includes West Killeen Market, Lantana Place, Kingwood Place and the completed portion of Jones Crossing.

The segment also included The Saint Mary until its sale in January 2021 and The Santal until its sale in December 2021.

Stratus uses operating income or loss to measure the performance of each segment.

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

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

2021 2020 2021 2020

Three Months Ended March 31,

Real Estate Operations:

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Commissions and other 19 16

900 5,025 8,296 19,254

Leasing Operations:

Rental revenue 3,080 4,818

Rooms, food and beverage 4,748 1,504 9,978 7,511

Other 450 92 1,273 1,026

5,198 1,596 11,251 8,537

Entertainment:

Event revenue 2,865 373 4,515 4,224

Other 794 — 1,411 594

3,659 373 5,926 4,818

Total revenues from contracts with customers $ 3,099 $ 11,374

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The following segment information was prepared on the same basis as Stratus’ consolidated financial statements (in thousands).

Leasing Operations Hotel Entertainment Corporate, Eliminations and Other b

Three Months Ended

September 30, 2021:

Unaffiliated customers $ 900 $ 5,723 $ 5,198 $ 3,659 $ — $ 15,480

Intersegment 55 247 38 1 ( 341 ) —

Cost of sales, excluding depreciation 1,945 2,547 4,312 2,905 ( 104 ) 11,605

Depreciation 46 1,600 878 346 ( 38 ) 2,832

General and administrative expenses — — — — 5,422 c

Impairment of real estate 625 d

Operating (loss) income $ ( 1,661 ) $ 1,823 $ 46 $ 409 $ ( 5,621 ) $ ( 5,004 )

Capital expenditures and purchases and development of real estate properties

$ 4,138 $ 177 $ 15 $ — $ 30,292

Total assets at September 30, 2021 211,405 194,143 f

91,779 35,222 26,551 559,100

Leasing Operations Hotel Entertainment Corporate, Eliminations and Other b

Three Months Ended

September 30, 2020:

Unaffiliated customers $ 5,025 $ 5,807 $ 1,596 $ 373 $ — $ 12,801

Intersegment 5 223 18 ( 6 ) ( 240 ) —

Cost of sales, excluding depreciation 3,585 2,793 3,317 1,242 ( 109 ) 10,828

Depreciation 57 2,051 891 392 ( 62 ) 3,329

General and administrative expenses — — — — 2,868 2,868

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

Capital expenditures and purchases and development of real estate properties

$ 2,952 $ 716 $ 213 $ 2 $ — $ 3,883

Total assets at September 30, 2020 160,890 236,970 f

93,666 35,495 16,198 543,219

Nine Months Ended

September 30, 2021:

Leasing Operations Corporate, Eliminations and Other b

Three Months Ended March 31, 2022:

Unaffiliated customers $ 19 $ 3,080 $ — $ 3,099

3 unchanged sentences

General and administrative expenses — — 3,167 c

Impairment of real estate 625 d

Gain on sale of assets — ( 22,931 ) g

— — — ( 22,931 )

Gain on sale of assets — ( 4,812 ) d

Operating (loss) income $ ( 1,368 ) $ 6,056 $ ( 3,167 ) $ 1,521

1 unchanged sentence

$ 4,864 $ 14,542 $ 182 $ 19,588

Nine Months Ended

September 30, 2020:

Total assets at March 31, 2022 254,212 106,652 183,904 e

Three Months Ended March 31, 2021:

Unaffiliated customers $ 6,556 $ 4,818 $ — $ 11,374

2 unchanged sentences

2,052 — 6,412

173 6,132 2,927 j

64 1,544 ( 22 ) 1,586

General and administrative expenses — — 4,324 4,324

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

Gain on sale of assets — ( 22,931 ) f

Operating income (loss)

2 unchanged sentences

$ 2,489 $ 902 $ 107 $ 3,498

Total assets at March 31, 2021 161,488 180,758 g

Includes sales commissions and other revenues together with related expenses.

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

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 the 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 the PPIP, and increased consulting, legal and public relation costs for Stratus' successful proxy contest and the real estate investment trust exploration process totaling $ 3.8 million.

Represents the difference by which the fair value of the multi-family tract of land at Kingwood Place, based on the contractual sale price less estimated selling costs, was less than Stratus' carrying value of the land.

Includes the purchase of The Annie B land for $ 22.5 million.

Includes assets held for sale at The Santal totaling $ 67.3 million at September 30, 2021, and The Santal and The Saint Mary, totaling $ 106.1 million at September 30, 2020.

The decrease in first-quarter 2022, compared to first-quarter 2021, is primarily the result of $ 0.8 million incurred in first-quarter 2021 for consulting, legal and public relation costs for Stratus' successful proxy contest and the real estate investment trust exploration process as well as a $ 0.5 million decrease in employee incentive compensation costs associated with the PPIP.

Represents a gain recognized on the reversal of accruals for costs to lease and construct buildings under a master lease arrangement that Stratus entered into in connection with its sale of The Oaks at Lakeway in 2017.

Includes assets held for sale associated with discontinued operations at Block 21, which totaled $ 151.2 million at March 31, 2022, and $ 140.5 million at March 31, 2021.

Represents the 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 $ 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.

Includes a $ 202 thousand adjustment in the Hotel segment and an $ 89 thousand adjustment in the Entertainment segment for the period in December 2019 when the hotel and entertainment venues were held for sale and, therefore, not depreciated.

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

Includes $ 68.5 million of assets held for sale related to The Santal, which was sold in the fourth quarter of 2021.

SUBSEQUENT EVENTS

Stratus evaluated events after September 30, 2021, and through the date the financial statements were issued, and determined any events or transactions occurring during this period that would require recognition or disclosure are appropriately addressed in these financial statements.

Stratus evaluated events after March 31, 2022, and through the date the financial statements were issued, and determined any events or transactions occurring during this period that would require recognition or disclosure are appropriately addressed in these financial statements.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements