What changed in this filing

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Item 1. Financial Statements

2022-11-14 compared with 2022-08-15 · 187 added, 123 removed, 393 unchanged (44% of the section changed)

3 unchanged sentences

(In Thousands)

September 30,

2022 December 31,

31 unchanged sentences

STRATUS PROPERTIES INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited)

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME (Unaudited)

(In Thousands, Except Per Share Amounts)

Three Months Ended Six Months Ended

June 30, June 30,

Three Months Ended Nine Months Ended

September 30, September 30,

2022 2021 2022 2021

8 unchanged sentences

General and administrative expenses 3,602 5,252 10,213 15,797

Impairment of real estate 720 625 720 625

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

Total 12,807 11,696 25,015 12,598

Operating income (loss) 495 ( 5,880 ) 2,016 16,103

Operating (loss) income ( 2,830 ) ( 5,428 ) ( 814 ) 10,675

Interest expense, net — ( 855 ) ( 15 ) ( 2,690 )

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

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

Other income, net 680 70 766 74

Income (loss) before income taxes and equity in unconsolidated affiliates' loss 575 ( 6,821 ) 2,087 14,046

(Provision for) benefit from income taxes ( 41 ) 2,522 261 ( 169 )

Equity in unconsolidated affiliates' loss ( 2 ) ( 7 ) ( 4 ) ( 9 )

Net income (loss) from continuing operations 532 ( 4,306 ) 2,344 13,868

Net income (loss) from discontinued operations 95,925 ( 5,898 ) 96,300 ( 8,406 )

Net income (loss) and total comprehensive income (loss) 96,457 ( 10,204 ) 98,644 5,462

(Loss) income before income taxes and equity in unconsolidated affiliate's loss ( 2,150 ) ( 2,533 ) ( 63 ) 11,513

Provision for income taxes ( 420 ) ( 121 ) ( 159 ) ( 290 )

Equity in unconsolidated affiliate's loss ( 4 ) ( 2 ) ( 8 ) ( 11 )

Net (loss) income from continuing operations ( 2,574 ) ( 2,656 ) ( 230 ) 11,212

Net (loss) income from discontinued operations — ( 1,541 ) 96,300 ( 9,947 )

Net (loss) income and total comprehensive (loss) income ( 2,574 ) ( 4,197 ) 96,070 1,265

Total comprehensive loss (income) attributable to noncontrolling interests 214 433 463 ( 6,248 )

Net income (loss) and total comprehensive income (loss) attributable to common stockholders $ 96,621 $ ( 10,163 ) $ 98,893 $ ( 1,219 )

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

Net (loss) income and total comprehensive (loss) income attributable to common stockholders $ ( 2,360 ) $ ( 3,764 ) $ 96,533 $ ( 4,983 )

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

Continuing operations

2 unchanged sentences

$ ( 0.29 ) $ ( 0.46 ) $ 11.68 $ ( 0.61 )

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

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

Continuing operations

5 unchanged sentences

Diluted 8,275 8,239 8,397 8,232

Dividends declared per share of common stock $ 4.67 $ — $ 4.67 $ —

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

2 unchanged sentences

(In Thousands)

Six Months Ended

Nine Months Ended

September 30,

Cash flow from operating activities:

3 unchanged sentences

Cost of real estate sold 7,510 4,028

Impairment of real estate 720 625

Gain on sale of discontinued operations ( 119,695 ) —

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

Loss on extinguishment of debt — 226

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

Debt issuance cost amortization and stock-based compensation 1,898 1,468

Equity in unconsolidated affiliates' loss 4 9

Equity in unconsolidated affiliate’s loss 8 11

Deferred income taxes 5,962 —

1 unchanged sentence

Decrease (increase) in other assets 4,858 ( 997 )

Decrease in accounts payable, accrued liabilities and other ( 21,098 ) ( 1,804 )

(Decrease) increase in accounts payable, accrued liabilities and other ( 26,213 ) 5,699

Net cash used in operating activities ( 49,324 ) ( 36,369 )

11 unchanged sentences

Payments on project and term loans ( 9,761 ) ( 53,330 )

Payment of dividends ( 38,675 ) —

Stock-based awards net payments ( 452 ) ( 132 )

Distributions to noncontrolling interests — ( 13,227 )

Noncontrolling interests’ contributions 15,032 27,977

Purchases of treasury stock ( 262 ) —

Financing costs ( 1,356 ) ( 1,645 )

Net cash provided by (used in) financing activities 6,216 ( 38,813 )

Net cash (used in) provided by financing activities ( 9,676 ) 10,010

Net increase in cash, cash equivalents and restricted cash 7,174 25,438

5 unchanged sentences

(In Thousands)

THREE MONTHS ENDED JUNE 30

Stockholders’ Equity

Held in Treasury Total

Common Stock Capital in Excess of Par Value Retained Earnings (Accumulated Deficit) Noncontrolling Interests in Subsidiaries

Retained Earnings (Accumulated Deficit) Common Stock

Held in Treasury Total Noncontrolling Interests in Subsidiaries

Common Stock Capital in Excess of Par Value

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

Exercised and vested stock-based awards 39 — — — — — — — —

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

Tender of shares for stock-based awards

— — — — 11 ( 452 ) ( 452 ) — ( 452 )

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

3 unchanged sentences

Balance at June 30, 2022 9,427 94 194,610 89,930 1,154 ( 22,205 ) 262,429 50,227 312,656

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

Exercised and vested stock-based awards 8 — — — — — — — —

Stock-based compensation — — 513 — — — 513 — 513

Common stock repurchases — — — 34 ( 799 ) ( 799 ) — ( 799 )

Cash dividend — — ( 40,011 ) — — ( 40,011 ) — ( 40,011 )

Contributions from noncontrolling interests — — — — — — — 15,032 15,032

Total comprehensive loss — — — ( 2,360 ) — — ( 2,360 ) ( 214 ) ( 2,574 )

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

Balance at September 30, 2022 9,435 $ 94 $ 195,123 $ 47,559 1,188 $ ( 23,004 ) $ 219,772 $ 65,045 $ 284,817

STRATUS PROPERTIES INC.

1 unchanged sentence

(In Thousands)

SIX MONTHS ENDED JUNE 30

Stockholders’ Equity

Held in Treasury Total

Common Stock Capital in Excess of Par Value Retained Earnings (Accumulated Deficit) Noncontrolling Interests in Subsidiaries

Retained Earnings (Accumulated Deficit) Common Stock

Held in Treasury Total Noncontrolling Interests in Subsidiaries

Common Stock Capital in Excess of Par Value

of Shares At Par

5 unchanged sentences

— — — — 6 ( 153 ) ( 153 ) — ( 153 )

Total comprehensive income (loss) — — — 98,893 — — 98,893 ( 249 ) 98,644

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

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

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

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

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

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

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

Grant of RSUs under the PPIP — — 1,162 — — — 1,162 — 1,162

Tender of shares for stock-based awards

— — — — 6 ( 153 ) ( 153 ) — ( 153 )

Distributions to noncontrolling interests

— — — — — — — ( 140 ) ( 140 )

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

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

Contributions from noncontrolling interests — — — — — — — 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

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

10 unchanged sentences

As an employee, he is eligible for the same health and retirement benefits provided to all Stratus employees and is also eligible for annual incentive awards and for awards under Stratus’ Profit Participation Incentive Plan (PPIP).

In the first half of 2022, he received $ 20 thousand as an annual incentive award for 2021 and a $ 135 thousand cash payment under the PPIP.

As of June 30, 2022, the employee has one outstanding award under the PPIP.

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

In the first nine months of 2022, he received $ 20 thousand as an annual incentive award for 2021 and a $ 135 thousand cash payment under the PPIP.

As of September 30, 2022, the employee has two outstanding awards under the PPIP.

Refer to Note 7 for discussion of the PPIP.

EARNINGS PER SHARE

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

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

Three Months Ended Six Months Ended

June 30, June 30,

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

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

Three Months Ended Nine Months Ended

September 30, September 30,

2022 2021 2022 2021

Net income (loss) from continuing operations $ 532 $ ( 4,306 ) $ 2,344 $ 13,868

Net income (loss) from discontinued operations 95,925 ( 5,898 ) 96,300 ( 8,406 )

Net income (loss) and total comprehensive income (loss) 96,457 ( 10,204 ) 98,644 5,462

Net (loss) income from continuing operations $ ( 2,574 ) $ ( 2,656 ) $ ( 230 ) $ 11,212

Net (loss) income from discontinued operations — ( 1,541 ) 96,300 ( 9,947 )

Net (loss) income and total comprehensive (loss) income ( 2,574 ) ( 4,197 ) 96,070 1,265

Total comprehensive loss (income) attributable to noncontrolling interests 214 433 463 ( 6,248 )

Net income (loss) and total comprehensive income (loss) attributable to common stockholders $ 96,621 $ ( 10,163 ) $ 98,893 $ ( 1,219 )

Net (loss) income and total comprehensive (loss) income attributable to common stockholders $ ( 2,360 ) $ ( 3,764 ) $ 96,533 $ ( 4,983 )

Basic weighted-average shares of common stock outstanding

8,275 8,239 8,266 8,232

Add shares issuable upon vesting of dilutive restricted stock units (RSUs)

Add shares issuable upon vesting of dilutive restricted stock units (RSUs) a

Diluted weighted-average shares of common stock outstanding

8,275 8,239 8,397 8,232

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

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

Continuing operations $ ( 0.29 ) $ ( 0.27 ) $ 0.03 $ 0.60

1 unchanged sentence

$ ( 0.29 ) $ ( 0.46 ) $ 11.68 $ ( 0.61 )

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

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

Continuing operations $ ( 0.29 ) $ ( 0.27 ) $ 0.03 $ 0.60

1 unchanged sentence

$ ( 0.29 ) $ ( 0.46 ) $ 11.50 $ ( 0.61 )

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

Excludes 2 thousand shares for the first six months of 2022 of common stock associated with RSUs that were anti-dilutive.

Excludes 6 thousand shares for the first nine months of 2022 of common stock associated with RSUs that were anti-dilutive.

Excludes 296 thousand shares for third-quarter 2022, 145 thousand shares for third-quarter 2021 and 134 thousand shares for the first nine months of 2021 of common stock associated with RSUs that were anti-dilutive as a result of net losses.

LIMITED PARTNERSHIPS

9 unchanged sentences

In connection with closing the construction financing, Stratus made an additional capital contribution of $ 1.7 million and the unaffiliated Class B limited partner made an additional capital contribution of $ 15.0 million, bringing Stratus’ total capital contributions to $ 3.7 million and the Class B limited partner’s total capital contributions to $ 33.4 million.

As of June 30, 2022, Stratus holds a 10.0 percent interest in The Saint George Apartments, L.P.

As of September 30, 2022, Stratus holds a 10.0 percent indirect controlling equity interest in The Saint George Apartments, L.P.

Stratus Block 150, L.P.

1 unchanged sentence

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

As of June 30, 2022, Stratus holds, in the aggregate, a 31.0 percent indirect controlling equity interest in Stratus Block 150, L.P.

As of June 30, 2022, JBM Trust, a related party

to Stratus, holds a 5.9 percent equity interest in Stratus Block 150, L.P.

As of September 30, 2022, Stratus holds, in the aggregate, a

31.0 percent indirect controlling equity interest in Stratus Block 150, L.P.

As of September 30, 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.

6 unchanged sentences

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

September 30,

2022 December 31,

14 unchanged sentences

Stratus’ net proceeds of cash and restricted cash totaled $ 112.3 million (including $ 6.9 million of post-closing escrow amounts to be held for 12 months after the closing, subject to a longer retention period with respect to any required reserve for pending claims).

Stratus recorded a pre-tax gain on the sale of $ 119.7 million ($ 94.1 million net of taxes) in second-quarter 2022 included in net income (loss) from discontinued operations.

Stratus recorded a pre-tax gain on the sale of $ 119.7 million in second-quarter 2022 included in net (loss) income from discontinued operations.

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

1 unchanged sentence

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

In accordance with accounting guidance, Stratus reported the results of operations of Block 21 as discontinued operations in the consolidated statements of comprehensive income (loss) 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.

In accordance with accounting guidance, Stratus reported the results of operations of Block 21 as discontinued operations in the consolidated statements of comprehensive (loss) 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.

9 unchanged sentences

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

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

Two Months Ended Three Months Ended Five Months Ended Six Months Ended

May 31, 2022 June 30, 2021 May 31, 2022 June 30, 2021

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

Three Months Ended Nine Months Ended

September 30, September 30,

2022 2021 2022 2021

Hotel $ — $ 5,199 $ 12,653 $ 11,251

7 unchanged sentences

Depreciation b

— 1,360 — 4,134

Total cost of sales — 8,617 17,795 21,640

3 unchanged sentences

Interest expense, net — ( 2,005 ) ( 3,236 ) ( 5,976 )

(Provision for) benefit from income taxes ( 25,539 ) ( 2,584 ) ( 25,703 ) ( 100 )

Net income (loss) from discontinued operations $ 95,925 $ ( 5,898 ) $ 96,300 $ ( 8,406 )

In accordance with accounting guidance, amounts are net of eliminations of intercompany sales totaling $ 189 thousand for the two months ended May 31, 2022, $ 274 thousand in second-quarter 2021, $ 510 thousand for the five months ended May 31, 2022, and $ 536 thousand for the first six months of 2021.

Benefit from (provision for) income taxes — 39 ( 25,703 ) ( 61 )

Net (loss) income from discontinued operations $ — $ ( 1,541 ) $ 96,300 $ ( 9,947 )

In accordance with accounting guidance, amounts are net of eliminations of intercompany sales totaling $ 286 thousand in third-quarter 2021, $ 510 thousand for the first nine months of 2022, and $ 822 thousand for the first nine months of 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 $ 31 thousand in second-quarter 2022, $ 158 thousand in second-quarter 2021, $ 213 thousand for the first six months of 2022 and $ 265 thousand the first six months of 2021.

Capital expenditures associated with discontinued operations totaled $ 210 thousand in third-quarter 2021, $ 213 thousand for the first nine months of 2022 and $ 475 thousand the first nine months of 2021.

The Oaks at Lakeway.

9 unchanged sentences

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 thousand to the purchaser.

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

The lease 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 first-quarter 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 $ 71 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 during the first six months of 2022.

A contract liability of $ 4.1 million is presented as a deferred gain in the consolidated balance sheets at June 30, 2022, compared with $ 4.8 million at December 31, 2021.

A contract liability of $ 3.7 million is presented as a deferred gain in the consolidated balance sheets at September 30, 2022, compared with $ 4.8 million at December 31, 2021.

The reduction in the deferred gain balance primarily reflects Pad Site Master Lease payments.

9 unchanged sentences

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 Land.

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 closed in October 2022.

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

In third-quarter 2022, Stratus recorded a $ 70 thousand impairment charge due to selling costs in excess of the previous estimate.

Amarra Villas.

In February 2021, Stratus entered into a contract to sell one of the Amarra Villas homes for $ 2.4 million.

The sale, if consummated, is set to close in first-quarter 2023.

Stratus recorded a $ 650 thousand impairment charge in third-quarter 2022 because the estimated total project costs and costs of sale for the home under construction exceed its contractual sale price.

FAIR VALUE MEASUREMENTS

3 unchanged sentences

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

September 30,

2022 December 31,

7 unchanged sentences

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

September 30,

2022 December 31,

8 unchanged sentences

21,776 22,098

The Saint June 9,770 —

Magnolia Place 6,314 2,077

1 unchanged sentence

Amarra Villas credit facility 5,574 1,605

The Saint June 1,865 —

$ 124,170 $ 106,648

Includes net reductions for unamortized debt issuance costs of $ 1.4 million at June 30, 2022, and $ 1.2 million at December 31, 2021.

Includes net reductions for unamortized debt issuance costs of $ 1.2 million at September 30, 2022, and $ 1.2 million at December 31, 2021.

Total debt at December 31, 2021, does not include debt associated with Block 21, which is reflected in liabilities held for sale - discontinued operations.

1 unchanged sentence

Comerica Bank credit facility.

Using proceeds from the sale of Block 21, Stratus repaid the outstanding amount under its $ 60.0 million Comerica Bank credit facility prior to June 30, 2022.

As of June 30, 2022, Stratus had $ 49.0 million available under the credit facility.

Using proceeds from the sale of Block 21, Stratus repaid the outstanding amount under its $ 60.0 million Comerica Bank credit facility in June 2022.

As of September 30, 2022, Stratus had $ 49.0 million available under the credit facility.

Letters of credit, totaling $ 11.0 million, have been issued under the credit facility, and secure the company’s obligation to build certain roads and utilities facilities benefiting Holden Hills and Section N.

1 unchanged sentence

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.

In November 2022, Stratus entered into an amendment to extend the maturity date of the credit facility from December 26, 2022, to March 27, 2023.

New Caney land loan.

In March 2022, Stratus extended the maturity of the New Caney land 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.

In March 2022, Stratus extended the maturity of the New Caney land loan for an additional 12 months to March 8, 2023, which required a principal payment of $ 0.2 million in March 2022 and 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 to the Term Secured Overnight Financing Rate (Term SOFR).

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

The loan now bears interest at Term SOFR plus 3.0 percent.

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.

2 unchanged sentences

Lantana Place construction loan.

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.

In August 2022, Stratus and Southside Bank amended the Lantana Place construction loan.

Pursuant to the agreement, the date through which Stratus can request advances under the loan was extended through December 31, 2023, the interest rate for the loan was changed to Term SOFR plus 2.40 percent, subject to a 3.0 percent floor, and the maturity date of the loan was extended to July 1, 2027.

In addition, the land planned for The Saint Julia, a proposed multi-family project at Lantana Place, was released from the collateral for the loan.

Payments of interest only on the construction loan are due monthly through July 1, 2023.

Beginning August 1, 2023, monthly payments of principal and interest based on a 30-year amortization are due, with the outstanding principal due at maturity.

The debt service coverage ratio was also changed to 1.25 to 1.00, and Stratus was released as guarantor under the related guaranty.

West Killeen Market construction loan.

1 unchanged sentence

Pursuant to the agreement, the principal amount of the loan is fully advanced and funded at an amount of $ 6.0 million, the interest rate for the loan was changed to Term SOFR plus 2.75 percent, subject to a 3.0 percent floor, and the maturity date of the loan was extended three years to July 31, 2025.

Principal and interest payments of approximately $ 30 thousand are due monthly and the remaining balance is payable at maturity.

Principal and interest payments based on a 30-year amortization are due monthly and the remaining balance is payable at maturity.

Amarra Villas credit facility.

13 unchanged sentences

is not permitted to make distributions to its partners until The Saint George project is completed and achieves a debt service coverage ratio of at least 1.20 to 1.00.

No amounts were outstanding on this loan as of September 30, 2022.

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 $ 1.5 million in second-quarter 2022, $ 2.1 million in second-quarter 2021, $ 2.6 million for the first six months of 2022 and $ 4.4 million for the first six months of 2021.

Stratus' capitalized interest totaled $ 1.5 million in second-quarter 2022, $ 1.2 million in second-quarter 2021, $ 2.6 million for the first six months of 2022 and $ 2.5 million for the first six months of 2021.

Interest costs (before capitalized interest) totaled $ 1.8 million in third-quarter 2022, $ 2.2 million in third-quarter 2021, $ 4.4 million for the first nine months of 2022 and $ 6.6 million for the first nine months of 2021.

Stratus' capitalized interest totaled $ 1.8 million in third-quarter 2022, $ 1.3 million in third-quarter 2021, $ 4.3 million for the first nine months of 2022 and $ 3.9 million for the first nine months of 2021.

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

The Comerica Bank credit facility, Amarra Villas credit facility, The Annie B land loan, The Saint George construction loan and Kingwood Place construction loan require Comerica Bank’s prior written consent for any common stock repurchases in excess of $ 1.0 million or any dividend payments.

As a result of the Board’s strategic planning process, in August 2022, Stratus announced that the Board has approved returning $ 50.0 million cash to stockholders, subject to obtaining required consents from Comerica Bank.

This return of capital could be in the form of share repurchases, dividends or a combination.

On September 1, 2022, after receiving written consent from Comerica Bank, Stratus’ Board of Directors (Board) declared a special cash dividend of $ 4.67 per share (totaling $ 40.0 million) on Stratus’ common stock, which was paid on September 29, 2022, to shareholders of record as of September 19, 2022.

Accrued liabilities as of September 30, 2022, included $ 1.3 million representing dividends accrued for unvested RSUs in accordance with the terms of the awards.

The accrued dividends will be paid to the holders of the RSUs, if and when they vest.

Stratus’ Board also approved a new share repurchase program, which authorizes repurchases of up to $ 10.0 million of Stratus’ common stock.

The repurchase program authorizes Stratus, in management’s discretion, to repurchase shares from time to time, subject to market conditions and other factors.

In third-quarter 2022, Stratus acquired 33,958 shares of its common stock under the share repurchase program for a total cost of $ 0.8 million at an average price of $ 23.49 per share.

Through November 4, 2022, Stratus has acquired 105,415 shares of its common stock for a total cost of $ 2.6 million at an average price of $ 25.02 per share, and $ 7.4 million remains available for repurchases under the program.

PROFIT PARTICIPATION INCENTIVE PLAN

1 unchanged sentence

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, and the awards were granted in August 2022.

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

6 unchanged sentences

The PPIP contains limits on cash compensation paid to certain officers and amounts due above the limits are converted to an equivalent number of RSUs with a one-year vesting period.

The remaining accrued liability related to The Santal totaled $ 1.6 million

and was settled in RSUs awarded to one participant during second-quarter 2022 following stockholder approval of Stratus’ new stock incentive plan.

The remaining accrued liability related to The Santal totaled $ 1.6 million and was settled in RSUs awarded to one participant during second-quarter 2022 following stockholder approval of Stratus’ new stock incentive plan.

During first-quarter 2022, the Compensation Committee designated The Saint June as an approved project under the PPIP, and the awards were granted in August 2022.

Under the terms of the PPIP, the number of RSUs granted in connection with settlement of approved projects is determined by reference to the 12-month trailing average stock price for the year the project reaches a payment event, whereas the grant date fair value of the RSUs for accounting purposes is based on the grant date closing price.

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A summary of PPIP costs follows (in thousands):

Three Months Ended Six Months Ended

June 30, June 30,

Three Months Ended Nine Months Ended

September 30, September 30,

2022 2021 2022 2021

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$ 242 $ 2,691 $ 478 $ 3,862

The accrued liability for the PPIP totaled $ 2.7 million at June 30, 2022, and $ 15.2 million at December 31, 2021 (included in other liabilities).

The accrued liability for the PPIP totaled $ 2.9 million at September 30, 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) totaling $ 6.0 million at June 30, 2022, and $ 12.4 million at December 31, 2021.

Stratus' deferred tax assets had valuation allowances totaling $ 5.8 million at June 30, 2022, and $ 6.4 million at December 31, 2021.

Stratus had deferred tax assets (net of deferred tax liabilities) totaling $ 6.3 million at September 30, 2022, and $ 12.4 million at December 31, 2021.

Stratus' deferred tax assets had valuation allowances totaling $ 6.3 million at September 30, 2022, and $ 6.4 million at December 31, 2021.

Prior to the sale of Block 21, management concluded that the pending sale of Block 21 was 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 fourth-quarter 2021 to reduce the related valuation allowance.

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

Stratus plans to make a federal income tax payment of approximately $ 10 million in December 2022 to satisfy estimated taxes due associated with current year taxable income, including the gain on the sale of Block 21.

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.

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

The difference between Stratus' consolidated effective income tax rate of ( 13 ) percent for the first six months of 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.

The difference between Stratus' consolidated effective income tax rate for the first nine months of 2022 and the U.S.

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

Federal deferred tax assets as of September 30, 2022, and the release of a reserve on uncertain tax positions related to the 2015 through 2017 U.S.

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

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

The difference between Stratus' consolidated effective income tax rate of 3 percent for the first nine months of 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 June 30, 2021, and the Texas state margin tax.

Federal deferred tax assets as of September 30, 2021, and the Texas state margin tax.

On August 16, 2022, the Inflation Reduction Act of 2022 (the IR Act) was enacted in the United States.

Among other provisions, the IR Act imposes a new 1 percent excise tax on the fair market value of net corporate stock repurchases made by covered corporations, effective for tax years beginning after December 31, 2022.

Stratus is assessing the potential impacts of the IR Act, but does not expect the IR Act to have a material impact on its consolidated financial statements.

BUSINESS SEGMENTS

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

in Killeen, Texas (one vacant pad site at West Killeen Market, for which a sale is pending);

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.

and in Magnolia, Texas (Magnolia Place), Kingwood, Texas (land for future multi-family development, for which a sale closed in October 2022, 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.

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

Three Months Ended Six Months Ended

June 30, June 30,

Three Months Ended Nine Months Ended

September 30, September 30,

2022 2021 2022 2021

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Developed property sales $ — $ — $ 2,382 $ 4,615

Undeveloped property sales 5,444 a

Undeveloped property sales 6,887 750 12,331 3,250

Commissions and other — 142 118 351

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Leasing Operations:

Rental revenue b

3,200 4,863 6,280 9,681

Rental revenue 3,090 5,376 9,370 15,057

3,090 5,376 9,370 15,057

Total revenues from contracts with customers $ 9,977 $ 6,268 $ 24,201 $ 23,273

Includes the sale of (i) a six-acre multi-family tract of land in Amarra Drive for $ 2.5 million, (ii) a completed pad site at Magnolia Place for $ 2.3 million and (iii) a tract of land in Austin for $ 0.6 million.

Decreases in the 2022 periods, compared to the 2021 periods, primarily reflects the sale of The Santal in December 2021, partly offset by increased revenue at Lantana Place.

The Santal had rental revenue of $ 2.3 million in second-quarter 2021 and $ 4.5 million during the first six months of 2021.

Financial Information by Business Segment.

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

Summarized financial information by segment for the three months ended September 30, 2022, based on Stratus’ internal financial reporting system utilized by its chief operating decision maker, follows (in thousands):

Leasing Operations Corporate, Eliminations and Other b

Three Months Ended June 30, 2022:

Unaffiliated customers $ 6,887 $ 3,090 $ — $ 9,977

Intersegment 2 — ( 2 ) —

Cost of sales, excluding depreciation 6,232 1,350 ( 4 ) 7,578

Depreciation 24 887 ( 4 ) 907

General and administrative expenses — — 3,444 c

Operating income (loss) $ 2,471 $ 1,465 $ ( 3,441 ) $ 495

General and administrative expenses — — 3,602 3,602

Impairment of real estate c

Operating (loss) income $ ( 89 ) $ 853 $ ( 3,594 ) $ ( 2,830 )

Capital expenditures and purchases and development of real estate properties

$ 6,203 $ 11,314 $ — $ 17,517

Total assets at June 30, 2022 265,929 106,020 112,711 d

Three Months Ended June 30, 2021:

Total assets at September 30, 2022 274,397 111,938 76,502 462,837

Includes sales commissions and other revenues together with related expenses.

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

Includes a $ 650 thousand impairment charge for one of the Amarra Villas homes that is under contract to sell for $ 2.4 million and a $ 70 thousand impairment charge for the multi-family tract of land at Kingwood Place that sold for $ 5.5 million in October 2022.

Summarized financial information by segment for the three months ended September 30, 2021, based on Stratus’ internal financial reporting system utilized by its chief operating decision maker, follows (in thousands):

Leasing Operations Corporate, Eliminations and Other b

Unaffiliated customers $ 892 $ 5,376 $ — $ 6,268

Intersegment 5 — ( 5 ) —

Cost of sales, excluding depreciation 2,134 2,238 ( 25 ) 4,347

Depreciation 37 1,449 ( 14 ) 1,472

General and administrative expenses — — 6,221 6,221

General and administrative expenses c

— — 5,252 5,252

Impairment of real estate d

Operating (loss) income $ ( 1,904 ) $ 1,689 $ ( 5,213 ) $ ( 5,428 )

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$ 25,962 $ 4,120 $ 210 $ 30,292

Total assets at June 30, 2021 165,624 180,428 e

Six Months Ended June 30, 2022:

Total assets at September 30, 2021 e

211,423 180,057 167,620 559,100

Includes sales commissions and other revenues together with related expenses.

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

Includes $ 2.8 million in employee incentive compensation costs associated with the PPIP resulting primarily from an increased valuation for The Santal.

Includes a $ 625 thousand impairment charge for the multi-family tract of land at Kingwood Place.

Leasing operations includes $ 67.3 million of assets held for sale related to the December 2021 sale of The Santal.

Corporate, eliminations and other includes $ 147.8 million of assets held for sale associated with discontinued operations at Block 21.

Summarized financial information by segment for the nine months ended September 30, 2022, based on Stratus’ internal financial reporting system utilized by its chief operating decision maker, follows (in thousands):

Leasing Operations Corporate, Eliminations and Other b

Unaffiliated customers $ 14,831 $ 9,370 $ — $ 24,201

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Depreciation 73 2,604 ( 13 ) 2,664

General and administrative expenses — — 6,611 c

Gain on sale of assets — ( 4,812 ) g

General and administrative expenses — — 10,213 10,213

Gain on sale of assets c

— ( 4,812 ) — ( 4,812 )

Impairment of real estate d

Operating income (loss) $ 1,014 $ 8,374 $ ( 10,202 ) $ ( 814 )

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$ 18,294 $ 38,676 $ 213 $ 57,183

Six Months Ended June 30, 2021:

Includes sales commissions and other revenues together with related expenses.

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

Represents a pre-tax 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.

Summarized financial information by segment for the nine months ended September 30, 2021, based on Stratus’ internal financial reporting system utilized by its chief operating decision maker, follows (in thousands):

Leasing Operations Corporate, Eliminations and Other b

Unaffiliated customers $ 8,216 $ 15,057 $ — $ 23,273

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149 4,525 ( 50 ) 4,624

General and administrative expenses — — 10,545 10,545

Gain on sale of assets — ( 22,931 ) h

Operating income (loss)

General and administrative expenses c

— — 15,797 15,797

Gain on sale of assets d

— ( 22,931 ) — ( 22,931 )

Impairment of real estate e

Operating (loss) income

$ ( 575 ) $ 26,981 $ ( 15,731 ) $ 10,675

Capital expenditures and purchases and development of real estate properties

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

The decreases in 2022 from the comparable prior-year periods are primarily the result of $ 3.3 million incurred in second-quarter 2021 and $ 4.4 million incurred for the first six months of 2021 for consulting, legal and public relation costs for Stratus' successful proxy contest and the real estate investment trust exploration process.

Includes $ 102.3 million of cash and cash equivalents, primarily received from the May 2022 sale of Block 21.

Includes $ 67.9 million of assets held for sale related to the December 2021 sale of The Santal.

Includes $ 144.2 million of assets held for sale associated with discontinued operations at Block 21.

Includes $ 3.8 million incurred for consulting, legal and public relation costs for Stratus' successful proxy contest and the real estate investment trust exploration process as well as $ 3.5 million in employee incentive compensation costs associated with the PPIP resulting primarily from an increased valuation for The Santal.

Represents the pre-tax gain on the January 2021 sale of The Saint Mary.

Includes a $ 625 thousand impairment charge for the multi-family tract of land at Kingwood Place.

SUBSEQUENT EVENTS

Stratus evaluated events after June 30, 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.

On October 20, 2022, Stratus closed on the sale of a multi-family tract of land at Kingwood Place, an H-E-B grocery anchored, mixed-use project in Kingwood, Texas for $ 5.5 million.

In connection with the sale, Stratus made a $ 5.0 million principal payment on the Kingwood Place construction loan.

Stratus evaluated events after September 30, 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