What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-11-14 compared with 2022-08-15 · 193 added, 145 removed, 218 unchanged (61% of the section changed)

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Results of Our Strategic Planning Process;

Over the last six quarters, we have generated pre-tax earnings of $218.9 million and after-tax cash flow of approximately $166 million from the sales of Block 21 (including $6.9 million of proceeds held in escrow for a year after the sale), The Santal and The Saint Mary.

Over the last seven quarters, we have generated pre-tax earnings of $218.9 million and after-tax cash flow of approximately $166 million from the sales of Block 21 (including $6.9 million of proceeds held in escrow for a year after the sale), The Santal, a 448-unit luxury garden-style multi-family project located in Barton Creek in Austin, Texas and The Saint Mary, a 240-unit luxury garden-style multi-family project in the Circle C community.

Our Board of Directors (Board) and management team engaged in a strategic planning process, which included consideration of the uses of proceeds from the sale of Block 21 and other recent sales in 2021, and of our long-term business strategy.

As a result of our Board’s strategic planning process, in August 2022, we announced that our 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.

After streamlining our business through the sale of Block 21, our Board has decided to continue our successful development program, with our proven team focusing on pure residential and residential-focused mixed-use projects in Austin and other select markets in Texas, which we believe continue to be attractive locations.

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

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

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

After streamlining our business through the sale of Block 21 in May 2022, our Board has decided to continue our successful development program, with our proven team focusing on pure residential and residential-centric mixed-use projects in Austin and other select markets in Texas, which we believe continue to be attractive locations.

We believe by methodically developing and enhancing the value of our properties and then selling them or holding them for lease, we can create long-term value for our stockholders.

Our development plans require significant additional capital.

As part of re-focusing our business, during third-quarter 2022, we completed the sale of substantially all of our non-core assets.

We do not currently have any material commitments to contribute additional cash to our joint venture projects or wholly owned development projects.

However, our development plans for future projects require significant additional capital.

We plan to continue to develop properties using project-level debt and third-party equity capital through joint ventures in which we receive development management fees and asset management fees, with our potential returns increasing above our relative equity interest in each project as negotiated return hurdles are achieved.

We expect to reduce our reliance on our revolving credit facility and retain sufficient cash to operate our business, taking into account risks associated with changing market conditions.

As previously disclosed, we are exploring a potential sale or refinancing of Kingwood Place, Jones Crossing and West Killeen Market, and we are also pursuing other projects, which may produce additional cash to return to stockholders, subject to market conditions and obtaining any required consents.

Our investment strategy focuses on projects that we believe will provide attractive long-term returns, while limiting our financial risk.

As previously disclosed, we recently explored a potential sale or refinancing of Kingwood Place, Jones Crossing and West Killeen Market.

Subsequently, we have decided to retain these cash-flowing properties given current market conditions.

We expect to reduce our reliance on our revolving credit facility and retain sufficient cash to operate our business, taking into account risks associated with changing market conditions and the variability in cash flows from our business.

Our main source of revenue and cash flow is expected to come from sales of our properties to third parties or to joint ventures in which we participate, the timing of and proceeds from which are difficult to predict and depend on market conditions and other factors.

We also generate cash flow from rent in our leasing operations and from development and asset management fees received from our properties.

Due to the nature of our development-focused business, we do not expect to generate sufficient recurring cash flow to cover our general and administrative expenses each period.

However, we believe that the unique nature and location of our assets, and our team’s ability to execute successfully on development projects, will provide us with positive cash flows and net income over time, as evidenced by our recent sales of The Saint Mary, The Santal and Block 21 described above.

Further, we believe our investment strategy, current liquidity and pipeline of projects provide us with many years of opportunities to increase long-term value for our stockholders.

Given challenging market conditions discussed in more detail below, we are currently focused on successfully completing our projects under construction, managing our capital expenditures, advancing other projects through the planning, designing and entitlement process, maximizing cash flow from stabilized assets, controlling costs as much as possible in this inflationary environment, and continuing to source third-party equity capital.

We have undeveloped properties currently undergoing active planning, including our two large projects Holden Hills and Section N.

Refer to “Recent Development Activities” below for a discussion of these projects.

We will re-evaluate our strategy as development progresses on these and other projects in our pipeline, and as market conditions stabilize.

While uncertainty in the market, primarily due to the increasing costs of construction materials and labor, and also rising interest rates, is currently causing a pause in some sales processes and the start of new development projects, we believe there continues to exist strong demand for residential and residential-centric mixed use projects in Austin and the other markets in Texas where we operate, combined with limited supply.

We will re-evaluate our strategy as development progresses on the projects in our pipeline, and as market conditions stabilize.

OVERVIEW OF FINANCIAL RESULTS

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Our 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).

We recorded a pre-tax gain on the sale of $119.7 million ($94.1 million net of taxes) in second-quarter 2022.

We recorded a pre-tax gain on the sale of $119.7 million in second-quarter 2022.

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

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Our Real Estate Operations encompass our activities associated with our acquisition, entitlement, development and sale of real estate.

The current focus of our real estate operations is multi-family and single-family residential properties and residential-focused mixed-use properties.

The current focus of our real estate operations is multi-family and single-family residential properties and residential-centric mixed-use properties.

We may sell or lease the real estate we develop, depending on market conditions.

Real estate that we develop and then lease becomes part of our Leasing Operations.

Revenue in our Real Estate Operations may be generated from the sale of properties that are developed, undeveloped or under development, depending on market conditions.

Revenue in our Real Estate Operations may be generated from the sale of properties that are developed,

undeveloped or under development, depending on market conditions.

Developed property sales can include an individual tract of land that has been developed and permitted for residential use or a developed lot with a residence already built on it.

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We also generate income from the sale of our leased properties, depending on market conditions.

Our total stockholders’ equity increased to $262.4 million at June 20, 2022, from $158.1 million at December 31, 2021, and $98.9 million at December 31, 2020, primarily as a result of gains realized on the sale of Block 21 in May 2022 and our sales of The Santal and The Saint Mary in December 2021 and January 2021, respectively.

Our revenues totaled $11.1 million in second-quarter 2022 and $14.2 million for the first six months of 2022, compared with $5.6 million in second-quarter 2021 and $17.0 million for the first six months of 2021.

The increase in revenues in second-quarter 2022, compared to second-quarter 2021, is primarily a result of the sales of undeveloped real estate properties as well as a completed Amarra Villas home in our Real Estate Operations segment in second-quarter 2022, partially offset by a decrease in leasing revenue as a result of the sale of The Santal multi-family project in late 2021.

The decrease in revenues for the first six months of 2022, compared to the first six months of 2021, is primarily a result of a decrease in leasing revenue following the sales of The Saint Mary and The Santal multi-family projects in 2021.

Our total stockholders’ equity increased to $219.8 million at September 30, 2022, from $158.1 million at December 31, 2021, and $98.9 million at December 31, 2020, primarily as a result of gains realized on the sale of Block 21 in May 2022 and our sales of The Santal and The Saint Mary in December 2021 and January 2021, respectively.

Our revenues totaled $10.0 million in third-quarter 2022 and $24.2 million for the first nine months of 2022, compared with $6.3 million in third-quarter 2021 and $23.3 million for the first nine months of 2021.

The increase in revenues in third-quarter 2022, compared to third-quarter 2021, is primarily a result of the sales of undeveloped real estate properties in our Real Estate Operations segment in third-quarter 2022, partially offset by a decrease in leasing revenue as a result of the sale of The Santal multi-family project in late 2021.

The increase in revenues for the first nine months of 2022, compared to the first nine months of 2021, is primarily a result of the sales of undeveloped real estate properties as well as a completed Amarra Villas home in our Real Estate Operations segment partially offset by a decrease in leasing revenue following the sales of The Saint Mary and The Santal multi-family projects in 2021.

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

Our net income attributable to common stockholders totaled $96.6 million, or $11.53 per diluted share in second-quarter 2022, compared to a net loss of $10.2 million, or $1.23 per diluted share, in second-quarter 2021.

During the first six months of 2022 our net income attributable to common stockholders totaled $98.9 million, or $11.82 per diluted share, compared to a net loss attributable to common stockholders of $1.2 million, or $0.15 per diluted share, during the first six months of 2021.

Our results for the 2022 periods include a $119.7 million pre-tax gain

($94.1 million net of taxes) on the sale of Block 21.

Our net loss attributable to common stockholders totaled $2.4 million, or $0.29 per diluted share in third-quarter 2022, compared to a net loss of $3.8 million, or $0.46 per diluted share, in third-quarter 2021.

During the first nine months of 2022 our net income attributable to common stockholders totaled $96.5 million, or $11.50 per diluted share, compared to a net loss attributable to common stockholders of $5.0 million, or $0.61 per diluted share, during the first nine months of 2021.

Our results for the first nine months of 2022 include a $119.7 million pre-tax gain on the sale of Block 21.

Refer to Note 4 under the heading “Block 21 - Discontinued Operations” for additional discussion.

The results during the first six months of 2022 also include a $4.8 million 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.

The results during the first nine months of 2022 also include a $4.8 million 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.

Refer to Note 4 under the heading “The Oaks at Lakeway” for additional discussion.

Our net losses attributable to common stockholders in the 2021 periods include net losses from discontinued operations of $5.9 million and $8.4 million for second-quarter 2021 and the first six months of 2021, respectively, as our former hotel and entertainment operations included in Block 21 were impacted by the COVID-19 pandemic.

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

Our results for the first six months of 2021 were positively impacted by the $22.9 million pre-tax gain ($16.2 million net of noncontrolling interests) on the January 2021 sale of The Saint Mary, a 240-unit luxury garden-style multi-family project in the Circle C community.

Our net losses attributable to common stockholders in the 2021 periods include net losses from discontinued operations of $1.5 million and $9.9 million for third-quarter 2021 and the first nine months of 2021, respectively, as our former hotel and entertainment operations included in Block 21 were impacted by the COVID-19 pandemic.

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

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

Market Conditions

Our industry has continued to experience increases in costs of land, construction materials (such as rebar, concrete and lumber) and labor, along with supply chain constraints.

Our industry has continued to experience cost increases primarily in construction materials and labor, along with supply chain constraints.

In addition, interest rates have been rising and bank credit has been tightening in our industry.

These factors are having an adverse impact on the projected profitability of our new projects and have delayed projects under construction and the commencement of construction on new projects.

These factors are having an adverse impact on the projected profitability of our new projects, have delayed projects under construction and the commencement of construction on new projects, have adversely impacted our ability to raise equity capital on attractive terms in our desired time frame, and have adversely impacted our ability to sell some properties at attractive prices in our desired time frame.

In addition, on completed projects, we are experiencing increased borrowing costs on our variable rate debt and increased operating costs due to inflation.

To manage these risks, we go through extensive pricing exercises culminating with competitive bids from reputable contractors based on final plans and specifications.

Because we engage third-party general contractors to construct our projects on a fixed-price or guaranteed maximum price basis, our exposure to cost increases on projects under construction is limited;

Because we typically engage third-party general contractors to construct our projects on a fixed-price or guaranteed maximum price basis, our exposure to cost increases on

projects under construction is limited;

however, rising costs and delays in delivery of materials may increase the risk of default by contractors and subcontractors.

To date, these rising costs have not had a material impact on our financial results, as we have been able to realize higher rents and sales prices;

however, this may not continue to be the case in the future.

Refer to “Risk Factors” included in Part II, Item 1A.

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Current Residential Activities

In second-quarter 2022, we sold a six-acre undeveloped multi-family tract of land for $2.5 million.

As of June 30, 2022, two developed Amarra Drive Phase III lots remained unsold.

In second-quarter 2022, we sold a six-acre undeveloped multi-family tract of land in Barton Creek for $2.5 million.

As of September 30, 2022, two developed Amarra Drive Phase III lots remained unsold.

The Villas at Amarra Drive (Amarra Villas) project is a 20-unit development in the Barton Creek community for which we completed construction and sale of the first seven homes between 2017 and 2019.

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We began construction on the remaining eight homes in second-quarter 2022.

Construction on the last 12 units continue to progress, and as of August 12, 2022, 3 homes were under contract to sell and 9 Amarra Villas homes remain available for sale of the 20-unit project.

Construction on the last 12 units continue to progress, and as of November 4, 2022, 3 homes were under contract to sell and 9 Amarra Villas homes remain available for sale of the 20-unit project.

In third-quarter 2021, we began construction on The Saint June, a 182-unit luxury garden-style multi-family project within the Amarra development.

The Saint June is comprised of multiple buildings featuring one, two and three bedroom units for lease with amenities that include a resort-style clubhouse, fitness center, pool and extensive green space.

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

We continue to progress the development plans for Holden Hills, our final large residential development within the Barton Creek community consisting of 495 acres and designed to feature 475 unique residences to be developed in multiple phases with a focus on health and wellness, sustainability and energy conservation.

The project is expected to be completed in first-quarter 2023.

We continue to progress the development plans for Holden Hills, our final large residential development within the Barton Creek community consisting of 495 acres and designed to feature approximately 475 unique residences to be developed in multiple phases with a focus on health and wellness, sustainability and energy conservation.

We have obtained construction permits for Phase I, and subject to obtaining financing and other market conditions, we currently expect to start infrastructure construction in late 2022 and to complete site work for Phase I, including the construction of road, utility, drainage and other required infrastructure, approximately 20 to 22 months from the start of construction.

Accordingly, our current projections anticipate that we could start building homes and/or selling home sites in late

Accordingly, our current projections anticipate that we could start building homes and/or selling home sites in late 2024 or 2025.

We may sell the developed home sites, or may elect to build and sell, or build and lease, homes on some or all of the home sites, depending on financing and market conditions.

Using a conceptual approach similar to that used for Holden Hills, we continue to progress the development plans for Section N, our approximately 570-acre tract located along Southwest Parkway in the southern portion of the Barton Creek community.

If successful, this new project would be designed as a dense, mid-rise, mixed-use project surrounded by an extensive greenspace amenity, resulting in a significant potential increase in development density, as compared to our prior plans.

We are designing a dense, mid-rise, mixed-use project surrounded by an extensive greenspace amenity, resulting in a significant potential increase in development density, as compared to our prior plans.

In September 2021, we purchased the land and announced plans for The Annie B, a proposed luxury high-rise rental project in downtown Austin to be developed as a 400-foot tower, consisting of approximately 420,000 square feet with 316 luxury multi-family units for lease.

We currently expect to begin construction in 2023, subject to obtaining financing and other market conditions.

We continue to work to finalize our development plans with a goal of beginning construction in late 2023 or 2024, subject to obtaining financing and other market conditions.

The Saint George

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Lantana Multi-Family, Magnolia Place, Jones Crossing, Kingwood Place and Other Residential

We have advanced development plans for the multi-family component of Lantana Place, a partially developed, mixed-use development project located south of Barton Creek in Austin, and, subject to securing an acceptable capital structure and other market conditions, currently expect to begin construction in 2023.

We have advanced development plans for the multi-family component of Lantana Place, a partially developed, mixed-use development project located south of Barton Creek in Austin.

The multi-family component is now known as The Saint Julia and is expected to consist of 306 units.

During second-quarter 2022, we sold an undeveloped tract of land in Austin for $0.6 million.

In August 2022, we sold 28 acres of undeveloped residential land for $3.2 million at Magnolia Place, an H-E-B, L.P (H-E-B) grocery shadow-anchored, mixed-use project in Magnolia, Texas.

We currently do not expect to begin construction prior to 2024, and the project remains subject to financing and market conditions.

In second-quarter 2022, we sold an undeveloped tract of land in Austin for $0.6 million.

In third-quarter 2022, we sold a 0.3 acre undeveloped tract of land in Austin for $1.6 million and 28 acres of undeveloped residential land for $3.2 million at Magnolia Place, an H-E-B, L.P (H-E-B) grocery shadow-anchored, mixed-use project in Magnolia, Texas.

We also continue to evaluate options for the multi-family component of Jones Crossing, an H-E-B grocery anchored, mixed-use development located in College Station, Texas.

In September 2021, we entered into a contract to sell a multi-family tract of land currently planned for approximately 275 multi-family units for $5.5 million at Kingwood Place, an H-E-B grocery anchored, mixed-use project in Kingwood, Texas.

If consummated, the sale is expected to close in the second half of 2022.

We closed on the sale on October 20, 2022.

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

For further discussion of our multi-family and single-family residential properties, refer to MD&A and the related sections in Items 1.

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In August 2021, we began construction on the first phase of development of Magnolia Place, our H-E-B grocery shadow-anchored, mixed-use project in Magnolia, Texas.

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

The first phase of development consists of two retail buildings totaling 18,987 square feet, all five pad sites and the road, utility and drainage infrastructure necessary to support the entire development.

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

The first phase of development consists of 2 retail buildings totaling 18,987 square feet, all 5 pad sites and the road, utility and drainage infrastructure necessary to support the entire development.

Infrastructure construction was completed in second-quarter 2022.

The two retail buildings were completed in July 2022 and turned over to our retail tenants to begin their finish-out process.

In mid-2021, H-E-B began construction on its 95,000-square-foot grocery store on an adjoining 18-acre site owned by H-E-B, which is expected to open in fourth-quarter 2022.

During second-quarter 2022, we sold one completed pad site for $2.3 million.

In third-quarter 2022, we substantially completed construction on the first phase of development and the two retail buildings were turned over to our retail tenants to begin their finish-out process.

In mid-2021, H-E-B began construction on its 95,000-square-foot grocery store on an adjoining 18-acre site owned by H-E-B, which opened on November 2, 2022.

During second-quarter 2022, we sold one completed pad site for $2.3 million and sold another completed pad site in third-quarter 2022 for $1.1 million.

Lantana Place

As of June 30, 2022, we had signed leases for approximately 90 percent of the retail space at Lantana Place, including the anchor tenant, Moviehouse & Eatery, and a ground lease for an AC Hotel by Marriott.

As of September 30, 2022, we had signed leases for approximately 90 percent of the retail space at Lantana Place, including the anchor tenant, Moviehouse & Eatery, and a ground lease for an AC Hotel by Marriott.

Lantana Place is our partially developed, mixed-use development project within the Lantana community south of Barton Creek in Austin, Texas.

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One pad site remains available for lease.

As of June 30, 2022, we had signed leases for approximately 90 percent of the retail space, including the H-E-B grocery store.

We are exploring a potential sale or refinancing of Kingwood Place.

As of September 30, 2022, we had signed leases for approximately 95 percent of the retail space, including the H-E-B grocery store.

We recently explored a potential sale or refinancing of Kingwood Place, but have decided to retain this cash-flowing property given current market conditions.

Jones Crossing

As of June 30, 2022, we had signed leases for substantially all of the retail space at the first phase of Jones Crossing.

As of September 30, 2022, we had signed leases for substantially all of the retail space at the first phase of Jones Crossing.

Jones Crossing is our H-E-B-anchored, mixed-use project in College Station, Texas.

We are exploring a potential sale or refinancing of Jones Crossing.

We recently explored a potential sale or refinancing of Jones Crossing, but have decided to retain this cash-flowing property given current market conditions.

West Killeen Market

As of June 30, 2022, we had signed leases for approximately 70 percent of the retail space at West Killeen Market, our retail project located in Killeen, Texas, shadow-anchored by an adjacent H-E-B grocery store.

We have entered into a contract to sell the last remaining pad site for $1.0 million and the sale is expected to close in third-quarter 2022.

We are exploring a potential sale or refinancing of West Killeen Market.

As of September 30, 2022, we had signed leases for approximately 75 percent of the retail space at West Killeen Market, our retail project located in Killeen, Texas, shadow-anchored by an adjacent H-E-B grocery store.

During third-quarter 2022, we sold the last remaining pad site for $1.0 million.

We recently explored a potential sale or refinancing of West Killeen Market, but have decided to retain this cash-flowing property given current market conditions.

For further discussion of our commercial properties, refer to MD&A and the related sections in Items 1.

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As a result, and because of numerous factors affecting our business activities as described herein and in our 2021 Form 10-K, our past operating results are not necessarily indicative of our future results.

We use operating income or loss to measure the performance of each operating segment.

We use operating income or loss to measure the performance of our operating segments.

Corporate, eliminations and other includes consolidated general and administrative expenses, which primarily consist of employee compensation and other costs described herein.

The following table summarizes our operating results (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

Operating income (loss):

Operating (loss) income:

Real Estate Operations a

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Leasing Operations b

Corporate, eliminations and other d

853 1,689 8,374 26,981

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

Corporate, eliminations and other c

(3,594) (5,213) (10,202) (15,731)

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

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

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

Net income (loss) from discontinued operations

$ (5,898) $ 96,300 e

Net loss (income) attributable to noncontrolling interests in subsidiaries

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

Net (loss) income from discontinued operations d

$ (1,541) $ 96,300 $ (9,947)

Net income (loss) attributable to common stockholders

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

Net (loss) income attributable to common stockholders

$ (2,360) $ (3,764) $ 96,533 $ (4,983)

Includes sales commissions and other revenues together with related expenses.

Includes a $4.8 million 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.

For both periods of 2022, 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.

For both periods of 2021, includes a $625 thousand impairment charge for the multi-family tract of land at Kingwood Place.

The first nine months of 2022 includes a $4.8 million 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.

Refer to Note 4 under the heading “The Oaks at Lakeway” for additional discussion.

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

The first nine months of 2021 includes a $22.9 million pre-tax gain on the January 2021 sale of The Saint Mary.

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 our successful proxy contest and the REIT exploration process.

Includes a $119.7 million pre-tax gain ($94.1 million net of taxes) on the May 2022 sale of Block 21.

The decreases in 2022 from the comparable prior year periods are primarily the result of $3.8 million incurred for the first nine months of 2021 for consulting, legal and public relation costs for our successful proxy contest and the REIT exploration process in addition to $2.8 million incurred in third-quarter 2021 and $3.5 million incurred during the first nine months of 2021 for employee incentive compensation costs associated with the PPIP resulting primarily from an increased valuation for The Santal.

The first nine months of 2022 includes a $119.7 million pre-tax gain on the May 2022 sale of Block 21.

As a result of the May 2022 sale of Block 21, we currently have two operating segments:

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The following table summarizes our Real Estate Operations results (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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Cost of sales, including depreciation 6,256 2,171 13,103 8,175

Operating income (loss) $ 2,471 $ (807) $ 1,103 $ 1,329

Impairment of real estate 720 625 720 625

Operating (loss) income $ (89) $ (1,904) $ 1,014 $ (575)

Developed Property Sales.

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

Three Months Ended June 30,

Homes Revenues Average Cost Per Home Lots Revenues Average Cost Per Lot

Amarra Drive:

Amarra Villas homes 1 $ 2,382 $ 2,382 — $ — $ —

Phase III lots — — — 1 575 233

Total Residential 1 $ 2,382 1 $ 575

Six Months Ended June 30,

Nine Months Ended September 30,

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

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Total Residential 1 $ 2,382 4 $ 4,615

The increase in revenues from developed property sales in second-quarter 2022 compared to second-quarter 2021, reflects the sale of an Amarra Villas home for $2.4 million in 2022.

The decrease in revenues from developed property sales for the first six months of 2022, compared to the first six months of 2021, reflects no lot sales in the 2022 period, as inventory of developed properties in our Real Estate Operations segment is limited.

In addition, the first six months of 2021 included revenue from the sale of our last condominium unit at the W Austin Hotel & Residences.

There were no developed property sales in third-quarter 2022 or 2021.

The decrease in revenues from developed property sales for the first nine months of 2022, compared to the first nine months of 2021, reflects no lot sales in the 2022 period, as inventory of developed properties in our Real Estate Operations segment is limited.

In addition, the first nine months of 2021 included revenue from the sale of our last condominium unit at the W Austin Hotel & Residences.

Undeveloped Property Sales.

During second-quarter 2022 and the first six months of 2022, we closed $5.4 million of undeveloped property sales consisting 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.

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

Cost of Sales.

In third-quarter 2022, we closed $6.9 million of undeveloped property sales consisting of (i) 28 acres of residential land for $3.2 million at Magnolia Place, (ii) a 0.3 acre tract of land in Austin for $1.6 million, (iii) a pad site at Magnolia Place for $1.1 million, and (iv) a pad site at West Killeen Market for $1.0 million.

During the first nine months of 2022, we also closed $5.4 million of undeveloped property sales consisting 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.

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

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

Real Estate Cost of Sales and Depreciation.

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

Cost of sales increased to $5.5 million in second-quarter 2022 and $6.8 million for the first six months of 2022, compared to $1.6 million in second-quarter 2021 and $6.0 million for the first six months of 2021, primarily reflecting higher real estate revenues in the 2022 periods.

Cost of sales increased to $6.3 million in third-quarter 2022 and $13.1 million for the first nine months of 2022, compared to $2.2 million in third-quarter 2021 and $8.2 million for the first nine months of 2021, primarily reflecting higher real estate revenues in the 2022 periods.

Impairment of Real Estate.

In September 2021, we 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, we 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, we recorded an additional $70 thousand impairment charge as a result of the selling costs exceeding the previous estimate.

In February 2021, we 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.

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

Leasing Operations

The following table summarizes our Leasing Operations results (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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Rental revenue primarily includes revenue from Lantana Place, Jones Crossing, Kingwood Place and West Killeen Market, and until their sales in December 2021 and January 2021, respectively, our multi-family projects The Santal and The Saint Mary.

The decrease in rental revenue in the 2022 periods, compared with 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.

The decrease in rental revenue in the 2022 periods, compared with the 2021 periods, primarily reflects the sale of The Santal in December 2021, partly offset by increased revenue at Lantana Place and Kingwood Place.

The Santal had rental revenue of $2.3 million in third-quarter 2021 and $6.8 million during the first nine months of 2021.

Rental Cost of Sales and Depreciation.

Rental cost of sales and depreciation expense decreased in second-quarter 2022 and the first six months of 2022, compared with the 2021 periods, primarily as a result of the sale of The Santal.

Rental cost of sales and depreciation expense decreased in third-quarter 2022 and the first nine months of 2022, compared with the 2021 periods, primarily as a result of the sale of The Santal.

Gain on Sale of Assets.

For the first six months of 2022, we recognized a gain 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.

For the first nine months of 2022, we recognized a gain on the reversal of accruals for costs to lease and construct buildings under a master lease arrangement that we entered into in connection with our sale of The Oaks at Lakeway in 2017.

Refer to Note 4 under the heading “The Oaks at Lakeway” for further discussion.

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

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

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

Corporate, Eliminations and Other

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

Consolidated general and administrative expenses decreased to $3.4 million in second-quarter 2022 and $6.6 million for the first six months of 2022, compared to $6.2 million in second-quarter 2021 and $10.5 million for the first six months of 2021, primarily reflecting $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 our successful proxy contest and the REIT exploration process.

Consolidated general and administrative expenses decreased to $3.6 million in third-quarter 2022 and $10.2 million for the first nine months of 2022, compared to $5.3 million in third-quarter 2021 and $15.8 million for the first nine months of 2021 primarily as a result of $2.8 million incurred in third-quarter 2021 and $3.5 million incurred during the first nine months of 2021 for employee incentive compensation costs associated with the PPIP resulting primarily from an increased valuation for The Santal and $3.8 million incurred for the first nine months of 2021 for consulting, legal and public relation costs for our successful proxy contest and the REIT exploration process.

Non-Operating Results

Interest Expense, Net.

Interest costs (before capitalized interest) totaled $1.5 million in second-quarter 2022 and $2.6 million for the first six months of 2022, compared with $2.1 million in second-quarter 2021 and $4.4 million for the first six months of 2021.

Interest costs in the 2022 periods were lower, compared to the 2021 periods, primarily reflecting reductions in average debt balances, including the lower outstanding balance on the Comerica Bank credit facility and the repayment of The Santal loan.

As of June 30, 2022, all of our debt was variable-rate debt, and for most of such debt, the interest rates have increased for the first six months of 2022 and may continue to rise in the future if prevailing market interest rates continue to climb.

Capitalized interest totaled $1.5 million in second-quarter 2022 and $2.6 million for the first six months of 2022, compared to $1.2 million in second-quarter 2021 and $2.5 million for the first six months of 2021.

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

Interest costs in the 2022 periods were lower, compared to the 2021 periods, primarily

reflecting reductions in average debt balances, including the repayment of the outstanding balance on the Comerica Bank credit facility and the repayment of The Santal loan partially offset by rising interest rates.

As of September 30, 2022, all of our debt was variable-rate debt, and for all of such debt, the interest rates have increased for the first nine months of 2022 and may continue to rise in the future if prevailing market interest rates continue to climb.

Capitalized interest totaled $1.8 million in third-quarter 2022 and $4.3 million for the first nine months of 2022, compared to $1.3 million in third-quarter 2021 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.

Loss on Extinguishment of Debt.

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

(Provision for) Benefit from Income Taxes.

We recorded a (provision for) benefit from income taxes of less than $(0.1) million in second-quarter 2022 and $0.3 million for the first six months of 2022, compared to $2.5 million in second-quarter 2021 and $(0.2) million for the first six months of 2021.

Net Gain on Extinguishment of Debt.

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

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

Provision for Income Taxes.

We recorded a provision for income taxes of $0.4 million in third-quarter 2022 and $0.2 million for the first nine months of 2022, compared to $0.1 million in third-quarter 2021 and $0.3 million for the first nine months of 2021.

Refer to Note 8 for further discussion of income taxes.

Net Income (Loss) from Discontinued Operations.

Net income (loss) from discontinued operations totaled $95.9 million in second-quarter 2022 and $96.3 million for the first six months of 2022, compared to $(5.9) million in second-quarter 2021 and $(8.4) million for the first six months of 2021.

The net income in the 2022 periods primarily reflects a $119.7 million pre-tax gain ($94.1 million net of taxes) on the sale of Block 21.

Net income (loss) from discontinued operations totaled $96.3 million for the first nine months of 2022, compared to $(9.9) million for the first nine months of 2021.

As a result of the sale of Block 21 in May 2022, we did not have any net income from discontinued operations in third-quarter 2022 compared to $(1.5) million in third-quarter 2021.

The net income for the first nine months of 2022 primarily reflects a $119.7 million pre-tax gain on the sale of Block 21.

The net losses in the 2021 periods reflect the negative impacts that the COVID-19 pandemic had on the hotel and entertainment operations within our discontinued operations.

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

Our partners' share of losses (income) totaled $0.2 million in both second-quarter 2022 and for the first six months of 2022, compared to less than $0.1 million in second-quarter 2021 and $(6.7) million for the first six months of 2021.

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

Our partners' share of losses (income) totaled $0.2 million in third-quarter 2022 and $0.5 million for the first nine months of 2022, compared to $0.4 million in third-quarter 2021 and $(6.2) million for the first nine months of 2021.

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

CAPITAL RESOURCES AND LIQUIDITY

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

Comparison of Cash Flows for the Six Months Ended June 30, 2022 and 2021

Comparison of Cash Flows for the Nine Months Ended September 30, 2022 and 2021

Operating Activities.

Cash used in operating activities totaled $43.6 million for the first six months of 2022, compared with $15.0 million for the first six months of 2021.

Expenditures for purchases and development of real estate properties totaled $12.1 million for the first six months of 2022 and $4.9 million for the first six months of 2021, both primarily related to development of our Barton Creek properties, particularly Amarra Villas and, to a lesser extent, Holden Hills.

The cash outflow resulting from the decrease in accounts payable, accrued liabilities and other during the first six months of 2022 is primarily related to the payment of awards under our Profit Participation Incentive Plan and the timing of tax payments, including property taxes.

Cash used in operating activities totaled $49.3 million for the first nine months of 2022, compared with $36.4 million for the first nine months of 2021.

Expenditures for purchases and development of real estate properties totaled $18.3 million for the first nine months of 2022 and $30.8 million for the first nine months of 2021, both primarily related to development of our Barton Creek properties, particularly Amarra Villas and, to a lesser extent, Holden Hills.

The cash outflow resulting from the decrease in accounts payable, accrued liabilities and other during the first nine months of 2022 is primarily related to the payment of awards under the PPIP and the timing of tax payments, including property taxes.

Investing Activities.

Cash provided by investing activities totaled $77.8 million for the first six months of 2022 and $56.5 million for the first six months of 2021.

During the first six months of 2022, we received net proceeds from the sale of Block 21 of $105.8 million (excluding the release of reserves previously presented as restricted cash but 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 reserves for pending claims).

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

Capital expenditures totaled $27.6 million for the first six months of 2022, primarily for The Saint June and Magnolia Place projects, and $2.4 million for the first six months of 2021, primarily for the Magnolia Place and Lantana Place projects.

Cash provided by investing activities totaled $66.2 million for the first nine months of 2022 and $51.8 million for the first nine months of 2021.

During the first nine months of 2022, we received net proceeds from the sale of Block 21 of $105.8 million (excluding the release of reserves previously presented as restricted cash but 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 reserves for pending claims).

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

Capital expenditures totaled $38.9 million for the first nine months of 2022, primarily for The Saint June, The Saint George and Magnolia Place projects, and $6.7 million for the first nine months of 2021, primarily for The Saint June, Lantana Place and Magnolia Place projects.

Financing Activities.

Cash provided by (used in) financing activities totaled $6.2 million for the first six months of 2022 and $(38.8) million for the first six months of 2021.

During the first six months of 2022, we had no net borrowings on the Comerica Bank credit facility, compared with net borrowings of $2.2 million for the first six months of 2021.

During the first six months of 2022, net borrowings on other project and term loans totaled $6.9 million, primarily reflecting borrowings on the Magnolia Place and The Saint June construction loans.

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

Refer to “Credit Facility, Other Financing Arrangements and Liquidity Outlook” below for a discussion of our outstanding debt at June 30, 2022.

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

No distributions to noncontrolling interest owners were paid during the first six months of 2022.

Cash used in financing activities totaled $9.7 million for the first nine months of 2022 and cash provided by financing activities totaled $10.0 million for the first nine months of 2021.

During the first nine months of 2022, we had no net borrowings on the Comerica Bank credit facility, compared with net borrowings of $10.9 million for the first nine months of 2021.

During the first nine months of 2022, net borrowings on other project and term loans totaled $16.0 million, primarily reflecting borrowings on the Magnolia Place and The Saint June construction loans.

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

Refer to “Liquidity Outlook, Credit Facility and Other Financing Arrangements” below for a discussion of our outstanding debt at September 30, 2022.

During the first nine months of 2022, we received contributions from noncontrolling interest owners of $15.0 million, related to The Saint George partnership.

No distributions to noncontrolling interest owners were paid during the first nine months of 2022.

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

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

Our Board also approved a new share repurchase program, which authorizes repurchases of up to $10.0 million of our common stock, which replaced our prior share repurchase program.

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

As of September 30, 2022, we repurchased 33,958 shares of our common stock for a total of $0.8 million at an average price of $23.49.

Through November 4, 2022, we have acquired 105,415 shares of our 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.

The timing, price and number of shares that may be repurchased under the program will be based on market conditions, applicable securities laws and other factors considered by management.

Share repurchases under the program may be made from time to time through solicited or unsolicited transactions in the open market, in privately negotiated transactions or by other means in accordance with securities laws.

The share repurchase program does not obligate us to repurchase any specific amount of shares, does not have an expiration date, and may be suspended, modified or discontinued at any time without prior notice.

Liquidity Outlook, Credit Facility and Other Financing Arrangements

We had $102.4 million in cash and cash equivalents at June 30, 2022.

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

We believe that our current cash and cash equivalents, financing arrangements and cash generated from operations will provide us with sufficient liquidity to satisfy our anticipated working capital needs, debt service requirements, expected capital expenditures, project funding commitments, and the approved return of $50.0 million cash to stockholders for at least the next 12 months.

We had $63.5 million in cash and cash equivalents at September 30, 2022.

We believe that our current cash and cash equivalents, financing arrangements and cash generated from operations will provide us with sufficient liquidity to satisfy our anticipated working capital needs, debt service requirements, expected capital expenditures, project funding commitments, income taxes and the share repurchase program for at least the next 12 months.

We expect to be able to extend or refinance all of our loans prior to their maturity dates.

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and Note 6 in our 2021 Form 10-K.

At June 30, 2022, we had total debt of $116.0 million based on the principal amounts outstanding, compared with $107.9 million at December 31, 2021.

At September 30, 2022, we had total debt of $125.4 million based on the principal amounts outstanding, compared with $107.9 million at December 31, 2021.

Consolidated debt at December 31, 2021, excluded the Block 21 loan of approximately $137 million, which was presented in liabilities held for sale - discontinued operations.

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

At June 30, 2022, we had $49.0 million available under the credit facility.

At September 30, 2022, we 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 our obligation to build certain roads and utilities facilities benefiting Holden Hills and Section N.

Refer to “Debt Maturities and Other Contractual Obligations” below for a table illustrating the timing of principal payments due on our outstanding debt as of June 30, 2022.

Refer to “Debt Maturities and Other Contractual Obligations” below for a table illustrating the timing of principal payments due on our outstanding debt as of September 30, 2022.

We plan 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.

Our debt agreements require compliance with specified financial covenants.

Refer to MD&A in our 2021 Form 10-K and Note 6 for a discussion of the financial covenants in our debt agreements.

As of June 30, 2022, we were in compliance with all of our financial covenants.

As of September 30, 2022, we were in compliance with all of our financial covenants.

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

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and engage in mergers, consolidations or other business combinations.

Our Comerica Bank credit facility, 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.

In May 2022, we entered into an amendment with Comerica Bank to extend the maturity date of the Comerica Bank credit facility from September 27, 2022, to December 26, 2022.

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

Our future debt agreements, future refinancings of or amendments to existing debt agreements or other future agreements may restrict our ability to declare dividends or repurchase shares.

In May 2022, we entered into an amendment with Comerica Bank to extend the maturity date of the Comerica Bank credit facility from September 27, 2022, to December 26, 2022, and in November 2022, Comerica Bank extended the maturity date from December 26, 2022, to March 27, 2023.

We are in discussions with the lender to remove Holden Hills from the collateral pool for the facility, finance the Holden Hills project under a separate loan agreement and enter into a revised revolving credit facility with a lower borrowing limit secured by the remaining collateral under the facility.

DEBT MATURITIES AND OTHER CONTRACTUAL OBLIGATIONS

The following table summarizes our debt maturities based on the principal amounts outstanding as of June 30, 2022, and the interest rate of each facility, all of which have variable rates, as of June 30, 2022, and December 31, 2021 (in thousands):

Interest Rate at

2022 2023 2024 2025 2026 Total June 30, 2022 December 31, 2021

The following table summarizes our debt maturities based on the principal amounts outstanding as of September 30, 2022 (in thousands):

2022 2023 2024 2025 2026 Thereafter Total

Comerica Bank credit facility a

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Lantana Place — 103 259 276 290 20,951 21,879

263 21,682 — — — 21,945 3.87 3.00

The Saint June — — 10,135 — — — 10,135

West Killeen Market

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Amarra Villas credit facility — — 5,574 — — — 5,574

The Saint June — — 2,274 — — 2,274 3.87 —

Total $ 32,697 $ 18,185 $ 22,541 $ 6,193 $ 24,790 $ 20,951 $ 125,357

In May 2022, we entered into an amendment to extend the maturity date of the $60.0 million Comerica Bank credit facility from September 27, 2022, to December 26, 2022, pending completion of our discussions with the lender to amend the facility in connection with the financing of Holden Hills as discussed elsewhere in this report.

In May 2022, we entered into an amendment to extend the maturity date of the $60.0 million Comerica Bank credit facility from September 27, 2022, to December 26, 2022, and have entered into another extension of the maturity date from December 26, 2022, to March 27, 2023, pending completion of our discussions with the lender to amend the facility in connection with the financing of Holden Hills as discussed elsewhere in this report.

Matures December 6, 2022.

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

The pending sale of the multi-family tract, if consummated, would result in a principal paydown of approximately $5.1 million.

We have the option to make an additional principal paydown, if necessary, in order to meet the debt service conditions.

We expect to extend the maturity date for an additional 12-month period.

Following the extension, we have the option to extend the maturity date for a second additional 12-month period, subject to certain conditions.

The sale of the multi-family tract closed in October 2022 and resulted in a principal paydown of $5.0 million.

The following table summarizes the interest rate of each loan, all of which have variable rates, as of September 30, 2022, and December 31, 2021:

Interest Rate at

September 30, 2022 December 31, 2021

Comerica Bank credit facility

6.40 % 5.00 %

Jones Crossing loan

The Annie B land loan 5.56 3.50

New Caney land loan 5.28 3.10

Construction loans:

Kingwood Place 5.06 2.60

Lantana Place 5.00 3.00

The Saint June 5.31 —

West Killeen Market

Magnolia Place 5.88 3.50

Amarra Villas credit facility 5.40 3.10

Other than the debt transactions discussed in Note 6, there have been no material changes in our contractual obligations since December 31, 2021.

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

Forward-looking statements are all statements other than statements of historical fact, such as plans, projections or expectations related to the impacts of the COVID-19 pandemic, our ability to meet our future debt service and other cash obligations, future cash flows and liquidity, our expectations about the Austin and Texas real estate markets, the planning, financing, development, construction, completion and stabilization of our development projects, plans to sell, recapitalize, or refinance properties, future operational and financial performance, MUD reimbursements for infrastructure costs, regulatory matters, leasing activities, tax rates,

the impact of inflation and interest rate changes, future capital expenditures and financing plans, possible joint ventures, partnerships, or other strategic relationships, other plans and objectives of management for future operations and development projects, and future cash returns to stockholders, including any share repurchases and/or dividend payments.

Forward-looking statements are all statements other than statements of historical fact, such as plans, projections or expectations related to the impacts of the COVID-19 pandemic, the impact of inflation and interest rate changes, supply chain constraints and tightening bank credit, our ability to meet our future debt service and other cash obligations, future cash flows and liquidity, our expectations about the Austin and Texas real estate markets, the planning, financing, development, construction, completion and stabilization of our development projects, plans to sell, recapitalize, or refinance properties, future operational and financial performance, MUD reimbursements for infrastructure costs, regulatory matters, leasing activities, tax rates, future capital expenditures and financing plans, possible joint ventures, partnerships, or other strategic relationships, other plans and objectives of management for future operations and development projects, and future cash returns to stockholders, including the timing and amount of repurchases under our share repurchase program.

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

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

Under our Comerica Bank debt agreements, we are not permitted to repurchase our common stock in excess of $1.0 million or pay dividends on our common stock without Comerica Bank's prior written consent, which was obtained in connection with the special cash dividend and share repurchase program.

compliance with covenants in our debt agreements, outlook and other factors deemed relevant by our Board.

Our future debt agreements, future refinancings of or amendments to existing debt agreements or other future agreements may restrict our ability to declare dividends or repurchase shares.

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

Important factors that can cause our actual results to differ materially from those anticipated in the forward-looking statements include, but are not limited to, the ongoing COVID-19 pandemic and any future major public health crisis, increases in inflation and interest rates, supply chain constraints, declines in the market value of our assets, increases in operating and construction costs, including real estate taxes and the cost of building materials and labor, our ability to pay or refinance our debt or comply with or obtain waivers of financial and other covenants in debt agreements and to meet other cash obligations, our ability to collect anticipated rental payments and close projected asset sales, the availability and terms of financing for development projects and other corporate purposes, our ability to enter into and maintain joint ventures, partnerships, or other strategic relationships, including risks associated with such joint ventures, our ability to implement our business strategy successfully, including our ability to develop, construct and sell or lease properties on terms our Board considers acceptable, market conditions or corporate developments that could preclude, impair or delay any opportunities with respect to plans to sell, recapitalize or refinance properties, our ability to obtain various entitlements and permits, a decrease in the demand for real estate in select markets in Texas where we operate, changes in economic, market and business conditions, including as a result of the war in Ukraine, reductions in discretionary spending by consumers and businesses, competition from other real estate developers, the termination of sales contracts or letters of intent because of, among other factors, the failure of one or more closing conditions or market changes, the failure to attract customers or tenants for our developments or such customers’ or tenants’ failure to satisfy their purchase commitments or leasing obligations, changes in consumer preferences, industry risks, changes in laws, regulations or the regulatory environment affecting the development of real estate, opposition from special interest groups or local governments with respect to development projects, weather- and climate-related risks, loss of key personnel, environmental and litigation risks, cybersecurity incidents and other factors described in more detail under the heading “Risk Factors” in Part I, Item 1A.

Important factors that can cause our actual results to differ materially from those anticipated in the forward-looking statements include, but are not limited to, the ongoing COVID-19 pandemic and any future major public health crisis, increases in inflation and interest rates, supply chain constraints, declines in the market value of our assets, increases in operating and construction costs, including real estate taxes and the cost of building materials and labor, defaults by contractors and subcontractors, our ability to pay or refinance our debt, extend maturity dates of our loans or comply with or obtain waivers of financial and other covenants in debt agreements and to meet other cash obligations, our ability to collect anticipated rental payments and close projected asset sales, the availability and terms of financing for development projects and other corporate purposes, our ability to enter into and maintain joint ventures, partnerships, or other strategic relationships, including risks associated with such joint ventures, our ability to implement our business strategy successfully, including our ability to develop, construct and sell or lease properties on terms our Board considers acceptable, market conditions or corporate developments that could preclude, impair or delay any opportunities with respect to plans to sell, recapitalize or refinance properties, our ability to obtain various entitlements and permits, a decrease in the demand for real estate in select markets in Texas where we operate, changes in economic, market, tax and business conditions, including as a result of the war in Ukraine, reductions in discretionary spending by consumers and businesses, competition from other real estate developers, the termination of sales contracts or letters of intent because of, among other factors, the failure of one or more closing conditions or market changes, the failure to attract customers or tenants for our developments or such customers’ or tenants’ failure to satisfy their purchase commitments or leasing obligations, changes in consumer preferences, potential additional impairment charges, industry risks, changes in laws, regulations or the regulatory environment affecting the development of real estate, opposition from special interest groups or local governments with respect to development projects, weather- and climate-related risks, loss of key personnel, environmental and litigation risks, cybersecurity incidents and other factors described in more detail under the heading “Risk Factors” in Part I, Item 1A.

of our 2021 Form 10-K, filed with the SEC, and “Risk Factors” included in Part II, Item 1A.

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What changed 10-Q

Item 2. Management’s Discussion and Analysis