What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2023-05-15 compared with 2022-11-14 · 191 added, 301 removed, 279 unchanged (64% of the section changed)

3 unchanged sentences

(In Thousands)

September 30,

2023 December 31,

8 unchanged sentences

Other assets 18,033 15,479

Assets held for sale - discontinued operations — 151,053

Total assets $ 479,719 $ 445,140

6 unchanged sentences

Other liabilities 5,874 9,642

Liabilities held for sale - discontinued operations — 153,097

Total liabilities 174,494 173,067

3 unchanged sentences

Capital in excess of par value of common stock 196,308 195,773

Retained earnings (accumulated deficit) 47,559 ( 8,963 )

Retained earnings 35,651 41,452

Common stock held in treasury ( 31,181 ) ( 30,071 )

7 unchanged sentences

(In Thousands, Except Per Share Amounts)

Three Months Ended Nine Months Ended

September 30, September 30,

2022 2021 2022 2021

Three Months Ended

Real estate operations $ 2,493 $ 19

4 unchanged sentences

Leasing operations 1,261 984

Depreciation 907 1,472 2,664 4,624

Depreciation and amortization 928 873

Total cost of sales 6,676 3,223

General and administrative expenses 4,719 3,167

Impairment of real estate 720 625 720 625

Gain on sale of assets — ( 4,812 )

2 unchanged sentences

Interest expense, net — ( 15 )

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

Other income, net 485 6

(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 )

(Loss) income before income taxes and equity in unconsolidated affiliates' loss ( 5,108 ) 1,512

(Provision for) benefit from income taxes ( 1,162 ) 302

Equity in unconsolidated affiliates' loss ( 3 ) ( 2 )

Net (loss) income from continuing operations ( 6,273 ) 1,812

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

Net income from discontinued operations — 375

Net (loss) income and total comprehensive (loss) income ( 6,273 ) 2,187

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

Total comprehensive loss attributable to noncontrolling interests 472 85

Net (loss) income and total comprehensive (loss) income attributable to common stockholders $ ( 5,801 ) $ 2,272

10 unchanged sentences

Weighted-average shares of common stock outstanding:

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

Diluted 8,224 8,355

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)

Nine Months Ended

September 30,

Three Months Ended

Cash flow from operating activities:

Net income $ 96,070 $ 1,265

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

Depreciation 2,664 8,758

Net (loss) income $ ( 6,273 ) $ 2,187

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

Depreciation and amortization 928 873

Cost of real estate sold 2,010 —

Impairment of real estate 720 625

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

Gain on sale of assets — ( 4,812 )

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

Debt issuance cost amortization and stock-based compensation 713 515

2 unchanged sentences

Purchases and development of real estate properties ( 9,027 ) ( 4,864 )

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

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

Increase in other assets ( 2,945 ) ( 5,559 )

Decrease in accounts payable, accrued liabilities and other ( 3,813 ) ( 7,629 )

Net cash used in operating activities ( 18,404 ) ( 18,120 )

Cash flow from investing activities:

Proceeds from sale of discontinued operations 105,813 —

Proceeds from sale of assets — 59,488

Capital expenditures ( 10,006 ) ( 14,724 )

Payments on master lease obligations ( 248 ) ( 182 )

Other, net ( 8 ) 36

Net cash provided by investing activities 66,174 51,797

Net cash used in investing activities ( 10,232 ) ( 14,906 )

Cash flow from financing activities:

Borrowings from credit facility 30,000 37,700

Payments on credit facility ( 30,000 ) ( 26,778 )

Borrowings from revolving credit facility — 10,000

Borrowings from project loans 11,618 5,111

1 unchanged sentence

Payment of dividends ( 184 ) —

Finance lease principal payments ( 4 ) —

Stock-based awards net payments ( 216 ) ( 452 )

Distributions to noncontrolling interests — ( 13,227 )

Noncontrolling interests’ contributions 15,032 27,977

Noncontrolling interest contribution 40,000 —

Purchases of treasury stock ( 894 ) —

Financing costs ( 1,058 ) ( 17 )

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

Net cash provided by financing activities 42,711 13,470

Net increase (decrease) in cash, cash equivalents and restricted cash 14,075 ( 19,556 )

Cash, cash equivalents and restricted cash at beginning of year 45,709 70,139

2 unchanged sentences

STRATUS PROPERTIES INC.

CONSOLIDATED STATEMENTS OF EQUITY (Unaudited)

CONSOLIDATED STATEMENTS OF EQUITY (Unaudited) (Continued)

(In Thousands)

Stockholders’ Equity

Retained Earnings (Accumulated Deficit) Common Stock

Held in Treasury Total Noncontrolling Interests in Subsidiaries

Common Stock Capital in Excess of Par Value

Held in Treasury Total

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

of Shares At Par

1 unchanged sentence

Exercised and vested stock-based awards 40 — — — — — — — —

Director fees paid in shares of common stock — — 6 — — — 6 — 6

Stock-based compensation — — 529 — — — 529 — 529

1 unchanged sentence

— — — — 11 ( 216 ) ( 216 ) — ( 216 )

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

Stock-based compensation — — 347 — — — 347 — 347

Grant of restricted stock units (RSUs) under the Profit Participation Incentive Plan (PPIP) — — 5,292 — — — 5,292 — 5,292

Total comprehensive income (loss) — — — 96,621 — — 96,621 ( 164 ) 96,457

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

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

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

Common stock repurchases — — — — 44 ( 894 ) ( 894 ) — ( 894 )

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

Contributions from noncontrolling interests — — — — — — — 40,000 40,000

Total comprehensive loss — — — ( 5,801 ) — — ( 5,801 ) ( 472 ) ( 6,273 )

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.

CONSOLIDATED STATEMENTS OF EQUITY (Unaudited) (Continued)

(In Thousands)

Balance at March 31, 2023 9,479 $ 94 $ 196,308 $ 35,651 1,503 $ ( 31,181 ) $ 200,872 $ 104,353 $ 305,225

Stockholders’ Equity

Retained Earnings (Accumulated Deficit) Common Stock

Held in Treasury Total Noncontrolling Interests in Subsidiaries

Common Stock Capital in Excess of Par Value

Held in Treasury Total

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

of Shares At Par

2 unchanged sentences

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

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

Tender of shares for stock-based awards

— — — — 11 ( 452 ) ( 452 ) — ( 452 )

Distributions to noncontrolling interests

— — — — — — — ( 13,087 ) ( 13,087 )

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

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

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

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

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

Distributions to noncontrolling interests

— — — — — — — ( 140 ) ( 140 )

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.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The unaudited consolidated financial statements and the accompanying notes are prepared in accordance with generally accepted accounting principles (GAAP) in the United States (U.S.) and should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2021, included in Stratus Properties Inc.’s (Stratus) Annual Report on Form 10-K for the year ended December 31, 2021 (Stratus 2021 Form 10-K) filed with the U.S.

The unaudited condensed consolidated financial statements and the accompanying notes are prepared in accordance with generally accepted accounting principles (GAAP) in the United States (U.S.) and should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2022, included in Stratus Properties Inc.’s (Stratus) Annual Report on Form 10-K for the year ended December 31, 2022 (Stratus 2022 Form 10-K) filed with the U.S.

Securities and Exchange Commission on March 31, 2023.

4 unchanged sentences

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

Payments to Whitefish Partners for the consultant’s consulting services and expense reimbursements totaled $ 185 thousand for first-quarter 2022, which included $ 20 thousand as an annual incentive award for 2021 and a $ 135 thousand cash payment under Stratus’ Profit Participation Incentive Plan (PPIP).

In April 2022, Stratus hired the consultant as an employee at an annual salary of $ 100 thousand.

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 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.

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 the PPIP and the Long-Term Incentive Plan (LTIP).

In first-quarter 2023, he received $ 22 thousand as an annual incentive award for 2022, and his annual salary was increased to $ 120 thousand.

As of March 31, 2023, the employee has two outstanding awards under the PPIP.

The liability associated with these awards at March 31, 2023 is not significant to the consolidated financial statements.

Refer to Note 7 for discussion of the PPIP and LTIP.

For additional information regarding Stratus' related parties, including LCHM Holdings, LLC and JBM Trust, refer to Notes 1, 2 and 4 in the Stratus 2022 Form 10-K.

EARNINGS PER SHARE

1 unchanged sentence

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

Three Months Ended

Net (loss) income from continuing operations $ ( 6,273 ) $ 1,812

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

Net income from discontinued operations — 375

Net (loss) income and total comprehensive (loss) income ( 6,273 ) 2,187

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

Total comprehensive loss attributable to noncontrolling interests 472 85

Net (loss) income and total comprehensive (loss) income attributable to common stockholders $ ( 5,801 ) $ 2,272

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) a

Diluted weighted-average shares of common stock outstanding

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

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

6 unchanged sentences

$ ( 0.71 ) $ 0.27

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.

For the three months ended March 31, 2023, excludes 295 thousand shares of common stock associated with RSUs that were anti-dilutive as a result of the net loss.

For the three months ended March 31, 2022, excludes 4 thousand shares of common stock associated with RSUs that were anti-dilutive.

LIMITED PARTNERSHIPS

1 unchanged sentence

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

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

and The Saint Mary, L.P.

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

The Saint George Apartments, L.P.

In July 2022, The Saint George Apartments, L.P.

entered into a construction loan agreement to finance construction of The Saint George, a 316 -unit luxury wrap-style, multi-family project located in north-central Austin, Texas.

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

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 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.

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

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

As of 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.

( 10.0 percent indirect equity interest), Stratus Block 150, L.P.

( 31.0 percent indirect equity interest), The Saint June, L.P.

( 34.13 percent indirect equity interest), Holden Hills, L.P.

( 50.0 percent indirect equity interest) and Stratus Kingwood Place, L.P.

( 60.0 percent indirect equity interest).

For additional information regarding Stratus' partnerships, refer to Notes 2 and 4 in the Stratus 2022 Form 10-K.

Holden Hills, L.P.

In first-quarter 2023, Holden Hills, L.P.

(the Holden Hills partnership), a Texas limited partnership and subsidiary of Stratus, was formed for the development of Holden Hills, Stratus’ final large residential development within the Barton Creek community in Austin, Texas, consisting of 495 acres and designed to feature 475 unique residences (Holden Hills Project).

The Holden Hills partnership is governed by a limited partnership agreement between a wholly owned subsidiary of Stratus as Class A limited partner and an unaffiliated equity investor as Class B limited partner, and another wholly owned subsidiary of Stratus which serves as general partner.

The partners made the following initial capital contributions to the Holden Hills partnership:

(i) Stratus contributed the Holden Hills land and related personal property at an agreed value of $ 70.0 million and (ii) The Class B limited partner contributed $ 40.0 million in cash.

Immediately following the Class B limited partner's initial capital contribution, $ 30.0 million of cash was distributed by the Holden Hills partnership to Stratus.

Further, the Holden Hills partnership reimbursed Stratus for certain initial project costs and closing costs of approximately $ 5.8 million.

As a result of these transactions, Stratus holds, indirectly through its wholly owned subsidiaries, a 50.0 percent equity capital interest in the Holden Hills partnership, and the Class B limited partner holds the remaining 50.0 percent equity capital interest in the Holden Hills partnership.

Stratus’ potential returns on its equity investment in

the Holden Hills partnership may increase above its relative equity interest as negotiated return hurdles are achieved.

Stratus consolidates the Holden Hills limited partnership;

therefore, its contribution of the Holden Hills land and related personal property was recorded at historical cost and the contribution from the Class B limited partner was accounted for as a noncontrolling interest.

In addition to each partner’s initial capital contribution, upon the call of the general partner from time to time, Stratus is obligated to make capital contributions up to an additional $ 10.0 million, and the Class B limited partner is also obligated to make capital contributions up to an additional $ 10.0 million.

Stratus has the authority to manage the day-to-day operations of the Holden Hills partnership, subject to approval rights of the Class B limited partner for specified “major decisions,” including project and operating budgets, the business plan and amendments thereto;

sales, leases or transfers of any portion of the Holden Hills project to any partner, affiliate of any partner, or to any unaffiliated third party other than as contemplated in the business plan;

incurring any debt, mortgage or guaranty;

capital calls in excess of those previously agreed upon;

admitting a new partner;

and certain transfers of direct or indirect interests in the Holden Hills partnership.

The business plan includes rights of first refusal in favor of the Class B limited partner for sale of the luxury residence sites to be developed in distinct communities or “pods” to a third party.

A “deadlock” may be declared by any partner if any limited partner does not approve any two major decisions proposed by the general partner within any 12-month period.

Prior to the third anniversary of the effective date of the limited partnership agreement, a buy-sell provision can be triggered only if there is a deadlock.

On or after the third anniversary, any partner can initiate a buy-sell at any time by written notice to the other partner, specifying the buyout price.

Stratus has entered into a development agreement with the Holden Hills partnership pursuant to which the Holden Hills partnership will construct certain street, drainage, water, sidewalk, electric and gas improvements in order to extend the Tecoma Circle roadway on Section N land owned by Stratus from its current terminus to Southwest Parkway, estimated to cost approximately $ 14.7 million (the Tecoma Improvements), and Stratus will reimburse the partnership for 60 percent of the costs.

The Tecoma Improvements will enable access and provide utilities necessary for the development of both Holden Hills and Section N.

The Holden Hills partnership has agreed to pay Stratus a development management fee of 4.00 percent of certain construction costs for Phase I of the project, and an asset management fee of $ 150 thousand per year starting 15 months after construction starts on the project payable from available cash flow after debt service.

Also in first-quarter 2023, the Holden Hills partnership entered into a loan agreement with Comerica Bank to finance the development of Phase I of the project.

Refer to Note 6 for discussion of the loan agreement.

Accounting for Limited Partnerships.

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

and The Saint Mary, L.P.

and Holden Hills, L.P.

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

Accordingly, the partnerships’ results are consolidated in Stratus’ financial statements.

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

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

September 30,

2022 December 31,

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

The cash and cash equivalents held at these limited partnerships are subject to restrictions on distribution to the parent company pursuant to the individual partnership loan agreements.

Stratus’ consolidated balance sheets include the following assets and liabilities of the partnerships, net of intercompany balances, which are eliminated (in thousands):

Cash and cash equivalents $ 5,897 $ 7,744

Restricted cash — 11,809

Real estate under development 140,252 107,968

7 unchanged sentences

Net assets $ 113,766 $ 88,005

Includes the assets and liabilities of the Holden Hills partnership, which was formed in January 2023.

Substantially all of the assets are available to settle obligations only of the partnerships.

All of the debt is guaranteed by Stratus until certain conditions are met in the individual partnership loan agreements.

The creditors for the remaining liabilities do not have recourse to the general credit of Stratus.

Block 21 - Discontinued Operations.

Block 21 was Stratus’ wholly owned mixed-use real estate property in downtown Austin, Texas containing the 251 -room W Austin Hotel and Austin City Limits Live at the Moody Theater, a 2,750 -seat entertainment venue, Class A office space, retail space and the 3TEN ACL Live entertainment venue.

On May 31, 2022, Stratus completed the previously announced sale of Block 21 to Ryman Hospitality Properties, Inc.

1 unchanged sentence

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 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.

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

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

In 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.

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

In accordance with accounting guidance, Stratus reported the results of operations of Block 21 as discontinued operations in the consolidated statement of comprehensive income for first-quarter 2022 because the disposal represents a strategic shift that had a major effect on operations.

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

The carrying amounts of Block 21's major classes of assets and liabilities in the consolidated balance sheet at December 31, 2021, follow (in thousands):

Cash and cash equivalents $ 9,172

Restricted cash a

Real estate held for investment, net 120,452

Other assets 2,985

Total assets $ 151,053

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

Other liabilities 10,213

Total liabilities $ 153,097

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 (loss) income consist of the following (in thousands):

Three Months Ended Nine Months Ended

September 30, September 30,

2022 2021 2022 2021

Three Months Ended

Hotel $ 5,871

3 unchanged sentences

Cost of sales:

Hotel — 4,312 9,230 11,076

Entertainment 4,139

1 unchanged sentence

Depreciation b

— 1,360 — 4,134

Total cost of sales 9,353

General and administrative expenses 100

Gain on sale of assets — — ( 119,695 ) —

Operating income (loss) — 425 125,239 ( 3,910 )

Operating income 2,484

Interest expense, net ( 1,945 )

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.

Provision for income taxes ( 164 )

Net income from discontinued operations $ 375

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

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 $ 210 thousand in third-quarter 2021, $ 213 thousand for the first nine months of 2022 and $ 475 thousand the first nine months of 2021.

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

The Oaks at Lakeway.

2 unchanged sentences

The parties entered into three master lease agreements at closing:

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

15 -year term (the Pad Site Master Lease).

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

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

5 unchanged sentences

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 $ 74 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 nine months of 2022.

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.

A contract liability is presented as a deferred gain in the consolidated balance sheets in the amount of $ 3.3 million at March 31, 2023 and $ 3.5 million at December 31, 2022.

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

The remaining deferred gain balance is expected to be reduced primarily by future Pad Site Master Lease payments.

The Saint Mary.

In January 2021, The Saint Mary, L.P.

sold The Saint Mary for $ 60.0 million.

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

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

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

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

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

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

Kingwood Place 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,

2023 December 31,

7 unchanged sentences

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

September 30,

2023 December 31,

Comerica Bank credit facility $ — $ —

Comerica Bank revolving credit facility $ — $ —

Jones Crossing loan 23,938 24,143

1 unchanged sentence

New Caney land loan — 4,047

Paycheck Protection Program loan

Construction loans:

5 unchanged sentences

West Killeen Market

Amarra Villas credit facility 5,574 1,605

Amarra Villas revolving credit facility 7,446 5,366

Total debt a b

$ 128,336 $ 122,765

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.

Refer to Note 4 for further discussion.

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 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.

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

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

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.

Includes net reductions for unamortized debt issuance costs of $ 1.0 million at March 31, 2023, and $ 1.1 million at December 31, 2022.

The Saint George and Holden Hills construction loans did not have outstanding balances at March 31, 2023 or December 31, 2022 (for The Saint George construction loan).

Comerica Bank revolving credit facility.

As of March 31, 2023, Status had $ 42.7 million available under the Comerica Bank revolving credit facility.

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

In March 2023, Stratus entered into a modification of the revolving credit facility, which extended the maturity date of the revolving credit facility to March 27, 2025, and increased the floor of the facility’s benchmark rate, the Bloomberg Short-Term Bank Yield Index (BSBY) Rate.

As amended, advances under the revolving credit facility bear interest at the one-month BSBY Rate (with a floor of 0.50 percent) plus 4.00 percent.

Jones Crossing loan.

The Jones Crossing loan requires a debt service coverage ratio (DSCR) of 1.15 to 1.00 measured quarterly beginning with the quarter ending September 30, 2022.

If the DSCR falls below 1.15 to 1.00, a “Cash Sweep Period” (as defined in the Jones Crossing loan) results, which limits Stratus’ ability to receive cash from its Jones Crossing subsidiary.

The DSCR fell below 1.15 to 1.00 in each of fourth-quarter 2022 and first-quarter 2023, and the Jones Crossing subsidiary made principal payments of $ 231 thousand and $ 1.7 million in February

2023 and May 2023, respectively, to bring the DSCR back above 1.15 to 1.00 and a Cash Sweep Period did not occur.

The Annie B land loan.

In February 2023, Stratus Block 150, L.P.

entered into a modification agreement that extended the maturity date of The Annie B land loan to March 1, 2024, and changed the interest rate to the BSBY Rate (with a floor of 0.50 percent) plus 3.00 percent.

In connection with the modification agreement, Stratus Block 150, LP, escrowed an interest reserve of $ 0.6 million with the lender.

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 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.

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

The PPP loan matured and the remaining balance was repaid by Stratus in April 2022.

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

Lantana Place construction loan.

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.

In June 2022, Stratus and Southside Bank amended the West Killeen Market construction loan.

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

Amarra Villas credit facility.

In June 2022, Stratus subsidiaries and Comerica Bank entered into a modification agreement pursuant to which the commitment amount of the Amarra Villas credit facility was increased from $ 15.0 million to $ 18.0 million, the interest rate was changed to the one-month BSBY Rate (with a floor of 0.0 percent ) plus 3.0 percent, and the maturity date was extended to June 19, 2024.

The Saint George construction loan.

In July 2022, The Saint George Apartments, L.P., a Stratus subsidiary entered into a $ 56.8 million loan with Comerica Bank to provide financing for the construction of The Saint George multi-family project.

The construction loan has a maturity date of July 19, 2026, with two options to extend the maturity for an additional 12 months, subject to satisfying specified conditions, including the applicable debt service coverage ratios, and the payment of an extension fee for each extension.

Advances under the construction loan bear interest at the one-month BSBY Rate (with a floor of 0.0 percent ) plus 2.35 percent.

Payments of interest only on the construction loan are due monthly through July 19, 2026, with the outstanding principal due at maturity.

During any extension periods, the principal balance of the construction loan will be payable in monthly installments of principal and interest based on a 30-year amortization calculated at 6.50 percent with the outstanding principal due at maturity.

The construction loan may be prepaid without premium or penalty.

Borrowings on the construction loan are secured by The Saint George project and are guaranteed by Stratus.

Stratus provided a full completion guaranty and 25 percent repayment guaranty, which will be eliminated once the project meets specified conditions including a debt service coverage ratio of at least 1.20 to 1.00 and confirmation that the loan-to-value ratio does not exceed 65 percent.

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

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

The Saint George Apartments, L.P.

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.

In March 2023, the New Caney land loan was repaid.

The Saint June construction loan.

In January 2023, The Saint June construction loan was amended to change the interest rate for the loan to Term Secured Overnight Financing Rate (SOFR) with a floor of 0.75 percent plus 2.85 percent, subject to a 3.50 percent floor.

Magnolia Place construction loan.

In May 2023, the Magnolia Place construction loan was amended to change the interest rate for the loan to Term SOFR with a floor of 0.00 percent plus 3.36 percent, subject to a 3.50 percent floor.

Amarra Villas revolving credit facility.

In March 2023, Stratus made a $ 2.2 million principal payment on the Amarra Villas revolving credit facility upon the closing of a sale of one of the Amarra Villas homes.

Holden Hills construction loan.

In first-quarter 2023, the Holden Hills partnership entered into a loan agreement with Comerica Bank to finance the development of Phase I of the Holden Hills project.

The loan agreement provides for a senior secured construction loan in the aggregate principal amount of the least of (i) $ 26.1 million, (ii) 23 percent of the total development costs for Phase I or (iii) the amount that would result in a maximum loan-to-value ratio of 28 percent.

The loan has a maturity date of February 8, 2026.

Advances under the loan bear interest at the one-month BSBY Rate (with a floor of 0.50 percent), plus 3.00 percent.

Payments of interest only on the loan are due monthly until the maturity date with the outstanding principal due at maturity.

The Holden Hills partnership may prepay all or any portion of the loan without premium or penalty.

Amounts repaid under the loan may not be reborrowed.

The loan is secured by the Holden Hills project, including the land related to both Phase I and Phase II, and the Phase I improvements.

After completion of construction of Phase I, the Holden Hills partnership may sell and obtain releases of the liens on single-family platted home sites, individual pods or the Phase II land, subject to specified conditions, and upon payment to the lender of specified amounts related to the parcel to be released.

The Holden Hills partnership is not permitted to make distributions to its partners, including Stratus, while the loan is outstanding.

The Holden Hills partnership must apply all Municipal Utility District (MUD) reimbursements it receives and is entitled to retain as payments of principal on the loan.

Stratus has entered into a guaranty for the benefit of the lender pursuant to which Stratus has guaranteed the payment of the loan and the completion of Phase I, including the Tecoma Improvements (which benefit both the Holden Hills Project and Section N).

Stratus is also liable for customary carve-out obligations and an environmental indemnity.

Stratus must maintain, on a consolidated basis, a net asset value not less than $ 125.0 million, and a debt-to-gross-asset value not more than 50 percent (in each case as defined in the guaranty).

For additional information regarding Stratus' debt, refer to Note 6 in the Stratus 2022 Form 10-K.

Interest Expense and Capitalization.

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.

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.

Interest costs (before capitalized interest) totaled $ 2.4 million in first-quarter 2023 and $ 1.1 million in first-quarter 2022.

Stratus' capitalized interest totaled $ 2.4 million in first-quarter 2023 and $ 1.1 million in first-quarter 2022.

Capitalized interest is primarily related to development activities at Barton Creek (primarily Holden Hills, Section N and The Saint June), The Saint George and The Annie B for both periods presented.

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

which was paid on September 29, 2022 to shareholders of record as of September 19, 2022.

Accrued liabilities included $ 1.1 million as of March 31, 2023, and $ 1.3 million as of December 31, 2022, representing dividends accrued for unvested RSUs in accordance with the terms of the awards.

The accrued dividends are paid to the holders of the RSUs as the RSUs vest.

In 2022, with written consent from Comerica Bank, Stratus’ Board also approved a 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

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

In first-quarter 2023, Stratus acquired 43,624 shares of its common stock under the share repurchase program for a total cost of $ 0.9 million at an average price of $ 20.49 per share.

Through May 10, 2023, Stratus has acquired 359,553 shares of its common stock for a total cost of $ 9.2 million at an average price of $ 25.64 per share, and $ 0.8 million remains available for repurchases under the program.

PROFIT PARTICIPATION INCENTIVE PLAN AND LONG-TERM INCENTIVE PLAN

In July 2018, the Compensation Committee adopted the PPIP.

In February 2023, the Committee approved the LTIP, which amends and restates the PPIP, and is effective for participation interests awarded under development projects on or after its effective date.

As of March 31, 2023, there were not yet any participation interests awarded under the LTIP.

Outstanding participation interests granted under the PPIP will continue to be governed by the terms of the prior PPIP.

The PPIP and LTIP provide participants with economic incentives tied to the success of the development projects designated by the Committee as approved projects under the PPIP and LTIP.

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.

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

Refer to Notes 1 and 8 of the Stratus 2022 Form 10-K for further discussion.

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

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

The profit pool was $ 3.9 million, of which $ 0.2 million was paid in cash during February 2022 and the remaining accrued liability of $ 3.7 million was settled in RSUs with a three-year vesting period awarded to eligible participants during second-quarter 2022 following stockholder approval of Stratus’ new stock incentive plan.

The profit pool was $ 3.9 million, of which $ 0.2 million was paid in cash during February 2022 and the remaining $ 3.7 million was settled in RSUs with a three-year vesting period awarded to eligible participants during second-quarter 2022 following stockholder approval of Stratus’ new stock incentive plan.

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

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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.

Of the remaining amount, $ 1.6 million 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.

Under the terms of the PPIP and LTIP, 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.

For the RSUs awarded in connection with Lantana Place and The Santal, the aggregate grant date value was $ 2.1 million greater than the accrued liability for the two projects as a result of this different valuation methodology.

During second-quarter 2022, Stratus transferred the $ 5.3 million accrued liability balance under the PPIP for Lantana Place and The Santal that was settled in RSUs to capital in excess of par value and is amortizing the $ 2.1 million balance of the grant-date value with a charge to general and administrative expenses and a credit to capital in excess of par value over the three-year or one-year vesting periods of the related RSUs.

During second-quarter 2022, Stratus transferred the $ 5.3 million accrued liability balance under the PPIP for Lantana Place and The Santal that was settled in RSUs to capital in excess of par value and is amortizing the $ 2.1 million excess of the grant-date value over the accrued liability with a charge to general and administrative expenses and a credit to capital in excess of par value over the three-year or one-year vesting periods of the related RSUs.

A summary of PPIP costs follows (in thousands):

Three Months Ended Nine Months Ended

September 30, September 30,

2022 2021 2022 2021

Three Months Ended

Charged to general and administrative expense

$ 135 $ 2,751 $ 269 $ 3,495

Capitalized to project development costs 110 51

Total PPIP costs

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

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).

The accrued liability for the PPIP totaled $ 3.2 million at March 31, 2023, and $ 3.0 million at December 31, 2022 (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 2022 Form 10-K.

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.

Stratus has a full valuation allowance against its U.S.

Federal net deferred tax assets as of both March 31, 2023 and December 31, 2022.

Stratus has recorded a deferred tax asset totaling $ 38 thousand at both March 31, 2023 and December 31, 2022 related to state income taxes.

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 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.

During 2023, Stratus expects to incur current state income taxes in addition to U.S.

Federal current income taxes primarily associated with taxable income generated from cash received in the Holden Hills transaction.

The difference between Stratus' consolidated effective income tax rate of ( 23 ) percent for first-quarter 2023 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 its U.S.

Federal net deferred tax assets as of March 31, 2023, and the executive compensation limitation.

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

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

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

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 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.

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Real Estate Operations and Leasing Operations.

Block 21, which encompassed Stratus’ hotel and entertainment segments, along with some leasing operations, is reflected as discontinued operations through its sale in May 2022.

The Real Estate Operations segment is comprised of Stratus’ real estate assets (developed for sale, under development and available for development), which consists of its properties in Austin, Texas (including Section N, Holden Hills, Amarra multi-family and commercial land, Amara Villas, The Saint June and other vacant land in the Barton Creek community;

Block 21, which encompassed Stratus’ Hotel and Entertainment segments, along with some leasing operations, is presented as discontinued operations.

The Real Estate Operations segment is comprised of Stratus’ real estate assets (developed for sale, under development and available for development), which consists of its properties in Austin, Texas (including the Barton Creek Community, which includes Section N, Holden Hills, Amarra multi-family and commercial land, Amarra Villas, The Saint June, Amarra Drive lots and other vacant land;

the Circle C community;

the Lantana community, including a portion of Lantana Place planned for a multi-family phase now known as The Saint Julia;

the Lantana community, which includes a portion of Lantana Place planned for a multi-family phase now known as The Saint Julia;

The Saint George;

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

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

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.

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

in College Station, Texas (land for future phases of retail and multi-family development and retail pad sites at Jones Crossing);

and in Magnolia, Texas (land for a future phase of retail development and for future multi-family use and retail pad

sites at Magnolia Place), Kingwood, Texas (a retail pad site) and New Caney, Texas (New Caney), each located in the greater Houston area.

The Leasing Operations segment is comprised of Stratus’ real estate assets held for investment that are leased or available for lease and includes retail space at West Killeen Market, Lantana Place, Kingwood Place and the completed portions of Jones Crossing and Magnolia Place and retail pad sites subject to ground leases at Lantana Place, Kingwood Place and Jones Crossing.

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

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

Three Months Ended Nine Months Ended

September 30, September 30,

2022 2021 2022 2021

Three Months Ended

Real Estate Operations:

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Commissions and other — 19

6,887 892 14,831 8,216

Leasing Operations:

Rental revenue 3,309 3,080

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

Total revenues from contracts with customers $ 5,802 $ 3,099

Financial Information by Business Segment.

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):

Summarized financial information by segment for the three months ended March 31, 2023, based on Stratus’ internal financial reporting system utilized by its chief operating decision maker, follows (in thousands):

Leasing Operations Corporate, Eliminations and Other b

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Cost of sales, excluding depreciation ( 4,487 ) ( 1,261 ) — ( 5,748 )

Depreciation 24 887 ( 4 ) 907

Depreciation and amortization ( 27 ) ( 906 ) 5 ( 928 )

General and administrative expenses — — ( 4,719 ) ( 4,719 )

Impairment of real estate c

Operating (loss) income $ ( 2,021 ) $ 1,142 $ ( 4,714 ) $ ( 5,593 )

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$ 9,027 $ 10,006 $ — $ 19,033

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

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

Depreciation 37 1,449 ( 14 ) 1,472

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 )

Capital expenditures and purchases and development of real estate properties

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

Total assets at September 30, 2021 e

Total assets at March 31, 2023 c

307,571 109,136 63,012 479,719

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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):

Corporate, eliminations and other includes cash, cash equivalents and restricted cash of $ 57.0 million.

Summarized financial information by segment for the three months ended March 31, 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

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Cost of sales, excluding depreciation ( 1,366 ) ( 984 ) — ( 2,350 )

Depreciation 73 2,604 ( 13 ) 2,664

Depreciation and amortization ( 25 ) ( 852 ) 4 ( 873 )

General and administrative expenses — — ( 3,167 ) ( 3,167 )

1 unchanged sentence

— 4,812 — 4,812

Impairment of real estate d

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

Capital expenditures and purchases and development of real estate properties

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

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

Intersegment 9 — ( 9 ) —

Cost of sales, excluding depreciation 8,026

6,482 ( 25 ) 14,483

149 4,525 ( 50 ) 4,624

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 $ ( 1,368 ) $ 6,056 $ ( 3,167 ) $ 1,521

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

Capital expenditures and purchases and development of real estate properties

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

Total assets at March 31, 2022 d

254,212 106,652 183,904 544,768

Includes sales commissions and other revenues together with related expenses.

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

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.

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

Corporate, eliminations and other includes $ 151.2 million of assets held for sale associated with discontinued operations at Block 21 and cash, cash equivalents and restricted cash of $ 15.8 million.

SUBSEQUENT EVENTS

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.

Stratus evaluated events after March 31, 2023, 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