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Item 2. Management’s Discussion and Analysis

2023-05-15 compared with 2022-11-14 · 275 added, 270 removed, 141 unchanged (79% of the section changed)

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You should read the following discussion in conjunction with our consolidated financial statements and accompanying notes, related MD&A and discussion of our business and properties included in our Annual Report on Form 10-K for the year ended December 31, 2022 (2022 Form 10-K) filed with the United States (U.S.) Securities and Exchange Commission (SEC) and the unaudited consolidated financial statements and accompanying notes included in this Form 10-Q.

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

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

“Risk Factors” of our 2022 Form 10-K for further discussion).

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We are a diversified real estate company with headquarters in Austin, Texas.

We are engaged primarily in the acquisition, entitlement, development, management, leasing and sale of multi-family and single-family residential real estate properties and commercial properties in the Austin, Texas area and other select markets in Texas.

We generate revenues and cash flows from the sale of our developed and undeveloped properties and the lease of our retail, mixed-use and multi-family properties.

Our portfolio consists of approximately 1,700 acres of undeveloped acreage and acreage under development for commercial and multi-family and single-family residential projects, as well as several completed commercial and residential projects.

We are engaged primarily in the acquisition, entitlement, development, management, leasing and sale of multi-family and single-family residential and commercial real estate properties in the Austin, Texas area and other select markets in Texas.

In addition to our developed properties, we have a development portfolio that consists of approximately 1,600 acres of commercial and multi-family and single-family residential projects under development or undeveloped land held for future use.

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

BUSINESS STRATEGY

Results of Our Strategic Planning Process;

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.

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.

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.

Our primary business objective is to create value for stockholders by methodically developing and enhancing the value of our properties and then selling them or holding them for lease.

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

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

We are focused 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.

Refer to “Business Strategy” in MD&A in our 2022 Form 10-K for a discussion of the evolution of our strategy during 2022.

We do not currently have any material commitments to contribute additional cash to our joint venture projects or wholly owned development projects other than the potential additional $10.0 million of capital that we may be required to contribute to our Holden Hills limited partnership and our share (related to Section N) of the cost of the Tecoma Improvements discussed below under “Recent Development Activities – Current Residential Activities – Barton Creek – Holden Hills.” However, our development plans for future projects require significant additional capital.

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.

Our main sources of revenue and cash flow are expected to be sales of our properties to third parties or distributions from joint ventures, 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 rental income 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.

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.

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 have undeveloped properties currently undergoing active planning.

Refer to “Recent Development Activities” below and Items 1.

“Business and Properties” in our 2022 Form 10-K for a discussion of these projects.

While uncertainty in the market, primarily due to the increasing costs of construction materials and labor, rising interest rates and recent disruptions in the banking industry due to some highly-publicized bank failures, 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

Sources of Revenue and Income

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-centric mixed-use properties.

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

Multi-family and retail rental properties that we develop are reclassified to our Leasing Operations segment when construction is completed and they are ready for occupancy.

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 built on it.

Revenue in our Leasing Operations is generated from the lease of space at retail and mixed-use properties and residences in the multi-family properties that we developed.

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

Summary Financial Results for the First Quarter of 2023

Our revenues totaled $5.8 million in first-quarter 2023 compared with $3.1 million in first-quarter 2022.

The increase in revenues in first-quarter 2023, compared to first-quarter 2022, is primarily a result of the sale of one Amarra Villas home in first-quarter 2023.

Revenue in our Leasing Operations segment increased $0.2 million to $3.3 million in first-quarter 2023 compared with first-quarter 2022, primarily reflecting revenue from Magnolia Place, which had no rental revenue in first-quarter 2022, and increased revenue at Kingwood Place.

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

Our net loss attributable to common stockholders totaled $5.8 million, or $0.71 per diluted share in first-quarter 2023, compared to net income attributable to common stockholders of $2.3 million, or $0.27 per diluted share, in first-quarter 2022.

Our results for first-quarter 2022 included 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 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.

Sale of Block 21 in May 2022

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

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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.

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.

Block 21 was our wholly owned mixed-use real estate property in downtown Austin, Texas, containing the 251-room W Austin Hotel, 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.

The sale of Block 21 eliminated our Hotel and Entertainment segments.

As a result, our hotel and entertainment operations, as well as the leasing operations associated with Block 21, are reported as discontinued operations for all periods presented in the financial statements included in this Form 10-Q.

As a result, our hotel and entertainment operations, as well as the leasing operations associated with Block 21, are reported as discontinued operations for first-quarter 2022 presented in the consolidated financial statements included in this Form 10-Q.

Refer to Note 4 for further discussion.

As described in this report and in our 2021 Form 10-K, in December 2021, one of our wholly owned subsidiaries sold The Santal multi-family property for $152.0 million, which after closing costs and payment of the outstanding project loan, generated net proceeds of approximately $74 million.

In January 2021, one of our subsidiaries sold The Saint Mary multi-family property for $60.0 million of which we received $20.9 million after closing costs, payment of the construction loan, reserves for remaining costs of the partnership and distributions to noncontrolling interest owners.

Net proceeds from the sales were used to pay down the balance of our $60.0 million Comerica Bank credit facility and for other corporate purposes.

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-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.

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.

In addition to our developed properties, we have a development portfolio that consists of approximately 1,700 acres of commercial and multi-family and single-family residential projects under development or undeveloped land held for future use.

Revenue in our Leasing Operations is generated from the lease of space at retail and mixed-use properties that we developed and the lease of residences in the multi-family projects that we developed.

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

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 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 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 $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 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, 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 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.

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

RECENT DEVELOPMENT ACTIVITIES

Current Residential Activities

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.

We began construction on the next two Amarra Villas homes during first-quarter 2020, one of which was completed and sold for $2.4 million in second-quarter 2022.

In 2021, we began construction of one additional home and in March 2022, we began construction on another two homes.

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

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.

The discussion below focuses on our recent significant residential activity.

For a description of our properties containing additional information, refer to Items 1.

“Business and Properties” in our 2022 Form 10-K.

Amarra Villas.

The Villas at Amarra Drive (Amarra Villas) project is a 20-unit development in Barton Creek.

In first-quarter 2023, we completed and sold one home for $2.5 million.

Construction on the last ten units continues to progress, and as of May 10, 2023, one home was under contract to sell and nine homes remain available for sale.

The Saint June.

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 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.

The first units are expected to be ready for occupancy in June 2023, and the project is expected to be completed in third-quarter 2023.

Holden Hills.

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

Phases I and II of the Holden Hills development plan encompass the development of the home sites.

Phase I is expected to consist of 337 luxury residence sites to be developed in nine distinct communities or “pods,” and 12 single-family platted home sites or “estate lots,” and includes related amenities and infrastructure.

Phase I also includes the Tecoma Improvements, described below.

Phase II is expected to consist of 63 luxury residence sites to be developed in five pods, and 63 single-family platted estate lots, and includes related amenities and infrastructure.

The luxury residences are expected to range in size from 2,000 square feet to 4,600 square feet.

The estate lots are expected to range in size from 0.9 acres to 2.7 acres.

We entered into a limited partnership agreement with a third-party equity investor for this project in January 2023, and in February 2023 obtained construction financing for Phase I of the project and commenced infrastructure construction.

We contributed to the joint venture the Holden Hills land and related personal property at an agreed value of $70.0 million and our 50.0 percent partner contributed $40.0 million in cash.

Immediately thereafter, the Holden Hills partnership distributed $30 million of cash to us.

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

We consolidate the Holden Hills limited partnership, and the contribution from our partner was accounted for as a noncontrolling interest.

Refer to Notes 3 and 6 for further discussion.

We and the equity investor have agreed to contribute up to an additional $10 million each to the partnership if called upon by the general partner.

The initial and potential additional equity contributions are projected to constitute a sufficient amount of equity capital to develop both Phase I and Phase II of the Holden Hills project.

The partnership anticipates securing additional debt financing for the development of Phase II.

The construction of homes on the pods or estate lots would require additional capital.

We expect to complete site work for Phase I, including the construction of road, utility, drainage and other required infrastructure, in late 2024.

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 adjacent to Holden Hills.

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 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.

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

Pods and estate lots may also be acquired from the Holden Hills partnership by a limited partner for further development under procedures approved by the partners.

We entered into a development agreement with the Holden Hills partnership (Development Agreement) that provides that, as part of Phase I, 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 us from its current terminus to Southwest Parkway, estimated to cost approximately $14.7 million (the Tecoma

Improvements).

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

Pursuant to the Development Agreement, we will reimburse the Holden Hills partnership for 60 percent of the costs of the Tecoma Improvements.

We have posted standby letters of credit with the City of Austin under our revolving credit facility with Comerica Bank totaling approximately $11 million as fiscal security for completion of certain infrastructure improvements benefiting the Holden Hills project and has agreed to leave such fiscal security in place until the improvements are completed.

The Holden Hills partnership is expected to be eligible to be reimbursed in the future by Travis County Municipal Utility Districts (MUD) for a portion of costs of the Tecoma Improvements and also for a portion of costs related only to the Holden Hills project, with such MUD reimbursements currently estimated to be up to a maximum of $6.4 million for the Tecoma Improvements and $8.0 million for only the Holden Hills project.

The Holden Hills partnership has agreed to deliver to us 60 percent of any MUD reimbursements for Tecoma Improvement costs paid directly by us, when such reimbursements are received by the partnership.

The amount and timing of MUD reimbursements depends upon, among other factors, the amount and timing of actual costs incurred, the MUD having a sufficient tax base within its district to issue bonds and obtaining the necessary state approval for the sale of the bonds.

Accordingly, the amount and timing of the receipt of MUD reimbursements is uncertain.

Using an entitlement strategy 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 adjacent to Holden Hills.

We are designing a dense, mid-rise, mixed-use project, with extensive multi-family and retail components, coupled with limited office, entertainment and hospitality uses, surrounded by an extensive outdoor recreational and greenspace amenities, which are expected to result in a significant increase in development density as compared to our prior plans.

The Saint George

In December 2021, we purchased the land for The Saint George, a 316-unit luxury wrap-style, multi-family project to be constructed in north-central Austin.

We entered into a construction loan for this project in July 2022 and began construction in third-quarter 2022.

In fourth-quarter 2021, we purchased the land for The Saint George, a 316-unit luxury wrap-style, multi-family project in north-central Austin.

We entered into a construction loan for this project and began construction in third-quarter 2022.

We currently expect to achieve substantial completion by mid-2024.

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.

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

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.

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.

“Business and Properties” in our 2021 Form 10-K.

In third-quarter 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.

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 Julia

We have advanced development plans for The Saint Julia, a 306-unit multi-family project that is part of Lantana Place, a partially developed, mixed-use development project located south of Barton Creek in Austin.

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

Other Residential

In October 2022, we entered into a contract to sell approximately 11 acres planned for 275 multi-family units in Magnolia Place for $4.3 million, which is currently expected to close by mid-2024.

Upon the anticipated closing of the sale, we would have 18 acres planned for up to 600 multi-family units remaining in Magnolia Place.

We continue to evaluate options for the 21-acre multi-family component of Jones Crossing, an H-E-B grocery anchored, mixed-use development located in College Station, Texas.

We are also evaluating options for a multi-family project on our remaining land in Lakeway, Texas.

Current Commercial Activities

The discussion below focuses on our recent significant commercial activity.

For a description of our properties containing additional information, refer to Items 1.

“Business and Properties” in our 2022 Form 10-K.

Magnolia Place

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 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.

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 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.

Kingwood Place

Kingwood Place is our H-E-B-anchored, mixed-use development project in Kingwood, Texas (in the greater Houston area).

We have constructed approximately 152,000 square feet of retail space at Kingwood Place, including an H-E-B grocery store, and we have signed ground leases on four of the retail pads.

One pad site remains available for lease.

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.

The retail component of Magnolia Place, our H-E-B shadow-anchored retail project in Magnolia, Texas, is currently planned to consist of up to four retail buildings totaling approximately 34,000 square feet and up to nine retail pad sites to be sold or ground leased.

The first phase of development consists of two retail buildings totaling 18,582

square feet, all pad sites, and the road, utility and drainage infrastructure necessary to support the entire development.

Except for a storm water drainage pond and certain City of Magnolia water supply upgrades, which are expected to be completed by the end of 2023, the first phase of development was completed in third-quarter 2022, and the two retail buildings were turned over to our retail tenants to begin their finish-out process.

As of March 31, 2023, we had signed leases for all the retail space in the first phase of development.

We sold two retail pad sites in 2022 for a total of $3.4 million, leaving up to seven additional pad sites available for lease or sale.

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 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 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.

“Business and Properties” in our 2021 Form 10-K.

Jones Crossing, our H-E-B shadow-anchored mixed-use project in College Station, Texas, the location of Texas A&M University, has additional commercial development potential of approximately 104,750 square feet of commercial space.

Other Commercial

We also own and operate the following stabilized retail projects that we developed:

• West Killeen Market is our H-E-B shadow-anchored retail project in West Killeen, Texas, near Fort Hood.

As of March 31, 2023, we had signed leases for approximately 74 percent of the 44,493-square-foot retail space.

• At Jones Crossing , as of March 31, 2023, we had signed leases for substantially all of the completed retail space, including the H-E-B grocery store, totaling 154,117 square feet, and a ground lease on one retail pad site.

Four retail pad sites remain available for lease.

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

As of March 31, 2023, we had signed leases for approximately 90 percent of the 99,379-square-foot retail space, including the anchor tenant, Moviehouse & Eatery, and a ground lease for an AC Hotel by Marriott that opened in November 2021.

• Kingwood Place is our H-E-B-anchored, mixed-use development project in Kingwood, Texas (in the greater Houston area).

We have constructed 151,855 square feet of retail space at Kingwood Place, including an H-E-B grocery store, and as of March 31, 2023, we had signed leases for approximately 96 percent of the retail space, including the H-E-B grocery store.

We have also signed ground leases on four of the retail pad sites.

One retail pad site remains available for lease.

Potential Development Projects and Pipeline

Our development plans for The Annie B, Holden Hills, Section N and The Saint Julia will require significant additional capital, which we currently intend to pursue through project-level debt and third-party equity capital arrangements through joint ventures in which we receive development management fees and asset management fees, and with our potential returns increasing above our relative equity interest in each project as negotiated return hurdles are achieved.

Our development plans for The Annie B, Section N and The Saint Julia will require significant additional capital, which we currently intend to pursue through project-level debt and third-party equity capital arrangements through joint ventures in which we receive development management fees and asset management fees and with our potential returns increasing above our relative equity interest in each project as negotiated return hurdles are achieved.

We anticipate seeking additional debt to finance the development of Phase II of Holden Hills.

We are also pursuing other development projects.

These potential development projects and projects in our pipeline require extensive additional permitting and will be dependent on market conditions and financing.

These potential development projects and projects in our pipeline could require extensive additional permitting and will be dependent on market conditions and financing.

Because of the nature and cost of the approval and development process and uncertainty regarding market demand for a particular use, there is uncertainty regarding the nature of the final development plans and whether we will be able to successfully execute the plans.

Market Conditions

During 2022, the U.S.

economy experienced steep rises in inflation and interest rates.

Refer to “Debt Maturities and Other Contractual Obligations” below for further discussion about the increase in interest rates.

Our industry has been experiencing construction and labor cost increases, supply chain constraints, labor shortages, higher borrowing costs and tightening bank credit.

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 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.

In addition, because all of our debt is subject to variable interest rates, we are experiencing increased borrowing costs, and our developed properties are experiencing increased operating costs due to inflation.

Refer to Part I, Item 1A.

“Risk Factors” of our 2022 Form 10-K.

RESULTS OF OPERATIONS

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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.

Corporate, eliminations and other include 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 Nine Months Ended

September 30, September 30,

2022 2021 2022 2021

Three Months Ended

Operating (loss) income:

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Leasing Operations b

853 1,689 8,374 26,981

Corporate, eliminations and other c

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

Net (loss) income from discontinued operations d

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

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

Net income from discontinued operations $ — $ 375

Net (loss) income attributable to common stockholders

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Includes sales commissions and other revenues together with related expenses.

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.

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

First-quarter 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 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.

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 $3.8 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:

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

Real Estate Operations and Leasing Operations (refer to Note 9).

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

Three Months Ended Nine Months Ended

September 30, September 30,

2022 2021 2022 2021

Three Months Ended

Developed property sales $ 2,493 $ —

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Cost of sales, including depreciation (4,514) (1,391)

Impairment of real estate 720 625 720 625

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

Operating loss $ (2,021) $ (1,368)

Developed Property Sales.

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

Nine Months Ended September 30,

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

Three Months Ended March 31,

Homes Revenues Average Cost Per Home Homes Revenues Average Cost Per Home

Amarra Drive:

Amarra Villas homes 1 $ 2,493 $ 2,172 — $ — $ —

Phase III lots — — — 3 2,215 299

W Austin Hotel & Residences Project

Condominium Unit — — — 1 2,400 1,721

Total Residential 1 $ 2,493 — $ —

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.

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.

The increase in revenues from developed property sales for first-quarter 2023, compared to first-quarter 2022, reflects the sale of one Amarra Villas home compared to no sales in first-quarter 2022.

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 $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.

Cost of sales includes costs of property sold, project operating and marketing expenses and allocated overhead costs.

Cost of sales increased to $4.5 million in first-quarter 2023 compared to $1.4 million in first-quarter 2022, primarily reflecting the sale of one Amarra Villas home in first-quarter 2023 while the absence of sales in first-quarter 2022 resulted in no cost of property sold.

Leasing Operations

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

Three Months Ended Nine Months Ended

September 30, September 30,

2022 2021 2022 2021

Three Months Ended

Rental revenue $ 3,309 $ 3,080

Rental cost of sales, excluding depreciation (1,261)

2,238 3,204 6,482

Depreciation (906) (852)

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Rental Revenue.

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 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.

In first-quarter 2023, rental revenue primarily included revenue from Lantana Place, Kingwood Place, Jones Crossing, West Killeen Market and Magnolia Place.

In first-quarter 2022, rental revenue primarily included revenue from Lantana Place, Jones Crossing, Kingwood Place and West Killeen Market.

The increase in rental revenue in first-quarter 2023, compared with first-quarter 2022, primarily reflects revenue from Magnolia Place, which had no rental revenue in first-quarter 2022, and increased revenue at Kingwood Place.

Rental Cost of Sales and Depreciation.

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.

Rental cost of sales and depreciation expense increased in first-quarter 2023 compared with first-quarter 2022, primarily as a result of The Saint June and Magnolia Place, both of which had no operating expenses in first-quarter 2022, and costs of landscaping repairs and replacements at retail properties following the Texas winter storm in February 2023.

Gain on Sale of Assets.

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.

In first-quarter 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.

In January 2021, one of our subsidiaries 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, 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 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 $3.6 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.

Consolidated general and administrative expenses increased to $4.7 million in first-quarter 2023 compared to $3.2 million in first-quarter 2022 primarily as a result of higher compensation costs for salary increases, estimated cash incentive awards for 2023, as well as restricted stock units (RSUs) granted in second-quarter 2022 in connection with the Profit Participation Incentive Plan (PPIP) payouts for Lantana Place and The Santal.

Fees related to a new consulting arrangement in 2023 to help raise third-party equity capital and office rent, which was eliminated in consolidation prior to the sale of Block 21, also contributed to the increase.

Non-Operating Results

Interest Expense, Net.

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.

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.

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

Interest costs in first-quarter 2023 were higher, compared to first-quarter 2022, primarily reflecting rising interest rates as well as an increase in average debt balances.

As of March 31, 2023, all of our debt was variable-rate debt, and for all of such debt, the interest rates have increased over the past year, including for first-quarter 2023, and may continue to rise in the future if prevailing market interest rates continue to climb.

Capitalized interest totaled $2.4 million in first-quarter 2023 compared to $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.

(Provision for) Benefit from Income Taxes.

We recorded a provision for income taxes of $1.2 million in first-quarter 2023 compared to a benefit from income taxes of $0.3 million in first-quarter 2022.

Refer to Note 8 for further discussion of income taxes.

Net Income (Loss) from Discontinued Operations.

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 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.

Net Income from Discontinued Operations.

As a result of the sale of Block 21 in May 2022, we did not have any net income from discontinued operations in first-quarter 2023 compared to $0.4 million in first-quarter 2022.

Total Comprehensive Loss Attributable to Noncontrolling Interests in Subsidiaries .

Our partners' share of losses totaled $0.5 million in first-quarter 2023 compared to $0.1 million in first-quarter 2022.

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 Nine Months Ended September 30, 2022 and 2021

Comparison of Cash Flows for the Three Months Ended March 31, 2023 and 2022

Operating Activities.

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.

Cash used in operating activities totaled $18.4 million in first-quarter 2023, compared with $18.1 million in first-quarter 2022.

Expenditures for purchases and development of real estate properties totaled $9.0 million in first-quarter 2023 and $4.9 million in first-quarter 2022, 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 in first-quarter 2023 and first-quarter 2022 are primarily related to the timing of property tax payments.

The cash outflow resulting from the increase in other assets in first-quarter 2022 is primarily related to a $4.0 million deposit that we delivered to the City of Austin to secure our obligation to construct certain subdivision improvements related to the Holden Hills project.

Investing Activities.

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.

Cash used in investing activities totaled $10.2 million in first-quarter 2023 and $14.9 million in first-quarter 2022.

Capital expenditures totaled $10.0 million in first-quarter 2023, primarily for The Saint June and The Saint George, and $14.7 million in first-quarter 2022, primarily for The Saint June and Magnolia Place.

Financing Activities.

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.

Cash provided by financing activities totaled $42.7 million in first-quarter 2023 and $13.5 million in first-quarter 2022.

In first-quarter 2023, we had no net borrowings on the Comerica Bank revolving credit facility, compared with net borrowings of $10.0 million in first-quarter 2022.

In first-quarter 2023, net borrowings on project and term loans totaled $5.1 million, primarily reflecting borrowings on The Saint June construction loan and the Amarra Villas revolving credit facility, partially offset by the payoff of the New Caney land loan.

In first-quarter 2022 net borrowings on project and term loans totaled $3.9 million, primarily reflecting borrowings on the Magnolia Place construction loan.

Refer to “Revolving Credit Facility and Other Financing Arrangements” and “Debt Maturities and Other Contractual Obligations” below for a discussion of our outstanding debt at March 31, 2023.

In first-quarter 2023, we received a contribution from a noncontrolling interest owner of $40.0 million, related to the Holden Hills partnership.

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.

During first-quarter 2023, $0.2 million of accrued dividends for unvested RSUs were paid to the holders upon the vesting of the RSUs, leaving $1.1 million of dividends accrued for unvested RSUs presented in accrued liabilities as of March 31, 2023.

The remaining accrued dividends will be paid

to the holders of the RSUs as the RSUs vest.

In 2022, with written consent from Comerica Bank, our Board also approved a 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.

As of March 31, 2023, we had repurchased 338,324 shares of our common stock for a total of $8.8 million at an average price of $25.88.

Through May 10, 2023, we have acquired 359,553 shares of our 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.

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.

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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 $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.

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

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

and Note 6 in our 2021 Form 10-K.

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 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 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.

Revolving Credit Facility and Other Financing Arrangements

As of March 31, 2023, we had $50.9 million in cash and cash equivalents and restricted cash of $8.9 million, and no amount was borrowed under our revolving credit facility.

Of the $50.9 million in consolidated cash and cash equivalents at March 31, 2023, $5.9 million held at certain consolidated subsidiaries is subject to restrictions on distribution to the parent company pursuant to project loan agreements.

We have taken steps to obtain Federal Deposit Insurance Corporation (FDIC) protection for much of our deposits;

however, we typically have some cash balances on deposit with banks in excess of FDIC insured limits.

Any loss of uninsured deposits could have a material adverse effect on our future financial condition, liquidity and operations.

As of March 31, 2023, $46.9 million was invested in a FDIC insured cash sweep platform.

As of March 31, 2023, we had total debt of $129.4 million based on the principal amounts outstanding compared with $123.9 million at December 31, 2022.

As of March 31, 2023, the maximum amount that could be borrowed under the Comerica Bank revolving credit facility was $53.7 million, resulting in availability of $42.7 million, net of letters of credit totaling $11.0 million issued under the revolving credit facility to 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 March 31, 2023.

In March 2023, we entered into a modification of the revolving credit facility, which extended the maturity date to March 27, 2025 and increased the floor of the facility’s benchmark 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.

Refer to Note 6 for additional discussion.

In January 2023, The Saint June construction loan interest terms were modified.

In February 2023, The Annie B land loan’s maturity was extended to March 1, 2024 and the interest terms were modified.

Also in February 2023, our subsidiary Holden Hills, L.P.

entered into a $26.1 million construction loan with Comerica Bank due February 8, 2026 to finance the development of Phase I of the Holden Hills project.

In March 2023, we repaid the $4.1 million New Caney land loan.

In May 2023, the Magnolia Place construction loan interest terms were modified.

Refer to Note 6 for further discussion.

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

Refer to Note 6 and MD&A in our 2022 Form 10-K for a discussion of the financial covenants in our debt agreements.

As of March 31, 2023, we were in compliance with all of our financial covenants;

however, our Jones Crossing project did not pass the debt service coverage ratio (DSCR) test under the Jones Crossing loan.

The DSCR under the Jones Crossing loan is not a financial covenant;

however, to avoid a “Cash Sweep Period,” as defined in the loan agreement, we made a $1.7 million principal payment on the Jones Crossing loan in May 2023 to restore the DSCR to the required threshold.

Based on our current estimates of Jones Crossing operating income and interest rates, we believe additional principal payments in the aggregate of up to approximately $2.3 million over the next 12 months are likely to be required to maintain the DSCR and avoid a Cash Sweep Period.

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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make loans, advances or other investments;

create liens on assets;

create liens on

enter into sale-leaseback transactions;

enter into transactions with affiliates;

permit a change of control;

permit a change of control or change in management;

sell all or substantially all of its assets;

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, which was obtained in connection with the special cash dividend and share repurchase program.

Our 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 obtained in 2022 in connection with the special cash dividend and share repurchase program.

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.

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

In addition, we are typically required to guarantee all or part of the payment of our project loans, in some cases until certain development milestones and/or financial conditions are met, except for the Jones Crossing loan guaranty, which is generally limited to non-recourse carve-out obligations.

We were released as guarantor under the Lantana Place construction loan guaranty in 2022.

Refer to Note 6 to our consolidated financial statements in our 2022 Form 10-K for additional discussion.

Our construction loans typically permit advances only in accordance with budgeted allocations and subject to specified conditions, and require lender consent for changes to plans and specifications exceeding specified amounts.

If the lender deems undisbursed proceeds insufficient to meet costs of completing the project, the lender may decline to make additional advances until the borrower deposits with the lender sufficient additional funds to cover the deficiency the lender deems to exist.

The inability to satisfy a condition to receive advances for a specified time period after lender’s refusal, or the failure to complete a project by a specified completion date, may be an event of default, subject to exceptions for force majeure.

Debt Maturities and Other Contractual Obligations

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

The following table summarizes our debt maturities based on the principal amounts outstanding as of March 31, 2023 (in thousands):

2023 2024 2025 2026 2027 Thereafter Total

Comerica Bank credit facility a

Comerica Bank revolving credit facility a

$ — $ — $ — $ — $ — $ — $ —

Jones Crossing loan

Jones Crossing loan b

— — — 24,269 — 24,269

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

New Caney land loan — 4,050 — — — — 4,050

The Annie B land loan c

— 14,000 — — — — 14,000

Construction loans:

Kingwood Place b

Kingwood Place d

27,850 — — — — — 27,850

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Magnolia Place — 7,341 — — — — 7,341

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

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, 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 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

Amarra Villas revolving credit facility — 7,446 — — — — 7,446

$ 27,997 $ 50,391 $ 5,470 $ 24,573 $ 20,931 $ — $ 129,362

In first-quarter 2023, we entered into a modification of the revolving credit facility, which extended the maturity date of the revolving credit facility to March 27, 2025.

Refer to Note 6 for further information.

In May 2023, we made a $1.7 million principal payment to bring the DSCR back above 1.15 to 1.00 to avoid a Cash Sweep Period.

In first-quarter 2023, we extended the maturity date of this loan to March 1, 2024.

The maturity date is December 6, 2023.

We have the option to extend the maturity date for one additional 12-month period, subject to certain debt service coverage conditions;

we project that we will meet the conditions and expect to exercise the option to extend the maturity.

The Saint George and Holden Hills construction loans did not have outstanding balances at March 31, 2023.

The following table summarizes the weighted-average interest rate of each loan, all of which have variable rates, for the periods presented:

Three Months Ended

Comerica Bank revolving credit facility b

Jones Crossing loan

The Annie B land loan 7.44 3.50

New Caney land loan 5.28 3.10

New Caney land loan c

Construction loans:

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Lantana Place 6.93 3.00

The Saint June 5.31 —

The Saint June d

West Killeen Market

Magnolia Place 7.79 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.

Amarra Villas revolving credit facility 7.45 3.16

At March 31, 2022, we had an outstanding balance of $38 thousand for the loan under the Paycheck Protection Program (PPP loan).

The PPP loan bore interest at 1.00 percent.

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

We did not have an outstanding balance during first-quarter 2023.

At March 31, 2023, the interest rate for the revolving credit facility was 8.67 percent.

In March 2023, we repaid this loan.

We did not have an outstanding balance during first-quarter 2022.

Other than as discussed above and in our financial statements for the quarter ended March 31, 2023, there have been no material changes in our contractual obligations related to Amarra Villas, Magnolia Place, The Saint June, The Saint George and the first phase of Holden Hills since December 31, 2022.

Refer to MD&A in our 2022 Form 10-K for further information regarding our contractual obligations.

Liquidity Outlook

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

For our development projects with firm commitments, we have construction loans, as well as remaining equity capital allocated to the projects to fund the projected cash outlays for these projects over the next 12 months except for 60 percent of the costs of the Tecoma Improvements for which we have agreed to reimburse the Holden Hills limited partnership.

Refer to "Recent Development Activities – Current Residential Activities – Barton Creek – Holden Hills” above for further discussion of the Tecoma Improvements.

As of March 31, 2023, our expected cash requirements to fund our firm commitments have not changed significantly from the amounts reported in our 2022 Form 10-K.

Our stabilized commercial properties (West Killeen Market, Jones Crossing, Lantana Place and Kingwood Place) are projected to generate positive cash flow after debt service over the next 12 months.

For other projected pre-development costs, much of which are discretionary, and for our costs of the Tecoma Improvements and projected general and administrative expenses, we have cash on hand and availability under our revolving credit facility (which was recently extended to March 27, 2025, as stated above) in amounts expected to be sufficient to fund these cash requirements for the next 12 months.

We expect to successfully extend the maturities or refinance our debt that matures in the next 12 months.

For future potential significant development projects, we would not plan to enter into commitments to incur material costs for the projects until we obtain what we project to be adequate financing to cover anticipated cash outlays.

As discussed under “Business Strategy” above, our main source of revenue and cash flow is expected to come from sales of our properties to third parties or distributions from joint ventures, 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 rental

revenue 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.

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

Refer to Note 6 in this report and in our 2022 Form 10-K and “Risk Factors” included in Part I, Item 1A.

of our 2022 Form 10-K for further discussion.

Our ability to meet our cash obligations over the longer term will depend on our future operating and financial performance and cash flows, including our ability to sell or lease properties profitably and extend or refinance debt as it becomes due, which is subject to economic, financial, competitive and other factors beyond our control.

CRITICAL ACCOUNTING ESTIMATES

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NEW ACCOUNTING STANDARDS

No new accounting standards in 2022 have had a material impact on us.

No new accounting pronouncements adopted or issued by the Financial Accounting Standards Board had or may have a material impact on our consolidated financial statements.

OFF-BALANCE SHEET ARRANGEMENTS

There have been no material changes in our off-balance sheet arrangements since December 31, 2021.

Refer to Note 9 in our 2021 Form 10-K for further information.

In the ordinary course of business, we engage in certain activities that are not reflected on our consolidated balance sheets, generally referred to as off-balance sheet arrangements.

For additional information regarding these types of activities, refer to the discussion about our firm commitments in “Liquidity Outlook” above and Note 9 to our consolidated financial statements in our 2022 Form 10-K.

CAUTIONARY STATEMENT

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, 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.

Forward-looking statements are all statements other than statements of historical fact, such as plans, projections or expectations related to 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, the impacts of any major public health crisis, 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.

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, 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.

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, 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, increases in operating and construction costs, including real estate taxes and the cost of building materials and labor, increases in inflation and interest rates, supply chain constraints, tightening bank credit, defaults by contractors and subcontractors, declines in the market value of our assets, market conditions or corporate developments that could preclude, impair or delay any opportunities with respect to plans to sell, recapitalize or refinance properties, a decrease in the demand for real estate in select markets in Texas where we operate, particularly in Austin, changes in economic, market, tax and business conditions, including as a result of the war in Ukraine, potential U.S.

or local economic downturn or recession or failure of the U.S.

Congress to raise the statutory debt limit, the availability and terms of financing for development projects and other corporate purposes, the failure of any bank in which we deposit our funds, any major public health crisis, our ability to collect anticipated rental payments and close projected asset sales, loss of key personnel, our ability to enter into and maintain joint ventures, partnerships, or other strategic relationships, including risks associated with such joint ventures, 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, eligibility for and potential receipt and timing of receipt of MUD reimbursements, industry risks, changes in buyer preferences, potential additional impairment charges, competition from other real estate developers, our ability to obtain various entitlements and permits, 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, environmental and litigation risks, the failure to attract buyers or tenants for our developments or such buyers’ or tenants’ failure to satisfy their purchase commitments or leasing obligations, cybersecurity incidents and other factors described in more detail under the heading “Risk Factors” in Part I, Item 1A.

of our 2022 Form 10-K, filed with the SEC.

Investors are cautioned that many of the assumptions upon which our forward-looking statements are based are likely to change after the date the forward-looking statements are made.

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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 2. Management’s Discussion and Analysis