What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2023-08-14 compared with 2023-05-15 · 170 added, 85 removed, 385 unchanged (40% of the section changed)

36 unchanged sentences

(In Thousands, Except Per Share Amounts)

Three Months Ended

Three Months Ended Six Months Ended

June 30, June 30,

2023 2022 2023 2022

Real estate operations $ 58 $ 7,925 $ 2,551 $ 7,944

12 unchanged sentences

Other income, net 544 80 1,029 86

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

(Loss) income before income taxes and equity in unconsolidated affiliate's loss ( 4,808 ) 575 ( 9,916 ) 2,087

(Provision for) benefit from income taxes ( 498 ) ( 41 ) ( 1,660 ) 261

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

Equity in unconsolidated affiliate's loss ( 3 ) ( 2 ) ( 6 ) ( 4 )

Net (loss) income from continuing operations ( 5,309 ) 532 ( 11,582 ) 2,344

14 unchanged sentences

Weighted-average shares of common stock outstanding:

8,227 8,273 8,225 8,262

Diluted 8,227 8,383 8,225 8,369

3 unchanged sentences

(In Thousands)

Three Months Ended

Six Months Ended

Cash flow from operating activities:

3 unchanged sentences

Cost of real estate sold 2,087 3,599

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

Gain on sale of assets — ( 4,812 )

3 unchanged sentences

Purchases and development of real estate properties ( 21,084 ) ( 12,091 )

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

Decrease in other assets 601 3,112

Decrease in accounts payable, accrued liabilities and other ( 123 ) ( 21,098 )

1 unchanged sentence

Cash flow from investing activities:

Proceeds from sale of discontinued operations — 105,813

Capital expenditures ( 23,477 ) ( 27,575 )

Payments on master lease obligations ( 484 ) ( 418 )

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

Net cash (used in) provided by investing activities ( 23,952 ) 77,820

Cash flow from financing activities:

Borrowings from revolving credit facility — 30,000

Payments on revolving credit facility — ( 30,000 )

Borrowings from project loans 22,828 12,455

7 unchanged sentences

Net cash provided by financing activities 50,137 6,216

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

Net (decrease) increase in cash, cash equivalents and restricted cash ( 569 ) 40,395

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

2 unchanged sentences

STRATUS PROPERTIES INC.

CONSOLIDATED STATEMENTS OF EQUITY (Unaudited) (Continued)

CONSOLIDATED STATEMENTS OF EQUITY (Unaudited)

(In Thousands)

1 unchanged sentence

Held in Treasury Total

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

Common Stock Capital in Excess of Par Value Retained Earnings Noncontrolling Interests in Subsidiaries

of Shares At Par

9 unchanged sentences

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

Exercised and vested stock-based awards 93 2 — — — — 2 — 2

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

Stock-based compensation — — 505 — — — 505 — 505

Tender of shares for stock-based awards

— — — — 28 ( 573 ) ( 573 ) — ( 573 )

Common stock repurchases — — — — 31 ( 695 ) ( 695 ) — ( 695 )

Total comprehensive loss — — — ( 5,301 ) — — ( 5,301 ) ( 8 ) ( 5,309 )

Balance at June 30, 2023 9,572 $ 96 $ 196,819 $ 30,350 1,562 $ ( 32,449 ) $ 194,816 $ 104,345 $ 299,161

STRATUS PROPERTIES INC.

CONSOLIDATED STATEMENTS OF EQUITY (Unaudited) (Continued)

(In Thousands)

Stockholders’ Equity

9 unchanged sentences

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

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

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

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

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

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

12 unchanged sentences

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

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

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

As of June 30, 2023, the employee has two outstanding awards under the PPIP.

The liability associated with these awards at June 30, 2023 is not significant to the consolidated financial statements.

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

3 unchanged sentences

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

Three Months Ended

Three Months Ended Six Months Ended

June 30, June 30,

2023 2022 2023 2022

Net (loss) income from continuing operations $ ( 5,309 ) $ 532 $ ( 11,582 ) $ 2,344

4 unchanged sentences

Basic weighted-average shares of common stock outstanding

8,227 8,273 8,225 8,262

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

Diluted weighted-average shares of common stock outstanding

8,227 8,383 8,225 8,369

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

6 unchanged sentences

$ ( 0.64 ) $ 11.53 $ ( 1.35 ) $ 11.82

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

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

Excludes 222 thousand shares for second-quarter 2023 and 259 thousand shares for the first six months of 2023 of common stock associated with RSUs that were anti-dilutive as a result of net losses.

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

LIMITED PARTNERSHIPS

16 unchanged sentences

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

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

Stratus’ potential returns on its equity investment in

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

Stratus consolidates the Holden Hills limited partnership;

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

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

Stratus’ potential returns on its equity investment in the Holden Hills partnership may increase above its relative equity interest as negotiated return hurdles are achieved.

Refer to “Potential Returns” below for further discussion.

Stratus consolidates the Holden Hills partnership;

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

5 unchanged sentences

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

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

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

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

3 unchanged sentences

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

As of June 30, 2023, Stratus had $ 10.6 million remaining to complete the Tecoma Improvements.

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

1 unchanged sentence

Refer to Note 6 for discussion of the loan agreement.

Operating Loans to Partnerships.

In April 2023, Stratus made an operating loan of $ 1.5 million to Stratus Block 150, L.P.

to facilitate the partnership’s ability to pay ongoing costs of The Annie B project during the pre-construction period.

The loan bears interest at the one-month Bloomberg Short-Term Bank Yield Index (BSBY) Rate plus 5.00 percent and must be repaid before distributions may be made to the partners.

In June 2023, Stratus made an operating loan of $ 750 thousand to The Saint June, L.P.

to support the partnership’s ability to pay its construction loan interest, which has risen above the amount originally budgeted due to rising interest rates.

The loan bears interest at the Term Secured Overnight Financing Rate (SOFR) plus 5.00 percent and must be repaid before distributions may be made to the partners.

Potential Returns.

The following table presents the distribution percentages for the limited partnerships in which Stratus’ potential returns may increase above its relative equity interest if certain hurdles are achieved.

Distribution Percentages

The Saint George Apartments, L.P.

The Saint June, L.P.

Holden Hills, L.P.

Stratus Kingwood Place, L.P.

Stratus Third-party Class B Limited Partner Stratus Third-party Class B Limited Partner Stratus Third-party Class B Limited Partner Stratus Third-party Class B Limited Partners

Until all partners have received a return of their capital contributions and a 9.0 percent cumulative return;

10.00 % 90.00 % 34.13 % 65.87 % 50.00 % 50.00 % 60.00 % 40.00 %

Until all partners have received an 11.0 percent cumulative return;

— — — — — — 68.00 32.00

Until the Class B limited partner has received a 12.0 percent cumulative return;

20.00 80.00 44.13 55.87 55.00 45.00 — —

Until the Class B limited partner has received an 18.0 percent cumulative return;

30.00 70.00 — — — — — —

Thereafter 50.00 50.00 54.13 45.87 65.00 35.00 76.00 24.00

Accounting for Limited Partnerships.

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

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

and Holden Hills, L.P.

3 unchanged sentences

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

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

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

Cash and cash equivalents $ 4,745 $ 7,744

9 unchanged sentences

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

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

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

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

All of the debt is guaranteed by Stratus until certain conditions are met as provided in the applicable loan agreements.

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

3 unchanged sentences

(Ryman) for $ 260.0 million, subject to certain purchase price adjustments, and including Ryman’s assumption of $ 136.2 million of existing mortgage debt, with the remainder paid in cash.

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

Stratus’ net proceeds of cash and restricted cash totaled $ 112.3 million (including $ 6.9 million escrowed at closing and disbursed in full to Stratus in June 2023).

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

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

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

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

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

Three Months Ended

Two Months Ended Five Months Ended

Hotel $ 6,782 $ 12,653

3 unchanged sentences

Cost of sales:

Hotel 4,487 9,230

Entertainment 3,624 7,763

3 unchanged sentences

General and administrative expenses 136 236

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

Operating income 122,755 125,239

2 unchanged sentences

Net income from discontinued operations $ 95,925 $ 96,300

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

In accordance with accounting guidance, amounts are net of eliminations of intercompany sales totaling $ 189 thousand for the two months ended May 31, 2022 and $ 510 thousand for the five months ended May 31, 2022.

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

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

Capital expenditures associated with discontinued operations totaled $ 31 thousand in second-quarter 2022 and $ 213 thousand the first six months of 2022.

The Oaks at Lakeway.

5 unchanged sentences

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

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

With respect to the Pad Site Master

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

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

2 unchanged sentences

In first-quarter 2022, Stratus reassessed its plans with respect to construction of the remaining buildings on the three remaining unleased pad sites and determined that, rather than execute leases and build the buildings, it is less costly to continue to pay the monthly rent (approximately $ 73 thousand per month) pursuant to the Pad Site Master Lease until the lease expires in February 2027.

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

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

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

A contract liability is presented as a deferred gain in the consolidated balance sheets in the amount of $ 3.1 million at June 30, 2023 and $ 3.5 million at December 31, 2022.

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

4 unchanged sentences

The carrying value for certain Stratus financial instruments (i.e., cash and cash equivalents, restricted cash, accounts payable and accrued liabilities) approximates fair value because of their short-term nature and generally negligible credit losses.

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

2023 December 31,

Value Carrying

Debt $ 128,336 $ 130,075 $ 122,765 $ 124,575

The fair value of Stratus’ debt also approximates fair value, as the interest rates are variable and approximate prevailing market interest rates available for similar mortgage debt.

Stratus' debt is recorded at cost and is not actively traded.

Fair value is estimated based on discounted future expected cash flows at estimated current market interest rates.

Fair value is estimated based on discounted future expected cash flows at estimated current market interest rates available for similar mortgage debt.

Accordingly, Stratus' debt is classified within Level 2 of the fair value hierarchy.

9 unchanged sentences

Kingwood Place 28,044 27,507

The Saint June 24,617 13,829

Lantana Place

21,792 21,782

The Saint June 21,001 13,829

Amarra Villas revolving credit facility 10,951 5,366

Magnolia Place 8,006 6,816

West Killeen Market

Amarra Villas revolving credit facility 7,446 5,366

Total debt a b

The Saint George 2,507 —

$ 137,432 $ 122,765

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

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

The Holden Hills construction loan had no outstanding balance at June 30, 2023.

Includes net reductions for unamortized debt issuance costs of $ 2.0 million at June 30, 2023, and $ 1.1 million at December 31, 2022.

Comerica Bank revolving credit facility.

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

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

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

As of June 30, 2023, Status had $ 42.7 million available under the Comerica Bank revolving credit facility net of letters of credit totaling $ 11.0 million issued to secure Stratus’ obligation to build certain roads and utilities facilities benefiting Holden Hills and Section N.

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.

In May 2023, Stratus entered into a modification of the revolving credit facility to increase the maximum amount of letters of credit that may be issued under the revolving credit facility from $ 11.5 million to $ 13.3 million.

In July 2023, Stratus entered into a $ 2.3 million letter of credit to secure its obligations, which are subject to certain conditions, to construct and pay for certain utility infrastructure in Lakeway, Texas, estimated to cost approximately $ 2.3 million.

The amount available under the revolving credit facility, net of letters of credit issued, was $ 40.4 million as of August 9, 2023.

Jones Crossing loan.

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

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

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

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

The Jones Crossing loan requires the Jones Crossing project to meet a debt service coverage ratio (DSCR) test of 1.15 to 1.00 measured quarterly and, starting June 30, 2023, on a rolling 12 month basis.

If the DSCR falls below 1.15 to 1.00, it is not an event of default, but a “Cash Sweep Period” (as defined in the Jones Crossing loan) results, which limits Stratus’ ability to receive cash from its Jones Crossing subsidiary, unless a principal payment is made on the loan to restore the DSCR to the required threshold.

The DSCR fell below 1.15 to 1.00 in each of fourth-quarter 2022 and first-quarter 2023, and the Jones Crossing subsidiary made principal payments of $ 231 thousand and $ 1.7 million in February 2023 and May 2023, respectively, to bring the DSCR back above 1.15 to 1.00 and a Cash Sweep Period did not occur.

The DSCR fell below 1.15 to 1.00 in second-quarter 2023 and the Jones Crossing subsidiary must make an additional principal payment of approximately $ 1.2 million in August 2023 or allow a Cash Sweep Period to commence.

The Annie B land loan.

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

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

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

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

2 unchanged sentences

The Saint June construction loan.

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

Magnolia Place construction loan.

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

In January 2023, The Saint June construction loan was amended to change the interest rate for the loan to SOFR with a floor of 0.75 percent plus 2.85 percent, subject to an overall 3.50 percent floor.

Amarra Villas revolving credit facility.

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

Magnolia Place construction loan.

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

Holden Hills construction loan.

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

In February 2023, the Holden Hills partnership entered into a loan agreement with Comerica Bank to finance the development of Phase I of the Holden Hills Project.

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

6 unchanged sentences

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

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

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

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

4 unchanged sentences

Interest Expense and Capitalization.

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

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

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

Interest costs (before capitalized interest) totaled $ 2.9 million in second-quarter 2023, $ 1.5 million in second-quarter 2022, $ 5.3 million for the first six months of 2023 and $ 2.6 million for the first six months of 2022.

Substantially all of these interest costs were capitalized for the periods presented.

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 the periods presented.

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

On September 1, 2022, after receiving written consent from Comerica Bank, Stratus’ Board of Directors (Board) declared a special cash dividend of $ 4.67 per share (totaling $ 40.0 million) on Stratus’ common stock,

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

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

Accrued liabilities included $ 0.7 million as of June 30, 2023, and $ 1.3 million as of December 31, 2022, representing dividends accrued for unvested RSUs in accordance with the terms of the awards.

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

1 unchanged sentence

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

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

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

During the first six months of 2023, Stratus acquired 74,306 shares of its common stock under the share repurchase program for a total cost of $ 1.6 million at an average price of $ 21.36 per share.

Through August 9, 2023, Stratus has acquired 381,889 shares of its common stock for a total cost of $ 9.8 million at an average price of $ 25.65 per share, and $ 0.2 million remains available for repurchases under the program.

PROFIT PARTICIPATION INCENTIVE PLAN AND LONG-TERM INCENTIVE PLAN

1 unchanged sentence

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

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

As of June 30, 2023, there were not yet any participation interests awarded under the LTIP.

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

15 unchanged sentences

A summary of PPIP costs follows (in thousands):

Three Months Ended

Three Months Ended Six Months Ended

June 30, June 30,

2023 2022 2023 2022

Charged to general and administrative expense

Capitalized to project development costs 110 51

$ 141 $ 119 $ 289 $ 134

Capitalized (credited) to project development costs ( 9 ) 51 101 102

Total PPIP costs

The accrued liability for the PPIP totaled $ 3.2 million at March 31, 2023, and $ 3.0 million at December 31, 2022 (included in other liabilities).

$ 132 $ 170 $ 390 $ 236

The accrued liability for the PPIP totaled $ 3.3 million at June 30, 2023, and $ 3.0 million at December 31, 2022 (included in other liabilities).

Stratus’ accounting policy for and other information regarding its income taxes are further described in Notes 1 and 7 in the Stratus 2022 Form 10-K.

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

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

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

Federal net deferred tax assets as of both June 30, 2023 and December 31, 2022.

Stratus has recorded a deferred tax asset totaling $ 38 thousand at both June 30, 2023 and December 31, 2022 related to state income taxes.

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

2 unchanged sentences

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

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

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

Federal current income taxes primarily associated with taxable income generated from cash received in the Holden Hills transaction discussed in Note 3.

The difference between Stratus' consolidated effective income tax rate of ( 17 ) percent for the first six months of 2023 and the U.S.

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

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

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

Federal net deferred tax assets as of June 30, 2023, and the executive compensation limitation.

The difference between Stratus' consolidated effective income tax rate of ( 13 ) percent for the first six months of 2022 and the U.S.

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

1 unchanged sentence

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

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

Among other provisions, the IR Act imposes a new 1 percent excise tax on the fair market value of net corporate stock

repurchases made by covered corporations, effective for tax years beginning after December 31, 2022.

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

10 unchanged sentences

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

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

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

and in Magnolia, Texas (land for a future phase of retail development and for future multi-family use and retail pad sites at Magnolia Place), Kingwood, Texas (a retail pad site) and New Caney, Texas (New Caney), each located in the greater Houston area.

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

4 unchanged sentences

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

Three Months Ended

Three Months Ended Six Months Ended

June 30, June 30,

2023 2022 2023 2022

Real Estate Operations:

2 unchanged sentences

Commissions and other 58 99 58 118

58 7,925 2,551 7,944

Leasing Operations:

Rental revenue 3,472 3,200 6,781 6,280

3,472 3,200 6,781 6,280

Total revenues from contracts with customers $ 3,530 $ 11,125 $ 9,332 $ 14,224

Financial Information by Business Segment.

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

Summarized financial information by segment for the three months ended June 30, 2023, based on Stratus’ internal financial reporting system utilized by its chief operating decision maker, follows (in thousands):

Leasing Operations Corporate, Eliminations and Other b

6 unchanged sentences

$ 12,057 $ 13,471 $ — $ 25,528

Total assets at March 31, 2023 c

Total assets at June 30, 2023 c

328,033 111,252 46,470 485,755

1 unchanged sentence

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

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

Summarized financial information by segment for the three months ended March 31, 2022, based on Stratus’ internal financial reporting system utilized by its chief operating decision maker, follows (in thousands):

Corporate, eliminations and other includes cash and cash equivalents and restricted cash of $ 43.2 million.

The remaining cash and cash equivalents and restricted cash is reflected in the operating segments’ assets.

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

Leasing Operations Corporate, Eliminations and Other b

4 unchanged sentences

General and administrative expenses — — ( 3,444 ) ( 3,444 )

Gain on sale of assets c

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

Capital expenditures and purchases and development of real estate properties

$ 7,227 $ 12,820 $ 31 $ 20,078

Total assets at June 30, 2022 c

265,929 106,020 112,711 484,660

Includes sales commissions and other revenues together with related expenses.

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

Corporate, eliminations and other includes $ 102.3 million of cash and cash equivalents and restricted cash, primarily received from the May 2022 sale of Block 21.

The remaining cash and cash equivalents and restricted cash is reflected in the operating segments’ assets.

Summarized financial information by segment for the six months ended June 30, 2023, based on Stratus’ internal financial reporting system utilized by its chief operating decision maker, follows (in thousands):

Leasing Operations Corporate, Eliminations and Other b

Unaffiliated customers $ 2,551 $ 6,781 $ — $ 9,332

Cost of sales, excluding depreciation ( 7,184 ) ( 2,405 ) — ( 9,589 )

Depreciation and amortization ( 77 ) ( 1,830 ) 9 ( 1,898 )

General and administrative expenses — — ( 8,790 ) ( 8,790 )

Operating (loss) income $ ( 4,710 ) $ 2,546 $ ( 8,781 ) $ ( 10,945 )

1 unchanged sentence

$ 21,084 $ 23,477 $ — $ 44,561

Total assets at March 31, 2022 d

Includes sales commissions and other revenues together with related expenses.

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

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

Leasing Operations Corporate, Eliminations and Other b

Unaffiliated customers $ 7,944 $ 6,280 $ — $ 14,224

Intersegment 6 — ( 6 ) —

Cost of sales, excluding depreciation ( 6,798 )

( 1,854 ) — ( 8,652 )

Depreciation and amortization ( 49 ) ( 1,717 ) 9 ( 1,757 )

General and administrative expenses — — ( 6,611 ) ( 6,611 )

Gain on sale of assets c

— 4,812 — 4,812

Operating income (loss) $ 1,103 $ 7,521 $ ( 6,608 ) $ 2,016

Capital expenditures and purchases and development of real estate properties

$ 12,091 $ 27,362 $ 213 $ 39,666

Includes sales commissions and other revenues together with related expenses.

2 unchanged sentences

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

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

SUBSEQUENT EVENTS

Stratus evaluated events after March 31, 2023, and through the date the financial statements were issued, and determined any events or transactions occurring during this period that would require recognition or disclosure are appropriately addressed in these financial statements.

Stratus evaluated events after June 30, 2023, and through the date the financial statements were issued, and determined any events or transactions occurring during this period that would require recognition or disclosure are appropriately addressed in these financial statements.

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

What changed 10-Q

Item 1. Financial Statements