What changed in this filing

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Item 1. Financial Statements

2023-11-14 compared with 2023-08-14 · 147 added, 86 removed, 469 unchanged (33% of the section changed)

3 unchanged sentences

(In Thousands)

September 30,

2023 December 31,

31 unchanged sentences

(In Thousands, Except Per Share Amounts)

Three Months Ended Six Months Ended

June 30, June 30,

Three Months Ended Nine Months Ended

September 30, September 30,

2023 2022 2023 2022

8 unchanged sentences

General and administrative expenses 3,183 3,602 11,973 10,213

Impairment of real estate — 720 — 720

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

Total 6,998 12,807 27,275 25,015

Operating (loss) income ( 5,352 ) 495 ( 10,945 ) 2,016

Operating loss ( 3,329 ) ( 2,830 ) ( 14,274 ) ( 814 )

Interest expense, net — — — ( 15 )

Other income, net 472 680 1,501 766

(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

Loss before income taxes and equity in unconsolidated affiliate's loss ( 2,857 ) ( 2,150 ) ( 12,773 ) ( 63 )

Provision for income taxes ( 356 ) ( 420 ) ( 2,016 ) ( 159 )

Equity in unconsolidated affiliate's loss ( 4 ) ( 4 ) ( 10 ) ( 8 )

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

Net loss from continuing operations ( 3,217 ) ( 2,574 ) ( 14,799 ) ( 230 )

Net income from discontinued operations — — — 96,300

15 unchanged sentences

Diluted 8,240 8,275 8,230 8,397

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

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

2 unchanged sentences

(In Thousands)

Six Months Ended

Nine Months Ended

September 30,

Cash flow from operating activities:

3 unchanged sentences

Cost of real estate sold 2,080 7,510

Impairment of real estate — 720

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

5 unchanged sentences

Decrease in other assets 2,223 4,858

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

Increase (decrease) in accounts payable, accrued liabilities and other 908 ( 26,213 )

Net cash used in operating activities ( 39,300 ) ( 49,324 )

3 unchanged sentences

Payments on master lease obligations ( 730 ) ( 742 )

Other 5 ( 8 )

Net cash (used in) provided by investing activities ( 36,903 ) 66,174

7 unchanged sentences

Stock-based awards net payments ( 789 ) ( 452 )

Noncontrolling interest contribution 40,000 —

Noncontrolling interest contributions

40,000 15,032

Purchases of treasury stock ( 2,064 ) ( 262 )

Financing costs ( 2,758 ) ( 1,356 )

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

Net cash provided by (used in) financing activities 66,884 ( 9,676 )

Net (decrease) increase in cash, cash equivalents and restricted cash ( 9,319 ) 7,174

6 unchanged sentences

Stockholders’ Equity

Held in Treasury Total

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

Retained Earnings (Accumulated Deficit) Common Stock

Held in Treasury Total Noncontrolling Interests in Subsidiaries

Common Stock Capital in Excess of Par Value

of Shares At Par

13 unchanged sentences

Tender of shares for stock-based awards — — — — 28 ( 573 ) ( 573 ) — ( 573 )

— — — — 28 ( 573 ) ( 573 ) — ( 573 )

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

1 unchanged sentence

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

Exercised and vested stock-based awards 14 — — — — — — — —

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

Stock-based compensation — — 468 — — — 468 — 468

Common stock repurchases — — — 18 ( 475 ) ( 475 ) — ( 475 )

Total comprehensive loss — — — ( 2,844 ) — — ( 2,844 ) ( 373 ) ( 3,217 )

Balance at September 30, 2023 9,586 $ 96 $ 197,293 $ 27,506 1,580 $ ( 32,924 ) $ 191,971 $ 103,972 $ 295,943

STRATUS PROPERTIES INC.

2 unchanged sentences

Stockholders’ Equity

Held in Treasury Total

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

Retained Earnings (Accumulated Deficit) Common Stock

Held in Treasury Total Noncontrolling Interests in Subsidiaries

Common Stock Capital in Excess of Par Value

of Shares At Par

10 unchanged sentences

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

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

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

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

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

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

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

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

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 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.

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

The liability associated with these awards at September 30, 2023 is nominal in amount relative 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 Six Months Ended

June 30, June 30,

Three Months Ended Nine Months Ended

September 30, September 30,

2023 2022 2023 2022

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

Net loss from continuing operations $ ( 3,217 ) $ ( 2,574 ) $ ( 14,799 ) $ ( 230 )

Net income from discontinued operations — — — 96,300

15 unchanged sentences

$ ( 0.35 ) $ ( 0.29 ) $ ( 1.69 ) $ 11.50

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.

Excludes 178 thousand shares for third-quarter 2023, 296 thousand shares for third-quarter 2022 and 232 thousand shares for the first nine months of 2023 of common stock associated with RSUs that were anti-dilutive as a result of net losses.

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

LIMITED PARTNERSHIPS

34 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.

As of September 30, 2023, Stratus had $ 9.2 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.

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

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

Refer to Note 6 for discussion of the loan agreement.

2 unchanged sentences

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 August 2023, Stratus made an additional advance of $ 800 thousand under the operating loan to Stratus Block 150, L.P.

The loan bears interest at the one-month Bloomberg Short-Term Bank Yield Index (BSBY) Rate plus 5.00 percent, is subordinate to The Annie B land loan 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.

In October 2023, Stratus made an additional advance of $ 250 thousand under the operating loan to The Saint June, L.P., and the Class B Limited Partner made a $ 250 thousand operating loan to The Saint June, L.P.

The loans bear interest at the Term Secured Overnight Financing Rate (SOFR) plus 5.00 percent, is subordinate to The Saint June construction loan and must be repaid before distributions may be made to the partners.

Potential Returns.

22 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 (including the operating loans), 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 made by Stratus), which are eliminated (in thousands):

September 30,

Cash and cash equivalents $ 2,933 $ 7,744

Restricted cash 490 —

Real estate under development 125,610 107,968

Land available for development 1,911 3,927

Real estate held for investment 33,389 31,415

Real estate held for investment c

85,011 31,415

Lease right-of-use assets 485 106

Other assets 3,087 4,397

Total assets 219,527 155,557

Accounts payable and accrued liabilities 13,131 12,247

Accounts payable 13,620 10,473

Accrued liabilities, including taxes 2,196 1,296

Debt 83,889 55,305

Lease liabilities 486 107

Other liabilities 360 371

Total liabilities 100,551 67,552

2 unchanged sentences

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

In third-quarter 2023, construction of The Saint June was substantially completed, and the carrying value of the asset was reclassified from real estate under development to real estate held for investment.

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

4 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 escrowed at closing and disbursed in full to Stratus in June 2023).

A portion of the proceeds, $ 6.9 million, was escrowed and held in restricted cash at December 31, 2022.

These proceeds were released from restriction in June 2023 and disbursed in full to Stratus and reclassified to the operating account.

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 second-quarter 2022 and the first six months of 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 nine 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.

19 unchanged sentences

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

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

Capital expenditures associated with discontinued operations totaled $ 213 thousand the first nine 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.

3 unchanged sentences

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.

A contract liability is presented as a deferred gain in the consolidated balance sheets in the amount of $ 2.9 million at September 30, 2023 and $ 3.5 million at December 31, 2022.

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

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

Kingwood Place Land.

In fourth-quarter 2022, Stratus sold a multi-family tract of land at Kingwood Place for $ 5.5 million.

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

Amarra Villas.

In third-quarter 2022, Stratus recorded a $ 650 thousand impairment charge related to one of the Amarra Villas homes that was sold in first-quarter 2023 for $ 2.5 million.

The charge was due to estimated total project costs and costs of sale for the home under construction that exceeded its contractual sale price.

FAIR VALUE MEASUREMENTS

9 unchanged sentences

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

September 30,

2023 December 31,

8 unchanged sentences

21,755 21,782

The Saint George 15,095 —

Amarra Villas revolving credit facility 14,242 5,366

1 unchanged sentence

West Killeen Market

The Saint George 2,507 —

Holden Hills 1,036 —

$ 156,068 $ 122,765

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.

Includes net reductions for unamortized debt issuance costs of $ 2.4 million at September 30, 2023, and $ 1.1 million at December 31, 2022.

Comerica Bank revolving credit facility.

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 of September 30, 2023, Status had $ 40.5 million available under the Comerica Bank revolving credit facility net of letters of credit totaling $ 13.3 million, $ 11.0 million of which was issued to secure Stratus’ 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 one-month BSBY Rate.

1 unchanged sentence

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.

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.

Jones Crossing loan.

2 unchanged sentences

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.

As permitted under the Jones Crossing loan agreement, in August 2023 the Jones Crossing subsidiary separated the ground lease for the multi-family parcel (the Multi-Family Phase) from the primary ground lease, and the Multi-Family Phase was released from the loan collateral.

In October 2023, the Jones Crossing loan was modified effective August 1, 2023 to remove the Multi-Family Phase from certain defined terms and to revise the DSCR calculation to exclude the Multi-Family Phase from expenses on a retroactive basis beginning in second-quarter 2023.

Accordingly, the DSCR met the threshold in second-quarter and third-quarter 2023.

The Annie B land loan.

4 unchanged sentences

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

Kingwood Place construction loan.

The Kingwood Place construction loan currently matures on December 6, 2023.

Stratus Kingwood Place, L.P.

exercised its option to extend the maturity date for one additional 12-month period, which the lender has approved.

Stratus Kingwood Place, L.P.

is working with the lender to document the extension and modification of the loan agreement.

The Saint June construction loan.

16 unchanged sentences

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

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

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

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

2 unchanged sentences

Interest Expense and Capitalization.

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.

Interest costs (before capitalized interest) totaled $ 3.4 million in third-quarter 2023, $ 1.8 million in third-quarter 2022, $ 8.7 million for the first nine months of 2023 and $ 4.4 million for the first nine months of 2022.

Substantially all of these interest costs were capitalized for all 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 all 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 $ 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.

Accrued liabilities included $ 0.6 million as of September 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.

In 2022, with written consent from Comerica Bank, Stratus’ Board also approved a share repurchase program, which authorizes repurchases of up to $ 10.0 million of Stratus’ common stock.

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

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.

In 2022, with written consent from Comerica Bank, Stratus’ Board also approved a share repurchase program, which authorized repurchases of up to $ 10.0 million of Stratus’ common stock.

During the first nine months of 2023, Stratus acquired 91,919 shares of its common stock under the share repurchase program for a total cost of $ 2.1 million at an average price of $ 22.43 per share.

In October 2023, Stratus completed the share repurchase program.

In total, under the completed share repurchase program Stratus acquired 389,378 shares of its common stock for a total cost of $ 10.0 million at an average price of $ 25.68 per share.

In November 2023, with written consent from Comerica Bank, Stratus’ Board approved a new share repurchase program, which authorizes repurchases of up to $ 5.0 million of Stratus’ common stock.

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

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 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.

8 unchanged sentences

The profit pool was $ 6.7 million, of which $ 5.0 million was paid in cash to eligible participants during February 2022.

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

The PPIP contains limits on

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

Of the remaining amount, $ 1.6 million was settled in RSUs awarded to one participant during second-quarter 2022 following stockholder approval of Stratus’ new stock incentive plan.

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

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

In July 2023, Kingwood Place reached a valuation event under the PPIP and Stratus obtained an appraisal of the property to determine the payout under the PPIP.

The accrued liability under the PPIP related to Kingwood Place was reduced to $ 1.5 million at September 30, 2023, and is expected to be settled in RSUs with a three-year vesting period awarded to eligible participants in the first quarter of 2024.

In August 2023, the Compensation Committee designated The Saint George as an approved project under the LTIP and granted awards of participation interests to participants.

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

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

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

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

A summary of PPIP costs follows (in thousands):

Three Months Ended Six Months Ended

June 30, June 30,

Three Months Ended Nine Months Ended

September 30, September 30,

2023 2022 2023 2022

Charged to general and administrative expense

Charged (credited) to general and administrative expense

$ ( 205 ) $ 135 $ 84 $ 269

2 unchanged sentences

$ ( 69 ) $ 242 $ 321 $ 478

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).

The accrued liability for the PPIP totaled $ 3.3 million at September 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 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.

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

Stratus has recorded a deferred tax asset totaling $ 38 thousand at both September 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.

3 unchanged sentences

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.

The difference between Stratus' consolidated effective income tax rate of ( 16 ) percent for the first nine 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 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.

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

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

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

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

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

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

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

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

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

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 does not expect the IR Act to have a material impact on its consolidated financial statements.

BUSINESS SEGMENTS

2 unchanged sentences

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

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

the Circle C community;

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

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

The Saint George;

3 unchanged sentences

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.

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

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

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

Three Months Ended Six Months Ended

June 30, June 30,

Three Months Ended Nine Months Ended

September 30, September 30,

2023 2022 2023 2022

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Financial Information by Business Segment.

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):

Summarized financial information by segment for the three months ended September 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 $ — $ 3,669 $ — $ 3,669

Cost of sales, excluding depreciation ( 2,697 ) ( 1,144 ) — ( 3,841 )

Cost of sales, excluding depreciation and amortization

( 1,467 ) ( 1,381 ) — ( 2,848 )

Depreciation and amortization ( 38 ) ( 934 ) 5 ( 967 )

3 unchanged sentences

$ 13,613 $ 12,701 $ — $ 26,314

Total assets at June 30, 2023 c

Total assets at September 30, 2023 c

302,927 164,565 34,529 502,021

3 unchanged sentences

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):

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

Leasing Operations Corporate, Eliminations and Other b

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

Intersegment 2 — ( 2 ) —

Cost of sales, excluding depreciation ( 5,432 ) ( 870 ) — ( 6,302 )

Cost of sales, excluding depreciation and amortization

( 6,232 ) ( 1,350 ) 4 ( 7,578 )

Depreciation and amortization ( 24 ) ( 887 ) 4 ( 907 )

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

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

Impairment of real estate c

( 720 ) — — ( 720 )

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

Capital expenditures and purchases and development of real estate properties

$ 6,203 $ 11,314 $ — $ 17,517

Total assets at June 30, 2022 c

Total assets at September 30, 2022 d

274,397 111,938 76,502 462,837

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

Includes a $ 650 thousand impairment charge related to one of the Amarra Villas homes that was sold for $ 2.5 million in first-quarter 2023 and $ 70 thousand for the multi-family tract of land at Kingwood Place sold for $ 5.5 million in fourth-quarter 2022.

Refer to Note 4.

Corporate, eliminations and other includes $ 73.9 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):

Summarized financial information by segment for the first nine months ended September 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 $ 10,450 $ — $ 13,001

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

Cost of sales, excluding depreciation and amortization

( 8,651 ) ( 3,786 ) — ( 12,437 )

Depreciation and amortization ( 115 ) ( 2,764 ) 14 ( 2,865 )

5 unchanged sentences

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):

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

Leasing Operations Corporate, Eliminations and Other b

1 unchanged sentence

Intersegment 6 — ( 6 ) —

Cost of sales, excluding depreciation ( 6,798 )

Cost of sales, excluding depreciation and amortization

( 3,204 ) 4 ( 16,230 )

3 unchanged sentences

— 4,812 — 4,812

Impairment of real estate d

( 720 ) — — ( 720 )

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

5 unchanged sentences

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

Refer to Note 4.

SUBSEQUENT EVENTS

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.

Stratus evaluated events after September 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