United States

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September 30, 2020~~March 31, 2021


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 001-37716

Stratus Properties Inc.

(Exact name of registrant as specified in its charter)


Delaware						72-1211572
(State or other jurisdiction of						(I.R.S. Employer Identification No.)
incorporation or organization)

212 Lavaca Street, Suite 300

Austin

78701

(Address of principal executive offices)

(Zip Code)

(512) 478-5788

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.01 per share	STRS	The NASDAQ Stock Market
Series D Participating Cumulative Preferred Stock Purchase Rights	STRS	The NASDAQ Stock Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

☑ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☑ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☐	Accelerated filer	☑ ☐
Non-accelerated filer	☐ ☑	Smaller reporting company	☑
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☑ No

On ~~October~~April 30, ~~2020,~~2021, there were issued and outstanding ~~8,221,014~~8,234,828 shares of the registrant’s common stock, par value $0.01 per share.

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

STRATUS PROPERTIES INC.

CONSOLIDATED BALANCE SHEETS (Unaudited)

(In Thousands)


		September 30, 2020		December 31, 2019			March 31, 2021		December 31, 2020
ASSETS	ASSETS					ASSETS
Cash and cash equivalents	Cash and cash equivalents	$	13,422	$	19,173	Cash and cash equivalents	$	12,560	$	12,434
Restricted cash	Restricted cash	19,627		19,418		Restricted cash	18,682		21,749
Real estate held for sale	Real estate held for sale	5,018		14,872		Real estate held for sale	2,000		4,204
Real estate under development	Real estate under development	88,534		95,026		Real estate under development	110,464		98,137
Land available for development	Land available for development	61,292		45,539		Land available for development	43,555		53,432
Real estate held for investment, net	Real estate held for investment, net	326,149		329,103		Real estate held for investment, net	283,899		286,529

Lease right-of-use assets	Lease right-of-use assets	10,923		11,378		Lease right-of-use assets	10,784		10,871
Deferred tax assets		34		12,311

Other assets	Other assets	18,220		14,548		Other assets	19,927		20,144

Assets held for sale - The Saint Mary						Assets held for sale - The Saint Mary	0		36,516
Total assets	Total assets	$	543,219	$	561,368	Total assets	$	501,871	$	544,016

LIABILITIES AND EQUITY	LIABILITIES AND EQUITY					LIABILITIES AND EQUITY
Liabilities:	Liabilities:					Liabilities:
Accounts payable	Accounts payable	$	9,920	$	16,053	Accounts payable	$	8,659	$	8,047

Accrued liabilities, including taxes	Accrued liabilities, including taxes	10,751		11,580		Accrued liabilities, including taxes	5,477		12,868
Debt	Debt	368,601		365,749		Debt	339,213		351,055
Lease liabilities	Lease liabilities	13,036		12,636		Lease liabilities	13,467		13,269
Deferred gain	Deferred gain	6,656		7,654		Deferred gain	5,936		6,173
Other liabilities	Other liabilities	13,341		13,614		Other liabilities	15,585		17,233

Liabilities held for sale - The Saint Mary						Liabilities held for sale - The Saint Mary	0		25,607
Total liabilities	Total liabilities	422,305		427,286		Total liabilities	388,337		434,252

Commitments and contingencies	Commitments and contingencies					Commitments and contingencies	0		0

Equity:	Equity:					Equity:
Stockholders’ equity:	Stockholders’ equity:					Stockholders’ equity:

Common stock	Common stock	93		93		Common stock	94		94
Capital in excess of par value of common stock	Capital in excess of par value of common stock	186,620		186,082		Capital in excess of par value of common stock	188,121		186,777
Accumulated deficit	Accumulated deficit	(55,581)		(43,567)		Accumulated deficit	(57,413)		(66,357)

Common stock held in treasury	Common stock held in treasury	(21,600)		(21,509)		Common stock held in treasury	(21,753)		(21,600)
Total stockholders’ equity	Total stockholders’ equity	109,532		121,099		Total stockholders’ equity	109,049		98,914
Noncontrolling interests in subsidiaries	Noncontrolling interests in subsidiaries	11,382		12,983		Noncontrolling interests in subsidiaries	4,485		10,850
Total equity	Total equity	120,914		134,082		Total equity	113,534		109,764
Total liabilities and equity	Total liabilities and equity	$	543,219	$	561,368	Total liabilities and equity	$	501,871	$	544,016

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

Table of Contents

STRATUS PROPERTIES INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE ~~LOSS~~INCOME (LOSS) (Unaudited)

(In Thousands, Except Per Share Amounts)


		Three Months Ended				Nine Months Ended					Three Months Ended
		September 30,				September 30,					March 31,
		2020		2019		2020		2019				2021		2020
Revenues:	Revenues:									Revenues:
Real estate operations	Real estate operations	$	5,025	$	2,616	$	19,254	$	9,693	Real estate operations		$	6,621	$	12,336
Leasing operations	Leasing operations	5,807		5,024		17,257		13,066		Leasing operations		5,167		5,732
Hotel	Hotel	1,596		8,696		8,537		25,983		Hotel		2,118		5,911
Entertainment	Entertainment	373		5,919		4,818		16,935		Entertainment		609		4,155
Total revenues	Total revenues	12,801		22,255		49,866		65,677		Total revenues		14,515		28,134
Cost of sales:	Cost of sales:									Cost of sales:
Real estate operations	Real estate operations	3,578		2,352		15,754		6,193		Real estate operations		4,344		10,255
Leasing operations	Leasing operations	2,789		2,491		9,941		7,077		Leasing operations		2,377		3,082
Hotel	Hotel	3,318		6,891		10,983		20,397		Hotel		2,902		5,899
Entertainment	Entertainment	1,143		4,629		5,449		12,549		Entertainment		1,307		3,098
Depreciation	Depreciation	3,329		2,835		10,339		8,168		Depreciation		3,002		3,633
Total cost of sales	Total cost of sales	14,157		19,198		52,466		54,384		Total cost of sales		13,932		25,967
General and administrative expenses	General and administrative expenses	2,868		3,025		8,786		9,143		General and administrative expenses		4,544		2,815

Income from forfeited earnest money		0		0		(15,000)		0

Gain on sale of assets	Gain on sale of assets	0		(37)		0		(1,989)		Gain on sale of assets		(22,931)		0
Total	Total	17,025		22,186		46,252		61,538		Total		(4,455)		28,782
Operating (loss) income		(4,224)		69		3,614		4,139
Operating income (loss)										Operating income (loss)		18,970		(648)
Interest expense, net	Interest expense, net	(3,587)		(3,203)		(11,168)		(8,686)		Interest expense, net		(3,035)		(3,915)

Gain (loss) on interest rate derivative instruments		82		(9)		3		(191)
Loss on interest rate derivative instruments										Loss on interest rate derivative instruments		0		(121)
Loss on early extinguishment of debt	Loss on early extinguishment of debt	0		(231)		0		(247)		Loss on early extinguishment of debt		(63)		0
Other income, net	Other income, net	3		18		111		329		Other income, net		3		19
Loss before income taxes and equity in unconsolidated affiliates' loss		(7,726)		(3,356)		(7,440)		(4,656)
Income (loss) before income taxes and equity in unconsolidated affiliates' loss										Income (loss) before income taxes and equity in unconsolidated affiliates' loss		15,875		(4,665)
(Provision for) benefit from income taxes										(Provision for) benefit from income taxes		(207)		2,518
Equity in unconsolidated affiliates' loss	Equity in unconsolidated affiliates' loss	(9)		(7)		(9)		(20)		Equity in unconsolidated affiliates' loss		(2)		0
(Provision for) benefit from income taxes		(7,536)		401		(6,166)		186

Net loss and total comprehensive loss		(15,271)		(2,962)		(13,615)		(4,490)
Total comprehensive loss attributable to noncontrolling interests in subsidiaries		193		2		1,601		3
Net loss and total comprehensive loss attributable to common stockholders		$	(15,078)	$	(2,960)	$	(12,014)	$	(4,487)
Net income (loss) and total comprehensive income (loss)										Net income (loss) and total comprehensive income (loss)		15,666		(2,147)
Total comprehensive (income) loss attributable to noncontrolling interests in subsidiaries										Total comprehensive (income) loss attributable to noncontrolling interests in subsidiaries		(6,722)		1,077
Net income (loss) and total comprehensive income (loss) attributable to common stockholders										Net income (loss) and total comprehensive income (loss) attributable to common stockholders		$	8,944	$	(1,070)

Basic and diluted net loss per share attributable to common stockholders		$	(1.84)	$	(0.36)	$	(1.46)	$	(0.55)
Net income (loss) per share attributable to common stockholders:										Net income (loss) per share attributable to common stockholders:

Basic										Basic		$	1.09	$	(0.13)

Diluted										Diluted		$	1.08	$	(0.13)

Weighted-average common shares outstanding:										Weighted-average common shares outstanding:
Basic										Basic		8,223		8,200
Diluted										Diluted		8,273		8,200

Basic and diluted weighted-average common shares outstanding		8,214		8,188		8,208		8,177

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

Table of Contents

STRATUS PROPERTIES INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(In Thousands)


		Nine Months Ended					Three Months Ended
		September 30,					March 31,
		2020		2019			2021		2020
Cash flow from operating activities:	Cash flow from operating activities:					Cash flow from operating activities:
Net loss		$	(13,615)	$	(4,490)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Net income (loss)						Net income (loss)	$	15,666	$	(2,147)
Adjustments to reconcile net income (loss) to net cash used in operating activities:						Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation	Depreciation	10,339		8,168		Depreciation	3,002		3,633
Cost of real estate sold	Cost of real estate sold	10,692		5,321		Cost of real estate sold	3,112		8,146
Gain on sale of assets	Gain on sale of assets	0		(1,989)		Gain on sale of assets	(22,931)		0
(Gain) loss on interest rate derivative instruments		(3)		191
Loss on early extinguishment of debt	Loss on early extinguishment of debt	0		247		Loss on early extinguishment of debt	63		0
Amortization of debt issuance costs and stock-based compensation	Amortization of debt issuance costs and stock-based compensation	1,601		1,042		Amortization of debt issuance costs and stock-based compensation	529		538

Equity in unconsolidated affiliates' loss	Equity in unconsolidated affiliates' loss	9		20		Equity in unconsolidated affiliates' loss	2		0

Increase in deposits		93		645
Deferred income taxes	Deferred income taxes	12,277		(553)		Deferred income taxes	0		2,477
Loss on interest rate derivative instruments						Loss on interest rate derivative instruments	0		121
Purchases and development of real estate properties	Purchases and development of real estate properties	(11,607)		(8,866)		Purchases and development of real estate properties	(2,489)		(6,222)
Decrease in deposits						Decrease in deposits	(20)		(185)

Municipal utility district reimbursements applied to real estate under development		0		920
Increase in other assets		(2,971)		(3,529)

Decrease (increase) in other assets						Decrease (increase) in other assets	238		(3,967)
Decrease in accounts payable, accrued liabilities and other	Decrease in accounts payable, accrued liabilities and other	(6,356)		(1,120)		Decrease in accounts payable, accrued liabilities and other	(7,543)		(6,828)
Net cash provided by (used in) operating activities		459		(3,993)
Net cash used in operating activities						Net cash used in operating activities	(10,371)		(4,434)

Cash flow from investing activities:	Cash flow from investing activities:					Cash flow from investing activities:
Capital expenditures	Capital expenditures	(5,328)		(51,167)		Capital expenditures	(1,009)		(2,328)
Proceeds from sale of assets	Proceeds from sale of assets	0		3,170		Proceeds from sale of assets	59,488		0
Payments on master lease obligations	Payments on master lease obligations	(1,093)		(1,216)		Payments on master lease obligations	(270)		(287)
Purchase of noncontrolling interest in consolidated subsidiary		0		(4,589)

Other, net	Other, net	(9)		(10)		Other, net	(5)		0
Net cash used in investing activities		(6,430)		(53,812)
Net cash provided by (used in) investing activities						Net cash provided by (used in) investing activities	58,204		(2,615)

Cash flow from financing activities:	Cash flow from financing activities:					Cash flow from financing activities:
Borrowings from credit facility	Borrowings from credit facility	18,800		19,186		Borrowings from credit facility	17,000		12,500
Payments on credit facility	Payments on credit facility	(25,975)		(18,109)		Payments on credit facility	(26,227)		(5,681)
Borrowings from project loans	Borrowings from project loans	15,690		133,278		Borrowings from project loans	458		5,905
Payments on project and term loans	Payments on project and term loans	(7,584)		(64,118)		Payments on project and term loans	(28,708)		(6,380)

Cash dividend paid on vested stock-based awards						Cash dividend paid on vested stock-based awards	(4)		(8)
Stock-based awards net payments	Stock-based awards net payments	(79)		(265)		Stock-based awards net payments	(153)		(91)

Distributions to noncontrolling interests						Distributions to noncontrolling interests	(13,087)		0

Financing costs	Financing costs	(423)		(1,342)		Financing costs	(53)		(81)
Net cash provided by financing activities		429		68,630
Net (decrease) increase in cash, cash equivalents and restricted cash		(5,542)		10,825
Net cash (used in) provided by financing activities						Net cash (used in) provided by financing activities	(50,774)		6,164
Net decrease in cash, cash equivalents and restricted cash						Net decrease in cash, cash equivalents and restricted cash	(2,941)		(885)

Cash, cash equivalents and restricted cash at beginning of year	Cash, cash equivalents and restricted cash at beginning of year	38,591		38,919		Cash, cash equivalents and restricted cash at beginning of year	34,183		38,591
Cash, cash equivalents and restricted cash at end of period	Cash, cash equivalents and restricted cash at end of period	$	33,049	$	49,744	Cash, cash equivalents and restricted cash at end of period	$	31,242	$	37,706

The accompanying Notes to Consolidated Financial Statements (Unaudited), which include information regarding noncash transactions, are an integral part of these consolidated financial statements.

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STRATUS PROPERTIES INC.

CONSOLIDATED STATEMENTS OF EQUITY (Unaudited)

(In Thousands)

~~THREE MONTHS ENDED SEPTEMBER 30~~

Stockholders’ Equity
Common Stock
Held in Treasury Total Stockholders' Equity
Common Stock Capital in Excess of Par Value Accum-ulated Deficit Noncontrolling Interests in Subsidiaries
Number
of Shares At Par
Value Number
of Shares At
Cost Total
Equity
Balance at June 30, 2020 9,347 $ 93 $ 186,422 $ (40,503) 1,137 $ (21,600) $ 124,412 $ 11,575 $ 135,987
Exercised and vested stock-based awards 11 — 22 — — — 22 — 22
Stock-based compensation — — 176 — — — 176 — 176
Total comprehensive loss — — — (15,078) — — (15,078) (193) (15,271)
Balance at September 30, 2020 9,358 $ 93 $ 186,620 $ (55,581) 1,137 $ (21,600) $ 109,532 $ 11,382 $ 120,914

Balance at June 30, 2019 9,305 $ 93 $ 186,334 $ (42,630) 1,128 $ (21,360) $ 122,437 $ 18,075 $ 140,512
Exercised and vested stock-based awards 26 — 15 — — — 15 — 15
Stock-based compensation — — 156 — — — 156 — 156
Forfeited dividends — — 11 — — — 11 — 11
Tender of shares for stock-based awards — — — — 5 (149) (149) — (149)
Total comprehensive loss — — — (2,960) — — (2,960) (2) (2,962)
Balance at September 30, 2019 9,331 $ 93 $ 186,516 $ (45,590) 1,133 $ (21,509) $ 119,510 $ 18,073 $ 137,583


	Stockholders’ Equity
									Common Stock Held in Treasury				Total Stockholders' Equity
	Common Stock			Capital in Excess of Par Value		Accum-ulated Deficit									Noncontrolling Interests in Subsidiaries
	Number of Shares	At Par Value						Number of Shares		At Cost								Total Equity
Balance at December 31, 2020	9,358	$	94	$	186,777	$	(66,357)		1,137		$	(21,600)	$	98,914		$	10,850		$	109,764


Exercised and vested stock-based awards	19	—		0		—			—		—		0			—			0
Stock-based compensation	—	—		182		—			—		—		182			—			182
Grant of restricted stock units under the Profit Participation Incentive Plan	—	—		1,162		—			—		—		1,162			—			1,162


Tender of shares for stock-based awards	—	—		—		—			6		(153)		(153)			—			(153)
Distributions to noncontrolling interests	—	—		—		—			—		—		—			(13,087)			(13,087)
Total comprehensive income	—	—		—		8,944			—		—		8,944			6,722			15,666
Balance at March 31, 2021	9,377	$	94	$	188,121	$	(57,413)		1,143		$	(21,753)	$	109,049		$	4,485		$	113,534

~~Table of Contents~~

~~STRATUS PROPERTIES INC.~~

~~CONSOLIDATED STATEMENTS OF EQUITY (Unaudited)~~

~~(In Thousands)~~

~~NINE MONTHS ENDED SEPTEMBER 30~~

Stockholders’ Equity
Common Stock
Held in Treasury Total Stockholders' Equity
Common Stock Capital in Excess of Par Value Accum-ulated Deficit Noncontrolling Interests in Subsidiaries
Number
of Shares At Par
Value Number
of Shares At
Cost Total
Equity
Balance at December 31, 2019 9,330 $ 93 $ 186,082 $ (43,567) 1,133 $ (21,509) $ 121,099 $ 12,983 $ 134,082
Exercised and vested stock-based awards 28 — 22 — — — 22 — 22
Stock-based compensation — — 516 — — — 516 — 516
Tender of shares for stock-based awards — — — — 4 (91) (91) — (91)
Total comprehensive loss — — — (12,014) — — (12,014) (1,601) (13,615)
Balance at September 30, 2020 9,358 $ 93 $ 186,620 $ (55,581) 1,137 $ (21,600) $ 109,532 $ 11,382 $ 120,914


Balance at December 31, 2018		9,288	$	93	$	186,256	$	(41,103)	1,124	$	(21,260)	$	123,986	$	22,665	$	146,651
Balance at December 31, 2019																		Balance at December 31, 2019	9,330	$	93	$	186,082	$	(43,567)	1,133	$	(21,509)	$	121,099	$	12,983	$	134,082

Exercised and vested stock-based awards	Exercised and vested stock-based awards	43	—		15		—		—	—		15		—		15		Exercised and vested stock-based awards	17	—		0		—		—	—		0		—		0

Stock-based compensation	Stock-based compensation	—	—		234		—		—	—		234		—		234		Stock-based compensation	—	—		162		—		—	—		162		—		162
Forfeited dividends		—	—		11		—		—	—		11		—		11

Tender of shares for stock-based awards	Tender of shares for stock-based awards	—	—		—		—		9	(249)		(249)		—		(249)		Tender of shares for stock-based awards	—	—		—		—		4	(91)		(91)		—		(91)
Purchase of noncontrolling interest in consolidated subsidiary		—	—		—		—		—	—		—		(4,589)		(4,589)

Total comprehensive loss	Total comprehensive loss	—	—		—		(4,487)		—	—		(4,487)		(3)		(4,490)		Total comprehensive loss	—	—		—		(1,070)		—	—		(1,070)		(1,077)		(2,147)
Balance at September 30, 2019		9,331	$	93	$	186,516	$	(45,590)	1,133	$	(21,509)	$	119,510	$	18,073	$	137,583
Balance at March 31, 2020																		Balance at March 31, 2020	9,347	$	93	$	186,244	$	(44,637)	1,137	$	(21,600)	$	120,100	$	11,906	$	132,006

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

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STRATUS PROPERTIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1.GENERAL

The unaudited consolidated financial statements, and the accompanying notes, are prepared in accordance with generally accepted accounting principles in the United States (GAAP) and should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, ~~2019,~~2020, included in Stratus Properties Inc.’s (Stratus) Annual Report on Form 10-K for the year ended December 31, ~~2019~~2020 (Stratus ~~2019~~2020 Form 10-K) filed with the United States (U.S.) Securities and Exchange Commission. The information furnished herein reflects all adjustments that are, in the opinion of management, necessary for a fair statement of the results for the interim periods reported and consist of normal recurring adjustments.

Operating results for the ~~third~~first quarter of ~~2020~~2021 are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2020.~~2021. In particular, Stratus recognized a $22.9 million gain on the ~~impact~~sale of ~~the COVID-19 pandemic intensified late~~assets in the first quarter of ~~2020~~2021 and ~~continues~~the COVID-19 pandemic continued to affect Stratus' operations. As a result, this interim period, as well as future interim periods while the COVID-19 pandemic is ongoing, will not be comparable to past performance or indicative of future performance.

The preparation of Stratus’ consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions, including those related to the potential impacts arising from the COVID-19 pandemic and related government actions, that affect the amounts reported in these financial statements and accompanying notes. Actual results could differ materially from those estimates. As the impact of the COVID-19 pandemic continues to evolve, and the extent of its impact cannot be determined with certainty, estimates and assumptions about future events and their effects require increased judgement. Stratus’ assessment of the future magnitude and duration of the COVID-19 pandemic and related economic disruption, as well as other factors ~~have contributed to the recognition of a $9.6 million valuation allowance on Stratus' deferred tax assets at September 30, 2020, and~~ could result in ~~other~~ material changes to the estimates used in and material impacts to Stratus’ consolidated financial statements in future reporting periods.

~~Real Estate Investment Trust Exploration.~~ On September 21, 2020, Stratus' Board of Directors (Board) announced its approval of the initiation of an in-depth exploration of a conversion from a C-Corporation to a real estate investment trust (REIT). Stratus has engaged financial, tax, accounting and legal advisors, and the Board will closely monitor and evaluate the findings to ultimately determine if conversion to a REIT is in the best interest of Stratus' shareholders. If the Board determines to move forward, Stratus expects the conversion would likely occur in 2022, subject to a variety of factors, including its ability to complete the steps that must be taken in order to convert to a REIT and the timing thereof, and whether its shareholders will approve changes to Stratus’ organizational documents consistent with a public REIT structure.

~~Terminated Block 21 Sale.~~ Block 21 is Stratus’ wholly owned mixed-use real estate development and entertainment business in downtown Austin, Texas that 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.

On December 9, 2019, Stratus entered into definitive agreements to sell Block 21 to Ryman Hospitality Properties, Inc. (Ryman) for $275 million. Ryman deposited $15.0 million in earnest money to secure its performance under the agreements governing the sales. As the proposed sale represented a strategic shift for Stratus, the assets and liabilities of Block 21 were classified as held for sale - discontinued operations in the consolidated balance sheet of Stratus' 2019 Form 10-K. On May 21, 2020, Ryman delivered a termination letter, which was agreed to and accepted by Stratus, terminating the agreements to sell Block 21 and authorizing the release of Ryman's $15.0 million in earnest money to Stratus. During the second quarter of 2020, Stratus recorded the $15.0 million as operating income, used $13.8 million of the $15.0 million earnest money to pay down its Comerica Bank revolving credit facility and used the remaining $1.2 million for Block 21 debt service and required monthly reserves. As a result of the termination of the agreements to sell Block 21, Stratus concluded that such assets and liabilities no longer qualified as held for sale.

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The carrying amounts as of December 31, 2019, of Block 21’s major classes of assets and liabilities, which were previously classified as held for sale - discontinued operations in the consolidated balance sheet of Stratus' 2019 Form 10-K follow (in thousands):


~~Assets:~~
~~Cash and cash equivalents~~	$	~~10,408~~
~~Restricted cash~~	~~13,574~~
~~Real estate held for investment~~	~~131,286~~
~~Other assets~~	~~3,480~~
~~Total assets~~	$	~~158,748~~
~~Liabilities:~~
~~Accounts payable and accrued liabilities, including taxes~~	$	~~7,005~~
~~Debt~~	~~141,184~~
~~Other liabilities~~	~~7,036~~
~~Total liabilities~~	$	~~155,225~~

COVID-19 Pandemic Impact. Since January 2020, the COVID-19 pandemic has caused substantial disruption in international and U.S. economies and markets. The World Health Organization designated the COVID-19 outbreak a pandemic in mid-March 2020. The impacts of the pandemic are expected to continue during 2021 but are anticipated to lessen through the year. The pandemic has resulted in government restrictions of various degrees and effective at various times, including stay-at-home orders, bans on travel, limitations on the size of gatherings, limitations on the operations of businesses deemed non-essential, closures of work facilities, schools, public buildings and businesses, cancellation of events (including entertainment events, conferences and meetings), quarantines and social distancing measures. ~~Recently, there have been reports~~Effective March 10, 2021, the Governor of Texas issued an executive order lifting the mask mandate in Texas and increasing ~~numbers~~the capacity of ~~new COVID-19 cases throughout~~all businesses and facilities in the ~~United States,~~state to 100 percent. Businesses in Texas may still limit capacity or implement additional safety protocols at their own discretion. While Stratus is ramping up its hotel and entertainment operations, it will continue to increase capacity gradually and safely and in ~~particular, Texas, resulting in some governments extending or re-imposing restrictions. The pandemic and responses to it have also caused a steep increase in unemployment in the U.S.~~compliance with all applicable regulations. As a result, the pandemic has had, and is expected to continue to have, a significant adverse impact on Stratus' business and operations, particularly on the hotel and entertainment segments. As mentioned above, Stratus' previously disclosed transaction to sell Block 21 for $275 million was terminated by Ryman as a result of the capital markets and economic environment caused by the COVID-19 pandemic. The COVID-19 pandemic and related economic disruption, as well as other factors, have contributed to the recognition of a $9.6 million valuation allowance on Stratus' deferred tax assets at September 30, 2020. Stratus continues to advance its land planning, engineering and permitting activities. All major construction projects have been completed and no new construction is scheduled until the first quarter of 2021 and may be deferred if health and market conditions warrant. Because the pandemic is unprecedented in recent history, and its severity, duration and future economic consequences are difficult to predict, Stratus cannot predict its future impact on the company with any certainty.

Stratus’ revenue, operating income and cash flow in its hotel and entertainment segments were adversely impacted ~~during~~beginning late in the first ~~three quarters~~quarter of 2020 and through the first quarter of 2021, and are expected to continue to be adversely impacted ~~beyond third-quarter 2020.~~during 2021, although the adverse impacts are currently anticipated to lessen through the year. For example, while the hotel has remained open throughout the pandemic, average occupancy in the ~~third~~first quarter of 2021 was 21 percent, compared to 50 percent in the first quarter of 2020. However, the average occupancy in the first quarter of 2021 was higher than the average occupancy in the fourth quarter of 2020, which was 1613 percent. Stratus' entertainment venues, ACL Live and 3TEN ACL Live, hosted a limited number of events with restricted capacity during ~~third-quarter 2020 as most events were either rescheduled or cancelled as a result of the COVID-19 pandemic.~~first-quarter 2021.

~~As a result~~Refer to Note 1 of the ~~COVID-19 pandemic, many~~Stratus 2020 Form 10-K for further discussion of ~~Stratus’ retail leasing tenants, other than grocery and liquor stores, closed or have been operating at significantly reduced capacity since late in~~ the first quarter of 2020. Beginning in April 2020, Stratus agreed, generally, to 90-day base rent deferrals with a majority of these tenants. The deferred rents are scheduled to be collected over a 12-month or 24-month period starting in January 2021. These rent deferrals resulted in a reduction of scheduled base rent collections of 17 percent during the period from April through September 2020. As of September 30, 2020, all of Stratus’ retail tenants who were open prior to the pandemic had reopened, although operating with capacity restrictions. At its multi-family properties, Stratus has granted rent deferral accommodationspandemic's impacts on a case-by-case basis, which during the period from April through September 2020 resulted in a reduction of scheduled rent collections of less than 1 percent of contractual rents, with no material decline in occupancy. In the aggregate, Stratus’ retail and multi-family rent collections were 8 percent less than scheduled rents during the period from April through September 2020.Stratus' business.

Stratus assessed its rents receivable for potential credit losses as of June 30, 2020, and recorded a $1.4 million charge for estimated uncollectible rents receivable and unrealizable deferred costs. Stratus again assessed its rents receivable for potential credit losses as of September 30, 2020, and concluded that no additional charges for estimated uncollectible rents receivable and unrealizable deferred costs were required. The following is an update to Stratus' revenue recognition accounting policy included in Note 1 of its 2019 Form 10-K. Stratus recognizes its

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~~rental income on a straight-line basis based on~~Subsequent Events. Stratus evaluated events after March 31, 2021, and through the ~~terms of its signed leases with tenants. Recoveries from tenants for taxes, insurance~~date the financial statements were issued, and ~~other commercial property operating expenses are recognized as revenues in the period the related costs are incurred. If upon,~~determined any events or subsequent to, lease commencement, the assessed collectability of lease payments is not probable, recognized lease income is limited to collected lease payments. In addition, any previously recognized rents receivable and deferred lease costs associated with that lease are charged to cost of sales in thetransactions occurring during this period that ~~assessed collectability is considered not probable.~~

In response to the COVID-19 pandemic, the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act) was signed into law on March 27, 2020. The CARES Act provides retroactive tax provisions and other stimulus measures to affected companies including the ability to carry back net operating losses, raising the limitation on the deductibility of interest expense, technical corrections to accelerate tax depreciation for qualified improvement property, and delaying the payment of employer payroll taxes. On April 22, 2020, Stratus received a $4.0 million loan under the Paycheck Protection Program (PPP loan) of the CARES Act. The PPP loan bears interest at 1 percent and matures April 15, 2022, except for the portion that may be forgiven. The proceeds from the loan must be used to retain workers and maintain payrollwould require recognition or ~~make mortgage interest payments, lease payments and utility payments. Refer to Note 8 for further discussion of income tax benefits.~~disclosure are appropriately addressed in these financial statements.

2. EARNINGS PER SHARE

Stratus’ basic net ~~loss~~income (loss) per share of common stock was calculated by dividing the net ~~loss~~income (loss) attributable to common stockholders by the weighted-average shares of common stock outstanding during the period. ~~The~~A reconciliation of net income (loss) and weighted-average shares ~~exclude approximately 90~~of common stock outstanding for purposes of calculating diluted net income (loss) per share (in thousands, except per share amounts) follows:


	Three Months Ended
	March 31,
		2021			2020


Net income (loss) and total comprehensive income (loss) attributable to common stockholders		$	8,944		$	(1,070)

Basic weighted-average shares of common stock outstanding		8,223			8,200
Add shares issuable upon exercise or vesting of dilutive stock options and restricted stock units (RSUs)		50		a	0		b

Diluted weighted-average shares of common stock outstanding		8,273			8,200

Basic net income (loss) per share attributable to common stockholders		$	1.09		$	(0.13)



Diluted net income (loss) per share attributable to common stockholders		$	1.08		$	(0.13)

a.Excludes 16 thousand shares of common stock ~~for third-quarter 2020, 83~~associated with RSUs that were anti-dilutive.

b.Excludes 78 thousand shares ~~for third-quarter 2019, 86 thousand shares for the first nine months~~ of ~~2020 and 91 thousand shares for the first nine months of 2019~~common stock associated with ~~restricted stock units~~RSUs and ~~outstanding~~ stock options that were anti-dilutive as a result of the net ~~losses for the periods.~~

loss.

3. RELATED PARTY TRANSACTIONS

The Saint Mary, L.P. OnIn June ~~19,~~ 2018, The Saint Mary, L.P., a Texas limited partnership and a subsidiary of Stratus, completed a series of financing transactions to develop The Saint Mary, a 240-unit luxury, garden-style apartment project in the Circle C community in Austin, Texas. The financing transactions included a $26.0 million construction loan with Texas Capital Bank, National Association and an $8.0 million private placement. As one of the participants in the private placement offering, LCHM Holdings, LLC (LCHM), a related party as a result of its greater than 5 percent beneficial ownership of Stratus’ common stock, purchased limited partnership interests representing a 6.1 percent equity interest in The Saint Mary, L.P. Refer to Note 2 of the Stratus ~~2019~~2020 Form 10-K for further discussion.

The Saint Mary, L.P. sold The Saint Mary property in January 2021. In connection with the sale, The Saint Mary, L.P. distributed $1.8 million to LCHM. Refer to Note 4 for further discussion.

Stratus Kingwood Place, L.P. OnIn August 3, 2018, Stratus Kingwood Place, L.P., a Texas limited partnership and a subsidiary of Stratus (the Kingwood, L.P.), completed a $10.7 million private placement, approximately $7 million of which, combined with a $6.75 million loan from Comerica Bank, was used to purchase a 54-acre tract of land located in Kingwood, Texas for $13.5 million, for the development of Kingwood Place, a ~~new~~ H-E-B, L.P.-anchored, mixed-use development project (Kingwood Place). As one of the participants in the private placement offering, LCHM purchased ~~Class B~~ limited partnership interests initially representing an 8.8 percent equity interest in the Kingwood, L.P. Refer to Note 2 of the Stratus ~~2019~~2020 Form 10-K for further discussion.

Stratus has performed evaluations and concluded that The Saint Mary, L.P. and the Kingwood, L.P. are variable interest entities and that Stratus is the primary beneficiary. Stratus will continue to evaluate which entity is the primary beneficiary of The Saint Mary, L.P. and the Kingwood, L.P. in accordance with applicable accounting guidance. The Saint Mary, L.P. and the Kingwood, L.P.’s results are consolidated in Stratus’ financial statements.

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Stratus’ consolidated balance sheets include the following ~~combined~~assets and liabilities of the Kingwood, L.P. (in thousands). The assets and liabilities of The Saint Mary ~~L.P.~~(primarily the real estate held for investment and the ~~Kingwood, L.P. (in thousands):~~related debt) are presented as held for sale in Stratus' consolidated balance sheets as of December 31, 2020.


		September 30, 2020		December 31, 2019			March 31, 2021		December 31, 2020
Assets:	Assets:					Assets:
Cash and cash equivalents	Cash and cash equivalents	$	3,212	$	1,110	Cash and cash equivalents	$	437	$	745

Real estate under development	Real estate under development	2,381		3,703		Real estate under development	2,380		2,380
Land available for development	Land available for development	8,317		9,273		Land available for development	8,155		8,143
Real estate held for investment	Real estate held for investment	67,994		64,637		Real estate held for investment	31,810		31,962
Other assets	Other assets	2,186		1,807		Other assets	2,060		2,195
Total assets	Total assets	84,090		80,530		Total assets	44,842		45,425
Liabilities:	Liabilities:					Liabilities:
Accounts payable and accrued liabilities	Accounts payable and accrued liabilities	3,724		8,680		Accounts payable and accrued liabilities	669		850

Debt	Debt	56,277		45,848		Debt	31,469		31,215
Total liabilities	Total liabilities	60,001		54,528		Total liabilities	32,138		32,065
Net assets	Net assets	$	24,089	$	26,002	Net assets	$	12,704	$	13,360

Other Transactions. Stratus has an arrangement with Austin Retail Partners for services provided by a consultant of Austin Retail Partners who is the son of Stratus' President and Chief Executive Officer. Payments to Austin Retail Partners for the consultant's ~~general~~ consulting services ~~related to the entitlement and development of properties~~ and expense reimbursements totaled ~~approximately $28~~$37 thousand in ~~both third-quarter 2020~~first-quarter 2021 and ~~third-quarter 2019, $93~~$39 thousand ~~for the first nine months of 2020 and $84 thousand for the first nine months of 2019. Refer to Note 2 of the Stratus 2019 Form 10-K for further discussion.~~in first-quarter 2020.

4. DISPOSITIONS

The Saint Mary.In January ~~2019, Stratus~~2021, The Saint Mary, L.P. sold ~~a retail pad subject to a ground lease located in the Circle C community~~The Saint Mary for ~~$3.2~~$60.0 million. ~~Stratus used a portion~~After closing costs and payment of the outstanding construction loan, the sale generated net proceeds of approximately $34 million. After establishing a reserve for remaining costs of the partnership, Stratus received $20.9 million from the subsidiary in connection with the sale ~~to repay $2.5~~and $12.9 million of ~~its Comerica Bank credit facility borrowings and, after adjustments recorded in~~ the ~~second and third quarters of 2019, recorded~~net proceeds were distributed to the noncontrolling interest owners. Stratus recognized a gain on ~~this~~the sale ~~totaling $2.0~~of $22.9 million ~~for~~($16.2 million net of noncontrolling interests) in the first ~~nine months~~quarter of ~~2019.~~2021. Stratus also recognized a $63 thousand loss on extinguishment of debt related to the repayment of The Saint Mary construction loan.

Stratus reported the assets and liabilities of The Saint Mary as held for sale in its December 31, 2020, consolidated balance sheet. The carrying amounts of the major classes of assets and liabilities for The Saint Mary as of December 31, 2020, follow (in thousands):


Assets:
Real estate held for investment, net	$	36,341
Other assets	175
Total assets held for sale	$	36,516
Liabilities:
Accrued liabilities	$	68
Debt	25,319
Other liabilities	220
Total liabilities held for sale	$	25,607

The Saint Mary had rental revenue of $0.1 million in first-quarter 2021 prior to the sale and $0.7 million in first-quarter 2020. Interest expense, net of capitalized amounts, related to The Saint Mary construction loan was less than $0.1 million in first-quarter 2021 and $0.3 million in first-quarter 2020.

5. FAIR VALUE MEASUREMENTS

Fair value accounting guidance includes a hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 inputs) and the lowest priority to unobservable inputs (Level 3 inputs).

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.

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

September 30, 2020 December 31, 2019
Carrying
Value Fair
Value Carrying
Value Fair
Value
Assets:
Interest rate cap agreement $ 0 $ 0 $ 3 $ 3
Liabilities:
Debt 368,601 372,288 365,749 370,558
Interest rate swap agreement 108 108 114 114

~~Interest Rate Cap and Swap Agreements.~~ In September 2019, a Stratus subsidiary paid $24 thousand to enter into an interest rate cap agreement, which caps the maximum London Interbank Offered Rate (LIBOR) at 3.0 percent, on a total notional amount of $75.0 million (the principal amount of The Santal loan). The interest rate cap agreement provides that the Stratus subsidiary will collect the difference between 3.0 percent and one-month LIBOR if one-month LIBOR is greater than 3.0 percent (refer to Note 6 in the Stratus 2019 Form 10-K for further discussion of The Santal loan). The interest rate cap agreement terminates on October 5, 2021.

The interest rate swap agreement with Comerica Bank was entered into in 2013, is effective through December 31, 2020, and has a fixed interest rate of 2.3 percent compared to the variable rate based on the one-month LIBOR. As

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of September 30, 2020, the agreement had a notional amount of $14.9 million, which will amortize to $14.8 million by the end of the agreement, and as of December 31, 2019, the agreement had a notional amount of $15.3 million.

The interest rate cap and swap agreements do not qualify for hedge accounting so changes in the agreements' fair values are recorded in the consolidated statements of comprehensive loss. Stratus uses an interest rate pricing model that relies on market observable inputs such as LIBOR to measure the fair value of both agreements. Stratus also evaluated the counterparty credit risk associated with both agreements, which is considered a Level 3 input, but did not consider such risk to be significant. Therefore, the interest rate cap and swap agreements are classified within Level 2 of the fair value hierarchy.


	March 31, 2021				December 31, 2020
	Carrying Value		Fair Value		Carrying Value		Fair Value



Liabilities:
Debt	$	339,213	$	342,214	$	351,055	$	354,380

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. Accordingly, Stratus' debt is classified within Level 2 of the fair value hierarchy. The fair value of debt does not represent the amounts that will ultimately be paid upon the maturities of the loans.

6. DEBT

The components of Stratus' debt are as follows (in thousands):


		September 30, 2020		December 31, 2019			March 31, 2021		December 31, 2020
Block 21 loan	Block 21 loan	$	139,578	$	141,184	Block 21 loan	$	138,417	$	139,013

The Santal loan	The Santal loan	74,252		73,972		The Santal loan	74,439		74,343
Comerica Bank credit facility	Comerica Bank credit facility	35,307		42,482		Comerica Bank credit facility	34,077		43,304
New Caney land loan	New Caney land loan	4,939		4,908		New Caney land loan	4,485		4,949

PPP loan		3,987		0
Paycheck Protection Program (PPP) loan						Paycheck Protection Program (PPP) loan	3,987		3,987
Construction loans:	Construction loans:					Construction loans:
Kingwood Place	Kingwood Place	30,996		23,991		Kingwood Place	31,469		31,215
The Saint Mary		25,281		21,857

Jones Crossing						Jones Crossing	22,370		22,377
Lantana Place	Lantana Place	24,099		23,268		Lantana Place	21,926		24,051
Jones Crossing		22,301		21,354
West Killeen Market	West Killeen Market	7,159		7,213		West Killeen Market	6,674		6,707
Amarra Villas credit facility	Amarra Villas credit facility	702		5,520		Amarra Villas credit facility	1,369		1,109
Total debta	Total debta	$	368,601	$	365,749	Total debta	$	339,213	$	351,055

a.Includes net reductions for unamortized debt issuance costs of ~~$2.5~~$1.9 million at ~~September 30, 2020,~~March 31, 2021, and ~~$3.5~~$2.2 million at December 31, ~~2019.~~2020.

As of ~~September 30, 2020,~~March 31, 2021, Stratus had ~~$24.5~~$25.8 million available under its $60.0 million Comerica Bank credit facility, with a $150 thousand letter of credit committed against the credit facility. ~~Effective~~

In January 2021, Stratus entered into an amendment to the Lantana Place construction loan in which Stratus' Lantana Place subsidiary was granted a waiver of the debt service coverage ratio covenant until September 30, 2021, at which point the ratio is measured by reference to the three-month period then ended, and subsequently builds each quarter until measured by reference to the 12-month period ending June 30, 2022, and then on a trailing 12-month period for each quarter thereafter. As part of the January 2021 amendment, Stratus repaid $2.0 million in principal on the Lantana Place construction loan.

In March 2021, Stratus exercised its option to extend the New Caney land loan for an additional 12 months from March 8, 2021, to March 8, 2022, which required a principal payment of $0.5 million.

In April ~~14, 2020,~~2021, Stratus ~~and Comerica Bank agreed~~entered into an amendment to ~~modify the Comerica Bank credit facility~~The Santal loan to (i) extend the maturity date ~~of the credit facility~~ from ~~June 29, 2020,~~October 5, 2022, to September 27, 2020, and (ii) revise the definition of LIBOR to provide for an increase in the LIBOR floor from 0 percent to 1 percent. On June 12, 2020, Stratus entered into a further amendment to its credit facility agreement with Comerica BankOctober 5, 2024 (and remove two options to extend the maturity date ~~of the facility to September 27, 2022.~~

The Saint Mary construction loan matures June 19, 2021. Stratus expects to refinance the loan or sell The Saint Mary prior to the maturity date. The New Caney land loan matures March 8, 2021. Stratus expects to exercise its option to extend the loan for an additional 12 ~~months,~~months); (ii) revise the interest rate from LIBOR (or, if applicable, a replacement rate) plus 2.85 percent, with a 4.80 percent floor, to LIBOR (or, if applicable, a replacement rate) plus 3.25 percent, with a 3.40 percent floor; (iii) eliminate the requirement that Stratus' Santal subsidiary make minimum amortization payments beginning in November 2022; (iv) extend the period during which ~~requires a principal payment~~The Santal loan may not be prepaid from April 2020 to June 2022; and (v) revise certain events or circumstances that would qualify as an event of ~~approximately $500 thousand.~~default or violate the prohibition on conveyances under the applicable provisions.

Effective November 2, 2020, the West Killeen Market construction loan was modified to replace the financial covenant that Stratus maintain a minimum total stockholders’ equity balance of $110.0 million with a financial covenant that Stratus maintain a minimum net asset value, as defined in the agreement, of $125 million.

~~During second-quarter~~In April 2020, Stratus ~~entered~~received a $4.0 million loan under the Paycheck Protection Program (PPP loan) of the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act), which was signed into ~~amendments~~law on March 27, 2020. The PPP loan accrues interest at one percent and will mature on April 15, 2022, except for the portion that may be forgiven. The proceeds from the loan were to be used to retain workers and maintain payroll or make mortgage interest payments, lease payments and utility payments. Stratus intends to apply for forgiveness of its PPP loan prior to the ~~Lantana Place and West Killeen Market construction loans in which Stratus was granted waivers~~June 2021 deadline; however, no assurance of ~~the debt service coverage ratio covenants for the quarters needed such that it believes that it will~~full forgiveness can be ~~able to remain in compliance if rent payments do not further deteriorate materially as currently anticipated.~~

provided.

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In January 2020, the Kingwood Place construction loan was modified to increase the loan amount by $2.5 million to a total of $35.4 million. The increase was used to fund the construction of a retail building on an existing Kingwood Place retail pad.

For ~~a description of~~additional information regarding Stratus' ~~other~~ debt, refer to Note 6 in the Stratus ~~2019~~2020 Form 10-K.

Interest Expense and Capitalization. Interest costs (before capitalized interest) totaled ~~$4.7~~$4.3 million in ~~third-quarter 2020,~~first-quarter 2021 and $5.2 million in ~~third-quarter 2019, $14.8 million for the first nine months of 2020 and $14.9 million for the first nine months of 2019.~~first-quarter 2020. Stratus' capitalized interest totaled ~~$1.1~~$1.3 million in ~~third-quarter~~both first-quarter 2021 and first-quarter 2020, ~~$2.0 million in third-quarter 2019, $3.6 million for the first nine months of 2020 and $6.2 million for the first nine months of 2019,~~ primarily related to development activities at Barton Creek. ~~The 2019 periods also included capitalized interest related to development activities at Kingwood Place and The Saint Mary.~~

7. PROFIT PARTICIPATION INCENTIVE PLAN

In July 2018, the ~~Stratus~~ Compensation Committee of ~~the~~Stratus' Board of Directors (the Committee) unanimously adopted the Stratus Profit Participation Incentive Plan (the Plan), which provides participants with economic incentives tied to the success of the development projects designated by the Committee as approved projects under the Plan. Estimates related to the awards may change over time as a result of differences between projected and actual development progress and costs, market conditions and the timing of capital transactions or valuation events. Refer to Note 8 of the Stratus ~~2019~~2020 Form 10-K for further discussion.

During ~~third-quarter~~first-quarter 2021, Stratus added $0.2 million to project development costs and charged $0.5 million to general and administrative expense related to the Plan. In March 2021, Stratus granted 53,411 stock-settled RSUs with a grant-date value of $1.5 million, based on Stratus' stock price on the date of issuance, under the Plan for West Killeen Market, which reached a valuation event under the Plan in October 2020. Stratus transferred the $1.2 million accrued liability balance under the Plan for West Killeen Market to capital in excess of par value and will amortize the $0.3 million balance of the grant date value with a charge to general and administrative expenses and a credit to capital in excess of par value over the three-year vesting period of the RSUs. The sale of The Saint Mary in January 2021, was a capital transaction under the Plan. The accrued liability under the Plan related to The Saint Mary project totaled $2.2 million at March 31, 2021, and is expected to be paid in cash to eligible participants no later than March 15, 2022.

During first-quarter 2020, Stratus recorded a ~~$0.3 million increase~~$49 thousand reduction to the accrued liability for the Plan of which ~~$0.1 million increased~~$4 thousand reduced project development costs and ~~$0.2 million increased~~$45 thousand reduced general ~~and~~ administrative expenses. During third-quarter 2019, Stratus accrued $0.2 million to project development costs and $0.2 million in general and administrative expenses related to the Plan. During the first nine months of 2020, Stratus accrued $0.3 million to project development costs and $0.4 million in general and administrative expense related to the Plan. During the first nine months of 2019, Stratus accrued $0.6 million to project development costs and $0.7 million in general and administrative expense related to the Plan. The accrued liability for the Plan totaled ~~$3.2~~$5.7 million at ~~September 30, 2020,~~March 31, 2021, and ~~$2.5~~$6.2 million at December 31, ~~2019~~2020 (included in other liabilities). As of ~~September 30, 2020,~~March 31, 2021, 0 amounts had been paid in cash to participants under the Plan.

8. INCOME TAXES

Stratus’ accounting policy for and other information regarding its income taxes is further described in Notes 1 and 7 in the Stratus ~~2019~~2020 Form 10-K.

Stratus had deferred tax assets (net of deferred tax ~~liabilities)~~liabilities and valuation allowances) totaling ~~$34~~$44 thousand at ~~September 30, 2020~~March 31, 2021, and ~~$12.3~~December 31, 2020. Stratus' deferred tax assets had valuation allowances totaling $11.9 million at March 31, 2021, and $10.7 million at December 31, ~~2019. The decrease in Stratus' net deferred tax assets is primarily attributed to a valuation allowance recorded in the third quarter of 2020 totaling $9.6 million.~~2020. In evaluating the recoverability of the deferred tax assets, management considered available positive and negative evidence, giving greater weight to the recent current cumulative losses and uncertainty regarding projected future financial results. Upon a change in facts and circumstances, management may conclude that sufficient positive evidence exists to support a reversal of, or decrease in, the valuation allowance in the future, which would favorably impact Stratus' results of operations. Stratus’ future results of operations may be negatively impacted by an inability to realize a tax benefit for future tax losses or for items that will generate additional deferred tax ~~assets.~~assets that are not more likely than not to be realized.

The difference between Stratus' consolidated effective income tax rate of ~~(83)~~1 percent for the first ~~nine~~three months of 2021 and the U.S. Federal statutory income tax rate of 21 percent was primarily attributable to a forecasted taxable loss for 2021, noncontrolling interests in subsidiaries, the presence of a full valuation allowance against U.S. Federal deferred tax assets, and the Texas state margin tax. The difference between Stratus' consolidated effective income tax rate of 54 percent for the first three months of 2020 and the U.S. Federal statutory income tax rate of 21 percent, was primarily attributable to the ~~discrete tax charge of $9.6 million to record a valuation allowance on Stratus' deferred tax assets; the~~ CARES Act, which ~~among other impacts, allows~~allowed Stratus to ~~carry back~~carryback losses to 2017 when the U.S. corporate tax rate was 35 percent, among other impacts, resulting in a ~~discrete~~first-quarter 2020 tax benefit of ~~$1.4 million;~~$1.3 million, and the Texas state margin tax. The difference between Stratus' consolidated effective income tax rate of 4 percent for the first nine months of 2019 and the U.S. Federal statutory income tax rate of 21 percent, was primarily attributable to the Texas state margin tax and the Tax Cuts and Jobs Act's executive compensation deductibility limitation.

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9. BUSINESS SEGMENTS

Stratus ~~currently~~ has 4 operating segments: Real Estate Operations, Leasing Operations, Hotel and Entertainment.

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; the Circle C community; the Lantana community, including a portion of Lantana Place planned for a future multi-family phase; and one condominium unit at the W Austin ~~Hotel & Residences)~~Residences in Block 21, which was sold in February 2021); in Lakeway, Texas, located in the greater Austin area (Lakeway); in College Station, Texas (a portion of Jones Crossing and vacant pad sites); in Killeen, Texas (vacant pad sites at West Killeen Market); and in Magnolia, Texas (Magnolia Place), Kingwood, Texas (land for future multi-family development and vacant pad sites) and New Caney, Texas (New Caney), located in the greater Houston area.

The Leasing Operations segment is comprised of Stratus’ real estate assets, both residential and commercial, that are leased or available for lease and includes The Santal, West Killeen Market, ~~The Saint Mary,~~ office and retail space at ~~the W Austin Hotel & Residences~~Block 21 and completed portions of Lantana Place, Jones Crossing and Kingwood Place. The Saint Mary was included in Leasing Operations until it was sold in January 2021 (see Notes 3 and 4 for further discussion).

The Hotel segment includes the W Austin Hotel located at ~~the W Austin Hotel & Residences~~Block 21 in downtown Austin, Texas.

The Entertainment segment includes ACL Live, a live music and entertainment venue, and 3TEN ACL Live, both located at ~~the W Austin Hotel & Residences.~~Block 21. In addition to hosting concerts and private events, ACL Live is the home of Austin City Limits, the longest running music series in American television history.

Stratus uses operating income or loss to measure the performance of each segment. General and administrative expenses, which primarily consist of employee salaries, wages and other costs, are managed on a consolidated basis and are not allocated to Stratus’ operating segments. The following segment information reflects management determinations that may not be indicative of what the actual financial performance of each segment would be if it were an independent entity.

Revenues from Contracts with Customers. Stratus' revenues from contracts with customers follow (in thousands):


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2020		2019		2020		2019				2021		2020
Real Estate Operations:	Real Estate Operations:									Real Estate Operations:
Developed property sales	Developed property sales	$	5,001	$	2,601	$	19,141	$	9,483	Developed property sales		$	4,040	$	12,308

Undeveloped property sales										Undeveloped property sales		2,500		0
Commissions and other	Commissions and other	24		15		113		210		Commissions and other		81		28
		5,025		2,616		19,254		9,693				6,621		12,336
Leasing Operations:	Leasing Operations:									Leasing Operations:
Rental revenue	Rental revenue	5,807		5,024		17,257		13,066		Rental revenue		5,167		5,732

Hotel:	Hotel:									Hotel:
Rooms, food and beverage	Rooms, food and beverage	1,504		8,097		7,511		24,279		Rooms, food and beverage		1,760		5,075
Other	Other	92		599		1,026		1,704		Other		358		836
		1,596		8,696		8,537		25,983				2,118		5,911
Entertainment:	Entertainment:									Entertainment:
Event revenue	Event revenue	373		5,211		4,224		15,033		Event revenue		595		3,558
Other	Other	0		708		594		1,902		Other		14		597
		373		5,919		4,818		16,935				609		4,155

Total revenues from contracts with customers	Total revenues from contracts with customers	$	12,801	$	22,255	$	49,866	$	65,677	Total revenues from contracts with customers		$	14,515	$	28,134

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Financial Information by Business Segment. The following segment information was prepared on the same basis as Stratus’ consolidated financial statements (in thousands).


															Real Estate Operationsa		Leasing Operations			Hotel		Entertainment		Corporate, Eliminations and Otherb		Total
		Real Estate Operationsa		Leasing Operations		Hotel		Entertainment		Corporate, Eliminations and Otherb		Total
Three Months Ended September 30, 2020:
Three Months Ended March 31, 2021:														Three Months Ended March 31, 2021:
Revenues:	Revenues:													Revenues:
Unaffiliated customers	Unaffiliated customers	$	5,025	$	5,807	$	1,596	$	373	$	0	$	12,801	Unaffiliated customers	$	6,621	$	5,167		$	2,118	$	609	$	0	$	14,515
Intersegment	Intersegment	5		223		18		(6)		(240)		0		Intersegment	4		230			32		0		(266)		0
Cost of sales, excluding depreciation	Cost of sales, excluding depreciation	3,585		2,793		3,317		1,242		(109)		10,828		Cost of sales, excluding depreciation	4,333		2,381			2,902		1,425		(111)		10,930
Depreciation	Depreciation	57		2,051		891		392		(62)		3,329		Depreciation	56		1,711			880		401		(46)		3,002

General and administrative expenses	General and administrative expenses	0		0		0		0		2,868		2,868		General and administrative expenses	0		0			0		0		4,544		4,544

Gain on sale of assets														Gain on sale of assets	0		(22,931)		c	0		0		0		(22,931)

Operating income (loss)	Operating income (loss)	$	1,388	$	1,186	$	(2,594)	$	(1,267)	$	(2,937)	$	(4,224)	Operating income (loss)	$	2,236	$	24,236		$	(1,632)	$	(1,217)	$	(4,653)	$	18,970
Capital expenditures and purchases and development of real estate properties														Capital expenditures and purchases and development of real estate properties	$	2,489	$	919		$	72	$	18	$	0	$	3,498
Total assets at March 31, 2021														Total assets at March 31, 2021	161,471		195,234			91,191		32,787		21,188		501,871

Capital expenditures and purchases and development of real estate properties		$	2,952	$	716	$	213	$	2	$	0	$	3,883

Total assets at September 30, 2020		160,890		236,970		93,666		35,495		16,198		543,219

Three Months Ended
September 30, 2019:
Revenues:
Unaffiliated customers $ 2,616 $ 5,024 $ 8,696 $ 5,919 $ 0 $ 22,255
Intersegment 4 219 68 307 (598) 0
Cost of sales, excluding depreciation 2,352 2,495 6,931 4,770 (185) 16,363
Depreciation 57 1,529 903 393 (47) 2,835
General and administrative expenses 0 0 0 0 3,025 3,025
Gain on sale of assets 0 (37) c 0 0 0 (37)
Operating income (loss) $ 211 $ 1,256 $ 930 $ 1,063 $ (3,391) $ 69
Capital expenditures and purchases and development of real estate properties $ 3,110 $ 5,871 $ 294 $ 12 $ 0 $ 9,287
Total assets at September 30, 2019 193,421 197,052 97,414 43,810 36,235 567,932

Nine Months Ended
September 30, 2020:
Revenues:
Unaffiliated customers $ 19,254 $ 17,257 $ 8,537 $ 4,818 $ 0 $ 49,866
Intersegment 13 666 82 8 (769) 0
Cost of sales, excluding depreciation 15,653 9,955 d 10,992 e 5,773 (246) 42,127
Depreciation 173 6,132 2,927 f 1,279 f (172) 10,339
General and administrative expenses 0 0 0 0 8,786 8,786
Income from forfeited earnest money 0 0 0 0 (15,000) g (15,000)
Operating income (loss) $ 3,441 $ 1,836 $ (5,300) $ (2,226) $ 5,863 $ 3,614
Capital expenditures and purchases and development of real estate properties $ 11,607 $ 4,681 $ 523 $ 124 $ 0 $ 16,935

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		Real Estate Operationsa			Leasing Operations			Hotel		Entertainment		Corporate, Eliminations and Otherb		Total
Nine Months Ended September 30, 2019:
Three Months Ended March 31, 2020:																Three Months Ended March 31, 2020:
Revenues:	Revenues:															Revenues:
Unaffiliated customers	Unaffiliated customers	$	9,693		$	13,066		$	25,983	$	16,935	$	0	$	65,677	Unaffiliated customers	$	12,336	$	5,732		$	5,911		$	4,155		$	0	$	28,134
Intersegment	Intersegment	13			678			195		381		(1,267)		0		Intersegment	4		227			48			15			(294)		0
Cost of sales, excluding depreciation	Cost of sales, excluding depreciation	6,193		h	7,090			20,497		12,962		(526)		46,216		Cost of sales, excluding depreciation	10,182		3,088			5,908			3,226			(70)		22,334
Depreciation	Depreciation	182			4,324			2,702		1,183		(223)		8,168		Depreciation	59		2,047			1,105		d	483		d	(61)		3,633

General and administrative expenses	General and administrative expenses	0			0			0		0		9,143		9,143		General and administrative expenses	0		0			0			0			2,815		2,815
Gain on sale of assets		0			(1,989)		c	0		0		0		(1,989)

Operating income (loss)	Operating income (loss)	$	3,331		$	4,319		$	2,979	$	3,171	$	(9,661)	$	4,139	Operating income (loss)	$	2,099	$	824		$	(1,054)		$	461		$	(2,978)	$	(648)
Capital expenditures and purchases and development of real estate properties	Capital expenditures and purchases and development of real estate properties	$	8,866		$	50,482		$	548	$	137	$	0	$	60,033	Capital expenditures and purchases and development of real estate properties	$	6,222	$	2,283		$	27		$	18		$	0	$	8,550
Municipal utility district (MUD) reimbursements applied to real estate under developmenth		920			0			0		0		0		920
Total assets at March 31, 2020																Total assets at March 31, 2020	160,691		235,734		e	96,484			42,639			23,390		558,938

a.Includes sales commissions and other revenues together with related expenses.

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

c.~~Relates to~~Represents the ~~first-quarter 2019~~gain on the January 2021 sale of ~~a retail pad subject to a ground lease located in the Circle C community, including adjustments recorded in the third-quarter of 2019. Refer to Note 4.~~The Saint Mary.

d.~~Includes a $1.4 million charge for estimated uncollectible rents receivable and unrealizable deferred costs. Refer to Note 1.~~

e.~~Includes a $0.8 million credit related to a business interruption insurance claim filed as a result of water and smoke damage in the W Austin hotel in January 2018.~~

f.Includes a $202 thousand adjustment in the Hotel segment and an $89 thousand adjustment in the Entertainment segment for the period in December 2019 when the hotel and entertainment venues were held for sale and, therefore, not depreciated.

g.e.~~Represents income from earnest money received as a result of Ryman's termination of the agreements to sell Block 21.~~Includes assets held for sale at The Saint Mary, which totaled $37.1 million at March 31, 2020.

h.In the first quarter of 2019, Stratus received $4.6 million of proceeds related to MUD reimbursements of infrastructure costs incurred for development of Barton Creek. Of the total amount, Stratus recorded $0.9 million as a reduction of real estate under development on the consolidated balance sheets, and $3.4 million as a reduction in real estate cost of sales and $0.3 million in other income, net in the consolidated statements of comprehensive loss. Refer to Note 1 of the Stratus 2019 Form 10-K for further discussion of Stratus' accounting policy for MUD reimbursements.

~~10. SUBSEQUENT EVENTS~~

Stratus evaluated events after September 30, 2020, 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.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

In Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A), “we,” “us,” “our” and "Stratus" refer to Stratus Properties Inc. and all entities owned or controlled by Stratus Properties Inc. 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, ~~2019 (2019~~2020 (2020 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 ~~2019~~2020 Form 10-K for further discussion). In particular, the ~~impact~~impacts of the COVID-19 pandemic ~~intensified late in the first quarter of 2020 and continues~~continue to affect our operations. As a result, our performance during this interim period, as well as future interim periods while the COVID-19 pandemic is ongoing, will not be comparable to past performance or indicative of future performance. We expect continued uncertainty in our business and the global economy as a result of the duration and intensity of the COVID-19 pandemic and its related effects.All subsequent references to “Notes” refer to Notes to Consolidated Financial Statements (Unaudited) located in Part I, Item 1. “Financial Statements” herein, unless otherwise stated.

We are a diversified real estate company with headquarters in Austin, Texas. We are engaged primarily in the acquisition, entitlement, development, management ~~operation~~ and sale of commercial, and multi-family and single-family residential real estate properties, real estate leasing, and the operation of hotel and entertainment businesses located in the Austin, Texas area, and other select, fast-growing markets in Texas. We generate revenues and cash flows from the sale of our developed properties, rental income from our leased properties and from our hotel and entertainment operations. Refer to Note 9 for further discussion of our operating ~~segments.~~segments and “Business Strategy” below for a discussion of our business strategy.

BUSINESS STRATEGY

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, ~~plus~~as well as several completed ~~retail~~commercial and residential projects. Our W Austin Hotel and our ACL Live and 3TEN ACL Live entertainment venues are located in downtown Austin at our Block 21 property and are central to the city's world-renowned, vibrant music scene.

Our primary business objective is to create value for stockholders by methodically developing and enhancing the value of our properties and then selling them ~~profitably.~~or holding them for lease. Our full cycle development program of acquiring properties, securing and maintaining development entitlements, developing and stabilizing properties, and ~~then preparing~~selling them ~~for sale~~ or ~~refinancing~~holding them as part of our leasing operations is a key element of our strategy. We ~~currently have projects~~may also seek to refinance properties, in ~~certain~~order to benefit from the increased value of ~~these stages as described below in “Development Activities - Current Residential Activities” and “Development Activities - Current Commercial Activities.”~~the property, from lower interest rates or for other reasons.

We believe that Austin and other select, fast-growing markets in Texas continue to be ~~desirable~~attractive locations. Many of our developments are in locations where development approvals have historically been subject to regulatory constraints, which has made it difficult to obtain or change entitlements. Our Austin properties, which are located in desirable areas with significant regulatory constraints, are entitled and have utility capacity for full buildout. As a result, we believe that through strategic planning, development and marketing, we can maximize and fully realize their value.

Our development plans require significant additional capital, which we may pursue through joint ventures or other arrangements. Our business strategy requires us to rely on cash flow from operations and debt financing as our primary sources of funding for our liquidity needs. We have also, from time to time, relied on project-level equity financing of our subsidiaries. We have formed strategic relationships as part of our overall strategy for particular development projects and may enter into other similar arrangements in the future.

~~On September 21, 2020, our~~In January 2021, we sold The Saint Mary, a 240-unit luxury garden-style apartment project in the Circle C community, for $60.0 million. After closing costs and payment of the outstanding construction loan, the sale generated net proceeds of approximately $34 million. 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 gain on the sale of $22.9 million ($16.2 million net of noncontrolling interests) in the first quarter of 2021.

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Our Board of Directors (Board) ~~announced its approval of the initiation of~~has authorized an in-depth exploration of a conversion from a C-Corporation to a real estate investment trust (REIT). We have engaged financial, tax, accounting and legal advisors, and the Board will closely monitor and evaluate the findings to ultimately determine if conversion to a REIT is in the best interest of our ~~shareholders.~~stockholders. If the Board determines to move forward, we expect the conversion would ~~likely~~ occur inno earlier than 2022. ~~At this time, we~~We believe that the REIT conversion would require consent from our major lenders and amendments to our major ~~loan~~debt agreements, among other third-party consents. We also expect to seek ~~shareholder~~stockholder approval to implement provisions in our

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organizational documents consistent with a public REIT structure, if the Board ultimately determines that a REIT conversion is in ~~shareholders’~~stockholders’ best interests.

As part of this assessment, we are also conducting a comprehensive review of our governance practices and Board composition to ensure we have access to the appropriate expertise and mix of skillsets moving forward. We expect to provide further information after we complete our evaluation. We may add directors to replace recent departures, prior to completing our overall review. See “Cautionary Statement” below.

OVERVIEW OF THE IMPACTS OF THE COVID-19 PANDEMIC

Since January 2020, the COVID-19 ~~outbreak~~pandemic has caused substantial disruption in international and U.S. economies and markets, intensifying in the latter part of the first quarter of 2020 and continuing through and subsequent to the third quarter of 2020, and its impact is expected to continue beyond 2020. On March 11, 2020, themarkets. The World Health Organization designated the COVID-19 outbreak a ~~pandemic.~~pandemic in mid-March 2020. The impacts of the pandemic are expected to continue during 2021 but are anticipated to lessen through the year. The pandemic has resulted in government restrictions of various degrees and effective at various times, ~~including stay-at-home orders, bans on travel,~~resulting in limitations on normal daily activities for individuals and capacity restrictions and, in some cases, closures for many businesses. Effective March 10, 2021, the ~~size~~Governor of ~~gatherings, limitations on~~Texas issued an executive order lifting the ~~operations~~mask mandate in Texas and increasing the capacity of all businesses ~~deemed non-essential, closures of work~~and facilities schools, public buildings and businesses, cancellation of events (including entertainment events, conferences and meetings), quarantines and social distancing measures. For example, on March 6, 2020, the annual South by Southwest music festival in Austin, Texas was cancelled, on July 1, 2020, the annual Austin City Limits music festival in Austin, Texas was cancelled, and on July 24, 2020, the Formula 1 U.S. Grand Prix planned to be held in Austin, Texas was cancelled. The pandemic and responses to it have also caused a steep increase in unemployment in the ~~U.S. As~~state to 100 percent. Businesses in Texas may still limit capacity or implement additional safety protocols at their own discretion. While we are ramping up our hotel and entertainment operations, we will continue to increase capacity gradually and safely and in compliance with all applicable regulations. We are optimistic about a ~~result,~~post-pandemic recovery. We are encouraged by indications that the vaccines have been effective and believe they will help increase consumer confidence and deliver a resurgence in travel and live entertainment.

Impacts on our Business

The COVID-19 pandemic has had, and is ~~having, and we believe will~~expected to continue to have, a significant adverse impact on our business and operations, particularly on the hotel and entertainment segments which were adversely impacted beginning late in the first quarter of 2020 and to date in 2021, and are expected to continue to be adversely impacted during 2021, although the impacts are anticipated to lessen through the year. For example, while the hotel has remained open throughout the pandemic, average occupancy in the first quarter of 2021 was 21 percent, compared to 50 percent in the first quarter of 2020. However, the average occupancy in the first quarter of 2021 was higher than the average occupancy in the fourth quarter of 2020, which was 13 percent. Our entertainment venues, ACL Live and 3TEN ACL Live, hosted a limited number of events with restricted capacity during first-quarter 2021. Our team continues to create innovative programming at our entertainment venues, and we currently expect to see improved results as ~~discussed further below.~~schedules are filled and capacity increases over time. The extent to which the adverse impacts of the pandemic continue depends on numerous evolving factors that we cannot predict. Moreover, even as travel advisories and restrictions are lifted, travel and entertainment demand may remain weak for a significant length of time, and attractions and events that previously brought visitors and artists to the city of Austin may not proceed or may proceed with limited capacity.

The Austin market, as well as the other Texas markets where we operate, continue to rebound from pandemic ~~remains complex and rapidly-evolving. State and local governments in Texas have implemented phased reopening processes, often with reduced capacity and social distancing restrictions. Recently, there~~lows. Our residential properties have been ~~reports~~positively impacted by home-centric trends resulting from the pandemic and from the increased attractiveness of ~~increasing numbers of new COVID-19 cases throughout the United States, and in particular,~~Austin, Texas ~~resulting in some governments extending or re-imposing restrictions.~~as a desirable place to live. For example, we have sold almost all of our single-family lot inventory at Barton Creek at attractive prices. However, with increased demand and construction activity in our markets, we have also experienced cost increases in certain construction materials, particularly lumber. We continue to actively manage and monitor these costs. In addition, the ongoing trend toward online shopping has accelerated during the COVID-19 pandemic. We have been adjusting to these retail trends by incorporating more multi-family residential space and more food and beverage and entertainment space into our development plans.

Despite the COVID-19 pandemic, we have continued to advance our land planning, engineering and permitting activities. In the first quarter of 2021, we completed site clearing on The Saint June, a 182-unit multi-family project in Barton Creek. In April 2021, we announced development plans for Holden Hills, a new residential development formerly known as Section KLO, in the Barton Creek community. The project consists of 495 acres and the community is designed to feature 475 unique residences to be developed in multiple phases with a focus on sustainability and energy conservation.

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As a result of the COVID-19 pandemic, and beginning in April 2020, we agreed, generally, to 90-day base rent deferrals with a majority of our retail leasing tenants, which had closed or were operating at significantly reduced capacities. Rent deferrals with our retail tenants resulted in a reduction of scheduled base rent collections of 10 percent during the ~~city of Austin extended its Stay Home, Mask and Otherwise Be Safe Order~~period from April through December ~~15,~~ 2020. ~~On September 30,~~The deferred rents are scheduled to be collected over a 12-month or 24-month period that started in January 2021. During the first quarter of 2021, we began collecting these rent deferrals and as of March 31, 2021, all of our retail tenants that were open prior to the pandemic had reopened, although some were still operating at reduced capacity. Further, despite the pandemic, we have added new tenants and all of our tenants are currently paying rent per their leases, as well as monthly payments pursuant to the base rent deferral arrangements. At our multi-family properties, we have granted rent deferral accommodations on a case-by-case basis, with no material decline in rent collections or occupancy.

Our previously disclosed transaction to sell Block 21 for $275 million was terminated by the purchaser in May 2020 as a result of the ~~city of Austin extended~~negative impact on capital markets and the ~~moratorium on certain evictions through December 31, 2020.~~overall economic environment caused by the COVID-19 pandemic. Because the pandemic is unprecedented in recent history, and its severity, duration and future economic consequences are difficult to predict, we cannot predict its future impact on ~~our~~the company with any certainty.

~~Termination of Sale of Block 21~~

As previously disclosed, our transaction to sell Block 21, which contains the W Austin Hotel and the ACL Live and 3TEN ACL Live entertainment venues, to Ryman Hospitality Properties, Inc. (Ryman) for $275 million was terminated by Ryman on May 21, 2020. As a result of Ryman’s termination of the transaction, Ryman forfeited to us its $15.0 million of earnest money. We used $13.8 million of the earnest money to pay down our Comerica Bank credit facility and used the remaining $1.2 million for Block 21 debt service and required monthly reserves. We recorded the $15.0 million as operating income during the second quarter of 2020.

~~Impacts on our Business~~

Despite the COVID-19 pandemic, we continue to advance our land planning, engineering and permitting activities. We have implemented measures such as increased sanitizing, physical distancing and remote work arrangements, with the goal of protecting employees, tenants, guests, customers and suppliers. Losses resulting from the pandemic contributed to us recording a $9.6 million non-cash tax charge in third-quarter 2020 to record a valuation allowance on our deferred tax assets. Refer to Note 8 for further discussion. Many of our retail leasing tenants, other than grocery and liquor stores, closed or have been operating at significantly reduced capacity since late in the first quarter of 2020. Beginning in April 2020, we agreed, generally, to 90-day base rent deferrals with a majority of these tenants. The deferred rents are expected to be collected over a 12-month or 24-month period starting in January 2021. These rent deferrals resulted in a reduction of scheduled base rent collections of 17 percent during the period from April through September 2020. As of September 30, 2020, all of our retail tenants who were open prior to the pandemic had reopened, although operating with capacity restrictions. At our multi-family properties, we have granted rent deferral accommodations on a case-by-case basis, which during the period from April through September 2020 resulted in a reduction of scheduled rent collections of less than one percent of contractual rents, with no material decline in occupancy. We will continue to consider rent deferral accommodations on a case-by-case basis. In the aggregate, our retail and multi-family rent collections were eight percent less than scheduled rents during the period from April through September 2020. We also terminated one lease during second-quarter

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2020 and recorded charges related to this lease totaling $1.3 million, primarily related to uncollectible rents receivable and unrealizable deferred costs. Subsequently, in July 2020, we entered into a new six-month lease agreement with this tenant, in which the amount of the lessee's rent is based on a percentage of its revenue.

Our revenue, operating income and cash flow from our hotel and entertainment segments were adversely impacted in the second and third quarters of 2020 and are expected to continue to be adversely impacted beyond third-quarter 2020. For example, while our hotel has remained open throughout the pandemic, average occupancy in the third quarter of 2020 was 16 percent, which was a slight increase since the second-quarter average occupancy rate of 12 percent. The impacts of the COVID-19 pandemic on each of our segments are described below in more detail in “Results of Operations.”

At this time, we are focusing on taking action to maintain liquidity and ~~implement cost controls; close routine~~control costs; closing on asset ~~sales;~~sales in our real estate operations segment; closely ~~monitor~~monitoring our ~~income~~income-producing properties and ~~continue~~continuing to lease up certain properties; regularly ~~communicate~~communicating with our lenders and investor groups; ~~advance~~advancing our land planning, engineering and permitting activities; and ~~evaluate~~evaluating refinance opportunities for our larger, stabilized assets to take advantage of historic low interest rates. ~~All major~~As previously discussed, we are also moving forward to complete the financing for The Saint June, and to secure financing for our Holden Hills and Magnolia Place developments. Further, we are considering a refinancing of our Jones Crossing construction projects have been completed and no new construction is scheduled until the first quarter of 2021. We will closely monitor market conditions before initiating construction and may defer a construction start if prudent.loan.

Impacts on our Liquidity and Capital Resources

~~On June 12, 2020, we extended the maturity date of our $60 million revolving credit facility to September 27, 2022.~~ As of ~~September 30, 2020,~~March 31, 2021, we had ~~$24.5~~$25.8 million available under our $60.0 million Comerica Bank credit facility, with a $150 thousand letter of credit committed against the credit facility. During the pandemic we have proactively engaged with our project lenders in connection with formulating rent deferral arrangements for our tenants, receiving waivers of and amendments to certain financial covenants for specific project loans and extending maturity dates on project loans with near-term maturities. See Note 6 for further discussion.

With respect to our Block 21 loan, Stratus Block 21, LLC, our wholly owned subsidiary that owns Block 21 (the Block 21 subsidiary) continues to not meet the quarterly debt service coverage ratio test resulting in a "Trigger Period," which is not a default but restricts our ability to receive cash distributions from the project. Although the Block 21 loan agreement is a non-recourse loan, we may contribute cash to our Block 21 subsidiary in order to prevent our Block 21 subsidiary from defaulting under the Block 21 loan agreement. Additionally, under our subsidiary’s hotel operating agreement, the hotel operator has and may continue to request funds from us if it reasonably determines that such funds are required in order to fund the operation of the hotel and specified reserves. Pursuant to such provisions, we contributed $6.3 million during 2020 and $5.0 million during first-quarter 2021, and based on current projections, we expect to make additional contributions of approximately $12 million through early 2022.

We project that we will be able to meet our debt service and other cash obligations for at least the next 12 months. Our projections are based on many detailed and complex underlying assumptions, including (1) that operating income for our Block 21 businesses will gradually ramp up to a break-even point in the first half of 2021 and that Block 21 will generate sufficient cash to cover debt service by ~~late 2021,~~early 2022, (2) that current conditions in our leasing operations will not ~~further~~ deteriorate materially and that our anchor tenant at Lantana Place will renew its lease on terms acceptable to us, (3) that we ~~continue to~~ close on ~~routine~~projected asset sales in our real estate operations segment, including certain land sales at our mixed-use properties, on anticipated terms, and (4) that we ~~sell or refinance The Saint Mary on terms consistent with our expectations.~~are able to secure anticipated financing for certain development projects. No assurances can be given that the results anticipated by our projections will occur. See Note 6 and “Capital Resources and Liquidity” below ~~“Risk Factors” included in Part II, Item 1A. herein and “Risk Factors” included in Part I, Item 1A. of our 2019 Form 10-K,~~ for further discussion.

We are continuing to closely monitor health and market conditions and are prepared to make further adjustments to our business strategy if and when appropriate.

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OVERVIEW OF FINANCIAL RESULTS FOR ~~THIRD-QUARTER 2020~~FIRST-QUARTER 2021

Our net ~~loss~~income attributable to common stockholders totaled ~~$15.1~~$8.9 million, ~~$1.84~~or $1.08 per share, in ~~third-quarter 2020,~~first-quarter 2021, compared with a net loss of ~~$3.0~~$1.1 million, ~~$0.36~~or $0.13 per share, in third-quarter 2019. During the first nine months of 2020 our net loss attributable to common stockholders totaled $12.0 million, $1.46 per share, compared with a net loss of $4.5 million, $0.55 per share, during the first nine months of 2019.first-quarter 2020. Our net ~~losses~~income attributable to common stockholders in ~~the 2020 periods,~~first-quarter 2021, compared to the ~~2019 periods, were~~net loss in first-quarter 2020, was primarily the result of ~~(i) a non-cash tax charge~~the $22.9 million gain on the sale of ~~$9.6~~The Saint Mary in January 2021 ($16.2 million ~~in third-quarter 2020 to record a valuation allowance on our deferred tax assets, (ii)~~net of noncontrolling interests), partially offset by operating losses from our hotel and entertainment segments incaused by the ~~2020 periods, primarily as a result of the COVID-19~~ pandemic and (iii) higher interest expense related to lower capitalized interest as projects under development are completed. Our higher net loss attributable to common stockholders during the first nine months of 2020, compared to the first nine months of 2019, was also impacted by municipal utility district (MUD) reimbursements and a gain on sale of assets being recognized in the first ~~nine months~~quarter of ~~2019, offset by $15.0 million in income from earnest money received as a result of the termination of the Block 21 transaction.~~2021.

Our revenues totaled ~~$12.8~~$14.5 million in ~~third-quarter 2020,~~first-quarter 2021, compared with ~~$22.3~~$28.1 million in ~~third-quarter 2019. During the first nine months of 2020, our revenues totaled $49.9 million, compared with $65.7 million, during the first nine months of 2019.~~first-quarter 2020. The decrease in revenues in ~~the 2020 periods,~~first-quarter 2021, compared to ~~the 2019 periods,~~first-quarter 2020, primarily reflects ~~the decrease~~decreases in revenue from our hotel and entertainment segments caused by the ~~COVID-19~~ pandemic ~~partially offset by an increase~~and from a decrease in ~~revenue from real estate~~the number of developed residential lots and ~~leasing operations.~~homes sold as available inventory decreased. See "Results of Operations" below for further discussion of our segments.

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UPDATE ON PROJECT AND DEVELOPMENT ACTIVITIES

Current Residential Activities.

In ~~third-quarter 2020,~~first-quarter 2021, we sold ~~four~~two Amarra Drive Phase III lots, ~~including two premium hilltop lots,~~a five-acre multi-family tract of land in Amarra Drive and our last remaining condominium unit at the W Austin Residences for a total of ~~$5.0 million. During the first nine months of 2020, we sold 4 Amarra Drive Phase II lots, 11 Amarra Drive Phase III lots and 2 homes built on Amarra Drive Phase III lots for a total of $19.1~~$6.5 million. For further discussion, see "Results of Operations — Real Estate Operations." ~~Sales include lots sold under the new homebuilder contract discussed below.~~ As of ~~September 30, 2020, six~~March 31, 2021, three developed Amarra Drive Phase III lots ~~and three developed Amarra Drive Phase II lots~~ remained unsold, one of which ~~three Phase III lots and two Phase II lots were subject to the new homebuilder contract discussed below.~~

In September 2019, we amended a contract previously entered into in March 2018, pursuant to which we agreed to sell 2 Amarra Drive Phase II lots and 15 Amarra Drive Phase III lots to a homebuilder for a total of $11.6 million (the original homebuilder contract). In January 2020, the original homebuilder contract was terminated and replaced with a similar contract with the same homebuilder in which we agreed to sell the three remaining Amarra Drive Phase III lots under the original contract as well as three new Amarra Drive Phase II lots and two new Amarra Drive Phase III lots for $5.2 million (the new homebuilder contract). In September 2020, the new homebuilder contract was further amended to add one additional Amarra Drive Phase III lot to the contract at a sales price of $0.7 million. In accordance with the new homebuilder contract the parties are required to close on the sale of these lots ratably before April 30, 2021. If the purchaser fails to close on the sale of the minimum number of lots by any of the specified closing dates, we may elect to terminate the homebuilder contract but would retain the related $45 thousand earnest money. In third-quarter 2020, in accordance with the contract, we sold one Amarra Drive Phase III lot for a total of $0.7 million under the terms of the new homebuilder contract. During the first nine months of 2020, we sold one Amarra Drive Phase II lot and three Amarra Drive Phase III lots for a total of $2.7 million under the terms of the new homebuilder contract.

Subsequent to September 30, 2020, and through November 2, 2020, we sold three Amarra Drive Phase II lots, two of which were subject to the new homebuilder contract, for a total of $2.0 million. As of November 2, 2020, all of our developed single family lots in Barton Creek were either sold or under contract ~~to sell, except~~and subsequently sold in April 2021 for ~~three Amarra Drive Phase III lots.~~$0.6 million.

The Villas at Amarra Drive (Amarra Villas) ~~townhome~~ project is a 20-unit development in the Barton Creek community for which we completed construction of the first seven ~~townhomes~~homes during 2017 and 2018. We sold the last two completed ~~townhomes~~homes in 2019. We began construction of the next two Amarra Villas ~~townhomes~~homes during the first quarter of 2020, which are expected to be completed in mid-2021. As of May 10, 2021, one home was under contract, and a contract had been signed to sell one home on which we began construction in second-quarter 2021. As of May 10, 2021, a total of 11 units (1 of which is under construction and 10 of which construction has not started) remain available of the initial 20-unit development.

The Santal, a ~~multi-family project~~garden-style luxury apartment complex consisting of 448 units in Section N in the Barton Creek community, is fully leased and stabilized. The Saint Mary, a multi-family project consisting of 240 units in the Circle C community, was approximately 85 percent leased as of September 30, 2020, and we expect to sell or refinance The Saint Mary before June 2021.

For further discussion of our multi-family and single-family residential properties, see MD&A in our ~~2019~~2020 Form 10-K.

Current Commercial Activities.

~~During 2019, we completed construction of two retail buildings totaling 41,000~~We have constructed approximately 152,000 square feet ~~and a 103,000-square-foot H-E-B, L.P. (HEB) grocery store~~of retail space at Kingwood Place, including an ~~HEB-anchored, mixed-use development in Kingwood, Texas. An 8,000-square-foot retail building was completed in July 2020,~~HEB grocery store, and we have signed ground leases on two of the retail pads. Three pad sites remain available for lease. As of ~~September 30, 2020,~~March 31, 2021, we had signed leases for approximately 85 percent of the retail space, including the HEB grocery store. We continue to advance the potential multi-family project at Kingwood Place, which is currently planned for ~~261~~approximately 275 units.

In March 2019, we finalized the lease for the HEB store at New Caney, an HEB-anchored, mixed-use development in New Caney, Texas, and acquired HEB's interest in the partnership for approximately $5 million. We currently do not anticipate commencing construction on the New Caney project prior to 2021.

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Lantana Place is a partially developed, mixed-use development project located in southwest Austin. As of ~~September 30, 2020,~~March 31, 2021, we had signed leases for approximately 8085 percent of the retail ~~space.~~space in the first phase, including the anchor tenant, Moviehouse & Eatery (Moviehouse). In July 2020, we entered into a new six-month lease agreement with Moviehouse in which rent is based on a percentage of Moviehouse's revenue. The new lease was amended in December 2020 to extend the term through June 30, 2021. We are currently in discussions with Moviehouse to extend this lease. We also have a ground lease for an AC Hotel by Marriott. Construction of the hotel began in May 2019 and is expected to be completed in ~~January~~June 2021. We rezoned a portion of the Lantana property for a potential multi-family development of up to ~~350~~320 units.

As of ~~September 30, 2020,~~March 31, 2021, we had signed leases for ~~approximately 95 percent~~substantially all of the retail space at the first phase of Jones Crossing, an HEB-anchored, mixed-use development located in College Station, Texas, and approximately 70 percent of the retail space at West Killeen Market, our retail project located in Killeen, Texas, shadow-anchored by an adjacent HEB grocery store. ~~In October 2020,~~Block 21's Class A leasable office space was approximately 60 percent leased as of March 31, 2021, including 9,000 square feet occupied by our corporate office, and the retail space was substantially fully leased as of March 31, 2021. Currently, we ~~sold~~are considering a ~~pad site at West Killeen Market for $0.7 million.~~refinance of the Jones Crossing construction loan to improve loan terms and take advantage of the low-interest rate market.

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For further discussion of our commercial properties, see MD&A in our ~~2019~~2020 Form 10-K.

Projects in Planning.

We are advancing the planning and permitting process for development of future phases of Barton Creek, including Holden Hills, a new residential development formerly known as Section KLO, and commercial and multi-family Section N. ~~We redesigned Section KLO using~~

Holden Hills, our final residential development within the Barton Creek community, consists of 495 acres and the community is designed to feature 475 unique residences to be developed in multiple phases with a ~~combination of single family lots~~focus on sustainability and ~~residential condominium lots, which is expected to increase our density from 154 to approximately 450 home sites.~~energy conservation. The city of Austin and Travis County approved initial subdivision permit applications for ~~Section KLO~~Holden Hills in October ~~2019. The~~2019 and the engineering for roads and utilities for the initial ~~phases~~phase has been completed. We anticipate securing final permits in the second or third quarter of ~~Section KLO is~~2021. We currently expect to complete site work for phase one, including the construction of road, utility, drainage and other required infrastructure, approximately 17 months from the issuance of the final permits. Accordingly, our projections anticipate that we would begin sales in ~~process.~~ Holden Hills in late 2022 or early 2023. Phases one and two of the Holden Hills development plan encompass the development of the home sites. 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 ~~Section KLO,~~Holden Hills, we are also evaluating a redesign of Section N, our approximately ~~570 acre~~570-acre tract located along Southwest Parkway in the southern portion of the Barton Creek community. If successful, this new project would be designed as a dense, mid-rise, mixed-use project surrounded by an extensive greenspace amenity, ~~and result~~resulting in ana significant potential increase in ~~potential densities.~~ development density, as compared to our prior plans.

These potential development projects require extensive additional permitting and will be dependent on market ~~conditions.~~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. In addition, our development plans for ~~Section KLO~~Holden Hills and Section N will require significant capital, which we ~~may~~currently intend to pursue through bank debt ~~and/or~~and third-party equity ~~financings, joint ventures, commercial, partner or other~~capital arrangements.

We are ~~evaluating a sale~~planning to proceed, subject to financing, with the first phase of ~~the land for the single family residential component~~development of Magnolia Place, a mixed-use project in Magnolia, Texas, currently planned for ~~133,605~~18,410 square feet of commercial ~~space; 7~~space, 9 pad ~~sites; 2 hotel sites; and 96~~sites, 194 single-family lots and ~~588~~495 multi-family units. Magnolia Place will be shadow-anchored by a 95,000-square-foot HEB grocery store to be constructed by HEB on an adjoining 18-acre site owned by HEB, with a targeted opening date in May 2022. We have targeted the commencement of construction on Magnolia Place for June 2021, and are in the process of negotiating financing and terms with lenders and HEB. We are also evaluating a sale of the land for the single-family residential component of Magnolia Place.

In ~~the first quarter of~~March 2021, we ~~expect to commence work~~completed site clearing on The Saint June, a 182-unit multi-family project within the Amarra ~~subdivision~~subdivision. We expect to begin project construction in ~~Barton Creek,~~the second quarter of 2021, subject to ~~financing and market conditions. We will closely monitor the market before initiating construction and may defer the start~~completion of ~~construction if prudent.~~financing.

RESULTS OF OPERATIONS

We are continually evaluating the development and sale potential of our properties and will continue to consider opportunities to enter into transactions involving our properties, including possible ~~sales,~~ joint ventures or other arrangements. As a result, and because of the COVID-19 pandemic and numerous other factors affecting our business activities as described herein and in our ~~2019~~2020 Form 10-K, our past operating results are not necessarily indicative of our future results. We use operating income or loss to measure the performance of each operating segment. Corporate, eliminations and other includes consolidated general and administrative expenses, which primarily consist of employee ~~salaries~~compensation and other costs.

2017

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The following table summarizes our operating results for the first quarters of 2021 and 2020 (in thousands):


		Three Months Ended September 30,					Nine Months Ended September 30,							Three Months Ended March 31,

		2020			2019		2020			2019					2021			2020
Operating income (loss):	Operating income (loss):												Operating income (loss):
Real Estate Operationsa	Real Estate Operationsa	$	1,388		$	211	$	3,441		$	3,331	b	Real Estate Operationsa		$	2,236		$	2,099
Leasing Operations	Leasing Operations	1,186			1,256		1,836		c	4,319			Leasing Operations		24,236		b	824
Hotel	Hotel	(2,594)			930		(5,300)			2,979			Hotel		(1,632)			(1,054)
Entertainment	Entertainment	(1,267)			1,063		(2,226)			3,171			Entertainment		(1,217)			461
Corporate, eliminations and otherd		(2,937)			(3,391)		5,863		e	(9,661)
Operating (loss) income		$	(4,224)		$	69	$	3,614		$	4,139
Corporate, eliminations and otherc													Corporate, eliminations and otherc		(4,653)			(2,978)
Operating income (loss)													Operating income (loss)		$	18,970		$	(648)
Interest expense, net	Interest expense, net	$	(3,587)		$	(3,203)	$	(11,168)		$	(8,686)		Interest expense, net		$	(3,035)		$	(3,915)

Net loss attributable to common stockholders		$	(15,078)	f	$	(2,960)	$	(12,014)	f	$	(4,487)
Net (income) loss attributable to noncontrolling interests in subsidiaries													Net (income) loss attributable to noncontrolling interests in subsidiaries		$	(6,722)		$	1,077
Net income (loss) attributable to common stockholders													Net income (loss) attributable to common stockholders		$	8,944		$	(1,070)

a.Includes sales commissions and other revenues together with related expenses.

b.Includes ~~$3.4~~a $22.9 million gain on the sale of ~~MUD reimbursements, which were recorded as a reduction of cost of sales.~~The Saint Mary.

c.~~Includes a $1.4 million charge for estimated uncollectible rents receivable and unrealizable deferred costs.~~

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

e.~~Includes $15.0 million in income from earnest money received as a result of Ryman's termination of the agreements to sell Block 21.~~

f.~~Includes a $9.6 million tax charge to record a valuation allowance on our deferred tax assets.~~

We have four operating segments: Real Estate Operations, Leasing Operations, Hotel and Entertainment (refer to Note 9). The following is a discussion of our operating results by segment.

Real Estate Operations

~~COVID-19 Pandemic Impact~~

~~Despite the COVID-19 pandemic, we continue to advance our land planning, engineering and permitting activities. For further discussion, see Part II, Item 1A. "Risk Factors."~~

~~Third-Quarter Results~~

The following table summarizes our Real Estate Operations results for the first quarters of 2021 and 2020 (in thousands):

Three Months Ended September 30, Nine Months Ended September 30,
2020 2019 2020 2019
Revenues:
Developed property sales $ 5,001 $ 2,601 $ 19,141 $ 9,483
Commissions and other 29 19 126 223
Total revenues 5,030 2,620 19,267 9,706
Cost of sales, including depreciation 3,642 2,409 15,826 6,375 a
Operating income $ 1,388 $ 211 $ 3,441 $ 3,331

a.~~Includes $3.4 million credit related to MUD reimbursements.~~


	Three Months Ended March 31,

		2021		2020
Revenues:
Developed property sales		$	4,040	$	12,308
Undeveloped property sales		2,500		—
Commissions and other		85		32
Total revenues		6,625		12,340
Cost of sales, including depreciation		4,389		10,241


Operating income		$	2,236	$	2,099

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Developed Property Sales. The following table summarizes our developed property sales (dollars in thousands):


		Three Months Ended September 30,											Three Months Ended March 31,
		2020					2019						2021					2020
		Lots	Revenues		Average Cost Per Lot		Lots	Revenues		Average Cost Per Lot			Lots/Units	Revenues		Average Cost Per Lot/Unit		Lots/Homes	Revenues		Average Cost Per Lot/Home
Barton Creek	Barton Creek											Barton Creek

Amarra Drive:	Amarra Drive:											Amarra Drive:

Phase II lots												Phase II lots	—	$	—	$	—	2	$	1,190	$	208
Phase III lots	Phase III lots	4	$	5,001	$	535	4	$	2,601	$	261	Phase III lots	2	1,640		332		6	3,940		314
Homes built on Phase III lots												Homes built on Phase III lots	—	—		—		2	7,178		3,273

W Austin Residences at Block 21:												W Austin Residences at Block 21:
Condominium Unit												Condominium Unit	1	2,400		1,721		—	—		—
Total Residential	Total Residential	4	$	5,001			4	$	2,601			Total Residential	3	$	4,040			10	$	12,308

Nine Months Ended September 30,
2020 2019
Lots/Homes Revenues Average Cost Per Lot/Home Lots/Homes Revenues Average Cost Per Lot/Home
Barton Creek
Amarra Drive:
Phase II lots 4 $ 2,372 $ 193 — $ — $ —
Phase III lots 11 9,591 389 10 6,033 242
Homes built on Phase III lots 2 7,178 3,273 — — —
Amarra Villas townhomes — — — 2 3,450 1,607
Total Residential 17 $ 19,141 12 $ 9,483

~~Real Estate Revenues.~~The ~~increase~~decrease in revenues in ~~third-quarter 2020,~~first-quarter 2021, compared to ~~third-quarter 2019,~~first-quarter 2020, primarily reflects a decrease in the ~~sales~~number of ~~two premium~~lots and homes sold during first-quarter 2021, compared to first-quarter 2020, as available inventory decreased.

Undeveloped Property Sales. During the first quarter of 2021, we sold a five-acre multi-family tract of land in Amarra Drive ~~Phase III hilltop lots in third-quarter 2020. The increase in revenues in~~for $2.5 million.

~~the first nine months~~Table of ~~2020, compared to the first nine months of 2019, primarily reflects the sales of two homes built on Amarra Drive Phase III lots and an increase in lot sales in the first nine months of 2020.~~Contents

Cost of Sales. Cost of sales includes costs of property sold, project operating and marketing expenses and allocated overhead costs, partly offset by reductions for certain ~~MUD~~municipal utility district (MUD) reimbursements. Cost of sales ~~increased~~decreased to ~~$3.6~~$4.4 million in ~~third-quarter 2020~~first-quarter 2021 from ~~$2.4~~$10.2 million in third-quarter 2019, primarily reflecting an increase in real estate sales of higher priced lots, which typically have a higher average cost per lot. Cost of sales increased to $15.8 million for the first nine months of 2020 from $6.4 million for the first nine months of 2019, primarily reflecting the sales of two homes in first-quarter 2020, ~~built on Phase III lots, which have~~primarily reflecting a ~~higher average cost, and an increase~~decrease in the number of lots and homes sold during first-quarter 2021. First-quarter 2020 included the ~~first nine months~~sale of ~~2020. The increase also results from $3.4 million in MUD reimbursements received in the first nine months of 2019 recorded as a reduction in real estate cost of sales as the reimbursed property~~two homes built on Amarra Drive Phase III lots that had ~~previously been sold.~~higher average costs.

Leasing Operations

~~COVID-19 Pandemic Impact~~

The pandemic is negatively affecting our leasing operations, primarily at our retail properties. Tenants at our retail locations are diverse and include grocery and liquor stores, which have remained open and have paid rent owed to-date, and restaurants, healthcare services, fitness centers, a movie house and other retail products and services, many of which closed or have been operating at significantly reduced capacity since late in the first quarter of 2020. Beginning in April 2020, we agreed, generally, to 90-day base rent deferrals with a majority of these tenants. The deferred rents are expected to be collected over a 12-month or 24-month period starting in January 2021. These rent deferrals resulted in a reduction of scheduled base rent collections of 17 percent during the period from April through September 2020.

At our multi-family properties, we have granted rent deferral accommodations on a case-by-case basis, which during the period from April through September 2020 resulted in a reduction of scheduled rent collections of less than one percent of contractual rents, with no material decline in occupancy. We will continue to consider rent deferral accommodations on a case-by-case basis. In the aggregate, our retail and multi-family rent collections were eight percent less than scheduled rents during the period from April through September 2020.

We cannot assure you that our tenants will recommence rental payments in accordance with our agreements when the deferral period ends nor whether tenants will request additional accommodations or be willing or able to meet future lease obligations. For further discussion, see Part II, Item 1A. "Risk Factors."

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~~Third-Quarter Results~~

The following table summarizes our Leasing Operations results for the first quarters of 2021 and 2020 (in thousands):


		Three Months Ended September 30,				Nine Months Ended September 30,						Three Months Ended March 31,
		2020		2019		2020			2019				2021		2020
Rental revenue	Rental revenue	$	6,030	$	5,243	$	17,923		$	13,744	Rental revenue		$	5,397	$	5,959
Rental cost of sales, excluding depreciation	Rental cost of sales, excluding depreciation	2,793		2,495		9,955		a	7,090		Rental cost of sales, excluding depreciation		2,381		3,088
Depreciation	Depreciation	2,051		1,529		6,132			4,324		Depreciation		1,711		2,047

Gain on sale of assets	Gain on sale of assets	—		(37)		—			(1,989)		Gain on sale of assets		(22,931)		—
Operating income	Operating income	$	1,186	$	1,256	$	1,836		$	4,319	Operating income		$	24,236	$	824

~~a. Includes a $1.4 million charge for estimated uncollectible rents receivable and unrealizable deferred costs.~~

Rental Revenue. Rental revenue primarily includes revenue from The Santal, Lantana Place, Jones Crossing, ~~The Saint Mary,~~ Kingwood Place, the office and retail space at ~~the W Austin Hotel & Residences, and~~Block 21, West Killeen ~~Market.~~Market, and The ~~increase~~Saint Mary until our sale of it in January 2021. The decrease in rental revenue in ~~the 2020 periods,~~first-quarter 2021, compared with ~~the 2019 periods,~~first-quarter 2020 primarily reflects the ~~commencement~~sale of ~~new leases at~~The Saint Mary. The Saint Mary ~~Kingwood Place and The Santal.~~had rental revenue of $0.1 million in first-quarter 2021 prior to the sale compared to $0.7 million in first-quarter 2020.

Rental Cost of Sales and Depreciation. Rental cost of sales and depreciation expense ~~increased~~decreased in ~~the 2020 periods,~~first-quarter 2021, compared with ~~the 2019 periods,~~first-quarter 2020, primarily as a result of the ~~completion~~sale of ~~construction and the start of leasing operations at~~ The Saint Mary and Kingwood Place. During the second-quarter of 2020, our lease with Moviehouse, our anchor tenant at Lantana Place, was terminated and we charged $1.3 million to cost of sales to write off uncollectible rents receivable and unrealizable deferred costs associated with this lease. In July 2020, we entered into a new six-month lease agreement with Moviehouse in which rent is based on a percentage of Moviehouse's revenue.Mary.

Gain on Sale of Assets. In January ~~2019,~~2021, our subsidiary 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. After establishing a reserve for remaining costs of the partnership, we ~~sold~~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 ~~retail pad subject to a ground lease located~~gain on the sale of $22.9 million ($16.2 million net of noncontrolling interests) in the ~~Circle C community for $3.2 million. We used a portion~~first quarter of the proceeds from the sale to repay $2.5 million of our Comerica Bank credit facility borrowings and, after adjustments recorded in the second and third quarters of 2019, recorded a gain of $2.0 million for the first nine months of 2019.2021.

Hotel

~~COVID-19 Pandemic Impact~~

The pandemic has had, and we believe will continue to have, a significant adverse impact on the hospitality industry, as it has resulted in dramatically curtailed business and leisure travel and caused cancellations of events or rescheduling of events until later in 2020 and beyond. Accordingly, the pandemic has resulted in a significant decrease in revenue and expected revenue from our hotel rooms, conference facilities and hotel amenities. For example, while our hotel has remained open throughout the pandemic, average occupancy in the third quarter of 2020 was 16 percent, which was a slight increase since the second-quarter average occupancy of 12 percent. As a result of the pandemic, hotel revenue for the three and nine months ended September 30, 2020, was significantly lower than in the prior-year periods and hotel revenue for the fourth quarter of 2020 will be significantly lower than hotel revenue in the prior-year quarter. We incurred significant operating losses in the three and nine months ended September 30, 2020, and expect to incur a significant operating loss in the segment during the fourth quarter of 2020. We are working with the hotel operator on plans to gradually ramp up hotel operations to a break-even point in the first half of 2021, health and market conditions permitting.

The pandemic is expected to continue to negatively affect our hotel business, and the extent to which such adverse impacts continue depends on numerous evolving factors that we cannot predict. Moreover, even as travel advisories and restrictions are lifted, travel demand may remain weak for a significant length of time and attractions and events that previously brought visitors to the city of Austin may not proceed or may proceed with limited capacity. We cannot predict if or when our hotel will return to pre-pandemic demand or pricing. For further discussion, see Part II, Item 1A. "Risk Factors."

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~~Third-Quarter Results~~

The following table summarizes our Hotel results for the first quarters of 2021 and 2020 (in thousands):

Three Months Ended September 30, Nine Months Ended September 30,
2020 2019 2020 2019
Hotel revenue $ 1,614 $ 8,764 $ 8,619 $ 26,178
Hotel cost of sales, excluding depreciation 3,317

6,931 10,992 a 20,497
Depreciation 891 903 2,927 2,702
Operating (loss) income $ (2,594) $ 930 $ (5,300) $ 2,979

a.~~Includes a $0.8 million credit related to a business interruption insurance claim filed as a result of water and smoke damage in the W Austin hotel in January 2018.~~


	Three Months Ended March 31,
		2021		2020
Hotel revenue		$	2,150	$	5,959
Hotel cost of sales, excluding depreciation		2,902		5,908
Depreciation		880		1,105

Operating loss		$	(1,632)	$	(1,054)

Hotel Revenue. Hotel revenue primarily includes revenue from W Austin Hotel room reservations and food and beverage sales. The decrease in Hotel revenues in ~~the 2020 periods,~~first-quarter 2021, compared to ~~the 2019 periods,~~first-quarter 2020, is primarily a result of lower room reservations and food and beverage sales as a result of the COVID-19 ~~pandemic.~~pandemic, which had a less significant impact in the first quarter of 2020 prior to the pandemic being declared in mid-March 2020. The hotel's average occupancy in the first quarter of 2021 was 21 percent, compared to 50 percent in the first quarter of 2020. Revenue per available room (RevPAR), which is calculated by dividing total room revenue by the average total rooms available, was ~~$36~~$51 in ~~third-quarter 2020 and $71 for the first nine months of 2020,~~first-quarter 2021, compared with ~~$222~~$150 in ~~third-quarter 2019 and $234 for the first nine months of 2019.~~first-quarter 2020.

Our hotel operations are beginning to show improvement compared to during the peak of the pandemic in 2020. The average occupancy in the first quarter of 2021 of 21 percent was higher than the average occupancy in the fourth quarter of 2020, which was 13 percent. In addition, RevPAR of $51 for first-quarter 2021 was up from $31 in fourth-quarter 2020.

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Hotel Cost of Sales. The decrease in Hotel cost of sales, excluding depreciation, in ~~the 2020 periods,~~first-quarter 2021, compared to ~~the 2019 periods,~~first-quarter 2020, is primarily a result of lower room reservations and food and beverage sales. The ~~increase~~decrease in depreciation ~~during the first nine months of 2020,~~in first-quarter 2021, compared to ~~the first nine months of 2019,~~first-quarter 2020, is primarily because of a $202 thousand adjustment made in first-quarter 2020 for the period in December 2019 when the hotel was held for sale and, therefore, not depreciated.

~~Hotel Renovation.~~ We are considering proceeding with a modest renovation of the hotel guest rooms and public spaces, subject to various approvals, including from our lender, and coordination with the hotel operator. We expect to use approximately $7 million of reserves previously set aside for hotel improvements under our agreement with the hotel operator and reflected in restricted cash on our balance sheet.

Entertainment

~~COVID-19 Pandemic Impact~~

The pandemic has had, and we believe will continue to have, a significant adverse impact on the entertainment industry and our entertainment operations. Our entertainment venues, ACL Live and 3TEN ACL Live, continue to be subject to capacity restrictions and have held only a limited number of events. Many events previously scheduled during the remainder of 2020 have been rescheduled and some have been cancelled. As a result of the pandemic, our Entertainment revenue for the three and nine months ended September 30, 2020, was significantly lower than in the prior-year periods and entertainment revenue for the fourth quarter of 2020 will be significantly lower than in the prior-year period. It is also unclear whether and to what extent pandemic-related concerns will continue to impact the use of and/or demand for our entertainment venues, even as government restrictions are modified or lifted. We hosted a small number of events at our venues during the third quarter, and have several events scheduled later in the year, but they have been, and will continue to be, subject to capacity restrictions as in effect at the time. Our scheduled programs will occur only to the extent health and safety conditions, and regulations, permit. We incurred significant operating losses in the three and nine months ended September 30, 2020, and expect to incur an operating loss in the segment during the fourth quarter of 2020. For further discussion, see Part II, Item 1A. "Risk Factors."

~~Third-Quarter Results~~

The following table summarizes our Entertainment results for the first quarters of 2021 and 2020 (in thousands):


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2020		2019		2020		2019				2021		2020
Entertainment revenue	Entertainment revenue	$	367	$	6,226	$	4,826	$	17,316	Entertainment revenue		$	609	$	4,170
Entertainment cost of sales, excluding depreciation	Entertainment cost of sales, excluding depreciation	1,242		4,770		5,773		12,962		Entertainment cost of sales, excluding depreciation		1,425		3,226
Depreciation	Depreciation	392		393		1,279		1,183		Depreciation		401		483

Operating (loss) income	Operating (loss) income	$	(1,267)	$	1,063	$	(2,226)	$	3,171	Operating (loss) income		$	(1,217)	$	461

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Entertainment Revenue. Entertainment revenue primarily reflects the results of operations for ACL Live, including ticket sales, revenue from private events, sponsorships, personal seat license sales and suite sales, and sales of concessions and merchandise. Entertainment revenue also reflects revenues associated with events hosted at 3TEN ACL Live. Revenues from the Entertainment segment vary from period to period as a result of factors such as the price of tickets and number of tickets sold, as well as the number and type of events hosted at ACL Live and 3TEN ACL Live. Entertainment revenues decreased in ~~the 2020 periods,~~first-quarter 2021, compared to ~~the 2019 periods,~~first-quarter 2020, which primarily ~~as a result of a decrease in the number of events hosted at ACL Live and 3TEN ACL Live, as many scheduled events in the first nine months of 2020 were cancelled or rescheduled as a result of~~reflects the COVID-19 ~~pandemic.~~pandemic preventing a full show schedule, with reduced capacity at events that could be held. Our team continues to create innovative programming at our entertainment venues, and we currently expect to see improved results as schedules are filled and capacity increases over time.

Certain key operating statistics specific to the concert and event hosting industry are included below to provide additional information regarding our ACL Live and 3TEN ACL Live operating performance.


		Three Months Ended September 30,			Nine Months Ended September 30,					Three Months Ended March 31,
		2020	2019		2020		2019				2021		2020
ACL Live	ACL Live								ACL Live
Events:	Events:								Events:
Events hosted	Events hosted	17	59		55		192		Events hosted		28		38
Estimated attendance	Estimated attendance	656	81,088		46,102		225,300		Estimated attendance		3,416		45,446

Ticketing:	Ticketing:								Ticketing:
Number of tickets sold	Number of tickets sold	—	60,704		37,703		177,605		Number of tickets sold		3,710		37,703
Gross value of tickets sold (in thousands)	Gross value of tickets sold (in thousands)	—	$	3,413	$	1,881	$	9,672	Gross value of tickets sold (in thousands)		$	373	$	1,881

3TEN ACL Live	3TEN ACL Live								3TEN ACL Live
Events:	Events:								Events:
Events hosted	Events hosted	19	46		70		148		Events hosted		22		36
Estimated attendance	Estimated attendance	1,607	9,308		9,839		27,798		Estimated attendance		1,828		7,455

Ticketing:	Ticketing:								Ticketing:
Number of tickets sold	Number of tickets sold	—	5,565		5,278		17,890		Number of tickets sold		114		5,278
Gross value of tickets sold (in thousands)	Gross value of tickets sold (in thousands)	—	$	130	$	126	$	425	Gross value of tickets sold (in thousands)		$	3	$	126

Entertainment Cost of Sales. The decrease in Entertainment cost of sales, excluding depreciation, in ~~the 2020 periods,~~first-quarter 2021, compared to first-quarter 2020, reflects the ~~2019 periods, reflects~~limited number of events that ~~many scheduled events~~were held in the first ~~nine months~~quarter of ~~2020 were rescheduled or cancelled~~2021 as a result of the COVID-19 pandemic. The ~~increase~~decrease in depreciation ~~for the first nine months of 2020,~~in first-quarter 2021, compared to ~~the first nine months of 2019,~~first-quarter 2020, is primarily because of an $89 thousand adjustment made in first-quarter 2020 for the period in December 2019 when the entertainment venues were held for sale and, therefore, not depreciated.

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Corporate, Eliminations and Other

Corporate, eliminations and other (refer to Note 9) includes consolidated general and administrative expenses, which primarily consist of employee ~~salaries~~compensation and other costs. Consolidated general and administrative expenses ~~decreased slightly~~increased to $~~2.9~~4.5 million in ~~third-quarter 2020~~first-quarter 2021 from $~~3.0~~2.8 million in ~~third-quarter 2019. Consolidated general~~first-quarter 2020, primarily reflecting a $1.1 million increase in consulting, legal, and ~~administrative expenses decreased to$8.8 million~~public relation costs mostly for the REIT exploration process and proxy contest. The remaining increase is primarily the result of higher employee incentive compensation costs in first-quarter 2021 as the first ~~nine months~~quarter of 2020 ~~compared~~included significant reductions to~~$9.1 million for the first nine months of 2019, primarily reflecting lower~~ estimated incentive compensation ~~for the first nine months of 2020, including amounts related to our Profit Participation Incentive Plan. Refer to Note 7 for further discussion of the Profit Participation Incentive Plan.~~accruals. Corporate, eliminations and other also includes eliminations of intersegment transactions among the four operating segments.

~~For the first nine months of 2020, corporate, eliminations and other includes $15.0 million in income from earnest money that was received from Ryman in May 2020 upon their~~ ~~termination of the agreements to acquire Block 21.~~

Non-Operating Results

Interest Expense, Net. Interest costs (before capitalized interest) totaled ~~$4.7~~$4.3 million in ~~third-quarter 2020 and $14.8 million for the first nine months of 2020,~~first-quarter 2021, compared with $5.2 million in ~~third-quarter 2019 and $14.9 million for the first nine months of 2019.~~first-quarter 2020. Interest costs in ~~the 2020 periods~~first-quarter 2021 were lower, compared to the ~~2019~~2020 periods, primarily reflecting ~~a decrease~~decreases in average interest ~~rates.~~rates and average debt balances.

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Capitalized interest totaled ~~$1.1~~$1.3 million in ~~third-quarter~~both first-quarter 2021 and first-quarter 2020, ~~and $3.6 million for the first nine months of 2020, compared with $2.0 million in third-quarter 2019 and $6.2 million for the first nine months of 2019,~~ and is primarily related to development activities at Barton Creek. ~~The 2019 periods also included capitalized interest related to development activities at Kingwood Place and~~

Loss on Early Extinguishment of Debt. We recorded a loss on early extinguishment of debt of $0.1 million in first-quarter 2021 associated with the repayment of The Saint ~~Mary.~~

~~Other Income, Net.~~ ~~Other income, net~~Mary construction loan upon the sale of ~~$111 thousand for~~ the first nine months of 2020 decreased, compared with $329 thousand for the first nine months of 2019, as a result of receiving proceeds in first-quarter 2019 related to MUD reimbursements of infrastructure costs incurred for development of Barton Creek. Of the total MUD reimbursements received in first-quarter 2019, we recorded $0.3 million as interest income in other income, net in the consolidated statements of comprehensive loss.property.

(Provision for) Benefit from Income Taxes. We recorded a ~~(provision for) benefit from~~provision for income taxes of ~~$(7.5)~~$0.2 million in ~~third-quarter 2020 and $(6.2) million for the first nine months~~first-quarter 2021, compared to a benefit of ~~2020, compared with $0.4~~$2.5 million in third-quarter 2019 and $0.2 million for the first nine months of 2019. The third quarter and first nine months of 2020 included a $9.6 million non-cash tax charge to record a valuation allowance on our deferred tax assets.first-quarter 2020. Refer to Note 8 for further discussion of income taxes.

Total Comprehensive (Income) Loss Attributable to Noncontrolling Interests in Subsidiaries. Our partners' share of ~~losses~~income totaled ~~$0.2~~$6.7 million in ~~third-quarter 2020 and $1.6~~first-quarter 2021 compared to their share of losses of $1.1 million ~~for~~in first-quarter 2020. In first-quarter 2021, our partners were allocated $6.7 million of the ~~first nine months~~gain from the sale of ~~2020 for projects that began operations in late 2019, primarily~~ The Saint Mary. ~~Of the total share of losses for the first nine months of~~In first-quarter 2020, ~~$573 thousand relates~~$0.6 million related to losses incurred prior to 2020.

CAPITAL RESOURCES AND LIQUIDITY

Volatility in the real estate market, including the markets in which we operate, can impact the timing of and proceeds received from sales of our properties, which may cause uneven cash flows from period to period. Our cash flows have also been, and will continue for some time to be, adversely affected by the pandemic, as discussed throughout this report. 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~~Three Months Ended ~~September 30,~~March 31, 2021 and 2020 ~~and 2019~~

Operating Activities. Cash ~~provided by (used in)~~used in operating activities totaled ~~$0.5~~$10.4 million ~~for the first nine months of 2020,~~in first-quarter 2021, compared with ~~$(4.0)~~$4.4 million ~~for the first nine months of 2019.~~in first-quarter 2020. Expenditures for purchases and development of real estate properties totaled ~~$11.6~~$2.5 million ~~for the first nine months of~~in first-quarter 2021 and $6.2 million in first-quarter 2020, primarily related to development of our Barton Creek properties, ~~and the purchase of an office building in Austin, and $8.9 million for the first nine months of 2019, primarily related to development of our Barton Creek properties.~~including Amarra Villas. The cash ~~outflow~~outflows resulting from the decrease in accounts payable, accrued liabilities and other ~~for the first nine months of~~in both first-quarter 2021 and first-quarter 2020 isare primarily related to the timing of property tax ~~payments as well as contractor retention payments associated with the completion of The Saint Mary and Kingwood Place.~~

During the first nine months of 2019, our operating cash flows included MUD reimbursements totaling $4.6 million related to infrastructure costs incurred in Barton Creek (of which $3.7 million increased net income before taxes for the period and $0.9 million reduced purchases and development of real estate properties).

payments.

Investing Activities. Cash ~~used in~~provided by (used in) investing activities totaled ~~$6.4~~$58.2 million ~~for the first nine months of 2020~~in first-quarter 2021 and ~~$53.8~~$(2.6) million ~~for the first nine months of 2019.~~in first-quarter 2020. Capital expenditures totaled ~~$5.3~~$1.0 million ~~for the first nine months of 2020,~~in first-quarter 2021, primarily related to ~~development of~~ the ~~Kingwood~~Magnolia Place and Lantana Place projects, and ~~$51.2~~$2.3 million ~~for the first nine months of 2019,~~in first-quarter 2020, primarily related to ~~development of~~ the Lantana Place, Kingwood Place and ~~The Saint Mary~~Jones Crossing projects. ~~Capital expenditures were lower in~~

In first-quarter 2021, we received proceeds, net of closing costs, from the ~~first nine months of 2020, compared to the first nine months of 2019, primarily as a result of the completion~~sale of The Saint Mary ~~and Kingwood Place in late 2019.~~

~~During the first nine months~~ of 2019, we recorded a purchase of noncontrolling interest totaling $4.6 million as a result of our acquisition of HEB's interests in the New Caney partnership in which we and HEB collectively purchased a tract of land for the future development of an HEB-anchored mixed-use project in New Caney, Texas.$59.5 million.

We also made payments totaling ~~$1.1~~$0.3 million ~~for the first nine months of~~in both first-quarter 2021 and first-quarter 2020 ~~and $1.2 million for the first nine months of 2019~~ under our master lease obligations associated with the 2017 sale of The Oaks at Lakeway.

Financing Activities. Cash (used in) provided by financing activities totaled $(50.8) million in first-quarter 2021 and $6.2 million in first-quarter 2020. During first-quarter 2021, net repayments on the Comerica Bank credit facility totaled $9.2 million, primarily using proceeds from the sale of The Saint Mary, compared with net borrowings of $6.8 million in first-quarter 2020, primarily to fund working capital changes. In first-quarter 2021, net repayments on other

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~~Financing Activities.~~ Cash provided by financing activities totaled $0.4 million for the first nine months of 2020 and $68.6 million for the first nine months of 2019. During the first nine months of 2020, net repayments on the Comerica Bank credit facility totaled $7.2 million, reflecting the use of $13.8 million of the $15.0 million earnest money to pay down the revolving credit facility, compared to net borrowings of $1.1 million for the first nine months of 2019. Net borrowings from project and term loans totaled ~~$8.1~~$28.3 million, ~~for~~primarily reflecting the ~~first nine months~~repayment of ~~2020, primarily from the Paycheck Protection Program loan (refer to Note 1 for further information) and for the Kingwood and~~ The Saint Mary ~~projects, partially offset by~~construction loan, compared to net repayments of $0.5 million in first-quarter 2020, primarily related to repayment of the Amarra Villas credit facility ~~compared with net~~partially offset by borrowings ~~of $69.2 million~~ for ~~the first nine months of 2019, primarily related to the Santal refinancing and~~ The Saint Mary and Kingwood Place ~~Jones Crossing and New Caney~~ projects. See “Credit Facility, Other Financing Arrangements and Liquidity Outlook” below for a discussion of our outstanding debt at ~~September 30, 2020.~~March 31, 2021.

In first-quarter 2021, we paid distributions to noncontrolling interest owners of $13.1 million, primarily related to the sale of The Saint Mary.

Credit Facility, Other Financing Arrangements and Liquidity Outlook

At ~~September 30, 2020,~~March 31, 2021, the total principal amount of our outstanding debt was ~~$371.1~~$341.2 million, compared with ~~$369.2~~$353.2 million at December 31, ~~2019.~~2020. We had borrowings of ~~$35.3~~$34.1 million under ~~the~~our $60.0 million Comerica Bank revolving credit facility, ~~$24.5~~$25.8 million of which was available at ~~September 30, 2020,~~March 31, 2021, net of a $150 thousand letter of credit committed against the credit facility.

~~On June 12, 2020,~~During the pandemic we ~~amended~~have proactively engaged with our ~~credit facility agreement~~project lenders in connection with ~~Comerica Bank~~formulating rent deferral arrangements for our tenants, receiving waivers of and amendments to ~~extend the~~certain financial covenants for specific project loans and extending maturity ~~date from September 27, 2020, to September 27, 2022.~~dates on project loans with near-term maturities. Refer to Note 6 in this report and in our ~~2019~~2020 Form 10-K for further ~~discussion of our outstanding debt.~~discussion. 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, 2020.~~March 31, 2021.

Our debt agreements require compliance with specified financial covenants. The Santal loan includes a requirement that we maintain liquid assets, as defined in the agreement, of not less than $7.5 million. The ~~Saint Mary construction loan and the~~ New Caney land loan ~~include~~includes a requirement that we maintain liquid assets, as defined in ~~each~~the agreement, of not less than $10 million. The Comerica Bank credit facility, the Lantana Place construction loan, the Jones Crossing ~~construction loan, The Saint Mary~~ construction loan, the Amarra Villas credit facility, the Kingwood Place construction loan, the West Killeen Market construction loan, the New Caney land loan and The Santal loan include a requirement that we maintain a net asset value, as defined in each agreement, of $125 million. The Comerica Bank credit facility, the Amarra Villas credit facility and the Kingwood Place construction loan also include a requirement that we maintain a ~~promissory note~~ debt-to-gross asset value, as defined in the agreement, of less than 50 percent. The Santal loan, the West Killeen Market construction loan, the Jones Crossing construction loan, and the Lantana Place construction loan each include a financial covenant requiring the applicable Stratus subsidiary to maintain a debt service coverage ratio as defined in each agreement. ~~In addition,~~As of March 31, 2021, we were in compliance with all of our financial covenants; however, for the last three quarters of 2020 and the first quarter of 2021, our Block 21 subsidiary did not pass the debt service coverage ratio financial test under the Block 21 loan, ~~agreements~~which, though not a financial covenant, caused the Block 21 subsidiary to enter into a “Trigger Period” as discussed below.

Stratus’ and its subsidiaries’ debt arrangements contain significant limitations that may restrict Stratus’ and its subsidiaries’ ability to, among other things: borrow additional money or issue guarantees; pay dividends, repurchase equity or make other distributions to equityholders; make loans, advances or other investments; create liens on assets; sell assets; enter into sale-leaseback transactions; enter into transactions with affiliates; permit a change of control; sell all or substantially all of its assets; and engage in mergers, consolidations or other business combinations. Our Comerica Bank ~~require~~credit facility requires Comerica Bank’s prior written consent for any common stock repurchases in excess of $1.0 million or any dividend payments. As

Our project loans are generally secured by all or substantially all of ~~September 30, 2020, we were in compliance with~~the assets of the project, and our Comerica Bank 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 the payment of our project loans, in some cases until certain development milestones and/or financial ~~covenants~~conditions are met, except for ~~the debt service coverage ratio covenant under~~ the Block 21 loan ~~as discussed below.~~

~~We proactively engaged~~ and ~~will continue~~The Santal loan guarantees that are generally limited to ~~proactively engage with~~non-recourse carve-out obligations. Refer to Note 6 in our ~~project lenders in connection with formulating rent deferral arrangements~~2020 Form 10-K for tenants at our projects as a result of the pandemic. Each of our projects is expected to generate sufficient revenue to pay debt service. During second-quarter 2020, we entered into amendments to the Lantana Place and West Killeen Market construction loans in which we were granted waivers of the debt service coverage ratio covenants for the quarters needed such that we believe we will be able to remain in compliance if rent payments do not further deteriorate materially as currently anticipated. Effective November 2, 2020, the West Killeen Market construction loan was modified to replace the financial covenant that we maintain a minimum total stockholders’ equity balance of $110 million with a financial covenant that we maintain a minimum net asset value, as defined in the agreement, of $125 million.additional discussion.

The Block 21 loan agreement secured by the Block 21 assets contains financial ~~covenant requirements~~tests that we must meet in order to avoid a “Trigger Period” (as described below). Specifically, we must maintain (i) a net worth in excess of $125 million and (ii) liquid assets having a market value of ~~not less than~~at least $10 million, ~~and (iii)~~each as defined in the Block 21 loan agreement. Additionally, our Block 21 subsidiary must maintain a trailing-12-month debt service coverage ratio, tested quarterly, ~~each~~ as defined in the Block 21 loan agreement. If any of these financial ~~covenants~~tests are not met, a “Trigger Period”, which is not a default, results. As a result of the pandemic, weour Block 21 subsidiary did not meet the debt

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service coverage ratio test on the June 30, 2020, ~~and~~ September 30, 2020, December 31, 2020, and March 31, 2021, test dates, resulting in a ~~Trigger~~"Trigger Period." During a ~~Trigger~~"Trigger Period," any cash generated from the Block ~~21's hotel, entertainment and office and retail space~~21 project in excess of amounts necessary to fund loan obligations, budgeted operating expenses and specified reserves would not be available to be distributed to us until after we meet a higher debt service coverage ratio requirement for two consecutive quarters. As the ratio is calculated on a trailing-12-month basis, we currently expect the ~~Trigger Period~~"Trigger Period" to continue through at least ~~2021.~~2022.

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~~The~~Although the Block 21 loan agreement ~~requires us to~~is a non-recourse loan, we may contribute cash to our Block 21 subsidiary ~~if funds~~in order to prevent our Block 21 subsidiary from defaulting under the Block ~~21’s operations are insufficient to fund all payments and reserves as required under our~~21 loan agreement. Additionally, under our subsidiary’s hotel operating agreement, the hotel operator has and may continue to request funds from us if it reasonably determines that such funds are required in order to fund the operation of the hotel and specified reserves. ~~We have been required~~Pursuant to ~~contribute~~ such ~~funds~~provisions, we contributed $6.3 million during 2020 and ~~our~~$5.0 million during first-quarter 2021, and based on current projections, ~~reflect that~~ we ~~will be required~~expect to ~~do so in~~make additional contributions of approximately $12 million through early ~~2021.~~

2022. As of ~~September 30, 2020,~~March 31, 2021, we had ~~$5.8~~$6.0 million of liabilities for deferred income and deposits that primarily related to ticket and sponsorship presales at our venues. We have refunded amounts related to events that have been cancelled, and we may refund additional amounts if more events are cancelled in the future.

We project that we will be able to meet our debt service and other cash obligations for at least the next 12 months. Our projections are based on many detailed and complex underlying assumptions, including (1) that operating income for our Block 21 businesses will gradually ramp up to a break-even point in the first half of 2021 and that Block 21 will generate sufficient cash to cover debt service by ~~late 2021,~~early 2022, (2) that current conditions in our leasing operations will not ~~further~~ deteriorate materially and that our anchor tenant at Lantana Place will renew its lease on terms acceptable to us, (3) that we ~~continue to~~ close on ~~routine~~projected asset sales in our real estate operations segment, including certain land sales at our mixed-use properties, on anticipated terms, and (4) that we ~~sell or refinance The Saint Mary on terms consistent with our expectations.~~are able to secure anticipated financing for certain development projects. No assurances can be given that the results anticipated by our projections will occur. See Note 6 ~~and “Risk Factors” included~~ in ~~Part II, Item 1A. herein~~our 2020 Form 10-K and “Risk Factors” included in Part I, Item 1A. of our ~~2019~~2020 Form 10-K, for further discussion.

Our ability to meet our cash obligations over the longer term, including our significant debt maturities in 2022, 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, including risks related to the COVID-19 pandemic.

DEBT MATURITIES AND OTHER CONTRACTUAL OBLIGATIONS

The following table summarizes our debt maturities based on the principal amounts outstanding as of ~~September 30, 2020~~March 31, 2021 (in thousands):


		2020		2021		2022		2023		2024		Thereafter		Total			2021		2022		2023		2024		2025		Thereafter		Total

Block 21 loan	Block 21 loan	$	601	$	2,470	$	2,613	$	2,765	$	2,904	$	128,967	$	140,320	Block 21 loan	$	1,839	$	2,613	$	2,765	$	2,905	$	3,094	$	125,872	$	139,088

The Santal loana	The Santal loana	—		—		75,000		—		—		—		75,000		The Santal loana	—		75,000		—		—		—		—		75,000
Comerica Bank credit facility	Comerica Bank credit facility	—		—		35,307		—		—		—		35,307		Comerica Bank credit facility	—		34,077		—		—		—		—		34,077

New Caney land loanb		—		5,000		—		—		—		—		5,000
New Caney land loan																New Caney land loan	—		4,500		—		—		—		—		4,500
PPP loan	PPP loan	—		—		3,987		—		—		—		3,987		PPP loan	—		3,987		—		—		—		—		3,987

Construction loans:	Construction loans:															Construction loans:
Kingwood Placea		—		—		31,415		—		—		—		31,415
The Saint Maryc		—		25,395		—		—		—		—		25,395
Kingwood Placeb																Kingwood Placeb	—		31,791		—		—		—		—		31,791

Jones Crossing																Jones Crossing	293		409		21,878		—		—		—		22,580
Lantana Place	Lantana Place	42		497		513		23,194		—		—		24,246		Lantana Place	604		830		20,610		—		—		—		22,044
Jones Crossing		—		283		396		21,841		—		—		22,520
West Killeen Market	West Killeen Market	37		149		7,040		—		—		—		7,226		West Killeen Market	126		6,597		—		—		—		—		6,723
Amarra Villas credit facility	Amarra Villas credit facility	—		—		702		—		—		—		702		Amarra Villas credit facility	—		1,369		—		—		—		—		1,369

Total	Total	$	680	$	33,794	$	156,973	$	47,800	$	2,904	$	128,967	$	371,118	Total	$	2,862	$	161,173	$	45,253	$	2,905	$	3,094	$	125,872	$	341,159

a.In April 2021, we entered into an amendment to The Santal loan to, among other provisions, extend the maturity date from October 5, 2022 to October 5, 2024.

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

b.~~We expect to exercise our option to extend the loan for an additional 12 months, which requires a principal payment of approximately $500 thousand.~~

c.~~We expect to refinance or sell The Saint Mary prior to the June 19, 2021, maturity date of the loan.~~

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Other than debt transactions (as discussed in Note 6), there have been no material changes in our contractual obligations since December 31, ~~2019.~~2020. Refer to Part II, Items 7. and 7A. "Management’s Discussion and Analysis of Financial Condition and Results of Operations and Quantitative and Qualitative Disclosures About Market Risk" in our ~~2019~~2020 Form 10-K for further information regarding our contractual obligations.

CRITICAL ACCOUNTING ESTIMATES

There have been no changes in our critical accounting estimates from those discussed in our ~~2019~~2020 Form 10-K.

NEW ACCOUNTING STANDARDS

~~There have been no changes in~~No new accounting standards ~~from those discussed~~ in ~~Note 1 to the financial statements included in our 2019 Form 10-K.~~2021 have had a material impact on us.

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OFF-BALANCE SHEET ARRANGEMENTS

There have been no material changes in our off-balance sheet arrangements since December 31, ~~2019.~~2020. Refer to Note 9 in our ~~2019~~2020 Form 10-K for further information.

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, our ability to meet our future debt service and other cash obligations, ~~potential future rent deferrals or other concessions to our tenants, our ability to collect rents timely,~~ our ability to ramp-up operations at Block 21 according to our currently anticipated timeline, our ability to open and hold events at our venues, our ability to collect rents timely, future cash flows and liquidity, our ability to comply with or obtain waivers of financial and other covenants in debt agreements, our ~~intention to engage in an~~ongoing in-depth exploration of conversion to a REIT, ~~potential benefits of conversion to a REIT, our potential attractiveness as a REIT to REIT investors and analysts,~~ potential steps necessary prior to conversion to a REIT, the potential timing of any REIT conversion, our expectations about the Austin and Texas real estate markets, potential changes in governance practices and Board composition, 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, ~~estimated costs and timeframes for development and stabilization of properties,~~ tax rates, the impact of interest rate changes, future capital expenditures and financing plans, possible joint ventures, partnerships, ~~strategic relationships~~ or other ~~arrangements,~~strategic relationships, our projections with respect to our obligations under the master lease agreements entered into in connection with the 2017 sale of The Oaks at Lakeway, other plans and objectives of management for future operations and development projects, and future dividend payments and share repurchases. 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 ~~that~~ are not historical facts and are intended to identify those assertions as forward-looking statements.

Under our ~~loan agreements with~~ Comerica Bank credit facility, we are not permitted to pay dividends on common stock without Comerica ~~Bank’s~~Bank's prior written consent. The declaration of dividends is at the discretion of our Board, subject to restrictions under our ~~loan agreements with~~ Comerica Bank credit facility, and will depend on our financial results, cash requirements, projected compliance with covenants in our debt agreements, outlook and other factors deemed relevant by the Board.

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, evolving risks relative to the COVID-19 pandemic and its economic effects, including the impact of the actions taken by governmental authorities to contain the virus or address the impact of the virus on the economy, fear of the further spread or further accelerated spread of COVID-19, the duration and scope of the COVID-19 pandemic and impact thereof including the pace of recovery, the effects of the COVID-19 pandemic on us and the hospitality and entertainment industries generally, including the demand for travel, hotel rooms, group gathering and events at our venues, our ability to pay or refinance our debt or comply with or obtain waivers of financial and other covenants in debt agreements and to meet other cash obligations, our ability to ramp up operations at Block 21, collect anticipated rental payments and close ~~routine~~projected asset sales, ~~and sell or refinance The Saint Mary on terms consistent with our expectations,~~ the availability and terms of financing for development projects and other corporate purposes, the implementation, operational, financing and tax complexities to be evaluated and addressed before ~~we decide~~our Board decides whether to ~~pursue~~recommend a REIT conversion to shareholders, our ability to qualify as a REIT, which involves the application of highly technical and complex provisions of the Internal Revenue Code of 1986, as amended, our ability to complete the steps that must be taken in order to convert to a REIT and the timing thereof, the potential costs of converting to and operating as a REIT, whether our Board will determine that conversion to a REIT is in the best interests of our shareholders, whether shareholders will approve changes to our organizational documents consistent with a public REIT structure, our

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ability to enter into and maintain joint ventures, partnerships, ~~strategic relationships~~ or other ~~arrangements,~~strategic relationships, our ability to ~~effect~~implement our business strategy successfully, including our ability to develop, construct and sell or lease properties ~~at prices~~on terms our Board considers acceptable, market conditions or corporate developments that could preclude, impair or delay any opportunities with respect to plans to sell, recapitalize or refinance properties, our ability to obtain various entitlements and permits, a decrease in the demand for real estate in select markets in Texas where we operate, changes in economic, market and business conditions, reductions in discretionary spending by consumers and businesses, competition from other real estate developers,

~~Table of Contents~~

hotel operators and/or entertainment venue operators and promoters, our ability to ~~open~~hold events and ~~hold events~~increase attendance at our venues, challenges associated with booking events and selling tickets and event cancellations at our entertainment venues, which may result in refunds to customers, 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, our ability to secure qualifying tenants for the space subject to the master lease agreements entered into in connection with the 2017 sale of The Oaks at Lakeway and to assign such leases to the purchaser and remove the corresponding property from the master leases, the failure to attract customers or tenants for our developments or such customers’ or tenants’ failure to satisfy their purchase commitments or leasing obligations, increases in interest rates and the phase out of the London Interbank Offered Rate, declines in the market value of our assets, increases in operating costs, including real estate taxes and the cost of building materials, including lumber, and labor, changes in external perception of the W Austin Hotel, unanticipated issues experienced by the third-party operator of the W Austin Hotel, changes in consumer preferences, industry risks, changes in laws, regulations or the regulatory environment affecting the development of real estate, opposition from special interest groups or local governments with respect to development projects, weather-related risks, loss of key personnel, cybersecurity incidents and other factors described in more detail under the heading “Risk Factors” in Part I, Item 1A. of our ~~2019~~2020 Form 10-K, filed with the ~~SEC, and “Risk Factors” included in Part II, Item 1A. herein.~~SEC.

We can provide no assurance as to when, if at all, we will convert to a REIT. We can give no assurance that our Board will approve a conversion to a REIT, even if there are no impediments to such conversion. Our exploration of a potential REIT conversion may divert management's attention from traditional business concerns. If we determine to convert to a REIT, we cannot give assurance that we will qualify or remain qualified as a REIT. ~~If we elect to convert to a REIT, we can provide no assurance that our Board will declare, or that we will be able to make, future distributions to shareholders.~~

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, some of which we may not be able to control.~~made. Further, we may make changes to our business plans that could affect our results. We caution investors that we ~~do not intend~~undertake no obligation to update our forward-looking statements, ~~more frequently than quarterly~~which speak only as of the date made, notwithstanding any changes in our assumptions, business plans, actual experience, or other ~~changes, and we undertake no obligation to update any forward-looking statements.~~changes.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Not applicable.

Item 4. Controls and Procedures.

(a) Evaluation of disclosure controls and procedures. Our Chief Executive Officer and Chief Financial Officer, with the participation of management, have evaluated the effectiveness of our “disclosure controls and procedures” (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this quarterly report on Form 10-Q. Based on this evaluation, they have concluded that our disclosure controls and procedures were effective as of ~~September 30, 2020.~~March 31, 2021.

(b) Changes in internal control over financial reporting. There was no change in our internal control over financial reporting that occurred during the quarter ended ~~September 30, 2020,~~March 31, 2021, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1A. Risk Factors

We are supplementing the risk factors described under “Item 1A. Risk Factors” in our 2019 Form 10-K with the additional risk factors set forth below, which should be read in conjunction with the risk factors and other disclosures in this report and in our 2019 Form 10-K.

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The COVID-19 pandemic has had a significant adverse impact on our business, financial condition, results of operation and liquidity and could continue to last with unknown severity and for an unknown period of time.

OnMarch 11, 2020, the World Health Organization declared COVID-19 a pandemic, and on March 13, 2020, the U.S. declared a national emergency with respect to COVID-19. The COVID-19 pandemic is complex and rapidly evolving, with federal, state and local governments, public institutions and other organizations imposing or recommending, and businesses and individuals implementing, restrictions on activities in order to combat its spread. These restrictions have included stay-at-home orders, bans on travel, limitations on the size of gatherings, limitations on the operations of businesses deemed non-essential, closures of work facilities, schools, public buildings and businesses, cancellation of events (including entertainment events, conferences and meetings), quarantines and social distancing measures. State and local governments have implemented phased reopening processes, often with reduced capacity and social distancing restrictions. Recently, thereThere have been reports of increasing numbers of new COVID-19 cases throughout the United States, and in particular, Texas, resulting in some governments extending or re-imposing restrictions. In August, the city of Austin extended its Stay Home, Mask and Otherwise Be Safe Order through December 15, 2020.

The pandemic has caused a sharp global slowdown of economic activity resulting in a recession, a steep increase in unemployment in the U.S. and significant volatility and disruption of financial markets. The pandemic had a significant adverse impact onno material changes to our ~~company~~risk factors during the first nine months of 2020 and is expected to continue to adversely impact our company beyond third-quarter 2020. Because the pandemic is unprecedented in recent history, and its severity, duration and future economic consequences are difficult to predict, we cannot predict its future impact on our company with any certainty. The COVID-19 pandemic has subjected our business, financial condition, results of operations, and liquidity to a number of risks, including, but not limited to, those discussed below:

•~~Risks Related to our Liquidity~~. Although we project that we will be able to meet our debt service and other cash obligations for at least the next 12 months, our projections are based on many detailed and complex underlying assumptions, including (1) that operating income for our Block 21 businesses will gradually ramp up to a break-even point in the first half of 2021 and that Block 21 will generate sufficient cash to cover debt service by late 2021, (2) that current conditions in our leasing operations will not further deteriorate materially, (3) that we continue to close on routine asset sales, and (4) that we sell or refinance The Saint Mary on terms consistent with our expectations. No assurances can be given that the results anticipated by our projections will occur. If we later determine that we will likely not be able to meet our debt service and other cash obligations, or will likely not be able to meet covenants under our debt agreements, we may seek further amendments to, waivers of provisions of, or restructuring of our debt agreements, seek to sell assets, seek to reduce operating expenses, and/or seek to raise additional capital, any or all of which actions may not be successful. If we cannot meet our debt service obligations, or otherwise default under a debt agreement, our lenders may declare all amounts outstanding under the loans due and payable, seek to foreclose on the collateral securing the loans and/or seek to force us into involuntary bankruptcy proceedings. Refer to Note 6 for further discussion.

•~~Risks Related to our Hotel Operations~~. The pandemic has had, and we believe will continue to have, a significant adverse impact on the hospitality industry, as it has resulted in dramatically curtailed business and leisure travel and caused cancellations of events or rescheduling of events until later in 2020 and beyond. Accordingly, the pandemic has resulted in a significant decrease in revenue and expected revenue from our hotel rooms, conference facilities and hotel amenities, as discussed throughout this report. The pandemic is expected to continue to negatively affect our hotel business, and the extent to which such adverse impacts continue depends on numerous evolving factors that we cannot predict. Moreover, even as travel advisories and restrictions are lifted, travel demand may remain weak for a significant length of time and attractions and events that previously brought visitors to the city of Austin may not proceed or may proceed with limited capacity. We cannot predict if or when our hotel will return to pre-pandemic demand or pricing.

•~~Risks Related to our Entertainment Operations~~. The pandemic has had, and we believe will continue to have, a significant adverse impact on the entertainment industry and our entertainment operations, as discussed throughout this report. It is unclear whether and to what extent pandemic-related concerns will impact the use of and/or demand for our entertainment venues as government restrictions are modified or lifted. Prolonged repercussions from the pandemic and government-mandated restrictions or other factors could continue to

three-month period ended March 31,

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negatively affect our entertainment venues and the financial performance of our entertainment operations, and the extent to which such adverse impacts continue depends on numerous evolving factors that we cannot predict, including if or when our entertainment operations will return to pre-pandemic demand.

•~~Risks Related to our Leasing Operations~~. The COVID-19 pandemic is negatively affecting our retail and multi-family leasing operations, as discussed throughout this report. As a result of the pandemic and the related economic downturn, our retail tenants have requested, and may continue to request, additional rent deferrals, rent abatement, lease renegotiations or early termination of their leases as well as may be forced to temporarily or permanently close or declare bankruptcy, which could further reduce our cash flows. Our multi-family tenants may request future rent deferrals. In addition, state, local or industry-initiated efforts, such as tenant rent freezes or suspension of a landlord’s ability to enforce evictions, may also affect our ability to collect rent or enforce remedies for the failure to pay rent. Further, our ability to renew leases or re-lease vacant spaces on favorable terms, or at all, is constrained in the current environment, which may worsen.

•~~Risks Related to our Real Estate and Development Operations~~. The pandemic has negatively affected our real estate and development operations, as discussed throughout this report. We may be unable to sell or refinance assets in the current economic environment at a price that we find acceptable or at all. While we continue to advance our land planning, engineering and permitting activities, we cannot predict when we will be able to recommence the active pursuit of our development projects. Also, the economic downturn caused by the pandemic could diminish the demand for and value of our properties for an indeterminate period. The pandemic has also constrained the availability of capital to companies in the real estate industry, and we can provide no assurances that, once we resume our development plans, we will be able to access the required capital at a reasonable cost. Prolonged inability to pursue our development plans will have a negative effect on our business and future profits.

~~Stratus’ potential conversion from a C-Corporation to a REIT is subject to various risks and uncertainties.~~

As previously announced, our Board has approved an in-depth exploration of a conversion from a C-Corporation to a real estate investment trust (REIT). We can provide no assurance as to when, if at all, we will convert to a REIT. There are several implementation, operational, financing and tax complexities to be addressed before we decide whether to pursue a REIT conversion. Our ability to qualify as a REIT involves the application of highly technical and complex provisions of the Internal Revenue Code of 1986, as amended, and Stratus may not qualify as a REIT. Further, if we determine to convert to a REIT, we cannot give any assurance that we will remain qualified as a REIT. We may not be able to complete all of the necessary steps that must be taken in order to convert to a REIT, in the anticipated timeframe, or at all. There could be significant costs related to converting to and operating a REIT. Even if, after an in-depth exploration, it is determined that there are no impediments to a REIT conversion, we cannot provide any assurance that our Board will approve a REIT conversion. Even if our Board approves a conversion from a C-Corporation to a REIT, our shareholders may not approve changes to Stratus’ organizational documents consistent with a public REIT structure. Additionally, the REIT conversion would require consent from our major lenders and amendments to our major loan agreements, among other third-party consents. We cannot provide any assurance that we will receive the necessary consents to move forward with the REIT conversion. If we elect to convert to a REIT, we can provide no assurance that our Board will declare, or that we will be able to make, future distributions to shareholders. Further, if we convert from a C-Corporation to a REIT, we cannot provide any assurance that the anticipated benefits will be realized by us or our shareholders.

These and other impacts of the COVID-19 pandemic could also have the effect of heightening many of the other risks described in Part I, Item 1A. “Risk Factors” in our 2019 Form 10-K. While we believe the risk factors above describe current material risks to our company related to the COVID-19 pandemic, there are other risks that we currently believe will not have a material adverse impact on us that may do so. In addition, there are other risks to our company, not necessarily related to the pandemic, which may adversely affect our business. 2021. For additional ~~discussion,~~information on risk factors, refer to Part I, Item 1A. “Risk Factors” ~~in the 2019~~of our 2020 Form 10-K.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

There were no unregistered sales of equity securities and no repurchases of common stock during the three months ended ~~September 30, 2020.~~March 31, 2021.

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Item 6. Exhibits.

Incorporated by Reference

Exhibit
Number

Exhibit Title

Filed with this Form 10-Q

Form

File No.

Date Filed

2.1

Agreement of Sale and Purchase, dated February 15, 2017, between Stratus Lakeway Center, LLC and FHF I Oaks at Lakeway, LLC.

8-K

001-37716

2/21/2017

~~2.2~~

~~Agreement of Sale and Purchase, dated December 9, 2019 between Stratus Block 21, L.L.C. and Ryman Hospitality Properties, Inc.~~

~~8-K~~

~~001-37716~~

~~12/11/2019~~

~~2.3~~

~~Membership Interest Purchase Agreement, dated December 9, 2019 between Stratus Block 21, Investments, L.P. and Ryman Hospitality Properties, Inc.~~

~~8-K~~

~~001-37716~~

~~12/11/2019~~

~~2.4~~

~~Termination Letter dated May 21, 2020 with respect to Block 21 purchase agreements.~~

~~8-K~~

~~001-37716~~

~~5/22/2020~~

3.1

Composite Certificate of Incorporation of Stratus Properties Inc.

8-A/A

~~000-19989~~001-37716

~~8/26/2010~~3/15/2021

~~3.2~~

~~Certificate of Designation of the Series D Participating Cumulative Preferred Stock of the Company, dated September 22, 2020~~

~~8-A~~

~~001-37716~~

~~9/22/2020~~

~~3.3~~

~~Certificate of Elimination of the Series C Participating Cumulative Preferred Stock of the Company, dated September 22, 2020~~

~~8-K~~

~~001-37716~~

~~9/22/2020~~

~~3.4~~3.2

Second Amended and Restated By-Laws of Stratus Properties Inc., as amended effective August 3, 2017.

10-Q

001-37716

8/9/2017

4.1

Investor Rights Agreement by and between Stratus Properties Inc. and Moffett Holdings, LLC dated as of March 15, 2012.

8-K

000-19989

3/20/2012

4.2

Assignment and Assumption Agreement by and among Moffett Holdings, LLC, LCHM Holdings, LLC and Stratus Properties Inc., dated as of March 3, 2014.

13D

005-42652

3/5/2014

4.3

Stockholder Rights Agreement, dated as of September 22, 2020, by and between the Company and Computershare Inc., as rights agent (which includes the Form of Rights Certificate as Exhibit C thereto).

8-A

001-37716

9/22/2020

4.4

Amendment to Stockholder Rights Agreement, dated as of March 12, 2021, by and between Stratus Properties Inc. and Computershare Inc., as Rights Agent.

8-K

001-37716

3/15/2021

10.1

Construction Loan Agreement by and between ~~College Station 1892 Properties,~~Lantana Place, L.L.C., as borrower, and Southside Bank, as lender, dated ~~September 1,~~April 28, 2017.

8-K

001-37716

~~9/7/~~5/3/2017

10.2

Promissory Note by and between ~~College Station 1892 Properties, L.L.C.~~Lantana Place, L.L.C, and Southside Bank dated ~~September 1,~~April 28, 2017.

8-K

001-37716

~~9/7/~~5/3/2017

10.3

First Amendment to Construction Loan ~~Modification~~ Agreement by and between ~~College Station 1892 Properties,~~Lantana Place, L.L.C., as borrower, and Southside Bank, as lender, dated ~~January 30, 2019.~~

XDecember 13, 2017.

10-K

001-37716

3/16/2018

10.4

Loan Modification Agreement by and between Lantana Place, L.L.C., as borrower, and Southside Bank, as lender, effective June 19, 2020.

10-Q

001-37716

6/25/2020

10.5

Second Loan Modification Agreement by and between ~~College Station 1892 Properties, L.L.C.~~Lantana Place, L.L.C and Southside Bank, ~~dated~~effective as of January ~~23, 2020.~~4, 2021.

10-K

X001-37716

3/15/2021

10.6

Loan and Security Agreement by and between Santal, L.L.C., as borrower and ACRC Lender LLC, as lender, dated September 30, 2019.

8-K

001-37716

10/4/2019

10.7

Note by and between Santal, L.L.C. and ACRC Lender LLC, dated September 30, 2019.

8-K

001-37716

10/4/2019

10.8

Modification of Loan Agreement, Note, Mortgage and Other Loan Documents by and among Santal, L.L.C., as borrower, Stratus Properties Inc., as guarantor, and ACRE Commercial Mortgage 2017-FL3 Ltd., as lender, dated as of April 1, 2021.

8-K

001-37716

4/6/2021

1 ~~0.5~~

~~Termination Letter dated September 18, 2020.~~

~~8-K~~

~~001-37716~~

~~9/21/2020~~

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Incorporated by Reference

Exhibit
Number

Exhibit Title

Filed with this Form 10-Q

Form

File No.

Date Filed

31.1

Certification of Principal Executive Officer pursuant to Rule 13a-14(a)/15d-14(a).

31.2

Certification of Principal Financial Officer pursuant to Rule 13a-14(a)/15d-14(a).

32.1

Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350.

32.2

Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350.

101.INS

XBRL Instance Document - the XBRL Instance Document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH

Inline XBRL Taxonomy Extension Schema.

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase.

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase.

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase.

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase.

104

Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101).

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

STRATUS PROPERTIES INC.

By: /s/ Erin D. Pickens

----------------------------------------

Erin D. Pickens

Senior Vice President and

Chief Financial Officer

(authorized signatory and

Principal Financial Officer)

Date: ~~November 9, 2020~~May 17, 2021

S-1


STRATUS PROPERTIES INC.
TABLE OF CONTENTS


			Page

Part I. Financial Information			2

Item 1. Financial Statements			2

Consolidated Balance Sheets (Unaudited)			2

Consolidated Statements of Comprehensive ~~Loss~~Income (Loss) (Unaudited)			3

Consolidated Statements of Cash Flows (Unaudited)			4

Consolidated Statements of Equity (Unaudited)			5

Notes to Consolidated Financial Statements (Unaudited)			76

Item 2. Management’s Discussion and Analysis of Financial Condition
and Results of Operations			1613

Item 3. Quantitative and Qualitative Disclosures About Market Risk			3026

Item 4. Controls and Procedures			3026

Part II. Other Information			3026

Item 1A. Risk Factors			3026

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			3226



Item 6. Exhibits			3327

Signature			S-1








Balance at June 30, 2019	9,305	$	93	$	186,334	$	(42,630)	1,128	$	(21,360)	$	122,437	$	18,075	$	140,512


Exercised and vested stock-based awards	26	—		15		—		—	—		15		—		15
Stock-based compensation	—	—		156		—		—	—		156		—		156
Forfeited dividends	—	—		11		—		—	—		11		—		11

Tender of shares for stock-based awards	—	—		—		—		5	(149)		(149)		—		(149)


Total comprehensive loss	—	—		—		(2,960)		—	—		(2,960)		(2)		(2,962)
Balance at September 30, 2019	9,331	$	93	$	186,516	$	(45,590)	1,133	$	(21,509)	$	119,510	$	18,073	$	137,583



Three Months Ended September 30, 2019:
Revenues:
Unaffiliated customers	$	2,616	$	5,024		$	8,696	$	5,919	$	0	$	22,255
Intersegment	4		219			68		307		(598)		0
Cost of sales, excluding depreciation	2,352		2,495			6,931		4,770		(185)		16,363
Depreciation	57		1,529			903		393		(47)		2,835
General and administrative expenses	0		0			0		0		3,025		3,025
Gain on sale of assets	0		(37)		c	0		0		0		(37)
Operating income (loss)	$	211	$	1,256		$	930	$	1,063	$	(3,391)	$	69
Capital expenditures and purchases and development of real estate properties	$	3,110	$	5,871		$	294	$	12	$	0	$	9,287

Total assets at September 30, 2019	193,421		197,052			97,414		43,810		36,235		567,932




Nine Months Ended September 30, 2020:
Revenues:
Unaffiliated customers	$	19,254	$	17,257		$	8,537		$	4,818		$	0		$	49,866
Intersegment	13		666			82			8			(769)			0
Cost of sales, excluding depreciation	15,653		9,955		d	10,992		e	5,773			(246)			42,127
Depreciation	173		6,132			2,927		f	1,279		f	(172)			10,339

General and administrative expenses	0		0			0			0			8,786			8,786

Income from forfeited earnest money	0		0			0			0			(15,000)		g	(15,000)
Operating income (loss)	$	3,441	$	1,836		$	(5,300)		$	(2,226)		$	5,863		$	3,614
Capital expenditures and purchases and development of real estate properties	$	11,607	$	4,681		$	523		$	124		$	0		$	16,935