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 ~~March 31,~~September 30, 2022


☐			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

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 ~~April 29,~~November 4, 2022, there were 8,180,292 issued and outstanding ~~8,273,268~~ 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)


		March 31, 2022		December 31, 2021			September 30, 2022		December 31, 2021
ASSETS	ASSETS					ASSETS
Cash and cash equivalents	Cash and cash equivalents	$	12,273	$	24,229	Cash and cash equivalents	$	63,537	$	24,229
Restricted cash	Restricted cash	10,859		18,294		Restricted cash	13,776		18,294
Real estate held for sale	Real estate held for sale	1,773		1,773		Real estate held for sale	1,773		1,773
Real estate under development	Real estate under development	206,191		181,224		Real estate under development	224,813		181,224
Land available for development	Land available for development	34,816		40,659		Land available for development	40,331		40,659
Real estate held for investment, net	Real estate held for investment, net	89,760		90,284		Real estate held for investment, net	93,446		90,284

Lease right-of-use assets	Lease right-of-use assets	10,460		10,487		Lease right-of-use assets	10,910		10,487
Deferred tax assets	Deferred tax assets	4,843		6,009		Deferred tax assets	47		6,009
Other assets	Other assets	22,621		17,214		Other assets	14,204		17,214
Assets held for sale - discontinued operations	Assets held for sale - discontinued operations	151,172		151,053		Assets held for sale - discontinued operations	—		151,053
Total assets	Total assets	$	544,768	$	541,226	Total assets	$	462,837	$	541,226

LIABILITIES AND EQUITY	LIABILITIES AND EQUITY					LIABILITIES AND EQUITY
Liabilities:	Liabilities:					Liabilities:
Accounts payable	Accounts payable	$	14,573	$	14,118	Accounts payable	$	13,187	$	14,118

Accrued liabilities, including taxes	Accrued liabilities, including taxes	19,682		22,069		Accrued liabilities, including taxes	15,951		22,069
Debt	Debt	121,446		106,648		Debt	124,170		106,648
Lease liabilities	Lease liabilities	14,135		13,986		Lease liabilities	14,945		13,986
Deferred gain	Deferred gain	4,274		4,801		Deferred gain	3,748		4,801
Other liabilities	Other liabilities	10,381		17,894		Other liabilities	6,019		17,894
Liabilities held for sale - discontinued operations	Liabilities held for sale - discontinued operations	149,717		153,097		Liabilities held for sale - discontinued operations	—		153,097
Total liabilities	Total liabilities	334,208		332,613		Total liabilities	178,020		332,613

Commitments and contingencies	Commitments and contingencies	0		0		Commitments and contingencies

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

Common stock	Common stock	94		94		Common stock	94		94
Capital in excess of par value of common stock	Capital in excess of par value of common stock	188,971		188,759		Capital in excess of par value of common stock	195,123		188,759
Accumulated deficit		(6,691)		(8,963)

Retained earnings (accumulated deficit)						Retained earnings (accumulated deficit)	47,559		(8,963)
Common stock held in treasury	Common stock held in treasury	(22,205)		(21,753)		Common stock held in treasury	(23,004)		(21,753)
Total stockholders’ equity	Total stockholders’ equity	160,169		158,137		Total stockholders’ equity	219,772		158,137
Noncontrolling interests in subsidiaries	Noncontrolling interests in subsidiaries	50,391		50,476		Noncontrolling interests in subsidiaries	65,045		50,476
Total equity	Total equity	210,560		208,613		Total equity	284,817		208,613
Total liabilities and equity	Total liabilities and equity	$	544,768	$	541,226	Total liabilities and equity	$	462,837	$	541,226

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 (Unaudited)

(In Thousands, Except Per Share Amounts)

Three Months Ended
March 31,
2022 2021
Revenues:
Real estate operations $ 19 $ 6,556
Leasing operations 3,080 4,818
Total revenues 3,099 11,374
Cost of sales:
Real estate operations 1,366 4,360
Leasing operations 984 2,052
Depreciation 873 1,586
Total cost of sales 3,223 7,998
General and administrative expenses 3,167 4,324
Gain on sale of assets (4,812) (22,931)
Total 1,578 (10,609)
Operating income 1,521 21,983
Interest expense, net (15) (1,056)
Loss on extinguishment of debt — (63)
Other income, net 6 3
Income before income taxes and equity in unconsolidated affiliates' loss 1,512 20,867
Benefit from (provision for) income taxes 302 (2,691)
Equity in unconsolidated affiliates' loss (2) (2)
Net income from continuing operations 1,812 18,174
Net income (loss) from discontinued operations 375 (2,508)
Net income and total comprehensive income 2,187 15,666
Total comprehensive loss (income) attributable to noncontrolling interests 85 (6,722)
Net income and total comprehensive income attributable to common stockholders $ 2,272 $ 8,944
Basic net income (loss) per share attributable to common stockholders:
Continuing operations $ 0.23 $ 1.39
Discontinued operations 0.05 (0.30)
$ 0.28 $ 1.09
Diluted net income (loss) per share attributable to common stockholders:
Continuing operations $ 0.23 $ 1.38
Discontinued operations 0.04 (0.30)
$ 0.27 $ 1.08
Weighted-average shares of common stock outstanding:
Basic 8,251 8,223
Diluted 8,355 8,273


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2022		2021		2022		2021
Revenues:
Real estate operations	$	6,887	$	892	$	14,831	$	8,216
Leasing operations	3,090		5,376		9,370		15,057
Total revenues	9,977		6,268		24,201		23,273
Cost of sales:
Real estate operations	6,228		2,110		13,026		8,002
Leasing operations	1,350		2,237		3,204		6,481
Depreciation	907		1,472		2,664		4,624
Total cost of sales	8,485		5,819		18,894		19,107
General and administrative expenses	3,602		5,252		10,213		15,797
Impairment of real estate	720		625		720		625
Gain on sale of assets	—		—		(4,812)		(22,931)
Total	12,807		11,696		25,015		12,598
Operating (loss) income	(2,830)		(5,428)		(814)		10,675
Interest expense, net	—		(855)		(15)		(2,690)
Net gain on extinguishment of debt	—		3,680		—		3,454
Other income, net	680		70		766		74
(Loss) income before income taxes and equity in unconsolidated affiliate's loss	(2,150)		(2,533)		(63)		11,513
Provision for income taxes	(420)		(121)		(159)		(290)
Equity in unconsolidated affiliate's loss	(4)		(2)		(8)		(11)
Net (loss) income from continuing operations	(2,574)		(2,656)		(230)		11,212
Net (loss) income from discontinued operations	—		(1,541)		96,300		(9,947)
Net (loss) income and total comprehensive (loss) income	(2,574)		(4,197)		96,070		1,265
Total comprehensive loss (income) attributable to noncontrolling interests	214		433		463		(6,248)
Net (loss) income and total comprehensive (loss) income attributable to common stockholders	$	(2,360)	$	(3,764)	$	96,533	$	(4,983)

Basic net (loss) income per share attributable to common stockholders:
Continuing operations	$	(0.29)	$	(0.27)	$	0.03	$	0.60
Discontinued operations	—		(0.19)		11.65		(1.21)
	$	(0.29)	$	(0.46)	$	11.68	$	(0.61)
Diluted net (loss) income per share attributable to common stockholders:
Continuing operations	$	(0.29)	$	(0.27)	$	0.03	$	0.60
Discontinued operations	—		(0.19)		11.47		(1.21)
	$	(0.29)	$	(0.46)	$	11.50	$	(0.61)

Weighted-average shares of common stock outstanding:
Basic	8,275		8,239		8,266		8,232
Diluted	8,275		8,239		8,397		8,232

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

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

Table of Contents

STRATUS PROPERTIES INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(In Thousands)


		Three Months Ended					Nine Months Ended
		March 31,					September 30,
		2022		2021			2022		2021
Cash flow from operating activities:	Cash flow from operating activities:					Cash flow from operating activities:
Net income	Net income	$	2,187	$	15,666	Net income	$	96,070	$	1,265
Adjustments to reconcile net income to net cash used in operating activities:	Adjustments to reconcile net income to net cash used in operating activities:					Adjustments to reconcile net income to net cash used in operating activities:
Depreciation	Depreciation	873		3,002		Depreciation	2,664		8,758
Cost of real estate sold	Cost of real estate sold	—		3,112		Cost of real estate sold	7,510		4,028

Impairment of real estate						Impairment of real estate	720		625
Gain on sale of discontinued operations						Gain on sale of discontinued operations	(119,695)		—
Gain on sale of assets	Gain on sale of assets	(4,812)		(22,931)		Gain on sale of assets	(4,812)		(22,931)
Loss on extinguishment of debt		—		63
Net gain on extinguishment of debt						Net gain on extinguishment of debt	—		(3,454)
Debt issuance cost amortization and stock-based compensation	Debt issuance cost amortization and stock-based compensation	515		529		Debt issuance cost amortization and stock-based compensation	1,898		1,468

Equity in unconsolidated affiliates' loss		2		2

Equity in unconsolidated affiliate’s loss						Equity in unconsolidated affiliate’s loss	8		11
Deferred income taxes	Deferred income taxes	1,167		—		Deferred income taxes	5,962		—

Purchases and development of real estate properties	Purchases and development of real estate properties	(4,864)		(2,489)		Purchases and development of real estate properties	(18,294)		(30,841)

(Increase) decrease in other assets		(5,559)		238
Decrease in accounts payable, accrued liabilities and other		(7,629)		(7,563)
Decrease (increase) in other assets						Decrease (increase) in other assets	4,858		(997)
(Decrease) increase in accounts payable, accrued liabilities and other						(Decrease) increase in accounts payable, accrued liabilities and other	(26,213)		5,699
Net cash used in operating activities	Net cash used in operating activities	(18,120)		(10,371)		Net cash used in operating activities	(49,324)		(36,369)

Cash flow from investing activities:	Cash flow from investing activities:					Cash flow from investing activities:
Proceeds from sale of discontinued operations						Proceeds from sale of discontinued operations	105,813		—
Proceeds from sale of assets						Proceeds from sale of assets	—		59,488
Capital expenditures	Capital expenditures	(14,724)		(1,009)		Capital expenditures	(38,889)		(6,708)
Proceeds from sale of assets		—		59,488
Payments on master lease obligations	Payments on master lease obligations	(182)		(270)		Payments on master lease obligations	(742)		(1,019)

Other, net	Other, net	—		(5)		Other, net	(8)		36
Net cash (used in) provided by investing activities		(14,906)		58,204
Net cash provided by investing activities						Net cash provided by investing activities	66,174		51,797

Cash flow from financing activities:	Cash flow from financing activities:					Cash flow from financing activities:
Borrowings from credit facility	Borrowings from credit facility	10,000		17,000		Borrowings from credit facility	30,000		37,700
Payments on credit facility	Payments on credit facility	—		(26,227)		Payments on credit facility	(30,000)		(26,778)
Borrowings from project loans	Borrowings from project loans	5,111		458		Borrowings from project loans	25,798		39,445
Payments on project and term loans	Payments on project and term loans	(1,172)		(28,708)		Payments on project and term loans	(9,761)		(53,330)

Payment of dividends						Payment of dividends	(38,675)		—
Stock-based awards net payments	Stock-based awards net payments	(452)		(157)		Stock-based awards net payments	(452)		(132)
Distributions to noncontrolling interests	Distributions to noncontrolling interests	—		(13,087)		Distributions to noncontrolling interests	—		(13,227)

Noncontrolling interests’ contributions						Noncontrolling interests’ contributions	15,032		27,977
Purchases of treasury stock						Purchases of treasury stock	(262)		—
Financing costs	Financing costs	(17)		(53)		Financing costs	(1,356)		(1,645)
Net cash provided by (used in) financing activities		13,470		(50,774)
Net decrease in cash, cash equivalents and restricted cash		(19,556)		(2,941)

Net cash (used in) provided by financing activities						Net cash (used in) provided by financing activities	(9,676)		10,010
Net increase in cash, cash equivalents and restricted cash						Net increase in cash, cash equivalents and restricted cash	7,174		25,438
Cash, cash equivalents and restricted cash at beginning of year	Cash, cash equivalents and restricted cash at beginning of year	70,139		34,183		Cash, cash equivalents and restricted cash at beginning of year	70,139		34,183
Cash, cash equivalents and restricted cash at end of period	Cash, cash equivalents and restricted cash at end of period	$	50,583	$	31,242	Cash, cash equivalents and restricted cash at end of period	$	77,313	$	59,621

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

Table of Contents

STRATUS PROPERTIES INC.

CONSOLIDATED STATEMENTS OF EQUITY (Unaudited)

(In Thousands)


		Stockholders’ Equity																								Stockholders’ Equity
														Common Stock Held in Treasury					Total																							Retained Earnings (Accumulated Deficit)			Common Stock Held in Treasury						Total			Noncontrolling Interests in Subsidiaries
		Common Stock			Capital in Excess of Par Value				Accum-ulated Deficit									Noncontrolling Interests in Subsidiaries								Common Stock										Capital in Excess of Par Value			Retained Earnings (Accumulated Deficit)		Common Stock Held in Treasury			Total						Noncontrolling Interests in Subsidiaries
		Number of Shares	At Par Value										Number of Shares		At Cost						Total Equity	Total				Number of Shares					At Par Value														At Cost			Total Equity
Balance at December 31, 2021	Balance at December 31, 2021	9,388	$	94			$	188,759			$	(8,963)			1,143				$	(21,753)				$	158,137				$	50,476		$	208,613		Balance at December 31, 2021			9,388				$	94			$	188,759	$	(8,963)				1,143			$	(21,753)	$	158,137	$	50,476	$	208,613

Exercised and vested stock-based awards	Exercised and vested stock-based awards	39	—		—				—					—		—			—					—					—			Exercised and vested stock-based awards		39				—			—			—		—				—			—			—				—
Stock-based compensation	Stock-based compensation	—	—		212				—					—		—			212			—					212		Stock-based compensation		—					—			212			—			—			—			212			—				212

Tender of shares for stock-based awards	Tender of shares for stock-based awards	—	—		—				—					11		(452)			(452)			—					(452)		Tender of shares for stock-based awards		—					—			—			—			11			(452)			(452)			—				(452)

Total comprehensive income (loss)	Total comprehensive income (loss)	—	—		—				2,272					—		—			2,272			(85)					2,187		Total comprehensive income (loss)		—					—			—			2,272			—			—			2,272			(85)				2,187
Balance at March 31, 2022	Balance at March 31, 2022	9,427	$	94	$	188,971			$	(6,691)				1,154		$	(22,205)		$	160,169		$	50,391				$	210,560	Balance at March 31, 2022		9,427					94			188,971			(6,691)			1,154			(22,205)			160,169			50,391				210,560
Stock-based compensation																													Stock-based compensation		—					—			347			—			—			—			347			—				347
Grant of restricted stock units (RSUs) under the Profit Participation Incentive Plan (PPIP)																													Grant of restricted stock units (RSUs) under the Profit Participation Incentive Plan (PPIP)		—					—			5,292			—			—			—			5,292			—				5,292
Total comprehensive income (loss)																													Total comprehensive income (loss)		—					—			—			96,621			—			—			96,621			(164)				96,457
Balance at June 30, 2022																													Balance at June 30, 2022		9,427					94			194,610			89,930			1,154			(22,205)			262,429			50,227				312,656
Exercised and vested stock-based awards																													Exercised and vested stock-based awards		8					—			—			—			—			—			—			—				—
Stock-based compensation																													Stock-based compensation		—					—			513			—			—			—			513			—				513
Common stock repurchases																													Common stock repurchases							—			—			—			34			(799)			(799)			—				(799)
Cash dividend																													Cash dividend		—					—						(40,011)			—			—			(40,011)			—				(40,011)
Contributions from noncontrolling interests																													Contributions from noncontrolling interests		—					—			—			—			—			—			—			15,032				15,032
Total comprehensive loss																													Total comprehensive loss		—					—			—			(2,360)			—			—			(2,360)			(214)				(2,574)
Balance at September 30, 2022																													Balance at September 30, 2022		9,435					$	94		$	195,123		$	47,559		1,188			$	(23,004)		$	219,772		$	65,045			$	284,817

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 — — — — — — — —
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) (Continued)

(In Thousands)


	Stockholders’ Equity
						Retained Earnings (Accumulated Deficit)		Common Stock Held in Treasury			Total		Noncontrolling Interests in Subsidiaries
	Common Stock			Capital in Excess of Par Value
	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	—		—		—		—	—		—		—		—
Stock-based compensation	—	—		182		—		—	—		182		—		182
Grant of RSUs under the PPIP	—	—		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
Stock-based compensation	—	—		202		—		—	—		202		—		202
Total comprehensive loss	—	—		—		(10,163)		—	—		(10,163)		(41)		(10,204)
Balance at June 30, 2021	9,377	94		188,323		(67,576)		1,143	(21,753)		99,088		4,444		103,532
Exercised and vested stock-based awards	11	—		25		—		—	—		25		—		25
Stock-based compensation	—	—		205		—		—	—		205		—		205
Distributions to noncontrolling interests	—	—		—		—		—	—		—		(140)		(140)
Contributions from noncontrolling interests	—	—		—		—		—	—		—		27,977		27,977
Total comprehensive loss	—	—		—		(3,764)		—	—		(3,764)		(433)		(4,197)
Balance at September 30, 2021	9,388	$	94	$	188,553	$	(71,340)	1,143	$	(21,753)	$	95,554	$	31,848	$	127,402

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

Table of Contents

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 (GAAP) in the United States ~~(GAAP)~~(U.S.) and should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2021, included in Stratus Properties Inc.’s (Stratus) Annual Report on Form 10-K for the year ended December 31, 2021 (Stratus 2021 Form 10-K) filed with the ~~United States (U.S.)~~U.S. Securities and Exchange ~~Commission.~~Commission on March 31, 2022. 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~~The results of operations for ~~the first quarter of 2022~~any interim period are not necessarily indicative of the results ~~that may be expected~~of operations for ~~the year ending December 31, 2022.~~any other future interim period or for a full fiscal year. Refer to Note 4 for a discussion of Stratus' discontinued operations.

Related Party Transactions. ~~During~~Through the first quarter of 2022, Stratus had an arrangement with Whitefish Partners, LLC (Whitefish Partners), formerly known as Austin Retail Partners, LLC, for services provided by a consultant of Whitefish Partners who is the son of Stratus' President and Chief Executive Officer. Payments to Whitefish Partners for the consultant's consulting services and expense reimbursements totaled $173 thousand in first-quarter 2022 and $37 thousand in first-quarter 2021. The first quarter of 2022 included a cash payment under Stratus’ Profit Participation Incentive Plan (PPIP). As of March 31, 2022, the consultant has one outstanding award under the PPIP. In addition, during first-quarter 2022, the Compensation Committee of Stratus' Board of Directors (the Compensation Committee) approved an award to be granted to the consultant under the PPIP related to another development project. Refer to Note 7 for discussion of the PPIP. In April 2022, Stratus hired the consultant as an employee at ~~the same~~an annual salary ~~as his compensation under the contract with Whitefish Partners.~~of $100 thousand. As an employee, he is eligible for the same health and retirement benefits provided to all Stratus ~~employees.~~employees and is also eligible for annual incentive awards and for awards under Stratus’ Profit Participation Incentive Plan (PPIP). In the first nine months of 2022, he received $20 thousand as an annual incentive award for 2021 and a $135 thousand cash payment under the PPIP. As of September 30, 2022, the employee has two outstanding awards under the PPIP. Refer to Note 7 for discussion of the PPIP.

Table of Contents

2. EARNINGS PER SHARE

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

Three Months Ended
March 31,
2022 2021
Income from continuing operations $ 1,812 $ 18,174
Net income (loss) from discontinued operations 375 (2,508)
Net income 2,187 15,666
Net loss (income) attributable to noncontrolling interests in subsidiaries 85 (6,722)
Net income attributable to Stratus common stockholders $ 2,272 $ 8,944
Basic weighted-average shares of common stock outstanding 8,251 8,223
Add shares issuable upon exercise or vesting of dilutive stock options and restricted stock units (RSUs)a
104 50
Diluted weighted-average shares of common stock outstanding 8,355 8,273
Basic net income (loss) per share attributable to common stockholders
Continuing operations $ 0.23 $ 1.39
Discontinued operations 0.05 (0.30)
$ 0.28 $ 1.09
Diluted net income (loss) per share attributable to common stockholders
Continuing operations $ 0.23 $ 1.38
Discontinued operations 0.04 (0.30)
$ 0.27 $ 1.08


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2022		2021		2022		2021
Net (loss) income from continuing operations	$	(2,574)	$	(2,656)	$	(230)	$	11,212
Net (loss) income from discontinued operations	—		(1,541)		96,300		(9,947)
Net (loss) income and total comprehensive (loss) income	(2,574)		(4,197)		96,070		1,265
Total comprehensive loss (income) attributable to noncontrolling interests	214		433		463		(6,248)
Net (loss) income and total comprehensive (loss) income attributable to common stockholders	$	(2,360)	$	(3,764)	$	96,533	$	(4,983)

Basic weighted-average shares of common stock outstanding	8,275		8,239		8,266		8,232
Add shares issuable upon vesting of dilutive restricted stock units (RSUs) a	—		—		131		—
Diluted weighted-average shares of common stock outstanding	8,275		8,239		8,397		8,232

Basic net (loss) income per share attributable to common stockholders:
Continuing operations	$	(0.29)	$	(0.27)	$	0.03	$	0.60
Discontinued operations	—		(0.19)		11.65		(1.21)
	$	(0.29)	$	(0.46)	$	11.68	$	(0.61)

Diluted net (loss) income per share attributable to common stockholders:
Continuing operations	$	(0.29)	$	(0.27)	$	0.03	$	0.60
Discontinued operations	—		(0.19)		11.47		(1.21)
	$	(0.29)	$	(0.46)	$	11.50	$	(0.61)

a.Excludes 46 thousand shares for the first nine months of 2022 of common stock ~~for the three months ended March 31, 2022, and 16 thousand shares of common stock for the three months ended March 31, 2021,~~ associated with RSUs that were anti-dilutive. Excludes 296 thousand shares for third-quarter 2022, 145 thousand shares for third-quarter 2021 and 134 thousand shares for the first

~~Table~~nine months of ~~Contents~~2021 of common stock associated with RSUs that were anti-dilutive as a result of net losses.

3. LIMITED PARTNERSHIPS

Stratus has entered into strategic partnerships for certain development projects. Stratus, through its subsidiaries, is a partner in the following limited partnerships: The Saint George Apartments, L.P., Stratus Block 150, L.P., The Saint June, L.P., Stratus Kingwood Place, L.P. and The Saint Mary, L.P. For additional information regarding Stratus' partnerships, refer to Note 2 in the Stratus 2021 Form 10-K.

The Saint George Apartments, L.P. In July 2022, The Saint George Apartments, L.P. entered into a construction loan agreement to finance construction of The Saint George, a 316-unit luxury wrap-style, multi-family project located in north-central Austin, Texas. Refer to Note 6 for further discussion of the loan agreement. In connection with closing the construction financing, Stratus made an additional capital contribution of $1.7 million and the unaffiliated Class B limited partner made an additional capital contribution of $15.0 million, bringing Stratus’ total capital contributions to $3.7 million and the Class B limited partner’s total capital contributions to $33.4 million. As of September 30, 2022, Stratus holds a 10.0 percent indirect controlling equity interest in The Saint George Apartments, L.P.

Stratus Block 150, L.P. In ~~the first quarter of~~first-quarter 2022, pursuant to the limited partnership agreement, wholly owned subsidiaries of Stratus contributed an additional $1.4 million in cash to Stratus Block 150, L.P. No additional capital contributions are required to be made by the partners. As of ~~March 31,~~September 30, 2022, Stratus holds, in the aggregate, a

Table of Contents

31.0 percent indirect controlling equity interest in Stratus Block 150, L.P. As of ~~March 31,~~September 30, 2022, JBM Trust, a related party to Stratus, holds a 5.9 percent equity interest in Stratus Block 150, L.P. For additional information regarding Stratus' related parties, including JBM Trust, refer to Notes 1 and 2 in the Stratus 2021 Form 10-K.

Accounting for Limited Partnerships. Stratus has performed evaluations and concluded that The Saint George Apartments, L.P., Stratus Block 150, L.P., The Saint June, L.P., Stratus Kingwood, L.P. and The Saint Mary, L.P. are variable interest entities and that Stratus is the primary beneficiary. Accordingly, the partnerships’ results are consolidated in Stratus’ financial statements. Stratus will continue to evaluate which entity is the primary beneficiary of these partnerships in accordance with applicable accounting guidance.

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


		March 31, 2022		December 31, 2021			September 30, 2022		December 31, 2021
Assets:	Assets:					Assets:
Cash and cash equivalents	Cash and cash equivalents	$	8,504	$	7,432	Cash and cash equivalents	$	17,621	$	7,432
Restricted cash	Restricted cash	5,170		11,809		Restricted cash	—		11,809
Real estate under development	Real estate under development	72,776		62,692		Real estate under development	93,586		62,692
Land available for development	Land available for development	7,702		7,641		Land available for development	8,286		7,641
Real estate held for investment	Real estate held for investment	31,417		31,399		Real estate held for investment	30,955		31,399
Other assets	Other assets	3,159		3,160		Other assets	4,723		3,160
Total assets	Total assets	128,728		124,133		Total assets	155,171		124,133
Liabilities:	Liabilities:					Liabilities:
Accounts payable and accrued liabilities	Accounts payable and accrued liabilities	9,894		6,661		Accounts payable and accrued liabilities	10,151		6,661

Debt	Debt	46,334		46,096		Debt	56,366		46,096
Total liabilities	Total liabilities	56,228		52,757		Total liabilities	66,517		52,757
Net assets	Net assets	$	72,500	$	71,376	Net assets	$	88,654	$	71,376

4. ASSET SALES

Block 21 ~~Pending Sale~~ - Discontinued Operations. On May 31, 2022, Stratus completed the previously announced sale of Block 21 isto Ryman Hospitality Properties, Inc. (Ryman) for $260.0 million, subject to certain purchase price adjustments, and including Ryman’s assumption of $136.2 million of existing mortgage debt, with the remainder paid in cash. Stratus’ net proceeds of cash and restricted cash totaled $112.3 million (including $6.9 million of post-closing escrow amounts to be held for 12 months after the closing, subject to a longer retention period with respect to any required reserve for pending claims). Stratus recorded a pre-tax gain on the sale of $119.7 million in second-quarter 2022 included in net (loss) income from discontinued operations. Block 21 was Stratus’ wholly owned mixed-use real estate property in downtown Austin, Texas. Block 21 contains the 251-room W Austin Hotel and is home to Austin City Limits Live at the Moody Theater, a 2,750-seat entertainment venue that serves as the location for the filming of Austin City Limits, the longest running music series in American television history. Block 21 also includes Class A office space, retail space and the 3TEN ACL Live entertainment venue and business.

In December 2019, Stratus announced that it had agreed to sell Block 21 to Ryman Hospitality Properties, Inc. (Ryman) for $275.0 million. Ryman deposited $15.0 million in earnest money to secure its performance under the agreements governing the sales. In May 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, which Stratus recorded as operating income in 2020.

In October 2021, Stratus entered into new agreements to sell Block 21 to Ryman for $260.0 million. The purchase price includes Ryman’s assumption of approximately $137 million of existing Block 21 mortgage debt and is subject to an expected downward adjustment of $5.0 million. The remainder of the purchase price will be paid in cash. The transaction is expected to close prior to June 1, 2022, but remains subject to the timely satisfaction or waiver of various closing conditions, including the consent of the loan servicer to the purchaser’s assumption of the existing mortgage loan; the consent of the hotel operator, an affiliate of Marriott, to the purchaser’s assumption of the hotel operating agreement; the absence of a material adverse effect; and other customary closing conditions. The Block 21 purchase agreement will terminate if all conditions to closing are not satisfied or waived by the parties. Ryman has deposited $5.0 million in earnest money to secure its performance under the agreements governing the sale. Of the total purchase price, $6.9 million will be held in escrow for 12 months after the closing, subject to a longer retention period with respect to any required reserve for pending claims.

~~Table of Contents~~

In accordance with accounting guidance, Stratus reported the results of operations of Block 21 as discontinued operations in the consolidated statements of comprehensive (loss) income because the disposal represents a strategic shift that had a major effect on operations, and presented the assets and liabilities of Block 21 as held for sale - discontinued operations in the consolidated balance sheets for all periods presented. Block 21 did not have any other comprehensive income and Stratus' consolidated statements of cash flows are reported on a combined basis without separately presenting discontinued operations.

Table of Contents

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

March 31, 2022 December 31, 2021
Assets:
Cash and cash equivalents $ 9,509 $ 9,172
Restricted casha
17,942 18,444
Real estate held for investment, net 120,634 120,452
Other assets 3,087 2,985
Total assets $ 151,172 $ 151,053
Liabilities:
Accounts payable and accrued liabilities, including taxes $ 4,268 $ 6,200
Debtb
136,054 136,684
Other liabilities 9,395 10,213
Total liabilities $ 149,717 $ 153,097



Assets:
Cash and cash equivalents	$	9,172
Restricted cash a	18,444
Real estate held for investment, net	120,452
Other assets	2,985
Total assets	$	151,053
Liabilities:
Accounts payable and accrued liabilities, including taxes	$	6,200
Debt	136,684
Other liabilities	10,213
Total liabilities	$	153,097

a.Most restricted cash ~~would be~~was received by Ryman upon the closing of the sale.

b.In 2016, Stratus completed the refinancing of the W Austin Hotel & Residences. Goldman Sachs Mortgage Company provided a $150.0 million, ten-year, non-recourse term loan with a fixed interest rate of 5.58 percent per annum and payable monthly based on a 30-year amortization. Balances include net reductions for unamortized debt issuance costs of $0.5 million at March 31, 2022, and $0.6 million at December 31, 2021.

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


									Three Months Ended				Nine Months Ended
		Three Months Ended March 31,					September 30,				September 30,
		2022			2021				2022		2021		2022		2021
Revenues:a	Revenues:a							Revenues: a
Hotel	Hotel	$	5,871		$	2,118		Hotel	$	—	$	5,199	$	12,653	$	11,251
Entertainment	Entertainment	5,340			608			Entertainment	—		3,657		9,990		5,923
Leasing operations and other	Leasing operations and other	726			414			Leasing operations and other	—		356		932		1,124
Total revenue	Total revenue	11,937			3,140			Total revenue	—		9,212		23,575		18,298
Cost of sales:	Cost of sales:							Cost of sales:
Hotel	Hotel	4,743			2,901			Hotel	—		4,312		9,230		11,076
Entertainment	Entertainment	4,139			1,279			Entertainment	—		2,749		7,763		5,559
Leasing operations and other	Leasing operations and other	471			337			Leasing operations and other	—		196		802		871
Depreciation		—		b	1,416
Depreciation b								Depreciation b	—		1,360		—		4,134
Total cost of sales	Total cost of sales	9,353			5,933			Total cost of sales	—		8,617		17,795		21,640
General and administrative expenses	General and administrative expenses	100			220			General and administrative expenses	—		170		236		568

Gain on sale of assets								Gain on sale of assets	—		—		(119,695)		—
Operating income (loss)	Operating income (loss)	2,484			(3,013)			Operating income (loss)	—		425		125,239		(3,910)
Interest expense, net	Interest expense, net	(1,945)			(1,979)			Interest expense, net	—		(2,005)		(3,236)		(5,976)

(Provision for) benefit from income taxes		(164)			2,484
Net income (loss)		$	375		$	(2,508)
Benefit from (provision for) income taxes								Benefit from (provision for) income taxes	—		39		(25,703)		(61)
Net (loss) income from discontinued operations								Net (loss) income from discontinued operations	$	—	$	(1,541)	$	96,300	$	(9,947)

a.In accordance with accounting guidance, amounts are net of eliminations of intercompany sales totaling ~~$321~~$286 thousand in ~~first-quarter~~third-quarter 2021, $510 thousand for the first nine months of 2022, and ~~$262~~$822 thousand ~~in first-quarter~~for the first nine months of 2021.

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

Capital expenditures associated with discontinued operations totaled ~~$182~~$210 thousand in ~~first-quarter~~third-quarter 2021, $213 thousand for the first nine months of 2022 and ~~$107~~$475 thousand ~~in first-quarter~~the first nine months of 2021.

~~Table of Contents~~

The Oaks at Lakeway. In 2017, Stratus sold The Oaks at Lakeway to FHF I Oaks at Lakeway, LLC for $114.0 million in cash. The Oaks at Lakeway is an H-E-B, L.P.-anchored retail project located in Lakeway, Texas. The parties entered into three master lease agreements at closing: (1) one covering unleased in-line retail space, with a 5-year term (the In-line Master Lease), (2) one covering the hotel pad with a 99-year term (the Hotel Master Lease) and (3) one covering four unleased pad sites, three of which have 10-year terms, and one of which has a

Table of Contents

15-year term (the Pad Site Master Lease). For additional information, refer to Note 9 in the Stratus 2021 Form 10-K under the heading “Deferred Gain on Sale of The Oaks at Lakeway.”

The In-Line Master Lease expired in February 2022 and the Hotel Master Lease was terminated in November 2020. As such, Stratus has no further obligations under these two master leases. With respect to the Pad Site Master Lease, Stratus has leased the one pad site with a 15-year term, reducing the monthly rent payment net of rent collections for this pad site to approximately $2,500. Stratus may assign this lease to the purchaser and terminate the obligation under the Pad Site Master Lease for this pad site with a payment of ~~$560,000~~$560 thousand to the purchaser. The lease ~~term~~ for the remaining three unleased pad sites under the Pad Site Master Lease expires in February 2027. To the extent leases are executed for the remaining three unleased pad sites, tenants open for business, and the leases are then assigned to the purchaser, the master lease obligation could be reduced further.

In ~~the first quarter of~~first-quarter 2022, Stratus reassessed its plans with respect to construction of the remaining buildings on the three remaining unleased pad sites and determined that, rather than execute leases and build the buildings, it is less costly to continue to pay the monthly rent (approximately ~~$77~~$71 thousand per month) pursuant to the Pad Site Master Lease until the lease expires in February 2027. In connection with this determination, Stratus reversed an accrual of costs to lease and construct these buildings, resulting in recognition of an additional $4.8 million of gain ~~in first-quarter~~during the first nine months of 2022. A contract liability of ~~$4.3~~$3.7 million is presented as a deferred gain in the consolidated balance sheets at ~~March 31,~~September 30, 2022, compared with $4.8 million at December 31, 2021. The reduction in the deferred gain balance primarily reflects ~~master lease~~Pad Site Master Lease payments. The remaining deferred gain balance is expected to be reduced primarily by future ~~master lease~~Pad Site Master Lease payments.

The Saint Mary. In January 2021, The Saint Mary, L.P. sold The Saint Mary for $60.0 million. After closing costs and payment of the outstanding construction loan, the sale generated net proceeds of approximately $34 million. In first-quarter 2021, after establishing a reserve for remaining costs of the partnership, Stratus received $20.9 million from the subsidiary in connection with the sale and $12.9 million of the net proceeds were distributed to the noncontrolling interest owners. Stratus recognized a pre-tax gain on the sale of $22.9 million ($16.2 million net of noncontrolling interests) ~~in first-quarter~~for the first six months of 2021. Stratus also recognized a $63 thousand loss on extinguishment of debt ~~in first-quarter~~for the first six months of 2021 related to the repayment of The Saint Mary construction loan.

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

Kingwood Place ~~Pending Land Sale.~~ Land.In September 2021, Stratus entered into a contract to sell the multi-family tract of land at Kingwood Place, which was planned for approximately 275 multi-family units, for $5.5 million. The sale closed in October 2022. Upon entering into the contract, Stratus recorded a $625 thousand impairment charge in third-quarter 2021 to reduce the carrying value of the land to its fair value based on the contractual sale price less estimated selling costs. In third-quarter 2022, Stratus recorded a $70 thousand impairment charge due to selling costs in excess of the previous estimate.

Amarra Villas. In February 2021, Stratus entered into a contract to sell one of the Amarra Villas homes for $2.4 million. The sale, if consummated, is ~~expected~~set to close ~~by mid-2022.~~in first-quarter 2023. Stratus recorded a $650 thousand impairment charge in third-quarter 2022 because the estimated total project costs and costs of sale for the home under construction exceed its contractual sale price.

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.

Table of Contents

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


		March 31, 2022				December 31, 2021					September 30, 2022				December 31, 2021
		Carrying Value		Fair Value		Carrying Value		Fair Value			Carrying Value		Fair Value		Carrying Value		Fair Value

Liabilities:	Liabilities:									Liabilities:
Debt	Debt	$	121,446	$	122,747	$	106,648	$	108,091	Debt	$	124,170	$	125,855	$	106,648	$	108,091

~~Table of Contents~~

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 AND EQUITY

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


		March 31, 2022		December 31, 2021

							September 30, 2022		December 31, 2021
Comerica Bank credit facility	Comerica Bank credit facility	$	10,000	$	—	Comerica Bank credit facility	$	—	$	—
Jones Crossing loan	Jones Crossing loan	24,067		24,042		Jones Crossing loan	24,118		24,042
The Annie B land loan	The Annie B land loan	13,877		13,847		The Annie B land loan	13,939		13,847
New Caney land loan	New Caney land loan	4,262		4,496		New Caney land loan	4,043		4,496
Paycheck Protection Program loan	Paycheck Protection Program loan	38		156		Paycheck Protection Program loan	—		156
Construction loans:	Construction loans:					Construction loans:
Kingwood Place	Kingwood Place	32,457		32,249		Kingwood Place	32,657		32,249

Lantana Place	Lantana Place	21,997		22,098		Lantana Place	21,776		22,098
The Saint June						The Saint June	9,770		—
Magnolia Place	Magnolia Place	6,542		2,077		Magnolia Place	6,314		2,077
West Killeen Market	West Killeen Market	6,040		6,078		West Killeen Market	5,979		6,078
Amarra Villas credit facility	Amarra Villas credit facility	2,166		1,605		Amarra Villas credit facility	5,574		1,605

Total debta	Total debta	$	121,446	$	106,648	Total debt a	$	124,170	$	106,648

a.Includes net reductions for unamortized debt issuance costs of ~~$1.1~~$1.2 million at ~~March 31,~~September 30, 2022, and $1.2 million at December 31, 2021. Total debt at December 31, 2021, does not include debt associated with Block 21, which is reflected in liabilities held for ~~sale.~~sale - discontinued operations. Refer to Note 4 for further discussion.

Comerica Bank credit facility. AsUsing proceeds from the sale of ~~March 31, 2022,~~Block 21, Stratus ~~had $49.7 million available~~repaid the outstanding amount under its $60.0 million Comerica Bank credit facility ~~with letters~~in June 2022. As of September 30, 2022, Stratus had $49.0 million available under the credit facility. Letters of credit, totaling ~~$347 thousand committed against the credit facility. In April 2022, Stratus borrowed $20.0~~$11.0 million, onhave been issued under the credit facility, ~~of which~~and secure the ~~majority of the funds were used~~company’s obligation to ~~make a U.S. Federal tax payment for Stratus’ 2021 tax liability.~~build certain roads and utilities facilities benefiting Holden Hills and Section N. In May 2022, Stratus and Comerica Bank entered into an amendment to extend the maturity date of the ~~Comerica Bank~~ credit facility from September 27, 2022, to December 26, 2022, increase the letter of credit sublimit from $7.5 million to $11.5 million and change the benchmark rate ~~from the London Interbank Offered Rate (LIBOR)~~ to the Bloomberg Short-Term Bank Yield Index (BSBY) Rate. Advances under the credit facility now bear interest at the one-month BSBY Rate (with a floor of 0.0 percent) plus 4.0 percent. In November 2022, Stratus entered into an amendment to extend the maturity date of the credit facility from December 26, 2022, to March 27, 2023.

New Caney land loan. In March 2022, Stratus extended the maturity of the New Caney land loan for an additional 12 months to March 8, 2023, which required a principal payment of $0.2 million in March 2022 and ~~will require~~ a second principal payment of $0.2 million in September 2022. Stratus also entered into an amendment to the New Caney land loan to convert the benchmark rate ~~from LIBOR~~ to the Term Secured Overnight Financing Rate ~~(SOFR)~~(Term SOFR). The loan now bears interest at Term SOFR plus 3.0 ~~percent, subject to the applicable margin adjustment.~~percent.

PPP loan. In April 2020, Stratus received a $4.0 million loan under the Paycheck Protection Program (PPP loan) of the Coronavirus Aid, Relief, and Economic Security Act, which was signed into law on March 27, 2020. The PPP loan matured and the remaining balance was repaid by Stratus onin April ~~15,~~ 2022. Of the original loan amount, $3.7 million was forgiven in August 2021.

Table of Contents

Lantana Place construction loan. In ~~January~~August 2022, Stratus ~~entered into an amendment to~~and Southside Bank amended the Lantana Place construction ~~loan~~loan. Pursuant to ~~extend~~the agreement, the date through which Stratus can request advances under the loan was extended through December 31, ~~2022.~~2023, the interest rate for the loan was changed to Term SOFR plus 2.40 percent, subject to a 3.0 percent floor, and the maturity date of the loan was extended to July 1, 2027. In addition, the land planned for The Saint Julia, a proposed multi-family project at Lantana Place, was released from the collateral for the loan.

Payments of interest only on the construction loan are due monthly through July 1, 2023. Beginning August 1, 2023, monthly payments of principal and interest based on a 30-year amortization are due, with the outstanding principal due at maturity.

The debt service coverage ratio was also changed to 1.25 to 1.00, and Stratus was released as guarantor under the related guaranty.

West Killeen Market construction loan. In June 2022, Stratus and Southside Bank amended the West Killeen Market construction loan. Pursuant to the agreement, the principal amount of the loan is fully advanced and funded at an amount of $6.0 million, the interest rate for the loan was changed to Term SOFR plus 2.75 percent, subject to a 3.0 percent floor, and the maturity date of the loan was extended three years to July 31, 2025. Principal and interest payments based on a 30-year amortization are due monthly and the remaining balance is payable at maturity.

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

The Saint George construction loan. In July 2022, ~~while they negotiate~~The Saint George Apartments, L.P., a ~~modification~~Stratus subsidiary entered into a $56.8 million loan with Comerica Bank to provide financing for the construction of The Saint George multi-family project. The construction loan has a maturity date of July 19, 2026, with two options to extend the maturity for an additional 12 months, subject to satisfying specified conditions, including the applicable debt service coverage ratios, and the payment of an extension fee for each extension. Advances under the construction loan bear interest at the one-month BSBY Rate (with a floor of 0.0 percent) plus 2.35 percent.

Payments of interest only on the construction loan are due monthly through July 19, 2026, with the outstanding principal due at maturity. During any extension periods, the principal balance of the construction loan will be payable in monthly installments of principal and interest based on a 30-year amortization calculated at 6.50 percent with the outstanding principal due at maturity. The construction loan may be prepaid without premium or penalty.

Borrowings on the construction loan are secured by The Saint George project and are guaranteed by Stratus. Stratus provided a full completion guaranty and 25 percent repayment guaranty, which will be eliminated once the project meets specified conditions including a debt service coverage ratio of at least 1.20 to 1.00 and confirmation that the loan-to-value ratio does not exceed 65 percent. Notwithstanding the foregoing, Stratus remains liable for customary carve-out obligations and environmental indemnity. The loan agreement contains financial covenants, including a requirement that Stratus maintain a net asset value, as defined in the agreement, of $125.0 million and an aggregate debt-to-gross asset value of less than 50 percent. The Saint George Apartments, L.P. is not permitted to make distributions to its partners until The Saint George project is completed and achieves a debt service coverage ratio of at least 1.20 to 1.00. No amounts were outstanding on this ~~facility.~~loan as of September 30, 2022.

For additional information regarding Stratus' debt, refer to Note 6 in the Stratus 2021 Form 10-K.

Interest Expense and Capitalization. Interest costs (before capitalized interest) totaled ~~$1.1~~$1.8 million in ~~first-quarter~~third-quarter 2022, $2.2 million in third-quarter 2021, $4.4 million for the first nine months of 2022 and ~~$2.3~~$6.6 million ~~in first-quarter~~for the first nine months of 2021. Stratus' capitalized interest totaled ~~$1.1~~$1.8 million in ~~first-quarter~~third-quarter 2022, ~~and~~ $1.3 million in ~~first-quarter~~third-quarter 2021, $4.3 million for the first nine months of 2022 and $3.9 million for the first nine months of 2021. Capitalized interest is primarily related to development activities at Barton Creek (primarily Section N), The Annie B, The Saint George and Magnolia Place.

1013

Table of Contents

Equity. The Comerica Bank credit facility, Amarra Villas credit facility, The Annie B land loan, The Saint George construction loan and Kingwood Place construction loan require Comerica Bank’s prior written consent for any common stock repurchases in excess of $1.0 million or any dividend payments. On September 1, 2022, after receiving written consent from Comerica Bank, Stratus’ Board of Directors (Board) declared a special cash dividend of $4.67 per share (totaling $40.0 million) on Stratus’ common stock, which was paid on September 29, 2022, to shareholders of record as of September 19, 2022. Accrued liabilities as of September 30, 2022, included $1.3 million representing dividends accrued for unvested RSUs in accordance with the terms of the awards. The accrued dividends will be paid to the holders of the RSUs, if and when they vest. Stratus’ Board also approved a new share repurchase program, which authorizes repurchases of up to $10.0 million of Stratus’ common stock. The repurchase program authorizes Stratus, in management’s discretion, to repurchase shares from time to time, subject to market conditions and other factors. In third-quarter 2022, Stratus acquired 33,958 shares of its common stock under the share repurchase program for a total cost of $0.8 million at an average price of $23.49 per share. Through November 4, 2022, Stratus has acquired 105,415 shares of its common stock for a total cost of $2.6 million at an average price of $25.02 per share, and $7.4 million remains available for repurchases under the program.

7. PROFIT PARTICIPATION INCENTIVE PLAN

In July 2018, the Compensation Committee unanimously adopted the PPIP, which provides participants with economic incentives tied to the success of the development projects designated by the Compensation Committee as approved projects under the PPIP. 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. ~~During the first quarter of 2022, the Compensation Committee designated The Saint June as an approved project under the PPIP although no awards for this project were granted as of March 31, 2022.~~ Refer to Note 8 of the Stratus 2021 Form 10-K for further discussion.

The sale of The Saint Mary in January 2021 was a capital transaction under the PPIP. During February 2022, $2.1 million was paid in cash to eligible participants.

In September 2021, Lantana Place reached a valuation event under the PPIP. The profit pool was $3.9 million, of which $0.2 million was paid in cash during February ~~2022. The~~2022 and the remaining accrued liability ~~under the PPIP related to Lantana Place totaled~~of $3.7 million ~~at March 31, 2022, and is expected to be~~was settled in RSUs with a three-year vesting period awarded to eligible participants ~~in the first half~~during second-quarter 2022 following stockholder approval of ~~2022.~~Stratus’ new stock incentive plan.

The sale of The Santal in December 2021 was a capital transaction under the PPIP. ~~During February 2022,~~The profit pool was $6.7 million, of which $5.0 million was paid in cash to eligible participants ~~subject to the PPIP’s~~during February 2022. The PPIP contains limits on cash compensation paid to certain ~~officers. Amounts~~officers and amounts due ~~under the PPIP~~ above the limits are converted to an equivalent number of RSUs with a one-year vesting period. The remaining accrued liability ~~under the PPIP~~ related to The Santal totaled ~~$1.7~~$1.6 million ~~at March 31, 2022,~~ and ~~is expected to be~~was settled in RSUs awarded to ~~eligible participants~~one participant during second-quarter 2022 following stockholder approval of Stratus’ new stock incentive plan.

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

Under the terms of the PPIP, the number of RSUs granted in connection with settlement of approved projects is determined by reference to the 12-month trailing average stock price for the year the project reaches a payment event, whereas the grant date fair value of the RSUs for accounting purposes is based on the grant date closing price. For the RSUs awarded in connection with Lantana Place and The Santal, the aggregate grant date value was $2.1 million greater than the accrued liability for the two projects as a result of this different valuation methodology. During second-quarter 2022, Stratus transferred the $5.3 million accrued liability balance under the PPIP for Lantana Place and The Santal that was settled in RSUs to capital in excess of par value and is amortizing the $2.1 million balance of the grant-date value with a charge to general and administrative expenses and a credit to capital in excess of par value over the three-year or one-year vesting periods of the related RSUs.

Table of Contents

A summary of PPIP costs follows (in thousands):


		Three Months Ended March 31,
			2022		2021			Three Months Ended				Nine Months Ended
								September 30,				September 30,
								2022		2021		2022		2021
Charged to general and administrative expense	Charged to general and administrative expense		$	15	$	495	Charged to general and administrative expense	$	135	$	2,751	$	269	$	3,495
Capitalized to project development costs	Capitalized to project development costs		51		224		Capitalized to project development costs	107		(60)		209		367
Total PPIP costs	Total PPIP costs		$	66	$	719	Total PPIP costs	$	242	$	2,691	$	478	$	3,862

The accrued liability for the PPIP totaled ~~$7.9~~$2.9 million at ~~March 31,~~September 30, 2022, and $15.2 million at December 31, 2021 (included in other liabilities).

8. INCOME TAXES

Stratus’ accounting policy for and other information regarding its income taxes are further described in Notes 1 and 7 in the Stratus 2021 Form 10-K.

Stratus had deferred tax assets (net of deferred tax liabilities) totaling ~~$11.3~~$6.3 million at ~~March 31,~~September 30, 2022, and $12.4 million at December 31, 2021. Stratus' deferred tax assets had valuation allowances totaling ~~$6.5~~$6.3 million at ~~March 31,~~September 30, 2022, and $6.4 million at December 31, 2021. ~~Management has~~Prior to the sale of Block 21, management concluded that the pending sale of Block 21 iswas sufficient positive evidence to support the ability to realize certain deferred tax assets expected to be realized from the sale, which resulted in Stratus recording a $4.2 million non-cash tax credit in ~~the fourth quarter of~~fourth-quarter 2021 to reduce the related valuation allowance. Stratus continues to maintain a valuation allowance on its remaining deferred tax assets. Stratus plans to make a federal income tax payment of approximately $10 million in December 2022 to satisfy estimated taxes due associated with current year taxable income, including the gain on the sale of Block 21.

In evaluating the recoverability of the remaining deferred tax assets, management considered available positive and negative evidence, giving greater weight to the uncertainty regarding projected future financial results. 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 that are not more likely than not to be realized.

~~Table of Contents~~

The difference between Stratus' consolidated effective income tax rate for the first nine months of ~~(20) percent in first-quarter~~ 2022 and the U.S. Federal statutory income tax rate of 21 percent was primarily attributable to state income taxes, noncontrolling interests in subsidiaries, the presence of a valuation allowance against certain U.S. Federal deferred tax assets as of September 30, 2022, and the release of a reserve on uncertain tax positions related to the 2015 through 2017 U.S. Federal tax audit, which was closed in ~~the first quarter of~~first-quarter 2022. The difference between Stratus' consolidated effective income tax rate of 133 percent ~~in first-quarter~~for the first nine months of 2021 and the U.S. Federal statutory income tax rate of 21 percent was primarily attributable to noncontrolling interests in subsidiaries, the presence of a full valuation allowance against certain U.S. Federal deferred tax assets as of ~~March 31,~~September 30, 2021, and the Texas state margin tax.

On August 16, 2022, the Inflation Reduction Act of 2022 (the IR Act) was enacted in the United States. Among other provisions, the IR Act imposes a new 1 percent excise tax on the fair market value of net corporate stock repurchases made by covered corporations, effective for tax years beginning after December 31, 2022. Stratus is assessing the potential impacts of the IR Act, but does not expect the IR Act to have a material impact on its consolidated financial statements.

9. BUSINESS SEGMENTS

As a result of the ~~pending~~ sale of Block 21, Stratus has 2two operating segments: Real Estate Operations and Leasing Operations. Block 21, which encompassed Stratus’ hotel and entertainment segments, along with some leasing operations, is reflected as discontinued ~~operations.~~operations through its sale in May 2022.

Table of Contents

The Real Estate Operations segment is comprised of Stratus’ real estate assets (developed for sale, under development and available for development), which consists of its properties in Austin, Texas (including Section N, Holden Hills, Amarra multi-family and commercial land, Amara Villas, The Saint June and other vacant land in the Barton Creek community; the Circle C community; the Lantana community, including a portion of Lantana Place planned for a multi-family phase now known as The Saint ~~Julia,~~Julia; The Saint George; and the land for ~~The Saint George and~~ The Annie B); 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 (one vacant pad site at West Killeen Market);~~ and in Magnolia, Texas (Magnolia Place), Kingwood, Texas (land for future multi-family development, for which a sale ~~is pending,~~closed in October 2022, and a vacant pad site) and New Caney, Texas (New Caney), located in the greater Houston area.

The Leasing Operations segment is comprised of Stratus’ real estate assets, both residential and commercial, that are leased or available for lease and includes West Killeen Market, Lantana Place, Kingwood Place and the completed portion of Jones Crossing. The segment also included The Saint Mary until its sale in January 2021 and The Santal until its sale in December 2021.

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 March 31,
2022 2021
Real Estate Operations:
Developed property sales $ — $ 4,040
Undeveloped property sales — 2,500
Commissions and other 19 16
19 6,556
Leasing Operations:
Rental revenue 3,080 4,818
3,080 4,818
Total revenues from contracts with customers $ 3,099 $ 11,374


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2022		2021		2022		2021
Real Estate Operations:
Developed property sales	$	—	$	—	$	2,382	$	4,615
Undeveloped property sales	6,887		750		12,331		3,250
Commissions and other	—		142		118		351
	6,887		892		14,831		8,216
Leasing Operations:
Rental revenue	3,090		5,376		9,370		15,057
	3,090		5,376		9,370		15,057

Total revenues from contracts with customers	$	9,977	$	6,268	$	24,201	$	23,273

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


	Real Estate Operations a		Leasing Operations		Corporate, Eliminations and Other b		Total
Revenues:
Unaffiliated customers	$	6,887	$	3,090	$	—	$	9,977

Cost of sales, excluding depreciation	6,232		1,350		(4)		7,578
Depreciation	24		887		(4)		907
General and administrative expenses	—		—		3,602		3,602
Impairment of real estate c	720		—		—		720
Operating (loss) income	$	(89)	$	853	$	(3,594)	$	(2,830)
Capital expenditures and purchases and development of real estate properties	$	6,203	$	11,314	$	—	$	17,517
Total assets at September 30, 2022	274,397		111,938		76,502		462,837

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

Table of Contents

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

c.Includes a $650 thousand impairment charge for one of the Amarra Villas homes that is under contract to sell for $2.4 million and a $70 thousand impairment charge for the multi-family tract of land at Kingwood Place that sold for $5.5 million in October 2022.

Summarized financial information by ~~Business Segment.~~ ~~The following~~ segment ~~information was prepared~~for the three months ended September 30, 2021, based on ~~the same basis as~~ Stratus’ ~~consolidated~~internal financial ~~statements~~reporting system utilized by its chief operating decision maker, follows (in thousands).:

Real Estate
Operationsa
Leasing Operations
Corporate, Eliminations and Otherb
Total
Three Months Ended March 31, 2022:
Revenues:
Unaffiliated customers $ 19 $ 3,080 $ — $ 3,099
Intersegment 4 — (4) —
Cost of sales, excluding depreciation 1,366 984 — 2,350
Depreciation 25 852 (4) 873
General and administrative expenses — — 3,167 c 3,167
Gain on sale of assets — (4,812) d — (4,812)
Operating (loss) income $ (1,368) $ 6,056 $ (3,167) $ 1,521
Capital expenditures and purchases and development of real estate properties $ 4,864 $ 14,542 $ 182 $ 19,588
Total assets at March 31, 2022 254,212 106,652 183,904 e 544,768

Three Months Ended March 31, 2021:
Revenues:
Unaffiliated customers $ 6,556 $ 4,818 $ — $ 11,374
Intersegment 4 — (4) —
Cost of sales, excluding depreciation 4,360

2,052 — 6,412
Depreciation 64 1,544 (22) 1,586
General and administrative expenses — — 4,324 4,324
Gain on sale of assets — (22,931) f — (22,931)
Operating income (loss) $ 2,136 $ 24,153 $ (4,306) $ 21,983
Capital expenditures and purchases and development of real estate properties $ 2,489 $ 902 $ 107 $ 3,498
Total assets at March 31, 2021 161,488 180,758 g 159,625 e 501,871


	Real Estate Operations a		Leasing Operations		Corporate, Eliminations and Other b		Total
Revenues:
Unaffiliated customers	$	892	$	5,376	$	—	$	6,268

Cost of sales, excluding depreciation	2,134		2,238		(25)		4,347
Depreciation	37		1,449		(14)		1,472
General and administrative expenses c	—		—		5,252		5,252
Impairment of real estate d	625		—		—		625
Operating (loss) income	$	(1,904)	$	1,689	$	(5,213)	$	(5,428)
Capital expenditures and purchases and development of real estate properties	$	25,962	$	4,120	$	210	$	30,292
Total assets at September 30, 2021 e	211,423		180,057		167,620		559,100

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

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

c.~~The decrease in first-quarter 2022, compared to first-quarter 2021, is primarily the result of $0.8~~Includes $2.8 million incurred in first-quarter 2021 for consulting, legal and public relation costs for Stratus' successful proxy contest and the real estate investment trust exploration process as well as a $0.5 million decrease in employee incentive compensation costs associated with the ~~PPIP.~~PPIP resulting primarily from an increased valuation for The Santal.

d.Includes a $625 thousand impairment charge for the multi-family tract of land at Kingwood Place.

e.Leasing operations includes $67.3 million of assets held for sale related to the December 2021 sale of The Santal. Corporate, eliminations and other includes $147.8 million of assets held for sale associated with discontinued operations at Block 21.

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


	Real Estate Operations a		Leasing Operations		Corporate, Eliminations and Other b		Total
Revenues:
Unaffiliated customers	$	14,831	$	9,370	$	—	$	24,201
Intersegment	6		—		(6)		—
Cost of sales, excluding depreciation	13,030		3,204		(4)		16,230
Depreciation	73		2,604		(13)		2,664
General and administrative expenses	—		—		10,213		10,213
Gain on sale of assets c	—		(4,812)		—		(4,812)
Impairment of real estate d	720		—		—		720
Operating income (loss)	$	1,014	$	8,374	$	(10,202)	$	(814)
Capital expenditures and purchases and development of real estate properties	$	18,294	$	38,676	$	213	$	57,183

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

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

c.Represents a pre-tax gain recognized on the reversal of accruals for costs to lease and construct buildings under a master lease arrangement that Stratus entered into in connection with its sale of The Oaks at Lakeway in 2017.

e.d.Includes ~~assets held~~a $650 thousand impairment charge for ~~sale~~one of the Amarra Villas homes that is under contract to sell for $2.4 million and a $70 thousand impairment charge for the multi-family tract of land at Kingwood Place that sold for $5.5 million in October 2022.

Table of Contents

Summarized financial information by segment for the nine months ended September 30, 2021, based on Stratus’ internal financial reporting system utilized by its chief operating decision maker, follows (in thousands):


	Real Estate Operations a		Leasing Operations		Corporate, Eliminations and Other b		Total
Revenues:
Unaffiliated customers	$	8,216	$	15,057	$	—	$	23,273
Intersegment	9		—		(9)		—
Cost of sales, excluding depreciation	8,026		6,482		(25)		14,483
Depreciation	149		4,525		(50)		4,624
General and administrative expenses c	—		—		15,797		15,797
Gain on sale of assets d	—		(22,931)		—		(22,931)
Impairment of real estate e	625		—		—		625
Operating (loss) income	$	(575)	$	26,981	$	(15,731)	$	10,675
Capital expenditures and purchases and development of real estate properties	$	30,841	$	6,233	$	475	$	37,549

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

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

c.Includes $3.8 million incurred for consulting, legal and public relation costs for Stratus' successful proxy contest and the real estate investment trust exploration process as well as $3.5 million in employee incentive compensation costs associated with ~~discontinued operations at Block 21, which totaled $151.2 million at March 31, 2022, and $140.5 million at March 31, 2021.~~the PPIP resulting primarily from an increased valuation for The Santal.

f.d.Represents the pre-tax gain on the January 2021 sale of The Saint Mary.

g.e.Includes ~~$68.5 million~~a $625 thousand impairment charge for the multi-family tract of ~~assets held for sale related to The Santal, which was sold in the fourth quarter of 2021.~~land at Kingwood Place.

10. SUBSEQUENT EVENTS

On October 20, 2022, Stratus closed on the sale of a multi-family tract of land at Kingwood Place, an H-E-B grocery anchored, mixed-use project in Kingwood, Texas for $5.5 million. In connection with the sale, Stratus made a $5.0 million principal payment on the Kingwood Place construction loan.

Stratus evaluated events after ~~March 31,~~September 30, 2022, and through the date the financial statements were issued, and determined any events or transactions occurring during this period that would require recognition or disclosure are appropriately addressed in these financial statements.

1318

Table of Contents

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, 2021 (2021 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 2021 Form 10-K for further discussion). 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.

OVERVIEW

We are a diversified real estate company with headquarters in Austin, Texas. We are engaged primarily in the acquisition, entitlement, development, management, leasing and sale of ~~commercial, and~~ multi-family and single-family residential real estate properties and ~~real estate leasing~~commercial properties 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 and undeveloped properties and the lease of our retail, mixed-use and multi-family properties. Our portfolio consists of approximately 1,700 acres of undeveloped acreage and acreage under development for commercial and multi-family and single-family residential projects, as well as several completed commercial and residential projects. Refer to Note 9 for discussion of our operating segments and “Business Strategy” below for a discussion of our business strategy.

BUSINESS STRATEGY

Results of Our Strategic Planning Process; Updates

Over the last seven quarters, we have generated pre-tax earnings of $218.9 million and after-tax cash flow of approximately $166 million from the sales of Block 21 is(including $6.9 million of proceeds held in escrow for a year after the sale), The Santal, a 448-unit luxury garden-style multi-family project located in Barton Creek in Austin, Texas and The Saint Mary, a 240-unit luxury garden-style multi-family project in the Circle C community. Our Board of Directors (Board) and management team engaged in a strategic planning process, which included consideration of the uses of proceeds from the sale of Block 21 and other recent sales in 2021, and of our long-term business strategy. On September 1, 2022, after receiving written consent from Comerica Bank, our Board declared a special cash dividend of $4.67 per share (totaling $40.0 million) on our common stock, which was paid on September 29, 2022, to shareholders of record as of September 19, 2022. Our Board also approved a new share repurchase program, which authorizes repurchases of up to $10.0 million of our common stock. The repurchase program authorizes us, in management’s discretion, to repurchase shares from time to time, subject to market conditions and other factors.

After streamlining our business through the sale of Block 21 in May 2022, our Board has decided to continue our successful development program, with our proven team focusing on pure residential and residential-centric mixed-use projects in Austin and other select markets in Texas, which we believe continue to be attractive locations. We believe by methodically developing and enhancing the value of our properties and then selling them or holding them for lease, we can create long-term value for our stockholders. As part of re-focusing our business, during third-quarter 2022, we completed the sale of substantially all of our non-core assets.

We do not currently have any material commitments to contribute additional cash to our joint venture projects or wholly owned ~~mixed-use real estate property located~~development projects. However, our development plans for future projects require significant additional capital. We plan to continue to develop properties using project-level debt and third-party equity capital through joint ventures in which we receive development management fees and asset management fees, with our potential returns increasing above our relative equity interest in each project as negotiated return hurdles are achieved. Our investment strategy focuses on projects that we believe will provide attractive long-term returns, while limiting our financial risk.

Table of Contents

As previously disclosed, we recently explored a ~~two-acre city block~~potential sale or refinancing of Kingwood Place, Jones Crossing and West Killeen Market. Subsequently, we have decided to retain these cash-flowing properties given current market conditions.

We expect to reduce our reliance on our revolving credit facility and retain sufficient cash to operate our business, taking into account risks associated with changing market conditions and the variability in ~~downtown~~cash flows from our business. Our main source of revenue and cash flow is expected to come from sales of our properties to third parties or to joint ventures in which we participate, the timing of and proceeds from which are difficult to predict and depend on market conditions and other factors. We also generate cash flow from rent in our leasing operations and from development and asset management fees received from our properties. Due to the nature of our development-focused business, we do not expect to generate sufficient recurring cash flow to cover our general and administrative expenses each period. However, we believe that the unique nature and location of our assets, and our team’s ability to execute successfully on development projects, will provide us with positive cash flows and net income over time, as evidenced by our recent sales of The Saint Mary, The Santal and Block 21 described above. Further, we believe our investment strategy, current liquidity and pipeline of projects provide us with many years of opportunities to increase long-term value for our stockholders.

Given challenging market conditions discussed in more detail below, we are currently focused on successfully completing our projects under construction, managing our capital expenditures, advancing other projects through the planning, designing and entitlement process, maximizing cash flow from stabilized assets, controlling costs as much as possible in this inflationary environment, and continuing to source third-party equity capital. We have undeveloped properties currently undergoing active planning, including our two large projects Holden Hills and Section N. Refer to “Recent Development Activities” below for a discussion of these projects. While uncertainty in the market, primarily due to the increasing costs of construction materials and labor, and also rising interest rates, is currently causing a pause in some sales processes and the start of new development projects, we believe there continues to exist strong demand for residential and residential-centric mixed use projects in Austin ~~that contains~~and the ~~W Austin Hotel, consisting~~other markets in Texas where we operate, combined with limited supply. We will re-evaluate our strategy as development progresses on the projects in our pipeline, and as market conditions stabilize.

OVERVIEW OF FINANCIAL RESULTS

On May 31, 2022, we completed the previously announced sale of ~~a 251-room luxury hotel, and office, retail and entertainment space. In October 2021, we entered into new agreements to sell~~ Block 21 to Ryman Hospitality Properties, Inc. (Ryman) for $260.0 million, subject to ~~an expected downward adjustment~~certain purchase price adjustments, and including Ryman’s assumption of ~~$5.0 million. The transaction is expected~~$136.2 million of existing mortgage debt, with the remainder paid in cash. Our net proceeds of cash and restricted cash totaled $112.3 million (including $6.9 million of post-closing escrow amounts to ~~close prior to June 1, 2022, but remains~~be held for 12 months after the closing, subject to a longer retention period with respect to any required reserve for pending claims). We recorded a pre-tax gain on the ~~timely satisfaction or waiver~~sale of ~~various closing conditions.~~$119.7 million in second-quarter 2022. Block 21 was our wholly owned mixed-use real estate property in downtown Austin, Texas. Block 21 contains the 251-room W Austin Hotel and is home to Austin City Limits Live at the Moody Theater, a 2,750-seat entertainment venue that serves as the location for the filming of Austin City Limits, the longest running music series in American television history. Block 21 also includes Class A office space, retail space and the 3TEN ACL Live entertainment venue and business. The sale of Block 21 ~~would eliminate~~eliminated our Hotel and Entertainment segments. As a result, our hotel and entertainment operations, as well as the leasing operations associated with Block 21, are reported as discontinued operations for all periods presented in the financial statements included in this Form 10-Q. Refer to ~~"Results of Operations - Discontinued Operations" and~~ Note 4 for further discussion.

~~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, as well as several completed commercial and residential projects.

Our primary business objective is to create value for stockholders by methodically developing and enhancing the value of our properties and then selling them or holding them for lease. Our full cycle development program of acquiring properties, securing and maintaining development entitlements, developing and stabilizing properties, and selling them or holding them as part of our leasing operations is a key element of our strategy. We may also seek to refinance properties, in order to benefit from the increased value of the property, from lower interest rates or in connection with holding them for lease once the properties have been completed and stabilized.

We believe that Austin and other select, fast-growing markets in Texas continue to be 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. Most of 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. However, we have increasingly relied on project-level equity financing of our subsidiaries. We have formed and expect to continue to pursue strategic relationships as part of our overall strategy for particular development projects and may enter into similar equity financing arrangements in the future. See Note 3 for further discussion.

~~Table of Contents~~

As described in this report and in our 2021 Form 10-K, in December 2021, one of our wholly owned subsidiaries sold The Santal multi-family property for $152.0 million, which after closing costs and payment of the outstanding project loan, generated net proceeds of approximately $74 million. In January 2021, one of our subsidiaries sold The Saint Mary multi-family property for $60.0 million of which we received ~~approximately $21.9~~$20.9 million after closing costs, payment of the construction loan, reserves for remaining costs of the partnership and distributions to noncontrolling interest owners. Net proceeds offrom the sales were used to pay down the balance of our $60.0 million Comerica Bank credit facility and for other corporate purposes.

As previously mentioned, the sale of Block 21 is expected to close prior to June 1, 2022, but remains subject to the timely satisfaction or waiver of various closing conditions. If completed, the sale of Block 21 will result in substantial additional cash proceeds of approximately $115 million pre-tax and $90 million after-tax (before prorations, but including post-closing escrow amounts).

Our Board of Directors (Board) and management team are engaged in a strategic planning process, which includes consideration of the uses of proceeds from sales in 2021 and the pending sale of Block 21, and of our long-term business strategy. Potential uses of proceeds may include a combination of further deleveraging, returning cash to shareholders and reinvesting in our project pipeline. We expect to provide additional information after the Block 21 transaction is concluded and our Board and management have had the opportunity to assess market conditions and the capital requirements for our development pipeline.

~~OVERVIEW OF FINANCIAL RESULTS FOR FIRST-QUARTER 2022~~

As a result of the pending sale of Block 21, we have two operating segments: Real Estate Operations and Leasing Operations. Block 21, which encompassed our hotel and entertainment segments, along with some leasing operations, is reflected as discontinued operations. We operate primarily in Austin, Texas and in other select, fast-growing markets in Texas.

Our Real Estate Operations encompass our activities associated with our acquisition, entitlement, development and sale of real estate. The current focus of our real estate operations is multi-family and single-family residential properties and ~~retail and~~residential-centric mixed-use properties. We may sell or lease the real estate we develop, depending on market conditions. Real estate that we develop and then lease becomes part of our Leasing Operations. Revenue in our Real Estate Operations may be generated from the sale of properties that are developed,

Table of Contents

undeveloped or under development, depending on market conditions. Developed property sales can include an individual tract of land that has been developed and permitted for residential use or a developed lot with a residence already built on it. In addition to our developed properties, we have a development portfolio that consists of approximately 1,700 acres of commercial and multi-family and single-family residential projects under development or undeveloped land held for future use.

Revenue in our Leasing Operations is generated from the lease of space at retail and mixed-use properties that we developed and the lease of residences in the multi-family projects that we developed. We also generate income from the sale of our leased properties, depending on market conditions.

Our total stockholders’ equity increased to $219.8 million at September 30, 2022, from $158.1 million at December 31, 2021, and $98.9 million at December 31, 2020, primarily as a result of gains realized on the sale of Block 21 in May 2022 and our sales of The Santal and The Saint Mary in December 2021 and January 2021, respectively.

Our revenues totaled ~~$3.1~~$10.0 million in ~~first-quarter~~third-quarter 2022 and $24.2 million for the first nine months of 2022, compared with ~~$11.4~~$6.3 million in ~~first-quarter~~third-quarter 2021 and $23.3 million for the first nine months of 2021. The ~~decrease~~increase in revenues in ~~first-quarter~~third-quarter 2022, compared to~~first-quarter~~ third-quarter 2021, is primarily a result of nothe sales of undeveloped real estate ~~sales occurring in first-quarter 2022 because of a decrease in available inventory of developed~~ properties in our Real Estate Operations segment ~~and~~in third-quarter 2022, partially offset by a decrease in leasing revenue as a result of the sale of The Santal multi-family project in late 2021. The increase in revenues for the first nine months of 2022, compared to the first nine months of 2021, is primarily a result of the sales of undeveloped real estate properties as well as a completed Amarra Villas home in our Real Estate Operations segment partially offset by a decrease in leasing revenue following the sales of The Saint Mary and The Santal multi-family projects in 2021. Refer to "Results of Operations" below for further discussion of our segments.

Our net loss attributable to common stockholders totaled $2.4 million, or $0.29 per diluted share in third-quarter 2022, compared to a net loss of $3.8 million, or $0.46 per diluted share, in third-quarter 2021. During the first nine months of 2022 our net income attributable to common stockholders totaled ~~$2.3~~$96.5 million, or ~~$0.27~~$11.50 per diluted share, ~~in first-quarter 2022,~~ compared to ~~$8.9~~a net loss attributable to common stockholders of $5.0 million, or ~~$1.08~~$0.61 per diluted share, ~~in first-quarter~~during the first nine months of 2021. Our results for ~~first-quarter~~the first nine months of 2022 ~~included~~include a $119.7 million pre-tax gain on the sale of Block 21. Refer to Note 4 under the heading “Block 21 - Discontinued Operations” for additional discussion. The results during the first nine months of 2022 also include a $4.8 million pre-tax gain recognized on the reversal of accruals for costs to lease and construct buildings under a master lease arrangement that Stratus entered into in connection with its sale of The Oaks at Lakeway in 2017. Refer to Note 4 under the heading “The Oaks at Lakeway” for additional discussion. ~~Net income~~Our net losses attributable to common stockholders in ~~first-quarter~~the 2021 periods include net losses from discontinued operations of $1.5 million and $9.9 million for third-quarter 2021 and the first nine months of 2021, respectively, as our former hotel and entertainment operations included ain Block 21 were impacted by the COVID-19 pandemic. Our results for the first nine months of 2021 were positively impacted by the $22.9 million pre-tax gain ($16.2 million net of noncontrolling interests) on the January 2021 sale of The Saint ~~Mary, a 240-unit luxury garden-style multi-family project~~Mary. Our net losses attributable to common stockholders in the ~~Circle C community,~~2021 periods also include (i) increases in charges to general and administrative expenses for incentive compensation costs associated with our Profit Participation Incentive Plan (PPIP) resulting primarily from an increased valuation for the Santal (third-quarter and nine-month periods), and for consulting, legal and public relation costs incurred in connection with our successful proxy contest and our real estate investment trust (REIT) exploration process (nine-month period), partially offset by (ii) a ~~$2.5~~$3.7 million ~~net loss from discontinued operations as~~gain related to forgiveness of substantially all of our ~~hotel~~Paycheck Protection Program (PPP) loan (third-quarter and ~~entertainment operations were impacted by the COVID-19 pandemic.~~nine-month periods).

Market Conditions

Our industry has continued to experience cost increases primarily in construction materials and labor, along with supply chain constraints. In addition, interest rates have been rising and bank credit has been tightening in our industry. These factors are having an adverse impact on the projected profitability of our new projects, have delayed projects under construction and the commencement of construction on new projects, have adversely impacted our ability to raise equity capital on attractive terms in our desired time frame, and have adversely impacted our ability to sell some properties at attractive prices in our desired time frame. In addition, on completed projects, we are experiencing increased borrowing costs on our variable rate debt and increased operating costs due to inflation. To manage these risks, we go through extensive pricing exercises culminating with competitive bids from reputable contractors based on final plans and specifications. Because we typically engage third-party general contractors to construct our projects on a fixed-price or guaranteed maximum price basis, our exposure to cost increases on

Table of Contents

projects under construction is limited; however, rising costs and delays in delivery of materials may increase the risk of default by contractors and subcontractors. Refer to “Risk Factors” included in Part II, Item 1A. herein.

RECENT DEVELOPMENT ACTIVITIES

Current Residential Activities

Barton Creek

In ~~first-quarter~~second-quarter 2022, we sold ~~no residential units or lots.~~a six-acre undeveloped multi-family tract of land in Barton Creek for $2.5 million. As of ~~March 31,~~September 30, 2022, two developed Amarra Drive Phase III lots remained unsold.

The Villas at Amarra Drive (Amarra Villas) project is a 20-unit development in the Barton Creek community for which we completed construction and sale of the first seven homes ~~during~~between 2017 and ~~2018. We sold the last two completed homes in~~ 2019. We began construction on the next two Amarra Villas homes during ~~the first quarter~~first-quarter 2020, one of ~~2020,~~ which ~~are expected to be~~was completed and sold for $2.4 million in ~~mid-2022.~~second-quarter 2022. In 2021, we began construction of one additional home and in March 2022, we began construction on another two homes. AsWe began construction on the remaining eight homes in second-quarter 2022. Construction on the last 12 units continue to progress, and as of ~~May 13,~~November 4, 2022, ~~two~~3 homes were under contract to sell ~~(one which we began construction on in 2020~~ and ~~one which we began construction on in 2021). As of May 13, 2022, a total of 11 units (3 of which are under construction and 8 of which construction has not started)~~9 Amarra Villas homes remain available for sale of the ~~initial~~ 20-unit project.

In third-quarter 2021, we began construction on The Saint June, a 182-unit luxury garden-style multi-family project within the Amarra development. The Saint June is ~~expected to be~~ comprised of multiple buildings featuring one, two and three bedroom units for lease with amenities that include a resort-style clubhouse, fitness center, pool and extensive green space. The ~~first units of The Saint June are currently~~project is expected to be completed in ~~fourth-quarter 2022 with completion of the project expected in~~ first-quarter 2023. ~~This project is being built consistent with our sustainability, wellness and conservation goals.~~

We continue to progress the development plans for Holden Hills, our final large residential development within the Barton Creek community consisting of 495 acres and designed to feature approximately 475 unique residences to be developed in multiple phases with a focus on health and wellness, sustainability and energy conservation. We ~~currently expect to secure final~~have obtained construction permits ~~to start construction in September 2022. Subject~~for Phase I, and subject to obtaining financing and other market conditions, we currently expect to start infrastructure construction in late 2022 and to complete site work for Phase I, including the construction of road, utility, drainage and other required infrastructure, approximately 1720 to 22 months from the ~~issuance~~start of ~~our final permits.~~construction. Accordingly, our current projections anticipate that we could ~~begin closing sales of certain~~start building homes and/or selling home sites in ~~Holden Hills in~~ late ~~2024.~~2024 or 2025. We may sell the developed home sites, or may elect to build and sell, or build and lease, homes on some or all of the home sites, depending on financing and market conditions.

Using a conceptual approach similar to that used for Holden Hills, we continue to progress the development plans for Section N, our approximately 570-acre tract located along Southwest Parkway in the southern portion of the Barton Creek ~~community. If successful, this new project would be designed as~~community adjacent to Holden Hills. We are designing a dense, mid-rise, mixed-use project surrounded by an extensive greenspace amenity, resulting in a significant potential increase in development density, as compared to our prior plans.

The Annie B

In September 2021, we purchased the land and announced plans for The Annie B, a proposed luxury high-rise rental project in downtown Austin to be developed as a 400-foot tower, consisting of approximately 420,000 square feet with ~~approximately 300~~316 luxury multi-family units for ~~lease and ground level retail.~~lease. We ~~currently expect~~continue to work to finalize our development plans ~~secure development~~with a goal of beginning construction in late 2023 or 2024, subject to obtaining financing and ~~begin construction by late 2022 or early 2023. This project will be built consistent with our sustainability, wellness and conservation goals.~~other market conditions.

The Saint George

In December 2021, we purchased the land for The Saint George, a ~~proposed~~ 316-unit luxury wrap-style, multi-family project to be constructed in north-central Austin. ~~While we continue the planning~~We entered into a construction loan for ~~the~~this project in July 2022 and ~~obtaining the entitlement and permit approvals, we currently expect to begin~~began construction in ~~the second quarter of 2022 and~~third-quarter 2022. We currently expect to achieve substantial completion by mid-2024. ~~We are negotiating a construction loan for the project.~~

Lantana Multi-Family, Magnolia Place, Jones Crossing, Kingwood Place and Other Residential

We have advanced development plans for the multi-family component of Lantana Place, a partially developed, mixed-use development project located south of Barton Creek in ~~Austin, and, subject to securing an acceptable capital structure and other market conditions, currently expect to begin construction in third-quarter 2022 with expected completion in mid-2024.~~Austin. The multi-family component is now known as The Saint Julia and is expected to consist of 306 units. We currently do not expect to begin construction prior to 2024, and the project remains subject to financing and market conditions.

1622

Table of Contents

~~We are evaluating~~In second-quarter 2022, we sold an undeveloped tract of land in Austin for $0.6 million. In third-quarter 2022, we sold a ~~sale~~0.3 acre undeveloped tract of ~~a portion~~land in Austin for $1.6 million and 28 acres of ~~the~~undeveloped residential land for ~~the single-family and multi-family residential components of~~$3.2 million at Magnolia Place, an H-E-B, L.P (H-E-B) grocery shadow-anchored, mixed-use project in Magnolia, Texas. We also continue to evaluate options for the multi-family component of Jones Crossing, an H-E-B grocery anchored, mixed-use development located in College Station, Texas.

In September 2021, we entered into a contract to sell a multi-family tract of land currently planned for approximately 275 multi-family units for $5.5 million at Kingwood Place, an H-E-B grocery anchored, mixed-use project in Kingwood, Texas. ~~If consummated,~~We closed on the sale ~~is expected to close in third-quarter~~on October 20, 2022. In connection with the sale, we made a $5.0 million principal payment on the Kingwood Place construction loan.

For further discussion of our multi-family and single-family residential properties, refer to MD&A and the related sections in Items 1. and 2. “Business and Properties” in our 2021 Form 10-K.

Current Commercial Activities

Magnolia Place

In August 2021, we began construction on the first phase of development of Magnolia Place, our H-E-B grocery shadow-anchored, mixed-use project in Magnolia, Texas. Magnolia Place is currently planned to consist of 4 retail buildings totaling approximately 35,000 square feet, 5 retail pad sites to be sold or ground leased, 194 single-family lots and approximately 500 multi-family units. The first phase of development consists of 2 retail buildings totaling 18,987 square feet, all 5 pad sites and the road, utility and drainage infrastructure necessary to support the entire development. ~~The~~Infrastructure construction was completed in second-quarter 2022. In third-quarter 2022, we substantially completed construction on the first phase of development and the two retail buildings ~~are expected~~were turned over to ~~be available for occupancy in third-quarter 2022.~~our retail tenants to begin their finish-out process. In mid-2021, H-E-B began construction on its 95,000-square-foot grocery store on an adjoining 18-acre site owned by H-E-B, which ~~is expected to open~~opened on November 2, 2022. During second-quarter 2022, we sold one completed pad site for $2.3 million and sold another completed pad site in ~~fourth-quarter 2022.~~third-quarter 2022 for $1.1 million.

Lantana Place

As of ~~March 31,~~September 30, 2022, we had signed leases for approximately 8590 percent of the retail space at Lantana Place, including the anchor tenant, Moviehouse & Eatery, and a ground lease for an AC Hotel by Marriott. Lantana Place is our partially developed, mixed-use development project within the Lantana community south of Barton Creek in Austin, Texas.

Kingwood Place

Kingwood Place is our H-E-B-anchored, mixed-use development project in Kingwood, Texas (in the greater Houston area). We have constructed approximately 152,000 square feet of retail space at Kingwood Place, including an H-E-B grocery store, and we have signed ground leases on four of the retail pads. One pad site remains available for lease. As of ~~March 31,~~September 30, 2022, we had signed leases for approximately 8595 percent of the retail space, including the H-E-B grocery store. We ~~are exploring~~recently explored a potential sale or refinancing of Kingwood ~~Place.~~Place, but have decided to retain this cash-flowing property given current market conditions.

Jones Crossing

As of ~~March 31,~~September 30, 2022, we had signed leases for substantially all of the retail space at the first phase of Jones Crossing. Jones Crossing is our H-E-B-anchored, mixed-use project in College Station, Texas. We ~~are exploring~~recently explored a potential sale or refinancing of Jones ~~Crossing.~~Crossing, but have decided to retain this cash-flowing property given current market conditions.

West Killeen Market

As of ~~March 31,~~September 30, 2022, we had signed leases for approximately 7075 percent of the retail space at West Killeen Market, our retail project located in Killeen, Texas, shadow-anchored by an adjacent H-E-B grocery store. ~~Only one unsold~~During third-quarter 2022, we sold the last remaining pad site ~~remains at West Killeen Market.~~for $1.0 million. We ~~are exploring~~recently explored a potential sale or refinancing of West Killeen ~~Market.~~Market, but have decided to retain this cash-flowing property given current market conditions.

For further discussion of our commercial properties, refer to MD&A and the related sections in Items 1. and 2. “Business and Properties” in our 2021 Form 10-K.

Table of Contents

Potential Development Projects and Pipeline

Our development plans for ~~the~~The Annie B, Holden Hills, Section N and The Saint Julia will require significant additional capital, which we currently intend to pursue through ~~bank~~project-level debt and third-party equity capital arrangements through joint ventures in which we receive development management fees and weasset management fees, and with our potential returns increasing above our relative equity interest in each project as negotiated return hurdles are ~~negotiating a loan for The Saint George project.~~achieved. We are also pursuing other development projects. These potential development projects and projects in our pipeline require extensive additional permitting and will be dependent on market conditions and financing. Because of the nature and cost of the approval and development

~~Table of Contents~~

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.

~~Supply Chain Disruptions~~

Supply chain disruptions impacting our industry have begun to delay some of our projects under construction, and may impact the timing of projects on which we plan to start construction in the future. Our contractors have experienced delays on our projects primarily related to delivery of certain residential electrical components and laminated structural wood materials. We understand that suppliers are taking actions to try to mitigate the delays; however, their efforts may not be successful. While these constraints have not had a material impact on the expected timing or cost of our projects under construction, that may change in the future. Because we engage third-party general contractors to construct our projects on a fixed-price or guaranteed maximum price basis, our exposure to cost increases on projects under construction is limited; however, supply constraints may increase our costs of or delay future projects. ~~Refer to~~ ~~“Risk Factors” included in~~ ~~Part II, Item 1A. herein.~~

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 numerous factors affecting our business activities as described herein and in our 2021 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~~our operating ~~segment.~~segments. Corporate, eliminations and other includes consolidated general and administrative expenses, which primarily consist of employee compensation and other costs described herein.

The following table summarizes our operating results ~~for the first quarters of 2022 and 2021~~ (in thousands):

Three Months Ended March 31,
2022 2021
Operating (loss) income:
Real Estate Operationsa
$ (1,368) $ 2,136

Leasing Operations 6,056 b 24,153 c
Corporate, eliminations and otherd
(3,167) (4,306)
Operating income $ 1,521 $ 21,983
Interest expense, net $ (15) $ (1,056)
Net income from continuing operations $ 1,812 $ 18,174
Net income (loss) from discontinued operations $ 375 $ (2,508)
Net income attributable to common stockholders $ 2,272 $ 8,944


	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2022			2021		2022		2021
Operating (loss) income:
Real Estate Operations a	$	(89)		$	(1,904)	$	1,014	$	(575)
Leasing Operations b	853			1,689		8,374		26,981
Corporate, eliminations and other c	(3,594)			(5,213)		(10,202)		(15,731)
Operating (loss) income	$	(2,830)		$	(5,428)	$	(814)	$	10,675
Interest expense, net	$	—		$	(855)	$	(15)	$	(2,690)
Net (loss) income from continuing operations	$	(2,574)		$	(2,656)	$	(230)	$	11,212
Net (loss) income from discontinued operations d	$	—	e	$	(1,541)	$	96,300	$	(9,947)

Total comprehensive loss (income) attributable to noncontrolling interests	$	214		$	433	$	463	$	(6,248)
Net (loss) income attributable to common stockholders	$	(2,360)		$	(3,764)	$	96,533	$	(4,983)

a.Includes sales commissions and other revenues together with related expenses. For both periods of 2022, includes a $650 thousand impairment charge for one of the Amarra Villas homes that is under contract to sell for $2.4 million and a $70 thousand impairment charge for the multi-family tract of land at Kingwood Place that sold for $5.5 million in October 2022. For both periods of 2021, includes a $625 thousand impairment charge for the multi-family tract of land at Kingwood Place.

b.~~Includes~~The first nine months of 2022 includes a $4.8 million pre-tax gain recognized on the reversal of accruals for costs to lease and construct buildings under a master lease arrangement that Stratus entered into in connection with its sale of The Oaks at Lakeway in 2017. Refer to Note 4 under the heading “The Oaks at Lakeway” for additional discussion.

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

d.c.Includes consolidated general and administrative expenses and eliminations of intersegment amounts. The decreases in 2022 from the comparable prior year periods are primarily the result of $3.8 million incurred for the first nine months of 2021 for consulting, legal and public relation costs for our successful proxy contest and the REIT exploration process in addition to $2.8 million incurred in third-quarter 2021 and $3.5 million incurred during the first nine months of 2021 for employee incentive compensation costs associated with the PPIP resulting primarily from an increased valuation for The Santal.

d.The first nine months of 2022 includes a $119.7 million pre-tax gain on the May 2022 sale of Block 21.

As a result of the ~~pending~~May 2022 sale of Block 21, we currently have two operating segments: Real Estate Operations and Leasing Operations (refer to Note 9). The following is a discussion of our operating results by segment.

1824

Table of Contents

Real Estate Operations

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


		Three Months Ended March 31,						Three Months Ended				Nine Months Ended
					September 30,					September 30,
			2022			2021				2022		2021		2022		2021
Revenues:	Revenues:								Revenues:
Developed property sales	Developed property sales		$	—		$	4,040		Developed property sales	$	—	$	—	$	2,382	$	4,615
Undeveloped property sales	Undeveloped property sales		—			2,500			Undeveloped property sales	6,887		750		12,331		3,250
Commissions and other	Commissions and other		23			20			Commissions and other	—		142		124		360
Total revenues	Total revenues		23			6,560			Total revenues	6,887		892		14,837		8,225
Cost of sales, including depreciation	Cost of sales, including depreciation		1,391			4,424			Cost of sales, including depreciation	6,256		2,171		13,103		8,175

Impairment of real estate									Impairment of real estate	720		625		720		625
Operating (loss) income	Operating (loss) income		$	(1,368)		$	2,136		Operating (loss) income	$	(89)	$	(1,904)	$	1,014	$	(575)

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


		Three Months Ended March 31,											Nine Months Ended September 30,
		2022					2021						2022					2021
		Lots/Units	Revenues		Average Cost Per Lot/Unit		Lots/Units	Revenues		Average Cost Per Lot/Unit			Homes	Revenues		Average Cost Per Home		Lots/Units	Revenues		Average Cost Per Lot/Unit
Barton Creek	Barton Creek											Barton Creek

Amarra Drive:	Amarra Drive:											Amarra Drive:

Amarra Villas homes												Amarra Villas homes	1	$	2,382	$	2,382	—	$	—	$	—
Phase III lots	Phase III lots	—	$	—	$	—	2	$	1,640	$	332	Phase III lots	—	—		—		3	2,215		299

W Austin Residences at Block 21:
Condominium unit		—	—		—		1	2,400		1,721
W Austin Hotel & Residences Project												W Austin Hotel & Residences Project
Condominium Unit												Condominium Unit	—	—		—		1	2,400		1,721
Total Residential	Total Residential	—	$	—			3	$	4,040			Total Residential	1	$	2,382			4	$	4,615

There were no developed property sales in third-quarter 2022 or 2021. The decrease in revenues in~~first-quarter~~from developed property sales for the first nine months of 2022, compared to ~~first-quarter~~the first nine months of 2021, reflects no lot sales in ~~first-quarter~~the 2022 period, as ~~available~~ inventory of developed properties in our Real Estate Operations segment is limited. In addition, the first nine months of 2021 included revenue from the sale of our last condominium unit at the W Austin Hotel & Residences.

Undeveloped Property Sales.In ~~first-quarter~~third-quarter 2022, we closed $6.9 million of undeveloped property sales consisting of (i) 28 acres of residential land for $3.2 million at Magnolia Place, (ii) a 0.3 acre tract of land in Austin for $1.6 million, (iii) a pad site at Magnolia Place for $1.1 million, and (iv) a pad site at West Killeen Market for $1.0 million. During the first nine months of 2022, we also closed $5.4 million of undeveloped property sales consisting of (i) a six-acre multi-family tract of land in Amarra Drive for $2.5 million, (ii) a completed pad site at Magnolia Place for $2.3 million and (iii) a tract of land in Austin for $0.6 million. In third-quarter 2021, we sold a pad site at West Killeen Market for $750 thousand. During the first nine months of 2021, we also sold a five-acre multi-family tract of land in Amarra Drive for $2.5 million.

Real Estate Cost of ~~Sales.~~Sales and Depreciation. Cost of sales includes costs of property sold, project operating and marketing expenses and allocated overhead costs, partly offset by reductions for certain municipal utility district (MUD) reimbursements. Cost of sales ~~decreased~~increased to ~~$1.4~~$6.3 million in ~~first-quarter~~third-quarter 2022 ~~from $4.4~~and $13.1 million for the first nine months of 2022, compared to $2.2 million in ~~first-quarter~~third-quarter 2021 and $8.2 million for the first nine months of 2021, primarily reflecting higher real estate revenues in the ~~absence of sales in first-quarter 2022.~~2022 periods.

Impairment of Real Estate. In September 2021, we entered into a contract to sell the multi-family tract of land at Kingwood Place, which was planned for approximately 275 multi-family units, for $5.5 million. The sale closed in October 2022. Upon entering into the contract, we recorded a $625 thousand impairment charge in third-quarter

Table of Contents

2021 to reduce the carrying value of the land to its fair value based on the contractual sale price less estimated selling costs. In third-quarter 2022, we recorded an additional $70 thousand impairment charge as a result of the selling costs exceeding the previous estimate.

In February 2021, we entered into a contract to sell one of the Amarra Villas homes for $2.4 million. The sale, if consummated, is set to close in first-quarter 2023. We recorded a $650 thousand impairment charge in third-quarter 2022 because the currently estimated total project costs and costs of sale for the home under construction exceed its contractual sale price.

Leasing Operations

The following table summarizes our Leasing Operations results (in thousands):
Three Months Ended March 31,
2022 2021
Rental revenue $ 3,080 $ 4,818
Rental cost of sales, excluding depreciation 984 2,052
Depreciation 852 1,544
Gain on sale of assets (4,812) (22,931)
Operating income $ 6,056 $ 24,153


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2022		2021		2022		2021
Rental revenue	$	3,090	$	5,376	$	9,370	$	15,057
Rental cost of sales, excluding depreciation	1,350		2,238		3,204		6,482
Depreciation	887		1,449		2,604		4,525


Gain on sale of assets	—		—		(4,812)		(22,931)
Operating income	$	853	$	1,689	$	8,374	$	26,981

Rental Revenue. Rental revenue primarily includes revenue from Lantana Place, Jones Crossing, Kingwood Place and West Killeen Market, and until their sales in December 2021 and January 2021, respectively, our multi-family projects The Santal and The Saint Mary. The decrease in rental revenue in ~~first-quarter~~the 2022 periods, compared with ~~first-quarter~~the 2021 periods, primarily reflects the sale of The Santal in December 2021, partly offset by increased revenue at Lantana Place and Kingwood Place. The Santal had rental revenue of ~~$2.2~~$2.3 million in ~~first-quarter~~third-quarter 2021 and $6.8 million during the first nine months of 2021.

Rental Cost of Sales and Depreciation. Rental cost of sales and depreciation expense decreased in ~~first-quarter~~third-quarter 2022 and the first nine months of 2022, compared with the ~~first-quarter~~ 2021 periods, primarily as a result of the sale of The Santal.

~~Table of Contents~~

Gain on Sale of Assets. InFor the first ~~quarter~~nine months of 2022, we recognized a gain on the reversal of accruals for costs to lease and construct buildings under a master lease arrangement that ~~Stratus~~we entered into in connection with ~~its~~our sale of The Oaks at Lakeway in 2017. Refer to Note 4 under the heading “The Oaks at Lakeway” for further discussion.

In January 2021, one of our subsidiaries sold The Saint Mary for $60.0 million. After closing costs and payment of the outstanding construction loan, the sale generated net proceeds of approximately $34 million. In first-quarter 2021, after establishing a reserve for remaining costs of the partnership, we received $20.9 million from the subsidiary in connection with the sale and $12.9 million of the net proceeds were distributed to the noncontrolling interest owners. We recognized a pre-tax gain on the sale of $22.9 million ($16.2 million net of noncontrolling interests) ~~in first-quarter~~for the first nine months of 2021.

Corporate, Eliminations and Other

Corporate, eliminations and other (refer to Note 9) includes consolidated general and administrative expenses, which primarily consist of employee compensation and other costs. Consolidated general and administrative expenses decreased to ~~$3.2~~$3.6 million in ~~first-quarter~~third-quarter 2022 ~~from $4.3~~and $10.2 million for the first nine months of 2022, compared to $5.3 million in ~~first-quarter~~third-quarter 2021 and $15.8 million for the first nine months of 2021primarily ~~reflecting $0.8~~as a result of $2.8 million incurred in ~~first-quarter~~third-quarter 2021 and $3.5 million incurred during the first nine months of 2021 for employee incentive compensation costs associated with the PPIP resulting primarily from an increased valuation for The Santal and $3.8 million incurred for the first nine months of 2021 for consulting, legal and public relation costs for ~~Stratus'~~our successful proxy contest and the ~~real estate investment trust~~REIT exploration ~~process as well as a $0.5 million decrease in employee incentive compensation costs associated with the Profit Participation Incentive Plan.~~process.

Non-Operating Results

Interest Expense, Net. Interest costs (before capitalized interest) totaled ~~$1.1~~$1.8 million in ~~first-quarter~~third-quarter 2022 and $4.4 million for the first nine months of 2022, compared with ~~$2.3~~$2.2 million in ~~first-quarter~~third-quarter 2021 and $6.6 million for the first nine months of 2021. Interest costs in ~~first-quarter~~the 2022 periods were lower, compared to ~~first-quarter~~the 2021 periods, primarily

Table of Contents

reflecting reductions in average debt balances, including the ~~lower~~repayment of the outstanding balance on the Comerica Bank credit facility and the repayment of The Santal ~~loan.~~loan partially offset by rising interest rates. As of September 30, 2022, all of our debt was variable-rate debt, and for all of such debt, the interest rates have increased for the first nine months of 2022 and may continue to rise in the future if prevailing market interest rates continue to climb.

Capitalized interest totaled ~~$1.1~~$1.8 million in ~~first-quarter~~third-quarter 2022 and $4.3 million for the first nine months of 2022, compared to $1.3 million in ~~first-quarter~~third-quarter 2021 and $3.9 million for the first nine months of 2021. Capitalized interest is primarily related to development activities at Barton Creek (primarily Section N), The Annie B, The Saint George and Magnolia Place.

~~Loss~~Net Gain on Extinguishment of Debt. We recorded a ~~$63 thousand loss~~net gain on extinguishment of debt totaling $3.7 million in ~~first-quarter~~third-quarter 2021 and $3.5 million for the first nine months of 2021 primarily associated with the forgiveness of substantially all of our PPP loan in third quarter 2021. This gain was partly offset by losses on the extinguishment of debt associated with the repayment of The Saint Mary construction loan upon the sale of the ~~property.~~property in first-quarter 2021 and the refinancing of the Jones Crossing construction loan in second-quarter 2021, which resulted in the write-off of unamortized deferred financing costs.

~~Benefit from (Provision for)~~Provision for Income Taxes. We recorded a ~~benefit from income taxes of $0.3 million in first-quarter 2022, compared to a~~ provision for income taxes of ~~$2.7~~$0.4 million in ~~first-quarter~~third-quarter 2022 and $0.2 million for the first nine months of 2022, compared to $0.1 million in third-quarter 2021 and $0.3 million for the first nine months of 2021. Refer to Note 8 for further discussion of income taxes.

Net Income (Loss) from Discontinued Operations. Net income (loss) from discontinued operations totaled $96.3 million for the first nine months of 2022, compared to $(9.9) million for the first nine months of 2021. As a result of the sale of Block 21 in May 2022, we did not have any net income from discontinued operations in third-quarter 2022 compared to $(1.5) million in third-quarter 2021. The net income for the first nine months of 2022 primarily reflects a $119.7 million pre-tax gain on the sale of Block 21. The net losses in the 2021 periods reflect the negative impacts that the COVID-19 pandemic had on the hotel and entertainment operations within our discontinued operations.

Total Comprehensive Loss (Income) Attributable to Noncontrolling Interests in Subsidiaries. Our partners' share of losses (income) totaled ~~$0.1~~$0.2 million in ~~first-quarter~~third-quarter 2022 and $0.5 million for the first nine months of 2022, compared to ~~$(6.7)~~$0.4 million in ~~first-quarter~~third-quarter 2021 and $(6.2) million for the first nine months of 2021. ~~In first-quarter~~For the first nine months of 2021, our partners were allocated $6.7 million of the gain from the sale of The Saint Mary.

~~Discontinued Operations~~

Block 21 is our wholly owned mixed-use real estate property located on a two-acre city block in downtown Austin that contains the W Austin Hotel, consisting of a 251-room luxury hotel, and office, retail and entertainment space. The hotel is managed by W Hotel Management, Inc. a subsidiary of Starwood Hotels & Resorts Worldwide, Inc., which is a subsidiary of Marriott International, Inc. The entertainment space is occupied by Austin City Limits Live at the Moody Theater (ACL Live) and 3TEN ACL Live. ACL Live is a 2,750-seat live music and entertainment venue and production studio that serves as the location for the filming of Austin City Limits, the longest running music series in American television history. 3TEN ACL Live, which opened in March 2016, has a capacity of approximately 350 people and is designed to be more intimate than ACL Live.

As a result of our October 2021 entry into new agreements to sell Block 21 to Ryman for $260.0 million, our hotel and entertainment operations, as well as the leasing operations associated with the Block 21 property, are reported as discontinued operations for all periods presented in the accompanying financial statements. Refer to Note 4 for further discussion.

The transaction is expected to close prior to June 1, 2022, but remains subject to the timely satisfaction or waiver of various closing conditions, including the consent of the loan servicers to the purchaser’s assumption of the existing mortgage loan, the consent of the hotel operator, an affiliate of Marriott, to the purchaser’s assumption of the hotel operating agreement, the absence of a material adverse effect, and other customary closing conditions. The Block

~~Table of Contents~~

21 purchase agreement will terminate if all conditions to closing are not satisfied or waived by the parties. Ryman has deposited $5.0 million in earnest money to secure its performance under the agreements governing the sale. Of the total purchase price, $6.9 million will be held in escrow for 12 months after the closing, subject to a longer retention period with respect to any required reserve for pending claims. We expect to record a pre-tax gain of approximately $120 million upon closing of the sale (approximately $95 million after-tax). The purchase price is payable by the assumption of the Block 21 loan with the balance to be paid in cash. We expect the net sale proceeds before taxes to be approximately $115 million and the after-tax proceeds to be approximately $90 million before prorations, but including post-closing escrow amounts.

Net income (loss) from discontinued operations totaled $0.4 million in first-quarter 2022 and $(2.5) million in first-quarter 2021. We reported higher hotel and entertainment revenue in first-quarter 2022 as the impacts of the COVID-19 pandemic had a significant impact on first-quarter 2021 results.

~~The following is a discussion of our key operating results within discontinued operations.~~

~~Hotel Revenue.~~ Hotel revenue primarily includes revenue from W Austin Hotel room reservations and food and beverage sales. Hotel revenues were $5.9 million in first-quarter 2022 and $2.1 million in first-quarter 2021. The increase in Hotel revenues in first-quarter 2022, compared to first-quarter 2021, is primarily a result of higher room reservations and food and beverage sales as the impacts of the COVID-19 pandemic had a significant impact on first-quarter 2021 results. First-quarter 2022 Hotel revenue was approximately 70 percent of pre-pandemic Hotel revenue in first-quarter 2019. Revenue per available room (RevPAR), which is calculated by dividing total room revenue by the average total rooms available, was $165 in first-quarter 2022, compared with $51 in first-quarter 2021.

~~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 totaled $5.3 million in first-quarter 2022 and $0.6 million in first-quarter 2021. The increase in entertainment revenue primarily reflects an increase in the number of events hosted at ACL Live and 3TEN ACL Live as the impacts of the COVID-19 pandemic had a significant impact on first-quarter 2021 results. First-quarter 2022 Entertainment revenue was approximately 10 percent greater than pre-pandemic Entertainment revenue in first-quarter 2019. As of August 2021, ACL Live and 3TEN ACL Live are operating at full capacity.

~~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 March 31,
2022 2021
ACL Live
Events:
Events hosted 48 28
Estimated attendance 53,882 3,416
Ticketing:
Number of tickets sold 54,947 3,710
Gross value of tickets sold (in thousands) $ 2,964 $ 373
3TEN ACL Live
Events:
Events hosted 44 22
Estimated attendance 7,100 1,828
Ticketing:
Number of tickets sold 3,413 114
Gross value of tickets sold (in thousands) $ 99 $ 3

~~Table of Contents~~

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. 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 ~~Three~~Nine Months Ended ~~March 31,~~September 30, 2022 and 2021

Operating Activities. Cash used in operating activities totaled ~~$18.1~~$49.3 million ~~in first-quarter~~for the first nine months of 2022, compared with ~~$10.4~~$36.4 million in~~first-quarter~~for the first nine months of 2021. Expenditures for purchases and development of real estate properties totaled ~~$4.9~~$18.3 million ~~in first-quarter~~for the first nine months of 2022 and ~~$2.5~~$30.8 million in~~first-quarter~~for the first nine months of 2021, both primarily related to development of our Barton Creek properties, particularly Amarra Villas and, to a lesser extent, Holden Hills. The cash ~~outflows~~outflow resulting from the decrease in accounts payable, accrued liabilities and other ~~in first-quarter 2022 and first-quarter 2021 are primarily related to~~during the ~~timing~~first nine months of ~~property tax payments. The cash outflow resulting from the increase in other assets in first-quarter~~ 2022 is primarily related to ~~a $4.0 million deposit that we delivered to~~ the ~~city~~payment of ~~Austin to secure our obligation to construct certain subdivision improvements related to~~awards under the ~~Holden Hills project.~~PPIP and the timing of tax payments, including property taxes.

Investing Activities. Cash ~~(used in)~~ provided by investing activities totaled ~~$(14.9)~~$66.2 million ~~in first-quarter~~for the first nine months of 2022 and ~~$58.2~~$51.8 million in~~first-quarter 2021. Capital expenditures totaled $14.7 million in first-quarter 2022, primarily for The Saint June and Magnolia Place projects, and $1.0 million infirst-quarter 2021, primarily~~ for the ~~Magnolia Place and Lantana Place projects.~~

In~~first-quarter~~first nine months of 2021. During the first nine months of 2022, we received net proceeds from the sale of Block 21 of $105.8 million (excluding the release of reserves previously presented as restricted cash but including $6.9 million of post-closing escrow amounts to be held for 12 months after the closing, subject to a longer retention period with respect to any required reserves for pending claims). During the first nine months of 2021, we received proceeds, net of closing costs, from the sale of The Saint Mary of $59.5 million.

Capital expenditures totaled $38.9 million for the first nine months of 2022, primarily for The Saint June, The Saint George and Magnolia Place projects, and $6.7 million for the first nine months of 2021, primarily for The Saint June, Lantana Place and Magnolia Place projects.

Table of Contents

Financing Activities. Cash ~~provided by (used in)~~used in financing activities totaled ~~$13.5~~$9.7 million ~~in first-quarter~~for the first nine months of 2022 and ~~$(50.8)~~cash provided by financing activities totaled $10.0 million in~~first-quarter~~for the first nine months of 2021. ~~In first-quarter~~During the first nine months of 2022, we had no net borrowings on the Comerica Bank credit facility, ~~totaled $10.0 million,~~ compared with net ~~repayments~~borrowings of ~~$9.2~~$10.9 million ~~in first-quarter 2021, primarily using proceeds from~~for the ~~sale~~first nine months of ~~The Saint Mary. In first-quarter~~2021. During the first nine months of 2022, net borrowings on other project and term loans totaled ~~$3.9~~$16.0 million, primarily reflecting borrowings on the Magnolia Place and The Saint June construction ~~loan. In first-quarter~~loans. During the first nine months of 2021, net repayments on other project and term loans totaled ~~$28.3~~$13.9 million, primarily reflecting the repayment of The Saint Mary construction ~~loan.~~loan upon the sale of the project. Refer to ~~“Credit~~“Liquidity Outlook, Credit Facility and Other Financing ~~Arrangements and Liquidity Outlook”~~Arrangements” below for a discussion of our outstanding debt at ~~March 31,~~September 30, 2022.

~~In first-quarter~~During the first nine months of 2022, we received contributions from noncontrolling interest owners of $15.0 million, related to The Saint George partnership. No distributions to noncontrolling interest owners were paid during the first nine months of 2022. During the first nine months of 2021, we paid distributions to noncontrolling interest owners of ~~$13.1~~$13.2 million, primarily related to the sale of The Saint ~~Mary.~~Mary, and received contributions from noncontrolling interest owners of $28.0 million, related to The Saint June and Block 150 limited partnerships.

On September 1, 2022, after receiving written consent from Comerica Bank, our Board declared a special cash dividend of $4.67 per share (totaling $40.0 million) on our common stock which was paid on September 29, 2022, to shareholders of record as of September 19, 2022. Our Board also approved a new share repurchase program, which authorizes repurchases of up to $10.0 million of our common stock, which replaced our prior share repurchase program. The repurchase program authorizes us, in management’s discretion, to repurchase shares from time to time, subject to market conditions and other factors. As of September 30, 2022, we repurchased 33,958 shares of our common stock for a total of $0.8 million at an average price of $23.49. Through November 4, 2022, we have acquired 105,415 shares of our common stock for a total cost of $2.6 million at an average price of $25.02 per share, and $7.4 million remains available for repurchases under the program.

The timing, price and number of shares that may be repurchased under the program will be based on market conditions, applicable securities laws and other factors considered by management. Share repurchases under the program may be made from time to time through solicited or unsolicited transactions in the open market, in privately negotiated transactions or by other means in accordance with securities laws. The share repurchase program does not obligate us to repurchase any specific amount of shares, does not have an expiration date, and may be suspended, modified or discontinued at any time without prior notice.

Liquidity Outlook, Credit Facility and Other Financing Arrangements

We had $63.5 million in cash and ~~Liquidity Outlook~~cash equivalents at September 30, 2022. We believe that our current cash and cash equivalents, financing arrangements and cash generated from operations will provide us with sufficient liquidity to satisfy our anticipated working capital needs, debt service requirements, expected capital expenditures, project funding commitments, income taxes and the share repurchase program for at least the next 12 months. We expect to be able to extend or refinance all of our loans prior to their maturity dates. No assurances can be given that the results anticipated by our projections will occur. Refer to “Risk Factors” included in Part I, Item 1A. and Note 6 in our 2021 Form 10-K.

At ~~March 31,~~September 30, 2022, we had total debt of ~~$122.5~~$125.4 million based on the principal amounts outstanding, compared with $107.9 million at December 31, 2021. Consolidated debt at ~~both dates~~December 31, 2021, excluded the Block 21 loan of approximately $137 ~~million. Our~~million, which was presented in liabilities held for sale - discontinued operations. Using proceeds from the sale of Block 21, we repaid the outstanding amount under our $60.0 million Comerica Bank credit facility ~~which is comprised of a $60.0 million revolving line of credit,~~prior to June 30, 2022. At September 30, 2022, we had ~~$49.7~~$49.0 million available ~~at March 31, 2022, net of letters~~under the credit facility. Letters of credit, totaling ~~$347 thousand committed against the credit facility. In April 2022, we borrowed $20.0~~$11.0 million, onhave been issued under the credit facility, ~~of which the majority of the funds were used~~and secure our obligation to ~~make a U.S. Federal tax payment for our 2021 tax liability.~~build certain roads and utilities facilities benefiting Holden Hills and Section N. Refer to “Debt Maturities and Other Contractual Obligations” below for a table illustrating the timing of principal payments due on our outstanding debt as of ~~March 31,~~September 30, 2022. We plan to make a federal income tax payment of approximately $10 million in December 2022 to satisfy estimated taxes due associated with current year taxable income, including the gain on the sale of Block 21.

Our debt agreements require compliance with specified financial covenants. Refer to MD&A in our 2021 Form 10-K and Note 6 for a discussion of the financial covenants in our debt agreements. As of ~~March 31,~~September 30, 2022, we were in compliance with all of our financial covenants; however, for each quarter since second-quarter 2020 our Block 21 subsidiary did not pass the debt service coverage ratio financial test under the Block 21 loan, which, though not a financial covenant, caused the Block 21 subsidiary to enter into a “Trigger Period” as discussed below.covenants.

Table of Contents

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 credit facility, ~~and~~Amarra Villas credit facility, The Annie B land loan, The Saint George construction loan and Kingwood Place construction loan require Comerica Bank’s prior written consent for any common stock repurchases in excess of $1.0 million or any dividend ~~payments.~~payments, which was obtained in connection with the special cash dividend and share repurchase program. Any future declaration of dividends or decision to repurchase our common stock is at the discretion of our Board, subject to restrictions under our Comerica Bank debt agreements, and will depend on our financial results, cash requirements, projected compliance with covenants in our debt agreements, outlook and other factors deemed relevant by our Board. Our future debt agreements, future refinancings of or amendments to existing debt agreements or other future agreements may restrict our ability to declare dividends or repurchase shares.

~~Table of Contents~~

The Block 21 loan agreement, which is excluded from consolidated debt and presented within liabilities held for sale, is secured by the Block 21 assets and contains financial tests that we must meet in order to avoid a “Trigger Period." Specifically, we must maintain (i) a net worth in excess of $125 million and (ii) liquid assets having a market value of at least $10 million, 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, as defined in the Block 21 loan agreement. If any of these financial tests are not met, a “Trigger Period”, which is not a default, results. As a result of the pandemic, our Block 21 subsidiary has not met the debt service coverage ratio test each quarter beginning with the June 30, 2020, test date, resulting in a "Trigger Period." During a "Trigger Period," any cash generated from the Block 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.

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 Block 21 subsidiary's hotel operating agreement, the hotel operator may, and has, requested funds from us when 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 $13.7 million in 2021, $2.5 million in first-quarter 2022 and, depending on the timing of the sale of Block 21, we expect additional contributions to total as much as $0.6 million in second-quarter 2022.

~~We project that we will be able to meet our debt service and other cash obligations for at least the next 12 months.~~ In May 2022, we entered into an amendment with Comerica Bank to extend the maturity date of the Comerica Bank credit facility from September 27, 2022, to December 26, ~~2022.~~2022, and in November 2022, Comerica Bank extended the maturity date from December 26, 2022, to March 27, 2023. We are in discussions with the lender to remove Holden Hills from the collateral pool for the facility, finance the Holden Hills project under a separate loan agreement and enter into a revised revolving credit facility with a lower borrowing limit secured by the remaining collateral under the facility. We expect to be able to extend or refinance all of our loans prior to their maturity dates. No assurances can be given that the results anticipated by our projections will occur. Refer to “Risk Factors” included in Part I, Item 1A. and Note 6 in our 2021 Form 10-K.

Our ability to meet our cash obligations over the longer term, including our significant debt maturities in 2023, 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 ~~March 31,~~September 30, 2022 (in thousands)~~, excluding debt related to Block 21 included in liabilities held for sale:~~:


		2022		2023		2024		2025		2026		Total

															2022		2023		2024		2025		2026		Thereafter		Total
Comerica Bank credit facilitya	Comerica Bank credit facilitya	$	10,000	$	—	$	—	$	—	$	—	$	10,000	Comerica Bank credit facility a	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Jones Crossing loan	Jones Crossing loan	—		—		—		—		24,500		24,500		Jones Crossing loan	—		—		—		—		24,500		—		24,500
The Annie B land loan	The Annie B land loan	—		14,000		—		—		—		14,000		The Annie B land loan	—		14,000		—		—		—		—		14,000
New Caney land loan	New Caney land loan	—		4,275		—		—		—		4,275		New Caney land loan	—		4,050		—		—		—		—		4,050
PPP loan		38		—		—		—		—		38

Construction loans:	Construction loans:													Construction loans:
Kingwood Placeb	Kingwood Placeb	32,586		—		—		—		—		32,586		Kingwood Place b	32,689		—		—		—		—		—		32,689

Lantana Place	Lantana Place	604		21,454		—		—		—		22,058		Lantana Place	—		103		259		276		290		20,951		21,879
The Saint June														The Saint June	—		—		10,135		—		—		—		10,135
West Killeen Market	West Killeen Market	6,052		—		—		—		—		6,052		West Killeen Market	8		32		33		5,917		—		—		5,990
Magnolia Place	Magnolia Place	—		—		6,827		—		—		6,827		Magnolia Place	—		—		6,540		—		—		—		6,540
Amarra Villas credit facility	Amarra Villas credit facility	2,166		—		—		—		—		2,166		Amarra Villas credit facility	—		—		5,574		—		—		—		5,574

Total	Total	$	51,446	$	39,729	$	6,827	$	—	$	24,500	$	122,502	Total	$	32,697	$	18,185	$	22,541	$	6,193	$	24,790	$	20,951	$	125,357

a.In May 2022, we entered into an amendment to extend the maturity date of the $60.0 million Comerica Bank credit facility from September 27, 2022, to December 26, 2022, and have entered into another extension of the maturity date from December 26, 2022, to March 27, 2023, pending completion of our discussions with the lender to amend the facility in connection with the financing of Holden Hills as discussed elsewhere in this report.

b.Matures December 6, 2022. We expect to extend the maturity date for an additional 12-month period. Following the extension, we have the option to extend the maturity date for a second additional 12-month period, subject to certain conditions. The sale of the multi-family tract closed in October 2022 and resulted in a principal paydown of $5.0 million.

Table of Contents

b.~~Matures~~The following table summarizes the interest rate of each loan, all of which have variable rates, as of September 30, 2022, and December 6, 2022. We have the option to extend the maturity date for two additional 12-month periods, subject to certain debt service coverage conditions, which we expect to meet for the first extension period after an approximate $5.1 million paydown upon the closing of the pending sale of the multi-family tract.31, 2021:


	Interest Rate at
	September 30, 2022		December 31, 2021
Comerica Bank credit facility	6.40	%	5.00	%
Jones Crossing loan	4.91		2.40
The Annie B land loan	5.56		3.50
New Caney land loan	5.28		3.10
Construction loans:
Kingwood Place	5.06		2.60
Lantana Place	5.00		3.00
The Saint June	5.31		—
West Killeen Market	5.35		3.00
Magnolia Place	5.88		3.50
Amarra Villas credit facility	5.40		3.10

Other than the debt transactions discussed in Note 6, there have been no material changes in our contractual obligations since December 31, 2021. Refer to MD&A in our 2021 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 2021 Form 10-K.

NEW ACCOUNTING STANDARDS

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

OFF-BALANCE SHEET ARRANGEMENTS

There have been no material changes in our off-balance sheet arrangements since December 31, 2021. Refer to Note 9 in our 2021 Form 10-K for further information.

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 whether and when the sale of Block 21 will be completed, our estimated gain and net cash proceeds from the sale of Block 21 and potential uses of such proceeds, potential results of our Board and management’s strategic planning process, the impacts of the COVID-19 pandemic, the impact of inflation and interest rate changes, supply chain constraints and tightening bank credit, our ability to meet our future debt service and other cash obligations, future cash flows and liquidity, our expectations about the Austin and Texas real estate markets, the planning, financing, development, construction, completion and stabilization of our development projects, plans to sell, recapitalize, or refinance properties, future operational and financial performance, MUD reimbursements for infrastructure costs, regulatory matters, leasing activities, tax rates, ~~the impact of inflation and interest rate changes,~~ future capital expenditures and financing plans, possible joint ventures, partnerships, or other strategic relationships, other plans and objectives of management for future operations and development projects, and future ~~dividend payments~~cash returns to stockholders, including the timing and amount of repurchases under our share ~~repurchases.~~repurchase program. The words “anticipate,” “may,” “can,” “plan,” “believe,” “potential,” “estimate,” “expect,” “project,” "target," “intend,” “likely,” “will,” “should,” “to be” and any similar expressions and/or statements are intended to identify those assertions as forward-looking statements.

Under our Comerica Bank ~~credit facility,~~debt agreements, we are not permitted to repurchase our common stock in excess of $1.0 million or pay dividends on our common stock without Comerica Bank's prior written ~~consent. The~~consent, which was obtained in connection with the special cash dividend and share repurchase program. Any future declaration of dividends or decision to repurchase our common stock is at the discretion of our Board, subject to restrictions under our Comerica Bank ~~credit facility,~~debt agreements, and will depend on our financial results, cash requirements, projected

Table of Contents

compliance with covenants in our debt agreements, outlook and other factors deemed relevant by ~~the~~our Board. Our future debt agreements, future refinancings of or amendments to existing debt agreements or other future agreements may restrict our ability to declare dividends or repurchase shares.

We caution readers that forward-looking statements are not guarantees of future performance, and our actual results may differ materially from those anticipated, expected, projected or assumed in the forward-looking statements. Important factors that can cause our actual results to differ materially from those anticipated in the forward-looking statements include, but are not limited to, the occurrence of any event, change or other circumstance that could delay the closing of the sale of Block 21, or result in the termination of the agreements to sell Block 21, the results of our Board and management’s strategic planning process, the ongoing COVID-19 pandemic and any future major public health crisis, increases in inflation and interest rates, supply chain ~~disruptions,~~constraints, declines in the market value of our assets, increases in operating and construction costs, including real estate taxes and the cost of building materials and labor, defaults by contractors and subcontractors, our ability to pay or refinance our debt, extend maturity dates of our loans or comply with or obtain waivers of financial and other covenants in debt agreements and to meet other cash obligations, our ability to collect anticipated rental payments and close projected asset sales, the availability and terms of financing for development projects and other corporate purposes, our ability to enter into and maintain joint ventures, partnerships, or other strategic relationships, including risks associated with such joint ventures, our ability to implement our business strategy successfully, including our ability to develop, construct and sell or lease properties on terms our Board

~~Table of Contents~~

considers acceptable, market conditions or corporate developments that could preclude, impair or delay any opportunities with respect to plans to sell, recapitalize or refinance properties, our ability to obtain various entitlements and permits, a decrease in the demand for real estate in select markets in Texas where we operate, changes in economic, market, tax and business conditions, including as a result of the war in Ukraine, reductions in discretionary spending by consumers and businesses, competition from other real estate developers, the termination of sales contracts or letters of intent because of, among other factors, the failure of one or more closing conditions or market changes, the failure to attract customers or tenants for our developments or such customers’ or tenants’ failure to satisfy their purchase commitments or leasing obligations, changes in consumer preferences, potential additional impairment charges, industry risks, changes in laws, regulations or the regulatory environment affecting the development of real estate, opposition from special interest groups or local governments with respect to development projects, weather- and climate-related risks, loss of key personnel, environmental and litigation risks, cybersecurity incidents and other factors described in more detail under the heading “Risk Factors” in Part I, Item 1A. of our 2021 Form 10-K, filed with the SEC, and “Risk Factors” included in Part II, Item 1A. herein.

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. Further, we may make changes to our business plans that could affect our results. We caution investors that we undertake no obligation to update our forward-looking statements, which speak only as of the date made, notwithstanding any changes in our assumptions, business plans, actual experience, or other changes.

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 ~~March 31,~~September 30, 2022.

(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 ~~March 31,~~September 30, 2022, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Table of Contents

PART II. OTHER INFORMATION

Item 1A. Risk Factors.

We are supplementing the risk factors described under Part I, Item 1A. “Risk Factors” of our 2021 Form 10-K with the risk factor set forth below, which should be read in conjunction with the risk factors and other disclosures in this report and in our 2021 Form 10-K.

~~Supply~~Increases in construction and labor costs, supply chain constraints, ~~may further delay completion~~higher borrowing costs and tightening of ~~our projects under construction, may~~bank credit are having an adverse impact ~~the timing of projects we plan to start in the future,~~on us and may ~~increase our costs.~~continue to do so.

~~Supply chain disruptions impacting~~As discussed in more detail in Part I, Item 2. under the heading “Overview of Financial Results - Market Conditions,” our industry ~~have begun to delay some of our projects under~~has been experiencing construction and may impact the timing of projects on which we plan to start construction in the future. Our industry has also continued to experience increases in costs of land, construction materials and labor. Because we engage third-party general contractors to construct our projects on a fixed-price or guaranteed maximum price basis, our exposure tolabor cost increases, ~~on projects under construction is limited; however,~~ supply chain constraints, ~~may increase~~higher borrowing costs and tightening bank credit, which have increased our costs, ~~of,~~delayed projects, adversely impacted our ability to raise equity capital on attractive terms and in our desired time frame and our ability to sell some properties at attractive prices in our desired time frame; these trends may continue or ~~delay, future projects.~~worsen. In addition, rising costs and delays in delivery of materials may increase the risk of default by contractors and ~~subcontractors. Accordingly, time delays~~subcontractors on ongoing construction projects. If we are unable to offset rising costs by value engineering or ~~increases~~raising rents and sales prices, our profitability and cash flows would be adversely impacted, and we may be required to recognize additional impairment charges in ~~construction costs resulting from supply chain disruptions~~the future. Further, these factors have caused and may ~~impact~~continue to cause a decline in demand for our ~~ability to realize anticipated returns on projects and have a material adverse impact on~~real estate, which could harm our ~~cash flow and profits. Refer to Part I, Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for further discussion.~~business.

~~Table of Contents~~

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

There were no unregistered sales of our equity securities ~~and no repurchases of common stock~~ during the three months ended ~~March 31,~~September 30, 2022.

The following table provides a summary of repurchases of shares of our common stock by our company and any “affiliated purchaser” as defined by the SEC during the three months ended September 30, 2022, and the approximate dollar value of shares (in thousands) that may yet be purchased pursuant to our share repurchase program as of September 30, 2022:


Period	Total Number of Shares Purchased	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programsa	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs a
July 1, 2022 through July 31, 2022	—	$	—	—	$	—
August 1, 2022 through August 31, 2022	—	$	—	—	$	—
September 1, 2022 through September 30, 2022	33,958	$	23.49	33,958	$	9,201
Total	33,958	$	23.49	33,958

~~Item 5.~~ a.~~Other Information~~.On September 2, 2022, we announced that our Board approved a new share repurchase program authorizing repurchases of up to $10.0 million of our common stock. The timing, price and number of shares that may be repurchased under the program will be based on market conditions, applicable securities laws and other factors considered by management. Share repurchases under the program may be made from time to time through solicited or unsolicited transactions in the open market, in privately negotiated transactions or by other means in accordance with securities laws. The share repurchase program does not obligate us to repurchase any specific amount of shares, does not have an expiration date, and may be suspended, modified or discontinued at any time without prior notice. The new program replaces our prior share repurchase program. Through November 4, 2022, we have acquired 105,415 shares of our common stock for a total cost of $2.6 million at an average price of $25.02 per share, and $7.4 million remains available for repurchases under the program.

~~As previously reported, on March 9, 2022, C. Donald Whitmire, Jr., Stratus’ principal accounting officer, informed Stratus~~Table of his intention to retire effective June 30, 2022. On May 12, 2022, Stratus’ Board appointed Erin D. Pickens as Stratus’ principal accounting officer, effective upon Mr. Whitmire’s retirement on June 30, 2022. Ms. Pickens will continue to serve as Stratus’ Senior Vice President and Chief Financial Officer. Ms. Pickens’ employment information and compensatory arrangements are incorporated herein by reference as set forth in Stratus’ ~~2021 Form 10-Kunder the heading "Information About Our Executive Officers"~~ ~~and~~ ~~Definitive Proxy Statement on Schedule 14A filed with the SEC on April 8, 2022~~, ~~under the heading "Executive Officer Compensation~~."Contents

On May 13, 2022, Stratus and certain of its wholly-owned subsidiaries, Stratus Properties Operating Co., L.P., a Delaware limited partnership, Circle C Land, L.P., a Texas limited partnership, Austin 290 Properties, Inc., a Texas corporation, The Villas at Amarra Drive, L.L.C., a Texas limited liability company, and Stratus Lakeway Center, L.L.C., a Texas limited liability company (collectively with Stratus, the Borrowers), as borrowers, and Comerica Bank (Comerica), as lender, entered into the Third Modification Agreement (the Third Modification) and Amended and Restated Revolving Promissory Note (the Amended Note and collectively with the Third Modification, the Modification Documents), which amend that certain Loan Agreement and Revolving Promissory Note, respectively, each dated June 29, 2018, by and between Borrowers, another two of Stratus’ wholly-owned subsidiaries, 210 Lavaca Holdings, L.L.C., a Texas limited liability company, and Magnolia East 149, L.L.C., a Texas limited liability company (the Released Borrowers), and Comerica (the Original Loan Documents). The Original Loan Documents were previously amended by that certain Modification Agreement, effective April 14, 2020, and that certain ~~Second Modification Agreement, effective June 12, 2020,~~ ~~each by and between Borrowers, the Released Borrowers and Comerica (as amended, the Loan Documents). The Loan Documents provide for a $60.0 million secured revolving credit facility.~~

The Modification Documents amend the Loan Documents to (i) extend the maturity date of the credit facility from September 27, 2022, to December 26, 2022, (ii) increase the letter of credit sublimit from $7.5 million to $11.5 million, (iii) effect the removal of the Released Borrowers’ property from the collateral pool for the facility and (iv) change the benchmark rate from the London Interbank Offered Rate to the Bloomberg Short-Term Bank Yield Index (BSBY) Rate. Advances under the credit facility now bear interest at the one-month BSBY Rate (with a floor of 0.0 percent) plus 4.0 percent.

Stratus is in discussions with Comerica to remove Holden Hills from the collateral pool for the facility, finance the Holden Hills project under a separate loan agreement and enter into a revised revolving credit facility with a lower borrowing limit secured by the remaining collateral under the facility. However, there can be no assurance that Stratus will obtain any additional amendments to the Loan Documents.

~~The foregoing description of the Modification Documents~~ ~~does not purport to be complete and is qualified in its entirety by reference to the full text~~ ~~of the Amended Note and the Third Modification, respectively, copies of which are attached hereto as Exhibits 10.2 and 10.5, and are incorporated herein by reference.~~

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 October 26, 2021 between Stratus Block 21, L.L.C. and Ryman Hospitality Properties, Inc.

10-K

001-37716

3/31/2022

~~Table of Contents~~

~~Incorporated by Reference~~

Exhibit
Number

~~Exhibit Title~~

~~Filed with this Form 10-Q~~

~~Form~~

~~File No.~~

~~Date Filed~~

2.3

Membership Interest Purchase Agreement, dated October 26, 2021 between Stratus Block 21 Investments, L.P. and Ryman Hospitality Properties, Inc.

10-K

001-37716

3/31/2022

2.4

Agreement of Sale and Purchase, by and between Santal, L.L.C., as seller, and BG-QR GP, LLC, as purchaser, dated as of September 20, 2021.

10-Q

001-37716

11/15/2021

2.5

First Amendment to Agreement of Sale and Purchase, by and between Santal, L.L.C., as seller, and BG-QR GP, LLC, as purchaser, effective as of October 13, 2021.

10-Q

001-37716

11/15/2021

2.6

Second Amendment to Agreement of Sale and Purchase, by and between Santal, L.L.C., as seller, and Berkshire Multifamily Income Realty-OP, L.P., as purchaser, dated as of November 3, 2021.

10-Q

001-37716

11/15/2021

3.1

Composite Certificate of Incorporation of Stratus Properties Inc.

8-A/A

001-37716

8/13/2021

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

~~10.1~~

~~Loan Agreement by and between Stratus Properties Inc., certain of its subsidiaries and Comerica Bank, dated as of June 29, 2018.~~

~~8-K~~

~~001-37716~~

~~7/5/2018~~

~~10.2~~

~~Amended and Restated Revolving Promissory Note by and between Stratus Properties Inc., certain of its subsidiaries and Comerica Bank, dated as of May 13, 2022.~~

~~10.3~~

~~Modification Agreement by and between Stratus Properties Inc., certain of its subsidiaries and Comerica Bank, effective as of April 14, 2020.~~

~~8-K~~

~~001-37716~~

~~4/17/2020~~

~~10.4~~

~~Second Modification Agreement by and between Stratus Properties Inc., certain of its subsidiaries and Comerica Bank, effective as of June 12, 2020.~~

~~8-K~~

~~001-37716~~

~~6/15/2020~~

~~10.5~~

~~Third Modification Agreement by and between Stratus Properties Inc., certain of its subsidiaries and Comerica Bank, effective as of May 13, 2022.~~

~~10.6~~10.1

Construction Loan Agreement by and between The Saint George Apartments, L.P., as borrower, and Comerica Bank, as lender, dated July 19, 2022.

8-K

001-37716

7/21/2022

10.2

Amended and Restated Installment Note by and between The Saint George Apartments, L.P. and Comerica Bank dated July 19, 2022.

8-K

001-37716

7/21/2022

10.3

Guaranty Agreement by Stratus Properties Inc. for the benefit of Comerica Bank dated July 19, 2022 related to The Saint George Construction Loan Agreement.

8-K

001-37716

7/21/2022

10.4

Construction Loan Agreement by and between Lantana Place, L.L.C., as borrower, and Southside Bank, as lender, dated April 28, 2017.

8-K

001-37716

5/3/2017

~~10.7~~10.5

Promissory Note by and between Lantana Place, L.L.C. and Southside Bank dated April 28, 2017.

10-K

001-37716

3/31/2022

~~10.8~~10.6

First Amendment to Construction Loan Agreement by and between Lantana Place, L.L.C., as borrower, and Southside Bank, as lender, dated December 13, 2017.

10-K

001-37716

3/16/2018

~~10.9~~10.7

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

10-Q

001-37716

6/25/2020

2733

Table of Contents

Incorporated by Reference

Exhibit
Number

Exhibit Title

Filed with this Form 10-Q

Form

File No.

Date Filed

~~10.10~~10.8

Second Loan Modification Agreement by and between Lantana Place, L.L.C. and Southside Bank, effective as of January 4, 2021.

10-K

001-37716

3/15/~~2020~~2021

~~10.11~~10.9

Loan Modification Agreement by and between Lantana Place, L.L.C. and Southside Bank, effective as of January 13, 2022.

10-K

001-37716

3/31/2022

~~10.12~~10.10

~~Guaranty~~Loan Modification Agreement by ~~Stratus Properties Inc. in favor of~~and between Lantana Place, L.L.C. and Southside Bank, ~~dated April 28, 2017.~~

~~10-K~~

~~001-37716~~

~~3/31/2022~~

~~10.13~~†

~~Amended and Restated Limited Partnership Agreement~~effective as of ~~Stratus Block 150, L.P. entered into by and among The Stratus Block 150 GP, L.L.C., Stratus Properties Operating Co., L.P., and several Class B Limited Partners.~~

~~10-Q~~

~~001-37716~~

~~11/15/2021~~

~~10.14~~†

~~First Amendment to the Amended and Restated Limited Partnership Agreement of Stratus Block 150, L.P.~~August 26, 2022.

10.15*

~~Severance and Change of Control Agreement between Stratus Properties Inc. and William H. Armstrong III, effective April 1, 2022.~~

~~10-K~~

~~001-37716~~

~~3/31/2022~~

10.16*

~~Severance and Change of Control Agreement between Stratus Properties Inc. and Erin D. Pickens, effective April 1, 2022.~~

~~10-K~~

~~001-37716~~

~~3/31/2022~~

10.17*

~~Stratus Properties Inc. 2022 Stock Incentive Plan.~~

~~8-K~~

~~001-37716~~

~~5/13/2022~~

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).

* Indicates management contract or compensatory plan or arrangement.

† ~~Certain identified information has been excluded from this exhibit because it is both not material and is the type that the registrant customarily and actually treats as private or confidential.~~

2834

Table of Contents

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 and

Principal Accounting Officer)

Date: ~~May 16,~~November 14, 2022

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 (Unaudited)			3

Consolidated Statements of Cash Flows (Unaudited)			4

Consolidated Statements of Equity (Unaudited)			5

Notes to Consolidated Financial Statements (Unaudited)			67

Item 2. Management’s Discussion and Analysis of Financial Condition
and Results of Operations			1419

Item ~~3. Quantitative~~3 . Quantitative and Qualitative Disclosures About Market Risk			2531

Item 4. Controls and Procedures			2531

Part II. Other Information			2532

Item 1A. Risk Factors			2532

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			2632

~~Item 5. Other Information~~			26

Item 6. Exhibits			2633

Signature			S-1




	Real Estate Operationsa		Leasing Operations			Corporate, Eliminations and Otherb			Total
Three Months Ended March 31, 2022:
Revenues:
Unaffiliated customers	$	19	$	3,080		$	—		$	3,099
Intersegment	4		—			(4)			—
Cost of sales, excluding depreciation	1,366		984			—			2,350
Depreciation	25		852			(4)			873

General and administrative expenses	—		—			3,167		c	3,167


Gain on sale of assets	—		(4,812)		d	—			(4,812)
Operating (loss) income	$	(1,368)	$	6,056		$	(3,167)		$	1,521

Capital expenditures and purchases and development of real estate properties	$	4,864	$	14,542		$	182		$	19,588

Total assets at March 31, 2022	254,212		106,652			183,904		e	544,768




Three Months Ended March 31, 2021:
Revenues:
Unaffiliated customers	$	6,556	$	4,818		$	—		$	11,374
Intersegment	4		—			(4)			—
Cost of sales, excluding depreciation	4,360		2,052			—			6,412
Depreciation	64		1,544			(22)			1,586
General and administrative expenses	—		—			4,324			4,324

Gain on sale of assets	—		(22,931)		f	—			(22,931)
Operating income (loss)	$	2,136	$	24,153		$	(4,306)		$	21,983
Capital expenditures and purchases and development of real estate properties	$	2,489	$	902		$	107		$	3,498
Total assets at March 31, 2021	161,488		180,758		g	159,625		e	501,871