STRATUS PROPERTIES INC

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 joint ventures or other arrangements. As a result, and because of numerous factors affecting our business activities as described herein, our past operating results are not necessarily indicative of our future results. We use operating income or loss to measure the performance of each operating segment. Corporate, eliminations and other includes consolidated general and administrative expenses, which primarily consist of employee compensation and other costs described herein.

The following table summarizes our operating results (in thousands):

a. Includes sales commissions and other revenues together with related expenses. Includes impairment charges for real estate properties of $0.7 million in 2022. There were no impairment charges in 2023.

b. The year 2022 includes a $4.8 million pre-tax gain recognized on the reversal of accruals for costs to lease and construct buildings under a master lease arrangement that we entered into in connection with the sale of The Oaks at Lakeway in 2017. Refer to Note 9.

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

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

As a result of the sale of Block 21 in May 2022, we have two operating segments: Real Estate Operations and Leasing Operations (refer to Notes 4 and 10). The following is a discussion of our operating results by segment.

Real Estate Operations

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

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

The decrease in revenues from developed property sales for 2023, compared to 2022, reflects the sales of two Amarra Villas homes in 2022 compared to the sale of one Amarra Villas home in 2023. As of December 31, 2023, two developed Phase III lots and two completed Amarra Villas homes remained unsold.

Undeveloped Property Sales. In 2022, we closed $18.6 million of undeveloped property sales consisting of (i) a 10 acre multi-family tract of land in Kingwood Place for $5.5 million, (ii) 28 acres of residential land at Magnolia Place for $3.2 million, (iii) a six-acre multi-family tract of land in Amarra Drive for $2.5 million, (iv) a retail pad site at Magnolia Place for $2.3 million, (v) a 0.3 acre tract of land in Austin for $1.6 million, (vi) a retail pad site at Magnolia Place for $1.1 million, (vii) a retail pad site at West Killeen Market for $1.0 million, (viii) a 2.4 acre tract of land in San Antonio for $0.8 million and (ix) a tract of land in Austin for $0.6 million. There were no undeveloped property sales in 2023.

Real Estate Cost of Sales and Depreciation and Amortization. Cost of sales includes the cost of property sold, allocated overhead costs and significant recurring property operating costs, including property taxes, maintenance and marketing expenses. Cost of sales totaled $9.8 million in 2023 and $23.9 million in 2022. The decrease in cost of sales in 2023, compared with 2022, primarily reflects a decrease in undeveloped property sales in 2023 compared to 2022. Recurring property operating costs, including property taxes, maintenance and marketing expenses totaled $6.7 million in 2023 and $6.6 million in 2022.

Impairment of Real Estate. During 2022, we recorded impairment charges totaling $720 thousand. These included a $650 thousand impairment charge related to the Amarra Villas 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. We recorded no impairment charges during 2023.

Leasing Operations

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

Rental Revenue. In 2023, rental revenue primarily included revenue from our retail and mixed-use projects Lantana Place, Kingwood Place, Jones Crossing, West Killeen Market and Magnolia Place and from our multi-family project, The Saint June. In 2022, rental revenue primarily included revenue from our retail and mixed-use projects Lantana Place, Jones Crossing, Kingwood Place and West Killeen Market. The increase in rental revenue in 2023, compared to 2022, primarily reflects revenue from Magnolia Place and The Saint June, which commenced operations in late 2022 and mid-2023, respectively, as well as increased revenue at Kingwood Place, in connection with new leases. We expect rental revenue to increase in 2024 compared to 2023, as 2024 will reflect the rental revenue from the operations of Magnolia Place and The Saint June for the full year and also is expected to include rental revenue following the completion of The Saint George, which is expected to occur by third-quarter 2024.

Rental Cost of Sales and Depreciation. Rental costs of sales and depreciation expense increased in 2023, compared to 2022, primarily as a result of commencement of operations at The Saint June in mid-2023 and Magnolia Place in late 2022, and costs of landscaping repairs and replacements at retail properties following the Texas winter storm in February 2023.

Gain on Sales of Assets. For 2022, we recognized a gain on the reversal of accruals for costs to lease and construct buildings under a master lease arrangement that we entered into in connection with our sale of The Oaks at Lakeway in 2017. Refer to Note 9 under the heading “Deferred Gain on Sale of The Oaks at Lakeway” for further discussion.

Corporate, Eliminations and Other

Corporate, eliminations and other (refer to Note 10) includes consolidated general and administrative expenses, which primarily consist of employee compensation and other costs. Consolidated general and administrative expenses totaled $15.2 million in 2023 and $17.6 million in 2022. The decrease in general and administrative expenses in 2023, compared to 2022, was primarily a result of lower compensation costs associated with lower estimated cash incentive awards for 2023 and a reduction in the accrued liability for the Profit Participation Incentive Plan (PPIP) resulting from a decreased valuation for Kingwood Place partially offset by salary increases. Legal fees were also lower compared to 2022. Corporate, eliminations and other also includes eliminations of intersegment amounts between our operating segments.

Non-Operating Results

Interest Expense, Net. Interest costs (before capitalized interest) totaled $12.5 million in 2023 and $6.6 million in 2022. Interest costs in 2023 were higher, compared to 2022, primarily reflecting increased average interest rates as well as an increase in average debt balances. As of December 31, 2023, all of our debt was variable-rate debt, and for all such debt, the interest rates have increased during the last two years. Refer to Note 6 and “Debt Maturities and Other Contractual Obligations” for additional information.

Substantially all of our interest costs were capitalized in 2023 and 2022. Capitalized interest totaled $12.5 million in 2023 and $6.6 million in 2022, and is primarily related to development activities at Barton Creek (Holden Hills, Section N and The Saint June), The Saint George and The Annie B.

Provision for Income Taxes. We recorded a provision for income taxes of $1.5 million in 2023 and $0.4 million in 2022. We had deferred tax assets (net of deferred tax liabilities and valuation allowances) totaling $173 thousand at

December 31, 2023, and $38 thousand at December 31, 2022. Refer to Note 7 for further discussion of income taxes.

Total Comprehensive Loss Attributable to Noncontrolling Interests in Subsidiaries. Our partners’ share of loss totaled $1.7 million and $0.7 million in 2023 and 2022, respectively.

Discontinued Operations

On May 31, 2022, Stratus completed the sale of Block 21 to 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 escrowed at closing and disbursed in full to Stratus in June 2023). Stratus recorded a pre-tax gain on the sale of $119.7 million in second-quarter 2022 included in net income (loss) 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 accordance with accounting guidance, Stratus reported the results of operations of Block 21 as discontinued operations in the consolidated statements of comprehensive income because the disposal represented a strategic shift that had a major effect on operations. Block 21 did not have any other comprehensive income and Stratus’ consolidated statements of cash flows are reported on a combined basis without separately presenting discontinued operations.

Net income from discontinued operations totaled $96.8 million in 2022. The net income for 2022 primarily reflects a $119.7 million pre-tax gain on the sale of Block 21.

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 Year-to-Year Cash Flows

Operating Activities. Cash used in operating activities totaled $51.3 million in 2023 and $55.3 million in 2022. Expenditures for purchases and development of real estate properties totaled $44.5 million in 2023, primarily related to development of our Barton Creek properties, particularly Holden Hills and Amarra Villas, and $24.5 million in 2022, primarily related to development of our Barton Creek properties, particularly Amarra Villas and, to a lesser extent, Holden Hills. The cash outflow resulting from the decrease in accounts payable, accrued liabilities and other for 2022 is primarily related to the payment of awards under our PPIP and the timing of tax payments, including property taxes.

Investing Activities. Cash (used in) provided by investing activities totaled $(47.0) million in 2023 and $50.0 million in 2022. During 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 escrowed at closing). As no claims were made against the escrowed amounts, the $6.9 million was disbursed in full to us in June 2023.

Capital expenditures totaled $46.0 million for 2023, primarily related to The Saint George and The Saint June, and $54.8 million for 2022, primarily for The Saint June, The Saint George and Magnolia Place projects.

Financing Activities. Cash provided by (used in) financing activities totaled $84.9 million in 2023 and $(19.2) million in 2022. During 2023 and 2022, we had no net borrowings on the Comerica Bank revolving credit facility. Net borrowings on other project and term loans totaled $51.4 million in 2023, primarily reflecting borrowings on The Saint George and The Saint June construction loans and Amarra Villas construction credit facility, partially offset by the payoff of the New Caney land loan, compared with net borrowings of $14.3 million in 2022, primarily reflecting borrowings on the Magnolia Place and The Saint June construction loans and Amarra Villas revolving credit facility. In first-quarter 2024, we made a $3.8 million principal payment on the Amarra Villas revolving credit facility upon closing of a sale of one of the Amarra Villas homes, repaid the $8.8 million Magnolia Place construction loan in connection with the sale of undeveloped land and made a $1.4 million principal payment of the Annie B land loan in connection with the loan modification. Refer to the table “Debt Maturities and Other Contractual Obligations” below for a presentation of our outstanding debt and principal maturities for the years ending December 31, 2024 through 2027 and thereafter.

During 2023, we received contributions from a noncontrolling interest owner of $40.0 million, related to the Holden Hills partnership formation. During 2022, we received contributions from a noncontrolling interest owner of $15.0 million, related to The Saint George partnership. During 2023, we paid distributions of $13 thousand to noncontrolling interest owners related to the dissolution of The Saint Mary. No distributions to noncontrolling interest owners were paid during 2022.

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 stockholders of record as of September 19, 2022. Our Board also approved a share repurchase program, which authorized repurchases of up to $10.0 million of our common stock. In October 2023, we completed the share repurchase program. In total, under the completed share repurchase program, we acquired 389,378 shares of our common stock for a total cost of $10.0 million at an average price of $25.68 per share.

In November 2023, with written consent from Comerica Bank, our Board approved a new share repurchase program, which authorizes repurchases of up to $5.0 million of our common stock. The repurchase program authorizes us, in management’s and the Capital Committee of the Board’s discretion, to repurchase shares from time to time, subject to market conditions and other factors. 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 and the Capital Committee of the Board. 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. As of December 31, 2023, we had not repurchased any shares under the new program.

Revolving Credit Facility and Other Financing Arrangements

As of December 31, 2023, we had $31.4 million in cash and cash equivalents and restricted cash of $1.0 million, and no amount was borrowed under our revolving credit facility. Of the $31.4 million in consolidated cash and cash equivalents at December 31, 2023, $5.5 million held at certain consolidated subsidiaries is subject to restrictions on distribution to the parent company pursuant to project loan agreements.

At December 31, 2023, we had total debt of $177.4 million based on the principal amounts outstanding, compared with $123.9 million at December 31, 2022. As of December 31, 2023, the maximum amount that could be borrowed under the Comerica Bank revolving credit facility was $53.8 million, resulting in availability of $40.5 million, net of letters of credit totaling $13.3 million issued under the revolving credit facility, $11.0 million of which secure our obligation to build certain roads and utilities facilities benefiting Holden Hills and Section N. In first-quarter 2024, based on updated property appraisals received, the maximum amount that could be borrowed under the revolving credit facility was reduced to $52.9 million, resulting in availability of $39.6 million, net of letters of credit committed under the facility as of March 25, 2024. In March 2023, we entered into a modification of the revolving credit facility, which extended the maturity date to March 27, 2025 and increased the floor of the facility’s benchmark rate. As amended, advances under the revolving credit facility bear interest at one-month Bloomberg Short-Term Bank Yield Index (BSBY) Rate (with a floor of 0.50 percent) plus 4.00 percent. In May 2023, we entered into another modification of the revolving credit facility to increase the maximum amount of letters of credit that may be issued under the revolving credit facility from $11.5 million to $13.3 million. In July 2023, we entered into a $2.3 million letter of credit to secure our obligations to construct and pay for certain utility infrastructure in Lakeway, Texas, estimated to cost approximately $2.3 million. Refer to Note 6 for additional discussion. Refer to “Debt Maturities and Other Contractual Obligations” below for a table illustrating the timing of principal payments due on our outstanding debt as of December 31, 2023.

In April 2023, we made an operating loan of $1.5 million to Stratus Block 150, L.P. to facilitate the partnership’s ability to pay ongoing costs of The Annie B project during the pre-construction period. In August 2023 and February 2024, we made additional operating loans of $800 thousand and $2.4 million, respectively, to Stratus Block 150, L.P. The loans bear interest at one-month BSBY Rate plus 5.00 percent, are subordinate to The Annie B land loan and must be repaid before distributions may be made to the partners. In February 2024, the interest rates on the operating loans were changed to one-month Term Secured Overnight Financing Rate (SOFR) plus 5.00 percent.

In June 2023, we made an operating loan of $750 thousand to The Saint June, L.P. to support the partnership’s ability to pay its construction loan interest, which has risen above the amount originally budgeted due to rising interest rates. In October 2023 and January 2024, we made additional operating loans of $250 thousand and $339 thousand, respectively, to The Saint June, L.P., and the Class B Limited Partner made operating loans of $250 thousand and $339 thousand, respectively, to The Saint June, L.P. The loans bear interest at one-month Term SOFR plus 5.00 percent, are subordinate to The Saint June construction loan and must be repaid before distributions may be made to the partners.

In response to the phase-out of London Interbank Offered Rate (LIBOR) as a benchmark interest rate, interest terms were modified or transitioned to the replacement rate for the Jones Crossing loan, The Saint June construction loan, The Annie B land loan, the Kingwood Place loan and the Magnolia Place construction loan to replace the LIBOR benchmark rate with either one-month Term SOFR or one-month BSBY Rate. Refer to Note 6 for further discussion.

In December 2023, the Kingwood Place construction loan was modified to extend the maturity to December 6, 2024, and change the interest rate to Term SOFR Rate plus 2.75 percent. Under the Kingwood Place loan, Term SOFR Rate is defined as one-month Term SOFR plus 0.11 percent and is subject to a floor of 0.50 percent. Also in December 2023, the Lantana Place construction loan was amended to extend the date through which we could request advances under the loan to December 31, 2024. In February 2024, The Annie B land loan was modified to extend the maturity to September 1, 2025, and change the interest rate to Term SOFR Rate plus 3.00 percent. Under The Annie B land loan, Term SOFR Rate is defined as one-month Term SOFR plus 0.10 percent and is subject to a floor of 0.50 percent. In connection with the modification, we made a $1.4 million principal payment on the loan and are required to make another principal payment of $630 thousand in February 2025. Refer to Note 6 for further discussion.

Our debt agreements require compliance with specified financial covenants. The Jones Crossing loan includes a requirement that we maintain liquid assets, as defined in the agreement, of not less than $2 million. The Saint June construction loan includes a requirement that we maintain liquid assets, as defined in the agreements, of not less than $10 million. The Comerica Bank revolving credit facility, the Lantana Place construction loan, the Amarra Villas credit facility, the Kingwood Place construction loan, the West Killeen Market construction loan, The Saint June construction loan, The Annie B land loan, The Saint George construction loan and the Holden Hills construction loan include a requirement that we maintain a net asset value, as defined in each agreement, of $125 million. The Comerica Bank revolving credit facility, the Amarra Villas credit facility, the Kingwood Place construction loan, The Annie B land loan, The Saint George construction loan and the Holden Hills construction loan also include a requirement that we maintain a debt-to-gross asset value, as defined in the agreements, of not more than 50 percent. The West Killeen Market construction loan, the Kingwood Place construction loan, the Jones Crossing loan and the Lantana Place construction loan each include a financial covenant requiring the applicable Stratus subsidiary to maintain a debt service coverage ratio as defined in each agreement. As of December 31, 2023, we were in compliance with all of our financial covenants. However, our Jones Crossing project did not pass the debt service coverage ratio (DSCR) test under the Jones Crossing loan in each of fourth-quarter 2022 and first-quarter 2023. The DSCR test under the Jones Crossing loan is not a financial covenant and not meeting the DSCR test is not an event of default; however, to avoid a “Cash Sweep Period,” as defined in the loan agreement, we made principal payments of $231 thousand and $1.7 million in February 2023 and May 2023, respectively, to restore the DSCR to the required threshold. As permitted under the Jones Crossing loan agreement, in August 2023 the Jones Crossing subsidiary separated the ground lease for the multi-family parcel (the Multi-Family Phase) from the primary ground lease, and the Multi-Family Phase was released from the loan collateral. In October 2023, the Jones Crossing loan was modified effective August 1, 2023 to remove the Multi-Family Phase from certain defined terms and to revise the DSCR calculation to exclude the Multi-Family Phase from expenses on a retroactive basis beginning in second-quarter 2023. Accordingly, the DSCR met the threshold in second-quarter and third-quarter 2023. In fourth-quarter 2023, the DSCR was slightly below the threshold, and we made a $13 thousand principal payment to restore the DSCR to the required threshold. Based on our current estimates of the Jones Crossing project’s operating income and interest rates, we project that we will meet the DSCR test over the next 12 months.

Stratus’ and its subsidiaries’ debt arrangements, including Stratus’ guaranty agreements 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 or change in management; sell all or substantially all of its assets; and engage in mergers, consolidations or other business combinations. Our Comerica Bank revolving credit facility, Amarra Villas credit facility, The Annie B land loan, The Saint George construction loan, Kingwood Place construction loan and the Holden Hills construction loan require Comerica Bank’s prior written consent for any common stock repurchases in excess of $1.0 million or any dividend payments, which was obtained in connection with the special cash dividend and share repurchase programs. 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.

Our project loans are generally secured by all or substantially all of the assets of the project, and our Comerica Bank revolving credit facility is secured by substantially all of our assets other than those encumbered by separate project level financing. In addition, we, as the parent company, are typically required to guarantee all or a significant portion of the payment of our project loans, in some cases until certain development milestones and/or financial conditions are met, in some cases on a full recourse basis and in other cases on a more limited recourse basis. As of December 31, 2023, we, as the parent company, guaranteed the payment of all of the project loans, except for the Jones Crossing loan and the Lantana Place construction loan. We were released from the guarantee of the Lantana Place construction loan in August 2022, and our guarantee of the Jones Crossing loan is generally limited to non-recourse carve-out obligations. Refer to Note 6 for additional discussion.

Our construction loans typically permit advances only in accordance with budgeted allocations and subject to specified conditions and require lender consent for changes to plans and specifications exceeding specified amounts. If the lender deems undisbursed proceeds insufficient to meet costs of completing the project, the lender may decline to make additional advances until the borrower deposits with the lender sufficient additional funds to cover the deficiency the lender deems to exist. The inability to satisfy a condition to receive advances for a specified time period after lender’s refusal, or the failure to complete a project by a specified completion date, may be an event of default, subject to exceptions for force majeure.

DEBT MATURITIES AND OTHER CONTRACTUAL OBLIGATIONS

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

a. In February 2024, we extended the maturity date of this loan to September 1, 2025. In connection with the extension, we also made a principal payment of $1.4 million on this loan and are required to make an additional principal payment of $630 thousand in February 2025.

b. The maturity date is December 6, 2024.

c. Includes an operating loan from our third-party partner of $250 thousand. The maturity date of The Saint June construction loan is October 2, 2024. We have options to extend the maturity for two additional 12-month terms if certain conditions are met.

d. In February 2024, we made a $3.8 million principal payment on this credit facility upon the closing of a sale of one the Amarra Villas homes. The maturity date for this credit facility is June 19, 2024.

e. The maturity date is August 12, 2024. In February 2024, this loan was repaid in full with proceeds from the sale of 47 acres of undeveloped land.

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

a. At March 31, 2022, we had an outstanding balance of $38 thousand for the loan under the Paycheck Protection Program (PPP loan). The PPP loan bore interest at 1.00 percent. The PPP loan matured and the remaining balance was repaid on April 15, 2022.

b. We did not have an outstanding balance during 2023. At December 31, 2023, the interest rate for the revolving credit facility was 9.42 percent.

c. In March 2023, we repaid this loan.

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

e. We did not have an outstanding balance during 2022 or during first-quarter 2023.

f. In February 2024, this loan was repaid with proceeds from the sale of 47 acres of undeveloped land.

g. We did not have an outstanding balance during 2022 or during first-quarter and second-quarter 2023.

We estimate our interest payments during 2024 will total approximately $13.6 million, assuming interest rates in effect on our debt at December 31, 2023, no new debt agreements, and completed or scheduled principal payments as of March 25, 2024 on debt outstanding at December 31, 2023.

We had firm commitments totaling approximately $41 million at December 31, 2023 primarily related to construction of The Saint George, Holden Hills and Amarra Villas and as of March 25, 2024, we have not started construction on any new projects. We have construction loans, as well as remaining equity capital contributed to the Holden Hills partnership, to fund these projected cash outlays for the projects over the next 12 months following this filing except for anticipated operating loans to The Saint George Apartments, L.P., Stratus Block 150, L.P. and The Saint June, L.P. described below and 60 percent of the costs of the Tecoma Improvements for which we have agreed to reimburse the Holden Hills partnership. As of December 31, 2023, the Holden Hills partnership had $8.0 million remaining to complete the Tecoma Improvements. Refer to “Recent Development Activities – Current Residential Activities – Barton Creek – Holden Hills” above for further discussion of the Tecoma Improvements. Also, we anticipate making future operating loans to The Saint George Apartments, L.P., Stratus Block 150, L.P. and The Saint June, L.P. totaling up to $3.8 million over the next 12 months following this filing to enable the partnerships to pay debt service and project costs. Our estimates of future operating loans are based on estimates of future costs of the partnerships and anticipated future operating loans from the Class B limited partners of approximately $2.5 million. The operating loans would bear interest at one-month Term SOFR plus 5.00 percent and would be repaid before distributions may be made to the partners. Refer to Note 9 for further discussion of future cash requirements.

We project that we will be able to meet our debt service and other cash obligations for at least the next 12 months following this filing. Our stabilized commercial properties (West Killeen Market, Jones Crossing, Lantana Place, Kingwood Place and Magnolia Place) are projected to generate sufficient cash flow to cover debt service on the project loans over the next 12 months following this filing. For other projected pre-development costs, much of which are discretionary, and for our costs of the Tecoma Improvements, for our projected operating loans to partnerships and general and administrative expenses, we had cash and cash equivalents of $31.4 million at December 31, 2023 and availability under our revolving credit facility (which matures on March 27, 2025) of approximately $40.5 million as of December 31, 2023 which is expected to be sufficient to fund these cash requirements for the next 12 months. In first-quarter 2024, based on updated property appraisals received, the maximum amount that could be borrowed under the revolving credit facility was reduced to $52.9 million, resulting in availability of $39.6 million, net of letters of credit committed under the facility as of March 25, 2024.

We expect to successfully extend the maturities or refinance our debt that matures in the next 12 months. For future potential significant development projects, we would not plan to enter into commitments to incur material costs for the projects until we obtain what we project to be adequate financing to cover anticipated cash outlays. As discussed under “Business Strategy” above, our main source of revenue and cash flow is expected to come from sales of our properties to third parties or distributions from joint ventures, the timing of and proceeds from which are difficult to predict and depend on market conditions and other factors. We also generate cash flow from rental revenue in our leasing operations and from development and asset management fees received from our properties. Due to the nature of our development-focused business, we do not expect to generate sufficient recurring cash flow to cover our general and administrative expenses each period. 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. No assurances can be given that the results anticipated by our projections will occur. Refer to Note 6 and “Risk Factors” included in Part I, Item 1A. for further discussion.

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

RECENT ACCOUNTING STANDARDS

For a discussion of recently issued accounting standards, see Note 1 in the Notes to Consolidated Financial Statements.

OFF-BALANCE SHEET ARRANGEMENTS

Refer to Note 9 for discussion of our off-balance sheet arrangements.

CAUTIONARY STATEMENT

Management’s Discussion and Analysis of Financial Condition and Results of Operations 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 inflation, interest rates, supply chain constraints, availability of bank credit, our ability to meet our future debt service and other cash obligations, future cash flows and liquidity, 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, including the expected impact of the ETJ Law and related ongoing litigation, leasing activities, tax rates, future capital expenditures and financing plans, possible joint ventures, partnerships, or other strategic relationships, other plans and objectives of management for future operations and development projects, and potential future cash returns to stockholders, including the timing and amount of repurchases under our share repurchase program. The words “anticipate,” “may,” “can,” “plan,” “believe,” “potential,” “estimate,” “expect,” “project,” “target,” “intend,” “likely,” “will,” “should,” “to be” and any similar expressions or statements are intended to identify those assertions as forward-looking statements.

Under our Comerica Bank debt agreements, we are not permitted to repurchase our common stock in excess of $1.0 million or pay dividends on our common stock without Comerica Bank’s prior written consent, which was obtained in connection with the 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.

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, our ability to implement our business strategy successfully, including our ability to develop, construct and sell or lease properties on terms our Board considers acceptable, increases in operating and construction costs, including real estate taxes, maintenance and insurance costs, and the cost of building materials and labor, increases in inflation and interest rates, supply chain constraints, availability of bank credit, defaults by contractors and subcontractors, declines in the market value of our assets, market conditions or corporate developments that could preclude, impair or delay any opportunities with respect to plans to sell, recapitalize or refinance properties, a decrease in the demand for real estate in select markets in Texas where we operate, particularly in Austin, changes in economic, market, tax, business and geopolitical conditions, potential U.S. or local economic downturn or recession, the availability and terms of financing for development projects and other corporate purposes, our ability to collect anticipated rental payments and close projected asset sales, loss of key personnel, our ability to enter into and maintain joint ventures, partnerships, or other strategic relationships, including risks associated with such joint ventures, any major public health crisis, our ability to pay or refinance our debt, extend maturity dates of our loans or comply with or obtain waivers of financial and other covenants in debt agreements and to meet other cash obligations, eligibility for and potential receipt and timing of receipt of MUD reimbursements, industry risks, changes in buyer preferences, potential additional impairment charges, competition from other real estate developers, our ability to obtain various entitlements and permits, changes in laws, regulations or the regulatory environment affecting the development of real estate, opposition from special interest groups or local governments with respect to development projects, weather- and climate-related risks, environmental risks, litigation risks, including the timing and resolution of the ongoing litigation challenging the ETJ Law and our ability to implement any revised development plans in light of the ETJ Law, the failure to attract buyers or tenants for our developments or such buyers’ or tenants’ failure to satisfy their purchase commitments or leasing obligations, cybersecurity incidents and other factors described in more detail under the heading “Risk Factors” in Part I, Item 1A. of this Form 10-K.

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.