STRATUS PROPERTIES INC

Previous wording

We are a diversified real estate company with headquarters in Austin, Texas. We are engaged primarily in the entitlement, development, management, leasing and sale of multi-family and single-family residential and commercial real estate properties in the Austin, Texas area and other select markets in Texas. In addition to our developed properties, we have a development portfolio that consists of approximately 1,600 acres of commercial and multi-family and single-family residential projects under development or undeveloped land held for future use. We generate revenues and cash flows from the sale of our developed and undeveloped properties, the lease of our retail, mixed-use and multi-family properties and development and asset management fees received from our properties. Refer to Note 9 for discussion of our operating segments and “Business Strategy” below for a discussion of our business strategy.

Current wording

We are a residential and retail focused real estate company with headquarters in Austin, Texas. We are engaged primarily in the entitlement, development, management, leasing and sale of multi-family and single-family residential and commercial real estate properties in the Austin, Texas area and other select markets in Texas. In addition to our developed properties, we have a development portfolio that consists of approximately 1,600 acres of commercial and multi-family and single-family residential projects under development or undeveloped land held for future use. Our commercial real estate portfolio consists of stabilized retail properties or future retail and mixed-use development projects with no commercial office space. We generate revenues and cash flows from the sale of our developed and undeveloped properties, the lease of our retail, mixed-use and multi-family properties and development and asset management fees received from our properties. Refer to Note 9 for discussion of our operating segments and “Business Strategy” below for a discussion of our business strategy.

Previous wording

Our main sources of revenue and cash flow are expected to be 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 income 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, have provided and will continue to provide us with positive cash flows and net income over time, as evidenced by our sales of The Santal and The Saint Mary in

Current wording

Our main sources of revenue and cash flow are expected to be 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 income 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, have provided and will continue to provide us with positive cash flows and net income over time, as evidenced by our sales of The Santal and The Saint Mary in 2021 and Block 21 in 2022, the cash distribution from the Holden Hills partnership in 2023 and our property sales in 2024. Further, we believe our investment strategy, current liquidity and portfolio of projects provide us with many opportunities to increase value for our stockholders.

Previous wording

We do not currently have any material commitments to contribute additional cash to our joint venture projects or wholly owned development projects other than the potential additional $10.0 million of capital that we may be required to contribute to our Holden Hills joint venture and our share (related to Section N) of the cost of the Tecoma Improvements. However, during 2023 and first-quarter 2024, we made operating loans totaling $3.3 million and $2.7 million, respectively, to the limited partnerships for The Annie B and for The Saint June. In April 2024, we made an additional operating loan of $85 thousand to the limited partnership of The Saint June and the Class B limited partner made an additional operating loan of $165 thousand to the limited partnership of The Saint June. We anticipate making future operating loans to the limited partnerships for The Annie B and The Saint George totaling up to $3.6 million over the next 12 months. 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 partner of approximately $2.5 million. Refer to Note 3 and “Capital Resources and Liquidity” for further discussion. In addition, our development plans for future projects require significant additional capital.

Current wording

We do not currently have any material commitments to contribute additional cash to our joint venture projects or wholly owned development projects other than the potential additional $10.0 million of capital that we may be required to contribute to our Holden Hills joint venture and our share (related to Section N) of the cost of the Tecoma Improvements. As of June 30, 2024, the Holden Hills partnership had $5.2 million remaining to complete the Tecoma Improvements. However, during 2023 and the first six months of 2024, we made operating loans totaling $3.3 million and $2.9 million, respectively, to the limited partnerships for The Annie B and for The Saint June. The Class B limited partner also made operating loans of $250 thousand and $503 thousand during 2023 and the first six months of 2024, respectively, to the limited partnership for The Saint June. We anticipate making future operating loans to the limited partnership for The Annie B totaling up to $3.9 million over the next 12 months. Our estimates of future operating loans are based on estimates of future costs of the partnership. We also anticipate contributing additional capital of $400 thousand to the limited partnership for The Saint George representing our 10 percent equity share needed by the partnership to cover interest on the construction loan. Refer to Note 3 and “Capital Resources and Liquidity” for further discussion. In addition, our development plans for future projects require significant additional capital.

Previous wording

Largely as a result of our property sales in 2021 and 2022, the cash distribution from the Holden Hills partnership in 2023, our property sales in first-quarter 2024 and focused liquidity management on our part, as of March 31, 2024, consolidated cash totaled $20.7 million and we had $39.6 million available under our revolving credit facility, net of $13.3 million of letters of credit committed against the facility, with no amounts drawn on the facility.

Current wording

As of June 30, 2024, consolidated cash totaled $13.5 million and we had $39.6 million available under our revolving credit facility, net of $13.3 million of letters of credit committed against the facility, with no amounts drawn on the facility.

Previous wording

We were challenged by difficult conditions in the real estate business in 2023. Interest rates, which began rising in 2022, continued to increase, and costs remained elevated. We saw limited opportunities for transactions on favorable terms. Accordingly, during this market cycle, we have been working to maintain our business, advance our projects under construction or development, control costs and advance entitlements, relationships and opportunities to position us to capture value when market conditions improve. During 2023, among other things, we completed construction and began lease-up of The Saint June multi-family project, continued construction of The Saint George multi-family project, advanced road and utility infrastructure construction on the Holden Hills project, managed our completed retail projects and advanced entitlements on other projects.

Current wording

We were challenged by difficult conditions in the real estate business in 2023. Interest rates, which began rising in 2022, continued to increase, and costs remained elevated. During the first half of 2024, interest rates stabilized but costs remain elevated. We saw limited opportunities for transactions on favorable terms. Accordingly, during this market cycle, we have been working to maintain our business, advance our projects under construction or development, control costs and advance entitlements, relationships and opportunities to position us to capture value when market conditions improve. During 2023 and the first half of 2024, among other things, we completed construction and began and substantially completed the lease-up of The Saint June multi-family project, continued construction of The Saint George multi-family project, advanced road and utility infrastructure construction on the Holden Hills project, managed our completed retail projects and advanced entitlements on other projects.

Previous wording

Although 2023 was challenging, we see reasons for optimism regarding improving real estate market conditions in our markets as the year 2024 progresses. At March 31, 2024, our retail portfolio consisted of five stabilized projects, namely Jones Crossing, Kingwood Place, Lantana Place – Retail, Magnolia Place – Retail and West Killeen Market. In first-quarter 2024, we entered into a contract to sell West Killeen Market for $12.8 million, which we expect to close in second-quarter 2024. After repaying the project loan, we expect the sale to generate approximately $7.2 million of pre-tax net cash proceeds. We have engaged brokers to explore the sale of Lantana Place – Retail, Magnolia Place – Retail and Kingwood Place. In connection with such sales, we anticipate returning capital to stockholders, subject to obtaining required consents from Comerica Bank. We believe we have sufficient liquidity and access to capital to sell properties when market conditions are favorable to us and to hold our properties or to continue to develop our properties, as applicable, through the market cycle. We expect to re-evaluate our strategy as sales and development progress on the projects in our portfolio and as market conditions continue to evolve.

Current wording

Although 2023 and the first half of 2024 were challenging, we see reasons for optimism regarding improving real estate market conditions in our markets over the next 12 months. Among other things, interest rates are widely expected to decline. As of June 30, 2024, our retail and multi-family portfolio consisted of six stabilized projects, namely The Saint June, Jones Crossing – Retail, Kingwood Place, Lantana Place – Retail, Magnolia Place – Retail and West Killeen Market. As previously disclosed, we have been testing the market for potential sales of West Killeen Market, Magnolia Place – Retail, Lantana Place – Retail and Kingwood Place. In first-quarter 2024, we entered into a contract to sell West Killeen Market for $12.8 million; however, in June 2024 the buyer failed to close and we elected to terminate the contract. In June 2024, we entered into a contract to sell Magnolia Place – Retail for $8.9 million. The sale is expected to close in mid-August 2024 and generate pre-tax net cash proceeds of approximately $8.7 million. We continue to explore a sale of Kingwood Place. We have paused exploring the sales of West Killeen Market and Lantana Place – Retail, deciding to retain these cash-flowing properties at this time. We believe market conditions will improve for the sale of our remaining retail properties over the next 12 months, and are optimistic that we will be able to sell these properties at attractive prices during that time. In connection with these sales, we anticipate returning capital to stockholders, subject to obtaining required consents from Comerica Bank. We believe we have sufficient liquidity and access to capital to sell properties when market conditions are favorable to us and to hold our properties or to continue to develop our properties, as applicable, through the market cycle. We expect to re-evaluate our strategy as sales and development progress on the projects in our portfolio and as market conditions continue to evolve.

Previous wording

Revenue in our Leasing Operations segment 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 may also generate income from the sale of our leased properties, depending on market conditions.

Current wording

Revenue in our Leasing Operations segment 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. Our Leasing Operations segment does not have exposure to office space. We may also generate income from the sale of our leased properties, depending on market conditions.

Previous wording

Summary financial results for first-quarter 2024. Our revenues totaled $26.5 million in first-quarter 2024 compared with $5.8 million in first-quarter 2023. The $19.6 million increase in revenues from our Real Estate Operations segment in first-quarter 2024, compared to first-quarter 2023, is primarily a result of the sales of approximately 47 acres of undeveloped land at Magnolia Place for $14.5 million and two Amarra Villas homes for a total of $7.6 million, compared with the sale of one Amarra Villas home in first-quarter 2023 for $2.5 million. In addition, revenues from our Leasing Operations segment increased by $1.1 million, primarily reflecting new revenue from The Saint June, which had no rental revenue in first-quarter 2023, as well as increased revenue from Lantana Place – Retail and Kingwood Place, primarily due to new leases. Refer to “Results of Operations” below for further discussion of the results of operations of our segments.

Current wording

Summary financial results for the second-quarter and first six months of 2024. Our revenues totaled $8.5 million in second-quarter 2024 and $35.0 million for the first six months of 2024, compared with $3.5 million in second-quarter 2023 and $9.3 million for the first six months of 2023. The $23.2 million increase in revenues from our Real Estate Operations segment in the first six months of 2024, compared to first six months of 2023, is primarily a result of the sales of approximately 47 acres of undeveloped land at Magnolia Place for $14.5 million and three Amarra Villas homes for a total of $11.3 million in the first six months of 2024, compared with the sale of one Amarra Villas home in the first six months of 2023 for $2.5 million. The $3.6 million increase in revenues in our Real Estate Operations segment in second-quarter 2024, compared to second-quarter 2023, is primarily a result of the sale of one Amarra Villas home in the second quarter of 2024 compared to no sales in the prior period. In addition, revenues from our Leasing Operations segment increased in both the three and six-month 2024 periods, primarily reflecting new revenue from The Saint June, which had no rental revenue in the 2023 periods, as well as increased revenue from Kingwood Place, Lantana Place – Retail and Magnolia Place – Retail primarily due to new leases. Refer to “Results of Operations” below for further discussion of our segments.

Previous wording

Our net income attributable to common stockholders totaled $4.6 million, or $0.56 per diluted share in first-quarter 2024, compared to net loss attributable to common stockholders of $5.8 million, or $0.73 per diluted share, in first-quarter 2023, with the increase due primarily to the increase in revenues.

Current wording

Our net loss attributable to common stockholders totaled $1.7 million, or $0.21 per diluted share in second-quarter 2024, compared to $5.3 million, or $0.66 per diluted share, in second-quarter 2023. During the first six months of 2024 our net income attributable to common stockholders totaled $2.8 million, or $0.35 per diluted share, compared to net loss attributable to common stockholders of $11.1 million, or $1.39 per diluted share, during the first six months of 2023.

Previous wording

Amarra Villas. The Villas at Amarra Drive (Amarra Villas) project is a 20-unit development in Barton Creek. In first-quarter 2023, we completed and sold one home for $2.5 million. In first-quarter 2024, we completed construction on two of the homes, and we sold two of the homes for a total of $7.6 million, leaving two completed homes in inventory as of March 31, 2024. Construction on the last six homes continues to progress and is expected to be completed in second-quarter 2024. As of May 10, 2024, one home was under contract to sell for $3.6 million and seven homes remain available for sale.

Current wording

Amarra Villas. The Villas at Amarra Drive (Amarra Villas) project is a 20-unit development in Barton Creek. In first-quarter 2023, we completed and sold one home for $2.5 million. In first-quarter 2024, we completed construction on two of the homes, and we sold two of the homes for a total of $7.6 million. In second-quarter 2024, we sold another Amarra Villas home for $3.6 million, leaving one completed home in inventory as of June 30, 2024. In July 2024, we sold one Amarra Villas home for $4.0 million. Construction on the last five homes continues to progress and is expected to be completed in fourth-quarter 2024. As of August 9, 2024, one home was under contract to sell for $3.8 million and five homes remain available for sale.

Previous wording

The Saint June. 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 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 were available for occupancy in July 2023, and construction was completed in fourth-quarter 2023. As of May 10, 2024, we had signed leases for approximately 90 percent of the units.

Current wording

The Saint June. 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 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 were available for occupancy in July 2023, and construction was completed in fourth-quarter 2023. As of August 9, 2024, occupancy of The Saint June was approximately 98 percent.

Previous wording

Holden Hills. Our final large residential development within the Barton Creek community, Holden Hills, consists of 495 acres. The community has been designed to feature unique residences to be developed in multiple phases with a focus on health and wellness, sustainability and energy conservation.

Current wording

Holden Hills. Our final large residential development within the Barton Creek community, Holden Hills, consists of 495 acres. The community has been designed to feature unique luxury residences to be developed in multiple phases with a focus on health and wellness, sustainability and energy conservation.

Previous wording

Section N. Using an entitlement strategy 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 adjacent to Holden Hills. We are designing a dense, mid-rise, mixed-use project, with extensive multi-family and retail components, coupled with limited office, entertainment and hospitality uses, surrounded by extensive outdoor recreational and greenspace amenities, which is expected to result in a significant increase in development density as compared to our prior plans. In addition, due to the ETJ process described below, our development plans for Section N are under review.

Current wording

Section N. Using an entitlement strategy 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 adjacent to Holden Hills. We are designing a mixed-use project, with extensive residential uses, coupled with limited entertainment and hospitality uses, surrounded by extensive outdoor recreational and greenspace amenities, which is expected to result in a significant increase in development density as compared to our prior plans. In addition, due to the ETJ process described below, our development plans for Section N are under review.

Previous wording

ETJ Process. Texas Senate Bill 2038 (the ETJ Law) became effective September 1, 2023. We have completed the statutory process to remove all of our relevant land subject to development, including primarily Holden Hills and Section N from the extraterritorial jurisdiction (ETJ) of the City of Austin, as permitted by the ETJ Law. We have also made filings with Travis County to grandfather the Holden Hills and Section N projects under most laws in effect in Travis County at the time of the filings. A number of cities in Texas have brought lawsuits challenging the ETJ Law. If the ETJ Law is upheld, we expect that the removal of our properties from the ETJ of the City of Austin will streamline the development permitting process, allow greater flexibility in the design of projects, potentially decrease certain development costs, and potentially permit meaningful increases in development density. In light of the ETJ Law, we have begun work on assessing potential revisions to our development plans for Holden Hills and Section N. For additional discussion, refer to Item 1A. “Risk Factors” in our 2023 Form 10-K.

Current wording

ETJ Process. Texas Senate Bill 2038 (the ETJ Law) became effective September 1, 2023. We have completed the statutory process to remove all of our relevant land subject to development, including primarily Holden Hills and Section N from the extraterritorial jurisdiction (ETJ) of the City of Austin, as permitted by the ETJ Law. We have also made filings with Travis County to grandfather the Holden Hills and Section N projects under most laws in effect in Travis County at the time of the filings. A number of cities in Texas have brought lawsuits challenging the ETJ Law. A hearing has been scheduled for September 19, 2024 and any decision rendered may be appealed. If the ETJ Law is upheld, we expect that the removal of our properties from the ETJ of the City of Austin will streamline the development permitting process, allow greater flexibility in the design of projects, potentially decrease certain development costs, and potentially permit meaningful increases in development density. In light of the ETJ Law, we have begun work on assessing potential revisions to our development plans for Holden Hills and Section N. For additional discussion, refer to Item 1A. “Risk Factors” in our 2023 Form 10-K.

Previous wording

In fourth-quarter 2021, we purchased the land for The Saint George, a 316-unit luxury wrap-style, multi-family project in north-central Austin. We entered into a construction loan for this project and began construction in third-quarter 2022. We currently expect to achieve substantial completion by third-quarter 2024.

Current wording

In fourth-quarter 2021, we purchased the land for The Saint George, a 316-unit luxury wrap-style, multi-family project in north-central Austin. We entered into a construction loan for this project and began construction in third-quarter 2022. We currently expect to achieve substantial completion in fourth-quarter 2024.

Previous wording

In February 2024, we completed the sale of approximately 47 acres of undeveloped land in Magnolia, Texas planned for a second phase of retail development, all remaining pad sites and up to 600 multi-family units, for $14.5 million. In connection with the sale, the Magnolia Place construction loan, which had a balance of $8.8 million was repaid. Following the sale, we have retained our existing two retail buildings totaling 18,582 square feet, potential development of approximately 11 acres planned for 275 multi-family units and approximately $12 million of potential future reimbursement from the municipal utility district (MUD).

Current wording

In February 2024, we completed the sale of approximately 47 acres of undeveloped land in Magnolia, Texas planned for a second phase of retail development, all remaining pad sites and up to 600 multi-family units, for $14.5 million. In connection with the sale, the Magnolia Place construction loan, which had a balance of $8.8 million was repaid. Following the sale, we retained our existing two retail buildings totaling 18,582 square feet, which are currently under contract of sale for $8.9 million, potential development of approximately 11 acres planned for 275 multi-family units and approximately $12 million of potential future reimbursement from the municipal utility district (MUD).

Previous wording

•Jones Crossingis our H-E-B-anchored mixed-use project in College Station, Texas, the location of Texas A&M University. As of March 31, 2024, we had signed leases for substantially all of the completed retail space, including the H-E-B grocery store, totaling 154,092 square feet, and a ground lease on one retail pad site. Four retail pad sites remain available for lease. The Jones Crossing site has additional commercial development potential of approximately 104,750 square feet of commercial space.

Current wording

•Jones Crossing - Retailis part of our H-E-B-anchored mixed-use project in College Station, Texas, the location of Texas A&M University. As of June 30, 2024, we had signed leases for substantially all of the completed retail space, including the H-E-B grocery store, totaling 154,092 square feet, and a ground lease on one retail pad site. Four retail pad sites remain available for lease. The Jones Crossing site has additional commercial development potential of approximately 104,750 square feet of commercial space.

Previous wording

•Magnolia Place – Retailis our H-E-B shadow-anchored, mixed-use development project in Magnolia, Texas. We have constructed 18,582 square feet of retail space at Magnolia Place. As of March 31, 2024, we had signed leases for all the retail space in the first phase of development, and all tenants were open for business. As discussed above, in February 2024, we sold the land planned for a second phase of retail development and all remaining pad sites.

Current wording

•Magnolia Place – Retailis part of our H-E-B shadow-anchored, mixed-use development project in Magnolia, Texas. We have constructed 18,582 square feet of retail space at Magnolia Place. As of June 30, 2024, we had signed leases for all the retail space in the first phase of development, and all tenants were open for business. As discussed above, in February 2024, we sold the land planned for a second phase of retail development and all remaining pad sites.

Previous wording

Our industry has been experiencing inflation, higher borrowing costs, tightened bank credit, more limited availability of equity capital, increased construction costs, higher labor costs, labor shortages, and supply chain constraints. Inflation in the U.S. increased rapidly during 2021 through June 2022. Since June 2022, the rate of inflation generally has declined; however, it has remained at high levels compared to recent historical periods. In response, the Federal Reserve raised the federal funds target rate multiple times from March 2022 through July 2023, by 525 basis points on a cumulative basis. These factors have increased our costs, adversely impacted the projected profitability of our new projects, delayed the start of or completion of projects, adversely impacted our ability to raise equity capital on attractive terms and in our desired time frame and adversely impacted our ability to sell some properties at attractive prices in our desired time frame.

Current wording

Our industry has been experiencing inflation, higher borrowing costs, tightened bank credit, more limited availability of equity capital, increased construction costs, higher labor costs, labor shortages, and supply chain constraints. Inflation in the U.S. increased rapidly during 2021 through June 2022. Since June 2022, the rate of inflation generally has declined; however, it has remained above the U.S. Federal Reserve’s target inflation rate of two percent through July 2024. In response, the Federal Reserve raised the federal funds target rate multiple times from March 2022 through July 2023, by 525 basis points on a cumulative basis. These factors have increased our costs, adversely impacted the projected profitability of our new projects, delayed the start of or completion of projects, adversely impacted our ability to raise equity capital on attractive terms and in our desired time frame and adversely impacted our ability to sell some properties at attractive prices in our desired time frame.

Previous wording

To manage the risks of rising construction and labor costs, 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 construction and labor cost increases on projects under construction is limited; however, rising costs and delays in delivery of materials may increase the risk of default by contractors and subcontractors. Also, as discussed elsewhere in this report, higher costs have required us to make operating loans to some of our joint ventures, and we expect to make additional operating loans during the next 12 months. Refer to Part I, Item 1A. “Risk Factors” of our 2023 Form 10-K for more information regarding our risk factors.

Current wording

To manage the risks of rising construction and labor costs, 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 construction and labor cost increases on projects under construction is limited; however, rising costs and delays in delivery of materials may increase the risk of default by contractors and subcontractors. Also, as discussed elsewhere in this report, higher costs and project delays have required us to make operating loans to some of our joint ventures, and we expect to make additional operating loans and an equity contribution during the next 12 months. Refer to Part I, Item 1A. “Risk Factors” of our 2023 Form 10-K for more information regarding our risk factors.

Previous wording

Austin, our primary market, has experienced significant growth in demand for residential projects in recent years, particularly due to growth in the technology-related sector in the region and, during 2020 and 2021 related in part to COVID-19 pandemic-influenced in-migration. Although prices and demand for residential real estate in the Austin area generally moderated and in some submarkets declined during 2023, we believe the residential market in Austin remains attractive compared to other U.S. urban markets. The U.S. Federal Reserve has signaled that it may lower rates in 2024, although there is no certainty with respect to the timing and pace of potential decreases or if such decreases will occur. We continue to see reasons for optimism regarding improving real estate market conditions in our Texas markets as the year 2024 progresses.

Current wording

Austin, our primary market, has experienced significant growth in demand for residential projects in recent years, particularly due to growth in the technology-related sector in the region and, during 2020 and 2021 related in part to COVID-19 pandemic-influenced in-migration. Although prices and demand for residential real estate in the Austin area generally moderated and in some submarkets declined during 2023, we believe the residential market in Austin remains attractive compared to other U.S. urban markets. The U.S. Federal Reserve has signaled that it may lower rates in the second half of 2024, which is widely expected to occur, although there is no certainty with respect to the timing and pace of potential decreases or if such decreases will occur. We continue to see reasons for optimism regarding improving real estate market conditions in our Texas markets over the next 12 months.

Previous wording

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 2023 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 our operating segments. Corporate, eliminations and other includes consolidated general and administrative expenses, which primarily consist of employee compensation and other costs described herein.

Current wording

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 2023 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 our operating segments. Corporate, eliminations and other include consolidated general and administrative expenses, which primarily consist of employee compensation and other costs described herein.

Previous wording

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

Current wording

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

Previous wording

The increase in revenues from developed property sales for first-quarter 2024, compared to first-quarter 2023, reflects the sale of two Amarra Villas homes in first-quarter 2024 compared to the sale of one Amarra Villas home in first-quarter 2023, as well as an increase in average sales price by approximately 53 percent, from $2.5 million per home in first-quarter 2023 to $3.8 million per home in first-quarter 2024, reflecting higher prices per square foot in the community. We entered into a contract in April 2024 to sell an Amarra Villas home for $3.6 million. No assurances can be given that the pending sale will be completed or that future sale prices will be as high as sale prices to date in 2024.

Current wording

The increase in revenues from developed property sales for second-quarter 2024, compared to second-quarter 2023, reflects the sale of one Amarra Villas home in second-quarter 2024 compared to no sales in second-quarter 2023. The increase in revenues for the first six months of 2024 compared to the first six months of 2023, reflects the sales of three Amarra Villas homes in the 2024 period compared to one sale in the 2023 period, as well as an increase in average sales price by approximately 50 percent, from $2.5 million per home in the first six months of 2023 to $3.7 million per home in the first six months of 2024. In July 2024, we sold one Amarra Villas home for $4.0 million. We have entered into a contract to sell another Amarra Villas home for $3.8 million. No assurances can be given that the pending sale will be completed or that future sale prices will be as high as sale prices to date in 2024.

Previous wording

Real Estate Cost of Sales. Cost of sales, excluding depreciation and amortization, includes costs of property sold, project operating and marketing expenses and allocated overhead costs. Cost of sales increased to $15.3 million in first-quarter 2024 compared to $4.5 million in first-quarter 2023, primarily reflecting the sale of undeveloped property at Magnolia Place and the sales of two Amarra Villas homes in first-quarter 2024 compared with no undeveloped property sales and the sale of one Amarra Villas home in first-quarter 2023. In addition, the average cost of the Amarra Villas homes sold increased by approximately 44 percent.

Current wording

Real Estate Cost of Sales. Cost of sales, excluding depreciation and amortization, includes costs of property sold, project operating and marketing expenses and allocated overhead costs. Cost of sales increased to $4.4 million in second-quarter 2024, compared to $2.7 million in second-quarter 2023, primarily reflecting the sale of one Amarra Villas home in second-quarter 2024 while there were no property sales in second-quarter 2023. Cost of sales increased to $19.7 million for the first six months of 2024, compared to $7.2 million for the first six months of 2023, primarily reflecting the sale of undeveloped property at Magnolia Place and the sales of three Amarra Villas homes in the first six months of 2024 compared with no undeveloped property sales and the sale of one Amarra Villas home in the first six months of 2023. In addition, the average cost of the Amarra Villas homes sold increased by approximately 40 percent.

Previous wording

Rental Revenue. In first-quarter 2024 and first-quarter 2023, rental revenue primarily included revenue from our retail and mixed-use projects Lantana Place – Retail, Kingwood Place, Jones Crossing, West Killeen Market and Magnolia Place – Retail. In first-quarter 2024, rental revenue also included revenue from our multi-family project, The Saint June. The increase in rental revenue in first-quarter 2024, compared with first-quarter 2023, primarily reflects revenue from The Saint June, which had no rental revenue in first-quarter 2023, as well as increased revenue from Lantana Place – Retail and Kingwood Place, primarily due to new leases.

Current wording

Rental Revenue. In the 2024 periods, rental revenue primarily included revenue from Lantana Place – Retail, Kingwood Place, Jones Crossing – Retail, West Killeen Market, Magnolia Place and The Saint June. In the 2023 periods, rental revenue primarily included revenue from Lantana Place – Retail, Jones Crossing – Retail, Kingwood Place and West Killeen Market. The increase in rental revenue in the 2024 periods, compared with the 2023 periods, primarily reflects revenue from The Saint June, which had no rental revenue in the 2023 periods, as well as increased revenue at Kingwood Place, Lantana Place – Retail and Magnolia Place – Retail, primarily due to new leases.

Previous wording

Rental Cost of Sales and Depreciation. Rental cost of sales and depreciation expense increased in first-quarter 2024 compared with first-quarter 2023, primarily as a result of The Saint June, which had no operating expenses or depreciation expense in first-quarter 2023, partially offset by the costs of landscaping repairs and replacements at retail properties following the Texas winter storm in February 2023.

Current wording

Rental Cost of Sales and Depreciation. Rental cost of sales and depreciation expense increased in the 2024 periods compared with the 2023 periods, primarily as a result of The Saint June, which had minimal operating expenses in the 2023 periods, partially offset by the costs of landscaping repairs and replacements at retail properties following the Texas winter storm in February 2023.

Previous wording

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 $4.5 million in first-quarter 2024 compared to $4.7 million in first-quarter 2023 primarily as a result of lower compensation costs for estimated cash incentive awards for 2024. In first-quarter 2023 we also had fees related to a consulting arrangement to help raise third-party equity capital.

Current wording

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 were $3.8 million in second-quarter 2024 and $8.3 million for the first six months of 2024, compared to $4.1 million in second-quarter 2023 and $8.8 million for the first six months of 2023. The decreases in the 2024 periods were primarily related to lower compensation costs for estimated cash incentive awards for 2024. In 2023, we also had fees related to a consulting arrangement to help raise third-party equity capital.

Previous wording

Interest Expense, Net. Interest costs (before capitalized interest) totaled $4.0 million in first-quarter 2024 compared with $2.4 million in first-quarter 2023. Interest costs in first-quarter 2024 were higher, compared to first-quarter 2023, primarily reflecting higher interest rates as well as an increase in average debt balances. As of March 31, 2024, all of our debt was variable-rate debt, and for all of such debt, the interest rates have increased over the past year, including for first-quarter 2024, and may continue to rise in the future if prevailing market interest rates increase.

Current wording

Interest Expense, Net. Interest costs (before capitalized interest) totaled $3.9 million in second-quarter 2024 and $7.9 million for the first six months of 2024, compared with $2.9 million in second-quarter 2023 and $5.3 million for the first six months of 2023. Interest costs in the 2024 periods were higher, compared to the 2023 periods, primarily reflecting higher interest rates as well as an increase in average debt balances. As of June 30, 2024, all of our debt was variable-rate debt, and for all of such debt, the interest rates have increased over the past year, including the first six months of 2024.

Previous wording

All of our interest costs in first-quarter 2024 and first-quarter 2023 were capitalized. Capitalized interest is primarily related to development activities at Barton Creek (primarily Holden Hills, Section N and The Saint June), The Saint George and The Annie B for both periods presented.

Current wording

All of the interest costs were capitalized for all periods presented. Capitalized interest is primarily related to development activities at our Barton Creek properties (primarily Holden Hills, Section N and The Saint June) and The Saint George for all periods presented.

Previous wording

Provision for Income Taxes. We recorded a provision for income taxes of $0.1 million in first-quarter 2024 compared to $1.2 million in first-quarter 2023. Refer to Note 8 for further discussion of income taxes.

Current wording

Provision for Income Taxes. We recorded a provision for income taxes of $44 thousand in second-quarter 2024 and $0.1 million for the first six months of 2024, compared to $0.5 million in second-quarter 2023 and $1.7 million for the first six months of 2023. Refer to Note 8 for further discussion of income taxes.

Previous wording

Total Comprehensive Loss Attributable to Noncontrolling Interests in Subsidiaries. Our partners' share of losses totaled $0.9 million in first-quarter 2024 compared to $0.5 million in first-quarter 2023.

Current wording

Total Comprehensive Loss Attributable to Noncontrolling Interests in Subsidiaries. Our partners’ share of losses totaled $1.1 million in second-quarter 2024 and $1.9 million for the first six months of 2024, compared to $8 thousand in second-quarter 2023 and $0.5 million for the first six months of 2023.

Previous wording

Comparison of Cash Flows for the Three Months Ended March 31, 2024 and 2023

Current wording

Comparison of Cash Flows for the Six Months Ended June 30, 2024 and 2023

Previous wording

Investing Activities. Cash used in investing activities totaled $8.4 million in first-quarter 2024 and $10.2 million in first-quarter 2023. Capital expenditures totaled $8.1 million in first-quarter 2024, primarily for The Saint George and to a lesser extent for tenant improvements at Lantana Place – Retail, and $10.0 million in first-quarter 2023, primarily for The Saint June and The Saint George.

Current wording

Investing Activities. Cash used in investing activities totaled $16.5 million for the first six months of 2024 and $24.0 million for the first six months of 2023. Capital expenditures totaled $16.1 million for the first six months of 2024, primarily for The Saint George and to a lesser extent for tenant improvements at Lantana Place – Retail, and $23.5 million for the first six months of 2023, primarily for The Saint George and The Saint June.

Previous wording

Financing Activities. Cash used in financing activities totaled $9.1 million in first-quarter 2024 and cash provided by financing activities totaled $42.7 million in first-quarter 2023. In both the first-quarter 2024 and first-quarter 2023, we had no net borrowings on the Comerica Bank revolving credit facility. In first-quarter 2024, net payments on project and term loans totaled $8.3 million, primarily reflecting the payoff of the Magnolia Place construction loan and paydowns on the Amarra Villas credit facility and the Annie B land loan, partially offset primarily by borrowings on The Saint George and Holden Hills construction loans and the Amarra Villas credit facility. In first-quarter 2023 net borrowings on project and term loans totaled $5.1 million, primarily reflecting borrowings on The Saint June construction loan and the Amarra Villas revolving credit facility, partially offset by the payoff of the New Caney land loan. Refer to “Revolving Credit Facility and Other Financing Arrangements” and “Debt Maturities and Other Contractual Obligations” below for a discussion of our outstanding debt at March 31, 2024.

Current wording

Financing Activities. Cash (used in) provided by financing activities totaled $(0.2) million for the first six months of 2024 and $50.1 million for the first six months of 2023. During both the first six months of 2024 and 2023, we had no net borrowings on the Comerica Bank revolving credit facility. During the first six months of 2024, net borrowings on other project and term loans totaled $0.5 million, primarily reflecting borrowings on The Saint George and Holden Hills construction loans and the Amarra Villas credit facility partially offset primarily by the payoff of the Magnolia Place construction loan and paydowns on the Amarra Villas credit facility and the Annie B land loan. During the first six months of 2023, net borrowings on other project and term loans totaled $14.5 million, primarily reflecting borrowings on The Saint June construction loan and the Amarra Villas credit facility, partially offset by the payoff of the New Caney land loan. Refer to “Revolving Credit Facility and Other Financing Arrangements” below for a discussion of our outstanding debt at June 30, 2024.

Previous wording

In first-quarter 2023, we received a contribution from a noncontrolling interest owner of $40.0 million, related to the Holden Hills partnership.

Current wording

During the first six months of 2023, we received a contribution from a noncontrolling interest owner of $40.0 million, related to the Holden Hills partnership.

Previous wording

On September 1, 2022, with 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. During first-quarter 2023, $0.2 million of accrued dividends for unvested restricted stock units (RSUs) were paid to the holders upon the vesting of the RSUs, and during first-quarter 2024, $0.4 million of accrued dividends for unvested RSUs were paid to the holders upon the vesting of the RSUs, leaving $0.3 million of dividends accrued for unvested RSUs presented in accrued liabilities as of March 31, 2024. The remaining accrued dividends will be paid to the holders of the RSUs as the RSUs vest.

Current wording

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. During the first six months of 2024, $0.4 million of accrued dividends for unvested RSUs were paid to the holders upon the vesting of the RSUs, leaving $0.3 million of dividends accrued for unvested RSUs presented in accrued liabilities as of June 30, 2024. The remaining accrued dividends will be paid to the holders of the RSUs as the RSUs vest.

Previous wording

In 2022, with written consent from Comerica Bank, our Board also approved a share repurchase program, which authorized repurchases of up to $10.0 million of our common stock. During first-quarter 2023, we spent $0.9 million on share repurchases under the program. 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.

Current wording

In 2022, after receiving written consent from Comerica Bank, our Board also approved a share repurchase program, which authorized repurchases of up to $10.0 million of our common stock. During the first six months of 2023, we spent $1.6 million on share repurchases under the program. 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 cost of $10.0 million at an average price of $25.68 per share.

Previous wording

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 March 31, 2024, we had not repurchased any shares under the new program.

Current wording

In November 2023, after receiving 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 June 30, 2024, we had not repurchased any shares under the new program.

Previous wording

As of March 31, 2024, we had $20.7 million in cash and cash equivalents and restricted cash of $0.8 million, and no amount was borrowed under our revolving credit facility. Of the $20.7 million in consolidated cash and cash equivalents at March 31, 2024, $2.8 million held at certain consolidated subsidiaries is subject to restrictions on distribution to the parent company pursuant to project loan agreements.

Current wording

As of June 30, 2024, we had $13.5 million in cash and cash equivalents and restricted cash of $0.5 million, and no amount was borrowed under our revolving credit facility. Of the $13.5 million in consolidated cash and cash equivalents at June 30, 2024, $2.9 million held at certain consolidated subsidiaries is subject to restrictions on distribution to the parent company pursuant to project loan agreements.