STRATUS PROPERTIES INC

Previous wording

Our investment strategy focuses on projects that we believe will provide attractive long-term returns, while limiting our financial risk. We plan to continue to develop properties using project-level debt and third-party equity capital through joint ventures in which we receive development management fees and asset management fees, with our potential returns increasing above our relative equity interest in each project as negotiated return hurdles are achieved. Refer to Note 3. We expect to continue our limited use of our revolving credit facility and to retain sufficient cash to operate our business, taking into account risks associated with changing market conditions and the variability in cash flows from our business.

Current wording

Our investment strategy focuses on projects that we believe will provide attractive long-term returns, while limiting our financial risk. We plan to continue to develop properties using project-level debt and third-party equity capital through joint ventures in which we receive development management fees and asset management fees, with our potential returns increasing above our relative equity interest in each project as negotiated return hurdles are achieved. Refer to Note 3. We expect to continue to limit use of our revolving credit facility and to retain sufficient cash to operate our business, taking into account risks associated with changing market conditions and the variability in cash flows from our business.

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. 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.

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 September 30, 2024, the Holden Hills partnership had $4.4 million remaining to complete the Tecoma Improvements. However, during 2023 and the first nine months of 2024, we made operating loans totaling $3.3 million and $3.9 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 $504 thousand during 2023 and the first nine months of 2024, respectively, to the limited partnership for The Saint June. In third-quarter 2024, we contributed additional capital of $400 thousand in cash representing our 10 percent equity share, and the Class B limited partner contributed additional capital of $3.6 million in cash, each to the limited partnership for The Saint George. We anticipate making future operating loans to the limited partnership for The Annie B totaling up to $2.6 million over the next 12 months. Our estimates of future operating loans are based on estimates of future costs of the partnership. 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

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.

Current wording

As of September 30, 2024, consolidated cash totaled $19.6 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. 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.

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 nine months 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 nine months 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. In addition, during 2023 and the first nine months of 2024, we sold five Amarra Villas homes for a total of $17.7 million, 47 acres of undeveloped land at Magnolia Place for $14.5 million and Magnolia Place – Retail for $8.9 million, described further below.

Previous 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.

Current wording

As of September 30, 2024, our retail and multi-family portfolio consisted of five stabilized projects, namely The Saint June, Jones Crossing – Retail, Kingwood Place, Lantana Place – Retail and West Killeen Market. As previously disclosed, we had 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 third-quarter 2024, we closed on the sale of Magnolia Place – Retail for $8.9 million. The sale generated pre-tax net cash proceeds of approximately $8.6 million and a pre-tax gain of $1.6 million. We have paused exploring the sales of West Killeen Market, Lantana Place – Retail and Kingwood Place, deciding to retain these cash-flowing properties at this time.

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. 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.

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 also generate income from the sale of our leased properties from time to time, depending on market conditions.

Previous 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.

Current wording

Summary financial results for the third-quarter and first nine months of 2024. Our revenues totaled $8.9 million in third-quarter 2024 and $43.9 million for the first nine months of 2024, compared with $3.7 million in third-quarter 2023 and $13.0 million for the first nine months of 2023. The $27.2 million increase in revenues from our Real Estate Operations segment in the first nine months of 2024, compared to the first nine 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 four Amarra Villas homes for an aggregate of $15.2 million in the first nine months of 2024, compared with the sale of one Amarra Villas home in the first nine months of 2023 for $2.5 million. The $4.0 million in revenues in our Real Estate Operations segment in third-quarter 2024, compared to no revenues in third-quarter 2023, is primarily a result of the sale of one Amarra Villas home in the third quarter of 2024 for $4.0 million compared to no sales in the prior period. In addition, revenues from our Leasing Operations segment increased in both the three and nine-month 2024 periods, primarily reflecting new revenue from The Saint June, which had minimal rental revenue in the 2023 periods as it commenced operations in mid-2023, as well as increased revenue from Kingwood Place and Lantana Place – Retail primarily due to new leases. During the three and nine months ended September 30, 2024, we recorded a $1.6 million pre-tax gain on the sale of Magnolia Place – Retail. Refer to “Results of Operations” below for further discussion of our segments.

Previous 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.

Current wording

Our net loss attributable to common stockholders totaled $0.4 million, or $0.05 per diluted share in third-quarter 2024, compared to $2.8 million, or $0.36 per diluted share, in third-quarter 2023. During the first nine months of 2024 our net income attributable to common stockholders totaled $2.5 million, or $0.30 per diluted share, compared to net loss attributable to common stockholders of $13.9 million, or $1.74 per diluted share, during the first nine 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. 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.

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. In third-quarter 2024, we sold one Amarra Villas home for $4.0 million, leaving one completed home in inventory as of September 30, 2024. In November 2024, we sold one Amarra Villas home for $3.8 million. Construction on the last four homes continues to progress and is expected to be completed in fourth-quarter 2024. As of November 8, 2024, 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 August 9, 2024, occupancy of The Saint June was approximately 98 percent.

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 November 8, 2024, occupancy of The Saint June was approximately 97 percent.

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. 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.

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. 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

After extensive negotiation with the City of Lakeway, utility suppliers and neighboring property owners, during 2023 we secured the right to develop a multi-family project on approximately 35 acres of undeveloped property in Lakeway, Texas located in the greater Austin area. The multi-family project is expected to utilize the road, drainage and utility infrastructure we are required to build, subject to certain conditions, which is secured by a $2.3 million letter of credit under our revolving credit facility. Our goal is to commence construction on the multi-family project or to sell the site, as soon as infrastructure construction is complete and market conditions warrant. Refer to Note 6 and “Capital Resources and Liquidity – Revolving Credit Facility and Other Financing Arrangements” below for additional discussion.

Current wording

After extensive negotiation with the City of Lakeway, utility suppliers and neighboring property owners, during 2023 we secured the right to develop a multi-family project on approximately 35 acres of undeveloped property in Lakeway, Texas located in the greater Austin area. The multi-family project is expected to utilize the road, drainage and utility infrastructure we are required to build, subject to certain conditions, which is secured by a $2.3 million letter of credit under our revolving credit facility. Our goal is to commence construction on the multi-family project or to sell the site, as soon as infrastructure construction, which has not yet started, is complete and market conditions warrant. Refer to Note 6 and “Capital Resources and Liquidity – Revolving Credit Facility and Other Financing Arrangements” below for additional discussion.

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 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).

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 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

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.

Current wording

As previously disclosed, we had 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 third-quarter 2024, we closed on the sale of Magnolia Place – Retail for $8.9 million. The sale generated pre-tax net cash proceeds of approximately $8.6 million and a pre-tax gain of $1.6 million. We have paused exploring the sales of West Killeen Market, Lantana Place – Retail and Kingwood Place, deciding to retain these cash-flowing properties at this time.

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 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.

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 October 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 (although in September and November 2024, the Federal Reserve lowered the federal funds target rate by 50 basis points and 25 basis points, respectively). 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 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.

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 and an equity contribution 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.

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 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.

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 and the first nine months of 2024, we believe the residential market in Austin remains attractive compared to other U.S. urban markets. The U.S. Federal Reserve lowered rates by 50 basis points in September 2024 and by 25 basis points in November 2024, and there could be additional cuts in the future, 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 include 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, refinancings 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

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.

Current wording

The increase in revenues from developed property sales for third-quarter 2024, compared to third-quarter 2023, reflects the sale of one Amarra Villas home in third-quarter 2024 for $4.0 million compared to no sales in third-quarter 2023. The increase in revenues for the first nine months of 2024 compared to the first nine months of 2023, reflects the sales of four Amarra Villas homes in the 2024 period compared to the sale of one Amarra Villas home in the 2023 period, as well as an increase in average sales price by approximately 52 percent, from $2.5 million per home in the first nine months of 2023 to $3.8 million per home in the first nine months of 2024. In November 2024, we sold another Amarra Villas home for $3.8 million. No assurances can be given 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 $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.

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 $5.3 million in third-quarter 2024, compared to $1.5 million in third-quarter 2023, primarily reflecting the sale of one Amarra Villas home in third-quarter 2024 while there were no property sales in third-quarter 2023. Cost of sales increased to $25.0 million for the first nine months of 2024, compared to $8.7 million for the first nine months of 2023, primarily reflecting the sale of undeveloped property at Magnolia Place and the sales of four Amarra Villas homes in the first nine months of 2024 compared with no undeveloped property sales and the sale of one Amarra Villas home in the first nine months of 2023. In addition, the average cost of the Amarra Villas homes sold increased by approximately 41 percent. Cost of sales for the three and nine-month periods in 2024 include a $721 thousand charge to write off previously capitalized costs related to a change in development plans for one of our properties.

Previous 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.

Current wording

Rental Revenue. In the 2024 periods, rental revenue primarily included revenue from Lantana Place – Retail, Kingwood Place, The Saint June, Jones Crossing – Retail, West Killeen Market and Magnolia Place – Retail. In the 2023 periods, rental revenue primarily included revenue from Lantana Place – Retail, Kingwood Place, Jones Crossing – Retail, West Killeen Market, Magnolia Place – Retail and The Saint June. The increase in rental revenue in the 2024 periods, compared with the 2023 periods, primarily reflects revenue from The Saint June, which had minimal rental revenue in the 2023 periods as it commenced operations in mid-2023, as well as increased revenue at Kingwood Place and Lantana Place – Retail, primarily due to new leases.

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 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.

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 $3.4 million in third-quarter 2024 and $11.7 million for the first nine months of 2024, compared to $3.2 million in third-quarter 2023 and $12.0 million for the first nine months of 2023.

Previous 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.

Current wording

Interest Expense, Net. Interest costs (before capitalized interest) totaled $4.0 million in third-quarter 2024 and $11.9 million for the first nine months of 2024, compared with $3.4 million in third-quarter 2023 and $8.7 million for the first nine 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 September 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 nine months of 2024, although interest rates on our loans have declined slightly since the Federal Reserve lowered interest rates by 50 basis points in September 2024. In November 2024, the Federal Reserve further lowered interest rates by 25 basis points.

Previous 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.

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 Amarra Villas, Holden Hills and Section N) and The Saint George for the 2024 periods. Capitalized interest was primarily related to development activities at our Barton Creek properties (primarily Holden Hills, Section N and The Saint June), The Saint George and The Annie B for the 2023 periods.

Previous 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.

Current wording

Provision for Income Taxes. We recorded a provision for income taxes of $58 thousand in third-quarter 2024 and $0.2 million for the first nine months of 2024, compared to $0.4 million in third-quarter 2023 and $2.0 million for the first nine 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 $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.

Current wording

Total Comprehensive Loss Attributable to Noncontrolling Interests in Subsidiaries. Our partners’ share of losses totaled $1.1 million in third-quarter 2024 and $3.0 million for the first nine months of 2024, compared to $0.4 million in third-quarter 2023 and $0.9 million for the first nine months of 2023. The increases in both periods were primarily due to increased interest expense for Stratus Block 150, L.P., and The Saint June, L.P., and initial operating expenses for The Saint George Apartments, L.P., which is expected to be substantially completed in fourth-quarter 2024.

Previous wording

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

Current wording

Comparison of Cash Flows for the Nine Months Ended September 30, 2024 and 2023

Previous wording

Operating Activities. Cash used in operating activities totaled $1.7 million for the first six months of 2024, compared with $26.8 million for the first six months of 2023. Expenditures for purchases and development of real estate properties totaled $16.3 million for the first six months of 2024 and $21.1 million for the first six months of 2023, both primarily related to development of our Barton Creek properties, particularly Amarra Villas and Holden Hills.

Current wording

Operating Activities. Cash used in operating activities totaled $2.4 million for the first nine months of 2024, compared with $39.3 million for the first nine months of 2023. Operating cash flow improved as a result of higher revenue from property sales in the first nine months of 2024. Expenditures for purchases and development of real estate properties totaled $22.9 million for the first nine months of 2024 and $34.7 million for the first nine months of 2023, both primarily related to development of our Barton Creek properties, particularly Amarra Villas and Holden Hills.

Previous 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.

Current wording

Investing Activities. Cash used in investing activities totaled $15.0 million for the first nine months of 2024 and $36.9 million for the first nine months of 2023. Capital expenditures totaled $23.0 million for the first nine months of 2024, primarily for The Saint George and to a lesser extent for tenant improvements at Lantana Place – Retail, and $36.2 million for the first nine months of 2023, primarily for The Saint George and The Saint June. These uses of cash in the first nine months of 2024 were partially offset by $8.6 million in proceeds from the sale of Magnolia Place – Retail.

Previous 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.

Current wording

Financing Activities. Cash provided by financing activities totaled $5.3 million for the first nine months of 2024 and $66.9 million for the first nine months of 2023. During both the first nine months of 2024 and 2023, we had no net borrowings on the Comerica Bank revolving credit facility. During the first nine months of 2024, net borrowings on other project and term loans totaled $2.6 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 nine months of 2023, net borrowings on other project and term loans totaled $33.2 million, primarily reflecting borrowings on The Saint George construction loan, 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 September 30, 2024.

Previous 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.

Current wording

During the first nine months of 2024, we contributed additional capital of $400 thousand in cash, and the Class B limited partner contributed additional capital of $3.6 million in cash, each to The Saint George Apartments, L.P. to support the partnership’s ability to pay its construction loan interest, which had exceeded the amount budgeted due to interest rate increases over the past two years. During the first nine 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, 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.

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 nine months of 2024 and 2023, $0.4 million and $0.7 million, respectively, 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 September 30, 2024. The remaining accrued dividends will be paid to the holders of the RSUs as the RSUs vest.

Previous 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.

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 nine months of 2023, we spent $2.1 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

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.

Current wording

As of September 30, 2024, we had $19.6 million in cash and cash equivalents and restricted cash of $0.7 million, and no amount was borrowed under our revolving credit facility. Of the $19.6 million in consolidated cash and cash equivalents at September 30, 2024, $7.8 million held at certain consolidated subsidiaries is subject to restrictions on distribution to the parent company pursuant to project loan agreements.

Previous wording

As of June 30, 2024, we had total debt of $180.0 million based on the principal amounts outstanding compared with $177.4 million at December 31, 2023. As of June 30, 2024, the maximum amount that could be borrowed under the Comerica Bank revolving credit facility was $52.9 million, resulting in availability of $39.6 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 and $2.3 million of which secure our obligation to construct and pay for certain utility infrastructure in Lakeway, Texas. 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 June 30, 2024.

Current wording

As of September 30, 2024, we had total debt of $182.9 million based on the principal amounts outstanding compared with $177.4 million at December 31, 2023. As of September 30, 2024, the maximum amount that could be borrowed under the Comerica Bank revolving credit facility was $52.9 million, resulting in availability of $39.6 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 and $2.3 million of which secure our obligation to construct and pay for certain utility infrastructure in Lakeway, Texas. Refer to “Debt Maturities and Other Contractual Obligations” below for a table illustrating the timing of principal payments due on our outstanding debt as of September 30, 2024.

Previous wording

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 are subordinate to The Annie B land loan and must be repaid before distributions may be made to the partners. Until February 2024, the interest rate on the loans was the one-month Bloomberg Short Term Bank Yield

Current wording

In 2023, we made operating loans totaling $2.3 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 February 2024 and August 2024, we made additional operating loans of $2.4 million and $1.1 million, respectively, to Stratus Block 150, L.P. The loans are subordinate to The Annie B land loan and must be repaid before distributions may be made to the partners. Until February 2024, the interest rate on the loans was the one-month Bloomberg Short Term Bank Yield Index (BSBY) Rate plus 5.00 percent. In February 2024, the interest rate on the loans was changed to the one-month Term Secured Overnight Financing Rate (SOFR) plus 5.00 percent.

Previous wording

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. In April 2024, we made an additional operating loan of $85 thousand to The Saint June, L.P., and the Class B Limited Partner made an additional operating loan of $165 thousand to The Saint June, L.P. The loans bear interest at the 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.

Current wording

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 had risen above the amount budgeted due to interest rate increases over the past two years. 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. In April 2024, we made an additional operating loan of $85 thousand to The Saint June, L.P., and the Class B Limited Partner made an additional operating loan of $165 thousand to The Saint June, L.P. The loans bear interest at the 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.

Previous wording

During first-quarter 2024, we paid off the $8.8 million Magnolia Place construction loan in connection with our sale of approximately 47 acres of undeveloped land, and we made principal payments of $7.2 million on our Amarra Villas credit facility in connection with our sales of two Amarra Villas homes. During second-quarter 2024, we made a principal payment of $3.5 million on our Amarra Villas credit facility in connection with the sale of one Amarra Villas home. During the first six months of 2024, we increased borrowings under The Saint George, The Saint June and Holden Hills construction loans. Refer to Note 6 for further discussion.

Current wording

During the first nine months of 2024, we paid off the $8.8 million Magnolia Place construction loan in connection with our sale of approximately 47 acres of undeveloped land, and we made principal payments of $14.4 million on our Amarra Villas credit facility in connection with our sales of four Amarra Villas homes. We also increased borrowings under The Saint George, Holden Hills and The Saint June construction loans. Refer to Note 6 for further discussion.

Previous wording

a. Includes operating loans from our third-party partner of $753 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. We expect to extend the loan on or before the maturity date and the extension may require a paydown on the loan.

Current wording

a. Includes operating loans from our third-party partner of $753 thousand. The maturity date of The Saint June construction loan was October 2, 2024. In October 2024, The Saint June construction loan was modified to extend the maturity to October 2, 2025. We have the option to extend the maturity for an additional 12-month terms if certain conditions are met.

Previous wording

b. The maturity date is December 6, 2024. We expect to refinance the loan on or before the maturity date.

Current wording

b. The maturity date is December 6, 2024. We are currently discussing options to refinance the loan and expect to extend the loan on or before the maturity date.