STRATUS PROPERTIES INC

Previous wording

In Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A), “we,” “us,” “our” and “Stratus” refer to Stratus Properties Inc. and all entities owned or controlled by Stratus Properties Inc. You should read the following discussion in conjunction with our consolidated financial statements and accompanying notes, related MD&A and discussion of our business and properties included in our Annual Report on Form 10-K for the year ended December 31, 2024 (2024 Form 10-K) filed with the United States (U.S.) Securities and Exchange Commission (SEC) and the unaudited consolidated financial statements and accompanying notes included in this Form 10-Q. The results of operations reported and summarized below are not necessarily indicative of future operating results, and future results could differ materially from those anticipated in forward-looking statements (refer to “Cautionary Statement” and Part I, Item 1A. “Risk Factors” of our 2024 Form 10-K and Part II, Item 1A. “Risk Factors” herein for further discussion). All subsequent references to “Notes” refer to Notes to Consolidated Financial Statements (Unaudited) located in Part I, Item 1. “Financial Statements” herein, unless otherwise stated.

Current wording

In Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A), “we,” “us,” “our” and “Stratus” refer to Stratus Properties Inc. and all entities owned or controlled by Stratus Properties Inc. You should read the following discussion in conjunction with our consolidated financial statements and accompanying notes, related MD&A and discussion of our business and properties included in our Annual Report on Form 10-K for the year ended December 31, 2025 (2025 Form 10-K) filed with the United States (U.S.) Securities and Exchange Commission (SEC) and the unaudited consolidated financial statements and accompanying notes included in this Form 10-Q. The results of operations reported and summarized below are not necessarily indicative of future operating results, and future results could differ materially from those anticipated in forward-looking statements (refer to “Cautionary Statement” and Part I, Item 1A. “Risk Factors” of our 2025 Form 10-K for further discussion). All subsequent references to “Notes” refer to Notes to Consolidated Financial Statements (Unaudited) located in Part I, Item 1. “Financial Statements” herein, unless otherwise stated.

Previous wording

From time to time, when deemed appropriate by our Board of Directors (the Board) and permitted pursuant to the terms of our debt agreements, we may return capital to stockholders, as we did in 2022 and 2017 with special cash dividends totaling approximately $40 million and $8 million, respectively, and as we did during 2022 and 2023 through our $10.0 million share repurchase program, which was completed in October 2023. In November 2023, our Board approved a new $5.0 million share repurchase program, and in June 2025, our Board approved an increase in the share repurchase program to $25.0 million. As of November 7, 2025, we had repurchased $3.9 million of our shares under the program.

Current wording

When deemed appropriate by our Board of Directors (the Board) and permitted pursuant to the terms of our debt agreements, we have returned capital to stockholders, as we did in 2022 and 2017 with special cash dividends totaling approximately $40 million and $8 million, respectively, and as we did during 2022 and 2023 through our $10.0 million share repurchase program, which was completed in October 2023. In November 2023, our Board approved a new $5.0 million share repurchase program, and in June 2025, our Board approved an increase in the share repurchase program to $25.0 million.

Previous wording

Largely as a result of the cash distribution from the Holden Hills Phase 2 partnership and recent property sales, as of September 30, 2025, we had consolidated cash of $55.0 million and $17.5 million available under our revolving credit facility, net of $11.6 million of letters of credit committed against the facility. Subsequent to the end of the third quarter, we also entered into an agreement, as amended, to sell Lantana Place – Retail for approximately $57.4 million, which, if completed, will yield significant cash proceeds after payoff of the project loan. Refer to Note 6 for further discussion of our debt. Our Board is carefully exploring opportunities for the use of cash from the Holden Hills Phase 2 partnership and recent and pending asset sales, which will be based on evolving market conditions and may include a combination of further share repurchases, deleveraging, reinvesting in Stratus’ project pipeline and/or other cash returns to stockholders.

Current wording

Largely as a result of a cash distribution from the Holden Hills Phase 2 partnership and recent property sales, including the sales of Lantana Place – Retail, which generated pre-tax cash proceeds of approximately $26.9 million, and Kingwood Place, which generated pre-tax cash proceeds of $16.2 million, as of March 31, 2026, we had consolidated cash and cash equivalents of $73.5 million and $24.7 million available under our revolving credit facility, net of $3.4 million of letters of credit committed against the facility. Refer to Note 6 herein and Note 6 of our 2025 Form 10-K for further discussion of our debt.

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 certain projects 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 current 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 certain projects as negotiated return hurdles are achieved. Refer to Note 3 herein and Note 2 of our 2025 Form 10-K. 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.

Previous wording

Our main sources of revenue and cash flow are expected to be sales of our properties to third parties, debt financings and 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 distributions from the Holden Hills Phase 1 partnership in 2023 and the Holden Hills Phase 2 partnership in June 2025 and our other property sales in 2024 and the first nine months of 2025. Further, we believe our investment strategy, current liquidity and portfolio of projects provide us with many opportunities to increase value for our stockholders.

Current wording

Our main sources of revenue and cash flow are expected to be sales of our properties to third parties, debt financings and 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 segment 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, Lantana Place – Retail in November 2025, and Kingwood Place in January 2026, the cash distributions from the Holden Hills Phase 1 partnership in 2023 and the Holden Hills Phase 2 partnership in June 2025 and our other property sales in 2025 and 2026.

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 Phase 1 partnership and our share (related to Holden Hills Phase 2) of the cost of the Tecoma Improvements (as defined below). As of September 30, 2025, our share of the estimated remaining costs for the completed Tecoma Improvements totaled $346 thousand. However, over the past two years and in the first nine months of 2025, we made operating loans, advances and capital contributions to our joint ventures. Refer to Note 3 herein and Note 2 of the 2024 Form 10-K for further discussion. Over the next 12 months, we anticipate making future operating loans to the limited partnership for The Annie B totaling up to $1.8 million and a capital contribution to the limited partnership for The Saint George of $150 thousand, representing our 10 percent equity share of debt service and project costs needed by the partnership. Our estimates of future operating loans and capital contributions are based on current estimates of future costs of the partnerships. 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 Phase 1 joint venture. However, since 2023, we made operating loans, capital contributions and advances to our joint ventures. Refer to Note 3 herein and Note 2 of the 2025 Form 10-K for further discussion. We anticipate making future operating loans or advances to the limited partnerships for The Annie B, The Saint George and Holden Hills Phase 1 totaling up to $6.0 million over the next 12 months. Our estimates of future operating loans or advances are based on estimates of future costs of the partnerships. 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

We have faced difficult conditions in the real estate business over the past two years and in the first nine months of 2025. Interest rates, which began rising in 2022, continued to increase during 2023, and costs remained elevated. During 2024, interest rates stabilized, and in the latter part of 2024 and the first nine months of 2025, interest rates generally declined; however, costs remained elevated. In our markets, retail market fundamentals, such as occupancy and rents, have shown stronger performance compared to the multi-family sector. The market for new suburban multi-family development has continued to face headwinds. Nevertheless, we made important progress executing our business strategy during 2024 and the first nine months of 2025.

Current wording

We were challenged by difficult conditions in the real estate business over the past three years. Interest rates, which began rising in 2022, continued to increase during 2023, and costs remained elevated. During 2024, interest rates stabilized, and in the latter part of 2024 and through 2025, interest rates generally declined; however, costs remained elevated. In our markets, retail market fundamentals, such as occupancy and rents, have shown stronger performance compared to the multi-family sector. The market for new suburban multi-family development has continued to face headwinds. Nevertheless, we made important progress executing our business strategy during 2025 and into 2026. Accordingly, we have been continuing to work to maintain our business, operate our stabilized retail and multi-family properties, advance our projects under construction or development, control costs and advance entitlements, relationships and opportunities to position us to capture value.

Previous wording

Changes to U.S. tariffs and trade policies during the first nine months of 2025 have introduced additional uncertainties regarding future U.S. real estate market conditions. Refer to Part II, Item 1A. “Risk Factors” herein. We believe we have sufficient liquidity and access to capital to sell properties when market conditions are favorable to us and to hold or refinance 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

We also expect that, if market rates continue to decline, interest on our outstanding debt, all of which is variable rate, will continue to decline. We believe we have sufficient liquidity and access to capital to sell properties when market conditions are favorable to us and to hold or refinance 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, and pending stockholder approval of the Plan of Liquidation. However, if the Plan of Liquidation is approved by our stockholders, our business strategy will shift from the continuation of our historical operating and development strategy toward an orderly monetization of assets and winding-down process. Under the Plan of Liquidation, we expect to have the ability to continue to develop and/or complete any projects or activities that are in process, so long as we determine that doing so will increase or otherwise enhance the value of the project, property or asset for sale or other disposition.

Previous wording

During the first nine months of 2025, we received a $47.8 million cash distribution from the Holden Hills Phase 2 partnership. In addition, we sold our stabilized West Killeen Market retail project for $13.3 million and two homes at Amarra Villas for a total of $6.8 million. We also completed construction on the last two Amarra Villas homes. We substantially completed construction of the road and utility infrastructure for Holden Hills Phase 1, including the required landscaping, enabling us to proceed with Travis County’s acceptance of the roadway. The first units of The Saint George were available for occupancy in April 2025 and the project was completed in June 2025. We have been focusing intently on the development of Holden Hills Phase 1 and on the development plans and future financing of Holden Hills Phase 2. We continued to advance entitlements on our other development projects and to operate our three stabilized retail projects. We also took steps to advance relationships and pursue opportunities related to our development pipeline, positioning ourselves to capture value, subject to market conditions. In October 2025, we sold an Amarra Villa home for $3.7 million. We also entered into an agreement, as amended, to sell Lantana Place – Retail for approximately $57.4 million, which subject to satisfaction of closing conditions, is expected to close in fourth-quarter 2025. In addition, beginning in 2024 and through November 7, 2025, we returned $3.9 million to our stockholders through our share repurchase program.

Current wording

During 2025, we received a $47.8 million cash distribution from the Holden Hills Phase 2 partnership. In addition, we sold Lantana Place – Retail for $57.5 million, West Killeen Market for $13.3 million and three homes at Amarra Villas for a total of $10.5 million. We also completed construction on the last two Amarra Villas homes. We completed construction of the road and utility infrastructure for Holden Hills Phase 1. The first units of The Saint George were available for occupancy in April 2025 and the project was completed in June 2025.

Previous wording

Our net loss attributable to common stockholders totaled $(5.0) million, or $(0.62) per diluted share in third-quarter 2025, compared to net loss attributable to common stockholders of $(0.4) million, or $(0.05) per diluted share, in third-quarter 2024. During the first nine months of 2025 our net loss attributable to common stockholders totaled $(7.6) million, or $(0.94) per diluted share, compared to net income attributable to common stockholders of $2.5 million, or $0.30 per diluted share, during the first nine months of 2024.

Current wording

Our net income attributable to common stockholders totaled $6.6 million, or $0.82 per diluted share in first-quarter 2026, compared to net loss attributable to common stockholders of $(2.9) million, or $(0.36) per diluted share, in first-quarter 2025.

Previous wording

Amarra Villas. The Villas at Amarra Drive (Amarra Villas) project is a 20-unit development in Barton Creek. In first-quarter 2024, we sold two of the homes for a total of $7.6 million. In second-quarter 2024, we sold one of the homes for $3.6 million. In third-quarter 2024, we sold one of the homes for $4.0 million. In second-quarter 2025, we completed construction on the last two homes, and we sold two of the homes for a total of $6.8 million. In October 2025, we sold one of the homes for $3.7 million. As of November 7, 2025, two completed 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 April 2026, we sold one Amarra Villas home for $3.6 million. In May 2026, we entered into a contract to sell the last Amarra Villas home for $3.6 million, which is subject to satisfaction of closing condtions.

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 first units were available for occupancy in July 2023, and construction was completed in fourth-quarter 2023. We completed the lease-up of The Saint June during 2024.

Current wording

The Saint June. In third-quarter 2021, we began construction on The Saint June, a 182-unit luxury garden-style multi-family property within the Amarra development. The first units were available for occupancy in July 2023, and construction was completed in fourth-quarter 2023. We completed the initial lease-up of The Saint June during 2024. As of March 31, 2026, occupancy at The Saint June was approximately 95 percent.

Previous wording

Holden Hills Phase 1. Our final large residential development within the Barton Creek community, Holden Hills Phase 1, consists of 495 acres. The community has been designed to feature unique luxury residences to be developed in multiple sections with a focus on health and wellness, sustainability and energy conservation.

Current wording

Holden Hills Phase 1. Our final large residential development within the Barton Creek community, Holden Hills Phase 1, consists of approximately 495 acres. The current conceptual design of the community features unique luxury residences to be developed in multiple sections with a focus on health and wellness, sustainability and energy conservation.

Previous wording

We entered into a limited partnership agreement with a third-party equity investor for Holden Hills Phase 1 in January 2023, and in February 2023 obtained construction financing for road and utility infrastructure of Holden Hills Phase 1. We have substantially completed the initial road and utility infrastructure, including the required landscaping, enabling us to proceed with Travis County’s acceptance of the roadway. The County’s acceptance of the roadway will then permit us to continue efforts to replat the initial portion of Holden Hills Phase 1 to take advantage of changes in regulations, which we believe will result in improved home sites. As a result of the removal of Holden Hills Phase 1 from Austin’s extraterritorial jurisdiction (ETJ) pursuant to Texas Senate Bill 2038 (the ETJ Law), as described below, our development plans for portions of Holden Hills Phase 1 are being adjusted to benefit from the new regulatory scheme. We anticipate being in a position to start building homes and/or selling home sites in 2026, assuming regulators timely fulfill their permit processing obligations and there are no further changes in the regulatory environment. For additional discussion, refer to Items 1. and 2. “Business and Properties” in our 2024 Form 10-K.

Current wording

We entered into a limited partnership agreement with a third-party equity investor for Holden Hills Phase 1 in January 2023, and in February 2023 obtained construction financing for road and utility infrastructure of Holden Hills Phase 1. We have completed the initial road and utility infrastructure, including the required landscaping, enabling us to obtain Travis County’s acceptance of the roadway. The County’s acceptance of the roadway will permit us to continue efforts to replat Holden Hills Phase 1 in an effort to take advantage of changes in regulations, which we believe may result in improved home sites. As a result of the removal of Holden Hills Phase 1 from Austin’s ETJ pursuant to the ETJ Law, as described below, we are working on modifications to our development plans for portions of Holden Hills Phase 1 to benefit from the new regulations. However, challenges to the ETJ Law and the City of Austin’s recent letter reversing its prior certification of the release of Holden Hills Phases 1 and 2 from the City’s ETJ (refer to – ETJ Process below), are expected to cause delays in implementing development plans and selling home sites. We may also, in the future, decide to build homes on certain of the home sites, depending on market conditions, available financing and other factors. For additional discussion, refer to Items 1. and 2. “Business and Properties” in our 2025 Form 10-K.

Previous wording

We capitalize infrastructure costs and may be eligible to receive Travis County municipal utility district (MUD) reimbursements for certain infrastructure costs incurred in the Barton Creek area. Portions of the costs incurred in connection with the Holden Hills Phase 1 project and the Tecoma Improvements totaling approximately $9.3 million and $6.9 million, respectively, are expected to be eligible to be reimbursed in the future by MUDs. All MUD reimbursements that the Holden Hills Phase 1 partnership receives and is entitled to retain at the partnership level must be applied as payments of principal on the Holden Hills Phase 1 construction loan. The Holden Hills Phase 1 partnership has agreed to deliver to Stratus 60 percent of any MUD reimbursements for Tecoma Improvement costs when such reimbursements are received by the partnership. The amount and timing of MUD reimbursements depends upon each MUD having a sufficient tax base within its district to issue bonds, obtaining the necessary state approval for the sale of the bonds and the successful sale of the bonds, among other things. Accordingly, the amount and timing of the receipt of MUD reimbursements is uncertain. MUD reimbursements received for infrastructure costs are recorded as reductions of the related asset’s carrying amount.

Current wording

We capitalize infrastructure costs and may be eligible to receive reimbursements from Travis County Municipal Utility Districts (MUDs) for certain infrastructure costs incurred in the Barton Creek area. Portions of the costs incurred in connection with the Holden Hills Phase 1 project and the Tecoma Improvements are expected to be eligible to be reimbursed by MUDs. The amount and timing of MUD reimbursements depends upon each MUD having a sufficient tax base within its district to issue bonds, obtaining the necessary state approval for the sale of the bonds and the successful sale of the bonds, among other things. Accordingly, the amount and timing of the receipt of MUD reimbursements is uncertain. All MUD reimbursements that the Holden Hills Phase 1 partnership receives and is entitled to retain at the partnership level must be applied as payments of principal on the Holden Hills Phase 1 construction loan. The Holden Hills Phase 1 partnership has agreed to deliver to Stratus 60 percent of any MUD reimbursements for Tecoma Improvement costs when such reimbursements are received by the partnership. In April 2026, one of the Barton Creek MUDs sold bonds that resulted in reimbursements of costs incurred in connection with the Holden Hills Phase 1 project and the Tecoma Improvements of approximately $13.0 million and payment of interest of $1.4 million to the Holden Hills Phase 1 partnership and us. Of the total, $10.5 million was paid to the Holden Hills Phase 1 partnership, and $3.9 million (including our share of the Tecoma Improvement costs) was paid to us. From this bond offering, we also received payment of interest, including interest deferred from previous bond offerings, totaling $1.1 million and reimbursement of other costs of $200 thousand. The Holden Hills Phase 1 partnership used its $10.5 million share of the reimbursement and interest to pay down the Holden Hills Phase 1 construction loan. MUD reimbursements received for infrastructure costs are recorded as reductions of the related asset’s carrying amount, and interest is recorded as income.

Previous wording

Holden Hills Phase 2. Our approximately 570-acre tract located along Southwest Parkway in the southern portion of the Barton Creek community, Holden Hills Phase 2, is adjacent to Holden Hills Phase 1. We are planning both Holden Hills Phase 1 and Holden Hills Phase 2 as one interconnected development branded as Holden Hills. Holden Hills Phase 2 is being designed as a mixed-use project, including a range of commercial and extensive residential uses, surrounded by extensive outdoor recreational and greenspace amenities. We have removed the majority of Holden Hills Phase 2 from Austin’s ETJ pursuant to the ETJ Law, as described below, and are adjusting our development plans to benefit from the new regulatory scheme, which is expected to result in a significant increase in development density as compared to our prior plans.

Current wording

Holden Hills Phase 1 and Holden Hills Phase 2 as one interconnected development branded as Holden Hills. Holden Hills Phase 2 is being designed as a mixed-use project, including a range of commercial and extensive residential uses, surrounded by extensive outdoor recreational and greenspace amenities. We have worked to remove the majority of Holden Hills Phase 2 from Austin’s ETJ pursuant to the ETJ Law, as described below, and are working on modifications to our development plans to benefit from the new regulatory scheme, which, under favorable market and financing conditions, could accommodate an increase in design flexibility and development density as compared to our prior plans. If the new regulatory scheme survives challenge, and we are able to benefit from increased design flexibility and density, we cannot be sure whether the added infrastructure and other costs associated with redesign work and increasing density, coupled with market and financing uncertainty, will make increasing density a profitable risk-rewarded venture. Challenges to the ETJ Law and the City of Austin’s recent reversal of its prior certification of the release of Holden Hills Phases 1 and 2, are expected to cause delays in implementing development planning.

Previous wording

The Holden Hills Phase 2 partnership is working to establish a separate revolving credit facility for the Holden Hills Phase 2 project, which is expected to be sized as needed for future operating costs. The Holden Hills Phase 2 partnership intends to use the facility to reimburse Stratus for approximately $1.6 million of project costs, including certain initial project costs of approximately $0.8 million, fund the approved operating budget for 2025 and fund future partnership activities approved by the partners. Refer to Note 2 for further discussion.

Current wording

The Holden Hills Phase 2 partnership is working to establish an approximately $10.0 million revolving credit facility for the Holden Hills Phase 2 project. The Holden Hills Phase 2 partnership intends to use the facility to reimburse Stratus for approximately $3.0 million of project costs, including certain initial project costs of approximately $0.8 million, fund the approved operating budget and fund future partnership activities approved by the partners.

Previous wording

ETJ Process. 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 Phases 1 and 2, 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 Holden Hills Phases 1 and 2 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, our development plans for portions of Holden Hills Phases 1 and 2 are being adjusted. For additional discussion, refer to Part I, Item 1A. “Risk Factors” in our 2024 Form 10-K.

Current wording

ETJ Process. 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 Phases 1 and 2 from the ETJ of the City of Austin, as permitted by the ETJ Law. We have also made filings with Travis County in an effort to grandfather Holden Hills Phases 1 and 2 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. One lawsuit, initially dismissed on procedural and jurisdictional grounds, has been appealed to a three-judge appellate panel, which after hearing argument on the merits, has taken the matter under advisement. There is no certainty as to how or when the appellate court will rule. In addition, on March 13, 2026, we received a letter from the City of Austin asserting that it had made an error in certifying the release of our properties from the ETJ in March 2024. The City of Austin asserts that it recently discovered that our properties are within five miles of a specific type of military installation, which the City of Austin claims disqualifies our properties for release. We are currently reviewing potential challenges to the City of Austin’s reversal of the release of our properties from the ETJ. If the ETJ Law is upheld and the removal of our property is permitted by the City of Austin, we will work to confirm whether 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. If the ETJ Law is not upheld or the City of Austin does not permit the removal of our property from the ETJ, there may be substantial adverse impacts to our development plans, including reduction in aggregate development density, and additional cost and delay. In light of the challenges to the ETJ Law, and depending on the outcome of those challenges, our development plans for portions of Holden Hills Phases 1 and 2 may need to be modified. For additional discussion, refer to Part I, Item 1A. “Risk Factors” in our 2025 Form 10-K.

Previous wording

The Saint George is a 316-unit luxury wrap-style, multi-family project in north-central Austin. We purchased the land and entered into third-party equity financing for the project in December 2021. We entered into a construction loan for this project and began construction in third-quarter 2022. The first units were available for occupancy in April 2025 and the project was completed in second-quarter 2025. As of November 7, 2025, we had signed leases for approximately 39 percent of the units.

Current wording

The Saint George is a 316-unit luxury wrap-style, multi-family property in north-central Austin. We purchased the land and entered into third-party equity financing for the property in December 2021. We entered into a construction loan for this property and began construction in third-quarter 2022. The first units were available for occupancy in April 2025 and the property was completed in second-quarter 2025. As of April 30, 2026, approximately 82 percent of the units had been leased.

Previous wording

In April 2025, a water leak occurred at The Saint George multi-family project when construction was nearing completion and initial resident move-ins were occurring, resulting in damage that cost $1.9 million to remediate and repair. The event was filed as a builder’s risk insurance claim. Remediation and repairs were completed in second-quarter 2025. Costs of the remediation and repairs to The Saint George Apartments, L.P., to the extent not covered by the insurance company and the general contractor, are currently estimated to be no more than $1.0 million.

Current wording

In April 2025, a water leak occurred at The Saint George multi-family project when construction was nearing completion and initial resident move-ins were occurring, resulting in damage that cost $1.9 million to remediate and repair. The event was filed as a builder’s risk insurance claim. Remediation and repairs were completed in second-quarter 2025. The Saint George Apartments, L.P. will pay $1.0 million of the costs of remediation and repairs, and the remainder will be covered by insurance and the general contractor.

Previous wording

After extensive negotiation with the City of Lakeway, utility suppliers and neighboring property owners, we secured the right in 2023 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. Construction of the required road infrastructure is scheduled to commence in fourth-quarter 2025. 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. Construction of the required road infrastructure began in fourth-quarter 2025 and is expected to be completed by the end of 2026. Under our current strategy, our goal is to prepare the site for 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.

Previous wording

In third-quarter 2021, we purchased the land and announced plans for The Annie B, a proposed luxury high-rise project in downtown Austin to be developed as a 400-foot tower, consisting of approximately 420,000 square feet with 316 luxury residential units. Stratus Block 150, L.P. raised third-party equity capital and entered into a loan to finance part of the costs of land acquisition and budgeted pre-development costs for The Annie B. We continue to work to finalize our development plans and to evaluate whether the project is most profitable as a for rent or for sale product. Our goal is to commence construction as soon as financing and other market conditions warrant.

Current wording

In third-quarter 2021, we purchased the land and announced plans for The Annie B, a proposed luxury high-rise project in downtown Austin to be developed as a 400-foot tower, consisting of approximately 420,000 square feet with 316 luxury residential units. Stratus Block 150, L.P. raised third-party equity capital and entered into a loan to finance part of the costs of land acquisition and budgeted pre-development costs for The Annie B. We continue to work to finalize our development plans and to evaluate whether the project is more profitable as a for rent or for sale product. Under our current strategy, our goal is to prepare the site for construction to commence as soon as financing and other market conditions warrant.

Previous wording

We have advanced development plans for The Saint Julia, an approximately 210-unit multi-family project that is part of Lantana Place, a partially developed, mixed-use development project located south of Barton Creek in Austin. Our goal is to commence construction or sell the site, as soon as financing and/or market conditions warrant.

Current wording

We have advanced development plans for The Saint Julia, an approximately 210-unit multi-family project that is part of Lantana Place, a partially developed, mixed-use development project located south of Barton Creek in Austin. Under our current strategy, our goal is to prepare the site for construction to commence as soon as financing and/or market conditions warrant.

Previous wording

We continue to evaluate options for the 21-acre multi-family component of Jones Crossing, an H-E-B grocery anchored, mixed-use development located in College Station, Texas.

Current wording

Jones Crossing is an H-E-B-anchored, mixed-use development located in College Station, Texas, the location of Texas A&M University, that also includes a 21-acre multi-family component. During 2023, we separated the ground lease for the multi-family parcel from the primary ground lease.

Previous wording

As described above under the heading “Recent Residential Activities,” Holden Hills Phase 2 has been envisioned to include a significant commercial component. Due to the ETJ process, we are adjusting our development plans for Holden Hills Phase 2.

Current wording

As described above under the heading “Recent Residential Activities,” Holden Hills Phase 2 has been envisioned to include a significant commercial component. In light of the challenges to the ETJ Law, and depending on the outcome of those challenges, our development plans for portions of Holden Hills Phases 1 and 2 may need to be modified.

Previous wording

•Jones Crossingis part of our H-E-B-anchored mixed-use project in College Station, Texas, the location of Texas A&M University. As of September 30, 2025, 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 on approximately 22 undeveloped acres.

Current wording

As of March 31, 2026, we had signed leases for substantially all of the completed retail space in Jones Crossing, including the H-E-B grocery store, totaling 154,092 square feet, and ground leases on two retail pad sites. The retail component of Jones Crossing also includes approximately 22 undeveloped commercial acres with estimated future development potential of approximately 104,750 square feet of commercial space and up to seven retail pad sites available for lease. As previously discussed, we received an offer for the retail component of Jones Crossing for $46.5 million and are negotiating a sales contract. There can be no assurance that a sales contract will be completed or a sale consummated.

Previous wording

Our development plans for The Annie B, The Saint Julia and multi-family projects at Lakeway and College Station will require significant additional capital, which we currently intend to pursue through project-level debt and third-party equity capital arrangements through joint ventures in which we may also receive development management fees and asset management fees and potential returns increasing above our relative equity interest in certain projects as negotiated return hurdles are achieved. We are working to establish a credit facility to fund certain initial project costs and future partnership activities for Holden Hills Phase 2 and anticipate seeking additional debt to finance the future development in Holden Hills Phase 1. We are also pursuing other development projects. These potential development projects and projects in our portfolio could require extensive additional permitting and will be dependent on market conditions and financing. Because of the nature and cost of the approval and development process and uncertainty regarding market demand for a particular use, there is uncertainty regarding the nature of the final development plans and whether we will be able to successfully execute the plans.

Current wording

Our development plans for The Annie B, The Saint Julia and multi-family projects in Lakeway and College Station will require significant additional capital, which we currently intend to pursue through project-level debt and third-party equity capital arrangements through joint ventures in which we may also receive development management fees and asset management fees and potential returns increasing above our relative equity interest in certain projects as negotiated return hurdles are achieved. We are working to establish a credit facility to fund certain initial project costs and future partnership activities for Holden Hills Phase 2 and anticipate seeking additional debt to finance the future development in Holden Hills Phase 1. We are also pursuing other development projects. These potential development projects and projects in our portfolio could require extensive additional permitting and will be dependent on market conditions and financing. Because of the nature and cost of the approval and development process and uncertainty regarding market demand for a particular use, there is uncertainty regarding the nature of the final development plans and whether we will be able to successfully execute the plans.

Previous wording

Our industry has experienced construction and labor cost increases, supply chain constraints, labor shortages, higher borrowing costs and tightened bank credit. Inflation increased rapidly during 2021 through June 2022. Since June 2022, the rate of inflation generally has declined but has generally remained higher than the Federal Reserve’s target rate of inflation of two percent. 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. As inflation began to decline, the Federal Reserve began to focus on improving the labor market and price stability. Between September 2024 and September 2025, the Federal Reserve lowered the federal funds target rate by 125 basis points on a cumulative basis, and in October 2025, the Federal Reserve lowered the federal funds target rate by another 25 basis points. Elevated inflation and interest rates increase our costs of materials, services, labor and capital. Changing U.S. tariffs and trade policies commencing in the first nine months of 2025 present additional risks to our business. Refer to Part II, Item 1A. “Risk Factors” herein.

Current wording

Our industry has experienced construction and labor cost increases, supply chain constraints, labor shortages, higher borrowing costs and tightened bank credit. Inflation increased rapidly during 2021 through June 2022. Since June 2022, the rate of inflation generally has declined but has generally remained higher than the Federal Reserve’s target rate of inflation of two percent. 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. As inflation began to decline, the Federal Reserve’s policy decisions reflected a balancing of progress toward price stability with evolving labor market conditions. Between September 2024 and December 2025, the Federal Reserve lowered the federal funds target rate by 175 basis points on a cumulative basis. Elevated inflation and interest rates increased our costs of materials, services, labor and capital. Changing U.S. tariffs and trade policies commencing in 2025 present additional risks to our business. Refer to Part I, Item 1A. “Risk Factors” of our 2025 Form 10-K for further discussion.

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 and equity contributions to some of our joint ventures, and we expect to make additional operating loans and capital contributions during the next 12 months. Refer to Part I, Item 1A. “Risk Factors” of our 2024 Form 10-K and Part II, Item 1A. “Risk Factors” herein 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, advances and equity contributions to some of our joint ventures, and we expect to make additional operating loans or advances during the next 12 months. Refer to Part I, Item 1A. “Risk Factors” of our 2025 Form 10-K for more information regarding our risk factors.

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 joint ventures, refinancings or other arrangements. As a result, and because of numerous factors affecting our business activities as described herein and in our 2024 Form 10-K, our past operating results are not necessarily indicative of our future results.

Current wording

Because of numerous factors affecting our business activities as described herein, our past operating results are not necessarily indicative of our future results.

Previous wording

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

Current wording

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

Previous wording

Real Estate Operations Expenses. Real Estate Operations expenses include cost of real estate sold, property taxes and insurance, lease expense, professional fees, allocated overhead costs, other segment items and depreciation and amortization. Other segment items primarily include advertising, property owner association fees, maintenance and utilities. In second-quarter 2025, we recorded a $1.0 million charge to write off receivables, included in other assets on the consolidated balance sheet, from owners of properties previously sold by us for a share of historical costs incurred to develop the land.

Current wording

Real Estate Operations Expenses. Real Estate Operations expenses include property taxes and insurance, lease expense, professional fees, allocated overhead costs, other segment items and depreciation and amortization. Other segment items primarily include advertising, property owner association fees, maintenance and utilities.

Previous wording

Rental Revenue. For the 2025 periods, rental revenue primarily included revenue from our retail and mixed-use projects Lantana Place – Retail, Kingwood Place, Jones Crossing – Retail and West Killeen Market and our multi-family properties, The Saint June and The Saint George. In second-quarter 2025, we sold West Killeen Market and began recognizing rental revenue from The Saint George. For the 2024 periods, rental revenue primarily included revenue from our retail and mixed-use projects Lantana Place – Retail, Kingwood Place, Jones Crossing – Retail, West Killeen Market and Magnolia Place – Retail and our multi-family property, The Saint June. In third-quarter 2024, we sold Magnolia Place – Retail. The increase in rental revenue in the first nine months of 2025, compared with the first nine months of 2024, primarily reflects revenue from The Saint June, which was in the process of leasing up in the first nine months of 2024, and The Saint George, which began leasing up in second-quarter 2025, partially offset by a decrease in revenue resulting from the sales of Magnolia Place – Retail, which was sold in third-quarter 2024, and West Killeen Market, which was sold in second-quarter 2025. In October 2025, we entered into an agreement, as amended, to sell Lantana Place – Retail, which, subject to satisfaction of closing conditions, is expected to close in fourth-quarter 2025. The Lantana Place – Retail project made up approximately 26 percent of the rental revenue for each period presented.

Current wording

Rental Revenue. In first-quarter 2026, rental revenue primarily included revenue from our retail and mixed-use properties Jones Crossing – Retail and Kingwood Place (prior to its sale in January 2026) and our multi-family properties, The Saint June and The Saint George. In first-quarter 2025, rental revenue primarily included revenue from our retail and mixed-use properties Lantana Place – Retail (sold in fourth-quarter 2025), Kingwood Place, Jones Crossing – Retail and West Killeen Market (sold in second-quarter 2025) and our multi-family property, The Saint June. The decrease in rental revenue in first-quarter 2026, compared with first-quarter 2025, primarily reflects decreased revenue from Lantana Place – Retail, which was sold in fourth-quarter 2025, and Kingwood Place, which was sold in first-quarter 2026, partially offset by increased revenue from The Saint George, which began lease-up in second-quarter 2025.

Previous wording

Leasing Operations Expenses. Leasing Operations expenses include property taxes and insurance, maintenance and repairs, property management fees and payroll, utilities, other segment items and depreciation. Other segment items primarily includes amortization of leasing costs, property owner association fees, professional and consulting fees, and office and computer equipment. Increases in property taxes and insurance and depreciation in the 2025 periods were primarily attributable to the commencement of leasing operations at The Saint George in second-quarter 2025. Approximately 18 percent and 24 percent of Leasing Operations expenses (excluding gain on sale of assets) were attributable to Lantana Place – Retail for third-quarter 2025 and 2024, respectively, and approximately 20 percent for the first nine months of both 2025 and 2024.

Current wording

Leasing Operations Expenses. Leasing Operations expenses include property taxes and insurance, maintenance and repairs, property management fees and payroll, utilities, other segment items and depreciation. Other segment items primarily include amortization of leasing costs, property owner association fees, professional and consulting fees, and office and computer equipment.

Previous wording

Gain on Sale of Assets. In second-quarter 2025, we closed on the sale of the West Killeen Market project for $13.3 million. The sale generated a pre-tax gain of approximately $5.0 million. The nine months ended September 30, 2025 also includes a portion of a previously deferred gain of $0.2 million related to The Oaks at Lakeway in first-quarter 2025. In third-quarter 2024, we closed on the sale of Magnolia Place – Retail for $8.9 million. The sale generated a pre-tax gain of approximately $1.6 million. Refer to Note 4 for further discussion.

Current wording

Gain on Sale of Assets. In first-quarter 2026, we closed on the sale of Kingwood Place for $60.8 million. The sale generated a pre-tax gain of approximately $23.0 million ($13.4 million, net of noncontrolling interests). In first-quarter 2025, we recognized a portion of a previously deferred gain of $0.2 million related to The Oaks at Lakeway.

Previous wording

Capitalized interest totaled $3.1 million in third-quarter 2025 and $10.4 million for the first nine months of 2025. All of our interest costs were capitalized for both 2024 periods. Capitalized interest for the 2025 periods is primarily related to development activities at Holden Hills Phases 1 and 2. The first nine months of 2025 also included capitalized interest related to the development of The Saint George before it was completed in second-quarter 2025. Capitalized interest for the 2024 periods was primarily related to development activities at our Barton Creek properties (primarily Amarra Villas and Holden Hills Phases 1 and 2) and The Saint George.

Current wording

Substantially all interest costs were capitalized in both periods. Capitalized interest in first-quarter 2026 is primarily related to development activities at Holden Hills Phases 1 and 2. Capitalized interest in first-quarter 2025 is primarily related to development activities at Holden Hills Phases 1 and 2 and The Saint George.

Previous wording

Benefit from (Provision for) Income Taxes. We recorded a benefit from income taxes of $321 thousand in third-quarter 2025 and provision for income taxes of $166 thousand for the first nine months of 2025, compared to a provision of $58 thousand in third-quarter 2024 and $204 thousand for the first nine months of 2024. Refer to Note 8 for further discussion of income taxes.

Current wording

Provision for Income Taxes. We recorded provisions for income taxes of $2.1 million in first-quarter 2026 and $30 thousand in first-quarter 2025. Refer to Note 8 for further discussion of income taxes.

Previous wording

Comparison of Cash Flows for the Nine Months Ended September 30, 2025 and 2024

Current wording

Comparison of Cash Flows for the Three Months Ended March 31, 2026 and 2025

Previous wording

Operating Activities. Cash used in operating activities totaled $24.1 million for the first nine months of 2025, compared with $2.4 million for the first nine months of 2024. The decline in operating cash flow was primarily attributable to reduced revenue resulting from fewer property sales in the first nine months of 2025. Expenditures for purchases and development of real estate properties totaled $20.5 million for the first nine months of 2025, primarily related to development of Holden Hills Phase 1, and $22.9 million for the first nine months of 2024, primarily related to development of Amarra Villas and Holden Hills Phase 1.

Current wording

Operating Activities. Cash used in operating activities totaled $15.6 million in first-quarter 2026, compared with $13.5 million in first-quarter 2025. Expenditures for purchases and development of real estate properties totaled $7.7 million in first-quarter 2026, primarily related to development of Holden Hills Phases 1 and 2 and the road infrastructure at Lakeway, and $7.2 million in first-quarter 2025, primarily related to development of Holden Hills Phase 1. The cash outflow resulting from the decrease in accounts payable, accrued liabilities and other in first-quarter 2026 and first-quarter 2025 is primarily related to the timing of federal tax and property tax payments.

Previous wording

Financing Activities. Cash provided by financing activities totaled $53.9 million for the first nine months of 2025 and $5.3 million for the first nine months of 2024. During the first nine months of 2025, we borrowed and repaid $4.0 million on the Comerica Bank revolving credit facility. During the first nine months of 2024, we had no borrowings or repayments on the Comerica Bank revolving credit facility. During the first nine months of 2025, net borrowings on other project and term loans totaled $8.0 million, primarily reflecting borrowings from Holden Hills Phase 1 and The Saint George construction loans and the refinancing of the Lantana Place and The Saint June construction loans and the Jones Crossing loan, partially offset by the payoff of the West Killeen construction loan and the Amarra Villas credit facility and paydowns on The Annie B land loan. During the first nine months of 2024, net repayments on other project and term loans totaled $2.6 million, primarily reflecting borrowings on The Saint George and Holden Hills Phase 1 construction loans and the Amarra Villas credit facility partially offset by the payoff of the Magnolia Place construction loan and paydowns on the Amarra Villas credit facility and the Annie B land loan. Refer to “Revolving Credit Facility and Other Financing Arrangements” below for a discussion of our outstanding debt at September 30, 2025.

Current wording

Financing Activities. Cash (used in) provided by financing activities totaled $(44.5) million in first-quarter 2026 and $10.0 million in first-quarter 2025. In first-quarter 2025, we had borrowings of $4.0 million on our revolving credit facility and we had no borrowings on the facility in first-quarter 2026. In first-quarter 2026, net repayments on project and term loans totaled $32.8 million, primarily reflecting the payoff of the Kingwood Place loan in connection with its sale. In first-quarter 2025 net borrowings on project and term loans totaled $9.1 million, primarily reflecting borrowings from The Saint George and Holden Hills Phase 1 construction loans and the refinancing of the Lantana Place construction loan and the Jones Crossing loan, partially offset by paydowns on The Annie B 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, 2026.