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United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2024
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from   to
Commission file number: 001-37716
stratuslogoprintaa40.jpg
Stratus Properties Inc.
(Exact name of registrant as specified in its charter)
Delaware72-1211572
(State or other jurisdiction of(I.R.S. Employer Identification No.)
incorporation or organization) 
212 Lavaca Street, Suite 300
AustinTX78701
(Address of principal executive offices)(Zip Code)
(512) 478-5788
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.01 per shareSTRSThe NASDAQ Stock Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
☑ Yes  ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☑ Yes  ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
☐
Accelerated filer
☐
Non-accelerated filer  
☑
Smaller reporting company
☑
Emerging growth company
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☑ No
On November 8, 2024, there were 8,086,201 issued and outstanding shares of the registrant’s common stock, par value $0.01 per share.



PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

STRATUS PROPERTIES INC.
CONSOLIDATED BALANCE SHEETS (Unaudited)
(In Thousands)
September 30,
2024		December 31,
2023
ASSETS  
Cash and cash equivalents$19,638 $31,397 
Restricted cash698 1,035 
Real estate held for sale4,884 7,382 
Real estate under development261,212 260,642 
Land available for development74,912 47,451 
Real estate held for investment, net137,177 144,112 
Lease right-of-use assets10,368 11,174 
Deferred tax assets173 173 
Other assets14,118 14,400 
Total assets$523,180 $517,766 
LIABILITIES AND EQUITY  
Liabilities:
Accounts payable$12,341 $15,629 
Accrued liabilities, including taxes6,283 6,660 
Debt181,540 175,168 
Lease liabilities15,564 15,866 
Deferred gain2,131 2,721 
Other liabilities5,186 7,117 
Total liabilities223,045 223,161 
Commitments and contingencies
Equity:  
Stockholders’ equity:  
Common stock97 96 
Capital in excess of par value of common stock200,557 197,735 
Retained earnings29,108 26,645 
Common stock held in treasury(33,395)(32,997)
Total stockholders’ equity196,367 191,479 
Noncontrolling interests in subsidiaries103,768 103,126 
Total equity300,135 294,605 
Total liabilities and equity$523,180 $517,766 

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

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STRATUS PROPERTIES INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME (Unaudited)
(In Thousands, Except Per Share Amounts)
Three Months EndedNine Months Ended
September 30,September 30,
 2024202320242023
Revenues:  
Real estate operations$3,971 $— $29,723 $2,551 
Leasing operations4,920 3,669 14,165 10,450 
Total revenues8,891 3,669 43,888 13,001 
Cost of sales:
Real estate operations5,344 1,467 25,046 8,651 
Leasing operations1,964 1,381 5,384 3,786 
Depreciation and amortization1,365 967 4,168 2,865 
Total cost of sales8,673 3,815 34,598 15,302 
Gain on sale of assets(1,626)— (1,626)— 
General and administrative expenses3,363 3,183 11,670 11,973 
Total10,410 6,998 44,642 27,275 
Operating loss(1,519)(3,329)(754)(14,274)
Loss on extinguishment of debt— — (59)— 
Other income, net163 472 522 1,501 
Loss before income taxes and equity in unconsolidated affiliate's loss(1,356)(2,857)(291)(12,773)
Provision for income taxes(58)(356)(204)(2,016)
Equity in unconsolidated affiliate's loss— (4)— (10)
Net loss and total comprehensive loss(1,414)(3,217)(495)(14,799)
Total comprehensive loss attributable to noncontrolling interests1,050 373 2,958 853 
Net (loss) income and total comprehensive (loss) income attributable to common stockholders$(364)$(2,844)$2,463 $(13,946)
Basic net (loss) income per share attributable to common stockholders$(0.05)$(0.36)$0.31 $(1.74)
Diluted net (loss) income per share attributable to common stockholders:$(0.05)$(0.36)$0.30 $(1.74)
Weighted-average shares of common stock outstanding:
Basic
8,080 8,003 8,059 7,993 
Diluted8,080 8,003 8,186 7,993 
The accompanying Notes to Consolidated Financial Statements (Unaudited) are an integral part of these consolidated financial statements.
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STRATUS PROPERTIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In Thousands)
Nine Months Ended
 September 30,
 20242023
Cash flow from operating activities:  
Net loss$(495)$(14,799)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization4,168 2,865 
Cost of real estate sold19,115 2,080 
Loss on extinguishment of debt59 — 
Stock-based compensation1,314 1,479 
Debt issuance cost amortization1,028 631 
Gain on sale of assets(1,626)— 
Equity in unconsolidated affiliate’s loss— 10 
Purchases and development of real estate properties(22,925)(34,697)
Write-off of capitalized project costs721 — 
Decrease in other assets233 2,223 
(Decrease) increase in accounts payable, accrued liabilities and other(3,994)908 
Net cash used in operating activities(2,402)(39,300)
Cash flow from investing activities:
Capital expenditures(22,962)(36,178)
Proceeds from sale of assets, net of fees8,586 — 
Payments on master lease obligations(649)(730)
Other— 5 
Net cash used in investing activities(15,025)(36,903)
Cash flow from financing activities:
Borrowings from project loans27,672 41,656 
Payments on project and term loans(25,058)(8,472)
Payment of dividends(356)(678)
Finance lease principal payments(12)(11)
Stock-based awards net payments(376)(789)
Noncontrolling interest contributions
3,600 40,000 
Purchases of treasury stock— (2,064)
Financing costs(139)(2,758)
Net cash provided by financing activities5,331 66,884 
Net decrease in cash, cash equivalents and restricted cash(12,096)(9,319)
Cash, cash equivalents and restricted cash at beginning of year32,432 45,709 
Cash, cash equivalents and restricted cash at end of period$20,336 $36,390 
The accompanying Notes to Consolidated Financial Statements (Unaudited), which include information regarding noncash transactions, are an integral part of these consolidated financial statements.
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STRATUS PROPERTIES INC.
CONSOLIDATED STATEMENTS OF EQUITY (Unaudited)
(In Thousands)
 Stockholders’ Equity  
Retained Earnings (Accumulated Deficit)Common Stock
Held in Treasury		TotalNoncontrolling Interests in Subsidiaries
 Common StockCapital in Excess of Par Value 
Number
of Shares		At Par
Value		Number
of Shares		At
Cost		Total
Equity
Balance at December 31, 20239,586 $96 $197,735 $26,645 1,583 $(32,997)$191,479 $103,126 $294,605 
Vested stock-based awards78 1 (1)— — — — — — 
Director fees paid in shares of common stock— — 6 — — — 6 — 6 
Stock-based compensation— — 442 — — — 442 — 442 
Grant of restricted stock units (RSUs) under the Profit Participation Incentive Plan (PPIP)— — 1,492 — — — 1,492 — 1,492 
Tender of shares for stock-based awards
— — — — 16 (376)(376)— (376)
Excise tax on 2023 common stock repurchases— — — — — (22)(22)— (22)
Total comprehensive income (loss)— — — 4,552 — — 4,552 (855)3,697 
Balance at March 31, 20249,664 97 199,674 31,197 1,599 (33,395)197,573 102,271 299,844 
Vested stock-based awards12 — — — — — — — — 
Director fees paid in shares of common stock— — 6 — — — 6 — 6 
Stock-based compensation— — 434 — — — 434 — 434 
Total comprehensive loss— — — (1,725)— — (1,725)(1,053)(2,778)
Balance at June 30, 20249,676 97 200,114 29,472 1,599 (33,395)196,288 101,218 297,506 
Vested stock-based awards9 — — — — — — — — 
Director fees paid in shares of common stock— — 6 — — — 6 — 6 
Stock-based compensation— — 437 — — — 437 — 437 
Contributions from noncontrolling interests— — — — — — — 3,600 3,600 
Total comprehensive loss— — — (364)— — (364)(1,050)(1,414)
Balance at September 30, 20249,685 $97 $200,557 $29,108 1,599 $(33,395)$196,367 $103,768 $300,135 




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STRATUS PROPERTIES INC.
CONSOLIDATED STATEMENTS OF EQUITY (Unaudited) (Continued)
(In Thousands)
 Stockholders’ Equity  
Retained Earnings (Accumulated Deficit)Common Stock
Held in Treasury		TotalNoncontrolling Interests in Subsidiaries
 Common StockCapital in Excess of Par Value 
Number
of Shares		At Par
Value		Number
of Shares		At
Cost		Total
Equity
Balance at December 31, 20229,439 $94 $195,773 $41,452 1,448 $(30,071)$207,248 $64,825 $272,073 
Vested stock-based awards40 — — — — — — — — 
Director fees paid in shares of common stock— — 6 — — — 6 — 6 
Stock-based compensation— — 529 — — — 529 — 529 
Tender of shares for stock-based awards
— — — — 11 (216)(216)— (216)
Common stock repurchases— — — — 44 (894)(894)— (894)
Contributions from noncontrolling interests— — — — — — — 40,000 40,000 
Total comprehensive loss— — — (5,801)— — (5,801)(472)(6,273)
Balance at March 31, 20239,479 94 196,308 35,651 1,503 (31,181)200,872 104,353 305,225 
Vested stock-based awards93 2 — — — — 2 — 2 
Director fees paid in shares of common stock— — 6 — — — 6 — 6 
Stock-based compensation— — 505 — — — 505 — 505 
Tender of shares for stock-based awards— — — — 28 (573)(573)— (573)
Common stock repurchases— — — — 31 (695)(695)— (695)
Total comprehensive loss— — — (5,301)— — (5,301)(8)(5,309)
Balance at June 30, 20239,572 96 196,819 30,350 1,562 (32,449)194,816 104,345 299,161 
Vested stock-based awards14 — — — — — — — — 
Director fees paid in shares of common stock— — 6 — — — 6 — 6 
Stock-based compensation— — 468 — — — 468 — 468 
Common stock repurchases— — — — 18 (475)(475)— (475)
Total comprehensive loss— — — (2,844)— — (2,844)(373)(3,217)
Balance at September 30, 20239,586 $96 $197,293 $27,506 1,580 $(32,924)$191,971 $103,972 $295,943 

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


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STRATUS PROPERTIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1.GENERAL
The unaudited condensed consolidated financial statements and the accompanying notes are prepared in accordance with generally accepted accounting principles (GAAP) in the United States (U.S.) and should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2023, included in Stratus Properties Inc.’s (Stratus) Annual Report on Form 10-K for the year ended December 31, 2023 (Stratus 2023 Form 10-K) filed with the U.S. Securities and Exchange Commission on March 28, 2024. The information furnished herein reflects all adjustments that are, in the opinion of management, necessary for a fair statement of the results for the interim periods reported and consist of normal recurring adjustments. The results of operations for any interim period are not necessarily indicative of the results of operations for any other future interim period or for a full fiscal year.

Related Party Transactions. In April 2022, Stratus hired the son of Stratus’ President and Chief Executive Officer as an employee at an annual salary of $100 thousand. As an employee, he received the same health and retirement benefits provided to all Stratus employees, annual incentive awards and two awards under the Profit Participation Incentive Plan (PPIP). In first-quarter 2023, he received $22 thousand as an annual incentive award for 2022, and his annual salary was increased to $120 thousand. In first-quarter 2024, he received $22 thousand as an annual incentive award for 2023, and his annual salary was increased to $124 thousand. In September 2024, the employee resigned from employment with Stratus, resulting in the forfeiture of his two outstanding awards under the PPIP. Refer to Note 7 for discussion of the PPIP. For additional information regarding Stratus’ related parties, including LCHM Holdings, LLC and JBM Trust, refer to Notes 1 and 2 in the Stratus 2023 Form 10-K.

2.    EARNINGS PER SHARE
Stratus’ basic net (loss) income per share of common stock was calculated by dividing the net (loss) income attributable to common stockholders by the weighted-average shares of common stock outstanding during the period. A reconciliation of net loss and weighted-average shares of common stock outstanding for purposes of calculating diluted net (loss) income per share follows (in thousands, except per share amounts):
Three Months EndedNine Months Ended
September 30,September 30,
2024202320242023
Net loss and total comprehensive loss$(1,414)$(3,217)$(495)$(14,799)
Total comprehensive loss attributable to noncontrolling interests1,050 373 2,958 853 
Net (loss) income and total comprehensive (loss) income attributable to common stockholders$(364)$(2,844)$2,463 $(13,946)
Basic weighted-average shares of common stock outstanding
8,080 8,003 8,059 7,993 
Add shares issuable upon vesting of dilutive restricted stock units (RSUs) a
— — 127 — 
Diluted weighted-average shares of common stock outstanding
8,080 8,003 8,186 7,993 
Basic net (loss) income per share attributable to common stockholders$(0.05)$(0.36)$0.31 $(1.74)
Diluted net (loss) income per share attributable to common stockholders$(0.05)$(0.36)$0.30 $(1.74)
a.Excludes 185 thousand shares for third-quarter 2024, 178 thousand shares for third-quarter 2023 and 232 thousand shares for the first nine months of 2023 of common stock associated with RSUs that were anti-dilutive as a result of net losses. Excludes 17 thousand shares for the first nine months of 2024 of common stock associated with RSUs that were anti-dilutive.

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3.    LIMITED PARTNERSHIPS
Stratus has entered into strategic partnerships for certain development projects. Stratus, through its subsidiaries, is a partner in the following limited partnerships: The Saint George Apartments, L.P. (10.0 percent indirect equity interest), Stratus Block 150, L.P. (31.0 percent indirect equity interest), The Saint June, L.P. (34.13 percent indirect equity interest), Holden Hills, L.P. (50.0 percent indirect equity interest) and Stratus Kingwood Place, L.P. (60.0 percent indirect equity interest). For additional information regarding Stratus' partnerships, refer to Note 2 in the Stratus 2023 Form 10-K.

Operating Loans/Additional Capital Contributions to Partnerships. In 2023, Stratus 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, Stratus 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.

In June 2023, Stratus 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 originally budgeted due to interest rate increases over the past two years. In October 2023 and January 2024, Stratus 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, Stratus 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.

In September 2024, Stratus contributed additional capital of $400 thousand in cash to The Saint George Apartments, L.P., representing its 10 percent equity share, and the Class B Limited Partner contributed additional capital of $3.6 million in cash to The Saint George Apartments, L.P. to support the partnership’s ability to pay its construction loan interest, which has exceeded the amount budgeted due to interest rate increases over the past two years.

Potential Returns. The following table presents the distribution percentages for the limited partnerships in which Stratus’ potential returns may increase above its relative equity interest if certain hurdles are achieved.
Distribution Percentages
The Saint George Apartments, L.P.The Saint June, L.P.Holden Hills, L.P.Stratus Kingwood Place, L.P.
StratusThird-party Class B Limited PartnerStratusThird-party Class B Limited PartnerStratusThird-party Class B Limited PartnerStratusThird-party Class B Limited Partners
Until all partners have received a return of their capital contributions and a 9.00 percent cumulative return;10.00 %90.00 %34.13 %65.87 %50.00 %50.00 %60.00 %40.00 %
Until all partners have received an 11.00 percent cumulative return;— — — — — — 68.00 32.00 
Until the Class B limited partner has received a 12.00 percent cumulative return;20.00 80.00 44.13 55.87 55.00 45.00 — — 
Until the Class B limited partner has received an 18.00 percent cumulative return;30.00 70.00 — — — — — — 
Thereafter50.00 50.00 54.13 45.87 65.00 35.00 76.00 24.00 

Accounting for Limited Partnerships. Stratus has performed evaluations and concluded that The Saint George Apartments, L.P., Stratus Block 150, L.P., The Saint June, L.P., Stratus Kingwood Place, L.P. and Holden Hills, L.P.
8
are variable interest entities (VIEs) and that Stratus is the primary beneficiary of each VIE. Accordingly, the partnerships’ results are consolidated in Stratus’ financial statements. Stratus will continue to re-evaluate which entity is the primary beneficiary of these partnerships in accordance with applicable accounting guidance.

The cash and cash equivalents held at these limited partnerships are subject to restrictions on distribution to Stratus pursuant to the individual partnership loan agreements.

Stratus’ consolidated balance sheets include the following assets and liabilities of the partnerships, net of intercompany balances (including the operating loans made by Stratus), which are eliminated (in thousands):
September 30,
2024		December 31,
2023
Assets: a
Cash and cash equivalents$7,796 $5,531 
Restricted cash413 193 
Real estate under development135,941 140,347 
Land available for development36,403 1,911 
Real estate held for investment82,108 87,005 
Lease right-of-use assets217 420 
Other assets3,206 3,122 
Total assets266,084 238,529 
Liabilities: b
Accounts payable9,280 12,751 
Accrued liabilities, including taxes2,965 1,793 
Debt126,529 100,205 
Lease liabilities219 421 
Other liabilities276 391 
Total liabilities139,269 115,561 
Net assets $126,815 $122,968 
a.Substantially all of the assets are available to settle obligations of the partnerships only.
b.The Kingwood Place construction loan has a 25.0 percent repayment guaranty and The Saint George construction loan has a completion guaranty and a 25.0 percent repayment guaranty. The guaranty of The Saint June construction loan converted to a 50.0 percent repayment guaranty upon completion of the project in fourth-quarter 2023. All of the rest of the debt is subject to a full repayment guaranty. Certain of the guaranties terminate if the project meets specified financial and other conditions. The creditors for the remaining liabilities do not have recourse to the general credit of Stratus. See Note 6 of the Stratus 2023 Form 10-K for additional information.

4.    ASSET SALES
The Oaks at Lakeway. Stratus has remaining lease obligations pursuant to a Pad Sites Master Lease entered into in connection with the sale of The Oaks at Lakeway, as described in Note 9 of the Stratus 2023 Form 10-K under the heading “Deferred Gain on Sale of The Oaks at Lakeway.” A related contract liability is presented as a deferred gain in the consolidated balance sheets in the amount of $2.1 million at September 30, 2024 and $2.7 million at December 31, 2023. The reduction in the deferred gain balance primarily reflects Pad Sites Master Lease payments. The remaining deferred gain balance is expected to be reduced primarily by future Pad Sites Master Lease payments.
Amarra Villas. In third-quarter 2024, Stratus sold one of the Amarra Villas homes for $4.0 million. In second-quarter 2024, Stratus sold one of the Amarra Villas homes for $3.6 million. In first-quarter 2024, Stratus sold two of the Amarra Villas homes for a total of $7.6 million. In first-quarter 2023, Stratus sold one of the Amarra Villas homes for $2.5 million.
Magnolia Place. In third-quarter 2024, Stratus completed the sale of Magnolia Place – Retail for $8.9 million, generating a pre-tax net cash proceeds of approximately $8.6 million and a pre-tax gain of $1.6 million. In first-quarter 2024, Stratus 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
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$14.5 million. In connection with this sale, the Magnolia Place construction loan, which had a balance of $8.8 million, was repaid.

5.    FAIR VALUE MEASUREMENTS
Fair value accounting guidance includes a hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 inputs) and the lowest priority to unobservable inputs (Level 3 inputs).

The carrying value for certain Stratus financial instruments (i.e., cash and cash equivalents, restricted cash, accounts payable and accrued liabilities) approximates fair value because of their short-term nature and generally negligible credit losses.

The fair value of Stratus’ debt also approximates fair value, as the interest rates are variable and approximate prevailing market interest rates available for similar mortgage debt. Stratus’ debt is recorded at cost and is not actively traded. Fair value is estimated based on discounted future expected cash flows at estimated current market interest rates available for similar mortgage debt. Accordingly, Stratus’ debt is classified within Level 2 of the fair value hierarchy. The fair value of debt does not represent the amounts that will ultimately be paid upon the maturities of the loans.

6.    DEBT AND EQUITY
Debt
The components of Stratus’ debt follow (in thousands):
 September 30,
2024		December 31,
2023
Comerica Bank revolving credit facility $— $— 
Jones Crossing loan22,402 22,340 
The Annie B land loan12,556 13,983 
Construction loans:
The Saint George42,555 24,657 
The Saint June30,525 27,668 
Kingwood Place28,894 28,160 
Lantana Place
22,744 22,961 
Holden Hills12,000 5,736 
West Killeen Market
5,210 5,250 
Amarra Villas credit facility
4,654 15,682 
Magnolia Place— 8,731 
Total debt a
$181,540 $175,168 
a.Includes net reductions for unamortized debt issuance costs of $1.4 million at September 30, 2024, and $2.2 million at December 31, 2023.

Comerica Bank revolving credit facility. 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. Letters of credit, totaling $13.3 million, have been issued under the revolving credit facility, $11.0 million of which secure Stratus’ obligation to build certain roads and utilities facilities benefiting Holden Hills and Section N and $2.3 million of which secure Stratus’ obligations, which are subject to certain conditions, to construct and pay for certain utility infrastructure in Lakeway, Texas, which is expected to be utilized by the planned multi-family project on Stratus’ remaining land in Lakeway.

Jones Crossing loan. The Jones Crossing loan requires the Jones Crossing project to meet a debt service coverage ratio (DSCR) test of 1.15 to 1.00 measured quarterly, and starting June 30, 2023, on a rolling 12-month basis. If the DSCR falls below 1.15 to 1.00, a “Cash Sweep Period” (as defined in the Jones Crossing loan) results, which limits Stratus’ ability to receive cash from its Jones Crossing subsidiary. The DSCR fell below 1.15 to 1.00 in each of fourth-quarter 2022 and first-quarter 2023, and the Jones Crossing subsidiary made principal payments of $231 thousand and $1.7 million in February 2023 and May 2023, respectively, to bring the DSCR back above the threshold and a Cash Sweep Period did not occur. As permitted under the Jones Crossing loan agreement, in
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August 2023 the Jones Crossing subsidiary separated the ground lease for the multi-family parcel (the Multi-Family Phase) from the primary ground lease, and the Multi-Family Phase was released from the loan collateral. In October 2023, the Jones Crossing loan was modified effective August 1, 2023 to remove the Multi-Family Phase from certain defined terms and to revise the DSCR calculation to exclude the Multi-Family Phase from expenses on a retroactive basis beginning in second-quarter 2023. Accordingly, the DSCR met the threshold in second-quarter and third-quarter 2023. In fourth-quarter 2023, the DSCR was slightly below the threshold, and a $13 thousand principal payment was made in first-quarter 2024 to bring the DSCR back above the threshold and a Cash Sweep Period did not occur.

The Annie B land loan. In February 2024, The Annie B land loan was modified to extend the maturity to September 1, 2025, and change the interest rate to Term SOFR Rate plus 3.00 percent. Under The Annie B land loan, Term SOFR Rate is defined as one-month Term SOFR plus 0.10 percent and is subject to a floor of 0.50 percent. In connection with the modification, Stratus made a $1.4 million principal payment on the loan and is required to make another principal payment of $630 thousand in February 2025.

The Saint June construction loan. In October 2024, The Saint June construction loan was modified to (i) extend the maturity date of the loan to October 2, 2025; (ii) increase the aggregate commitment under the loan by $2.0 million to $32.3 million; (iii) decrease the interest rate applicable margin from 2.85 percent to 2.35 percent; and (iv) require payment of an exit fee for prepayments and repayments of the loan of 1.00 percent of the principal amount of such amounts repaid, subject to certain exceptions. Accordingly, the loan bears interest at the one-month Term SOFR plus 2.35 percent, subject to a 3.50 percent floor. The loan is payable in monthly installments of principal and interest of approximately $40,000, with the outstanding principal due at maturity. The Saint June, L.P. has an option to extend the maturity of the loan for an additional 12-month term if certain conditions are met.

Amarra Villas credit facility. In June 2024, the Amarra Villas credit facility was modified to, among other things, extend the maturity to June 19, 2026, change the interest rate to Term SOFR Rate plus 3.00 percent (subject to a floor of 5.00 percent) and lower the commitment amount from $18.0 million to $10.5 million. Under the Amarra Villas credit facility, Term SOFR Rate is defined as one-month Term SOFR plus 0.10 percent and is subject to a floor of 0.50 percent.

Principal paydowns occur as homes are sold, and amounts are borrowed as homes are constructed. Paydowns made in connection with a sale of an Amarra Villas home reduce the commitment amount by the amount of the payment, and such amounts may not be re-borrowed. In third-quarter 2024, Stratus made a $3.7 million principal payment on the credit facility upon the closing of a sale of one of the Amarra Villas homes. In second-quarter 2024, Stratus made a $3.5 million principal payment on the credit facility upon the closing of a sale of one of the Amarra Villas homes. In first-quarter 2024, Stratus made principal payments totaling $7.2 million on the credit facility upon the closing of the sales of two of the Amarra Villas homes. In first-quarter 2023, Stratus made a $2.2 million principal payment on the credit facility upon the closing of a sale of one of the Amarra Villas homes.

Magnolia Place construction loan. In February 2024, this loan was repaid in full in connection with the sale of approximately 47 acres of undeveloped land.

Change in benchmark interest rate on the Comerica Bank revolving credit facility and The Saint George and Holden Hills construction loans. In November 2024, in connection with the discontinuance of the BSBY benchmark rate, the benchmark interest rate on the Comerica Bank revolving credit facility and The Saint George and Holden Hills construction loans will be replaced. As adjusted, advances under the Comerica Bank revolving credit facility will bear interest at one-month Term SOFR plus 0.50 percent (with a floor of 0.00 percent), plus 4.00 percent. As adjusted, advances under The Saint George construction loan will bear interest at one-month Term SOFR plus 0.60 percent (with a floor of 0.00 percent) plus 2.35 percent. As adjusted, advances under the Holden Hills construction loan will bear interest at one-month Term SOFR plus 0.60 percent (with a floor of 0.50 percent), plus 3.00 percent.

For additional information regarding Stratus’ debt, refer to Note 6 in the Stratus 2023 Form 10-K.

Interest Expense and Capitalization. Interest costs (before capitalized interest) totaled $4.0 million in third-quarter 2024, $3.4 million in third-quarter 2023, $11.9 million for the first nine months of 2024 and $8.7 million for the first nine months of 2023. All of these 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
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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.

Equity
The Comerica Bank revolving credit facility, Amarra Villas credit facility, The Annie B land loan, The Saint George construction loan, Kingwood Place construction loan and Holden Hills construction loan require Comerica Bank’s prior written consent for any common stock repurchases in excess of $1.0 million or any dividend payments.

Dividends. On September 1, 2022, with written consent from Comerica Bank, Stratus’ Board of Directors (Board) declared a special cash dividend of $4.67 per share (totaling $40.0 million) on Stratus’ common stock, which was paid on September 29, 2022 to stockholders of record as of September 19, 2022. Accrued liabilities included $0.3 million as of September 30, 2024, and $0.6 million as of December 31, 2023, representing dividends accrued for unvested RSUs in accordance with the terms of the awards. The accrued dividends are paid to the holders of the RSUs as the RSUs vest.

Share Repurchase Programs. In 2022, with written consent from Comerica Bank, Stratus’ Board approved a share repurchase program, which authorized repurchases of up to $10.0 million of Stratus’ common stock. The repurchase program authorized Stratus, in management’s discretion, to repurchase shares from time to time, subject to market conditions and other factors. In October 2023, Stratus completed the share repurchase program. In total, Stratus acquired 389,378 shares of its common stock under the share repurchase program for a total cost of $10.0 million at an average price of $25.68 per share. As required by the Inflation Reduction Act of 2022 (IR Act), Stratus recorded $22 thousand in excise tax in first-quarter 2024 for the 2023 share repurchases. The excise tax liability is included in accrued liabilities in the consolidated balance sheet.

In November 2023, with written consent from Comerica Bank, Stratus’ Board approved a new share repurchase program, which authorizes repurchases of up to $5.0 million of Stratus’ common stock. The repurchase program authorizes Stratus, in management’s and the Capital Committee of the Board’s discretion, to repurchase shares from time to time, subject to market conditions and other factors. As of September 30, 2024, Stratus had not purchased any shares under the new program.

7.    PROFIT PARTICIPATION INCENTIVE PLAN AND LONG-TERM INCENTIVE PLAN
In July 2018, the Compensation Committee (the Committee) adopted the PPIP. In February 2023, the Committee approved the Long-term Incentive Plan (LTIP), which amends and restates the PPIP, and is effective for participation interests awarded under development projects on or after its effective date. Outstanding participation interests granted under the PPIP will continue to be governed by the terms of the prior PPIP. The PPIP and LTIP provide participants with economic incentives tied to the success of the development projects designated by the Committee as approved projects under the PPIP and LTIP. Estimates related to the awards may change over time as a result of differences between projected and actual development progress and costs, market conditions and the timing of capital transactions or valuation events. Refer to Notes 1 and 8 of the Stratus 2023 Form 10-K for further discussion.

In July 2023, Kingwood Place reached a valuation event under the PPIP and Stratus obtained an appraisal of the property to determine the payout under the PPIP. The accrued liability under the PPIP related to Kingwood Place was reduced to $1.6 million at December 31, 2023, and was settled in RSUs with a three-year vesting period awarded to eligible participants in the first quarter of 2024.

Under the terms of the PPIP and LTIP, the number of RSUs granted in connection with settlement of approved projects is determined by reference to the 12-month trailing average stock price for the year the project reaches a payment event, whereas the grant date fair value of the RSUs for accounting purposes is based on the grant date closing price.

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A summary of PPIP/LTIP costs follows (in thousands):
Three Months EndedNine Months Ended
September 30,September 30,
2024202320242023
Charged to general and administrative expense
$9 $(205)$168 $84 
Capitalized (credited) to project development costs(71)136 42 237 
Total PPIP/LTIP costs
$(62)$(69)$210 $321 

At September 30, 2024, outstanding awards under the PPIP included Amarra Villas, Jones Crossing – Retail, Magnolia Place and The Saint June, and outstanding awards under the LTIP included The Saint George. The accrued liability for the PPIP and LTIP totaled $1.8 million at September 30, 2024, and $3.1 million at December 31, 2023 (included in other liabilities).

8.    INCOME TAXES
Stratus’ accounting policy for and other information regarding its income taxes are further described in Notes 1 and 7 in the Stratus 2023 Form 10-K.

Stratus has a full valuation allowance against its U.S. Federal net deferred tax assets as of both September 30, 2024 and December 31, 2023. Stratus has recorded a deferred tax asset totaling $173 thousand at both September 30, 2024 and December 31, 2023 related to state income taxes.

In evaluating the recoverability of the remaining deferred tax assets, management considered available positive and negative evidence, giving greater weight to the uncertainty regarding projected future financial results. Upon a change in facts and circumstances, management may conclude that sufficient positive evidence exists to support a reversal of, or decrease in, the valuation allowance in the future, which would favorably impact Stratus’ results of operations. Stratus’ future results of operations may be negatively impacted by an inability to realize a tax benefit for future tax losses or for items that will generate additional deferred tax assets that are not more likely than not to be realized.

The difference between Stratus’ consolidated effective income tax rate of (70) percent for the first nine months of 2024 and the U.S. Federal statutory income tax rate of 21 percent was primarily attributable to state income taxes, noncontrolling interests in subsidiaries, the presence of a valuation allowance against its U.S. Federal net deferred tax assets as of September 30, 2024, and the executive compensation limitation. The difference between Stratus’ consolidated effective income tax rate of (16) percent for the first nine months of 2023 and the U.S. Federal statutory income tax rate of 21 percent was primarily attributable to state income taxes, noncontrolling interests in subsidiaries, the presence of a valuation allowance against its U.S. Federal net deferred tax assets as of September 30, 2023, and the executive compensation limitation.

On August 16, 2022, the IR Act was enacted in the United States. Among other provisions, the IR Act imposes a new one percent excise tax on the fair market value of net corporate stock repurchases made by covered corporations, effective for tax years beginning after December 31, 2022. Stratus recorded $22 thousand in such excise taxes in first-quarter 2024 for share repurchases in 2023. Refer to Note 6 for discussion of Stratus’ share repurchase programs.

9.    BUSINESS SEGMENTS
Stratus has two operating segments: Real Estate Operations and Leasing Operations.

The Real Estate Operations segment is comprised of Stratus’ real estate assets (developed for sale, under development and available for development), which consists of its properties in Austin, Texas (including the Barton Creek Community, which includes Section N, Holden Hills, Amarra multi-family and commercial land, Amarra Villas, Amarra Drive lots and other vacant land; the Circle C community; the Lantana community, which includes a portion of Lantana Place planned for a multi-family phase known as The Saint Julia; The Saint George; and the land for The Annie B); in Lakeway, Texas, located in the greater Austin area (Lakeway); in College Station, Texas (land for future phases of retail and multi-family development and retail pad sites at Jones Crossing); and in Magnolia, Texas (potential development of approximately 11 acres planned for future multi-family use), Kingwood, Texas (a retail pad site) and New Caney, Texas (New Caney), each located in the greater Houston area.
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The Leasing Operations segment is comprised of Stratus’ real estate assets held for investment that are leased or available for lease and includes The Saint June, West Killeen Market, Kingwood Place, the retail portion of Lantana Place, the completed retail portion of Jones Crossing, retail pad sites subject to ground leases at Lantana Place, Kingwood Place and Jones Crossing, and, prior to its sale in third-quarter 2024, the retail portion of Magnolia Place.

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

Revenues from Contracts with Customers. Stratus’ revenues from contracts with customers follow (in thousands):
Three Months EndedNine Months Ended
September 30,September 30,
2024202320242023
Real Estate Operations:
Developed property sales$3,950 $— $15,198 $2,493 
Undeveloped property sales— — 14,500 — 
Commissions and other21 — 25 58 
3,971 — 29,723 2,551 
Leasing Operations:
Rental revenue4,920 3,669 14,165 10,450 
4,920 3,669 14,165 10,450 
Total revenues from contracts with customers$8,891 $3,669 $43,888 $13,001 

Financial Information by Business Segment. Summarized financial information by segment for the three months ended September 30, 2024, based on Stratus’ internal financial reporting system utilized by its chief operating decision maker, follows (in thousands):
Real Estate
Operations a
Leasing Operations
Corporate, Eliminations and Other b
Total
Revenues:
Unaffiliated customers$3,971 $4,920 $— $8,891 
Cost of sales, excluding depreciation and amortization
(5,344)(1,964)— (7,308)
Depreciation and amortization(48)(1,333)16 (1,365)
Gain on sale of assets c
— 1,626 — 1,626 
General and administrative expenses— — (3,363)(3,363)
Operating (loss) income$(1,421)$3,249 $(3,347)$(1,519)
Capital expenditures and purchases and development of real estate properties
$6,608 $6,820 $— $13,428 
Total assets at September 30, 2024 d
349,701 154,257 19,222 523,180 
a.Includes sales commissions and other revenues together with related expenses.
b.Includes consolidated general and administrative expenses and eliminations of intersegment amounts.
c.Represents a pre-tax gain on the sale of Magnolia Place – Retail in third-quarter 2024 of $1.6 million.
d.Corporate, eliminations and other includes cash and cash equivalents and restricted cash of $18.7 million. The remaining cash and cash equivalents and restricted cash is reflected in the operating segments’ assets.
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Summarized financial information by segment for the three months ended September 30, 2023, based on Stratus’ internal financial reporting system utilized by its chief operating decision maker, follows (in thousands):
Real Estate
Operations a
Leasing Operations
Corporate, Eliminations and Other b
Total
Revenues:
Unaffiliated customers$— $3,669 $— $3,669 
Cost of sales, excluding depreciation and amortization
(1,467)(1,381)— (2,848)
Depreciation and amortization(38)(934)5 (967)
General and administrative expenses— — (3,183)(3,183)
Operating (loss) income$(1,505)$1,354 $(3,178)$(3,329)
Capital expenditures and purchases and development of real estate properties
$13,613 $12,701 $— $26,314 
Total assets at September 30, 2023 c
302,927 164,565 34,529 502,021 
a.Includes sales commissions and other revenues together with related expenses.
b.Includes consolidated general and administrative expenses and eliminations of intersegment amounts.
c.Corporate, eliminations and other includes cash and cash equivalents and restricted cash of $34.3 million. The remaining cash and cash equivalents and restricted cash is reflected in the operating segments’ assets.

Summarized financial information by segment for the first nine months ended September 30, 2024, based on Stratus’ internal financial reporting system utilized by its chief operating decision maker, follows (in thousands):
Real Estate
Operations a
Leasing Operations
Corporate, Eliminations and Other b
Total
Revenues:
Unaffiliated customers$29,723 $14,165 $— $43,888 
Cost of sales, excluding depreciation and amortization
(25,046)(5,384)— (30,430)
Depreciation and amortization(136)(4,080)48 (4,168)
Gain on sale of assets c
— 1,626 — 1,626 
General and administrative expenses— — (11,670)(11,670)
Operating income (loss)$4,541 $6,327 $(11,622)$(754)
Capital expenditures and purchases and development of real estate properties
$22,925 $22,962 $— $45,887 
a.Includes sales commissions and other revenues together with related expenses.
b.Includes consolidated general and administrative expenses and eliminations of intersegment amounts.
c.Represents a pre-tax gain on the sale of Magnolia Place – Retail in third-quarter 2024 of $1.6 million.

Summarized financial information by segment for the first nine months ended September 30, 2023, based on Stratus’ internal financial reporting system utilized by its chief operating decision maker, follows (in thousands):
Real Estate
Operations a
Leasing Operations
Corporate, Eliminations and Other b
Total
Revenues:
Unaffiliated customers$2,551 $10,450 $— $13,001 
Cost of sales, excluding depreciation and amortization
(8,651)

(3,786)— (12,437)
Depreciation and amortization(115)(2,764)14 (2,865)
General and administrative expenses— — (11,973)(11,973)
Operating (loss) income$(6,215)$3,900 $(11,959)$(14,274)
Capital expenditures and purchases and development of real estate properties
$34,697 $36,178 $— $70,875 
a.Includes sales commissions and other revenues together with related expenses.
b.Includes consolidated general and administrative expenses and eliminations of intersegment amounts.
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10.    SUBSEQUENT EVENTS
Stratus evaluated events after September 30, 2024, and through the date the financial statements were issued, and determined any events or transactions occurring during this period that would require recognition or disclosure are appropriately addressed in these financial statements.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

In Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A), “we,” “us,” “our” and “Stratus” refer to Stratus Properties Inc. and all entities owned or controlled by Stratus Properties Inc. You should read the following discussion in conjunction with our consolidated financial statements and accompanying notes, related MD&A and discussion of our business and properties included in our Annual Report on Form 10-K for the year ended December 31, 2023 (2023 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 2023 Form 10-K for further discussion). All subsequent references to “Notes” refer to Notes to Consolidated Financial Statements (Unaudited) located in Part I, Item 1. “Financial Statements” herein, unless otherwise stated.

OVERVIEW

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

BUSINESS STRATEGY

Our primary business objective is to create value for stockholders by methodically developing and enhancing the value of our properties and then selling them or holding them for lease. We endeavor to sell properties at times when we believe market conditions are favorable to us. We are focused on the development of pure residential and residential-centric mixed-use projects in Austin and other select markets in Texas, which we believe continue to be attractive locations. Our successful development program of securing and maintaining development entitlements, developing and stabilizing properties, and selling them or holding them as part of our leasing operations is a key element of our strategy. We may also seek to refinance properties, in order to benefit from, when available, an increase in the value of the property or from lower interest rates, or for other reasons.

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.

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.

Our main sources of revenue and cash flow are expected to be sales of our properties to third parties or distributions from joint ventures, the timing of and proceeds from which are difficult to predict and depend on market conditions and other factors. We also generate cash flow from rental income in our leasing operations and from development and asset management fees received from our properties. Due to the nature of our development-focused business, we do not expect to generate sufficient recurring cash flow to cover our general and administrative expenses each period. However, we believe that the unique nature and location of our assets, and our team’s ability to execute successfully on development projects, have provided and will continue to provide us
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with positive cash flows and net income over time, as evidenced by our sales of The Santal and The Saint Mary in 2021 and Block 21 in 2022, the cash distribution from the Holden Hills partnership in 2023 and our property sales in 2024. Further, we believe our investment strategy, current liquidity and portfolio of projects provide us with many opportunities to increase value for our stockholders.

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.

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.

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.

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.

Although 2023 and the first nine months 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, the Federal Reserve lowered interest rates in September 2024 for the first time in four years, lowered interest rates again in November 2024, and there could be additional cuts in the future. In October 2024, we extended the maturity of The Saint June construction loan at a lower rate and with additional proceeds of approximately $1.5 million after closing costs. We are currently discussing options to refinance the Kingwood Place construction loan, the Lantana Place construction loan and the Jones Crossing loan, with the expectation of tighter spreads and with potential additional proceeds. We expect to refinance the Kingwood Place construction loan on or before the December 6, 2024 maturity date. 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
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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.

OVERVIEW OF FINANCIAL RESULTS

Sources of Revenue and Income. Our Real Estate Operations segment encompass our activities associated with our entitlement, development, and sale of real estate. The current focus of our real estate operations is multi-family and single-family residential properties and residential-centric mixed-use properties. We may sell or lease the properties we develop, depending on market conditions. Multi-family and retail rental properties that we develop are reclassified to our Leasing Operations segment when construction is completed and they are ready for occupancy. Revenue in our Real Estate Operations segment may be generated from the sale of properties that are developed, undeveloped or under development, depending on market conditions. Developed property sales can include an individual tract of land that has been developed and permitted for residential use, or a developed lot with a residence already built on it. In addition to our developed properties, we have a development portfolio that consists of approximately 1,600 acres of commercial and multi-family and single-family residential projects under development or undeveloped land held for future use.

Revenue in our Leasing Operations 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.

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.

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.

RECENT DEVELOPMENT ACTIVITIES

Recent Residential Activities

The discussion below focuses on our recent significant residential activity. For a description of our properties containing additional information, refer to Items 1. and 2. “Business and Properties” and to “Recent Development Activities” in MD&A in our 2023 Form 10-K.

Barton Creek
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
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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.

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.

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

We entered into a limited partnership agreement with a third-party equity investor for this project in January 2023, and in February 2023 obtained construction financing for Phase I of the project and commenced infrastructure construction. Construction is progressing well for Holden Hills’ road and utility infrastructure. We are currently continuing development of Phase I of our Holden Hills project according to our previously disclosed plans and anticipate that we could start building homes and/or selling home sites in late 2025, assuming regulators timely fulfill their permit processing obligations. As a result of the ETJ (as defined below) process described below, our development plans for Holden Hills are under review. For additional discussion, refer to Items 1. and 2. “Business and Properties” in our 2023 Form 10-K.

Section N. Using an entitlement strategy similar to that used for Holden Hills, we continue to progress the development plans for Section N, our approximately 570-acre tract located along Southwest Parkway in the southern portion of the Barton Creek community adjacent to Holden Hills. We are designing a mixed-use project, with extensive residential uses, coupled with limited entertainment and hospitality uses, surrounded by extensive outdoor recreational and greenspace amenities, which is expected to result in a significant increase in development density as compared to our prior plans. In addition, due to the ETJ process described below, our development plans for Section N are under review.

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.

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

Lakeway Multi-Family
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.

The Annie B
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
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with 316 luxury residential units. 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.

Magnolia Place
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).

Other Residential
We have advanced development plans for The Saint Julia, an approximately 300-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.

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. During 2023, we separated the ground lease for the multi-family parcel from the primary ground lease.

Recent Commercial Activities

The discussion below focuses on our recent significant commercial activity. For a description of our properties containing additional information, refer to Items 1. and 2. “Business and Properties” and to “Recent Development Activities” in MD&A in our 2023 Form 10-K.

Section N
As described above under the heading “Recent Residential Activities,” our Section N project has been envisioned to include a significant commercial component. Due to the ETJ process, our development plans for Section N are under review.

Stabilized Retail Projects
As of September 30, 2024, we also owned and operated the following stabilized retail projects that we developed:
•West Killeen Market is our H-E-B shadow-anchored retail project in West Killeen, Texas, near Fort Cavazos. As of September 30, 2024, we had signed leases for approximately 74 percent of the 44,493-square-foot retail space.
•Jones Crossing - Retail is 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, 2024, we had signed leases for substantially all of the completed retail space, including the H-E-B grocery store, totaling 154,092 square feet, and a ground lease on one retail pad site. Four retail pad sites remain available for lease. The Jones Crossing site has additional commercial development potential of approximately 104,750 square feet of commercial space.
•Lantana Place – Retail is part of our mixed-use development project within the Lantana community south of Barton Creek in Austin, Texas. As of September 30, 2024, we had signed leases for substantially all of the 99,377-square-foot retail space, including the anchor tenant, Moviehouse & Eatery, and a ground lease for an AC Hotel by Marriott that opened in November 2021.
•Kingwood Place is our H-E-B-anchored, mixed-use development project in Kingwood, Texas (in the greater Houston area). We have constructed 151,877 square feet of retail space at Kingwood Place, including an H-E-B grocery store. As of September 30, 2024, we had signed leases for substantially all of the retail space, including the H-E-B grocery store. We have also signed ground leases on four of the retail pad sites. One retail pad site remains available for lease.
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
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exploring the sales of West Killeen Market, Lantana Place – Retail and Kingwood Place, deciding to retain these cash-flowing properties at this time.

Potential Development Projects and Pipeline

Our development plans for The Annie B, Section N and The Saint Julia 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 receive development management fees and asset management fees and with our potential returns increasing above our relative equity interest in each project as negotiated return hurdles are achieved. We anticipate seeking additional debt to finance the development of Phase II of Holden Hills. 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.

Market Conditions

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.

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.

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.

RESULTS OF OPERATIONS

We are continually evaluating the development and sale potential of our properties and will continue to consider opportunities to enter into transactions involving our properties, including possible sales, joint ventures, 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.
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The following table summarizes our operating results (in thousands):
Three Months EndedNine Months Ended
 September 30,September 30,
 2024202320242023
Operating (loss) income:  
Real Estate Operations a
$(1,421)$(1,505)$4,541 $(6,215)
Leasing Operations 3,249 1,354 6,327 3,900 
Corporate, eliminations and other b
(3,347)(3,178)(11,622)(11,959)
Operating loss(1,519)(3,329)(754)(14,274)
Total comprehensive loss attributable to noncontrolling interests1,050 373 2,958 853 
Net (loss) income attributable to common stockholders
$(364)$(2,844)$2,463 $(13,946)
a.Includes sales commissions and other revenues together with related expenses.
b.Includes consolidated general and administrative expenses and eliminations of intersegment amounts.

We have two operating segments: Real Estate Operations and Leasing Operations (refer to Note 9). The following is a discussion of our operating results by segment.

Real Estate Operations
The following table summarizes our Real Estate Operations segment results (in thousands):
Three Months EndedNine Months Ended
 September 30,September 30,
 2024202320242023
Revenues:  
Developed property sales$3,950 $— $15,198 $2,493 
Undeveloped property sales— — 14,500 — 
Commissions and other21 — 25 58 
Total revenues3,971 — 29,723 2,551 
Cost of sales, excluding depreciation and amortization(5,344)(1,467)(25,046)(8,651)
Depreciation and amortization(48)(38)(136)(115)
Operating (loss) income$(1,421)$(1,505)$4,541 $(6,215)

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Developed Property Sales. The following tables summarize our developed property sales (dollars in thousands):
Three Months Ended September 30,
 20242023
 Homes