Stratus Properties Inc.
11/12/2025 | Press release | Distributed by Public on 11/12/2025 15:27
Quarterly Report for Quarter Ending September 30, 2025 (Form 10-Q)
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, 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.
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 1,500 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, 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.
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.
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.
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.
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.
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.
The Federal Reserve lowered interest rates in September 2024 for the first time in four years, and lowered interest rates again in November and December 2024 and in September and October 2025. We took advantage of lower interest rates and the success of our projects to refinance or amend certain of our project loans. In fourth-quarter 2024 and again in September 2025, we extended the maturity of The Saint June construction loan for additional one-year terms at lower rates and generated aggregate additional cash proceeds of approximately $2.8 million after closing costs. We also refinanced the Kingwood Place construction loan with a three-year term loan at a lower rate and generated additional cash proceeds of approximately $2.0 million after partnership expenses, closing costs and distributions to noncontrolling interest holders. In January 2025, we refinanced the Lantana Place construction loan with a four-year term loan at a lower rate and generated additional cash proceeds of approximately $3.0 million after property taxes and closing costs. In March 2025, we refinanced the Jones Crossing loan with a three-year term loan at a lower rate and generated additional cash proceeds of approximately $1.2 million after closing costs. In March 2025, we amended our revolving credit facility, extending the term and lowering the interest rate.
During 2024, we sold 47 acres of undeveloped land at Magnolia Place for $14.5 million and also sold Magnolia Place - Retail for $8.9 million. We sold five homes at Amarra Villas for a total of $18.9 million and one Amarra Drive Phase III lot for $1.4 million. Also, in 2024, among other things, we completed the lease-up of The Saint June multi-family project, completed construction of six Amarra Villas homes, continued construction on The Saint George multi-family project and advanced road and utility infrastructure construction on Holden Hills Phase 1.
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.
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.
OVERVIEW OF FINANCIAL RESULTS
Sources of Revenue and Income. Stratus has two operating segments: Real Estate Operations and Leasing Operations. We operate primarily in Austin, Texas and in other select markets in Texas.
Our Real Estate Operations segment encompasses our activities associated with our entitlement, development, and sale of real estate. The current focus of our Real Estate Operations segment 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 1,500 acres of commercial and multi-family and single-family residential projects under development or undeveloped land held for future use. Our Real Estate Operations segment does not have exposure to office space.
Revenue in our Leasing Operations segment is generated from leasing space at retail and mixed-use properties and residences in the multi-family properties 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 2025.Our revenues totaled $5.0 million in third-quarter 2025 and $21.6 million for the first nine months of 2025, compared with $8.9 million in third-quarter 2024 and $43.9 million for the first nine months of 2024. The decreases in revenues for the three and nine-month periods were due to decreases in revenues in our Real Estate Operations segment, as revenues from our Leasing Operations segment were consistent for these periods. The $3.9 million decrease in revenues in our Real Estate Operations segment in third-quarter 2025, compared to third-quarter 2024, was primarily a result of the sale of one Amarra Villas home for $4.0 million in third-quarter 2024 compared to no sales in third-quarter 2025. The $22.9 million decrease in revenues from our Real Estate Operations segment in the first nine months of 2025, compared to the first nine months of 2024, was 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 sales of two Amarra Villas homes in the first nine months of 2025 for $6.8 million.
During the nine months ended September 30, 2025, we recorded an approximately $5.0 million pre-tax gain on the sale of West Killeen Market. In third-quarter 2024, we recorded an approximately $1.6 million pre-tax gain on the sale of Magnolia Place - Retail. In third-quarter 2025, we terminated a lease for a potential development project in Austin, Texas, and recorded a charge to professional fees of approximately $2.8 million representing previously capitalized architectural, engineering and consulting fees incurred in connection with planning and evaluating the potential project and fees previously paid to the lessor to extend the review period. In third-quarter 2024, we recorded a charge to professional fees of approximately $721 thousand to write off previously capitalized costs related to a change in development plans for one property. The formation of the Holden Hills Phase 2 partnership also contributed to the increase in professional fees and allocated overhead costs in our Real Estate Operations segment in the first nine months of 2025, compared to the first nine months of 2024. In addition, in second-quarter 2025, we recorded a $1.0 million charge in our Real Estate Operations segment related to a write-off as described further below. Refer to "Results of Operations" below for further discussion of our segments.
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.
During the first nine months of 2025, our cash and cash equivalents increased substantially, primarily due to the receipt of a $47.8 million distribution from the formation of the Holden Hills Phase 2 partnership. Refer to Note 3 for further discussion.
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 2024 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 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.
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.
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.
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.
Further, we entered into a development agreement with the Holden Hills Phase 1 partnership (Development Agreement) pursuant to which, as part of the road and utility infrastructure, the Holden Hills Phase 1 partnership has constructed certain street, drainage, water, sidewalk, electric and gas improvements in order to extend the Tecoma Circle roadway on Holden Hills Phase 2 land from its previous terminus to Southwest Parkway (the Tecoma Improvements). As of September 30, 2025, our share of the estimated remaining costs of the completed Tecoma Improvements, primarily the required landscaping, is $346 thousand.
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.
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.
We entered into a limited partnership agreement with a third-party equity investor in June 2025 (the Holden Hills Phase 2 partnership) for the development of Holden Hills Phase 2 (Holden Hills Phase 2 project). We contributed to the Holden Hills Phase 2 partnership the Holden Hills Phase 2 land and related personal property at an agreed value of approximately $95.7 million, and our 50.0 percent partner contributed $47.8 million in cash. Immediately thereafter, the Holden Hills Phase 2 partnership distributed $47.8 million of cash to us. We consolidate the Holden Hills Phase 2 partnership; therefore, our contribution of the Holden Hills Phase 2 land and related personal property was recorded at historical cost and the contribution from our partner was accounted for as a noncontrolling interest contribution. The initial purposes of the Holden Hills Phase 2 partnership do not include the development or construction of horizontal or vertical improvements (each, a future project) and the commencement of any future project will require the approval of all partners.
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.
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.
The Saint George
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.
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.
Lakeway Multi-Family
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.
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 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.
Magnolia Place
In first-quarter 2024, we completed the sale of 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 these sales, we retained our potential development of approximately 11 acres planned for 275 multi-family units and approximately $12 million of costs potentially reimbursable in the future by the Magnolia MUD.
Other Residential
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.
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.
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 2024 Form 10-K.
Holden Hills Phase 2
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.
Stabilized Retail Projects
As of September 30, 2025, we also owned and operated the following stabilized retail projects that we developed:
•Jones Crossing 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, 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.
•Lantana Place is part of our mixed-use development project within the Lantana community south of Barton Creek in Austin, Texas. As of September 30, 2025, 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. In October 2025, we entered into an agreement, as amended, to sell Lantana Place - Retail for approximately $57.4 million. Subject to satisfaction of closing conditions, the sale is expected to close in fourth-quarter 2025. Using the proceeds from the sale, we expect to repay the project loan with an approximately $29.8 million principal balance as of September 30, 2025. Following the sale, we would retain the property planned for The Saint Julia (discussed above).
•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, 2025, 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.
In third-quarter 2024, we completed the sale of Magnolia Place - Retail for $8.9 million, generating pre-tax net cash proceeds of approximately $8.6 million and a pre-tax gain of $1.6 million.
In second-quarter 2025, we completed the sale of the West Killeen Market retail project for $13.3 million, generating pre-tax net cash proceeds of approximately $7.8 million, after transaction expenses and payment of the remaining $5.2 million project loan, and a pre-tax gain of approximately $5.0 million.
We have engaged a broker to explore the potential sale of Kingwood Place, subject to market conditions.
Potential Development Projects and Pipeline
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.
Market Conditions
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.
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.
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. The expanding economy resulted in rising demand for residential housing and retail services. This surge in population growth spurred a rapid increase in multi-family construction which caused rental rates in 2024 to drop from the previous year while occupancy rates have remained high. 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. Despite macroeconomic challenges, we continue to see reasons for optimism regarding real estate market conditions in our Texas markets over the next 12 months, as rents have been strong at The Saint June, absorption of new downtown Austin multi-family units has been encouraging and we continue to see some opportunities for sales transactions for our properties.
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 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.
The following table summarizes our operating results (in thousands):
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| September 30, | September 30, | ||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||
| Operating (loss) income: | |||||||||||||||||||||||
|
Real Estate Operations a
|
$ | (4,544) | $ | (1,421) | $ | (9,582) | $ | 4,541 | |||||||||||||||
|
Leasing Operations b
|
317 | 3,265 | 8,609 | 6,375 | |||||||||||||||||||
|
General and administrative expensesc
|
(3,866) | (3,363) | (11,474) | (11,670) | |||||||||||||||||||
| Operating loss | (8,093) | (1,519) | (12,447) | (754) | |||||||||||||||||||
| Net loss | (8,007) | (1,414) | (14,059) | (495) | |||||||||||||||||||
|
Net (loss) income attributable to common stockholders
|
$ | (4,978) | $ | (364) | $ | (7,593) | $ | 2,463 | |||||||||||||||
a.Includes sales commissions and other revenues together with related expenses. The three and nine-month periods ended September 30, 2025 include a charge of approximately $2.8 million representing previously capitalized architectural, engineering and consulting fees incurred in connection with planning and evaluating a potential project that was terminated in third-quarter 2025. The nine-month period ended September 30, 2025 includes 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.
b.The nine-month period ended September 30, 2025 includes an approximately $5.0 million pre-tax gain on the sale of the West Killeen Market retail project and a portion of a previously deferred gain of $0.2 million related to The Oaks at Lakeway. The three- and nine-month periods ended September 30, 2024 include a pre-tax gain on the sale of Magnolia Place - Retail for $1.6 million. Refer to Note 4 for further discussion.
c.Includes employee compensation and other costs.
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.
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.
Real Estate Operations
The following table summarizes our Real Estate Operations segment results (in thousands):
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| September 30, | September 30, | ||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||
| Revenues: | |||||||||||||||||||||||
| Developed property sales | $ | - | $ | 3,950 | $ | 6,760 | $ | 15,198 | |||||||||||||||
| Undeveloped property sales | - | - | - | 14,500 | |||||||||||||||||||
| Commissions and other | 45 | 21 | 108 | 25 | |||||||||||||||||||
| Total revenues | 45 | 3,971 | 6,868 | 29,723 | |||||||||||||||||||
| Segment expenses: | |||||||||||||||||||||||
| Cost of real estate sold | - | (3,266) | (6,244) | (20,388) | |||||||||||||||||||
| Property taxes and insurance | (354) | (303) | (1,096) | (925) | |||||||||||||||||||
| Lease expense | (285) | (285) | (855) | (855) | |||||||||||||||||||
| Professional fees | (3,191) | (1,074) | (4,360) | (1,702) | |||||||||||||||||||
| Allocated overhead costs | (337) | (239) | (1,883) | (741) | |||||||||||||||||||
| Other segment items | (374) | (177) | (1,868) | (435) | |||||||||||||||||||
| Depreciation and amortization | (48) | (48) | (144) | (136) | |||||||||||||||||||
| Operating (loss) income | $ | (4,544) | $ | (1,421) | $ | (9,582) | $ | 4,541 | |||||||||||||||
Developed Property Sales. The following tables summarize our developed property sales (dollars in thousands):
| Three Months Ended September 30, | |||||||||||||||||||||||||||||||||||
| 2025 | 2024 | ||||||||||||||||||||||||||||||||||
| Homes | Revenues | Average Cost Per Home | Homes | Revenues | Average Cost Per Home | ||||||||||||||||||||||||||||||
| Barton Creek | |||||||||||||||||||||||||||||||||||
| Amarra Drive: | |||||||||||||||||||||||||||||||||||
| Amarra Villas homes | - | $ | - | $ | - | 1 | $ | 3,950 | $ | 3,266 | |||||||||||||||||||||||||
| Total Residential | - | $ | - | 1 | $ | 3,950 | |||||||||||||||||||||||||||||
| Nine Months Ended September 30, | |||||||||||||||||||||||||||||||||||
| 2025 | 2024 | ||||||||||||||||||||||||||||||||||
| Homes | Revenues | Average Cost Per Home | Homes | Revenues | Average Cost Per Home | ||||||||||||||||||||||||||||||
| Barton Creek | |||||||||||||||||||||||||||||||||||
| Amarra Drive: | |||||||||||||||||||||||||||||||||||
| Amarra Villas homes | 2 | $ | 6,760 | $ | 3,124 | 4 | $ | 15,198 | $ | 3,173 | |||||||||||||||||||||||||
| Total Residential | 2 | $ | 6,760 | 4 | $ | 15,198 | |||||||||||||||||||||||||||||
The decrease in revenues from developed property sales for third-quarter 2025, compared to third-quarter 2024, reflects the sale of one Amarra Villas homes in third-quarter 2024 for $4.0 million compared to no sales in third-quarter 2025. The decrease in revenues for the first nine months of 2025 compared to the first nine months of 2024, reflects the sales of two Amarra Villas homes for $6.8 million in the 2025 period compared to the sales of four Amarra Villas homes for a total of $15.2 million in the 2024 period.
Undeveloped Property Sales. In first-quarter 2024, we completed the sale of approximately 47 acres of undeveloped land at Magnolia Place that was planned for a second phase of retail development, all remaining pad sites and up to 600 multi-family units, for $14.5 million.
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.
Cost of real estate sold is directly related to property sales. Cost of real estate sold decreased $3.3 million in third-quarter 2025, compared to third-quarter 2024, primarily due to the sale of one Amarra Villas home in third-quarter 2024 compared to no sales in third-quarter 2025. Cost of real estate sold decreased $14.1 million in the first nine months of 2025, compared to the first nine months of 2024, primarily due to the sales of two Amarra Villas homes in the 2025 period compared to the sale of undeveloped property at Magnolia Place and the sales of four Amarra Villas homes in the 2024 period.
In third-quarter 2025, we terminated a lease for a potential development project in Austin, Texas, and recorded a charge to professional fees of approximately $2.8 million representing previously capitalized architectural, engineering and consulting fees incurred in connection with planning and evaluating the potential project and fees previously paid to the lessor to extend the review period. In third-quarter 2024, we recorded a charge to professional fees of approximately $721 thousand to write off previously capitalized costs related to a change in development plans for one property. The formation of the Holden Hills Phase 2 partnership also contributed to the increase in professional fees and allocated overhead costs in our Real Estate Operations segment in the first nine months of 2025, compared to the first nine months of 2024.
Leasing Operations
The following table summarizes our Leasing Operations segment results (in thousands):
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| September 30, | September 30, | ||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||
| Rental revenue | $ | 4,924 | $ | 4,920 | $ | 14,749 | $ | 14,165 | |||||||||||||||
| Expenses: | |||||||||||||||||||||||
| Property taxes and insurance | (1,197) | (770) | (2,927) | (2,268) | |||||||||||||||||||
| Maintenance and repairs | (530) | (522) | (1,536) | (1,376) | |||||||||||||||||||
| Property management fees and payroll | (330) | (259) | (904) | (672) | |||||||||||||||||||
| Utilities | (228) | (162) | (452) | (343) | |||||||||||||||||||
| Other segment items | (298) | (251) | (823) | (725) | |||||||||||||||||||
| Depreciation | (2,024) | (1,317) | (4,698) | (4,032) | |||||||||||||||||||
| Gain on sale of assets | - | 1,626 | 5,200 | 1,626 | |||||||||||||||||||
| Operating income | $ | 317 | $ | 3,265 | $ | 8,609 | $ | 6,375 | |||||||||||||||
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.
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.
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.
Non-Operating Results
Interest Expense, Net.Interest costs (before capitalized interest) totaled $3.8 million in third-quarter 2025 and $11.5 million for the first nine months of 2025, compared with $4.0 million in third-quarter 2024 and $11.9 million for the first nine months of 2024. As of September 30, 2025, all of our debt was variable-rate debt, and for all of such debt, the interest rates have decreased over the past year primarily from amending or refinancing loans with lower rates over the last nine months as well as overall interest rates declining.
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.
Other (Loss) Income, Net. Other (loss) income, net in the first nine months of 2025 includes a $1.0 million charge to record the estimated cost to The Saint George Apartments, L.P., of the repair of the damage caused by a water leak in second-quarter 2025.
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.
Total Comprehensive Loss Attributable to Noncontrolling Interests in Subsidiaries. Our partners' share of losses totaled $3.0 million in third-quarter 2025 and $6.5 million for the first nine months of 2025, compared to $1.1 million in third-quarter 2024 and $3.0 million for the first nine months of 2024. The increases in both periods were primarily due to the initial operating expenses for The Saint George Apartments, L.P., which was completed in second-quarter 2025.
CAPITAL RESOURCES AND LIQUIDITY
Volatility in the real estate market, including the markets in which we operate, can impact the timing of and proceeds received from sales of our properties, which may cause uneven cash flows from period to period. However, we believe that the unique nature and location of our assets will provide us positive cash flows over time.
Comparison of Cash Flows for the Nine Months Ended September 30, 2025 and 2024
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.
Investing Activities. Cash provided by (used in) investing activities totaled $4.6 million for the first nine months of 2025 and $(15.0) million for the first nine months of 2024. The first nine months of 2025 includes proceeds after transaction costs from the sale of West Killeen Market of $13.0 million. Also, during the first nine months of 2025, our investing cash flows included $0.4 million of Barton Creek MUD reimbursements of infrastructure costs incurred for development of The Saint June. Capital expenditures totaled $8.1 million for the first nine months of 2025, primarily for The Saint George, and $23.0 million for the first nine months of 2024, primarily for The Saint George and to a lesser extent for tenant improvements at Lantana Place - Retail.
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.
During the first nine months of 2025, we received a contribution of $47.8 million from a noncontrolling interest holder related to the Holden Hills Phase 2 partnership. Also, during the first nine months of 2025, in connection with the refinancing of the Kingwood Place construction loan in November 2024, which generated additional cash proceeds, we paid distributions of $856 thousand to noncontrolling interest holders. During the first nine months of 2025, the Class B limited partner contributed additional cash of $2.9 million in cash to The Saint George Apartments, L.P., representing its 90 percent share to support the partnership's ability to pay debt service and project costs, including costs related to water leak damage remediation and repairs as described in "Recent Development Activities." During the first nine months of 2024, the Class B limited partner contributed additional capital of $3.6 million in cash to The Saint George Apartments, L.P., representing its 90 percent share to support the partnership's ability to pay its construction loan interest.
On September 1, 2022, after receiving written consent from Comerica Bank, our Board declared a special cash dividend of $4.67 per share (totaling $40.0 million) on our common stock, which was paid on September 29, 2022 to stockholders of record as of September 19, 2022. During the first nine months of 2025, $246 thousand of accrued dividends for unvested RSUs were paid to the holders upon the vesting of the RSUs, leaving $18 thousand of dividends accrued for unvested RSUs presented in accrued liabilities as of September 30, 2025. The remaining accrued dividends will be paid to the holders of the RSUs as the RSUs vest.
In November 2023, with written consent from Comerica Bank, our Board approved a new share repurchase program, which authorized repurchases of up to $5.0 million of our common stock. In June 2025, with written consent from Comerica Bank, our Board approved an increase in the share repurchase program from up to $5.0 million to up to $25.0 million of our common stock. The repurchase program authorizes us, in management's and the Capital Committee of the Board's discretion, to repurchase shares from time to time, subject to market conditions and other factors. The timing, price and number of shares that may be repurchased under the program will be based on market conditions, applicable securities laws and other factors considered by management and the Capital Committee of the Board. Share repurchases under the program may be made from time to time through solicited or unsolicited transactions in the open market, in privately negotiated transactions or by other means in accordance with securities laws. The share repurchase program does not obligate us to repurchase any specific amount of shares, does not have an expiration date, and may be suspended, modified or discontinued at any time without prior notice. In the first nine months of 2025, we acquired 100,967 shares of our common stock for a total cost of $2.0 million at an average price of $19.50 per share. As of November 7, 2025, we have acquired 180,899 shares of our common stock for a total cost of $3.9 million at an average price of $21.59 per share, and $21.1 million remains available for repurchases under the program.
Revolving Credit Facility and Other Financing Arrangements
As of September 30, 2025, we had $55.0 million in cash and cash equivalents and restricted cash of $0.5 million, and no amount was borrowed under our revolving credit facility. Of the $55.0 million in consolidated cash and cash equivalents at September 30, 2025, $3.8 million held at certain consolidated subsidiaries was subject to restrictions on distribution to the parent company pursuant to project loan agreements. In the third quarters of 2025 and 2024, development and asset management fees of $289 thousand and $216 thousand, respectively, were paid by the limited partnerships to Stratus. In the first nine months of 2025 and 2024, development and asset fees of $830 thousand and $1.2 million, respectively, were paid by the limited partnerships to Stratus. The payments of these intercompany fees resulted in increases in cash available to the parent company, and the income to Stratus and cost to the partnerships have been eliminated in the consolidated financial statements.
As of September 30, 2025, we had total debt of $205.7 million based on the principal amounts outstanding compared with $196.7 million at December 31, 2024. As of September 30, 2025, the maximum amount that could be borrowed under the Comerica Bank revolving credit facility was $29.1 million, resulting in availability of $17.5 million, net of letters of credit totaling $11.6 million issued under the revolving credit facility. In June 2025, the Holden Hills Phase 2 property was removed from the borrowing base for the revolving credit facility in anticipation of a potential separate revolving credit facility for the property, and the maximum amount that could be borrowed was reduced. Also, in June 2025, after the Amarra Villas credit facility was fully repaid and terminated, the remaining three Amarra Villas homes were added to the borrowing base for the Comerica Bank revolving credit facility. The net effect of these changes was a decrease of $24.8 million to the maximum amount that could be borrowed. Letters of credit have been issued under the revolving credit facility, $9.0 million of which secure Stratus' obligation to build certain roads and utilities facilities benefiting Holden Hills Phases 1 and 2 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. Refer to "Debt Maturities and Other Contractual Obligations" below for a table illustrating the timing of principal payments due on our outstanding debt as of September 30, 2025. In October 2025, we amended the revolving credit facility to further reduce the maximum loan amount to the lesser of $35.0 million or the borrowing base limit, in order to reduce our fees associated with the facility.
We have made operating loans to Stratus Block 150, L.P. to facilitate the partnership's ability to pay ongoing costs, including debt service, of The Annie B project during the pre-construction period. The loans bear interest at one-month Term Secured Overnight Financing Rate (SOFR) plus 5.00 percent, are subordinate to The Annie B land loan and must be repaid before distributions may be made to the partners. In first-quarter 2024, we made an operating loan of $2.4 million. In third-quarter 2024, we made an operating loan of $1.1 million. In first-quarter 2025, we made an operating loan of $1.5 million. In third-quarter 2025, we made an operating loan of $1.1 million. As of September 30, 2025, our operating loans outstanding to Stratus Block 150, L.P. totaled $8.3 million.
Stratus and the Class B limited partner have made operating loans to The Saint June, L.P. to support the partnership's ability to pay its construction loan interest, which has exceeded the amount anticipated because of interest rate increases. The loans bear interest at one-month Term SOFRplus 5.00 percent, are subordinate to The Saint June construction loan and, unless approved by all partners, no distributions may be made to the partners until the operating loans are repaid. In third-quarter 2025, The Saint June partnership was amended to allow up to $3.0 million of distributions to the partners prior to the repayment of the operating loans. In first-quarter 2024, Stratus made an operating loan of $339 thousand, and the Class B limited partner made an operating loan of $339 thousand. In second-quarter 2024, Stratus made an operating loan of $85 thousand, and the Class B limited partner made an operating loan of $165 thousand. No loans were made in the first nine months of 2025. As of September 30, 2025, Stratus' and the Class B limited partner's operating loans outstanding to The Saint June, L.P. totaled $962 thousand and $493 thousand, respectively.
In January 2025, the Lantana Place construction loan was refinanced. The new loan has a principal amount of $29.8 million and matures February 1, 2029. The loan bears interest at one-month Term SOFR plus 2.35 percent, with a floor of 0.00 percent. Payments of interest only on the loan are due monthly through January 31, 2026. Thereafter, principal and interest payments are due monthly based on a 30-year amortization with the remaining unpaid principal and interest due at maturity. After paying off the prior loan and paying property taxes and closing costs, Stratus received approximately $3.0 million in net cash proceeds.
In March 2025, the Jones Crossing loan was refinanced. The new loan has a principal amount of $24.0 million and matures April 1, 2028. The loan bears interest at one-month Term SOFR plus 1.95 percent, with a floor of 3.00 percent. As required by the loan, College Station 1892 Properties, L.L.C. purchased an interest rate cap with a Term
SOFR strike rate equal to 5.00 percent, a notional amount of $24.0 million and an expiration date of April 1, 2026. Upon expiration, as required by the loan, College Station 1892 Properties, L.L.C. will enter into two subsequent, consecutive interest rate cap agreements, each with a one-year term, a notional amount of the maximum loan amount and a strike price commensurate to the then-current interest rate. Payments of interest only on the loan are due monthly with the outstanding principal due at maturity. College Station 1892 Properties, L.L.C. may prepay all, but not a portion, of the loan; provided that a prepayment prior to April 1, 2026 is subject to a yield maintenance premium payment. After paying off the prior loan and closing costs, Stratus received approximately $1.2 million in net cash proceeds.
In July 2025, The Annie B land loan was modified to extend the maturity date to September 1, 2027. Monthly principal payments of $49,875 in addition to interest will be required during the extended term.
In September 2025, The Saint June construction loan was modified to (i) extend the maturity date of the loan to October 2, 2027; (ii) provide for advances of an additional $1.5 million, bringing the outstanding principal balance of the loan to $32.9 million with no funds remaining available for additional principal advances; (iii) decrease the interest rate applicable margin from 2.35 percent to 2.00 percent; (iv) eliminate the requirement to make monthly principal payments prior to maturity; and (v) add a new property-level minimum debt yield financial covenant, which replaced a property-level debt service coverage ratio. If the debt yield financial covenant is not met, the principal balance of the loan must be paid down in an amount sufficient to achieve the minimum debt yield. The amendments permit the partnership to distribute up to $1.5 million to the partners. Accordingly, the loan bears interest at the one-month Term SOFR plus 2.00 percent, subject to a 3.50 percent floor. Payments of interest only on the Loan are due monthly with the outstanding principal due at maturity. After closing costs, the partnership used the remaining portion of the $1.3 million proceeds of the loan to establish reserves for partnership expenses and make cash distributions to the partners. In October 2025, The Saint June, L.P. made distributions of approximately $435 thousand and $225 thousand to the Class B limited partner in The Saint June partnership and Stratus, respectively.
During the first nine months of 2025, we also increased borrowings under the Holden Hills Phase 1 and The Saint George construction loans. We paid off the Amarra Villas credit facility and the West Killeen construction loan and paid down The Annie B land loan. Refer to Note 6 for further discussion.
Most of our debt agreements require compliance with specified financial covenants. Refer to Note 6 and MD&A in our 2024 Form 10-K for a discussion of the financial covenants in our debt agreements. As of September 30, 2025, we were in compliance with all of our financial covenants.
Stratus' and its subsidiaries' debt arrangements, including Stratus' guaranty agreements, contain significant limitations that may restrict Stratus' and its subsidiaries' ability to, among other things: borrow additional money or issue guarantees; pay dividends, repurchase equity or make other distributions to equity holders; make loans, advances or other investments; create liens on assets; sell assets; enter into sale-leaseback transactions; enter into transactions with affiliates; permit a change of control or change in management; sell all or substantially all of its assets; and engage in mergers, consolidations or other business combinations. Our Comerica Bank revolving credit facility, The Annie B land loan, and The Saint George and the Holden Hills Phase 1 construction loans require Comerica Bank's prior written consent for any common stock repurchases in excess of $1.0 million or any dividend payments, which was obtained in connection with our current $25.0 million share repurchase program. Any future declaration of dividends or decision to repurchase our common stock is at the discretion of our Board, subject to restrictions under our Comerica Bank debt agreements, and will depend on our financial results, cash requirements, projected compliance with covenants in our debt agreements, outlook and other factors deemed relevant by our Board. Our future debt agreements, future refinancings of or amendments to existing debt agreements or other future agreements may restrict our ability to declare dividends or repurchase shares.
Our project loans are generally secured by all or substantially all of the assets of the project, and our Comerica Bank revolving credit facility is secured by substantially all of our assets other than those encumbered by separate project level financing. In anticipation of a separate revolving credit facility for the Holden Hills Phase 2 project, Comerica Bank released the Holden Hills Phase 2 property from the collateral pool for the Comerica Bank revolving credit facility. In addition, we, as the parent company, are typically required to guarantee all or a significant portion of the payment of our project loans, in some cases until certain development milestones and/or financial conditions are met, in some cases on a full recourse basis and in other cases on a more limited recourse basis. As of September 30, 2025, we, as the parent company, guaranteed the payment of all of the project loans, except for the Kingwood Place, Jones Crossing and Lantana Place loans. Our guarantees of the Kingwood Place, Jones Crossing and Lantana Place loans are generally limited to non-recourse carve-out obligations. Our payment guarantee on
The Saint June construction loan is limited to 50.0 percent and on The Saint George construction loan is limited to 25.0 percent until certain conditions are met. Refer to Note 6 to our consolidated financial statements in our 2024 Form 10-K for additional discussion.
Our construction loans typically permit advances only in accordance with budgeted allocations and subject to specified conditions and require lender consent for changes to plans and specifications exceeding specified amounts. If the lender deems undisbursed proceeds insufficient to meet costs of completing the project, the lender may decline to make additional advances until the borrower deposits with the lender sufficient additional funds to cover the deficiency the lender deems to exist. The inability to satisfy a condition to receive advances for a specified time period after lender's refusal, or the failure to complete a project by a specified completion date, may be an event of default, subject to exceptions for force majeure.
Debt Maturities and Other Contractual Obligations
The following table summarizes our debt maturities based on the principal amounts outstanding as of September 30, 2025 (in thousands):
| 2025 | 2026 | 2027 | 2028 | 2029 | Thereafter | Total | |||||||||||||||||||||||||||||||||||
|
Comerica Bank revolving credit facility
|
$ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | |||||||||||||||||||||||||||
|
Kingwood Place loan
|
- | - | 33,000 | - | - | - | 33,000 | ||||||||||||||||||||||||||||||||||
|
Lantana Place loan
|
- | 295 | 368 | 388 | 28,749 | - | 29,800 | ||||||||||||||||||||||||||||||||||
|
Jones Crossing loan
|
- | - | - | 24,000 | - | 24,000 | |||||||||||||||||||||||||||||||||||
| The Annie B land loan | - | - | 11,920 | - | - | - | 11,920 | ||||||||||||||||||||||||||||||||||
| Construction loans: | |||||||||||||||||||||||||||||||||||||||||
| The Saint George | - | 52,533 | - | - | - | - | 52,533 | ||||||||||||||||||||||||||||||||||
|
The Saint June a
|
- | - | 33,376 | - | - | - | 33,376 | ||||||||||||||||||||||||||||||||||
|
Holden Hills Phase 1 b
|
- | 21,096 | - | - | - | - | 21,096 | ||||||||||||||||||||||||||||||||||
| Total | $ | - | $ | 73,924 | $ | 78,664 | $ | 24,388 | $ | 28,749 | $ | - | $ | 205,725 | |||||||||||||||||||||||||||
a.Includes operating loans from our third-party partner of $493 thousand.
b.The maturity date of the Holden Hills Phase 1 construction loan is February 8, 2026. We are currently evaluating options to modify the loan and expect to extend the loan on or before the maturity date.
The following table summarizes the weighted-average interest rate of each loan, all of which have variable rates, for the periods presented:
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||
| September 30, | September 30, | |||||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | |||||||||||||||||||||||
|
Comerica Bank revolving credit facility a
|
- | % | - | % | 7.43 | % | - | % | ||||||||||||||||||
| Kingwood Place loan | 6.12 | 8.16 | 6.12 | 8.18 | ||||||||||||||||||||||
| Lantana Place loan | 6.67 | 7.67 | 6.69 | 7.71 | ||||||||||||||||||||||
|
Jones Crossing loan
|
6.27 | 7.68 | 6.27 | 7.69 | ||||||||||||||||||||||
| The Annie B land loan | 7.43 | 8.41 | 7.44 | 8.41 | ||||||||||||||||||||||
| Construction loans: | ||||||||||||||||||||||||||
| The Saint George | 6.78 | 7.69 | 6.78 | 7.70 | ||||||||||||||||||||||
| The Saint June | 6.60 | 8.16 | 6.66 | 8.18 | ||||||||||||||||||||||
| Holden Hills Phase 1 | 7.42 | 8.34 | 7.43 | 8.36 | ||||||||||||||||||||||
|
West Killeen Market b
|
- | 8.01 | - | 8.06 | ||||||||||||||||||||||
|
Amarra Villas credit facility c
|
- | 8.40 | - | 8.38 | ||||||||||||||||||||||
a.In second-quarter 2025, we repaid the amount outstanding on the revolving credit facility. We did not have an outstanding balance during third-quarter 2025, third-quarter 2024 or the first nine months of 2024.
b.In May 2025, we repaid this loan in connection with the sale of the property.
c.In June 2025, this credit facility was terminated after the outstanding balance was repaid.
Liquidity Outlook
We had firm commitments totaling approximately $5.2 million at September 30, 2025 primarily related to construction of the road and utility infrastructure we are required to build in Lakeway Texas, and Holden Hills Phase 1. We have a construction loan to fund the projected cash outlays for Holden Hills Phase 1 over the next 12 months following this filing. We expect to make a capital contribution to The Saint George partnership of $150 thousand representing our 10 percent equity share of debt service and project costs in the next 12 months. With respect to Holden Hills Phase 1, we have agreed to reimburse the Holden Hills Phase 1 partnership for 60 percent of the costs of the Tecoma Improvements. As of September 30, 2025, our share of the estimated remaining costs totaled $346 thousand. Also, we anticipate making future operating loans to Stratus Block 150, L.P. totaling up to $1.8 million over the next 12 months to enable the partnership to pay debt service and project costs. The operating loans would bear interest at one-month Term SOFR plus 5.00 percent, would be subordinate to The Annie B land loan and required to be repaid before distributions may be made to the partners.
We project that we will be able to meet our debt service and other cash obligations for at least the next 12 months. Our stabilized retail and multi-family properties (Jones Crossing - Retail, Lantana Place - Retail, Kingwood Place and The Saint June) are projected to generate sufficient cash flow to cover debt service over the next 12 months. In October 2025, we entered into an agreement, as amended, to sell Lantana Place - Retail for approximately $57.4 million. Subject to satisfaction of closing conditions, the sale is expected to close in fourth-quarter 2025 and to yield substantial cash proceeds after payment of the project loan. We expect to sell the two remaining Amarra Villas homes and may sell other properties. For other projected pre-development costs, much of which are discretionary, and for our costs of the Tecoma Improvements and projected general and administrative expenses, we had cash and cash equivalents of $55.0 million at September 30, 2025 and availability under our revolving credit facility (which matures on March 27, 2027) of approximately $17.5 million, net of letters of credit, which is expected to be sufficient to fund these cash requirements for the next 12 months.
We expect to successfully extend the maturities of, or to refinance, our outstanding debt that matures in the next 12 months. For future potential significant development projects, we would not plan to enter into commitments to incur material costs for the projects until we obtain what we project to be adequate financing to cover anticipated cash outlays. As discussed under "Business Strategy" above, our main sources of revenue and cash flow are expected to be sales of our properties to third parties, debt financings or distributions from joint ventures, the timing of and proceeds from which are difficult to predict and depend on market conditions and other factors. We also generate cash flow from rental revenue in our Leasing Operations 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, will provide us with positive cash flows and net income over time. No assurances can be given that the results anticipated by our projections will occur. Refer to Note 6 in this report and in our 2024 Form 10-K and Part I, Item 1A. "Risk Factors" of our 2024 Form 10-K and Part II, Item 1A. "Risk Factors" herein for further discussion.
Our ability to meet our cash obligations over the longer term will depend on our future operating and financial performance and cash flows, including our ability to sell or lease properties profitably and extend or refinance debt as it becomes due, which is subject to economic, financial, competitive and other factors beyond our control.
CRITICAL ACCOUNTING ESTIMATES
There have been no changes in our critical accounting estimates from those discussed in our 2024 Form 10-K.
RECENT ACCOUNTING STANDARDS
In November 2024, the Financial Accounting Standards Board (the FASB) issued Accounting Standards Update (ASU) No. 2024-03, "Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures: Disaggregation of Income Statement Expenses." This ASU requires disaggregated disclosure in the notes to the financial statements of certain costs and expenses presented on the face of the income statement, on an interim and annual basis. This ASU also requires additional footnote disclosure about selling expenses. The amendments are effective for fiscal years beginning after December 15, 2026 and interim periods beginning after
December 15, 2027 and early adoption is permitted. Stratus is currently assessing adoption timing and the effect that the updated standard will have on its financial statement disclosures.
OFF-BALANCE SHEET ARRANGEMENTS
In the ordinary course of business, we engage in certain activities that are not reflected on our consolidated balance sheets, generally referred to as off-balance sheet arrangements. For additional information regarding these types of activities, refer to the discussion about our firm commitments in "Capital Resources and Liquidity" above and Note 9 to our consolidated financial statements in our 2024 Form 10-K.
CAUTIONARY STATEMENT
This Quarterly Report on Form 10-Q contains forward-looking statements in which we discuss factors we believe may affect our future performance. Forward-looking statements are all statements other than statements of historical fact, such as plans, projections or expectations related to inflation, interest rates, tariffs and trade policies, supply chain constraints, our ability to pay or refinance our debt obligations as they become due, availability of bank credit, our ability to meet our future debt service and other cash obligations, projected future operating loans or capital contributions to our joint ventures, statements regarding the exploration of opportunities for the use of cash proceeds from the Holden Hills Phase 2 partnership formation and recent and pending asset sales, and whether and when the sale of Lantana Place - Retail will be completed, potential costs for which The Saint George Apartments, L.P. may be responsible for the remediation and repair of damage caused by the water leak at The Saint George, future cash flows and liquidity, the Austin and Texas real estate markets, the planning, financing, development, construction, completion and stabilization of our development projects, including projected costs and estimated times to complete construction, plans to sell, recapitalize or refinance properties and estimated timing for closing properties under contract, future operational and financial performance, MUD reimbursements for infrastructure costs, regulatory matters, including the expected impact of the ETJ Law and related ongoing litigation, leasing activities, tax rates, future capital expenditures and financing plans, possible joint ventures, partnerships or other strategic relationships, other plans and objectives of management for future operations and development projects, and potential future cash returns to stockholders, including the timing and amount of repurchases under our share repurchase program. The words "anticipate," "may," "can," "plan," "believe," "potential," "estimate," "expect," "project," "target," "intend," "likely," "will," "should," "to be" and any similar expressions or statements are intended to identify those assertions as forward-looking statements.
Under our Comerica Bank debt agreements, we are not permitted to repurchase our common stock in excess of $1.0 million or pay dividends on our common stock without Comerica Bank's prior written consent, which we obtained in connection with our current $25.0 million share repurchase program. Any future declaration of dividends or decision to repurchase our common stock outside of the approved share repurchase program is at the discretion of our Board, subject to restrictions under our Comerica Bank debt agreements, and will depend on our financial results, cash requirements, projected compliance with covenants in our debt agreements, outlook and other factors deemed relevant by our Board. Our future debt agreements, future refinancings of or amendments to existing debt agreements or other future agreements may restrict our ability to declare dividends or repurchase shares.
We caution readers that forward-looking statements are not guarantees of future performance, and our actual results may differ materially from those anticipated, expected, projected or assumed in the forward-looking statements. Important factors that can cause our actual results to differ materially from those anticipated in the forward-looking statements include, but are not limited to, our ability to implement our business strategy successfully, including our ability to develop, construct and sell or lease properties on terms our Board considers acceptable, increases in operating and construction costs, including real estate taxes, maintenance and insurance costs, and the cost of building materials and labor, elevated inflation and interest rates, the effect of changes in tariffs and trade policies, including threatened tariffs, supply chain constraints, our ability to pay or refinance our debt, extend maturity dates of our loans or comply with or obtain waivers of financial and other covenants in debt agreements and to meet other cash obligations, availability of bank credit, defaults by contractors and subcontractors, the results of our Board's exploration of opportunities for the use of cash proceeds from the Holden Hills Phase 2 partnership formation and recent and pending asset sales, the occurrence of any event, change or other circumstance that could delay the closing of the sale of Lantana Place - Retail or result in the termination of the agreement to sell Lantana Place - Retail, the outcome of our analysis and discussions with the insurance company and general contractor regarding responsibility for payment of costs to remediate and repair the damage caused by the water leak at The Saint George, declines in the market value of our assets, market conditions or corporate developments that could preclude, impair or delay any opportunities with respect to plans to sell,
recapitalize or refinance properties, a decrease in the demand for real estate in select markets in Texas where we operate, particularly in Austin, changes in economic, market, tax, business and geopolitical conditions, potential U.S. or local economic downturn or recession, the availability and terms of financing for development projects and other corporate purposes, our ability to collect anticipated rental payments and close projected asset sales, loss of key personnel, our ability to enter into and maintain joint ventures, partnerships or other strategic relationships, including risks associated with such joint ventures, any major public health crisis, eligibility for and potential receipt and timing of receipt of MUD reimbursements, industry risks, changes in buyer preferences, potential additional impairment charges, competition from other real estate developers, our ability to obtain various entitlements and permits, changes in laws, regulations or the regulatory environment affecting the development of real estate, opposition from special interest groups or local governments with respect to development projects, weather- and climate-related risks, environmental and litigation risks, including the timing and resolution of the ongoing litigation challenging the ETJ Law and our ability to implement revised development plans in light of the ETJ Law, the failure to attract buyers or tenants for our developments or such buyers' or tenants' failure to satisfy their purchase commitments or leasing obligations, cybersecurity incidents and other factors described in more detail in Part I, Item 1A. "Risk Factors" of our 2024 Form 10-K, filed with the SEC, and Part II, Item 1A. "Risk Factors" of this report.
Investors are cautioned that many of the assumptions upon which our forward-looking statements are based are likely to change after the date the forward-looking statements are made. Further, we may make changes to our business plans that could affect our results. We caution investors that we undertake no obligation to update our forward-looking statements, which speak only as of the date made, notwithstanding any changes in our assumptions, business plans, actual experience or other changes.
Stratus Properties Inc. published this content on November 12, 2025, and is solely responsible for the information contained herein. Distributed via Edgar on November 12, 2025 at 21:28 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]