Stratus(STRS) - 2025 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Presents Stratus Properties Inc.'s unaudited consolidated financial statements and management's discussion and analysis for periods ended June 30, 2025 Item 1. Financial Statements Presents Stratus Properties Inc.'s unaudited consolidated financial statements and notes for periods ended June 30, 2025 Consolidated Balance Sheets (Unaudited) This section presents the company's financial position, including assets, liabilities, and equity, as of specific dates - Total Assets increased by $42.2 million (7.9%) from $532.6 million at December 31, 2024, to $574.8 million at June 30, 2025[9] - Cash and cash equivalents increased significantly by $39.2 million (194.2%) from $20.2 million at December 31, 2024, to $59.4 million at June 30, 2025[9] - Real estate held for investment, net, increased by $91.9 million (67.4%) from $136.3 million at December 31, 2024, to $228.1 million at June 30, 2025, while real estate under development decreased by $98.2 million (35.8%)[9] - Total Equity increased by $40.8 million (13.7%) from $297.6 million at December 31, 2024, to $338.3 million at June 30, 2025, primarily driven by a $43.5 million increase in noncontrolling interests[9] Key Balance Sheet Figures (in Thousands) | Metric | June 30, 2025 | December 31, 2024 | Change (Absolute) | Change (%) | | :-------------------------------- | :-------------- | :---------------- | :---------------- | :--------- | | Cash and cash equivalents | $59,386 | $20,178 | $39,208 | 194.3% | | Real estate under development | $175,916 | $274,105 | $(98,189) | -35.8% | | Real estate held for investment, net | $228,112 | $136,252 | $91,860 | 67.4% | | Total assets | $574,821 | $532,606 | $42,215 | 7.9% | | Debt | $199,434 | $194,853 | $4,581 | 2.4% | | Total liabilities | $236,497 | $235,039 | $1,458 | 0.6% | | Total stockholders' equity | $191,908 | $194,705 | $(2,797) | -1.4% | | Noncontrolling interests in subsidiaries | $146,416 | $102,862 | $43,554 | 42.3% | | Total equity | $338,324 | $297,567 | $40,757 | 13.7% | Consolidated Statements of Comprehensive Income (Loss) (Unaudited) This section details the company's financial performance, including revenues, expenses, and net income or loss, for the reported periods - Total Revenues for the three months ended June 30, 2025, increased by $3.1 million (36.7%) to $11.6 million, while for the six months ended June 30, 2025, they decreased by $18.4 million (52.6%) to $16.6 million[10] - Operating loss improved from $2.9 million in Q2 2024 to $0.8 million in Q2 2025, but for the six months, it declined from an income of $0.8 million in 2024 to a loss of $4.4 million in 2025[10] - Net income attributable to common stockholders swung from a loss of $1.7 million ($0.21 per diluted share) in Q2 2024 to an income of $0.3 million ($0.03 per diluted share) in Q2 2025[10] - For the six months ended June 30, 2025, net loss attributable to common stockholders was $2.6 million ($0.32 per diluted share), compared to a net income of $2.8 million ($0.35 per diluted share) in the prior year[10] - A $5.0 million gain on the sale of assets was recognized in Q2 2025, contributing to the improved operating results for the quarter[10] Key Income Statement Figures (in Thousands, Except Per Share Amounts) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :---------------------------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | | Real estate operations revenue | $6,798 | $3,629 | $6,823 | $25,752 | | Leasing operations revenue | $4,807 | $4,861 | $9,825 | $9,245 | | Total revenues | $11,605 | $8,490 | $16,648 | $34,997 | | Total cost of sales | $13,807 | $7,568 | $18,594 | $25,925 | | General and administrative expenses | $3,557 | $3,842 | $7,608 | $8,307 | | Gain on sale of assets | $(5,000) | — | $(5,200) | — | | Operating (loss) income | $(759) | $(2,920) | $(4,354) | $765 | | Net (loss) income and total comprehensive (loss) income | $(2,295) | $(2,778) | $(6,052) | $919 | | Net income (loss) attributable to common stockholders | $260 | $(1,725) | $(2,615) | $2,827 | | Net income (loss) per share (basic and diluted) | $0.03 | $(0.21) | $(0.32) | $0.35 | Consolidated Statements of Cash Flows (Unaudited) This section outlines the company's cash inflows and outflows from operating, investing, and financing activities for the reported periods - Net cash used in operating activities increased significantly to $15.2 million for the first six months of 2025, compared to $1.7 million used in the same period of 2024, primarily due to higher purchases and development of real estate properties[13][159] - Net cash provided by investing activities was $5.8 million for the first six months of 2025, a substantial improvement from $16.5 million used in 2024, driven by $13.0 million in proceeds from asset sales and $0.4 million in MUD reimbursements[13][160] - Net cash provided by financing activities surged to $48.6 million for the first six months of 2025, compared to $0.2 million used in 2024, largely due to a $47.8 million noncontrolling interest contribution[13][161][162] - The net increase in cash, cash equivalents, and restricted cash was $39.2 million in 2025, resulting in an ending balance of $60.4 million at June 30, 2025[13] Key Cash Flow Figures (in Thousands) | Metric | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Change (Absolute) | Change (%) | | :---------------------------------------------------- | :------------------------------- | :------------------------------- | :---------------- | :--------- | | Net (loss) income | $(6,052) | $919 | $(6,971) | -758.5% | | Purchases and development of real estate properties | $(14,397) | $(16,317) | $1,920 | -11.8% | | Net cash used in operating activities | $(15,179) | $(1,716) | $(13,463) | 784.6% | | Capital expenditures | $(7,161) | $(16,142) | $8,981 | -55.6% | | Proceeds from sale of assets, net of fees | $12,979 | — | $12,979 | N/A | | Net cash provided by (used in) investing activities | $5,811 | $(16,542) | $22,353 | -135.1% | | Borrowings from project loans | $59,886 | $21,754 | $38,132 | 175.3% | | Noncontrolling interest contributions | $47,847 | — | $47,847 | N/A | | Net cash provided by (used in) financing activities | $48,597 | $(213) | $48,810 | -22915.5% | | Net increase (decrease) in cash, cash equivalents and restricted cash | $39,229 | $(18,471) | $57,700 | -312.4% | | Cash, cash equivalents and restricted cash at end of period | $60,383 | $13,961 | $46,422 | 332.5% | Consolidated Statements of Equity (Unaudited) This section presents changes in the company's equity, including common stock, retained earnings, and noncontrolling interests, for the reported periods - Total Equity increased by $40.8 million (13.7%) from $297.6 million at December 31, 2024, to $338.3 million at June 30, 2025, primarily due to a significant noncontrolling interest contribution[15] - Noncontrolling Interests in Subsidiaries increased by $43.5 million (42.3%) to $146.4 million at June 30, 2025, largely driven by a $47.8 million contribution in Q2 2025[15] - Retained Earnings decreased by $2.6 million (9.1%) to $26.0 million at June 30, 2025, reflecting total comprehensive losses[15] - The company repurchased $0.5 million of common stock in the first six months of 2025[15] Key Equity Figures (in Thousands) | Metric | December 31, 2024 | June 30, 2025 | Change (Absolute) | Change (%) | | :------------------------------------ | :---------------- | :-------------- | :---------------- | :--------- | | Common Stock (At Par Value) | $97 | $98 | $1 | 1.0% | | Capital in Excess of Par Value | $200,972 | $201,651 | $679 | 0.3% | | Retained Earnings | $28,601 | $25,986 | $(2,615) | -9.1% | | Common Stock Held in Treasury (Cost) | $(34,965) | $(35,827) | $(862) | 2.5% | | Total Stockholders' Equity | $194,705 | $191,908 | $(2,797) | -1.4% | | Noncontrolling Interests in Subsidiaries | $102,862 | $146,416 | $43,554 | 42.3% | | Total Equity | $297,567 | $338,324 | $40,757 | 13.7% | Notes to Consolidated Financial Statements (Unaudited) This section provides detailed explanations and disclosures supporting the consolidated financial statements 1. GENERAL This note provides general information about the company and its significant accounting policies - Stratus' President and CEO's son was employed by the company, receiving standard benefits and incentive awards. He resigned in September 2024, forfeiting outstanding Profit Participation Incentive Plan (PPIP) awards[21] 2. EARNINGS PER SHARE This note details the calculation of basic and diluted earnings per share for the reported periods - Basic and Diluted EPS increased to $0.03 in Q2 2025 from $(0.21) in Q2 2024[22] - Basic and Diluted EPS decreased to $(0.32) for the first six months of 2025 from $0.35 in the same period of 2024[22] - Weighted-average shares outstanding (basic) increased slightly from 8,072 thousand in Q2 2024 to 8,082 thousand in Q2 2025[22] 3. LIMITED PARTNERSHIPS This note describes the company's interests in and transactions with various limited partnerships - Holden Hills Phase 2, L.P. was formed in Q2 2025 for a 570-acre mixed-use development. Stratus contributed land valued at $95.7 million, and an unaffiliated equity investor contributed $47.8 million cash, which was then distributed to Stratus. Stratus holds a 50% equity interest and consolidates the partnership[24] - The Holden Hills Phase 2 partnership is establishing a separate revolving credit facility for future operating costs and to reimburse Stratus for initial project costs[28] - Stratus made a $1.5 million operating loan to Stratus Block 150, L.P. in Q1 2025, bringing the total outstanding to $7.2 million as of June 30, 2025[30] - Stratus and the Class B limited partner in The Saint June partnership have made operating loans totaling $962 thousand and $493 thousand, respectively, as of June 30, 2025, to support construction loan interest payments[31] Stratus' Indirect Equity Interests in Limited Partnerships | Partnership | Indirect Equity Interest | | :-------------------------- | :----------------------- | | Holden Hills, L.P. | 50.00 % | | Holden Hills Phase 2, L.P. | 50.00 % | | Stratus Block 150, L.P. | 31.00 % | | Stratus Kingwood Place, L.P. | 60.00 % | | The Saint George Apartments, L.P. | 10.00 % | | The Saint June, L.P. | 34.13 % | Consolidated Partnership Assets and Liabilities (in Thousands) | Metric | June 30, 2025 | December 31, 2024 | | :-------------------------- | :-------------- | :---------------- | | Total assets | $364,825 | $276,756 | | Total liabilities | $158,529 | $151,433 | | Net assets | $206,296 | $125,323 | 4. ASSET SALES This note provides details on significant asset sales completed during the reporting periods - Stratus completed the sale of the West Killeen Market retail project in Q2 2025 for $13.3 million, generating approximately $7.8 million in pre-tax net cash proceeds and a $5.0 million pre-tax gain[37] - Two Amarra Villas homes were sold in Q2 2025 for a total of $6.8 million, leading to the repayment and termination of the $1.7 million Amarra Villas credit facility[38] - A $0.2 million portion of the previously deferred gain related to The Oaks at Lakeway was recognized in Q1 2025, with $1.3 million remaining deferred at June 30, 2025[36] - In Q1 2024, Stratus sold 47 acres of undeveloped land at Magnolia Place for $14.5 million, which included the repayment of an $8.8 million construction loan[39] 5. FAIR VALUE MEASUREMENTS This note explains the fair value measurements of financial instruments and their classification within the fair value hierarchy - Stratus Kingwood Place, L.P. and College Station 1892 Properties, L.L.C. entered into interest rate cap agreements in November 2024 and March 2025, respectively, to manage variable interest rate risk[42] - The fair value of Stratus' debt approximates its carrying value due to variable interest rates and is classified within Level 2 of the fair value hierarchy[44] Fair Value of Interest Rate Caps (in Thousands) | Metric | June 30, 2025 (Carrying Value) | June 30, 2025 (Fair Value) | December 31, 2024 (Carrying Value) | December 31, 2024 (Fair Value) | | :----------------- | :------------------------------- | :----------------------- | :------------------------------- | :----------------------- | | Interest rate caps | $1 | $1 | $19 | $19 | 6. DEBT AND EQUITY This note provides detailed information on the company's debt obligations and equity structure, including recent changes and financing arrangements - Total debt increased to $199.4 million at June 30, 2025, from $194.9 million at December 31, 2024[45] - The Comerica Bank revolving credit facility's maturity was extended to March 27, 2027, and the interest rate was lowered in March 2025. Its borrowing base was reduced by $24.8 million in June 2025[46][48] - The Lantana Place construction loan was refinanced in January 2025 with a $29.8 million, four-year term loan, generating $3.0 million in net cash proceeds[51] - The Jones Crossing loan was refinanced in March 2025 with a $24.0 million, three-year term loan, generating $1.2 million in net cash proceeds[52] - The Annie B land loan's maturity was extended to September 1, 2027, in July 2025, with new monthly principal payments[53] - The Amarra Villas credit facility was fully repaid and terminated in June 2025, and the West Killeen Market construction loan was repaid in May 2025[54][55] - The share repurchase program was increased from $5.0 million to $25.0 million in June 2025. As of August 8, 2025, $3.0 million has been repurchased, with $22.0 million remaining available[60] Debt Components (in Thousands) | Debt Type | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :-------------- | :---------------- | | Kingwood Place loan | $32,502 | $32,408 | | Lantana Place loan | $29,425 | $25,509 | | Jones Crossing loan | $23,588 | $22,428 | | The Annie B land loan | $11,962 | $12,568 | | The Saint George (Construction) | $51,502 | $47,741 | | The Saint June (Construction) | $31,925 | $32,109 | | Holden Hills Phase 1 (Construction) | $18,530 | $15,265 | | West Killeen Market (Construction) | — | $5,194 | | Amarra Villas credit facility | — | $1,631 | | Total debt | $199,434 | $194,853 | 7. PROFIT PARTICIPATION INCENTIVE PLAN AND LONG-TERM INCENTIVE PLAN This note describes the company's incentive compensation plans and related accrued liabilities - The accrued liability for the PPIP and LTIP totaled $2.0 million at June 30, 2025, up from $1.9 million at December 31, 2024[64] - Outstanding awards under PPIP include Amarra Villas, Jones Crossing – Retail, Magnolia Place, and The Saint June, while The Saint George is under LTIP[64] PPIP/LTIP Costs (in Thousands) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------ | :------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | | Charged to general and administrative expense | $30 | $76 | $98 | $159 | | Capitalized to project development costs | $8 | $2 | $16 | $113 | | Total PPIP/LTIP costs | $38 | $78 | $114 | $272 | 8. INCOME TAXES This note details the company's income tax provisions, deferred tax assets, and effective tax rates - Stratus maintains a full valuation allowance against its U.S. Federal net deferred tax assets as of June 30, 2025, and December 31, 2024[66] - A deferred tax asset of $153 thousand is recorded for state income taxes at both periods[66] - The consolidated effective income tax rate was (9)% for the first six months of 2025, compared to 14% for the same period in 2024, primarily due to state income taxes, noncontrolling interests, the valuation allowance, the Holden Hills Phase 2 transaction, and executive compensation limitations[69] 9. BUSINESS SEGMENTS This note presents financial information by the company's reportable operating segments: Real Estate Operations and Leasing Operations - Stratus operates in two reportable segments: Real Estate Operations and Leasing Operations[70] - Real Estate Operations focuses on entitlement, development, and sale of multi-family and single-family residential and residential-centric mixed-use properties[70][101] - Leasing Operations comprises real estate assets held for investment that are leased or available for lease, including The Saint George (completed Q2 2025), The Saint June, Kingwood Place, Lantana Place retail, and Jones Crossing retail[72][102] Segment Profit (Loss) (Three Months Ended June 30, 2025, in Thousands) | Segment | Revenue | Segment (Loss) Profit | | :-------------------- | :------ | :-------------------- | | Real Estate Operations | $6,798 | $(3,536) | | Leasing Operations | $4,807 | $6,334 | | Total | $11,605 | $2,798 | Segment Profit (Loss) (Six Months Ended June 30, 2025, in Thousands) | Segment | Revenue | Segment (Loss) Profit | | :-------------------- | :------ | :-------------------- | | Real Estate Operations | $6,823 | $(5,038) | | Leasing Operations | $9,825 | $8,292 | | Total | $16,648 | $3,254 | Total Assets by Segment (in Thousands) | Segment | June 30, 2025 | June 30, 2024 | | :-------------------- | :-------------- | :-------------- | | Real Estate Operations | $271,985 | $342,089 | | Leasing Operations | $246,214 | $159,314 | | Corporate and other | $56,622 | $12,613 | | Total assets | $574,821 | $514,016 | 10. SUBSEQUENT EVENTS This note discloses significant events that occurred after the balance sheet date but before the financial statements were issued - The One Big Beautiful Bill Act (OBBB) was enacted after June 30, 2025, extending certain tax provisions and reinstating immediate expensing. Stratus is evaluating its impact but does not expect a material effect on its financial statements[81] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management's discussion and analysis of Stratus Properties Inc.'s financial condition, operations, and cash flows for periods ended June 30, 2025 OVERVIEW This section provides a general description of Stratus Properties Inc.'s business, development portfolio, and primary revenue sources - Stratus is a residential and retail-focused real estate company primarily engaged in entitlement, development, management, leasing, and sale of properties in Austin, Texas, and other select Texas markets[84] - The development portfolio consists of approximately 1,500 acres of commercial, multi-family, and single-family residential projects under development or held for future use[84] - Main revenue sources include sales of developed and undeveloped properties, lease of retail, mixed-use, and multi-family properties, and development and asset management fees[84] BUSINESS STRATEGY This section outlines the company's core objectives, investment focus, capital allocation, and financing approach for property development - The primary business objective is to create stockholder value by methodically developing and enhancing properties, then selling or holding them for lease when market conditions are favorable[86] - Investment strategy focuses on pure residential and residential-centric mixed-use projects in Austin and other attractive Texas markets[86] - The Board may return capital to stockholders through special cash dividends or share repurchases, with a $25.0 million share repurchase program approved in June 2025[87] - Properties are developed using project-level debt and third-party equity capital through joint ventures, aiming for increased returns above relative equity interest upon achieving negotiated hurdles[88] - Anticipates making future operating loans to The Annie B totaling up to $2.8 million and a capital contribution to The Saint George of $430 thousand over the next 12 months[91] - As of June 30, 2025, Stratus had $59.4 million in consolidated cash and $17.7 million available under its revolving credit facility[92] - Despite difficult real estate conditions with elevated costs, interest rates generally declined in late 2024 and early 2025, enabling the refinancing or amendment of several project loans[93][94] - During the first six months of 2025, Stratus received a $47.8 million cash distribution from the Holden Hills Phase 2 partnership, sold West Killeen Market for $13.3 million, and two Amarra Villas homes for $6.8 million[96][97] OVERVIEW OF FINANCIAL RESULTS This section summarizes the key financial performance indicators, including revenues, net income, and cash position, for the reported periods - Total revenues for Q2 2025 were $11.6 million, up from $8.5 million in Q2 2024, primarily due to increased Amarra Villas home sales[103] - Total revenues for the first six months of 2025 were $16.6 million, down from $35.0 million in the same period of 2024, mainly due to fewer Amarra Villas sales and no undeveloped land sales compared to 2024[103] - A $5.0 million pre-tax gain was recorded from the sale of West Killeen Market in Q2 2025[104] - Net income attributable to common stockholders for Q2 2025 was $0.3 million ($0.03 diluted EPS), a significant improvement from a $1.7 million loss ($0.21 diluted EPS) in Q2 2024[105] - For the first six months of 2025, net loss attributable to common stockholders was $2.6 million ($0.32 diluted EPS), compared to a $2.8 million income ($0.35 diluted EPS) in the prior year[105] - Cash and cash equivalents substantially increased in Q2 2025, primarily due to a $47.8 million distribution from the newly-formed Holden Hills Phase 2 partnership[106] RECENT DEVELOPMENT ACTIVITIES This section details the progress and status of the company's ongoing and recently completed residential and commercial development projects Recent Residential Activities This section provides updates on the company's residential development projects, including sales, construction, and lease-up status - Construction on the last two Amarra Villas homes was completed in Q2 2025, and two homes were sold for $6.8 million. Three completed homes remain available for sale as of August 8, 2025[109] - The Saint June, a 182-unit multi-family project, completed construction in Q4 2023 and achieved full lease-up during 2024[110] - Holden Hills Phase 1 road and utility infrastructure was substantially completed in Q2 2025. Development plans are being adjusted due to its removal from Austin's ETJ, with home building/site sales anticipated in late 2025[112] - The Holden Hills Phase 2 partnership was formed in June 2025 for a 570-acre mixed-use project. Stratus contributed land valued at $95.7 million and received a $47.8 million cash distribution from the partner. Development plans are being adjusted for increased density due to ETJ removal[117] - The Saint George, a 316-unit multi-family project, had its first units available in April 2025 and was completed in Q2 2025. Approximately 26% of units were leased as of August 8, 2025[120] - A water leak at The Saint George in April 2025 resulted in $1.9 million in remediation and repair costs, with Stratus' estimated share of uncovered costs not exceeding $1.0 million[121] Recent Commercial Activities This section provides updates on the company's commercial development projects, including leasing and sales activities - Holden Hills Phase 2 is envisioned to include a significant commercial component, with development plans being adjusted due to the ETJ process[129] - As of June 30, 2025, Stratus owned and operated stabilized retail projects including Jones Crossing, Lantana Place, and Kingwood Place, all with substantially all retail space leased[130] - The West Killeen Market retail project was sold in Q2 2025 for $13.3 million, generating $7.8 million in pre-tax net cash proceeds and a $5.0 million pre-tax gain[131] Potential Development Projects and Pipeline This section discusses future development opportunities and the company's strategy for financing these projects - A lease agreement for a potential development project in Austin has a review period expiring September 1, 2025. Stratus may terminate the lease, potentially incurring a $2.8 million charge for previously capitalized fees[132] - For future significant development projects like The Annie B, The Saint Julia, and multi-family developments at Lakeway and College Station, Stratus intends to pursue project-level debt and third-party equity capital through joint ventures[133] - Stratus is working to establish a credit facility for Holden Hills Phase 2 and anticipates seeking additional debt to finance future development in Holden Hills Phase 1[133] Market Conditions This section analyzes current real estate market trends, economic factors, and their potential impact on the company's operations - The industry is experiencing construction and labor cost increases, supply chain constraints, labor shortages, higher borrowing costs, and tightening bank credit[134] - The Federal Reserve lowered interest rates by 100 basis points cumulatively between September and December 2024, following significant increases from March 2022 through July 2023[134] - Changes in U.S. tariffs and trade policies in the first six months of 2025 introduce additional uncertainties, potentially leading to higher construction costs, supply chain disruptions, and increased capital costs[134][205] - Despite macroeconomic challenges, Stratus sees reasons for optimism in its Texas markets, citing strong rents at The Saint June, encouraging absorption of new downtown Austin multi-family units, and sales opportunities[136] RESULTS OF OPERATIONS This section provides a detailed analysis of the company's financial performance across its operating segments and non-operating items Real Estate Operations This section analyzes the revenue, costs, and operating results of the company's real estate development and sales segment - Total revenues for Real Estate Operations increased to $6.8 million in Q2 2025 from $3.6 million in Q2 2024, driven by sales of two Amarra Villas homes[143] - Total revenues for the first six months of 2025 decreased to $6.8 million from $25.8 million in the prior year, due to fewer Amarra Villas sales and no undeveloped property sales[143] - Operating loss for Real Estate Operations increased to $(3.5) million in Q2 2025 and $(5.0) million for the first six months of 2025[143] - A $1.0 million charge was recorded in Q2 2025 to write off receivables from previously sold properties[145] - Professional fees and allocated overhead costs increased in 2025 periods, primarily due to the formation of the Holden Hills Phase 2 partnership[147] Developed Property Sales (dollars in thousands) | Metric | Q2 2025 (Homes) | Q2 2025 (Revenues) | Q2 2024 (Homes) | Q2 2024 (Revenues) | 6M 2025 (Homes) | 6M 2025 (Revenues) | 6M 2024 (Homes) | 6M 2024 (Revenues) | | :-------------------- | :-------------- | :----------------- | :-------------- | :----------------- | :-------------- | :----------------- | :-------------- | :----------------- | | Amarra Villas homes | 2 | $6,760 | 1 | $3,625 | 2 | $6,760 | 3 | $11,248 | Leasing Operations This section analyzes the revenue, costs, and operating results of the company's property leasing segment - Rental revenue for Leasing Operations was $4.8 million in Q2 2025 and $9.8 million for the first six months of 2025, with the six-month increase primarily reflecting revenue from The Saint June[148] - Operating income for Leasing Operations increased significantly to $6.3 million in Q2 2025 and $8.3 million for the first six months of 2025[148] - A $5.0 million pre-tax gain was recognized from the sale of the West Killeen Market project in Q2 2025, and an additional $0.2 million deferred gain related to The Oaks at Lakeway was recognized in Q1 2025[150] Non-Operating Results This section discusses financial items outside of core operations, including interest costs, other income/loss, and income taxes - Interest costs (before capitalization) totaled $3.9 million in Q2 2025 and $7.6 million for the first six months of 2025. All debt is variable-rate, with rates decreasing over the past year due to refinancings and overall market declines[151][152] - Capitalized interest totaled $3.6 million in Q2 2025 and $7.4 million for the first six months of 2025, primarily related to development activities at Barton Creek properties (Holden Hills Phases 1 and 2) and The Saint George[153] - Other (loss) income, net, in both 2025 periods includes a $1.0 million charge for the estimated cost to repair water leak damage at The Saint George[154] - The provision for income taxes was $457 thousand in Q2 2025 and $487 thousand for the first six months of 2025, an increase from comparable 2024 periods[155] - Total comprehensive loss attributable to noncontrolling interests increased to $2.6 million in Q2 2025 and $3.4 million for the first six months of 2025, primarily due to initial operating expenses for The Saint George Apartments, L.P[156] Operating (Loss) Income (in Thousands) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------ | :------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | | Real Estate Operations | $(3,536) | $(839) | $(5,038) | $5,962 | | Leasing Operations | $6,334 | $1,761 | $8,292 | $3,110 | | General and administrative expenses | $(3,557) | $(3,842) | $(7,608) | $(8,307) | | Operating (loss) income | $(759) | $(2,920) | $(4,354) | $765 | Net Income (Loss) Attributable to Common Stockholders (in Thousands) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------ | :------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | | Net income (loss) attributable to common stockholders | $260 | $(1,725) | $(2,615) | $2,827 | CAPITAL RESOURCES AND LIQUIDITY This section assesses the company's financial resources, cash flow, debt arrangements, and ability to meet its short-term and long-term obligations Comparison of Cash Flows for the Six Months Ended June 30, 2025 and 2024 This section compares the company's cash flow activities across operating, investing, and financing categories for the reported periods - Cash used in operating activities increased to $15.2 million for the first six months of 2025, compared to $1.7 million in 2024, mainly due to higher expenditures for real estate development[159] - Cash provided by investing activities was $5.8 million for the first six months of 2025, a shift from $16.5 million used in 2024, driven by $13.0 million from the sale of West Killeen Market and MUD reimbursements[160] - Cash provided by financing activities totaled $48.6 million for the first six months of 2025, significantly up from $0.2 million used in 2024, primarily due to a $47.8 million noncontrolling interest contribution for Holden Hills Phase 2[161][162] - Stratus acquired 26,819 shares of its common stock for $0.5 million under its share repurchase program in the first six months of 2025[164] Revolving Credit Facility and Other Financing Arrangements This section details the company's credit facilities, outstanding debt, and compliance with financial covenants - As of June 30, 2025, Stratus had $59.4 million in cash and cash equivalents, $1.0 million in restricted cash, and $17.7 million available under its revolving credit facility[165] - Total debt outstanding was $201.3 million at June 30, 2025, an increase from $196.7 million at December 31, 2024[166] - The Comerica Bank revolving credit facility's maximum borrowing amount was reduced to $29.3 million, with $11.6 million committed in letters of credit, and the Holden Hills Phase 2 property was removed from its borrowing base[166] - Operating loans outstanding to Stratus Block 150, L.P. totaled $7.2 million as of June 30, 2025, including a $1.5 million loan made in Q1 2025[168] - The Lantana Place construction loan was refinanced in January 2025 for $29.8 million, maturing February 2029, with a variable interest rate (SOFR + 2.35%)[170] - The Jones Crossing loan was refinanced in March 2025 for $24.0 million, maturing April 2028, with a variable interest rate (SOFR + 1.95%) and a required interest rate cap[171] - The Annie B land loan's maturity was extended to September 1, 2027, in July 2025[172] - Stratus was in compliance with all financial covenants as of June 30, 2025[174] - Stratus typically guarantees all or a significant portion of project loans, with specific limitations for Kingwood Place, Jones Crossing, Lantana Place, The Saint June (50%), and The Saint George (25%)[177] Debt Maturities and Other Contractual Obligations This section outlines the schedule of the company's debt maturities and other significant contractual commitments - The Saint June construction loan matures on October 2, 2025, with an option for a 12-month extension; Stratus is evaluating refinancing or extension options[180] Total Debt Maturities (in Thousands) | Year | Amount | | :--------- | :------- | | 2025 | $43,931 | | 2026 | $70,894 | | 2027 | $33,365 | | 2028 | $24,385 | | 2029 | $28,757 | | Thereafter | $0 | | Total | $201,332 | Weighted-Average Interest Rates (Three Months Ended June 30, 2025) | Loan Type | Weighted-Average Interest Rate | | :-------------------------------- | :----------------------------- | | Comerica Bank revolving credit facility | 7.42 % | | Kingwood Place loan | 6.12 % | | Lantana Place loan | 6.67 % | | Jones Crossing loan | 6.27 % | | The Annie B land loan | 7.42 % | | The Saint George (Construction) | 6.77 % | | The Saint June (Construction) | 6.67 % | | Holden Hills Phase 1 (Construction) | 7.42 % | Liquidity Outlook This section provides management's expectations regarding the company's future cash position and ability to fund its operations and commitments - Firm commitments totaled approximately $5.8 million at June 30, 2025, primarily related to Holden Hills Phase 1 construction[183] - Stratus expects to make a $430 thousand capital contribution to The Saint George partnership and up to $2.8 million in operating loans to Stratus Block 150, L.P. over the next 12 months[183] - Stabilized retail and multi-family properties are projected to generate sufficient cash flow to cover debt service over the next 12 months[184] - Current cash ($59.4 million) and revolving credit facility availability ($17.7 million) are expected to be sufficient to fund projected cash requirements for the next 12 months[184] - Stratus expects to successfully extend or refinance outstanding debt maturing in the next 12 months[185] - Long-term liquidity depends on future operating and financial performance, including profitable property sales/leases and debt refinancing, subject to economic and market factors[187] CRITICAL ACCOUNTING ESTIMATES This section discusses the significant accounting judgments and estimates that are crucial to the company's financial reporting - There have been no changes in critical accounting estimates from those discussed in the 2024 Form 10-K[189] RECENT ACCOUNTING STANDARDS This section provides updates on newly issued accounting pronouncements and their potential impact on the company's financial statements - The FASB issued ASU No. 2024-03, "Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures: Disaggregation of Income Statement Expenses," effective for fiscal years beginning after December 15, 2026. Stratus is currently assessing its adoption timing and effect[191] OFF-BALANCE SHEET ARRANGEMENTS This section describes the company's off-balance sheet activities and their potential financial implications - Stratus engages in certain off-balance sheet activities in the ordinary course of business, as discussed in "Capital Resources and Liquidity" and Note 9 to its consolidated financial statements in the 2024 Form 10-K[193] CAUTIONARY STATEMENT This section provides important disclaimers regarding forward-looking statements and the inherent risks and uncertainties in the report - This Quarterly Report contains forward-looking statements regarding future performance, including plans, projections, and expectations related to market conditions, debt obligations, development projects, and financial performance[195] - Comerica Bank debt agreements restrict common stock repurchases exceeding $1.0 million or dividend payments without prior written consent, which was obtained for the current $25.0 million share repurchase program[196] - Actual results may differ materially from forward-looking statements due to various risk factors, including business strategy implementation, cost increases, inflation, interest rates, tariffs, debt repayment ability, market value declines, and regulatory changes[198] - Stratus cautions investors that it undertakes no obligation to update its forward-looking statements[199] Item 3. Quantitative and Qualitative Disclosures About Market Risk No quantitative or qualitative disclosures about market risk are applicable for the reported period - This item is not applicable to the registrant[201] Item 4. Controls and Procedures Confirms effective disclosure controls and procedures as of June 30, 2025, with no material changes in internal control over financial reporting - The Chief Executive Officer and Chief Financial Officer concluded that disclosure controls and procedures were effective as of June 30, 2025[202] - There was no change in internal control over financial reporting that materially affected, or is reasonably likely to materially affect, internal control over financial reporting during the quarter ended June 30, 2025[203] PART II. OTHER INFORMATION This part contains additional non-financial disclosures, including risk factors, equity sales, and exhibits Item 1A. Risk Factors Supplements risk factors, focusing on potential adverse effects of changes in U.S. tariffs and trade policies on business - Changes in U.S. tariffs and trade policies could adversely affect Stratus' business[205] - Higher tariffs on construction materials (e.g., steel, lumber) are likely to disrupt supply chains and increase construction costs[205] - Uncertainties regarding future U.S. tariffs and trade policies could lead to higher inflation, interest rates, slower economic growth, increased capital costs, lower demand from real estate buyers, and higher tenant default rates[205] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Reports no unregistered equity sales and summarizes common stock repurchases under the expanded $25.0 million program - No unregistered sales of equity securities occurred during the three months ended June 30, 2025[206] - The Board approved an increase in the share repurchase program from $5.0 million to $25.0 million on June 13, 2025[207] - In June 2025, 6,125 shares were repurchased at an average price of $18.94 per share, with $22.9 million remaining available under the program as of June 30, 2025[207] - Through August 8, 2025, Stratus acquired 135,620 shares for a total cost of $3.0 million at an average price of $22.13 per share, with $22.0 million remaining available[207] Summary of Share Repurchases (Three Months Ended June 30, 2025) | Period | Total Number of Shares Purchased | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs | | :--------------------------------- | :------------------------------- | :--------------------------- | :------------------------------------------------------------------------------- | :--------------------------------------------------------------------------------------- | | April 1, 2025 through April 30, 2025 | — | $— | — | $3,000,635 | | May 1, 2025 through May 31, 2025 | — | $— | — | $3,000,635 | | June 1, 2025 through June 30, 2025 | 6,125 | $18.94 | 6,125 | $22,884,598 | | Total | 6,125 | $18.94 | 6,125 | $22,884,598 | Item 5. Other Information No director or officer adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the quarter - No director or officer of Stratus adopted or terminated any Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement during the quarter ended June 30, 2025[208] Item 6. Exhibits Lists all exhibits filed with Form 10-Q, including agreements, certifications, and XBRL documents - Key exhibits filed with this Form 10-Q include the Limited Partnership Agreement of Holden Hills Phase 2, L.P., the First Amendment to Amended and Restated Limited Partnership Agreement of Holden Hills, L.P., certifications of principal executive and financial officers, and various XBRL documents[209] Signature Official signature of Stratus Properties Inc. by its SVP and CFO, certifying the report filing on August 12, 2025 - The report was signed by Erin D. Pickens, Senior Vice President and Chief Financial Officer, on behalf of Stratus Properties Inc. on August 12, 2025[214]