Stratus Properties Inc. Annual Report 2022

FY2022 Annual Report · Stratus Properties Inc.

Loading PDF…

22002222

Annual Report and Form 10-K

March 31, 2023

To my fellow shareholders:

The year 2022 was the most profitable year in the history of Stratus Properties Inc., producing
record net earnings of $90.4 million. Our total stockholders’ equity increased to $207.2 million
at year-end 2022, more than double our total stockholders’ equity of $98.9 million at year-end
2020. These results are a testament to the quality of our portfolio, the talent of our team and
the effectiveness of our development program.

Significant Milestones in 2022 and Early 2023

Our record-breaking performance in 2022 featured the sale of Block 21 to Ryman Hospitality
Properties, Inc. in May 2022 for approximately $260 million. The sale generated a pre-tax
gain of approximately $120 million and pre-tax net proceeds of approximately $112 million.
Block 21 was our mixed-use property in downtown Austin, Texas that includes the 251-room
W Austin Hotel and is home to Austin City Limits Live.

With the sale of Block 21 and other well-timed property sales, we established a large cash
balance, a zero balance on our revolving credit facility, and eliminated our Hotel and
Entertainment segments. Our Board of Directors took the opportunity to engage in a strategic
planning process. After careful consideration, our Board decided to return $50 million of
capital to shareholders through a $40 million special cash dividend in September 2022
and a $10 million share repurchase program. As of March 27, 2023, $8.7 million of our
common stock had been repurchased under the program and $1.3 million remained available
under the program.

Our Board also decided to continue our successful development program focusing on pure
residential and residential-centric mixed-use projects in Austin and other select
markets in Texas. Our Austin market has been particularly strong in recent periods. In 2022,
the American Growth Project ranked Austin as the second-fastest-growing city in the U.S.

In February 2023, we announced that we had secured financing for, and commenced
construction of, Holden Hills, a new development comprised of 475 custom residences on
495 acres within the established Barton Creek community in southwest Austin. We consider
Holden Hills, which is the last remaining single-family project in the Barton Creek community,
to be a crown jewel of our 30-plus years of residential development. We entered into a joint
venture with an unrelated third-party investor that contributed 50% of the equity to develop
Holden Hills. In connection with these transactions, in February 2023, the Holden Hills limited
partnership distributed and paid $35.8 million in cash to Stratus.

We have
increasingly relied on third-party project-level equity financing of our
development projects. In the last two fiscal years and through March 27, 2023, our team
raised a total of $101.3 million in third-party equity capital. We believe these investments
demonstrate confidence in Stratus and will facilitate higher returns to our shareholders.

During 2022, we continued to enhance the sustainability of our projects, a program we have
promoted for more than 20 years. With the oversight of Nominating and Corporate
Governance Committee of our Board, we created a new Corporate Responsibility section of
our website, which provides details about our history, progress and commitments as we
continue to strive to be a leader in sustainable real estate development.

Development Project Highlights

In addition to our Holden Hills project described above, we are progressing well on our two
multi-family projects currently under construction. Construction continues on The Saint June,
a 182-unit luxury, garden-style multi-family project within the Amarra development in Barton
Creek, which is expected to be completed in third-quarter 2023. Construction also continues
on The Saint George, a 316-unit luxury wrap-style multi-family project in north-central Austin,
expected to be completed in mid-2024.

Construction on the last ten Amarra Villas homes in Barton Creek also continues to
progress. As of March 27, 2023, one home was under contract to sell and nine homes remain
available for sale. We also continue to make progress on several development projects
including Section N at Barton Creek, The Annie B, and the multi-family components of
Lantana Place, Jones Crossing, and Lakeway.

Retail Property Highlights

In 2022, we substantially completed construction on the first phase of development of
Magnolia Place, an H-E-B grocery shadow-anchored, mixed-use project in Magnolia, Texas,
and the two retail buildings are fully leased. Our five retail properties (Lantana Place,
Kingwood Place, Jones Crossing, West Killeen Market and Magnolia Place) are overall
93% leased and producing positive cash flow after debt service.

Conclusion

With higher inflation and interest rates, we have challenges ahead. With our long history of
successfully operating through a range of economic environments, and our disciplined
approach to capital raising and allocation, I am confident in our ability to continue to deliver
value to our shareholders.

The Stratus team and I are proud of our accomplishments and thankful to our shareholders
and partners for their support.

Sincerely,

William H. Armstrong III
Chairman of the Board, President and Chief Executive Officer

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K

(Mark one)
Í ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2022
OR
‘ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
to
Commission file number: 001-37716

For the transition period from

Stratus Properties Inc.
(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization)

212 Lavaca St., Suite 300

Austin,

Texas

(Address of principal executive offices)

72-1211572
(I.R.S. Employer Identification No.)

78701

(Zip Code)

(512) 478-5788
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.01 per share

STRS

The NASDAQ Stock Market

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ‘ Yes Í No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ‘ Yes Í No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.

Í Yes ‘ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant
to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
Í Yes ‘
was required to submit such files).
No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller
reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller
reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ‘
Í

Non-accelerated filer

‘
Accelerated filer
Smaller reporting company Í
Emerging growth company ‘

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ‘

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness
of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered
‘
public accounting firm that prepared or issued its audit report.

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant
included in the filing reflect the correction of an error to previously issued financial statements.

‘

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based
compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ‘
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ‘ Yes Í No

The aggregate market value of common stock held by non-affiliates of the registrant was $171.3 million on June 30, 2022.

Common stock issued and outstanding was 7,979,164 shares on March 27, 2023.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s proxy statement for its 2023 annual meeting of stockholders are incorporated by reference into Part III of this
report.

STRATUS PROPERTIES INC.
TABLE OF CONTENTS

Part I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Items 1. and 2. Business and Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1A. Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1B. Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 4. Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Information About Our Executive Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Part II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer

Purchases of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 6. Reserved . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Items 7. and 7A. Management’s Discussion and Analysis of Financial Condition and Results
of Operations and Quantitative and Qualitative Disclosures About Market Risk . . . . .
Item 8. Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9A. Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9B. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections . . . . . . . . . . . . .

Part III . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 10. Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . .
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related

Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 13. Certain Relationships and Related Transactions, and Director Independence . . . . . .
Item 14. Principal Accounting Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Part IV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 15. Exhibits, Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 16. Form 10-K Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Page

1
1
12
24
24
25
25

26
27

27
48

86
86
86
86

87
87
87

88
88
93

Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

S-1

Items 1. and 2. Business and Properties

PART I

All of our periodic reports filed with the United States (U.S.) Securities and Exchange Commission
(SEC) pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, are
available, free of charge, through our website, “stratusproperties.com,” including our annual report on
Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to
those reports. These reports and amendments are available through our website as soon as
reasonably practicable after we electronically file such material with, or furnish such material to, the
SEC. Our website is intended to provide information that may be of interest to investors and other
stakeholders. None of the information on, or accessible through, our website is part of this Form 10-K
or is incorporated by reference herein.

Except as otherwise described herein or where the context otherwise requires, all references to
“Stratus,” “we,” “us” and “our” refer to Stratus Properties Inc. and all entities owned or controlled by
Stratus Properties Inc. References to “Notes” refer to the Notes to Consolidated Financial Statements
included herein (refer to Item 8.), and references to “MD&A” refer to Management’s Discussion and
Analysis of Financial Condition and Results of Operations and Quantitative and Qualitative Disclosures
About Market Risk included herein (refer to Items 7. and 7A.).

Overview

We generate revenues and cash flows primarily from the sale of our developed and undeveloped
properties and the lease of our retail, mixed-use and multi-family properties. Developed property sales
can include an individual tract of land that has been developed and permitted for residential use, a
developed lot with a residence already built on the lot or a property that has been developed for lease.
In addition to our developed and leased properties, we have a development portfolio that consists of
approximately 1,600 acres of commercial and multi-family and single-family residential projects under
development or undeveloped land held for future use. We may sell properties under development,
undeveloped properties or leased properties if opportunities arise that we believe will maximize overall
asset value as part of our business strategy. Our leasing operations primarily involve the lease of
space at retail and mixed-use properties that we developed, and the lease of residences in multi-family
properties that we developed. Tenants in our retail and mixed-use properties are diverse and include
grocery stores, restaurants, healthcare services, fitness centers, a movie theater, and other retail
products and services. Refer to “Business Strategy” in MD&A for further discussion.

Recent Developments and Business Strategy

Over the last fiscal two years, we have generated substantial earnings and cash from the sale of the
mixed-use real estate property Block 21, and the sales of multi-family properties The Santal and The
Saint Mary, described in further detail below. In 2022, we produced record net income attributable to
common stockholders of $90.4 million. Our total stockholders’ equity increased from $98.9 million at
December 31, 2020 to $207.2 million at December 31, 2022.

After the sale of Block 21 in May 2022, which eliminated our Hotel and Entertainment segments, our
Board of Directors (Board) and management team engaged in a strategic planning process, which

included consideration of the uses of proceeds from our recent property sales, and of our long-term
business strategy. On September 1, 2022, after receiving written consent from Comerica Bank, our
Board declared a special cash dividend of $4.67 per share (totaling $40.0 million) on our common
stock, which was paid on September 29, 2022 to shareholders of record as of September 19, 2022.
Our Board also approved a new share repurchase program, which authorizes repurchases of up to
$10.0 million of our common stock. The repurchase program authorizes us, in management’s
discretion, to repurchase shares from time to time, subject to market conditions and other factors. As of
March 27, 2023, $8.7 million of our common stock had been repurchased under the program and
$1.3 million remained available under the program.

Our Board also decided to continue our successful development program, with our proven team
focusing on pure residential and residential-centric mixed-use projects in Austin and other select
markets in Texas, which we believe continue to be attractive locations. We believe by methodically
developing and enhancing the value of our properties and then selling them or holding them for lease,
we can create long-term value for our stockholders. As part of re-focusing our business, during third-
quarter 2022, we completed the sale of substantially all of our non-core assets.

Holden Hills. In first-quarter 2023, we entered into a limited partnership, obtained debt financing and
commenced construction of Holden Hills, our final large residential development within the Barton
Creek community in Austin, Texas. Holden Hills consists of 495 acres and the community is designed
to feature 475 unique residences to be developed in two phases. We contributed to the partnership the
Holden Hills land and related personal property at an agreed value of $70.0 million and our 50 percent
partner contributed $40.0 million in cash. The partnership distributed and paid $35.8 million in cash to
us in connection with these transactions. Refer to Note 11 for further discussion.

Sale of Block 21. On May 31, 2022, we completed the sale of Block 21 to Ryman Hospitality
Properties, Inc. (Ryman) for $260.0 million, subject to certain purchase price adjustments, and
including Ryman’s assumption of $136.2 million of existing mortgage debt, with the remainder paid in
cash. Our net proceeds of cash and restricted cash totaled $112.3 million (including $6.9 million of
post-closing escrow amounts to be held for 12 months after the closing, subject to a longer retention
period with respect to any required reserve for pending claims). We recorded a pre-tax gain on the sale
of $119.7 million in second-quarter 2022. Block 21 was our wholly owned mixed-use real estate
property in downtown Austin, Texas. Block 21 contains the 251-room W Austin Hotel and is home to
Austin City Limits Live at the Moody Theater, a 2,750-seat entertainment venue that serves as the
location for the filming of Austin City Limits, the longest running music series in American television
history. Block 21 also includes Class A office space, retail space and the 3TEN ACL Live entertainment
venue and business. The sale of Block 21 eliminated our Hotel and Entertainment segments. As a
result, our Hotel and Entertainment operations, as well as the leasing operations associated with Block
21, are reported as discontinued operations for all periods presented in the financial statements
included in this Form 10-K. Refer to Note 4 for further discussion.

Sale of The Santal. In December 2021, one of our wholly owned subsidiaries sold The Santal, a
448-unit luxury garden-style multi-family project located in Barton Creek in Austin, Texas, for
$152.0 million. After closing costs and payment of the outstanding project loan, the sale generated net
proceeds of approximately $74 million. We recorded a pre-tax gain on sale of $83.0 million in 2021.
Refer to Note 4 for further discussion.

Sale of The Saint Mary. In January 2021, one of our subsidiaries sold The Saint Mary, a 240-unit
luxury garden-style multi-family project located in the Circle C community in Austin, Texas, for
$60.0 million. After closing costs and payment of the outstanding construction loan, the sale generated
net proceeds of approximately $34.0 million. After establishing a reserve for remaining costs of the
partnership, we received $20.9 million from the subsidiary in connection with the sale and $12.9 million
of the net proceeds were distributed to the noncontrolling interest owners. We recorded a pre-tax gain

on sale of $22.9 million ($16.2 million net of noncontrolling interests) in 2021. Refer to Note 4 for
further discussion.

Continuing Operations

The following discussion describes the properties included in our Real Estate Operations and Leasing
Operations segments. Refer to Note 10, the section “Properties” below, and MD&A for more detailed
discussion of the properties.

Real Estate Operations. Our Real Estate Operations segment is comprised of our operations with
respect to our properties under various stages of development: developed for sale, under development
and available for development. As part of our real estate operations, we acquire, entitle, develop and
sell properties, focused on the Austin, Texas area and other select, fast-growing markets in Texas. The
current focus of our real estate operations is developing multi-family and single-family residential
properties and residential-centric mixed-use properties. We may sell or lease the real estate we
develop, depending on market conditions. Real estate that we develop and then lease becomes part of
our Leasing Operations (refer to “Leasing Operations” below).

We develop properties on our own and also through joint ventures in which we partner with third-party
equity investors, serve as general partner, receive fees for development and asset management and
may receive a preferred return after negotiated returns are reached. We may develop projects on land
we have owned for many years, such as in Barton Creek in Austin, Texas, or on land that we purchase
to develop in the near future, such as The Saint George and The Annie B projects described herein.
We may enter into land purchase contracts in which we obtain the right, but not the obligation, to buy
land at an agreed-upon price within a specified period of time. These contracts generally limit our
financial exposure to our earnest money deposited into escrow and pre-acquisition diligence and
planning costs we incur.

We engage and manage third-party general contractors to construct our projects typically on a fixed-price
basis. Our employees oversee extensive work done by individuals and companies we engage as
consultants for services including site selection, obtaining entitlements, architecture, engineering,
landscaping and land preservation, design, sustainability, and developing and implementing marketing
and sales plans.

Revenue from our Real Estate Operations segment accounted for 66 percent of our total revenue for
2022 and 30 percent for 2021.

The acreage under development and undeveloped as of December 31, 2022 that comprise our real
estate operations other than real estate held for sale is presented in the following table.

• Acreage under development includes real estate for which infrastructure work over the entire
property has been completed, is currently being completed or is able to be completed and for
which necessary permits have been obtained.

• Undeveloped acreage is presented according to anticipated uses for multi-family units, single-
family lots and commercial space based upon our understanding of the properties’ existing
entitlements. However, because of the nature and cost of the approval and development
process and uncertainty regarding market demand for a particular use, there is no assurance
that
the undeveloped acreage will ever be developed. Undeveloped acreage (i.e.,
development work is not currently in progress on such property) includes vacant pad sites at
Magnolia Place and Kingwood Place, as well as other real estate that can be sold “as is.”

Acreage Under Development

Undeveloped Acreage

Single
Family

Multi-
family Commercial Total

Single
Family

Multi-
family Commercial Total

Total
Acreage

Austin:

Barton Creek a

Circle C

Lantana

The Annie B

The Saint George

Lakeway

Magnolia Place b

Jones Crossing

Kingwood Place

New Caney

Total

—

512

215

394 1,121

1,168

—

216

237

—

237

512

344

725 1,581

1,632

a. Refer to “Properties – Barton Creek” below for a discussion of our properties within Barton Creek. The single-
family undeveloped acreage includes 495 acres in Holden Hills on which we have commenced infrastructure
construction during first-quarter 2023. The multi-family and commercial acreage includes approximately 570
acres representing our Section N project.

In October 2022, Stratus entered into a contract to sell approximately 11 acres planned for 275 multi-family
units at Magnolia Place for $4.3 million, expected to close by the end of 2023.

The following table summarizes the estimated development potential of our acreage under
development and undeveloped acreage as of December 31, 2022:

Barton Creek a

Circle C

Lantana

The Annie B

The Saint George

Lakeway

Magnolia Place b

Jones Crossing

New Caney

Other

Total

Single Family
(lots)

Multi-family
(units)

498

1,594

Commercial
(gross square feet)
1,648,891

—

306

316

270

875

275

—

660,985

160,000

8,325

—

15,000

104,750

145,000

7,285

498

4,283

2,750,236

a. Substantially all of the single-family lots relate to Holden Hills and substantially all of the multi-family and
commercial relates to Section N (refer to “Recent Development Activities” in MD&A). Refer to “Properties –
Barton Creek – Section N” below for further discussion of ongoing development planning that may result in
increased densities for multi-family and commercial entitlements.

In October 2022, Stratus entered into a contract to sell approximately 11 acres planned for 275 multi-family
units at Magnolia Place for $4.3 million, expected to close by the end of 2023.

Real estate under development as of December 31, 2022 in the table above included two multi-family
properties under construction in Austin, Texas: The Saint June, a 182-unit luxury garden-style project

within the Amarra development, and The Saint George, a 316-unit luxury wrap-style project. These
properties are expected to be reclassified into the Leasing Operations segment upon their completion,
which is expected in third-quarter 2023 for The Saint June and mid-2024 for The Saint George.

The development potential of our undeveloped acreage at December 31, 2022 also included the
following, which are not reflected in the table above:

•

one retail pad site at Kingwood Place;

approximately 13 acres planned for up to seven retail pad sites at Magnolia Place; and

four retail pad sites at Jones Crossing.

For additional information regarding the estimated development potential for each of our properties under
development and undeveloped properties, please refer to “Recent Development Activities” in MD&A.

Real estate held for sale includes developed properties in the Real Estate Operations segment and at
December 31, 2022 consisted of two residential lots in Amarra Drive Phase III.

Leasing Operations. Our Leasing Operations segment primarily involves the lease of space at retail and
mixed-use properties that we developed and the lease of residences in multi-family projects that we
developed. We engage third-party leasing and property management companies to manage our leased
operations. Tenants in our retail and mixed-use projects are diverse and include grocery stores,
restaurants, healthcare services, fitness centers, a movie theater and other retail products and services.

Our principal properties in our Leasing Operations segment at December 31, 2022 consisted of:

•

a 154,117-square-foot retail property representing the first phase of Jones Crossing;

a 151,855-square-foot mixed-use project at Kingwood Place;

a 99,379-square-foot mixed-use development representing the first phase of Lantana Place;

a 44,493-square-foot retail complex at West Killeen Market; and

a 18,582-square-foot retail property representing the first phase of Magnolia Place.

As discussed above, in December 2021 we sold The Santal and in January 2021 we sold The Saint
Mary, which were both multi-family projects included in our leasing operations.

Revenue from our Leasing Operations segment accounted for 34 percent of our total revenue for 2022
and 70 percent for 2021. Refer to the charts below for our leasing operations revenue by property during
2022 and our developed square feet of retail space by geographic location as of December 31, 2022.

2022 LEASING OPERATIONS REVENUE BY
PROPERTY

RETAIL SPACE BY GEOGRAPHIC LOCATION

Jones Crossing
27%

Lantana Place
38%

College Station, TX
(Jones Crossing)
33%

Kingwood Place
26%

West Killeen
9%

Kingwood, TX
(Kingwood Place)
32%

Austin, TX
(Lantana Place)
21%

Magnolia, TX
(Magnolia Place)
4%

Killeen, TX
(West Killeen Market)
9%

Our retail leasing properties had average rentals of $20.27 per square foot as of December 31, 2022,
compared to $20.86 per square foot as of December 31, 2021. Our scheduled expirations of leased
retail square footage as of December 31, 2022 as a percentage of total space leased is 2 percent in
2023, 4 percent in 2024, 1 percent in 2025, none in 2026, 2 percent in 2027 and 91 percent thereafter.

For further information about our operating segments refer to “Results of Operations” in MD&A. Refer
to Note 10 for a summary of our revenues, operating income and total assets by operating segment.

Properties

Our properties are primarily located in the Austin, Texas area, but include properties in other select
markets in Texas. Substantially all of our properties are encumbered pursuant to the terms of our debt
agreements. Refer to Note 6 for further discussion. Our Austin-area properties include the following:

Barton Creek
We have several properties that are located in the Barton Creek community, which is a 4,000-acre
upscale community located southwest of downtown Austin.

Amarra Drive. Amarra Drive is a subdivision featuring lots ranging from one to over five acres.

In 2015, we completed the development of the Amarra Drive Phase III subdivision, which consists of
64 lots on 166 acres. In 2021, we sold three lots. As of December 31, 2022, two developed Phase III
lots remained unsold.

Amarra Multi-family and Commercial. We also have multi-family and commercial lots in the Amarra
development of Barton Creek. The Amarra Villas and The Saint June, both described below, are being
developed on two of these multi-family lots. During 2021, we sold a five-acre multi-family tract of land,
and during 2022, we sold a six-acre multi-family tract of land. As of December 31, 2022, we have one
remaining undeveloped multi-family lot of approximately 11 acres and one undeveloped 22-acre
commercial lot.

Amarra Villas. The Villas at Amarra Drive (Amarra Villas) is a 20-unit project within the Amarra
development. The homes average approximately 4,400 square feet and are being marketed as “lock
and leave” properties, with golf course access and cart garages. We completed construction and sale
of the first seven homes between 2017 and 2019. We began construction on the next two Amarra
Villas homes in first-quarter 2020, one of which was completed and sold for $2.4 million in second-
quarter 2022. In 2021, we began construction of one additional home and in 2022, we began
construction on the remaining ten homes. In fourth-quarter 2022, we completed and sold one home for
$3.6 million. In March 2023, we completed and sold of one home for $2.5 million. Construction on the
last ten units continues to progress, and as of March 27, 2023, one home was under contract to sell
and nine homes remain available for sale.

The Saint June. In third-quarter 2021, we began construction on The Saint June, a 182-unit luxury
garden-style multi-family project within the Amarra development. The Saint June is being built on
approximately 36 acres and is comprised of multiple buildings featuring one, two and three bedroom
units for lease with amenities that include a resort-style clubhouse, fitness center, pool and extensive
green space. The project is expected to be completed in third-quarter 2023. We own this project
through a limited partnership with a third-party equity investor. Refer to Note 2 for further discussion.

Phase I is expected to consist of 337 luxury residence sites to be developed in nine distinct
communities or “pods,” and 12 single-family platted home sites or “estate lots,” and includes related
amenities and infrastructure. Phase I also includes the Tecoma Improvements, described below.
Phase II is expected to consist of 63 luxury residence sites to be developed in five distinct communities
or “pods,” and 63 single-family platted home sites or “estate lots,” and includes related amenities and
infrastructure. The luxury residences are expected to range in size from 2,000 square feet to 4,600
square feet. The estate lots are expected to range in size from 0.9 acres to 2.7 acres.

We entered into a limited partnership agreement with a third-party investor for this project in January
2023 (the Holden Hills partnership) and in February 2023 obtained construction financing for Phase I of
the project and commenced infrastructure construction. We expect to complete site work for Phase I,
including the construction of road, utility, drainage and other required infrastructure in late 2024.
Accordingly, our current projections anticipate that we could start building homes and/or selling home
sites in late 2024 or 2025. We may sell the developed pods and estate lots, or may elect to build and
sell, or build and lease, homes on some or all of the pods and estate lots, depending on financing and
market conditions. Pods and estate lots may also be acquired from the Holden Hills partnership by a
limited partner for further development under procedures approved by the partners.

We entered into a development agreement with the Holden Hills partnership (Development Agreement)
that provides that, as part of Phase I, the Holden Hills partnership will construct certain street,
drainage, water, sidewalk, electric and gas improvements in order to extend the Tecoma Circle
roadway on Section N land owned by Stratus from its current terminus to Southwest Parkway,
estimated to cost approximately $14.7 million (the Tecoma Improvements). The Tecoma Improvements
will enable access and provide utilities necessary for the development of both Holden Hills and Section
N. Pursuant to the Development Agreement, we will reimburse the Holden Hills partnership for
60 percent of the costs of the Tecoma Improvements.

The Holden Hills partnership is expected to be eligible to be reimbursed in the future by Travis County
Municipal Utility Districts (MUD) for a portion of future costs of the Tecoma Improvements and also for
a portion of future costs related only to the Holden Hills project, with such MUD reimbursements
currently estimated to be up to a maximum of $6.4 million for the Tecoma Improvements and
$8.0 million for only the Holden Hills project. The amount and timing of MUD reimbursements depends
upon, among other factors, the amount and timing of future actual costs incurred, the MUD having a
sufficient tax base within its district to issue bonds and obtaining the necessary state approval for the
sale of the bonds. Accordingly, the amount and timing of the receipt of MUD reimbursements is
uncertain.

Refer to Note 11 for further discussion.

Section N. Section N is Stratus’ wholly-owned approximately 570-acre tract located along Southwest
Parkway in the southern portion of the Barton Creek community, adjacent to Holden Hills. Using an
entitlement strategy similar to that used for Holden Hills, we continue to progress the development
plans for Section N. We are designing a dense, mid-rise, mixed-use project, with extensive multi-family
and retail components, coupled with limited office, entertainment and hospitality uses, surrounded by
an extensive greenspace amenity, which is expected to result in a significant increase in development
density, as compared to our prior plans.

Circle C Community
The Circle C community is a master-planned community located in Austin, Texas. In 2002, the city of
Austin granted final approval of a development agreement (the Circle C settlement), which firmly
established all essential municipal development regulations applicable to our Circle C properties until
2032. Refer to Note 9 for a summary of incentives we received in connection with the Circle C
settlement.

We are developing the Circle C community based on the entitlements secured in the Circle C
settlement. The Circle C settlement, as amended in 2004, permits development of 1.16 million square
feet of commercial space, 504 multi-family units and 830 single-family residential lots. As of
December 31, 2022, our Circle C community had remaining entitlements for 660,985 square feet of
commercial space and 56 multi-family units.

Lantana
Lantana is a community south of Barton Creek in Austin. Regional utility and road infrastructure is in
place with capacity to serve Lantana at full build-out as permitted under our existing entitlements. In
addition to Lantana Place, we have remaining entitlements for 160,000 square feet of commercial use
on five acres in the Lantana community.

Lantana Place
Lantana Place is a partially developed, mixed-use development project within the Lantana community.
We completed construction of the 99,379-square-foot first phase of Lantana Place in 2018. As of
December 31, 2022, we had signed leases for approximately 90 percent of the retail space, including
the anchor tenant, Moviehouse & Eatery, and a ground lease for an AC Hotel by Marriott, which
opened in November 2021.

We have remaining entitlements at Lantana Place for 306 multi-family units on approximately 12 acres.
We currently do not expect to begin construction of the Lantana Place multi-family development (now
known as The Saint Julia) prior to 2024, and the project remains subject to financing and market
conditions.

The Annie B
In September 2021, we announced plans for The Annie B, a proposed luxury high-rise rental project in
downtown Austin. Based on preliminary plans, The Annie B would be developed as a 400-foot tower,
consisting of approximately 420,000 square feet with 316 luxury multi-family units for lease. The project
includes the historic AO Watson house, which will be renovated and expanded to offer amenities that
may include a restaurant, pool and garden, while preserving the property’s historic and architectural
features. We closed the land purchase in September 2021. We continue to work to finalize our
development plans with a goal of beginning construction in late 2023 or 2024, subject to obtaining
financing and other market conditions. We own this project through a limited partnership with third-
party equity investors. Refer to Note 2 for further discussion.

The Saint George
In third-quarter 2022, we began construction on The Saint George, a 316-unit luxury wrap-style multi-
family project in north central Austin. The Saint George is being built on approximately four acres and
is comprised of studio, one and two bedroom units for lease and an attached parking garage. We
purchased the land and entered into third-party equity financing for the project in December 2021. We
entered into a construction loan for the project in July 2022 and began construction in third-quarter
2022. We currently expect to achieve substantial completion by mid-2024. We own this project through
a limited partnership with a third-party equity investor. Refer to Notes 2 and 6 for further discussion.

Lakeway
We own approximately 35 acres of undeveloped property in Lakeway, Texas located in the greater
Austin area, which is zoned for multi-family use. Refer to Note 9 for discussion of our sale of The Oaks
at Lakeway in 2017.

Our other Texas properties include:

Magnolia Place
In August 2021, we began construction on the first phase of development of Magnolia Place, our
H-E-B, L.P (H-E-B) grocery shadow-anchored, mixed-use project
in Magnolia, Texas. The
development concept plan for Magnolia Place consists of up to four retail buildings totaling
approximately 34,000 square feet, up to nine retail pad sites on approximately 16 acres to be sold or
ground leased, and a combination of residential uses, including single-family (approximately 124 lots)
and multi-family (a maximum of 875 units). The first phase of development consists of two retail
buildings totaling 18,582 square feet, all pad sites, and the road, utility and drainage infrastructure
necessary to support the entire development. Infrastructure construction was substantially completed
in second-quarter 2022, with the exception of certain water supply upgrades and a storm water
drainage pond, which are expected to be completed by the end of 2023. In third-quarter 2022, we
substantially completed construction on the first phase of development and the two retail buildings
were turned over to our retail tenants to begin their finish-out process. During second-quarter 2022, we
sold one retail pad site for $2.3 million and sold another retail pad site in third-quarter 2022 for
$1.1 million. In third-quarter 2022, we also sold 28 acres of undeveloped single-family residential land
for $3.2 million, leaving approximately 77 acres of undeveloped land in the development, currently
entitled for approximately 15,000 square feet of retail space, a maximum of 875 multi-family units and
up to seven retail pad sites. In October 2022, Stratus entered into a contract to sell approximately 11
acres planned for 275 multi-family units for $4.3 million, which is currently expected to close by the end
of 2023. H-E-B completed construction and opened its 95,000-square-foot grocery store on an
adjoining 18-acre site in fourth-quarter 2022.

Jones Crossing
In 2017, we entered into a 99-year ground lease pursuant to which we have leased a 72-acre tract of
land in College Station, Texas, for Jones Crossing, an H-E-B-anchored, mixed-use project.
Construction of the first phase of the retail component of the Jones Crossing project was completed in
2018, consisting of 154,117 square feet. The H-E-B grocery store opened in September 2018, and, as
of December 31, 2022, we had signed leases for substantially all of the retail space, including the
H-E-B grocery store. As of December 31, 2022, we had approximately 23 undeveloped commercial
acres with estimated development potential of approximately 104,750 square feet of commercial space
and four retail pad sites. We continue to evaluate options for the 21-acre multi-family component of this
project.

Kingwood Place
In 2018, we purchased a 54-acre tract of land in Kingwood, Texas (in the greater Houston area) to be
developed as Kingwood Place, an H-E-B-anchored, mixed-use development project. The Kingwood
Place project includes 151,855 square feet of retail lease space, anchored by a 103,000-square-foot
H-E-B grocery store, and five pad sites. Construction of two retail buildings, totaling approximately
41,000 square feet, was completed in August 2019, and the H-E-B grocery store opened in November
2019. An 8,000-square-foot retail building was completed in June 2020. We have signed ground leases
on four retail pad sites and one retail pad site remains available for lease. As of December 31, 2022,
we had signed leases for approximately 96 percent of the retail space, including the H-E-B grocery
store. We own this project through a limited partnership with third-party equity investors. Refer to Note
2 for further discussion.

In October 2022, we closed on the sale of a 10-acre multi-family tract of land at Kingwood Place for
$5.5 million. In connection with the sale, we made a $5.0 million principal payment on the Kingwood
Place construction loan.

West Killeen Market
In 2015, we acquired approximately 21 acres in Killeen, Texas, to develop the West Killeen Market
project, an H-E-B shadow-anchored retail project and sold 11 acres to H-E-B. The project
encompasses 44,493 square feet of commercial space and three pad sites adjacent to a 90,000
square-foot H-E-B grocery store. Construction at West Killeen Market was completed and the H-E-B
grocery store opened in 2017. As of December 31, 2022, we had signed leases for approximately
74 percent of the retail space at West Killeen Market. During 2021, we sold a retail pad site for
$0.8 million. During third-quarter 2022, we sold the last remaining retail pad site for $1.0 million.

New Caney
In 2018, we purchased a 38-acre tract of land, in partnership with H-E-B, in New Caney, Texas,
originally planned for the future development of an H-E-B-anchored, mixed-use project. Subject to
completion of development plans, we currently expect the New Caney project will include restaurants
and retail services, totaling approximately 145,000 square feet, five pad sites and a 10-acre multi-
family parcel planned for approximately 275 multi-family units. We finalized the lease for the H-E-B
grocery store in March 2019, and upon execution of this lease, we acquired H-E-B’s interests in the
partnership for approximately $5 million. Due to changes in H-E-B’s development timeline, the H-E-B
lease was terminated in fourth-quarter 2022. We are currently working with another prospective retail
anchor and do not plan to commence construction of the New Caney project prior to 2024.

Our development plans for The Annie B, Section N and The Saint Julia will require significant additional
capital, which we currently intend to pursue through project-level debt and third-party equity capital
arrangements through joint ventures in which we receive development management fees and asset
management fees, and with our potential returns increasing above our relative equity interest in each
project as negotiated return hurdles are achieved. We anticipate seeking additional debt to finance the
development of Phase II of Holden Hills. We are also pursuing other development projects. These
potential development projects and projects in our pipeline 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.

Competition

We operate in highly competitive industries, namely the real estate development and leasing
industries. Refer to Part I, Item 1A. “Risk Factors” for further discussion of competitive factors relating
to our businesses.

Revolving Credit Facility and Other Financing Arrangements

Obtaining and maintaining adequate financing is a critical component of our business. For information
about our revolving credit facility and other financing arrangements, refer to “Capital Resources and
Liquidity - Revolving Credit Facility and Other Financing Arrangements” in MD&A and Notes 2, 6 and
11.

Regulation and Environmental Matters

Our real estate investments are subject to extensive and complex local, city, county and state laws,
rules and regulations regarding permitting, zoning, subdivision, utilities and water quality as well as
federal laws, rules and regulations regarding air and water quality, and protection of the environment,
endangered species and their habitats. Such regulation has delayed and may continue to delay
development of our properties and may result in higher development and administrative costs. Refer to
Part I, Item 1A. “Risk Factors” for further discussion.

We have made, and will continue to make, expenditures for the protection of the environment with
respect to our real estate development activities. Emphasis on environmental matters will result in
additional costs in the future. Further, regulatory and societal responses intended to reduce potential
climate change impacts may increase our costs to develop, operate and maintain our properties.

Corporate Responsibility

During 2022, with the oversight of the Nominating and Corporate Governance Committee of our Board,
we posted to our website information regarding our corporate responsibility performance and
objectives, including discussions about our human capital management, governance, sustainability
objectives and related policies adopted by our Board. Our website is intended to provide information
that may be of interest to investors and other stakeholders. None of the information on, or accessible
through, our website is part of this Form 10-K or is incorporated by reference herein.

Human Capital
We believe that our employees are one of our greatest resources and that our diverse, dedicated and
talented team is the foundation of our success and achievements. At December 31, 2022, we had a
total of 31 employees, all of whom were full-time employees. We believe we have a good relationship
with our employees, none of whom are represented by a union. In 2022, we adopted a new Labor and
Human Rights Policy, recommended by our Board’s Nominating and Corporate Governance
Committee and approved by our Board.

Beginning in 1996, certain services necessary for our business and operations, including certain
administrative, financial reporting and other services, were performed by FM Services Company (FM
Services) pursuant to a services agreement. FM Services is a wholly owned subsidiary of Freeport-
McMoRan Inc. We and FM Services phased out and terminated the services agreement during 2022,
and we are performing these functions in-house.

Sustainability
As a real estate development company centered in Austin, Texas, we understand the value that a
healthy environment and healthy people bring to our projects, our company and our stakeholders. As a
member of the U.S. Green Building Council (USGBC), we work along with council members with the
goal of transforming the way buildings and communities are designed, built and operated in order to
create environmentally and socially responsible properties for a more sustainable life. For more than
15 years, we have partnered with leaders in sustainable development, engineering and design,
including, among others, USGBC and The Center for Maximum Potential Building Systems. We have
built a range of projects recognized as being on the leading edge of sustainable practices, including
Block 21, the first mixed-use high rise tower in Austin to receive the USGBC LEED (Leadership in
Energy & Environmental Design) Silver certification, and many of our residential communities and retail
developments. Our Holden Hills residential development is being designed to focus on health and
wellness, sustainability and energy conservation. We believe that our customers recognize our
environmental stewardship and will continue to reward thoughtful and sustainable development. In
2022, we adopted a new Environmental Policy and Vendor Code of Conduct, recommended by our
Board’s Nominating and Corporate Governance Committee and approved by our Board.

Item 1A. Risk Factors

This report contains “forward-looking statements” within the meaning of the United States (U.S.)
federal securities laws. Forward-looking statements are all statements other than statements of
historical fact, such as plans, projections or expectations. For additional information, refer to
“Cautionary Statement” in Items 7. and 7A. Management’s Discussion and Analysis of Financial
Condition and Results of Operations and Quantitative and Qualitative Disclosures About Market Risk.

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. 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 are discussed below. Investors
should carefully consider the risks described below in addition to the other information set forth in this
Annual Report on Form 10-K. The risk factors described herein are not all of the risks we may face.
Other risks not presently known to us or that we currently believe are immaterial may materially and
adversely affect our business if they occur, and the trading price of our securities could decline, and
you may lose part or all of your investment. Moreover, new risks emerge from time to time. Further, our
business may also be affected by general risks that apply to all companies operating in the U.S., which
we have not included below.

Risks Relating to our Business and Industry

We cannot assure you that our current business strategy will be successful.

In May 2022 we completed the sale of Block 21, which eliminated our Hotel and Entertainment
segments. In 2021, we completed the sales of our stabilized multi-family properties, The Santal and
The Saint Mary. These sales collectively generated after-tax cash flow of approximately $166 million.
Our Board and management team engaged in a strategic planning process, and in third-quarter 2022
announced that, after streamlining our business through the sale of Block 21, we intend to continue our
real estate development program, with our experienced team focusing on pure residential and
residential-centric mixed-use projects in Austin and other select markets in Texas, which we believe
continue to be attractive locations. In addition, our Board declared a special cash dividend totaling
approximately $40 million on our common stock, paid on September 29, 2022, and approved a new
share repurchase program, which authorizes us, in management’s discretion, to repurchase up to
$10 million of our common stock from time to time, subject to market conditions and other factors. As
of March 27, 2023, $8.7 million of our common stock had been repurchased under the program and
$1.3 million remained available under the program.

We cannot assure you that our current business strategy will be successful. Our development plans for
future projects require significant additional debt and equity capital. We have increasingly raised equity
capital from third parties through joint venture structures, which have their own risks as described
below. We may not be able to obtain the funding necessary to implement our business strategy on
acceptable terms or at all as further described below. Furthermore, our business strategy may not
produce sufficient revenues even if we are able to obtain the necessary capital. Our main source of
revenue and cash flow is expected to come from sales of our properties to third parties or to joint
ventures in which we participate. Results of the past sales of our properties are not indicative of results
of future sales. The timing of property sales and proceeds from such sales are difficult to predict and
depend on market conditions and other factors. We also generate cash flow from rent in our leasing
operations and from development and asset management fees received from our properties. However,
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. Our long-term
success will depend on our ability to profitably execute our development plans over time.

Increases in construction and labor costs, supply chain constraints, higher borrowing costs
and tightening bank credit are having an adverse impact on us and may continue to do so.

Our industry has been experiencing construction and labor cost increases, supply chain constraints,
labor shortages higher borrowing costs and tightening bank credit. These factors have increased our
costs, adversely impacted the projected profitability of our new projects, delayed the start of or
completion of projects, adversely impacted our ability to raise equity capital on attractive terms and in
our desired time frame and adversely impacted our ability to sell some properties at attractive prices in
our desired time frame; these trends may continue or worsen.

On completed projects, we are experiencing increased borrowing costs on our variable rate debt and
increased operating costs due to inflation. As of December 31, 2022, all of our consolidated debt was
variable rate debt. For all of such debt other than the Comerica Bank revolving credit facility, the
average interest rate increased for 2022 compared to 2021 and may continue to rise in the future if
prevailing market interest rates continue to climb. Refer to Note 6 for additional information. Further
increases in interest rates would further increase our interest costs and the costs of refinancing existing
debt or incurring new debt, which would adversely affect our profits and cash flow. Our operating
expenses impacted by inflation include contracted services for our properties such as janitorial and
engineering services, utilities, repairs and maintenance and insurance. Inflation may cause the value of
our properties to rise, which could lead to higher property taxes. High inflation or adverse economic
conditions could have a negative impact on our tenants’ ability to pay rent or absorb rent increases.
Our general and administrative expenses include compensation costs, professional fees and
technology services, all of which may increase due to inflation.

In addition, rising costs and delays in delivery of materials may increase the risk of default by
contractors and subcontractors on ongoing construction projects. If we are unable to offset rising costs
by value engineering or raising rents and sales prices, our profitability and cash flows would be
adversely impacted, and we may be required to recognize additional impairment charges in the future.
Further, these factors have caused and may continue to cause a decline in demand for our real estate,
which could harm our business.

A decline in general economic conditions, particularly in the Austin, Texas area, could harm our
business.

During 2022, the U.S. economy experienced steep rises in inflation and interest rates. Russia began a
full-scale invasion of Ukraine in February 2022, causing global economic disruptions. These economic
disruptions may continue or worsen in the future. Periods of economic uncertainty, weakness or
recession; declining employment levels; declining consumer confidence and spending; declining
access to capital; global instability; or the public perception that any of these events or conditions may
occur, be present or worsen, may negatively affect our business. These economic conditions can result
in a general decline in real estate acquisition, disposition, development and leasing activity, a general
decline in the value of real estate and in rents, and increases in tenant defaults. Our business is
especially sensitive to economic conditions in the Austin, Texas area, where the majority of our
properties are located. As a result of a decline in economic conditions, the value of our real estate may
be reduced, increasing the risk for additional asset impairments, our development projects may
continue to be delayed or we may experience a decline in demand for our real estate, and we could
realize losses or diminished profitability.

We are vulnerable to concentration risks because our operations are primarily located in the
Austin, Texas area and are primarily focused on residential, residential-centric mixed-use, and
retail real estate.

Our real estate operations are primarily located in the Austin, Texas area. While our real estate
operations have expanded to include select markets in Texas outside of the Austin area, the
geographic concentration of the majority of our operations and of the properties we may have under
development at any given time means that our business is more vulnerable to negative changes in
local economic, regulatory, weather and other conditions than the businesses of larger, more
diversified companies. The performance of the Austin area’s economy and our other select markets in
Texas greatly affects our revenue and the values of our properties. We cannot assure you that these
markets will continue to grow or that underlying real estate fundamentals will be favorable in these
markets. Further, negative changes in Austin demographic trends can result in Austin becoming a less
desirable place for individuals, families and businesses to relocate, making it more difficult for us to sell
or rent our properties, increase rents and retain tenants. As a result of our geographic concentration
and focus on residential, residential-centric mixed-use, and retail projects in Austin, we may be
exposed to greater risks than if our investment focus was based on more diversified types of properties
and in more diversified geographic areas. Refer to “Overview of Financial Results for 2022 - Real
Estate Market Conditions” in Part II, Items 7. and 7A. for more information.

We may not be able to raise additional capital for future projects on acceptable terms, if at all.

Our industry is capital-intensive and requires significant up-front expenditures to secure land and
pursue development and construction. We have relied on cash flow from operations and our debt
agreements as our primary sources of funding. We have also relied on third-party project-level equity
financing of our subsidiaries, which we expect to continue to increase in the future. Our ability to raise
additional capital in the future will depend on conditions in the equity and debt markets, general
economic and real estate conditions and our financial condition, performance and prospects, among
other factors, many of which are not within our control. We may not be able to raise additional capital
on acceptable terms if at all. Any inability to raise additional capital when needed for existing or future
projects could delay or terminate future projects, hinder our ability to complete projects, and prevent us
from refinancing debt obligations, which could have a material adverse effect on our business, financial
condition and results of operations.

The failure of any bank in which we deposit our funds could have an adverse impact on our
financial condition, liquidity and operations.

The Federal Deposit Insurance Corporation insures bank accounts in amounts up to only $250,000 per
depositor per insured bank. We currently have cash and cash equivalents deposited in certain banks in
excess of federally insured limits. If any of the banking institutions in which we have deposited funds
fails, we may lose our deposits in excess of $250,000. The failure of a bank with which we do business
may also disrupt our ability to access deposits and other services provided to us by the bank. The loss
of, or inability to access, our deposits or other banking services may have a material adverse effect on
our financial condition, liquidity and operations. For additional information, refer to Management’s
Discussion and Analysis of Financial Condition and Results of Operations – Capital Resources and
Liquidity.

The ongoing COVID-19 pandemic may continue to challenge our business and any future major
public health crisis could adversely affect our business.

The U.S. and other countries have experienced, and may experience in the future, outbreaks of
contagious diseases or other health crises that affect public health and public perception of health risk.

For example, the ongoing COVID-19 pandemic and the public health response to minimize its impact
have had significant disruptive effects on global economic and market conditions. Many industries,
including ours, have been experiencing related supply chain disruptions and labor shortages. In
addition, inflation and interest rates increased significantly during 2022 and may continue to do so in
2023.

The COVID-19 pandemic disrupted the operations of our retail tenants, and during 2020, we
proactively engaged with our project lenders in connection with formulating rent deferral arrangements
for our tenants and obtaining concessions under our debt agreements. We cannot predict the extent to
which individuals and businesses may voluntarily restrict their activities, the extent to which
governments may reinstitute restrictions, nor the extent to which evolving COVID-19 pandemic
developments may have an adverse impact on the economy or our business. Further, any future major
public health crisis could have a material adverse impact on our business, results of operations and
financial condition.

Part of our business strategy depends on maintaining strong relationships with key tenants
and our inability to do so could adversely affect our business.

We have formed strategic relationships with key tenants as part of our overall strategy for particular
retail and mixed-use development projects and may enter into other similar arrangements in the future.
For example, our West Killeen Market, Jones Crossing, Kingwood Place and Magnolia Place
mixed-use development projects are each anchored by an H-E-B grocery store. We finalized a lease
for the H-E-B grocery store at our New Caney development project in March 2019; however, due to
changes in H-E-B’s development timeline, the H-E-B lease was terminated in fourth-quarter 2022. We
are currently working with another prospective retail anchor and do not plan to commence construction
prior to 2024. Any deterioration in our relationship with H-E-B or our inability to form and retain
strategic relationships with key tenants or enter into other similar arrangements in the future could
adversely affect our business. If we are unable to renew a lease we have with a key tenant at one of
our properties, or to re-lease the space to another key tenant of similar or better quality, we could
experience material adverse consequences with respect to such property, such as a higher vacancy
rate, less favorable leasing terms, reduced cash flow and reduced property values. Similarly, if one or
more of our key tenants becomes insolvent or enters into bankruptcy proceedings, our business could
be materially adversely impacted.

Loss of key personnel could negatively affect our business.

We depend on the experience and knowledge of our executive officers and other key personnel who
guide our strategic direction and execute our business strategy, have extensive market knowledge and
relationships, and exercise substantial influence over our operations. Among the reasons that these
individuals are important to our success is that each has a regional industry reputation that attracts
business and investment opportunities and assists us in negotiations with lenders, existing and
potential tenants, community stakeholders and industry personnel. The loss of any of our executive
officers or other key personnel could negatively affect our business.

We could be impacted by our investments through joint ventures, which involve risks not
present in investments in which we are the sole owner.

We have increased our use of third-party equity financing of our subsidiaries’ development projects.
We expect to continue to fund development projects through the use of such joint ventures. Joint
ventures involve risks not present with our wholly-owned properties, including but not limited to, the
possibility the other joint venture partners may possess the ability to take or force action contrary to our
interests or withhold consent contrary to our requests, have business goals which are or become

inconsistent with ours, or default on their financial obligations to the joint venture, which may require us
to fulfill the joint venture’s financial obligations as a legal or practical matter. We and our joint venture
partners may each have the right to initiate a buy-sell arrangement, which could cause us to sell our
interest, or acquire a joint venture partner’s interest, at a time when we otherwise would not have
entered into such a transaction. In addition, a sale or transfer by us to a third party of our interests in
the joint venture may be subject to consent rights or rights of first refusal in favor of our partners which
would restrict our ability to dispose of our interest in the joint venture. Each joint venture agreement is
individually negotiated, and our ability to operate, finance, or dispose of a joint venture project in our
sole discretion is limited to varying degrees depending on the terms of the applicable joint venture
agreement. Refer to Note 2 for further discussion of our investments in joint ventures.

Adverse weather conditions, public safety issues, political instability, and other potentially
catastrophic events in our Texas markets could adversely affect our business.

Adverse weather conditions, including natural disasters, public safety issues, political instability, and
other potentially catastrophic events in our Texas markets may adversely affect our business, financial
condition and results of operations. Adverse weather conditions may be amplified by or increase in
frequency due to the effects of climate change. These events may delay development activities,
interrupt our leasing operations, or damage property resulting in substantial repair or replacement
costs to the extent not covered by insurance. Any of these factors could cause shortages and price
increases in labor or raw materials, reduce property values, or cause a loss of revenue, each of which
could have a material adverse effect on our business, financial condition and results of operations.

Failure to succeed in new markets may limit our growth.

We have acquired in the past, and we may acquire in the future, properties that are outside of the
Austin, Texas area, which is our primary market. Our historical experience in existing markets does not
ensure that we will be able to operate successfully in new markets. Entering into new markets exposes
us to a variety of risks, including difficulty evaluating local market conditions and local economies,
developing new business relationships in the area, competing with other companies that already have
an established presence in the area, hiring and retaining personnel, evaluating quality tenants in the
area, and a lack of familiarity with local governmental and permitting procedures. Furthermore,
expansion into new markets may divert management’s time and other resources away from our current
primary market. As a result, we may not be successful in expanding into new markets, which could
adversely impact our results of operations and limit our growth.

Our insurance coverage on our properties may be inadequate to cover any losses we may incur
and our insurance costs may increase.

We maintain insurance on our properties, including business interruption, property, liability, fire and
extended coverage. However, there are certain types of losses, generally of a catastrophic nature,
such as floods or acts of war or terrorism that may be uninsurable or not economical to insure. Further,
insurance companies often increase premiums, require higher deductibles, reduce limits, restrict
coverage, and refuse to insure certain types of risks, which may result in increased costs or adversely
affect our business. We may be unable to renew our current insurance coverage in adequate amounts
or at reasonable premiums. We use our discretion when determining amounts, coverage limits and
deductibles for insurance based on retaining an acceptable level of risk at a reasonable cost. This may
result in insurance coverage that, in the event of a substantial loss, would not be sufficient to pay the
full current market value or current replacement cost of our lost investment. In addition, we may
become liable for injuries and accidents at our properties that are underinsured. A significant uninsured

loss or increase in insurance costs could materially and adversely affect our business, liquidity,
financial condition and results of operations.

Our business may be adversely affected by
cybersecurity breaches of our systems or the systems of our contractors.

information technology disruptions and

Many of our business processes and records depend on technology systems to conduct day-to-day
operations and lower costs, and therefore, we are vulnerable to the increasing threat of information
technology disruptions and cybersecurity breaches. We also utilize the services of a number of
independent contractors, such as general construction contractors, engineers, architects, leasing
agents and attorneys, and their businesses are also vulnerable to the increasing threat of information
technology disruptions and cybersecurity breaches. These risks include, but are not limited to,
installation of malicious software, phishing, ransomware, credential attacks, unauthorized access to
data and other electronic security breaches that could lead to disruptions in systems, unauthorized
release of confidential or otherwise protected information, employee theft or misuse of confidential or
otherwise protected information and the corruption of data. Increased use of remote work and virtual
platforms may increase our risk of cybersecurity breaches. Our systems and those of our contractors
are also vulnerable to damage or interruption from fire, floods, power loss, telecommunications failures,
computer viruses, break-ins and similar events. A significant theft, loss, loss of access to, or fraudulent
use of employee, tenant or other company data could adversely impact our reputation and could result
in a loss of business, as well as remedial and other expenses, fines, and litigation. There can be no
assurance that our security efforts and measures and those of our independent contractors will be
effective.

We have experienced targeted and non-targeted cybersecurity incidents in the past and may
experience them in the future. While these cybersecurity incidents did not result in any material loss to
us or interrupt our day-to-day operations as of March 27, 2023, there can be no assurance that we will
not experience any such losses in the future. Further, as cybersecurity threats continue to evolve and
become more sophisticated, we may be required to expend significant additional resources to continue
to modify or enhance our protective measures or to investigate and remediate any vulnerabilities to
cybersecurity threats.

We cannot assure you that we will receive the $6.9 million held in escrow from our sale of Block
21 in May 2022.

In order to secure our subsidiaries’ responsibilities for the accuracy of certain representations and
warranties in the agreements governing the sale of Block 21, $6.9 million of the purchase price was
held in escrow for 12 months after the closing, subject to a longer retention period with respect to any
required reserve for pending claims. The $6.9 million is reflected in restricted cash in our consolidated
balance sheet for the year ended December 31, 2022. We cannot assure you that we will eventually
receive all or any of the amounts held in escrow.

Risks Relating to our Indebtedness

We have significant amounts of debt, may incur additional debt, and need significant amounts
of cash to service our debt. If we are unable to generate sufficient cash to service our debt, our
liquidity, financial condition and results of operations could be negatively affected.

As of December 31, 2022, our outstanding debt totaled $122.8 million and our cash and cash
equivalents totaled $37.7 million. Except for our Comerica Bank revolving credit facility, all of our loans
are project-level loans. 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. Stratus, as the parent
company, is typically required to guarantee the payment of the project loans, in some cases until
certain development milestones and/or financial conditions are met, and in some cases on a full
recourse basis and in other cases on a more limited recourse basis. As of December 31, 2022, Stratus,
as the parent company, guaranteed the payment of all of the project loans, except for the Jones
Crossing loan and Lantana Place construction loan. Refer to Note 6 for additional discussion.

Our level of indebtedness could have significant adverse consequences. For example, it could:

•

Increase our vulnerability to adverse changes in economic and industry conditions;

• Require us to dedicate a substantial portion of our cash flow from operations and proceeds
from asset sales to pay or provide for our indebtedness, thus reducing the availability of cash
flows to fund working capital, development projects, capital expenditures, land acquisitions
and other general corporate purposes;

•

Limit our flexibility to plan for, or react to, changes in our business and the markets in which
we operate;

• Force us to dispose of one or more of our properties, possibly on unfavorable terms;

• Place us at a competitive disadvantage to our competitors that have less debt;

•

Limit our ability to obtain future financing to fund our working capital, our development
activities, capital expenditures, debt service requirements and other financing needs; and/or

Limit our ability to refinance our indebtedness or cause the refinancing terms to be less
favorable than the terms of our original indebtedness.

Our ability to make scheduled debt service payments or to refinance our indebtedness depends on our
future operating and financial performance, which is subject to economic, financial, competitive and
other factors beyond our control. Our inability to extend, repay or refinance our debt when it becomes
due, including upon a default or acceleration event, could allow our lenders to declare all amounts
outstanding under the loans due and payable, seek to foreclose on the collateral securing the loans
and/or seek to force us into involuntary bankruptcy proceedings. In addition, any difficulty in obtaining
sufficient capital for planned development expenditures could also cause project delays, which could
increase our costs, or could cause us to abandon projects already underway. There can be no
assurance that we will generate cash flow from operations in an amount sufficient to enable us to
service our debt, make necessary capital expenditures, or to fund our other liquidity needs.

Our current financing arrangements contain, and our future financing arrangements likely will
contain, financial and restrictive covenants, and the failure to comply with such covenants
could result in a default that accelerates the required payment of such debt.

The terms of the agreements governing our indebtedness include restrictive covenants, including
covenants that require that certain financial ratios be maintained. The debt arrangements that we and
our subsidiaries have contain significant limitations that may restrict our ability and the ability of our
subsidiaries to, among other things:

•

borrow additional money or provide guarantees;

pay dividends, repurchase equity or make other distributions to equityholders;

• make loans, advances or other investments or create liens on assets;

•

sell assets, enter into sale-leaseback transactions or enter into transactions with affiliates; or

permit a change of management or control, sell all or substantially all of our assets, or engage
in mergers, consolidations or other business combinations. Refer to “Capital Resources and

Liquidity” in Part II, Items 7. and 7A. and Note 6 for additional discussion of restrictive
covenants in our debt agreements.

Failure to comply with any of the restrictive covenants in our loan documents could result in a default
that may, if not cured or waived, accelerate the payment under our debt obligations which would likely
have a material adverse effect on our liquidity, financial condition and results of operations. We may
not be able to obtain waivers or modifications of covenants from our lenders and lenders may require
fees or higher interest rates to grant any such requests. Certain of our debt arrangements have cross-
default or cross-acceleration provisions, which could have a wider impact on liquidity than might
otherwise arise from a default or acceleration of a single debt instrument. We cannot assure you that
we could adequately address any such defaults, cross-defaults or acceleration of our debt payment
obligations in a sufficient or timely manner, or at all. Our ability to comply with our covenants will
depend upon our future economic performance. These covenants may adversely affect our ability to
finance our future operations, satisfy our capital needs or engage in other business activities that may
be desirable or advantageous to us.

In order to maintain compliance with the covenants in our debt agreements and carry out our business
plan, we may need to use cash to pay down the principal balance of the loan, contribute additional
equity to a project or raise additional debt or equity capital, including project-level equity financing of
our subsidiaries. Such additional funding may not be available on acceptable terms, if at all, when
needed. If new debt is added to our current debt levels, the risks described above could intensify.

Risks Relating to Real Estate Operations

Our business, results of operations, cash flows and financial condition are greatly affected by
the performance of the real estate industry.

The U.S. real estate industry is highly cyclical and is affected by global, national and local economic
conditions, general employment and income levels, availability of financing, inflation, interest rates, and
consumer confidence and spending. As discussed above, our industry was adversely impacted during
2022 by rising inflation and interest rates, which may continue in 2023 and beyond. Our Holden Hills
project involves the development of residential lots. Our ability to successfully monetize our investment
in developed lots will depend on the availability and cost of financing for purchasers of the lots, for
residential construction and for homebuyers, which may be adversely impacted by rising interest and
mortgage rates. There has generally been a decline over time in the brick-and-mortar retail industry
due to increases in on-line shopping, which generally has had an adverse impact on retail development
projects. Other factors that may impact real estate businesses include over-building, changes in traffic
patterns, changes in demographic conditions, changes in tenant and buyer preferences and changes
in government requirements, including tax law changes and changes in zoning laws. These factors are
outside of our control and may have a material adverse effect on our business, profits and the timing
and amounts of our cash flows.

There can be no assurance that the properties in our development pipeline will be completed in
accordance with the anticipated timing or cost.

We currently have several projects at various stages of development. The development of the projects
in our pipeline is subject to numerous risks, many of which are outside of our control, including:

•

inability to obtain entitlements;

inability to obtain financing on acceptable terms;

cost increases or overruns;

•

default by any of the contractors we engage to construct our projects;

site accidents; and

failure to secure tenants or residents in the anticipated time frame, on acceptable terms, or at
all.

We can provide no assurances that we will complete any of the projects in our development pipeline on
the anticipated schedule or within the budget, or that, once completed, these properties will achieve the
results that we expect. Under our construction loans, advances are typically made in accordance with
established budget allocations, and if the lender deems that the undisbursed proceeds of the loan are
insufficient to meet the 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.
If the development of our projects is not completed in accordance with our anticipated timing or cost, or
the properties fail to achieve the financial results we expect, it could have a material adverse effect on
our business, financial condition, results of operations and cash flows and ability to repay our debt,
including project-related debt.

Risks associated with our ownership of substantial amounts of undeveloped land or land under
development could adversely affect our business and financial results.

We own a substantial amount of undeveloped land and land under development. If demand for
undeveloped real estate, or retail, residential or multi-family properties deteriorates, we may not be
able to develop or complete development of our land profitably, may not be able to fully recover the
costs of some of the land we own, may choose to forfeit deposits on land controlled through options or
purchase contracts, and may choose to sell land for prices lower than our costs, which may cause
losses or additional impairment charges.

It may be difficult for us to sell our real estate at times and prices advantageous to us.

Real estate is a relatively illiquid asset. It may be difficult for us to sell our real estate quickly if the need
or desire arises, at prices or on terms we find acceptable. This may limit our ability to make rapid
adjustments in the size and content of our portfolio of assets in response to changes in economic or
other conditions, may constrain our ability to pay our debts, and may lead to losses or additional
impairment charges. Refer to “Critical Accounting Estimates” in Part II, Items 7. and 7A. for more
information.

Significant competition could have an adverse effect on our business.

Our competitors include local developers who are committed primarily to particular markets and also
regional and national developers who acquire and develop properties throughout the U.S. Many of our
competitors are larger and financially stronger than we are, have more resources than we do, and have
greater economies of scale and lower cost structures. If we fail to compete effectively, our business
and profitability will be adversely affected.

Our operations are subject to an intensive regulatory approval process and opposition from
environmental and special interest groups, either or both of which could cause delays and
increase the costs of our development efforts or preclude such developments entirely.

Real estate projects must generally comply with local land development regulations and may need to
comply with state and federal regulations. Before we can develop a property, we must obtain a variety
of approvals from local and state governments with respect to such matters as zoning and other land

use entitlements and issues, and subdivision, site planning and environmental issues under applicable
regulations. Obtaining all of the necessary permits and entitlements to develop a parcel of land is often
difficult and costly, and may take several years or more to complete. In some situations, we may be
unable to obtain the necessary permits and/or entitlements to proceed with a real estate development
or may be required to alter our plans for the development. In addition, the zoning that ultimately is
approved could include density provisions that would limit the number of homes and other structures
that could be built within the boundaries of a particular area. Any of these may limit, delay or increase
the costs of acquisition of land and development of our properties. Because government agencies and
special interest groups from time to time express concerns about certain of our development plans,
and in the future may express similar concerns, our ability to develop these properties and realize
future income from our properties could be delayed, reduced, prevented or made more expensive. In
addition, any failure to comply with these laws or regulations could result in capital or operating
expenditures or significant financial penalties or restrictions on our operations that could adversely
affect present and future operations or our ability to sell our properties, and thereby, our financial
condition, results of operations and cash flows. Further, the contractors and/or subcontractors we rely
on to perform the construction of our properties are also subject to a significant number of local, state
and federal laws and regulations, including laws involving matters that are not within our control. If they
fail to comply with all applicable laws, we can suffer reputational damage, and may be exposed to
potential liability.

Our operations are subject to environmental regulations, which can change at any time and
could increase our costs. Further, increasing climate change concerns may increase our costs.

Real estate development is subject to state and federal environmental regulations and to possible
interruption or termination because of environmental considerations, including but not limited to, air and
water quality, and protection of endangered species and their habitats. In addition, in those cases
where an endangered or threatened species is involved and agency rulemaking and litigation are
ongoing, the outcome of such rulemaking and litigation can be unpredictable, and at any time can
result in unplanned or unforeseeable restrictions on or even the prohibition of development in identified
environmentally sensitive areas. Certain of our developments include habitats of endangered species.
We have obtained the necessary permits from the U.S. Fish and Wildlife Service to allow the
development of our properties. However, future endangered species listings or habitat designations
could impact development of our properties.

Under various federal, state and local laws and regulations relating to the environment, as a current or
former owner or operator of real property, we may be liable for costs and damages resulting from the
presence or discharge of hazardous or toxic substances, waste or petroleum products at, on, in, under
or migrating through such properties, whether generated from our property or other property, including
costs to investigate and clean up such contamination and liability for harm to natural resources. The
costs of removal or remediation, and the impact on the development potential and development
timeline could be substantial. These laws often impose liability whether or not the owner or operator
knew of, or was responsible for, the presence of any hazardous or toxic substances. Environmental
laws also may impose restrictions on the manner in which a property may be used or businesses may
be operated, and these restrictions may require substantial expenditures. Environmental laws provide
for sanctions in the event of noncompliance and may be enforced by governmental agencies or, in
certain circumstances, by private parties. Certain environmental laws and common law principles could
be used to impose liability for release of and exposure to hazardous substances, including asbestos
and other airborne contaminants. In addition, third parties may seek recovery from owners or operators
of real properties for personal injury or property damage associated with exposure to released
hazardous substances. The cost of defending against claims of liability, of compliance with
environmental regulatory requirements, of remediating any contaminated property, or of paying
personal injury claims could materially adversely affect our business, assets or results of operations.

From time to time, the Environmental Protection Agency and similar federal, state or local agencies
review land developers’ compliance with environmental laws and may levy fines and penalties for
failure to strictly comply with applicable environmental laws or impose additional requirements for
future compliance as a result of past failures. Any such actions taken with respect to us may increase
our costs and result in project delays. We are making, and will continue to make, expenditures with
respect to our real estate development for the protection of the environment. New environmental
regulations or changes in existing regulations or their enforcement may be enacted and such new
regulations or changes may require significant expenditures by us. The recent trend toward stricter
standards in environmental legislation and regulations is likely to continue and could have a material
adverse effect on our operating costs.

Further, regulatory and societal responses intended to reduce potential climate change impacts may
increase our costs to develop, operate and maintain our properties, including but not limited to, costs of
building materials, energy and utility costs and insurance costs. Increasing governmental and societal
focus on environmental, social and governance matters has increased, is controversial, and may
continue to increase our costs of assessing and reporting on such matters. If we are unable to
adequately address such matters, our reputation and our business could be adversely impacted.

Risks Relating to Leasing Operations

Unfavorable changes in market and economic conditions could negatively affect occupancy or
rental rates, which could negatively affect our results of operations and ability to service our
debt.

In 2022 and 2021, our leasing operations primarily involved the lease of retail space to tenants in a
variety of businesses at retail and mixed-use properties that we developed, and the lease of
residences in multi-family projects that we developed.

The average occupancy rates and rents at properties we develop and lease, particularly those that are
newly constructed or have not stabilized, may fail to meet our original expectations for a number of
reasons, including changes in market and economic conditions, the development by competitors of
competing retail or housing alternatives, or our inability to achieve stabilization of a property on
schedule, any of which may result in increased construction and financing costs and a decrease in
expected rental revenues.

A decline in real estate market and economic conditions could adversely affect occupancy or rental
rates, which could adversely affect our profitability and our ability to satisfy our financial obligations.
The risks that could affect conditions in our markets include the following:

•

Local conditions in the market, such as an oversupply of, or decrease in demand for, retail
space or residential rental properties, or increased competition from other available retail
buildings or multi-family complexes;

• The inability or unwillingness of tenants to pay their current rent or rent increases; and

• Declines in market rental rates.

Our rental revenues may be lower as a result of lower average occupancy rates, increased turnover,
reduced rental rates, increased concessions and potential increases in uncollectible rent. In addition,
we continue to incur expenses such as maintenance costs, insurance costs and property taxes,
whether or not a property is occupied. Further, we may experience increases in our operating
expenses, some or all of which may be out of our control. We cannot predict with certainty whether any
of these conditions will occur or whether, and to what extent, they will have an adverse effect on our
operations.

We may be unable to achieve and sustain satisfactory occupancy and rental rates at our retail
and mixed use projects.

We face competition in attracting tenants to choose our retail and mixed-use projects over those of
other developers and owners of similar properties. If our competitors offer space at rental rates below
our current rates or the market rates, we may lose current or potential tenants to other properties in our
markets and we may need to reduce rental rates below our current rates in order to retain tenants upon
expiration of their leases. Increased competition for tenants may require us to make improvements to
properties beyond those that we would otherwise have planned to make. As a result, our results of
operations and cash flow may be adversely affected. Once entered into, our retail leases typically
range from five to ten years or longer. We may be unable to renew existing leases as they come due.
Adverse market or economic conditions that negatively impact our tenants’ businesses, particularly our
key tenants, could adversely impact their ability to meet their obligations under the leases or to renew
the leases. Additionally, the loss or failure to renew a key tenant may make it more difficult to lease or
renew leases on the remainder of the affected properties. Our retail tenants face continual competition
in attracting customers, often including from online competitors. If we are unable to lease our retail
properties, collect rent payments from tenants or re-lease space on comparable or more favorable
terms, such failure could have a material adverse effect on our financial condition and ability to service
our debt obligations.

We may be unable to achieve and sustain satisfactory occupancy and rental rates at our multi-
family properties.

We also face competition in attracting tenants to our multi-family projects, including from other multi-
family properties as well as from condominiums and single-family homes available for rent or purchase.
Once entered into, our multi-family leases are typically for a term of 12 months. As these leases
typically permit the residents to leave at the end of the lease term without penalty, our rental revenues
are impacted by declines in market rents more quickly than if our leases were for longer terms. Further,
we may be unable to renew existing leases as they come due. Adverse economic conditions that
negatively impact our tenants’ employment could adversely impact our tenants’ ability to pay rent and/
or cause tenants and potential tenants to prefer housing alternatives with lower rents. In addition,
economic developments that favor home ownership over renting, such as low or declining interest
rates, favorable or improving mortgage terms or a strong or strengthening job market, could also have
an adverse impact on the profitability of our multi-family properties.

Risks Relating to Ownership of Shares of Our Common Stock

Our common stock is thinly traded; therefore, our stock price may fluctuate more than the
stock market as a whole and it may be difficult to sell large numbers of our shares at prevailing
trading prices.

As a result of the thin trading market for shares of our common stock, our stock price may fluctuate
significantly more than the stock market as a whole or the stock prices of similar companies. Without a
larger public float, shares of our common stock will be less liquid than the shares of common stock of
companies with broader public ownership, and as a result, it may be difficult for investors to sell the
number of shares they desire at an acceptable price. Trading of a relatively small volume of shares of
our common stock may have a greater effect on the trading price than would be the case if our public
float were larger.

Our charter documents and Delaware law contain anti-takeover provisions and our by-laws
contain an exclusive forum provision.

Anti-takeover provisions in our charter documents and Delaware law may make an acquisition of us
more difficult. These provisions may discourage potential takeover attempts, discourage bids for our
common stock at a premium over market price or adversely affect the market price of, and the voting
and other rights of the holders of, our common stock. These provisions could also discourage proxy
contests and make it more difficult for stockholders to elect directors other than the candidates
nominated by our Board of Directors (Board). Refer to Exhibit 4.1 for further discussion of anti-takeover
provisions and an exclusive forum provision in our charter documents and Delaware law.

We may not pay dividends on our common stock or repurchase shares of our common stock in
the future.

Holders of our common stock are entitled to receive dividends only when and if they are declared by
our Board. Further, our Comerica Bank debt agreements prohibit us from paying a dividend on our
common stock without the bank’s prior written consent. Although we declared special cash dividends
on our common stock in March 2017 and September 2022 after receiving written consents from
Comerica Bank, we may not pay special cash dividends in the future. Comerica Bank’s consents to the
payment of dividends in March 2017 and September 2022 are not indicative of the bank’s willingness
to consent to the payment of future dividends.

Additionally, our Comerica Bank debt agreements contain a restrictive covenant limiting common stock
repurchases to $1.0 million in the aggregate during the term of the agreements. Any repurchases of
our common stock in excess of $1.0 million would require a waiver from Comerica Bank. During third-
quarter 2022, we received written consent from Comerica Bank in order to implement our $10 million
share repurchase program; as of March 27, 2023, $1.3 million remained available to repurchase
shares under the program. Comerica Bank’s consent to the $10 million share repurchase program in
2022 is not indicative of the bank’s willingness to consent to any future share repurchases. The timing,
price and number of shares that may be repurchased under the program will be based on market
conditions, applicable securities
factors considered by management. 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. Our 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, which may decrease the trading price of our common stock.

laws and other

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.

Item 1B. Unresolved Staff Comments

None.

Item 3. Legal Proceedings

We are from time to time involved in legal proceedings that arise in the ordinary course of our
business. We do not believe, based on currently available information, that the outcome of any legal
proceeding will have a material adverse effect on our financial condition or results of operations. We
maintain liability insurance to cover some, but not all, potential liabilities normally incident to the

ordinary course of our business as well as other insurance coverage customary in our business, with
such coverage limits as management deems prudent. Refer to Part I, Item 1A. “Risk Factors” for
further discussion.

Item 4. Mine Safety Disclosures

Not applicable.

Information About Our Executive Officers

Certain information as of March 27, 2023, regarding our executive officers is set forth in the following
table and accompanying text. Each of our executive officers serves at the discretion of our Board of
Directors.

Name

Age Position or Office

William H. Armstrong III
Erin D. Pickens

58
61

Chairman of the Board, President and Chief Executive Officer
Senior Vice President and Chief Financial Officer

Mr. Armstrong has been employed by us since our inception in 1992. Mr. Armstrong has served as
President since August 1996, Chief Executive Officer since May 1998 and Chairman of the Board
since August 1998. Mr. Armstrong previously served as President, Chief Operating Officer and Chief
Financial Officer from 1996 to 1998. Mr. Armstrong also serves as Director of Moody National REIT II,
Inc., a publicly traded real estate investment trust, from September 2017 to present. Mr. Armstrong
previously served as Director of Moody National REIT I, Inc., a publicly traded real estate investment
trust, from September 2008 until September 2017. In March 2021, Mr. Armstrong was elected
secretary-treasurer of Green Business Certification Inc., an organization that drives implementation of
the LEED green building program.

Ms. Pickens has served as our Senior Vice President since May 2009 and as our Chief Financial
Officer since June 2009. Ms. Pickens previously served as Executive Vice President and Chief
Financial Officer of Tarragon Corporation from November 1998 until April 2009, and as Vice President
and Chief Accounting Officer from September 1996 until November 1998 and Accounting Manager
from June 1995 until August 1996 for Tarragon and its predecessors. Ms. Pickens is a licensed
Certified Public Accountant. Ms. Pickens is an active member of the American Institute of Certified
Public Accountants and the Texas Society of Certified Public Accountants.

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities

Common Stock

Our common stock trades on The Nasdaq Stock Market (NASDAQ) under the symbol “STRS.” As of
March 27, 2023, there were 307 holders of record of our common stock including participants in
security position listings.

Common Stock Dividends and Share Repurchase Program

The declaration of dividends is at the discretion of our Board of Directors (the Board). In 2017, we paid
a special cash dividend of $1.00 per share totaling approximately $8 million after the sale of our Oaks
at Lakeway project, and in 2022, we paid a special cash dividend of $4.67 per share totaling
approximately $40 million after the sales of Block 21, The Santal and The Saint Mary, in each case
after receiving the consent of Comerica Bank. Our ability to pay dividends is restricted by the terms of
our Comerica Bank debt agreements, which prohibit us from paying a dividend on our common stock
without Comerica Bank’s prior written consent. In addition, certain of our project loan agreements
contain provisions that restrict our subsidiaries from distributing cash to Stratus, as the parent
company. The declaration of future dividends 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, and is subject to restrictions in our loan agreements.

In 2022, our Board approved a new share repurchase program, which authorizes repurchases of up to
$10.0 million of our common stock, after receiving the consent of Comerica Bank. As of March 27,
2023, $1.3 million remained available under the program. Our Comerica Bank debt agreements
contain a restrictive covenant limiting common stock repurchases to $1.0 million in the aggregate
during the term of the agreements. Any repurchases of our common stock outside of our approved
$10 million share repurchase program would require a waiver from Comerica Bank. Refer to Part I,
Item 1A. “Risk Factors” for further discussion.

Unregistered Sales of Equity Securities

None.

Issuer Purchases of Equity Securities

The following table sets forth information with respect to shares of our common stock that we
repurchased under our $10.0 million share purchase program during the three months ended
December 31, 2022.

Period

October 1, 2022 through October 31,

2022

November 1, 2022 through

November 30, 2022

December 1, 2022 through

December 31, 2022

Total

Total
Number of
Shares
Purchased

Average
Price Paid
Per Share

Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs a

Approximate Dollar
Value of Shares
That May Yet Be
Purchased Under
the Plans or
Programs a

47,428 $

23.34

47,428

8,095,096

197,552

28.34

197,552

2,503,567

15,762

260,742 $

23.33

27.10

15,762

260,742

2,135,797

a. On September 2, 2022, we announced that our Board approved a new share repurchase program authorizing
repurchases of up to $10.0 million of our common stock. 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. 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. The new program replaces our prior share repurchase program.
Through March 27, 2023, we have acquired 335,703 shares of our common stock for a total cost of
$8.7 million at an average price of $25.93 per share, and $1.3 million remains available for repurchases under
the program.

Item 6. Reserved

Items 7. and 7A. Management’s Discussion and Analysis of Financial Condition and Results of
Operations and Quantitative and Qualitative Disclosures About Market Risk

In Management’s Discussion and Analysis of Financial Condition and Results of Operations, “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 the related discussion of “Business and Properties” and “Risk Factors” included
elsewhere in this Form 10-K. 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” herein). All subsequent references to “Notes” refer to Notes to Consolidated Financial
Statements located in Part II, Item 8. “Financial Statements and Supplementary Data.”

OVERVIEW

We are a diversified real estate company with headquarters in Austin, Texas. We are engaged
primarily in the acquisition, entitlement, development, management, leasing and sale of multi-family
and single-family residential real estate properties and commercial properties in the Austin, Texas area
and other select, fast-growing markets in Texas. Our portfolio includes approximately 1,600 acres of
undeveloped acreage and acreage under development for commercial and multi-family and single-
family residential projects, as well as several completed commercial and residential properties. We
generate revenues and cash flows from the sale of our developed and undeveloped properties and the
lease of our retail, mixed-use and multi-family properties. Refer to “Part I, Items 1. and 2. “Business
and Properties,” and Note 10 for further 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. Our successful
development program of acquiring properties, 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.

We believe that Austin and other select, fast-growing markets in Texas continue to be attractive
locations. Many of our developments are in locations where development approvals have historically

been subject to regulatory constraints, which has made it difficult to obtain or change entitlements.
Most of our Austin properties, which are located in desirable areas with significant regulatory
constraints, are entitled and have utility capacity for full buildout. As a result, we believe that through
strategic planning, development and marketing, we can maximize and fully realize their value.

We produced net income attributable to common stockholders of $90.4 million in 2022, a record for the
company. Our results for 2022 reflect our strong performance in executing on our successful
development program:

•

In May 2022, we completed the sale of Block 21 to Ryman Hospitality Properties, Inc.
(Ryman) for $260.0 million, subject to certain purchase price adjustments, and including
Ryman’s assumption of $136.2 million of existing mortgage debt, with the remainder paid in
cash. Our net proceeds of cash and restricted cash totaled $112.3 million (including
$6.9 million of post-closing escrow amounts to be held for 12 months after the closing, subject
to a longer retention period with respect to any required reserve for pending claims). We
recorded a pre-tax gain on the sale of $119.7 million in 2022.

In September 2022, after receiving written consent from Comerica Bank, our Board of
Directors (Board) declared a special cash dividend of $4.67 per share (totaling $40.0 million)
on our common stock, which was paid on September 29, 2022 to shareholders of record as of
September 19, 2022. Our Board also approved a new share repurchase program, which
authorizes repurchases of up to $10.0 million of our common stock. The repurchase program
authorizes us, in management’s discretion, to repurchase shares from time to time, subject to
market conditions and other factors.

• During 2022, we sold various parcels of real estate and two Amarra Villas homes, for a total of

$24.6 million.

After streamlining our business through the sale of Block 21, our Board decided to continue our
successful development program, with our proven team focusing on pure residential and residential-
centric mixed-use projects in Austin and other select markets in Texas. As part of re-focusing our
business, during third-quarter 2022, we completed the sale of substantially all of our non-core assets.

Besides the potential additional $10.0 million capital that we may be required to contribute to our
Holden Hills limited partnership, we do not currently have any material commitments to contribute
additional cash to our joint venture projects or wholly owned development projects. However, our
development plans for future projects require significant additional capital. Historically, we relied
primarily on cash flow from operations and debt financing as our primary sources of funding for our
liquidity needs. More recently, we have increasingly relied on third-party project-level equity financing
of our development projects. Some of our recent joint ventures include:

•

In July 2021, an equity investor acquired a 65.87 percent interest in The Saint June limited
partnership for $16.3 million;

In September 2021, equity investors acquired an aggregate 69 percent interest in the Block
150 limited partnership for $11.7 million;

In December 2021, an equity investor acquired a 90.0 percent interest in The Saint George
limited partnership for $18.3 million and in July 2022, the equity investor contributed an
additional $15.0 million; and

In January 2023, an equity investor acquired a 50 percent interest in the Holden Hills limited
partnership for $40.0 million.

We plan to continue to develop properties using project-level debt and third-party equity capital through
joint ventures in which we receive development management fees and asset management fees, with

our potential returns increasing above our relative equity interest in each project as negotiated return
hurdles are achieved. Our investment strategy focuses on projects that we believe will provide
attractive long-term returns, while limiting our financial risk.

We expect to reduce our reliance on our revolving credit facility and 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 source of revenue and cash flow is expected to come from
sales of our properties to third parties or distributions from joint ventures, the timing of and proceeds
from which are difficult to predict and depend on market conditions and other factors. We also generate
cash flow from rental revenue 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, will provide us with positive cash flows and net
income over time, as evidenced by our recent sales of The Saint Mary, The Santal and Block 21
described in this report. Further, we believe our investment strategy, current liquidity and pipeline of
projects provide us with many years of opportunities to increase long-term value for our stockholders.

During 2022, we explored a potential sale or refinancing of Kingwood Place, Jones Crossing and West
Killeen Market. However, we decided to retain these cash-flowing properties given challenging current
market conditions. We are currently focused on successfully completing our projects under
construction, managing our capital expenditures, advancing other projects through the planning,
designing and entitlement process, maximizing cash flow from stabilized assets, controlling costs as
much as possible in this inflationary environment, and continuing to source third-party equity capital.
While uncertainty in the market, primarily due to the increasing costs of construction materials and
labor, rising interest rates and recent disruptions in the banking industry due to some highly-publicized
bank failures, is currently causing tightened bank credit and a pause in some sales processes and the
start of new development projects, we believe there continues to exist strong demand for residential
and residential-centric mixed use projects in Austin and the other markets in Texas where we operate,
combined with limited supply. We will re-evaluate our strategy as development progresses on the
projects in our pipeline, and as market conditions stabilize.

OVERVIEW OF FINANCIAL RESULTS FOR 2022

Sources of revenue and income. As a result of the sale of Block 21, Stratus has two operating
segments: Real Estate Operations and Leasing Operations. Block 21, which encompassed Stratus’
Hotel and Entertainment operating segments, along with some leasing operations, is reflected as
discontinued operations in the Consolidated Statements of Income for the years ended December 31,
2021 and 2022. We operate primarily in Austin, Texas and in other select, fast-growing markets in
Texas.

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

Revenue in our Leasing Operations is generated from the lease of space at retail and mixed-use
properties that we developed and the lease of residences in the multi-family projects that we
developed. We may also generate income from the sale of our leased properties, depending on market
conditions.

Refer to Note 10 and Items 1. and 2. “Business and Properties” for discussion of the assets in our Real
Estate Operations and Leasing Operations.

Summary financial results for 2022. Our net income attributable to common stockholders totaled
$90.4 million, or $10.99 per diluted share, for 2022, compared to a net income attributable to common
stockholders of $57.4 million, $6.90 per diluted share, for 2021. Higher net income for 2022, compared
to our net income in 2021, is primarily the result of income from discontinued operations totaling
$96.8 million related to the sale of Block 21 in 2022. Our results for 2021 included a $106.0 million
pre-tax gain on sale of assets related to the sale of The Saint Mary and The Santal. Refer to Note 4 for
additional discussion. Our total stockholders’ equity increased from $98.9 million at December 31,
2020 to $207.2 million at December 31, 2022.

Our revenues totaled $37.5 million for 2022, compared with $28.2 million for 2021. The increase in
revenues in 2022, compared with 2021, primarily reflects the sales of undeveloped real estate
properties as well as two completed Amarra Villas homes in our Real Estate Operations segment
partially offset by a decrease in leasing revenue following the sale of The Santal in 2021.

At December 31, 2022, we had total debt of $122.8 million and consolidated cash and cash
equivalents of $37.7 million. In first-quarter 2023, we received $35.8 million in cash from the Holden
Hills partnership. We believe we will have sufficient cash, cash flow and sources of debt financing to
meet our cash requirements for at least the next 12 months. Refer to “Capital Resources and Liquidity”
and Notes 2, 6 and 11 for additional discussion.

Real Estate Market Conditions. Because of the concentration of our assets primarily in the Austin,
Texas area, and in other select, fast-growing markets in Texas, market conditions in these regions
significantly affect our business. These market conditions historically have moved in periodic cycles,
and can be volatile. Real estate development in Austin, where most of our real estate under
development and undeveloped real estate is located, has historically been constrained as a result of
various restrictions imposed by the city of Austin. Additionally, several special interest groups have
traditionally opposed development in Austin.

In addition to the traditional influence of state and federal government employment levels on the local
economy, the Austin-Round Rock, Texas area (Austin-Round Rock) has been influenced by growth in
the technology sector. Large, high-profile technology companies have expanded their profile in Austin-
Round Rock recently as the technology sector has clustered in this market. The COVID-19 pandemic
and the increase in remote work has also resulted in population increases in Texas and within the
Austin area. Based on a December 2021 U.S. Census report, the state of Texas had the largest
population gain of any U.S. state between July 2020 and July 2021. There has generally been a
decline over time in the brick-and-mortar retail industry due to increases in on-line shopping, which
accelerated during the pandemic. We have generally responded to these retail trends by incorporating
more multi-family residential space and more food and beverage and entertainment space into our
development plans.

According to the 2020 U.S. Census (the most recent complete census), the population of the Austin-
Round Rock area increased by approximately 33 percent and added over half a million residents to
become the fastest-growing large metro area in the U.S. from 2010 through 2020. As of 2020, the
Austin-Round Rock area had a population of approximately 2.3 million people. In addition, 93 percent

of the housing units were occupied in the Austin-Round Rock area, which was higher than average
occupancy rates for the U.S. and Texas. In 2022, the American Growth Project ranked Austin as the
second-fastest-growing city in the United States.

According to data provided by the U.S. Census Bureau, the median family income levels in the Austin-
Round Rock area increased by 14 percent over a three-year period from 2016 to 2019 (the most
recently available information). The expanding economy resulted in rising demand for residential
housing and retail services. Property tax and sales tax receipts rose by 44 percent and 16 percent,
respectively, in the city of Austin during fiscal year 2016 through fiscal year 2020. The median home
value in Austin increased from $349,156 in August 2020 to $566,479 in August 2022, with average
multi-family rents rising 10 percent year over year, according to the American Growth Project.

Vacancy rates in the city of Austin, Texas are noted below.

Building Type

Office Buildings (Class A) a

Multi-Family Buildings b

Retail Buildings b

a. CB Richard Ellis: Austin MarketView

b. Marcus & Millichap Research Services, CoStar Group, Inc.

December 31,

2022

2021

18.9 %

3.6 %

3.4 %

20.7 %

5.3 %

4.5 %

During 2022, the U.S. economy experienced steep rises in inflation and interest rates. Our industry has
been experiencing construction and labor cost increases, supply chain constraints, labor shortages,
higher borrowing costs and tightening bank credit. The Austin and Texas economies and populations
may not continue to grow at the same rate as in recent periods and may decline. Refer to Item 1A. Risk
Factors for further discussion.

CRITICAL ACCOUNTING ESTIMATES

Management’s discussion and analysis of our financial condition and results of operations are based
on our consolidated financial statements, which have been prepared in conformity with accounting
principles generally accepted in the U.S. The preparation of these financial statements requires that we
make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and
expenses. We base these estimates on historical experience and on assumptions that we consider
reasonable under the circumstances; however, reported results could differ from those based on the
current estimates under different assumptions and/or conditions. The areas requiring the use of
management’s estimates are discussed in Note 1 under the heading “Use of Estimates.” Critical
accounting estimates are those estimates made in accordance with U.S. generally accepted
accounting principles that involve a significant level of estimation uncertainty and have had or are
reasonably likely to have a material impact on our financial condition or results of operations. Our
critical accounting estimates are discussed below.

Real Estate Impairment Assessments. Real estate is classified as held for sale, under development,
held for investment or land available for development (refer to Note 1). When events or circumstances
indicate that an asset’s carrying amount may not be recoverable, an impairment test is performed. For
real estate held for sale, if estimated fair value less costs to sell is less than the related carrying
amount, a reduction of the asset’s carrying value to fair value less costs to sell is required. For real
estate under development, land available for development and real estate held for investment, if the
projected undiscounted cash flow from the asset is less than the related carrying amount, a reduction

of the carrying amount of the asset to fair value is required. Measurement of an impairment loss is
based on the fair value of the long-lived asset. Generally, we determine fair value using valuation
techniques such as discounted expected future cash flows.

In developing estimated future cash flows for impairment testing for our real estate assets, we have
incorporated our own market assumptions including those regarding real estate prices, sales pace,
sales and marketing costs, and infrastructure costs. Our assumptions are based, in part, on general
economic conditions, the current state of the real estate industry, expectations about the short- and
long-term outlook for the real estate market, and competition from other developers or operators in the
area in which we develop or operate our properties. These assumptions can significantly affect our
estimates of future cash flows. For those properties held for sale and deemed to be impaired, we
determine fair value based on appraised values, adjusted for estimated costs to sell, as we believe this
is the value for which the property could be sold.

We recorded impairment losses on real estate totaling $0.7 million and $1.8 million during 2022 and
2021, respectively.

Deferred Tax Assets Valuation Allowance. The carrying amounts of deferred tax assets are required
to be reduced by a valuation allowance if, based on the available evidence, it is more likely than not
that such assets will not be realized. Accordingly, we assess the need to establish valuation
allowances for deferred tax assets periodically based on the more-likely-than-not realization threshold
criterion. In the assessment of the need for a valuation allowance, appropriate consideration is given to
all positive and negative evidence related to the realization of the deferred tax assets. This assessment
considers, among other matters, the nature, frequency and severity of current and cumulative losses,
the potential to recognize gains on sales of properties, forecasts of future profitability, the duration of
statutory carryforward periods, our experience with operating loss and tax credit carryforwards not
expiring unused, and tax planning alternatives. This process involves significant management
judgment about assumptions that are subject to change based on variances between projected and
actual operating performance and changes in our business environment or operating or financing
plans.

We regularly evaluate the recoverability of our deferred tax assets, considering available positive and
negative evidence, including earnings history and the forecast of future taxable income. During 2021,
we recorded a $4.2 million non-cash credit to reduce the valuation allowance on our deferred tax
assets related to Block 21 because of its pending sale. We had deferred tax assets (net of deferred tax
liabilities and valuation allowances) totaling $38 thousand at December 31, 2022. Refer to Note 7 for
further discussion.

Profit Participation Incentive Plan and Long-Term Incentive Plan. Refer to Notes 1 and 8 for our
accounting policies related to the Stratus Profit Participation Incentive Plan (PPIP). During 2022, we
recorded $2 thousand to project development costs ($0.4 million in 2021) and charged $0.5 million to
general and administrative expenses ($9.8 million in 2021) related to the PPIP. The accrued liability for
the PPIP totaled $3.0 million at December 31, 2022 (included in other liabilities). The most significant
assumptions in the estimation of the $3.0 million PPIP liability at December 31, 2022 were estimated
capitalization rates ranging from 4.3 percent to 7.5 percent, expected remaining service periods
ranging from 0.5 to 3.3 years, and estimated transaction costs ranging from 1.3 percent to 7.9 percent
of sale prices. These assumptions for the PPIP liability as of December 31, 2021 were estimated
capitalization rates ranging from 6.0 percent to 7.5 percent, expected remaining service periods
ranging from 1.5 to 3.4 years, and estimated transaction costs ranging from 2.0 percent to 6.8 percent.
Of the $15.2 million liability as of December 31, 2021, $8.8 million was related to properties sold in
2021 and was based on actual sale prices and transaction costs. PPIP awards were granted during
2022 for The Saint June, a multi-family property, which resulted in the lower estimated capitalization
rate and transaction costs in the range of assumptions in 2022.

RECENT DEVELOPMENT ACTIVITIES

Residential. As of December 31, 2022, the number of our residential lots/units that are developed,
under development and available for potential development by area are shown below:

Developed

Residential Lots/Units
Under
Development

Potential
Development a

Total

Barton Creek:

Amarra Drive:

Phase III lots

Amarra Villas b

The Saint June

Other homes

Holden Hills

Section N c

Other Barton Creek sections

Circle C multi-family

The Annie B

The Saint George

Lakeway

Lantana d

Jones Crossing d

Magnolia Place d

New Caney d

Total Residential Lots/Units

—

182

—

316

—

509

—

475

182

475

1,412

316

—

270

306

275

875

275

316

270

306

275

875

275

4,272

4,783

a. Our development of the properties identified under the heading “Potential Development” is dependent upon
the approval of our development plans and permits by governmental agencies, including the city of Austin and
other cities in our Texas markets. Those governmental agencies may not approve one or more development
plans and permit applications related to such properties or may require us to modify our development plans.
Accordingly, our development strategy with respect to those properties may change in the future. While we
may be proceeding with approved infrastructure projects or planning activities for some of these properties,
they are not considered to be “under development” for disclosure in this table until construction activities have
begun, infrastructure work over the entire property has been completed, is currently being completed or is
able to be completed and for which necessary permits have been obtained. Subsequent to December 31,
2022, we commenced construction on Holden Hills.

In March 2023, we completed and sold one Amarra Villas home for $2.5 million.

c. For further discussion of ongoing development planning that may result in increased densities for Section N,

refer to “Barton Creek - Section N” below.

d. For a discussion of this project, refer to Items 1. and 2. “Business and Properties.”

The discussion below focuses on our recent significant residential development activity. For a
description of our properties containing additional information, refer to Items 1. and 2. “Business and
Properties.”

Barton Creek
Amarra Drive. Amarra Drive is a subdivision featuring lots ranging from one to over five acres.

Amarra Multi-family and Commercial. We also have multi-family and commercial lots in the Amarra
development of Barton Creek. The Amarra Villas and The Saint June, both described below, are being
developed on two of these multi-family lots. During 2021, we sold a five-acre multi-family tract of land
for $2.5 million, and during 2022, we sold a six-acre multi-family tract of land for $2.5 million. As of
December 31, 2022, we have one remaining undeveloped multi-family lot of approximately 11 acres
and one undeveloped 22-acre commercial lot in inventory.

Amarra Villas. The Villas at Amarra Drive (Amarra Villas) is a 20-unit project within the Amarra
development for which we completed site work in 2015. The homes average approximately 4,400
square feet and are being marketed as “lock and leave” properties, with golf course access and cart
garages. We completed construction and sale of the first seven homes between 2017 and 2019. We
began construction on the next two Amarra Villas homes in first-quarter 2020, one of which was
completed and sold for $2.4 million in second-quarter 2022. In 2021, we began construction of one
additional home and in 2022, we began construction on the remaining ten homes. In fourth-quarter
2022, we sold one home for $3.6 million. In March 2023, we completed and sold of one home for
$2.5 million. Construction on the last ten units continue to progress, and as of March 27, 2023, one
home was under contract to sell and nine Amarra Villas homes remain available for sale.

The Saint June. In June 2021, The Saint June, L.P. raised $16.3 million of equity from third-party
investors and entered into an approximately $30 million construction loan. Refer to Notes 2 and 6 for
additional discussion. In third-quarter 2021, we began construction on The Saint June, a 182-unit
luxury garden-style multi-family project within the Amarra development. The Saint June is being built
on approximately 36 acres and is comprised of multiple buildings featuring one, two and three bedroom
units for lease with amenities that include a resort-style clubhouse, fitness center, pool and extensive
green space. The project is expected to be completed in third-quarter 2023.

Holden Hills. Our final large residential development within the Barton Creek community, Holden Hills,
consists of 495 acres and the community is designed to feature 475 unique residences to be
developed in two phases with a focus on health and wellness, sustainability and energy conservation.
Phases I and II of the Holden Hills development plan encompass the development of the home sites.
We entered into a limited partnership agreement with a third-party equity investor for this project in
January 2023, and in February 2023 obtained construction financing for Phase I of the project and
commenced infrastructure construction. We contributed to the joint venture the Holden Hills land and
related personal property at an agreed value of $70.0 million and our 50 percent partner contributed
$40.0 million in cash. The partnership distributed $35.8 million in cash to us in connection with these
transactions. We expect to consolidate the Holden Hills limited partnership, and the contribution from
our partner will be accounted for as a noncontrolling interest.

We and the equity investor have agreed to contribute up to an additional $10 million each to the
partnership if called upon by the general partner. The initial and potential additional equity contributions
are projected to constitute a sufficient amount of equity capital to develop both Phase I and Phase II of
the Holden Hills project. The partnership anticipates securing additional debt financing for the
development of Phase II. The construction of homes on the pods or estate lots would require additional
capital. We expect to complete site work for Phase I, including the construction of road, utility, drainage
and other required infrastructure in late 2024. Accordingly, our current projections anticipate that we
could start building homes and/or selling home sites in late 2024 or 2025. We may sell the developed
home sites, or may elect to build and sell, or build and lease, homes on some or all of the home sites,
depending on financing and market conditions. Refer to Note 11 for further discussion.

Section N. Using an entitlement strategy similar to that used for Holden Hills, we continue to progress
the development plans for Section N, our approximately 570-acre tract located along Southwest
Parkway in the southern portion of the Barton Creek community, adjacent to Holden Hills. We are
designing a dense, mid-rise, mixed-use project, with extensive multi-family and retail components,
coupled with limited office, entertainment and hospitality uses, surrounded by an extensive greenspace
amenity, which is expected to result in a significant increase in development density, as compared to
our prior plans.

The Annie B
In September 2021, we purchased the land and announced plans for The Annie B, a proposed luxury
high-rise rental project in downtown Austin. Stratus Block 150, L.P. raised $11.7 million in third-party
equity capital and entered into a $14.0 million 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 with a goal of beginning construction in late 2023 or 2024, subject to obtaining financing and
other market conditions. Refer to Notes 2 and 6 for additional discussion.

The Saint George
The Saint George is a luxury wrap-style multi-family project under construction on approximately four
acres in north central Austin, with approximately 316 units comprised of studio, one and two bedroom
units and an attached parking garage. We purchased the land and entered into third-party equity
financing for the project in December 2021. We entered into a construction loan for the project in July
2022 and began construction in third-quarter 2022. We currently expect to achieve substantial
completion by mid-2024. Refer to Notes 2 and 6 for further discussion.

Lantana Multi-Family
We have advanced development plans for the multi-family component of Lantana Place, a partially
developed, mixed-use development project located south of Barton Creek in Austin. The multi-family
component is now known as The Saint Julia and is expected to consist of 306 units. We currently do
not expect to begin construction prior to 2024, and the project remains subject to financing and market
conditions.

Kingwood Place
In October 2022, we closed the sale of a 10-acre multi-family tract of land planned for approximately
275 multi-family units for $5.5 million at Kingwood Place, an H-E-B, L.P (H-E-B) grocery anchored,
mixed-use project in Kingwood, Texas. In connection with the sale, we made a $5.0 million principal
payment on the Kingwood Place construction loan.

Other Residential
In 2022, we sold 28 acres of undeveloped residential land at Magnolia Place, an H-E-B grocery
shadow-anchored, mixed-use project in Magnolia, Texas for $3.2 million. Also, in October 2022, we
entered into a contract to sell approximately 11 acres planned for 275 multi-family units in Magnolia
Place for $4.3 million, which is currently expected to close by the end of 2023. Upon the anticipated
closing of the sale, we would have 18 acres planned for up to 600 multi-family units remaining in
Magnolia Place. 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. We
are also evaluating options for a multi-family project on 35 acres in Lakeway, Texas.

Commercial. As of December 31, 2022, the number of square feet of our commercial property
developed, under development and our remaining entitlements for potential development are shown
below:

Barton Creek:

Entry corner

Amarra retail/office

Section N

Circle C

Lantana:

Lantana Place

Tract G07

Magnolia Place

West Killeen Market

Jones Crossing

Kingwood Place

New Caney

The Annie B b

Office building in Austin

Total Square Feet

Commercial Property
Under
Development

Potential
Development a

Total

Developed

—

99,379

—

18,582

44,493

154,117

151,855

—

468,426

—

5,000

83,081

1,560,810 1,560,810

660,985 660,985

—

99,379

160,000 160,000

15,000

33,582

—

44,493

104,750 258,867

— 151,855

145,000 145,000

8,325

7,285

8,325

7,285

2,750,236 3,218,662

b. For a discussion of this project, refer to Items 1. and 2. “Business and Properties.”

The discussion below focuses on our recent significant commercial development activity. For a
description of our properties containing additional information, refer to Items 1. and 2. “Business and
Properties.”

Magnolia Place
The retail component of Magnolia Place is currently planned to consist of up to four retail buildings
totaling approximately 34,000 square feet and up to nine retail pad sites to be sold or ground leased.
The first phase of development consists of two retail buildings totaling 18,582 square feet, all pad sites,
and the road, utility and drainage infrastructure necessary to support the entire development was
substantially completed in 2022, with the exception of certain water supply upgrades and a storm water
drainage pond, which are expected to be completed by the end of 2023, and the two retail buildings
were turned over to our retail tenants to begin their finish-out process. We sold one retail pad site for
$2.3 million in second-quarter 2022 and sold another retail pad site in third-quarter 2022 for
$1.1 million, leaving up to seven remaining retail pad sites to be sold or ground leased. H-E-B
completed construction and opened its 95,000-square-foot grocery store on an adjoining 18-acre site in
fourth-quarter 2022.

In addition to our recent commercial development activity, we also own and operate the following
stabilized retail projects that we developed:

• West Killeen Market is our H-E-B shadow-anchored retail project in West Killeen, Texas, near
Fort Hood. As of December 31, 2022, we had executed leases for approximately 74 percent
of the 44,493-square-foot retail space. During third-quarter 2022, we sold the last remaining
pad site for $1.0 million.

•

Jones Crossing is our H-E-B-anchored mixed-use project in College Station, Texas, the
location of Texas A&M University. As of December 31, 2022, we had signed leases for
substantially all of the completed retail space, including the H-E-B grocery store, totaling
154,117 square feet. The Jones Crossing site has future development opportunities. As of
December 31, 2022, we had approximately 23 undeveloped acres with estimated
development potential of approximately 104,750 square feet of commercial space and four
retail pad sites.

Lantana Place is our mixed-use development project within the Lantana community south of
Barton Creek in Austin, Texas. As of December 31, 2022, we had signed leases for
approximately 90 percent of the 99,379-square-foot retail space, including the anchor tenant,
Moviehouse & Eatery, and a ground lease for an AC Hotel by Marriott that opened in
November 2021.

• Kingwood Place is our H-E-B-anchored, mixed-use development project in Kingwood, Texas
(in the greater Houston area). We have constructed 151,855 square feet of retail space at
Kingwood Place, including an H-E-B grocery store, and as of December 31, 2022, we had
signed leases for approximately 96 percent 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.

Refer to Part I, Items 1. and 2. “Business and Properties” for further discussion.

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 or other arrangements. As a result, and because of numerous factors affecting our business
activities as described herein, our past operating results are not necessarily indicative of our future
results. We use operating income or loss to measure the performance of each operating segment.
Corporate, eliminations and other includes consolidated general and administrative expenses, which
primarily consist of employee compensation and other costs described herein.

The following table summarizes our operating results (in thousands):

Operating (loss) income:
Real estate operations a
Leasing operations b
Corporate, eliminations and other c

Operating (loss) income
Interest expense, net
Net (loss) income from continuing operations
Net income (loss) from discontinued operations d
Net income attributable to common stockholders

Years Ended December 31,

2022

2021

$
$
$
$
$

164 $

9,621
(17,548)

(7,763) $
(15) $
(7,077) $
96,820 $
90,426 $

(3,272)
111,369
(24,437)
83,660
(3,193)
69,457
(6,208)
57,394

Includes sales commissions and other revenues together with related expenses. Includes impairment charges
for real estate properties of $0.7 million in 2022 and $1.8 million in 2021.

b. The year 2022 includes a $4.8 million pre-tax gain recognized on the reversal of accruals for costs to lease
and construct buildings under a master lease arrangement that we entered into in connection with the sale of
The Oaks at Lakeway in 2017. Refer to Note 4 under the heading “The Oaks at Lakeway” for additional
discussion. The year 2021 includes the pre-tax gains on the December 2021 sale of The Santal of
$83.0 million and the January 2021 sale of The Saint Mary of $22.9 million.

Includes consolidated general and administrative expenses and eliminations of intersegment amounts. The
decrease in 2022 from 2021 is primarily the result of $4.0 million incurred for 2021 for consulting, legal and
public relation costs for our successful proxy contest and the REIT exploration process in addition to
$9.8 million incurred in 2021 for employee incentive compensation costs associated with the PPIP resulting
primarily from an increased valuation for The Santal.

d. The year 2022 includes a $119.7 million pre-tax gain on the May 2022 sale of Block 21.

As a result of the sale of Block 21, we currently have two operating segments: Real Estate Operations
and Leasing Operations (refer to Notes 4 and 10). The following is a discussion of our operating results
by segment.

Real Estate Operations
The following table summarizes our Real Estate Operations results (in thousands):

Years Ended December 31,

2022

2021

Revenues:

Developed property sales

Undeveloped property sales

Commissions and other

Total revenues

Cost of sales, including depreciation

Impairment of real estate

Operating income (loss)

5,982

18,620

148

24,750

23,866

720

164

4,615

3,250

601

8,466

9,913

1,825

(3,272)

Developed Property Sales. The following table summarizes our developed property sales (in
thousands):

Years Ended December 31,

2022

2021

Lots/Units Revenues

Average
Cost per
Lot/Unit

Lots/Hom
es

Revenues

Average
Cost per
Lot/Home

Barton Creek

Amarra Drive:

Amarra Villas homes

Phase III lots

W Austin Residences at Block 21:

Condominium unit

Total Residential

—

$ 5,982 $ 2,800

— $

—

2,215

—

299

—

$ 5,982

4 $

2,400

4,615

1,721

The increase in revenues from developed property sales for 2022, compared to 2021, reflects the sales
of two Amarra Villas homes in 2022. In 2021, revenue included the sales of three developed Phase III
lots and the sale of our last condominium unit at the W Austin Hotel & Residences. As of December 31,
2022, two developed Phase III lots remained unsold.

Undeveloped Property Sales. In 2022, we closed $18.6 million of undeveloped property sales
consisting of (i) a 10 acre multi-family tract of land in Kingwood Place for $5.5 million, (ii) 28 acres of
residential land at Magnolia Place for $3.2 million, (iii) a six-acre multi-family tract of land in Amarra
Drive for $2.5 million, (iv) a retail pad site at Magnolia Place for $2.3 million, (v) a 0.3 acre tract of land
in Austin for $1.6 million, (vi) a retail pad site at Magnolia Place for $1.1 million, (vii) a retail pad site at
West Killeen Market for $1.0 million, (viii) a 2.4 acre tract of land in San Antonio for $0.8 million and
(ix) a tract of land in Austin for $0.6 million. In 2021, we sold a five-acre multi-family tract of land in
Amarra Drive for $2.5 million and a retail pad site at West Killeen Market for $0.8 million.

Real Estate Cost of Sales and Depreciation. Cost of sales includes cost of property sold, project
operating and marketing expenses and allocated overhead costs. Cost of sales totaled $23.9 million in
2022 and $9.9 million in 2021. The increase in cost of sales in 2022, compared with 2021, primarily
reflects an increase in undeveloped property sales over 2021.

Cost of sales for our real estate operations also includes significant recurring costs (including property
taxes, maintenance and marketing), which totaled $6.6 million in 2022 and $5.8 million in 2021.

Impairment of Real Estate. During 2022, we recorded impairment charges totaling $720 thousand.
These included a $650 thousand impairment charge related to the Amarra Villas and a $70 thousand
impairment charge for the multi-family tract of land at Kingwood Place that sold for $5.5 million in
October 2022.

During 2021, we recorded impairment charges totaling $1.8 million. These included $700 thousand of
impairment charges related to the Amarra Villas, a $625 thousand impairment charge for the multi-
family tract of land at Kingwood Place that was sold in 2022 and a $500 thousand impairment charge
for an office building in Austin.

Leasing Operations
The following table summarizes our Leasing Operations results (in thousands):

Rental revenue

Rental cost of sales, excluding depreciation

Depreciation

Gain on sales of assets

Operating income

Years Ended December 31,

2022

2021

12,754

19,787

4,439

3,506

9,030

5,358

(4,812)

(105,970)

9,621

$ 111,369

Rental Revenue. Rental revenue primarily includes revenue from our retail and mixed-use projects
Lantana Place, Jones Crossing, Kingwood Place and West Killeen Market, and until its sale in
December 2021, our multi-family project The Santal. The decrease in rental revenue in 2022,
compared to 2021, primarily reflects the sale of The Santal in December 2021, partly offset by
increased rental revenue at Lantana Place and Kingwood Place. The Santal had rental revenue of
$8.7 million in 2021 prior to the sale.

Rental Cost of Sales and Depreciation. Rental costs of sales and depreciation expense decreased in
2022, compared to 2021, primarily as a result of the sale of The Santal.

Gain on Sales of Assets. For 2022, we recognized a gain on the reversal of accruals for costs to lease
and construct buildings under a master lease arrangement that we entered into in connection with our
sale of The Oaks at Lakeway in 2017. Refer to Note 4 under the heading “The Oaks at Lakeway” for
further discussion.

In December 2021, our subsidiary sold The Santal for $152.0 million. After closing costs and payment
of the outstanding project loan, the sale generated net proceeds of approximately $74 million. We
recorded a pre-tax gain on sale of $83.0 million in 2021.

In January 2021, our subsidiary sold The Saint Mary for $60.0 million. After closing costs and payment
of the outstanding construction loan, the sale generated net proceeds of approximately $34 million.
After establishing a reserve for remaining costs of the partnership, we received $20.9 million from the
subsidiary in connection with the sale and $12.9 million of the net proceeds were distributed to the
noncontrolling interest owners. We recognized a pre-tax gain on the sale of $22.9 million ($16.2 million
net of noncontrolling interests) in 2021.

Corporate, Eliminations and Other
Corporate, eliminations and other (refer to Note 10) includes consolidated general and administrative
expenses, which primarily consist of employee compensation and other costs. Consolidated general
and administrative expenses totaled $17.6 million in 2022 and $24.5 million in 2021. The decrease in
general and administrative expenses in 2022, compared to 2021, occurred primarily because in 2021,
we incurred $9.8 million in employee incentive compensation costs associated with the PPIP primarily
for The Santal project and $4.0 million in consulting, legal and public relation costs for our successful
proxy contest and the real estate investment trust exploration process. Corporate, eliminations and
other also includes eliminations of intersegment amounts incurred by our operating segments.

Non-Operating Results
Interest Expense, Net. Interest costs (before capitalized interest) totaled $6.6 million in 2022 and
$8.7 million in 2021. The decrease in interest costs in 2022, compared with 2021, primarily reflects a
reduction in average debt balances, including the repayment of the outstanding balance on the
Comerica Bank revolving credit facility and the repayment of The Santal loan partially offset by rising
interest rates. All of our debt at December 31, 2022 was variable-rate debt, and for all of such debt
other than the Comerica Bank revolving credit facility, the average interest rate increased for 2022
compared to 2021 and may continue to rise in the future if prevailing market interest rates continue to
climb. Refer to Note 6 for additional information.

Capitalized interest totaled $6.6 million in 2022 and $5.5 million in 2021, and is primarily related to
development activities at Barton Creek (primarily Section N, Holden Hills and Amarra Villas), The
Annie B, The Saint George, The Saint June and Magnolia Place.

Net Gain on Extinguishment of Debt. We recorded a net gain of $1.5 million on extinguishment of debt
in 2021 primarily associated with the forgiveness of substantially all of our PPP loan in third quarter
2021. This gain was partly offset by losses on the extinguishment of debt associated with the
repayment of The Saint Mary construction loan upon the sale of the property in first-quarter 2021 and
the refinancing of the Jones Crossing construction loan in second-quarter 2021, which resulted in the
write-off of unamortized deferred financing costs.

Provision for Income Taxes. We recorded a provision for income taxes of $0.4 million in 2022 and
$12.6 million in 2021. We had deferred tax assets (net of deferred tax liabilities and valuation
allowances) totaling $38 thousand at December 31, 2022, and $6.0 million at December 31, 2021.
Refer to Note 7 for further discussion of income taxes.

Total Comprehensive Loss (Income) Attributable to Noncontrolling Interests in Subsidiaries. Our
partners’ share of loss totaled $0.7 million in 2022 and our partner’s share of income totaled
$5.9 million in 2021. In 2021, our partners were allocated $6.7 million of the gain from the sale of The
Saint Mary.

Discontinued Operations
On May 31, 2022, Stratus completed the sale of Block 21 to Ryman Hospitality Properties, Inc.
(Ryman) for $260.0 million, subject to certain purchase price adjustments, and including Ryman’s
assumption of $136.2 million of existing mortgage debt, with the remainder paid in cash. Stratus’ net
proceeds of cash and restricted cash totaled $112.3 million (including $6.9 million of post-closing
escrow amounts to be held for 12 months after the closing, subject to a longer retention period with
respect to any required reserve for pending claims). Stratus recorded a pre-tax gain on the sale of
$119.7 million in second-quarter 2022 included in net income (loss) from discontinued operations.
Block 21 was Stratus’ wholly owned mixed-use real estate property in downtown Austin, Texas. Block
21 contains the 251-room W Austin Hotel and is home to Austin City Limits Live at the Moody Theater,
a 2,750-seat entertainment venue that serves as the location for the filming of Austin City Limits, the
longest running music series in American television history. Block 21 also includes Class A office
space, retail space and the 3TEN ACL Live entertainment venue and business.

In accordance with accounting guidance, Stratus reported the results of operations of Block 21 as
discontinued operations in the consolidated statements of comprehensive income because the
disposal represents a strategic shift that had a major effect on operations, and presented the assets
and liabilities of Block 21 as held for sale - discontinued operations in the consolidated balance sheets
for all periods presented. Block 21 did not have any other comprehensive income and Stratus’
consolidated statements of cash flows are reported on a combined basis without separately presenting
discontinued operations.

Net income (loss) from discontinued operations totaled $96.8 million in 2022 and $(6.2) million in 2021.
The net income for 2022 primarily reflects a $119.7 million pre-tax gain on the sale of Block 21. The net
loss in 2021 reflects the negative impacts that the COVID-19 pandemic had on the Hotel and
Entertainment operations within our discontinued operations.

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 Year-to-Year Cash Flows
Operating Activities. Cash used in operating activities totaled $55.3 million in 2022 and $53.6 million in
2021. Expenditures for purchases and development of real estate properties totaled $24.5 million in
2022, primarily related to development of our Barton Creek properties, particularly Amarra Villas and,
to a lesser extent, Holden Hills, and $52.8 million in 2021, primarily related to the purchase of the land
for The Annie B, the purchase of the property for The Saint George and development of our Barton
Creek properties, including Amarra Villas. The $62.0 million decrease in accounts payable, accrued
liabilities and other in 2022 is primarily related to paying off the income tax liabilities associated with the
sale of The Santal and The Saint Mary. During first-quarter 2023, we paid $4.5 million in employee
incentive compensation and $4.0 million in property taxes that were accrued at year end.

Investing Activities. Cash provided by investing activities totaled $50.0 million in 2022 and
$188.9 million in 2021. During 2022, we received net proceeds from the sale of Block 21 of
$105.8 million (excluding the release of reserves previously presented as restricted cash but including
$6.9 million of post-closing escrow amounts to be held for 12 months after the closing, subject to a
longer retention period with respect to any required reserves for pending claims). During 2021, we
received net proceeds from the sales of The Santal and The Saint Mary of $209.9 million.

Capital expenditures totaled $54.8 million for 2022, primarily related to The Saint June, The Saint
George and Magnolia Place projects, and $19.6 million for 2021, primarily for The Saint June, Lantana
Place and Magnolia Place projects.

Financing Activities. Cash used in financing activities totaled $19.2 million in 2022 and $99.4 million in
2021. During 2022, we had no net borrowings on the Comerica Bank revolving credit facility, compared
with net borrowings of $43.3 million for 2021. Net borrowings on other project and term loans totaled
$14.3 million in 2022, primarily reflecting borrowings on the Magnolia Place and The Saint June
construction loans and Amarra Villas construction credit facility, compared with net repayments of
$88.1 million in 2021, primarily reflecting the repayment of The Santal loan and The Saint Mary
construction loan upon the sale of those projects. In first-quarter 2023, we paid off the New Caney land
loan at its maturity and made a $2.2 million principal payment on the Amarra Villas construction credit
facility upon closing of a sale of one of the Amarra Villas homes. Refer to the table “Debt Maturities and
Other Contractual Obligations” below for a presentation of our outstanding debt and principal maturities
for the years ended December 31, 2023 through 2027 and thereafter.

During 2022, we received contributions from noncontrolling interest owners of $15.0 million, related to
The Saint George partnership. No distributions to noncontrolling interest owners were paid during
2022. During 2021, we paid distributions to noncontrolling interest owners of $12.5 million, primarily
related to the sale of The Saint Mary, and received contributions from noncontrolling interest owners of
$46.3 million, related to The Saint June, The Annie B and The Saint George partnerships. In first-
quarter 2023, we received a contribution from noncontrolling interest owner of $40.0 million related to
the Holden Hills partnership formation.

On September 1, 2022, after receiving written consent from Comerica Bank, our Board declared a
special cash dividend of $4.67 per share (totaling $40.0 million) on our common stock, which was paid
on September 29, 2022 to shareholders of record as of September 19, 2022. Our Board also approved
a new share repurchase program, which authorizes repurchases of up to $10.0 million of our common
stock, which replaced our prior share repurchase program. The repurchase program authorizes us, in
management’s discretion, to repurchase shares from time to time, subject to market conditions and
other factors. As of December 31, 2022, we repurchased 294,700 shares of our common stock for a
total of $7.9 million at an average price of $26.69. Through March 27, 2023, we have acquired 335,703
shares of our common stock for a total cost of $8.7 million at an average price of $25.93 per share,
and $1.3 million remains available for repurchases under the program.

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. 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.

Revolving Credit Facility and Other Financing Arrangements
As of December 31, 2022, we had cash and cash equivalents of $37.7 million and restricted cash of
$8.0 million. We have taken steps to obtain Federal Deposit Insurance Corporation (FDIC) protection
for much of our deposits; however, we typically have some cash balances on deposit with banks in
excess of FDIC insured limits. Any loss of uninsured deposits could have a material adverse effect on
our future financial condition, liquidity and operations.

At December 31, 2022, we had total debt of $123.9 million based on the principal amounts
outstanding, compared with $107.9 million at December 31, 2021. Consolidated debt at December 31,

2021 excluded the Block 21 loan of approximately $137 million, which was presented in liabilities held
for sale - discontinued operations. Using proceeds from the sale of Block 21, we repaid the outstanding
amount under our Comerica Bank revolving credit facility prior to June 30, 2022. At December 31,
2022, we had $49.0 million available under the revolving credit facility. Letters of credit, totaling
$11.0 million, have been issued under the revolving credit facility, and secure our obligation to build
certain roads and utilities facilities benefiting Holden Hills and Section N. 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 December 31, 2022.

In May 2022, we entered into an amendment with Comerica Bank to extend the maturity date of the
Comerica Bank revolving credit facility from September 27, 2022 to December 26, 2022, and in
November 2022, Comerica Bank extended the maturity date from December 26, 2022 to March 27,
2023. The May 2022 amendment also increased the letter of credit sublimit from $7.5 million to
$11.5 million and changed the benchmark rate to the Bloomberg Short-Term Bank Yield Index (BSBY)
Rate. In February 2023, the Holden Hills property was removed from the borrowing base for the
revolving credit facility, and the maximum amount that could be borrowed was reduced. At March 27,
2023 the maximum amount that could be borrowed under the facility was $53.7 million pursuant to the
terms of the loan agreement, resulting in availability of $42.7 million, net of letters of credit committed
under the facility. In March 2023, we entered into a modification of the revolving credit facility, which
extended the maturity date to March 27, 2025 and increased the floor of the BSBY Rate to
0.50 percent. Pursuant to these amendments, advances under the revolving credit facility bear interest
at the one-month BSBY Rate (with a floor of 0.50 percent) plus 4.00 percent. Refer to Note 6 for
additional discussion.

In February 2023, our subsidiary Holden Hills, L.P. entered into a $26.1 million loan agreement with
Comerica Bank due February 8, 2026 to finance the development of Phase I of the Holden Hills
project. Refer to Note 11 for further discussion.

Our debt agreements require compliance with specified financial covenants. The Magnolia Place
construction loan includes a requirement that we maintain liquid assets, as defined in the agreements,
of not less than $7.5 million. The Jones Crossing loan includes a requirement that we maintain liquid
assets, as defined in the agreement, of not less than $2 million. The New Caney land loan and The
Saint June construction loan include a requirement that we maintain liquid assets, as defined in the
agreements, of not less than $10 million. The Comerica Bank revolving credit facility, the Lantana
Place construction loan, the Amarra Villas credit facility, the Kingwood Place construction loan, the
West Killeen Market construction loan, the New Caney land loan, The Saint June construction loan, the
Magnolia Place construction loan, The Annie B land loan, The Saint George construction loan and the
Holden Hills construction loan include a requirement that we maintain a net asset value, as defined in
each agreement, of $125 million. The Comerica Bank revolving credit facility, the Amarra Villas credit
facility, the Kingwood Place construction loan, The Annie B land loan, The Saint George construction
loan and the Holden Hills construction loan also include a requirement that we maintain a debt-to-gross
asset value, as defined in the agreements, of not more than 50 percent. The West Killeen Market
construction loan, the Jones Crossing loan and the Lantana Place construction loan each include a
financial covenant requiring the applicable Stratus subsidiary to maintain a debt service coverage ratio
as defined in each agreement. As of December 31, 2022, we were in compliance with all of our
financial covenants; however our Jones Crossing project did not pass the debt service coverage ratio
test under the Jones Crossing loan. The debt service coverage ratio under the Jones Crossing loan is
not a financial covenant; however to avoid a “Cash Sweep,” as defined in the loan agreement, Stratus
made a $231 thousand principal payment on the Jones Crossing loan in February 2023 to regain
compliance with the debt service coverage ratio requirement.

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 equityholders; 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, Amarra
Villas credit facility, The Annie B land loan, The Saint George construction loan, Kingwood Place
construction loan and the Holden Hills construction loan require Comerica Bank’s prior written consent
for any common stock repurchases in excess of $1.0 million or any dividend payments, which was
obtained in connection with the special cash dividend and 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.

Of the $37.7 million in consolidated cash and cash equivalents at December 31, 2022, $7.7 million held
at certain consolidated subsidiaries is subject to restrictions on distribution to the parent company
pursuant to project loan agreements.

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 financing. In addition, we are typically required to guarantee the
payment of our project loans, in some cases until certain development milestones and/or financial
conditions are met, except for the Jones Crossing loan guarantees, which is generally limited to
non-recourse carve-out obligations. Refer to Note 6 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 total debt maturities based on the principal amounts outstanding
as of December 31, 2022 (in thousands):

2023

2024

2025

2026

2027 Thereafter

Total

Comerica Bank revolving
credit facility a

Jones Crossing loan

The Annie B land loan b

New Caney land loan c

Construction loans:

Kingwood Place d

Lantana Place

The Saint June

West Killeen Market

Magnolia Place

Amarra Villas credit
facility e

— $

—

14,000

4,050

27,617

108

—

— $

—

277

14,150

—

300

—

5,176

7,013

—

24,500

—

321

—

20,873

—

24,500

14,000

4,050

27,617

21,879

14,150

5,316

7,013

5,366

—

5,366

Total

$ 45,843 $ 26,878 $ 5,476 $ 24,821 $ 20,873 $

— $ 123,891

In March 2023, we entered into a modification of the revolving credit facility, which extended the maturity date
of the revolving credit facility to March 27, 2025. Refer to Note 6 for further information.

In March 2023, we extended the maturity date of this loan to March 1, 2024.

In March 2023, we repaid this loan.

d. The maturity date is December 6, 2023. We have the option to extend the maturity date for one additional

12-month period, subject to certain debt service coverage conditions.

In March 2023, we made a $2.2 million principal payment on this credit facility upon the closing of a sale of
one of the Amarra Villas homes.

As discussed above, in February 2023, we entered into the Holden Hills construction loan for
$26.1 million due February 8, 2026. Refer to Note 11 for further discussion.

We had firm commitments totaling approximately $75 million at December 31, 2022 related to Amarra
Villas, Magnolia Place, The Saint June and The Saint George development projects. In addition,
commitments for construction of the first phase of Holden Hills total approximately $40 million,
including the Tecoma Improvements. We have construction loans, as well as remaining equity capital
contributed to The Saint George and Holden Hills limited partnerships, in place to fund these
commitments except for 60 percent of the cost of the Tecoma Improvements, or approximately
$9 million, for which Stratus has agreed to reimburse the Holden Hills limited partnership. Refer to
Items 1. and 2. Business and Properties and Note 11 for further discussion of the Holden Hills project
and the Tecoma Improvements. Refer to Note 9 for further discussion of future cash requirements.

We project that we will be able to meet our debt service and other cash obligations for at least the next
12 months. For our development projects with firm commitments, we have construction loans, as well
as remaining equity capital allocated to the project, in place to fund the projected cash outlays for these
projects over the next 12 months. Our stabilized commercial properties are projected to generate
positive cash flow after debt service over the next 12 months. For other projected pre-development
costs, much of which are discretionary, and for projected general and administrative expenses, we
have cash on hand and availability under our revolving credit facility (which was recently extended to

March 27, 2025, as stated above) in amounts expected to be sufficient to fund these costs. 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 source of revenue
and cash flow is expected to come from sales of our properties to third parties or distributions from joint
ventures, the timing of and proceeds from which are difficult to predict and depend on market
conditions and other factors. We also generate cash flow from rental revenue 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, 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 and “Risk Factors”
included in Part I, Item 1A. 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.

NEW ACCOUNTING STANDARDS

No new accounting pronouncements adopted or issued by the Financial Accounting Standards Board
had or may have a material impact on our consolidated financial statements.

OFF-BALANCE SHEET ARRANGEMENTS

Refer to Note 9 for discussion of our off-balance sheet arrangements.

CAUTIONARY STATEMENT

Management’s Discussion and Analysis of Financial Condition and Results of Operations 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 the impact of inflation and interest rate changes, supply chain
constraints and tightening bank credit, our ability to meet our future debt service and other cash
obligations, future cash flows and liquidity, our expectations about the Austin and Texas real estate
markets, the planning, financing, development, construction, completion and stabilization of our
development projects, plans to sell, recapitalize, or refinance properties, future operational and
financial performance, MUD reimbursements for infrastructure costs, regulatory matters, 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, the impacts of the ongoing COVID-19 pandemic and any future
major public health crisis, and 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 and/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 was obtained in connection with the special cash dividend and 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.

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 and the cost of building materials and labor, increases in inflation and
interest rates, supply chain constraints, tightening bank credit, defaults by contractors and
subcontractors, 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 and business
conditions, including as a result of the war in Ukraine, or potential U.S. or local economic downturn or
recession, the availability and terms of financing for development projects and other corporate
purposes, the failure of any bank in which we deposit our funds, the ongoing COVID-19 pandemic and
any future major public health crisis, 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, 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, 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, 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 under the heading “Risk Factors” in Part I, Item 1A. of this
Form 10-K.

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.

Item 8. Financial Statements and Supplementary Data

Index to Consolidated Financial Statements

Page
Reference

Management’s Annual Report on Internal Control Over Financial Reporting . . . . . . . . . . . .
Report of Independent Registered Public Accounting Firm (PCAOB ID: 596) . . . . . . . . . . .
Report of Independent Registered Public Accounting Firm (PCAOB ID: 5127) . . . . . . . . . .
Consolidated Balance Sheets as of December 31, 2022 and 2021 . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Comprehensive Income for each of the two years in the
period ended December 31, 2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows for each of the two years in the period ended
December 31, 2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Equity for each of the two years in the period ended
December 31, 2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes to the Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

49
50
52
53

56
57

MANAGEMENT’S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Stratus Properties Inc.’s (the Company’s) management is responsible for establishing and maintaining
adequate internal control over financial reporting for the Company. Internal control over financial
reporting is defined in Rule 13a-15(f) or 15d-15(f) under the Securities Exchange Act of 1934 as a
process designed by, or under the supervision of, the Company’s principal executive and principal
financial officers and effected by the Company’s Board of Directors, management and other personnel,
to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles
and includes those policies and procedures that:

• Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the

transactions and dispositions of the Company’s assets;

• Provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the Company are being made only in
accordance with authorizations of management and directors of the Company; and

• Provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of the Company’s assets that could have a material effect on
the Company’s financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk
that controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.

The Company’s management, including its principal executive officer and principal financial officer,
assessed the effectiveness of its internal control over financial reporting as of the end of the fiscal year
covered by this annual report on Form 10-K. In making this assessment, the Company’s management
used the criteria set forth in Internal Control-Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). Based
on its assessment, management concluded that, as of December 31, 2022, the Company’s internal
control over financial reporting is effective based on the COSO criteria.

/s/ William H. Armstrong III
William H. Armstrong III
Chairman of the Board, President
and Chief Executive Officer

/s/ Erin D. Pickens
Erin D. Pickens
Senior Vice President
and Chief Financial Officer

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders
Stratus Properties Inc.
Austin, Texas

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheet of Stratus Properties Inc. and
subsidiaries (the “Company”) as of December 31, 2022, and the related consolidated statements of
comprehensive income (loss), stockholders’ equity, and cash flows the year ended December 31,
2022, and the related notes (collectively referred to as the “consolidated financial statements”). In our
opinion, the consolidated financial statements present fairly, in all material respects, the financial
position of the Company as of December 31, 2022, and the results of its operations and its cash flows
for the year ended December 31, 2022, in conformity with accounting principles generally accepted in
the United States of America.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these consolidated financial statements based on our audit.
We are a public accounting firm registered with the Public Company Accounting Oversight Board
(United States) (“PCAOB”) and are required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement, whether due to error or fraud. The Company is not
required to have, nor were we engaged to perform, an audit of its internal control over financial
reporting. As part of our audit we are required to obtain an understanding of internal control over
financial reporting but not for the purpose of expressing an opinion on the effectiveness of the
Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audit included performing procedures to assess the risks of material misstatement of the
consolidated financial statements, whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining, on a test basis, evidence regarding the
amounts and disclosures in the consolidated financial statements. Our audit also included evaluating
the accounting principles used and significant estimates made by management, as well as evaluating
the overall presentation of the consolidated financial statements. We believe that our audit provides a
reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the
consolidated financial statements that was communicated or required to be communicated to the audit
committee and that: (1) related to accounts or disclosures that are material to the consolidated financial
statements and (2) involved our especially challenging, subjective, or complex judgments. The
communication of a critical audit matter does not alter in any way our opinion on the consolidated
financial statements, taken as a whole, and we are not, by communicating the critical audit matter
below, providing separate opinions on the critical audit matter or on the accounts or disclosures to
which it relates.

Impairment assessment on long-lived assets - Refer to Notes 1 and 3 to the consolidated financial
statements

The Company’s long-lived assets consist primarily of held for sale real estate assets of $1,773,000,
real estate under development of $239,278,000, real estate held for investment, net of $92,377,000
and land available for development of $39,855,000. The real estate assets are individually reviewed for
impairment whenever events or changes in circumstances indicate that the carrying amount may not
be recoverable. For real estate held for sale, if estimated fair value less costs to sell is less than the
related carrying amount, a reduction of the asset’s carrying value to fair value less costs to sell is
required. For real estate under development, land available for development and real estate held for
investment, an impairment exists when the carrying amount of an asset exceeds the aggregate
projected future cash flows over the anticipated holding period on an undiscounted basis. An
impairment loss is measured based on the excess of the property’s carrying amount over its fair value.
The Company’s undiscounted cash flows are subjective and are based, in part, on estimates and
assumptions such as real estate prices, sales pace, sales and marketing costs, infrastructure
development costs and capitalization rates. In the event a property’s carrying amount is not
recoverable, the Company determines fair value based on appraised values, adjusted for estimated
costs to sell. Evaluation of appraisals is subjective and is based, in part, on estimates and assumptions
such as real estate prices, market rental rates, capitalization rates, and discount rates that could differ
materially from actual results.

Significant judgment is exercised by management in evaluating the recoverability and fair value of the
long-lived assets noted above. Given these factors, the related audit effort in evaluating these
management judgments was challenging, subjective, and complex and required a high degree of
auditor judgment.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the undiscounted cash flow analyses and appraisals included, among
other things, the following:

— We obtained an understanding and evaluated the design of internal controls over
management’s evaluation of the recoverability of the carrying amount of long-lived assets
based on undiscounted cash flows and the measurement of impairment based on fair value
estimates derived from appraisals less estimated costs to sell.

— We evaluated the reasonableness of significant assumptions in the undiscounted cash flow
analyses and appraisals, including estimates of real estate prices, market rental rates,
capitalization rates, and discount rates, for properties with impairment indicators. In addition,
we tested the mathematical accuracy of the undiscounted cash flow analyses.

— We evaluated the reasonableness of management’s undiscounted cash flow analyses by
comparing management’s projections to earlier projections for the same property, current year
results of similar properties, and external market sources.

— We evaluated whether the assumptions in any of the analyses above were consistent with

evidence obtained in other areas of the audit.

/s/ CohnReznick LLP

We have served as the Company’s auditor since 2022.

Dallas, Texas
March 31, 2023

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders
Stratus Properties Inc.
Austin, Texas

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheet of Stratus Properties Inc. and
subsidiaries (the Company) as of December 31, 2021, and the related consolidated statement of
comprehensive income (loss), stockholders’ equity, and cash flows for the year ended December 31,
2021, and the related notes (collectively referred to as the consolidated financial statements). In our
opinion, the consolidated financial statements present fairly, in all material respects, the financial
position of the Company as of December 31, 2021, and the results of its operations and its cash flows
for each of the year ended December 31, 2021, in conformity with accounting principles generally
accepted in the United States of America.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on the Company’s consolidated financial statements based on
our audit. We are a public accounting firm registered with the Public Company Accounting Oversight
Board (United States) (PCAOB) and are required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement, whether due to error or fraud. The Company is not
required to have, nor were we engaged to perform, an audit of its internal control over financial
reporting. As part of our audit, we are required to obtain an understanding of internal control over
financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the
Company’s internal control over financial reporting. Accordingly, we express no such opinion.

/s/ BKM Sowan Horan, LLP

We have served as the Company’s auditor since 2010.

Austin, Texas
March 31, 2022

Total assets

445,140 $

STRATUS PROPERTIES INC.
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Par Value)

ASSETS

Cash and cash equivalents

Restricted cash

Real estate held for sale

Real estate under development

Land available for development

Real estate held for investment, net

Lease right-of-use assets

Deferred tax assets

Other assets

Assets held for sale, including discontinued operations

LIABILITIES AND EQUITY
Liabilities:

Accounts payable

Accrued liabilities, including taxes

Debt

Lease liabilities

Deferred gain

Other liabilities

Liabilities held for sale, including discontinued operations

Total liabilities

Commitments and contingencies (Notes 7 and 9)

Equity:

Stockholders’ equity:

Common stock, par value of $0.01 per share, 150,000 shares authorized,
9,439 and 9,388 shares issued, respectively and
7,991 and 8,245 shares outstanding, respectively

Capital in excess of par value of common stock

Retained earnings (accumulated deficit)

Common stock held in treasury, 1,448 shares and 1,143 shares at cost,

respectively

Total stockholders’ equity

Noncontrolling interests in subsidiaries

Total equity

Total liabilities and equity

December 31,

2022

2021

37,666 $

8,043

1,773

24,229

18,294

1,773

239,278

181,224

39,855

92,377

10,631

15,479

—

15,244 $

7,049

122,765

14,848

3,519

9,642

—

173,067

40,659

90,284

10,487

6,009

17,214

151,053

541,226

14,118

22,069

106,648

13,986

4,801

17,894

153,097

332,613

195,773

41,452

(30,071)

207,248

64,825

272,073

445,140 $

188,759

(8,963)

(21,753)

158,137

50,476

208,613

541,226

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

STRATUS PROPERTIES INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In Thousands, Except Per Share Amounts)

Years Ended December 31,

2022

2021

Revenues:

Real estate operations

Leasing operations

Total revenues

Cost of sales:

Real estate operations

Leasing operations

Depreciation and amortization

Total cost of sales

General and administrative expenses

Impairment of real estate

Gain on sales of assets

Total

Operating (loss) income

Interest expense, net

Net gain on extinguishment of debt

Other income, net

Net (loss) income before income taxes and equity in unconsolidated affiliate’s loss

Provision for income taxes

Equity in unconsolidated affiliate’s loss

Net (loss) income from continuing operations

Net income (loss) from discontinued operations

Net income and total comprehensive income

Total comprehensive loss (income) attributable to noncontrolling interests

Net income and total comprehensive income attributable to common stockholders

Basic net (loss) income per share attributable to common stockholders:

Continuing operations

Discontinued operations

Diluted net (loss) income per share attributable to common stockholders:

Continuing operations

Discontinued operations

Weighted-average shares of common stock outstanding:

Basic

Diluted

24,744

12,754

37,498

23,761

4,439

3,586

31,786

17,567

720

(4,812)

45,261

(7,763)

(15)

—

1,103

(6,675)

(389)

(13)

(7,077)

96,820

89,743

683

8,449

19,787

28,236

9,733

9,030

5,449

24,212

24,509

1,825

(105,970)

(55,424)

83,660

(3,193)

1,529

82,061

(12,577)

(27)

69,457

(6,208)

63,249

(5,855)

90,426

57,394

(0.78) $

11.77

10.99

(0.78) $

11.77

10.99

7.72

(0.75)

6.97

7.65

(0.75)

6.90

8,228

8,236

8,313

Dividends declared per share of common stock

4.67

—

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

STRATUS PROPERTIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)

Cash flow from operating activities:

Net income

Adjustments to reconcile net income to net cash used in operating activities:

Depreciation and amortization

Cost of real estate sold

Impairment of real estate

Gain on sale of discontinued operations

Gain on sales of assets

Net gain on extinguishment of debt

Debt issuance cost amortization and stock-based compensation

Equity in unconsolidated affiliates’ loss

Deferred income taxes

Purchases and development of real estate properties

Write-off of capitalized hotel remodel costs

Decrease (increase) in other assets

(Decrease) increase in accounts payable, accrued liabilities and other

Net cash used in operating activities

Cash flow from investing activities:

Capital expenditures

Proceeds from sale of discontinued operations

Proceeds from sales of assets

Payments on master lease obligations

Other, net

Years Ended December 31,

2022

2021

89,743 $

63,249

3,586

15,596

720

(119,695)

9,964

4,056

1,825

—

(4,812)

(105,970)

—

2,824

5,971

(24,454)

—

3,805

(28,557)

(55,260)

(54,813)

105,813

—

(989)

(8)

(1,529)

2,007

(5,965)

(52,772)

287

(2,212)

33,423

(53,610)

(19,562)

—

209,947

(1,501)

Net cash provided by investing activities

50,003

188,940

Cash flow from financing activities:

Borrowings from revolving credit facility

Payments on revolving credit facility

Borrowings from project loans

Payments on project and term loans

Payment of dividends

Finance lease principal paydown

Stock-based awards net payments

Distributions to noncontrolling interests

Purchases of treasury stock

Noncontrolling interests’ contributions

Financing costs

Net cash used in financing activities

Net (decrease) increase in cash, cash equivalents and restricted cash

Cash, cash equivalents and restricted cash at beginning of year

30,000

(30,000)

33,163

(18,831)

(38,693)

(4)

(452)

—

(7,866)

15,032

(1,522)

(19,173)

(24,430)

70,139

Cash, cash equivalents and restricted cash at end of year

45,709 $

39,700

(83,004)

42,661

(130,723)

—

(132)

(12,529)

—

46,300

(1,647)

(99,374)

35,956

34,183

70,139

The accompanying Notes to Consolidated Financial Statements, which include information regarding noncash transactions, are
an integral part of these consolidated financial statements.

a
o
T

y
t
i

u
q
E

g
n

i
l
l

o
r
t
n
o
c
n
o
N

s
t
s
e
r
e

s
e
i
r
a
d
s
b
u
S

y
t
i
u
q
E

’

s
r
e
d
o
h
k
c
o
t
S

)
s
d
n
a
s
u
o
h
T
n

I
(

a
o
T

t
s
o
C

s
e
r
a
h
S

)
t
i
c
i
f
e
D

f
o

d
e
t
a
u
m
u
c
c
A

(

r
e
b
m
u
N

d
e
n
a
t
e
R

s
g
n
n
r
a
E

a
t
i
p
a
C

f
o
s
s
e
c
x
E

e
u
a
V

r
a
P

e
u
a
V

r
e
b
m
u
N

f
o

s
e
r
a
h
S

k
c
o
t
S
n
o
m
m
o
C

y
r
u
s
a
e
r
T
n

d
e
H

k
c
o
t
S
n
o
m
m
o
C

C
N

S
E
T
R
E
P
O
R
P
S
U
T
A
R
T
S

Y
T
U
Q
E
F
O
S
T
N
E
M
E
T
A
T
S
D
E
T
A
D
L
O
S
N
O
C

5
2

5
9
7

2
6
1

)
3
5
1
(

—

)
9
2
5

2
1
(

)
9
2
5
2
1
(

0
0
3

6
4

9
4
2

3
6

3
1
6
8
0
2

)
6
6
8

7
(

)
1
1
0

0
4
(

—

6
1
7

2
9
2

)
2
5
4
(

2
3
0

5
1

3
4
7
9
8

—

0
0
3

6
4

5
5
8

6
7
4

0
5

)
3
8
6
(

2
3
0
5
1

5
2

5
9
7

2
6
1
1

—

4
9
3

7
5

—

)
3
5
1
(

—

4
9
3
,
7
5

5
2

5
9
7

2
6
1
,
1

—

7
3
1
8
5
1

)
3
5
7

1
2
(

3
4
1
,
1

)
3
6
9
,
8
(

9
5
7
,
8
8
1

)
6
6
8

7
(

)
1
1
0
0
4
(

—

6
1
7
1

2
9
2
5

—

)
2
5
4
(

6
2
4
0
9

)
6
6
8
7
(

4
9
2

—

)
2
5
4
(

—

1
1

—

)
1
1
0
,
0
4
(

—

6
2
4
,
0
9

—

6
1
7
,
1

2
9
2
,
5

4
6
7
9
0
1

0
5
8

0
1

4
1
9
8
9

)
0
0
6
,
1
2
(

7
3
1
,
1

)
7
5
3
,
6
6
(

7
7
7
,
6
8
1

3
7
0
2
7
2

5
2
8

4
6

8
4
2

7
0
2

)
1
7
0
0
3
(

8
4
4
,
1

2
5
4
,
1
4

3
7
7
,
5
9
1

4
9

—

4
9

—

4
9

.
s
t
n
e
m
e

t
s

a
c
n
a
n
i
f
d
e
t
a
d

i
l

o
s
n
o
c
e
s
e
h
t

f
o
t
r
a
p

a
r
g
e
t
n

n
a
e
r
a
s
t
n
e
m
e
t
a
t
S

8
5
3
,
9

0
2
0
2
,
1
3
r
e
b
m
e
c
e
D

t
a
e
c
n
a
a
B

0
3

—

)
s
U
S
R

(

s
t
i
n
u
k
c
o
t
s
d
e
t
c
i
r
t
s
e
r

n
a
r
G

n
o
i
t
a
p
c
i
t
r
a
P

t
i
f
o
r
P
e
h
t

r
e
d
n
u

)

P
P
P

(
n
a
P
e
v
i
t

n
e
c
n

d
e
s
a
b
-
k
c
o
t
s

r
o
f

s
e
r
a
h
s

o
r
e
d
n
e
T

s
d
r
a
w
a

s
d
r
a
w
a
d
e
s
a
b
-
k
c
o
t
s
d
e

t
s
e
V

n
o
i
t
a
s
n
e
p
m
o
c
d
e
s
a
b
-
k
c
o
S

s
t
s
e
r
e
t
n

g
n

i
l
l

o
r
t
n
o
c
n
o
n
o
t

s
n
o
i
t

u
b
i
r
t
s
D

s
n
o
i
t
u
b
i
r
t
n
o
c

’

s
t
s
e
r
e
t
n

g
n

i
l
l

o
r
t
n
o
c
n
o
N

e
m
o
c
n

e
v
s
n
e
h
e
r
p
m
o
c

a
o
T

8
8
3
,
9

1
2
0
2
,
1
3
r
e
b
m
e
c
e
D

t
a
e
c
n
a
a
B

—

1
5

—

s
n
o
i
t
u
b
i
r
t
n
o
c

’

s
t
s
e
r
e
t
n

g
n

i
l
l

o
r
t
n
o
c
n
o
N

)
s
s
o
l
(
e
m
o
c
n

e
v
s
n
e
h
e
r
p
m
o
c

a
o
T

d
e
s
a
b
-
k
c
o
t
s

r
o
f

s
e
r
a
h
s

o
r
e
d
n
e
T

s
d
r
a
w
a

f
o
s
e
r
a
h
s
n

d
a
p
s
e
e
f

r
o
t
c
e
r
i

k
c
o
t
s
n
o
m
m
o
c

s
d
r
a
w
a
d
e
s
a
b
-
k
c
o
t
s
d
e

t
s
e
V

n
o
i
t
a
s
n
e
p
m
o
c
d
e
s
a
b
-
k
c
o
S

P
P
P
e
h
t

r
e
d
n
u
s
U
S
R

n
a
r
G

s
e
s
a
h
c
r
u
p
e
r

k
c
o
t
s
n
o
m
m
o
C

d
n
e
d
v
d
h
s
a
C

9
3
4
,
9

2
2
0
2
,
1
3
r
e
b
m
e
c
e
D

t
a
e
c
n
a
a
B

a
c
n
a
n
F
d
e
t
a
d

i
l

o
s
n
o
C
o
t

s
e
t
o
N
g
n
y
n
a
p
m
o
c
c
a
e
h
T

STRATUS PROPERTIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business and Principles of Consolidation. Stratus Properties Inc. (Stratus), a Delaware corporation,
is engaged primarily in the acquisition, entitlement, development, management, leasing and sale of
multi-family and single-family residential real estate properties and commercial properties in the Austin,
Texas area and other select markets in Texas. The real estate and leasing operations of Stratus are
conducted primarily through its subsidiaries. Stratus consolidates its wholly owned subsidiaries,
subsidiaries in which Stratus has a controlling interest and variable interest entities (VIEs) in which
Stratus is determined to be the primary beneficiary. All significant intercompany transactions have
been eliminated in consolidation. Refer to Note 4 for a discussion of Stratus’ discontinued operations.

Concentration of Risks. Stratus conducts its operations in the Austin, Texas area and other select
markets in Texas. Consequently, any significant economic downturn in the Texas market, and the
Austin market specifically, could potentially have an effect on Stratus’ business, results of operations
and financial condition. Stratus has taken steps to obtain Federal Deposit Insurance Corporation
(FDIC) protection for much of its cash deposits; however it typically has some cash balances on
deposit with banks in excess of FDIC-insured limits.

Use of Estimates. The preparation of Stratus’ financial statements in conformity with accounting
principles generally accepted in the United States (U.S.) requires management to make estimates and
assumptions that affect the amounts reported in these financial statements and accompanying notes.
The more significant areas requiring the use of management estimates include the estimates of future
cash flow from development and sale of real estate properties used in the assessment of impairments;
profit recognition related to the sales of real estate; deferred income taxes and related valuation
allowances; income taxes; allocation of certain indirect costs; profit pools under the Profit Participation
Incentive Plan (PPIP) and the Long-Term Incentive Plan (LTIP); and asset lives for depreciation. Actual
results could differ from those estimates.

Cash and cash equivalents. All highly liquid investments with a maturity of three months or less when
purchased are considered cash equivalents.

Restricted cash. Stratus’ restricted cash of $8.0 million is comprised of bank deposits and at
December 31, 2022 primarily consists of $6.9 million of post-closing escrow amounts from the sale of
Block 21 in May 2022 to be held for 12 months after the closing, subject to a longer retention period
with respect to any required reserve for pending claims.

Real Estate. Real estate held for investment is stated at cost, less accumulated depreciation. Real
estate held for sale is stated at the lower of cost or fair value less costs to sell. The cost of real estate
held for sale includes acquisition, development, construction and carrying costs, and other related
costs incurred through the development stage.

Real estate under development and land available for development are stated at cost. Stratus
capitalizes interest on funds used in developing properties from the date of initiation of development
activities through the date the property is substantially complete and ready for use or sale. Common
costs are allocated based on the relative fair value of individual land parcels. Certain carrying costs
including property taxes are capitalized for properties currently under development. Stratus capitalizes
improvements that increase the value of properties and have useful lives greater than one year. Costs
related to repairs and maintenance are charged to expense as incurred.

Stratus performs an impairment test when events or circumstances indicate that an asset’s carrying
amount may not be recoverable. Events or circumstances that Stratus considers indicators of

include significant decreases

in market values, adverse changes

impairment
in regulatory
requirements (including environmental laws), significant budget overruns for properties under
development, and current period or projected operating cash flow losses from properties held for
investment. Impairment tests for properties held for investment and properties under development
involve the use of estimated future net undiscounted cash flows expected to be generated from the
operation of the property and its eventual disposition. If projected undiscounted cash flow is less than
the related carrying amount, then a reduction of the carrying amount of the long-lived asset to fair value
is required. Generally, Stratus determines fair value using valuation techniques such as discounted
expected future cash flows. Impairment tests for properties held for sale involve management
estimates of fair value based on estimated market values for similar properties in similar locations and
management estimates of costs to sell. If estimated fair value less costs to sell is less than the related
carrying amount, then a reduction of the carrying amount of the asset to fair value less costs to sell is
required.

Should market conditions deteriorate in the future or other events occur that indicate the carrying
amount of Stratus’ real estate assets may not be recoverable, Stratus will reevaluate the expected
cash flows from each property to determine whether any impairment exists.

Depreciation. Real estate held for investment is depreciated on a straight-line basis over the
properties’ estimated lives of 30 to 40 years. Furniture, fixtures and equipment are depreciated on a
straight-line basis over a 3 to 15-year period. Tenant improvements are depreciated over the related
lease terms.

Accrued Property Taxes. Stratus estimates its property taxes based on prior year property tax
payments and other current events that may impact the amount. Upon receipt of the property tax bill,
Stratus adjusts its accrued property tax balance at year-end to the actual amount of taxes due for such
year. Accrued property taxes included in accrued liabilities totaled $3.8 million at December 31, 2022
and $3.6 million at December 31, 2021.

Revenue Recognition. Revenue or gains on sales of real estate are recognized when control of the
asset has been transferred to the buyer if collection of substantially all of the consideration to which
Stratus will be entitled is probable and Stratus has satisfied all other performance obligations under the
contract. Consideration is allocated among multiple performance obligations or distinct nonfinancial
assets to be transferred to the buyer based on relative fair value. Consideration is reasonably
determined and deemed likely of collection when Stratus has signed sales agreements and has
determined that the buyer has demonstrated a commitment to pay.

Stratus recognizes its rental income on a straight-line basis based on the terms of its signed leases
with tenants. Recoveries from tenants for taxes, insurance and other commercial property operating
expenses are recognized as revenues in the period the related costs are incurred. Stratus recognizes
sales commissions and management and development fees when earned, as properties are sold or
when the services are performed.

Cost of Sales. Cost of sales includes the cost of real estate sold as well as costs directly attributable
to the properties sold, properties held for sale, and land available for development, such as marketing,
maintenance and property taxes. Cost of sales also includes operating costs and depreciation for
properties held for investment and municipal utility district reimbursements. A summary of Stratus’ cost
of sales follows (in thousands):

Depreciation and amortization

Leasing operations

Cost of developed property sales

Cost of undeveloped property sales

Project expenses and allocation of overhead costs (see below)

Other, net

Total cost of sales

Years Ended December 31,

2022

2021

3,586 $

4,439

5,601

11,524

6,611

5,449

9,030

2,617

1,671

5,758

(313)

31,786 $

24,212

Allocation of Overhead Costs. Stratus allocates a portion of its overhead costs to both capitalized
real estate costs and cost of sales based on the percentage of time certain employees worked in the
related areas (i.e. costs of construction and development activities are capitalized to real estate under
development, and costs of project management, sales and marketing activities are charged to expense
as cost of sales). Stratus capitalizes only direct and certain indirect project costs associated with the
acquisition, development and construction of a real estate project. Indirect costs include allocated costs
associated with certain pooled resources (such as rent, office supplies, insurance, telephone and
postage) which are used to support Stratus’ development projects, as well as general and
administrative functions. Allocations of pooled resources are based only on those employees directly
responsible for development (i.e., project managers and subordinates). Stratus charges to expense
indirect costs that do not clearly relate to a real estate project, such as all salaries and costs related to
its Chief Executive Officer and Chief Financial Officer.

Advertising Costs. Advertising costs are charged to expense as incurred and are included as a
component of cost of sales. Advertising costs totaled $0.5 million in 2022 and $0.4 million in 2021.

Income Taxes. Stratus accounts for deferred income taxes under an asset and liability method,
whereby deferred tax assets and liabilities are recognized based on the tax effects of temporary
differences between the financial statements and the tax basis of assets and liabilities, as measured by
currently enacted tax rates. The effect on deferred income tax assets and liabilities of a change in tax
rates or laws is recognized in income or loss in the period in which such changes are enacted. Stratus
periodically evaluates the need for a valuation allowance to reduce deferred tax assets to estimated
recoverable amounts. Stratus establishes a valuation allowance to reduce its deferred tax assets and
records a corresponding charge to earnings if it is determined, based on available evidence at the time,
that it is more likely than not that any portion of the deferred tax assets will not be realized. In
evaluating the need for a valuation allowance, Stratus estimates future taxable income based on
projections and ongoing tax strategies. This process involves significant management judgment about
assumptions that are subject to change based on variances between projected and actual operating
performance and changes in Stratus’ business environment or operating or financial plans. Refer to
Note 7 for further discussion.

Earnings Per Share. Stratus’ basic net income per share of common stock was calculated by dividing
the net income attributable to common stockholders by the weighted-average shares of common stock
outstanding during the period. A reconciliation of net income and weighted-average shares of common
stock outstanding for purposes of calculating diluted net income per share (in thousands, except per
share amounts) follows:

Net (loss) income from continuing operations

Net income (loss) from discontinued operations

Net income

Net income (loss) attributable to noncontrolling interests

Net income attributable to common stockholders

Basic weighted-average shares of common stock outstanding

Add shares issuable upon vesting of dilutive restricted stock units (RSUs) a

Diluted weighted-average shares of common stock outstanding

Basic net income (loss) per share attributable to common stockholders:

Continuing operations

Discontinued operations

Basic net income per share attributable to common stockholders

Diluted net income(loss) per share attributable to common stockholders:

Continuing operations

Discontinued operations

Diluted net income per share attributable to common stockholders

Years Ended December 31,

2022

2021

(7,077) $

69,457

96,820

(6,208)

89,743

63,249

683

(5,855)

90,426

57,394

8,228

—

8,228

(0.78) $

11.77

10.99

(0.78) $

11.77

10.99

8,236

8,313

7.72

(0.75)

6.97

7.65

(0.75)

6.90

a. Excludes approximately 295 thousand shares in 2022 of common stock associated with RSUs that were anti-
dilutive as a result of the net loss from continuing operations. Excludes 5 thousand shares associated with
RSUs that were anti-dilutive in 2021.

Stock-Based Compensation. Compensation costs for share-based payments to employees are
measured at fair value and charged to expense over the requisite service period for awards that are
expected to vest. The fair value of RSUs is based on Stratus’ stock price on the date of grant. Stratus
estimates forfeitures at the time of grant and revises those estimates in subsequent periods if actual
forfeitures differ from those estimates through the final vesting date of the awards. The awards are
amortized on a straight-line basis over the estimated service period.

Stratus may grant RSUs that settle in cash to employees and nonemployees under the PPIP. The
value of these awards in excess of the liability amount, if any, as of the date of the valuation event is
amortized on a straight-line basis over the estimated service period. Refer to Note 8 for further
discussion.

Related Party Transactions. Refer to Notes 2 and 4 for discussion of LCHM Holdings, LLC (LCHM),
its manager, and JBM Trust, which are related parties as a result of LCHM’s representation on Stratus’
Board of Directors (Board). LCHM and JBM Trust have invested in certain of Stratus’ limited
partnerships.

Through the first quarter of 2022, Stratus had an arrangement with Whitefish Partners, LLC (Whitefish
Partners), formerly known as Austin Retail Partners, LLC, for services provided by a consultant of
Whitefish Partners who is the son of Stratus’ President and Chief Executive Officer. In April 2022, Stratus
hired the consultant as an employee at an annual salary of $100 thousand. As an employee, he is eligible
for the same health and retirement benefits provided to all Stratus employees and is also eligible for
annual incentive awards and for awards under the PPIP and the LTIP. In 2022, he received
$20 thousand as an annual incentive award for 2021 and a $135 thousand cash bonus related to payouts
for development projects under the PPIP. As of December 31, 2022, the employee has two outstanding
awards under the PPIP. Refer to Note 8 for discussion of the PPIP. Payments to Whitefish Partners for
the consultant’s consulting services and expense reimbursements totaled $122 thousand during 2021.

NOTE 2. LIMITED PARTNERSHIPS
The Saint George Apartments, L.P. In November 2021, The Saint George Apartments, L.P. (The
Saint George partnership), a Texas limited partnership and subsidiary of Stratus, was formed to
purchase land and develop, construct and lease The Saint George, a 316-unit luxury wrap-style multi-
family project in Austin. In December 2021, The Saint George partnership purchased the land for the
project for $18.5 million. In December 2021, an unrelated equity investor contributed $18.3 million to
The Saint George partnership for a 90.0 percent interest. In July 2022, The Saint George Apartments,
L.P. entered into a construction loan agreement. Borrowings on the construction loan are secured by
The Saint George project and are guaranteed by Stratus until certain conditions are met. Refer to Note
6 for further discussion of the loan agreement. In connection with closing the construction financing,
Stratus made an additional capital contribution of $1.7 million and the unaffiliated Class B limited
partner made an additional capital contribution of $15.0 million, bringing Stratus’ total capital
contributions to $3.7 million (consisting of pursuit costs and $2.2 million in cash) and the Class B
limited partner’s total capital contributions to $33.4 million. Stratus has a 10.0 percent interest in The
Saint George partnership. Stratus’ potential returns may increase above its relative equity interest if
negotiated return hurdles are achieved.

The Saint George partnership is governed by a limited partnership agreement between Stratus and the
equity investor, and a wholly owned subsidiary of Stratus serves as the general partner. The general
partner has the authority to manage the day-to-day operations of the partnership, subject to approval
rights of the limited partners for specified matters. The general partner will manage The Saint George
partnership in exchange for an asset management fee of $300 thousand per year beginning two years
after construction of The Saint George, and will earn a development management fee of 4.0 percent of
certain construction costs for The Saint George. The limited partnership agreement contains a buy-sell
option pursuant to which at any time either party will have the right to initiate a buy-sell of the other
party’s interests. Transfers of interests in the partnership are subject to substantial restrictions.

Stratus Block 150, L.P. In September 2021, Stratus Block 150, L.P., a Texas limited partnership and
a subsidiary of Stratus, completed financing transactions from which a portion of the proceeds were
used to purchase the land for Block 150, now known as The Annie B, a proposed luxury multi-family
high-rise development in downtown Austin, Texas. The proceeds will also be used to fund
predevelopment costs of the project. These financing transactions included (i) a $14.0 million land loan
and (ii) $11.7 million from the sale of Class B limited partnership interests in a private placement
offering, along with $3.9 million in cash and pursuit costs contributed by wholly owned subsidiaries of
Stratus. The Annie B land loan is secured by The Annie B project and guaranteed by Stratus until
certain conditions are met. Refer to Note 6 for further discussion of the land loan.

In first-quarter 2022, pursuant to the limited partnership agreement, wholly owned subsidiaries of
Stratus contributed an additional $1.4 million in cash to Stratus Block 150, L.P. No additional capital
contributions are required to be made by the partners. As of December 31, 2022, Stratus holds, in the
aggregate, a 31.0 percent indirect equity interest in Stratus Block 150, L.P. No individual Class B
limited partner has an equity interest greater than 25.0 percent. One of the participants in the private
placement offering, JBM Trust, which purchased a limited partnership interest initially representing a

5.9 percent equity interest in Stratus Block 150, L.P., has a trustee who also serves as sole manager of
LCHM.

Stratus Block 150, L.P. is governed by a limited partnership agreement between Stratus and the equity
investors, and a wholly owned subsidiary of Stratus serves as the general partner. The general partner
has the authority to manage the day-to-day operations of the partnership, subject to approval rights of
the limited partners for specified matters. Stratus plans to capitalize The Annie B in a two-phase
process consisting of the initial land partnership phase and potentially followed by a development
partnership phase. No asset management fee will be paid to the general partner during the land
partnership phase. If the general partner determines to proceed with the development partnership
phase, the general partner would continue to manage Stratus Block 150, L.P. and would begin to
receive an asset management fee to be agreed on at that time. During the development partnership
phase, the general partner would receive a development management fee of approximately 4 percent
of certain construction costs for The Annie B. Transfers of interests in the partnership are subject to
substantial restrictions. If a change of control of Stratus occurs as defined in the limited partnership
agreement, each Class B limited partner has a put right to require Stratus to purchase all but not less
than all of its interests for a price generally providing a cumulative 10 percent annual return on capital
contributions.

The Saint June, L.P. In June 2021, The Saint June, L.P., a Texas limited partnership and a subsidiary
of Stratus, entered into a construction loan to develop The Saint June, a 182-unit luxury garden-style
multi-family project within the Amarra development of the Barton Creek community in Austin, Texas.
The loan is secured by The Saint June project and is guaranteed by Stratus until certain conditions are
met. Refer to Note 6 for further discussion of this loan.

In July 2021, an unrelated equity investor contributed $16.3 million to The Saint June, L.P. partnership
for a 65.87 percent interest. Stratus has a 34.13 percent interest in The Saint June, L.P. following its
contribution of land, development costs and $1.1 million of cash. Stratus’ potential returns may
increase above its relative equity interest if negotiated return hurdles are achieved.

The Saint June, L.P. is governed by a limited partnership agreement between Stratus and the equity
investor, and a wholly owned subsidiary of Stratus serves as the general partner. The general partner
has the authority to manage the day-to-day operations of the partnership, subject to approval rights of
the limited partners for specified matters. The general partner will manage The Saint June, L.P. in
exchange for an asset management fee of $210 thousand per year beginning two years after
construction of The Saint June, which began in July 2021, and will earn a development management
fee of 4.0 percent of certain construction costs for The Saint June. The limited partnership agreement
contains a buy-sell option pursuant to which at any time either party will have the right to initiate a
buy-sell of the other party’s interests. Transfers of interests in the partnership are subject to substantial
restrictions.

Stratus Kingwood Place, L.P. In August 2018, Stratus Kingwood Place, L.P., a Texas limited
partnership and a subsidiary of Stratus (the Kingwood, L.P.), completed a $10.7 million private
placement, approximately $7 million of which, combined with a $6.8 million loan from Comerica Bank,
was used to purchase a 54-acre tract of land located in Kingwood, Texas for $13.5 million, for the
development of Kingwood Place, an H-E-B-anchored mixed-use development project (Kingwood
Place). Two of the participants in the Kingwood Offering, LCHM and JBM Trust, each purchased
Kingwood Class B limited partnership interests initially representing an 8.8 percent equity interest in
the Kingwood, L.P.

Kingwood, L.P. is governed by a limited partnership agreement between Stratus and the equity
investors, and a wholly owned subsidiary of Stratus serves as the general partner. The general partner

has the authority to manage the day-to-day operations of the partnership, subject to approval rights of
the limited partners for specified matters. The general partner manages the Kingwood, L.P., in
exchange for an asset management fee of $283 thousand per year and earns a development
management fee of 4.0 percent of certain construction costs for Kingwood Place. Transfers of interests
in the partnership are subject to substantial restrictions.

In December 2018, the Kingwood, L.P., entered into a construction loan agreement with Comerica
Bank, which superseded and replaced the land acquisition loan agreement discussed above and
provided for a loan totaling $32.9 million to finance nearly 70 percent of the costs associated with
construction of Kingwood Place, which was subsequently modified and increased to $35.4 million in
January 2020 (refer to Note 6 for further discussion). Borrowings on the Kingwood Place construction
loan are secured by the Kingwood Place project, and are guaranteed by Stratus until certain conditions
are met. The remaining 30 percent of the project’s cost (totaling approximately $15 million) was funded
by borrower equity, contributed by Stratus and private equity investors.

In October 2019, Stratus acquired an unrelated equity investor’s 33.33 percent interest in Kingwood,
L.P. for $5.8 million. Following the acquisition, Stratus has a 60.0 percent interest in the Kingwood, L.P.
Stratus’ potential returns may increase above its relative equity interest if negotiated return hurdles are
achieved.

Accounting for Limited Partnerships. Stratus has performed evaluations and concluded that The
Saint George partnership, Stratus Block 150, L.P., The Saint June, L.P. and the Kingwood, L.P. are
VIEs and that Stratus is the primary beneficiary. Accordingly, the partnerships’ results are consolidated
in Stratus’ financial statements. Stratus will continue to re-evaluate which entity is the primary
beneficiary of these partnerships in accordance with applicable accounting guidance.

The cash and cash equivalents held at these limited partnerships are subject to restrictions on
distribution to the parent company pursuant to project loan agreements.

Stratus’ consolidated balance sheets include the following assets and liabilities of the partnerships (in
thousands).

Assets: a

Cash and cash equivalents

Restricted cash

Real estate under development

Land available for development

Real estate held for investment, net

Other assets

Total assets

Liabilities: b

Accounts payable and accrued liabilities

Debt

Total liabilities

Net assets

December 31,

2022

2021

7,744 $

—

107,258

5,970

30,720

4,455

6,177

11,809

62,692

7,641

31,399

3,132

156,147

122,850

12,563

55,305

67,868

88,279 $

5,499

46,096

51,595

71,255

a. Substantially all of the assets are available to settle obligations of only the partnerships.

b. All of the debt is guaranteed by Stratus until certain conditions are met in the individual partnership loan
agreements. The creditors for the remaining liabilities do not have recourse to the general credit of Stratus.

NOTE 3. REAL ESTATE, NET
Stratus’ consolidated balance sheets include the following net real estate assets (in thousands):

Real estate held for sale:

Developed lots

Real estate under development:

December 31,

2022

2021

1,773 $

1,773

Acreage, multi-family units, commercial square footage and homes

239,278

181,224

Land available for development:

Undeveloped acreage and vacant office building for future renovation

39,855

40,659

Real estate held for investment:

Kingwood Place

Lantana Place

Jones Crossing

West Killeen Market

Magnolia Place

Furniture, fixtures and equipment

Total

Accumulated depreciation

Total real estate held for investment, net

Total real estate, net

34,239

30,284

25,032

10,192

5,761

491

105,999

(13,622)

92,377

33,979

30,283

25,239

10,237

—

730

100,468

(10,184)

90,284

373,283 $

313,940

Real estate held for sale. Developed lots include individual tracts of land that have been developed
and permitted for residential use. As of December 31, 2022, Stratus owned two developed lots.

Real estate under development. Acreage under development includes real estate for which
infrastructure work over the entire property has been completed, is currently being completed or is able
to be completed and for which necessary permits have been obtained. Real estate under development
also includes commercial and residential properties under construction. Stratus’ real estate under
development as of December 31, 2022 increased from December 31, 2021, primarily as a result of the
development costs for The Saint June, The Saint George and Amarra Villas projects.

Real estate under development also includes The Villas at Amarra Drive (Amarra Villas), a 20-unit
residential project within the Amarra development. During 2021, Stratus recorded a $700 thousand
impairment charge for the Amarra Villas homes because the estimated total project costs and costs of
sale for two of the homes under construction exceed their contract sale prices, as Stratus was required
to retain a new general contractor during the course of construction and after entering into the sales
contracts for the two homes. Stratus recorded an additional $650 thousand impairment charge in third-
quarter 2022.

In November 2017, the city of Magnolia and the state of Texas approved the creation of a municipal
utility district (MUD) which provides an opportunity for Stratus to recoup certain road and utility
infrastructure costs incurred in connection with the development of Magnolia Place. Real estate held
for investment as of December 31, 2022, includes approximately $12 million of costs eligible for
reimbursement by the Magnolia MUD.

Land available for development. Undeveloped acreage includes real estate that can be sold “as is”
(i.e., planning, infrastructure or development work is not currently in progress on such property).
Stratus’ undeveloped acreage as of December 31, 2022 included land permitted for residential and
commercial development and vacant pad sites at Jones Crossing and Kingwood Place.

Included in land available for development is an office building in Austin, Texas that Stratus had
purchased with the intent to renovate. During 2021 and in connection with Stratus’ evaluation of
properties for indication of impairment, the estimated net undiscounted future cash flows from this
property were less than its carrying value, and Stratus recorded a $500 thousand impairment charge to
reduce its carrying value to its estimated fair value.

In September 2021, Stratus entered into a contract to sell the multi-family tract of land at Kingwood
Place, which was planned for approximately 275 multi-family units, for $5.5 million. The sale closed in
October 2022. Upon entering into the contract, Stratus recorded a $625 thousand impairment charge in
third-quarter 2021 to reduce the carrying value of the land to its fair value based on the contractual sale
price less estimated selling costs. In third-quarter 2022, Stratus recorded a $70 thousand impairment
charge due to selling costs in excess of the previous estimate.

Real estate held for investment. The Kingwood Place project includes 151,855 square-feet of
commercial space anchored by an H-E-B grocery store and leased pad sites. The Lantana Place
project includes 99,379 square feet for the first retail phase. The Jones Crossing project includes
154,117 square-feet for the first phase of the retail component of an H-E-B-anchored, mixed-use
development. The West Killeen Market project includes 44,493 square-feet of commercial space
adjacent to a 90,000 square-foot H-E-B grocery store. The Magnolia Place project includes 18,582
square feet in the first phase of the retail component of an H-E-B-shadow anchored, mixed-used
development.

Capitalized interest. Stratus recorded capitalized interest of $6.6 million in 2022 and $5.5 million in
2021.

NOTE 4. ASSET SALES
Block 21 - Discontinued Operations. On May 31, 2022, Stratus completed the sale of Block 21 to
Ryman Hospitality Properties, Inc. (Ryman) for $260.0 million, subject to certain purchase price
adjustments, and including Ryman’s assumption of $136.2 million of existing mortgage debt, with the
remainder paid in cash. Stratus’ net proceeds of cash and restricted cash totaled $112.3 million
(including $6.9 million of post-closing escrow amounts to be held for 12 months after the closing,
subject to a longer retention period with respect to any required reserve for pending claims). Stratus
recorded a pre-tax gain on the sale of $119.7 million in second-quarter 2022 included in net income
(loss) from discontinued operations. Block 21 was Stratus’ wholly owned mixed-use real estate
property in downtown Austin, Texas. Block 21 contains the 251-room W Austin Hotel and is home to
Austin City Limits Live at the Moody Theater, a 2,750-seat entertainment venue that serves as the
location for the filming of Austin City Limits, the longest running music series in American television
history. Block 21 also includes Class A office space, retail space and the 3TEN ACL Live entertainment
venue and business.

In accordance with accounting guidance, Stratus reported the results of operations of Block 21 as
discontinued operations in the consolidated statements of comprehensive income because the
disposal represents a strategic shift that had a major effect on operations and presented the assets
and liabilities of Block 21 as held for sale—discontinued operations in the consolidated balance sheets
for all periods presented. Block 21 did not have any other comprehensive income and Stratus’
consolidated statements of cash flows are reported on a combined basis without separately presenting
discontinued operations.

The carrying amounts of Block 21’s major classes of assets and liabilities in the consolidated balance
sheet at December 31, 2021, follow (in thousands):

Assets:

Cash and cash equivalents

Restricted cash a

Real estate held for investment, net

Other assets

Total assets held for sale

Liabilities:

Accounts payable and accrued liabilities, including taxes

Debt

Other liabilities

Total liabilities held for sale

9,172

18,444

120,452

2,985

151,053

6,200

136,684

10,213

153,097

a. Most restricted cash was received by Ryman upon the closing of the sale.

Block 21’s results of operations, presented as net income (loss) from discontinued operations in
Stratus’ consolidated statements of comprehensive income follow (in thousands):

Revenues: a

Hotel

Entertainment

Leasing operations and other

Total revenue

Cost of Sales:

Hotel

Entertainment

Leasing operations and other

Depreciation b

Total cost of sales

General and administrative expenses

Gain on sale of assets

Operating income

Interest expense, net

Provision for income taxes

Years Ended December 31,

2022

2021

12,653 $

10,004

932

23,589

8,869

7,472

710

—

17,051

337

(119,695)

125,896

(3,236)

(25,840)

18,310

12,929

1,479

32,718

15,784

10,482

872

4,515

31,653

735

—

330

(7,972)

1,434

Net income (loss) from discontinued operations

96,820 $

(6,208)

In accordance with accounting guidance, amounts are net of eliminations of intercompany sales totaling
$0.5 million in 2022 and $1.2 million in 2021.

In accordance with accounting guidance, depreciation is not recognized subsequent to classification as assets
held for sale, which occurred in December 2021.

Capital expenditures associated with discontinued operations totaled $0.2 million in 2022 and
$0.5 million in 2021.

The Santal. In December 2021, Stratus completed the sale of The Santal for $152.0 million, less a
$0.7 million repair credit. The Santal was Stratus’ wholly owned 448-unit luxury garden-style

multi-family project located in Section N of Austin’s Barton Creek community. After closing costs and
repayment of The Santal loan, the sale generated net proceeds of approximately $74 million and
Stratus recorded a pre-tax gain on the sale of $83.0 million in 2021. Stratus also recognized a
$1.9 million loss on extinguishment of debt in 2021, primarily for prepayment fees on The Santal loan.

The Santal had rental revenue of $8.7 million in 2021. Interest expense related to The Santal loan was
$3.0 million in 2021.

The Saint Mary. In January 2021, The Saint Mary, L.P., a consolidated Texas limited partnership in
which Stratus holds an aggregate 57 percent indirect equity interest, sold The Saint Mary, a 240-unit
luxury garden-style multi-family project in the Circle C community in Austin, Texas for $60.0 million.
After closing costs and payment of the outstanding construction loan, the sale generated net proceeds
of approximately $34 million. After establishing a reserve for remaining costs of the partnership, Stratus
received $20.9 million from the subsidiary in connection with the sale and $12.9 million of the net
proceeds were distributed to the noncontrolling interest owners. Stratus recognized a pre-tax gain on
the sale of $22.9 million ($16.2 million net of noncontrolling interests) in 2021. Stratus also recognized
a $63 thousand loss on extinguishment of debt in 2021 related to the repayment of The Saint Mary
construction loan. In connection with the sale, The Saint Mary, L.P. distributed $1.7 million each to
LCHM and JBM Trust.

The Saint Mary had rental revenue of $0.1 million in 2021 prior to the sale. Interest expense on The
Saint Mary construction loan was less than $0.1 million in 2021.

Kingwood Place Land Sale. In September 2021, Stratus entered into a contract to sell the multi-
family tract of land at Kingwood Place, which was planned for approximately 275 multi-family units, for
$5.5 million. The sale closed in October 2022. Upon entering into the contract, Stratus recorded a
$625 thousand impairment charge in third-quarter 2021 to reduce the carrying value of the land to its
fair value based on the contractual sale price less estimated selling costs. In third-quarter 2022, Stratus
recorded a $70 thousand impairment charge due to selling costs in excess of the previous estimate.

Amarra Villas. In February 2021, Stratus entered into a contract to sell one of the Amarra Villas
homes. The sale closed in March 2023 for $2.5 million. Stratus recorded a $650 thousand impairment
charge in third-quarter 2022 because the estimated total project costs and costs of sale for the home
under construction exceeded its contractual sale price. In fourth-quarter 2022, we sold another Amarra
Villas home for $3.6 million.

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

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

A summary of the carrying amount and fair value of Stratus’ other financial instruments follows (in
thousands):

Liabilities:

Debt

December 31, 2022
Fair
Value

Carrying
Value

December 31, 2021
Fair
Value

Carrying
Value

122,765 $

124,575 $

106,648 $

108,091

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

NOTE 6. DEBT
Stratus’ debt follows (in thousands):

December 31,

2022

2021

Comerica Bank revolving credit facility,

average interest rate of 4.97% in 2022 and 5.00% in 2021

— $

—

Jones Crossing loan,

average interest rate of 3.85% in 2022 and 2.40% in 2021

24,143

24,042

The Annie B land loan,

average interest rate of 4.67% in 2022 and 3.50% in 2021

13,969

13,847

New Caney land loan,

average interest rate of 4.06% in 2022 and 3.11% in 2021

4,047

4,496

Paycheck Protection Program loan,

fixed interest rate of 1.00% in 2021

Construction loans:

Kingwood Place construction loan,

—

156

average interest rate of 4.06% in 2022 and 2.61% in 2021

27,507

32,249

Lantana Place construction loan,

average interest rate of 4.18% in 2022 and 3.00% in 2021

21,782

22,098

The Saint June construction loan,

average interest rate of 5.89% in 2022

Magnolia Place construction loan,

13,829

—

average interest rate of 5.12% in 2022 and 3.50% in 2021

6,816

2,077

West Killeen Market construction loan,

average interest rate of 4.45% in 2022 and 3.00% in 2021

5,306

6,078

Amarra Villas credit facility,

average interest rate of 5.10% in 2022 and 3.10% in 2021

5,366

1,605

Total debt a

122,765 $

106,648

Includes net reductions for unamortized debt issuance costs of $1.1 million at December 31, 2022, and
$1.2 million at December 31, 2021.

Comerica Bank revolving credit facility. Using proceeds from the sale of Block 21, Stratus repaid
the outstanding amount under its Comerica Bank revolving credit facility in June 2022. As of
December 31, 2022, Stratus had $49.0 million available under the revolving credit facility. Letters of
credit, totaling $11.0 million, have been issued under the revolving credit facility, and secure the
company’s obligation to build certain roads and utilities facilities benefiting Holden Hills and Section N.
In May 2022, Stratus and Comerica Bank entered into an amendment to increase the letter of credit
sublimit from $7.5 million to $11.5 million and change the benchmark rate to the Bloomberg Short-
Term Bank Yield Index (BSBY) Rate. In February 2023, the Holden Hills property was removed from
the borrowing base for the revolving credit facility, and the maximum amount that could be borrowed
was reduced. At March 27, 2023 the maximum amount that could be borrowed under the facility was

$53.7 million pursuant to the terms of the loan agreement, resulting in availability of $42.7 million, net
of letters of credit committed against the facility. The borrowing base limitation, as defined in the
facility, is no more than 50 percent of the fair market value (primarily determined by appraisals) of the
collateral assets, and the maximum amount that may be borrowed is determined by applying specified
percentages to different types of collateral, with the largest category as of December 31, 2022 and
2021 consisting of unimproved real property which has a limitation of 35 percent of fair market value. In
March 2023, Stratus entered into a modification of the revolving credit facility, which extended the
maturity date of the revolving credit facility to March 27, 2025, and increased the BSBY Rate floor to
0.50 percent. As amended, advances under the revolving credit facility bear interest at the one-month
BSBY Rate (with a floor of 0.50 percent) plus 4.00 percent. The loan is secured by substantially all
assets that are not subject to a separate project loan agreement. The loan agreement requires Stratus
to maintain a net asset value, as defined in the loan agreement, of $125 million and an aggregate
debt-to-gross asset value of not more than 50 percent. Comerica Bank’s prior written consent is
required for any common stock repurchases in excess of $1.0 million or any dividend payments.

Jones Crossing loan. In June 2021, a Stratus wholly-owned subsidiary entered into a $24.5 million
loan with Regions Bank (the Jones Crossing loan). Of the proceeds from the Jones Crossing loan,
$22.2 million was used to repay in full the original Jones Crossing construction loan. The repayment of
the Jones Crossing construction loan resulted in Stratus recognizing a $163 thousand loss on the early
extinguishment of debt representing the write-off of unamortized debt issuance costs related to the
construction loan.

The Jones Crossing loan has a maturity date of June 17, 2026, and bears interest at LIBOR plus
2.25 percent (or, if applicable, a replacement rate), provided LIBOR shall not be less than 0.15 percent.
Payments of interest only on the Jones Crossing loan are due monthly through the term of the loan
with the outstanding principal due at maturity. If the debt service coverage ratio falls below 1.15 to 1.00
for any fiscal quarter beginning with the quarter ending September 30, 2022, a “Cash Sweep Period”
(as defined in the Jones Crossing loan) results, which limits Stratus’ ability to receive cash from its
Jones Crossing subsidiary. The debt service coverage ratio fell below 1.15 to 1.00 in fourth-quarter
2022, and the Jones Crossing subsidiary made a $231 thousand principal payment in February 2023
on the Jones Crossing loan to bring the debt service coverage ratio back above 1.15 to 1.00, and a
“Cash Sweep Period” did not occur. The Jones Crossing loan is secured by the Jones Crossing
project, and Stratus has provided a guaranty limited to non-recourse carve-out obligations and
environmental indemnification. In addition, any default under the ground leases, which grant Stratus
the right to occupy the Jones Crossing property, would trigger the carve-out guaranty. The Jones
Crossing loan contains certain financial covenants, including a requirement that Stratus maintain liquid
assets of at least $2.0 million.

The Annie B land loan. In September 2021, Stratus Block 150, L.P. entered into an 18-month,
$14.0 million land loan with Comerica Bank to acquire the land for The Annie B project (The Annie B
land loan). The loan was set to mature March 1, 2023, and bore interest at LIBOR (with a floor of 0.50
percent) plus 3.00 percent. Payments of interest only on the loan were due monthly through February
2023, with the outstanding principal due at maturity. The Annie B land loan is guaranteed by Stratus
and secured by The Annie B project. The loan agreement contains financial covenants, including a
requirement that Stratus maintain a net asset value, as defined in the agreement, of $125.0 million and
an aggregate debt-to-gross asset value of not more than 50 percent and places certain restrictions on
distributions from the partnership to its partners, including Stratus. The Annie B land loan requires
Comerica Banks’ prior written consent for any Stratus common stock repurchases in excess of
$1.0 million or any dividend payments. In February 2023, Stratus entered into a modification
agreement that extended the maturity date of the loan to March 1, 2024, and changed the interest rate
to the BSBY Rate (with a floor of 0.50 percent) plus 3.00 percent. In connection with the modification
agreement, Stratus Block 150, LP, escrowed an interest reserve of $0.6 million with the lender.

New Caney land loan. In March 2019, a Stratus wholly-owned subsidiary entered into a $5.0 million
land loan with Texas Capital Bank. Proceeds from the loan were used to fund the acquisition of
H-E-B’s portion of the New Caney partnership in which Stratus and H-E-B purchased a tract of land for
the future development of an H-E-B-anchored mixed-use project in New Caney, Texas. In March 2021,
Stratus exercised its option to extend the loan for an additional 12 months to March 8, 2022, which
required a principal payment of $0.5 million. In March 2022, Stratus extended the loan for an additional
12 months to March 8, 2023, which required two principal payment of $0.2 million, one in March 2022
and one in September 2022. Stratus also entered into an amendment to the New Caney land loan to
convert the benchmark rate from LIBOR to the Term Secured Overnight Financing Rate (SOFR). As
amended the loan bore interest at Term SOFR plus 3.00 percent. Borrowings were secured by the
New Caney land and were guaranteed by Stratus. The loan agreement contained financial covenants
including a requirement that Stratus maintain a net asset value of $125.0 million and unencumbered
liquid assets of no less than $10.0 million. This loan was repaid at its maturity in March 2023.

Paycheck Protection Program loan. In April 2020, Stratus received a $4.0 million loan under the
Paycheck Protection Program (PPP loan) of the Coronavirus Aid, Relief, and Economic Security Act
(the CARES Act), which was signed into law on March 27, 2020. The PPP loan bore interest at
1.00 percent and matured April 15, 2022, except for the portion that was forgiven. Stratus’ PPP loan
forgiveness application was accepted and approved in August 2021 and the outstanding balance and
accrued interest were forgiven with the exception of $0.3 million. As such, Stratus recognized a gain on
extinguishment of debt of $3.7 million during 2021.

Kingwood Place construction loan. In 2018, the Kingwood, L.P. entered into a construction loan
agreement with Comerica Bank (the Kingwood Place construction loan), which provides financing for
nearly 70 percent of the costs associated with construction of Kingwood Place. The total loan of
$32.9 million included the original commitment of $6.8 million used to purchase a 54-acre tract of land
located in Kingwood, Texas, and an additional $26.1 million for the development of Kingwood Place.
The remaining 30 percent of the project’s cost (totaling approximately $15 million) was funded by
borrower equity, contributed by Stratus and private equity investors. In January 2020, the Kingwood
Place construction loan was modified to increase the loan amount by $2.5 million to a total of
$35.4 million. The increase was used to fund the construction of a retail building on an existing
Kingwood Place retail pad. In December 2022, the loan was amended to extend the maturity date for
an additional 12 months to December 6, 2023, which required an extension fee payment of
approximately $90 thousand. The loan has the possibility of one additional 12-month extension if
certain debt service coverage ratios are met. The amendment also converted the benchmark rate from
LIBOR to the BSBY Rate. The loan now bears interest at the one-month BSBY Rate (with a floor of
0.50 percent) plus 2.75 percent. Principal and interest payments of $29,200 are due monthly with the
remaining balance due at maturity. Borrowings on the Kingwood Place construction loan are secured
by the Kingwood Place project, and are guaranteed by Stratus until certain conditions are met. The
loan agreement contains financial covenants, including a requirement that Stratus maintain a net asset
value, as defined in the agreement, of $125.0 million and an aggregate debt-to-gross asset value of not
more than 50 percent and places certain restrictions on distributions from the partnership to its
partners, including Stratus. The Kingwood Place construction loan requires Comerica Banks’ prior
written consent for any common stock repurchases in excess of $1.0 million and any dividend
payments.

Lantana Place construction loan. In 2017, a Stratus wholly-owned subsidiary entered into a
$26.3 million construction loan with Southside Bank (the Lantana Place construction loan) to finance
the initial phase of Lantana Place. In January 2021, Stratus entered into amendments to the Lantana
Place construction loan in which Stratus’ Lantana Place subsidiary was granted a waiver of the debt
service coverage ratio covenant until September 30, 2021, at which point the ratio was measured by
reference to the three-month period then ended, and subsequently increased each quarter until

measured by reference to the 12-month period ended June 30, 2022, and then on a trailing 12-month
period for each quarter thereafter. As part of the January 2021 amendment, Stratus repaid $2.0 million
in principal on the Lantana Place construction loan.

In August 2022, Stratus and Southside Bank amended the Lantana Place construction loan. Pursuant
to the agreement, the date through which Stratus can request advances under the loan was extended
through December 31, 2023, the interest rate for the loan was changed to Term SOFR plus
2.40 percent, subject to a 3.00 percent floor, and the maturity date of the loan was extended to July 1,
2027. In addition, the land planned for The Saint Julia, a proposed multi-family project at Lantana
Place, was released from the collateral for the loan.

Payments of interest only on the construction loan are due monthly through July 1, 2023. Beginning
August 1, 2023, monthly payments of principal and interest based on a 30-year amortization are due,
with the outstanding principal due at maturity.

The debt service coverage ratio was also changed to 1.25 to 1.00, and Stratus was released as
guarantor under the related guaranty.

The Saint June construction loan. In June 2021, The Saint June, L.P. entered into a construction
loan with Texas Capital Bank to finance approximately 55 percent of the estimated $55 million cost of
the development and construction of The Saint June. Available borrowings under the loan total the
least of (i) $30.3 million, (ii) 60 percent of the total construction costs, or (iii) 55 percent of the
as-stabilized appraised value of the property.

The loan matures on October 2, 2024, with two options to extend the maturity for an additional 12
months, subject to satisfying specified conditions and the payment of an extension fee for each
extension. In January 2023, Stratus and Texas Capital Bank amended The Saint June construction
loan. Pursuant to the agreement, the interest rate for the loan was changed to Term SOFR plus
2.85 percent, subject to a 3.50 percent floor. Payments of interest only on the loan are due monthly
through October 2, 2024, with the outstanding principal due at maturity.

The loan is secured by The Saint June project and is fully guaranteed by Stratus. However, the
guaranty will convert to a 50 percent repayment guaranty upon completion of construction of The Saint
June. Further, once The Saint June, L.P. is able to maintain a debt service coverage ratio of 1.25 to
1.00, the repayment guaranty will be eliminated. Notwithstanding the foregoing, Stratus will remain
liable for customary carve-out obligations and environmental indemnity. Stratus is also required to
maintain a net asset value, as defined by the guaranty, of $125.0 million and liquid assets of at least
$10.0 million. The Saint June, L.P. is not permitted to make distributions to its partners, including
Stratus, until completion of The Saint June project, payment of construction costs and the project
continues to satisfy an assumed debt service coverage ratio of not less than 1.00 to 1.00 for three
consecutive months. The project must comply with a specified loan-to-value ratio covenant.

Magnolia Place construction loan. In August 2021, a Stratus wholly-owned subsidiary entered into a
$14.8 million construction loan with Veritex Community Bank secured by the Magnolia Place project.
The loan matures on August 12, 2024, with two options to extend the maturity for an additional 12
months, subject to satisfying specified conditions and the payment of an extension fee. The loan bears
interest at 30-day LIBOR plus 3.25 percent (or, if applicable, a replacement rate), with a floor of
3.50 percent. Payments of interest only are due monthly with the outstanding principal due at maturity.
Stratus provided a completion guaranty and 25-percent-limited-payment guaranty. The loan agreement
contains financial covenants, including that Stratus is required to maintain a net asset value, as defined
in the loan agreement, of $125.0 million and liquid assets of at least $7.5 million.

West Killeen Market construction loan. In 2016, a Stratus wholly-owned subsidiary entered into a
$9.9 million construction loan agreement with Southside Bank (the West Killeen Market loan) to finance
a portion of the construction of the West Killeen Market project. The loan is secured by the West
Killeen Market project and is guaranteed by Stratus until Stratus’ West Killeen Market subsidiary is able
to maintain a debt service ratio of 1.50 to 1.00 as of the end of each fiscal quarter after completion of
construction on the project, measured by reference to the trailing six-month period ending on the last
day of such quarter. In June 2022, Stratus and Southside Bank amended the West Killeen Market
construction loan. Pursuant to the agreement, the principal amount of the loan is fully advanced and
funded at an amount of $6.0 million, the interest rate for the loan was changed to Term SOFR plus
2.75 percent, subject to a 3.00 percent floor, and the maturity date of the loan was extended three
years to July 31, 2025. Principal and interest payments based on a 30-year amortization are due
monthly and the remaining balance is payable at maturity.

The loan agreement contains financial covenants, including a requirement that Stratus maintain a net
asset value, as defined in the agreement, of $125.0 million and a requirement that Stratus’ West
Killeen Market maintains a debt service coverage ratio of at least 1.35 to 1.00 measured by reference
to a trailing 12-month period for each quarter.

Amarra Villas credit facility. In 2016, a Stratus wholly-owned subsidiary entered into the Amarra
Villas credit facility to finance construction of the Amarra Villas project. In March 2019, two Stratus
wholly-owned subsidiaries entered into an amended and restated loan agreement with Comerica Bank
to modify, increase and extend Stratus’ Amarra Villas credit facility. The amended and restated loan
agreement provided for an increase in the revolving credit facility commitment from $8.0 million to
$15.0 million and an extension of the maturity date from July 12, 2019 to March 19, 2022. In March
2022, the Stratus subsidiaries and Comerica Bank agreed to an extension of the maturity date to
June 19, 2022, while they negotiated a modification of this facility. In June 2022, Stratus subsidiaries
and Comerica Bank entered into a modification agreement pursuant to which the commitment amount
of the Amarra Villas credit facility was increased from $15.0 million to $18.0 million, the interest rate
was changed to the one-month BSBY Rate (with a floor of 0.00 percent) plus 3.00 percent, and the
maturity date was extended to June 19, 2024.

The Amarra Villas credit facility contains financial covenants, including a requirement that Stratus
maintain a net asset value, as defined in the agreement, of $125.0 million and an aggregate
debt-to-gross asset value of not more than 50 percent. At December 31, 2022, Stratus had
$12.6 million available under its $18.0 million Amarra Villas credit facility. Principal paydowns occur as
homes are sold, and additional amounts are borrowed as additional homes are constructed. The loan
is secured by the Amarra Villas project and guaranteed by Stratus. The Amarra Villas credit facility
requires Comerica Banks’ prior written consent for any common stock repurchases in excess of
$1.0 million and any dividend payments. In March 2023, Stratus made a $2.2 million principal payment
on the credit facility upon the closing of a sale of one of the Amarra Villas homes.

The Saint George construction loan. In July 2022, The Saint George Apartments, L.P. entered into a
$56.8 million loan with Comerica Bank to provide financing for the construction of The Saint George
multi-family project. The construction loan has a maturity date of July 19, 2026, with two options to
extend the maturity for an additional 12 months, subject to satisfying specified conditions, including the
applicable debt service coverage ratios, and the payment of an extension fee for each extension.
Advances under the construction loan bear interest at the one-month BSBY Rate (with a floor of 0.00
percent) plus 2.35 percent.

Payments of interest only on the construction loan are due monthly through July 19, 2026, with the
outstanding principal due at maturity. During any extension periods, the principal balance of the

construction loan will be payable in monthly installments of principal and interest based on a 30-year
amortization calculated at 6.50 percent with the outstanding principal due at maturity.

Borrowings on the construction loan are secured by The Saint George project and are guaranteed by
Stratus. Stratus provided a full completion guaranty and 25 percent repayment guaranty, which will be
eliminated once the project meets specified conditions including a debt service coverage ratio of at
least 1.20 to 1.00 and confirmation that the loan-to-value ratio does not exceed 65 percent.
Notwithstanding the foregoing, Stratus remains liable for customary carve-out obligations and
environmental indemnity. The loan agreement contains financial covenants, including a requirement
that Stratus maintain a net asset value, as defined in the agreement, of $125.0 million and an
aggregate debt-to-gross asset value of not more than 50 percent. The Saint George Apartments, L.P.
is not permitted to make distributions to its partners, including Stratus, while the loan remains
outstanding. No amounts had been borrowed on this loan as of December 31, 2022.

Financial Covenants and Compliance. 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 equityholders; 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 of management; sell all or
substantially all of its assets; and engage in mergers, consolidations or other business combinations.
As of December 31, 2022, Stratus and its subsidiaries were in compliance with the financial covenants
contained in the financing agreements discussed above.

LIBOR Phase Out. Certain of Stratus’ debt agreements reference LIBOR which is being phased out
and replaced with alternative reference rates. Stratus does not expect the transition from LIBOR and
other interbank offered rates to have a material impact on its consolidated financial results.

Interest Payments. Interest paid on debt, excluding debt related to Block 21 and The Santal included
in liabilities held for sale, totaled $4.9 million in 2022 and $4.8 million in 2021.

Maturities. Maturities of debt based on the principal amounts and terms outstanding at December 31,
2022 total $45.8 million in 2023, $26.9 million in 2024, $5.5 million in 2025, $24.8 million in 2026, and
$20.9 million in 2027.

NOTE 7. INCOME TAXES
Stratus’ provision for income taxes consists of the following (in thousands):

Current

Deferred

Provision for income taxes

Years Ended December 31,

2022

2021

(981) $

18,608

1,370

(6,031)

389 $

12,577

The components of deferred income taxes follow (in thousands):

December 31,

2022

2021

Deferred tax assets and liabilities:

Real estate, commercial leasing assets and facilities

4,707 $

Employee benefit accruals

Deferred income

Other assets

Net operating loss credit carryforwards

Other liabilities

Valuation allowance

Deferred tax assets, net

1,005

—

3,745

(3,237)

(6,185)

38 $

9,743

2,411

3,465

—

(3,180)

(6,440)

6,009

The $6.0 million decrease in Stratus’ net deferred tax assets is primarily attributable to deferred tax
assets realized in 2022 from the sale of Block 21. Stratus continues to maintain a valuation allowance
on substantially all of its remaining net deferred tax assets. In evaluating the recoverability of the
remaining deferred tax assets, management considered available positive and negative evidence,
giving greater weight to the uncertainty regarding projected future financial results.

Upon a change in facts and circumstances, management may conclude that sufficient positive
evidence exists to support a reversal of, or decrease in, the valuation allowance in the future, which
would favorably impact Stratus’ results of operations. Stratus’ future results of operations may be
negatively impacted by an inability to realize a tax benefit for future tax losses or for items that will
generate additional deferred tax assets that are not more likely than not to be realized. Stratus’ future
results of operations may be favorably impacted by reversals of valuation allowances if Stratus is able
to demonstrate sufficient positive evidence that its deferred tax assets will be realized.

Reconciliations of the U.S. federal statutory tax rate to Stratus’ effective income tax rate follow (dollars
in thousands):

Income tax provision (benefit) computed at the federal

statutory income tax rate

Adjustments attributable to:

Change in valuation allowance

Noncontrolling interests

Executive compensation limitation

State taxes

PPP loan forgiveness

Net, other

Provision for income taxes

Years Ended December 31,

2022

2021 a

Amount

Percent

Amount

Percent

(1,405)

21 % $ 17,228

21%

(255)

141

664

177

—

1,067

389

(2)

(10)

(3)

—

(16)

(4,247)

(1,230)

840

571

(773)

188

(5)

(2)

(1)

—

(6)% $ 12,577

15%

a. Certain prior year tax component amounts have been reclassified to conform to the current year presentation.

Stratus paid federal income taxes and state margin taxes totaling $37.7 million in 2022 and $0.4 million
in 2021. In connection with the CARES Act and the ability to carry back net operating losses, Stratus

received a $5.1 million U.S. federal income tax refund in 2022. Stratus also received a $1.9 million U.S.
federal income tax refund in 2021.

Uncertain Tax Positions. Stratus has recorded unrecognized tax benefits related to federal
examinations. A summary of the changes in unrecognized tax benefits follows (in thousands):

Balance at January 1

(Reductions) additions for tax positions related to prior years

Balance at December 31

Years Ended December 31,

2022

2021

221 $

(221)

— $

210

221

As of December 31, 2022, Stratus had no unrecognized tax benefits. During 2022, approximately
$0.2 million of unrecognized tax benefits were recognized as a result of the completion of federal
examinations.

Stratus records liabilities offsetting the tax provision benefits of uncertain tax positions to the extent it
estimates that a tax position is more likely than not to not be sustained upon examination by the taxing
authorities. Stratus has elected to classify any interest and penalties related to income taxes within
income tax expense in its consolidated statements of comprehensive income (loss). As of
December 31, 2022, no such interest costs have been accrued.

Stratus files both U.S. federal income tax and state margin tax returns. With limited exceptions, Stratus
is no longer subject to U.S. federal income tax examinations by tax authorities for the years prior to
2019 and state margin tax examinations for the years prior to 2018.

On August 16, 2022, the Inflation Reduction Act of 2022 (the IR Act) was enacted in the United States.
Among other provisions, the IR Act imposes a new one percent excise tax on the fair market value of
net corporate stock repurchases made by covered corporations, effective for tax years beginning after
December 31, 2022. Stratus is assessing the potential impacts of the IR Act, but does not expect the
IR Act to have a material impact on its consolidated financial statements

NOTE 8. EQUITY TRANSACTIONS, STOCK-BASED COMPENSATION AND EMPLOYEE
BENEFITS
Equity
The Comerica Bank revolving credit facility, Amarra Villas credit facility, The Annie B land loan, The
Saint George construction loan, Kingwood Place construction loan and Holden Hills construction loan
entered into in February 2023 require Comerica Bank’s prior written consent for any common stock
repurchases in excess of $1.0 million or any dividend payments.

Dividends. On September 1, 2022, after receiving written consent from Comerica Bank, Stratus’ Board
declared a special cash dividend of $4.67 per share (totaling $40.0 million) on Stratus’ common stock,
which was paid on September 29, 2022 to shareholders of record as of September 19, 2022. Accrued
liabilities as of December 31, 2022, included $1.3 million representing dividends accrued for unvested
RSUs in accordance with the terms of the awards. The accrued dividends will be paid to the holders of
the RSUs, if and when they vest.

Share Repurchase Program. On September 1, 2022, after receiving written consent from Comerica
Bank, Stratus’ Board approved a new share repurchase program, which authorizes repurchases of up
to $10.0 million of Stratus’ common stock. The repurchase program authorizes Stratus, in

management’s discretion, to repurchase shares from time to time, subject to market conditions and
other factors. In 2022, Stratus acquired 294,700 shares of its common stock under the share
repurchase program for a total cost of $7.9 million at an average price of $26.69 per share. Through
March 27, 2023, Stratus has acquired 335,703 shares of its common stock for a total cost of
$8.7 million at an average price of $25.93 per share, and $1.3 million remains available for
repurchases under the program.

Stock-based Compensation
Stock Award Plans. On May 12, 2022, the stockholders of Stratus approved the 2022 Stock Incentive
Plan (the Plan). The Plan authorizes the issuance of up to 500,000 shares of common stock. Awards
for no more than 250,000 shares may be granted to a participant in a single year, however, an annual
limit of $300,000 applies to the sum of all cash, equity-based awards and other compensation granted
to a non-employee director for services as a member of the board, and a maximum grant date value of
equity-based awards granted during a single year may not exceed $200,000 of such annual limit. Upon
approval of the Plan by stockholders, Stratus ceased making new awards under any prior plans. The
Plan had 317,061 shares available for new grants as of December 31, 2022.

Stock-Based Compensation Costs. Compensation costs charged against earnings for RSUs, the
only stock-based awards granted over the last several years, totaled $1.7 million for 2022 and
$0.8 million for 2021. Stock-based compensation costs are capitalized when appropriate. Based on
Stratus’ history, executive turnover is rare. Therefore, Stratus does not currently apply a forfeiture rate
when estimating stock-based compensation costs for RSUs.

RSUs. RSUs granted under the plans provide for the issuance of common stock to non-employee
directors and employees and consultants at no cost to the recipients. The RSUs are converted into
shares of Stratus common stock ratably and generally vest in increments over a one to four year period
following the grant date. For employees and consultants, the awards generally fully vest upon
retirement, death and disability, and upon a qualifying termination of employment in connection with a
change of control. For directors, the awards will fully vest upon a change of control and there will be a
partial acceleration of vesting because of retirement, death and disability for RSUs granted prior to
2022 and full acceleration of vesting under these scenarios for RSUs granted in 2022.

In May 2022, Stratus granted an aggregate 173,726 stock-settled RSUs with a grant-date value of
$7.4 million, based on Stratus’ stock price on the date of issuance, pursuant to the terms of the PPIP in
connection with Lantana Place, which reached a valuation event under the PPIP in September 2021,
and the sale of The Santal in December 2021 (see further discussion below).

A summary of outstanding unvested RSUs as of December 31, 2022, and activity during the year
ended December 31, 2022, follow (dollars in thousands):

Balance at January 1

Granted

Vested

Balance at December 31

Number of
RSUs

Aggregate
Intrinsic
Value

135,611

198,179

(51,521)

282,269 $

5,445

The total fair value of RSUs granted was $8.3 million for 2022 and $2.4 million for 2021. The total
intrinsic value of RSUs vested was $2.0 million during 2022 and $0.8 million during 2021. As of
December 31, 2022, Stratus had $3.0 million of total unrecognized compensation cost related to
unvested RSUs expected to be recognized over a weighted-average period of 1.4 years.

The following table includes amounts related to vesting of RSUs (in thousands, except shares of
Stratus common stock tendered):

Stratus shares tendered to pay the minimum required taxes a

Amounts Stratus paid for employee taxes

Years Ended December 31,

2022

2021

11,277

452 $

5,461

153

a. Under terms of the related plans and agreements, upon vesting of RSUs, employees may tender shares of

Stratus common stock to Stratus to pay the minimum required taxes.

Employee Benefits
Stratus maintains a 401(k) defined contribution plan subject to the provisions of the Employee
Retirement Income Security Act of 1974 (ERISA). The 401(k) plan provides for an employer matching
contribution equal to 100 percent of the participant’s contribution, subject to a limit of 5 percent of the
participant’s annual salary. Stratus’ policy is to make an additional safe harbor contribution equal to
3 percent of each participant’s total compensation. The 401(k) plan also provides for discretionary
contributions. Stratus’ contributions to the 401(k) plan totaled $0.6 million in 2022 and $0.5 million in
2021.

Profit Participation Incentive Plan. In 2018, the Stratus Compensation Committee of the Board (the
Committee) unanimously adopted the PPIP, which provides participants with economic incentives tied
to the success of the development projects designated by the Committee as approved projects under
the PPIP. In February 2023, the Committee approved the LTIP, which amends and restates the PPIP,
and is effective for participation interests awarded under development projects on or after its effective
date. As of March 27, 2023, there were not yet any participation interests awarded under the LTIP.
Outstanding participation interests granted under the PPIP will continue to be governed by the terms of
the prior PPIP. The PPIP and LTIP provide participants with economic incentives tied to the success of
the development projects designated by the Committee as approved projects under the PPIP and
LTIP. Under the PPIP and LTIP, 25 percent of the profit (as described below) for each approved
project following a capital transaction (each as defined in the PPIP and LTIP) will be set aside in a
pool. The Committee will allocate participation interests in each pool to certain officers, employees and
consultants determined to be instrumental in the success of the project. The profit is equal to the net
proceeds to Stratus from a capital transaction after Stratus has received a return of its costs and
expenses, any capital contributions and a preferred return of 10 percent per year on the approved
project. Provided the applicable service conditions are met, each participant is eligible to earn a bonus
equal to his or her allocated participation interest in the applicable profit pool. Bonuses under the PPIP
are payable in cash prior to March 15 of the year following the capital transaction, unless the
participant is an executive officer, in which case annual cash payouts under the PPIP are limited to no
more than four times the executive officer’s base salary, and any amounts due under the PPIP in
excess of that amount will be converted to an equivalent number of stock-settled RSUs based on the
12-month trailing average price of Stratus common stock during the year of the capital transaction, with
a one-year vesting period.

If a capital transaction has not occurred prior to the third anniversary of the date an approved project is
substantially complete (a valuation event), the Committee will obtain a third-party appraisal of the
approved project as of the valuation event. Based on the appraised value, the Committee will
determine if any profit would have been generated after applying the hurdles described above, and if
so, the amount of any bonus that would have been attributable to each participant. Any such amount
will convert into an equivalent number of stock-settled RSUs based on the 12-month average trailing
price of Stratus common stock during the year of the valuation event. The RSUs will be granted in the

year following the valuation event and will vest in annual installments over a three-year period,
provided that the participant satisfies the applicable service conditions. The fair value of the RSUs will
be determined based on the price of Stratus’ common stock on the date of grant. If the grant date fair
value exceeds the calculated bonus amount, the incremental portion will be amortized ratably over the
three-year vesting period. If a participant leaves Stratus and forfeits their RSUs, Stratus is able to
reverse the expense associated with that award.

In 2018, the Committee designated seven development projects as approved projects under the PPIP,
and allocated participation interests in profit pools of each approved project to certain officers,
employees and consultants. During 2019, the Committee designated Magnolia Place as an approved
project under the PPIP. During first-quarter 2022, the Committee designated The Saint June as an
approved project under the PPIP, and the awards were granted in August 2022. As required for
liability-based awards under Accounting Standards Codification 718, Stock-Based Compensation, at
the date of grant, Stratus estimates the fair value of each award and adjusts the fair value in each
subsequent reporting period. Estimates related to the awards may change over time due to differences
between projected and actual development progress and costs, market conditions and the timing of
capital transactions or valuation events.

Stratus estimated the profit pool of each approved project by projecting the cash flow from operations,
the net sales price, the timing of a capital transaction or valuation event and Stratus’ equity and
preferred return including costs to complete for projects under development. The primary fair value
assumptions used at December 31, 2022, were projected cash flows, estimated capitalization rates
ranging from 4.3 percent to 7.5 percent, projected remaining service periods for each project ranging
from 0.5 years to 3.3 years, and estimated transaction costs of approximately 1.3 percent to
7.9 percent.

On October 17, 2020, West Killeen Market reached a valuation event under the PPIP. Under the terms
of the PPIP, the number of RSUs granted in connection with settlement of approved projects is
determined by reference to the 12-month trailing average stock price for the year the project reaches a
payment event, whereas the grant date fair value of the RSUs for accounting purposes is based on the
grant date closing price. The grant date value of the RSUs was $0.3 million greater than the accrued
liability as a result of this different valuation methodology, Stratus transferred the $1.2 million accrued
liability balance under the PPIP for West Killeen Market to capital in excess of par value and is
amortizing the $0.3 million balance of the grant-date value with a charge to general and administrative
expenses and a credit to capital in excess of par value over the three-year vesting period of the RSUs.

The sale of The Saint Mary in January 2021 was a capital transaction under the PPIP. During February
2022, $2.1 million was paid in cash to eligible participants.

In September 2021, Lantana Place reached a valuation event under the PPIP. The profit pool was
$3.9 million, of which $0.2 million was paid in cash during February 2022 and the remaining accrued
liability of $3.7 million was settled in RSUs with a three-year vesting period awarded to eligible
participants during second-quarter 2022 following stockholder approval of Stratus’ new stock incentive
plan.

The sale of The Santal in December 2021 was a capital transaction under the PPIP. The profit pool
was $6.7 million, of which $5.0 million was paid in cash to eligible participants during February 2022.
During second-quarter 2022, following stockholder approval of Stratus’ new stock incentive plan, the
remaining accrued liability related to The Santal of $1.6 million was settled in RSUs with a one-year
vesting period awarded to one participant for whom the cash compensation limitation was reached.

For the RSUs awarded in connection with Lantana Place and The Santal, the aggregate grant date
value was $2.1 million greater than the accrued liability for the two projects as a result of the different

valuation methodology described above. During second-quarter 2022, Stratus transferred the
$5.3 million accrued liability balance under the PPIP for Lantana Place and The Santal that was settled
in RSUs to capital in excess of par value and is amortizing the $2.1 million balance of the grant-date
value with a charge to general and administrative expenses and a credit to capital in excess of par
value over the three-year or one-year vesting periods of the related RSUs.

A summary of PPIP costs follows (in thousands):

Charged to general and administrative expense

Capitalized to project development costs

Total PPIP costs

Years Ended December 31,

2022

2021

524 $

9,780

441

526 $

10,221

The accrued liability for the PPIP totaled $3.0 million at December 31, 2022, and $15.2 million at
December 31, 2021 (included in other liabilities).

NOTE 9. COMMITMENTS AND CONTINGENCIES
Construction Contracts. Stratus had firm commitments totaling approximately $75 million at
December 31, 2022 related to Amarra Villas, Magnolia Place, The Saint June and The Saint George
development projects. We have construction loans, as well as remaining equity capital contributed to
The Saint George limited partnership, in place to fund these commitments.

Letters of Credit. As of December 31, 2022, Stratus had letters of credit totaling $11.0 million
committed against its revolving credit facility with Comerica Bank, which secure the company’s
obligation to build certain roads and utilities facilities benefiting Holden Hills and Section N (refer to
Note 6 for further discussion).

Rental Income. As of December 31, 2022, Stratus’ minimum rental income, including scheduled rent
increases under noncancelable long-term leases of developed retail space and ground leases, totaled
$10.1 million in 2023, $10.3 million in 2024, $10.0 million in 2025, $10.0 million in 2026, $10.0 million in
2027 and $92.3 million thereafter, with the longest lease extending through 2039.

H-E-B Profit Participation. H-E-B has profit participation rights in the Jones Crossing, Kingwood
Place, and Lakeway projects. H-E-B is entitled to 10 percent of any cash flow from operations or profit
from the sale of these properties after Stratus receives a return of its equity plus a preferred return of
10 percent. Stratus may enter into similar profit participation agreements for future projects.

Leases. Stratus’ most significant lease is a 99-year ground lease for approximately 72 acres of land in
College Station, Texas on which it is developing the Jones Crossing project. Stratus also leases
various types of assets, including office space, vehicles and office equipment under non-cancelable
leases. Stratus entered into one lease during fourth-quarter 2022 that is classified as a finance lease,
and the other leases are classified as operating leases. As of December 31, 2022, the remaining term
of the finance lease is five years with a weighted-average discount rate of 6.4 percent to determine the
lease liability. Stratus did not have any finance leases during 2021.

Supplemental balance sheet information related to leases is as follows (in thousands):

Classification on the Consolidated Balance Sheet

2022

2021

December 31,

Assets

Operating right-of-use assets

Lease right-of-use assets

10,631 $

10,487

Finance right-of-use assets

Other assets

—

Liabilities

Operating lease liability

Finance lease liability

Lease liabilities

Other liabilities

14,848 $

13,986

—

Operating lease costs were $1.5 million in 2022 and $1.3 million in 2021. Stratus paid $757 thousand
during 2022 and $183 thousand in 2021 for lease liabilities recorded in the consolidated balance sheet
(included in operating cash flows in the consolidated statements of cash flows). As of December 31,
2022 and 2021, the weighted-average discount rate used to determine the lease liabilities was
6.0 percent. As of December 31, 2022, the weighted-average remaining lease term was 90 years (94
years as of December 31, 2021).

The future minimum payments for operating leases recorded on the consolidated balance sheet at
December 31, 2022 follow (in thousands):

Years ending December 31,
2023

2024

2025

2026

2027

Thereafter

Total payments

Present value adjustment

Present value of net minimum lease payments

911

848

742

669

692

107,850

111,712

(96,864)

14,848

Circle C Settlement. In 2002, the city of Austin granted final approval of a development agreement
(the Circle C settlement) and permanent zoning for Stratus’ real estate located within the Circle C
community in southwest Austin. The Circle C settlement firmly established all essential municipal
development regulations applicable to Stratus’ Circle C properties until 2032. The city of Austin also
provided Stratus $15.0 million of development fee credits, which are in the form of credit bank capacity,
in connection with its future development of its Circle C and other Austin-area properties for waivers of
fees and reimbursement for certain infrastructure costs. In addition, Stratus can elect to sell up to
$1.5 million of the incentives per year to other developers for their use in paying City fees related to
their projects as long as the projects are within the desired development zone, as defined within the
Circle C settlement. To the extent Stratus sells the incentives to other developers, Stratus recognizes
the income from the sale when title is transferred and compensation is received. As of December 31,
2022, Stratus had permanently used $12.4 million of its City-based development fee credits, including
cumulative amounts sold to third parties totaling $5.1 million. Fee credits used for the development of
Stratus’ properties effectively reduce the basis of the related properties and Stratus defers recognition
of any gain associated with the use of the fees until the affected properties are sold. Stratus also had

$0.9 million in credit bank capacity in use as temporary fiscal deposits as of December 31, 2022.
Available credit bank capacity was $1.8 million at December 31, 2022.

Deferred Gain on Sale of The Oaks at Lakeway. In 2017, Stratus sold The Oaks at Lakeway to FHF
I Oaks at Lakeway, LLC for $114.0 million in cash. The Oaks at Lakeway is an H-E-B anchored retail
project located in Lakeway, Texas. The parties entered into three master lease agreements at closing:
(1) one covering unleased in-line retail space, with a five-year term (the In-Line Master Lease), (2) one
covering the hotel pad with a 99-year term (the Hotel Master Lease) and (3) one covering four
unleased pad sites, three of which have ten-year terms, and one of which has a 15-year term (the Pad
Site Master Lease).

The In-Line Master Lease expired in February 2022 and the Hotel Master Lease was terminated in
November 2020. As such, Stratus has no further obligations under these two master leases. With
respect to the Pad Site Master Lease, Stratus has leased the one pad site with a 15-year term,
reducing the monthly rent payment net of rent collections for this pad site to approximately $2,500.
Stratus may assign this lease to the purchaser and terminate the obligation under the Pad Site Master
Lease for this pad site with a payment of $560 thousand to the purchaser. The lease for the remaining
three unleased pad sites under the Pad Site Master Lease expires in February 2027. To the extent
leases are executed for the remaining three unleased pad sites, tenants open for business, and the
leases are then assigned to the purchaser, the master lease obligation could be reduced further.

In first-quarter 2022, Stratus reassessed its plans with respect to construction of the remaining
buildings on the three remaining unleased pad sites and determined that, rather than execute leases
and build the buildings, it is less costly to continue to pay the monthly rent (approximately
$71 thousand per month) pursuant to the Pad Site Master Lease until the lease expires in February
2027. In connection with this determination, Stratus reversed an accrual of costs to lease and construct
these buildings, resulting in recognition of an additional $4.8 million of gain during 2022. A contract
liability of $3.5 million is presented as a deferred gain in the consolidated balance sheets at
December 31, 2022, compared with $4.8 million at December 31, 2021. The reduction in the deferred
gain balance primarily reflects Pad Site Master Lease payments. The remaining deferred gain balance
is expected to be reduced primarily by future Pad Site Master Lease payments.

Environmental Regulations. Stratus has made, and will continue to make, expenditures for protection
of the environment. Increasing emphasis on environmental matters can be expected to result in
additional costs, which could be charged against Stratus’ operations in future periods. Present and
future environmental laws and regulations applicable to Stratus’ operations may require substantial
capital expenditures that could adversely affect the development of its real estate interests or may
affect its operations in other ways that cannot be accurately predicted at this time.

Litigation. Stratus may from time to time be involved in various legal proceedings of a character
normally incident to the ordinary course of its business. Stratus believes that potential liability from any
of these pending or threatened proceedings will not have a material adverse effect on Stratus’ financial
condition or results of operations.

NOTE 10. BUSINESS SEGMENTS
As a result of the sale of Block 21, Stratus has two operating segments: Real Estate Operations and
Leasing Operations. Block 21, which encompassed Stratus’ Hotel and Entertainment segments, along
with some leasing operations, is presented as discontinued operations.

The Real Estate Operations segment is comprised of Stratus’ real estate assets (developed for sale,
under development and available for development), which consists of its properties in Austin, Texas
(including the Barton Creek Community, including Section N, Holden Hills, Amarra multi-family and

commercial land, Amarra Villas, The Saint June and other vacant land; the Circle C community; the
Lantana community, including a portion of Lantana Place planned for a multi-family phase now known
as The Saint Julia; The Saint George; and the land for The Annie B); in Lakeway, Texas, located in the
greater Austin area (Lakeway); in College Station, Texas (land for future phases of retail and multi-
family development and retail pad sites at Jones Crossing); and in Magnolia, Texas (land for a future
phase of retail development and for future multi-family use and retail pad sites at Magnolia Place),
Kingwood, Texas (a retail pad site) and New Caney, Texas (New Caney), located in the greater
Houston area.

The Leasing Operations segment is comprised of Stratus’ real estate assets, both residential and
commercial, that are leased or available for lease and includes West Killeen Market, Kingwood Place
and the completed portions of Lantana Place, Jones Crossing and Magnolia Place. The segment also
included The Saint Mary until its sale in January 2021 and The Santal until its sale in December 2021
(refer to Note 4 for further discussion).

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

Revenues From Contracts with Customers. Stratus’ revenues from contracts with customers follow
(in thousands):

Real Estate Operations:

Developed property sales

Undeveloped property sales

Commissions and other

Leasing Operations:

Rental revenue

Year Ended December 31,

2022

2021

5,982 $

18,620

142

24,744

12,754

4,615

3,250

584

8,449

19,787

Total revenues from contracts with customers

37,498 $

28,236

Financial Information by Business Segment. Summarized financial information by segment for the
year ended December 31, 2022, based on Stratus’ internal financial reporting system utilized by its
chief operating decision maker, follows (in thousands):

Revenues:

Unaffiliated customers

Intersegment

Cost of sales, excluding depreciation

Depreciation and amortizaion

General and administrative expenses

Impairment of real estate c

Gain on sales of assets d

Operating income (loss)

Capital expenditures and purchases and
development of real estate properties

Real Estate
Operations a

Leasing
Operations

Corporate,
Eliminations
and Other b

Total

24,744 $

12,754 $

— $

37,498

23,766

100

—

720

—

4,439

3,506

—

(4,812)

(6)

(5)

(20)

17,567

—

164 $

9,621 $

(17,548) $

—

28,200

3,586

17,567

720

(4,812)

(7,763)

24,454 $

54,600 $

213 $

79,267

Total assets at December 31, 2022

288,270

109,348

47,522

445,140

Includes sales commissions and other revenues together with related expenses.

Includes consolidated general and administrative expenses and eliminations of intersegment amounts.

Includes $650 thousand for one of the Amarra Villas homes that was sold for $2.5 million in March 2023 and
$70 thousand for the multi-family tract of land at Kingwood Place sold for $5.5 million in October 2022.

d. Represents a pre-tax gain recognized on the reversal of accruals for costs to lease and construct buildings
under a master lease arrangement that we entered into in connection with the sale of The Oaks at Lakeway in
2017.

Summarized financial information by segment for the year ended December 31, 2021, based on
Stratus’ internal financial reporting system utilized by its chief operating decision maker, follows (in
thousands):

Revenues:

Unaffiliated customers

Intersegment

Cost of sales, excluding depreciation

Depreciation

General and administrative expenses c

Impairment of real estate d

Gain on sales of assets e

Operating (loss) income

Capital expenditures and purchases and
development of real estate properties

Real Estate
Operations a

Leasing
Operations

Corporate,
Eliminations
and Other b

Total

8,449 $

19,787 $

— $

28,236

9,758

155

—

1,825

—

9,030

5,358

—

(105,970)

(17)

(25)

(64)

24,509

—

18,763

5,449

24,509

1,825

(105,970)

(3,272) $

111,369 $

(24,437) $

83,660

52,772 $

19,024 $

538 $

72,334

Total assets at December 31, 2021

241,225

107,990

192,011

541,226

Includes sales commissions and other revenues together with related expenses.

Includes consolidated general and administrative expenses and eliminations of intersegment amounts.

Includes $4.0 million incurred for consulting, legal and public relation costs for Stratus’ successful proxy
contest and the real estate investment trust exploration process as well as $9.8 million in employee incentive
compensation costs associated with the PPIP resulting primarily from an increased valuation for The Santal.

Includes $700 thousand for two Amarra Villas homes that were sold in 2022, $625 thousand for the multi-
family tract of land at Kingwood Place that sold for $5.5 million in October 2022 and $500 thousand for an
office building in Austin.

e. Represents the pre-tax gains on the December 2021 sale of The Santal of $83.0 million, and the January

2021 sale of The Saint Mary of $22.9 million.

NOTE 11. SUBSEQUENT EVENTS
Holden Hills, L.P. In first-quarter 2023, Holden Hills, L.P., a Texas limited partnership (the Holden Hills
partnership), entered into financing transactions and commenced construction on the development of
the Holden Hills project. The Holden Hills project is Stratus’ final large residential development within
the Barton Creek community in Austin, Texas, consisting of 495 acres and designed to feature 475
unique residences.

The Holden Hills partnership is governed by a limited partnership agreement between a wholly owned
subsidiary of Stratus as Class A limited partner and an unaffiliated equity investor as Class B limited
partner, and another wholly owned subsidiary of Stratus which serves as general partner. The partners
made the following initial capital contributions to the Holden Hills partnership: (i) The Class A limited
partner contributed the Holden Hills land and related personal property at an agreed value of
$70.0 million and (ii) The Class B limited partner contributed $40.0 million in cash. Immediately
following the Class B limited partner’s initial capital contribution, $30.0 million of cash was distributed
by the Holden Hills partnership to the Class A limited partner. Further, the Holden Hills partnership
reimbursed the Class A limited partner for certain initial project costs and closing costs of
approximately $5.8 million. As a result of these transactions, Stratus holds, indirectly through its wholly
owned subsidiaries, a 50 percent equity capital interest in the Holden Hills partnership, and the Class B
limited partner holds the remaining 50 percent equity capital interest in the Holden Hills partnership.
Stratus’ potential returns on its equity investment in the Holden Hills partnership may increase above
its relative equity interest as negotiated return hurdles are achieved. We expect to consolidate the
Holden Hills limited partnership, and the contribution from our partner will be accounted for as a
noncontrolling interest.

In addition to each partner’s initial capital contribution, upon the call of the general partner from time to
time, the Class A limited partner and the general partner, together, are obligated to make capital
contributions up to an additional $10.0 million, and the Class B limited partner is also obligated to make
capital contributions up to an additional $10.0 million.

The general partner has the authority to manage the day-to-day operations of the Holden Hills
partnership, subject to approval rights of the Class B limited partner for specified “major decisions,”
including project and operating budgets, the business plan and amendments thereto; sales, leases or
transfers of any portion of the Holden Hills project to any partner, affiliate of any partner, or to any
unaffiliated third party other than as contemplated in the business plan; incurring any debt, mortgage or
guaranty; capital calls in excess of those previously agreed upon; admitting a new partner; and certain
transfers of direct or indirect interests in the Holden Hills partnership. The business plan includes rights
of first refusal in favor of the Class B limited partner for sale of a pod to a third party. A “deadlock” may
be declared by any partner if any limited partner does not approve any two major decisions proposed
by the general partner within any 12-month period. Prior to the third anniversary of the effective date of
the limited partnership agreement, a buy-sell provision can be triggered only if there is a deadlock. On
or after the third anniversary, any partner can initiate the buy-sell at any time by written notice to the
other partner, specifying the buyout price.

The Holden Hills partnership has agreed to pay the general partner a development management fee of
4.00 percent of certain construction costs for Phase I, and an asset management fee of $150 thousand
per year starting 15 months after construction starts on the project payable from available cash flow
after debt service. The Class A limited partner and the Holden Hills partnership entered into a
development agreement (Development Agreement) that provides that, as part of Phase I, the Holden
Hills partnership will construct certain street, drainage, water, sidewalk, electric and gas improvements
in order to extend the Tecoma Circle roadway on Section N land owned by Stratus from its current
terminus to Southwest Parkway (the Tecoma Improvements). The Tecoma Improvements will enable
access and provide utilities necessary for the development of both the Holden Hills project and Section
N. Section N is Stratus’ wholly-owned approximately 570-acre tract located along Southwest Parkway
in the southern portion of the Barton Creek community adjacent to Holden Hills. Pursuant to the
Development Agreement, Stratus will reimburse the Holden Hills partnership for 60 percent of the costs
of the Tecoma Improvements. The Class A limited partner has posted standby letters of credit with the
City of Austin under Stratus’ revolving credit facility with Comerica Bank totaling approximately
$11 million as fiscal security for completion of certain infrastructure improvements benefiting the
Holden Hills project, and has agreed to leave such fiscal security in place until the improvements are
completed.

Holden Hills construction loan. In February 2023, the Holden Hills partnership entered into a loan
agreement with Comerica Bank to finance the development of Phase I of the Holden Hills project.

The loan agreement provides for a senior secured construction loan in the aggregate principal amount
of the least of (i) $26.1 million, (ii) 23 percent of the total development costs for Phase I or (iii) the
amount that would result in a maximum loan-to-value ratio of 28 percent. The loan has a maturity date
of February 8, 2026. Advances under the loan bear interest at the one-month BSBY Rate (with a floor
of 0.50 percent), plus 3.00 percent. Payments of interest only on the loan are due monthly until the
maturity date with the outstanding principal due at maturity. The Holden Hills partnership may prepay
all or any portion of the loan without premium or penalty. Amounts repaid under the loan may not be
reborrowed.

The loan is secured by the Holden Hills project, including the land related to both Phase I and Phase II,
and the Phase I improvements. After completion of construction of Phase I, the Holden Hills
partnership may sell and obtain releases of the liens on single-family platted home sites, individual
pods or the Phase II land, subject to specified conditions, and upon payment to the lender of specified
amounts related to the parcel to be released. The Holden Hills partnership is not permitted to make
distributions to its partners, including Stratus, while the loan is outstanding. The Holden Hills
partnership must apply all MUD reimbursements it receives and is entitled to retain as payments of
principal on the loan.

Stratus has entered into a guaranty for the benefit of the lender pursuant to which Stratus has
guaranteed the payment of the loan and the completion of Phase I, including the Tecoma
Improvements. Stratus is also liable for customary carve-out obligations and an environmental
indemnity. The Holden Hills construction loan requires Comerica Banks’ prior written consent for any
common stock repurchases in excess of $1.0 million and any dividend payments. Stratus must
maintain, on a consolidated basis, a net asset value not less than $125.0 million, and a debt-to-gross-
asset value not more than 50 percent (in each case as defined in the guaranty).

Holden Hills Municipal Utility District Reimbursements. The Holden Hills partnership is expected to
be eligible to be reimbursed in the future by Travis County MUDs for a portion of future costs of the
Tecoma Improvements and also for a portion of future costs related only to the Holden Hills project.
The Holden Hills partnership has agreed to deliver to the Class A limited partner 60 percent of any
MUD reimbursements for Tecoma Improvement costs paid directly by the Class A limited partner,
when such reimbursements are received by the partnership. The amount and timing of MUD

reimbursements depends, among other factors, upon the timing of actual future expenditures, the MUD
having a sufficient tax base within its district to issue bonds and obtaining the necessary state approval
for the sale of the bonds. Accordingly, the amount and timing of the receipt of MUD reimbursements is
uncertain.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure

Not applicable.

Item 9A. Controls and Procedures

Evaluation of disclosure controls and procedures. Our Chief Executive Officer and Chief
(a)
Financial Officer, with the participation of management, have evaluated the effectiveness of our
“disclosure controls and procedures” (as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934) to allow timely decisions regarding required disclosure as of the end
of the period covered by this annual report on Form 10-K. Based on their evaluation, they have
concluded that our disclosure controls and procedures were effective as of the end of the period
covered by this report.

Changes in internal control over financial reporting. There has been no change in our internal
(b)
control over financial reporting that occurred during the fiscal quarter ended December 31, 2022, that
has materially affected, or is reasonably likely to materially affect, our internal control over financial
reporting.

Management’s annual report on internal control over financial reporting is included in Part II,

Item 9B. Other Information

Not applicable.

Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

Not applicable.

Item 10. Directors, Executive Officers and Corporate Governance

PART III

Information required by this item will be contained in our definitive proxy statement to be filed with the
Securities and Exchange Commission (SEC) pursuant to Regulation 14A relating to our 2023 annual
meeting of stockholders and is incorporated herein by reference. The information required by Item 10
regarding our executive officers appears in a separately captioned heading after Item 4. “Information
About our Executive Officers” in Part I of this report.

Item 11. Executive Compensation

Information required by this item will be contained in our definitive proxy statement to be filed with the
SEC pursuant to Regulation 14A relating to our 2023 annual meeting of stockholders and is
incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters

Item 13. Certain Relationships and Related Transactions, and Director Independence

Item 14. Principal Accounting Fees and Services

Information required by this item (including fees billed to us by CohnReznick LLP - PCAOB ID No. 596
and BKM Sowan Horan, LLP - PCAOB ID No. 5127) will be contained in our definitive proxy statement
to be filed with the SEC pursuant to Regulation 14A relating to our 2023 annual meeting of
stockholders and is incorporated herein by reference.

Item 15. Exhibits, Financial Statement Schedules

(a)(1).

Financial Statements.

PART IV

The consolidated statements of comprehensive income, cash flows and equity, and the consolidated
balance sheets are included as part of Part II, Item 8. “Financial Statements and Supplementary Data.”

(a)(3).

Exhibits.

Exhibit
Number

Exhibit Title

Filed with
this Form
10-K

Incorporated by Reference

Form File No. Date Filed

8-K 001-37716 2/21/2017

10-K 001-37716 3/31/2022

10-Q 001-37716 11/15/2021

Agreement of Sale and Purchase, dated February 15,
2017, between Stratus Lakeway Center, LLC and FHF I
Oaks at Lakeway, LLC.

Agreement of Sale and Purchase, dated October 26,
2021 between Stratus Block 21, L.L.C. and Ryman
Hospitality Properties, Inc.

Membership
Interest Purchase Agreement, dated
October 26, 2021 between Stratus Block 21
Investments, L.P. and Ryman Hospitality Properties,
Inc.

Agreement of Sale and Purchase, by and between
Santal, L.L.C., as seller, and BG-QR GP, LLC, as
purchaser, dated as of September 20, 2021.

First Amendment to Agreement of Sale and Purchase,
by and between Santal, L.L.C., as seller, and BG-QR
GP, LLC, as purchaser, effective as of October 13,
2021.

Second Amendment
to Agreement of Sale and
Purchase, by and between Santal, L.L.C., as seller, and
Berkshire Multifamily
Income Realty-OP, L.P., as
purchaser, dated as of November 3, 2021.

Composite Certificate of
Properties Inc.

Incorporation of Stratus

8-A/A 001-37716 8/13/2021

Second Amended and Restated By-Laws of Stratus
Properties Inc., as amended effective August 3, 2017.

10-Q 001-37716

8/9/2017

Description of Common Stock of Stratus Properties Inc.

10-K 001-37716 3/31/2022

Investor Rights Agreement by and between Stratus
Properties Inc. and Moffett Holdings, LLC dated as of
March 15, 2012.

Assignment and Assumption Agreement by and among
Moffett Holdings, LLC, LCHM Holdings, LLC and
Stratus Properties Inc., dated as of March 3, 2014.

8-K 000-19989 3/20/2012

13D 000-19989

3/5/2014

4.4

Specimen Common Stock Certificate.

10.1

Development Agreement effective as of August 15,
2002, between Circle C Land Corp. and City of Austin.

8-A/A 000-19989 8/26/2010

10-Q 000-19989 11/14/2002

2.1

2.2

2.3

2.4

2.5

2.6

3.1

3.2

4.1

4.2

4.3

Exhibit
Number

Exhibit Title

10.2

10.3

10.4

First Amendment dated June 21, 2004, Second
Amendment dated November 9, 2004, and Third
Amendment dated March 2, 2005, to Development
Agreement effective as of August 15, 2002, between
Circle C Land Corp. and City of Austin.

Loan Agreement by and between Stratus Properties
Inc., certain of its subsidiaries and Comerica Bank,
dated as of June 29, 2018.

Amended and Restated Revolving Promissory Note by
and between Stratus Properties Inc., certain of its
subsidiaries and Comerica Bank, dated as of May 13,
2022.

10.5 Modification Agreement by and between Stratus
Properties Inc., certain of its subsidiaries and Comerica
Bank, effective as of April 14, 2020.

10.6

10.7

10.8

10.9

Second Modification Agreement by and between
Stratus Properties Inc., certain of its subsidiaries and
Comerica Bank, effective as of June 12, 2020.

Third Modification Agreement by and between Stratus
Properties Inc., certain of its subsidiaries and Comerica
Bank, effective as of May 13, 2022.

Fourth Modification Agreement by and between Stratus
Properties Inc., certain of its subsidiaries and Comerica
Bank, effective as of November 8, 2022.

Fifth Modification Agreement by and between Stratus
Properties Inc., certain of its subsidiaries and Comerica
Bank, effective as of March 10, 2023.

10.10

Loan Agreement by and between College Station 1892
Properties, L.L.C., as borrower, and Regions Bank, as
lender, dated June 17, 2021.

10.11 Promissory Note by and between College Station 1892
Properties, L.L.C. and Regions Bank dated June 17,
2021.

10.12 Guaranty of Recourse Obligations by Stratus Properties
Inc. for the benefit of Regions Bank dated June 17,
2021 with respect to the Loan Agreement by and
between College Station 1892 Properties, L.L.C., as
borrower, and Regions Bank, as lender, dated June 17,
2021.

10.13 Construction Loan Agreement by and between Lantana
Place, L.L.C., as borrower, and Southside Bank, as
lender, dated April 28, 2017.

Filed with
this Form
10-K

Incorporated by Reference

Form File No. Date Filed

10-K 000-19989 3/16/2015

8-K 001-37716

7/5/2018

10-Q 001-37716 5/16/2022

8-K 001-37716 4/17/2020

8-K 001-37716 6/15/2020

10-Q 001-37716 5/16/2022

8-K 001-37716 6/23/2021

10-K 001-37716 3/31/2022

8-K 001-37716

5/3/2017

10.14 Promissory Note by and between Lantana Place, L.L.C,

10-K 001-37716 3/31/2022

and Southside Bank dated April 28, 2017.

10.15

First amendment to Construction Loan Agreement by
and between Lantana Place, L.L.C., as borrower, and
Southside Bank, as lender, dated December 13, 2017.

10-K 001-37716 3/16/2018

Exhibit
Number

Exhibit Title

10.16

Loan Modification Agreement by and between Lantana
Place, L.L.C., as borrower, and Southside Bank, as
lender, effective as of June 19, 2020.

10.17 Second Modification Agreement by and between
Lantana Place, L.L.C and Southside Bank, effective as
of January 4, 2021.

10.18

10.19

Loan Modification Agreement by and between Lantana
Place, L.L.C and Southside Bank, effective as of
January 13, 2022.

Loan Modification Agreement by and between Lantana
Place, L.L.C. and Southside Bank, effective as of
August 26, 2022.

10.20 Guaranty Agreement by Stratus Properties Inc. in favor
of Southside Bank dated April 28, 2017 with respect to
the Construction Loan Agreement by and between
Lantana Place, L.L.C., as borrower, and Southside
Bank, as lender, dated April 28, 2017.

10.21 Construction Loan Agreement by and between Stratus
Kingwood Place, L.P., as borrower, and Comerica
Bank, as lender, dated December 6, 2018.

10.22

Installment Note by and between Stratus Kingwood
Place, L.P. and Comerica Bank dated December 6,
2018.

10.23 Modification Agreement by and among Stratus
Kingwood Place, L.P., as borrower, Stratus Properties
Inc. as guarantor, and Comerica Bank, as lender,
effective as of January 17, 2020.

10.24 Amended and Restated

Installment Note by and
between Stratus Kingwood Place, L.P. and Comerica
Bank, effective as of January 17, 2020.

Filed with
this Form
10-K

Incorporated by Reference

Form File No. Date Filed

10-Q 001-37716 6/25/2020

10-K 001-37716 3/15/2021

10-K 001-37716 3/31/2022

10-Q 001-37716 11/14/2022

10-K 001-37716 3/31/2022

8-K 001-37716 12/12/2018

10-Q 001-37716 6/25/2020

10.25 Second Modification Agreement by and among Stratus
Kingwood Place, L.P., as borrower, Stratus Properties
Inc. as guarantor, and Comerica Bank, as lender,
effective as of December 6, 2022.

10.26 Guaranty Agreement by Stratus Properties Inc. for the

10-K 001-37716 3/31/2022

benefit of Comerica Bank dated December 6, 2018.

10.27

Loan Agreement by and among The Saint June, L.P.,
as borrower, Texas Capital Bank, National Association,
as administrative agent, and each of the lenders party
thereto, dated June 2, 2021.

10.28 Note by and between The Saint June, L.P. and Texas
Capital Bank, National Association dated June 2, 2021.

8-K 001-37716

6/8/2021

8-K 001-37716

6/8/2021

Exhibit
Number

Exhibit Title

10.29 Guaranty Agreement by Stratus Properties Inc. for the
benefit of Texas Capital Bank, National Association
dated June 2, 2021 with respect to the Loan Agreement
by and among The Saint June, L.P., as borrower, Texas
Capital Bank, National Association, as administrative
agent, and each of the lenders party thereto, dated
June 2, 2021.

Filed with
this Form
10-K

Incorporated by Reference

Form File No. Date Filed

10-K 001-37716 3/31/2022

10.30

Interest Rate Index Replacement Agreement dated
January 3, 2023 with respect to the Loan Agreement by
and among The Saint June, L.P., as borrower, Texas
Capital Bank, National Association, as administrative
agent, and each of the lenders party thereto, dated
June 2, 2021.

10.31 Construction Loan Agreement by and between The
Saint George Apartments, L.P., as borrower, and
Comerica Bank, as lender, dated July 19, 2022.

10.32 Amended and Restated

Installment Note by and
between The Saint George Apartments, L.P. and
Comerica Bank dated July 19, 2022.

10.33 Guaranty Agreement by Stratus Properties Inc. for the
benefit of Comerica Bank dated July 19, 2022 with
respect to the Construction Loan Agreement by and
between The Saint George Apartments, L.P., as
borrower, and Comerica Bank, as lender, dated July 19,
2022.

10.34 Construction Loan Agreement by and between Holden
Hills, L.P., as borrower, and Comerica Bank, as lender,
dated February 8, 2023.

10.35

Installment Note by and between Holden Hills, L.P. and
Comerica Bank dated February 8, 2023.

10.36 Guaranty by Stratus Properties Inc. for the benefit of
Comerica Bank dated February 8, 2023 with respect to
the Construction Loan Agreement by and between
Holden Hills, L.P., as borrower, and Comerica Bank, as
lender, dated February 8, 2023.

10.37 Amended and Restated Limited Partnership Agreement
of Stratus Kingwood Place, L.P. entered into by and
among Stratus Northpark, L.L.C., Stratus Properties
Operating Co., L.P., and several Class B Limited
Partners.

10.38

First Amendment to the Amended and Restated Limited
Partnership Agreement of Stratus Kingwood Place, L.P.

10.39 Second Amendment to the Amended and Restated
Limited Partnership Agreement of Stratus Kingwood
Place, L.P.

8-K 001-37716 7/21/2022

8-K 001-37716 2/14/2023

10-Q 001-37716

8/9/2018

10-K 001-37716 3/18/2019

10-K 001-37716 3/15/2021

Exhibit
Number

Exhibit Title

10.40† Amended and Restated Limited Partnership Agreement
of Stratus Block 150, L.P. entered into by and among
The Stratus Block 150 GP, L.L.C., Stratus Properties
Operating Co., L.P., and several Class B Limited
Partners.

Filed with
this Form
10-K

Incorporated by Reference

Form File No. Date Filed

10-Q 001-37716 11/15/2021

10.41† First Amendment to the Amended and Restated Limited

10-Q 001-37716 5/16/2022

Partnership Agreement of Stratus Block 150, L.P.

10.42† Amended and Restated Limited Partnership Agreement
of Holden Hills, L.P. entered into by and among Holden
Hills GP, L.L.C., Stratus Properties Operating Co., L.P.,
and Bartoni, LLC.

10.43† Development Agreement effective as of January 31,
2023, between Stratus Properties Operating Co., L.P.
and Holden Hills, L.P.

10.44* Stratus Properties Inc. 2017 Stock Incentive Plan.

8-K 001-37716 5/18/2017

10.45* Stratus Properties Inc. 2022 Stock Incentive Plan.

8-K 001-37716 5/13/2022

10.46* Stratus Properties Inc. Director Compensation.

10.47* Severance and Change of Control Agreement between
Stratus Properties Inc. and William H. Armstrong III,
effective April 1, 2022.

10.48* Severance and Change of Control Agreement between
Stratus Properties Inc. and Erin D. Pickens, effective
April 1, 2022.

10.49* Consulting Agreement between Stratus Properties Inc.
and James C. Leslie, dated November 4, 2022.

10.50 Share Repurchase Agreement between Stratus
Properties Inc. and James C. Leslie, dated November 1,
2022.

10-K 001-37716 3/31/2022

10.51* Stratus Properties Inc. Profit Participation Incentive Plan

10-K 001-37716 3/18/2019

and Form of Award Notice.

10.52* Form of Notice of Grant of Restricted Stock Units under
the Stratus Properties Inc. 2017 Stock Incentive Plan for
Non-Employee Director Grants (adopted May 2019).

10.53* Form of Notice of Grant of Restricted Stock Units under
the Stratus Properties Inc. 2022 Stock Incentive Plan for
Non-Employee Director Grants (adopted July 2022).

10-Q 000-19989 5/10/2019

10.54* Form of Notice of Grant of Restricted Stock Units

10-Q 001-37716 8/16/2021

(adopted 2021).

10.55* Form of Notice of Grant of Restricted Stock Units for
Awards under the Profit Participation Incentive Plan
(adopted 2021).

16.1

Letter to the Securities and Exchange Commission from
BKM Sowan Horan, LLP.

10-Q 001-37716 8/16/2021

8-K 001-37716 11/14/2022

Exhibit
Number

Exhibit Title

16.2

Letter to the Securities and Exchange Commission from
CohnReznick LLP.

21.1

List of subsidiaries.

23.1

Consent of CohnReznick LLP.

23.2

Consent of BKM Sowan Horan, LLP.

24.1

Power of Attorney (included on signature page).

31.1

31.2

32.1

32.2

Certification of Principal Executive Officer pursuant to
Rule 13a-14(a)/15d-14(a).

Certification of Principal Financial Officer pursuant to
Rule 13a-14(a)/15d-14(a).

Certification of Principal Executive Officer pursuant to
18 U.S.C. Section 1350.

Certification of Principal Financial Officer pursuant to 18
U.S.C. Section 1350.

101.INS XBRL

Instance Document –

Instance
Document does not appear in the Interactive Data File
because its XBRL tags are embedded within the Inline
XBRL document.

the XBRL

101.SCH Inline XBRL Taxonomy Extension Schema.

101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase.

101.DEF Inline XBRL Taxonomy Extension Definition Linkbase.

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase.

101.PRE Inline XBRL Taxonomy Extension Presentation

Linkbase.

104

The cover page from this Annual Report on Form 10-K,
formatted in Inline XBRL and contained in Exhibit 101.

Filed with
this Form
10-K

Incorporated by Reference

Form File No. Date Filed

8-K 001-37716 11/14/2022

* Indicates management contract or compensatory plan or arrangement.
† Certain identified information has been excluded from this exhibit because it is both not material and is the type
that the registrant customarily and actually treats as private or confidential.

Item 16. Form 10-K Summary

Not applicable.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized on March 31, 2023.

STRATUS PROPERTIES INC.

By:

/s/ William H. Armstrong III
William H. Armstrong III
Chairman of the Board, President and Chief Executive Officer

Power of Attorney. BE IT KNOWN: that each person whose signature appears below constitutes and
appoints William H. Armstrong III, Erin D. Pickens and Kenneth N. Jones, and each of them acting
individually, his or her true and lawful attorneys-in-fact and agents, each with the full power of
substitution, for him or her in any and all capacities, to sign any amendments to this Annual Report on
Form 10-K, and to file the same, with all exhibits thereto and other documents in connection therewith,
with the U.S. Securities and Exchange Commission, granting unto said attorneys-in-fact and agents,
and each of them, full power and authority to do and perform any other act and thing requisite and
necessary to be done, as fully to all intents and purposes as he or she might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents, or his or her substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by
the following persons on behalf of the registrant in the capacities and on the dates indicated.

Name

Capacity

Date

/s/ William H. Armstrong III
William H. Armstrong III

/s/ Erin D. Pickens
Erin D. Pickens

/s/ Laurie L. Dotter
Laurie L. Dotter

/s/ Kate B. Henriksen
Kate B. Henriksen

/s/ James E. Joseph
James E. Joseph

/s/ Michael D. Madden
Michael D. Madden

/s/ Charles W. Porter
Charles W. Porter

/s/ Neville L. Rhone Jr.
Neville L. Rhone Jr.

Chairman of the Board, President
and Chief Executive Officer
(Principal Executive Officer)

Senior Vice President
and Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)

March 31, 2023

Director

March 31, 2023

Director

March 31, 2023

Director

March 31, 2023

Director

March 31, 2023

Director

March 31, 2023

Director

March 31, 2023

S-1

[THIS PAGE INTENTIONALLY LEFT BLANK]

STRATUS PROPERTIES INC.

(cid:209)(cid:162)(cid:209)(cid:201)(cid:29)(cid:1)(cid:54)(cid:1)(cid:10)(cid:1)(cid:201)(cid:45)(cid:47)(cid:44)(cid:13)(cid:13)(cid:47)(cid:93) SUITE 300
AUSTIN, TEXAS 78701

T: 512.478.5788

F: 512.478.6340