STRATUS PROPERTIES INC. In Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A), "we," "us," "our" and "Stratus" refer toStratus Properties Inc. and all entities owned or controlled byStratus Properties Inc. You should read the following discussion in conjunction with our consolidated financial statements and accompanying notes, related MD&A and discussion of our business and properties included in our Annual Report on Form 10-K for the year endedDecember 31, 2020 (2020 Form 10-K) filed with theUnited States (U.S.) Securities and Exchange Commission (SEC) and the unaudited consolidated financial statements and accompanying notes included in this Form 10-Q. The results of operations reported and summarized below are not necessarily indicative of future operating results, and future results could differ materially from those anticipated in forward-looking statements (refer to "Cautionary Statement" herein, Part II, Item 1A. "Risk Factors" herein and Part I, Item 1A. "Risk Factors" of our 2020 Form 10-K for further discussion). In particular, the impacts of the COVID-19 pandemic continue to affect our operations. As a result, our performance during this interim period, as well as future interim periods while the COVID-19 pandemic is ongoing, will not be comparable to past performance or indicative of future performance. We expect continued uncertainty in our business and the global economy as a result of the duration and intensity of the COVID-19 pandemic and its related effects. All subsequent references to "Notes" refer to Notes to Consolidated Financial Statements (Unaudited) located in Part I, Item 1. "Financial Statements" herein, unless otherwise stated. We are a diversified real estate company with headquarters inAustin, Texas . We are engaged primarily in the acquisition, entitlement, development, management and sale of commercial, and multi-family and single-family residential real estate properties, real estate leasing, and the operation of hotel and entertainment businesses located in theAustin, Texas area, and other select, fast-growing markets inTexas . We generate revenues and cash flows from the sale of our developed properties, rental income from our leased properties and from our hotel and entertainment operations. InSeptember 2021 , we entered into an agreement to sell The Santal, our wholly owned 448-unit garden-style, multi-family luxury apartment complex located inBarton Creek , for$152.0 million . InOctober 2021 , we entered into new agreements to sell Block 21, our wholly owned mixed-use development in downtownAustin, Texas , that contains theW Austin Hotel and office, retail and entertainment space, for$260.0 million . As discussed further below, these sales, if completed, would result in significant after-tax cash proceeds to us. In addition, the sale of Block 21 would eliminate ourHotel and Entertainment segments. Refer to Note 9 for further discussion of our operating segments and "Business Strategy" below for a discussion of our business strategy. BUSINESS STRATEGY Our portfolio consists of approximately 1,700 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 projects. OurW Austin Hotel and our ACL Live and 3TEN ACL Live entertainment venues are located in downtownAustin at our Block 21 property and are central to the city's world-renowned, vibrant music scene. 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 full cycle 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 18
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refinance properties, in order to benefit from the increased value of the property, from lower interest rates or for other reasons.
We believe thatAustin and other select, fast-growing markets inTexas 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. OurAustin 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. Our development plans require significant additional capital, which we may pursue through joint ventures or other arrangements. Our business strategy requires us to rely on cash flow from operations and debt financing as our primary sources of funding for our liquidity needs. We have also, from time to time, relied on project-level equity financing of our subsidiaries. We have formed strategic relationships as part of our overall strategy for particular development projects and may enter into other similar arrangements in the future. InOctober 2021 , we entered into new agreements to sell Block 21 to Ryman Hospitality Properties, Inc. (Ryman) for$260.0 million . The purchase price includes Ryman's assumption of approximately$138 million of existing mortgage debt and is subject to downward adjustments up to$5.0 million . The transaction is targeted to close near year-end 2021, subject to the timely satisfaction or waiver of various closing conditions. After closing costs and assumption of the outstanding Block 21 loan, the sale is expected to generate net pre-tax proceeds of approximately$115 million before prorations and including$6.9 million to be escrowed for 12 months after closing. We expect to record a pre-tax gain of approximately$110 million upon the closing of the sale. InSeptember 2021 , we entered into an agreement to sell The Santal for$152.0 million . The sale is expected to close inDecember 2021 , subject to the satisfaction or waiver of customary closing conditions. After closing costs and payment of the outstanding Santal loan, the sale is expected to generate net pre-tax proceeds of approximately$70 million . We expect to record a pre-tax gain on the sale of approximately$80 million in the fourth quarter of 2021. InJanuary 2021 , we sold The Saint Mary, a 240-unit luxury garden-style apartment project in the Circle C community, 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 gain on the sale of$22.9 million ($16.2 million net of noncontrolling interests) for the first nine months of 2021. Refer to Note 4 for further discussion of our property dispositions. Refer to Note 3 and Note 6 for a discussion of financing transactions we entered into during 2021, including for the construction and development of The Saint June andMagnolia Place , and the refinancing of The Santal andJones Crossing projects. If completed, the sales of The Santal and Block 21 will result in us receiving substantial cash proceeds, estimated to be approximately$145 million after tax (approximately$50 million relating to The Santal and$95 million relating to Block 21, including$6.9 million to be escrowed). Our Board of Directors (Board) and management team are engaged in a strategic planning process, which includes consideration of the uses of proceeds from the sales and of our long-term business strategy. Potential uses of proceeds may include a combination of further deleveraging, returning cash to shareholders and reinvesting in our robust project pipeline. These factors may impact our evaluation of a potential conversion to a real estate investment trust (REIT). OVERVIEW OF THE IMPACTS OF THE COVID-19 PANDEMIC SinceJanuary 2020 , the COVID-19 pandemic has caused substantial disruption in international andU.S. economies and markets. The impacts of the pandemic are continuing during 2021 but began to lessen as vaccines became widely available in theU.S. during the first quarter of 2021, although there have been periodic increases in the number of cases in theU.S. as a result of vaccine hesitancy and the spread of COVID-19 variants. The pandemic resulted in government restrictions of various degrees and effective at various times, resulting in limitations on normal daily activities for individuals and capacity restrictions and, in some cases, closures for many businesses. EffectiveMarch 10, 2021 , the Governor ofTexas issued an executive order lifting the mask mandate inTexas and increasing the capacity of all businesses and facilities in the state to 100 percent. Businesses inTexas 19
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may still limit capacity or implement additional safety protocols at their own discretion. As a result of the spread of the COVID-19 variants and resurgence in infections, onJuly 27, 2021 , theU.S. Centers for Disease Control and Prevention (CDC ) changed its mask guidance to, among other things, recommend that fully vaccinated individuals wear masks indoors in areas of "substantial" or "high transmission," which according to theCDC , as ofNovember 12, 2021 , includes much ofTexas , althoughAustin andHouston are currently areas of "moderate" transmission. We cannot predict the extent to which individuals may decide to restrict their activities as a result of these developments nor what impact these developments may have on our business. We are optimistic about a post-pandemic recovery and are encouraged by indications that the vaccines are effective and by the rising levels of economic activity in our markets. Although the pandemic has had an adverse impact on our hotel and entertainment operations, which have seen improvements over the last two quarters, our residential properties and opportunities have been positively impacted, as discussed in more detail throughout this report. Impacts on our Business The COVID-19 pandemic has had, and is expected to continue to have, an impact on our business and operations, particularly on ourHotel and Entertainment segments which were adversely impacted beginning late in the first quarter of 2020 and to date in 2021, and are expected to continue to be adversely impacted during the remainder of 2021, although the impacts continued to lessen during third-quarter 2021. The hotel has remained open throughout the pandemic and the 40 percent average occupancy in the third quarter of 2021 was higher than the 16 percent average occupancy in the third quarter of 2020 and the 33 percent average occupancy in the second quarter of 2021. While our entertainment venues, ACL Live and 3TEN ACL Live, were able to host events during third-quarter 2021 and the first nine months of 2021, capacity remained limited at our entertainment venues until opening up to full capacity inAugust 2021 . The extent to which the adverse impacts of the pandemic continue depends on numerous evolving factors that we cannot predict. Moreover, even as travel advisories and restrictions are lifted, travel and entertainment demand may remain weak for a significant length of time. TheAustin market, as well as the otherTexas markets where we operate, continue to rebound from pandemic lows. Our residential properties have been positively impacted by home-centric trends resulting from the pandemic and from the increased attractiveness ofAustin, Texas as a desirable place to live. Demand for residential properties is strong in our markets, currently exceeding available supply. For example, we have sold almost all of our single-family lot inventory atBarton Creek at attractive prices, and we have been able to increase rents on apartments at The Santal. After the successful sale of The Saint Mary multi-family project in the first quarter of 2021, we began construction on The Saint June, a 182-unit multi-family project inBarton Creek , and closed on a construction loan for the project (refer to Note 6). InApril 2021 , we announced development plans forHolden Hills , a new residential development formerly known as Section KLO, in theBarton Creek community. The project consists of 495 acres and the community is designed to feature 475 unique residences to be developed in multiple phases with a focus on sustainability and energy conservation. We also purchased the land for Block 150, now known as The Annie B, a proposed luxury multi-family high-rise development with ground-level retail in downtownAustin, Texas . We believe we have attractive opportunities to develop or sell residential components of our projects atMagnolia Place ,Lantana Place ,Jones Crossing and our remaining land inLakeway . Our multi-family tract of land atKingwood Place is currently under contract to sell for$5.5 million . However, with increased demand and construction activity in our markets, and industry-wide material and labor supply constraints, we have also experienced certain cost increases. We continue to actively manage and monitor these costs. In addition, the ongoing trend toward online shopping has accelerated during the COVID-19 pandemic. We have been adjusting to these retail trends by incorporating more multi-family residential space and more food and beverage and entertainment space into our development plans. Despite the COVID-19 pandemic, we have continued to advance our land planning, engineering, permitting and development activities. In addition to the projects discussed above, inAugust 2021 , we closed on a construction loan and began construction on the first phase of development ofMagnolia Place , anH-E-B, LP (H-E-B ) grocery shadow-anchored, mixed-use project inMagnolia, Texas (refer to Note 6). InJuly 2021 , an unrelated equity investor acquired a 65.87 percent interest in The Saint June partnership for$16.3 million (refer to Note 3). As a result of the COVID-19 pandemic, and beginning inApril 2020 , we agreed, generally, to 90-day base rent deferrals with a majority of our retail leasing tenants, which had closed or were operating at significantly reduced capacities. Rent deferrals with our retail tenants resulted in a reduction of scheduled base rent collections of 10 percent during the period from April throughDecember 2020 . The deferred rents are scheduled to be collected over a 12-month or 24-month period that started inJanuary 2021 . During the first quarter of 2021, we began collecting these rent deferrals. Further, we have retained substantially all of our pre-pandemic retail tenants, added new tenants, and all of our tenants are currently paying rent per their leases, as well as monthly payments pursuant to 20
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previously disclosed base rent deferral arrangements as applicable. At our multi-family properties, we have granted rent deferral accommodations on a case-by-case basis, with no material decline in rent collections or occupancy.
Our 2019 agreements to sell Block 21 for$275 million were terminated by Ryman inMay 2020 as a result of the negative impact on capital markets and the overall economic environment caused by the COVID-19 pandemic. As a result of Ryman's termination of the transaction, it forfeited to us$15.0 million of earnest money. We recorded the$15.0 million as operating income during the second quarter of 2020. As discussed above, inOctober 2021 , we entered into new agreements to sell Block 21 to Ryman for$260.0 million . Impacts on our Liquidity and Capital Resources As ofSeptember 30, 2021 , we had$5.6 million available under our$60.0 million Comerica Bank credit facility, with a$150 thousand letter of credit committed against the credit facility. During the pandemic we have proactively engaged with our project lenders in connection with formulating rent deferral arrangements for our tenants, receiving waivers of and amendments to certain financial covenants for specific project loans and extending maturity dates on project loans with near-term maturities. Refer to Note 6 for further discussion. With respect to our Block 21 loan,Stratus Block 21, LLC , our wholly owned subsidiary that owns Block 21 (the Block 21 subsidiary) continues to not meet the quarterly debt service coverage ratio test resulting in a "Trigger Period," which is not a default but restricts our ability to receive cash distributions from the project. Although the Block 21 loan agreement is a non-recourse loan, we may contribute cash to our Block 21 subsidiary in order to prevent it from defaulting under the Block 21 loan agreement. Additionally, under our subsidiary's hotel operating agreement, the hotel operator has and may continue to request funds from us if it reasonably determines that such funds are required in order to fund the operation of the hotel and specified reserves. Pursuant to such provisions, we contributed$6.3 million during 2020 and$13.0 million during the first nine months of 2021, including$3.9 million during the third quarter. Depending on the timing of the sale of Block 21, we expect additional contributions to total as much as$1.1 million through early 2022. We project that we will be able to meet our debt service and other cash obligations for at least the next 12 months. No assurances can be given that the results anticipated by our projections will occur. Refer to Note 6 and "Capital Resources and Liquidity" below for further discussion.
We are continuing to closely monitor health and market conditions and are prepared to make further adjustments to our business strategy if and when appropriate.
OVERVIEW OF FINANCIAL RESULTS FOR THIRD-QUARTER 2021
Our net loss attributable to common stockholders totaled $3.8 million , or $0.46
per share, in third-quarter 2021, compared to $15.1 million , or $1.84 per share,
in third-quarter 2020. During the first nine months of 2021 our net loss
attributable to common stockholders totaled $5.0 million , or $0.61 per share,
compared to $12.0 million , or $1.46 per share, during the first nine months of
2020. Our results for the first nine months of 2021 were positively impacted by
the $22.9 million gain on the sale of The Saint Mary in January 2021
($16.2 million net of noncontrolling interests). Our net losses attributable to
common stockholders in the 2021 periods include (i) increases in charges to
general and administrative expenses for incentive compensation costs associated
with our Profit Participation Incentive Plan (PPIP) resulting primarily from an
increased valuation for The Santal (third-quarter and nine-month period), and
for consulting, legal and public relation costs incurred in connection with our
successful proxy contest and our REIT exploration process (nine month period),
partly offset by (ii) a $3.7 million gain related to forgiveness of
substantially all of our Paycheck Protection Program (PPP) loan (third-quarter
and nine-month period). The net losses in the 2020 periods include a non-cash
tax charge of $9.6 million in third-quarter 2020 to record a valuation allowance
on our deferred tax assets. The net loss for the first nine months of 2020 is
net of $15.0 million in income from forfeited earnest money received as a result
of the termination of the 2019 Block 21 transaction in second-quarter 2020.
Our revenues totaled $15.5 million in third-quarter 2021 and $41.6 million for
the first nine months of 2021, compared with $12.8 million in third-quarter 2020
and $49.9 million for the first nine months of 2020. The increase in revenues in
third-quarter 2021, compared to third-quarter 2020, primarily reflects increases
in revenue from our Hotel and Entertainment segments as the negative impacts
from the COVID-19 pandemic continued to lessen during third-quarter 2021. The
decrease in revenue for the first nine months of 2021, compared to the first
nine months of 2020, primarily reflects a decrease in the number of developed
residential lots and homes sold as available inventory decreased. Refer to
"Results of Operations" below for further discussion of our segments.
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UPDATE ON PROJECT AND DEVELOPMENT ACTIVITIES
Current Residential Activities
During the first nine months of 2021, we sold three Amarra Drive Phase III lots,
a five-acre multi-family tract of land in Amarra Drive and our last remaining
condominium unit at the W Austin Residences for a total of $7.1 million . For
further discussion, refer to "Results of Operations - Real Estate Operations."
As of September 30, 2021 , two developed Amarra Drive Phase III lots remained
unsold.
The Villas at Amarra Drive (Amarra Villas ) project is a 20-unit development in
the Barton Creek community for which we completed construction of the first
seven homes during 2017 and 2018. We sold the last two completed homes in 2019.
We began construction of the next two Amarra Villas homes during the first
quarter of 2020, which are expected to be completed in early 2022. As of
November 12, 2021 , one of these homes was under contract. In addition, a
contract had been signed to sell a second home on which we began construction in
second-quarter 2021. As of November 12, 2021 , a total of 11 units (1 of which is
under construction and 10 of which construction has not started) remain
available of the initial 20-unit development.
The Santal, a garden-style luxury apartment complex consisting of 448 units in
Section N in the Barton Creek community, is fully leased and stabilized. In
September 2021 , we entered into an agreement to sell The Santal for
$152.0 million . The sale is expected to close in December 2021 , subject to the
satisfaction or waiver of customary closing conditions.
In third-quarter 2021, after completion of financing, we began construction on
The Saint June. The Saint June is a 182-unit multi-family project within the
Amarra subdivision in the Barton Creek community. Refer to Notes 3 and 6 for a
discussion of project financing. The first units of The Saint June are currently
expected to be completed in third-quarter 2022 with completion of the project
expected in first-quarter 2023. We also expect this property to achieve an
Austin Energy Green Building rating.
For further discussion of our multi-family and single-family residential properties, refer to MD&A in our 2020 Form 10-K.
Current Commercial Activities InAugust 2021 , we announced new development plans forMagnolia Place , anH-E-B grocery shadow-anchored, mixed-use project inMagnolia, Texas that is wholly owned by Stratus. We began construction on the first phase of development ofMagnolia Place inAugust 2021 .Magnolia Place is currently planned to consist of 4 retail buildings totaling approximately 35,000 square feet, 5 retail pad sites to be sold or ground leased, 194 single-family lots and approximately 500 multi-family units. The first phase of development is expected to consist of 2 retail buildings totaling approximately 19,000 square feet, all 5 pad sites, and the road, utility and drainage infrastructure necessary to support the entire development.H-E-B recently began construction on its 95,000-square-foot grocery store on an adjoining 18-acre site owned byH-E-B . We are evaluating a sale of the land for the single-family residential component. We have constructed approximately 152,000 square feet of retail space atKingwood Place , including anH-E-B grocery store, and we have signed ground leases on two of the retail pads. Three pad sites remain available for lease. As ofSeptember 30, 2021 , we had signed leases for approximately 85 percent of the retail space, including theH-E-B grocery store. InSeptember 2021 , we entered into a contract to sell a multi-family tract of land atKingwood Place , which is currently planned for approximately 275 multi-family units, for$5.5 million . We recorded a$625 thousand impairment charge in third-quarter 2021 to reduce the land's carrying value to its fair value based on the contractual sale price less estimated selling costs. If consummated, the sale is expected to close in mid-2022.Lantana Place is a partially developed, mixed-use development project located in southwestAustin . As ofSeptember 30, 2021 , we had signed leases for approximately 85 percent of the retail space in the first phase, including the anchor tenant, Moviehouse & Eatery (Moviehouse). InJuly 2020 , we entered into a new six-month lease agreement, which was further extended throughJuly 31, 2021 , with Moviehouse in which rent was based on a percentage of Moviehouse's revenue. The lease agreement provided Moviehouse the right to extend the lease to the original 20-year term throughOctober 31, 2039 , at the original rent schedule, which Moviehouse exercised effectiveAugust 1, 2021 . The lease is secured by a$1.4 million letter of credit. We also have a ground lease for anAC Hotel by Marriott. Construction of the hotel began inMay 2019 , and it is expected to open in fourth-quarter 2021. We rezoned a portion of theLantana property for a potential multi-family development of up to 320 units and expect to begin construction in second-quarter 2022. 22
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As ofSeptember 30, 2021 , we had signed leases for substantially all of the retail space at the first phase ofJones Crossing , anH-E-B -anchored, mixed-use development located inCollege Station, Texas , and approximately 70 percent of the retail space at WestKilleen Market , our retail project located inKilleen, Texas , shadow-anchored by an adjacentH-E-B grocery store. During third-quarter 2021, we sold a pad site at WestKilleen Market for$750 thousand and only one unsold pad site remains at WestKilleen Market . During second-quarter 2021, we refinanced theJones Crossing project to improve loan terms and take advantage of the low-interest-rate market. Block 21's Class A leasable office space was approximately 60 percent leased as ofSeptember 30, 2021 , including 9,000 square feet occupied by our corporate office, and the retail space was substantially fully leased as ofSeptember 30, 2021 .
For further discussion of our commercial properties, refer to MD&A in our 2020 Form 10-K.
Projects in Planning InSeptember 2021 , we announced plans for The Annie B, a proposed luxury high-rise rental project in downtownAustin . Based on preliminary plans, The Annie B would be developed as a 400-foot tower, consisting of approximately 420,000 square feet with 300 luxury multi-family units for lease and ground level retail. 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 onSeptember 1, 2021 , and we expect to finalize development plans over the next 12 to 18 months. The Annie B is expected to achieve anAustin Energy Green Building rating. We are advancing the planning and permitting process for development of future phases ofBarton Creek , includingHolden Hills , a new residential development formerly known as Section KLO, and commercial and multi-family SectionN. Holden Hills , our final large residential development within theBarton Creek community, consists of 495 acres and the community is designed to feature 475 unique residences to be developed in multiple phases with a focus on health and wellness, sustainability and energy conservation. The city ofAustin andTravis County approved initial subdivision permit applications forHolden Hills inOctober 2019 and the engineering for roads and utilities for the initial phase has been completed. We anticipate securing final permits to start construction in the first quarter of 2022. We currently expect to complete site work for phase one, including the construction of road, utility, drainage and other required infrastructure, approximately 17 months from the issuance of our final permits. Accordingly, our projections anticipate that we would begin sales inHolden Hills in late 2022 or early 2023. Phases one and two of theHolden Hills development plan encompass the development of the home sites. 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. Using a conceptual approach similar to that used forHolden Hills , we are also evaluating a redesign of Section N, our approximately 570-acre tract located alongSouthwest Parkway in the southern portion of theBarton Creek community. If successful, this new project would be designed as a dense, mid-rise, mixed-use project surrounded by an extensive greenspace amenity, resulting in a significant potential increase in development density, as compared to our prior plans. These potential development projects 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. In addition, our development plans forHolden Hills and Section N will require significant additional capital, which we currently intend to pursue through bank debt and third-party equity capital arrangements. 23
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RESULTS OF OPERATIONS
We are continually evaluating the development and sale potential of our
properties and will continue to consider opportunities to enter into
transactions involving our properties, including possible sales, joint ventures
or other arrangements. As a result, and because of the COVID-19 pandemic and
numerous other factors affecting our business activities as described herein and
in our 2020 Form 10-K, our past operating results are not necessarily indicative
of our future results. We use operating income or loss to measure the
performance of 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):
Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
Operating (loss) income:
Real Estate Operationsa $ (1,661) b $ 1,388 $ (195) b $ 3,441
Leasing Operations 1,823 1,186 27,293 c 1,836 d
Hotel 46 (2,594) (2,362) (5,300)
Entertainment 409 (1,267) (1,167) (2,226)
Corporate, eliminations and othere (5,621) (2,937) (16,804) 5,863 f
Operating (loss) income $ (5,004) $
(4,224) $ 6,765
$ (2,859) $
(3,587)
Net loss (income) attributable to $ 433$ 193 $ (6,248) $ 1,601 noncontrolling interests in subsidiaries Net loss attributable to common $ (3,764) g $
(15,078) h
a.Includes sales commissions and other revenues together with related expenses. b.Includes a$625 thousand impairment charge for the multi-family tract of land atKingwood Place that is under contract to sell for$5.5 million . c.Includes a$22.9 million gain on theJanuary 2021 sale of The Saint Mary. d.Includes a$1.4 million charge for estimated uncollectible rents receivable and unrealizable deferred costs. e.The increase in third-quarter 2021, compared to third-quarter 2020, is primarily the result of a$2.6 million increase in employee incentive compensation costs associated with our PPIP resulting primarily from an increased valuation for The Santal. The increase for the first nine months of 2021, compared to the first nine months of 2020, is primarily the result of a$4.0 million increase in employee incentive compensation costs, including those associated with our PPIP, and increased consulting, legal and public relation costs for Stratus' successful proxy contest and the REIT exploration process totaling$3.8 million . f.Includes$15.0 million in income from earnest money received as a result of Ryman's termination inMay 2020 of the 2019 agreements to purchase Block 21. g.Includes a$3.7 million gain related to forgiveness of our PPP loan. h.Includes a$9.6 million tax charge to record a valuation allowance on our deferred tax assets. We have four operating segments: Real Estate Operations, Leasing Operations,Hotel and Entertainment (refer to Note 9). The following is a discussion of our operating results by segment.
Real Estate Operations The following table summarizes our Real Estate Operations results (in thousands):
Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
Revenues:
Developed property sales $ - $ 5,001 $ 4,615 $ 19,141
Undeveloped property sales 750 - 3,250 -
Commissions and other 205 29 495 126
Total revenues 955 5,030 8,360 19,267
Cost of sales, including depreciation 1,991 3,642 7,930 15,826
Impairment of real estate 625 - 625 -
Operating (loss) income $ (1,661) $ 1,388 $ (195) $ 3,441
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Developed Property Sales. The following table summarizes our developed property sales (dollars in thousands):
Three Months Ended September 30,
2021 2020
Average Cost Per Lot Average Cost
Lots Revenues Lots Revenues Per Lot
Barton Creek
Amarra Drive:
Phase III lots - - - 4 $ 5,001 $ 535
Total Residential - - 4 $ 5,001
Nine Months Ended September 30,
2021 2020
Average Cost Average Cost
Lots/Units Revenues Per Lot/Unit Lots/Homes Revenues Per Lot/Home
Barton Creek
Amarra Drive:
Phase II lots - $ - $ - 4 $ 2,372 $ 193
Phase III lots 3 2,215 299 11 9,591 389
Homes built on Phase III lots - - - 2 7,178 3,273
W Austin Residences at Block 21:
Condominium unit 1 2,400 1,721 - - -
Total Residential 4 $ 4,615 17 $ 19,141
The decrease in revenues in third-quarter 2021 and for the first nine months of
2021, compared to the 2020 periods, reflects a decrease in the number of lots
and homes sold in 2021 as available inventory decreased.
Undeveloped Property Sales. In third-quarter 2021 we sold a pad site at West
Killeen Market for $750 thousand . During the first nine months of 2021, we also
sold a five-acre multi-family tract of land in Amarra Drive for $2.5 million .
Cost of Sales. Cost of sales includes costs of property sold, project operating
and marketing expenses and allocated overhead costs, partly offset by reductions
for certain municipal utility district (MUD) reimbursements. Cost of sales
decreased to $2.0 million in third-quarter 2021 and $7.9 million for the first
nine months of 2021 from $3.6 million in third-quarter 2020 and $15.8 million
for the first nine months of 2020, primarily reflecting a decrease in the number
of lots and homes sold during the 2021 periods, partly offset by the sale of our
last condominium unit at Block 21 during the first nine months of 2021.
Impairment of Real Estate. In September 2021 , we entered into a contract to sell
the multi-family land at Kingwood Place planned for multi-family units for $5.5
million . At the time of entering into the contract, the fair value of the land
based on the contractual sale price less estimated selling costs was less than
its carrying value, and we recorded a $625 thousand impairment charge in the
third quarter of 2021.
Leasing Operations
The following table summarizes our Leasing Operations results (in thousands):
Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
Rental revenue $ 5,970 $
6,030 $ 16,821
2,547 2,793 7,456 9,955 a
depreciation
Depreciation 1,600 2,051 5,003 6,132
Gain on sale of assets - - (22,931) - Operating income $ 1,823$ 1,186 $ 27,293$ 1,836
a.Includes a
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Rental Revenue. Rental revenue primarily includes revenue from The Santal,Lantana Place ,Jones Crossing ,Kingwood Place , the office and retail space at Block 21, WestKilleen Market , and The Saint Mary until its sale inJanuary 2021 . The decrease in rental revenue in the 2021 periods, compared with the 2020 periods, primarily reflects the sale of The Saint Mary, partly offset by increased revenue atLantana Place . The Saint Mary had rental revenue of$0.1 million in first-quarter 2021 prior to the sale compared to$0.9 million in third-quarter 2020 and$2.3 million during the first nine months of 2020. Rental Cost of Sales and Depreciation. Rental cost of sales and depreciation expense decreased in third-quarter 2021 and for the first nine months of 2021, compared with the 2020 periods, primarily as a result of the sale of The Saint Mary. The decrease during the first nine months of 2021, compared to the first nine months of 2020, was further impacted by a$1.4 million charge in second-quarter 2020 for estimated uncollectible rents receivable and unrealizable deferred costs. During the second quarter of 2020, our lease with Moviehouse, our anchor tenant atLantana Place , was terminated and we charged$1.3 million to cost of sales to write off uncollectible rents receivable and unrealizable deferred costs associated with this lease. Subsequently, inJuly 2020 , we entered into a new lease agreement with Moviehouse, which was further extended throughJuly 31, 2021 . The new lease agreement provided Moviehouse the right to extend the lease to the original 20-year term throughOctober 31, 2039 , at the original rent schedule, which Moviehouse exercised effectiveAugust 1, 2021 . The lease is secured by a$1.4 million letter of credit. Gain on Sale of Assets. InJanuary 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 gain on the sale of$22.9 million ($16.2 million net of noncontrolling interests) for the first nine months of 2021.
The pending sale of Block 21 will include the sale of the office and retail space at Block 21. The pending sale of The Santal will also impact this segment. Refer to Note 4 for further discussion.
Hotel
The following table summarizes our Hotel results (in thousands):
Three Months Ended September 30 ,
Nine Months Ended
2021 2020 2021 2020
Hotel revenue $ 5,236 $ 1,614 $ 11,349 $ 8,619
Hotel cost of sales, excluding 4,312 3,317 11,076 10,992
depreciation a
Depreciation 878 891 2,635 2,927
Operating income (loss) $ 46 $ (2,594) $ (2,362) $ (5,300) a.Includes a
Hotel Revenue . Hotel revenue primarily includes revenue fromW Austin Hotel room reservations and food and beverage sales. The increase in Hotel revenues in the 2021 periods, compared to the 2020 periods, is primarily a result of higher room reservations and food and beverage sales as the impacts of the COVID-19 pandemic continued to lessen during third-quarter 2021. The hotel's average occupancy in the third quarter of 2021 was 40 percent, compared to the 16 percent average occupancy in the third quarter of 2020 and 33 percent average occupancy in the second quarter of 2021. Revenue per available room (RevPAR), which is calculated by dividing total room revenue by the average total rooms available, was$121 in third-quarter 2021 and$89 for the first nine months of 2021, compared with$36 in third-quarter 2020 and$71 for the first nine months of 2020.Hotel Cost of Sales. The increase in Hotel cost of sales, excluding depreciation, in third-quarter 2021, compared to third-quarter 2020, is primarily a result of higher room reservations and food and beverage sales as the impacts of the COVID-19 pandemic continued to lessen during third-quarter 2021. The decrease in depreciation during the first nine months of 2021, compared to the first nine months of 2020, is primarily because of a$202 thousand adjustment made in first-quarter 2020 for the period inDecember 2019 when the hotel was held for sale and, therefore, not depreciated. 26
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The pending sale of Block 21 will include the sale of the
Entertainment
The following table summarizes our Entertainment results (in thousands):
Three Months Ended September Nine Months Ended September
30, 30,
2021 2020 2021 2020
Entertainment revenue $ 3,660 $ 367 $ 5,927 $ 4,826
Entertainment cost of sales, excluding 2,905 1,242 6,000 5,773
depreciation
Depreciation 346 392 1,094 1,279
Operating income (loss) $ 409 $ (1,267) $ (1,167) $ (2,226)
Entertainment Revenue. Entertainment revenue primarily reflects the results of
operations for ACL Live, including ticket sales, revenue from private events,
sponsorships, personal seat license sales and suite sales, and sales of
concessions and merchandise. Entertainment revenue also reflects revenues
associated with events hosted at 3TEN ACL Live. Revenues from the Entertainment
segment vary from period to period as a result of factors such as the price of
tickets and number of tickets sold, as well as the number and type of events
hosted at ACL Live and 3TEN ACL Live. Entertainment revenues increased in
third-quarter 2021 and during the first nine months of 2021, compared to the
2020 periods, primarily reflecting an increase in the number of events hosted at
ACL Live and 3TEN ACL Live as the impacts of the COVID-19 pandemic continued to
lessen during third-quarter 2021. As of August 2021 , ACL Live and 3TEN ACL Live
are operating at full capacity. In addition, we resumed recognizing revenue from
sponsorships and sales of personal seat licenses and suites in second-quarter
2021, which had been suspended during the period in which the entertainment
venues were closed. Revenue from sponsorships and sales of personal seat
licenses and suites totaled $606 thousand in third-quarter 2021 and $1.1 million
during the first nine months of 2021 compared to none in third-quarter 2020 and
$521 thousand during the first nine months of 2020. The COVID-19 pandemic
prevented a full show schedule in the first nine months of 2020, with government
restrictions on gatherings forcing ACL Live to close.
Certain key operating statistics specific to the concert and event hosting industry are included below to provide additional information regarding our ACL Live and 3TEN ACL Live operating performance.
Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
ACL Live
Events:
Events hosted 52 17 106 55
Estimated attendance 37,815 656 52,045 46,102
Ticketing:
Number of tickets sold 26,047 - 35,817 37,703
Gross value of tickets sold (in thousands)
-$ 2,328 $ 1,881 3TEN ACL Live Events: Events hosted 39 19 110 70 Estimated attendance 4,936 1,607 13,537 9,839 Ticketing: Number of tickets sold 3,780 - 6,119 5,278
Gross value of tickets sold (in thousands)
-
Entertainment Cost of Sales. The increase in Entertainment cost of sales, excluding depreciation, in third-quarter 2021 and for the first nine months of 2021, compared to the 2020 periods, reflects an increase in the number of events hosted. The decrease in depreciation for the first nine months of 2021, compared to the first nine months of 2020, is primarily because of an$89 thousand adjustment made for the period inDecember 2019 when the entertainment venues were held for sale and, therefore, not depreciated. 27
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The pending sale of Block 21 will include the sale of ACL Live and 3TEN ACL Live.
Corporate, Eliminations and Other Corporate, eliminations and other (refer to Note 9) includes consolidated general and administrative expenses, which primarily consist of employee compensation and other costs. Consolidated general and administrative expenses increased to$5.4 million in third-quarter 2021 from$2.9 million in third-quarter 2020, primarily reflecting a$2.6 million increase in employee incentive compensation costs associated with our PPIP resulting primarily from an increased valuation for The Santal. Additional expense of up to$4.0 million may be recognized upon the closing of the sale of the property. Consolidated general and administrative expenses increased to$16.4 million for the first nine months of 2021 from$8.8 million for the first nine months of 2020, primarily reflecting a$4.0 million increase in employee incentive compensation costs, including those associated with our PPIP, and increased consulting, legal and public relation costs for our successful proxy contest and the REIT exploration process totaling$3.8 million . The first nine months of 2020 included$0.6 million in legal fees associated with the 2019 Block 21 sales agreements and subsequent termination. For the first nine months of 2020, corporate, eliminations and other also included$15.0 million in income from earnest money that was received from Ryman inMay 2020 upon its termination of the 2019 agreements to purchase Block 21. Corporate, eliminations and other also includes eliminations of intersegment transactions among the four operating segments. Non-Operating Results Interest Expense, Net. Interest costs (before capitalized interest) totaled$4.2 million in third-quarter 2021 and$12.5 million for the first nine months of 2021 compared with$4.7 million in third-quarter 2020 and$14.8 million for the first nine months of 2020. Interest costs in the 2021 periods were lower, compared to the 2020 periods, primarily reflecting decreases in average interest rates and the repayment of The Saint Mary construction loan upon the sale of the property. Capitalized interest totaled$1.3 million in third-quarter 2021 and$3.8 million for the first nine months of 2021 compared to$1.1 million in third-quarter 2020 and$3.6 million for the first nine months of 2020. Capitalized interest is primarily related to development activities atBarton Creek .Net Gain on Extinguishment of Debt. We recorded a$3.7 million gain on extinguishment of debt in third-quarter 2021 and$3.5 million for the first nine months of 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 theJones 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$0.1 million in third-quarter 2021 and$0.4 million for the first nine months of 2021, compared to$7.5 million in third-quarter 2020 and$6.2 million for the first nine months of 2020. The third quarter and first nine months of 2020 included a$9.6 million non-cash tax charge to record a valuation allowance on our deferred tax assets. Refer to Note 8 for further discussion of income taxes. Total Comprehensive Loss (Income) Attributable to Noncontrolling Interests in Subsidiaries. Our partners' share of losses (income) totaled$0.4 million in third-quarter 2021 and$(6.2) million for the first nine months of 2021, compared to$0.2 million in third-quarter 2020 and$1.6 million for the first nine months of 2020. For the first nine months of 2021, our partners were allocated$6.7 million of the gain from the sale of The Saint Mary. For the first nine months of 2020,$0.6 million of the losses were incurred prior to 2020. CAPITAL RESOURCES AND LIQUIDITY Volatility in the real estate market, including the markets in which we operate, can impact the timing of and proceeds received from sales of our properties, which may cause uneven cash flows from period to period. However, we believe that the unique nature and location of our assets will provide us positive cash flows over time. 28
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Comparison of Cash Flows for the Nine Months EndedSeptember 30, 2021 and 2020 Operating Activities. Cash (used in) provided by operating activities totaled$(36.4) million for the first nine months of 2021, compared with$0.5 million for the first nine months of 2020. Expenditures for purchases and development of real estate properties totaled$30.8 million for the first nine months of 2021, primarily related to the purchase of the land for The Annie B and the development of ourBarton Creek properties, includingAmarra Villas , and$11.6 million for the first nine months of 2020, primarily related to the development of ourBarton Creek properties, includingAmarra Villas , and the purchase of an office building inAustin . The first nine months of 2020 also includes$15.0 million from earnest money received as a result of Ryman's termination inMay 2020 of the 2019 agreements to purchase Block 21. The cash inflow from the increase in accounts payable, accrued liabilities, deposits and other during the first nine months of 2021, compared to the cash outflow from the decrease in accounts payable, accrued liabilities, deposits and other during the first nine months of 2020, is primarily a result of the timing of payments, including contractor retention payments associated with the completion of The Saint Mary andKingwood Place in 2020. Investing Activities. Cash provided by (used in) investing activities totaled$51.8 million for the first nine months of 2021 and$(6.4) million for the first nine months of 2020. Capital expenditures totaled$6.7 million for the first nine months of 2021, primarily related to The Saint June,Lantana Place andMagnolia Place projects, and$5.3 million for the first nine months of 2020, primarily related to theKingwood Place andLantana Place projects. During the first nine months of 2021, we received proceeds, net of closing costs, from the sale of The Saint Mary of$59.5 million . Financing Activities. Cash provided by financing activities totaled$10.0 million for the first nine months of 2021 and$0.4 million for the first nine months of 2020. During the first nine months of 2021, net borrowings on theComerica Bank credit facility totaled$10.9 million , compared with net repayments of$7.2 million for the first nine months of 2020, reflecting the use of$13.8 million of the$15.0 million earnest money received from Ryman in 2020 to pay down the revolving credit facility. During the first nine months of 2021, net repayments on other project and term loans totaled$13.9 million , primarily reflecting the repayment of The Saint Mary construction loan upon the sale of the project. During the first nine months of 2020, net borrowings on other project and term loans totaled$8.1 million , primarily reflecting borrowings from the PPP loan (refer to Note 6 for further information) and borrowings for theKingwood Place and The Saint Mary projects, partly offset by repayment of theAmarra Villas credit facility. Refer to "Credit Facility, Other Financing Arrangements and Liquidity Outlook" below for a discussion of our outstanding debt atSeptember 30, 2021 . During the first nine months of 2021, we paid distributions to noncontrolling interest owners of$13.2 million , primarily related to the sale of The Saint Mary, and received contributions from noncontrolling interest owners of$28.0 million , related to The Saint June and Block 150 limited partnerships. Credit Facility, Other Financing Arrangements and Liquidity Outlook AtSeptember 30, 2021 , the total principal amount of our outstanding debt was$297.0 million , compared with$278.2 million atDecember 31, 2020 . Consolidated debt at both dates excluded The Santal loan of approximately$75 million , and atDecember 31, 2020 , also excluded The Saint Mary construction loan of approximately$25 million , as a result of these properties being classified as held for sale at those dates. We had borrowings of$54.2 million under our$60.0 million Comerica Bank revolving credit facility,$5.6 million of which was available atSeptember 30, 2021 , net of a$150 thousand letter of credit committed against the credit facility. During the pandemic we have proactively engaged with our project lenders in connection with formulating rent deferral arrangements for our tenants, receiving waivers of and amendments to certain financial covenants for specific project loans and extending maturity dates on project loans with near-term maturities. Refer to Note 6 in this report and in our 2020 Form 10-K for further discussion. Refer to "Debt Maturities and Other Contractual Obligations" below for a table illustrating the timing of principal payments due on our outstanding debt as ofSeptember 30, 2021 . Our debt agreements require compliance with specified financial covenants. The Santal loan and theMagnolia Place construction loan include 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 . TheNew 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 . TheComerica Bank credit facility, theLantana Place construction loan, theAmarra Villas credit facility, theKingwood 29
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Place construction loan, the WestKilleen Market construction loan, theNew Caney land loan, The Saint June construction loan, The Santal loan, theMagnolia Place construction loan, and The Annie B land loan include a requirement that we maintain a net asset value, as defined in each agreement, of$125 million . TheComerica Bank credit facility, theAmarra Villas credit facility, theKingwood Place construction loan, and The Annie B land loan also include a requirement that we maintain a debt-to-gross asset value, as defined in the agreements, of less than 50 percent. The Santal loan, the WestKilleen Market construction loan, theJones Crossing loan, theLantana Place construction loan, and The Saint June 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 ofSeptember 30, 2021 , we were in compliance with all of our financial covenants; however, for the last three quarters of 2020 and the first three quarters of 2021, our Block 21 subsidiary did not pass the debt service coverage ratio financial test under the Block 21 loan, which, though not a financial covenant, caused the Block 21 subsidiary to enter into a "Trigger Period" as discussed below. Stratus' and its subsidiaries' debt arrangements 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; sell all or substantially all of its assets; and engage in mergers, consolidations or other business combinations. OurComerica Bank credit facility and The Annie B land loan requireComerica Bank's prior written consent for any common stock repurchases in excess of$1.0 million or any dividend payments. Our project loans are generally secured by all or substantially all of the assets of the project, and ourComerica Bank 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 Block 21 loan, The Santal loan and theJones Crossing loan guarantees that are generally limited to non-recourse carve-out obligations. Refer to Note 6 in our 2020 Form 10-K for additional discussion. The Block 21 loan agreement, secured by the Block 21 assets, contains financial tests that we must meet in order to avoid a "Trigger Period." Specifically, we must maintain (i) a net worth in excess of$125 million and (ii) liquid assets having a market value of at least$10 million , each as defined in the Block 21 loan agreement. Additionally, our Block 21 subsidiary must maintain a trailing-12-month debt service coverage ratio, tested quarterly, as defined in the Block 21 loan agreement. If any of these financial tests are not met, a "Trigger Period," which is not a default, results. As a result of the pandemic, our Block 21 subsidiary has not met the debt service coverage ratio test each quarter beginning with theJune 30, 2020 , test date, resulting in a "Trigger Period." During a "Trigger Period," any cash generated from the Block 21 project in excess of amounts necessary to fund loan obligations, budgeted operating expenses and specified reserves would not be available to be distributed to us until after we meet a higher debt service coverage ratio requirement for two consecutive quarters. As the ratio is calculated on a trailing-12-month basis, we currently expect the "Trigger Period" to continue through the end of 2022, or until the earlier closing of the sale of Block 21. Although the Block 21 loan agreement is a non-recourse loan, we may contribute cash to our Block 21 subsidiary in order to prevent it from defaulting under the Block 21 loan agreement. Additionally, under our subsidiary's hotel operating agreement, the hotel operator has and may continue to request funds from us if it reasonably determines that such funds are required in order to fund the operation of the hotel and specified reserves. Pursuant to such provisions, we contributed$6.3 million during 2020 and$13.0 million during the first nine months of 2021, including$3.9 million in the third quarter. Depending on the timing of the sale of Block 21, we expect additional contributions to total as much as$1.1 million through early 2022. As ofSeptember 30, 2021 , we had$7.8 million of liabilities for deferred income and deposits that primarily related to ticket and sponsorship presales at our venues. We have refunded amounts related to events that have been cancelled, and we may refund additional amounts if more events are cancelled in the future. We project that we will be able to meet our debt service and other cash obligations for at least the next 12 months. Our projections are based on many assumptions, including that we complete the sales of Block 21 and The Santal or, regardless of completion of such dispositions, that we are able to extend or refinance theComerica Bank credit facility and loans atWest Killeen andNew Caney , which we believe we will be able to do. No assurances can be given that the results anticipated by our projections will occur. Refer to Note 6 in our 2020 Form 10-K, "Risk Factors" 30
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included in Part II, Item 1A. herein and "Risk Factors" included in Part I, Item 1A. of our 2020 Form 10-K, for further discussion.
Our ability to meet our cash obligations over the longer term, including our
significant debt maturities in 2022, 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, including risks related to the COVID-19 pandemic.
DEBT MATURITIES AND OTHER CONTRACTUAL OBLIGATIONS
The following table summarizes our debt maturities based on the principal
amounts outstanding as of
2021 2022 2023 2024 2025 Thereafter Total
Block 21 loana $ 636 $ 2,613 $ 2,765 $ 2,904 $ 3,094 $ 125,872 $ 137,884
Comerica Bank credit facility - 54,226 - - - - 54,226
The Annie B land loan - - 14,000 - - - 14,000
New Caney land loan - 4,500 - - - - 4,500
PPP loan 116 156 - - - - 272
Construction loans:
Kingwood Placeb - 32,078 - - - - 32,078
Jones Crossing - - - - - 24,500 24,500
Lantana Place 203 825 20,788 - - - 21,816
West Killeen Market 47 6,099 - - - - 6,146
Amarra Villas credit facility - 1,593 - - - - 1,593
Total $ 1,002 $ 102,090 $ 37,553 $ 2,904 $ 3,094 $ 150,372 $ 297,015 c
a.The Block 21 loan is expected to be assumed by Ryman as part of the sale of
Block 21. Refer to Note 4 for further discussion of the pending Block 21 sale.
b.We have the option to extend the maturity date for two additional 12-month
periods, subject to certain debt service coverage conditions.
c.Total does not include $75.0 million of debt at September 30, 2021 , associated
with The Santal, which is reflected as held for sale.
Other than the debt transactions discussed in Note 4 and Note 6, there have been
no material changes in our contractual obligations since December 31, 2020 .
Refer to Part II, 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 our 2020 Form 10-K for further information
regarding our contractual obligations.
CRITICAL ACCOUNTING ESTIMATESThere have been no changes in our critical accounting estimates from those discussed in our 2020 Form 10-K.
NEW ACCOUNTING STANDARDSNo new accounting standards in 2021 have had a material impact on us.
OFF-BALANCE SHEET ARRANGEMENTS
There have been no material changes in our off-balance sheet arrangements since
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CAUTIONARY STATEMENT
This Quarterly Report on Form 10-Q contains forward-looking statements in which
we discuss factors we believe may affect our future performance. Forward-looking
statements are all statements other than statements of historical fact, such as
plans, projections or expectations related to whether and when the sale of Block
21 and The Santal will be completed, our estimated gains and net cash proceeds
from the sales of Block 21 and The Santal and potential uses of such proceeds,
the impacts of the COVID-19 pandemic, our ability to meet our future debt
service and other cash obligations, our ability to ramp-up operations at Block
21 according to our currently anticipated timeline, our ability to continue to
hold events at our venues, our ability to collect rents timely, future cash
flows and liquidity, our ability to comply with or obtain waivers of financial
and other covenants in debt agreements, the results of our Board's strategic
planning process, 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, the impact of interest rate changes, future capital expenditures and
financing plans, possible joint ventures, partnerships, or other strategic
relationships, our projections with respect to our obligations under the master
lease agreements entered into in connection with the 2017 sale of The Oaks at
Lakeway , other plans and objectives of management for future operations and
development projects, and future dividend payments and share repurchases. 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 credit facility, 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. The declaration of dividends or
decision to repurchase our common stock is at the discretion of our Board,
subject to restrictions under our Comerica Bank credit facility, and will depend
on our financial results, cash requirements, projected compliance with covenants
in our debt agreements, outlook and other factors deemed relevant by the Board.
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, the occurrence of any event, change or other circumstance that could delay
the closing of the sale of Block 21 or The Santal, or result in the termination
of the agreements to sell Block 21 or The Santal, risks relative to the COVID-19
pandemic (including any resurgences related to the spread of COVID-19 variants)
and its economic effects, the results of our Board's strategic planning process,
our ability to pay or refinance our debt or comply with or obtain waivers of
financial and other covenants in debt agreements and to meet other cash
obligations, our ability to ramp up operations at Block 21, collect anticipated
rental payments and close projected asset sales, the availability and terms of
financing for development projects and other corporate purposes, the
implementation, operational, financing and tax complexities to be evaluated and
addressed before our Board decides whether to recommend a REIT conversion to
shareholders, our ability to qualify as a REIT, which involves the application
of highly technical and complex provisions of the Internal Revenue Code of 1986,
as amended, our ability to complete the steps that must be taken in order to
convert to a REIT and the timing thereof, the potential costs of converting to
and operating as a REIT, whether our Board will determine that conversion to a
REIT is in the best interests of our shareholders, whether shareholders will
approve changes to our organizational documents consistent with a public REIT
structure, our ability to enter into and maintain joint ventures, partnerships,
or other strategic relationships, 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, market conditions or
corporate developments that could preclude, impair or delay any opportunities
with respect to plans to sell, recapitalize or refinance properties, our ability
to obtain various entitlements and permits, a decrease in the demand for real
estate in select markets in Texas where we operate, changes in economic, market
and business conditions, reductions in discretionary spending by consumers and
businesses, competition from other real estate developers, hotel operators
and/or entertainment venue operators and promoters, our ability to increase
and/or maintain attendance at our venues, challenges associated with booking
events and selling tickets and event cancellations at our entertainment venues,
which may result in refunds to customers, the termination of sales contracts or
letters of intent because of, among other factors, the failure of one or more
closing conditions or market changes, our ability to secure qualifying tenants
for the space subject to the master lease agreements entered into in connection
with the 2017 sale of The Oaks at Lakeway and to assign such leases to the
purchaser and remove the corresponding property from the master leases, the
failure to attract customers or tenants for our developments or such customers'
or tenants' failure to satisfy their purchase commitments or leasing
obligations, increases in interest rates and the phase out of the London
Interbank Offered Rate, declines in the market value of
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our assets, increases in operating costs, including real estate taxes and the cost of building materials and labor, changes in external perception of theW Austin Hotel , unanticipated issues experienced by the third-party operator of theW Austin Hotel , changes in consumer preferences, industry risks, 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-related risks, loss of key personnel, cybersecurity incidents and other factors described in more detail under the heading "Risk Factors" in Part I, Item 1A. of our 2020 Form 10-K, filed with theSEC , and "Risk Factors" included in Part II, Item 1A. herein. We can provide no assurance as to when, if at all, we will convert to a REIT. We can give no assurance that our Board will approve a conversion to a REIT, even if there are no impediments to such conversion. Our exploration of a potential REIT conversion may divert management's attention from traditional business concerns. If we determine to convert to a REIT, we cannot give assurance that we will qualify or remain qualified as a REIT. 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.
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