STRATUS PROPERTIES INC. In Management's Discussion and Analysis of Financial Condition and Results of Operations, "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 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 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, and real estate leasing in theAustin, Texas area and other select, fast-growing markets inTexas . We generate revenues and cash flows from the sale of our developed properties and the lease of our retail, mixed-use and multi-family properties. See "Continuing Operations" in 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 portfolio includes 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.
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 refinance properties, in order to benefit from the increased value of the property, from lower interest rates or for other reasons. We believe that Austin 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. 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. 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. However, we have increasingly relied on project-level equity financing of our subsidiaries. We have formed and expect to continue to pursue strategic relationships as part of our overall strategy for particular development projects and may enter into similar equity financing arrangements in the future. See Note 2 for further discussion.
Our results for 2021 reflect our strong performance in executing on our full cycle development program:
•InDecember 2021 , one of our wholly owned subsidiaries sold The Santal, a 448-unit luxury garden-style multi-family project located inBarton Creek , 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. •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 the purchaser's assumption of approximately$138 million of existing mortgage debt and is subject to downward adjustments up to$5.0 million . The remainder 23
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of the purchase price will be paid in cash. The transaction is expected to close sometime prior toJune 1, 2022 , subject to the timely satisfaction or waiver of various closing conditions. After closing costs and assumption of the outstanding Block 21 loan by the purchaser, the sale of Block 21 is expected to generate net pre-tax proceeds of approximately$115 million and after-tax proceeds of approximately$90 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$120 million upon the closing of the sale (approximately$95 million after-tax). •InJanuary 2021 , one of our subsidiaries sold The Saint Mary, a 240-unit luxury garden-style multi-family 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$21.9 million from the subsidiary in connection with the sale and$12.2 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. The sale of The Santal generated net cash proceeds of approximately$74 million and allowed us to pay down the balance of ourComerica Bank credit facility. If completed, the sale of Block 21 will result in substantial additional cash proceeds of approximately$115 million pre-tax and$90 million after-tax (before prorations and including post-closing escrow amounts). 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 project pipeline. We expect to provide additional information after the Block 21 transaction is concluded and our Board and management have had the opportunity to assess market conditions and the capital desired for use in our development pipeline. In the meantime, after careful consideration, our Board has concluded that converting to a real estate investment trust is not the best path forward for our shareholders and us. Among the factors our Board considered in reaching its conclusion are our continued success in generating attractive returns by developing and selling our properties, our large undeveloped land holdings which provide ongoing and future opportunities for development and sale, and the promising nature of other projects in our development pipeline. OVERVIEW OF THE IMPACTS OF THE COVID-19 PANDEMIC SinceJanuary 2020 , the COVID-19 outbreak has caused disruption in international andU.S. economies and markets. The impacts of the pandemic continued during 2021 but began to lessen as vaccines became widely available in theU.S. during the first quarter of 2021. However, there have been periodic increases in the number of cases in theU.S. , including during the early part of 2022, 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. InMarch 2021 , the Governor ofTexas lifted the mask mandate inTexas and increased the capacity of all businesses and facilities in the state to 100 percent. We are optimistic about the post-pandemic recovery and by the rising levels of economic activity in our markets. Although the pandemic has had an adverse impact on our discontinued operations, which have seen improvements over the last three quarters, our residential properties and opportunities have been positively impacted, as discussed in more detail throughout this report. Impacts on our Business The Austin market, as well as the otherTexas markets where we operate, continue to rebound from pandemic lows. •Real Estate operations. 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 during 2021, our Leasing Operations segment was able to sell The Santal and The Saint Mary at attractive prices. We are advancing several multi-family projects, including The Saint June, The Saint George, The Annie B, as well as ourHolden Hills single-family residential project. We believe we have attractive opportunities to develop or sell residential components of our projects atMagnolia Place ,Lantana Place , 24
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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. We raised$46.3 million of equity capital from limited partners for three new projects: (i) inJuly 2021 , an unrelated equity investor acquired a 65.87 percent interest in The Saint June partnership for$16.3 million , (ii) inSeptember 2021 , equity investors acquired an aggregate 75.0 percent interest in The Annie B partnership for$11.7 million and (iii) inDecember 2021 , an unrelated equity investor acquired a 90.0 percent interest in The Saint George partnership for$18.3 million . •Leasing operations. 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 previously disclosed base rent deferral arrangements as applicable. •Discontinued Operations. Our 2019 agreements to sell Block 21 for$275.0 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 2020. As discussed above, inOctober 2021 , we entered into new agreements to sell Block 21 to Ryman for$260.0 million . The pandemic adversely impacted our revenues, profits and cash flows in our hotel and entertainment businesses, although results improved during 2021. Impacts on our Liquidity and Capital Resources OnJune 12, 2020 , we extended the maturity date of our$60.0 million Comerica Bank revolving credit facility toSeptember 27, 2022 . After using a portion of the proceeds from the sale of The Santal to pay down the balance under the credit facility, as ofDecember 31, 2021 , we had$59.7 million available under the credit facility, with letters of credit totaling$347 thousand committed against the credit facility. As a result of the pandemic, during 2020 we 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. 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. See Note 6, "Capital Resources and Liquidity" below, and "Risk Factors" included in Part II, Item 1A. 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 2021
As a result of the pending sale of Block 21, we have two operating segments:
Real Estate Operations and Leasing Operations. Block 21, which encompassed our
hotel and entertainment segments, along with some leasing operations, is
reflected as discontinued operations. 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 retail and 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. Revenue in
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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 and leased properties, we have a development portfolio that consists of approximately 1,700 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.
See Note 10 and Items 1. and 2. "Business and Properties" for discussion of the assets in our Real Estate Operations and Leasing Operations.
Our revenues totaled$28.2 million for 2021, compared with$44.3 million for 2020. The decrease in revenues in 2021, compared with 2020, primarily reflects the decrease in revenue from real estate as available inventory of developed lots decreased. Our net income attributable to common stockholders totaled$57.4 million , or$6.90 per diluted share, for 2021, compared to a net loss attributable to common stockholders of$22.8 million ,$2.78 per diluted share, for 2020. Higher net income for 2021, compared to our net loss in 2020, is primarily the result of gains on sales of assets totaling$106.0 million (of which$6.7 million was attributed to noncontrolling interests) related to the sales of The Santal and The Saint Mary in 2021. AtDecember 31, 2021 , we had total debt of$106.6 million and consolidated cash and cash equivalents of$24.2 million , excluding$136.7 million of debt and$9.2 million of cash and cash equivalents related to Block 21, which is reported as held for sale. We have significant recurring costs, including property taxes, maintenance and marketing, and we believe we will have sufficient sources of debt financing and cash from operations to meet our cash requirements. For discussion of operating cash flows and debt transactions see "Capital Resources and Liquidity" below. Real Estate Market Conditions. Because of the concentration of our assets primarily in theAustin, Texas area, and in other select, fast-growing markets inTexas , 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 inAustin , 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 inAustin . 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 inAustin-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 inTexas and within the Austin area. Based on aDecember 2021 U.S. Census report, the state ofTexas had the largest population gain of anyU.S. state betweenJuly 2020 andJuly 2021 . 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 theU.S. from 2010 through 2020. The Austin-Round Rock area now has 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 theU.S. andTexas . According to data provided by theU.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 median home price increased 65 percent in the Austin Round-Rock area fromDecember 2016 toDecember 2021 according to theTexas A&M University Real Estate Research Center . 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. 26
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Vacancy rates in the city ofAustin, Texas as ofDecember 31, 2021 and 2020, are noted below. Vacancy Rates Building Type 2021 2020 Office Buildings (Class A) 20.7 % a 16.7 % a Multi-Family Buildings 5.3 % b 5.7 % b Retail Buildings 4.5 % b 5.0 % b a.CBRichard Ellis : Austin MarketView b.Marcus & Millichap Research Services, CoStar Group, Inc. 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 theU.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 withU.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. Real estate is classified as held for sale, under development, held for investment or land available for development (see 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.
During 2021, we recorded impairment losses on real estate totaling
Deferred Tax Assets. 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.
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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 the pending sale. During 2020, we recorded a$10.3 million non-cash charge to record a valuation allowance on our deferred tax assets. We had deferred tax assets (net of deferred tax liabilities and valuation allowances) totaling$6.0 million atDecember 31, 2021 . See Note 7 for further discussion. Income Taxes. In preparing our annual consolidated financial statements, we estimate the actual amount of income taxes currently payable or receivable as well as deferred income tax assets and liabilities attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Our estimates are based on our interpretation of federal and state tax laws. We estimate our actual current tax due and assess temporary differences resulting from differing treatment of items for tax and accounting purposes. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which these temporary differences are expected to be recovered or settled. The effect on deferred income tax assets and liabilities of a change in tax rates or laws is recognized in income in the period in which such changes are enacted. See Note 7 for further discussion. Profit Recognition on Sales of Real Estate. 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 we will be entitled is probable and we have 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, which requires significant management judgment. Consideration is reasonably determined and deemed likely of collection when we have signed sales agreements and have determined that the buyer has demonstrated a commitment to pay. Profit Participation Incentive Plan. In 2018, the Compensation Committee of our Board (the Committee) adopted the Stratus Profit Participation Incentive Plan (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. Under the PPIP, 25 percent of the profit for each approved project following a capital transaction (each as defined in the PPIP) 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. We estimate 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 our equity and preferred return including costs to complete for projects under development, all of which involve significant judgment and estimates. 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. During 2021, we recorded$0.4 million to project development costs ($1.3 million in 2020) and charged$9.8 million to general and administrative expenses ($2.4 million in 2020) related to the PPIP. The accrued liability for the PPIP totaled$15.2 million atDecember 31, 2021 (included in other liabilities). See Notes 1 and 8 for further discussion. 28
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RECENT DEVELOPMENT ACTIVITIES
Residential. As of December 31, 2021 , the number of our residential lots/units
that are developed, under development and available for potential development by
area are shown below:
Residential Lots/Units
Under
Developed Development Potential Developmenta Total
Barton Creek:
Amarra Drive:
Phase III lots 2 - - 2
Amarra Villas - 13 - 13
The Saint June - 182 - 182
Other homes - - 14 14
Holden Hills - - 475 475
Section N - - 1,412 1,412
Other Barton Creek sections - - 2 2
Circle C multi-family - - 56 56
The Annie B - - 304 304
The Saint George - - 317 317
Lakeway - - 100 100
Lantanab - - 306 306
Jones Crossingb - - 275 275
Kingwood Placeb - - 275 275
Magnolia Placeb - - 694 694
New Caneyb - - 275 275
Other - - 7 7
Total Residential Lots/Units 2 195 4,512 4,709
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.
b.For a discussion of this project, see 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. In 2008, we completed the development of the Amarra Drive Phase II subdivision, which consists of 35 lots on 51 acres. We sold the last seven lots in 2020. 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 3 lots and in 2020 we sold 12 lots and 2 homes built on Phase III lots. As ofDecember 31, 2021 , two developed Phase III lots remained unsold. Amarra Multi-family and Commercial. We also have multi-family and commercial lots in the Amarra section ofBarton 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 5-acre multi-family tract of land. As ofDecember 31, 2021 , we have two remaining undeveloped multi-family lots and one undeveloped commercial lot in inventory.Amarra Villas . The Villas atAmarra Drive (Amarra Villas ) is a 20-unit project within the Amarra development 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 on the next twoAmarra Villas homes during the first quarter of 2020, which are expected to be completed in mid-2022. In 2021, we began construction of one additional home and inMarch 29
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2022, we began construction on another two homes. As ofMarch 28, 2022 , two homes were under contract to sell (one which we began construction on in 2020 and one which we began construction on in 2021). As ofMarch 28, 2022 , a total of 11 units (3 of which are under construction and 8 on which construction has not started) remain available for sale of the initial 20-unit project. The Saint June. InJune 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 expected to be comprised of multiple buildings featuring one, two and three bedroom units for lease with amenities that include a resort-style clubhouse, fitness center, pool and extensive green space. The first units 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 expect this property to achieve anAustin Energy Green Building rating.Holden Hills . During 2020 and 2021, we continued to progress the development plans forHolden Hills inBarton Creek . We expect to secure final permits to start construction inSeptember 2022 . Subject to obtaining financing, we currently expect to complete site work for Phase I, 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 could begin closing sales of home sites inHolden Hills in mid-2024. 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. SectionN. During 2020 and 2021, we continued to progress the development plans for Section N inBarton Creek . The Annie B InSeptember 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 expect to finalize development plans over the next 12 months. Refer to Notes 2 and 6 for additional discussion. The Saint George InDecember 2021 , we purchased the land for The Saint George, a proposed 317-unit luxury wrap-style multi-family project to be constructed on approximately 4 acres in north-central Austin. While we continue the planning for the project and obtaining the entitlement and permit approvals, we currently expect to begin construction by mid-2022 and to achieve substantial completion by mid-2024.The Saint George Apartments, L.P. raised$18.3 million in third-party equity capital to finance part of the costs of land acquisition and budgeted pre-development costs for The Saint George. We are in the process of negotiating a construction loan for the project. Refer to Note 2 for a discussion of the financing of the land purchase. Lantana Multi-Family We have advanced development plans for the multi-family component ofLantana Place and, subject to financing, expect to begin construction in third-quarter 2022 with expected completion in mid-2024.Kingwood Place 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 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. Other Residential We are evaluating a sale of a portion of the land for the single-family and multi-family residential components ofMagnolia Place , and continue to evaluate options for the multi-family component ofJones Crossing . 30
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Commercial. As ofDecember 31, 2021 , the number of square feet of our commercial property developed, under development and our remaining entitlements for potential development (excluding our discontinued operations associated with Block 21, which include theW Austin Hotel , the ACL Live entertainment venue and the related office and retail space) are shown below: Commercial Property Developed Under Development Potential Development a TotalBarton Creek : Entry corner - - 5,000 5,000 Amarra retail/office - - 83,081 83,081 Section N - - 1,560,810 1,560,810 Circle C - - 660,985 660,985 Lantana: Lantana Place 99,379 - - 99,379 Tract G07 - - 160,000 160,000 Magnolia Place - 18,987 16,000 34,987 West Killeen Market 44,493 - - 44,493 Jones Crossing 154,117 - 104,750 258,867 Kingwood Place 151,855 - - 151,855 New Caney - - 145,000 145,000 The Annie Bb - - 8,325 8,325 Office building in Austin - 7,285 - 7,285 Total Square Feet 449,844 26,272 2,743,951 3,220,067 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 ourTexas 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.
b.For a discussion of this project, see 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."Lantana , includingLantana Place Lantana Place is a partially developed, mixed-use development project within theLantana community. We completed construction of the 99,379-square-foot first phase ofLantana Place in 2018. We previously entered into a ground lease with a hotel operator in connection with its development of anAC Hotel by Marriott. The hotel was completed and opened inNovember 2021 . As ofDecember 31, 2021 , we had signed leases for approximately 85 percent of the retail space, including the anchor tenant, Moviehouse & Eatery (Moviehouse), and a ground lease for anAC Hotel by Marriott.Magnolia Place 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. Also inAugust 2021 , we entered into a$14.8 million loan for the development ofMagnolia Place . Refer to Note 6 for additional discussion. 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 consists of 2 retail buildings totaling 18,987 square feet, all 5 pad sites, and the road, utility and drainage infrastructure necessary to support the entire development. The first two retail buildings are expected to be available for occupancy in third-quarter 2022. In mid-2021,H-E-B began construction on its 95,000-square-foot grocery store on an adjoining 18-acre site owned byH-E-B , which is expected to open in second-quarter 2022. WestKilleen Market As ofDecember 31, 2021 , we had executed leases for approximately 70 percent of the retail space atWest Killeen . During 2021, we sold a pad site at WestKilleen Market for$0.8 million and only one unsold pad site remains. 31
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Jones Crossing InJune 2021 , theJones Crossing loan was refinanced with a new$24.5 million loan. Refer to Note 6 for additional discussion. As ofDecember 31, 2021 , we had signed leases for approximately 95 percent of the completed retail space, including theH-E-B grocery store. As ofDecember 31, 2021 , we had approximately 23 undeveloped acres with estimated development potential of approximately 104,750 square feet of commercial space and 5 vacant pad sites.Kingwood Place At Kingwood Place , an 8,000-square-foot retail building was completed inJuly 2020 on one pad site. We have signed ground leases on four of the pad sites, and one pad site remains available for lease. As ofDecember 31, 2021 , we had signed leases for approximately 85 percent of the completed retail space, including theH-E-B grocery store. Office building inAustin In 2020, we purchased an office building inAustin that we are renovating and may occupy as our headquarters upon the closing of the sale of Block 21. RESULTS OF OPERATIONS We are continually evaluating the development and sale potential of our properties and will continue to consider opportunities to enter into transactions involving our properties, including possible joint ventures or other arrangements. As a result, and because of the COVID-19 pandemic and numerous other factors affecting our business activities as described herein, our past operating results are not necessarily indicative of our future results. We use operating income or loss to measure the performance of each operating segment. Corporate, eliminations and other includes consolidated general and administrative expenses, which primarily consist of employee compensation and other costs described herein. The following table summarizes our operating results for the years endedDecember 31 (in thousands): 2021 2020 Operating income (loss): Real estate operationsa$ (3,272) b$ 3,738 Leasing operations 111,369 c 3,074 d Corporate, eliminations and othere (24,437) (13,467) Operating income (loss)$ 83,660 $ (6,655) Interest expense, net$ (3,193) $ (6,697) Net income (loss) from continuing operations$ 69,457 $
(18,008)
Net loss from discontinued operationsf$ (6,208) $
(6,467)
Net income (loss) attributable to common stockholders
a.Includes sales commissions and other revenues together with related expenses.
b.Includes
c.Includes the pre-tax gains on the
d.Includes a
e.Includes consolidated general and administrative expenses and eliminations of intersegment amounts. The increase in 2021, compared to 2020, is primarily the result of a$7.4 million increase in employee incentive compensation costs associated with the PPIP primarily for The Santal andLantana Place projects, and a$2.7 million increase in consulting, legal and public relation costs for our successful proxy contest.
f.See Note 4 and the discussion below under the heading "Discontinued Operations" for further information.
g.Includes a
h.Includes a
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As a result of the pending sale of Block 21, we currently have two operating segments: Real Estate Operations and Leasing Operations (see Notes 4 and 10). The following is a discussion of our operating results by segment. Real Estate Operations The following table summarizes our Real Estate Operations results for the years endedDecember 31 (in thousands): 2021 2020 Revenues: Developed property sales$ 4,615 $ 21,789 Undeveloped property sales 3,250 700 Commissions and other 601 106 Total revenues 8,466 22,595 Cost of sales, including depreciation 9,913 18,857 Impairment of real estate 1,825 - Operating (loss) income$ (3,272) $ 3,738
Developed Property Sales. The following table summarizes our developed property
sales for the years ended
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 - $ - $ - 7 $ 4,388 $ 200
Phase III lots 3 2,215 299 12 10,223 378
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 21 $ 21,789
The decrease in revenue in 2021, compared to 2020, reflects a decrease in the
number of lots and homes sold in 2021 as available inventory decreased. As of
December 31, 2021 , we have two Amarra Drive Phase III lots in inventory.
Undeveloped Property Sales. In 2021, we sold a five-acre multi-family tract of
land in Amarra Drive for $2.5 million and a pad site at West Killeen Market for
$0.8 million . In 2020, we sold a vacant pad site at West Killeen Market for $0.7
million .
In 2022, we expect total revenue from our real estate operations to increase,
compared to 2021, assuming we are able to close on the sales of two Amarra
Villas homes and the multi-family tract of land at Kingwood Place , all of which
were under contract as of December 31, 2021 .
Cost of Sales. Cost of sales includes cost of property sold, project operating
and marketing expenses and allocated overhead costs, partly offset by reductions
for certain MUD reimbursements. Cost of sales totaled $9.9 million in 2021 and
$18.9 million in 2020. The decrease in cost of sales in 2021, compared with
2020, primarily reflects a decrease in the number of lots and homes sold during
2021, partly offset by the sale of our last condominium unit at Block 21 during
2021.
Cost of sales for our real estate operations also includes significant recurring
costs (including property taxes, maintenance and marketing), which totaled $5.8
million in 2021 and $5.4 million in 2020.
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Impairment of Real Estate. During 2021, we recorded the following impairments
totaling
•We recorded a$700 thousand impairment charge for theAmarra 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 we were required to retain a new general contractor during the course of construction and after entering into the sales contracts for the two homes. As discussed in "Overview of the Impacts of the COVID-19 Pandemic," construction costs have risen since the beginning of the pandemic. However, demand for residential real estate inAustin, Texas , is strong, and we project increased sale prices and profitable margins for future sales ofAmarra Villas homes. •InSeptember 2021 , we entered into a contract to sell the land atKingwood 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. •We are renovating an office building inAustin, Texas that we may occupy as our headquarters after the closing of the sale of Block 21. In connection with our evaluation of properties for indication of impairment, the estimated net undiscounted future cash flows from this property were less than its carrying value, and we recorded a$500 thousand impairment charge to reduce its carrying value to its estimated fair value.
Leasing Operations
The following table summarizes our Leasing Operations results for the years
ended
2021 2020
Rental revenue $ 19,787 $ 21,755
Rental cost of sales, excluding depreciation 9,030 11,203 a
Depreciation 5,358 7,478
Gain on sales of assets (105,970) -
Operating income $ 111,369 $ 3,074 a.Includes a
Rental Revenue. Rental revenue primarily includes revenue from our retail and mixed-use projectsLantana Place ,Jones Crossing ,Kingwood Place and WestKilleen Market , and until their sales inDecember 2021 andJanuary 2021 , respectively, our multi-family projects The Santal and The Saint Mary. The decrease in rental revenue in 2021, compared to 2020, 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$3.2 million in the full year 2020. In 2022, we expect revenue from our leasing operations to decrease, compared to 2021, as a result of the sale of The Santal, which had revenue of$8.7 million in 2021 and 2020. This decrease is expected to be partially offset by the commencement of leasing revenue at The Saint June andMagnolia Place in late 2022. Rental Cost of Sales and Depreciation. Rental costs of sales and depreciation expense decreased in 2021, compared to 2020, primarily as a result of the sale of The Saint Mary. The decrease in 2021, compared to 2020, was further impacted by a$1.4 million charge in 2020 for estimated uncollectible rents receivable and unrealizable deferred costs. During the 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 Sales of Assets. InDecember 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. 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$21.9 million from the subsidiary in connection with the sale and$12.2 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. 34
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Corporate, Eliminations and Other Corporate, eliminations and other (see Note 10) includes consolidated general and administrative expenses, which primarily consist of employee compensation and other costs. Consolidated general and administrative expenses totaled$24.5 million in 2021 and$13.6 million in 2020. The increase in general and administrative expenses in 2021, compared to 2020, primarily reflects a$7.4 million increase in employee incentive compensation costs associated with the PPIP primarily for The Santal andLantana Place projects, and a$2.7 million increase in consulting, legal and public relation costs for our successful proxy contest. 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$8.7 million in 2021 and$11.4 million in 2020. The decrease in interest costs in 2021, compared with 2020, primarily reflects a decrease in average interest rates and the repayment of The Saint Mary construction loan upon the sale of the property inJanuary 2021 .
Capitalized interest totaled
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$3.7 million of forgiveness of substantially all of our PPP loan. This gain was partly offset by losses of$1.5 million for prepayment fees on the early repayment of The Santal loan and a total of$0.7 million in write-offs of unamortized deferred financings costs associated with the repayment of The Saint Mary construction loan and The Santal loan and the refinancing of theJones Crossing construction loan. Provision for Income Taxes. We recorded a provision for income taxes of$12.6 million in 2021 and$4.8 million in 2020. The 2021 income tax provision included a$4.2 million non-cash credit to reduce the valuation allowance on our deferred tax assets related to Block 21 because of the pending sale. The 2020 income tax provision included a$10.3 million non-cash charge to record a valuation allowance on our deferred tax assets. We had deferred tax assets (net of deferred tax liabilities and valuation allowances) totaling$6.0 million atDecember 31, 2021 , and less than$0.1 million atDecember 31, 2020 . Refer to Note 7 for further discussion of income taxes. Total Comprehensive (Income) Loss Attributable to Noncontrolling Interests in Subsidiaries. Our partners' share of income in 2021 totaled$5.9 million in 2021 and our partner's share of losses totaled$1.7 million in 2020. In 2021, our partners were allocated$6.7 million of the gain from the sale of The Saint Mary. Of the total share of losses in 2020,$573 thousand relates to losses incurred prior to 2020. Discontinued Operations Block 21 is our wholly owned mixed-use real estate development and entertainment business located on a two-acre city block in downtown Austin that contains theW Austin Hotel , consisting of a 251-room luxury hotel, and office, retail and entertainment space. The hotel is managed byW Hotel Management, Inc. a subsidiary ofStarwood Hotels & Resorts Worldwide, Inc. , which is a subsidiary of Marriott International, Inc. The entertainment space is occupied by Austin City Limits Live at theMoody Theater (ACL Live) and 3TEN ACL Live. ACL Live is a 2,750-seat live music and entertainment venue and production studio that serves as the location for the filming of Austin City Limits, the longest running music series in American television history. 3TEN ACL Live, which opened inMarch 2016 , has a capacity of approximately 350 people and is designed to be more intimate than ACL Live. As a result of ourOctober 2021 entry into new agreements to sell Block 21 to Ryman for$260.0 million , our hotel and entertainment operations, as well as the leasing operations associated with the Block 21 property, are reported as discontinued operations for all periods presented in the accompanying financial statements. Refer to Note 4 for further discussion. The transaction is expected to close sometime prior toJune 1, 2022 , subject to the timely satisfaction or waiver of various closing conditions, including the consent of the loan servicers to the purchaser's assumption of the existing mortgage loan, the consent of the hotel operator, an affiliate of Marriott, to the purchaser's assumption of the hotel operating agreement, the absence of a material adverse effect, and other customary closing conditions. The Block 21 purchase agreement will terminate if all conditions to closing are not satisfied or waived by the parties. Ryman has deposited$5.0 million in earnest money to secure its performance under the agreements governing the sale. Of the total purchase price,$6.9 million will be held in escrow for 12 months after the closing, subject to a longer retention period with respect to any required reserve for pending claims. We expect to record a pre-tax gain of approximately$120 million upon closing of the sale (approximately$95 million after-tax). The purchase price is 35
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payable by the assumption of the Block 21 loan with the balance to be paid in cash. We expect the net sale proceeds before taxes to be approximately$115 million and the after-tax proceeds to be approximately$90 million before prorations and including post-closing escrow amounts. Losses from discontinued operations totaled$6.2 million in 2021 and$6.5 million in 2020. We reported higher hotel and entertainment revenue in 2021 as the impacts of the COVID-19 pandemic began to lessen throughout 2021. The loss from discontinued operations in 2020, excluding the recognition of a$15.0 million gain related to earnest money received from Ryman as a result of its termination of the 2019 agreements to purchase Block 21, totaled$21.5 million .
The following is a discussion of our key operating results within discontinued operations.
Hotel Revenue . Hotel revenue primarily includes revenue fromW Austin Hotel room reservations and food and beverage sales. Hotel revenues were$18.3 million in 2021 and$9.9 million in 2020. The increase in hotel revenue in 2021, compared with 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 throughout 2021. Revenue per available room (RevPAR), which is calculated by dividing total room revenue by the average total rooms available during the year, was$115 in 2021, compared with$61 in 2020. 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 venues other than ACL Live, including 3TEN ACL Live. Revenues from the Entertainment segment varies 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 were$12.9 million in 2021 and$5.2 million in 2020. The increase in entertainment revenue primarily reflects 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 throughout 2021. As ofAugust 2021 , ACL Live and 3TEN ACL Live are operating at full capacity.
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 for the years ended
2021 2020
ACL Live
Events:
Events hosted 172 82
Estimated attendance 130,924 48,837
Ancillary net revenue per attendee $ 53.67 $ 69.47 Ticketing:
Number of tickets sold 108,877 39,519
Gross value of tickets sold (in thousands)
3TEN ACL Live Events: Events hosted 178 102 Estimated attendance 22,754 12,566 Ancillary net revenue per attendee$ 41.83 $ 32.78
Ticketing:
Number of tickets sold 13,525 5,278
Gross value of tickets sold (in thousands)
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.
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Comparison of Year-to-Year Cash Flows Operating Activities. Cash used in operating activities totaled$53.6 million in 2021 and$4.1 million in 2020. Expenditures for purchases and development of real estate properties totaled$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 ourBarton Creek properties, includingAmarra Villas , and$13.8 million in 2020, primarily related to development of ourBarton Creek properties and the purchase of an office building inAustin that we are renovating and may use as our headquarters after the closing of the sale of Block 21. The$33.4 million increase in accounts payable, accrued liabilities and other in 2021 is primarily related to income tax liabilities associated with the sale of The Santal and The Saint Mary as well as the increase in the accrued liability for the PPIP. The$5.1 million increase in other assets in 2020 is primarily related to the carry back of net operating losses to 2017 as allowed by the Coronavirus Aid, Relief, and Economic Security Act (see Note 7 for further discussion). Investing Activities. Cash provided by (used in) investing activities totaled$188.9 million in 2021 and$(7.8) million in 2020. Capital expenditures totaled$19.6 million for 2021, primarily related to The Saint June,Magnolia Place andLantana Place projects, and$6.2 million for 2020, primarily related to theKingwood Place and The Saint Mary projects. In 2021, we received proceeds, net of closing costs, totaling$209.9 million from the sales of The Santal and The Saint Mary. Financing Activities. Cash (used in) provided by financing activities totaled$(99.4) million in 2021 and$7.5 million in 2020. Net repayments on theComerica Bank credit facility totaled$43.3 million in 2021, primarily as a result of using proceeds from the sale of The Santal to repay the outstanding balance, compared with net borrowings of$0.8 million in 2020. Net repayments on other project and term loans totaled$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, partially offset by borrowings on The Annie B land loan, compared with net borrowings of$7.6 million in 2020, primarily from the PPP loan and for theKingwood Place and The Saint Mary projects. See Note 6 and "Credit Facility and Other Financing Arrangements" below for a discussion of our outstanding debt atDecember 31, 2021 . 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 limited partnerships. In 2013, our Board approved an increase in the open market share purchase program from 0.7 million shares to 1.7 million shares of our common stock. There were no purchases under this program during 2021 or 2020. As ofDecember 31, 2021 , a total of 991,695 shares of our common stock remained available under this program. Our ability to repurchase shares of our common stock is restricted by the terms of our loan agreements withComerica Bank , which prohibit us from repurchasing shares of our common stock in excess of$1.0 million without the bank's prior written consent. Credit Facility and Other Financing Arrangements AtDecember 31, 2021 , we had total debt of$107.9 million based on the principal amounts outstanding, compared with$138.5 million atDecember 31, 2020 . Consolidated debt at both dates excluded the Block 21 loan of approximately$138 million , and atDecember 31, 2020 , also excluded The Santal loan of approximately$75 million and The Saint Mary construction loan of approximately$25 million , as a result of these properties being classified as held for sale at those dates. OurComerica Bank credit facility, which is comprised of a$60.0 million revolving line of credit, had$59.7 million available atDecember 31, 2021 , net of letters of credit totaling$347 thousand committed against the credit facility after we used a portion of the proceeds from the sale of The Santal to pay down the balance under the credit facility. As a result of the COVID-19 pandemic, during 2020 we 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 of our outstanding debt. Refer to "Debt Maturities and Other Contractual Obligations" below for a table illustrating the timing of principal payments due on our outstanding debt as ofDecember 31, 2021 . InJune 2021 ,The Saint June, L.P. raised$16.3 million in third-party equity capital and entered into an approximately$30 million construction loan. Also inJune 2021 , theJones Crossing loan was refinanced with a new$24.5 million loan. InAugust 2021 , we entered into a$14.8 million loan for the development ofMagnolia Place . InSeptember 2021 , Stratus Block 150, L.P. raised$11.7 million in third-party equity capital and entered into a$14.0 37
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million loan to finance part of the costs of land acquisition and budgeted pre-development costs for The Annie B. InDecember 2021 ,The Saint George Apartments, L.P. raised$18.6 million in third-party equity capital to finance part of the costs of land acquisition and budgeted pre-development costs for The Saint George. We are in the process of negotiating a construction loan for The Saint George project. Refer to Notes 2 and 6 for additional 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 . 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 Place construction loan, the WestKilleen Market construction loan, theNew Caney land loan, The Saint June construction 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 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 ofDecember 31, 2021 , we were in compliance with all of our financial covenants; however, for the last three quarters of 2020 and each quarter 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 andJones Crossing loan guarantees, which are generally limited to non-recourse carve-out obligations. Refer to Note 6 for additional discussion. The Block 21 loan agreement, which is excluded from consolidated debt and presented within liabilities held for sale, is secured by the Block 21 assets and 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. Although the Block 21 loan agreement is a non-recourse loan, we may contribute cash to our Block 21 subsidiary in order to prevent our Block 21 subsidiary from defaulting under the Block 21 loan agreement. Additionally, under our Block 21 subsidiary's hotel operating agreement, the hotel operator may, and has, requested funds from us when 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 in 2020 and$13.7 million in 2021. We contributed$2.5 million in first-quarter 2022 and depending on the timing of the sale of Block 21, we expect additional contributions to total as much as$1.2 million in second-quarter 2022. 38
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We project that we will be able to meet our debt service and other cash obligations for at least the next 12 months. Our$60 million revolving credit facility withComerica Bank matures onSeptember 27, 2022 . We are in discussions with the lender to removeHolden Hills from the collateral pool for the facility, finance theHolden Hills project under a separate loan agreement and enter into a revised revolving credit facility with a lower borrowing limit secured by the remaining collateral under the facility. If these discussions are not concluded timely, we expect to be able to extend or refinance the facility prior to the maturity date. No assurances can be given that the results anticipated by our projections will occur. See 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, including our significant debt maturities in 2023, 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 total debt maturities based on the principal
amounts outstanding as of
2022 2023 2024 2025 2026 Total
Comerica Bank credit facilitya $ - $ - $ - $ - $ - $ -
Jones Crossing loan - - - - 24,500 24,500
The Annie B land loan - 14,000 - - - 14,000
New Caney land loanb 4,500 - - - - 4,500
PPP loan 156 - - - - 156
Construction loans:
Kingwood Placec 32,426 - - - - 32,426
Lantana Place 807 21,367 - - - 22,174
West Killeen Market 6,099 - - - - 6,099
Magnolia Place - - 2,392 - - 2,392
Amarra Villas credit facility 1,605 - - - - 1,605
Total $ 45,593 $ 35,367 $ 2,392 $ - $ 24,500 $ 107,852 a.Refer to Note 6 for further information.
b.In
c.We have the option to extend the maturity date for two additional 12-month periods, subject to certain debt service coverage conditions, which we expect to meet for the first extension period.
We had commitments under noncancelable construction contracts totaling
approximately
NEW ACCOUNTING STANDARDSNo new accounting standards in 2021 had a material impact on us.
OFF-BALANCE SHEET ARRANGEMENTSSee 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 whether and when the sale of Block 21 will be
completed, our estimated gain and net cash proceeds from the sale of Block 21
and potential uses of such proceeds, potential results of our Board and
management's strategic planning process, the impacts of the COVID-19 pandemic,
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
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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 inflation and interest rate changes, future capital expenditures and financing plans, possible joint ventures, partnerships, or other strategic relationships, other plans and objectives of management for future operations and development projects, and 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 ourComerica 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 withoutComerica 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 ourComerica 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 result in the termination of the agreements to sell Block 21, the results of our Board and management's strategic planning process, the ongoing COVID-19 pandemic and any future major public health crisis, increases in inflation and interest rates, declines in the market value of our assets, increases in operating costs, including real estate taxes and the cost of building materials and labor, 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 collect anticipated rental payments and close projected asset sales, the availability and terms of financing for development projects and other corporate purposes, our ability to enter into and maintain joint ventures, partnerships, or other strategic relationships, including risks associated with such joint ventures, 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 inTexas where we operate, changes in economic, market and business conditions, including as a result of the war inUkraine , reductions in discretionary spending by consumers and businesses, competition from other real estate developers, 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, the failure to attract customers or tenants for our developments or such customers' or tenants' failure to satisfy their purchase commitments or leasing obligations, 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- and climate-related risks, loss of key personnel, environmental and litigation risks, 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. 40
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