STRS US Equity☆

strs-20201231

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark one)

For the fiscal year ended December 31, 2020

OR

For the transition period from to

Commission file number: 001-37716

Stratus Properties Inc.

(Exact name of registrant as specified in its charter)

(Address of principal executive offices) (Zip Code)

(512) 478-5788

(Registrant's telephone number, including area code)

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

Title of each class Trading Symbol(s) Name of each exchange on which registered

Common Stock, par value $0.01 per share STRS The NASDAQ Stock Market

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

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. o Yes þNo

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. o Yes þNo

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. þYeso No

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

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

Large accelerated filer ☐ Accelerated filer ☐

Non-accelerated filer ☑ Smaller reporting company ☑

Emerging growth company ☐

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

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ☐ Yes þ No

The aggregate market value of common stock held by non-affiliates of the registrant was $102.4 million on June 30, 2020.

Common stock issued and outstanding was 8,221,014 shares on February 26, 2021.

DOCUMENTS INCORPORATED BY REFERENCE

Table of Contents

STRATUS PROPERTIES INC.

TABLE OF CONTENTS

Page

Part I 1

Items 1. and 2. Business and Properties 1

Item 1A. Risk Factors 8

Item 1B. Unresolved Staff Comments 21

Item 3. Legal Proceedings 21

Item 4. Mine Safety Disclosures 21

Information About Our Executive Officers 21

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

Issuer Purchases of Equity Securities 22

Item 6. Selected Financial Data 22

Items 7. and 7A. Management’s Discussion and Analysis of Financial Condition and

Item 8. Financial Statements and Supplementary Data 44

Item 9A. Controls and Procedures 71

Item 9B. Other Information 71

Part III 72

Item 10. Directors, Executive Officers and Corporate Governance 72

Item 11. Executive Compensation 72

Stockholder Matters 72

Item 14. Principal Accounting Fees and Services 72

Item 15. Exhibit and Financial Statement Schedules 73

Signatures S-1

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PART I

Items 1. and 2. Business and Properties

Except as otherwise described herein or where the context otherwise requires, all references to “Stratus,” “we,” “us” and “our” in this Form 10-K refer to Stratus Properties Inc. and all entities owned or controlled by Stratus Properties Inc. All of our periodic reports filed with or furnished to the United States (U.S.) Securities and Exchange Commission (SEC) pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, including our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to those reports are available, free of charge, through our website, "stratusproperties.com," or by submitting a written request via mail to Stratus Investor Relations, 212 Lavaca St., Suite 300, Austin, Texas, 78701. These reports and amendments are available through our website or by request as soon as reasonably practicable after we electronically file or furnish such material to the SEC. Our website content is made available for informational purposes only and is not incorporated by reference into this Form 10-K.

References to “Notes” refer to the Notes to Consolidated Financial Statements included herein (refer to Item 8.), and references to “MD&A” refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations and Quantitative and Qualitative Disclosures About Market Risk included herein (refer to Items 7. and 7A.).

Overview

We are a diversified real estate company with headquarters in Austin, 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 the Austin, Texas area and other select, fast-growing markets in Texas.

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. 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 the lot. We may sell properties under development, undeveloped properties or leased properties if opportunities arise that we believe will maximize overall asset value as part of our business strategy. Our leasing operations primarily involve the lease of space at retail and mixed-use properties that we developed, and the lease of residences in multi-family apartment complexes that we developed. Tenants in our retail and mixed-use projects are diverse and include grocery stores, restaurants, healthcare services, fitness centers, a movie theater, and other retail products and services. 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. Our hotel and entertainment operations are comprised of our W Austin Hotel and our ACL Live and 3TEN ACL Live entertainment venues, which are located in downtown Austin in our Block 21 property and are central to the city's world-renowned, vibrant music scene. Hotel revenue is primarily generated from W Austin Hotel room reservations and food and beverage sales. Entertainment revenue is generated from event ticket sales, private events, sponsorships, personal seat license and suite sales, and sales of concessions and merchandise. See “Business Strategy” in MD&A for further discussion. Our company was incorporated under the laws of the State of Delaware on March 11, 1992.

Overview of the Impacts of the COVID-19 Pandemic

The pandemic has had a significant adverse impact on our business, particularly in our hotel and entertainment segments. For an overview of the impacts of the pandemic on our business, see “Overview of the Impacts of the COVID-19 Pandemic” in MD&A.

Sale of The Saint Mary

On January 11, 2021, our subsidiary The Saint Mary, L.P. completed the sale of The Saint Mary, a 240-unit luxury, garden-style apartment project in the Circle C community in Austin, Texas, for $60.0 million. After closing costs and payment of the outstanding construction loan, the sale generated net proceeds of approximately $34 million. We received $21.3 million from the subsidiary in connection with the sale and expect to recognize a pre-tax gain on the sale, net of noncontrolling interests, of approximately $14 million in the first quarter of 2021.

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Exploration of REIT Conversion

On September 21, 2020, our Board of Directors (Board) announced its approval of the initiation of an in-depth exploration of a conversion from a C-Corporation to a real estate investment trust (REIT). We have engaged financial, tax, accounting and legal advisors, and the Board will closely monitor and evaluate the findings to ultimately determine if conversion to a REIT is in the best interest of our stockholders. If the Board determines to move forward, we expect the conversion would occur no earlier than 2022. At this time, we believe that the REIT conversion would require consent from our major lenders and amendments to our major debt agreements, among other third-party consents. If the Board ultimately determines that a REIT conversion is in stockholders’ best interests, the conversion will be submitted to a stockholder vote. See Item 1A. “Risk Factors” below.

Operations

Real Estate Operations. Our real estate operations segment is comprised of our operations with respect to our properties under various stages of development: developed for sale, under development and available for development. As part of our real estate operations, we acquire, entitle, develop and sell properties, focused on the Austin, Texas area and other select, fast-growing markets in Texas. We also develop properties that we hold for lease, which become part of our leasing operations. See Note 10 for a description of the properties included in our real estate operations segment. These properties are described in more detail below and in MD&A.

The acreage under development and undeveloped as of December 31, 2020, that comprise our real estate operations is presented in the following table. Acreage under development includes real estate for which infrastructure work over the entire property has been completed, is currently being completed or is able to be completed and for which necessary permits have been obtained. The undeveloped acreage shown in the table below is presented according to anticipated uses for multi-family units, single-family lots and commercial space based upon our understanding of the properties’ existing entitlements. However, because of the nature and cost of the approval and development process and uncertainty regarding market demand for a particular use, there is no assurance that the undeveloped acreage will ever be developed. Undeveloped acreage (i.e., development work is not currently in progress on such property) includes real estate that can be sold “as is.”

Acreage Under Development Undeveloped Acreage

Single Family SingleFamily Multi-family Commercial Total TotalAcreage

Austin:

Other — 7 — — 7 7

West Killeen Market — — — 2 2 2

Camino Real, San Antonio — — — 2 2 2

Revenue from our real estate operations segment accounted for 37 percent of our total revenue for 2020and15 percent for 2019.

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The following table summarizes the estimated development potential of our undeveloped acreage as of December 31, 2020:

Single Family Multi-family Commercial

(lots) (units) (gross square feet)

Kingwood Place — 275 —

a.See “Properties – Barton Creek - Section KLO and Section N” below for further discussion of ongoing development planning that may result in increased densities for single-family and multi-family and commercial properties.

Leasing Operations. Our leasing operations primarily involve the lease of space at retail and mixed-use properties that we developed and the lease of residences in multi-family apartment complexes that we developed. Tenants in our retail and mixed-use projects are diverse and include grocery stores, restaurants, healthcare services, fitness centers, a movie theater, and other retail products and services. Our principal leasing operations at December 31, 2020, consisted of (1) a 44,493-square-foot retail complex at West Killeen Market, (2) a 154,117-square-foot retail property representing the first phase of Jones Crossing, (3) a 99,379-square-foot mixed-use development representing the first phase of Lantana Place, (4) a 151,855-square-foot mixed-use project at Kingwood Place, (5) The Santal multi-family project, a luxury garden-style apartment complex consisting of 448 units, (6) The Saint Mary multi-family project, a luxury garden-style apartment complex consisting of 240 units, which was sold in January 2021, and (7) 38,316 square feet of office space and 18,327 square feet of retail space at Block 21.

Revenue from our leasing operations segment accounted for 38 percent of our total revenue for 2020 and 20 percent for 2019. See the charts below for our leasing revenue by property and our developed square feet of retail space by geographic location as of December 31, 2020.

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Our retail leasing properties had average rentals of $18.02 per square foot as of December 31, 2020, compared to $19.77 per square foot as of December 31, 2019. Our scheduled expirations of leased retail square footage as of December 31, 2020, as a percentage of total space leased is 2 percent in 2023, 5 percent in 2024, 1 percent in 2025, and 92 percent thereafter.

Hotel. The W Austin Hotel, which is part of the W Austin Hotel & Residences in our Block 21 property in downtown Austin, Texas, includes 251 luxury rooms and suites, restaurant and bars, a full service spa, fitness center, pool and outdoor terraces, and meeting and banquet spaces. Revenue from our hotel segment accounted for 16 percent of our total revenue for 2020 and 38 percent for 2019.

Entertainment. The entertainment space at Block 21 is occupied by Austin City Limits Live at the Moody Theater (ACL Live) and includes a 2,750-seat live music and entertainment venue and production studio. In addition to hosting concerts and private events, ACL Live is the home of Austin City Limits, a television program showcasing popular music legends. The ACL Live entertainment space is promoted through the broadcast of Austin City Limits by KLRU, a local public television station. In 2018, ACL Live extended its agreement with KLRU and Austin City Limits for an additional ten years. Entertainment revenue also includes revenues associated with events hosted at the 3TEN ACL Live venue in Block 21, which is designed to be more intimate than ACL Live. Revenue from our entertainment segment accounted for 9 percent of our total revenue for 2020 and 27 percent for 2019.

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

Properties

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

Barton Creek

Our Amarra Drive and The Santal properties are located in the Barton Creek community, which is a 4,000-acre upscale community located southwest of downtown Austin. In March 2021, we commenced site clearing on The Saint June, and we are advancing road and utility infrastructure for residential Section KLO and commercial and multi-family Section N.

Amarra Drive. Amarra Drive is a subdivision featuring lots ranging from one to over five acres. In 2008, we completed the development of Amarra Drive Phase II, which consists of 35 lots on 51 acres. We sold seven lots in 2020 and two lots in 2019. As of December 31, 2020, all developed Amarra Drive Phase II lots had been sold.

In 2015, we completed the development of Amarra Drive Phase III, which consists of 64 lots on 166 acres. We sold 12 lots and 2 homes built on Amarra Drive Phase III lots in 2020 and 14 lots in 2019. As of December 31, 2020, five developed Phase III lots remained unsold and as of March 9, 2021, one had been sold and the last four were under contract.

The Villas at Amarra Drive (Amarra Villas) project is a 20-unit development for which we completed site work in 2015. The homes average approximately 4,400 square feet and are being marketed as “lock and leave” properties, with golf course access and cart garages. Construction of the first seven homes was completed during 2017 and 2018. We sold the last two completed homes in 2019. We began construction of the next two Amarra Villas homes in first-quarter 2020. As of March 9, 2021, one was under contract, and a contract had been signed to sell one home on which we expect to begin construction in mid-2021. As of March 9, 2021, a total of 11 units (1 of which is under construction and 10 on which construction has not started) remain available of the initial 20-unit development.

The Santal. The Santal is a garden-style luxury apartment complex located in Section N. As of December 31, 2020, The Santal multi-family project, consisting of 448 units, was fully leased.

The Saint June. In March 2021, we commenced site clearing on The Saint June, a 182-unit multi-family project within the Amarra subdivision. We expect to begin project construction in the second quarter of 2021, subject to completion of financing.

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Section KLO and Section N. We are advancing the planning and permitting process for development of future phases of Barton Creek, including residential Section KLO and commercial and multi-family Section N. We redesigned Section KLO using a combination of traditional single family lots and residential condominium lots, which is expected to increase our density from 154 to 450 home sites. The engineering for roads and utilities for the initial phase of Section KLO has been completed, and we anticipate securing final permits during the second quarter of 2021. Using a conceptual approach similar to that used for Section KLO, we are also evaluating a redesign of Section N, our approximately 570 acre tract located along Southwest Parkway in the southern portion of the Barton 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. 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 for Section KLO and Section N will require significant capital, which we may pursue through debt and/or equity financings, joint ventures, commercial, partner or other arrangements.

Circle C community

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

We are developing the Circle C community based on the entitlements secured in the Circle C settlement. The Circle C settlement, as amended in 2004, permits development of 1.16 million square feet of commercial space, 504 multi-family units and 830 single-family residential lots. As of December 31, 2020, our Circle C community had remaining entitlements for 660,985 square feet of commercial space and 56 multi-family units.

The Saint Mary. The Saint Mary is a 240-unit luxury garden-style apartment project located in the Circle C community. Construction was completed in late 2019 and as of December 31, 2020, approximately 85 percent of the units were leased. Our subsidiary, The Saint Mary L.P., completed the sale of The Saint Mary in January 2021. See MD&A and Notes 2 and 4 for further discussion.

Lantana

Lantana is a community south of Barton Creek in Austin. As of December 31, 2020, we had remaining entitlements for 160,000 square feet of commercial use and 320 multi-family units on 37 acres. Regional utility and road infrastructure is in place with capacity to serve Lantana at full build-out as permitted under our existing entitlements.

Lantana Place. Lantana Place is a partially developed, mixed-use real-estate development project. We completed construction of the 99,379-square-foot first phase of Lantana Place in 2018. We previously entered into a ground lease with a hotel operator in connection with its development of an AC Hotel by Marriott, and construction of that hotel is expected to be completed in May 2021. As of December 31, 2020, we had signed leases for approximately 85 percent of the retail space, including the anchor tenant, Moviehouse & Eatery, which opened in May 2018.

Block 21

Block 21 is our wholly owned mixed-use real estate development and entertainment business in downtown Austin, Texas. We completed the development of Block 21 in 2010. Block 21 contains the 251-room W Austin Hotel and 159 residential condominium units, which together constitute the W Austin Hotel & Residences. The W Austin Hotel includes restaurant and bars, a full service spa, fitness center, pool and outdoor terraces, and meeting and banquet spaces. We sold most of the residential condominium units by the end of 2013, and completed the sale of the last unit in February 2021. The hotel is managed by W Hotel Management, Inc. a subsidiary of Starwood Hotels & Resorts Worldwide, Inc., which is a subsidiary of Marriott International, Inc. Block 21 also contains ACL Live. In addition, we opened the 3TEN ACL Live venue in Block 21 in 2016, which has a capacity of approximately 350 people. Block 21 also contains 38,316 square feet of Class A leasable office space of which approximately 60 percent was leased as of December 31, 2020, including 9,000 square feet occupied by our corporate office, and 18,327 square feet of retail space, substantially all of which was leased as of December 31, 2020, including 4,500 square feet of space occupied by 3TEN ACL Live.

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Lakeway

We own approximately 35 acres of undeveloped property in Lakeway, Texas located in the greater Austin area, which is zoned for single-family use. We are working with the city of Lakeway to adjust the density of our entitlements. See Note 9 for discussion of our sale of The Oaks at Lakeway in 2017.

Our other Texas properties include:

Magnolia Place

In 2014, we acquired 124 acres in the greater Houston area to develop the Magnolia Place project, which is currently planned for 18,410 square feet of retail space; 9 pad sites; and 194 single-family lots and 495 multi-family units. Magnolia Place will be shadow-anchored by a 95,000-square-foot H-E-B, L.P. (HEB) grocery store to be constructed by HEB on an adjoining 18-acre site owned by HEB. We expect to commence construction on Magnolia Place in mid-2021, subject to financing and market conditions. Refer to MD&A for further discussion.

West Killeen Market

In 2015, we acquired approximately 21 acres in Killeen, Texas, to develop the West Killeen Market project, an HEB shadow-anchored retail project with 44,493 square feet of commercial space and 3 pad sites adjacent to a 90,000 square-foot HEB grocery store. Construction at West Killeen Market was completed and the HEB grocery store opened in 2017. As of December 31, 2020, leases for approximately 70 percent of the space at West Killeen Market had been executed, all current tenants have opened for business and leasing activities for the vacant retail space and two vacant pad sites are ongoing. One vacant pad site was sold for $0.7 million in October 2020.

Jones Crossing

In 2017, we acquired a 72-acre tract of land in College Station, Texas, for Jones Crossing, an HEB-anchored, mixed-use project. Construction of the first phase of the retail component of the Jones Crossing project was completed in 2018, consisting of 154,117 square feet. The HEB grocery store opened in September 2018, and, as of December 31, 2020, we had signed leases for 95 percent of the completed retail space, including the HEB grocery store. As of December 31, 2020, we had approximately 23 undeveloped acres with estimated development potential of approximately 104,750 square feet of commercial space and 5 vacant pad sites. We have a 99-year ground lease with the property owner. We continue to evaluate options for the multi-family component of this project.

Kingwood Place

In 2018, we purchased a 54-acre tract of land in Kingwood, Texas (in the greater Houston area) to be developed as Kingwood Place, an HEB-anchored, mixed-use development project. The Kingwood Place project is expected to total approximately 152,000 square feet of retail lease space, anchored by a 103,000-square-foot HEB grocery store, with 49,000 square feet of retail space, 5 pad sites and a 10-acre parcel planned for approximately 275 multi-family units. Construction of two retail buildings, totaling approximately 41,000 square feet, was completed in August 2019, and the HEB grocery store opened in November 2019. An 8,000-square-foot retail building was completed in June 2020 on one pad site. We have signed ground leases on two other pad sites, and two pad sites remain available for lease. As of December 31, 2020, we had signed leases for approximately 85 percent of the completed retail space, including the HEB grocery store.

New Caney

In 2018, we purchased a 38-acre tract of land, in partnership with HEB, in New Caney, Texas, for the future development of an HEB-anchored, mixed-use project. Subject to completion of development plans, we currently expect the New Caney project will include restaurants and retail services, totaling approximately 145,000 square feet (inclusive of the HEB grocery store), 5 pad sites and a 10-acre multi-family parcel planned for approximately 275 multi-family units. We finalized the lease for the HEB grocery store in March 2019, and upon execution of this lease, we acquired HEB’s interests in the partnership for approximately $5 million. We currently plan to commence construction of the New Caney project no earlier than 2022.

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Competition

We operate in highly competitive industries, namely the real estate development and leasing industries and hotel and entertainment industries. In the real estate development industry, we compete with numerous public and private developers of varying sizes, ranging from local to national in scope. As a result, we may be competing for investment opportunities, financing and potential buyers with developers that may possess greater financial, marketing or other resources than we have. Our prospective customers generally have a variety of choices of new and existing residences and sites when considering a purchase. We attempt to differentiate our properties primarily on the basis of design, quality, uniqueness, amenities, location and our developer reputation.

The leasing industry is highly fragmented among individuals, partnerships and public and private entities, with no single entity or person dominating the industry. Although we may compete against large sophisticated owners and operators, owners and operators of any size can effectively compete for prospective tenants. We compete for tenants primarily on the basis of property location, rent charged, design and amenities of the property.

In the hotel industry, competition is generally based on quality and consistency of rooms, availability of restaurant and meeting facilities and services, attractiveness of location, price and other factors. Our W Austin Hotel competes with other hotels and resorts in our geographic market, including hotels owned locally and facilities owned by national and international chains. Management believes that we compete favorably in these areas, however hotel room count in the Austin central business district has increased significantly over the past decade.

In the entertainment industry, we compete with other venues in Austin, Texas, and venues in other markets for artists likely to perform in the Austin, Texas region. Touring artists have several alternatives to our venue when scheduling tours. Some of our competitors in venue management have a greater number of venues in certain markets and may have greater financial resources in those markets. We differentiate our entertainment businesses by providing a quality live music experience and promoting our ACL Live entertainment space through the broadcast of Austin City Limits by KLRU, a local public television station.

See Part I, Item 1A. “Risk Factors” for further discussion.

Credit Facility and Other Financing Arrangements

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

Regulation and Environmental Matters

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

We have made, and will continue to make, expenditures for the protection of the environment with respect to our real estate development activities. Emphasis on environmental matters will result in additional costs in the future. Based on an analysis of our operations in relation to current and presently anticipated environmental requirements, we currently do not anticipate that these costs will have a material adverse effect on our future operations or financial condition.

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Employees

At December 31, 2020, we had a total of 73 employees, 50 of which were full-time employees, located at our Austin, Texas headquarters. Of the 73 employees, 43 employees, including 20 full-time employees, were employed by our Block 21 subsidiary. We believe we have a good relationship with our employees, none of whom are represented by a union. Beginning in 2019, we contracted with a third party to provide the majority of the part-time staffing at our entertainment venues. Since 1996, certain services necessary for our business and operations, including certain administrative, financial reporting and other services, have been performed by FM Services Company (FM Services) pursuant to a services agreement. FM Services is a wholly owned subsidiary of Freeport-McMoRan Inc. Either party may terminate the services agreement at any time upon 60 days' notice or earlier upon mutual written agreement.

Sustainability

We are committed to protecting the environment and developing sustainable properties. We emphasize sustainable design, construction, and operations as essential goals in developing and operating our properties. Our projects begin with a careful site assessment, taking into account unique and environmentally sensitive site features, including vegetation, slopes, soil profiles, and water resources. Our sites are then engineered to protect our environment and promote their natural attributes. Our buildings and homes are designed to take full advantage of each site’s attributes, to incorporate energy efficient mechanical systems, and to create healthy and resilient living spaces. Construction of site infrastructure, buildings, and homes is managed to make appropriate use of properly-sourced materials and to utilize construction techniques that minimize impact on our natural environment and promote long-term sustainability. As a U.S. Green Building Council (USGBC) member, we work along with council members to transform the way buildings and communities are designed, built and operated with the goal of creating environmentally and socially responsible properties for a more sustainable life. For more than fifteen years, we have partnered with leaders in sustainable development, engineering, and design, including, among others, USGBC and The Center for Maximum Potential Building Systems. We have built a range of projects recognized as being on the leading edge of sustainable practices, including Block 21, the first mixed-use high rise tower in Austin to receive the USGBC LEED (Leadership in Energy & Environmental Design) Silver certification (highlighted in our Block 21 Sustainability Case Study on our website), and many of our residential communities, including The Saint Mary which was approved for the Austin Green Building Program, and retail developments. We believe that our markets recognize our environmental stewardship and will continue to reward thoughtful sustainable development.

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Item 1A. Risk Factors

This report contains “forward-looking statements” within the meaning of U.S. federal securities laws. Forward-looking statements are all statements other than statements of historical facts. For additional information, see “Cautionary Statement” in Items 7. And 7A. Management’s Discussion and Analysis of Financial Condition and Results of Operations and Quantitative and Qualitative Disclosures About Market Risk.

We undertake no obligation to update any forward-looking statements. We caution readers that forward-looking statements are not guarantees of future performance and our actual results may differ materially from those anticipated, expected, projected or assumed in the forward-looking statements. Important factors that can cause our actual results to differ materially from those anticipated in the forward-looking statements are described below. Investors should carefully consider the risks described below in addition to the other information set forth in this Annual Report on Form 10-K. The risks discussed below are not the only risks we face. Other risks or uncertainties not presently known to us, or that we currently believe are immaterial, may materially affect our business if they occur. Moreover, new risks emerge from time to time. Further, our business may also be affected by additional factors that generally apply to all companies operating in the U.S. and globally, which have not been included.

Risks Relating to the COVID-19 Pandemic

The COVID-19 pandemic has had a significant adverse impact on our business, which is likely to continue with unknown severity and for an unknown period of time.

The COVID-19 pandemic has had a significant adverse impact on our business, financial condition, results of operations, liquidity and stock price. The COVID-19 pandemic is complex and continuously evolving, with federal, state and local governments, and other organizations imposing or recommending, and businesses and individuals implementing, a variety of restrictions on activities in order to combat its spread. These restrictions have included stay-at-home orders, bans on travel, limitations on the size of gatherings, limitations on the operations of businesses, closures of work facilities, schools, public buildings and businesses, cancellation of events, quarantines and social distancing measures. State and local governments have implemented phased reopening processes, often with reduced capacity and social distancing restrictions. During 2020, there were declines followed by resurgences of COVID-19 cases throughout the U.S., and cases generally rose during the fourth quarter. Authorities have reacted to these resurgences by deferring the phasing out of restrictions and, in some instances, re-imposing restrictions. In December 2020, the first COVID-19 vaccines were approved for use in the U.S., and the early stages of distribution of the vaccine are in process as of the date of this report. Recently, variants of the virus that causes COVID-19 have been identified in the U.S. and elsewhere, and information about them is rapidly emerging, including how easily they might spread, whether they could cause more severe illness, and whether currently authorized vaccines will protect against them. Even if there is ultimately widespread distribution and acceptance of these vaccines, their long-term efficacy is unknown.

The pandemic has caused a sharp global slowdown of economic activity resulting in a recession in the U.S., a steep increase in unemployment in the U.S. and significant volatility and disruption of financial markets. The pandemic had a significant adverse impact on our company during 2020, particularly in our hotel and entertainment businesses, and is expected to continue to adversely impact our company in 2021. Because the pandemic is unprecedented in recent history, we cannot predict its future impact on our company with any certainty. In addition to the pandemic-related risks discussed below, we face the risk of potential cases of infection and transmission at our operations despite our safety measures efforts, which may lead to exposure to assertions of liability.

• Risks Related to our Liquidity. Although 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 detailed and complex underlying assumptions, including (1) that operating income for our Block 21 businesses will gradually ramp up to a break-even point in the first half of 2021 and that Block 21 will generate sufficient cash to cover debt service by early 2022, (2) that current conditions in our leasing operations will not deteriorate materially, and (3) that we close on projected asset sales in our real estate operations segment. No assurances can be given that the results anticipated by our projections will occur. If we later determine that we will likely not be able to meet our debt service and other cash obligations, or will likely not be able to meet covenants under our debt agreements, we may seek further amendments to, waivers of provisions of, or restructuring of our debt agreements, seek to sell assets, seek to reduce operating expenses, and/or seek to raise additional capital, any or all of which actions may not be successful. If we cannot meet our debt service obligations, or otherwise default under a debt agreement, our

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lenders may declare all amounts outstanding under the loans due and payable, seek to foreclose on the collateral securing the loans and/or seek to force us into involuntary bankruptcy proceedings.

• Risks Related to our Hotel Operations. The pandemic has had a significant adverse impact on the hospitality industry, as it has resulted in dramatically curtailed business and leisure travel and caused cancellations of events or rescheduling of events. Accordingly, the pandemic has resulted in a significant decrease in revenue from our hotel rooms, conference facilities and hotel amenities. The pandemic is expected to continue to negatively affect our hotel business, and the extent to which such adverse impacts continue depends on numerous evolving factors that we cannot predict. Moreover, even as travel advisories and restrictions are lifted, travel demand may remain weak for a significant length of time and attractions and events that previously brought visitors to the city of Austin may not proceed or may proceed with limited capacity. We cannot predict if or when our hotel will return to pre-pandemic demand or pricing.

• Risks Related to our Entertainment Operations. The pandemic has had a significant adverse impact on the entertainment industry and our entertainment operations. The extent to which such adverse impacts continue depends on numerous evolving factors that we cannot predict, including if or when our entertainment operations will return to pre-pandemic demand or pricing.

• Risks Related to our Leasing Operations. The COVID-19 pandemic is negatively affecting our retail and, to a lesser extent, our multi-family leasing operations. As a result of the pandemic and the related economic downturn, our retail tenants have requested, and may continue to request, additional rent deferrals, rent abatement, lease renegotiations or early termination of their leases as well as may be forced to temporarily or permanently close or declare bankruptcy, which could further reduce our cash flows. Our multi-family tenants may request future rent deferrals. In addition, state, local or industry-initiated efforts, such as tenant rent freezes or suspension of a landlord’s ability to enforce evictions, may also affect our ability to collect rent or enforce remedies for the failure to pay rent. Further, our ability to renew leases or re-lease vacant spaces on favorable terms, or at all, is constrained in the current environment, which may worsen.

• Risks Related to our Real Estate and Development Operations. The pandemic may negatively affect our real estate and development operations. We may be unable to sell or refinance assets in the current economic environment at a price that we find acceptable or at all. Also, the economic downturn caused by the pandemic could diminish the demand for and value of our properties for an indeterminate period. The pandemic has also constrained the availability of capital to companies in the real estate industry, and we can provide no assurances that we will be able to access capital at a reasonable cost.

Risks Relating to our Business, Industries and Indebtedness

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

Our industry is capital-intensive and requires significant up-front expenditures to secure land and pursue development and construction. Our business strategy requires us to rely on cash flow from operations and our debt agreements as our primary sources of funding. We have also, from time to time, relied on project-level equity financing of our subsidiaries. As of December 31, 2020, our outstanding debt totaled $351.1 million and our cash and cash equivalents totaled $12.4 million. Our level of indebtedness could have significant adverse consequences. For example, it could:

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

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

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

•Force us to dispose of one or more of our properties, possibly on unfavorable terms or restrict us from making strategic acquisitions;

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

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

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

Our ability to make scheduled debt service payments or to refinance our indebtedness depends on our future operating and financial performance, which is subject to economic, financial, competitive and other factors beyond our control, including risks related to the COVID-19 pandemic. Historically, much of our debt has been renewed or refinanced in the ordinary course of business. Our inability to extend, repay or refinance our debt when it becomes due, including upon a default or acceleration event, could allow our lenders to declare all amounts outstanding under the loans due and payable, seek to foreclose on the collateral securing the loans and/or seek to force us into involuntary bankruptcy proceedings. In addition, any difficulty in obtaining sufficient capital for planned development expenditures could also cause project delays, which could increase our costs. There can be no assurance that we will generate cash flow from operations in an amount sufficient to enable us to service our debt, make necessary capital expenditures, or to fund our other liquidity needs.

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

The terms of the agreements governing our indebtedness include restrictive covenants, including covenants that require that certain financial ratios be maintained. 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 our assets; and engage in mergers, consolidations or other business combinations. See Note 6 for additional discussion of restrictive covenants in our debt agreements.

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

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

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The success of our business is significantly related to general economic conditions and, accordingly, our business could be harmed by any slowdown or deterioration in the economy.

Periods of economic uncertainty, weakness or recession; significantly rising interest rates; declining employment levels; declining demand for real estate; declining real estate values; epidemic or pandemic illnesses or fear of the potential spread of illnesses such as COVID-19; or the public perception that any of these events or conditions may occur or be present, may negatively affect our business. These economic conditions can result in a general decline in real estate acquisition, disposition and leasing activity, a general decline in the value of real estate and in rents and increases in tenant defaults on rental payments, which in turn reduce revenue derived from property sales and leases. Other factors that could influence demand in our industries include labor costs, access to credit on reasonable terms, geopolitical issues and other macroeconomic factors. Periods of economic weakness or uncertainty also typically have an adverse impact on our hotel and entertainment operations, revenues and profits. During an economic downturn, investment capital is usually constrained, and it may take longer for us to dispose of or lease our real estate. As a result, the value of our real estate may be reduced, increasing the risk for asset impairments, and we could realize losses or diminished profitability.

Increases in interest rates would increase our interest costs and the potential replacement of LIBOR may adversely affect our interest costs.

Our consolidated debt at December 31, 2020, was $351.1 million, the majority of which was variable-rate debt. An increase in interest rates would increase our interest costs and increase the costs of refinancing existing debt and incurring new debt, which would adversely affect our profits and cash flow.

The London Inter-bank Offering Rate, or LIBOR, is widely used as a reference for setting the interest rate on variable-rate loans globally. We have used LIBOR as a reference rate in our debt agreements such that the interest due to our creditors pursuant to these loans is calculated using LIBOR. In July 2017, the United Kingdom’s Financial Conduct Authority, which regulates LIBOR, announced that it intends to phase out LIBOR by the end of 2021. On November 30, 2020, ICE Benchmark Administration, the administrator of LIBOR, announced plans to consult on ceasing publication of USD LIBOR on December 31, 2021, for only the one week and two month USD LIBOR tenors, and on June 30, 2023 for all other USD LIBOR tenors. If LIBOR rates cease to be available, our debt with interest rates that are indexed to LIBOR will be determined using various alternative methods to the extent provided for in our agreements, which could result in increases in interest rates on such debt. Further, before LIBOR ceases to exist, we may need to renegotiate our debt agreements and the loans that utilize LIBOR to replace LIBOR with another standard. While the full consequences of these developments cannot be predicted, they could result in higher interest costs.

We are vulnerable to concentration risks because our operations are primarily located in the Austin, Texas area.

Our real estate operations are primarily located in the Austin, Texas area. While our real estate operations have expanded to include select markets in Texas outside of the Austin area, the geographic concentration of the majority of our operations and of the properties we may have under development at any given time means that our business is more vulnerable to local economic, regulatory, adverse weather and other conditions than the businesses of larger, more diversified companies. The performance of the Austin area's economy and our other select markets in Texas greatly affects our revenue and the values of our properties. We cannot assure you that these markets will continue to grow or that underlying real estate fundamentals will continue to be favorable in these markets. See “Overview - Real Estate Market Conditions” in Part II, Items 7. and 7A. for more information.

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

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

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During February 2021, a severe winter storm caused extensive and sustained power outages, disruptions in the water supply, burst water pipes and other property damage throughout Texas. Record-breaking freezing temperatures in Austin left much of the city without power, which for some, lasted nearly a week. Further, the city of Austin experienced widespread water outages. Although the storm did not cause material damage to our properties, we cannot predict the extent to which the incident will impact our business prospects or the value of our properties over the longer term.

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

We maintain insurance on our properties, including business interruption, property, liability, fire and extended coverage. However, there are certain types of losses, generally of a catastrophic nature, such as floods or acts of war or terrorism that may be uninsurable or not economical to insure. We use our discretion when determining amounts, coverage limits and deductibles, for insurance, based on retaining an acceptable level of risk at a reasonable cost. This may result in insurance coverage that, in the event of a substantial loss, would not be sufficient to pay the full current market value or current replacement cost of our lost investment. In addition, we may become liable for injuries and accidents at our properties that are underinsured. A significant uninsured loss could materially and adversely affect our business, liquidity, financial condition and results of operations.

The loss of certain key senior management personnel could negatively affect our business.

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

Our business may be adversely affected by information technology disruptions and cybersecurity breaches.

Many of our business processes depend on technology systems to conduct day-to-day operations and lower costs, and therefore, we are vulnerable to the increasing threat of information technology disruptions and cybersecurity breaches. These risks include, but are not limited to, installation of malicious software, phishing, credential attacks, unauthorized access to data and other electronic security breaches that could lead to disruptions in systems, unauthorized release of confidential or otherwise protected information, employee theft or misuse and the corruption of data. Our systems are also vulnerable to damage or interruption from fire, floods, power loss, telecommunications failures, computer viruses, break-ins, and similar events. A significant theft, loss, loss of access to, or fraudulent use of guest, employee, or company data could adversely impact our reputation and could result in a loss of business, as well as remedial and other expenses, fines, and litigation.

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

Failure to succeed in new markets may limit our growth.

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

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

We have formed strategic relationships with key tenants as part of our overall strategy for particular development projects and may enter into other similar arrangements in the future. For example, our West Killeen Market, Jones Crossing, Kingwood Place, Magnolia Place and New Caney mixed-use development projects are each anchored by an HEB grocery store. Any deterioration in our relationship with HEB or our inability to form and retain strategic relationships with key tenants or enter into other similar arrangements in the future could adversely affect our business.

Risks Relating to Real Estate Operations

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

We currently have several development projects at various levels of activity. The development of the projects in our development pipeline is subject to numerous risks, many of which are outside of our control. We can provide no assurances that we will complete any of the projects in our development pipeline on the anticipated schedule or within the budget, or that, once completed, these properties will achieve the results that we expect. If the development of these projects is not completed in accordance with our anticipated timing or cost, or the properties fail to achieve the financial results we expect, it could have a material adverse effect on our business, financial condition, results of operations and cash flows and ability to repay our debt, including project-related debt.

The real estate business is highly competitive and many of our competitors are larger and financially stronger than we are, have more resources than we do, or have lower cost structures than we do.

Our competitors include local developers who are committed primarily to particular markets and also national developers who acquire and develop properties throughout the U.S. Competition may increase the demand for the types of properties in which we typically invest and, therefore, reduce the number of suitable investment opportunities available to us and increase the purchase prices for such properties. In addition, a downturn in the real estate industry could significantly increase competition among developers. An oversupply of real estate properties available for sale or lease may adversely affect our results of operations. Our business, financial condition and results of operations may be negatively affected by any of these factors.

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

Revenue from our real estate operations segment accounted for 37 percent of our total revenue for the fiscal year ended December 31, 2020. The U.S. real estate industry is highly cyclical and is affected by changes in global, national and local economic conditions and events such as general employment and income levels, availability of financing, interest rates, consumer confidence and spending, and overbuilding of or decrease in demand for residential and commercial real estate. Our real estate activities are subject to numerous factors beyond our control, including local real estate market conditions (both where our properties are located and in areas where our potential customers reside), substantial existing and potential competition, national, regional and local economic, political and social conditions, natural disasters, acts of war or terrorism, fluctuations in interest rates and mortgage availability, over-building in our markets, a decline in brick-and-mortar retail industry, changes in traffic patterns, changes in demographic conditions, changes in tenant preferences and changes in government regulations and requirements, including tax law changes. Any of the foregoing factors could result in lower than expected sales, which could have a material adverse effect on our profits and the timing and amounts of our cash flows.

Real estate investments often cannot easily be converted into cash, and it is difficult to predict the level of future sales or sales prices that will be realized for individual assets. We cannot predict whether we will be able to sell any property for the price or on the terms that would be acceptable to us. To the extent we are unable to sell any properties for our book value, we may be required to take a non-cash impairment charge or loss on the sale, either of which would reduce our net income or increase our net loss. See "Critical Accounting Policies" in Part II, Items 7. and 7A. for more information.

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

Real estate projects must generally comply with local land development regulations and may need to comply with state and federal regulations. Before we can develop a property, we must obtain a variety of approvals from local and state governments with respect to such matters as zoning and other land use entitlements and issues, and subdivision, site planning and environmental issues under applicable regulations. Obtaining all of the necessary permits and entitlements to develop a parcel of land is often difficult, costly and may take several years, or more, to complete. In some situations, we may be unable to obtain the necessary permits and/or entitlements to proceed with a real estate development or may be required to alter our plans for the development. In addition, the zoning that ultimately is approved could include density provisions that would limit the number of homes and other structures that could be built within the boundaries of a particular area. Any of these may limit, delay or increase the costs of acquisition of land and development of our properties. Because government agencies and special interest groups have, in the past, expressed concerns about certain of our development plans, and in the future may express similar concerns, our ability to develop these properties and realize future income from our properties could be delayed, reduced, prevented or made more expensive. In addition, any failure to comply with these laws or regulations could result in capital or operating expenditures or significant financial penalties or restrictions on our operations that could adversely affect present and future operations or our ability to sell, and thereby, our financial condition, results of operations and cash flows.

Our operations are subject to environmental regulation, which can change at any time and could increase our costs.

Real estate development is subject to state and federal environmental regulations and to possible interruption or termination because of environmental considerations, including, without limitation, air and water quality and protection of endangered species and their habitats. In addition, in those cases where an endangered or threatened species is involved and agency rulemaking and litigation are ongoing, the outcome of such rulemaking and litigation can be unpredictable, and at any time can result in unplanned or unforeseeable restrictions on or even the prohibition of development in identified environmentally sensitive areas. Certain of our developments include habitats of endangered species. We have obtained the necessary permits from the U.S. Fish and Wildlife Service to allow the development of our properties. However, future endangered species listings or habitat designations could impact development of our properties.

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

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

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stricter standards in environmental legislation and regulations is likely to continue and could have a material adverse effect on our operating costs.

Risks Relating to Leasing Operations

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

Revenue from our leasing operations segment accounted for 38 percent of our total revenue for the fiscal year ended December 31, 2020. In 2020, our leasing operations primarily involved the lease of retail space at retail and mixed-use properties that we developed to tenants in a variety of businesses, and the lease of residences in multi-family apartment complexes that we developed.

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

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

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

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

•Declines in market rental rates.

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

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

We face competition in attracting tenants to choose our retail and mixed-use projects over those of other developers and owners of similar properties. Once entered into, our retail leases typically range from five to ten years or longer. Further, we may be unable to renew existing leases as they come due. Adverse market or economic conditions that negatively impact our tenants’ businesses could adversely impact their ability to meet their obligations under the leases or to renew the leases. These tenants face continual competition in attracting customers, often including from on-line competitors. Further, if we are unable to adapt to new technologies and relationships on a timely basis, our financial performance may be adversely impacted.

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

We also face competition in attracting tenants to our apartment complexes, including from other apartment properties as well as from condominiums and single-family homes available for rent or purchase. Once entered into, our apartment leases are typically for a term of 12 months. As these leases typically permit the residents to leave at the end of the lease term without penalty, our rental revenues are impacted by declines in market rents more quickly than if our leases were for longer terms. Further, we may be unable to renew existing leases as they come due. Adverse economic conditions that negatively impact our tenants' employment could adversely impact our tenants' ability to pay rent and/or cause tenants and potential tenants to prefer housing alternatives with lower rents. In

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addition, economic developments that favor home ownership over renting, such as low or declining interest rates, favorable or improving mortgage terms or a strong or strengthening job market, could also have an adverse impact on our apartment properties.

Risks Relating to our W Austin Hotel

An adverse change in external perceptions of the W Austin Hotel could negatively affect the hotel’s results of operations.

Our W Austin Hotel is managed by W Hotel Management, Inc. a subsidiary of Starwood Hotels & Resorts Worldwide, Inc., which is a subsidiary of Marriott International, Inc. The hotel’s ability to attract and retain guests depends, in part, upon the external perceptions and market recognition of the W hotel brand, of Starwood and Marriott as hotel operators and of the quality of the W Austin Hotel and its services. The reputation of the W Austin Hotel may be negatively affected if Marriott’s or Starwood’s reputations are damaged for any reason. In addition, we are required to spend money periodically to keep the property well maintained, modernized and refurbished in accordance with brand standards, which may be more costly than we anticipate.

The W Austin Hotel’s revenues, profits or market share could be harmed if the W Austin Hotel is unable to compete effectively in the hotel industry in Austin.

The hotel industry in Austin is highly competitive. The W Austin Hotel competes for customers with other hotel and resort properties in Austin, ranging from national and international hotel brands to independent, local and regional hotel operators. We compete based on a number of factors, including quality and consistency of rooms, restaurant, bar and meeting facilities and services, attractiveness of location and price, and other amenities. Historically, the Austin market has had a limited number of high-end hotel accommodations. However, hotel capacity is being expanded by other hotel operators in Austin, including several properties in close proximity to the W Austin Hotel in downtown Austin. Furthermore, travelers can book stays on websites that facilitate the short-term rental of homes and apartments from owners, thereby providing an alternative to hotel rooms. Increased internet bookings of alternatives to hotel rooms could have an adverse effect on our hotel's occupancy, average daily rate and revenue per available room.

The W Austin Hotel is subject to the business, financial and operating risks common to the hotel industry, any of which could reduce its revenues and profitability.

Business, financial and operating risks common to the hotel industry include:

•Changes in desirability of the hotel’s location (i.e. Austin) as a travel destination;

•Decreases in the demand for hotel rooms and related lodging services in general, including a reduction in travel as a result of the spread of illnesses, pandemics or epidemics, alternatives to in-person meetings (including virtual meetings), increases in energy costs and other expenses affecting travel, decreased airline capacities and routes and the financial condition of the airline, automotive, and other transportation-related industries and its impact on travel;

•Over-building of hotels;

•Seasonal and cyclical volatility;

•Increases in fixed costs, including increases in commercial property taxes;

•Decreased corporate, governmental or convention travel-related spending;

•The quality of the services provided by the hotel and investments in the maintenance and improvement of the hotel;

•The costs and administrative burdens associated with complying with applicable laws and regulations, including employment, health, safety and environmental laws;

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•Information technology disruptions and cybersecurity breaches, including theft or fraudulent use of guest, employee, or company data and disruption of reservation systems; and

•Increases in operating costs including, but not limited to, energy, water, labor (including the effect of labor shortages, unionization and minimum wage increases), food, workers’ compensation and health-care, insurance and unanticipated costs related to force majeure events and their consequences.

Any of these factors could reduce our revenues, increase our costs or otherwise adversely affect our operations.

Risks Relating to our Entertainment Businesses

Our entertainment businesses face intense competition in the live music industry, and they may not be able to maintain or increase their revenue or profits.

Our entertainment businesses compete in a highly competitive industry and may not be able to maintain or increase their revenue as a result of such competition. The live music industry competes with other forms of entertainment for consumers’ discretionary spending, and our venues compete with other venues to book artists. Our entertainment businesses’ competitors compete for key personnel who have relationships with popular music artists and that have a history of being able to book such artists for concerts and tours. These competitors may engage in more extensive development efforts, undertake more far-reaching marketing campaigns, adopt more aggressive pricing policies and make more attractive offers to existing and potential artists. Our competitors may develop services, advertising options or music venues that are equal or superior to those our entertainment businesses provide or that achieve greater market acceptance and brand recognition than our entertainment businesses achieve.

Other variables related to our entertainment businesses that could adversely affect their financial performance include:

•Changes in consumer preferences and decreased success in offering events that appeal to customers;

•Technological changes and innovations that may lead to a reduction in attendance at live events, a loss of ticket sales or lower ticket fees;

•General economic conditions which could cause our consumers to reduce discretionary spending;

•Unfavorable fluctuations in operating costs, which we may be unwilling or unable to pass through to our customers via ticket prices;

•Event, tour and artist cancellations;

•Interruptions in our computer, communications, information and ticketing systems and infrastructures and data loss or other breaches of our network security;

•Occurrence and threat of extraordinary events, such as terrorist attacks, intentional or unintentional mass-casualty incidents such as active shooter incidents, public health concerns such as contagious disease outbreaks such as COVID-19, weather conditions, natural disasters or similar events that may require us to cancel or reschedule an event; and

•Occurrence of personal injuries or accidents in connection with our live music events.

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Risks Relating to Ownership of Shares of Our Common Stock

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

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

Anti-takeover provisions in our charter documents and Delaware law may make an acquisition of us more difficult.

Anti-takeover provisions in our charter documents and Delaware law may make an acquisition of us more difficult. These provisions:

•Provide for a classified Board serving staggered three-year terms;

•Authorize the Board to issue preferred stock without stockholder approval and to designate the rights, preferences and privileges of each class; if issued, such preferred stock would increase the number of outstanding shares of our capital stock and could include terms that may deter an acquisition of us;

•Establish advance notice requirements for nominations to the Board or for proposals that can be presented at stockholder meetings;

•Limit who may call special stockholder meetings and prevent stockholder action by written consent; and

•Require a supermajority stockholder vote for certain transactions with a 20 percent stockholder, subject to certain exceptions, and for certain amendments to our charter.

These provisions may discourage potential takeover attempts, discourage bids for our common stock at a premium over market price or adversely affect the market price of, and the voting and other rights of the holders of, our common stock. These provisions could also discourage proxy contests and make it more difficult for stockholders to elect directors other than the candidates nominated by our Board.

In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which may prohibit large stockholders from consummating a merger with, or acquisition of, us. These provisions may deter an acquisition of us that might otherwise be attractive to our stockholders.

In order to ensure our stockholders have the benefit of our exploration of a potential conversion to a real estate investment trust (REIT), our Board adopted a limited duration stockholder rights agreement (Rights Agreement), which may discourage a takeover attempt not approved by our Board.

On September 22, 2020, our Board adopted the Rights Agreement and declared a dividend of one right (Right) for each outstanding share of our common stock, par value $0.01 per share (common stock), to stockholders of record at the close of business on October 2, 2020. In general terms, and subject to certain exceptions, the Rights Agreement limits a person’s or group’s ability to own 9.8 percent or more of the common stock without Board approval, as this may adversely impact our potential status as a REIT. The Rights Agreement could make it more difficult for a third party to acquire us or a large block of our shares of common stock. The Rights expire on the earliest to occur of certain events, including on December 31, 2021, unless stockholder approval of the Rights Agreement has been obtained on or prior to such time.

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

Holders of our common stock are entitled to receive dividends only when and if they are declared by our Board. Further, our Comerica Bank credit facility prohibits us from paying a dividend on our common stock without the bank’s prior written consent. Although we declared a special cash dividend on our common stock in March 2017 after receiving written consent from Comerica Bank, we may not pay special cash dividends in the future. Comerica Bank’s consent to the payment of a dividend in March 2017 is not indicative of the bank’s willingness to consent to the payment of future dividends. Additionally, our Comerica Bank loan agreements contain a restrictive covenant limiting common stock repurchases to $1.0 million in the aggregate during the term of the agreements. Any repurchases of our common stock in excess of $1.0 million would require a waiver from Comerica Bank. The declaration of future dividends and share repurchases, which is subject to our Board's discretion and the restrictions under our Comerica Bank loan agreements, will depend on our financial results, cash requirements, projected compliance with covenants in our debt agreements, outlook and other factors deemed relevant by our Board.

Stratus’ potential conversion from a C-Corporation to a REIT is subject to various risks and uncertainties.

Our Board has approved an in-depth exploration of a conversion from a C-Corporation to a REIT. We can provide no assurance as to when, if at all, we will convert to a REIT. There are several implementation, operational, financing and tax complexities to be addressed before we decide whether to pursue a REIT conversion. Our ability to qualify as a REIT involves the application of highly technical and complex provisions of the Internal Revenue Code of 1986, as amended, and Stratus may not qualify as a REIT. Further, if we determine to convert to a REIT, we cannot give any assurance that we will remain qualified as a REIT. We may not be able to complete all of the necessary steps that must be taken in order to convert to a REIT, in the anticipated timeframe, or at all. There could be significant costs related to converting to and operating a REIT. Even if, after an in-depth exploration, it is determined that there are no impediments to a REIT conversion, we cannot provide any assurance that our Board will approve a REIT conversion. Even if our Board approves a conversion from a C-Corporation to a REIT, our stockholders may not approve changes to Stratus’ organizational documents consistent with a public REIT structure. Additionally, the REIT conversion would require consent from our major lenders and amendments to our major debt agreements, among other third-party consents. We cannot provide any assurance that we will receive the necessary consents to move forward with the REIT conversion. If we convert from a C-Corporation to a REIT, we cannot provide any assurance that the anticipated benefits will be realized by us or our stockholders.

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Item 1B. Unresolved Staff Comments

None.

Item 3. Legal Proceedings

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

Item 4. Mine Safety Disclosures

Not applicable.

Information About Our Executive Officers

Certain information as of February 26, 2021, regarding our executive officers is set forth in the following table and accompanying text. Each of our executive officers serves at the discretion of our Board of Directors.

Name Age Position or Office

Erin D. Pickens 59 Senior Vice President and Chief Financial Officer

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

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

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PART II

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

Common Stock

Our common stock trades on The Nasdaq Stock Market (NASDAQ) under the symbol “STRS.” As of February 26, 2021, there were 282 holders of record of our common stock.

Common Stock Dividends

The declaration of dividends is at the discretion of our Board of Directors (the Board); however, our ability to pay dividends is restricted by the terms of our Comerica Bank credit facility, which prohibits us from paying a dividend on our common stock without Comerica Bank’s prior written consent. The declaration of future dividends, which is subject to our Board’s discretion and the restrictions under our Comerica Bank credit facility, will depend on our financial results, cash requirements, projected compliance with covenants in our debt agreements, outlook and other factors deemed relevant by our Board. Additionally, our Comerica Bank loan agreements contain a restrictive covenant limiting common stock repurchases to $1.0 million in the aggregate during the term of the agreements. Any repurchases of our common stock in excess of $1.0 million would require a waiver from Comerica Bank. See Part I, Item 1A. "Risk Factors" for further discussion.

Unregistered Sales of Equity Securities

None.

Issuer Purchases of Equity Securities

The following table sets forth information with respect to shares of our common stock that we repurchased under the Board-approved open market share purchase program during the three months ended December 31, 2020.

a.In November 2013, the Board approved an increase in our open-market share purchase program, initially authorized in 2001, for up to 1.7 million shares of our common stock. The program does not have an expiration date.

As stated above, our Comerica Bank loan agreements require lender approval of any common stock repurchases in excess of $1.0 million.

Item 6. Selected Financial Data

Not applicable.

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

OVERVIEW

In Management’s Discussion and Analysis of Financial Condition and Results of Operations, “we,” “us,” “our” and “Stratus” refer to Stratus Properties Inc. and all entities owned or controlled by Stratus Properties Inc. You should read the following discussion in conjunction with our consolidated financial statements and the related discussion of “Business and Properties” and “Risk Factors” included elsewhere in this Form 10-K. The results of operations reported and summarized below are not necessarily indicative of future operating results, and future results could differ materially from those anticipated in forward-looking statements (refer to “Cautionary Statement” and Part I, Item 1A. "Risk Factors" herein). In particular, the impacts of the COVID-19 pandemic continue to affect our operations. As a result, our performance during 2020, as well as future 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 located in Part II, Item 8. “Financial Statements and Supplementary Data.”

We are a diversified real estate company with headquarters in Austin, 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 the Austin, Texas area and other select, fast-growing markets in Texas. 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. See "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 W Austin Hotel and our ACL Live and 3TEN ACL Live entertainment venues are located in downtown Austin 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 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 in Texas continue to be attractive locations. Many of our developments are in locations where development approvals have historically been subject to regulatory constraints, which has made it difficult to obtain or change entitlements. 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. 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.

During 2020, the COVID-19 pandemic caused substantial disruption in international and U.S. economies and markets. As discussed in detail below, the COVID-19 pandemic has had, and continues to have, a significant impact on our business, especially our hotel and entertainment segments. We acted quickly early in the COVID-19 pandemic to manage what was within our control under these extraordinary circumstances. We proactively managed our retail and multi-family tenants and associated banking relationships, continued to lease up properties,

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completed residential property sales, continued to advance land planning, engineering and permitting activities on several development projects, including The Saint June, actively explored refinancing and sale alternatives for certain properties and began analyzing a potential conversion to a real estate investment trust (REIT).

Despite the challenges presented by the COVID-19 pandemic, during 2020, we were able to achieve the following:

1.Executed an agreement to sell The Saint Mary for $60.0 million. The transaction closed January 11, 2021, generating approximately $34 million of net proceeds, of which we received $21.3 million.

2.Increased leasing operations revenue for 2020 by 24 percent to $24.1 million, compared with 2019.

3.Sold 19 lots and 2 completed homes at Amarra Drive in Barton Creek for an aggregate of $21.8 million and a pad site at West Killeen Market for $0.7 million, resulting in real estate operations revenues for 2020 increasing by 64 percent to $22.6 million, compared with 2019.

4.Collected $15.0 million of forfeited earnest money after the buyer terminated the agreements to purchase Block 21 for $275.0 million in May 2020.

In September 2020, our Board of Directors (Board) announced its approval of the initiation of an in-depth exploration of a conversion from a C-Corporation to a REIT. We have engaged financial, tax, accounting and legal advisors, and the Board will closely monitor and evaluate the findings to ultimately determine if conversion to a REIT is in the best interest of our stockholders. If the Board determines to move forward, we expect the conversion would occur no earlier than 2022. We believe that the REIT conversion would require consent from our major lenders and amendments to our major debt agreements, among other third-party consents. We also expect to seek stockholder approval to implement provisions in our organizational documents consistent with a public REIT structure, if the Board ultimately determines that a REIT conversion is in stockholders’ best interests.

OVERVIEW OF THE IMPACTS OF THE COVID-19 PANDEMIC

Since January 2020, the COVID-19 outbreak has caused substantial disruption in international and U.S. economies and markets, intensifying in the latter part of the first quarter of 2020 and continuing through and subsequent to 2020. The impacts of the pandemic are expected to continue during 2021. On March 11, 2020, the World Health Organization designated the COVID-19 outbreak a pandemic. The pandemic has resulted in government restrictions of various degrees effective at various times, including stay-at-home orders, bans on travel, limitations on the size of gatherings, limitations on the operations of businesses deemed non-essential, closures of work facilities, schools, public buildings and businesses, cancellation of events (including entertainment events, conferences and meetings), quarantines and social distancing measures. The pandemic and responses to it have also caused a steep increase in unemployment in the U.S. As a result, the pandemic is having, and we believe will continue to have, a significant adverse impact on our business and operations, particularly on the hotel and entertainment segments, as discussed further below.

The pandemic remains complex and rapidly-evolving. Effective March 10, 2021, the Governor of Texas issued an executive order lifting the mask mandate in Texas and increasing capacity of all businesses and facilities in the state to 100 percent. Businesses in Texas may still limit capacity or implement additional safety protocols at their own discretion. While we are considering ways to ramp up our hotel and entertainment operations, we plan to increase capacity gradually and safely and in compliance with all applicable regulations. The pandemic is expected to continue to adversely impact us in 2021. Because the pandemic is unprecedented in recent history, and its severity, duration and future economic consequences are difficult to predict, we cannot predict its future impact on our company with any certainty.

Termination of Sale of Block 21

As previously disclosed, our transaction to sell Block 21, which contains the W Austin Hotel and the ACL Live and 3TEN ACL Live entertainment venues, to Ryman Hospitality Properties, Inc. (Ryman) for $275.0 million was terminated by Ryman in May 2020. As a result of Ryman’s termination of the transaction, Ryman forfeited to us its $15.0 million of earnest money. We used $13.8 million of the earnest money to pay down our Comerica Bank credit facility and used the remaining $1.2 million for Block 21 debt service and required monthly reserves. We recorded the $15.0 million as operating income during 2020.

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Impacts on our Business

The COVID-19 pandemic adversely impacted our hotel and entertainment segments in 2020. Revenue in our hotel segment declined to $10.0 million in 2020 from $35.5 million in 2019. While our hotel has remained open throughout the pandemic, average occupancy during 2020 was 23 percent, compared to 73 percent in 2019. Revenue from our entertainment segment declined to $5.2 million in 2020 from $25.0 million in 2019. The number of events hosted at ACL Live declined to 82 in 2020 from 264 in 2019, and the number of events hosted at 3TEN ACL Live declined to 102 in 2020 from 201 in 2019.

Despite the pandemic, we experienced increases in revenues in our real estate operations and leasing operations segments. We believe our sales of residential real estate and leasing of our multi-family properties were positively impacted by home-centric trends resulting from the pandemic and from the increased attractiveness of Austin, Texas as a desirable place to live. Our leasing operations revenues were positively impacted by the continued lease-up of recently completed projects. However, our retail and multi-family base rent collections were five percent less than scheduled base rents during the period from April through December 2020, primarily due to rent deferrals we agreed to with certain retail tenants. The impacts of the COVID-19 pandemic on each of our segments are described below in more detail in “Results of Operations.”

Losses resulting from the pandemic contributed to us recording a $10.7 million non-cash tax charge in 2020 to record a valuation allowance on our deferred tax assets. Refer to Note 7 for further discussion.

Despite the COVID-19 pandemic, we continued to advance our land planning, engineering and permitting activities. We implemented measures such as increased sanitizing, physical distancing and remote work arrangements, with the goal of protecting employees, tenants, guests, customers and suppliers.

At this time, we are focusing on taking action to maintain liquidity and control costs; closing on asset sales in our real estate operations segment; closely monitoring our income-producing properties and continuing to lease up certain properties; regularly communicating with our lenders and investor groups; advancing our land planning, engineering and permitting activities; and evaluating refinance opportunities for our larger, stabilized assets to take advantage of historic low interest rates.

Impacts on our Liquidity and Capital Resources

On June 12, 2020, we extended the maturity date of our $60.0 million revolving credit facility to September 27, 2022. As of December 31, 2020, we had $16.5 million available under the credit facility, with a $150 thousand letter of credit committed against the credit facility.

During 2020, we proactively engaged with our project lenders in connection with formulating rent deferral arrangements for our tenants. We were granted waivers of and amendments to certain financial covenants in three of our project loans. With respect to our Block 21 loan, as a result of the COVID-19 pandemic, Stratus Block 21, LLC, our wholly owned subsidiary that owns Block 21 (the Block 21 subsidiary) did not meet the debt service coverage ratio test on the June 30, 2020, September 30, 2020, and December 31, 2020, test dates, 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 our Block 21 subsidiary 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 $9.6 million during 2020, and based on current projections, we expect to make additional contributions of approximately $18 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. Our projections are based on many detailed and complex underlying assumptions, including (1) that operating income for our Block 21 businesses will gradually ramp up to a break-even point in the first half of 2021 and that Block 21 will generate sufficient cash to cover debt service by early 2022, (2) that current conditions in our leasing operations will not deteriorate materially, and (3) that we close on projected asset sales in our real estate operations segment. 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. 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.

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GENERAL

We develop property for sale or to lease as part of our leasing operations. 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. We may sell properties under development, undeveloped properties or leased properties, if opportunities arise that we believe will maximize overall asset values as part of our business strategy.

Our acreage under development and undeveloped as of December 31, 2020, is presented under “Operations - Real Estate Operations” in Items 1. and 2. "Business and Properties" herein.

Our single-family residential holdings at December 31, 2020, are principally in southwest Austin, Texas, and include developed lots, homes under development in Amarra Drive in Barton Creek and a condominium unit at the W Austin Residences in downtown Austin (which was sold in February 2021). Our multi-family and commercial holdings at December 31, 2020, consist of The Santal, Lantana Place, Jones Crossing, West Killeen Market, Kingwood Place, New Caney, and The Saint Mary (which was subsequently sold in January 2021). See “Development Activities - Residential” and “Development Activities - Commercial” below for further discussion.

Our leasing operations primarily involve the lease of space at retail and mixed-use properties that we developed, and the lease of residences in multi-family apartment complexes that we developed. Tenants in our retail and mixed-use projects are diverse and include grocery stores, restaurants, healthcare services, fitness centers, a movie theater, and other retail products and services.

In addition to our real estate and leasing operations, we own Block 21 in downtown Austin, Texas, which includes the W Austin Hotel and the ACL Live and 3TEN ACL entertainment venues, in addition to office and retail space.

Our revenues totaled $61.0 million for 2020, compared with $92.2 million for 2019. The decrease in revenues in 2020, compared with 2019, primarily reflects the decrease in revenue from our hotel and entertainment segments caused by the COVID-19 pandemic, partially offset by an increase in revenue from real estate and leasing operations.

Our net loss attributable to common stockholders totaled $22.8 million, or $2.78 per share, for 2020, compared to $2.5 million, $0.30 per share, for 2019. Our higher net loss for 2020, compared to 2019, is primarily the result of (i) operating losses from our hotel and entertainment segments in 2020, primarily as a result of the COVID-19 pandemic, (ii) a non-cash tax charge of $10.7 million in 2020 to record a valuation allowance on our deferred tax assets, (iii) higher interest expense related to lower capitalized interest as projects under development are completed, and (iv) municipal utility district (MUD) reimbursements and a gain on sale of assets being recognized in 2019 (refer to "Real Estate Operations" and "Leasing Operations," respectively, below), partially offset by $15.0 million in income from earnest money received as a result of the termination of the Block 21 transaction.

At December 31, 2020, we had total debt of $351.1 million (see “Debt Maturities and Other Contractual Obligations” below for further discussion), excluding debt related to The Saint Mary, which is reported as liabilities held for sale, and consolidated cash of $12.4 million. 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 the Austin, Texas area, and in other select, fast-growing markets in Texas, market conditions in these regions significantly affect our business, including development costs, interest rates, the availability of credit to finance real estate transactions, demand for residential and commercial real estate, and regulatory factors including our use and development entitlements. These market conditions historically have moved in periodic cycles, and can be volatile. Real estate development in southwest Austin, where most of our real estate under development and undeveloped real estate is located, has historically been constrained as a result of various restrictions imposed by the city of Austin. Additionally, several special interest groups have traditionally opposed development in southwest Austin.

In addition to the traditional influence of state and federal government employment levels on the local economy, the Austin-Round Rock, Texas area (Austin-Round Rock) has been influenced by growth in the technology sector. Large, high-profile technology companies have expanded their profile in Austin-Round Rock recently as the technology sector has clustered in this market. The Austin-Round Rock-area population increased by 33 percent

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from 2009 through 2019, largely because of growing interest in Austin’s local job market. Median family income levels in the Austin-Round Rock area increased by 35 percent during the same period. The expanding economy resulted in rising demand for residential housing, commercial office space and retail services. From 2009 through 2019, sales tax receipts in the city of Austin rose by 78 percent, an indication of the increase in business activity during the period.

The following chart compares Austin-Round Rock’s five-county median family income and metro area population for 1999, 2009 and the most current information available for 2019 (actual) and 2020 (estimate), based on United States (U.S.) Census Bureau data and Austin-Round Rock’s data.

Based on the city of Austin's fiscal year of October 1 through September 30, the chart below compares the city of Austin's sales tax revenues for 1999, 2009 and 2019 (the latest period for which data is available).

Source: Comprehensive Annual Financial Report for the City of Austin, Texas

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Vacancy rates in the city of Austin, Texas as of December 31, 2020 and 2019, are noted below.

Vacancy Rates

Office Buildings (Class A) 16.7 % a 10.5 % a

Multi-Family Buildings 5.7 % b 5.5 % b

Retail Buildings 5.0 % b 4.1 % b

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

Real Estate. 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. We recorded no impairment losses during the two years ended December 31, 2020.

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, 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 2020, we recorded a $10.7 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 $44 thousand at December 31, 2020. 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 July 2018, the Compensation Committee of our Board adopted the Stratus Profit Participation Incentive Plan (the Plan), which provides participants with economic incentives tied to the success of the development projects designated by the Compensation Committee as approved projects under the Plan. Under the Plan, 25 percent of the profit for each approved project following a capital transaction (each as defined in the Plan) 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 2020, we accrued $1.3 million to project development costs ($0.7 million in 2019) and $2.4 million in general and administrative expense ($1.0 million in 2019) related to the Plan. The accrued liability for the Plan totaled $6.2 million at December 31, 2020 (included in other liabilities). See Notes 1 and 8 for further discussion.

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DEVELOPMENT ACTIVITIES

Residential. As of December 31, 2020, the number of our residential developed lots/units, lots/units under development and lot/units for potential development by area are shown below:

Residential Lots/Units

Developed UnderDevelopment Potential Developmenta Total

Barton Creek:

Amarra Drive:

Phase III lots 5 — — 5

Amarra Villas — 13 — 13

Other homes — — 20 20

Section N multi-family:

Other Barton Creek sections — — 156 156

Circle C multi-family:

Other — — 7 7

W Austin Residencesc 1 — — 1

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.We sold The Saint Mary in January 2021. See Notes 2 and 4 for further discussion.

c.We sold the final condominium unit at the W Austin Residences in February 2021.

Barton Creek

Amarra Drive. In 2008, we completed the development of Amarra Drive Phase II, which consists of 35 lots on 51 acres. We sold seven lots for $4.4 million in 2020, three of which were included in the contract discussed below, and two lots for $1.2 million in 2019. As of December 31, 2020, all developed Amarra Drive Phase II lots had been sold.

In 2015, we completed the development of Amarra Drive Phase III, which consists of 64 lots on 166 acres. We sold 12 lots in 2020 for $10.2 million, 4 of which were included in the contract discussed below, and 2 homes built on Phase III lots for $7.2 million. We sold 14 lots in 2019 for $8.9 million, 8 of which were included in the contract discussed below. As of December 31, 2020, five developed Phase III lots remained unsold, two of which are included in the contract discussed below.

In September 2019, we amended a contract previously entered into in March 2018, pursuant to which we agreed to sell 2 Amarra Drive Phase II lots and 15 Amarra Drive Phase III lots to a homebuilder for a total of $11.6 million (the original homebuilder contract). In January 2020, the original homebuilder contract was terminated and replaced with a similar contract with the same homebuilder in which we agreed to sell the three remaining Amarra Drive Phase III lots under the original contract as well as three new Amarra Drive Phase II lots and two new Amarra Drive Phase III lots for $5.2 million (the new homebuilder contract). In September 2020, the new homebuilder contract was further amended to add one additional Amarra Drive Phase III lot to the contract at a sales price of $0.7 million. In

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accordance with the new homebuilder contract the parties are required to close on the sale of these lots ratably before April 30, 2021. If the purchaser fails to close on the sale of the minimum number of lots by any of the specified closing dates, we may elect to terminate the homebuilder contract but would retain the related $45 thousand earnest money.

Subsequent to December 31, 2020, and through March 9, 2021, we sold one Amarra Drive Phase III lot and a multi-family tract of land in Amarra Drive for a total of $3.4 million. As of March 9, 2021, the last four unsold Amarra Drive Phase III lots were under contract, two of which are subject to the new homebuilder contract discussed above.

The Villas at Amarra Drive (Amarra Villas) project is a 20-unit development for which we completed construction of the first seven homes during 2017 and 2018. We sold the last two completed homes for $3.5 million in 2019. We began construction on the next two Amarra Villas homes in the first quarter of 2020, which are expected to be completed in mid-2021. As of March 9, 2021, one was under contract, and a contract had been signed to sell one home on which we expect to begin construction in mid-2021. As of March 9, 2021, a total of 11 units (1 of which is under construction and 10 on which construction has not started) remain available of the initial 20-unit development.

The Santal. The Santal is a garden-style luxury apartment complex located in Section N, which is part of the Barton Creek community. We completed construction of the second phase of The Santal, located directly adjacent to the first phase, during first-quarter 2019. As of December 31, 2020, The Santal multi-family project, consisting of 448 units, was fully leased.

The Saint June. In March 2021, we commenced site clearing on The Saint June, a 182-unit multi-family project within the Amarra subdivision. We expect to begin project construction in the second quarter of 2021, subject to completion of financing.

Section KLO and Section N. We are advancing the planning and permitting process for development of future phases of Barton Creek, including residential Section KLO and commercial and multi-family Section N. We redesigned Section KLO using a combination of traditional single-family lots and residential condominium lots, which is expected to increase our density from 154 to 450 home sites. The city of Austin and Travis County approved initial subdivision permit applications for Section KLO in October 2019 and the engineering for roads and utilities for the initial phase of Section KLO has been completed, and we anticipate securing final permits during the second quarter of 2021. Using a conceptual approach similar to that used for Section KLO, we are also evaluating a redesign of Section N, our approximately 570 acre tract located along Southwest Parkway in the southern portion of the Barton 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. 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 for Section KLO and Section N will require significant capital, which we may pursue through debt and/or equity financings, joint ventures, commercial, partner or other arrangements.

Circle C

We are developing our properties located in the Circle C community based on the entitlements secured in our Circle C settlement with the city of Austin. Our Circle C settlement, as amended in 2004, permits development of 1.16 million square feet of commercial space, 504 multi-family units and 830 single-family residential lots. As of December 31, 2020, our Circle C community had remaining entitlements for 660,985 square feet of commercial space and 56 multi-family units. See Note 9 for a summary of incentives we received in connection with the Circle C settlement.

The Saint Mary. During 2019, we completed construction of The Saint Mary, a 240-unit luxury garden-style apartment project located in the Circle C community. As of December 31, 2020, approximately 85 percent of the units were leased. In January 2021, our subsidiary sold The Saint Mary for $60.0 million. After closing costs and payment of the outstanding construction loan, the sale generated net proceeds of approximately $34 million. We received $21.3 million from the subsidiary in connection with the sale and expect to recognize a pre-tax gain on the sale, net of noncontrolling interests, of approximately $14 million in the first quarter of 2021. See Notes 2 and 4 for further discussion.

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W Austin Residences

As of December 31, 2020, one condominium unit remained unsold at the W Austin Residences, which was sold in February 2021 for $2.4 million.

Commercial. As of December 31, 2020, the number of square feet of our commercial property developed, under development and our remaining entitlements for potential development of commercial property are shown below:

Commercial Property

Developed Potential Development a Total

Barton Creek:

Lantana:

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.

Barton Creek and Circle C

As indicated in the table and discussion above, we have substantial commercial property development potential in Barton Creek and Circle C.

Lantana, including Lantana Place

Lantana is a community south of Barton Creek in Austin. As of December 31, 2020, we had remaining entitlements for approximately 160,000 square feet of commercial use and 320 multi-family units on 37 acres after we rezoned a portion of the Lantana property for the potential multi-family development. Regional utility and road infrastructure is in place with capacity to serve Lantana at full build-out as permitted under our existing entitlements.

Lantana Place is a partially developed, mixed-use real-estate development project. We completed construction of the 99,379-square-foot first phase of Lantana Place in 2018. We previously entered into a ground lease with a hotel operator in connection with its development of an AC Hotel by Marriott, and construction of that hotel is expected to be completed in May 2021. As of December 31, 2020, we had signed leases for approximately 85 percent of the retail space, including the anchor tenant, Moviehouse & Eatery, which opened in May 2018.

Block 21

Block 21 contains 38,316 square feet of Class A leasable office space of which approximately 60 percent was leased as of December 31, 2020, including 9,000 square feet occupied by our corporate office, and 18,327 square feet of retail space, substantially all of which was leased as of December 31, 2020, including 4,500 square feet of space occupied by 3TEN ACL Live.

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Magnolia Place

We are planning to proceed, subject to financing, with the first phase of development of Magnolia Place, a mixed-use project in Magnolia, Texas, currently planned for 18,410 square feet of commercial space; 9 pad sites; and 194 single-family lots and 495 multi-family units. Magnolia Place will be shadow-anchored by a 95,000-square-foot HEB grocery store to be constructed by HEB on an adjoining 18-acre site owned by HEB. The first phase of development is expected to consist of approximately 18,410 square feet of commercial space, 4 pads for lease and 3 pads to be held for sale, and we are currently evaluating the initial phase of multi-family development. We are currently in the process of securing a construction loan to finance the first phase of development. We began site clearing, which will be followed by site work and joint use road and utility infrastructure that will support the entire project. We expect substantially all of the infrastructure costs to be eligible for future reimbursement by the Magnolia East MUD. Refer to Note 1 for further discussion of this MUD and our accounting policy for MUD reimbursements. We expect to commence construction on Magnolia Place in mid-2021, subject to financing and market conditions. The HEB grocery store is currently expected to open in mid-2022. We are evaluating a sale of the land for the single family residential component of Magnolia Place.

West Killeen Market

In 2015, we acquired approximately 21 acres in Killeen, Texas, to develop the West Killeen Market project with 44,493 square feet of commercial space and three pad sites. The project is shadow-anchored by an adjacent 90,000 square-foot HEB grocery store. Construction was completed and the HEB grocery store opened in 2017. As of December 31, 2020, we had executed leases for approximately 70 percent of the retail space at West Killeen Market and leasing activities for the vacant retail space and two vacant pad sites are ongoing. In October 2020, we sold a pad site at West Killeen Market for $0.7 million.

Jones Crossing

Construction of the first phase of the retail component of Jones Crossing, an HEB-anchored, mixed-use development in College Station, Texas, was completed in 2018, consisting of 154,117 square feet. As of December 31, 2020, we had signed leases for approximately 95 percent of the completed retail space, including the HEB grocery store. As of December 31, 2020, we had approximately 23 undeveloped acres with estimated development potential of approximately 104,750 square feet of commercial space and 5 vacant pad sites. We have a 99-year ground lease with the property owner. We continue to evaluate options for the multi-family component of this project.

Kingwood Place

In 2018, we purchased a 54-acre tract of land in Kingwood, Texas (in the greater Houston area) to be developed as Kingwood Place, an HEB-anchored mixed-use development project. The Kingwood project is expected to total approximately 152,000 square feet of retail lease space, anchored by a 103,000-square-foot HEB grocery store, with 49,000 square feet of retail space, 5 pad sites and a 10-acre parcel planned for approximately 275 multi-family units. Construction of two retail buildings, totaling approximately 41,000 square feet, was completed in August 2019, and the HEB grocery store was completed and opened in November 2019. An 8,000-square-foot retail building was completed in July 2020 on a pad site. We have signed ground leases on two of the pad sites, and two pad sites remain available for lease. As of December 31, 2020, we had signed leases for approximately 85 percent of the retail space, including the HEB grocery store. See Note 2 for further discussion.

New Caney

In 2018, we purchased a 38-acre tract of land, in partnership with HEB, for approximately $9.5 million in New Caney, Texas, for the future development of an HEB-anchored, mixed-use project. Subject to completion of development plans, we currently expect the New Caney project will include restaurants and retail services, totaling approximately 145,000 square feet (inclusive of the HEB grocery store), 5 pad sites, and a 10-acre multi-family parcel planned for approximately 275 multi-family units. We finalized the lease for the HEB grocery store in March 2019, and upon execution of this lease, we acquired HEB’s interests in the partnership for approximately $5 million. We currently plan to commence construction on the New Caney project no earlier than 2022.

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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 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.

The following table summarizes our operating results for the years ended December 31 (in thousands):

Operating income (loss):

Real estate operationsa $ 3,869 $ 3,830 b

Corporate, eliminations and otherf (519) g (13,068)

Net loss attributable to common stockholders $ (22,790) $ (2,464)

a.Includes sales commissions and other revenues together with related expenses.

b.Includes $3.4 million of MUD reimbursements, which were recorded as a reduction in real estate cost of sales.

c.Includes a $1.4 million charge for estimated uncollectible rents receivable and unrealizable deferred costs.

d.Includes a pre-tax gain on the sale of assets totaling $5.7 million, primarily related to the sales of Barton Creek Village and a retail pad subject to a ground lease located in the Circle C community.

e.Includes a $1.6 million charge related to the write-off of capitalized hotel remodel costs, partially offset by a $0.8 million credit related to recovery under a business interruption insurance claim filed as a result of water and smoke damage in the W Austin Hotel in January 2018.

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

g.Includes $15.0 million in income from earnest money received as a result of Ryman's termination of the agreements to sell Block 21.

h.Includes a $10.7 million non-cash 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 (see Note 10). The following is a discussion of our operating results by segment.

Real Estate Operations

COVID-19 Pandemic Impact

Despite the COVID-19 pandemic, Real Estate Operations revenue for 2020 increased by 64 percent to $22.6 million, compared with 2019. We continued to advance our land planning, engineering and permitting activities. For further discussion, see Part I, Item 1A. "Risk Factors."

Financial Results

The following table summarizes our Real Estate Operations results for the years ended December 31 (in thousands):

Revenues:

Undeveloped property sales 700 —

Cost of sales, including depreciation 18,761 10,004 a

a.Includes $3.4 million credit related to MUD reimbursements.

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Developed Property Sales. The following table summarizes our developed property sales for the years ended December 31 (in thousands):

Barton Creek

Amarra Drive:

Homes built on Phase III lots 2 7,178 3,273 — — —

Undeveloped Property Sales. In 2020, we sold a vacant pad site at West Killeen Market for $0.7 million.

Real Estate Revenue. The increase in revenue from the Real Estate Operations segment in 2020, compared with 2019, primarily reflects the sales of two homes built on Amarra Drive Phase III lots and an increase in lot sales in 2020, including two premium Amarra Drive Phase III hilltop lots. At December 31, 2020, all developed Amarra Drive Phase II lots had been sold, we had five remaining developed lots for sale at Amarra Drive Phase III and two homes under construction at Amarra Villas. We believe our sales of residential real estate were positively impacted by home-centric trends resulting from the pandemic and from the increased attractiveness of Austin, Texas as a desirable place to live. See “Development Activities” for further discussion.

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 $18.8 million in 2020 and $10.0 million in 2019. The increase in cost of sales in 2020, compared with 2019, primarily reflects an increase in real estate sales of higher priced homes and lots, which typically have a higher average cost per home or lot, and an increase in the number of lots sold 2020. The increase also results from $3.4 million in MUD reimbursements received in 2019 recorded as a reduction in real estate cost of sales as the reimbursed property had previously been sold.

Cost of sales for our real estate operations also includes significant recurring costs (including property taxes, maintenance and marketing), which totaled $5.6 million in 2020and$5.7 million in 2019.

Leasing Operations

COVID-19 Pandemic Impact

Despite the pandemic, Leasing Operations revenue for 2020 increased by 24 percent to $24.1 million, compared with 2019, as we continued to lease up The Saint Mary, including through “virtual” leasing, Kingwood Place and The Santal. However, the pandemic is negatively affecting our leasing operations, primarily at our retail properties. Tenants at our retail locations are diverse and include grocery and liquor stores, which have remained open and have paid rent owed to-date, and restaurants, healthcare services, fitness centers, a movie theater and other retail products and services, many of which had closed or were operating at significantly reduced capacity beginning late in the first quarter of 2020. Beginning in April 2020, we agreed, generally, to 90-day base rent deferrals with a majority of these tenants. The deferred rents are expected to be collected over either a 12-month or 24-month period, per agreements with each tenant, starting in January 2021. Rent deferrals with our retail tenants resulted in a reduction of scheduled base rent collections of 10 percent during the period from April through December 2020. As of December 31, 2020, all of our retail tenants who were open prior to the pandemic had reopened, although operating with capacity restrictions.

At our multi-family properties, we have granted rent deferral accommodations on a case-by-case basis, which during the period from April through December 2020 resulted in a reduction of scheduled rent collections of one percent of contractual rents, with no material decline in occupancy. We will continue to consider rent deferral accommodations on a case-by-case basis. In the aggregate, our retail and multi-family base rent collections were five percent less than scheduled base rents during the period from April through December 2020.

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We cannot assure you that our tenants will recommence rental payments in accordance with our agreements when the deferral period ends nor whether tenants will request additional accommodations or be willing or able to meet future lease obligations. For further discussion, see Part I, Item 1A. "Risk Factors."

Financial Results

The following table summarizes our Leasing Operations results for the years ended December 31 (in thousands):

Rental cost of sales, excluding depreciation 12,611 a 9,420

Gain on sales of assets — (5,683)

a.Includes a $1.4 million charge for estimated uncollectible rents receivable and unrealizable deferred costs.

Rental Revenue. Rental revenue primarily includes revenue from The Santal, Lantana Place, Jones Crossing, The Saint Mary, Kingwood Place, the office and retail space at Block 21, and West Killeen Market. The increase in rental revenue in 2020, compared with 2019, primarily reflects commencement of new leases at The Saint Mary, Kingwood Place and The Santal.

In December 2020, we entered into an agreement to sell The Saint Mary for $60.0 million, and completed the sale in January 2021. The Saint Mary had rental revenue of $3.2 million in 2020 and $0.5 million in 2019, and operating losses of $0.4 million in both 2020 and 2019 (see Notes 2 and 4).

Rental Cost of Sales and Depreciation. Rental costs of sales and depreciation expense increased in 2020, compared with 2019, primarily as a result of the completion of construction and the start of leasing operations at The Saint Mary and Kingwood Place. During the second-quarter of 2020, our lease with Moviehouse, our anchor tenant at Lantana 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. In July 2020, we entered into a new six-month lease agreement with Moviehouse in which rent is based on a percentage of Moviehouse's revenue. The new lease was amended in December 2020 to extend the term through June 30, 2021.

Gain on Sales of Assets. During 2019, we recorded a pre-tax gain of $5.7 million, primarily related to the sales of Barton Creek Village and a retail pad subject to a ground lease located in the Circle C community.

Hotel

COVID-19 Pandemic Impact

As a result of the pandemic, Hotel revenue in 2020 was significantly lower than in 2019, and we incurred significant operating losses in our hotel segment in 2020. The pandemic has had, and we believe will continue to have, a significant adverse impact on the hospitality industry, as it has resulted in dramatically curtailed business and leisure travel and caused cancellations and delays of events. While our hotel has remained open throughout the pandemic, average occupancy during 2020 was 23 percent, compared to 73 percent in 2019. We are working with the hotel operator on plans to gradually ramp up hotel operations to a break-even point in the first half of 2021, health and market conditions permitting.

The pandemic is expected to continue to negatively affect our hotel business, and the extent to which such adverse impacts continue depends on numerous evolving factors that we cannot predict. Moreover, even as travel advisories and restrictions are lifted, travel demand may remain weak for a significant length of time and attractions and events that previously brought visitors to the city of Austin may not proceed or may proceed with limited capacity. We cannot predict if or when our hotel will return to pre-pandemic demand or pricing. For further discussion, see Part I, Item 1A. "Risk Factors."

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Financial Results

The following table summarizes our Hotel results for the years ended December 31 (in thousands):

Hotel cost of sales, excluding depreciation 15,436 a 26,984

Operating (loss) income $ (9,232) $ 5,158

a.Includes a $1.6 million charge related to the write-off of capitalized hotel remodel costs, partially offset by a $0.8 million credit related to recovery under a business interruption insurance claim filed as a result of water and smoke damage in the W Austin Hotel in January 2018.

Hotel Revenue. Hotel revenue primarily includes revenue from W Austin Hotel room reservations and food and beverage sales. Hotel revenues were $10.0 million in 2020 and $35.5 million in 2019. The decrease in hotel revenue in 2020, compared with 2019, is primarily a result of lower room reservations and food and beverage sales as a result of the COVID-19 pandemic. Revenue per available room (RevPAR), which is calculated by dividing total room revenue by the average total rooms available during the year, was $61 in 2020, compared with $235 in 2019.

Hotel Cost of Sales. The decrease in hotel cost of sales, excluding depreciation, in 2020, compared to the 2019, is primarily a result of lower room reservations and food and beverage sales. The increase in depreciation during 2020, compared to 2019, is primarily because of a $202 thousand adjustment made in 2020 for the period in December 2019 when the hotel was held for sale and, therefore, not depreciated.

Entertainment

COVID-19 Pandemic Impact

As a result of the pandemic, our Entertainment revenue in 2020 was significantly lower than in 2019, and we incurred significant operating losses in our entertainment segment in 2020. The pandemic has had, and we believe will continue to have, a significant adverse impact on the entertainment industry and our entertainment operations. Our entertainment venues, ACL Live and 3TEN ACL Live, continue to be subject to capacity restrictions and have held only a limited number of events since the start of the pandemic. It is unclear to what extent pandemic-related concerns will continue to impact the use of and/or demand for our entertainment venues, even as government restrictions are modified or lifted. We hosted a small number of events at our venues during the second half of 2020, and have several events scheduled in 2021, but they have been, and will continue to be, subject to capacity restrictions as in effect at the time. Our scheduled programs will occur only to the extent health and safety conditions, and regulations, permit. For further discussion, see Part I, Item 1A. "Risk Factors."

Financial Results

The following table summarizes our Entertainment results for the years ended December 31 (in thousands):

Entertainment cost of sales, excluding depreciation 7,082 18,871

Operating (loss) income $ (3,507) $ 4,666

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 $5.2 million in 2020 and $25.0 million in 2019. The decrease in entertainment revenue primarily reflects a decrease in the number of events hosted at ACL Live and 3TEN ACL Live, as many scheduled events in 2020 were cancelled or rescheduled as a result of the COVID-19 pandemic.

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