STRATUS PROPERTIES INCSTRS
STRATUS PROPERTIES INC Commitments Disclosure
COMMITMENTS AND CONTINGENCIES
Construction Contracts. Stratus had firm commitments totaling approximately $5 million at December 31, 2025 primarily related to construction of the road and utility infrastructure Stratus is required to build in Lakeway, Texas, and Holden Hills Phase 1. Stratus has a construction loan to fund the projected cash outlays for Holden Hills Phase 1 over the next 12 months following this filing. In first-quarter 2026, we made an operating loan to The Annie B partnership of $550 thousand, and one of the Class B limited partners made an operating loan of $250 thousand. In first-quarter 2026, we also advanced $124 thousand to the Holden Hills Phase 1 partnership, $891 thousand to the Holden Hills Phase 2 partnership and $1.8 million to The Saint George partnership. We anticipate making future operating loans or advances to The Annie B partnership of approximately $1.2 million and to The Saint George partnership of approximately $1.9 million over the next 12 months to enable the partnerships to pay debt service and other partnership costs. The estimates of future operating loans and advances are based on estimates of future costs of the partnerships. The operating loans for The Annie B partnership would bear interest at one-month Term SOFR plus 5.00 percent and would be subordinate to The Annie B land loan and required to be repaid before distributions may be made to the partners.
Letters of Credit. As of December 31, 2025, Stratus had letters of credit totaling $10.0 million issued under the revolving credit facility, of which $7.4 million secure our obligation to build certain roads and utilities facilities benefiting Holden Hills Phases 1 and 2 and $2.3 million secure Stratus’ obligations, which are subject to certain conditions, to construct and pay for certain utility infrastructure in Lakeway, Texas, which is expected to be utilized by the planned multi-family project on Stratus’ remaining land in Lakeway (refer to Note 6 for further discussion). In January 2025, the Fifth Third Bank revolving credit facility was modified to increase the aggregate amount of letters of credit that may be committed against the facility from $13.3 million to $15.6 million. In February 2025, Stratus entered into an additional $2.3 million letter of credit to secure Stratus’ obligation to build certain roads and utilities facilities benefiting Holden Hills Phases 1 and 2, resulting in outstanding letters of credit totaling $15.6 million. In May and November 2025, $4.0 million and $1.6 million letters of credit, respectively, relating to Holden Hills Phase 1 were terminated upon completion of the related obligations and the aggregate amount of letters of credit committed against the facility was reduced to $10.0 million. In March 2026, $6.6 million letters of credit relating to Holden Hills Phase 1 were terminated upon completion of the related obligations and the aggregate amount of letters of credit committed against the facility was reduced to $3.4 million.
Rental Income. As of December 31, 2025, Stratus’ minimum rental income, including scheduled rent increases under noncancelable long-term leases of developed retail space and ground leases, totaled $3.0 million in 2026, $3.0 million in 2027, $2.9 million in 2028, $2.2 million in 2029, $1.7 million in 2030 and $14.0 million thereafter, with the longest lease extending through 2038. Stratus’ minimum rental income includes leases of retail space and pad sites at Jones Crossing and does not include leases at Kingwood Place because it was presented in assets held for sale in the accompanying consolidated balance sheets.
H-E-B Profit Participation. H-E-B has profit participation rights in the Jones Crossing, Kingwood Place, and Oaks at Lakeway projects. H-E-B is entitled to 10 percent of any cash flow from operations or profit from the sale of these properties after Stratus receives a return of its equity plus a preferred return of 10 percent. Stratus may enter into similar profit participation agreements for future projects. In January 2026, upon the sale of Kingwood Place, H-E-B earned a profit participation of $78 thousand.
Leases. Stratus’ most significant lease is a 99-year ground lease for approximately 72 acres of land in College Station, Texas for the Jones Crossing project. Stratus also leases various types of assets, including office space,
vehicles and office equipment, under non-cancelable leases. Stratus entered into one lease during fourth-quarter 2022 that is classified as a finance lease, and the other leases are classified as operating leases. As of December 31, 2025, the remaining term of the finance lease is approximately two years with a weighted-average discount rate of 6.4 percent used to determine the lease liability.
Supplemental balance sheet information related to leases is as follows (in thousands):
| December 31, | |||||||||||||||||
| Classification on the Consolidated Balance Sheet | 2025 | 2024 | |||||||||||||||
| Assets | |||||||||||||||||
| Operating right-of-use assets | Lease right-of-use assets | $ | 10,237 | $ | 10,088 | ||||||||||||
| Finance right-of-use assets | 29 | 46 | |||||||||||||||
| Liabilities | |||||||||||||||||
| Operating lease liability | Lease liabilities | $ | 16,033 | $ | 15,436 | ||||||||||||
| Finance lease liability | 32 | 49 | |||||||||||||||
Operating lease costs were $1.9 million in 2025 and $2.1 million 2024. Stratus paid $1.5 million during 2025 and $1.4 million in 2024 for operating lease liabilities recorded in the consolidated balance sheet (included in operating cash flows in the consolidated statements of cash flows). As of both December 31, 2025 and 2024, the weighted-average discount rate used to determine the lease liabilities was 6.1 percent. As of December 31, 2025, the weighted-average remaining lease term was approximately 84.7 years (88.0 years as of December 31, 2024).
The future minimum payments for operating leases recorded on the consolidated balance sheet at December 31, 2025 follow (in thousands):
Years ending December 31, | |||||
| 2026 | $ | 1,284 | |||
| 2027 | 1,293 | ||||
| 2028 | 778 | ||||
| 2029 | 744 | ||||
| 2030 | 744 | ||||
| Thereafter | 105,617 | ||||
| Total payments | 110,460 | ||||
| Present value adjustment | (94,427) | ||||
| Present value of net minimum lease payments | $ | 16,033 | |||
Circle C Settlement. In 2002, the City of Austin granted final approval of a development agreement (the Circle C settlement) and permanent zoning for Stratus’ real estate located within the Circle C community in southwest Austin. The Circle C settlement firmly established all essential municipal development regulations applicable to Stratus’ Circle C properties until 2032. The City of Austin also provided Stratus $15.0 million of development fee credits, which are in the form of credit bank capacity, in connection with its future development of its Circle C and other Austin-area properties for waivers of fees and reimbursement for certain infrastructure costs. In addition, Stratus can elect to sell up to $1.5 million of the incentives per year to other developers for their use in paying city fees related to their projects as long as the projects are within the desired development zone, as defined within the Circle C settlement. To the extent Stratus sells the incentives to other developers, Stratus recognizes the income from the sale when title is transferred and compensation is received. As of December 31, 2025, Stratus had permanently used $12.9 million of its city-based development fee credits, including cumulative amounts sold to third parties totaling $5.1 million. Fee credits used for the development of Stratus’ properties effectively reduce the basis of the related properties and Stratus defers recognition of any gain associated with the use of the fees until the affected properties are sold. Stratus also had $0.3 million in credit bank capacity in use as temporary fiscal deposits as of December 31, 2025. Available credit bank capacity was $2.4 million at December 31, 2025.
Deferred Gain on Sale of The Oaks at Lakeway. In 2017, Stratus sold The Oaks at Lakeway to FHF I Oaks at Lakeway, LLC for $114.0 million in cash. The Oaks at Lakeway is an H-E-B anchored retail project located in
Lakeway, Texas. The parties entered into three master lease agreements at closing: (1) one covering unleased in-line retail space, with a five-year term (the In-Line Master Lease), (2) one covering the hotel pad with a 99-year term (the Hotel Master Lease) and (3) one covering four unleased pad sites, three of which have ten-year terms ending February 2027, and one of which has a 15-year term ending February 2032 (the Pad Site Master Lease).
The In-Line Master Lease expired in February 2022 and the Hotel Master Lease was terminated in November 2020. As such, Stratus has no further obligations under these two master leases. Stratus has subleased the pad site with a 15-year term under the Pad Site Master Lease. Stratus may assign this lease to the purchaser and terminate the obligation under the Pad Site Master Lease for this pad site with a payment of $560 thousand to the purchaser. In first-quarter 2025, Stratus subleased one of the pad sites with a ten-year term under the Pad Site Master Lease. The monthly rent Stratus pays under the Pad Site Master Lease is approximately $60 thousand, net of monthly rent received from the pad site subleases. To the extent leases are executed for the remaining two unleased pad sites, tenants open for business, and the leases are then assigned to the purchaser, the master lease obligation could be reduced further.
In first-quarter 2022, Stratus reassessed its plans with respect to construction of the remaining buildings on the three remaining unleased pad sites and determined that, rather than execute leases and build the buildings, it is less costly to continue to pay the monthly rent pursuant to the Pad Site Master Lease until the lease expires in February 2027. In connection with this determination, Stratus reversed an accrual of costs to lease and construct these buildings, resulting in recognition of an additional $4.8 million of pre-tax gain during 2022. As a result of the pad site being subleased in first-quarter 2025, Stratus recognized a portion of the previously deferred gain of $200 thousand due to the expected savings in the master lease rent over the remaining term. The remaining deferred gain representing the related contract liability is presented in the consolidated balance sheets in the amount of $0.8 million at December 31, 2025 and $1.8 million at December 31, 2024. The reduction in the deferred gain balance primarily also reflects Pad Site Master Lease payments. The remaining deferred gain balance is expected to be reduced primarily by future Pad Site Master Lease payments.
Environmental Regulations. Stratus has made, and will continue to make, expenditures for protection of the environment. Increasing emphasis on environmental matters can be expected to result in additional costs, which could be charged against Stratus’ operations in future periods. Present and future environmental laws and regulations applicable to Stratus’ operations may require substantial capital expenditures that could adversely affect the development of its real estate interests or may affect its operations in other ways that cannot be accurately predicted at this time.
Litigation. Stratus may from time to time be involved in various legal proceedings of a character normally incident to the ordinary course of its business. Stratus believes that potential liability from any of these pending or threatened proceedings will not have a material adverse effect on Stratus’ financial condition or results of operations.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Mar 27, 2026 | Showing above |
| 2024 | Mar 28, 2025 | |
| 2023 | Mar 28, 2024 | |
| 2022 | Mar 31, 2023 | |
| 2021 | Mar 31, 2022 | |
| 2020 | Mar 15, 2021 | |
| 2019 | Mar 16, 2020 | |
| 2018 | Mar 18, 2019 | |
| 2017 | Mar 16, 2018 | |
| 2016 | Mar 16, 2017 | |
| 2015 | Mar 15, 2016 | |
About Commitments Disclosures
Commitments and contingencies disclosures catalog a company's off-balance-sheet obligations and legal exposures — purchase commitments, guarantee arrangements, pending litigation, and regulatory proceedings. These items represent potential future cash outflows that may not appear as liabilities on the balance sheet until they become probable and estimable.
Key signals: litigation reserves and disclosed loss ranges quantify management's estimate of legal exposure, but unquantified "reasonably possible" losses often represent the larger risk. Watch for changes in language around pending cases — shifts from "remote" to "reasonably possible" or increases in estimated loss ranges signal deteriorating outcomes. Unconditional purchase obligations and take-or-pay contracts create fixed cost structures that reduce operational flexibility. Guarantee arrangements for subsidiaries or joint ventures can create cascading obligations. Compare the total commitment schedule against projected free cash flow to assess whether the company can meet its obligations without additional financing.