Q3 2019 Earnings Call

Welcome to the strategy properties third quarter, 2019 financial and operational conference call.

This morning.

Why this released its financial results, which are available on its website at strategy properties Dot com.

Following management's remarks, we will host a question and answer session.

Please note. This call is being recorded and will be a telephone replay on strategist website through November 17th 2019.

Anyone listening to the taped replay shouldn't note that all information presented his current as of today November 12, 2019, and should be considered that only as of the state.

As a reminder, today's press release in certain called and said will be made on this.

Include forward looking statements and actual results may differ materially.

Please review and refer to the cautionary language included in Stratasys press release issued today and the risk factors described in stride. This is 2018 Form 10-K could cause actual results to differ materially from those projected by status.

In addition management will discuss adjusted earnings before interest taxes, depreciation and amortization also referred to as adjusted EBITDA, which is a financial measure not recognized under U.S. generally accepted accounting principles also referred to as gap.

As required by FCC rules and regulations. This non-GAAP financial measure is reconciled to its most comparable GAAP financial measure and supplemental schedule Stratasys press release issued today.

I would now let's turn the call over to Mr., Bob Armstrong, Chairman, President and Chief Executive Officer Stratus properties.

Thank you everyone for joining our third quarter 2019 financial and operational conference call.

Our Chief Financial Officer, Aaron Pickens's here with me today.

As we have previously stated our goal as a diversified real estate company in the fast growing Texas markets just to follow a development process that creates value for our stockholders.

This process includes the following stages.

First we identify attractive properties and then negotiated an acquisition.

Can we prepare development plans and secure entitlements and permits for the project.

Third we construct at least the project and lastly, we positioned the project for a capital that which may include a sale for refinancing depending on market conditions.

Our pipeline is full of opportunities in our projects are progressing as planned on today's call. Although I will not cover all of our current projects.

I'd like to focus on three of them, mainly Magnolia place.

San Antonio and block 21.

Afterwards, Aaron will discuss our third quarter financial results.

Last quarter I shared that we were in the process of securing construction loan to finance the first phase of Magnolia place a new mixed use project in Magnolia, Texas, which is northwest of Houston.

Oh state of Texas Hobby Department roadway work in city of Magnolia utility work is now complete.

We are fine tuning, our development budget and continuing our pre leasing and development financing efforts.

We currently expect to begin cycling within the next eight to 10 weeks.

The first phase of this project consists of retail in multifamily development.

Retail component will have a shadow anchored H E B and 41100 square feet, a retail space three pads release in three pads to be held for sale.

We're currently evaluating the initial phase of multifamily development as well.

The full development is currently planned for 81000 square feet of retail.

Six pad sites to hotel sites, and 50 acres of residential land, allowing up to 1200 multifamily units.

We believe it this property will create value for a number of reasons, including.

We have experienced in are knowledgeable in Houston area market.

This is our third project, but they should be in Houston area.

The project as well located in design.

Large mixed use properties remain attractive to both tenants and institutional buyers.

We expect substantially all of the infrastructure costs to be eligible for future reimbursement.

By the Magnolia East municipal utility district.

We believe Magnolia place was bought at the right time for strategies and that there are favorable opportunities available to us related to this property.

We look forward to working to increase the value of Magnolia place in the future.

Two of our key properties or in the fourth phase of our development cycle, which is the stage in wish reposition the property for capital event, such as a sale or refinancing.

As previously announced in the beginning of October of this year, we considered a sale of the San Antonio and Barton creep, but chose to refinance the property as we believe this option will provide long term value to strategy to shareholders.

Aaron will provide further details regarding this refinancing structure shortly.

Refinancing this high quality asset provided us with a tax efficient return of capital and allows us to maintain ownership if an asset that continues to produce positive cash flow.

We believed that the San Antonio will continue to appreciate in value in the choice to refinance the property allows us to maintain the option to consider a future sale should we decide the timing market conditions in value our right.

Separately, we previously announced that we are exploring various opportunities with respect to block 21 are mixed use development in downtown Austin, Texas that contains a 251 room luxury hotel hundred 59 residential condominium units and office retail and entertainment space that process is continuing.

The Austin market continues to be an attractive market for stress to investing.

Block 21 is a trophy asset for strategy and our shareholders and continues to perform well.

As I mentioned earlier, well I'm not going to discuss each project specifically our pipeline is full of high quality development opportunities and our projects are progressing as planned.

Leasing remained strong for many of our projects such as the same Mary and Lantana place in Tennessee begun finish out it King would place H E. B plans to open Tomorrow November 13 and Kingwood.

Specifically at our Jones crossing development in College station.

Chick Fil a sign of ground lease for one of the pad sites. Its Grand opening was held on September 19th of this year and we believed that this restaurant chain will bring significant traffic to the site and attract additional leasing activity. We are also currently evaluating initial phase of multifamily development a Jones crossing.

There are many activities currently underway for the company for additional details regarding leasing and other information. Please review our third quarter Form 10-Q .

I'll now turn the call over to our Chief Financial Officer Air Pickens for review of the third quarter financial highlights Aaron.

Thank you though.

We reported our financial results for the third quarter. If he doesn't 19 in our press release issued this morning.

In the third quarter this year compared to last year's quarter, Stratus reported revenues totaling $22.3 million up from $17.9 million last year.

The increase in our revenues is primarily due to the commencement of leases at our recently completed properties and an increase in the number the dance and higher event attendance at AC alive.

Net loss attributable to common stockholders of $3 million versus $2.4 million last year, which is primarily the result of higher interest expense related to higher average debt.

And adjusted EBITDA totaling $2.9 million in the third quarter 2019 add from $1.4 million last year.

Stratus reports financial results for four operating segments, including our real estate operations leasing operations Hotel and entertainment segment.

In the third quarter offer operating segment earned increase revenues and operating income on a year over year basis.

Our real estate operations segment revenues and operating income increased this quarter compared with the same quarter last year.

$2.6 million and point $2 million, respectively, primarily due to higher sales have developed properties.

In the recent quarter, we sold for Amar drive phase three lot for a total of $2.6 million.

Compared with sales of one American drive phase two lot and to a more I drive phase three lots for a total of $2 million in the third quarter last year.

Since quarter end, we've closed on the sale of one of my drive phase two lot and two of them our dry phase three lots for a total of $2.2 million.

As of November eight eight am I drive phase three lots were under contract.

Our leasing operations segment revenues and operating income increased this quarter compared with the quarter last year to $5.2 million and 1.3, $9, respectively, which primarily reflect revenue for newly executed leases in connection with increases in occupancy for the Sun tall, and the St_mary multifamily properties as well.

The lantana place and John's crossing.

Our hotel segment revenues and operating income increased to $8.8 million and point $9 million, respectively. In the third quarter this year compared to third quarter last year.

Hi, merely due to higher food and beverage sales, an increase weekday group and transient business.

Revenue per available ran with $222. This recent quarter compared to $214 into third quarter last year.

We expect to continued increase in hotel competition and the surrounding downtown Austin area. During the remainder of 2019 and throughout 2020, which could have an impact on Stratasys hotel revenues.

However, we are optimistic about that long term outlook of the Debbie you often hotel based on increased office space growth in downtown Austin continued population grass and increased tourism.

Lastly, our entertainment segment revenues and operating income increased to $6.2 million and $1.1 million respectively. In the recent quarter compared to the same quarter last year, primarily due to an increase in the number of events hosted and higher event attendance at AC alive.

I see a line hosted 59 advance and sold approximately 61000 tickets ends up in the third quarter 2019, compared to 49 events and approximately 48000 ticket in the quarter last year.

<unk> alive hosted 46, it adds and sold approximately 6000 tickets in the third quarter of 2019, compared with 55 to dance and approximately 5000 tickets in a third quarter last year.

Our most popular that some of which were sold out including performances by Chicago, Martin Ostler, I Love It Bryan ferry and Vampire weekend.

Please review the earnings release. It was issued this morning for additional information relating to segment financials in the third quarter of 2019 compared to the third quarter 2018.

Moving forward to our capital management.

Consolidated debt totaled $367.4 million and consolidated cash totaled $32.5 million at September Thirtyth 2019.

This represents increases from $295.5 million and $19 million, respectively at December 31st 2018.

As a part of the refinancing at this on top property, we entered into a 75 million dollar loud on September thirtyth with a CRC lender LLC and we used approximately $57.9 million if the proceeds to repay the santyl construction lines.

Remaining proceeds after paying transaction costs were approximately $16 million inclusive of reserves presented unrestricted cash.

We used $13 million that these proceeds to reduce the balance on our comerica credit facility in October .

Purchases and development of real estate properties included in operating cash flows and capital expenditures included in investing cash flows totaled $60 million for the first nine months of 2019.

Primarily related to the development of Kingwood place the St Mary and Barton Creek properties.

Compared with $82.4 million for their first nine months of 2018, primarily related to the purchase at the King would place land and the development of the Sun Tal Lantana place John's crossing and the St. Mary.

Thank you for listening.

I will turn the call that did though for his closing remarks. Thank.

Thank you Aaron the execution of our development process and select fast growing Texas markets, including Austin, Houston continues to provide value to us and our shareholders.

Multiuse properties continue to be strong assets for strategies and we are proud to work with native Texas companies such as a GB.

As we have discussed in our previous calls and as we continue to witness the Austin and Houston markets offer strong job opportunities, which allows for continued population growth there may be additional competition regarding our hotel and entertainment segment, but we welcome the increased activity, we continued to see value and invest in these areas as we follow our full development process.

And focus on generating strong returns for both the company and its shareholders.

Thank you for listening and are happy to answer any questions you may have.

We will now begin the question and answer session.

To ask a question you May Press Star then one on your Touchtone phone.

If you weren't using a speakerphone please pick up your handset before passing the keys to withdraw your question. Please press Star then too.

At this time, we'll pause momentarily to assemble roster.

Yeah. If you have a question. Please press Star then one please standby as we pull for questions.

Our first question comes from Sam Kidston with North and Webster. Please go ahead.

Hey, Hey, guys. How are you today or just a couple of.

Quick questions. One is just a comment a little bit further on the process around block 21, and ER, maybe when you think that that process or you might have something to announce one way or another.

Good morning, Sam is you can appreciate that process is ongoing and I'm reluctant to get into any details, but I'll tell you that what I can't say is that we've had very strong interest, but it is again preliminary to discuss specifics, but my my the process will be will conclude this process that.

Samples who's been running.

I will you're kind of lay out the up the opportunities for the board and they'll they'll directed me on a path forward, but I I think Kim I want to get into too much detail, but I would think it's.

Probably the next you know.

30 days, what will at least be able to.

Bring something to closure for a lot for our board to consider.

Great Great and then just any or anything you can talk about on the activity around the deferred gain.

Uh huh.

Burning that Oh.

I'll, let parent answered that if that's okay Sam.

Right Hi, Sam.

The deferred gain is.

It hasn't really been much movement in that in some time in and that's.

That's because there's its related to additional buildings that could be built yeah, a couple of build to suit.

And and one building on a pad site.

So it's probably you know would probably be until unless and until we build those properties that we would recognize any more gain.

Right and the any comment on the marketing on those.

Marketing process on those.

You were were very active nothing nothing.

Nothing really to two I guess disclose at this point, but those are very active projects and where we're constantly.

Assessing opportunities out there so it's nothing that that we feel that there's any trouble there at all.

It's just kind of finding the right right match of the tenant for the property.

Sure sure currently like the rest of the center and the rest of the center I'll just add the rest of the center is performing very well.

So I'm just I think just kind of a matter time before you can get away with deal there.

Sure.

Thank you guys for that.

Thanks, Jim.

The next question is from Fred burden or a private investor. Please go ahead.

Thank you [laughter], although I've two questions.

The hotel.

I was pleasantly surprised on its growth in the quarter Oh.

And the press we spoke about what caused the upturn is the upturn expected to continue in the near term.

Wilfred I, that's that's always no.

Difficult to predict the future, but I would tell you that you know there's been there's been a lot of new supply and Austin I know that that has had people worried but we continue to it also expands our or or visitor base. So it's all it's all good. So I think that goes out there that thought that we were.

Approaching overbuilt situation I don't think the best materialize and I can tell you that there still is considerable demand from hotel investors to either by existing or to consider development opportunity. So I am optimistic that we will continue on this favorable trend I think we've had oh I can tell you that.

With respect to our property, we did have a little bit of Ah. There was a transition from starwood to marry out in accounting system, and a reservation system issues and that I don't.

The particular details about as noted that there were some issues there that did impact our.

First half of the year results, but I'd feel as though those have been addressed and and were you know we're back where we want to be so perhaps a long answer to your question, but I do think that a bit that Austin in general is performing very well you know I think our hotel is extraordinary and its complement of of different uses.

So I feel there weren't a good in good shape to continue to compete well in the aftermarket.

Thank you and my other question Oh, what are your thoughts on.

Cash distributions to common shareholders.

Well that that ultimately as a board decision Fred and I don't I don't think right now we're we're in a position to do that right. This minute, but we yeah. We've done one of the past when we've had it had a big capital event. So I think that to the extent that we we have the resources to do that I think the board has demonstrated a willingness in the past to do that.

But I'd first things first we we'd like to you know the at least.

I have a capital event that would enable us to do that.

Okay. Thank you very much thank you Fred.

This concludes our question and answer session and the conference is also now concluded. Thank you for attending today's presentation. You may now disconnect.

[noise].