Q1 2020 Stratus Properties Inc Earnings Call

Welcome to the Stratas properties first quarter, 2020 financial and operational conference call.

Earlier. This morning, Stratus released its first quarter 2020 financial results provided business updates, which are available on its website at stratas 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 available for telephone replay on Stratasys website through June Thirtyth 2020.

Anyone listening to the taped replay you should note that all information presented its current as of today June 20, Fiveth 2020, and should be considered valid only as of this state.

As a reminder, today's press release in certain comments that will be made on this call 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 Stratasys 2019 form 10-K, and first quarter 2020 form 10-Q that could cause actual results to differ materially from those projected by stratus.

In addition management will discuss earnings before interest taxes, depreciation and amortization also referred to as 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 in the supplemental schedule of Stratasys press release issued today.

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

Thank you for joining our first quarter 2020 financial and operational conference call.

Our Chief Financial Officer aired Pickens is here with me today.

We hope that you and your families are staying safe and healthy given events over the last several months, we've a lot to cover on todays call.

First I'll provide an update on block 21, our hotel entertainment property in downtown Austin and discuss the impacts of the cobot 19 pandemic on our operations and how we've responded since the pandemic started.

I'll also provide updates on our development projects.

Then I'll turn the call over the air into the structure liquidity in first quarter 2020 results.

On may 22nd we announced that Ryman hospitality properties terminated its agreement to purchase block 21 for $275 million.

Well I'm in said that this decision was due to the capital markets and economic environment caused by the pandemic.

We are disappointed that prevailing market conditions led ryman to make this decision. However, we have tremendous respect for rodman and wish them well throughout these difficult times.

As required by the purchase agreements Ryman forfeited its $15 million earnest money deposit to us.

We used 13.8 billion this earnest money to pay down our comerica credit facility and use the remaining 1.2 million for block 21 debt service in required monthly reserves.

We will record the $15 million income in the second quarter of 2020.

Block 21 continues to be a unique and valuable asset and we remain focused on its continued success in Austin.

The W Hotel remains open and we're working with the operator and plans to gradually ramp up operations over the next 12 months health and market conditions permitting.

We are also considering a modest renovation of the guest rooms in public spaces to enhance the property subject to various approvals, including from our lender in coordination with the hotel operator.

We believe this is a good time to pursue the renovation given the expected favorable construction cost environment and lower than normal occupancy at the hotel.

We expect to use approximately 7 million of reserves previously set aside for hotel improvements under our agreement with the hotel operator.

As we have been watching the pandemic unfold and experiencing immense challenges in our own lives covered 19 continues to have an unprecedented impact on our company our employees in the communities where we operate.

The pandemic has significantly impacted the financial and operational results of our company and industry peers.

We expect it it will continue to impact our operations and financial results for the rest of the year and potentially longer.

As a result of the pandemic many of our retail leasing tenets. Other then grocery liquor stores closed over operating a significantly reduce capacity beginning late in the first quarter of 2020.

Meanwhile, our relationships with multifamily 10 inches experienced only a minor impact.

We analyze potential impacts from coping 19 on our tenants in aggregate, our second quarter to date retail in multifamily run collections or 15% less than scheduled rent.

Beginning in April 2020.

We agreed generally to provide a 90 day base rent deferrals with majority of our retail tenants.

These rent deferrals have resulted in a reduction of scheduled big spread collection.

30% for the second quarter through June 22nd 2020.

As of mid June most of our retail tenants have reopened.

Uncertainty remains concerning the continued impact on our tenants, we will try to work with them to the best of our abilities during the pandemic.

And our multifamily properties, we have granted rent deferral accommodations on a case by case basis.

Which in the second quarter as of June 22nd 2020 had resulted in a reduction of scheduled rent collections of approximately 2% a contractual rents with no material decline in occupancy.

The pandemic is having a significant adverse impact on the hospitality industry and as a result, our hotel in entertainment operations have also been adversely impacted.

For example, well our hotel has remained open throughout the pandemic average occupancy for the second quarter through June 21st was 12% with June being the best much in the quarter, averaging 24% so far.

We're working to make the hotel is safe and welcoming as possible in an uncertain environment.

The city of Austin has extended the stay at home order through August 15th we cannot know how the market will progress. So we cannot say for certain how the market will affect our hotel in the coming months.

Additionally, our entertainment venue Hcl like remains close and 310, they see alive is open Atlas limited capacity.

Many of as previously scheduled to take place this year have been rescheduled or cancel.

As we look across the entertainment industry, we continued to see depressed demand due to governmental restrictions and consumer health precautions and the other had we believe many of our patrons are eager for entertainment provided it can be done safely.

Our race yellow light menu in W. Hotel have collaborated on organizing a room and onsite festival package targeted two major Texas cities within driving distance of Austin.

We're working to schedule. Several these events during the summer and we are holding a relatively strong show calendar for the fall.

Our schedule programs will occur only to the extent health and safety conditions and regulations permit.

We have seen great support from our communities regarding this creative utilization of our unique property and I've also received strong support from the Austin Convention Visitors Bureau, our local tourism Board.

We of course continue to maintain and improve appropriate property wide health and safety protocols to help protect our guests and employees.

As a result of the pandemic, we're deferring progress on development projects, including our previously announced Magnolia place project pending improvements in health and market conditions, but we continue to advance our land planning engineering and permitting activities.

We've been successful in making progress in these areas of our development projects. So far this year for example.

We successfully resumed a portion of the Lantana place project that was previously an office side for a potential multifamily development of up to 350 units, which we believe is a significant increase in value for stratasys and another high quality development opportunity.

We are continuing to advance the planning and permitting process for developing a future phases of Barton Creek, including residential section K L O and commercial and multifamily section and.

Our expected residential density per section Kalo continues to increase as we refine our engineering land plan.

We currently expect to settle on approximately 420 home sites, which is an increase from the approximately 150 home sites currently entitled.

And with respect to Barton Creek section and.

We are also evaluating a redesign of this 570 anchor project using a conceptual approach similar to the one we are using for section kalo.

If successful the project would be a dance mid rise mixed use project surrounded by an extensive greenspace amenity.

In response to the pandemic, we've implemented measures such as increased sanitizing, physical distancing and remote work arrangements with the goal of protecting our employees tenants guess customers and suppliers.

We maintain regular communications with our lenders and as Aaron will explain we believe stratasys adequate liquidity to meet all of our debt service and other cash obligations for at least the next 12 months.

Our current plans call for us to focus on continuing our planning activities for our development projects, including Barton Creek and its sections K L O and then.

Wrapping up operations I bought 21 in assessing new opportunities for future projects.

I'll now turn the call over the air in for a review of the first quarter 2020 financial results and comments on our liquidity Aaron.

Thank you Beth.

Earlier. This morning, we issued a press release announcing our operational and financial results for the first quarter 2020.

Well, we would normally be discussing our first quarter 2020, resulting in mid May <unk> kind of 19 pandemic, we relied on the fccs or providing conditional relieved to delay the filing effort of our first quarter 2020 form 10-Q.

Before I begin I'd like to discuss our liquidity position.

We believe will enable us to navigate the current pending.

We have strong relationships with our lenders and have maintained regular communication with them.

We have recently enhanced our liquidity position by taking the phones that.

We received $15 million from Ryman related to the terminated block 21 transaction and need to $13.8 million at this time to pay down our comerica revolver.

We recently finalized two year extension of our 60 million dollar Conagra Bahar and extended the maturity of the facility September 2022.

And we never seem to $4 million Paycheck protection program line.

I forget since reflect that well be able to meet our debt service another cash obligations for at least the next 12 months without any significant asset sales or reduction in general and administrative expenses.

Actions are based on many detailed and complex underlying assumption and we cannot assure you that they results anticipated <unk> projections will occur.

Our financial results for the first quarter 2020, including revenues totaling $28.1 million in the first quarter of 2020 up from $19.7 million and the first quarter 2019.

This increase primarily reflects the sales of two times built on American drive phase three lives.

In an increase in Los Angeles, along with an increase in revenue from leasing operation.

Yeah overall, increasing revenues when that a decline in revenues in our hotel and entertainment second that cost because it 19 and then.

Net loss attributable to common stockholders of $1.1 million or 13 cents per share in the first quarter of 2020 compared to net income attributable to common stockholders point $9 million or 10 cents per share in the first quarter of 2019.

The decline in profitability was primarily related to municipal utility district reimbursement and a gain on sale assets being recognized in the first quarter in 2019.

And higher interest expense related to higher average debt in the first one or 2020.

EBITDA of $4 million for the first wondering if 2020 compared to $6.5 million for the first quarter last year.

Chad its revenue operating income and cash flow in its totality Entertainment segment were adversely impacted in first quarter 2020 are expected to be more adversely impacted in the second quarter of 2020.

And they continue to any impact beyond the second quarter after having 20.

As I mentioned, the company's deferring progress on development projects pending and president and help in market condition.

We continue to advance our land planning engineering and permitting activities.

Our first quarter 2020 results will not be comparable to past performance are indicative of future performance.

Revenue, our real estate operations segment in the first quarter 2020 totaled $12.3 million up from $3 million last year.

The increase primarily reflects the sales of two homes built on the my drive phase three lots and an increase in lot sales in first quarter 2020.

Operating income in the segment totaled $2 million in the first quarter 2020.

Compared to $2.8 million in the first quarter last year.

Last year's quarter included $3.4 million, an income and municipal utility district reimbursements.

We sell to Amar drive phase two lot.

Look semidry phase three lots and two homes built on them on dried phase three lots for a total of $12.3 million in the first quarter of 2020.

Since the end of the first quarter and through June 22nd 2020, Stratus closed on a sound like one of my drive phase three lot for $650000 on one of my God plays Gilat for $632000.

Revenue in our leasing operations segment totaled $6 million in the first for 2020.

From 3.9 $9 last year.

The increase primarily reflect the commencement of leases at the same Mary came would play the Santosh tens crossing in Montana play.

Operating income in the first quarter 2020 totaled <unk> point $8 million compared to $2.4 million in the first quarter of 2019.

The decrease primarily reflects increased <unk> and depreciation and the completion of construction and started leasing operation at the same marrying keenly play.

In addition, our first quarter 2019 resolved included a 2.1 million dollar gain on the sale of retail pad located in the Sarkozy community.

Hotel revenues totaled $6 million in the first quarter 2020, compared to $8.4 million into first quarter of 2019.

Our operating loss was $1 million in the first of all right here.

Compared to operating income the point $7 million in the first part of last year.

The decrease in revenue and operating income that's primarily I never saw the marine reservations in food and beverage sales as a result, and the kind of the 19 pending.

Revenue per available ran our revpar.

$150 in the first quarter of 2020 compared to $238 in first quarter of 2019.

Entertainment revenues totaled $4.2 million in the first quarter of 2020 compared to $4.8 million in the first quarter of 2019.

Operating income less point $5 million in the first quarter 2020.

<unk> point $8 million in the first quarter of last year.

The decrease in both revenue and operating income primarily reflect the decrease in the number and I can't say stay alive, many of which for me scheduled I can't tell did attend Danny.

Hey, stay alive has to 38 events and sold approximately 38000 ticket in the first quarter of 2020, compared with 64 events and the sale of approximately 49000 tickets in the first quarter at last year.

Moving forward to our capital management.

At March 31st 2020, consolidated debt totaled $373.1 million.

Consolidated cash totaled $23.9 million.

Compared with consolidated data 365.7, $9 and consolidated cash at $19.2 million at December 31st 2019.

Purchases in developing I never real estate properties included in operating cash flows and capital expenditures included investing cash flows totaled $8.6 million for the first quarter of 2020, primarily related to that development Atlanta Hana play, England play John's crossing in Garden Creek property.

This compares with 32.7 $9 for the first three months of 2019, primarily related to the development at the same Mary Qinglin place the sounds hall and other Barton Crockett property.

Thank you I'll now turn the call that for his closing remarks.

Thank you Aaron in closing I want to recognize the resiliency of our team and our company.

We continue to have the talent reputation relationships proven strategy and portfolio of properties that said stratus apart.

I want to think our board of directors.

Employees for their focus and dedication that that have enabled us to navigate the pandemic.

I believe these efforts will enable us to continue to operate effectively in the current market and it positioned us to perform well when you can I'm a conditions recover.

At this time I will ask the operator to open the line for questions.

Thank you for participate.

We will now begin the question and answer session.

To ask a question you May press Star then one on your telephone keypad.

If you were using a speakerphone please pick up your handset before pressing the keys to withdraw your question. Please press Star then too.

At this time, we will pause momentarily to assemble our roster.

Again, if you have a question. Please press Star then one.

Showing no questions. This concludes our question and answer session and the conference call has also now concluded. Thank you for attending today's presentation. You may now disconnect.

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