Q2 2020 Stratus Properties Inc Earnings Call

Good day and welcome to the Stratus properties second quarter, 2020 financial and operational conference call.

Earlier this morning, Stratus issued a press release announcing its second quarter 2020 financial results.

The press release is available on Stratasys 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 August 15th 2020.

Anyone listening to the taped replay should note that all information presented its current as of today August 10th 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 second 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 their 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 a 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 second quarter 2020 financial and operational conference call.

Our Chief Financial Officer, your because it's also here with me today.

As always I hope it you your family sourcing safe and healthy during which time Oh.

I would like to begin the call by discussing trends, we are seeing its market and the related impacts on our business.

Then I will discuss our liquidity position in several of our focus areas to manage costs and liquidity during the pandemic.

Lastly, I will reiterate our long term strategy remains intact, even in current market conditions.

We had hoped at the market Cobot 19 situation would have shown improvement during the course of the second quarter, but instead, we have seen increased rate of cobot, 19 cases, and renewed government mandated restrictions across Texas.

Although we remain very cautious given the uncertainties caused by this pandemic, we continue to progress several important projects through the entire one phase of development, which is the least capital intensive coarsening development process in where we believe much of the value is created.

We will continue to move taverner processes, along well before we proceed with construction when we are confident that the market is right.

Our W Hotel you feel like 310 East your life and use have been continue to be severely impacted by the pen.

Last quarter, we mentioned that we had scheduled several events for the summer fall. Unfortunately, many of these events had been canceled or reschedule and we expect the most if not all of our many events will also be cancelled reschedule unless health conditions improve.

Our W Hotel management team continues to develop programming ideas with the goal of capturing as much of the existing market as possible.

Currently we cannot operate our menus as we normally would or wouldn't usual concert.

We are providing creative options, while I'll read local held recommendations such as promoting Ben you tours and hosting small local events.

Although these events will not generate revenue at historical levels. They do enable us to remain engaged with the local community.

Additionally, while utilization of the hotel low we are still considering proceeding with a modest renovation at the hotel guestrooms and public spaces using existing reserves to enhance the property.

Subject to various approvals, including coordination with the hotel operator.

Turning to our leasing and real estate operations as mentioned last quarter, we conducted scenario playing for the impacts of the pandemic than previously forecasted a significant reduction in recollections. However, we had been receiving recollections higher than our downside forecast in order for repayment and a lower rate than previously anticipated.

Moving forward, we will continue to monitor the unpredictable in evolving market conditions and consider any future request for rent deferrals on a case by case basis.

Throughout the pandemic the ongoing fairly strong demand for our single family life multifamily units has been evidenced in multiple projects first we've seen continued progress and redesign of sections K L O and Barton creep we.

We expect to significantly increased density while adhering to current development ordinances.

We believe our strategy to combine the use of natural open space with sustainable design practices will create valuable long term assets for our shareholders.

Second.

We are advancing the construction of the next four more bill is huge and Barton creep and we believe there is strong interest in this phase.

Sure.

Suburban class a multifamily sector continues to perform well we expect to have final approval spray 182 unit Mara multifamily project by year end and we're working on securing an appropriate capital structure expected to be finalized early next year.

Sure.

We are also advancing two other multifamily projects and approximately 350 unit property within existing tenant place development recently re zone from office from offer shoes.

261 units within our AHGP anchored he would place project in Houston area.

We expect to move forward with the Lantana place project permits are secure what should we currently estimate to be late 2021 early 2022.

Yeah. The same married multifamily project consisting of 204 units in circle. She community was approximately 80% leased as at June 30, 2020, and we anticipate reaching stabilization within the next few months.

Fixed.

During the second quarter, we sold three Amar drive stupid, we lost generating 1.8 million revenue.

Finally, our grocery store anchored projects have performed well in this challenging economic environment and so we also continue to evaluate potential new sites for h. you'd be shadow anchored projects.

We expect the impact of the pandemic to continue during and beyond the third quarter 20, each way and we cannot predict its future impact on our company with any certainty.

At this time, we believed we have ample liquidity to meet our debt service and other cash obligations for at least the next 12 months without taking any extraordinary measures.

We also extended our $60 million credit facility to September 2022, which will further support our liquidity position throughout this bad debt.

We have identified several focus areas to manage cost the liquidity as we navigate this pandemic such as.

Focusing on predicting our existing cash flows derived from our leasing operations and increasing revenue by promoting Pos sales leasing.

Striving to remain prudent spending in evaluating cost savings initiatives.

Monitoring activity block 21, and planning for a gradual ramp up of its operations to a breakeven point in the first half 2021 health economic condition permitting.

Enhancing entitlements pursuing development permits consistent with our well established business strategy.

Evaluating options to monetize our prior investments through selling or refinancing certain assets in the ordinary course of business consistent with our established business strategy and.

Collectively assessing new opportunities for future projects that align with our long term objectives.

Despite the recent an ongoing uncertainty during this pandemic strategy is long term strategy remains intact, we own and operate unique properties. We have a proven strategy and operating model and we have created valuable relationships and partnerships, which allow us to developed properties that provide value two communities across Texas.

Going forward, we will continue to selectively assess new opportunities for longer term projects that are consistent with our business model.

I'll now turn the call them to Aaron a review of our second quarter 2020 financial results Aaron.

Thank you though.

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

That is revenue profitability and cash flow were adversely impacted by 2019 late in the first quarter 2020, and as anticipated throughout the second quarter 2020.

However, in the second quarter, we benefited from $15 million an income that's offered in earnest money related to the terminated agreement to sell block 21.

As a result of this additional income in the Pandemics impact on our business.

Second quarter 2020 results will not be comparable to test performance or indicative of a teacher performance.

I will now discuss stratus consolidated results for the second quarter 2020.

Consolidated revenues totaled $8.9 million in the second quarter, this year, which was down from $23.7 million in a second quarter 2019.

This decrease primarily reflects the pandemics impact on our hotel and entertainment segment, partially offset by an increase in leasing operations revenues year over here.

Net income attributable to common stockholders was $4.1 million or 50 cents per share in the second quarter 2020.

Parents, and net loss attributable to common stockholders of $2.4 million or 29 cents per share in the second quarter 2019.

Net income in that 2022nd quarter, primarily resulting from $15 million in earnest money received as a result of the terminated block 21 agreement.

Partially offset my operating losses, and all of our operating segments, primarily as a result independently.

Higher net interest expense, resulting from a decrease in capitalized interest that's projects under development are being completed.

EBITDA totaled $12.3 million for the second quarter 2020, including the $15 million in permanent artists. Many previously mentioned.

We had to $3 million for the second quarter last year.

Got a segment results include the following.

Revenue from our real estate operation segment in the second quarter 2020 totaled $1.9 million down from $4.1 million last year.

Operating loss in the second that was $46000 in the second quarter 2020.

Compared to operating income of $274000 in the second quarter last year.

The decrease in revenue primarily reflects fewer sales have developed properties in the second quarter 2020.

We sold two Amar drive phase two lives and run of mine drives phase three lot for a total of $1.8 million in the second quarter. This year.

Compared to the sales of four Ameren drive change three lot and one of marvelous town home for a total of $4 million during the second quarter last year.

As of June Thirtyth 2020, pursuant to a previously disclosed contract with a homebuilder.

Contract to sell them hard drive lots totaling $3.2 million not yet recognizing revenue.

In June Thirtyth 2020 into August four 2020, we signed new contracts from our a drive lot sale.

Total of $1.5 million, bringing the total contracts up to $4.7 million.

Revenue from our leasing operation segment totaled $5.9 million in the second quarter 2020 up from $4.6 million last year.

The increase primarily reflects commencement of new leases at the same married came with place and to some top properties.

Operating loss in the second quarter 2020 was $174000 compared to operating income of $642000 in the second quarter 2019.

The decrease primarily reflects a charge of $1.4 million are estimated uncollectible rents receivable and unrealizable deferred costs.

Hotel revenues totaled $1 million in the second quarter 2020.

Compared to $9 million endearing up here.

Our operating loss was $1.7 million in the second quarter this year compared to operating income of $1.3 million and the second quarter last year.

The decrease in revenue and operating income was primarily the result of lower room reservation didn't beverage sale.

As a result at the kind of at 19 pandemic.

Revenue per available room, or Revpar was $29 in the second quarter 2020, compared to $242 and the second quarter 2019.

Well the hotel currently remains open average occupancy for the second quarter 2020, plus 12%.

Entertainment revenues totaled $289000 in the second quarter 2020.

Compared to $6.3 million in the second quarter 2019.

Operating loss was $1.4 million in the second quarter 2020.

Compared to operating income of $1.3 million in the year ago period.

The decrease in both revenue and operating income primarily reflects the fact is the alive to not hosting events in the second quarter 2020 <unk>.

Compared with 69 events and the sale of approximately six 8000 ticket in the second quarter last year.

310, if they alliances to 15 events in the second quarter 2020.

Compared with 52, then and the sale of approximately 7000 ticket in the second quarter 2019.

Turning now to our capital management.

At June Thirtyth, 2020, consolidated debt totaled $363.8 million.

Consolidated cash totaled $16.1 million.

Compared with consolidated debt of $365.7 million and consolidated cash at $19.2 million at December 31st 2019.

Purchases and development of real estate properties reflected an operating cash flows and capital expenditures reflected in investing cash flows.

It was $13.1 million for the first six months of 2020.

Primarily related to the development of Qinglin place Lantana place Jones crossing and Barton create properties.

This compares to $50.7 million for the first six months of 2019.

Primarily related to the development of King would play the St_mary and Barton create property.

We had a strong financial position prior to the kind of that 19, pendennis and we extended the maturity of our 60 million dollar credit facility to September 2022 to support our liquidity position throughout this and then.

As of June Thirtyth 2020, approximately $26 million was available to be drawn into the credit facility.

In addition, we have no significant principal maturity, but that during the remainder of this year.

Based on our current forecasts, we project that we will have the ability to meet our debt service and other cash obligations for at least the next 12 months.

Without taking any extraordinary measures.

We will continue to closely evaluating health conditions in market environment throughout Texas, and take additional actions where appropriate.

I'll now turn the call back to the for his closing remarks.

Thank you Aaron.

There's no denying that this year has been challenging.

Pandemic continues to impact communities across the United States, including our Texas markets, you must carefully manage our business or to successfully navigate the ongoing economic impacts and the potential prolong recovery.

Our single family multifamily markets remain fairly strong can we are able to continue our longer term value creation efforts, such as land planning engineering and permitting activities.

We remain optimistic about the Texas markets, where we operate our diverse and unique portfolio and our teams resilience and ability to perform.

I cannot take our board employees enough for their continued dedication to our company communities.

Thank you for participating at this time I will ask the operator to open the lines for questions.

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 to.

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

Showing no questions. The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

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