Q1 2021 Stratus Properties Inc Earnings Call
Following management's remarks, we will host a question and answer session.
Please note. This call is being recorded and will be available for replay on Stratasys website through May 25 2021.
Anyone listening to the replay should note that all information presented is current as of today may 11th 2021 and should be considered valid only as of this date.
As a reminder, yesterday's press release and certain comments that will be made on this call include forward looking statements, which speak only as of the date made and actual results may differ materially from those anticipated expected projected or assumed in the forward looking statements.
Please review the cautionary language included in Stratasys press release issued yesterday and the risk factors described in Stratus as 2020 form 10-K 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 GAAP.
As required by SEC rules. These non-GAAP financial measures are reconciled to their most comparable GAAP financial measures in the supplemental schedules of Stratasys press release issued yesterday.
I would now like to turn the conference over to Mr. Beau Armstrong, Chairman, President and Chief Executive Officer of Stratus properties.
Thank you for joining our first quarter 2021 conference call, our Chief Financial Officer, Erin Pickens is also here with me today.
Before I provide updates on our retail and residential properties I would like to briefly comment on the COVID-19 pandemic and its continued impact on stratus.
As you know at the outset of the pandemic last year.
Quickly responded by managing our liquidity.
Taking care of our people and tenants and ensuring our positioning to thrive as businesses reopen and the economy recovered.
Our W. Austin Hotel has remained open and we have worked closely with our hotel operator to implement prudent cost containment measures. We are now beginning to experience the benefits of these efforts.
We are entering a hopeful season.
The communities, where we operate including Austin in the Houston area.
<unk> to grow and thrive with increasingly more job opportunities and activity.
Vaccine is becoming more widely available.
Past the restrictions are relaxing in our markets and the public is becoming more comfortable with travel and venturing out to restaurants and events.
According to the Austin business Journal Austin's population average an increase of 146 people per day from 2019 to 2020.
And in terms of raw population growth.
Austin is the fourth fastest growing city in the country after Phoenix, Dallas and Houston.
For three of the four of these quickly growing cities are based in Texas.
We are well positioned to take advantage of opportunities in these growing markets.
We are focused on creating and maintaining a portfolio that meets the evolving tastes of our community members. Both those who are originally from these areas and new comers looking for new opportunities for themselves and their families.
As we have emphasized for stratus, we aim to manage a diversified regionally focused portfolio, including projects across multiple stages of our full cycle development strategy.
From acquiring land, securing and maintaining development entitlements and designing and developing properties. As we are currently accomplishing with new projects the St Jude and holding hills, which I will describe in more detail on a moment.
Stabilizing properties as we are doing with lantana place and Kingwood place.
And to ultimately selling refinancing or holding properties as part of our leasing operations as we have done with two refinancings of the same tower alone and the Saint Mary in the first quarter of this year.
While the past year was unusual.
We remain focused on executing our successful full cycle development strategy and capitalizing on the Prosper, Texas markets.
I will now turn to a discussion of some of our active projects.
We continue to benefit from well located retail properties, often anchored or shadow anchored by the beloved, Texas grocery store H E B.
Our strong relationship with partners, such as HEB allow us to collaborate with our communities and build long term value.
We have multiple opportunities to develop properties with HEB in our pipeline that are at various stages of development.
Oh you place for example will be shadow anchored by HEB and is planned for 18410 square feet of commercial space nine pad sites and 190 for single family lots and 495 multifamily units new Kaney. Our mixed use project will also be anchored by an HEB and is planned to include retail restaurants, five pad sites and.
10 acres of multifamily space.
Jones crossing.
The HEB grocery anchored mixed use development in college station, Texas is another Great example, showing how we follow a thorough development cycle process from acquiring 72 acres of land in 2017 through a 99 year ground lease.
Coordinating with the relevant agencies to obtain the necessary permits and timelines.
Completing construction of the first phase of the retail component in the third quarter of 2018 with the HEB grocery store opening in September of that year and stabilizing the property with approximately 90% leased by the end of 2018 and substantially all leased currently.
In addition, we have approximately 23 undeveloped acreage at Jones crossing with estimated development potential of approximately 104750 square feet of commercial space.
Bacon pet shops, we continue to evaluate options for the multifamily component of this project as well.
At the same time, we regularly review multiple options from refinancing selling on holding the property for our leasing operations currently.
Currently we are considering a refinancing of the Jones crossing project to improve loan terms and take advantage of the low interest rate market.
We have already been able to capitalize on the current low interest rate environment. We recently refinanced the same total loan we were able to lower the interest rate floor by 140 basis points effective April 15, 2021, the annual interest rate them alone.
Was reduced to three 4%.
Hosting an annual interest savings of approximately $1 1 million based on current rates.
We plan to continue to explore for their project refinancing on other properties.
I would like to walk through another project debt successfully follows our development cycle Kingwood place.
This HEB grocery anchored mixed use development is located in Kingwood, Texas and northeast suburb of Houston.
The 54 acre tract of land was acquired in August of 2018, Stratus team acquired the permits and developed designed to include a 103000 square foot HEB grocery store with 49000 square feet of retail space five retail pads and a 10 acre parcel plan for a 275 unit multifamily community.
We secured a construction loan for one of our key lenders Comerica Bank and construction began in December of 2018.
Throughout the duration on the construction process, we remain on schedule and on budget.
The completed retail space was approximately 80% leased by the end of 2019 with HEB opening in November of that year.
In 2020, we focused on continuing to lease up the property, which is approximately 85% leased now and planning for the 275 unit multifamily component.
We continue to consider multiple paths for this property with the goal of optimizing its value for the company and our shareholders.
As I'm sure you are aware the ongoing trend towards online shopping has accelerated during the COVID-19 pandemic.
We have been adjusting to these retail trends by incorporating more multifamily residential space and more food and beverage and entertainment space into our development plans.
We believe the evolution in its mix of our tenants will preserve the economics of these projects for Stratus overtime.
Now turning to our residential portfolio.
In January we sold the Saint Mary are 240 unit Garden style apartment complex in the circle C community in Austin for $60 million. This was a record of per unit price for similar properties in the Austin MSA.
I would like to emphasize how these properties and the other Great example of our successful development program.
The land for this development was part of our legacy real estate assets on the circumstance community in Austin.
Our stratus teamwork with relevant parties to obtain the necessary permits.
Our team thoughtfully designed the project to feature contemporary design targeted to appeal to the technology based work force in southwest Austin Magna cheese include a fitness center.
Resort style infinity edge pool in nearby recreational options, including popular heightened Sparks, the Barton Creek Greenbelt and Slaughter Creek Trail. This project was approved for the Austin Energy Green building program.
We raised third party equity capital in a range bank financing.
Construction commenced in June 2018, and was completed in December 2019. The first tenants took occupancy in July 2019, and the project was approximately 85% leased on the day of sale on January 2021.
In short our team finance the project oversaw construction expedited lease up and managed and close the sale at a record price during a pandemic and all on less than three years.
We are continuing to witness our other residential properties drive in the Austin market. We have completed reworking our plans for hold on Hill's formerly known as section K L O and.
I believe that now is the right time to pursue the development of this property given the booming Austin market.
As mentioned in our April 28 press release. This new community is our final residential development within Covenant Barton Creek.
This project consists of 495 acres of classic Hill country escarpment abutting the popular Barton Creek Greenbelt and is designed to feature 475 unique residences in multiple phases.
This project will focus on sustainability.
Energy conservation and wellness and meets the growing demand for sustainable housing.
Hold on Hill's property will incorporate extensive use of renewable energy, including solar to minimize the communities carbon footprint and the buildings, we'll use non toxic materials for a healthier indoor living space.
The properties will also embrace the natural setting in Barton Creek.
Including hillsides waterways rock outcroppings, an existing trees, creating a community connected to its surroundings.
We are receiving support from the local environmental leaders, which is encouraging as you move forward with our plans.
Now turning to our multifamily properties.
We previously announced that in March we commenced site clearing on the St June which is a 182 unit multifamily project within the EMR a subdivision of Barton Creek that work has been completed and we expect to initiate construction later in the second quarter of 2021 subject to completion of financing.
Additional multifamily projects. We are pursuing include 320 multifamily units within lantana place too.
275 multifamily units and likewise.
In other multifamily projects that we are not yet ready to disclose.
Each of these sites as well located and supports our residential development goals.
Separately, we continue to make progress on section in which is the commercial and multifamily project adjacent to hold on hills in the Barton Creek community.
We are evaluating redesign of our approximately 570 acre track isn't dense mid rise mixed use projects surrounded by an extensive greenspace humanity.
Similar to hold mills, we will focus on sustainable designed to ensure we incorporate Barton creek's beautiful natural surroundings.
I will now turn the call over to Erin for a review of our first quarter 2021 financial results Erin.
Thank you Bo.
Yesterday, we issued a press release announcing our first quarter 2021 results.
<unk> consolidated revenues totaled $14 $5 million in the first quarter of 2021.
Compared with $28 $1 million in the first quarter of 2020.
Net income attributable to common stockholders totaled $8 $9 million for $1 eight per share in the first quarter of 2021.
Compared to a net loss of $1 $1 million or 13 cents per share in the first quarter of last year.
The recent quarter's results include the gain on the sale of the Saint Mary of $22 $9 million.
Partially offset by operating losses from Stratus Hotel and entertainment segments, resulting from the ongoing COVID-19 pandemic.
EBITDA totaled $15 $2 million in the first quarter of 2021 and compared favorably to $4 million on the first quarter of 2020.
This increase is also due to the gain on the sale of the Saint Mary.
I'll now provide a brief commentary on our reporting segments.
Revenue from our real estate operations segment in the first quarter of 2021 totaled $6 $6 million.
Paired with $12 $3 million in the first quarter of 2020.
This decrease primarily reflects a decrease in the number of lots and homes sold during the first quarter of 2021 as available inventory has decreased.
And while revenues decreased operating income increased moderately from $2 $1 million last year.
For $2.2 million in the first quarter of this year.
During the first quarter, we sold two America on phase III lots.
Five acre multifamily tract of land in Tomorrow drive and our last condominium unit at the W. Austin residences for a total of $6 $5 million.
As of March 31, 2021.
We had only three unsold developed lots of Tomorrow drive one of which was under contract and so for point $6 million subsequent to the end of the first quarter.
As we have mentioned previously we believe that our real estate operations and our multifamily properties in our leasing operations continue to benefit from pandemic driven home centric trends.
And from continued recognition of Austin as a desirable place to live.
Revenue from our leasing operations segment in the first quarter of 2021, total $5 $4 million compared to $6 million in the first quarter of last year.
This decrease in leasing revenue primarily reflects the sale of the Saint Mary.
<unk> reported rental revenues for the first quarter only to the sale on January 11th generating point $1 million on revenue for the first 11 days in January.
Paired with point $7 million in the full first quarter of last year.
Operating income on our leasing operations segment in the recent quarter increased to $24 $2 million, including the $22 $9 million gain on the sale on the Saint Mary from.
<unk> $8 million on the first quarter of last year.
Despite the pandemic, we have retained substantially all of our pre pandemic retail tenants and have added new tenants and all of our tenants are currently paying rent per their leases as well as monthly payments pursuant to a previously disclosed base rent deferral arrangement.
Stratus hotel revenues totaled $2 $2 million on the first quarter of 2021, which was a decrease from $6 million on the first quarter of last year, which is not affected by the COVID-19 pandemic until late in the quarter.
The segment's operating loss totaled $1 $6 million compared to an operating loss of $1 $1 million last year.
Revenue per available room, or Revpar was $51 on the first quarter of 2021 compared with $150 on the first quarter of last year.
The hotel's average occupancy was 21% for the first quarter of 2021.
From 13% for the fourth quarter of 2020.
Saturday night occupancy rates have all been about 50 per cent for several weekends over the high of 98% one recent Saturday detailed group in that.
This certainly shows a return to stronger regional travel and we hope to see continued increases in our weekday business as well.
Entertainment revenues declined $2.6 million in the first quarter of 2021 from $4 $2 million in the first quarter of last year.
The segment's operating loss was $1.2 million in the first quarter of 2021.
Compared with operating income of point $5 million in the first quarter of last year.
Our talented and dedicated employees at Stratus continue to create innovative programming at our ACL live and 310 ACL live entertainment venues.
We currently expect to see improved results as schedules are filled and capacity increases over time, Inc.
Fact, Austin city limits recently taped it's for show with a live audience in over a year.
Turning now to capital management.
At March 31, 2021, consolidated debt totaled $339.2 million and consolidated cash totaled $12 $6 million.
Compared with consolidated debt of $3 $51 $1 million.
And consolidated cash of $12 $4 million at December 31st 2020.
As of March 31, 2021, we had $25 $8 million available under our $60 million Comerica Bank credit facility.
Subsequent to quarter end Bo mentioned Stratus completed a modification of the Santo loan to extend the maturity date to October 5th 2020 for as well as to reduce the interest range, resulting in annual interest savings of approximately $1 $1 million based on current range.
Purchases and development of real estate properties reflected in operating cash flows and capital expenditures reflected in investing cash flows totaled $3 $5 million for the first three months of 2021, primarily related to the development of Barton Creek properties, including our Marcellus.
This compares to $8 $6 million for the first three months of 2020.
Primarily related to the development of Lantana place Kingwood place Jones crossing and Barton Creek properties.
We continue to believe that we will be able to meet our debt service and other cash obligations for at least for next 12 months.
Thank you and I'll now turn the call back to Bob for his closing remarks.
Yeah.
Thank you Erin.
I continue to feel encouraged by several important facts as we continue forward into the second quarter first the growth of Austin's population is outstanding and has resulted in a significant demand for housing and wide range of prices.
Our company is resilient and operates in strong markets and we are witnessing a steady recovery from the impacts of the pandemic.
We are now through with the pandemic, yet, but we are experiencing positive improvement.
We will continue to prudently manage our costs, including cost increases in certain construction materials, particularly lumber as we take advantage of new opportunities on our retail centers are drawing strong tenant demand for multifamily property is fully occupied and we have sold almost all of our single family lots of inventory at Barton Creek at a premium.
And Stratus, we are committed to evaluating all strategic initiatives that could create value for shareholders, including our previously announced evaluation of a potential REIT conversion as a reminder, if the board recommends a REIT conversion strategy, our shareholders will ultimately decide whether stratus converge to read.
A C Corporation.
Further before we open up the call for Q&A I would like to remind you that the company its directors and certain of its executive officers are participants in the solicitation of proxies from the company's shareholders in connection with the company's 2021 annual meeting.
On April 12, 2021, the company filed a definitive proxy statement and white proxy card with the SEC in connection with its solicitation of proxies for the 2021 annual meeting.
Shareholders of the company are strongly encouraged to read the proxy statement the accompanying proxy card and all other documents filed with the SEC carefully and in their entirety as they contain important information.
Information regarding the identity of company's participants and their direct or indirect interest by security holdings or otherwise is set forth in the proxy statement and other materials filed by the company with the SEC.
Which can be found for free through the company's website www Stratus properties Dot com and the section of investors or through the SEC's website at Www Dot FCC Dot Gov.
We will not comment on the proxy contest with Oasis on this call.
Thank you all for listening at this time I'll ask the operator to open the line for questions.
We will now begin the question and answer session.
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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 has also now concluded. Thank you for attending today's presentation.
You may now disconnect.
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