Q1 2022 Stratus Properties Inc Earnings Call
Good day and welcome to the Stratus properties first quarter 2022 financial and operational conference call.
Earlier. This morning, Stratus released its first quarter 2022 financial results and provide business updates which are available on its website at stratus properties dotcom.
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 30th 2022.
Anyone listening to the taped replay should note that all information presented is current as of today may 16th 2022 and should be considered valid only as of this date.
As a reminder, today's press release and certain comments that will be made on this call include forward looking statements and actual results may differ materially from those anticipated projected or assumed in the forward looking statements.
Please review and refer to the cautionary language included in Stratasys press release issued today and the risk factors described in Stratasys 2021 Form 10-K, and first quarter 2022 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 GAAP.
As required by SEC 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.
Now, let's turn the conference over to Mr. Beau Armstrong, Chairman, President and Chief Executive Officer of Stratus properties.
Thank you for joining our first quarter 2022 financial and operational conference call.
Our Chief Financial Officer, Erin Pickens is here with me today.
I'd like to start the call by saying that throughout the first quarter. We have continued to successfully make progress on maximizing shareholder value by advancing projects at all levels of the development cycle.
Our Texas markets continue to experience tremendous growth and demand and we are working hard to capture these opportunities for our shareholders.
For example.
We are working towards completing construction on the St. Jude.
The first phase of retail at Magnolia place in Houston, and the next phase of our Omara village development here in Austin.
We continue to advance the development of very exciting projects, such as the B and the St. George for which we purchased the land with joint venture partners last year.
And we're advancing other exciting projects, including our 306 unit Lantana multifamily project now referred to as the St. Julia <unk>.
Holton Hills and section N, which are some of the largest projects we've ever undertaken.
We've also made progress toward completing the sale of block 21 to Ryman hospitality properties for $260 million.
Block 21 is our wholly owned hotel Entertainment and office property located on a two acre city block in downtown Austin.
We remain confident that the transaction will close prior to June one 2022, although it remains subject to the timely satisfaction or waiver of various closing conditions.
It is worth noting that both venues associated with block 21, ACL live and 310 ACO lives are now operating at full capacity and our W. Austin Hotel, which is also a part of block 21 has experienced rising revenue with first quarter 2022 hotel revenue at approximately 70 per.
Percent of pre pandemic hotel revenue in the first quarter of 2019.
Yeah.
Our board of directors and management team remain engaged in a strategic planning process and are evaluating the uses of proceeds from our recent and pending sales and of Stratus as long term business strategy.
We expect to provide additional information after the block 21 transaction has concluded and our board and management have had the opportunity to assess market conditions and the capital requirements for Stratasys development pipeline.
We have proven our ability to implement our business plan to create value for our shareholders.
We focus on our ongoing projects and development pipeline by furthering projects at all stages of our development cycle and.
And we sustained momentum by remaining focused on execution and constantly seeking new best in class opportunities to add to our development pipeline.
It has been a busy period for us and on today's call I'd like to provide updates on select residential retail and commercial properties, then I'll turn the call over to Aaron to discuss our first quarter 2022 results.
Starting with our residential projects.
In the first quarter, we advanced development plans and continued construction on several of our promising residential developments overall.
Overall, we are capitalizing on strong market condition is the demand to live and work in the markets in which we operate remains high.
We also believe that housing demand will continue to outpace supply in the markets, where we operate.
Yeah.
The first units of our 182 unit luxury garden style multifamily project within the Amara development. The St. June are currently expected to be completed in the fourth quarter of 2022 with completion of the project plan for the first quarter of 2023.
The St June will be comprised of multiple buildings, featuring one two and three bedroom units for lease with amenities, including a resort style clubhouse fitness center pool and extensive green space.
There's properties design is consistent with the company's sustainability wellness and conservation goals as you May recall, we raised third party equity capital for the project last year.
We retained an approximate 34% equity interest with the opportunity for higher returns and receive some development fees and will receive management fees.
We look forward to completing the St Jude and adding it to our portfolio of innovative sustainable properties.
We continue planning for and obtaining entitlements and permanent approvals for the St. George are 316 unit luxury wrap style multifamily property to be constructed in north central Austin.
We also raised third party equity capital for this project, we retained an approximate 10% equity interest with the opportunity through higher returns through a promote structure and will receive development fees and management fees.
We purchased the land for the project in December and are currently negotiating the construction loan.
We expect to begin construction in the second quarter of 2022, and anticipate we will achieve substantial completion by mid 2024.
Subject to the completion of entitlements and financing.
We've also made progress advancing development plans for our 300 unit luxury high rise apartment building Danny B also here in Austin.
Units are designed to take advantage of the unobstructed 360 degree views of the capital downtown Austin, The University of Texas campus in West Austin.
This project's design is also consistent with the company's sustainability wellness and conservation goals.
In addition, we are renovating and expanding the historic a O Washington House adjacent to the tower to offer amenities that include a restaurant bar pool and garden, while preserving the property's unique historic and architectural features.
We acquired the land for the antibody last year through a joint venture with third party investors and currently retain a 31% interest in this initial land partnership phase of the project.
We expect to receive development and management fees and promoted economics once the project reaches the development partnership phase.
Yeah.
We have also advanced development plans for the multifamily component of Lantana place now called the St. Julia our mixed use project in Austin.
Subject to securing an acceptable capital structure, we expect to begin construction in the third quarter of 2022 with an expected completion in mid 2024.
We also have the next five unit phase of the Omara village project under construction in Barton Creek.
Yeah.
We continue to make progress on our development plans for holding hills, our final large residential development within the Barton Creek community.
Holton Hills consists of 495 acres and is designed to feature 475 unique residences to be developed in multiple phases also with a focus on health and wellness sustainability and energy conservation.
We currently expect to secure final permits to start construction in September 2022, subject to obtaining financing and other market conditions. Our current projections anticipate that we could begin closing sales of certain homesites in Holton Hills in late 2024.
We have the flexibility to sell the developed home sites.
Building sell or build and lease homes on some or all of the home sites, depending on financing and market conditions.
We are tracking market demand closely and are applying a conceptual approach similar to that used for holding hills in order to progress. The development plans for section N, which comprises our 570 acre tract located long southwest Parkway in the southern portion of the Barton Creek community.
If successful this new project will be designed as a dense mid rise mixed use project surrounded by an extensive green space amenity.
Resulting in a significant potential increase in development density as compared to our prior plans.
I'm very encouraged by the residential projects in our pipeline all of these exciting developments and unique projects are expected to drive strong returns over the coming years, and we are eager to see our patients and thoughtful planning continue to pay off.
Moving now to our retail and commercial updates.
Construction continues on Magnolia place and H E B grocery shadow anchored mixed use project in Magnolia, Texas.
Leveraging the proven playbook, we have established with H E. B. This project is currently planning to consist of four retail buildings totaling approximately 35000 square feet.
Five retail pad sites to be sold or ground leased.
194 single family locks in approximately 500 multifamily units.
The first two retail buildings are expected to be available for occupancy in the third quarter of 2022.
H E. B began construction on its 95000 square foot grocery store on an adjoining 18 acre site in mid 2021.
And it is expected to open in the fourth quarter of 2022.
Yeah.
Kingwood place West Killeen market and Jones crossing.
Our our three stabilized mixed use projects anchored or shadow anchored by H E B grocery stores and they continued to perform well and generate revenue for our company.
We are currently exploring a potential sale or refinancing of these three retail properties.
At Lantana place are partially developed mixed use project in Austin, We had signed leases for approximately 85% of the retail space as of March 31, 2022, and as previously mentioned, our advancing development plans for the multifamily component refer.
Two as the St Julia.
We continue to monitor the construction cost environment, which is a challenging issue impacting our industry. These days.
We are working to manage price escalations and some supply chain delays that our contractors are experiencing for certain materials.
Borrowing costs are also rising however.
However, we are fortunate that our projects are located in markets with strong demand and growth.
I will now turn the call over to Erin for a review of our first quarter 2022 financial results Erin.
Thank you Bo.
Today, we issued a press release announcing our first quarter 2022 results.
Revenues totaled $3 $1 million in the first quarter of 2022.
Compared with $11 $4 million in the first quarter of 2021.
The decrease in revenue primarily reflects that there were no sales from our real estate operations segment in the first quarter of 2022.
As available inventory of developed properties in that segment is limited.
In addition.
Leasing revenue decreased as a result of the sales of our multifamily projects, the Saint Mary and the Santal and 2021.
As a reminder, due you said depending sale of block 21, our continuing operations include our real estate operations and leasing operations segment well.
Well our discontinued operations include our hotel and entertainment operations as well as the leasing operations associated with block 21.
Net income attributable to common stockholders totaled $2 $3 million or 27 cents per share in the first quarter of 2022.
Compared to $8 $9 million or $1 eight per share in the first quarter of last year.
The current year first quarter results include a pretax gain of $4 $8 million.
Related to the reversal of accruals for cost to lease and construct buildings under a master lease arrangement that stretch.
It has entered into in connection with the sale of the accident like way in 2017.
The first quarter of 2021 results included a $22 $9 million pre tax gain or $16 $2 million net of Noncontrolling interests.
On the January 2021 sale of the Saint Mary.
Partially offset by a $2.5 million net loss from discontinued operations.
Our hotel and entertainment operations were impacted by the COVID-19 pandemic.
EBITDA totaled $2 $4 million in the first quarter of 2022.
<unk> to 'twenty $3.5 million in the first quarter of 2021.
I will now provide brief commentary on our reporting segments.
Revenue from our real estate operations segment in the first quarter of 2022 totaled $23000 compared to $6 $6 million in the first quarter of 2021.
Operating loss totaled $1.4 million in the first quarter of this year.
Compared to operating income of $2 $1 million last year.
The decrease in revenue and the operating loss reflects that there were no sales in the segment in the first quarter of 2020 team has.
As available inventory of developed properties in our real estate operations segment is limited.
Try. This is currently working towards completing the construction of five of Marvell as homes, which will increase inventory for our real estate operations.
And generate revenue when they are sold.
Revenue from our leasing operations segment in the first quarter of 2022.
Totaled $3 $1 million compared with $4 $8 million in the first quarter of last year.
Operating income for this segment in the first quarter of 2022 totaled $6 $1 million compared to $24 $2 million in the first quarter of last year.
The decrease in segment revenues in the first quarter of 2022, primarily reflects the sale of the Santal and December 2021.
Partly offset by increased revenue at Lantana place.
The decrease in operating income is primarily due to the gain on sale of the Saint Mary in January 2021.
Now moving to our discontinued operations.
As Ben mentioned, we expect the pending sale of block 21 to Ireland closed prior to June 1st.
Although it remains subject to closing conditions.
The $260 million purchase price includes the purchaser's assumption of approximately $137 million of existing mortgage debt on it.
Subject to unexpected downward adjustment of $5 million.
After closing costs and the buyers assumption of the outstanding block 21 loan.
L. A is expected to generate net pre tax proceeds of approximately $115 million.
And after tax proceeds of approximately $90 million before preparations.
But including $6 $9 million to the S. Greg for 12 months after closing.
Although we expect the sale to close in <unk>.
I'd like to provide some information about how the discontinued operations performed during the first quarter of 2022.
Hotel revenues totaled $5 $9 million in the first quarter of 2022 up from $2 $1 million in the first quarter of last year.
The increase in revenue was primarily a result of higher room reservations and food and beverage sales.
As the first quarter 2021 results were significantly impacted by the COVID-19 pandemic.
Revenue per available room, or Revpar was $165 in the first quarter of 2022 up from $51 in the first quarter of last year.
We were pleased to see the rise in hotel revenues as the effects of the pandemic subsides.
Entertainment revenues increased to $5 $3 million in the first quarter of 2022 compared to point $6 million in the first quarter of 2021.
The increase in entertainment revenue, primarily reflects an increase in the number of events hosted at ACL live in three <unk> S. L. I F.
The impacts of the COVID-19 pandemic had a significant impact on the first quarter of 2021 results.
As Ben mentioned ACL live in <unk>, Tennessee alive are now operating at full capacity.
Turning now to capital management.
At March 31st 2022, consolidated debt totaled $121 $4 million.
<unk> consolidated cash totaled $12 $3 million.
Compared with consolidated debt of $106 $6 million and consolidated cash of $24 $2 million.
31st 2021.
Consolidated debt at those states excluded the block 21 line of approximately $137 million.
As of March 31, 2020 to Stratus had $49 $7 million available under $60 million Comerica Bank credit facility.
With a total of $347000 of letters of credit committed against the credit facility.
In April 2020 to Stratus borrowed $20 million on our credit facility. The majority of which was used to make a U S. Federal tax payment for Stratasys 2021 tax liability.
Purchases and development of real estate properties included in operating cash flows.
Capital expenditures included in investing cash flows.
$19 $6 million for the first three months of 2022.
Primarily related to the development of Magnolia place, the Saint Jean and other Barton Creek properties, including Tomorrow.
This compares to $3 $5 million for the first three months of 2021, primarily related to the development of Barton Creek properties.
We project that Stratus will be able to meet its debt service and other cash obligations for at least the next 12 months.
In May 2022 were in the process of entering into an amendment to extend the maturity date of the Comerica Bank credit facility from September 27th 2022 to December 26 2022.
We are in discussions with the lender to remove Holton hills from the collateral pool for the facility.
Finance, the Holton Hills project under a separate loan agreement.
And enter into a revised revolving credit facility with a lower borrowing limit secured by the remaining collateral under the facility.
We expect to be able to extend or refinance all our land prior to their maturity dates.
No assurances can be given that the results anticipated by our projections it will occur.
Thank you and I will now turn the call back to Bob for his closing remarks.
Thank you Erin.
Our team remains committed to executing our proven development strategy each quarter the benefits of having a team with the right knowledge routes and relationships within the Austin community and the other Texas markets, where we operate have proven to be immensely helpful. As we look for new opportunities in these markets that create value while balancing.
Active management and monitoring of course.
I want to share an interesting fact noted by the Austin business Journal in March.
According to the U S census Bureau in 2021 on average 116 net new residents moved to the Austin Metro every single day.
We are well positioned to both benefit from and take advantage of this growth through our existing properties and development plans.
We have a lot of exciting development projects in the works that we are optimistic about.
I'm eager to see our teams continued progress on these projects in the coming months.
At this time I will ask the operator to open the line for questions. Thank.
Thank you all very much for participating today.
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 are using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
Our first question is from Chris Mooney with Wedbush Securities. Please go ahead.
Good morning.
You noted a sort of the.
Some sort of a change in what you're thinking on block in could you give a little more color to that.
What type of development or are you thinking.
Building that.
Good morning, Chris So section then is our.
Our last big commercial attractive Barton Creek, and as you and many others know we've owned that property for.
For 30 years since the inception of the company.
Section that has always been planned for <unk>.
Commercial and multifamily than it was previously permitted under an earlier ordinance.
Our strategy now is to.
To take advantage of some some changes in the orders that are beneficial as such that we can get more density than initially planned but in a more compact.
Scheme, so rather than having two story offices that spread out with surface parking as an example, we would look to build tolerability with structured parking.
That works now because the economics in Austin have changed so dramatically over the last 30 years that that.
The more dense product type as it is.
Just more desirable and certainly achievable given that location. So there's been no real change in the use our strategy just as to add additional density.
Under a kind of a different entitlement scheme, I mean, theres a lot more to it I'm trying to make.
It's simple, but but essentially its really a good thing and that we're able to get more density.
Under current regulations.
But it's really more a function of just how dramatically different this market is now than it was in the in the Ninety's early Ninety's when we initially plan to the property.
Okay.
Do you anticipate getting any being approached by any corporate entity to build them.
Facility.
Okay.
That's a great question. So I do actually I think that I think that Barton Creek, given its proximity to two.
Kind of western suburbs proximity to downtown the airport the existing roadway infrastructure. The fact that stratus controls the utility infrastructure out there so all of those things make it.
You know, it's not a dream to think that product could be on the ground.
A reasonable period of time so.
And then of course, Lantana, which is right across the street from us.
He is I think there's four 5 million square feet of office, there now all well tenanted. Good a good group of tenants out there AMD for example has their their Austin quarters. If you will right. There. So I would think that just given the fact that there really isn't anything else.
Out there, but the property that we control that we would be certainly a candidate for an expansion and in fact I mean our work.
In the market already I mean, we've had.
We've had some interest over the years. It just wasn't ready a couple of years ago, just because of the timing of utility infrastructure and the permitting process in Austin, but I think when we get.
These plans out there with it with a definite timeline, we will see significant interest in the certainly in the office component and again, it's intended to be a mixed use projects. It will be heavy residential enough retail to support both the residential and the office and then some amenities we will have by virtue of.
Developing under current code will have several hundred acres of green space that we would look to monetize in some fashion such that it was created value for them.
Overall development in fact.
Yeah that that property ultimately you can weave your way up hiking.
Through the Green belt, and then you can get to the Barton Creek, Greenbelt, which goes all the way into town. So it's a it really is a special property and we've been carefully planning it and it made a ton of progress over the last 24 months and expect to be kind of moving things through the city here. Some time later this year.
And do you have any financing partners on that area.
Scrambles.
At this time its own entirely by strategy, we would likely have to we'd like to bring on a partner at some point just given that it's I mean, it's.
It's a huge undertaking.
We don't have the resources to do it all on our own.
Again, I feel very confident given the quality of the project the location that will have.
Several opportunities to choose from.
Several options I should say.
Great.
Quick question Kingwood place West Killeen Jones crossing how much of the existing debt.
Really the newest properties.
Yeah.
Oh I'd have to ask Aaron.
I don't have the number at my fingertips.
Sure Nick project level data on all three of them. It is there is project level financing construction loans on all three of them. We have I think in one instance, we've refinanced it with another.
Kind of floating rate bank loan, but all of those are.
Can be paid off with without any kind of any kind of additional cost, but there. They are all project unless I don't I just don't know the exact number Chris maybe we can follow up on Aaron's inhabited fingertip follow up sorry.
Okay, No worries and then just one more quick one for me.
And the St George W.
Any demolition on either of those buckets.
We have the any b, we pulled our demo permit I Wanna say, perhaps last week and we started demolition there in it that was a that was an easy easy job. It was just a single story brick structure and Thats probably drove out over the weekend I think we're pretty much done.
The St George that that that permit hasn't been issued yet, but we're anticipating having that in hand by the end of the month.
Okay.
Thank you.
Thank you Chris.
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.
Okay.
Okay.
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