Q3 2022 Stratus Properties Inc Earnings Call

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Good day and welcome to the Stratus properties third quarter, 2022 financial and operational conference call.

Earlier. This morning, Stratus released its third quarter 2022 financial results and provide a business update which are available on its website at stratus 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 replay on Stratasys website through November 28th 2022.

Anyone listening to the taped replay should note that all information presented is current as of today November 14th 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 third 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 S. E C rules and regulations. These 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 like to turn the conference over to Mr. Beau Armstrong, Chairman, President and Chief Executive Officer of Stratus properties.

Thank you for joining our conference call to review, our third quarter 2022 financial and operational results, our Chief Financial Officer, Erin Pickens is here with me today.

We start off I'd like to say, how proud I am of our team's hard work and execution in delivering another quarter of excellent operating performance.

The successful sales of the St. Marian to stand tall in 2021 and block 21 earlier. This year were completed at an opportune time in the market and have generated $166 million of after tax cash flow distress.

We also successfully completed our recent commitments to return cash to shareholders through our cash dividend and share repurchase program.

Looking ahead to a promising development pipeline, we believe stratasys is well positioned to continue to maximize shareholder value.

Last quarter, we announced our board's decision to deliver on our commitment to return cash to shareholders, reflecting confidence in our business strategy and development program.

Since then we have returned significant cash to shareholders by paying out approximately $40 million or $4 67 per share and a special cash dividend on September 29th and implementing a $10 million of open market stock repurchase program in the third quarter.

We continue to make progress with our buybacks toward that $10 million figure and through November 4th 2022, we have purchased approximately 105000 shares for $2 6 million or about $25 per share.

After the sale of block 21 strategy is focused on continuing to streamline its business as you know we announced last quarter that the board remains determined to continue Stratasys successful development program, focusing on pure residential and residential centric mixed use projects.

Our team is knowledgeable about experienced in Austin and other growing markets in Texas, where we operate including the greater Houston area, where we have several HEB mixed use projects.

We plan to continue to evaluate opportunities in these fast growing markets.

We plan to continue to develop properties using project level bank debt and promoted third party capital. The structure has proved to be successful for us.

We have also completely paid off our revolving credit facility and have no significant funding commitments, where near term debt maturities. As a result, we have significant liquidity to support our current.

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This is not a good time to be overleveraged, and we intend to limit our use of the revolver in this environment.

During the quarter.

We have substantially completed construction on the first phase of development of Magnolia place, where the HEB grocery store opened earlier this month.

We also continued to make progress on construction on the St June the St George and Tomorrow, Bill as residential properties.

We also sold the <unk>.

Last remaining pad site at West Killeen market for $1 million.

Completed pad site at the Magnolia place project for $1 1 million a three acre tract of land in Austin for $1 6 million and 28 acres of undeveloped residential land in Magnolia place for $3 $2 million.

Subsequent to quarter end in October 2022, we closed on the sale of a multifamily tract of land at Kingwood place for $5 $5 million.

Our mixed use HEB anchored projects Kingwood place and Jones crossing as well as our HEB Shadow anchored project West Killeen market are all stabilized and performing well our fourth stabilized mixed use project Lantana place is also showing strong performance.

We have decided to retain our kingwood place Jones crossing in west clean market properties until the investment sales market is more stable.

At this time, we continue to advance several significant projects through the design and entitlement process. This is the least capital intensive part of the development process and that was a great time to secure entitlements and prepare for the next part of the cycle.

We remain focused on pure residential and residential focused mixed use projects and are confident in our strategy for the long term.

While the market and economy have been challenging we believe our strong balance sheet will allow us to monetize our properties and take advantage of opportunities when the time is right.

Overall I'm pleased with the shareholder value, we have created and cash returns we have delivered through our proven and consistent approach with the hard work and dedication of our team I'm excited to see what the coming months will bring as our strong pipeline of opportunities come to fruition.

I'll now provide updates on our projects.

We expect to complete the St June are 182 unit luxury garden style multifamily project within your Mara development by the end of the first quarter of 2023.

In July 2022, we began construction on the St. George are 316 unit multifamily project on Burnet Road, which is expected to be substantially completed by mid 2020 for both the St. Jude in the St. George generally remain on budget and on schedule.

We continue to advance development plans for the anti B, our luxury high rise rental project in downtown Austin with unobstructed 360 degree views of the capital downtown Austin, The University of Texas campus in West Austin.

Our goal is to begin construction in late 2023 early 2024, depending.

On obtaining financing and other market conditions.

The antibody will be developed as a 400 foot tower, consisting of approximately 420000 square feet with 316 luxury multifamily units.

Additionally, we continue to progress the expansion and renovation of the adjacent historic Watson House.

Which is next to the tower and will offer amenities, including a restaurant bar pool and garden, all while preserving the property's unique historic and architectural features.

We have also advanced development plans for holding hills and the St Julia projects.

Holton Hills is our final large residential development within the Barton Creek community.

With 475 unique residences to be developed in multiple phases.

Located near the Barton Creek Greenbelt, the new community is designed to focus on sustainability energy conservation and wellness, both inside and outside of the home.

We have obtained construction permits for phase, one and subject to obtaining financing and other market conditions. We currently expect to start infrastructure. Construction later this year.

Our projections anticipate that we could start building homes are selling homesites in late 2024 or early 2025.

The St. Julia is our 306 unit multifamily component of our Lantana place project South of Barton Creek in Austin.

We currently expect to begin construction on the St. Julia in 2024 at the earliest the.

The project remains subject to secure an acceptable capital structure and market conditions.

Regarding RMR builds homes, we are continuing construction on the 12 remaining homes and as of November four 2022, three homes were under contract to sell and nine tomorrow below homes of the 20 year development program remain available for sale.

We continue to progress our development plans for section in our 570 acre track located along southwest Parkway in the southern portion of the Barton Creek community.

Our goal is to design section N is a dense mid rise mixed use project surrounded by an expansive green space area.

The design would result in a significant potential increasing development density.

In addition, similar to Holton Hills. The project is focused on environmentally sensitive and sustainable living we.

We are very excited about this projects potential for Austin and our company.

I'm looking forward to seeing the exciting residential projects in our pipeline develop further meet the demands of residents in our target markets and contribute to future strong returns for our shareholders.

In addition to our residential projects I'd like to share some updates on our retail and commercial projects.

We have some ground leases on four of the five retail pad and 95% of the retail space at Kingwood place, our HEB grocery anchored mixed use project in Kingwood, Texas.

One pad side currently remains available for lease or.

The sale of the multifamily track were $5 5 million closed in October .

During the third quarter Stratus substantially completed construction on the first phase of development of Magnolia place, our HEB grocery shadow anchored mixed use project in Magnolia, Texas.

First phase of development consists of two retail buildings with approximately 19000 square feet.

All five pad sites and road utility in drainage infrastructure necessary to support the entire development.

<unk> opened its 95000 square foot grocery store, joining 18 acre site on November 2nd.

We have signed leases for approximately 75% of the retail space at West Killeen market. During the third quarter of 2022, we sold the last remaining pad site for $1 million.

As of September 30, we had signed leases for approximately 90% of the retail space and are partially developed mixed use project lantana place, including the major anchor tenant movie House, an eatery and a ground lease for an AC hotel by Marriott, which opened last year.

I will now turn the call over to Erin for a review of the third quarter financial results Erin.

Thank you Bo.

Today, we issued a press release announcing our third quarter 2022 results.

Before I begin I'd like to acknowledge the outstanding work of the Stratus team.

Which is enabling us to create value for our shareholders.

As I mentioned Stratasys Barbara is pleased to declare a special cash dividend of $4.67 per share.

Approximately $40 million.

Which was paid on September 29 to shareholders of record as of September 19th.

Our total stockholders equity increased to $219 $8 million at September 30th 2022.

$158 $1 million at December 31, 2021, and $98 $9 million at December 31st 2020.

Primarily as a result of gains realized on the sale of block 21 in May 2022.

And our sales at the Santal and the Saint Mary.

December 2021, and January 2021, respectively.

Revenues totaled $10 million in the third quarter of 2022, compared with $6 $3 million in the third quarter of 2021 the.

The increase in revenues is primarily a result of this.

<unk> of undeveloped properties in our real estate operations segment in the recent quarter, partially offset by a decrease in leasing revenue as a result of the sale of the Santal multifamily project in late 2021.

Okay.

Net loss attributable to common stockholders totaled $2 $4 million or 29 cents per diluted share in the third quarter of 2022 compared to a net loss of $3 $8 million or 46 cents per diluted share in the same quarter of last year.

I will now provide a brief commentary on our reporting segments.

Revenue from our real estate operations segment in the third quarter of 2022 totaled $6 $9 million compared to $892000 in the third quarter of 2021.

Operating loss totaled $89000 in the third quarter of this year compared to an operating loss of $1 $9 million in the third quarter of last year.

The increase in revenue and lower operating loss in third quarter 2022 reflects undeveloped.

Undeveloped property sales in the third quarter of 2022 for $6 $9 million previously described by Joe.

There were no developed property sales in the third quarter of 2020 feet or 2021.

Revenue from our leasing operations segment in the third quarter of 2022.

Totaled $3 $1 million.

Compared with $5 $4 million in the third quarter of 2021.

Operating income for the segment in the third quarter of 2022.

$853000 compared to $1 $7 million in the third quarter of last year.

The decrease in revenue and operating income primarily reflects the sale of the phone call in December 2021, partly offset by increased revenue Atlanta Hana place in Kingwood place.

The santal had revenue of $2 $3 million in the third quarter of 2021.

Turning now to capital management et.

At September 30th 2022, consolidated debt totaled $124 $2 million in consolidated cash and cash equivalents totaled $63 $5 million.

Compared with consolidated debt of $106 $6 million.

And consolidated cash and cash equivalents of $24 $2 million at December 31, 2021.

Note the consolidated debt at December 31, 2021 excluded the block 21 loss of approximately $137 million.

Which was presented and liabilities held for sale discontinued operations.

Using the proceeds from the sale of block 21, Stratus repay the outstanding amount under our $60 million Comerica Bank credit facility in June .

As of September 30th 2022, Shredders had a zero balance on that $60 million Conoco revolver.

Exclusive of letters of credit of $11 million committed against such a facility to secure stratasys obligation to build certain roads and utilities facilities benefiting holding hilton's section N.

In November 2020 to Comerica Bank extended the maturity date of Stratasys credit facility from December 26, 2022 to March 27th 2023.

Stratasys and 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.

Enter into a revised revolving credit facility with a lower borrowing limit secured by the remaining collateral under the facility.

<unk> plans to make a federal income tax payment of approximately $10 million in December 2020 to decide.

To satisfy estimated taxes do associated with current year taxable income, including the gain on the sale of block 21.

Purchases and development of real estate properties included in our operating cash flows and capital expenditures included in our investing cash flows totaled.

Totaled $57 $2 million for the first nine months of 2022.

Which was primarily related to the development of Barton Creek properties, including the St Jude and tomorrow pillars the.

The St George and Magnolia place.

This compares to $37 $5 million for the first nine months of 2021.

Primarily related to the purchase of land for the N B and development of Barton Creek properties, including the St Jude and Tomorrow villas and Magnolia place.

Thank you and I'll now turn the call back to Bill for his closing remarks.

Okay.

Thank you Erin.

Our momentum in progress are only possible due to our fantastic team I've said this before but stratus benefits from our team's knowledge experience and relationships in the markets, where we operate and this positions us to capitalize on the continued growth and resulting housing demand in Austin and our other select Texas markets.

We intend to continue to focus on the residential segment of the market and have a strong pipeline of well located projects and fast growing markets are timely sales of the Saint Mary the Santo on block 21 allowed us to significantly deleverage our company and return capital to our shareholders.

The current economic news, we remain optimistic about our pipeline of projects and have the resources necessary to bring them to fruition for the benefit of our partners and shareholders. At this time I'll ask the operator to open the line for questions. Thank you all very much for participating today.

We will now begin the question and answer session to.

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 two.

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

Okay.

Yeah.

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

Showing no excuse me showing no questions. This concludes our question and answer session I would like to turn the conference back over to Bill Armstrong for any closing remarks.

Thank you Gary it's all we have today.

Yeah.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

Yeah.

Okay.

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