Q2 2019 Earnings Call
Welcome to the Stratus properties second quarter, 2019 financial and operational conference call.
Earlier. This morning, Stratus released its financial results, which are available on its website at Stratasys 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 through August 14th 2019.
Anyone listening to the taped replay should note that all information presented is current as of today August nine 2019 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.
Please review and refer to the cautionary language included in Stratasys press release issued today and the risk factors described in Stratasys 2018 Form 10-K that could cause actual results to differ materially from those projected by stratus.
In addition management will discuss adjusted earnings before interest taxes, depreciation and amortization also referred to as adjusted EBITDA, which is a financial measure not recognize under U.S. generally accepted accounting principles also referred to as GAAP.
As required by FCC rules and regulations. This non-GAAP financial measure is reconciled to most comparable GAAP financial measure and a supplemental schedule of Stratasys press release issued today.
I would now like to turn the call over to Mr., Bill Armstrong, Chairman, President and Chief Executive Officer of Stratus properties.
Thank you everyone for joining me on the second quarter 2019 financial and operational conference call.
Our Chief Financial Officer, Aaron Pickens's here today as well.
This morning, I will cover our operational highlights which include exploring monetization opportunities for certain properties either through a refinancing or shale erinn, who will discuss our second quarter 2019 financial results.
We are diversified real estate company and our goal is to create value for shareholders.
As we have talked about previously we follow a proven development process that includes the following stages.
First we identify enter into a contract for a property.
Next we secure entitlements and necessary permits for our proposed project then we construct and leased a project and finally, we positioned the property for a capital event, such as a sale or refinancing depending on market conditions.
We currently have projects in each of these stages.
This quarter I would like to start by providing an update on our plans for our new Magnolia placed project in Houston, Texas.
We are planning to proceed shopper to financing with the first phase of development of Magnolia placed a new mixed use project in Magnolia, Texas currently plan for 81000 square feet of retail space six pad sites fronting FM 14, 88 to hotel sites and 50 acres of residential land, allowing up to 1200 units.
Magnolia placed will be shadow anchored by a 95000 square foot H E. B grocery store to be constructed by H E. B on the joining 18 acre site owned by <unk>.
The first phase of development <unk> is expected to consist of approximately 41000 square feet of retail space three pads for lease and three pads to be help held for sale.
We are currently in the process of securing a construction loan to finance the first phase of development and expect to begin site work and joint use road and utility infrastructure that will support the entire project, including future phases in the third quarter of 2019.
We expect substantially all of the infrastructure cost to be eligible for future reimbursement by the Magnolia Eastern municipal utility district.
The H E. B grocery store is currently expected to open by the third quarter of 2020.
We are encouraged by early interest from several tenants in pad users and are optimistic that this will be another successful project for stratasys.
As you may have seen in our release issued this morning, we are currently exploring opportunities for our sand tall multifamily project in Barton Creek and block 21, our mixed use development in downtown Austin, Texas that contains the W. Austin hotel in residences and office retail and entertainment space.
The combined 448 unit stand tall property was fully leased and stabilized as of June 32019, and we continue to explore options to sell or refinance this property subject to market conditions.
Whether we decide to sell or refinance this property, we recognize that stand tall is a valuable asset that provides several good options for stratasys from either short term or long term perspective.
We also continue to explore various opportunities with respect to block 21, which may include a possible sale recapitalization or other venture subject to market conditions block 21, located in downtown Austin is a high profile asset with unique combination of hotel entertainment and commercial uses.
We are excited about the potential opportunities associated with these properties and expect to provide you with further updates in the near future.
Regarding our other properties, we have multiple active projects that continue to perform well and leasing activity also remained strong.
We expect to commence construction on four new Amar villas townhomes in the third quarter of this year.
We have been incorporating design improvements to the town homes based on buyer feedback and with the Barton Creek resort opened after a two year expansion and renovation we are experiencing renewed interest in the area.
We anticipate that the extensive resort improvement will positively impact the overall Barton Creek community.
We also anticipate additional phases of this type product in future sections of Barton Creek.
Construction of the Saint Mary a 240 unit luxury garden style apartment project in the circle Si community is progressing ahead of schedule and on budget.
The clubhouse and first three apartment buildings have been completed and 19 units had been leased the first tenant took occupancy during July and we expect to complete construction in the fourth quarter of this year.
Construction of King would place our rates you'd be anchored mixed use development in Kingwood, Texas is progressing on schedule and on budget and we had signed leases for approximately 80% of the retail space, including the H E. B store as of June 32019.
The H E B stores scheduled to be opened in November 2019, and the first retail buildings are expected to be turned over to tenants to begin construction of their interior spaces. Later this month.
Construction of the first phase of Lantana place a mixed use development project located in southwest Austin was completed in 2018.
As of June 32019, we had signed leases for approximately 80% of the retail space, including the anchor tenant movie House, an eatery in several other high quality tenants.
In a ground lease for an AC hotel by Marriott.
Construction of the hotel began in May 2019.
As of June 32019, Jones crossing our AG being anchored mixed use development in College station, Texas had signed leases for approximately 90% of the first round of retail space and west clean market, our retail project in clean, Texas Shadow anchored by an h. you'd be grocery store had signed leases for approximately 70% of the retail space.
Now I will turn the call over to our Chief Financial Officer, Aaron Pickens for a review of the second quarter financial highlights Aaron.
Thank you both.
Today Stratus reported financial results for the second quarter of 2019 as detailed in our press release issued this morning.
Stratus reported a net loss attributable to common stockholders of $2.4 million or 29 cents per share in the second quarter of 2019, compared with a net loss attributable to common stockholders of point $9 million or 11 cents per share in the second quarter of 2018.
Our second quarter revenues in 2019 totaled $23.7 million compared with $23.3 million for the second quarter of 2018.
The increase in revenues, primarily reflects higher revenues for our leasing operations and entertainment segments.
Partly offset by lower revenues from our real estate operations and hotel segment.
Adjusted EBITDA for the second quarter of 2019 totaled $3.3 million.
Which was a 16% increase from $2.8 million in the second quarter of 2018.
Our real estate operations segment revenues decreased to $4.1 million in the second quarter of 2019.
From $7 million in the second quarter of 2018.
This decrease primarily reflects fewer sales of developed properties in the recent quarter.
Operating income also decreased in the second quarter of 2019 $2.3 million compared with $1.4 million in the second quarter of 2018 strata sold for Ameren drive phase three lots and the last completed Ameren pillows townhome for a total of $4 million during the second quarter of 2019.
Compared with the sales of three Amar I drive phase three lots to a marvelous town hands and one Debbie you often hotel in residences condominium for a total of $6.9 million during the second quarter of 2018.
Since the end of the second quarter of 2019, we closed on the sale of two of them are Dr. phase three lots for a total of $1.3 million.
And as of August 15, 2019, six Amar I drive phase three lots were under contract.
Our leasing operation segment revenues increased to $4.6 million in the second quarter of 2019 up from $2.6 million a year ago.
Operating income increased $2.6 million in the second quarter of 2000 $19.5 million in the second quarter of 2018.
The increases in revenue and operating income primarily reflect the commencement of new leases at our recently completed properties Santa-fe's to lantana play and Jens crossing.
Our hotel segment revenues in the second quarter of 2019 decreased to $9 million compared with $9.6 million last year.
And operating income decreased to $1.3 million from $1.6 million in the second quarter of 2018.
These decreases are primarily a result of reduced transient weekend business and lower food and beverage sales.
Revenue per available room is $242 for the second quarter of 2019, compared with $254 for the second quarter of 2018.
Well, we remain optimistic about the long term outlook of the data you Austin Hotel based on office growth downtown continued population growth and increase tourism in the Austin market. A continued increase in competition, resulting from the anticipated opening of additional hotel rooms in downtown Austin during the second half of 2019 and throughout 2020 is expected to have an ongoing impact on our hotel revenues.
Our entertainment segment revenues increased to $6.3 million in the second quarter of 2019 up from $4.5 million in the second quarter of 2018.
Our operating income increased to $1.3 million from point $5 million in the second quarter 2018.
These increases primarily reflect an increase in the number of events hosted in higher event attendance at AC alive.
I see a lie posted 69 events and sold approximately 68000 tickets in the second quarter of 2019.
Which is an increase from the 45 events and approximately 29000 tickets sold in the second quarter of 2018.
Additionally, 310 AC alive hosted 52 events and sold approximately 7000 tickets in the second quarter of 2019, compared with 57 events and the sale of approximately 8000 tickets in the second quarter of 2018.
Turning now to capital management at June Thirtyth, 2019, consolidated debt totaled $340.6 million.
And consolidated cash totaled $18.1 million.
Compared with consolidated debt of $295.5 million and consolidated cash of $19 million at December 31st 2018.
Purchase is in development for real estate properties included in operating cash flows and capital expenditures included in investing cash flows.
Total $50.7 million for the first six months of 2019, primarily related to the development of King would place the Saint Mary and Barton Creek properties.
This was in line with the $50.7 million for the first six months of 2018, which was primarily related to the development of Barton Creek properties, including Santyl phase two.
Lantana place engines crossing.
Thank you and I will now turn the call back to both for his closing remarks.
Thank you Aaron.
We continually evaluate new markets in our current portfolio and believed that Austin and other select fast growing markets in Texas continue to provide attractive investment opportunities for stratas.
Our model generally begins within it and title piece of property and ends with a fully stabilized institutional quality real estate assets.
Oh ultimately our goal is to maximize the risk adjusted returns to our shareholders generally over a three to five year period.
As you already know Austin is a booming city offering further opportunities to stratasys.
Although we have and will continue to have increased competition. We are uniquely positioned to the city and are encouraged by the increase in population job opportunities and the types of employers that continue to join us in central Texas.
Jobs and population growth.
Already and will continue to be the major factor that drives the real estate business and strategy properties is a prime beneficiary of growth on both of these factors here in Texas.
Now we are happy to take any questions you may have.
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.
If at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then too.
At this time, we will pause momentarily to assemble our roster.
Our first question comes from Fred burden or with Burger investments. Please go ahead.
Oh, good morning, I have a few questions. The first is can you elaborate a beyond what you've said about the status of your planning efforts.
For the remaining sections in Barton Creek.
Sure Good morning, Fred its boat [noise].
We have Ah [noise] or last two sections are Barton Creek, we called K L O M and K.L. Uno is basically a.
Mostly residential uses and we have been working those permits through the city for.
[noise], probably the last 24 months as you know Austin has a bit of a complicated entitlement process our base level entitlements for both sections Kalo and and had been established many many years ago and now we basically have two I'm kinda further refine those through through other city kind of processes, but nonetheless, we have been you know.
Pursuing our entitlements for kalo for the last.
You know I must say, it's two years and we're getting close I think we expect to be to have our kind of our next round of permits by the end of the year, maybe end and into early next year.
And then we would begin our you know the construction work so that would allow us to perhaps have salable product sometime late next year or early 2021 as far as section and goes that's that's primarily commercial and multifamily and that is I'm, a little bit behind kalen out, but we are.
You know had been actively going back and forth with the city on our on our permits there and I would expect maybe to have something you know the first phase approved sometime mid next year and then and then to begin kinda associated infrastructure work sometime later next year, which again would we would have product available sometime 2021.
You know its is everyone knows Austin relative to what the other major markets in Texas is has a very very cumbersome entitlement process, there's good and bad it it it to some extent has created some artificial barriers to entry, but but going through the process can often be.
Just a frustrating, but we're we've done it for many many years and have a.
Have a good track record, but nonetheless, it does that it takes a lot of patients that.
You know can be trying.
Hope that was that was helpful.
It was.
Next question was how you mentioned Centel phase one and two.
I did not hear you say anything that phase three construction, what's the status of that well, we don't <unk> Santos only had two phases, a total of 448 units and so that's that's fully built and stabilize now.
<unk> Santala is essentially within section and that I that I previously spoke about in or there are additional multifamily entitlements associated with section and and that's that's something we're currently working through the city process on right now and I just had one kind of.
Caveat about section and.
We are we're in what they called the city's E.T.J., which is their extra territorial jurisdiction and what that means is we have to comply with certain things like water quality and in road geometry in health and safety matters, but we do not have we're not subject to the city's zoning authority and that's that's that's important because it gives us a lot of flexibility with respect to uses and as you know we have our own utility system. These these Barton Creek muds as we call them. So we don't have to worry about getting utility service from the city either so we were in a bit of a [noise] enviable position that we control of our own you know.
Certainly with the utilities is a major thing, but we still have to go through the city process. It just up Fortunately that doesn't require zoning, which can be even more a more difficult than just the standard process, but.
But those those additional multifamily phases will be coming with that with the next round of entitlements off section that.
Thank you and on block 21 are you able to tell us what the level of interest is.
Oh from buyers well, we're really just getting started and the timing obviously the debt as summer is not an ideal time to kind of roll out something like this and our advisors are have been having some kind of <unk> would characterize them as more strategic conversations with with a handful of potential buyers, but for <unk>, but they're really targeting to get there. There are major kind of effort out there after labor day, but so far I'm. Austin is you know as we all know is behind everybody's list.
So we have had we have we've had some pretty good interest. It's just too early to tell whether any this will result in something that makes sense for us and we're in a <unk>.
You know having had recovered essentially all of our investment we have a low basis in a very good asset that produces you know pretty good cash flow. So we'll you know we can afford to be somewhat Oh, I guess picky about it if you will.
The what's interesting is having had the you know we've been operating the property now for 10 years.
Our agreement with Marriott allows for a reflagging of the property. After 10 years in connection with the sale of 51% of the property and that is a an attractive option for a lot of people they would like to whether they control their own brand or would like to bring in a different brand so that that wrinkle has.
Has generated I think a fair amount of interest among other hotel operators. So again.
A little early to to be able to report anything substantive, but just given how you know that the high profile nature of the asset how successful it's been coupled with just with the you know the overall interest in Austin I think I'm hopeful that we'll have some good opportunities to bring forth to the board and and hopefully I'm put something good together.
If if you're able to [laughter] cash out or you know refinance it again.
Oh, you have more incremental opportunities.
For future investment deals from future project well, there's there's.
We'd like to say there is no shortage of opportunities out there we're trying to and we've got a couple of things as you know we have ARPU star existing portfolio section and Kale and know that we discussed that a certainly requires capital to move those projects forward. So that is always a a you know a good use of our money the <unk>. The <unk> eight GB retail business that that's been very successful for US we continue to evaluate new opportunities in that line of work and so again those are two things that are you know capital intensive that we would certainly would be would be high on our list of review kind of to redeploy that capital and then obviously you know anytime we would have if you're getting I don't want to get ahead of myself, but if we had if we were able to monetize.
Ah you know, whether it's w. or even anything else Big you know somehow returning that money to shareholders is another thing that that the board often evaluate so I think you know that the general range of things is just to reinvest and good opportunities, whether it's something within our current portfolio or something new.
Or or Andrew or I should say returning some of that that that that money to our shareholders is another thing that is always strongly considered.
But first things first we want to we want to get find to find a deal that makes sense for the for the property.
Thank you for elaborating on that I. Appreciate it my last question is can you give us an update on the master lease agreement he okay play play.
I don't have the detail details, but I can tell you that we continue to be on plan. If you will I mean, we continue to work down our our obligation there I think the next.
The hotel, there's a hotel out there that has been it really it's very close to being finally opened it. They had some delays that were permit related but we are even though that that tennant has been paying rent to us. We have we were still you know technically on the master lease obligation for that that that piece of property and it has a 99 year term. So it's a pretty big number even though again, it's we see no practical risk associated with it but we will be getting off of that park soon and we've had a couple other leases out there that have reduced our obligation, but we have again I don't want to I don't want to guess, but I know that we are where we expected to be at this point and and unfortunately, the tenants that are they're all doing well H E. B continues to post very strong numbers sales numbers.
Our kind of our our remaining challenge or opportunity out there I would I would say is the.
There's a there's some additional land in the back the behind the shopping center that has been as part of our part agreement with the city Lakeway is planned for residential uses we had it under contract that contract fell out. We're we're evaluating that that's you know we have.
Really at very attractive assets. So we're trying to.
We're in the middle of trying to figure out exactly what to do with that like way is is it again, a very attractive market. It's it's got limited.
Just is only so much land there to develop so we're trying to work with the city to see if we can't perhaps get a little more density than we currently and then our current plans allow for but but that that is probably our last big opportunity with that like way asset and as you point out we had these master lease obligations that we're currently working through but it's it's it's where we expect it to be.
Okay. Thank you very much thank you for it.
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.
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