Stratus Properties Inc. (NASDAQ: STRS), a diversified real
estate company engaged primarily in the acquisition, entitlement,
development, management, operation and sale of commercial, and
multi-family and single-family residential real estate properties,
real estate leasing, and the operation of hotel and entertainment
businesses located in the Austin, Texas area and other select, fast
growing markets in Texas, today reported first-quarter 2019
results.
Highlights:
- Completed the sale of a retail
pad subject to a ground lease located in the Circle C community
for $3.2 million.
- Sold three single-family residential
properties for a total of $2.8 million, including two Amarra
Drive Phase III lots and one Amarra Villas townhome.
Since the end of first-quarter 2019, Stratus closed on the sale of
the last completed Amarra Villas townhome and two Amarra Drive
Phase III lots for a total of $2.8 million. As of May 3, 2019,
eight Amarra Drive Phase III lots were under contract.
- Received $4.6 million of bond
proceeds related to Travis County municipal utility district
(MUD) reimbursements of infrastructure costs incurred for
development of Barton Creek.
- Modified Amarra Villas credit
facility to increase loan amount from $8.0 million to $15.0
million and extend maturity for three years through March
2022.
- Finalized the New Caney H-E-B,
L.P. (HEB) grocery store lease and acquired HEB’s interests in the
New Caney partnership for approximately $5 million.
- Completed construction of Santal
Phase II, a 212-unit multi-family project located directly
adjacent to the previously completed Santal Phase I, a
236-unit multi-family project, in Barton Creek. As of March 31,
2019, 78 percent of the Phase II units were leased and Santal Phase
I was stabilized. Stratus is actively exploring options to sell or
refinance the combined 448-unit Santal property.
- Construction of Kingwood Place,
an HEB-anchored, mixed-use project, is progressing on schedule and
on budget and the retail space was 79 percent leased as of March
31, 2019. The HEB grocery store is currently anticipated to open in
November 2019.
- Construction of The Saint Mary,
a 240-unit luxury garden-style apartment project in the Circle C
community, is currently ahead of schedule and on budget. The first
units are expected to be delivered by the end of May 2019 and
project completion is expected in fourth-quarter 2019.
- Stratus' total stockholders'
equity was $124.0 million at December 31, 2018, compared with
$127.3 million at December 31, 2017. As reported in its filing with
the United States (U.S.) Securities and Exchange Commission (SEC)
on March 27, 2019, Stratus' after-tax Net Asset Value (NAV)
increased to $326.1 million, or $39.58 per share, as of December
31, 2018, compared with $314.0 million, or $38.08 per share, as of
December 31, 2017. The increase in the after-tax NAV was primarily
driven by development activity at the Santal Phase II, The Saint
Mary, Lantana Place, Kingwood Place, Magnolia and Jones Crossing
projects. For additional information regarding NAV, see "Cautionary
Statement," and supplemental pages VI and VII, which are available
on Stratus' website, "stratusproperties.com."
William H. Armstrong III, Chairman, President and Chief
Executive Officer, stated, “Capitalizing on the momentum achieved
in 2018, our first-quarter results demonstrate that we continue to
successfully implement our development plan. Development and
leasing of our mixed-use projects, including Jones Crossing, West
Killeen Market, Lantana Place and Kingwood Place, are progressing
towards stabilization. We are very pleased with the leasing of our
Santal II multi-family project, which is nearing stabilization. We
are actively exploring options to sell or refinance the combined
448-unit Santal property. We believe that our steady progress in
developing and leasing our projects is reflected in our annual
after-tax net asset value which increased to $326 million as of
December 31, 2018, up from $314 million as of December 31, 2017. We
expect steady momentum to continue throughout 2019 and we look
forward to creating value for shareholders.”
First-Quarter 2019 Financial
Results
Stratus reported net income attributable to common stockholders
of $0.9 million, $0.10 per share, in first-quarter 2019, compared
to a net loss attributable to common stockholders of $1.9 million,
$0.23 per share, in first-quarter 2018. Stratus' first-quarter 2019
revenues totaled $19.7 million, compared with $17.8 million for
first-quarter 2018. The increase in revenues in first-quarter 2019
primarily reflects higher revenues from single-family residential
property sales and increased revenues associated with execution of
new leases for recently completed properties, partly offset by
reduced hotel group business and entertainment event
attendance.
Adjusted EBITDA (earnings before interest, taxes, depreciation
and amortization) totaled $0.8 million in first-quarter 2019,
compared with $1.0 million in first-quarter 2018. For a
reconciliation of net income (loss) attributable to common
stockholders to Adjusted EBITDA, see the supplemental schedule on
page V, "Adjusted EBITDA," which is available on Stratus'
website.
Summary Financial
Results
Three Months Ended March 31, 2019 2018 (In
Thousands, Except Per Share Amounts)
Revenues
Real Estate Operations $ 2,953 $ 1,202 Leasing Operations 3,859
2,255 Hotel 8,372 9,394 Entertainment 4,825 5,259 Eliminations and
other (311 ) (345 ) Total consolidated revenue $ 19,698 $
17,765
Operating income
(loss)
Real Estate Operations $ 2,846 $ (425 ) Leasing Operations 2,421
432 Hotel 774 1,461 Entertainment 824 735 Corporate and other
(3,222 ) (3,106 ) Total consolidated operating income (loss) $
3,643 $ (903 ) Net income (loss) attributable to
common stockholders $ 862 $ (1,870 ) Diluted net income
(loss) per share $ 0.10 $ (0.23 ) Adjusted EBITDA $ 816 $
1,047 Capital expenditures and purchases and development of
real estate properties $ 32,741 $ 27,988 Diluted
weighted-average shares of common stock outstanding 8,213 8,137
The increase in revenue from the Real Estate Operations
segment in first-quarter 2019, compared to first-quarter 2018,
primarily reflects higher revenues from the sale of an Amarra
Villas townhome in first-quarter 2019. During first-quarter 2019,
Stratus sold two Amarra Drive Phase III lots and one Amarra Villas
townhome for a total of $2.8 million, compared with the sales of
one Amarra Drive Phase II lot and one Amarra Drive Phase III lot
for $1.2 million during first-quarter 2018. The increase in
first-quarter 2019 operating income also reflects $3.4 million of
bond proceeds related to Travis County MUD reimbursements of
infrastructure costs incurred for development of Barton Creek,
which were recorded as a reduction of cost of sales. Since the end
of first-quarter 2019, Stratus closed on the sale of the last
completed Amarra Villas townhome and two Amarra Drive Phase III
lots for a total of $2.8 million. As of May 3, 2019, eight Amarra
Drive Phase III lots were under contract.
The increase in revenue from the Leasing Operations
segment in first-quarter 2019, compared to first-quarter 2018,
primarily reflects the commencement of new leases at Stratus'
recently completed projects, including Lantana Place, Jones
Crossing and Santal Phase II. The increase in operating income
during first-quarter 2019, compared to first-quarter 2018,
primarily reflects the recognition of a $2.1 million gain in
first-quarter 2019 on the sale of a retail pad subject to a ground
lease located in the Circle C community.
The decreases in revenue and operating income from the
Hotel segment in first-quarter 2019, compared to
first-quarter 2018, primarily reflect reduced group business and
lower food and beverage sales in first-quarter 2019. Revenue per
available room (RevPAR), which is calculated by dividing total room
revenue by the average number of total rooms available, was $238 in
first-quarter 2019, compared with $262 for first-quarter 2018.
While Stratus remains positive on the long-term outlook of the W
Austin Hotel based on continued population growth and increased
tourism in the Austin market, a continued increase in competition
resulting from the anticipated opening of additional hotel rooms in
downtown Austin during the remainder of 2019 and 2020 may have an
ongoing impact on Stratus' hotel revenues.
The decreases in revenue and operating income from the
Entertainment segment in first-quarter 2019, compared to
first-quarter 2018, primarily reflect lower event attendance at the
ACL Live venue. ACL Live hosted 64 events and sold approximately 49
thousand tickets in first-quarter 2019, compared with 57 events and
the sale of approximately 55 thousand tickets in first-quarter
2018. Additionally, 3TEN ACL Live, hosted 50 events and sold
approximately 5 thousand tickets in first-quarter 2019, compared
with 49 events and the sale of 5 thousand tickets in first-quarter
2018.
Debt and Liquidity
At March 31, 2019, consolidated debt totaled $320.9 million
and consolidated cash totaled $19.0 million, compared with
consolidated debt of $295.5 million and consolidated cash of $19.0
million at December 31, 2018.
In March 2019, Stratus entered into a loan agreement with
Comerica Bank to modify, increase and extend Stratus' Amarra Villas
credit facility, which was scheduled to mature on July 12, 2019.
The new loan agreement provides for an increase in the revolving
credit facility from $8.0 million to $15.0 million and an extension
of the maturity date from July 12, 2019, to March 19, 2022.
Also, in March 2019, a Stratus subsidiary entered into a $5.0
million land loan with Texas Capital Bank. Proceeds from the loan
were used to fund the acquisition of HEB's portion of the New Caney
partnership in which Stratus and HEB purchased a tract of land for
the future development of an HEB-anchored, mixed-use project in New
Caney, Texas.
Purchases and development of real estate properties (included in
operating cash flows) and capital expenditures (included in
investing cash flows) totaled $32.7 million for first-quarter 2019,
primarily related to the development of The Saint Mary, Kingwood
Place and Santal Phase II projects. This compares with $28.0
million for first-quarter 2018, primarily for the development of
Lantana Place, Jones Crossing and Barton Creek properties, which
include Santal Phase II.
Conference Call
Information
Stratus will conduct an investor conference call to discuss its
unaudited first-quarter 2019 financial and operating results today,
May 10, 2019, at 11:00 a.m. ET. The public is invited to
listen to the conference call by dialing (877) 418-4843 for
domestic access and (412) 902-6766 for international access. A
replay of the conference call will be available at the conclusion
of the call for five days by dialing (877) 344-7529 domestically
and by dialing (412) 317-0088 for international access. Please
use replay ID: 10130736. The replay will be available on Stratus'
website at stratusproperties.com until May 15, 2019.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS AND
REGULATION G DISCLOSURE.
This press release contains forward-looking statements in which
Stratus discusses factors it believes may affect its future
performance. Forward-looking statements are all statements other
than statements of historical fact, such as statements regarding
projections or expectations related to the planning, financing,
development, construction, completion and stabilization of Stratus’
development projects, plans to sell or refinance properties
(including, but not limited to, Amarra Drive lots, Amarra Villas
townhomes, West Killeen Market, the retail building at Barton Creek
Village, The Saint Mary, and Santal), operational and financial
performance, expectations regarding future cash flows, MUD
reimbursements for infrastructure costs, regulatory matters,
leasing activities, estimated costs and timeframes for development
and stabilization of properties, liquidity, tax rates, the impact
of interest rate changes, capital expenditures, financing plans,
possible joint venture, partnership, strategic relationships or
other arrangements, Stratus’ projections with respect to its
obligations under the master lease agreements entered into in
connection with the sale of The Oaks at Lakeway in 2017, other
plans and objectives of management for future operations and
development projects, future dividend payments and share
repurchases. The words “anticipates,” “may,” “can,” “plans,”
“believes,” “potential,” “estimates,” “expects,” “projects,”
“targets,” “intends,” “likely,” “will,” “should,” “to be” and any
similar expressions are intended to identify those assertions as
forward-looking statements.
Under Stratus’ loan agreements with Comerica Bank, Stratus is
not permitted to pay dividends on common stock without Comerica
Bank’s prior written consent. The declaration of dividends is at
the discretion of Stratus’ Board of Directors (Board), subject to
restrictions under Stratus’ loan agreements with Comerica Bank, and
will depend on Stratus’ financial results, cash requirements,
projected compliance with covenants in its debt agreements, outlook
and other factors deemed relevant by the Board.
Stratus cautions readers that forward-looking statements are not
guarantees of future performance, and its actual results may differ
materially from those anticipated, expected, projected or assumed
in the forward-looking statements. Important factors that can cause
Stratus’ actual results to differ materially from those anticipated
in the forward-looking statements include, but are not limited to,
Stratus’ ability to refinance and service its debt, the
availability and terms of financing for development projects and
other corporate purposes, Stratus’ ability to enter into and
maintain joint venture, partnership, strategic relationships or
other arrangements, Stratus’ ability to effect its business
strategy successfully, including its ability to sell properties at
prices its Board considers acceptable, Stratus’ ability to obtain
various entitlements and permits, a decrease in the demand for real
estate in the Austin, Texas area and other select markets in Texas
where Stratus operates, changes in economic, market and business
conditions, reductions in discretionary spending by consumers and
businesses, competition from other real estate developers, hotel
operators and/or entertainment venue operators and promoters,
challenges associated with booking events and selling tickets and
event cancellations at Stratus’ entertainment venues, the
termination of sales contracts or letters of intent due to, among
other factors, the failure of one or more closing conditions or
market changes, Stratus’ ability to secure qualifying tenants for
the space subject to the master lease agreements entered into in
connection with the sale of The Oaks at Lakeway in 2017 and to
assign such leases to the purchaser and remove the corresponding
property from the master leases, the failure to attract customers
or tenants for its developments or such customers’ or tenants’
failure to satisfy their purchase commitments or leasing
obligations, increases in interest rates and the phase out of the
London Interbank Offered Rate, declines in the market value of
Stratus’ assets, increases in operating costs, including real
estate taxes and the cost of building materials and labor, changes
in external perception of the W Austin Hotel, changes in consumer
preferences, industry risks, changes in laws, regulations or the
regulatory environment affecting the development of real estate,
opposition from special interest groups or local governments with
respect to development projects, weather-related risks, loss of key
personnel, cybersecurity incidents and other factors described in
more detail under the heading “Risk Factors” in Stratus’ Annual
Report on Form 10-K for the year ended December 31, 2018,
filed with the U.S. SEC.
This press release also includes measures of Adjusted EBITDA and
after-tax NAV, which are not recognized under U.S. generally
accepted accounting principles (GAAP). Stratus believes these
measures can be helpful to investors in evaluating its business.
Adjusted EBITDA is a financial measure frequently used by
securities analysts, lenders and others to evaluate Stratus'
recurring operating performance. After-tax NAV illustrates current
embedded value in Stratus' real estate, which is carried on its
GAAP balance sheet primarily at cost. Management uses after-tax NAV
as one of the metrics in evaluating progress on Stratus' active
development plan. Adjusted EBITDA and after-tax NAV are intended to
be performance measures that should not be regarded as more
meaningful than GAAP measures. Other companies may calculate these
measures differently. As required by SEC Regulation G,
reconciliations of Stratus' net income (loss) attributable to
common stockholders to Adjusted EBITDA and Stratus' after-tax NAV
to total stockholders' equity in its consolidated balance sheet,
are included in the supplemental schedules of this press
release.
Investors are cautioned that many of the assumptions upon which
Stratus' forward-looking statements are based are likely to change
after the forward-looking statements are made. Further, Stratus may
make changes to its business plans that could affect its results.
Stratus cautions investors that it does not intend to update its
forward-looking statements more frequently than quarterly
notwithstanding any changes in its assumptions, business plans,
actual experience, or other changes, and Stratus undertakes no
obligation to update any forward-looking statements.
A copy of this release is available on Stratus'
website, stratusproperties.com.
STRATUS PROPERTIES INC.
CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME (LOSS) (Unaudited)
(In Thousands, Except Per Share
Amounts)
Three Months Ended March 31, 2019 2018
Revenues: Real estate operations $ 2,948 $ 1,194 Leasing operations
3,629 2,004 Hotel 8,325 9,322 Entertainment 4,796 5,245
Total revenues 19,698 17,765 Cost of sales: Real estate
operations 46 a 1,566 Leasing operations 2,139 1,182 Hotel 6,675
7,029 Entertainment 3,479 3,968 Depreciation 2,630 1,942
Total cost of sales 14,969 15,687 General and administrative
expenses 3,199 2,981 Gain on sale of assets (2,113 ) — Total
16,055 18,668 Operating income (loss) 3,643 (903 )
Interest expense, net (2,572 ) (1,559 ) (Loss) gain on interest
rate derivative instruments (59 ) 178 Loss on early extinguishment
of debt (16 ) — Other income, net 299 b 11 Income
(loss) before income taxes and equity in unconsolidated affiliates'
loss 1,295 (2,273 ) Equity in unconsolidated affiliates' loss — (3
) (Provision for) benefit from income taxes (433 ) 406 Net
income (loss) and total comprehensive income (loss) attributable to
common stockholders $ 862 $ (1,870 ) Net income
(loss) per share attributable to common stockholders Basic $ 0.11
$ (0.23 ) Diluted $ 0.10 $ (0.23 ) Weighted
average common shares outstanding: Basic 8,167 8,137
Diluted 8,213 8,137
a.
Includes $3.4 million of municipal utility
district (MUD) reimbursements which were recorded as a reduction of
cost of sales.
b.
Includes $283 thousand of interest income
associated with MUD reimbursements.
STRATUS PROPERTIES INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In Thousands)
March 31,2019 December 31,2018 ASSETS Cash and cash
equivalents $ 19,048 $ 19,004 Restricted cash 14,981 19,915 Real
estate held for sale 17,523 16,396 Real estate under development
148,618 136,678 Land available for development 24,874 24,054 Real
estate held for investment, net 265,816 253,074 Lease right-of-use
assets 11,854 a — Deferred tax assets 11,543 11,834 Other assets
14,526 15,538 Total assets $ 528,783 $ 496,493
LIABILITIES AND EQUITY Liabilities: Accounts payable
$ 23,943 $ 20,602 Accrued liabilities, including taxes 7,145 11,914
Debt 320,909 295,531 Lease liabilities 12,258 a — Deferred gain
8,984 9,270 Other liabilities 12,552 12,525 Total
liabilities 385,791 349,842 Commitments and
contingencies Equity: Stockholders' equity: Common stock 93
93 Capital in excess of par value of common stock 186,424 186,256
Accumulated deficit (40,241 ) (41,103 ) Common stock held in
treasury (21,360 ) (21,260 ) Total stockholders' equity 124,916
123,986 Noncontrolling interests in subsidiaries 18,076 b
22,665 Total equity 142,992 146,651 Total
liabilities and equity $ 528,783 $ 496,493
a.
Effective January 1, 2019, Stratus adopted
a new accounting standard that requires lessees to recognize most
leases on the balance sheet.
b.
Decrease represents Stratus' purchase of
H-E-B, L.P.'s interests in the New Caney partnership.
STRATUS PROPERTIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In Thousands)
Three Months Ended March 31, 2019 2018 Cash
flow from operating activities: Net income (loss) $ 862 $ (1,870 )
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities: Depreciation 2,630 1,942 Cost of
real estate sold 1,931 403 Gain on sale of assets (2,113 ) — Loss
(gain) on interest rate derivative contracts 59 (178 ) Loss on
early extinguishment of debt 16 — Debt issuance cost amortization
and stock-based compensation 296 412 Equity in unconsolidated
affiliates' loss — 3 Increase in deposits 108 205 Deferred income
taxes 291 (504 ) Purchases and development of real estate
properties (3,298 ) (3,612 ) MUD reimbursements applied to real
estate under development 920 — Increase in other assets (928 ) (822
) Decrease in accounts payable, accrued liabilities and other (83 )
(4,963 ) Net cash provided by (used in) operating activities 691
(8,984 ) Cash flow from investing activities: Capital
expenditures (29,443 ) (24,376 ) Proceeds from sale of assets 3,170
— Payments on master lease obligations (306 ) (388 ) Purchase of
noncontrolling interest in consolidated subsidiary (4,589 ) —
Other, net — (30 ) Net cash used in investing activities
(31,168 ) (24,794 ) Cash flow from financing activities:
Borrowings from credit facility 12,086 16,300 Payments on credit
facility (12,911 ) (1,075 ) Borrowings from project loans 30,744
13,164 Payments on project and term loans (4,006 ) (563 ) Cash
dividend paid for stock-based awards (17 ) — Stock-based awards net
payments (100 ) (203 ) Financing costs (209 ) — Net cash
provided by financing activities 25,587 27,623 Net
decrease in cash, cash equivalents and restricted cash (4,890 )
(6,155 ) Cash, cash equivalents and restricted cash at beginning of
year 38,919 39,390 Cash, cash equivalents and
restricted cash at end of period $ 34,029 $ 33,235
STRATUS PROPERTIES INC.BUSINESS
SEGMENTS
Stratus currently has four operating segments: Real Estate
Operations, Leasing Operations, Hotel and Entertainment.
The Real Estate Operations segment is comprised of Stratus’ real
estate assets (developed for sale, under development and available
for development), which consists of its properties in Austin, Texas
(the Barton Creek community; the Circle C community, including The
Saint Mary; the Lantana community, including a portion of Lantana
Place still under development and vacant pad sites; and one
condominium unit at the W Austin Hotel & Residences); in
Lakeway, Texas, located in the greater Austin area (Lakeway); in
College Station, Texas (a portion of Jones Crossing still under
development and vacant pad sites); in Killeen, Texas (vacant pad
sites at West Killeen Market); and in Magnolia, Texas (Magnolia),
Kingwood, Texas (Kingwood Place) and New Caney, Texas (New Caney),
located in the greater Houston area.
The Leasing Operations segment includes the office and retail
space at the W Austin Hotel & Residences, Barton Creek Village,
Santal Phase I and Phase II, West Killeen Market in Killeen, Texas,
and completed portions of the Lantana Place and Jones Crossing
projects.
The Hotel segment includes the W Austin Hotel located at the W
Austin Hotel & Residences in downtown Austin, Texas.
The Entertainment segment includes ACL Live, a live music and
entertainment venue, and 3TEN ACL Live, both located at the W
Austin Hotel & Residences. In addition to hosting concerts and
private events, ACL Live is the home of Austin City Limits, the
longest running music series in American television history.
Stratus uses operating income or loss to measure the performance
of each segment. General and administrative expenses, which
primarily consist of employee salaries, wages and other costs, are
managed on a consolidated basis and are not allocated to Stratus'
operating segments. The following segment information reflects
management determinations that may not be indicative of what the
actual financial performance of each segment would be if it were an
independent entity.
Segment information presented below was prepared on the same
basis as Stratus’ consolidated financial statements (in
thousands).
Real EstateOperationsa
LeasingOperations
Hotel Entertainment
Corporate,Eliminationsand Otherb
Total Three Months Ended March 31, 2019: Revenues:
Unaffiliated customers $ 2,948 $ 3,629 $ 8,325 $ 4,796 $ — $ 19,698
Intersegment 5 230 47 29 (311 ) — Cost of sales, excluding
depreciation 46 c 2,144 6,698 3,607 (156 ) 12,339 Depreciation 61
1,407 900 394 (132 ) 2,630 General and administrative expenses — —
— — 3,199 3,199 Gain on sale of assets — (2,113 ) d —
— — (2,113 ) Operating income (loss) $ 2,846 $
2,421 $ 774 $ 824 $ (3,222 ) $ 3,643
Capital expenditures and purchases and development of real estate
properties $ 3,298 $ 29,220 $ 98 $ 125 $ — $ 32,741 MUD
reimbursements classified as a reduction of real estate under
developmentc 920 — — — — 920 Total assets at March 31, 2019
219,215 159,606 99,146 44,000 6,816 528,783
STRATUS PROPERTIES INC.
BUSINESS SEGMENTS (continued)
Real EstateOperationsa
Leasing
Hotel
Entertainment
Corporate,Eliminationsand Otherb
Total Three Months Ended March 31, 2018: Revenues: Unaffiliated
customers $ 1,194 $ 2,004 $ 9,322 $ 5,245 $ — $ 17,765 Intersegment
8 251 72 14 (345 ) — Cost of sales, excluding depreciation 1,566
1,190 7,038 4,136 (185 ) 13,745 Depreciation 61 633 895 388 (35 )
1,942 General and administrative expenses — — —
— 2,981 2,981 Operating (loss) income $
(425 ) $ 432 $ 1,461 $ 735 $ (3,106 ) $ (903 )
Capital expenditures and purchases and development of real estate
properties $ 3,612 $ 23,799 $ 239 $ 338 $ — $ 27,988 Total assets
at March 31, 2018 210,279 71,092 101,582 36,439 7,036 426,428
a.
Includes sales commissions and other
revenues together with related expenses.
b.
Includes consolidated general and
administrative expenses and eliminations of intersegment
amounts.
c.
Stratus received $4.6 million of bond
proceeds related to MUD reimbursements of infrastructure costs
incurred for development of Barton Creek. Of the total amount,
Stratus recorded $0.9 million as a reduction of real estate under
development on the consolidated balance sheets, and $3.4 million as
a reduction in real estate cost of sales and $0.3 million in other
income, net, in the consolidated statements of comprehensive income
(loss).
d.
Includes $2.1 million associated with the
sale of a retail pad subject to a ground lease located in the
Circle C community.
RECONCILIATION OF NON-GAAP
MEASURESADJUSTED EBITDA
Adjusted EBITDA (earnings before interest, taxes, depreciation
and amortization) is a non-GAAP (generally accepted accounting
principles in the U.S.) financial measure that is frequently used
by securities analysts, investors, lenders and others to evaluate
companies' recurring operating performance, including, among other
things, profitability before the effect of financing and similar
decisions. Because securities analysts, investors, lenders and
others use Adjusted EBITDA, management believes that Stratus'
presentation of Adjusted EBITDA affords them greater transparency
in assessing its financial performance. This information differs
from net income (loss) attributable to common stockholders
determined in accordance with GAAP and should not be considered in
isolation or as a substitute for measures of performance determined
in accordance with GAAP. Adjusted EBITDA may not be comparable to
similarly titled measures reported by other companies, as different
companies may calculate such measures differently. Management
strongly encourages investors to review Stratus' consolidated
financial statements and publicly filed reports in their entirety.
A reconciliation of Stratus' net income (loss) attributable to
common stockholders to Adjusted EBITDA follows (in thousands).
Three Months Ended March 31, 2019 2018
Net income (loss) attributable to common stockholders $ 862
$ (1,870 ) Depreciation 2,630 1,942 Interest expense, net 2,572
1,559 Provision for (benefit from) income taxes 433 (406 ) Gain on
sale of assets (2,113 ) — MUD reimbursements (3,643 ) a — Loss
(gain) on interest rate derivative instruments 59 (178 ) Loss on
early extinguishment of debt 16 —
Adjusted
EBITDA $ 816 $ 1,047
a.
Includes $283 thousand of interest
income.
STRATUS PROPERTIES INC.RECONCILIATION
OF NON-GAAP MEASURES (continued)AFTER TAX NET ASSET VALUE TO
TOTAL STOCKHOLDERS' EQUITY
After-tax NAV estimates the market value of Stratus' assets
(gross value) and subtracts the book value of Stratus' total
liabilities reported under GAAP (excluding deferred financing costs
presented in debt), value attributable to third party owners,
estimated HEB profits, interests and profit participation incentive
plan awards, and estimated income taxes computed on the difference
between the estimated market values and the tax basis of the
assets. Stratus also presents the non-GAAP measure after-tax NAV
per share, which is after-tax NAV divided by shares of its common
stock outstanding as of December 31, 2018, and 2017, plus all
outstanding stock options and restricted stock units. The
computation of Stratus' after-tax NAV uses third-party appraisals
conducted by independent appraisal firms, which were primarily
retained by Stratus' lenders as required under its financing
arrangements. The appraisal firms represent in their reports that
they employ certified appraisers with local knowledge and expertise
who are Member of the Appraisal Institute (MAI) certified by the
Appraisal Institute and/or state certified as a Certified General
Real Estate Appraiser.
Each appraisal states that it is prepared in conformity with the
Uniform Standards of Professional Appraisal Practice and utilizes
at least one of the following three approaches to value:
- the cost approach, which establishes
value by estimating the current costs of reproducing the
improvements (less loss in value from depreciation) and adding land
value to it;
- the income capitalization approach,
which establishes value based on the capitalization of the subject
property’s net operating income; and/or
- the sales comparison approach, which
establishes value indicated by recent sales of comparable
properties in the market place.
One or more of the approaches may be selected by the appraiser
depending on its applicability to the property being appraised. To
the extent more than one approach is used, the appraiser performs a
reconciliation of the indicated values to determine a final opinion
of value for the subject property. Significant professional
judgment is exercised by the appraiser in determining which inputs
are used, which approaches to select, and the weight given to each
selected approach in determining a final opinion as to the
appraised value of the subject property.
We are a diversified real estate company and our portfolio of
real estate assets includes commercial, hotel, and entertainment
properties, as well as multi-family and single-family residential
real estate properties. Consequently, each appraisal is unique and
certain factors reviewed and evaluated in each appraisal may be
particular to the nature of the property being appraised. However,
in performing their analyses, the appraisers generally (i)
performed site visits to the properties, (ii) performed independent
inspections and/or surveys of the market area and neighborhood,
(iii) performed a highest and best use analysis, (iv) reviewed
property-level information, including, but not limited to,
ownership history, location, availability of utilities, topography,
land improvements and zoning, and (v) reviewed information from a
variety of sources about regional market data and trends applicable
to the property being appraised. Depending on the valuation
approach utilized, the appraisers may have used one or more of the
following: the recent sales prices of comparable properties; market
rents for comparable properties; operating and/or holding costs of
comparable properties; and market capitalization and discount
rates.
The appraisals of the specified properties are as of the dates
so indicated, and the appraised value may be different if prepared
as of a current date. As noted above, the appraisers utilize
significant professional judgment in determining the appraisal
methodology best suited to a particular property and the weight
afforded to the various inputs considered, which could vary
depending on the appraiser’s evaluation of the property being
appraised. Moreover, the opinions expressed in the appraisals are
based on estimates and forecasts that are prospective in nature and
subject to certain risks and uncertainties. Events may occur that
could cause the performance of the properties to materially differ
from the estimates utilized by the appraiser, such as changes in
the economy, interest rates, capitalization rates, the financial
strength of certain tenants, and the behavior of investors, lenders
and consumers. Additionally, in some situations, the opinions and
forecasts utilized by the appraiser may be partly based on
information obtained from third party sources, which information
neither we nor the appraiser verifies. We review the appraisals to
confirm that the information provided by Stratus to the appraiser
is accurately reflected in the appraisal, but we do not validate
the methodologies, inputs and professional judgment utilized by the
certified appraiser.
STRATUS PROPERTIES INC.RECONCILIATION
OF NON-GAAP MEASURES (continued)AFTER TAX NET ASSET VALUE TO
TOTAL STOCKHOLDERS' EQUITY (continued)
The appraised values may not represent fair value, as defined
under GAAP. After-tax NAV and after-tax NAV per share may not be
equivalent to the enterprise value of Stratus or an appropriate
trading price for our common stock for many reasons, including but
not limited to the following: (1) income taxes included may not
reflect the actual tax amounts that will be due upon the ultimate
disposition of the assets; (2) components were calculated as of the
dates specified and calculations as of different dates are likely
to produce different results; (3) opinions are likely to differ
regarding appropriate capitalization rates; and (4) a buyer may pay
more or less for Stratus or its real estate assets as a whole than
for the sum of the components used to calculate after-tax NAV.
Accordingly, after-tax NAV per share is not a representation or
guarantee that Stratus' common stock will or should trade at this
amount, that a stockholder would be able to realize this amount in
selling Stratus' shares, that a third party would offer the
after-tax NAV per share in an offer to purchase all or
substantially all of Stratus' common stock, or that a stockholder
would receive distributions per share equal to the after-tax NAV
per share upon Stratus’ liquidation. Investors should not rely on
the after-tax NAV per share as being an accurate measure of the
current fair market value of Stratus' common stock. Management
strongly encourages investors to review Stratus' consolidated
financial statements and publicly filed reports in their
entirety.
Below are reconciliations of Stratus' after-tax NAV to the most
comparable GAAP measure, total stockholders' equity (in
millions).
December 31, 2018 2017 After-tax NAV $
326.1 $ 314.0 Less: Gross value of assets (762.8 ) (636.1 ) Add:
Deferred financing costs presented in total debt 2.8 2.1 Corporate
tax on built-in gain 46.5 41.4 Value attributable to third party
ownership 32.0 — Estimated HEB profits interests and profit
participation awards 5.5 — Rounding 0.1 — Total
liabilities (349.8 ) (278.6 ) Add: Total assets 496.5 406.0 Less:
Noncontrolling interest in subsidiaries (22.7 ) (0.1 ) Total
stockholders' equity $ 124.0 $ 127.3
View source
version on businesswire.com: https://www.businesswire.com/news/home/20190510005220/en/
Financial and Media Contact:William H. Armstrong III(512)
478-5788
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