Stratus Properties Inc. (NASDAQ:STRS) announced today that on
January 5, 2016, it completed the refinancing of its W Austin Hotel
& Residences and Austin City Limits Live at the Moody Theater
mixed-use development in downtown Austin, Texas (the “W Austin
Property”). Goldman Sachs Mortgage Company provided a $150 million,
ten-year, non-recourse term loan with interest fixed at 5.58
percent and payable monthly based on a 30-year amortization.
Stratus’ current net investment in the W Austin Property after this
financing is approximately $8 million.
As previously reported, on May 12, 2015, Stratus' former partner
in the W Austin Property, Canyon-Johnson Urban Fund II ("Canyon"),
initiated the buy/sell provisions of the partnership's operating
agreement, providing Stratus the opportunity to purchase Canyon's
interest in the W Austin Property; the purchase was completed on
September 28, 2015. Stratus’ purchase of Canyon’s interest was
based on a total project gross price of approximately $210 million.
After considering approximately $22.8 million of cash and cash
equivalents held by the partnership and acquired by Stratus in its
purchase of Canyon’s interest, the purchase was effectively based
on a net price of approximately $187.2 million.
The trailing 12-month net operating income (“NOI”) for the W
Austin Property at the time Stratus purchased Canyon's interest was
$15.6 million, which equates to a capitalization rate of 8.33%.
In order to ensure that Stratus could timely fulfill its
buy/sell purchase obligation pursuant to the partnership’s
operating agreement, Stratus refinanced the existing Bank of
America term loan for the W Austin Property, increasing proceeds
from $100.0 million to $130.0 million, and obtained $20.0 million
of bridge financing from Comerica Bank, Stratus’ primary
relationship lender. Stratus concurrently began sourcing long-term
non-recourse fixed-rate debt for the W Austin Property, which
culminated with the Goldman Sachs refinance.
The pricing of Stratus’ purchase of Canyon’s interest in the W
Austin Property compares favorably to recent third party appraisals
and hotel sales in the Austin market. Appraisals obtained by banks
in the refinancing process reflected valuations of the W Austin
Property of approximately $239 million. After allocating values to
the live music and entertainment venue and office and retail space
at the W Austin Property (based on the allocation methodology in
each bank’s appraisal), Stratus’ net cost per room was
approximately $510,000. The Four Seasons Hotel Austin, built in
1987, was sold in August of 2015 for a reported $677,000 per
room.
William H. Armstrong III, Chairman of the Board, President
and Chief Executive Officer of Stratus, stated, “We are extremely
pleased with this new long-term capital structure for this iconic
property in downtown Austin. The Goldman Sachs financing
eliminates interest rate and recourse risk with respect to our W
Austin Property, enabling significant recurring cash flow from a
truly premier asset. Although our historical investment of
time and resources in this asset has been significant, we believe
our hard work and patience has rewarded and will continue to reward
our shareholders.”
Approximately $129.9 million of the proceeds from the new term
loan were used to fully repay Stratus’ existing obligations under
the Bank of America term loan which was terminated effective
January 5, 2016. In addition, the $20.0 million Comerica bridge
financing was paid in full effective January 7, 2016, with proceeds
from the new term loan.
Stratus is a diversified real estate company engaged primarily
in the acquisition, entitlement, development, management, operation
and sale of commercial, hotel, entertainment, and multi- and
single-family residential real estate properties, primarily located
in the Austin area, but including projects in certain other select
markets in Texas.
____________________________
NOI is a non-GAAP financial measure of performance. Stratus
defines NOI as revenues less cost of sales, excluding depreciation,
less reserve fund contributions for the hotel, which was
approximately four percent of hotel revenue for the trailing
12-month period ended September 30, 2015. The most directly
comparable financial measure calculated and presented in accordance
with accounting principles generally accepted in the United States
of America (“GAAP”) is operating income.
Following is a reconciliation of the trailing 12-month NOI for
the W Austin Property for the period ended September 30, 2015 to
operating income for the W Austin Property for such period (in
millions):
Trailing 12-month NOI for W Austin Property $
15.6 Add back hotel reserve fund
contributions 1.7 Add back operating income associated with sale of
condominiums 0.5 Less depreciation expense (7.7) Less general and
administrative expenses (0.8) Less other
(0.1) (1) Operating income for W Austin Property $
9.3
(1) Includes amortization of deferred lease costs and other
eliminations of intersegment amounts.
The capitalization rate is a non-GAAP measure which is
calculated by dividing the trailing 12-month NOI for the W Austin
Property by the purchase price of the W Austin Property, or $15.6
million divided by $187.2 million, which equals 8.33 percent.
____________________________
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS.
This press release contains forward-looking statements in which we
discuss factors we believe may affect our future performance.
Forward-looking statements are all statements other than statements
of historical facts, such as statements regarding the
implementation and potential results of Stratus' five-year plan,
projections or expectations related to operational and financial
performance or liquidity, reimbursements for infrastructure costs,
financing and regulatory matters, development plans and sales of
properties, commercial leasing activities, timeframes for
development, construction and completion of projects, capital
expenditures, liquidity and capital resources, and other plans and
objectives of management for future operations and activities. The
words “anticipates,” “may,” “can,” “plans,” “believes,”
“potential,” “estimates,” “expects,” “projects,” “intends,”
“likely,” “will,” “should,” “to be” and any similar expressions
and/or statements that are not historical facts are intended to
identify those assertions as forward-looking statements.
Stratus cautions readers that forward-looking statements are
not guarantees of future performance and actual results may differ
materially from those anticipated, 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 and the
availability of financing for development projects and other
corporate purposes, Stratus' ability to sell properties at prices
its board considers acceptable, a decrease in the demand for real
estate in the Austin, Texas market, changes in economic and
business conditions, reductions in discretionary spending by
consumers and corporations, competition from other real estate
developers, hotel operators and/or entertainment venue operators
and promoters, business opportunities that may be presented to
and/or pursued by Stratus, the failure of third parties to satisfy
debt service obligations, the failure to complete agreements with
strategic partners and/or appropriately manage relationships with
strategic partners, 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, the failure to attract
customers for its developments or such customers’ failure to
satisfy their purchase commitments, increases in interest rates,
declines in the market value of its assets, increases in operating
costs, including real estate taxes and the cost of construction
materials, changes in external perception of the W Austin Hotel,
changes in consumer preferences, changes in laws, regulations or
the regulatory environment affecting the development of real
estate, opposition from special interest groups with respect to
development projects, weather-related risks 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,
2014, filed with the U.S. Securities and Exchange Commission (SEC)
as updated by Stratus' subsequent filings with the SEC.
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 forward-looking statements, except as they may be updated in
Stratus’ periodic reports filed with the SEC, 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, www.stratusproperties.com.
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version on businesswire.com: http://www.businesswire.com/news/home/20160111005732/en/
Financial and Media:William H. Armstrong III,
512-478-5788
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