Item 1.
Financial Statements
.
STRATUS PROPERTIES INC.
CONSOLIDATED BALANCE SHEETS (Unaudited)
(In Thousands)
|
|
|
|
|
|
|
|
|
|
September 30,
2018
|
|
December 31,
2017
|
ASSETS
|
|
|
|
Cash and cash equivalents
|
$
|
21,182
|
|
|
$
|
14,611
|
|
Restricted cash
|
25,910
|
|
|
24,779
|
|
Real estate held for sale
|
18,980
|
|
|
22,612
|
|
Real estate under development
|
136,645
|
|
|
118,484
|
|
Land available for development
|
23,947
|
|
|
14,804
|
|
Real estate held for investment, net
|
234,796
|
|
|
188,390
|
|
Deferred tax assets
|
12,542
|
|
|
11,461
|
|
Other assets
|
14,054
|
|
|
10,852
|
|
Total assets
|
$
|
488,056
|
|
|
$
|
405,993
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
|
|
|
Liabilities:
|
|
|
|
Accounts payable
|
$
|
20,976
|
|
|
$
|
22,809
|
|
Accrued liabilities, including taxes
|
10,428
|
|
|
13,429
|
|
Debt
|
293,739
|
|
|
221,470
|
|
Deferred gain
|
9,926
|
|
|
11,320
|
|
Other liabilities
|
12,620
|
|
|
9,575
|
|
Total liabilities
|
347,689
|
|
|
278,603
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
Equity:
|
|
|
|
Stockholders’ equity:
|
|
|
|
Common stock
|
93
|
|
|
93
|
|
Capital in excess of par value of common stock
|
186,024
|
|
|
185,395
|
|
Accumulated deficit
|
(42,220
|
)
|
|
(37,121
|
)
|
Common stock held in treasury
|
(21,260
|
)
|
|
(21,057
|
)
|
Total stockholders’ equity
|
122,637
|
|
|
127,310
|
|
Noncontrolling interests in subsidiaries
|
17,730
|
|
|
80
|
|
Total equity
|
140,367
|
|
|
127,390
|
|
Total liabilities and equity
|
$
|
488,056
|
|
|
$
|
405,993
|
|
The accompanying Notes to Consolidated Financial Statements (Unaudited) are an integral part of these consolidated financial statements.
STRATUS PROPERTIES INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME (Unaudited)
(In Thousands, Except Per Share Amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
September 30,
|
|
September 30,
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Revenues:
|
|
|
|
|
|
|
|
Real estate operations
|
$
|
2,100
|
|
|
2,923
|
|
|
$
|
10,273
|
|
|
$
|
9,108
|
|
Leasing operations
|
2,813
|
|
|
1,923
|
|
|
7,148
|
|
|
6,015
|
|
Hotel
|
8,172
|
|
|
7,738
|
|
|
27,087
|
|
|
27,817
|
|
Entertainment
|
4,838
|
|
|
4,638
|
|
|
14,490
|
|
|
16,375
|
|
Total revenues
|
17,923
|
|
|
17,222
|
|
|
58,998
|
|
|
59,315
|
|
Cost of sales:
|
|
|
|
|
|
|
|
Real estate operations
|
2,279
|
|
|
2,204
|
|
|
9,405
|
|
|
8,048
|
|
Leasing operations
|
1,227
|
|
|
1,091
|
|
|
3,732
|
|
|
3,749
|
|
Hotel
|
6,625
|
|
|
6,676
|
|
|
20,803
|
|
|
21,277
|
|
Entertainment
|
4,008
|
|
|
3,666
|
|
|
11,412
|
|
|
12,298
|
|
Depreciation
|
2,171
|
|
|
2,031
|
|
|
6,166
|
|
|
5,928
|
|
Total cost of sales
|
16,310
|
|
|
15,668
|
|
|
51,518
|
|
|
51,300
|
|
General and administrative expenses
|
2,650
|
|
|
2,220
|
|
|
8,646
|
|
|
8,462
|
|
Profit participation in sale of The Oaks at Lakeway
|
—
|
|
|
—
|
|
|
—
|
|
|
2,538
|
|
Gain on sale of assets
|
—
|
|
|
(24,306
|
)
|
|
—
|
|
|
(25,421
|
)
|
Total
|
18,960
|
|
|
(6,418
|
)
|
|
60,164
|
|
|
36,879
|
|
Operating (loss) income
|
(1,037
|
)
|
|
23,640
|
|
|
(1,166
|
)
|
|
22,436
|
|
Interest expense, net
|
(2,150
|
)
|
|
(1,577
|
)
|
|
(5,451
|
)
|
|
(5,060
|
)
|
Gain on interest rate derivative instruments
|
56
|
|
|
54
|
|
|
314
|
|
|
136
|
|
Loss on early extinguishment of debt
|
—
|
|
|
—
|
|
|
—
|
|
|
(532
|
)
|
Other income, net
|
17
|
|
|
6
|
|
|
39
|
|
|
24
|
|
(Loss) income before income taxes and equity in unconsolidated affiliates' income (loss)
|
(3,114
|
)
|
|
22,123
|
|
|
(6,264
|
)
|
|
17,004
|
|
Equity in unconsolidated affiliates' income (loss)
|
210
|
|
|
(5
|
)
|
|
204
|
|
|
(24
|
)
|
Benefit from (provision for) income taxes
|
532
|
|
|
(7,810
|
)
|
|
961
|
|
|
(6,227
|
)
|
Net (loss) income and total comprehensive (loss) income
|
(2,372
|
)
|
|
14,308
|
|
|
(5,099
|
)
|
|
10,753
|
|
Total comprehensive income attributable to noncontrolling interests in subsidiaries
|
—
|
|
|
—
|
|
|
—
|
|
|
(8
|
)
|
Net (loss) income and total comprehensive (loss) income attributable to common stockholders
|
$
|
(2,372
|
)
|
|
$
|
14,308
|
|
|
$
|
(5,099
|
)
|
|
$
|
10,745
|
|
|
|
|
|
|
|
|
|
Basic net (loss) income per share attributable to common stockholders
|
$
|
(0.29
|
)
|
|
$
|
1.76
|
|
|
$
|
(0.63
|
)
|
|
$
|
1.32
|
|
Diluted net (loss) income per share attributable to common stockholders
|
$
|
(0.29
|
)
|
|
$
|
1.75
|
|
|
$
|
(0.63
|
)
|
|
$
|
1.32
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
Basic
|
8,156
|
|
|
8,128
|
|
|
8,149
|
|
|
8,119
|
|
Diluted
|
8,156
|
|
|
8,172
|
|
|
8,149
|
|
|
8,169
|
|
|
|
|
|
|
|
|
|
Dividends declared per share of common stock
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1.00
|
|
The accompanying Notes to Consolidated Financial Statements (Unaudited) are an integral part of these consolidated financial statements.
STRATUS PROPERTIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In Thousands)
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
September 30,
|
|
2018
|
|
2017
|
Cash flow from operating activities:
|
|
|
|
Net (loss) income
|
$
|
(5,099
|
)
|
|
$
|
10,753
|
|
Adjustments to reconcile net (loss) income to net cash used in operating activities:
|
|
|
|
Depreciation
|
6,166
|
|
|
5,923
|
|
Cost of real estate sold
|
5,780
|
|
|
5,086
|
|
Gain on sale of assets
|
—
|
|
|
(25,421
|
)
|
Gain on interest rate derivative contracts
|
(314
|
)
|
|
(136
|
)
|
Loss on early extinguishment of debt
|
—
|
|
|
532
|
|
Debt issuance cost amortization and stock-based compensation
|
1,389
|
|
|
1,227
|
|
Equity in unconsolidated affiliates' (income) loss
|
(204
|
)
|
|
24
|
|
Increase (decrease) in deposits
|
1,242
|
|
|
(145
|
)
|
Deferred income taxes
|
(1,081
|
)
|
|
(1,264
|
)
|
Purchases and development of real estate properties
|
(28,900
|
)
|
|
(11,196
|
)
|
Municipal utility district reimbursement
|
—
|
|
|
2,172
|
|
Increase in other assets
|
(2,965
|
)
|
|
(160
|
)
|
Decrease in accounts payable, accrued liabilities and other
|
(2,607
|
)
|
|
(320
|
)
|
Net cash used in operating activities
|
(26,593
|
)
|
|
(12,925
|
)
|
|
|
|
|
Cash flow from investing activities:
|
|
|
|
Capital expenditures
|
(53,468
|
)
|
|
(14,363
|
)
|
Proceeds from sale of assets
|
—
|
|
|
117,261
|
|
Payments on master lease obligations
|
(1,476
|
)
|
|
(1,653
|
)
|
Other, net
|
378
|
|
|
(49
|
)
|
Net cash (used in) provided by investing activities
|
(54,566
|
)
|
|
101,196
|
|
|
|
|
|
Cash flow from financing activities:
|
|
|
|
Borrowings from credit facility
|
32,436
|
|
|
45,200
|
|
Payments on credit facility
|
(6,112
|
)
|
|
(53,651
|
)
|
Borrowings from project loans
|
50,062
|
|
|
8,725
|
|
Payments on project and term loans
|
(3,799
|
)
|
|
(64,228
|
)
|
Cash dividend paid
|
—
|
|
|
(8,133
|
)
|
Stock-based awards net payments
|
(203
|
)
|
|
(234
|
)
|
Noncontrolling interests contributions
|
17,650
|
|
|
—
|
|
Financing costs
|
(1,173
|
)
|
|
(1,536
|
)
|
Net cash provided by (used in) financing activities
|
88,861
|
|
|
(73,857
|
)
|
Net increase in cash, cash equivalents and restricted cash
|
7,702
|
|
|
14,414
|
|
Cash, cash equivalents and restricted cash at beginning of year
|
39,390
|
|
|
25,489
|
|
Cash, cash equivalents and restricted cash at end of period
|
$
|
47,092
|
|
|
$
|
39,903
|
|
The accompanying Notes to Consolidated Financial Statements (Unaudited), which include information regarding noncash transactions, are an integral part of these consolidated financial statements.
STRATUS PROPERTIES INC.
CONSOLIDATED STATEMENTS OF EQUITY (Unaudited)
(In Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
Held in Treasury
|
|
Total Stockholders' Equity
|
|
|
|
|
|
|
Common Stock
|
|
Capital in Excess of Par Value
|
|
Accum-ulated Deficit
|
|
|
|
Noncontrolling Interests in Subsidiaries
|
|
|
|
|
Number
of Shares
|
|
At Par
Value
|
|
|
|
Number
of Shares
|
|
At
Cost
|
|
|
|
Total
Equity
|
Balance at June 30, 2018
|
|
9,277
|
|
|
$
|
93
|
|
|
$
|
185,757
|
|
|
$
|
(39,848
|
)
|
|
1,124
|
|
|
$
|
(21,260
|
)
|
|
$
|
124,742
|
|
|
$
|
7,080
|
|
|
$
|
131,822
|
|
Exercised and vested stock-based awards
|
|
11
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Stock-based compensation
|
|
—
|
|
|
—
|
|
|
267
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
267
|
|
|
—
|
|
|
267
|
|
Noncontrolling interests contributions
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
10,650
|
|
|
10,650
|
|
Total comprehensive loss
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,372
|
)
|
|
—
|
|
|
—
|
|
|
(2,372
|
)
|
|
—
|
|
|
(2,372
|
)
|
Balance at September 30, 2018
|
|
9,288
|
|
|
$
|
93
|
|
|
$
|
186,024
|
|
|
$
|
(42,220
|
)
|
|
1,124
|
|
|
$
|
(21,260
|
)
|
|
$
|
122,637
|
|
|
$
|
17,730
|
|
|
$
|
140,367
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
Held in Treasury
|
|
Total Stockholders' Equity
|
|
|
|
|
|
|
Common Stock
|
|
Capital in Excess of Par Value
|
|
Accum-ulated Deficit
|
|
|
|
Noncontrolling Interests in Subsidiaries
|
|
|
|
|
Number
of Shares
|
|
At Par
Value
|
|
|
|
Number
of Shares
|
|
At
Cost
|
|
|
|
Total
Equity
|
Balance at June 30, 2017
|
|
9,243
|
|
|
$
|
93
|
|
|
$
|
185,080
|
|
|
$
|
(44,563
|
)
|
|
1,117
|
|
|
$
|
(21,057
|
)
|
|
$
|
119,553
|
|
|
$
|
83
|
|
|
$
|
119,636
|
|
Cash dividend
|
|
—
|
|
|
—
|
|
|
(94
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(94
|
)
|
|
—
|
|
|
(94
|
)
|
Vested stock-based awards
|
|
7
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Stock-based compensation
|
|
—
|
|
|
—
|
|
|
198
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
198
|
|
|
—
|
|
|
198
|
|
Total comprehensive income
|
|
—
|
|
|
—
|
|
|
—
|
|
|
14,308
|
|
|
—
|
|
|
—
|
|
|
14,308
|
|
|
—
|
|
|
14,308
|
|
Balance at September 30, 2017
|
|
9,250
|
|
|
$
|
93
|
|
|
$
|
185,184
|
|
|
$
|
(30,255
|
)
|
|
1,117
|
|
|
$
|
(21,057
|
)
|
|
$
|
133,965
|
|
|
$
|
83
|
|
|
$
|
134,048
|
|
STRATUS PROPERTIES INC.
CONSOLIDATED STATEMENTS OF EQUITY (Unaudited) (continued)
(In Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
Held in Treasury
|
|
Total Stockholders' Equity
|
|
|
|
|
|
|
Common Stock
|
|
Capital in Excess of Par Value
|
|
Accum-ulated Deficit
|
|
|
|
Noncontrolling Interests in Subsidiaries
|
|
|
|
|
Number
of Shares
|
|
At Par
Value
|
|
|
|
Number
of Shares
|
|
At
Cost
|
|
|
|
Total
Equity
|
Balance at December 31, 2017
|
|
9,250
|
|
|
$
|
93
|
|
|
$
|
185,395
|
|
|
$
|
(37,121
|
)
|
|
1,117
|
|
|
$
|
(21,057
|
)
|
|
$
|
127,310
|
|
|
$
|
80
|
|
|
$
|
127,390
|
|
Exercised and vested stock-based awards
|
|
38
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Stock-based compensation
|
|
—
|
|
|
—
|
|
|
629
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
629
|
|
|
—
|
|
|
629
|
|
Tender of shares for stock-based awards
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
7
|
|
|
(203
|
)
|
|
(203
|
)
|
|
—
|
|
|
(203
|
)
|
Noncontrolling interests contributions
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
17,650
|
|
|
17,650
|
|
Total comprehensive loss
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(5,099
|
)
|
|
—
|
|
|
—
|
|
|
(5,099
|
)
|
|
—
|
|
|
(5,099
|
)
|
Balance at September 30, 2018
|
|
9,288
|
|
|
$
|
93
|
|
|
$
|
186,024
|
|
|
$
|
(42,220
|
)
|
|
1,124
|
|
|
$
|
(21,260
|
)
|
|
$
|
122,637
|
|
|
$
|
17,730
|
|
|
$
|
140,367
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
Held in Treasury
|
|
Total Stockholders' Equity
|
|
|
|
|
|
|
Common Stock
|
|
Capital in Excess of Par Value
|
|
Accum-ulated Deficit
|
|
|
|
Noncontrolling Interests in Subsidiaries
|
|
|
|
|
Number
of Shares
|
|
At Par
Value
|
|
|
|
Number
of Shares
|
|
At
Cost
|
|
|
|
Total
Equity
|
Balance at December 31, 2016
|
|
9,203
|
|
|
$
|
92
|
|
|
$
|
192,762
|
|
|
$
|
(41,143
|
)
|
|
1,105
|
|
|
$
|
(20,760
|
)
|
|
$
|
130,951
|
|
|
$
|
75
|
|
|
$
|
131,026
|
|
Adjustment for cumulative effect of change in accounting for stock-based compensation
|
|
—
|
|
|
—
|
|
|
—
|
|
|
143
|
|
|
—
|
|
|
—
|
|
|
143
|
|
|
—
|
|
|
143
|
|
Cash dividend
|
|
—
|
|
|
—
|
|
|
(8,221
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(8,221
|
)
|
|
—
|
|
|
(8,221
|
)
|
Exercised and vested stock-based awards
|
|
47
|
|
|
1
|
|
|
62
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
63
|
|
|
—
|
|
|
63
|
|
Stock-based compensation
|
|
—
|
|
|
—
|
|
|
581
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
581
|
|
|
—
|
|
|
581
|
|
Tender of shares for stock-based awards
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
12
|
|
|
(297
|
)
|
|
(297
|
)
|
|
—
|
|
|
(297
|
)
|
Total comprehensive income
|
|
—
|
|
|
—
|
|
|
—
|
|
|
10,745
|
|
|
—
|
|
|
—
|
|
|
10,745
|
|
|
8
|
|
|
10,753
|
|
Balance at September 30, 2017
|
|
9,250
|
|
|
$
|
93
|
|
|
$
|
185,184
|
|
|
$
|
(30,255
|
)
|
|
1,117
|
|
|
$
|
(21,057
|
)
|
|
$
|
133,965
|
|
|
$
|
83
|
|
|
$
|
134,048
|
|
The accompanying Notes to Consolidated Financial Statements (Unaudited) are an integral part of these consolidated financial statements.
STRATUS PROPERTIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The accompanying unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended
December 31, 2017
, included in Stratus Properties Inc.’s (Stratus) Annual Report on Form 10-K (Stratus
2017
Form 10-K) filed with the United States (U.S.) Securities and Exchange Commission. The information furnished herein reflects all adjustments that are, in the opinion of management, necessary for a fair statement of the results for the interim periods reported. With the exception of the accounting for the deferred gain on the 2017 sale of The Oaks at Lakeway, all such adjustments are, in the opinion of management, of a normal recurring nature. Operating results for the
nine
-month period ended
September 30, 2018
, are not necessarily indicative of the results that may be expected for the year ending
December 31, 2018
.
Stratus’ basic net (loss) income per share of common stock was calculated by dividing the net (loss) income attributable to common stockholders by the weighted-average shares of common stock outstanding during the period. A reconciliation of net (loss) income and weighted-average shares of common stock outstanding for purposes of calculating diluted net (loss) income per share (in thousands, except per share amounts) follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
September 30,
|
|
September 30,
|
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
Net (loss) income
|
$
|
(2,372
|
)
|
|
$
|
14,308
|
|
|
$
|
(5,099
|
)
|
|
$
|
10,753
|
|
|
Net income attributable to noncontrolling interests in subsidiaries
|
—
|
|
|
—
|
|
—
|
|
—
|
|
|
(8
|
)
|
|
Net (loss) income attributable to Stratus common stockholders
|
$
|
(2,372
|
)
|
|
$
|
14,308
|
|
|
$
|
(5,099
|
)
|
|
$
|
10,745
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted-average shares of common stock outstanding
|
8,156
|
|
|
8,128
|
|
|
8,149
|
|
|
8,119
|
|
|
|
|
|
|
|
|
|
|
|
Add shares issuable upon exercise or vesting of dilutive stock options and restricted stock units (RSUs)
a
|
—
|
|
|
44
|
|
|
—
|
|
|
50
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted-average shares of common stock outstanding
|
8,156
|
|
|
8,172
|
|
|
8,149
|
|
|
8,169
|
|
|
|
|
|
|
|
|
|
|
|
Basic net (loss) income per share attributable to common stockholders
|
$
|
(0.29
|
)
|
|
$
|
1.76
|
|
|
$
|
(0.63
|
)
|
|
$
|
1.32
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net (loss) income per share attributable to common stockholders
|
$
|
(0.29
|
)
|
|
$
|
1.75
|
|
|
$
|
(0.63
|
)
|
|
$
|
1.32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
a.
|
Excludes approximately
97 thousand
shares of common stock for
third-quarter
2018
,
30 thousand
shares for
third-quarter
2017
,
96 thousand
shares for
the first nine months of 2018
and
23 thousand
shares for
the first nine months of 2017
associated with restricted stock units and outstanding stock options that were anti-dilutive.
|
|
|
3.
|
RELATED PARTY TRANSACTIONS
|
The Saint Mary, L.P.
On June 19, 2018, The Saint Mary, L.P., a Texas limited partnership and a subsidiary of Stratus, completed a series of financing transactions to develop The Saint Mary, a
240
-unit luxury, garden-style apartment project in the Circle C community in Austin, Texas. The financing transactions included (1) a
$26 million
construction loan with Texas Capital Bank, National Association (see Note 6 for further discussion) and (2) an
$8.0 million
private placement. The Saint Mary, L.P. issued, in a private placement exempt from registration under federal and state securities laws, Class B limited partnership interests to a limited number of investors (the Saint Mary Class B limited partners), for
$8.0 million
(the Saint Mary Offering) resulting in the Saint Mary Class B limited partners owning an aggregate
49.1 percent
equity interest in The Saint Mary, L.P.
In accordance with the terms of the Saint Mary Offering, Circle C Land, L.P., a Texas limited partnership and a subsidiary of Stratus and the sole Class A limited partner of The Saint Mary, L.P. (Circle C) purchased Class B limited partnership interests representing a
6.1 percent
equity interest in The Saint Mary, L.P. for
$1.0 million
. Upon completion of the Saint Mary Offering, Stratus holds, in aggregate, a
57 percent
indirect equity interest in The Saint Mary, L.P. Additionally, among the participants in the Saint Mary Offering, LCHM Holdings, LLC, a related party as a result of its greater than
5 percent
beneficial ownership of Stratus’ common stock (LCHM), purchased Saint Mary
Class B limited partnership interests representing a
6.1 percent
equity interest in The Saint Mary, L.P. for
$1.0 million
.
In connection with the Saint Mary Offering, The Saint Mary GP, L.L.C., a Texas limited liability company (the Saint Mary General Partner) and a subsidiary of Stratus, Circle C, and the Saint Mary Class B limited partners entered into an Amended and Restated Limited Partnership Agreement (the Saint Mary Partnership Agreement) effective as of June 18, 2018. The Saint Mary Partnership Agreement includes the following key provisions:
|
|
•
|
The Saint Mary, L.P. will be managed by the Saint Mary General Partner, and The Saint Mary, L.P. will pay the Saint Mary General Partner, or another affiliate of Stratus, an asset management fee of
$210,000
per year beginning one year after construction of The Saint Mary begins.
|
|
|
•
|
The Saint Mary, L.P. will pay the Saint Mary General Partner, or another affiliate of Stratus, a development management fee of approximately
$1.4 million
for the overall coordination and management of the development and construction of The Saint Mary.
|
|
|
•
|
Circle C contributed an approximate
14.35
acre tract of land upon which The Saint Mary will be developed and constructed and
$0.7 million
of cash.
|
|
|
•
|
The partners are entitled to preferred returns, which change after certain returns are achieved as specified in the Saint Mary Partnership Agreement.
|
Stratus has performed evaluations and concluded that The Saint Mary, L.P. is a variable interest entity and that Stratus is the primary beneficiary. Stratus will continue to evaluate which entity is the primary beneficiary of The Saint Mary, L.P. in accordance with applicable accounting guidance. As of
September 30, 2018
, Stratus’ consolidated balance sheet includes the following assets and liabilities of The Saint Mary, L.P. (in thousands):
|
|
|
|
|
|
|
|
September 30, 2018
|
Assets:
|
|
|
Cash and cash equivalents
|
|
$
|
11
|
|
Restricted cash
|
|
6,001
|
|
Real estate held under development
|
|
6,550
|
|
Other assets
|
|
748
|
|
Total assets
|
|
$
|
13,310
|
|
Liabilities:
|
|
|
Accounts payable
|
|
$
|
1,466
|
|
Accrued liabilities, including taxes
|
|
16
|
|
Total liabilities
|
|
1,482
|
|
Net assets
|
|
$
|
11,828
|
|
Stratus Kingwood Place, L.P.
On August 3, 2018, Stratus Kingwood Place, L.P., a Texas limited partnership and a subsidiary of Stratus (the Kingwood, L.P.), completed a
$10.7 million
private placement, approximately
$7 million
of which, combined with a
$6.75 million
loan from Comerica Bank, was used to purchase a
54
-acre tract of land located in Kingwood, Texas for
$13.5 million
, for the development, subject to obtaining a construction loan and building permits, of Kingwood Place, a new H-E-B, L.P. (HEB)-anchored mixed-use development project (Kingwood Place). The development plan for Kingwood Place includes a
103,000
-square-foot HEB store,
41,000
square feet of retail space,
6
retail pads, and an
11
-acre parcel planned for approximately
300
multi-family units. The Kingwood, L.P. issued, in a private placement exempt from registration under federal and state securities laws, Class B limited partnership interests to a limited number of investors (the Kingwood Class B limited partners), for
$10.7 million
(the Kingwood Offering), representing approximately
70 percent
of the projected partnership equity. Among the participants in the Kingwood Offering, LCHM purchased Kingwood Class B limited partnership interests initially representing an
8.8 percent
equity interest in the Kingwood, L.P. for
$1.0 million
.
In connection with the Kingwood Offering, Stratus Northpark, L.L.C., a Texas limited liability company, a subsidiary of Stratus and the general partner of the Kingwood, L.P. (the Kingwood General Partner), Stratus Properties Operating Co., L.P., a Delaware limited partnership, also a subsidiary of Stratus (the Class A limited partner), and the Kingwood Class B limited partners entered into an Amended and Restated Limited Partnership Agreement (the Kingwood Partnership Agreement) effective as of August 3, 2018. The Kingwood Partnership Agreement includes the following key provisions:
|
|
•
|
The Kingwood, L.P. will be managed by the Kingwood General Partner, and the Kingwood, L.P. will pay the Kingwood General Partner, or another affiliate of Stratus, an asset management fee of
$283,000
per year beginning one year after construction of Kingwood Place begins.
|
|
|
•
|
The Kingwood, L.P. will pay the Kingwood General Partner, or another affiliate of Stratus, a development management fee equal to
four percent
of the construction costs for Kingwood Place for the overall coordination and management of the development and construction of Kingwood Place.
|
|
|
•
|
The partners are entitled to preferred returns, which change after certain returns are achieved as specified in the Kingwood Partnership Agreement.
|
Stratus has performed evaluations and concluded that the Kingwood, L.P. is a variable interest entity and that Stratus is the primary beneficiary. Stratus will continue to evaluate which entity is the primary beneficiary of the Kingwood, L.P. in accordance with applicable accounting guidance. As of
September 30, 2018
, Stratus’ consolidated balance sheet includes the following assets and liabilities of the Kingwood, L.P. (in thousands):
|
|
|
|
|
|
|
|
September 30, 2018
|
Assets:
|
|
|
Cash and cash equivalents
|
|
$
|
3,197
|
|
Real estate held under development
|
|
15,080
|
|
Total assets
|
|
$
|
18,277
|
|
Liabilities:
|
|
|
Accounts payable
|
|
$
|
213
|
|
Accrued liabilities, including taxes
|
|
171
|
|
Debt
|
|
6,664
|
|
Total liabilities
|
|
7,048
|
|
Net assets
|
|
$
|
11,229
|
|
The Oaks at Lakeway.
On February 15, 2017, Stratus sold The Oaks at Lakeway to FHF I Oaks at Lakeway, LLC for
$114.0 million
in cash. Net cash proceeds were
$50.8 million
after repayment of the Lakeway construction loan. Stratus used a portion of these net cash proceeds to pay indebtedness outstanding under the Comerica Bank credit facility. The parties entered into three master lease agreements at closing: (1) one covering unleased in-line retail space, with a
5
-year term, (2) one covering four unleased pad sites, three of which have
10
-year terms, and one of which has a
15
-year term, and (3) one covering the hotel pad with a
99
-year term. As specified conditions are met, primarily consisting of the tenant executing a lease, commencing payment of rent and taking occupancy, leases will be assigned to the purchaser and the corresponding property will be removed from the master lease, reducing Stratus' master lease payment obligations. Stratus' master lease payment obligation, which currently approximates
$180 thousand
per month, is expected to decline over time until leasing is complete and all leases are assigned to the purchaser.
Stratus agreed to guarantee the obligations of its selling subsidiary under the sales agreement, up to a liability cap of
two percent
of the purchase price. This cap does not apply to Stratus' obligation to satisfy the selling subsidiary's indemnity obligations for its broker commissions or similar compensation or Stratus' liability in guaranteeing the selling subsidiary's obligations under the master leases. To secure its obligations under the master leases, Stratus has provided a
$1.5 million
irrevocable letter of credit with a
three
-year term.
At the date of sale, Stratus allocated the purchase price for The Oaks at Lakeway between two performance obligations based on the relative fair values of each. The first performance obligation, to deliver the completed and leased portion of the property, was performed on the date of sale. The second performance obligation was to complete construction of the remaining buildings and leasing of the vacant space. The obligations under master leases were considered variable consideration and are recorded as reductions to the contract liability. The hotel pad was leased to a hotel operator under a ground lease at the date of sale. However, the hotel tenant had not commenced rent payments or construction of the hotel. At the date of the sale, primarily because of the uncertainty related to the hotel tenant’s performance under its ground lease, the probability-weighted estimate of the obligations under the master leases reduced the sale consideration such that no gain was recognized on the sale.
Once the hotel tenant began paying rent in May 2017 and obtained construction financing and commenced construction of the hotel in August 2017, the probability-weighted estimate of Stratus’ obligations under the master leases was significantly reduced, and a gain of
$24.3 million
related to the first performance obligation was recognized in third-quarter 2017. A contract liability of
$9.9 million
is presented as a deferred gain in the
consolidated balance sheets at
September 30, 2018
, compared with
$11.3 million
at December 31, 2017. The reduction in the deferred gain balance primarily reflects master lease payments. The contract liability, as reduced by future master lease payments, will be recognized as additional gain as Stratus fulfills the remaining performance obligation.
Upon the sale of The Oaks at Lakeway, HEB earned a profit participation of
$2.5 million
(of which
$2.2 million
was paid at closing), which is presented separately in the consolidated statements of comprehensive (loss) income.
Barton Creek Village.
On February 28, 2017, Stratus completed the sale of its
3,085
-square-foot bank building and an adjacent undeveloped
4.1
acre tract of land in Barton Creek, for
$3.1 million
and recorded a gain on the sale of
$1.1 million
. In connection with the sale, a
$2.1 million
paydown was made on the Barton Creek Village term loan.
|
|
5.
|
FAIR VALUE MEASUREMENTS
|
Fair value accounting guidance includes a hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 inputs) and the lowest priority to unobservable inputs (Level 3 inputs).
The carrying value for certain Stratus financial instruments (i.e., cash and cash equivalents, restricted cash, accounts payable and accrued liabilities) approximates fair value because of their short-term nature and generally negligible credit losses.
A summary of the carrying amount and fair value of Stratus' other financial instruments follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2018
|
|
December 31, 2017
|
|
Carrying
Value
|
|
Fair
Value
|
|
Carrying
Value
|
|
Fair
Value
|
Assets:
|
|
|
|
|
|
|
|
Interest rate swap agreement
|
$
|
179
|
|
|
$
|
179
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Liabilities:
|
|
|
|
|
|
|
|
Debt
|
$
|
293,739
|
|
|
$
|
297,246
|
|
|
$
|
221,470
|
|
|
$
|
224,632
|
|
Interest rate swap agreement
|
—
|
|
|
—
|
|
|
134
|
|
|
134
|
|
Debt.
Stratus' debt is recorded at cost and is not actively traded. Fair value is estimated based on discounted future expected cash flows at estimated current market interest rates. Accordingly, Stratus' debt is classified within Level 2 of the fair value hierarchy. The fair value of debt does not represent the amounts that will ultimately be paid upon the maturities of the loans.
Interest Rate Swap Agreement.
The interest rate swap does not qualify for hedge accounting and changes in its fair value are recorded in the consolidated statements of comprehensive (loss) income. Stratus evaluated the counterparty credit risk associated with the interest rate swap agreement, which is considered a Level 3 input, but did not consider such risk to be significant. Therefore, the interest rate swap agreement is classified within Level 2 of the fair value hierarchy.
Debt.
The components of Stratus' debt are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
September 30, 2018
|
|
December 31, 2017
|
|
Goldman Sachs loan
|
$
|
143,753
|
|
|
$
|
145,195
|
|
|
Comerica Bank credit facility
|
52,089
|
|
|
25,765
|
|
|
Santal Phase I construction loan
|
32,597
|
|
|
31,864
|
|
|
Barton Creek Village term loan
|
3,308
|
|
|
3,375
|
|
|
Amarra Villas credit facility
|
5,261
|
|
|
5,247
|
|
|
West Killeen Market construction loan
|
6,421
|
|
|
5,378
|
|
|
Jones Crossing construction loan
|
11,153
|
|
|
4,646
|
|
|
Lantana Place construction loan
|
16,114
|
|
|
—
|
|
|
Santal Phase II construction loan
|
16,379
|
|
|
—
|
|
|
Kingwood Place loan
|
6,664
|
|
|
—
|
|
|
Total debt
a
|
$
|
293,739
|
|
|
$
|
221,470
|
|
|
|
|
a.
|
Includes net reductions for unamortized debt issuance costs of
$2.4 million
at
September 30, 2018
, and
$2.1 million
at December 31, 2017.
|
As discussed in Note 3, on August 3, 2018, Kingwood, L.P. entered into a one year,
$6.75 million
loan with Comerica Bank to purchase a
54
-acre tract of land located in Kingwood, Texas, for the development, subject to obtaining a construction loan and building permits, of Kingwood Place. The loan bears interest at the London Interbank Offered Rate (LIBOR) plus
4.0 percent
. Borrowings on the Kingwood Place loan are secured by the Kingwood project, and are guaranteed by Stratus.
The Kingwood Place loan contains the same financial covenants in place on Stratus’ Comerica Bank Credit Facility, including a requirement that Stratus maintains a net asset value of $125 million and an aggregate promissory note debt-to-gross asset value of less than 50 percent
.
On June 29, 2018, Stratus entered into a loan agreement with Comerica Bank to modify, increase and extend Stratus’ Comerica Bank credit facility, which was scheduled to mature on November 30, 2018. The new loan agreement provides for (1) an increase in the revolving credit facility from
$45.0 million
to
$60.0 million
, (2) a
$7.5 million
sublimit for letters of credit issuance and (3) an extension of the maturity date from November 30, 2018, to June 29, 2020. Advances under the credit facility bear interest at the annual LIBOR plus
4.0 percent
. The Comerica Bank credit facility is secured by substantially all of Stratus' assets, except for properties that are encumbered by separate debt financing.
The loan agreement contains financial covenants usual and customary for loan agreements of this nature, including a requirement that Stratus maintains a net asset value of $125 million and an aggregate promissory note debt-to-gross asset value of less than 50 percent.
As of
September 30, 2018
, Stratus had
$3.8 million
available under its
$60.0 million
Comerica Bank revolving line of credit, with
$4.1 million
of letters of credit committed against the credit facility.
As discussed in Note 3, on June 19, 2018, Stratus entered into a
$26 million
construction loan with Texas Capital Bank (The Saint Mary construction loan) to finance the initial phase of The Saint Mary. Stratus will fully guaranty The Saint Mary construction loan.
The repayment guaranty will be reduced to 50 percent upon issuance of a certificate of occupancy for The Saint Mary and will be eliminated when the project debt service coverage ratio equals or exceeds 1.25:1.0.
Interest is variable at the one-month LIBOR plus
3.0 percent
. Payments of interest only will be due and payable monthly, and outstanding principal is payable at maturity of June 19, 2021. Outstanding amounts will be secured by The Saint Mary and all subsequent improvements. The construction loan agreement and related document contain affirmative and negative covenants usual and customary for loan agreements of this nature. Stratus may extend the maturity of this loan for up to
two
additional
12
-month periods if certain conditions are met, including debt service coverage ratio thresholds. As of
September 30, 2018
,
no
amounts were drawn on The Saint Mary construction loan.
For a description of Stratus' other debt, refer to Note 6 in the Stratus
2017
Form 10-K.
Interest Expense and Capitalization.
Interest costs (before capitalized interest) totaled
$4.3 million
in
third-quarter
2018
,
$3.1 million
in
third-quarter
2017
,
$11.4 million
for
the first nine months of 2018
and
$9.3 million
for
the first nine months of 2017
. Stratus' capitalized interest costs totaled
$2.1 million
in
third-quarter
2018
,
$1.5 million
in
third-quarter
2017
,
$6.0 million
for
the first nine months of 2018
and
$4.3 million
for
the first nine months of 2017
, primarily related to development activities at Barton Creek.
Equity.
Stratus' Comerica Bank credit facility requires the bank's prior written consent to pay a dividend on Stratus' common stock. On
March 15, 2017
, Stratus' Board of Directors (the Board), after receiving written consent from Comerica Bank, declared a special cash dividend of
$1.00
per share (
$8.1 million
), which was paid on
April 18, 2017
, to stockholders of record on
March 31, 2017
. The special cash dividend was declared after the Board’s consideration of the results of the sale of The Oaks at Lakeway. Comerica Bank’s consent to the payment of this special dividend is not indicative of the bank’s willingness to consent to the payment of future dividends. The declaration of future dividends is at the discretion of the Board, subject to the restrictions under Stratus' Comerica Bank credit facility, 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.
|
|
7.
|
PROFIT PARTICIPATION INCENTIVE PLAN
|
On July 11, 2018, the Stratus Compensation Committee of the Board (the Committee) unanimously adopted the Stratus Profit Participation Incentive Plan (the Plan), which provides participants with economic incentives tied to the success of the development projects designated by the Committee as approved projects under the Plan. Under the Plan,
25
percent of the profit for each approved project following a capital transaction (as defined in the Plan) will be set aside in a pool. The Committee will allocate participation interests in each pool to select executi
ves, other employees and consultants determined to be instrumental in the success of the project. The profit is equal to the net proceeds to Stratus from a capital transaction after Stratus has received a return of its costs and expenses and any capital contributions and a preferred return of
10
percent per year on the approved project. Provided the applicable service conditions are met, each participant is eligible to earn a bonus equal to his or her allocated participation interest in the applicable profit pool. Bonuses under the Plan are payable in cash prior to March 15th of the year following the capital transaction, unless the participant is an executive officer, in which case annual cash payouts under the Plan are limited to no more than four times the executive officer’s base salary, and any amounts due under the Plan in excess of that amount will be converted to an equivalent number of stock-settled restricted stock units with a one-year vesting period.
If a capital transaction has not occurred prior to the third anniversary of the date an approved project is substantially complete (a valuation event), the Committee will obtain a third-party appraisal of the approved project as of the valuation event. Based on the appraised value, the Committee will determine if any profit would have been generated after applying the hurdles described above, and if so, the amount of any bonus that would have been attributable to each participant. Any such amount will convert into an equivalent number of stock-settled restricted stock units that will vest in annual installments over a
three
-year period, provided that the participant satisfies the applicable service conditions.
On August 2, 2018, the Committee designated
seven
existing development projects as approved projects under the Plan, and allocated participation interests in each pool to certain executives, employees and consultants. As of September 30, 2018, one of those approved projects was substantially complete.
Because of uncertainty in estimating future market conditions and development plans and costs for approved projects, the timing and amount of bonus awards under the Plan cannot currently be reliably determined. As such,
no
amounts have been recorded for bonus awards under the Plan as of September 30, 2018. Stratus will record estimates of such amounts for an approved project when they can be reliably determined, which is currently expected to be at the time a capital transaction is announced or when a valuation event occurs.
Stratus’ accounting policy for and other information regarding its income taxes is further described in Notes 1 and 7 in the Stratus
2017
Form 10-K.
Stratus had deferred tax assets (net of deferred tax liabilities) totaling
$12.5 million
at
September 30, 2018
,
and
$11.5 million
at
December 31, 2017
. Stratus’ income tax benefit for
the first nine months of 2018
includes a deferred tax benefit of
$1.1 million
, partly offset by income tax expense of
$0.1 million
. Stratus’ future results of operations may be negatively impacted by an inability to realize a tax benefit for future tax losses or for items that will generate additional deferred tax assets.
The difference between Stratus' consolidated effective income tax rate for
the first nine months of 2018
and
the first nine months of 2017
, and the U.S. Federal statutory income tax rate of
21 percent
for 2018 and
35 percent
for 2017, was primarily attributable to the Texas state margin tax.
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, under development and available for development), which consists of its properties in Austin, Texas (the Barton Creek community, including portions of Santal Phase II; the Circle C community, including The Saint Mary; the Lantana community, including Lantana Place; and one condominium unit at the W Austin Hotel & Residences); in Lakeway, Texas located in the greater Austin area (Lakeway); in College Station, Texas (Jones Crossing); and in Magnolia, Texas (Magnolia) and Kingwood, Texas (Kingwood Place), both located in the greater Houston area.
The Leasing Operations segment includes the office and retail space at the W Austin Hotel & Residences, a retail building in Barton Creek Village, Santal Phase I, the West Killeen Market in Killeen, Texas, and portions of the Santal Phase II, 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 production studio, and 3TEN ACL Live, both at the W Austin Hotel & Residences. In addition to hosting concerts and private events, ACL Live is the home of Austin City Limits, a television program showcasing popular music legends. The Entertainment segment also includes revenues and costs associated with events hosted at other venues.
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.
Revenues From Contracts with Customers.
Stratus' revenues from contracts with customers for the third quarters and
the first nine months of 2018
and
2017
follow (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Real Estate Operations:
|
|
|
|
|
|
|
|
Developed property sales
|
$
|
2,025
|
|
|
$
|
2,860
|
|
|
$
|
10,036
|
|
|
$
|
8,436
|
|
Undeveloped property sales
|
—
|
|
|
—
|
|
|
—
|
|
|
544
|
|
Commissions and other
|
75
|
|
|
63
|
|
|
237
|
|
|
128
|
|
|
2,100
|
|
|
2,923
|
|
|
10,273
|
|
|
9,108
|
|
Leasing Operations:
|
|
|
|
|
|
|
|
Rental revenue
|
2,813
|
|
|
1,923
|
|
|
7,148
|
|
|
6,015
|
|
|
2,813
|
|
|
1,923
|
|
|
7,148
|
|
|
6,015
|
|
Hotel:
|
|
|
|
|
|
|
|
Rooms, food and beverage
|
7,554
|
|
|
7,143
|
|
|
25,156
|
|
|
26,054
|
|
Other
|
618
|
|
|
595
|
|
|
1,931
|
|
|
1,763
|
|
|
8,172
|
|
|
7,738
|
|
|
27,087
|
|
|
27,817
|
|
Entertainment:
|
|
|
|
|
|
|
|
Event revenue
|
4,154
|
|
|
4,010
|
|
|
12,532
|
|
|
14,520
|
|
Other
|
684
|
|
|
628
|
|
|
1,958
|
|
|
1,855
|
|
|
4,838
|
|
|
4,638
|
|
|
14,490
|
|
|
16,375
|
|
|
|
|
|
|
|
|
|
Total Revenues from Contracts with Unaffiliated Customers
|
$
|
17,923
|
|
|
$
|
17,222
|
|
|
$
|
58,998
|
|
|
$
|
59,315
|
|
Financial Information by Business Segment.
The following segment information was prepared on the same basis as Stratus’ consolidated financial statements (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate
Operations
a
|
|
Leasing Operations
|
|
Hotel
|
|
Entertainment
|
|
Eliminations and Other
b
|
|
Total
|
Three Months Ended September 30, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
Unaffiliated customers
|
$
|
2,100
|
|
|
$
|
2,813
|
|
|
$
|
8,172
|
|
|
$
|
4,838
|
|
|
$
|
—
|
|
|
$
|
17,923
|
|
Intersegment
|
8
|
|
|
227
|
|
|
72
|
|
|
21
|
|
|
(328
|
)
|
|
—
|
|
Cost of sales, excluding depreciation
|
2,279
|
|
|
1,235
|
|
|
6,639
|
|
|
4,154
|
|
|
(168
|
)
|
|
14,139
|
|
Depreciation
|
65
|
|
|
863
|
|
|
886
|
|
|
391
|
|
|
(34
|
)
|
|
2,171
|
|
General and administrative expenses
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,650
|
|
|
2,650
|
|
Operating (loss) income
|
$
|
(236
|
)
|
|
$
|
942
|
|
|
$
|
719
|
|
|
$
|
314
|
|
|
$
|
(2,776
|
)
|
|
$
|
(1,037
|
)
|
Capital expenditures and purchases and development of real estate properties
|
$
|
21,201
|
|
|
$
|
10,334
|
|
|
$
|
128
|
|
|
$
|
24
|
|
|
$
|
—
|
|
|
$
|
31,687
|
|
Total assets at September 30, 2018
|
183,857
|
|
|
157,706
|
|
|
102,069
|
|
|
36,377
|
|
|
8,047
|
|
|
488,056
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate
Operations
a
|
|
Leasing Operations
|
|
Hotel
|
|
Entertainment
|
|
Eliminations and Other
b
|
|
Total
|
Three Months Ended September 30, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
Unaffiliated customers
|
$
|
2,923
|
|
|
$
|
1,923
|
|
|
$
|
7,738
|
|
|
$
|
4,638
|
|
|
$
|
—
|
|
|
$
|
17,222
|
|
Intersegment
|
115
|
|
|
222
|
|
|
57
|
|
|
17
|
|
|
(411
|
)
|
|
—
|
|
Cost of sales, excluding depreciation
|
2,204
|
|
|
1,100
|
|
|
6,678
|
|
|
3,799
|
|
|
(144
|
)
|
|
13,637
|
|
Depreciation
|
57
|
|
|
739
|
|
|
886
|
|
|
384
|
|
|
(35
|
)
|
|
2,031
|
|
General and administrative expenses
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,220
|
|
|
2,220
|
|
Gain on sales of assets
|
—
|
|
|
(24,306
|
)
|
c
|
—
|
|
|
—
|
|
|
—
|
|
|
(24,306
|
)
|
Operating income (loss)
|
$
|
777
|
|
|
$
|
24,612
|
|
|
$
|
231
|
|
|
$
|
472
|
|
|
$
|
(2,452
|
)
|
|
$
|
23,640
|
|
Capital expenditures and purchases and development of real estate properties
|
$
|
3,222
|
|
|
$
|
9,066
|
|
|
$
|
15
|
|
|
$
|
182
|
|
|
$
|
—
|
|
|
$
|
12,485
|
|
Total assets at September 30, 2017
|
183,643
|
|
|
71,041
|
|
|
103,560
|
|
|
36,888
|
|
|
15,332
|
|
|
410,464
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
Unaffiliated customers
|
$
|
10,273
|
|
|
$
|
7,148
|
|
|
$
|
27,087
|
|
|
$
|
14,490
|
|
|
$
|
—
|
|
|
$
|
58,998
|
|
Intersegment
|
24
|
|
|
703
|
|
|
194
|
|
|
79
|
|
|
(1,000
|
)
|
|
—
|
|
Cost of sales, excluding depreciation
|
9,405
|
|
d
|
3,756
|
|
|
20,861
|
|
|
11,850
|
|
|
(520
|
)
|
|
45,352
|
|
Depreciation
|
190
|
|
|
2,234
|
|
|
2,675
|
|
|
1,171
|
|
|
(104
|
)
|
|
6,166
|
|
General and administrative expenses
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
8,646
|
|
|
8,646
|
|
Operating income (loss)
|
$
|
702
|
|
|
$
|
1,861
|
|
|
$
|
3,745
|
|
|
$
|
1,548
|
|
|
$
|
(9,022
|
)
|
|
$
|
(1,166
|
)
|
Capital expenditures and purchases and development of real estate properties
|
$
|
28,900
|
|
|
$
|
52,619
|
|
|
$
|
464
|
|
|
$
|
385
|
|
|
$
|
—
|
|
|
$
|
82,368
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
Unaffiliated customers
|
$
|
9,108
|
|
|
$
|
6,015
|
|
|
$
|
27,817
|
|
|
$
|
16,375
|
|
|
$
|
—
|
|
|
$
|
59,315
|
|
Intersegment
|
136
|
|
|
653
|
|
|
230
|
|
|
142
|
|
|
(1,161
|
)
|
|
—
|
|
Cost of sales, excluding depreciation
|
8,048
|
|
|
3,773
|
|
|
21,323
|
|
|
12,756
|
|
|
(528
|
)
|
|
45,372
|
|
Depreciation
|
171
|
|
|
2,070
|
|
|
2,654
|
|
|
1,137
|
|
|
(104
|
)
|
|
5,928
|
|
General and administrative expenses
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
8,462
|
|
|
8,462
|
|
Profit participation
|
—
|
|
|
2,538
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,538
|
|
Gain on sales of assets
|
—
|
|
|
(25,421
|
)
|
c
|
—
|
|
|
—
|
|
|
—
|
|
|
(25,421
|
)
|
Operating income (loss)
|
$
|
1,025
|
|
|
$
|
23,708
|
|
|
$
|
4,070
|
|
|
$
|
2,624
|
|
|
$
|
(8,991
|
)
|
|
$
|
22,436
|
|
Capital expenditures and purchases and development of real estate properties
|
$
|
11,196
|
|
|
$
|
13,845
|
|
|
$
|
273
|
|
|
$
|
245
|
|
|
$
|
—
|
|
|
$
|
25,559
|
|
|
|
a.
|
Includes sales commissions and other revenues together with related expenses.
|
|
|
b.
|
Includes consolidated general and administrative expenses and eliminations of intersegment amounts.
|
|
|
c.
|
Includes
$24.3 million
associated with recognition of a portion of the deferred gain on the sale of The Oaks at Lakeway.
|
|
|
d.
|
Includes
$0.4 million
of reductions to cost of sales associated with collection of prior-years' assessments of properties in Barton Creek.
|
|
|
10.
|
NEW ACCOUNTING STANDARDS
|
Revenue Recognition.
In May 2014, the Financial Accounting Standards Board (FASB) issued a new Accounting Standards Update (ASU) related to revenue recognition. Stratus adopted this standard effective January 1, 2018, under the modified retrospective approach applied to contracts that remain in force at the adoption date. The adoption of this standard did not result in any changes to Stratus' revenue recognition policies or processes (refer to Note 1 of Stratus' 2017 Form 10-K for disclosure of Stratus' revenue recognition policy) except as follows:
Revenue or gains on sales of real estate are recognized when control of the asset has been transferred to the buyer if collection of substantially all of the consideration to which Stratus will be entitled is probable and Stratus has satisfied all other performance obligations under the contract. Consideration is allocated among multiple performance obligations or distinct nonfinancial assets to be transferred to the buyer based on relative fair value.
Financial Instruments.
In January 2016, FASB issued an ASU that amends the guidance on the classification and measurement of financial instruments. This ASU makes limited changes to prior guidance and amends certain disclosure requirements. Stratus adopted this ASU effective January 1, 2018, and such adoption did not have a material impact on its financial statements.
Leases.
In February 2016, FASB issued an ASU that will require lessees to recognize most leases on the balance sheet. This ASU allows lessees to make an accounting policy election to not recognize a lease asset and liability for leases with a term of 12 months or less and do not have a purchase option that is expected to be exercised. For public entities, this ASU is effective for interim and annual reporting periods beginning after December 15, 2018, with early adoption permitted. In July 2018, FASB issued a practical expedient allowing for entities to apply the provisions of the updated lease guidance at the January 1, 2019, effective date, without adjusting the comparative periods presented. Stratus continues to review the impact of the new guidance on its financial reporting and disclosures, including the impact of the College Station ground lease.
Statement of Cash Flows: Restricted Cash.
In November 2016, FASB issued an ASU that changes the classification and presentation of restricted cash and restricted cash equivalents on the statement of cash flows. The ASU requires that a statement of cash flows include the change during the period in the total of cash, cash equivalents and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. Stratus adopted this ASU effective January 1, 2018, and adjusted its consolidated statement of cash flows for the
nine
months ended
September 30, 2017
, to include restricted cash (Stratus has no restricted cash equivalents) with cash and cash equivalents.
The impact of adopting this ASU for the
nine
months ended
September 30, 2017
, follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Previously Reported
|
|
Impact of Adoption
|
|
Current Presentation
|
Net increase in cash, cash equivalents and restricted cash
|
|
$
|
2,555
|
|
|
$
|
11,859
|
|
|
$
|
14,414
|
|
Cash, cash equivalents and restricted cash at beginning of year
|
|
13,597
|
|
|
11,892
|
|
|
25,489
|
|
Cash, cash equivalents and restricted cash at end of period
|
|
$
|
16,152
|
|
|
$
|
23,751
|
|
|
$
|
39,903
|
|
|
|
|
|
|
|
|
11. SUBSEQUENT EVENTS
In October 2018, Stratus, in partnership with HEB, purchased a
38
-acre tract of land for approximately $
9.5 million
in New Caney, Texas, for the future development of an HEB-anchored, mixed-use project. Stratus and HEB entered into a new partnership agreement in which each party owns a
50 percent
interest in the partnership and each funded half of the land purchase. Subject to completion of development plans, Stratus currently expects the New Caney project will be anchored by an HEB grocery store, and will include approximately
145,000
square feet of retail space (inclusive of the HEB grocery store),
5
pad sites, and a
10
-acre multi-family parcel. Upon completion of certain pre-development work, which is currently underway, Stratus intends to enter into a lease with HEB, at which time Stratus will acquire HEB’s interest in the partnership for the amount of HEB’s investment. Stratus is reviewing its plans for timing of commencement of construction, which Stratus currently expects to be in approximately three years.
Stratus evaluated events after
September 30, 2018
, and through the date the financial statements were issued, and determined any events or transactions occurring during this period that would require recognition or disclosure are appropriately addressed in these financial statements.
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
.
OVERVIEW
In Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A), “we,” “us,” “our” and "Stratus" refer to Stratus Properties Inc. and all entities owned or controlled by Stratus Properties Inc. You should read the following discussion in conjunction with our consolidated financial statements, related MD&A and discussion of our business and properties included in our Annual Report on Form 10-K for the year ended
December 31, 2017
(
2017
Form 10-K) filed with the United States (U.S.) Securities and Exchange Commission (SEC). The results of operations reported and summarized below are not necessarily indicative of future operating results, and future results could differ materially from those anticipated in forward-looking statements (refer to “Cautionary Statement” for further discussion). All subsequent references to “Notes” refer to Notes to Consolidated Financial Statements (Unaudited) located in Part I, Item 1. “Financial Statements” of this Form 10-Q, unless otherwise stated.
We are a diversified real estate company engaged primarily in the acquisition, entitlement, development, management, operation and sale of commercial, hotel, entertainment, and multi-family and single-family residential real estate properties, primarily located in the Austin, Texas area, and also including projects in certain other select markets in Texas. We generate revenues and cash flows from the sale of developed properties, rental income from our leased properties and from our hotel and entertainment operations. See Note
9
for further discussion of our operating segments.
Developed property sales can include an individual tract of land that has been developed and permitted for residential use, a developed lot with a home already built on it or condominium units at the W Austin Residences. We may sell properties under development, undeveloped properties or leased properties, if opportunities arise that we believe will maximize overall asset values as part of our business plan. See "Business Strategy" below.
Our acreage under development and undeveloped as of
September 30, 2018
, is presented in the following table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Under Development
|
|
Undeveloped
|
|
|
|
|
Single
Family
|
|
Multi-
family
|
|
Commercial
|
|
Total
|
|
Single
family
|
|
Multi-family
|
|
Commercial
|
|
Total
|
|
Total
Acreage
|
Austin:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Barton Creek
|
|
4
|
|
|
32
|
|
|
—
|
|
|
36
|
|
|
512
|
|
|
266
|
|
|
394
|
|
|
1,172
|
|
|
1,208
|
|
Circle C
|
|
—
|
|
|
15
|
|
|
—
|
|
|
15
|
|
|
—
|
|
|
21
|
|
|
216
|
|
|
237
|
|
|
252
|
|
Lantana
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
39
|
|
|
39
|
|
|
39
|
|
Other
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
7
|
|
|
—
|
|
|
—
|
|
|
7
|
|
|
7
|
|
Lakeway
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
35
|
|
|
—
|
|
|
—
|
|
|
35
|
|
|
35
|
|
Magnolia
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
124
|
|
|
124
|
|
|
124
|
|
Jones Crossing
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
48
|
|
|
48
|
|
|
48
|
|
Kingwood Place
|
|
—
|
|
|
—
|
|
|
54
|
|
|
54
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
54
|
|
Camino Real, San Antonio
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2
|
|
|
2
|
|
|
2
|
|
Total
|
|
4
|
|
|
47
|
|
|
54
|
|
|
105
|
|
|
554
|
|
|
287
|
|
|
823
|
|
|
1,664
|
|
|
1,769
|
|
In
third-quarter 2018
, our revenues totaled
$17.9 million
and our net loss attributable to common stockholders totaled
$2.4 million
, compared with revenues of
$17.2 million
and net income attributable to common stockholders of
$14.3 million
for
third-quarter 2017
. During
the first nine months of 2018
, our revenues totaled
$59.0 million
and our net loss attributable to common stockholders totaled
$5.1 million
, compared with revenues of
$59.3 million
and net income attributable to common stockholders of
$10.7 million
for
the first nine months of 2017
.
The increase in revenues in
third-quarter 2018
, compared with
third-quarter 2017
, primarily reflects increased revenue from the Leasing Operations segment, partially offset by lower developed property sales. The decrease in revenues for
the first nine months of 2018
, compared with
the first nine months of 2017
, primarily reflects lower revenues from the Entertainment and Hotel segments, partially offset by higher revenue from the Leasing Operations segment and developed property sales.
The results for
third-quarter 2017
and
the first nine months of 2017
include a gain on the sale of assets totaling
$24.3 million
($15.7 million to net income attributable to common stockholders) associated with recognition of a
portion of the deferred gain on the sale of The Oaks at Lakeway. The results for
the first nine months of 2017
also include a
$2.5 million
charge ($1.6 million to net income attributable to common stockholders) for profit participation costs and a
$0.5 million
loss ($0.3 million to net income attributable to common stockholders) on early extinguishment of debt, both related to our sale of The Oaks at Lakeway, partly offset by a
$1.1 million
gain ($0.7 million to net income attributable to common stockholders) on the sale of a bank building and an adjacent undeveloped 4.1 acre tract of land at Barton Creek.
At
September 30, 2018
, we had total debt of
$293.7 million
and total cash and cash equivalents of
$21.2 million
, compared with total debt of
$221.5 million
and cash and cash equivalents of
$14.6 million
at December 31,
2017
. We have significant recurring costs, including property taxes, maintenance and marketing, and we believe we will have sufficient sources of debt financing and cash from operations to meet our cash requirements. See “Capital Resources and Liquidity
”
below and “Risk Factors” included in Part 1, Item 1A. of our
2017
Form 10-K for further discussion.
BUSINESS STRATEGY
Our overall strategy has been to manage our diverse asset base of residential, commercial, hotel and entertainment real estate located in the premier Austin, Texas market and in other select, fast-growing Texas markets. We enhance the value of our residential and commercial properties by securing and maintaining development entitlements and developing and building real estate projects on these properties for sale or investment. Our hotel and entertainment venues, including ACL Live, are located in downtown Austin and are central to the city's world renowned, vibrant music scene.
We are continuing our successful program of actively developing our properties and refinancing or marketing and selling developed assets at appropriate times to maximize stockholder value. Our active development plan includes completion of both residential and commercial projects. Our portfolio consists of approximately 1,800 acres of commercial, multi-family and single-family projects under development or undeveloped and held for future use. We believe that our portfolio, along with management’s extensive experience in Austin-area real estate development, support our ability to obtain project financing and/or seek joint venture partners including for the development projects described in “Development Activities - Residential” and “Development Activities - Commercial”.
DEVELOPMENT ACTIVITIES
Residential.
As of
September 30, 2018
, the number of our multi-family and single-family residential developed lots/units, lots under development and lots for potential development by area are shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential Lots/Units
|
|
|
Developed
|
|
Under
Development
|
|
Potential Development
a
|
|
Total
|
Barton Creek:
|
|
|
|
|
|
|
|
|
Amarra Drive:
|
|
|
|
|
|
|
|
|
Phase II
|
|
10
|
|
|
—
|
|
|
—
|
|
|
10
|
|
Phase III
|
|
32
|
|
|
4
|
|
|
—
|
|
|
36
|
|
Amarra Villas
|
|
3
|
|
|
14
|
|
|
—
|
|
|
17
|
|
Other townhomes
|
|
—
|
|
|
—
|
|
|
170
|
|
|
170
|
|
Section N multi-family:
|
|
|
|
|
|
|
|
|
Santal Phase I
|
|
236
|
|
|
—
|
|
|
—
|
|
|
236
|
|
Santal Phase II
|
|
64
|
|
|
148
|
|
|
—
|
|
|
212
|
|
Other Section N
|
|
—
|
|
|
—
|
|
|
1,412
|
|
|
1,412
|
|
Other Barton Creek sections
|
|
—
|
|
|
—
|
|
|
156
|
|
|
156
|
|
Circle C multi-family:
|
|
|
|
|
|
|
|
|
The Saint Mary
|
|
—
|
|
|
240
|
|
|
—
|
|
|
240
|
|
Tract 102
|
|
—
|
|
|
—
|
|
|
56
|
|
|
56
|
|
Lakeway
|
|
—
|
|
|
—
|
|
|
100
|
|
|
100
|
|
Other
|
|
—
|
|
|
—
|
|
|
7
|
|
|
7
|
|
W Austin Residences
|
|
1
|
|
|
—
|
|
|
—
|
|
|
1
|
|
Total Residential Lots/Units
|
|
346
|
|
|
406
|
|
|
1,901
|
|
|
2,653
|
|
|
|
a.
|
Our development of the properties identified under the heading “Potential Development” is dependent upon the approval of our development plans and permits by governmental agencies, including the City of Austin (the City) and other cities in our Texas markets. Those governmental agencies may not approve one or more development plans and permit applications related to such properties or may require us to modify our development plans. Accordingly, our development strategy with respect to those properties may change in the future. While we may be proceeding with approved infrastructure projects or planning activities for some of these properties, they are not considered to be “under development” for disclosure in this table until construction activities have begun.
|
Current Activities.
In March 2018, we entered into a contract to sell one Amarra Drive Phase II lot and eight Amarra Drive Phase III lots for a total of $5.9 million. In accordance with the contract, the parties are required to close on these lots ratably before March 1, 2019. If the purchaser fails to close on the minimum number of lots by any of the specified closing dates, we may elect to terminate the contract but would retain the related $45 thousand earnest money. During
third-quarter
2018
, we closed on the sale of the
one
Amarra Drive Phase II lot included in the agreement discussed above, and
two
Amarra Drive Phase III lots for a total of
$2.0 million
. During
the first nine months of 2018
, we sold
two
Amarra Drive Phase II lots,
six
Amarra Drive Phase III lots,
two
Amarra Villas townhomes and
one
W Austin Hotel Residence for a total of
$10.0 million
.
Subsequent to third-quarter 2018 and through November 8, 2018, we closed on the sale of one Amarra Villas townhome, one Amarra Drive Phase II lot and one Amarra Drive Phase III lot. As of November 8, 2018, one Amarra Drive Phase III lot was under contract, in addition to the remaining eight Phase III lots subject to the contract discussed above. Also as of November 8, 2018, two Amarra Villas townhomes were under contract, including one currently under construction, and are expected to close later this year.
Construction of Santal Phase II, a 212-unit garden style, multi-family project located directly adjacent to Santal Phase I in the upscale, highly populated Barton Creek community is continuing to advance on schedule and on budget. The first Phase II units became available for occupancy in August 2018 and we plan to substantially complete construction by year-end 2018. As of September 30, 2018,
28
of the Phase II units were leased and the 236-unit Phase I was 96 percent leased and stabilized. We currently plan to evaluate refinancing the combined 448-unit Santal property upon stabilization of Phase II, which is currently expected by the end of 2019, subject to market conditions and leasing progress.
In June 2018, we obtained project financing for, and commenced construction of The Saint Mary, a 240-unit luxury garden-style apartment project in the Circle C Community. The project remains on budget, and the first units are expected to be available for occupancy in third-quarter 2019, with projected completion expected by the end of 2019. Refer to Notes 3 and 6 for further discussion.
For further discussion of our multi-family and single-family residential properties listed in the table above, see MD&A in our
2017
Form 10-K.
Commercial.
As of
September 30, 2018
, the number of square feet of our commercial property developed, under development and our remaining entitlements for potential development (excluding property associated with our unconsolidated joint venture with Tramell Crow Central Texas Development, Inc. relating to Crestview Station in Austin, and the W Austin Hotel and ACL Live entertainment venue) are shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Property
|
|
Developed
|
|
Under Development
|
|
Potential Development
a
|
|
Total
|
|
(in square feet)
|
Barton Creek:
|
|
|
|
|
|
|
|
Barton Creek Village
|
22,366
|
|
|
—
|
|
|
—
|
|
|
22,366
|
|
Entry corner
|
—
|
|
|
—
|
|
|
5,000
|
|
|
5,000
|
|
Amarra retail/office
|
—
|
|
|
—
|
|
|
83,081
|
|
|
83,081
|
|
Section N
|
—
|
|
|
—
|
|
|
1,500,000
|
|
|
1,500,000
|
|
Circle C
|
—
|
|
|
—
|
|
|
674,942
|
|
|
674,942
|
|
Lantana:
|
|
|
|
|
|
|
|
Lantana Place
|
99,379
|
|
|
—
|
|
|
220,621
|
|
|
320,000
|
|
Tract G07
|
—
|
|
|
—
|
|
|
160,000
|
|
|
160,000
|
|
W Austin Hotel & Residences:
|
|
|
|
|
|
|
|
Office
|
38,316
|
|
|
—
|
|
|
—
|
|
|
38,316
|
|
Retail
|
18,327
|
|
|
—
|
|
|
—
|
|
|
18,327
|
|
Magnolia
|
—
|
|
|
—
|
|
|
351,000
|
|
|
351,000
|
|
West Killeen Market
|
44,493
|
|
|
—
|
|
|
—
|
|
|
44,493
|
|
Jones Crossing
|
154,117
|
|
|
—
|
|
|
104,750
|
|
|
258,867
|
|
Kingwood Place
|
—
|
|
|
143,767
|
|
|
—
|
|
|
143,767
|
|
Total Square Feet
|
376,998
|
|
|
143,767
|
|
|
3,099,394
|
|
|
3,620,159
|
|
|
|
a.
|
Our development of the properties identified under the heading “Potential Development” is dependent upon the approval of our development plans and permits by governmental agencies, including the City and other cities in our Texas markets. Those governmental agencies may not approve one or more development plans and permit applications related to such properties or may require us to modify our development plans. Accordingly, our development strategy with respect to those properties may change in the future. While we may be proceeding with approved infrastructure projects or planning activities for some of these properties, they are not considered to be “under development” for disclosure in this table until construction activities have begun.
|
Current Activities.
We have executed leases for
68 percent
of the retail space at West Killeen Market as of
September 30, 2018
, and all tenants are currently open for business. Leasing activities for the vacant space are ongoing. We intend to explore opportunities to sell West Killeen Market in 2019 depending on leasing progress and market conditions.
Construction of the retail component of Jones Crossing, an H-E-B, L.P., (HEB)-anchored, mixed-use development in College Station, Texas, is complete. We have signed leases for approximately
80 percent
of the retail space, including the HEB lease. The HEB grocery store opened in September 2018, as scheduled. In addition, we have begun preliminary planning work on the phased 600-unit multi-family component.
We completed construction of the 99,379 square-foot first phase of Lantana Place, a mixed-use development in southwest Austin consisting of approximately 320,000 square feet of retail, hotel and office space in third-quarter 2018. The anchor tenant, Moviehouse & Eatery, opened in May 2018. We also entered into a ground lease for a Marriott A/C Hotel, which is anticipated to commence construction in early 2019. We have signed leases for
61 percent
of the retail space as of
September 30, 2018
, and tenant improvement work is progressing.
Occupancy of the 22,366 square-foot retail complex in Barton Creek Village was approximately 70 percent as of
September 30, 2018
, and leasing activities for the vacant space are ongoing. We intend to market Barton Creek Village for sale in 2019, subject to market conditions and leasing progress.
On August 6, 2018, we purchased a 54-acre tract of land in Kingwood, Texas to be developed as Kingwood Place, a new mixed-use development project. The Kingwood project is expected to total approximately 144,000 square feet of retail lease space, anchored by a 103,000-square-foot HEB grocery store, 41,000 square feet of retail space, 6 retail pads and an 11-acre parcel planned for approximately 300 multi-family units. Site clearing is complete and construction is expected to begin in
November 2018
subject to closing of construction financing. The HEB grocery store is anticipated to open in third-quarter 2019. Refer to Notes 3 and 6 for further discussion.
In October 2018, Stratus, in partnership with HEB, purchased a 38-acre tract of land for approximately $9.5 million in New Caney, Texas, for the future development of an HEB-anchored, mixed-use project. Subject to completion of development plans, we currently expect the New Caney project will be anchored by an HEB grocery store, and will include restaurants, retail services, and shop space, totaling approximately 145,000 square feet of retail space (inclusive of the HEB grocery store), 5 pad sites, and a 10-acre multi-family parcel. Refer to Note 11 for further discussion.
For further discussion of our commercial properties listed in the table above, see MD&A in our
2017
Form 10-K.
RESULTS OF OPERATIONS
We are continually evaluating the development and sale potential of our properties and will continue to consider opportunities to enter into transactions involving our properties, including possible joint ventures or other arrangements. As a result, and because of numerous other factors affecting our business activities as described herein and in our
2017
Form 10-K, our past operating results are not necessarily indicative of our future results. We use operating income or loss to measure the performance of each operating segment. Corporate, eliminations and other includes consolidated general and administrative expenses, which primarily consist of employee salaries and other costs.
The following table summarizes our results (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Operating (loss) income:
|
|
|
|
|
|
|
|
Real estate operations
|
$
|
(236
|
)
|
|
$
|
777
|
|
|
$
|
702
|
|
|
$
|
1,025
|
|
Leasing operations
|
942
|
|
|
24,612
|
|
|
1,861
|
|
|
23,708
|
|
Hotel
|
719
|
|
|
231
|
|
|
3,745
|
|
|
4,070
|
|
Entertainment
|
314
|
|
|
472
|
|
|
1,548
|
|
|
2,624
|
|
Corporate, eliminations and other
|
(2,776
|
)
|
|
(2,452
|
)
|
|
(9,022
|
)
|
|
(8,991
|
)
|
Operating (loss) income
|
$
|
(1,037
|
)
|
|
$
|
23,640
|
|
|
$
|
(1,166
|
)
|
|
$
|
22,436
|
|
Interest expense, net
|
$
|
(2,150
|
)
|
|
$
|
(1,577
|
)
|
|
$
|
(5,451
|
)
|
|
$
|
(5,060
|
)
|
Net (loss) income attributable to common stockholders
|
$
|
(2,372
|
)
|
|
$
|
14,308
|
|
|
$
|
(5,099
|
)
|
|
$
|
10,745
|
|
We have four operating segments: Real Estate Operations, Leasing Operations, Hotel and Entertainment (see Note
9
). The following is a discussion of our operating results by segment:
Real Estate Operations
The following table summarizes our Real Estate Operations results (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Revenues:
|
|
|
|
|
|
|
|
Developed property sales
|
$
|
2,025
|
|
|
$
|
2,860
|
|
|
$
|
10,036
|
|
|
$
|
8,436
|
|
Undeveloped property sales
|
—
|
|
|
—
|
|
|
—
|
|
|
544
|
|
Commissions and other
|
83
|
|
|
178
|
|
|
261
|
|
|
264
|
|
Total revenues
|
2,108
|
|
|
3,038
|
|
|
10,297
|
|
|
9,244
|
|
Cost of sales, including depreciation
|
2,344
|
|
|
2,261
|
|
|
9,595
|
|
a
|
8,219
|
|
Operating (loss) income
|
$
|
(236
|
)
|
|
$
|
777
|
|
|
$
|
702
|
|
|
$
|
1,025
|
|
|
|
|
|
|
|
|
|
|
|
a.
|
Includes $0.4 million of reductions to cost of sales associated with collection of prior-years' assessments of properties in Barton Creek.
|
Developed Property Sales.
The following table summarizes our developed property sales (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
2018
|
|
2017
|
|
Lots/Units
|
|
Revenues
|
|
Average Cost Per Lot/Unit
|
|
Lots
|
|
Revenues
|
|
Average Cost Per Lot/Unit
|
Barton Creek
|
|
|
|
|
|
|
|
|
|
|
|
Amarra Drive:
|
|
|
|
|
|
|
|
|
|
|
|
Phase II
|
1
|
|
|
$
|
670
|
|
|
$
|
211
|
|
|
1
|
|
|
$
|
560
|
|
|
$
|
193
|
|
Phase III
|
2
|
|
|
1,355
|
|
|
289
|
|
|
2
|
|
|
1,475
|
|
|
316
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Circle C
|
|
|
|
|
|
|
|
|
|
|
|
Meridian
|
—
|
|
|
—
|
|
|
—
|
|
|
3
|
|
|
825
|
|
|
156
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Residential
|
3
|
|
|
$
|
2,025
|
|
|
|
|
6
|
|
|
$
|
2,860
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
2018
|
|
2017
|
|
Lots/Units
|
|
Revenues
|
|
Average Cost Per Lot/Unit
|
|
Lots/Units
|
|
Revenues
|
|
Average Cost Per Lot/Unit
|
Barton Creek
|
|
|
|
|
|
|
|
|
|
|
|
Amarra Drive:
|
|
|
|
|
|
|
|
|
|
|
|
Phase II
|
2
|
|
|
$
|
1,275
|
|
|
$
|
210
|
|
|
1
|
|
|
$
|
560
|
|
|
$
|
193
|
|
Phase III
|
6
|
|
|
3,800
|
|
|
272
|
|
|
4
|
|
|
2,840
|
|
|
304
|
|
Amarra Villas
|
2
|
|
|
3,821
|
|
|
1,666
|
|
|
1
|
|
|
2,193
|
|
|
2,004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Circle C
|
|
|
|
|
|
|
|
|
|
|
|
Meridian
|
—
|
|
|
—
|
|
|
—
|
|
|
10
|
|
|
2,843
|
|
|
160
|
|
W Austin Hotel & Residences
|
|
|
|
|
|
|
|
|
|
|
|
Condominium Units
|
1
|
|
|
1,140
|
|
|
726
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total Residential
|
11
|
|
|
$
|
10,036
|
|
|
|
|
16
|
|
|
$
|
8,436
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate Revenue and Operating (Loss) Income.
Revenue and operating income from our Real Estate Operations segment decreased in
third-quarter
2018
, compared with
third-quarter
2017
, primarily as a result of fewer developed property sales. Revenue and operating income from our Real Estate Operations for
the first nine months of 2018
increased, compared with
the first nine months of 2017
, primarily as a result of higher revenues from the sales of higher priced residential units, including Amara Villas townhomes and the W Austin Hotel & Residences condominium.
Cost of Sales.
Cost of sales includes cost of property sold, project operating and marketing expenses and allocated overhead costs, partly offset by reductions for certain municipal utility district (MUD) reimbursements. Cost of sales of
$2.3 million
for
third-quarter
2018
approximated the cost of sales for
third-quarter
2017
. Cost of sales increased to
$9.6 million
for
the first nine months of 2018
, compared with
$8.2 million
for
the first nine months of 2017
, primarily as a result of the costs associated with the sale of two Amarra Villas townhomes and one W Austin Hotel & Residences condominium unit, which have a higher cost basis than the other properties sold.
Leasing Operations
The following table summarizes our Leasing Operations results (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Rental revenue
|
$
|
3,040
|
|
|
$
|
2,145
|
|
|
$
|
7,851
|
|
|
$
|
6,668
|
|
Rental cost of sales, excluding depreciation
|
1,235
|
|
|
1,100
|
|
|
3,756
|
|
|
3,773
|
|
Depreciation
|
863
|
|
|
739
|
|
|
2,234
|
|
|
2,070
|
|
Profit participation
|
—
|
|
|
—
|
|
|
—
|
|
|
2,538
|
|
Gain on sales of assets
|
—
|
|
|
(24,306
|
)
|
|
—
|
|
|
(25,421
|
)
|
Operating income
|
$
|
942
|
|
|
$
|
24,612
|
|
|
$
|
1,861
|
|
|
$
|
23,708
|
|
Rental Revenue.
Rental revenue for
2018
primarily includes revenue from Santal Phase I, the office and retail space at the W Austin Hotel & Residences, West Killeen Market, Lantana Place and retail space at Barton Creek Village. Rental revenue for
2017
primarily included revenue from Santal Phase I, the office and retail space at the W Austin Hotel & Residences, retail space at Barton Creek Village, and The Oaks at Lakeway prior to its sale in February 2017. The increase in rental revenue in
third-quarter
2018
, compared with
third-quarter
2017
, primarily reflects activity at our recently completed retail properties, Lantana Place, Jones Crossing and West Killeen Market. The increase in rental revenue for
the first nine months of 2018
, compared with
the first nine months of 2017
, primarily reflects activity at Lantana Place, West Killeen Market, Santal Phase I and Jones Crossing, partially offset by the sale of The Oaks at Lakeway.
Rental Cost of Sales and Depreciation.
Rental cost of sales and depreciation expense increased in
third-quarter
2018
, compared with
third-quarter
2017
, primarily as a result of activity at Lantana Place, Jones Crossing and the office space at the W Austin Hotel & Residences as a result of costs associated with repairs. Rental cost of sales and depreciation expense slightly increased for
the first nine months of 2018
, compared with
the first nine months of 2017
, primarily as a result of activity at West Killeen Market, Lantana Place, Jones Crossing and the office space at the W Austin Hotel & Residences as a result of costs associated with repairs, partially offset by the sale of The Oaks at Lakeway.
Operating Income.
Operating income decreased in the 2018 periods, compared with the 2017 periods, primarily because operating income from the Leasing Operations segment for the 2017 periods included the recognition of a portion (
$24.3 million
) of the deferred gain associated with the sale of The Oaks at Lakeway (see Note 4). The first nine months of 2017 also included a
$2.5 million
profit participation charge associated with our sale of The Oaks at Lakeway, partly offset by a
$1.1 million
gain on the sale of a
3,085
-square-foot bank building and an adjacent
4.1
acre undeveloped tract of land in Barton Creek.
Hotel
The following table summarizes our Hotel results (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Hotel revenue
|
$
|
8,244
|
|
|
$
|
7,795
|
|
|
$
|
27,281
|
|
|
$
|
28,047
|
|
Hotel cost of sales, excluding depreciation
|
6,639
|
|
|
6,678
|
|
|
20,861
|
|
|
21,323
|
|
Depreciation
|
886
|
|
|
886
|
|
|
2,675
|
|
|
2,654
|
|
Operating income
|
$
|
719
|
|
|
$
|
231
|
|
|
$
|
3,745
|
|
|
$
|
4,070
|
|
Hotel Revenue.
Hotel revenue primarily includes revenue from W Austin Hotel room reservations and food and beverage sales. Hotel revenues increased in
third-quarter 2018
, compared with
third-quarter 2017
, primarily reflecting higher room revenues resulting from higher occupancy during the quarter. Hotel revenues decreased during
the first nine months of 2018
, compared with
the first nine months of 2017
, primarily as a result of lower number of reservations from large groups and lower food and beverage sales. Revenue per available room (RevPAR), which is calculated by dividing total room revenue by the average total rooms available, was
$214
for
third-quarter 2018
and
$243
for
the first nine months of 2018
, compared with
$199
for
third-quarter 2017
and
$253
for
the first nine months of 2017
. While we remain 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 2018 and 2019 is expected to have an ongoing impact on our hotel revenues.
Entertainment
The following table summarizes our Entertainment results (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Entertainment revenue
|
$
|
4,859
|
|
|
$
|
4,655
|
|
|
$
|
14,569
|
|
|
$
|
16,517
|
|
Entertainment cost of sales, excluding depreciation
|
4,154
|
|
|
3,799
|
|
|
11,850
|
|
|
12,756
|
|
Depreciation
|
391
|
|
|
384
|
|
|
1,171
|
|
|
1,137
|
|
Operating income
|
$
|
314
|
|
|
$
|
472
|
|
|
$
|
1,548
|
|
|
$
|
2,624
|
|
Entertainment Revenue.
Entertainment revenue primarily reflects the results of operations for ACL Live, including ticket sales, revenue from private events, sponsorships, personal seat license sales and suite sales, and sales of concessions and merchandise. Entertainment revenue also reflects revenues associated with events hosted at venues other than ACL Live, including 3TEN ACL Live. Revenues from the Entertainment segment will vary from period to period as a result of factors such as the price of tickets and number of tickets sold, as well as the number and type of events hosted at ACL Live and 3TEN ACL Live. The increase in Entertainment revenue in
third-quarter
2018
, compared with
third-quarter
2017
, primarily reflects higher ticket prices at ACL Live and an increase in revenue from sponsorships and sales of suites and personal seat licenses. The decrease in Entertainment revenue for
the first nine months of 2018
, compared with
the first nine months of 2017
, primarily reflects fewer events hosted and lower event attendance.
Certain key operating statistics specific to the concert and event hosting industry are included below to provide additional information regarding our ACL Live and 3TEN ACL Live operating performance.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
ACL Live
|
|
|
|
|
|
|
|
Events:
|
|
|
|
|
|
|
|
Events hosted
|
49
|
|
|
43
|
|
|
151
|
|
|
160
|
|
Estimated attendance
|
62,323
|
|
|
61,848
|
|
|
180,942
|
|
|
208,687
|
|
Ancillary net revenue per attendee
|
$
|
32.87
|
|
|
$
|
35.95
|
|
|
$
|
40.28
|
|
|
$
|
40.39
|
|
Ticketing:
|
|
|
|
|
|
|
|
Number of tickets sold
|
48,436
|
|
|
56,316
|
|
|
132,568
|
|
|
152,270
|
|
Gross value of tickets sold (in thousands)
|
$
|
2,686
|
|
|
$
|
2,995
|
|
|
$
|
7,786
|
|
|
$
|
9,142
|
|
|
|
|
|
|
|
|
|
3TEN ACL Live
|
|
|
|
|
|
|
|
Events:
|
|
|
|
|
|
|
|
Events hosted
|
55
|
|
|
47
|
|
|
161
|
|
|
167
|
|
Estimated attendance
|
9,520
|
|
|
8,141
|
|
|
29,462
|
|
|
29,799
|
|
Ancillary net revenue per attendee
|
$
|
49.84
|
|
|
$
|
21.25
|
|
|
$
|
40.93
|
|
|
$
|
38.23
|
|
Ticketing:
|
|
|
|
|
|
|
|
Number of tickets sold
|
5,316
|
|
|
3,386
|
|
|
18,025
|
|
|
13,956
|
|
Gross value of tickets sold (in thousands)
|
$
|
142
|
|
|
$
|
89
|
|
|
$
|
415
|
|
|
$
|
302
|
|
Entertainment Cost of Sales.
Entertainment cost of sales, excluding depreciation, totaled
$4.2 million
for
third-quarter
2018
, compared with
$3.8 million
for
third-quarter
2017
, primarily reflects an increase in the number of events hosted. Entertainment cost of sales, excluding depreciation, totaled
$11.9 million
for
the first nine months of 2018
,
compared with
$12.8 million
for
the first nine months of 2017
, primarily reflecting a decrease in the number of events hosted at ACL Live.
Corporate, Eliminations and Other
Corporate, eliminations and other includes consolidated general and administrative expenses, which primarily consist of employee salaries and other costs. Consolidated general and administrative expenses totaled
$2.7 million
for
third-quarter
2018
and
$8.6 million
for
the first nine months of 2018
, compared with
$2.2 million
for
third-quarter 2017
and
$8.5 million
for
the first nine months of 2017
. The increase in general and administrative expenses in
third-quarter
2018
, compared to
third-quarter 2017
, primarily reflects increases in compensation and legal fees. Corporate, eliminations and other also includes eliminations of intersegment amounts incurred by the four operating segments.
Non-Operating Results
Interest Expense, Net.
Interest costs (before capitalized interest) of
$4.3 million
for
third-quarter 2018
and
$11.4 million
for
the first nine months of 2018
were higher, compared with
$3.1 million
for
third-quarter 2017
and
$9.3 million
for
the first nine months of 2017
, primarily reflecting higher average debt balances.
Capitalized interest totaled
$2.1 million
for
third-quarter 2018
and
$6.0 million
for
the first nine months of 2018
,
compared with
$1.5 million
for
third-quarter 2017
and
$4.3 million
for
the first nine months of 2017
, and is primarily related to development activities at Barton Creek.
Gain on Interest Rate Derivative Instruments.
We recorded gains of
$0.1 million
for
third-quarter 2018
and
$0.3 million
for
the first nine months of 2018
, compared with
$0.1 million
for
third-quarter 2017
and
the first nine months of 2017
, associated with changes in the fair values of our interest rate derivative instruments.
Loss on Early Extinguishment of Debt.
We recorded losses on early extinguishment of debt of
$0.5 million
for
the first nine months of 2017
associated with the repayment of The Oaks at Lakeway loan.
Equity in Unconsolidated Affiliates' Income (Loss).
We account for our interests in our unconsolidated affiliates, primarily Crestview Station, using the equity method. Our equity in the net income (loss) of these entities totaled
$210 thousand
for third-quarter 2018 and
$204 thousand
for the first nine months of 2018, compared with
$(5) thousand
for third-quarter 2017 and
$(24) thousand
for the first nine months of 2017. The increase in the third-quarter and first nine months of 2018 reflects profit from the sale of Crestview's last tract of land in July 2018.
Benefit from (Provision for) Income Taxes.
We recorded a benefit from income taxes of
$0.5 million
for
third-quarter 2018
and
$1.0 million
for
the first nine months of 2018
, compared with a provision of
$(7.8) million
for
third-quarter 2017
and
$(6.2) million
for
the first nine months of 2017
. Both the
2018
and
2017
periods also include the Texas state margin tax. The difference between Stratus' consolidated effective income tax rate and the U.S. Federal statutory income tax rate of 21 percent for 2018 and
35 percent
for 2017 is primarily attributable to the Texas state margin tax. We had deferred tax assets (net of deferred tax liabilities) totaling
$12.5 million
at
September 30, 2018
,
and
$11.5 million
at
December 31, 2017
.
CAPITAL RESOURCES AND LIQUIDITY
Volatility in the real estate market, including the markets in which we operate, can impact sales of our properties from period to period. However, we believe that the nature and location of our assets will provide us positive cash flows over time.
Comparison of Cash Flows for the
Nine Months Ended
September 30, 2018
and
2017
Operating Activities.
Cash used in operating activities totaled
$26.6 million
for
the first nine months of 2018
, compared with
$12.9 million
for
the first nine months of 2017
. Expenditures for purchases and development of real estate properties totaled
$28.9 million
for
the first nine months of 2018
, compared with
$11.2 million
for
the first nine months of 2017
. The increase in the 2018 period primarily reflects the purchase of the Kingwood Place land.
We have received MUD reimbursements relating to substantially all of the infrastructure costs incurred to date in Barton Creek, including
$2.2 million
received in
the first nine months of 2017
. In November 2017, the city of Magnolia and the state of Texas approved the creation of a MUD, which will provide an opportunity for us to recoup approximately $26 million over the life of the project for future road and utility infrastructure costs incurred in connection with our development of the Magnolia project.
Investing Activities.
Cash (used in) provided by investing activities totaled
$(54.6) million
for
the first nine months of 2018
, compared with
$101.2 million
for
the first nine months of 2017
. Capital expenditures totaled
$53.5 million
for
the first nine months of 2018
, primarily related to development of the Santal Phase II, Lantana Place, Jones Crossing and The Saint Mary projects, and
$14.4 million
for
the first nine months of 2017
, primarily related to development of the Lantana Place, West Killeen Market and Jones Crossing projects. The first nine months of 2017 included
$117.3 million
in proceeds from the sales of The Oaks at Lakeway and a bank building and an adjacent undeveloped 4.1 acre tract of land in Barton Creek.
Stratus also made payments under its master lease obligations associated with the sale of The Oaks at Lakeway totaling
$1.5 million
for
the first nine months of 2018
and
$1.7 million
for
the first nine months of 2017
.
Financing Activities.
Cash provided by (used in) financing activities totaled
$88.9 million
for
the first nine months of 2018
, compared with
$(73.9) million
for
the first nine months of 2017
. During
the first nine months of 2018
, net borrowings on the Comerica Bank credit facility totaled
$26.3 million
, compared with net repayments of
$8.5 million
for
the first nine months of 2017
. Net borrowings for
the first nine months of 2018
were used primarily to fund development projects and capital expenditures. Net repayments in
the first nine months of 2017
were primarily from the proceeds from the sale of the Oaks at Lakeway after repaying the related term loan. Net borrowings on other project and term loans totaled
$46.3 million
for
the first nine months of 2018
, primarily for the Santal Phase II,
Lantana Place and Jones Crossings projects, compared with net repayments of
$55.5 million
for
the first nine months of 2017
, primarily for The Oaks at Lakeway term loan. See also “Credit Facility and Other Financing Arrangements” below for a discussion of our outstanding debt at
September 30, 2018
.
The first nine months of 2018
also included
$17.7 million
of capital contributions from the Class B limited partners in the Kingwood Place and Saint Mary limited partnerships (see Note 3).
On
March 15, 2017
, we announced that our Board, after receiving written consent from Comerica Bank, declared a special cash dividend of
$1.00
per share, which was paid on
April 18, 2017
, to stockholders of record on
March 31, 2017
. The special cash dividend was declared after the Board’s consideration of the results of the sale of The Oaks at Lakeway. The declaration of future dividends is at the discretion of our Board subject to the restrictions contained in our Comerica credit facility, which prohibit us from paying a dividend on our common stock without the bank's written consent. Comerica's approval of the special dividend declared in March 2017 is not indicative of the bank's willingness to approve future dividends.
Credit Facility and Other Financing Arrangements
At
September 30, 2018
, we had total debt based on the principal amounts outstanding of
$296.2 million
, compared with
$223.6 million
at
December 31, 2017
. The principal amounts of our debt outstanding at
September 30, 2018
, consisted of the following:
|
|
•
|
$144.8 million
under the Goldman Sachs loan.
|
|
|
•
|
$52.1 million
under the
$60.0 million
Comerica Bank credit facility, which is comprised of a
$60.0 million
revolving line of credit,
$3.8 million
of which was available at
September 30, 2018
, net of
$4.1 million
of letters of credit committed against the credit facility.
|
|
|
•
|
$32.8 million
under the construction loan with Comerica Bank to fund Phase I of the multi-family development in Section N of Barton Creek (the Santal Phase I loan).
|
|
|
•
|
$16.7 million
under the construction loan with Comerica Bank to fund Phase II of the multi-family development in Section N of Barton Creek (the Santal Phase II loan).
|
|
|
•
|
$16.4 million
under the construction loan with Southside Bank to finance the initial phase of Lantana Place (the Lantana Place construction loan).
|
|
|
•
|
$11.5 million
under the construction loan with Southside Bank to finance the development and construction of Phases I and 2, the retail component, of Jones Crossing (the Jones Crossing construction loan).
|
|
|
•
|
$6.75 million
under the loan with Comerica Bank to finance the development and construction of Kingwood Place (the Kingwood Place loan).
|
|
|
•
|
$6.6 million
under the construction loan with Southside Bank to fund the development and construction of the West Killeen Market retail project (the West Killeen Market construction loan).
|
|
|
•
|
$5.3 million
under the stand-alone revolving credit facility with Comerica Bank to fund the construction and development of the Amarra Villas (the Amarra Villas credit facility).
|
|
|
•
|
$3.4 million
under the term loan with PlainsCapital Bank secured by assets at Barton Creek Village (the Barton Creek Village term loan).
|
Several of our financing instruments contain customary financial covenants. The Santal Phase I and Phase II loans, the Amarra Villas credit facility and the West Killeen Market construction loan include a requirement that we maintain a minimum total stockholders’ equity balance of $110.0 million. As of
September 30, 2018
, Stratus' total stockholders' equity was
$122.6 million
. The Comerica credit facility, the Goldman Sachs loan, the Lantana Place construction loan, the Jones Crossing construction loan, The Saint Mary construction loan and the Kingwood Place loan include a requirement that we maintain a net asset value, as defined in the agreements, of $125 million. The Comerica credit facility and the Kingwood Place loan also include a requirement that we maintain a promissory note debt-to-gross asset value, as defined in the agreement, of less than 50 percent. In addition, Comerica's prior written consent is required for any common stock repurchases or dividend payments. As of
September 30, 2018
, Stratus was in compliance with all financial covenants.
Stratus Kingwood Place, L.P. has secured a commitment to modify its loan agreement with Comerica Bank to increase the original commitment from $6.75 million to $32.9 million, guaranteed by us, to finance a portion of the construction of Kingwood Place. The loan modification is expected to close in November 2018.
See Note 6 in our
2017
Form 10-K for further discussion of our outstanding debt.
The following table summarizes our debt maturities based on the principal amounts outstanding as of
September 30, 2018
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2019
|
|
2020
|
|
2021
|
|
2022
|
|
Thereafter
|
|
Total
|
Goldman Sachs loan
|
$
|
538
|
|
|
$
|
2,208
|
|
|
$
|
2,313
|
|
|
$
|
2,470
|
|
|
$
|
2,613
|
|
|
$
|
134,635
|
|
|
$
|
144,777
|
|
Comerica Bank credit facility
a
|
—
|
|
|
—
|
|
|
52,089
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
52,089
|
|
Santal Phase I loan
b
|
—
|
|
|
—
|
|
|
32,790
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
32,790
|
|
Santal Phase II loan
|
—
|
|
|
—
|
|
|
16,669
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
16,669
|
|
Lantana Place construction loan
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
16,374
|
|
|
16,374
|
|
Jones Crossing construction loan
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
11,518
|
|
|
11,518
|
|
Kingwood Place loan
|
—
|
|
|
6,750
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
6,750
|
|
West Killeen Market construction loan
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
6,560
|
|
|
—
|
|
|
6,560
|
|
Amarra Villas credit facility
|
—
|
|
|
5,308
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5,308
|
|
Barton Creek Village term loan
|
28
|
|
|
104
|
|
|
109
|
|
|
114
|
|
|
119
|
|
|
2,877
|
|
|
3,351
|
|
Total
|
$
|
566
|
|
|
$
|
14,370
|
|
|
$
|
103,970
|
|
|
$
|
2,584
|
|
|
$
|
9,292
|
|
|
$
|
165,404
|
|
|
$
|
296,186
|
|
|
|
a.
|
See Note 6 for further information regarding Comerica Bank credit facility.
|
|
|
b.
|
We have the option to extend the maturity date for two additional twelve-month periods, subject to certain debt service coverage conditions.
|
CONTRACTUAL OBLIGATIONS
There have been no material changes in our contractual obligations since December 31,
2017
. Refer to Part II, Items 7. and 7A. in our
2017
Form 10-K, for further information regarding our contractual obligations.
NEW ACCOUNTING STANDARDS
Refer to Note
10
for discussion of a recently adopted accounting standards update.
OFF-BALANCE SHEET ARRANGEMENTS
There have been no material changes in our off-balance sheet arrangements since
December 31, 2017
. See Note 9 in our
2017
Form 10-K for further information.
CAUTIONARY STATEMENT
MD&A contains forward-looking statements in which we discuss our future performance. Forward-looking statements are all statements other than statements of historical facts, such as statements regarding the implementation, projections or expectations related to the future development, construction and completion of our projects, and potential results of our active development 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, including, but not limited to, Amarra Drive lots and townhomes, exploring opportunities to sell West Killeen Market and the retail complex in Barton Creek Village, evaluating refinancing of Santal Phase I and II, leasing activities, timeframes for development, capital expenditures, possible joint venture, partnership or other arrangements, our projections with respect to our obligations under the master lease agreements entered into in connection with the sale of The Oaks at Lakeway in 2017, and other plans and objectives of management for future operations and activities, and future dividend payments. The words “anticipate,” “may,” “can,” “plan,” “believe,” “potential,” “estimate,” “expect,” “project,” “intend,” “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. Nothing contained in MD&A should be construed as an offer to sell or the solicitation of an offer to buy any securities. Under our loan agreement with Comerica Bank, we are not permitted to pay dividends on common stock without Comerica’s prior written consent. The declaration of dividends is at the discretion of our Board of Directors (Board), subject to restrictions under our loan agreement with Comerica Bank,
and will depend on our financial results, cash requirements, projected compliance with covenants in our debt agreements, outlook and other factors deemed relevant by the Board.
We caution readers that forward-looking statements are not guarantees of future performance and actual results may differ materially from those anticipated, expected, projected or assumed in the forward-looking statements. Important factors that can cause our actual results to differ materially from those anticipated in the forward-looking statements include, but are not limited to, our ability to refinance and service our debt and the availability of financing for development projects and other corporate purposes, our ability to sell properties at prices our Board considers acceptable, a decrease in the demand for real estate in the Austin, Texas area and other select Texas markets where we operate, 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, 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 our developments or such customers' failure to satisfy their purchase commitments, our 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, increases in interest rates, declines in the market value of our 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, and other factors described in more detail under the heading “Risk Factors” in Part I, Item 1A. of our
2017
Form 10-K. In addition, forward-looking statements and estimates regarding the effects of the Tax Cuts and Jobs Act, which are based on our current interpretation of this legislation and on reasonable estimates, may change as a result of new guidance issued by regulators or changes in our estimates.
Investors are cautioned that many of the assumptions upon which our forward-looking statements are based are likely to change after the forward-looking statements are made. Further, we may make changes to our business plans that could affect our results. We caution investors that we do not intend to update our forward-looking statements more frequently than quarterly notwithstanding any changes in our assumptions, business plans, actual experience, or other changes, and we undertake no obligation to update any forward-looking statements.