United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
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UNITED STATES |
SECURITIES AND EXCHANGE COMMISSION |
Washington, D.C. 20549 |
|
FORM 10-Q |
|
(Mark One) |
[X]☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE |
| SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2019
OR
| For the quarterly period ended September 30, 2018 |
| or |
[ ]☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE |
| SECURITIES EXCHANGE ACT OF 1934 |
| For the transition period from to |
| Commission File Number: 001-37716 |
|
For the transition period from to
Commission file number: 001-37716
Stratus Properties Inc.
(Exact name of registrant as specified in its charter)
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| | |
Delaware | | 72-1211572 |
(State or other jurisdiction of incorporation or organization)
| | (I.R.S. Employer Identification No.) |
incorporation or organization) | | |
|
| | | | | |
212 Lavaca St.,Street, Suite 300 | Austin |
Austin, TexasTX | | | 78701 |
(Address of principal executive offices) | | | | | (Zip Code) |
(512)478-5788
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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(512) 478-5788 | | |
(Registrant's telephone number, including area code)Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, par value $0.01 per share | STRS | The NASDAQ Stock Market |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
þ☑Yes¨☐ No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). þ☑Yes¨☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
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Large accelerated filer¨ | ☐
| | | Accelerated filerþ | ☑ |
Non-accelerated filer ¨ | ☐ | Smaller reporting company þcompany | ☑ |
| | Emerging growth company¨ | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨☐ Yes þ☑ No
On OctoberJuly 31, 2018,2019, there were issued and outstanding 8,164,3708,179,111 shares of the registrant’s common stock, par value $0.01 per share.
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STRATUS PROPERTIES INC. |
TABLE OF CONTENTS |
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
STRATUS PROPERTIES INC.
CONSOLIDATED BALANCE SHEETS (Unaudited)
(In Thousands)
| | | September 30, 2018 | | December 31, 2017 | June 30, 2019 | | December 31, 2018 |
ASSETS | | | | | | |
Cash and cash equivalents | $ | 21,182 |
| | $ | 14,611 |
| $ | 18,073 |
| | $ | 19,004 |
|
Restricted cash | 25,910 |
| | 24,779 |
| 15,566 |
| | 19,915 |
|
Real estate held for sale | 18,980 |
| | 22,612 |
| 17,897 |
| | 16,396 |
|
Real estate under development | 136,645 |
| | 118,484 |
| 142,854 |
| | 136,678 |
|
Land available for development | 23,947 |
| | 14,804 |
| 37,787 |
| | 24,054 |
|
Real estate held for investment, net | 234,796 |
| | 188,390 |
| 272,274 |
| | 253,074 |
|
Lease right-of-use assets | | 11,692 |
| | — |
|
Deferred tax assets | 12,542 |
| | 11,461 |
| 11,873 |
| | 11,834 |
|
Other assets | 14,054 |
| | 10,852 |
| 14,715 |
| | 15,538 |
|
Total assets | $ | 488,056 |
| | $ | 405,993 |
| $ | 542,731 |
| | $ | 496,493 |
|
| | | | | | |
LIABILITIES AND EQUITY | | | | | | |
Liabilities: | | | | | | |
Accounts payable | $ | 20,976 |
| | $ | 22,809 |
| $ | 16,461 |
| | $ | 20,602 |
|
Accrued liabilities, including taxes | 10,428 |
| | 13,429 |
| 9,239 |
| | 11,914 |
|
Debt | 293,739 |
| | 221,470 |
| 340,622 |
| | 295,531 |
|
Lease liabilities | | 12,381 |
| | — |
|
Deferred gain | 9,926 |
| | 11,320 |
| 8,647 |
| | 9,270 |
|
Other liabilities | 12,620 |
| | 9,575 |
| 14,869 |
| | 12,525 |
|
Total liabilities | 347,689 |
| | 278,603 |
| 402,219 |
| | 349,842 |
|
| | | | | | |
Commitments and contingencies |
| |
|
| |
|
| | | | | | |
Equity: | | | | | | |
Stockholders’ equity: | | | | | | |
Common stock | 93 |
| | 93 |
| 93 |
| | 93 |
|
Capital in excess of par value of common stock | 186,024 |
| | 185,395 |
| 186,334 |
| | 186,256 |
|
Accumulated deficit | (42,220 | ) | | (37,121 | ) | (42,630 | ) | | (41,103 | ) |
Common stock held in treasury | (21,260 | ) | | (21,057 | ) | (21,360 | ) | | (21,260 | ) |
Total stockholders’ equity | 122,637 |
| | 127,310 |
| 122,437 |
| | 123,986 |
|
Noncontrolling interests in subsidiaries | 17,730 |
| | 80 |
| 18,075 |
| | 22,665 |
|
Total equity | 140,367 |
| | 127,390 |
| 140,512 |
| | 146,651 |
|
Total liabilities and equity | $ | 488,056 |
| | $ | 405,993 |
| $ | 542,731 |
| | $ | 496,493 |
|
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) INCOMELOSS (Unaudited)
(In Thousands, Except Per Share Amounts)
| | | Three Months Ended | | Nine Months Ended | Three Months Ended | | Six Months Ended |
| September 30, | | September 30, | June 30, | | June 30, |
| 2018 | | 2017 | | 2018 | | 2017 | 2019 | | 2018 | | 2019 | | 2018 |
Revenues: | | | | | | | | | | | | | | |
Real estate operations | $ | 2,100 |
| | 2,923 |
| | $ | 10,273 |
| | $ | 9,108 |
| $ | 4,129 |
| | $ | 6,979 |
| | $ | 7,077 |
| | $ | 8,173 |
|
Leasing operations | 2,813 |
| | 1,923 |
| | 7,148 |
| | 6,015 |
| 4,413 |
| | 2,331 |
| | 8,042 |
| | 4,335 |
|
Hotel | 8,172 |
| | 7,738 |
| | 27,087 |
| | 27,817 |
| 8,962 |
| | 9,593 |
| | 17,287 |
| | 18,915 |
|
Entertainment | 4,838 |
| | 4,638 |
| | 14,490 |
| | 16,375 |
| 6,220 |
| | 4,407 |
| | 11,016 |
| | 9,652 |
|
Total revenues | 17,923 |
| | 17,222 |
| | 58,998 |
| | 59,315 |
| 23,724 |
| | 23,310 |
| | 43,422 |
| | 41,075 |
|
Cost of sales: | | | | | | | | | | | | | | |
Real estate operations | 2,279 |
| | 2,204 |
| | 9,405 |
| | 8,048 |
| 3,795 |
| | 5,560 |
| | 3,841 |
| | 7,126 |
|
Leasing operations | 1,227 |
| | 1,091 |
| | 3,732 |
| | 3,749 |
| 2,447 |
| | 1,323 |
| | 4,586 |
| | 2,505 |
|
Hotel | 6,625 |
| | 6,676 |
| | 20,803 |
| | 21,277 |
| 6,831 |
| | 7,149 |
| | 13,506 |
| | 14,178 |
|
Entertainment | 4,008 |
| | 3,666 |
| | 11,412 |
| | 12,298 |
| 4,441 |
| | 3,436 |
| | 7,920 |
| | 7,404 |
|
Depreciation | 2,171 |
| | 2,031 |
| | 6,166 |
| | 5,928 |
| 2,703 |
| | 2,053 |
| | 5,333 |
| | 3,995 |
|
Total cost of sales | 16,310 |
| | 15,668 |
| | 51,518 |
| | 51,300 |
| 20,217 |
| | 19,521 |
| | 35,186 |
| | 35,208 |
|
General and administrative expenses | 2,650 |
| | 2,220 |
| | 8,646 |
| | 8,462 |
| 2,919 |
| | 3,015 |
| | 6,118 |
| | 5,996 |
|
Profit participation in sale of The Oaks at Lakeway | — |
| | — |
| | — |
| | 2,538 |
| |
Gain on sale of assets | — |
| | (24,306 | ) | | — |
| | (25,421 | ) | |
Loss (gain) on sale of assets | | 161 |
| | — |
| | (1,952 | ) | | — |
|
Total | 18,960 |
| | (6,418 | ) | | 60,164 |
| | 36,879 |
| 23,297 |
| | 22,536 |
| | 39,352 |
| | 41,204 |
|
Operating (loss) income | (1,037 | ) | | 23,640 |
| | (1,166 | ) | | 22,436 |
| |
Operating income (loss) | | 427 |
| | 774 |
| | 4,070 |
| | (129 | ) |
Interest expense, net | (2,150 | ) | | (1,577 | ) | | (5,451 | ) | | (5,060 | ) | (2,911 | ) | | (1,742 | ) | | (5,483 | ) | | (3,301 | ) |
Gain on interest rate derivative instruments | 56 |
| | 54 |
| | 314 |
| | 136 |
| |
(Loss) gain on interest rate derivative instruments | | (123 | ) | | 80 |
| | (182 | ) | | 258 |
|
Loss on early extinguishment of debt | — |
| | — |
| | — |
| | (532 | ) | — |
| | — |
| | (16 | ) | | — |
|
Other income, net | 17 |
| | 6 |
| | 39 |
| | 24 |
| 12 |
| | 11 |
| | 311 |
| | 22 |
|
(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 | ) | |
Loss before income taxes and equity in unconsolidated affiliates' loss | | (2,595 | ) | | (877 | ) | | (1,300 | ) | | (3,150 | ) |
Equity in unconsolidated affiliates' loss | | (13 | ) | | (3 | ) | | (13 | ) | | (6 | ) |
Benefit from (provision for) income taxes | 532 |
| | (7,810 | ) | | 961 |
| | (6,227 | ) | 218 |
| | 23 |
| | (215 | ) | | 429 |
|
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 |
| |
Loss from continuing operations | | (2,390 | ) | | (857 | ) | | (1,528 | ) | | (2,727 | ) |
Total comprehensive loss attributable to noncontrolling interests in subsidiaries | | 1 |
| | — |
| | 1 |
| | — |
|
Net loss and total comprehensive loss attributable to common stockholders | | $ | (2,389 | ) | | $ | (857 | ) | | $ | (1,527 | ) | | $ | (2,727 | ) |
| | | | | | | | | | | | | | |
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 |
| |
Basic and diluted net loss per share attributable to common stockholders | | $ | (0.29 | ) | | $ | (0.11 | ) | | $ | (0.19 | ) | | $ | (0.33 | ) |
| | | | | | | | | | | | | | |
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 |
| |
Basic and diluted weighted-average common shares outstanding | | 8,177 |
| | 8,153 |
| | 8,172 |
| | 8,145 |
|
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 | Six Months Ended |
| September 30, | June 30, |
| 2018 | | 2017 | 2019 | | 2018 |
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: | | | | |
Net loss | | $ | (1,528 | ) | | $ | (2,727 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: | | | | |
Depreciation | 6,166 |
| | 5,923 |
| 5,333 |
| | 3,995 |
|
Cost of real estate sold | 5,780 |
| | 5,086 |
| 4,324 |
| | 5,053 |
|
Gain on sale of assets | — |
| | (25,421 | ) | (1,952 | ) | | — |
|
Gain on interest rate derivative contracts | (314 | ) | | (136 | ) | |
Loss (gain) on interest rate derivative contracts | | 182 |
| | (258 | ) |
Loss on early extinguishment of debt | — |
| | 532 |
| 16 |
| | — |
|
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 | ) | |
Amortization of debt issuance costs and stock-based compensation | | 546 |
| | 791 |
|
Equity in unconsolidated affiliates' loss | | 13 |
| | 6 |
|
Increase in deposits | | 185 |
| | 588 |
|
Deferred income taxes | (1,081 | ) | | (1,264 | ) | (38 | ) | | (653 | ) |
Purchases and development of real estate properties | (28,900 | ) | | (11,196 | ) | (5,756 | ) | | (7,699 | ) |
Municipal utility district reimbursement | — |
| | 2,172 |
| |
Municipal utility district reimbursements applied to real estate under development | | 920 |
| | — |
|
Increase in other assets | (2,965 | ) | | (160 | ) | (1,636 | ) | | (2,297 | ) |
Decrease in accounts payable, accrued liabilities and other | (2,607 | ) | | (320 | ) | (2,187 | ) | | (5,505 | ) |
Net cash used in operating activities | (26,593 | ) | | (12,925 | ) | (1,578 | ) | | (8,706 | ) |
| | | | | | |
Cash flow from investing activities: | | | | | | |
Capital expenditures | (53,468 | ) | | (14,363 | ) | (44,990 | ) | | (42,982 | ) |
Proceeds from sale of assets | — |
| | 117,261 |
| 3,170 |
| | — |
|
Payments on master lease obligations | (1,476 | ) | | (1,653 | ) | (766 | ) | | (932 | ) |
Purchase of noncontrolling interest in consolidated subsidiary | | (4,589 | ) | | — |
|
Other, net | 378 |
| | (49 | ) | (4 | ) | | (87 | ) |
Net cash (used in) provided by investing activities | (54,566 | ) |
| 101,196 |
| |
Net cash used in investing activities | | (47,179 | ) |
| (44,001 | ) |
| | | | | | |
Cash flow from financing activities: | | | | | | |
Borrowings from credit facility | 32,436 |
| | 45,200 |
| 14,086 |
| | 22,336 |
|
Payments on credit facility | (6,112 | ) | | (53,651 | ) | (15,648 | ) | | (4,225 | ) |
Borrowings from project loans | 50,062 |
| | 8,725 |
| 51,006 |
| | 29,948 |
|
Payments on project and term loans | (3,799 | ) | | (64,228 | ) | (5,619 | ) | | (3,266 | ) |
Cash dividend paid | — |
| | (8,133 | ) | |
Cash dividend paid for stock-based awards | | (17 | ) | | — |
|
Stock-based awards net payments | (203 | ) | | (234 | ) | (100 | ) | | (203 | ) |
Noncontrolling interests contributions | 17,650 |
| | — |
| |
Noncontrolling interests' contributions | | — |
| | 7,000 |
|
Financing costs | (1,173 | ) | | (1,536 | ) | (231 | ) | | (976 | ) |
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 |
| |
Net cash provided by financing activities | | 43,477 |
| | 50,614 |
|
Net decrease in cash, cash equivalents and restricted cash | | (5,280 | ) | | (2,093 | ) |
Cash, cash equivalents and restricted cash at beginning of year | 39,390 |
| | 25,489 |
| 38,919 |
| | 39,390 |
|
Cash, cash equivalents and restricted cash at end of period | $ | 47,092 |
| | $ | 39,903 |
| $ | 33,639 |
| | $ | 37,297 |
|
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)
THREE MONTHS ENDED JUNE 30
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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 March 31, 2019 | | 9,305 |
| | $ | 93 |
| | $ | 186,424 |
| | $ | (40,241 | ) | | 1,128 |
| | $ | (21,360 | ) | | $ | 124,916 |
| | $ | 18,076 |
| | $ | 142,992 |
|
Stock-based compensation | | — |
| | — |
| | (90 | ) | | — |
| | — |
| | — |
| | (90 | ) | | — |
| | (90 | ) |
Total comprehensive loss | | — |
| | — |
| | — |
| | (2,389 | ) | | — |
| | — |
| | (2,389 | ) | | (1 | ) | | (2,390 | ) |
Balance at June 30, 2019 | | 9,305 |
| | $ | 93 |
| | $ | 186,334 |
| | $ | (42,630 | ) | | 1,128 |
| | $ | (21,360 | ) | | $ | 122,437 |
| | $ | 18,075 |
| | $ | 140,512 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at March 31, 2018 | | 9,277 |
| | $ | 93 |
| | $ | 185,592 |
| | $ | (38,991 | ) | | 1,124 |
| | $ | (21,260 | ) | | $ | 125,434 |
| | $ | 80 |
| | $ | 125,514 |
|
Stock-based compensation | | — |
| | — |
| | 165 |
| | — |
| | — |
| | — |
| | 165 |
| | — |
| | 165 |
|
Noncontrolling interests contributions | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 7,000 |
| | 7,000 |
|
Total comprehensive loss | | — |
| | — |
| | — |
| | (857 | ) | | — |
| | — |
| | (857 | ) | | — |
| | (857 | ) |
Balance at June 30, 2018 | | 9,277 |
| | $ | 93 |
| | $ | 185,757 |
| | $ | (39,848 | ) | | 1,124 |
| | $ | (21,260 | ) | | $ | 124,742 |
| | $ | 7,080 |
| | $ | 131,822 |
|
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| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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.
CONSOLIDATED STATEMENTS OF EQUITY (Unaudited)
(In Thousands)
SIX MONTHS ENDED JUNE 30
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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, 2018 | | 9,288 |
| | $ | 93 |
| | $ | 186,256 |
| | $ | (41,103 | ) | | 1,124 |
| | $ | (21,260 | ) | | $ | 123,986 |
| | $ | 22,665 |
| | $ | 146,651 |
|
Exercised and vested stock-based awards | | 17 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Stock-based compensation | | — |
| | — |
| | 78 |
| | — |
| | — |
| | — |
| | 78 |
| | — |
| | 78 |
|
Tender of shares for stock-based awards | | — |
| | — |
| | — |
| | — |
| | 4 |
| | (100 | ) | | (100 | ) | | — |
| | (100 | ) |
Purchase of noncontrolling interest in consolidated subsidiary | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (4,589 | ) | | (4,589 | ) |
Total comprehensive loss | | — |
| | — |
| | — |
| | (1,527 | ) | | — |
| | — |
| | (1,527 | ) | | (1 | ) | | (1,528 | ) |
Balance at June 30, 2019 | | 9,305 |
| | $ | 93 |
| | $ | 186,334 |
| | $ | (42,630 | ) | | 1,128 |
| | $ | (21,360 | ) | | $ | 122,437 |
| | $ | 18,075 |
| | $ | 140,512 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2017 | | 9,250 |
| | $ | 93 |
| | $ | 185,395 |
| | $ | (37,121 | ) | | 1,117 |
| | $ | (21,057 | ) | | $ | 127,310 |
| | $ | 80 |
| | $ | 127,390 |
|
Vested stock-based awards | | 27 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Stock-based compensation | | — |
| | — |
| | 362 |
| | — |
| | — |
| | — |
| | 362 |
| | — |
| | 362 |
|
Tender of shares for stock-based awards | | — |
| | — |
| | — |
| | — |
| | 7 |
| | (203 | ) | | (203 | ) | | — |
| | (203 | ) |
Noncontrolling interests distributions | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 7,000 |
| | 7,000 |
|
Total comprehensive loss | | — |
| | — |
| | — |
| | (2,727 | ) | | — |
| | — |
| | (2,727 | ) | | — |
| | (2,727 | ) |
Balance at June 30, 2018 | | 9,277 |
| | $ | 93 |
| | $ | 185,757 |
| | $ | (39,848 | ) | | 1,124 |
| | $ | (21,260 | ) | | $ | 124,742 |
| | $ | 7,080 |
| | $ | 131,822 |
|
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, 2017,2018, included in Stratus Properties Inc.’s (Stratus) Annual Report on Form 10-K (Stratus 20172018 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-monthsix-month period ended SeptemberJune 30, 2018,2019, are not necessarily indicative of the results that may be expected for the year ending December 31, 2018.2019.
Stratus’ basic net (loss) incomeloss per share of common stock was calculated by dividing the net (loss) incomeloss attributable to common stockholders by the weighted-average shares of common stock outstanding during the period. A reconciliation of net (loss) income andThe weighted-average shares exclude approximately 94 thousand shares of common stock for second-quarter 2019, 85 thousand shares for second-quarter 2018, 95 thousand shares for the first six months of 2019 and 96 thousand shares for the first six months of 2018 associated with restricted stock units and outstanding for purposesstock options that were anti-dilutive because of calculating diluted net (loss) income per share (in thousands, except per share amounts) follows:losses.
|
| | | | | | | | | | | | | | | | | |
| | | | | | | | |
| 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 millionconstruction 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 numberAs one 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,private placement offering, LCHM Holdings, LLC (LCHM), 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 managementRefer to Note 2 of the development and construction of The Saint Mary.Stratus 2018 Form 10-K for further discussion.
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 feetAs one 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,private placement 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 partnerRefer to Note 2 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:2018 Form 10-K for further discussion.
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 Saint Mary, L.P. and the Kingwood, L.P. is aare variable interest entityentities and that Stratus is the primary beneficiary. Stratus will continue to evaluate which entity is the primary beneficiary of The Saint Mary, L.P. and the Kingwood, L.P. in accordance with applicable accounting guidance. As of September 30, 2018, Stratus’ consolidated balance sheet includessheets include the following combined assets and liabilities of The Saint Mary, L.P. and the Kingwood, L.P. (in thousands):
|
| | | | | | | | |
| | June 30, 2019 | | December 31, 2018 |
Assets: | | | | |
Cash and cash equivalents | | $ | 601 |
| | $ | 1,939 |
|
Restricted cash | | — |
| | 2,284 |
|
Real estate under development | | 53,576 |
| | 27,928 |
|
Real estate held for investment | | 7,060 |
| | — |
|
Other assets | | 953 |
| | 792 |
|
Total assets | | $ | 62,190 |
| | $ | 32,943 |
|
Liabilities: | | | | |
Accounts payable and accrued liabilities | | $ | 6,246 |
| | $ | 3,484 |
|
Debt | | 29,608 |
| | 6,125 |
|
Total liabilities | | $ | 35,854 |
| | $ | 9,609 |
|
Net assets | | $ | 26,336 |
| | $ | 23,334 |
|
|
| | | | |
| | 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 |
|
Other Transactions
Stratus has an arrangement with Austin Retail Partners for services provided by a consultant of Austin Retail Partners who is the son of Stratus' President and Chief Executive Officer. Payments to Austin Retail Partners for his general consulting services related to the entitlement and development of properties and his expense reimbursements during second-quarter 2019 and the first six months of 2019 totaled approximately $29 thousandand $56 thousand, respectively. Refer to Note 2 of the Stratus 2018 Form 10-K for further discussion.
The Oaks at Lakeway. On February 15, 2017,January 17, 2019, Stratus sold The Oaks at Lakewaya retail pad subject to FHF I Oaks at Lakeway, LLCa ground lease located in the Circle C community for $114.0 million in cash. Net cash proceeds were $50.8 million after repayment of the Lakeway construction loan.$3.2 million. Stratus used a portionproceeds from the sale to repay $2.5 million of these net cash proceeds to pay indebtedness outstanding under theits 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,facility borrowings 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' liabilityafter adjustments recorded 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 andsecond-quarter 2019, recorded a gain on this sale totaling $2.0 million for the salefirst six months of $1.1 million. In connection with the sale, a $2.1 million paydown was made on the Barton Creek Village term loan.2019.
| |
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 | June 30, 2019 | | December 31, 2018 |
| Carrying Value | | Fair Value | | Carrying Value | | Fair Value | Carrying Value | | Fair Value | | Carrying Value | | Fair Value |
Assets: | | | | | | | | | | | | | | |
Interest rate swap agreement | $ | 179 |
| | $ | 179 |
| | $ | — |
| | $ | — |
| $ | — |
| | $ | — |
| | $ | 53 |
| | $ | 53 |
|
Liabilities: | | | | | | | | | | | | | | |
Debt | $ | 293,739 |
| | $ | 297,246 |
| | $ | 221,470 |
| | $ | 224,632 |
| 340,622 |
| | 345,180 |
| | 295,531 |
| | 299,531 |
|
Interest rate swap agreement | — |
| | — |
| | 134 |
| | 134 |
| 129 |
| | 129 |
| | — |
| | — |
|
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 agreement does not qualify for hedge accounting and changes in its fair value are recorded in the consolidated statements of comprehensive (loss) income.loss. 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. The interest rate swap agreement with Comerica Bank was entered into in 2013, is effective through December 31, 2020, and has a fixed interest rate of 2.3 percent compared to the variable rate based on the one-month London Interbank Offered Rate (LIBOR). As of June 30, 2019, the agreement had a notional amount of $15.5 million, which amortizes to $14.8 million by the end of the agreement, and as of December 31, 2018, the agreement had a notional amount of $15.8 million.
Debt. The components of Stratus' debt are as follows (in thousands):
|
| | | | | | | | |
| June 30, 2019 | | December 31, 2018 | |
Goldman Sachs loan | $ | 142,222 |
| | $ | 143,250 |
| |
Comerica Bank credit facility | 48,658 |
| | 50,221 |
| |
Santal Phase I construction loan | 32,672 |
| | 32,622 |
| |
Santal Phase II construction loan | 24,975 |
| | 19,867 |
| |
Lantana Place construction loan | 22,372 |
| | 18,416 |
| |
Jones Crossing construction loan | 19,574 |
| | 11,784 |
| |
The Saint Mary construction loan | 16,015 |
| | — |
| |
Kingwood Place construction loan | 13,593 |
| | 6,125 |
| |
West Killeen Market construction loan | 7,093 |
| | 6,636 |
| |
Amarra Villas credit facility | 5,323 |
| | 3,326 |
| |
New Caney land loan | 4,888 |
| | — |
| |
Barton Creek Village term loan | 3,237 |
| | 3,284 |
| |
Total debta | $ | 340,622 |
| | $ | 295,531 |
| |
|
| | | | | | | | |
| 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 debta | $ | 293,739 |
| | $ | 221,470 |
| |
| |
a. | Includes net reductions for unamortized debt issuance costs of $2.4$3.1 million at SeptemberJune 30, 2018,2019, and $2.1$2.8 million at December 31, 2017.2018. |
As discussed in Note 3, on August 3, 2018, Kingwood, L.P. entered into a one year, $6.75of June 30, 2019, Stratus had $9.1 million loan withavailable under its $60.0 million Comerica Bank to purchase a 54-acre tractrevolving line of land located in Kingwood, Texas, forcredit, with $2.2 million of letters of credit committed against 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 thatcredit facility.
On March 19, 2019, two 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, Stratussubsidiaries entered into a loan agreement with Comerica Bank to modify, increase and extend Stratus’ Comerica BankStratus' Amarra Villas credit facility, which was scheduled to mature on November 30, 2018.July 12, 2019. The new loan agreement provides for (1) an increase in the revolving credit facility commitment from $45.0$8.0 million to $60.0$15.0 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 underMarch 19, 2022. Interest on the loan is variable at LIBOR plus 3.0 percent. The Amarra Villas 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 maintainsmaintain a net asset value, as defined in the agreement, of $125 million and an aggregate promissory notea debt-to-gross asset value of less than 50 percent. As of SeptemberJune 30, 2018,2019, Stratus had $3.8$9.4 millionavailable under its $60.0$15.0 million Comerica BankAmarra Villas revolving linecredit facility. As a result of credit, with $4.1 millionentering into this new loan agreement, Stratus recognized a loss on early extinguishment of lettersdebt of credit committed against$16 thousand for the credit facility.first six months of 2019.
As discussed in Note 3, on June 19, 2018,On March 8, 2019, a Stratus subsidiary entered into a $26$5.0 million constructionland loan with Texas Capital Bank (The Saint Mary construction loan)Bank. Proceeds from the loan were used to financefund the initial phaseacquisition of HEB's portion of the New Caney partnership in which Stratus and HEB purchased a tract of land for the future development of an HEB-anchored mixed-use project in New Caney, Texas. The Saint Mary. Stratus will fully guarantyloan matures on March 8, 2021, and may be extended for 12 months, subject to certain conditions. 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 variableloan bears interest 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 beBorrowings are secured by the New Caney land. The Saint Mary and all subsequent improvements. The construction loan agreement and related document contain affirmative and negativecontains customary financial covenants usual and customary for loan agreementsincluding a requirement that Stratus maintain a net asset value 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.$125 million.
For a description of Stratus' other debt, refer to Note 65 in the Stratus 20172018 Form 10-K.
Interest Expense and Capitalization. Interest costs (before capitalized interest) totaled $4.3$5.1 millionin second-quarter 2019, $3.8 million in third-quartersecond-quarter 2018,, $3.1 million in third-quarter 2017, $11.4 $9.7 million for the first ninesix months of 20182019 and$9.3 $7.2 million for the first ninesix months of 2017.2018. Stratus' capitalized interest costs totaled $2.1 millionin third-quarter 2018, $1.5second-quarter 2019, $2.0 million in third-quarter 2017, $6.0second-quarter 2018, $4.2 million for the first ninesix months of 20182019 and $4.3$3.9 million for the first ninesix months of 2017,2018, primarily related to development activities at Barton Creek. The 2019 periods also included capitalized interest costs related to development activities at Kingwood Place.
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.9
| |
7. | PROFIT PARTICIPATION INCENTIVE PLAN |
OnIn July 11, 2018, the Stratus Compensation Committee of the Board of Directors (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 percentRefer to Note 7 of the profitStratus 2018 Form 10-K for each approved project following a capital transaction (as defined infurther discussion.
As of June 30, 2019, there were no significant changes to 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 successfair value of the project. The profit is equalawards or the assumptions used to determine the fair values of the awards at December 31, 2018. Estimates related to the net proceedsawards may change over time due to Stratus from a capital transaction after Stratus has received a return of itsdifferences between projected and actual development progress and 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 of capital transactions or valuation events.
During second-quarter 2019, Stratus accrued $0.2 million to project development costs and amount$0.2 million in general and administrative expense related to the Plan. During the six months ended June 30, 2019, Stratus accrued $0.4 million to project development costs and $0.5 million in general and administrative expense related to the Plan. The accrued liability for the Plan totaled $1.7 million at June 30, 2019, and $0.8 million at December 31, 2018 (included in other liabilities). As of bonus awardsJune 30, 2019, no amounts had been paid to participants 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.Plan.
Stratus’ accounting policy for and other information regarding its income taxes is further described in Notes 1 and 76 in the Stratus 20172018 Form 10-K.
Stratus had deferred tax assets (net of deferred tax liabilities) totaling $12.5$11.9 million at SeptemberJune 30, 20182019, and$11.5 $11.8 million at December 31, 20172018. 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 ninesix months of 2018 and the first nine months of 2017,2019 and the U.S. Federal statutory income tax rate of 21 percent, was primarily attributable to the Texas state margin tax and the Tax Cuts and Jobs Act's executive compensation limitation. The difference between Stratus' consolidated effective income tax rate for the first six months of 2018 and 35the U.S. Federal statutory income tax rate of 21 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 for sale, under development and available for development), which consists of its properties in Austin, Texas (the Barton Creek community, including portions of Santal Phase II;community; the Circle C community, including The Saint Mary; the Lantana community, including a portion of Lantana Place;Place still under development and vacant pad sites; and one condominium unit at the W Austin Hotel & Residences); in Lakeway, Texas, located in the greater Austin area (Lakeway); in College Station, Texas (Jones Crossing)(a portion of Jones Crossing and vacant pad sites); in Killeen, Texas (vacant pad sites at West Killeen Market); and in Magnolia, Texas (Magnolia) and, Kingwood, Texas (Kingwood Place) and New Caney, Texas (New Caney), 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 theand Phase II, West Killeen Market in Killeen, Texas, and completed 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 located at the W Austin Hotel & Residences. In addition to hosting concerts and private events, ACL Live is the home of Austin City Limits, athe longest running music series in American television program showcasing popular music legends. The Entertainment segment also includes revenues and costs associated with events hosted at other venues.history.
Stratus uses operating income or loss to measure the performance of each segment. General and administrative expenses, which primarily consist of employee salaries, wages and other costs, are managed on a consolidated basis and are not allocated to Stratus' operating segments. The following segment information reflects management determinations that may not be indicative of what the actual financial performance of each segment would be if it were an independent entity.
Revenues Fromfrom 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 June 30, | | Six Months Ended June 30, |
| 2019 | | 2018 | | 2019 | | 2018 |
Real Estate Operations: | | | | | | | |
Developed property sales | $ | 4,048 |
| | $ | 6,856 |
| | $ | 6,882 |
| | $ | 8,011 |
|
Commissions and other | 81 |
| | 123 |
| | 195 |
| | 162 |
|
| 4,129 |
| | 6,979 |
| | 7,077 |
| | 8,173 |
|
Leasing Operations: | | | | | | | |
Rental revenue | 4,413 |
| | 2,331 |
| | 8,042 |
| | 4,335 |
|
| 4,413 |
| | 2,331 |
| | 8,042 |
| | 4,335 |
|
Hotel: | | | | | | | |
Rooms, food and beverage | 8,445 |
| | 8,908 |
| | 16,182 |
| | 17,602 |
|
Other | 517 |
| | 685 |
| | 1,105 |
| | 1,313 |
|
| 8,962 |
| | 9,593 |
| | 17,287 |
| | 18,915 |
|
Entertainment: | | | | | | | |
Event revenue | 5,598 |
| | 3,729 |
| | 9,822 |
| | 8,378 |
|
Other | 622 |
| | 678 |
| | 1,194 |
| | 1,274 |
|
| 6,220 |
| | 4,407 |
| | 11,016 |
| | 9,652 |
|
| | | | | | | |
Total Revenues from Contracts with Unaffiliated Customers | $ | 23,724 |
| | $ | 23,310 |
| | $ | 43,422 |
| | $ | 41,075 |
|
|
| | | | | | | | | | | | | | | |
| 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 Operationsa | | Leasing Operations | | Hotel | | Entertainment | | Eliminations and Otherb | | Total | Real Estate Operationsa | | Leasing Operations | | Hotel | | Entertainment | | Corporate, Eliminations and Otherb | | Total |
Three Months Ended September 30, 2018: | | | | | | | | | | | | |
Three Months Ended June 30, 2019: | | | | | | | | | | | | |
Revenues: | | | | | | | | | | | | | | | | | | | | | | |
Unaffiliated customers | $ | 2,100 |
| | $ | 2,813 |
| | $ | 8,172 |
| | $ | 4,838 |
| | $ | — |
| | $ | 17,923 |
| $ | 4,129 |
| | $ | 4,413 |
| | $ | 8,962 |
| | $ | 6,220 |
| | $ | — |
| | $ | 23,724 |
|
Intersegment | 8 |
| | 227 |
| | 72 |
| | 21 |
| | (328 | ) | | — |
| 4 |
| | 229 |
| | 80 |
| | 45 |
| | (358 | ) | | — |
|
Cost of sales, excluding depreciation | 2,279 |
| | 1,235 |
| | 6,639 |
| | 4,154 |
| | (168 | ) | | 14,139 |
| 3,795 |
|
| 2,451 |
| | 6,868 |
| | 4,585 |
| | (185 | ) | | 17,514 |
|
Depreciation | 65 |
| | 863 |
| | 886 |
| | 391 |
| | (34 | ) | | 2,171 |
| 64 |
| | 1,388 |
| | 899 |
| | 396 |
| | (44 | ) | | 2,703 |
|
General and administrative expenses | — |
| | — |
| | — |
| | — |
| | 2,650 |
| | 2,650 |
| — |
| | — |
| | — |
| | — |
| | 2,919 |
| | 2,919 |
|
Operating (loss) income | $ | (236 | ) | | $ | 942 |
| | $ | 719 |
| | $ | 314 |
| | $ | (2,776 | ) | | $ | (1,037 | ) | |
Loss on sale of assets | | — |
| | 161 |
| c | — |
| | — |
| | — |
| | 161 |
|
Operating income (loss) | | $ | 274 |
| | $ | 642 |
| | $ | 1,275 |
| | $ | 1,284 |
| | $ | (3,048 | ) | | $ | 427 |
|
Capital expenditures and purchases and development of real estate properties | $ | 21,201 |
| | $ | 10,334 |
| | $ | 128 |
| | $ | 24 |
| | $ | — |
| | $ | 31,687 |
| $ | 2,458 |
| | $ | 15,391 |
| | $ | 156 |
| | $ | — |
| | $ | — |
| | $ | 18,005 |
|
Total assets at September 30, 2018 | 183,857 |
| | 157,706 |
| | 102,069 |
| | 36,377 |
| | 8,047 |
| | 488,056 |
| |
Total assets at June 30, 2019 | | 225,084 |
| | 167,008 |
| | 98,063 |
| | 45,491 |
| | 7,085 |
| | 542,731 |
|
13 |
| | | | | | | | | | | | | | | | | | | | | | | |
Three Months Ended June 30, 2018: | | | | | | | | | | | |
Revenues: | | | | | | | | | | | |
Unaffiliated customers | $ | 6,979 |
| | $ | 2,331 |
| | $ | 9,593 |
| | $ | 4,407 |
| | $ | — |
| | $ | 23,310 |
|
Intersegment | 8 |
| | 225 |
| | 50 |
| | 44 |
| | (327 | ) | | — |
|
Cost of sales, excluding depreciation | 5,560 |
| d | 1,331 |
| | 7,184 |
| | 3,560 |
| | (167 | ) | | 17,468 |
|
Depreciation | 64 |
| | 738 |
| | 894 |
| | 392 |
| | (35 | ) | | 2,053 |
|
General and administrative expenses | — |
| | — |
| | — |
| | — |
| | 3,015 |
| | 3,015 |
|
Operating income (loss) | $ | 1,363 |
| | $ | 487 |
| | $ | 1,565 |
| | $ | 499 |
| | $ | (3,140 | ) | | $ | 774 |
|
Capital expenditures and purchases and development of real estate properties | $ | 4,087 |
| | $ | 18,486 |
| | $ | 97 |
| | $ | 23 |
| | $ | — |
| | $ | 22,693 |
|
Total assets at June 30, 2018 | 207,437 |
| | 95,954 |
| | 101,487 |
| | 36,263 |
| | 7,547 |
| | 448,688 |
|
| | | | | | | | | | | | | | Real Estate Operationsa | | Leasing Operations | | Hotel | | Entertainment | | Corporate, Eliminations and Otherb | | Total |
| Real Estate Operationsa | | Leasing Operations | | Hotel | | Entertainment | | Eliminations and Otherb | | Total | |
Three Months Ended September 30, 2017: | | | | | | | | | | | | |
Six Months Ended June 30, 2019: | | | | | | | | | | | | |
Revenues: | | | | | | | | | | | | | | | | | | | | | | |
Unaffiliated customers | $ | 2,923 |
| | $ | 1,923 |
| | $ | 7,738 |
| | $ | 4,638 |
| | $ | — |
| | $ | 17,222 |
| $ | 7,077 |
| | $ | 8,042 |
| | $ | 17,287 |
| | $ | 11,016 |
| | $ | — |
| | $ | 43,422 |
|
Intersegment | 115 |
| | 222 |
| | 57 |
| | 17 |
| | (411 | ) | | — |
| 9 |
| | 459 |
| | 127 |
| | 74 |
| | (669 | ) | | — |
|
Cost of sales, excluding depreciation | 2,204 |
| | 1,100 |
| | 6,678 |
| | 3,799 |
| | (144 | ) | | 13,637 |
| 3,841 |
| e | 4,595 |
| | 13,566 |
| | 8,192 |
| | (341 | ) | | 29,853 |
|
Depreciation | 57 |
| | 739 |
| | 886 |
| | 384 |
| | (35 | ) | | 2,031 |
| 125 |
| | 2,795 |
| | 1,799 |
| | 790 |
| | (176 | ) | | 5,333 |
|
General and administrative expenses | — |
| | — |
| | — |
| | — |
| | 2,220 |
| | 2,220 |
| — |
| | — |
| | — |
| | — |
| | 6,118 |
| | 6,118 |
|
Gain on sales of assets | — |
| | (24,306 | ) | c | — |
| | — |
| | — |
| | (24,306 | ) | |
Gain on sale of assets | | — |
| | (1,952 | ) | c | — |
| | — |
| | — |
| | (1,952 | ) |
Operating income (loss) | $ | 777 |
| | $ | 24,612 |
| | $ | 231 |
| | $ | 472 |
| | $ | (2,452 | ) | | $ | 23,640 |
| $ | 3,120 |
| | $ | 3,063 |
| | $ | 2,049 |
| | $ | 2,108 |
| | $ | (6,270 | ) | | $ | 4,070 |
|
Capital expenditures and purchases and development of real estate properties | $ | 3,222 |
| | $ | 9,066 |
| | $ | 15 |
| | $ | 182 |
| | $ | — |
| | $ | 12,485 |
| $ | 5,756 |
| | $ | 44,611 |
| | $ | 254 |
| | $ | 125 |
| | $ | — |
| | $ | 50,746 |
|
Total assets at September 30, 2017 | 183,643 |
| | 71,041 |
| | 103,560 |
| | 36,888 |
| | 15,332 |
| | 410,464 |
| |
Municipal utility district (MUD) reimbursements applied to real estate under developmente | | 920 |
| | — |
| | — |
| | — |
| | — |
| | 920 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
Six Months Ended June 30, 2018: | | | | | | | | | | | |
Revenues: | | | | | | | | | | | |
Unaffiliated customers | $ | 8,173 |
| | $ | 4,335 |
| | $ | 18,915 |
| | $ | 9,652 |
| | $ | — |
| | $ | 41,075 |
|
Intersegment | 16 |
| | 476 |
| | 122 |
| | 58 |
| | (672 | ) | | — |
|
Cost of sales, excluding depreciation | 7,126 |
| d | 2,521 |
| | 14,222 |
| | 7,696 |
| | (352 | ) | | 31,213 |
|
Depreciation | 125 |
| | 1,371 |
| | 1,789 |
| | 780 |
| | (70 | ) | | 3,995 |
|
General and administrative expenses | — |
| | — |
| | — |
| | — |
| | 5,996 |
| | 5,996 |
|
Operating income (loss) | $ | 938 |
| | $ | 919 |
| | $ | 3,026 |
| | $ | 1,234 |
| | $ | (6,246 | ) | | $ | (129 | ) |
Capital expenditures and purchases and development of real estate properties | $ | 7,699 |
| | $ | 42,285 |
| | $ | 336 |
| | $ | 361 |
| | $ | — |
| | $ | 50,681 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
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 recognitionRelates to the first-quarter 2019 sale of a portion ofretail pad subject to a ground lease located in the deferred gain on the sale of The Oaks at Lakeway.Circle C community, including adjustments recorded in second-quarter 2019. |
| |
d. | Includes $0.4 million of reductions to cost of sales associated with collection of prior-years' assessments of properties in Barton Creek. |
| |
e. | Stratus received $4.6 million of bond proceeds related to MUD reimbursements of infrastructure costs incurred for development of Barton Creek. Of the total amount, Stratus recorded $0.9 million as a reduction of real estate under development on the consolidated balance sheets, and $3.4 million as a reduction in real estate cost of sales and $0.3 million in other income, net in the consolidated statements of comprehensive loss. Refer to Note 1 of the Stratus 2018 Form 10-K for further discussion of Stratus' accounting policy for MUD reimbursements. |
| |
10. | NEW ACCOUNTING STANDARDS |
Revenue Recognition. In May 2014, the Financial Accounting Standards Board (FASB) issued a newLeases. Effective January 1, 2019, Stratus adopted an 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 requirerequires lessees to recognize most leases on the balance sheet. This ASU allows lesseesStratus elected the practical expedients allowing it to make(i) apply the provisions of the updated lease guidance at the effective date, without adjusting the comparative periods presented, and (ii) not reassess lease contracts, lease classification and initial direct costs of leases existing at adoption. Stratus also elected 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 not expected to be exercised. For public entities,
Stratus' most significant lease is a 99-year ground lease for approximately 72 acres of land in College Station, Texas on which it is developing the Jones Crossing project. Stratus also leases various types of assets, including office space, vehicles and office equipment under non-cancelable leases. All of Stratus' leases are considered operating leases under the ASU. Adoption of this ASU resulted in the recognition of lease right-of-use assets of $11.9 million and lease liabilities of $12.0 million as of January 1, 2019.
Operating lease costs were $0.4 million in second-quarter 2019 and $0.7 million for the first six months of 2019. Total lease costs were $0.4 million in second-quarter 2018 and $0.8 million for the first six months of 2018.
During the first six months of 2019, Stratus paid $108 thousand for lease liabilities recorded in the consolidated balance sheet (included in operating cash flows in the consolidated statements of cash flows). As of June 30, 2019, the weighted-average discount rate used to determine the lease liabilities was 6.0 percent and the weighted-average remaining lease term was 94.1 years.
The future minimum payments for leases recorded on the consolidated balance sheet at June 30, 2019, follow (in thousands):
|
| | | |
Remaining six months of 2019 | $ | 115 |
|
2020 | 199 |
|
2021 | 145 |
|
2022 | 434 |
|
2023 | 497 |
|
Thereafter | 110,548 |
|
Total payments | 111,938 |
|
Present value adjustment | (99,557 | ) |
Present value of net minimum lease payments | $ | 12,381 |
|
The adoption of this ASU did not materially impact Stratus' accounting for contracts in which it 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 entitiesthe lessor. Refer to apply the provisionsNote 8 of the updated lease guidance at the January 1, 2019, effective date, without adjusting the comparative periods presented. Stratus continues to review the impact2018 Form 10-K for further disclosure of the new guidance on its financial reporting and disclosures, including the impactminimum rental income under non-cancelable long-term leases as of the College Station ground lease.December 31, 2018.
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 SeptemberJune 30, 2018,2019, 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.
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, 2018 (2018 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 with headquarters in Austin, Texas. We are engaged primarily in the acquisition, entitlement, development, management, operation and sale of commercial, and multi-family and single-family residential real estate properties, real estate leasing, and the operation of hotel and entertainment businesses located in the Austin, Texas area, and other select, fast-growing markets in Texas. We generate revenues and cash flows from the sale of our 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.
BUSINESS STRATEGY
Our development portfolio consists of approximately 1,800 acres of commercial, multi-family and single-family residential projects under development or undeveloped and held for future use. Our W Austin Hotel and our ACL Live and 3TEN ACL Live entertainment venues are located in downtown Austin and are central to the city's world renowned, vibrant music scene.
Our primary business objective is to create value for stockholders by methodically developing and enhancing the value of our properties and then selling them profitably. Our development program of acquiring properties, securing and maintaining development entitlements, constructing and stabilizing the properties, and then preparing them for sale or refinancing is a key element of our strategy. We currently have projects in each of these stages as described below in “Development Activities - Current Residential Activities” and “Development Activities - Current Commercial Activities.”
We believe that Austin and other select, fast-growing markets in Texas continue to be desirable locations. Many of our developments are in locations where development approvals have historically been subject to regulatory constraints, which has made it difficult to obtain entitlements. Our Austin properties, which are located in desirable areas with significant regulatory constraints, are entitled and have utility capacity for full buildout. As a result, we believe that through strategic planning, development and marketing, we can maximize and fully realize their value.
Our development plans require significant capital, which we may pursue through joint ventures or other arrangements. Our business strategy requires us to rely on cash flow from operations and debt financing as our primary sources of funding for our liquidity needs. We have also, from time to time, relied on project-level equity financing of our subsidiaries. We have formed strategic relationships as part of our overall strategy for particular development projects and may enter into other similar arrangements in the future.
OVERVIEWBUSINESS STRATEGY
In Management’s Discussion and AnalysisOur development portfolio consists 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 saleapproximately 1,800 acres of commercial, hotel, entertainment, and multi-family and single-family residential real estate properties, primarilyprojects under development or undeveloped and held for future use. Our W Austin Hotel and our ACL Live and 3TEN ACL Live entertainment venues are located in downtown Austin and are central to the Austin, Texas area,city's world renowned, vibrant music scene.
Our primary business objective is to create value for stockholders by methodically developing and also includingenhancing the value of our properties and then selling them profitably. Our development program of acquiring properties, securing and maintaining development entitlements, constructing and stabilizing the properties, and then preparing them for sale or refinancing is a key element of our strategy. We currently have projects in certaineach of these stages as described below in “Development Activities - Current Residential Activities” and “Development Activities - Current Commercial Activities.”
We believe that Austin and other select, fast-growing 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 discussionTexas continue to be desirable locations. Many of our operating segments.
Developed property sales can include an individual tract of land thatdevelopments are in locations where development approvals have historically been subject to regulatory constraints, which has been developedmade it difficult to obtain entitlements. Our Austin properties, which are located in desirable areas with significant regulatory constraints, are entitled and permittedhave utility capacity for residential use,full buildout. As 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 thatresult, we believe willthat through strategic planning, development and marketing, we can maximize overall asset valuesand fully realize their value.
Our development plans require significant capital, which we may pursue through joint ventures or other arrangements. Our business strategy requires us to rely on cash flow from operations and debt financing as our primary sources of funding for our liquidity needs. We have also, from time to time, relied on project-level equity financing of our subsidiaries. We have formed strategic relationships as part of our business plan. See "Business Strategy" below.
Our acreage underoverall strategy for particular development projects and undeveloped as of September 30, 2018, is presentedmay enter into other similar arrangements in the following table.future. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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 2017andthe 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 managedevelopment portfolio consists of approximately 1,800 acres of commercial, multi-family and single-family residential projects under development or undeveloped and held for future use. Our W Austin Hotel and our diverse asset base of residential, commercial, hotelACL Live 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 and3TEN ACL Live 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
Our primary business objective is to create value for stockholders by methodically developing and enhancing the value of actively developing our properties and then selling them profitably. Our development program of acquiring properties, securing and maintaining development entitlements, constructing and stabilizing the properties, and then preparing them for sale or refinancing or marketing and selling developed assets at appropriate times to maximize stockholder value. Our active development plan includes completionis a key element of both residential and commercial projects. Our portfolio consistsour strategy. We currently have projects in each 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 projectsthese stages as described below in “Development Activities - Residential”Current Residential Activities” and “Development Activities - Commercial”.Current Commercial Activities.”
We believe that Austin and other select, fast-growing markets in Texas continue to be desirable locations. Many of our developments are in locations where development approvals have historically been subject to regulatory constraints, which has made it difficult to obtain entitlements. Our Austin properties, which are located in desirable areas with significant regulatory constraints, are entitled and have utility capacity for full buildout. As a result, we believe that through strategic planning, development and marketing, we can maximize and fully realize their value.
Our development plans require significant capital, which we may pursue through joint ventures or other arrangements. Our business strategy requires us to rely on cash flow from operations and debt financing as our primary sources of funding for our liquidity needs. We have also, from time to time, relied on project-level equity financing of our subsidiaries. We have formed strategic relationships as part of our overall strategy for particular development projects and may enter into other similar arrangements in the future.
OVERVIEW
Our developed property sales can include an individual tract of land that has been developed and permitted for residential use, a developed lot with a residence already built on it or condominium units at the W Austin Residences. We may also 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 strategy. In second-quarter 2019, our revenues totaled $23.7 million and our net loss attributable to common stockholders totaled $2.4 million, compared with revenues of $23.3 million and a net loss attributable to common stockholders of $0.9 million in second-quarter 2018. During the first six months of 2019, our revenues totaled $43.4 million and our net loss attributable to common stockholders totaled $1.5 million, compared with revenues of $41.1 million and a net loss attributable to common stockholders of $2.7 million for the first six months of 2018.
The increase in revenues in the second quarter and the first six months of 2019, compared to the 2018 periods, primarily reflects increased revenues associated with the commencement of leases at our recently completed properties and an increase in the number of events hosted and higher event attendance at ACL Live, partly offset by lower revenues from single-family residential property sales and the Hotel segment.
We received $4.6 million of bond proceeds in the first six months of 2019 related to Travis County municipal utility district (MUD) reimbursements of infrastructure costs incurred for development of Barton Creek. Of the total amount, we recorded $0.9 million as a reduction of real estate under development on the consolidated balance sheet, and $3.4 million as a reduction in real estate cost of sales and $0.3 million in other income, net in the consolidated statement of comprehensive loss for the first six months of 2019. The first six months of 2019 also included a gain on the sale of assets totaling $2.0 million, primarily related to the sale of a retail pad subject to a ground lease located in the Circle C community.
At June 30, 2019, we had total debt of $340.6 million and consolidated cash of $18.1 million. 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 2018 Form 10-K for further discussion.
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 Developmenta | | 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 Residential Activities.
In March 2018,second-quarter 2019, we entered into a contract to sell one Amarra Drive Phase II lot and eightsold four Amarra Drive Phase III lots, two of which were included in the contract discussed below, for a total of $5.9$2.3 million, and during the first six months of 2019, we sold six Amarra Drive Phase III lots, four of which were included in the contract discussed below, for a total of $3.4 million. As of June 30, 2019, 25 developed Amarra Drive Phase III lots and 9 developed Amarra Drive Phase II lots remained unsold.
In March 2019, we amended a contract previously entered into in March 2018, pursuant to which we agreed to sell 2 Amarra Drive Phase II lots and 12 Amarra Drive Phase III lots to a homebuilder for a total of $9.5 million (the homebuilder contract). In accordance with the homebuilder contract, the parties are required to close on the sale of these lots ratably beforeby March 1, 2019.31, 2020. If the purchaser fails to close on the sale of the minimum number of lots by any of the specified closing dates, we may elect to terminate the homebuilder contract but would retain the related $45 thousand earnest money. During third-quarter 2018,
Subsequent to June 30, 2019, and through August 5, 2019, we closed on the sale of the one Amarra Drive Phase II lot included in the agreement discussed above, andsold two Amarra Drive Phase III lots, which were subject to the homebuilder contract, for a total of $2.0$1.3 million. During the first nine monthsAs of 2018, we soldAugust 5, 2019, 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 waswere under contract, in addition to the remaining eightfour Amarra Drive Phase III lots subject to the contract discussed above. Also ashomebuilder contract.
The Villas at Amarra Drive (Amarra Villas) townhome project is a 20-unit development for which we completed construction of November 8, 2018,the first seven townhomes during 2017 and 2018. In second-quarter 2019, we sold the last completed townhome for $1.8 million and during the first six months of 2019 we sold two townhomes for $3.5 million. We expect to begin construction of the next four Amarra Villas townhomes were under contract, including one currently under construction,during third-quarter 2019.
As of June 30, 2019, Santal, a garden-style, multi-family project located in the upscale Barton Creek Community, was fully leased and are expected to close later this year.
Construction ofstabilized. The first Santal Phase II a 212-unit garden style, multi-family projectunits, located directly adjacent to Santalthe 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 completecompleted construction by year-end 2018. As of September 30, 2018, 28 of the Phase IIremaining units were leased and the 236-unit Phase I was 96 percent leased and stabilized.during first-quarter 2019. We currently plancontinue to evaluate refinancingexplore options to sell or refinance 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. conditions.
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 remainsis progressing ahead of schedule and on budget,budget. The clubhouse and the first units are expected to be available fortwo apartment buildings were completed in June 2019 and leasing activity has commenced. The first tenants took occupancy in third-quarter 2019, with projected completion expected by the end ofJuly 2019. ReferWe expect to Notes 3 and 6 for further discussion.complete construction in fourth-quarter 2019.
For further discussion of our multi-family and single-family residential properties, listed in the table above, see MD&A in our 20172018 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 Developmenta | | 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 Commercial 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,Kingwood Place, an H-E-B, L.P., (HEB)-anchored, mixed-use development in College Station,Kingwood, Texas, is complete. We haveprogressing on schedule and on budget. As of June 30, 2019, we had signed leases for approximately 80 percent of the retail space, including the HEB lease.grocery store. The HEB grocery store openedis currently anticipated to open in September 2018, as scheduled. November 2019, and the first retail buildings are expected to be turned over to tenants to begin construction of their interior spaces in August 2019. See Note 3 for further discussion of project financing.
In addition,March 2019, we have begun preliminary planning workfinalized the lease for the HEB store at New Caney, an HEB-anchored, mixed-use development in New Caney, Texas, and acquired HEB's interests in the partnership for approximately $5 million. We currently do not anticipate commencing construction on the phased 600-unit multi-family component.
We completed constructionNew Caney project prior to 2021. See Note 6 for further discussion of the 99,379 square-footland loan.
Construction of the first phase of Lantana Place, a mixed-use development project located in southwest Austin consistingwas completed in 2018. As of June 30, 2019, we had signed leases for approximately 320,000 square feet80 percent of the retail hotel and office space, in third-quarter 2018. Theincluding the anchor tenant, Moviehouse & Eatery, opened in May 2018. We also entered intoand a ground lease for a Marriott A/Can AC Hotel which is anticipated to commence constructionby Marriott. Construction of the hotel began in earlyMay 2019. We have
As of June 30, 2019, we had signed leases for 61approximately 90 percent of the retail space asat the first phase of September 30, 2018,Jones Crossing, an HEB-anchored, mixed-use development located in College Station, Texas, 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 6at West Killeen Market, our retail pads and an 11-acre parcel planned for approximately 300 multi-family units. Site clearing is complete and construction is expected to beginproject located 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,Killeen, 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 anchoredshadow-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.store.
For further discussion of our commercial properties, listed in the table above, see MD&A in our 20172018 Form 10-K.
Projects in Planning.
We are planning to proceed, subject to financing, with the first phase of development of Magnolia Place, a new mixed-use project in Magnolia, Texas, currently planned for 81,000 square feet of retail space; six pad sites; two hotel sites; and 50 acres of residential land allowing up to 1,200 units. Magnolia Place will be shadow-anchored by a 95,000-square-foot HEB grocery store to be constructed by HEB on an adjoining 18-acre site owned by HEB. The first phase of development is expected to consist of approximately 41,000 square feet of retail space, three pads for lease and three pads to be held for sale. We are currently in the process of securing a construction loan to finance the first phase of development and expect to begin site work and joint use road and utility infrastructure that will support the entire project, including future phases, in the third quarter of 2019. We expect substantially all of the infrastructure costs to be eligible for future reimbursement by the Magnolia East MUD. Refer to Note 1 in our 2018 Form 10-K for further discussion of this MUD and our accounting policy for MUD reimbursements. The HEB grocery store is currently expected to open by third-quarter 2020.
We are advancing the planning and permitting process for development of future phases of Barton Creek, including residential Section KLO and commercial and multi-family Section N. We have submitted initial permit applications to the City of Austin and Travis County for Section KLO and are awaiting approval, which is currently expected in late 2019 or early 2020. We have also submitted permit applications to the City of Austin and Travis County for initial road infrastructure in Section N and currently expect approval by early 2020. These potential development projects require extensive permitting and will be capital intensive and dependent on market conditions. Because of the nature and cost of the approval and development process and uncertainty regarding market demand for a particular use, there is no assurance that we will be able to develop these properties in accordance with our current development plans. In addition, our development plans for Section KLO and Section N will require significant capital, which we may pursue through joint venture, commercial, partner or other arrangements.
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 20172018 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 |
|
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2019 | | 2018 | | 2019 | | 2018 |
Operating income (loss): | | | | | | | |
Real Estate Operations | $ | 274 |
| | $ | 1,363 |
| | $ | 3,120 |
| | $ | 938 |
|
Leasing Operations | 642 |
| | 487 |
| | 3,063 |
| | 919 |
|
Hotel | 1,275 |
| | 1,565 |
| | 2,049 |
| | 3,026 |
|
Entertainment | 1,284 |
| | 499 |
| | 2,108 |
| | 1,234 |
|
Corporate, eliminations and other | (3,048 | ) | | (3,140 | ) | | (6,270 | ) | | (6,246 | ) |
Operating income (loss) | $ | 427 |
| | $ | 774 |
| | $ | 4,070 |
| | $ | (129 | ) |
Interest expense, net | $ | (2,911 | ) | | $ | (1,742 | ) | | $ | (5,483 | ) | | $ | (3,301 | ) |
Net loss attributable to common stockholders | $ | (2,389 | ) | | $ | (857 | ) | | $ | (1,527 | ) | | $ | (2,727 | ) |
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: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. |
|
| | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, | |
| 2019 | | 2018 | | 2019 | | 2018 | |
Revenues: | | | | | | | | |
Developed property sales | $ | 4,048 |
| | $ | 6,856 |
| | $ | 6,882 |
| | $ | 8,011 |
| |
Commissions and other | 85 |
| | 131 |
| | 204 |
| | 178 |
| |
Total revenues | 4,133 |
| | 6,987 |
| | 7,086 |
| | 8,189 |
| |
Cost of sales, including depreciation | 3,859 |
| | 5,624 |
| | 3,966 |
| | 7,251 |
| |
Operating income | $ | 274 |
| | $ | 1,363 |
| | $ | 3,120 |
| | $ | 938 |
| |
| | | | | | | | |
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, | Three Months Ended June 30, |
| 2018 | | 2017 | 2019 | | 2018 |
| Lots/Units | | Revenues | | Average Cost Per Lot/Unit | | Lots/Units | | Revenues | | Average Cost Per Lot/Unit | 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 |
| 4 |
| | $ | 2,283 |
| | $ | 230 |
| | 3 |
| | $ | 1,895 |
| | $ | 272 |
|
Amarra Villas | 2 |
| | 3,821 |
| | 1,666 |
| | 1 |
| | 2,193 |
| | 2,004 |
| 1 |
| | 1,765 |
| | 1,627 |
| | 2 |
| | 3,821 |
| | 1,670 |
|
| | | | | | | | | | | | | | | | | | | | | | |
Circle C | | | | | | | | | | | | |
Meridian | — |
| | — |
| | — |
| | 10 |
| | 2,843 |
| | 160 |
| |
W Austin Hotel & Residences | | | | | | | | | | | | |
W Austin Hotel & Residences Project | | | | | | | | | | | | |
Condominium Units | 1 |
| | 1,140 |
| | 726 |
| | — |
| | — |
| | — |
| — |
| | — |
| | — |
| | 1 |
| | 1,140 |
| | 726 |
|
Total Residential | 11 |
| | $ | 10,036 |
| | | | 16 |
| | $ | 8,436 |
| | | 5 |
| | $ | 4,048 |
| | | | 6 |
| | $ | 6,856 |
| | |
| | | | | | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, |
| 2019 | | 2018 |
| Lots/Units | | Revenues | | Average Cost Per Lot/Unit | | Lots/Units | | Revenues | | Average Cost Per Lot/Unit |
Barton Creek | | | | | | | | | | | |
Amarra Drive: | | | | | | | | | | | |
Phase II | — |
| | $ | — |
| | $ | — |
| | 1 |
| | $ | 605 |
| | $ | 209 |
|
Phase III | 6 |
| | 3,432 |
| | 229 |
| | 4 |
| | 2,445 |
| | 263 |
|
Amarra Villas | 2 |
| | 3,450 |
| | 1,607 |
| | 2 |
| | 3,821 |
| | 1,670 |
|
| | | | | | | | | | | |
W Austin Hotel & Residences Project | | | | | | | | | | | |
Condominium Units | — |
| | — |
| | — |
| | 1 |
| | 1,140 |
| | 726 |
|
Total Residential | 8 |
| | $ | 6,882 |
| | | | 8 |
| | $ | 8,011 |
| | |
| | | | | | | | | | | |
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
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)MUD reimbursements. Cost of sales of $2.3totaled $3.9 million in second-quarter 2019 and $4.0 million for third-quarterthe first six months of 2019, compared with $5.6 million in second-quarter 2018 approximatedand $7.3 million for the first six months of 2018. The decrease in cost of sales in second-quarter 2019, compared with second-quarter 2018, primarily reflects fewer real estate sales in the 2019 quarter. The decrease in cost of sales for third-quarter 2017. Cost of sales increased to $9.6 million for the first ninesix months of 2019, compared with the first six months of 2018, compared with $8.2primarily reflects $3.4 million in MUD reimbursements in the first six months of 2019 recorded as a reduction in real estate cost of sales as the reimbursed property had previously been sold. Costs of sales for the first nine months2018 periods include $0.4 million of 2017, primarily as a resultreductions to cost of the costssales associated with the salecollection of two Amarra Villas townhomes and one W Austin Hotel & Residences condominium unit, which have a higher cost basis than the otherprior-years' assessments of properties sold.in Barton Creek.
Leasing Operations
The following table summarizes our Leasing Operations results (in thousands): | | | Three Months Ended September 30, | | Nine Months Ended September 30, | Three Months Ended June 30, | | Six Months Ended June 30, |
| 2018 | | 2017 | | 2018 | | 2017 | 2019 | | 2018 | | 2019 | | 2018 |
Rental revenue | $ | 3,040 |
| | $ | 2,145 |
| | $ | 7,851 |
| | $ | 6,668 |
| $ | 4,642 |
| | $ | 2,556 |
| | $ | 8,501 |
| | $ | 4,811 |
|
Rental cost of sales, excluding depreciation | 1,235 |
| | 1,100 |
| | 3,756 |
| | 3,773 |
| 2,451 |
| | 1,331 |
| | 4,595 |
| | 2,521 |
|
Depreciation | 863 |
| | 739 |
| | 2,234 |
| | 2,070 |
| 1,388 |
| | 738 |
| | 2,795 |
| | 1,371 |
|
Profit participation | — |
| | — |
| | — |
| | 2,538 |
| |
Gain on sales of assets | — |
| | (24,306 | ) | | — |
| | (25,421 | ) | |
Loss (gain) on sale of assets | | 161 |
| | — |
| | (1,952 | ) | | — |
|
Operating income | $ | 942 |
| | $ | 24,612 |
| | $ | 1,861 |
| | $ | 23,708 |
| $ | 642 |
| | $ | 487 |
| | $ | 3,063 |
| | $ | 919 |
|
Rental Revenue. Rental revenue for 2018 primarily includes revenue from Santal Phase I and Phase II, the office and retail space at the W Austin Hotel & Residences, West Killeen Market, Lantana Place, Jones Crossing 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 2018,2019 periods, compared with the first nine months of 2017,2018 periods, primarily reflects activitythe commencement of new leases at Santal Phase II, Lantana Place West Killeen Market, Santal Phase I and Jones Crossing, partially offset by the sale of The Oaks at Lakeway.Crossing.
Rental Cost of Sales and Depreciation. Rental cost of sales and depreciation expense increased in third-quarter 2018,the 2019 periods, compared with third-quarter 2017,the 2018 periods, primarily as a result of the activity at Santal Phase I and Phase II, Lantana Place and Jones CrossingCrossing.
Loss (Gain) on Sale of Assets. On January 17, 2019, Stratus sold a retail pad subject to a ground lease located in the Circle C community for $3.2 million. Stratus used proceeds from the sale to repay $2.5 million of its Comerica Bank credit facility borrowings and, the office space at the W Austin Hotel & Residences asafter adjustments recorded in second-quarter 2019, recorded a result of costs associated with repairs. Rental cost of sales and depreciation expense slightly increasedgain on this sale totaling $2.0 million for the first ninesix 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.2019.
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, | Three Months Ended June 30, | | Six Months Ended June 30, |
| 2018 | | 2017 | | 2018 | | 2017 | 2019 | | 2018 | | 2019 | | 2018 |
Hotel revenue | $ | 8,244 |
| | $ | 7,795 |
| | $ | 27,281 |
| | $ | 28,047 |
| $ | 9,042 |
| | $ | 9,643 |
| | $ | 17,414 |
| | $ | 19,037 |
|
Hotel cost of sales, excluding depreciation | 6,639 |
| | 6,678 |
| | 20,861 |
| | 21,323 |
| 6,868 |
| | 7,184 |
| | 13,566 |
| | 14,222 |
|
Depreciation | 886 |
| | 886 |
| | 2,675 |
| | 2,654 |
| 899 |
| | 894 |
| | 1,799 |
| | 1,789 |
|
Operating income | $ | 719 |
| | $ | 231 |
| | $ | 3,745 |
| | $ | 4,070 |
| $ | 1,275 |
| | $ | 1,565 |
| | $ | 2,049 |
| | $ | 3,026 |
|
Hotel Revenue. Hotel revenue primarily includes revenue from W Austin Hotel room reservations and food and beverage sales. The decrease in Hotel revenues increased in third-quartersecond-quarter 2019, compared to second-quarter 2018, compared with third-quarter 2017,is primarily reflecting higher room revenues resulting from higher occupancy during the quarter.a result of reduced transient weekend business and lower food and beverage sales. The decrease in Hotel revenues decreased during the first ninesix months of 2019, compared to the first six months of 2018, compared with the first nine months of 2017,is primarily as a result of lower number of reservations from large groupsreduced transient weekend business and overall group business 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$242 in second-quarter 2019 and $243$240 for the first ninesix months of 2018,2019, compared with $199 for third-quarter 2017$254 in second-quarter 2018 and $253$258 for the first ninesix months of 2017. 2018.
While we remain positive onoptimistic about the long-term outlook of the W Austin Hotel based on office growth downtown, 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 remaindersecond half of 20182019 and 2019 isthroughout 2020 are expected to have an ongoing impact on our hotel revenues.
We continue to explore various opportunities with respect to Block 21, our mixed-use development in downtown Austin, Texas, that contains the W Austin Hotel & Residences and office, retail and entertainment space, which may include, but are not limited to, a possible sale, recapitalization or other venture. Any transaction is subject to market conditions and there can be no assurance that any transaction will be pursued or consummated.
Entertainment
The following table summarizes our Entertainment results (in thousands): | | | Three Months Ended September 30, | | Nine Months Ended September 30, | Three Months Ended June 30, | | Six Months Ended June 30, |
| 2018 | | 2017 | | 2018 | | 2017 | 2019 | | 2018 | | 2019 | | 2018 |
Entertainment revenue | $ | 4,859 |
| | $ | 4,655 |
| | $ | 14,569 |
| | $ | 16,517 |
| $ | 6,265 |
| | $ | 4,451 |
| | $ | 11,090 |
| | $ | 9,710 |
|
Entertainment cost of sales, excluding depreciation | 4,154 |
| | 3,799 |
| | 11,850 |
| | 12,756 |
| 4,585 |
| | 3,560 |
| | 8,192 |
| | 7,696 |
|
Depreciation | 391 |
| | 384 |
| | 1,171 |
| | 1,137 |
| 396 |
| | 392 |
| | 790 |
| | 780 |
|
Operating income | $ | 314 |
| | $ | 472 |
| | $ | 1,548 |
| | $ | 2,624 |
| $ | 1,284 |
| | $ | 499 |
| | $ | 2,108 |
| | $ | 1,234 |
|
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 increaseEntertainment revenues increased in Entertainment revenue in third-quarterthe 2019 periods, compared to the 2018 compared with third-quarter 2017,periods, primarily reflects higher ticket prices at ACL Live andas a result of an increase in revenue from sponsorships and salesthe number 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 lowerhigher event attendance.attendance at ACL Live.
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, | Three Months Ended June 30, | | Six Months Ended June 30, |
| 2018 | | 2017 | | 2018 | | 2017 | 2019 | | 2018 | | 2019 | | 2018 |
ACL Live | | | | | | | | | | | | | | |
Events: | | | | | | | | | | | | | | |
Events hosted | 49 |
| | 43 |
| | 151 |
| | 160 |
| 69 |
| | 45 |
| | 133 |
| | 102 |
|
Estimated attendance | 62,323 |
| | 61,848 |
| | 180,942 |
| | 208,687 |
| 79,813 |
| | 47,580 |
| | 144,212 |
| | 118,619 |
|
Ancillary net revenue per attendee | $ | 32.87 |
| | $ | 35.95 |
| | $ | 40.28 |
| | $ | 40.39 |
| $ | 45.41 |
| | $ | 56.58 |
| | $ | 45.73 |
| | $ | 44.18 |
|
Ticketing: | | | | | | | | | | | | | | |
Number of tickets sold | 48,436 |
| | 56,316 |
| | 132,568 |
| | 152,270 |
| 68,153 |
| | 29,471 |
| | 116,901 |
| | 84,132 |
|
Gross value of tickets sold (in thousands) | $ | 2,686 |
| | $ | 2,995 |
| | $ | 7,786 |
| | $ | 9,142 |
| $ | 3,736 |
| | $ | 2,102 |
| | $ | 6,259 |
| | $ | 5,100 |
|
| | | | | | | | | | | | | | |
3TEN ACL Live | | | | | | | | | | | | | | |
Events: | | | | | | | | | | | | | | |
Events hosted | 55 |
| | 47 |
| | 161 |
| | 167 |
| 52 |
| | 57 |
| | 102 |
| | 106 |
|
Estimated attendance | 9,520 |
| | 8,141 |
| | 29,462 |
| | 29,799 |
| 9,528 |
| | 10,926 |
| | 18,490 |
| | 19,942 |
|
Ancillary net revenue per attendee | $ | 49.84 |
| | $ | 21.25 |
| | $ | 40.93 |
| | $ | 38.23 |
| $ | 35.75 |
| | $ | 30.03 |
| | $ | 36.49 |
| | $ | 36.68 |
|
Ticketing: | | | | | | | | | | | | | | |
Number of tickets sold | 5,316 |
| | 3,386 |
| | 18,025 |
| | 13,956 |
| 7,271 |
| | 7,784 |
| | 12,325 |
| | 12,709 |
|
Gross value of tickets sold (in thousands) | $ | 142 |
| | $ | 89 |
| | $ | 415 |
| | $ | 302 |
| $ | 175 |
| | $ | 168 |
| | $ | 296 |
| | $ | 272 |
|
Entertainment Cost of Sales. Entertainment cost of sales, excluding depreciation, totaled $4.2$4.6 million in second-quarter 2019 and $8.2 million for third-quarterthe first six months of 2019, compared to $3.6 million in second-quarter 2018 compared with $3.8and $7.7 millionfor third-quarter 2017,the first six months of 2018, primarily reflects an increasereflecting substantial increases in the number of events hosted. Entertainment cost of sales, excluding depreciation, totaled $11.9 millionat ACL Live (53 percent increase for the first nine months of 2018, compared with $12.8 millionquarterly period and 30 percent increase for the first nine monthssix-month period).
Corporate, Eliminations and Other
Corporate, eliminations and other (see Note 9) includes consolidated general and administrative expenses, which primarily consist of employee salaries and other costs. Consolidated general and administrative expenses totaled $2.7$2.9 million for third-quarter 2018 in second-quarter 2019and $8.6$6.1 million for the first ninesix months of 2018,2019, compared with $2.2$3.0 million for third-quarter 2017 insecond-quarter 2018and $8.5$6.0 million for the first ninesix 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.2018. 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$5.1 million for third-quarter 2018 in second-quarter 2019and $11.4$9.7 million for the first ninesix months of 20182019 were higher, compared with $3.1$3.8 million for third-quarter 2017in second-quarter 2018 and $9.3$7.2 million for the first ninesix months of 2017,2018, primarily reflecting higher average debt balances.to finance development activities.
Capitalized interest totaled $2.1 million for third-quarter 2018in second-quarter 2019 and $6.0 millionfor the first nine months of 2018, compared with$1.5 million for third-quarter 2017 and $4.3$4.2 million for the first ninesix months of 2017,2019, compared with $2.0 million in second-quarter 2018 and $3.9 million for the first six months of 2018, 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, The 2019 periods also included capitalized interest costs associated with changes in the fair values of our interest rate derivative instruments.development activities at Kingwood Place.
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 (provision for) income taxes of $0.5$0.2 million for third-quarter 2018second-quarter 2019 and $1.0$(0.2) million for the first ninesix months of 2018,2019, compared with a provisionbenefit of $(7.8)less than $0.1 millionfor third-quarter 2017 in second-quarter 2018 and$(6.2) $0.4 million for the first ninesix months of 2017. Both the 2018 and 2017 periods also include the Texas state margin tax.2018. The difference between Stratus' consolidated effective income tax rate for the first six months of 2019 and the U.S. Federal statutory income tax rate of 21 percent, for 2018 and 35 percent for 2017 iswas primarily attributable to the Texas state margin tax. We had deferred tax assets (netand the Tax Cuts and Jobs Act's executive compensation limitation. The difference between Stratus' consolidated effective income tax rate for the first six months of deferred2018 and the U.S. Federal statutory income tax liabilities) totaling $12.5 million at September 30, 2018, and$11.5 million at December 31, 2017.rate of 21 percent, was primarily attributable to the Texas state margin tax.
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 NineSix Months Ended SeptemberJune 30, 20182019 and 20172018
Operating Activities. Cash used in operating activities totaled $26.6$1.6 million for the first ninesix months of 2018,2019, compared with $12.9$8.7 million for the first ninesix months of 2017.2018. Expenditures for purchases and development of real estate properties totaled $28.9$5.8 million for the first ninesix months of 2018, compared with $11.22019 and $7.7 million for the first ninesix months of 2017. The increase2018, primarily related to development of our Barton Creek properties. During the first six months of 2019, our operating cash flows included MUD reimbursements totaling $4.6 million related to infrastructure costs incurred in Barton Creek (of which $3.7 million reduced the 2018net loss for the period and $0.9 million was applied to real estate under development).
Investing Activities. Cash used in investing activities totaled $47.2 million for the first six months of 2019 and $44.0 million for the first six months of 2018. Capital expenditures totaled $45.0 million for the first six months of 2019, primarily reflects the purchaserelated to development 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 $2.2and The Saint Mary projects, and $43.0 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 ninesix months of 2018, primarily related to development of the Santal Phase II, Lantana Place Jones Crossing and The Saint Mary projects, and $14.4 millionfor 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.
StratusWe also made payments totaling $0.8 million for the first six months of 2019 and $0.9 million for the first six months of 2018 under itsour master lease obligations associated with the 2017 sale of The Oaks at LakewayLakeway.
We recorded a purchase of noncontrolling interest totaling $1.5$4.6 million for the first ninesix months of 20182019 as a result of our acquisition of HEB's interests in the New Caney partnership in which we and $1.7HEB collectively purchased a tract of land for the future development of an HEB-anchored mixed-use project in New Caney, Texas.
Financing Activities. Cash provided by financing activities totaled $43.5 million for the first ninesix months of 2017.
Financing Activities. Cash provided by (used in) financing activities totaled $88.92019 and $50.6 million for the first ninesix months of 2018, compared with $(73.9) million for the first nine months of 2017.2018. During the first ninesix months of 2018,2019, net borrowingsrepayments on the Comerica Bank credit facility totaled $26.3$1.6 million, compared with net repaymentsborrowings of $8.5$18.1 million for the first ninesix 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$45.4 million for the first ninesix months of 2019, primarily for The Saint Mary, Kingwood Place, Jones Crossing and New Caney, compared with net borrowings of $26.7 million for the first six months of 2018, primarily for the Santal Phase II,
for Lantana Place, Jones Crossing and Jones Crossings projects, compared with net repayments of $55.5 million for theSantal Phase II. The first ninesix months of 2017, primarily for2018 also include $7.0 million of capital contributions from the Class B limited partners in The Oaks at Lakeway term loan.Saint Mary limited partnership (see Note 3). See also “Credit Facility and Other Financing Arrangements” below for a discussion of our outstanding debt at SeptemberJune 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.2019.
Credit Facility and Other Financing Arrangements
At SeptemberJune 30, 2018, we had2019, the total principal amount of our outstanding debt based on the principal amounts outstanding of $296.2was $343.8 million, compared with $223.6$298.4 million at December 31, 2017. The principal amounts2018. We had borrowings of our debt outstanding at September 30, 2018, consisted of the following:
$144.8 million under the Goldman Sachs loan.
$52.1$48.7 million under the $60.0 million Comerica Bank credit facility, which is comprised of a $60.0 million revolving line of credit, $3.8$9.1 million of which was available at SeptemberJune 30, 2018,2019, net of $4.1$2.2 million of letters of credit committed against the credit facility.
$32.8 million under the construction loan with Comerica Bank to fund Phase ISee Note 5 in our 2018 Form 10-K for further discussion 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).our outstanding debt.
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 includeincludes a requirement that we maintain a minimum total stockholders’ equity balance of $110.0 million. As of SeptemberJune 30, 2018,2019, Stratus' total stockholders' equity was $122.6$122.4 million. The Comerica credit facility, the Goldman Sachs loan, the Lantana Place construction loan, the Jones Crossing construction loan, The Saint Mary construction loan, the Santal Phase I and Phase II construction loans, the Amarra Villas credit facility, the Kingwood Place loan and the New Caney land loan include a requirement that we maintain a net asset value, as defined in the agreements, of $125 million. The Comerica credit facility, the Santal Phase I and Phase II construction loans, the Amarra Villas credit facility and the Kingwood Place construction 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, our Comerica Bank credit facility and the Amarra Villas credit facility require Comerica's prior written consent is required for any common stock repurchases in excess of $1.0 million in aggregate or dividend payments. Our Barton Creek Village term loan includes a requirement that Stratus' subsidiary maintain a minimum debt service coverage ratio, as defined in the agreement, of 1.35 to 1.00. As of December 31, 2018, and June 30, 2019, the subsidiary's minimum debt service coverage ratio calculated in accordance with the Barton Creek Village term loan agreement was not in compliance with this requirement. PlainsCapital Bank waived the subsidiary's obligation to comply with the minimum debt service coverage ratio from December 31, 2018, through September 30, 2018,2019. As of June 30, 2019, Stratus was in compliance with all other 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 SeptemberJune 30, 20182019 (in thousands): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2018 | | 2019 | | 2020 | | 2021 | | 2022 | | Thereafter | | Total | 2019 | | 2020 | | 2021 | | 2022 | | 2023 | | Thereafter | | Total |
Goldman Sachs loan | $ | 538 |
| | $ | 2,208 |
| | $ | 2,313 |
| | $ | 2,470 |
| | $ | 2,613 |
| | $ | 134,635 |
| | $ | 144,777 |
| $ | 1,108 |
| | $ | 2,313 |
| | $ | 2,470 |
| | $ | 2,613 |
| | $ | 2,765 |
| | $ | 131,871 |
| | $ | 143,140 |
|
Comerica Bank credit facilitya | — |
| | — |
| | 52,089 |
| | — |
| | — |
| | — |
| | 52,089 |
| — |
| | 48,658 |
| | — |
| | — |
| | — |
| | — |
| | 48,658 |
|
Santal Phase I loanb | — |
| | — |
| | 32,790 |
| | — |
| | — |
| | — |
| | 32,790 |
| — |
| | 32,790 |
| | — |
| | — |
| | — |
| | — |
| | 32,790 |
|
Santal Phase II loan | — |
| | — |
| | 16,669 |
| | — |
| | — |
| | — |
| | 16,669 |
| |
Santal Phase II loanb | | — |
| | 25,152 |
| | — |
| | — |
| | — |
| | — |
| | 25,152 |
|
Lantana Place construction loan | — |
| | — |
| | — |
| | — |
| | — |
| | 16,374 |
| | 16,374 |
| — |
| | 26 |
| | 308 |
| | 324 |
| | 21,932 |
| | — |
| | 22,590 |
|
Jones Crossing construction loan | — |
| | — |
| | — |
| | — |
| | — |
| | 11,518 |
| | 11,518 |
| — |
| | — |
| | 177 |
| | 254 |
| | 19,456 |
| | — |
| | 19,887 |
|
Kingwood Place loan | — |
| | 6,750 |
| | — |
| | — |
| | — |
| | — |
| | 6,750 |
| |
The Saint Mary construction loan | | — |
| | — |
| | 16,319 |
| | — |
| | — |
| | — |
| | 16,319 |
|
Kingwood Place construction loanb | | — |
| | — |
| | — |
| | 14,142 |
| | — |
| | — |
| | 14,142 |
|
West Killeen Market construction loan | — |
| | — |
| | — |
| | — |
| | 6,560 |
| | — |
| | 6,560 |
| — |
| | 81 |
| | 102 |
| | 7,022 |
| | — |
| | — |
| | 7,205 |
|
Amarra Villas credit facility | — |
| | 5,308 |
| | — |
| | — |
| | — |
| | — |
| | 5,308 |
| — |
| | — |
| | — |
| | 5,597 |
| | — |
| | — |
| | 5,597 |
|
New Caney land loanc | | — |
| | — |
| | 5,000 |
| | — |
| | — |
| | — |
| | 5,000 |
|
Barton Creek Village term loan | 28 |
| | 104 |
| | 109 |
| | 114 |
| | 119 |
| | 2,877 |
| | 3,351 |
| 44 |
| | 91 |
| | 97 |
| | 103 |
| | 110 |
| | 2,829 |
| | 3,274 |
|
Total | $ | 566 |
| | $ | 14,370 |
| | $ | 103,970 |
| | $ | 2,584 |
| | $ | 9,292 |
| | $ | 165,404 |
| | $ | 296,186 |
| $ | 1,152 |
| | $ | 109,111 |
| | $ | 24,473 |
| | $ | 30,055 |
| | $ | 44,263 |
| | $ | 134,700 |
| | $ | 343,754 |
|
| |
a. | See Note 6 for further information regarding our 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. |
| |
c. | We have the option to extend the maturity date for one additional twelve-month period, subject to certain conditions. |
CONTRACTUAL OBLIGATIONS
There have been no material changes in our contractual obligations since December 31, 2017.2018. Refer to Part II, Items 7. and 7A. in our 20172018 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, 2017.2018. See Note 98 in our 20172018 Form 10-K for further information.
CAUTIONARY STATEMENT
MD&A contains forward-looking statements in which we discuss factors we believe may affect our future performance. Forward-looking statements are all statements other than statements of historical facts,fact, such as statements regarding the implementation, projections or expectations related to the futureplanning, financing, development, construction, completion and completionstabilization of our development projects, and potential results of our active development plan, projectionsplans to sell or expectations related to operational and financial performance or liquidity, reimbursements for infrastructure costs, financing and regulatory matters, development plans and sales ofrefinance properties including,(including, but not limited to, Amarra Drive lots, andAmarra Villas townhomes, exploring opportunities to sell West Killeen Market, and the retail complex inbuilding at Barton Creek Village, evaluating refinancing ofThe Saint Mary, Santal Phase I and II,Block 21), operational and financial performance, expectations regarding future cash flows, MUD reimbursements for infrastructure costs, regulatory matters, leasing activities, estimated costs and timeframes for development, capital expenditures, financing plans, possible joint venture, partnership, strategic relationships or other relationships 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, anddevelopment projects, future dividend payments.payments and share repurchases. The words “anticipate,” “may,” “can,” “plan,” “believe,” “potential,” “estimate,” “expect,” “project,” "target," “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 agreementagreements with Comerica Bank, we are not permitted to pay dividends on common stock without Comerica’sComerica Bank’s prior written consent. The declaration of dividends is at the discretion of our Board, of Directors (Board), subject to restrictions under our loan agreementagreements 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 and terms of financing for development projects and other corporate purposes, our ability to enter into and maintain joint venture, partnership, strategic relationships or other arrangements, our ability to effect our business strategy, including our ability to sell properties at prices our Board considers acceptable, market conditions or corporate developments that could preclude, impair or delay any opportunities with respect to plans to sell or refinance properties (including, but not limited to, Amarra Drive lots, Amarra Villas townhomes, West Killeen Market, the retail building at Barton Creek Village, the Saint Mary, Santal and Block 21), our ability to obtain various entitlements and permits, a decrease in the demand for real estate in the Austin, Texas area and other select markets in Texas markets where we operate, changes in economic, market 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, challenges associated with booking events and selling tickets and event cancellations at our entertainment venues, the termination of sales contracts or letters of intent due to,because of, 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 itsour developments or such customers’customers' or tenants' failure to satisfy their purchase commitments or leasing obligations, increases in interest rates and the phase out of the London Interbank Offered Rate, declines in the market value of our assets, increases in operating costs, including real estate taxes and the cost of constructionbuilding materials and labor, changes in external perception of the W Austin Hotel, unanticipated issues experienced by the third-party operator of the W Austin Hotel, changes in consumer preferences, industry risks, changes in laws, regulations or the regulatory environment affecting the development of real estate, opposition from special interest groups or local governments with respect to development projects, weather-related risks, loss of key personnel, cybersecurity incidents and other factors described in more detail under the heading “Risk Factors” in Part I, Item 1A. of our 20172018 Form 10-K. In addition, forward-looking statements and estimates regarding the effects
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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
We derive our revenue from the acquisition, entitlement, development, management, operation and sale of our commercial, hotel, entertainment and multi-family and single-family residential real estate properties. Our results of operations can vary significantly with fluctuations in the market prices of real estate, which are influenced by numerous factors, including interest rate levels. Changes in interest rates also affect interest expense on our debt.Not applicable.
At September 30, 2018, $148.1 million of the $296.2 million principal amount of debt outstanding bears interest at variable rates. An increase of 100 basis points in annual interest rates for this variable-rate debt would increase our annual interest costs by $1.5 million.
There have been no material changes in our market risks since December 31, 2017. For additional information on our market risks, refer to “Disclosures About Market Risks” included in Part II, Items 7. and 7A. of our 2017 Form 10-K.
Item 4. Controls and Procedures.
(a) Evaluation of disclosure controls and procedures. Our Chief Executive Officer and Chief Financial Officer, with the participation of management, have evaluated the effectiveness of our “disclosure controls and procedures” (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this quarterly report on Form 10-Q. Based on this evaluation, they have concluded that our disclosure controls and procedures were effective as of SeptemberJune 30, 2018.2019.
(b) Changes in internal control over financial reporting. There was no change in our internal control over financial reporting that occurred during the quarter ended SeptemberJune 30, 20182019, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
There were no unregistered sales of equity securities during the three months ended SeptemberJune 30, 2018.2019.
In November 2013, our Board of Directors approved an increase in our open-market share purchase program from 0.7 million shares to 1.7 million shares of our common stock. There were no purchases under this program in thirdsecond quarter
2018.2019. As of SeptemberJune 30, 2018,2019, a total of 991,695 shares of our common stock remain available for repurchase under this program. The program does not have an expiration date.
Our Comerica Bank credit facility requiresand Amarra Villas credit facility require lender approval of any common stock repurchases.repurchases in excess of $1.0 million in the aggregate.
For a discussion of limitationsrestrictions on our ability to pay dividends, see "Management's Discussion and Analysis of Financial Condition and Results of Operations - Capital Resources and Liquidity" in Part I, Item 2. of this quarterly report on Form 10-Q.
Item 6. Exhibits.
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| | | | | | Incorporated by Reference |
Exhibit Number | | Exhibit Title | | Filed with this Form 10-Q | | Form | | File No. | | Date Filed |
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| | Agreement of Sale and Purchase, dated February 15, 2017, between Stratus Lakeway Center, LLC and FHF I Oaks at Lakeway, LLC. | | | | 8-K | | 001-37716 | | 2/21/2017 |
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| | Composite Certificate of Incorporation of Stratus Properties Inc. | | | | 8-A/A | | 000-19989 | | 8/26/2010 |
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| | Second Amended and Restated By-Laws of Stratus Properties Inc., as amended effective August 3, 2017. | | | | 10-Q | | 001-37716 | | 8/9/2017 |
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| | | | | | Incorporated by Reference |
Exhibit Number | | Exhibit Title | | Filed with this Form 10-Q | | Form | | File No. | | Date Filed |
| | | | | | | | | | |
| | Investor Rights Agreement by and between Stratus Properties Inc. and Moffett Holdings, LLC dated as of March 15, 2012. | | | | 8-K | | 000-19989 | | 3/20/2012 |
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| | Assignment and Assumption Agreement by and among Moffett Holdings, LLC, LCHM Holdings, LLC and Stratus Properties Inc., dated as of March 3, 2014. | | | | 13D | | 000-19989 | | 3/5/2014 |
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| | Amended and Restated Limited Partnership AgreementForm of Stratus Kingwood Place, L.P. entered into by and among Stratus Northpark, L.L.C.,Notice of Grant of Restricted Stock Units under the Stratus Properties Operating Co., L.P., and several Class B Limited Partners.Inc. 2017 Stock Incentive Plan (adopted May 2019). | | | | 10-Q | | 001-37716000-19989 | | 8/9/20185/10/2019 |
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| | Stratus Properties Inc. Profit Participation Incentive PlanThird Modification Agreement by and Form of Award Notice.
between Santal I, L.L.C., as borrower, and Comerica Bank, as lender, dated April 23, 2019 | | X | | | | 10-Q | | 001-37716 | | 8/9/2018 |
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| | Certification of Principal Executive Officer pursuant to Rule 13a-14(a)/15d-14(a). | | X | | | | | | |
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| | Certification of Principal Financial Officer pursuant to Rule 13a-14(a)/15d-14(a). | | X | | | | | | |
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| | Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350. | | X | | | | | | |
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| | Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350. | | X | | | | | | |
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101.INS | | XBRL Instance Document.Document - the XBRL Instance Document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | | X | | | | | | |
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101.SCH | | Inline XBRL Taxonomy Extension Schema. | | X | | | | | | |
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101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase. | | X | | | | | | |
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101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase.
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101.LAB | | Inline XBRL Taxonomy Extension Label Linkbase.
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101.PRE
| | Inline XBRL Taxonomy Extension Presentation Linkbase.
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_______________________
* Indicates management contract or compensatory plan or arrangement.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
STRATUS PROPERTIES INC.
By: /s/ Erin D. Pickens
----------------------------------------
Erin D. Pickens
Senior Vice President and
Chief Financial Officer
(authorized signatory and
Principal Financial Officer)
Date: NovemberAugust 9, 20182019