Stratus Properties Inc. (NASDAQ: STRS), a diversified real
estate company with holdings, interests and operations in the
Austin, Texas area and other select markets in Texas, today
reported year ended December 31, 2022 results.
Highlights and Recent
Developments:
- Record net income attributable to common stockholders
totaled $90.4 million, or $10.99 per diluted share, in the year
ended December 31, 2022, compared to net income attributable to
common stockholders of $57.4 million, or $6.90 per diluted share,
in the year ended December 31, 2021.
- Stratus’ total stockholders’ equity increased to $207.2
million at December 31, 2022, from $158.1 million at December 31,
2021, and $98.9 million at December 31, 2020, primarily as a result
of gains realized on Stratus’ sales of Block 21 in 2022, and The
Santal and The Saint Mary in 2021.
- In first-quarter 2023, Stratus obtained third-party equity and
debt financing for and commenced construction on Holden
Hills, designed to feature 475 unique residences within the
Barton Creek community in Austin, Texas. The Holden Hills limited
partnership distributed and paid $35.8 million in cash to
Stratus.
- On September 1, 2022, Stratus’ Board of Directors (Board)
declared a special cash dividend of $4.67 per share (totaling
$40.0 million) on Stratus’ common stock, which was paid on
September 29, 2022 to shareholders of record as of September 19,
2022.
- Stratus’ Board also approved a new share repurchase program,
which authorizes repurchases of up to $10.0 million of Stratus’
common stock. The repurchase program authorizes Stratus, in
management’s discretion, to repurchase shares from time to time,
subject to market conditions and other factors. Through March 27,
2023, Stratus has acquired 335,703 shares of its common stock for a
total cost of $8.7 million at an average price of $25.93 per
share.
- On May 31, 2022, Stratus completed the previously announced
sale of Block 21, a mixed-use development in downtown
Austin, Texas, that contains the W Austin Hotel and office, retail
and entertainment space, to Ryman Hospitality Properties, Inc. for
$260.0 million, subject to certain adjustments. Stratus’ net
proceeds of cash and restricted cash totaled $112.3 million. As a
result of the sale, Stratus recorded a pre-tax gain on the sale of
$119.7 million in second-quarter 2022 included in net income (loss)
from discontinued operations.
- As a result of its strategic planning process completed
in August 2022, in addition to returning cash to shareholders, and
after streamlining Stratus’ business through the sale of Block 21,
the Board decided to continue Stratus’ successful development
program, with Stratus’ proven team focusing on pure residential and
residential-centric mixed-use projects in Austin and other select
markets in Texas.
- Earnings Before Interest, Taxes, Depreciation and
Amortization (EBITDA) totaled $(3.1) million in 2022, compared
to $90.7 million in 2021. EBITDA does not reflect net income (loss)
from discontinued operations, which was $96.8 million in 2022 and
$(6.2) million in 2021, related to Block 21. For a reconciliation
of net (loss) income from continuing operations to EBITDA, see the
supplemental schedule, “Reconciliation of Non-GAAP Measure EBITDA,”
on page xi.
- During 2022, Stratus sold various parcels of real estate,
completing the sale of substantially all of its non-core assets,
and two Amarra Villa homes, for a total of $24.6 million.
- Stratus continues construction on The Saint June, a
182-unit luxury garden-style multi-family project within the Amarra
development in Barton Creek, which is expected to be completed in
third-quarter 2023, and on the last ten Amarra Villas homes.
Stratus substantially completed construction on the first phase of
development of Magnolia Place, an H-E-B grocery
shadow-anchored, mixed-use project in Magnolia, Texas, and the two
retail buildings are fully leased.
- In third-quarter 2022, Stratus began construction on The
Saint George, a 316-unit luxury wrap-style, multi-family
project in north-central Austin. Stratus also entered into a $56.8
million construction loan to provide financing for the construction
of the project.
- Stratus’ three stabilized mixed-use projects anchored or
shadow-anchored by H-E-B grocery stores, Kingwood Place, Jones
Crossing, and West Killeen Market, and its fourth
stabilized mixed-use project Lantana Place, continue to
perform well.
- During 2022, Stratus added a corporate responsibility section
to its website, available at
stratusproperties.com/esg/corporate_responsibility/, to share more
information about its corporate responsibility and
sustainability achievements as Stratus continues to
strive to be a leader in sustainable real estate development.
William H. Armstrong III, Chairman of the Board and Chief
Executive Officer of Stratus, stated, “Our record financial
performance in 2022 is a result of our team’s experience,
relationships and dedication to capturing value for our
shareholders. We achieved several milestones last year, including
the sale of Block 21 for $260 million, the completion of our
Board’s strategic planning process, the payment of a $40 million
special cash dividend and the approval of a new $10 million share
repurchase program. Our total stockholders’ equity increased to
$207.2 million at year-end 2022, more than double our total
stockholders’ equity at year-end 2020. We are hard at work on the
development of other projects in our pipeline to continue to
deliver value to our shareholders, including our most recent
project to break ground – Holden Hills – the capstone project for
our more than 30 years of residential development in Barton
Creek.
“I am incredibly proud of the Stratus team’s ability to
navigate challenging economic conditions over the past few years,
including the pandemic and rapid growth in the Austin economy, as
well as more recent headwinds from rising inflation and interest
rates. With our long history of successfully operating through a
range of economic environments, I am confident that we will
continue to create, operate and sell desirable residential and
residential-centric mixed use properties in our Texas
markets.”
Summary Financial
Results
Year Ended December 31,
2022
2021
Revenues
Real estate operations
$
24,750
$
8,466
Leasing operations
12,754
19,787
Eliminations and other
(6
)
(17
)
Total consolidated revenue
$
37,498
$
28,236
Operating (loss)
income
Real estate operations
$
164
$
(3,272
)
Leasing operations a
9,621
111,369
Corporate, eliminations and other b
(17,548
)
(24,437
)
Total consolidated operating (loss)
income
$
(7,763
)
$
83,660
Net (loss) income from continuing
operations
$
(7,077
)
$
69,457
Net income (loss) from discontinued
operations c
$
96,820
$
(6,208
)
Net income
$
89,743
$
63,249
Net loss (income) attributable to
noncontrolling interests in subsidiaries d
$
683
$
(5,855
)
Net income attributable to common
stockholders
$
90,426
$
57,394
Basic net (loss) income per share:
Continuing operations
$
(0.78
)
$
7.72
Discontinued operations
11.77
(0.75
)
$
10.99
$
6.97
Diluted net (loss) income per share:
Continuing operations
$
(0.78
)
$
7.65
Discontinued operations
11.77
(0.75
)
$
10.99
$
6.90
EBITDA
$
(3,087
)
$
90,676
Capital expenditures and purchases and
development of real estate properties
$
79,267
$
72,334
Weighted-average shares of common stock
outstanding:
Basic
8,228
8,236
Diluted
8,228
8,313
a.
The year 2022 includes a $4.8 million
pre-tax gain recognized on the reversal of accruals for costs to
lease and construct buildings under a master lease arrangement that
Stratus entered into in connection with the sale of The Oaks at
Lakeway in 2017. The year 2021 includes $106.0 million of pre-tax
gains on the January 2021 sale of The Saint Mary and the December
2021 sale of The Santal.
b.
Includes consolidated general and
administrative expenses and eliminations of intersegment amounts.
The decrease in 2022 from 2021 is primarily the result of $4.0
million incurred for 2021 for consulting, legal and public relation
costs for Stratus’ successful proxy contest and the real estate
investment trust (REIT) exploration process in addition to $9.8
million incurred in 2021 for employee incentive compensation costs
associated with Stratus’ Profit Participation Incentive Plan (PPIP)
resulting primarily from an increased valuation for The Santal.
c.
The year 2022 includes a $119.7 million
pre-tax gain on the May 2022 sale of Block 21.
d.
Represents noncontrolling interest
partners' share in the results of the consolidated projects in
which they participate. The year 2021 includes a $6.7 million gain
from the sale of The Saint Mary attributable to noncontrolling
interest owners.
Continuing Operations
The increase in revenue and operating income from the Real
Estate Operations segment in 2022, compared to 2021, reflects
2022 undeveloped property sales totaling $18.6 million, primarily
consisting of (i) a 10 acre multi-family tract of land in Kingwood
Place for $5.5 million, (ii) 28 acres of residential land at
Magnolia Place for $3.2 million, (iii) a six-acre multi-family
tract of land in Amarra Drive for $2.5 million, and (iv) a retail
pad site at Magnolia Place for $2.3 million. In 2021, Stratus sold
a five-acre multi-family tract of land in Amarra Drive for $2.5
million and a retail pad site at West Killeen Market for $0.8
million. During 2022, Stratus’ developed property sales consisted
of the sale of two Amarra Villas homes for $6.0 million. In 2021,
Stratus’ developed property sales consisted of three developed
Amarra Drive Phase III lots for $2.2 million and the last
condominium unit at the W Austin Hotel & Residences for $2.4
million. We recorded impairment charges totaling $720 thousand in
2022 and $1.8 million in 2021.
The decrease in revenue and operating income from the Leasing
Operations segment in 2022, compared to 2021, primarily
reflects the sale of The Santal in December 2021, partly offset by
increased revenue at Lantana Place and Kingwood Place. The Santal
had rental revenue of $8.7 million in 2021 prior to the sale.
Debt and Liquidity
At December 31, 2022, consolidated debt totaled $122.8 million
and consolidated cash and cash equivalents totaled $37.7 million,
compared with consolidated debt of $106.6 million and consolidated
cash and cash equivalents of $24.2 million at December 31, 2021.
Consolidated debt at December 31, 2021 excluded the Block 21 loan
of approximately $137 million, which was presented in liabilities
held for sale - discontinued operations. In February 2023, a
Stratus subsidiary entered into a three-year $26.1 million
construction loan with Comerica Bank, guaranteed by Stratus, to
finance the development of Phase I of Holden Hills.
Using proceeds from the sale of Block 21, Stratus repaid the
outstanding amount under its Comerica Bank revolving credit
facility in June 2022. As of December 31, 2022, Stratus had $49.0
million available under the revolving credit facility. Letters of
credit, totaling $11.0 million, have been issued under the
revolving credit facility, and secure Stratus’ obligation to build
certain roads and utilities facilities benefiting Holden Hills and
Section N. In March 2023, we entered into an amendment to the
revolving credit facility, which extended the maturity date to
March 27, 2025 and increased the floor of the Bloomberg Short-Term
Bank Yield Index (BSBY) Rate to 0.5 percent resulting in a current
interest rate of one-month BSBY Rate (with a floor of 0.5 percent)
plus 4.0 percent.
Purchases and development of real estate properties (included in
operating cash flows) and capital expenditures (included in
investing cash flows) totaled $79.3 million for 2022, primarily
related to the development of Barton Creek properties, including
The Saint June and Amarra Villas, The Saint George and The Annie B,
compared with $72.3 million for 2021, primarily related to the
purchases of the land for The Saint George and The Annie B, the
development of The Saint June and other Barton Creek properties,
including Amarra Villas, and the Magnolia Place and Lantana Place
projects.
Net Asset Value
Stratus’ total stockholders’ equity was $207.2 million at
December 31, 2022, compared with $158.1 million at December 31,
2021. Stratus' after-tax Net Asset Value (NAV) was $355.3 million,
or $42.94 per share, as of December 31, 2022, compared with $408.9
million, or $48.80 per share, as of December 31, 2021. The decrease
in the after-tax NAV was primarily driven by the $40 million
special cash dividend. See “Cautionary Statement,” and the
supplemental schedule, “After-Tax Net Asset Value” beginning on
page xi. Additional after-tax NAV information is available on
Stratus’ website at stratusproperties.com/investors/.
----------------------------------------------
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS AND
REGULATION G DISCLOSURE
This press release contains forward-looking statements in which
Stratus discusses factors it believes may affect its future
performance. Forward-looking statements are all statements other
than statements of historical fact, such as plans, projections or
expectations related to the impact of inflation and interest rate
changes, supply chain constraints and tightening bank credit,
Stratus’ ability to meet its future debt service and other cash
obligations, future cash flows and liquidity, Stratus’ expectations
about the Austin and Texas real estate markets, the planning,
financing, development, construction, completion and stabilization
of Stratus’ development projects, plans to sell, recapitalize, or
refinance properties, future operational and financial performance,
municipal utility district (MUD) reimbursements for infrastructure
costs, regulatory matters, leasing activities, tax rates, future
capital expenditures and financing plans, possible joint ventures,
partnerships, or other strategic relationships, other plans and
objectives of management for future operations and development
projects, the impacts of the ongoing COVID-19 pandemic and any
future major public health crises, and future cash returns to
shareholders, including the timing and amount of repurchases under
Stratus’ share repurchase program. 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 are intended to
identify those assertions as forward-looking statements.
Under Stratus’ Comerica Bank debt agreements, Stratus is not
permitted to repurchase its common stock in excess of $1.0 million
or pay dividends on its common stock without Comerica Bank’s prior
written consent, which was obtained in connection with the special
cash dividend and share repurchase program. Any future declaration
of dividends or decision to repurchase Stratus’ common stock is at
the discretion of Stratus’ Board, subject to restrictions under
Stratus’ Comerica Bank debt agreements, and will depend on Stratus’
financial results, cash requirements, projected compliance with
covenants in its debt agreements, outlook and other factors deemed
relevant by the Board. Stratus’ future debt agreements, future
refinancings of or amendments to existing debt agreements or other
future agreements may restrict Stratus’ ability to declare
dividends or repurchase shares.
Stratus cautions readers that forward-looking statements are not
guarantees of future performance, and its actual results may differ
materially from those anticipated, expected, projected or assumed
in the forward-looking statements. Important factors that can cause
Stratus’ actual results to differ materially from those anticipated
in the forward-looking statements include, but are not limited to,
Stratus’ ability to implement its business strategy successfully,
including its ability to develop, construct and sell or lease
properties on terms its Board considers acceptable, increases in
operating and construction costs, including real estate taxes and
the cost of building materials and labor, increases in inflation
and interest rates, supply chain constraints, tightening bank
credit, defaults by contractors and subcontractors, declines in the
market value of Stratus’ assets, market conditions or corporate
developments that could preclude, impair or delay any opportunities
with respect to plans to sell, recapitalize or refinance
properties, a decrease in the demand for real estate in select
markets in Texas where Stratus operates, particularly in Austin,
changes in economic, market, tax and business conditions, including
as a result of the war in Ukraine, or potential U.S. or local
economic downturn or recession, the availability and terms of
financing for development projects and other corporate purposes,
the failure of any bank in which Stratus deposits funds, the
ongoing COVID-19 pandemic and any future major public health
crisis, Stratus’ ability to collect anticipated rental payments and
close projected asset sales, loss of key personnel, Stratus’
ability to enter into and maintain joint ventures, partnerships, or
other strategic relationships, including risks associated with such
joint ventures, Stratus’ ability to pay or refinance its debt,
extend maturity dates of its loans or comply with or obtain waivers
of financial and other covenants in debt agreements and to meet
other cash obligations, eligibility for and potential receipt and
timing of receipt of MUD reimbursements, industry risks, changes in
buyer preferences, potential additional impairment charges,
competition from other real estate developers, Stratus’ ability to
obtain various entitlements and permits, 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- and
climate-related risks, environmental and litigation risks, the
failure to attract buyers or tenants for Stratus’ developments or
such buyers’ or tenants’ failure to satisfy their purchase
commitments or leasing obligations, cybersecurity incidents and
other factors described in more detail under the heading “Risk
Factors” in Stratus’ Annual Report on Form 10-K for the year ended
December 31, 2022, filed with the U.S. Securities and Exchange
Commission (SEC).
Investors are cautioned that many of the assumptions upon which
Stratus’ forward-looking statements are based are likely to change
after the date the forward-looking statements are made. Further,
Stratus may make changes to its business plans that could affect
its results. Stratus cautions investors that it undertakes no
obligation to update any forward-looking statements, which speak
only as of the date made, notwithstanding any changes in its
assumptions, business plans, actual experience, or other
changes.
This press release also includes EBITDA and NAV, and financial
measures calculated by reference to NAV, including after-tax NAV
and after-tax NAV per share, which are not recognized under U.S.
generally accepted accounting principles (GAAP). Stratus believes
these measures can be helpful to investors in evaluating its
business. EBITDA is a financial measure frequently used by
securities analysts, lenders and others to evaluate Stratus'
recurring operating performance. After-tax NAV illustrates current
embedded value in Stratus' real estate, which is carried on its
GAAP balance sheet primarily at cost. Management uses after-tax NAV
as one of the metrics in evaluating progress on Stratus' active
development plan. EBITDA and after-tax NAV are intended to be
performance measures that should not be regarded as more meaningful
than GAAP measures. Other companies may calculate EBITDA and
after-tax NAV differently. As required by SEC Regulation G, a
reconciliation of Stratus' net income (loss) from continuing
operations to EBITDA and of Stratus’ total stockholders’ equity to
after-tax NAV in its consolidated balance sheet are included in the
supplemental schedules of this press release.
A copy of this release is available on Stratus’
website, stratusproperties.com.
STRATUS PROPERTIES
INC.
CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME
(In Thousands, Except Per Share
Amounts)
Year Ended December 31,
2022
2021
Revenues:
Real estate operations
$
24,744
$
8,449
Leasing operations
12,754
19,787
Total revenues
37,498
28,236
Cost of sales:
Real estate operations
23,761
9,733
Leasing operations
4,439
9,030
Depreciation
3,586
5,449
Total cost of sales
31,786
24,212
General and administrative expenses a
17,567
24,509
Impairment of real estate
720
1,825
Gain on sale of assets b
(4,812
)
(105,970
)
Total
45,261
(55,424
)
Operating (loss) income
(7,763
)
83,660
Interest expense, net
(15
)
(3,193
)
Net gain on extinguishment of debt
—
1,529
Other income, net
1,103
65
Net (loss) income before income taxes and
equity in unconsolidated affiliate’s loss
(6,675
)
82,061
Provision for income taxes
(389
)
(12,577
)
Equity in unconsolidated affiliate’s
loss
(13
)
(27
)
Net (loss) income from continuing
operations
(7,077
)
69,457
Net income (loss) from discontinued
operations c
96,820
(6,208
)
Net income and total comprehensive
income
89,743
63,249
Total comprehensive loss (income)
attributable to noncontrolling interests d
683
(5,855
)
Net income and total comprehensive income
attributable to common stockholders
$
90,426
$
57,394
Basic net (loss) income per share
attributable to common stockholders:
Continuing operations
$
(0.78
)
$
7.72
Discontinued operations
11.77
(0.75
)
$
10.99
$
6.97
Diluted net (loss) income per share
attributable to common stockholders:
Continuing operations
$
(0.78
)
$
7.65
Discontinued operations
11.77
(0.75
)
$
10.99
$
6.90
Weighted-average shares of common stock
outstanding:
Basic
8,228
8,236
Diluted
8,228
8,313
Dividends declared per share of common
stock
$
4.67
$
—
a.
The decrease in 2022 from 2021 is
primarily the result of $4.0 million incurred for 2021 for
consulting, legal and public relation costs for our successful
proxy contest and the REIT exploration process in addition to $9.8
million incurred in 2021 for employee incentive compensation costs
associated with the PPIP resulting primarily from an increased
valuation for The Santal.
b.
The year 2022 includes a $4.8 million
pre-tax gain recognized on the reversal of accruals for costs to
lease and construct buildings under a master lease arrangement that
Stratus entered into in connection with its sale of The Oaks at
Lakeway in 2017. The year 2021 includes the pre-tax gains on the
December 2021 sale of The Santal of $83.0 million and the January
2021 sale of The Saint Mary of $22.9 million.
c.
The year 2022 includes a $119.7 million
pre-tax gain on the May 2022 sale of Block 21.
d.
Represents noncontrolling interest
partners' share in the results of the consolidated projects in
which they participate. The year 2021 includes a $6.7 million gain
from the sale of The Saint Mary attributable to noncontrolling
interest owners.
STRATUS PROPERTIES
INC.
CONSOLIDATED BALANCE
SHEETS
(In Thousands)
December 31, 2022
December 31, 2021
ASSETS
Cash and cash equivalents a
$
37,666
$
24,229
Restricted cash
8,043
18,294
Real estate held for sale
1,773
1,773
Real estate under development
239,278
181,224
Land available for development
39,855
40,659
Real estate held for investment, net
92,377
90,284
Lease right-of-use assets
10,631
10,487
Deferred tax assets
38
6,009
Other assets
15,479
17,214
Assets held for sale - discontinued
operations
—
151,053
Total assets
$
445,140
$
541,226
LIABILITIES AND EQUITY
Liabilities:
Accounts payable
$
15,244
$
14,118
Accrued liabilities, including taxes
7,049
22,069
Debt
122,765
106,648
Lease liabilities
14,848
13,986
Deferred gain
3,519
4,801
Other liabilities b
9,642
17,894
Liabilities held for sale - discontinued
operations
—
153,097
Total liabilities
173,067
332,613
Commitments and contingencies
Equity:
Stockholders' equity:
Common stock
94
94
Capital in excess of par value of common
stock
195,773
188,759
Retained earnings (accumulated
deficit)
41,452
(8,963
)
Common stock held in treasury
(30,071
)
(21,753
)
Total stockholders' equity
207,248
158,137
Noncontrolling interests in
subsidiaries
64,825
50,476
Total equity
272,073
208,613
Total liabilities and equity
$
445,140
$
541,226
a.
The increase from prior year end primarily
reflects the proceeds received from the May 2022 sale of Block
21.
b.
The decrease from prior year end primarily
reflects the reduction in liabilities associated with the PPIP as
certain PPIP awards have been paid out in cash or restricted stock
units to eligible participants.
STRATUS PROPERTIES
INC.
CONSOLIDATED STATEMENTS OF
CASH FLOWS
(In Thousands)
Year Ended December 31,
2022
2021
Cash flow from operating activities:
Net income
$
89,743
$
63,249
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation
3,586
9,964
Cost of real estate sold
15,596
4,056
Impairment of real estate
720
1,825
Gain on sale of discontinued
operations
(119,695
)
—
Gain on sale of assets
(4,812
)
(105,970
)
Net gain on extinguishment of debt
—
(1,529
)
Debt issuance cost amortization and
stock-based compensation
2,824
2,007
Equity in unconsolidated affiliate’s
loss
13
27
Deferred income taxes
5,971
(5,965
)
Purchases and development of real estate
properties
(24,454
)
(52,772
)
Write-off of capitalized hotel remodel
costs
—
287
Decrease (increase) in other assets
3,805
(2,212
)
(Decrease) increase in accounts payable,
accrued liabilities and other
(28,557
)
33,423
Net cash used in operating activities
(55,260
)
(53,610
)
Cash flow from investing activities:
Capital expenditures
(54,813
)
(19,562
)
Proceeds from sale of discontinued
operations
105,813
—
Proceeds from sale of assets
—
209,947
Payments on master lease obligations
(989
)
(1,501
)
Other, net
(8
)
56
Net cash provided by investing
activities
50,003
188,940
Cash flow from financing activities:
Borrowings from revolving credit
facility
30,000
39,700
Payments on revolving credit facility
(30,000
)
(83,004
)
Borrowings from project loans
33,163
42,661
Payments on project and term loans
(18,831
)
(130,723
)
Payment of dividends
(38,693
)
—
Stock-based awards net payments
(452
)
(132
)
Distributions to noncontrolling
interests
—
(12,529
)
Purchases of treasury stock
(7,866
)
—
Noncontrolling interests’
contributions
15,032
46,300
Financing costs
(1,522
)
(1,647
)
Net cash used in financing activities
(19,173
)
(99,374
)
Net (decrease) increase in cash, cash
equivalents and restricted cash
(24,430
)
35,956
Cash, cash equivalents and restricted cash
at beginning of year
70,139
34,183
Cash, cash equivalents and restricted cash
at end of period
$
45,709
$
70,139
STRATUS PROPERTIES INC. BUSINESS
SEGMENTS
As a result of the sale of Block 21, Stratus has two operating
segments: Real Estate Operations and Leasing Operations. Block 21,
which encompassed Stratus’ Hotel and Entertainment segments, along
with some leasing operations, is presented as discontinued
operations.
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
(including the Barton Creek Community, including Section N, Holden
Hills, Amarra multi-family and commercial land, Amarra Villas, The
Saint June and other vacant land; the Circle C community; the
Lantana community, including a portion of Lantana Place planned for
a multi-family phase now known as The Saint Julia; The Saint
George; and the land for The Annie B); in Lakeway, Texas, located
in the greater Austin area (Lakeway); in College Station, Texas
(land for future phases of retail and multi-family development and
retail pad sites at Jones Crossing); and in Magnolia, Texas (land
for a future phase of retail development and for future
multi-family use and retail pad sites at Magnolia Place), Kingwood,
Texas (a retail pad site) and New Caney, Texas (New Caney), located
in the greater Houston area.
The Leasing Operations segment is comprised of Stratus’ real
estate assets, both residential and commercial, that are leased or
available for lease and includes West Killeen Market, Kingwood
Place and the completed portions of Lantana Place, Jones Crossing
and Magnolia Place. The segment also included The Saint Mary until
its sale in January 2021 and The Santal until its sale in December
2021.
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.
Summarized financial information by segment for the year ended
December 31, 2022, based on Stratus’ internal financial reporting
system utilized by its chief operating decision maker, follows (in
thousands):
Real Estate
Operations a
Leasing Operations
Corporate, Eliminations and Other
b
Total
Revenues:
Unaffiliated customers
$
24,744
$
12,754
$
—
$
37,498
Intersegment
6
—
(6
)
—
Cost of sales, excluding depreciation
23,766
4,439
(5
)
28,200
Depreciation
100
3,506
(20
)
3,586
General and administrative expenses
—
—
17,567
17,567
Impairment of real estate
720
—
—
720
Gain on sale of assets c
—
(4,812
)
—
(4,812
)
Operating income (loss)
$
164
$
9,621
$
(17,548
)
$
(7,763
)
Capital expenditures and purchases and
development of real estate properties
$
24,454
$
54,600
$
213
$
79,267
Total assets at December 31, 2022
288,270
109,348
47,522
445,140
a.
Includes sales commissions and other
revenues together with related expenses.
b.
Includes consolidated general and
administrative expenses and eliminations of intersegment
amounts.
c.
Represents a pre-tax gain recognized on
the reversal of accruals for costs to lease and construct buildings
under a master lease arrangement that Stratus entered into in
connection with the sale of The Oaks at Lakeway in 2017.
Summarized financial information by segment for the year ended
December 31, 2021, based on Stratus’ internal financial reporting
system utilized by its chief operating decision maker, follows (in
thousands):
Real Estate
Operations a
Leasing Operations
Corporate, Eliminations and Other
b
Total
Revenues:
Unaffiliated customers
$
8,449
$
19,787
$
—
$
28,236
Intersegment
17
—
(17
)
—
Cost of sales, excluding depreciation
9,758
9,030
(25
)
18,763
Depreciation
155
5,358
(64
)
5,449
General and administrative expenses c
—
—
24,509
24,509
Impairment of real estate
1,825
—
—
1,825
Gain on sale of assets d
—
(105,970
)
—
(105,970
)
Operating (loss) income
$
(3,272
)
$
111,369
$
(24,437
)
$
83,660
Capital expenditures and purchases and
development of real estate properties
$
52,772
$
19,024
$
538
$
72,334
Total assets as of December 31, 2021
241,225
107,990
192,011
541,226
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 $4.0 million incurred for
consulting, legal and public relation costs for Stratus' successful
proxy contest and the real estate investment trust exploration
process as well as $9.8 million in employee incentive compensation
costs associated with the PPIP resulting primarily from an
increased valuation for The Santal.
d.
Represents the pre-tax gains on the
December 2021 sale of The Santal of $83.0 million, and the January
2021 sale of The Saint Mary of $22.9 million.
RECONCILIATION OF NON-GAAP MEASURES
EBITDA
EBITDA (earnings before interest, taxes, depreciation and
amortization) is a non-GAAP (generally accepted accounting
principles in the U.S.) financial measure that is frequently used
by securities analysts, investors, lenders and others to evaluate
companies’ recurring operating performance, including, among other
things, profitability before the effect of financing and similar
decisions. Because securities analysts, investors, lenders and
others use EBITDA, management believes that Stratus’ presentation
of EBITDA affords them greater transparency in assessing its
financial performance. This information differs from net (loss)
income from continuing operations determined in accordance with
GAAP and should not be considered in isolation or as a substitute
for measures of performance determined in accordance with GAAP.
EBITDA may not be comparable to similarly titled measures reported
by other companies, as different companies may calculate such
measures differently. Management strongly encourages investors to
review Stratus’ consolidated financial statements and publicly
filed reports in their entirety. A reconciliation of Stratus’ net
(loss) income from continuing operations to EBITDA follows (in
thousands):
Year Ended December 31,
2022
2021
Net (loss) income from continuing
operations a
$
(7,077
)
$
69,457
Depreciation
3,586
5,449
Interest expense, net
15
3,193
Provision for income taxes
389
12,577
EBITDA b
$
(3,087
)
$
90,676
a.
For 2022, includes a $4.8 million pre-tax
gain recognized on the reversal of accruals for costs to lease and
construct buildings under a master lease arrangement that Stratus
entered into in connection with its sale of The Oaks at Lakeway in
2017. For 2021, includes the pre-tax gains on the December 2021
sale of The Santal of $83.0 million and the January 2021 sale of
The Saint Mary of $22.9 million.
b.
EBITDA does not reflect net income (loss)
from discontinued operations, which was $96.8 million in 2022 and
$(6.2) million in 2021, related to Block 21. The impact of
accounting for the Block 21 sale as discontinued operations reduced
EBITDA by $125.9 million in 2022 and $4.8 million in 2021.
AFTER-TAX NET ASSET VALUE
After-tax NAV estimates the market value of Stratus' assets
(gross value) and subtracts the book value of Stratus' total
liabilities reported under GAAP (excluding deferred financing costs
presented in debt), value attributable to third party owners,
estimated H-E-B, LP (H-E-B) profits interests and Profit
Participation Incentive Plan awards, and estimated income taxes
computed on the difference between the estimated market values and
the tax basis of the assets. Stratus also presents the non-GAAP
measure after-tax NAV per share, which is after-tax NAV divided by
shares of its common stock outstanding as of December 31, 2022 and
2021, as applicable, plus all outstanding restricted stock units.
The computation of Stratus' after-tax NAV uses third-party
appraisals conducted by independent appraisal firms, which were
primarily retained by Stratus' lenders as required under its
financing arrangements. The appraisal firms represent in their
reports that they employ certified appraisers with local knowledge
and expertise who are Members of the Appraisal Institute (MAI)
certified by the Appraisal Institute and/or state certified as a
Certified General Real Estate Appraiser.
Each appraisal states that it is prepared in conformity with the
Uniform Standards of Professional Appraisal Practice and utilizes
at least one of the following three approaches to value:
- the cost approach, which establishes value by estimating the
current costs of reproducing the improvements (less loss in value
from depreciation) and adding land value to it;
- the income capitalization approach, which establishes value
based on the capitalization of the subject property’s net operating
income; and/or
- the sales comparison approach, which establishes value
indicated by recent sales of comparable properties in the market
place.
One or more of the approaches may be selected by the appraiser
depending on its applicability to the property being appraised. To
the extent more than one approach is used, the appraiser performs a
reconciliation of the indicated values to determine a final opinion
of value for the subject property. Significant professional
judgment is exercised by the appraiser in determining which inputs
are used, which approaches to select, and the weight given to each
selected approach in determining a final opinion as to the
appraised value of the subject property.
Stratus is a diversified real estate company and its portfolio
of real estate assets includes commercial properties, as well as
multi-family and single-family residential real estate properties.
Stratus’ discontinued operations also include hotel and
entertainment properties. Consequently, each appraisal is unique
and certain factors reviewed and evaluated in each appraisal may be
particular to the nature of the property being appraised. However,
in performing their analyses, the appraisers generally (i)
performed site visits to the properties, (ii) performed independent
inspections and/or surveys of the market area and neighborhood,
(iii) performed a highest and best use analysis, (iv) reviewed
property-level information, including, but not limited to,
ownership history, location, availability of utilities, topography,
land improvements and zoning, and (v) reviewed information from a
variety of sources about regional market data and trends applicable
to the property being appraised. Depending on the valuation
approach utilized, the appraisers may have used one or more of the
following: the recent sales prices of comparable properties; market
rents for comparable properties; operating and/or holding costs of
comparable properties; and market capitalization and discount
rates. The value for Block 21 as of December 31, 2021 was based on
the price in the sale contract rather than an appraised value.
The appraisals of the specified properties are as of the dates
so indicated, and the appraised value may be different if prepared
as of a current date. As noted above, the appraisers utilize
significant professional judgment in determining the appraisal
methodology best suited to a particular property and the weight
afforded to the various inputs considered, which could vary
depending on the appraiser’s evaluation of the property being
appraised. Moreover, the opinions expressed in the appraisals are
based on estimates and forecasts that are prospective in nature and
subject to certain risks and uncertainties. Events may occur that
could cause the performance of the properties to materially differ
from the estimates utilized by the appraiser, such as changes in
the economy, inflation, interest rates, capitalization rates, the
financial strength of certain tenants, and the behavior of
investors, lenders and consumers. Additionally, in some situations,
the opinions and forecasts utilized by the appraiser may be partly
based on information obtained from third party sources, which
information neither Stratus nor the appraiser verifies. Stratus
reviews the appraisals to confirm that the information provided by
Stratus to the appraiser is accurately reflected in the appraisal,
but Stratus does not validate the methodologies, inputs and
professional judgment utilized by the certified appraiser.
The appraised values may not represent fair value, as defined
under GAAP. After-tax NAV and after-tax NAV per share may not be
equivalent to the enterprise value of Stratus or an appropriate
trading price for its common stock for many reasons, including but
not limited to the following: (1) income taxes included may not
reflect the actual tax amounts that will be due upon the ultimate
disposition of the assets; (2) components were calculated as of the
dates specified and calculations as of different dates are likely
to produce different results; (3) opinions are likely to differ
regarding appropriate capitalization rates; and (4) a buyer may pay
more or less for Stratus or its real estate assets as a whole than
for the sum of the components used to calculate after-tax NAV.
Accordingly, after-tax NAV per share is not a representation or
guarantee that Stratus' common stock will or should trade at this
amount, that a stockholder would be able to realize this amount in
selling Stratus' shares, that a third party would offer the
after-tax NAV per share in an offer to purchase all or
substantially all of Stratus' common stock, or that a stockholder
would receive distributions per share equal to the after-tax NAV
per share upon Stratus’ liquidation. Investors should not rely on
the after-tax NAV per share as being an accurate measure of the
current fair market value of Stratus' common stock. Management
strongly encourages investors to review Stratus' consolidated
financial statements and publicly filed reports in their
entirety.
Below are reconciliations of Stratus' total stockholders’
equity, the most comparable GAAP measure, to after-tax NAV (in
millions).
December 31,
2022
2021
Total stockholders’ equity
$
207.2
$
158.1
Less: Total assets
(445.1
)
(541.2
)
Add: Noncontrolling interest in
subsidiaries
64.8
50.5
Total liabilities
(173.1
)
(332.6
)
Add: Gross value of assets
645.7
845.8
Lease liabilities
14.9
14.0
Less: Deferred financing costs presented
in liabilities
(1.1
)
(1.7
)
21% corporate tax on built-in gain
(37.2
)
(61.8
)
Value attributable to third party
ownership
(90.7
)
(51.4
)
Estimated H-E-B profits interests and
Profit Participation Incentive Plan awards
(3.2
)
(3.3
)
Rounding
—
(0.1
)
After-tax NAV
$
355.3
$
408.9
View source
version on businesswire.com: https://www.businesswire.com/news/home/20230331005097/en/
William H. Armstrong III (512) 478-5788
Stratus Properties (NASDAQ:STRS)
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