Stratus Properties Inc. Reports Year Ended December 31, 2021 Results

AUSTIN, Texas–(BUSINESS WIRE)–Stratus Properties Inc. (NASDAQ: STRS), a diversified real estate company with holdings, interests and operations focused in the Austin, Texas area and other select, fast growing markets in Texas, today reported year ended December 31, 2021 results.

Highlights and Recent Developments:

• Stratus continues to make progress on the pending 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. (Ryman) for $260.0 million. The transaction is expected to close sometime prior to June 1, 2022, subject to the timely satisfaction or waiver of various closing conditions.
• In December 2021, Stratus sold The Santal for $152.0 million. The Santal was Stratus’ wholly owned 448-unit luxury garden-style multi-family apartment project located in Section N of Austin’s Barton Creek community. After closing costs and repayment of the project loan, the sale generated net proceeds of approximately $74 million and Stratus recorded a pre-tax gain on the sale of $83.0 million in 2021.
• In January 2021, Stratus sold The Saint Mary for $60.0 million. The Saint Mary was Stratus’ 240-unit luxury garden-style multi-family apartment project located in Austin. After closing costs and repayment of the construction loan, the sale generated net proceeds of approximately $34 million, of which Stratus received $21.9 million. Stratus recognized a pre-tax gain on the sale of $22.9 million ($16.2 million net of noncontrolling interests) in 2021.
• Net income attributable to common stockholders totaled $57.4 million, $6.90 per diluted share, for 2021, compared to a net loss of $22.8 million, $2.78 per diluted share, for 2020. Net income in 2021, compared to the net loss in 2020, is primarily the result of the gains recognized on the sales of The Santal and The Saint Mary, which totaled $106.0 million combined.
• Earnings before interest, taxes, depreciation and amortization (EBITDA) totaled $90.7 million for 2021, compared to $1.1 million for 2020. For a reconciliation of net income (loss) from continuing operations to EBITDA, see the supplemental schedule, “EBITDA,” starting on page V.
• In December 2021, Stratus purchased the land for The Saint George, a proposed 317-unit luxury multi-family apartment project in Austin. The financing to purchase the land for The Saint George included third-party equity capital.
• Stratus continues construction on The Saint June, a 182-unit luxury garden-style multi-family apartment project within the Amarra development in Barton Creek, and Magnolia Place, an H-E-B grocery shadow-anchored, mixed-use project in Magnolia, Texas. Stratus also continues to advance development plans for The Annie B, a proposed luxury high-rise rental project with ground-level retail in downtown Austin, and Holden Hills, Stratus’ final large single-family residential development within Austin’s Barton Creek community.
• Stratus successfully achieved its Board of Director (Board) refreshment objectives, enhancing the skills, experience and diversity of the Board, by adding three new independent directors in the last 18 months: Laurie L. Dotter, Kate B. Henriksen and Neville L. Rhone, Jr.

William H. Armstrong III, Chairman of the Board and Chief Executive Officer of Stratus, stated, “We had our most productive year in Stratus’ history during 2021 and produced record net earnings. Our total stockholders’ equity increased 60 percent to $158.1 million at year-end 2021 from year-end 2020, and upon the completion of the pending sale of Block 21 we expect to record a pre-tax gain of approximately $120 million (approximately $95 million after-tax).

Our strategy, combined with favorable market conditions, allowed us to capture remarkable value for our properties, including the sales of The Santal and The Saint Mary for a combined sales price of $212 million and a combined pre-tax gain of $106 million. These sales represent the successful execution of our full cycle development strategy. During 2021, we raised $46.3 million of third-party equity capital for three new projects – The Saint June, The Annie B and The Saint George – which contributed to the 90 percent increase in total equity to $208.6 million at year-end 2021 from year-end 2020 and demonstrates our ability to source outside equity capital with an attractive promote structure for Stratus, as we did with The Saint Mary and Kingwood Place in 2018. We also began construction on The Saint June and Magnolia Place and advanced development plans for our Holden Hills residential community.

We have projects in all stages of our development cycle, from acquiring land, obtaining entitlements, finalizing development plans, raising capital and managing construction, to generating cash through sales, refinancing and leasing. Our ongoing projects and development pipeline position us to continue to capitalize on growth across Austin and other Texas markets. I am immensely proud of our team’s performance this year and excited about Stratus’ future and the opportunities we are pursuing to continue creating value for our shareholders.”

Summary Financial Results

1. Includes impairment charges of $700 thousand for two Amarra Villas homes under construction and under contract, $625 thousand for the multi-family tract of land at Kingwood Place and $500 thousand for an office building in Austin.
2. Includes 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.
3. Includes a $1.4 million charge for estimated uncollectible rents receivable and unrealizable deferred costs.
4. The increase in 2021, compared to 2020, is primarily the result of a $7.4 million increase in employee incentive compensation costs associated with Stratus’ Profit Participation Incentive Plan primarily for The Santal and Lantana Place projects, and a $2.7 million increase in consulting, legal and public relation costs for Stratus’ successful proxy contest.
5. Includes a net gain of $1.5 million on extinguishment of debt, including $3.7 million related to forgiveness of substantially all of Stratus’ Paycheck Protection Program loan.
6. As a result of the October 2021 agreements to sell Block 21 for $260.0 million, Stratus’ hotel and entertainment operations, as well as the leasing operations associated with Block 21, are reported as discontinued operations for all periods presented. Block 21 assets and liabilities are presented as held for sale in Stratus’ balance sheets and the net loss from Block 21 is included in net loss from discontinued operations in Stratus’ consolidated statements of comprehensive income (loss).
7. Includes a $4.2 million non-cash credit to provision for income taxes in 2021 to reduce the valuation allowance on Stratus’ deferred tax assets related to Block 21 because of the pending sale and a $10.3 million non-cash tax charge to provision for income taxes in 2020 to record a valuation allowance on Stratus’ deferred tax assets.
8. Includes the purchases of The Annie B land for $22.5 million and The Saint George land for $18.5 million.

Continuing Operations

The decrease in revenue and the operating loss from the Real Estate Operations segment in 2021, compared to 2020, primarily reflects a decrease in the number of lots sold during 2021 as available inventory decreased. The operating loss in 2021 also includes impairment charges of $700 thousand for two Amarra Villas homes under construction and under contract, $625 thousand for the multi-family tract of land at Kingwood Place, for which a sale is pending, and $500 thousand for an office building in Austin that Stratus is renovating and may occupy as its headquarters after the closing of the sale of Block 21. As of December 31, 2021, Stratus had only two unsold developed Amarra Drive Phase III lots. In addition, in 2021 Stratus sold its last condominium at the W Austin Residences at Block 21.

The decrease in revenue from the Leasing Operations segment in 2021, compared to 2020, primarily reflects the sale of The Saint Mary in January 2021, partly offset by increased revenue at Lantana Place. The Saint Mary had rental revenue of $0.1 million in 2021 prior to its sale as compared to $3.2 million in the full year 2020. Operating income from the Leasing Operations segment in 2021, compared to 2020, increased significantly primarily because of the gains recognized on the sales of The Santal and The Saint Mary, which totaled $106.0 million combined. Despite the COVID-19 pandemic, Stratus has retained substantially all of its pre-pandemic retail tenants, added new tenants, and all of its tenants are currently paying rent per their leases, as well as monthly payments pursuant to previously disclosed base rent deferral arrangements as applicable.

General and administrative expenses, included in corporate, eliminations and other, increased to $24.5 million in 2021, compared to $13.6 million in 2020, primarily reflecting a $7.4 million increase in employee incentive compensation costs associated with the Profit Participation Incentive Plan primarily for The Santal and Lantana Place projects, and a $2.7 million increase in consulting, legal and public relation costs for Stratus’ successful proxy contest.

Discontinued Operations

Stratus continues to make progress on the pending sale of Block 21 to Ryman for $260.0 million. The transaction is expected to close sometime prior to June 1, 2022, subject to the timely satisfaction or waiver of various closing conditions, including the consent of the loan servicers to the purchaser’s assumption of the existing mortgage loan, the consent of the hotel operator, an affiliate of Marriott, to the purchaser’s assumption of the hotel operating agreement, the absence of a material adverse effect, and other customary closing conditions. The purchase price includes the purchaser’s assumption of approximately $138 million of existing mortgage debt and is subject to downward adjustments up to $5.0 million. After closing costs and assumption of the outstanding Block 21 loan, the sale of Block 21 is expected to generate net pre-tax proceeds of approximately $115 million and after-tax proceeds of approximately $90 million before prorations and including $6.9 million to be escrowed for 12 months after closing. Stratus expects to record a pre-tax gain of approximately $120 million upon the closing of the sale (approximately $95 million after-tax).

Hotel revenues increased to $18.3 million in 2021, compared to $9.9 million in 2020, which is primarily a result of higher room reservations and food and beverage sales as the impacts of the COVID-19 pandemic continued to lessen throughout 2021. Revenue per available room (RevPAR), which is calculated by dividing total room revenue by the average total rooms available during the year, was $115 in 2021, compared with $61 in 2020.

Entertainment revenues increased to $12.9 million in 2021, compared to $5.2 million in 2020, which primarily reflects an increase in the number of events hosted at ACL Live and 3TEN ACL Live as the impacts of the COVID-19 pandemic continued to lessen throughout 2021. Seating capacity remained limited at Stratus’ entertainment venues until opening up to full capacity in August 2021.

Debt and Liquidity

At December 31, 2021, consolidated debt totaled $106.6 million and consolidated cash totaled $24.2 million, compared with consolidated debt of $137.7 million and consolidated cash of $9.3 million at December 31, 2020. Consolidated debt at both dates excluded the Block 21 loan of approximately $138 million, and at December 31, 2020, also excluded The Santal loan of approximately $75 million and The Saint Mary construction loan of approximately $25 million, as a result of these properties being classified as held for sale at those dates. After using a portion of the proceeds from the sale of The Santal to pay down the balance under Stratus’ $60.0 million Comerica Bank credit facility, as of December 31, 2021, Stratus had $59.7 million available under the credit facility, with letters of credit totaling $347 thousand committed against the credit facility.

In November 2021, a Stratus subsidiary formed a limited partnership to purchase the land for and develop, construct and lease The Saint George, a 317-unit luxury wrap-style multi-family apartment project in Austin. In December 2021, an unrelated equity investor contributed $18.3 million to The Saint George partnership for a 90.0 percent interest. Stratus has a 10.0 percent interest in the partnership following its contribution of pursuit costs and $0.5 million of cash. In December 2021, the partnership also purchased the land for The Saint George project for $18.5 million. Discussions with a lender are ongoing to provide a construction loan for development.

In addition to The Saint George equity financing, during 2021 Stratus engaged in a number of transactions to finance development of its projects. In June 2021, The Saint June, L.P. raised $16.3 million in third-party equity capital and entered into an approximately $30 million construction loan. Also in June 2021, the Jones Crossing loan was refinanced with a new $24.5 million loan. In August 2021, Stratus entered into a $14.8 million loan for the development of Magnolia Place. In September 2021, Stratus Block 150, L.P. raised $11.7 million in third-party equity capital and entered into a $14.0 million loan to finance part of the costs of land acquisition and budgeted pre-development costs for The Annie B.

Purchases and development of real estate properties (included in operating cash flows) and capital expenditures (included in investing cash flows) totaled $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. This compares with $20.0 million for 2020, primarily related to the development of Kingwood Place, Lantana Place and Barton Creek properties and the purchase of an office building in Austin.

The sale of The Santal generated net cash proceeds of approximately $74 million and allowed Stratus to pay down the balance of its Comerica Bank credit facility. If completed, the sale of Block 21 will result in Stratus receiving substantial additional cash proceeds of approximately $115 million pre-tax and $90 million after-tax, before prorations and including $6.9 million to be escrowed for 12 months after closing.

Stratus’ Board and management team are engaged in a strategic planning process, which includes consideration of the uses of proceeds from the sales and of Stratus’ long-term business strategy. Potential uses of proceeds may include a combination of further deleveraging, returning cash to shareholders and reinvesting in Stratus’ project pipeline. Stratus expects to provide additional information after the Block 21 transaction is concluded and the Board and management have had the opportunity to assess market conditions and the capital desired for use in Stratus’ development pipeline. In the meantime, after careful consideration, the Board has concluded that Stratus converting to a real estate investment trust is not the best path forward for Stratus and its shareholders. Among the factors the Board considered in reaching its conclusion are Stratus’ continued success in generating attractive returns by developing and selling its properties, Stratus’ large undeveloped land holdings which provide ongoing and future opportunities for development and sale, and the promising nature of other projects in Stratus’ development pipeline.

Stratus projects that it will be able to meet its debt service and other cash obligations for at least the next 12 months. Stratus’ $60.0 million revolving credit facility with Comerica Bank matures on September 27, 2022. Stratus is in discussions with the lender to remove Holden Hills from the collateral pool for the facility, finance the Holden Hills project under a separate loan agreement and enter into a revised revolving credit facility with a lower borrowing limit secured by the remaining collateral under the facility. If these discussions are not concluded timely, Stratus expects to be able to extend or refinance the facility prior to the maturity date. No assurances can be given that the results anticipated by Stratus’ projections will occur.

Net Asset Value

Stratus’ total stockholders’ equity was $158.1 million at December 31, 2021, compared with $98.9 million at December 31, 2020. Stratus’ after-tax Net Asset Value (NAV) increased to $408.9 million, or $48.80 per share, as of December 31, 2021, compared with $337.3 million, or $40.65 per share, as of December 31, 2020. The increase in the after-tax NAV was primarily driven by the increase in the gross value of Block 21, which, as of December 31, 2020, was determined using an appraisal obtained during the COVID-19 pandemic and as of December 31, 2021, was determined using the contract price with Ryman. For additional information regarding NAV, see “Cautionary Statement,” and the supplemental schedule, “After-Tax Net Asset Value” beginning on page VI. Additional after-tax NAV information is available on Stratus’ website.

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Conference Call Information

Stratus will conduct an investor conference call to discuss its year ended December 31, 2021, financial and operating results today, March 31, 2022, at 11:00 a.m. Eastern Time. The public is invited to listen to the conference call by dialing (877) 418-4843 for domestic access or +1 (412) 902-6766 for international access. A replay of the conference call will be available until April 14, 2022, by dialing (877) 344-7529 for domestic access or +1 (412) 317-0088 for international access. Please use replay ID: 2465645. The replay will also be available on Stratus’ website at stratusproperties.com until April 14, 2022.

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 whether and when the sale of Block 21 will be completed, Stratus’ estimated gains and net cash proceeds from the sale of Block 21 and potential uses of such proceeds, potential results of the Board and management’s strategic planning process, the impacts of the COVID-19 pandemic, 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 reimbursements for infrastructure costs, regulatory matters, leasing activities, tax rates, the impact of inflation and interest rate changes, 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, and future dividend payments and share repurchases. The words “anticipates,” “may,” “can,” “plans,” “believes,” “potential,” “estimates,” “expects,” “projects,” “targets,” “intends,” “likely,” “will,” “should,” “to be” and any similar expressions and/or statements are intended to identify those assertions as forward-looking statements.

Under Stratus’ Comerica Bank credit facility, 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. The declaration of dividends or decision to repurchase Stratus’ common stock is at the discretion of Stratus’ Board, subject to 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.

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, the occurrence of any event, change or other circumstance that could delay the closing of the sale of Block 21, or result in the termination of the agreements to sell Block 21, the results of Stratus’ Board and management’s strategic planning process, the ongoing COVID-19 pandemic and any future major public health crisis, increases in inflation and interest rates, declines in the market value of Stratus’ assets, increases in operating costs, including real estate taxes and the cost of building materials and labor, Stratus’ ability to pay or refinance its debt or comply with or obtain waivers of financial and other covenants in debt agreements and to meet other cash obligations, Stratus’ ability to collect anticipated rental payments and close projected asset sales, the availability and terms of financing for development projects and other corporate purposes, Stratus’ ability to enter into and maintain joint ventures, partnerships, or other strategic relationships, including risks associated with such joint ventures, 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, market conditions or corporate developments that could preclude, impair or delay any opportunities with respect to plans to sell, recapitalize or refinance properties, Stratus’ ability to obtain various entitlements and permits, a decrease in the demand for real estate in select markets in Texas where Stratus operates, changes in economic, market and business conditions, including as a result of the war in Ukraine, reductions in discretionary spending by consumers and businesses, competition from other real estate developers, the termination of sales contracts or letters of intent because of, among other factors, the failure of one or more closing conditions or market changes, the failure to attract customers or tenants for its developments or such customers’ or tenants’ failure to satisfy their purchase commitments or leasing obligations, 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- and climate-related risks, loss of key personnel, environmental and litigation risks, 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, 2021, filed with the U.

Contacts

Financial and Media Contact:
William H. Armstrong III

(512) 478-5788

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