Stratus Properties Inc. Reports Year Ended December 31, 2023 Results

AUSTIN, Texas–(BUSINESS WIRE)–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, 2023 results.

Highlights and Recent Developments:

• Net loss attributable to common stockholders totaled $(14.8) million, or $(1.85) per diluted share, in the year ended December 31, 2023, compared to net income attributable to common stockholders of $90.4 million, or $10.99 per diluted share, in the year ended December 31, 2022.
• Stratus’ total stockholders’ equity increased by $33.3 million over the past two fiscal years to $191.5 million at December 31, 2023, primarily a result of profitable property sales and reflects a special dividend of approximately $40.0 million in 2022 and share repurchases of $10.0 million in 2022 and 2023.
• In November 2023, Stratus’ Board of Directors (Board) approved a new share repurchase program, which authorizes repurchases of up to $5.0 million of Stratus’ common stock. In October 2023, Stratus completed the $10.0 million share repurchase program that Stratus’ Board approved in 2022. In total, under the completed share repurchase program Stratus acquired 389,378 shares of its common stock for a total cost of $10.0 million at an average price of $25.68 per share.
• Stratus had $31.4 million of cash and cash equivalents at December 31, 2023 and no amounts drawn on its revolving credit facility. Stratus’ cash position during 2023 was positively impacted by the receipt of $35.8 million in cash in first-quarter 2023 from the Holden Hills partnership and the disbursement in June 2023 of the full $6.9 million of post-closing escrow amounts related to the sale of Block 21.
• The first units at The Saint June, a 182-unit luxury garden-style multi-family project in Barton Creek, were ready for occupancy in July 2023, and construction was completed in fourth-quarter 2023. As of March 25, 2024, Stratus had signed leases for approximately 75 percent of the units. Stratus also continues construction on The Saint George, the last seven Amarra Villas homes and Holden Hills.
• Subsequent to fourth-quarter and year-end, in February 2024, Stratus completed the previously disclosed sale of approximately 47 acres at Magnolia Place for $14.5 million, generating pre-tax net cash proceeds to Stratus of approximately $5.3 million, after transaction expenses and payment of the remaining $8.8 million project loan.
• Stratus’ four stabilized retail properties anchored or shadow-anchored by H-E-B grocery stores, Magnolia Place, Kingwood Place, Jones Crossing and West Killeen Market, and its fifth stabilized retail property Lantana Place, continue to perform well, and Stratus is in the process of engaging brokers to explore the sale of these properties.
• Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) totaled $(10.7) million in 2023, compared to $(3.1) million in 2022. For a reconciliation of net loss from continuing operations to EBITDA, see the supplemental schedule, “Reconciliation of Non-GAAP Measure EBITDA,” below.

William H. Armstrong III, Chairman of the Board and Chief Executive Officer of Stratus, stated, “I am pleased that our team has continued to execute on our successful strategy throughout 2023, completing the return of $10 million in capital to stockholders through our share repurchase program and building significant value across our communities. Among several milestones in 2023, we completed construction of The Saint June and currently have signed leases for approximately 75 percent of the units. This project reflects our efforts to prioritize pure residential and residential-focused mixed-use properties in Austin and other select Texas locations, where residential demand remains strong. We have worked diligently through a challenging market to position our assets so that we can capture value as markets rebound.”

“We see reasons for optimism regarding improving real estate market conditions in our markets as the year 2024 progresses and are in the process of engaging brokers to explore the sale of our five stabilized retail projects. In connection with any such sales, we anticipate returning capital to stockholders. Largely as a result of prior well-timed sales, we have sufficient liquidity to sell properties when market conditions are favorable to our Company. I am immensely proud of the Stratus team’s ability to navigate the difficult real estate market over the past couple of years and achieve key milestones that create, and will continue to create, value.”

Summary Financial Results

Continuing Operations

The decrease in revenue from the Real Estate Operations segment in 2023, compared to 2022, primarily reflects $18.6 million of undeveloped property sales in 2022 compared to no sales in 2023 as well as sales of two completed Amarra Villas homes in 2022 compared to one home in 2023.

The increase in revenue from the Leasing Operations segment in 2023, compared to 2022, primarily reflects revenue from the commencement of operations at Magnolia Place in late 2022 and The Saint June in mid-2023, as well as increased revenue at Kingwood Place, in connection with new leases.

Debt and Liquidity

At December 31, 2023, consolidated debt totaled $175.2 million and consolidated cash and cash equivalents totaled $31.4 million, compared with consolidated debt of $122.8 million and consolidated cash and cash equivalents of $37.7 million at December 31, 2022.

As of December 31, 2023, Stratus had $40.5 million available under its Comerica Bank revolving credit facility and no amount was borrowed. Letters of credit, totaling $13.3 million, had been issued under the revolving credit facility, $11.0 million of which secure Stratus’ obligation to build certain roads and utilities facilities benefiting Holden Hills and Section N. As of March 25, 2024, the availability under the revolving credit facility was reduced to $39.6 million due to appraisals received in first-quarter 2024.

Purchases and development of real estate properties (included in operating cash flows) and capital expenditures (included in investing cash flows) totaled $90.4 million for 2023, primarily related to the development of Barton Creek properties (including The Saint June, Amarra Villas and Holden Hills) and The Saint George. This compares with $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 Magnolia Place.

Net Asset Value

Stratus’ total stockholders’ equity was $191.5 million at December 31, 2023, compared with $207.2 million at December 31, 2022. Stratus’ after-tax Net Asset Value (NAV) was $321.7 million, or $39.40 per share, as of December 31, 2023, compared with $355.3 million, or $42.94 per share, as of December 31, 2022. The decrease in the after-tax NAV was primarily driven by deteriorating fundamentals in the real estate market, such as higher capitalization and interest rates, resulting in lower values and increased carrying costs. 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

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 inflation, interest rates, supply chain constraints, availability of bank credit, Stratus’ ability to meet its future debt service and other cash obligations, future cash flows and liquidity, 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, including the expected impact of Texas Senate Bill 2038 (the ETJ Law) and related ongoing litigation, 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, and potential future cash returns to stockholders, 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 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 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, maintenance and insurance costs, and the cost of building materials and labor, increases in inflation and interest rates, supply chain constraints, availability of 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, business and geopolitical conditions, potential U.S. or local economic downturn or recession, the availability and terms of financing for development projects and other corporate purposes, 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, any major public health crisis, 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 risks, litigation risks, including the timing and resolution of the ongoing litigation challenging the ETJ Law and Stratus’ ability to implement any revised development plans in light of the ETJ Law, 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, 2023, 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” management believes these measures can be helpful to investors in evaluating its business because EBITDA is a financial measure frequently used by securities analysts, lenders and others to evaluate Stratus’ recurring operating performance. Further, 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 rules, a reconciliation of Stratus’ net 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.

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, was sold in May 2022 and 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, which includes Section N, Holden Hills, Amarra multi-family and commercial land, Amarra Villas, Amarra Drive lots and other vacant land; the Circle C community; the Lantana community, which includes a portion of Lantana Place planned for a multi-family phase 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, all of which were sold in February 2024 except for approximately 11 acres planned for future multi-family use), Kingwood, Texas (a retail pad site) and New Caney, Texas (New Caney), each located in the greater Houston area.

Contacts

Financial and Media Contact:
William H. Armstrong III

(512) 478-5788

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