Stratus(STRS) - 2025 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements The company's unaudited consolidated financial statements for the quarter ended March 31, 2025, include balance sheets, income statements, cash flows, and equity Consolidated Balance Sheets (Unaudited) Consolidated Balance Sheets | Metric | March 31, 2025 (Thousands) | December 31, 2024 (Thousands) | | :----- | :------------------------- | :-------------------------- | | Cash and cash equivalents | $12,006 | $20,178 | | Real estate under development | $274,625 | $274,105 | | Land available for development | $76,312 | $65,009 | | Total assets | $534,581 | $532,606 | | Debt | $207,838 | $194,853 | | Total liabilities | $241,998 | $235,039 | | Total equity | $292,583 | $297,567 | Consolidated Statements of Comprehensive (Loss) Income (Unaudited) Consolidated Statements of Comprehensive (Loss) Income | Metric | Three Months Ended March 31, 2025 (Thousands) | Three Months Ended March 31, 2024 (Thousands) | | :----- | :------------------------------------------ | :------------------------------------------ | | Real estate operations revenue | $25 | $22,123 | | Leasing operations revenue | $5,018 | $4,384 | | Total revenues | $5,043 | $26,507 | | Operating (loss) income | $(3,595) | $3,685 | | Net (loss) income attributable to common stockholders | $(2,875) | $4,552 | | Basic net (loss) income per share | $(0.36) | $0.57 | | Diluted net (loss) income per share | $(0.36) | $0.56 | Consolidated Statements of Cash Flows (Unaudited) Consolidated Statements of Cash Flows | Metric | Three Months Ended March 31, 2025 (Thousands) | Three Months Ended March 31, 2024 (Thousands) | | :----- | :------------------------------------------ | :------------------------------------------ | | Net (loss) income | $(3,757) | $3,697 | | Net cash (used in) provided by operating activities | $(13,495) | $6,547 | | Net cash used in investing activities | $(4,693) | $(8,392) | | Net cash provided by (used in) financing activities | $9,991 | $(9,059) | | Net decrease in cash, cash equivalents and restricted cash | $(8,197) | $(10,904) | | Cash, cash equivalents and restricted cash at end of period | $12,957 | $21,528 | Consolidated Statements of Equity (Unaudited) Consolidated Statements of Equity | Metric | March 31, 2025 (Thousands) | December 31, 2024 (Thousands) | | :----- | :------------------------- | :-------------------------- | | Total stockholders' equity | $191,459 | $194,705 | | Noncontrolling interests in subsidiaries | $101,124 | $102,862 | | Total equity | $292,583 | $297,567 | - Total comprehensive loss for the three months ended March 31, 2025, was $(3,757) thousand, compared to total comprehensive income of $3,697 thousand for the same period in 2024[16] - In Q1 2025, the company repurchased 21 thousand shares of common stock for $(410) thousand[16] Notes to Consolidated Financial Statements (Unaudited) 1. GENERAL - The unaudited condensed consolidated financial statements are prepared in accordance with U.S. GAAP and reflect normal recurring adjustments[18] - In Q1 2024, the CEO's son received a $22 thousand annual incentive award and had an annual salary of $124 thousand before resigning in September 2024, forfeiting PPIP awards[19] 2. EARNINGS PER SHARE Earnings Per Share | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :----- | :-------------------------------- | :-------------------------------- | | Net (loss) income attributable to common stockholders | $(2,875) thousand | $4,552 thousand | | Basic weighted-average shares outstanding | 8,037 thousand | 8,026 thousand | | Diluted weighted-average shares outstanding | 8,037 thousand | 8,151 thousand | | Basic net (loss) income per share | $(0.36) | $0.57 | | Diluted net (loss) income per share | $(0.36) | $0.56 | - For Q1 2025, 161 thousand shares associated with RSUs were anti-dilutive due to a net loss, compared to 21 thousand anti-dilutive shares in Q1 2024[20] 3. LIMITED PARTNERSHIPS - Stratus holds indirect equity interests ranging from 10.0% to 60.0% in five limited partnerships (Holden Hills, The Saint George Apartments, Stratus Block 150, The Saint June, Stratus Kingwood Place)[21] - Stratus made operating loans of $1.5 million to Stratus Block 150, L.P. in Q1 2025, bringing the total outstanding to $7.2 million as of March 31, 2025[22] Limited Partnerships Financial Summary | Metric | March 31, 2025 (Thousands) | December 31, 2024 (Thousands) | | :----- | :------------------------- | :-------------------------- | | Total assets | $278,518 | $276,756 | | Total liabilities | $153,109 | $151,433 | | Net assets | $125,409 | $125,323 | 4. ASSET SALES - In Q1 2025, $200 thousand of a previously deferred gain from The Oaks at Lakeway sale was recognized due to a sub-lease, with the remaining deferred gain at $1.5 million as of March 31, 2025[28] - In Q1 2024, Stratus sold two Amarra Villas homes for $7.6 million and 47 acres of undeveloped land at Magnolia Place for $14.5 million, which led to the repayment of an $8.8 million construction loan[29] 5. FAIR VALUE MEASUREMENTS Fair Value of Interest Rate Caps | Metric | March 31, 2025 (Thousands) | December 31, 2024 (Thousands) | | :----- | :------------------------- | :-------------------------- | | Carrying Value (Interest rate caps) | $11 | $19 | | Fair Value (Interest rate caps) | $11 | $19 | - Stratus Kingwood Place, L.P. entered into a $33.0 million interest rate cap in November 2024, and College Station 1892 Properties, L.L.C. entered into a $24.0 million interest rate cap in March 2025[32] - Interest rate caps are derivative instruments not qualifying for hedge accounting, with fair values measured using market observable inputs (Level 2)[33] 6. DEBT AND EQUITY Debt Summary | Debt Type | March 31, 2025 (Thousands) | December 31, 2024 (Thousands) | | :-------- | :------------------------- | :-------------------------- | | Comerica Bank revolving credit facility | $4,000 | $0 | | Kingwood Place loan | $32,453 | $32,408 | | Lantana Place loan | $29,400 | $25,509 | | Jones Crossing loan | $23,554 | $22,428 | | The Annie B land loan | $11,950 | $12,568 | | Construction loans | $104,719 | $105,309 | | Amarra Villas credit facility | $1,662 | $1,631 | | Total debt | $207,838 | $194,853 | - The Comerica Bank revolving credit facility was amended in March 2025, extending its maturity date to March 27, 2027, and lowering the interest rate[39] - In January 2025, the Lantana Place construction loan was refinanced with a $29.8 million term loan, generating approximately $3.0 million in net cash proceeds[41] - In Q1 2025, Stratus acquired 20,694 shares of its common stock for $0.4 million under its $5.0 million share repurchase program, with $3.0 million remaining available[47] 7. PROFIT PARTICIPATION INCENTIVE PLAN AND LONG-TERM INCENTIVE PLAN - The Profit Participation Incentive Plan (PPIP) and Long-Term Incentive Plan (LTIP) provide economic incentives tied to the success of designated development projects[48] PPIP and LTIP Costs | Cost Type | Three Months Ended March 31, 2025 (Thousands) | Three Months Ended March 31, 2024 (Thousands) | | :-------- | :------------------------------------------ | :------------------------------------------ | | Charged to general and administrative expense | $68 | $83 | | Capitalized to project development costs | $8 | $111 | | Total PPIP and LTIP costs | $76 | $194 | - The accrued liability for the PPIP and LTIP totaled $1.9 million at both March 31, 2025, and December 31, 2024[51] 8. INCOME TAXES - Stratus has a full valuation allowance against its U.S. Federal net deferred tax assets as of both March 31, 2025, and December 31, 2024[52] - The consolidated effective income tax rate was (1)% for Q1 2025 and 3% for Q1 2024, primarily due to state income taxes, noncontrolling interests, the valuation allowance, and executive compensation limitation[54] 9. BUSINESS SEGMENTS - Stratus operates in two reportable segments: Real Estate Operations (entitlement, development, and sale of properties) and Leasing Operations (leasing developed retail, mixed-use, and multi-family properties)[55] Segment Revenues | Segment | Three Months Ended March 31, 2025 (Thousands) | Three Months Ended March 31, 2024 (Thousands) | | :------ | :------------------------------------------ | :------------------------------------------ | | Real Estate Operations Revenue | $25 | $22,123 | | Leasing Operations Revenue | $5,018 | $4,384 | | Total Revenues | $5,043 | $26,507 | Segment Profit (Loss) | Segment | Three Months Ended March 31, 2025 (Thousands) | Three Months Ended March 31, 2024 (Thousands) | | :------ | :------------------------------------------ | :------------------------------------------ | | Real Estate Operations Segment (loss) profit | $(1,502) | $6,801 | | Leasing Operations Segment profit | $1,958 | $1,349 | | Total Segment (loss) profit | $456 | $8,150 | Segment Assets | Segment | March 31, 2025 (Thousands) | March 31, 2024 (Thousands) | | :------ | :------------------------- | :------------------------- | | Real Estate Operations | $371,355 | $329,062 | | Leasing Operations | $151,950 | $160,759 | | Corporate and other | $11,276 | $19,696 | | Total assets | $534,581 | $509,517 | 10. SUBSEQUENT EVENTS - A water leak occurred at The Saint George multi-family project in April 2025, with estimated remediation and repair costs of $1.9 million[62] - Costs to The Saint George Apartments, L.P., after insurance and general contractor coverage, are currently estimated to be less than $1 million[62] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial condition, operational results, business strategy, and capital resources for the quarter ended March 31, 2025 OVERVIEW - Stratus is a residential and retail-focused real estate company with headquarters in Austin, Texas, engaged in entitlement, development, management, leasing, and sale of properties[65] - The company's development portfolio consists of approximately 1,500 acres of commercial, multi-family, and single-family residential projects under development or held for future use[65] BUSINESS STRATEGY - Stratus' primary business objective is to create stockholder value by developing and enhancing properties for sale or lease, focusing on residential and residential-centric mixed-use projects in Austin and other select Texas markets[67] - The company utilizes project-level debt and third-party equity capital through joint ventures, with potential returns increasing above its relative equity interest as negotiated hurdles are achieved[69] - As of March 31, 2025, Stratus had repurchased $2.0 million of its shares under a new $5.0 million share repurchase program approved in November 2023[68][77] - Consolidated cash totaled $12.0 million and $34.5 million was available under the revolving credit facility as of March 31, 2025[73] - In Q4 2024 and Q1 2025, Stratus refinanced several project loans (The Saint June, Kingwood Place, Lantana Place, Jones Crossing) at lower interest rates, generating additional cash proceeds[75] - A contract was entered into to sell the West Killeen Market retail property for $13.3 million, expected to generate approximately $7.7 million in pre-tax net cash proceeds[77] OVERVIEW OF FINANCIAL RESULTS Financial Results Summary | Metric | Three Months Ended March 31, 2025 (Thousands) | Three Months Ended March 31, 2024 (Thousands) | | :----- | :------------------------------------------ | :------------------------------------------ | | Total revenues | $5,043 | $26,507 | | Net (loss) income attributable to common stockholders | $(2,875) | $4,552 | | Diluted net (loss) income per share | $(0.36) | $0.56 | - The $22.1 million decrease in Real Estate Operations revenue in Q1 2025 was due to no property sales, compared to $14.5 million from Magnolia Place land and $7.6 million from Amarra Villas homes in Q1 2024[83] - Leasing Operations revenue increased by $634 thousand in Q1 2025, mainly from The Saint June's lease-up, partially offset by the sale of Magnolia Place – Retail[83] RECENT DEVELOPMENT ACTIVITIES Recent Residential Activities - Amarra Villas has three completed homes in inventory, with the last two homes expected to be completed in Q2 2025; five homes remain available for sale as of May 9, 2025[87] - The Saint June, a 182-unit multi-family project, completed its lease-up during 2024[88] - Construction on Holden Hills Phase 1 road and utility infrastructure is expected to be completed in Q2 2025, with home building/site sales anticipated in late 2025[90] - Holden Hills Phase 2 development plans are being adjusted for a significant increase in development density due to the ETJ Law[92] - The Saint George, a 316-unit multi-family project, had its first units available for occupancy in April 2025 and is expected to be completed in Q2 2025[94] Recent Commercial Activities - Holden Hills Phase 2 commercial component plans are being adjusted due to the ETJ process[102] - West Killeen Market is under contract for sale for $13.3 million, expected to close in Q2 2025, generating approximately $7.7 million in pre-tax net cash proceeds[103] - As of March 31, 2025, Jones Crossing had signed leases for substantially all of its 154,092 square feet of completed retail space, and Lantana Place had signed leases for substantially all of its 99,377 square feet of retail space[103] Potential Development Projects and Pipeline - Future development projects (The Annie B, Holden Hills Phase 2, The Saint Julia, Lakeway, College Station multi-family) will require significant additional capital, to be pursued through project-level debt and third-party equity[105] - There is uncertainty regarding final development plans and successful execution due to the nature and cost of approval/development processes and market demand[105] Market Conditions - The real estate industry is experiencing elevated construction and labor costs, supply chain constraints, labor shortages, higher borrowing costs, and tightening bank credit[106] - The Federal Reserve lowered interest rates by 100 basis points cumulatively between September and December 2024, but inflation remains above the 2% target[106] - Changes to U.S. tariffs and trade policies in Q1 2025 introduce uncertainties, potentially leading to higher costs, limited capital availability, and lower demand[106][170] RESULTS OF OPERATIONS Real Estate Operations Real Estate Operations Summary | Metric | Three Months Ended March 31, 2025 (Thousands) | Three Months Ended March 31, 2024 (Thousands) | | :----- | :------------------------------------------ | :------------------------------------------ | | Total revenues | $25 | $22,123 | | Cost of real estate sold | $0 | $(13,949) | | Operating (loss) income | $(1,502) | $6,801 | - No developed or undeveloped property sales occurred in Q1 2025, compared to sales of two Amarra Villas homes ($7.6 million) and 47 acres of Magnolia Place land ($14.5 million) in Q1 2024[114][115] Leasing Operations Leasing Operations Summary | Metric | Three Months Ended March 31, 2025 (Thousands) | Three Months Ended March 31, 2024 (Thousands) | | :----- | :------------------------------------------ | :------------------------------------------ | | Rental revenue | $5,018 | $4,384 | | Operating income | $1,958 | $1,349 | - The increase in rental revenue was primarily due to increased revenue from The Saint June, which completed its lease-up in 2024, partially offset by a decrease in revenue from Magnolia Place – Retail, which was sold in Q3 2024[117] Non-Operating Results - Interest costs (before capitalized interest) decreased to $3.8 million in Q1 2025 from $4.0 million in Q1 2024, primarily due to lower interest rates; all interest costs were capitalized[119][120] - Provision for income taxes was $30 thousand in Q1 2025 and $102 thousand in Q1 2024[121] CAPITAL RESOURCES AND LIQUIDITY Comparison of Cash Flows for the Three Months Ended March 31, 2025 and 2024 - Operating cash flow shifted from providing $6.5 million in Q1 2024 to using $(13.5) million in Q1 2025, primarily due to the absence of property sales[124] - Investing activities used $4.7 million in Q1 2025, down from $8.4 million in Q1 2024, mainly due to lower capital expenditures for The Saint George[125] - Financing activities provided $10.0 million in Q1 2025, compared to using $(9.1) million in Q1 2024, driven by $4.0 million in Comerica Bank revolving credit facility borrowings and $9.1 million net borrowings on project/term loans[126] Revolving Credit Facility and Other Financing Arrangements - As of March 31, 2025, Stratus had $12.0 million in cash and cash equivalents, $1.0 million in restricted cash, and $34.5 million available under its revolving credit facility[131] - Total debt increased to $210.0 million at March 31, 2025, from $196.7 million at December 31, 2024[132] - The Comerica Bank revolving credit facility was amended in March 2025, extending maturity to March 27, 2027, and lowering the interest rate[133] - Stratus made a $1.5 million operating loan to Stratus Block 150, L.P. in Q1 2025, bringing the total outstanding to $7.2 million[134] - Stratus was in compliance with all financial covenants as of March 31, 2025[140] Debt Maturities and Other Contractual Obligations Debt Maturities | Year | Amount (Thousands) | | :--- | :----------------- | | 2025 | $49,227 | | 2026 | $70,309 | | 2027 | $37,365 | | 2028 | $24,385 | | 2029 | $28,757 | | Thereafter | $0 | | Total | $210,043 | Weighted-Average Interest Rates | Loan Type | Weighted-Average Interest Rate (March 31, 2025) | Weighted-Average Interest Rate (March 31, 2024) | | :-------- | :-------------------------------------------- | :-------------------------------------------- | | Comerica Bank revolving credit facility | 7.42% | —% | | Kingwood Place loan | 6.12% | 8.20% | | Lantana Place loan | 6.71% | 7.74% | | Jones Crossing loan | 6.26% | 7.70% | | The Annie B land loan | 7.45% | 8.41% | | The Saint George construction loan | 6.79% | 7.73% | | The Saint June construction loan | 6.71% | 8.19% | | Holden Hills Phase 1 construction loan | 7.44% | 8.39% | | West Killeen Market | 7.07% | 8.09% | | Amarra Villas credit facility | 6.70% | 8.39% | - Firm commitments totaled approximately $8.3 million at March 31, 2025, primarily related to construction of The Saint George and Holden Hills Phase 1[148] - Stratus anticipates making a $370 thousand capital contribution to The Saint George partnership and up to $2.1 million in operating loans to Stratus Block 150, L.P. over the next 12 months[148] - The company projects sufficient liquidity for the next 12 months through $12.0 million cash, $34.5 million revolving credit facility availability, and expected property sales (e.g., West Killeen Market for $13.3 million)[149] CRITICAL ACCOUNTING ESTIMATES - There have been no changes in critical accounting estimates from those discussed in the 2024 Form 10-K[154] RECENT ACCOUNTING STANDARDS - ASU No. 2024-03, requiring disaggregated disclosure of certain income statement expenses, is effective for fiscal years beginning after December 15, 2026, and Stratus is assessing its impact[156] OFF-BALANCE SHEET ARRANGEMENTS - The company engages in off-balance sheet arrangements in the ordinary course of business, with further details available in "Capital Resources and Liquidity" and the 2024 Form 10-K[158] CAUTIONARY STATEMENT - The report contains forward-looking statements about future performance, including projections on inflation, interest rates, property sales, debt, and development projects[160] - Actual results may differ materially from forward-looking statements due to factors such as business strategy implementation, cost increases, market conditions, debt compliance, and regulatory changes[163] - The company is not permitted to repurchase common stock over $1.0 million or pay dividends without Comerica Bank's prior written consent, which was obtained for the current share repurchase program[161] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section states that there are no quantitative and qualitative disclosures about market risk applicable for this reporting period - This item is not applicable for the current reporting period[166] Item 4. Controls and Procedures The company's principal officers concluded that disclosure controls and procedures were effective as of March 31, 2025, with no material changes in internal controls - Disclosure controls and procedures were effective as of March 31, 2025[167] - No material changes in internal control over financial reporting occurred during the quarter ended March 31, 2025[168] PART II. OTHER INFORMATION Item 1A. Risk Factors The company highlights risks from changes in U.S. tariffs and trade policies, which could increase costs and negatively impact real estate demand - Changes in U.S. tariffs and trade policies could adversely affect the business by disrupting supply chains, increasing construction costs (e.g., steel, lumber), and creating uncertainty for project pricing and projections[170] - These changes could also lead to higher inflation, interest rates, slower economic growth, or recession, impacting capital availability, real estate demand, and project profitability[170] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reports no unregistered equity sales and details Q1 2025 common stock repurchases under its existing program - No unregistered sales of equity securities occurred during the three months ended March 31, 2025[171] Issuer Purchases of Equity Securities | Period | Total Number of Shares Purchased | Average Price Paid Per Share | Approximate Dollar Value of Shares Remaining Available | | :----- | :------------------------------- | :--------------------------- | :----------------------------------------------------- | | January 1 - January 31, 2025 | 17,025 | $19.80 | $3,072,888 | | February 1 - February 28, 2025 | 3,669 | $19.69 | $3,000,635 | | March 1 - March 31, 2025 | — | — | $3,000,635 | | Total (Q1 2025) | 20,694 | $19.78 | $3,000,635 | - As of March 31, 2025, $3.0 million remains available for repurchases under the $5.0 million share repurchase program[172] Item 5. Other Information No director or officer adopted or terminated any Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the quarter - No director or officer adopted or terminated any Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the quarter ended March 31, 2025[173] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, providing transparency into the company's legal and financial arrangements - The report includes various exhibits such as the Second Amended and Restated Revolving Promissory Note, Loan Agreements, and Certifications of Principal Executive and Financial Officers[174][175] Signature The report was duly signed on behalf of the company by its Chief Financial Officer on May 15, 2025 - The report was signed by Erin D. Pickens, Senior Vice President and Chief Financial Officer, on May 15, 2025[179]