Company Quick10K Filing
Quick10K
Stratus Properties
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$25.50 8 $208
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-05-24 Other Events
8-K 2019-05-10 Earnings, Exhibits
8-K 2019-05-02 Shareholder Vote
8-K 2019-04-17 Regulation FD, Exhibits
8-K 2019-03-18 Earnings, Exhibits
8-K 2019-02-20 Regulation FD, Exhibits
8-K 2018-12-06 Enter Agreement, Off-BS Arrangement, Other Events, Exhibits
8-K 2018-11-09 Earnings, Exhibits
8-K 2018-10-17 Regulation FD, Exhibits
8-K 2018-08-09 Earnings, Exhibits
8-K 2018-07-18 Regulation FD, Exhibits
8-K 2018-07-11 Officers
8-K 2018-06-29 Enter Agreement, Off-BS Arrangement, Other Events, Exhibits
8-K 2018-06-18 Enter Agreement, Other Events
8-K 2018-05-03 Shareholder Vote
8-K 2018-04-18 Regulation FD, Exhibits
8-K 2018-04-16 Regulation FD, Exhibits
8-K 2018-02-22 Regulation FD, Exhibits
CHD Church & Dwight 17,890
ATNX Athenex 873
ANIP ANI Pharmaceuticals 870
RYAM Rayonier Advanced Materials 461
CTMX Cytomx Therapeutics 455
RLGT Radiant Logistics 338
AETI American Electric Technologies 11
DFBG Differential Brands Group 0
CLSK Cleanspark 0
ZVVT ZEV Ventures 0
STRS 2019-03-31
Part I. Financial Information
Item 1. Financial Statements.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Item 4. Controls and Procedures.
Part II. Other Information
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Item 6. Exhibits.
EX-10.1 a1q19exhibit101.htm
EX-31.1 a1q19exhibit311.htm
EX-31.2 a1q19exhibit312.htm
EX-32.1 a1q19exhibit321.htm
EX-32.2 a1q19exhibit322.htm

Stratus Properties Earnings 2019-03-31

STRS 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Document
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
(Mark One)
[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
 
SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended March 31, 2019
 
or
[  ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
 
SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from to
 
Commission File Number: 001-37716
 
stratuslogoprintaa31.jpg
Stratus Properties Inc.
(Exact name of registrant as specified in its charter)
Delaware
72-1211572
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer Identification No.)
 
 
212 Lavaca St., Suite 300
 
Austin, Texas
78701
(Address of principal executive offices)
(Zip Code)
 
(512) 478-5788
(Registrant's telephone number, including area code)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
þ Yes   ¨ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   þ Yes   ¨ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer ¨     
 
 
Accelerated filer þ
Non-accelerated filer ¨ 
Smaller reporting company þ
 
 
Emerging growth company ¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   ¨ Yes þ No
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, par value $0.01 per share
STRS
The NASDAQ Stock Market
On April 30, 2019, there were issued and outstanding 8,176,685 shares of the registrant’s common stock, par value $0.01 per share.


Table of Contents


STRATUS PROPERTIES INC.
TABLE OF CONTENTS
 
 
 
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



Table of Contents


PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

STRATUS PROPERTIES INC.
CONSOLIDATED BALANCE SHEETS (Unaudited)
(In Thousands)

 
March 31,
2019
 
December 31,
2018
ASSETS
 
 
 
Cash and cash equivalents
$
19,048

 
$
19,004

Restricted cash
14,981

 
19,915

Real estate held for sale
17,523

 
16,396

Real estate under development
148,618

 
136,678

Land available for development
24,874

 
24,054

Real estate held for investment, net
265,816

 
253,074

Lease right-of-use assets
11,854

 

Deferred tax assets
11,543

 
11,834

Other assets
14,526

 
15,538

Total assets
$
528,783

 
$
496,493

 
 
 
 
LIABILITIES AND EQUITY
 
 
 
Liabilities:
 
 
 
Accounts payable
$
23,943

 
$
20,602

Accrued liabilities, including taxes
7,145

 
11,914

Debt
320,909

 
295,531

Lease liabilities
12,258

 

Deferred gain
8,984

 
9,270

Other liabilities
12,552

 
12,525

Total liabilities
385,791

 
349,842

 
 
 
 
Commitments and contingencies

 

 
 
 
 
Equity:
 
 
 
Stockholders’ equity:
 
 
 
Common stock
93

 
93

Capital in excess of par value of common stock
186,424

 
186,256

Accumulated deficit
(40,241
)
 
(41,103
)
Common stock held in treasury
(21,360
)
 
(21,260
)
Total stockholders’ equity
124,916

 
123,986

Noncontrolling interests in subsidiaries
18,076

 
22,665

Total equity
142,992

 
146,651

Total liabilities and equity
$
528,783

 
$
496,493


The accompanying Notes to Consolidated Financial Statements (Unaudited) are an integral part of these consolidated financial statements.


2

Table of Contents


STRATUS PROPERTIES INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited)
(In Thousands, Except Per Share Amounts)

 
 
Three Months Ended
 
 
March 31,
 
 
2019
 
2018
Revenues:
 
 
 
 
Real estate operations
 
$
2,948

 
$
1,194

Leasing operations
 
3,629

 
2,004

Hotel
 
8,325

 
9,322

Entertainment
 
4,796

 
5,245

Total revenues
 
19,698

 
17,765

Cost of sales:
 
 
 
 
Real estate operations
 
46

 
1,566

Leasing operations
 
2,139

 
1,182

Hotel
 
6,675

 
7,029

Entertainment
 
3,479

 
3,968

Depreciation
 
2,630

 
1,942

Total cost of sales
 
14,969

 
15,687

General and administrative expenses
 
3,199

 
2,981

Gain on sale of assets
 
(2,113
)
 

Total
 
16,055

 
18,668

Operating income (loss)
 
3,643

 
(903
)
Interest expense, net
 
(2,572
)
 
(1,559
)
(Loss) gain on interest rate derivative instruments
 
(59
)
 
178

Loss on early extinguishment of debt
 
(16
)
 

Other income, net
 
299

 
11

Income (loss) before income taxes and equity in unconsolidated affiliates' loss
 
1,295

 
(2,273
)
Equity in unconsolidated affiliates' loss
 

 
(3
)
(Provision for) benefit from income taxes
 
(433
)
 
406

Net income (loss) and total comprehensive income (loss) attributable to common stockholders
 
$
862

 
$
(1,870
)
 
 
 
 
 
Net income (loss) per share attributable to common stockholders
 
 
 
 
Basic
 
$
0.11

 
$
(0.23
)
Diluted
 
$
0.10

 
$
(0.23
)
 
 
 
 
 
Weighted average common shares outstanding:
 
 
 
 
Basic
 
8,167

 
8,137

Diluted
 
8,213

 
8,137


The accompanying Notes to Consolidated Financial Statements (Unaudited) are an integral part of these consolidated financial statements.

3

Table of Contents


STRATUS PROPERTIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In Thousands)

 
Three Months Ended
 
March 31,
 
2019
 
2018
Cash flow from operating activities:
 
 
 
Net income (loss)
$
862

 
$
(1,870
)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
 
 
 
Depreciation
2,630

 
1,942

Cost of real estate sold
1,931

 
403

Gain on sale of assets
(2,113
)
 

Loss (gain) on interest rate derivative contracts
59

 
(178
)
Loss on early extinguishment of debt
16

 

Debt issuance cost amortization and stock-based compensation
296

 
412

Equity in unconsolidated affiliates' loss

 
3

Increase in deposits
108

 
205

Deferred income taxes
291

 
(504
)
Purchases and development of real estate properties
(3,298
)
 
(3,612
)
Municipal utility district reimbursements applied to real estate under development
920

 

Increase in other assets
(928
)
 
(822
)
Decrease in accounts payable, accrued liabilities and other
(83
)
 
(4,963
)
Net cash provided by (used in) operating activities
691

 
(8,984
)
 
 
 
 
Cash flow from investing activities:
 
 
 
Capital expenditures
(29,443
)
 
(24,376
)
Proceeds from sale of assets
3,170

 

Payments on master lease obligations
(306
)
 
(388
)
Purchase of noncontrolling interest in consolidated subsidiary
(4,589
)
 

Other, net

 
(30
)
Net cash used in investing activities
(31,168
)

(24,794
)
 
 
 
 
Cash flow from financing activities:
 
 
 
Borrowings from credit facility
12,086

 
16,300

Payments on credit facility
(12,911
)
 
(1,075
)
Borrowings from project loans
30,744

 
13,164

Payments on project and term loans
(4,006
)
 
(563
)
Cash dividend paid for stock-based awards
(17
)
 

Stock-based awards net payments
(100
)
 
(203
)
Financing costs
(209
)
 

Net cash provided by financing activities
25,587

 
27,623

Net decrease in cash, cash equivalents and restricted cash
(4,890
)
 
(6,155
)
Cash, cash equivalents and restricted cash at beginning of year
38,919

 
39,390

Cash, cash equivalents and restricted cash at end of period
$
34,029

 
$
33,235


The accompanying Notes to Consolidated Financial Statements (Unaudited), which include information regarding noncash transactions, are an integral part of these consolidated financial statements.

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STRATUS PROPERTIES INC.
CONSOLIDATED STATEMENTS OF EQUITY (Unaudited)
(In Thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Stockholders’ Equity
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common Stock
Held in Treasury
 
Total Stockholders' Equity
 
 
 
 
 
 
Common Stock
 
Capital in Excess of Par Value
 
Accum-ulated Deficit
 
 
 
Noncontrolling Interests in Subsidiaries
 
 
 
 
Number
of Shares
 
At Par
Value
 
 
 
Number
of Shares
 
At
Cost
 
 
 
Total
Equity
Balance at December 31, 2018
 
9,288

 
$
93

 
$
186,256

 
$
(41,103
)
 
1,124

 
$
(21,260
)
 
$
123,986

 
$
22,665

 
$
146,651

Exercised and vested stock-based awards
 
17

 

 

 

 

 

 

 

 

Stock-based compensation
 

 

 
168

 

 

 

 
168

 

 
168

Tender of shares for stock-based awards
 

 

 

 

 
4

 
(100
)
 
(100
)
 

 
(100
)
Purchase of noncontrolling interest in consolidated subsidiary
 

 

 

 

 

 

 

 
(4,589
)
 
(4,589
)
Total comprehensive income
 

 

 

 
862

 

 

 
862

 

 
862

Balance at March 31, 2019
 
9,305

 
$
93

 
$
186,424

 
$
(40,241
)
 
1,128

 
$
(21,360
)
 
$
124,916

 
$
18,076

 
$
142,992

Balance at December 31, 2017
 
9,250

 
$
93

 
$
185,395

 
$
(37,121
)
 
1,117

 
$
(21,057
)
 
$
127,310

 
$
80

 
$
127,390

Issued stock-based awards
 
27

 

 

 

 

 

 

 

 

Stock-based compensation
 

 

 
197

 

 

 

 
197

 

 
197

Tender of shares for stock-based awards
 

 

 

 

 
7

 
(203
)
 
(203
)
 

 
(203
)
Total comprehensive loss
 

 

 

 
(1,870
)
 

 

 
(1,870
)
 

 
(1,870
)
Balance at March 31, 2018
 
9,277

 
$
93

 
$
185,592

 
$
(38,991
)
 
1,124

 
$
(21,260
)
 
$
125,434

 
$
80

 
$
125,514


The accompanying Notes to Consolidated Financial Statements (Unaudited) are an integral part of these consolidated financial statements.



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STRATUS PROPERTIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1.
GENERAL
The accompanying unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2018, included in Stratus Properties Inc.’s (Stratus) Annual Report on Form 10-K (Stratus 2018 Form 10-K) filed with the United States (U.S.) Securities and Exchange Commission. The information furnished herein reflects all adjustments that are, in the opinion of management, necessary for a fair statement of the results for the interim periods reported. Operating results for the three-month period ended March 31, 2019, are not necessarily indicative of the results that may be expected for the year ending December 31, 2019.

2.
EARNINGS PER SHARE
Stratus’ basic net income (loss) per share of common stock was calculated by dividing the net income (loss) attributable to common stockholders by the weighted-average shares of common stock outstanding during the period. A reconciliation of net income (loss) and weighted-average shares of common stock outstanding for purposes of calculating diluted net income (loss) per share (in thousands, except per share amounts) follows:
 
Three Months Ended
 
 
March 31,
 
 
2019
 
2018
 
Net income (loss) and total comprehensive income (loss) attributable to common stockholders
$
862

 
$
(1,870
)
 
 
 
 
 
 
Basic weighted-average shares of common stock outstanding
8,167

 
8,137

 
 
 
 
 
 
Add shares issuable upon exercise or vesting of dilutive stock options and restricted stock units (RSUs)a
46

 

 
 
 
 
 
 
Diluted weighted-average shares of common stock outstanding
8,213

 
8,137

 
 
 
 
 
 
Basic net income (loss) per share attributable to common stockholders
$
0.11

 
$
(0.23
)
 
 
 
 
 
 
Diluted net income (loss) per share attributable to common stockholders
$
0.10

 
$
(0.23
)
 
 
 
 
 
 
a.
Excludes 31 thousand shares of common stock for first-quarter 2019 and 107 thousand shares for first-quarter 2018 associated with RSUs and outstanding stock options that were anti-dilutive.

3.
RELATED PARTY TRANSACTIONS
The Saint Mary, L.P.
On June 19, 2018, The Saint Mary, L.P., a Texas limited partnership and a subsidiary of Stratus, completed a series of financing transactions to develop The Saint Mary, a 240-unit luxury, garden-style apartment project in the Circle C community in Austin, Texas. The financing transactions included (1) a $26 million construction loan with Texas Capital Bank, National Association and (2) an $8.0 million private placement. As one of the participants in the private placement offering, LCHM Holdings, LLC (LCHM), a related party as a result of its greater than 5 percent beneficial ownership of Stratus’ common stock, purchased limited partnership interests representing a 6.1 percent equity interest in The Saint Mary, L.P. Refer to Note 2 of the Stratus 2018 Form 10-K for further discussion.

Stratus Kingwood Place, L.P.
On August 3, 2018, Stratus Kingwood Place, L.P., a Texas limited partnership and a subsidiary of Stratus (the Kingwood, L.P.), completed a $10.7 million private placement, approximately $7 million of which, combined with a $6.75 million loan from Comerica Bank, was used to purchase a 54-acre tract of land located in Kingwood, Texas for $13.5 million, for the development of Kingwood Place, a new H-E-B, L.P. (HEB)-anchored mixed-use development project (Kingwood Place). As one of the participants in the private placement offering, LCHM purchased limited partnership interests initially representing an 8.8 percent equity interest in the Kingwood, L.P. Refer to Note 2 of the Stratus 2018 Form 10-K for further discussion.


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Stratus performed evaluations and concluded that The Saint Mary, L.P. and the Kingwood, L.P. are variable interest entities and that Stratus is the primary beneficiary. Stratus will continue to evaluate which entity is the primary beneficiary of The Saint Mary, L.P. and the Kingwood, L.P. in accordance with applicable accounting guidance. Stratus’ consolidated balance sheets include the following combined assets and liabilities of The Saint Mary, L.P. and the Kingwood, L.P. (in thousands):
 
 
March 31, 2019
 
December 31, 2018
Assets:
 
 
 
 
Cash and cash equivalents
 
$
60

 
$
1,939

Restricted cash
 

 
2,284

Real estate held under development
 
47,164

 
27,928

Other assets
 
1,004

 
792

Total assets
 
$
48,228

 
$
32,943

Liabilities:
 
 
 
 
Accounts payable and accrued liabilities
 
$
11,640

 
$
3,484

Debt
 
11,717

 
6,125

Total liabilities
 
$
23,357

 
$
9,609

Net assets
 
$
24,871

 
$
23,334



Other Transactions
Stratus has an arrangement with Austin Retail Partners for services provided by a consultant of Austin Retail Partners who is the son of Stratus' President and Chief Executive Officer. Payments to Austin Retail Partners for his general consulting services related to the entitlement and development of properties provided by the consultant and expense reimbursements during first-quarter 2019 approximated $27 thousand. Refer to Note 2 of the Stratus 2018 Form 10-K for further discussion.

4.
DISPOSITIONS
Circle C. On January 17, 2019, Stratus sold a retail pad subject to a ground lease located in the Circle C community for $3.2 million. Stratus recorded a gain of $2.1 million and used proceeds from the sale to repay $2.5 million of its Comerica Bank credit facility borrowings.

5.
FAIR VALUE MEASUREMENTS
Fair value accounting guidance includes a hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 inputs) and the lowest priority to unobservable inputs (Level 3 inputs).

The carrying value for certain Stratus financial instruments (i.e., cash and cash equivalents, restricted cash, accounts payable and accrued liabilities) approximates fair value because of their short-term nature and generally negligible credit losses.

A summary of the carrying amount and fair value of Stratus' other financial instruments follows (in thousands):
 
March 31, 2019
 
December 31, 2018
 
Carrying
Value
 
Fair
Value
 
Carrying
Value
 
Fair
Value
Assets:
 
 
 
 
 
 
 
Interest rate swap agreement
$

 
$

 
$
53

 
$
53

Liabilities:
 
 
 
 
 
 
 
Debt
320,909

 
325,599

 
295,531

 
299,531

Interest rate swap agreement
6

 
6

 

 


Debt. Stratus' debt is recorded at cost and is not actively traded. Fair value is estimated based on discounted future expected cash flows at estimated current market interest rates. Accordingly, Stratus' debt is classified within Level 2 of the fair value hierarchy. The fair value of debt does not represent the amounts that will ultimately be paid upon the maturities of the loans.

Interest Rate Swap Agreement. The interest rate swap does not qualify for hedge accounting and changes in its fair value are recorded in the consolidated statements of comprehensive income (loss). Stratus evaluated the counterparty credit risk associated with the interest rate swap agreement, which is considered a Level 3 input, but

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did not consider such risk to be significant. Therefore, the interest rate swap agreement is classified within Level 2 of the fair value hierarchy. The interest rate swap agreement with Comerica Bank was entered into in 2013, is effective through December 31, 2020, and has a fixed interest rate of 2.3 percent compared to the variable rate based on the one-month London Interbank Offered Rate (LIBOR). As of March 31, 2019, the agreement had a notional amount of $15.6 million, which amortizes to $14.8 million by the end of the agreement, and as of December 31, 2018, the agreement had a notional amount of $15.8 million.

6.
DEBT
The components of Stratus' debt are as follows (in thousands):
 
March 31, 2019
 
December 31, 2018
 
Goldman Sachs loan
$
142,718

 
$
143,250

 
Comerica Bank credit facility
49,395

 
50,221

 
Santal Phase I construction loan
32,647

 
32,622

 
Santal Phase II construction loan
24,902

 
19,867

 
Lantana Place construction loan
19,232

 
18,416

 
Jones Crossing construction loan
18,873

 
11,784

 
West Killeen Market construction loan
6,976

 
6,636

 
Kingwood Place construction loan
6,240

 
6,125

 
Amarra Villas credit facility
6,289

 
3,326

 
The Saint Mary construction loan
5,477

 

 
New Caney land loan
4,900

 

 
Barton Creek Village term loan
3,260

 
3,284

 
Total debta
$
320,909

 
$
295,531

 

a.
Includes net reductions for unamortized debt issuance costs of $3.4 million at March 31, 2019, and $2.8 million at December 31, 2018.

On January 17, 2019, Stratus repaid $2.5 million of the Comerica Bank credit facility with proceeds from the sale of a retail pad subject to a ground lease (see Note 4). As of March 31, 2019, Stratus had $8.4 million available under its $60.0 million Comerica Bank revolving line of credit, with $2.2 million of letters of credit committed against the credit facility.

On March 19, 2019, two Stratus subsidiaries entered into a loan agreement with Comerica Bank to modify, increase and extend Stratus' Amarra Villas credit facility, which was scheduled to mature on July 12, 2019. The new loan agreement provides for an increase in the revolving credit facility commitment from $8.0 million to $15.0 million and an extension of the maturity date to March 19, 2022. Interest on the loan is variable at LIBOR plus 3.0 percent. The Amarra Villas credit facility is guaranteed by Stratus and contains financial covenants usual and customary for loan agreements of this nature, including a requirement that Stratus maintain a net asset value, as defined in the agreement, of $125 million and a debt-to-gross asset value of less than 50 percent. As of March 31, 2019, Stratus had $8.4 million available under its $15.0 million Amarra Villas revolving credit facility. As a result of entering into this new loan agreement, Stratus recognized a loss on early extinguishment of debt of $16 thousand in first-quarter 2019.

On March 8, 2019, a Stratus subsidiary entered into a $5.0 million land loan with Texas Capital Bank. Proceeds from the loan were used to fund the acquisition of HEB's portion of the New Caney partnership in which Stratus and HEB purchased a tract of land for the future development of an HEB-anchored mixed-use project in New Caney, Texas. The loan matures on March 8, 2021, and may be extended for 12 months, subject to certain conditions. The loan bears interest at LIBOR plus 3.0 percent. Borrowings are secured by the New Caney land. The loan agreement contains customary financial covenants including a requirement that Stratus maintain a net asset value of $125 million.

For a description of Stratus' other debt, refer to Note 5 in the Stratus 2018 Form 10-K.

Interest Expense and Capitalization. Interest costs (before capitalized interest) totaled $4.6 million in first-quarter 2019 and $3.4 million in first-quarter 2018. Stratus' capitalized interest costs totaled $2.1 million in first-quarter 2019 and $1.8 million in first-quarter 2018, primarily related to development activities at Barton Creek.

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7.
PROFIT PARTICIPATION INCENTIVE PLAN
In July 2018, the Stratus Compensation Committee of the Board of Directors (the Committee) unanimously adopted the Stratus Profit Participation Incentive Plan (the Plan), which provides participants with economic incentives tied to the success of the development projects designated by the Committee as approved projects under the Plan. Refer to Note 7 of the Stratus 2018 Form 10-K for further discussion.
 
As of March 31, 2019, there were no significant changes to the Plan, the fair value of the awards or the assumptions used to determine the fair values of the awards at December 31, 2018. Estimates related to the awards may change over time due to differences between projected and actual development progress and costs, market conditions and the timing of capital transactions or valuation events.

For the three months ended March 31, 2019, Stratus accrued $0.2 million to project development costs and $0.3 million in general and administrative expense related to the Plan. The accrued liability for the Plan totaled $1.3 million at March 31, 2019, and $0.8 million at December 31, 2018 (included in other liabilities). As of March 31, 2019, no amounts had been paid to participants under the Plan.

8.
INCOME TAXES
Stratus’ accounting policy for and other information regarding its income taxes is further described in Notes 1 and 6 in the Stratus 2018 Form 10-K.

Stratus had deferred tax assets (net of deferred tax liabilities) totaling $11.5 million at March 31, 2019, and $11.8 million at December 31, 2018. Stratus’ future results of operations may be negatively impacted by an inability to realize a tax benefit for future tax losses or for items that will generate additional deferred tax assets.

The difference between Stratus' consolidated effective income tax rate for first-quarter 2019 and first-quarter 2018, and the U.S. Federal statutory income tax rate of 21 percent, was primarily attributable to the Texas state margin tax and permanent differences.

9.
BUSINESS SEGMENTS
Stratus currently has four operating segments: Real Estate Operations, Leasing Operations, Hotel and Entertainment.

The Real Estate Operations segment is comprised of Stratus’ real estate assets (developed for sale, under development and available for development), which consists of its properties in Austin, Texas (the Barton Creek community; the Circle C community, including The Saint Mary; the Lantana community, including a portion of Lantana Place still under development and vacant pad sites; and one condominium unit at the W Austin Hotel & Residences); in Lakeway, Texas, located in the greater Austin area (Lakeway); in College Station, Texas (a portion of Jones Crossing still under development and vacant pad sites); in Killeen, Texas (vacant pad sites at West Killeen Market); and in Magnolia, Texas (Magnolia), Kingwood, Texas (Kingwood Place) and New Caney, Texas (New Caney), located in the greater Houston area.

The Leasing Operations segment includes the office and retail space at the W Austin Hotel & Residences, Barton Creek Village, Santal Phase I and Phase II, West Killeen Market in Killeen, Texas, and completed portions of the Lantana Place and Jones Crossing projects.

The Hotel segment includes the W Austin Hotel located at the W Austin Hotel & Residences in downtown Austin, Texas.

The Entertainment segment includes ACL Live, a live music and entertainment venue, and 3TEN ACL Live, both located at the W Austin Hotel & Residences. In addition to hosting concerts and private events, ACL Live is the home of Austin City Limits, the longest running music series in American television history.

Stratus uses operating income or loss to measure the performance of each segment. General and administrative expenses, which primarily consist of employee salaries, wages and other costs, are managed on a consolidated basis and are not allocated to Stratus' operating segments. The following segment information reflects management determinations that may not be indicative of what the actual financial performance of each segment would be if it were an independent entity.
 
 
 
 
 
 
 
 
 
 
 
 

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Revenues from Contracts with Customers. Stratus' revenues from contracts with customers follow (in thousands):
 
 
Three Months Ended March 31,
 
 
2019
 
2018
Real Estate Operations:
 
 
 
 
Developed property sales
 
$
2,834

 
$
1,155

Commissions and other
 
114

 
39

 
 
2,948

 
1,194

Leasing Operations:
 
 
 
 
Rental revenue
 
3,629

 
2,004

 
 
3,629

 
2,004

Hotel:
 
 
 
 
Rooms, food and beverage
 
7,737

 
8,694

Other
 
588

 
628

 
 
8,325

 
9,322

Entertainment:
 
 
 
 
Event revenue
 
4,224

 
4,649

Other
 
572

 
596

 
 
4,796

 
5,245

 
 
 
 
 
Total Revenues from Contracts with Unaffiliated Customers
 
$
19,698

 
$
17,765



Financial Information by Business Segment. The following segment information was prepared on the same basis as Stratus’ consolidated financial statements (in thousands).
 
Real Estate
Operationsa
 
Leasing Operations
 
Hotel
 
Entertainment
 
Corporate, Eliminations and Otherb
 
Total
Three Months Ended March 31, 2019:
 
 
 
 
 
 
 
 
 
 
 
Revenues:
 
 
 
 
 
 
 
 
 
 
 
Unaffiliated customers
$
2,948

 
$
3,629

 
$
8,325

 
$
4,796

 
$

 
$
19,698

Intersegment
5

 
230

 
47

 
29

 
(311
)
 

Cost of sales, excluding depreciation
46

c 
2,144

 
6,698

 
3,607

 
(156
)
 
12,339

Depreciation
61

 
1,407

 
900

 
394

 
(132
)
 
2,630

General and administrative expenses

 

 

 

 
3,199

 
3,199

Gain on sale of assets

 
(2,113
)
d 

 

 

 
(2,113
)
Operating income (loss)
$
2,846

 
$
2,421

 
$
774

 
$
824

 
$
(3,222
)
 
$
3,643

Capital expenditures and purchases and development of real estate properties
$
3,298

 
$
29,220

 
$
98

 
$
125

 
$

 
$
32,741

MUD reimbursements classified as a reduction of real estate under developmentc
920

 

 

 

 

 
920

Total assets at March 31, 2019
219,215

 
159,606

 
99,146

 
44,000

 
6,816

 
528,783

Three Months Ended March 31, 2018:
 
 
 
 
 
 
 
 
 
 
 
Revenues:
 
 
 
 
 
 
 
 
 
 
 
Unaffiliated customers
$
1,194

 
$
2,004

 
$
9,322

 
$
5,245

 
$

 
$
17,765

Intersegment
8

 
251

 
72

 
14

 
(345
)
 

Cost of sales, excluding depreciation
1,566

 
1,190

 
7,038

 
4,136

 
(185
)
 
13,745

Depreciation
61

 
633

 
895

 
388

 
(35
)
 
1,942

General and administrative expenses

 

 

 

 
2,981

 
2,981

Operating (loss) income
$
(425
)
 
$
432

 
$
1,461

 
$
735

 
$
(3,106
)
 
$
(903
)
Capital expenditures and purchases and development of real estate properties
$
3,612

 
$
23,799

 
$
239

 
$
338

 
$

 
$
27,988

Total assets at March 31, 2018
210,279

 
71,092

 
101,582

 
36,439

 
7,036

 
426,428


a.
Includes sales commissions and other revenues together with related expenses.
b.
Includes consolidated general and administrative expenses and eliminations of intersegment amounts.
c.
Stratus received $4.6 million of bond proceeds related to MUD reimbursements of infrastructure costs incurred for development of Barton Creek. Of the total amount, Stratus recorded $0.9 million as a reduction of real estate under

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development on the consolidated balance sheets, and $3.4 million as a reduction in real estate cost of sales and $0.3 million in other income, net in the consolidated statements of comprehensive income (loss). Refer to Note 1 of the Stratus 2018 Form 10-K for further discussion of Stratus' accounting policy for MUD reimbursements.
d.
Includes $2.1 million associated with the sale of a retail pad subject to a ground lease located in the Circle C community.
 
 
 
 
 
 
 
 
 
 
 
 

10.
NEW ACCOUNTING STANDARDS
Leases. Effective January 1, 2019, Stratus adopted an Accounting Standards Update (ASU) that requires lessees to recognize most leases on the balance sheet. Stratus elected the practical expedients allowing it to (i) apply the provisions of the updated lease guidance at the effective date, without adjusting the comparative periods presented, and (ii) not reassess lease contracts, lease classification and initial direct costs of leases existing at adoption. Stratus also elected an accounting policy to not recognize a lease asset and liability for leases with a term of 12 months or less and a purchase option that is not expected to be exercised.

Stratus' most significant lease is a 99-year ground lease for approximately 72 acres of land in College Station, Texas on which it is developing the Jones Crossing project. Stratus also leases various types of assets, including office space, vehicles and office equipment under non-cancelable leases. All of Stratus' leases are considered operating leases under the new ASU. Adoption of this ASU resulted in the recognition of lease right-of-use assets of $11.9 million and lease liabilities of $12.0 million as of January 1, 2019.

Operating lease costs were $0.3 million in first-quarter 2019. Total lease costs were $0.4 million in first-quarter 2018.
 
 
During first-quarter 2019, Stratus paid $52 thousand for lease liabilities recorded in the consolidated balance sheet (included in operating cash flows in the consolidated statements of cash flows). As of March 31, 2019, the weighted-average discount rate used to determine the lease liabilities was 6.0 percent and the weighted-average remaining lease term was 94.0 years.

The future minimum payments for leases recorded on the consolidated balance sheet at March 31, 2019, follow (in thousands):
Remaining nine months of 2019
$
173

2020
199

2021
145

2022
434

2023
497

Thereafter
110,548

Total payments
111,996

Present value adjustment
(99,738
)
Present value of net minimum lease payments
$
12,258



The adoption of this ASU did not materially impact Stratus' accounting for contracts in which it is the lessor. Refer to Note 8 of the Stratus 2018 Form 10-K for further disclosure of minimum rental income under non-cancelable long-term leases as of December 31, 2018.

11. SUBSEQUENT EVENTS
Stratus evaluated events after March 31, 2019, and through the date the financial statements were issued, and determined any events or transactions occurring during this period that would require recognition or disclosure are appropriately addressed in these financial statements.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

In Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A), “we,” “us,” “our” and "Stratus" refer to Stratus Properties Inc. and all entities owned or controlled by Stratus Properties Inc. You should read the following discussion in conjunction with our consolidated financial statements, related MD&A and discussion of our business and properties included in our Annual Report on Form 10-K for the year ended December 31, 2018 (2018 Form 10-K) filed with the United States (U.S.) Securities and Exchange Commission (SEC). The results of operations reported and summarized below are not necessarily indicative of future operating results, and future results could differ materially from those anticipated in forward-looking statements (refer to “Cautionary Statement” for further discussion). All subsequent references to “Notes” refer to Notes to Consolidated Financial Statements (Unaudited) located in Part I, Item 1. “Financial Statements” of this Form 10-Q, unless otherwise stated.
We are a diversified real estate company with headquarters in Austin, Texas. We are engaged primarily in the acquisition, entitlement, development, management, operation and sale of commercial, and multi-family and single-family residential real estate properties, real estate leasing, and the operation of hotel and entertainment businesses located in the Austin, Texas area, and other select, fast-growing markets in Texas. We generate revenues and cash flows from the sale of our developed properties, rental income from our leased properties and from our hotel and entertainment operations. See Note 9 for further discussion of our operating segments.
BUSINESS STRATEGY

Our development portfolio consists of approximately 1,800 acres of commercial, multi-family and single-family residential projects under development or undeveloped and held for future use. Our W Austin Hotel and our ACL Live and 3TEN ACL Live entertainment venues are located in downtown Austin and are central to the city's world renowned, vibrant music scene.

Our primary business objective is to create value for stockholders by methodically developing and enhancing the value of our properties and then selling them profitably. Our development program of acquiring properties, securing and maintaining development entitlements, constructing and stabilizing the properties, and then preparing them for sale or refinancing is a key element of our strategy. We currently have projects in each of these stages as described below in “Development Activities - Current Residential Activities” and “Development Activities - Current Commercial Activities.”

We believe that Austin and other select, fast-growing markets in Texas continue to be desirable locations. Many of our developments are in locations where development approvals have historically been subject to regulatory constraints, which has made it difficult to obtain entitlements. Our Austin properties, which are located in desirable areas with significant regulatory constraints, are entitled and have utility capacity for full buildout. As a result, we believe that through strategic planning, development and marketing, we can maximize and fully realize their value.

Our development plans require significant capital, which we may pursue through joint ventures or other arrangements. Our business strategy requires us to rely on cash flow from operations and debt financing as our primary sources of funding for our liquidity needs. We have also, from time to time, relied on project-level equity financing of our subsidiaries. We have formed strategic relationships as part of our overall strategy for particular development projects and may enter into other similar arrangements in the future.

OVERVIEW

Our developed property sales can include an individual tract of land that has been developed and permitted for residential use, a developed lot with a residence already built on it or condominium units at the W Austin Residences. We may also sell properties under development, undeveloped properties or leased properties, if opportunities arise that we believe will maximize overall asset values as part of our business strategy.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
In first-quarter 2019, our revenues totaled $19.7 million and our net income attributable to common stockholders totaled $0.9 million, compared with revenues of $17.8 million and a net loss attributable to common stockholders of $1.9 million for first-quarter 2018. The increase in revenues in first-quarter 2019, compared with first-quarter 2018, primarily reflects higher revenues from single-family residential property sales and increased revenues associated with execution of new leases for recently completed properties, partly offset by reduced hotel group business and entertainment event attendance.

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We received $4.6 million of bond proceeds in first-quarter 2019 related to Travis County municipal utility district (MUD) reimbursements of infrastructure costs incurred for development of Barton Creek. Of the total amount, we recorded $0.9 million as a reduction of real estate under development on the consolidated balance sheets, and $3.4 million as a reduction in real estate cost of sales and $0.3 million in other income, net in the consolidated statements of comprehensive income (loss). First-quarter 2019 also included a gain on the sale of assets totaling $2.1 million related to the sale of a retail pad subject to a ground lease located in the Circle C community.
At March 31, 2019, we had total debt of $320.9 million and consolidated cash of $19.0 million. We have significant recurring costs, including property taxes, maintenance and marketing, and we believe we will have sufficient sources of debt financing and cash from operations to meet our cash requirements. See “Capital Resources and Liquidity below and “Risk Factors” included in Part 1, Item 1A. of our 2018 Form 10-K for further discussion.
DEVELOPMENT ACTIVITIES
 
 
 
 
 
 
 
 
 
Current Residential Activities.
We sold 2 Amarra Drive Phase III lots for $1.1 million in first-quarter 2019 under the contract discussed below, and as of March 31, 2019, 28 developed Amarra Drive Phase III lots and 9 developed Amarra Drive Phase II lots remained unsold.
  
In March 2019, we amended a contract previously entered into in March 2018, pursuant to which we agreed to sell 2 Amarra Drive Phase II lots and 12 Amarra Drive Phase III lots to a homebuilder for a total of $9.5 million. In accordance with the amended contract, the parties are required to close on the sale of these lots ratably by March 31, 2020. If the purchaser fails to close on the sale of the minimum number of lots by any of the specified closing dates, we may elect to terminate the contract but would retain the related $45 thousand earnest money. In first-quarter 2019, in accordance with the contract, we sold two Amarra Drive Phase III lots for $1.1 million as discussed above.

Subsequent to March 31, 2019, and through May 9, 2019, we sold two Amarra Drive Phase III lots for $1.0 million, one of which was subject to the contract discussed above. As of May 3, 2019, one Amarra Drive Phase III lot was under contract, in addition to the remaining seven Amarra Drive Phase III lots subject to the contract discussed above.

The Villas at Amarra Drive (Amarra Villas) townhome project is a 20-unit development for which we completed site work in late 2015. Construction of the first five townhomes was completed during 2017 and an additional two townhomes were completed in 2018. We sold one townhome for $1.7 million in first-quarter 2019, and subsequent to March 31, 2019, and through May 9, 2019, we closed on the sale of the last completed townhome for $1.8 million. We expect to begin construction of the next five Amarra Villas townhomes in mid-2019.
As of March 31, 2019, Santal Phase I, a garden-style, multi-family project located in the upscale Barton Creek Community, was fully leased and stabilized. The first Santal Phase II units, located directly adjacent to the Phase I units, became available for occupancy in August 2018 and we completed construction of the remaining units during first-quarter 2019. As of March 31, 2019, 78 percent of the Phase II units were leased. We are actively exploring options to sell or refinance the combined 448-unit Santal property.
In June 2018, we obtained project financing for, and commenced construction of The Saint Mary, a 240-unit luxury garden-style apartment project in the Circle C Community. The project is progressing ahead of schedule and on budget. The first units are scheduled to be delivered by the end of May 2019 and project completion is expected in fourth-quarter 2019.
For further discussion of our multi-family and single-family residential properties, see MD&A in our 2018 Form 10-K.
 
 
 
 
 
 
 
 

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Current Commercial Activities.
Construction of Kingwood Place, an H-E-B, L.P. (HEB)-anchored, mixed-use development in Kingwood, Texas, is progressing on schedule and on budget. As of March 31, 2019, we had signed leases for 79 percent of the retail space, including the HEB grocery store. The HEB grocery store is currently anticipated to open in November 2019, and the first retail buildings are expected to be turned over to tenants to begin construction of their interior spaces in August 2019. See Note 3 for further discussion of project financing.

In March 2019, we finalized the lease for the HEB store at New Caney, an HEB-anchored, mixed-use development in New Caney, Texas, and acquired HEB's interests in the partnership for approximately $5 million. We currently do not anticipate commencing construction on the New Caney project prior to 2021. See Note 6 for further discussion of the land loan.

We currently plan to begin construction of the Magnolia project, an HEB-anchored retail project planned for 351,000 square feet of commercial space, in fourth-quarter 2019. The HEB grocery store is currently anticipated to open in October 2020.

Construction of the first phase of Lantana Place, a mixed-use real-estate project located in southwest Austin was completed in 2018. As of March 31, 2019, we had signed leases for 78 percent of the retail space, including the anchor tenant, Moviehouse & Eatery, and a ground lease for an AC Hotel by Marriott. Construction of the hotel is currently anticipated to begin in May 2019.

As of March 31, 2019, we had signed leases for 89 percent of the retail space at the first phase of Jones Crossing, an HEB-anchored, mixed-use development located in College Station, Texas, and 68 percent of the retail space at West Killeen Market, an HEB-anchored retail project located in Killeen, Texas.

For further discussion of our commercial properties, see MD&A in our 2018 Form 10-K.

RESULTS OF OPERATIONS

We are continually evaluating the development and sale potential of our properties and will continue to consider opportunities to enter into transactions involving our properties, including possible joint ventures or other arrangements. As a result, and because of numerous other factors affecting our business activities as described herein and in our 2018 Form 10-K, our past operating results are not necessarily indicative of our future results. We use operating income or loss to measure the performance of each operating segment. Corporate, eliminations and other includes consolidated general and administrative expenses, which primarily consist of employee salaries and other costs.
The following table summarizes our results (in thousands):
 
Three Months Ended March 31,
 
2019
 
2018
Operating income (loss):
 
 
 
Real estate operations
$
2,846

 
$
(425
)
Leasing operations
2,421

 
432

Hotel
774

 
1,461

Entertainment
824

 
735

Corporate, eliminations and other
(3,222
)
 
(3,106
)
Operating income (loss)
$
3,643

 
$
(903
)
Interest expense, net
$
(2,572
)
 
$
(1,559
)
Net income (loss) attributable to common stockholders
$
862

 
$
(1,870
)
We have four operating segments: Real Estate Operations, Leasing Operations, Hotel and Entertainment (see Note 9). The following is a discussion of our operating results by segment.


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Real Estate Operations
The following table summarizes our Real Estate Operations results (in thousands):
 
Three Months Ended March 31,
 
2019
 
2018
Revenues:
 
 
 
Developed property sales
$
2,834

 
$
1,155

Commissions and other
119

 
47

Total revenues
2,953

 
1,202

Cost of sales, including depreciation
107

 
1,627

Operating income (loss)
$
2,846

 
$
(425
)
 
 
 
 

Developed Property Sales. The following table summarizes our developed property sales (dollars in thousands):
 
Three Months Ended March 31,
 
2019
 
2018
 
Lots/Units
 
Revenues
 
Average Cost Per Lot
 
Lots/Units
 
Revenues
 
Average Cost Per Lot
Barton Creek
 
 
 
 
 
 
 
 
 
 
 
Amarra Drive:
 
 
 
 
 
 
 
 
 
 
 
Phase II

 
$

 
$

 
1

 
$
605

 
$
209

Phase III
2

 
1,149

 
226

 
1

 
550

 
236

Amarra Villas
1

 
1,685

 
1,588

 

 

 

 
 
 
 
 
 
 
 
 
 
 
 
Total Residential
3

 
$
2,834

 
 
 
2

 
$
1,155

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cost of Sales. Cost of sales includes cost of property sold, project operating and marketing expenses and allocated overhead costs, partly offset by reductions for certain MUD reimbursements. Cost of sales totaled $0.1 million for first-quarter 2019, compared with $1.6 million for first-quarter 2018. The decrease in cost of sales in first-quarter 2019, compared with first-quarter 2018, primarily reflects $3.4 million in MUD reimbursements recorded as a reduction in real estate cost of sales as the reimbursed property had previously been sold. The decrease is partially offset by higher costs associated with the sale of one Amarra Villas townhome, which has a higher cost basis than the other properties sold.

Leasing Operations
The following table summarizes our Leasing Operations results (in thousands):
 
Three Months Ended March 31,
 
2019
 
2018
Rental revenue
$
3,859

 
$
2,255

Rental cost of sales, excluding depreciation
2,144

 
1,190

Depreciation
1,407

 
633

Gain on sale of assets
(2,113
)
 

Operating income
$
2,421

 
$
432

Rental Revenue.  Rental revenue primarily includes revenue from Santal Phase I and Phase II, the office and retail space at the W Austin Hotel & Residences, West Killeen Market, Lantana Place, Jones Crossing and Barton Creek Village. The increase in rental revenue in first-quarter 2019, compared with first-quarter 2018, primarily reflects the commencement of new leases at our recently completed properties, Lantana Place, Jones Crossing and Santal Phase II.

Rental Cost of Sales and Depreciation. Rental cost of sales and depreciation expense increased in first-quarter 2019, compared with first-quarter 2018, primarily as a result of the activity at Santal Phase I and Phase II, Lantana Place and Jones Crossing.

Gain on Sale of Assets. On January 17, 2019, Stratus sold a retail pad subject to a ground lease located in the Circle C community for $3.2 million. Stratus recorded a gain of $2.1 million and used proceeds from the sale to repay $2.5 million of its Comerica Bank credit facility borrowings.

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Table of Contents


Hotel
The following table summarizes our Hotel results (in thousands):
 
Three Months Ended March 31,
 
2019
 
2018
Hotel revenue
$
8,372

 
$
9,394

Hotel cost of sales, excluding depreciation
6,698

 
7,038

Depreciation
900

 
895

Operating income
$
774

 
$
1,461

Hotel Revenue. Hotel revenue primarily includes revenue from W Austin Hotel room reservations and food and beverage sales. Hotel revenues decreased in first-quarter 2019, compared with first-quarter 2018, primarily as a result of reduced group business and lower food and beverage sales. Revenue per available room (RevPAR), which is calculated by dividing total room revenue by the average total rooms available, was $238 for first-quarter 2019, compared with $262 for first-quarter 2018. While we remain positive on the long-term outlook of the W Austin Hotel based on continued population growth and increased tourism in the Austin market, a continued increase in competition resulting from the anticipated opening of additional hotel rooms in downtown Austin during the remainder of 2019 and 2020 may have an ongoing impact on our hotel revenues.
Entertainment
The following table summarizes our Entertainment results (in thousands):
 
Three Months Ended March 31,
 
2019
 
2018
Entertainment revenue
$
4,825

 
$
5,259

Entertainment cost of sales, excluding depreciation
3,607

 
4,136