Stratus Properties Earnings 2020-03-31
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United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the quarterly period ended March 31, 2020
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
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of | (I.R.S. Employer Identification No.) | |||||||
| incorporation or organization) | ||||||||
| (Address of principal executive offices) | (Zip Code) | |||||||||||||||||||
(512 ) 478-5788
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
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.
☑ 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). ☑ 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 | ☐ | ☑ | |||||||||
Non-accelerated filer | ☐ | Smaller reporting company | |||||||||
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 ☑ No
On June 19, 2020, there were issued and outstanding 8,210,139 shares of the registrant’s common stock, par value $0.01 per share.
EXPLANATORY NOTE
On March 4, 2020, the United States Securities and Exchange Commission (the SEC) issued an order under Section 36 of the Securities Exchange Act of 1934, as amended (the Exchange Act), which was modified and superseded on March 25, 2020 (Release No. 34-88465), providing conditional relief to public companies that are unable to meet a filing deadline because of circumstances related to the COVID-19 pandemic (the SEC Order).
Stratus Properties Inc. (we or our) is filing this Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2020, (the Quarterly Report) in reliance on the SEC Order because of circumstances related to the COVID-19 pandemic. In particular, COVID-19 and related precautionary responses from federal, state and local governments limited access to our facilities, including our corporate headquarters, and disrupted normal interactions among our accounting personnel and other staff involved in the completion of our Quarterly Report. The pandemic raised uncertainties surrounding our business and financing activities and real estate transactions. In addition, management’s attention has been focused primarily on addressing the operational and financial challenges presented by the pandemic. These restrictions, uncertainties and challenges slowed the completion of our internal reviews, including the evaluation of the various impacts of COVID-19 on our financial statements, and the preparation and completion of the Quarterly Report in a timely manner.
Pursuant to the requirements of the SEC Order, we filed a Current Report on Form 8-K with the SEC on May 11, 2020, indicating our intention to rely upon the SEC Order with respect to the filing of this Quarterly Report, which would have otherwise been filed by May 11, 2020. This Quarterly Report is being filed within the 45-day extension period provided by the SEC Order.
| STRATUS PROPERTIES INC. | |||||
| TABLE OF CONTENTS | |||||
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
STRATUS PROPERTIES INC.
CONSOLIDATED BALANCE SHEETS (Unaudited)
(In Thousands)
| March 31, 2020 | December 31, 2019 | ||||||||||
| ASSETS | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Restricted cash | |||||||||||
| Real estate held for sale | |||||||||||
| Real estate under development | |||||||||||
| Land available for development | |||||||||||
| Real estate held for investment, net | |||||||||||
| Lease right-of-use assets | |||||||||||
| Deferred tax assets | |||||||||||
| Other assets | |||||||||||
| Total assets | $ | $ | |||||||||
| LIABILITIES AND EQUITY | |||||||||||
| Liabilities: | |||||||||||
| Accounts payable | $ | $ | |||||||||
| Accrued liabilities, including taxes | |||||||||||
| Debt | |||||||||||
| Lease liabilities | |||||||||||
| Deferred gain | |||||||||||
| Other liabilities | |||||||||||
| Total liabilities | |||||||||||
| Commitments and contingencies | |||||||||||
| Equity: | |||||||||||
| Stockholders’ equity: | |||||||||||
| Common stock | |||||||||||
| Capital in excess of par value of common stock | |||||||||||
| Accumulated deficit | ( | ( | |||||||||
| Common stock held in treasury | ( | ( | |||||||||
| Total stockholders’ equity | |||||||||||
| Noncontrolling interests in subsidiaries | |||||||||||
| Total equity | |||||||||||
| Total liabilities and equity | $ | $ | |||||||||
The accompanying Notes to Consolidated Financial Statements (Unaudited) are an integral part of these consolidated financial statements.
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STRATUS PROPERTIES INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME (Unaudited)
(In Thousands, Except Per Share Amounts)
| Three Months Ended | |||||||||||
| March 31, | |||||||||||
| 2020 | 2019 | ||||||||||
| Revenues: | |||||||||||
| Real estate operations | $ | $ | |||||||||
| Leasing operations | |||||||||||
| Hotel | |||||||||||
| Entertainment | |||||||||||
| Total revenues | |||||||||||
| Cost of sales: | |||||||||||
| Real estate operations | |||||||||||
| Leasing operations | |||||||||||
| Hotel | |||||||||||
| Entertainment | |||||||||||
| Depreciation | |||||||||||
| Total cost of sales | |||||||||||
| General and administrative expenses | |||||||||||
| Gain on sale of assets | ( | ||||||||||
| Total | |||||||||||
| Operating (loss) income | ( | ||||||||||
| Interest expense, net | ( | ( | |||||||||
| Loss on interest rate derivative instruments | ( | ( | |||||||||
| Loss on early extinguishment of debt | ( | ||||||||||
| Other income, net | |||||||||||
(Loss) income before income taxes | ( | ||||||||||
| Benefit from (provision for) income taxes | ( | ||||||||||
Net (loss) income and total comprehensive (loss) income | ( | ||||||||||
Total comprehensive loss attributable to noncontrolling interests in subsidiaries | |||||||||||
Net (loss) income and total comprehensive (loss) income attributable to common stockholders | $ | ( | $ | ||||||||
| Net (loss) income per share attributable to common stockholders: | |||||||||||
Basic | $ | ( | $ | ||||||||
| Diluted | $ | ( | $ | ||||||||
Weighted-average common shares outstanding: | |||||||||||
Basic | |||||||||||
| Diluted | |||||||||||
The accompanying Notes to Consolidated Financial Statements (Unaudited) are an integral part of these consolidated financial statements.
3
STRATUS PROPERTIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In Thousands)
| Three Months Ended | |||||||||||
| March 31, | |||||||||||
| 2020 | 2019 | ||||||||||
| Cash flow from operating activities: | |||||||||||
| Net (loss) income | $ | ( | $ | ||||||||
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities: | |||||||||||
| Depreciation | |||||||||||
| Cost of real estate sold | |||||||||||
| Gain on sale of assets | ( | ||||||||||
| Loss on interest rate derivative contracts | |||||||||||
| Loss on early extinguishment of debt | |||||||||||
| Amortization of debt issuance costs and stock-based compensation | |||||||||||
| (Decrease) increase in deposits | ( | ||||||||||
| Deferred income taxes | |||||||||||
| Purchases and development of real estate properties | ( | ( | |||||||||
Municipal utility district reimbursements applied to real estate under development | |||||||||||
| Increase in other assets | ( | ( | |||||||||
| Decrease in accounts payable, accrued liabilities and other | ( | ( | |||||||||
| Net cash (used in) provided by operating activities | ( | ||||||||||
| Cash flow from investing activities: | |||||||||||
| Capital expenditures | ( | ( | |||||||||
| Proceeds from sale of assets | |||||||||||
| Payments on master lease obligations | ( | ( | |||||||||
| Purchase of noncontrolling interest in consolidated subsidiary | ( | ||||||||||
| Net cash used in investing activities | ( | ( | |||||||||
| Cash flow from financing activities: | |||||||||||
| Borrowings from credit facility | |||||||||||
| Payments on credit facility | ( | ( | |||||||||
| Borrowings from project loans | |||||||||||
| Payments on project and term loans | ( | ( | |||||||||
| Cash dividend paid for stock-based awards | ( | ( | |||||||||
| Stock-based awards net payments | ( | ( | |||||||||
| Financing costs | ( | ( | |||||||||
| Net cash provided by financing activities | |||||||||||
| Net decrease in cash, cash equivalents and restricted cash | ( | ( | |||||||||
| Cash, cash equivalents and restricted cash at beginning of year | |||||||||||
| Cash, cash equivalents and restricted cash at end of period | $ | $ | |||||||||
The accompanying Notes to Consolidated Financial Statements (Unaudited), which include information regarding noncash transactions, are an integral part of these consolidated financial statements.
4
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, 2019 | $ | $ | $ | ( | $ | ( | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||
| Exercised and vested stock-based awards | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||
Tender of shares for stock-based awards | — | — | — | — | ( | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||
| Total comprehensive loss | — | — | — | ( | — | — | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2020 | $ | $ | $ | ( | $ | ( | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2018 | $ | $ | $ | ( | $ | ( | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||
| Exercised and vested stock-based awards | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||
Tender of shares for stock-based awards | — | — | — | — | ( | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||
Purchase of noncontrolling interest in consolidated subsidiary | — | — | — | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| Total comprehensive income | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2019 | $ | $ | $ | ( | $ | ( | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||
The accompanying Notes to Consolidated Financial Statements (Unaudited) are an integral part of these consolidated financial statements.
5
STRATUS PROPERTIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1.GENERAL
Operating results for the three-month period ended March 31, 2020, are not necessarily indicative of the results that may be expected for the year ending December 31, 2020. In particular, the impact of the COVID-19 pandemic intensified late in the first quarter of 2020, has continued into the second quarter of 2020 and is expected to continue beyond the second quarter of 2020. As a result, this interim period, as well as future interim periods in 2020, will not be comparable to past performance or indicative of future performance.
Block 21 Update. Block 21 is Stratus’ wholly owned mixed-use real estate development and entertainment business in downtown Austin, Texas that contains the 251 -room W Austin Hotel and is home to Austin City Limits Live at the Moody Theater, a 2,750 -seat entertainment venue that serves as the location for the filming of Austin City Limits, the longest running music series in American television history. Block 21 also includes Class A office space, retail space and the 3TEN ACL Live entertainment venue and business.
On December 9, 2019, Stratus entered into definitive agreements to sell Block 21 to Ryman Hospitality Properties, Inc. (Ryman) for $275 million. Ryman deposited $15.0 million in earnest money to secure its performance under the agreements governing the sales. As this represented a strategic shift for Stratus, the assets and liabilities of Block 21 were previously classified as held for sale - discontinued operations in the consolidated balance sheet at December 31, 2019. As previously disclosed, on May 21, 2020, Ryman delivered a termination letter, which was agreed to and accepted by Stratus, terminating the agreements to sell Block 21 and authorizing the release of Ryman's $15.0 million in earnest money to Stratus. Stratus used $13.8 million of the $15.0 million earnest money to pay down its Comerica Bank revolving credit facility and used the remaining $1.2 million for Block 21 debt service and required monthly reserves. Stratus will record the $15.0 million as income in the second quarter of 2020. As a result of the termination of the agreements to sell Block 21, Stratus has concluded that such assets and liabilities no longer qualified as held for sale as of March 31, 2020. The carrying amounts as of December 31, 2019, of Block 21’s major classes of assets and liabilities, which were previously classified as held for sale - discontinued operations in the consolidated balance sheet follow (in thousands):
| Assets: | |||||
| Cash and cash equivalents | $ | ||||
| Restricted cash | |||||
| Real estate held for investment | |||||
| Other assets | |||||
| Total assets | $ | ||||
| Liabilities: | |||||
| Accounts payable and accrued liabilities, including taxes | $ | ||||
| Debt | |||||
| Other liabilities | |||||
| Total liabilities | $ | ||||
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COVID-19 Impact. Since January 2020, the COVID-19 pandemic has caused substantial disruption in international and U.S. economies and markets. The pandemic has resulted in government restrictions of various degrees and effective at various times, including stay-at-home orders, bans on travel, limitations on the size of gatherings, limitations on the operations of businesses deemed non-essential, closures of work facilities, schools, public buildings and businesses, cancellation of events (including entertainment events, conferences and meetings), quarantines and social distancing measures. The pandemic and responses to it have also caused a steep increase in unemployment in the U.S. As a result, the pandemic has had a significant adverse impact on Stratus' business and operations. As mentioned above, Stratus' previously announced transaction to sell Block 21 was terminated by Ryman as a result of the capital markets and economic environment caused by the COVID-19 pandemic. Additionally, Stratus is deferring progress on development projects pending improvements in health and market conditions, but Stratus continues to advance its land planning, engineering and permitting activities. Because the pandemic is unprecedented in recent history, and its severity, duration and future economic consequences are difficult to predict, Stratus cannot predict its future impact on the company with any certainty.
Stratus’ revenue, operating income and cash flow in its hotel and entertainment segments were adversely impacted in the first quarter of 2020, have been more adversely impacted in the second quarter of 2020 and are expected to continue to be adversely impacted beyond second-quarter 2020. For example, while the hotel has remained open throughout the pandemic, average occupancy for the second quarter through June 21, 2020, was 12 percent, with June having the highest occupancy in the second quarter, averaging 24 percent.
As a result of the COVID-19 pandemic, many of Stratus’ retail leasing tenants, other than grocery and liquor stores, closed or were operating at significantly reduced capacity beginning late in the first quarter of 2020 and continuing into the second quarter of 2020. Beginning in April 2020, Stratus agreed, generally, to 90 -day base rent deferrals with a majority of these tenants. The deferred rent will be amortized over a 12 -month or 24 -month period starting in January 2021. These rent deferrals have resulted in a reduction of scheduled base rent collections of approximately 30 percent for the second quarter through June 22, 2020. As of mid-June, most of Stratus’ retail tenants have reopened. At its multi-family properties, Stratus has granted rent deferral accommodations on a case-by-case basis, which as of June 22, 2020, had resulted in a reduction of scheduled rent collections of approximately two percent of contractual rents, with no material decline in occupancy. In the aggregate, Stratus’ second-quarter retail and multi-family rent collections are 15 percent less than scheduled rent as of June 22, 2020. Stratus will assess these deferred rents for potential credit losses at June 30, 2020.
In response to the COVID-19 pandemic, the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act) was signed into law on March 27, 2020. The CARES Act provides retroactive tax provisions and other stimulus measures to affected companies including the ability to carryback net operating losses, raising the limitation on the deductibility of interest expense, technical corrections to accelerate tax depreciation for qualified improvement property, and delaying the payment of employer payroll taxes. On April 22, 2020, Stratus received a $4.0 million loan under the Paycheck Protection Program of the CARES Act. The loan bears interest at one percent and matures April 15, 2022. The proceeds from the loan must be used to retain workers and maintain payroll or make mortgage interest payments, lease payments and utility payments. As of June 25, 2020, Stratus has not used the funds. Refer to Note 8 for further discussion of income tax benefits.
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2. EARNINGS PER SHARE
Stratus’ basic net (loss) income per share of common stock was calculated by dividing the net (loss) income attributable to common stockholders by the weighted-average shares of common stock outstanding during the period. A reconciliation of net (loss) income and weighted-average shares of common stock outstanding for purposes of calculating diluted net (loss) income per share (in thousands, except per share amounts) follows:
| Three Months Ended | ||||||||||||||
| March 31, | ||||||||||||||
| 2020 | 2019 | |||||||||||||
Net (loss) income and total comprehensive (loss) income attributable to common stockholders | $ | ( | $ | |||||||||||
Basic weighted-average shares of common stock outstanding | ||||||||||||||
Add shares issuable upon exercise or vesting of dilutive stock options and restricted stock units (RSUs) | a | b | ||||||||||||
Diluted weighted-average shares of common stock outstanding | ||||||||||||||
Net (loss) income per share attributable to common stockholders: | ||||||||||||||
Basic | $ | ( | $ | |||||||||||
Diluted | $ | ( | $ | |||||||||||
a.Excludes 78 thousand shares of common stock associated with RSUs and stock options that were anti-dilutive as a result of the net loss.
b.Excludes 31 thousand shares of common stock associated with RSUs 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 $26.0 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 2019 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 Class B limited partnership interests initially representing an 8.8 percent equity interest in the Kingwood, L.P. Refer to Note 2 of the Stratus 2019 Form 10-K for further discussion.
Stratus has 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. The Saint Mary, L.P. and the Kingwood, L.P.’s results are consolidated in Stratus’ financial statements.
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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, 2020 | December 31, 2019 | |||||||||||||
| Assets: | ||||||||||||||
| Cash and cash equivalents | $ | $ | ||||||||||||
| Real estate under development | ||||||||||||||
| Land available for development | ||||||||||||||
| Real estate held for investment | ||||||||||||||
| Other assets | ||||||||||||||
| Total assets | $ | $ | ||||||||||||
| Liabilities: | ||||||||||||||
| Accounts payable and accrued liabilities | $ | $ | ||||||||||||
| Debt | ||||||||||||||
| Total liabilities | $ | $ | ||||||||||||
| Net assets | $ | $ | ||||||||||||
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 the consultant's general consulting services related to the entitlement and development of properties and expense reimbursements totaled approximately $39 thousand in first-quarter 2020 and $27 thousand in first-quarter 2019. Refer to Note 2 of the Stratus 2019 Form 10-K for further discussion.
4. DISPOSITIONS
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, 2020 | December 31, 2019 | ||||||||||||||||||||||
| Carrying Value | Fair Value | Carrying Value | Fair Value | ||||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Interest rate cap agreement | $ | $ | $ | $ | |||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||
| Debt | |||||||||||||||||||||||
| Interest rate swap agreement | |||||||||||||||||||||||
Interest Rate Cap and Swap Agreements. In September 2019, a Stratus subsidiary paid $24 thousand to enter into an interest rate cap agreement, which caps the maximum London Interbank Offered Rate (LIBOR) at 3.0 percent, on a total notional amount of $75.0 million (the principal amount of The Santal loan). The interest rate cap agreement provides that the Stratus subsidiary will collect the difference between 3.0 percent and one-month LIBOR if one-month LIBOR is greater than 3.0 percent (refer to Note 6 in the Stratus 2019 Form 10-K for further discussion of The Santal loan). The interest rate cap agreement terminates on October 5, 2021.
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 LIBOR. As of March 31, 2020, the agreement had a notional amount of $15.2 million, which will amortize to $14.8 million by the end of the agreement, and as of December 31, 2019, the agreement had a notional amount of $15.3 million.
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The interest rate cap and swap agreements do not qualify for hedge accounting so changes in the agreements' fair values are recorded in the consolidated statements of comprehensive (loss) income. Stratus uses an interest rate pricing model that relies on market observable inputs such as LIBOR to measure the fair value of both agreements. Stratus also evaluated the counterparty credit risk associated with both agreements, which is considered a Level 3 input, but did not consider such risk to be significant. Therefore, the interest rate cap and swap agreements are classified within Level 2 of the fair value hierarchy.
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.
6. DEBT
The components of Stratus' debt are as follows (in thousands):
| March 31, 2020 | December 31, 2019 | |||||||||||||
| Goldman Sachs loan | $ | $ | ||||||||||||
| The Santal loan | ||||||||||||||
| Comerica Bank credit facility | ||||||||||||||
| New Caney land loan | ||||||||||||||
| Construction loans: | ||||||||||||||
| Kingwood Place | ||||||||||||||
The Saint Mary | ||||||||||||||
Lantana Place | ||||||||||||||
Jones Crossing | ||||||||||||||
West Killeen Market | ||||||||||||||
| Amarra Villas credit facility | ||||||||||||||
Total debta | $ | $ | ||||||||||||
As of March 31, 2020, Stratus had $10.6 million available under its $60.0 million Comerica Bank credit facility, with $150 thousand of letters of credit committed against the credit facility. Effective April 14, 2020, Stratus and Comerica Bank agreed to modify the Comerica Bank credit facility to (i) extend the maturity date of the credit facility from June 29, 2020, to September 27, 2020, and (ii) revise the definition of LIBOR to provide for an increase in the LIBOR floor from zero percent to one percent. On June 12, 2020, the Company entered into a further amendment to its credit facility agreement with Comerica Bank to extend the maturity date of the facility to September 27, 2022. As of June 12, 2020, Stratus had $25.0 million available under its $60.0 million Comerica Bank credit facility, with $150 thousand of letters of credit committed against the credit facility.
In January 2020, the Kingwood Place construction loan was modified to increase the loan amount by $2.5 million to a total of $35.4 million. The increase is being used to fund the construction of a retail building on an existing Kingwood Place retail pad.
For a description of Stratus' other debt, refer to Note 6 in the Stratus 2019 Form 10-K.
Interest Expense and Capitalization. Interest costs (before capitalized interest) totaled $5.2 million in first-quarter 2020 and $4.6 million in first-quarter 2019. Stratus' capitalized interest totaled $1.3 million in first-quarter 2020 and $2.1 million in first-quarter 2019, primarily related to development activities at Barton Creek. The 2019 period also included capitalized interest related to development activities at Kingwood Place and The Saint Mary.
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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. Estimates related to the awards may change over time as a result of differences between projected and actual development progress and costs, market conditions and the timing of capital transactions or valuation events.
Refer to Note 8 of the Stratus 2019 Form 10-K for further discussion.
During first-quarter 2020, Stratus recorded a $49 thousand reduction to the accrued liability for the Plan of which $4 thousand reduced project development costs and $45 thousand reduced general and administrative expenses. During first-quarter 2019, Stratus accrued $0.2 million to project development costs and $0.3 million in general and administrative expenses related to the Plan. The accrued liability for the Plan totaled $2.4 million at March 31, 2020, and $2.5 million at December 31, 2019 (included in other liabilities). As of March 31, 2020, 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 7 in the Stratus 2019 Form 10-K.
Stratus had deferred tax assets (net of deferred tax liabilities) totaling $9.8 million at March 31, 2020