Stratus Properties Inc. · NASDAQ:STRS
Stratus Properties — Proxy Contest (May 2021)
56 slides from Stratus Properties's proxy contest presentation, May 10, 2021
Slide 1: Schedule 14A Proxy Statement Cover Page
UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 SCHEDULE 14A INFORMATION Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 (Amendment No. ) Filed by the Registrant ☒ Filed by a Party other than the Registrant ☐ Check the appropriate box: ☐ Preli
Slide 2: Executing a Compelling Strategy for Building Long-Term Value
1 Executing a Compelling Strategy for Building Long-Term Value May 2021 Pictured: Stratus’ W Hotel and Austin City Limits Live Mixed-Use Property in Downtown Austin
Slide 3: Forward-Looking Statements and Information
Forward-Looking Statements and Information Forward-Looking Statements This presentation contains forward-looking statements in which Stratus discusses factors it believes may affect its future performance. Forward-looking statements are all statements other than statements of historical fact. The wo
Slide 4: What Is This Proxy Contest About?
What Is This Proxy Contest About? This contest is about who are the right board members to evaluate opportunities for continued value creation – proven directors with relevant experience, or those selected by a foreign hedge fund with a unique tax status and interest in acquiring Stratus? 3 Our cand
Slide 5: Table of Contents
Table of Contents I. Executive Summary 5 II. Overview of Stratus and its Strategy 13 III. Our Board is Well Equipped to Oversee Stratus 28 IV. Oasis’ Less Qualified Candidates Advance its Selfish Agenda 38 V. Setting the Record Straight 44 VI. Conclusion 47 VII. Appendix 51 4
Slide 6: Executive Summary
Executive Summary 5
Slide 7: Stratus is Successfully Executing for Shareholders
Stratus is Successfully Executing for Shareholders Stratus Properties Inc. is a successful diversified real estate company with properties in Austin and other fast-growing Texas markets • The company acquires, entitles, develops, manages, leases and holds or sells commercial, multi- family and singl
Slide 8: Oasis Has Interests Different Than Other Shareholders
Oasis Has Interests That Are Different Than Other Shareholders A B O U T O A S I S • Oasis is a Hong Kong-based hedge fund focused primarily on Asian equities • By virtue of its offshore domicile, Oasis’ U.S. tax status is different than the status of other Stratus investors • As Stratus’ only major
Slide 9: We Have Engaged Extensively with Oasis Over 5 Years
2018-19 Oasis principal advises Stratus at various times that Oasis, or a consortium of investors that included the Oasis principal, is interested in buying a controlling interest in, but less than all of Stratus Oct 2019 Oasis principal is part of consortium that makes a highly conditional offer to
Slide 10: Stratus' Directors Bring Relevant, Complementary Skills and Experience
Stratus’ Directors Bring Relevant, Complementary Skills and Experience 9 Neville Rhone, Jr. ✓ Director since Dec. 2020 ✓ 27 years of experience in real estate development, finance, investments, operations, entrepreneurship and executive leadership Jim Leslie ✓ Director since Aug. 1996 ✓ 35+ years of
Slide 11: Stratus and its Board are Driving Long-Term Value
Stratus and its Board are Driving Long-Term Value Stratus is Creating Shareholder Value • Focused on high-growth markets in Texas • Board regularly evaluates opportunities to create shareholder value, including possible REIT conversion o Should the Board recommend a conversion, shareholders will hav
Slide 12: Stratus Has Generated Excellent Returns for Shareholders
110% 34% 38% 57% 0% 20% 40% 60% 80% 100% 120% Dow Jones US Real Estate Index MSCI US REIT Index Proxy Peer Median 1-Year TSR 13% 45% 40% 16% 0% 10% 20% 30% 40% 50% Dow Jones US Real Estate Index MSCI US REIT Index Proxy Peer Median 3-Year TSR 53% 56% 43% 49% 0% 10% 20% 30% 40% 50% 60% Dow Jones US R
Slide 13: Stratus Has Grown Shareholder Value Faster than the Austin Market
$35.52 $53.09 $0 $10 $20 $30 $40 $50 $60 2014 2019 Stratus Has Grown Shareholder Value Faster than the Austin Market • During the five years prior to the pandemic, Stratus had increased NAV per share at a rate of more than 8% compounded annually • Stratus has grown NAV at a faster rate than the Aust
Slide 14: Overview of Stratus and its Strategy
Overview of Stratus and its Strategy 13
Slide 15: Local Knowledge & Relationships Drive Success
Local Knowledge & Relationships Drive Success 14 • History of gaining access to prime opportunities including Block 21 (purchased from the City after a competitive RFP process), Lakeway HEB (a nine-parcel assemblage), and in Kingwood, Killeen and College Station through HEB • Proactive coordination
Slide 16: Proven Strategy Drives Value Maximization
Proven Strategy Drives Value Maximization 15 Stratus leverages its deep understanding of Texas markets to generate strong returns for shareholders Secure and maintain development entitlements Design, develop and stabilize properties Generate cash through sales, refinancing or leasing Acquire land an
Slide 17: Our Strategy Has Evolved As Austin Market Conditions Have Changed
$200,000 $250,000 $300,000 $350,000 $400,000 $450,000 $500,000 $550,000 1/1/14 1/1/15 1/1/16 1/1/17 1/1/18 1/1/19 1/1/20 1/1/21 Zillow Austin Home Value Index1 Our Strategy Has Evolved As Austin Market Conditions Have Changed 16 2015 • Announced plan to acquire, develop and sell real estate assets 2
Slide 18: Acquire the Right Land at the Right Times
Knowledge of fast-growing Texas markets enables Stratus to identify prime opportunities, navigate the complex permitting process and develop iconic properties in our markets that meet the unique needs and interests of our communities Acquire the Right Land at the Right Times Pictured: The company’s
Slide 19: Develop Compelling Properties
Develop Compelling Properties • High-quality portfolio, with iconic and valuable assets, and robust pipeline of projects • Team of experienced design, entitlement, and construction professionals • Developer/owner of Block 21, the largest LEED certified mixed-use project when completed in 2010, cultu
Slide 20: Examples of How We Identify Opportunities to Monetize or Lease & Hold
Examples of How We Identify Opportunities to Monetize or Lease & Hold 19 Generate significant income from leasing • Generated record annual leasing revenue of $24.1 million in 2020, driven by leased properties including Kingwood Place, Lantana Place and Jones Crossing HEB Sell properties when market
Slide 21: Stratus Has Monetized Properties When Market Conditions Are Optimal
Stratus Has Monetized Properties When Market Conditions Are Optimal 20 Cumulative Value of Properties Sold ($M)1 2017 • Generated $11.1 million of real estate sales revenue, primarily from the sale of 20 developed residential properties • February – April: Sold the grocery-anchored retail project Th
Slide 22: Stratus' Team Delivers Impressive Returns
Stratus’ Team Delivers Impressive Returns • Garden-style multi-family • 241,640 square feet, 240 units • In the heart of the affluent Circle C community in southwest Austin • Approved for the Austin Energy Green Building Program • Obtained third-party equity capital • Construction start June 2018 •
Slide 23: Stratus' Team Delivers Impressive Returns
Stratus’ Team Delivers Impressive Returns • Retail shopping center • 25,696 square feet • In the affluent Circle C community in southwest Austin • Construction start May 2007 • Leased and held until July 2015, when sold in conjunction with Parkside Village for a combined price of $45 million 22 5700
Slide 24: Stratus Is Growing Revenue from Income-Producing Properties
$69 $68 $71 $71 $72 $80 $60 $65 $70 $75 $80 $85 2014 2015 2016 2017 2018 2019 Stratus Is Growing Revenue from Income-Producing Properties • Over time, all of our non-hotel rental income properties have come to comprise a larger share of our revenue base • All of our non-hotel rental income propertie
Slide 25: Stratus Has Been an Effective Steward of Its Hotel & Entertainment Assets
Stratus Has Been an Effective Steward of Its Hotel & Entertainment Assets • Prior to the COVID-19 pandemic, revenue for our Entertainment segment had increased at a compounded rate of 14% since 2011 • At the time of the sale agreement with Ryman, the Block 21 project, which generates both Hotel and
Slide 26: For 3.5 Years Oasis' Ella Benson Approved Decisions She Now Complains About
For 3.5 Years Oasis’ Ella Benson Approved Decisions That She’s Now Complaining About As a member of the Board, Ella Benson regularly approved communications detailing Stratus’ strategy: 25 Project Name Description How did Ella Benson Vote? Jones Crossing HEB Phase I Development FOR Lantana Place Pha
Slide 27: Capitalizing on Market Opportunities
Capitalizing on Market Opportunities • Extend advantages in Texas • Acquire and develop more marquee projects • Continue to lease up projects as economy recovers • Consider conversion to REIT • Evaluating benefits and risks of a potential conversion after completing preliminary analysis • Execute on
Slide 28: Preliminary Analysis of REIT Conversion Shows Promise
Preliminary Analysis of REIT Conversion Shows Promise Potentially significant benefits for the majority of shareholders: • Significant tax benefits for shareholders • Increased liquidity of Stratus shares • Improved access to capital • Increased attention by sell-side analysts • Regular dividends to
Slide 29: Our Board is Well Equipped to Oversee Stratus
Our Board is Well Equipped to Oversee Stratus 28
Slide 30: Stratus Regularly Refreshes its Board
MARCH John Wenker resigns from Board Stratus Regularly Refreshes its Board 29 Directors Added 2015 2016 2017 2020 2021 MARCH Charles Porter joins Board 2012 DECEMBER James Joseph, John Wenker join Board MARCH John Schweitzer joins Board JANUARY Ella Benson joins Board DECEMBER Neville Rhone, Jr. joi
Slide 31: 2021 Nominee: Neville Rhone, Jr.
2021 Nominee: Neville Rhone, Jr. • Appointed to the Stratus Board in late 2020 • 27-year veteran of real estate development, finance, investing and operations • Has invested in or financed more than $6 billion in real estate transactions during his successful career • Co-Founder and Managing Partner
Slide 32: 2021 Nominee: Jim Leslie
2021 Nominee: Jim Leslie • 35+ years of leadership experience in the commercial real estate industry acquiring, managing and growing real estate assets, primarily in the Southwest region • Helped form Columbus Realty Trust, a NYSE-listed REIT, and served on its Board of Trust Managers from its IPO i
Slide 33: Our Other Directors Also Bring Deep, Relevant, Complementary Experience
Our Other Directors Also Bring Deep, Relevant, Complementary Experience 32 Kate B. Henriksen Independent Director, Co-Chief Investment Officer of RLJ Lodging Trust, an NYSE-listed REIT Has overseen the underwriting on completed transactions totaling $8.0 billion, actively involved in RLJ’s capital r
Slide 34: Directors Have Complementary Skills
Directors Have Complementary Skills 6 new directors appointed in the past 6 years 33 6 out of 7 directors with CEO/executive management experience 5 out of 7 directors with real estate industry experience Skills and Experience Leslie Rhone Henriksen Joseph Madden Porter Armstrong Total CEO/Executive
Slide 35: The Board Supports Oasis' Proposed Director Laurie Dotter
The Board Supports Oasis’ Proposed Director Laurie Dotter Ms. Dotter’s Qualifications: • 30+ years of experience with real estate investments, development, leasing and management • Founded large-scale commercial real estate investment vehicles, with combined capitalization exceeding $2 billion • For
Slide 36: Board is Active in Reviewing and Overseeing Strategy and Operations
Board is Active in Reviewing and Overseeing Strategy and Operations • Shifted development strategy to preserve liquidity during the COVID-19 pandemic • Refinanced properties to capture favorable interest rate environment • Adapted design to accommodate evolving lifestyles, sustainability imperatives
Slide 37: Our Executive Compensation Aligns Interests
Our Executive Compensation Aligns Interests 36 Ms. Benson was a member of the Compensation Committee from January 2017 to September 2020, and voted with the committee on every item throughout her tenure “Since joining the Board, Ms. Benson has been successful in…, to a degree, realigning executive c
Slide 38: We Are Focused on Sustainable Development
We Are Focused on Sustainable Development • Stratus is a U.S. Green Building Council (USGBC) member and helping transform the way buildings and communities are designed, built and operated • Stratus’ CEO Beau Armstrong has been elected secretary-treasurer of Green Business Certification Inc., an org
Slide 39: Oasis' Less Qualified Candidates Advance its Selfish Agenda
Oasis’ Less Qualified Candidates Advance its Selfish Agenda 38
Slide 40: Oasis Has Different Interests Than Other Investors
Oasis Has Different Interests Than Other Investors 1. As an offshore domiciled hedge fund, Oasis faces unique tax disadvantages if Stratus converts to a REIT 2. A consortium formed by an Oasis principal has previously expressed interest in buying a controlling interest or all of Stratus at a low pri
Slide 41: Oasis Has a Unique, Tax-Driven Reason to Oppose REIT Conversion
Oasis Has a Unique, Tax-Driven Reason to Oppose REIT Conversion • Stratus has not paid regular dividends because it has been focused on recycling capital into its development program • If Stratus were to convert to a REIT, it would be required to issue dividends for at least 90% of taxable income •
Slide 42: Oasis Aims to Stop Even the Evaluation of a REIT Conversion
Oasis Aims to Stop Even the Evaluation of a REIT Conversion • Oasis principals intend to stop the evaluation of a REIT conversion • Oasis’ Board representative, Ella Benson, abstained from the vote to evaluate the REIT conversion in September 2020 • Ms. Benson resigned in September 2020 to clear the
Slide 43: Oasis May (Still) Want to Buy Stratus
Oasis May (Still) Want to Buy Stratus • A consortium formed by an Oasis principal proposed to buy all of Stratus’ stock at $30 per share in October 2019, contingent on retaining Beau Armstrong as CEO and securing necessary financing • That offer represented a mere 8% premium to the Company’s share p
Slide 44: Oasis' Candidates are not as Qualified as Stratus' Candidates
Oasis’ Candidates are not as Qualified as Stratus’ Candidates Ella Benson • The 35-year-old’s entire career has so far consisted of serving as an analyst at an asset management firm and an investment bank, as well as at Oasis • Ms. Benson was on the Stratus Board from January 2017 to September 2020
Slide 45: Setting the Record Straight
Setting the Record Straight 44
Slide 46: Oasis is Wrong About Stratus' Potential Suitability for REIT Conversion
Oasis is Wrong About Stratus’ Potential Suitability for REIT Conversion 45 Oasis False Claim Reality Cannot liquidate properties for five years After a REIT conversion, Stratus could sell assets immediately with no worse tax implications than today’s C-Corp double taxation. A REIT conversion is like
Slide 47: Other Oasis Claims are also Incorrect or Misleading
Other Oasis Claims are also Incorrect or Misleading 46 Oasis False Claim Reality “Stratus hired the CEO’s son, Buck Armstrong, as a consultant to the Company. Upon closer inspection, it appears that Buck is simultaneously employed by Stratus while not being categorized as an employee and managed to
Slide 48: Conclusion
Conclusion 47
Slide 49: Summary
Summary • The Stratus Board and executive team have delivered substantial value for shareholders and are best positioned to drive further growth and value for our shareholders because of their complementary skills and their expertise in the fast-growing Austin and other Texas markets in which Stratu
Slide 50: What Your Vote on the WHITE Card Means
What Your Vote on the WHITE Card Means • This election is about whether the Stratus Board should be permitted to evaluate all possible strategies that could benefit the majority of shareholders • Vote on the WHITE proxy card FOR: ✓Open-minded evaluation of what’s best for Stratus ✓ Expertise of Nevi
Slide 51: How to Vote
How to Vote Your Vote Is Important, No Matter How Many or How Few Shares You Own. If you have questions about how to vote your shares, or need additional assistance, please contact the firm assisting us in the solicitation of proxies: INNISFREE M&A INCORPORATED Shareholders Call Toll-Free: (877) 456
Slide 52: Appendix
Appendix 51
Slide 53: Biographies
Biographies James “Jim” Leslie Managing Principal of Wolverine Interests LLC, a commercial real estate investment firm, since 2001. President of Leslie Enterprises, L.P., a private equity firm, since 2001. President of JamJen, Inc., a services company, since 2001. Chief Executive Officer from 2012 t
Slide 54: Definitions and Non-GAAP Financial Measure Reconciliation
Definitions and Non-GAAP Financial Measure Reconciliation Compounded Annual Growth Rate (CAGR). Represents the consistent rate at which an investment would have grown had the investment compounded at the same rate each year. Enterprise Value. A measure of a company's total value, often used as a mor
Slide 55: 1In the 12/31/14 NAV calculation, the gross value of $458.0 million does not include
54 1In the 12/31/14 NAV calculation, the gross value of $458.0 million does not include $137.2 million of value attributable to third party ownership. The total value of $595.2 million is consistent with the methodology used in the 12/31/19 NAV calculation. 2In the 12/31/14 NAV calculation, the $75.
Slide 56: Thank you
Thank you 55Pictured: Stratus’ Austin City Limits Live Venue in Downtown, Austin, TX