Austin, Texas-based real estate company Stratus Properties Inc. (NASDAQ: STRS) is exploring strategic alternatives, including a sale of the company or its property portfolio.
Stratus has engaged Hentschel & Co., a premier New York-based boutique investment banking advisory firm focused on the real estate industry, as financial advisor in connection with the review of strategic alternatives.
Prior to starting Hentschel & Company in May 2013, CEO Steve Hentschel founded the real estate investment banking group at Gleacher & Company in 2009, which became the #1-ranked REIT M&A advisor by transaction value in the U.S. in 2012. He previously spent 10 years at Lehman Brothers from 1996 to 2006 as a senior member of its Global Real Estate Group and 3 years at Wachovia Securities from 2006 to 2009 as head of the New York Real Estate Investment Banking office.
Stratus has also retained Vinson & Elkins LLP and Jones Walker LLP as legal counsel to assist in the process.
“We believe that now is an appropriate time to evaluate our strategic options,” said Stratus chairman, president and CEO William H. Armstrong III.
On January 25, 2016, Stratus received an unsolicited offer from Capretta Properties “to purchase substantially all of Stratus’s real estate properties for $435 million cash,” said Silicon Valley real estate and venture capital billionaire Carl E. Berg, the largest shareholder (17.6%) of Stratus Properties. Berg believes he has been Stratus’ largest shareholder for almost the last 15 years.
Berg was the CEO of Mission West Properties REIT, which he acquired in 1997 and sold to real estate developer Divco West in 2002. He is one of the principals of Berg & Berg Enterprises, LLC. His technology investments include the consulting firm International Network Services, which he bought from Lucent Technologies in 2002. He is also a major investor and board member of Valence Technologies and Summit Semiconductor, and is on the board of directors of LynuxWorks.
Capretta Properties is a privately owned real estate development and investment company that was established in 1989 and is based in Mill Valley, California.
Capretta’s offer implied a “$21.60 per share net of existing debt” for Stratus’s real estate portfolio alone. The offer also noted that Stratus has “other assets, including cash, that total over $6.00 per share” and, as a result, Capretta’s offer would have theoretically presented a financial return to Stratus “far in excess of its current stock price in the $19.00 range.”
In the interim, the company’s stock price went up nearly 24% from $19 a share on January 20, 2016, to $23.52 on April 7, 2016, presumably making Capretta’s prior offer moot.
According to Berg, Capretta’s offer also theoretically implied a liquidation value of Stratus of approximately $27.60 per share (pretax). The offer was not subject to any financing contingency and no real estate brokerage commissions would have been payable by either party.
“It’s not Berg’s first battle over an Austin-based, publicly traded company. In 2012, he ended his years-long financial support for Valence Technologies, a move many shareholders blamed for sending the company into bankruptcy,” said the Austin American-Statesman.
“Stratus is best known for developing the downtown block that contains the W Austin Hotel and Residences and for the master-planned community Circle C Ranch. Other recent Stratus projects include the Escarpment Village and Parkside Village shopping centers in Southwest Austin,” added the Statesman. “It’s currently wrapping up an H-E-B-anchored center in Lakeway and plans another shopping center featuring an H-E-B store in Magnolia, north of Houston.”
Stratus Properties Inc. was formed in 1992 to hold, operate and develop the domestic real estate and oil and gas properties of its former parent company, Stratus Energy Group. Stratus sold all of its oil and gas properties during the 1990s and has since focused solely on its real estate properties.
Stratus is a diversified real estate company engaged in the acquisition, entitlement, development, management, operation, and sale of commercial, hotel, entertainment, and multi-and single-family residential real estate properties primarily in Austin, Texas. The company operates through four segments: Hotel, Entertainment, Real Estate Operations, and Commercial Leasing. Its portfolio of residential and commercial properties in Austin consists of Barton Creek, Block 21, Circle C, Crestview, Lantana and Meridian.
The company primarily owns and operates The W Austin Hotel & Residences project located on a two-acre city block in downtown Austin that comprises a 251-room luxury hotel; and 159 residential condominium units, as well as office, retail, and entertainment space.
As of April 7, 2016, Stratus had a market capitalization of $190.33 million, and an enterprise value of $415.11 million, based on data provided by Capital IQ.