Item 1.01. Entry into a Material Definitive Agreement.
On February 8, 2023, Holden Hills, L.P., a Texas limited partnership and 50%
owned subsidiary of Stratus Properties Inc. (Stratus), as borrower
(Partnership), and Comerica Bank, as lender (Lender), entered into a
construction loan agreement (Loan Agreement), installment note and other related
loan and collateral documents, and Stratus and Lender entered into a guaranty
(collectively, the Loan Documents), to finance the development of Phase I of the
Holden Hills development project (Holden Hills Project). For additional
information regarding the Partnership and the Holden Hills Project, see Item
1.01 of Stratus' Current Report on Form 8-K filed with the Securities and
Exchange Commission on February 6, 2023, which information is incorporated into
this Item 1.01 by reference.
The Loan Documents provide for a senior secured construction loan (Loan) in the
aggregate principal amount of the lesser of (i) $26.1 million, (ii) 23% of the
total development costs for Phase I or (iii) the amount that would result in a
maximum loan-to-value ratio of 28%. The Loan has a maturity date of February 8,
2026. Advances under the Loan bear interest at the one-month Bloomberg
Short-Term Bank Yield Index Rate with a floor of 0.5%, plus 3.0%. Payments of
interest only on the Loan are due monthly until the maturity date with the
outstanding principal due at maturity. The Partnership may prepay all or any
portion of the Loan without premium or penalty. Amounts repaid under the Loan
may not be reborrowed.
The Loan is secured by the Holden Hills Project, including the land related to
both Phase I and Phase II, and the Phase I improvements. After completion of
construction of Phase I, the Partnership may sell and obtain releases of the
liens on single-family platted home sites, individual pods or the Phase II land,
subject to specified conditions, and upon payment to the Lender of specified
amounts related to the parcel to be released. No distributions with respect to
equity interests of the Partnership are permitted while the Loan is outstanding,
other than, in connection with the initial capitalization of the Partnership,
the distribution of $30 million in cash to Stratus Properties Operating Co.,
L.P., the Stratus subsidiary that is the Class A limited partner in the
Partnership (Class A Limited Partner) and reimbursement to the Class A Limited
Partner of approximately $5.8 million in cash for certain initial project costs
and closing costs recently advanced in connection with the Loan closing.
The Partnership is expected to be eligible to be reimbursed in the future by
Travis County Municipal Utility Districts (MUD) for a portion of future costs of
certain improvements that will enable access and provide utilities necessary for
the development of both the Holden Hills Project and Stratus' Section N property
(Tecoma Improvements) and also for a portion of future costs related only to the
Holden Hills Project, with such MUD reimbursements currently estimated to be up
to a maximum of $6.4 million for the Tecoma Improvements and $8.0 million for
only the Holden Hills Project. The Partnership has agreed to deliver to the
Class A Limited Partner 60% of any MUD reimbursements for Tecoma Improvement
costs paid directly by the Class A Limited Partner, when such reimbursements are
received by the Partnership. The Partnership must apply all MUD reimbursements
it receives and is entitled to retain as payments of principal on the Loan. The
amount and timing of MUD reimbursements depends, among other factors, upon the
MUD having a sufficient tax base within its district to issue bonds and
obtaining the necessary state approval for the sale of the bonds. Accordingly,
the amount and timing of the Partnership's or Stratus' receipt of MUD
reimbursements is uncertain.
In connection with the Loan, Stratus has entered into a guaranty for the benefit
of the Lender pursuant to which Stratus has guaranteed the payment of the Loan
and the completion of Phase I, including the Tecoma Improvements. Stratus is
also liable for customary carve-out obligations and an environmental indemnity.
Without the consent of Lender, Stratus cannot, among other things, purchase more
than $1 million of its common stock (other than in connection with its $10
million stock repurchase program previously approved by the Lender). Stratus
must maintain, on a consolidated basis, a Net Asset Value not less than $125
million, and a Debt-to-Gross-Asset Value not more than 50% (in each case as
defined in the guaranty).
The foregoing description of the Loan and the Loan Documents is not intended to
be complete and is qualified in its entirety by reference to the full text of
the Loan Agreement, installment note and guaranty,
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which are filed as Exhibits 10.1, 10.2 and 10.3, respectively, and incorporated
by reference into this Item 1.01.
Item 2.03. Creation of a Direct Financial Obligation or an Obligation under an
Off-Balance Sheet Arrangement of a Registrant.
The disclosures set forth in Item 1.01 above are incorporated by reference into
this Item 2.03.
Item 8.01. Other Events.
Stratus issued a press release dated February 14, 2023, titled "Stratus
Properties Inc. Secures Financing for and Begins Construction of Holden Hills, a
Residential Project in the Barton Creek Community." A copy of the press release
is attached hereto as Exhibit 99.1 and is incorporated by reference into this
Item 8.01.
Item 9.01. Financial Statements and Exhibits.
(d) Exhibits.
Exhibit Number Exhibit Title
10.1 Construction Loan Agreement by and between Holden Hills, L.P., as
borrower, and Comerica Bank, as lender, dated February 8, 2023.
10.2 Installment Note by and between Holden Hills, L.P. and Comerica Bank
dated February 8, 2023.
10.3 Guaranty by Stratus Properties Inc. for the benefit of Comerica Bank
dated February 8, 2023 with respect to the Construction Loan Agreement
by and between Holden Hills, L.P., as borrower, and Comerica Bank, as
lender, dated February 8, 2023.
99.1 Press Release dated February 14, 2023, titled "Stratus Properties Inc.
Secures Financing for and Begins Construction of Holden Hills, a
Residential Project in the Barton Creek Community."
104 The cover page from this Current Report on Form 8-K, formatted in
Inline XBRL.
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