Welcome to the Stratus Properties Third Quarter 2018 Earnings Conference Call. Stratus released its financial results earlier this morning, which are available on its website at stratusproperties.com. Following management's remarks, we will host a question-and-answer session. Please note, this call is being recorded and will be available for telephone replay through November 14, 2018. Anyone listening to a taped replay should note that all information presented is current as of today, November 9, 2018, and should be considered valid only as of this date. I would now like to turn the call over to Mr. Beau Armstrong, Chairman, President and Chief Executive Officer of Stratus Properties.

Thank you and good morning, everyone. Joining me today is our Chief Financial Officer, Erin Pickens. As a reminder, today's press release and certain comments that we will make on this call including forward-looking statements, and actual results may differ materially. I would like to refer everyone to the cautionary language included in Stratus' press release issued today and to the risk factors described in Stratus' Form 10-K and subsequent SEC filings that could cause actual results to differ materially from those projected by us. Today's press release and certain of our comments on this call do not constitute an offer to sell nor are they a solicitation of an offer to buy any securities. In addition, we include and discuss financial measures such as adjusted EBITDA which are not recognized under U.S. GAAP. As required by SEC regulations, non-GAAP financial measures are reconciled to the most comparable GAAP measure in the supplemental schedules of Stratus' press release issued today. This morning, we will cover today's announcement of the land purchase for our plant HEB-anchored project in New Caney, Texas just north of Houston metropolitan area, development progress updates, our recent successes with project level equity financing structures, our third quarter and nine month 2018 financial results, which Erin will discuss. And I will end the call with some brief final comments on our progress and strategy as we look to close out the year. I'm happy to share that in a 50-50 partnership with Texas grocery chain HEB, we purchased a 38 acre tract of land for approximately $9.5 million in October for a new mixed use project in New Caney, Texas, a community in Montgomery County within the Woodlands area just north of the Houston metropolitan area. This will be our seventh HEB anchored project. The property is…

Thank you, Beau. Today, Stratus reported earnings for the third quarter 2018 as detailed in our press release issued this morning. The net loss attributable to common stockholders is $2.4 million or $0.29 per share in the third quarter of 2018 compared to net income attributable to common stockholders of $14.3 million or $1.75 per share in the third quarter of 2017. The income in 2017 included $24.3 million associated with recognition of a portion of the different gain on the sale of Oaks at Lakeway, which closed in the first quarter of 2017. Adjusted EBITDA totaled $1.4 million in the third quarters of both 2018 and 2017. Now I'll walk through the financial results of each of our operating segment. Real Estate Operations segment revenue is decreased to $2.1 million from $3 million in the third quarter 2017. Operating losses was $240,000 compared to operating income of $780,000 last year. This decrease relates to fewer developed property sales compared to the year ago quarter. Revenue for the first nine months of 2018 increased by approximately $1 million, primarily as a result of the sales of higher priced residential units, including Amarra Villas townhomes and W Austin Hotel and Residences condominium. Leasing Operations segment revenues increased to $3 million up from $2.1 million in the third quarter 2017. This is due to the leasing activity in our recently completed retail properties, Lantana Place, Jones Crossing and West Killeen Market. Operating income decreased to $900,000 compared to $25 million in the third quarter 2017, which included the gain on the sale of The Oaks at Lakeway I mentioned earlier. Revenue for the first nine months of 2018 increased by approximately $1.2 million, also primarily as a result of leasing activity at our recently completed properties. Hotel Segment revenues increased to $8.2…

Thank you, Erin. I'll end the call by giving everyone a quick summary. We continue to carefully pursue new high quality opportunities for Stratus as shown by our announcements of Kingwood Place and the land purchase for the New Caney in the last two quarters. Our development project executed as planned and we intend to sell or refinance the properties when leasing and market conditions are good. And finally, we are finding better ways to leverage our expertise to minimize risk and increase shareholder value as evidenced by our recently completed project level equity financing structures. As you already know, our full cycle process consists of securing and maintaining development entitlements, building mixed used properties, stabilizing them in terms of occupancy, and finally, refinancing or selling the properties at appropriate times to maximize value for shareholders. We pursue our strategy strategically and thoughtfully and we follow a strong and stable process that we have refined over the last 30 years. We are always screen the market for new opportunities and believe that our full cycle development process can be effectively replicated in high growth Texas markets outside of Austin. Our strong track record in Austin is evidence that our process works and we look forward to maximize the value of our newest projects in other fast growing Texas markets. We have many opportunities in the horizon for Stratus and our shareholder and I look forward to closing a great year with all of you. Now, we will open up the call for questions.

[Operator Instructions] The first question comes from John Nouri with North & Webster. Please go ahead.

Hi. For the Magnolia project in Houston, What do you guys approximate the square footage price?

Excuse me for the Magnolia project in Houston, what do we estimate the square footage price for - for leasing?

Yes.

Well, I would be guessing you know that project is currently undeveloped, but our, if I were to use Kingwood which is I guess reasonably comparable, our rental rates there are in the low to mid 30s on a triple net basis. And I would think that the two projects would be would be comparable.

Okay. My second question is for Lantana Place, which is comprise of this hotel in retail, at 325,000 square feet, it seems 99,000 is being allocated for the Moviehouse theater and 140,000 is going to be office space. So what's the real breakout for the remaining square footage?

Well, you're correct. The office component is 140,000 feet, the retail is 99,000 feet that does not include the hotel piece. So all in I don't think we fully got to the 350,000, I think we were a little bit short of that. But generally it's the hotel, I don't have the exact square footage of the hotel yet, it's a little bit still in flux. But I think generally the Moviehouse is 38,000 feet of the 99,000, so that's the general breakdown.

The next question comes from Fred Burtner with Burtner Partners. Please go ahead.

Hi. With interest rates rising, what's your assessment of the health of the Austin market?

Well, that's a good question Fred. I think you know it's been a long time since we've been in a rising rate environment, so it's something we're very mindful of around here. Obviously, you know with rates are rising that generally means that the economy is good and certainly Austin is it's a boom town, I've been here for almost 30 years and I've never seen it quite as active as it is now. So we - there's a tremendous amount of competition here now, we've got lots of what I would say big time developers that probably overlooked Austin years ago are showing up and trying to get involved with projects. So I think that's good on the one hand and that we've got a lot of interest in Austin. From our standpoint, it makes it difficult to source new deals just because it's gotten very, very competitive. But on the other hand, we still have tremendous high quality land holdings here. So I think we've generally benefited from the growth and all the attention on Austin. But I don't think rates yet have had any kind of a chilling impact on development, but that could change. I guess the risk is will cap rates move in tandem with underlying financing rates and I haven't really seen that yet, but I think it's probably a little early to call.

Thank you. And my other question is, could you tell us a little about who the third party investors are in your two new projects?

Sure. They are - they tend to be high net worth or very high net worth individuals. And what we found is that they would more typically have been investors in private equity funds. They would have just have invested in I am going to say Blackstone Fund or some other type of private equity fund. And what we found is that, by doing something direct with them, we can provide them better economics and they would have gotten through that fund structure. And then we have the same thing, we get money on better terms than we would have gotten through private equity - traditional private equity shop. So in many instances we've essentially cut out the middleman. But obviously there are limits to how much of this we can do just because the time involved in that. But for these particular projects, I think it's worked out very well. Like I said, they get better economics as do we. So I think to the extent that we're successful which we fully expect to be, I would think that these partners would continue to invest with us as we source new opportunities.

Okay. Thank you.

Thank you, Fred.

The next question is a follow-up from John Nouri with North & Webster. Please go ahead.

Beau, my follow-on question for you is for Magnolia comments. It's split part between home improvements and there's an HEB there and a movie theater as well. What do you think as that the 351,000 square feet, how would you allocate that to those categories?

Well, I would assume HEB would be around 100,000 feet. And I would assume that if it ends up being a - and again this is - I am purely speculating here because we really are still formulating out plans there. But a secondary anchor like a home improvement would be these days 60 to 80, and movie theater is typically depending on obviously how many screens but if it's the size of a ten screen project, that's probably 30,000 to 50,000 feet. But we also are exploring if we were not successful in securing a home improvement store, the other strategy is a something like TJ Maxx marshals that type of a lineup, which they are back growing again. So we've got some optionality there. The key will be just who's in the market when we start moving on that project. And our timeline currently is beginning something next year with the 2020 kind of opening. Again that's still hasn't been confirmed yet but that's kind of our working timeline.

Perfect. I have several questions for Erin, related to the balance sheet and the cash flows statement?

Okay.

My first question is, Erin, what do you think at this current day based on today's press release, the balance of restricted cash, what is that pertaining to benefited Jones Crossing maybe or it's not like what would that be comprised of?

Well, it's primarily cash held in escrow account such as we have reserves for the Block 21 project. There is an escrow related to the College Station project, but I think that balance is pretty small at this point maybe a $1 million. I think that's primarily are.

And what do you think the balance of the MUD is current day press release?

The balance of the MUD reimbursable?

Yes.

I think $4 million or $5 million.

And that's a bit of a dynamic number because as we have ongoing projects that they have eligible MUD facility that moves up and down. But I think generally, it's unreimbursed, currently it's a progeny $4 million to $5 million.

Make sense. And for the account payable, what do you think that figure pertains to predominantly like outside the numbers, what is making up the accounts receivable - I mean accounts payable?

For further reason accounts payable is a large number. Anytime we have construction projects, we've got retainage. And until each maybe you already understand this but whatever the contractors that misapplication for payment, we held back usually 10% and that's not paid out until the project is complete and certain things are done. So I don't really have the details of the number in front of me, but I think that's the reason that the number is fairly large.

And just a little color on that. Retain, it's typically is just that's our leverage to make sure we get everything done properly. We hold that until we fully accepted the project. So when we have as much developers, we have going on right now that tends to be a fairly large number.

Okay. Just for the cash flow statements, the operating section, why is cost of real estate being added back?

Cost of real estate sold?

Yes.

Well that is actually a non-cash figure when we record revenue on real estate sales, lots in Amarra Villas townhome and that W condominium. We charge to cost of sales the amount that was accumulated, the cost of building that asset. And then there's also - in our cost of sales, there's also commissions and closing costs but of course those are paid in cash. But the write-off of the inventory costs or the cost of the asset is a non-cash charge. So get to added back here, but then you can see further down, where we have purchases and development of real estate properties, that's where the cash flow for the expenditures to develop and build the assets are reflected.

And what are the increase and decrease in deposits, why is that in the offering section?

I'm trying to think what sort of deposits we have in there. I mean it's - I'm afraid I'm going to have to get back with you on the answer to that question offline because I can't really recall what's in there to be able to explain to you well. And definitely wouldn't be investing or financing activity.

Okay. For the time being, I'll just ask you to raise my questions offline.

Okay.

Thanks John.

This concludes our question-and-answer session, and the conference is also the concluded. Thank you for attending today's presentation. You made now disconnect.