STRATUS PROPERTIES INC - Quarter Report: 2005 September (Form 10-Q)
|
UNITED
STATES
|
|||
|
SECURITIES
AND EXCHANGE COMMISSION
|
|||
|
Washington,
D.C. 20549
|
|||
|
FORM
10-Q
|
|||
|
(Mark
One)
|
|||
|
[X]
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
|
||
|
SECURITIES
EXCHANGE ACT OF 1934
|
|||
|
For
the quarterly period ended September 30, 2005
|
|||
|
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: 0-19989
|
|||
 |
|||
|
Stratus
Properties Inc.
|
|||
|
(Exact
name of registrant as specified in its
charter)
|
|||
|
Delaware
|
72-1211572
|
|
(State
or other jurisdiction of
incorporation
or organization)
|
(IRS
Employer Identification No.)
|
|
98
San Jacinto Blvd., Suite 220
|
|
|
Austin,
Texas
|
78701
|
|
(Address
of principal executive offices)
|
(Zip
Code)
|
|
(512)
478-5788
|
|
|
(Registrant's
telephone number, including area code)
|
|
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 X
No
__
Indicate
by check mark whether the registrant is an accelerated filer (as defined in
Rule
12b-2 of the Securities Exchange Act of 1934). Yes __ No X
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes __ No X
On
September 30, 2005, there were issued and outstanding 7,205,690 shares of the
registrant’s Common Stock, par value $0.01 per share.
|
STRATUS
PROPERTIES INC.
|
|
|
Page
|
|
|
3
|
|
|
3
|
|
|
4
|
|
|
5
|
|
|
6
|
|
|
10
|
|
|
11
|
|
|
17
|
|
|
17
|
|
|
18
|
|
|
18
|
|
|
18
|
|
|
18
|
|
|
18
|
|
|
E-1
|
|
STRATUS
PROPERTIES INC.
Part
I. FINANCIAL INFORMATION
Item
1. Financial
Statements
STRATUS
PROPERTIES INC.
CONSOLIDATED
BALANCE SHEETS (Unaudited)
(In
Thousands)
|
September
30,
|
December
31,
|
|||||
|
2005
|
2004
|
|||||
|
ASSETS
|
||||||
|
Current
assets:
|
||||||
|
Cash
and cash equivalents, including restricted cash of
|
||||||
|
$119
and $124, respectively
|
$
|
908
|
$
|
379
|
||
|
Accounts
receivable
|
453
|
345
|
||||
|
Prepaid
expenses
|
72
|
40
|
||||
|
Notes
receivable from property sales
|
22
|
47
|
||||
|
Total
current assets
|
1,455
|
811
|
||||
|
Real
estate, commercial leasing assets and facilities, net:
|
||||||
|
Property
held for sale - developed or under development
|
126,207
|
104,526
|
||||
|
Property
held for sale - undeveloped
|
17,181
|
20,919
|
||||
|
Property
held for use, net
|
20,682
|
21,676
|
||||
|
Other
assets
|
3,875
|
4,140
|
||||
|
Notes
receivable from property sales
|
-
|
789
|
||||
|
Total
assets
|
$
|
169,400
|
$
|
152,861
|
||
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
||||||
|
Current
liabilities:
|
||||||
|
Accounts
payable and accrued liabilities
|
$
|
4,794
|
$
|
1,343
|
||
|
Accrued
interest, property taxes and other
|
5,318
|
2,390
|
||||
|
Current
portion of long-term debt
|
6,735
|
1,531
|
||||
|
Total
current liabilities
|
16,847
|
5,264
|
||||
|
Long-term
debt
|
57,623
|
54,116
|
||||
|
Other
liabilities
|
5,355
|
5,285
|
||||
|
Total
liabilities
|
79,825
|
64,665
|
||||
|
Stockholders’
equity:
|
||||||
|
Preferred
stock
|
-
|
-
|
||||
|
Common
stock
|
74
|
72
|
||||
|
Capital
in excess of par value of common stock
|
182,086
|
181,145
|
||||
|
Accumulated
deficit
|
(87,690
|
)
|
(91,417
|
)
|
||
|
Unamortized
value of restricted stock units
|
(636
|
)
|
(841
|
)
|
||
|
Common
stock held in treasury
|
(4,259
|
)
|
(763
|
)
|
||
|
Total
stockholders’ equity
|
89,575
|
88,196
|
||||
|
Total
liabilities and stockholders' equity
|
$
|
169,400
|
$
|
152,861
|
||
The
accompanying notes are an integral part of these consolidated financial
statements.
STRATUS
PROPERTIES INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS (Unaudited)
(In
Thousands, Except Per Share Amounts)
|
Three
Months Ended
|
Nine
Months Ended
|
|||||||||||
|
September
30,
|
September
30,
|
|||||||||||
|
2005
|
2004
|
2005
|
2004
|
|||||||||
|
Revenues:
|
||||||||||||
|
Real
estate
|
$
|
11,603
|
$
|
3,728
|
$
|
20,480
|
$
|
7,902
|
||||
|
Rental
income
|
1,223
|
1,103
|
3,608
|
2,905
|
||||||||
|
Commissions,
management fees and other
|
179
|
28
|
589
|
226
|
||||||||
|
Total
revenues
|
13,005
|
4,859
|
24,677
|
11,033
|
||||||||
|
Cost
of sales:
|
||||||||||||
|
Real
estate, net
|
7,074
|
2,555
|
13,063
|
5,771
|
||||||||
|
Rental
|
727
|
47
|
2,047
|
1,547
|
||||||||
|
Depreciation
|
422
|
398
|
1,259
|
1,105
|
||||||||
|
Total
cost of sales
|
8,223
|
3,000
|
16,369
|
8,423
|
||||||||
|
General
and administrative expenses
|
1,186
|
1,081
|
3,763
|
3,681
|
||||||||
|
Total
costs and expenses
|
9,409
|
4,081
|
20,132
|
12,104
|
||||||||
|
Operating
income (loss)
|
3,596
|
778
|
4,545
|
(1,071
|
)
|
|||||||
|
Interest
expense, net
|
(311
|
)
|
(233
|
)
|
(909
|
)
|
(701
|
)
|
||||
|
Interest
income
|
34
|
12
|
91
|
35
|
||||||||
|
Net
income (loss) applicable to common stock
|
$
|
3,319
|
$
|
557
|
$
|
3,727
|
$
|
(1,737
|
)
|
|||
|
Net
income (loss) per share of common stock:
|
||||||||||||
|
Basic
|
$
|
0.46
|
$
|
0.08
|
$
|
0.52
|
$
|
(0.24
|
)
|
|||
|
Diluted
|
$
|
0.44
|
$
|
0.07
|
$
|
0.49
|
$
|
(0.24
|
)
|
|||
|
Average
shares of common stock outstanding:
|
||||||||||||
|
Basic
|
7,203
|
7,213
|
7,211
|
7,191
|
||||||||
|
Diluted
|
7,605
|
7,571
|
7,649
|
7,191
|
||||||||
The
accompanying notes are an integral part of these consolidated financial
statements.
4
STRATUS
PROPERTIES INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS (Unaudited)
(In
Thousands)
|
Nine
Months Ended
|
||||||
|
September
30,
|
||||||
|
2005
|
2004
|
|||||
|
Cash
flow from operating activities:
|
||||||
|
Net
income (loss)
|
$
|
3,727
|
$
|
(1,737
|
)
|
|
|
Adjustments
to reconcile net income (loss) to net cash
|
||||||
|
provided
by operating activities:
|
||||||
|
Depreciation
|
1,259
|
1,105
|
||||
|
Cost
of real estate sold
|
11,157
|
4,192
|
||||
|
Stock-based
compensation
|
212
|
127
|
||||
|
Long-term
notes receivable and other
|
1,337
|
(745
|
)
|
|||
|
(Increase)
decrease in working capital:
|
||||||
|
Accounts
receivable and prepaid expenses
|
(115
|
)
|
739
|
|||
|
Accounts
payable, accrued liabilities and other
|
6,449
|
2,004
|
||||
|
Net
cash provided by operating activities
|
24,026
|
5,685
|
||||
|
Cash
flow from investing activities:
|
||||||
|
Purchases
and development of real estate properties
|
(29,745
|
)
|
(16,823
|
)
|
||
|
Municipal
utility district reimbursements
|
645
|
699
|
||||
|
Development
of commercial leasing properties and other expenditures
|
(265
|
)
|
(1,410
|
)
|
||
|
Net
cash used in investing activities
|
(29,365
|
)
|
(17,534
|
)
|
||
|
Cash
flow from financing activities:
|
||||||
|
Borrowings
from revolving credit facility
|
47,005
|
11,200
|
||||
|
Payments
on revolving credit facility
|
(45,640
|
)
|
(7,261
|
)
|
||
|
Borrowings
from project loans
|
11,791
|
8,270
|
||||
|
Payments
on project loans
|
(4,445
|
)
|
(178
|
)
|
||
|
Purchases
of Stratus common shares
|
(3,307
|
)
|
(189
|
)
|
||
|
Net
proceeds from exercise of stock options
|
747
|
724
|
||||
|
Bank
credit facility fees
|
(283
|
)
|
-
|
|||
|
Net
cash provided by financing activities
|
5,868
|
12,566
|
||||
|
Net
increase in cash and cash equivalents
|
529
|
717
|
||||
|
Cash
and cash equivalents at beginning of year
|
379
|
3,413
|
||||
|
Cash
and cash equivalents at end of period
|
908
|
4,130
|
||||
|
Less
cash restricted as to use
|
(119
|
)
|
(1,775
|
)
|
||
|
Unrestricted
cash and cash equivalents at end of period
|
$
|
789
|
$
|
2,355
|
||
The
accompanying notes are an integral part of these consolidated financial
statements.
STRATUS
PROPERTIES INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
| 1. |
GENERAL
|
The
accompanying unaudited consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto for
the
year ended December 31, 2004, included in Stratus Properties Inc.’s (Stratus)
Annual Report on Form 10-K (Stratus 2004 Form 10-K) filed with the Securities
and Exchange Commission. In the opinion of management, the accompanying
consolidated financial statements reflect all adjustments (consisting only
of
normal recurring items) considered necessary to present fairly the financial
position of Stratus at September 30, 2005 and December 31, 2004, and the results
of operations for the three-month and nine-month periods ended September 30,
2005 and 2004, and cash flows for the nine-month periods ended September 30,
2005 and 2004. Operating results for the three-month and nine-month periods
ended September 30, 2005 are not necessarily indicative of the results that
may
be expected for the year ending December 31, 2005. Certain prior year amounts
have been reclassified to conform to the current year presentation.
| 2. |
NEW
ACCOUNTING STANDARD
|
Refer
to
Note 1 of the Stratus 2004 Form 10-K for information regarding Stratus’
accounting for share-based payments, including stock options. Through September
30, 2005, Stratus has accounted for grants of employee stock options under
the
recognition principles of Accounting Principles Board (APB) Opinion No. 25,
“Accounting for Stock Issued to Employees,” and related interpretations, which
require compensation costs for stock-based employee compensation plans to be
recognized based on the difference on the date of grant, if any, between the
quoted market price of the stock and the amount an employee must pay to acquire
the stock. If Stratus had applied the fair value recognition provisions of
Statement of Financial Accounting Standards (SFAS) No. 123, “Accounting for
Stock-Based Compensation,” which requires stock-based compensation to be
recognized based on the use of a fair value method, Stratus’ net income would
have been reduced by $0.2 million, $0.02 per share, for the third quarter of
2005, $0.1 million, $0.02 per share, for the third quarter of 2004 and $0.5
million, $0.07 per basic share and $0.06 per diluted share, for the first nine
months of 2005. In 2004, Stratus’ net loss would have been increased by $0.5
million, $0.07 per share, for the first nine months of 2004.
In
December 2004, the Financial Accounting Standards Board (FASB) issued SFAS
No.
123 (revised 2004), “Share-Based Payment” (SFAS No. 123R). SFAS No. 123R
requires all share-based payments to employees, including grants of employee
stock options, to be recognized in the financial statements based on their
fair
values. SFAS No. 123R’s effective date is fiscal periods beginning after June
15, 2005. Stratus is still reviewing the provisions of SFAS No. 123R and expects
to adopt SFAS No. 123R on January 1, 2006. Based on currently outstanding
employee stock options and based on the previously disclosed grant date
Black-Scholes values of these outstanding options, Stratus currently estimates
the pro forma charge to operating income for the full year 2005 would total
approximately $0.7 million. This pro forma amount is not necessarily indicative
of what charges may be for future periods.
| 3. |
EARNINGS
PER SHARE
|
Stratus’
basic net income (loss) per share of common stock was calculated by dividing
net
income (loss) applicable to common stock by the weighted average number of
common shares outstanding during the period. The following is a reconciliation
of net income (loss) and weighted average common shares outstanding for purposes
of calculating diluted net income (loss) per share (in thousands, except per
share amounts):
|
Three
Months Ended
|
Nine
Months Ended
|
||||||||||||
|
September
30,
|
September
30,
|
||||||||||||
|
2005
|
2004
|
2005
|
2004
|
||||||||||
|
Net
income (loss) applicable to common stock
|
$
|
3,319
|
$
|
557
|
$
|
3,727
|
$
|
(1,737
|
)
|
||||
|
Weighted
average common shares outstanding
|
7,203
|
7,213
|
7,211
|
7,191
|
|||||||||
|
Add:
Dilutive stock options
|
375
|
339
|
418
|
-
|
|||||||||
|
Restricted
stock
|
27
|
19
|
20
|
-
|
|||||||||
|
Weighted
average common shares outstanding for
|
|||||||||||||
|
purposes
of calculating diluted net income (loss)
|
|||||||||||||
|
per
share
|
7,605
|
7,571
|
7,649
|
7,191
|
|||||||||
|
Diluted
net income (loss) per share of common stock
|
$
|
0.44
|
$
|
0.07
|
$
|
0.49
|
$
|
(0.24
|
)
|
||||
6
Stock
options representing 323,000 shares for the first nine months of 2004 that
otherwise would have been included in the earnings per share calculations were
excluded because of the net loss reported for the period. Outstanding stock
options with exercise prices greater than the average market price of the common
stock during the period are also excluded from the computation of diluted net
income (loss) per share of common stock and are shown below.
|
Third
Quarter
|
Nine
Months
|
||||||
|
2005
|
2004
|
2005
|
2004
|
||||
|
Outstanding
options (in thousands)
|
-
|
-
|
-
|
47
|
|||
|
Exercise
price
|
-
|
-
|
-
|
$12.38
|
|||
Stock-Based
Compensation Plans.
As of
September 30, 2005, Stratus had four stock-based employee and director
compensation plans, which are described in Note 7 of the Stratus 2004 Form
10-K.
As discussed above in Note 2, Stratus accounts for those plans under the
recognition and measurement principles of APB Opinion No. 25 and related
interpretations. The following table illustrates the effect on net income (loss)
and earnings (loss) per share if Stratus had applied the fair value recognition
provisions of SFAS No. 123 to all stock-based employee compensation, as
discussed in Note 2 (in thousands, except per share amounts).
|
Three
Months Ended
|
Nine
Months Ended
|
|||||||||||
|
September
30,
|
September
30,
|
|||||||||||
|
2005
|
2004
|
2005
|
2004
|
|||||||||
|
Net
income (loss) applicable to common stock, as reported
|
$
|
3,319
|
$
|
557
|
$
|
3,727
|
$
|
(1,737
|
)
|
|||
|
Add:
Stock-based employee compensation expense
|
||||||||||||
|
included
in reported net income (loss) applicable to
|
||||||||||||
|
common
stock for restricted stock units
|
68
|
37
|
205
|
111
|
||||||||
|
Deduct:
Total stock-based employee compensation
|
||||||||||||
|
expense
determined under fair value-based method
|
||||||||||||
|
for
all awards
|
(234
|
)
|
(182
|
)
|
(700
|
)
|
(569
|
)
|
||||
|
Pro
forma net income (loss) applicable to common stock
|
$
|
3,153
|
$
|
412
|
$
|
3,232
|
$
|
(2,195
|
)
|
|||
|
Earnings
(loss) per share:
|
||||||||||||
|
Basic
- as reported
|
$
|
0.46
|
$
|
0.08
|
$
|
0.52
|
$
|
(0.24
|
)
|
|||
|
Basic
- pro forma
|
$
|
0.44
|
$
|
0.06
|
$
|
0.45
|
$
|
(0.31
|
)
|
|||
|
Diluted
- as reported
|
$
|
0.44
|
$
|
0.07
|
$
|
0.49
|
$
|
(0.24
|
)
|
|||
|
Diluted
- pro forma
|
$
|
0.42
|
$
|
0.05
|
$
|
0.43
|
$
|
(0.31
|
)
|
|||
For
the
pro forma computations, the values of option grants were calculated on the
dates
of grant using the Black-Scholes option-pricing model. The following table
summarizes the calculated average fair values and weighted-average assumptions
used to determine the fair value of Stratus’ stock option grants under SFAS No.
123 during the periods presented. See Note 2 above and Note 1 of the Stratus
2004 Form 10-K for a discussion of the requirements of SFAS No.
123R.
|
Three
Months Ended
|
Nine
Months Ended
|
|||||||||||
|
September
30,
|
September
30,
|
|||||||||||
|
2005
|
2004
|
2005
|
2004
|
|||||||||
|
Options
granted
|
7,500
|
7,500
|
7,500
|
7,500
|
||||||||
|
Fair
value per stock option
|
$
|
11.48
|
$
|
8.54
|
$
|
11.48
|
$
|
8.54
|
||||
|
Risk-free
interest rate
|
4.33
|
%
|
4.34
|
%
|
4.33
|
%
|
4.34
|
%
|
||||
|
Expected
volatility rate
|
46.2
|
%
|
49.4
|
%
|
46.2
|
%
|
49.4
|
%
|
||||
Stratus
assumes an expected life of 10 years for all of its options and no annual
dividends. The pro forma effects on net income are not representative of future
years because of the potential changes in the factors used in calculating the
Black-Scholes valuation and the number and timing of option grants. No other
discounts or restrictions related to vesting or the likelihood of vesting of
stock options were applied.
| 4. |
DEBT
OUTSTANDING
|
At
September 30, 2005, Stratus had total debt of $64.4 million, including $6.7
million of current debt, compared to total debt of $55.6 million, including
$1.5
million of current debt, at December 31, 2004. Stratus’ debt outstanding at
September 30, 2005 consisted of the following:
7
| · |
$21.7
million of net borrowings under the $45.0 million Comerica revolving
credit facility, which effective September 30, 2005 replaced the
prior
$30.0 million revolving credit facility with Comerica (see below).
The
$45.0 million facility, of which $3.0 million is provided for Stratus’
Calera Court project, matures on May 30,
2007.
|
| · |
$10.0
million of borrowings outstanding under two unsecured $5.0 million
term
loans, one of which will mature in January 2008 and the other in
July
2008.
|
| · |
$6.5
million of net borrowings under the 7500 Rialto Boulevard project
loan,
which matures in January 2006.
|
| · |
$11.9
million of net borrowings under the Teachers Insurance and Annuity
Association of America (TIAA) 7000 West project loan, which will
mature in
January 2015.
|
| · |
$3.0
million of net borrowings under the $9.8 million Deerfield loan,
for which
the Deerfield property and any future improvements are serving as
collateral. This project loan will mature in February
2007.
|
| · |
$7.6
million of net borrowings under the $18.5 million Escarpment Village
project loan, which will mature in June
2007.
|
| · |
$3.7
million of net borrowings under the $10.0 million Meridian project
loan,
which will mature in November 2007.
|
In
addition, Stratus has a $22.8 million commitment from TIAA for a 30-year
mortgage available for funding the completed Escarpment Village shopping center
project. The mortgage will be used to refinance the $18.5 million Escarpment
Village project loan discussed above.
The
$45.0
million Comerica revolving credit facility sets limitations on liens and
limitations on transactions with affiliates, and requires that certain financial
ratios be maintained. The facility allows Stratus to purchase up to $6.5 million
of its outstanding common stock after September 30, 2005. Amounts borrowed
under
the facility bear interest at a minimum annual rate of 5.0 percent or, at
Stratus’ option, Comerica’s prime rate plus 0.5 percent or LIBOR plus 2.5
percent. Security for obligations outstanding under the facility includes
substantially all of Stratus’ assets, except for Escarpment Village, 7000 West,
Deerfield and the Meridian project.
For
a
further discussion of Stratus’ debt see Note 5 of the Stratus 2004 Form
10-K.
| 5. |
RESTRICTED
CASH AND INTEREST COST
|
Restricted
Cash.
Restricted cash totaled $0.1 million at September 30, 2005 and December 31,
2004, reflecting funds held for payment of fractional shares resulting from
Stratus’ May 2001 stock split (see Note 7 of the Stratus 2004 Form
10-K).
Interest
Cost.
Interest
expense, net excludes capitalized interest of $0.9 million in the third quarter
of 2005, $0.6 million in the third quarter of 2004, $2.2 million in the first
nine months of 2005 and $1.8 million in the first nine months of
2004.
| 6. |
BUSINESS
SEGMENTS
|
Stratus
has two operating segments, “Real Estate Operations” and “Commercial Leasing.”
The Real Estate Operations segment is comprised of all Stratus’ developed
properties, properties under development and undeveloped properties in Austin,
Texas, which consist of its properties in the Barton Creek community, the Circle
C community and Lantana. In addition, the Deerfield property in Plano, Texas
is
included in the Real Estate Operations segment.
The
Commercial Leasing segment includes the Lantana Corporate Center office complex
at 7000 West, which consists of two fully leased 70,000-square-foot office
buildings, as well as Stratus’ nearly 100 percent leased 75,000-square-foot
office building at 7500 Rialto Boulevard. In March 2004, Stratus formed
Southwest Property Services L.L.C. to manage these office buildings. Previously,
Stratus had outsourced its property management functions to a property
management firm. Effective June 30, 2004, Stratus terminated its agreement
with
this firm and Southwest Property Services L.L.C. is performing all property
management responsibilities.
8
The
segment data presented below (in thousands) was prepared on the same basis
as
the consolidated financial statements.
|
Real
Estate Operationsa
|
Commercial
Leasing
|
Other
|
Total
|
|||||||||
|
Three
Months Ended September 30, 2005:
|
||||||||||||
|
Revenues
|
$
|
11,782
|
$
|
1,223
|
$
|
-
|
$
|
13,005
|
||||
|
Cost
of sales, excluding depreciation
|
(7,074
|
)
|
(727
|
)
|
-
|
(7,801
|
)
|
|||||
|
Depreciation
|
(37
|
)
|
(385
|
)
|
-
|
(422
|
)
|
|||||
|
General
and administrative expenses
|
(970
|
)
|
(216
|
)
|
-
|
(1,186
|
)
|
|||||
|
Operating
income (loss)
|
$
|
3,701
|
$
|
(105
|
)
|
$
|
-
|
$
|
3,596
|
|||
|
Capital
expenditures
|
$
|
10,847
|
$
|
43
|
$
|
-
|
$
|
10,890
|
||||
|
Total
assets
|
$
|
143,388
|
$
|
20,682
|
$
|
5,330
|
b
|
$
|
169,400
|
|||
|
Three
Months Ended September 30, 2004:
|
||||||||||||
|
Revenues
|
$
|
3,756
|
$
|
1,103
|
$
|
-
|
$
|
4,859
|
||||
|
Cost
of sales, excluding depreciation
|
(2,555
|
)
|
(47
|
)c
|
-
|
(2,602
|
)
|
|||||
|
Depreciation
|
(33
|
)
|
(365
|
)
|
-
|
(398
|
)
|
|||||
|
General
and administrative expenses
|
(883
|
)
|
(198
|
)
|
-
|
(1,081
|
)
|
|||||
|
Operating
income
|
$
|
285
|
$
|
493
|
$
|
-
|
$
|
778
|
||||
|
Capital
expenditures
|
$
|
4,254
|
$
|
393
|
$
|
-
|
$
|
4,647
|
||||
|
Total
assets
|
$
|
126,148
|
$
|
21,982
|
$
|
7,261
|
b
|
$
|
155,391
|
|||
|
Nine
Months Ended September 30, 2005:
|
||||||||||||
|
Revenues
|
$
|
21,069
|
$
|
3,608
|
$
|
-
|
$
|
24,677
|
||||
|
Cost
of sales, excluding depreciation
|
(13,063
|
)
|
(2,047
|
)
|
-
|
(15,110
|
)
|
|||||
|
Depreciation
|
(112
|
)
|
(1,147
|
)
|
-
|
(1,259
|
)
|
|||||
|
General
and administrative expenses
|
(3,074
|
)
|
(689
|
)
|
-
|
(3,763
|
)
|
|||||
|
Operating
income (loss)
|
$
|
4,820
|
$
|
(275
|
)
|
$
|
-
|
$
|
4,545
|
|||
|
Capital
expenditures
|
$
|
29,745
|
$
|
265
|
$
|
-
|
$
|
30,010
|
||||
|
Nine
Months Ended September 30, 2004:
|
||||||||||||
|
Revenues
|
$
|
8,128
|
$
|
2,905
|
$
|
-
|
$
|
11,033
|
||||
|
Cost
of sales, excluding depreciation
|
(5,771
|
)
|
(1,547
|
)c
|
-
|
(7,318
|
)
|
|||||
|
Depreciation
|
(85
|
)
|
(1,020
|
)
|
-
|
(1,105
|
)
|
|||||
|
General
and administrative expenses
|
(3,007
|
)
|
(674
|
)
|
-
|
(3,681
|
)
|
|||||
|
Operating
loss
|
$
|
(735
|
)
|
$
|
(336
|
)
|
$
|
-
|
$
|
(1,071
|
)
|
|
|
Capital
expenditures
|
$
|
16,823
|
$
|
1,410
|
$
|
-
|
$
|
18,233
|
||||
| a. |
Includes
sales commissions, management fees and other revenues together with
related expenses.
|
| b. |
Represents
all other assets except for property held for sale and property held
for
use comprising the Real Estate Operations and Commercial Leasing
segments.
|
| c. |
Includes
a $0.7 million reimbursement of certain building repairs received
from a
settlement with the general contractor responsible for construction
of the
7000 West office buildings.
|
| 7. |
COMMITMENTS
|
In
January 2005, Stratus entered into an $8.5 million contract with a one-year
term
for the construction of Escarpment Village at the Circle C community. In January
2005, Stratus also executed four construction contracts with one-year terms
totaling $3.9 million for paving and utilities work at the Circle C community
in
connection with the development of the first 134 lots of the Meridian project
and the construction of the first phase of the main boulevard in Meridian.
In
June 2005, Stratus executed two construction contracts with nine-month terms,
totaling $3.1 million, for paving and utilities for the second 134-lot phase
of
the Meridian project. Additionally, in September 2005, Stratus executed two
construction contracts with 75-day terms, totaling $0.3 million, for gas and
electric improvements for the second 134-lot phase of the Meridian
project.
9
REVIEW
BY
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The
financial information as of September 30, 2005, and for each of the three-month
and nine-month periods ended September 30, 2005 and 2004, included in Part
I of
this Form 10-Q pursuant to Rule 10-01 of Regulation S-X has been reviewed by
PricewaterhouseCoopers LLP (PricewaterhouseCoopers), Stratus’ independent
registered public accounting firm, in accordance with the standards of the
Public Company Accounting Oversight Board (United States).
PricewaterhouseCoopers’ report is included in this quarterly
report.
PricewaterhouseCoopers
does not carry out significant or additional procedures beyond those that would
have been necessary if its report had not been included in this quarterly
report. Accordingly, such report is not a “report” or “part of a registration
statement” within the meaning of Sections 7 and 11 of the Securities Act of 1933
and the liability provisions of Section 11 of such Act do not
apply.
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
To
the
Board of Directors and Stockholders
of
Stratus Properties Inc.:
We
have
reviewed the accompanying consolidated balance sheet of Stratus Properties
Inc.
(a Delaware Corporation) as of September 30, 2005, and the related consolidated
statements of operations for each of the three-month and nine-month periods
ended September 30, 2005 and 2004, and the consolidated statements of cash
flows
for the nine-month periods ended September 30, 2005 and 2004. These
interim
financial statements are the responsibility of the Company’s
management.
We
conducted our review in accordance with the standards of the Public Company
Accounting Oversight Board (United States). A review of interim financial
information consists principally of applying analytical procedures and making
inquiries of persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance with the
standards of the Public Company Accounting Oversight Board (United States),
the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an
opinion.
Based
on
our review, we are not aware of any material modifications that should be made
to the accompanying consolidated interim financial statements for them to be
in
conformity with accounting principles generally accepted in the United States
of
America.
We
previously audited in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the consolidated balance sheet
of
Stratus Properties Inc. as of December 31, 2004, and the related consolidated
statements of income, of changes in stockholders’ equity and of cash flows for
the year then ended (not presented herein), and in our report dated March 29,
2005 we expressed an unqualified opinion on those consolidated financial
statements. In our opinion, the information set forth in the accompanying
consolidated balance sheet as of December 31, 2004, is fairly stated in all
material respects in relation to the consolidated balance sheet from which
it
has been derived.
/s/
PricewaterhouseCoopers LLP
Austin,
Texas
November
10, 2005
10
Item
2.Management's
Discussion and Analysis of Financial Condition and Results of
Operations.
OVERVIEW
Management’s
discussion and analysis presented below should be read in conjunction with
our
discussion and analysis of financial results contained in our 2004 Annual Report
on Form 10-K (2004 Form 10-K). The operating results summarized in this report
are not necessarily indicative of our future operating
results.
We
are
engaged in the acquisition, development, management and sale of commercial,
multi-family and residential real estate properties located primarily in the
Austin, Texas area. We conduct real estate operations on properties we
own.
Our
principal real estate holdings are in southwest Austin, Texas. Our most
significant holding is the 1,791 acres of residential, multi-family and
commercial property and 109 developed residential lots located within the Barton
Creek community. We own an additional 426 acres of undeveloped residential,
commercial and multi-family property and 37 acres of developed commercial
property within the Circle C Ranch (Circle C) community. Our other properties
in
the Circle C community are currently being developed and include Meridian,
which
is an 800-lot residential development, and Escarpment Village, which is a retail
center. At September 30, 2005, Meridian consists of approximately 384 acres
and
Escarpment Village consists of approximately 62 acres. Our remaining Austin
holdings consist of 282 acres of commercial property and three office buildings,
of which one is nearly 100 percent leased and two are fully leased, in Lantana.
The office buildings include a 75,000-square foot building at 7500 Rialto
Boulevard, and two 70,000-square foot buildings at 7000 West William Cannon
Drive, known as the Lantana Corporate Center. In January 2004, we acquired
approximately 68 acres of land in Plano, Texas, which we refer to as Deerfield.
At September 30, 2005, our Deerfield property consists of approximately 47
acres
of residential land, which is being developed, and 7 residential
lots.
DEVELOPMENT
AND OTHER ACTIVITIES
Lantana.
We are
working with Advanced Micro Devices, Inc. (NYSE: AMD) on site planning and
related matters necessary to develop a proposed project at our Lantana property
in southwest Austin. The proposed AMD project consists of approximately 825,000
square feet of office and related uses located on a 59-acre site at the
southeast corner of West William Cannon Drive and Southwest Parkway. Lantana
is
a partially developed, mixed-use project with remaining entitlements for
approximately three million square feet of office and retail use on 282 acres.
Regional utility and road infrastructure is in place with capacity to serve
Lantana. Development of the AMD project is subject to several conditions,
including negotiating definitive agreements.
At
September 30, 2005, our two 70,000-square-foot office buildings at 7000 West
were fully leased and our 75,000-square-foot office building at 7500 Rialto
Boulevard had an occupancy rate of approximately 96 percent. As demand for
office space within Lantana has increased, we plan to commence construction
of a
second 75,000-square-foot office building at 7500 Rialto Boulevard during the
coming year, subject to securing suitable tenant leases.
Downtown
Austin Project.
In April
2005, the City of Austin (the City) selected our proposal to develop a mixed-use
project in downtown Austin immediately north of the new City Hall complex.
The
project includes an entire city block and is suitable for a mixture of retail,
office, hotel, residential and civic uses. We have entered into an exclusive
negotiation period with the City to reach agreement on the project’s design and
transaction terms and structure.
Wimberly
Lane Phase II.
In May
2004, we entered into a contract with a national homebuilder to sell 41 lots
within the Wimberly Lane Phase II subdivision in the Barton Creek community.
In
June 2004, the homebuilder paid us a non-refundable $0.6 million deposit for
the
right to purchase the 41 lots, which was used to pay ongoing development costs
of the lots. The deposit is being recognized as income as lots are sold. The
lots are being sold on a scheduled takedown basis, with six lots sold in
December 2004 following completion of subdivision utilities, and then an average
of three lots per quarter beginning in June 2005. The average purchase price
for
each of the 41 lots is $150,400, subject to a six percent annual escalator
commencing in December 2004. The initial lot closings occurred in December
2004.
We expect scheduled homebuilder sales during the fourth quarter of 2005 to
total
two lots for $0.3 million. Wimberly Lane Phase II also includes six estate
lots,
each averaging approximately five acres, which we retained and marketed. Estate
lot sales in 2005 through September 30 included five lots (one in the first
quarter and four in the second quarter) for $1.5 million.
11
Deerfield.
In
January 2004, we acquired the Deerfield property for $7.0 million. The property
is zoned and subject to a preliminary subdivision plan for 234 residential
lots.
In February 2004, we executed an Option Agreement and a Construction Agreement
with a national homebuilder. Pursuant to the Option Agreement, the homebuilder
paid us $1.4 million for an option to purchase all 234 lots over 36 monthly
take-downs. The net purchase price for each of the 234 lots is $61,500, subject
to certain terms and conditions. The $1.4 million option payment is
non-refundable, but will be applied against subsequent purchases of lots by
the
homebuilder after certain thresholds are achieved and will be recognized by
us
as income as lots are sold. The Construction Agreement requires the homebuilder
to complete development of the entire project by March 15, 2007. We agreed
to
pay up to $5.2 million of the homebuilder’s development costs. The homebuilder
must pay all property taxes and maintenance costs. In February 2004, we entered
into a $9.8 million three-year loan agreement with Comerica Bank (Comerica)
to
finance the acquisition and development of Deerfield. Development is proceeding
on schedule and we had $6.8 million in remaining availability under the loan
at
September 30, 2005. The initial lot sale occurred in November 2004 and
subsequent lot sales are on schedule with 56 lot sales closing in the first
nine
months of 2005. In October 2005, we executed a revised agreement with the
homebuilder, increasing the lot sizes and average purchase prices based on
a new
total of 224 lots. Under the revised agreement terms, we expect to complete
12
lot sales for $0.8 million during the fourth quarter of 2005.
Circle
C Community. We
have
commenced development activities at the Circle C community based on the
entitlements secured in our Circle C settlement with the City, which permits
development of 1.0 million square feet of commercial space, 900 multi-family
units and 830 single-family residential lots. In the second quarter of 2004,
we
amended our Circle C settlement with the City to increase the amount of
permitted commercial space from 1.0 million square feet to 1.16 million square
feet in exchange for a decrease in allowable multi-family units from 900 units
to 504 units. The preliminary plan has been approved for Meridian, an 800-lot
residential development at the Circle C community. In October 2004, we received
final City plat and construction permit approvals for the first phase of
Meridian, and construction commenced in January 2005. During the first quarter
of 2005, we contracted to sell a total of 494 lots in our Meridian project
to
three national homebuilders in four phases. Sales for each of the four phases
commence upon substantial completion of development for that phase, and continue
every quarter until all of the lots have been sold. The first phase, which
is
currently under development, includes 134 lots and substantial completion is
projected prior to year-end 2005. Development of the second phase of
approximately 134 lots commenced in the third quarter of 2005, with completion
projected by early 2006. We estimate our sales from the first phase of Meridian
will total at least 14 lots for $0.9 million during the fourth quarter of
2005.
In
addition, several retail sites at the Circle C community received final City
approvals and are being developed. Zoning for Escarpment Village, a
168,000-square-foot retail project anchored by a grocery store, was approved
during the second quarter of 2004, and construction has commenced with
completion expected by mid-2006. In December 2004, we obtained an $18.5 million
project loan from Comerica to fund the construction of Escarpment Village,
as
well as a $22.8 million commitment from the Teachers Insurance and Annuity
Association of America (TIAA) for a long-term mortgage for the completed
project.
Calera.
During
2004, we completed construction of four courtyard homes at Calera Court within
the Barton Creek community, two of which were sold in October 2005 and one
of
which was sold in the first quarter of 2004. Calera Court, the initial phase
of
the “Calera” subdivision, will include 17 courtyard homes on 16 acres. The
second phase of Calera, Calera Drive, consisting of 53 single-family lots many
of which adjoin the Fazio Canyons Golf Course, received final plat and
construction permit approval. In the third quarter of 2005, development of
these
lots was completed and the initial five lots were sold for $2.1 million. During
the fourth quarter of 2005 through November 7, 2005, we sold an additional
10
lots for $3.5 million. Development of the third and last phase of Calera, which
will include approximately 70 single-family lots, is not expected to commence
until after 2005.
Office
Buildings.
During
the first quarter of 2004, we executed leases that brought our 7500 Rialto
Boulevard office building to 90 percent occupancy in July 2004, and at September
30, 2005, the office building was approximately 96 percent leased. Our two
70,000-square-foot office buildings at 7000 West were fully leased in 2004
and
2005. In March 2004, we formed Southwest Property Services L.L.C. to manage
our
office buildings. Effective June 30, 2004, we terminated our agreement with
the
third-party property management firm previously providing this function.
Although there were some higher costs during the initial transition, we
anticipate that this change in management responsibility should provide future
cost savings for our commercial leasing operations and better control of
building operations.
12
RESULTS
OF OPERATIONS
We
are
continually evaluating the development potential of our properties and will
continue to consider opportunities to enter into transactions involving our
properties. As a result, and because of numerous other factors affecting our
business activities as described herein, our past operating results are not
necessarily indicative of our future results.
Summary
operating results follow (in thousands):
|
Third
Quarter
|
Nine
Months
|
|||||||||||
|
2005
|
2004
|
2005
|
2004
|
|||||||||
|
Revenues:
|
||||||||||||
|
Real
estate operations
|
$
|
11,782
|
$
|
3,756
|
$
|
21,069
|
$
|
8,128
|
||||
|
Commercial
leasing
|
1,223
|
1,103
|
3,608
|
2,905
|
||||||||
|
Total
revenues
|
$
|
13,005
|
$
|
4,859
|
$
|
24,677
|
$
|
11,033
|
||||
|
Operating
income (loss)
|
$
|
3,596
|
$
|
778
|
$
|
4,545
|
$
|
(1,071
|
)
|
|||
|
Net
income (loss)
|
$
|
3,319
|
$
|
557
|
$
|
3,727
|
$
|
(1,737
|
)
|
|||
We
have
two operating segments, “Real Estate Operations” and “Commercial Leasing” (see
Note 6 of Notes to Consolidated Financial Statements). The following is a
discussion of our operating results by segment.
Real
Estate Operations
Summary
real estate operating results follow (in thousands):
|
Third
Quarter
|
Nine
Months
|
|||||||||||
|
2005
|
2004
|
2005
|
2004
|
|||||||||
|
Revenues:
|
||||||||||||
|
Developed
property sales
|
$
|
6,603
|
$
|
1,978
|
$
|
15,480
|
$
|
4,762
|
||||
|
Undeveloped
property sales
|
5,000
|
1,750
|
5,000
|
3,140
|
||||||||
|
Commissions,
management fees and other
|
179
|
28
|
589
|
226
|
||||||||
|
Total
revenues
|
11,782
|
3,756
|
21,069
|
8,128
|
||||||||
|
Cost
of sales
|
(7,111
|
)
|
(2,588
|
)
|
(13,175
|
)
|
(5,856
|
)
|
||||
|
General
and administrative expenses
|
(970
|
)
|
(883
|
)
|
(3,074
|
)
|
(3,007
|
)
|
||||
|
Operating
income (loss)
|
$
|
3,701
|
$
|
285
|
$
|
4,820
|
$
|
(735
|
)
|
|||
Developed
Property Sales. Improving
market conditions in the Austin area and our Deerfield project have resulted
in
increased lot sales in the 2005 periods compared with the 2004 periods.
Developed property sales for the third quarters of 2005 and 2004 included the
following (revenues in millions):
|
Third
Quarter
|
||||||||
|
2005
|
2004
|
|||||||
|
Lots
|
Revenues
|
Lots
|
Revenues
|
|||||
|
Residential
Properties:
|
||||||||
|
Deerfield
|
27
|
$1.7
|
-
|
-
|
||||
|
Wimberly
Lane Phase II
|
||||||||
|
Standard
Homebuilder
|
4
|
0.6
|
-
|
-
|
||||
|
Barton
Creek
|
||||||||
|
Escala
Drive Estate
|
4
|
2.2
|
2
|
$0.7
|
||||
|
Mirador
Estate
|
-
|
-
|
3
|
1.0
|
||||
|
Calera
Drive
|
5
|
2.1
|
-
|
-
|
||||
|
40
|
$6.6
|
5
|
$1.7
|
a
|
||||
| a. |
Excludes
$0.3 million of previously deferred revenues related to a 2003 lot
sale at
the Mirador subdivision that we recognized in the third quarter of
2004.
|
13
Developed
property sales for the first nine months of 2005 and 2004 included the following
(revenues in millions):
|
Nine
Months
|
||||||||
|
2005
|
2004
|
|||||||
|
Lots
|
Revenues
|
Lots
|
Revenues
|
|||||
|
Residential
Properties:
|
||||||||
|
Deerfield
|
56
|
$3.5
|
-
|
-
|
||||
|
Wimberly
Lane Phase II
|
||||||||
|
Standard
Homebuilder
|
7
|
1.1
|
-
|
-
|
||||
|
Estate
|
5
|
1.5
|
-
|
-
|
||||
|
Barton
Creek
|
||||||||
|
Escala
Drive Estate
|
7
|
4.0
|
5
|
$1.7
|
||||
|
Mirador
Estate
|
6
|
3.3
|
6
|
2.2
|
||||
|
Calera
Drive
|
5
|
2.1
|
-
|
-
|
||||
|
Calera
Court Courtyard Home
|
-
|
-
|
1
|
0.6
|
||||
|
86
|
$15.5
|
12
|
$4.5
|
a
|
||||
| a. |
Excludes
$0.3 million of previously deferred revenues related to a 2003 lot
sale at
the Mirador subdivision that we recognized in the third quarter of
2004.
|
Undeveloped
Property Sales.
During
the third quarter of 2005, we sold a 38-acre tract within the Barton Creek
Community for $5.0 million. During the first nine months of 2004, we sold an
83-acre estate lot within the Barton Creek community for $1.8 million in the
third quarter and two tracts totaling three acres within the Circle C community
for $1.4 million in the second quarter.
Commissions,
Management Fees and Other.
Commissions, management fees and other revenues included sales of our
development fee credits to third parties totaling $0.2 million in the third
quarter of 2005, $0.4 million in the first nine months of 2005 and $0.1 million
in the first nine months of 2004. We received these development fee credits
as
part of the Circle C settlement (see Note 8 of our 2004 Form 10-K). The increase
in commissions for the first nine months of 2005 compared to the 2004 period
reflects an increase in developed property sales in the first nine months of
2005.
Cost
of Sales.
The
increases in cost of sales for the third quarter and first nine months of 2005
compared to the 2004 periods primarily relate to the increase in developed
property sales in the 2005 periods.
Commercial
Leasing
Summary
commercial leasing operating results follow (in thousands):
|
Third
Quarter
|
Nine
Months
|
|||||||||||
|
2005
|
2004
|
2005
|
2004
|
|||||||||
|
Rental
income
|
$
|
1,223
|
$
|
1,103
|
$
|
3,608
|
$
|
2,905
|
||||
|
Rental
property costs
|
(727
|
)
|
(47
|
)
|
(2,047
|
)
|
(1,547
|
)
|
||||
|
Depreciation
|
(385
|
)
|
(365
|
)
|
(1,147
|
)
|
(1,020
|
)
|
||||
|
General
and administrative expenses
|
(216
|
)
|
(198
|
)
|
(689
|
)
|
(674
|
)
|
||||
|
Operating
income (loss)
|
$
|
(105
|
)
|
$
|
493
|
$
|
(275
|
)
|
$
|
(336
|
)
|
|
Rental
Income.
In the
third quarter of 2005, rental income from our 7000 West office buildings totaled
$0.9 million, compared to $0.8 million for the 2004 period. In addition, we
earned $0.4 million in rental income from our 7500 Rialto Boulevard office
building for the third quarter of 2005, compared to $0.3 million for the 2004
period. Rental income for the first nine months of 2005 was higher than the
first nine months of 2004 as occupancy rates were increasing at our 7500 Rialto
Boulevard office building.
Rental
Property Costs.
Rental
property costs in the third quarter of 2004 and the first nine months of 2004
were reduced by $0.7 million for reimbursement of certain building repairs
received from a settlement with the general contractor responsible for
construction of the 7000 West office buildings.
14
CAPITAL
RESOURCES AND LIQUIDITY
Nine-Months
2005 Compared with Nine-Months 2004
Although
at September 30, 2005, we had a $15.4 million working capital deficit, we
believe that we have adequate funds available from our revolving credit facility
($23.3 million at September 30, 2005) and projected operating cash flows to
meet
our working capital requirements. Additionally, we expect to restructure or
extend our 7500 Rialto Boulevard project loan ($6.5 million balance in current
liabilities at September 30, 2005) prior to its maturity in January 2006 (see
below). Operating activities provided cash of $24.0 million during the first
nine months of 2005, compared to $5.7 million during the first nine months
of
2004. Compared to the 2004 period, operating cash flows improved primarily
because of the increase in sales activities and working capital
changes.
Cash
used
in investing activities totaled $29.4 million during the first nine months
of
2005, compared to $17.5 million during the 2004 period. We acquired our
Deerfield property for $7.0 million in the first quarter of 2004 and continued
to develop the property in the first nine months of 2005. Other real estate
expenditures for the first nine months of 2005 and 2004 included improvements
to
certain properties in the Barton Creek and Circle C communities. Development
of
our commercial leasing properties included the completion of certain tenant
improvements to our 7000 West office buildings and 7500 Rialto Boulevard office
building during the first nine months of 2005 and 2004. The expenditures were
partly offset by municipal utility district (MUD) reimbursements of $0.6 million
for the 2005 period and $0.7 million for the 2004 period.
Financing
activities provided cash of $5.9 million during the first nine months of 2005
compared to $12.6 million during the first nine months of 2004. During the
first
nine months of 2005, our financing activities reflected $1.4 million of net
borrowings under our revolving line of credit and $7.3 million of net borrowings
from our project construction loans, including $8.6 million of borrowings from
the Meridian project loan, $2.8 million of borrowings from the Escarpment
Village project loan, payments of $3.0 million on the Deerfield project loan
and
final payment of $1.2 million on the Calera Court project loan. During the
first
nine months of 2004, our financing activities included $3.9 million of net
borrowings from our revolving line of credit and $8.1 million of net borrowings
from our project construction loans, including borrowings of $5.2 million from
the Deerfield loan and $1.2 million from the Calera Court project loan. See
“Credit Facility and Other Financing Arrangements” below for a discussion of our
outstanding debt at September 30, 2005.
In
2001,
our Board of Directors approved an open market share purchase program for up
to
0.7 million shares of our common stock. Under this program, we purchased 187,271
shares for $3.3 million, a $17.66 per share average, in the first nine months
of
2005, including a privately negotiated purchase of 125,316 shares from a former
executive for $2.3 million, an $18.13 per share average, in the third quarter
of
2005. The transaction was based on market prices of our common stock. During
the
fourth quarter of 2005 through November 7, 2005, we purchased 1,298 shares
for
approximately $25,000, a $19.68 per share average. A total of 493,042 shares
remain available under this program. During the third quarter of 2004, we
purchased 14,543 shares of our common stock for $0.2 million, a $13.01 per
share
average. Our loan agreement with Comerica provides a limit of $6.5 million
for
common stock purchases after September 30, 2005. The timing of future purchases
of our common stock is dependent on many factors including the price of our
common shares, our cash flows and financial position, and general economic
and
market conditions.
Credit
Facility and Other Financing Arrangements
At
September 30, 2005, we had total debt of $64.4 million, including $6.7 million
of current debt, compared to total debt of $55.6 million, including $1.5 million
of current debt, at December 31, 2004. Our debt outstanding at September 30,
2005 consisted of the following:
| · |
$21.7
million of net borrowings under the $45.0 million Comerica revolving
credit facility, which effective September 30, 2005 replaced the
prior
$30.0 million revolving credit facility with Comerica. The $45.0
million
facility, of which $3.0 million is provided for our Calera Court
project,
matures on May 30, 2007.
|
| · |
$10.0
million of borrowings outstanding under two unsecured $5.0 million
term
loans, one of which will mature in January 2008 and the other in
July
2008.
|
| · |
$6.5
million of net borrowings under the 7500 Rialto Boulevard project
loan,
which matures in January 2006 (see
below).
|
15
| · |
$11.9
million of net borrowings under the TIAA 7000 West project loan,
which
will mature in January 2015.
|
| · |
$3.0
million of net borrowings under the $9.8 million Deerfield loan,
for which
the Deerfield property and any future improvements are serving as
collateral. This project loan will mature in February
2007.
|
| · |
$7.6
million of net borrowings under the $18.5 million Escarpment Village
project loan, which will mature in June
2007.
|
| · |
$3.7
million of net borrowings under the $10.0 million Meridian project
loan,
which will mature in November 2007.
|
In
addition, we have a $22.8 million commitment from TIAA for a 30-year mortgage
available for funding the completed Escarpment Village shopping center project.
The mortgage will be used to refinance the $18.5 million Escarpment Village
project loan discussed above.
For
a
further discussion of our debt see Note 5 of our 2004 Form 10-K.
Comerica
Revolving Credit Facility.
On
September 30, 2005, we entered into a loan agreement with Comerica to replace
our existing $30.0 million revolving credit facility with them. The loan
agreement provides for a $45.0 million revolving credit facility, of which
$3.0
million is provided for our Calera Court project. The facility matures on May
30, 2007.
The
facility sets limitations on liens and limitations on transactions with
affiliates, and requires that certain financial ratios be maintained. The
facility allows us to purchase up to $6.5 million of our outstanding common
stock after September 30, 2005. Amounts borrowed under the facility bear
interest at a minimum annual rate of 5.0 percent or, at our option, Comerica’s
prime rate plus 0.5 percent or LIBOR plus 2.5 percent. Our obligations under
the
facility are secured by substantially all of our assets, except for Escarpment
Village, 7000 West, Deerfield and the Meridian project.
7500
Rialto Boulevard Project Loan Amendment.
Under
the terms of an existing amendment, we executed a one-year option in January
2004 to extend the maturity of our project loan for the 75,000-square-foot
office building at 7500 Rialto Boulevard from January 31, 2004 to January 31,
2005, with a remaining option to extend the maturity for an additional one-year
period. Effective January 31, 2005, we extended the loan for one year in
accordance with the remaining option. Under the terms of the maturity extension,
we paid an extension fee of $18,500 and the commitment under the facility was
reduced by $0.2 million to $7.4 million. We may make additional borrowings
under
this facility to fund certain tenant improvements. We expect to restructure
or
extend our 7500 Rialto Boulevard project loan ($6.5 million balance at September
30, 2005) prior to its maturity in January 2006.
Outlook
As
discussed in “Risk Factors” located in our 2004 Form 10-K, our financial
condition and results of operations are highly dependent upon market conditions
in Austin. Our future operating cash flows and, ultimately, our ability to
develop our properties and expand our business will be largely dependent on
the
level of our real estate sales. In turn, these sales will be significantly
affected by future real estate market conditions in Austin, Texas, development
costs, interest rate levels and regulatory issues including our land use and
development entitlements. The Austin real estate market experienced a slowdown
during the past several years which affected our operating results and
liquidity. While current market conditions are improving, we cannot at this
time
project how long or to what extent improving conditions will
persist.
We
have
made progress securing permitting for our Austin-area properties (see “Company
Strategies and Development Activities” in our 2004 Form 10-K). Significant
development expenditures must be incurred and additional permits secured prior
to the sale of certain properties. Certain of our properties benefit from
grandfathered entitlements that are not subject to the development requirements
currently in effect. We continue to engage in positive and cooperative dialogue
with the City concerning land use and development permit issues.
We
are
continuing to pursue additional development and management fee opportunities.
We
also believe that we can obtain bank financing for developing our properties
at
a reasonable cost.
16
NEW
ACCOUNTING STANDARD
Refer
to
Note 1 of our 2004 Form 10-K for information regarding our accounting for
share-based payments, including stock options. Through September 30, 2005,
we
have accounted for grants of employee stock options under the recognition
principles of Accounting Principles Board (APB) Opinion No. 25, “Accounting for
Stock Issued to Employees,” and related interpretations, which require
compensation costs for stock-based employee compensation plans to be recognized
based on the difference on the date of grant, if any, between the quoted market
price of the stock and the amount an employee must pay to acquire the stock.
If
we had applied the fair value recognition provisions of Statement of Financial
Accounting Standards (SFAS) No. 123, “Accounting for Stock-Based Compensation,”
which requires stock-based compensation to be recognized based on the use of
a
fair value method, our net income would have been reduced by $0.2 million,
$0.02
per share, for the third quarter of 2005, $0.1 million, $0.02 per share,
for the third quarter of 2004 and $0.5 million, $0.07 per basic share and $0.06
per diluted share, for the first nine months of 2005. In 2004, our net loss
would have been increased by $0.5 million, $0.07 per share, for the first nine
months of 2004.
In
December 2004, the Financial Accounting Standards Board (FASB) issued SFAS
No.
123 (revised 2004), “Share-Based Payment” (SFAS No. 123R). SFAS No. 123R
requires all share-based payments to employees, including grants of employee
stock options, to be recognized in the financial statements based on their
fair
values. SFAS No. 123R’s effective date is fiscal periods beginning after June
15, 2005. We are still reviewing the provisions of SFAS No. 123R and expect
to
adopt SFAS No. 123R on January 1, 2006. Based on currently outstanding employee
stock options and based on the previously disclosed grant date Black-Scholes
values of these outstanding options, we currently estimate the pro forma charge
to operating income for the full year 2005 would total approximately $0.7
million. This pro forma amount is not necessarily indicative of what charges
may
be for future periods.
CAUTIONARY
STATEMENT
Management’s
Discussion and Analysis of Financial Condition and Results of Operations
contains forward-looking statements regarding proposed real estate sales and
development activities at the Deerfield project, the Barton Creek community,
the
Circle C community and at Lantana; the proposed development of a mixed-use
project in downtown Austin; future events related to financing and regulatory
matters; the expected results of our business strategy; and other plans and
objectives of management for future operations and activities. Important factors
that could cause actual results to differ materially from our expectations
include economic and business conditions, business opportunities that may be
presented to and pursued by us, changes in laws or regulations and other
factors, many of which are beyond our control, and other factors that are
described in more detail under “Risk Factors” located in our 2004 Form
10-K.
Item
3. Quantitative
and Qualitative Disclosures about Market Risk.
There
have been no significant changes in our market risks since the year ended
December 31, 2004. For more information, please read the consolidated financial
statements and notes thereto included in our 2004 Form 10-K.
Item
4.Controls
and Procedures.
(a) Evaluation
of disclosure controls and procedures.
Our
chief executive officer and chief financial officer, with the participation
of
management, have evaluated the effectiveness of our “disclosure controls and
procedures” (as defined in Rules 13a-14(c) and 15d-14(c) under the Securities
Exchange Act of 1934) as of the end of the period covered by this quarterly
report on Form 10-Q. Based on their evaluation, they have concluded that our
disclosure controls and procedures are effective in timely alerting them to
material information relating to Stratus (including our consolidated
subsidiaries) required to be disclosed in our periodic Securities and Exchange
Commission filings.
(b) Changes
in internal controls.
There
has been no change in our internal control over financial reporting that
occurred during the third quarter that has materially affected, or is reasonably
likely to materially affect our internal control over financial
reporting.
17
Item
1.Legal
Proceedings.
We
may
from time to time be involved in various legal proceedings of a character
normally incident to the ordinary course of our business. We believe that
potential liability from any of these pending or threatened proceedings will
not
have a material adverse effect on our financial condition or results of
operations. We maintain liability insurance to cover some, but not all,
potential liabilities normally incident to the ordinary course of our business
as well as other insurance coverage customary in our business, with such
coverage limits as management deems prudent.
Item
2.Unregistered
Sales of Equity Securities and Use of Proceeds.
The
following table sets forth shares of our common stock we repurchased during
the
three-month period ended September 30, 2005.
|
Current
Programa
|
|||||||||
|
Period
|
Total
Shares Purchased
|
Average
Price Paid Per Share
|
Shares
Purchased
|
Shares
Available for Purchase
|
|||||
|
July
1 to 31, 2005
|
600
|
$18.01
|
600
|
620,016
|
|||||
|
August
1 to 31, 2005
|
125,676
|
18.13
|
125,676
|
494,340
|
|||||
|
September
1 to 30, 2005
|
-
|
-
|
-
|
494,340
|
|||||
|
Total
|
126,276
|
18.13
|
126,276
|
||||||
| a. |
In
February 2001, our Board of Directors approved an open market share
purchase program for up to 0.7 million shares of our common stock.
The
program does not have an expiration date. Our loan agreement with
Comerica
provides a limit of $6.5 million for common stock purchases after
September 30, 2005.
|
Item
6.Exhibits.
The
exhibits to this report are listed in the Exhibit Index beginning on page E-1
hereof.
Instruments
with respect to other long-term debt of Stratus and its consolidated
subsidiaries are omitted pursuant to Item 601(b)(4)(iii) of Regulation S-K
since
the total amount authorized under each such omitted instrument does not exceed
10 percent of the total assets of Stratus and its subsidiaries on a consolidated
basis. Stratus hereby agrees to furnish a copy of any such instrument to the
Securities and Exchange Commission upon request.
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant
has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
STRATUS
PROPERTIES INC.
By:
/s/
John E. Baker
-----------------------------------
John
E.
Baker
Senior
Vice President and
Chief
Financial Officer
(authorized
signatory and
Principal
Financial Officer)
Date: November
10, 2005
18
STRATUS
PROPERTIES INC.
Exhibit
Number
|
3.1
|
Amended
and Restated Certificate of Incorporation of Stratus. Incorporated
by
reference to Exhibit 3.1 to the Quarterly Report on Form 10-Q of
Stratus
for the quarter ended March 31, 2004 (Stratus’ 2004 First Quarter Form
10-Q).
|
|
3.2
|
Certificate
of Amendment to the Amended and Restated Certificate of Incorporation
of
Stratus, dated May 14, 1998. Incorporated by reference to Exhibit
3.2 to
Stratus’ 2004 First Quarter Form 10-Q.
|
|
3.3
|
Certificate
of Amendment to the Amended and Restated Certificate of Incorporation
of
Stratus, dated May 25, 2001. Incorporated by reference to Exhibit
3.2 to
the Annual Report on Form 10-K of Stratus for the fiscal year ended
December 31, 2001 (Stratus’ 2001 Form 10-K).
|
|
3.4
|
By-laws
of Stratus, as amended as of February 11, 1999. Incorporated by reference
to Exhibit 3.4 to Stratus’ 2004 First Quarter Form
10-Q.
|
|
4.1
|
Rights
Agreement dated as of May 16, 2002, between Stratus and Mellon Investor
Services LLP, as Rights Agent, which includes the Certificates of
Designation of Series C Participating Preferred Stock; the Forms
of Rights
Certificate Assignment, and Election to Purchase; and the Summary
of
Rights to Purchase Preferred Shares. Incorporated by reference to
Exhibit
4.1 to Stratus’ Registration Statement on Form 8-A dated May 22,
2002.
|
|
4.2
|
Amendment
No. 1 to Rights Agreement between Stratus Properties Inc. and Mellon
Investor Services LLC, as Rights Agent, dated as of November 7, 2003.
Incorporated by reference to Exhibit 4.1 to the Current Report on
Form 8-K
of Stratus dated November 7, 2003.
|
|
10.1
|
Loan
Agreement by and between Stratus Properties Inc., Stratus Properties
Operating Co., L.P., Circle C Land, L.P., Austin 290 Properties,
Inc.,
Calera Court, L.P., and Comerica Bank dated as of September 30, 2005.
Incorporated by reference to Exhibit 10.1 to the Current Report on
Form
8-K of Stratus dated September 30, 2005.
|
|
10.2
|
Revolving
Promissory Note by and between Stratus Properties Inc., Stratus Properties
Operating Co., L.P., Circle C Land, L.P., Austin 290 Properties,
Inc.,
Calera Court, L.P., and Comerica Bank dated as of September 30, 2005.
Incorporated by reference to Exhibit 10.2 to the Current Report on
Form
8-K of Stratus dated September 30, 2005.
|
|
10.3
|
Loan
Agreement dated December 28, 2000, by and between Stratus Properties
Inc.
and Holliday Fenoliglio Fowler, L.P., subsequently assigned to an
affiliate of First American Asset Management. Incorporated by reference
to
Exhibit 10.20 to Stratus’ 2000 Form 10-K.
|
|
10.4
|
Loan
Agreement dated June 14, 2001, by and between Stratus Properties
Inc. and
Holliday Fenoliglio Fowler, L.P., subsequently assigned to an affiliate
of
First American Asset Management. Incorporated by reference to Exhibit
10.20 to the Quarterly Report on Form 10-Q of Stratus for the quarter
ended September 30, 2001.
|
|
10.5
|
Construction
Loan Agreement dated June 11, 2001, between 7500 Rialto Boulevard,
L.P.
and Comerica Bank-Texas. Incorporated by Reference to Exhibit 10.26
to
Stratus’ 2001 Form 10-K.
|
|
10.6
|
Modification
Agreement dated January 31, 2003, by and between Lantana Office Properties
I, L.P., formerly 7500 Rialto Boulevard, L.P., and Comerica Bank-Texas.
Incorporated by reference to Exhibit 10.19 to Stratus’ 2003 First Quarter
Form 10-Q.
|
|
10.7
|
Second
Modification Agreement dated as of December 29, 2003, to be effective
as
of January 31, 2004, by and between Lantana Office Properties I,
L.P., a
Texas limited partnership (formerly known as 7500 Rialto Boulevard,
L.P.),
as borrower, and Comerica Bank, as lender. Incorporated by reference
to
Exhibit 10.20 to Stratus’ 2003 Form
10-K.
|
E-1
|
10.8
|
Guaranty
Agreement dated June 11, 2001, by Stratus Properties Inc. in favor
of
Comerica Bank-Texas. Incorporated by Reference to Exhibit 10.27 to
Stratus’ 2001 Form 10-K.
|
|
10.9
|
Loan
Agreement dated September 22, 2003, by and between Calera Court,
L.P., as
borrower, and Comerica Bank, as lender. Incorporated by reference
to
Exhibit 10.26 to Stratus’ 2003 Third Quarter Form 10-Q.
|
|
10.10
|
Development
Agreement dated August 15, 2002, between Circle C Land Corp. and
City of
Austin. Incorporated by reference to Exhibit 10.18 to the Quarterly
Report
on Form 10-Q of Stratus for the quarter ended September 30,
2002.
|
|
Executive
Compensation Plans and Arrangements (Exhibits 10.11 through
10.20)
|
|
|
10.11
|
Stratus’
Performance Incentive Awards Program, as amended, effective February
11,
1999. Incorporated by reference to Exhibit 10.24 to Stratus’ 2004 First
Quarter Form 10-Q.
|
|
10.12
|
Stratus
Stock Option Plan. Incorporated by reference to Exhibit 10.25 to
Stratus’
2003 Form 10-K.
|
|
10.13
|
Stratus
1996 Stock Option Plan for Non-Employee Directors. Incorporated by
reference to Exhibit 10.22 to Stratus’ 2005 Second Quarter Form
10-Q.
|
|
10.14
|
Stratus
Properties Inc. 1998 Stock Option Plan. Incorporated by reference
to
Exhibit 10.23 to Stratus’ 2005 Second Quarter Form
10-Q.
|
|
10.15
|
Form
of Notice of Grant of Nonqualified Stock Options and Limited Rights
under
the 1998 Stock Option Plan. Incorporated by reference to Exhibit
10.24 to
Stratus’ 2005 Second Quarter Form 10-Q.
|
|
10.16
|
Form
of Restricted Stock Unit Agreement under the 1998 Stock Option Plan.
Incorporated by reference to Exhibit 10.25 to Stratus’ 2005 Second Quarter
Form 10-Q.
|
|
10.17
|
Stratus
Properties Inc. 2002 Stock Incentive Plan. Incorporated by reference
to
Exhibit 10.26 to Stratus’ 2005 Second Quarter Form
10-Q.
|
|
10.18
|
Form
of Notice of Grant of Nonqualified Stock Options and Limited Rights
under
the 2002 Stock Incentive Plan. Incorporated by reference to Exhibit
10.27
to Stratus’ 2005 Second Quarter Form 10-Q.
|
|
10.19
|
Form
of Restricted Stock Unit Agreement under the 2002 Stock Incentive
Plan.
Incorporated by reference to Exhibit 10.28 to Stratus’ 2005 Second Quarter
Form 10-Q.
|
|
10.20
|
Stratus
Director Compensation. Incorporated by reference to Exhibit 10.28
to the
Annual Report on Form 10-K of Stratus for the fiscal year ended December
31, 2004.
|
|
Letter
from PricewaterhouseCoopers LLP regarding the unaudited interim financial
statements.
|
|
|
Certification
of Principal Executive Officer pursuant to Rule
13a-14(a)/15d-14(a).
|
|
|
Certification
of Principal Financial Officer pursuant to Rule
13a-14(a)/15d-14(a).
|
|
|
Certification
of Principal Executive Officer pursuant to 18 U.S.C. Section
1350.
|
|
|
Certification
of Principal Financial Officer pursuant to 18 U.S.C. Section
1350.
|
E-2
Similar companies
See also ST JOE Co - Annual report 2022 (10-K 2022-12-31) Annual report 2023 (10-Q 2023-09-30)See also IRSA INVESTMENTS & REPRESENTATIONS INC
See also AMREP CORP. - Annual report 2023 (10-K 2023-04-30) Annual report 2025 (10-Q 2025-01-31)
See also FORGE INNOVATION DEVELOPMENT CORP. - Annual report 2022 (10-K 2022-12-31) Annual report 2023 (10-Q 2023-09-30)
See also KAANAPALI LAND LLC - Annual report 2022 (NT 10-K 2022-12-31) Annual report 2023 (10-Q 2023-09-30)