STRATUS PROPERTIES INC - Quarter Report: 2006 March (Form 10-Q)
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UNITED
STATES
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SECURITIES
AND EXCHANGE COMMISSION
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Washington,
D.C. 20549
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FORM
10-Q
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(Mark
One)
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[X]
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QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
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SECURITIES
EXCHANGE ACT OF 1934
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For
the quarterly period ended March 31, 2006
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OR
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[
]
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
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SECURITIES
EXCHANGE ACT OF 1934
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For
the transition period from
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to
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Commission
File Number: 0-19989
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Stratus
Properties Inc.
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(Exact
name of registrant as specified in its
charter)
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Delaware
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72-1211572
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(State
or other jurisdiction of
incorporation
or organization)
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(IRS
Employer Identification No.)
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98
San Jacinto Blvd., Suite 220
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Austin,
Texas
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78701
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(Address
of principal executive offices)
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(Zip
Code)
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(512)
478-5788
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(Registrant's
telephone number, including area code)
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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. R
Yes
o
No
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange Act (Check
one): Large accelerated filer o Accelerated
filer R Non-accelerated
filer o
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). ÿo
Yes
R
No
On
March
31, 2006, there were issued and outstanding 7,310,292 shares of the registrant’s
Common Stock, par value $0.01 per share.
STRATUS
PROPERTIES INC.
STRATUS
PROPERTIES INC.
CONDENSED
CONSOLIDATED BALANCE SHEET (Unaudited)
(In
Thousands)
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March
31,
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December
31,
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|||||
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2006
|
2005
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|||||
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ASSETS
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||||||
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Current
assets:
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||||||
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Cash
and cash equivalents, including restricted cash of
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||||||
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$301
and $387, respectively
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$
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9,064
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$
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1,901
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||
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Accounts
receivable
|
741
|
112
|
||||
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Deposits,
prepaid expenses and other
|
891
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849
|
||||
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Discontinued
operations
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-
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12,230
|
||||
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Total
current assets
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10,696
|
15,092
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||||
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Real
estate, commercial leasing assets and facilities, net:
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||||||
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Property
held for sale - developed or under development
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127,000
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127,450
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||||
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Property
held for sale - undeveloped
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16,129
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16,071
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Property
held for use, net
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9,353
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9,452
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||||
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Investment
in Crestview
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3,820
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4,157
|
||||
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Deferred
tax asset
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6,386
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-
|
||||
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Other
assets
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2,198
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1,664
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||||
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Total
assets
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$
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175,582
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$
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173,886
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LIABILITIES
AND STOCKHOLDERS’ EQUITY
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||||||
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Current
liabilities:
|
||||||
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Accounts
payable and accrued liabilities
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$
|
5,345
|
$
|
6,305
|
||
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Accrued
interest, property taxes and other
|
2,571
|
3,710
|
||||
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Current
portion of long-term debt
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2,172
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169
|
||||
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Current
tax liability
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591
|
-
|
||||
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Discontinued
operations
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-
|
12,036
|
||||
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Total
current liabilities
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10,679
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22,220
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||||
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Long-term
debt
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45,260
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50,135
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Other
liabilities
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6,713
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7,364
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||||
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Total
liabilities
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62,652
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79,719
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||||
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Stockholders’
equity:
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||||||
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Preferred
stock
|
-
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-
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||||
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Common
stock
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75
|
74
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||||
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Capital
in excess of par value of common stock
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184,197
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182,007
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||||
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Accumulated
deficit
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(66,641
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)
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(82,943
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)
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Unamortized
value of restricted stock units
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-
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(567
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)
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Common
stock held in treasury
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(4,701
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)
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(4,404
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)
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Total
stockholders’ equity
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112,930
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94,167
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||||
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Total
liabilities and stockholders' equity
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$
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175,582
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$
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173,886
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The
accompanying notes are an integral part of these consolidated financial
statements.
3
STRATUS
PROPERTIES INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS (Unaudited)
(In
Thousands, Except Per Share Amounts)
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Three
Months Ended
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||||||
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March
31,
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||||||
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2006
|
2005
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Revenues:
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||||||
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Real
estate
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$
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11,038
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$
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2,252
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Rental
income
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387
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307
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||||
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Commissions,
management fees and other
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265
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158
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Total
revenues
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11,690
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2,717
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Cost
of sales:
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Real
estate, net
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7,547
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1,892
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Rental
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324
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328
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Depreciation
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186
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189
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Total
cost of sales
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8,057
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2,409
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General
and administrative expenses
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1,739
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1,284
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Total
costs and expenses
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9,796
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3,693
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||||
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Operating
income (loss)
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1,894
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(976
|
)
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Interest
expense, net
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(179
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)
|
(111
|
)
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Interest
income
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14
|
27
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||||
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Income
(loss) from continuing operations before income taxes
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1,729
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(1,060
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)
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Income
tax benefit
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6,386
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-
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||||
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Income
(loss) from continuing operations
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8,115
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(1,060
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)
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Income
from discontinued operations (including a gain on sale of
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||||||
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$7,834,
net of taxes of $1,928, in 2006)
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8,187
|
148
|
||||
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Net
income (loss) applicable to common stock
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$
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16,302
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$
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(912
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)
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Basic
net income (loss) per share of common stock:
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||||||
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Continuing
operations
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$
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1.12
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$
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(0.15
|
)
|
|
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Discontinued
operations
|
1.13
|
0.02
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||||
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Basic
net income (loss) per share of common stock
|
$
|
2.25
|
$
|
(0.13
|
)
|
|
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Diluted
net income (loss) per share of common stock:
|
||||||
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Continuing
operations
|
$
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1.06
|
$
|
(0.15
|
)
|
|
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Discontinued
operations
|
1.06
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0.02
|
||||
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Diluted
net income (loss) per share of common stock
|
$
|
2.12
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$
|
(0.13
|
)
|
|
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Average
shares of common stock outstanding:
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||||||
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Basic
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7,242
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7,216
|
||||
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Diluted
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7,697
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7,216
|
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The
accompanying notes are an integral part of these consolidated financial
statements.
4
STRATUS
PROPERTIES INC.
(In
Thousands)
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Three
Months Ended
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||||||
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March
31,
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||||||
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2006
|
2005
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|||||
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Cash
flow from operating activities:
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||||||
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Net
income (loss)
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$
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16,302
|
$
|
(912
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)
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|
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Adjustments
to reconcile net income (loss) to net cash provided
|
||||||
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by
operating activities:
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||||||
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Income
from discontinued operations
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(8,187
|
)
|
(148
|
)
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Depreciation
|
186
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189
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||||
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Cost
of real estate sold
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6,559
|
1,442
|
||||
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Deferred
income taxes
|
(6,386
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)
|
-
|
|||
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Stock-based
compensation
|
447
|
70
|
||||
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Deposits
and other
|
(533
|
)
|
(297
|
)
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(Increase)
decrease in working capital:
|
||||||
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Accounts
receivable and prepaid expenses
|
(672
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)
|
42
|
|||
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Accounts
payable, accrued liabilities and other
|
(2,750
|
)
|
3,344
|
|||
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Net
cash provided by continuing operations
|
4,966
|
3,730
|
||||
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Net
cash provided by discontinued operations
|
374
|
352
|
||||
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Net
cash provided by operating activities
|
5,340
|
4,082
|
||||
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Cash
flow from investing activities:
|
||||||
|
Purchases
and development of real estate properties
|
(6,039
|
)
|
(6,458
|
)
|
||
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Partial
return of investment in Crestview
|
337
|
-
|
||||
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Development
of commercial leasing properties and other
|
||||||
|
expenditures
|
(96
|
)
|
(79
|
)
|
||
|
Net
cash used in continuing operations
|
(5,798
|
)
|
(6,537
|
)
|
||
|
Net
cash provided by (used in) discontinued operations
|
10,022
|
(19
|
)
|
|||
|
Net
cash provided by (used in) investing activities
|
4,224
|
(6,556
|
)
|
|||
|
Cash
flow from financing activities:
|
||||||
|
Borrowings
from revolving credit facility
|
7,500
|
6,500
|
||||
|
Payments
on revolving credit facility
|
(9,507
|
)
|
(2,447
|
)
|
||
|
Borrowings
from project loans
|
2,236
|
468
|
||||
|
Repayments
on project loans
|
(3,101
|
)
|
(1,064
|
)
|
||
|
Net
proceeds from exercised stock options
|
725
|
41
|
||||
|
Purchases
of Stratus common shares
|
(254
|
)
|
(335
|
)
|
||
|
Net
cash (used in) provided by continuing operations
|
(2,401
|
)
|
3,163
|
|||
|
Net
cash used in discontinued operations
|
-
|
(36
|
)
|
|||
|
Net
cash (used in) provided by financing activities
|
(2,401
|
)
|
3,127
|
|||
|
Net
increase in cash and cash equivalents
|
7,163
|
653
|
||||
|
Cash
and cash equivalents at beginning of year
|
1,901
|
379
|
||||
|
Cash
and cash equivalents at end of period
|
9,064
|
1,032
|
||||
|
Less
cash at discontinued operations
|
-
|
(121
|
)
|
|||
|
Less
cash restricted as to use
|
(301
|
)
|
(123
|
)
|
||
|
Unrestricted
cash and cash equivalents at end of period
|
$
|
8,763
|
$
|
788
|
||
The
accompanying notes are an integral part of these consolidated financial
statements.
5
STRATUS
PROPERTIES INC.
| 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, 2005, included in Stratus Properties Inc.’s (Stratus)
Annual Report on Form 10-K (Stratus 2005 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 March 31, 2006 and December 31, 2005, and the results
of
operations and cash flows for the three-month periods ended March 31, 2006
and
2005. Operating results for the three months ended March 31, 2006 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2006. Certain prior year amounts have been reclassified to conform
to the current year presentation. A change in accounting principle applied
during 2006 is discussed below in Note 2.
| 2. |
STOCK-BASED
COMPENSATION
|
Accounting
for Stock-Based Compensation.
As of
March 31, 2006, Stratus has three stock-based employee compensation plans and
one stock-based director compensation plan. Prior to January 1, 2006, Stratus
accounted for options granted under all of its plans under the recognition
and
measurement principles of Accounting Principles Board (APB) Opinion No. 25,
“Accounting for Stock Issued to Employees,” and related interpretations, as
permitted by Statement of Financial Accounting Standards (SFAS) No. 123,
“Accounting for Stock-Based Compensation.” APB Opinion No. 25 required
compensation cost for stock options 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 (i.e., the intrinsic value).
Because all the plans require that the option exercise price be at least the
market price on the date of grant, Stratus recognized no compensation cost
on
the grant or exercise of its employees’ options through December 31, 2005. Other
awards of restricted stock units under the plans did result in compensation
costs being recognized in earnings based on the intrinsic value on the date
of
grant.
Effective
January 1, 2006, Stratus adopted the fair value recognition provisions of SFAS
No. 123 (revised 2004), “Share-Based Payment” or “SFAS No. 123R,” using the
modified prospective transition method. Under that transition method,
compensation cost recognized in 2006 includes: (a) compensation costs for all
stock option awards granted to employees prior to, but not yet vested as of
January 1, 2006, based on the grant-date fair value estimated in accordance
with
the original provisions of SFAS No. 123, and (b) compensation cost for all
stock
option awards granted subsequent to January 1, 2006, based on the grant-date
fair value estimated in accordance with the provisions of SFAS No. 123R. Stratus
granted no stock option awards in the first quarter of 2006. In addition, other
stock-based awards charged to expense under SFAS No. 123 (i.e., restricted
stock
units) continue to be charged to expense under SFAS No. 123R. Results for prior
periods have not been restated. Stratus has elected to recognize compensation
costs for awards that vest over several years on a straight-line basis over
the
vesting period. Stratus’ stock option awards provide for an additional year of
vesting after an employee retires. For stock option awards granted after January
1, 2006, to retirement-eligible employees, Stratus will record one year of
amortization of the awards’ value on the date of grant. In addition, prior to
adoption of SFAS No. 123R, Stratus recognized forfeitures as they occurred
in
its SFAS No. 123 pro forma disclosures. Beginning January 1, 2006, Stratus
includes estimated forfeitures in its compensation cost and updates the
estimated forfeiture rate through the final vesting date of the
awards.
As
a
result of adopting SFAS No. 123R on January 1, 2006, Stratus’ net income for the
three months ended March 31, 2006, was $0.4 million ($0.05 per basic and diluted
share) lower than if it had continued to account for share-based compensation
under APB Opinion No. 25. Basic earnings per share would have been $2.30 per
share and diluted earnings per share would have been $2.17 per share for the
three months ended March 31, 2006, if Stratus had not adopted SFAS No. 123R,
compared to reported earnings of $2.25 per basic share and $2.12 per diluted
share.
Stock-Based
Compensation Cost.
Compensation cost charged against earnings for stock-based awards is shown
below
(in thousands). Stock-based compensation costs are capitalized as appropriate,
but such capitalization was not previously reflected in our pro-forma
disclosures shown below as amounts were not considered
material.
6
|
Three
Months Ended
|
|||||||
|
March31,
|
|||||||
|
2006
|
2005
|
||||||
|
Stock
options awarded to employees (including directors)
|
$
|
145
|
$
|
-
|
|||
|
Stock
options awarded to nonemployees
|
-
|
25
|
|||||
|
Restricted
stock units
|
421
|
68
|
|||||
|
Less
capitalized amounts
|
(119
|
)
|
-
|
||||
|
Impact
on net income
|
$
|
447
|
$
|
93
|
|||
The
following table illustrates the effect on net income and earnings per share
for
the three months ended March 31, 2005, if Stratus had applied the fair value
recognition provisions of SFAS No. 123 to stock-based awards granted under
Stratus’ stock-based compensation plans (in thousands, except per share
amounts):
|
Net
loss applicable to common stock, as reported
|
$
|
(912
|
)
|
|
|
Add:
Stock-based employee compensation expense
|
||||
|
included
in reported net loss applicable to common
|
||||
|
stock
for restricted stock units
|
68
|
|||
|
Deduct:
Total stock-based employee compensation
|
||||
|
expense
determined under fair value-based method
|
||||
|
for
all awards
|
(233
|
)
|
||
|
Pro
forma net loss applicable to common stock
|
$
|
(1,077
|
)
|
|
|
Loss
per share:
|
||||
|
Basic
and diluted - as reported
|
$
|
(0.13
|
)
|
|
|
Basic
and diluted - pro forma
|
$
|
(0.15
|
)
|
|
For
the
pro forma computations, the values of option grants were calculated on the
dates
of grant using the Black-Scholes option pricing model and amortized to expense
on a straight-line basis over the options’ vesting periods. No other discounts
or restrictions related to vesting or the likelihood of vesting of stock options
were applied. There were no stock option grants during the first quarter of
2005.
Stock-Based
Compensation Plans.
As
discussed above, Stratus currently has four stock-based compensation plans
and
all are shareholder approved. As of March 31, 2006, only three of the plans,
which are discussed below, have awards available for grant. Stratus’ Stock
Option Plan, 1998 Stock Option Plan, 2002 Stock Incentive Plan and Stock Option
Plan for Non-Employee Directors (the Plans) provide for the issuance of stock
options, restricted stock units (see below) and stock appreciations rights
(collectively stock-based compensation awards), adjusted for the effects of
the
effective reverse stock split transactions (see Note 6 of the Stratus 2005
Form
10-K), representing 1,330,000 shares of Stratus common stock at no less than
market value at time of grant.
Generally,
stock-based compensation awards are exercisable in 25 percent annual increments
beginning one year from the date of grant and expire 10 years after the date
of
grant. Awards for approximately 3,100 shares under the 1998 Stock Option Plan,
40,000 shares under the Stock Option Plan for Non-Employee Directors and 9,800
shares under the 2002 Stock Option Plan were available for new grants as of
March 31, 2006.
Options.
A
summary of options outstanding as of March 31, 2006 and changes during the
three
months ended March 31, 2006 follows:
7
|
Weighted
|
||||||||||
|
Average
|
Aggregate
|
|||||||||
|
Weighted
|
Remaining
|
Intrinsic
|
||||||||
|
Number
of
|
Average
|
Contractual
|
Value
|
|||||||
|
Options
|
Option
Price
|
Term
(years)
|
($000)
|
|||||||
|
Balance
at January 1
|
838,336
|
$
|
10.11
|
|||||||
|
Granted
|
-
|
-
|
||||||||
|
Exercised
|
(103,652
|
)
|
8.13
|
|||||||
|
Expired/Forfeited
|
-
|
-
|
||||||||
|
Balance
at March 31
|
734,684
|
10.39
|
6.52
|
$
|
10,369
|
|||||
|
Vested
and exercisable at March 31
|
585,184
|
9.50
|
6.17
|
$
|
8,780
|
|||||
The
total
intrinsic value of options exercised during the three months ended March 31,
2006, was $1.6 million. As of March 31, 2006, Stratus had $1.1 million of total
unrecognized compensation cost related to unvested stock options expected to
be
recognized over a weighted average period of 1.3 years. Cash received from
stock
option exercises totaled $0.8 million for the three months ended March 31,
2006,
and less than $0.1 million for the three months ended March 31, 2005. The actual
tax benefit realized for the tax deductions from stock option exercises totaled
$0.6 million for the three months ended March 31, 2006, and none for the three
months ended March 31, 2005. Upon exercise of stock options and vesting of
restricted stock units, employees may tender Stratus shares to Stratus to pay
the exercise price and/or the minimum required taxes. Shares tendered to Stratus
for these purposes totaled approximately 1,500 shares for the three months
ended
March 31, 2006 and approximately 300 shares for the three months ended March
31,
2005. Stratus paid less than $0.1 million during the three months ended March
31, 2006 and none during the three months ended March 31, 2005 for employee
taxes.
Restricted
Stock Units.
Under
Stratus’ restricted stock program, shares of its common stock may be granted to
certain officers of Stratus at no cost. The restricted stock units are converted
into shares of Stratus common stock ratably on the anniversary of each award
over the vesting period, generally four years. The awards fully vest upon
retirement. Fair value for restricted stock unit awards is based on the average
of the high and low Stratus common stock price on the date of
grant.
Stratus
granted 49,000 restricted stock units in the three months ended March 31, 2006.
A summary of outstanding unvested restricted stock units as of March 31, 2006,
and activity during the three months ended March 31, 2006 is presented
below:
|
Weighted
|
|||||||
|
Average
|
Aggregate
|
||||||
|
Number
of
|
Remaining
|
Intrinsic
|
|||||
|
Restricted
|
Contractual
|
Value
|
|||||
|
Stock
Units
|
Term
(years)
|
($000)
|
|||||
|
Balance
at January 1
|
45,045
|
||||||
|
Granted
|
49,000
|
||||||
|
Vested
|
(4,545
|
)
|
|||||
|
Forfeited
|
-
|
||||||
|
Balance
at March 31
|
89,500
|
1.7
|
$
|
2,193
|
|||
The
grant-date fair value of restricted stock units granted during the three months
ended March 31, 2006 was $1.2 million. The total intrinsic value of restricted
stock units vesting during the three months ended March 31, 2006 was $0.1
million. As of March 31, 2006, Stratus had $1.3 million of total unrecognized
compensation cost related to unvested restricted stock units expected to be
recognized over a weighted average period of 1.7 years.
| 3. |
EARNINGS
PER SHARE
|
Stratus’
basic net income (loss) per share of common stock was calculated by dividing
the
income (loss) applicable to continuing operations, income from discontinued
operations and 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):
8
|
Three
Months Ended
|
||||||
|
March
31,
|
||||||
|
2006
|
2005
|
|||||
|
Net
income (loss) from continuing operations
|
$
|
8,115
|
$
|
(1,060
|
)
|
|
|
Income
from discontinued operations
|
8,187
|
148
|
||||
|
Net
income (loss) applicable to common stock
|
$
|
16,302
|
$
|
(912
|
)
|
|
|
Weighted
average common shares outstanding
|
7,242
|
7,216
|
||||
|
Add:
Dilutive stock options
|
406
|
-
|
||||
|
Restricted
stock
|
49
|
-
|
||||
|
Weighted
average common shares outstanding for
|
||||||
|
purposes
of calculating diluted net income per share
|
7,697
|
7,216
|
||||
|
Diluted
net income (loss) per share of common stock:
|
||||||
|
Continuing
operations
|
$
|
1.06
|
$
|
(0.15
|
)
|
|
|
Discontinued
operations
|
1.06
|
0.02
|
||||
|
Diluted
net income (loss) per share of common stock
|
$
|
2.12
|
$
|
(0.13
|
)
|
|
Stock
options representing 431,000 shares in the first quarter of 2005 that otherwise
would have been included in the first-quarter 2005 earnings per share
calculations were excluded because of the net loss reported for the
period.
| 4. |
DEBT
OUTSTANDING
|
At
March
31, 2006, Stratus had total debt of $47.4 million, including $2.2 million of
current debt, compared to total debt of $50.3 million, including $0.2 million
of
current debt, at December 31, 2005. Stratus’ debt outstanding at March 31, 2006
consisted of the following:
| · |
$13.7
million of net borrowings under the $45.0 million Comerica revolving
credit facility. 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.
|
| · |
$6.4
million of net borrowings under the 7500 Rialto Boulevard project
loan,
which matures in January 2008.
|
| · |
$2.0
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.
|
| · |
$10.9
million of net borrowings under the $18.5 million Escarpment Village
project loan, which will mature in June
2007.
|
| · |
$4.4
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 Teachers
Insurance and Annuity Association of America (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.
Upon
the
closing of the 7000 West sale on March 27, 2006, CarrAmerica
Lantana, LP (CarrAmerica) paid $10.6 million cash to Stratus and assumed the
$11.7 million principal balance remaining under Stratus’ 7000 West project loan
from TIAA (see Note 6). Stratus intends to use the net proceeds from the sale
to
reduce its other outstanding debt.
For
a
further discussion of Stratus’ debt see Note 4 of the Stratus 2005 Form
10-K.
9
| 5. |
RESTRICTED
CASH AND INTEREST COST
|
Restricted
Cash.
Restricted cash totaled $0.3 million at March 31, 2006 and $0.4 million at
December 31, 2005, primarily related to lot sales proceeds to be used for
payment on project loans. Restricted cash also includes approximately $0.1
million held at March 31, 2006 and December 31, 2005 representing funds held
for
payment of fractional shares resulting from the May 2001 stock split (see Note
6
of the Stratus 2005 Form 10-K).
Interest
Cost.
Interest
expense excludes capitalized interest of $0.8 million in the first quarter
of
2006 and $0.5 million in the first quarter of 2005.
| 6. |
DISCONTINUED
OPERATIONS
|
In
the
fourth quarter of 2005, Stratus committed to a plan to sell its office buildings
at 7000 West. On March 27, 2006, Stratus’ wholly owned subsidiary, Stratus 7000
West Joint Venture (7000 West JV), sold its two
70,000-square-foot
office buildings at 7000 West William Cannon Drive (7000 West), known as the
Lantana Corporate Center, to
CarrAmerica for
$22.3
million, resulting in a $9.8 million ($7.8 million net of taxes or $1.08 per
basic share and $1.02 per diluted share) gain in the first quarter of 2006.
CarrAmerica
paid $10.6 million cash to Stratus at closing and assumed the $11.7 million
principal balance remaining under Stratus’ 7000 West project loan from TIAA. In
connection with CarrAmerica’s assumption of the loan, 7000 West JV entered into
a First Modification Agreement with CarrAmerica and TIAA under which TIAA
released 7000 West JV’s $3.5 million letter of credit issued by Comerica Bank
that secured certain re-tenanting obligations and released 7000 West JV from
all
future obligations under the loan. In addition, TIAA released Stratus from
all
future liabilities under its guaranty of 7000 West JV’s environmental
representations and recourse obligations under the loan.
Upon
completion of the sale of 7000 West, Stratus ceased all involvement with the
7000 West office buildings. The operations, assets and liabilities of 7000
West
represented a component of Stratus’ commercial leasing segment.
The
table
below provides a summary of 7000 West’s results of operations (in
thousands):
|
Three
Months Ended
|
|||||||
|
March
31,
|
|||||||
|
2006
|
2005
|
||||||
|
Rental
income
|
$
|
1,057
|
$
|
913
|
|||
|
Rental
property costs
|
(403
|
)
|
(280
|
)
|
|||
|
Depreciation
|
-
|
(229
|
)
|
||||
|
General
and administrative expenses
|
(48
|
)
|
(73
|
)
|
|||
|
Interest
expensea
|
(168
|
)
|
(183
|
)
|
|||
|
Interest
income
|
2
|
-
|
|||||
|
Gain
on sale
|
9,762
|
-
|
|||||
|
Provision
for income taxes
|
(2,015
|
)
|
-
|
||||
|
Income
from discontinued operations
|
$
|
8,187
|
$
|
148
|
|||
| a. |
Relates
to interest expense from 7000 West project loan (see below) and does
not
include any additional allocations of
interest.
|
The
following summarizes 7000 West’s net assets (in thousands) at December 31,
2005:
|
Assets:
|
||||
|
Cash
and cash equivalents
|
$
|
5
|
||
|
Other
current assets
|
1,136
|
|||
|
Property
held for sale, net of accumulated depreciation
|
||||
|
of
$4,577
|
11,089
|
|
Liabilities:
|
||||
|
Current
portion of long-term debt
|
(11,795
|
)
|
||
|
Other
current liabilities
|
(241
|
)
|
||
|
Net
assets
|
$
|
194
|
||
For
a
further discussion of Stratus’ discontinued operations see Note 7 of the Stratus
2005 Form 10-K.
10
| 7. |
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. In the
fourth quarter of 2005, Stratus committed to sell the two 70,000-square-foot
office buildings at 7000 West and sold 7000 West on March 27, 2006. The 7000
West operating results are reported as discontinued operations for the periods
shown in the table below.
The
segment data presented below were prepared on the same basis as Stratus’
consolidated financial statements.
|
Real
Estate Operationsa
|
Commercial
Leasing
|
Other
|
Total
|
|||||||||
|
(In
Thousands)
|
||||||||||||
|
Three
Months Ended March 31, 2006
|
||||||||||||
|
Revenues
|
$
|
11,303
|
$
|
387
|
$
|
-
|
$
|
11,690
|
||||
|
Cost
of sales, excluding depreciation
|
(7,547
|
)
|
(324
|
)
|
-
|
(7,871
|
)
|
|||||
|
Depreciation
|
(33
|
)
|
(153
|
)
|
-
|
(186
|
)
|
|||||
|
General
and administrative expenses
|
(1,609
|
)
|
(130
|
)
|
-
|
(1,739
|
)
|
|||||
|
Operating
income (loss)
|
$
|
2,114
|
$
|
(220
|
)
|
$
|
-
|
$
|
1,894
|
|||
|
Income
from discontinued operations
|
$
|
-
|
$
|
8,187
|
$
|
-
|
$
|
8,187
|
||||
|
Income
tax benefit
|
$
|
6,386
|
$
|
-
|
$
|
-
|
$
|
6,386
|
||||
|
Capital
expenditures
|
$
|
6,039
|
$
|
96
|
$
|
-
|
$
|
6,135
|
||||
|
Total
assets
|
$
|
143,129
|
$
|
9,353
|
$
|
23,100
|
b
|
$
|
175,582
|
|||
|
Three
Months Ended March 31, 2005
|
||||||||||||
|
Revenues
|
$
|
2,410
|
$
|
307
|
$
|
-
|
$
|
2,717
|
||||
|
Cost
of sales, excluding depreciation
|
(1,892
|
)
|
(328
|
)
|
-
|
(2,220
|
)
|
|||||
|
Depreciation
|
(38
|
)
|
(151
|
)
|
-
|
(189
|
)
|
|||||
|
General
and administrative expense
|
(1,112
|
)
|
(172
|
)
|
-
|
(1,284
|
)
|
|||||
|
Operating
loss
|
$
|
(632
|
)
|
$
|
(344
|
)
|
$
|
-
|
$
|
(976
|
)
|
|
|
Income
from discontinued operations
|
$
|
-
|
$
|
148
|
$
|
-
|
$
|
148
|
||||
|
Capital
expenditures
|
$
|
6,458
|
$
|
98
|
$
|
-
|
$
|
6,556
|
||||
|
Total
assets
|
$
|
130,461
|
$
|
22,862
|
c
|
$
|
5,038
|
b
|
$
|
158,361
|
||
| 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
assets from the discontinued operations of 7000 West, which Stratus
sold
on March 27, 2006, totaling $13.0 million, net of accumulated depreciation
of $4.1 million, at March 31, 2005. These buildings represented two
of
Stratus’ three commercial leasing
properties.
|
| 8. |
INCOME
TAXES
|
Stratus’
deferred tax assets at December 31, 2005 totaled $17.6 million and Stratus
had
provided a 100 percent valuation allowance because realization of the deferred
tax assets was not considered likely. Realization of Stratus’ deferred tax
assets is dependent on generating sufficient taxable income within the
carryforward period available under tax law. In the first quarter of 2006,
Stratus sold 7000 West (see Note 6) and in April 2006 Stratus completed the
sale
of 58 acres at its Lantana property. These transactions generated income of
approximately $26 million and along with Stratus’ current homebuilder contract
arrangements and projected levels of future sales provide sufficient evidence
that Stratus now believes it is more likely than not that it will be able to
realize all of its deferred tax assets. As a result, first-quarter 2006 net
income from continuing operations included a $6.4 million, $0.88 per basic
share
and $0.83 per diluted share, tax benefit resulting from the reversal of a
portion of Stratus’ deferred tax asset valuation allowance and the remaining
balance of its valuation allowance is being realized in Stratus’ 2006 effective
tax rate.
11
The
financial information as of March 31, 2006, and for the three-month periods
ended March 31, 2006 and 2005, 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 condensed consolidated balance sheet of Stratus
Properties Inc. and its subsidiaries as of March 31, 2006, and the related
consolidated statements of operations for each of the three-month periods ended
March 31, 2006 and 2005 and the consolidated statements of cash flows for the
three-month periods ended March 31, 2006 and 2005. 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, 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 condensed consolidated interim financial statements for
them to
be in
conformity with accounting principles generally accepted in the United States
of
America.
We
have
previously audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the consolidated balance sheet
as of
December 31, 2005, and the related consolidated statements of income, of changes
in stockholders’ equity and of cash flows for the year then ended, management’s
assessment of the effectiveness of the Company’s internal control over financial
reporting as of December 31, 2005 and the effectiveness of the Company’s
internal control over financial reporting as of December 31, 2005; and in our
report dated March 16, 2006, we expressed unqualified opinions thereon. The
consolidated financial statements and management’s assessment of the
effectiveness of internal control over financial reporting referred to above
are
not presented herein. In our opinion, the information set forth in the
accompanying condensed consolidated balance sheet as of December 31, 2005,
is
fairly stated in all material respects in relation to the consolidated balance
sheet from which it has been derived.
As
discussed in Note 2 to the condensed consolidated financial statements,
effective January 1, 2006, the Company adopted Statement of Financial Accounting
Standards No. 123 (revised 2004), Share-Based
Payment.
/s/
PricewaterhouseCoopers LLP
Austin,
Texas
May
10,
2006
12
OVERVIEW
Management’s
discussion and analysis presented below should be read in conjunction with
our
discussion and analysis of financial results contained in our 2005 Annual Report
on Form 10-K (2005 Form 10-K). The operating results summarized in this report
are not necessarily indicative of our future operating results. All subsequent
references to Notes refer to Notes to Consolidated Financial Statements, unless
otherwise stated.
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 currently in southwest Austin, Texas. As
of
March 31, 2006, our most significant holding is the 1,728 acres of residential,
multi-family and commercial property and 72 developed residential estate lots
located within the Barton Creek community. We also own approximately 384 acres
of undeveloped residential, commercial and multi-family property and 36 acres
of
commercial property under development 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 168,000-square-foot retail center anchored by
a
grocery store. At March 31, 2006, Meridian consisted of approximately 282 acres
and 215 developed residential lots. Our remaining Austin holdings at March
31,
2006, consisted of 282 acres of commercial property and a 75,000-square-foot
office building at 7500 Rialto Boulevard, which is nearly 100 percent leased,
located within Lantana. In the fourth quarter of 2005, we decided to sell our
two 70,000-square-foot office buildings at 7000 West William Cannon Drive (7000
West), known as the Lantana Corporate Center. On March 27, 2006, we sold 7000
West for $22.3 million (see Note 6 and “Discontinued Operations - 7000
West”).
In
January 2004, we acquired approximately 68 acres of land in Plano, Texas, which
we refer to as Deerfield. At March 31, 2006, our Deerfield property consists
of
approximately 26 acres of residential land, which is being developed, and 49
developed residential lots. We also own two acres of undeveloped commercial
property in San Antonio, Texas.
In
November 2005, we formed a joint venture partnership with Trammell Crow Central
Texas Development, Inc. (Trammell Crow) to acquire an approximate 74-acre tract
at the intersection of Airport Boulevard and Lamar Boulevard in Austin, Texas
for $7.7 million. We refer to the property as the Crestview Station project,
a
single-family, multi-family, retail and office development. With our joint
venture partner, we have commenced brown field remediation and permitting of
the
property.
DEVELOPMENT
AND OTHER ACTIVITIES
Lantana.
In
November 2005, we entered into an Agreement of Sale and Purchase with Advanced
Micro Devices, Inc. (NYSE: AMD) under which we agreed to sell them approximately
58 acres at our Lantana community for $21.2 million. The proposed AMD project
consists of approximately 825,000 square feet of office and related uses on
a
58-acre site at the southeast corner of West William Cannon Drive and Southwest
Parkway. The sale was subject to certain conditions, including obtaining certain
permits and approvals from the City of Austin (the City). In February 2006,
the
Save Our Springs Alliance, Inc. (the SOS Alliance) filed a lawsuit against
the
City seeking, among other matters, to prevent the issuance of permits needed
to
develop the AMD project. We intervened in the litigation and vigorously defended
our Lantana entitlements. On April 11, 2006, a state district judge refused
to
stop the approval process for the proposed AMD project and the SOS Alliance
dropped its lawsuit. On April 20, 2006, the City approved the AMD site
development permit, and on April 26, 2006, we closed the sale of our 58-acre
tract at Lantana with AMD for $21.2 million. During the second quarter of 2006,
we expect to recognize a net pre-tax gain of approximately $16 million on the
AMD sale. Lantana is a partially developed, mixed-use project with remaining
Stratus entitlements for approximately 1.9 million square feet of office and
retail use on 224 acres. Regional utility and road infrastructure is in place
with capacity to serve Lantana at full build-out permitted under existing
entitlements.
In
2001,
we reached agreement with the City concerning development of a 417-acre portion
of the Lantana community. The agreement reflected a cooperative effort between
the City and us to allow development based on grandfathered entitlements, while
adhering to stringent water quality standards and other enhancements to protect
the environment. With this agreement, we completed the core entitlement process
for the entire Lantana project allowing for approximately 2.9 million square
feet of office and retail
13
development,
approximately 400 multi-family units (previously sold to an unrelated third
party), and a tract for approximately 330 residential lots which we sold in
2003.
At
March
31, 2006, our 75,000-square-foot office building at 7500 Rialto Boulevard was
approximately 96 percent leased. As a result of increased demand for office
space within Lantana, we commenced construction in January 2006 of a second
75,000-square-foot office building at 7500 Rialto Boulevard. 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
higher costs during the initial transition, this change in management
responsibility provides future cost savings for our commercial leasing
operations and better control of building operations. In the fourth quarter
of
2005, we committed to a plan to sell our two office buildings at 7000 West.
On
March 27, 2006, we sold 7000 West for $22.3 million (see Note 6 and
“Discontinued Operations - 7000 West”).
Barton
Creek Community.
We
commenced construction of a new subdivision within the Barton Creek community
during the fourth quarter of 2000. This subdivision, Mirador, was completed
in
late-2001. Mirador adjoins the Escala Drive subdivision. We developed 34 estate
lots in the Mirador subdivision, with each lot averaging approximately 3.5
acres
in size.
Since
January 2002, we have secured subdivision plat approval for three new
residential subdivisions within the Barton Creek Community, including: Versant
Place - 54 lots, Wimberly Lane Phase II - 47 lots and Calera - 155 lots. At
March 31, 2006, our remaining unsold developed lots within the Barton Creek
Community included: Calera Drive - 28 lots, Wimberly Lane Phase II - 23 lots,
Calera Court - 10 lots, Mirador - 10 lots and Escala - 1 lot. Development of
the
remaining Barton Creek property is expected to occur over several
years.
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. The deposit was used to pay ongoing development
costs of the lots. The deposit will be applied against subsequent purchases
of
lots by the homebuilder after certain thresholds are achieved and will be
recognized as income as lots are sold. The lots are being sold on a scheduled
takedown basis, with the initial 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 Wimberly Lane Phase II subdivision also included six estate
lots, each averaging approximately five acres, which we retained, marketed
and
sold in 2005 for a total of $1.8 million.
During
2004, we completed construction of four courtyard homes at Calera Court within
the Barton Creek community. 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 2005. In the third quarter of 2005, development of these lots was
completed and the initial five lots were sold for $2.1 million. Development
of
the third and last phase of Calera, which will include approximately 70
single-family lots, will commence in mid-2006.
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. Our Circle C
settlement permits development of 1.0 million square feet of commercial space,
900 multi-family units and 830 single-family residential lots. In 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
includes 134 lots, was substantially completed at the end of 2005. Development
of the second phase of 134 lots commenced in the third quarter of 2005 and
was
substantially completed in March 2006. We estimate our sales from the first
two
phases of Meridian will total at least 38 lots for $2.3 million during the
second quarter of 2006.
In
addition, several retail sites at the Circle C community have received final
City approvals and are being developed. Zoning for Escarpment Village, a
168,000-square-foot retail project anchored by a grocery
14
store,
was approved during the second quarter of 2004, and construction is progressing
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. The grand opening of the shopping center is set for May 12, 2006,
and
we expect to close the long-term mortgage in June 2006.
Deerfield.
In
January 2004, we acquired the Deerfield property in Plano, Texas, for $7.0
million. The property was 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 was $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 $7.8 million in
remaining availability under the loan at March 31, 2006. The initial lot sale
occurred in November 2004 and subsequent lot sales are on schedule. In October
2005, we executed a revised agreement with the homebuilder, increasing the
lot
sizes and average purchase price to $67,150 based on a new total of 224 lots.
We
expect to complete 20 lot sales for $1.3 million during the second quarter
of
2006.
Crestview
Station.
In
November 2005, we formed a joint venture partnership with Trammell Crow to
acquire an approximate 74-acre tract at the intersection of Airport Boulevard
and Lamar Boulevard in Austin, Texas, for $7.7 million. With our joint venture
partner, we have commenced brown field remediation and permitting of the
property, known as the Crestview Station project, for single-family,
multi-family, retail and office development, with closings on the single-family
and multi-family components expected to occur in 2007 upon completion of the
remediation. At March 31, 2006, our investment in the Crestview Station project
totaled $3.8 million and the joint venture partnership had $6.6 million of
outstanding debt, of which each joint venture partner guarantees $1.9
million.
The
Crestview Station property is divided into three distinct parcels - one
containing approximately 46 acres, a second consisting of approximately 27
acres, and a third 0.5-acre tract. Our joint venture partnership has contracted
with a nationally recognized remediation firm to demolish the existing buildings
and remediate the 27-acre and 0.5-acre tracts as part of preparing them for
residential permitting. Under the terms of the remediation contract, the joint
venture partnership will pay the contractor approximately $4.9 million upon
completion of performance benchmarks and certification by the State of Texas
that the remediation is complete. The contractor is required to pay all costs
associated with the remediation and to secure an environmental liability policy
with $10.0 million of coverage remaining in place for a 10-year term. Pursuant
to the agreement with the contractor, all environmental and legal liability
was
assigned to and assumed by the contractor effective November 30,
2005.
Downtown
Austin Project.
In April
2005, 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 a negotiation period with
the
City to reach agreement on the project’s design and transaction terms and
structure.
RESULTS
OF OPERATIONS
We
are
continually evaluating the development potential of our properties and will
continue to consider opportunities to enter into significant 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.
15
Summary
operating results follow (in thousands):
|
First
Quarter
|
||||||
|
2006
|
2005
|
|||||
|
Revenues:
|
||||||
|
Real
estate operations
|
$
|
11,303
|
$
|
2,410
|
||
|
Commercial
leasing
|
387
|
307
|
||||
|
Total
revenues
|
$
|
11,690
|
$
|
2,717
|
||
|
Operating
income (loss)
|
$
|
1,894
|
$
|
(976
|
)
|
|
|
Income
tax benefit
|
$
|
6,386
|
$
|
-
|
||
|
Net
income (loss) from continuing operations
|
$
|
8,115
|
$
|
(1,060
|
)
|
|
|
Income
from discontinued operations
|
8,187
|
148
|
||||
|
Net
income (loss)
|
$
|
16,302
|
$
|
(912
|
)
|
|
Our
deferred tax assets at December 31, 2005 totaled $17.6 million and we had
provided a 100 percent valuation allowance because realization of the deferred
tax assets was not considered likely. Realization of our deferred tax assets
is
dependent on generating sufficient taxable income within the carryforward period
available under tax law. In the first quarter of 2006, we sold 7000 West (see
Note 6) and in April 2006 we completed the sale of 58 acres at our Lantana
property. These transactions generated income of approximately $26 million
and
along with our current homebuilder contract arrangements and projected levels
of
future sales provide sufficient evidence that we now believe it is more likely
than not that we will be able to realize all of our deferred tax assets. As
a
result, first-quarter 2006 net income from continuing operations included a
$6.4
million, $0.88 per basic share and $0.83 per diluted share, tax benefit
resulting from the reversal of a portion of our deferred tax asset valuation
allowance and the remaining balance of our valuation allowance is being
realized in our 2006 effective tax rate.
We
have
two operating segments, “Real Estate Operations” and “Commercial Leasing” (see
Note 7). The following is a discussion of our operating results by
segment.
Real
Estate Operations
Summary
real estate operating results follow (in thousands):
|
First
Quarter
|
||||||
|
2006
|
2005
|
|||||
|
Revenues:
|
||||||
|
Developed
property sales
|
$
|
9,538
|
$
|
2,252
|
||
|
Undeveloped
property sales
|
1,500
|
-
|
||||
|
Commissions,
management fees and other
|
265
|
158
|
||||
|
Total
revenues
|
11,303
|
2,410
|
||||
|
Cost
of sales
|
(7,580
|
)
|
(1,930
|
)
|
||
|
General
and administrative expenses
|
(1,609
|
)
|
(1,112
|
)
|
||
|
Operating
income (loss)
|
$
|
2,114
|
$
|
(632
|
)
|
|
Developed
Property Sales. Improving
market conditions in the Austin area have resulted in increased lot sales in
the
first quarter of 2006. Property sales for the first quarters of 2006 and 2005
included the following (revenues in thousands):
16
|
First
Quarter
|
||||||||
|
2006
|
2005
|
|||||||
|
Lots
|
Revenues
|
Lots
|
Revenues
|
|||||
|
Residential
Properties:
|
||||||||
|
Barton
Creek
|
||||||||
|
Calera
Drive
|
6
|
$2,902
|
-
|
$
-
|
||||
|
Calera
Court Courtyard Homes
|
4
|
2,312
|
-
|
-
|
||||
|
Mirador
Estate
|
2
|
1,065
|
-
|
-
|
||||
|
Wimberly
Lane Phase II
|
||||||||
|
Standard
Homebuilder
|
2
|
301
|
-
|
-
|
||||
|
Estate
|
-
|
-
|
1
|
339
|
||||
|
Escala
Drive Estate
|
-
|
-
|
1
|
929
|
||||
|
Circle
C
|
||||||||
|
Meridian
|
39
|
2,287
|
-
|
-
|
||||
|
Deerfield
|
10
|
671
|
16
|
984
|
||||
|
Total
Residential
|
63
|
$9,538
|
18
|
$2,252
|
||||
Undeveloped
Property Sales.
During
the first quarter of 2006, we sold a 7.5-acre tract in the Barton Creek
community for $1.5 million.
Commissions,
Management Fees and Other.
Commissions, management fees and other revenues totaled $0.3 million in the
first quarter of 2006, compared to $0.2 million in the first quarter of 2005,
and included sales of our development fee credits to third parties totaling
$0.2
million in the 2006 quarter and $0.1 million in the 2005 quarter. We received
these development fee credits as part of the Circle C settlement (see Note
8 of
our 2005 Form 10-K).
Cost
of Sales and General and Administrative Expenses.
Cost of
sales totaled $7.6 million in the first quarter of 2006 and $1.9 million in
the
2005 quarter. The increase in cost of sales for the 2006 quarter compared to
the
2005 quarter primarily relates to the increase in developed property sales
in
the 2006 quarter. General and administrative expenses increased to $1.6
million in the first quarter of 2006 compared to $1.1 million for the first
quarter of 2005 primarily because of stock-based compensation costs associated
with adoption of new accounting rules (see "New Accounting
Standard").
Commercial
Leasing
Our
commercial leasing operating results primarily reflect the activities at our
7500 Rialto Boulevard office building and Southwest Property Services L.L.C.
after removing the results for 7000 West which are now classified as
discontinued operations (see below). Summary commercial leasing operating
results follow (in thousands):
|
First
Quarter
|
||||||
|
2006
|
2005
|
|||||
|
Rental
income
|
$
|
387
|
$
|
307
|
||
|
Rental
property costs
|
(324
|
)
|
(328
|
)
|
||
|
Depreciation
|
(153
|
)
|
(151
|
)
|
||
|
General
and administrative expenses
|
(130
|
)
|
(172
|
)
|
||
|
Operating
loss
|
$
|
(220
|
)
|
$
|
(344
|
)
|
In
January 2006, we began earning rental income (less than $0.1 million for the
first quarter) from Escarpment Village. We expect our rental income and related
costs from Escarpment Village to increase throughout the remainder of 2006
following the grand opening of the shopping center on May 12, 2006.
Other
Financial Results
General
and administrative expenses increased to $1.7 million in the first quarter
of
2006 from $1.3 million in the 2005 quarter, primarily because of stock-based
compensation costs. On January 1, 2006, we adopted Statement of Financial
Accounting Standards No. 123 (revised 2004), “Share-Based Payment.” Stock-based
compensation costs totaled $0.6 million in the 2006 quarter, including a net
$0.3 million charged to general and administrative expenses, and $0.1 million
in
the 2005 quarter, which was charged to general and administrative
expenses.
17
DISCONTINUED
OPERATIONS - 7000 WEST
In
the
fourth quarter of 2005, we committed to a plan to sell our office buildings
at
7000 West. On March 27, 2006, our wholly owned subsidiary, Stratus 7000 West
Joint Venture (7000 West JV), sold its two
70,000-square-foot
office buildings at 7000 West William Cannon Drive (7000 West), known as the
Lantana Corporate Center, to
CarrAmerica Lantana, LP (CarrAmerica) for
$22.3
million, resulting in a $9.8 million ($7.8 million net of taxes or $1.08 per
basic share and $1.02 per diluted share) gain in the first quarter of 2006.
CarrAmerica
paid us $10.6 million cash at closing and assumed the $11.7 million principal
balance remaining under our 7000 West project loan from TIAA. In connection
with
CarrAmerica’s assumption of the loan, 7000 West JV entered into a First
Modification Agreement with CarrAmerica and TIAA under which TIAA released
7000
West JV’s $3.5 million letter of credit issued by Comerica Bank that secured
certain re-tenanting obligations and released 7000 West JV from all future
obligations under the loan. In addition, TIAA released us from all future
liabilities under its guaranty of 7000 West JV’s environmental representations
and recourse obligations under the loan.
Upon
completion of the sale of 7000 West, Stratus ceased all involvement with the
7000 West office buildings. The operations, assets and liabilities of 7000
West
represented a component of our commercial leasing segment.
Our
discontinued operations generated net income of $8.2 million, including a $7.8
million gain net of taxes on the sale, in the first quarter of 2006 and $0.1
million in the first quarter of 2005. We earned rental income of $1.1 million
in
the first quarter of 2006 and $0.9 million in the first quarter of 2005 from
our
two fully leased office buildings at 7000 West.
CAPITAL
RESOURCES AND LIQUIDITY
Comparison
of First-Quarter 2006 and 2005 Cash Flows
Operating
activities provided cash of $5.3 million during the first quarter of 2006 and
$4.1 million during the first quarter of 2005, including cash provided by
discontinued operations totaling $0.4 million during the first quarter of 2006
and the first quarter of 2005. Compared to the 2005 quarter, operating cash
flows in the first quarter of 2006 improved primarily because of the increase
in
sales activities, partly offset by working capital changes.
Cash
provided by investing activities totaled $4.2 million during the first quarter
of 2006 and cash used in investing activities totaled $6.6 million during the
first quarter of 2005. First-quarter 2006 included $10.0 million received from
the sale of 7000 West (see “Discontinued Operations - 7000 West”). Other real
estate expenditures for the first quarters of 2006 and 2005 included
improvements to certain properties in the Barton Creek, Lantana and Circle
C
communities.
Financing
activities used cash of $2.4 million during the first quarter of 2006, compared
to $3.1 million provided by financing activities during the first quarter of
2005. During the first quarter of 2006, our financing activities included $2.0
million of net repayments on our revolving line of credit and $0.9 million
of
net repayments on our project construction loans, including net repayments
of
$0.9 million from the Deerfield loan and $0.9 million from the Meridian project
loan, partly offset by $1.0 million of borrowings on the Escarpment Village
loan. During the first quarter of 2005, our financing activities reflected
$4.1
million of net borrowings under our revolving line of credit partially offset
by
net repayments on our project construction loans totaling $0.6 million,
including $0.5 million related to the Deerfield loan. See “Credit Facility and
Other Financing Arrangements” below for a discussion of our outstanding debt at
March 31, 2006.
In
2001,
our Board of Directors approved an open market share purchase program for up
to
0.7 million shares of our common stock. During the first quarter of 2006, we
purchased 10,668 shares for $0.3 million, a $23.78 per share average. During
the
second quarter of 2006 through May 5, 2006, we purchased 10,000 shares for
$0.3
million, a $25.12 per share average. A total of 471,948 shares remain available
under this program. During the first quarter of 2005, we purchased 20,305 shares
for $0.3 million, a $16.48 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.
18
Credit
Facility and Other Financing Arrangements
At
March
31, 2006, we had total debt of $47.4 million, including $2.2 million of current
debt, compared to total debt of $50.3 million, including $0.2 million of current
debt, at December 31, 2005. We expect to use the proceeds from the 7000 West
and
AMD sales to reduce debt in the second quarter of 2006. Our debt outstanding
at
March 31, 2006 consisted of the following:
| · |
$13.7
million of net borrowings under the $45.0 million Comerica revolving
credit facility. 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.
|
| · |
$6.4
million of net borrowings under the 7500 Rialto Boulevard project
loan,
which matures in January 2008.
|
| · |
$2.0
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.
|
| · |
$10.9
million of net borrowings under the $18.5 million Escarpment Village
project loan, which will mature in June
2007.
|
| · |
$4.4
million of net borrowings under the $10.0 million Meridian project
loan,
which will mature in November 2007.
|
In
addition, we had 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.
Upon
the
closing of the 7000 West sale on March 27, 2006, Carr
America paid us $10.6 million cash and assumed the $11.7 million principal
balance remaining under our 7000 West project loan from TIAA (see Note 6 and
“Discontinued
Operations - 7000 West”).
We
intend to use the net proceeds from the sale to reduce our other outstanding
debt.
For
a
further discussion of our debt see Note 4 of our 2005 Form 10-K.
Outlook
As
discussed in “Risk Factors” located in our 2005 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. From 2001 through 2004, a downturn in the technology
sector negatively affected the Austin real estate market, especially the
high-end residential and commercial leasing markets; however, beginning in
2005,
market conditions have improved.
Over
the
past several years, we have successfully worked cooperatively with the City
to
obtain approvals that allow the development of our properties to proceed in
a
timely manner while protecting the environment. We believe the desirable
location and overall quality of our properties, in combination with the land
use
and development entitlements we have obtained, will command a premium over
the
value of other Austin-area properties.
Our
long-term success will depend on our ability to maximize the value of our real
estate through obtaining required approvals that permit us to develop and sell
our properties in a timely manner at a reasonable cost. We must incur
significant development expenditures and secure additional permits prior to
the
development and sale of certain properties. In addition, we continue to pursue
additional development opportunities, and believe we can obtain bank financing
for developing our properties at a reasonable cost.
NEW
ACCOUNTING STANDARD
Accounting
for Stock-Based Compensation.
As of
March 31, 2006, we had three stock-based employee compensation plans and one
stock-based director compensation plan. Prior to January 1, 2006, we accounted
for options granted under all of our plans under the recognition and measurement
principles of Accounting Principles Board (APB) Opinion No. 25, “Accounting for
Stock Issued to Employees,” and related interpretations, as permitted by
Statement of Financial Accounting Standards (SFAS) No. 123, “Accounting for
Stock-Based Compensation.” APB Opinion No. 25 required compensation cost for
stock options 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 (i.e., the intrinsic value). Because all the
plans
require that the option exercise price be at least the market price on the
date
of grant, we recognized no compensation cost on the grant or exercise of our
employees’ options through December 31, 2005. Other awards of restricted stock
units under the plans did result in compensation costs being recognized in
earnings based on the intrinsic value on the date of grant.
Effective
January 1, 2006, we adopted the fair value recognition provisions of SFAS No.
123 (revised 2004), “Share-Based Payment” or “SFAS No. 123R,” using the modified
prospective transition method. Under that transition method, compensation cost
recognized in 2006 includes: (a) compensation costs for all stock option awards
granted to employees prior to, but not yet vested as of January 1, 2006, based
on the grant-date fair value estimated in accordance with the original
provisions of SFAS No. 123, and (b) compensation cost for all stock option
awards granted subsequent to January 1, 2006, based on the grant-date fair
value
estimated in accordance with the provisions of SFAS No. 123R. We granted no
stock option awards in the first quarter of 2006. Other stock-based awards
charged to expense under SFAS No. 123 (i.e., restricted stock units) continue
to
be charged to expense under SFAS No. 123R (see Note 2). Results for prior
periods have not been restated.
As
a
result of adopting SFAS No. 123R on January 1, 2006, our net income for the
three months ended March 31, 2006, was $0.4 million ($0.05 per basic and diluted
share) lower than if we had continued to account for share-based
compensation under APB Opinion No. 25. Basic earnings per share would have
been
$2.30 per share and diluted earnings per share would have been $2.17 per share
for the three months ended March 31, 2006, if we had not adopted SFAS No. 123R,
compared to reported earnings of $2.25 per basic share and $2.12 per diluted
share.
Compensation
cost charged against earnings for stock-based awards is shown below (in
thousands). We capitalized $0.1 million of stock-based compensation costs to
fixed assets in the first quarter of 2006 and none in the 2005
quarter.
|
Three
Months Ended March31,
|
|||||||
|
2006
|
2005
|
||||||
|
Cost
of sales
|
$
|
133
|
$
|
-
|
|||
|
General
and administrative expenses
|
314
|
93
|
|||||
|
Total
stock-based compensation cost
|
$
|
447
|
$
|
93
|
|||
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 2005 Form
10-K.
There
have been no significant changes in our market risks since the year ended
December 31, 2005. For more information, please read the consolidated financial
statements and notes thereto included in our Annual Report on Form 10-K for
the
year ended December 31, 2005.
20
(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 first quarter that has materially affected, or is reasonably
likely to materially affect our internal control over financial
reporting.
On
February 21, 2006, the Save Our Springs Alliance, Inc. (“SOS Alliance”) filed
suit against the City of Austin (the City) in the 200th
Judicial
District Court of Travis County, Texas under Cause No. GN-06-000627. SOS
Alliance, among other claims, asserts that (i) the AMD project is not exempt
under Chapter 245 of the Texas Local Government Code (the grandfathering
statute) from current code compliance; and (ii) our Lantana settlement
agreements with the City are invalid. The SOS Alliance requests that the court
enjoin the City from issuing permits for development of the AMD project. On
February 24, 2006, we intervened in the litigation to vigorously defend our
Lantana entitlements. On March 22, 2006, the SOS Alliance’s request for
injunction against the City was heard in the Travis County District Court.
Following
the hearing, the judge requested that the SOS Alliance, the City, AMD and
Stratus attempt to resolve their dispute. From March 23 through April 10,
Stratus, AMD, the City and the SOS Alliance attempted to reach agreement
concerning development of the AMD core tract and the surrounding option parcels.
The parties reached an impasse. On April 11, 2006, the judge issued an order
denying the SOS Alliance’s request for an injunction against the issuance of
permits for AMD’s campus. The SOS Alliance subsequently dismissed its lawsuit.
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.
There
have been no material changes to our risk factors since the year ended December
31, 2005. For more information, please read Item 1A included in our Form 10-K
for the year ended December 31, 2005.
The
following table sets forth shares of our common stock we repurchased during
the
three-month period ended March 31, 2006.
|
Current
Programa
|
|||||||||
|
Period
|
Total
Shares Purchased
|
Average
Price Paid Per Share
|
Shares
Purchased
|
Shares
Available for Purchase
|
|||||
|
January
1 to 31, 2006
|
4,897
|
$23.88
|
4,897
|
487,719
|
|||||
|
February
1 to 28, 2006
|
525
|
24.01
|
525
|
487,194
|
|||||
|
March
1 to 31, 2006
|
5,246
|
23.65
|
5,246
|
481,948
|
|||||
|
Total
|
10,668
|
23.78
|
10,668
|
||||||
| 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.
|
Our
annual meeting of stockholders was held on May 9, 2006 (the “Annual Meeting”).
Proxies were solicited pursuant to Regulation 14A under the Securities Exchange
Act of 1934, as amended. The following matters were submitted to a vote of
security holders during our Annual Meeting:
|
Votes
Cast For
|
Authority
Withheld
|
||
|
1.
Election of Directors:
|
|||
|
Bruce
G. Garrison
|
6,634,156
|
380,320
|
|
|
James
C. Leslie
|
6,634,130
|
380,346
|
There
were no abstentions with respect to the election of directors. In addition
to
the directors elected at the Annual Meeting, the terms of the following
directors continued after the Annual Meeting: William H. Armstrong III and
Michael D. Madden.
|
Broker
|
||||||||
|
For
|
Against
|
Abstentions
|
Non-Votes
|
|||||
|
2.
Ratification of
|
||||||||
|
PricewaterhouseCoopers
|
||||||||
|
LLP
as independent
|
||||||||
|
auditor
|
6,949,303
|
62,059
|
3,114
|
-
|
||||
|
3.
Proposal to adopt 2006
|
||||||||
|
Stock
Incentive Plan
|
1,126,738
|
2,720,986
|
32,239
|
3,134,513
|
||||
|
4.
Stockholder proposal
|
||||||||
|
regarding
declassification
|
||||||||
|
of
the board of directors
|
2,978,095
|
847,652
|
54,216
|
3,134,513
|
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.
22
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: May
10,
2006
23
STRATUS
PROPERTIES INC.
EXHIBIT
INDEX
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 the Annual Report on Form 10-K of Stratus for the
fiscal
year ended December 31, 2000.
|
|
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 Form 10-Q of Stratus
for the
quarter ended March 31, 2003.
|
E-1
|
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 the Annual Report on Form 10-K of Stratus for the
fiscal
year ended December 31, 2003 (Stratus’ 2003 Form
10-K).
|
|
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 Form 10-Q of Stratus for the quarter ended September
30,
2003.
|
|
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.
|
|
10.11
|
First
Modification Agreement dated March 27, 2006, by and between Stratus
7000
West Joint Venture, as Old Borrower, and CarrAmerica Lantana, LP,
as New
Borrower, and Teachers Insurance and Annuity Association of America,
as
Lender. Incorporated by reference to Exhibit 10.1 to the Current
Report on
Form 8-K of Stratus dated March 27, 2006.
|
|
Agreement
of Sale and Purchase dated November 23, 2005, by and between Stratus
Properties Operating Co., L.P., as Seller, and Advanced Micro Devices,
Inc., as Purchaser.
|
|
|
First
Amendment to Agreement of Sale and Purchase dated April 26, 2006,
by and
between Stratus Properties Operating Co., L.P., as Seller, and Advanced
Micro Devices, Inc., as Purchaser.
|
|
|
Executive
Compensation Plans and Arrangements (Exhibits 10.14 through
10.23)
|
|
|
10.14
|
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.
|
|
10.15
|
Stratus
Stock Option Plan. Incorporated by reference to Exhibit 10.25 to
Stratus’
2003 Form 10-K.
|
|
10.16
|
Stratus
1996 Stock Option Plan for Non-Employee Directors. Incorporated by
reference to Exhibit 10.22 to the Quarterly Report on Form 10-Q of
Stratus
for the quarter ended June 30, 2005 (Stratus’ 2005 Second Quarter Form
10-Q).
|
|
10.17
|
Stratus
Properties Inc. 1998 Stock Option Plan. Incorporated by reference
to
Exhibit 10.23 to Stratus’ 2005 Second Quarter Form
10-Q.
|
|
10.18
|
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.
|
|
10.19
|
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.
|
|
10.20
|
Stratus
Properties Inc. 2002 Stock Incentive Plan. Incorporated by reference
to
Exhibit 10.26 to Stratus’ 2005 Second Quarter Form
10-Q.
|
|
10.21
|
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.
|
|
10.22
|
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.
|
E-2
|
10.23
|
Stratus
Director Compensation. Incorporated by reference to Exhibit 10.20
to the
Annual Report on Form 10-K of Stratus for the fiscal year ended December
31, 2005.
|
|
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-3
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