STRATUS PROPERTIES INC - Quarter Report: 2007 June (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 June 30, 2007
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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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(I.R.S.
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
ÿ
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 ÿ Accelerated
filer R Non-accelerated
filer ÿ
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). ÿ Yes R
No
On
June
30, 2007, there were issued and outstanding 7,568,416 shares of the registrant’s
Common Stock, par value $0.01 per share.
STRATUS
PROPERTIES INC.
STRATUS
PROPERTIES INC.
(In
Thousands)
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June
30,
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December
31,
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2007
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2006
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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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$114
and $116, respectively
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$
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4,673
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$
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1,916
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Accounts
receivable
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880
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749
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||||
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Deposits,
prepaid expenses and other
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3,844
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3,691
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||||
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Deferred
tax asset
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1,233
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1,144
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Discontinued
operations
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196
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233
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Total
current assets
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10,826
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7,733
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Real
estate, commercial leasing assets and facilities, net:
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Property
held for sale – developed or under development
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121,320
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116,865
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Property
held for sale – undeveloped
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16,335
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16,345
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Property
held for use, net
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32,892
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28,257
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Investment
in Crestview
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3,800
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3,800
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Deferred
tax asset
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7,174
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7,105
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Other
assets
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4,242
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4,094
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Discontinued
operations
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19,447
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19,751
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Total
assets
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$
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216,036
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$
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203,950
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LIABILITIES
AND STOCKHOLDERS’ EQUITY
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Current
liabilities:
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||||||
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Accounts
payable and accrued liabilities
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$
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5,607
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$
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5,421
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Accrued
interest, property taxes and other
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4,972
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5,789
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Current
portion of long-term debt
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320
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311
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Discontinued
operations
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428
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1,068
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Total
current liabilities
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11,327
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12,589
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Long-term
debt
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62,202
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50,364
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Other
liabilities
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6,122
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6,957
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Discontinued
operations
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94
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94
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Total
liabilities
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79,745
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70,004
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Stockholders’
equity:
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Preferred
stock
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-
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-
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Common
stock
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81
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81
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Capital
in excess of par value of common stock
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190,740
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188,873
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Accumulated
deficit
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(41,677
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)
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(42,655
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)
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Common
stock held in treasury
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(12,853
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)
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(12,353
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)
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Total
stockholders’ equity
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136,291
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133,946
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Total
liabilities and stockholders' equity
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$
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216,036
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$
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203,950
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The
accompanying notes are an integral part of these condensed consolidated
financial statements.
2
STRATUS
PROPERTIES INC.
(In
Thousands, Except Per Share Amounts)
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Three
Months Ended
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Six
Months Ended
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June
30,
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June
30,
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2007
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2006
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2007
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2006
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Revenues:
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||||||||||||
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Real
estate
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$
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5,317
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$
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31,714
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$
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9,743
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$
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42,752
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Rental
income
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885
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522
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1,812
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569
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Commissions,
management fees and other
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760
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285
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981
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550
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Total
revenues
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6,962
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32,521
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12,536
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43,871
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Cost
of sales:
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Real
estate, net
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3,406
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11,684
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4,989
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19,231
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Rental
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856
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299
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1,519
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425
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Depreciation
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323
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251
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623
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290
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Total
cost of sales
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4,585
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12,234
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7,131
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19,946
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General
and administrative expenses
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1,846
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1,883
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3,847
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3,622
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Total
costs and expenses
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6,431
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14,117
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10,978
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23,568
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Operating
income
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531
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18,404
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1,558
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20,303
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Interest
expense, net
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(329
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)
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(240
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)
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(659
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)
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(300
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)
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Interest
income
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56
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188
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585
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202
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Income
from continuing operations before
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income
taxes
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258
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18,352
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1,484
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20,205
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(Provision
for) benefit from income taxes
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(65
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)
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33
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(515
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)
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8,293
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Income
from continuing operations
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193
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18,385
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969
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28,498
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Income
(loss) from discontinued operations
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||||||||||||
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(including
a gain on 7000 West sale of $7,348
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in
the 2006 six-month period, net of taxes of
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||||||||||||
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$486
in the second quarter of 2006 and
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$2,414
in the 2006 six-month period)
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48
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(610
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)
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10
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7,453
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Net
income
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$
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241
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$
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17,775
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$
|
979
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$
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35,951
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Basic
net income (loss) per share of common stock:
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Continuing
operations
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$
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0.03
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$
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2.51
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$
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0.13
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$
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3.92
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Discontinued
operations
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-
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(0.08
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)
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-
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1.02
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Basic
net income per share of common stock
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$
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0.03
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$
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2.43
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$
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0.13
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$
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4.94
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Diluted
net income (loss) per share of common stock:
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Continuing
operations
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$
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0.03
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$
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2.40
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$
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0.13
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$
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3.71
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Discontinued
operations
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-
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(0.08
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)
|
-
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0.97
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|||||||
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Diluted
net income per share of common stock
|
$
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0.03
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$
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2.32
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$
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0.13
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$
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4.68
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Average
shares of common stock outstanding:
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Basic
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7,568
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7,306
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7,559
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7,274
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Diluted
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7,690
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7,660
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7,680
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7,679
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The
accompanying notes are an integral part of these condensed consolidated
financial statements.
3
STRATUS
PROPERTIES INC.
(In
Thousands)
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Six
Months Ended
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||||||
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June
30,
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||||||
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2007
|
2006
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|||||
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Cash
flow from operating activities:
|
||||||
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Net
income
|
$
|
979
|
$
|
35,951
|
||
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Adjustments
to reconcile net income to net cash provided by
|
||||||
|
operating
activities:
|
||||||
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Income
from discontinued operations
|
(10
|
)
|
(7,453
|
)
|
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|
Depreciation
|
623
|
290
|
||||
|
Cost
of real estate sold
|
5,358
|
20,700
|
||||
|
Deferred
income taxes
|
(158
|
)
|
(8,293
|
)
|
||
|
Stock-based
compensation
|
759
|
679
|
||||
|
Deposits
|
(358
|
)
|
(2,753
|
)
|
||
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Other
|
(894
|
)
|
(1,328
|
)
|
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(Increase)
decrease in working capital:
|
||||||
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Accounts
receivable and prepaid expenses
|
(332
|
)
|
255
|
|||
|
Accounts
payable, accrued liabilities and other
|
(314
|
)
|
(2,980
|
)
|
||
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Net
cash provided by continuing operations
|
5,653
|
35,068
|
||||
|
Net
cash (used in) provided by discontinued operations
|
(304
|
)
|
1,850
|
|||
|
Net
cash provided by operating activities
|
5,349
|
36,918
|
||||
|
Cash
flow from investing activities:
|
||||||
|
Purchases
and development of real estate properties
|
(17,143
|
)
|
(12,375
|
)
|
||
|
Development
of commercial leasing properties and other expenditures
|
(334
|
)
|
(6,134
|
)
|
||
|
Municipal
utility district reimbursements
|
2,557
|
1,328
|
||||
|
Net
cash used in continuing operations
|
(14,920
|
)
|
(17,181
|
)
|
||
|
Net
cash provided by discontinued operations
|
-
|
3,988
|
||||
|
Net
cash used in investing activities
|
(14,920
|
)
|
(13,193
|
)
|
||
|
Cash
flow from financing activities:
|
||||||
|
Borrowings
from revolving credit facility
|
15,450
|
15,000
|
||||
|
Payments
on revolving credit facility
|
(18,450
|
)
|
(27,997
|
)
|
||
|
(Payments
on) borrowings from TIAA mortgage
|
(154
|
)
|
22,800
|
|||
|
Borrowings
from unsecured term loans
|
15,000
|
-
|
||||
|
Borrowings
from project loans
|
-
|
2,236
|
||||
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Repayments
on project loans
|
-
|
(20,402
|
)
|
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Net
(payments for) proceeds from exercised stock options
|
(35
|
)
|
752
|
|||
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Excess
tax benefit from exercised stock options
|
655
|
-
|
||||
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Purchases
of Stratus common shares
|
(153
|
)
|
(505
|
)
|
||
|
Bank
credit facility fees
|
-
|
(421
|
)
|
|||
|
Net
cash provided by (used in) continuing operations
|
12,313
|
(8,537
|
)
|
|||
|
Net
cash used in discontinued operations
|
-
|
(6,461
|
)
|
|||
|
Net
cash provided by (used in) financing activities
|
12,313
|
(14,998
|
)
|
|||
|
Net
increase in cash and cash equivalents
|
2,742
|
8,727
|
||||
|
Cash
and cash equivalents at beginning of year
|
1,955
|
1,901
|
||||
|
Cash
and cash equivalents at end of period
|
4,697
|
10,628
|
||||
|
Less
cash at discontinued operations
|
(24
|
)
|
(4
|
)
|
||
|
Less
cash restricted as to use
|
(114
|
)
|
(2,797
|
)
|
||
|
Unrestricted
cash and cash equivalents at end of period
|
$
|
4,559
|
$
|
7,827
|
||
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
4
STRATUS
PROPERTIES INC.
|
1.
|
GENERAL
|
The
accompanying unaudited condensed consolidated financial statements should be
read in conjunction with the consolidated financial statements and notes thereto
for the year ended December 31, 2006, included in Stratus Properties Inc.’s
(Stratus) Annual Report on Form 10-K (Stratus 2006 Form 10-K) filed with the
Securities and Exchange Commission. In the opinion of management, the
accompanying condensed consolidated financial statements reflect all adjustments
(consisting only of normal recurring items) considered necessary for a fair
statement of the financial position of Stratus at June 30, 2007, and the results
of operations for the three-month and six-month periods ended June 30, 2007
and
2006, and cash flows for the six-month periods ended June 30, 2007 and 2006.
Operating results for the three-month and six-month periods ended June 30,
2007
are not necessarily indicative of the results that may be expected for the
year
ending December 31, 2007. Certain prior year amounts have been reclassified
to
conform to the current year presentation.
|
2.
|
EARNINGS
PER SHARE
|
Stratus’
basic net income per share of common stock was calculated by dividing the income
from continuing operations, income (loss) from discontinued operations and
net
income by the weighted average number of common shares outstanding during the
period. The following is a reconciliation of net income and weighted average
common shares outstanding for purposes of calculating diluted net income per
share (in thousands, except per share amounts):
|
Three
Months Ended
|
Six
Months Ended
|
|||||||||||
|
June
30,
|
June
30,
|
|||||||||||
|
2007
|
2006
|
2007
|
2006
|
|||||||||
|
Income
from continuing operations
|
$
|
193
|
$
|
18,385
|
$
|
969
|
$
|
28,498
|
||||
|
Income
(loss) from discontinued operations
|
48
|
(610
|
)
|
10
|
7,453
|
|||||||
|
Net
income
|
$
|
241
|
$
|
17,775
|
$
|
979
|
$
|
35,951
|
||||
|
Weighted
average common shares outstanding
|
7,568
|
7,306
|
7,559
|
7,274
|
||||||||
|
Add: Dilutive
stock options
|
97
|
314
|
100
|
360
|
||||||||
|
Restricted
stock
|
25
|
40
|
21
|
45
|
||||||||
|
Weighted
average common shares outstanding for
|
||||||||||||
|
purposes
of calculating diluted net income per share
|
7,690
|
7,660
|
7,680
|
7,679
|
||||||||
|
Diluted
net income (loss) per share of common stock:
|
||||||||||||
|
Continuing
operations
|
$
|
0.03
|
$
|
2.40
|
$
|
0.13
|
$
|
3.71
|
||||
|
Discontinued
operations
|
-
|
(0.08
|
)
|
-
|
0.97
|
|||||||
|
Diluted
net income per share of common stock
|
$
|
0.03
|
$
|
2.32
|
$
|
0.13
|
$
|
4.68
|
||||
|
3.
|
DEBT
OUTSTANDING
|
At
June
30, 2007, Stratus had total debt of $62.5 million, including $0.3 million of
current debt, compared to total debt of $50.7 million, including $0.3 million
of
current debt, at December 31, 2006. Stratus’ debt outstanding at June 30, 2007
consisted of the following:
|
·
|
$40.0
million of borrowings outstanding under seven unsecured term loans,
including two $5.0 million loans, two $8.0 million loans, a $7.0
million
loan and two $3.5 million loans, all of which will mature in December
2011.
|
|
·
|
$22.5
million related to the mortgage from the Teachers Insurance and Annuity
Association of America (TIAA) associated with the Escarpment Village
shopping center, which matures in July
2016.
|
On
June
1, 2007, Stratus entered into three separate loan agreements with First American
Asset Management (FAAM). Pursuant to the loan agreements, additional borrowings
totaled $15.0 million, $10.6 million of which was used to pay down the
outstanding amounts under Stratus’ revolving credit facility with Comerica Bank,
and the remainder will be used for operations, capital expenditures and other
development costs, including the Block 21 Project. The loan agreements will
mature in December 2011. The loan agreements contain customary financial
covenants and other restrictions. Except in certain
5
events
related to a change in control of Stratus, the loans may not be prepaid prior
to
December 31, 2007. Beginning on January 1, 2008, the loans may be prepaid
subject to certain reinvestment charges as further described in the related
promissory notes. The annual interest rate under the loan agreements is 6.915
percent. Repayments under the loan agreements can be accelerated upon the
occurrence of certain customary events of default. Stratus’ obligations under
the loan agreements are unsecured.
For
a
further discussion of Stratus’ debt see Note 4 of the Stratus 2006 Form
10-K.
|
4.
|
RESTRICTED
CASH, INTEREST COST AND STOCK-BASED
COMPENSATION
|
Restricted
Cash. Restricted cash totaled $0.1 million at June 30, 2007 and
December 31, 2006, primarily representing funds held for payment of fractional
shares resulting from the May 2001 stock split (see Note 6 of the Stratus 2006
Form 10-K).
Interest
Cost. Interest expense excludes capitalized interest of $0.7
million in the second quarter of 2007, $0.5 million in the second quarter of
2006, $1.3 million in the first six months of 2007 and $1.4 million in the
first
six months of 2006.
Stock-Based
Compensation. Stock-based compensation costs are capitalized as
appropriate. Compensation cost charged against earnings for stock-based awards
is shown below (in thousands).
|
Three
Months Ended
|
Six
Months Ended
|
|||||||||||
|
June
30,
|
June
30,
|
|||||||||||
|
2007
|
2006
|
2007
|
2006
|
|||||||||
|
Stock
options awarded to employees (including directors)
|
$
|
118
|
$
|
137
|
$
|
235
|
$
|
282
|
||||
|
Stock
options awarded to nonemployees
|
-
|
1
|
-
|
2
|
||||||||
|
Restricted
stock units
|
157
|
149
|
665
|
570
|
||||||||
|
Less
capitalized amounts
|
(43
|
)
|
(56
|
)
|
(141
|
)
|
(175
|
)
|
||||
|
Impact
on net income
|
$
|
232
|
$
|
231
|
$
|
759
|
$
|
679
|
||||
Stock
options representing 40,625 shares at a weighted average option price of $7.66
per share were exercised in the first six months of 2007. The tax benefit
realized for the tax deductions from stock option exercises totaled $0.7 million
for the six months ended June 30, 2007 and $0.6 million for the six months
ended
June 30, 2006. 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 32,500 shares for the six months ended June 30, 2007.
Stratus paid $0.1 million of employee taxes for stock options in the six months
ended June 30, 2007. Stratus granted 38,000 restricted stock units in the six
months ended June 30, 2007, at a grant date fair value of $1.3 million. For
more
information regarding Stratus’ stock-based awards see Notes 1 and 6 of the
Stratus 2006 Form 10-K.
|
5.
|
DISCONTINUED
OPERATIONS
|
Income
(loss) from discontinued operations reported in the condensed consolidated
statements of income included the following (in thousands):
|
Three
Months Ended
|
Six
Months Ended
|
|||||||||||
|
June
30,
|
June
30,
|
|||||||||||
|
2007
|
2006
|
2007
|
2006
|
|||||||||
|
Income
(loss) from discontinued operations:
|
||||||||||||
|
7500
Rialto Boulevard
|
$
|
48
|
$
|
(124
|
)
|
$
|
10
|
$
|
(248
|
)
|
||
|
7000
West
|
-
|
(486
|
)
|
-
|
7,701
|
|||||||
|
Total
|
$
|
48
|
$
|
(610
|
)
|
$
|
10
|
$
|
7,453
|
|||
7500
Rialto Boulevard. In the second quarter of 2007, Stratus committed to a
plan to sell its two 75,000-square-foot office buildings at 7500 Rialto
Boulevard. The results of operations, assets and liabilities of 7500 Rialto
Boulevard, which have been reclassified to discontinued operations in the
accompanying condensed consolidated financial statements, previously represented
a component of Stratus’ commercial leasing segment.
The
table
below provides a summary of 7500 Rialto Boulevard’s results of operations for
the three-month and six-month periods ended June 30, 2007 and 2006 (in
thousands):
6
|
Three
Months Ended
|
Six
Months Ended
|
|||||||||||
|
June
30,
|
June
30,
|
|||||||||||
|
2007
|
2006
|
2007
|
2006
|
|||||||||
|
Rental
income
|
$
|
693
|
$
|
354
|
$
|
1,325
|
$
|
694
|
||||
|
Rental
property costs
|
(459
|
)
|
(279
|
)
|
(908
|
)
|
(477
|
)
|
||||
|
Depreciation
|
(147
|
)
|
(148
|
)
|
(386
|
)
|
(295
|
)
|
||||
|
Interest
expensea
|
(10
|
)
|
(51
|
)
|
(13
|
)
|
(170
|
)
|
||||
|
Provision
for income taxes
|
(29
|
)
|
-
|
(8
|
)
|
-
|
||||||
|
Income
(loss) from discontinued operations
|
$
|
48
|
$
|
(124
|
)
|
$
|
10
|
$
|
(248
|
)
|
||
|
a.
|
Relates
to interest expense from 7500 Rialto Boulevard project loan and does
not
include any additional allocations of
interest.
|
The
following summarizes 7500 Rialto Boulevard’s net assets at June 30, 2007 and
December 31, 2006 (in thousands):
|
June
30, 2007
|
December
31, 2006
|
|||||
|
Assets:
|
||||||
|
Cash
and cash equivalents
|
$
|
24
|
$
|
39
|
||
|
Other
current assets
|
172
|
194
|
||||
|
Property
held for sale, net of accumulated
|
||||||
|
depreciation
of $2,542 and $2,156, respectively
|
18,065
|
18,445
|
||||
|
Other
long-term assets
|
1,382
|
1,306
|
||||
|
Liabilities:
|
||||||
|
Other
current liabilities
|
(428
|
)
|
(1,068
|
)
|
||
|
Other
long-term liabilities
|
(94
|
)
|
(94
|
)
|
||
|
Net
assets
|
$
|
19,121
|
$
|
18,822
|
||
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 Lantana, LP (CarrAmerica) for $22.3 million,
resulting in a gain of $9.8 million ($7.3 million net of taxes or $1.01 per
basic share and $0.96 per diluted share) in the first six months 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.
Upon
completion of the sale of 7000 West, Stratus ceased all involvement with the
7000 West office buildings. The results of operations, assets and liabilities
of
7000 West previously were reflected as a component of Stratus’ commercial
leasing segment.
The
table
below provides a summary of 7000 West’s results of operations for the
three-month and six-month periods ended June 30, 2006 (in
thousands):
|
Three
Months
|
Six
Months
|
|||||
|
Ended
|
Ended
|
|||||
|
June
30, 2006
|
June
30, 2006
|
|||||
|
Rental
income
|
$
|
-
|
$
|
1,057
|
||
|
Rental
property costs
|
-
|
(403
|
)
|
|||
|
General
and administrative expenses
|
-
|
(48
|
)
|
|||
|
Interest
expensea
|
-
|
(168
|
)
|
|||
|
Interest
income
|
-
|
2
|
||||
|
Gain
on sale
|
-
|
9,762
|
||||
|
Provision
for income taxes
|
(486
|
)b
|
(2,501
|
)
|
||
|
(Loss)
income from discontinued operations
|
$
|
(486
|
)
|
$
|
7,701
|
|
|
a.
|
Relates
to interest expense from 7000 West project loan and does not include
any
additional allocations of interest.
|
|
b.
|
Reflects
the allocation of Stratus’ second-quarter 2006 tax provision to
discontinued operations in accordance with income tax accounting
rules.
|
For
a
further discussion of Stratus’ discontinued operations see Note 7 of the Stratus
2006 Form 10-K.
Table of Contents
7
|
6.
|
BUSINESS
SEGMENTS
|
Stratus
has two operating segments, “Real Estate Operations” and “Commercial Leasing.”
The Real Estate Operations segment is comprised of all Stratus’ developed
properties, properties under development and undeveloped properties in Austin,
Texas, which consist of its properties in the Barton Creek community, the Circle
C community and Lantana. The Deerfield property in Plano, Texas is also included
in the Real Estate Operations segment.
The
Commercial Leasing segment includes the Escarpment Village project and the
two
office buildings at 7500 Rialto Boulevard. Rental income from Escarpment Village
totaled $0.9 million in the second quarter of 2007 and $1.8 million in the
first
six months of 2007, and $0.5 million in each of the 2006 periods. In the second
quarter of 2007, Stratus committed to a plan to sell its office buildings at
7500 Rialto Boulevard and their operating results are reported as discontinued
operations for the periods in the table shown below (see Note 5). Stratus sold
the two 70,000-square-foot office buildings at 7000 West in March 2006 and
their
operating results are reported as discontinued operations for the 2006 periods
(see Note 5).
Stratus’
lease agreement with the anchor tenant of Escarpment Village and its contract
with Trammell Crow Central Texas, Ltd. (Trammell Crow), the firm managing
Escarpment Village, contain provisions requiring Stratus to share the net
profits from a sale of the project. The anchor tenant and Trammell Crow are
each
entitled to 10 percent of any net profit from a sale of Escarpment Village
after
Stratus receives a 12 percent return on its investment. Stratus paid the anchor
tenant its net profits interest in December 2006 based upon a hypothetical
sale
at fair market value. Stratus is required to pay Trammell Crow its net profits
interest upon a sale of the project, but no later than May 2008. If the project
is not sold prior to the deadline, then the net profits calculation will be
made
based upon a hypothetical sale at fair market value. As of June 30, 2007,
Stratus estimates the net profit payment due Trammell Crow will total $0.7
million. The amount of the payment to the anchor tenant ($0.7 million) and
the
estimated payment to Trammell Crow are recorded in other assets and are being
amortized over the anchor tenant’s lease term (20 years) as a reduction of
rental income. The actual payment may vary from this amount and will be based
on
the actual sale price of Escarpment Village or the estimated fair value of
Escarpment Village, as applicable (see Note 9).
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 June 30, 2007
|
||||||||||||
|
Revenues
|
$
|
6,077
|
$
|
885
|
$
|
-
|
$
|
6,962
|
||||
|
Cost
of sales, excluding depreciation
|
(3,406
|
)
|
(856
|
)
|
-
|
(4,262
|
)
|
|||||
|
Depreciation
|
(38
|
)
|
(285
|
)
|
-
|
(323
|
)
|
|||||
|
General
and administrative expenses
|
(1,587
|
)
|
(259
|
)
|
-
|
(1,846
|
)
|
|||||
|
Operating
income (loss)
|
$
|
1,046
|
$
|
(515
|
)
|
$
|
-
|
$
|
531
|
|||
|
Income
from discontinued operations
|
$
|
-
|
$
|
48
|
$
|
-
|
$
|
48
|
||||
|
Provision
for income taxes
|
$
|
(65
|
)
|
$
|
-
|
$
|
-
|
$
|
(65
|
)
|
||
|
Capital
expenditures
|
$
|
7,967
|
$
|
212
|
$
|
-
|
$
|
8,179
|
||||
|
Total
assets
|
$
|
145,473
|
$
|
61,768
|
b
|
$
|
8,795
|
c
|
$
|
216,036
|
||
|
Three
Months Ended June 30, 2006
|
||||||||||||
|
Revenues
|
$
|
31,999
|
$
|
522
|
$
|
-
|
$
|
32,521
|
||||
|
Cost
of sales, excluding depreciation
|
(11,684
|
)
|
(299
|
)
|
-
|
(11,983
|
)
|
|||||
|
Depreciation
|
(34
|
)
|
(217
|
)
|
-
|
(251
|
)
|
|||||
|
General
and administrative expense
|
(1,694
|
)
|
(189
|
)
|
-
|
(1,883
|
)
|
|||||
|
Operating
income (loss)
|
$
|
18,587
|
$
|
(183
|
)
|
$
|
-
|
$
|
18,404
|
|||
|
Loss
from discontinued operations
|
$
|
-
|
$
|
(610
|
)
|
$
|
-
|
$
|
(610
|
)
|
||
|
Benefit
from income taxes
|
$
|
33
|
$
|
-
|
$
|
-
|
$
|
33
|
||||
|
Capital
expenditures
|
$
|
12,370
|
$
|
6,038
|
$
|
-
|
$
|
18,408
|
||||
|
Total
assets
|
$
|
126,117
|
$
|
52,882
|
b
|
$
|
8,150
|
c
|
$
|
187,149
|
||
8
|
Real
Estate Operationsa
|
Commercial
Leasing
|
Other
|
Total
|
|||||||||
|
(In
Thousands)
|
||||||||||||
|
Six
Months Ended June 30, 2007
|
||||||||||||
|
Revenues
|
$
|
10,724
|
$
|
1,812
|
$
|
-
|
$
|
12,536
|
||||
|
Cost
of sales, excluding depreciation
|
(4,989
|
)
|
(1,519
|
)
|
-
|
(6,508
|
)
|
|||||
|
Depreciation
|
(70
|
)
|
(553
|
)
|
-
|
(623
|
)
|
|||||
|
General
and administrative expenses
|
(3,308
|
)
|
(539
|
)
|
-
|
(3,847
|
)
|
|||||
|
Operating
income (loss)
|
$
|
2,357
|
$
|
(799
|
)
|
$
|
-
|
$
|
1,558
|
|||
|
Income
from discontinued operations
|
$
|
-
|
$
|
10
|
$
|
-
|
$
|
10
|
||||
|
Provision
for income taxes
|
$
|
(515
|
)
|
$
|
-
|
$
|
-
|
$
|
(515
|
)
|
||
|
Capital
expenditures
|
$
|
17,143
|
$
|
334
|
$
|
-
|
$
|
17,477
|
||||
|
Six
Months Ended June 30, 2006
|
||||||||||||
|
Revenues
|
$
|
43,302
|
$
|
569
|
$
|
-
|
$
|
43,871
|
||||
|
Cost
of sales, excluding depreciation
|
(19,231
|
)
|
(425
|
)
|
-
|
(19,656
|
)
|
|||||
|
Depreciation
|
(67
|
)
|
(223
|
)
|
-
|
(290
|
)
|
|||||
|
General
and administrative expense
|
(3,303
|
)
|
(319
|
)
|
-
|
(3,622
|
)
|
|||||
|
Operating
income (loss)
|
$
|
20,701
|
$
|
(398
|
)
|
$
|
-
|
$
|
20,303
|
|||
|
Income
from discontinued operations
|
$
|
-
|
$
|
7,453
|
d
|
$
|
-
|
$
|
7,453
|
|||
|
Benefit
from income taxes
|
$
|
8,293
|
$
|
-
|
$
|
-
|
$
|
8,293
|
||||
|
Capital
expenditures
|
$
|
18,409
|
$
|
6,134
|
$
|
-
|
$
|
24,543
|
||||
|
a.
|
Includes
sales commissions, management fees and other revenues together with
related expenses.
|
|
b.
|
Includes
assets from the discontinued operations of 7500 Rialto Boulevard,
which
Stratus currently has plans to sell, totaling $19.6 million, net
of
accumulated depreciation of $2.5 million, at June 30, 2007, and $16.4
million, net of accumulated depreciation of $1.7 million, at June
30, 2006
(see Note 5).
|
|
c.
|
Includes
deferred tax assets resulting from the reversal of a portion of Stratus’
deferred tax asset valuation allowance which was recorded as a benefit
from income taxes (see Note 7).
|
|
d.
|
Includes
a $7.3 million gain, net of taxes of $2.4 million, on the sale of
7000
West.
|
|
7.
|
INCOME
TAXES
|
Stratus’
deferred tax assets at December 31, 2005 totaled $19.5 million. At the time,
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 March 2006, Stratus sold
7000 West (see Note 5) and in April 2006, Stratus completed the sale of 58
acres
at Lantana. These transactions generated pre-tax income of approximately $26
million and, along with Stratus’ current homebuilder contract arrangements and
projected levels of future sales, provide sufficient evidence that Stratus
will
more likely than not be able to realize all of its deferred tax assets. As
a
result, income from continuing operations for the first six months of 2006
included an $8.3 million, $1.14 per basic share and $1.08 per diluted share,
tax
benefit resulting from the reversal of a portion of our deferred tax asset
valuation allowance. Stratus’ provision for income taxes for the six months
ended June 30, 2007 totaled $0.5 million, $0.07 per share.
Effective
January 1, 2007, Stratus adopted Financial Accounting Standards Board (FASB)
Interpretation No. 48 “Accounting for Uncertainty in Income Taxes” (FIN 48). FIN
48 clarifies the accounting for income taxes by prescribing the minimum
recognition threshold a tax position is required to meet before being recognized
in the financial statements. FIN 48 also provides guidance on derecognition,
measurement, classification, interest and penalties, accounting in interim
periods, disclosure and transition issues. The adoption of FIN 48 had no
material effect on Stratus’ financial statements. Stratus will recognize
interest accrued related to unrecognized tax benefits in interest expense and
penalties in non-operating expenses.
Stratus
files income tax returns in the U.S. federal jurisdiction and various state
and
local jurisdictions. With few exceptions, Stratus is no longer subject to U.S.
federal or state and local income tax examinations by tax authorities for the
years prior to 2003. Recently, the Texas Comptroller of Public Accounts (the
Comptroller) notified Stratus of their plan to conduct a routine audit of
Stratus’ Texas Franchise Tax account. Stratus anticipates that the Comptroller
will complete this examination by the end of 2007. Stratus does not anticipate
that adjustments resulting from this examination, if any, would result in a
material change to its financial position or results of operations.
Table of Contents
9
|
8.
|
NEW
ACCOUNTING STANDARDS
|
In
September 2006, the FASB issued Statement of Financial Accounting Standards
(SFAS) No. 157, “Fair Value Measurements.” SFAS No. 157 establishes a framework
for measuring fair value in generally accepted accounting principles (GAAP),
clarifies the definition of fair value within that framework, and expands
disclosures about the use of fair value measurements. In many of its
pronouncements, the FASB has previously concluded that fair value information
is
relevant to the users of financial statements and has required (or permitted)
fair value as a measurement objective. However, prior to the issuance of this
statement, there was limited guidance for applying the fair value measurement
objective in GAAP. This statement does not require any new fair value
measurements in GAAP. SFAS No. 157 is effective for fiscal years beginning
after
November 15, 2007, with early adoption allowed. Stratus is still reviewing
the
provisions of SFAS No. 157 and has not determined the impact of
adoption.
In
February 2007, the FASB issued SFAS No. 159 “The Fair Value Option for Financial
Assets and Liabilities – Including an amendment of FASB No.
115.” SFAS No. 159 permits entities to choose to measure many
financial instruments and certain other items at fair value. This statement
is
effective for fiscal years beginning after November 15, 2007, with early
adoption allowed. Stratus has not yet determined the impact, if any, that
adopting this standard might have on its financial statements.
|
9.
|
SUBSEQUENT
EVENT
|
In
July
2007, through an unsolicited offer, Christopher Investment Company, Inc.
initiated discussions with Stratus regarding a potential sale of Escarpment
Village. Escarpment Village is a component of Stratus’ commercial leasing
segment. Effective July 19, 2007, Stratus’ wholly owned subsidiary, Escarpment
Village, L.P., entered into a Purchase and Sale Agreement (the Agreement) with
Christopher Investment Company, Inc. (the Purchaser), under which Stratus agreed
to sell Escarpment Village for approximately $46.6 million. The Purchaser has
deposited $500,000 in an escrow account, which will be credited to the purchase
price payable at closing. Both parties have agreed to a review period during
which the Purchaser has the right to inspect the property and conduct due
diligence and may elect to terminate the Agreement. The Agreement contains
customary covenants, representations and warranties. Subject to customary
closing conditions, including the Purchaser’s assumption of Stratus’ $22.8
million loan from TIAA, the sale is expected to close by the fourth quarter
of
2007. The $500,000 escrow deposit is refundable during the review period and
in
the event TIAA fails to approve the Purchaser’s assumption of the TIAA loan.
The
sale of this property is subject to the Agreement; and except for the activities
related to the Agreement, Stratus is not marketing the sale of Escarpment
Village.
Table of Contents
10
The
financial information as of June 30, 2007, and for the three-month and six-month
periods ended June 30, 2007 and 2006, 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 June 30, 2007 and the related
condensed consolidated statements of income for each of the three-month and
six-month periods ended June 30, 2007 and 2006 and the condensed consolidated
statements of cash flows for the six-month periods ended June 30, 2007
and 2006. These interim financial statements are the responsibility of the
Company’s management.
We
conducted our review in accordance with the standards of the Public Company
Accounting Oversight Board (United States). A review of interim financial
information consists principally of applying analytical procedures and making
inquiries of persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance with the
standards of the Public Company Accounting Oversight Board (United States),
the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an
opinion.
Based
on
our review, we are not aware of any material modifications that should be made
to the accompanying condensed consolidated interim financial statements for
them to be in conformity with accounting principles
generally accepted in the United States of America.
We
previously audited in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the consolidated balance sheet
as of
December 31, 2006, and the related consolidated statements of income, of changes
in stockholders’ equity and of cash flows for the year then ended (not presented
herein), and in our report dated March 15, 2007, we expressed an unqualified
opinion on those consolidated financial statements with an explanatory paragraph
for the Company’s change in accounting for stock-based compensation. In our
opinion, the information set forth in the accompanying condensed consolidated
balance sheet information as of December 31, 2006, is fairly stated in all
material respects in relation to the consolidated balance sheet from which
it
has been derived.
/s/
PricewaterhouseCoopers LLP
Austin,
Texas
August
8,
2007
11
OVERVIEW
Management’s
discussion and analysis presented below should be read in conjunction with
our
discussion and analysis of financial results contained in our 2006 Annual Report
on Form 10-K (2006 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 Condensed 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
June 30, 2007, our most significant holding is the 1,728 acres of residential,
multi-family and commercial property and 27 developed residential estate lots
located within the Barton Creek community. We also own approximately 350 acres
of undeveloped commercial property and approximately 36 acres of commercial
property under development within the Circle C Ranch (Circle C) community.
Our
other properties in the Circle C community currently 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 June 30,
2007,
Meridian consisted of approximately 282 acres and 40 developed residential
lots.
Our remaining Austin holdings at June 30, 2007, consisted of 223 acres of
commercial property and two 75,000-square-foot office buildings at 7500 Rialto
Boulevard located in Lantana. In the second quarter of 2007, we committed to
a
plan to sell the office buildings at 7500 Rialto Boulevard and we have reported
its assets, liabilities and results of operations as discontinued
operations.
At
June
30, 2007, our Deerfield property, which is located in Plano, Texas, consists
of
approximately eight acres of residential land, which is being developed, and
34
developed residential lots. We also own two acres of undeveloped commercial
property in San Antonio, Texas.
In
November 2005, we formed a joint venture 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. The property, known as Crestview Station, is a single-family,
multi-family, retail and office development. With Trammell Crow, we have
commenced brown field remediation and permitting of the property.
In
December 2006, we acquired a city block in downtown Austin for $15.1 million.
The project, known as Block 21, is planned for a mixture of retail, hotel,
residential, and entertainment uses on approximately two acres as more fully
discussed in “Development and Other Activities.”
BUSINESS
STRATEGY
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
of
Austin (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
12
opportunities,
and believe we can obtain bank financing for developing our properties at a
reasonable cost. See “Risk Factors” located in Item 1A. of our 2006 Form
10-K.
As
previously announced, we were exploring strategic alternatives for enhancing
shareholder value, including a possible sale of the company. We retained
JPMorgan as our financial advisor to assist in this process. We have terminated
the process of exploring the possible sale of the company but expect to continue
to review various alternatives to enhance shareholder value.
DEVELOPMENT
AND OTHER ACTIVITIES
Block
21. 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 planned for a mixture
of retail, hotel, residential and entertainment uses. In December 2006, we
acquired the property for $15.1 million. We have executed agreements with
Starwood Hotels & Resorts Worldwide, Inc. for the development of a W Hotel
and Residences on the site. In addition, we have agreements for the new studio
for KLRU’s “Austin City Limits” program and for the Austin Children’s Museum. On
May 8, 2007, Stratus announced its partnership with Canyon-Johnson Urban Fund
II, L.P., a joint venture between the Los Angeles-based Canyon Capital Realty
Advisors and Earvin "Magic" Johnson, for the development of Block 21. We have
begun the permitting process with the City and expect construction to begin
by
the fourth quarter of 2007.
Lantana. Lantana
is a partially developed, mixed-use project with remaining entitlements for
approximately 1.0 million square feet of office and retail use on 223 acres
as
of June 30, 2007. Regional utility and road infrastructure is in place with
capacity to serve Lantana at full build-out permitted under our existing
entitlements.
In
September 2006, we completed a second 75,000-square-foot office building at
7500
Rialto Boulevard in response to increased demand for office space within
Lantana. As of June 30, 2007, we had leased approximately 50 percent of the
space at the second office building and approximately 96 percent of the original
office building. In the second quarter of 2007, we committed to a plan to sell
the office buildings at 7500 Rialto Boulevard and we have reported its assets,
liabilities and results of operations as discontinued operations. We sold our
two 7000 West office buildings in March 2006 (see Note 5).
Barton
Creek Community. 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 June 30, 2007, our remaining unsold
developed lots within the Barton Creek Community included: Calera
Drive – 8 lots, Wimberly Lane Phase II – 8 lots, Calera Court – 8 lots and
Mirador – 3 lots. Development of the remaining Barton Creek property is expected
to occur over several years.
In
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. 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.
During
2004, we began construction of courtyard homes at Calera Court within the Barton
Creek community. Calera Court, the initial phase of the “Calera” subdivision,
will include 16 homesites 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
lots were sold. As of June 30, 2007, only 8 lots remained unsold at Calera
Drive. Development of the final phase, known as Verano Drive, will include
71
single-family lots. Construction of the final phase of Calera began in the
first
quarter of 2007 and is scheduled for completion in December 2007.
Table of Contents
13
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, as amended in 2004, permits development of 1.16
million square feet of commercial space, 504 multi-family units and 830 single
family residential lots. Meridian is an 800-lot residential development at
the
Circle C community. In January 2005, the first phase of construction commenced.
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 and second phases each consisted of 134 lots. The first phase was
substantially completed at the end of 2005. Development of the second phase
commenced in the third quarter of 2005 and was substantially completed in March
2006. Development of the 108-lot third phase of Meridian has commenced and
is
expected to be completed by September 2007. The 118-lot fourth phase will
commence by the end of 2007 and completion is expected in 2008.
In
2006,
we signed another contract with a national homebuilder for 42 additional lots.
Development of those lots commenced in April 2007 and substantial completion
is
expected in November 2007. Development of the final phase of Meridian, which
consists of 57 one-acre lots, is expected to commence in 2008.
We
estimate our sales from the first two phases of Meridian will total at least
26
lots for $1.8 million during the third quarter of 2007.
The
grand
opening of Escarpment Village, a 168,000-square-foot retail project anchored
by
a grocery store at the Circle C community, was in May 2006. As of June 30,
2007,
we had leases for approximately 151,600 square feet or 90 percent of the space
at Escarpment Village. In July 2007, through an unsolicited offer, Christopher
Investment Company, Inc. initiated discussions with us regarding a potential
sale of Escarpment Village. Escarpment Village is a component of our commercial
leasing segment. Effective July 19, 2007, our wholly owned subsidiary,
Escarpment Village, L.P., entered into a Purchase and Sale Agreement (the
Agreement) with Christopher Investment Company, Inc. (the Purchaser), under
which we have agreed to sell Escarpment Village for approximately $46.6 million.
The Purchaser has deposited $500,000 in an escrow account, which will be
credited to the purchase price payable at closing. Both parties have agreed
to a
review period during which the Purchaser has the right to inspect the property
and conduct due diligence and may elect to terminate the Agreement. The
Agreement contains customary covenants, representations and warranties. Subject
to customary closing conditions, including the Purchaser’s assumption of our
$22.8 million loan from Teachers Insurance and Annuity Association of America
(TIAA), the sale is scheduled to close by the fourth quarter of 2007. The
$500,000 escrow deposit is refundable during the review period and in the event
TIAA fails to approve the Purchaser’s assumption of the TIAA loan. The
sale
of this property is subject to the Agreement; and except for activities related
to the Agreement, we are not marketing the sale of Escarpment
Village.
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. We executed agreements with a national homebuilder,
whereby 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. 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. 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 15 lot sales for
$1.0 million to be completed during the third quarter of 2007.
Crestview
Station. In November 2005, we formed a joint venture 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
Trammell Crow, we have commenced brown field remediation and permitting of
the
property, known as Crestview Station, which is located on the commuter rail
line
approved by City of Austin voters. Crestview Station is planned for
single-family, multi-family and retail development, with closings on the
single-family and multi-family components and portions of the retail component
expected to occur in 2007, subject to completion of the remediation process.
At
June 30, 2007, our investment in
14
the
Crestview Station project totaled $3.8 million and the joint venture partnership
had $7.6 million of outstanding debt, of which each joint venture partner
guarantees $1.9 million.
Our
joint
venture partnership has contracted with a nationally recognized remediation
firm
to demolish the existing buildings and remediate the property in preparation
for
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 maintain 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.
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.
Summary
operating results follow (in thousands):
|
Second
Quarter
|
Six
Months
|
|||||||||||
|
2007
|
2006
|
2007
|
2006
|
|||||||||
|
Revenues:
|
||||||||||||
|
Real
estate operations
|
$
|
6,077
|
$
|
31,999
|
$
|
10,724
|
$
|
43,302
|
||||
|
Commercial
leasing
|
885
|
522
|
1,812
|
569
|
||||||||
|
Total
revenues
|
$
|
6,962
|
$
|
32,521
|
$
|
12,536
|
$
|
43,871
|
||||
|
Operating
income
|
$
|
531
|
$
|
18,404
|
$
|
1,558
|
$
|
20,303
|
||||
|
(Provision
for) benefit from income taxes
|
$
|
(65
|
)
|
$
|
33
|
$
|
(515
|
)
|
$
|
8,293
|
||
|
Income
from continuing operations
|
$
|
193
|
$
|
18,385
|
$
|
969
|
$
|
28,498
|
||||
|
Income
(loss) from discontinued operations
|
48
|
(610
|
)
|
10
|
7,453
|
|||||||
|
Net
income
|
$
|
241
|
$
|
17,775
|
$
|
979
|
$
|
35,951
|
||||
Our
deferred tax assets at December 31, 2005 totaled $19.5 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 March 2006, we sold 7000 West (see Note 5) and
in
April 2006, we completed the sale of 58 acres at our Lantana property. These
transactions generated pre-tax income of approximately $26 million and, along
with our current homebuilder contract arrangements and projected levels of
future sales, provide sufficient evidence that we will more likely than not
be
able to realize all of our deferred tax assets. As a result, income from
continuing operations for the first six months of 2006 included an $8.3 million,
$1.14 per basic share and $1.08 per diluted share, tax benefit resulting from
the reversal of a portion of our deferred tax asset valuation
allowance.
We
have
two operating segments, “Real Estate Operations” and “Commercial Leasing” (see
Note 6). The following is a discussion of our operating results by
segment.
Real
Estate Operations
|
Second
Quarter
|
Six
Months
|
|||||||||||
|
2007
|
2006
|
2007
|
2006
|
|||||||||
|
Revenues:
|
||||||||||||
|
Developed
property sales
|
$
|
5,317
|
$
|
10,969
|
$
|
8,660
|
$
|
20,507
|
||||
|
Undeveloped
property sales
|
-
|
20,745
|
1,083
|
22,245
|
||||||||
|
Commissions,
management fees and other
|
760
|
285
|
981
|
550
|
||||||||
|
Total
revenues
|
6,077
|
31,999
|
10,724
|
43,302
|
||||||||
|
Cost
of sales, including depreciation
|
(3,444
|
)
|
(11,718
|
)
|
(5,059
|
)
|
(19,298
|
)
|
||||
|
General
and administrative expenses
|
(1,587
|
)
|
(1,694
|
)
|
(3,308
|
)
|
(3,303
|
)
|
||||
|
Operating
income
|
$
|
1,046
|
$
|
18,587
|
$
|
2,357
|
$
|
20,701
|
||||
Developed
Property Sales. Property sales for the second-quarter and
six-month periods of 2007 and 2006 included the following (revenues in
thousands):
|
Second
Quarter
|
||||||||
|
2007
|
2006
|
|||||||
|
Lots
|
Revenues
|
Lots
|
Revenues
|
|||||
|
Residential
Properties:
|
||||||||
|
Barton
Creek
|
||||||||
|
Calera
Drive
|
2
|
$809
|
12
|
$4,952
|
||||
|
Mirador
Estate
|
2
|
1,559
|
3
|
1,688
|
||||
|
Wimberly
Lane Phase II
|
||||||||
|
Standard
Homebuilder Estate
|
3
|
522
|
3
|
482
|
||||
|
Circle
C
|
||||||||
|
Meridian
|
20
|
1,423
|
43
|
2,504
|
||||
|
Deerfield
|
15
|
1,004
|
20
|
1,343
|
||||
|
Total
Residential
|
42
|
$5,317
|
81
|
$10,969
|
||||
|
Six
Months
|
||||||||
|
2007
|
2006
|
|||||||
|
Lots
|
Revenues
|
Lots
|
Revenues
|
|||||
|
Residential
Properties:
|
||||||||
|
Barton
Creek
|
||||||||
|
Calera
Drive
|
2
|
$809
|
18
|
$7,854
|
||||
|
Calera
Court Courtyard Homes
|
-
|
-
|
4
|
2,312
|
||||
|
Mirador
Estate
|
2
|
1,559
|
5
|
2,753
|
||||
|
Wimberly
Lane Phase II
|
||||||||
|
Standard
Homebuilder Estate
|
6
|
1,045
|
5
|
783
|
||||
|
Circle
C
|
||||||||
|
Meridian
|
48
|
3,239
|
82
|
4,791
|
||||
|
Deerfield
|
30
|
2,008
|
30
|
2,014
|
||||
|
Total
Residential
|
88
|
$8,660
|
144
|
$20,507
|
||||
Undeveloped
Property Sales. We sold a five-acre tract at Circle C for $1.1
million during the first quarter of 2007 and a 7.5-acre tract in the Barton
Creek community for $1.5 million during the first quarter of 2006. In April
2006, we sold a 58-acre tract at Lantana for $21.2 million of which $0.5 million
represented a reimbursement of certain costs and we recorded this amount as
a
reduction of cost of sales.
16
Commissions,
Management Fees and Other. Commissions, management fees and
other revenues increased in the 2007 periods compared to the 2006 periods
primarily because of the increase in sales activity and related commissions
received by our wholly owned subsidiary, Avalon Realty.
Cost
of Sales. Cost of sales for the first six months of 2007
included reductions totaling $1.7 million for Barton Creek Municipal Utility
District (MUD) reimbursements. Cost of sales for the 2007 periods also decreased
compared to the 2006 periods primarily because of a decrease in developed
property sales in the 2007 periods.
Commercial
Leasing
Our
commercial leasing operating results primarily reflect the activities at
Escarpment Village. In the second quarter of 2007, we committed to a plan to
sell the office buildings at 7500 Rialto Boulevard. The results for 7500 Rialto
Boulevard are classified as discontinued operations for the 2007 and 2006
periods and the results for 7000 West which was sold in March 2006 are
classified as discontinued operations for the 2006 periods (see below). Summary
commercial leasing operating results follow (in thousands):
|
Second
Quarter
|
Six
Months
|
|||||||||||
|
2007
|
2006
|
2007
|
2006
|
|||||||||
|
Rental
income
|
$
|
885
|
$
|
522
|
$
|
1,812
|
$
|
569
|
||||
|
Rental
property costs
|
(856
|
)
|
(299
|
)
|
(1,519
|
)
|
(425
|
)
|
||||
|
Depreciation
|
(285
|
)
|
(217
|
)
|
(553
|
)
|
(223
|
)
|
||||
|
General
and administrative expenses
|
(259
|
)
|
(189
|
)
|
(539
|
)
|
(319
|
)
|
||||
|
Operating
loss
|
$
|
(515
|
)
|
$
|
(183
|
)
|
$
|
(799
|
)
|
$
|
(398
|
)
|
In
January 2006, we began earning rental income (less than $0.1 million for the
first quarter of 2006) from Escarpment Village. The grand opening of the
Escarpment Village shopping center occurred on May 12, 2006. Rental income
for
Escarpment totaled $0.9 million in the second quarter of 2007 and $1.8 million
in the first six months of 2007, and $0.5 million in each of the 2006
periods.
Other
Financial Results
General
and administrative expenses increased to $3.8 million in the first six months
of
2007 from $3.6 million in the first six months of 2006, primarily because of
higher compensation costs.
Non-Operating
Results
Interest
income totaled $0.6 million in the first six months of 2007, compared with
$0.2
million in the first six months of 2006, primarily reflecting interest on MUD
reimbursements totaling approximately $0.5 million in the first quarter of
2007.
DISCONTINUED
OPERATIONS
In
the
second quarter of 2007, we committed to a plan to sell the office buildings
at
7500 Rialto Boulevard and we have reported its assets, liabilities and
operations as discontinued operations
In
September 2006, we completed a second 75,000-square-foot office building at
7500
Rialto Boulevard in response to increased demand for office space within
Lantana. As of June 30, 2007, we had leased approximately 50 percent of the
space at the second office building and approximately 96 percent of the original
office building. We earned rental income of $0.7 million in the second quarter
of 2007, $0.4 million in the second quarter of 2006, $1.3 million in the first
six months of 2007 and $0.7 million in the first six months of
2006.
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 gain of $9.8 million
($7.3 million net of taxes or $1.01 per basic share and $0.96 per diluted share)
in the first six months 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.
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.
Table of Contents
17
We
earned
rental income of $1.1 million in the first six months of 2006 from the two
fully
leased office buildings at 7000 West.
Our
discontinued operations generated net income (losses) of less than $0.1 million
in the second quarter of 2007, $(0.6) million in the second quarter of 2006,
$10,000 in the first six months of 2007 and $7.5 million, including a $7.3
million gain net of taxes on the 7000 West sale, in the first six months of
2006.
CAPITAL
RESOURCES AND LIQUIDITY
Comparison
of Six-Months 2007 and 2006 Cash Flows
Operating
activities provided cash of $5.3 million during the first six months of 2007
and
$36.9 million during the first six months of 2006, including cash used in
discontinued operations totaling $0.3 million during the 2007 period and cash
provided by discontinued operations totaling $1.9 million during the 2006
period. Compared to the 2006 period, operating cash flows in the first six
months of 2007 were reduced primarily because of the decrease in sales
activities.
Cash
used
in investing activities totaled $14.9 million during the first six months of
2007 and cash used in investing activities totaled $13.2 million during the
first six months of 2006. We received Barton Creek municipal utility district
reimbursements totaling $2.6 million in the first six months of 2007 and $1.3
million in the first six months of 2006. The 2006 six-month period included
$10.0 million received from the sale of 7000 West (see “Discontinued
Operations”) partly offset by $6.0 million of capital expenditures on the second
building that was under construction at 7500 Rialto Boulevard. Other real estate
expenditures for the six-month periods of 2007 and 2006 included development
costs for properties in the Barton Creek and Circle C communities (see
“Development and Other Activities”).
Financing
activities provided cash of $12.3 million during the first six months of 2007,
compared to $15.0 million of cash used in financing activities during the first
six months of 2006. Our financing activities in the first six months of 2007
include $15.0 million of borrowings under our three new unsecured term loans,
$3.0 million of net repayments on our revolving line of credit and $0.2 million
of mortgage payments on our TIAA loan. In the first quarter of 2007, we also
used $0.2 million to repurchase shares of our common stock on the open market
(see below). During the first six months of 2006, our financing activities
included $13.0 million of net repayments on our revolving line of credit, $22.8
million of borrowings under our TIAA loan and $18.2 million of net repayments
on
our project construction loans. See “Credit Facility and Other Financing
Arrangements” below for a discussion of our outstanding debt at June 30,
2007.
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 2007, we
purchased 4,400 shares for $0.2 million, a $34.85 per share average. A total
of
465,410 shares remain available under this program. Our loan agreement with
Comerica provides a limit of $6.5 million for common stock purchases after
September 30, 2005 of which $5.7 million is available at June 30, 2007. The
timing of future purchases of our common stock is dependent on many factors
including the price of our common shares, our cash flows and financial position,
and general economic and market conditions.
Credit
Facility and Other Financing Arrangements
At
June
30, 2007, we had total debt of $62.5 million, including $0.3 million of current
debt, compared to total debt of $50.7 million, including $0.3 million of current
debt, at December 31, 2006. Our debt outstanding at June 30, 2007 consisted
of
the following:
|
·
|
$40.0
million of borrowings outstanding under seven unsecured term loans,
including two $5.0 million loans, two $8.0 million loans, a $7.0
million
loan and two $3.5 million loans, all of which will mature in December
2011.
|
|
·
|
$22.5
million related to the mortgage from TIAA associated with the Escarpment
Village shopping center, which matures in July
2016.
|
On
June
1, 2007, we entered into three separate loan agreements with First American
Asset Management (FAAM). Pursuant to the loan agreements, additional borrowings
totaled $15.0 million, $10.6 million of which was used to pay down the
outstanding amounts under our revolving credit facility with Comerica Bank,
and
the remainder will be used for operations, capital expenditures and other
development costs, including the Block 21 Project. The loan agreements will
mature in December 2011.
Table of Contents
18
The
loan
agreements contain customary financial covenants and other restrictions. Except
in certain events related to a change in control, the loans may not be prepaid
prior to December 31, 2007. Beginning on January 1, 2008, the loans may be
prepaid subject to certain reinvestment charges as further described in the
related promissory notes. The annual interest rate under the loan agreements
is
6.915 percent. Repayments under the loan agreements can be accelerated upon
the
occurrence of certain customary events of default. Our obligations under the
loan agreements are unsecured.
For
a
further discussion of our debt see Note 4 of our 2006 Form 10-K.
STOCK
BASED COMPENSATION
Effective
January 1, 2006, we adopted the fair value recognition provisions of Statement
of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment”
or (SFAS No. 123R), using the modified prospective transition method. For more
information regarding our accounting for stock-based awards see Note 1 of our
2006 Form 10-K.
Compensation
cost charged against earnings for stock-based awards is shown below (in
thousands). We capitalized less than $0.1 million of stock-based compensation
costs to fixed assets in the second quarter of 2007 and $0.1 million in the
second quarter of 2006, $0.1 million in the 2007 six-month period and $0.2
million in the 2006 six-month period.
|
Three
Months Ended
|
Six
Months Ended
|
|||||||||||
|
June
30,
|
June
30,
|
|||||||||||
|
2007
|
2006
|
2007
|
2006
|
|||||||||
|
Cost
of sales
|
$
|
89
|
$
|
62
|
$
|
292
|
$
|
195
|
||||
|
General
and administrative expenses
|
143
|
169
|
467
|
484
|
||||||||
|
Total
stock-based compensation cost
|
$
|
232
|
$
|
231
|
$
|
759
|
$
|
679
|
||||
CAUTIONARY
STATEMENT
Management’s
Discussion and Analysis of Financial Condition and Results of Operation and
Disclosures about Market Risks contains forward-looking statements regarding
future reimbursements for infrastructure costs, 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 2006 Form 10-K.
There
have been no significant changes in our market risks since the year ended
December 31, 2006. 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, 2006.
(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 second quarter that
has materially affected, or is reasonably likely to materially affect our
internal control over financial reporting.
19
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, 2006. For more information, please read Item 1A included in our Form 10-K
for the year ended December 31, 2006.
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. At June 30,
2007, $5.7 million remains under the Comerica agreement for purchases of common
stock.
The
exhibits to this report are listed in the Exhibit Index beginning on page E-1
hereof.
Instruments
with respect to other long-term debt of Stratus and its consolidated
subsidiaries are omitted pursuant to Item 601(b)(4)(iii) of Regulation S-K
since
the total amount authorized under each such omitted instrument does not exceed
10 percent of the total assets of Stratus and its subsidiaries on a consolidated
basis. Stratus hereby agrees to furnish a copy of any such instrument to the
Securities and Exchange Commission upon request.
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant
has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
STRATUS
PROPERTIES INC.
By:
/s/ John E. Baker
John E. Baker
Senior Vice President and
Chief
Financial Officer
(authorized signatory and
Principal Financial Officer)
STRATUS
PROPERTIES INC.
Exhibit
Number
|
3.1
|
Amended
and Restated Certificate of Incorporation of Stratus. Incorporated
by
reference to Exhibit 3.1 to the Quarterly Report on Form 10-Q of
Stratus
for the quarter ended March 31, 2004 (Stratus’ 2004 First Quarter Form
10-Q).
|
|
3.2
|
Certificate
of Amendment to the Amended and Restated Certificate of Incorporation
of
Stratus, dated May 14, 1998. Incorporated by reference to Exhibit
3.2 to
Stratus’ 2004 First Quarter Form 10-Q.
|
|
3.3
|
Certificate
of Amendment to the Amended and Restated Certificate of Incorporation
of
Stratus, dated May 25, 2001. Incorporated by reference to Exhibit
3.2 to
the Annual Report on Form 10-K of Stratus for the 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
|
Modification
and Extension 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 effective
July 19,
2006. Incorporated by reference to Exhibit 10.1 to the Current Report
on
Form 8-K of Stratus dated July 19, 2006.
|
|
10.2
|
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.
|
|
10.3
|
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.
|
|
10.4
|
Loan
Agreement dated December 28, 2000, by and between Stratus Properties
Inc.
and Holliday Fenoglio 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 year ended
December 31, 2000.
|
|
10.5
|
Loan
Agreement dated June 14, 2001, by and between Stratus Properties
Inc. and
Holliday Fenoglio 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.
|
|
10.6
|
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.
|
|
10.7
|
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 the Quarterly Report
on Form
10-Q of Stratus for the quarter ended March 31,
2003.
|
E-1
|
10.8
|
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
year
ended December 31, 2003 (Stratus’ 2003 Form 10-K).
|
|
10.9
|
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.
|
|
10.10
|
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 the Quarterly Report on Form 10-Q of Stratus for
the
quarter ended September 30, 2003.
|
|
10.11
|
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.
|
|
10.12
|
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.
|
|
10.13
|
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. Incorporated by reference to Exhibit 10.12 to
the
Quarterly Report on Form 10-Q of Stratus for the quarter ended March
31,
2006 (Stratus’ 2006 First Quarter Form 10-Q).
|
|
10.14
|
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. Incorporated by reference to Exhibit
10.13 to Stratus’ 2006 First Quarter Form 10-Q.
|
|
10.15
|
Deed
of Trust, Assignment of Leases and Rents, Security Agreement and
Fixture
Filing dated as of June 30, 2006, by and among Escarpment Village,
L.P.
and Teachers Insurance and Annuity Association of America. Incorporated
by
reference to Exhibit 10.15 to the Quarterly Report on Form 10-Q of
Stratus
for the quarter ended June 30, 2006 (Stratus’ 2006 Second Quarter Form
10-Q).
|
|
10.16
|
Promissory
Note dated as of June 30, 2006, by and between Escarpment Village,
L.P.
and Teachers Insurance and Annuity Association of America. Incorporated
by
reference to Exhibit 10.16 to Stratus’ 2006 Second Quarter Form
10-Q.
|
|
10.17
|
Amended
and Restated Loan Agreement between Stratus Properties Inc. and American
Strategic Income Portfolio Inc.-II dated as of December 12, 2006.
Incorporated by reference to Exhibit 10.17 to the Annual Report on
Form
10-K of Stratus for the year ended December 31, 2006 (Stratus’ 2006 Form
10-K).
|
|
10.18
|
Amended
and Restated Loan Agreement between Stratus Properties Inc. and American
Select Portfolio Inc. dated as of December 12, 2006. Incorporated
by
reference to Exhibit 10.18 to Stratus’ 2006 Form 10-K.
|
|
10.19
|
Loan
Agreement between Stratus Properties Inc. and Holliday Fenoglio Fowler,
L.P. dated as of December 12, 2006. Incorporated by reference to
Exhibit
10.19 to Stratus’ 2006 Form 10-K.
|
|
10.20
|
Loan
Agreement between Stratus Properties Inc. and Holliday Fenoglio Fowler,
L.P. dated as of December 12, 2006. Incorporated by reference to
Exhibit
10.20 to Stratus’ 2006 Form 10-K.
|
E-2
|
Letter
Agreement between Stratus Properties Inc. and Canyon-Johnson Urban
Fund
II, L.P., dated as of May 4, 2007.
|
|
|
Loan
Agreement between Stratus Properties Inc. and Holliday Fenoglio Fowler,
L.P. dated as of June 1, 2007, subsequently assigned to American
Select
Portfolio Inc., an affiliate of First American Asset
Management.
|
|
|
Loan
Agreement between Stratus Properties Inc. and Holliday Fenoglio Fowler,
L.P. dated as of June 1, 2007, subsequently assigned to American
Strategic
Income Portfolio Inc., an affiliate of First American Asset
Management.
|
|
|
Loan
Agreement between Stratus Properties Inc. and Holliday Fenoglio Fowler,
L.P. dated as of June 1, 2007, subsequently assigned to American
Strategic
Income Portfolio Inc.-III, an affiliate of First American Asset
Management.
|
|
|
Executive
Compensation Plans and Arrangements (Exhibits 10.25 through
10.36)
|
|
|
10.25
|
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.
|
|
10.26
|
Stratus
Properties Inc. Stock Option Plan, as amended and restated. Incorporated
by reference to Exhibit 10.22 to the Quarterly Report on Form 10-Q
of
Stratus for the quarter ended March 31, 2007 (Stratus’ 2007 First Quarter
Form 10-Q).
|
|
10.27
|
Stratus
Properties Inc. 1996 Stock Option Plan for Non-Employee Directors,
as
amended and restated. Incorporated by reference to Exhibit 10.23
to
Stratus’ 2007 First Quarter Form 10-Q.
|
|
10.28
|
Stratus
Properties Inc. 1998 Stock Option Plan, as amended and restated.
Incorporated by reference to Exhibit 10.24 to Stratus’ 2007 First Quarter
Form 10-Q.
|
|
10.29
|
Form
of Notice of Grant of Nonqualified Stock Options under the 1998 Stock
Option Plan. Incorporated by reference to Exhibit 10.24 to the Quarterly
Report on Form 10-Q of Stratus for the quarter ended June 30, 2005
(Stratus’ 2005 Second Quarter Form 10-Q).
|
|
10.30
|
Form
of Restricted Stock Unit Agreement under the 1998 Stock Option Plan.
Incorporated by reference to Exhibit 10.26 to Stratus’ 2007 First Quarter
Form 10-Q.
|
|
10.31
|
Stratus
Properties Inc. 2002 Stock Incentive Plan, as amended and restated.
Incorporated by reference to Exhibit 10.27 to Stratus’ 2007 First Quarter
Form 10-Q.
|
|
10.32
|
Form
of Notice of Grant of Nonqualified Stock Options under the 2002 Stock
Incentive Plan. Incorporated by reference to Exhibit 10.27 to Stratus’
2005 Second Quarter Form 10-Q.
|
|
10.33
|
Form
of Restricted Stock Unit Agreement under the 2002 Stock Incentive
Plan.
Incorporated by reference to Exhibit 10.29 to Stratus’ 2007 First Quarter
Form 10-Q.
|
|
10.34
|
Stratus
Director Compensation. Incorporated by reference to Exhibit 10.20
to the
Annual Report on Form 10-K of Stratus for the year ended December
31,
2005.
|
|
10.35
|
Change
of Control Agreement between Stratus Properties Inc. and William
H.
Armstrong III, effective as of January 26, 2007. Incorporated by
reference
to Exhibit 10.1 to the Current Report on Form 8-K of Stratus dated
January
24, 2007.
|
|
10.36
|
Change
of Control Agreement between Stratus Properties Inc. and John E.
Baker,
effective as of January 26, 2007. Incorporated by reference to Exhibit
10.2 to the Current Report on Form 8-K of Stratus dated January 24,
2007.
|
|
Letter
from PricewaterhouseCoopers LLP regarding the unaudited interim financial
statements.
|
|
E-3
|
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-4
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