SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended June 30, 2001
Commission File Number: 0-19989
Stratus Properties Inc.
Incorporated in Delaware 72-1211572
(IRS Employer Identification No.)
98 San Jacinto Blvd., Suite 220, Austin, Texas 78701
Registrant's telephone number, including area code: (512) 478-5788
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No _
On June 30, 2001, there were issued and outstanding 7,111,645
shares of the registrant's Common Stock, par value $0.01 per share.
STRATUS PROPERTIES INC.
TABLE OF CONTENTS
Page
Part I. Financial Information
Financial Statements:
Condensed Balance Sheets 3
Statements of Income 4
Statements of Cash Flows 5
Notes to Financial Statements 6
Remarks 9
Report of Independent Public Accountants 10
Management's Discussion and Analysis
of Financial Condition and Results of
Operations 11
Part II. Other Information 17
Signature 18
Exhibit Index E-1
STRATUS PROPERTIES INC.
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
STRATUS PROPERTIES INC.
CONDENSED BALANCE SHEETS (Unaudited)
June 30, December 31,
2001 2000
--------- ---------
(In Thousands)
ASSETS
Current assets:
Cash and cash equivalents, including
restricted cash of $0.7 million and
$0.6 million, respectively $ 2,041 $ 7,996
Accounts receivable 398 596
Prepaid expenses 188 218
--------- ---------
Total current assets 2,627 8,810
Real estate and facilities, net 101,507 93,005
Investments in and advances to
unconsolidated affiliates 7,021 7,596
Other assets 6,888 2,482
--------- ---------
Total assets $ 118,043 $ 111,893
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued liabilities $ 2,893 $ 1,920
Accrued interest, property taxes and other 980 1,486
--------- ---------
Total current liabilities 3,873 3,406
Long-term debt 16,162 8,440
Other liabilities 6,271 8,967
Mandatorily redeemable preferred stock 10,000 10,000
Stockholders' equity 81,737 81,080
--------- ---------
Total liabilities and stockholders' equity $ 118,043 $ 111,893
========= =========
The accompanying notes are an integral part of these financial
statements.
3
STRATUS PROPERTIES INC.
STATEMENTS OF INCOME (Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
----------------- -----------------
2001 2000 2001 2000
------- ------- ------- -------
(In Thousands, Except Per Share Amounts)
Revenues $ 8,213 $ 2,942 $ 9,639 $ 5,055
Costs and expenses:
Cost of sales 6,124 1,769 6,761 3,423
General and administrative expenses 639 809 1,382 1,790
------- ------- ------- -------
Total costs and expenses 6,763 2,578 8,143 5,213
------- ------- ------- -------
Operating income (loss) 1,450 364 1,496 (158)
Interest expense, net (363) (194) (456) (387)
Other income, net 16 3 235 7,808
------- ------- ------- -------
Income before income taxes and
equity in affiliates 1,103 173 1,275 7,263
Income tax provision - - - (40)
Equity in unconsolidated
affiliates' income (loss) (13) 402 (165) 630
------- ------- ------- -------
Net income $ 1,090 $ 575 $ 1,110 $ 7,853
======= ======= ======= =======
Net income per share:
Basic $0.15 $0.08 $0.15 $1.10
===== ===== ===== =====
Diluted $0.13 $0.07 $0.14 $0.96
===== ===== ===== =====
Average shares outstanding:
Basic 7,181 7,148 7,184 7,146
===== ===== ===== =====
Diluted 8,168 8,137 8,127 8,323
===== ===== ===== =====
The accompanying notes are an integral part of these financial
statements.
4
STRATUS PROPERTIES INC.
STATEMENTS OF CASH FLOWS (Unaudited)
Six Months Ended
June 30,
---------------------
2001 2000
--------- --------
(In Thousands)
Cash flow from operating activities:
Net income $ 1,110 $ 7,853
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 65 53
Cost of real estate sold 5,555 557
Recognition of deferred Circle C municipal
utility reimbursements - (7,430)
Equity in unconsolidated affiliates'
loss (income) 165 (630)
Long-term receivable and other (4,943) 1,984
(Increase) decrease in working capital:
Accounts receivable and other 228 1,227
Accounts payable and accrued liabilities 579 (691)
--------- --------
Net cash provided by operating activities 2,759 2,923
--------- --------
Cash flow from investing activities:
Real estate and facilities (14,052) (2,429)
Investment in Lakeway Project (2,000) -
--------- --------
Net cash used in investing activities (16,052) (2,429)
--------- --------
Cash flow from financing activities:
Proceeds from credit facility, net 5,765 2,839
Proceeds from term loan 5,000 -
Payments on term loan - (2,857)
Repayment of convertible debt (3,240) -
Purchases of shares of Stratus'common stock (187) -
Exercise of stock options - 18
--------- --------
Net cash provided by financing activities 7,338 -
--------- --------
Net (decrease) increase in cash and cash equivalents (5,955) 494
Cash and cash equivalents at beginning of year 7,996 3,964
--------- --------
Cash and cash equivalents at end of period $ 2,041 $ 4,458
========= ========
The accompanying notes are an integral part of these financial
statements.
5
STRATUS PROPERTIES INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Reclassifications. Certain prior year amounts have been
reclassified to conform to the year 2001 presentation.
Recent Accounting Pronouncements. In June 1998, the Financial
Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (SFAS 133). SFAS 133, as subsequently
amended, is effective for fiscal years beginning after June 15, 2000
and establishes accounting and reporting standards requiring that
every derivative instrument (including certain derivative
instruments embedded in other contracts) be recorded in the balance
sheet as either an asset or liability measured at its fair value.
The accounting for changes in the fair value of a derivative depends
on the intended use of the derivative and the resulting designation.
Stratus adopted SFAS 133 effective January 1, 2001, with its
adoption having no impact on its financial position or results of
operations. Stratus currently has no derivative instruments, as
defined in SFAS 133.
On July 23, 2001 the FASB issued SFAS 141, "Business
Combinations" and SFAS 142, "Goodwill and other Intangible Assets."
SFAS 141 requires that all business combinations subsequent to June
30, 2001 be accounted for under the purchase method of accounting.
The pooling-of-interests method is no longer allowed. SFAS 142
requires that upon adoption, amortization of goodwill will cease and
instead, the carrying value of goodwill will be evaluated for
impairment on at least an annual basis. SFAS 142 is effective for
fiscal years beginning after December 15, 2001. Stratus does not
anticipate the adoption of these standards will have any affect on
its financial position and results of operations.
Share Purchase Program. In February 2001, Stratus' Board of
Directors authorized an open market stock purchase program for up to
0.7 million stock-split adjusted shares of Stratus' common stock
(see Note 6). The purchases may occur over time depending on many
factors, including the market price of Stratus stock; Stratus'
operating results, cash flow and financial position; and general
economic and market conditions. No purchases have been made under
this program through July 27, 2001.
2. OLYMPUS RELATIONSHIP and INVESTMENT IN UNCONSOLIDATED AFFILIATES
In May 1998, Stratus and Olympus Real Estate Corporation (Olympus),
formed a strategic alliance to develop certain of Stratus' existing
properties and to pursue new real estate acquisition and development
opportunities. Under the terms of the agreement, Olympus made a $10
million investment in Stratus' mandatorily redeemable preferred
stock, provided a $10 million convertible debt financing facility to
Stratus and agreed to make available up to $50 million of additional
capital representing its share of direct investments in joint
Stratus/Olympus projects. As of June 30, 2001 Olympus had invested
approximately $13.4 million in joint Stratus/Olympus projects, as
further discussed below.
During the second quarter of 2001, Stratus repaid Olympus the
entire $3.2 million balance under the convertible debt financing
facility used to finance Stratus' interest in the Walden Partnership
in Houston, Texas, purchased in September 1998. Included in the
$3.2 million payment to Olympus was $0.8 million of accrued interest
representing the stated 12 percent annual rate pursuant to the terms
of the convertible debt financing agreement. Stratus currently has
approximately $0.3 million of additional accrued interest on its
convertible debt borrowings to satisfy the minimum annual rate of
return provision within the convertible debt facility agreement,
which provides that if the combination of interest at 12 percent and
the value of the conversion right does not provide Olympus with at
least a 15 percent annual return on the convertible debt, Stratus
must pay Olympus additional interest upon termination of the
convertible debt facility in an amount necessary to yield a 15
percent return.
Stratus has investments in three joint ventures in which it
owns a 49.9 percent interest and Olympus owns the remaining 50.1
percent interest. Stratus accounts for its investments in the joint
ventures using the equity method of accounting. Stratus develops
and manages each project undertaken by these joint ventures and
receives development fees, sales commissions, and other management
fees for its services.
Stratus' three joint ventures are the Oly Stratus Barton Creek
I Joint Venture (Barton Creek Joint Venture), the Oly Walden General
Partnership (Walden Partnership) and the Stratus 7000 West Joint
Venture (7000 West Joint Venture). The Barton Creek Joint Venture
currently consists of two separate subdivisions,
6
"Wimberly Lane" and "Escala Drive," located in southwest Austin, Texas.
At June 30, 2001 there was one remaining single-family homesite at the
Wimberly Lane subdivision and 22 remaining single-family homesites at the
Escala Drive subdivision. The Walden Partnership had 448 single-
family homesites available at the Walden on Lake Houston development
in Houston, Texas at June 30, 2001. The 7000 West Joint Venture
consists of two fully constructed and leased 70,000 square foot
office buildings located in the Lantana development in southwest
Austin.
For a detailed discussion of the Olympus alliance and the
initial formation and subsequent transactions of the joint ventures
and partnership, see Notes 2, 3 and 4 of the "Notes To Financial
Statements" included in Stratus' 2000 Annual Report on Form 10-K.
Also refer to "Transactions With Olympus Real Estate Corporation"
and "Capital Resources and Liquidity" included in Items 7 and 7A.,
"Management's Discussion and Analysis of Financial Condition and
Results of Operations and Disclosures of Market Risks" included in
Stratus' 2000 Annual Report on Form 10-K.
The Barton Creek Joint Venture distributed $0.7 million to the
partners during the first quarter of 2001; however, it made no
distributions to the partners during the second quarter of 2001.
From inception through June 30, 2001 the Barton Creek Joint Venture
has distributed $17.1 million to the partners. Stratus' portion of
the distributions, approximately $8.6 million, have been recorded as
repayment of the Barton Creek notes receivable and related accrued
interest ($6.9 million) and a $1.7 million reduction of its
investment in the Barton Creek Joint Venture. Stratus recorded the
entire amount of its portion of the first-quarter distribution,
approximately $0.4 million, as a reduction of its investment in the
Barton Creek Joint Venture. Future distributions by the Barton
Creek Joint Venture will reduce Stratus' investment in the joint
venture as a return of partner's capital until Stratus' remaining
investment of $3.7 million is recovered. During the second quarter
of 2001, the 7000 West Joint Venture distributed approximately $0.1
million to the partners, which Stratus recorded as a reduction of
its investment in the 7000 West Joint Venture. The summarized
unaudited financial information of Stratus' unconsolidated
affiliates is shown below (in thousands):
Barton Creek Walden 7000
Joint Venture Partnership West Total
------------- ----------- ------- --------
Earnings data for the quarter
ended June 30, 2001:
Revenues $ - $ 1,102 $ 860 $ 1,962
Operating loss (67) 2 (39) (104)
Net loss (66) 43 (32) (55)
Stratus' equity in net loss (33) 36 a (16) (13) a
Earnings data for the quarter
ended June 30, 2000:
Revenues $ 5,076 $ 967 $ 243 $ 6,286
Operating loss 894 - (177) 717
Net loss 891 59 (176) 774
Stratus' equity in net loss 445 45 a (88) 402 a
Earnings data for the six
months ended June 30, 2001:
Revenues $ 223 $ 1,539 $ 1,561 $ 3,323
Operating loss (106) (270) (157) (533)
Net loss (99) (169) (111) (379)
Stratus' equity in net loss (49) (61)a (55) (165) a
7
Barton Creek Walden 7000
Joint Venture Partnership West Total
------------- ----------- ------- --------
Earnings data for the six
months ended June 30, 2000:
Revenues $ 8,764 $ 1,426 $ 412 $ 10,602
Operating loss 1,807 (218) (525) 1,064
Net loss 1,868 (133) (521) 1,214
Stratus' equity in net loss 933 (43)a (260) 630 a
a. Includes recognition of deferred income totaling $14,000 during
the second quarter of 2001, $15,000 in the second quarter of 2000
and $23,000 for the six months periods of 2001 and 2000,
representing the difference in Stratus' investment in the Walden
Partnership and its underlying equity at the date of acquisition.
Stratus will recognize the remaining deferred income as the related
real estate is sold. Through June 30, 2001, Stratus has recognized
$131,000 of a total of $337,000 of deferred income associated with
the Walden Partnership.
3. EARNINGS PER SHARE
The earnings per share calculations have been restated to reflect
the effects of the stock split transactions (see Note 6) as if they
had occurred at the beginning of each period presented. Following
is a reconciliation of net income and weighted average common shares
outstanding for purposes of calculating basic and diluted net income
per share (in thousands, except per share amounts):
Three Months Six Months
Ended June 30, Ended June 30,
----------------- ----------------
2001 2000 2001 2000
------- ------ ------- -------
Basic net income per share of
common stock:
Net income $ 1,090 $ 575 $ 1,110 $ 7,853
------- ------ ------- -------
Weighted average common shares
outstanding 7,181 7,148 7,184 7,146
------ ------ ------- -------
Basic net income per share of
common stock $0.15 $0.08 $0.15 $1.10
===== ===== ===== =====
Diluted net income per share of
common stock:
Net income $ 1,090 $ 575 $ 1,110 $ 7,853
Add: Interest expense from assumed
conversion of convertible debt, net
of income tax effect - - - 164
------- ------ ------- -------
Diluted net income per share $ 1,090 $ 575 $ 1,110 $ 8,017
------- ------ ------- -------
Weighted average common shares
outstanding 7,181 7,148 7,184 7,146
Dilutive stock options 136 138 92 131
Assumed redemption of preferred stock 851 851 851 851
Assumed redemption of convertible debt - - - 195
------- ------ ------- ------
Weighted average common shares
outstanding for purposes of calculating
diluted net income per share 8,168 8,137 8,127 8,323
------- ------ ------- ------
Diluted net income per share $0.13 $0.07 $0.14 $0.96
===== ===== ===== =====
Interest accrued on the convertible debt outstanding totaled
approximately $83,000 for the second quarter of 2000. Although the
debt was convertible into 197,000 shares in the second quarter of
2000, it was excluded from the diluted net income per share
calculation because the effect of an assumed redemption of the
convertible debt was anti-dilutive. Stratus repaid all borrowings
under its convertible debt facility during
8
the second quarter of 2001. There have been no dividends accrued on
Stratus' mandatorily redeemable preferred stock through June 30, 2001.
Outstanding stock options excluded from the computation of
diluted net income per share of common stock because their exercise
prices were greater than the average market price of the common
stock during the period are as follows:
Second Quarter Six Months
----------------- -------------------
2001 2000 2001 2000
------- ------- -------- --------
Outstanding options 273,000 147,000 481,000 258,000
Average exercise price $10.97 $12.28 $9.81 $10.74
4. LAKEWAY TRANSACTION
Since mid-1998 Stratus has provided development, management,
operating and marketing services for the Lakeway project near
Austin, Texas, which is owned by Commercial Lakeway Limited
Partnership, an affiliate of Credit Suisse First Boston, for a fixed
monthly fee. In January 2001, Stratus and Commercial Lakeway
Limited Partnership entered into an expanded development management
agreement covering a 552-acre portion of the Lakeway development
known as Schramm Ranch and Stratus contributed $2.0 million as an
investment in this project. The agreement provides for Stratus to
receive enhanced management and development fees and sales
commissions, as well as a net profits interest in the project.
5. RESTRICTED CASH
At June 30, 2001, Stratus had restricted cash deposits totaling $0.7
million. Stratus had $0.3 million of cash deposited in a restricted
account to fund the repurchase of fractional shares of its common
stock resulting from its stock split transactions (see Note 6).
Additionally, Stratus had $0.4 million deposited in a special
account representing additional collateral associated with the
Walden Partnership's project development loan. This deposit is
reduced by $0.30 for every $1.00 in principal the Walden
Partnership repays on the loan. For additional discussion of the
Walden Partnership project development loan, see Item 2.
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere in this Form 10-Q and Note
4 of "Notes to Financial Statements" included in Stratus' 2000
Annual Report on Form 10-K.
6. STOCK SPLIT TRANSACTIONS
On May 10, 2001, the shareholders of Stratus approved an amendment
to Stratus' certificate of incorporation to permit a reverse 1-for-
50 common stock split followed immediately by a forward 25-for-1
common stock split. This transaction resulted in Stratus'
shareholders holding fewer than 50 shares of common stock having
their shares converted into less than one share in the reverse 1-for-
50 split, for which they received cash payments equal to the fair
value of those fractional interests. Stratus shareholders holding
more than 50 shares of Stratus' common stock had their number of
shares common stock reduced by one-half immediately after this
transaction. Shareholders holding an odd number of shares were
entitled to a cash payment equal to the fair value of the resulting
fractional share. The fair value of the fractional shares was
calculated by valuing each outstanding share of Stratus common stock
held at the close of business on the effective date, May 25, 2001,
at the average daily closing price per share of Stratus' common
stock for the ten trading days immediately preceding the effective
date. Stratus funded $0.5 million into a restricted cash account to
purchase approximately 42,000 shares of its common stock. As of
June 30, 2001, fractional shares representing approximately 17,000
shares of Stratus' common stock were purchased for $0.2 million. The
number of shares outstanding of Stratus' mandatorily redeemable
preferred stock (see Note 3 of "Notes To Financial Statements"
included in Stratus' 2000 Annual Report on Form 10-K) are not
affected by this transaction; however, the conversion price in
effect immediately prior to the transaction was approximately
doubled to reflect the effects of these transactions.
--------------------
Remarks
The information furnished herein should be read in conjunction with
Stratus' financial statements contained in its 2000 Annual Report on
Form 10-K. The information furnished herein reflects all
adjustments which are, in the opinion of management, necessary for a
fair statement of the results for the periods. All such adjustments
are, in the opinion of management, of a normal recurring nature.
9
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
of Stratus Properties Inc.:
We have reviewed the accompanying condensed balance sheet of Stratus
Properties Inc. (a Delaware corporation), as of June 30, 2001, and
the related statements of income for the three and six month periods
ended June 30, 2001 and 2000, and the statements of cash flows for
the six-month periods ended June 30, 2001 and 2000. These financial
statements are the responsibility of the Company's management.
We conducted our reviews in accordance with standards established by
the American Institute of Certified Public Accountants. A review of
interim financial information consists principally of applying
analytical procedures to financial data and making inquiries of
persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance
with auditing standards generally accepted in the 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 reviews, we are not aware of any material modifications
that should be made to the financial statements referred to above
for them to be in conformity with accounting principles generally
accepted in the United States.
We have previously audited, in accordance with auditing standards
generally accepted in the United States, the balance sheet of
Stratus Properties Inc. as of December 31, 2000, and the related
statements of income, stockholders' equity and cash flows for the
year then ended (not presented herein), and in our report dated
January 25, 2001, we expressed an unqualified opinion on those
financial statements. In our opinion, the information set forth in
the accompanying condensed balance sheet as of December 31, 2000, is
fairly stated, in all material respects, in relation to the balance
sheet from which it has been derived.
ARTHUR ANDERSEN LLP
Austin, Texas
July 27, 2001
10
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
OVERVIEW
Management's discussion and analysis presented below should be
read in conjunction with our discussion and analysis and financial
results contained in our 2000 Annual Report on Form 10-K. The
operating results summarized in this report are not necessarily
indicative of our future operating results.
We acquire, develop, manage and sell commercial and residential
real estate. We conduct real estate operations on properties we own
and through unconsolidated affiliates we jointly own with Olympus
Real Estate Corporation (Olympus) pursuant to a strategic alliance
formed in May 1998 (see Note 2).
DEVELOPMENT ACTIVITIES
Stratus Properties
During the second quarter of 2001, we reached agreement with
the City of Austin (the City) concerning development of a 417-acre
portion of the Lantana project. The agreement reflects a
cooperative effort between the City and us to allow development,
based on grandfathered entitlements, while adhering to stringent
water quality standards and other enhancements to protect the
environment. With this most recent agreement, we have now completed
the core entitlement process for the entire Lantana project allowing
approximately 2.9 million square feet of office and retail
development, approximately 400 multi-family units (previously sold
to an unrelated third party, see below), and approximately 330
residential lots.
In the fourth quarter of 2000 we received final subdivision
plat approval from the City to develop approximately 170 acres of
commercial and multi-family real estate within our Lantana
development. The required infrastructure development at the site,
known as "Rialto Drive," is proceeding as planned with completion
expected in October 2001. We also broke ground on the first of two
75,000 square foot office buildings in Rialto Drive (7500 Rialto)
during the first quarter of 2001, which will be constructed using a
new project development loan (see "Capital Resources and Liquidity"
below). Full development of the 170 acres is expected to consist of
over 800,000 square feet of office and retail space and 400 multi-
family units, which will be developed by an apartment developer
pursuant to our sale of a 36.4-acre multi-family tract in December
2000 (see "Result of Operations" below).
We continue to work on development plans for our Circle C
project. During the second quarter of 2001, we met with the City
and with neighborhood and environmental groups to initiate a plan to
rezone our approximate 1,250 acres of commercial and multi-family
real estate.
We commenced construction of a new subdivision within the
Barton Creek community during the fourth quarter of 2000. This
subdivision, Mirador, adjoins the successful Escala Drive
subdivision, which is owned by our Barton Creek Joint Venture (see
below). Our development plan for the Mirador subdivision consists
of 34 estate lots, averaging 3.5 acres in size, which we expect to
be completed in September 2001.
We are also completing permitting of two new residential
sections at Barton Creek. The first is a 114-acre tract with 54
lots ranging in size from one-third acre to multi-acre estate lots,
some of which overlook the Lost Creek Country Club golf course.
This project is expected to receive final approval during the third
quarter of 2001. The second section is a 212-acre tract that
includes 125 single-family lots and nine acres for condominium
development. Some of these lots will adjoin the Fazio Canyons golf
course. This project is expected to receive final approval by year-
end 2001.
Unconsolidated Affiliates
We own 49.9 percent of three joint ventures and Olympus owns the
remaining 50.1 percent interests. Accordingly, we account for our
investments in these joint ventures using the equity method of
accounting. We develop and manage each project undertaken by these
joint ventures and receive development fees, sales commissions, and
other management fees for our services. See Note 2 included
elsewhere in this Form 10-Q for the summarized unaudited results of
operations of our unconsolidated affiliates for the second-quarter
and six-month periods ended June 30, 2001 and 2000.
11
Barton Creek Joint Venture
The Oly Stratus Barton Creek I Joint Venture (Barton Creek
Joint Venture) currently consists of two separate subdivisions:
"Wimberly Lane" and "Escala Drive." Construction of the Wimberly
Lane subdivision, consisting of 75 developed residential lots, was
completed during the first quarter of 1999. We had only one
Wimberly Lane lot remaining to be sold at June 30, 2001. We sold
two Wimberly Lane lots during the first quarter of 2001 for a total
of $0.2 million. We sold no Wimberly Lane lots during the second
quarter of 2001. During the second quarter of 2000, we sold nine
Wimberly Lane lots for $1.1 million and a total of 17 lots during
the six months ended June 30, 2000 for $2.4 million.
Construction of the Escala Drive subdivision was completed
during the second quarter of 2000. As of June 30, 2001, 32 of the
original 54 multi-acre residential lots have been sold. These
residential lots are the largest developed to date within the Barton
Creek community, although our planned Mirador subdivision will have
similar sized developed lots (see "Stratus Properties" above).
There were no Escala Drive residential lot sales during the first
half of 2001 (see "Capital Resources and Liquidity" below). During
the second quarter of 2000, we sold ten of the Escala Drive
residential lots for $3.7 million and a total of 15 lots during the
six months ended June 30, 2000 for $5.8 million.
The Barton Creek Joint Venture distributed approximately $0.7
million to the partners in the first quarter of 2001. We recorded
our share of these distributions, approximately $0.4 million, as a
return of our investment in the joint venture. There were no
distributions to the partners during the second quarter of 2001.
During the first half of 2000, the Barton Creek Joint Venture
distributed a total of $7.5 million to the partners. Our share of
the distribution proceeds during the first half of 2000 totaled $3.5
million.
Walden Partnership
At June 30, 2001, the Walden Partnership had 448 single-family
homesites available for sale at the Walden on Lake Houston
development in Houston, Texas. The Partnership sold 31 single-
family homesites during the second quarter of 2001 and a total of 49
single-family homesites during the six months ended June 30, 2001,
compared with sales of 32 and 49 single-family homesites during the
comparable periods last year. At June 30, 2001, the Walden
Partnership's borrowings outstanding under its project development
loan facility totaled $0.5 million. In September 1998, we deposited
$2.5 million of restricted cash as additional collateral for the
related project development loan facility. For every $1.00 of this
facility's principal that is repaid by the Partnership, there is a
$0.30 reduction of our restricted amount. Remaining funds
deposited in this restricted account totaled $0.4 million at June
30, 2001 and $0.6 million at December 31, 2000.
7000 West
We have two fully leased and occupied 70,000 square foot office
buildings at the Lantana Corporate Center, known as 7000 West. In
our role as manager of 7000 West, we arranged for a $6.6 million
project loan facility to finance construction of the first office
building. The construction of the second building required
additional financing, which was provided by an additional $7.7
million financing under the 7000 West development loan facility
negotiated in the first quarter of 2000. Borrowings outstanding
under 7000 West's project loan facility totaled $13.0 million at
June 30, 2001 and $12.0 million at December 31, 2000. The project
loan facility matures on August 24, 2001. As manager of 7000 West,
we are in the process of finalizing negotiations for a term loan
with Comerica Bank-Texas (Comerica), which will replace the existing
project loan facility. In the event closing of this new term loan
does not occur on or before August 24, 2001, we will extend the
maturity of the existing project loan.
12
RESULTS OF OPERATIONS
Summary operating results follow (in thousands):
Second Quarter Six-Months
----------------- -----------------
2001 2000 2001 2000
------- ------- ------- -------
Revenues:
Undeveloped properties:
Unrelated parties $ 6,373 $ 342 $ 6,373 $ 342
Recognition of deferred revenues 1,528 1,705 2,639 2,516
Developed properties - 193 - 596
Commissions, management fees and other 313 702 627 1,601
------- ------- ------- -------
Total revenues $ 8,213 $ 2,942 $ 9,639 $ 5,055
======= ======= ======= =======
Operating income (loss) $ 1,450 $ 364 $ 1,496 $ (158)
======= ======= ======= =======
Net income $ 1,090 $ 575 $ 1,110 $ 7,853
======= ======= ======= =======
Our revenues during the second quarter and six months ended
June 30, 2001 primarily reflect the $6.4 million of undeveloped
entitled property sold to unrelated third parties. These revenues
included the sale of 112 acres of undeveloped entitled residential
property in Houston, Texas for $2.7 million, the sale of 10 acres of
undeveloped entitled property in Dallas, Texas for $1.7 million and
one 17-acre undeveloped tract sale in Austin, Texas totaling $2.0
million. Revenues from undeveloped properties during the second
quarter and six months ended June 30, 2000 reflect the sale of one
acre of multi-family property in San Antonio, Texas.
The majority of the deferred revenue recognized during the
first half of 2001 was associated with the sale of a 36.4-acre multi-
family tract within the Rialto Drive project in December 2000. In
this transaction we sold the property for $5.3 million, but deferred
$3.5 million of the revenues and $1.6 million of the related
operating income. We are recognizing these deferred amounts pro
rata as the required infrastructure construction is completed. As
discussed in "Development Activities" above, construction at the
Rialto Drive project is proceeding, resulting in our recognizing
$1.5 million of the deferred revenues including $0.7 million to
operating income during the second quarter of 2001 and $2.6 million
of the deferred revenues and $1.2 million of the related operating
income during the six months ended June 30, 2001. The remaining $0.9
million of deferred revenues and $0.4 million of related operating
income is expected to be recognized during the remainder of 2001.
When we sell real estate to an entity we jointly own with
Olympus, we defer recognizing revenues from the sale related to our
ownership interest until sales are made to unrelated parties. The
sale of two Wimberly Lane single-family homesites by the Barton
Creek Joint Venture during the first quarter of 2001 resulted in our
recognition of previously deferred revenues of less than $0.1
million for the six-month 2001 period. Sales by the Barton Creek
Joint Venture during 2000 resulted in our recognition of previously
deferred revenues of $1.2 million and $0.6 million of related
operating income during the second quarter of 2000 and recognition
of previously deferred revenues of $2.0 million and $1.0 million of
related operating income during the six months ended June 30, 2000.
During the second quarter of 2000, we also recognized $0.5 million
of previously deferred revenues and $0.4 million of related
operating income associated with our sale of 5.5 acres of commercial
real estate to the 7000 West Joint Venture. At June 30, 2001 we
had a total of $3.4 million of deferred revenues and $1.1 million of
related operating income remaining to be recognized from future sales
of real estate by the Barton Creek Joint Venture.
We currently have no developed property inventory but we are
developing lots that may be available in the third quarter of 2001
(see "Development Activities," above). Our second-quarter 2000
developed property revenues included the sale of six single-family
homesites and we sold 21 developed lots during the six months ended
June 30, 2000. Lots sold by our unconsolidated affiliates are not
included in our developed property revenues (see "Unconsolidated
Affiliates" above).
13
Commissions, management fees and other income totaled to $0.3
million during the second quarter of 2001 and $0.6 million during
the six months ended June 30, 2001 compared to $0.7 million and $1.6
million during the comparable periods last year. The decrease
during the first two quarters of 2001 from the same periods last
year primarily reflects the decrease in sales by our unconsolidated
affiliates, particularly the Barton Creek Joint Venture, which
represent a significant portion of our sales commissions. See
"Capital Resources and Liquidity" below for a discussion of our
expanded management services agreement associated with the Lakeway
project near Austin, Texas.
Cost of sales increased to $6.1 million in the second quarter
of 2001 from $1.8 million during the second quarter of 2000 and to
$6.8 million during the six months ended June 30, 2001 from $3.4
million during the comparable six-month period in 2000. The
increases primarily reflect the significant sales of undeveloped
entitled properties during the second quarter of 2001. The
increases in cost of sales during 2001 were partially offset by a
reimbursement of certain infrastructure costs previously charged to
expense or relating to properties previously sold, which reduced our
first quarter of 2001 cost of sales by $0.8 million, and the reduced
sales activity of our unconsolidated affiliates during the first
half of 2001.
Our general and administrative expenses decreased to $0.6
million during the second quarter of 2001 and $1.4 million for the
six months ended June 30, 2001 from $0.8 million and $1.8 million
during the comparable periods in 2000. The decrease between the
periods primarily reflects reduced administrative costs resulting
from the implementation of a new accounting system and other
initiatives to reduce costs.
Non-Operating Results
Interest expense, net of capitalized interest, totaled $0.4
million during the second quarter of 2001 and $0.5 million for the
six months ended June 30, 2001 compared to $0.2 million during the
second quarter of 2000 and $0.4 million for the six months ended
June 30, 2000. Capitalized interest totaled $0.3 million for the
second quarter of 2001 and $0.5 million for the six months ended
June 30, 2001 compared to $0.3 million during the second quarter of
2000 and $0.7 million during the six months ended June 30, 2000.
In March 2000, the City approved a settlement agreement of all
its disputes with other Austin-area real estate developers and
landowners concerning the Circle C community. Under terms of this
settlement, the lawsuits contesting the City's December 1997
annexation of all land within the four Circle C Municipal Utility
Districts (MUDs) and the dissolution of the four MUDs were dismissed
with prejudice. Accordingly, the City's partial payments of our
reimbursement claim, totaling $10.5 million as of March 31, 2000,
were no longer subject to a repayment contingency. As a result, we
recorded approximately $7.4 million of these previously deferred
proceeds in other income during the first quarter of 2000. This
amount represents that portion of the reimbursed infrastructure
expenditures in excess of our remaining basis in these assets, as
well as related interest income on the reimbursements. The remaining
$3.1 million was recorded as a reduction of our investment in Circle
C. We settled our disputes with the City related to the remaining
amounts of the Circle C MUDs in the fourth quarter of 2000, when we
received $6.9 million from the City as full and final settlement of
our claim. See Note 6 to the "Notes To Financial Statements"
included within our 2000 Annual Report on Form 10-K for discussion
of the settlement of our Circle C MUD reimbursement claim.
CAPITAL RESOURCES AND LIQUIDITY
Net cash provided by operating activities totaled $2.7 million
during the six months ended June 30, 2001 compared to $2.9 million
during the six months ended June 30, 2000. The decrease primarily
reflects reduced distributions received from the Barton Creek Joint
Venture offset in part by our increased revenues from the second-
quarter 2001 sale of undeveloped entitled properties. Cash used in
investing activities totaled $16.1 million for the six months ended
June 30, 2001 compared with $2.4 million during the same period in
2000, reflecting an increase in our net real estate and facilities
expenditures (see "Development Activities" above) and the $2.0
million investment in the Lakeway project, near Austin, Texas (see
below). Financing activities provided cash of $7.3 million during
the first six months of 2001 reflecting borrowings under our
Comerica credit facility and our successful negotiations to obtain a
second $5.0 million unsecured term loan, offset in part by the $3.2
million repayment to Olympus under the convertible debt credit
facility (see below).
At June 30, 2001, we had debt outstanding of $16.2 million
compared to $8.4 million at December 31, 2000 and $16.7 million at
June 30, 2000. Our debt outstanding at June 30, 2001 included $10.0
million of borrowings under our unsecured term loans (see below),
with the first $5.0 million term loan maturing in
14
December 2005 and the newly obtained $5.0 million term loan maturing
in July 2006. We had $6.2 million of borrowings at June 30, 2001 under
our $20 million revolver, which matures in December 2002. The availability
under the $20 million revolving line of credit was reduced to $18.0
million to satisfy the $2.0 million interest reserve account
requirement at June 30, 2001. For a discussion of our bank credit
facilities see Note 5 included in the "Notes To Financial
Statements" included in our 2000 Annual Report on Form 10-K.
During the second quarter of 2001, we repaid Olympus the entire
$3.2 million balance under our convertible debt facility used to
acquire our interest in the Walden Partnership in Houston, Texas in
September 1998. We repaid the convertible debt with a portion of
the proceeds from our recently negotiated additional $5.0 million
five-year unsecured term loan with First American Asset Management.
By exchanging the convertible debt for the term loan debt, we have
avoided the potential dilutive effect of Olympus converting the debt
into shares of our common stock and reduced the amount of interest
we are incurring from 12 percent to 9.25 percent. We will use the
remainder of the proceeds from the $5.0 million unsecured term loan
to fund our ongoing operations and for other general corporate
purposes.
In the second quarter of 2001, we secured an $18.4 million
project loan facility with Comerica for the construction of the 7500
Rialto office building project (see "Development Activities" above).
This variable-rate project loan facility matures in June 2003, with
an option to extend the maturity by one year. Currently our
availability under the project loan is $9.2 million and is intended
for the construction of the first 75,000 square foot office building
and a related parking garage. At June 30, 2001 we had no borrowings
under this project loan facility.
Since mid-1998 we have provided development, management,
operating and marketing services for the Lakeway project near
Austin, Texas, which is owned by Commercial Lakeway Limited
Partnership, an affiliate of Credit Suisse First Boston, for a fixed
monthly fee. In January 2001, we entered into an expanded
development management agreement with Commercial Lakeway Limited
Partnership covering a 552-acre portion of the Lakeway development
known as Schramm Ranch, and we contributed $2.0 million as an
investment in this project. Under the agreement we receive enhanced
management and development fees and sales commissions, as well as a
net profits interest in the project.
During the second quarter of 2001, we negotiated an agreement
to sell the entire Schramm Ranch property to a single purchaser for
approximately $11.0 million, conditioned on obtaining certain
entitlements. We, as manager of the project, obtained subdivision,
annexation, zoning and other entitlements for the first phase of the
Schramm Ranch project. Obtaining these entitlements allowed for
the sale of the first phase of the Schramm Ranch project for $1.5
million. The proceeds from this initial sales transaction will be
used to obtain entitlements for the remaining 500-plus acres of the
property. We expect to obtain those entitlements during the fourth
quarter of 2001, allowing at least one additional phase to be sold
in 2001. We believe that we will receive a portion of the sales
proceeds in connection with our net profits interest in the project
when the sale of the second phase occurs.
In February 2001, our Board of Directors authorized an open
market stock purchase program for up to 0.7 million shares of our
common stock representing approximately 10 percent of our
outstanding common stock, after considering the effects of the stock
split transactions described in the following paragraph. The
purchases may occur over time depending on many factors, including
the market price of our common stock; our operating results, cash
flows and financial position; possible redemption of our mandatorily
redeemable preferred stock held by Olympus; and general economic and
market conditions. We have yet to make any open market share
purchases under this program as of July 27, 2001.
On May 10, 2001, our shareholders approved an amendment to our
certificate of incorporation to permit a reverse 1-for-50 common
stock split followed immediately by a forward 25-for-1 common stock
split. The effective date of this transaction was May 25, 2001.
This transaction resulted in our shareholders holding fewer than 50
shares of common stock having their shares converted into less than
one share of our common stock in the reverse 1-for-50 split. Those
shareholders received cash payments equal to the fair value of those
fractional interests. Our shareholders holding more than 50 shares
of our common stock had their number of shares of common stock
reduced by one-half immediately after this transaction.
Shareholders holding an odd number of shares were entitled to a cash
payment equal to the fair value of the resulting fractional share.
The fair value of the fractional shares was calculated by valuing
each outstanding share of Stratus common stock held at the close of
business on the effective date at the average daily closing price
per share of Stratus'
15
common stock for the ten trading days immediately preceding the
effective date. Accordingly, we funded $0.5 million into a restricted
cash account to purchase approximately 42,000 shares of our common stock.
As of June 30, 2001, fractional shares representing approximately 17,000 shares
of our common stock were purchased for $0.2 million. We expect
this transaction to lower our future reporting and related costs.
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 future real estate sales. In turn,
these sales will be significantly affected by future real estate
values, regulatory issues, development costs, interest rate levels
and our ability to continue to protect our land use and development
entitlements. Significant development expenditures remain to be
incurred for our Austin-area properties prior to their eventual
sale. As a result of our settlement of certain entitlement and
reimbursement issues with the City during 2000 and 2001, we have
initiated a plan to develop a significant portion of our Austin-area
properties with capital expenditures for 2001 significantly
exceeding the development expenditures incurred during each of the
past three years. However, if our revenues continue to be depressed
because of the recent downturn in the information technology
business sector, which has negatively affected Austin's business
climate, we may be required to defer some of our remaining near-term
development plans until the real estate market improves.
We are continuing to actively pursue additional development and
management fee opportunities, both individually and through our
existing relationships with institutional capital sources. We also
believe we can obtain bank financing at a reasonable cost for
developing our properties. However, obtaining land acquisition
financing is generally expensive and uncertain.
CAUTIONARY STATEMENT
Management's discussion and analysis of financial condition and
results of operations contains forward-looking statements regarding
anticipated sales, debt repayments, future reimbursement 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 the heading "Cautionary Statements"
in our Annual Report on Form 10-K for the year ended December 31,
2000.
16
PART II. - OTHER INFORMATION
Item 1. Legal Proceedings.
Over the past several years we have been involved in
regulatory matters and litigation involving entitlements and/or
development of our Austin-area properties. These matters were
settled during 2000. For a detailed discussion on these matters see
Item 3, "Legal Proceedings" and Note 6, "Real Estate" included in
our 2000 Annual Report on Form 10-K.
Item 6. Exhibits and Reports on Form 8-K.
(a) The exhibits to this report are listed in the Exhibit
Index appearing on page E-1 hereof.
(b) The registrant filed no Current Reports on Form 8-K
during the period covered by this Quarterly Report on Form
10-Q.
17
SIGNATURE
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/ C. Donald Whitmire, Jr.
---------------------------------
C. Donald Whitmire, Jr.
Vice President - Controller
(authorized signatory and
Principal Accounting Officer)
Date: August 13, 2001
18
STRATUS PROPERTIES INC.
EXHIBIT INDEX
Exhibit
Number
3.1 Amended and Restated Certificate of Incorporation
of Stratus. Incorporated by reference to Exhibit 3.1
to Stratus' 1998 Form 10-K.
3.2 By-laws of Stratus, as amended as of February 11,
1999. Incorporated by Reference to Exhibit 3.2 to
Stratus' 1998 Form 10-K.
4.1 Stratus' Certificate of Designations of Series A
Participating Cumulative Preferred Stock. Incorporated
by reference to Exhibit 4.1 to Stratus' 1992 Form 10-K.
4.2 Rights Agreement dated as of May 28, 1992 between
Stratus and Mellon Securities Trust Company, as Rights
Agent. Incorporated by reference to Exhibit 4.2 to
Stratus' 1992 Form 10-K.
4.3 Amendment No. 1 to Rights Agreement dated as of
April 21, 1997 between Stratus and the Rights Agent.
Incorporated by reference to Exhibit 4 to Stratus'
Current Report on Form 8-K dated April 21, 1997.
4.4 The loan agreement by and between Comerica Bank-
Texas and Stratus Properties Inc., Stratus Properties
Operating Co., L.P., Circle C Land Corp. and Austin 290
Properties Inc. dated December 21, 1999. Incorporated
by reference to Exhibit 4.4 to Stratus 1999 Form 10-K.
4.5 Certificate of Designations of the Series B
Participating Preferred Stock of Stratus Properties
Inc. Incorporated by reference to Exhibit 4.1 to
Stratus' Current Report on Form 8-K dated June 3, 1998.
4.6 Investor Rights Agreement, dated as of May 22,
1998, by and between Stratus Properties Inc. and
Oly/Stratus Equities, L.P. Incorporated by reference to
Exhibit 4.2 to Stratus' Current Report on Form 8-K
dated June 3, 1998.
4.7 Loan Agreement, dated as of May 22, 1998, by and
among Stratus Ventures I Borrower L.L.C., Oly Lender
Stratus, L.P. and Stratus Properties Inc. Incorporated
by reference to Exhibit 4.3 to Stratus' Current Report
on Form 8-K dated June 3, 1998.
10.1 Joint Venture Agreement between Freeport-McMoRan
Resource Partners, Limited Partnership and the
Partnership, dated June 11, 1992. Incorporated by
reference to Exhibit 10.3 to Stratus' 1992 Form 10-K.
10.2 Development and Management Agreement dated and
effective as of June 1, 1991 by and between Longhorn
Development Company and Precept Properties, Inc. (the
"Precept Properties Agreement"). Incorporated by
reference to Exhibit 10.8 to Stratus' 1992 Form 10-K.
10.3 Assignment dated June 11, 1992 of the Precept
Properties Agreement by and among FTX (successor by
merger to FMI Credit Corporation, as successor by
merger to Longhorn Development Company), the
Partnership and Precept Properties, Inc. Incorporated
by reference to Exhibit 10.9 to Stratus' 1992 Form 10-K.
10.4 Master Agreement, dated as of May 22, 1998, by and among Oly
Fund II GP Investments, L.P., Oly Lender Stratus, L.P.,
Oly/Stratus Equities, L.P., Stratus Properties Inc. and Stratus
Ventures I Borrower L.L.C. Incorporated by reference to Exhibit
99.1 to Stratus' Current Report on Form 8-K dated June 3, 1998.
10.5 Securities Purchase Agreement, dated as of May 22,
1998, by and between Oly/Stratus Equities, L.P. and
Stratus Properties Inc. Incorporated by reference to
Exhibit 99.2 to Stratus' Current Report on Form 8-K
dated June 3, 1998.
E-1
10.6 Oly Stratus Barton Creek I Amended and Restated
Joint Venture Agreement between Oly ABC West I, L.P.
and Stratus ABC West I, L.P. dated December 28, 1999.
Incorporated by reference to Exhibit 10.7 to the
Stratus 1999 Form 10-K.
10.7 Amendment No. 1 to the Oly Stratus ABC West I
Joint Venture Agreement dated November 9, 1998.
Incorporated by reference to Exhibit 10.11 to the
Stratus 1998 Third Quarter 10-Q.
10.8 Management Agreement between Oly Stratus ABC West
I Joint Venture and Stratus Management L.L.C. dated
September 30, 1998. Incorporated by reference to
Exhibit 10.12 to the Stratus 1998 Third Quarter 10-Q.
10.9 Loan Agreement dated September 30, 1998 between
Oly Stratus ABC West I Joint Venture and Oly Lender
Stratus, L.P. Incorporated by reference to Exhibit
10.13 to the Stratus 1998 Third Quarter 10-Q.
10.10 General Partnership Agreement dated April 8, 1998
by and between Oly/Houston Walden, L.P. and Oly/FM
Walden, L.P. Incorporated by reference to Exhibit 10.14
to the Stratus 1998 Third Quarter 10-Q.
10.11 Amendment No. 1 to the General Partnership
Agreement dated September 30, 1998 by and among
Oly/Houston Walden, L.P., Oly/FM Walden, L.P. and
Stratus Ventures I Walden, L.P. Incorporated by
reference to Exhibit 10.15 to the Stratus 1998 Third
Quarter 10-Q.
10.12 Development Loan Agreement dated September 30,
1998 by and between Oly Walden General Partnership and
Bank One, Texas, N.A. Incorporated by reference to
Exhibit 10.16 to the Stratus 1998 Third Quarter 10-Q.
10.13 Guaranty Agreement dated September 30, 1998 by and
between Oly Walden General Partnership and Bank One,
Texas, N.A. Incorporated by reference to Exhibit 10.17
to the Stratus 1998 Third Quarter 10-Q.
10.14 Management Agreement dated April 9, 1998 by and
between Oly/FM Walden, L.P. and Stratus Management,
L.L.C. Incorporated by reference to Exhibit 10.18 to
the Stratus 1998 Third Quarter 10-Q.
10.15 Amended and Restated Joint Venture Agreement dated
August 16, 1999 by and between Oly Lantana, L.P., and
Stratus 7000 West, Ltd. Incorporated by reference to
Exhibit 10.18 to the Quarterly Report on Form 10-Q of
Stratus for the Quarter ended September 30, 1999.
10.16 Guaranty Agreement dated December 31, 1999 by and
between Stratus Properties Inc. and Comerica Bank-
Texas. Incorporated by reference to Stratus' Quarterly
Report on Form 10-Q for the Quarter ended March 31,
2000.
10.17 Guaranty Agreement dated February 24, 2000 by and
between Stratus Properties Inc. and Comerica Bank-
Texas. Incorporated by reference to Stratus' Quarterly
Report on Form 10-Q for the Quarter ended March 31,
2000.
10.18 Development Management Agreement by and between
Commercial Lakeway Limited Partnership, as owner, and
Stratus Properties Inc., as development manager, dated
January 26, 2001.
E-2
10.19 Amended Loan Agreement dated December 27, 2000 by and
between Stratus Properties Inc. and Comerica-Bank
Texas. Incorporated by reference to Exhibit 10.19 to
the Stratus 2000 Form 10-K.
10.20 Loan Agreement dated December 28, 2000 by and between
Stratus Properties Inc. and Holliday Fenoliglio Fowler,
L.P., subsequently assigned to an affiliate of First
American Asset Management. Incorporated by reference
to Exhibit 10.20 to the Stratus 2000 Form 10-K.
10.21 Stratus' Performance Incentive Awards Program, as
amended effective February 11, 1999. Incorporated by
reference to Exhibit 10.18 to Stratus' 1998 Form 10-K.
10.22 Stratus Stock Option Plan, as amended.
Incorporated by reference to Exhibit 10.9 to Stratus'
1997 Form 10-K.
10.23 Stratus 1996 Stock Option Plan for Non-Employee
Directors, as amended. Incorporated by reference to Exhibit
10.10 to Stratus' 1997 Form 10-K.
10.24 Stratus Properties Inc. 1998 Stock Option Plan as
amended effective February 11, 1999. Incorporated by reference to
Exhibit 10.21 to Stratus' 1998 Form 10-K.
15.1 Letter dated July 27, 2001 from Arthur Andersen
LLP regarding the unaudited financial statements.
E-3