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 September 30, 1999
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 September 30, 1999, there were issued and outstanding
14,288,270 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 Operations 4
Statements of Cash Flow 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 16
Signature 18
Exhibit Index E-1
2
STRATUS PROPERTIES INC.
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements.
STRATUS PROPERTIES INC.
CONDENSED BALANCE SHEETS (Unaudited)
September 30, December 31,
1999 1998
--------- ---------
(In Thousands)
ASSETS
Current assets:
Cash and cash equivalents $ 3,867 $ 5,169
Accounts receivable:
Property sales 479 525
Other 1,633 408
Prepaid expenses 383 361
--------- ---------
Total current assets 6,362 6,463
Real estate and facilities, net 96,825 96,556
Investment in and advances to
unconsolidated affiliates 4,889 2,468
Other assets 5,915 6,342
--------- ---------
Total assets $ 113,991 $ 111,829
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued liabilities $ 773 $ 583
Accrued interest, property taxes and other 947 1,861
Current portion of long-term debt 13,118 -
--------- ---------
Total current liabilities 14,838 2,444
Long-term debt 17,625 29,178
Other liabilities 6,743 6,238
Mandatorily redeemable preferred stock 10,000 10,000
Stockholders' equity 64,785 63,969
--------- ---------
Total liabilities and stockholders' equity $ 113,991 $ 111,829
========= =========
The accompanying notes are an integral part of these financial
statements.
3
STRATUS PROPERTIES INC.
STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
----------------- ------------------
1999 1998 1999 1998
------- ------- ------- --------
(In Thousands, Except Per Share Amounts)
Revenues $ 1,828 $ 6,239 $ 6,158 $ 12,302
Costs and expenses:
Cost of sales 420 4,512 2,497 9,165
General and administrative expenses 643 683 2,381 3,182
------- ------- ------- --------
Total costs and expenses 1,063 5,195 4,878 12,347
Operating income (loss) 765 1,044 1,280 (45)
Interest expense, net (142) (495) (644) (1,480)
Other income, net 12 17 116 48
------- ------- ------- --------
Income (loss) before income taxes
and equity in affiliates 635 566 752 (1,477)
Income tax provision - - (14) -
Equity in unconsolidated affiliates 125 - 78 -
------- ------- ------- --------
Net income (loss) $ 760 $ 566 $ 816 $ (1,477)
======= ======= ======= ========
Net income (loss) per share:
Basic $0.05 $0.04 $0.06 $(0.10)
===== ===== ===== ======
Diluted $0.05 $0.03 $0.05 $(0.10)
===== ===== ===== ======
Average shares outstanding:
Basic 14,288 14,288 14,288 14,288
====== ====== ====== ======
Diluted 16,376 16,205 16,356 14,288
====== ====== ====== ======
The accompanying notes are an integral part of these financial
statements.
4
STRATUS PROPERTIES INC.
STATEMENTS OF CASH FLOW (Unaudited)
Nine Months Ended
September 30,
-----------------------
1999 1998
------- --------
(In Thousands)
Cash flow from operating activities:
Net income (loss) $ 816 $ (1,477)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 63 54
Cost of real estate sold 3,518 10,564
Equity in unconsolidated affiliates (78) -
(Increase) decrease in working capital:
Accounts receivable and other (211) (3,354)
Accounts payable and accrued liabilities (724) 346
Other (483) (2,504)
------- -------
Net cash provided by operating activities 2,901 3,629
------- -------
Cash flow from investing activities:
Real estate and facilities (5,203) (4,284)
Investment in ABC West Joint Venture - (494)
Investment in Oly Walden Joint Venture (376) (1,999)
------- -------
Net cash used in investing activities (5,579) (6,777)
------- -------
Cash flow from financing activities:
Proceeds from preferred stock issuance - 10,000
Borrowings (repayment) of debt, net 1,000 (6,000)
Proceeds from convertible debt facility 376 1,999
------- -------
Net cash provided by (used in) financing activities 1,376 5,999
------- -------
Net increase (decrease) in cash and cash equivalents (1,302) 2,851
Cash and cash equivalents at beginning of year 5,169 873
------- -------
Cash and cash equivalents at end of period $ 3,867 $ 3,724
======= =======
The accompanying notes are an integral part of these financial
statements.
5
STRATUS PROPERTIES INC.
NOTES TO FINANCIAL STATEMENTS
1. EARNINGS PER SHARE
Basic net income (loss) per share of common stock was calculated
by dividing net income (loss) applicable to common stock by the
weighted-average number of common shares outstanding during each
period presented. Diluted net income (loss) per share was
calculated by dividing net income (loss) by the weighted-average
of common shares outstanding plus the effects of dilutive stock
options during each period presented. Stratus Properties Inc.
(STRS) had dilutive options representing approximately 376,000
and 356,000 shares of common stock for the third quarter and nine
months ended September 30, 1999, respectively. Additionally, the
diluted net income per share calculations for the 1999 periods
assume the redemption of STRS' approximate 1.7 million shares of
outstanding mandatorily redeemable preferred stock for
approximately 1.7 million shares of common stock. STRS'
outstanding convertible debt, which is convertible into
approximately 359,000 shares of common stock, was excluded from
the diluted net income per share calculation because of its anti-
dilutive effect. Interest accrued on the convertible debt
outstanding totaled approximately $64,000 and $189,000 during the
third quarter and nine months ended September 30, 1999,
respectively, and there have been no dividends accrued to date on
the mandatorily redeemable preferred stock.
During the third quarter of 1998, STRS' diluted net income
per share computation included the following: outstanding options
representing approximately 202,000 shares of common stock, the
assumed redemption of STRS' 1.7 million shares of outstanding
mandatorily redeemable preferred stock for approximately 1.7
million shares of common stock and STRS' outstanding convertible
debt which, assuming conversion, represented 3,000 shares of
common stock. Because of the net loss for the period, the diluted
loss per share calculation for the 1998 nine-month period
excludes as anti-dilutive the conversion of the mandatorily
redeemable preferred stock and convertible debt discussed above,
as well as outstanding options to purchase approximately 303,000
shares of common stock.
Outstanding options to purchase approximately 295,000 and
299,000 shares of common stock at an average exercise price of
$6.14 per share for both the third quarter of 1999 and 1998,
respectively, and outstanding options to purchase 295,000 and
289,000 shares of common stock at average exercise prices of
$6.14 and $6.19 per share for the nine months ended September 30,
1999 and 1998, respectively, were excluded from the computation
of diluted earnings per share because their exercise prices were
greater than the average market price for the periods presented.
2. LONG-TERM DEBT
STRS has a $35.0 million revolving credit facility with
individual borrowings bearing interest at rates based on the lead
lender's prime rate or LIBOR, at STRS' option. The aggregate
commitment decreased to $35.0 million on January 1, 1999. It
will be reduced further to $15.0 million on January 1, 2000 and
will terminate on January 1, 2001. During 1999 STRS classifies
any borrowings on this credit facility in excess of $15 million
as current maturities of long-term debt. As of September 30,
1999, credit facility borrowings totaled $28.1 million. IMC
Global Inc. (IGL) has guaranteed amounts borrowed under the
facility in exchange for an annual fee. This fee, which is
payable quarterly, is equal to the difference between STRS' cost
of funded borrowings before the assumption of the guarantee by
IGL and the current rate on the funded loans under the facility.
STRS cannot amend the facility without IGL's consent. For
further discussion of this credit facility, see Note 5 of "Notes
to Financial Statements" in STRS' 1998 Annual Report on Form 10-
K. STRS had $2.6 million of additional long-term debt
outstanding on September 30, 1999 resulting from borrowings on
its convertible debt facility (see Note 3).
STRS believes its near-term capital resource needs can be
met adequately during the remainder of 1999 from operating cash
flows and additional borrowings under its existing debt
facilities. However, the debt reduction required under its
revolving credit facility (see above) will require new financing
by no later than January 1, 2000. Accordingly, STRS is currently
exploring capital raising alternatives, including various forms
of debt and/or equity financing. STRS continues to pursue
financing for the development of individual projects through both
commercial bank facilities and in accordance with its alliance
with Olympus (see Note 3). While there can be no assurance that
STRS will have the necessary funds, management believes that STRS
6
has the ability to effectively address its capital resource needs
and debt reduction requirements. See Note 7 for a discussion of
subsequent developments regarding STRS' capital resources and
debt reduction requirements.
3. OLYMPUS RELATIONSHIP
In May 1998, STRS and Olympus Real Estate Corporation (Olympus),
an affiliate of Hicks, Muse, Tate & Furst Incorporated, formed a
strategic alliance to develop certain of STRS' 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 STRS' mandatorily
redeemable preferred stock, provided a $10 million convertible
debt financing facility to STRS and agreed to make available up
to $50 million of additional capital representing its share of
direct investments in joint STRS/Olympus projects.
The $10 million convertible debt facility is available to
STRS in whole or in part until May 22, 2004 and is intended to
fund STRS' equity investments in new STRS/Olympus joint venture
opportunities involving properties not currently owned by STRS.
Interest under this facility accrues at 12 percent and is payable
quarterly or added to principal at Olympus' option. As of
September 30, 1999, Olympus had elected to add all interest ($0.2
million) to the outstanding principal ($2.4 million, see Note 5),
resulting in an outstanding amount of $2.6 million.
Through May 22, 2001, Olympus agreed to make available up to
$50 million for its share of capital for direct investments in
STRS/Olympus joint acquisition and development activities. In
return, STRS has provided Olympus with a right of first refusal
to participate for no less than a 50 percent interest in all new
acquisition and development projects on properties not currently
owned by STRS, as well as development opportunities on existing
properties in which STRS seeks third-party equity participation.
As of September 30, 1999, Olympus had invested approximately
$5.7 million of such funds in STRS/Olympus joint ventures. For
further discussion of STRS' alliance and its subsequent
formation of joint ventures with Olympus see Note 5 and Notes 2,
3 and 4 of "Notes to Financial Statements" included in STRS' 1998
Annual Report on Form 10-K.
4. PROJECT LOAN FACILITY
In April 1999, STRS and a wholly owned subsidiary finalized a
$6.6 million project development loan facility with a commercial
bank for the development of the 70,000 square foot first phase of
the 140,000 square foot Lantana Corporate Center (7000 West).
STRS is guarantor of the completion of the project and is
responsible for any unpaid interest and certain other limited
obligations. The 18-month, variable-rate, non-recourse loan is
secured by approximately 11 acres of land at 7000 West, the
related improvements and approximately $2.0 million of
reimbursements due from the City of Austin for the Lantana water
pump station. Interest is payable monthly and accrues at either
the lending bank's prime rate or LIBOR plus 250 basis points at
STRS' option. In August 1999, as part of a joint venture
agreement with Olympus, STRS sold a 50.1 percent interest in the
subsidiary that held the project loan. Accordingly the project
loan is no longer consolidated on STRS' books and is now being
recorded by the joint venture (see Note 5). As of September 30,
1999, outstanding borrowings on this project loan facility
totaled approximately $1.4 million.
5. INVESTMENT IN UNCONSOLIDATED AFFILIATES
On September 30, 1998, STRS entered into two separate
transactions with Olympus. The first provided for the
development of 75 residential lots at the Barton Creek ABC West
Phase I subdivision known as Wimberly Lane. In this transaction
STRS sold the land to the Oly Stratus ABC West I Joint Venture
(ABC Joint Venture) for approximately $3.3 million, of which
$1.65 million attributable to its 50 percent equity interest was
deferred for financial accounting purposes, and invested
approximately $0.5 million in the now fully developed project.
The other transaction involved approximately 700 developed lots
and 80 acres of platted but undeveloped real estate at the Walden
on Lake Houston project (Walden). Olympus originally purchased
Walden in April 1998 when it contained 930 developed lots and 80
acres of undeveloped property. STRS has served as manager of this
project since Olympus' purchase. STRS acquired a 50 percent
interest in the Oly Walden Partnership (Walden Partnership) for
$2.0 million borrowed under its convertible debt facility with
Olympus (see Note 3). On September 30, 1999, STRS borrowed an
additional $0.4 million under the convertible debt facility to
fund its share of an additional capital contribution to the
Walden Partnership. STRS accounts for its investment in both of
these affiliated entities using the equity method.
The Walden Partnership and the ABC Joint Venture each have
project development loan facilities with the same commercial
bank. These facilities, totaling $8.2 million for the Walden
7
Partnership and $3.9 million for the ABC Joint Venture, are non-
recourse to the partners and secured by the assets of the
respective projects. At September 30, 1999, borrowings of $4.6
million were outstanding on the Walden facility. The ABC Joint
Venture has repaid all outstanding obligations under its facility
and does not anticipate making any future borrowings. These
facilities required that a wholly owned subsidiary of STRS
deposit a total of $3.0 million of restricted cash with the bank
as additional collateral for these facilities. The loan agreement
for the Walden Partnership permits a $0.30 reduction of this
restricted cash deposit for every $1.00 of principal repaid on
the Walden Partnership loan. The restriction on the $0.5 million
deposited as collateral for the ABC Joint Venture loan has now
been partially removed ($0.4 million) because the entire loan has
been repaid. The ABC Joint Venture facility currently has
approximately $0.1 million of outstanding letters of credit
covering the completion of the project, at which time this
remaining restricted cash will be released. At September 30,
1999, STRS had approximately $1.8 million of restricted cash
pursuant to these projects' development loan facilities
agreements.
On August 16, 1999, STRS sold Olympus a 50.1 percent
interest in 7000 West. STRS received $1.1 million upon closing
and recognized a $0.5 million gain. STRS deferred revenue of
approximately $0.5 million representing its 49.9 percent retained
interest in the 5.5 acres of commercial real estate associated
with phase I of the project. The initial 7000 West building is
substantially complete and leases have been executed totaling
approximately 83 percent of the building. STRS anticipates that
the building will be fully leased by completion of its
construction, which is expected in November 1999. STRS
anticipates the remaining 5.5 acres of commercial real estate
associated with phase II of the project will be sold in a similar
transaction by year-end 1999. Construction of the second building
will be funded utilizing additional borrowings under the existing
project loan (see Note 4) and is expected to be completed in the
third quarter of 2000. STRS accounts for its investment in this
joint venture using the equity method.
For a detailed discussion of the joint venture and
partnership transactions with Olympus see Note 4, "Investment in
Unconsolidated Affiliates" and "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 STRS' 1998 Annual Report on Form 10-K.
There have been no dividends paid by any of the
unconsolidated affiliates as of September 30, 1999. The
summarized unaudited financial information of STRS'
unconsolidated affiliates is shown below (in thousands):
ABC Walden 7000
Joint Venture Partnership West Total
------------- ----------- ------ -------
Earnings data for the quarter
ended September 30, 1999:
Revenues $ 1,361 $ 632 $ - $ 1,993
Operating income (loss) 282 (130) (5) 147
Net income (loss) 282 (119) (2) 161
STRS' equity in net income (loss) 141 (15)a (1) 125a
Earnings data for the nine months
ended September 30, 1999:
Revenues $ 2,630 $ 1,622 $ - $ 4,252
Operating income (loss) 534 (476) (5) 53
Net income (loss) 534 (464) (2) 68
STRS' equity in net income (loss) 267 (188)a (1) 78a
a.Includes recognition of $44,000 of a total $337,000 of
deferred income, representing the difference in STRS'
investment in the Walden partnership and its underlying equity
at the date of acquisition. STRS will recognize the remaining
difference as the related real estate is sold.
6. LITIGATION
STRS is involved in pending litigation involving the City of
Austin (the City) and others, which may affect its property
development entitlements and its ability to secure reimbursement
of approximately $22 million, of which STRS' portion is estimated
to be approximately $18 million, exclusive of penalties and
8
interest, relating to development of its Circle C property. Refer
to Item 3 "Legal Proceedings" and Note 6 "Real Estate" in the
STRS Annual Report on Form 10-K for the year ended December 31,
1998 for a detailed discussion of such litigation matters. For
discussion of litigation events subsequent to the Form 10-K refer
to Note 7, "Capital Resources and Liquidity" and Part II - Other
Information, "Legal Proceedings" included elsewhere in this Form
10-Q.
7. SUBSEQUENT EVENTS
In late October 1999, Circle C Land Corp. (Circle C), a wholly
owned subsidiary of STRS, and the City reached an agreement
regarding a portion of Circle C's claims against the City (see
Note 6). As a result of this agreement, STRS received
approximately $9.8 million, including $1.0 million in interest,
representing a partial payment of these claims. STRS will
continue to vigorously pursue its remaining claims against the
City for approximately $9.0 million. STRS used the proceeds to
reduce the balance outstanding under its existing bank credit
facility (see Note 2), to approximately $18 million.
Under the terms of the agreement, STRS would be required to
return the money to the City and the City would be required to
return the utility infrastructure to STRS if the City's
annexation of the Circle C municipal utility districts is
reversed or otherwise legally rescinded, whether by legislative
action, final action of an appellate court, or other legal
process. If the transaction is rescinded, STRS would pursue its
reimbursement claims for this amount, plus the additional amounts
STRS considers due from the City, under Texas law. For further
discussion of STRS' litigation and related issues see Note 6 and
Part II- Other Information, "Legal Proceedings" included
elsewhere in this interim report on Form 10-Q.
On November 3, 1999, STRS received tentative approval of the
basic terms of a new credit facility from a commercial bank. The
actual terms of the new facility are subject to final negotiation
of a definitive agreement, which if consummated would replace
STRS' existing revolving credit facility (see Note 2) and
effectively extend STRS' current debt maturity. While STRS
believes that a new credit facility can be finalized on
acceptable terms by December 31, 1999, there can be no assurance
that this will occur. STRS has identified other financing
alternatives that it believes will be available if the new credit
facility cannot be finalized by December 31, 1999.
--------------------
Remarks
The information furnished herein should be read in conjunction
with STRS' financial statements contained in its 1998 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 September
30, 1999, the related statements of operations for the three and
nine-month periods ended September 30, 1999 and 1998 and the
statements of cash flow for the nine month periods ended
September 30, 1999 and 1998. 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 generally accepted auditing
standards, 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 generally
accepted accounting principles.
We have previously audited, in accordance with generally accepted
auditing standards, the balance sheet of Stratus Properties Inc.
as of December 31, 1998, and the related statements of
operations, stockholders' equity and cash flow for the year then
ended (not presented herein), and in our report dated January 19,
1999, based on our audit, 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, 1998, is fairly stated, in all material respects, in relation
to the balance sheet from which it has been derived.
/s/ ARTHUR ANDERSEN LLP
Austin, Texas
October 20, 1999 (except with
respect to Note 7, as to which
the date is November 3, 1999)
10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
OVERVIEW
Stratus Properties Inc. (STRS) is engaged in the
acquisition, development, management and sale of commercial and
residential real estate. STRS conducts its real estate
operations on properties it owns and through unconsolidated
affiliates that are jointly owned with Olympus Real Estate
Corporation (Olympus) pursuant to a strategic alliance formed in
May 1998 (see Notes 3 and 5), as more fully discussed below.
STRS' principal real estate holdings are in the Austin,
Texas area and consist of approximately 2,450 acres of
undeveloped residential, multi-family and commercial property
within the Barton Creek development, approximately 1,300 acres of
undeveloped commercial and multi-family property within the
Circle C Ranch development, and approximately 500 acres of
undeveloped residential, multi-family and commercial property
known as the Lantana tract, south of and adjacent to the Barton
Creek development.
As of September 30, 1999, STRS also owned 30 developed lots,
136 acres of undeveloped residential property and 75 acres of
undeveloped commercial and multi-family property located in
Dallas, Houston and San Antonio, Texas, which are being actively
marketed. These real estate interests are managed by unaffiliated
professional real estate developers who have been retained to
provide master planning, zoning, permitting, development,
construction and marketing services for the properties.
DEVELOPMENT ACTIVITIES
STRS Properties
Development is progressing at several sections of the Barton
Creek project, including the completion of utility infrastructure
that will serve a significant portion of the 2,450 acres of
undeveloped property at Barton Creek, and preliminary development
of approximately 200 new single-family homesites surrounding the
new Tom Fazio-designed "Fazio Canyons" golf course, which was
completed in September 1999. STRS expects that a number of these
homesites will be available for sale by late 2000. Permitting
and entitlement issues now being litigated make the timing of
completion of the projects at Barton Creek uncertain.
In September 1999, STRS commenced construction of 54 multi-
acre homesites on approximately 240 acres in the southern portion
of its Barton Creek development. The homesites, which range in
size from 1 to 11 acres, are scheduled for completion in the
third quarter of 2000. All of these lots have scenic hill
country settings and some will overlook Fazio Canyons.
Construction commenced during the third quarter of 1999 and pre-
marketing is expected to begin in the fourth quarter of 1999.
Unconsolidated Affiliates Properties
During the first quarter of 1999, STRS, as developer,
completed the development of 75 Barton Creek residential lots
owned by the Oly Stratus ABC West I Joint Venture (ABC Joint
Venture). STRS, as manager, has closed on the sale of 13 and 26
lots, resulting in revenues of $1.4 million and $2.6 million to
the joint venture during the third quarter and nine months ended
September 30, 1999, respectively. The net proceeds from these
sales were used to repay borrowings under the ABC Joint Venture
loan facility. The project loan has been totally repaid and the
ABC Joint Venture does not anticipate any future borrowings under
the facility. STRS will continue its marketing efforts and
anticipates substantial sales during the remainder of 1999 and
early 2000. STRS' restricted cash, which serves as additional
collateral for the loan facility, has been reduced from $0.5
million to $0.1 million as a result of the repayment of the
outstanding borrowings. The remaining $0.1 million will be
released when Travis County approves the completion of the
project, which STRS anticipates will occur by year-end 1999.
STRS is continuing to manage and market the assets of the
Oly Walden Partnership, which currently includes approximately
640 developed lots and 80 acres of platted but undeveloped real
estate near Houston, Texas. STRS receives management fees and
commissions for its services. During the second quarter of 1998
STRS negotiated agreements with developers providing for the sale
of approximately 90 percent of the developed lots at that time.
These agreements require the purchasers to close on the lots
pursuant to a specific schedule that extends through 2002. Sales
of approximately 290 lots have already been closed and funded
under these agreements.
11
On August 16, 1999, STRS sold Olympus a 50.1 percent
interest in the 70,000 square foot first phase of the 140,000
square foot Lantana Corporate Center (7000 West) (see Notes 4 and
5). Upon closing STRS received $1.1 million and recognized a $0.5
million gain. The first building is substantially complete and is
approximately 83 percent leased. STRS' objective is to have the
building fully leased by its completion in November 1999. During
the fourth quarter of 1999, STRS anticipates entering into a
similar transaction with Olympus to construct a second 70,000
square foot building at 7000 West. STRS anticipates that this
transaction will occur by year-end 1999. Funding of the
construction of the second building at 7000 West will be
primarily through additional borrowings on the existing project
loan facility (see Note 4). The second building is expected to
be completed in the third quarter of 2000.
RESULTS OF OPERATIONS
STRS' summary operating results follow (in thousands):
Third Quarter Nine Months
----------------- ----------------
1999 1998 1999 1998
------ ------- ------ -------
Revenues:
Undeveloped properties:
Unrelated parties $ - $ 284 $ 873 $ 554
Olympus 509 1,644 509 1,644
Recognition of deferred revenues 287 - 531 -
------ ------- ------ -------
Total undeveloped properties 796 1,928 1,913 2,198
Developed properties 567 4,311 3,246 10,104
Commissions, management fees and other 465 - 999 -
------ ------- ------ -------
Total revenues 1,828 6,239 6,158 12,302
Operating income (loss) 765 1,044 1,280 (45)
Net income (loss) 760 566 816 (1,477)
STRS' undeveloped property revenues include both sales of
undeveloped properties to third parties and the recognition of
previously deferred revenues from the sale of undeveloped real
estate to unconsolidated affiliates. When STRS sells real estate
to an entity jointly owed with Olympus, STRS defers recognizing
the portion of revenues from the sale related to its interest
until all or a portion of the real estate is ultimately sold to
unrelated parties. Revenues from unrelated parties included 28
acres of Houston residential property sold during the second
quarter of 1999, compared with 17 acres of residential property
at Barton Creek sold during the third quarter of 1998 and two
acres of residential property sold in Dallas during the first
quarter of 1998. STRS' recognition of deferred revenues resulted
from the ABC Joint Venture's sale of 13 and 26 developed lots
during the third quarter and nine months ended September 30,
1999, respectively. The remaining deferred revenues, which
originally totaled $1.6 million and resulted from STRS' retained
interest in the sale of 28 undeveloped acres to the ABC Joint
Venture during the third quarter of 1998, will be recognized as
the remaining lots are sold by the ABC Joint Venture. Revenues
from undeveloped property sales to Olympus in the third quarter
and nine-month periods of 1999 reflect the transfer to Olympus of
a 50.1 percent interest in 5.5 acres of commercial real estate in
7000 West, while third-quarter and nine-month 1998 revenues
reflect the interest in the 28 acres transferred to Olympus upon
formation of the ABC Joint Venture.
Revenues from developed properties represented the sale of
15 and 69 single family homesites during the third quarter and
nine month periods of 1999, respectively, compared with the sale
of 46 and 154 single family homesites during the comparable 1998
periods. The decreases in the 1999 periods reflect STRS' reduced
inventory of developed lots. STRS currently has no developed lots
in its Austin or Dallas developments and 30 remaining developed
lots in its Houston and San Antonio developments.
Commissions, management fees and other revenue reflect STRS'
effort to expand that part of its business through its role in
the joint ventures with Olympus, as well as its management of the
2,200 acre Lakeway project near Austin.
12
Cost of sales decreased to $0.4 million and $2.5 million for
the third quarter and nine months ended September 30, 1999
compared with $4.5 million and $9.2 million for the same periods
last year. The decreases primarily reflect the substantial
reduction in sales during 1999. Additionally, reimbursement of
certain infrastructure costs, which were previously charged to
expense or related to properties previously sold, reduced cost of
sales by approximately $2.8 million during the nine months ended
September 30, 1999 and $0.8 million for the nine-month period in
1998.
General and administrative expenses decreased during the
third quarter and nine months ended September 30, 1999, to $0.6
million and $2.4 million, respectively, compared with $0.7
million and $3.2 million during the comparable periods in 1998.
The decrease resulted primarily from reduced legal costs in
connection with STRS' ongoing efforts to resolve through
litigation attempts by the City of Austin (the City) and others
to restrict STRS' development entitlements and to secure
reimbursement from the City of approximately $22 million relating
to infrastructure costs incurred in the development of the Circle
C property which had been annexed by the City. On October 29,
1999, STRS received a partial payment of $9.8 million from the
City (see "Capital Resources and Liquidity"). STRS' remaining
share of these infrastructure costs, is currently estimated at
approximately $9 million, exclusive of penalties and interest and
are not recorded as an asset in STRS' balance sheet. In December
1998, the Texas Supreme Court heard oral argument on a legal
brief that may resolve various issues between STRS and the City.
A ruling could be issued at any time. Lower legal costs during
the 1999 periods reflect the reduced activity associated with the
timing of the Texas Supreme Court's ruling. See Part II, Item 1
"Legal Proceedings" for further discussion of legal matters
concerning STRS, including favorable legislative developments
during the second quarter of 1999. Legal expenses for the third
quarter and nine months ended September 30, 1999 totaled
approximately $0.2 million and $0.6 million, respectively,
compared with $0.2 million and $1.2 million during the same
periods last year.
During 1995, the Texas State legislature enacted legislation
that enabled STRS to create a series of municipal utility
districts (MUDs) to serve the Barton Creek development. Once
established, the MUDs issue bonds, the proceeds of which are used
to reimburse STRS for costs related to the installation of major
utility, drainage and water quality infrastructure. During the
nine months ended September 30, 1999, STRS received approximately
$3.1 million in partial reimbursement of infrastructure costs
relating to the Barton Creek development, which included $2.8
million related to costs previously expensed (see discussion
above). During the nine months ended September 30, 1998, STRS
received approximately $2.8 million, reflecting the receipt of
$1.8 million in partial Circle C MUD reimbursements and $1.0
million in partial Barton Creek MUD reimbursements, which
included $0.8 million related to costs previously expensed. The
proceeds were used in part to fund current development
expenditures and to repay debt. STRS expects to receive
additional reimbursements for previously incurred infrastructure
costs related to the Barton Creek development from the proceeds
of MUD bonds issued in the future. However, the timing and the
amount of future Barton Creek MUD reimbursements are uncertain.
For information concerning Circle C MUD reimbursements currently
being litigated, see Part II, Item 1, "Legal Proceedings."
Net interest expense totaled $142,000 and $644,000 for the
third quarter and nine months ended September 30, 1999,
respectively, compared to $495,000 and $1,480,000 during the same
periods one year ago. The decrease reflects lower average debt
outstanding in the current year and an increase in capitalized
interest. Capitalized interest was $304,000 and $835,000 during
the third quarter and nine months ended September 30, 1999
compared to $47,000 and $293,000 during the comparable 1998
periods.
CAPITAL RESOURCES AND LIQUIDITY
Net cash provided by operating activities totaled $2.9
million during the nine months ended September 30, 1999 compared
with $3.6 million during the nine months ended September 30,
1998. The decrease primarily reflects the reduction of sales
revenues and a reduction in outstanding accounts payable and
accrued liabilities subsequent to December 31, 1998, offset in
part by the receipt of $2.8 million in MUD reimbursements for
previously expensed infrastructure costs and collection of
outstanding accounts receivable. Cash used in investing
activities totaled $5.6 million during the nine months ended
September 30, 1999 compared with $6.8 million during the same
period in 1998, reflecting STRS' net real estate and facilities
expenditures. Financing activities provided cash of $1.4 million
from increased borrowings during the nine months ended September
30, 1999, including $0.4 million of additional borrowing under
the convertible debt facility (see Note 5). Financing activities
provided $6.0 million during the nine months ended September 30,
13
1998, which reflected the issuance of $10 million of mandatorily
redeemable preferred stock associated with the Olympus
transaction (see Note 3) and borrowings on the convertible debt
facility (see Note 5), offset in part by net repayments of
outstanding borrowings under its existing bank credit facility
(see Note 2).
STRS' development expenditures during the nine months ended
September 30, 1999 were funded largely from borrowings under its
existing credit facility, which provides aggregate available
credit of $35 million through December 31, 1999 and $15 million
through December 31, 2000 (see Note 2). At September 30, 1999,
outstanding debt on this credit facility totaled $28.1 million.
Anticipated capital expenditures for the remainder of 1999 are
expected to be funded by operating cash flow. Future levels of
capital expenditures are subject to change based on the
resolution of ownership of certain reimbursements of previously
incurred infrastructure costs and other legal and regulatory
issues, as further discussed in Part II, Item 1, "Legal
Proceedings."
STRS' future operating cash flows and, ultimately, its
ability to develop its properties and expand its business will be
largely dependent on the level of its real estate sales. In
turn, these sales will be significantly affected by future real
estate values, regulatory issues, development costs, interest
rate levels and the ability of STRS to continue to protect its
land use and development entitlements. Significant development
expenditures remain to be incurred for STRS' Austin-area
properties prior to their eventual sale. STRS' 1999 capital
expenditures have been and future capital expenditures will
continue to be limited to essential levels as STRS works to
preserve its land use and related rights in various disputes with
the City and others, as more fully explained in Part II Item 1,
"Legal Proceedings." As a result, property sales during the
remainder of 1999 and early 2000 are expected to be lower than in
previous years.
On October 29, 1999, STRS and the City agreed on a partial
payment of STRS' MUD reimbursement claims totaling $9.8 million
(see Note 7 and Part II, Item 1, "Legal Proceedings"). These
funds were used to reduce STRS' outstanding borrowings under its
existing bank facility to approximately $18 million. STRS' debt
is required to be reduced to $15 million by January 1, 2000.
Accordingly, STRS and a commercial bank have tentatively agreed
on the terms of a new credit facility, with final approval by the
bank primarily contingent upon STRS providing certain collateral
certifications. The new facility would replace STRS' existing
credit facility and effectively extend STRS' current debt
maturity. While STRS believes that the new credit facility can
be finalized on acceptable terms prior to December 31, 1999,
there can be no assurance that this will occur. STRS has
identified other financing alternatives that it believes will be
available if the new credit facility cannot be finalized by
December 31, 1999. STRS continues to be able to obtain capital
from Olympus for the development of existing properties in which
it desires third-party equity participation, and also believes it
can obtain bank financing at a reasonable cost for developing its
properties. However, obtaining land acquisition financing is
generally expensive and uncertain. Resolving its entitlement and
reimbursement disputes with the City and establishing a long-term
capital structure remain STRS' primary objectives.
IMPACT OF YEAR 2000 COMPLIANCE
The Year 2000 (Y2K) issue is the result of computerized
systems being written to store and process the year portion of
dates using two digits rather than four. Date-aware systems
(i.e. any system or component that performs calculations,
comparisons, sequencing or other operations involving dates) may
fail or produce erroneous results on or before January 1, 2000
because the year 2000 will be interpreted as the year 1900.
STRS' State of Readiness. STRS has been pursuing a strategy to
ensure all its significant computer systems will be Y2K
compliant, i.e., able to process dates from and after January 1,
2000, including leap years, without critical systems failure (Y2K
Compliant or Y2K Compliance). Certain computerized business
systems and related services are provided under contract by a
services company of which STRS owns 10 percent (the Services
Company) which is responsible for ensuring Y2K Compliance for the
systems it manages. The Services Company has separately prepared
a plan for its Y2K Compliance. Progress of the Y2K plan is being
monitored by STRS' executive management and reported to the Audit
Committee of the STRS Board of Directors. In addition, the
independent accounting firm functioning as STRS' internal
auditors is assisting management in monitoring the progress of
the Y2K plan. Critical components of the plan are complete with
the remaining activities focused on contingency planning. Like
other companies, STRS cannot, however, make Y2K Compliance
certifications because the ability of any organization's systems
14
to operate reliably after midnight on December 31, 1999 is
dependent upon factors that may be outside the control of, or
unknown to, the organization.
Information Technology (IT) Systems. STRS and the Services
Company have completed Y2K remediation and testing work for
critical business and office automation systems.
Non-IT Systems. With a few minor exceptions involving water
quality and other environmental monitoring and associated
laboratory analysis systems, STRS does not rely upon process
control, engineering, or other "Non-IT" systems in its business.
STRS completed an assessment of this area and does not believe
its overall risk is significant.
Third Party Risks. STRS computer systems are not widely
integrated with the systems of its suppliers or customers. The
primary potential risk attributable to third parties would be
from a temporary disruption of STRS operations due to a failure
by a supplier to meet its contractual obligations for services
and/or materials (rather than a failure associated with
integrated computer systems). An assessment of third party risk
has been completed. Based on this assessment, STRS does not
believe overall risk from third parties is significant.
The Costs to Address STRS' Y2K Issues Expenditures for the
necessary Y2K related modifications will largely be funded by
routine software and hardware maintenance fees paid by STRS or
the Services Company to the related software providers. The
incremental cost of Y2K Compliance not covered by STRS' routine
software and hardware maintenance fees will be less than $0.1
million, most of which has been incurred. If the software
modifications and conversions referred to above are not made, or
are delayed, the Y2K issue could have a material impact on STRS'
operations. Additionally, current estimates are based on
management's best estimates, which are derived using numerous
assumptions of future events including the continued availability
of certain resources, third party modification plans and other
factors. There also can be no assurance that the systems of
other companies will be converted on a timely basis or that
failure to convert will not have a material adverse effect on
STRS.
The Risks of STRS Y2K Issues Based on its detailed risk
assessment work conducted thus far, STRS believes the most likely
Y2K-related failures would probably be temporary disruption in
certain materials and services provided by third parties, which
would not be expected to have a material adverse effect on STRS'
financial condition or results of operations.
STRS' Contingency Plans Although STRS believes the likelihood
of any or all of the above risks occurring to be low, specific
contingency plans are being developed to address certain risk
areas. Initial contingency plans have been developed and will
continue to be updated based on changing business requirements.
While there can be no assurances that STRS will not be materially
adversely affected by Y2K problems, it is committed to ensuring
that it is fully Y2K ready and believes its plans adequately
address the above-mentioned risks.
CAUTIONARY STATEMENT
Management's discussion and analysis of financial condition
and results of operations contains forward-looking statements
regarding future reimbursement for infrastructure costs, future
events related to financing and the IMC Global Inc. guarantee,
the anticipated outcome of litigation and regulatory matters, the
expected results of STRS' business strategy, Y2K Compliance and
other plans and objectives of management for future operations
and activities. Important factors that could cause actual
results to differ materially from STRS' expectations include
economic and business conditions, business opportunities that may
be presented to and pursued by STRS, changes in laws or
regulations and other factors, many of which are beyond the
control of STRS and other factors that are described in more
detail under the heading "Cautionary Statements" in STRS' Form
10-K for the year ended December 31, 1998.
----------------------------
The results of operations reported and summarized above are not
necessarily indicative of future operating results.
15
PART II. - OTHER INFORMATION
Item 1. Legal Proceedings.
STRS is involved in various regulatory matters and
litigation involving entitlement and/or development of its Austin
properties. For a detailed discussion on these matters see Item
3, "Legal Proceedings" and Note 6, "Real Estate" included in
STRS' 1998 Annual Report on Form 10-K.
Below is a summary of the cases in which STRS is currently
involved. The current status is summarized and should be read in
conjunction with the above referenced sections of the STRS 1998
Annual Report on Form 10-K.
The City's WQPZ Action: The City of Austin, Texas v. Horse Thief
Hollow Ranch, Ltd., et al., Cause No. 98-00248 (Travis County
345th Judicial District Court, Texas filed 1/9/98). On January 9, 1998,
the City filed suit in Travis County District Court against 14 Water
Quality Protection Zones ("WQPZ") and their owners, including the
Barton Creek WQPZ, challenging the constitutionality of the
legislation authorizing the creation of water quality zones. The
Attorney General of Texas intervened in this suit and the Circle
C WQPZ litigation, described below, to defend the legislation.
The City filed a motion for partial summary judgment against one
defendant and against the State of Texas. All defendant parties
filed motions for summary judgment. A summary judgment hearing
was conducted in the Travis County District Court on July 9,
1998. The District Court entered an order granting the City's
motion for summary judgment and declaring the WQPZ legislation
unconstitutional. All parties agreed to the form of an order
which permitted an expedited appeal directly to the Texas Supreme
Court. STRS and other defendants filed appeals. The Texas
Supreme Court noted probable jurisdiction and set an expedited
briefing and hearing schedule. Oral argument was presented to
the Texas Supreme Court on December 9, 1998. A ruling is
expected at any time.
Circle C WQPZ Litigation: L.S. Ranch, Ltd. And Circle C Land
Corp., v. The City of Austin, Texas, Cause No. 97-1048 (Hays
County 207th Judicial District Court, Texas filed 10/31/97).
Circle C Land Corp., a wholly owned subsidiary of STRS, filed a
WQPZ (Circle C WQPZ) covering all of its 553 acres in the Circle
C development located outside the boundaries of any MUD. In
November 1997, STRS sought a declaratory judgment in the Hays
County District Court to confirm the validity of the Circle C
WQPZ. On September 4, 1998, after numerous attempts by the City
to transfer venue, deny jurisdiction or to stay the proceedings,
the Hays County District Court ruled that the WQPZ enabling
legislation was constitutional and that the Circle C WQPZ was
validly created. The City filed a petition for writ of injunction
with the Texas Supreme Court requesting a stay of the District
Court's ruling. On October 22, 1998, the Texas Supreme Court
granted a temporary stay. The City has appealed the Hays County
District Court's ruling to the Texas Third Court of Appeals. The
appellate court set the case for submission. Both parties
submitted briefs and on September 15, 1999 oral argument was
presented to the Third Court of Appeals. The principal issue
involved in this case, the constitutionality of the enabling
legislation authorizing the creation of WQPZs, is already pending
before the Texas Supreme Court in the City's WQPZ action
described above and is expected to be resolved in connection with
that case. Assuming the enabling legislation is determined to be
constitutional, certain important collateral issues are pending
before the Third Court of Appeals. Those issues, which involve
the application of the WQPZ enabling legislation to STRS' WQPZ at
Circle C, are expected to be resolved in STRS' favor.
Annexation/Circle C MUD Reimbursement Suit: Circle C Land Corp.
v. The City of Austin, Texas, Cause No. 97-13994 (Travis County
53rd Judicial District Court, Texas filed 12/19/97). On December
19, 1997, the City annexed all land formerly lying within the
Circle C project. If the City's annexation is valid, STRS'
property located within Circle C's municipal utility districts
(MUD) and annexed by the City is subject to the City's zoning and
development regulations. Additionally, the City is required to
assume all MUD debt and reimburse STRS for a significant portion
of the costs incurred for water, wastewater and drainage
infrastructure. Because the City failed to pay these costs upon
annexation, as required by statute, STRS sued the City. Both
parties have filed motions for summary judgment. The hearing
previously set for May 18, 1999 and the trial, previously
scheduled for May 24, 1999, were both continued and are expected
to be set during the first quarter of 2000. The City's total
reimbursement obligation to the Circle C developers, resulting
from its annexation, is estimated at $22 million, of which STRS'
remaining share is estimated at approximately $9.0 million,
exclusive of penalties and interest. On October 29, 1999, Circle
C Land Corp. and the City reached an agreement in which STRS
received $9.8 million (including $1 million of interest) as
partial payment of its MUD reimbursement claims. Under the terms
16
of the agreement, STRS would be required to return the money to
the City and the City would be required to return the utility
infrastructure to STRS if the City's annexation is reversed or
otherwise legally rescinded, whether by legislative action, final
action of the appellate court or other legal process. During the
1999 legislative session two laws were enacted enhancing STRS'
MUD reimbursement claim against the City, as described in
"Legislative Matters" below. These laws became effective on
September 1, 1999, and STRS is accordingly entitled to penalties
and interest on the outstanding delinquent Circle C MUD
reimbursements. STRS will continue to pursue this action
vigorously.
Phoenix Litigation: Circle C Land Corp. v. Phoenix Holdings,
Ltd., Cause No. 97-10388 (Travis County 261st Judicial District
Court, Texas filed 2/5/97). In February 1997, Circle C filed a
petition for declaratory judgment against Phoenix, which
purchased the residential portion of Circle C's lands, seeking a
declaration that Circle C is entitled to most of the MUD
reimbursements for infrastructure cost incurred at Circle C.
Phoenix filed a counterclaim. In February 1998, the District
Court granted Circle C's summary judgement motion on the primary
case and Phoenix dismissed its counterclaim with prejudice.
Phoenix filed various appeals and writs. On August 26, 1999, the
Texas Supreme Court denied Phoenix's writ making the judgment
against Phoenix final and non-appealable.
Legislative Matters. In the 1997 Texas State legislative
session, a bill to reorganize a state governmental agency
inadvertently repealed the provisions of law (H.B. 4 and S.B.
1704), that established grandfathered rights for previously
permitted lands. In response to the legislature's inadvertent
repeal, the City enacted an ordinance establishing regulations on
land development that effectively eliminated the grandfathered
rights. The City has attempted to apply these regulations to
portions of STRS' Circle C property and Lantana. In response,
STRS undertook to assert and defend its grandfathered
entitlements vigorously. In April 1999, the Texas State House of
Representatives and Senate overwhelmingly approved H.B. 1704,
which reinstated the grandfathered rights previously
inadvertently repealed. This bill became law effective on May
11, 1999. Additionally, three other laws were enacted during the
second quarter of 1999, which are expected to have a positive
impact on STRS' development rights for its Austin-area properties
and strengthen its position in collecting the Circle C MUD
reimbursements currently being litigated (see "Annexation/Circle
C MUD Reimbursements Suit" above). The laws enacted include:
S.B. 262, which requires a municipality that annexed property in
a MUD to pay penalties and interest on utility infrastructure
reimbursements associated with the annexed properties that are
not timely paid by the municipality; S.B. 1165, which validates
the creation of existing water quality protection zones; and S.B.
89, which requires a municipality to pay developers for utility
infrastructure within a MUD controlled and operated by a
municipality in conjunction with an annexation, regardless of
whether or not the municipality's annexation is ultimately
validated.
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: November 12, 1999
18
STRATUS PROPERTIES INC.
EXHIBIT INDEX
Exhibit
Number
3.1 Amended and Restated Certificate of Incorporation
of STRS. Incorporated by reference to STRS' Exhibit
3.1 to 1998 Form 10-K.
3.2 By-laws of STRS, as amended as of February 11,
1999. Incorporated by Reference to Exhibit 3.2 to STRS'
1998 Form 10-K.
4.1 STRS' Certificate of Designations of Series A
Participating Cumulative Preferred Stock. Incorporated
by reference to Exhibit 4.1 to STRS' 1992 Form 10-K.
4.2 Rights Agreement dated as of May 28, 1992 between
STRS and Mellon Securities Trust Company, as Rights
Agent. Incorporated by reference to Exhibit 4.2 to
STRS' 1992 Form 10-K.
4.3 Amendment No. 1 to Rights Agreement dated as of
April 21, 1997 between STRS and the Rights Agent.
Incorporated by reference to Exhibit 4 to STRS' Current
Report on Form 8-K dated April 21, 1997.
4.4 Amended, Restated and Consolidated Credit
Agreement dated as of December 15, 1997 among the
Partnership, Circle C Land Corp., certain banks, and
The Chase Manhattan Bank, as Administrative Agent and
Document Agent. Incorporated by reference to Exhibit
4.4 to STRS' 1997 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 STRS'
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 STRS' 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 STRS' Current Report on
Form 8-K dated June 3, 1998.
10.1 Amended and Restated Services Agreement, dated as of
December 23, 1997 between FM Services Company and STRS.
Incorporated by reference to Exhibit 10.2 to STRS' 1997
Form 10-K.
10.2 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 STRS' 1992 Form 10-K.
10.3 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 STRS' 1992 Form 10-K.
10.4 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 STRS' 1992 Form 10-K.
10.5 STRS Guarantee Agreement dated as of December 15, 1997
by STRS. Incorporated by reference to Exhibit 10.6 to
STRS' 1997 Form 10-K.
10.6 Amended and Restated IGL Guarantee Agreement dated as
of December 22, 1997 by IMC Global Inc. Incorporated
by reference to Exhibit 10.7 to STRS' 1997 Form 10-K.
E-1
10.7 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 STRS'
Current Report on Form 8-K dated June 3, 1998.
10.8 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 STRS' Current Report on Form 8-K dated
June 3, 1998.
10.9 Oly Stratus ABC West I Joint Venture Agreement between
Oly ABC West I, L.P. and Stratus West I, L.P. dated
September 30, 1998. Incorporated by reference to
Exhibit 10.10 to the Quarterly Report on Form 10-Q of
STRS for the Quarter ended September 30, 1998 ("the
STRS Third Quarter 10-Q")
10.10 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 STRS
Third Quarter 10-Q.
10.11 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 STRS Third Quarter 10-Q.
10.12 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 STRS Third Quarter 10-Q.
10.13 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 STRS Third Quarter 10-Q.
10.14 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 STRS Third Quarter
10-Q.
10.15 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 STRS Third Quarter 10-Q.
10.16 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 STRS Third Quarter 10-Q.
10.17 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 STRS Third Quarter 10-Q.
10.18 Amended and Restated Joint Venture Agreement Program,
dated August 16, 1999 by and between Oly Lantana, L.P., and
Stratus 7000 West Ltd.
10.19 The Reimbursement Claim Agreement dated October 29, 1999
by and between Circle C Land Corp. and the City of Austin.
Executive Compensation Plans and Arrangements (Exhibits
10.20 through 10.23)
10.20 STRS' Performance Incentive Awards Program, as
amended effective February 11, 1999. Incorporated by
reference to Exhibit 10.18 to STRS' 1998 Form 10-K.
10.21 STRS Stock Option Plan, as amended. Incorporated
by reference to Exhibit 10.9 to STRS's 1997 Form 10-K.
10.22 STRS 1996 Stock Option Plan for Non-Employee
Directors, as amended. Incorporated by reference to Exhibit
10.10 to STRS' 1997 Form 10-K.
10.23 Stratus Properties Inc. 1998 Stock Option Plan as
amended effective February 11, 1999. Incorporated by
reference to Exhibit 10.21 to STRS' 1998 Form 10-K.
15.1 Letter dated November 3, 1999 from Arthur Andersen LLP
regarding unaudited interim financial statements.
27.1 Financial Data Schedule.