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, 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. YesX No _
On June 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 8
Report of Independent Public Accountants 9
Management's Discussion and Analysis
of Financial Condition and Results of
Operations 10
Part II. Other Information 15
Signature 18
Exhibit Index E-1
<PAGE> 2
STRATUS PROPERTIES INC.
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements.
---------------------
<TABLE>
<CAPTION>
STRATUS PROPERTIES INC.
CONDENSED BALANCE SHEETS (Unaudited)
June 30, December 31,
1999 1998
--------- ---------
(In Thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 4,179 $ 5,169
Accounts receivable:
Property sales 590 525
Other 1,376 408
Prepaid expenses 288 361
--------- ---------
Total current assets 6,433 6,463
Real estate and facilities, net 97,782 96,556
Investment in and advances to
unconsolidated affiliates 2,421 2,468
Other assets 5,698 6,342
--------- ---------
Total assets $ 112,334 $ 111,829
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued liabilities $ 710 $ 583
Accrued interest, property taxes and other 690 1,861
Current portion of long-term debt 13,118 -
--------- ---------
Total current liabilities 14,518 2,444
Long-term debt 17,414 29,178
Other liabilities 6,377 6,238
Mandatorily redeemable preferred stock 10,000 10,000
Stockholders' equity 64,025 63,969
--------- ---------
Total liabilities and stockholders' equity $ 112,334 $ 111,829
========= =========
</TABLE>
The accompanying notes are an integral part of these financial
statements.
<PAGE> 3
<TABLE>
<CAPTION>
STRATUS PROPERTIES INC.
STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
------------------ -----------------
1999 1998 1999 1998
-------- ------- ------- -------
(In Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C>
Revenues $ 2,744 $ 3,408 $ 4,330 $ 6,063
Costs and expenses:
Cost of sales 1,007 3,005 2,077 4,653
General and administrative
expenses 1,004 1,107 1,738 2,499
-------- ------- ------- -------
Total costs and expenses 2,011 4,112 3,815 7,152
-------- ------- ------- -------
Operating income (loss) 733 (704) 515 (1,089)
Interest expense, net (233) (478) (502) (985)
Other income, net 133 22 104 31
-------- ------- ------- -------
Income (loss) before income
taxes and equity in affiliates 633 (1,160) 117 (2,043)
Income tax provision - - (14) -
Equity in unconsolidated affiliates (98) - (47) -
-------- ------- ------- -------
Net income (loss) $ 535 $(1,160) $ 56 $(2,043)
======== ======= ======= =======
Net income (loss) per share:
Basic $0.04 $(0.08) $- $(0.14)
===== ====== === ======
Diluted $0.03 $(0.08) $- $(0.14)
===== ====== === ======
Average shares outstanding:
Basic 14,288 14,288 14,288 14,288
====== ====== ====== ======
Diluted 16,254 14,288 16,235 14,288
====== ====== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial
statements.
<PAGE> 4
<TABLE>
<CAPTION>
STRATUS PROPERTIES INC.
STATEMENTS OF CASH FLOW (Unaudited)
Six Months Ended
June 30,
--------------------
1999 1998
------- --------
(In Thousands)
<S> <C> <C>
Cash flow from operating activities:
Net income (loss) $ 56 $ (2,043)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization 42 36
Cost of real estate sold 3,072 4,939
Equity in unconsolidated affiliates losses 47 -
(Increase) decrease in working capital:
Accounts receivable and other 30 263
Accounts payable and accrued liabilities (919) (370)
Other (208) (2,687)
------- --------
Net cash provided by operating activities 2,120 138
------- --------
Cash flow from investing activities:
Real estate and facilities (4,110) (3,111)
------- --------
Net cash used in investing activities (4,110) (3,111)
------- --------
Cash flow from financing activities:
Proceeds from preferred stock issuance - 10,000
Borrowings (repayment) of debt, net 1,000 (6,000)
------- --------
Net cash provided by financing activities 1,000 4,000
------- --------
Net increase (decrease) in cash and cash equivalents (990) 1,027
Cash and cash equivalents at beginning of year 5,169 873
------- --------
Cash and cash equivalents at end of period $ 4,179 $ 1,900
======= ========
</TABLE>
The accompanying notes are an integral part of these financial
statements.
<PAGE> 5
STRATUS PROPERTIES INC.
NOTES TO FINANCIAL STATEMENTS
1. EARNINGS PER SHARE
Basic and diluted 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. Stratus Properties Inc. (STRS) had
outstanding options to purchase a total of approximately 254,000
and 235,000 shares of common stock for the second quarter and six
months ended June 30, 1999, respectively, that were included in
the computation of diluted net income per share. 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 300,000 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 $63,000 and $125,000 during the
second quarter and six months ended June 30, 1999, respectively,
and there have been no dividends accrued to date on the
mandatorily redeemable preferred stock. During the second quarter
and six month periods of 1998 STRS had outstanding options
representing 320,000 and 345,000 shares of common stock,
respectively, that would otherwise be included in the calculation
of diluted net loss per share but were excluded because of the
anti-dilutive effect their inclusion would have on the
calculation, considering the losses reported during the periods.
The diluted loss per share excluded the assumed redemption of
the outstanding mandatorily redeemable preferred stock during the
second quarter and six months ended June 30, 1998. There was no
outstanding convertible debt as of June 30, 1998.
Outstanding options to purchase approximately 295,000 and
514,000 shares of common stock at average exercise prices of
$6.14 and $5.78 per share for the second 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 six months ended June 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 will
classify any borrowings on this credit facility in excess of $15
million as current maturities of long-term debt. As of June 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, payable quarterly, equal
to the difference between STRS' cost of LIBOR-funded borrowings
before the assumption of the guarantee by IGL and the current
rate on the LIBOR-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
$2.2 million of additional long-term debt outstanding on June 30,
1999 resulting from borrowings on its convertible debt facility
(see Note 3 below) and $0.2 million outstanding on the Lantana
Corporate Center project loan (see Note 4 below).
STRS believes its near-term capital resource needs can be
met adequately during 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 below). While there can be no assurance that STRS
will have the necessary funds, management believes that STRS has
the ability to effectively address its capital resource needs and
debt reduction requirements.
<PAGE> 6
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 June
30, 1999, Olympus had elected to add all interest to the
outstanding principal ($2.0 million, see Note 5 below), resulting
in an outstanding amount of $2.2 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 June 30, 1999, Olympus had invested approximately $3.6
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 below 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. At June 30, 1999, outstanding borrowings on this
project loan facility totaled $229,000.
5. INVESTMENT IN UNCONSOLIDATED AFFILIATES
On September 30, 1998, STRS entered into two separate
transactions with Olympus. The first provided for the
development of a 75 residential lot project 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. Olympus originally
purchased this project 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 its 50 percent interest in the Oly Walden Partnership
(Walden Partnership) borrowing $2.0 million of funds available
under its convertible debt facility with Olympus (see Note 3
above). 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
existing project development loan facilities with the same
commercial bank. These facilities, totaling $8.2 million for the
Walden 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 June 30, 1999, borrowings of $5.2 million
and $1.0 million were outstanding on these respective facilities.
Additionally, 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 the loan. 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. However, the
restriction on the $0.5 million deposited as collateral for the
ABC Joint Venture loan will not be removed until the entire loan
is repaid. At June 30, 1999, STRS had approximately $2.5 million
<PAGE> 7
of restricted cash pursuant to these projects' development loan
facilities agreements.
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 received from either
unconsolidated affiliate since their inception through June 30,
1999. The summarized unaudited financial information of STRS'
unconsolidated affiliates is shown below (in thousands):
<TABLE>
<CAPTION>
ABC Walden
Joint Venture Partnership Total
------------- ----------- -------
<S> <C> <C> <C>
Earnings data for the quarter
ended June 30, 1999:
Revenues $ 495 $ 600 $ 1,095
Operating income (loss) 4 (213) (209)
Net income (loss) 4 (199) (195)
STRS' equity in net income (loss) 2 (100) (98)
Earnings data for the six months
ended June 30, 1999:
Revenues $ 1,269 $ 990 $ 2,259
Operating income (loss) 252 (346) (94)
Net income (loss) 252 (345) (93)
STRS' equity in net income (loss) 126 (173) (47)
</TABLE>
5. LITIGATION
STRS is involved in pending litigation involving the City of
Austin 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
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 Annual Report
on Form 10-K refer to "Capital Resources and Liquidity" and Part
II - Other Information, "Legal Proceedings" included elsewhere in
this interim report on Form 10-Q.
--------------------
Remarks
The information furnished herein should be read in conjunction
with STRS' financial statements contained in its 1998 Annual
Report to stockholders included in its 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.
<PAGE> 8
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,
1999, the related statements of operations for the three and six-
month periods ended June 30, 1999 and 1998 and the statements of
cash flow for the six month periods ended June 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
July 20, 1999
<PAGE> 9
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 and sale of commercial and residential
real estate. 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.
At June 30, 1999, STRS also owned 44 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.
INVESTMENT IN UNCONSOLIDATED AFFILIATES
On September 30, 1998, STRS and Olympus Real Estate
Corporation (Olympus) agreed to enter into two separate 50
percent owned joint real estate transactions, pursuant to a
strategic alliance formed in May 1998 (see Notes 3 and 5 above).
During the first quarter of 1999, STRS, as developer,
completed the development of 75 residential lots at the Oly
Stratus ABC West I Joint Venture (ABC Joint Venture). STRS, as
manager, has closed on the sale of 13 lots as of June 30, 1999
resulting in revenues of $1.3 million to the joint venture. The
net proceeds from these sales were used to reduce outstanding
borrowings under the ABC Joint Venture development project loan
facility, which at June 30, 1999, totaled $1.0 million. STRS
will continue its marketing efforts and anticipates substantial
sales during the remainder of 1999 and into early 2000. All
sales proceeds will initially be used to repay the outstanding
project loan prior to any distributions to STRS and Olympus.
STRS will have access to $0.5 million, which it funded in a
restricted account as additional collateral for the loan
facility, upon the ABC Joint Venture's full repayment of the
project loan, which is anticipated by early 2000.
STRS is continuing to manage and market the assets of the
Oly Walden Partnership, which currently includes approximately
660 developed lots and 80 acres of platted but undeveloped real
estate. STRS receives management fees and commissions for its
services. STRS has negotiated agreements providing for the sale
of approximately 90 percent of the developed lots. These
agreements require the purchasers to close on the lots pursuant
to a specific schedule, which STRS anticipates will result in the
sale of all the lots over a period not to exceed four years or by
2002. Approximately 270 lots have already closed and funded
under these agreements.
DEVELOPMENT ACTIVITIES
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 a new Tom Fazio-designed golf course, which is
expected to open by the fourth quarter of 1999. STRS expects
these homesites to 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.
STRS' has completed site work for the 140,000 square foot
Lantana Corporate Center (7000 West) project, and construction
on the first 7000 West building is proceeding as scheduled with a
completion date anticipated in the fourth quarter of 1999. STRS
is actively pre-leasing the building. Financing for the 70,000
square foot first phase is provided by a $6.6 million project
loan facility, which was finalized in April 1999 (see "Capital
Resources and Liquidity" below).
<PAGE> 10
STRS has received final plat approval from the City of
Austin (the City) for a subdivision of 54 estate lots on
approximately 240 acres in the southern portion of its Barton
Creek development. All of these lots have scenic hill country
settings and some overlook the new Fazio golf course.
Construction is scheduled to commence in September 1999 and pre-
marketing of the estate lots is expected to begin in the fourth
quarter of 1999.
STRS has finalized plans for the development of portions of
its 46 acre Bee Cave tract, which is outside the City's
jurisdictional area. Additionally, STRS has contracted to sell
approximately 11 acres of this tract.
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
STRS' summary operating results follow (in thousands):
Second Quarter Six Months
----------------- -----------------
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues:
Developed properties $ 1,527 $ 3,408 $ 2,679 $ 5,793
Undeveloped properties 962 - 1,117 270
Commissions, management fees
and other 255 - 534 -
------- ------- ------- -------
Total revenues 2,744 3,408 4,330 6,063
Operating income (loss) 733 (704) 515 (1,089)
Net income (loss) 535 (1,160) 56 (2,043)
</TABLE>
Revenues from developed properties represented the sale of
33 and 54 single family homesites during the second quarter and
six month periods of 1999, respectively, compared with the sale
of 64 and 108 single family homesites, respectively, during the
1998 periods. Undeveloped property revenues during the second
quarter and six months of 1999 include the sale of 28 acres of
undeveloped residential property in Houston, Texas. Additionally,
revenues from undeveloped properties reflect STRS' recognition of
previously deferred revenues from the sale of five and 13 lots
during the second quarter and six months ended June 30, 1999,
respectively. These lot sales to unrelated parties permitted STRS
to recognize $89,000 and $244,000 during the second quarter and
six months ended June 30, 1999, respectively, of the $1,647,500
in previously deferred revenue, and $33,000 and $89,000,
respectively, of related profit associated with STRS' initial
sale of the 28 acres of undeveloped property to the ABC Joint
Venture. STRS' commissions, management fees and other revenue
reflect its increasing involvement in that aspect of the real
estate business and its managerial role in the joint ventures
with Olympus, as well as its management of the 2,200 acre Lakeway
project near Austin.
Cost of sales decreased to $1.0 million and $2.1 million for
the second quarter and six months ended June 30, 1999 compared
with $3.0 million and $4.7 million for the same periods last
year. Reimbursement of certain infrastructure costs, which were
previously charged to expense or related to properties previously
sold, reduced cost of sales by approximately $2.0 and $2.8
million during the second quarter and six months ended June 30,
1999, respectively, and $0.8 million for the six month period in
1998. Additionally, the cost of sales during the 1999 periods
reflect the substantial reduction in sales.
General and administrative expenses decreased during the
second quarter and six months ended June 30, 1999, to $1.0
million and $1.7 million, respectively, compared with $1.1
million and $2.5 million during the comparable periods last year.
The decrease resulted primarily from reduced legal costs in
connection with STRS' ongoing efforts to resolve through
litigation attempts by the City and others to restrict STRS'
development entitlements and to secure reimbursement of
approximately $22 million relating to infrastructure costs
incurred in the development of the Circle C property. STRS'
share of these costs, currently estimated at approximately $18
million, exclusive of penalties and interest, 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 is
anticipated during 1999. 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
<PAGE> 11
second quarter of 1999. Legal expenses for the second quarter
and six months ended June 30, 1999 totaled approximately $0.1 million
and $0.3 million, respectively, compared with $0.4 million and
$1.0 million during the same periods last year.
During 1995, legislation was enacted which 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 second quarter and six months
ended June 30, 1999, STRS received approximately $2.0 million and
$3.1 million in partial reimbursement of infrastructure costs
relating to the Barton Creek development, which included $2.0
million and $2.8 million, respectively, related to costs
previously expensed (see discussion above). During the second
quarter and six months ended June 30, 1998, STRS received $1.8
million and $2.8 million, respectively, reflecting the receipt of
$1.8 million in partial Circle C MUD reimbursements in the second
quarter and $1.0 million in partial Barton Creek MUD
reimbursements during the first quarter of 1998, 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 $233,000 and $502,000 for the
second quarter and six months ended June 30, 1999, respectively,
compared to $478,000 and $985,000 during the same periods one
year ago. The decrease reflects lower average debt outstanding in
the current year and an increase in capitalized interest.
CAPITAL RESOURCES AND LIQUIDITY
Net cash provided by operating activities totaled $2.1
million during the six months ended June 30, 1999 compared with
$0.1 million during the six months ended June 30, 1998. The
increase reflects the receipt of $2.8 million in MUD
reimbursements for previously expensed infrastructure costs,
offset in part by the reduction of sales revenues and a reduction
in outstanding accounts payable and accrued liabilities
subsequent to December 31, 1998. Cash used in investing
activities totaled $4.1 million during the six months ended June
30, 1999 compared with $3.1 million during the same period in
1998, reflecting STRS' net real estate and facilities
expenditures. Financing activities provided cash of $1.0 million
from increased borrowings during the six months ended June 30,
1999 compared with $4.0 million during the six months ended June
30, 1998, which reflected the issuance of $10 million of
mandatorily redeemable preferred stock associated with the
Olympus transaction (see Note 3) offset in part by net repayment
of debt. STRS used the net borrowings on its credit facilities
(see below) to fund real estate development expenditures and fund
operations during the six months ended June 30, 1999.
STRS' development expenditures during the six months ended
June 30, 1999 were funded largely from borrowings under its
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 June 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 and additional borrowings, with the
level of capital expenditures 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."
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 7000 West project at Lantana. 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 the
approximate 11 acres of land at 7000 West, the related
improvements and approximately $2.0 million of reimbursements due
from the City for the Lantana water pump station. Interest is
payable monthly and accrues at the bank's prime rate or LIBOR
plus 250 basis points, at STRS' option. STRS anticipates
refinancing this loan upon the completion of the pre-leasing
activities that are currently underway. At June 30, 1999
outstanding borrowings on this credit facility totaled $229,000.
<PAGE> 12
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' anticipated 1999
capital expenditures are being 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 are expected to be lower than in
previous years.
STRS believes its near-term capital resource needs can be
met adequately during 1999 from operating cash flows and
additional borrowings under its debt facilities. However, the
debt reduction required under its revolving credit facility will
require new financing by no later than January 1, 2000. STRS
therefore is considering other capital raising alternatives,
including various forms of debt and/or equity financing and other
means. STRS is able to obtain up to $50 million in 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 refinancing
its existing credit facility. However, while financing for
development of STRS' existing properties is available (see
discussion above), obtaining land acquisition financing is
generally expensive and uncertain. While there can be no
assurance that STRS will generate sufficient cash flow or obtain
sufficient funds to make the required debt reduction to $15
million by January 1, 2000 under its existing revolving credit
facility, STRS believes it can meet the capital resource needs
discussed above. Resolving its entitlement and reimbursement
disputes with the City and establishing a long-term capital
structure remain STRS' primary objectives for the remainder of
1999.
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
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. With the exception of
testing interfaces to computerized disbursement systems provided
by its primary bank, STRS and the Services Company have completed
Y2K remediation and testing work for critical business and office
automation systems. Testing of the banking interfaces is in
process with completion expected during the third quarter of
1999.
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
overall risk is significant.
Third Party Risks. STRS computer systems are not widely
integrated with the systems of its suppliers or customers. The
<PAGE> 13
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. Based on
current information, STRS believes that the incremental cost of
Y2K Compliance not covered by routine software and hardware
maintenance fees will be less than $0.1 million, most of which is
expected to be incurred in 1999. 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 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.
<PAGE> 14
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 with regard to 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 motion 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 in 1999.
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, without oral
argument, on April 30, 1999. Both parties submitted briefs and
filed motions for oral argument. On April 30, 1999, the Third
Court of Appeals granted the motions for oral argument and the
case has been set for submission and oral argument on September
15, 1999. 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 will be addressed by the Third Court
of Appeals. Those issues, which involve the application of the
WQPZ enabling legislation to 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. The
City's total reimbursement obligation to the Circle C developers
is currently estimated at $22 million, of which STRS' share is
currently estimated at approximately $18 million, exclusive of
penalties and interest. These proceeds are also subject to the
Phoenix litigation described below. The City's and STRS'
engineers and accountants are reviewing financial and engineering
materials in an effort to reach agreement on the proper amount of
<PAGE> 15
STRS' reimbursement claim. Both parties have filed motions for
summary judgment. The hearing set for May 18, 1999 and the
trial, previously scheduled for May 24, 1999, have both been
temporarily continued. During the 1999 legislative session two
laws were enacted enhancing STRS' MUD reimbursement claim against
the City, as described in "Legislative Matters" below. When these
laws become effective, on September 1, 1999, STRS will be
entitled to collect penalties and interest on the delinquent
Circle C MUD reimbursements. The penalties and interest are
accruing at a rate of 1 percent per month and currently total
approximately $3.3 million. A trial on the merits is expected to
be set for hearing for the fourth quarter of 1999. 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 June 1997. In February 1998, the
District Court granted Circle C's summary judgment motion on the
primary case and Phoenix dismissed its counterclaim with
prejudice, but reserved the right to appeal the summary judgment
of the primary case. On April 10, 1998, Phoenix appealed. In
March 1999, the Texas Third Court of Appeals upheld the District
Court's ruling in favor of Circle C. On March 18, 1999, Phoenix
filed a motion for rehearing with the Texas Third Court of
Appeals, which was denied on April 29, 1999. As a final effort,
Phoenix filed a writ with the Texas Supreme Court on June 2,
1999, which is expected to be denied. See "Annexation/Circle C
MUD Reimbursement Suit" above for the estimated amount of MUD
reimbursement currently due to STRS.
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), which established the 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 appealed. 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 approximate $18
million in Circle C MUD reimbursements, exclusive of penalties
and interest, 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 taken by a municipality in
conjunction with an annexation, regardless of whether or not the
municipality's annexation is ultimately validated.
Item 4. Submission of Matters to a Vote of Security Holders.
----------------------------------------------------
(a) The Annual Meeting of Stockholders of STRS was held May
13, 1999 (the Annual Meeting). Proxies were solicited pursuant
to Regulation 14A under the Securities Exchange Act of 1934, as
amended.
(b) At the Annual Meeting, Robert L. Adair III and Michael
D. Madden were elected to serve until the 2002 Annual Meeting of
Stockholders. In addition to the directors elected at the Annual
Meeting, the terms of the following directors continued after the
Annual Meeting: William H. Armstrong III and James C. Leslie.
(c) At the Annual Meeting, holders of STRS' Stock elected
two directors with the number of votes cast for or withheld from
the nominee as follows:
Name For Withheld
- ----- ---------- ---------
Robert L. Adair III 13,106,128 74,096
Michael D. Madden 13,104,558 75,666
<PAGE> 16
With respect to the election of directors, there were no
abstentions or broker non-votes.
At the Annual Meeting, the stockholders voted on and
approved a proposal to ratify the appointment of Arthur Andersen
LLP to act as the independent auditors to audit the financial
statements of STRS and its subsidiaries for the year 1999.
Holders of 13,144,843 shares voted for, holders of 20,547 shares
voted against and holders of 14,834 shares abstained from voting
on, such proposal. There were no broker non-votes with respect
to such proposal.
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.
<PAGE> 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 12, 1999
<PAGE> 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.
<PAGE> 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.
Executive Compensation Plans and Arrangements (Exhibits
10.18 through 10.21)
10.18 STRS' Performance Incentive Awards Program, as
amended effective February 11, 1999. Incorporated by
reference to Exhibit 10.18 to STRS' 1998 Form 10-K.
10.19 STRS Stock Option Plan, as amended. Incorporated
by reference to Exhibit 10.9 to STRS's 1997 Form 10-K.
10.20 STRS 1996 Stock Option Plan for Non-Employee
Directors, as amended. Incorporated by reference to Exhibit
10.10 to STRS' 1997 Form 10-K.
10.21 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 April 20, 1999 from Arthur Andersen LLP
regarding unaudited interim financial statements.
27.1 Financial Data Schedule.
<PAGE> E-2
Exhibit 15.1
July 20, 1999
Stratus Properties Inc.
98 San Jacinto Blvd.
Austin, TX 78701
Gentlemen:
We are aware that Stratus Properties Inc. has incorporated by reference
in its Registration Statements (File Nos. 33-78798, 333-31059 and 333-
52995) its Form 10-Q for the quarter ended June 30, 1999, which
includes our report dated July 20, 1999 covering the unaudited interim
financial information contained therein. Pursuant to Regulation C of
the Securities Act of 1933 (the Act), this report is not considered a
part of the registration statements prepared or certified by our firm
or a report prepared or certified by our firm within the meaning of
Sections 7 and 11 of the Act.
Very truly yours,
/s/ Arthur Andersen LLP
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Stratus
Properties Inc.'s financial statements at June 30, 1999 and the six months then
ended, and is qualified in its entirety by reference to such statements.
</LEGEND>
<CIK> 0000885508
<NAME> STRATUS PROPERTIES INC.
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 4,179
<SECURITIES> 0
<RECEIVABLES> 590
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 6,433
<PP&E> 97,945
<DEPRECIATION> 163
<TOTAL-ASSETS> 112,334
<CURRENT-LIABILITIES> 14,518
<BONDS> 17,414
10,000
0
<COMMON> 143
<OTHER-SE> 63,882
<TOTAL-LIABILITY-AND-EQUITY> 112,334
<SALES> 4,330
<TOTAL-REVENUES> 4,330
<CGS> 2,077
<TOTAL-COSTS> 2,077
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 502
<INCOME-PRETAX> 117
<INCOME-TAX> 14
<INCOME-CONTINUING> 56
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 56
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
