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, 2000
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, 2000, there were issued and outstanding
14,298,270 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 Income 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
<PAGE> 2
STRATUS PROPERTIES INC.
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
STRATUS PROPERTIES INC.
CONDENSED BALANCE SHEETS (Unaudited)
September 30, December 31,
2000 1999
--------- ---------
(In Thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents, including
restricted cash of $2.6 million and
$2.1 million, respectively $ 3,626 $ 3,964
Accounts receivable 1,745 1,309
Prepaid expenses 258 375
--------- ---------
Total current assets 5,629 5,648
Real estate and facilities, net 91,549 91,664
Investment in and advances to
unconsolidated affiliates 9,154 7,254
Other assets 3,883 11,106
--------- ---------
Total assets $ 110,215 $ 115,672
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued liabilities $ 680 $ 900
Accrued interest, property taxes and other 1,317 1,537
--------- ---------
Total current liabilities 1,997 2,437
Long-term debt 15,422 16,562
Other liabilities 7,920 19,833
Mandatorily redeemable preferred stock 10,000 10,000
Stockholders' equity 74,876 66,840
--------- ---------
Total liabilities and stockholders' equity $ 110,215 $ 115,672
========= =========
</TABLE>
The accompanying notes are an integral part of these financial
statements.
<PAGE> 3
<TABLE>
<CAPTION>
STRATUS PROPERTIES INC.
STATEMENTS OF INCOME (Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
----------------- -----------------
2000 1999 2000 1999
------- ------- ------- -------
(In Thousands, Except
Per Share Amounts)
<S> <C> <C> <C> <C>
Revenues $ 2,011 $ 1,828 $ 6,980 $ 6,158
Costs and expenses:
Cost of sales 1,565 420 4,902 2,497
General and administrative expenses 938 643 2,728 2,381
------- ------- ------- -------
Total costs and expenses 2,503 1,063 7,630 4,878
------- ------- ------- -------
Operating income (loss) (492) 765 (650) 1,280
Interest expense, net (195) (142) (582) (644)
Other income, net 150 12 7,958 116
------- ------- ------- -------
Income (loss) before income taxes
and equity in affiliates (537) 635 6,726 752
Income tax provision - - (40) (14)
Equity in unconsolidated affiliates 701 125 1,331 78
------- ------- ------- -------
Net income $ 164 $ 760 $ 8,017 $ 816
======= ======= ======= =======
Net income per share:
Basic $0.01 $0.05 $0.56 $0.06
===== ===== ===== =====
Diluted $0.01 $0.05 $0.49 $0.05
===== ===== ===== =====
Average shares outstanding:
Basic 14,298 14,288 14,295 14,288
====== ====== ====== ======
Diluted 16,301 16,376 16,279 16,356
====== ====== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial
statements.
<PAGE> 4
<TABLE>
<CAPTION>
STRATUS PROPERTIES INC.
STATEMENTS OF CASH FLOW (Unaudited)
Nine Months Ended
September 30,
------------------
2000 1999
------- -------
(In Thousands)
<S> <C> <C>
Cash flow from operating activities:
Net income $ 8,017 $ 816
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 88 63
Cost of real estate sold 667 3,518
Equity in unconsolidated affiliates' income (1,331) (78)
Recognition of deferred Circle C municipal
utility reimbursements (7,430) -
Long-term receivable and other 4,250 (483)
(Increase) decrease in working capital:
Accounts receivable and other 778 (211)
Accounts payable and accrued liabilities (276) (724)
------- -------
Net cash provided by operating activities 4,763 2,901
------- -------
Cash flow from investing activities:
Real estate and facilities (3,731) (5,203)
Investment in Oly Walden Joint Venture - (376)
------- -------
Net cash used in investing activities (3,731) (5,579)
------- -------
Cash flow from financing activities:
Payments on term-loan debt (4,697) -
Borrowings on bank credit facilities, net 3,309 1,000
Proceeds from convertible debt facility - 376
Exercise of stock options 18 -
------- -------
Net cash provided by (used in) financing activities (1,370) 1,376
------- -------
Net decrease in cash and cash equivalents (338) (1,302)
Cash and cash equivalents at beginning of year 3,964 5,169
-------- -------
Cash and cash equivalents at end of period $ 3,626 $ 3,867
======== =======
</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
Following is a reconciliation of net income and weighted average
common shares outstanding for purposes of calculating basic and
diluted net income per share (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
---------------- ----------------
2000 1999 2000 1999
------ ------ ------- -------
<S> <C> <C> <C> <C>
Basic net income per share of
common stock:
Net income $ 164 $ 760 $ 8,017 $ 816
------ ------ ------- -------
Weighted average common shares
outstanding 14,298 14,288 14,295 14,288
------ ------ ------- ------
Basic net income per share of
common stock $0.01 $0.05 $0.56 $0.06
===== ===== ===== =====
Weighted average common shares
outstanding 14,298 14,288 14,295 14,288
Dilutive stock options 291 376 272 356
Assumed redemption of preferred stock 1,712 1,712 1,712 1,712
Assumed redemption of convertible debt - - - -
------ ------ ------- ------
Weighted average common shares
outstanding for purposes of calculating
diluted net income per share 16,301 16,376 16,279 16,356
------ ------ ------- ------
Diluted net income per share $0.01 $0.05 $0.49 $0.05
===== ===== ===== =====
</TABLE>
Interest accrued on the convertible debt outstanding totaled
approximately $83,000 for the third quarter quarter of 2000 and
$248,000 for the nine months ended September 30, 2000. Interest
accrued on the convertible debt totaled approximately $64,000
during the third quarter of 1999 and $189,000 for the nine
months ended September 30, 1999. There have been no dividends
accrued on Stratus' mandatorily redeemable preferred stock
through September 30, 2000. The debt was convertible into
404,000 shares for the third-quarter and nine-month periods of
2000 and 359,000 shares for the third-quarter and nine-month 1999
periods. The effects of an assumed redemption of convertible
debt were excluded from the computation of diluted net income per
share because they were anti-dilutive.
Outstanding stock options excluded from the computation of
diluted net income per share of common stock because their
exercise prices were greater than the average market price of the
common stock during the period are as follows:
<TABLE>
<CAPTION>
Third Quarter Nine Months
-------------- -------------
2000 1999 2000 1999
----- ----- ----- -----
<S> <C> <C> <C> <C>
Outstanding options (in thousands) 309 295 530 295
Average exercise price $6.07 $6.14 $5.35 $6.14
</TABLE>
2. OLYMPUS RELATIONSHIP and INVESTMENT IN UNCONSOLIDATED AFFILIATES
In May 1998, Stratus and Olympus Real Estate Corporation
(Olympus), an affiliate of Hicks, Muse, Tate & Furst
Incorporated, formed a strategic alliance to develop certain of
Stratus' existing properties and to pursue new real estate
acquisition and development opportunities. Under the terms of
the agreement, Olympus made a $10 million investment in Stratus'
mandatorily redeemable preferred stock, provided a $10 million
convertible debt financing facility to Stratus and agreed to make
available up to $50 million of additional capital representing
its share of direct investments in joint Stratus/Olympus
projects. As of September 30, 2000, Stratus had $2.9 million of
borrowings outstanding on the convertible debt facility and
Olympus had invested approximately $13.4 million in joint
Stratus/Olympus projects, as further discussed below.
Stratus has investments in three joint ventures. Stratus
owns a 49.9 percent interest in each joint venture and Olympus
owns the remaining 50.1 percent interest. Accordingly, Stratus
accounts for its investments in the joint ventures utilizing the
equity method of accounting. Stratus develops and manages each
project undertaken by these joint ventures and receives
development fees, sales commissions, and other management fees
for its services.
<PAGE> 6
Stratus' three joint ventures are: the Oly Stratus Barton
Creek I Joint Venture (Barton Creek Joint Venture), the Oly
Walden General Partnership (Walden Partnership) and the Stratus
7000 West Joint Venture (7000 West Joint Venture). The Barton
Creek Joint Venture currently consists of two separate
subdivisions located southwest of Austin, Texas: "Wimberly Lane"
and "Escala Drive." At September 30, 2000 there were eight
remaining single-family homesites at the Wimberly Lane
subdivision and 29 remaining at the Escala Drive subdivision.
The Walden Partnership had 508 single-family homesites available
at the Walden on Lake Houston development in Houston, Texas at
September 30, 2000. The 7000 West Joint Venture consists of two
completed and fully leased 70,000 square foot office buildings.
During the first quarter of 2000, Stratus completed a previous
sale of 5.5 acres of commercial real estate to the 7000 West
Joint Venture. Stratus recognized an approximate gain of $0.4
million, representing the gain attributable to Olympus' 50.1
percent joint venture interest, during the second quarter of 2000
when it completed construction and leasing activities for the
second 70,000 square foot office building.
For a detailed discussion of the Olympus alliance and the
initial formation and subsequent transactions of the joint
ventures and partnership, see Notes 2, 3 and 4 of the "Notes to
Financial Statements" included in Stratus' 1999 Annual Report on
Form 10-K. Also refer to "Transactions with Olympus Real Estate
Corporation" and "Capital Resources and Liquidity" included in
Items 7 and 7A "Management's Discussion and Analysis of Financial
Condition and Results of Operations and Disclosures of Market
Risks" included in Stratus' 1999 Annual Report on Form 10-K.
The Barton Creek Joint Venture distributed approximately $4.6
million to the partners during the third quarter of 2000 and
$12.1 million for the nine months ended September 30, 2000 ($12.9
million from inception through September 30, 2000). Stratus
recorded its portion of these distributions, approximately 50
percent, as a reduction of its note receivable and related
accrued interest associated with its initial sales of land to the
joint venture. Stratus' Barton Creek Joint Venture note
receivable has been reduced to less than $0.5 million and is
reflected as a current asset at September 30, 2000 because the
amount will be fully distributed in the fourth quarter of 2000.
Any distributions above the remaining $0.5 million note
receivable amount will be a return of Stratus' investment in the
joint venture. The other joint ventures have not yet made any
distributions. The summarized unaudited financial information of
Stratus' unconsolidated affiliates is shown below (in thousands):
<TABLE>
<CAPTION>
Barton Creek Walden 7000
Joint Venture Partnership West Total
------------ ----------- ----- --------
<S> <C> <C> <C> <C>
Earnings data for the quarter
ended September 30, 2000:
Revenues $ 5,160 $ 657 $ 347 $ 6,164
Operating income (loss) 1,761 (278) (10) 1,473
Net income (loss) 1,761 (377) (8) 1,376
Stratus' equity in net income (loss) 879 (174)a (4) 701
Earnings data for the quarter
ended September 30, 1999:
Revenues $ 1,466 $ 625 $ - $ 2,091
Operating income (loss) 282 (130) (5) 147
Net income (loss) 282 (119) (2) 161
Stratus' equity in net income (loss) 141 (15)a (1) 125
Earnings data for the nine months
ended September 30, 2000:
Revenues $ 13,924 $ 2,083 $ 756 $ 16,763
Operating income 3,567 (559) (540) 2,468
Net income 3,630 (510) (530) 2,590
Stratus' equity in net income (loss) 1,814 (218)a (265) 1,331
</TABLE>
<PAGE> 7
<TABLE>
<CAPTION>
Barton Creek Walden 7000
Joint Venture Partnership West Total
------------- ----------- ----- --------
<S> <C> <C> <C> <C>
Earnings data for the nine months
ended September 30, 1999:
Revenues $ 2,829 $ 1,610 $ - $ 4,448
Operating income (loss) 534 (476) (5) 53
Net income (loss) 534 (464) (2) 68
Stratus' equity in net income (loss) 267 (188)a (1) 78
</TABLE>
a. Includes recognition of deferred income totaling $14,000 in
the third quarter of 2000 and $37,000 for the nine months period
of 2000. Stratus recognized $43,000 of the deferred income for
the nine months ended September 30, 1999. Stratus will recognize
the remaining deferred income as the related real estate is sold.
Through September 30, 2000, Stratus had recognized $104,000 of a
total of $337,000 of deferred income associated with the Walden
Partnership.
3. COMMITMENTS and CONTINGENCIES
In late October 1999, Circle C Land Corp. (Circle C), a wholly
owned subsidiary of Stratus, and the City of Austin (the City)
reached an agreement regarding a portion of Circle C's claims
against the City involving the reimbursement of certain
previously incurred water, wastewater and drainage infrastructure
expenditures following the City's December 1997 annexation of all
land lying within the Circle C community. As a result of this
agreement, Stratus received $9.8 million, including $1.0 million
in interest, representing a partial payment of these claims.
Stratus has collected a total of $10.5 million of reimbursements
from the City as of September 30, 2000. Stratus used the proceeds
to reduce its outstanding debt. Stratus will continue to pursue
vigorously its remaining claims against the City (see Note 6).
The partial payment settlement agreement included a
contingency provision requiring Stratus to return all reimbursed
money to the City and the City to return the related utility
infrastructure to Stratus if the City's annexation of the Circle
C municipal utility districts (MUD) was reversed or otherwise
rescinded, whether by legislative action, final action of the
appellate court, or other legal process. In March 2000, the City
approved a settlement agreement of all disputes between the City
and certain third party real estate developers and landowners
involved in the Circle C community. Under terms of this
settlement, the lawsuits contesting the City's December 1997
annexation of all land within the four Circle C MUDs and the
dissolution of the four MUDs have been dismissed with prejudice.
As a result, the refund contingency included in the City's
partial settlement of Stratus' reimbursement claim has been
eliminated. Stratus has recorded a gain of approximately $7.4
million in the first quarter of 2000, representing that portion
of the reimbursed infrastructure expenditures in excess of
Stratus' remaining basis in these assets and related interest
income. The remaining $3.1 million of the proceeds reduced
Stratus' investment in Circle C.
4. RESTRICTED CASH
Stratus' existing credit facility requires it to deposit funds
into an interest reserve account with the lending bank, Comerica
Bank-Texas. The amount in this account must be sufficient to
fund Stratus' debt service for both its term loan and revolving
line of credit for the ensuing twelve-month period, adjusted
quarterly, or Stratus' availability under its revolving line of
credit will be reduced by the amount of the shortfall. At
September 30, 2000, Stratus had deposits totaling $1.9 million in
the interest reserve account, which represent the full amount
required at that date. For additional discussion of Stratus'
credit facility and its interest reserve requirements see Note 5
of the "Notes to Financial Statements" included in its 1999
Annual Report on Form 10-K.
At September 30, 2000, Stratus had other restricted
cash deposits totaling $0.7 million related to additional
collateral associated with the Walden Partnership's project
development loan. This deposit is reduced by $0.30 for every
$1.00 in principal the Walden Partnership repays on the loan. For
additional discussion of the Walden Partnership project
development loan, see Item 2. "Management's Discussion and
Analysis of Financial Condition and Results of Operations"
included elsewhere in this Form 10-Q and Note 4 of "Notes to
Financial Statements" included in Stratus' 1999 Annual Report on
Form 10-K.
<PAGE> 8
5. LITIGATION
In June 2000, the Texas Supreme Court affirmed a prior district
court decision that certain state legislation enabling the
creation of water quality protection zones was unconstitutional.
This decision primarily affects Stratus' future development
plans for certain areas within the southern portion of its Barton
Creek community. Stratus has initiated development plans that
will meet the development requirements under existing laws.
Stratus also is involved in pending litigation involving the City
relating to Stratus' remaining reimbursements claims relating to
development of its Circle C property (see Note 6 below). Refer to
Item 3 "Legal Proceedings" and Note 6 "Real Estate" in the
Stratus' 1999 Annual Report on Form 10-K for a detailed
discussion of such litigation matters. For discussion of
litigation events subsequent to the Form 10-K, refer to Part II -
Other Information, "Legal Proceedings" included elsewhere in this
Form 10-Q.
6. CITY OF AUSTIN NEGOTIATIONS
Stratus has been engaged in substantive discussions with the City
in an attempt to negotiate a settlement of existing litigation
concerning its remaining Circle C infrastructure reimbursement
claims against the City and potential litigation concerning
development entitlements. The proposed settlement would confirm
development entitlements with the City for all of Stratus'
property in Austin, including Barton Creek, Lantana, and Circle
C. In addition, the City would pay Stratus $6.3 million, plus
interest, in settlement of its remaining claim for reimbursement
of certain Circle C infrastructure reimbursement costs. The
proposed settlement is preliminary in nature, anticipated to be
reviewed by various City boards and commissions, and subject to
change. In order for a settlement to be effective, it must be
approved by the City and Stratus and be set forth in a
comprehensive settlement document signed by both the City and
Stratus.
--------------------
Remarks
The information furnished herein should be read in conjunction
with Stratus' financial statements contained in its 1999 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> 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, 2000, the related statements of income for the three- and
nine-month periods ended September 30, 2000 and 1999, and the
statements of cash flow for the nine-month periods ended
September 30, 2000 and 1999. These financial statements are the
responsibility of the Company's management.
We conducted our reviews in accordance with standards established
by the American Institute of Certified Public Accountants. A
review of interim financial information consists principally of
applying analytical procedures to financial data and making
inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit
conducted in accordance with auditing standards generally
accepted in the United States, the objective of which is the
expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material
modifications that should be made to the financial statements
referred to above for them to be in conformity with accounting
principles generally accepted in the United States.
We have previously audited, in accordance with auditing standards
generally accepted in the United States, the balance sheet of
Stratus Properties Inc. as of December 31, 1999, 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, 2000, 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, 1999, 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 19, 2000
<PAGE> 10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
OVERVIEW
Management's discussion and analysis presented below should be
read in conjunction with our discussion and analysis of financial
results contained in our 1999 Annual Report on Form 10-K. The
operating results summarized in this report are not necessarily
indicative of our future operating results.
We acquire, develop, manage and sell commercial and
residential real estate. We conduct real estate operations on
properties we own and through unconsolidated affiliates we
jointly own with Olympus Real Estate Corporation (Olympus)
pursuant to a strategic alliance formed in May 1998 (see Note 2).
DEVELOPMENT ACTIVITIES
Stratus Properties
Development is progressing at several sections of the Barton
Creek community including the preliminary development of new
single-family homesites in the vicinity of the new Tom Fazio-
designed "Fazio Canyons" golf course completed in September 1999.
We expect that a number of these homesites will be available for
sale during 2001.
We have received final subdivision plat approval from the
City of Austin (the City) to develop approximately 160 acres of
commercial and multi-family real estate within our Lantana
development. Development activities at this site will consist
of over 800,000 square feet of office and retail development and
approximately 400 multi-family units, with development expected
to commence no later than the first quarter of 2001.
We plan to commence construction of a new subdivision within
the Barton Creek community during the fourth quarter of 2000.
This subdivision, Mirador, adjoins the successful Escala Drive
subdivision, which is owned by our Barton Creek Joint Venture
(see below). Our development plan for the Mirador subdivision
consists of 34 estate lots, averaging 3.5 acres in size, to be
completed by mid-2001.
Unconsolidated Affiliates
We own 49.9 percent of three joint ventures and Olympus owns
the remaining 50.1 percent interest. Accordingly, we account for
our investments in these joint ventures using the equity method
of accounting. We develop and manage each project undertaken by
these joint ventures and receive development fees, sales
commissions, and other management fees for our services. See
Note 2 included elsewhere in this Form 10-Q for the summarized
unaudited results of operations of our unconsolidated affiliates
for the third-quarter and nine-month periods ended September 30,
2000 and 1999.
Barton Creek Joint Venture
--------------------------
The Oly Stratus Barton Creek I Joint Venture (Barton Creek
Joint Venture) currently consists of two separate subdivisions:
"Wimberly Lane" and "Escala Drive." Construction of the Wimberly
Lane subdivision, consisting of 75 developed residential lots,
was completed during the first quarter of 1999. Only eight of
these developed lots remain unsold at September 30, 2000. These
eight lots are tentatively scheduled to close during the fourth
quarter of 2000. We sold four of the Wimberly Lane lots during
the third quarter of 2000 for $0.4 million and 25 lots during the
nine months ended September 30, 2000, representing $3.0 million
of the Barton Creek Joint Venture's sales for the period. During
the third quarter of 1999, we sold 13 lots at the Wimberly Lane
subdivision for $1.5 million and a total of 26 lots during the
nine months ended September 30, 1999 for $2.9 million, which
represented all of the Barton Creek Joint Venture's sales for the
1999 periods.
Construction of the Escala Drive subdivision was completed
during the second quarter of 2000. As of September 30, 2000, 25
of the original 54 multi-acre residential lots had been sold.
These residential lots are the largest developed to date within
the Barton Creek community, although our planned Mirador
subdivision will have similar sized developed lots (see "Stratus
Properties" above). We sold ten of the Escala Drive residential
lots during the third quarter of 2000 for $4.8 million and a
total of 25 lots during the nine months ended September 30, 2000
for $10.9 million. The remaining 29 lots are tentatively
scheduled to close during the fourth quarter of 2000, however it
is likely that some of the lot sales will close during the first
half of 2001.
<PAGE> 11
The Barton Creek Joint Venture distributed approximately
$4.6 million to the partners in the third quarter of 2000 and
$12.1 million for the nine months ended September 30, 2000. We
recorded our share of these distributions as reductions of our
notes receivable and related accrued interest associated with the
initial sale of land to the joint venture. We currently have
approximately $0.5 million remaining on our Barton Creek Joint
Venture note receivable, which we expect to collect during the
fourth quarter of 2000. Any distributions in excess of the
remaining receivable balance will reflect a return of our
investment from the joint venture.
Walden Partnership
------------------
The Walden Partnership is currently marketing 508 single-
family homesites at the Walden on Lake Houston development in
Houston, Texas. The Partnership sold 31 single-family homesites
during the third quarter of 2000, 80 during the nine months ended
September 30, 2000, 23 during the third quarter of 1999 and 60
during the nine months ended September 30, 1999. At September
30, 2000, the Walden Partnership's borrowings outstanding under
its project development loan facility totaled $1.9 million. In
September 1998, we deposited $2.5 million of restricted cash as
additional collateral for the related project development loan
facility. For every $1.00 of this facility's principal that is
repaid by the Partnership, there is a $0.30 reduction of our
restricted amount. At September 30, 2000 remaining funds
deposited in this restricted account totaled $0.7 million, a
reduction from the $1.5 million deposited at December 31, 1999.
7000 West
---------
The first 70,000 square foot office building at the Lantana
Corporate Center, known as 7000 West, is fully leased and
occupied. During the first quarter of 2000, we completed a
transaction with Olympus to be our joint venture partner in a
second 70,000 square foot office building at 7000 West. In this
transaction we completed a prior sale of 5.5 acres of commercial
real estate to the joint venture, for which we received $0.5
million in early April 2000. In June 2000, we completed the
construction and leasing of the second building. As a result, we
recognized a previously deferred gain of approximately $0.4
million associated with Olympus' 50.1 percent interest in the
second building.
In our role as manager of 7000 West, we arranged for a $6.6
million project loan facility to finance construction of the
first office building. The construction of the second building
required additional financing, which was provided by an
additional $7.7 million financing under the 7000 West development
loan facility negotiated in the first quarter of 2000.
Borrowings outstanding under 7000 West's project loan facility
totaled $12.8 million at September 30, 2000.
RESULTS OF OPERATIONS
Summary operating results follow (in thousands):
<TABLE>
<CAPTION>
Third Quarter Nine-Months
---------------- -----------------
2000 1999 2000 1999
------- ------ ------- -------
<S> <C> <C> <C> <C>
Revenues:
Undeveloped properties:
Unrelated parties $ - $ - $ 331 $ 873
Olympus - 509 533 509
Recognition of deferred revenues 1,213 287 3,190 531
------- ------ ------- -------
Total undeveloped properties 1,213 796 4,054 1,913
Developed properties 100 567 627 3,246
Commissions, management fees and other 698 465 2,299 999
------- ------ ------- -------
Total revenues 2,011 1,828 6,980 6,158
Operating income (loss) (492) 765 (650) 1,280
Net income 164 760 8,017 816
</TABLE>
<PAGE> 12
Operating Results
During the third quarter and nine months ended September 30,
2000, our undeveloped properties revenues included primarily the
recognition of previously deferred revenues from the sale of
undeveloped real estate to unconsolidated affiliates. The
remaining undeveloped properties revenues reflect the approximate
one acre of multi-family property sold during the second quarter
of 2000 and our sale to Olympus of 5.5 acres that related to the
second 70,000 square foot building at 7000 West (see
"Unconsolidated Affiliates" above). During the third quarter of
1999, our undeveloped properties revenues reflect the 5.5 acres
of land sold to Olympus for the first 70,000 square foot building
at 7000 West and our nine-month 1999 developed properties
revenues also reflect the sale of 28 acres in Houston to an
unrelated third party. Undeveloped properties revenues for both the
third-quarter and nine-month periods of 1999 reflect the
recognition of previously deferred revenues from the our sale of
undeveloped properties to our unconsolidated affiliates. When we
sell real estate to a joint venture in which we own an interest,
we defer recognizing the portion of revenues from the sale
related to our interest until all or a portion of the real estate
is ultimately sold to unrelated parties. See "Unconsolidated
Affiliates" above for information related to sales of real estate
to unrelated parties by the joint ventures. At September 30,
2000, deferred revenues related to the Wimberly Lane and Escala
Drive subdivisions totaled $3.0 million and will be recognized as
the related acreage is developed and sold by the Barton Creek
Joint Venture. In addition, our retained interests in the 7000
West buildings totaled $0.8 million.
Developed properties revenues represented sales of single-
family homesites numbering three during the third quarter of
2000, 24 for the nine months ended September 30, 2000, 15 for
the third quarter of 1999 and 69 for the nine months ended
September 30, 1999. We have no remaining developed lots in our
Austin, Dallas, San Antonio and Houston developments. We plan
to commence construction on 34 estate lots in Austin during the
fourth quarter of 2000, which we currently anticipate being
available in mid-2001. We will continue to make developed lot
sales through our unconsolidated affiliates (see "Unconsolidated
Affiliates" above). These sales are not reflected in our
consolidated results of operations because we use the equity
method of accounting for our unconsolidated affiliates'
operations.
Commissions, management fees and other revenue have
increased in the 2000 periods primarily because of significant
increases in sales commissions on properties we sold for the
Barton Creek Joint Venture, primarily reflecting the sales at the
Escala Drive subdivision.
Cost of sales increased to $1.6 million in the third quarter
of 2000 from $0.4 million during the third quarter of 1999, and
to $4.9 million during the nine months ended September 30, 2000
from $2.5 million during the comparable nine month period in
1999. The increases primarily reflect reimbursements in 1999 of
certain infrastructure costs previously charged to expense or
relating to properties previously sold, which reduced cost of
sales by $2.8 million for the nine months ended September 30, 1999.
The increase in cost of sales during the third quarter of 2000
over those reported in the comparable 1999 period reflects the
increase in recognition of previously deferred costs related to
the sale of land to the Barton Creek Joint Venture.
General and administrative expenses totaled $0.9 million
during the third quarter of 2000 compared to $0.6 million during
the third quarter of 1999. During the nine months ended
September 30, 2000, general and administrative expenses totaled
$2.7 million compared to $2.4 million for the comparable period
last year. The increase during 2000 reflects our increasing
managerial and administrative duties, primarily those associated
with our unconsolidated affiliates' operations.
During 1995, the Texas State legislature enacted legislation
that enabled us 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
us for costs related to the installation of major utility,
drainage and water quality infrastructure. During the nine
months ended September 30, 1999, we 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. We expect to receive
additional reimbursements in the future for infrastructure costs
related to the Barton Creek development from the proceeds of MUD
bonds issued. 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 "Non-Operating Results" below and Part II. Item 1, "Legal
Proceedings."
<PAGE> 13
Non-Operating Results
Interest expense totaled $0.2 million during the third
quarter of 2000 and $0.6 million for the nine months ended
September 30, 2000 compared to $0.1 million during the third
quarter of 1999 and $0.6 million for the nine months ended
September 30, 1999. Capitalized interest totaled $0.3 million for
the third quarter of 2000 and $1.0 million for the nine-month
2000 period compared to $0.3 million during the third quarter of
1999 and $0.8 million during the nine months ended September 30,
1999.
In March 2000, the City approved a settlement agreement of
all disputes between the City and other Austin-area real estate
developers and landowners concerning the Circle C community.
Under terms of this settlement, the lawsuits contesting the
City's December 1997 annexation of all land within the four
Circle C MUDs and the dissolution of the four MUDs have been
dismissed with prejudice. Accordingly, the City's partial
payments of our reimbursement claim, currently totaling $10.5
million, are no longer subject to a repayment contingency and we
recorded approximately $7.4 million of these previously deferred
proceeds in other income during the first quarter of 2000. This
amount represents that portion of the reimbursed infrastructure
expenditures in excess of our remaining basis in these assets, as
well as related interest income on the reimbursements. The
remaining $3.1 million was recorded as a reduction of our
investment in Circle C. We are continuing to pursue vigorously
our remaining claim against the City, however no amounts have
been recorded for these claims as of September 30, 2000. See
Note 6 "City of Austin Negotiations" and "Capital Resources and
Liquidity" below for a discussion of negotiations with the City
over a potential settlement of both existing and potential
litigation.
CAPITAL RESOURCES AND LIQUIDITY
Net cash provided by operating activities totaled $4.8
million during the nine months ended September 30, 2000 compared
to $2.9 million during the comparable 1999 period. The increase
primarily reflects distributions received from the Barton Creek
Joint Venture, which were recorded as reductions in our related
notes receivable and accrued interest. We also received
approximately $1.0 million from the City during the first quarter
of 2000 as reimbursement for the costs associated with the
construction of the Lantana Pump Station. We expect the third
and final $1.0 million Lantana Pump Station payment from the City
in either the fourth quarter of 2000 or first quarter of 2001.
Cash used in investing activities totaled $3.7 million for the
nine months ended September 30, 2000 compared with $5.6 million
during the same period in 1999, reflecting our net real estate
and facilities expenditures. Expenditures for the nine months of
1999 include certain development costs associated with the Escala
Drive subdivision, which after December 1999 have been reported
under the equity method of accounting within the Barton Creek
Joint Venture. Financing activities used cash of $1.4 million
during the nine months ended September 2000, reflecting net debt
repayments under our existing bank credit facility. Financing
activities provided $1.4 million during the nine months ended
September 30, 1999 from borrowings on the lines of credit
available at the time.
At September 30, 2000, we had debt of $15.4 million compared
to debt of $30.7 million at September 30, 1999 and $16.6 million
at December 31, 1999. Our outstanding debt at September 30, 2000
included $9.2 million under our term loan and $3.3 million under
our $10 million revolver, both of which mature in December 2002,
and $2.9 million under our $10 million convertible debt facility
with Olympus (see Note 2), which matures in May 2004. As of
September 30, 2000, our restricted cash included $1.9 million to
fully fund our interest reserve requirement under our loan
agreement. For a complete discussion of our bank facility see
Note 5 included in the "Notes To Financial Statements"included
in our 1999 Annual Report on Form 10-K. We anticipate our debt
outstanding under the term loan portion of our current facility
to be substantially reduced, if not eliminated, by December 31,
2000 with cash from anticipated sales during the fourth quarter
of 2000.
Our future operating cash flows and, ultimately, our ability
to develop our properties and expand our business will be largely
dependent on the level of our real estate sales. In turn, these
sales will be significantly affected by future real estate market
conditions in the area of our properties, regulatory issues,
development costs, interest rate levels and our ability to
continue to protect our land use and development entitlements.
Significant development expenditures remain to be incurred for
our Austin area properties prior to their eventual sale. In June
2000, the Texas Supreme Court ruled that the legislation creating
water quality protection zones was unconstitutional, as more
fully explained in Part II Item 1, "Legal Proceedings." This
decision primarily affects development of the southern portion of
our Barton Creek property. We have initiated plans that will
meet development requirements under existing laws and
regulations. Certain of our properties contain
<PAGE> 14
grandfathered
entitlements that are not subject to the development requirements
currently in effect. Resolving our entitlement and reimbursement
issues with the City remains our primary near-term objective.
We have been engaged in substantive discussions with the
City in an attempt to negotiate a settlement of existing
litigation concerning our remaining Circle C infrastructure
reimbursement claims against the City and potential litigation
concerning development entitlements. The proposed settlement
would confirm development entitlements with the City for all of
our property in Austin, including Barton Creek, Lantana, and
Circle C. In addition, the City would pay us $6.3 million, plus
interest, in settlement of our remaining claim for reimbursement
of certain Circle C infrastructure reimbursement costs. The
proposed settlement is preliminary in nature, anticipated to be
reviewed by various City boards and commissions, and subject to
change. In order for a settlement to be effective, it must be
approved by the City and Stratus, and be set forth in a
comprehensive settlement document signed by both the City and
Stratus. The proposed settlement can be viewed at Stratus'
website.
We are continuing to pursue additional development and
management fee opportunities, both individually and through our
existing relationships with Olympus and other institutional
capital sources. Our relationship with Olympus provides us with
a potential source of capital for the development of existing
properties in which we desire third-party equity participation.
We believe we can obtain bank financing at a reasonable cost for
developing our properties. However, obtaining land acquisition
financing is generally expensive and uncertain.
CAUTIONARY STATEMENT
Management's discussion and analysis of financial condition
and results of operations contains forward-looking statements
regarding anticipated sales, debt repayments, future
reimbursement for infrastructure costs, future events related to
financing and regulatory matters, the expected results of our
business strategy and other plans and objectives of management
for future operations and activities. Important factors that
could cause actual results to differ materially from our
expectations include economic and business conditions, business
opportunities that may be presented to and pursued by us, changes
in laws or regulations and other factors, many of which are
beyond our control and other factors that are described in more
detail under the heading "Cautionary Statements" in our Annual
Report on Form 10-K for the year ended December 31, 1999.
<PAGE> 15
PART II. - OTHER INFORMATION
Item 1. Legal Proceedings.
We are involved in various regulatory matters and litigation
involving entitlement and/or development of our Austin-area
properties. For a detailed discussion on these matters see Item
3, "Legal Proceedings" and Note 6, "Real Estate" included in our
1999 Annual Report on Form 10-K. Below is a summary of the cases
in which we are currently involved.
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 (WQPZs) and their
owners, including the Barton Creek WQPZ challenging the
constitutionality of the legislation authorizing the creation of
water quality zones. The District Court entered an order granting
the City's motion for summary judgement and declared the WQPZ
legislation unconstitutional. The District Court ruling was
appealed to the Texas Supreme Court. On June 19, 2000, the Texas
Supreme Court, in a 6 to 3 decision, affirmed the District
Court's decision that the Texas Water Code Section 26,179
enabling the creation of the water quality protection zones is
unconstitutional. A Motion for Reconsideration, filed by another
party, was denied and the ruling is final.
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 Stratus, filed
a WQPZ (Circle C WQPZ) covering all of its 553 acres in the
Circle C development located outside the boundaries of any
municipal utility district. In November 1997, Stratus sought a
declaratory judgment in the Hays County District Court to confirm
the validity of the Circle C WQPZ. On September 4, 1998, the Hays
County District Court ruled that the WQPZ enabling legislation
was constitutional and that the Circle C WQPZ was validly
created. The City appealed the Hays County District Court's
ruling to the Texas Third Court of Appeals. As a result of the
Texas Supreme Court's decision in The City of Austin v. Horse
Thief Hallow Ranch, Ltd. et. al. case, the Third Court of Appeals
reversed the Hays County District Court decision, finding the
zone legislation unconstitutional. The ruling is final.
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. Stratus' 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 Stratus 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, Stratus sued the City. The City paid a portion of
Stratus' claim, as described below. To accommodate settlement
discussions with the City, a trial of the balance of Stratus'
claim has been postponed. If a settlement is not reached by
December 30, 2000, it is anticipated that trial will begin
January 29, 2001.
The City's total reimbursement obligation to the Circle C
developers, resulting from its annexation, is estimated at $22
million. On October 29, 1999, Circle C Land Corp. and the City
reached an agreement in which Stratus received $9.8 million
(including $1 million of interest) as partial payment of its MUD
reimbursement claims. On January 14, 2000, Stratus received an
additional $0.3 million from the City resulting from both parties
agreeing to the adjustment of prior engineering and accounting
estimates. Stratus has received a total of $10.5 million under
this partial payment settlement as of September 30, 2000. Under the
terms of the agreement, Stratus would have been required to
return the money to the City and the City would have been
required to return the utility infrastructure to Stratus if the
City's annexation was reversed or otherwise legally rescinded,
whether by legislative action, final action of the appellate
court or other legal process.
In March 2000, the City approved a settlement agreement of
all disputes between the City and certain third party developers
and landowners involved in Circle C. Under the terms of this
settlement, the lawsuits contesting the City's December 1997
annexation of all land within the four Circle C MUDs and the
dissolution of the four MUDs have been dismissed with prejudice.
As a result, Stratus' agreement with the City is no longer
subject to recission. Stratus will continue to pursue vigorously
its remaining Circle C MUD reimbursements.
<PAGE> 16
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 report on Form 8-K during
the period covered by the 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: November 13, 2000
<PAGE> 18
STRATUS PROPERTIES INC.
EXHIBIT INDEX
Exhibit
Number
3.1 Amended and Restated Certificate of Incorporation
of Stratus. Incorporated by reference to Exhibit 3.1
to Stratus' 1998 Form 10-K.
3.2 By-laws of Stratus, as amended as of February 11,
1999. Incorporated by Reference to Exhibit 3.2 to
Stratus' 1998 Form 10-K.
4.1 Stratus' Certificate of Designations of Series A
Participating Cumulative Preferred Stock. Incorporated
by reference to Exhibit 4.1 to Stratus' 1992 Form 10-K.
4.2 Rights Agreement dated as of May 28, 1992 between
Stratus and Mellon Securities Trust Company, as Rights
Agent. Incorporated by reference to Exhibit 4.2 to
Stratus' 1992 Form 10-K.
4.3 Amendment No. 1 to Rights Agreement dated as of
April 21, 1997 between Stratus and the Rights Agent.
Incorporated by reference to Exhibit 4 to Stratus'
Current Report on Form 8-K dated April 21, 1997.
4.4 The loan agreement by and between Comerica Bank-
Texas and Stratus Properties Inc., Stratus Properties
Operating Co., L.P., Circle C Land Corp. and Austin 290
Properties Inc. dated December 21, 1999. Incorporated
by reference to Exhibit 4.4 to Stratus 1999 Form 10-K.
4.5 Certificate of Designations of the Series B
Participating Preferred Stock of Stratus Properties
Inc. Incorporated by reference to Exhibit 4.1 to
Stratus' Current Report on Form 8-K dated June 3, 1998.
4.6 Investor Rights Agreement, dated as of May 22,
1998, by and between Stratus Properties Inc. and
Oly/Stratus Equities, L.P. Incorporated by reference to
Exhibit 4.2 to Stratus' Current Report on Form 8-K
dated June 3, 1998.
4.7 Loan Agreement, dated as of May 22, 1998, by and
among Stratus Ventures I Borrower L.L.C., Oly Lender
Stratus, L.P. and Stratus Properties Inc. Incorporated
by reference to Exhibit 4.3 to Stratus' Current Report
on Form 8-K dated June 3, 1998.
10.1 Amended and Restated Services Agreement, dated as of
December 23, 1997 between FM Services Company and
Stratus. Incorporated by reference to Exhibit 10.2 to
Stratus' 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 Stratus' 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 Stratus' 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 Stratus' 1992 Form 10-K.
10.5 Master Agreement, dated as of May 22, 1998, by and
among Oly Fund II GP Investments, L.P., Oly Lender
Stratus, L.P., Oly/Stratus Equities, L.P., Stratus
Properties Inc. and Stratus Ventures I Borrower L.L.C.
Incorporated by reference to Exhibit 99.1 to Stratus'
Current Report on Form 8-K dated June 3, 1998.
10.6 Securities Purchase Agreement, dated as of May 22,
1998, by and between Oly/Stratus Equities, L.P. and
Stratus Properties Inc. Incorporated by reference to
Exhibit 99.2 to Stratus' Current Report on Form 8-K
dated June 3, 1998.
10.7 Oly Stratus Barton Creek I Amended and Restated Joint
Venture Agreement between Oly ABC West I, L.P. and
Stratus ABC West I, L.P. dated December 28, 1999.
Incorporated by reference to Exhibit 10.7 to the
Stratus 1999 Form 10-K.
<PAGE> E-1
10.8 Amendment No. 1 to the Oly Stratus ABC West I Joint
Venture Agreement dated November 9, 1998. Incorporated
by reference to Exhibit 10.11 to the Stratus 1998 Third
Quarter 10-Q.
10.9 Management Agreement between Oly Stratus ABC West I
Joint Venture and Stratus Management L.L.C. dated
September 30, 1998. Incorporated by reference to
Exhibit 10.12 to the Stratus 1998 Third Quarter 10-Q.
10.10 Loan Agreement dated September 30, 1998 between
Oly Stratus ABC West I Joint Venture and Oly Lender
Stratus, L.P. Incorporated by reference to Exhibit
10.13 to the Stratus 1998 Third Quarter 10-Q.
10.11 General Partnership Agreement dated April 8, 1998
by and between Oly/Houston Walden, L.P. and Oly/FM
Walden, L.P. Incorporated by reference to Exhibit 10.14
to the Stratus 1998 Third Quarter 10-Q.
10.12 Amendment No. 1 to the General Partnership
Agreement dated September 30, 1998 by and among
Oly/Houston Walden, L.P., Oly/FM Walden, L.P. and
Stratus Ventures I Walden, L.P. Incorporated by
reference to Exhibit 10.15 to the Stratus 1998 Third
Quarter 10-Q.
10.13 Development Loan Agreement dated September 30,
1998 by and between Oly Walden General Partnership and
Bank One, Texas, N.A. Incorporated by reference to
Exhibit 10.16 to the Stratus 1998 Third Quarter 10-Q.
10.14 Guaranty Agreement dated September 30, 1998 by and
between Oly Walden General Partnership and Bank One,
Texas, N.A. Incorporated by reference to Exhibit 10.17
to the Stratus 1998 Third Quarter 10-Q.
10.15 Management Agreement dated April 9, 1998 by and
between Oly/FM Walden, L.P. and Stratus Management,
L.L.C. Incorporated by reference to Exhibit 10.18 to
the Stratus 1998 Third Quarter 10-Q.
10.16 Amended and Restated Joint Venture Agreement dated
August 16, 1999 by and between Oly Lantana, L.P., and
Stratus 7000 West, Ltd. Incorporated by reference to
Exhibit 10.18 to the Quarterly Report on Form 10-Q of
Stratus for the Quarter ended September 30, 1999.
10.17 Guaranty Agreement dated December 31, 1999 by and
between Stratus Properties Inc. and Comerica Bank-
Texas. Incorporated by reference to Stratus' Quarterly
Report on Form 10-Q for the Quarter ended March 31,
2000.
10.18 Guaranty Agreement dated February 24, 2000 by and
between Stratus Properties Inc. and Comerica Bank-
Texas. . Incorporated by reference to Stratus'
Quarterly Report on Form 10-Q for the Quarter ended
March 31, 2000.
Executive Compensation Plans and Arrangements (Exhibits
10.19 through 10.22)
10.19 Stratus' Performance Incentive Awards Program, as
amended effective February 11, 1999. Incorporated by
reference to Exhibit 10.18 to Stratus' 1998 Form 10-K.
10.20 Stratus Stock Option Plan, as amended.
Incorporated by reference to Exhibit 10.9 to Stratus'
1997 Form 10-K.
10.21 Stratus 1996 Stock Option Plan for Non-Employee
Directors, as amended. Incorporated by reference to Exhibit
10.10 to Stratus' 1997 Form 10-K.
10.22 Stratus Properties Inc. 1998 Stock Option Plan as
amended effective February 11, 1999. Incorporated by
reference to Exhibit 10.21 to Stratus' 1998 Form 10-K.
15.1 Letter dated October 19, 2000 from Arthur Andersen LLP
regarding the unaudited financial statements.
27.1 Financial Data Schedule.
<PAGE> E-2
