|
UNITED
STATES | |||
|
SECURITIES
AND EXCHANGE COMMISSION | |||
|
Washington,
D.C. 20549 | |||
|
FORM
10-Q | |||
|
(Mark
One) | |||
|
[X] |
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE | ||
|
SECURITIES
EXCHANGE ACT OF 1934 | |||
|
For
the quarterly period ended March 31, 2005 | |||
|
OR | |||
|
[
] |
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE | ||
|
SECURITIES
EXCHANGE ACT OF 1934 | |||
|
For
the transition period from |
to | ||
|
Commission
File Number: 0-19989 | |||
|
Stratus
Properties Inc. | |||
|
(Exact
name of registrant as specified in its
charter) | |||
|
Delaware |
72-1211572 |
|
(State
or other jurisdiction of
incorporation
or organization) |
(IRS
Employer Identification No.) |
|
98
San Jacinto Blvd., Suite 220 |
|
|
Austin,
Texas |
78701 |
|
(Address
of principal executive offices) |
(Zip
Code) |
|
(512)
478-5788 | |
|
(Registrant's
telephone number, including area code) | |
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
__
Indicate
by check mark whether the registrant is an accelerated filer (as defined in Rule
12b-2 of the Securities Exchange Act of 1934). Yes ___ No X
On March
31, 2005, there were issued and outstanding 7,207,604 shares of the registrant’s
Common Stock, par value $0.01 per share.
|
STRATUS
PROPERTIES INC. |
|
|
Page | |
|
3 | |
|
Condensed Consolidated Balance Sheets
(Unaudited) |
3 |
|
Consolidated Statements of Operations
(Unaudited) |
4 |
|
Consolidated Statements of Cash Flows
(Unaudited) |
5 |
|
6 | |
|
9 | |
|
10 | |
|
15 | |
|
15 | |
|
16 | |
|
16 | |
|
16 | |
|
16 | |
|
17 | |
|
E-1 | |
STRATUS
PROPERTIES INC.
STRATUS
PROPERTIES INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(In
Thousands)
|
March
31, |
December
31, |
|||||
|
2005 |
2004 |
|||||
|
ASSETS |
||||||
|
Current
assets: |
||||||
|
Cash
and cash equivalents, including restricted cash of |
||||||
|
$123
and $124, respectively |
$ |
1,032 |
$ |
379 |
||
|
Accounts
receivable |
242 |
345 |
||||
|
Prepaid
expenses |
90 |
40 |
||||
|
Notes
receivable from property sales |
47 |
47 |
||||
|
Total
current assets |
1,411 |
811 |
||||
|
Real
estate, commercial leasing assets and facilities, net: |
||||||
|
Property
held for sale - developed or under development |
113,393 |
104,526 |
||||
|
Property
held for sale - undeveloped |
17,068 |
20,919 |
||||
|
Property
held for use, net |
21,356 |
21,676 |
||||
|
Other
assets |
4,350 |
4,140 |
||||
|
Notes
receivable from property sales |
783 |
789 |
||||
|
Total
assets |
$ |
158,361 |
$ |
152,861 |
||
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY |
||||||
|
Current
liabilities: |
||||||
|
Accounts
payable and accrued liabilities |
$ |
4,811 |
$ |
1,343 |
||
|
Accrued
interest, property taxes and other |
2,074 |
2,390 |
||||
|
Current
portion of long-term debt |
7,913 |
1,531 |
||||
|
Total
current liabilities |
14,798 |
5,264 |
||||
|
Long-term
debt |
51,156 |
54,116 |
||||
|
Other
liabilities |
5,349 |
5,285 |
||||
|
Stockholders’
equity |
87,058 |
88,196 |
||||
|
Total
liabilities and stockholders' equity |
$ |
158,361 |
$ |
152,861 |
||
The
accompanying notes are an integral part of these consolidated financial
statements.
STRATUS
PROPERTIES INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(In
Thousands, Except Per Share Amounts)
|
Three
Months Ended |
||||||
|
March
31, |
||||||
|
2005 |
2004 |
|||||
|
Revenues: |
||||||
|
Real
estate |
$ |
2,252 |
$ |
972 |
||
|
Rental
income |
1,220 |
828 |
||||
|
Commissions,
management fees and other |
158 |
147 |
||||
|
Total
revenues |
3,630 |
1,947 |
||||
|
Cost
of sales: |
||||||
|
Real
estate, net |
1,892 |
1,113 |
||||
|
Rental |
608 |
689 |
||||
|
Depreciation |
418 |
345 |
||||
|
Total
cost of sales |
2,918 |
2,147 |
||||
|
General
and administrative expenses |
1,357 |
1,380 |
||||
|
Total
costs and expenses |
4,275 |
3,527 |
||||
|
Operating
loss |
(645 |
) |
(1,580 |
) | ||
|
Interest
expense, net |
(294 |
) |
(237 |
) | ||
|
Interest
income |
27 |
12 |
||||
|
Net
loss applicable to common stock |
$ |
(912 |
) |
$ |
(1,805 |
) |
|
Basic
and diluted net loss per share of common stock |
$ |
(0.13 |
) |
$ |
(0.25 |
) |
|
Basic
and diluted average shares of common stock outstanding |
7,216 |
7,147 |
||||
The
accompanying notes are an integral part of these consolidated financial
statements.
STRATUS
PROPERTIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In
Thousands)
|
Three
Months Ended |
||||||
|
March
31, |
||||||
|
2005 |
2004 |
|||||
|
Cash
flow from operating activities: |
||||||
|
Net
loss |
$ |
(912 |
) |
$ |
(1,805 |
) |
|
Adjustments
to reconcile net loss to net cash provided by |
||||||
|
(used
in) operating activities: |
||||||
|
Depreciation |
418 |
345 |
||||
|
Cost
of real estate sold |
1,442 |
718 |
||||
|
Stock-based
compensation |
70 |
42 |
||||
|
Long-term
notes receivable and other |
(205 |
) |
(119 |
) | ||
|
(Increase)
decrease in working capital: |
||||||
|
Accounts
receivable and prepaid expenses |
53 |
730 |
||||
|
Accounts
payable, accrued liabilities and other |
3,216 |
(369 |
) | |||
|
Net
cash provided by (used in) operating activities |
4,082 |
(458 |
) | |||
|
Cash
flow from investing activities: |
||||||
|
Purchases
and development of real estate properties |
(6,458 |
) |
(9,488 |
) | ||
|
Development
of commercial leasing properties and other expenditures |
(98 |
) |
(323 |
) | ||
|
Net
cash used in investing activities |
(6,556 |
) |
(9,811 |
) | ||
|
Cash
flow from financing activities: |
||||||
|
Borrowings
from revolving credit facility |
6,500 |
3,228 |
||||
|
Payments
on revolving credit facility |
(2,447 |
) |
(816 |
) | ||
|
Borrowings
from project loans |
468 |
5,852 |
||||
|
Payments
on project loans |
(1,100 |
) |
(44 |
) | ||
|
Net
proceeds from exercise of stock options |
41 |
136 |
||||
|
Purchases
of Stratus common shares |
(335 |
) |
- |
|||
|
Net
cash provided by financing activities |
3,127 |
8,356 |
||||
|
Net
increase (decrease) in cash and cash equivalents |
653 |
(1,913 |
) | |||
|
Cash
and cash equivalents at beginning of year |
379 |
3,413 |
||||
|
Cash
and cash equivalents at end of period |
1,032 |
1,500 |
||||
|
Less
cash restricted as to use |
(123 |
) |
(204 |
) | ||
|
Unrestricted
cash and cash equivalents at end of period |
$ |
909 |
$ |
1,296 |
||
The
accompanying notes are an integral part of these consolidated financial
statements.
STRATUS
PROPERTIES INC.
| 1. |
GENERAL |
The
accompanying unaudited consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto for the
year ended December 31, 2004, included in Stratus Properties Inc.’s (Stratus)
Annual Report on Form 10-K (Stratus 2004 Form 10-K) filed with the Securities
and Exchange Commission. In the opinion of management, the
accompanying consolidated financial statements reflect all adjustments
(consisting only of normal recurring items) considered necessary to present
fairly the financial position of Stratus at March 31, 2005 and December 31,
2004, and the results of operations and cash flows for the three-month periods
ended March 31, 2005 and 2004. Operating results for the three months ended
March 31, 2005 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2005. Certain prior year amounts have
been reclassified to conform to the current year presentation.
| 2. |
NEW
ACCOUNTING STANDARDS |
Refer to
Note 1 of the Stratus 2004 Form 10-K for information regarding Stratus’
accounting for share-based payments, including stock options. Through March 31,
2005, Stratus has accounted for grants of employee stock options under the
recognition principles of Accounting Principles Board (APB) Opinion No. 25,
“Accounting for Stock Issued to Employees,” and related interpretations, which
require compensation costs for stock-based employee compensation plans to be
recognized based on the difference on the date of grant, if any, between the
quoted market price of the stock and the amount an employee must pay to acquire
the stock. If Stratus had applied the fair value recognition provisions of
Statement of Financial Accounting Standards (SFAS) No. 123, “Accounting for
Stock-Based Compensation,” which requires stock-based compensation to be
recognized based on the use of a fair value method, Stratus’ net loss would have
been increased by $0.2 million for the first quarter of 2005 and $0.1 million
for the first quarter of 2004.
In
December 2004, the Financial Accounting Standards Board (FASB) issued SFAS No.
123 (revised 2004), “Share-Based Payment” (SFAS No. 123R). SFAS No. 123R
requires all share-based payments to employees, including grants of employee
stock options, to be recognized in the financial statements based on their fair
values. SFAS No. 123R’s effective date is interim periods beginning after June
15, 2005. However, in April 2005 the Securities and Exchange Commission provided
for a deferral of the effective date to fiscal periods beginning after June 15,
2005. Stratus is still reviewing the provisions of SFAS No. 123R and has not yet
determined if it will adopt SFAS No. 123R before January 1, 2006.
| 3. |
EARNINGS
PER SHARE |
Stratus’
basic and diluted net loss per share of common stock was calculated by dividing
the net loss applicable to common stock by the weighted average number of common
shares outstanding during the period.
Stock
options representing 431,000 shares in the first quarter of 2005 and 309,000
shares in the first quarter of 2004 that otherwise would have been included in
the first-quarter 2005 and 2004 earnings per share calculations were excluded
because of the net losses reported for the periods. Outstanding stock options
with exercise prices greater than the average market price of the common stock
during the period are also excluded from the computation of diluted net loss per
share of common stock and are shown below.
|
First
Quarter | ||||
|
2005 |
2004 | |||
|
Outstanding
options (in thousands) |
- |
141 | ||
|
Average
exercise price |
- |
$12.38 | ||
Stock-Based
Compensation Plans. As of
March 31, 2005, Stratus had four stock-based employee and director compensation
plans, which are described in Note 7 of the Stratus 2004 Form 10-K. Stratus
accounts for those plans under the recognition and measurement principles of APB
Opinion No. 25 and related interpretations. The following table illustrates the
effect on net loss and loss per share if Stratus had applied the fair value
recognition provisions of SFAS No. 123 to all stock-based employee compensation
(in thousands, except per share amounts).
|
Three
Months Ended |
|||||||
|
March
31, |
|||||||
|
2005 |
2004 |
||||||
|
Net
loss applicable to common stock, as reported |
$ |
(912 |
) |
$ |
(1,805 |
) | |
|
Add:
Stock-based employee compensation expense |
|||||||
|
included
in reported net loss applicable to common |
|||||||
|
stock
for restricted stock units |
68 |
37 |
|||||
|
Deduct:
Total stock-based employee compensation |
|||||||
|
expense
determined under fair value-based method for |
|||||||
|
all
awards |
(233 |
) |
(157 |
) | |||
|
Pro
forma net loss applicable to common stock |
$ |
(1,077 |
) |
$ |
(1,925 |
) | |
|
Loss
per share: |
|||||||
|
Basic
and diluted - as reported |
$ |
(0.13 |
) |
$ |
(0.25 |
) | |
|
Basic
and diluted - pro forma |
$ |
(0.15 |
) |
$ |
(0.27 |
) | |
For the
pro forma computations, the values of option grants were calculated on the dates
of grant using the Black-Scholes option-pricing model. There were no stock
option grants during the first quarters of 2005 and 2004. See Note 2 above and
Note 1 of the Stratus 2004 Form 10-K for a discussion of the requirements of
SFAS No. 123R.
| 4. |
DEBT
OUTSTANDING |
At March
31, 2005, Stratus had total debt of $59.1 million, including $7.9 million of
current debt, compared to total debt of $55.6 million, including $1.5 million of
current debt, at December 31, 2004. Stratus’ debt outstanding at March 31, 2005
consisted of the following:
| · |
$24.4
million of net borrowings under the $30.0 million Comerica credit
facility, which will mature in May 2006. |
| · |
$10.0
million of borrowings outstanding under two unsecured $5.0 million term
loans, one of which will mature in January 2008 and the other in July
2008. |
| · |
$6.6
million of net borrowings under the 7500 Rialto Boulevard project loan,
which matures in January 2006. |
| · |
$12.0
million of net borrowings under the Teachers Insurance and Annuity
Association of America (TIAA) 7000 West project loan, which will mature in
January 2015. |
| · |
$1.1
million of net borrowings under the $3.0 million Calera Court project
loan, for which the three remaining courtyard homes at Calera Court are
serving as collateral. This project loan will mature in September
2005. |
| · |
$5.0
million of net borrowings under the $9.8 million Deerfield loan, for which
the Deerfield property and any future improvements are serving as
collateral. This project loan will mature in February
2007. |
| · |
$1,000
of net borrowings under the $18.5 million Escarpment Village project loan,
which will mature in June 2007. |
In
addition, Stratus has a $22.8 million commitment, which will be available in
October 2005, from TIAA for a 30-year mortgage for the completed Escarpment
Village.
For a
discussion of Stratus’ debt see Note 5 of the Stratus 2004 Form
10-K.
| 5. |
RESTRICTED
CASH AND INTEREST COST |
Restricted
Cash.
Restricted cash totaled $0.1 million at March 31, 2005 and December 31, 2004,
reflecting funds held for payment of fractional shares resulting from Stratus’
May 2001 stock split (see Note 7 of the Stratus 2004 Form 10-K).
Interest
Cost. Interest
expense excludes capitalized interest of $0.5 million in the first quarter of
2005 and $0.6 million in the first quarter of 2004.
| 6. |
BUSINESS
SEGMENTS |
Stratus
has two operating segments, “Real Estate Operations” and “Commercial Leasing.”
The Real Estate Operations segment is comprised of all Stratus’ developed
properties, properties under development and undeveloped properties in Austin,
Texas, which consist of its properties in the Barton Creek community, the Circle
C community and the Lantana project. In addition, the Deerfield property in
Plano, Texas is included in the Real Estate Operations segment.
The
Commercial Leasing segment includes the 140,000-square-foot Lantana Corporate
Center office complex at 7000 West, which consists of two fully leased
70,000-square-foot office buildings, as well as Stratus’ 75,000-square-foot
office building at 7500 Rialto Boulevard. In March 2004, Stratus formed
Southwest Property Services L.L.C. to manage these office buildings. Previously,
Stratus had outsourced its property management functions to a property
management firm. Effective June 30, 2004, Stratus terminated its agreement with
this firm and Southwest Property Services L.L.C. is performing all property
management responsibilities. The occupancy rate at Stratus’ 7500 Rialto
Boulevard office building doubled to approximately 100 percent at March 31, 2005
from 50 percent at March 31, 2004.
The
segment data presented below (in thousands) was prepared on the same basis as
the consolidated financial statements.
|
Real
Estate
Operationsa |
Commercial
Leasing |
Other |
Total |
|||||||||
|
Three
Months Ended March 31, 2005: |
||||||||||||
|
Revenues |
$ |
2,410 |
$ |
1,220 |
$ |
- |
$ |
3,630 |
||||
|
Cost
of sales, excluding depreciation |
(1,892 |
) |
(608 |
) |
- |
(2,500 |
) | |||||
|
Depreciation |
(38 |
) |
(380 |
) |
- |
(418 |
) | |||||
|
General
and administrative expenses |
(1,112 |
) |
(245 |
) |
- |
(1,357 |
) | |||||
|
Operating
loss |
$ |
(632 |
) |
$ |
(13 |
) |
$ |
- |
$ |
(645 |
) | |
|
Capital
expenditures |
$ |
6,458 |
$ |
98 |
$ |
- |
$ |
6,556 |
||||
|
Total
assets |
$ |
130,461 |
$ |
21,356 |
$ |
6,544 |
b |
$ |
158,361 |
|||
|
Three
Months Ended March 31, 2004: |
||||||||||||
|
Revenues |
$ |
1,119 |
$ |
828 |
$ |
- |
$ |
1,947 |
||||
|
Cost
of sales, excluding depreciation |
(1,113 |
) |
(689 |
) |
- |
(1,802 |
) | |||||
|
Depreciation |
(25 |
) |
(320 |
) |
- |
(345 |
) | |||||
|
General
and administrative expenses |
(1,127 |
) |
(253 |
) |
- |
(1,380 |
) | |||||
|
Operating
loss |
$ |
(1,146 |
) |
$ |
(434 |
) |
$ |
- |
$ |
(1,580 |
) | |
|
Capital
expenditures |
$ |
9,488 |
$ |
323 |
$ |
- |
$ |
9,811 |
||||
|
Total
assets |
$ |
122,247 |
$ |
22,393 |
$ |
4,014 |
b |
$ |
148,654 |
|||
| a. |
Includes
sales commissions, management fees and other revenues together with
related expenses. |
| b. |
Represents
all other assets except for property held for sale and property held for
use comprising the Real Estate Operations and Commercial Leasing
segments. |
| 7. |
COMMITMENTS |
In
January 2005, Stratus entered into an $8.5 million contract with a one-year term
for the construction of Escarpment Village at the Circle C community. In January
2005, Stratus also executed four construction contracts with one-year terms
totaling $3.5 million for paving and utilities work at the Circle C community in
connection with the development of the first 134 lots of the Meridian project
and the construction of the first phase of the main boulevard in
Meridian.
REVIEW BY
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The
financial information as of March 31, 2005, and for the three-month periods
ended March 31, 2005 and 2004, included in Part I of this Form 10-Q pursuant to
Rule 10-01 of Regulation S-X has been reviewed by PricewaterhouseCoopers LLP
(PricewaterhouseCoopers), Stratus’ independent registered public accounting
firm, in accordance with the standards of the Public Company Accounting
Oversight Board (United States). PricewaterhouseCoopers’ report is included in
this quarterly report.
PricewaterhouseCoopers
does not carry out significant or additional procedures beyond those that would
have been necessary if its report had not been included in this quarterly
report. Accordingly, such report is not a “report” or “part of a registration
statement” within the meaning of Sections 7 and 11 of the Securities Act of 1933
and the liability provisions of Section 11 of such Act do not
apply.
To the
Board of Directors and Stockholders
of
Stratus Properties Inc.:
We have
reviewed the accompanying condensed consolidated balance sheet of Stratus
Properties Inc. (a Delaware Corporation) as of March 31, 2005, and the related
consolidated statements of operations and of cash flows for each of the
three-month periods ended March 31, 2005 and 2004. These interim financial
statements are the responsibility of the Company’s management.
We
conducted our review in accordance with the standards of the Public Company
Accounting Oversight Board (United States). A review of interim financial
information consists principally of applying analytical procedures and making
inquiries of persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance with the
standards of the Public Company Accounting Oversight Board, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on
our review, we are not aware of any material modifications that should be made
to the condensed consolidated interim financial statements for them to be in
conformity with accounting principles generally accepted in the United States of
America.
We
previously audited in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the consolidated balance sheet of
Stratus Properties Inc. as of December 31, 2004, and the related consolidated
statements of income, of changes in stockholders’ equity and of cash flows for
the year then ended (not presented herein), and in our report dated March 29,
2005 we expressed an unqualified opinion on those consolidated financial
statements. In our opinion, the information set forth in the accompanying
condensed consolidated balance sheet as of December 31, 2004, is fairly stated
in all material respects in relation to the consolidated balance sheet from
which it has been derived.
/s/
PricewaterhouseCoopers LLP
Austin,
Texas
May 12,
2005
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 2004 Annual Report
on Form 10-K (2004 Form 10-K). The operating results summarized in this report
are not necessarily indicative of our future operating
results.
We are
engaged in the acquisition, development, management and sale of commercial,
multi-family and residential real estate properties located primarily in the
Austin, Texas area. We conduct real estate operations on properties we
own.
Our
principal real estate holdings are in southwest Austin, Texas. Our most
significant holding is the 1,914 acres of residential, multi-family and
commercial property and 84 developed residential lots located within the Barton
Creek community. We own an additional 426 acres of undeveloped residential,
commercial and multi-family property and 37 acres of developed commercial
property within the Circle C Ranch (Circle C) community. Our other properties in
the Circle C community are currently being developed and include Meridian, which
is an 800-lot residential development consisting of approximately 384 acres at
March 31, 2005, and Escarpment Village, which is a retail center consisting of
approximately 62 acres. Our remaining Austin holdings consist of 282 acres of
commercial property and three fully leased office buildings in the Lantana
project. The office buildings include a 75,000-square foot building at 7500
Rialto Boulevard, and two 70,000-square foot buildings at 7000 West William
Cannon Drive, known as the Lantana Corporate Center. In January 2004, we
acquired approximately 68 acres of land in Plano, Texas, which we refer to as
Deerfield. At March 31, 2005, our Deerfield property consists of approximately
47 acres of residential land, which is being developed, and 47 residential
lots.
DEVELOPMENT
AND OTHER ACTIVITIES
We are
working with Advanced Micro Devices, Inc. (NYSE: AMD) on site planning and
related matters necessary to develop a proposed project at our Lantana project
in southwest Austin. The project consists of approximately 825,000 square feet
of office and related uses located on a 59-acre site at the southeast corner of
West William Cannon Drive and Southwest Parkway. Lantana is a partially
developed, mixed-use project with remaining entitlements for approximately three
million square feet of office and retail use on 282 acres. Regional utility and
road infrastructure is in place with capacity to serve Lantana at full
build-out. Development of the AMD project is subject to several conditions,
including finalizing definitive agreements and securing financing.
At March
31, 2005, our 75,000-square-foot office building at 7500 Rialto Boulevard is
fully leased. As demand for office space within Lantana has increased, we plan
to commence construction of a second 75,000-square-foot office building at 7500
Rialto Boulevard during 2005, subject to securing suitable tenant
leases.
The City
of Austin (the City) selected our proposal to develop a mixed-use project in
downtown Austin immediately north of the new City Hall complex. The project is
planned for retail, office and residential uses. We have entered an exclusive
negotiation period with the City to reach agreement on the project’s design and
transaction terms and structure. Subject to successful negotiations with the
City, we plan to pursue this project in partnership with nationally recognized
office, retail and apartment developers.
In May
2004, we entered into a contract with a national homebuilder to sell 41 lots
within the Wimberly Lane Phase II subdivision. In June 2004, the homebuilder
paid us a non-refundable $0.6 million deposit for the right to purchase the 41
lots, which was used to pay ongoing development costs of the lots. The deposit
will be recognized as income as lots are sold. The lots will be sold on an
installment basis, with six lots to be sold upon substantial completion of
subdivision utilities, and then three lots per quarter beginning 150 days after
the sale of the initial lots. The average purchase price for each of the 41 lots
is $150,400, subject to a six percent annual escalator commencing upon
substantial completion of development. Subdivision streets and utilities were
completed in October 2004. The initial lot closings occurred in December 2004.
Scheduled homebuilder sales during the remainder of 2005 total nine lots for
$1.4 million, including three lots for $0.5 million in the second quarter of
2005. Wimberly Lane Phase II also includes six estate lots, each averaging
approximately five acres, which we are retaining and marketing. Estate lot sales
in 2005 through April 30 include three lots (one in the first quarter and two in
April) for $0.8 million.
In
January 2004, we acquired the Deerfield property for $7.0 million. The property
is zoned and subject to a preliminary subdivision plan for 234 residential lots.
In February 2004, we executed an Option Agreement and a Construction Agreement
with a national homebuilder. Pursuant to the Option Agreement, we were paid $1.4
million for an option to purchase all 234 lots over 36 monthly take-downs. The
net purchase price for each of the 234 lots is $61,500, subject to certain terms
and conditions. The $1.4 million option payment is non-refundable, but would be
applied against subsequent purchases of lots by the homebuilder after certain
thresholds are achieved and will be recognized as income as lots are sold. The
Construction Agreement requires the homebuilder to complete development of the
entire project by March 15, 2007. We agreed to pay up to $5.2 million of the
homebuilder’s development costs. The homebuilder must pay all property taxes and
maintenance costs. In February 2004, we entered into a $9.8 million three-year
loan agreement with Comerica Bank (Comerica) to finance the acquisition and
development of Deerfield. Development is proceeding on schedule and we had $4.8
million in remaining availability under the loan at March 31, 2005. The initial
lot sale occurred in November 2004 and subsequent lot sales are on schedule with
16 lot sales closing in the first quarter of 2005. Under the agreement terms, we
expect to complete 60 lot sales for $3.7 million during the remainder of
2005.
We have
commenced development activities at the Circle C community based on the
entitlements set forth in our Circle C Settlement with the City, which permits
development of one million square feet of commercial space, 900 multi-family
units and 830 single-family residential lots. The preliminary plan has been
approved for Meridian, an 800-lot residential development at the Circle C
community. In October 2004, we received final City plat and construction permit
approvals for the first phase of Meridian, and construction commenced in
January. During the first quarter of 2005, we contracted to sell a total of 494
lots in our Meridian project to three national homebuilders in four phases.
Sales for each of the four phases commence upon substantial completion of
development for that phase, and continue every quarter until all of the lots
have been sold. The first phase, which is currently under development, includes
134 lots and substantial completion is projected prior to year-end. Development
of the second phase of approximately 134 lots will commence in the third quarter
of 2005, with completion projected by early 2006. We estimate our sales from the
first phase of Meridian to total at least 14 lots for $0.9 million during the
remainder of 2005.
In
addition, several retail sites at the Circle C community have received final
City approvals and are being developed. Zoning for Escarpment Village, a
160,000-square-foot retail project anchored by a grocery store, was approved
during the second quarter of 2004, and construction has commenced with
completion expected by year-end. In December 2004, we obtained an $18.5 million
project loan from Comerica to fund the construction of Escarpment Village, as
well as a $22.8 million commitment from the Teachers Insurance and Annuity
Association of America (TIAA) for a long-term mortgage for the completed
project.
During
2004, we completed construction of four courtyard homes at Calera Court within
the Barton Creek community, one of which was sold in the first quarter of 2004.
Calera Court, the initial phase of the “Calera Drive” subdivision, will include
17 courtyard homes on 16 acres. The second phase of Calera Drive, consisting of
53 single-family lots, has received final plat and construction permit approval.
The development of these lots, many of which adjoin the Fazio Canyons Golf
Course, has commenced. Development of the third and last phase of Calera Drive,
which will include approximately 70 single-family lots, is not expected to
commence until after 2005. Funding for the construction of courtyard homes at
Calera Court is provided by a $3.0 million project loan, which we established
with Comerica in September 2003.
During
the first quarter of 2004, we executed leases that brought our 7500 Rialto
Boulevard office building to 90 percent occupancy in July 2004, and at March 31,
2005, the office building was fully leased. In March 2004, we formed
Southwest Property Services L.L.C. to manage our office buildings. Effective
June 30, 2004, we terminated our agreement with the third-party property
management firm previously providing this function. Although there may be some
higher costs during the initial transition, we anticipate that this change in
management responsibility should provide future cost savings for our commercial
leasing operations and better control of building operations.
11
RESULTS
OF OPERATIONS
We are
continually evaluating the development potential of our properties and will
continue to consider opportunities to enter into transactions involving our
properties. As a result, and because of numerous other factors affecting our
business activities as described herein, our past operating results are not
necessarily indicative of our future results.
Summary
operating results follow (in thousands):
|
First
Quarter |
||||||
|
2005 |
2004 |
|||||
|
Revenues: |
||||||
|
Real
estate operations |
$ |
2,410 |
$ |
1,119 |
||
|
Commercial
leasing |
1,220 |
828 |
||||
|
Total
revenues |
$ |
3,630 |
$ |
1,947 |
||
|
Operating
loss |
$ |
(645 |
) |
$ |
(1,580 |
) |
|
Net
loss |
$ |
(912 |
) |
$ |
(1,805 |
) |
We have
two operating segments, “Real Estate Operations” and “Commercial Leasing” (see
Note 6 of Notes to Consolidated Financial Statements). The following is a
discussion of our operating results by segment.
Real
Estate Operations
Summary
real estate operating results follow (in thousands):
|
First
Quarter |
||||||
|
2005 |
2004 |
|||||
|
Revenues: |
||||||
|
Developed
property sales |
$ |
2,252 |
$ |
972 |
||
|
Commissions,
management fees and other |
158 |
147 |
||||
|
Total
revenues |
2,410 |
1,119 |
||||
|
Cost
of sales |
(1,930 |
) |
(1,138 |
) | ||
|
General
and administrative expenses |
(1,112 |
) |
(1,127 |
) | ||
|
Operating
loss |
$ |
(632 |
) |
$ |
(1,146 |
) |
Developed
Property Sales. Developed
property sales for the first quarter of 2005 included 16 lots at Deerfield for
$1.0 million, a residential estate lot at the Escala Drive subdivision for $0.9
million and a lot at the Wimberly Lane Phase II subdivision for $0.3 million.
Developed property sales for the first quarter of 2004 included sales of a
residential estate lot at the Mirador subdivision for $0.4 million and the first
courtyard home at Calera Court for $0.6 million.
Commissions,
Management Fees and Other.
Commissions, management fees and other revenues included sales of our
development fee credits to third parties totaling $0.1 million in the first
quarters of 2005 and 2004. We received these development fee credits as part of
the Circle C Settlement (see Note 8 of our 2004 Form 10-K).
Cost
of Sales. The
increase in first-quarter 2005 cost of sales compared to the 2004 period
primarily relates to the increase in developed property sales in the first
quarter of 2005.
Commercial
Leasing
Summary
commercial leasing operating results follow (in thousands):
|
First
Quarter |
||||||
|
2005 |
2004 |
|||||
|
Rental
income |
$ |
1,220 |
$ |
828 |
||
|
Rental
property costs |
(608 |
) |
(689 |
) | ||
|
Depreciation |
(380 |
) |
(320 |
) | ||
|
General
and administrative expenses |
(245 |
) |
(253 |
) | ||
|
Operating
loss |
$ |
(13 |
) |
$ |
(434 |
) |
Rental
Income. In the
first quarter of 2005, rental income from the 7000 West office buildings totaled
$0.9 million, compared to $0.7 million for the 2004 period. Rental income
includes common area maintenance (CAM) revenues, which consist of property
taxes, utilities, insurance and general building maintenance costs allocated to
tenants. The CAM-related costs billed to tenants during the first quarter of
2005 increased to $0.4 million compared to $0.2 million in the 2004 period
primarily because of higher utility costs in 2005, and lower property taxes and
credits for final adjustments in the first quarter of 2004. In the first quarter
of 2005, we earned $0.3 million in rental income from the 7500 Rialto Boulevard
office building, compared to $0.1 million for the 2004 period, as the occupancy
rate doubled to approximately 100 percent in the first quarter of 2005 from 50
percent in the first quarter of 2004.
CAPITAL
RESOURCES AND LIQUIDITY
Comparison
of First-Quarter 2005 and 2004 Cash Flows
Although
we have a working capital deficit, we believe that we have adequate funds from
our revolving credit facility and projected operating cash flows to meet our
working capital requirements. Additionally, we expect to restructure our 7500
Rialto Boulevard project loan ($6.6 million balance at March 31, 2005) prior to
its maturity in January 2006 together with long-term financing for our proposed
second 75,000-square-foot office building at 7500 Rialto Boulevard. Operating
activities provided cash of $4.1 million during the first quarter of 2005,
compared to a use of $0.5 million during the first quarter of 2004. Compared to
the 2004 period, operating cash flows improved primarily because of the increase
in sales activities and working capital changes.
Cash used
in investing activities totaled $6.6 million during the first quarter of 2005,
compared to $9.8 million during the first quarter of 2004. We acquired our
Deerfield property for $7.0 million in the first quarter of 2004 and continued
to develop the property in the first quarter of 2005. Other real estate
expenditures for the first quarters of 2005 and 2004 included improvements to
certain properties in the Barton Creek and Circle C communities. Development of
our commercial leasing properties included the completion of certain tenant
improvements to our 7000 West office buildings and 7500 Rialto Boulevard office
building during the first quarters of 2005 and 2004.
Financing
activities provided cash of $3.1 million during the first quarter of 2005
compared to $8.4 million during the first quarter of 2004. During the first
quarter of 2005, our financing activities reflected $4.1 million of net
borrowings under our revolving line of credit partially offset by net payments
totaling $0.6 million, including $0.5 million related to the Deerfield loan,
under our project construction loans. During the first quarter of 2004, our
financing activities included $2.4 million of net borrowings from our revolving
line of credit and $5.8 million of net borrowings from our project construction
loans, including borrowings of $4.1 million from the Deerfield loan and $1.2
million from the Calera Court project loan. See “Credit Facility and Other
Financing Arrangements” below for a discussion of our outstanding debt at March
31, 2005.
In 2001,
our Board of Directors approved an open market share purchase program for up to
0.7 million shares of our common stock. Under this program, we purchased 18,389
shares during 2004 for $0.2 million, a $13.47 per share average. In the first
quarter of 2005, we purchased 20,305 shares for $0.3 million, a $16.48 per share
average. During the second quarter of 2005 through May 11, 2005, we purchased
17,730 shares for $0.3 million, a $16.35 per share average. A total of 643,576
shares remain available under this program. The timing of future purchases of
our common stock is dependent on many factors including the price of our common
shares, our cash flows and financial position, and general economic and market
conditions.
Credit
Facility and Other Financing Arrangements
At March
31, 2005, we had total debt of $59.1 million, including $7.9 million of current
debt, compared to total debt of $55.6 million, including $1.5 million of current
debt, at December 31, 2004. Our debt outstanding at March 31, 2005 consisted of
the following:
| · |
$24.4
million of net borrowings under the $30.0 million Comerica credit
facility, which will mature in May 2006. |
| · |
$10.0
million of borrowings outstanding under two unsecured $5.0 million term
loans, one of which will mature in January 2008 and the other in July
2008. |
| · |
$6.6
million of net borrowings under the 7500 Rialto Boulevard project loan,
which matures in January 2006 (see below). |
| · |
$12.0
million of net borrowings under the TIAA 7000 West project loan, which
will mature in January 2015. |
| · |
$1.1
million of net borrowings under the $3.0 million Calera Court project
loan, for which the three remaining courtyard homes at Calera Court are
serving as collateral. This project loan will mature in September
2005. |
| · |
$5.0
million of net borrowings under the $9.8 million Deerfield loan, for which
the Deerfield property and any future improvements are serving as
collateral. This project loan will mature in February
2007. |
| · |
$1,000
of net borrowings under the $18.5 million Escarpment Village project loan,
which will mature in June 2007. |
In
addition, we have a $22.8 million commitment, which will be available in October
2005, from TIAA for a 30-year mortgage for the completed Escarpment
Village.
For a
discussion of our debt see Note 5 of our 2004 Form 10-K.
7500
Rialto Boulevard Project Loan Amendment. Under
the terms of an existing amendment, we executed a one-year option in January
2004 to extend the maturity of our project loan for the 75,000-square-foot
office building at 7500 Rialto Boulevard from January 31, 2004 to January 31,
2005, with a remaining option to extend the maturity for an additional one-year
period. Effective January 31, 2005, we extended the loan for one year in
accordance with the amendment. Under the terms of the maturity extension, we
paid an extension fee of $18,500 and the commitment under the facility was
reduced by $0.2 million to $7.4 million. We may make additional borrowings under
this facility to fund certain tenant improvements. We expect to restructure our
7500 Rialto Boulevard project loan ($6.6 million balance at March 31, 2005)
prior to its maturity in January 2006 together with long-term financing for our
proposed second 75,000-square-foot office building at 7500 Rialto
Boulevard.
Outlook
As
discussed in “Risk Factors” located in our 2004 Form 10-K, our financial
condition and results of operations are highly dependent upon market conditions
in Austin. Our future operating cash flows and, ultimately, our ability to
develop our properties and expand our business will be largely dependent on the
level of our real estate sales. In turn, these sales will be significantly
affected by future real estate market conditions in Austin, Texas, development
costs, interest rate levels and regulatory issues including our land use and
development entitlements. The Austin real estate market experienced a slowdown
during the past several years which affected our operating results and
liquidity. While current market conditions are improving, we cannot at this time
project how long or to what extent improving conditions will
persist.
We have
made progress securing permitting for our Austin-area properties (see “Company
Strategies and Development Activities” in our 2004 Form 10-K). Significant
development expenditures must be incurred and additional permits secured prior
to the sale of certain properties. Certain of our properties benefit from
grandfathered entitlements that are not subject to the development requirements
currently in effect. We continue to engage in positive and cooperative dialogue
with the City concerning land use and development permit
issues.
We are
continuing to pursue additional development and management fee opportunities. We
also believe that we can obtain bank financing for developing our properties at
a reasonable cost. As noted above, we have two loans with $31.0 million of
net borrowings that are scheduled to mature in 2006. We have positive
relationships with our lenders and we expect to extend the maturity dates of
those loans.
NEW
ACCOUNTING STANDARDS
Refer to
Note 1 of our 2004 Form 10-K for information regarding our accounting for
share-based payments, including stock options. Through March 31, 2005, we have
accounted for grants of employee stock options under the recognition principles
of Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock
Issued to Employees,” and related interpretations, which require compensation
costs for stock-based employee compensation plans to be recognized based on the
difference on the date of grant, if any, between the quoted market price of the
stock and the amount an employee must pay to acquire the stock. If we had
applied the fair value recognition provisions of Statement of Financial
Accounting Standards (SFAS) No. 123, “Accounting for Stock-Based Compensation,”
which requires stock-based compensation to be recognized based on the use of a
fair value method, our net loss would have been increased by $0.2 million for
the first quarter of 2005 and $0.1 million for the first quarter of
2004.
In
December 2004, the Financial Accounting Standards Board (FASB) issued SFAS No.
123 (revised 2004), “Share-Based Payment” (SFAS No. 123R). SFAS No. 123R
requires all share-based payments to employees, including grants of employee
stock options, to be recognized in the financial statements based on their fair
values. SFAS No. 123R’s effective date is interim periods beginning after June
15, 2005. However, in April 2005 the Securities and Exchange Commission provided
for a deferral of the effective date to fiscal periods beginning after June 15,
2005. We are still reviewing the provisions of SFAS No. 123R and have not yet
determined if we will adopt SFAS No. 123R before January 1, 2006.
CAUTIONARY
STATEMENT
Management’s
Discussion and Analysis of Financial Condition and Results of Operations
contains forward-looking statements regarding proposed real estate sales
and development activities at the Deerfield project, the Barton Creek
community, the Circle C community and at Lantana; the proposed development
of a mixed-use project in downtown Austin; future events related to financing
and regulatory matters; the expected results of our business strategy; and other
plans and objectives of management for future operations and activities.
Important factors that could cause actual results to differ materially from our
expectations include economic and business conditions, business opportunities
that may be presented to and pursued by us, changes in laws or regulations and
other factors, many of which are beyond our control, and other factors that are
described in more detail under “Risk Factors” located in our 2004 Form
10-K.
Item 3. Quantitative
and Qualitative Disclosures about Market Risk.
There
have been no significant changes in our market risks since the year ended
December 31, 2004. For more information, please read the consolidated financial
statements and notes thereto included in our 2004 Form 10-K.
Item 4. Controls
and Procedures.
(a) Evaluation
of disclosure controls and procedures. Our
chief executive officer and chief financial officer, with the participation of
management, have evaluated the effectiveness of our “disclosure controls and
procedures” (as defined in Rules 13a-14(c) and 15d-14(c) under the Securities
Exchange Act of 1934) as of the end of the period covered by this quarterly
report on Form 10-Q. Based on their evaluation, they have concluded that our
disclosure controls and procedures are effective in timely alerting them to
material information relating to Stratus (including our consolidated
subsidiaries) required to be disclosed in our periodic Securities and Exchange
Commission filings.
(b) Changes
in internal controls. There
has been no change in our internal control over financial reporting that
occurred during the first quarter that has materially affected, or is reasonably
likely to materially affect our internal control over financial
reporting.
PART II. - OTHER INFORMATION
Item 1. Legal
Proceedings.
We may
from time to time be involved in various legal proceedings of a character
normally incident to the ordinary course of our business. We believe that
potential liability from any of these pending or threatened proceedings will not
have a material adverse effect on our financial condition or results of
operations. We maintain liability insurance to cover some, but not all,
potential liabilities normally incident to the ordinary course of our business
as well as other insurance coverage customary in our business, with such
coverage limits as management deems prudent.
Item 2. Unregistered
Sales of Equity Securities and Use of Proceeds.
The
following table sets forth shares of our common stock we repurchased during the
three-month period ended March 31, 2005.
|
Current
Programa | |||||||||
|
Period |
Total
Shares
Purchased |
Average
Price
Paid
Per
Share |
Shares
Purchased |
Shares
Available
for
Purchase | |||||
|
January
1 to 31, 2005 |
6,311 |
$16.31 |
6,311 |
675,300 | |||||
|
February
1 to 28, 2005 |
4,360 |
16.56 |
4,360 |
670,940 | |||||
|
March
1 to 31, 2005 |
9,634 |
16.55 |
9,634 |
661,306 | |||||
|
Total |
20,305 |
16.48 |
20,305 |
||||||
| a. |
In
February 2001, our Board of Directors approved an open market share
purchase program for up to 0.7 million shares of our common stock. The
program does not have an expiration date. |
Item 6. Exhibits.
The
exhibits to this report are listed in the Exhibit Index beginning on page E-1
hereof.
Instruments
with respect to other long-term debt of Stratus and its consolidated
subsidiaries are omitted pursuant to Item 601(b)(4)(iii) of Regulation S-K since
the total amount authorized under each such omitted instrument does not exceed
10 percent of the total assets of Stratus and its subsidiaries on a consolidated
basis. Stratus hereby agrees to furnish a copy of any such instrument to the
Securities and Exchange Commission upon request.
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
STRATUS
PROPERTIES INC.
By: /s/
John E. Baker
-----------------------------------
John E.
Baker
Senior
Vice President and
Chief
Financial Officer
(authorized
signatory and
Principal
Financial Officer)
Date: May 13,
2005
STRATUS
PROPERTIES INC.
Exhibit
Number
|
3.1 |
Amended
and Restated Certificate of Incorporation of Stratus. Incorporated by
reference to Exhibit 3.1 to the Quarterly Report on Form 10-Q of Stratus
for the quarter ended March 31, 2004 (Stratus’ 2004 First Quarter Form
10-Q). |
|
3.2 |
Certificate
of Amendment to the Amended and Restated Certificate of Incorporation of
Stratus, dated May 14, 1998. Incorporated by reference to Exhibit 3.2 to
Stratus’ 2004 First Quarter Form 10-Q. |
|
3.3 |
Certificate
of Amendment to the Amended and Restated Certificate of Incorporation of
Stratus, dated May 25, 2001. Incorporated by reference to Exhibit 3.2 to
the Annual Report on Form 10-K of Stratus for the fiscal year ended
December 31, 2001 (Stratus’ 2001 Form 10-K). |
|
3.4 |
By-laws
of Stratus, as amended as of February 11, 1999. Incorporated by reference
to Exhibit 3.4 to Stratus’ 2004 First Quarter Form
10-Q. |
|
4.1 |
Rights
Agreement dated as of May 16, 2002, between Stratus and Mellon Investor
Services LLP, as Rights Agent, which includes the Certificates of
Designation of Series C Participating Preferred Stock; the Forms of Rights
Certificate Assignment, and Election to Purchase; and the Summary of
Rights to Purchase Preferred Shares. Incorporated by reference to Exhibit
4.1 to Stratus’ Registration Statement on Form 8-A dated May 22,
2002. |
|
4.2 |
Amendment
No. 1 to Rights Agreement between Stratus Properties Inc. and Mellon
Investor Services LLC, as Rights Agent, dated as of November 7, 2003.
Incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K
of Stratus dated November 7, 2003. |
|
10.1 |
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 the Annual Report on Form 10-K of Stratus for
the fiscal year ended December 31, 1999. |
|
10.2 |
Guaranty
Agreement dated December 31, 1999, by and between Stratus Properties Inc.
and Comerica Bank-Texas. Incorporated by reference to Exhibit 10.18 to the
Quarterly Report on Form 10-Q of Stratus for the quarter ended March 31,
2000 (Stratus’ 2000 First Quarter Form 10-Q). |
|
10.3 |
Guaranty
Agreement dated February 24, 2000, by and between Stratus Properties Inc.
and Comerica Bank-Texas. Incorporated by reference to Exhibit 10.19 to
Stratus’ 2000 First Quarter Form 10-Q. |
|
10.4 |
Amended
Loan Agreement dated December 27, 2000, by and between Stratus Properties
Inc. and Comerica-Bank Texas. Incorporated by reference to Exhibit 10.19
to the Annual Report on Form 10-K of Stratus for the fiscal year ended
December 31, 2000 (Stratus’ 2000 Form 10-K). |
|
10.5 |
Second
Amendment to Loan Agreement dated December 18, 2001, by and among Stratus
Properties Inc., Stratus Properties Operating Co., L.P., Circle C Land
Corp. and Austin 290 Properties Inc. collectively as borrower and Comerica
Bank-Texas, as lender. Incorporated by Reference to Exhibit 10.23 to
Stratus’ 2001 Form 10-K. |
|
10.6 |
Third
Modification and Extension Agreement dated June 30, 2003, by and between
Comerica Bank, as lender, and Stratus Properties Inc., Stratus Properties
Operating Co., L.P., Circle C Land Corp. and Austin 290 Properties Inc.,
individually and collectively as borrower. Incorporated by reference to
Exhibit 10.25 to the Quarterly Report on Form 10-Q of Stratus for the
quarter ended September 30, 2003 (Stratus’ 2003 Third Quarter Form
10-Q). |
E-1
|
10.7 |
Third
Modification Agreement dated June 23, 2004, by and between Comerica Bank,
as lender, and Stratus Properties Inc., Stratus Properties Operating Co.,
L.P., Circle C Land, L.P. and Austin 290 Properties, Inc., individually
and collectively as borrower. Incorporated by reference to Exhibit 10.16
to the Quarterly Report on Form 10-Q of Stratus for the quarter ended June
30, 2004 (Stratus’ 2004 Second Quarter Form 10-Q). |
|
10.8 |
Third
Amendment to Promissory Note dated June 23, 2004, by and among Stratus
Properties Inc., Stratus Properties Operating Co., L.P., Circle C Land,
L.P. and Austin 290 Properties, Inc., individually and collectively as
borrower, and Comerica Bank, as lender. Incorporated by reference to
Exhibit 10.17 to Stratus’ 2004 Second Quarter Form
10-Q. |
|
10.9 |
Third
Amendment to Revolving Credit Note dated June 23, 2004, by and among
Stratus Properties Inc., Stratus Properties Operating Co., L.P., Circle C
Land, L.P. and Austin 290 Properties, Inc., individually and collectively
as borrower, and Comerica Bank, as lender. Incorporated by reference to
Exhibit 10.18 to Stratus’ 2004 Second Quarter Form
10-Q. |
|
10.10 |
Third
Amendment to Loan Agreement dated June 23, 2004, by and among Stratus
Properties Inc., Stratus Properties Operating Co., L.P., Circle C Land,
L.P. and Austin 290 Properties, Inc., individually and collectively as
borrower, and Comerica Bank, as bank. Incorporated by reference to Exhibit
10.19 to Stratus’ 2004 Second Quarter Form 10-Q. |
|
10.11 |
Loan
Agreement dated December 28, 2000, by and between Stratus Properties Inc.
and Holliday Fenoliglio Fowler, L.P., subsequently assigned to an
affiliate of First American Asset Management. Incorporated by reference to
Exhibit 10.20 to Stratus’ 2000 Form 10-K. |
|
10.12 |
Loan
Agreement dated June 14, 2001, by and between Stratus Properties Inc. and
Holliday Fenoliglio Fowler, L.P., subsequently assigned to an affiliate of
First American Asset Management. Incorporated by reference to Exhibit
10.20 to the Quarterly Report on Form 10-Q of Stratus for the quarter
ended September 30, 2001. |
|
10.13 |
Construction
Loan Agreement dated June 11, 2001, between 7500 Rialto Boulevard, L.P.
and Comerica Bank-Texas. Incorporated by Reference to Exhibit 10.26 to
Stratus’ 2001 Form 10-K. |
|
10.14 |
Modification
Agreement dated January 31, 2003, by and between Lantana Office Properties
I, L.P., formerly 7500 Rialto Boulevard, L.P., and Comerica Bank-Texas.
Incorporated by reference to Exhibit 10.19 to Stratus’ 2003 First Quarter
Form 10-Q. |
|
10.15 |
Second
Modification Agreement dated as of December 29, 2003, to be effective as
of January 31, 2004, by and between Lantana Office Properties I, L.P., a
Texas limited partnership (formerly known as 7500 Rialto Boulevard, L.P.),
as borrower, and Comerica Bank, as lender. Incorporated by reference to
Exhibit 10.20 to Stratus’ 2003 Form 10-K. |
|
10.16 |
Guaranty
Agreement dated June 11, 2001, by Stratus Properties Inc. in favor of
Comerica Bank-Texas. Incorporated by Reference to Exhibit 10.27 to
Stratus’ 2001 Form 10-K. |
|
10.17 |
Loan
Agreement dated September 22, 2003, by and between Calera Court, L.P., as
borrower, and Comerica Bank, as lender. Incorporated by reference to
Exhibit 10.26 to Stratus’ 2003 Third Quarter Form 10-Q. |
|
10.18 |
Development
Agreement dated August 15, 2002, between Circle C Land Corp. and City of
Austin. Incorporated by reference to Exhibit 10.18 to the Quarterly Report
on Form 10-Q of Stratus for the quarter ended September 30,
2002. |
|
| |
|
Executive
Compensation Plans and Arrangements (Exhibits 10.19 through
10.28) | |
|
10.19 |
Stratus’
Performance Incentive Awards Program, as amended, effective February 11,
1999. Incorporated by reference to Exhibit 10.24 to Stratus’ 2004 First
Quarter Form 10-Q. |
|
E-2
| |
|
10.20 |
Stratus
Stock Option Plan. Incorporated by reference to Exhibit 10.25 to Stratus’
2003 Form 10-K. |
|
10.21 |
Stratus
1996 Stock Option Plan for Non-Employee Directors. Incorporated by
reference to Exhibit 10.26 to Stratus’ 2003 Form 10-K. |
|
10.22 |
Stratus
Properties Inc. 1998 Stock Option Plan. Incorporated by reference to
Exhibit 10.27 to Stratus’ 2003 Form 10-K. |
|
10.23 |
Form
of Notice of Grant of Nonqualified Stock Options and Limited Rights under
the 1998 Stock Option Plan. Incorporated by reference to Exhibit 10.32 to
Stratus’ 2004 Second Quarter Form 10-Q. |
|
10.24 |
Form
of Restricted Stock Unit Agreement under the 1998 Stock Option Plan.
Incorporated by reference to Exhibit 10.33 to Stratus’ 2004 Second Quarter
Form 10-Q. |
|
10.25 |
Stratus
Properties Inc. 2002 Stock Incentive Plan. Incorporated by reference to
Exhibit 10.28 to Stratus’ 2003 Form 10-K. |
|
10.26 |
Form
of Notice of Grant of Nonqualified Stock Options and Limited Rights under
the 2002 Stock Incentive Plan. Incorporated by reference to Exhibit 10.35
to Stratus’ 2004 Second Quarter Form 10-Q. |
|
10.27 |
Form
of Restricted Stock Unit Agreement under the 2002 Stock Incentive Plan.
Incorporated by reference to Exhibit 10.36 to Stratus’ 2004 Second Quarter
Form 10-Q. |
|
10.28 |
Stratus
Director Compensation. Incorporated by reference to Exhibit 10.28 to the
Annual Report on Form 10-K of Stratus for the fiscal year ended December
31, 2004. |
|
Letter
from PricewaterhouseCoopers LLP regarding the unaudited interim financial
statements. | |
|
Certification
of Principal Executive Officer pursuant to Rule
13a-14(a)/15d-14(a). | |
|
Certification
of Principal Financial Officer pursuant to Rule
13a-14(a)/15d-14(a). | |
|
Certification
of Principal Executive Officer pursuant to 18 U.S.C. Section
1350. | |
|
Certification
of Principal Financial Officer pursuant to 18 U.S.C. Section
1350. |
E-3
Exhibit
15.1
May 12,
2005
Securities
and Exchange Commission
450 Fifth
Street, N.W.
Washington,
D.C. 20549
Commissioners:
We are
aware that our report dated May 12, 2005 on our review of interim financial
information of Stratus Properties Inc. for each of the three-month periods ended
March 31, 2005 and 2004 and included in the Company's Quarterly Report on Form
10-Q for the quarter ended March 31, 2005, is incorporated by reference in the
Company’s Registration Statements on Form S-8 (File Nos. 33-78798, 333-31059,
333-52995 and 333-104288).
Yours
very truly,
/s/
PricewaterhouseCoopers LLP
Exhibit
31.1
CERTIFICATION
I,
William H. Armstrong III, certify that:
|
1. |
I
have reviewed this quarterly report on Form 10-Q of Stratus Properties
Inc.; |
|
2. |
Based
on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report; |
|
3. |
Based
on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
|
|
4. |
The
registrant’s other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant
and have: |
|
(a) |
Designed
such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared; |
|
(b) |
Evaluated
the effectiveness of the registrant’s disclosure controls and procedures
and presented in this report our conclusions about the effectiveness of
the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation;
and |
|
(c) |
Disclosed
in this report any change in the registrant’s internal control over
financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial
reporting; and |
|
5. |
The
registrant’s other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to
the registrant’s auditors and the audit committee of the registrant’s
board of directors (or persons performing the equivalent
functions): |
|
(a) |
All
significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information;
and |
|
(b) |
Any
fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant’s internal control
over financial reporting. |
Date: May
13, 2005
/s/
William H. Armstrong III
William
H. Armstrong III
Chairman
of the Board, President
and Chief
Executive Officer
Exhibit
31.2
CERTIFICATION
I, John
E. Baker, certify that:
|
1. |
I
have reviewed this quarterly report on Form 10-Q of Stratus Properties
Inc.; |
|
2. |
Based
on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report; |
|
3. |
Based
on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
|
|
4. |
The
registrant’s other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant
and have: |
|
(a) |
Designed
such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared; |
|
(b) |
Evaluated
the effectiveness of the registrant’s disclosure controls and procedures
and presented in this report our conclusions about the effectiveness of
the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation;
and |
|
(c) |
Disclosed
in this report any change in the registrant’s internal control over
financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial
reporting; and |
|
5. |
The
registrant’s other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to
the registrant’s auditors and the audit committee of the registrant’s
board of directors (or persons performing the equivalent
functions): |
|
(a) |
All
significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information;
and |
|
(b) |
Any
fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant’s internal control
over financial reporting. |
Date: May
13, 2005
/s/
John E. Baker
John E. Baker
Senior
Vice President &
Chief
Financial Officer
Exhibit
32.1
Certification
Pursuant to 18 U.S.C. Section 1350
(Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002)
In
connection with the Quarterly Report on Form 10-Q of Stratus Properties Inc.
(the “Company”) for the quarter ending March 31, 2005, as filed with the
Securities and Exchange Commission on the date hereof (the “Report”), William H.
Armstrong III, as Chairman of the Board, President and Chief Executive Officer
of the Company, hereby certifies, pursuant to 18 U.S.C. § 1350, as adopted
pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his
knowledge:
(1) The
Report fully complies with the requirements of Section 13(a) or 15(d) of the
Securities Exchange Act of 1934; and
(2) The
information contained in the Report fairly presents, in all material respects,
the financial condition and results of operations of the Company.
Dated:
May 13, 2005
/s/
William H. Armstrong III
William H. Armstrong III
Chairman
of the Board, President and
Chief
Executive Officer
A signed
original of this written statement required by Section 906 has been provided to
the Company and will be retained by the Company and furnished to the Securities
and Exchange Commission or its staff upon request.
This
certification shall not be deemed filed by the Company for purposes of § 18 of
the Securities Exchange Act of 1934, as amended.
Exhibit
32.2
Certification
Pursuant to 18 U.S.C. Section 1350
(Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002)
In
connection with the Quarterly Report on Form 10-Q of Stratus Properties Inc.
(the “Company”) for the quarter ending March 31, 2005, as filed with the
Securities and Exchange Commission on the date hereof (the “Report”), John E.
Baker, as Senior Vice President & Chief Financial Officer of the Company,
hereby certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of
the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge:
(1) The
Report fully complies with the requirements of Section 13(a) or 15(d) of the
Securities Exchange Act of 1934; and
(2) The
information contained in the Report fairly presents, in all material respects,
the financial condition and results of operations of the Company.
Dated:
May 13, 2005
/s/
John E. Baker
John E. Baker
Senior
Vice President &
Chief
Financial Officer
A signed
original of this written statement required by Section 906 has been provided to
the Company and will be retained by the Company and furnished to the Securities
and Exchange Commission or its staff upon request.
This
certification shall not be deemed filed by the Company for purposes of § 18 of
the Securities Exchange Act of 1934, as amended.