UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2010
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
(State or other jurisdiction of
incorporation or organization)
212 Lavaca St., Suite 300
Austin, Texas
(Address of principal executive offices)
72-1211572
(I.R.S. Employer Identification No.)
78701
(Zip Code)
(512) 478-5788
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Name of each exchange on which registered
Common Stock, par value $0.01 per share
Preferred Stock Purchase Rights
NASDAQ
NASDAQ
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act (cid:1) Yes (cid:2) No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. (cid:1) Yes (cid:2) No
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. (cid:2) Yes (cid:1) No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant was required to submit and post such files). (cid:1) Yes (cid:1) No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not
contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. (cid:2)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller
reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act. (cid:1) Large accelerated filer (cid:1) Accelerated filer (cid:1) Non-accelerated filer (cid:2) Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). (cid:1) Yes (cid:2) No
The aggregate market value of common stock held by non-affiliates of the registrant was approximately $58.8 million on March 15,
2011, and approximately $43.8 million on June 30, 2010.
Common stock issued and outstanding was 7,494,086 shares on March 15, 2011, and 7,470,117 shares on June 30, 2010.
STRATUS PROPERTIES INC.
TABLE OF CONTENTS
Part I
Items 1. and 2. Business and Properties
Overview
Company Strategies and Development Activities
Competition
Credit Facility and Other Financing Arrangements
Regulation and Environmental Matters
Employees
Item 1A. Risk Factors
Item 3. Legal Proceedings
Item 4. (Removed and Reserved)
Executive Officers of the Registrant
Part II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities
Item 7. Management’s Discussion and Analysis of Financial Condition and
Results of Operations
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
Part III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accounting Fees and Services
Part IV
Item 15. Exhibits, Financial Statement Schedules
Signatures
Index to Financial Statements
Exhibit Index
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PART I
Items 1. and 2. Business and Properties
Except as otherwise described herein or the context otherwise requires, all references to “Stratus,” “we,” “us,”
and “our” in this Form 10-K refer to Stratus Properties Inc. and all entities owned or controlled by Stratus
Properties Inc. All of our periodic report filings with the Securities and Exchange Commission (SEC) pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, are available, free of charge,
through our web site, www.stratusproperties.com, including our annual report on Form 10-K, quarterly reports
on Form 10-Q, current reports on Form 8-K and any amendments to those reports. These reports and
amendments are available through our web site as soon as reasonably practicable after we electronically file or
furnish such material to the SEC. All references to “Notes” in this report refer to the Notes to Consolidated
Financial Statements located in Item 8. of this Form 10-K.
Overview
We are engaged in the acquisition, development, management, operation and sale of commercial, hotel,
entertainment, multi-family and single-family residential real estate properties located primarily in the Austin,
Texas area. Prior to the development of the W Austin Hotel & Residences project (see discussion below), we
primarily generated revenues from sales of developed properties and through rental income from our
commercial properties. Developed property sales can include an individual tract of land that has been developed
and permitted for residential use or a developed lot with a home already built on it. We may, on occasion, sell
properties under development or undeveloped properties, if opportunities arise that we believe will maximize
overall asset values.
In December 2010, the hotel at our W Austin Hotel & Residences project opened, and in 2011, we began
closing on sales of condominium units at the project. The W Austin Hotel & Residences project is located on a
two-acre city block in downtown Austin and contains a 251-room luxury hotel, 159 residential condominium
units, office, retail and entertainment space. The hotel is managed by Starwood Hotels & Resorts Worldwide,
Inc. pursuant to our existing contract. The office space totals approximately 41,000 square feet and the retail
space totals approximately 18,000 square feet. The entertainment space includes a live music venue and
production studio, with a maximum capacity of 3,000 people (see “Company Strategies and Development
Activities”).
Our principal real estate holdings are in southwest Austin, Texas. The number of developed lots, developed or under
development acreage and undeveloped acreage as of December 31, 2010, that comprise our principal real estate
properties are presented in the table below. A developed lot is an individual tract of land that has been developed
and permitted for residential use. As of December 31, 2010, we own only one developed lot with a home that has
already been built on it (the Calera Court Courtyard home). Developed acreage or acreage under development
includes real estate for which infrastructure work over the entire property has been completed, is currently being
completed or is able to be completed and necessary permits have been obtained. The undeveloped acreage shown
in the table below is presented according to anticipated uses for single-family lots and commercial development
based upon our understanding of the properties’ existing entitlements. However, there is no assurance that the
undeveloped acreage will be developed because of the nature and cost of the approval and development process
and market demand for a particular use. Undeveloped acreage includes real estate that can be sold “as is” (i.e., no
infrastructure or development work has begun on such property).
Under Development
Undeveloped
Acreage
Developed Single
Family
Lots
Multi-
family
Commercial
Single
Total Family
Commercial Total
Total
Acreage
Austin
Barton Creek
Lantana
Circle C
W Austin Hotel
& Residences
San Antonio
Camino Real
Total
120
-
21
-
-
141
-
-
-
-
-
-
249
-
-
-
-
249
368
-
23
617
-
23
2 a
2
-
393
-
642
781
-
132
-
-
913
28
223
363
-
2
616
809
223
495
-
2
1,529
1,426
223
518
2
2
2,171
1
a. Represents a city block in downtown Austin developed for a mixture of hotel, residential, office, retail and entertainment
uses.
Our other Austin holdings at December 31, 2010, consisted of two 75,000-square-foot office buildings at 7500
Rialto Boulevard (7500 Rialto) located in our Lantana development, a 22,000-square-foot retail complex and a
3,300-square-foot bank building representing phase one of Barton Creek Village, and two retail buildings totaling
21,000 square feet and a 4,000-square-foot bank building on an existing ground lease at the 5700 Slaughter
retail complex in the Circle C Ranch (Circle C) community.
The following table summarizes the estimated development potential of our Austin-area acreage as of
December 31, 2010:
Barton Creek
Lantana
Circle C
Austin 290 Tract
Total
Single
Family
(lots)
Multi-family
Office
Retail
(units)
(gross square feet)
Commercial
464
-
57
-
521
1,860
-
-
-
1,860
1,590,000
1,314,800
760,000
-
3,664,800
23,000
371,400
212,440
20,000
626,840
For 2010, the only commercial leasing property that exceeded ten percent or more of our total assets or
represented ten percent or more of our aggregate gross revenue was 7500 Rialto. This property provided 69
percent of our 2010 commercial leasing revenues and 38 percent of our 2010 total revenues. We currently have
ten tenants at 7500 Rialto who are involved in computer electronics, medical devices, restaurant management
and engineering, among other businesses. The two largest tenants, Arthocare Corporation and ST-Ericsson
Inc., each generated approximately 11 percent of our 2010 total revenues and occupy approximately 28 percent
and 25 percent, respectively, of leased square footage at 7500 Rialto. The first 75,000-square-foot building at
7500 Rialto became available for lease in 2002 and the second 75,000-square-foot building became available
for lease in September 2006. A summary of the average occupancy rates and average rentals per square foot
for 7500 Rialto and for our total portfolio of commercial leasing properties, excluding the office and retail space
at the W Austin Hotel & Residences project which will be completed in 2011, for each of the last five years
follows:
Average occupancy:
7500 Rialto
Total portfolio
Average rentals per square foot:a
7500 Rialto
Total portfolio
2010
2009
2008
2007
2006
94%
91%
$23.84
$27.31
87%
79%
$25.90
$28.40
95%
87%
$24.78
$27.36
81%
79%
$22.33
$23.77
82%
82%
$16.94
$18.56
a. Based on revenue for contractual rentals plus expense reimbursements for leased space.
Our scheduled expirations of leased square footage as of December 31, 2010, as a percentage of total leased
space follow:
7500 Rialto
Total portfolio
2011
2012
8%
6%
-
1%
2013
35%
32%
2014
9%
11%
2015
20%
18%
2017
28%
26%
Thereafter
-
6%
For information about our operating segments see “Results of Operations” in Item 7. and Note 10.
2
Company Strategies and Development Activities
Stratus Properties was formed as a corporation in March 1992 to hold, operate and develop the domestic real
estate and oil & gas properties of our former parent company. We sold all of our oil & gas properties during the
1990's and have since focused solely on our real estate operations. Our overall strategy is to enhance the
value of our properties by securing and maintaining development entitlements and developing and building real
estate projects on these properties for sale or investment. We also continue to review and pursue opportunities
for new projects that offer the possibility of acceptable returns and risks.
As a result of the settlement of certain development-related lawsuits and an increasing level of cooperation with
the City of Austin (the City) regarding the development of our properties, we substantially increased our
development activities and expenditures during the last five years (see discussion below), which has resulted in
our debt increasing to $201.5 million at December 31, 2010. We have funded our development activities
primarily through property sales proceeds, and borrowings under our long-term debt and our expanded credit
facility (see “Credit Facility and Other Financing Arrangements” below and Note 6), which was established as a
result of the financing relationship we have built with Comerica Bank (Comerica) over the past several years.
The credit facility and other sources of financing have increased our financial flexibility and have allowed us to
focus our efforts on developing our properties, acquiring other properties and increasing shareholder value. In
addition, we continue to pursue additional development opportunities, and currently believe we can obtain bank
financing necessary for developing our properties, although our ability to obtain bank financing in the future may
be impacted by U.S. economic conditions. For further discussion of our operations and current real estate
market conditions see Item 1A. and “Real Estate Market Conditions” in Item 7.
Our accomplishments over the last several years include the following:
• We purchased a city block in downtown Austin, Texas and developed a multi-use property.
The W Austin Hotel & Residences
In December 2006, we acquired a two-acre city block in downtown Austin for $15.1 million to develop a
multi-use project. The project, known as the W Austin Hotel & Residences project, contains a mixture of
hotel, residential, office, retail and entertainment space. In 2008, we entered into a joint venture with
Canyon-Johnson Urban Fund II, L.P., (Canyon-Johnson) for the development of the W Austin Hotel &
Residences project (see Note 2). Construction of the $300 million project commenced in second-quarter
2008. We have executed an agreement with Starwood Hotels & Resorts Worldwide, Inc. for the
management of hotel operations. The hotel opened in December 2010 and includes 251 luxury rooms and
suites, a full service spa, gym and rooftop pool. Delivery of the first condominium units began in January
2011. Condominium units will continue to be completed on a floor-by-floor basis with delivery of pre-sold
units continuing through mid-2011. As of March 15, 2011, 58 of the 159 condominium units were under
contract and 25 condominium units had closed. Proceeds from the sales of the condominium units and net
operating income will be used to repay debt incurred in connection with the project. The project also
includes a live music venue and production studio with a maximum capacity of approximately 3,000 people.
In addition to hosting concerts and private events, the venue will be the new home of Austin City Limits, a
television program showcasing popular music legends. The venue opened in February 2011, has hosted 22
events through March 15, 2011, and has booked events through October 2011. The project has
approximately 41,000 square feet of leasable office space, which opened in March 2011, and 18,000 square
feet of leasable retail space are scheduled to open in June 2011. As of March 15, 2011, we had entered into
leases for 17,500 square feet of the office space (including 9,000 for our corporate office) and for 2,700
square feet of the retail space. See Note 2 for additional discussion regarding the W Austin Hotel &
Residences project.
• We have successfully permitted and developed significant projects in our Barton Creek and Lantana project
areas.
Barton Creek
Calera. Calera is a residential subdivision with plat approval for 155 lots. During 2004, we began
construction of 16 courtyard homes at Calera Court, the 16-acre initial phase of the Calera subdivision. The
second phase of Calera, Calera Drive, consisting of 53 single-family lots, many of which adjoin Fazio
3
Canyons Golf Course, received final plat and construction permit approval in 2005. Construction of the final
phase, known as Verano Drive, began in 2007, was completed in July 2008 and includes 71 single-family
lots. We sold one Calera Court courtyard home in 2010 and, as of December 31, 2010, one courtyard home
at Calera Court, eight lots at Calera Drive and 67 lots at Verano Drive remained unsold.
Amarra Drive. Amarra Drive Phase I, which is the initial phase of the Amarra Drive subdivision, was
completed in 2007 and includes eight lots, with sizes ranging from approximately one to four acres, some of
which are course-side lots on the Fazio Canyons Golf Course and others are secluded lots adjacent to the
Nature Conservancy of Texas. As of December 31, 2010, seven Amarra Drive Phase I lots remained
unsold. In 2008, we commenced development of Amarra Drive Phase II, which consists of 35 lots on 51
acres. Development was substantially completed in October 2008, but no sales have occurred.
Mirador. The Mirador subdivision consists of 34 estate lots, with each lot averaging approximately 3.5 acres
in size. As of December 31, 2010, two Mirador estate lots remained unsold.
Wimberly Lane. Wimberly Lane included two phases, with phase one consisting of 75 residential lots and
phase two consisting of 47 residential lots. We entered into a contract with a national homebuilder to sell 41
lots within the Wimberly Lane Phase II subdivision. The last homebuilder lot was sold in January 2008, and
the final Wimberly Lane lot was sold in December 2010.
Barton Creek Village. The first phase of Barton Creek Village includes a 22,000-square-foot retail complex,
which was completed in 2007, and a 3,300-square-foot bank building, which was completed in early 2008 and
is located within the retail complex. As of December 31, 2010, the retail complex was 89 percent leased and
the bank building is leased through January 2023.
Lantana
Lantana is a partially developed, mixed-use real-estate development project. As of December 31, 2010, we
had remaining entitlements for approximately 1.7 million square feet of office and retail use on 223 acres.
Regional utility and road infrastructure is in place with capacity to serve Lantana at full build-out permitted
under our existing entitlements.
Lantana also includes two 75,000-square-foot office buildings at 7500 Rialto Boulevard. As of December 31,
2010, occupancy was 85 percent for the first 7500 Rialto office building and 100 percent for the second
office building.
• We have made significant progress in obtaining the permitting necessary to pursue development of
additional Austin-area properties.
Circle C Community
Effective August 2002, the City granted final approval of a development agreement (the Circle C
settlement), which firmly established all essential municipal development regulations applicable to our Circle
C properties for 30 years. In 2004, we amended our Circle C settlement to modify the permits and approvals
necessary to develop 1.16 million square feet of commercial space, 504 multi-family units and 830 single-
family residential lots. The City also provided us $15 million of cash incentives in connection with our future
development of our Circle C and other Austin-area properties. These incentives, which are in the form of
Credit Bank capacity, can be used for City fees and for reimbursement of certain infrastructure costs.
Annually, we may elect to sell up to $1.5 million of the incentives to other developers for their use in paying
City fees related to their projects. As of December 31, 2010, we have permanently used $9.5 million of our
City-based incentives including cumulative sales of $4.5 million to other developers. We also have $1.9
million in Credit Bank capacity in use as temporary fiscal deposits. At December 31, 2010, available Credit
Bank capacity was $3.6 million.
We are developing the Circle C community based on the entitlements secured in our Circle C settlement.
Our 800-lot Meridian project within the Circle C community included our contracts with three national
homebuilders to complete the construction and sales of the first 494 lots at Meridian over four phases.
Phases one and two consisted of 134 lots each, phase three consisted of 108 lots and phase four consisted
of 118 lots. We sold the final 13 lots for $0.9 million in the first quarter of 2010.
4
In 2006, we signed another contract with a national homebuilder for 42 additional lots. Development of those
lots commenced in 2007 and was substantially completed in April 2008. In June 2009, this contract was
terminated by the homebuilder. As of the date the contract was terminated, there were 30 remaining
unclosed lots. In connection with the termination, the homebuilder forfeited a deposit of $0.6 million, which
we recorded as other income in 2009. We are currently pursuing contracts with other homebuilders for the
remaining lots. One lot was sold in 2009 for $0.1 million, eight lots were sold in 2010 for $1.1 million and 21
lots remained unsold as of December 31, 2010. The final phase of Meridian is expected to consist of 57
one-acre lots.
In addition, several retail sites at the Circle C community received final City approvals and are being
developed. In the third quarter of 2008, we completed the construction of two retail buildings totaling 21,000
square feet at 5700 Slaughter. This retail project also includes a 4,000-square-foot building on an existing
ground lease. As of December 31, 2010, occupancy was approximately 91 percent for the two retail
buildings.
The Circle C community also includes Parkside Village, a 92,440-square-foot planned retail project. The
project consists of a 33,650-square-foot full-service movie theater and restaurant, a 13,890-square-foot
medical clinic office, three tilt-wall retail buildings at 14,775 square feet, 10,600 square feet and 8,075
square feet, and two pads available for ground leases or build-to-suit retail or restaurant uses. In February
2011, we entered into a joint venture with Moffett Holdings, LLC. (Moffett) to develop Parkside Village,
obtained final permits and entitlements and began construction.
• We believe that we have the potential right to receive approximately $7.1 million of future reimbursements
associated with previously incurred Barton Creek utility development costs.
At December 31, 2010, we had approximately $2.0 million of expected future reimbursements of previously
incurred costs recorded as a component of real estate on our balance sheet. The remaining potential future
reimbursements are not recorded on our balance sheet because they relate to costs incurred prior to the
1995 formation of the Barton Creek Municipal Utility District (MUD). Since these costs pre-date the
formation of the MUDs, there is less certainty in their potential reimbursement. Costs incurred after the 1995
formation of the MUDs were capitalized into property costs and subsequently expensed through cost of
sales as properties sold. A significant portion of the additional costs, which we will incur in the future as our
development activities at Barton Creek continue, is expected to be eligible for reimbursement. We received
total MUD reimbursements of $5.1 million during 2010 and $7.0 million during 2009. As discussed in
“Results of Operations” within Item 7., we account for MUD reimbursements as reductions to cost of sales,
reductions in capital expenditures and interest income.
• We formed a joint venture in November 2005 to purchase and develop a multi-use property in Austin,
Texas.
Crestview Station
In 2005, we formed a joint venture partnership with Trammell Crow Central Texas Development, Inc.
(Trammell Crow) to acquire an approximate 74-acre tract at the intersection of Airport Boulevard and Lamar
Boulevard in Austin, Texas for $7.7 million. The property, known as Crestview Station, is a single-family,
multi-family, retail and office development, which is located on the site of a commuter rail line. The joint
venture completed environmental remediation, which the State of Texas certified as complete in 2007, and
permitting of the property. The initial phase of utility and roadway infrastructure is complete. Crestview
Station sold substantially all of its multi-family and commercial properties in 2007 and one commercial site in
the first quarter of 2008. The joint venture retained the single family component of Crestview Station and
one commercial site. The joint venture has obtained permits to develop Crestview Station as a 450-unit
transit-oriented neighborhood. At December 31, 2010, our investment in the Crestview Station project
totaled $3.1 million and the joint venture partnership had $8.2 million of outstanding debt, of which we
guarantee $1.4 million (see Note 5 for further discussion).
5
Competition
The real estate development business is highly competitive and fragmented. We compete against numerous
public and private developers of varying sizes, ranging from local to national in scope. As a result, we may be
competing for investment opportunities, financing, and potential buyers with entities that may possess greater
financial, marketing, or other resources than we have. Competition for potential buyers has been intensified by
an increase in the number of available residential properties resulting from recent weak conditions in the real
estate market. Our prospective customers generally have a variety of choices of new and existing homes and
homesites when considering a purchase. We attempt to differentiate our properties primarily on the basis of
community design, quality, uniqueness, amenities, location and developer reputation.
The real estate investment industry is highly fragmented among individuals, partnerships and public and private
entities, with no dominant single entity or person. Although we may compete against large sophisticated owners
and operators, owners and operators of any size can provide effective competition for prospective tenants. As a
result of the decline in the real estate market beginning in 2008, vacancies for commercial properties have
increased, which further increases competition for prospective tenants. We compete for tenants primarily on the
basis of property location, rent charged, and the design and condition of improvements.
Credit Facility and Other Financing Arrangements
Acquiring and maintaining adequate financing is an important element of our business. For information about
our credit facility and other financing arrangements, see “Credit Facility and Other Financing Arrangements” in
Item 7. and Note 6.
Regulation and Environmental Matters
Our real estate investments are subject to extensive local, city, county and state rules and regulations regarding
permitting, zoning, subdivision, utilities and water quality as well as federal rules and regulations regarding air
and water quality and protection of endangered species and their habitats. Such regulation has delayed and
may continue to delay development of our properties and result in higher developmental and administrative
costs.
We have made, and will continue to make, expenditures for the protection of the environment with respect to our
real estate development activities. Emphasis on environmental matters will result in additional costs in the
future. Based on an analysis of our operations in relation to current and presently anticipated environmental
requirements, we currently do not anticipate that these costs will have a material adverse effect on our future
operations or financial condition.
Employees
At December 31, 2010, we had a total of 35 full-time employees and one part-time employee located at our
Austin, Texas headquarters. We do not have any union employees. We believe we have a good relationship
with our employees. Since January 1, 1996, numerous services necessary for our business and operations,
including certain executive, administrative, accounting, financial and other services, have been performed by FM
Services Company (FM Services) pursuant to a services agreement. FM Services is a wholly owned subsidiary
of Freeport-McMoRan Copper & Gold Inc. Either party may terminate the services agreement at any time upon
60 days notice or earlier upon mutual written agreement.
Item 1A. Risk Factors
This report includes forward looking statements within the meaning of Section 27A of the Securities Act of 1933
and Section 21E of the Securities Exchange Act of 1934, including statements about our plans, strategies,
expectations, assumptions and prospects. Forward-looking statements are all statements other than statements
of historical facts, such as those statements regarding future reimbursements for infrastructure costs, future
events related to financing and regulatory matters, anticipated development plans and sales of land, units and
lots, projected timeframes for development, construction and completion of our projects, projected capital
expenditures, liquidity and capital resources, anticipated results of our business strategy, and other plans and
objectives of management for future operations and activities. The words “anticipates,” “may,” “can,” “plans,”
“believes,” “estimates,” “expects,” “projects,” “intends,” “likely,” “will,” “should,” “to be,” and any similar
6
expressions and/or statements that are not historical facts are intended to identify those assertions as forward-
looking statements.
We believe that our forward-looking statements are based on reasonable assumptions. However, we caution
readers that these statements are not guarantees of future performance and our actual experience and future
financial results may differ materially from those anticipated, projected or assumed in the forward-looking
statements. Important factors that may cause our actual results to differ materially from those anticipated by the
forward-looking statements include, but are not limited to, changes in economic and business conditions,
business opportunities that may be presented to and/or pursued by us, the availability of financing, increases in
foreclosures and interest rates, the termination of sales contracts or letters of intent due to, among other factors,
the failure of one or more closing conditions or market changes, the failure to attract homebuilding customers for
our developments or their failure to satisfy their purchase commitments, the failure to complete agreements with
strategic partners and/or appropriately manage relationships with strategic partners, a decrease in the demand
for real estate in the Austin, Texas market, competition from other real estate developers, increases in operating
costs, including real estate taxes and the cost of construction materials, changes in laws, regulations or the
regulatory environment affecting the development of real estate and other factors.
Accuracy of the forward-looking statements depends on assumptions about events that change over time and is
thus susceptible to periodic change based on actual experience and new developments. In addition, we may
make changes to our business plans that could or will affect our results. We caution investors that we do not
intend to update our forward-looking statements more frequently than quarterly, notwithstanding any changes in
our assumptions, changes in our business plans, our actual experience, or other changes, and we undertake no
obligation to update any forward-looking statements.
Important factors that could cause actual results to differ materially from our expectations include, without
limitation, the following:
We need significant amounts of cash to service our debt. If we are unable to generate sufficient cash to
service our debt, our financial condition and results of operations could be negatively affected.
As of December 31, 2010, our outstanding debt totaled $201.5 million. Our level of indebtedness could have
important consequences. For example, it could:
•
•
•
increase our vulnerability to adverse changes in economic and industry conditions;
require us to dedicate a substantial portion of our cash flow from operations and proceeds from asset sales
to pay or provide for our indebtedness, thus reducing the availability of cash flows to fund working capital,
capital expenditures, acquisitions, investments and other general corporate purposes;
limit our flexibility to plan for, or react to, changes in our business and the market in which we operate;
• place us at a competitive disadvantage to our competitors that have less debt; and
•
limit our ability to borrow money to fund our working capital, capital expenditures, debt service requirements
and other financing needs.
Although we plan to repay a portion of our debt with proceeds from the sales of condominium units at our W
Austin Hotel & Residences project, those sales may not occur as anticipated. In addition, the terms of the
agreements governing our indebtedness include restrictive covenants and require that certain financial ratios be
maintained. For example, the debt service coverage ratio covenant contained in most of our debt agreements
requires us to maintain total stockholders’ equity of no less than $120.0 million. At December 31, 2010, our total
stockholders’ equity was $128.6 million. Accordingly, we may need to raise additional capital through equity
transactions to maintain compliance with the covenants in our loan agreements. We may also need to incur
additional indebtedness in the future in the ordinary course of business to fund our development projects and
our operations. If new debt is added to current debt levels, the risks described above could intensify. Further, if
future financing is not available to us when required or is not available on acceptable terms, we may be unable
to grow our business, take advantage of business opportunities, respond to competitive pressures or refinance
maturing debt, any of which could have a material adverse effect on our financial condition and results of
operations.
7
The deterioration of the credit and capital markets may adversely impact our ability to obtain financing
on acceptable terms, which may hinder or prevent us from meeting our future operational and capital
needs and could have a material adverse effect on our financial condition and results of operations.
Beginning in 2008, the credit markets experienced a disruption of a significant magnitude. This disruption
reduced the availability and significantly increased the cost of most sources of funding. In some cases, these
sources were eliminated. While the credit market has shown signs of improving since the second half of 2009,
liquidity remains constrained and it is impossible to predict when the market will return to normalcy. This
uncertainty may lead market participants to continue to act more conservatively. Because of these factors and
the continued uncertainties that exist in the economy and for real estate developers in general, we cannot be
certain that funding will be available if needed and, to the extent required, on acceptable terms. If funding is not
available when needed, or is available only on unfavorable terms, we may be unable to meet our obligations as
they come due or be required to post collateral to support our obligations, or we may be unable to implement
our development plan, enhance our existing projects, complete projects or otherwise take advantage of
business opportunities or respond to competitive pressures, any of which could have a material adverse effect
on our financial condition and results of operations.
The success of our business is significantly related to general economic conditions and, accordingly,
our business could be harmed by an extended economic slowdown and downturn in real estate asset
values, property sales and leasing activities.
Periods of economic weakness or recession, significantly rising interest rates, declining employment levels,
declining demand for real estate, declining real estate values, or the public perception that any of these events
may occur, may negatively affect our business. These economic conditions can result in a general decline in
acquisition, disposition and leasing activity, as well as a general decline in the value of real estate and in rents,
which in turn reduces revenue derived from property sales and leases as well as revenues associated with
development activities. In addition, these conditions can lead to a decline in property sales prices as well as a
decline in funds invested in existing commercial real estate and related assets and properties planned for
development.
During an economic downturn, investment capital is usually constrained and it may take longer for us to dispose
of real estate investments, including residential condominium units at our W Austin Hotel & Residences project,
or selling prices may be lower than originally anticipated. As a result, the value of our real estate investments
may be reduced and we could realize losses or diminished profitability.
Beginning in 2008, credit became severely constrained and prohibitively expensive and real estate market
activity contracted sharply in most markets as a result of the global financial crisis and the economic recession.
These adverse macroeconomic conditions impacted real estate services companies like ours by significantly
hampering transaction activity and lowering real estate valuations.
If the recent economic and market conditions were to continue, our business performance and profitability could
again deteriorate. If this were to occur, we could fail to comply with certain financial covenants in our credit
agreement which would force us to seek an amendment with our lenders. No assurance can be given that we
would be able to obtain any necessary waivers or amendments on satisfactory terms, if at all.
We are vulnerable to concentration risks because our operations are almost exclusive to the Austin,
Texas, market.
Our real estate activities are almost entirely located in Austin, Texas. Because of our geographic concentration
and limited number of projects, our operations are more vulnerable to local economic downturns and adverse
project-specific risks than those of larger, more diversified companies. The performance of the Austin economy
greatly affects our sales and consequently the underlying values of our properties. Our geographic
concentration may create increased vulnerability during regional economic downturns, which can significantly
affect our financial condition and results of operations.
8
We currently participate in three joint ventures and may participate in other joint ventures in the future.
We could be adversely impacted if any of our joint venture partners would fail to fulfill their obligations
or if we had disagreements with any of our joint venture partners that were not satisfactorily resolved.
We currently have investments in and commitments to three joint ventures with unrelated parties to develop land
and we may participate in other joint ventures in the future. Under existing joint venture agreements, we and our
joint venture partners could be required to, among other things, provide guarantees of obligations or contribute
additional capital until specified capital contribution requirements are met and we may have little or no control
over the amount or timing of these obligations. In some circumstances, decisions of the joint venture are made
by unanimous vote of the partners. If there is another economic downturn, our existing joint ventures or the joint
venture partners may become unable or unwilling to fulfill their economic or other obligations. If our joint venture
partners are unable or unwilling to fulfill their obligations or if we have any unresolved disagreements with our
joint venture partners, we may be required to fulfill those obligations alone, expend additional resources to
continue development of projects or delay further construction of projects, or we may be required to write down
our investments at amounts that could be significant.
We may participate in other joint ventures in the future, which could subject us to certain risks, which may not
otherwise be present, including:
•
•
•
•
the potential that our joint venture partner may not perform;
the joint venture partner may have economic, business or legal interests or goals that are
inconsistent with or adverse to our interests or goals or the goals of the joint venture;
the joint venture partner may take actions contrary to our requests or instructions or contrary to our
objectives or policies;
the joint venture partner might become bankrupt or fail to fund its share of required capital
contributions;
• we and the joint venture partner may not be able to agree on matters relating to the property; and
• we may become liable for the actions of our third-party joint venture partners. Any unresolved
disputes that may arise between joint venture partners and us may result in litigation or arbitration
that would increase our expenses and prevent us from focusing our time and effort on the business
of the joint ventures or our other business.
Our results of operations, cash flows and financial condition are greatly affected by the performance of
the real estate industry.
The U.S. real estate industry is highly cyclical and is affected by changes in global, national and local economic
conditions, which significantly deteriorated beginning in 2008, and events, such as general employment and
income levels, availability of financing, interest rates, consumer confidence and overbuilding or decrease in
demand for residential and commercial real estate. Our real estate activities are subject to numerous factors
beyond our control, including local real estate market conditions (both where our properties are located and in
areas where our potential customers reside), substantial existing and potential competition, general national,
regional and local economic conditions, fluctuations in interest rates and mortgage availability, changes in
demographic conditions and changes in government regulations or requirements. The occurrence of any of the
foregoing could result in a reduction or cancellation of sales and/or lower gross margins for sales. Lower than
expected sales as a result of these occurrences could have a material adverse effect on the level of our profits
and the timing and amounts of our cash flows.
Real estate investments often cannot easily be converted into cash and market values may be adversely
affected by these economic circumstances, market fundamentals, competition and demographic conditions.
Because of the effect these factors have on real estate values, it is difficult to predict the level of future sales or
sales prices that will be realized for individual assets.
Mortgage financing issues, including lack of supply of mortgage loans and tightened lending
requirements, could reduce demand for our properties.
Our real estate operations are dependent upon the availability and cost of mortgage financing for potential
customers, to the extent they finance their purchases, and for buyers of the potential customers’ existing
residences. Many mortgage lenders and investors in mortgage loans experienced severe financial difficulties
arising from losses incurred on sub-prime and other loans originated before the recent downturn in the real
9
estate market. These factors led to a decrease in the availability of financing and an increase in the cost of
financing. A continuation of the weakness in the mortgage lending industry could adversely affect potential
purchasers of our properties, negatively affecting demand for our properties.
Declines in the market value of our land and developments could adversely affect our financial
condition and results of operations.
The market value of our land and our developments depend on market conditions. We acquire land for
expansion into new markets and for replacement of land inventory and expansion within our current markets. If
real estate demand decreases below what we anticipated when we acquired our properties, we may not be able
to recover our investment in such property through sales or leasing, and our profitability may be adversely
affected. If there is another economic downturn, we may have write-downs to the carrying values of our
properties and/or be required to sell properties at a loss.
Unfavorable changes in market and economic conditions could negatively impact occupancy or rental
rates, which could negatively affect our financial condition and results of operations.
Another decline in the real estate market and economic conditions could significantly affect rental rates.
Occupancy and rental rates in our market, in turn, could significantly affect our profitability and our ability to
satisfy our financial obligations. The risks that could affect conditions in our market include the following:
• a further deterioration in economic conditions;
•
•
local conditions, such as oversupply of office space, a decline in the demand for office space or increased
competition from other available office buildings;
the inability or unwillingness of tenants to pay their current rent or rent increases; and
• declines in market rental rates.
We cannot predict with certainty whether any of these conditions will occur or whether, and to what extent, they
will have an adverse effect on our operations.
Our operations are subject to an intensive regulatory approval process and opposition from
environmental groups that could cause delays and increase the costs of our development efforts or
preclude such developments entirely.
Before we can develop a property, we must obtain a variety of approvals from local and state governments with
respect to such matters as zoning, and other land use issues, subdivision, site planning and environmental
issues under applicable regulations. Some of these approvals are discretionary. Because government agencies
and special interest groups have in the past expressed concerns about our development plans in or near Austin,
our ability to develop these properties and realize future income from our properties could be delayed, reduced,
prevented or made more expensive.
Several special interest groups have in the past opposed our plans in the Austin area and have taken various
actions to partially or completely restrict development in some areas, including areas where some of our most
valuable properties are located. We have actively opposed these actions and do not believe unfavorable rulings
would have a significant long-term adverse effect on the overall value of our property holdings. However,
because of the regulatory environment that has existed in the Austin area and the opposition of these special
interest groups, there can be no assurance that our expectations will prove correct.
Our operations are subject to governmental environmental regulation, which can change at any time
and generally would result in an increase to our costs.
Real estate development is subject to state and federal regulations and to possible interruption or termination
because of environmental considerations, including, without limitation, air and water quality and protection of
endangered species and their habitats. Certain of the Barton Creek properties include nesting territories for the
Golden-cheeked Warbler, a federally listed endangered species. In 1995, we received a permit from the U.S.
Wildlife Service pursuant to the Endangered Species Act, which to date has allowed the development of the
Barton Creek and Lantana properties free of restrictions under the Endangered Species Act related to the
10
maintenance of habitat for the Golden-cheeked Warbler.
Additionally, in April 1997, the U.S. Department of Interior listed the Barton Springs Salamander as an
endangered species after a federal court overturned a March 1997 decision by the Department of Interior not to
list the Barton Springs Salamander based on a conservation agreement between the State of Texas and federal
agencies. The listing of the Barton Springs Salamander has not affected, nor do we anticipate it will affect, our
Barton Creek and Lantana properties for several reasons, including the results of technical studies and our U.S.
Fish and Wildlife Service 10(a) permit obtained in 1995. The development permitted by our 2002 Circle C
settlement with the City has been reviewed and approved by the U.S. Fish and Wildlife Service and, as a result,
we do not anticipate that the 1997 listing of the Barton Springs Salamander will impact our Circle C properties.
We are making, and will continue to make, expenditures with respect to our real estate development for the
protection of the environment. Emphasis on environmental matters will result in additional costs in the future.
New environmental regulations or changes in existing regulations or their enforcement may be enacted and
such new regulations or changes may require significant expenditures by us. The recent trend toward stricter
standards in environmental legislation and regulations is likely to continue and could have an additional impact
on our operating costs.
The real estate business is very competitive and many of our competitors are larger and financially
stronger than we are.
The real estate business is highly competitive. We compete with a large number of companies and individuals
that have significantly greater financial, sales, marketing and other resources than we have. Our competitors
include local developers who are committed primarily to particular markets and also national developers who
acquire properties throughout the U.S. The current downturn in the real estate industry could significantly
increase competition among developers. Increased competition could cause us to increase our selling
incentives and/or reduce our prices. An oversupply of real estate properties available for sale or lease, as well
as the potential significant discounting of prices by some of our competitors, may adversely affect the results of
our operations.
Changes in weather conditions or natural disasters could adversely impact and materially affect our
business, financial condition and results of operations.
Our performance may be adversely affected by weather conditions that delay development or damage property,
resulting in substantial repair or replacement costs to the extent not covered by insurance, a reduction in
property values, or a loss of revenue, each of which could have a material adverse impact on our business,
financial condition and results of operations. Our competitors may be affected differently by such changes in
weather conditions or natural disasters depending on the location of their supplies or operations.
Our common stock is thinly traded; therefore, our stock price may fluctuate more than the stock market
as a whole.
As a result of the thin trading market for our stock, its market price may fluctuate significantly more than the
stock market as a whole or the stock prices of similar companies. Without a larger float, our common stock will
be less liquid than the stock of companies with broader public ownership, and as a result, the trading prices for
our common stock may be more volatile. Among other things, trading of a relatively small volume of common
stock may have a greater impact on the trading price than would be the case if public float were larger.
11
Item 3. Legal Proceedings
We are from time to time 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 4. (Removed and Reserved)
Executive Officers of the Registrant
Certain information, as of March 15, 2011, regarding our executive officers is set forth in the following table and
accompanying text.
Name
Age
Position or Office
William H. Armstrong III
46
Chairman of the Board, President and Chief Executive
Officer
Erin D. Pickens
49
Senior Vice President and Chief Financial Officer
Mr. Armstrong has been employed by us since our inception in 1992. Mr. Armstrong has served as Chairman of
the Board since August 1998, Chief Executive Officer since May 1998 and President since August 1996.
Ms. Pickens has served as our Senior Vice President since May 2009 and as our Chief Financial Officer since
June 2009. Ms. Pickens previously served as Executive Vice President and Chief Financial Officer of Tarragon
Corporation from November 1998 until April 2009, and as Vice President and Chief Accounting Officer from
September 1996 until November 1998 and Accounting Manager from June 1995 until August 1996 for Tarragon
and its predecessors. Tarragon Corporation filed for voluntary reorganization under Chapter 11 of the U.S.
Bankruptcy Code on January 12, 2009, and emerged from bankruptcy on July 6, 2010.
12
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Our common stock trades on the The Nasdaq Stock Market (NASDAQ) under the symbol STRS. The following
table sets forth, for the periods indicated, the range of high and low sales prices of Stratus’ common stock, as
reported by NASDAQ.
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2010
2009
High
Low
High
Low
$11.49
$8.00
$14.57
$4.52
12.24
10.09
9.60
8.40
8.01
8.16
11.18
8.60
11.60
5.33
4.50
7.54
As of March 15, 2011, there were 546 holders of record of our common stock. We have not in the past paid, and
do not anticipate in the future paying, cash dividends on our common stock. The declaration of dividends is at
the discretion of our Board of Directors. Our current ability to pay dividends is restricted by terms of our credit
agreement.
The following table sets forth information with respect to shares of our common stock that we repurchased
during the three-month period ended December 31, 2010.
Period
October 1 to 31, 2010
November 1 to 30, 2010
December 1 to 31, 2010
Total
Total
Number of
Shares
Purchased
Average Price
Paid Per
Share
Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programsa
Maximum Number of
Shares That May Yet
Be Purchased Under
the Plans or
Programsa
- $
-
-
-
-
-
-
-
-
-
-
-
161,145
161,145
161,145
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. Our modified unsecured term loans prohibit
common stock purchases while any of the loans are outstanding.
13
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
OVERVIEW
In management’s discussion and analysis “we,” “us,” and “our” refer to Stratus Properties Inc. and its
consolidated subsidiaries and joint ventures. You should read the following discussion in conjunction with our
consolidated financial statements and the related discussion of “Business and Properties” and “Risk Factors”
included elsewhere in this Form 10-K. The results of operations reported and summarized below are not
necessarily indicative of our future operating results. All references to “Notes” refer to Notes to Consolidated
Financial Statements located in Item 8. “Financial Statements and Supplementary Data.”
We are engaged in the acquisition, development, management, operation and sale of commercial, hotel,
entertainment, multi-family and single-family residential real estate properties located primarily in the Austin,
Texas area. Prior to the development of the W Austin Hotel & Residences project (see discussion below), we
primarily generated revenues from sales of developed properties and through rental income from our
commercial properties. Developed property sales can include an individual tract of land that has been developed
and permitted for residential use or a developed lot with a home already built on it. We may, on occasion, sell
properties under development or undeveloped properties, if opportunities arise that we believe will maximize
overall asset values.
In December 2010, the hotel at our W Austin Hotel & Residences project opened, and in 2011, we began
closing on sales of condominium units at the project. The W Austin Hotel & Residences project is located on a
two-acre city block in downtown Austin and contains a 251-room luxury hotel, 159 residential condominium
units, office, retail and entertainment space. The hotel is managed by Starwood Hotels & Resorts Worldwide,
Inc. pursuant to our existing contract. The office space totals approximately 41,000 square feet and the retail
space totals approximately 18,000 square feet. The entertainment space includes a live music venue and
production studio, with a maximum capacity of 3,000 people (see “Development and Other Activities – W Austin
Hotel & Residences”).
Our principal real estate holdings are in southwest Austin, Texas. The number of developed lots, developed or under
development acreage and undeveloped acreage as of December 31, 2010, that comprise our principal real estate
development projects are presented in the following table.
Under Development
Undeveloped
Acreage
Developed Single
Family
Lots
Multi-
family
Commercial
Single
Total Family
Commercial Total
Total
Acreage
Austin
Barton Creek
Lantana
Circle C
W Austin Hotel
& Residences
San Antonio
Camino Real
Total
120
-
21
-
-
141
-
-
-
-
-
-
249
-
-
-
-
249
368
-
23
617
-
23
2 a
2
-
393
-
642
781
-
132
-
-
913
28
223
363
-
2
616
809
223
495
-
2
1,529
1,426
223
518
2
2
2,171
a. Represents a city block in downtown Austin developed for a mixture of hotel, residential, office, retail and entertainment
uses.
Our other Austin holdings at December 31, 2010, consisted of two 75,000-square-foot office buildings at 7500
Rialto Boulevard (7500 Rialto) located in our Lantana development, a 22,000-square-foot retail complex and a
3,300-square-foot bank building representing phase one of Barton Creek Village, and two retail buildings totaling
21,000 square feet and a 4,000-square-foot bank building on an existing ground lease at the 5700 Slaughter
retail complex in the Circle C community.
The continued weakness in the Austin area real estate market, among other factors, has had a significant
negative impact on our consolidated financial results. In addition, we recorded valuation allowances totaling
$10.5 million in 2010 against our net deferred tax assets upon concluding that it was more likely than not that
14
these assets will not be realized. In 2010, we reported $9.1 million of revenues and a net loss attributable to
Stratus common stock of $15.3 million, compared to $10.8 million of revenues and a net loss attributable to
Stratus common stock of $5.9 million in 2009.
Real Estate Market Conditions
Factors that significantly affect United States (U.S.) real estate market conditions include interest rate levels and
the availability of financing, the supply of product (i.e. developed and/or undeveloped land, depending on
buyers’ needs) and current and anticipated future economic conditions. These market conditions historically
move in periodic cycles, and can be volatile in specific regions. Because of the concentration of our assets
primarily in the Austin, Texas area, market conditions in this region significantly affect our business.
In addition to the traditional influence of state and federal government employment levels on the local economy,
in recent years the Austin area has experienced significant growth in the technology sector. The Austin-area
population increased approximately 40 percent between 1999 and 2010, largely because of an influx of
technology companies and related businesses. Median family income levels in Austin also increased during the
period from 1999 through 2009, rising by 17 percent. The expanding economy resulted in rising demands for
residential housing, commercial office space and retail services. Between 1999 and 2009, sales tax receipts in
Austin rose by approximately 31 percent, an indication of the dramatic increase in business activity during the
period. The increases in population, income levels and sales tax revenues have been less dramatic over the last
few years.
The following chart compares Austin’s five-county metro area population and median family income for 1989,
1999 and the most current information available for 2009 and 2010, based on U.S. Census Bureau data and
City of Austin (the City) data.
15
Based on the City’s fiscal year of October 1st through September 30th, the chart below compares Austin’s sales
tax revenues for 1989, 1999 and 2009 (the latest period for which data is available).
a. Source: Comprehensive Annual Financial Report for the City of Austin, Texas.
Real estate development in southwest Austin historically has been constrained as a result of various restrictions
imposed by the City. Several special interest groups have also traditionally opposed development in that area,
where most of our property is located. From 2001 through 2004, a downturn in the technology sector negatively
affected the Austin real estate market, especially the high-end residential and commercial leasing markets;
however, beginning in 2005 through mid-2007, market conditions improved. Beginning in the third quarter of
2007, market conditions began to weaken again. The December 31, 2010 and 2009 vacancy percentages for
various types of developed properties in Austin are noted below.
Building Type
Industrial Buildings
Office Buildings (Class A)
Multi-Family Buildings
Retail Buildings
December 31,
Vacancy Factor
2009
22% a
25% a
10% b
9% b
2010
21% a
23% a
7% b
7% b
a. CB Richard Ellis: Austin MarketView
b. Texas A&M University Real Estate Center: Texas Market News
Our financial condition and results of operations are highly dependent upon market conditions for real estate
activity in Austin, Texas. 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, including development costs,
interest rate levels, the availability of credit to finance real estate transactions, demand for residential and
commercial real estate, and regulatory factors including our land use and development entitlements.
During 2008 and 2009, economic conditions resulted in a general decline in leasing activity across the U.S., and
caused vacancy rates to increase in most markets, including Austin, Texas. Investment sales activity in the U.S.
declined sharply during 2008 because of, among other factors, limited availability and increased cost of
financing, especially the absence of securitized debt, which was the source of the heightened investment
16
activity, and the resulting gap between buyer and seller expectations of value. Sales activity has yet to return to
pre-2008 levels.
Periods of economic weakness or recession, significantly rising interest rates, declining employment levels,
declining demand for real estate, declining real estate values, or the public perception that any of these events
may occur, may negatively affect our business. These economic conditions can result in a general decline in
acquisition, disposition and leasing activity, as well as a general decline in the value of real estate and in rents,
which in turn reduces revenue derived from property sales and leases as well as revenues associated with
development activities. In addition, these conditions can lead to a decline in property sales prices as well as a
decline in funds invested in existing commercial real estate and related assets and properties planned for
development.
Beginning in 2008, the credit markets experienced a disruption of a significant magnitude. This disruption
reduced the availability and significantly increased the cost of most sources of funding. In some cases, these
sources were eliminated. While the credit market has shown signs of improving since the second half of 2009,
liquidity remains constrained and it is impossible to predict when the market will return to normalcy.
We continue to focus on our near-term goal of developing our properties and projects in an uncertain economic
climate and our long-term goal of maximizing the value of our development projects. We believe that Austin,
Texas, continues to be a desirable market and many of our developments are in locations that are unique and
where approvals and entitlements, which we have already obtained, are increasingly difficult to secure. Real
estate development in southwest Austin historically has been constrained as a result of various restrictions
imposed by the City and several special interest groups have also traditionally opposed development in the area
where most of our property is located. We believe that many of our developments have inherent value given
their unique nature and location and that this value should be sustainable in the future.
Our long-term success will depend on our ability to maximize the value of our real estate by developing and
selling our properties in a timely manner at a reasonable cost. In addition, we continue to pursue additional
development opportunities, and currently believe that we can obtain financing necessary for developing our
properties, although our ability to obtain financing in the future, as well as the cost of such financing, may be
impacted by U.S. economic conditions. See “Risk Factors” located in Item 1A.
CRITICAL ACCOUNTING POLICIES
Management’s discussion and analysis of our financial condition and results of operations are based on our
consolidated financial statements, which have been prepared in conformity with accounting principles generally
accepted in the United States of America. The preparation of these statements requires that we make estimates
and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. We base these
estimates on historical experience and on assumptions that we consider reasonable under the circumstances;
however, reported results could differ from those based on the current estimates under different assumptions
and/or conditions. The areas requiring the use of management’s estimates are discussed in Note 1 to our
consolidated financial statements under the heading “Use of Estimates.” We believe that our most critical
accounting policies relate to our real estate and commercial leasing assets, revenue recognition, deferred tax
assets and our allocation of overhead costs.
Management has reviewed the following discussion of its development and selection of critical accounting
estimates with the Audit Committee of our Board of Directors.
• Real Estate and Commercial Leasing Assets. Real estate held for sale is stated at the lower of cost or
fair value less costs to sell. The cost of real estate sold includes acquisition, development, construction and
carrying costs and other related costs through the development stage. Real estate under development and land
held for future development are stated at cost. Commercial leasing assets, which are held for investment, are
also stated at cost. When events or circumstances indicate that an asset’s carrying amount may not be
recoverable, an impairment test is performed. For real estate held for sale, if estimated fair value less costs to
sell is less than the related carrying amount, then a reduction of the asset’s carrying value to fair value less
costs to sell is required. For real estate under development, land held for future development and real estate
held for investment, if the projected undiscounted cash flow from the asset is less than the related carrying
amount, then a reduction of the carrying amount of the asset to fair value is required. Measurement of the
impairment loss is based on the fair value of the asset. Generally, we determine fair value using valuation
techniques such as discounted expected future cash flows.
17
In developing estimated future cash flows for impairment testing for our real estate assets, we have incorporated
our own market assumptions including those regarding real estate prices, sales pace, sales and marketing
costs, infrastructure costs and financing costs regarding real estate assets. Our assumptions are based, in part,
on general economic conditions, the current state of the real estate industry, expectations about the short- and
long-term outlook for the real estate market, and competition from other developers in the area in which we
develop our properties. These assumptions can significantly affect our estimates of future cash flows. For those
properties held for sale and deemed to be impaired, we determine fair value based on appraised values,
adjusted for estimated development costs and costs to sell, as we believe this is the value for which the property
could be sold. We recorded no impairment losses during 2010 or 2009 (see Note 1).
The estimate of our future revenues is also important because it is the basis of our development plans and also
a factor in our ability to obtain the financing necessary to complete our development plans. If our estimates of
future cash flows from our properties differ from expectations, then our financial position and liquidity may be
impacted, which could result in our default under certain debt instruments or result in our suspending some or all
of our development activities.
• Revenue Recognition. The judgments involved in revenue recognition include understanding the complex
terms of agreements and determining the appropriate time to recognize revenue for each transaction based on
such terms. Each transaction is evaluated to determine: (1) at what point in time revenue is earned, (2) whether
contingencies exist that impact the timing of recognition of revenue and (3) how and when such contingencies
will be resolved. The timing of revenue recognition could vary if different judgments were made. Our revenues
subject to the most judgment are property sales revenues. Revenues from property sales are recognized when
the risks and rewards of ownership are transferred to the buyer, when the consideration received can be
reasonably determined and when we have completed our obligations to perform certain supplementary
development activities, if any exist, at the time of the sale. Consideration is reasonably determined and
considered likely of collection when we have signed sales agreements and have determined that the buyer has
demonstrated a commitment to pay. The buyer’s commitment to pay is supported by the level of their initial
investment, our assessment of the buyer’s credit standing and our assessment of whether the buyer’s stake in
the property is sufficient to motivate the buyer to honor their obligation to it. We recognize our rental income
based on the terms of our signed leases with tenants on a straight-line basis. We recognize sales commissions
and management and development fees when earned, as lots or acreage are sold or when the services are
performed.
• Deferred Tax Assets. The carrying amounts of deferred tax assets are required to be reduced by a
valuation allowance if, based on the available evidence, it is more likely than not that such assets will not be
realized. Accordingly, we assess the need to establish valuation allowances for deferred tax assets periodically
based on the more-likely-than-not realization threshold criterion. In the assessment for a valuation allowance,
appropriate consideration is given to all positive and negative evidence related to the realization of the deferred
tax assets. This assessment considers, among other matters, the nature, frequency and severity of current and
cumulative losses, forecasts of future profitability, the duration of statutory carryforward periods, our experience
with operating loss and tax credit carryforwards not expiring unused, and tax planning alternatives. This process
involves significant management judgment about assumptions that are subject to change based on variances
between projected and actual operating performance and changes in our business environment or operating or
financing plans.
Our deferred tax assets (net of deferred tax liabilities) before any valuation allowances totaled $10.7 million at
December 31, 2010, and $8.4 million at December 31, 2009. At December 31, 2009, we had a deferred tax
asset valuation allowance of $58,000. We provided additional valuation allowances against our net deferred tax
assets which totaled $10.5 million at December 31, 2010. In evaluating the recoverability of these deferred tax
assets, we considered available positive and negative evidence, giving greater weight to the recent current
losses, the absence of taxable income in the carry back period and uncertainty regarding projected future
financial results. As a result, we concluded that there was not sufficient positive evidence supporting the
realizablility of our deferred tax assets beyond an amount totaling $0.2 million (see Note 7).
Our future results of operations may be negatively impacted by our inability to realize a tax benefit for future tax
losses or for items that will generate additional deferred tax assets. Our future results of operations may be
favorably impacted by reversals of valuation allowances if we are able to demonstrate sufficient positive
evidence that our deferred tax assets will be realized.
18
• Allocation of Overhead Costs. We capitalize a portion of our direct overhead costs and also allocate a
portion of these overhead costs to cost of sales based on the activities of our employees that are directly
engaged in development activities. In connection with this procedure, we periodically evaluate our “corporate”
personnel activities to quantify the amount of time, if any, associated with activities that would normally be
capitalized or considered part of cost of sales. After determining the appropriate aggregate allocation rates, we
apply these factors to our overhead costs to determine the appropriate allocations. This is a critical accounting
policy because it affects our net results of operations for that portion which is capitalized. We capitalize only
direct and indirect project costs associated with the acquisition, development and construction of a real estate
project. Indirect costs include allocated costs associated with certain pooled resources (such as office supplies,
telephone and postage) which are used to support our development projects, as well as general and
administrative functions. Allocations of pooled resources are based only on those employees directly
responsible for development (i.e., project manager and subordinates). We charge to expense indirect costs that
do not clearly relate to a real estate project such as salaries and allocated expenses related to our Chief
Executive Officer and Chief Financial Officer.
DEVELOPMENT AND OTHER ACTIVITIES
W Austin Hotel & Residences. In 2005, the City selected our proposal to develop a mixed-use project in
downtown Austin immediately north of the new City Hall complex. The W Austin Hotel & Residences project
includes a two-acre city block and contains a mixture of hotel, residential, office, retail and entertainment space.
In 2008, we entered into a joint venture with Canyon-Johnson Urban Fund II, L.P. (Canyon-Johnson) for the
development of the project (see Note 2). Construction of the approximate $300 million project commenced in
second-quarter 2008. We have executed an agreement with Starwood Hotels & Resorts Worldwide, Inc. for the
management of hotel operations. The hotel opened in December 2010 and includes 251 luxury rooms and
suites, a full service spa, gym and rooftop pool. Delivery of the first condominium units began in January 2011.
Condominium units will continue to be completed on a floor-by-floor basis with delivery of pre-sold units
continuing through mid-2011. As of March 15, 2011, we had 58 of the 159 condominium units under contract
and 25 condominium units had closed. Proceeds from the sales of the condominium units and net operating
income will be used to repay debt incurred in connection with the project. The project also includes a live music
venue and production studio with a maximum capacity of approximately 3,000 people. In addition to hosting
concerts and private events, the venue will be the new home of Austin City Limits, a television program
showcasing popular music legends. The venue opened in February 2011, has hosted 22 events through March
15, 2011, and has booked events through October 2011. The project has approximately 41,000 square feet of
leasable office space which opened in March 2011 and 18,000 square feet of leasable retail space are
scheduled to open in June 2011. As of March 15, 2011, we had entered into leases for 17,500 square feet of the
office space (including 9,000 for our corporate office) and for 2,700 square feet of the retail space.
We currently consolidate the joint venture with Canyon-Johnson because the project is considered a variable
interest entity (VIE) and we are considered the primary beneficiary. If it is determined that the W Austin Hotel &
Residences project is no longer a VIE or that we are no longer the primary beneficiary of the entity, the project
will be deconsolidated from our financial statements (see Note 2).
For a discussion of the financing structure for the W Austin Hotel & Residences project see Note 2.
Crestview Station. In 2005, we formed a joint venture with Trammell Crow Central Texas Development, Inc.
(Trammell Crow) to acquire an approximate 74-acre tract at the intersection of Airport Boulevard and Lamar
Boulevard in Austin, Texas, for $7.7 million. The property, known as Crestview Station, is a single-family, multi-
family, retail and office development, which is located on the site of a future commuter rail line approved by City
voters. The joint venture completed environmental remediation, which the State of Texas certified as complete
in September 2007, and permitting of the property. The initial phase of utility and roadway infrastructure is
complete. Crestview Station sold substantially all of its multi-family and commercial properties in 2007 and one
commercial site in the first quarter of 2008. The joint venture retained the single family component of Crestview
Station and one commercial site. The joint venture has obtained permits to develop Crestview Station as a 450-
unit transit-oriented neighborhood. At December 31, 2010, our investment in the Crestview Station project
totaled $3.1 million and the joint venture partnership had $8.2 million of outstanding debt, of which we guarantee
$1.4 million. A reserve for interest and property taxes through May 2011 has been established with the lender.
Scheduled principal payments begin in June 2011, and the loan matures in May 2012 (see Note 5). We account
for our 50 percent interest in the Crestview Station joint venture under the equity method.
19
Residential. As of December 31, 2010, the number of our residential developed lots and development potential
by area are shown below (excluding lots and units associated with our Canyon-Johnson and Crestview joint
ventures):
Barton Creek:
Calera:
Calera Court Courtyard Homes
Calera Drive
Verano Drive
Amarra Drive:
Phase I Lots
Phase II Lots
Townhomes
Phase III
Mirador Estate
Section N Multi-family
Other Barton Creek Sections
Circle C:
Meridian
Total Residential Lots
Developed
Residential Lots
Potential
Development a
Total
1
8
67
7
35
-
-
2
-
-
21
141
-
-
-
-
-
221
89
-
1,860
154
57
2,381
1
8
67
7
35
221
89
2
1,860
154
78
2,522
a. Our development of the properties identified under the heading “Potential Development” is dependent upon the approval
of our development plans and permits by governmental agencies, including the City. Those governmental agencies may
either not approve one or more development plans and permit applications related to such properties or require us to
modify our development plans. Accordingly, our development strategy with respect to those properties may change in
the future. While we may be proceeding with approved infrastructure projects on some of these properties, they are not
considered to be “under development” for disclosure in this table unless other development activities necessary to fully
realize the properties’ intended final use are in progress or scheduled to commence in the near term.
Calera. Calera is a residential subdivision with plat approval for 155 lots. During 2004, we began construction of
16 courtyard homes at Calera Court, the 16-acre initial phase of the Calera subdivision. The second phase of
Calera, Calera Drive, consisting of 53 single-family lots, many of which adjoin the Fazio Canyons Golf Course,
received final plat and construction permit approval in 2005. Construction of the final phase, known as Verano
Drive, was completed in July 2008 and includes 71 single-family lots. We sold one Calera Court courtyard home in
2010 and, as of December 31, 2010, one courtyard home at Calera Court, eight lots at Calera Drive and 67 lots at
Verano Drive remained unsold.
Amarra Drive. Amarra Drive Phase I, which is the initial phase of the Amarra Drive subdivision, was completed
in 2007 and includes eight lots with sizes ranging from approximately one to four acres, some of which are
course-side lots on the Fazio Canyons Golf Course and others are secluded lots adjacent to the Nature
Conservancy of Texas. As of December 31, 2010, seven Amarra Drive Phase I lots remained unsold. In January
2008, we commenced development of Amarra Drive Phase II, which consists of 35 lots on 51 acres.
Development was substantially completed in October 2008, but no sales have occurred.
Mirador Estate. The Mirador subdivision consists of 34 estate lots, with each lot averaging approximately 3.5
acres in size. As of December 31, 2010, two Mirador estate lots remained unsold.
Wimberly Lane. Wimberly Lane included two phases, with phase one consisting of 75 residential lots and phase
two consisting of 47 residential lots. We entered into a contract with a national homebuilder to sell 41 lots within
the Wimberly Lane Phase II subdivision. We sold the last homebuilder lot in January 2008 and sold the final
Wimberly Lane lot in December 2010.
Circle C. We are developing the Circle C community based on the entitlements secured in our Circle C
settlement with the City. Our Circle C settlement, as amended in 2004, permits development of 1.16 million
square feet of commercial space, 504 multi-family units and 830 single-family residential lots. Meridian is an
800-lot residential development at the Circle C community. Development of Meridian included our contracts with
three national homebuilders to complete the construction and sales of 494 lots. We sold the final 13 lots for $0.9
million in the first quarter of 2010.
20
In 2006, we signed another contract with a national homebuilder for 42 additional lots. Development of those
lots commenced in 2007 and substantial completion occurred in April 2008. In June 2009, this contract was
terminated by the homebuilder. As of the date the contract was terminated, there were 30 remaining unclosed
lots. In connection with the termination, the homebuilder forfeited a deposit of $0.6 million, which we recorded as
other income in the second quarter of 2009. We are currently pursuing development contracts with other
homebuilders for the remaining lots. One lot was sold in 2009 for $0.1 million, eight lots were sold in 2010 for
$1.1 million and 21 lots remained unsold as of December 31, 2010. The final phase of Meridian is expected to
consist of 57 one-acre lots.
Commercial. As of December 31, 2010, the number of square feet of our commercial property developed,
under development and our remaining entitlements are shown below (excluding property associated with our
Canyon-Johnson and Crestview joint ventures):
Developed
Commercial Property
Under
Development
Potential
Development a
Barton Creek:
Barton Creek Village Phase I
Barton Creek Village Phase II
Entry Corner
Amarra Retail/Office
Section N
Circle C:
Chase Ground Lease
5700 Slaughter
Parkside Village
Tract 110
Tract 101
Tract 102
Tract 114
Lantana:
7500 Rialto
Tract G06
Tract GR1
Tract G05
Tract CS5
Tract G07
Tract CS1-CS3
Tract L03
Tract L04
Tract LR1
Austin 290 Tract
Total Square Feet
22,000
-
-
-
-
4,000
21,000
-
-
-
-
-
150,000
-
-
-
-
-
-
-
-
-
-
197,000
-
-
-
-
-
-
-
92,440
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
18,000
5,000
90,000
1,500,000
-
-
-
760,000
90,000
25,000
5,000
-
400,000
325,000
260,000
175,000
160,000
134,200
99,800
70,000
62,200
Total
22,000
18,000
5,000
90,000
1,500,000
4,000
21,000
92,440
760,000
90,000
25,000
5,000
150,000
400,000
325,000
260,000
175,000
160,000
134,200
99,800
70,000
62,200
-
92,440
20,000
4,199,200
20,000
4,488,640
a. Our development of the properties identified under the heading “Potential Development” is dependent upon the approval
of our development plans and permits by governmental agencies, including the City. Those governmental agencies may
either not approve one or more development plans and permit applications related to such properties or require us to
modify our development plans. Accordingly, our development strategy with respect to those properties may change in
the future. While we may be proceeding with approved infrastructure projects on some of these properties, they are not
considered to be “under development” for disclosure in this table unless other development activities necessary to fully
realize the properties’ intended final use are in progress or scheduled to commence in the near term.
Barton Creek. The first phase of Barton Creek Village includes a 22,000-square-foot retail complex and a
3,300-square-foot bank building within this retail complex. As of December 31, 2010, the retail complex was 89
percent leased and the bank building is leased through January 2023.
Circle C. During the third quarter of 2008, we completed the construction of two retail buildings totaling 21,000
square feet at 5700 Slaughter. This retail project also includes a 4,000-square-foot bank building on an existing
ground lease. As of December 31, 2010, occupancy was approximately 91 percent for the two retail buildings.
The Circle C community also includes Parkside Village, a 92,440-square-foot planned retail project. The project
consists of a 33,650-square-foot full-service movie theater and restaurant, a 13,890-square-foot medical clinic
21
office, three tilt-wall retail buildings at 14,775 square feet, 10,600 square feet and 8,075 square feet, and two
pads available for ground leases or build-to-suit retail or restaurant uses. In February 2011, we entered into a
joint venture with Moffett Holdings, LLC. (Moffett) to develop Parkside Village, obtained final permits and
entitlements and began construction.
Lantana. Lantana is a partially developed, mixed-use real-estate development project. Lantana includes two
75,000-square-foot office buildings at 7500 Rialto Boulevard. As of December 31, 2010, occupancy was 85
percent for the original office building and 100 percent for the second office building. As of December 31, 2010,
we had remaining entitlements for approximately 1.7 million square feet of office and retail use on 223 acres.
Regional utility and road infrastructure is in place with capacity to serve Lantana at full build-out permitted under
our existing entitlements.
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.
The following table summarizes our operating results (in thousands):
Revenues:
Real estate operations
Commercial leasing
Hotel operations
Total revenues
Operating loss
(Provision for) benefit from income taxes
Net loss attributable to Stratus common stock
2010
2009
$
$
$
$
$
3,286 $
5,045
792
9,123 $
6,257
4,528
-
10,785
(9,710 ) $
(9,878 )
(8,038 ) $
3,038
(15,336 ) $
(5,904 )
We have three operating segments, “Real Estate Operations,” “Commercial Leasing” and “Hotel Operations”
(see Note 10). The following is a discussion of our operating results by segment.
Real Estate Operations
The following table summarizes our real estate operating results (in thousands):
Revenues:
Developed property sales
Commissions, management fees and other
Total revenues
Cost of sales, including depreciation
General and administrative expenses
2010
2009
$
2,725 $
561
3,286
(3,303 )
(3,705 )
5,331
926
6,257
(8,509 )
(4,784 )
Operating loss
$
(3,722 ) $
(7,036 )
22
Developed Property Sales. The following table summarizes our property sales for the last two years (revenues
in thousands):
Residential Properties:
Barton Creek
Calera Court Courtyard Homes
Wimberly Lane Phase II
Verano Drive
Circle C
Meridian
Total Residential
2010
2009
Lots
Revenues
Lots
Revenues
1
1
-
$ 595
117
-
2
-
1
$ 1,149
-
450
21
23
2,013
$ 2,725
56
59
3,732
$ 5,331
The decrease in developed property sales revenues to $2.7 million in 2010 from $5.3 million in 2009 resulted
from a lower number of lots sold primarily caused by deterioration of demand and available financing in the real
estate market as further discussed under “Real Estate Market Conditions.” Although real estate market
conditions have resulted in fewer lot sales, we have not made and currently do not intend to make significant
changes to our lot prices. The decrease in developed property sales also resulted from a decrease in lot sales at
Meridian as sales under homebuilder contracts were completed in January 2010. As of March 15, 2011, we had
no lots remaining under homebuilder contracts. We are currently pursuing contracts with other homebuilders for
the sale of the remaining lots.
We are anticipating continued lower levels of lot sales in the next several quarters because of the continued
weakness in the U.S. and Austin real estate markets.
Commissions, Management Fees and Other. Commissions, management fees and other revenues totaled $0.6
million in 2010, compared to $0.9 million in 2009, and included sales of our development fee credits to third
parties totaling $0.2 million in 2010 and $0.1 million in 2009. We received these development fee credits as part
of the Circle C settlement (see Note 9). Commissions, management fees and other revenues decreased from
2009 to 2010 as a result of lower sales.
Cost of Sales. Cost of sales includes cost of property sold, project operating and marketing expenses and
allocated overhead costs, partly offset by reductions for certain municipal utility district reimbursements. Cost of
sales totaled $3.3 million in 2010 and $8.5 million in 2009. Cost of sales for 2010 decreased compared to 2009
primarily because of a decrease in developed property sales. Excluding Calera Court Courtyard homes, we sold
22 lots in 2010 at an average cost of $70,000 per lot, compared with 57 lots in 2009 at an average cost of
$45,900 per lot. Cost of sales for our real estate operations also include significant, recurring costs (including
property taxes, maintenance and marketing), which totaled $5.2 million in 2010 and $4.8 million in 2009 and do
not vary significantly with the number of property sales. These recurring costs were partly offset by Barton Creek
Municipal Utility District (MUD) reimbursements totaling $4.1 million in 2010 and less than $0.1 million in 2009.
General and Administrative Expenses. Consolidated general and administrative expenses decreased to $6.5
million in 2010 from $7.7 million in 2009, primarily because of a reduction in incentive compensation for sales
staff and lower professional services fees associated with Securities and Exchange Commission (SEC) filings.
General and administrative expenses allocated to real estate operations decreased to $3.7 million in 2010 from
$4.8 million in 2009, primarily as a result of lower real estate operations revenues as a percentage of total
projected revenues in 2010. For information about the allocation of general and administrative expenses to our
operating segments, see Note 10.
Commercial Leasing
The following table summarizes our commercial leasing operating results (in thousands):
Rental income
Rental property costs
Depreciation
General and administrative expenses
Operating loss
2010
2009
5,045 $
(2,885 )
(1,393 )
(2,821 )
(2,054 ) $
4,528
(3,078 )
(1,402 )
(2,890 )
(2,842 )
$
$
23
Rental Income. Rental income increased in 2010 compared to 2009, primarily because of a $0.5 million
increase in rental income at 5700 Slaughter, which was in the initial leasing stage in 2009.
Rental Property Costs. Rental property costs decreased to $2.9 million in 2010 compared to $3.1 million in
2009 primarily as a result of decreases in property taxes at 7500 Rialto and total property management
expenses. Occupancy at 7500 Rialto, our largest commercial property, averaged 94 percent in 2010 and 87
percent in 2009, and was 93 percent at December 31, 2010.
General and Administrative Expenses. General and administrative expenses allocated to commercial leasing
decreased to $2.8 million in 2010 from $2.9 million in 2009, primarily as a result of a lower allocation of general
and administrative expenses to the commercial leasing segment in 2010 because of a decrease in consolidated
general and administrative expenses in 2010.
Hotel Operations
The following table summarizes our hotel operating results (in thousands):
Hotel revenue
Hotel operating costs
Depreciation
Operating loss
2010
792
(3,733 )
(294 )
(3,235 )
$
$
Hotel Revenue. Hotel revenue reflects the results of operations for the W Austin Hotel, which opened in
December 2010.
Hotel Operating Costs. Hotel operating costs primarily reflect pre-opening expenses incurred during 2010.
These costs primarily include start-up costs associated with the opening of the hotel totaling $2.6 million, of
which $1.7 million was salaries, wages and other personnel related costs.
Non-Operating Results
Interest Income. Interest income totaled $0.2 million in 2010 and $0.7 million in 2009. The decrease primarily
reflects a decrease of $0.5 million related to lower interest income from Barton Creek MUD reimbursements,
which totaled $0.1 million in 2010 and $0.6 million in 2009.
Other Income, Net. We recorded other income of $0.2 million in 2010, which primarily reflects a reimbursement
of deferred financing costs for extinguished debt. We also recorded other income of $0.5 million in 2009, which
primarily relates to a $0.6 million forfeited deposit in connection with the termination of a homebuilder contract
for the Circle C community.
Loss on Extinguishment of Debt. We recorded a loss on extinguishment of debt of $0.2 million in 2009,
reflecting the assignment of the W Austin Hotel & Residences construction loan to a Stratus subsidiary.
Loss on Interest Rate Cap Agreement. We recognized a loss on our interest rate cap agreement totaling less
than $0.1 million in 2010 and 2009, reflecting the impact of changing interest rates on the fair value of this
derivative instrument. The interest rate cap agreement relates to the W Austin Hotel & Residences construction
loan (see Note 4).
Equity in Unconsolidated Affiliate’s Loss. We account for our 50 percent interest in our unconsolidated affiliate,
Crestview Station, using the equity method. Crestview Station sold substantially all of its multi-family and
commercial properties in 2007 and one commercial site in the first quarter of 2008. Our equity in Crestview
Station’s losses totaled $0.3 million in 2010 and $0.4 million in 2009, primarily reflecting the operating losses
recognized by Crestview Station because there were no sales.
(Provision for) Benefit from Income Taxes. We recorded a provision for income taxes of $8.0 million in 2010,
compared with an income tax benefit of $3.0 million in 2009. The difference between our consolidated effective
income tax rates for 2010 and the U.S. federal statutory rate of 35 percent primarily was attributable to the
change in our deferred tax asset valuation allowance (see Note 7). The difference between our consolidated
24
effective income tax rate for 2009 and the U.S. federal statutory rate of 35 percent primarily was attributable to
state income tax expense and other permanent items.
Net Loss Attributable to Noncontrolling Interest in Subsidiary. Net loss attributable to noncontrolling interest in
subsidiary totaled $2.4 million in 2010 and $0.3 million in 2009, and related to the W Austin Hotel & Residences
project (see Note 2).
CAPITAL RESOURCES AND LIQUIDITY
As a result of recent weak economic conditions and the sharp decline in the real estate market, including the
markets in which we operate, there is uncertainty about the near-term outlook for sales of our properties.
However, we believe that the unique nature and location of our assets will provide positive cash flows when
market conditions improve.
At December 31, 2010, we had $11.7 million in cash and cash equivalents, including $7.0 million associated
with the W Austin Hotel & Residences project (see Note 2). We also had $24.8 million outstanding and
approximately $17.3 million in availability under our credit facility at December 31, 2010. We concluded several
financing transactions during 2010, including an extension and modification of our credit facility with Comerica
(see “Credit Facility and Other Financing Arrangements” and Note 6). Proceeds from the sales of condominium
units and net operating income at the W Austin Hotel & Residences project are required to be used to repay
debt incurred in connection with the project. We will monitor the financial markets and may seek to raise
additional capital to fund upcoming debt maturities, our current operations and planned development activities.
Comparison of Year-to-Year Cash Flows
Cash used in operating activities increased to $59.2 million in 2010, compared with $41.6 million in 2009,
primarily because of an $11.8 million increase in cash used in development of real estate properties, a $5.5
million decrease in MUD reimbursements related to capital expenditures and a $2.6 million decrease in
proceeds from developed property sales. As stated previously, the continued weakness in the U.S. real estate
market has negatively affected sales of lots, and we expect this trend to continue in the near-term. Expenditures
for purchases and development of real estate properties for 2010 and 2009 included development costs for our
real estate operations properties, primarily for the residential portion of the W Austin Hotel & Residences project
($52.6 million in 2010 and $37.2 million in 2009).
Cash used in investing activities totaled $75.9 million in 2010 and $25.3 million in 2009. Development
expenditures for 2010 and 2009 included costs for the hotel, office, retail and music venue portions of the W
Austin Hotel & Residences project totaling $75.4 million in 2010 and $38.5 million in 2009. We also contributed
capital to Crestview Station totaling less than $0.1 million in 2010 and $1.5 million in 2009. We received
proceeds from matured U.S. treasury securities totaling $15.4 million in 2009.
Cash provided by financing activities totaled $131.5 million in 2010 and $65.2 million in 2009. Noncontrolling
interest contributions from Canyon-Johnson for the W Austin Hotel & Residences project totaled $12.2 million in
2010 and $49.5 million in 2009. In 2010, net borrowings from our credit facility totaled $12.7 million. Borrowings
from project and term loans totaled $112.1 million, including $77.6 million under the Beal Bank loan agreement,
$30.0 million under the Ford loan agreement, and $4.5 million under the 5700 Slaughter term loan, partly offset
by financing costs of $1.1 million. Debt repayments on project and term loans totaled $4.4 million in 2010. Net
borrowings from our credit facility totaled $12.1 million in 2009 and borrowings from the Barton Creek Village
term loan and Beal Bank loan totaled $8.1 million in 2009, partly offset by financing costs for the Beal Bank loan
of $3.3 million. Debt repayments on project and term loans totaled $0.6 million in 2009, including a $0.3 million
payment to terminate the W Austin Hotel & Residences project construction loan. See “Credit Facility and Other
Financing Arrangements” below for a discussion of our outstanding debt at December 31, 2010. We used $0.4
million in 2009 to repurchase shares of our common stock (see below).
In 2001, our Board of Directors authorized an open market share purchase program for up to 0.7 million shares
of our common stock. During 2009, we purchased 49,000 shares in a private transaction for $0.4 million, an
$8.25 per share average. During 2010, there were no purchases made under this program. A total of 161,145
shares remain available under this program. Our modified unsecured term loans prohibit common stock
purchases while any of the loans are outstanding.
25
Credit Facility and Other Financing Arrangements
At December 31, 2010, we had total debt of $201.5 million, and total cash and cash equivalents of $11.7 million.
Our debt outstanding at December 31, 2010, consisted of the following:
• $81.0 million of borrowings outstanding under the Beal Bank loan agreement, which is secured by the
assets in the W Austin Hotel & Residences project.
• $36.0 million of borrowings outstanding under seven unsecured term loans, which include two $5.0
million loans, an $8.0 million loan, a $7.0 million loan, a $4.0 million loan and two $3.5 million loans.
• $30.0 million of borrowings outstanding under the Ford loan agreement, which is secured by a second
lien on the W Austin Hotel & Residences project assets. Additionally, the Ford loan agreement provides
for a profits interest in our joint venture with Canyon-Johnson (see Note 2).
• $24.8 million of borrowings outstanding and $2.9 million of letters of credit issued, and $17.3 million of
availability under our credit facility with Comerica. The credit facility includes a $35.0 million revolving
loan under which $7.3 million is available and a $10.0 million term loan, all of which is available. We
used the proceeds from these borrowings for general corporate purposes, including overhead and
development costs. The credit facility is secured by assets at Barton Creek, Lantana and Circle C.
• $20.7 million of borrowings outstanding under the Lantana promissory note, which matures in January
2018 and is secured by our buildings at 7500 Rialto Boulevard.
• $4.6 million of borrowings outstanding under a term loan, which is secured by Barton Creek Village.
• $4.4 million of borrowings outstanding under a $5.4 million term loan, which matures in January 2015
and is secured by 5700 Slaughter.
The Beal Bank and Ford loan agreements contain customary financial covenants, including a requirement that we
maintain a minimum total stockholders’ equity balance of $120.0 million, and contain cross-default provisions with
our Comerica credit facility and our First American Asset Management (FAAM) unsecured term loans. As of
December 31, 2010, our total stockholders’ equity was $128.6 million. A prolonged weak or worsening real estate
market in Austin, Texas, including any impacts on our sales of condominium units at the W Austin Hotel &
Residences project, could have a material adverse effect on our business, which may adversely affect our cash
flows and profitability and reduce our stockholders’ equity. For additional information, see Part 1, Item 1A. “Risk
Factors.” We will continue to evaluate and respond to any impact these conditions may have on our business. We
will also monitor the financial markets and may seek to raise additional capital to fund upcoming debt maturities,
our current operations and planned development activities.
During 2010, we incurred total interest costs of $13.3 million, all of which was capitalized. In 2011, we expect to
capitalize less than half of our interest costs because most of our capital projects are nearing completion.
26
DEBT MATURITIES AND OTHER CONTRACTUAL OBLIGATIONS
The following table summarizes our contractual cash obligations as of December 31, 2010 (in thousands):
Debta
Scheduled interest
paymentsb
Construction contracts
Operating lease
Total
2011
2012
2013
2014
2015
Thereafter
Total
$
9,476 $
58,814 $
15,539 $
94,270 $
4,523 $
18,901 $ 201,523
20,321
15,161
133
45,091 $
13,377
-
87
11,848
-
38
8,323
-
3
1,239
-
1
72,278 $
27,425 $ 102,596 $
5,763 $
2,478
-
-
57,586
15,161
262
21,379 $ 274,532
$
a. Debt maturities represent scheduled maturities based on outstanding debt balances at December 31, 2010, however,
b.
all proceeds from sales of condominium units and net operating income at the W Austin Hotel & Residences project
must be used to pay down debt incurred in connection with the project.
Scheduled interest payments were calculated using stated coupon rates for fixed-rate debt and interest rates
applicable at January 1, 2011, for variable-rate debt. Also includes payments associated with the profits interest
agreement on the Ford loan (see Note 6 for further discussion).
We had commitments under noncancelable construction contracts totaling $15.2 million at December 31, 2010.
These commitments include the following contracts:
• $221.7 million in contracts in connection with architectural, design, engineering, construction and testing
for the W Austin Hotel & Residences project with a remaining balance of $14.1 million at December 31,
2010;
• Contracts totaling $5.5 million for infrastructure work in connection with new residential subdivisions,
MUDs and general development at Barton Creek, and Parkside Village at Circle C with a remaining
balance of $1.1 million at December 31, 2010.
In early 2011, we entered into additional contracts for $0.9 million related to the W Austin Hotel & Residences
and $2.6 million related to Parkside Village in Circle C.
At December 31, 2010, we guaranteed $1.4 million of the $8.2 million of outstanding debt at Crestview Station.
To the extent the joint venture does not have funds available, Stratus and Trammell Crow will equally fund
monthly interest payments on the outstanding loan balance with scheduled principal payments beginning in
June 2011.
At December 31, 2010, we also have guarantees related to the W Austin Hotel & Residences project (see Note
2).
NEW ACCOUNTING STANDARDS
We do not expect the impact of recently issued accounting standards to have a significant impact on our future
financial statements and disclosures.
27
CAUTIONARY STATEMENT
Management’s Discussion and Analysis of Financial Condition and Results of Operations contain forward-
looking statements in which we discuss certain of our expectations regarding future operational and financial
performance. Forward-looking statements are all statements other than statements of historical facts, such as
those statements regarding future reimbursements for infrastructure costs, future events related to financing and
regulatory matters, anticipated development plans and sales of land, units and lots, projected timeframes for
development, construction and completion of our projects, projected capital expenditures, liquidity and capital
resources, anticipated results of our business strategy, and other plans and objectives of management for future
operations and activities. The words “anticipates,” “may,” “can,” “plans,” “believes,” “estimates,” “expects,”
“projects,” “intends,” “likely,” “will,” “should,” “to be” and any similar expressions and/or statements that are not
historical facts are intended to identify those assertions as forward-looking statements.
We believe that our forward-looking statements are based on reasonable assumptions. However, we caution
readers that these statements are not guarantees of future performance, and our actual experience and future
financial results may differ materially from those anticipated, projected or assumed in the forward-looking
statements. Important factors that may cause our actual results to differ materially from those anticipated by the
forward-looking statements include, but are not limited to, changes in economic and business conditions,
business opportunities that may be presented to and/or pursued by us, the availability of financing, increases in
foreclosures and interest rates, the termination of sales contracts or letters of intent due to, among other factors,
the failure of one or more closing conditions or market changes, the failure to attract homebuilding customers for
our developments or their failure to satisfy their purchase commitments, the failure to complete agreements with
strategic partners and/or appropriately manage relationships with strategic partners, a decrease in the demand
for real estate in the Austin, Texas market, competition from other real estate developers, increases in operating
costs, including real estate taxes and the cost of construction materials, changes in laws, regulations or the
regulatory environment affecting the development of real estate and other factors described in more detail under
“Risk Factors” in Item 1A. of this Form 10-K.
Accuracy of the forward-looking statements depends on assumptions about events that change over time and is
thus susceptible to periodic change based on actual experience and new developments. In addition, we may
make changes to our business plans that could or will affect our results. We caution investors that we do not
intend to update our forward-looking statements more frequently than quarterly, notwithstanding any changes in
our assumptions, changes in our business plans, our actual experience, or other changes, and we undertake no
obligation to update any forward-looking statements.
28
Item 8. Financial Statements and Supplementary Data
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders of
Stratus Properties Inc.
We have audited the accompanying consolidated balance sheet of Stratus Properties Inc. as of December 31,
2010 and the related consolidated statement of operations, stockholders’ equity, and cash flows for the year
then ended. We have also audited the schedule listed in the accompanying index. These financial statements
and schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion
on these financial statements and schedules based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the
financial position of Stratus Properties Inc. at December 31, 2010 and the results of its operations and its cash
flows for the year then ended, in conformity with accounting principles generally accepted in the United States of
America.
Also, in our opinion, the schedule presents fairly, in all material respects, the information set forth therein
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), the effectiveness of Stratus Properties Inc.'s internal control over financial reporting as of
December 31, 2010, based on criteria established in Internal Control–Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated March 31,
2011 expressed an unqualified opinion thereon.
/s/ BKM Sowan Horan, LLP
Addison, Texas
March 31, 2011
29
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors
Stratus Properties Inc.
Austin, Texas
We have audited the accompanying consolidated balance sheet of Stratus Properties Inc. and subsidiaries as of
December 31, 2009, and the related consolidated statements of operations, stockholders’ equity, and cash flows
for the year then ended. These consolidated financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these consolidated financial statements based on
our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the
consolidated financial position of Stratus Properties Inc. and subsidiaries as of December 31, 2009, and the
consolidated results of its operations and its cash flows for the year then ended in conformity with accounting
principles generally accepted in the United States of America.
/s/Travis Wolff, LLP
Dallas, Texas
March 31, 2010
30
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Stratus Properties Inc.’s (the Company’s) management is responsible for establishing and maintaining adequate
internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) or
15d-15(f) under the Securities Exchange Act of 1934 as a process designed by, or under the supervision of, the
Company’s principal executive and principal financial officers and effected by the Company’s Board of Directors,
management and other personnel, to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles and includes those policies and procedures that:
• Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the
transactions and dispositions of the Company’s assets;
• Provide reasonable assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted accounting principles, and that receipts
and expenditures of the Company are being made only in accordance with authorizations of
management and directors of the Company; and
• Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition,
use or disposition of the Company’s assets that could have a material effect on the financial
statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
Our management, including our principal executive officer and principal financial officer, assessed the
effectiveness of our internal control over financial reporting as of the end of the fiscal year covered by this
annual report on Form 10-K. In making this assessment, our management used the criteria set forth in Internal
Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). Based on our management’s assessment, management concluded that, as of December
31, 2010, our Company’s internal control over financial reporting is effective based on the COSO criteria.
/s/ William H. Armstrong III
William H. Armstrong III
Chairman of the Board, President
and Chief Executive Officer
/s/ Erin D. Pickens
Erin D. Pickens
Senior Vice President
and Chief Financial Officer
31
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders of
Stratus Properties Inc.
We have audited Stratus Properties Inc. (the Company) internal control over financial reporting as of December
31, 2010, based on the criteria established in Internal Control – Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is
responsible for maintaining effective internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting included in the accompanying Management’s Report on
Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal
control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether effective internal control over financial reporting was maintained in all material respects. Our
audit of internal control over financial reporting included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and
operating effectiveness of internal control based on the assessed risk. Our audit also included performing such
other procedures as we considered necessary in the circumstances. We believe that our audit provides a
reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements
in accordance with generally accepted accounting principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of management and directors of the company; and (3)
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
In our opinion, Stratus Properties Inc. maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2010, based on the COSO criteria.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), the consolidated balance sheet and the related consolidated statements of operations,
stockholders’ equity, and cash flows of Stratus Properties Inc. and our report dated March 31, 2011 expressed
an unqualified opinion thereon.
/s/ BKM Sowan Horan, LLP
Addison, Texas
March 31, 2011
32
STRATUS PROPERTIES INC.
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Par Value)
ASSETS
Cash and cash equivalents
Real estate held for sale
Real estate under development
Land held for future development
Real estate held for investment
Investment in unconsolidated affiliate
Deferred tax assets, net
Other assets
Total assets
LIABILITIES AND EQUITY
Accounts payable and accrued liabilities
Accrued interest and property taxes
Deposits
Debt (Note 6)
Other liabilities
Total liabilities
Commitments and contingencies (Note 9)
Equity:
Stratus stockholders’ equity:
Preferred stock, par value $0.01 per share, 50,000 shares authorized
and unissued
Common stock, par value $0.01 per share, 150,000 shares authorized,
8,354 and 8,315 shares issued, respectively and
7,475 and 7,442 shares outstanding, respectively
Capital in excess of par value of common stock
Accumulated deficit
Common stock held in treasury, 879 shares and 873 shares,
at cost, respectively
Total Stratus stockholders’ equity
Noncontrolling interest in subsidiary
Total equity
Total liabilities and equity
December 31,
2010
2009
$
$
$
11,730
27,312
189,057
57,822
143,049
3,084
170
22,962
455,186
20,149
7,828
9,296
201,523
3,590
242,386
15,398
29,987
168,142
57,201
28,535
3,391
8,296
17,640
328,590
16,247
3,401
7,700
81,105
2,224
110,677
-
-
84
197,773
(51,335 )
(17,972 )
128,550
84,250
212,800
455,186
$
83
197,333
(35,999 )
(17,941 )
143,476
74,437
217,913
328,590
$
$
$
$
The accompanying Notes to Consolidated Financial Statements are an integral part of these consolidated financial statements.
33
STRATUS PROPERTIES INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Amounts)
Revenues:
Real estate
Rental
Hotel
Commissions, management fees and other
Total revenues
Cost of sales:
Real estate, net
Rental
Hotel
Other
Depreciation
Total cost of sales
General and administrative expenses
Total costs and expenses
Operating loss
Interest income
Other income, net
Loss on extinguishment of debt
Loss on interest rate cap agreement
Loss before income taxes and equity in unconsolidated affiliate’s loss
Equity in unconsolidated affiliate’s loss
(Provision for) benefit from income taxes
Net loss
Net loss attributable to noncontrolling interest in subsidiary
Net loss attributable to Stratus common stock
Net loss per share attributable to Stratus common stock:
Basic and diluted
Weighted average shares of common stock outstanding:
Basic and diluted
$
$
$
Years Ended December 31,
2009
2010
2,725 $
5,045
792
561
9,123
3,104
2,885
3,733
699
1,886
12,307
6,526
18,833
(9,710 )
155
228
-
(25 )
(9,352 )
(323 )
(8,038 )
(17,713 )
2,377
(15,336 ) $
5,331
4,528
-
926
10,785
8,277
3,078
-
-
1,634
12,989
7,674
20,663
(9,878 )
679
504
(182 )
(38 )
(8,915 )
(354 )
3,038
(6,231 )
327
(5,904 )
(2.05 ) $
(0.79 )
7,466
7,438
The accompanying Notes to Consolidated Financial Statements are an integral part of these consolidated financial
statements.
34
STRATUS PROPERTIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
Cash flow from operating activities:
Net loss
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation
Loss on interest rate cap agreement
Loss on extinguishment of debt
Cost of real estate sold
Deferred income taxes
Stock-based compensation
Equity in unconsolidated affiliate’s loss
Deposits
Purchases and development of real estate properties
Municipal utility district reimbursements
Increase in other assets
Increase (decrease) in accounts payable, accrued liabilities and other
Net cash used in operating activities
Cash flow from investing activities:
Development of commercial leasing properties
Development of hotel properties
Other development activities
Proceeds from U.S. treasury securities
Investment in unconsolidated affiliate
Other
Net cash used in investing activities
Cash flow from financing activities:
Borrowings from credit facility
Payments on credit facility
Borrowings from project and term loans
Payments on project and term loans
Noncontrolling interest contributions
Net payments for stock-based awards
Purchases of Stratus common stock
Financing costs
Net cash provided by financing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Years Ended December 31,
2010
2009
$
(17,713) $
(6,231 )
1,886
25
-
2,071
7,973
585
323
(2,319)
(56,027)
939
(1,727)
4,743
(59,241)
(6,153)
(53,233)
(16,507)
-
(15)
-
(75,908)
20,359
(7,652)
112,147
(4,436)
12,190
(22)
-
(1,105)
131,481
(3,668)
15,398
11,730 $
1,634
38
182
3,652
(966 )
735
354
(924 )
(44,239 )
6,389
(209 )
(2,031 )
(41,616 )
(4,025 )
(24,868 )
(10,374 )
15,391
(1,462 )
53
(25,285 )
20,035
(7,932 )
8,073
(579 )
49,478
(121 )
(404 )
(3,348 )
65,202
(1,699 )
17,097
15,398
$
The accompanying Notes to Consolidated Financial Statements, which include information regarding noncash transactions, are
an integral part of these consolidated financial statements.
35
STRATUS PROPERTIES INC.
CONSOLIDATED STATEMENTS OF EQUITY
(In Thousands)
Stratus Stockholders’ Equity
Common
Stock
Number
of
Shares
Capital in
At Par Excess of
Par Value
Value
Accum-
ulated
Deficit
Accum-
ulated
Other
Common Stock
Held in Treasury
Compre- Number
hensive
Loss
Shares
of
Total
Stratus
Noncontrolling
At
Cost
Stockholders’
Equity
Interest in
Subsidiary
Total
Equity
83 $ 196,692 $
(30,095) $
(17,441) $
149,236 $
Balance at December 31, 2008
Exercised and issued stock-based awards and other
Stock-based compensation
Tender of shares for stock-based awards
Purchases of Stratus common stock
Noncontrolling interest contributions
Comprehensive (loss) income:
Net loss
Other comprehensive income, net of taxes:
Unrealized gain on U.S. treasury securities
Other comprehensive income
Total comprehensive (loss) income
Balance at December 31, 2009
Exercised and issued stock-based awards and other
Stock-based compensation
Tender of shares for stock-based awards
Noncontrolling interest contributions
Comprehensive (loss) income:
Net loss
Other comprehensive income
Total comprehensive loss
Balance at December 31, 2010
8,282 $
33
-
-
-
-
-
-
-
-
8,315
39
-
-
-
-
-
-
8,354 $
-
-
-
-
-
-
-
-
-
83
1
-
-
-
-
-
-
(94)
735
-
-
-
-
-
-
-
-
-
(5,904)
-
-
-
197,333
-
-
(5,904)
(35,999)
(145)
585
-
-
-
-
-
-
-
-
-
(15,336)
-
(15,336)
(51,335) $
84 $ 197,773 $
(3)
-
-
-
-
-
-
3
3
3
-
-
-
-
-
-
-
-
-
819 $
-
-
5
49
-
-
-
-
-
873
-
-
6
-
-
-
-
879 $
-
-
(96)
(404)
-
-
-
-
-
-
-
(31)
-
-
-
-
(17,972) $
(94)
735
(96)
(404)
-
3
3
(5,901)
(144)
585
(31)
-
(17,941)
143,476
25,286 $ 174,522
(94 )
735
(96 )
(404 )
49,478
-
-
-
-
49,478
-
-
(327)
74,437
-
-
-
12,190
3
3
(6,228 )
217,913
(144)
585
(31)
12,190
(17,713)
-
(17,713)
212,800
(15,336)
(2,377)
-
(15,336)
128,550 $
-
(2,377)
84,250 $
(5,904)
(327)
(6,231 )
The accompanying Notes to Consolidated Financial Statements are an integral part of these consolidated financial statements.
36
STRATUS PROPERTIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Business and Principles of Consolidation. Stratus Properties Inc. (Stratus), a Delaware Corporation, is
engaged in the acquisition, development, management, operation and sale of commercial, hotel, entertainment,
multi-family and residential real estate properties located primarily in the Austin, Texas area. The real estate
development and marketing operations of Stratus are conducted through its wholly owned subsidiaries, a
consolidated joint venture and through an unconsolidated joint venture (see “Investment in Unconsolidated
Affiliate” below and Note 5). Stratus consolidates its wholly owned subsidiaries, subsidiaries in which Stratus
has a controlling interest and variable interest entities in which Stratus is deemed the primary beneficiary. All
significant intercompany transactions have been eliminated in consolidation.
Concentration of Risks. Stratus maintains cash equivalents in accounts with financial institutions in excess of
the amount insured by the Federal Deposit Insurance Corporation. Stratus monitors the financial stability of
these financial institutions regularly.
Stratus primarily conducts its operations in Austin, Texas. Consequently, any significant economic downturn in
the Austin market could potentially have an effect on Stratus’ business, results of operations and financial
condition.
Use of Estimates. The preparation of financial statements in conformity with accounting principles generally
accepted in the United States (U.S.) of America requires management to make estimates and assumptions that
affect the amounts reported in these financial statements and accompanying notes. The more significant
estimates include the (1) estimates of future cash flow from development and sale of real estate properties and
sources of financing for development projects used in the assessment of impairments, (2) valuation allowances
for deferred tax assets, (3) allocation of certain indirect costs and (4) useful lives for depreciation. Actual results
could differ from those estimates.
Allowance for Doubtful Accounts. Stratus periodically evaluates its ability to collect its receivables. Stratus
provides an allowance for estimated uncollectible amounts if it is determined that such amounts will not be
collected. Stratus believes all of its receivables are collectible and no allowances for doubtful accounts are
included in the accompanying consolidated balance sheets.
Real Estate and Commercial Leasing Assets. Real estate held for sale is stated at the lower of cost or fair
value less costs to sell. The cost of real estate held for sale includes acquisition, development, construction and
carrying costs, and other related costs through the development stage. Real estate under development and land
held for future development are stated at cost. Commercial leasing assets, which are held for investment, are
also stated at cost, less accumulated depreciation. Stratus capitalizes interest on funds used in developing
properties from the date of initiation of development activities through the date the property is substantially
complete and ready for sale or lease. Stratus recorded capitalized interest of $13.3 million in 2010 and $5.5
million in 2009. Common costs are allocated based on the relative fair value of individual land parcels. Certain
carrying costs are capitalized on properties currently under active development. Stratus capitalizes
improvements that increase the value of commercial leasing properties and have useful lives greater than one
year. Costs related to repairs and maintenance are expensed as incurred.
Stratus performs an impairment test when events or circumstances indicate that an asset’s carrying amount
may not be recoverable. Events or circumstances that Stratus considers indicators of impairment include
significant decreases in market values, adverse changes in regulatory requirements (including environmental
laws) and current period or projected operating cash flow losses from rental properties. Impairment tests for
properties to be held and used, including properties under development, involve the use of estimated future net
undiscounted cash flows expected to be generated from the use of the property and its eventual disposition. If
projected undiscounted cash flow from properties to be held and used is less than the related carrying amount,
then a reduction of the carrying amount of the long-lived asset to fair value is required. Measurement of the
impairment loss is based on the fair value of the asset. Generally, Stratus determines fair value using valuation
techniques such as discounted expected future cash flows. Impairment tests for properties held for sale involve
management estimates of fair value based on estimated market values for similar properties in similar locations
37
and management estimates of costs to sell. If estimated fair value less costs to sell is less than the related
carrying amount, then a reduction of the carrying amount of the asset to fair value less costs to sell is required.
Stratus recorded no impairment charges for the years ended December 31, 2010 and 2009. Should market
conditions further deteriorate in the future or other events occur that indicate the carrying amount of Stratus’ real
estate assets may not be recoverable, Stratus will reevaluate the expected cash flows from each property to
determine whether any impairment exists.
Depreciation. Commercial leasing properties are depreciated on a straight-line basis over their estimated 30 or
40-year life. Furniture, fixtures and equipment are depreciated on a straight-line basis over a five-year period.
Tenant improvements are depreciated over the related lease terms.
Investment in Unconsolidated Affiliate. Stratus has a 50 percent interest in the Crestview Station project
(see Note 5), which it accounts for under the equity method. Stratus has determined that consolidation of the
Crestview Station project is not required.
Other Assets. Other assets primarily consist of deferred financing and leasing costs, prepaid insurance, tenant
and other accounts receivable, and notes and interest receivable. Deferred financing costs are amortized using
the straight-line method, which approximates the effective interest method, to interest expense. Deferred leasing
costs are amortized to cost of sales using the straight-line method over the related lease terms.
Accrued Property Taxes. Stratus estimates its property taxes based on prior year property tax payments and
other current events that may impact the amount. Upon receipt of the property tax bill, Stratus adjusts its
accrued property tax balance at year-end to the actual amount of taxes due in January. Accrued property taxes
totaled $3.0 million at December 31, 2010, and 2009.
Derivative Instruments. Stratus accounts for its interest rate cap agreement, a derivative instrument, pursuant
to accounting and reporting standards requiring that every derivative instrument be recorded in the balance
sheet as either an asset or liability measured at its fair value. The accounting for changes in the fair value of a
derivative instrument depends on the intended use of the derivative and the resulting designation. Stratus
records this interest rate cap agreement, which matures in July 2011, at fair value on a recurring basis on its
balance sheet and recognizes changes in fair value in its statement of operations (see Note 4).
Revenue Recognition. Revenues from property sales are recognized when the risks and rewards of
ownership are transferred to the buyer, when the consideration received can be reasonably determined and
when Stratus has completed its obligations to perform certain supplementary development activities, if any exist,
at the time of the sale. Consideration is reasonably determined and considered likely of collection when Stratus
has signed sales agreements and has determined that the buyer has demonstrated a commitment to pay. The
buyer’s commitment to pay is supported by the level of their initial investment, Stratus’ assessment of the
buyer’s credit standing and Stratus’ assessment of whether the buyer’s stake in the property is sufficient to
motivate the buyer to honor their obligation to it.
Stratus recognizes its rental income based on the terms of its signed leases with tenants on a straight-line basis.
Recoveries from tenants for taxes, insurance and other commercial property operating expenses are recognized
as revenues in the period the related costs are incurred. Stratus recognizes sales commissions and
management and development fees when earned, as properties are sold or when the services are performed. A
summary of Stratus’ revenues follows (in thousands):
Revenues:
Developed property sales
Rental
Hotel
Commissions, management fees and other
Total revenues
Years Ended December 31,
2010
2009
$
$
2,725 $
5,045
792
561
9,123 $
5,331
4,528
-
926
10,785
38
Cost of Sales. Cost of sales includes the cost of real estate sold as well as costs directly attributable to the
properties sold such as marketing and depreciation. A summary of Stratus’ cost of sales follows (in thousands):
Cost of developed property sales
Cost of undeveloped property sales
Rental property costs
Hotel operations
Project expenses and allocation of overhead costs (see below)
Municipal utility district reimbursements (see below)
Depreciation
Other, net
Total cost of sales
Years Ended December 31,
2010
2009
$
$
2,120 $
65
2,885
3,733
5,172
(4,090 )
1,886
536
12,307 $
3,735
111
3,078
-
4,761
(34 )
1,634
(296 )
12,989
Allocation of Overhead Costs. Stratus has historically allocated a portion of its overhead costs to both
capitalized real estate costs and cost of sales based on the percentage of time certain of its employees,
comprising its indirect overhead pool, worked in the related areas (i.e. construction and development for capital
assets and sales and marketing for cost of sales). Stratus capitalizes only direct and indirect project costs
associated with the acquisition, development and construction of a real estate project. Indirect costs include
allocated costs associated with certain pooled resources (such as office supplies, telephone and postage) which
are used to support Stratus’ development projects, as well as general and administrative functions. Allocations
of pooled resources are based only on those employees directly responsible for development (i.e., project
manager and subordinates). Stratus charges to expense indirect costs that do not clearly relate to a real estate
project, such as salaries and allocated expenses related to the Chief Executive Officer and Chief Financial
Officer.
Municipal Utility District Reimbursements. Stratus receives Barton Creek Municipal Utility District (MUD)
reimbursements for certain infrastructure costs incurred. Prior to 1996, Stratus capitalized infrastructure costs to
the costs of its properties as those costs were incurred. Subsequently, those costs were expensed through cost
of sales as properties sold. In 1996, following the 1995 creation of MUDs, Stratus began capitalizing the
infrastructure costs to a separate MUD property category. MUD reimbursements received for infrastructure
costs incurred prior to 1996 are reflected as a reduction of cost of sales, while other MUD reimbursements
represent a reimbursement of the cost of MUD properties and are recorded as a reduction of the related asset’s
carrying amount. Stratus has long-term agreements with seven independent MUDs in Barton Creek to build the
MUDs’ utility systems and to be eligible for future reimbursements for the related costs. The amount and timing
of MUD reimbursements depends upon the respective MUD having a sufficient tax base within its district to
issue bonds and being able to obtain the necessary state approval for the sale of the bonds. Because the timing
of the issuance and approval of the bonds is subject to considerable uncertainty, coupled with the fact that
interest rates on such bonds cannot be fixed until they are approved, the amounts associated with MUD
reimbursements are not known until approximately one month before the MUD reimbursements are received. To
the extent the reimbursements are less than the costs capitalized, Stratus records a loss when that
determination is made. MUD reimbursements represent the actual amounts received.
Advertising Costs. Advertising costs are expensed as incurred and are included as a component of cost of
sales. Advertising costs totaled $0.1 million in 2010 and $0.3 million in 2009.
Income Taxes. Stratus accounts for deferred income taxes utilizing an asset and liability method, whereby
deferred tax assets and liabilities are recognized based on the tax effects of temporary differences between the
financial statements and the tax basis of assets and liabilities, as measured by current enacted tax rates. The
effect on deferred income tax assets and liabilities of a change in tax rates or laws is recognized in income in
the period in which such changes are enacted. Stratus periodically evaluates the need for a valuation allowance
to reduce deferred tax assets to estimated recoverable amounts. Stratus establishes a valuation allowance to
reduce its deferred tax assets and records a corresponding charge to earnings if it is determined, based on
available evidence at the time, that it is more likely than not that any portion of the deferred tax assets will not be
realized. In evaluating the need for a valuation allowance, Stratus estimates future taxable income based on
projections and ongoing tax strategies. This process involves significant management judgment about
assumptions that are subject to change based on variances between projected and actual operating
39
performance and changes in Stratus’ business environment or operating or financial plans. See Note 7 for
further discussion.
Earnings Per Share. Stratus’ basic and diluted net loss per share of common stock were calculated by dividing
the net loss attributable to Stratus common stock by the weighted average number of common shares
outstanding during the year. Stock options and restricted stock units representing approximately 125,800 shares
for 2010 and 156,100 shares for 2009 were excluded from weighted average common shares outstanding for
purposes of calculating diluted net loss per share because they were anti-dilutive.
Stock-Based Compensation. Compensation costs for share-based payments to employees, including stock
options, are measured at fair value and charged to expense over the requisite service period for awards that are
expected to vest. The fair value of stock options is determined using the Black-Scholes option valuation model.
In addition, for other stock-based awards under the plans, compensation costs are recognized based on the fair
value on the date of grant for restricted stock units. Stratus estimates forfeitures at the time of grant and revises
those estimates in subsequent periods if actual forfeitures differ from those estimates through the final vesting
date of the awards. See Note 8 for further discussion.
New Accounting Standards. In May 2009, the Financial Accounting Standards Board (FASB) issued
accounting guidance to replace the quantitative-based risks and rewards calculation for determining which
enterprise, if any, has a controlling financial interest in a variable interest entity with an approach focused on
identifying which enterprise has the power to direct the activities of a variable interest entity that most
significantly impact the entity’s economic performance and (1) the obligation to absorb losses of the entity or (2)
the right to receive benefits from the entity. It also requires ongoing assessments of whether an enterprise is the
primary beneficiary of a variable interest entity. Additionally, this guidance amends the consideration of related
party relationships in the determination of the primary beneficiary of a variable interest entity by providing,
among other things, an exception with respect to de facto agency relationships in certain circumstances. This
guidance is effective for fiscal years and interim periods beginning after November 15, 2009. Stratus’ adoption
of this guidance effective January 1, 2010, did not have a significant impact on its financial reporting and
disclosures.
Reclassifications. For comparative purposes, primarily the revision to Stratus’ presentation of its business
segments associated with the W Austin Hotel & Residences project, certain prior year amounts have been
reclassified to conform with the current year presentation.
2. Joint Venture with Canyon-Johnson Urban Fund II, L.P.
Effective May 1, 2008, Stratus entered into a joint venture with Canyon-Johnson Urban Fund II, L.P. (Canyon-
Johnson) for the development of a 36-story mixed-use development in downtown Austin, Texas, anchored by a
W Hotel & Residences (the W Austin Hotel & Residences project). Stratus’ initial capital contributions to the joint
venture totaled $31.8 million, which consisted of a 1.76 acre tract of land located across the street from Austin
City Hall, the related property and development agreements for the land and other project costs incurred by
Stratus before May 1, 2008.
Stratus currently accounts for this joint venture as a variable interest entity (VIE) of which Stratus is the primary
beneficiary. As a result, the assets, liabilities and results of operations of the joint venture are included in
Stratus’ consolidated financial statements.
Stratus is the manager of, and has an approximate 40 percent interest in, the joint venture. Canyon-Johnson
has an approximate 60 percent interest in the joint venture. Decisions for the joint venture are made by
unanimous vote of the partners. In the aggregate, Canyon-Johnson contributed approximately 60 percent of the
joint venture’s required capital and Stratus contributed approximately 40 percent. As of December 31, 2010,
capital contributions totaled $65.3 million for Stratus and $87.3 million for Canyon-Johnson. The joint has a
construction loan and a second lien loan to finance project costs (see below).
On October 21, 2009, the joint venture obtained construction financing from Beal Bank Nevada (Beal Bank) (the
Beal Bank loan agreement). Pursuant to the Beal Bank loan agreement, the joint venture may borrow up to an
aggregate of $120.0 million to fund the construction, development and marketing costs of the W Austin Hotel &
Residences project. On December 31, 2010, the Beal Bank loan agreement had an outstanding balance of $81.0
40
million and further advances are expected to be made monthly until the loan is fully funded. See Note 6 for further
discussion of the Beal Bank loan agreement.
On April 6, 2010, Stratus and Canyon-Johnson entered into a $30 million loan agreement with Hunter’s
Glen/Ford Investments I LLC (the Ford loan agreement) effective March 31, 2010, secured by a second lien on
the W Austin Hotel & Residences project assets to fund construction, development and marketing costs of the
W Austin Hotel & Residences project. See Note 6 for further discussion of the Ford loan agreement.
A Stratus subsidiary has been designated as the developer of the W Austin Hotel & Residences project and will
be paid a $6.0 million developer’s fee over the term of construction. Stratus received development fees totaling
$1.8 million in 2010 and 2009, which have been eliminated in consolidation. Development fees received through
December 31, 2010, totaled $4.0 million.
Upon formation of the joint venture, Stratus performed an initial evaluation and concluded that the joint venture
was a VIE and that Stratus was the primary beneficiary. Stratus reevaluated the primary beneficiary of the joint
venture upon adoption of new consolidation guidance, effective January 1, 2010, (see Note 1) and concluded
that Stratus is still the primary beneficiary, as Stratus has the power to direct the activities that most significantly
impact the joint venture’s financial performance. Stratus also reevaluated and reaffirmed its previous conclusion
as to the VIE status and primary beneficiary of the joint venture as of the dates of the amendments to the
operating agreement (March 31, 2010, and June 24, 2010). Accordingly, the W Austin Hotel & Residences
project has been consolidated in Stratus’ financial statements. Stratus will continue to evaluate the primary
beneficiary of this joint venture in accordance with applicable accounting guidance.
At December 31, 2010, Stratus’ consolidated balance sheet includes $318.3 million in total assets and $143.9
million in total liabilities associated with the W Austin Hotel & Residences project. The assets associated with
the W Austin Hotel & Residences project can only be used to settle obligations of the joint venture. The $318.3
million of total assets associated with the project included $7.0 million of cash and cash equivalents, $163.0
million of real estate under development, $115.6 million of real estate held for investment and $32.7 million of
other assets. The $143.9 million of total liabilities associated with the project included $19.6 million of accounts
payable and accrued liabilities, $4.3 million of accrued interest and property taxes, $9.0 million of deposits and
$111.0 million of debt. Stratus also guarantees certain obligations of the W Austin Hotel & Residences project
(see Notes 6 and 9).
Profits and losses between partners in a real estate venture should be allocated based on how changes in net
assets of the venture would affect cash payments to the investors over the life of the venture and on its
liquidation. The amount of the ultimate profits earned by the W Austin Hotel & Residences project will affect the
ultimate profit sharing ratios because of provisions in the joint venture agreement which would require Stratus to
return certain previously received distributions to Canyon-Johnson under certain circumstances. Accordingly,
the W Austin Hotel & Residences project’s cumulative profits or losses are allocated based on a hypothetical
liquidation of the venture’s net assets as of each balance sheet date because of the uncertainty of the ultimate
profits and, therefore, profit-sharing ratios. At December 31, 2010, the cumulative losses for the W Austin Hotel
& Residences project were allocated based on 43 percent for Stratus and 57 percent for Canyon-Johnson.
41
3. Real Estate, net
Real estate held for sale:
Developed lots
Real estate under development:
W Austin Hotel & Residences
Acreage and lots
Land held for future development:
Undeveloped acreage
Real estate held for investment:
W Austin Hotel & Residences
7500 Rialto Boulevard
Barton Creek Village
5700 Slaughter
Furniture, fixtures and equipment
Total
Accumulated depreciation
Total real estate held for investment, net
December 31,
2010
2009
(In Thousands)
$
27,312
$
29,987
163,005
26,052
189,057
144,261
23,881
168,142
57,822
57,201
115,858 a
21,059
6,415
5,867
866
150,065
(7,016 )
143,049
-
21,978
6,386
5,612
1,035
35,011
(6,476 )
28,535
Total real estate, net
$
417,240
$
283,865
a.
Includes $115.9 million of assets reclassified from real estate under development related to the W Austin Hotel in fourth-
quarter 2010.
Real estate held for sale. A developed lot is an individual tract of land that has been developed and permitted for
residential use. A developed lot may be sold with a home already built on it. As of December 31, 2010, Stratus
owned 141 developed lots, including one lot with a home built on it (the Calera Court Courtyard home).
Real estate under development. At December 31, 2010, the W Austin Hotel & Residences condominium units
totaled 159, with closing of initial sales commencing in January 2011. The W Austin Hotel & Residences project
also includes approximately 41,000 square feet of office space, approximately 18,000 square feet of retail
space, and entertainment space that includes a music venue and production studio, with a maximum capacity of
3,000 people. Acreage under development includes real estate for which infrastructure for the entire property is
currently under construction and/or is expected to be completed, and necessary permits have been received, or
on which commercial properties are under development. Acreage under development at December 31, 2010,
totaled 642 acres.
Land held for future development. Undeveloped acreage includes raw real estate that can be sold “as is” (i.e.,
no infrastructure or development work has begun on such property). Stratus’ undeveloped acreage as of
December 31, 2010, included approximately 1,529 acres of land in Austin, Texas, for residential and commercial
development.
Real estate held for investment. The W Austin Hotel & Residences project includes a 251-room hotel, which
opened in December 2010. The 7500 Rialto Boulevard property includes two 75,000-square-foot office
buildings, one of which was 85 percent leased and the other 100 percent leased at December 31, 2010. The
Barton Creek Village property includes a 22,000-square-foot retail complex, which was 89 percent leased at
December 31, 2010, and a 3,300-square-foot bank building, which is leased through January 2023. The 5700
Slaughter property includes two retail buildings totaling 21,000 square feet, which was 91 percent leased at
December 31, 2010.
Stratus also owns two acres of undeveloped commercial property in San Antonio, Texas.
42
4. Fair Value Measurements
Summarized below are the carrying values and estimated fair values of financial assets and liabilities (in
thousands).
December 31, 2010
December 31, 2009
Carrying
Value
Fair
Value
Carrying
Value
Fair
Value
Cash and cash equivalentsa
Accounts and notes receivablea
Interest rate cap agreementb
Accounts payable, accrued
liabilities, accrued interest and
property taxesa
Debtc
$
11,730 $
841
-
11,730 $
841
-
$
15,398
1,734
25
27,977
201,523
27,977
201,136
19,648
81,105
15,398
1,734
25
19,648
78,571
a. Fair value approximates the carrying amounts because of the short-term nature of these instruments.
b. Recorded at fair-value. Observable inputs, such as London Interbank Offered Rate (LIBOR), are used to determine fair
value (see below).
c. Generally recorded at cost. Fair value of substantially all of Stratus’ debt is estimated based on discounted future
expected cash flows at estimated current interest rates. The fair value of debt does not represent the amounts that will
ultimately be paid upon the maturities of the loans.
Interest Rate Cap Agreement. On August 1, 2008, the joint venture between Stratus and Canyon-Johnson paid
$0.7 million to enter into an agreement to cap the floating LIBOR rate on its W Austin Hotel & Residences
project construction loan at 4.5 percent through July 1, 2011, to manage interest rate risk. Stratus uses an
interest rate pricing model that relies on market observable inputs such as LIBOR to measure the fair value of
the interest rate cap agreement. Stratus also evaluated the counterparty credit risk associated with the interest
rate cap agreement, which is considered a Level 3 input, but did not consider such risk to be significant.
Therefore, the interest rate cap agreement is classified within Level 2 of the fair value hierarchy. Stratus
recorded non-cash charges totaling $25,000 in 2010 and $38,000 in 2009 related to fluctuations in the fair value
of the interest rate cap agreement.
5. Investment in Unconsolidated Affiliate
In 2005, Stratus formed a joint venture with Trammell Crow Central Texas Development, Inc. (Trammell Crow)
to acquire an approximate 74-acre tract at the intersection of Airport Boulevard and Lamar Boulevard in Austin,
Texas, for $7.7 million. The property, known as Crestview Station, is a single-family, multi-family, retail and
office development, which is located on the commuter rail line approved by City of Austin voters. With Trammell
Crow, Stratus has completed environmental remediation, which the State of Texas certified as complete in
September 2007, and permitting of the property. The initial phase of utility and roadway infrastructure is
complete.
In connection with funding the development of Crestview Station, the joint venture entered into a loan
agreement in 2005 with Comerica (the Crestview Loan Agreement), pursuant to which the joint venture
borrowed funds in the principal amount of $7.6 million. In November 2007, the joint venture amended the
Crestview Loan Agreement to increase the amount of availability under the loan to $10.9 million. Stratus and
Trammell Crow, the joint venture’s operating partner, each executed guaranties of completion of certain
environmental remediation (which has been completed) and payment in connection with the Crestview Loan
Agreement. Each partner severally guaranteed the joint venture’s principal payment obligations under the
Crestview Loan Agreement up to a maximum of $1.9 million each, plus certain interest payments and related
costs.
On August 20, 2009, Stratus and Trammell Crow entered into a fifth modification of the Crestview Loan
Agreement with an effective date of May 31, 2009. Prior to the execution of the fifth loan modification, the joint
venture paid down $1.0 million to Comerica to reduce the outstanding loan balance to $8.2 million. The
modification agreement extended the loan maturity date to May 31, 2012, and lowered each joint venture
partner’s guarantee from $1.9 million to $1.4 million. The principal amount of the loan was $8.2 million on
December 31, 2010. To the extent the joint venture does not have funds available, Stratus and Trammell Crow
will equally fund monthly interest payments on the outstanding loan balance and scheduled principal payments
43
beginning in 2011. A reserve for interest and property taxes through May 2011 has been established with the
lender. Scheduled principal payments begin in June 2011, and the loan matures in May 2012
Crestview Station sold substantially all of its multi-family and commercial properties in 2007 and one commercial
site in 2008. Stratus’ equity in Crestview Station’s losses totaled $0.3 million in 2010 and $0.4 million in 2009.
Summarized financial information for Crestview Station follows (in thousands):
Years Ended December 31:
Gross loss
Net loss
At December 31:
Total assets
Total liabilities
Total equity
6. Debt
Beal Bank loan,
$
$
2010
2009
- $
(645 )
(14 )
(707 )
$
14,510
8,343
6,167
15,161
8,379
6,782
December 31,
2010
2009
(In Thousands)
average interest rate 10.0% in 2010 and 9.5% in 2009
$
81,020 $
3,373
Unsecured term loans,
average interest rate 8.2% in 2010 and 6.7% in 2009
Ford loan,
average interest rate 17.5% in 2010
Comerica credit facility,
average interest rate 5.8% in 2010 and 5.0% in 2009
Lantana promissory note,
average interest rate 6.0% in 2010 and 2009
Barton Creek Village term loan,
average interest rate 6.25% in 2010 and 2009
Slaughter term loan,
average interest rate 6.95% in 2010
Total Debt
36,000
40,000
30,000
-
24,810
12,103
20,682
20,979
4,566
4,650
4,445
201,523 $
$
-
81,105
Beal Bank Loan. On October 21, 2009, the joint venture with Canyon-Johnson obtained construction financing
from Beal Bank Nevada (Beal Bank). Pursuant to the Beal Bank loan, the joint venture may borrow up to an
aggregate of $120.0 million to fund the construction, development and marketing costs of the W Austin Hotel &
Residences project. On December 31, 2010, the Beal Bank loan had an outstanding balance of $81.0 million and
further advances are expected to be made to fund project costs.
Effective June 30, 2010, the joint venture with Canyon-Johnson and Beal Bank entered into a modification
agreement, which increased the annual interest rate applicable to amounts borrowed under the Beal Bank loan
agreement to The Wall Street Journal Prime Rate, as it changes from time to time, plus 6.75 percent. The prior
applicable annual interest rate was The Wall Street Journal Prime Rate, as it changes from time to time, plus 6.25
percent. The outstanding principal is due at maturity on October 21, 2014.
Borrowed amounts may not be prepaid, in whole or in part, prior to July 2, 2013. Borrowed amounts may be prepaid
in whole or in part after July 2, 2013 and on or prior to July 2, 2014, subject to a prepayment fee equal to one
percent of the amount of principal being prepaid. Optional prepayments made after July 2, 2014, are not subject to
prepayment premiums or fees. In addition, as and when residential condominium units are sold, all net sales
proceeds from the sale of the residential units and all net operating income (each as defined under the Beal Bank
loan agreement) must be offered to Beal Bank as a principal prepayment under the loan agreement. Beal Bank, in
its sole discretion, may at any time elect to accept or reject any offered prepayments.
44
The Beal Bank loan agreement contains customary financial covenants, including a requirement that Stratus
maintain a minimum total stockholders’ equity balance of $120.0 million, and other restrictions. Stratus’ total
stockholders equity balance was $128.6 million at December 31, 2010. The full payment and performance
obligations under the loan have been guaranteed by each of Stratus and Canyon-Johnson.
Unsecured Term Loans. Stratus has $36.0 million of borrowings outstanding under seven unsecured term loans
with First American Asset Management (FAAM), including two $5.0 million loans, an $8.0 million loan, a $7.0
million loan, a $4.0 million loan and two $3.5 million loans.
On April 7, 2010, Stratus extended and modified FAAM loans effective as of March 31, 2010. Stratus repaid
$2.0 million in March 2010, and $2.0 million in June 2010, and the remaining maturities are $9.0 million in
December 2011, $3.5 million in December 2012, $15.0 million in December 2013 and $8.5 million in December
2014. The applicable interest rate for all seven FAAM loans is 8.75 percent. In addition, the debt service
coverage ratio covenant contained in the loan agreements was modified such that Stratus will remain compliant
with the covenant so long as Stratus maintains total stockholders’ equity of no less than $120.0 million. The
modified loan agreements prohibit common stock repurchases while any of the loans are outstanding. From
January 1, 2011, until one year prior to the maturity dates, Stratus may prepay the loans totaling $18.5 million
maturing in 2012 and 2013, subject to applicable prepayment penalties. The modified loan agreements for two
of the loans totaling $8.5 million maturing in 2014 prohibit prepayment before December 31, 2011. From
January 1, 2012, to December 31, 2013, Stratus may prepay the loans maturing in 2014, subject to applicable
prepayment penalties. Beginning January 1, 2014, Stratus may prepay the loans maturing in 2014 with no
prepayment penalties.
Ford Loan Agreement. On April 6, 2010, Stratus and Canyon-Johnson entered into a $30.0 million loan with
Hunter’s Glen/Ford Investments I LLC (the Ford loan) effective as of March 31, 2010, secured by a second lien on
the W Austin Hotel & Residences project assets. Amounts borrowed under the Ford loan bear interest at an annual
rate equal to 17.5 percent. Interest will accrue and can either be paid annually or added to the principal. The
outstanding principal and accrued unpaid interest are due at maturity on March 31, 2012. The lender will have the
option to extend the loan maturity date on the Ford loan for two additional one-year periods upon payment by the
joint venture of a $50,000 extension fee for each of the respective extension options exercised. Optional
prepayments made after the first anniversary, April 6, 2011, are not subject to prepayment premiums or fees. In
addition, after April 6, 2011, the lender, with permission from Beal Bank, may require prepayment, but solely from
the proceeds from the sale of W Austin Hotel & Residences project residential units. Stratus has guaranteed
payment of principal and interest under the loan and completion of the project in connection with this loan
agreement. The Ford loan agreement contains a covenant requiring that Stratus maintain a minimum total
stockholders’ equity balance of $120.0 million.
Additionally, the Ford loan agreement provides for a profits interest in the joint venture. The profits interest provides
that Ford will receive 95 percent of the operating cash flow and net proceeds from capital events of the joint
venture up to a maximum payment of $750,000 if paid on April 6, 2011, and increased each full or partial month
thereafter by $62,500 until the Ford loan and profits interest are paid in full.
The Ford loan was fully funded at December 31, 2010.
Comerica Credit Facility. Stratus had a $45.0 million credit facility with Comerica, which sets limitations on liens
and transactions with affiliates and requires that certain financial ratios be maintained. On April 7, 2010, Stratus
extended and modified its credit facility, effective as of March 31, 2010, such that the existing $45.0 million
facility was replaced with a $35.0 million revolving loan and a $10.0 million term loan. Any amounts repaid under
the $10.0 million term loan are not available for future advance to Stratus. The applicable interest rate for the
revolving loan is LIBOR plus 4 percent, with a minimum rate of 6 percent, and the applicable interest rate for the
term loan is LIBOR plus 5 percent, with a minimum rate of 7 percent. The outstanding principal from both loans
is due at maturity on May 30, 2012.
Interest payments are due monthly on amounts outstanding under the $35.0 million revolving loan. The $10.0
million term loan will require monthly interest only payments for the first year, and quarterly principal payments
of $0.5 million beginning on June 1, 2011, in addition to the monthly interest payments. In addition, any
distributions received by Stratus from its investment in the W Austin Hotel & Residences project shall, after
repayment of any amounts due under the Beal Bank and Ford loans, be paid to Comerica and applied against
45
the $10.0 million term loan to the extent of any outstanding amounts. At December 31, 2010, no amounts were
outstanding under the term loan. The modified Comerica credit facility also increased Stratus’ minimum net
worth covenant from $80.0 million to $120.0 million.
Lantana Promissory Note. In December 2007, Stratus’ wholly owned subsidiary, Lantana Office Properties I,
L.P., (Lantana), signed a promissory note to The Lincoln National Life Insurance Company. Under the terms of
the note, Lantana borrowed $21.5 million, for development costs and general corporate purposes. The note
matures on January 1, 2018. The note contains customary financial covenants and other restrictions and bears
interest at a rate of 5.99 percent per year.
Prepayment of the note in whole is subject to a prepayment premium of the greater of (1) one percent of the
outstanding principal balance of the note on the prepayment date or (2) the result of the sum of the present
values of the remaining payments due from the prepayment date through the maturity date minus the
outstanding principal balance of the note as of the prepayment date. Prepayment of the note in part is
prohibited. Lantana’s obligations under the note are secured by a first lien on real property and improvements
and an assignment of rents and present and future leases related to the office buildings at 7500 Rialto
Boulevard.
Barton Creek Village Term Loan. In March 2009, Stratus borrowed $4.7 million under a term loan secured by
Barton Creek Village, which will mature in April 2014. The applicable interest rate is 6.25 percent, and payments
of interest and principal are due monthly beginning May 1, 2009. Stratus used the proceeds from this loan for
general corporate purposes.
Slaughter Term Loan. In January 2010, Stratus borrowed $4.5 million under a $5.4 million term loan secured by
5700 Slaughter, which will mature in January 2015. The applicable interest rate is 6.95 percent, and payments
of principal and interest are due monthly beginning March 1, 2010. Stratus used the proceeds from this loan for
general corporate purposes.
Maturities. The following table summarizes our debt maturities as of December 31, 2010 (in thousands):
2011
2012
2013
2014
2015
Thereafter
Beal Bank Loan
FAAM Loans
Ford Loan
Comerica Credit Facility
Lantana Promissory Note
Barton Creek Village Loan
5700 Slaughter Loan
Total
$
$
- $
9,000a
-
-
315
89
72
9,476 $
- $
- $
3,500
30,000
24,810
334
93
77
15,000
-
-
355
100
84
58,814 $
15,539 $
81,020 $
8,500
-
-
377
4,284
89
94,270 $
- $
-
-
-
400
-
4,123
4,523 $
a. Loan matures in December 2011.
7. Income Taxes
The components of deferred income taxes follow (in thousands):
Total
81,020
36,000
30,000
24,810
20,682
4,566
4,445
18,901 $ 201,523
- $
-
-
-
18,901
-
-
Deferred tax assets and liabilities:
Real estate, commercial leasing assets and facilities
Alternative minimum tax credits (no expiration)
Employee benefit accruals
Accrued liabilities
Other assets
Net operating loss credit carryforwards (expire 2010 – 2029)
Other liabilities
Valuation allowance
Deferred tax assets, net
46
December 31,
2010
2009
$
$
3,244 $
812
1,166
185
1,160
4,502
(388)
(10,510)
171 $
1,988
812
1,347
394
827
3,952
(964)
(58)
8,298
Stratus’ deferred tax assets (net of deferred tax liabilities) before any valuation allowances totaled $10.7 million
at December 31, 2010, and $8.4 million at December 31, 2009. In evaluating the recoverability of these deferred
tax assets, Stratus considered available positive and negative evidence, giving greater weight to the recent
current losses, the absence of taxable income in the carry back period and uncertainty regarding projected
future financial results. As a result, Stratus concluded that there was not sufficient positive evidence supporting
the realizability of its deferred tax assets beyond an amount totaling $0.2 million at December 31, 2010, and
Stratus recorded charges totaling $10.5 million to provision for income taxes in 2010 to provide additional
valuation allowances.
Stratus’ future results of operations may be negatively impacted by its inability to realize a tax benefit for future
tax losses or for items that will generate additional deferred tax assets. Stratus’ future results of operations may
be favorably impacted by reversals of valuation allowances if Stratus is able to demonstrate sufficient positive
evidence that its deferred tax assets will be realized.
Stratus’ income tax (provision) benefit consists of the following (in thousands):
Current
Deferred
(Provision for) benefit from income taxes
Years Ended December 31,
2010
2009
$
$
(65) $
(7,973)
(8,038) $
1,960
1,078
3,038
Excess tax benefits related to option exercises and vesting of restricted stock units cannot be recognized until
realized through a reduction of current taxes payable. Stratus’ deferred tax asset related to the U.S. net
operating loss carry forwards at December 31, 2010, did not include an additional $5.0 million of net operating
loss in relation to excess tax benefits on stock option exercises and restricted stock units vested during the fiscal
years ended December 31, 2008, and 2007, because these benefits have not yet been realized.
The following presents the change in the reserve for gross unrecognized tax benefits (in thousands):
Balance at January 1,
Additions for current year tax positions
Reductions for prior year tax positions
Balance at December 31,
2009
2,664
-
(2,664)
-
$
$
Stratus records liabilities offsetting the tax provision benefits of uncertain tax positions to the extent it estimates
that a tax position is not more likely than not to be sustained upon examination by the taxing authorities. During
2009 an accounting method change was approved by the Internal Revenue Service resulting in a $2.7 million
reduction in reserves for gross unrecognized tax benefits. Stratus had no unrecognized tax benefits relating to
uncertain tax positions as of December 31, 2010. Stratus has elected to classify any interest expense and
penalties related to income taxes within income tax expense in its consolidated statements of operations.
Stratus files income tax returns in the U.S. federal jurisdiction and state jurisdictions. With few exceptions,
Stratus is no longer subject to U.S. federal income tax examinations by tax authorities for the years prior to
2007, and state income tax examinations for the years prior to 2006.
47
Reconciliations of the income tax benefit computed at the federal statutory tax rate and the recorded income tax
(provision) benefit follow (dollars in thousands):
Years Ended December 31,
2010
2009
Amount
Percent
Amount
Percent
Income tax benefit computed at the
federal statutory income tax rate
Adjustments attributable to:
$
3,273
35 % $
3,120
Change in valuation allowance
Noncontrolling interest
Equity in unconsolidated affiliate’s loss
State taxes and other, net
Income tax (provision) benefit
(10,452 )
(832 )
113
(140 )
(8,038 )
$
(112 )
(9 )
1
(1 )
(86 )% $
-
(115 )
124
(91 )
3,038
35 %
-
(1 )
1
(1 )
34 %
Stratus paid federal and state income taxes totaling $0.1 million in 2010 and 2009. Stratus received refunds of
federal and state income taxes of $1.2 million in 2010 and less than $0.1 million in 2009.
8. Stock-Based Compensation, Equity Transactions and Employee Benefits
Stock-Based Compensation Plans. Stratus currently has four stock-based compensation plans. Three of
these plans have awards available for grant. In August 2010, Stratus’ shareholders approved the 2010 Stock
Incentive Plan, which provides for the issuance of stock-based compensation awards, including stock options
and restricted stock units, relating to 140,000 shares of Stratus common stock, that are issuable to Stratus
employees and non-employee directors. Stratus’ 2002 Stock Incentive Plan also provides for the issuance of a
variety of stock-based compensation awards, and Stratus’ 1996 Stock Option Plan for Non-Employee Directors
provides for the issuance of stock options only. Stratus common stock issued upon option exercises or restricted
stock unit vestings represent newly issued shares of stock. Awards with respect to 140,000 shares under the
2010 Stock Incentive Plan, 1,059 shares under the 2002 Stock Incentive Plan and 2,500 shares under the 1996
Stock Option Plan for Non-Employee Directors were available for new grants as of December 31, 2010.
Stock-Based Compensation Costs. Compensation costs charged against earnings for stock-based awards
are shown below (in thousands). Stock-based compensation costs are capitalized as appropriate. Stratus’
estimated forfeiture rate used in estimating stock-based compensation costs for stock options was 2.8 percent
and for restricted stock units was zero percent for the years presented below.
Stock options awarded to employees (including directors)
Restricted stock units
Less capitalized amounts
Impact on net loss before income taxes
Years Ended December 31,
2010
2009
$
$
74 $
512
-
586 $
103
674
(42 )
735
48
Options. Stock options granted under the plans generally expire ten years after the date of grant and vest in 25
percent annual increments beginning one year from the date of grant. The plans and award agreements provide
that participants will receive the following year’s vesting after retirement and provide for accelerated vesting if
there is a change of control (as defined in the plans). A summary of stock options outstanding as of December
31, 2010, and changes during the year ended December 31, 2010, follow:
Balance at January 1
Granted
Exercised
Expired
Balance at December 31
Number of
Options
Weighted
Average
$
Option Price
16.98
8.90
9.27
9.44
17.19
96,437
7,500
(7,500)
(2,937)
93,500
Vested and exercisable at December 31
74,750
17.86
Weighted
Average
Remaining
Contractual
Term (years)
Aggregate
Intrinsic
Value
($000)
5.3
4.5
$
$
24
6
A summary of stock options outstanding and changes during the year ended December 31, 2009, follows:
Balance at January 1
Granted
Expired
Balance at December 31
2009
Weighted
Number
of
Options
91,437
7,500
(2,500 )
96,437
Average
Option
Price
$
17.62
6.23
8.06
16.98
The fair value of each option award is estimated on the date of grant using a Black-Scholes option valuation
model. Expected volatility is based on the historical volatility of Stratus’ stock. Stratus uses historical data to
estimate option exercise, forfeitures and expected life of the options. When appropriate, employees who have
similar historical exercise behavior are grouped for valuation purposes. The risk-free interest rate is based on
Federal Reserve rates in effect for bonds with maturity dates equal to the expected term of the option at the date
of grant. Stratus has not paid, and has no current plan to pay, cash dividends on its common stock. The
following table summarizes the number of stock options granted, the calculated fair value and assumptions used
to determine the fair value of Stratus’ stock option awards during 2010 and 2009.
Options granted
Grant-date fair value per stock option
Expected and weighted average volatility
Expected life of options (in years)
Risk-free interest rate
$
2010
2009
$
7,500
6.34
78.7 %
6.7
2.0 %
7,500
4.47
77.9 %
6.7
3.0 %
The total intrinsic value of options exercised was less than $0.1 million during 2010. There were no options
exercised during 2009. Vested stock options totaled 7,500 during 2010 and 2009 with weighted-average grant-
date fair values of $12.71 per option in 2010 and $14.46 per option in 2009. As of December 31, 2010, there
were 18,750 stock options unvested with a weighted-average grant-date fair value of $8.61 per option. As of
December 31, 2010, Stratus had $0.1 million of total unrecognized compensation cost related to unvested stock
options expected to be recognized over a weighted average period of 1.3 years.
49
The following table includes amounts related to exercises of stock options and vesting of restricted stock units
for the years ended December 31, 2010 and 2009 (in thousands, except Stratus shares tendered):
Stratus shares tendered to pay the exercise price
and/or the minimum required taxesa
Cash received from stock option exercises
Amounts Stratus paid for employee taxes
2010
2009
9,828
70 $
22 $
11,553
-
121
$
$
a. Under terms of the related plans, upon exercise of stock options and vesting of restricted stock units, employees may
tender Stratus shares to Stratus to pay the exercise price and/or the minimum required taxes.
Restricted Stock Units. Restricted stock units granted under the plans provide for the issuance of common
stock to certain officers of Stratus at no cost to the officers. The restricted stock units are converted into shares
of Stratus common stock ratably and generally vest in one-quarter increments over the four years following the
grant date. The awards fully vest upon retirement and upon a change of control.
A summary of outstanding unvested restricted stock units as of December 31, 2010, and activity during the year
ended December 31, 2010 is presented below:
Balance at January 1
Granted
Vested
Balance at December 31
Number of
Restricted
Stock Units
77,250
16,000
(35,250 )
58,000
Aggregate
Intrinsic
Value
($000)
$
528
The total grant date fair value of restricted stock units granted during the year ended December 31, 2010, was
$0.2 million. The total intrinsic value of restricted stock units vesting during the year ended December 31, 2010,
was $0.3 million. As of December 31, 2010, Stratus had $0.4 million of total unrecognized compensation cost
related to unvested restricted stock units expected to be recognized over a weighted-average period of 1.4
years.
Share Purchase Program. In 2001, Stratus’ Board of Directors authorized an open market stock purchase
program for up to 0.7 million shares of Stratus’ common stock. The purchases may occur over time depending
on many factors, including the market price of Stratus stock; Stratus’ operating results, cash flow and financial
position; and general economic and market conditions. In addition, Stratus’ $45.0 million credit facility allows
Stratus to purchase up to $6.5 million of its outstanding common stock after September 30, 2005. At December
31, 2010, $0.9 million remains available under the Comerica agreement for purchases of our common stock.
Since 2004, Stratus has purchased 538,855 shares of its common stock for $8.5 million (an average of $15.85
per share) under this program. Purchases include 49,000 shares for $0.4 million (an average of $8.25 per
share) in 2009, which Stratus purchased in a private transaction. As of December 31, 2010, 161,145 shares
remain available under this program. However, Stratus’ modified unsecured term loans prohibit common stock
purchases while any of the loans are outstanding (see Note 6 for further discussion).
Employee Benefits. Stratus maintains a 401(k) defined contribution plan subject to the provisions of the
Employee Retirement Income Security Act of 1974 (ERISA). The 401(k) plan provides for an employer matching
contribution equal to 100 percent of the participant’s contribution, subject to a limit of 5 percent of the
participant’s annual salary. Stratus’ policy is to make an additional safe harbor contribution equal to 3 percent of
each participant’s total compensation. The 401(k) plan also provides for discretionary contributions. Stratus’
contributions to the 401(k) plan totaled $0.5 million in 2010 and $0.4 million in 2009.
50
9. Commitments and Contingencies
Construction Contracts. Stratus had commitments under noncancelable construction contracts totaling $15.2
million at December 31, 2010. These commitments include the following contracts:
• $221.7 million in contracts in connection with architectural, design, engineering, construction and testing
for the W Austin Hotel & Residences project with a remaining balance of $14.1 million at December 31,
2010;
• Contracts totaling $5.5 million for infrastructure work in connection with new residential subdivisions,
MUDs and general development at Barton Creek, and Parkside Village at Circle C with a remaining
balance of $1.1 million at December 31, 2010.
At December 31, 2010, Stratus guarantees $1.4 million of the $8.2 million of outstanding debt at Crestview
Station (see Note 5). Stratus also had guarantees related to the W Austin Hotel & Residences project (see Note
2).
Letters of Credit. As of December 31, 2010, Stratus had outstanding letters of credit totaling $2.9 million under
its revolving credit facility with Comerica.
Rental Income. As of December 31, 2010, Stratus’ minimum rental income, which includes scheduled rent
increases, under noncancelable long-term leases which extend through 2025, total $3.4 million in 2011, $3.4
million in 2012, $2.6 million in 2013, $2.2 million in 2014, $1.8 million in 2015 and $4.5 million thereafter.
Operating Lease. As of December 31, 2010, Stratus’ minimum annual contractual payments under its
noncancelable long-term operating leases which expire in 2013 and 2015 total $0.1 million in 2011 and 2012,
and less than $0.1 million in 2013, 2014 and 2015. Total expense under Stratus’ operating leases amounted to
$0.3 million in 2010 and 2009.
Circle C Settlement. On August 1, 2002, the City of Austin (the City) granted final approval of a development
agreement (the Circle C settlement) and permanent zoning for Stratus’ real estate located within the Circle C
community in southwest Austin. The Circle C settlement firmly established all essential municipal development
regulations applicable to Stratus’ Circle C properties for thirty years. Those approvals permitted development of
1.0 million square feet of commercial space, 900 multi-family units and 830 single-family residential lots. In
2004, Stratus amended its Circle C settlement with the City to increase the amount of permitted commercial
space from 1.0 million square feet to 1.16 million square feet in exchange for a decrease in allowable multi-
family units from 900 units to 504 units. The City also provided Stratus $15 million of development fee credits,
which are in the form of Credit Bank capacity, in connection with its future development of its Circle C and other
Austin-area properties for waivers of fees and reimbursement for certain infrastructure costs. In addition, Stratus
can elect to sell up to $1.5 million of the incentives per year to other developers for their use in paying City fees
related to their projects as long as the projects are within the desired development zone, as defined within the
Circle C settlement. To the extent Stratus sells the incentives to other developers, Stratus recognizes the
income from the sale when title is transferred and compensation is received. As of December 31, 2010, Stratus
has permanently used $9.5 million of its City-based development fee credits, including cumulative amounts sold
to third parties totaling $4.5 million. Fee credits used for the development of Stratus’ properties effectively
reduce the basis of the related properties and defer recognition of any gain associated with the use of the fees
until the affected properties are sold. Stratus also has $1.9 million in Credit Bank capacity in use as temporary
fiscal deposits as of December 31, 2010. Available Credit Bank capacity was $3.6 million at December 31,
2010.
Environmental Regulations. Stratus has made, and will continue to make, expenditures for protection of the
environment. Increasing emphasis on environmental matters can be expected to result in additional costs, which
will be charged against Stratus’ operations in future periods. Present and future environmental laws and
regulations applicable to Stratus’ operations may require substantial capital expenditures that could adversely
affect the development of its real estate interests or may affect its operations in other ways that cannot be
accurately predicted at this time.
Litigation. Stratus may from time to time be involved in various legal proceedings of a character normally
incident to the ordinary course of its business. Stratus believes that potential liability from any of these pending
51
or threatened proceedings will not have a material adverse effect on Stratus’ financial condition or results of
operations.
10. Business Segments
Stratus currently has three operating segments, Real Estate Operations, Commercial Leasing and, beginning in
2010, Hotel Operations. The Real Estate Operations segment is comprised of all Stratus’ residential real estate
(developed, under development and undeveloped) in Austin, Texas, which consists of its properties in the
Barton Creek community, the Circle C community and Lantana, and the condominium units at the W Austin
Hotel & Residences project.
The Commercial Leasing segment includes the two office buildings at 7500 Rialto Boulevard, office and retail
space at the W Austin Hotel & Residences project, a retail building and a bank building in Barton Creek Village
and two retail buildings and a bank building in the Circle C community.
The Hotel Operations segment includes the W Austin Hotel, which began operations in December 2010.
Stratus uses operating income or loss to measure the performance of each segment. Stratus allocates general
and administrative expenses among the segments based on projected annual revenues for each segment.
Stratus also allocates the W Austin Hotel & Residences project’s capital expenditures and assets among the
segments based on projected cost of construction for each segment. Accordingly, the following segment
information reflects management’s determinations that may not be indicative of what actual financial
performance of each segment would be if it were an independent entity.
Segment data presented below were prepared on the same basis as Stratus’ consolidated financial statements.
Real Estate
Operationsa
Commercial
Leasing
Hotel
Operations
Other
Total
Year Ended December 31, 2010:
Revenues
Cost of sales, excluding depreciation
Depreciation
General and administrative expenses
Operating loss
Capital expenditures
Total assets at December 31, 2010
Year Ended December 31, 2009:
Revenues
Cost of sales, excluding depreciation
Depreciation
General and administrative expenses
Operating loss
Capital expenditures
Total assets at December 31, 2009
$
$
$
$
$
$
$
$
3,286 $
(3,104 )
(199 )
(3,705 )
(3,722 ) $
56,027 $
245,650 $
6,257 $
(8,277 )
(232 )
(4,784 )
(7,036 ) $
44,239 $
200,730 $
5,045 $
(2,885 )
(1,393 )
(2,821 )
(2,054 ) $
6,153 $
49,764 $
4,528 $
(3,078 )
(1,402 )
(2,890 )
(2,842 ) $
4,025 $
45,309 $
792 $
(3,733 )
(294 )
-
(3,235 ) $
53,233 $
116,553 $
- $
-
-
-
- $
24,868 $
51,536 $
-
$
(699 )b
-
-
(699 ) $
16,507 c $
43,219 c $
$
-
-
-
-
$
-
10,374 c $
31,015 c,d $
9,123
(10,421 )
(1,886 )
(6,526 )
(9,710 )
131,920
455,186
10,785
(11,355 )
(1,634 )
(7,674 )
(9,878 )
83,506
328,590
Includes sales commissions, management fees and other revenues together with related expenses.
a.
b. Primarily includes personnel and marketing costs for the entertainment venue at the W Austin Hotel & Residences
project.
c. Primarily includes capital expenditures and assets associated with the entertainment venue at the W Austin Hotel &
Residences project.
Includes net deferred tax assets totaling $8.4 million (see Note 7).
d.
52
11. Subsequent Events
On February 28, 2011, Stratus entered into a joint venture with Moffett Holdings, LLC. (Moffett) for the
development of Parkside Village, a 92,440-square-foot retail project in Circle C community. The project consists
of a 33,650-square-foot full-service movie theater and restaurant, a 13,890-square-foot medical clinic office,
three tilt-wall retail buildings at 14,775 square feet, 10,600 square feet and 8,075 square feet, and two pads
available for ground leases or build-to-suit retail or restaurant uses. Stratus’ initial capital contributions to the
joint venture totaled $3.1 million, which consisted of a 23.03 acre tract of land located in Austin, Texas, the
related property and development agreements for the land and other project costs incurred by Stratus before
February 28, 2011. Moffett made initial capital contributions to the joint venture totaling $1.0 million and will
make additional capital contributions, as necessary, to fund the development of the project up to $2.8 million.
Stratus evaluated events after December 31, 2010, and through the date the financial statements were issued,
and determined any events or transactions occurring during this period that would require recognition or
disclosure are appropriately addressed in these financial statements.
53
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable.
Evaluation of disclosure controls and procedures. Our chief executive officer and chief financial officer,
Item 9A. Controls and Procedures
(a)
with the participation of management, have evaluated the effectiveness of our “disclosure controls and
procedures” (as defined in Rules 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934) as of the
end of the period covered by this annual report on Form 10-K. Based on their evaluation, they have concluded
that our disclosure controls and procedures are effective as of the end of the period covered by this report.
Changes in internal controls. There has been no change in our internal control over financial reporting
(b)
that occurred during the quarter ended December 31, 2010, that has materially affected, or is reasonably likely
to materially affect our internal control over financial reporting.
(c)
Statements and Supplementary Data.”
Management's annual report on internal control over financial reporting is included in Item 8. “Financial
Item 9B. Other Information
Not applicable.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Information required by this item will be contained in our definitive proxy statement to be filed with the SEC
pursuant to Regulation 14A relating to our 2011 annual meeting of stockholders and is incorporated herein by
reference. The information required by Item 10. regarding our executive officers appears in a separately
captioned heading after Item 4. in Part I of this report on Form 10-K.
Item 11. Executive Compensation
Information required by this item will be contained in our definitive proxy statement to be filed with the SEC
pursuant to Regulation 14A relating to our 2011 annual meeting of stockholders and is incorporated herein by
reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Information required by this item will be contained in our definitive proxy statement to be filed with the SEC
pursuant to Regulation 14A relating to our 2011 annual meeting of stockholders and is incorporated herein by
reference.
54
Equity Compensation Plan Information as of December 31, 2010
We have equity compensation plans pursuant to which our common stock may be issued to employees and
non-employees as compensation. All of our outstanding equity compensation plans were previously approved
by our stockholders, and only three of these plans had shares available for grant as of December 31, 2010: the
2010 Stock Incentive Plan, the 2002 Stock Incentive Plan and the 1996 Stock Option Plan for Non-Employee
Directors. The following table presents information regarding these equity compensation plans as of December
31, 2010:
Number of Securities
To be Issued Upon
Exercise of
Outstanding Options,
Warrants and Rights
(a)
Weighted-Average
Exercise Price of
Outstanding Options,
Warrants and Rights
(b)
Number of Securities
Remaining Available for
Future Issuance Under
Equity Compensation Plans
(Excluding Securities
Reflected in Column (a))
(c)
151,500
$
–
151,500
17.19
–
17.19
143,559
–
143,559
Equity compensation plans
approved by security holders
Equity compensation plans not
approved by security holders
Total
_______________
(1)
(2)
The number of securities to be issued upon the exercise of outstanding options, warrants and rights
includes shares issuable upon the vesting of 58,000 restricted stock units. These awards are not
reflected in column (b) as they do not have an exercise price.
As of December 31, 2010, there were 140,000 shares remaining available for future issuance to Stratus
employees and non-employee directors under the 2010 Stock Incentive Plan, all of which could be
issued pursuant to awards of stock options, stock appreciation rights, restricted stock, restricted stock
units or "other stock-based awards." In addition, there were 1,059 shares remaining available for future
issuance under the 2002 Stock Incentive Plan, all of which could be issued pursuant to awards of stock
options or stock appreciation rights, and only 263 of which could be issued pursuant to awards of
restricted stock, restricted stock units or "other stock-based awards." Finally, there were 2,500 shares
remaining available for future issuance of stock options to our non-employee directors under the 1996
Stock Option Plan for Non-Employee Directors.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Information required by this item will be contained in our definitive proxy statement to be filed with the SEC
pursuant to Regulation 14A relating to our 2011 annual meeting of stockholders and is incorporated herein by
reference.
Item 14. Principal Accounting Fees and Services
Information required by this item will be contained in our definitive proxy statement to be filed with the SEC
pursuant to Regulation 14A relating to our 2011 annual meeting of stockholders and is incorporated herein by
reference.
55
PART IV
Item 15. Exhibits, Financial Statement Schedules
(a)(1). Financial Statements.
Consolidated Balance Sheets, page 33.
Consolidated Statements of Operations, page 34.
Consolidated Statements of Cash Flows, page 35.
Consolidated Statements of Equity, page 36.
(a)(2). Financial Statement Schedule.
Schedule III-Real Estate, Commercial Leasing Assets and Facilities and Accumulated Depreciation, page F-2.
(a)(3). Exhibits.
Reference is made to the Exhibit Index beginning on page E-1 hereof.
56
Pursuant to the requirements of Section 13 or 15(d) 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.
SIGNATURES
STRATUS PROPERTIES INC.
By: /s/ William H. Armstrong III
William H. Armstrong III
Chairman of the Board, President
and Chief Executive Officer
Date: March 31, 2011
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Chairman of the Board, President
and Chief Executive Officer
(Principal Executive Officer)
Senior Vice President
and Chief Financial Officer
(Principal Financial Officer)
Vice President and Controller
(Principal Accounting Officer)
Director
Director
Director
/s/ William H. Armstrong III
William H. Armstrong III
*
Erin D. Pickens
*
C. Donald Whitmire, Jr.
*
James C. Leslie
*
Michael D. Madden
*
Bruce G. Garrison
*By:
/s/ William H. Armstrong III
William H. Armstrong III
Attorney-in-Fact
Date: March 31, 2011
S-1
STRATUS PROPERTIES INC.
INDEX TO FINANCIAL STATEMENTS
The schedule listed below should be read in conjunction with the financial statements of Stratus
contained elsewhere in this Annual Report on Form 10-K.
Schedule III-Real Estate, Commercial Leasing Assets
and Facilities and Accumulated Depreciation
Page
F-2
Schedules other than the one listed above have been omitted since they are either not required, not
applicable or the required information is included in the financial statements or notes thereto.
F-1
STRATUS PROPERTIES INC.
REAL ESTATE, COMMERCIAL LEASING ASSETS AND FACILITIES AND ACCUMULATED DEPRECIATION
December 31, 2010
(In Thousands, except Number of Lots and Acres)
SCHEDULE III
Real Estate Held for Salea
Barton Creek, Austin, TX
Circle C, Austin, TX
Real Estate Under Developmentb,c
Barton Creek, Austin, TX
Circle C, Austin, TX
W Austin Hotel & Residences, Austin, TXd
Land Held for Future Developmentc,e
Camino Real, San Antonio, TX
Barton Creek, Austin, TX
Circle C, Austin, TX
Lantana, Austin, TX
Real Estate Held for Investmentb,c
W Austin Hotel & Residences, Austin, TXf
Barton Creek Village, Austin, TXg
7500 Rialto Boulevard, Austin, TXh
5700 Slaughter, Austin, TXi
Corporate offices, Austin ,TX
Initial Cost
Land
Bldg. and
Improvements
Cost
Capitalized
Subsequent to
Acquisitions
Gross Amounts at
December 31, 2010
Land
Bldg. and
Improvements
Number of Lots
and Acres
Total
Lots
Accumulated
Acres Depreciation Acquired
Year
$
897 $
464
- $
-
24,162 $ 25,059 $
1,789
2,253
- $ 25,059
2,253
-
120
21
- $
-
10,539
1,426
10,233
16
7,321
6,277
463
4,875
55
208
969
-
$ 43,743 $
-
-
-
-
-
-
-
111,040
6,360
20,852
4,897
809
143,958 $
12,454
1,633
152,772
22,993
3,059
10,233
-
-
22,993
3,059
152,772 163,005
(16)
20,485
8,489
14,787
-
27,806
14,766
15,250
-
-
-
-
-
4,875
55
208
969
-
236,555 $ 127,526 $
-
-
-
-
-
27,806
14,766
15,250
111,040 115,915
6,415
21,060
5,866
809
296,730 $ 424,256
6,360
20,852
4,897
809
-
-
-
-
-
-
-
-
-
-
-
-
141
617
23
2
2
809
495
223
-
-
-
-
-
2,171 $
-
-
-
-
-
-
-
-
-
324
777
5,020
464
431
7,016
1988
1992
1988
1992
2006
1990
1988
1992
1994
2006
2007
2002
2008
N/A
Includes the condominium residences, office, retail and entertainment portions of the W Austin Hotel & Residences project.
Includes individual tracts of land that have been developed and permitted for residential use or developed lots with homes already built on them.
Includes real estate that is currently being developed or has received the necessary permits to be developed.
a.
b.
c. See Note 6 included in Item 8. of this Form 10-K for description of assets securing debt.
d.
e. Undeveloped real estate that can be sold “as is” or will be developed in the future as additional permitting is obtained.
f. Consists of a 251-room hotel at the W Austin Hotel & Residences project.
g. Consists of a 22,000-square-foot retail complex representing phase one of Barton Creek Village and a 3,300-square-foot bank building.
h. Consists of two 75,000-square-foot office buildings at 7500 Rialto Boulevard (7500 Rialto) located in our Lantana development.
i. Consists of two retail buildings totaling 21,000 square feet and a 4,000-square-foot bank building at the 5700 Slaughter retail complex in Circle C.
F-2
STRATUS PROPERTIES INC.
Notes to Schedule III
(1) Reconciliation of Real Estate, Commercial Leasing Assets and Facilities:
The changes in real estate, commercial leasing assets and facilities for the years ended December 31,
2010 and 2009 are as follows (in thousands):
Balance, beginning of year
Improvements and other
Cost of real estate sold
Balance, end of year
2010
2009
$
$
290,342 $
135,985
(2,071 )
424,256 $
205,517
88,477
(3,652 )
290,342
The aggregate net book value for federal income tax purposes as of December 31, 2010 was $426.5
million.
(2) Reconciliation of Accumulated Depreciation:
The changes in accumulated depreciation for the years ended December 31, 2010 and 2009 are as
follows (in thousands):
Balance, beginning of year
Retirement of assets
Depreciation expense
Balance, end of year
2010
2009
$
$
6,476 $
(1,346 )
1,886
7,016 $
5,118
(276 )
1,634
6,476
Depreciation of buildings and improvements is calculated over estimated lives of 30 to 40 years.
F-3
STRATUS PROPERTIES INC.
EXHIBIT INDEX
Exhibit
Number
3.1
Composite Certificate of Incorporation of Stratus.
Exhibit Title
Filed with
this Form
10-K
Incorporated by Reference
Form
8-A
File No.
000-19989
Date Filed
08/26/2010
3.2
By-laws of Stratus, as amended as of November 6,
10-Q
000-19989
08/11/2008
2007.
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.
8-A
000-19989
05/23/2002
4.2
Amendment No. 1 to Rights Agreement between
8-K
000-19989
11/14/2003
Stratus Properties Inc. and Mellon Investor Services
LLC, as Rights Agent, dated as of November 7, 2003.
10.1
Loan Agreement by and between CJUF II Stratus
10-Q
000-19989
05/17/2010
Block 21 LLC and Hunter’s Glen/Ford Investments I
LLC effective as of March 31, 2010.
10.2
Promissory Note by and between CJUF II Stratus
10-Q
000-19989
05/17/2010
Block 21 LLC and Hunter’s Glen/Ford Investments I
LLC effective as of March 31, 2010.
10.3
Profits Interest Agreement by and between CJUF II
10-Q
000-19989
05/17/2010
Stratus Block 21 LLC and Hunter’s Glen/Ford
Investments I LLC effective as of March 31, 2010.
10.4
10.5
Fourth Modification and Extension Agreement by and
between Stratus Properties Inc., Stratus Properties
Operating Co., L.P., Circle C Land, L.P., Austin 290
Properties, Inc., Calera Court, L.P., Oly Stratus Barton
Creek I Joint Venture and Comerica Bank effective as
of March 31, 2010.
Loan Agreement by and between Stratus Properties
Inc., Stratus Properties Operating Co., L.P., Circle C
Land, L.P., Austin 290 Properties, Inc., Calera Court,
L.P., and Comerica Bank dated as of September 30,
2005.
10-K
000-19989
05/17/2010
8-K
000-19989
10/05/2005
10.6
Revolving Promissory Note by and between Stratus
8-K
000-19989
10/05/2005
Properties Inc., Stratus Properties Operating Co., L.P.,
Circle C Land, L.P., Austin 290 Properties, Inc., Calera
Court, L.P., and Comerica Bank dated as of
September 30, 2005.
10.7
Note Modification Agreement by and among CJUF II
Stratus Properties Inc., Stratus, Canyon-Johnson
Urban Fund II LP and Beal Bank Nevada effective as
of June 30, 2010.
10-Q
000-19989
08/16/2010
10.8
Amended and Restated Construction Loan Agreement
10-Q
000-19989
11/06/2009
dated October 21, 2009, by and between CJUF II
Stratus Block 21 LLC and Beal Bank Nevada.
E-1
Exhibit
Number
10.9
10.10
Exhibit Title
Amended and Restated Promissory Note dated
October 21, 2009, by and between CJUF II Stratus
Block 21 LLC and Beal Bank Nevada.
Assignment and Assumption of Note, Mortgage and
Other Loan Documents dated June 26, 2009, by and
between Corus Bank, N.A. and Stratus Partnership
Investments, L.P.
Filed with
this Form
10-K
Incorporated by Reference
Form
10-Q
File No.
000-19989
Date Filed
11/06/2009
10-Q
000-19989
08/10/2009
10.11
Construction Loan Agreement dated May 2, 2008, by
10-Q
000-19989
08/11/2008
and between CJUF II Stratus Block 21 LLC and Corus
Bank, N.A.
10.12
Promissory Note dated May 2, 2008, by and between
CJUF II Stratus Block 21 LLC and Corus Bank, N.A.
10-Q
000-19989
08/11/2008
10.13
Loan Modification Agreement by and between Stratus
10-Q
000-19989
05/17/2010
Properties Inc. and American Strategic Income
Portfolio Inc.-II effective as of March 31, 2010.
10.14
Amended and Restated Loan Agreement between
10-K
000-19989
03/16/2007
Stratus Properties Inc. and American Strategic Income
Portfolio Inc.-II dated as of December 12, 2006.
10.15
Loan Agreement dated December 28, 2000, by and
10-K
000-19989
03/28/2001
between Stratus Properties Inc. and Holliday Fenoglio
Fowler, L.P., subsequently assigned to an affiliate of
First American Asset Management.
10.16
Loan Modification Agreement by and between Stratus
10-Q
000-19989
05/17/2010
Properties Inc. and American Select Portfolio Inc.
effective as of March 31, 2010.
10.17
Amended and Restated Loan Agreement between
10-K
000-19989
03/16/2007
Stratus Properties Inc. and American Select Portfolio
Inc. dated as of December 12, 2006.
10.18
Loan Agreement dated June 14, 2001, by and
10-Q
000-19989
11/13/2001
between Stratus Properties Inc. and Holliday Fenoglio
Fowler, L.P., subsequently assigned to American
Select Portfolio Inc. an affiliate of First American Asset
Management.
10.19
Construction Loan Agreement dated June 11, 2001,
between 7500 Rialto Boulevard, L.P. and Comerica
Bank-Texas.
10-K
000-19989
03/22/2002
10.20
Modification Agreement dated January 31, 2003, by
10-Q
000-19989
05/15/2003
and between Lantana Office Properties I, L.P.,
formerly 7500 Rialto Boulevard, L.P., and Comerica
Bank-Texas.
10.21
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.
10-K
000-19989
3/30/2004
10.22
Guaranty Agreement dated June 11, 2001, by Stratus
10-K
000-19989
03/22/2002
Properties Inc. in favor of Comerica Bank-Texas.
E-2
Exhibit
Number
10.23
Exhibit Title
Promissory Note dated as of December 14, 2007,
between Lantana Office Properties I, L.P., as
borrower, and The Lincoln National Life Insurance
Company, as lender.
10.24
Development Agreement dated August 15, 2002,
between Circle C Land Corp. and City of Austin.
10.25
Agreement of Sale and Purchase dated November 23,
2005, by and between Stratus Properties Operating
Co., L.P., as Seller, and Advanced Micro Devices, Inc.,
as Purchaser.
Filed with
this Form
10-K
Incorporated by Reference
Form
8-K
File No.
000-19989
Date Filed
12/14/2007
10-Q
000-19989
11/14/2002
10-Q
000-19989
05/10/2006
10.26
First Amendment to Agreement of Sale and Purchase
10-Q
000-19989
05/10/2006
dated April 26, 2006, by and between Stratus
Properties Operating Co., L.P., as Seller, and
Advanced Micro Devices, Inc., as Purchaser.
10.27
Loan Modification Agreement by and between Stratus
10-Q
000-19989
05/17/2010
Properties Inc. and American Strategic Income
Portfolio Inc.-II effective as of March 31, 2010.
10.28
Loan Agreement between Stratus Properties Inc. and
Holliday Fenoglio Fowler, L.P. dated as of December
12, 2006, subsequently assigned to American
Strategic Income Portfolio Inc.-II.
10-K
000-19989
03/16/2007
10.29
Loan Modification Agreement by and between Stratus
10-Q
000-19989
05/17/2010
Properties Inc. and American Strategic Income
Portfolio Inc.-III effective as of March 31, 2010.
10.30
Loan Agreement between Stratus Properties Inc. and
Holliday Fenoglio Fowler, L.P. dated as of December
12, 2006, subsequently assigned to American
Strategic Income Portfolio Inc.-III.
10.31
Letter Agreement between Stratus Properties Inc. and
Canyon-Johnson Urban Fund II, L.P., dated as of May
4, 2007.
10-K
000-19989
03/16/2007
10-Q
000-19989
08/09/2007
10.32
Loan Modification Agreement by and between Stratus
10-Q
000-19989
05/17/2010
Properties Inc. and American Select Portfolio Inc.
effective as of March 31, 2010.
10.33
Loan Agreement between Stratus Properties Inc. and
Holliday Fenoglio Fowler, L.P. dated as of June 1,
2007, subsequently assigned to American Select
Portfolio Inc., an affiliate of First American Asset
Management.
10-Q
000-19989
08/09/2007
10.34
Loan Modification Agreement by and between Stratus
10-Q
000-19989
05/17/2010
Properties Inc. and American Strategic Income
Portfolio Inc. effective as of March 31, 2010.
10.35
Loan Agreement between Stratus Properties Inc. and
Holliday Fenoglio Fowler, L.P. dated as of June 1,
2007, subsequently assigned to American Strategic
Income Portfolio Inc., an affiliate of First American
Asset Management.
10-Q
000-19989
08/09/2007
E-3
Exhibit
Number
10.36
10.37
Exhibit Title
Loan Modification Agreement by and between Stratus
Properties Inc. and American Strategic Income
Portfolio Inc.-III effective as of March 31, 2010.
Loan Agreement between Stratus Properties Inc. and
Holliday Fenoglio Fowler, L.P. dated as of June 1,
2007, subsequently assigned to American Strategic
Income Portfolio Inc.-III, an affiliate of First American
Asset Management.
Filed with
this Form
10-K
Incorporated by Reference
Form
10-Q
File No.
000-19989
Date Filed
05/17/2010
10-Q
000-19989
08/09/2007
10.38*
Stratus 2010 Stock Incentive Plan
8-K
000-19989
08/12/2010
10.39*
Form of Notice of Grant of Nonqualified Stock Options
under the 2002 and 2010 Stock Incentive Plans
(adopted February 2011).
10.40*
Form of Notice of Grant of Restricted Stock Units
under the 2002 and 2010 Stock Incentive Plans
(adopted February 2011).
X
X
10.41*
Stratus’ Performance Incentive Awards Program, as
10-Q
000-19989
05/05/2009
amended, effective December 30, 2008.
10.42*
Stratus Properties Inc. Stock Option Plan, as amended
10-Q
000-19989
05/10/2007
and restated.
10.43*
Stratus Properties Inc. 1996 Stock Option Plan for
Non-Employee Directors, as amended and restated.
10-Q
000-19989
05/10/2007
10.44*
Stratus Properties Inc. 1998 Stock Option Plan, as
10-Q
000-19989
05/10/2007
amended and restated.
10.45*
Form of Notice of Grant of Nonqualified Stock Options
10-Q
000-19989
8/12/2005
under the 1998 Stock Option Plan.
10.46*
Form of Restricted Stock Unit Agreement under the
10-Q
000-19989
05/10/2007
1998 Stock Option Plan.
10.47*
Stratus Properties Inc. 2002 Stock Incentive Plan, as
10-Q
000-19989
05/10/2007
amended and restated.
10.48*
Form of Notice of Grant of Nonqualified Stock Options
10-Q
000-19989
08/12/2005
under the 2002 Stock Incentive Plan.
10.49*
Form of Restricted Stock Unit Agreement under the
10-Q
000-19989
05/10/2007
2002 Stock Incentive Plan.
10.50*
Stratus Director Compensation.
10.51*
Change of Control Agreement between Stratus
Properties Inc. and William H. Armstrong III, effective
as of March 9, 2010.
10.52*
Change of Control Agreement between Stratus
Properties Inc. and Erin D. Pickens, effective as of
March 9, 2010.
14.1
Ethics and Business Conduct Policy.
21.1
List of subsidiaries.
23.1
Consent of BKM Sowan Horan, LLP.
X
X
X
E-4
8-K
000-19989
03/12/2010
8-K
000-19989
03/12/2010
10-K
000-19989
03/30/2004
Exhibit
Number
23.2
24.1
Consent of TravisWolff, LLP.
Exhibit Title
Certified resolution of the Board of Directors of Stratus
authorizing this report to be signed on behalf of any
officer or director pursuant to a Power of Attorney.
24.2
Power of attorney pursuant to which a report has been
signed on behalf of certain officers and directors of
Stratus.
31.1
Certification of Principal Executive Officer pursuant to
Rule 13a-14(a)/15d-14(a).
31.2
Certification of Principal Financial Officer pursuant to
Rule 13a-14(a)/15d-14(a).
32.1
Certification of Principal Executive Officer pursuant to
18 U.S.C. Section 1350.
32.2
Certification of Principal Financial Officer pursuant to
18 U.S.C. Section 1350.
_______________________
Filed with
this Form
10-K
X
Incorporated by Reference
Form
File No.
Date Filed
X
X
X
X
X
X
Note: Certain instruments with respect to long-term debt of Stratus have not been filed as exhibits to this Annual Report on
Form 10-K since the total amount of securities authorized under any such instrument does not exceed 10 percent of the
total assets of Stratus and its subsidiaries on a consolidated basis. Stratus agrees to furnish a copy of each such
instrument upon request of the Securities and Exchange Commission.
* Indicates management contract or compensatory plan or arrangement.
E-5