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GraingerUNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549 FORM 10-K (Mark One)[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2013OR[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from to Commission File Number: 000-19989Stratus Properties Inc.(Exact name of registrant as specified in its charter)Delaware72-1211572(State or other jurisdiction ofincorporation or organization)(I.R.S. Employer Identification No.) 212 Lavaca St., Suite 300 Austin, Texas78701(Address of principal executive offices)(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 registeredCommon Stock, par value $0.01 per share NASDAQPreferred Stock Purchase Rights NASDAQSecurities registered pursuant to Section 12(g) of the Act: NoneIndicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. o Yes NoIndicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. o Yes NoIndicate 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 of1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days. Yes o NoIndicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data Filerequired to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or forsuch shorter period that the registrant was required to submit and post such files). Yes o NoIndicate 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 PartIII of this Form 10-K or any amendment to this Form 10-K. oIndicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reportingcompany. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. oLarge accelerated filer o Accelerated filer o Non-accelerated filer Smaller reporting companyIndicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). o Yes NoThe aggregate market value of common stock held by non-affiliates of the registrant was approximately $84.4 million on March 14, 2014, andapproximately $58.7 million on June 28, 2013.Common stock issued and outstanding was 8,055,168 shares on March 14, 2014, and 8,067,991 shares on June 28, 2013.DOCUMENTS INCORPORATED BY REFERENCEPortions of our proxy statement for our 2014 annual meeting of stockholders are incorporated by reference into Part III (Items 10, 11, 12, 13 and 14)of this report. STRATUS PROPERTIES INC.TABLE OF CONTENTS Page Part I1Items 1. and 2. Business and Properties1Overview1Business Strategy and Related Risks2Properties2Discontinued Operations2Competition2Credit Facility and Other Financing Arrangements2Regulation and Environmental Matters2Employees2Item 1A. Risk Factors2Item 3. Legal Proceedings2Item 4. Mine Safety Disclosures2 Executive Officers of the Registrant2 Part II2Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities2Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations3Item 8. Financial Statements and Supplementary Data16Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure22Item 9A. Controls and Procedures22Item 9B. Other Information22 Part III22Item 10. Directors, Executive Officers and Corporate Governance22Item 11. Executive Compensation22Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters22Item 13. Certain Relationships and Related Transactions, and Director Independence22Item 14. Principal Accounting Fees and Services22 Part IV22Item 15. Exhibits, Financial Statement Schedules22 SignaturesS-1 Index to Financial StatementsF-1 Exhibit IndexE-1PART IItems 1. and 2. Business and PropertiesExcept as otherwise described herein or the context otherwise requires, all references to “Stratus,” “we,” “us” and “our” in this Form10-K refer to Stratus Properties Inc. and all entities owned or controlled by Stratus Properties Inc. All of our periodic reports filed withthe United States (U.S.) Securities and Exchange Commission (SEC) pursuant to Section 13(a) or 15(d) of the Securities ExchangeAct of 1934, as amended, including our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K andany amendments to those reports are available, free of charge, through our website, www.stratusproperties.com, or by submitting awritten request via mail to Stratus Investor Relations, 212 Lavaca St., Suite 300, Austin, Texas 78701. These reports andamendments are available through our website as soon as reasonably practicable after we electronically file or furnish such materialto the SEC.All references to “Notes” herein refer to the Notes to Consolidated Financial Statements located in Part II, Item 8. of this Form 10-K.Overview We are engaged in the acquisition, development, management, operation and/or sale of commercial, hotel, entertainment, and multi- andsingle-family residential real estate properties located primarily in the Austin, Texas area. We generate revenues from sales of developedproperties, from our hotel and entertainment operations and from rental income from our commercial properties. See Note 11 for furtherdiscussion of our operating segments.Developed property sales can include condominium units at our W Austin Hotel & Residences project, an individual tract of land that hasbeen developed and permitted for residential use or a developed lot with a home already built on it. We may, on occasion, sell propertiesunder development, undeveloped properties or commercial properties, if opportunities arise that we believe will maximize overall assetvalues.Our principal executive offices are located in Austin, Texas, and our company was incorporated under the laws of Delaware on March 11,1992.Real Estate Operations. Our principal real estate holdings are in southwest Austin, Texas. The number of developed lots/units and underdevelopment or undeveloped acreage as of December 31, 2013, that comprise our principal real estate development properties are presentedin the table below. A developed lot is an individual tract of land that has been developed and permitted for residential use. Developed acreageor acreage under development includes real estate for which infrastructure work over the entire property has been completed, is currentlybeing completed or is able to be completed and necessary permits have been obtained. The undeveloped acreage shown in the table below ispresented according to anticipated uses for multi- and single-family lots and commercial development based upon our understanding of theproperties’ existing entitlements. However, there is no assurance that the undeveloped acreage will be developed because of the nature andcost of the approval and development process and market demand for a particular use. Undeveloped acreage includes real estate that can besold “as is” (i.e., no infrastructure or development work has begun on such property). Acreage Under Development Undeveloped DevelopedLots/Units SingleFamily Commercial Total SingleFamily Multi-family Commercial Total TotalAcreageAustin: Barton Creek39 166 — 166 512 327 418 1,257 1,423Circle C— 132 23 155 — 36 299 335 490Lantana— — — — — — 43 43 43Lakeway— — — — — — 31 31 31W Austin Residences9 — — — — — — — —San Antonio: Camino Real— — — — — — 2 2 2Total48 298 23 321 512 363 793 1,668 1,989The following table summarizes the estimated development potential, including 121 single family lots and 13,000 square feet of commercialspace currently under development, of our Austin-area acreage as of December 31, 2013: Single Family Multi-family Commercial (lots) (units) (gross square feet)Barton Creek219 2,074 1,604,081Lantana— — 485,000Circle C57 296 692,857Austin 290 Tract— — 20,000Total276 2,370 2,801,938Hotel. We have an agreement with Starwood Hotels & Resorts Worldwide, Inc. for the management of hotel operations at our W Austin Hotel& Residences project. The W Austin Hotel includes 251 luxury rooms and suites, a full service spa, gym, rooftop pool and 9,750 square feetof meeting space. Revenue per available room for the W Austin Hotel averaged $260 during 2013 and $232 during 2012.Entertainment. The entertainment space at the W Austin Hotel & Residences project is occupied by Austin City Limits Live at the MoodyTheater (ACL Live) and includes a live music and entertainment venue and production studio with a maximum capacity of approximately3,000 people. In addition to hosting concerts and private events, this venue is the home of Austin City Limits, a television programshowcasing popular music legends. ACL Live hosted 186 events in 2013 with an estimated attendance of 217,100, and 193 events in 2012with an estimated attendance of 219,800. As of March 17, 2014, ACL Live has events booked through December 2014.Our entertainment business also includes events hosted at other venues through our joint ventures.Commercial Leasing. Our principal commercial holdings at December 31, 2013, consisted of 39,328 square feet of office space and 18,362square feet of retail space at the W Austin Hotel & Residences project, a 22,366-square-foot retail complex and a 3,085-square-foot bankbuilding representing phase one of Barton Creek Village, two retail buildings totaling 21,248 square feet in the aggregate and a 4,450-square-foot bank building on an existing ground lease at the 5700 Slaughter retail complex in the Circle C Ranch (Circle C) community and 90,641square feet at Parkside Village, a retail project in the Circle C community. For 2013, no single commercial leasing property exceeded ten percent or more of our total assets or represented ten percent or more of ouraggregate gross revenue. Our largest commercial leasing property, Parkside Village, provided 44 percent of our 2013 commercial leasingrevenues and two percent of our 2013 total revenues.A summary of the average occupancy rates and average rentals per square foot for our total portfolio of commercial leasing properties,excluding 7500 Rialto, which was sold in February 2012, for each of the last two years follows: 2013 2012 Average occupancy87% 80% Average rentals per square foota$34.19 $33.45 a. Based on revenue for contractual rentals plus expense reimbursements for leased space.Our scheduled expirations of leased square footage as of December 31, 2013, as a percentage of total leased space follows: 2014 2015 2016 2017 2018 ThereafterTotal portfolio5% 2% 5% 6% 10% 72%For information about our operating segments see “Results of Operations” in Part II, Item 7. and Note 11. Table of ContentsBusiness Strategy and Related RisksStratus Properties Inc. was formed to hold, operate and develop the domestic real estate and oil and gas properties of our former parentcompany. We sold all of our oil and gas properties during the 1990's and have since focused solely on our real estate operations. Our overallstrategy is to enhance the value of our properties by securing and maintaining development entitlements and developing and building realestate projects on these properties for sale or investment. We also continue to review and pursue opportunities for new projects that offer thepossibility of acceptable returns and risks.Our business strategy is to create value for stockholders by methodically developing high-quality residential and commercial projects usingour existing assets and selectively pursuing new development opportunities. We believe that Austin and other Texas markets continue to bedesirable. Many of our developments are in unique locations where development approvals have historically been subject to regulatoryconstraints, making it difficult to obtain entitlements. Our Austin assets, which are located in desirable areas with significant regulatoryconstraints, are highly entitled and, as a result, we believe that through strategic planning and development, we can maximize and fullyexploit their value. Additionally, we believe our hotel sets a high standard for contemporary luxury in downtown Austin and competesfavorably with other hotels and resorts in our geographic market. Our entertainment operations provide quality live music experiences thatcreate awareness for our ACL Live venue and brand, enhancing the overall value of the W Austin Hotel & Residences project. Our currentfocus is to proceed with the development of our properties, to seek new opportunities to acquire additional properties for potential mixed-useand retail development projects, with strategic partners where beneficial, and to operate our hotel and entertainment assets.In years past, economic conditions, including the constrained capital and credit markets, negatively affected the execution of our businessplan, primarily by decreasing the pace of development to match economic and market conditions. We responded to these conditions bysuccessfully restructuring our existing debt, including reducing interest rates and extending maturities, which enabled us to preserve ourdevelopment opportunities until market conditions improved. Economic conditions have improved and we believe we have the financialflexibility (see “Capital Resources and Liquidity” under Part II, Item 7. for further discussion) to fully exploit our development opportunitiesand resources. As of December 31, 2013, we had $35 million of availability under our revolving line of credit with Comerica Bank (theComerica credit facility) and $7.1 million in cash and cash equivalents available for use in our real estate operations, excluding $1.0 millionof cash associated with the Parkside Village project and $13.2 million of cash associated with the W Austin Hotel & Residences project.During 2013, the W Austin Hotel & Residences project paid $34.8 million in total distributions to us and $40.7 million to Canyon-JohnsonUrban Fund II, L.P. (Canyon-Johnson), our joint venture partner in the W Austin Hotel & Residences project. Subsequently, in first-quarter2014, the W Austin Hotel & Residences project distributed $0.8 million to us and $1.0 million to Canyon-Johnson.Although we have upcoming debt maturities and significant recurring costs, including property taxes, maintenance and marketing, that donot vary significantly with our level of property sales, we believe we have sufficient liquidity to address our near term requirements. See Part1, Item 1A. “Risk Factors” for further discussion.PropertiesOur properties include the following:The W Austin Hotel & ResidencesIn December 2006, we acquired a two-acre city block in downtown Austin for $15.1 million to develop a multi-use project. In 2008, we enteredinto a joint venture with Canyon-Johnson for the development of the W Austin Hotel & Residences project (see Note 2). Construction of the$300 million project commenced in 2008 and is complete.In December 2010, the hotel at the W Austin Hotel & Residences project opened, and in January 2011, we began closing on sales ofcondominium units at the project. The W Austin Hotel & Residences project contains a 251-room luxury hotel, 159 residential condominiumunits, 39,328 square feet of office space, 18,362 square feet of retail space and entertainment space. As of December 31, 2013, only ninecondominium units remained unsold.Barton CreekCalera. Calera is a residential subdivision with plat approval for 155 lots. During 2004, we began construction of 16 courtyard homes atCalera Court, the 16-acre initial phase of the Calera subdivision. The second phase of Calera, Calera Drive, consisting of 53 single-familylots, many of which adjoin the Fazio Canyons Golf Course, received final plat and construction permit approval in 2005. Construction of thefinal phase, known as Verano Drive, was completed in July 2008 and includes 71 single-family lots. As of December 31, 2013, nine lots atVerano 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 sixlots with sizes ranging from approximately one to four acres, some of which adjoin the Fazio Canyons Golf Course while others are secludedlots adjacent to the Nature Conservancy of Texas. In 2008, we commenced development of Amarra Drive Phase II, which consists of 35 lotson 51 acres. Development was substantially completed in October 2008. During fourth-quarter 2013, we commenced development ofAmarra Drive Phase III, which consists of 64 lots on 166 acres. As of December 31, 2013, all Phase I lots had been sold and 30 Phase II lotsremain unsold.Mirador Estate. The Mirador subdivision consists of 34 estate lots, with each lot averaging approximately 3.5 acres in size. During 2013, we sold the final Mirador lot.Barton Creek Village. The first phase of Barton Creek Village includes a 22,366-square-foot retail complex with a 3,085-square-foot bankbuilding. As of December 31, 2013, occupancy was 100 percent for the retail complex and the bank building was leased through January2023.LantanaLantana is a partially developed, mixed-use real-estate development project. In August 2012, we sold eight of the remaining elevenundeveloped commercial tracts of land for $15.8 million. These tracts, which totaled approximately 154 acres, have entitlements forapproximately 1.1 million square feet of office space. During first-quarter 2013, we sold a 16-acre tract for $2.1 million, which hadentitlements for approximately 70,000 square feet of office space. As of December 31, 2013, we had remaining entitlements forapproximately 485,000 square feet of office and retail use on 43 acres. Regional utility and road infrastructure is in place with capacity toserve Lantana at full build-out permitted under our existing entitlements.Circle C CommunityEffective August 2002, the City of Austin (the City) granted final approval of a development agreement (the Circle C settlement), which firmlyestablished all essential municipal development regulations applicable to our Circle C properties for 30 years. The City also provided us $15million of cash incentives in connection with the 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, wemay 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 ofDecember 31, 2013, we have permanently used $11.4 million of our City-based incentives, including cumulative sales of $5.1 million toother developers. We also have $1.4 million in Credit Bank capacity in use as temporary fiscal deposits. At December 31, 2013, availableCredit Bank capacity was $2.2 million.We are developing the Circle C community based on the entitlements secured in the Circle C settlement with the City. The Circle Csettlement, as amended in 2004, permits development of 1.16 million square feet of commercial space, 504 multi-family units and 830single-family residential lots.Meridian is an 800-lot residential development at the Circle C community and in May 2013, development of the final phase of Meridian,consisting of 57 one-acre lots, commenced and is expected to be complete in first-quarter 2014.In addition, several retail sites at the Circle C community received final approvals by the City and are being developed. In 2008, wecompleted the construction of two retail buildings at 5700 Slaughter totaling 21,248 square feet in the aggregate. This retail project alsoincludes a 4,450-square-foot bank building on an existing ground lease, which expires in 2025. As of December 31, 2013, occupancy wasapproximately 91 percent for the two retail buildings.The Circle C community also includes Parkside Village, a 90,641-square-foot retail project. The project consists of a 33,650-square-foot full-service movie theater and restaurant, a 13,890-square-foot medical clinic and five other retail buildings, including a 14,926-square-footbuilding, a 10,175-square-foot building, a 7,500-square-foot building, a 5,500-square-foot building and a stand-alone 5,000-square-footbuilding. In 2011, we entered into a joint venture with Moffett Holdings, LLC (Moffett Holdings) to develop Parkside Village (see Note 3 forfurther discussion). Construction of the final two buildings at Parkside Village is expected to be completed in October 2014. As ofDecember 31, 2013, occupancy of the completed 77,641 square feet was 95 percent. Of the buildings under development, the 7,500-square-foot building is fully pre-leased, and leasing activities are ongoing for the 5,500-square-foot building.Unconsolidated AffiliatesCrestview Station. In 2005, we formed a joint venture with Trammell Crow Central Texas Development, Inc. (Trammell Crow) to acquire anapproximate 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 railline. The joint venture with Trammell Crow completed environmental remediation, which the State of Texas certified as complete in 2007,and permitting of the property. The joint venture obtained permits to develop Crestview Station as a 450-unit transit-oriented neighborhood.Crestview Station sold substantially all of its multi-family and commercial properties in 2007 and one commercial site in 2008, whileretaining the single-family component. Crestview Station has entered into an agreement to sell its remaining residential land to DR Horton.The contract provides for the sale of 304 lots over four years for a total contract price of $15.8 million. The first closing of 73 lots for $3.8million occurred in April 2012, and Crestview Station recognized gross profit on the sale of $0.4 million. The second closing of 59 lots for$3.4 million occurred in May 2013, and Crestview Station recognized gross profit on the sale of $0.7 million. At December 31, 2013, ourinvestment in the Crestview Station project totaled $3.6 million and the joint venture with Trammell Crow had $0.9 million of outstandingdebt, for which each partner has executed a joint and several guaranty of $0.2 million, or 25 percent of the outstanding balance. The thirdclosing of 59 lots for $3.5 million occurred in March 2014. We account for our 50 percent interest in the Crestview Station joint venture underthe equity method.Stump Fluff. In April 2013, Stratus formed a joint venture, Stump Fluff LLC (Stump Fluff), with Transmission Entertainment, LLC(Transmission) to own, operate, manage and sell live music and entertainment promotion, booking, production, merchandising, venueservices and other related products and services. As of December 31, 2013, Stratus' capital contributions to Stump Fluff totaled $0.8 million.Stratus will contribute additional capital to Stump Fluff as necessary to fund its working capital needs. Stratus and Transmission each have a50 percent voting interest in Stump Fluff. After Stratus is repaid its original capital contributions and a preferred return (10 percent annually) on those contributions, Stratus will receive 33 percent of any distributions from Stump Fluff and Transmission will receive 67 percent. Weaccount for our investment in Stump Fluff under the equity method.Guapo Enterprises. In May 2013, Stratus and Austin Pachanga Partners, LLC (Pachanga Partners) formed a joint venture, GuapoEnterprises LLC (Guapo) to own, operate, manage and sell the products and services of the Pachanga music festival business. As ofDecember 31, 2013, Stratus' capital contributions to Guapo totaled $0.3 million. Stratus will contribute additional capital to Guapo asnecessary to fund its working capital needs. Stratus and Pachanga Partners each have a 50 percent voting interest in Guapo. After Stratus isrepaid its original capital contributions and a preferred return (10 percent annually) on those contributions, Stratus will receive 33 percent ofany distributions from Guapo and Pachanga Partners will receive 67 percent. We account for our investment in Guapo under the equitymethod.See Note 6 for further discussion of our unconsolidated affiliates.Discontinued OperationsOn February 27, 2012, we sold 7500 Rialto to Lincoln Properties and Greenfield Partners for $27.0 million. See "Discontinued Operations"in Note 12 for further discussion.Competition We operate in highly competitive industries, namely the real estate development, hotel, entertainment venue operations and commercialleasing industries. In the real estate development industry, 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 withentities that may possess greater financial, marketing or other resources than we have. Competition for potential buyers has been intensifiedby an increase in the number of available residential properties resulting from recent weak conditions in the real estate market. Ourprospective customers generally have a variety of choices of new and existing homes and homesites when considering a purchase. Weattempt to differentiate our properties primarily on the basis of community design, quality, uniqueness, amenities, location and developerreputation.In the hotel industry, competition is generally based on quality and consistency of rooms, restaurant and meeting facilities and services,attractiveness of location, price and other factors. Management believes that we compete favorably in these areas. Our property competeswith other hotels and resorts in our geographic market, including facilities owned by local interests and facilities owned by national andinternational chains.In the entertainment industry, we compete with other venues in Austin, Texas, and venues in other markets for artists likely to perform inthe Austin, Texas region. Consequently, touring artists have several alternatives to our venue in scheduling tours. Some of our competitorsin venue management have a greater number of venues in certain markets and may have greater financial resources in those markets. Wedifferentiate our entertainment businesses by providing a quality live music experience and promoting our entertainment space throughKLRU's broadcast of Austin City Limits.The commercial leasing industry is highly fragmented among individuals, partnerships and public and private entities, with no dominantsingle entity or person. Although we may compete against large sophisticated owners and operators, owners and operators of any size canprovide effective competition for prospective tenants. We compete for tenants primarily on the basis of property location, rent charged, and thedesign and condition of improvements.Credit Facility and Other Financing ArrangementsAcquiring and maintaining adequate financing is a critical component of our business. For information about our credit facility and otherfinancing arrangements, see “Credit Facility and Other Financing Arrangements” in Part II, Item 7. and Note 7.Regulation and Environmental MattersOur 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 endangeredspecies and their habitats. Such regulation has delayed and may continue to delay development of our properties and may result in higherdevelopment and administrative costs.We have made, and will continue to make, expenditures for the protection of the environment with respect to our real estate developmentactivities. Emphasis on environmental matters will result in additional costs in the future. Based on an analysis of our operations in relationto current and presently anticipated environmental requirements, we currently do not anticipate that these costs will have a material adverseeffect on our future operations or financial condition.EmployeesAt December 31, 2013, we had a total of 37 full-time employees and 73 part-time employees located at our Austin, Texas headquarters. Webelieve we have a good relationship with our employees, none of whom are represented by a union. Since January 1, 1996, certain servicesnecessary for our business and operations, including certain administrative, financial reporting 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-McMoRanCopper & Gold Inc. Either party may terminate the services agreement at any time upon 60 days notice or earlier upon mutual writtenagreement.Item 1A. Risk FactorsThis report contains "forward-looking statements" within the meaning of U.S. federal securities laws. Forward-looking statements areall statements other than statements of historical facts, such as projections or expectations related to operational and financialperformance, reimbursements for infrastructure costs, financing and regulatory matters, development plans and sales of land, unitsand lots, commercial leasing activities, timeframes for development, construction and completion of our projects, capitalexpenditures, liquidity and capital resources, results of our business strategy, and other plans and objectives of management forfuture operations and activities. We undertake no obligation to update any forward-looking statements. Readers are cautioned thatforward-looking statements are not guarantees of future performance and our actual results may differ materially from thoseanticipated, projected or assumed in the forward-looking statements. Important factors that could cause actual results to differmaterially from our expectations include, without limitation, the following:Risks Relating to our Business and IndustriesWe need significant amounts of cash to service our debt. If we are unable to generate sufficient cash to service our debt, ourliquidity, financial condition and results of operations could be negatively affected.Our business strategy requires us to rely on cash flow from operations and our debt agreements as our primary sources of funding for ourliquidity needs. As of December 31, 2013, our outstanding debt totaled $151.3 million and our cash and cash equivalents totaled $21.3million, of which $7.1 million is available to Stratus, $13.2 million is available to the W Austin Hotel & Residences project and $1.0 million isavailable to the Parkside Village project. Our level of indebtedness could have significant 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 ourindebtedness, thus reducing the availability of cash flows to fund working capital, capital expenditures, acquisitions, investmentsand 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 financingneeds.As of December 31, 2013, we had approximately $5.9 million of debt scheduled to become due during 2014. Historically, much of our debthas been renewed or refinanced in the ordinary course of business. However, we may not in the future be able to obtain sufficient externalsources of liquidity on attractive terms, if at all, or otherwise renew, extend or refinance a significant portion of our outstanding debt scheduledto become due in the near future. In addition, there can be no assurance that we will maintain cash reserves and generate sufficient cashflow from operations in an amount sufficient to enable us to service our debt or to fund our other liquidity needs. Any of these occurrencesmay have a material, adverse effect on our liquidity, financial condition and results of operations.The terms of the agreements governing our indebtedness include restrictive covenants and require that certain financial ratios be maintained.For example, the minimum stockholders' equity covenant contained in most of our debt agreements requires us to maintain totalstockholders’ equity of no less than $110.0 million. At December 31, 2013, our total stockholders’ equity was $123.6 million and was incompliance with this covenant. Failure to comply with this covenant could result in a default that may, if not cured, accelerate the paymentunder such debt which would likely have a material adverse effect on our liquidity, financial condition and results of operations.In order to maintain compliance with the covenants in our debt agreements and carry out our business plan, we may need to raise additionalcapital through equity transactions or obtain waivers or modifications of covenants from our lenders. Such additional funding may not beavailable on acceptable terms, if at all, at such time. We also may need to incur additional indebtedness in the future in the ordinary course ofbusiness to fund our development projects and our operations. There can be no assurance that such additional financing would be availableor, if available, offered on acceptable terms. If new debt is added to current debt levels, the risks described above could intensify.A deterioration of the credit and capital markets may adversely affect our ability to obtain financing on acceptable terms, whichmay hinder or prevent us from meeting our future operational and capital needs and could have a material adverse effect on ourfinancial condition and results of operations.Disruption in the credit markets can reduce the availability and significantly increase the cost of most sources of funding. This uncertaintymay lead market participants to continue to act more conservatively. Because of these factors and the continued uncertainties that exist in theeconomy and for real estate developers in general, we cannot be certain that funding will be available if needed and, to the extent required, onacceptable terms. If funding is not available when needed, or is available only on unfavorable terms, we may be unable to meet ourobligations as they come due or be required to post collateral to support our obligations, or we may be unable to implement our developmentplan, enhance our existing projects, complete projects or otherwise take advantage of business opportunities or respond to competitivepressures, any of which could have a material adverse effect on our financial condition and results of operations. We are vulnerable to concentration risks because our operations are almost exclusive to the Austin, Texas market.Our real estate activities are almost, and our hotel and entertainment venue operations are, entirely located in Austin, Texas. Because of ourgeographic concentration and limited number of projects, our operations are more vulnerable to local economic downturns and adverseproject-specific risks than those of larger, more diversified companies. The performance of the Austin economy greatly affects our sales andconsequently the underlying values of our properties. Our geographic concentration may create increased vulnerability during regionaleconomic downturns, which can significantly affect our financial condition and results of operations.The success of our business is significantly related to general economic conditions and, accordingly, our business could beharmed by any slowdown or deterioration in the recent general economic recovery trends.Periods of economic weakness or recession, significantly rising interest rates, declining employment levels, declining demand for realestate, declining real estate values, conditions which negatively shape public perception of travel, including travel-related accidents, thefinancial condition of the airline, automotive and other transportation-related industries, or the public perception that any of these events mayoccur, may negatively affect our business. These economic conditions can result in a general decline in acquisition, disposition and leasingactivity, demand for hotel rooms and related lodging services, a general decline in the value of real estate and in rents, which in turn reducesrevenue derived from property sales and leases and hotel operations as well as revenues associated with development activities. Theseconditions also can lead to a decline in property sales prices as well as a decline in funds invested in existing commercial real estate andrelated assets and properties planned for development. In addition, during periods of economic slowdown and recession, many consumershave historically reduced their discretionary spending, and our entertainment businesses depend on discretionary consumer and corporatespending. A reduction in consumer spending historically is accompanied by a decrease in attendance at live entertainment, sporting andleisure events, which may result in reductions in ticket sales, sponsorship opportunities and our ability to generate revenue with ourentertainment businesses. During an economic downturn, investment capital is usually constrained and it may take longer for us to dispose of real estate investments.As a result, the value of our real estate investments may be reduced and we could realize losses or diminished profitability.If economic and market conditions decline, our business performance and profitability could deteriorate. If this were to occur, we could fail tocomply with certain financial covenants in our debt agreements, which would force us to seek amendments with our lenders. No assurancecan be given that we would be able to obtain any necessary waivers or amendments on satisfactory terms, if at all.Changes in weather conditions or natural disasters could adversely affect our business, financial condition and results ofoperations.Our performance may be adversely affected by weather conditions. For our real estate operations, adverse weather may delay developmentor 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 effect on our business, financial condition and results of operations. Ourcompetitors may be affected differently by such changes in weather conditions or natural disasters depending on the location of their suppliesor operations. Adverse weather conditions also may affect our live music events. Due to weather conditions, we may be required toreschedule an event to another available day, which would increase our costs for the event and could negatively affect the attendance at theevent, as well as concession and merchandise sales, which could adversely affect our financial condition and results of operations.Our insurance coverage on our properties may be inadequate to cover any losses we may incur.We maintain insurance on our properties, including property, liability, fire and extended coverage. However, there are certain types of losses,generally of a catastrophic nature, such as hurricanes and floods or acts of war or terrorism that may be uninsurable or not economicallyinsurable. We use our discretion when determining amounts, coverage limits and deductibles for insurance. These terms are determinedbased on retaining an acceptable level of risk at a reasonable cost. This may result in insurance coverage that in the event of a substantialloss would not be sufficient to pay the full current market value or current replacement cost of our lost investment. Inflation, changes inbuilding codes and ordinances, environmental considerations and other factors also may make it unfeasible to use insurance proceeds toreplace a building or other facility after it has been damaged or destroyed. Under such circumstances, the insurance proceeds we receive maybe inadequate to restore our economic position in a property.Risks Relating to Real Estate OperationsThe 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 greaterfinancial, sales, marketing and other resources than we have. Our competitors include local developers who are committed primarily toparticular markets and also national developers who acquire properties throughout the U.S. A downturn in the real estate industry couldsignificantly increase competition among developers. Increased competition could cause us to increase our selling incentives and/or reduceour prices. An oversupply of real estate properties available for sale or lease, as well as the potential significant discounting of prices by someof our competitors, may adversely affect the results of our operations.We currently participate in five joint ventures and may participate in other joint ventures in the future. We could be adverselyaffected if any of our joint venture partners would fail to fulfill their obligations or if we had disagreements with any of our jointventure partners that were not satisfactorily resolved. We currently have investments in and commitments to five joint ventures and we may participate in other joint ventures in the future. Underexisting joint venture agreements, we and our joint venture partners could be required to, among other things, provide guarantees ofobligations or contribute additional capital until specified capital contribution requirements are met and we may have little or no control overthe amount or timing of these obligations. In some circumstances, decisions of the joint venture are made by unanimous vote of thepartners. If our joint venture partners are unable or unwilling to fulfill their obligations or if we have any unresolved disagreements with ourjoint venture partners, we may be required to fulfill those obligations alone, expend additional resources to continue development of projectsor delay further construction of projects, or we may be required to write down our investments at amounts that could be significant.Our participation in our current joint ventures and/or joint ventures in the future could subject us to certain risks, other than or in addition tothe risk of non-performance and/or disagreements with our joint venture partner, which may not otherwise be present, including:•the joint venture partner may have economic, business or legal interests or goals that are inconsistent with or adverse to ourinterests 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; 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 ourexpenses and prevent us from focusing our time and effort on the business of the joint ventures or our other businesses.Our results of operations, cash flows and financial condition are greatly affected by the performance of the real estate industry.Revenue from our real estate operations segment accounted for 53 percent of our total revenue for the fiscal year ended December 31, 2013.The U.S. real estate industry is highly cyclical and is affected by changes in global, national and local economic conditions and events suchas general employment and income levels, availability of financing, interest rates, consumer confidence and overbuilding or decrease indemand for residential and commercial real estate. Our real estate activities are subject to numerous factors beyond our control, includinglocal real estate market conditions (both where our properties are located and in areas where our potential customers reside), substantialexisting and potential competition, general national, regional and local economic conditions, fluctuations in interest rates and mortgageavailability, changes in demographic conditions and changes in government regulations or requirements. The occurrence of any of theforegoing could result in a reduction or cancellation of sales and/or lower gross margins for sales. Lower than expected sales could have amaterial 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 economiccircumstances, market fundamentals, and competitive and demographic conditions. Because of the effect these factors have on real estatevalues, 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 reducedemand for our properties.Our real estate operations are dependent upon the availability and cost of mortgage financing for potential customers, to the extent theyfinance their purchases, and for buyers of the potential customers’ existing residences. Many mortgage lenders and investors in mortgageloans experienced severe financial difficulties arising from losses incurred on sub-prime and other loans originated before the downturn inthe real estate market in 2008. These factors led to a decrease in the availability of financing and an increase in the cost of financing.Weakness in the mortgage lending industry could adversely affect potential purchasers of our properties, negatively affecting demand for ourproperties.Declines in the market value of our land and developments could adversely affect our financial condition and results ofoperations. The market value of our land and our developments depend on market conditions. If real estate demand decreases below what we anticipatedwhen we acquired our properties, we may not be able to recover our investment in such property through sales or leasing, and ourprofitability may be adversely affected. If there is another economic downturn, we may have to record write-downs to the carrying values ofour properties and/or be required to sell properties at a loss.Our operations are subject to an intensive regulatory approval process and opposition from environmental groups, either orboth of which 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 aszoning and other land use issues, and subdivision, site planning and environmental issues under applicable regulations. Some of theseapprovals are discretionary. Because government agencies and special interest groups have in the past expressed concerns about ourdevelopment 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 completelyrestrict development in some areas, including areas where some of our most valuable properties are located. We have actively opposed these actions. However, because of the regulatory environment that has existed in the Austin area and the opposition of these special interestgroups, there can be no assurance that an unfavorable ruling would not have a significant long-term adverse effect on the overall value of ourproperty holdings.Our operations are subject to environmental regulation, which can change at any time and generally would result in anincrease to our costs.Real estate development is subject to state and federal environmental regulations and to possible interruption or termination because ofenvironmental 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. In1995, we received a permit from the U.S. Wildlife Service pursuant to the Endangered Species Act, which to date has allowed thedevelopment of the Barton Creek and Lantana properties free of restrictions under the Endangered Species Act related to the maintenance ofhabitat 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 federalcourt overturned a March 1997 decision by the Department of Interior not to list the Barton Springs Salamander based on a conservationagreement between the State of Texas and federal agencies. The listing of the Barton Springs Salamander has not affected, nor do weanticipate it will affect, our Barton Creek and Lantana properties for several reasons, including the results of technical studies and the U.S.Fish and Wildlife Service 10(a) permit obtained by us in 1995. The development permitted by the 2002 Circle C settlement with the City hasbeen reviewed and approved by the U.S. Fish and Wildlife Service and, as a result, we also do not anticipate that the 1997 listing of theBarton Springs Salamander will affect our Circle C properties.In January 2013, the U.S. Department of the Interior announced that it had conducted an economic assessment of the potential designationof critical habitat for four species of Central Texas salamanders. Although this potential designation of habitat has not affected, nor do weanticipate that it will affect, our Barton Creek, Lantana or Circle C properties for several reasons, including prior studies and approvals, andour existing U.S. Fish and Wildlife Service 10(a) permit obtained in 1995, future endangered species listings or habitat designations couldimpact development of our 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 existingregulations or their enforcement may be enacted and such new regulations or changes may require significant expenditures by us. Therecent trend toward stricter standards in environmental legislation and regulations is likely to continue and could have a material adverseeffect on our operating costs.Risks Relating to Hotel OperationsWe are subject to the business, financial and operating risks common to the hotel industry, any of which could reduce ourrevenues.Revenue from our hotel segment accounted for 31 percent of our total revenue for the fiscal year ended December 31, 2013. Business,financial and operating risks common to the hotel industry include:•changes in desirability of geographic regions and geographic concentration of our operations and customers;•decreases in the demand for hotel rooms and related lodging services, including a reduction in business travel as a result ofalternatives to in-person meetings (including virtual meetings hosted online or over private teleconferencing networks) or due togeneral economic conditions;•decreased corporate or governmental travel-related budgets and spending, as well as cancellations, deferrals or renegotiations ofgroup business such as industry conventions;•negative public perception of corporate travel-related activities;•the effect of internet intermediaries and other new industry entrants on pricing and our increasing reliance on technology;•the costs and administrative burdens associated with complying with applicable laws and regulations in the U.S., including health,safety and environmental laws, rules and regulations and other governmental and regulatory action;•changes in operating costs including, but not limited to, energy, water, labor costs (including the effect of labor shortages andunionization), food costs, workers’ compensation and health-care related costs, insurance and unanticipated costs such as acts ofnature and their consequences; and•cyclical over-building in the hotel industry.External perception of the W Austin Hotel could negatively affect our results of operations.Starwood Hotels & Resorts Worldwide, Inc. (“Starwood”) manages hotel operations at the W Austin Hotel. Our ability to attract and retain guests depends, in part, upon the external perceptions of Starwood and the quality of the W Austin Hotel and its services. We believe thatrecognition of the Starwood brand gives us a competitive advantage in attracting and retaining guests; however, there is a risk to thereputation of the W Austin Hotel if Starwood fails to act responsibly or comply with regulatory requirements in a number of areas, such assafety and security, sustainability, responsible tourism, environmental management, human rights and support for the local communitieswhere Starwood manages and/or owns properties. The considerable increase in the use of social media over recent years has greatlyexpanded the potential scope and scale, and increased the rapidity of the dissemination of negative publicity that could be generated by anyadverse incident or failure on the part of hotel operators. An adverse incident involving associates or guests and any media coverage resultingtherefrom, may cause a loss of consumer confidence in the Starwood brand which could negatively affect our results or operations.Our revenues, profits or market share could be harmed if we are unable to compete effectively in the hotel industry in Austin.The hotel industry is highly competitive. The W Austin Hotel competes for customers with other hotel and resort properties in Austin, rangingfrom national and international hotel brands to independent, local and regional hotel operators. We compete based on a number of factors,including quality and consistency of rooms, restaurant and meeting facilities and services, attractiveness of location, price and other factors.Some of our competitors may have substantially greater marketing and financial resources than we do, and if we are unable to successfullycompete in these areas, our operating results could be adversely affected.Increased competition in the Austin market from new hotels or hotels that have recently undergone substantial renovation couldhave an adverse effect on occupancy, average daily rate (“ADR”) and room revenue per available room (“RevPar”).Currently, the Austin market has a limited number of high-end hotel accommodations. If hotel capacity is expanded by other hotel operatorsin Austin, competition will increase which could lead to an excess supply of hotel rooms in the Austin market which could cause Starwood toincrease promotional incentives for hotel guests and/or reduce rates. Increased competition in the Austin market from new hotels or hotelsthat have recently undergone substantial renovation could have an adverse effect on occupancy, ADR and RevPar.Risks Relating to Entertainment BusinessesOur entertainment businesses are highly sensitive to public tastes and are dependent on our ability to secure popular artistsand other live music events, and we may be unable to anticipate or respond to changes in consumer preferences, which mayresult in decreased demand for our entertainment businesses.Our entertainment businesses are highly sensitive to rapidly changing public tastes and are dependent on the availability of popular artistsand events. Our entertainment businesses depend in part on our ability to anticipate the tastes of consumers and to offer events that appealto them. Since we rely on unrelated parties to perform at live music events, any unwillingness to tour or lack of availability of popular artistscould limit our ability to generate revenue. In addition, if we or an artist cancel, we may incur a loss depending on the amount of any fixedguarantee or incurred costs.We face intense competition in the live music industry, and we may not be able to maintain or increase our current revenue,which could adversely affect our business, financial condition and results of operations.Revenue from our entertainment businesses accounted for 12 percent of our total revenue for the fiscal year ended December 31, 2013. Ourentertainment businesses compete in a highly competitive industry, and we may not be able to maintain or increase our current revenue asa result of such competition. The live music industry competes with other forms of entertainment for consumers’ discretionary spending andwithin this industry we compete with other venues to book artists. Our competitors compete with us for key employees who haverelationships with popular music artists and that have a history of being able to book such artists for concerts and tours. These competitorsmay engage in more extensive development efforts, undertake more far-reaching marketing campaigns, adopt more aggressive pricingpolicies and make more attractive offers to existing and potential artists. Our competitors may develop services, advertising options or musicvenues that are equal or superior to those we provide or that achieve greater market acceptance and brand recognition than we achieve. It ispossible that new competitors may emerge and rapidly acquire significant market share.Other variables related to our entertainment businesses that could adversely affect our financial performance by, among other things, leadingto decreases in overall revenue, the number of sponsors, event attendance, ticket prices and fees or profit margins include:•an increased level of competition for advertising dollars, which may lead to lower sponsorships as we attempt to retain advertisers orwhich may cause us to lose advertisers to our competitors offering better programs that we are unable or unwilling to match;•unfavorable fluctuations in operating costs, which we may be unwilling or unable to pass through to our customers via ticket prices;•competitors’ offerings that may include more favorable terms than we do in order to obtain events for the venues they operate;•technological changes and innovations that we are unable to adopt or are late in adopting that offer more attractive entertainmentalternatives than we or other live entertainment providers currently offer, which may lead to a reduction in attendance at live events,a loss of ticket sales or lower ticket fees;•other entertainment options available to our audiences that we do not offer;•general economic conditions which could cause our consumers to reduce discretionary spending; and •unfavorable changes in labor conditions which may require us to spend more to retain and attract key employees.There is the risk of personal injuries and accidents in connection with our live music events, which could subject us topersonal injury or other claims and increase our expenses, as well as reduce attendance at our live music events, causing adecrease in our revenue.There are inherent risks involved with producing live music events. As a result, personal injuries and accidents have, and may, occur fromtime to time, which could subject us to claims and liabilities for personal injuries. Incidents in connection with our live music events at theMoody Theater or festival sites that through our joint ventures we rent could also result in claims, reducing operating income or reducingattendance at our events, which could cause a decrease in our revenue. While we maintain insurance policies that provide coverage withinlimits that are sufficient, in management’s judgment, to protect us from material financial loss for personal injuries sustained by persons atour venues or events or accidents in the ordinary course of business, there can be no assurance that such insurance will be adequate at alltimes and in all circumstances.Our revenue depends in part on the promotional success of our marketing campaigns, and there can be no assurance that suchadvertising, promotional and other marketing campaigns will be successful or will generate revenue or profits.Similar to many companies, we spend significant amounts on advertising, promotional, branding and other marketing campaigns for ourlive music venue and events. Such marketing activities include, among others, promotion of events and ticket sales, merchandise andapparel. There can be no assurance that these marketing or advertising efforts will be successful or will generate revenue or profits.Risks Relating to Commercial LeasingUnfavorable changes in market and economic conditions could negatively affect occupancy or rental rates, which couldnegatively 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 ourmarket, in turn, could significantly affect our profitability and our ability to satisfy our financial obligations. The risks that could affectconditions in our market include the following:•local conditions, such as oversupply of office space, a decline in the demand for office space or increased competition from otheravailable 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 onour operations.Risks Relating to Ownership of Shares of Our Common StockOur 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 shares of our common stock, our stock price may fluctuate significantly more than the stock marketas a whole or the stock prices of similar companies. Without a larger public float, shares of our common stock will be less liquid than theshares of common stock of companies with broader public ownership, and as a result, the trading prices for shares of our common stockmay be more volatile. Among other things, trading of a relatively small volume of shares of our common stock may have a greater effect onthe trading price than would be the case if our public float were larger.Item 3. Legal ProceedingsWe are from time to time involved in various legal proceedings of a character normally incident to the ordinary course of our business. Webelieve that potential liability from any of these pending or threatened proceedings will not have a material adverse effect on our financialcondition or results of operations. We maintain liability insurance to cover some, but not all, potential liabilities normally incident to theordinary course of our business as well as other insurance coverage customary in our business, with such coverage limits as managementdeems prudent.Item 4. Mine Safety DisclosuresNot applicable.Executive Officers of the RegistrantCertain information, as of March 17, 2014, regarding our executive officers is set forth in the following table and accompanying text. Each ofour executive officers serves at the discretion of our board of directors.Name Age Position or OfficeWilliam H. Armstrong III 49 Chairman of the Board, President and Chief Executive OfficerErin D. Pickens 52 Senior Vice President and Chief Financial OfficerMr. Armstrong has been employed by us since our inception in 1992. Mr. Armstrong has served as President since August 1996, Chief Executive Officer since May 1998 and Chairman of the Board since August 1998.Ms. Pickens has served as our Senior Vice President since May 2009 and as our Chief Financial Officer since June 2009. Ms. Pickenspreviously 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 1995until 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.PART IIItem 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity SecuritiesOur common stock trades on the The Nasdaq Stock Market (NASDAQ) under the symbol "STRS". The following table sets forth, for theperiods indicated, the range of high and low sales prices of our common stock, as reported by NASDAQ. 2013 2012 High Low High LowFirst Quarter$16.54 $8.25 $10.38 $7.86Second Quarter16.03 11.59 9.85 8.29Third Quarter14.10 11.86 9.70 6.75Fourth Quarter17.90 12.78 9.96 7.58As of March 14, 2014, there were 453 holders of record of our common stock. We have not in the past paid, and do not anticipate in the futurepaying, cash dividends on shares of our common stock. The declaration of dividends is at the discretion of our board of directors. Our currentability to pay dividends is restricted by terms of our credit facility. See Part III, Item 12. for information on our equity compensation plans. The following table sets forth information with respect to shares of our common stock that we repurchased under the board approved openmarket share purchase program during the three-month period ended December 31, 2013.Period Total Number ofSharesPurchased Average PricePaid Per Share Total Number of SharesPurchased as Part of PubliclyAnnounced Plans or Programsa Maximum Number ofShares That May Yet BePurchased Under the Plansor ProgramsaOctober 1 to 31, 2013 11,066 $13.33 11,066 31,655November 1 to 30, 2013 — — — 31,655December 1 to 31, 2013 — — — 31,655Total 11,066 $13.33 11,066 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. In November 2013, our board of directors approved an increase in the open market sharepurchase program from 0.7 million shares to 1.7 million shares of our common stock.The Comerica credit facility and our American Strategic Income Portfolio Inc. unsecured term loans, as modified, allow for purchases up to $1.5million and as of March 17, 2014, we had purchased 112,890 shares of common stock for $1.5 million under the modified agreements.2 Table of ContentsItem 7. Management’s Discussion and Analysis of Financial Condition and Results of OperationsOVERVIEWIn management’s discussion and analysis “we,” “us” and “our” refer to Stratus Properties Inc. and all entities owned or controlled byStratus Properties Inc. You should read the following discussion in conjunction with our consolidated financial statements and therelated discussion of “Business and Properties” and “Risk Factors” included elsewhere in this Form 10-K. The results of operationsreported and summarized below are not necessarily indicative of our future operating results. All references to “Notes” refer to Notesto Consolidated Financial Statements located in Part II, Item 8. “Financial Statements and Supplementary Data.”We are engaged in the acquisition, development, management, operation and/or sale of commercial, hotel, entertainment, and multi- andsingle-family residential real estate properties located primarily in the Austin, Texas area. We generate revenues from sales of developedproperties, from our hotel and entertainment operations and from rental income from our commercial properties. See Note 11 for furtherdiscussion of our operating segments.Developed property sales can include condominium units at the W Austin Hotel & Residences project, an individual tract of land that hasbeen developed and permitted for residential use or a developed lot with a home already built on it. We may, on occasion, sell propertiesunder development, undeveloped properties or commercial properties, if opportunities arise that we believe will maximize overall assetvalues.Our principal real estate holdings are in southwest Austin, Texas. The number of developed lots/units and under development orundeveloped acreage as of December 31, 2013, that comprise our principal real estate development projects are presented in the followingtable. Acreage Under Development Undeveloped DevelopedLots/Units SingleFamily Commercial Total SingleFamily Multi-family Commercial Total TotalAcreageAustin: Barton Creek39 166 — 166 512 327 418 1,257 1,423Circle C— 132 23 155 — 36 299 335 490Lantana— — — — — — 43 43 43Lakeway— — — — — — 31 31 31W Austin Residences9 — — — — — — — —San Antonio: Camino Real— — — — — — 2 2 2Total48 298 23 321 512 363 793 1,668 1,989Our principal residential holdings at December 31, 2013, included developed lots at Barton Creek and condominium units at the W AustinHotel & Residences. See "Development Activities - Residential" for further discussion. Our principal commercial holdings at December 31,2013, in addition to the W Austin Hotel & Residences, consisted of the first phase of Barton Creek Village and the 5700 Slaughter retailcomplex and Parkside Village in the Circle C community. See "Development Activities - Commercial" for further discussion.The W Austin Hotel & Residences project is located on a two-acre city block in downtown Austin and contains a 251-room luxury hotel, 159residential condominium units, and office, retail and entertainment space. The hotel is managed by Starwood Hotels & Resorts Worldwide,Inc. We have sold 150 of the residential condominium units and had the remaining nine for sale as of December 31, 2013. The office spacetotals 39,328 square feet and the retail space totals 18,362 square feet. The entertainment space, occupied by Austin City Limits Live at theMoody Theater (ACL Live), includes a live music and entertainment venue and production studio, which opened in February 2011.In 2013, our revenues totaled $127.7 million and our net income attributable to common stock totaled $2.6 million, compared with revenuesof $115.7 million and a net loss attributable to common stock of $1.6 million for 2012. The increase in revenues primarily relates to higheraverage sales prices associated with larger condominium units at the W Austin Hotel & Residences project and increased lot sales at BartonCreek. The results for 2013 include pre-tax gains of $1.9 million associated with undeveloped land sales and an insurance settlement of $1.8million, partly3 Table of Contentsoffset by a pre-tax loss on early extinguishment of debt of $1.4 million. The results for 2012 include pre-tax gains of $4.3 million associatedwith the sale of eight undeveloped tracts at Lantana and $5.1 million associated with the sale of the two office buildings at 7500 RialtoBoulevard (7500 Rialto) in February 2012 (see Note 12 for further discussion).Real Estate Market ConditionsOur financial condition and results of operations are highly dependent upon market conditions for real estate activity in Austin, Texas. Ourfuture operating cash flows and, ultimately, our ability to develop our properties and expand our business will be dependent on the level ofour real estate sales. In turn, these sales will be significantly affected by future real estate market conditions in Austin, Texas, includingdevelopment costs, interest rate levels, the availability of credit to finance real estate transactions, demand for residential and commercial realestate, and regulatory factors including our use and development entitlements. 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 inthis region significantly affect our business.In addition to the traditional influence of state and federal government employment levels on the local economy, the Austin area has beeninfluenced by growth in the technology sector. The Austin-area population increased approximately 46 percent between 1999 and 2013,largely because of an influx of technology companies and related businesses. Median family income levels in Austin also increased duringthe period from 1999 through 2012, rising 14 percent. The expanding economy resulted in rising demands for residential housing,commercial office space and retail services. Between 1999 and 2012, sales tax receipts in Austin rose by approximately 54 percent, anindication of the dramatic increase in business activity during the period. The increases in population, income levels and sales tax revenueshave 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 currentinformation available for 2012 and 2013, based on United States (U.S.) Census Bureau data and City of Austin (the City) data.4 Table of ContentsBased on the City’s fiscal year of October 1st through September 30th, the chart below compares Austin’s sales tax revenues for 1989, 1999and 2012 (the latest period for which data is available).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 2001through 2004, a downturn in the technology sector negatively affected the Austin real estate market, especially high-end residential andcommercial leasing markets; however, beginning in 2005 through mid-2007, market conditions improved. During 2008 and 2009, economicconditions resulted in a general decline in leasing activity across the U.S. and caused vacancy rates to increase in most markets, includingAustin, Texas. Vacancy rates in Austin generally improved in 2013, compared with 2012. The December 31, 2013 and 2012, vacancypercentages for various types of developed properties in Austin are noted below. December 31, 2013 2012 Building Type Vacancy Factor Industrial Buildings 10%a 13%a Office Buildings (Class A) 12%a 14%a Multi-Family Buildings 5%b 4%b Retail Buildings 6%b 8%b a.CB Richard Ellis: Austin MarketViewb.Marcus & Millichap Research Services, CoStar Group, Inc.BUSINESS STRATEGY AND RELATED RISKSOur business strategy is to create value for shareholders by methodically developing high-quality residential and commercial projects usingour existing assets and selectively pursuing new development opportunities. We believe that Austin, and other Texas markets, continue to bedesirable. Many of our developments are in unique locations where development approvals have historically been subject to regulatoryconstraints, making it difficult to obtain entitlements. Our Austin assets, which are located in desirable areas with significant regulatoryconstraints, are highly entitled and, as a result, we believe that through strategic planning and development, we can maximize and fullyexploit their value. Additionally, we believe our hotel sets a high standard for contemporary luxury in downtown Austin and competesfavorably with other hotels and resorts in our geographic market. Our entertainment operations provide quality live music experiences thatcreate awareness for our ACL Live venue and brand, enhancing the overall value of the W Austin Hotel & Residences project. Our currentfocus is to proceed with the development of our properties, to seek new opportunities to acquire additional properties for potential mixed-useand retail development projects, with strategic partners where beneficial, and to operate our hotel and entertainment businesses.5 Table of ContentsIn years past, economic conditions, including the constrained capital and credit markets, negatively affected the execution of our businessplan, primarily by decreasing the pace of development to match economic and market conditions. We responded to these conditions bysuccessfully restructuring our existing debt, including reducing interest rates and extending maturities, which enabled us to preserve ourdevelopment opportunities until market conditions improved. Economic conditions have improved and we believe we have the financialflexibility to fully exploit our development opportunities and resources and as of December 31, 2013, we had $35 million of availability underour revolving line of credit with Comerica Bank (the Comerica credit facility) and $7.1 million in cash and cash equivalents available for usein our real estate operations, excluding $1.0 million of cash associated with the Parkside Village project and $13.2 million of cash associatedwith the W Austin Hotel & Residences project. During 2013, the W Austin Hotel & Residences project paid $34.8 million in total distributionsto us and $40.7 million to Canyon-Johnson Urban Fund II, L.P. (Canyon-Johnson), our joint venture partner in the W Austin Hotel &Residences project. Subsequently, in first-quarter 2014, the W Austin Hotel & Residences project distributed $0.8 million to us and $1.0million to Canyon-Johnson.Although we have upcoming debt maturities and significant recurring costs, including property taxes, maintenance and marketing, that donot vary significantly with our level of property sales, we believe we have sufficient liquidity to address our near term requirements. See“Capital Resources and Liquidity” for further discussion and Part 1, Item 1A. “Risk Factors” for further discussion.CRITICAL ACCOUNTING POLICIESManagement’s discussion and analysis of our financial condition and results of operations are based on our consolidated financialstatements, which have been prepared in conformity with accounting principles generally accepted in the U.S. The preparation of thesefinancial statements requires that we make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues andexpenses. 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 areasrequiring the use of management’s estimates are discussed in Note 1 under the heading “Use of Estimates.” We believe that our mostcritical accounting policies relate to our real estate and commercial leasing assets, revenue recognition, deferred tax assets and our allocationof overhead costs.Management has reviewed the following discussion of its development and selection of critical accounting estimates with the AuditCommittee of our Board of Directors.(cid:0) Real Estate, Hotel, Entertainment Venue and Commercial Leasing Assets. Real estate held for sale is stated at the lower of cost orfair value less costs to sell. The cost of real estate sold includes acquisition, development, construction and carrying costs and other relatedcosts through the development stage. Real estate under development and land available for development are stated at cost. Real estate heldfor investment, which includes the hotel and entertainment venue at the W Austin Hotel & Residences project and our commercial leasingassets, is also stated at cost. When events or circumstances indicate that an asset’s carrying amount may not be recoverable, an impairmenttest is performed. For real estate held for sale, if estimated fair value less costs to sell is less than the related carrying amount, then areduction of the asset’s carrying value to fair value less costs to sell is required. For real estate under development, land available fordevelopment and real estate held for investment, if the projected undiscounted cash flow from the asset is less than the related carryingamount, then a reduction of the carrying amount of the asset to fair value is required. Measurement of the impairment loss is based on thefair value of the asset. Generally, we determine fair value using valuation techniques such as discounted expected future cash flows.In developing estimated future cash flows for impairment testing for our real estate assets, we have incorporated our own marketassumptions including those regarding real estate prices, sales pace, sales and marketing costs, and infrastructure costs. Our assumptionsare based, in part, on general economic conditions, the current state of the real estate industry, expectations about the short- and long-termoutlook for the real estate market, and competition from other developers in the area in which we develop our properties. These assumptionscan significantly affect our estimates of future cash flows. For those properties held for sale and deemed to be impaired, we determine fairvalue based on appraised values, adjusted for estimated costs to sell, as we believe this is the value for which the property could be sold. Werecorded no impairment losses during 2013 or 2012 (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 obtainthe financing necessary to complete our development plans. If our estimates of future6 Table of Contentscash flows from our properties differ from expectations, then our financial position and liquidity may be impacted, which could result in ourdefault under certain debt instruments or result in our suspending some or all of our development activities.(cid:0) Revenue Recognition. The judgments involved in revenue recognition include understanding the complex terms of agreements anddetermining 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 andwhen such contingencies will be resolved. The timing of revenue recognition could vary if different judgments were made. Our revenuessubject to the most judgment are property sales revenues. Revenues from property sales are recognized when the risks and rewards ofownership are transferred to the buyer, when the consideration received can be reasonably determined and when we have completed ourobligations to perform certain supplementary development activities, if any exist, at the time of the sale. Consideration is reasonablydetermined and considered likely of collection when we have signed sales agreements and have determined that the buyer hasdemonstrated a commitment to pay. The buyer’s commitment to pay is supported by the level of its initial investment, our assessment of thebuyer’s credit standing and our assessment of whether the buyer’s stake in the property is sufficient to motivate the buyer to honor itsobligation to it.(cid:0) Deferred Tax Assets. The carrying amounts of deferred tax assets are required to be reduced by a valuation allowance if, based on theavailable evidence, it is more likely than not that such assets will not be realized. Accordingly, we assess the need to establish valuationallowances for deferred tax assets periodically based on the more-likely-than-not realization threshold criterion. In the assessment for avaluation allowance, appropriate consideration is given to all positive and negative evidence related to the realization of the deferred taxassets. This assessment considers, among other matters, the nature, frequency and severity of current and cumulative losses, forecasts offuture profitability, the duration of statutory carryforward periods, our experience with operating loss and tax credit carryforwards not expiringunused, and tax planning alternatives. This process involves significant management judgment about assumptions that are subject tochange based on variances between projected and actual operating performance and changes in our business environment or operating orfinancing plans.Our deferred tax assets (net of deferred tax liabilities) before any valuation allowances totaled $12.4 million at December 31, 2013, and $13.8million at December 31, 2012. In evaluating the recoverability of these deferred tax assets, we considered available positive and negativeevidence, giving greater weight to the recent losses, the absence of taxable income in the carry back period and uncertainty regardingprojected future financial results. As a result, we concluded that there was not sufficient positive evidence supporting the realizability of ourdeferred tax assets beyond an amount totaling $0.3 million at December 31, 2013, and 2012 (see Note 8), and therefore, we had deferred taxasset valuation allowances of $12.1 million at December 31, 2013, and $13.5 million at December 31, 2012.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 willgenerate additional deferred tax assets that are not more likely than not to be realized. Our future results of operations may be favorablyimpacted by reversals of valuation allowances if we are able to demonstrate sufficient positive evidence that our deferred tax assets will berealized.(cid:0) Allocation of Overhead Costs. We capitalize a portion of our direct overhead costs and also allocate a portion of these overhead costs tocost 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 wouldnormally be capitalized or considered part of cost of sales. After determining the appropriate aggregate allocation rates, we apply these factorsto our overhead costs to determine the appropriate allocations. This is a critical accounting policy because it affects our net results ofoperations for that portion which is capitalized. We capitalize only direct and indirect project costs associated with the acquisition, developmentand 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 ofpooled resources are based only on those employees directly responsible for development (i.e., project managers and subordinates). Wecharge to expense indirect costs that do not clearly relate to a real estate project such as salaries and allocated expenses related to our ChiefExecutive Officer and Chief Financial Officer.7 Table of ContentsDEVELOPMENT ACTIVITIESResidential. As of December 31, 2013, the number of our residential developed lots, lots under development and development potential byarea are shown below (excluding lots associated with our unconsolidated Crestview Station joint venture): Residential Lots Developed UnderDevelopment PotentialDevelopmenta TotalW Austin Hotel & Residences project: Condominium unitsb9 — — 9Barton Creek: Calera: Verano Drive9 — — 9Amarra Drive: Phase II Lots30 — — 30Townhomes— — 214 214Phase III— 64 — 64Section N Multi-family— — 1,860 1,860Other Barton Creek Sections— — 155 155Circle C: Meridian— 57 — 57Tract 101— — 240 240Tract 102— — 56 56Total Residential Lots48 121 2,525 2,694a.Our development of the properties identified under the heading “Potential Development” is dependent upon the approval of our developmentplans and permits by governmental agencies, including the City. Those governmental agencies may either not approve one or moredevelopment plans and permit applications related to such properties or require us to modify our development plans. Accordingly, ourdevelopment strategy with respect to those properties may change in the future. While we may be proceeding with approved infrastructureprojects on some of these properties, they are not considered to be “under development” for disclosure in this table unless other developmentactivities necessary to fully realize the properties’ intended final use are in progress or scheduled to commence in the near term.b.Owned through a joint venture.W Austin Hotel & Residences. Delivery of the first condominium units began in January 2011. During 2013, we sold 32 condominium unitsfor $47.6 million. As of December 31, 2013, only nine condominium units remained unsold. During 2014, we sold two condominium unitsand one of the remaining seven condominium units was under contract as of March 17, 2014.Calera. Calera is a residential subdivision with plat approval for 155 lots. During 2004, we began construction of 16 courtyard homes atCalera Court, the 16-acre initial phase of the Calera subdivision. The second phase of the Calera subdivision, Calera Drive, consisting of 53single-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. During 2013, wesold 39 Verano Drive lots for $12.1 million and the final six Calera Drive lots for $1.4 million. As of December 31, 2013, nine lots at VeranoDrive remained unsold. During 2014, we sold two lots at Verano Drive and seven lots were under contract as of March 17, 2014.Amarra Drive. Amarra Drive Phase I, which is the initial phase of the Amarra Drive subdivision, was completed in 2007 and includes sixlots with sizes ranging from approximately one to four acres, some of which are course-side lots on the Fazio Canyons Golf Course whileothers are secluded lots adjacent to the Nature Conservancy of Texas. 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. During fourth-quarter 2013, wecommenced development of Amarra Drive Phase III, which consists of 64 lots on 166 acres. During 2013, we sold two Phase I lots for $0.7million (including the final lot in third-quarter 2013) and three Phase II lots for $1.5 million. As of December 31, 2013, 30 Phase II lotsremain unsold. During 2014, we sold four Phase II lots and three lots were under contract as of March 17, 2014.8 Table of ContentsCircle C. We are developing the Circle C community based on the entitlements secured in our Circle C settlement with the City. The CircleC settlement, as amended in 2004, permits development of 1.16 million square feet of commercial space, 504 multi-family units and 830single-family residential lots. Meridian is an 800-lot residential development and in May 2013, development of the final phase of Meridian,consisting of 57 one-acre lots, commenced and is expected to be complete in first-quarter 2014.Commercial. As of December 31, 2013, the number of square feet of our commercial property developed, under development and ourremaining entitlements related to our commercial property (excluding property associated with our unconsolidated Crestview Station jointventure) are shown below: Commercial Property Developed Under Development PotentialDevelopment a TotalW Austin Hotel & Residences project: Officeb39,328 — — 39,328Retailb18,362 — — 18,362Barton Creek: Treaty Oak Bank3,085 — — 3,085Barton Creek Village Phase I22,366 — — 22,366Barton Creek Village Phase II— — 16,000 16,000Entry Corner— — 5,000 5,000Amarra Retail/Office— — 83,081 83,081Section N— — 1,500,000 1,500,000Circle C: Chase Bank Ground Lease4,450 — — 4,4505700 Slaughter21,248 — — 21,248Parkside Villageb77,641 13,000 — 90,641Tract 110— — 614,500 614,500Tract 114— — 78,357 78,357Lantana: Tract GR1— — 325,000 325,000Tract G07— — 160,000 160,000Austin 290 Tract— — 20,000 20,000Total Square Feet186,480 13,000 2,801,938 3,001,418a.Our development of the properties identified under the heading “Potential Development” is dependent upon the approval of our developmentplans and permits by governmental agencies, including the City. Those governmental agencies may either not approve one or moredevelopment plans and permit applications related to such properties or require us to modify our development plans. Accordingly, ourdevelopment strategy with respect to those properties may change in the future. While we may be proceeding with approved infrastructureprojects on some of these properties, they are not considered to be “under development” for disclosure in this table unless other developmentactivities necessary to fully realize the properties’ intended final use are in progress or scheduled to commence in the near term.b.Owned though a joint venture.W Austin Hotel & Residences. The project has 39,328 square feet of leasable office space, including 9,000 square feet for our corporate office.As of December 31, 2013, occupancy for the office space was 84 percent. In 2014, a lease for another seven percent of the office space wassigned, with leasing activities for the remaining office space ongoing. The project also has 18,362 square feet of leasable retail space, all ofwhich is leased. As of December 31, 2013, occupancy for the retail space was 85 percent, and the lessee of the remaining retail space tookoccupancy in January 2014.Barton Creek. The first phase of Barton Creek Village includes a 22,366-square-foot retail complex and a 3,085-square-foot bank buildingwithin this retail complex. As of December 31, 2013, the retail complex was 100 percent leased and the bank building is leased throughJanuary 2023.Circle C. In 2008, we completed the construction of two retail buildings, totaling 21,248 square feet at 5700 Slaughter in the Circle Ccommunity (5700 Slaughter). This retail project also includes a 4,450-square-foot bank building on an existing ground lease, which expiresin 2025. As of December 31, 2013, occupancy was approximately 91 percent for the two retail buildings combined.9 Table of ContentsThe Circle C community also includes Parkside Village, a 90,641-square-foot retail project under construction. The project consists of a33,650-square-foot full-service movie theater and restaurant, a 13,890-square-foot medical clinic and five other retail buildings, including a14,926-square-foot building, a 10,175-square-foot building, a 7,500-square-foot building, a 5,500-square-foot building and a stand-alone 5,000-square-foot building. In February 2011, we entered into a joint venture to develop Parkside Village, obtained final permits and entitlementsand began construction (see Note 3). Construction of the final two buildings at Parkside Village is expected to be completed in October 2014.As of December 31, 2013, occupancy of the completed 77,641 square feet was 95 percent. Of the remaining buildings under development,the 7,500-square-foot building is fully pre-leased, and leasing activities are ongoing for the 5,500-square-foot building. Lantana. Lantana is a partially developed, mixed-use real-estate development project. In August 2012, we sold eight of the remaining elevenundeveloped commercial tracts of land for $15.8 million. These tracts, which totaled approximately 154 acres, have entitlements forapproximately 1.1 million square feet of office space. During first-quarter 2013, we sold a 16-acre tract for $2.1 million, which hadentitlements for approximately 70,000 square feet of office space. As of December 31, 2013, we had remaining entitlements forapproximately 485,000 square feet of office and retail use on 43 acres. Regional utility and road infrastructure is in place with capacity toserve Lantana at full build-out permitted under our existing entitlements.Crestview Station. Crestview Station is a single-family, multi-family, retail and office development, which is located on the site of acommuter rail line. Crestview Station sold substantially all of its multi-family and commercial properties in 2007 and one commercial site in2008, while retaining the single-family component. Crestview Station has entered into an agreement to sell its remaining residential land toDR Horton. The contract provides for the sale of 304 lots over four years for a total contract price of $15.8 million. The first closing of 73 lotsfor $3.8 million occurred in April 2012, and Crestview Station recognized gross profit on the sale of $0.4 million. The second closing of 59lots for $3.4 million occurred in May 2013, and Crestview Station recognized gross profit on the sale of $0.7 million. The third closing of 59lots for $3.5 million occurred in March 2014, and Crestview Station expects to recognize gross profit on the sale of $0.8 million. We accountfor our 50 percent interest in the Crestview Station joint venture under the equity method. See Note 6 for further discussion of CrestviewStation.RESULTS OF OPERATIONSWe are continually evaluating the development potential of our properties and will continue to consider opportunities to enter into transactionsinvolving our properties. As a result, and because of numerous other factors affecting our business activities as described herein, our pastoperating results are not necessarily indicative of our future results.The following table summarizes our operating results (in thousands): Years ended December 31, 2013 2012Operating income (loss): Real estate operations$9,000 $385Hotel3,706 2,204Entertainment1,119 261Commercial leasing277 (190)Eliminations and other49 121Operating income$14,151 $2,781Interest expense, net$(7,093) $(11,839)Net (income) loss attributable to noncontrolling interests insubsidiaries$(3,309) $2,727Net income (loss) attributable to Stratus common stock$2,585 $(1,586)We have four operating segments: "Real Estate Operations," "Hotel," "Entertainment" and “Commercial Leasing” (see Note 11). Thefollowing is a discussion of our operating results by segment.10 Table of ContentsReal Estate OperationsThe following table summarizes our real estate operating results (in thousands): 2013 2012Revenues: Developed property sales$63,676 $45,716Undeveloped property sales3,266 15,837Commissions and other719 612Total revenues67,661 62,165Cost of sales, including depreciation54,422 56,534Insurance settlement(1,785) —General and administrative expenses6,024 5,246Operating income$9,000 $385Developed Property Sales. Sales for 2013 and 2012 included the following (dollars in thousands): 2013 2012 Lots/Units Revenues Average Costper Lot/Unit Lots/Units Revenues Average Costper Lot/UnitW Austin Hotel & Residences Condominium Units32 $47,582 $1,251 40 $37,709 $843 Barton Creek Calera: Verano Drive39 12,143 163 17 5,479 183Calera Drive6 1,371 142 2 455 139Amarra: Phase I Lots2 650 279 2 745 313Phase II Lots3 1,525 217 2 953 201Mirador Estate1 405 264 1 375 228Total Residential83 $63,676 64 $45,716 The increase in developed property sales revenues in 2013 primarily resulted from higher average sales prices associated with largercondominium units at the W Austin Hotel & Residences project and increased lot sales at Barton Creek.As of March 17, 2014, we sold two condominium units in 2014 and had one unit under contract at the W Austin Hotel & Residences project.Condominium unit inventory has declined because of sales, leaving seven units unsold at the W Austin Hotel & Residences project as ofMarch 17, 2014.Undeveloped Property Sales. During 2013, we sold a 16-acre tract at Lantana with entitlements for approximately 70,000 square feet ofoffice space for $2.1 million, and entitlements for 20,000 square feet of office space at Circle C for $1.2 million. During 2012, we sold eightundeveloped commercial tracts of land at Lantana for $15.8 million.Commissions and Other. Commissions and other revenues included sales of our development fee credits to third parties totaling less than$0.1 million in 2013 and $0.2 million in 2012. We received these development fee credits as part of the Circle C settlement (see Note 10).Cost of Sales. Cost of sales includes the cost of property sold, project operating and marketing expenses and allocated overhead costs, partlyoffset by reductions for certain municipal utility district reimbursements. Cost of sales totaled $54.4 million in 2013 and $56.5 million in2012. The decrease in cost of sales in 2013, compared with 2012, primarily reflects a credit of $1.1 million in 2013 related to the recovery ofbuilding repair costs associated with damage caused by the June 2011 balcony glass breakage incidents at the W Austin Hotel & Residencesproject, and charges totaling $1.5 million in 2012 to reflect revised estimates of projected aggregate profit margin on the condominium units.When estimates of sales value or project costs are revised, gross profit is adjusted in the period of change so that cumulative project earningsreflect the revised profit estimate. Cost of sales for our real estate operations also include significant, recurring costs (including property taxes,maintenance and marketing),11 Table of Contentswhich totaled $5.4 million in 2013 and $6.5 million in 2012 and do not vary significantly with the number of property sales. These recurringcosts were partly offset by Barton Creek Municipal Utility District (MUD) reimbursements totaling $0.7 million in 2012. We received no MUDreimbursements credited to cost of sales in 2013.General and Administrative Expenses. Consolidated general and administrative expenses primarily consist of employee salaries, wagesand other costs and totaled $7.1 million in 2013 and $6.5 million in 2012. General and administrative expenses allocated to real estateoperations totaled $6.0 million in 2013 and $5.2 million in 2012. For information about the allocation of general and administrative expensesto our operating segments see Note 11.HotelThe following table summarizes our hotel operating results (in thousands): 2013 2012Hotel revenue$39,544 $35,644Hotel cost of sales, excluding depreciation29,483 26,883Depreciation6,033 6,222General and administrative expenses322 335Operating income$3,706 $2,204Hotel Revenue. Hotel revenue reflects the results of operations for the W Austin Hotel, and primarily includes revenue from roomreservations and food and beverage sales. "Revenue per Available Room" (REVPAR), which is calculated by dividing total room revenue bytotal rooms available, averaged $260 for 2013, compared with $232 for 2012. Hotel revenues increased in 2013, compared with 2012,primarily reflecting higher room rates.Hotel Cost of Sales. Hotel costs totaled $29.5 million in 2013 and $26.9 million in 2012 primarily reflecting increased variable costs fromhigher food and beverage expenses.EntertainmentThe following table summarizes our entertainment operating results (in thousands): 2013 2012Entertainment revenue$15,559 $13,864Entertainment cost of sales, excluding depreciation13,076 12,205Depreciation1,239 1,268General and administrative expenses125 130Operating income$1,119 $261Entertainment Revenue. Entertainment revenue primarily reflects the results of operations for ACL Live and primarily includes ticket sales;sponsorships, personal seat license sales and suite sales; and sales of concessions and merchandise. Entertainment revenue also reflectsrevenues associated with outside events hosted at other venues and production of recorded content for artists performing at ACL Live. Certainkey operating statistics specific to the concert and event hosting industry are included below to provide additional information regarding ourACL Live operating performance. 2013 2012Events: Events hosted186 193Estimated attendance217,100 219,800Ancillary net revenue per attendeea$35.31 $36.08Ticketing: Number of tickets sold148,400 147,800Gross value of tickets sold (in thousands)$9,397 $8,325a.Primarily includes sales of concessions and merchandise.Entertainment revenues increased in 2013, compared with 2012, primarily reflecting an increase in ticket sales, and sponsorship, personalseat license and suite sales revenue. 12 Table of ContentsEntertainment Cost of Sales. Entertainment costs totaled $13.1 million in 2013, compared with $12.2 million in 2012, primarily reflectingartist performance fees, which vary with the number of events hosted and with performance fees for different artists' requirements.Commercial LeasingThe following table summarizes our commercial leasing operating results (in thousands): 2013 2012Rental revenue$5,923 $4,885Rental cost of sales, excluding depreciation2,755 2,231Depreciation1,687 1,531General and administrative expenses1,204 1,313Operating income (loss)$277 $(190)Rental Revenue. Rental revenue primarily reflects revenue from the office and retail space at Parkside Village, the W Austin Hotel &Residences project, 5700 Slaughter and Barton Creek Village. The increase in rental revenue in 2013, compared with 2012, primarilyreflects increased occupancy at Parkside Village.Rental Cost of Sales. Rental costs increased to $2.8 million in 2013, compared with $2.2 million in 2012, primarily reflecting higheroperating costs from the increased occupancy at Parkside Village.Depreciation. Depreciation expense increased to $1.7 million in 2013, compared with $1.5 million in 2012, primarily reflecting higherdepreciation for Parkside Village.Non-Operating ResultsInterest Expense, Net. Interest expense (before capitalized interest) totaled $10.7 million in 2013 and $15.3 million in 2012. Lower interestexpense in 2013, compared with 2012, primarily reflects debt repayments during 2012 and lower average interest rates associated withrefinancing transactions. Interest expense in 2012 also included $1.2 million associated with the Ford profits interest in the W Austin Hotel &Residences project. Capitalized interest totaled $3.6 million for 2013, primarily related to development activities at Section N in Barton Creekand $3.5 million in 2012, primarily related to the W Austin Hotel & Residences project.Loss on Early Extinguishment of Debt. We recorded a loss on early extinguishment of debt of $1.4 million in 2013 associated with theprepayment of the Beal Bank loan. See Note 7 for further discussion.Other Income, Net. We recorded other income of $1.4 million in 2013 and $0.6 million in 2012, which primarily reflects MUDreimbursements at Barton Creek. Other income in 2013 also reflects a gain on the recovery of land previously sold and other income in 2012reflects forfeited deposits associated with terminated sales contracts for condominium units at the W Austin Hotel & Residences project.Equity in Unconsolidated Affiliates' Loss. We account for our interests in our unconsolidated affiliates, Crestview Station, Stump Fluff andGuapo, using the equity method. Our equity in the net losses of these entities totaled $0.1 million in 2013, and less than $0.1 million in2012. See Note 6 for further discussion.Provision for Income Taxes. We recorded a provision for income taxes of $0.9 million in 2013 and $0.6 million in 2012. Our tax provisionsfor 2013 and 2012 relate to the Texas state margin tax. The difference between our consolidated effective income tax rates for 2013 and 2012and the U.S. federal statutory rate of 35 percent was primarily attributable to the realization of deferred tax assets in 2013 and additionalvaluation allowances recorded against deferred tax assets in 2012 (see Note 8).Net (Income) Loss Attributable to Noncontrolling Interests in Subsidiaries. Net (income) losses attributable to noncontrolling interests insubsidiaries primarily relates to the W Austin Hotel & Residences project (see Note 2) and totaled $(3.3) million in 2013 and $2.7 million in2012.DISCONTINUED OPERATIONSOn February 27, 2012, we sold 7500 Rialto to Lincoln Properties and Greenfield Partners for $27.0 million. See Note 12 for furtherdiscussion.13 Table of ContentsCAPITAL RESOURCES AND LIQUIDITYVolatility in the real estate market, including the markets in which we operate, can impact sales of our properties. However, we believe thatthe unique nature and location of our assets will provide positive cash flows. See "Business Strategy and Related Risks" for furtherdiscussion of our liquidity.Comparison of Year-to-Year Cash FlowsCash provided by operating activities totaled $55.9 million in 2013, compared with $21.3 million in 2012. The increase is primarily related toan $18.0 million increase in developed property sales principally resulting from sales of larger condominium units at the W Austin Hotel &Residences project and increased lot sales in Barton Creek, partly offset by a $12.6 million decrease in undeveloped property sales resultingfrom the sale of eight tracts of land in Lantana in 2012. Expenditures for purchases and development of real estate properties for 2013 and2012 included development costs for our real estate operations properties, and primarily related to the purchase of land in Lakeway, Texas,and the development of Meridian and Amarra Phase III ($17.3 million in 2013) and to the residential portion of the W Austin Hotel &Residences project ($4.9 million in 2012).Cash used in investing activities totaled $3.5 million in 2013, compared with cash provided by investing activities of $0.5 million in 2012.Capital expenditures for 2013 of $2.4 million primarily included costs for the hotel and office portions of the W Austin Hotel & Residencesproject and Parkside Village. Capital expenditures for 2012 primarily included costs for Parkside Village totaling $4.2 million offset byproceeds from the sale of 7500 Rialto totaling $5.7 million in 2012 (see Note 12). We also made capital contributions to our unconsolidatedaffiliates totaling $1.1 million in 2013 and $0.2 million in 2012.Cash used in financing activities totaled $43.9 million in 2013, compared with $17.1 million in 2012. In 2013, net payments on our creditfacility totaled $26.6 million, while borrowings from the Parkside Village loan totaled $7.5 million. In 2013, we borrowed $100 million fromBank of America to refinance our Beal Bank loan. Debt repayments on the Beal Bank loan and other project and term loans totaled $68.8million in 2013. In 2012, net payments on our credit facility totaled $11.7 million, while borrowings from the Beal Bank loan totaled $4.7million and borrowings from the Parkside Village loan totaled $6.1 million. Debt repayments on project and term loans totaled $20.6 millionin 2012. Financing costs totaled $1.9 million in 2013 and $0.7 million in 2012. During 2012 we generated net proceeds of $4.8 million fromthe sale of common stock. Noncontrolling interests distributions for the W Austin Hotel & Residences project and Parkside Village projecttotaled $54.7 million in 2013, compared with contributions of $0.3 million in 2012. See “Credit Facility and Other Financing Arrangements”for a discussion of our outstanding debt at December 31, 2013.In 2001, our Board of Directors authorized an open market share purchase program for up to 0.7 million shares of our common stock. InNovember 2013, the Board approved an increase in the open market share purchase program from 0.7 million shares to 1.7 million sharesof our common stock. During 2013, purchases under this program included 81,990 shares of our common stock for $1.0 million, or $11.68per share. As of December 31, 2013, a total of 31,655 shares of our common stock remain available under this program. From January 1,2014, through March 17, 2014, we purchased 30,900 shares of our common stock for $0.5 million, or $17.33 per share. Approval fromComerica and ASIP is required for any additional purchases.Credit Facility and Other Financing ArrangementsAt December 31, 2013, we had total debt of $151.3 million, compared with $137.0 million at December 31, 2012. Our debt outstanding atDecember 31, 2013, consisted of the following:•$99.8 million outstanding under the Bank of America (BoA) loan agreement, which is secured by certain property and assets relatedto the W Austin Hotel & Residences project, excluding the remaining unsold condominium units. Proceeds of $67.3 million from theBoA loan were used to fully repay the Beal Bank loan during 2013.•$23.0 million outstanding under five unsecured term loans with American Strategic Income Portfolio (ASIP), which include an $8.0million loan, a $5.0 million loan, two $3.5 million loans and a $3.0 million loan.•$17.7 million outstanding under a $19.7 million construction loan, which is secured by the assets at the Parkside Village project(see Note 3 for further discussion).•$5.1 million outstanding under a term loan, which is secured by 5700 Slaughter.14 Table of Contents•$4.3 million outstanding under a term loan, which is secured by Barton Creek Village.•$1.6 million outstanding under a term loan, which is secured by land in Lakeway, Texas.•No amounts outstanding under the $48.0 million Comerica credit facility as modified in December 2012, which is comprised of a$35.0 million revolving loan, all of which is available, a $3.0 million tranche for letters of credit, with no amounts outstanding ($2.7million of letters of credit committed), and a $10.0 million construction loan, with no amounts outstanding ($1.4 million of letters ofcredit committed). See Note 7 for further discussion. The Comerica credit facility is secured by substantially all of our assets exceptfor properties that are encumbered by separate non-recourse permanent loan financing.The Comerica credit facility and our ASIP unsecured term loans contain customary financial covenants, including a requirement that wemaintain a minimum total stockholders’ equity balance. During 2013, we negotiated a reduction in the minimum stockholders' equitybalance from $120.0 million to $110.0 million (see Note 7).DEBT MATURITIES AND OTHER CONTRACTUAL OBLIGATIONSThe following table summarizes our contractual cash obligations as of December 31, 2013 (in thousands): 2014 2015 2016 2017 Thereafter TotalDebta$5,865 $23,572 $105,183 $480 $16,232 $151,332Scheduled interest paymentsb5,706 4,682 3,186 878 2,562 17,014Construction contracts21,178 — — — — 21,178Operating lease78 68 47 36 — 229Total$32,827 $28,322 $108,416 $1,394 $18,794 $189,753a.Debt maturities represent scheduled maturities based on outstanding debt balances at December 31, 2013.b.Scheduled interest payments were calculated using stated coupon rates for fixed-rate debt and interest rates applicable at December 31,2013, for variable-rate debt.We had commitments under noncancelable contracts totaling $21.2 million at December 31, 2013. These commitments primarily includedcontracts for infrastructure work in connection with Amarra Drive Phase III and Section N at Barton Creek.In January 2014, we purchased a tract of land in Lakeway, Texas, for $1.5 million. This is the fifth tract we have acquired in a nine-tractassemblage for a planned retail development. We anticipate purchasing the remaining four tracts of land in the assemblage between Apriland August 2014 at an aggregate cost of $16.5 million. We plan to use cash on hand or advances on the revolving loan under the Comericacredit facility to pay for the purchases.At December 31, 2013, we guaranteed $0.2 million, or 25 percent of the outstanding balances, of the $0.9 million of outstanding debt atCrestview Station. The third closing of 59 lots for $3.5 million occurred in March 2014. The joint venture with Trammell Crow used suchamounts to repay the loan, which released our obligations under the guarantee (see Note 6).At December 31, 2013, we also have guarantees related to the W Austin Hotel & Residences project (see Note 2).NEW ACCOUNTING STANDARDSWe do not expect the impact of recently issued accounting standards to have a significant impact on our future financial statements anddisclosures.OFF-BALANCE SHEET ARRANGEMENTSRefer to Note 10 for discussion of off-balance sheet arrangements.CAUTIONARY STATEMENT15 Table of ContentsManagement’s Discussion and Analysis of Financial Condition and Results of Operations contain forward-looking statements in which wediscuss factors we believe may affect our future performance. Forward-looking statements are all statements other than statements ofhistorical facts, such as projections or expectations related to operational and financial performance, reimbursements for infrastructure costs,financing and regulatory matters, development plans and sales of land, units and lots, commercial leasing activities, timeframes fordevelopment, construction and completion of our projects, capital expenditures, liquidity and capital resources, results of our businessstrategy, and other plans and objectives of management for future operations and activities. The words “anticipates,” “may,” “can,” “plans,”“believes,” “potential,” “estimates,” “expects,” “projects,” “intends,” “likely,” “will,” “should,” “to be” and any similar expressions and/orstatements that are not historical facts are intended to identify those assertions as forward-looking statements.We caution readers that forward-looking statements are not guarantees of future performance, and our actual results may differ materiallyfrom those anticipated, projected or assumed in the forward-looking statements. Important factors that can cause our actual results to differmaterially from those anticipated in the forward-looking statements include, but are not limited to, our ability to service our debt and theavailability of financing, a decrease in the demand for real estate in the Austin, Texas market, changes in economic and business conditions,reduction in discretionary spending by consumers and corporations, competition from other real estate developers, hotel operators and/orentertainment venue operators and promoters, business opportunities that may be presented to and/or pursued by us, the failure of thirdparties to satisfy debt service obligations, the failure to complete agreements with strategic partners and/or appropriately managerelationships with strategic partners, the termination of sales contracts or letters of intent due to, among other factors, the failure of one ormore closing conditions or market changes, the failure to attract customers for our developments or their failure to satisfy their purchasecommitments, increases in interest rates, declines in the market value of our assets, increases in operating costs, including real estate taxesand the cost of construction materials, changes in external perception of the W Austin Hotel, changes in consumer preferences, changes inlaws, regulations or the regulatory environment affecting the development of real estate, weather-related risks and other factors described inmore detail under “Risk Factors” in Part I, Item 1A. of this Form 10-K.Investors are cautioned that many of the assumptions on which our forward-looking statements are based are subject to change after ourforward-looking statements are made. Further, we may make changes to our business plans that could or will affect our results. We cautioninvestors that we do not intend to update our forward-looking statements, notwithstanding any changes in our assumptions, business plans,actual experience, or other changes, and we undertake no obligation to update any forward-looking statements, except as required by law.Item 8. Financial Statements and Supplementary DataMANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTINGStratus Properties Inc.’s (the Company’s) management is responsible for establishing and maintaining adequate internal control overfinancial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) under the Securities Exchange Act of 1934as a process designed by, or under the supervision of, the Company’s principal executive and principal financial officers and effected by theCompany’s Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financialreporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles andincludes those policies and procedures that:•Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of theCompany’s assets;•Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordancewith generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordancewith authorizations of management and directors of the Company; and•Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of theCompany’s assets that could have a material effect on the Company's financial statements.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of anyevaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, orthat the degree of compliance with the policies or procedures may deteriorate.The Company's management, including its principal executive officer and principal financial officer, assessed the effectiveness of its internalcontrol over financial reporting as of the end of the fiscal year covered by this annual report on Form 10-K. In making this assessment, theCompany's management used the criteria set forth in Internal Control-Integrated Framework issued by the Committee of SponsoringOrganizations of the Treadway Commission (1992 framework) (the COSO criteria). Based on the Company's management’s assessment,management concluded that, as of December 31, 2013, the Company’s internal control over financial reporting is effective based on theCOSO criteria.BKM Sowan Horan, LLP, an independent registered public accounting firm, who audited the Company’s consolidated financial statementsincluded in this Form 10-K, has issued an attestation report on the Company’s internal control over financial reporting, which is includedherein. /s/ William H. Armstrong III/s/ Erin D. PickensWilliam H. Armstrong IIIErin D. PickensChairman of the Board, PresidentSenior Vice Presidentand Chief Executive Officerand Chief Financial Officer REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Board of Directors and ShareholdersStratus Properties Inc. We have audited Stratus Properties Inc.'s (the Company) internal control over financial reporting as of December 31, 2013, based on criteriaestablished in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the TreadwayCommission in 1992 (COSO criteria). Stratus Properties Inc.'s management is responsible for maintaining effective internal control overfinancial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanyingManagement's Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company'sinternal 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). Thosestandards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financialreporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding ofinternal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design andoperating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as weconsidered 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 offinancial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accountingprinciples. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance ofrecords that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the Company; (2) provide reasonableassurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally acceptedaccounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations ofmanagement and directors of the Company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorizedacquisition, 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 anyevaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, orthat 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 ofDecember 31, 2013, based on the COSO criteria.We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidatedbalance sheets of Stratus Properties Inc. and subsidiaries as of December 31, 2013 and 2012, and the related consolidated statements ofcomprehensive loss, equity and cash flows for each of the years in the two-year period ended December 31, 2013, and our report datedMarch 31, 2014, expressed an unqualified opinion on these consolidated financial statements. /s/ BKM Sowan Horan, LLPAustin, TexasMarch 31, 2014REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Board of Directors and ShareholdersStratus Properties Inc. We have audited the accompanying consolidated balance sheets of Stratus Properties Inc. and subsidiaries (the Company) as ofDecember 31, 2013, and 2012 and the related consolidated statements of comprehensive income, equity and cash flows for each of theyears in the two-year period ended December 31, 2013. We have also audited the schedule listed in the accompanying index. Theseconsolidated financial statements and the schedule are the responsibility of the Company's management. Our responsibility is to express anopinion on these consolidated financial statements and schedule based on our audits.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Thosestandards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free ofmaterial misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financialstatements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well asevaluating the overall financial statement presentation. We believe that our audits provide 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 StratusProperties Inc. as of December 31, 2013, and 2012 and the results of their operations and their cash flows for each of the years in the two-year period ended December 31, 2013 in conformity with accounting principles generally accepted in the United States of America. Also inour opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole,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), StratusProperties Inc.'s internal control over financial reporting as of December 31, 2013, based on criteria established in Internal Control -Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 1992 (COSO), and ourreport dated March 31, 2014 expressed an unqualified opinion on the effectiveness of the Company's internal control over financial reporting. /s/ BKM Sowan Horan, LLPAustin, TexasMarch 31, 2014STRATUS PROPERTIES INC.CONSOLIDATED BALANCE SHEETS(In Thousands, Except Par Value) December 31, 2013 2012ASSETS Cash and cash equivalents$21,307 $12,784Restricted cash5,077 17,657Real estate held for sale18,133 60,244Real estate under development76,891 31,596Land available for development21,404 49,569Real estate held for investment, net182,530 189,331Investment in unconsolidated affiliates4,427 3,402Other assets17,174 14,545Total assets$346,943 $379,128 LIABILITIES AND EQUITY Accounts payable$5,143 $13,845Accrued liabilities9,360 8,605Debt151,332 137,035Other liabilities and deferred gain11,792 10,748Total liabilities177,627 170,233 Commitments and contingencies (Notes 7,10 and 12) 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, 9,076 and 9,037 shares issued, respectively and 8,046 and 8,097 shares outstanding, respectively91 90Capital in excess of par value of common stock203,724 203,298Accumulated deficit(60,724) (63,309)Accumulated other comprehensive loss(22) —Common stock held in treasury, 1,030 shares and 940 shares, at cost, respectively(19,448) (18,392)Total Stratus stockholders’ equity123,621 121,687Noncontrolling interests in subsidiaries45,695 87,208Total equity169,316 208,895Total liabilities and equity$346,943 $379,128The accompanying Notes to Consolidated Financial Statements are an integral part of these consolidated financial statements.STRATUS PROPERTIES INC.CONSOLIDATED STATEMENTS OF OPERATIONS(In Thousands, Except Per Share Amounts) Years Ended December 31, 2013 2012Revenues: Real estate$67,589 $62,114Hotel39,234 35,402Entertainment15,481 13,799Rental5,406 4,422Total revenues127,710 115,737Cost of sales: Real estate54,129 56,125Hotel29,483 26,883Entertainment12,922 12,086Rental2,670 2,165Depreciation9,053 9,165Total cost of sales108,257 106,424Insurance settlement(1,785) —General and administrative expenses7,087 6,532Total costs and expenses113,559 112,956Operating income14,151 2,781Interest expense, net(7,093) (11,839)Loss on early extinguishment of debt(1,379) —Loss on interest rate cap(136) —Other income, net1,356 605Income (loss) from continuing operations before income taxes and equity in unconsolidated affiliates'loss6,899 (8,453)Equity in unconsolidated affiliates' loss(76) (29)Provision for income taxes(929) (636)Income (loss) from continuing operations5,894 (9,118)Income from discontinued operations— 4,805Net income (loss)5,894 (4,313)Net (income) loss attributable to noncontrolling interests in subsidiaries(3,309) 2,727Net income (loss) attributable to Stratus common stock$2,585 $(1,586) Basic and diluted net income (loss) per share attributable to Stratus common stock: Continuing operations$0.32 $(0.80)Discontinued operations— 0.60Basic and diluted net income (loss) per share attributable to Stratus common stock$0.32 $(0.20) Weighted-average shares of common stock outstanding: Basic8,077 7,966Diluted8,111 7,966 The accompanying Notes to Consolidated Financial Statements are an integral part of these consolidated financial statements.16 Table of ContentsSTRATUS PROPERTIES INC.CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)(In Thousands) Years Ended December 31, 2013 2012 Net income (loss)$5,894 $(4,313) Other comprehensive loss, net of taxes: Loss on interest rate swap agreement(32) —Other comprehensive loss(32) — Total comprehensive income (loss)5,862 (4,313)Total comprehensive (income) loss attributable to noncontrolling interests(3,299) 2,727Total comprehensive income (loss) attributable to Stratus common stock$2,563 $(1,586) The accompanying Notes to Consolidated Financial Statements are an integral part of these consolidated financial statements.STRATUS PROPERTIES INC.CONSOLIDATED STATEMENTS OF CASH FLOWS(In Thousands) Years Ended December 31, 2013 2012Cash flow from operating activities: Net income (loss)$5,894 $(4,313)Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation9,053 9,165Cost of real estate sold42,944 44,810Loss on early extinguishment of debt1,379 —Gain on sale of 7500 Rialto— (5,146)Deferred income taxes30 (142)Stock-based compensation338 269Equity in unconsolidated affiliates' loss76 29Purchases and development of real estate properties(16,595) (8,591)Recovery of land previously sold(485) —Municipal utility districts reimbursement208 —Decrease (increase) in other assets11,236 (12,420)Increase (decrease) in accounts payable, accrued liabilities and other1,863 (2,369)Net cash provided by operating activities55,941 21,292 Cash flow from investing activities: Capital expenditures: Commercial leasing properties(1,347) (4,731)Hotel(759) (64)Entertainment(280) (200)Investment in unconsolidated affiliates(1,100) (185)Proceeds from sale of 7500 Rialto— 5,697Net cash (used in) provided by investing activities(3,486) 517 Cash flow from financing activities: Borrowings from credit facility18,000 24,655Payments on credit facility(44,612) (36,391) Borrowings from project and term loans109,042 10,816Payments on project and term loans(68,806) (20,638)Noncontrolling interests (distributions) contributions(54,721) 341Common stock issuance— 4,817Purchases of Stratus common stock(957) —Net payments for stock-based awards(9) (2)Financing costs(1,869) (708)Net cash used in financing activities(43,932) (17,110)Net increase in cash and cash equivalents8,523 4,699Cash and cash equivalents at beginning of year12,784 8,085Cash and cash equivalents at end of year$21,307 $12,784The accompanying Notes to Consolidated Financial Statements, which include information regarding noncash transactions, are an integral part ofthese consolidated financial statements.STRATUS PROPERTIES INC.CONSOLIDATED STATEMENTS OF EQUITY(In Thousands) Stratus Stockholders’ Equity CommonStock Common StockHeld in Treasury NumberofShares At ParValue Capital inExcess ofPar Value Accum-ulatedDeficit Accum-ulatedOtherCompre-hensiveLoss NumberofShares AtCost Total StratusStockholders’Equity NoncontrollingInterests inSubsidiaries TotalEquityBalance at December31, 20118,387 $84 $198,175 $(61,723) — 935 $(18,347) $118,189 $99,493 $217,682Common stock issuance625 6 4,811 — — — — 4,817 — 4,817Exercised and issuedstock-based awards25 — 43 — — — — 43 — 43Stock-basedcompensation— — 269 — — — — 269 — 269Tender of shares for stock-based awards— — — — — 5 (45) (45) — (45)Noncontrolling interestsdistributions— — — — — — — — (9,558) (9,558)Total comprehensive loss— — — (1,586) — — — (1,586) (2,727) (4,313)Balance at December31, 20129,037 90 203,298 (63,309) — 940 (18,392) 121,687 87,208 208,895Common stockrepurchases— — — — — 82 (957) (957) — (957)Exercised and issuedstock-based awards39 1 88 — — — — 89 — 89Stock-basedcompensation— — 338 — — — — 338 — 338Tender of shares for stock-based awards— — — — — 8 (99) (99) — (99)Noncontrolling interestsdistributions— — — — — — — — (44,812) (44,812)Total comprehensiveincome (loss)— — — 2,585 (22) — — 2,563 3,299 5,862Balance at December31, 20139,076 $91 $203,724 $(60,724) (22) 1,030 $(19,448) $123,621 $45,695 $169,316The accompanying Notes to Consolidated Financial Statements are an integral part of these consolidated financial statements.STRATUS PROPERTIES INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS1. Summary of Significant Accounting PoliciesBusiness 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, and multi- and single-family residential real estateproperties located primarily in the Austin, Texas area. The real estate development and marketing operations of Stratus are conductedthrough its wholly owned subsidiaries, two consolidated joint ventures (see Notes 2 and 3) and through unconsolidated joint ventures (see “Investments in Unconsolidated Affiliates” below and Note 6). Stratus consolidates its wholly owned subsidiaries, subsidiaries in whichStratus has a controlling interest and variable interest entities in which Stratus is deemed the primary beneficiary. All significantintercompany transactions have been eliminated in consolidation.On February 27, 2012, Stratus sold its two office buildings at 7500 Rialto Boulevard (7500 Rialto). As a result, 7500 Rialto is reported asdiscontinued operations (see Note 12).Concentration of Risks. Stratus primarily conducts its operations in Austin, Texas. Consequently, any significant economic downturn in theAustin 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.) requires management to make estimates and assumptions that affect the amounts reported in these financial statements andaccompanying notes. The more significant estimates include the (1) estimates of future cash flow from development and sale of real estateproperties 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.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 costof real estate held for sale includes acquisition, development, construction and carrying costs, and other related costs through thedevelopment stage. Real estate under development and land available for development are stated at cost. Real estate held for investment,which includes the hotel and entertainment venue at the W Austin Hotel & Residences project and Stratus' commercial leasing assets, isstated at cost, less accumulated depreciation. Stratus capitalizes interest on funds used in developing properties from the date of initiation ofdevelopment activities through the date the property is substantially complete and ready for sale or lease. Common costs are allocated basedon 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. Costsrelated to repairs and maintenance are charged to expense as incurred.Stratus performs an impairment test when events or circumstances indicate that an asset’s carrying amount may not be recoverable. Eventsor circumstances that Stratus considers indicators of impairment include significant decreases in market values, adverse changes inregulatory requirements (including environmental laws), significant budget overruns for properties under development, and current period orprojected operating cash flow losses from rental properties. Impairment tests for properties to be held and used, including properties underdevelopment, involve the use of estimated future net undiscounted cash flows expected to be generated from the use of the property and itseventual disposition. If projected undiscounted cash flow from properties to be held and used is less than the related carrying amount, then areduction of the carrying amount of the long-lived asset to fair value is required. Measurement of the impairment loss is based on the fairvalue 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 similarproperties in similar locations and management estimates of costs to sell. If estimated fair value less costs to sell is less than the relatedcarrying 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, 2013 and 2012. Should market conditions deteriorate in thefuture or other events occur that indicate the carrying amount of Stratus’ real estate assets may not be recoverable, Stratus will reevaluate theexpected 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 life of between 30 and 40 years.The hotel and entertainment venue properties are depreciated on a straight-line basis over their estimated life of 35 years. Furniture, fixturesand equipment are depreciated on a straight-line basis over a three to five-year period. Tenant improvements are depreciated over the relatedlease terms.Investments in Unconsolidated Affiliates. Stratus has interests in three unconsolidated affiliates, which it accounts for under the equitymethod (see Note 6).Other Assets. Other assets primarily consist of restricted cash, deferred financing and leasing costs, prepaid insurance, tenant and otheraccounts receivable, and notes and interest receivable. Deferred financing costs are amortized using the straight-line method over the term ofthe related debt, which approximates the effective interest method, to interest expense. Deferred leasing costs are amortized to cost of salesusing 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 mayimpact the amount. Upon receipt of the property tax bill, Stratus adjusts its accrued property tax balance at year-end to the actual amount oftaxes due in January. Accrued property taxes totaled $5.1 million at December 31, 2013, and $5.2 million at December 31, 2012.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 certainsupplementary development activities, if any exist, at the time of the sale. Consideration is reasonably determined and considered likely ofcollection when Stratus has signed sales agreements and has determined that the buyer has demonstrated a commitment to pay. Thebuyer’s commitment to pay is supported by the level of their initial investment, Stratus’ assessment of the buyer’s credit standing andStratus’ assessment of whether the buyer’s stake in the property is sufficient to motivate the buyer to honor their obligation to pay.Stratus' revenues from hotel operations are primarily derived from room reservations and food and beverage sales. Revenue is recognizedwhen rooms are occupied and services have been rendered. Taxes collected from customers and submitted to taxing authorities are notrecorded in revenue. Stratus' revenues from entertainment operations are primarily derived from ticket sales; sponsorships, personal seat licenses and suitesales; and sales of concessions and merchandise. Revenues from ticket sales are recognized after the corresponding performance occurs.Revenues from sponsorships and other revenue not related to a single event are classified as deferred revenue and generally amortized overthe operating season or term of the contract. Revenues from concessions and merchandise sales are recognized at the time of sale.Stratus recognizes its rental income based on the terms of its signed leases with tenants on a straight-line basis. Recoveries from tenants fortaxes, 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 servicesare performed.A summary of Stratus’ revenues follows (in thousands): Years Ended December 31, 2013 2012Revenues: Developed property sales$63,676 $45,716Undeveloped property sales3,266 15,837Hotel39,234 35,402Entertainment15,481 13,799Rental5,406 4,422Commissions and other647 561Total revenues$127,710 $115,737Cost 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,maintenance and property taxes. Cost of sales also includes operating costs and depreciation for properties held for investment and municipalutility district reimbursements. A summary of Stratus’ cost of sales follows (in thousands): Years Ended December 31, 2013 2012Cost of developed property sales$48,732 $38,364Cost of undeveloped property sales1,122 11,539Hotel29,483 26,883Entertainment12,922 12,086Rental2,670 2,165Project expenses and allocation of overhead costs (see below)5,423 6,477Municipal utility district reimbursements (see below)— (688)Depreciation9,053 9,165Other, net(1,148)a 433Total cost of sales$108,257 $106,424a. Includes a credit of $1.1 million related to the recovery of building repair costs associated with damage caused by the June 2011 balcony glassbreakage incidents at the W Austin Hotel & Residences project.Gross profit on condominium sales from the W Austin Hotel & Residences project is based on estimates of total project sales value and totalproject costs for the condominiums. When estimates of sales value or project costs are revised, gross profit is adjusted in the period of changeso that cumulative project earnings reflect the revised profit estimate. Stratus revised estimates of projected aggregate profit margins oncondominium units at the W Austin Hotel & Residences project, resulting in a charge to cost of sales totaling $1.5 million in 2012.Allocation of Overhead Costs. Stratus has historically allocated a portion of its overhead costs to both capitalized real estate costs and costof 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 certain indirectproject costs associated with the acquisition, development and construction of a real estate project. Indirect costs include allocated costsassociated with certain pooled resources (such as office supplies, telephone and postage) which are used to support Stratus’ developmentprojects, as well as general and administrative functions. Allocations of pooled resources are based only on those employees directlyresponsible for development (i.e., project managers and subordinates). Stratus charges to expense indirect costs that do not clearly relate to areal estate project, such as salaries and costs related to its Chief Executive Officer and Chief Financial Officer.Municipal Utility District Reimbursements. Stratus receives Barton Creek Municipal Utility District (MUD) reimbursements for certaininfrastructure costs incurred in the Barton Creek area. Prior to 1996, Stratus capitalized infrastructure costs to its properties as those costswere incurred. Subsequently, those costs were charged to cost of sales as properties were sold. In 1996, following the 1995 creation ofMUDs, Stratus began capitalizing the infrastructure costs to a separate MUD property category. MUD reimbursements received forinfrastructure costs incurred prior to 1996 are reflected as a reduction of cost of sales, while other MUD reimbursements represent areimbursement of the cost of MUD properties and are recorded as a reduction of the related asset’s carrying amount or cost of sales if theproperty has been sold. Stratus has long-term agreements with seven independent MUDs in Barton Creek to build the MUDs’ utilitysystems and to be eligible for future reimbursements for the related costs. The amount and timing of MUD reimbursements depends uponthe respective MUD having a sufficient tax base within its district to issue bonds and obtaining the necessary state approval for the sale of thebonds. 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 untilapproximately one month before the MUD reimbursements are received. To the extent the reimbursements are less than the costscapitalized, 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$0.9 million in 2013 and $0.6 million in 2012.Income Taxes. Stratus accounts for deferred income taxes utilizing an asset and liability method, whereby deferred tax assets and liabilitiesare recognized based on the tax effects of temporary differences between the financial statements and the tax basis of assets and liabilities, asmeasured by current enacted tax rates. The effect on deferred income tax assets and liabilities of a change in tax rates or laws is recognized inincome in the period in which such changes are enacted. Stratus periodically evaluates the need for a valuation allowance to reduce deferredtax assets to estimated recoverable amounts. Stratus establishes a valuation allowance to reduce its deferred tax assets and records acorresponding charge to earnings if it is determined, based on available evidence at the time, that it is more likely than not that any portion ofthe deferred tax assets will not be realized. In evaluating the need for a valuation allowance, Stratus estimates future taxable income basedon projections and ongoing tax strategies. This process involves significant management judgment about assumptions that are subject tochange based on variances between projected and actual operating performance and changes in Stratus’ business environment or operatingor financial plans. See Note 8 for further discussion.Earnings Per Share. Stratus’ basic net income per share of common stock was calculated by dividing the net income (loss) attributable toStratus common stock by the weighted-average shares of common stock outstanding during the period. A reconciliation of net income (loss)and weighted-average shares of common stock outstanding for purposes of calculating diluted net income (loss) per share (in thousands,except per share amounts) for the years ended December 31 follows: 2013 2012Net income (loss)$5,894 $(4,313)Net (income) loss attributable to noncontrolling interests(3,309) 2,727Net income (loss) attributable to Stratus common stock$2,585 $(1,586) Weighted-average shares of Stratus common stock outstanding8,077 7,966Add shares issuable upon exercise or vesting of: Dilutive stock options7a —Restricted stock units27 — Weighted-average shares of Stratus common stock outstanding for purposes of calculatingdiluted net income (loss) per share8,111 7,966Diluted net income (loss) per share attributable to Stratus common stock$0.32 $(0.20)a. Excludes shares of Stratus common stock associated with outstanding stock options with exercise prices less than the average market price ofStratus' common stock that were anti-dilutive based on the treasury stock method totaling approximately 1,250 shares for the year endedDecember 31, 2013.Outstanding stock options with exercise prices greater than the average market price for Stratus' common stock during the period areexcluded from the computation of diluted net income (loss) per share of common stock. Excluded were approximately 63,500 stock optionswith a weighted average exercise price of $20.85 for 2013. Stock options and restricted stock units representing approximately 134,300shares for 2012 were excluded from weighted-average common shares outstanding for purposes of calculating diluted net income (loss) pershare because they were anti-dilutive, either because inclusion of the options would result in a decrease of Stratus' net loss per share, or thestock options had exercise prices greater than the average market price of Stratus' common stock.Stock-Based Compensation. Compensation costs for share-based payments to employees, including stock options, are measured at fairvalue and charged to expense over the requisite service period for awards that are expected to vest. The fair value of stock options isdetermined using the Black-Scholes option valuation model. In addition, for restricted stock units, compensation costs are recognized basedon the fair value on the date of grant. Stratus estimates forfeitures at the time of grant and revises those estimates in subsequent periods ifactual forfeitures differ from those estimates through the final vesting date of the awards. See Note 9 for further discussion.2. Joint Venture with Canyon-Johnson Urban Fund II, L.P.Stratus and Canyon-Johnson Urban Fund II, L.P. (Canyon-Johnson) are participants in a joint venture, CJUF II Stratus Block 21, LLC, for a36-story mixed-use development in downtown Austin, Texas, anchored by a W Hotel & Residences (the W Austin Hotel & Residencesproject). Stratus is the manager of, and has an approximate 40 percent interest in, the joint venture, and Canyon-Johnson has anapproximate 60 percent interest in the joint venture. As of December 31, 2013, cumulative capital contributions totaled $71.9 million forStratus and $94.0 million for Canyon-Johnson. As of December 31, 2013, cumulative distributions to Stratus totaled $44.7 million,including $34.8 million in 2013, and $50.6 million to Canyon-Johnson, including $40.7 million in 2013.Upon formation of the joint venture, Stratus performed an initial evaluation and concluded that the joint venture was a variable interest entity(VIE) and that Stratus was the primary beneficiary. Stratus reevaluated and reaffirmed its previous conclusion as to the VIE status andprimary beneficiary of the joint venture with Canyon-Johnson as of September 30, 2013, the date of the Bank of America (BoA) refinancingtransaction (see Note 7). Stratus will continue to evaluate which entity is the primary beneficiary of the joint venture in accordance withapplicable accounting guidance. Stratus’ consolidated balance sheets include the following assets and liabilities of the joint venture (in thousands): December 31, December 31, 2013 2012Assets: Cash and cash equivalents$13,192 $7,461Restricted cash5,069 17,657Real estate held for sale10,942 45,320Real estate held for investment, net157,541 163,666Other assets7,631 8,398 Total assets194,375 242,502Liabilities: Accounts payable3,428 13,592Accrued liabilities6,856 6,322Deposits2,093 1,714Debt99,754 67,670Other liabilities2,668 2,386 Total liabilities114,799 91,684Net assets$79,576 $150,818 Profits and losses between partners in a real estate venture should be allocated based on how changes in net assets of the venture wouldaffect cash payments to the investors over the life of the venture and on its liquidation. The amount of the ultimate profits earned by the WAustin Hotel & Residences project will affect the ultimate profit sharing ratios because of provisions in the joint venture agreement whichwould require Stratus to return certain previously received distributions to Canyon-Johnson under certain circumstances. Because of theuncertainty of the ultimate profits and, therefore, profit-sharing ratios, the W Austin Hotel & Residences project's cumulative profits or lossesare allocated based on a hypothetical liquidation of the joint venture's net assets as of each balance sheet date. At December 31, 2013, thecumulative income for the W Austin Hotel & Residences project was allocated based on 42 percent for Stratus and 58 percent for Canyon-Johnson.On October 3, 2012, the joint venture and Pedernales Entertainment LLC (Pedernales) formed Stageside Productions (Stageside) topromote, market and commercialize the production, sale, distribution and general oversight of audio and video recordings of events orperformances occurring at Austin City Limits Live at the Moody Theater (ACL Live). The joint venture's initial capital contributions toStageside totaled $0.3 million, and the joint venture will contribute additional capital as necessary to fund the working capital needs ofStageside. The joint venture has a 100 percent capital funding interest and has a 40 percent residual and voting interest in Stageside. Thejoint venture performed an evaluation and concluded Stageside is a VIE and that the joint venture is the primary beneficiary. Accordingly, theresults of Stageside are consolidated in the joint venture's financial statements.3. Joint Venture with Moffett Holdings, LLCOn February 28, 2011, Stratus entered into a joint venture with Moffett Holdings, LLC (Moffett Holdings) for the development of ParksideVillage, a retail project in the Circle C community.Stratus’ 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. MoffettHoldings made cash capital contributions to the joint venture totaling $3.8 million to fund the development of the project. Distributions of $3.5million were made to Stratus and $4.1 million to Moffett Holdings in 2013. The joint venture also has a construction loan with ComericaBank to finance the development of Parkside Village (see Note 7 for further discussion). The Parkside Village loan with Comerica Bank hadan outstanding balance of $17.7 million and availability of $2.0 million at December 31, 2013.Stratus is the manager of the joint venture. After the partners are paid a preferred return on their contributions, Stratus will receive 80 percentof any distributions and Moffett Holdings will receive 20 percent. As the manager of the joint venture with a majority of the voting and profitinterest (80 percent), Stratus consolidates this joint venture in its financial statements.4. Real Estate, net December 31, 2013 2012 (In Thousands) Real estate held for sale: Developed lots and condominium units$18,133 $60,244 Real estate under development: Acreage and lots76,891 31,596 Land available for development: Undeveloped acreage21,404 49,569 Real estate held for investment: W Austin Hotel & Residences Hotel122,979 122,169 Entertainment venue41,048 40,762 Office and retail16,389 15,798 Parkside Village15,459 15,067 Barton Creek Village6,443 6,433 5700 Slaughter5,846 5,866 Furniture, fixtures and equipment1,375 1,616 Total209,539 207,711 Accumulated depreciation(27,009) (18,380) Total real estate held for investment, net182,530 189,331 Total real estate, net$298,958 $330,740 Real estate held for sale. Developed lots and condominium units include condominium units at the W Austin Hotel & Residences project,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. As ofDecember 31, 2013, Stratus owned 39 developed lots and nine completed condominium units at the W Austin Hotel & Residences project.Real estate under development. Acreage under development includes real estate lots for which infrastructure for the entire property iscurrently under construction and/or is expected to be completed, and necessary permits have been received, or acreage on which commercialproperties are under development. Acreage under development at December 31, 2013, totaled 321 acres.17 Table of ContentsLand available for development. Undeveloped acreage includes real estate that can be sold “as is” (i.e., no infrastructure or developmentwork has begun on such property). Stratus’ undeveloped acreage as of December 31, 2013, included approximately 1,668 acres of land inAustin, Texas, permitted 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 W Austin Hotel & Residences project also includes ACL Live, an entertainment venue and production studio, with a maximum capacityof 3,000 people, 39,328 square feet of office space and 18,362 square feet of retail space. As of December 31, 2013, occupancy was 84percent for the office space and 85 percent for the retail space. The Parkside Village property consists of a 90,641-square-foot retail complex inthe Circle C community. Construction of the final two buildings is expected to be completed in mid-2014 and as of December 31, 2013,occupancy of the completed 77,641 square feet was 95 percent. Of the two buildings under development, the 7,500-square-foot building isfully pre-leased, and leasing activities are ongoing for the 5,500-square-foot building. The Barton Creek Village property includes a 22,366-square-foot retail complex, which was 100 percent leased at December 31, 2013, and a 3,085-square-foot bank building, which is leasedthrough January 2023. The 5700 Slaughter property includes two retail buildings totaling in the aggregate 21,248 square feet, which was 91percent leased at December 31, 2013.Capitalized interest. Stratus recorded capitalized interest of $3.6 million in 2013 and $3.5 million in 2012.5. Fair Value MeasurementsFair value accounting guidance includes a hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. Thehierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 inputs) and thelowest priority to unobservable inputs (Level 3 inputs).The carrying value for certain Stratus financial instruments (i.e., cash, restricted cash, accounts and notes receivable, accounts payable andaccrued liabilities) approximate fair value because of their short-term nature and generally negligible credit losses. A summary of the carryingamount and fair value of Stratus' other financial instruments follows (in thousands): December 31, 2013 December 31, 2012 CarryingValue FairValue CarryingValue FairValueAssets: Interest rate cap agreement$351 $351 $— $—Liabilities: Interest rate swap32 32 — —Debt151,332 151,584 137,035 136,774Interest Rate Cap Agreement. On September 30, 2013, the joint venture with Canyon-Johnson paid $0.5 million to enter into an interestrate cap agreement, which caps the one-month London Interbank Offered Rate (LIBOR), the variable rate in the BoA loan agreement, at 1percent for the first year the BoA loan is outstanding, 1.5 percent for the second year and 2 percent for the third year. Stratus uses an interestrate 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, butdid not consider such risk to be significant. Therefore, the interest rate cap agreement is classified within Level 2 of the fair value hierarchy.See Note 7 for more information on the BoA loan.Interest Rate Swap Agreement. On December 13, 2013, the joint venture with Moffett Holdings entered into an interest rate swapagreement with Comerica Bank that effectively converts the Parkside Village loan's variable rate from one-month LIBOR to a fixed rate of 2.3percent. With the swap agreement in place, the joint ventures' interest cost on the Parkside Village loan will be 4.8 percent through theDecember 31, 2020, maturity date. Stratus also evaluated the counterparty credit risk associated with the interest rate swap agreement,which is considered a Level 3 input, but did not consider such risk to be significant. Therefore, the interest rate swap agreement is classifiedwithin Level 2 of the fair value hierarchy. See Note 7 for more information on the Parkside Village loan.Debt. Stratus' debt is recorded at cost and is not actively traded. Fair value is estimated based on discounted future expected cash flows atestimated current market interest rates. Accordingly, Stratus' debt is classified within Level 2 of the fair value hierarchy. The fair value of debtdoes not represent the amounts that will ultimately be paid upon the maturities of the loans.6. Investment in Unconsolidated AffiliatesCrestview Station. In 2005, Stratus formed a joint venture with Trammell Crow Central Texas Development, Inc. (Trammell Crow) toacquire an approximate 74-acre tract at the intersection of Airport Boulevard and Lamar Boulevard in Austin, Texas, for $7.7 million. Theproperty, known as Crestview Station, is a single- and multi-family, retail and office development, which is located on a commuter rail line.With Trammell Crow, Stratus completed environmental remediation, which the State of Texas certified as complete in September 2007, andpermitting of the property. Crestview Station sold substantially all of its multi-family residential and commercial properties in 2007 and onecommercial site in 2008.During 2012, Crestview Station entered into an agreement to sell the remaining residential land to DR Horton. The contract provides for thesale of 304 lots over four years for a total contract price of $15.8 million. The first closing of 73 lots for $3.8 million occurred in April 2012, and Crestview Station recognized gross profit on the sale of $0.4 million. The second closing of 59 lots for $3.4 million occurred in May 2013, andCrestview Station recognized gross profit on the sale of $0.7 million. At December 31, 2013, Stratus' investment in Crestview Station totaled$3.6 million and Crestview Station had $0.9 million of outstanding debt, for which Stratus and Trammell Crow have executed a joint andseveral guaranty of $0.2 million, or 25 percent of the outstanding balance. The loan was repaid subsequent to December 31, 2013, inconnection with the third closing of 59 lots in March 2014. Stratus accounts for its 50 percent interest in the Crestview Station joint ventureunder the equity method.Stump Fluff. In April 2013, Stratus formed a joint venture, Stump Fluff LLC (Stump Fluff), with Transmission Entertainment, LLC(Transmission) to own, operate, manage and sell live music and entertainment promotion, booking, production, merchandising, venueservices and other related products and services. As of December 31, 2013, Stratus' capital contributions to Stump Fluff totaled $0.8 million.Stratus will contribute additional capital to Stump Fluff as necessary to fund its working capital needs. Transmission contributed its existingassets to Stump Fluff. In addition, Stump Fluff assumed specified liabilities of Transmission totaling $0.2 million. Transmission is notrequired to make any future capital contributions to Stump Fluff. Stratus and Transmission each have a 50 percent voting interest in StumpFluff. After Stratus is repaid its original capital contributions and a preferred return (10 percent annually) on those contributions, Stratus willreceive 33 percent of any distributions from Stump Fluff and Transmission will receive 67 percent.Guapo Enterprises. In May 2013, Stratus and Austin Pachanga Partners, LLC (Pachanga Partners) formed a joint venture, GuapoEnterprises LLC (Guapo) to own, operate, manage and sell the products and services of the Pachanga music festival business. As ofDecember 31, 2013, Stratus' capital contributions to Guapo totaled $0.3 million. Stratus will contribute additional capital to Guapo asnecessary to fund its working capital needs. Pachanga Partners contributed its existing assets to Guapo and is not required to make anyfuture capital contributions. Stratus and Pachanga Partners each have a 50 percent voting interest in Guapo. After Stratus is repaid its originalcapital contributions and a preferred return (10 percent annually) on those contributions, Stratus will receive 33 percent of any distributionsfrom Guapo and Pachanga Partners will receive 67 percent.Stratus has concluded that both Stump Fluff and Guapo are VIEs and that no partner in either joint venture is the primary beneficiarybecause decision-making about the activities that most significantly impact the VIEs' economic performance is shared equally by thepartners. Stratus accounts for its investments in Stump Fluff and Guapo using the equity method.Stratus’ equity in unconsolidated affiliates' losses totaled $76 thousand in 2013 and less than $29 thousand in 2012. Summarizedunaudited financial information for Stratus' unconsolidated affiliates follows (in thousands): 2013 2012Years Ended December 31: Revenues$8,334 $3,844Gross profit716 365Net income (loss)115 (58)At December 31: Total assets$9,610 $11,144Total liabilities1,587 4,339Total equity8,023 6,80518 Table of Contents7. Debt December 31, 2013 2012 (In Thousands)Bank of America loan, average interest rate 2.67% in 2013$99,754 $—Unsecured term loans, average interest rate 7.25% in 2013 and 8.29% in 201223,000 23,000Parkside Village loan, average interest rate 4.97% in 2013 and 5.0% in 201217,672 10,207Slaughter term loan, average interest rate 6.95% in 2013 and 20125,073 5,162Barton Creek Village term loan, average interest rate 6.25% in 2013 and 20124,283 4,384Lakeway land term loan, average interest rate 5.0% in 20131,550 —Beal Bank loan, average interest rate 10.0% in 2012— 67,670Comerica credit facility, average interest rate 6.26% in 2012— 26,612Total debt$151,332 $137,035Bank of America Loan. On September 30, 2013, the joint venture with Canyon-Johnson entered into a term loan agreement for a $100million non-recourse loan. The initial maturity date of the BoA loan is September 29, 2016, but the joint venture has the option to extend the maturity date for up tothree additional one-year terms. The BoA loan accrues interest at the LIBOR daily floating rate plus 2.5 percent. The joint venture entered intoan interest rate cap agreement for the BOA loan (see Note 5). The joint venture’s obligations under the BoA loan are secured by certainproperty and assets related to the W Austin Hotel & Residences project, excluding the remaining unsold condominium residences.Additionally, Stratus and Canyon-Johnson guarantee certain obligations of the joint venture, including environmental indemnification andother customary carve-out obligations. The BoA loan contains customary financial covenants and other restrictions. As required by the BoAloan, $67.3 million of the proceeds were used to fully repay the joint venture’s existing obligations to Beal Bank USA (Beal Bank). Stratusalso used a portion of its distribution from the BOA loan to repay the $11.7 million balance outstanding under its revolving line of credit withComerica Bank.Unsecured Term Loans. Stratus has $23.0 million outstanding under five unsecured term loans with American Strategic Income PortfolioInc. (ASIP, formerly First American Asset Management, or FAAM), including two $3.5 million loans, an $8.0 million loan, a $5.0 millionloan and a $3.0 million loan.In September 2012, Stratus extended and modified the ASIP loans effective as of September 1, 2012, and paid in full the outstanding balanceof $2.0 million on one of the unsecured term loans that was scheduled to mature on December 31, 2012, and the $7.0 million unsecuredterm loans that were scheduled to mature on June 30, 2013. The ASIP loan modifications reduced the interest rate from 8.75 percent to 7.25percent, and extended the maturity dates as follows:Lender Principal Balance FormerMaturity Date Modified MaturityDateAmerican Strategic Income Portfolio Inc.-II $3,000,000 12/31/2012 12/31/2015 American Select Portfolio Inc. 3,500,000 12/31/2012 12/31/2015 American Strategic Income Portfolio Inc.-II 8,000,000 6/30/2013 12/31/2016 American Select Portfolio Inc. 5,000,000 12/31/2014 3/31/2015 American Strategic Income Portfolio Inc. 3,500,000 12/31/2014 3/31/2015All other terms and conditions under each of the unsecured term loans remained unchanged, including the debt service coverage ratiocovenant and the alternative covenant that requires Stratus to maintain total stockholders'19 Table of Contentsequity of no less than $120.0 million. On May 9, 2013, Stratus entered into a modification agreement with ASIP that reduced the amount oftotal stockholders' equity required to be maintained by Stratus from $120.0 million to $110.0 million. Concurrently with this modification, theminimum stockholders' equity covenant of the Comerica credit facility was also reduced to $110.0 million. See below for more information onthe Comerica credit facility.Parkside Village Loan. On May 17, 2011, the joint venture entered into a construction loan agreement and promissory note with ComericaBank to finance the development of Parkside Village. In December 2013, the joint venture between Stratus and Moffett Holdings extendedand modified the Parkside Village loan, effective as of December 12, 2013. The Parkside Village loan modifications extended the maturitydate from December 31, 2013, to December 31, 2020, increased the principal amount available to a total of $19.7 million, replaced the debtcoverage provision by providing for a minimum debt yield, as defined in the agreement, of 9.1 percent, and amended certain other provisionsof the agreement. As of December 31, 2013, the amount outstanding was $17.7 million with $2.0 million available.The loan is secured by a lien on the assets of the Parkside Village project, which had a net book value of $15.8 million at December 31,2013, and Stratus has provided a limited guaranty.Slaughter Term Loan. Stratus has $5.1 million outstanding under a $5.4 million term loan, which will mature on January 31, 2015. Theloan is secured by 5700 Slaughter, which had a net book value of $4.7 million at December 31, 2013. The interest rate is 6.95 percent, andpayments of principal and interest are due monthly.Barton Creek Village Term Loan. Stratus has $4.3 million outstanding under a term loan, which will mature on April 1, 2014. The loan issecured by Barton Creek Village, which had a net book value of $5.0 million at December 31, 2013. The interest rate is 6.25 percent, andpayments of interest and principal are due monthly.Lakeway Land Term Loan. On May 15, 2013, Stratus entered into a loan agreement and promissory note with D.N. Kahn to finance thepurchase of a tract of land for future development in Lakeway, Texas (the Lakeway land term loan). Stratus has $1.6 million outstandingunder the loan, which will mature on May 15, 2015. The loan is secured by the related land, which had a net book value of $2.3 million atDecember 31, 2013. The interest rate is 5 percent, with payments due quarterly.Beal Bank Loan. On October 21, 2009, the joint venture with Canyon-Johnson obtained construction financing from Beal Bank for up to anaggregate of $120.0 million to fund the construction, development and marketing costs of the W Austin Hotel & Residences project. In third-quarter 2013, the joint venture fully repaid the Beal Bank loan. In connection with the repayment of the loan, the joint venture paid aprepayment premium equal to 1 percent of the outstanding principal balance, which was recorded as a loss on early extinguishment of debtin the Statements of Operations.Comerica Credit Facility. Effective December 31, 2012, Stratus amended its credit facility, such that the existing $45.0 million facility wasreplaced with a $48.0 million credit facility, divided into three tranches as follows: (1) a $35.0 million revolving line of credit, (2) $3.0 millionfor letters of credit and (3) a $10.0 million construction loan. The interest rate applicable to amounts borrowed under each loan is an annualrate of LIBOR plus 4.0 percent, with a minimum interest rate of 6.0 percent. The credit facility will mature on November 30, 2014. Stratus'obligations under the credit facility are secured by substantially all of Stratus' assets, except for properties that are encumbered by separatenon-recourse permanent loan financing, and sets limitations on liens and transactions with affiliates and requires that certain financial ratiosbe maintained, including a requirement that Stratus maintain a minimum total stockholders' equity balance of $110.0 million.Under the terms of the credit facility, (1) any distributions received by Stratus from its investment in the W Austin Hotel & Residences projectshall be paid to Comerica and applied against the $35.0 million revolving loan to the extent of any outstanding debt and (2) MUDreimbursements and land sales proceeds directly related to Section N of Barton Creek shall be used to first repay the Barton Creek Villageterm loan (discussed above), with any excess used to pay down the $35.0 million revolving loan. Any amounts borrowed and repaid underthe $10.0 million construction loan will not be available for future advance to Stratus. At December 31, 2013, no amounts were outstandingunder the revolving line of credit, letters of credit tranche or the construction loan.20 Table of ContentsMaturities. The following table summarizes Stratus' debt maturities as of December 31, 2013 (in thousands): 2014 2015 2016 2017 After 2017 TotalBank of America loana$1,487 $1,564 $96,703 $— $— $99,754Unsecured term loans— 15,000 8,000 — — 23,000Parkside Village loan— 480 480 480 16,232 17,672Slaughter term loan95 4,978 — — — 5,073Barton Creek Village term loan4,283 — — — — 4,283Lakeway land term loan— 1,550 — — — 1,550Total$5,865 $23,572 $105,183 $480 $16,232 $151,332a. The joint venture with Canyon-Johnson has the option to extend the maturity date for up to three additional one-year terms.8. Income TaxesThe components of deferred income taxes follow (in thousands): December 31, 2013 2012Deferred tax assets and liabilities: Real estate, commercial leasing assets and facilities$4,829 $4,442Alternative minimum tax credits (no expiration)860 820Employee benefit accruals917 551Accrued liabilities88 75Deferred income3,747 4,063Charitable contribution carryforward659 1,077Other assets601 604Net operating loss credit carryforwards705 2,201Other liabilities(26) (48)Valuation allowance(12,096) (13,491)Deferred tax assets, net$284 $294Stratus’ deferred tax assets (net of deferred tax liabilities) before any valuation allowances totaled $12.4 million at December 31, 2013, and$13.8 million at December 31, 2012. In evaluating the recoverability of these deferred tax assets, Stratus considered available positive andnegative evidence, giving greater weight to the recent losses, the absence of taxable income in the carry back period and uncertaintyregarding projected future financial results. As a result, Stratus concluded that there was not sufficient positive evidence supporting therealizability of its deferred tax assets beyond an amount totaling $0.3 million at each of December 31, 2013, and December 31, 2012, andStratus recorded credits totaling $1.4 million in 2013 and charges totaling $0.5 million in 2012 to the provision for income taxes to adjust thevaluation allowances.Stratus’ future results of operations may be negatively impacted by its inability to realize a tax benefit for future tax losses or for items that willgenerate additional deferred tax assets that are not more likely than not to be realized. Stratus’ future results of operations may be favorablyimpacted by reversals of valuation allowances if Stratus is able to demonstrate sufficient positive evidence that its deferred tax assets will berealized.Stratus’ income tax provision consists of the following (in thousands): Years Ended December 31, 2013 2012Current$(899) $(778)Deferred(30) 142Provision for income taxes$(929) $(636)Excess tax benefits related to option exercises and vesting of restricted stock units cannot be recognized until realized through a reduction ofcurrent taxes payable. Stratus' deferred tax asset related to the U.S. net operating loss carry forwards at December 31, 2013, did not includean additional $5.0 million of net operating losses in relation to excess tax benefits on stock option exercises and restricted stock units vestedbeginning in 2007 because these benefits have not yet been realized. At December 31, 2013, excluding these losses, Stratus had netoperating loss carryforwards of approximately $1.9 million that expire between 2028 and 2031.During 2013 and 2012, Stratus recorded unrecognized tax benefits related to state income tax filing positions. A summary of the changes inunrecognized tax benefits follows (in thousands): December 31, 2013 2012 Balance at January 1$562 $—Additions for tax positions related to the current year274 252Additions for tax positions related to prior years18 310Balance at December 31$854 $562As of December 31, 2013, there was $0.9 million of unrecognized tax benefits that if recognized would affect Stratus' annual effective tax rate.Stratus does not expect its unrecognized tax benefits to change significantly over the next 12 months.Stratus records liabilities offsetting the tax provision benefits of uncertain tax positions to the extent it estimates that a tax position is not morelikely than not to be sustained upon examination by the taxing authorities. Stratus has elected to classify any interest expense and penaltiesrelated to income taxes within income tax expense in its consolidated statements of operations. As of December 31, 2013, less than $0.1million of interest costs have been accrued.Stratus files income tax returns in the U.S. federal jurisdiction and state jurisdictions. With few exceptions, Stratus is no longer subject toU.S. federal income tax examinations by tax authorities for the years prior to 2009, and state income tax examinations for the years prior to2008.Reconciliations of the income tax benefit computed at the federal statutory tax rate and the recorded income tax provision follow (dollars inthousands): Years Ended December 31, 2013 2012 Amount Percent Amount PercentIncome tax (expense) benefit computed at the federal statutory income tax rate$(2,388) (35)% $1,256 35 %Adjustments attributable to: Change in valuation allowance1,395 20 % (513) (14)%Noncontrolling interests1,158 17 % (954) (27)%Equity in unconsolidated affiliates’ loss27 — % 10 — %State taxes and other, net(1,121) (16)% (435) (12)%Provision for income taxes$(929) (14)% $(636) (18)%Stratus paid federal and state income taxes totaling $0.5 million in 2013 and $0.1 million in 2012. Stratus did not receive refunds of federal orstate income taxes in 2013 and 2012.9. Stock-Based Compensation, Equity Transactions and Employee BenefitsStock-Based Compensation Plans. Stratus currently has three stock-based compensation plans, all of which have awards available forgrant. In May 2013, Stratus' shareholders approved the 2013 Stock Incentive Plan, which provides for the issuance of stock-basedcompensation awards, including stock options and restricted stock units, relating to 180,000 shares of Stratus common stock that areissuable to Stratus employees and non-employee directors. Stratus’ 2010 Stock Incentive Plan provides for the issuance of stock options andrestricted stock units relating to 140,000 shares of Stratus common stock that are issuable to Stratus employees and non-employee directors.Stratus’ 1996 Stock Option Plan for Non-Employee Directors provides for the issuance of stock options only. Stratus common stock issuedupon option exercises or restricted stock unit vestings represent newly issued shares of common stock. Awards with respect to 180,000shares under the 2013 Stock Incentive Plan, 8,875 shares under the 2010 Stock Incentive Plan and 2,500 shares under the 1996 StockOption Plan for Non-Employee Directors were available for new grants as of December 31, 2013.Stock-Based Compensation Costs. Compensation costs charged against earnings for stock-based awards are shown below (inthousands). Stock-based compensation costs are capitalized when 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. Years Ended December 31, 2013 2012Stock options awarded to employees (including directors)$14 $28Restricted stock units awarded to employees324 241Impact on net income (loss) before income taxes$338 $269Options. Stock options granted under the plans generally expire 10 years after the date of grant and vest in 25 percent annual incrementsbeginning one year from the date of grant. The plans and award agreements provide that participants will receive the following year’s vestingafter retirement and provide for accelerated vesting if there is a change of control (as defined in the plans). A summary of stock optionsoutstanding as of December 31, 2013, and changes during the year ended December 31, 2013, follows: Number ofOptions WeightedAverageOption Price WeightedAverageRemainingContractualTerm (years) AggregateIntrinsicValue($000)Balance at January 192,000 $17.45 Granted— — Exercised(8,875) 9.99 Expired(6,250) 16.02 Balance at December 3176,875 18.42 2.7 $183.8Vested and exercisable at December 3173,125 18.87 2.5 $155.6A summary of stock options outstanding and changes during the year ended December 31, 2012, follows: 2012 NumberofOptions WeightedAverageOptionPriceBalance at January 1101,000 $16.65Granted— —Exercised(5,250) 8.26Forfeited(3,750) 9.00Balance at December 3192,000 17.45The fair value of each option award is estimated on the date of grant using a Black-Scholes option valuation model. Expected volatility isbased on the historical volatility of Stratus’ common stock. Stratus estimates its expected life of options using historical data to estimateoption exercises and forfeitures. When appropriate, employees who have similar historical exercise behavior are grouped for valuationpurposes. The risk-free interest rate is based on Federal Reserve rates in effect for bonds with maturity dates equal to the expected term of theoption at the date of grant. Stratus has not paid, and has no current plan to pay, cash dividends on its common stock. There were no stockoptions granted during 2013 or 2012.The intrinsic value of options exercised during 2013 and 2012 was less than $0.1 million. Vested stock options totaled 3,750 during 2013 and7,500 during 2012 with weighted-average grant-date fair values of $5.91 per option and $8.30 per option, respectively. As of December 31,2013, there were 3,750 stock options unvested with a weighted-average grant-date fair value of $6.72 per option. As of December 31, 2013,Stratus had less than $10,000 of total unrecognized compensation cost related to unvested stock options expected to be recognized over aweighted average period of less than one year.The following table includes amounts related to exercises of stock options and vesting of restricted stock units for the years endedDecember 31, 2013, and 2012 (in thousands, except shares of Stratus common stock tendered): 2013 2012Stratus shares tendered to pay the exercise price and/or the minimum required taxesa8,132 4,883Cash received from stock option exercises$91 $43Amounts Stratus paid for employee taxes$9 $2a.Under terms of the related plans, upon exercise of stock options and vesting of restricted stock units, employees may tender shares of Stratuscommon stock 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 the non-employeedirectors and certain officers of Stratus at no cost to the directors and officers. The restricted stock units are converted into shares of Stratuscommon stock ratably and generally vest in one-quarter increments over the four years following the grant date. For officers, the awards willfully vest upon retirement, death and disability, and upon a change of control. For directors, the awards will fully vest upon a change of controland there will be a partial acceleration of vesting due to retirement, death and disability.A summary of outstanding unvested restricted stock units as of December 31, 2013, and activity during the year ended December 31, 2013,is presented below: Number ofRestrictedStock Units AggregateIntrinsicValue($000)Balance at January 183,000 Granted48,000 Vested(30,125) Balance at December 31100,875 $1,728The total grant date fair value of restricted stock units granted during the year ended December 31, 2013, was $0.6 million. The total intrinsicvalue of restricted stock units vesting during the year ended December 31, 2013, was $0.4 million. As of December 31, 2013, Stratus had$0.8 million of total unrecognized compensation cost related to unvested restricted stock units expected to be recognized over a weighted-average period of 1.8 years. Share Purchase Program. In 2001, Stratus’ Board of Directors authorized an open market stock purchase program for up to 0.7 millionshares of Stratus’ common stock. The purchases may occur over time depending on many factors, including the market price of Stratuscommon stock; Stratus’ operating results, cash flow and financial position; and general economic and market conditions. In November 2013,Stratus' Board of Directors approved an increase in the open market share purchase program from 0.7 million shares to 1.7 million shares ofStratus common stock. Stratus' Comerica credit facility and its ASIP unsecured term loans, as modified, allowed for common stockpurchases up to $1.0 million during 2013. Purchases under this program during 2013 included 81,990 shares for $1.0 million (an average of$11.68 per share), which Stratus purchased in private transactions. As of December 31, 2013, 31,655 shares remain available under thisprogram. See Note 13 for purchases made subsequent to December 31, 2013.Employee Benefits. Stratus maintains 401(k) defined contribution plans subject to the provisions of the Employee Retirement IncomeSecurity Act of 1974 (ERISA). The 401(k) plans provide for an employer matching contribution equal to 100 percent of the participant’scontribution, subject to a limit of 5 percent of the participant’s annual salary. Stratus’ policy is to make an additional safe harbor contributionequal to 3 percent of each participant’s total compensation for corporate employees and 4 percent for ACL Live employees. The 401(k) plansalso provide for discretionary contributions. Stratus’ contributions to the 401(k) plans totaled $0.4 million in 2013 and $0.3 million in 2012.10. Commitments and ContingenciesConstruction Contracts. Stratus had commitments under noncancelable construction contracts totaling $21.2 million at December 31,2013. These commitments primarily included contracts for infrastructure work in connection with Amarra Drive Phase III and Section N atBarton Creek.Guarantees. At December 31, 2013, Stratus guarantees $0.2 million of the $0.9 million of outstanding debt at Crestview Station (see Note6). Stratus also had guarantees related to the W Austin Hotel & Residences project (see Note 2).Letters of Credit. As of December 31, 2013, Stratus had letters of credit committed totaling $4.1 million under its credit facility withComerica.Rental Income. As of December 31, 2013, Stratus’ minimum rental income, which includes scheduled rent increases under noncancelablelong-term leases which extend through 2025, totaled $4.1 million in 2014, $4.0 million in 2015, $3.9 million in 2016, $3.7 million in 2017,$3.4 million in 2018 and $15.2 million thereafter.Operating Lease. As of December 31, 2013, Stratus’ minimum annual contractual payments under its noncancelable long-term operatingleases totaled $0.1 million in 2014 and 2015 and less than $0.1 million in 2016 and 2017. Total expense under Stratus’ operating leasesamounted to $0.1 million in 2013 and 2012.Circle C Settlement. On August 1, 2002, the City of Austin (the City) granted final approval of a development agreement (the Circle Csettlement) and permanent zoning for Stratus’ real estate located within the Circle C community in southwest Austin. The Circle Csettlement firmly established all essential municipal development regulations applicable to Stratus’ Circle C properties for thirty years. TheCity also provided Stratus $15 million of development fee credits, which are in the form of credit bank capacity, in connection with its futuredevelopment of its Circle C and other Austin-area properties for waivers of fees and reimbursement for certain infrastructure costs. Inaddition, 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 totheir projects as long as the projects are within the desired development zone, as defined within the Circle C settlement. To the extent Stratussells the incentives to other developers, Stratus recognizes the income from the sale when title is transferred and compensation is received.As of December 31, 2013, Stratus has permanently used $11.4 million of its City-based development fee credits, including cumulativeamounts sold to third parties totaling $5.1 million. Fee credits used for the development of Stratus’ properties effectively reduce the basis ofthe related properties and defer recognition of any gain associated with the use of the fees until the affected properties are sold. Stratus alsohas $1.4 million in credit bank capacity in use as temporary fiscal deposits as of December 31, 2013. Available credit bank capacity was $2.2million at December 31, 2013.Environmental Regulations. Stratus has made, and will continue to make, expenditures for protection of the environment. Increasingemphasis on environmental matters can be expected to result in additional costs, which will be charged against Stratus’ operations in futureperiods. Present and future environmental laws and regulations applicable to Stratus’ operations may require substantial capital expendituresthat could adversely affect the development of its real estate interests or may affect its operations in other ways that cannot be accuratelypredicted 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 ofits business. Stratus believes that potential liability from any of these pendingor threatened proceedings will not have a material adverse effect on Stratus’ financial condition or results of operations.11. Business SegmentsStratus currently has four operating segments: Real Estate Operations, Hotel, Entertainment and Commercial Leasing.The Real Estate Operations segment is comprised of Stratus’ real estate assets (developed, under development and undeveloped), whichconsist of its properties in the Barton Creek community, the Circle C community and Lantana, and the condominium units at the W AustinHotel & Residences project.The Hotel segment includes the W Austin Hotel located at the W Austin Hotel & Residences project.The Entertainment segment includes ACL Live, a live music and entertainment venue and production studio at the W Austin Hotel & Residences project. In addition to hosting concerts and private events, this venue is the home of Austin City Limits, a television programshowcasing popular music legends. The Entertainment segment also includes revenues and costs associated with events hosted at othervenues, and the results of the Stageside Productions joint venture (see Note 2 for further discussion).The Commercial Leasing segment includes the office and retail space at the W Austin Hotel & Residences project, a retail building and abank building in Barton Creek Village and 5700 Slaughter and the Parkside Village project in the Circle C community. In February 2012,Stratus sold the two office buildings at 7500 Rialto Boulevard (7500 Rialto). Accordingly, the operating results for 7500 Rialto are reported asdiscontinued operations in the table below (see Note 12).Stratus uses operating income or loss to measure the performance of each segment. Stratus allocates parent company general andadministrative expenses that do not directly relate to an operating segment between the Real Estate Operations and Commercial Leasingsegments based on projected annual revenues for each segment. General and administrative expenses related to the W Austin Hotel &Residences project are allocated to the Real Estate Operations, Hotel, Entertainment and Commercial Leasing segments based on projectedannual revenues for the W Austin Hotel & Residences project. The following segment information reflects management's determinationsthat 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 (in thousands). Real EstateOperationsa Hotel Entertainment CommercialLeasing Eliminationsand Otherb TotalYear Ended December 31, 2013: Revenues: Unaffiliated customers$67,589 $39,234 $15,481 $5,406 $— $127,710 Intersegment72 310 78 517 (977) —Cost of sales, excluding depreciation54,180 29,483 13,076 2,755 (290) 99,204Depreciation242 6,033 1,239 1,687 (148) 9,053Insurance settlement(1,785) — — — — (1,785)General and administrative expenses6,024 322 125 1,204 (588) 7,087Operating income$9,000 $3,706 $1,119 $277 $49 $14,151Capital expenditures$16,595 $759 $280 $1,347 $— $18,981Total assets at December 31, 2013$140,890 $115,510 $47,802 $48,617 $(5,876) $346,943Year Ended December 31, 2012: Revenues: Unaffiliated customers$62,114 $35,402 $13,799 $4,422 $— $115,737 Intersegment51 242 65 463 (821) —Cost of sales, excluding depreciation56,245 26,883 12,205 2,231 (305) 97,259Depreciation289 6,222 1,268 1,531 (145) 9,165General and administrative expenses5,246 335 130 1,313 (492) 6,532Operating income (loss)$385 $2,204 $261 $(190) $121 $2,781Income from discontinued operations$— $— $— $4,805 $— $4,805Capital expenditures$8,591 $64 $200 $4,731 $— $13,586Total assets at December 31, 2012$175,250 $119,052 $43,572 $48,516 $(7,262) $379,128a.Includes sales commissions and other revenues together with related expenses.b.Includes eliminations of intersegment amounts, including the deferred development fee income between Stratus and its joint venture withCanyon-Johnson (see Note 2).12. Discontinued OperationsOn February 27, 2012, Stratus sold 7500 Rialto to Lincoln Properties and Greenfield Partners (Lincoln Properties) for $27.0 million. LincolnProperties paid Stratus $6.7 million ($5.7 million net to Stratus after closing and other costs) in cash and assumed Stratus' outstandingnonrecourse debt (the Lantana Promissory Note) of $20.3 million secured by the property. Stratus is providing a limited guaranty of debtservice and other obligations on the Lantana21 Table of ContentsPromissory Note up to $5.0 million, which will be reduced by $2.5 million on May 1, 2016, until January 1, 2018 (the maturity date for theLantana Promissory Note). Stratus recognized $5.1 million of its $10.1 million gain on the sale in 2012 and expects the balance to berecorded as its obligations under the limited guaranty are relieved.The operating results and assets and liabilities for 7500 Rialto are presented in the financial statements as discontinued operations. Theoperations of 7500 Rialto previously represented a component of the Commercial Leasing segment (see Note 11). The following tablepresents the results of operations for 7500 Rialto up to and including the sale in February 2012 (in thousands): Year Ended December31, 2012Revenues$287Rental property costs(370)Interest expensea(198)Gain on sale5,146Provision for income taxes(60)Income from discontinued operations$4,805 a.Relates to interest on the Lantana Promissory Note and does not include any additional allocations of interest.13. Subsequent EventsOn March 3, 2014, Moffett Holdings redeemed and purchased the membership interest in Moffett Holdings held by LCHM Holdings, LLC(LCHM Holdings). In connection with the redemption, (1) LCHM Holdings received the 625,000 shares of Stratus common stock held byMoffett Holdings and (2) LCHM Holdings entered into an assignment and assumption agreement pursuant to which Moffett Holdingsassigned to LCHM Holdings its rights and obligations under the Investor Rights Agreement between Moffett Holdings and Stratus dated as ofMarch 15, 2012.From January 1, 2014, through March 17, 2014, Stratus purchased 30,900 shares of common stock for $0.5 million, or $17.33 per share,after obtaining lender approval.Stratus evaluated events after December 31, 2013, and through the date the financial statements were issued, and determined that anyevents or transactions occurring during this period that would require recognition or disclosure are appropriately addressed in these financialstatements.Item 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureNot applicable.Item 9A. Controls and Procedures(a) Evaluation of disclosure controls and procedures. Our chief executive officer and chief financial officer, with the participation ofmanagement, have evaluated the effectiveness of our “disclosure controls and procedures” (as defined in Rules 13a-15(e) or 15d-15(e) underthe 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, theyhave concluded that our disclosure controls and procedures are effective as of the end of the period covered by this report.(b) Changes in internal controls. There has been no change in our internal control over financial reporting that occurred during thefiscal quarter ended December 31, 2013, that has materially affected, or is reasonably likely to materially affect, our internal control overfinancial reporting.(c) Management's annual report on internal control over financial reporting is included in Part II, Item 8. “Financial Statements andSupplementary Data.”Item 9B. Other InformationNot applicable.PART III Item 10. Directors, Executive Officers and Corporate GovernanceInformation required by this item will be contained in our definitive proxy statement to be filed with the SEC pursuant to Regulation 14Arelating to our 2014 annual meeting of stockholders and is incorporated herein by reference. The information required by Item 10. regardingour executive officers appears under "Executive Officers of the Registrant" after Part I, Item 4. "Mine Safety Disclosures." Item 11. Executive CompensationInformation required by this item will be contained in our definitive proxy statement to be filed with the SEC pursuant to Regulation 14Arelating to our 2014 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 14Arelating to our 2014 annual meeting of stockholders and is incorporated herein by reference.Equity Compensation Plan Information as of December 31, 2013We have equity compensation plans pursuant to which our common stock may be issued to employees and non-employees ascompensation. All of our outstanding equity compensation plans were previously approved by our stockholders, and the following plans hadshares available for grant as of December 31, 2013: the 2013 Stock Incentive Plan, the 2010 Stock Incentive Plan and the 1996 Stock OptionPlan for Non-Employee Directors. The following table presents information regarding these equity compensation plans as of December 31,2013: Number of SecuritiesTo be Issued UponExercise ofOutstanding Options,Warrants and Rights(a) Weighted-AverageExercise Price ofOutstandingOptions,Warrants and Rights(b) Number of SecuritiesRemaining Available forFuture Issuance UnderEquity Compensation Plans(Excluding SecuritiesReflected in Column (a))(c) Equity compensation plans approved by security holders177,750a $18.42 191,375b Equity compensation plans not approved by security holdersN/A N/A N/A Total177,750a 18.42 191,375b a. The number of securities to be issued upon the exercise of outstanding options, warrants and rights includes shares issuable upon the vestingof 100,875 restricted stock units. These awards are not reflected in column (b) as they do not have an exercise price.b. As of December 31, 2013, there were 180,000 shares remaining available for future issuance to Stratus employees and non-employee directorsunder the 2013 Stock Incentive Plan, all of which could be issued pursuant to awards of stock options, stock appreciation rights, restrictedstock, restricted stock units or "other stock-based awards." There were 8,875 shares remaining available for future issuance to Stratusemployees 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." There were 2,500 shares remaining available forfuture 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 IndependenceInformation required by this item will be contained in our definitive proxy statement to be filed with the SEC pursuant to Regulation 14Arelating to our 2014 annual meeting of stockholders and is incorporated herein by reference. Item 14. Principal Accounting Fees and ServicesInformation required by this item will be contained in our definitive proxy statement to be filed with the SEC pursuant to Regulation 14Arelating to our 2014 annual meeting of stockholders and is incorporated herein by reference.PART IVItem 15. Exhibits, Financial Statement Schedules(a)(1). Financial Statements.The consolidated statements of income, comprehensive income, cash flows and equity, and the consolidated balance sheets are included aspart of Part II, Item 8. "Financial Statements and Supplementary Data."(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.SIGNATURESPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to besigned on its behalf by the undersigned, thereunto duly authorized.STRATUS PROPERTIES INC.By: /s/ William H. Armstrong III William H. Armstrong IIIChairman of the Board, Presidentand Chief Executive OfficerDate: March 31, 2014Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf ofthe registrant and in the capacities and on the date indicated./s/ William H. Armstrong III Chairman of the Board, PresidentWilliam H. Armstrong III and Chief Executive Officer(Principal Executive Officer) * Senior Vice PresidentErin D. Pickens and Chief Financial Officer(Principal Financial Officer) * Vice President and ControllerC. Donald Whitmire, Jr. (Principal Accounting Officer) * DirectorJames C. Leslie * DirectorMichael D. Madden * DirectorWilliam H. Lenehan IV * DirectorCharles W. Porter *By: /s/ William H. Armstrong III William H. Armstrong IIIAttorney-in-FactDate: March 31, 2014STRATUS PROPERTIES INC.INDEX TO FINANCIAL STATEMENTSThe schedule listed below should be read in conjunction with the financial statements of Stratus Properties Inc. contained elsewhere in thisAnnual Report on Form 10-K. PageSchedule III-Real Estate, Commercial Leasing Assets and Facilities and Accumulated DepreciationF-2Schedules other than the one listed above have been omitted since they are either not required, not applicable or the required information isincluded in the financial statements or notes thereto.STRATUS PROPERTIES INC.REAL ESTATE, COMMERCIAL LEASING ASSETS AND FACILITIES AND ACCUMULATED DEPRECIATIONDecember 31, 2013(In Thousands, except Number of Lots and Acres)SCHEDULE III Initial Cost CostCapitalized Gross Amounts atDecember 31, 2013 Number ofLots/Unitsand Acres Bldg. and Subsequentto Bldg. and Lots/ Accumulated Year Land Improvements Acquisitions Land Improvements Total Units Acres Depreciation AcquiredReal Estate Held forSalea Barton Creek,Austin, TX$383 $— $6,808 $7,191 $— $7,191 39 — $— 1988W Austin Hotel &Residences, Austin,TX489 — 10,453 10,942 — 10,942 9 — — 2006Real Estate UnderDevelopmentb,c Barton Creek,Austin, TX9,555 — 46,779 56,334 — 56,334 — 166 — 1988Lakeway, Austin, TX4,223 — 1,167 5,390 — 5,390 — 31 — 2013Circle C, Austin, TX1,519 — 8,236 9,755 — 9,755 — 155 — 1992Parkside Village,Austin, TX93 — 1,334 1,427 — 1,427 — — — 1992Lantana, Austin, TX1,513 — 2,471 3,984 — 3,984 — — — 1994Land Available forDevelopmentc,d Camino Real, SanAntonio, TX16 — (16) — — — — 2 — 1990Barton Creek,Austin, TX7,983 — 7,567 15,550 — 15,550 — 1,257 — 1988Circle C, Austin, TX2,801 — 2,641 5,442 — 5,442 — 335 — 1992Lantana, Austin, TX157 — 254 411 — 411 — 43 — 1994Real Estate Held forInvestmentb,c W Austin Hotel &Residences, Austin,TXe8,075 172,399 — 8,075 172,399 180,474 — — 22,931 2006Barton Creek Village,Austin, TXf55 6,388 — 55 6,388 6,443 — — 1,436 20075700 Slaughter,Austin, TXg969 4,876 — 969 4,876 5,845 — — 1,115 2008Parkside Village,Austin, TXh572 14,887 — 572 14,887 15,459 — — 1,081 1992Corporate offices,Austin,TX— 1,320 — — 1,320 1,320 — — 446 N/A Total$38,403 $199,870 $87,694 $126,097 $199,870 $325,967 48 1,989 $27,009 a.Includes individual tracts of land that have been developed and permitted for residential use, condominium units at our W Austin Hotel &Residences project or developed lots with homes already built on them.b.Includes real estate that is currently being developed or has received the necessary permits to be developed.c.See Note 7 included in Part II, Item 8. of this Annual Report on Form 10-K for a description of assets securing debt.d.Includes undeveloped real estate that can be sold “as is” or will be developed in the future as additional permitting is obtained.e.Consists of a 251-room hotel, entertainment venue, and office and retail space at the W Austin Hotel & Residences project.f.Consists of a 22,366-square-foot retail complex representing phase one of Barton Creek Village and a 3,085-square-foot bank building.g.Consists of two retail buildings totaling 21,248 square feet and a 4,450-square-foot bank building at the 5700 Slaughter retail complex in theCircle C community.h.Consists of a 90,641-square-foot retail complex under development in the Circle C community.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, 2013 and 2012, are as follows (inthousands): 2013 2012Balance, beginning of year$349,120 $384,610Improvements and other19,791 9,320Cost of real estate sold(42,944) (44,810)Balance, end of year$325,967 $349,120 The aggregate net book value for federal income tax purposes as of December 31, 2013 was $340.9 million.(2) Reconciliation of Accumulated Depreciation:The changes in accumulated depreciation for the years ended December 31, 2013 and 2012, are as follows (in thousands): 2013 2012Balance, beginning of year$18,380 $9,494Retirement of assets(424) (279)Depreciation expense9,053 9,165Balance, end of year$27,009 $18,380Depreciation of buildings and improvements is calculated over estimated lives of 30 to 40 years.22 Table of ContentsSTRATUS PROPERTIES INC.EXHIBIT INDEX Incorporated by ReferenceExhibitNumber Exhibit Title Filed with thisForm 10-K Form File No. Date Filed3.1 Composite Certificate of Incorporation of Stratus PropertiesInc. 8-A/A 000-19989 8/26/2010 3.2 By-laws of Stratus Properties Inc., as amended as ofNovember 6, 2007. 10-Q 000-19989 8/11/2008 4.1 Amended and Restated Rights Agreement, dated as of April13, 2012, between Stratus Properties Inc. andComputershare Shareowner Services LLC, as Rights Agent,which includes the Form of Certificate of Designations ofSeries C Participating Cumulative Preferred Stock, the Formof Right Certificate, and the Summary of Stockholder Rights. 8-K 000-19989 4/18/2012 4.2 Investor Rights Agreement by and between StratusProperties Inc. and Moffett Holdings, LLC dated as of March15, 2012. 8-K 000-19989 3/20/2012 4.3 Assignment and Assumption Agreement by and betweenMoffett Holdings, LLC and LCHM Holdings, LLC. 13D 000-19989 3/5/2014 10.1 Loan Agreement by and among Stratus Properties Inc.,Stratus Properties Operating Co., L.P., Circle C Land, L.P.,Austin 290 Properties, Inc. and Comerica Bank dated as ofDecember 31, 2012. 8-K 000-19989 1/7/2013 10.2 Promissory Note by and between Stratus Properties Inc.,Stratus Properties Operating Co., L.P., Circle C Land, L.P.,Austin 290 Properties, Inc., and Comerica Bank dated as ofDecember 31, 2012 ($35.0 million revolving line of credit). 10-K 000-19989 3/29/2013 10.3 Promissory Note by and between Stratus Properties Inc.,Stratus Properties Operating Co., L.P., Circle C Land, L.P.,Austin 290 Properties, Inc., and Comerica Bank dated as ofDecember 31, 2012 ($3.0 million letters of credit). 10-K 000-19989 3/29/2013 10.4 Promissory Note by and between Stratus Properties Inc.,Stratus Properties Operating Co., L.P., Circle C Land, L.P.,Austin 290 Properties, Inc., and Comerica Bank dated as ofDecember 31, 2012 ($10.0 million construction loan). 10-K 000-19989 3/29/2013 10.5 Term Loan Agreement by and among CJUF II Stratus Block21 LLC, Bank of America, N.A., and the lenders partythereto from time to time, dated September 30, 2013. 8-K 000-19989 10/3/2013 10.6 Promissory Note by and between CJUF II Stratus Block 21LLC and Bank of America, N.A., dated September 30, 2013. 8-K 000-19989 10/3/2013 10.7 Note Modification Agreement by and among CJUF II StratusProperties Inc., Stratus Properties Inc., Canyon-JohnsonUrban Fund II LP and Beal Bank Nevada effective as ofJune 30, 2010 (paid in full in September 2013). 10-Q 000-19989 8/16/2010 10.8 Amended and Restated Construction Loan Agreement datedOctober 21, 2009, by and between CJUF II Stratus Block 21LLC and Beal Bank Nevada (paid in full in September2013). 10-Q 000-19989 11/6/2009 10.9 Amended and Restated Promissory Note dated October 21,2009, by and between CJUF II Stratus Block 21 LLC andBeal Bank Nevada (paid in full in September 2013). 10-Q 000-19989 11/6/2009 E-1 Table of Contents Incorporated by ReferenceExhibitNumber Exhibit Title Filed with thisForm 10-K Form File No. Date Filed10.10 Loan Modification Agreement by and between StratusProperties Inc. and American Select Portfolio Inc. effective asof September 1, 2012 ($5.0 million loan). 8-K 000-19989 9/12/2012 10.11 Loan Modification Agreement by and between StratusProperties Inc. and American Select Portfolio Inc. effective asof April 1, 2013 ($5.0 million loan). 10-Q 000-19989 5/15/2013 10.12 Amended and Restated Loan Agreement between StratusProperties Inc. and American Select Portfolio Inc. dated as ofDecember 12, 2006 ($5.0 million loan). 10-K 000-19989 3/16/2007 10.13 Loan Modification Agreement by and between StratusProperties Inc. and American Strategic Income Portfolio Inc.-IIeffective as of September 1, 2012 ($3.0 million loan). 8-K 000-19989 9/12/2012 10.14 Loan Modification Agreement by and between StratusProperties Inc. and American Strategic Income Portfolio Inc.-IIeffective as of April 1, 2013 ($3.0 million loan). 10-Q 000-19989 5/15/2013 10.15 Amended and Restated Loan Agreement between StratusProperties Inc. and American Strategic Income Portfolio Inc.-IIdated as of December 12, 2006 ($3.0 million loan). 10-K 000-19989 3/16/2007 10.16 Loan Modification Agreement by and between StratusProperties Inc. and American Strategic Income Portfolio Inc.-IIeffective as of September 1, 2012 ($8.0 million loan). 8-K 000-19989 9/12/2012 10.17 Loan Modification Agreement by and between StratusProperties Inc. and American Strategic Income Portfolio Inc.-IIeffective as of April 1, 2013 ($8.0 million loan). 10-Q 000-19989 5/15/2013 10.18 Loan Agreement between Stratus Properties Inc. andHolliday Fenoglio Fowler, L.P. dated as of December 12,2006, subsequently assigned to American Strategic IncomePortfolio Inc.-II ($8.0 million loan). 10-K 000-19989 3/16/2007 10.19 Loan Modification Agreement by and between StratusProperties Inc. and American Select Portfolio Inc. effective asof September 1, 2012 ($3.5 million loan). 8-K 000-19989 9/12/2012 10.20 Loan Modification Agreement by and between StratusProperties Inc. and American Select Portfolio Inc. effective asof April 1, 2013 ($3.5 million loan). 10-Q 000-19989 5/15/2013 10.21 Loan Agreement between Stratus Properties Inc. andHolliday Fenoglio Fowler, L.P. dated as of June 1, 2007,subsequently assigned to American Select Portfolio Inc. ($3.5million loan). 10-Q 000-19989 8/9/2007 10.22 Loan Modification Agreement by and between StratusProperties Inc. and American Strategic Income Portfolio Inc.effective as of September 1, 2012 ($3.5 million loan). 8-K 000-19989 9/12/2012 10.23 Loan Modification Agreement by and between StratusProperties Inc. and American Strategic Income Portfolio Inc.effective as of April 1, 2013 ($3.5 million loan). 10-Q 000-19989 5/15/2013 10.24 Loan Agreement between Stratus Properties Inc. andHolliday Fenoglio Fowler, L.P. dated as of June 1, 2007,subsequently assigned to American Strategic IncomePortfolio Inc. ($3.5 million loan). 10-Q 000-19989 8/9/2007E-2 Table of Contents Incorporated by ReferenceExhibitNumber Exhibit Title Filed with thisForm 10-K Form File No. Date Filed 10.25 Construction Loan Agreement by and between Tract 107,L.L.C. and Comerica Bank dated as of May 17, 2011. 10-Q 000-19989 8/15/2011 10.26 Fifth Modification and Extension Agreement by and amongTract 107, L.L.C., Stratus Properties Inc. and Comerica Bankeffective as of December 12, 2013. 8-K 000-19989 12/18/2013 10.27 Amended and Restated Promissory Note by and betweenTract 107, L.L.C. and Comerica Bank effective as ofDecember 12, 2013. 8-K 000-19989 12/18/2013 10.28 Stock Purchase Agreement by and between StratusProperties Inc. and Moffett Holdings, LLC dated as of March15, 2012. 8-K 000-19989 3/20/2012 10.29 Development Agreement effective as of August 15, 2002,between Circle C Land Corp. and City of Austin. 10-Q 000-19989 11/14/2002 10.30 Loan Agreement by and between CJUF II Stratus Block 21LLC and Hunter's Glen/Ford Investments I LLC effective asof March 31, 2010. 10-Q 000-19989 5/17/2010 10.31 Promissory Note by and between CJUF II Stratus Block 21LLC and Hunter's Glen/Ford Investments I LLC effective asof March 31, 2010. 10-Q 000-19989 5/17/2010 10.32 Profits Interest Agreement by and between CJUF II StratusBlock 21 LLC and Hunter's Glen/Ford Investments I LLCeffective as of March 31, 2010. 10-Q 000-19989 5/17/2010 10.33 Loan Modification Agreement by and between StratusProperties Inc. and American Strategic Income Portfolio Inc.-III, effective as of November 1, 2011 ($7.0 million loan paidin full in September 2012). 8-K 000-19989 3/20/2012 10.34 Loan Agreement between Stratus Properties Inc. andHolliday Fenoglio Fowler, L.P. dated as of December 12,2006, subsequently assigned to American Strategic IncomePortfolio Inc.-III ($7.0 million loan paid in full in September2012). 10-K 000-19989 3/16/2007 10.35 Loan Modification Agreement by and between StratusProperties Inc. and American Strategic Income Portfolio Inc.-III, effective as of November 1, 2011 ($2.0 million loan paid infull in September 2012). 8-K 000-19989 3/20/2012 10.36 Loan Agreement between Stratus Properties Inc. andHolliday Fenoglio Fowler, L.P. dated as of June 1, 2007,subsequently assigned to American Strategic IncomePortfolio Inc.-III ($2.0 million loan paid in full in September2012). 10-Q 000-19989 8/9/2007 10.37* Stratus Properties Inc. 2013 Stock Incentive Plan 8-K 000-19989 5/30/2013 10.38* Stratus Properties Inc. 2010 Stock Incentive Plan 8-K 000-19989 8/12/2010 10.39* Form of Notice of Grant of Nonqualified Stock Options underthe Stratus Properties Inc. 2002 and 2010 Stock IncentivePlans (adopted January 2011). 10-K 000-19989 3/31/2011 10.40* Form of Notice of Grant of Restricted Stock Units under theStratus Properties Inc. 2002 and 2010 Stock Incentive Plans(adopted January 2011). 10-K 000-19989 3/31/2011 10.41* Form of Notice of Grant of Restricted Stock Units under the2010 Stock Incentive Plan for Non-Employee Director Grants(adopted August 2012). 10-K 000-19989 3/29/2013 E-3 Table of Contents Incorporated by ReferenceExhibitNumber Exhibit Title Filed with thisForm 10-K Form File No. Date Filed 10.42* Stratus Properties Inc. Performance Incentive AwardsProgram, as amended, effective December 30, 2008. 10-Q 000-19989 5/5/2009 10.43* Stratus Properties Inc. 1996 Stock Option Plan for Non-Employee Directors, as amended and restated. 10-Q 000-19989 5/10/2007 10.44* Stratus Properties Inc. 2002 Stock Incentive Plan, asamended and restated. 10-Q 000-19989 5/10/2007 10.45* Form of Notice of Grant of Nonqualified Stock Options underthe Stratus Properties Inc. 2002 Stock Incentive Plan. 10-Q 000-19989 8/12/2005 10.46* Form of Restricted Stock Unit Agreement under the StratusProperties Inc. 2002 Stock Incentive Plan. 10-Q 000-19989 5/10/2007 10.47* Stratus Properties Inc. Director Compensation. X 10.48* Change of Control Agreement between Stratus PropertiesInc. and William H. Armstrong III, effective as of April 1, 2013. 8-K 000-19989 4/15/2013 10.49* Change of Control Agreement between Stratus PropertiesInc. and Erin D. Pickens, effective as of April 1, 2013. 8-K 000-19989 4/15/2013 14.1 Ethics and Business Conduct Policy. 10-K 000-19989 3/30/2004 21.1 List of subsidiaries. X 23.1 Consent of BKM Sowan Horan, LLP. X 24.1 Certified resolution of the Board of Directors of StratusProperties Inc. authorizing this report to be signed on behalfof any officer or director pursuant to a Power of Attorney. X 24.2 Power of Attorney pursuant to which this report has beensigned on behalf of certain officers and directors of StratusProperties Inc. X 31.1 Certification of Principal Executive Officer pursuant to Rule13a-14(a)/15d-14(a). X 31.2 Certification of Principal Financial Officer pursuant to Rule13a-14(a)/15d-14(a). X 32.1 Certification of Principal Executive Officer pursuant to 18U.S.C. Section 1350. X 32.2 Certification of Principal Financial Officer pursuant to 18U.S.C. Section 1350. X 101.INS XBRL Instance Document. X 101.SCH XBRL Taxonomy Extension Schema. X 101.CAL XBRL Taxonomy Extension Calculation Linkbase. X 101.DEF XBRL Taxonomy Extension Definition Linkbase. X 101.LAB XBRL Taxonomy Extension Label Linkbase. X 101.PRE XBRL Taxonomy Extension Presentation Linkbase. X _______________________* Indicates management contract or compensatory plan or arrangement.E-4 Exhibit 10.47STRATUS PROPERTIES INC.DIRECTOR COMPENSATIONEFFECTIVE JANUARY 1, 2014Cash CompensationEach non-employee director receives an annual fee consisting of, as applicable, (1) $25,000 for serving on the board, (2) $1,000 forserving on each committee (including chairmen of the committee), (3) $7,000 for serving as chairman of the audit committee, (4)$5,000 for serving as chairman of the compensation committee, (5) $5,000 for serving as chairman of the nominating and corporategovernance committee and (6) $12,500 for serving as lead independent director. In addition, each director and committee memberreceives $1,500 for attendance at each board and committee meeting, as well as reasonable out-of-pocket expenses incurred in attendingsuch meetings, or $1,000 for participation in each board and committee meeting by telephone.Equity-Based CompensationEach non-employee director receives equity-based compensation under Stratus’ stock incentive plans, which were approved by Stratus’stockholders. On September 1st of each year, each non-employee director receives a grant of 2,000 restricted stock units (RSUs). TheRSUs vest ratably over the first four anniversaries of the grant date. Each RSU entitles the director to receive one share of Strauscommon stock upon vesting. Exhibit 21.1List of Subsidiaries ofStratus Properties Inc. Name Under WhichEntityOrganizedIt Does Business Stratus Properties Operating Co., L.P.DelawareSameCJUF II Stratus® Block 21 LLCDelawareSame Exhibit 23.1Consent of Independent Registered Public Accounting FirmWe hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (No. 333-169057) of ourreports dated March 31, 2014 relating to the consolidated financial statements and schedule and the effectiveness of internalcontrol over financial reporting both of which appear in this Form 10-K./s/ BKM Sowan Horan, LLPAustin, TexasMarch 31, 2014 Exhibit 24.1Stratus Properties Inc.Secretary’s CertificateI, Douglas N. Currault II, Assistant Secretary of Stratus Properties Inc. (the “Corporation”), a corporation organized and existingunder the laws of the State of Delaware, do hereby certify that the following resolution was duly adopted by the Board of Directors ofthe Corporation at a meeting held on February 10, 1993, and that such resolution has not been amended, modified or rescinded and is infull force and effect:RESOLVED, That any report, registration statement or other form filed on behalf of this corporation pursuant to theSecurities Exchange Act of 1934, or any amendment to any such report, registration statement or other form, may be signed onbehalf of any director or officer of this corporation pursuant to a power of attorney executed by such director or officer.IN WITNESS WHEREOF, I have hereunto signed my name and affixed the seal of the Corporation on March 25, 2014./s/ Douglas N. Currault IIDouglas N. Currault IIAssistant SecretarySeal Exhibit 24.2POWER OF ATTORNEYBE IT KNOWN: That the undersigned, in his capacity or capacities as an officer and/or a member of the Board of Directors ofStratus Properties Inc., a Delaware corporation (the “Company”), does hereby make, constitute and appoint KENNETH N. JONES, histrue and lawful attorney-in-fact with full power of substitution, to execute, deliver and file, for and on behalf of him, in his name and inhis capacity or capacities as aforesaid, an Annual Report of the Company on Form 10-K for the year ended December 31, 2013, and anyamendment or amendments thereto and any other document in support thereof or supplemental thereto, and the undersigned herebygrants to said attorney, full power and authority to do and perform each and every act and thing whatsoever that said attorney may deemnecessary or advisable to carry out fully the intent of the foregoing as the undersigned might or could do personally or in the capacity orcapacities as aforesaid, hereby ratifying and confirming all acts and things which said attorney may do or cause to be done by virtue of thisPower of Attorney.EXECUTED on March 25, 2014. /s/ William H. Armstrong IIIWilliam H. Armstrong III POWER OF ATTORNEYBE IT KNOWN: That the undersigned, in his capacity or capacities as an officer and/or a member of the Board of Directors ofStratus Properties Inc., a Delaware corporation (the “Company”), does hereby make, constitute and appoint WILLIAM H.ARMSTRONG III and KENNETH N. JONES, and each of them acting individually, his true and lawful attorney-in-fact with power toact without the others and with full power of substitution, to execute, deliver and file, for and on behalf of him, in his name and in hiscapacity or capacities as aforesaid, an Annual Report of the Company on Form 10-K for the year ended December 31, 2013, and anyamendment or amendments thereto and any other document in support thereof or supplemental thereto, and the undersigned herebygrants to said attorneys, and each of them, full power and authority to do and perform each and every act and thing whatsoever that saidattorney or attorneys may deem necessary or advisable to carry out fully the intent of the foregoing as the undersigned might or could dopersonally or in the capacity or capacities as aforesaid, hereby ratifying and confirming all acts and things which said attorney or attorneysmay do or cause to be done by virtue of this Power of Attorney.EXECUTED on March 25, 2014. /s/ James C. LeslieJames C. Leslie POWER OF ATTORNEYBE IT KNOWN: That the undersigned, in his capacity or capacities as an officer and/or a member of the Board of Directors ofStratus Properties Inc., a Delaware corporation (the “Company”), does hereby make, constitute and appoint WILLIAM H.ARMSTRONG III and KENNETH N. JONES, and each of them acting individually, his true and lawful attorney-in-fact with power toact without the others and with full power of substitution, to execute, deliver and file, for and on behalf of him, in his name and in hiscapacity or capacities as aforesaid, an Annual Report of the Company on Form 10-K for the year ended December 31, 2013, and anyamendment or amendments thereto and any other document in support thereof or supplemental thereto, and the undersigned herebygrants to said attorneys, and each of them, full power and authority to do and perform each and every act and thing whatsoever that saidattorney or attorneys may deem necessary or advisable to carry out fully the intent of the foregoing as the undersigned might or could dopersonally or in the capacity or capacities as aforesaid, hereby ratifying and confirming all acts and things which said attorney or attorneysmay do or cause to be done by virtue of this Power of Attorney.EXECUTED on March 25, 2014. /s/ William H. Lenehan IVWilliam H. Lenehan IV POWER OF ATTORNEYBE IT KNOWN: That the undersigned, in his capacity or capacities as an officer and/or a member of the Board of Directors ofStratus Properties Inc., a Delaware corporation (the “Company”), does hereby make, constitute and appoint WILLIAM H.ARMSTRONG III and KENNETH N. JONES, and each of them acting individually, his true and lawful attorney-in-fact with power toact without the others and with full power of substitution, to execute, deliver and file, for and on behalf of him, in his name and in hiscapacity or capacities as aforesaid, an Annual Report of the Company on Form 10-K for the year ended December 31, 2013, and anyamendment or amendments thereto and any other document in support thereof or supplemental thereto, and the undersigned herebygrants to said attorneys, and each of them, full power and authority to do and perform each and every act and thing whatsoever that saidattorney or attorneys may deem necessary or advisable to carry out fully the intent of the foregoing as the undersigned might or could dopersonally or in the capacity or capacities as aforesaid, hereby ratifying and confirming all acts and things which said attorney or attorneysmay do or cause to be done by virtue of this Power of Attorney.EXECUTED on March 25, 2014. /s/ Michael D. MaddenMichael D. Madden POWER OF ATTORNEYBE IT KNOWN: That the undersigned, in his capacity or capacities as an officer and/or a member of the Board of Directors ofStratus Properties Inc., a Delaware corporation (the “Company”), does hereby make, constitute and appoint WILLIAM H.ARMSTRONG III and KENNETH N. JONES, and each of them acting individually, his true and lawful attorney-in-fact with power toact without the others and with full power of substitution, to execute, deliver and file, for and on behalf of him, in his name and in hiscapacity or capacities as aforesaid, an Annual Report of the Company on Form 10-K for the year ended December 31, 2013, and anyamendment or amendments thereto and any other document in support thereof or supplemental thereto, and the undersigned herebygrants to said attorneys, and each of them, full power and authority to do and perform each and every act and thing whatsoever that saidattorney or attorneys may deem necessary or advisable to carry out fully the intent of the foregoing as the undersigned might or could dopersonally or in the capacity or capacities as aforesaid, hereby ratifying and confirming all acts and things which said attorney or attorneysmay do or cause to be done by virtue of this Power of Attorney.EXECUTED on March 25, 2014. /s/ Charles W. PorterCharles W. Porter POWER OF ATTORNEYBE IT KNOWN: That the undersigned, in his capacity or capacities as an officer and/or a member of the Board of Directors ofStratus Properties Inc., a Delaware corporation (the “Company”), does hereby make, constitute and appoint WILLIAM H.ARMSTRONG III and KENNETH N. JONES, and each of them acting individually, his true and lawful attorney-in-fact with power toact without the others and with full power of substitution, to execute, deliver and file, for and on behalf of him, in his name and in hiscapacity or capacities as aforesaid, an Annual Report of the Company on Form 10-K for the year ended December 31, 2013, and anyamendment or amendments thereto and any other document in support thereof or supplemental thereto, and the undersigned herebygrants to said attorneys, and each of them, full power and authority to do and perform each and every act and thing whatsoever that saidattorney or attorneys may deem necessary or advisable to carry out fully the intent of the foregoing as the undersigned might or could dopersonally or in the capacity or capacities as aforesaid, hereby ratifying and confirming all acts and things which said attorney or attorneysmay do or cause to be done by virtue of this Power of Attorney.EXECUTED on March 25, 2014. /s/ C. Donald Whitmire, Jr.C. Donald Whitmire, Jr. POWER OF ATTORNEYBE IT KNOWN: That the undersigned, in her capacity or capacities as an officer and/or a member of the Board of Directors ofStratus Properties Inc., a Delaware corporation (the “Company”), does hereby make, constitute and appoint WILLIAM H.ARMSTRONG III and KENNETH N. JONES, and each of them acting individually, her true and lawful attorney-in-fact with powerto act without the others and with full power of substitution, to execute, deliver and file, for and on behalf of her, in her name and in hercapacity or capacities as aforesaid, an Annual Report of the Company on Form 10-K for the year ended December 31, 2013, and anyamendment or amendments thereto and any other document in support thereof or supplemental thereto, and the undersigned herebygrants to said attorneys, and each of them, full power and authority to do and perform each and every act and thing whatsoever that saidattorney or attorneys may deem necessary or advisable to carry out fully the intent of the foregoing as the undersigned might or could dopersonally or in the capacity or capacities as aforesaid, hereby ratifying and confirming all acts and things which said attorney or attorneysmay do or cause to be done by virtue of this Power of Attorney.EXECUTED on March 25, 2014. /s/ Erin D. PickensErin D. Pickens Exhibit 31.1CertificationI, William H. Armstrong III, certify that:1. I have reviewed this annual report on Form 10-K of Stratus Properties Inc.;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us byothers within those entities, particularly during the period in which this report is being prepared;(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles;(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s mostrecent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likelyto materially affect, the registrant’s internal control over financial reporting; and5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internalcontrol over financial reporting.Date: March 31, 2014/s/ William H. Armstrong IIIWilliam H. Armstrong IIIChairman of the Board, President andChief Executive Officer Exhibit 31.2CertificationI, Erin D. Pickens, certify that:1. I have reviewed this annual report on Form 10-K of Stratus Properties Inc.;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us byothers within those entities, particularly during the period in which this report is being prepared;(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles;(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s mostrecent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likelyto materially affect, the registrant’s internal control over financial reporting; and5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internalcontrol over financial reporting.Date: March 31, 2014/s/ Erin D. PickensErin D. PickensSenior Vice President andChief Financial Officer Exhibit 32.1Certification Pursuant to 18 U.S.C. Section 1350(Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002)In connection with the Annual Report on Form 10-K of Stratus Properties Inc. (the “Company”) for the year ending December31, 2013, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), William H. Armstrong III, asChairman of the Board, President and Chief Executive Officer of the Company, hereby certifies, pursuant to 18 U.S.C. § 1350, asadopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge:(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results ofoperations of the Company.Date: March 31, 2014/s/ William H. Armstrong IIIWilliam H. Armstrong IIIChairman of the Board, President andChief Executive OfficerA signed original of this written statement required by Section 906 has been provided to the Company and will be retained bythe Company and furnished to the Securities and Exchange Commission or its staff upon request.This certification shall not be deemed filed by the Company for purposes of § 18 of the Securities Exchange Act of 1934, asamended. Exhibit 32.2Certification Pursuant to 18 U.S.C. Section 1350(Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002)In connection with the Annual Report on Form 10-K of Stratus Properties Inc. (the “Company”) for the year ending December31, 2013, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Erin D. Pickens, as Senior VicePresident and Chief Financial Officer of the Company, hereby certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 ofthe Sarbanes-Oxley Act of 2002, that, to the best of her knowledge:(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results ofoperations of the Company.Date: March 31, 2014/s/ Erin D. PickensErin D. PickensSenior Vice President andChief Financial Officer A signed original of this written statement required by Section 906 has been provided to the Company and will be retained bythe Company and furnished to the Securities and Exchange Commission or its staff upon request.This certification shall not be deemed filed by the Company for purposes of § 18 of the Securities Exchange Act of 1934, asamended.
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