|
Delaware
|
72-1211572
|
|
(State
or other jurisdiction of
incorporation
or organization)
|
(I.R.S.
Employer Identification No.)
|
|
98
San Jacinto Blvd., Suite 220
|
|
|
Austin,
Texas
|
78701
|
|
(Address
of principal executive offices)
|
(Zip
Code)
|
|
(512)
478-5788
|
|
|
(Registrant's
telephone number, including area code)
|
|
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
ÿ
o
Yes
R
No
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
Large
accelerated filer
o
Accelerated
filer
R
Non-accelerated filer
o
ÿ
Smaller reporting company
o
ÿ
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
ÿ
o
Yes
R
No
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of
this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files).
ÿ
o
Yes
o
No
On March
31, 2009, there were issued and outstanding 7,435,133 shares of the registrant’s
common stock, par value $0.01 per share.
|
STRATUS
PROPERTIES INC.
|
|
|
Page
|
|
|
2
|
|
|
2
|
|
|
3
|
|
|
4
|
|
|
5
|
|
|
17
|
|
|
27
|
|
|
27
|
|
|
27
|
|
|
27
|
|
|
28
|
|
|
28
|
|
|
29
|
|
|
E-1
|
|
STRATUS
PROPERTIES INC.
PART I
. FINANCIAL INFORMATION
Item 1
.
Financial
Statements.
STR
ATUS PROPERTIES INC.
CONSOLIDATED
BALANCE SHEETS (Unaudited)
(In
Thousands)
|
September
30,
|
December
31,
|
|||||
|
2008
|
2007
|
|||||
|
ASSETS
|
||||||
|
Cash
and cash equivalents
|
$
|
36,829
|
$
|
40,873
|
||
|
Restricted
cash
|
6
|
112
|
||||
|
Accounts
receivable
|
1,232
|
2,315
|
||||
|
Notes
receivable
|
293
|
311
|
||||
|
Deposits
and prepaid expenses
|
1,749
|
101
|
||||
|
Real
estate, commercial leasing assets and facilities, net:
|
||||||
|
Property
held for sale – developed or under development
|
110,139
|
121,966
|
||||
|
Property
held for sale – undeveloped
|
28,388
|
16,521
|
||||
|
Property
held for use, net
|
52,430
|
38,569
|
||||
|
Investment
in unconsolidated affiliate
|
2,086
|
4,720
|
||||
|
Deferred
tax asset
|
4,975
|
5,732
|
||||
|
Other
assets
|
8,120
|
2,900
|
||||
|
Total
assets
|
$
|
246,247
|
$
|
234,120
|
||
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
||||||
|
Accounts
payable and accrued liabilities
|
$
|
4,571
|
$
|
6,324
|
||
|
Accrued
interest and property taxes
|
2,477
|
1,811
|
||||
|
Deposits
|
1,499
|
2,996
|
||||
|
Debt
|
63,380
|
61,500
|
||||
|
Other
liabilities
|
3,149
|
4,562
|
||||
|
Total
liabilities
|
75,076
|
77,193
|
||||
|
Minority
interest in consolidated subsidiary
|
16,490
|
-
|
||||
|
Stockholders’
equity:
|
||||||
|
Preferred
stock
|
-
|
-
|
||||
|
Common
stock
|
82
|
81
|
||||
|
Capital
in excess of par value of common stock
|
196,268
|
195,898
|
||||
|
Accumulated
deficit
|
(26,277
|
)
|
(24,773
|
)
|
||
|
Common
stock held in treasury
|
(15,392
|
)
|
(14,279
|
)
|
||
|
Total
stockholders’ equity
|
154,681
|
156,927
|
||||
|
Total
liabilities and stockholders’ equity
|
$
|
246,247
|
$
|
234,120
|
||
The
accompanying notes are an integral part of these consolidated financial
statements.
STR
ATUS PROPERTIES INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS (Unaudited)
(In
Thousands, Except Per Share Amounts)
|
Three
Months Ended
|
Nine
Months Ended
|
|||||||||||
|
September
30,
|
September
30,
|
|||||||||||
|
2008
|
2007
|
2008
|
2007
|
|||||||||
|
Revenues:
|
||||||||||||
|
Real
estate
|
$
|
5,691
|
$
|
7,002
|
$
|
11,994
|
$
|
16,745
|
||||
|
Rental
income
|
1,158
|
766
|
3,278
|
2,146
|
||||||||
|
Commissions,
management fees and other
|
60
|
268
|
792
|
1,249
|
||||||||
|
Total
revenues
|
6,909
|
8,036
|
16,064
|
20,140
|
||||||||
|
Cost
of sales:
|
||||||||||||
|
Real
estate, net
|
4,805
|
5,796
|
10,625
|
10,823
|
||||||||
|
Rental
|
944
|
860
|
2,683
|
2,391
|
||||||||
|
Depreciation
|
435
|
411
|
1,211
|
895
|
||||||||
|
Total
cost of sales
|
6,184
|
7,067
|
14,519
|
14,109
|
||||||||
|
General
and administrative expenses
|
1,723
|
1,526
|
5,277
|
5,340
|
||||||||
|
Total
costs and expenses
|
7,907
|
8,593
|
19,796
|
19,449
|
||||||||
|
Operating
(loss) income
|
(998
|
)
|
(557
|
)
|
(3,732
|
)
|
691
|
|||||
|
Interest
income
|
330
|
36
|
1,432
|
572
|
||||||||
|
Loss
on interest rate cap agreement
|
(121
|
)
|
-
|
(121
|
)
|
-
|
||||||
|
(Loss)
income from continuing operations
|
||||||||||||
|
before
income taxes, minority interest and equity in
|
||||||||||||
|
unconsolidated
affiliate’s income
|
(789
|
)
|
(521
|
)
|
(2,421
|
)
|
1,263
|
|||||
|
Benefit
from (provision for) income taxes
|
216
|
120
|
469
|
(501
|
)
|
|||||||
|
Minority
interest in net loss of consolidated subsidiary
|
124
|
-
|
188
|
-
|
||||||||
|
Equity
in unconsolidated affiliate’s income
|
99
|
|
-
|
365
|
-
|
|||||||
|
(Loss)
income from continuing operations
|
(350
|
)
|
(401
|
)
|
(1,399
|
)
|
762
|
|||||
|
Income
(loss) from discontinued operations
|
-
|
179
|
(105
|
)
|
400
|
|||||||
|
Net
(loss) income
|
$
|
(350
|
)
|
$
|
(222
|
)
|
$
|
(1,504
|
)
|
$
|
1,162
|
|
|
Basic
and diluted net (loss) income
|
||||||||||||
|
per
share of common stock:
|
||||||||||||
|
Continuing
operations
|
$
|
(0.05
|
)
|
$
|
(0.05
|
)
|
$
|
(0.19
|
)
|
$
|
0.10
|
|
|
Discontinued
operations
|
-
|
0.02
|
(0.01
|
)
|
0.05
|
|||||||
|
Basic
and diluted net (loss) income per
|
||||||||||||
|
share
of common stock
|
$
|
(0.05
|
)
|
$
|
(0.03
|
)
|
$
|
(0.20
|
)
|
$
|
0.15
|
|
|
Weighted
average shares of common stock outstanding:
|
||||||||||||
|
Basic
|
7,641
|
7,560
|
7,613
|
7,559
|
||||||||
|
Diluted
|
7,641
|
7,560
|
7,613
|
7,640
|
||||||||
|
The
accompanying notes are an integral part of these consolidated financial
statements.
|
STR
ATUS PROPERTIES INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS (Unaudited)
(In
Thousands)
|
Nine
Months Ended September 30,
|
||||||
|
2008
|
2007
|
|||||
|
Cash
flow from operating activities:
|
||||||
|
Net
(loss) income
|
$
|
(1,504
|
)
|
$
|
1,162
|
|
|
Adjustments
to reconcile net (loss) income to net cash
|
||||||
|
used
in operating activities:
|
||||||
|
Loss
(income) from discontinued operations
|
105
|
(400
|
)
|
|||
|
Depreciation
|
1,211
|
895
|
||||
|
Loss
on interest rate cap agreement
|
121
|
-
|
||||
|
Minority
interest in net loss of consolidated subsidiary
|
(188
|
)
|
-
|
|||
|
Cost
of real estate sold
|
8,160
|
10,144
|
||||
|
Deferred
income taxes
|
(457
|
)
|
(33
|
)
|
||
|
Stock-based
compensation
|
761
|
1,020
|
||||
|
Equity
in unconsolidated affiliate’s income
|
(365
|
)
|
-
|
|||
|
Distribution
of unconsolidated affiliate’s income
|
1,266
|
-
|
||||
|
Deposits
|
(1,471
|
)
|
(1,045
|
)
|
||
|
Increase
in restricted cash
|
-
|
(1,495
|
)
|
|||
|
Purchases
and development of real estate properties
|
(22,530
|
)
|
(23,449
|
)
|
||
|
Municipal
utility district reimbursements
|
6,229
|
2,557
|
||||
|
(Increase)
decrease in accounts receivable, prepaid expenses and
other
|
495
|
(658
|
)
|
|||
|
(Increase)
decrease in accounts payable, accrued liabilities and
other
|
(2,555
|
)
|
2,336
|
|||
|
Net
cash used in continuing operations
|
(10,722
|
)
|
(8,966
|
)
|
||
|
Net
cash provided by discontinued operations
|
-
|
2,234
|
||||
|
Net
cash used in operating activities
|
(10,722
|
)
|
(6,732
|
)
|
||
|
Cash
flow from investing activities:
|
||||||
|
Development
of commercial leasing properties and other expenditures
|
(10,337
|
)
|
(6,188
|
)
|
||
|
Return
of investment in unconsolidated affiliate
|
2,374
|
-
|
||||
|
Investment
in interest rate cap agreement
|
(673
|
)
|
-
|
|||
|
Other
|
25
|
(125
|
)
|
|||
|
Net
cash used in continuing operations
|
(8,611
|
)
|
(6,313
|
)
|
||
|
Net
cash used in discontinued operations
|
-
|
(113
|
)
|
|||
|
Net
cash used in investing activities
|
(8,611
|
)
|
(6,426
|
)
|
||
|
Cash
flow from financing activities:
|
||||||
|
Borrowings
from revolving credit facility
|
-
|
17,450
|
||||
|
Payments
on revolving credit facility
|
-
|
(18,450
|
)
|
|||
|
Borrowings
from construction loan
|
2,054
|
-
|
||||
|
Repayments
on Lantana promissory note
|
(175
|
)
|
-
|
|||
|
Borrowings
from unsecured term loans
|
-
|
15,000
|
||||
|
Minority
interest contributions
|
16,678
|
-
|
||||
|
Net
proceeds from exercised stock options
|
94
|
13
|
||||
|
Excess
tax benefit from exercised stock options
|
-
|
642
|
||||
|
Purchases
of Stratus common shares
|
(517
|
)
|
(1,118
|
)
|
||
|
Bank
financing costs
|
(2,845
|
)
|
-
|
|||
|
Net
cash provided by continuing operations
|
15,289
|
13,537
|
||||
|
Net
cash used in discontinued operations
|
-
|
(232
|
)
|
|||
|
Net
cash provided by financing activities
|
15,289
|
13,305
|
||||
|
Net
(decrease) increase in cash and cash equivalents
|
(4,044
|
)
|
147
|
|||
|
Cash
and cash equivalents at beginning of year
|
40,873
|
1,839
|
||||
|
Cash
and cash equivalents at end of period
|
36,829
|
1,986
|
||||
|
Less
cash at discontinued operations
|
-
|
(511
|
)
|
|||
|
Cash
and cash equivalents at end of period
|
$
|
36,829
|
$
|
1,475
|
||
The
accompanying notes are an integral part of these consolidated financial
statements.
ST
RATUS PROPERTIES INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
|
1.
|
GENERAL
|
The
accompanying unaudited consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto for the
year ended December 31, 2007, included in Stratus Properties Inc.’s (Stratus)
Annual Report on Form 10-K (Stratus 2007 Form 10-K) filed with the Securities
and Exchange Commission (SEC). In the opinion of management, the accompanying
consolidated financial statements reflect all adjustments (consisting only of
normal recurring items, except as described in Note 2) considered necessary for
a fair statement of the financial position of Stratus at September 30, 2008, and
the results of operations for the three-month and nine-month periods ended
September 30, 2008 and 2007, and cash flows for the nine-month periods ended
September 30, 2008 and 2007. Operating results for the three-month and
nine-month periods ended September 30, 2008, are not necessarily indicative of
the results that may be expected for the year ended December 31,
2008.
|
2.
|
REVISIONS
OF PREVIOUSLY ISSUED CONSOLIDATED FINANCIAL
STATEMENTS
|
In
connection with reporting its interim financial results for the quarterly period
ended September 30, 2008, Stratus reviewed its accounting for capitalized
interest and determined that the manner in which it had previously accounted for
certain interest costs was not in accordance with Statement of Financial
Accounting Standards (SFAS) No. 34, “Capitalization of Interest Costs.”
Additionally, Stratus determined that its equity in unconsolidated affiliate’s
income for the year ended December 31, 2007, was understated. A discussion of
each of these items follows.
Historically,
Stratus applied SFAS No. 34 by (1) defining “qualifying assets” as all
construction and development expenditures incurred on real estate projects, (2)
applying the interest rate associated with specific borrowings actually used to
fund project-specific construction and development costs to determine
capitalized interest for those specific qualifying assets, (3) applying the
capitalization rate for other borrowings to other qualifying assets and (4)
capitalizing certain previously incurred financing costs directly to assets
under development. However, Stratus excluded interest costs on borrowings used
as permanent financing on completed projects when determining the amount of
interest costs eligible for capitalization. As a result of Stratus’ qualifying
assets, as defined in SFAS No. 34, exceeding its borrowings, this historical
treatment resulted in interest costs related to permanent financing on completed
projects being charged to expense rather than capitalized in accordance with
SFAS No. 34.
Management
has reassessed this matter and determined that it is appropriate to include all
interest costs on all borrowings in interest eligible for capitalization on
qualifying assets. As a result, Stratus recalculated the appropriate amount of
interest costs to be capitalized to its development projects. In addition,
Stratus determined the effect of this adjustment to costs of sales and income
taxes as previously reported, as well as the allocation between continuing and
discontinued operations. The cumulative impact of this error through June 30,
2008, was primarily an understatement of previously reported net
income.
Additionally,
Stratus identified an error in the recorded results of the Crestview Station
joint venture relating to gains on real estate sales that occurred during the
fourth quarter of 2007, which also impacted the previously reported results for
the three-month period ended March 31, 2008, and the three-month and six-month
periods ended June 30, 2008. As a result, Crestview Station’s net income for the
year ended December 31, 2007, was understated by $1.0 million of which Stratus’
share was $0.5 million pre-tax and $0.3 million after-tax. For the three-month
period ended March 31, 2008, Crestview Station’s net income was overstated by
$0.9 million of which Stratus’ share was $0.4 million pre-tax and $0.3 million
after-tax. For the three-month period ended June 30, 2008, Crestview Station’s
net income was overstated by $0.1 million of which Stratus’ share was $0.1
million pre-tax and less than $0.1 million after-tax. For the six-month period
ended June 30, 2008, Crestview Station’s net income was overstated by $1.0
million of which Stratus’ share was $0.5 million pre-tax and $0.3 million
after-tax.
Stratus
assessed the materiality of these items on the previously reported results for
the three-month period ended March 31, 2008, the three-month and six-month
periods ended June 30, 2008, and the years ended December 31, 2007, 2006 and
2005, in accordance with Staff Accounting Bulletin (SAB) No. 99 and concluded
that the errors were not material to such periods. Stratus also concluded the
impact of correcting these items as a cumulative adjustment in the quarter ended
September 30, 2008, would have been misleading to the users of the financial
statements for the quarter ended September 30, 2008.
Accordingly,
in accordance with SAB No. 108, previously issued financial statements will be
revised to correct for these items the next time such financial statements are
filed.
The
following tables set forth the line items affected by the revisions on Stratus’
statements of operations for the three-month and nine-month periods ended
September 30, 2007, and balance sheet at December 31, 2007 (in thousands, except
per share amounts).
|
Statements of Operations
|
|||||||||
|
Three
Months Ended September 30, 2007
|
|||||||||
|
As
Previously
|
|||||||||
|
Reported
|
Adjustments
|
As
Revised
|
|||||||
|
Total
cost of sales
|
$
|
(6,933
|
)
|
$
|
(134
|
)
|
$
|
(7,067
|
)
|
|
Operating
loss
|
(423
|
)
|
(134
|
)
|
(557
|
)
|
|||
|
Interest
expense, net
|
-
|
-
|
-
|
||||||
|
Loss
from continuing operations
|
|||||||||
|
before
income taxes, minority interest and equity in
|
|||||||||
|
unconsolidated
affiliate’s income
|
(387
|
)
|
(134
|
)
|
(521
|
)
|
|||
|
Benefit
from income taxes
|
74
|
46
|
120
|
||||||
|
Loss
from continuing operations
|
(313
|
)
|
(88
|
)
|
(401
|
)
|
|||
|
(Loss)
income from discontinued operations
|
(32
|
)
|
211
|
179
|
|||||
|
Net
loss
|
(345
|
)
|
123
|
(222
|
)
|
||||
|
Basic
and diluted net (loss) income
|
|||||||||
|
per
share of common stock:
|
|||||||||
|
Continuing
operations
|
$
|
(0.04
|
)
|
$
|
(0.01
|
)
|
$
|
(0.05
|
)
|
|
Discontinued
operations
|
(0.01
|
)
|
0.03
|
0.02
|
|||||
|
Basic
and diluted net loss per share of common stock
|
$
|
(0.05
|
)
|
$
|
0.02
|
$
|
(0.03
|
)
|
|
|
Nine
Months Ended September 30, 2007
|
|||||||||
|
As
Previously
|
|||||||||
|
Reported
|
Adjustments
|
As
Revised
|
|||||||
|
Total
cost of sales
|
$
|
(13,936
|
)
|
$
|
(173
|
)
|
$
|
(14,109
|
)
|
|
Operating
income
|
864
|
(173
|
)
|
691
|
|||||
|
Interest
expense, net
|
(13
|
)
|
13
|
-
|
|||||
|
Income
from continuing operations
|
|||||||||
|
before
income taxes, minority interest and equity in
|
|||||||||
|
unconsolidated
affiliate’s income
|
1,423
|
(160
|
)
|
1,263
|
|||||
|
Provision
for income taxes
|
(557
|
)
|
56
|
(501
|
)
|
||||
|
Income
from continuing operations
|
866
|
(104
|
)
|
762
|
|||||
|
(Loss)
income from discontinued operations
|
(232
|
)
|
632
|
400
|
|||||
|
Net
income
|
634
|
528
|
1,162
|
||||||
|
Basic
and diluted net income (loss)
|
|||||||||
|
per
share of common stock:
|
|||||||||
|
Continuing
operations
|
$
|
0.11
|
$
|
(0.01
|
)
|
$
|
0.10
|
||
|
Discontinued
operations
|
(0.03
|
)
|
0.08
|
0.05
|
|||||
|
Basic
and diluted net income per share of common stock
|
$
|
0.08
|
$
|
0.07
|
$
|
0.15
|
|||
|
Balance Sheet
|
|||||||||
|
December
31, 2007
|
|||||||||
|
As
Previously
|
|||||||||
|
Reported
|
Adjustments
|
As
Revised
|
|||||||
|
ASSETS
|
|||||||||
|
Real
estate, commercial leasing assets and facilities, net
|
$
|
170,703
|
$
|
6,353
|
$
|
177,056
|
|||
|
Deferred
tax asset
|
6,935
|
(1,203
|
)
|
5,732
|
|||||
|
Other
assets
|
2,781
|
a
|
119
|
2,900
|
|||||
|
Total
assets
|
228,357
|
5,763
|
234,120
|
||||||
|
LIABILITIES AND STOCKHOLDERS’
EQUITY
|
|||||||||
|
Other
liabilities
|
$
|
3,326
|
b
|
$
|
1,236
|
c
|
$
|
4,562
|
|
|
Total
liabilities
|
75,957
|
1,236
|
c
|
77,193
|
|||||
|
Accumulated
deficit
|
(29,300
|
)
|
4,527
|
d
|
(24,773
|
)
|
|||
|
Total
stockholders’ equity
|
152,400
|
4,527
|
d
|
156,927
|
|||||
|
Total
liabilities and stockholders’ equity
|
228,357
|
5,763
|
234,120
|
||||||
|
a.
|
Amounts
are adjusted for the reclassification from a classified to a
non-classified balance sheet (see Note 3). Stratus previously reported
$2,803 thousand of other assets in its 2007 Form 10-K consolidated balance
sheet prior to its adjustments for the reclassification from a classified
to a non-classified balance sheet. The other assets of $2,803 thousand
included $22 thousand of long-term deposits that are now classified in
deposits and prepaid expenses.
|
|
b.
|
Amounts
are adjusted for the reclassification from a classified to a
non-classified balance sheet (see Note 3). Stratus previously reported
$5,623 thousand of accrued interest, property taxes and other in current
liabilities and $2,510 thousand of other liabilities in its 2007 Form 10-K
consolidated balance sheet prior to its adjustments for the
reclassification from a classified to a non-classified balance sheet.
Prior to the reclassification, the $5,623 thousand of accrued interest,
property taxes and other included $1,714 thousand of other current
liabilities that are now classified in other liabilities; and the $2,510
thousand of other liabilities included $898 thousand of long-term deposits
that are now classified in deposits. Thus, the reclassified other
liabilities include $2,510 thousand of other liabilities as previously
reported at December 31, 2007, plus $1,714 thousand of other current
liabilities less $898 thousand of long-term
deposits.
|
|
c.
|
Amounts
include an increase of taxes payable for $173 thousand related to the
understatement of Crestview Station’s net income for the fourth quarter of
2007.
|
|
d.
|
Amounts
include a reduction to accumulated deficit of $321 thousand related to the
understatement of Crestview Station’s net income for the fourth quarter of
2007.
|
|
3.
|
RECLASSIFICATIONS
|
Certain
previously reported amounts have been reclassified to conform to the current
period presentation. The more significant of these reclassifications are as
follows:
For
purposes of presentation on the statement of cash flows, Stratus has
historically included all expenditures relating to the acquisition and
development of all real estate property within investing cash flows. The
investing cash flows included expenditures for both developed properties as well
as properties under development to be held for sale or held for use.
Historically, these expenditures were included in investing cash flows as
management was not always able to determine the ultimate disposition of the
related assets. Primarily as a result of the W Austin Hotel & Residences
project, which is a mixed use project with elements of both property held for
sale (condominiums) and property held for use (hotel and venue properties) that
commenced construction during 2008, management decided to allocate expenditures
relating to the acquisition and development of all real estate property between
operating cash flows and investing cash flows. Management believes this change
in cash flow presentation more appropriately reflects the cash flow presentation
with the nature of the activity generating or requiring the cash flows and more
closely aligns with Stratus’ existing and anticipated near-term business
activities.
Capital
expenditures for the W Austin Hotel & Residences have been classified as
operating and investing activities, respectively on a proportional basis based
on the total projected costs for the project as compared to the corresponding
projected costs for residential real estate development (i.e. condominiums to be
held for sale) and commercial leasing development (i.e. hotel and office space
to be held for lease).
Additionally,
Stratus changed its balance sheet presentation from a classified to a
non-classified presentation to conform to the balance sheet presentation of its
peers in the real estate industry.
These
reclassifications had no effect on total assets, total liabilities or
stockholders' equity as previously reported.
|
4.
|
EARNINGS
PER SHARE
|
Stratus’
basic net (loss) income per share of common stock was calculated by dividing the
(loss) income from continuing operations, loss from discontinued operations and
net (loss) income by the weighted average number of common shares outstanding
during the period. The following is a reconciliation of net (loss) income and
weighted average common shares outstanding for purposes of calculating diluted
net (loss) income per share (in thousands, except per share
amounts):
|
Three
Months Ended
|
Nine
Months Ended
|
|||||||||||
|
September
30,
|
September
30,
|
|||||||||||
|
2008
|
2007
|
2008
|
2007
|
|||||||||
|
(Loss)
income from continuing operations
|
$
|
(350
|
)
|
$
|
(401
|
)
|
$
|
(1,399
|
)
|
$
|
762
|
|
|
Income
(loss) from discontinued operations
|
-
|
179
|
(105
|
)
a
|
400
|
|||||||
|
Net
(loss) income
|
$
|
(350
|
)
|
$
|
(222
|
)
|
$
|
(1,504
|
)
|
$
|
1,162
|
|
|
Weighted
average common shares outstanding
|
7,641
|
7,560
|
7,613
|
7,559
|
||||||||
|
Add: Dilutive
stock options
|
-
|
-
|
-
|
67
|
||||||||
|
Restricted stock units
|
-
|
-
|
-
|
14
|
||||||||
|
Weighted
average common shares outstanding for
|
||||||||||||
|
purposes
of calculating diluted net (loss) income
|
||||||||||||
|
per
share
|
7,641
|
7,560
|
7,613
|
7,640
|
||||||||
|
Diluted
net (loss) income per share of common stock:
|
||||||||||||
|
Continuing
operations
|
$
|
(0.05
|
)
|
$
|
(0.05
|
)
|
$
|
(0.19
|
)
|
$
|
0.10
|
|
|
Discontinued
operations
|
-
|
0.02
|
(0.01
|
)
a
|
0.05
|
|||||||
|
Diluted
net (loss) income per share of common stock
|
$
|
(0.05
|
)
|
$
|
(0.03
|
)
|
$
|
(0.20
|
)
|
$
|
0.15
|
|
|
a.
|
Relates
to the revised amount of Texas margin tax accrued on Escarpment Village
income earned during 2007 (see Note
11).
|
Stock
options and restricted stock units representing approximately 52,000 shares for
the third quarter of 2008, approximately 121,000 shares for the third quarter of
2007 and approximately 60,000 shares for the first nine months of 2008 that
otherwise would have been included in the earnings per share calculations were
excluded because of the net losses reported for the periods.
|
5.
|
JOINT
VENTURE WITH CANYON-JOHNSON URBAN FUND II,
L.P.
|
Effective
May 1, 2008, Stratus entered into a joint venture with Canyon-Johnson Urban Fund
II, L.P. (“Canyon-Johnson”) for the development of a 36-story mixed-use
development in downtown Austin, Texas, anchored by a W Hotel & Residences
(the “W Austin Hotel & Residences project”). Stratus’ initial capital
contributions to the joint venture totaled $31.8 million, which consisted of a
1.76 acre tract of land purchased by Stratus and located across the street from
Austin City Hall, the related property and development agreements for the land
and other project costs incurred by Stratus before May 1, 2008.
Stratus
is the manager of, and has an approximate 40 percent interest in, the joint
venture. Canyon-Johnson has an approximate 60 percent interest in the joint
venture. Canyon-Johnson contributed its initial capital in May 2008 and will
contribute additional capital until certain capital contribution requirements
are met. In the aggregate, Canyon-Johnson will contribute approximately 60
percent of the joint venture’s required capital and Stratus will contribute
approximately 40 percent. The required capital contributions are approximately
$53 million for Stratus and $75 million for Canyon-Johnson. As of September 30,
2008, Canyon-Johnson had contributed $16.7 million and in accordance with the
joint venture agreement, they will continue to fund 100 percent of project costs
until their contributions total approximately $44 million. Thereafter, Stratus
will fund 40 percent and Canyon-Johnson will fund 60 percent of project costs
until the
required
capital contributions are made. After the required capital contributions are
made, project costs will be financed by a construction loan (see
below).
On May 2,
2008, the joint venture entered into a construction loan agreement with Corus
Bank, N.A., (the “Corus Loan Agreement”) to finance the construction of the W
Austin Hotel & Residences project. Pursuant to the Corus Loan Agreement, the
joint venture may borrow up to an aggregate of $165.0 million to fund the
construction, development and marketing costs of the W Austin Hotel &
Residences project. Upon execution of the Corus Loan Agreement, approximately
$2.0 million was advanced to the joint venture. In connection with the Corus
Loan Agreement, the joint venture paid $2.8 million of financing costs. Pursuant
to the terms of the Corus Loan Agreement, additional borrowings for project
costs are not permitted until Stratus’ and Canyon-Johnson’s capital
contributions to the joint venture reach $49.2 million for Stratus and $73.7
million for Canyon-Johnson, which is currently anticipated to occur in the
fourth quarter of 2009. The joint venture is permitted to borrow under the Corus
Loan Agreement to pay interest on the loan.
The Corus
Loan Agreement contains customary financial covenants and other restrictions.
Amounts borrowed under the Loan Agreement bear interest at an annual rate, which
is adjusted quarterly, equal to the greater of (1) the sum of 3.5 percent per
year plus the three-month London Interbank Offered Rate (LIBOR) quoted in the
Money Rates section of The Wall Street Journal or (2) 6.5 percent. The rate was
6.5 percent at September 30, 2008. The effective interest rate for the fourth
quarter of 2008 was 7.6 percent, which was based on LIBOR of 4.1 percent at
September 30, 2008.
On August
1, 2008, the joint venture paid $0.7 million to enter into an agreement to cap
the floating LIBOR rate on the loan at 4.5 percent (see Note 6). The LIBOR rate
cap notional amount varies based on projected loan balances throughout the term
of the loan. The agreement terminates on July 1, 2011.
A Stratus
subsidiary has been designated as the developer of the W Austin Hotel &
Residences project and will be paid a $6.0 million developer’s fee over the term
of construction. Stratus has received development fees totaling $0.5 million in
the third quarter of 2008 and $0.8 million in the first nine months of 2008,
which have been eliminated in consolidation in accordance with Financial
Accounting Standards Board (FASB) Interpretation No. 46R (FIN 46R).
Optional
prepayments during the twelve months immediately following the execution of the
Corus Loan Agreement are not permitted. From May 2, 2009 through November 2,
2010, optional prepayments of the loan are permitted, subject to a prepayment
premium. Optional prepayments made after November 2, 2010, are not subject to
prepayment premiums. Repayments made from proceeds of the sale of residential
condominiums or other components of the W Austin Hotel & Residences project
are permitted, beginning after the first year of the loan, without prepayment
penalty. Repayments under the Corus Loan Agreement may be accelerated by the
lenders upon the occurrence of customary events of default. The Corus Loan
Agreement matures on September 2, 2011. Certain obligations of the joint venture
under the Corus Loan Agreement are guaranteed by Stratus, including construction
and completion of the project, environmental indemnification and joint and
several liability for the payment of $20.0 million of the principal of the
loan.
Under the
guidance of FIN 46R, “Consolidation of Variable Interest Entities (revised
December 2003) - an Interpretation of ARB No. 51,” Stratus performed an
evaluation and concluded that the W Austin Hotel & Residences project is a
variable interest entity (VIE) and that Stratus is currently the primary
beneficiary of the project even though it is not the majority owner as it has
contributed disproportionately more capital than Canyon-Johnson, is the
developer of the project and guarantees certain obligations as discussed above.
Accordingly, the W Austin Hotel & Residences project has been consolidated
in Stratus’ financial statements.
At
September 30, 2008, Stratus’ consolidated balance sheet includes $52.0 million
in total assets and $4.4 million in total liabilities associated with the W
Austin Hotel & Residences project. In accordance with FIN 46R, certain
triggering events, including when the VIE has additional equity investment at
risk, require a company to reconsider whether or not an entity is still a VIE
and also requires reconsideration of the primary beneficiary. Therefore, as
future capital contributions are made by Canyon-Johnson and Stratus, Stratus
will update its evaluation of whether the project is a VIE and whether Stratus
is the primary beneficiary. If it is determined that the W Austin Hotel &
Residences project is no longer a VIE under the guidance of FIN 46R or that
Stratus is no longer the primary beneficiary of the entity, the project will be
deconsolidated
from Stratus’ financial statements and will be accounted for under the equity
method of accounting.
|
6.
|
FAIR
VALUE MEASUREMENTS
|
SFAS No.
157, "Fair Value Measurements," includes a fair value hierarchy that is
intended to increase consistency and comparability in fair value measurements
and related disclosures. The fair value hierarchy is based on inputs to
valuation techniques that are used to measure fair value that are either
observable or unobservable. Observable inputs reflect assumptions market
participants would use in pricing an asset or liability based on market data
obtained from independent sources while unobservable inputs reflect a reporting
entity’s pricing based upon their own market assumptions.
The fair
value hierarchy consists of the following three levels:
Level 1 –
Inputs are quoted prices in active markets for identical assets or
liabilities.
Level 2 –
Inputs are quoted prices for similar assets or liabilities in an active market,
quoted prices for identical or similar assets or liabilities in markets that are
not active, inputs other than quoted prices that are observable and
market-corroborated inputs which are derived principally from or corroborated by
observable market data.
Level 3 –
Inputs are derived from valuation techniques in which one or more significant
inputs or value drivers are unobservable.
Stratus
adopted SFAS No. 157 effective January 1, 2008, for financial assets and
liabilities recognized at fair value on a recurring basis (see Note 13). The
following table sets forth Stratus’ financial assets measured at fair value on a
recurring basis as of September 30, 2008, by level within the fair value
hierarchy (in thousands):
|
Quoted
Prices in
|
Significant
|
|||||||||||
|
Total
Fair Value
|
Active
Markets for
|
Significant
Other
|
Unobservable
|
|||||||||
|
Measurement
|
Identical
Assets
|
Observable
Inputs
|
Inputs
|
|||||||||
|
September
30, 2008
|
(Level
1)
|
(Level
2)
|
(Level
3)
|
|||||||||
|
Cash
equivalents
|
$
|
32,886
|
$
|
32,886
|
$
|
-
|
$
|
-
|
||||
|
Interest
rate cap
|
||||||||||||
|
agreement
|
552
|
-
|
552
|
-
|
||||||||
|
$
|
33,438
|
$
|
32,886
|
$
|
552
|
$
|
-
|
|||||
Cash Equivalents
. In July
2008, Stratus began investing some of its cash and cash equivalents in U.S.
Treasury securities, which are considered cash equivalents. Stratus’ cash
equivalent instruments are classified within Level 1 of the fair value hierarchy
because they are valued using quoted market prices in active
markets.
Interest Rate Cap Agreement
.
On August 1, 2008, Stratus’ joint venture with Canyon-Johnson paid $0.7 million
to enter into an agreement to cap the floating LIBOR rate on its construction
loan at 4.5 percent. The joint venture entered into this derivative contract to
manage interest rate risk under the Corus Loan Agreement (see Note 5). Stratus
accounts for this derivative pursuant to Statement of Financial Accounting
Standards (SFAS) No. 133, “Accounting for Derivative Instruments and Hedging
Activities.” SFAS No. 133 established accounting and reporting standards
requiring that every derivative instrument be recorded in the balance sheet as
either an asset or liability measured at its fair value. The accounting for
changes in the fair value of a derivative instrument depends on the intended use
of the derivative and the resulting designation. Stratus records this interest
rate cap agreement maturing July 2011 at fair value on a recurring basis on its
balance sheet and recognizes changes in fair value in the current period
earnings. Stratus recorded the $0.7 million payment to enter into the interest
rate cap agreement as an investing activity in its Statement of Cash Flows as
Stratus does not consider the interest rate cap agreement to be an effective
hedge under SFAS No. 133. Stratus recorded non-cash charges totaling $0.1
million for the first nine months of 2008 related to the change in fair value of
the interest rate cap agreement.
Stratus
uses an interest rate pricing model that relies on market observable inputs such
as LIBOR to measure the fair value of the interest rate cap agreement, and
therefore are classified as Level 2. Stratus
also
evaluated the counterparty credit risk associated with the interest rate cap
agreement, which is considered a Level 3 input, but did not consider such risk
to be significant. Stratus’ unrealized loss related to the fair value
measurement of the interest rate cap agreement totaled $0.1 million in the third
quarter and first nine months of 2008.
|
7.
|
INVESTMENT
IN UNCONSOLIDATED AFFILIATE
|
In 2005,
Stratus formed a joint venture with Trammell Crow Central Texas Development,
Inc. (Trammell Crow) to acquire an approximate 74-acre tract at the intersection
of Airport Boulevard and Lamar Boulevard in Austin, Texas, for $7.7 million. The
property, known as Crestview Station, is a single-family, multi-family, retail
and office development, which is located on the site of a future commuter rail
line approved by City of Austin voters. With Trammell Crow, Stratus has
completed environmental remediation, which the State of Texas certified as
complete in September 2007, and permitting of the property. Infrastructure
development of Crestview Station is progressing.
At
September 30, 2008, Stratus’ investment in the Crestview Station project totaled
$2.1 million and the joint venture partnership had $7.7 million of outstanding
debt, of which Stratus guarantees $1.9 million. (See Note 14 for additional
developments regarding Crestview Station occurring subsequent to September 30,
2008).
Stratus
has a 50 percent interest in the Crestview Station project, which it accounts
for under the equity method in accordance with the provisions of the American
Institute of Certified Public Accountants Statement of Position 78-9,
“Accounting for Investments in Real Estate Ventures.” Stratus has determined
that consolidation of the Crestview Station project is not required under the
provisions of FIN 46R.
Crestview
Station sold substantially all of its multi-family and commercial properties in
2007 and one commercial site in the first quarter of 2008, which resulted in
Stratus’ equity in Crestview Station’s earnings totaling $0.4 million in the
first nine months of 2008, including adjustments to the previously reported
results for the first six months of 2008 as discussed in Note 2.
Stratus
received distributions from Crestview Station totaling $3.6 million in the first
nine months of 2008. Summary information for Crestview Station for the 2008
periods follows (in thousands):
|
Three
Months Ended
|
Nine
Months Ended
|
||||
|
September
30, 2008
|
September
30, 2008
|
||||
|
Total
revenues
|
$ 1,054
|
$ 3,895
|
|||
|
Net income
|
$
198
|
|
$
730
|
During
the nine months ended September 30, 2007, the Crestview Station project recorded
no revenues or expenses as the project was under development and all
expenditures were capitalized as project costs.
|
8.
|
DEBT
|
At
September 30, 2008, Stratus had total debt of $63.4 million, including $0.3
million of current debt. Total debt was $61.5 million at December 31, 2007.
Stratus’ debt outstanding at September 30, 2008 consisted of the
following:
|
·
|
$40.0
million of borrowings outstanding under seven unsecured term loans, which
include two $5.0 million loans, two $8.0 million loans, a $7.0 million
loan and two $3.5 million loans, all of which will mature in December
2011.
|
|
·
|
$21.3
million of borrowings outstanding under the Lantana promissory note, which
matures in January 2018.
|
|
·
|
$2.1
million of borrowings outstanding under the W Austin Hotel &
Residences project construction loan, which matures in September 2011 and
has total remaining commitments available of approximately $163 million
(See Note 5).
|
Effective
May 30, 2008, Stratus entered into a third modification and extension agreement
to extend the maturity and modify the interest rate on its $45.0 million
revolving credit facility. The maturity was extended from May 30, 2009, to May
30, 2010. In addition, the interest rate applicable to amounts borrowed under
the facility was modified to an annual rate of either the base rate minus 0.45
percent with a minimum interest rate of 5 percent or LIBOR plus 2 percent with a
minimum interest rate of 5 percent.
No amounts were outstanding under
this facility at September 30, 2008. For further discussion of Stratus’ debt see
Note 4 of the Stratus 2007 Form 10-K.
|
9.
|
INTEREST
COST AND STOCK-BASED COMPENSATION
|
Interest
Cost.
Stratus capitalized all of its interest costs totaling
$1.3 million in the third quarter of 2008, $1.1 million in the third quarter of
2007, $3.6 million in the first nine months of 2008 and $3.1 million in the
first nine months of 2007 (see Note 2).
Stock-Based
Compensation.
Compensation cost charged against earnings for
stock-based awards follows (in thousands).
|
Three
Months Ended
|
Nine
Months Ended
|
|||||||||||
|
September
30,
|
September
30,
|
|||||||||||
|
2008
|
2007
|
2008
|
2007
|
|||||||||
|
Stock
options awarded to employees (including directors)
|
$
|
127
|
$
|
153
|
$
|
316
|
$
|
388
|
||||
|
Restricted
stock units
|
193
|
156
|
579
|
821
|
||||||||
|
Less
capitalized amounts
a
|
(42
|
)
|
(48
|
)
|
(134
|
)
|
(189
|
)
|
||||
|
Impact
on (loss) income from continuing operations
|
||||||||||||
|
before
income taxes
|
$
|
278
|
$
|
261
|
$
|
761
|
$
|
1,020
|
||||
|
a.
|
Employee
compensation, including stock-based compensation, is eligible for
capitalization under Stratus’ accounting policy for the allocation of
overhead costs. See Note 1 of the Stratus 2007 Form
10-K.
|
In
September 2008, Stratus granted 7,500 stock options to its non-employee
directors under its existing stock option plan for non-employee directors. The
fair value of each option award is estimated on the date of grant using a
Black-Scholes option valuation model. Expected volatility is based on the
historical volatility of Stratus’ stock. Stratus uses historical data to
estimate option exercises, forfeitures and expected life of the options. When
appropriate, employees who have similar historical exercise behavior are grouped
for valuation purposes. The risk-free interest rate is based on Federal Reserve
rates in effect for bonds with maturity dates equal to the expected term of the
option at the date of grant. Stratus has not paid, and has no current plan to
pay, cash dividends on its common stock. The number of options granted, grant
date fair values per stock option and assumptions used to value stock option
awards granted during the nine months ended September 30, 2008 and September 30,
2007 follow:
|
2008
|
2007
|
|||||
|
Options
granted
|
7,500
|
7,500
|
||||
|
Grant-date
fair value per stock option
|
$
|
15.49
|
$
|
16.30
|
||
|
Expected
and weighted average volatility
|
49.0
|
%
|
41.8
|
%
|
||
|
Expected
life of options (in years)
|
6.7
|
6.7
|
||||
|
Risk-free
interest rate
|
3.5
|
%
|
4.4
|
%
|
||
For more
information regarding Stratus’ stock-based compensation awards see Notes 1 and 6
of the Stratus 2007 Form 10-K.
|
10.
|
INCOME
TAXES
|
Accounting
Principles Board Opinion No. 28 requires companies to determine an estimated
annual effective tax rate to apply to their interim pre-tax income. FIN 18,
“Accounting for Income Taxes in Interim Periods – an interpretation of APB No.
28,” provides that the estimated annual effective rate should be
revised, if necessary, to reflect the company's best current estimate as of the
end of each successive interim period during the year. If a reliable estimate
cannot be made, the actual effective tax rate for the year-to-date period may be
the best estimate of the annual effective tax rate.
During
the third quarter of 2008, Stratus concluded that estimating a consistent annual
effective tax rate was increasingly difficult due to the uncertainty in
forecasting taxable income since its taxable income is primarily dependent upon
asset sales which are difficult to predict with any certainty and may vary
significantly from period to period. The ability to forecast is increasingly
difficult in light of the current economic environment. Stratus believes that
the uncertainty in their forecasts goes beyond normal market variations and
forecasting an annual effective would not provide a meaningful estimate. As
such, Stratus
believes
that the actual year-to-date effective tax rate is the best estimate of the
annual tax rate in accordance with FIN 18. Stratus’ benefit from income taxes
has been calculated utilizing its actual effective tax rate for the three-month
and nine-month periods ended September 30, 2008.
After
considering the tax impact of the items discussed in Note 2, the difference
between Stratus’ consolidated effective income tax rates for the first nine
months of 2008 and 2007 and the U.S. federal statutory rate of 35 percent
primarily was attributable to state income tax expense.
|
11.
|
DISCONTINUED
OPERATIONS
|
On
October 12, 2007, Stratus sold the Escarpment Village shopping center, located
in Austin, Texas, to Lake Villa, L.L.C. (the Purchaser) for $46.5 million,
before closing costs and other adjustments. The Purchaser paid approximately
$23.0 million in cash at closing and assumed the $22.4 million principal balance
remaining under Stratus’ loan from Teachers Insurance and Annuity Association of
America (TIAA). Upon completion of the sale of Escarpment Village, Stratus
ceased all involvement with the Escarpment Village shopping center. The results
of operations of Escarpment Village, which have been classified as discontinued
operations in the consolidated statements of operations, previously represented
a component of Stratus’ commercial leasing segment.
In June
2008, Stratus revised the amount of Texas margin tax accrued on Escarpment
Village income earned during 2007. The revised accrual resulted in $0.1 million
of additional income tax charges related to 2007, which were recognized in June
2008. As the results of operations of Escarpment Village have been appropriately
classified as discontinued operations, the additional Texas margin tax has also
been classified as discontinued operations in the consolidated statements of
operations.
Summary
Escarpment Village results for the 2007 periods follows (in
thousands):
|
Three
Months Ended
|
Nine
Months Ended
|
|||||
|
September
30, 2007
|
September
30, 2007
|
|||||
|
Rental
income
|
$
|
825
|
$
|
2,582
|
||
|
Rental
property costs
|
(375
|
)
|
(1,271
|
)
|
||
|
Depreciation
|
(158
|
)
|
(696
|
)
|
||
|
General
and administrative expenses
|
(38
|
)
|
(71
|
)
|
||
|
Interest
income
|
21
|
70
|
||||
|
Income
before income taxes
|
275
|
614
|
||||
|
Provision
for income taxes
|
(96
|
)
|
(214
|
)
|
||
|
Income
from discontinued operations
|
$
|
179
|
$
|
400
|
||
For a
further discussion of Stratus’ discontinued operations see Note 7 of the Stratus
2007 Form 10-K.
|
12.
|
BUSINESS
SEGMENTS
|
Stratus
has two operating segments, “Real Estate Operations” and “Commercial Leasing.”
The Real Estate Operations segment is comprised of all Stratus’ developed
properties, properties under development and undeveloped properties held for
sale in Austin, Texas, which consist of its properties in the Barton Creek
community, the Circle C community and Lantana, and certain properties at the W
Austin Hotel & Residences project. In January 2008, Stratus sold the final
lots of the Deerfield property in Plano, Texas, which is also included in the
Real Estate Operations segment. For definitions of these property
classifications, see “Properties” located in Item 2 of the Stratus 2007 Form
10-K.
The
Commercial Leasing segment primarily includes the two 75,000 square-foot office
buildings at 7500 Rialto Boulevard, of which one is 97 percent leased and the
other is 94 percent leased as of September 30, 2008. In addition, the commercial
leasing segment includes rental income from Barton Creek Village, which includes
a retail building completed in the second quarter of 2007 and a bank building
completed in early 2008.
Escarpment
Village operating results are reported as discontinued operations. Segment data
presented below were prepared on the same basis as Stratus’ consolidated
financial statements.
|
Real
Estate Operations
a
|
Commercial
Leasing
|
Other
|
Total
|
|||||||||
|
(In
Thousands)
|
||||||||||||
|
Three Months Ended September 30,
2008
|
||||||||||||
|
Revenues
|
$
|
5,751
|
$
|
1,158
|
$
|
-
|
$
|
6,909
|
||||
|
Cost
of sales, excluding depreciation
|
(4,805
|
)
|
(944
|
)
|
-
|
(5,749
|
)
|
|||||
|
Depreciation
|
(53
|
)
|
(382
|
)
|
-
|
(435
|
)
|
|||||
|
General
and administrative expenses
|
(1,482
|
)
|
(241
|
)
|
-
|
(1,723
|
)
|
|||||
|
Operating
loss
|
$
|
(589
|
)
|
$
|
(409
|
)
|
$
|
-
|
$
|
(998
|
)
|
|
|
Capital
expenditures
|
$
|
7,517
|
$
|
2,167
|
$
|
-
|
$
|
9,684
|
||||
|
Total
assets
|
$
|
176,078
|
$
|
64,763
|
$
|
5,406
|
b
|
$
|
246,247
|
|||
|
Three Months Ended September 30,
2007
|
||||||||||||
|
Revenues
|
$
|
7,270
|
$
|
766
|
$
|
-
|
$
|
8,036
|
||||
|
Cost
of sales, excluding depreciation
|
(5,796
|
)
|
(860
|
)
|
-
|
(6,656
|
)
|
|||||
|
Depreciation
|
(45
|
)
|
(366
|
)
|
-
|
(411
|
)
|
|||||
|
General
and administrative expenses
|
(1,345
|
)
|
(181
|
)
|
-
|
(1,526
|
)
|
|||||
|
Operating
income (loss)
|
$
|
84
|
$
|
(641
|
)
|
$
|
-
|
$
|
(557
|
)
|
||
|
Income
from discontinued operations
|
$
|
-
|
$
|
179
|
$
|
-
|
$
|
179
|
||||
|
Capital
expenditures
|
$
|
8,093
|
$
|
3,609
|
$
|
-
|
$
|
11,702
|
||||
|
Total
assets
|
$
|
138,452
|
$
|
80,201
|
c
|
$
|
7,509
|
b
|
$
|
226,162
|
||
|
Nine Months Ended September 30,
2008
|
||||||||||||
|
Revenues
|
$
|
12,786
|
$
|
3,278
|
$
|
-
|
$
|
16,064
|
||||
|
Cost
of sales, excluding depreciation
|
(10,625
|
)
|
(2,683
|
)
|
-
|
(13,308
|
)
|
|||||
|
Depreciation
|
(147
|
)
|
(1,064
|
)
|
-
|
(1,211
|
)
|
|||||
|
General
and administrative expenses
|
(4,538
|
)
|
(739
|
)
|
-
|
(5,277
|
)
|
|||||
|
Operating
loss
|
$
|
(2,524
|
)
|
$
|
(1,208
|
)
|
$
|
-
|
$
|
(3,732
|
)
|
|
|
Loss
from discontinued operations
|
$
|
-
|
$
|
(105
|
)
d
|
$
|
-
|
$
|
(105
|
)
d
|
||
|
Capital
expenditures
|
$
|
22,530
|
$
|
10,337
|
$
|
-
|
$
|
32,867
|
||||
|
Nine Months Ended September 30,
2007
|
||||||||||||
|
Revenues
|
$
|
17,994
|
$
|
2,146
|
$
|
-
|
$
|
20,140
|
||||
|
Cost
of sales, excluding depreciation
|
(10,823
|
)
|
(2,391
|
)
|
-
|
(13,214
|
)
|
|||||
|
Depreciation
|
(115
|
)
|
(780
|
)
|
-
|
(895
|
)
|
|||||
|
General
and administrative expenses
|
(4,653
|
)
|
(687
|
)
|
-
|
(5,340
|
)
|
|||||
|
Operating
income (loss)
|
$
|
2,403
|
$
|
(1,712
|
)
|
$
|
-
|
$
|
691
|
|||
|
Income
from discontinued operations
|
$
|
-
|
$
|
400
|
$
|
-
|
$
|
400
|
||||
|
Capital
expenditures
|
$
|
23,449
|
$
|
6,301
|
$
|
-
|
$
|
29,750
|
||||
|
a.
|
Includes
sales commissions, management fees and other revenues together with
related expenses.
|
|
b.
|
Primarily
includes deferred tax assets.
|
|
c.
|
Includes
assets from the discontinued operations of Escarpment Village, which
Stratus sold on October 12, 2007, totaling $34.3 million, net of
accumulated depreciation of $1.4 million, at September 30,
2007.
|
|
d.
|
Relates
to the revised amount of Texas margin tax accrued on Escarpment Village
income earned during 2007 (see note
11).
|
Segment
profit excludes interest income, loss on interest rate cap agreement, benefit
from (provision for) income taxes, minority interest and equity in
unconsolidated affiliate’s income. A reconciliation of segment profit to
consolidated (loss) income from continuing operations before income taxes,
minority interest and equity in unconsolidated affiliate’s income for each
period is as follows (in thousands):
|
Three
Months Ended
|
Nine
Months Ended
|
|||||||||||
|
September
30,
|
September
30,
|
|||||||||||
|
2008
|
2007
|
2008
|
2007
|
|||||||||
|
Operating
(loss) income
|
$
|
(998
|
)
|
$
|
(557
|
)
|
$
|
(3,732
|
)
|
$
|
691
|
|
|
Interest
income
|
330
|
36
|
1,432
|
572
|
||||||||
|
Loss
on interest rate cap agreement
|
(121
|
)
|
-
|
(121
|
)
|
-
|
||||||
|
(Loss)
income from continuing operations
|
||||||||||||
|
before
income taxes, minority interest and
|
||||||||||||
|
equity
in unconsolidated affiliate’s income
|
$
|
(789
|
)
|
$
|
(521
|
)
|
$
|
(2,421
|
)
|
$
|
1,263
|
|
|
13.
|
NEW
ACCOUNTING STANDARDS
|
Fair
Value Measurements.
In September 2006, the
FASB issued SFAS No. 157, which provides enhanced guidance for using fair value
to measure assets and liabilities. SFAS No. 157 does not require any new fair
value measurements under generally accepted accounting principles in the United
States but rather establishes a common definition of fair value, provides a
framework for measuring fair value under generally accepted accounting
principles in the United States and expands disclosure requirements about fair
value measurements. In February 2008, the FASB issued FSP FAS 157-2, which
delays the effective date of SFAS No. 157 for nonfinancial assets or liabilities
that are not required or permitted to be measured at fair value on a recurring
basis to fiscal years beginning after November 15, 2008, and interim periods
within those years. Effective January 1, 2008, Stratus adopted SFAS No. 157 for
financial assets and liabilities recognized at fair value on a recurring basis.
At the time of partial adoption, SFAS No. 157 did not impact Stratus’ financial
reporting and disclosures as Stratus did not have financial assets and
liabilities subject to fair value measurement on a recurring basis (see Note 6).
Stratus is currently evaluating the impact that the adoption of SFAS No. 157 for
nonfinancial assets or liabilities that are not required or permitted to be
measured at fair value on a recurring basis will have on its financial reporting
and disclosures.
Noncontrolling
Interests in Consolidated Financial Statements.
In December 2007, the
FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial
Statements – an amendment of ARB No. 51,” which clarifies that noncontrolling
interests (minority interests) are to be treated as a separate component of
equity and any changes in the ownership interest (in which control is retained)
are to be accounted for as capital transactions. However, a change in ownership
of a consolidated subsidiary that results in a loss of control is considered a
significant event that triggers gain or loss recognition, with the establishment
of a new fair value basis in any remaining ownership interests. SFAS No. 160
also provides additional disclosure requirements for each reporting period. SFAS
No. 160 applies to fiscal years beginning on or after December 15, 2008, with
early adoption prohibited. This statement is required to be adopted
prospectively, except for the following provisions, which are expected to be
applied retrospectively: (i) the reclassification of noncontrolling interests to
equity in the consolidated balance sheets and (ii) the adjustment to
consolidated net income to include net income attributable to both the
controlling and noncontrolling interests. Stratus is currently evaluating the
impact that the adoption of SFAS No. 160 will have on its financial reporting
and disclosures.
Disclosures
about Derivative Instruments and Hedging Activities
.
In March 2008, FASB
issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging
Activities – an amendment of FASB Statement No. 133.” SFAS No. 161 amends the
disclosure requirements for derivative instruments and hedging activities
contained in SFAS No. 133. Under SFAS No. 161, entities are required to provide
enhanced disclosures about (i) how and why an entity uses derivative
instruments, (ii) how derivative instruments and related hedged items are
accounted for under SFAS No. 133 and related interpretations and (iii) how
derivative instruments and related hedged items affect an entity’s financial
position, financial performance and cash flows. SFAS No. 161 is effective for
fiscal years and interim periods beginning after November 15, 2008, with early
application encouraged. SFAS No. 161 encourages, but does not require disclosure
for earlier periods presented for comparative purposes at initial adoption. The
adoption of SFAS No. 161 will not affect Stratus’ accounting for derivative
financial instruments; however, Stratus is currently evaluating the impact on
its related disclosures.
|
14.
|
SUBSEQUENT
EVENTS
|
In
connection with funding the development of Crestview Station, the joint venture
entered into a loan agreement in 2005 with Comerica Bank (the “Crestview Loan
Agreement”), pursuant to which the joint venture borrowed funds in the principal
amount of $7.6 million. In November 2007, the joint venture amended the
Crestview Loan Agreement to increase the amount of availability under the loan
to $10.9 million. The principal amount of the loan was $7.7 million on September
30, 2008. Both Stratus and Trammell Crow, its joint venture partner, who
operates the venture, executed a guaranty of completion and payment in
connection with the Crestview Loan Agreement and are each obligated to guarantee
the joint venture’s performance under the Crestview Loan Agreement up to a
maximum of $1.9 million, plus certain interest payments and related costs. The
loan matured on March 31, 2009. Stratus’ joint venture partner elected not to
extend the loan, and as a result the joint venture received a notice of default
from Comerica Bank on April 4, 2009. On April 8, 2009, Stratus’ joint venture
partner signed a two-month extension on the loan, extending the maturity to May
31, 2009.
On
February 18, 2009, Corus bank entered into a written agreement with the Federal
Reserve Bank of Chicago and a consent order with the Office of the Comptroller
of the Currency, to maintain the financial soundness of Corus. It is uncertain
whether Corus will continue to be able to meet its funding commitments under the
Corus Loan Agreement once Stratus and Canyon-Johnson fully fund their capital
commitments later in 2009. Stratus and Canyon-Johnson are pursuing other options
for financing the W Austin Hotel & Residences project should Corus not be in
a position to fulfill its obligations. Such options may include additional
equity contributions by Stratus and Canyon-Johnson, financing from other
financial institutions, admitting new equity partners, or a combination of these
alternatives. If Corus is unable to fulfill its funding obligations, and if
alternate financing cannot be obtained, Stratus and Canyon-Johnson may be
required to delay further construction of the project until additional sources
of financing are available.
In March
2009, Stratus borrowed $4.7 million under a term loan secured by Barton Creek
Village, which will mature in April 2014. The applicable interest rate is 6.25
percent, and payments of interest and principal are due monthly beginning May 1,
2009. Stratus will use the proceeds of this loan for general corporate
purposes.
Item 2
.
Management’s Discussion and
Analysis of Financial Condition and Results of Operations.
OVERVIEW
Management’s
discussion and analysis presented below should be read in conjunction with our
discussion and analysis of financial results contained in our 2007 Annual Report
on Form 10-K (2007 Form 10-K) filed with the Securities and Exchange Commission
(SEC) and with Note 2. “Revisions of Previously Issued Consolidated Financial
Statements” included in Notes to Consolidated Financial Statements (unaudited)
contained elsewhere in this quarterly report on Form 10-Q. The operating results
summarized in this report are not necessarily indicative of our future operating
results. All subsequent references to Notes refer to Notes to Consolidated
Financial Statements (unaudited), unless otherwise stated.
We are
engaged in the acquisition, development, management and sale of commercial,
multi-family and residential real estate located primarily in the Austin, Texas
area. We conduct real estate operations on properties we own.
Our
principal real estate holdings are currently in southwest Austin, Texas. We also
own undeveloped commercial property in San Antonio, Texas. The number of
developed lots, developed or under development acreage, and undeveloped acreage
as of September 30, 2008, that comprise our principal development projects are
provided in the following table.
|
Acreage
|
|||||||||||||||||
|
Developed
or Under Development
|
Undeveloped
|
||||||||||||||||
|
Developed
|
Single
|
Multi-
|
Single
|
Total
|
|||||||||||||
|
Lots
|
Family
|
family
|
Commercial
|
Total
|
Family
|
Commercial
|
Total
|
Acreage
|
|||||||||
|
Austin
|
|||||||||||||||||
|
Barton
Creek
|
90
|
409
|
249
|
376
|
1,034
|
510
|
20
|
530
|
1,564
|
||||||||
|
Lantana
|
-
|
-
|
-
|
-
|
-
|
-
|
223
|
223
|
223
|
||||||||
|
Circle
C
|
115
|
a
|
148
|
a
|
-
|
265
|
413
|
-
|
122
|
122
|
535
|
||||||
|
W
Austin Hotel
|
|||||||||||||||||
|
&
Residences
|
-
|
-
|
-
|
2
|
b
|
2
|
-
|
-
|
-
|
2
|
|||||||
|
San Antonio
|
|||||||||||||||||
|
Camino
Real
|
-
|
-
|
-
|
-
|
-
|
-
|
2
|
2
|
2
|
||||||||
|
Total
|
205
|
557
|
249
|
643
|
1,449
|
510
|
367
|
877
|
2,326
|
||||||||
|
a.
|
Relates
to Meridian, an 800-lot residential
development.
|
|
b.
|
Represents
a city block in downtown Austin planned for a mixture of hotel,
residential, retail, office and entertainment
uses.
|
Our other
Austin holdings at September 30, 2008, consisted of a 22,000-square-foot retail
complex representing phase one of Barton Creek Village and two
75,000-square-foot office buildings at 7500 Rialto Boulevard (7500 Rialto)
located in our Lantana development.
In 2005,
we formed a joint venture partnership with Trammell Crow Central Texas
Development, Inc. (Trammell Crow) that acquired an approximate 74-acre tract at
the intersection of Airport Boulevard and Lamar Boulevard in Austin, Texas for
$7.7 million. The property, known as Crestview Station, is a single-family,
multi-family, retail and office development.
On
October 12, 2007, we sold Escarpment Village, which is a 168,000-square-foot
retail center anchored by a grocery store in the Circle C Ranch (Circle C)
community, for $46.5 million, before closing costs and other adjustments.
Accordingly, we have reported Escarpment Village’s results of operations for the
three-month and nine-month periods ended September 30, 2007, as discontinued
operations.
Our
financial condition and results of operations are highly dependent upon market
conditions for real estate activity in Austin, Texas. Our future operating cash
flows and, ultimately, our ability to develop our properties and expand our
business will be largely dependent on the level of our real estate sales. In
turn, these sales will be significantly affected by future real estate market
conditions in Austin, Texas, including development costs, interest rate levels,
the availability of credit to finance real estate transactions, demand for
residential and commercial real estate, and regulatory issues including our land
use and development entitlements.
The
current economic conditions have resulted in a general decline in leasing
activity across the United States (U.S.) in 2008, and have caused vacancy rates
to increase in most markets, including Austin, Texas. U.S. investment sales
activity declined sharply during the first nine months of 2008 because of, among
other factors, limited availability and increased cost of financing, especially
the absence of securitized debt, which was the source of recent heightened
investment activity, and the resulting gap between buyer and seller expectations
of value.
Periods
of economic slowdown or recession, rising interest rates, tightening of the
credit markets, declining demand for or increased supply of real estate, or the
public perception that any of these events may occur can adversely affect our
business. These conditions could result in a general decline in rents, which in
turn would reduce revenue from property management fees and leases. In addition,
these conditions could lead to a decline in property values as well as a decline
in funds invested in commercial real estate and related assets, which in turn
may reduce revenues from property management, leasing and development
fees.
The
recovery of U.S. credit markets has yet to materialize, and this lingering
problem is impacting the broader U.S. economy. Commercial real estate lenders
have substantially tightened underwriting standards or have withdrawn from the
lending market, materially impacting liquidity in the real estate debt markets,
making financing terms for owners of retail properties less attractive, and in
certain cases resulting in the unavailability of certain types of debt
financing. Tighter lending standards and higher borrower costs have exerted
downward pressure on the value and liquidity of real estate assets which will
impact the values we could obtain from the sale of our properties. These factors
may make it more difficult for us to sell properties or may adversely affect the
price we receive for properties that we do sell, as prospective buyers may
experience increased costs of debt financing or difficulties in obtaining debt
financing. Our future performance will, in part, be dependent upon the recovery
of the credit markets and the underlying strength of the U.S.
economy.
BUSINESS
STRATEGY
Over the
past several years, we have successfully worked cooperatively with the City of
Austin (the City) to obtain approvals that allow the development of our
properties to proceed in a timely manner while protecting the environment. We
believe the desirable location and overall quality of our properties, in
combination with the land use and development entitlements we have obtained,
will under normal market conditions command a premium over the value of other
Austin-area properties.
Our
long-term success will depend on our ability to maximize the value of our real
estate through obtaining required approvals that permit us to develop and sell
our properties in a timely manner at a reasonable cost. We must incur
significant development expenditures and secure additional permits prior to the
development and sale of certain properties. In addition, we continue to pursue
additional development opportunities, and currently believe we can obtain bank
financing necessary for developing our properties, although our ability to
obtain bank financing in the future may be impacted by the current U.S. economic
conditions. See “Risk Factors” located herein and in Item 1A of our 2007 Form
10-K.
REVISIONS
OF PREVIOUSLY ISSUED CONSOLIDATED FINANCIAL STATEMENTS
As
discussed in Note 2, certain accounting matters were identified in the third
quarter of 2008 and subsequently that required revisions of our financial
statements for the three-month and nine-month periods ended September 30, 2007
and for the year ended December 31, 2007. Management’s Discussion and Analysis
has been updated to discuss changes in comparative results of operations and
cash flows after considering the impacts of the items discussed in detail in
Notes 2 and 3 of the Consolidated Financial Statements.
DEVELOPMENT
AND OTHER ACTIVITIES
W Austin Hotel &
Residences.
In 2005, the City selected our proposal to develop
a mixed-use project in downtown Austin immediately north of the new City Hall
complex. The W Austin Hotel & Residences project includes an entire city
block and is planned for a mixture of hotel, residential, retail, office and
entertainment uses. In December 2006, we acquired the property for $15.1
million. We have executed agreements with Starwood Hotels & Resorts
Worldwide, Inc. for the development of a W Hotel &
Residences
on the site. In May 2007, we announced our proposed partnership with
Canyon-Johnson Urban Fund II, L.P. (Canyon-Johnson) for the development of the W
Austin Hotel & Residences project. The grand opening for the onsite sales
center was held in conjunction with the groundbreaking ceremony in October 2007.
Effective May 1, 2008, we entered into a joint venture with Canyon-Johnson for
the development of the project (see Note 5). At September 30, 2008, we had $2.1
million of borrowings outstanding under the W Austin Hotel & Residences
project construction loan and total remaining commitments available of
approximately $163 million (see Notes 5 and 14). Construction of the $300
million project commenced in the second quarter of 2008 and is proceeding as
scheduled.
Crestview
Station.
In 2005, we formed a joint venture with Trammell Crow
to acquire an approximate 74-acre tract at the intersection of Airport Boulevard
and Lamar Boulevard in Austin, Texas, for $7.7 million. The property, known as
Crestview Station, is a single-family, multi-family, retail and office
development, which is located on the site of a future commuter rail line
approved by City of Austin voters. With Trammell Crow, we have completed
environmental remediation, which the State of Texas certified as complete in
September 2007, and permitting of the property. Infrastructure development of
Crestview Station is progressing. The initial phase of utility and roadway
infrastructure is under construction and expected to be completed by year-end
2009. Crestview Station sold substantially all of its multi-family and
commercial properties in 2007 and one commercial site in the first quarter of
2008. The joint venture retained the single-family component of Crestview
Station and two commercial sites. The joint venture is currently processing
permits to develop Crestview Station as a 450-unit transit-oriented
neighborhood. At September 30, 2008, our investment in the Crestview Station
project totaled $2.1 million and the joint venture partnership had $7.7 million
of outstanding debt, of which we guarantee $1.9 million (see Notes 7 and
14).
Residential.
As of September
30, 2008, the number of our residential developed lots, lots under development
and development potential by area are shown below (excluding lots and units
associated with our Canyon-Johnson and Crestview joint ventures):
|
Residential
Lots
|
|||||||
|
Developed
|
Under
Development
|
Potential
Development
a
|
Total
|
||||
|
Barton
Creek:
|
|||||||
|
Calera:
|
|||||||
|
Calera
Court Courtyard Homes
|
4
|
-
|
-
|
4
|
|||
|
Calera
Drive
|
8
|
-
|
-
|
8
|
|||
|
Verano
Drive
|
68
|
-
|
-
|
68
|
|||
|
Amarra
Drive:
|
|||||||
|
Phase
I Lots
|
7
|
-
|
-
|
7
|
|||
|
Phase
II Lots
|
-
|
35
|
-
|
35
|
|||
|
Phase
II Townhomes
|
-
|
-
|
97
|
97
|
|||
|
Phase
III
|
-
|
-
|
89
|
89
|
|||
|
Mirador
Estate
|
2
|
-
|
-
|
2
|
|||
|
Wimberly
Lane Phase II
|
1
|
-
|
-
|
1
|
|||
|
Section
N Multi-family
|
-
|
-
|
1,860
|
1,860
|
|||
|
Other
Barton Creek Sections
|
-
|
-
|
154
|
154
|
|||
|
Circle
C:
|
|||||||
|
Meridian
|
115
|
57
|
-
|
172
|
|||
|
Total
Residential Lots
|
205
|
92
|
2,200
|
2,497
|
|||
|
a.
|
Our
development of the properties identified under the heading “Potential
Development” is dependent upon the approval of our development plans and
permits by governmental agencies, including the City. Those governmental
agencies may either not approve one or more development plans and permit
applications related to such properties or require us to modify our
development plans. Accordingly, our development strategy with respect to
those properties may change in the
future.
|
Calera.
In 2002, we
secured subdivision plat approval for a new residential subdivision called
Calera, which consists of 155 lots. During 2004, we began construction of 16
courtyard homes at Calera Court, the 16-acre initial phase of the Calera
subdivision. The second phase of Calera, Calera Drive, consisting of 53
single-family lots, many of which adjoin the Fazio Canyons Golf Course, received
final plat and construction permit approval in 2005. As of September 30, 2008,
four courtyard homes at Calera Court and eight lots at Calera Drive remained
unsold. Construction of the final phase, known as Verano Drive, began in the
first quarter of 2007 and was completed in July 2008. Verano Drive includes 71
single-family lots, three of which were sold in July 2008.
Amarra Drive.
During
2007, we completed development of Amarra Drive Phase I, the initial phase of the
Amarra Drive subdivision. Amarra Drive Phase I includes eight lots, one of which
was sold in September 2007, with sizes ranging from approximately one to four
acres, some of which are course-side lots on the Fazio Canyons Golf Course and
others are secluded lots adjacent to the Nature Conservancy of Texas. In January
2008, we commenced development of Amarra Drive Phase II, which consists of 35
lots on 51 acres and two townhome tracts on 31 acres. Development was
substantially completed in October 2008.
Mirador
Estate.
We
completed construction of the Mirador subdivision, which included the
development of 34 estate lots with each lot averaging approximately 3.5 acres in
size, and have sold 32 of these lots. As of September 30, 2008, we owned two
Mirador estate lots.
Wimberly Lane Phase
II.
In 2004, we entered into a contract with a national homebuilder to
sell 41 lots within the Wimberly Lane Phase II subdivision. The average purchase
price for each of the 41 lots was $150,400, subject to a six percent annual
escalator. We sold the last homebuilder lot in January 2008 and have one
Wimberly Lane lot remaining for sale.
Circle C
.
We are developing the
Circle C community based on the entitlements secured in our Circle C settlement
with the City. Our Circle C settlement, as amended in 2004, permits development
of 1.16 million square feet of commercial space, 504 multi-family units and 830
single family residential lots. Meridian is an 800-lot residential development
at the Circle C community. In 2005, we commenced the first phase of construction
and contracted to sell a total of 494 lots in our Meridian project to three
national homebuilders in four phases. Sales for each of the four phases commence
upon substantial completion of development for that phase, and continue every
quarter until all of the lots have been sold. The first and second phases each
consisted of 134 lots. The first phase was substantially completed at the end of
2005. Development of the second phase was substantially completed in March 2006.
Development of the 108-lot third phase of Meridian was completed in September
2007. The 118-lot fourth phase commenced in early 2008 and was completed in June
2008.
In 2006,
we signed another contract with a national homebuilder for 42 additional lots.
Development of those lots commenced in April 2007 and substantial completion
occurred in April 2008. Construction of the final phase of Meridian, which
consists of 57 one-acre lots, is expected to commence in 2009.
Commercial.
As of September
30, 2008, the number of square feet of our commercial property developed, under
development and our remaining entitlements are shown below (excluding property
associated with our Canyon-Johnson and Crestview joint
ventures):
|
Commercial
Property
|
|||||||
|
Developed
|
Under
Development
|
Potential
Development
a
|
Total
|
||||
|
Barton
Creek:
|
|||||||
|
Barton
Creek Village Phase I
|
22,000
|
-
|
-
|
22,000
|
|||
|
Barton
Creek Village Phase II
|
-
|
18,000
|
-
|
18,000
|
|||
|
Entry
Corner
|
-
|
-
|
5,000
|
5,000
|
|||
|
Amarra
Retail/Office
|
-
|
-
|
90,000
|
90,000
|
|||
|
Section
N
|
-
|
-
|
1,500,000
|
1,500,000
|
|||
|
Circle
C:
|
|||||||
|
Chase
Ground Lease
|
4,000
|
-
|
-
|
4,000
|
|||
|
Tract
106
|
21,000
|
-
|
-
|
21,000
|
|||
|
Tract
110
|
-
|
760,000
|
-
|
760,000
|
|||
|
Tract
107
|
-
|
80,000
|
-
|
80,000
|
|||
|
Tract
101
|
-
|
-
|
90,000
|
90,000
|
|||
|
Tract
102
|
-
|
-
|
25,000
|
25,000
|
|||
|
Tract
114
|
-
|
-
|
5,000
|
5,000
|
|||
|
Lantana:
|
|||||||
|
7500
Rialto
|
150,000
|
-
|
-
|
150,000
|
|||
|
Advanced
Micro Devices
|
|||||||
|
Option
Tracts
|
-
|
-
|
760,000
|
760,000
|
|||
|
Tract
GR1
|
-
|
-
|
325,000
|
325,000
|
|||
|
Tract
G07
|
-
|
-
|
210,000
|
210,000
|
|||
|
Tract
CS5
|
-
|
-
|
175,000
|
175,000
|
|||
|
Tract
CS1-CS3
|
-
|
-
|
150,000
|
150,000
|
|||
|
Tract
LR1
|
-
|
-
|
75,000
|
75,000
|
|||
|
Tract
L04
|
-
|
-
|
70,000
|
70,000
|
|||
|
Austin
290 Tract
|
-
|
-
|
20,000
|
20,000
|
|||
|
Total
Square Feet
|
197,000
|
858,000
|
3,500,000
|
4,555,000
|
|||
|
a.
|
Our
development of the properties identified under the heading “Potential
Development” is dependent upon the approval of our development plans and
permits by governmental agencies, including the City. Those governmental
agencies may either not approve one or more development plans and permit
applications related to such properties or require us to modify our
development plans. Accordingly, our development strategy with respect to
those properties may change in the
future.
|
Barton Creek.
In the
second quarter of 2007, we completed the first phase of the Barton Creek
Village. The first phase includes a 22,000-square-foot retail complex. In July
2007, we began construction of a 3,300-square-foot bank building within this
22,000-square-foot retail complex, and it was completed in early 2008.
Construction of the second retail complex is expected to begin during
2010.
Circle C.
During the
third quarter of 2008, Stratus completed the construction of two retail
buildings, totaling 21,000 square feet, at the 5700 Slaughter project. This
retail project also includes a 4,000-square-foot building on an existing ground
lease. Leasing for the two retail buildings is under way with 18 percent of the
21,000-square-foot retail complex leased as of September 30, 2008, and the
initial tenants have opened for business. We expect the 21,000-square-foot
retail complex to be fully leased during 2009.
Lantana
.
Lantana is a partially developed, mixed-use project with remaining entitlements
for approximately 1.0 million square feet of office and retail use on 223 acres
as of September 30, 2008. Regional utility and road infrastructure is in place
with capacity to serve Lantana at full build-out permitted under our existing
entitlements.
In
Lantana, we also own two 75,000-square-foot office buildings at 7500 Rialto. As
of September 30, 2008, we had leased 97 percent of the space at the original
office building and 94 percent of the space at the second office
building.
RESULTS
OF OPERATIONS
We are
continually evaluating the development potential of our properties and will
continue to consider opportunities to enter into significant transactions
involving our properties. In addition, since the third quarter of 2007, U.S.
economic activity has progressively weakened because of stresses in the
residential housing and financial sectors, aggravated by the impact of rising
food and energy prices on consumer spending. As a result, and because of
numerous other factors affecting our business activities as described herein,
our past operating results are not necessarily indicative of our future
results.
Summary
operating results follow (in thousands):
|
Third
Quarter
|
Nine
Months
|
|||||||||||
|
2008
|
2007
|
2008
|
2007
|
|||||||||
|
Revenues:
|
||||||||||||
|
Real
estate operations
|
$
|
5,751
|
$
|
7,270
|
$
|
12,786
|
$
|
17,994
|
||||
|
Commercial
leasing
|
1,158
|
766
|
3,278
|
2,146
|
||||||||
|
Total
revenues
|
$
|
6,909
|
$
|
8,036
|
$
|
16,064
|
$
|
20,140
|
||||
|
Operating
(loss) income
|
$
|
(998
|
)
|
$
|
(557
|
)
|
$
|
(3,732
|
)
|
$
|
691
|
|
|
Benefit
from (provision for) income taxes
|
$
|
216
|
$
|
120
|
$
|
469
|
$
|
(501
|
)
|
|||
|
(Loss)
income from continuing operations
|
$
|
(350
|
)
|
$
|
(401
|
)
|
$
|
(1,399
|
)
|
$
|
762
|
|
|
Income
(loss) from discontinued operations
|
-
|
179
|
(105
|
)
a
|
400
|
|||||||
|
Net
(loss) income
|
$
|
(350
|
)
|
$
|
(222
|
)
|
$
|
(1,504
|
)
|
$
|
1,162
|
|
|
a.
|
Relates
to the revised amount of Texas margin tax accrued on Escarpment Village
income earned during 2007 (see Note
11).
|
We have
two operating segments, “Real Estate Operations” and “Commercial Leasing” (see
Note 12). The following is a discussion of our operating results by
segment.
Real Estate
Operations
Summary
real estate operating results follow (in thousands):
|
Third
Quarter
|
Nine
Months
|
|||||||||||
|
2008
|
2007
|
2008
|
2007
|
|||||||||
|
Revenues:
|
||||||||||||
|
Developed
property sales
|
$
|
5,691
|
$
|
7,002
|
$
|
11,953
|
$
|
15,662
|
||||
|
Undeveloped
property sales
|
-
|
-
|
41
|
1,083
|
||||||||
|
Commissions,
management fees and other
|
60
|
268
|
792
|
1,249
|
||||||||
|
Total
revenues
|
5,751
|
7,270
|
12,786
|
17,994
|
||||||||
|
Cost
of sales, including depreciation
|
(4,858
|
)
|
(5,841
|
)
|
(10,772
|
)
|
(10,938
|
)
|
||||
|
General
and administrative expenses
|
(1,482
|
)
|
(1,345
|
)
|
(4,538
|
)
|
(4,653
|
)
|
||||
|
Operating
(loss) income
|
$
|
(589
|
)
|
$
|
84
|
$
|
(2,524
|
)
|
$
|
2,403
|
||
Developed Property
Sales.
Residential property sales for the third-quarter and
nine-month periods of 2008 and 2007 included the following (revenues in
thousands):
|
Third
Quarter
|
||||||||
|
2008
|
2007
|
|||||||
|
Lots
|
Revenues
|
Lots
|
Revenues
|
|||||
|
Barton
Creek
|
||||||||
|
Calera
Court Courtyard Homes
|
1
|
$ 643
|
1
|
$ 657
|
||||
|
Wimberly
Lane Phase II
|
||||||||
|
Standard
Homebuilder
|
-
|
-
|
3
|
516
|
||||
|
Amarra
Drive Phase I
|
-
|
-
|
1
|
1,250
|
||||
|
Verano
Drive
|
3
|
1,875
|
-
|
-
|
||||
|
Circle
C
|
||||||||
|
Meridian
|
48
|
3,173
|
58
|
3,575
|
||||
|
Deerfield
a
|
-
|
-
|
15
|
1,004
|
||||
|
Total
Residential
|
52
|
$ 5,691
|
78
|
$ 7,002
|
||||
|
Nine
Months
|
||||||||
|
2008
|
2007
|
|||||||
|
Lots
|
Revenues
|
Lots
|
Revenues
|
|||||
|
Barton
Creek
|
||||||||
|
Calera
Court Courtyard Homes
|
2
|
$ 1,278
|
1
|
$ 657
|
||||
|
Calera
Drive
|
-
|
-
|
2
|
809
|
||||
|
Mirador
Estate
|
-
|
-
|
2
|
1,559
|
||||
|
Wimberly
Lane Phase II
|
||||||||
|
Standard
Homebuilder
|
1
|
265
|
b
|
9
|
1,561
|
|||
|
Amarra
Drive Phase I
|
-
|
-
|
1
|
1,250
|
||||
|
Verano
Drive
|
3
|
1,875
|
-
|
-
|
||||
|
Circle
C
|
||||||||
|
Meridian
|
103
|
7,125
|
106
|
6,814
|
||||
|
Deerfield
a
|
21
|
1,410
|
45
|
3,012
|
||||
|
Total
Residential
|
130
|
$ 11,953
|
166
|
$ 15,662
|
||||
|
a.
|
In
2004, we acquired the Deerfield property in Plano, Texas, for $7.0
million. We executed agreements with a national homebuilder, whereby the
homebuilder paid us $1.4 million for an option to purchase all 234 lots
over 36 monthly take-downs. In 2005, we executed a revised agreement with
the homebuilder, increasing the lot sizes and average purchase price to
$67,150 based on a new total of 224 lots. In January 2008, we sold the
final 21 lots for $1.4 million.
|
|
b.
|
Includes
$0.1 million for homebuilder contract termination
fee.
|
Undeveloped Property Sales.
We sold a five-acre tract at Circle C for $1.1 million during the first nine
months of 2007.
Cost of
Sales.
Cost of sales totaled $4.9 million for the third
quarter of 2008, $5.8 million for the third quarter of 2007, $10.8 million for
the first nine months of 2008 and $10.9 million for first nine months of 2007,
which include ongoing project and marketing costs that are relatively fixed.
Most of the sales for the 2008 periods were Circle C lots, which have lower
profit margins than Barton Creek lots.
Cost of
sales for the first nine months of 2008 included $0.4 million related to costs
incurred for our proposal for the right to develop a new project in downtown
Austin, which was awarded to another developer. Cost of sales also included
reductions for Barton Creek Municipal Utility District (MUD) reimbursements
totaling $0.1 million for the first nine months of 2008 and $1.7 million for the
first nine months of 2007.
We are
projecting fewer lot sales in the next several quarters because of the recent
weakness in the U.S. real estate market.
General and Administrative
Expenses.
General and administrative expenses increased to
$1.5 million for the third quarter of 2008 from $1.3 million for the third
quarter of 2007 primarily because of increases in compensation costs related to
personnel severance packages paid in the third quarter of 2008 in conjunction
with the closure of our Southwest Property Services subsidiary. There are no
additional costs expected to be incurred as a result of our decision to
outsource property management operations. General and administrative expenses
decreased to $4.5 million for the first nine months of 2008 from $4.7 million
for the first nine months of 2007 primarily because of lower stock-based
compensation costs in 2008.
Commercial
Leasing
Summary
commercial leasing operating results follow (in thousands):
|
Third
Quarter
|
Nine
Months
|
|||||||||||
|
2008
|
2007
|
2008
|
2007
|
|||||||||
|
Rental
income
|
$
|
1,158
|
$
|
766
|
$
|
3,278
|
$
|
2,146
|
||||
|
Rental
property costs
|
(944
|
)
|
(860
|
)
|
(2,683
|
)
|
(2,391
|
)
|
||||
|
Depreciation
|
(382
|
)
|
(366
|
)
|
(1,064
|
)
|
(780
|
)
|
||||
|
General
and administrative expenses
|
(241
|
)
|
(181
|
)
|
(739
|
)
|
(687
|
)
|
||||
|
Operating
loss
|
$
|
(409
|
)
|
$
|
(641
|
)
|
$
|
(1,208
|
)
|
$
|
(1,712
|
)
|
Our
commercial leasing operating results primarily reflect the activities at 7500
Rialto. As of September 30, 2008, the original office building was 97 percent
leased and the second building was 94 percent leased.
Rental
income increased to $1.2 million for the third quarter of 2008 from $0.8
million for the third quarter of 2007, primarily because of a $0.2 million
increase in rental income at 7500 Rialto related to an approximate 50 percent
increase in the occupancy of the second office building from the 2007 period. In
addition, rental income for the third quarter of 2008 reflects an increase of
$0.1 million related to Barton Creek Village, which includes a retail building
completed in the second quarter of 2007 and a bank building completed in early
2008. Rental income for the third quarter of 2008 also reflects an increase of
$0.1 million related to 5700 Slaughter, which includes two retail buildings
completed in the third quarter of 2008.
As of September 30, 2008,
we have leased 18 percent of 5700 Slaughter and expect to lease the remaining
space during 2009.
Rental
income increased to $3.3 million for the first nine months of 2008 from $2.1
million for the first nine months of 2007, primarily because of a $0.7 million
increase in rental income at 7500 Rialto related to an approximate 50 percent
increase in the occupancy of the second office building from the 2007 period. In
addition, rental income for the first nine months of 2008 reflects an increase
of $0.4 million related to Barton Creek Village and an increase of less than
$0.1 million related to 5700 Slaughter.
Non-Operating
Results
Interest
Income.
Interest income totaled $0.3 million in the third
quarter of 2008, compared with less than $0.1 million in the third quarter of
2007, and $1.4 million in the first nine months of 2008, compared with $0.6
million in the first nine months of 2007. The increase in interest income
primarily reflects interest on our higher average cash balance during 2008.
Interest income also included interest on Barton Creek MUD reimbursements
totaling $0.2 million in the third quarter of 2008, $0.9 million in the first
nine months of 2008 and $0.5 million in the first nine months of
2007.
Equity in Unconsolidated
Affiliate’s Income.
We account for our 50 percent
interest in our unconsolidated affiliate, Crestview Station, using the equity
method. Crestview Station sold substantially all of its multi-family and
commercial properties in 2007 and one commercial site in the first quarter of
2008, which resulted in our equity in Crestview Station’s earnings totaling $0.4
million for the first nine months of 2008.
Benefit from (Provision for) Income
Taxes.
We recorded an income tax benefit of $0.2 million for
the third quarter of 2008, $0.5 million for the first nine months of 2008 and
$0.1 million for the third quarter of 2007, and recorded an income tax provision
of $0.5 million for the first nine months of 2007. The difference
between
our consolidated effective income tax rates for the first nine months of 2008
and 2007 and the U.S. federal statutory rate of 35 percent primarily was
attributable to state income tax expense.
DISCONTINUED
OPERATIONS
On
October 12, 2007, we sold the Escarpment Village shopping center, located in
Austin, Texas, to Lake Villa, L.L.C. (the Purchaser) for $46.5 million, before
closing costs and other adjustments. The Purchaser paid approximately $23.0
million in cash at closing and assumed the $22.4 million principal balance
remaining under our loan from Teachers Insurance and Annuity Association of
America.
Upon
completion of the sale of Escarpment Village, we ceased all involvement with the
Escarpment Village shopping center. The results of operations of Escarpment
Village, which have been classified as discontinued operations in the
consolidated statements of operations, previously represented a component of our
commercial leasing segment. We earned rental income from Escarpment Village of
$0.8 million in the third quarter of 2007 and $2.6 million in the nine months
ended September 30, 2007.
In June
2008, we revised the amount of Texas margin tax accrued on Escarpment Village
income earned during 2007. The revised accrual resulted in $0.1 million of
additional income tax charges related to 2007, which were recognized in June
2008. As the results of operations of Escarpment Village have been appropriately
classified as discontinued operations, the additional Texas margin tax has also
been classified as discontinued operations in the consolidated statements of
operations. Our discontinued operations generated net income of $0.2 million in
the third quarter of 2007 and $0.4 million in the nine months ended September
30, 2007.
CAPITAL
RESOURCES AND LIQUIDITY
At
September 30, 2008, we had $36.8 million in cash and $45 million in availability
under our $45 million revolving credit facility, which matures in May 2010. At
March 31, 2009, we had $31.4 million in cash and $43 million available under our
revolving credit facility. Additionally, we have no significant debt maturities
in the near-term. We do not expect to make additional capital contributions to
the joint venture with Canyon-Johnson until mid-2009, at which time we are
committed to begin our additional contributions that will
total approximately $20 million. Canyon-Johnson has funded $16.7 million
through September 30, 2008 and is committed to fund 100 percent of project costs
until their contributions total approximately $44 million. As of September 30,
2008, Canyon-Johnson has an additional $27.3 million to contribute before
reaching approximately $44 million, at which point we will be committed to begin
our additional contributions that will total approximately $20 million
(as discussed above) and Canyon-Johnson will be committed to begin
its additional contributions that will total approximately $30
million. Once we and Canyon-Johnson have funded the required capital commitments
(approximately $49.2 million for us and $73.7 million for Canyon-Johnson) the
joint venture will be able to utilize the balance of its $165 million
construction loan (see Note 14 and “Credit Facility and other Financing
Arrangements”).
Comparison of Nine-Months
2008 and 2007 Cash Flows
Cash used
in operating activities totaled $10.7 million during the first nine months of
2008 and $6.7 million during the first nine months of 2007, including cash
provided by discontinued operations totaling $2.2 million in the 2007 period.
Operating cash flows in the first nine months of 2008 decreased compared to the
2007 period, primarily because of a net loss, working capital changes and $2.2
million less cash from discontinued operations, partly offset by a $3.7 million
increase in MUD reimbursements and a $1.3 million distribution of income from
our unconsolidated affiliate, Crestview Station. Expenditures for purchases and
development of real estate properties for the first nine months of 2008 and 2007
included development costs for properties held for sale, including the
residential portion of the W Austin Hotel & Residences project ($10.4
million in 2008 and $4.7 million in 2007), and the Barton Creek, Lantana and
Circle C communities. We received Barton Creek MUD reimbursements totaling $6.2
million in the first nine months of 2008 and $2.6 million in the first nine
months of 2007.
Cash used
in investing activities totaled $8.6 million during the first nine months of
2008 and $6.4 million during the first nine months of 2007, including $0.1
million used in discontinued operations in the 2007 period. Commercial leasing
development expenditures for the first nine months of 2008 and 2007 included
development costs for the W Austin Hotel & Residences project totaling $9.7
million in 2008 and $4.4 million in 2007. Other expenditures for commercial
leasing properties primarily related to Barton Creek
Village
in the 2008 period and 7500 Rialto in the 2007 period. We also received
distributions representing a partial return of our investment in Crestview
Station totaling $2.4 million in the first nine months of
2008.
Cash
provided by financing activities totaled $15.3 million during the first nine
months of 2008, which included $16.7 million of contributions from
Canyon-Johnson for the W Austin Hotel & Residences project and $2.1 million
in borrowings from the W Austin Hotel & Residences project construction
loan, partly offset by $2.8 million of financing costs for the W Austin Hotel
& Residences project construction loan. In the first nine months of 2008, we
used $0.5 million to repurchase shares of our common stock on the open market
(see below). Financing activities provided cash of $13.3 million during the
first nine months of 2007, which included $15.0 million of borrowings under
three unsecured term loans, which were primarily used to fund our development
activities, partly offset by $1.0 million of net repayments on our revolving
line of credit. In the first nine months of 2007, we used $1.1 million to
repurchase shares of our common stock.
In 2001,
our Board of Directors approved an open market share purchase program for up to
0.7 million shares of our common stock. During the first nine months of 2008, we
purchased 18,908 shares for $0.5 million, a $27.35 per share average. During the
fourth quarter of 2008, we purchased 195,308 shares for $2.0 million, a $10.30
per share average, including 190,000 shares purchased in a private transaction
on December 24, 2008. In January 2009, we purchased in a private
transaction 49,000 shares for $0.4 million or $8.25 per share. A total
of 161,145 shares remain available under this program as of March 31, 2009. Our
loan agreement with Comerica provides a limit of $6.5 million for common stock
purchases after September 30, 2005 of which $0.9 million was available at March
31, 2009. The timing of future purchases of our common stock is dependent on
many factors including the price of our common shares, our cash flows and
financial position, and general economic and market conditions.
Credit Facility and Other
Financing Arrangements
At
September 30, 2008, we had total debt of $63.4 million, including $0.3 million
of current debt, and total cash and cash equivalents of $36.8 million. Our debt
outstanding at September 30, 2008 consisted of the following:
|
·
|
$40.0
million of borrowings outstanding under seven unsecured term loans, which
include two $5.0 million loans, two $8.0 million loans, a $7.0 million
loan and two $3.5 million loans, all of which will mature in December
2011.
|
|
·
|
$21.3
million of borrowings outstanding under the Lantana promissory note, which
matures in January 2018.
|
|
·
|
$2.1
million of borrowings outstanding under the W Austin Hotel &
Residences project construction loan, which matures in September 2011 and
has total remaining commitments available of approximately $163
million.
|
Effective
May 30, 2008, we entered into a third modification and extension agreement to
extend the maturity and modify the interest rate on our $45.0 million revolving
credit facility. The maturity was extended from May 30, 2009, to May 30, 2010.
In addition, the interest rate applicable to amounts borrowed under the facility
was modified to an annual rate of either the base rate minus 0.45 percent with a
minimum interest rate of 5 percent or the London Interbank Offered Rate plus 2
percent with a minimum interest rate of 5 percent. No amounts were outstanding
under this facility at September 30, 2008. For a further discussion of our debt
see Note 4 of our 2007 Form 10-K.
At March
31, 2009, we had total debt of $68.0 million and total cash and cash equivalents
of $31.4 million.
Under the
W Austin Hotel & Residences project construction loan with Corus bank,
remaining joint venture commitments total $57.2 million at March 31, 2009. On
February 18, 2009, Corus bank entered into a written agreement with the Federal
Reserve Bank of Chicago and a consent order with the Office of the Comptroller
of the Currency, to maintain the financial soundness of Corus. It is uncertain
whether Corus will continue to be able to meet its funding commitments under the
Corus Loan Agreement once we and Canyon-Johnson fund the required capital
commitments later in 2009. The joint venture is pursuing other options for
financing the W Austin Hotel & Residences project should Corus not be in a
position to fulfill its obligations. Such options may include additional equity
contributions by the joint venture partners,
financing
from other financial institutions, admitting new equity partners, or a
combination of these alternatives. If Corus is unable to fulfill its funding
obligations, and if alternate financing cannot be obtained, the joint venture
may be required to delay further construction of the project until additional
sources of financing are available.
NEW
ACCOUNTING STANDARDS
Refer to
Note 13 for discussion of new accounting standards.
CAUTIONARY
STATEMENT
Our
discussion and analysis contains forward-looking statements regarding future
reimbursements for infrastructure costs, future events related to financing and
regulatory matters, projected capital expenditures, the expected results of our
business strategy, and other plans and objectives of management for future
operations and activities. Important factors that could cause actual results to
differ materially from our expectations include economic and business
conditions, business opportunities that may be presented to and pursued by us,
changes in laws or regulations and other factors, many of which are beyond our
control, and other factors that are described in more detail under “Risk
Factors” below and located in our 2007 Form 10-K.
Item 3
.
Quantitative and Qualitative
Disclosures About Market Risk.
There
have been no material changes in our market risks during the nine months ended
September 30, 2008. For additional information on market risk, refer to
“Disclosures About Market Risks” included in Part II, Item 7A of our annual
report on Form 10-K for the year ended December 31, 2007.
Item 4
.
Controls and
Procedures.
(a)
Evaluation of disclosure
controls and procedures
. Our chief executive officer and chief
financial officer, with the participation of management, have evaluated the
effectiveness of our “disclosure controls and procedures” (as defined in Rules
13a-15(e) and 15(d)-15(e) under the Securities Exchange Act of 1934) and
determined that our controls and procedures were effective as of the end of
September 30, 2008, the period covered by this quarterly report on Form
10-Q.
(b)
Changes in internal
control
. There was no change in our internal control over
financial reporting that occurred during the quarter ended September 30, 2008
that has materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting.
PART II
. OTHER INFORMATION
Item 1A
.
Risk Factors.
In
addition to the risk factors previously disclosed in Part I, Item 1A. of our
annual report on Form 10-K for the year ended December 31, 2007, we have
identified the following additional risk factor:
We may be subject to a
delisting proceeding in the future by The National Association of Securities
Dealers Automated Quotations (NASDAQ) Stock Market.
On
November 18, 2008, we received a letter from NASDAQ advising that we were not in
compliance with the continued listing requirements set forth in NASDAQ
Marketplace Rule 4310(c)(14) because we did not timely file our Form 10-Q for
the quarter ended September 30, 2008. On March 4, 2009, NASDAQ granted to us an
extension of time until May 14, 2009 to file our 2008 third-quarter Form 10-Q.
We communicated to NASDAQ that we would also be unable to file our 2008 Form
10-K by the March 16, 2009 filing deadline. NASDAQ is presently considering our
request for an extension of time for the filing of our 2008 Form
10-K. If NASDAQ does not grant our request, or if such request is granted and we
fail to file our 2008 Form 10-K by the extension date, NASDAQ may begin a
delisting proceeding against us. A delisting of our common stock could result in
an inactive trading market for our common stock and could have an adverse effect
on our ability to raise capital.
Item 2
.
Unregistered Sales of Equity
Securities and Use of Proceeds.
The
following table sets forth shares of our common stock we repurchased during the
three months ended September 30, 2008.
|
(a)
Total
|
(c)
Total Number of
|
(d)
Maximum Number
|
||||||
|
Number
|
(b)
Average
|
Shares
Purchased as Part
|
of
Shares That May
|
|||||
|
of
Shares
|
Price
Paid
|
of
Publicly Announced
|
Yet
Be Purchased Under
|
|||||
|
Period
|
Purchased
|
Per
Share
|
Plans
or Programs
a
|
the
Plans or Programs
a
|
||||
|
July
1 to 31, 2008
|
1,570
|
$22.29
|
1,570
|
407,406
|
||||
|
August
1 to 31, 2008
|
633
|
27.09
|
633
|
406,773
|
||||
|
September
1 to 30, 2008
|
1,320
|
28.10
|
1,320
|
405,453
|
||||
|
Total
|
3,523
|
$25.33
|
3,523
|
|||||
|
a.
|
In
February 2001, our Board of Directors approved an open market share
purchase program for up to 0.7 million shares of our common stock. The
program does not have an expiration date. Our loan agreement with Comerica
provides a limit of $6.5 million for common stock purchases after
September 30, 2005. At September 30, 2008, $3.4 million remained under the
Comerica agreement for purchases of common
stock.
|
Item 6.
Exhibits.
The
exhibits to this report are listed in the Exhibit Index beginning on page E-1
hereof.
SIG
NATURE
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
STRATUS
PROPERTIES INC.
By:
/s/ John E.
Baker
John E.
Baker
Senior
Vice President and
Chief
Financial Officer
(authorized
signatory and
Principal
Financial Officer)
Date: May
5, 2009
STR
ATUS PROPERTIES INC.
EXHIBIT
INDEX
|
Filed
|
||||||
|
Exhibit
|
with
this
|
Incorporated
by Reference
|
||||
|
Number
|
Exhibit
Title
|
Form
10-Q
|
Form
|
File
No.
|
Date
Filed
|
|
|
3.1
|
Amended
and Restated Certificate of Incorporation of Stratus.
|
10-Q
|
000-19989
|
05/17/2004
|
||
|
3.2
|
Certificate
of Amendment to the Amended and Restated Certificate of Incorporation of
Stratus, dated May 14, 1998.
|
10-Q
|
000-19989
|
05/17/2004
|
||
|
3.3
|
Certificate
of Amendment to the Amended and Restated Certificate of Incorporation of
Stratus, dated May 25, 2001.
|
10-K
|
000-19989
|
03/22/2002
|
||
|
3.4
|
By-laws
of Stratus, as amended as of November 6, 2007.
|
10-Q
|
000-19989
|
08/11/2008
|
||
|
4.1
|
Rights
Agreement dated as of May 16, 2002, between Stratus Properties Inc. and
Mellon Investor Services LLC, as Rights Agent, which includes the
Certificates of Designation of Series C Participating Preferred Stock; the
Forms of Rights Certificate Assignment, and Election to Purchase; and the
Summary of Rights to Purchase Preferred Shares.
|
8-A
|
000-19989
|
05/23/2002
|
||
|
4.2
|
Amendment
No. 1 to Rights Agreement between Stratus Properties Inc. and Mellon
Investor Services LLC, as Rights Agent, dated as of November 7,
2003.
|
8-K
|
000-19989
|
11/14/2003
|
||
|
10.1
|
Third
Modification and Extension Agreement by and between Stratus Properties
Inc., Stratus Properties Operating Co., L.P., Circle C Land, L.P., Austin
290 Properties, Inc., Calera Court, L.P., Oly Stratus Barton Creek I Joint
Venture and Comerica Bank effective May 30, 2008.
|
8-K
|
000-19989
|
07/17/2008
|
||
|
10.2
|
Second
Modification and Extension Agreement by and between Stratus Properties
Inc., Stratus Properties Operating Co., L.P., Circle C Land, L.P., Austin
290 Properties, Inc., Calera Court, L.P., and Comerica Bank effective May
30, 2007.
|
8-K
|
000-19989
|
02/08/2008
|
||
|
10.3
|
Loan
Agreement by and between Stratus Properties Inc., Stratus Properties
Operating Co., L.P., Circle C Land, L.P., Austin 290 Properties, Inc.,
Calera Court, L.P., and Comerica Bank dated as of September 30,
2005.
|
8-K
|
000-19989
|
10/05/2005
|
||
|
10.4
|
Construction
Loan Agreement dated May 2, 2008, by and between CJUF II Stratus Block 21
LLC and Corus Bank, N.A.
|
10-Q
|
000-19989
|
08/11/2008
|
||
|
10.5
|
Promissory
Note dated May 2, 2008, by and between CJUF II Stratus Block 21 LLC and
Corus Bank, N.A.
|
10-Q
|
000-19989
|
08/11/2008
|
||
|
10.6
|
Revolving
Promissory Note by and between Stratus Properties Inc., Stratus Properties
Operating Co., L.P., Circle C Land, L.P., Austin 290 Properties, Inc.,
Calera Court, L.P., and Comerica Bank dated as of September 30,
2005.
|
8-K
|
000-19989
|
10/05/2005
|
||
|
10.7
|
Loan
Agreement dated December 28, 2000, by and between Stratus Properties Inc.
and Holliday Fenoglio Fowler, L.P., subsequently assigned to an affiliate
of First American Asset Management.
|
10-K
|
000-19989
|
03/28/2001
|
||
|
Filed
|
||||||
|
Exhibit
|
with
this
|
Incorporated
by Reference
|
||||
|
Number
|
Exhibit
Title
|
Form
10-Q
|
Form
|
File
No.
|
Date
Filed
|
|
|
10.8
|
Loan
Agreement dated June 14, 2001, by and between Stratus Properties Inc. and
Holliday Fenoglio Fowler, L.P., subsequently assigned to an affiliate of
First American Asset Management.
|
10-Q
|
000-19989
|
11/13/2001
|
||
|
10.9
|
Second
Modification Agreement dated as of December 29, 2003, to be effective as
of January 31, 2004, by and between Lantana Office Properties I, L.P., a
Texas limited partnership (formerly known as 7500 Rialto Boulevard, L.P.),
as borrower, and Comerica Bank, as lender.
|
10-K
|
000-19989
|
3/30/2004
|
||
|
10.10
|
Modification
Agreement dated January 31, 2003, by and between Lantana Office Properties
I, L.P., formerly 7500 Rialto Boulevard, L.P., and Comerica
Bank-Texas.
|
10-Q
|
000-19989
|
05/15/2003
|
||
|
10.11
|
Construction
Loan Agreement dated June 11, 2001, between 7500 Rialto Boulevard, L.P.
and Comerica Bank-Texas.
|
10-K
|
000-19989
|
3/22/2002
|
||
|
10.12
|
Guaranty
Agreement dated June 11, 2001, by Stratus Properties Inc. in favor of
Comerica Bank-Texas.
|
10-K
|
000-19989
|
03/22/2002
|
||
|
10.13
|
Loan
Agreement dated September 22, 2003, by and between Calera Court, L.P., as
borrower, and Comerica Bank, as lender.
|
10-Q
|
000-19989
|
11/14/2003
|
||
|
10.14
|
Development
Agreement dated August 15, 2002, between Circle C Land Corp. and City of
Austin.
|
10-Q
|
000-19989
|
11/14/2002
|
||
|
10.15
|
First
Amendment to Agreement of Sale and Purchase dated April 26, 2006, by and
between Stratus Properties Operating Co., L.P., as Seller, and Advanced
Micro Devices, Inc., as Purchaser.
|
10-Q
|
000-19989
|
05/10/2006
|
||
|
10.16
|
Agreement
of Sale and Purchase dated November 23, 2005, by and between Stratus
Properties Operating Co., L.P., as Seller, and Advanced Micro Devices,
Inc., as Purchaser.
|
10-Q
|
000-19989
|
05/10/2006
|
||
|
10.17
|
Amended
and Restated Loan Agreement between Stratus Properties Inc. and American
Strategic Income Portfolio Inc.-II dated as of December 12,
2006.
|
10-K
|
000-19989
|
03/16/2007
|
||
|
10.18
|
Amended
and Restated Loan Agreement between Stratus Properties Inc. and American
Select Portfolio Inc. dated as of December 12, 2006.
|
10-K
|
000-19989
|
03/16/2007
|
||
|
10.19
|
Loan
Agreement between Stratus Properties Inc. and Holliday Fenoglio Fowler,
L.P. dated as of December 12, 2006.
|
10-K
|
000-19989
|
03/16/2007
|
||
|
10.20
|
Letter
Agreement between Stratus Properties Inc. and Canyon-Johnson Urban Fund
II, L.P., dated as of May 4, 2007.
|
10-Q
|
000-19989
|
08/09/2007
|
||
|
10.21
|
Loan
Agreement between Stratus Properties Inc. and Holliday Fenoglio Fowler,
L.P. dated as of June 1, 2007, subsequently assigned to American Select
Portfolio Inc., an affiliate of First American Asset
Management.
|
10-Q
|
000-19989
|
08/09/2007
|
||
|
Filed
|
||||||
|
Exhibit
|
with
this
|
Incorporated
by Reference
|
||||
|
Number
|
Exhibit
Title
|
Form
10-Q
|
Form
|
File
No.
|
Date
Filed
|
|
|
10.22
|
Loan
Agreement between Stratus Properties Inc. and Holliday Fenoglio Fowler,
L.P. dated as of June 1, 2007, subsequently assigned to American Strategic
Income Portfolio Inc., an affiliate of First American Asset
Management.
|
10-Q
|
000-19989
|
08/09/2007
|
||
|
10.23
|
Loan
Agreement between Stratus Properties Inc. and Holliday Fenoglio Fowler,
L.P. dated as of June 1, 2007, subsequently assigned to American Strategic
Income Portfolio Inc.-III, an affiliate of First American Asset
Management.
|
10-Q
|
000-19989
|
08/09/2007
|
||
|
10.24
|
Promissory
Note dated as of December 14, 2007, between Lantana Office Properties I,
L.P., as borrower, and The Lincoln National Life Insurance Company, as
lender.
|
8-K
|
000-19989
|
12/14/2007
|
||
|
Stratus’
Performance Incentive Awards Program, as amended, effective December 30,
2008.
|
X
|
|||||
|
10.26*
|
Stratus
Properties Inc. Stock Option Plan, as amended and
restated.
|
10-Q
|
000-19989
|
05/10/2007
|
||
|
10.27*
|
Stratus
Properties Inc. 1996 Stock Option Plan for Non-Employee Directors, as
amended and restated.
|
10-Q
|
000-19989
|
05/10/2007
|
||
|
10.28*
|
Stratus
Properties Inc. 1998 Stock Option Plan, as amended and
restated.
|
10-Q
|
000-19989
|
05/10/2007
|
||
|
10.29*
|
Form
of Notice of Grant of Nonqualified Stock Options under the 1998 Stock
Option Plan.
|
10-Q
|
000-19989
|
8/12/2005
|
||
|
10.30*
|
Form
of Restricted Stock Unit Agreement under the 1998 Stock Option
Plan.
|
10-Q
|
000-19989
|
05/10/2007
|
||
|
10.31*
|
Stratus
Properties Inc. 2002 Stock Incentive Plan, as amended and
restated.
|
10-Q
|
000-19989
|
05/10/2007
|
||
|
10.32*
|
Form
of Notice of Grant of Nonqualified Stock Options under the 2002 Stock
Incentive Plan.
|
10-Q
|
000-19989
|
08/12/2005
|
||
|
10.33*
|
Form
of Restricted Stock Unit Agreement under the 2002 Stock Incentive
Plan.
|
10-Q
|
000-19989
|
05/10/2007
|
||
|
10.34*
|
Stratus
Director Compensation.
|
10-K
|
000-19989
|
03/16/2006
|
||
|
Amended
and Restated Change of Control Agreement between Stratus Properties Inc.
and William H. Armstrong III, effective as of December 30,
2008.
|
X
|
|||||
|
Amended
and Restated Change of Control Agreement between Stratus Properties Inc.
and John E. Baker, effective as of December 30, 2008.
|
X
|
|||||
|
Filed
|
||||||
|
Exhibit
|
with
this
|
Incorporated
by Reference
|
||||
|
Number
|
Exhibit
Title
|
Form
10-Q
|
Form
|
File
No.
|
Date
Filed
|
|
|
Certification
of Principal Executive Officer pursuant to Rule
13a-14(a)/15d-14(a).
|
X
|
|||||
|
Certification
of Principal Financial Officer pursuant to Rule
13a-14(a)/15d-14(a).
|
X
|
|||||
|
Certification
of Principal Executive Officer pursuant to 18 U.S.C. Section
1350.
|
X
|
|||||
|
Certification
of Principal Financial Officer pursuant to 18 U.S.C. Section
1350.
|
X
|
|||||
_______________________
Note: Certain
instruments with respect to long-term debt of Stratus have not been filed as
exhibits to this Quarterly Report on Form 10-Q since the total amount of
securities authorized under any such instrument does not exceed 10 percent of
the total assets of Stratus and its subsidiaries on a consolidated basis.
Stratus agrees to furnish a copy of each such instrument upon request of the
Securities and Exchange Commission.
*
Indicates management contract or compensatory plan or arrangement.