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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
(Mark One)
[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
 
SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended June 30, 2015
 
or
[  ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
 
SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from to
 
Commission File Number: 000-19989
 
Stratus Properties Inc.
(Exact name of registrant as specified in its charter)
Delaware
72-1211572
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer Identification No.)
 
 
212 Lavaca St., Suite 300
 
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.
þ Yes   ¨ 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).   þ Yes   ¨ 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 ¨        Accelerated filer þ         Non-accelerated filer ¨          Smaller reporting company ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   ¨ Yes þ No

On July 31, 2015, there were issued and outstanding 8,061,106 shares of the registrant’s common stock, par value $0.01 per share.




STRATUS PROPERTIES INC.
TABLE OF CONTENTS
 
 
 
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 




PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

STRATUS PROPERTIES INC.
CONSOLIDATED BALANCE SHEETS (Unaudited)
(In Thousands)

 
June 30,
2015
 
December 31,
2014
ASSETS
 
 
 
Cash and cash equivalents
$
25,474

 
$
29,645

Restricted cash
6,485

 
7,615

Real estate held for sale
50,927

 
12,245

Real estate under development
127,808

 
123,921

Land available for development
24,151

 
21,368

Real estate held for investment, net
153,099

 
178,065

Investment in unconsolidated affiliates
615

 
795

Deferred tax assets
9,934

 
11,759

Other assets
18,211

 
17,274

Total assets
$
416,704

 
$
402,687

 
 
 
 
LIABILITIES AND EQUITY
 
 
 
Liabilities:
 
 
 
Accounts payable
$
11,590

 
$
8,076

Accrued liabilities
7,894

 
9,670

Debt
210,758

 
196,477

Other liabilities and deferred gain
8,729

 
13,378

Total liabilities
238,971

 
227,601

 
 
 
 
Commitments and contingencies

 

 
 
 
 
Equity:
 
 
 
Stratus stockholders’ equity:
 
 
 
Common stock
91

 
91

Capital in excess of par value of common stock
204,546

 
204,269

Accumulated deficit
(45,698
)
 
(47,321
)
Accumulated other comprehensive loss
(265
)
 
(279
)
Common stock held in treasury
(20,470
)
 
(20,317
)
Total stockholders’ equity
138,204

 
136,443

Noncontrolling interests in subsidiaries
39,529

 
38,643

Total equity
177,733

 
175,086

Total liabilities and equity
$
416,704

 
$
402,687


The accompanying Notes to Consolidated Financial Statements (Unaudited) are an integral part of these consolidated financial statements.


2


STRATUS PROPERTIES INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(In Thousands, Except Per Share Amounts)

 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2015
 
2014
 
2015
 
2014
Revenues:
 
 
 
 
 
 
 
Hotel
$
11,054

 
$
10,560

 
$
22,673

 
$
21,372

Entertainment
4,995

 
3,513

 
9,304

 
9,000

Real estate operations
2,234

 
6,824

 
4,710

 
12,255

Commercial leasing
1,703

 
1,624

 
3,524

 
3,193

Total revenues
19,986

 
22,521

 
40,211

 
45,820

Cost of sales:
 
 
 
 
 
 
 
Hotel
8,295

 
7,641

 
16,377

 
15,273

Entertainment
3,688

 
2,515

 
7,091

 
6,536

Real estate operations
2,011

 
4,682

 
4,121

 
8,500

Commercial leasing
959

 
703

 
1,700

 
1,404

Depreciation
2,346

 
2,225

 
4,650

 
4,472

Total cost of sales
17,299

 
17,766

 
33,939

 
36,185

General and administrative expenses
2,145

 
1,959

 
4,121

 
4,021

Insurance settlement

 
(46
)
 

 
(576
)
Total costs and expenses
19,444

 
19,679

 
38,060

 
39,630

Operating income
542

 
2,842

 
2,151

 
6,190

Interest expense, net
(1,031
)
 
(974
)
 
(1,881
)
 
(1,823
)
Loss on interest rate cap agreement
(13
)
 
(170
)
 
(68
)
 
(251
)
Other income, net
285

 
3

 
289

 
22

(Loss) income before income taxes and equity in unconsolidated affiliates' (loss) income
(217
)
 
1,701

 
491

 
4,138

Equity in unconsolidated affiliates' (loss) income
(239
)
 
(243
)
 
(118
)
 
438

Benefit from (provision for) income taxes
216

 
(194
)
 
(47
)
 
(420
)
(Loss) income from continuing operations
(240
)
 
1,264

 
326

 
4,156

Income from discontinued operations, net of taxes

 

 
3,218

 

Net (loss) income
(240
)
 
1,264

 
3,544

 
4,156

Net income attributable to noncontrolling interests in subsidiaries
(879
)
 
(1,045
)
 
(1,921
)
 
(2,840
)
Net (loss) income attributable to common stock
$
(1,119
)
 
$
219

 
$
1,623

 
$
1,316

 
 
 
 
 
 
 
 
Basic and diluted net (loss) income per share attributable to common stockholders:
 
 
 
 
 
 
 
Continuing operations
$
(0.14
)
 
$
0.03

 
$
(0.20
)
 
$
0.16

Discontinued operations
$

 
$

 
$
0.40

 
$

Basic and diluted net (loss) income per share attributable to common stockholders
$
(0.14
)
 
$
0.03

 
$
0.20

 
$
0.16

 
 
 
 
 
 
 
 
Weighted-average shares of common stock outstanding:
 
 
 
 
 
 
 
Basic
8,061

 
8,030

 
8,051

 
8,040

Diluted
8,061

 
8,068

 
8,081

 
8,085


The accompanying Notes to Consolidated Financial Statements (Unaudited) are an integral part of these consolidated financial statements.

3


STRATUS PROPERTIES INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME (Unaudited)
(In Thousands)

 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2015
 
2014
 
2015
 
2014
 
 
 
 
 
 
 
 
Net (loss) income
$
(240
)
 
$
1,264

 
$
3,544

 
$
4,156

 
 
 
 
 
 
 
 
Other comprehensive loss, net of taxes:
 
 
 
 
 
 
 
Gain (loss) on interest rate swap agreement
182

 
(229
)
 
19

 
(435
)
Other comprehensive loss
182

 
(229
)
 
19

 
(435
)
 
 
 
 
 
 
 
 
Total comprehensive (loss) income
(58
)
 
1,035

 
3,563

 
3,721

Total comprehensive income attributable to noncontrolling interests
(952
)
 
(975
)
 
(1,926
)
 
(2,709
)
Total comprehensive (loss) income attributable to common stock
$
(1,010
)
 
$
60

 
$
1,637

 
$
1,012

 
 
 
 
 
 
 
 
The accompanying Notes to Consolidated Financial Statements (Unaudited) are an integral part of these consolidated financial statements.



4


STRATUS PROPERTIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In Thousands)

 
Six Months Ended
 
June 30,
 
2015
 
2014
Cash flow from operating activities:
 
 
 
Net income
$
3,544

 
$
4,156

Adjustments to reconcile net income to net cash used in operating activities:
 
 
 
Depreciation
4,650

 
4,472

Cost of real estate sold
2,098

 
6,081

Deferred gain on sale of 7500 Rialto
(5,000
)
 

Stock-based compensation
269

 
220

Equity in unconsolidated affiliates' income
118

 
(438
)
Deposits
82

 
(101
)
Deferred income taxes
1,829

 

Purchases and development of real estate properties
(15,703
)
 
(24,817
)
Municipal utility district reimbursement
5,307

 

Decrease in other assets
193

 
1,093

Increase (decrease) in accounts payable, accrued liabilities and other
2,022

 
(1,233
)
Net cash used in operating activities
(591
)
 
(10,567
)
 
 
 
 
Cash flow from investing activities:
 
 
 
Capital expenditures
(16,740
)
 
(953
)
Return of investment in unconsolidated affiliates
62

 
1,345

Net cash (used in) provided by investing activities
(16,678
)

392

 
 
 
 
Cash flow from financing activities:
 
 
 
Borrowings from credit facility
23,500

 
23,500

Payments on credit facility
(15,366
)
 
(6,828
)
Borrowings from project loans
15,810

 
6,000

Payments on project and term loans
(9,662
)
 
(5,067
)
Net payments for stock-based awards, including excess tax benefit
(144
)
 
(190
)
Noncontrolling interests distributions
(1,040
)
 
(3,581
)
Repurchase of treasury stock

 
(637
)
Financing costs

 
(69
)
Net cash provided by financing activities
13,098

 
13,128

Net (decrease) increase in cash and cash equivalents
(4,171
)
 
2,953

Cash and cash equivalents at beginning of year
29,645

 
21,307

Cash and cash equivalents at end of period
$
25,474

 
$
24,260


The accompanying Notes to Consolidated Financial Statements (Unaudited), which include information regarding noncash transactions, are an integral part of these consolidated financial statements.

5


STRATUS PROPERTIES INC.
CONSOLIDATED STATEMENTS OF EQUITY (Unaudited)
(In Thousands)

 
 
Stratus Stockholders’ Equity
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Accum-
ulated
Other
Compre-
hensive
Loss
 
Common Stock
Held in Treasury
 
Total Stratus Stockholders' Equity
 
 
 
 
 
 
Common Stock
 
Capital in Excess of Par Value
 
Accum-ulated Deficit
 
 
 
 
Noncontrolling Interests in Subsidiaries
 
 
 
 
Number
of Shares
 
At Par
Value
 
 
 
 
Number
of Shares
 
At
Cost
 
 
 
Total
Equity
Balance at December 31, 2014
 
9,116

 
$
91

 
$
204,269

 
$
(47,321
)
 
$
(279
)
 
1,081

 
$
(20,317
)
 
$
136,443

 
$
38,643

 
$
175,086

Exercised and issued stock-based awards
 
37

 

 

 

 

 

 

 

 

 

Stock-based compensation
 

 

 
269

 

 

 

 

 
269

 

 
269

Tax benefit for stock-based awards

 

 

 
8

 

 

 

 

 
8

 

 
8

Tender of shares for stock-based awards
 

 

 

 

 

 
12

 
(153
)
 
(153
)
 

 
(153
)
Noncontrolling interests distributions
 

 

 

 

 

 

 

 

 
(1,040
)
 
(1,040
)
Total comprehensive income
 

 

 

 
1,623

 
14

 

 

 
1,637

 
1,926

 
3,563

Balance at June 30, 2015
 
9,153

 
$
91

 
$
204,546

 
$
(45,698
)
 
$
(265
)
 
1,093

 
$
(20,470
)
 
$
138,204

 
$
39,529

 
$
177,733


Balance at December 31, 2013
 
9,076

 
$
91

 
$
203,724

 
$
(60,724
)
 
$
(22
)
 
1,030

 
$
(19,448
)
 
$
123,621

 
$
45,695

 
$
169,316

Common stock repurchases
 

 

 

 

 

 
37

 
(637
)
 
(637
)
 

 
(637
)
Exercised and issued stock-based awards
 
31

 

 

 

 

 

 

 

 

 

Stock-based compensation
 

 

 
220

 

 

 

 

 
220

 

 
220

Tender of shares for stock-based awards
 

 

 

 

 

 
11

 
(190
)
 
(190
)
 

 
(190
)
Noncontrolling interests distributions
 

 

 

 

 

 

 

 

 
(3,581
)
 
(3,581
)
Total comprehensive income (loss)
 

 

 

 
1,316

 
(304
)
 

 

 
1,012

 
2,709

 
3,721

Balance at June 30, 2014
 
9,107

 
$
91

 
$
203,944

 
$
(59,408
)
 
$
(326
)
 
1,078

 
$
(20,275
)
 
$
124,026

 
$
44,823

 
$
168,849


The accompanying Notes to Consolidated Financial Statements (Unaudited) are an integral part of these consolidated financial statements.



6


STRATUS 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, 2014, included in Stratus Properties Inc.’s (Stratus) Annual Report on Form 10-K (Stratus 2014 Form 10-K) filed with the Securities and Exchange Commission. In the opinion of management, the accompanying consolidated financial statements reflect all adjustments (consisting only of normal recurring items) considered necessary for a fair statement of the results for the interim periods reported. Operating results for the three-month and six-month periods ended June 30, 2015, are not necessarily indicative of the results that may be expected for the year ending December 31, 2015.

2.
EARNINGS PER SHARE
Stratus’ basic net (loss) income per share of common stock was calculated by dividing the net (loss) income attributable to common stock by the weighted-average shares of common stock outstanding during the second-quarter and six-month periods. A reconciliation of net (loss) income and weighted-average shares of common stock outstanding for purposes of calculating diluted net (loss) income per share (in thousands, except per share amounts) follows:
 
Three Months Ended
 
Six Months Ended
 
 
June 30,
 
June 30,
 
 
2015
 
2014
 
2015
 
2014
 
Net (loss) income
$
(240
)
 
$
1,264

 
$
3,544

 
$
4,156

 
Net income attributable to noncontrolling interests in subsidiaries
(879
)
 
(1,045
)
 
(1,921
)
 
(2,840
)
 
Net (loss) income attributable to Stratus common stock
$
(1,119
)
 
$
219

 
$
1,623

 
$
1,316

 
 
 
 
 
 
 
 
 
 
Weighted-average shares of common stock outstanding
8,061

 
8,030

 
8,051

 
8,040

 
Add shares issuable upon exercise or vesting of:
 
 
 
 
 
 
 
 
Dilutive stock options

 
15

 
6


15

 
Restricted stock units

a 
23

 
24

a 
30

 
 
 
 
 
 
 
 
 
 
Weighted-average shares of common stock outstanding for purposes of calculating diluted net (loss) income per share
8,061

 
8,068

 
8,081

 
8,085

 
 
 
 
 
 
 
 
 
 
Diluted net (loss) income per share attributable to common stock
$
(0.14
)
 
$
0.03

 
$
0.20

 
$
0.16

 
a. Excludes shares of common stock totaling approximately 26 thousand for second-quarter 2015 and 31 thousand for the first six months of 2015 associated with anti-dilutive RSUs.

Outstanding stock options with exercise prices greater than the average market price for Stratus' common stock during the period are excluded from the computation of diluted net income per share of common stock. Excluded stock options totaled approximately 25 thousand for second-quarter 2015, 26 thousand for the first six months of 2015, and 28 thousand for both second-quarter and the first six months of 2014.

3.
JOINT VENTURE WITH CANYON-JOHNSON URBAN FUND II, L.P.
Stratus and Canyon-Johnson Urban Fund II, L.P. (Canyon-Johnson) are participants in the CJUF II Stratus Block 21, LLC joint venture (the Block 21 Joint Venture) for a 36-story mixed-use development in downtown Austin, Texas, anchored by W Hotel & Residences (the W Austin Hotel & Residences project). Stratus is the manager of, and has an approximate 40 percent interest in, the Block 21 Joint Venture, and Canyon-Johnson has an approximate 60 percent interest. As of June 30, 2015, cumulative capital contributions totaled $71.9 million for Stratus and $94.0 million for Canyon-Johnson. Distributions totaled $0.8 million to Stratus and $1.0 million to Canyon-Johnson for both second-quarter and the first six months of 2015. As of June 30, 2015, the inception-to-date distributions totaled $53.4 million to Stratus and $62.6 million to Canyon-Johnson.

Upon formation of the Block 21 Joint Venture and at reconsideration events defined by accounting guidance, Stratus performed evaluations and concluded that the Block 21 Joint Venture was a variable interest entity and that Stratus is the primary beneficiary. Stratus will continue to evaluate which entity is the primary beneficiary of the Block 21 Joint Venture in accordance with applicable accounting guidance. See Note 2 in the Stratus 2014 Form 10-K for further discussion.


7


Stratus’ consolidated balance sheets include the following assets and liabilities of the Block 21 Joint Venture (in thousands):
 
June 30,
 
December 31,
 
2015
 
2014
Assets:
 
 
 
Cash and cash equivalents
$
21,222

 
$
17,319

Restricted cash
6,135

 
7,090

Real estate held for investment, net
147,721

 
151,078

Other assets
6,407

 
6,042

    Total assets
181,485

 
181,529

Liabilities:
 
 
 
Accounts payable
2,915

 
2,859

Accrued liabilities
5,376

 
6,901

Debt
97,492

 
98,267

Other liabilities
6,267

 
5,346

    Total liabilities
112,050

 
113,373

Net assets
$
69,435

 
$
68,156

 
 
 
 

Profits and losses among partners in a real estate venture are allocated based on how changes in net assets of the venture would affect cash payments to the partners over the life of the venture and on its liquidation. The amount of the ultimate profits earned by the Block 21 Joint Venture will affect the ultimate profit sharing ratios because of provisions in the joint venture agreement, which would require Stratus to return certain previously received distributions to Canyon-Johnson under certain circumstances. Because of the uncertainty of the ultimate profits and, therefore, profit-sharing ratios, the Block 21 Joint Venture's cumulative profits or losses are allocated based on a hypothetical liquidation of the Block 21 Joint Venture’s net assets as of each balance sheet date. As of June 30, 2015, the cumulative earnings of the Block 21 Joint Venture were allocated based on 42 percent for Stratus and 58 percent for Canyon-Johnson.

On July 6, 2015, Stratus notified Canyon-Johnson of its election to purchase Canyon-Johnson’s interest in the Block 21 Joint Venture for $60.9 million. Canyon-Johnson triggered the process on May 12, 2015, requiring Stratus to elect to either sell its interest in the joint venture to Canyon-Johnson for $44.5 million or purchase Canyon-Johnson’s interest in the joint venture for $60.9 million. In accordance with the terms of the joint venture’s operating agreement, closing, which is subject to customary conditions, will occur no later than November 10, 2015. The purchase will be made in connection with the refinancing of the W Austin Hotel & Residences project, which is currently being negotiated. Upon completion of the purchase transaction, Stratus will own 100 percent of and will continue to consolidate the Block 21 Joint Venture. The change in ownership will be reflected in stockholder's equity on the Consolidated Balance Sheet.

4.
FAIR VALUE MEASUREMENTS
Fair value accounting guidance includes a hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 inputs) and the lowest priority to unobservable inputs (Level 3 inputs).


8


The carrying value for certain Stratus financial instruments (i.e., cash and cash equivalents, restricted cash, accounts payable and accrued liabilities) approximates fair value because of their short-term nature and generally negligible credit losses. A summary of the carrying amount and fair value of Stratus' other financial instruments follows (in thousands):
 
June 30, 2015
 
December 31, 2014
 
Carrying
Value
 
Fair
Value
 
Carrying
Value
 
Fair
Value
Assets:
 
 
 
 
 
 
 
Interest rate cap agreement
$
10

 
$
10

 
$
79

 
$
79

Liabilities:
 
 
 
 
 
 
 
Interest rate swap agreement
581

 
581

 
596

 
596

Debt
210,758

 
210,899

 
196,477

 
196,856


Interest Rate Cap Agreement. On September 30, 2013, the Block 21 Joint Venture paid $0.5 million to enter into an interest rate cap agreement, which caps the one-month London Interbank Offered Rate (LIBOR), the variable rate in the Bank of America loan agreement relating to the W Austin Hotel & Residences project (the BoA loan), at 1 percent for the first year the BoA loan is outstanding, 1.5 percent for the second year and 2 percent for the third year. Stratus uses an interest rate pricing model that relies on market observable inputs such as LIBOR to measure the fair value of the interest rate cap agreement. Stratus also evaluated the counterparty credit risk associated with the interest rate cap agreement, which is considered a Level 3 input, but did not consider such risk to be significant. Therefore, the interest rate cap agreement is classified within Level 2 of the fair value hierarchy.

Interest Rate Swap Agreement. On December 13, 2013, Stratus' joint venture with LCHM Holdings, LLC, formerly Moffett Holdings, LLC, for the development of Parkside Village (the Parkside Village Joint Venture), entered into an interest rate swap agreement with Comerica Bank that effectively converts the variable rate portion of Parkside Village's loan from Comerica Bank (the Parkside Village loan) from one-month LIBOR to a fixed rate of 2.3 percent. With the interest rate swap agreement in place, the Parkside Village Joint Venture's interest cost on the Parkside Village loan will be 4.8 percent through the December 31, 2020, maturity date. Stratus also evaluated the counterparty credit risk associated with the interest rate swap agreement, which is considered a Level 3 input, but did not consider such risk to be significant. Therefore, the interest rate swap agreement is classified within Level 2 of the fair value hierarchy.

On July 2, 2015, Stratus completed the sale of the Parkside Village property. In connection with the sale, Stratus fully repaid the amount outstanding under the Parkside Village loan. See Note 10 for further discussion.

Debt. Stratus' debt is recorded at cost and is not actively traded. Fair value is estimated based on discounted future expected cash flows at estimated current market interest rates. Accordingly, Stratus' debt is classified within Level 2 of the fair value hierarchy. The fair value of debt does not represent the amounts that will ultimately be paid upon the maturities of the loans.

5.
DEBT
Tecoma Construction Loan. On January 8, 2015, a Stratus subsidiary entered into a $34.1 million construction loan agreement with Comerica Bank to fund the development and construction of the first phase of a multi-family development in Section N of Barton Creek, which is referred to as the Tecoma Barton Creek multi-family project (the Tecoma construction loan). The interest rate on the Tecoma construction loan is a LIBOR-based rate (as defined in the loan agreement) plus 2.5 percent. The Tecoma construction loan matures on January 8, 2018, and Stratus has the option to extend the maturity date for two additional twelve-month periods, subject to certain debt service coverage conditions. The Tecoma construction loan is fully guaranteed by Stratus until certain operational milestones (as defined in the loan agreement) are met.

Interest Expense and Capitalization. Interest expense (before capitalized interest) totaled $2.3 million for second-quarter 2015, $1.9 million for second-quarter 2014, $4.6 million for the first six months of 2015, and $3.6 million for the first six months of 2014. Stratus' capitalized interest costs totaled $1.3 million for second-quarter 2015, $1.0 million for second-quarter 2014, $2.7 million for the first six months of 2015, and $1.8 million for the first six months of 2014. Capitalized interest costs for the 2015 and 2014 periods primarily related to development activities at Lakeway and certain properties in Barton Creek.


9


6.
INCOME TAXES
Stratus’ accounting policy for and other information regarding its income taxes is further described in Notes 1 and 8 in the Stratus 2014 Form 10-K.

Stratus had deferred tax assets (net of deferred tax liabilities) totaling $9.9 million at June 30, 2015, and $11.8 million at December 31, 2014. Stratus’ future results of operations may be negatively impacted by an inability to realize a tax benefit for future tax losses or for items that will generate additional deferred tax assets.

The difference between Stratus' consolidated effective income tax rate for second-quarter and the first six months of 2015, and the U.S. Federal statutory income tax rate of 35 percent, was primarily attributable to state income taxes offset by the tax effect of income attributable to noncontrolling interests. During the first six months of 2014, Stratus was subject to state income taxes while maintaining a valuation allowance against its deferred tax assets related to federal income taxes. During fourth-quarter 2014, Stratus released the valuation allowance and recorded a tax benefit.

7.
BUSINESS SEGMENTS
Stratus currently has four operating segments: Real Estate Operations, Hotel, Entertainment and Commercial Leasing.

The Real Estate Operations segment is comprised of Stratus’ real estate assets (developed, under development and available for development), which consist of its properties in Austin, Texas (the Barton Creek community, the Circle C community, Lantana and the condominium units at the W Austin Hotel & Residences project); in Lakeway, Texas (The Oaks at Lakeway) located in the greater Austin area; and in Magnolia, Texas located in the greater Houston area.

The Hotel segment includes the W Austin Hotel located at the W Austin Hotel & Residences project.

The Entertainment segment includes ACL Live, a live music and entertainment venue and production studio at the W Austin Hotel & Residences project. In addition to hosting concerts and private events, this venue is the home of Austin City Limits, a television program showcasing popular music legends. The Entertainment segment also includes revenues and costs associated with events hosted at other venues, and the results of the Stageside Productions joint venture with Pedernales Entertainment LLC (see Note 2 in the Stratus 2014 Form 10-K for further discussion).

The Commercial Leasing segment includes the office and retail space at the W Austin Hotel & Residences project, a retail building and a bank building in Barton Creek Village, and 5700 Slaughter and Parkside Village in the Circle C community. On July 2, 2015, Stratus completed the sales of the Parkside Village and 5700 Slaughter properties. See Note 10 for further discussion.

Stratus uses operating income or loss to measure the performance of each segment. Stratus allocates parent company general and administrative expenses that do not directly relate to a particular operating segment between the Real Estate Operations and Commercial Leasing segments based on projected annual revenues for each segment. General and administrative expenses related to the W Austin Hotel & Residences project are allocated to the Real Estate Operations, Hotel, Entertainment and Commercial Leasing segments based on projected annual revenues for the W Austin Hotel & Residences project. The following segment information reflects management’s determinations that may not be indicative of what actual financial performance of each segment would be if it were an independent entity.


10


Segment data presented below was prepared on the same basis as Stratus’ consolidated financial statements (in thousands).
 
Real Estate
Operationsa
 
Hotel
 
Entertainment
 
Commercial Leasingb
 
Eliminations and Otherc
 
Total
Three Months Ended June 30, 2015:
 
 
 
 
 
 
 
 
 
 
 
Revenues:
 
 
 
 
 
 
 
 
 
 
 
Unaffiliated customers
$
2,234

 
$
11,054

 
$
4,995

 
$
1,703

 
$

 
$
19,986

Intersegment
25

 
69

 
79

 
166

 
(339
)
 

Cost of sales, excluding depreciation
2,011

 
8,353

 
3,744

 
985

 
(140
)
 
14,953

Depreciation
68

 
1,496

 
318

 
501

 
(37
)
 
2,346

General and administrative expenses
1,620

 
169

 
61

 
484

 
(189
)
 
2,145

Operating (loss) income
$
(1,440
)
 
$
1,105

 
$
951

 
$
(101
)
 
$
27

 
$
542

Capital expendituresd
$
9,140

 
$
57

 
$
8

 
$
8,399

 
$

 
$
17,604

Total assets at June 30, 2015
205,426

 
109,069

 
49,116

 
48,445

 
4,648

 
416,704

Three Months Ended June 30, 2014:
 

 
 

 
 

 
 

 
 

 
 

Revenues:
 
 
 
 
 
 
 
 
 
 
 
Unaffiliated customers
$
6,824

 
$
10,560

 
$
3,513

 
$
1,624

 
$

 
$
22,521

Intersegment
24

 
99

 
11

 
132

 
(266
)
 

Cost of sales, excluding depreciation
4,696

 
7,642

 
2,598

 
727

 
(122
)
 
15,541

Depreciation
57

 
1,457

 
311

 
438

 
(38
)
 
2,225

Insurance settlement
(46
)
 

 

 

 

 
(46
)
General and administrative expenses
1,465

 
143

 
52

 
445

 
(146
)
 
1,959

Operating income
$
676

 
$
1,417

 
$
563

 
$
146

 
$
40

 
$
2,842

Capital expendituresd
$
16,826

 
$
27

 
$

 
$
438

 
$

 
$
17,291

Total assets at June 30, 2014
156,604

 
113,048

 
50,054

 
49,587

 
(5,761
)
 
363,532

 
 
 
 
 
 
 
 
 
 
 
 
Six Months Ended June 30, 2015:
 
 
 
 
 
 
 
 
 
 
 
Revenues:
 
 
 
 
 
 
 
 
 
 
 
  Unaffiliated customers
$
4,710

 
$
22,673

 
$
9,304

 
$
3,524

 
$

 
$
40,211

  Intersegment
50

 
141

 
102

 
252

 
(545
)
 

Cost of sales, excluding depreciation
4,122

 
16,455

 
7,173

 
1,750

 
(211
)
 
29,289

Depreciation
125

 
2,990

 
642

 
968

 
(75
)
 
4,650

General and administrative expenses
2,995

 
390

 
141

 
899

 
(304
)
 
4,121

Operating (loss) income
$
(2,482
)
 
$
2,979

 
$
1,450

 
$
159

 
$
45

 
$
2,151

Income from discontinued operationse
$

 
$

 
$

 
$
3,218

 
$

 
$
3,218

Capital expendituresd
15,703

 
448

 
69

 
16,223

 

 
32,443

 
 
 
 
 
 
 
 
 
 
 
 
Six Months Ended June 30, 2014:
 
 
 
 
 
 
 
 
 
 
 
Revenues:
 
 
 
 
 
 
 
 
 
 
 
  Unaffiliated customers
$
12,255

 
$
21,372

 
$
9,000

 
$
3,193

 
$

 
$
45,820

  Intersegment
47

 
229

 
18

 
255

 
(549
)
 

Cost of sales, excluding depreciation
8,566

 
15,274

 
6,667

 
1,452

 
(246
)
 
31,713

Depreciation
113

 
2,930

 
630

 
873

 
(74
)
 
4,472

Insurance settlement
(576
)
 

 

 

 

 
(576
)
General and administrative expenses
3,093

 
215

 
79

 
946

 
(312
)
 
4,021

Operating income
$
1,106

 
$
3,182

 
$
1,642

 
$
177

 
$
83

 
$
6,190

Capital expendituresd
$
24,817

 
$
76

 
$
32

 
$
845

 
$

 
$
25,770

a.
Includes sales commissions and other revenues together with related expenses.
b.
On July 2, 2015, Stratus completed the sales of Parkside Village and 5700 Slaughter (see Note 10).
c.
Includes eliminations of intersegment amounts.
d.
Also includes purchases and development of residential real estate held for sale.
e.
Represents a deferred gain, net of taxes, associated with the 2012 sale of 7500 Rialto that was recognized in first-quarter 2015.


11


8.
NEW ACCOUNTING STANDARDS
In April 2015, the Financial Accounting Standards Board issued an Accounting Standards Update (ASU) to simplify the presentation of debt issuance costs. This ASU requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. For public entities, this ASU is effective for annual periods beginning after December 15, 2015, and interim periods within those fiscal years. Early adoption is permitted for financial statements that have not been previously issued. Retrospective application of the ASU is required upon adoption and the impact of adopting this ASU on the Consolidated Balance Sheets would be a decrease in other assets and debt of $2.5 million at June 30, 2015, and $2.6 million at December 31, 2014.

9.
DISCONTINUED OPERATIONS
In 2012, Stratus sold 7500 Rialto, an office building in Lantana. In connection with the sale, Stratus recognized a gain of $5.1 million and deferred a gain of $5.0 million because of a guaranty provided to the lender in connection with the buyer's assumption of the loan related to 7500 Rialto. The guaranty was released in January 2015, and Stratus recognized the deferred gain totaling $5.0 million ($3.2 million to net income attributable to common stock) in first-quarter 2015.

10.
SUBSEQUENT EVENTS
On July 2, 2015, Stratus completed the sales of its Austin-area Parkside Village and 5700 Slaughter retail properties, both located in the Circle C community, to Whitestone REIT. The Parkside Village retail project, owned in a joint venture with LCHM Holdings, LLC, consisted of 90,184 leasable square feet and was sold for $32.5 million. The 5700 Slaughter retail project, wholly owned by Stratus, consisted of 25,698 leasable square feet and was sold for $12.5 million. Stratus used proceeds from these transactions to fully repay the total of $26 million outstanding under the Parkside Village construction loan with Comerica Bank and the term loan agreement with United Heritage Credit Union, with the remainder being held in escrow while Stratus assesses potential tax free like-kind exchange transactions. After debt repayments and closing costs, cash proceeds from these transactions approximated $17 million, and Stratus expects to record a pre-tax gain of approximately $21 million, of which the noncontrolling interest is approximately $4 million, in third-quarter 2015. Stratus has determined that the sales of the Parkside Village and 5700 Slaughter retail projects do not meet the criteria for classification as discontinued operations.

At June 30, 2015, approximately $24.3 million of assets and $26.0 million of liabilities were associated with the Parkside Village and 5700 Slaughter retail projects.

Net (loss) income before income taxes and net (loss) income attributable to Stratus associated with Parkside Village and 5700 Slaughter follow (in thousands):
 
 
Six Months Ended
June 30,
 
 
2015
 
2014
Net (loss) income before income taxes
 
(46
)
 
165

Net (loss) income attributable to Stratus
 
(47
)
 
118




12


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

OVERVIEW

In management’s discussion and analysis of financial condition and results of operations, “we,” “us,” “our” and "Stratus" refer to Stratus Properties Inc. and all entities owned or controlled by Stratus Properties Inc. You should read the following discussion in conjunction with our financial statements, the related management's discussion and analysis of financial condition and results of operations and the discussion of our business and properties included in our Annual Report on Form 10-K for the year ended December 31, 2014 (2014 Form 10-K) filed with the Securities and Exchange Commission. The results of operations reported and summarized below are not necessarily indicative of future operating results, and future results could differ materially from those anticipated in forward-looking statements (refer to "Cautionary Statement" for further discussion). All subsequent references to “Notes” refer to Notes to Consolidated Financial Statements (Unaudited) located in Part I, Item 1. “Financial Statements” of this Form 10-Q, unless otherwise stated.

We are a diversified real estate company engaged primarily in the acquisition, entitlement, development, management, operation and sale of commercial, hotel, entertainment, and multi- and single-family residential real estate properties, primarily located in the Austin area, but including projects in certain other select markets in Texas. We generate revenues from sales of developed properties, from our hotel and entertainment operations and from rental income from our commercial properties. See Note 7 for further discussion of our operating segments.

Developed property sales can include an individual tract of land that has been developed and permitted for residential use, a developed lot with a home already built on it or condominium units at the W Austin Hotel & Residences project. We may sell properties under development, undeveloped properties or commercial properties, if opportunities arise that we believe will maximize overall asset values as part of our business plan. See "Business Strategy and Related Risks" below.

The principal holdings in our Real Estate Operations operating segment are in southwest Austin, Texas. The number of developed lots/units, acreage under development and undeveloped acreage as of June 30, 2015, that comprise our real estate development operations are presented in the following table.
 
 
 
Acreage
 
 
 
 
 
Under Development
 
Undeveloped
 
 
 
Developed
Lots/Units
 
Multi-
family
 
Commercial
 
Total
 
Single
family
 
Multi-family
 
Commercial
 
Total
 
Total
Acreage
Austin:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Barton Creek
75

 
18

 

 
18

 
512

 
308

 
418

 
1,238

 
1,256

Circle C
41

 

 

 

 

 
36

 
228

 
264

 
264

Lantana

 

 

 

 

 

 
44

 
44

 
44

W Austin Residences
2

 

 

 

 

 

 

 

 

Lakeway:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The Oaks at Lakeway

 

 
87

 
87

 

 

 

 

 
87

Magnolia

 
 
 

 

 

 

 
124

 
124

 
124

San Antonio:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Camino Real

 

 

 

 

 

 
2

 
2

 
2

Total
118

 
18

 
87

 
105

 
512

 
344

 
816

 
1,672

 
1,777


Our residential holdings at June 30, 2015, included developed lots at Barton Creek and the Circle C community, and condominium units at the W Austin Hotel & Residences project. See "Development Activities - Residential" for further discussion. Our commercial leasing holdings at June 30, 2015, in addition to the office and retail space at the W Austin Hotel & Residences project, consisted of the first phase of Barton Creek Village, and the 5700 Slaughter retail complex and Parkside Village, which are both in the Circle C community. See "Development Activities - Commercial" for further discussion including recent sales of the Parkside Village and 5700 Slaughter retail properties.

The W Austin Hotel & Residences project is located on a two-acre city block in downtown Austin and contains a 251-room luxury hotel, 159 residential condominium units (of which we owned and were marketing the remaining two unsold units as of June 30, 2015), and office, retail and entertainment space. The hotel is managed by

13


Starwood Hotels & Resorts Worldwide, Inc. The entertainment space, occupied by Austin City Limits Live at the Moody Theater (ACL Live), includes a live music and entertainment venue and production studio.

For second-quarter 2015, our revenues totaled $20.0 million and our net loss attributable to common stock totaled $1.1 million, compared with revenues of $22.5 million and net income attributable to common stock of $0.2 million for second-quarter 2014. For the first six months of 2015, our revenues totaled $40.2 million and our net income attributable to common stock totaled $1.6 million, compared with revenues of $45.8 million and net income attributable to common stock of $1.3 million for the first six months of 2014. The decrease in revenues in the 2015 periods primarily relates to fewer condominium unit sales at the W Austin Residences and fewer lot sales at Verano Drive and Amarra Drive Phase II as inventory has declined as a result of previous sales activity, partly offset by an increase in revenue from our Hotel and Commercial Leasing segments. The results for the first six months of 2015 also included recognition of a deferred gain associated with the 2012 sale of 7500 Rialto totaling $5.0 million ($3.2 million to net income attributable to common stock). The results for the first six months of 2014 included income of $1.1 million (including $0.4 million for second-quarter 2014) associated with an insurance settlement and the recovery of building repair costs associated with damage caused by the June 2011 balcony glass breakage incidents at the W Austin Hotel & Residence project.

For discussion of operating cash flows and debt transactions see "Capital Resources and Liquidity" below.

BUSINESS STRATEGY AND RELATED RISKS

Our business strategy is to enhance the value of our properties by securing and maintaining development entitlements and developing and building real estate projects on these properties for sale or investment. We have also pursued opportunities for new projects that offer the possibility of acceptable returns and risks.
Our board of directors has approved a five-year plan to create value for stockholders by methodically developing certain existing assets and actively marketing other assets for possible sale at appropriate values. Under the plan, any future new projects will be complementary to existing operations and will be projected to be developed and sold within a five-year time frame. Consistent with the strategy communicated in our five-year plan, on July 2, 2015, we completed the sales of our Austin-area Parkside Village and 5700 Slaughter retail properties, both located in the Circle C community, for $32.5 million and $12.5 million, respectively.
We believe that the Austin and surrounding sub-markets continue to be desirable. Many of our developments are in locations where development approvals have historically been subject to regulatory constraints, which has made it difficult to obtain entitlements. Our Austin assets, which are located in desirable areas with significant regulatory constraints, are highly entitled and, as a result, we believe that through strategic planning and development, we can maximize and fully realize their value. Our development plans require significant additional capital, and may be pursued through joint ventures or other means. In addition, our strategy is subject to continued review by our board of directors and may change as a result of market conditions or other factors deemed relevant by our board of directors.
Currently, we are the manager of, and have an approximate 42 percent interest in, the W Austin Hotel & Residences project, and our joint venture partner, Canyon-Johnson Urban Fund II, L.P. (Canyon-Johnson), has an approximate 58 percent interest in the W Austin Hotel & Residences project. We and Canyon-Johnson explored a possible sale of the W Austin Hotel & Residences project in early 2015. This process did not result in a transaction acceptable to both parties, and on May 12, 2015, Canyon-Johnson triggered the process of requiring us to elect to either sell our interest in the joint venture to them for $44.5 million or purchase their interest in the joint venture for $60.9 million. On July 6, 2015, we notified Canyon-Johnson of our election to purchase their interest in the joint venture. In accordance with the terms of the joint venture’s operating agreement, closing, which is subject to customary conditions, will occur no later than November 10, 2015. The purchase will be made in connection with the refinancing of the W Austin Hotel & Residences project, which is currently being negotiated. We are also in the process of engaging or considering the engagement of advisers to market other developed and undeveloped properties.

In years past, economic conditions, including the constrained capital and credit markets, negatively affected the execution of our business plan, primarily by decreasing the pace of development to match economic and market conditions. We responded to these conditions by successfully restructuring our existing debt, including reducing interest rates and extending maturities, which enabled us to preserve our development opportunities until market conditions improved. Economic conditions have improved and we believe we have the financial flexibility to fully

14


exploit our development opportunities and resources. During the first six months of 2015, our operating cash flows reflect purchases and development of real estate properties totaling $15.7 million, funded primarily from construction and term loans, to invest in new development opportunities to be executed over the next 24 months. As of June 30, 2015, we had $3.8 million of availability under our revolving line of credit with Comerica Bank, which matures in August 2015 and which we expect to refinance in the normal course of business.

We also had $3.4 million in cash and cash equivalents available for use in our real estate operations, excluding cash balances held by our joint ventures, as shown below (in thousands):
Consolidated cash and cash equivalents
 
$
25,474

 
Less: Block 21 Joint Venture cash
 
21,222

 
Less: Parkside Village Joint Venture cash
 
812

 
Net cash available
 
$
3,440

 
 
 
 
 
Although we have currently scheduled debt maturities of $38.9 million in 2015 and $109.3 million in 2016, and significant recurring costs, including property taxes, maintenance and marketing, we believe we will have sufficient sources of debt financing and cash from operations to address our cash requirements. See "Capital Resources and Liquidity" below regarding recent debt repayments and refinancing and “Risk Factors” included in Part 1, Item 1A. of our 2014 Form 10-K for further discussion.
DEVELOPMENT ACTIVITIES

Residential. As of June 30, 2015, the number of our residential developed lots/units, lots under development and lots for potential development by area are shown below:
 
 
Residential Lots/Units
 
 
Developed
 
Under
Development
 
Potential Developmenta
 
Total
Barton Creek:
 
 
 
 
 
 
 
 
Amarra Drive:
 
 
 
 
 
 
 
 
Phase II Lots
 
14

 

 

 
14

Phase III Lots
 
61

 

 

 
61

Townhomes
 

 

 
190

 
190

Section N Multi-family (Tecoma)
 

 
236

 
1,624

 
1,860

Other Barton Creek sections
 

 

 
156

 
156

Circle C:
 
 
 
 
 
 
 
 
Meridian
 
41

 

 

 
41

Tract 101 Multi-family
 

 

 
240

 
240

Tract 102 Multi-family
 

 

 
56

 
56

W Austin Hotel & Residences project:
 
 
 
 
 
 
 
 
Condominium units
 
2

 

 

 
2

Total Residential Lots/Units
 
118

 
236

 
2,266

 
2,620

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 of Austin (the City). Those governmental agencies may either not approve one or more development plans and permit applications related to such properties or require us to modify our development plans. Accordingly, our development strategy with respect to those properties may change in the future. While we may be proceeding with approved infrastructure projects on some of these properties, they are not considered to be “under development” for disclosure in this table unless other development activities necessary to fully realize the properties’ intended final use are in progress or scheduled to commence in the near term.

Amarra Drive. Amarra Drive Phase I, which was the initial phase of the Amarra Drive subdivision, was completed in 2007 and included six lots with sizes ranging from approximately one to four acres. Amarra Drive Phase II, which consisted of 35 lots on 51 acres, was substantially completed in October 2008. During the first six months of 2014, we sold nine Phase II lots for $4.2 million, including four lots for $1.7 million in second-quarter 2014. As of June 30, 2015, 14 Phase II lots remained unsold.
 

15


In first-quarter 2015, we completed the development of Amarra Drive Phase III, which consists of 64 lots on 166 acres. During second-quarter 2015, we sold three Phase III lots for $1.8 million and as of June 30, 2015, 61 Phase III lots remained unsold. During July 2015, we sold two Phase III lots, and as of July 31, 2015, five Phase III lots were under contract.

Tecoma Multi-Family. The Tecoma Multi-Family project is a garden-style apartment complex consisting of 236 units. Construction commenced in January 2015 and pre-leasing is expected to begin in September 2015. The project is expected to be completed in March 2016.

Circle CWe are developing the Circle C community based on the entitlements secured in our Circle C settlement with the City. Our Circle C settlement, as amended in 2004, permits development of 1.16 million square feet of commercial space, 504 multi-family units and 830 single-family residential lots. Meridian is an 800-lot residential development at the Circle C community. Development of the final phase of Meridian, which consisted of 57 one-acre lots, was completed in first-quarter 2014. During the first six months of 2015, we sold nine Meridian lots for $2.5 million (including one lot for $0.3 million in second-quarter 2015) and as of June 30, 2015, 41 Meridian lots remained unsold. As of July 31, 2015, seven Meridian lots were under contract.

Calera. Calera is a residential subdivision with plat approval for 155 lots. The initial phase of the Calera subdivision included 16 courtyard homes at Calera Court. The second phase of the Calera subdivision, Calera Drive, consisted of 53 single-family lots. Construction of the final phase, known as Verano Drive, was completed in July 2008 and included 71 single-family lots. During 2014, we sold the remaining nine Verano Drive lots for $3.5 million, including six lots for $2.4 million in second-quarter 2014.

W Austin Residences. During the first six months of 2014, we sold three units for $4.4 million, including one unit for $2.7 million in second-quarter 2014. There were no sales during the first six months of 2015 and as of June 30, 2015, only two condominium units remained unsold.


16


Commercial. As of June 30, 2015, the number of square feet of our commercial property developed, under development and our remaining entitlements for potential development (excluding property associated with our unconsolidated joint venture with Tramell Crow Central Texas Development, Inc. relating to Crestview Station in Austin (the Crestview Station Joint Venture)) are shown below:
 
Commercial Property
 
Developed
 
Under Development
 
Potential Developmenta
 
Total
Barton Creek:
 
 
 
 
 
 
 
Treaty Oak Bank
3,085

 

 

 
3,085

Barton Creek Village Phase I
22,366

 

 

 
22,366

Barton Creek Village Phase II

 

 
16,000

 
16,000

Entry corner

 

 
5,000

 
5,000

Amarra retail/office

 

 
83,081

 
83,081

Section N

 

 
1,500,000

 
1,500,000

Circle C:
 
 
 
 
 
 
 
Chase Bank ground leaseb
4,450

 

 

 
4,450

5700 Slaughterb
21,248

 

 

 
21,248

Parkside Villageb,c
90,184

 

 

 
90,184

Tract 110

 

 
614,500

 
614,500

Tract 114

 

 
78,357

 
78,357

Lantana:
 
 
 
 
 
 
 
Tract GR1

 

 
325,000

 
325,000

Tract G07

 

 
160,000

 
160,000

W Austin Hotel & Residences project:
 
 
 
 
 
 
 
Officec
39,328

 

 

 
39,328

Retailc
18,362

 

 

 
18,362

Lakeway:
 
 
 
 
 
 
 
The Oaks at Lakeway

 
245,022

 

 
245,022

Magnolia

 

 
351,000

 
351,000

Austin 290 Tract

 

 
20,000

 
20,000

Total Square Feet
199,023

 
245,022

 
3,152,938

 
3,596,983

a.
Our development of the properties identified under the heading “Potential Development” is dependent upon the approval of our development plans and permits by governmental agencies, including the City. Those governmental agencies may either not approve one or more development plans and permit applications related to such properties or require us to modify our development plans. Accordingly, our development strategy with respect to those properties may change in the future. While we may be proceeding with approved infrastructure projects on some of these properties, they are not considered to be “under development” for disclosure in this table unless other development activities necessary to fully realize the properties’ intended final use are in progress or scheduled to commence in the near term.
b.
On July 2, 2015, Stratus completed the sales of Parkside Village and 5700 Slaughter. See below and Note 10 for further discussion.
c.
Owned through a joint venture.
 
Barton Creek. The first phase of Barton Creek Village consists of a 22,366-square-foot retail complex and a 3,085-square-foot bank building. As of June 30, 2015, occupancy was 100 percent for the retail complex, and the bank building is leased through January 2023.

Circle C. In 2008, we completed the construction of two retail buildings, totaling 21,248 square feet, at 5700 Slaughter in the Circle C community (5700 Slaughter). As of June 30, 2015, aggregate occupancy for the two retail buildings was 100 percent. The Circle C community also includes a 4,450-square-foot bank building (the Chase Bank ground lease) on an existing ground lease, which expires in 2025.

The Circle C community also includes Parkside Village, a 90,184-square-foot retail project. This project consists of a 33,650-square-foot full-service movie theater and restaurant, a 13,890-square-foot medical clinic and five other retail buildings, including a 14,926-square-foot building, a 10,175-square-foot building, an 8,043-square-foot building, a 4,500-square-foot building and a stand-alone 5,000-square-foot building. We entered into a joint venture

17


with LCHM Holdings, LLC for the development and operation of Parkside Village (the Parkside Village Joint Venture) (see Note 3 in our 2014 Form 10-K). Construction of the Parkside Village retail project was completed in fourth-quarter 2014, and as of June 30, 2015, occupancy of Parkside Village was approximately 96 percent.

On July 2, 2015, we completed the sales of Parkside Village and 5700 Slaughter for $32.5 million and $12.5 million, respectively. See Note 10 for further discussion.
Lantana. Lantana is a partially developed, mixed-use real estate development project. As of June 30, 2015, we had entitlements for approximately 485,000 square feet of office and retail space on 44 acres. Regional utility and road infrastructure is in place with capacity to serve Lantana at full build-out as permitted under our existing entitlements.

W Austin Hotel & Residences project. The project has 39,328 square feet of leasable office space, including 9,000 square feet occupied by our corporate office, and 18,362 square feet of retail space. As of June 30, 2015, occupancy for the office space was 100 percent and occupancy for the retail space was 74 percent. Leasing is ongoing for the remaining retail space. See "Business Strategy and Related Risks" for information on our pending acquisition of the interest of our joint venture partner.

The Oaks at Lakeway. The Oaks at Lakeway is a HEB Grocery Company, L.P. (HEB) anchored retail project planned for 245,022 square feet of commercial space. Leases for 65 percent of the space, including the HEB lease, have been executed and leasing for the remaining space is underway. The project is currently under construction, and the HEB store is expected to open in October 2015.

Magnolia. The Magnolia project is a HEB-anchored retail project planned for 351,000 square feet of commercial space. Planning and infrastructure work by the city of Magnolia and road expansion by the Texas Department of Transportation are in progress and construction is expected to begin in 2016.

UNCONSOLIDATED AFFILIATE

Crestview Station. The Crestview Station Joint Venture is a single-family, multi-family, retail and office development, located on the site of a commuter line. As of June 30, 2015, the Crestview Station Joint Venture has sold all of its property except for one commercial site (see Note 6 in our 2014 Form 10-K). We account for our 50 percent interest in the Crestview Station Joint Venture under the equity method.

RESULTS OF OPERATIONS

We are continually evaluating the development and sale potential of our properties and will continue to consider opportunities to enter into transactions involving our properties. As a result, and because of numerous other factors affecting our business activities as described herein, our past operating results are not necessarily indicative of our future results.

The following table summarizes our results (in thousands):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
Operating (loss) income:
 
 
 
 
 
 
 
Real estate operations
$
(1,440
)
 
$
676

 
$
(2,482
)
 
$
1,106

Hotel
1,105

 
1,417

 
2,979

 
3,182

Entertainment
951

 
563

 
1,450

 
1,642

Commercial leasing
(101
)
 
146

 
159

 
177

Eliminations and other
27

 
40

 
45

 
83

Operating income
$
542

 
$
2,842

 
$
2,151

 
$
6,190

Interest expense, net
$
(1,031
)
 
$
(974
)
 
$
(1,881
)
 
$
(1,823
)
Income from discontinued operations, net of taxes
$

 
$

 
$
3,218

 
$

Net (loss) income
$
(240
)
 
$
1,264

 
$
3,544

 
$
4,156

Net income attributable to noncontrolling interests in subsidiaries
$
(879
)
 
$
(1,045
)
 
$
(1,921
)
 
$
(2,840
)
Net (loss) income attributable to Stratus common stock
$
(1,119
)
 
$
219

 
$
1,623

 
$
1,316



18


We have four operating segments: Real Estate Operations, Hotel, Entertainment and Commercial Leasing (see Note 7 for further discussion). The following is a discussion of our operating results by segment.

Real Estate Operations
The following table summarizes our Real Estate Operations operating results (in thousands):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
Revenues:
 
 
 
 
 
 
 
Developed property sales
$
2,045

 
$
6,777

 
$
4,250

 
$
12,126

Commissions and other
214

 
71

 
510

 
176

Total revenues
2,259

 
6,848

 
4,760

 
12,302

Cost of sales, including depreciation
2,079

 
4,753

 
4,247

 
8,679

Insurance settlement

 
(46
)
 

 
(576
)
General and administrative expenses
1,620

 
1,465

 
2,995

 
3,093

Operating (loss) income
$
(1,440
)
 
$
676

 
$
(2,482
)
 
$
1,106