STRS Q2 2013 10-Q


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, 2013
or
[  ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from
 
to
Commission File Number: 0-19989
 
Stratus Properties Inc.
(Exact name of registrant as specified in its charter)
Delaware
72-1211572
(State or other jurisdiction of
incorporation or organization)
(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 ¨         Non-accelerated filer ¨          Smaller reporting company þ

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, 2013, there were issued and outstanding 8,056,437 shares of the registrant’s common stock, par value $0.01 per share.




STRATUS PROPERTIES INC.
TABLE OF CONTENTS
 
 
 
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



Table of Contents




STRATUS PROPERTIES INC.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

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

 
June 30,
2013
 
December 31,
2012
ASSETS
 
 
 
Cash and cash equivalents
$
17,785

 
$
12,784

Restricted cash
31,401

 
17,657

Real estate held for sale
29,318

 
60,244

Real estate under development
46,250

 
31,596

Land available for development
41,334

 
49,569

Real estate held for investment, net
185,302

 
189,331

Investment in unconsolidated affiliates
4,214

 
3,402

Other assets
13,590

 
14,545

Total assets
$
369,194

 
$
379,128

 
 
 
 
LIABILITIES AND EQUITY
 
 
 
Accounts payable
$
29,251

 
$
13,845

Accrued liabilities
6,312

 
8,605

Deposits
1,960

 
2,073

Debt
123,792

 
137,035

Other liabilities and deferred gain
9,053

 
8,675

Total liabilities
170,368

 
170,233

 
 
 
 
Commitments and contingencies

 

 
 
 
 
Equity:
 
 
 
Stratus stockholders’ equity:
 
 
 
Common stock
91

 
90

Capital in excess of par value of common stock
203,480

 
203,298

Accumulated deficit
(61,524
)
 
(63,309
)
Common stock held in treasury
(19,114
)
 
(18,392
)
Total Stratus stockholders’ equity
122,933

 
121,687

Noncontrolling interests in subsidiaries
75,893

 
87,208

Total equity
198,826

 
208,895

Total liabilities and equity
$
369,194

 
$
379,128


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


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

 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2013
 
2012
 
2013
 
2012
Revenues:
 
 
 
 
 
 
 
Real estate
$
28,043

 
$
6,801

 
$
46,905

 
$
21,087

Hotel
9,816

 
8,607

 
19,895

 
17,624

Entertainment
3,424

 
2,832

 
6,632

 
6,103

Rental
1,242

 
1,129

 
2,552

 
2,055

Total revenues
42,525

 
19,369

 
75,984

 
46,869

Cost of sales:
 
 
 
 
 
 
 
Real estate
23,833

 
7,385

 
39,785

 
20,838

Hotel
7,538

 
6,781

 
14,812

 
13,432

Entertainment
2,979

 
2,317

 
5,435

 
4,794

Rental
685

 
529

 
1,347

 
1,015

Depreciation
2,308

 
2,166

 
4,538

 
4,283

Total cost of sales
37,343

 
19,178

 
65,917

 
44,362

Insurance settlement
(1,785
)
 

 
(1,785
)
 

General and administrative expenses
2,014

 
1,857

 
3,778

 
3,328

Total costs and expenses
37,572

 
21,035

 
67,910

 
47,690

Operating income (loss)
4,953

 
(1,666
)
 
8,074

 
(821
)
Interest expense, net
(2,008
)
 
(2,967
)
 
(4,307
)
 
(6,608
)
Other income, net
95

 
11

 
1,345

 
40

Income (loss) from continuing operations before income taxes and equity in unconsolidated affiliates' income
3,040

 
(4,622
)
 
5,112

 
(7,389
)
Equity in unconsolidated affiliates' income
149

 
147

 
111

 
75

Provision for income taxes
(222
)
 
(141
)
 
(425
)
 
(299
)
Income (loss) from continuing operations
2,967

 
(4,616
)
 
4,798

 
(7,613
)
Income from discontinued operations

 

 

 
4,805

Net income (loss) and total comprehensive income (loss)
2,967

 
(4,616
)
 
4,798

 
(2,808
)
Net (income) loss and total comprehensive (income) loss attributable to noncontrolling interests in subsidiaries
(2,335
)
 
1,058

 
(3,013
)
 
953

Net income (loss) and total comprehensive income (loss) attributable to Stratus common stock
$
632

 
$
(3,558
)
 
$
1,785

 
$
(1,855
)
 
 
 
 
 
 
 
 
Basic and diluted net income (loss) per share attributable to Stratus common stock:
 
 
 
 
 
 
 
Continuing operations
$
0.08

 
$
(0.44
)
 
$
0.22

 
$
(0.85
)
Discontinued operations

 

 

 
0.61

Basic and diluted net income (loss) per share attributable to Stratus common stock
$
0.08

 
$
(0.44
)
 
$
0.22

 
$
(0.24
)
 
 
 
 
 
 
 
 
Weighted-average shares of common stock outstanding:
 
 
 
 
 
 
 
Basic
8,099

 
8,095

 
8,102

 
7,836

Diluted
8,131

 
8,095

 
8,133

 
7,836


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

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

 
Six Months Ended
 
June 30,
 
2013
 
2012
Cash flow from operating activities:
 
 
 
Net income (loss)
$
4,798

 
$
(2,808
)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
 
 
 
Depreciation
4,538

 
4,283

Cost of real estate sold
31,375

 
14,614

Gain on sale of 7500 Rialto

 
(5,146
)
Stock-based compensation
157

 
109

Equity in unconsolidated affiliates' income
(111
)
 
(75
)
Deposits
(113
)
 
12

Development of real estate properties
(8,728
)
 
(6,571
)
Recovery of land previously sold
(485
)
 

Municipal utility districts reimbursement
208

 

Increase in other assets
(12,631
)
 
(3,083
)
Increase (decrease) in accounts payable, accrued liabilities and other
1,366

 
(3,775
)
Net cash provided by (used in) operating activities
20,374

 
(2,440
)
 
 
 
 
Cash flow from investing activities:
 
 
 
Capital expenditures:
 
 
 
Commercial leasing properties
(510
)
 
(2,806
)
Entertainment
(119
)
 
(164
)
Hotel
(3
)
 

Proceeds from sale of 7500 Rialto

 
5,697

Investment in unconsolidated affiliates
(700
)
 
(185
)
Net cash (used in) provided by investing activities
(1,332
)

2,542

 
 
 
 
Cash flow from financing activities:
 
 
 
Borrowings from credit facility
9,000

 
9,500

Payments on credit facility
(23,368
)
 
(9,909
)
Borrowings from project and term loans
1,568

 
9,019

Payments on project and term loans
(443
)
 
(6,861
)
Noncontrolling interests (distributions) contributions
(103
)
 
341

Common stock issuance

 
4,817

Repurchase of treasury stock
(623
)
 

Net payments for stock-based awards
(72
)
 
(19
)
Net cash (used in) provided by financing activities
(14,041
)
 
6,888

Net increase in cash and cash equivalents
5,001

 
6,990

Cash and cash equivalents at beginning of year
12,784

 
8,085

Cash and cash equivalents at end of period
$
17,785

 
$
15,075


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

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

 
 
Stratus Stockholders’ Equity
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common Stock
 
Total Stratus Stockholders' Equity
 
 
 
 
 
 
Common Stock
 
Capital in Excess of Par Value
 
Accum-ulated Deficit
 
Held in Treasury
 
 
Noncontrolling Interests in Subsidiaries
 
 
 
 
Number
of Shares
 
At Par
Value
 
 
 
Number
of Shares
 
At
Cost
 
 
 
Total
Equity
Balance at December 31, 2012
 
9,037

 
$
90

 
$
203,298

 
$
(63,309
)
 
940

 
$
(18,392
)
 
$
121,687

 
$
87,208

 
$
208,895

Common stock repurchases
 

 

 

 

 
52

 
(623
)
 
(623
)
 

 
(623
)
Exercised and issued stock-based awards
 
31

 
1

 
25

 

 

 

 
26

 

 
26

Stock-based compensation
 

 

 
157

 

 

 

 
157

 

 
157

Tender of shares for stock-based awards
 

 

 

 

 
8

 
(99
)
 
(99
)
 

 
(99
)
Noncontrolling interests distributions
 

 

 

 

 

 

 

 
(14,328
)
 
(14,328
)
Total comprehensive income
 

 

 

 
1,785

 

 

 
1,785

 
3,013

 
4,798

Balance at June 30, 2013
 
9,068

 
$
91

 
$
203,480

 
$
(61,524
)
 
1,000

 
$
(19,114
)
 
$
122,933

 
$
75,893

 
$
198,826


Balance at December 31, 2011
 
8,387

 
$
84

 
$
198,175

 
$
(61,723
)
 
935

 
$
(18,347
)
 
$
118,189

 
$
99,493

 
$
217,682

Common stock issuance
 
625

 
6

 
4,811

 

 

 

 
4,817

 

 
4,817

Exercised and issued stock-based awards
 
23

 

 
26

 

 

 

 
26

 

 
26

Stock-based compensation
 

 

 
109

 

 

 

 
109

 

 
109

Tender of shares for stock-based awards
 

 

 

 

 
5

 
(45
)
 
(45
)
 

 
(45
)
Noncontrolling interests contributions
 

 

 

 

 

 

 

 
341

 
341

Total comprehensive loss
 

 

 

 
(1,855
)
 

 

 
(1,855
)
 
(953
)
 
(2,808
)
Balance at June 30, 2012
 
9,035

 
$
90

 
$
203,121

 
$
(63,578
)
 
940

 
$
(18,392
)
 
$
121,241

 
$
98,881

 
$
220,122


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



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Table of Contents


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, 2012, included in Stratus Properties Inc.’s (Stratus) Annual Report on Form 10-K (Stratus 2012 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. Operating results for the three-month and six-month periods ended June 30, 2013, are not necessarily indicative of the results that may be expected for the year ending December 31, 2013.

2.
EARNINGS PER SHARE
Stratus’ basic net income per share of common stock was calculated by dividing the net income attributable to Stratus common stock by the weighted-average shares of common stock outstanding during the period. Following is a reconciliation of net income and weighted-average shares of common stock outstanding for purposes of calculating diluted net income per share (in thousands, except per share amounts):
 
 
Three Months Ended
 
Six Months Ended
 
 
June 30,
 
June 30,
 
 
2013
 
2012
 
2013
 
2012
Net income (loss)
 
$
2,967

 
$
(4,616
)
 
$
4,798

 
$
(2,808
)
Net (income) loss attributable to noncontrolling interests
 
(2,335
)
 
1,058

 
(3,013
)
 
953

Net income (loss) attributable to Stratus common stock
 
$
632

 
$
(3,558
)
 
$
1,785

 
$
(1,855
)
 
 
 
 
 
 
 
 
 
Weighted-average shares of common stock outstanding
 
8,099

 
8,095

 
8,102

 
7,836

Add shares issuable upon exercise or vesting of:
 
 
 
 
 
 
 
 
Dilutive stock options
 
8

a 

 
7

a 

Restricted stock units
 
24

 

 
24

 

Weighted-average shares of common stock outstanding
 
 
 
 
 
 
 
 
for purposes of calculating diluted net income per share
 
8,131

 
8,095

 
8,133

 
7,836

 
 
 
 
 
 
 
 
 
Diluted net income (loss) per share attributable to Stratus common stock
 
$
0.08

 
$
(0.44
)
 
$
0.22

 
$
(0.24
)
a. Excludes shares of common stock associated with outstanding stock options with exercise prices less than the average market price of Stratus' common stock that were anti-dilutive based on the treasury stock method totaling approximately 1,300 shares for second-quarter 2013 and approximately 1,900 shares for the six months ended June 30, 2013.

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 were approximately 63,100 stock options with a weighted-average exercise price of $21.00 per option for second-quarter 2013 and approximately 65,600 stock options with a weighted average exercise price of $20.69 for the six months ended June 30, 2013. Stock options and restricted stock units representing approximately 136,700 shares for second-quarter 2012 and approximately 140,600 shares for the six months ended June 30, 2012 were excluded from weighted-average common shares outstanding for purposes of calculating diluted net income per share because they were anti-dilutive.

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 a joint venture, CJUF II Stratus Block 21, LLC (the Joint Venture), for a 36-story mixed-use development in downtown Austin, Texas, anchored by a W Hotel & Residences (the W Austin Hotel & Residences project). Stratus is the manager of, and has an approximate 40 percent interest in, the Joint Venture, and Canyon-Johnson has an approximate 60 percent interest in the Joint Venture. As of June 30, 2013, cumulative capital contributions totaled $71.9 million for Stratus and $94.0 million for Canyon-Johnson. Distributions to Stratus of $10.1 million were made in second-quarter 2013 and $14.2 million for the first six months of 2013 ($24.1 million cumulative), and $24.1 million was payable to Canyon-Johnson at June 30, 2013, and reflected as restricted cash in Stratus' consolidated balance sheet. The Joint Venture is consolidated in Stratus’ financial statements based on its assessment that the Joint Venture is a variable interest entity (VIE) and that Stratus is the primary beneficiary. Stratus will continue to evaluate which entity is the primary beneficiary of the Joint Venture in accordance with applicable accounting guidance. See Note 2 of the Stratus 2012 Form 10-K for further discussion.

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Stratus’ consolidated balance sheets include the following assets and liabilities of the Joint Venture (in thousands):
 
June 30,
 
December 31,
 
2013
 
2012
Assets:
 
 
 
Cash and cash equivalents
$
15,016

 
$
7,461

Restricted cash
31,396

 
17,657

Real estate held for sale
17,973

 
45,320

Real estate held for investment, net
159,910

 
163,666

Other assets
6,675

 
8,398

    Total assets
230,970

 
242,502

Liabilities:
 
 
 
Accounts payable
27,660

 
13,592

Accrued liabilities
4,726

 
6,322

Deposits
1,523

 
1,714

Debta
67,340

 
67,670

Other liabilities
3,170

 
2,386

    Total liabilities
104,419

 
91,684

Net assets
$
126,551

 
$
150,818

 
 
 
 
a.
Stratus guarantees the debt associated with the W Austin Hotel & Residences project.

Profits and losses between partners in a real estate venture should be allocated based on how changes in net assets of the venture would affect cash payments to the investors over the life of the venture and on its liquidation. The amount of the ultimate profits earned by the W Austin Hotel & Residences project will affect the ultimate profit sharing ratios because of provisions in the joint venture agreement, which would require Stratus to return certain previously received distributions to Canyon-Johnson under certain circumstances. Because of the uncertainty of the ultimate profits and, therefore, profit-sharing ratios, the W Austin Hotel & Residences project’s cumulative profits or losses are allocated based on a hypothetical liquidation of the Joint Venture’s net assets as of each balance sheet date. As of June 30, 2013, the cumulative earnings for the W Austin Hotel & Residences project were allocated based on 43 percent for Stratus and 57 percent for Canyon-Johnson.

On October 3, 2012, the Joint Venture and Pedernales Entertainment LLC (Pedernales) formed Stageside Productions (Stageside) to promote, market and commercialize the production, sale, distribution and general oversight of audio and video recordings of events or performances occurring at Austin City Limits Live at the Moody Theater (ACL Live). The Joint Venture's initial capital contributions to Stageside totaled $0.3 million, and the Joint Venture will contribute additional capital as necessary to fund the working capital needs of Stageside. The Joint Venture has a 100 percent capital funding interest and has a 40 percent residual and voting interest in Stageside. The Joint Venture performed an evaluation and concluded Stageside is a VIE and that the Joint Venture is the primary beneficiary. Accordingly, the results of Stageside are consolidated in the Joint Venture's financial statements.

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).

The carrying value for certain Stratus financial instruments (i.e., cash and cash equivalents, restricted cash, accounts payable and accrued liabilities) approximate 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, 2013
 
December 31, 2012
 
Carrying
Value
 
Fair
Value
 
Carrying
Value
 
Fair
Value
Debt
$
123,792

 
$
123,507

 
$
137,035

 
$
136,774


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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.
INVESTMENT IN UNCONSOLIDATED AFFILIATES
In April 2013, Stratus formed a joint venture, Stump Fluff LLC (Stump Fluff), with Transmission Entertainment, LLC (Transmission) to own, operate, manage and sell live music and entertainment promotion, booking, production, merchandising, venue services and other related products and services. Stratus' initial capital contributions to Stump Fluff totaled $0.4 million in cash. Stratus also is committed to make additional capital contributions to Stump Fluff of $0.4 million ($0.2 million in July 2013 and $0.2 million in October 2013), and will contribute additional capital to Stump Fluff as necessary to fund its working capital needs. Transmission contributed its existing assets to Stump Fluff. In addition, Stump Fluff assumed specified liabilities of Transmission totaling $0.2 million. Transmission is not required to make any future capital contributions to Stump Fluff. Stratus and Transmission each have a 50 percent voting interest in Stump Fluff. After Stratus is repaid its original capital contributions and a preferred return (10 percent annually) on those contributions, Stratus will receive 33 percent of any distributions from Stump Fluff and Transmission will receive 67 percent.

In May 2013, Stratus and Austin Pachanga Partners, LLC (Pachanga Partners) formed a joint venture, Guapo Enterprises LLC (Guapo) to own, operate, manage and sell the products and services of the Pachanga music festival business. Stratus' initial capital contributions to Guapo totaled $0.3 million in cash. Stratus will contribute additional capital to Guapo as necessary to fund its working capital needs. Pachanga Partners contributed its existing assets to Guapo and is not required to make any future capital contributions. Stratus and Pachanga Partners each have a 50 percent voting interest in Guapo. After Stratus is repaid its original capital contributions and a preferred return (10 percent annually) on those contributions, Stratus will receive 33 percent of any distributions from Guapo and Pachanga Partners will receive 67 percent.

Stratus has concluded that both Stump Fluff and Guapo are VIEs and that no partner in either joint venture is the primary beneficiary because decision-making about the activities that most significantly impact the VIEs' economic performance is shared equally by the partners. Stratus accounts for its investments in Stump Fluff and Guapo using the equity method.

6.
DEBT
On May 15, 2013, Stratus entered into a loan agreement and promissory note with D.N. Kahn (the Kahn loan documents) to finance the purchase of a tract of land for the future development in Lakeway, Texas. Pursuant to the Kahn loan documents, Stratus borrowed $1.6 million, which bears interest at a per annum rate of 5 percent. The outstanding principal balance of the Kahn promissory note is due and payable on May 15, 2015, and interest is due and payable quarterly, beginning on August 15, 2013. The loan is secured by a lien on the land.

Stratus' loan agreement with Beal Bank USA (the Beal Bank loan), its credit facility with Comerica Bank (the Comerica credit facility) and its American Strategic Income Portfolio (ASIP) unsecured term loans contain customary financial covenants, including a requirement that Stratus maintain a minimum total stockholders' equity balance. On March 21, 2013, Stratus entered into a modification agreement of the Amended and Restated Guaranty Agreement (the Guaranty), by and among (1) the Joint Venture, (2) Stratus and Canyon-Johnson and (3) Beal Bank USA. The modification agreement reduced the amount of the total stockholders' equity required to be maintained by Stratus pursuant to the Guaranty from $120.0 million to $110.0 million. All other terms and conditions remained the same. On May 9, 2013, Stratus entered into a modification agreement of the ASIP unsecured term loans which reduced the amount of the total stockholders' equity required to be maintained by Stratus from $120.0 million to $110.0 million. Concurrently with this modification, the minimum stockholders' equity covenant of the Comerica credit facility was also reduced to $110.0 million, pursuant to the terms of the Comerica credit facility modified on December 31, 2012.

Interest Expense and Capitalization. Interest expense (before capitalized interest) totaled $3.0 million for second-quarter 2013, $3.6 million for second-quarter 2012, $6.0 million for the first six months of 2013 and $8.7 million for the first six months of 2012. Stratus capitalized interest costs totaling $1.0 million for second-quarter 2013, $0.7 million for second-quarter 2012, $1.7 million for the first six months of 2013 and $2.1 million for the first six months of 2012. Capitalized interest is primarily related to development activity at Section N at Barton Creek for the 2013 periods and at the W Austin Hotel & Residences project for the 2012 periods.

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7.
STOCKHOLDERS' EQUITY
Stratus' ASIP unsecured term loans generally prohibit common stock purchases by Stratus while any of such loans are outstanding; however, approval was obtained from ASIP for repurchases made in 2013. During second-quarter 2013, Stratus purchased 14,910 shares of its common stock for $0.2 million (or $13.01 per share).

8.
INCOME TAXES
Stratus’ accounting policy for and other information regarding its income taxes is further described in Notes 1 and 8 of the Stratus 2012 Form 10-K.

Stratus evaluated the recoverability of its deferred tax assets, and considered available positive and negative evidence, giving greater weight to losses in recent years, the absence of taxable income in the carry back period and uncertainty regarding projected future financial results. As a result, Stratus concluded that there was not sufficient positive evidence supporting the realizability of its deferred tax assets beyond an amount totaling $0.3 million at June 30, 2013, and December 31, 2012.

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. Stratus’ future results of operations may be favorably impacted by reversals of valuation allowances if Stratus is able to demonstrate sufficient positive evidence that its deferred tax assets will be realized.

The difference between Stratus’ consolidated effective income tax rate for the first six months of 2013 and 2012, and the U.S. federal statutory tax rate of 35 percent was primarily attributable to the realization of deferred tax assets for the first six months of 2013 and additional valuation allowances recorded against deferred tax assets for the first six months of 2012.

9.
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 undeveloped), which consists of its properties in the Barton Creek community, the Circle C community and Lantana, and the condominium units at the W Austin Hotel & Residences project.

The 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 new 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 Stageside (see Note 3).

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. In February 2012, Stratus sold the two office buildings at 7500 Rialto Boulevard (7500 Rialto). Accordingly, the operating results for 7500 Rialto are reported as discontinued operations in the tables below (see Note 10).

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 an 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. Prior year general and administrative expense allocations have been revised to exclude the results of 7500 Rialto. Additionally, prior year amounts for individual segments have been revised to reflect intersegment transactions. 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.


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Segment data presented below were prepared on the same basis as Stratus’ consolidated financial statements (in thousands).
 
Real Estate
Operationsa
 
Hotel
 
Entertainment
 
Commercial Leasing
 
Eliminations and Otherb
 
Total
Three Months Ended June 30, 2013:
 
 
 
 
 
 
 
 
 
 
 
Revenues:
 
 
 
 
 
 
 
 
 
 
 
Unaffiliated customers
$
28,043

 
$
9,816

 
$
3,424

 
$
1,242

 
$

 
$
42,525

Intersegment
26

 
50

 
15

 
150

 
(241
)
 

Cost of sales, excluding depreciation
23,861

 
7,532

 
3,000

 
705

 
(63
)
 
35,035

Depreciation
59

 
1,558

 
310

 
418

 
(37
)
 
2,308

Insurance settlement
(1,785
)
 

 

 

 

 
(1,785
)
General and administrative expenses
1,661

 
116

 
51

 
325

 
(139
)
 
2,014

Operating income (loss)
$
4,273

 
$
660

 
$
78

 
$
(56
)
 
$
(2
)
 
$
4,953

Capital expenditures
$
5,060

 
$
2

 
$
110

 
$
450

 
$

 
$
5,622

Total assets at June 30, 2013
165,902

 
116,750

 
45,804

 
46,820

 
(6,082
)
 
369,194

 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended June 30, 2012:
 

 
 

 
 

 
 

 
 

 
 

Revenues:
 
 
 
 
 
 
 
 
 
 
 
Unaffiliated customers
$
6,801

 
$
8,607

 
$
2,832

 
$
1,129

 
$

 
$
19,369

Intersegment
12

 
49

 
23

 
94

 
(178
)
 

Cost of sales, excluding depreciation
7,407

 
6,781

 
2,344

 
544

 
(64
)
 
17,012

Depreciation
73

 
1,445

 
306

 
378

 
(36
)
 
2,166

General and administrative expenses
1,448

 
123

 
41

 
362

 
(117
)
 
1,857

Operating (loss) income
$
(2,115
)
 
$
307

 
$
164

 
$
(61
)
 
$
39

 
$
(1,666
)
Capital expenditures
$
1,570

 
$

 
$
51

 
$
567

 
$

 
$
2,188

Total assets at June 30, 2012
199,526

 
121,236

 
44,429

 
45,020

 
(7,595
)
 
402,616

 
 
 
 
 
 
 
 
 
 
 
 
Six Months Ended June 30, 2013:
 
 
 
 
 
 
 
 
 
 
 
Revenues:
 
 
 
 
 
 
 
 
 
 
 
  Unaffiliated customers
$
46,905

 
$
19,895

 
$
6,632

 
$
2,552

 
$

 
$
75,984

  Intersegment
40

 
132

 
23

 
281

 
(476
)
 

Cost of sales, excluding depreciation
39,841

 
14,812

 
5,489

 
1,387

 
(150
)
 
61,379

Depreciation
123

 
3,035

 
617

 
837

 
(74
)
 
4,538

Insurance settlement
(1,785
)
 

 

 

 

 
(1,785
)
General and administrative expenses
3,164

 
190

 
74

 
627

 
(277
)
 
3,778

Operating income (loss)
$
5,602

 
$
1,990

 
$
475

 
$
(18
)
 
$
25

 
$
8,074

Capital expenditures
$
8,728

 
$
3

 
$
119

 
$
510

 
$

 
$
9,360

 
 
 
 
 
 
 
 
 
 
 
 
Six Months Ended June 30, 2012:
 
 
 
 
 
 
 
 
 
 
 
Revenues:
 
 
 
 
 
 
 
 
 
 
 
  Unaffiliated customers
$
21,087

 
$
17,624

 
$
6,103

 
$
2,055

 
$

 
$
46,869

  Intersegment
18

 
98

 
29

 
226

 
(371
)
 

Cost of sales, excluding depreciation
20,883

 
13,432

 
4,844

 
1,041

 
(121
)
 
40,079

Depreciation
150

 
2,890

 
610

 
704

 
(71
)
 
4,283

General and administrative expenses
2,677

 
163

 
56

 
676

 
(244
)
 
3,328

Operating (loss) income
$
(2,605
)
 
$
1,237

 
$
622

 
$
(140
)
 
$
65

 
$
(821
)
Income from discontinued operations
$

 
$

 
$

 
$
4,805

 
$

 
$
4,805

Capital expenditures
6,571

 

 
164

 
2,806

 

 
9,541

a.
Includes sales commissions and other revenues together with related expenses.
b.
Includes eliminations of intersegment amounts, including the deferred development fee income between Stratus and the joint venture with Canyon-Johnson (see Note 3).

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10.
DISCONTINUED OPERATIONS
On February 27, 2012, Stratus sold 7500 Rialto to Lincoln Properties and Greenfield Partners (Lincoln Properties) for $27.0 million. Lincoln Properties paid $6.7 million ($5.7 million net to Stratus after closing and other costs) in cash and assumed Stratus' outstanding nonrecourse debt (the Lantana Promissory Note) of $20.3 million secured by the property. Stratus is providing a limited guaranty of debt service and other obligations on the Lantana Promissory Note up to $5.0 million, which will be reduced to $2.5 million on May 1, 2016, until January 1, 2018, which is the maturity date for the Lantana Promissory Note. Stratus recognized $5.1 million of its $10.1 million gain on the sale in first-quarter 2012 and expects the balance to be recorded as its obligations under the limited guaranty are relieved.

The operating results for 7500 Rialto are presented in the financial statements as discontinued operations. The operations of 7500 Rialto previously represented a component of the Commercial Leasing segment (see Note 9). The following table presents the results of operations for 7500 Rialto up to and including the sale in February 2012 (in thousands):
 
 
Six Months Ended
 
 
June 30, 2012
Revenues
 
$
287

Rental property costs
 
(370
)
Interest expensea
 
(198
)
Gain on sale
 
5,146

Provision for income taxes
 
(60
)
Income from discontinued operations
 
$
4,805

 
 
 
a.
Relates to interest on the Lantana Promissory Note and does not include any additional allocations of interest.

11.
SUBSEQUENT EVENTS
Stratus evaluated events after June 30, 2013, and through the date the financial statements were issued, and determined any events or transactions occurring during this period that would require recognition or disclosure are appropriately addressed in these financial statements.

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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 2012 Annual Report on Form 10-K (2012 Form 10-K) filed with the Securities and Exchange Commission. 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, operation and/or sale of commercial, hotel, entertainment, multi- and single-family residential real estate properties located primarily in the Austin, Texas, area. We generate revenues from sales of developed properties, from our hotel and entertainment operations and from rental income from our commercial properties. Developed property sales can include condominium units at our W Austin Hotel & Residences project, an individual tract of land that has been developed and permitted for residential use or a developed lot with a home already built on it. We may, on occasion, sell properties under development, undeveloped properties or commercial properties, if opportunities arise that we believe will maximize overall asset values.

Our principal real estate holdings are in southwest Austin, Texas. The number of developed lots/units and under development or undeveloped acreage as of June 30, 2013, that comprise our principal real estate development projects are presented in the following table.
 
 
 
 
 
Acreage
 
 
 
 
 
Under Development
 
Undeveloped
 
 
 
Developed
Lots/Units
 
Single
Family
 
Commercial
 
Total
 
Single
family
 
Multi-family
 
Commercial
 
Total
 
Total
Acreage
Austin:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Barton Creek
68

 

 

 

 
678

 
327

 
418

 
1,423

 
1,423

Circle C

 
132

 
23

 
155

 

 

 
335

 
335

 
490

Lantana

 

 

 

 

 

 
29

 
29

 
29

Lakeway

 

 

 

 

 

 
21

 
21

 
21

W Austin Residences
15

 

 

 

 

 

 

 

 

San Antonio:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Camino Real

 

 

 

 

 

 
2

 
2

 
2

Total
83

 
132

 
23

 
155

 
678

 
327

 
805

 
1,810

 
1,965


Our principal residential holdings at June 30, 2013, included developed lots at Barton Creek and condominium units at the W Austin Hotel & Residences project. See "Development Activities - Residential" for further discussion. Our principal commercial holdings at June 30, 2013, in addition to the W Austin Hotel & Residences project, consisted of the first phase of Barton Creek Village, and the 5700 Slaughter retail complex and Parkside Village in the Circle C community. See "Development Activities - Commercial" for further discussion.

The W Austin Hotel & Residences project is located on a two-acre city block in downtown Austin and contains a 251-room luxury hotel, 159 residential condominium units, and office, retail and entertainment space. The hotel is managed by Starwood Hotels & Resorts Worldwide, Inc. The office space totals 39,328 square feet and the retail space totals 18,362 square feet. 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, which opened in February 2011.

For second-quarter 2013, our revenues totaled $42.5 million and our net income attributable to common stock totaled $0.6 million, compared with revenues of $19.4 million and a net loss attributable to common stock of $3.6 million for second-quarter 2012. For the first six months of 2013, our revenues totaled $76.0 million and our net income attributable to common stock totaled $1.8 million, compared with revenues of $46.9 million and a net loss attributable to common stock of $1.9 million for the the first six months of 2012. The increase in revenues primarily relates to an increase in the number of condominium units sold and higher average sales prices associated with larger units at the W Austin Hotel & Residences project, as well as increased lot sales at Barton Creek. The results

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for the first six months of 2013 also include a gain of $1.5 million associated with the sale of a 16-acre tract of land at Lantana and an insurance settlement of $1.8 million. The results for the first six months of 2012 included a gain of $5.1 million associated with the sale of two office buildings at 7500 Rialto Boulevard (7500 Rialto) in February 2012 (See Note 10 for further discussion).

BUSINESS STRATEGY AND RELATED RISKS

Our business strategy is to plan long-term land development that maximizes the value of our Austin area assets through the appropriate balance of high-quality residential and commercial development projects. We believe that Austin, Texas continues to be a desirable market and many of our developments are in unique locations where approvals and entitlements, many of which we have already obtained, may be difficult to secure. Real estate development in southwest Austin historically has been constrained as a result of various restrictions imposed by the city of Austin (the City) and several special interest groups have also traditionally opposed development in the area where most of our properties are located. We believe that many of our developments have inherent value given their unique nature and location and that this value should be realizable in the future. Our current focus is to proceed with the development of our properties, funded by our operating cash flows and supplemented by near-term financing, which we expect to convert to long-term financing following project completion.
The economic conditions of recent years, including the constrained capital and credit markets, have 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, in a manner that fits our current activities and gives us additional financial flexibility (see “Capital Resources and Liquidity” for further discussion). As of June 30, 2013, we had $23.1 million of availability under our credit facility with Comerica Bank (the Comerica credit facility) and $1.6 million in cash and cash equivalents available for use in our real estate operations, excluding $1.2 million of cash associated with Parkside Village and $15.0 million of cash associated with the W Austin Hotel & Residences project. The W Austin Hotel & Residences project paid $10.1 million in distributions to us in second-quarter 2013 and $24.1 million is payable to Canyon-Johnson Urban Fund II, L.P. (Canyon-Johnson), our joint venture partner in the W Austin Hotel & Residences project. The amount payable to Canyon-Johnson is reflected as restricted cash in our consolidated balance sheet. After determining the appropriate amount of cash to maintain as an operating reserve, the W Austin Hotel & Residences project may make additional distributions of any excess cash to us and Canyon-Johnson.
As of June 30, 2013, we had total debt of $123.8 million ($10.3 million of which matures in 2013). In addition, several of our loan agreements contain a covenant that we maintain a minimum stockholders' equity balance of $110.0 million. As of June 30, 2013, our total stockholders' equity balance was $122.9 million. We also have significant recurring costs, including property taxes, maintenance and marketing, that do not vary significantly with our level of property sales. We believe we have sufficient liquidity to address our near term requirements. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors” in our 2012 Form 10-K for further discussion.

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DEVELOPMENT ACTIVITIES

Residential. As of June 30, 2013, the number of our residential developed lots/units and potential development by area are shown below (excluding lots associated with our Crestview Station joint venture):

 
 
Residential Lots/Units
 
 
Developed
 
Under
Development
 
Potential Developmenta
 
Total
W Austin Hotel & Residences project:
 
 
 
 
 
 
 
 
Condominium unitsb
 
15

 

 

 
15

Barton Creek:
 
 
 
 
 
 
 
 
Calera:
 
 
 
 
 
 
 
 
Calera Drive
 
2

 

 

 
2

Verano Drive
 
33

 

 

 
33

Amarra Drive:
 
 
 
 
 
 
 
 
Phase I Lots
 
1

 

 

 
1

Phase II Lots
 
32

 

 

 
32

Townhomes
 

 

 
221

 
221

Phase III Lots
 

 

 
64

 
64

Section N Multi-family
 

 

 
1,860

 
1,860

Other Barton Creek Sections
 

 

 
155

 
155

Circle C:
 
 
 
 
 
 
 
 
Meridian
 

 
57

 

 
57

Total Residential Lots/Units
 
83

 
57

 
2,300

 
2,440

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.
Owned through a joint venture with Canyon-Johnson.

W Austin Hotel & Residences project.  Delivery of the first condominium units began in January 2011. As of July 31, 2013, sales of 147 of the 159 condominium units had closed for $168.8 million (including 16 units for $23.8 million in second-quarter 2013) and two of the remaining 12 units were under contract.

Calera. Calera is a residential subdivision with plat approval for 155 lots. During 2004, we began construction of 16 courtyard homes at Calera Court, the 16-acre initial phase of the Calera subdivision. The second phase of Calera, Calera Drive, consisting of 53 single-family lots, many of which adjoin the Fazio Canyons Golf Course, received final plat and construction permit approval in 2005. Construction of the final phase, known as Verano Drive, was completed in July 2008 and includes 71 single-family lots. We sold the final Calera Court Courtyard home during 2011. During the first six months of 2013, we sold 15 Verano Drive lots for $4.5 million and four Calera Drive lots for $0.9 million. As of June 30, 2013, two lots at Calera Drive and 33 lots at Verano Drive remain unsold. During July 2013, we sold one Calera Drive lot and one Verano Drive lot, and had 25 Verano Drive lots under contract as of July 31, 2013.

Amarra Drive. Amarra Drive Phase I, which is the initial phase of the Amarra Drive subdivision, was completed in 2007 and includes six lots with sizes ranging from approximately one to four acres, some of which are course-side lots on the Fazio Canyons Golf Course and others are secluded lots adjacent to the Nature Conservancy of Texas. In 2008, we commenced development of Amarra Drive Phase II, which consists of 35 lots on 51 acres. Development was substantially completed in October 2008. As of June 30, 2013, one Phase I lot and 32 Phase II lots remain unsold. As of July 31, 2013, the final Phase I lot and one Phase II lot were under contract.


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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. During 2011, we sold the final 21 lots. In May 2013, development of the final phase of Meridian, consisting of 57 one-acre lots, commenced.

Commercial. As of June 30, 2013, the number of square feet of our commercial property developed, under development and our remaining entitlements are shown below (excluding property associated with our Crestview Station joint venture):
 
Commercial Property
 
Developed
 
Under Development
 
Potential Developmenta
 
Total
W Austin Hotel & Residences project:
 
 
 
 
 
 
 
Officeb
39,328

 

 

 
39,328

Retailb
18,362

 

 

 
18,362

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

 

 
90,000

 
90,000

Section N

 

 
1,500,000

 
1,500,000

Circle C:
 
 
 
 
 
 
 
Chase Bank Ground Lease
4,450

 

 

 
4,450

5700 Slaughter
21,248

 

 

 
21,248

Parkside Villageb
77,641

 
12,000

 

 
89,641

Tract 110

 

 
685,000

 
685,000

Tract 101

 

 
90,000

 
90,000

Tract 102

 

 
25,000

 
25,000

Tract 114

 

 
5,000

 
5,000

Lantana:
 
 
 
 
 
 
 
Tract GR1

 

 
325,000

 
325,000

Tract G07

 

 
160,000

 
160,000

Austin 290 Tract

 

 
20,000

 
20,000

Total Square Feet
186,480

 
12,000

 
2,921,000

 
3,119,480

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.
Owned through a joint venture.
 
W Austin Hotel & Residences project. The project has 39,328 square feet of leasable office space, including 9,000 square feet for our corporate office. The project also has 18,362 square feet of leasable retail space, all of which is leased. As of June 30, 2013, occupancy was 64 percent for the office space and 86 percent for the retail space. A lease has been signed for an additional 20 percent of the office space and leasing activities for the remaining office space are ongoing.

Barton Creek. The first phase of the Barton Creek Village includes a 22,366-square-foot retail complex and a 3,085-square-foot bank building within this retail complex. As of June 30, 2013, occupancy was 100 percent for the retail complex and the bank building is leased through January 2023.


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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). This retail project also includes a 4,450-square-foot bank building on an existing ground lease, which expires in 2025. As of June 30, 2013, occupancy was approximately 84 percent for the two retail buildings combined.

The Circle C community also includes Parkside Village, a 89,641-square-foot retail project under construction. The project consists of a 33,650-square-foot full-service movie theater and restaurant, a 13,890-square-foot medical clinic and five other retail buildings including a 14,926-square-foot building, a 10,175-square-foot building, a 7,500-square-foot building, a 4,500-square-foot building and a stand-alone 5,000-square-foot building. In February 2011, we entered into a joint venture with Moffett Holdings, LLC (Moffett Holdings) to develop Parkside Village, obtained final permits and entitlements and began construction. Construction of the final two buildings at Parkside Village is expected to be completed in early 2014 and as of June 30, 2013, occupancy of the completed 77,641 square feet was 95 percent. Of the remaining buildings under development, the 7,500-square-foot building is fully pre-leased, and leasing activities are ongoing for the 4,500-square-foot building.

Lantana. Lantana is a partially developed, mixed-use real estate development project. In August 2012, we sold eight of the remaining 11 undeveloped commercial tracts of land for $15.8 million. These tracts, which totaled approximately 154 acres, had entitlements for approximately 1.1 million square feet of office space. During first-quarter 2013, we sold a 16-acre tract for $2.1 million, which had entitlements for approximately 70,000 square feet of office space. As of June 30, 2013, we had entitlements for approximately 485,000 square feet of office and retail space on the remaining 29 acres. Regional utility and road infrastructure is in place with capacity to serve Lantana at full build-out, permitted under our existing entitlements.

Crestview Station. Crestview Station is a single-family, multi-family, retail and office development, which is located on the site of a commuter line. Crestview Station sold substantially all of its multi-family and commercial properties in 2007 and one commercial site in 2008, while retaining the single-family component. Crestview Station has entered into an agreement to sell the remaining residential land to DR Horton. The contract provides for the sale of 304 lots over four years for a total contract price of $15.8 million. The first closing of 73 lots for $3.8 million occurred in April 2012, and Crestview Station recognized gross profit on the sale of $0.4 million. The second closing of 59 lots for $3.4 million occurred in May 2013, and Crestview Station recognized gross profit on the sale of $0.7 million. At June 30, 2013, our investment in the Crestview Station project totaled $3.7 million and the joint venture partnership had $0.9 million of outstanding debt, for which each partner has executed a joint and several guaranty of $0.2 million, or 25 percent of the outstanding balance. If the third closing of 59 lots contemplated by the purchase and sale agreement does not occur by April 2014, our guaranty increases to 100 percent of the then outstanding loan balance. We account for our 50 percent interest in the Crestview Station joint venture under the equity method.


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Table of Contents


RESULTS OF OPERATIONS

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

The following table summarizes our results (in thousands):
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2013
 
2012
 
2013
 
2012
Operating income (loss):
 
 
 
 
 
 
 
Real estate operations
$
4,273

 
$
(2,115
)
 
$
5,602

 
$
(2,605
)
Hotel
660

 
307

 
1,990

 
1,237

Entertainment
78

 
164

 
475

 
622

Commercial leasing
(56
)
 
(61
)
 
(18
)
 
(140
)
Eliminations and other
(2
)
 
39

 
25

 
65

Operating income (loss)
$
4,953

 
$
(1,666
)
 
$
8,074

 
$
(821
)
Interest expense, net
$
(2,008
)
 
$
(2,967
)
 
$
(4,307
)
 
$
(6,608
)
Income from discontinued operations
$

 
$

 
$

 
$
4,805

Net income (loss)
$
2,967

 
$
(4,616
)
 
$
4,798

 
$
(2,808
)
Net (income) loss attributable to noncontrolling interests in subsidiaries
$
(2,335
)
 
$
1,058

 
$
(3,013
)
 
$
953

Net income (loss) attributable to Stratus common stock
$
632

 
$
(3,558
)
 
$
1,785

 
$
(1,855
)

We have four operating segments: Real Estate Operations, Hotel, Entertainment and Commercial Leasing (see Note 9 for further discussion). The following is a discussion of our operating results by segment.

Real Estate Operations
The following table summarizes our real estate operating results (in thousands):
 
Three Months Ended
 
Six Months Ended
 
June 30, 2013
 
June 30,
 
2013
 
2012
 
2013
 
2012
Revenues:
 
 
 
 
 
 
 
Developed property sales
$
27,843

 
$
6,620

 
$
44,501

 
$
20,721

Undeveloped property sales

 

 
2,100

 

Commissions and other
226

 
193

 
344

 
384

Total revenues
28,069

 
6,813

 
46,945

 
21,105

Cost of sales, including depreciation
23,920

 
7,480

 
39,964

 
21,033

Insurance settlement
(1,785
)
 

 
(1,785
)
 

General and administrative expenses
1,661

 
1,448

 
3,164

 
2,677

Operating income (loss)
$
4,273

 
$
(2,115
)
 
$
5,602

 
$
(2,605
)
 
 
 
 
 
 
 
 


17

Table of Contents


Developed Property Sales. Developed property sales for the 2013 and 2012 periods included the following (dollars in thousands):
 
Three Months Ended June 30,
 
2013
 
2012
 
Units/Lots
 
Revenues
 
Average Cost per Unit/Lot
 
Units/Lots
 
Revenues
 
Average Cost Per Unit/Lot
W Austin Hotel & Residences Project
 
 
 
 
 
 
 
 
 
 
 
Condominium Units
16

 
$
23,777

 
$
1,236

 
8

 
$
4,525

 
$
488

 
 
 
 
 
 
 
 
 
 
 
 
Barton Creek
 
 
 
 
 
 
 
 
 
 
 
Calera:
 
 
 
 
 
 
 
 
 
 
 
Verano Drive
8

 
2,486

 
180

 
4

 
1,350

 
199

Calera Drive
3

 
680

 
142

 

 

 

Amarra Drive:
 
 
 
 
 
 
 
 
 
 
 
Phase I Lots
1

 
300

 
259

 
2

 
745

 
313

Phase II Lots
1

 
600

 
264

 

 

 

 
 
 
 
 
 
 
 
 
 
 
 
Total Residential
29

 
$
27,843

 
 
 
14

 
$
6,620

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Six Months Ended June 30,
 
2013
 
2012
 
Units/Lots
 
Revenues
 
Average Cost per Unit/Lot
 
Units/Lots
 
Revenues
 
Average Cost per Unit/Lot
W Austin Hotel & Residences Project
 
 
 
 
 
 
 
 
 
 
 
Condominium Units
26

 
$
37,763

 
$
1,229

 
20

 
$
17,176

 
$
728

 
 
 
 
 
 
 
 
 
 
 
 
Barton Creek
 
 
 
 
 
 
 
 
 
 
 
Calera:
 
 
 
 
 
 
 
 
 
 
 
Verano Drive
15

 
4,535

 
176

 
7

 
2,185

 
172

Calera Drive
4

 
898

 
139

 
1

 
240

 
142

Amarra:
 
 
 
 
 
 
 
 
 
 
 
Phase I Lots
1

 
300

 
259

 
2

 
745

 
313

Phase II Lots
1

 
600

 
264