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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 September 30, 2007**                 |
| **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 ofincorporation                or organization) | (I.R.S.                Employer Identification No.) |
|                                                                                        |                                                |
| **98                San Jacinto Blvd., Suite 220**                                          |                                                |
| **Austin,                Texas**                                                            | **78701**                                           |
| (Address                of principal executive offices)                                     | (Zip                Code)                           |
|                                                                                        |
|                                                                                        |
| **(512)                478-5788**                                                           |
| (Registrant's                telephone number, including area code)                         |
|                                                                                        |

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| STRATUS                PROPERTIES INC.                                                                       |   |
|--------------------------------------------------------------------------------------------------------------|--------|
| TABLE                OF CONTENTS                                                                             |   |
|                                                                                                         |   |
|                                                                                                         |   |
|                                                                                                         | Page   |
| Part                I.  Financial Information                                                      | 2      |
|                                                                                                         |   |
| Item                1.  Financial                Statements:                                       |   |
|                                                                                                         |   |
| Condensed                Consolidated Balance Sheets                (Unaudited)                              | 2      |
|                                                                                                         |   |
| Condensed                Consolidated Statements of Operations                (Unaudited)                    | 3      |
|                                                                                                         |   |
| Condensed                Consolidated Statements of Cash Flows                (Unaudited)                    | 4      |
|                                                                                                         |   |
| Notes                to Condensed Consolidated Financial Statements                (Unaudited)               | 5      |
|                                                                                                         |   |
| Report                of Independent Registered Public Accounting                Firm                        | 12     |
|                                                                                                         |   |
| Item                2.  Management's Discussion and Analysis of                Financial Condition |   |
| and                Results of Operations                                                                     | 13     |
|                                                                                                         |   |
| Item                3.  Quantitative and Qualitative                Disclosures about Market Risk  | 20     |
|                                                                                                         |   |
| Item                4.  Controls and Procedures                                                    | 20     |
|                                                                                                         |   |
| Part                II.  Other Information                                                         | 21     |
|                                                                                                         |   |
| Item                1.  Legal Proceedings                                                          | 21     |
|                                                                                                         |   |
| Item                1A.  Risk Factors                                                              | 21     |
|                                                                                                         |   |
| Item                2.  Unregistered Sales of Equity                Securities and Use of Proceeds | 21     |
|                                                                                                         |   |
| Item                6.  Exhibits                                                                   | 21     |
|                                                                                                         |   |
| Signature                                                                                                    | 22     |
|                                                                                                         |   |
| Exhibit                Index                                                                                 | E-1    |
|                                                                                                         |   |

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Table      of Contents

Part      I.  FINANCIAL INFORMATION

Item      1.  Financial Statements

CONDENSED      CONSOLIDATED BALANCE SHEETS 

|                                                                         | September                30, |    | December                31, |   |
|------------------------------------------------------------------------------|------------------------------|---------|-----------------------------|--------|
|                                                                         | 2007                         |    | 2006                        |   |
| ASSETS                                                                       |                         |    |                        |   |   |   |
| Current                assets:                                               |                         |    |                        |   |   |   |
| Cash                and cash equivalents                                     | $                            | 1,475   |                        | $      | 1,620 |   |
| Restricted                cash                                               |                         | 1,611   |                        |   | 116 |   |
| Accounts                receivable                                           |                         | 1,183   |                        |   | 839 |   |
| Deposits,                prepaid expenses and other                          |                         | 430     |                        |   | 82 |   |
| Deferred                tax asset                                            |                         | 1,789   |                        |   | 1,144 |   |
| Discontinued                operations                                       |                         | 33,747  |                        |   | 34,917 |   |
| Total                current assets                                          |                         | 40,235  |                        |   | 38,718 |   |
| Real                estate, commercial leasing assets and facilities, net:   |                         |    |                        |   |   |   |
| Property                held for sale – developed or under development |                         | 126,320 |                        |   | 116,865 |   |
| Property                held for sale – undeveloped                    |                         | 16,444  |                        |   | 16,345 |   |
| Property                held for use, net                                    |                         | 24,673  |                        |   | 18,874 |   |
| Investment                in Crestview                                       |                         | 3,925   |                        |   | 3,800 |   |
| Deferred                tax asset                                            |                         | 6,728   |                        |   | 7,105 |   |
| Other                assets                                                  |                         | 2,266   |                        |   | 2,243 |   |
| Total                assets                                                  | $                            | 220,591 |                        | $      | 203,950 |   |
|                                                                         |                         |    |                        |   |   |   |
| LIABILITIES                AND STOCKHOLDERS’ EQUITY                    |                         |    |                        |   |   |   |
| Current                liabilities:                                          |                         |    |                        |   |   |   |
| Accounts                payable and accrued liabilities                      | $                            | 8,417   |                        | $      | 5,676 |   |
| Accrued                interest, property taxes and other                    |                         | 4,225   |                        |   | 5,134 |   |
| Current                portion of long-term debt                             |                         | 2,000   |                        |   | - |   |
| Discontinued                operations                                       |                         | 24,689  |                        |   | 24,678 |   |
| Total                current liabilities                                     |                         | 39,331  |                        |   | 35,488 |   |
| Long-term                debt                                                |                         | 40,000  |                        |   | 28,000 |   |
| Other                liabilities                                             |                         | 5,934   |                        |   | 6,516 |   |
| Total                liabilities                                             |                         | 85,265  |                        |   | 70,004 |   |
|                                                                         |                         |    |                        |   |   |   |
| Stockholders’                equity:                                   |                         |    |                        |   |   |   |
| Preferred                stock                                               |                         | -       |                        |   | - |   |
| Common                stock                                                  |                         | 81      |                        |   | 81 |   |
| Capital                in excess of par value of common stock                |                         | 191,084 |                        |   | 188,873 |   |
| Accumulated                deficit                                           |                         | (42,021 | )                           |   | (42,655 | ) |
| Common                stock held in treasury                                 |                         | (13,818 | )                           |   | (12,353 | ) |
| Total                stockholders’ equity                              |                         | 135,326 |                        |   | 133,946 |   |
| Total                liabilities and stockholders' equity                    | $                            | 220,591 |                        | $      | 203,950 |   |
|                                                                         |                         |    |                        |   |   |   |

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Table of Contents
CONDENSED      CONSOLIDATED STATEMENTS OF OPERATIONS      (Unaudited

|                                                                | Three                Months Ended |   | Nine                Months Ended |   |
|---------------------------------------------------------------------|-----------------------------------|--------|----------------------------------|--------|
|                                                                | September                30,      |   | September                30,     |   |
|                                                                | 2007                              |   | 2006                             |   | 2007 |   | 2006 |   |
| Revenues:                                                           |                              |   |                             |   |   |   |   |   |   |   |   |   |
| Real                estate                                          | $                                 | 7,002  |                             | $      | 7,934 |   | $ | 16,745 |   | $ | 50,686 |   |
| Rental                income                                        |                              | 766    |                             |   | 389 |   |   | 2,146 |   |   | 1,117 |   |
| Commissions,                management fees and other               |                              | 268    |                             |   | 746 |   |   | 1,249 |   |   | 1,296 |   |
| Total                revenues                                       |                              | 8,036  |                             |   | 9,069 |   |   | 20,140 |   |   | 53,099 |   |
| Cost                of sales:                                       |                              |   |                             |   |   |   |   |   |   |   |   |   |
| Real                estate, net                                     |                              | 5,662  |                             |   | 5,633 |   |   | 10,651 |   |   | 24,864 |   |
| Rental                                                              |                              | 860    |                             |   | 483 |   |   | 2,391 |   |   | 1,198 |   |
| Depreciation                                                        |                              | 411    |                             |   | 204 |   |   | 894 |   |   | 577 |   |
| Total                cost of sales                                  |                              | 6,933  |                             |   | 6,320 |   |   | 13,936 |   |   | 26,639 |   |
| General                and administrative expenses                  |                              | 1,526  |                             |   | 1,518 |   |   | 5,340 |   |   | 5,140 |   |
| Total                costs and expenses                             |                              | 8,459  |                             |   | 7,838 |   |   | 19,276 |   |   | 31,779 |   |
| Operating                (loss) income                              |                              | (423   | )                                |   | 1,231 |   |   | 864 |   |   | 21,320 |   |
| Interest                expense, net                                |                              | -      |                             |   | (3 | ) |   | (13 | ) |   | (267 | ) |
| Interest                income                                      |                              | 36     |                             |   | 102 |   |   | 572 |   |   | 304 |   |
| (Loss)                income from continuing operations             |                              |   |                             |   |   |   |   |   |   |   |   |   |
| before                income taxes                                  |                              | (387   | )                                |   | 1,330 |   |   | 1,423 |   |   | 21,357 |   |
| Benefit                from (provision for) income taxes            |                              | 74     |                             |   | 12 |   |   | (557 | ) |   | 8,304 |   |
| (Loss)                income from continuing operations             |                              | (313   | )                                |   | 1,342 |   |   | 866 |   |   | 29,661 |   |
| (Loss)                income from discontinued operations           |                              |   |                             |   |   |   |   |   |   |   |   |   |
| (including                net gain on 7000 West sale of $7,264      |                              |   |                             |   |   |   |   |   |   |   |   |   |
| in                the 2006 nine-month period)                       |                              | (32    | )                                |   | (161 | ) |   | (232 | ) |   | 7,470 |   |
| Net                (loss) income                                    | $                                 | (345   | )                                | $      | 1,181 |   | $ | 634 |   | $ | 37,131 |   |
|                                                                |                              |   |                             |   |   |   |   |   |   |   |   |   |
| Basic                net (loss) income per share of common stock:   |                              |   |                             |   |   |   |   |   |   |   |   |   |
| Continuing                operations                                | $                                 | (0.04  | )                                | $      | 0.18 |   | $ | 0.11 |   | $ | 4.07 |   |
| Discontinued                operations                              |                              | (0.01  | )                                |   | (0.02 | ) |   | (0.03 | ) |   | 1.02 |   |
| Basic                net (loss) income per share of common stock    | $                                 | (0.05  | )                                | $      | 0.16 |   | $ | 0.08 |   | $ | 5.09 |   |
|                                                                |                              |   |                             |   |   |   |   |   |   |   |   |   |
| Diluted                net (loss) income per share of common stock: |                              |   |                             |   |   |   |   |   |   |   |   |   |
| Continuing                operations                                | $                                 | (0.04  | )                                | $      | 0.18 |   | $ | 0.11 |   | $ | 3.87 |   |
| Discontinued                operations                              |                              | (0.01  | )                                |   | (0.02 | ) |   | (0.03 | ) |   | 0.98 |   |
| Diluted                net (loss) income per share of common stock  | $                                 | (0.05  | )                                | $      | 0.16 |   | $ | 0.08 |   | $ | 4.85 |   |
|                                                                |                              |   |                             |   |   |   |   |   |   |   |   |   |
| Average                shares of common stock outstanding:          |                              |   |                             |   |   |   |   |   |   |   |   |   |
| Basic                                                               |                              | 7,560  |                             |   | 7,317 |   |   | 7,559 |   |   | 7,288 |   |
| Diluted                                                             |                              | 7,560  |                             |   | 7,617 |   |   | 7,640 |   |   | 7,658 |   |
|                                                                |                              |   |                             |   |   |   |   |   |   |   |   |   |

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Table of Contents
CONDENSED      CONSOLIDATED STATEMENTS OF CASH FLOWS      (Unaudited)

|                                                                               | Nine                Months Ended |    |
|------------------------------------------------------------------------------------|----------------------------------|---------|
|                                                                               | September                30,     |    |
|                                                                               | 2007                             |    | 2006 |   |
| Cash                flow from operating activities:                                |                             |    |   |   |   |   |
| Net                income                                                          | $                                | 634     |   | $ | 37,131 |   |
| Adjustments                to reconcile net income to net cash provided by         |                             |    |   |   |   |   |
| operating                activities:                                               |                             |    |   |   |   |   |
| Loss                (income) from discontinued operations                          |                             | 232     |   |   | (7,470 | ) |
| Depreciation                                                                       |                             | 894     |   |   | 577 |   |
| Cost                of real estate sold                                            |                             | 10,163  |   |   | 20,112 |   |
| Deferred                income taxes                                               |                             | (267    | ) |   | (8,305 | ) |
| Stock-based                compensation                                            |                             | 1,020   |   |   | 894 |   |
| Excess                tax benefit from exercised stock options                     |                             | (642    | ) |   | - |   |
| Deposits                                                                           |                             | (1,044  | ) |   | 155 |   |
| (Increase)                decrease in restricted cash                              |                             | (1,495  | ) |   | 271 |   |
| Other                                                                              |                             | (335    | ) |   | (414 | ) |
| (Increase)                decrease in working capital:                             |                             |    |   |   |   |   |
| Accounts                receivable and prepaid expenses                            |                             | (16     | ) |   | (148 | ) |
| Accounts                payable, accrued liabilities and other                     |                             | 2,571   |   |   | 1,390 |   |
| Net                cash provided by continuing operations                          |                             | 11,715  |   |   | 44,193 |   |
| Net                cash provided by (used in) discontinued operations              |                             | 1,586   |   |   | (4,412 | ) |
| Net                cash provided by operating activities                           |                             | 13,301  |   |   | 39,781 |   |
|                                                                               |                             |    |   |   |   |   |
| Cash                flow from investing activities:                                |                             |    |   |   |   |   |
| Purchases                and development of real estate properties                 |                             | (27,007 | ) |   | (12,911 | ) |
| Development                of commercial leasing properties and other expenditures |                             | (1,771  | ) |   | (8,848 | ) |
| Municipal                utility district reimbursements                           |                             | 2,557   |   |   | 1,337 |   |
| Investment                in Crestview                                             |                             | (125    | ) |   | - |   |
| Net                cash used in continuing operations                              |                             | (26,346 | ) |   | (20,422 | ) |
| Net                cash (used in) provided by discontinued operations              |                             | (113    | ) |   | 2,275 |   |
| Net                cash used in investing activities                               |                             | (26,459 | ) |   | (18,147 | ) |
|                                                                               |                             |    |   |   |   |   |
| Cash                flow from financing activities:                                |                             |    |   |   |   |   |
| Borrowings                from revolving credit facility                           |                             | 17,450  |   |   | 15,000 |   |
| Payments                on revolving credit facility                               |                             | (18,450 | ) |   | (30,677 | ) |
| Borrowings                from unsecured term loans                                |                             | 15,000  |   |   | - |   |
| Borrowings                from project loans                                       |                             | -       |   |   | 1,214 |   |
| Repayments                on project loans                                         |                             | -       |   |   | (15,904 | ) |
| Net                proceeds from exercised stock options                           |                             | 13      |   |   | 917 |   |
| Excess                tax benefit from exercised stock options                     |                             | 642     |   |   | - |   |
| Purchases                of Stratus common shares                                  |                             | (1,118  | ) |   | (542 | ) |
| Bank                credit facility fees                                           |                             | -       |   |   | (421 | ) |
| Net                cash provided by (used in) continuing operations                |                             | 13,537  |   |   | (30,413 | ) |
| Net                cash (used in) provided by discontinued operations              |                             | (232    | ) |   | 12,814 |   |
| Net                cash provided by (used in) financing activities                 |                             | 13,305  |   |   | (17,599 | ) |
| Net                increase in cash and cash equivalents                           |                             | 147     |   |   | 4,035 |   |
| Cash                and cash equivalents at beginning of year                      |                             | 1,839   |   |   | 1,514 |   |
| Cash                and cash equivalents at end of period                          |                             | 1,986   |   |   | 5,549 |   |
| Less                cash at discontinued operations                                |                             | (511    | ) |   | (548 | ) |
| Cash                and cash equivalents at end of period                          | $                                | 1,475   |   | $ | 5,001 |   |
|                                                                               |                             |    |   |   |   |   |

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Table of Contents

**STRATUS      PROPERTIES INC.**

**NOTES      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS      (UNAUDITED)**

| **1.  ** | **GENERAL** |
|--------------------|-------------|

| **2.  ** | **EARNINGS                PER SHARE** |
|--------------------|---------------------------------------|

|                                                                | Three                Months Ended |   | Nine                Months Ended |   |
|---------------------------------------------------------------------|-----------------------------------|--------|----------------------------------|--------|
|                                                                | September                30,      |   | September                30,     |   |
|                                                                | 2007                              |   | 2006                             |   | 2007 |   | 2006 |   |
| (Loss)                income from continuing operations             | $                                 | (313   | )                                | $      | 1,342 |   | $ | 866 |   | $ | 29,661 |   |
| (Loss)                income from discontinued operations           |                              | (32    | )                                |   | (161 | ) |   | (232 | ) |   | 7,470 |   |
| Net                (loss) income                                    | $                                 | (345   | )                                | $      | 1,181 |   | $ | 634 |   | $ | 37,131 |   |
|                                                                |                              |   |                             |   |   |   |   |   |   |   |   |   |
| Weighted                average common shares outstanding           |                              | 7,560  |                             |   | 7,317 |   |   | 7,559 |   |   | 7,288 |   |
| Add:  Dilutive                stock options               |                              | -      |                             |   | 271 |   |   | 67 |   |   | 330 |   |
| Restricted                stock                                     |                              | -      |                             |   | 29 |   |   | 14 |   |   | 40 |   |
| Weighted                average common shares outstanding for       |                              |   |                             |   |   |   |   |   |   |   |   |   |
| purposes                of calculating diluted net (loss) income    |                              |   |                             |   |   |   |   |   |   |   |   |   |
| per                share                                            |                              | 7,560  |                             |   | 7,617 |   |   | 7,640 |   |   | 7,658 |   |
|                                                                |                              |   |                             |   |   |   |   |   |   |   |   |   |
| Diluted                net (loss) income per share of common stock: |                              |   |                             |   |   |   |   |   |   |   |   |   |
| Continuing                operations                                | $                                 | (0.04  | )                                | $      | 0.18 |   | $ | 0.11 |   | $ | 3.87 |   |
| Discontinued                operations                              |                              | (0.01  | )                                |   | (0.02 | ) |   | (0.03 | ) |   | 0.98 |   |
| Diluted                net (loss) income per share of common stock  | $                                 | (0.05  | )                                | $      | 0.16 |   | $ | 0.08 |   | $ | 4.85 |   |
|                                                                |                              |   |                             |   |   |   |   |   |   |   |   |   |

| **3.  ** | **DEBT                OUTSTANDING** |
|--------------------|-------------------------------------|

| ·   | $2.0                million of borrowings under the $45.0 million Comerica revolving                credit                facility which will mature on May 30,                2008. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | $40.0                million of borrowings outstanding under seven unsecured term loans,                including two $5.0 million loans, two $8.0 million loans, a $7.0                million                loan and two $3.5 million loans, all of which will mature in December                2011. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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Table of Contents

| **4.  ** | **RESTRICTED                CASH, INTEREST COST AND STOCK-BASED                COMPENSATION** |
|--------------------|-----------------------------------------------------------------------------------------------|

|                                                                    | Three                Months Ended |   | Nine                Months Ended |   |
|-------------------------------------------------------------------------|-----------------------------------|--------|----------------------------------|--------|
|                                                                    | September                30,      |   | September                30,     |   |
|                                                                    | 2007                              |   | 2006                             |   | 2007 |   | 2006 |   |
| Stock                options awarded to employees (including directors) | $                                 | 153    |                             | $      | 167 |   | $ | 388 |   | $ | 449 |   |
| Stock                options awarded to nonemployees                    |                              | -      |                             |   | - |   |   | - |   |   | 2 |   |
| Restricted                stock units                                   |                              | 156    |                             |   | 111 |   |   | 821 |   |   | 681 |   |
| Less                capitalized amounts                                 |                              | (48    | )                                |   | (63 | ) |   | (189 | ) |   | (238 | ) |
| Impact                on (loss) income from continuing operations       |                              |   |                             |   |   |   |   |   |   |   |   |   |
| before                income taxes                                      | $                                 | 261    |                             | $      | 215 |   | $ | 1,020 |   | $ | 894 |   |
|                                                                    |                              |   |                             |   |   |   |   |   |   |   |   |   |

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Table      of Contents

|                                                    | 2007   |   | 2006   |   |
|---------------------------------------------------------|--------|--------|--------|--------|
| Options                granted                          |   | 7,500  |   |   | 7,500 |   |
| Grant-date                fair value per stock option   | $      | 16.30  |   | $      | 14.57 |   |
| Expected                and weighted average volatility |   | 41.8   | %      |   | 48.6 | % |
| Expected                life of options (in years)      |   | 6.7    |   |   | 6.7 |   |
| Risk-free                interest rate                  |   | 4.4    | %      |   | 4.7 | % |

| **5.  ** | **DISCONTINUED                OPERATIONS** |
|--------------------|--------------------------------------------|

|                                                      | Three                Months Ended |   | Nine                Months Ended |   |
|-----------------------------------------------------------|-----------------------------------|--------|----------------------------------|--------|
|                                                      | September                30,      |   | September                30,     |   |
|                                                      | 2007                              |   | 2006                             |   | 2007 |   | 2006 |   |
|                                                      |                              |   |                             |   |   |   |   |   |   |   |   |   |
| Escarpment                Village                         | $                                 | (49    | )                                | $      | (77 | ) | $ | (357 | ) | $ | (147 | ) |
| 7000                West                                  |                              | -      |                             |   | - |   |   | - |   |   | 10,202 |   |
| (Loss)                income before income taxes from     |                              |   |                             |   |   |   |   |   |   |   |   |   |
| discontinued                operations                    |                              | (49    | )                                |   | (77 | ) |   | (357 | ) |   | 10,055 |   |
| Benefit                from (provision for) income taxes  |                              | 17     |                             |   | (84 | ) |   | 125 |   |   | (2,585 | ) |
| (Loss)                income from discontinued operations | $                                 | (32    | )                                | $      | (161 | ) | $ | (232 | ) | $ | 7,470 |   |
|                                                      |                              |   |                             |   |   |   |   |   |   |   |   |   |

|                                               | Three                Months Ended |   | Nine                Months Ended |   |
|----------------------------------------------------|-----------------------------------|--------|----------------------------------|--------|
|                                               | September                30,      |   | September                30,     |   |
|                                               | 2007                              |   | 2006                             |   | 2007 |   | 2006 |   |
| Rental                income                       | $                                 | 825    |                             | $      | 781 |   | $ | 2,582 |   | $ | 1,316 |   |
| Rental                property costs               |                              | (375   | )                                |   | (227 | ) |   | (1,271 | ) |   | (414 | ) |
| Depreciation                                       |                              | (154   | )                                |   | (254 | ) |   | (680 | ) |   | (466 | ) |
| General                and administrative expenses |                              | (38    | )                                |   | (65 | ) |   | (71 | ) |   | (65 | ) |
| Interest                expensea                   |                              | (328   | )                                |   | (332 | ) |   | (987 | ) |   | (538 | ) |
| Interest                income                     |                              | 21     |                             |   | 20 |   |   | 70 |   |   | 20 |   |
| Benefit                from income taxes           |                              | 17     |                             |   | - |   |   | 125 |   |   | - |   |
| Loss                from discontinued operations   | $                                 | (32    | )                                | $      | (77 | ) | $ | (232 | ) | $ | (147 | ) |
|                                               |                              |   |                             |   |   |   |   |   |   |   |   |   |

| a.   | Relates                to interest expense from the Escarpment Village project loan and                the                Escarpment Village loan from TIAA and does not include any additional                allocations of interest. |
|----------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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Table of Contents
|                                                         | September                30, 2007 |    | December                31, 2006 |   |
|--------------------------------------------------------------|-----------------------------------|---------|----------------------------------|--------|
| Assets:                                                      |                              |    |                             |   |   |   |
| Cash                and cash equivalents                     | $                                 | 511     |                             | $      | 219 |   |
| Current                assets                                |                              | 3,142   |                             |   | 3,713 |   |
| Property                held for use, net of accumulated     |                              |    |                             |   |   |   |
| depreciation                of $1,407 and $727, respectively |                              | 26,405  |                             |   | 27,828 |   |
| Long-term                assets                              |                              | 3,689   |                             |   | 3,157 |   |
| Total                assets                                  | $                                 | 33,747  |                             | $      | 34,917 |   |
| Liabilities:                                                 |                              |    |                             |   |   |   |
| Current                portion of long-term debt             | $                                 | (325    | )                                | $      | (311 | ) |
| Other                current liabilities                     |                              | (2,138  | )                                |   | (1,468 | ) |
| Long-term                debt                                |                              | (22,119 | )                                |   | (22,364 | ) |
| Other                long-term liabilities                   |                              | (107    | )                                |   | (535 | ) |
| Total                liabilities                             | $                                 | (24,689 | )                                | $      | (24,678 | ) |
|                                                         |                              |    |                             |   |   |   |

|                                                      | Three                Months       |   | Nine                Months        |   |
|-----------------------------------------------------------|-----------------------------------|--------|-----------------------------------|--------|
|                                                      | Ended                             |   | Ended                             |   |
|                                                      | September                30, 2006 |   | September                30, 2006 |   |
| Rental                income                              | $                                 | -      |                              | $      | 1,057 |   |
| Rental                property costs                      |                              | -      |                              |   | (403 | ) |
| General                and administrative expenses        |                              | -      |                              |   | (48 | ) |
| Interest                expensea                          |                              | -      |                              |   | (168 | ) |
| Interest                income                            |                              | -      |                              |   | 2 |   |
| Gain                on sale                               |                              | -      |                              |   | 9,762 |   |
| Provision                for income taxes                 |                              | (84    | )b                                |   | (2,585 | ) |
| (Loss)                income from discontinued operations | $                                 | (84    | )                                 | $      | 7,617 |   |
|                                                      |                              |   |                              |   |   |   |

| a.   | Relates                to interest expense from 7000 West project loan and does not include                any                additional allocations of interest. |
|----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| b.   | Reflects                the allocation of Stratus’ third-quarter 2006 tax provision to                discontinued operations in accordance with income tax accounting                rules. |
|----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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Table of Contents
| **6.  ** | **BUSINESS                SEGMENTS** |
|--------------------|--------------------------------------|

|                                                 | Real                Estate Operationsa |    | Commercial                Leasing |   | Other  |   | Total  |   |
|------------------------------------------------------|---------------------------------------------|---------|-----------------------------------|--------|--------|--------|--------|--------|
|                                                 | (In                Thousands)               |    |
| Three                Months Ended September 30, 2007 |                                        |    |                              |   |   |   |   |   |   |   |   |   |
| Revenues                                             | $                                           | 7,270   |                              | $      | 766    |   | $      | -      |   | $ | 8,036 |   |
| Cost                of sales, excluding depreciation |                                        | (5,662  | )                                 |   | (860   | )      |   | -      |   |   | (6,522 | ) |
| Depreciation                                         |                                        | (45     | )                                 |   | (366   | )      |   | -      |   |   | (411 | ) |
| General                and administrative expenses   |                                        | (1,345  | )                                 |   | (181   | )      |   | -      |   |   | (1,526 | ) |
| Operating                (loss) income               | $                                           | 218     |                              | $      | (641   | )      | $      | -      |   | $ | (423 | ) |
| Loss                from discontinued operations     | $                                           | -       |                              | $      | (32    | )      | $      | -      |   | $ | (32 | ) |
| Benefit                from income taxes             | $                                           | 74      |                              | $      | -      |   | $      | -      |   | $ | 74 |   |
| Capital                expenditures                  | $                                           | 9,859   |                              | $      | 1,528  |   | $      | -      |   | $ | 11,387 |   |
| Total                assets                          | $                                           | 150,030 |                              | $      | 61,688 | b      | $      | 8,873  | c | $ | 220,591 |   |
|                                                 |                                        |    |                              |   |   |   |   |   |   |   |   |   |
| Three                Months Ended September 30, 2006 |                                        |    |                              |   |   |   |   |   |   |   |   |   |
| Revenues                                             | $                                           | 8,680   |                              | $      | 389    |   | $      | -      |   | $ | 9,069 |   |
| Cost                of sales, excluding depreciation |                                        | (5,633  | )                                 |   | (483   | )      |   | -      |   |   | (6,116 | ) |
| Depreciation                                         |                                        | (29     | )                                 |   | (175   | )      |   | -      |   |   | (204 | ) |
| General                and administrative expense    |                                        | (1,425  | )                                 |   | (93    | )      |   | -      |   |   | (1,518 | ) |
| Operating                (loss) income               | $                                           | 1,593   |                              | $      | (362   | )      | $      | -      |   | $ | 1,231 |   |
| Loss                from discontinued operations     | $                                           | -       |                              | $      | (161   | )      | $      | -      |   | $ | (161 | ) |
| Benefit                from income taxes             | $                                           | 12      |                              | $      | -      |   | $      | -      |   | $ | 12 |   |
| Capital                expenditures                  | $                                           | 6,327   |                              | $      | 3,391  |   | $      | -      |   | $ | 9,718 |   |
| Total                assets                          | $                                           | 124,481 |                              | $      | 56,743 | b      | $      | 8,342  | c | $ | 189,566 |   |
|                                                 |                                        |    |                              |   |   |   |   |   |   |   |   |   |
| Nine                Months Ended September 30, 2007  |                                        |    |                              |   |   |   |   |   |   |   |   |   |
| Revenues                                             | $                                           | 17,994  |                              | $      | 2,146  |   | $      | -      |   | $ | 20,140 |   |
| Cost                of sales, excluding depreciation |                                        | (10,651 | )                                 |   | (2,391 | )      |   | -      |   |   | (13,042 | ) |
| Depreciation                                         |                                        | (115    | )                                 |   | (779   | )      |   | -      |   |   | (894 | ) |
| General                and administrative expenses   |                                        | (4,653  | )                                 |   | (687   | )      |   | -      |   |   | (5,340 | ) |
| Operating                (loss) income               | $                                           | 2,575   |                              | $      | (1,711 | )      | $      | -      |   | $ | 864 |   |
| Loss                from discontinued operations     | $                                           | -       |                              | $      | (232   | )      | $      | -      |   | $ | (232 | ) |
| Provision                for income taxes            | $                                           | (557    | )                                 | $      | -      |   | $      | -      |   | $ | (557 | ) |
| Capital                expenditures                  | $                                           | 27,007  |                              | $      | 1,771  |   | $      | -      |   | $ | 28,778 |   |
|                                                 |                                        |    |                              |   |   |   |   |   |   |   |   |   |

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Table of Contents
|                                                 | Real                Estate Operationsa |    | Commercial                Leasing |   | Other  |   | Total  |   |
|------------------------------------------------------|----------------------------------------|---------|-----------------------------------|--------|--------|--------|--------|--------|
|                                                 | (In                Thousands)          |    |
| Nine                Months Ended September 30, 2006  |                                   |    |                              |   |   |   |   |   |   |   |   |   |
| Revenues                                             | $                                      | 51,982  |                              | $      | 1,117  |   | $      | -      |   | $ | 53,099 |   |
| Cost                of sales, excluding depreciation |                                   | (24,864 | )                                 |   | (1,198 | )      |   | -      |   |   | (26,062 | ) |
| Depreciation                                         |                                   | (96     | )                                 |   | (481   | )      |   | -      |   |   | (577 | ) |
| General                and administrative expense    |                                   | (4,728  | )                                 |   | (412   | )      |   | -      |   |   | (5,140 | ) |
| Operating                (loss) income               | $                                      | 22,294  |                              | $      | (974   | )      | $      | -      |   | $ | 21,320 |   |
| Income                from discontinued operations   | $                                      | -       |                              | $      | 7,470  | d      | $      | -      |   | $ | 7,470 |   |
| Benefit                from income taxes             | $                                      | 8,304   |                              | $      | -      |   | $      | -      |   | $ | 8,304 |   |
| Capital                expenditures                  | $                                      | 12,911  |                              | $      | 8,848  |   | $      | -      |   | $ | 21,759 |   |
|                                                 |                                   |    |                              |   |   |   |   |   |   |   |   |   |

| a.   | Includes                sales commissions, management fees and other revenues together with                related expenses. |
|----------------|------------------------------------------------------------------------------------------------------------------------------|

| b.   | Includes                assets from the discontinued operations of Escarpment Village, which                Stratus sold on October 12, 2007, totaling $33.7 million, net of                accumulated depreciation of $1.4 million, at September 30, 2007,                and $35.0                million, net of accumulated depreciation of $0.5 million, at September                30,                2006 (see Note 5). |
|----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| c.   | Includes                deferred tax assets resulting from the reversal of a portion of Stratus’                deferred tax asset valuation allowance which was recorded as a benefit                from income taxes (see Note 7). |
|----------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| d.   | Includes                a $7.3 million gain, net of taxes of $2.5 million, on the sale of                7000                West. |
|----------------|------------------------------------------------------------------------------------------------------------------------------------|

| **7.  ** | **INCOME                TAXES** |
|--------------------|---------------------------------|

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Table of Contents
| **8.  ** | **NEW                ACCOUNTING STANDARDS** |
|--------------------|---------------------------------------------|

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Table of Contents
REVIEW      BY INDEPENDENT REGISTERED PUBLIC ACCOUNTING      FIRM

** **

**/s/      PricewaterhouseCoopers LLP**

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Table of Contents
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 2006 Annual Report      on Form 10-K (2006 Form 10-K). 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 Condensed Consolidated Financial      Statements, unless otherwise stated.*

**BUSINESS      STRATEGY**

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Table of Contents

**DEVELOPMENT      AND OTHER ACTIVITIES**

*Block      21.*

*Lantana.*

*Barton      Creek Community.*

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Table of Contents
*Circle      C Community. *

*Deerfield.*

*Crestview      Station.*

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Table of Contents
**RESULTS      OF OPERATIONS**

|                                                      | Third                Quarter |   | Nine                Months |   |
|-----------------------------------------------------------|------------------------------|--------|----------------------------|--------|
|                                                      | 2007                         |   | 2006                       |   | 2007 |   | 2006 |   |
| Revenues:                                                 |                         |   |                       |   |   |   |   |   |   |   |   |   |
| Real                estate operations                     | $                            | 7,270  |                       | $      | 8,680 |   | $ | 17,994 |   | $ | 51,982 |   |
| Commercial                leasing                         |                         | 766    |                       |   | 389 |   |   | 2,146 |   |   | 1,117 |   |
| Total                revenues                             | $                            | 8,036  |                       | $      | 9,069 |   | $ | 20,140 |   | $ | 53,099 |   |
|                                                      |                         |   |                       |   |   |   |   |   |   |   |   |   |
| Operating                (loss) income                    | $                            | (423   | )                          | $      | 1,231 |   | $ | 864 |   | $ | 21,320 |   |
|                                                      |                         |   |                       |   |   |   |   |   |   |   |   |   |
| Benefit                from (provision for) income taxes  | $                            | 74     |                       | $      | 12 |   | $ | (557 | ) | $ | 8,304 |   |
|                                                      |                         |   |                       |   |   |   |   |   |   |   |   |   |
| (Loss)                income from continuing operations   | $                            | (313   | )                          | $      | 1,342 |   | $ | 866 |   | $ | 29,661 |   |
| (Loss)                income from discontinued operations |                         | (32    | )                          |   | (161 | ) |   | (232 | ) |   | 7,470 |   |
| Net                (loss) income                          | $                            | (345   | )                          | $      | 1,181 |   | $ | 634 |   | $ | 37,131 |   |
|                                                      |                         |   |                       |   |   |   |   |   |   |   |   |   |

**Real      Estate Operations**

|                                                  | Third                Quarter |   | Nine                Months |   |
|-------------------------------------------------------|------------------------------|--------|----------------------------|--------|
|                                                  | 2007                         |   | 2006                       |   | 2007 |   | 2006 |   |
| Revenues:                                             |                         |   |                       |   |   |   |   |   |   |   |   |   |
| Developed                property sales               | $                            | 7,002  |                       | $      | 7,934 |   | $ | 15,662 |   | $ | 28,441 |   |
| Undeveloped                property sales             |                         | -      |                       |   | - |   |   | 1,083 |   |   | 22,245 |   |
| Commissions,                management fees and other |                         | 268    |                       |   | 746 |   |   | 1,249 |   |   | 1,296 |   |
| Total                revenues                         |                         | 7,270  |                       |   | 8,680 |   |   | 17,994 |   |   | 51,982 |   |
|                                                  |                         |   |                       |   |   |   |   |   |   |   |   |   |
| Cost                of sales, including depreciation  |                         | (5,707 | )                          |   | (5,662 | ) |   | (10,766 | ) |   | (24,960 | ) |
| General                and administrative expenses    |                         | (1,345 | )                          |   | (1,425 | ) |   | (4,653 | ) |   | (4,728 | ) |
|                                                  |                         |   |                       |   |   |   |   |   |   |   |   |   |
| Operating                income                       | $                            | 218    |                       | $      | 1,593 |   | $ | 2,575 |   | $ | 22,294 |   |
|                                                  |                         |   |                       |   |   |   |   |   |   |   |   |   |

*Developed      Property Sales.  *

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Table of Contents
|                                        | Third                Quarter |   |
|---------------------------------------------|------------------------------|--------|
|                                        | 2007                         |   | 2006 |   |
|                                        | Lots                         |   | Revenues |   | Lots |   | Revenues |   |
| *Residential                Properties:*    |                         |   |   |   |   |   |   |   |
| Barton                Creek                 |                         |   |   |   |   |   |   |   |
| Calera                Drive                 | -                            |   | $  - |   | 5 |   | $2,065 |   |
| Calera                Court Courtyard Homes | 1                            |   | 657 |   | 1 |   | 610 |   |
| Mirador                Estate               | -                            |   | - |   | 1 |   | 553 |   |
| Wimberly                Lane Phase II       |                         |   |   |   |   |   |   |   |
| Standard                Homebuilder         | 3                            |   | 516 |   | 4 |   | 686 |   |
| Amarra                Drive Phase I         | 1                            |   | 1,250 |   | - |   | - |   |
|                                        |                         |   |   |   |   |   |   |   |
| Circle                C                     |                         |   |   |   |   |   |   |   |
| Meridian                                    | 58                           |   | 3,575 |   | 51 |   | 3,013 |   |
|                                        |                         |   |   |   |   |   |   |   |
| Deerfield                                   | 15                           |   | 1,004 |   | 15 |   | 1,007 |   |
| Total                Residential            | 78                           |   | $7,002 |   | 77 |   | $7,934 |   |
|                                        |                         |   |   |   |   |   |   |   |

|                                        | Nine                Months |   |
|---------------------------------------------|----------------------------|--------|
|                                        | 2007                       |   | 2006 |   |
|                                        | Lots                       |   | Revenues |   | Lots |   | Revenues |   |
| *Residential                Properties:*    |                       |   |   |   |   |   |   |   |
| Barton                Creek                 |                       |   |   |   |   |   |   |   |
| Calera                Drive                 | 2                          |   | $809 |   | 23 |   | $9,919 |   |
| Calera                Court Courtyard Homes | 1                          |   | 657 |   | 5 |   | 2,922 |   |
| Mirador                Estate               | 2                          |   | 1,559 |   | 6 |   | 3,306 |   |
| Wimberly                Lane Phase II       |                       |   |   |   |   |   |   |   |
| Standard                Homebuilder         | 9                          |   | 1,561 |   | 9 |   | 1,469 |   |
| Amarra                Drive Phase I         | 1                          |   | 1,250 |   | - |   | - |   |
|                                        |                       |   |   |   |   |   |   |   |
| Circle                C                     |                       |   |   |   |   |   |   |   |
| Meridian                                    | 106                        |   | 6,814 |   | 133 |   | 7,804 |   |
|                                        |                       |   |   |   |   |   |   |   |
| Deerfield                                   | 45                         |   | 3,012 |   | 45 |   | 3,021 |   |
| Total                Residential            | 166                        |   | $15,662 |   | 221 |   | $28,441 |   |
|                                        |                       |   |   |   |   |   |   |   |

*Undeveloped      Property Sales.*

*Commissions,      Management Fees and Other.*

*Cost      of Sales.*

**Commercial      Leasing**

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Table of Contents

|                                               | Third                Quarter |   | Nine                Months |   |
|----------------------------------------------------|------------------------------|--------|----------------------------|--------|
|                                               | 2007                         |   | 2006                       |   | 2007 |   | 2006 |   |
| Rental                income                       | $                            | 766    |                       | $      | 389 |   | $ | 2,146 |   | $ | 1,117 |   |
| Rental                property costs               |                         | (860   | )                          |   | (483 | ) |   | (2,391 | ) |   | (1,198 | ) |
| Depreciation                                       |                         | (366   | )                          |   | (175 | ) |   | (779 | ) |   | (481 | ) |
| General                and administrative expenses |                         | (181   | )                          |   | (93 | ) |   | (687 | ) |   | (412 | ) |
| Operating                loss                      | $                            | (641   | )                          | $      | (362 | ) | $ | (1,711 | ) | $ | (974 | ) |
|                                               |                         |   |                       |   |   |   |   |   |   |   |   |   |

**Other      Financial Results**

**Non-Operating      Results**

**DISCONTINUED      OPERATIONS**

**CAPITAL      RESOURCES AND LIQUIDITY**

**Comparison      of Nine-Months 2007 and 2006 Cash Flows**

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Table      of Contents

**Credit      Facility and Other Financing Arrangements**

| ·   | $2.0                million of borrowings under the $45.0 million Comerica revolving                credit                facility which will mature on May 30,                2008. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | $40.0                million of borrowings outstanding under seven unsecured term loans,                including two $5.0 million loans, two $8.0 million loans, a $7.0                million                loan and two $3.5 million loans, all of which will mature in December                2011. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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Table      of Contents

**STOCK-BASED      COMPENSATION**

|                                               | Three                Months Ended |   | Nine                Months Ended |   |
|----------------------------------------------------|-----------------------------------|--------|----------------------------------|--------|
|                                               | September                30,      |   | September                30,     |   |
|                                               | 2007                              |   | 2006                             |   | 2007 |   | 2006 |   |
| Cost                of sales                       | $                                 | 101    |                             | $      | 71 |   | $ | 393 |   | $ | 266 |   |
| General                and administrative expenses |                              | 160    |                             |   | 144 |   |   | 627 |   |   | 628 |   |
| Total                stock-based compensation cost | $                                 | 261    |                             | $      | 215 |   | $ | 1,020 |   | $ | 894 |   |
|                                               |                              |   |                             |   |   |   |   |   |   |   |   |   |

**CAUTIONARY      STATEMENT**

Item      3.  Quantitative and Qualitative Disclosures      about Market Risk.

Item      4.  Controls and Procedures.

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Table of Contents
**PART      II. – OTHER INFORMATION**

Item      1.  Legal Proceedings.

Item      1A.  Risk Factors.

Item      2.  Unregistered Sales of Equity      Securities and Use of Proceeds.

|                                   |   |                                                 |   |                                                                      |   |                            | Current                Programa |
|----------------------------------------|--------|------------------------------------------------------|--------|---------------------------------------------------------------------------|--------|---------------------------------|---------------------------------|
| Period                                 |   | Total                Shares                Purchased |   | Average                Price                Paid Per                Share |   | Shares                Purchased |                            | Shares                Available                for                Purchase |
|                                   |   |                                                 |   |                                                                      |   |                            |                            |   |   |
| July                1 to 31, 2007      |   | -                                                    |   | $                                                                         | -      |                            | -                               |   | 465,410 |
|                                   |   |                                                 |   |                                                                      |   |                            |                            |   |   |
| August                1 to 31, 2007    |   | 16,008                                               |   |                                                                      | 32.40  |                            | 16,008                          |   | 449,402 |
|                                   |   |                                                 |   |                                                                      |   |                            |                            |   |   |
| September                1 to 30, 2007 |   | 13,456                                               |   |                                                                      | 31.01  |                            | 13,456                          |   | 435,946 |
|                                   |   |                                                 |   |                                                                      |   |                            |                            |   |   |
| Total                                  |   | 29,464                                               |   | $                                                                         | 31.77  |                            | 29,464                          |   |   |
|                                   |   |                                                 |   |                                                                      |   |                            |                            |   |   |

| a.   | In                February 2001, our Board of Directors approved an open market share                purchase program for up to 0.7 million shares of our common stock.                The                program does not have an expiration date. Our loan agreement with                Comerica                provides a limit of $6.5 million for common stock purchases after                September 30, 2005. At September 30, 2007, $4.8 million remained                under the                Comerica agreement for purchases of common                stock. |
|----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

Item      6.  Exhibits.

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Table of Contents
**SIGNATURE**

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Table of Contents
**STRATUS      PROPERTIES INC.**

**EXHIBIT      INDEX**

| 3.1    | Amended                and Restated Certificate of Incorporation of Stratus. Incorporated                by                reference to Exhibit 3.1 to the Quarterly Report on Form 10-Q of                Stratus                for the quarter ended March 31, 2004 (Stratus’ 2004 First Quarter Form                10-Q).                                                                                                                                                                                                                                                                          |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 3.2    | Certificate                of Amendment to the Amended and Restated Certificate of Incorporation                of                Stratus, dated May 14, 1998. Incorporated by reference to Exhibit                3.2 to                Stratus’ 2004 First Quarter Form 10-Q.                                                                                                                                                                                                                                                                                                                         |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 3.3    | Certificate                of Amendment to the Amended and Restated Certificate of Incorporation                of                Stratus, dated May 25, 2001. Incorporated by reference to Exhibit                3.2 to                the Annual Report on Form 10-K of Stratus for the year ended December                31,                2001 (Stratus’ 2001 Form 10-K).                                                                                                                                                                                                                        |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 3.4    | By-laws                of Stratus, as amended as of February 11, 1999. Incorporated by reference                to Exhibit 3.4 to Stratus’ 2004 First Quarter Form                10-Q.                                                                                                                                                                                                                                                                                                                                                                                                                 |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 4.1    | Rights                Agreement dated as of May 16, 2002, between Stratus and Mellon Investor                Services LLP, as Rights Agent, which includes the Certificates of                Designation of Series C Participating Preferred Stock; the Forms                of Rights                Certificate Assignment, and Election to Purchase; and the Summary                of                Rights to Purchase Preferred Shares. Incorporated by reference to                Exhibit                4.1 to Stratus’ Registration Statement on Form 8-A dated May 22,                2002. |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 4.2    | Amendment                No. 1 to Rights Agreement between Stratus Properties Inc. and Mellon                Investor Services LLC, as Rights Agent, dated as of November 7, 2003.                Incorporated by reference to Exhibit 4.1 to the Current Report on                Form 8-K                of Stratus dated November 7, 2003.                                                                                                                                                                                                                                                                 |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.1   | Modification                and Extension Agreement by and between Stratus Properties Inc., Stratus                Properties Operating Co., L.P., Circle C Land, L.P., Austin 290                Properties, Inc., Calera Court, L.P., and Comerica Bank effective                July 19,                2006. Incorporated by reference to Exhibit 10.1 to the Current Report                on                Form 8-K of Stratus dated July 19, 2006.                                                                                                                                                    |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.2   | Loan                Agreement by and between Stratus Properties Inc., Stratus Properties                Operating Co., L.P., Circle C Land, L.P., Austin 290 Properties,                Inc.,                Calera Court, L.P., and Comerica Bank dated as of September 30, 2005.                Incorporated by reference to Exhibit 10.1 to the Current Report on                Form                8-K of Stratus dated September 30, 2005.                                                                                                                                                              |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.3   | Revolving                Promissory Note by and between Stratus Properties Inc., Stratus Properties                Operating Co., L.P., Circle C Land, L.P., Austin 290 Properties,                Inc.,                Calera Court, L.P., and Comerica Bank dated as of September 30, 2005.                Incorporated by reference to Exhibit 10.2 to the Current Report on                Form                8-K of Stratus dated September 30, 2005.                                                                                                                                                   |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.4   | Loan                Agreement dated December 28, 2000, by and between Stratus Properties                Inc.                and Holliday Fenoglio Fowler, L.P., subsequently assigned to an affiliate                of First American Asset Management. Incorporated by reference to                Exhibit                10.20 to the Annual Report on Form 10-K of Stratus for the year ended                December 31, 2000.                                                                                                                                                                           |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.5   | Loan                Agreement dated June 14, 2001, by and between Stratus Properties                Inc. and                Holliday Fenoglio Fowler, L.P., subsequently assigned to an affiliate                of                First American Asset Management. Incorporated by reference to Exhibit                10.20 to the Quarterly Report on Form 10-Q of Stratus for the quarter                ended September 30, 2001.                                                                                                                                                                        |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.6   | Construction                Loan Agreement dated June 11, 2001, between 7500 Rialto Boulevard,                L.P.                and Comerica Bank-Texas. Incorporated by Reference to Exhibit 10.26                to                Stratus’ 2001 Form 10-K.                                                                                                                                                                                                                                                                                                                                         |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.7   | Modification                Agreement dated January 31, 2003, by and between Lantana Office Properties                I, L.P., formerly 7500 Rialto Boulevard, L.P., and Comerica Bank-Texas.                Incorporated by reference to Exhibit 10.19 to the Quarterly Report                on Form                10-Q of Stratus for the quarter ended March 31,                2003.                                                                                                                                                                                                                    |

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Table of Contents

| 10.8   | Second                Modification Agreement dated as of December 29, 2003, to be effective                as                of January 31, 2004, by and between Lantana Office Properties I,                L.P., a                Texas limited partnership (formerly known as 7500 Rialto Boulevard,                L.P.),                as borrower, and Comerica Bank, as lender. Incorporated by reference                to                Exhibit 10.20 to the Annual Report on Form 10-K of Stratus for the                year                ended December 31, 2003 (Stratus’ 2003 Form 10-K). |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.9   | Guaranty                Agreement dated June 11, 2001, by Stratus Properties Inc. in favor                of                Comerica Bank-Texas. Incorporated by Reference to Exhibit 10.27 to                Stratus’ 2001 Form 10-K.                                                                                                                                                                                                                                                                                                                                                                      |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.10  | Loan                Agreement dated September 22, 2003, by and between Calera Court,                L.P., as                borrower, and Comerica Bank, as lender. Incorporated by reference                to                Exhibit 10.26 to the Quarterly Report on Form 10-Q of Stratus for                the                quarter ended September 30, 2003.                                                                                                                                                                                                                                              |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.11  | Development                Agreement dated August 15, 2002, between Circle C Land Corp. and                City of                Austin. Incorporated by reference to Exhibit 10.18 to the Quarterly                Report                on Form 10-Q of Stratus for the quarter ended September 30,                2002.                                                                                                                                                                                                                                                                                       |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.12  | First                Modification Agreement dated March 27, 2006, by and between Stratus                7000                West Joint Venture, as Old Borrower, and CarrAmerica Lantana, LP,                as New                Borrower, and Teachers Insurance and Annuity Association of America,                as                Lender. Incorporated by reference to Exhibit 10.1 to the Current                Report on                Form 8-K of Stratus dated March 27, 2006.                                                                                                                       |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.13  | Agreement                of Sale and Purchase dated November 23, 2005, by and between Stratus                Properties Operating Co., L.P., as Seller, and Advanced Micro Devices,                Inc., as Purchaser. Incorporated by reference to Exhibit 10.12 to                the                Quarterly Report on Form 10-Q of Stratus for the quarter ended March                31,                2006 (Stratus’ 2006 First Quarter Form 10-Q).                                                                                                                                                 |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.14  | First                Amendment to Agreement of Sale and Purchase dated April 26, 2006,                by and                between Stratus Properties Operating Co., L.P., as Seller, and Advanced                Micro Devices, Inc., as Purchaser. Incorporated by reference to Exhibit                10.13 to Stratus’ 2006 First Quarter Form 10-Q.                                                                                                                                                                                                                                                   |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.15  | Deed                of Trust, Assignment of Leases and Rents, Security Agreement and                Fixture                Filing dated as of June 30, 2006, by and among Escarpment Village,                L.P.                and Teachers Insurance and Annuity Association of America. Incorporated                by                reference to Exhibit 10.15 to the Quarterly Report on Form 10-Q of                Stratus                for the quarter ended June 30, 2006 (Stratus’ 2006 Second Quarter Form                10-Q).                                                             |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.16  | Promissory                Note dated as of June 30, 2006, by and between Escarpment Village,                L.P.                and Teachers Insurance and Annuity Association of America. Incorporated                by                reference to Exhibit 10.16 to Stratus’ 2006 Second Quarter Form                10-Q.                                                                                                                                                                                                                                                                               |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.17  | Amended                and Restated Loan Agreement between Stratus Properties Inc. and American                Strategic Income Portfolio Inc.-II dated as of December 12, 2006.                Incorporated by reference to Exhibit 10.17 to the Annual Report on                Form                10-K of Stratus for the year ended December 31, 2006 (Stratus’ 2006 Form                10-K).                                                                                                                                                                                                        |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.18  | Amended                and Restated Loan Agreement between Stratus Properties Inc. and American                Select Portfolio Inc. dated as of December 12, 2006. Incorporated                by                reference to Exhibit 10.18 to Stratus’ 2006 Form 10-K.                                                                                                                                                                                                                                                                                                                                    |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.19  | Loan                Agreement between Stratus Properties Inc. and Holliday Fenoglio Fowler,                L.P. dated as of December 12, 2006. Incorporated by reference to                Exhibit                10.19 to Stratus’ 2006 Form 10-K.                                                                                                                                                                                                                                                                                                                                                         |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.20  | Loan                Agreement between Stratus Properties Inc. and Holliday Fenoglio Fowler,                L.P. dated as of December 12, 2006. Incorporated by reference to                Exhibit                10.20 to Stratus’ 2006 Form 10-K.                                                                                                                                                                                                                                                                                                                                                         |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.21  | Letter                Agreement between Stratus Properties Inc. and Canyon-Johnson Urban                Fund                II, L.P., dated as of May 4, 2007. Incorporated by reference to Exhibit                10.21 to the Quarterly Report on Form 10-Q of Stratus for the quarter                ended June 30, 2007 (Stratus’ 2007 Second Quarter Form                10-Q).                                                                                                                                                                                                                        |

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Table of Contents

|   |                                                                                                                                                                                                                                                                                                                                                                                                                      |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.22  | Loan                Agreement between Stratus Properties Inc. and Holliday Fenoglio Fowler,                L.P. dated as of June 1, 2007, subsequently assigned to American                Select                Portfolio Inc., an affiliate of First American Asset Management.                Incorporated by reference to Exhibit 10.22 to Stratus’ 2007 Second Quarter                Form 10-Q.               |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 10.23  | Loan                Agreement between Stratus Properties Inc. and Holliday Fenoglio Fowler,                L.P. dated as of June 1, 2007, subsequently assigned to American                Strategic                Income Portfolio Inc., an affiliate of First American Asset Management.                Incorporated by reference to Exhibit 10.23 to Stratus’ 2007 Second Quarter                Form 10-Q.     |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 10.24  | Loan                Agreement between Stratus Properties Inc. and Holliday Fenoglio Fowler,                L.P. dated as of June 1, 2007, subsequently assigned to American                Strategic                Income Portfolio Inc.-III, an affiliate of First American Asset                Management. Incorporated by reference to Exhibit 10.24 to Stratus’ 2007                Second Quarter Form 10-Q. |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 10.25  | Purchase                and Sale Agreement dated as of July 9, 2007, between Escarpment Village,                L.P. as Seller and Christopher Investment Company, Inc. as Purchaser.                Incorporated by reference to Exhibit 10.1 to the Current Report on                Form                8-K of Stratus dated October 12, 2007.                                                                         |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                      |
|   | Executive                Compensation Plans and Arrangements (Exhibits 10.26 through                10.37)                                                                                                                                                                                                                                                                                                                |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 10.26  | Stratus’                Performance Incentive Awards Program, as amended, effective February                11,                1999. Incorporated by reference to Exhibit 10.24 to Stratus’ 2004 First                Quarter Form 10-Q.                                                                                                                                                                      |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 10.27  | Stratus                Properties Inc. Stock Option Plan, as amended and restated. Incorporated                by reference to Exhibit 10.22 to the Quarterly Report on Form 10-Q                of                Stratus for the quarter ended March 31, 2007 (Stratus’ 2007 First Quarter                Form 10-Q).                                                                                             |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 10.28  | Stratus                Properties Inc. 1996 Stock Option Plan for Non-Employee Directors,                as                amended and restated. Incorporated by reference to Exhibit 10.23                to                Stratus’ 2007 First Quarter Form 10-Q.                                                                                                                                                 |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 10.29  | Stratus                Properties Inc. 1998 Stock Option Plan, as amended and restated.                Incorporated by reference to Exhibit 10.24 to Stratus’ 2007 First Quarter                Form 10-Q.                                                                                                                                                                                                          |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 10.30  | Form                of Notice of Grant of Nonqualified Stock Options under the 1998 Stock                Option Plan. Incorporated by reference to Exhibit 10.24 to the Quarterly                Report on Form 10-Q of Stratus for the quarter ended June 30, 2005                (Stratus’ 2005 Second Quarter Form 10-Q).                                                                                        |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 10.31  | Form                of Restricted Stock Unit Agreement under the 1998 Stock Option Plan.                Incorporated by reference to Exhibit 10.26 to Stratus’ 2007 First Quarter                Form 10-Q.                                                                                                                                                                                                         |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 10.32  | Stratus                Properties Inc. 2002 Stock Incentive Plan, as amended and restated.                Incorporated by reference to Exhibit 10.27 to Stratus’ 2007 First Quarter                Form 10-Q.                                                                                                                                                                                                       |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 10.33  | Form                of Notice of Grant of Nonqualified Stock Options under the 2002 Stock                Incentive Plan. Incorporated by reference to Exhibit 10.27 to Stratus’                2005 Second Quarter Form 10-Q.                                                                                                                                                                                       |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 10.34  | Form                of Restricted Stock Unit Agreement under the 2002 Stock Incentive                Plan.                Incorporated by reference to Exhibit 10.29 to Stratus’ 2007 First Quarter                Form 10-Q.                                                                                                                                                                                       |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 10.35  | Stratus                Director Compensation. Incorporated by reference to Exhibit 10.20                to the                Annual Report on Form 10-K of Stratus for the year ended December                31,                2005.                                                                                                                                                                                   |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 10.36  | Change                of Control Agreement between Stratus Properties Inc. and William                H.                Armstrong III, effective as of January 26, 2007. Incorporated by                reference                to Exhibit 10.1 to the Current Report on Form 8-K of Stratus dated                January                24, 2007.                                                                       |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 10.37  | Change                of Control Agreement between Stratus Properties Inc. and John E.                Baker,                effective as of January 26, 2007. Incorporated by reference to Exhibit                10.2 to the Current Report on Form 8-K of Stratus dated January 24,                2007.                                                                                                                |

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Table of Contents

|   |                                                                                                                       |
|--------|----------------------------------------------------------------------------------------------------------------------------|
| 15.1   | Letter                from PricewaterhouseCoopers LLP regarding the unaudited interim financial                statements. |
|   |                                                                                                                       |
| 31.1   | Certification                of Principal Executive Officer pursuant to Rule                13a–14(a)/15d-14(a).     |
|   |                                                                                                                       |
| 31.2   | Certification                of Principal Financial Officer pursuant to Rule                13a–14(a)/15d-14(a).     |
|   |                                                                                                                       |
| 32.1   | Certification                of Principal Executive Officer pursuant to 18 U.S.C. Section                1350.             |
|   |                                                                                                                       |
| 32.2   | Certification                of Principal Financial Officer pursuant to 18 U.S.C. Section                1350.             |

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