**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 March 31, 2005****OR****[
      ]**
    **TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE****SECURITIES
      EXCHANGE ACT OF 1934****For
      the transition period from**
    
    **to****Commission
      File Number: 0-19989****Stratus
      Properties Inc.**(Exact
      name of registrant as specified in its
charter)





**Delaware**
    **72-1211572**(State
      or other jurisdiction of
      incorporation
      or organization)
    (IRS
      Employer Identification No.)**98
      San Jacinto Blvd., Suite 220****Austin,
      Texas**
    **78701**(Address
      of principal executive offices)
    (Zip
      Code)**(512)
      478-5788**(Registrant's
      telephone number, including area code)





Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes X No
__





Indicate
by check mark whether the registrant is an accelerated filer (as defined in Rule
12b-2 of the Securities Exchange Act of 1934). Yes ___ No X





On March
31, 2005, there were issued and outstanding 7,207,604 shares of the registrant’s
Common Stock, par value $0.01 per share.



















STRATUS
      PROPERTIES INC.TABLE OF CONTENTSPagePart I. Financial Information
    3Item 1. Financial Statements:Condensed Consolidated Balance Sheets(Unaudited)
    3Consolidated Statements of Operations(Unaudited)
    4Consolidated Statements of Cash Flows(Unaudited)
    5Notes to Consolidated Financial
    Statements
    6Report of Independent Registered Public Accounting
      Firm
    9Item 2. Management's Discussion and Analysis of Financial
      Conditionand Results of Operations
    10Item 3. Quantitative and Qualitative Disclosures about
      Market Risk
    15Item 4. Controls and Procedures
    15Part II. Other Information
    16Item 1. Legal Proceedings
    16Item 2. Unregistered Sales of Equity Securities and
      Use of Proceeds
    16Item 6. Exhibits
    16Signature
    17Exhibit Index
    E-1














STRATUS
PROPERTIES INC.


Part I. FINANCIAL INFORMATION





Item
1.Financial
Statements





STRATUS
PROPERTIES INC.


CONDENSED CONSOLIDATED BALANCE SHEETS(Unaudited)


(In
Thousands)





March
      31,
    
    December
      31,2005
    
    2004ASSETSCurrent
      assets:Cash
      and cash equivalents, including restricted cash of$123
      and $124, respectively
    $
    1,032
    
    $
    379Accounts
      receivable
    
    242
    
    
    345Prepaid
      expenses
    
    90
    
    
    40Notes
      receivable from property sales
    
    47
    
    
    47Total
      current assets
    
    1,411
    
    
    811Real
      estate, commercial leasing assets and facilities, net:Property
      held for sale - developed or under development
    
    113,393
    
    
    104,526Property
      held for sale - undeveloped
    
    17,068
    
    
    20,919Property
      held for use, net
    
    21,356
    
    
    21,676Other
      assets
    
    4,350
    
    
    4,140Notes
      receivable from property sales
    
    783
    
    
    789Total
      assets
    $
    158,361
    
    $
    152,861LIABILITIES
      AND STOCKHOLDERS’ EQUITYCurrent
      liabilities:Accounts
      payable and accrued liabilities
    $
    4,811
    
    $
    1,343Accrued
      interest, property taxes and other
    
    2,074
    
    
    2,390Current
      portion of long-term debt
    
    7,913
    
    
    1,531Total
      current liabilities
    
    14,798
    
    
    5,264Long-term
      debt
    
    51,156
    
    
    54,116Other
      liabilities
    
    5,349
    
    
    5,285Stockholders’
      equity
    
    87,058
    
    
    88,196Total
      liabilities and stockholders' equity
    $
    158,361
    
    $
    152,861





The
accompanying notes are an integral part of these consolidated financial
statements.





3
 Table of Contents








STRATUS
PROPERTIES INC.


CONSOLIDATED STATEMENTS OF OPERATIONS(Unaudited)


(In
Thousands, Except Per Share Amounts)





Three
      Months EndedMarch
      31,2005
    
    2004Revenues:Real
      estate
    $
    2,252
    
    $
    972Rental
      income
    
    1,220
    
    
    828Commissions,
      management fees and other
    
    158
    
    
    147Total
      revenues
    
    3,630
    
    
    1,947Cost
      of sales:Real
      estate, net
    
    1,892
    
    
    1,113Rental
    
    608
    
    
    689Depreciation
    
    418
    
    
    345Total
      cost of sales
    
    2,918
    
    
    2,147General
      and administrative expenses
    
    1,357
    
    
    1,380Total
      costs and expenses
    
    4,275
    
    
    3,527Operating
      loss
    
    (645
    )
    
    (1,580
    )Interest
      expense, net
    
    (294
    )
    
    (237
    )Interest
      income
    
    27
    
    
    12Net
      loss applicable to common stock
    $
    (912
    )
    $
    (1,805
    )Basic
      and diluted net loss per share of common stock
    $
    (0.13
    )
    $
    (0.25
    )Basic
      and diluted average shares of common stock outstanding
    
    7,216
    
    
    7,147





The
accompanying notes are an integral part of these consolidated financial
statements.





4
 Table of Contents





STRATUS
PROPERTIES INC.


CONSOLIDATED STATEMENTS OF CASH FLOWS(Unaudited)


(In
Thousands)





Three
      Months EndedMarch
      31,2005
    
    2004Cash
      flow from operating activities:Net
      loss
    $
    (912
    )
    $
    (1,805
    )Adjustments
      to reconcile net loss to net cash provided by(used
      in) operating activities:Depreciation
    
    418
    
    
    345Cost
      of real estate sold
    
    1,442
    
    
    718Stock-based
      compensation
    
    70
    
    
    42Long-term
      notes receivable and other
    
    (205
    )
    
    (119
    )(Increase)
      decrease in working capital:Accounts
      receivable and prepaid expenses
    
    53
    
    
    730Accounts
      payable, accrued liabilities and other
    
    3,216
    
    
    (369
    )Net
      cash provided by (used in) operating activities
    
    4,082
    
    
    (458
    )Cash
      flow from investing activities:Purchases
      and development of real estate properties
    
    (6,458
    )
    
    (9,488
    )Development
      of commercial leasing properties and other expenditures
    
    (98
    )
    
    (323
    )Net
      cash used in investing activities
    
    (6,556
    )
    
    (9,811
    )Cash
      flow from financing activities:Borrowings
      from revolving credit facility
    
    6,500
    
    
    3,228Payments
      on revolving credit facility
    
    (2,447
    )
    
    (816
    )Borrowings
      from project loans
    
    468
    
    
    5,852Payments
      on project loans
    
    (1,100
    )
    
    (44
    )Net
      proceeds from exercise of stock options
    
    41
    
    
    136Purchases
      of Stratus common shares
    
    (335
    )
    
    -Net
      cash provided by financing activities
    
    3,127
    
    
    8,356Net
      increase (decrease) in cash and cash equivalents
    
    653
    
    
    (1,913
    )Cash
      and cash equivalents at beginning of year
    
    379
    
    
    3,413Cash
      and cash equivalents at end of period
    
    1,032
    
    
    1,500Less
      cash restricted as to use
    
    (123
    )
    
    (204
    )Unrestricted
      cash and cash equivalents at end of period
    $
    909
    
    $
    1,296





The
accompanying notes are an integral part of these consolidated financial
statements.





5
 Table of Contents


**STRATUS
PROPERTIES INC.**


**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**





**1.**
    **GENERAL**


The
accompanying unaudited consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto for the
year ended December 31, 2004, included in Stratus Properties Inc.’s (Stratus)
Annual Report on Form 10-K (Stratus 2004 Form 10-K) filed with the Securities
and Exchange Commission. In the opinion of management, the
accompanying consolidated financial statements reflect all adjustments
(consisting only of normal recurring items) considered necessary to present
fairly the financial position of Stratus at March 31, 2005 and December 31,
2004, and the results of operations and cash flows for the three-month periods
ended March 31, 2005 and 2004. Operating results for the three months ended
March 31, 2005 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2005. Certain prior year amounts have
been reclassified to conform to the current year presentation.





**2.**
    **NEW
      ACCOUNTING STANDARDS**


Refer to
Note 1 of the Stratus 2004 Form 10-K for information regarding Stratus’
accounting for share-based payments, including stock options. Through March 31,
2005, Stratus has accounted for grants of employee stock options under the
recognition principles of Accounting Principles Board (APB) Opinion No. 25,
“Accounting for Stock Issued to Employees,” and related interpretations, which
require compensation costs for stock-based employee compensation plans to be
recognized based on the difference on the date of grant, if any, between the
quoted market price of the stock and the amount an employee must pay to acquire
the stock. If Stratus had applied the fair value recognition provisions of
Statement of Financial Accounting Standards (SFAS) No. 123, “Accounting for
Stock-Based Compensation,” which requires stock-based compensation to be
recognized based on the use of a fair value method, Stratus’ net loss would have
been increased by $0.2 million for the first quarter of 2005 and $0.1 million
for the first quarter of 2004.





In
December 2004, the Financial Accounting Standards Board (FASB) issued SFAS No.
123 (revised 2004), “Share-Based Payment” (SFAS No. 123R). SFAS No. 123R
requires all share-based payments to employees, including grants of employee
stock options, to be recognized in the financial statements based on their fair
values. SFAS No. 123R’s effective date is interim periods beginning after June
15, 2005. However, in April 2005 the Securities and Exchange Commission provided
for a deferral of the effective date to fiscal periods beginning after June 15,
2005. Stratus is still reviewing the provisions of SFAS No. 123R and has not yet
determined if it will adopt SFAS No. 123R before January 1, 2006.





**3.**
    **EARNINGS
      PER SHARE**


Stratus’
basic and diluted net loss per share of common stock was calculated by dividing
the net loss applicable to common stock by the weighted average number of common
shares outstanding during the period.





Stock
options representing 431,000 shares in the first quarter of 2005 and 309,000
shares in the first quarter of 2004 that otherwise would have been included in
the first-quarter 2005 and 2004 earnings per share calculations were excluded
because of the net losses reported for the periods. Outstanding stock options
with exercise prices greater than the average market price of the common stock
during the period are also excluded from the computation of diluted net loss per
share of common stock and are shown below.





First
      Quarter2005
    
    2004Outstanding
      options (in thousands)
    
    -
    
    141Average
      exercise price
    
    -
    
    $12.38








6
 Table of Contents





Stock-Based
Compensation Plans . As of
March 31, 2005, Stratus had four stock-based employee and director compensation
plans, which are described in Note 7 of the Stratus 2004 Form 10-K. Stratus
accounts for those plans under the recognition and measurement principles of APB
Opinion No. 25 and related interpretations. The following table illustrates the
effect on net loss and loss per share if Stratus had applied the fair value
recognition provisions of SFAS No. 123 to all stock-based employee compensation
(in thousands, except per share amounts).





Three
      Months EndedMarch
      31,2005
    
    2004Net
      loss applicable to common stock, as reported
    
    $
    (912
    )
    $
    (1,805
    )Add:
      Stock-based employee compensation expenseincluded
      in reported net loss applicable to commonstock
      for restricted stock units
    
    
    68
    
    
    37Deduct:
      Total stock-based employee compensationexpense
      determined under fair value-based method forall
      awards
    
    
    (233
    )
    
    (157
    )Pro
      forma net loss applicable to common stock
    
    $
    (1,077
    )
    $
    (1,925
    )Loss
      per share:Basic
      and diluted - as reported
    
    $
    (0.13
    )
    $
    (0.25
    )Basic
      and diluted - pro forma
    
    $
    (0.15
    )
    $
    (0.27
    )





For the
pro forma computations, the values of option grants were calculated on the dates
of grant using the Black-Scholes option-pricing model. There were no stock
option grants during the first quarters of 2005 and 2004. See Note 2 above and
Note 1 of the Stratus 2004 Form 10-K for a discussion of the requirements of
SFAS No. 123R.





**4.**
    **DEBT
      OUTSTANDING**


At March
31, 2005, Stratus had total debt of $59.1 million, including $7.9 million of
current debt, compared to total debt of $55.6 million, including $1.5 million of
current debt, at December 31, 2004. Stratus’ debt outstanding at March 31, 2005
consisted of the following:





·
    $24.4
      million of net borrowings under the $30.0 million Comerica credit
      facility, which will mature in May 2006.





·
    $10.0
      million of borrowings outstanding under two unsecured $5.0 million term
      loans, one of which will mature in January 2008 and the other in July
      2008.





·
    $6.6
      million of net borrowings under the 7500 Rialto Boulevard project loan,
      which matures in January 2006.





·
    $12.0
      million of net borrowings under the Teachers Insurance and Annuity
      Association of America (TIAA) 7000 West project loan, which will mature in
      January 2015.





·
    $1.1
      million of net borrowings under the $3.0 million Calera Court project
      loan, for which the three remaining courtyard homes at Calera Court are
      serving as collateral. This project loan will mature in September
      2005.





·
    $5.0
      million of net borrowings under the $9.8 million Deerfield loan, for which
      the Deerfield property and any future improvements are serving as
      collateral. This project loan will mature in February
  2007.





·
    $1,000
      of net borrowings under the $18.5 million Escarpment Village project loan,
      which will mature in June 2007.





In
addition, Stratus has a $22.8 million commitment, which will be available in
October 2005, from TIAA for a 30-year mortgage for the completed Escarpment
Village.





For a
discussion of Stratus’ debt see Note 5 of the Stratus 2004 Form
10-K.





7
 Table of Contents


**5.**
    **RESTRICTED
      CASH AND INTEREST COST**


Restricted
Cash. Restricted cash totaled $0.1 million at March 31, 2005 and December 31, 2004,
reflecting funds held for payment of fractional shares resulting from Stratus’
May 2001 stock split (see Note 7 of the Stratus 2004 Form 10-K).





Interest
Cost. Interest
expense excludes capitalized interest of $0.5 million in the first quarter of
2005 and $0.6 million in the first quarter of 2004.





**6.**
    **BUSINESS
      SEGMENTS**


Stratus
has two operating segments, “Real Estate Operations” and “Commercial Leasing.”
The Real Estate Operations segment is comprised of all Stratus’ developed
properties, properties under development and undeveloped properties in Austin,
Texas, which consist of its properties in the Barton Creek community, the Circle
C community and the Lantana project. In addition, the Deerfield property in
Plano, Texas is included in the Real Estate Operations segment.





The
Commercial Leasing segment includes the 140,000-square-foot Lantana Corporate
Center office complex at 7000 West, which consists of two fully leased
70,000-square-foot office buildings, as well as Stratus’ 75,000-square-foot
office building at 7500 Rialto Boulevard. In March 2004, Stratus formed
Southwest Property Services L.L.C. to manage these office buildings. Previously,
Stratus had outsourced its property management functions to a property
management firm. Effective June 30, 2004, Stratus terminated its agreement with
this firm and Southwest Property Services L.L.C. is performing all property
management responsibilities. The occupancy rate at Stratus’ 7500 Rialto
Boulevard office building doubled to approximately 100 percent at March 31, 2005
from 50 percent at March 31, 2004.





The
segment data presented below (in thousands) was prepared on the same basis as
the consolidated financial statements.





Real
      Estate
      Operationsa
    
    Commercial
      Leasing
    
    
    Other
    
    
    TotalThree
      Months Ended March 31, 2005:Revenues
    $
    2,410
    
    $
    1,220
    
    $
    -
    
    $
    3,630Cost
      of sales, excluding depreciation
    
    (1,892
    )
    
    (608
    )
    
    -
    
    
    (2,500
    )Depreciation
    
    (38
    )
    
    (380
    )
    
    -
    
    
    (418
    )General
      and administrative expenses
    
    (1,112
    )
    
    (245
    )
    
    -
    
    
    (1,357
    )Operating
      loss
    $
    (632
    )
    $
    (13
    )
    $
    -
    
    $
    (645
    )Capital
      expenditures
    $
    6,458
    
    $
    98
    
    $
    -
    
    $
    6,556Total
      assets
    $
    130,461
    
    $
    21,356
    
    $
    6,544
    b
    $
    158,361Three
      Months Ended March 31, 2004:Revenues
    $
    1,119
    
    $
    828
    
    $
    -
    
    $
    1,947Cost
      of sales, excluding depreciation
    
    (1,113
    )
    
    (689
    )
    
    -
    
    
    (1,802
    )Depreciation
    
    (25
    )
    
    (320
    )
    
    -
    
    
    (345
    )General
      and administrative expenses
    
    (1,127
    )
    
    (253
    )
    
    -
    
    
    (1,380
    )Operating
      loss
    $
    (1,146
    )
    $
    (434
    )
    $
    -
    
    $
    (1,580
    )Capital
      expenditures
    $
    9,488
    
    $
    323
    
    $
    -
    
    $
    9,811Total
      assets
    $
    122,247
    
    $
    22,393
    
    $
    4,014
    b
    $
    148,654


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


b.
    Represents
      all other assets except for property held for sale and property held for
      use comprising the Real Estate Operations and Commercial Leasing
      segments.





**7.**
    **COMMITMENTS**


In
January 2005, Stratus entered into an $8.5 million contract with a one-year term
for the construction of Escarpment Village at the Circle C community. In January
2005, Stratus also executed four construction contracts with one-year terms
totaling $3.5 million for paving and utilities work at the Circle C community in
connection with the development of the first 134 lots of the Meridian project
and the construction of the first phase of the main boulevard in
Meridian.





8
 Table of Contents





REVIEW BY
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





The
financial information as of March 31, 2005, and for the three-month periods
ended March 31, 2005 and 2004, included in Part I of this Form 10-Q pursuant to
Rule 10-01 of Regulation S-X has been reviewed by PricewaterhouseCoopers LLP
(PricewaterhouseCoopers), Stratus’ independent registered public accounting
firm, in accordance with the standards of the Public Company Accounting
Oversight Board (United States). PricewaterhouseCoopers’ report is included in
this quarterly report.





PricewaterhouseCoopers
does not carry out significant or additional procedures beyond those that would
have been necessary if its report had not been included in this quarterly
report. Accordingly, such report is not a “report” or “part of a registration
statement” within the meaning of Sections 7 and 11 of the Securities Act of 1933
and the liability provisions of Section 11 of such Act do not
apply.











REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM





To the
Board of Directors and Stockholders


of
Stratus Properties Inc.:





We have
reviewed the accompanying condensed consolidated balance sheet of Stratus
Properties Inc. (a Delaware Corporation) as of March 31, 2005, and the related
consolidated statements of operations and of cash flows for each of the
three-month periods ended March 31, 2005 and 2004. These interim financial
statements are the responsibility of the Company’s management.





We
conducted our review in accordance with the standards of the Public Company
Accounting Oversight Board (United States). A review of interim financial
information consists principally of applying analytical procedures and making
inquiries of persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance with the
standards of the Public Company Accounting Oversight Board, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.





Based on
our review, we are not aware of any material modifications that should be made
to the condensed consolidated interim financial statements for them to be in
conformity with accounting principles generally accepted in the United States of
America.





We
previously audited in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the consolidated balance sheet of
Stratus Properties Inc. as of December 31, 2004, and the related consolidated
statements of income, of changes in stockholders’ equity and of cash flows for
the year then ended (not presented herein), and in our report dated March 29,
2005 we expressed an unqualified opinion on those consolidated financial
statements. In our opinion, the information set forth in the accompanying
condensed consolidated balance sheet as of December 31, 2004, is fairly stated
in all material respects in relation to the consolidated balance sheet from
which it has been derived.





**/s/
PricewaterhouseCoopers LLP**





Austin,
Texas


May 12,
2005





9
 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 2004 Annual Report
on Form 10-K (2004 Form 10-K). The operating results summarized in this report
are not necessarily indicative of our future operating
results.*





We are
engaged in the acquisition, development, management and sale of commercial,
multi-family and residential real estate properties located primarily in the
Austin, Texas area. We conduct real estate operations on properties we
own.





Our
principal real estate holdings are in southwest Austin, Texas. Our most
significant holding is the 1,914 acres of residential, multi-family and
commercial property and 84 developed residential lots located within the Barton
Creek community. We own an additional 426 acres of undeveloped residential,
commercial and multi-family property and 37 acres of developed commercial
property within the Circle C Ranch (Circle C) community. Our other properties in
the Circle C community are currently being developed and include Meridian, which
is an 800-lot residential development consisting of approximately 384 acres at
March 31, 2005, and Escarpment Village, which is a retail center consisting of
approximately 62 acres. Our remaining Austin holdings consist of 282 acres of
commercial property and three fully leased office buildings in the Lantana
project. The office buildings include a 75,000-square foot building at 7500
Rialto Boulevard, and two 70,000-square foot buildings at 7000 West William
Cannon Drive, known as the Lantana Corporate Center. In January 2004, we
acquired approximately 68 acres of land in Plano, Texas, which we refer to as
Deerfield. At March 31, 2005, our Deerfield property consists of approximately
47 acres of residential land, which is being developed, and 47 residential
lots.





**DEVELOPMENT
AND OTHER ACTIVITIES**





We are
working with Advanced Micro Devices, Inc. (NYSE: AMD) on site planning and
related matters necessary to develop a proposed project at our Lantana project
in southwest Austin. The project consists of approximately 825,000 square feet
of office and related uses located on a 59-acre site at the southeast corner of
West William Cannon Drive and Southwest Parkway. Lantana is a partially
developed, mixed-use project with remaining entitlements for approximately three
million square feet of office and retail use on 282 acres. Regional utility and
road infrastructure is in place with capacity to serve Lantana at full
build-out. Development of the AMD project is subject to several conditions,
including finalizing definitive agreements and securing financing.





At March
31, 2005, our 75,000-square-foot office building at 7500 Rialto Boulevard is
fully leased. As demand for office space within Lantana has increased, we plan
to commence construction of a second 75,000-square-foot office building at 7500
Rialto Boulevard during 2005, subject to securing suitable tenant
leases.





The City
of Austin (the City) selected our proposal to develop a mixed-use project in
downtown Austin immediately north of the new City Hall complex. The project is
planned for retail, office and residential uses. We have entered an exclusive
negotiation period with the City to reach agreement on the project’s design and
transaction terms and structure. Subject to successful negotiations with the
City, we plan to pursue this project in partnership with nationally recognized
office, retail and apartment developers.





In May
2004, we entered into a contract with a national homebuilder to sell 41 lots
within the Wimberly Lane Phase II subdivision. In June 2004, the homebuilder
paid us a non-refundable $0.6 million deposit for the right to purchase the 41
lots, which was used to pay ongoing development costs of the lots. The deposit
will be recognized as income as lots are sold. The lots will be sold on an
installment basis, with six lots to be sold upon substantial completion of
subdivision utilities, and then three lots per quarter beginning 150 days after
the sale of the initial lots. The average purchase price for each of the 41 lots
is $150,400, subject to a six percent annual escalator commencing upon
substantial completion of development. Subdivision streets and utilities were
completed in October 2004. The initial lot closings occurred in December 2004.
Scheduled homebuilder sales during the remainder of 2005 total nine lots for
$1.4 million, including three lots for $0.5 million in the second quarter of
2005. Wimberly Lane Phase II also includes six estate lots, each averaging
approximately five acres, which we are retaining and marketing. Estate lot sales
in 2005 through April 30 include three lots (one in the first quarter and two in
April) for $0.8 million.





10
 Table of Contents


In
January 2004, we acquired the Deerfield property for $7.0 million. The property
is zoned and subject to a preliminary subdivision plan for 234 residential lots.
In February 2004, we executed an Option Agreement and a Construction Agreement
with a national homebuilder. Pursuant to the Option Agreement, we were paid $1.4
million for an option to purchase all 234 lots over 36 monthly take-downs. The
net purchase price for each of the 234 lots is $61,500, subject to certain terms
and conditions. The $1.4 million option payment is non-refundable, but would be
applied against subsequent purchases of lots by the homebuilder after certain
thresholds are achieved and will be recognized as income as lots are sold. The
Construction Agreement requires the homebuilder to complete development of the
entire project by March 15, 2007. We agreed to pay up to $5.2 million of the
homebuilder’s development costs. The homebuilder must pay all property taxes and
maintenance costs. In February 2004, we entered into a $9.8 million three-year
loan agreement with Comerica Bank (Comerica) to finance the acquisition and
development of Deerfield. Development is proceeding on schedule and we had $4.8
million in remaining availability under the loan at March 31, 2005. The initial
lot sale occurred in November 2004 and subsequent lot sales are on schedule with
16 lot sales closing in the first quarter of 2005. Under the agreement terms, we
expect to complete 60 lot sales for $3.7 million during the remainder of
2005.





We have
commenced development activities at the Circle C community based on the
entitlements set forth in our Circle C Settlement with the City, which permits
development of one million square feet of commercial space, 900 multi-family
units and 830 single-family residential lots. The preliminary plan has been
approved for Meridian, an 800-lot residential development at the Circle C
community. In October 2004, we received final City plat and construction permit
approvals for the first phase of Meridian, and construction commenced in
January. During the first quarter of 2005, we contracted to sell a total of 494
lots in our Meridian project to three national homebuilders in four phases.
Sales for each of the four phases commence upon substantial completion of
development for that phase, and continue every quarter until all of the lots
have been sold. The first phase, which is currently under development, includes
134 lots and substantial completion is projected prior to year-end. Development
of the second phase of approximately 134 lots will commence in the third quarter
of 2005, with completion projected by early 2006. We estimate our sales from the
first phase of Meridian to total at least 14 lots for $0.9 million during the
remainder of 2005.





In
addition, several retail sites at the Circle C community have received final
City approvals and are being developed. Zoning for Escarpment Village, a
160,000-square-foot retail project anchored by a grocery store, was approved
during the second quarter of 2004, and construction has commenced with
completion expected by year-end. In December 2004, we obtained an $18.5 million
project loan from Comerica to fund the construction of Escarpment Village, as
well as a $22.8 million commitment from the Teachers Insurance and Annuity
Association of America (TIAA) for a long-term mortgage for the completed
project.





During
2004, we completed construction of four courtyard homes at Calera Court within
the Barton Creek community, one of which was sold in the first quarter of 2004.
Calera Court, the initial phase of the “Calera Drive” subdivision, will include
17 courtyard homes on 16 acres. The second phase of Calera Drive, consisting of
53 single-family lots, has received final plat and construction permit approval.
The development of these lots, many of which adjoin the Fazio Canyons Golf
Course, has commenced. Development of the third and last phase of Calera Drive,
which will include approximately 70 single-family lots, is not expected to
commence until after 2005. Funding for the construction of courtyard homes at
Calera Court is provided by a $3.0 million project loan, which we established
with Comerica in September 2003.





During
the first quarter of 2004, we executed leases that brought our 7500 Rialto
Boulevard office building to 90 percent occupancy in July 2004, and at March 31,
2005, the office building was fully leased. In March 2004, we formed
Southwest Property Services L.L.C. to manage our office buildings. Effective
June 30, 2004, we terminated our agreement with the third-party property
management firm previously providing this function. Although there may be some
higher costs during the initial transition, we anticipate that this change in
management responsibility should provide future cost savings for our commercial
leasing operations and better control of building operations.





11


Table of Contents


**RESULTS
OF OPERATIONS**





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





Summary
operating results follow (in thousands):





First
      Quarter2005
    
    2004Revenues:Real
      estate operations
    $
    2,410
    
    $
    1,119Commercial
      leasing
    
    1,220
    
    
    828Total
      revenues
    $
    3,630
    
    $
    1,947Operating
      loss
    $
    (645
    )
    $
    (1,580
    )Net
      loss
    $
    (912
    )
    $
    (1,805
    )





We have
two operating segments, “Real Estate Operations” and “Commercial Leasing” (see
Note 6 of Notes to Consolidated Financial Statements). The following is a
discussion of our operating results by segment.





**Real
Estate Operations**


Summary
real estate operating results follow (in thousands):





First
      Quarter2005
    
    2004Revenues:Developed
      property sales
    $
    2,252
    
    $
    972Commissions,
      management fees and other
    
    158
    
    
    147Total
      revenues
    
    2,410
    
    
    1,119Cost
      of sales
    
    (1,930
    )
    
    (1,138
    )General
      and administrative expenses
    
    (1,112
    )
    
    (1,127
    )Operating
      loss
    $
    (632
    )
    $
    (1,146
    )





*Developed
Property Sales.* Developed
property sales for the first quarter of 2005 included 16 lots at Deerfield for
$1.0 million, a residential estate lot at the Escala Drive subdivision for $0.9
million and a lot at the Wimberly Lane Phase II subdivision for $0.3 million.
Developed property sales for the first quarter of 2004 included sales of a
residential estate lot at the Mirador subdivision for $0.4 million and the first
courtyard home at Calera Court for $0.6 million.





*Commissions,
Management Fees and Other.* Commissions, management fees and other revenues included sales of our
development fee credits to third parties totaling $0.1 million in the first
quarters of 2005 and 2004. We received these development fee credits as part of
the Circle C Settlement (see Note 8 of our 2004 Form 10-K).





*Cost
of Sales.* The
increase in first-quarter 2005 cost of sales compared to the 2004 period
primarily relates to the increase in developed property sales in the first
quarter of 2005.





12
 Table of Contents


**Commercial
Leasing**


Summary
commercial leasing operating results follow (in thousands):





First
      Quarter2005
    
    2004Rental
      income
    $
    1,220
    
    $
    828Rental
      property costs
    
    (608
    )
    
    (689
    )Depreciation
    
    (380
    )
    
    (320
    )General
      and administrative expenses
    
    (245
    )
    
    (253
    )Operating
      loss
    $
    (13
    )
    $
    (434
    )





*Rental
Income.* In the
first quarter of 2005, rental income from the 7000 West office buildings totaled
$0.9 million, compared to $0.7 million for the 2004 period. Rental income
includes common area maintenance (CAM) revenues, which consist of property
taxes, utilities, insurance and general building maintenance costs allocated to
tenants. The CAM-related costs billed to tenants during the first quarter of
2005 increased to $0.4 million compared to $0.2 million in the 2004 period
primarily because of higher utility costs in 2005, and lower property taxes and
credits for final adjustments in the first quarter of 2004. In the first quarter
of 2005, we earned $0.3 million in rental income from the 7500 Rialto Boulevard
office building, compared to $0.1 million for the 2004 period, as the occupancy
rate doubled to approximately 100 percent in the first quarter of 2005 from 50
percent in the first quarter of 2004.





**CAPITAL
RESOURCES AND LIQUIDITY**





**Comparison
of First-Quarter 2005 and 2004 Cash Flows**


Although
we have a working capital deficit, we believe that we have adequate funds from
our revolving credit facility and projected operating cash flows to meet our
working capital requirements. Additionally, we expect to restructure our 7500
Rialto Boulevard project loan ($6.6 million balance at March 31, 2005) prior to
its maturity in January 2006 together with long-term financing for our proposed
second 75,000-square-foot office building at 7500 Rialto Boulevard. Operating
activities provided cash of $4.1 million during the first quarter of 2005,
compared to a use of $0.5 million during the first quarter of 2004. Compared to
the 2004 period, operating cash flows improved primarily because of the increase
in sales activities and working capital changes.





Cash used
in investing activities totaled $6.6 million during the first quarter of 2005,
compared to $9.8 million during the first quarter of 2004. We acquired our
Deerfield property for $7.0 million in the first quarter of 2004 and continued
to develop the property in the first quarter of 2005. Other real estate
expenditures for the first quarters of 2005 and 2004 included improvements to
certain properties in the Barton Creek and Circle C communities. Development of
our commercial leasing properties included the completion of certain tenant
improvements to our 7000 West office buildings and 7500 Rialto Boulevard office
building during the first quarters of 2005 and 2004.





Financing
activities provided cash of $3.1 million during the first quarter of 2005
compared to $8.4 million during the first quarter of 2004. During the first
quarter of 2005, our financing activities reflected $4.1 million of net
borrowings under our revolving line of credit partially offset by net payments
totaling $0.6 million, including $0.5 million related to the Deerfield loan,
under our project construction loans. During the first quarter of 2004, our
financing activities included $2.4 million of net borrowings from our revolving
line of credit and $5.8 million of net borrowings from our project construction
loans, including borrowings of $4.1 million from the Deerfield loan and $1.2
million from the Calera Court project loan. See “Credit Facility and Other
Financing Arrangements” below for a discussion of our outstanding debt at March
31, 2005.





In 2001,
our Board of Directors approved an open market share purchase program for up to
0.7 million shares of our common stock. Under this program, we purchased 18,389
shares during 2004 for $0.2 million, a $13.47 per share average. In the first
quarter of 2005, we purchased 20,305 shares for $0.3 million, a $16.48 per share
average. During the second quarter of 2005 through May 11, 2005, we purchased
17,730 shares for $0.3 million, a $16.35 per share average. A total of 643,576
shares remain available under this program. The timing of future purchases of
our common stock is dependent on many factors including the price of our common
shares, our cash flows and financial position, and general economic and market
conditions.





13
 Table of Contents


**Credit
Facility and Other Financing Arrangements**


At March
31, 2005, we had total debt of $59.1 million, including $7.9 million of current
debt, compared to total debt of $55.6 million, including $1.5 million of current
debt, at December 31, 2004. Our debt outstanding at March 31, 2005 consisted of
the following:





·
    $24.4
      million of net borrowings under the $30.0 million Comerica credit
      facility, which will mature in May 2006.





·
    $10.0
      million of borrowings outstanding under two unsecured $5.0 million term
      loans, one of which will mature in January 2008 and the other in July
      2008.





·
    $6.6
      million of net borrowings under the 7500 Rialto Boulevard project loan,
      which matures in January 2006 (see below).





·
    $12.0
      million of net borrowings under the TIAA 7000 West project loan, which
      will mature in January 2015.





·
    $1.1
      million of net borrowings under the $3.0 million Calera Court project
      loan, for which the three remaining courtyard homes at Calera Court are
      serving as collateral. This project loan will mature in September
      2005.





·
    $5.0
      million of net borrowings under the $9.8 million Deerfield loan, for which
      the Deerfield property and any future improvements are serving as
      collateral. This project loan will mature in February
  2007.





·
    $1,000
      of net borrowings under the $18.5 million Escarpment Village project loan,
      which will mature in June 2007.





In
addition, we have a $22.8 million commitment, which will be available in October
2005, from TIAA for a 30-year mortgage for the completed Escarpment
Village.





For a
discussion of our debt see Note 5 of our 2004 Form 10-K.





*7500
Rialto Boulevard Project Loan Amendment.* Under
the terms of an existing amendment, we executed a one-year option in January
2004 to extend the maturity of our project loan for the 75,000-square-foot
office building at 7500 Rialto Boulevard from January 31, 2004 to January 31,
2005, with a remaining option to extend the maturity for an additional one-year
period. Effective January 31, 2005, we extended the loan for one year in
accordance with the amendment. Under the terms of the maturity extension, we
paid an extension fee of $18,500 and the commitment under the facility was
reduced by $0.2 million to $7.4 million. We may make additional borrowings under
this facility to fund certain tenant improvements. We expect to restructure our
7500 Rialto Boulevard project loan ($6.6 million balance at March 31, 2005)
prior to its maturity in January 2006 together with long-term financing for our
proposed second 75,000-square-foot office building at 7500 Rialto
Boulevard.





**Outlook**


As
discussed in “Risk Factors” located in our 2004 Form 10-K, our financial
condition and results of operations are highly dependent upon market conditions
in Austin. Our future operating cash flows and, ultimately, our ability to
develop our properties and expand our business will be largely dependent on the
level of our real estate sales. In turn, these sales will be significantly
affected by future real estate market conditions in Austin, Texas, development
costs, interest rate levels and regulatory issues including our land use and
development entitlements. The Austin real estate market experienced a slowdown
during the past several years which affected our operating results and
liquidity. While current market conditions are improving, we cannot at this time
project how long or to what extent improving conditions will
persist.





We have
made progress securing permitting for our Austin-area properties (see “Company
Strategies and Development Activities” in our 2004 Form 10-K). Significant
development expenditures must be incurred and additional permits secured prior
to the sale of certain properties. Certain of our properties benefit from
grandfathered entitlements that are not subject to the development requirements
currently in effect. We continue to engage in positive and cooperative dialogue
with the City concerning land use and development permit
issues.





14
 Table of Contents


We are
continuing to pursue additional development and management fee opportunities. We
also believe that we can obtain bank financing for developing our properties at
a reasonable cost.  As noted above, we have two loans with $31.0 million of
net borrowings that are scheduled to mature in 2006.  We have positive
relationships with our lenders and we expect to extend the maturity dates of
those loans.





**NEW
ACCOUNTING STANDARDS**





Refer to
Note 1 of our 2004 Form 10-K for information regarding our accounting for
share-based payments, including stock options. Through March 31, 2005, we have
accounted for grants of employee stock options under the recognition principles
of Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock
Issued to Employees,” and related interpretations, which require compensation
costs for stock-based employee compensation plans to be recognized based on the
difference on the date of grant, if any, between the quoted market price of the
stock and the amount an employee must pay to acquire the stock. If we had
applied the fair value recognition provisions of Statement of Financial
Accounting Standards (SFAS) No. 123, “Accounting for Stock-Based Compensation,”
which requires stock-based compensation to be recognized based on the use of a
fair value method, our net loss would have been increased by $0.2 million for
the first quarter of 2005 and $0.1 million for the first quarter of
2004.





In
December 2004, the Financial Accounting Standards Board (FASB) issued SFAS No.
123 (revised 2004), “Share-Based Payment” (SFAS No. 123R). SFAS No. 123R
requires all share-based payments to employees, including grants of employee
stock options, to be recognized in the financial statements based on their fair
values. SFAS No. 123R’s effective date is interim periods beginning after June
15, 2005. However, in April 2005 the Securities and Exchange Commission provided
for a deferral of the effective date to fiscal periods beginning after June 15,
2005. We are still reviewing the provisions of SFAS No. 123R and have not yet
determined if we will adopt SFAS No. 123R before January 1, 2006.





**CAUTIONARY
STATEMENT**





Management’s
Discussion and Analysis of Financial Condition and Results of Operations
contains forward-looking statements regarding proposed real estate sales
and development activities at the Deerfield project, the Barton Creek
community, the Circle C community and at Lantana; the proposed development
of a mixed-use project in downtown Austin; future events related to financing
and regulatory matters; the expected results of our business strategy; and other
plans and objectives of management for future operations and activities.
Important factors that could cause actual results to differ materially from our
expectations include economic and business conditions, business opportunities
that may be presented to and pursued by us, changes in laws or regulations and
other factors, many of which are beyond our control, and other factors that are
described in more detail under “Risk Factors” located in our 2004 Form
10-K.





Item 3. Quantitative
and Qualitative Disclosures about Market Risk.


There
have been no significant changes in our market risks since the year ended
December 31, 2004. For more information, please read the consolidated financial
statements and notes thereto included in our 2004 Form 10-K.





Item 4. Controls
and Procedures.


(a)  Evaluation
of disclosure controls and procedures . Our
chief executive officer and chief financial officer, with the participation of
management, have evaluated the effectiveness of our “disclosure controls and
procedures” (as defined in Rules 13a-14(c) and 15d-14(c) under the Securities
Exchange Act of 1934) as of the end of the period covered by this quarterly
report on Form 10-Q. Based on their evaluation, they have concluded that our
disclosure controls and procedures are effective in timely alerting them to
material information relating to Stratus (including our consolidated
subsidiaries) required to be disclosed in our periodic Securities and Exchange
Commission filings.





(b)  Changes
in internal controls . There
has been no change in our internal control over financial reporting that
occurred during the first quarter that has materially affected, or is reasonably
likely to materially affect our internal control over financial
reporting.





15
 
 Table of Contents


**PART II. - OTHER INFORMATION**





Item 1. Legal
Proceedings.


We may
from time to time be involved in various legal proceedings of a character
normally incident to the ordinary course of our business. We believe that
potential liability from any of these pending or threatened proceedings will not
have a material adverse effect on our financial condition or results of
operations. We maintain liability insurance to cover some, but not all,
potential liabilities normally incident to the ordinary course of our business
as well as other insurance coverage customary in our business, with such
coverage limits as management deems prudent.





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


The
following table sets forth shares of our common stock we repurchased during the
three-month period ended March 31, 2005.





Current
      ProgramaPeriod
    
    Total
      Shares
      Purchased
    
    Average
      Price
      Paid
      Per
      Share
    
    Shares
      Purchased
    
    Shares
      Available
      for
      PurchaseJanuary
      1 to 31, 2005
    
    6,311
    
    
    $16.31
    
    6,311
    
    675,300February
      1 to 28, 2005
    
    4,360
    
    
    16.56
    
    4,360
    
    670,940March
      1 to 31, 2005
    
    9,634
    
    
    16.55
    
    9,634
    
    661,306Total
    
    20,305
    
    
    16.48
    
    20,305





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.





Item 6. Exhibits.


The
exhibits to this report are listed in the Exhibit Index beginning on page E-1
hereof.


Instruments
with respect to other long-term debt of Stratus and its consolidated
subsidiaries are omitted pursuant to Item 601(b)(4)(iii) of Regulation S-K since
the total amount authorized under each such omitted instrument does not exceed
10 percent of the total assets of Stratus and its subsidiaries on a consolidated
basis. Stratus hereby agrees to furnish a copy of any such instrument to the
Securities and Exchange Commission upon request.







16
 Table of Contents











**SIGNATURE**








Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.





STRATUS
PROPERTIES INC.





By: /s/
John E. Baker


-----------------------------------


John E.
Baker


Senior
Vice President and


Chief
Financial Officer


(authorized
signatory and


Principal
Financial Officer)





Date:  May 13,
2005













17
 Table of Contents





**STRATUS
PROPERTIES INC.**


**EXHIBIT INDEX**


Exhibit


Number





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 fiscal 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
    The
      loan agreement by and between Comerica Bank-Texas and Stratus Properties
      Inc., Stratus Properties Operating Co., L.P., Circle C Land Corp. and
      Austin 290 Properties Inc. dated December 21, 1999. Incorporated by
      reference to Exhibit 4.4 to the Annual Report on Form 10-K of Stratus for
      the fiscal year ended December 31, 1999.10.2
    Guaranty
      Agreement dated December 31, 1999, by and between Stratus Properties Inc.
      and Comerica Bank-Texas. Incorporated by reference to Exhibit 10.18 to the
      Quarterly Report on Form 10-Q of Stratus for the quarter ended March 31,
      2000 (Stratus’ 2000 First Quarter Form 10-Q).10.3
    Guaranty
      Agreement dated February 24, 2000, by and between Stratus Properties Inc.
      and Comerica Bank-Texas. Incorporated by reference to Exhibit 10.19 to
      Stratus’ 2000 First Quarter Form 10-Q.10.4
    Amended
      Loan Agreement dated December 27, 2000, by and between Stratus Properties
      Inc. and Comerica-Bank Texas. Incorporated by reference to Exhibit 10.19
      to the Annual Report on Form 10-K of Stratus for the fiscal year ended
      December 31, 2000 (Stratus’ 2000 Form 10-K).10.5
    Second
      Amendment to Loan Agreement dated December 18, 2001, by and among Stratus
      Properties Inc., Stratus Properties Operating Co., L.P., Circle C Land
      Corp. and Austin 290 Properties Inc. collectively as borrower and Comerica
      Bank-Texas, as lender. Incorporated by Reference to Exhibit 10.23 to
      Stratus’ 2001 Form 10-K.10.6
    Third
      Modification and Extension Agreement dated June 30, 2003, by and between
      Comerica Bank, as lender, and Stratus Properties Inc., Stratus Properties
      Operating Co., L.P., Circle C Land Corp. and Austin 290 Properties Inc.,
      individually and collectively as borrower. Incorporated by reference to
      Exhibit 10.25 to the Quarterly Report on Form 10-Q of Stratus for the
      quarter ended September 30, 2003 (Stratus’ 2003 Third Quarter Form
      10-Q).





E-1








10.7
    Third
      Modification Agreement dated June 23, 2004, by and between Comerica Bank,
      as lender, and Stratus Properties Inc., Stratus Properties Operating Co.,
      L.P., Circle C Land, L.P. and Austin 290 Properties, Inc., individually
      and collectively as borrower. Incorporated by reference to Exhibit 10.16
      to the Quarterly Report on Form 10-Q of Stratus for the quarter ended June
      30, 2004 (Stratus’ 2004 Second Quarter Form 10-Q).10.8
    Third
      Amendment to Promissory Note dated June 23, 2004, by and among Stratus
      Properties Inc., Stratus Properties Operating Co., L.P., Circle C Land,
      L.P. and Austin 290 Properties, Inc., individually and collectively as
      borrower, and Comerica Bank, as lender. Incorporated by reference to
      Exhibit 10.17 to Stratus’ 2004 Second Quarter Form
10-Q.10.9
    Third
      Amendment to Revolving Credit Note dated June 23, 2004, by and among
      Stratus Properties Inc., Stratus Properties Operating Co., L.P., Circle C
      Land, L.P. and Austin 290 Properties, Inc., individually and collectively
      as borrower, and Comerica Bank, as lender. Incorporated by reference to
      Exhibit 10.18 to Stratus’ 2004 Second Quarter Form
10-Q.10.10
    Third
      Amendment to Loan Agreement dated June 23, 2004, by and among Stratus
      Properties Inc., Stratus Properties Operating Co., L.P., Circle C Land,
      L.P. and Austin 290 Properties, Inc., individually and collectively as
      borrower, and Comerica Bank, as bank. Incorporated by reference to Exhibit
      10.19 to Stratus’ 2004 Second Quarter Form 10-Q.10.11
    Loan
      Agreement dated December 28, 2000, by and between Stratus Properties Inc.
      and Holliday Fenoliglio Fowler, L.P., subsequently assigned to an
      affiliate of First American Asset Management. Incorporated by reference to
      Exhibit 10.20 to Stratus’ 2000 Form 10-K.10.12
    Loan
      Agreement dated June 14, 2001, by and between Stratus Properties Inc. and
      Holliday Fenoliglio 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, 2001.10.13
    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.10.14
    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 Stratus’ 2003 First Quarter
      Form 10-Q.10.15
    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 Stratus’ 2003 Form 10-K.10.16
    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.10.17
    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 Stratus’ 2003 Third Quarter Form 10-Q.10.18
    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.Executive
      Compensation Plans and Arrangements (Exhibits 10.19 through
      10.28)10.19
    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.E-210.20
    Stratus
      Stock Option Plan. Incorporated by reference to Exhibit 10.25 to Stratus’
      2003 Form 10-K.10.21
    Stratus
      1996 Stock Option Plan for Non-Employee Directors. Incorporated by
      reference to Exhibit 10.26 to Stratus’ 2003 Form 10-K.10.22
    Stratus
      Properties Inc. 1998 Stock Option Plan. Incorporated by reference to
      Exhibit 10.27 to Stratus’ 2003 Form 10-K.10.23
    Form
      of Notice of Grant of Nonqualified Stock Options and Limited Rights under
      the 1998 Stock Option Plan. Incorporated by reference to Exhibit 10.32 to
      Stratus’ 2004 Second Quarter Form 10-Q.10.24
    Form
      of Restricted Stock Unit Agreement under the 1998 Stock Option Plan.
      Incorporated by reference to Exhibit 10.33 to Stratus’ 2004 Second Quarter
      Form 10-Q.10.25
    Stratus
      Properties Inc. 2002 Stock Incentive Plan. Incorporated by reference to
      Exhibit 10.28 to Stratus’ 2003 Form 10-K.10.26
    Form
      of Notice of Grant of Nonqualified Stock Options and Limited Rights under
      the 2002 Stock Incentive Plan. Incorporated by reference to Exhibit 10.35
      to Stratus’ 2004 Second Quarter Form 10-Q.10.27
    Form
      of Restricted Stock Unit Agreement under the 2002 Stock Incentive Plan.
      Incorporated by reference to Exhibit 10.36 to Stratus’ 2004 Second Quarter
      Form 10-Q.10.28
    Stratus
      Director Compensation. Incorporated by reference to Exhibit 10.28 to the
      Annual Report on Form 10-K of Stratus for the fiscal year ended December
      31, 2004.





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.







E-3