----

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|--------------------------------------------------------------------------------------|
|                                                                                 |
| **UNITED                STATES**                                                     |
| **SECURITIES                AND EXCHANGE COMMISSION**                                |
| **Washington,                D.C. 20549**                                            |
|                                                                                 |
| **FORM                10-Q**                                                         |
|                                                                                 |
| **(Mark                One)**                                                        |
| **[X]**                                                                              | **QUARTERLY                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE** |
| **SECURITIES                EXCHANGE ACT OF 1934**                                   |
| **For                the quarterly period ended June 30, 2006**                      |
| **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) | (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)                         |
|                                                                                        |

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| STRATUS                PROPERTIES INC.                                                            |   |
|---------------------------------------------------------------------------------------------------|--------|
| TABLE                OF CONTENTS                                                                  |   |
|                                                                                              |   |
|                                                                                              |   |
|                                                                                              | Page   |
| Part                I. Financial Information                                                      | 3      |
|                                                                                              |   |
| Item                1. Financial Statements:                                                      |   |
|                                                                                              |   |
| Condensed                Consolidated Balance Sheets                (Unaudited)                   | 3      |
|                                                                                              |   |
| Consolidated                Statements of Income                (Unaudited)                       | 4      |
|                                                                                              |   |
| Consolidated                Statements of Cash Flows                (Unaudited)                   | 5      |
|                                                                                              |   |
| Notes                to Consolidated Financial                Statements                          | 6      |
|                                                                                              |   |
| Report                of Independent Registered Public Accounting                Firm             | 14     |
|                                                                                              |   |
| Item                2. Management's Discussion and Analysis of Financial                Condition |   |
| and                Results of Operations                                                          | 15     |
|                                                                                              |   |
| Item                3. Quantitative and Qualitative Disclosures about                Market Risk  | 24     |
|                                                                                              |   |
| Item                4. Controls and Procedures                                                    | 24     |
|                                                                                              |   |
| Part                II. Other Information                                                         | 24     |
|                                                                                              |   |
| Item                1. Legal Proceedings                                                          | 24     |
|                                                                                              |   |
| Item                1A. Risk Factors                                                              | 24     |
|                                                                                              |   |
| Item                2. Unregistered Sales of Equity Securities and Use of                Proceeds | 24     |
|                                                                                              |   |
| Item                5. Other Information                                                          | 25     |
|                                                                                              |   |
| Item                6. Exhibits                                                                   | 25     |
|                                                                                              |   |
| Signature                                                                                         | 26     |
|                                                                                              |   |
| Exhibit                Index                                                                      | E-1    |
|                                                                                              |   |

----

Table    of    Contents
Part      I. FINANCIAL INFORMATION

Item      1. Financial      Statements

CONDENSED      CONSOLIDATED BALANCE SHEETS 

|                                                                       | June                30, |    | December                31, |   |
|----------------------------------------------------------------------------|-------------------------|---------|-----------------------------|--------|
|                                                                       | 2006                    |    | 2005                        |   |
| ASSETS                                                                     |                    |    |                        |   |   |   |
| Current                assets:                                             |                    |    |                        |   |   |   |
| Cash                and cash equivalents, including restricted cash of     |                    |    |                        |   |   |   |
| $2,797                and $387, respectively                               | $                       | 10,628  |                        | $      | 1,901 |   |
| Accounts                receivable                                         |                    | 361     |                        |   | 112 |   |
| Deposits,                prepaid expenses and other                        |                    | 3,656   |                        |   | 849 |   |
| Discontinued                operations                                     |                    | -       |                        |   | 12,230 |   |
| Total                current assets                                        |                    | 14,645  |                        |   | 15,092 |   |
| Real                estate, commercial leasing assets and facilities, net: |                    |    |                        |   |   |   |
| Property                held for sale - developed or under development     |                    | 102,233 |                        |   | 127,450 |   |
| Property                held for sale - undeveloped                        |                    | 16,186  |                        |   | 16,071 |   |
| Property                held for use, net                                  |                    | 36,831  |                        |   | 9,452 |   |
| Investment                in Crestview                                     |                    | 3,699   |                        |   | 4,157 |   |
| Deferred                tax asset                                          |                    | 6,277   |                        |   | - |   |
| Other                assets                                                |                    | 5,405   |                        |   | 1,664 |   |
| Total                assets                                                | $                       | 185,276 |                        | $      | 173,886 |   |
|                                                                       |                    |    |                        |   |   |   |
| LIABILITIES                AND STOCKHOLDERS’ EQUITY                  |                    |    |                        |   |   |   |
| Current                liabilities:                                        |                    |    |                        |   |   |   |
| Accounts                payable and accrued liabilities                    | $                       | 6,345   |                        | $      | 6,305 |   |
| Accrued                interest, property taxes and other                  |                    | 3,890   |                        |   | 3,710 |   |
| Current                portion of long-term debt                           |                    | 278     |                        |   | 169 |   |
| Current                tax liability                                       |                    | 874     |                        |   | - |   |
| Discontinued                operations                                     |                    | -       |                        |   | 12,036 |   |
| Total                current liabilities                                   |                    | 11,387  |                        |   | 22,220 |   |
| Long-term                debt                                              |                    | 35,202  |                        |   | 50,135 |   |
| Other                liabilities                                           |                    | 7,904   |                        |   | 7,364 |   |
| Total                liabilities                                           |                    | 54,493  |                        |   | 79,719 |   |
|                                                                       |                    |    |                        |   |   |   |
| Stockholders’                equity:                                 |                    |    |                        |   |   |   |
| Preferred                stock                                             |                    | -       |                        |   | - |   |
| Common                stock                                                |                    | 75      |                        |   | 74 |   |
| Capital                in excess of par value of common stock              |                    | 184,526 |                        |   | 182,007 |   |
| Accumulated                deficit                                         |                    | (48,866 | )                           |   | (82,943 | ) |
| Unamortized                value of restricted stock units                 |                    | -       |                        |   | (567 | ) |
| Common                stock held in treasury                               |                    | (4,952  | )                           |   | (4,404 | ) |
| Total                stockholders’ equity                            |                    | 130,783 |                        |   | 94,167 |   |
| Total                liabilities and stockholders' equity                  | $                       | 185,276 |                        | $      | 173,886 |   |
|                                                                       |                    |    |                        |   |   |   |

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Table    of    Contents
CONSOLIDATED      STATEMENTS OF INCOME 

|                                                                | Three                Months Ended |   | Six                Months Ended |   |
|---------------------------------------------------------------------|-----------------------------------|--------|---------------------------------|--------|
|                                                                | June                30,           |   | June                30,         |   |
|                                                                | 2006                              |   | 2005                            |   | 2006 |   | 2005 |   |
| Revenues:                                                           |                              |   |                            |   |   |   |   |   |   |   |   |   |
| Real                estate                                          | $                                 | 31,714 |                            | $      | 6,625 |   | $ | 42,752 |   | $ | 8,877 |   |
| Rental                income                                        |                              | 876    |                            |   | 312 |   |   | 1,263 |   |   | 619 |   |
| Commissions,                management fees and other               |                              | 285    |                            |   | 252 |   |   | 550 |   |   | 410 |   |
| Total                revenues                                       |                              | 32,875 |                            |   | 7,189 |   |   | 44,565 |   |   | 9,906 |   |
| Cost                of sales:                                       |                              |   |                            |   |   |   |   |   |   |   |   |   |
| Real                estate, net                                     |                              | 11,684 |                            |   | 4,097 |   |   | 19,231 |   |   | 5,989 |   |
| Rental                                                              |                              | 578    |                            |   | 354 |   |   | 902 |   |   | 682 |   |
| Depreciation                                                        |                              | 399    |                            |   | 190 |   |   | 585 |   |   | 379 |   |
| Total                cost of sales                                  |                              | 12,661 |                            |   | 4,641 |   |   | 20,718 |   |   | 7,050 |   |
| General                and administrative expenses                  |                              | 1,883  |                            |   | 1,142 |   |   | 3,622 |   |   | 2,426 |   |
| Total                costs and expenses                             |                              | 14,544 |                            |   | 5,783 |   |   | 24,340 |   |   | 9,476 |   |
| Operating                income                                     |                              | 18,331 |                            |   | 1,406 |   |   | 20,225 |   |   | 430 |   |
| Interest                expense, net                                |                              | (291   | )                               |   | (121 | ) |   | (470 | ) |   | (232 | ) |
| Interest                income                                      |                              | 188    |                            |   | 30 |   |   | 202 |   |   | 57 |   |
| Income                from continuing operations before             |                              |   |                            |   |   |   |   |   |   |   |   |   |
| income                taxes                                         |                              | 18,228 |                            |   | 1,315 |   |   | 19,957 |   |   | 255 |   |
| Benefit                from income taxes                            |                              | 33     |                            |   | - |   |   | 6,419 |   |   | - |   |
| Income                from continuing operations                    |                              | 18,261 |                            |   | 1,315 |   |   | 26,376 |   |   | 255 |   |
| (Loss)                income from discontinued operations           |                              |   |                            |   |   |   |   |   |   |   |   |   |
| (including                a gain on sale of $7,348 in the 2006 six- |                              |   |                            |   |   |   |   |   |   |   |   |   |
| month                period, net of taxes of $486 in the second     |                              |   |                            |   |   |   |   |   |   |   |   |   |
| quarter                of 2006 and $2,414 in the 2006 six-month     |                              |   |                            |   |   |   |   |   |   |   |   |   |
| period)                                                             |                              | (486   | )                               |   | 5 |   |   | 7,701 |   |   | 153 |   |
| Net                income applicable to common stock                | $                                 | 17,775 |                            | $      | 1,320 |   | $ | 34,077 |   | $ | 408 |   |
|                                                                |                              |   |                            |   |   |   |   |   |   |   |   |   |
| Basic                net income (loss) per share of common stock:   |                              |   |                            |   |   |   |   |   |   |   |   |   |
| Continuing                operations                                | $                                 | 2.50   |                            | $      | 0.18 |   | $ | 3.62 |   | $ | 0.04 |   |
| Discontinued                operations                              |                              | (0.07  | )                               |   | - |   |   | 1.06 |   |   | 0.02 |   |
| Basic                net income per share of common stock           | $                                 | 2.43   |                            | $      | 0.18 |   | $ | 4.68 |   | $ | 0.06 |   |
|                                                                |                              |   |                            |   |   |   |   |   |   |   |   |   |
| Diluted                net income (loss) per share of common stock: |                              |   |                            |   |   |   |   |   |   |   |   |   |
| Continuing                operations                                | $                                 | 2.38   |                            | $      | 0.17 |   | $ | 3.44 |   | $ | 0.03 |   |
| Discontinued                operations                              |                              | (0.06  | )                               |   | - |   |   | 1.00 |   |   | 0.02 |   |
| Diluted                net income per share of common stock         | $                                 | 2.32   |                            | $      | 0.17 |   | $ | 4.44 |   | $ | 0.05 |   |
|                                                                |                              |   |                            |   |   |   |   |   |   |   |   |   |
| Average                shares of common stock outstanding:          |                              |   |                            |   |   |   |   |   |   |   |   |   |
| Basic                                                               |                              | 7,306  |                            |   | 7,213 |   |   | 7,274 |   |   | 7,215 |   |
| Diluted                                                             |                              | 7,660  |                            |   | 7,680 |   |   | 7,679 |   |   | 7,671 |   |
|                                                                |                              |   |                            |   |   |   |   |   |   |   |   |   |

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Table    of    Contents
CONSOLIDATED      STATEMENTS OF CASH FLOWS 

|                                                                               | Six                Months Ended |    |
|------------------------------------------------------------------------------------|---------------------------------|---------|
|                                                                               | June                30,         |    |
|                                                                               | 2006                            |    | 2005 |   |
| Cash                flow from operating activities:                                |                            |    |   |   |   |   |
| Net                income                                                          | $                               | 34,077  |   | $ | 408 |   |
| Adjustments                to reconcile net income to net cash provided by         |                            |    |   |   |   |   |
| operating                activities:                                               |                            |    |   |   |   |   |
| Income                from discontinued operations                                 |                            | (7,701  | ) |   | (153 | ) |
| Depreciation                                                                       |                            | 585     |   |   | 379 |   |
| Cost                of real estate sold                                            |                            | 20,700  |   |   | 4,632 |   |
| Deferred                income taxes                                               |                            | (6,419  | ) |   | - |   |
| Stock-based                compensation                                            |                            | 679     |   |   | 141 |   |
| Deposits                and other                                                  |                            | (5,354  | ) |   | 154 |   |
| (Increase)                decrease in working capital:                             |                            |    |   |   |   |   |
| Accounts                receivable and prepaid expenses                            |                            | (294    | ) |   | (66 | ) |
| Accounts                payable, accrued liabilities and other                     |                            | (187    | ) |   | 6,157 |   |
| Net                cash provided by continuing operations                          |                            | 36,086  |   |   | 11,652 |   |
| Net                cash provided by discontinued operations                        |                            | 374     |   |   | 753 |   |
| Net                cash provided by operating activities                           |                            | 36,460  |   |   | 12,405 |   |
|                                                                               |                            |    |   |   |   |   |
| Cash                flow from investing activities:                                |                            |    |   |   |   |   |
| Development                of real estate properties                               |                            | (18,409 | ) |   | (18,898 | ) |
| Development                of commercial leasing properties and other expenditures |                            | (6,134  | ) |   | (199 | ) |
| Municipal                utility district reimbursements                           |                            | 1,328   |   |   | - |   |
| Partial                return of investment in Crestview                           |                            | 458     |   |   | - |   |
| Net                cash used in continuing operations                              |                            | (22,757 | ) |   | (19,097 | ) |
| Net                cash provided by (used in) discontinued operations              |                            | 10,022  |   |   | (23 | ) |
| Net                cash used in investing activities                               |                            | (12,735 | ) |   | (19,120 | ) |
|                                                                               |                            |    |   |   |   |   |
| Cash                flow from financing activities:                                |                            |    |   |   |   |   |
| Borrowings                from revolving credit facility                           |                            | 15,000  |   |   | 16,490 |   |
| Payments                on revolving credit facility                               |                            | (27,997 | ) |   | (11,378 | ) |
| Borrowings                from TIAA mortgage                                       |                            | 22,800  |   |   | - |   |
| Borrowings                from project loans                                       |                            | 2,236   |   |   | 5,315 |   |
| Repayments                on project loans                                         |                            | (26,863 | ) |   | (1,904 | ) |
| Net                proceeds from exercised stock options                           |                            | 752     |   |   | 332 |   |
| Purchases                of Stratus common shares                                  |                            | (505    | ) |   | (1,018 | ) |
| Bank                credit facility fees                                           |                            | (421    | ) |   | (101 | ) |
| Net                cash (used in) provided by continuing operations                |                            | (14,998 | ) |   | 7,736 |   |
| Net                cash used in discontinued operations                            |                            | -       |   |   | (92 | ) |
| Net                cash (used in) provided by financing activities                 |                            | (14,998 | ) |   | 7,644 |   |
| Net                increase in cash and cash equivalents                           |                            | 8,727   |   |   | 929 |   |
| Cash                and cash equivalents at beginning of year                      |                            | 1,901   |   |   | 379 |   |
| Cash                and cash equivalents at end of period                          |                            | 10,628  |   |   | 1,308 |   |
| Less                cash at discontinued operations                                |                            | -       |   |   | (108 | ) |
| Less                cash restricted as to use                                      |                            | (2,797  | ) |   | (121 | ) |
| Unrestricted                cash and cash equivalents at end of period             | $                               | 7,831   |   | $ | 1,079 |   |
|                                                                               |                            |    |   |   |   |   |

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Table    of    Contents
**STRATUS      PROPERTIES INC.**

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS**

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

| **2.                ** | **STOCK-BASED                COMPENSATION** |
|----------------------------------|---------------------------------------------|

*Accounting      for Stock-Based Compensation.*

----

Table      of Contents

*Stock-Based      Compensation Plans.*

*Stock-Based      Compensation Cost.*

|                                                                    |   | Three                Months Ended |   | Six                Months Ended |   |
|-------------------------------------------------------------------------|--------|-----------------------------------|--------|---------------------------------|--------|
|                                                                    |   | June                30,           |   | June                30,         |   |
|                                                                    |   | 2006                              |   | 2005                            |   | 2006 |   | 2005 |   |
| Stock                options awarded to employees (including directors) |   | $                                 | 137    |                            | $      | - |   | $ | 282 |   | $ | - |   |
| Stock                options awarded to nonemployees                    |   |                              | 1      |                            |   | 5 |   |   | 2 |   |   | 9 |   |
| Restricted                stock units                                   |   |                              | 149    |                            |   | 69 |   |   | 570 |   |   | 137 |   |
| Less                capitalized amounts                                 |   |                              | (56    | )                               |   | - |   |   | (175 | ) |   | - |   |
| Impact                on net income                                     |   | $                                 | 231    |                            | $      | 74 |   | $ | 679 |   | $ | 146 |   |
|                                                                    |   |                              |   |                            |   |   |   |   |   |   |   |   |   |

|                                                                |   | Three                Months  |   |   | Six                Months    |   |
|---------------------------------------------------------------------|--------|------------------------------|--------|--------|------------------------------|--------|
|                                                                |   | Ended                        |   |   | Ended                        |   |
|                                                                |   | June                30, 2005 |   |   | June                30, 2005 |   |
| Net                income applicable to common stock, as reported   | $      | 1,320                        |   | $      | 408                          |   |
| Add:                Stock-based employee compensation expense       |   |                         |   |   |                         |   |
| included                in reported net income applicable to common |   |                         |   |   |                         |   |
| stock                for restricted stock units                     |   | 69                           |   |   | 137                          |   |
| Deduct:                Total stock-based employee compensation      |   |                         |   |   |                         |   |
| expense                determined under fair value-based method     |   |                         |   |   |                         |   |
| for                all awards                                       |   | (233                         | )      |   | (466                         | )      |
| Pro                forma net income applicable to common stock      | $      | 1,156                        |   | $      | 79                           |   |
|                                                                |   |                         |   |   |                         |   |
| Earnings                per share:                                  |   |                         |   |   |                         |   |
| Basic                - as reported                                  | $      | 0.18                         |   | $      | 0.06                         |   |
| Basic                - pro forma                                    | $      | 0.16                         |   | $      | 0.01                         |   |
|                                                                |   |                         |   |   |                         |   |
| Diluted                - as reported                                | $      | 0.17                         |   | $      | 0.05                         |   |
| Diluted                - pro forma                                  | $      | 0.15                         |   | $      | 0.01                         |   |
|                                                                |   |                         |   |   |                         |   |

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Table      of Contents

*Options.*

|                                             |                     |   |                        |   | Weighted                    |   |      |   |
|--------------------------------------------------|--------------------------|--------|-----------------------------|--------|-----------------------------|--------|-----------|--------|
|                                             |                     |   |                        |   | Average                     |   | Aggregate |   |
|                                             |                     |   | Weighted                    |   | Remaining                   |   | Intrinsic |   |
|                                             | Number                of |   | Average                     |   | Contractual                 |   | Value     |   |
|                                             | Options                  |   | Option                Price |   | Term                (years) |   | ($000)    |   |
| Balance                at January 1              | 838,336                  |   | $                           | 10.11  |                        |   |      |   |   |   |
| Granted                                          | -                        |   |                        | -      |                        |   |      |   |   |   |
| Exercised                                        | (106,417                 | )      |                        | 8.18   |                        |   |      |   |   |   |
| Expired/Forfeited                                | -                        |   |                        | -      |                        |   |      |   |   |   |
| Balance                at June 30                | 731,919                  |   |                        | 10.39  |                        | 6.46   |      | $      | 12,012 |   |
|                                             |                     |   |                        |   |                        |   |      |   |   |   |
| Vested                and exercisable at June 30 | 582,419                  |   |                        | 9.49   |                        | 6.11   |      | $      | 10,080 |   |
|                                             |                     |   |                        |   |                        |   |      |   |   |   |

|                                                              | Three                Months Ended |   | Six                Months Ended |   |
|-------------------------------------------------------------------|-----------------------------------|--------|---------------------------------|--------|
|                                                              | June                30,           |   | June                30,         |   |
|                                                              | 2006                              |   | 2005                            |   | 2006 |   | 2005 |   |
| Stratus                shares tendered to pay the exercise price  |                              |   |                            |   |   |   |   |   |   |   |   |   |
| and/or                the minimum required taxesa                 |                              | -      |                            |   | - |   |   | 1,485 |   |   | 301 |   |
| Cash                received from stock option exercises          | $                                 | 28     |                            | $      | 315 |   | $ | 795 |   | $ | 335 |   |
| Actual                tax benefit realized for the tax deductions |                              |   |                            |   |   |   |   |   |   |   |   |   |
| from                stock option exercises                        | $                                 | 15     |                            | $      | - |   | $ | 629 |   | $ | - |   |
| Amounts                Stratus paid for employee taxes related    |                              |   |                            |   |   |   |   |   |   |   |   |   |
| to                stock option exercises                          | $                                 | -      |                            | $      | - |   | $ | 43 |   | $ | 5 |   |
|                                                              |                              |   |                            |   |   |   |   |   |   |   |   |   |

| a.   | Under                terms of the related plans, upon exercise of stock options and vesting                of                restricted stock units, employees may tender Stratus shares to Stratus                to                pay the exercise price and/or the minimum required                taxes. |
|----------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

*Restricted      Stock Units.*

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Table    of    Contents
|                                |                       |   | Weighted                    |   |      |   |
|-------------------------------------|----------------------------|--------|-----------------------------|--------|-----------|--------|
|                                |                       |   | Average                     |   | Aggregate |   |
|                                | Number                of   |   | Remaining                   |   | Intrinsic |   |
|                                | Restricted                 |   | Contractual                 |   | Value     |   |
|                                | Stock                Units |   | Term                (years) |   | ($000)    |   |
| Balance                at January 1 | 45,045                     |   |                        |   |      |   |   |
| Granted                             | 49,000                     |   |                        |   |      |   |   |
| Vested                              | (4,545                     | )      |                        |   |      |   |   |
| Forfeited                           | -                          |   |                        |   |      |   |   |
| Balance                at June 30   | 89,500                     |   | 1.6                         |   | $         | 2,399  |   |
|                                |                       |   |                        |   |      |   |   |

| **3.                ** | **EARNINGS                PER SHARE** |
|----------------------------------|---------------------------------------|

|                                                                | Three                Months Ended |   | Six                Months Ended |   |
|---------------------------------------------------------------------|-----------------------------------|--------|---------------------------------|--------|
|                                                                | June                30,           |   | June                30,         |   |
|                                                                | 2006                              |   | 2005                            |   | 2006 |   | 2005 |   |
| Net                income from continuing operations                | $                                 | 18,261 |                            | $      | 1,315 |   | $ | 26,376 |   | $ | 255 |   |
| (Loss)                income from discontinued operations           |                              | (486   | )                               |   | 5 |   |   | 7,701 |   |   | 153 |   |
| Net                income applicable to common stock                | $                                 | 17,775 |                            | $      | 1,320 |   | $ | 34,077 |   | $ | 408 |   |
|                                                                |                              |   |                            |   |   |   |   |   |   |   |   |   |
| Weighted                average common shares outstanding           |                              | 7,306  |                            |   | 7,213 |   |   | 7,274 |   |   | 7,215 |   |
| Add:                Dilutive stock options                          |                              | 314    |                            |   | 447 |   |   | 360 |   |   | 439 |   |
| Restricted                stock                                     |                              | 40     |                            |   | 20 |   |   | 45 |   |   | 17 |   |
| Weighted                average common shares outstanding for       |                              |   |                            |   |   |   |   |   |   |   |   |   |
| purposes                of calculating diluted net income per share |                              | 7,660  |                            |   | 7,680 |   |   | 7,679 |   |   | 7,671 |   |
|                                                                |                              |   |                            |   |   |   |   |   |   |   |   |   |
| Diluted                net income (loss) per share of common stock: |                              |   |                            |   |   |   |   |   |   |   |   |   |
| Continuing                operations                                | $                                 | 2.38   |                            | $      | 0.17 |   | $ | 3.44 |   | $ | 0.03 |   |
| Discontinued                operations                              |                              | (0.06  | )                               |   | - |   |   | 1.00 |   |   | 0.02 |   |
| Diluted                net income per share of common stock         | $                                 | 2.32   |                            | $      | 0.17 |   | $ | 4.44 |   | $ | 0.05 |   |
|                                                                |                              |   |                            |   |   |   |   |   |   |   |   |   |

| **4.                ** | **DEBT** |
|----------------------------------|----------|

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Table      of      Contents

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

| **6.                ** | **D****ISCONTINUED                OPERATIONS** |
|----------------------------------|------------------------------------------------|

|                                                      |   | Three                Months Ended |   | Six                Months Ended |   |
|-----------------------------------------------------------|--------|-----------------------------------|--------|---------------------------------|--------|
|                                                      |   | June                30,           |   | June                30,         |   |
|                                                      |   | 2006                              |   | 2005                            |   | 2006 |   | 2005 |   |
| Rental                income                              |   | $                                 | -      |                            | $      | 853 |   | $ | 1,057 |   | $ | 1,766 |   |
| Rental                property costs                      |   |                              | -      |                            |   | (358 | ) |   | (403 | ) |   | (638 | ) |
| Depreciation                                              |   |                              | -      |                            |   | (229 | ) |   | - |   |   | (458 | ) |
| General                and administrative expenses        |   |                              | -      |                            |   | (78 | ) |   | (48 | ) |   | (151 | ) |
| Interest                expensea                          |   |                              | -      |                            |   | (183 | ) |   | (168 | ) |   | (366 | ) |
| Interest                income                            |   |                              | -      |                            |   | - |   |   | 2 |   |   | - |   |
| Gain                on sale                               |   |                              | -      |                            |   | - |   |   | 9,762 |   |   | - |   |
| Provision                for income taxes                 |   |                              | (486   | )b                              |   | - |   |   | (2,501 | ) |   | - |   |
| (Loss)                income from discontinued operations |   | $                                 | (486   | )                               | $      | 5 |   | $ | 7,701 |   | $ | 153 |   |
|                                                      |   |                              |   |                            |   |   |   |   |   |   |   |   |   |

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

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

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Table      of      Contents

| Assets:                                                                |   |   |    |   |
|------------------------------------------------------------------------|--------|--------|---------|--------|
| Cash                and cash equivalents                               |   | $      | 5       |   |
| Other                current assets                                    |   |   | 1,136   |   |
| Property                held for sale, net of accumulated depreciation |   |   |    |   |
| of                $4,577                                               |   |   | 11,089  |   |
| Liabilities:                                                           |   |   |    |   |
| Current                portion of long-term debt                       |   |   | (11,795 | )      |
| Other                current liabilities                               |   |   | (241    | )      |
| Net                assets                                              |   | $      | 194     |   |
|                                                                   |   |   |    |   |

| **7.                ** | **BUSINESS                SEGMENTS** |
|----------------------------------|--------------------------------------|

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Table    of    Contents
|                                                 | Real                Estate Operationsa |    | Commercial                Leasing |   | Other  |   | Total  |   |
|------------------------------------------------------|----------------------------------------|---------|-----------------------------------|--------|--------|--------|--------|--------|
|                                                 | (In                Thousands)          |    |
| Three                Months Ended June 30, 2006      |                                   |    |                              |   |   |   |   |   |   |   |   |   |
| Revenues                                             | $                                      | 31,999  |                              | $      | 876    |   | $      | -      |   | $ | 32,875 |   |
| Cost                of sales, excluding depreciation |                                   | (11,684 | )                                 |   | (578   | )      |   | -      |   |   | (12,262 | ) |
| Depreciation                                         |                                   | (34     | )                                 |   | (365   | )      |   | -      |   |   | (399 | ) |
| General                and administrative expenses   |                                   | (1,694  | )                                 |   | (189   | )      |   | -      |   |   | (1,883 | ) |
| Operating                income (loss)               | $                                      | 18,587  |                              | $      | (256   | )      | $      | -      |   | $ | 18,331 |   |
| Loss                from discontinued operations     | $                                      | -       |                              | $      | (486   | )      | $      | -      |   | $ | (486 | ) |
| Benefit                from income taxes             | $                                      | 33      |                              | $      | -      |   | $      | -      |   | $ | 33 |   |
| Capital                expenditures                  | $                                      | 12,370  |                              | $      | 6,038  |   | $      | -      |   | $ | 18,408 |   |
| Total                assets                          | $                                      | 118,419 |                              | $      | 36,831 |   | $      | 30,026 | b | $ | 185,276 |   |
| Three                Months Ended June 30, 2005      |                                   |    |                              |   |   |   |   |   |   |   |   |   |
| Revenues                                             | $                                      | 6,877   |                              | $      | 312    |   | $      | -      |   | $ | 7,189 |   |
| Cost                of sales, excluding depreciation |                                   | (4,097  | )                                 |   | (354   | )      |   | -      |   |   | (4,451 | ) |
| Depreciation                                         |                                   | (37     | )                                 |   | (153   | )      |   | -      |   |   | (190 | ) |
| General                and administrative expense    |                                   | (992    | )                                 |   | (150   | )      |   | -      |   |   | (1,142 | ) |
| Operating                income (loss)               | $                                      | 1,751   |                              | $      | (345   | )      | $      | -      |   | $ | 1,406 |   |
| Income                from discontinued operations   | $                                      | -       |                              | $      | 5      |   | $      | -      |   | $ | 5 |   |
| Capital                expenditures                  | $                                      | 12,440  |                              | $      | 124    |   | $      | -      |   | $ | 12,564 |   |
| Total                assets                          | $                                      | 139,712 |                              | $      | 22,334 | c      | $      | 5,085  | b | $ | 167,131 |   |
| Six                Months Ended June 30, 2006        |                                   |    |                              |   |   |   |   |   |   |   |   |   |
| Revenues                                             | $                                      | 43,302  |                              | $      | 1,263  |   | $      | -      |   | $ | 44,565 |   |
| Cost                of sales, excluding depreciation |                                   | (19,231 | )                                 |   | (902   | )      |   | -      |   |   | (20,133 | ) |
| Depreciation                                         |                                   | (67     | )                                 |   | (518   | )      |   | -      |   |   | (585 | ) |
| General                and administrative expenses   |                                   | (3,303  | )                                 |   | (319   | )      |   | -      |   |   | (3,622 | ) |
| Operating                income (loss)               | $                                      | 20,701  |                              | $      | (476   | )      | $      | -      |   | $ | 20,225 |   |
| Income                from discontinued operations   | $                                      | -       |                              | $      | 7,701  |   | $      | -      |   | $ | 7,701 |   |
| Benefit                from income taxes             | $                                      | 6,419   |                              | $      | -      |   | $      | -      |   | $ | 6,419 |   |
| Capital                expenditures                  | $                                      | 18,409  |                              | $      | 6,134  |   | $      | -      |   | $ | 24,543 |   |
| Six                Months Ended June 30, 2005        |                                   |    |                              |   |   |   |   |   |   |   |   |   |
| Revenues                                             | $                                      | 9,287   |                              | $      | 619    |   | $      | -      |   | $ | 9,906 |   |
| Cost                of sales, excluding depreciation |                                   | (5,989  | )                                 |   | (682   | )      |   | -      |   |   | (6,671 | ) |
| Depreciation                                         |                                   | (75     | )                                 |   | (304   | )      |   | -      |   |   | (379 | ) |
| General                and administrative expense    |                                   | (2,104  | )                                 |   | (322   | )      |   | -      |   |   | (2,426 | ) |
| Operating                income (loss)               | $                                      | 1,119   |                              | $      | (689   | )      | $      | -      |   | $ | 430 |   |
| Income                from discontinued operations   | $                                      | -       |                              | $      | 153    |   | $      | -      |   | $ | 153 |   |
| Capital                expenditures                  | $                                      | 18,898  |                              | $      | 222    |   | $      | -      |   | $ | 19,120 |   |
|                                                 |                                   |    |                              |   |   |   |   |   |   |   |   |   |

| 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. |
|----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| c.   | Includes                assets from the discontinued operations of 7000 West, which Stratus                sold                on March 27, 2006, totaling $12.6 million, net of accumulated depreciation                of $4.3 million, at June 30, 2005. These buildings represented two                of                Stratus’ three commercial leasing properties as of June 30,                2005. |
|----------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| **8.                ** | **INCOME                TAXES** |
|----------------------------------|---------------------------------|

*Accounting      for Uncertainty in Income Taxes.*

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Table      of      Contents

REVIEW      BY INDEPENDENT REGISTERED PUBLIC ACCOUNTING      FIRM

*Share-Based      Payment.*

**/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 2005 Annual Report      on Form 10-K (2005 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 Consolidated Financial Statements, unless      otherwise stated. Per share amounts are on a diluted basis unless otherwise      noted.*

**DEVELOPMENT      AND OTHER ACTIVITIES**

*Lantana.*

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*Barton      Creek Community.*

*Circle      C Community. *

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Table    of    Contents
*Deerfield.*

*Crestview      Station.*

*Downtown      Austin Project.*

**RESULTS      OF OPERATIONS**

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Table      of      Contents

|                                     | Second                Quarter |   | Six                Months |   |
|------------------------------------------|-------------------------------|--------|---------------------------|--------|
|                                     | 2006                          |   | 2005                      |   | 2006 |   | 2005 |   |
| Revenues:                                |                          |   |                      |   |   |   |   |   |   |   |   |   |
| Real                estate operations    | $                             | 31,999 |                      | $      | 6,877 |   | $ | 43,302 |   | $ | 9,287 |   |
| Commercial                leasing        |                          | 876    |                      |   | 312 |   |   | 1,263 |   |   | 619 |   |
| Total                revenues            | $                             | 32,875 |                      | $      | 7,189 |   | $ | 44,565 |   | $ | 9,906 |   |
|                                     |                          |   |                      |   |   |   |   |   |   |   |   |   |
| Operating                income          | $                             | 18,331 |                      | $      | 1,406 |   | $ | 20,225 |   | $ | 430 |   |
|                                     |                          |   |                      |   |   |   |   |   |   |   |   |   |
| Benefit                from income taxes | $                             | 33     |                      | $      | - |   | $ | 6,419 |   | $ | - |   |
|                                     |                          |   |                      |   |   |   |   |   |   |   |   |   |
| Net                income from           |                          |   |                      |   |   |   |   |   |   |   |   |   |
| continuing                operations     | $                             | 18,261 |                      | $      | 1,315 |   | $ | 26,376 |   | $ | 255 |   |
| (Loss)                income from        |                          |   |                      |   |   |   |   |   |   |   |   |   |
| discontinued                operations   |                          | (486   | )                         |   | 5 |   |   | 7,701 |   |   | 153 |   |
| Net                income                | $                             | 17,775 |                      | $      | 1,320 |   | $ | 34,077 |   | $ | 408 |   |
|                                     |                          |   |                      |   |   |   |   |   |   |   |   |   |

**Real      Estate Operations**

|                                                  | Second                Quarter |    | Six                Months |   |
|-------------------------------------------------------|-------------------------------|---------|---------------------------|--------|
|                                                  | 2006                          |    | 2005                      |   | 2006 |   | 2005 |   |
| Revenues:                                             |                          |    |                      |   |   |   |   |   |   |   |   |   |
| Developed                property sales               | $                             | 10,969  |                      | $      | 6,625 |   | $ | 20,507 |   | $ | 8,877 |   |
| Undeveloped                property sales             |                          | 20,745  |                      |   | - |   |   | 22,245 |   |   | - |   |
| Commissions,                management fees and other |                          | 285     |                      |   | 252 |   |   | 550 |   |   | 410 |   |
| Total                revenues                         |                          | 31,999  |                      |   | 6,877 |   |   | 43,302 |   |   | 9,287 |   |
|                                                  |                          |    |                      |   |   |   |   |   |   |   |   |   |
| Cost                of sales                          |                          | (11,718 | )                         |   | (4,134 | ) |   | (19,298 | ) |   | (6,064 | ) |
| General                and administrative expenses    |                          | (1,694  | )                         |   | (992 | ) |   | (3,303 | ) |   | (2,104 | ) |
|                                                  |                          |    |                      |   |   |   |   |   |   |   |   |   |
| Operating                income                       | $                             | 18,587  |                      | $      | 1,751 |   | $ | 20,701 |   | $ | 1,119 |   |
|                                                  |                          |    |                      |   |   |   |   |   |   |   |   |   |

----

Table      of      Contents*Developed      Property Sales. *

|                                        | Second                Quarter |   |
|---------------------------------------------|-------------------------------|--------|
|                                        | 2006                          |   | 2005 |   |
|                                        | Lots                          |   | Revenues |   | Lots |   | Revenues |   |
| *Residential                Properties:*    |                          |   |   |   |   |   |   |   |
| Barton                Creek                 |                          |   |   |   |   |   |   |   |
| Calera                Drive                 | 12                            |   | $4,952 |   | - |   | - |   |
| Mirador                Estate               | 3                             |   | 1,688 |   | 6 |   | $3,292 |   |
| Wimberly                Lane Phase II       |                          |   |   |   |   |   |   |   |
| Standard                Homebuilder         | 3                             |   | 482 |   | 3 |   | 477 |   |
| Estate                                      | -                             |   | - |   | 4 |   | 1,212 |   |
| Escala                Drive Estate          | -                             |   | - |   | 2 |   | 845 |   |
|                                        |                          |   |   |   |   |   |   |   |
| Circle                C                     |                          |   |   |   |   |   |   |   |
| Meridian                                    | 43                            |   | 2,504 |   | - |   | - |   |
|                                        |                          |   |   |   |   |   |   |   |
| Deerfield                                   | 20                            |   | 1,343 |   | 13 |   | 799 |   |
| Total                Residential            | 81                            |   | $10,969 |   | 28 |   | $6,625 |   |
|                                        |                          |   |   |   |   |   |   |   |
|                                        | Six                Months     |   |
|                                        | 2006                          |   | 2005 |   |
|                                        | Lots                          |   | Revenues |   | Lots |   | Revenues |   |
| *Residential                Properties:*    |                          |   |   |   |   |   |   |   |
| Barton                Creek                 |                          |   |   |   |   |   |   |   |
| Calera                Drive                 | 18                            |   | $7,854 |   | - |   | - |   |
| Calera                Court Courtyard Homes | 4                             |   | 2,312 |   | - |   | - |   |
| Mirador                Estate               | 5                             |   | 2,753 |   | 6 |   | $3,292 |   |
| Wimberly                Lane Phase II       |                          |   |   |   |   |   |   |   |
| Standard                Homebuilder         | 5                             |   | 783 |   | 3 |   | 477 |   |
| Estate                                      | -                             |   | - |   | 5 |   | 1,551 |   |
| Escala                Drive Estate          | -                             |   | - |   | 3 |   | 1,774 |   |
|                                        |                          |   |   |   |   |   |   |   |
| Circle                C                     |                          |   |   |   |   |   |   |   |
| Meridian                                    | 82                            |   | 4,791 |   | - |   | - |   |
|                                        |                          |   |   |   |   |   |   |   |
| Deerfield                                   | 30                            |   | 2,014 |   | 29 |   | 1,783 |   |
| Total                Residential            | 144                           |   | $20,507 |   | 46 |   | $8,877 |   |

*Undeveloped      Property Sales.*

*Commissions,      Management Fees and Other.*

*Cost      of Sales and General and Administrative Expenses.*

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Table      of Contents

**Commercial      Leasing**

|                                               | Second                Quarter |   | Six                Months |   |
|----------------------------------------------------|-------------------------------|--------|---------------------------|--------|
|                                               | 2006                          |   | 2005                      |   | 2006 |   | 2005 |   |
| Rental                income                       | $                             | 876    |                      | $      | 312 |   | $ | 1,263 |   | $ | 619 |   |
| Rental                property costs               |                          | (578   | )                         |   | (354 | ) |   | (902 | ) |   | (682 | ) |
| Depreciation                                       |                          | (365   | )                         |   | (153 | ) |   | (518 | ) |   | (304 | ) |
| General                and administrative expenses |                          | (189   | )                         |   | (150 | ) |   | (319 | ) |   | (322 | ) |
| Operating                loss                      | $                             | (256   | )                         | $      | (345 | ) | $ | (476 | ) | $ | (689 | ) |
|                                               |                          |   |                      |   |   |   |   |   |   |   |   |   |

**Other      Financial Results**

**DISCONTINUED      OPERATIONS - 7000 WEST**

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Table      of Contents

**CAPITAL      RESOURCES AND LIQUIDITY**

**Comparison      of Six-Months 2006 and 2005 Cash Flows**

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Table      of Contents

**Credit      Facility and Other Financing Arrangements**

| ·   | $22.8                million of borrowings under a 30-year mortgage with a 10-year balloon                payment from TIAA; |
|--------------------|------------------------------------------------------------------------------------------------------------------------------|

| ·   | $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; and |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | $2.7                million of net borrowings under the $45.0 million Comerica revolving                credit facility. The $45.0 million facility, of which $3.0 million                is                provided for Stratus’ Calera Court project, matures on May 30,                2008. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Outlook**

**NEW      ACCOUNTING STANDARDS**

*Accounting      for Stock-Based Compensation.*

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Table      of Contents

|                                               | Three                Months Ended |   | Six                Months Ended |   |
|----------------------------------------------------|-----------------------------------|--------|---------------------------------|--------|
|                                               | June                30,           |   | June                30,         |   |
|                                               | 2006                              |   | 2005                            |   | 2006 |   | 2005 |   |
| Cost                of sales                       | $                                 | 62     |                            | $      | - |   | $ | 195 |   | $ | - |   |
| General                and administrative expenses |                              | 169    |                            |   | 74 |   |   | 484 |   |   | 146 |   |
| Total                stock-based compensation cost | $                                 | 231    |                            | $      | 74 |   | $ | 679 |   | $ | 146 |   |
|                                               |                              |   |                            |   |   |   |   |   |   |   |   |   |

*Accounting      for Uncertainty in Income Taxes.*

**CAUTIONARY      STATEMENT**

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Table      of      Contents

Item      3.Quantitative      and Qualitative Disclosures about Market Risk.

Item      4.Controls      and Procedures.

**PART      II. - OTHER INFORMATION**

Item      1. 
Legal      Proceedings

Item      1A. 
Risk      Factors

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

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Table    of    Contents
|                               |   |                                  |   |                                        |   |                            | Current                Programa |
|------------------------------------|--------|---------------------------------------|--------|---------------------------------------------|--------|---------------------------------|---------------------------------|
| Period                             |   | Total                Shares Purchased |   | Average                Price Paid Per Share |   | Shares                Purchased |                            | Shares                Available for Purchase |
|                               |   |                                  |   |                                        |   |                            |                            |   |   |
| April                1 to 30, 2006 |   | -                                     |   |                                        | -      |                            | -                               |   | 481,948 |
| May                1 to 31, 2006   |   | 10,000                                |   |                                        | $25.12 |                            | 10,000                          |   | 471,948 |
| June                1 to 30, 2006  |   | -                                     |   |                                        | -      |                            | -                               |   | 471,948 |
| Total                              |   | 10,000                                |   |                                        |   |                            | 10,000                          |   |   |

| 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. |
|----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

Item      5. 
Other      Information

Item      6.Exhibits.

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**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 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   | 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 Fenoliglio 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                fiscal                year ended December 31, 2000.                                                                                                                                                   |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.5   | 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.                                                                                                                                                                      |

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Table      of      Contents

|   |                                                                                                                                                                                                                                                                                                                                                                                       |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 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. |

| 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                fiscal                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.                                                                                                                                                                                                                                                                                                               |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 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.                                                                                                                                                                                                                                                                                                                                                                                                                |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|   | Executive                Compensation Plans and Arrangements (Exhibits 10.17 through                10.26)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 10.17  | 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.                                                                                                                                                                                                                                                                                                                                                                     |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 10.18  | Stratus                Stock Option Plan. Incorporated by reference to Exhibit 10.25 to                Stratus’                2003 Form 10-K.                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |

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Table        of        Contents

|   |                                                                                                                                                                                                                                                                                                                 |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.19  | Stratus                1996 Stock Option Plan for Non-Employee Directors. Incorporated by                reference to Exhibit 10.22 to the Quarterly Report on Form 10-Q of                Stratus                for the quarter ended June 30, 2005 (Stratus’ 2005 Second Quarter Form                10-Q). |
|   |                                                                                                                                                                                                                                                                                                                 |
| 10.20  | Stratus                Properties Inc. 1998 Stock Option Plan. Incorporated by reference                to                Exhibit 10.23 to Stratus’ 2005 Second Quarter Form                10-Q.                                                                                                              |
|   |                                                                                                                                                                                                                                                                                                                 |
| 10.21  | Form                of Notice of Grant of Nonqualified Stock Options and Limited Rights                under                the 1998 Stock Option Plan. Incorporated by reference to Exhibit                10.24 to                Stratus’ 2005 Second Quarter Form 10-Q.                                    |
|   |                                                                                                                                                                                                                                                                                                                 |
| 10.22  | Form                of Restricted Stock Unit Agreement under the 1998 Stock Option Plan.                Incorporated by reference to Exhibit 10.25 to Stratus’ 2005 Second Quarter                Form 10-Q.                                                                                                   |
|   |                                                                                                                                                                                                                                                                                                                 |
| 10.23  | Stratus                Properties Inc. 2002 Stock Incentive Plan. Incorporated by reference                to                Exhibit 10.26 to Stratus’ 2005 Second Quarter Form                10-Q.                                                                                                           |
|   |                                                                                                                                                                                                                                                                                                                 |
| 10.24  | Form                of Notice of Grant of Nonqualified Stock Options and Limited Rights                under                the 2002 Stock Incentive Plan. Incorporated by reference to Exhibit                10.27                to Stratus’ 2005 Second Quarter Form 10-Q.                                 |
|   |                                                                                                                                                                                                                                                                                                                 |
| 10.25  | Form                of Restricted Stock Unit Agreement under the 2002 Stock Incentive                Plan.                Incorporated by reference to Exhibit 10.28 to Stratus’ 2005 Second Quarter                Form 10-Q.                                                                                 |
|   |                                                                                                                                                                                                                                                                                                                 |
| 10.26  | Stratus                Director Compensation. Incorporated by reference to Exhibit 10.20                to the                Annual Report on Form 10-K of Stratus for the fiscal year ended December                31, 2005.                                                                                      |
|   |                                                                                                                                                                                                                                                                                                                 |
| 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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