----

|                                                                                     |
|------------------------------------------------------------------------------------------|
|                                                                                     |
| **UNITED                  STATES**                                                       |
| **SECURITIES                  AND EXCHANGE COMMISSION**                                  |
| **Washington,                  D.C. 20549**                                              |
|                                                                                     |
| **FORM                  10-Q**                                                           |
|                                                                                     |
| **(Mark                  One)**                                                          |
| **[X]**                                                                                  | **QUARTERLY                  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE** |
| **SECURITIES                  EXCHANGE ACT OF 1934**                                     |
| **For                  the quarterly period ended September 30, 2005**                   |
| **OR**                                                                                   |
| **[                  ]**                                                                 | **TRANSITION                  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE** |
| **SECURITIES                  EXCHANGE ACT OF 1934**                                     |
| **For                  the transition period from**                                      |   | **to** |
| **Commission                  File Number: 0-19989**                                     |
|                                                                                     |
|                                                                                     |
| **Stratus                  Properties Inc.**                                             |
| (Exact                  name of registrant as specified in its                  charter) |

| **Delaware**                                                                                | **72-1211572**                                   |
|---------------------------------------------------------------------------------------------|--------------------------------------------------|
| (State                or other jurisdiction 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:                                                        |   |
|                                                                                                  |   |
| Consolidated                  Balance Sheets (Unaudited)                                              | 3      |
|                                                                                                  |   |
| Consolidated                  Statements of Operations                  (Unaudited)                   | 4      |
|                                                                                                  |   |
| Consolidated                  Statements of Cash Flows                  (Unaudited)                   | 5      |
|                                                                                                  |   |
| Notes                  to Consolidated Financial                  Statements                          | 6      |
|                                                                                                  |   |
| Report                  of Independent Registered Public Accounting                  Firm             | 10     |
|                                                                                                  |   |
| Item                  2. Management's Discussion and Analysis of Financial                  Condition |        |
| and                  Results of Operations                                                            | 11     |
|                                                                                                  |   |
| Item                  3. Quantitative and Qualitative Disclosures about                  Market Risk  | 17     |
|                                                                                                  |   |
| Item                  4. Controls and Procedures                                                      | 17     |
|                                                                                                  |   |
| Part                  II. Other Information                                                           | 18     |
|                                                                                                  |   |
| Item                  1. Legal Proceedings                                                            | 18     |
|                                                                                                  |   |
| Item                  2. Unregistered Sales of Equity Securities and                  Use of Proceeds | 18     |
|                                                                                                  |   |
| Item                  6. Exhibits                                                                     | 18     |
|                                                                                                  |   |
| Signature                                                                                             | 18     |
|                                                                                                  |   |
| Exhibit                  Index                                                                        | E-1    |
|                                                                                                  |   |

----

Table      of Contents

Part      I.

Item      1.

CONSOLIDATED      BALANCE SHEETS 

|                                                                       | September                30, |    | December                31, |   |
|----------------------------------------------------------------------------|------------------------------|---------|-----------------------------|--------|
|                                                                       | 2005                         |    | 2004                        |   |
| ASSETS                                                                     |                         |    |                        |   |   |   |
| Current                assets:                                             |                         |    |                        |   |   |   |
| Cash                and cash equivalents, including restricted cash of     |                         |    |                        |   |   |   |
| $119                and $124, respectively                                 | $                            | 908     |                        | $      | 379 |   |
| Accounts                receivable                                         |                         | 453     |                        |   | 345 |   |
| Prepaid                expenses                                            |                         | 72      |                        |   | 40 |   |
| Notes                receivable from property sales                        |                         | 22      |                        |   | 47 |   |
| Total                current assets                                        |                         | 1,455   |                        |   | 811 |   |
| Real                estate, commercial leasing assets and facilities, net: |                         |    |                        |   |   |   |
| Property                held for sale - developed or under development     |                         | 126,207 |                        |   | 104,526 |   |
| Property                held for sale - undeveloped                        |                         | 17,181  |                        |   | 20,919 |   |
| Property                held for use, net                                  |                         | 20,682  |                        |   | 21,676 |   |
| Other                assets                                                |                         | 3,875   |                        |   | 4,140 |   |
| Notes                receivable from property sales                        |                         | -       |                        |   | 789 |   |
| Total                assets                                                | $                            | 169,400 |                        | $      | 152,861 |   |
|                                                                       |                         |    |                        |   |   |   |
| LIABILITIES                AND STOCKHOLDERS’ EQUITY                  |                         |    |                        |   |   |   |
| Current                liabilities:                                        |                         |    |                        |   |   |   |
| Accounts                payable and accrued liabilities                    | $                            | 4,794   |                        | $      | 1,343 |   |
| Accrued                interest, property taxes and other                  |                         | 5,318   |                        |   | 2,390 |   |
| Current                portion of long-term debt                           |                         | 6,735   |                        |   | 1,531 |   |
| Total                current liabilities                                   |                         | 16,847  |                        |   | 5,264 |   |
| Long-term                debt                                              |                         | 57,623  |                        |   | 54,116 |   |
| Other                liabilities                                           |                         | 5,355   |                        |   | 5,285 |   |
| Total                liabilities                                           |                         | 79,825  |                        |   | 64,665 |   |
|                                                                       |                         |    |                        |   |   |   |
| Stockholders’                equity:                                 |                         |    |                        |   |   |   |
| Preferred                stock                                             |                         | -       |                        |   | - |   |
| Common                stock                                                |                         | 74      |                        |   | 72 |   |
| Capital                in excess of par value of common stock              |                         | 182,086 |                        |   | 181,145 |   |
| Accumulated                deficit                                         |                         | (87,690 | )                           |   | (91,417 | ) |
| Unamortized                value of restricted stock units                 |                         | (636    | )                           |   | (841 | ) |
| Common                stock held in treasury                               |                         | (4,259  | )                           |   | (763 | ) |
| Total                stockholders’ equity                            |                         | 89,575  |                        |   | 88,196 |   |
| Total                liabilities and stockholders' equity                  | $                            | 169,400 |                        | $      | 152,861 |   |
|                                                                       |                         |    |                        |   |   |   |

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Table of        Contents

CONSOLIDATED      STATEMENTS OF OPERATIONS

|                                                        | Three                Months Ended |   | Nine                Months Ended |   |
|-------------------------------------------------------------|-----------------------------------|--------|----------------------------------|--------|
|                                                        | September                30,      |   | September                30,     |   |
|                                                        | 2005                              |   | 2004                             |   | 2005 |   | 2004 |   |
| Revenues:                                                   |                              |   |                             |   |   |   |   |   |   |   |   |   |
| Real                estate                                  | $                                 | 11,603 |                             | $      | 3,728 |   | $ | 20,480 |   | $ | 7,902 |   |
| Rental                income                                |                              | 1,223  |                             |   | 1,103 |   |   | 3,608 |   |   | 2,905 |   |
| Commissions,                management fees and other       |                              | 179    |                             |   | 28 |   |   | 589 |   |   | 226 |   |
| Total                revenues                               |                              | 13,005 |                             |   | 4,859 |   |   | 24,677 |   |   | 11,033 |   |
| Cost                of sales:                               |                              |   |                             |   |   |   |   |   |   |   |   |   |
| Real                estate, net                             |                              | 7,074  |                             |   | 2,555 |   |   | 13,063 |   |   | 5,771 |   |
| Rental                                                      |                              | 727    |                             |   | 47 |   |   | 2,047 |   |   | 1,547 |   |
| Depreciation                                                |                              | 422    |                             |   | 398 |   |   | 1,259 |   |   | 1,105 |   |
| Total                cost of sales                          |                              | 8,223  |                             |   | 3,000 |   |   | 16,369 |   |   | 8,423 |   |
| General                and administrative expenses          |                              | 1,186  |                             |   | 1,081 |   |   | 3,763 |   |   | 3,681 |   |
| Total                costs and expenses                     |                              | 9,409  |                             |   | 4,081 |   |   | 20,132 |   |   | 12,104 |   |
| Operating                income (loss)                      |                              | 3,596  |                             |   | 778 |   |   | 4,545 |   |   | (1,071 | ) |
| Interest                expense, net                        |                              | (311   | )                                |   | (233 | ) |   | (909 | ) |   | (701 | ) |
| Interest                income                              |                              | 34     |                             |   | 12 |   |   | 91 |   |   | 35 |   |
| Net                income (loss) applicable to common stock | $                                 | 3,319  |                             | $      | 557 |   | $ | 3,727 |   | $ | (1,737 | ) |
|                                                        |                              |   |                             |   |   |   |   |   |   |   |   |   |
| Net                income (loss) per share of common stock: |                              |   |                             |   |   |   |   |   |   |   |   |   |
| Basic                                                       | $                                 | 0.46   |                             | $      | 0.08 |   | $ | 0.52 |   | $ | (0.24 | ) |
| Diluted                                                     | $                                 | 0.44   |                             | $      | 0.07 |   | $ | 0.49 |   | $ | (0.24 | ) |
|                                                        |                              |   |                             |   |   |   |   |   |   |   |   |   |
| Average                shares of common stock outstanding:  |                              |   |                             |   |   |   |   |   |   |   |   |   |
| Basic                                                       |                              | 7,203  |                             |   | 7,213 |   |   | 7,211 |   |   | 7,191 |   |
| Diluted                                                     |                              | 7,605  |                             |   | 7,571 |   |   | 7,649 |   |   | 7,191 |   |
|                                                        |                              |   |                             |   |   |   |   |   |   |   |   |   |

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Table of Contents
CONSOLIDATED      STATEMENTS OF CASH FLOWS

|                                                                               | Nine                Months Ended |    |
|------------------------------------------------------------------------------------|----------------------------------|---------|
|                                                                               | September                30,     |    |
|                                                                               | 2005                             |    | 2004 |   |
| Cash                flow from operating activities:                                |                             |    |   |   |   |   |
| Net                income (loss)                                                   | $                                | 3,727   |   | $ | (1,737 | ) |
| Adjustments                to reconcile net income (loss) to net cash              |                             |    |   |   |   |   |
| provided                by operating activities:                                   |                             |    |   |   |   |   |
| Depreciation                                                                       |                             | 1,259   |   |   | 1,105 |   |
| Cost                of real estate sold                                            |                             | 11,157  |   |   | 4,192 |   |
| Stock-based                compensation                                            |                             | 212     |   |   | 127 |   |
| Long-term                notes receivable and other                                |                             | 1,337   |   |   | (745 | ) |
| (Increase)                decrease in working capital:                             |                             |    |   |   |   |   |
| Accounts                receivable and prepaid expenses                            |                             | (115    | ) |   | 739 |   |
| Accounts                payable, accrued liabilities and other                     |                             | 6,449   |   |   | 2,004 |   |
| Net                cash provided by operating activities                           |                             | 24,026  |   |   | 5,685 |   |
|                                                                               |                             |    |   |   |   |   |
| Cash                flow from investing activities:                                |                             |    |   |   |   |   |
| Purchases                and development of real estate properties                 |                             | (29,745 | ) |   | (16,823 | ) |
| Municipal                utility district reimbursements                           |                             | 645     |   |   | 699 |   |
| Development                of commercial leasing properties and other expenditures |                             | (265    | ) |   | (1,410 | ) |
| Net                cash used in investing activities                               |                             | (29,365 | ) |   | (17,534 | ) |
|                                                                               |                             |    |   |   |   |   |
| Cash                flow from financing activities:                                |                             |    |   |   |   |   |
| Borrowings                from revolving credit facility                           |                             | 47,005  |   |   | 11,200 |   |
| Payments                on revolving credit facility                               |                             | (45,640 | ) |   | (7,261 | ) |
| Borrowings                from project loans                                       |                             | 11,791  |   |   | 8,270 |   |
| Payments                on project loans                                           |                             | (4,445  | ) |   | (178 | ) |
| Purchases                of Stratus common shares                                  |                             | (3,307  | ) |   | (189 | ) |
| Net                proceeds from exercise of stock options                         |                             | 747     |   |   | 724 |   |
| Bank                credit facility fees                                           |                             | (283    | ) |   | - |   |
| Net                cash provided by financing activities                           |                             | 5,868   |   |   | 12,566 |   |
| Net                increase in cash and cash equivalents                           |                             | 529     |   |   | 717 |   |
| Cash                and cash equivalents at beginning of year                      |                             | 379     |   |   | 3,413 |   |
| Cash                and cash equivalents at end of period                          |                             | 908     |   |   | 4,130 |   |
| Less                cash restricted as to use                                      |                             | (119    | ) |   | (1,775 | ) |
| Unrestricted                cash and cash equivalents at end of period             | $                                | 789     |   | $ | 2,355 |   |
|                                                                               |                             |    |   |   |   |   |

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Table of        Contents

**STRATUS      PROPERTIES INC.**

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS**

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

| **2.                ** | **NEW                ACCOUNTING STANDARD** |
|----------------------------------|--------------------------------------------|

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

|                                                               |   | Three                Months Ended |   | Nine                Months Ended |   |
|--------------------------------------------------------------------|--------|-----------------------------------|--------|----------------------------------|--------|
|                                                               |   | September                30,      |   | September                30,     |   |
|                                                               |   | 2005                              |   | 2004                             |   | 2005 |   | 2004 |   |
| Net                income (loss) applicable to common stock        |   | $                                 | 3,319  |                             | $      | 557 |   | $ | 3,727 |   | $ | (1,737 | ) |
|                                                               |   |                              |   |                             |   |   |   |   |   |   |   |   |   |
| Weighted                average common shares outstanding          |   |                              | 7,203  |                             |   | 7,213 |   |   | 7,211 |   |   | 7,191 |   |
| Add:                Dilutive stock options                         |   |                              | 375    |                             |   | 339 |   |   | 418 |   |   | - |   |
| Restricted                stock                                    |   |                              | 27     |                             |   | 19 |   |   | 20 |   |   | - |   |
| Weighted                average common shares outstanding for      |   |                              |   |                             |   |   |   |   |   |   |   |   |   |
| purposes                of calculating diluted net income (loss)   |   |                              |   |                             |   |   |   |   |   |   |   |   |   |
| per                share                                           |   |                              | 7,605  |                             |   | 7,571 |   |   | 7,649 |   |   | 7,191 |   |
|                                                               |   |                              |   |                             |   |   |   |   |   |   |   |   |   |
| Diluted                net income (loss) per share of common stock |   | $                                 | 0.44   |                             | $      | 0.07 |   | $ | 0.49 |   | $ | (0.24 | ) |
|                                                               |   |                              |   |                             |   |   |   |   |   |   |   |   |   |

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Table of Contents

|                                              | Third                Quarter |   | Nine                Months |
|---------------------------------------------------|------------------------------|--------|----------------------------|
|                                              | 2005                         |   | 2004                       |   | 2005 |   | 2004 |
| Outstanding                options (in thousands) | -                            |   | -                          |   | - |   | 47 |
| Exercise                price                     | -                            |   | -                          |   | - |   | $12.38 |

|                                                                     | Three                Months Ended |   | Nine                Months Ended |   |
|--------------------------------------------------------------------------|-----------------------------------|--------|----------------------------------|--------|
|                                                                     | September                30,      |   | September                30,     |   |
|                                                                     | 2005                              |   | 2004                             |   | 2005 |   | 2004 |   |
| Net                income (loss) applicable to common stock, as reported | $                                 | 3,319  |                             | $      | 557 |   | $ | 3,727 |   | $ | (1,737 | ) |
| Add:                Stock-based employee compensation expense            |                              |   |                             |   |   |   |   |   |   |   |   |   |
| included                in reported net income (loss) applicable to      |                              |   |                             |   |   |   |   |   |   |   |   |   |
| common                stock for restricted stock units                   |                              | 68     |                             |   | 37 |   |   | 205 |   |   | 111 |   |
| Deduct:                Total stock-based employee compensation           |                              |   |                             |   |   |   |   |   |   |   |   |   |
| expense                determined under fair value-based method          |                              |   |                             |   |   |   |   |   |   |   |   |   |
| for                all awards                                            |                              | (234   | )                                |   | (182 | ) |   | (700 | ) |   | (569 | ) |
| Pro                forma net income (loss) applicable to common stock    | $                                 | 3,153  |                             | $      | 412 |   | $ | 3,232 |   | $ | (2,195 | ) |
|                                                                     |                              |   |                             |   |   |   |   |   |   |   |   |   |
| Earnings                (loss) per share:                                |                              |   |                             |   |   |   |   |   |   |   |   |   |
| Basic                - as reported                                       | $                                 | 0.46   |                             | $      | 0.08 |   | $ | 0.52 |   | $ | (0.24 | ) |
| Basic                - pro forma                                         | $                                 | 0.44   |                             | $      | 0.06 |   | $ | 0.45 |   | $ | (0.31 | ) |
|                                                                     |                              |   |                             |   |   |   |   |   |   |   |   |   |
| Diluted                - as reported                                     | $                                 | 0.44   |                             | $      | 0.07 |   | $ | 0.49 |   | $ | (0.24 | ) |
| Diluted                - pro forma                                       | $                                 | 0.42   |                             | $      | 0.05 |   | $ | 0.43 |   | $ | (0.31 | ) |
|                                                                     |                              |   |                             |   |   |   |   |   |   |   |   |   |

|                                       | Three                Months Ended |   | Nine                Months Ended |   |
|--------------------------------------------|-----------------------------------|--------|----------------------------------|--------|
|                                       | September                30,      |   | September                30,     |   |
|                                       | 2005                              |   | 2004                             |   | 2005 |   | 2004 |   |
| Options                granted             |                              | 7,500  |                             |   | 7,500 |   |   | 7,500 |   |   | 7,500 |   |
| Fair                value per stock option | $                                 | 11.48  |                             | $      | 8.54 |   | $ | 11.48 |   | $ | 8.54 |   |
| Risk-free                interest rate     |                              | 4.33   | %                                |   | 4.34 | % |   | 4.33 | % |   | 4.34 | % |
| Expected                volatility rate    |                              | 46.2   | %                                |   | 49.4 | % |   | 46.2 | % |   | 49.4 | % |

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

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Table of Contents
| ·   | $21.7                million of net borrowings under the $45.0 million Comerica revolving                credit facility, which effective September 30, 2005 replaced the                prior                $30.0 million revolving credit facility with Comerica (see below).                The                $45.0 million facility, of which $3.0 million is provided for Stratus’                Calera Court project, matures on May 30,                2007. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

| ·   | $6.5                million of net borrowings under the 7500 Rialto Boulevard project                loan,                which matures in January 2006. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | $11.9                million of net borrowings under the Teachers Insurance and Annuity                Association of America (TIAA) 7000 West project loan, which will                mature in                January 2015. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | $3.0                million of net borrowings under the $9.8 million Deerfield loan,                for which                the Deerfield property and any future improvements are serving as                collateral. This project loan will mature in February                2007. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | $7.6                million of net borrowings under the $18.5 million Escarpment Village                project loan, which will mature in June                2007. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | $3.7                million of net borrowings under the $10.0 million Meridian project                loan,                which will mature in November 2007. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

| **6.                ** | **BUSINESS                SEGMENTS** |
|----------------------------------|--------------------------------------|

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Table of Contents

|                                                  | Real                Estate Operationsa |    | Commercial                Leasing |   |   | Other  |   |   | Total  |   |
|-------------------------------------------------------|----------------------------------------|---------|-----------------------------------|--------|--------|--------|--------|--------|--------|--------|
| Three                Months Ended September 30, 2005: |                                   |    |                              |   |   |   |   |   |   |   |   |   |
| Revenues                                              | $                                      | 11,782  |                              | $      | 1,223  |   | $      | -      |   | $      | 13,005 |   |
| Cost                of sales, excluding depreciation  |                                   | (7,074  | )                                 |   | (727   | )      |   | -      |   |   | (7,801 | ) |
| Depreciation                                          |                                   | (37     | )                                 |   | (385   | )      |   | -      |   |   | (422 | ) |
| General                and administrative expenses    |                                   | (970    | )                                 |   | (216   | )      |   | -      |   |   | (1,186 | ) |
| Operating                income (loss)                | $                                      | 3,701   |                              | $      | (105   | )      | $      | -      |   | $      | 3,596 |   |
| Capital                expenditures                   | $                                      | 10,847  |                              | $      | 43     |   | $      | -      |   | $      | 10,890 |   |
| Total                assets                           | $                                      | 143,388 |                              | $      | 20,682 |   | $      | 5,330  | b      | $      | 169,400 |   |
|                                                  |                                   |    |                              |   |   |   |   |   |   |   |   |   |
| Three                Months Ended September 30, 2004: |                                   |    |                              |   |   |   |   |   |   |   |   |   |
| Revenues                                              | $                                      | 3,756   |                              | $      | 1,103  |   | $      | -      |   | $      | 4,859 |   |
| Cost                of sales, excluding depreciation  |                                   | (2,555  | )                                 |   | (47    | )c     |   | -      |   |   | (2,602 | ) |
| Depreciation                                          |                                   | (33     | )                                 |   | (365   | )      |   | -      |   |   | (398 | ) |
| General                and administrative expenses    |                                   | (883    | )                                 |   | (198   | )      |   | -      |   |   | (1,081 | ) |
| Operating                income                       | $                                      | 285     |                              | $      | 493    |   | $      | -      |   | $      | 778 |   |
| Capital                expenditures                   | $                                      | 4,254   |                              | $      | 393    |   | $      | -      |   | $      | 4,647 |   |
| Total                assets                           | $                                      | 126,148 |                              | $      | 21,982 |   | $      | 7,261  | b      | $      | 155,391 |   |
|                                                  |                                   |    |                              |   |   |   |   |   |   |   |   |   |
| Nine                Months Ended September 30, 2005:  |                                   |    |                              |   |   |   |   |   |   |   |   |   |
| Revenues                                              | $                                      | 21,069  |                              | $      | 3,608  |   | $      | -      |   | $      | 24,677 |   |
| Cost                of sales, excluding depreciation  |                                   | (13,063 | )                                 |   | (2,047 | )      |   | -      |   |   | (15,110 | ) |
| Depreciation                                          |                                   | (112    | )                                 |   | (1,147 | )      |   | -      |   |   | (1,259 | ) |
| General                and administrative expenses    |                                   | (3,074  | )                                 |   | (689   | )      |   | -      |   |   | (3,763 | ) |
| Operating                income (loss)                | $                                      | 4,820   |                              | $      | (275   | )      | $      | -      |   | $      | 4,545 |   |
| Capital                expenditures                   | $                                      | 29,745  |                              | $      | 265    |   | $      | -      |   | $      | 30,010 |   |
|                                                  |                                   |    |                              |   |   |   |   |   |   |   |   |   |
| Nine                Months Ended September 30, 2004:  |                                   |    |                              |   |   |   |   |   |   |   |   |   |
| Revenues                                              | $                                      | 8,128   |                              | $      | 2,905  |   | $      | -      |   | $      | 11,033 |   |
| Cost                of sales, excluding depreciation  |                                   | (5,771  | )                                 |   | (1,547 | )c     |   | -      |   |   | (7,318 | ) |
| Depreciation                                          |                                   | (85     | )                                 |   | (1,020 | )      |   | -      |   |   | (1,105 | ) |
| General                and administrative expenses    |                                   | (3,007  | )                                 |   | (674   | )      |   | -      |   |   | (3,681 | ) |
| Operating                loss                         | $                                      | (735    | )                                 | $      | (336   | )      | $      | -      |   | $      | (1,071 | ) |
| Capital                expenditures                   | $                                      | 16,823  |                              | $      | 1,410  |   | $      | -      |   | $      | 18,233 |   |
|                                                  |                                   |    |                              |   |   |   |   |   |   |   |   |   |

| 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                a $0.7 million reimbursement of certain building repairs received                from a                settlement with the general contractor responsible for construction                of the                7000 West office buildings. |
|----------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **7.                ** | **COMMITMENTS** |
|----------------------------------|-----------------|

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REPORT

**/s/      PricewaterhouseCoopers LLP**

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Table of Contents

Item      2.

**OVERVIEW**

*Management’s      discussion and analysis presented below should be read in conjunction with      our      discussion and analysis of financial results contained in our 2004 Annual Report      on Form 10-K (2004 Form 10-K). The operating results summarized in this report      are not necessarily indicative of our future operating      results.*

**DEVELOPMENT      AND OTHER ACTIVITIES**

*Lantana.*

*Downtown      Austin Project.*

*Wimberly      Lane Phase II.*

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*Deerfield.*

*Circle      C Community. *

*Calera.*

*Office      Buildings.*

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Table of Contents
**RESULTS      OF OPERATIONS**

|                                   | Third                Quarter |   | Nine                Months |   |
|----------------------------------------|------------------------------|--------|----------------------------|--------|
|                                   | 2005                         |   | 2004                       |   | 2005 |   | 2004 |   |
| Revenues:                              |                         |   |                       |   |   |   |   |   |   |   |   |   |
| Real                estate operations  | $                            | 11,782 |                       | $      | 3,756 |   | $ | 21,069 |   | $ | 8,128 |   |
| Commercial                leasing      |                         | 1,223  |                       |   | 1,103 |   |   | 3,608 |   |   | 2,905 |   |
| Total                revenues          | $                            | 13,005 |                       | $      | 4,859 |   | $ | 24,677 |   | $ | 11,033 |   |
|                                   |                         |   |                       |   |   |   |   |   |   |   |   |   |
| Operating                income (loss) | $                            | 3,596  |                       | $      | 778 |   | $ | 4,545 |   | $ | (1,071 | ) |
|                                   |                         |   |                       |   |   |   |   |   |   |   |   |   |
| Net                income (loss)       | $                            | 3,319  |                       | $      | 557 |   | $ | 3,727 |   | $ | (1,737 | ) |
|                                   |                         |   |                       |   |   |   |   |   |   |   |   |   |

**Real      Estate Operations**

|                                                  | Third                Quarter |   | Nine                Months |   |
|-------------------------------------------------------|------------------------------|--------|----------------------------|--------|
|                                                  | 2005                         |   | 2004                       |   | 2005 |   | 2004 |   |
| Revenues:                                             |                         |   |                       |   |   |   |   |   |   |   |   |   |
| Developed                property sales               | $                            | 6,603  |                       | $      | 1,978 |   | $ | 15,480 |   | $ | 4,762 |   |
| Undeveloped                property sales             |                         | 5,000  |                       |   | 1,750 |   |   | 5,000 |   |   | 3,140 |   |
| Commissions,                management fees and other |                         | 179    |                       |   | 28 |   |   | 589 |   |   | 226 |   |
| Total                revenues                         |                         | 11,782 |                       |   | 3,756 |   |   | 21,069 |   |   | 8,128 |   |
|                                                  |                         |   |                       |   |   |   |   |   |   |   |   |   |
| Cost                of sales                          |                         | (7,111 | )                          |   | (2,588 | ) |   | (13,175 | ) |   | (5,856 | ) |
| General                and administrative expenses    |                         | (970   | )                          |   | (883 | ) |   | (3,074 | ) |   | (3,007 | ) |
|                                                  |                         |   |                       |   |   |   |   |   |   |   |   |   |
| Operating                income (loss)                | $                            | 3,701  |                       | $      | 285 |   | $ | 4,820 |   | $ | (735 | ) |
|                                                  |                         |   |                       |   |   |   |   |   |   |   |   |   |

*Developed      Property Sales. *

|                                     | Third                Quarter |   |
|------------------------------------------|------------------------------|--------|
|                                     | 2005                         |   | 2004 |   |
|                                     | Lots                         |   | Revenues |   | Lots |   | Revenues |   |
| *Residential                Properties:* |                         |   |   |   |   |   |   |   |
| Deerfield                                | 27                           |   | $1.7 |   | - |   | - |   |
|                                     |                         |   |   |   |   |   |   |   |
| Wimberly                Lane Phase II    |                         |   |   |   |   |   |   |   |
| Standard                Homebuilder      | 4                            |   | 0.6 |   | - |   | - |   |
|                                     |                         |   |   |   |   |   |   |   |
| Barton                Creek              |                         |   |   |   |   |   |   |   |
| Escala                Drive Estate       | 4                            |   | 2.2 |   | 2 |   | $0.7 |   |
| Mirador                Estate            | -                            |   | - |   | 3 |   | 1.0 |   |
| Calera                Drive              | 5                            |   | 2.1 |   | - |   | - |   |
|                                     | 40                           |   | $6.6 |   | 5 |   | $1.7 | a |
|                                     |                         |   |   |   |   |   |   |   |

| a.   | Excludes                $0.3 million of previously deferred revenues related to a 2003 lot                sale at                the Mirador subdivision that we recognized in the third quarter of                2004. |
|----------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|                                       | Nine                Months |   |
|--------------------------------------------|----------------------------|--------|
|                                       | 2005                       |   | 2004 |   |
|                                       | Lots                       |   | Revenues |   | Lots |   | Revenues |   |
| *Residential                Properties:*   |                       |   |   |   |   |   |   |   |
| Deerfield                                  | 56                         |   | $3.5 |   | - |   | - |   |
|                                       |                       |   |   |   |   |   |   |   |
| Wimberly                Lane Phase II      |                       |   |   |   |   |   |   |   |
| Standard                Homebuilder        | 7                          |   | 1.1 |   | - |   | - |   |
| Estate                                     | 5                          |   | 1.5 |   | - |   | - |   |
|                                       |                       |   |   |   |   |   |   |   |
| Barton                Creek                |                       |   |   |   |   |   |   |   |
| Escala                Drive Estate         | 7                          |   | 4.0 |   | 5 |   | $1.7 |   |
| Mirador                Estate              | 6                          |   | 3.3 |   | 6 |   | 2.2 |   |
| Calera                Drive                | 5                          |   | 2.1 |   | - |   | - |   |
| Calera                Court Courtyard Home | -                          |   | - |   | 1 |   | 0.6 |   |
|                                       | 86                         |   | $15.5 |   | 12 |   | $4.5 | a |
|                                       |                       |   |   |   |   |   |   |   |

| a.   | Excludes                $0.3 million of previously deferred revenues related to a 2003 lot                sale at                the Mirador subdivision that we recognized in the third quarter of                2004. |
|----------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

*Undeveloped      Property Sales.*

*Commissions,      Management Fees and Other.*

*Cost      of Sales.*

**Commercial      Leasing**

|                                               | Third                Quarter |   | Nine                Months |   |
|----------------------------------------------------|------------------------------|--------|----------------------------|--------|
|                                               | 2005                         |   | 2004                       |   | 2005 |   | 2004 |   |
| Rental                income                       | $                            | 1,223  |                       | $      | 1,103 |   | $ | 3,608 |   | $ | 2,905 |   |
| Rental                property costs               |                         | (727   | )                          |   | (47 | ) |   | (2,047 | ) |   | (1,547 | ) |
| Depreciation                                       |                         | (385   | )                          |   | (365 | ) |   | (1,147 | ) |   | (1,020 | ) |
| General                and administrative expenses |                         | (216   | )                          |   | (198 | ) |   | (689 | ) |   | (674 | ) |
| Operating                income (loss)             | $                            | (105   | )                          | $      | 493 |   | $ | (275 | ) | $ | (336 | ) |
|                                               |                         |   |                       |   |   |   |   |   |   |   |   |   |

*Rental      Income.*

*Rental      Property Costs.*

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**CAPITAL      RESOURCES AND LIQUIDITY**

**Nine-Months      2005 Compared with Nine-Months 2004**

**Credit      Facility and Other Financing Arrangements**

| ·   | $21.7                million of net borrowings under the $45.0 million Comerica revolving                credit facility, which effective September 30, 2005 replaced the                prior                $30.0 million revolving credit facility with Comerica. The $45.0                million                facility, of which $3.0 million is provided for our Calera Court                project,                matures on May 30, 2007. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

| ·   | $6.5                million of net borrowings under the 7500 Rialto Boulevard project                loan,                which matures in January 2006 (see                below). |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| ·   | $11.9                million of net borrowings under the TIAA 7000 West project loan,                which                will mature in January 2015. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | $3.0                million of net borrowings under the $9.8 million Deerfield loan,                for which                the Deerfield property and any future improvements are serving as                collateral. This project loan will mature in February                2007. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | $7.6                million of net borrowings under the $18.5 million Escarpment Village                project loan, which will mature in June                2007. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | $3.7                million of net borrowings under the $10.0 million Meridian project                loan,                which will mature in November 2007. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------|

*Comerica      Revolving Credit Facility.*

*7500      Rialto Boulevard Project Loan Amendment.*

**Outlook**

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Table of Contents
**NEW      ACCOUNTING STANDARD**

**CAUTIONARY      STATEMENT**

Item      3. 

Item      4.

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

Item      1.

Item      2.

|                                   |   |                                  |   |                                        |   |                            | Current                Programa |
|----------------------------------------|--------|---------------------------------------|--------|---------------------------------------------|--------|---------------------------------|---------------------------------|
| Period                                 |   | Total                Shares Purchased |   | Average                Price Paid Per Share |   | Shares                Purchased |                            | Shares                Available for Purchase |
|                                   |   |                                  |   |                                        |   |                            |                            |   |   |
| July                1 to 31, 2005      |   | 600                                   |   |                                        | $18.01 |                            | 600                             |   | 620,016 |
| August                1 to 31, 2005    |   | 125,676                               |   |                                        | 18.13  |                            | 125,676                         |   | 494,340 |
| September                1 to 30, 2005 |   | -                                     |   |                                        | -      |                            | -                               |   | 494,340 |
| Total                                  |   | 126,276                               |   |                                        | 18.13  |                            | 126,276                         |   |   |

| 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      6.

**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   | 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.                                                                  |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.2   | 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.                                                       |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.3   | Loan                Agreement dated December 28, 2000, by and between Stratus Properties                Inc.                and Holliday Fenoliglio Fowler, L.P., subsequently assigned to an                affiliate of First American Asset Management. Incorporated by reference                to                Exhibit 10.20 to Stratus’ 2000 Form 10-K.                                                                                                                                             |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.4   | Loan                Agreement dated June 14, 2001, by and between Stratus Properties                Inc. and                Holliday Fenoliglio Fowler, L.P., subsequently assigned to an affiliate                of                First American Asset Management. Incorporated by reference to Exhibit                10.20 to the Quarterly Report on Form 10-Q of Stratus for the quarter                ended September 30, 2001.                                                                          |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.5   | 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.                                                                                                                                                                                                                                             |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.6   | Modification                Agreement dated January 31, 2003, by and between Lantana Office Properties                I, L.P., formerly 7500 Rialto Boulevard, L.P., and Comerica Bank-Texas.                Incorporated by reference to Exhibit 10.19 to Stratus’ 2003 First Quarter                Form 10-Q.                                                                                                                                                                                            |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.7   | Second                Modification Agreement dated as of December 29, 2003, to be effective                as                of January 31, 2004, by and between Lantana Office Properties I,                L.P., a                Texas limited partnership (formerly known as 7500 Rialto Boulevard,                L.P.),                as borrower, and Comerica Bank, as lender. Incorporated by reference                to                Exhibit 10.20 to Stratus’ 2003 Form                10-K. |

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| 10.8   | 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.                                                                                |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                        |
| 10.9   | Loan                Agreement dated September 22, 2003, by and between Calera Court,                L.P., as                borrower, and Comerica Bank, as lender. Incorporated by reference                to                Exhibit 10.26 to Stratus’ 2003 Third Quarter Form 10-Q.                                |
|   |                                                                                                                                                                                                                                                                                                                        |
| 10.10  | Development                Agreement dated August 15, 2002, between Circle C Land Corp. and                City of                Austin. Incorporated by reference to Exhibit 10.18 to the Quarterly                Report                on Form 10-Q of Stratus for the quarter ended September 30,                2002. |
|   |                                                                                                                                                                                                                                                                                                                        |
|   | Executive                Compensation Plans and Arrangements (Exhibits 10.11 through                10.20)                                                                                                                                                                                                                  |
|   |                                                                                                                                                                                                                                                                                                                        |
| 10.11  | 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.                                                                        |
|   |                                                                                                                                                                                                                                                                                                                        |
| 10.12  | Stratus                Stock Option Plan. Incorporated by reference to Exhibit 10.25 to                Stratus’                2003 Form 10-K.                                                                                                                                                                        |
|   |                                                                                                                                                                                                                                                                                                                        |
| 10.13  | Stratus                1996 Stock Option Plan for Non-Employee Directors. Incorporated by                reference to Exhibit 10.22 to Stratus’ 2005 Second Quarter Form                10-Q.                                                                                                                         |
|   |                                                                                                                                                                                                                                                                                                                        |
| 10.14  | Stratus                Properties Inc. 1998 Stock Option Plan. Incorporated by reference                to                Exhibit 10.23 to Stratus’ 2005 Second Quarter Form                10-Q.                                                                                                                     |
|   |                                                                                                                                                                                                                                                                                                                        |
| 10.15  | 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.                                           |
|   |                                                                                                                                                                                                                                                                                                                        |
| 10.16  | 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.                                                                                                          |
|   |                                                                                                                                                                                                                                                                                                                        |
| 10.17  | Stratus                Properties Inc. 2002 Stock Incentive Plan. Incorporated by reference                to                Exhibit 10.26 to Stratus’ 2005 Second Quarter Form                10-Q.                                                                                                                  |
|   |                                                                                                                                                                                                                                                                                                                        |
| 10.18  | 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.                                        |
|   |                                                                                                                                                                                                                                                                                                                        |
| 10.19  | 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.                                                                                        |
|   |                                                                                                                                                                                                                                                                                                                        |
| 10.20  | Stratus                Director Compensation. Incorporated by reference to Exhibit 10.28                to the                Annual Report on Form 10-K of Stratus for the fiscal year ended December                31, 2004.                                                                                             |

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

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