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EX-31.1 - EXHIBIT 31.1 - STRATUS PROPERTIES INCa2q14exhibit311.htm

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, 2014
 
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: 000-19989
 
Stratus Properties Inc.
(Exact name of registrant as specified in its charter)
Delaware
72-1211572
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer Identification No.)
 
 
212 Lavaca St., Suite 300
 
Austin, Texas
78701
(Address of principal executive offices)
(Zip Code)
 
(512) 478-5788
(Registrant's telephone number, including area code)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
þ Yes   ¨ No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   þ Yes   ¨ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ¨        Accelerated filer ¨         Non-accelerated filer ¨          Smaller reporting company þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   ¨ Yes þ No

On July 31, 2014, there were issued and outstanding 8,029,353 shares of the registrant’s common stock, par value $0.01 per share.








PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

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

 
June 30,
2014
 
December 31,
2013
ASSETS
 
 
 
Cash and cash equivalents
$
24,260

 
$
21,307

Restricted cash
4,550

 
5,077

Real estate held for sale
20,233

 
18,133

Real estate under development
93,973

 
76,891

Land available for development
21,351

 
21,404

Real estate held for investment, net
178,577

 
182,530

Investment in unconsolidated affiliates
3,520

 
4,427

Other assets
17,068

 
17,174

Total assets
$
363,532

 
$
346,943

 
 
 
 
LIABILITIES AND EQUITY
 
 
 
Accounts payable
$
6,133

 
$
5,143

Accrued liabilities
6,617

 
9,360

Debt
168,937

 
151,332

Other liabilities and deferred gain
12,996

 
11,792

Total liabilities
194,683

 
177,627

 
 
 
 
Commitments and contingencies

 

 
 
 
 
Equity:
 
 
 
Stratus stockholders’ equity:
 
 
 
Common stock
91

 
91

Capital in excess of par value of common stock
203,944

 
203,724

Accumulated deficit
(59,408
)
 
(60,724
)
Accumulated other comprehensive loss
(326
)
 
(22
)
Common stock held in treasury
(20,275
)
 
(19,448
)
Total Stratus stockholders’ equity
124,026

 
123,621

Noncontrolling interests in subsidiaries
44,823

 
45,695

Total equity
168,849

 
169,316

Total liabilities and equity
$
363,532

 
$
346,943


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


2


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

 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2014
 
2013
 
2014
 
2013
Revenues:
 
 
 
 
 
 
 
Real estate operations
$
6,824

 
$
28,043

 
$
12,255

 
$
46,905

Hotel
10,560

 
9,816

 
21,372

 
19,895

Entertainment
3,513

 
3,424

 
9,000

 
6,632

Commercial leasing
1,624

 
1,242

 
3,193

 
2,552

Total revenues
22,521

 
42,525

 
45,820

 
75,984

Cost of sales:
 
 
 
 
 
 
 
Real estate operations
4,682

 
23,833

 
8,500

 
39,785

Hotel
7,641

 
7,538

 
15,273

 
14,812

Entertainment
2,515

 
2,979

 
6,536

 
5,435

Commercial leasing
703

 
685

 
1,404

 
1,347

Depreciation
2,225

 
2,308

 
4,472

 
4,538

Total cost of sales
17,766

 
37,343

 
36,185

 
65,917

Insurance settlement
(46
)
 
(1,785
)
 
(576
)
 
(1,785
)
General and administrative expenses
1,959

 
2,014

 
4,021

 
3,778

Total costs and expenses
19,679

 
37,572

 
39,630

 
67,910

Operating income
2,842

 
4,953

 
6,190

 
8,074

Interest expense, net
(974
)
 
(2,008
)
 
(1,823
)
 
(4,307
)
Loss on interest rate cap agreement
(170
)
 

 
(251
)
 

Other income, net
3

 
95

 
22

 
1,345

Income before income taxes and equity in unconsolidated affiliates' income (loss)
1,701

 
3,040

 
4,138

 
5,112

Equity in unconsolidated affiliates' (loss) income
(243
)
 
149

 
438

 
111

Provision for income taxes
(194
)
 
(222
)
 
(420
)
 
(425
)
Net income
1,264

 
2,967

 
4,156

 
4,798

Net income attributable to noncontrolling interests in subsidiaries
(1,045
)
 
(2,335
)
 
(2,840
)
 
(3,013
)
Net income attributable to Stratus common stock
$
219

 
$
632

 
$
1,316

 
$
1,785

 
 
 
 
 
 
 
 
Basic and diluted net income per share attributable to Stratus common stock
$
0.03

 
$
0.08

 
$
0.16

 
$
0.22

 
 
 
 
 
 
 
 
Weighted-average shares of common stock outstanding:
 
 
 
 
 
 
 
Basic
8,030

 
8,099

 
8,040

 
8,102

Diluted
8,068

 
8,131

 
8,085

 
8,133


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

3


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

 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2014
 
2013
 
2014
 
2013
 
 
 
 
 
 
 
 
Net income
$
1,264

 
$
2,967

 
$
4,156

 
$
4,798

 
 
 
 
 
 
 
 
Other comprehensive loss, net of taxes:
 
 
 
 
 
 
 
Loss on interest rate swap agreement
(229
)
 

 
(435
)
 

Other comprehensive loss
(229
)
 

 
(435
)
 

 
 
 
 
 
 
 
 
Total comprehensive income
1,035

 
2,967

 
3,721

 
4,798

Total comprehensive income attributable to noncontrolling interests
(975
)
 
(2,335
)
 
(2,709
)
 
(3,013
)
Total comprehensive income attributable to Stratus common stock
$
60

 
$
632

 
$
1,012

 
$
1,785

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



4


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

 
Six Months Ended
 
June 30,
 
2014
 
2013
Cash flow from operating activities:
 
 
 
Net income
$
4,156

 
$
4,798

Adjustments to reconcile net income to net cash (used in) provided by operating activities:
 
 
 
Depreciation
4,472

 
4,538

Cost of real estate sold
6,081

 
31,375

Stock-based compensation
220

 
157

Equity in unconsolidated affiliates' income
(438
)
 
(111
)
Deposits
(101
)
 
(113
)
Purchases and development of real estate properties
(24,817
)
 
(8,728
)
Recovery of land previously sold

 
(485
)
Municipal utility district reimbursement

 
208

Decrease (increase) in other assets
1,093

 
(12,631
)
(Decrease) increase in accounts payable, accrued liabilities and other
(1,233
)
 
1,366

Net cash (used in) provided by operating activities
(10,567
)
 
20,374

 
 
 
 
Cash flow from investing activities:
 
 
 
Capital expenditures
(953
)
 
(632
)
Return of investment in (investment in) unconsolidated affiliates
1,345

 
(700
)
Net cash provided by (used in) investing activities
392


(1,332
)
 
 
 
 
Cash flow from financing activities:
 
 
 
Borrowings from credit facility
23,500

 
9,000

Payments on credit facility
(6,828
)
 
(23,368
)
Borrowings from project loans
6,000

 
1,568

Payments on project and term loans
(5,067
)
 
(443
)
Noncontrolling interests distributions
(3,581
)
 
(103
)
Repurchase of treasury stock
(637
)
 
(623
)
Net payments for stock-based awards
(190
)
 
(72
)
Financing costs
(69
)
 

Net cash provided by (used in) financing activities
13,128

 
(14,041
)
Net increase in cash and cash equivalents
2,953

 
5,001

Cash and cash equivalents at beginning of year
21,307

 
12,784

Cash and cash equivalents at end of period
$
24,260

 
$
17,785


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

5


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

 
 
Stratus Stockholders’ Equity
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Accum-
ulated
Other
Compre-
hensive
Loss
 
Common Stock
Held in Treasury
 
Total Stratus Stockholders' Equity
 
 
 
 
 
 
Common Stock
 
Capital in Excess of Par Value
 
Accum-ulated Deficit
 
 
 
 
Noncontrolling Interests in Subsidiaries
 
 
 
 
Number
of Shares
 
At Par
Value
 
 
 
 
Number
of Shares
 
At
Cost
 
 
 
Total
Equity
Balance at December 31, 2013
 
9,076

 
$
91

 
$
203,724

 
$
(60,724
)
 
$
(22
)
 
1,030

 
$
(19,448
)
 
$
123,621

 
$
45,695

 
$
169,316

Common stock repurchases
 

 

 

 

 

 
37

 
(637
)
 
(637
)
 

 
(637
)
Exercised and issued stock-based awards
 
31

 

 

 

 

 

 

 

 

 

Stock-based compensation
 

 

 
220

 

 

 

 

 
220

 

 
220

Tender of shares for stock-based awards
 

 

 

 

 

 
11

 
(190
)
 
(190
)
 

 
(190
)
Noncontrolling interests distributions
 

 

 

 

 

 

 

 

 
(3,581
)
 
(3,581
)
Total comprehensive income (loss)
 

 

 

 
1,316

 
(304
)
 

 

 
1,012

 
2,709

 
3,721

Balance at June 30, 2014
 
9,107

 
$
91

 
$
203,944

 
$
(59,408
)
 
$
(326
)
 
1,078

 
$
(20,275
)
 
$
124,026

 
$
44,823

 
$
168,849


Balance at December 31, 2012
 
9,037

 
$
90

 
$
203,298

 
$
(63,309
)
 
$

 
940

 
$
(18,392
)
 
$
121,687

 
$
87,208

 
$
208,895

Common stock repurchases
 

 

 

 

 

 
52

 
(623
)
 
(623
)
 

 
(623
)
Exercised and issued stock-based awards
 
31

 
1

 
25

 

 

 

 

 
26

 

 
26

Stock-based compensation
 

 

 
157

 

 

 

 

 
157

 

 
157

Tender of shares for stock-based awards
 

 

 

 

 

 
8

 
(99
)
 
(99
)
 

 
(99
)
Noncontrolling interests distributions
 

 

 

 

 

 

 

 

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

 

 

 
1,785

 

 

 

 
1,785

 
3,013

 
4,798

Balance at June 30, 2013
 
9,068

 
$
91

 
$
203,480

 
$
(61,524
)
 
$

 
1,000

 
$
(19,114
)
 
$
122,933

 
$
75,893

 
$
198,826


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



6


STRATUS PROPERTIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1.
GENERAL
The accompanying unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2013, included in Stratus Properties Inc.’s (Stratus) Annual Report on Form 10-K (Stratus 2013 Form 10-K) filed with the Securities and Exchange Commission. In the opinion of management, the accompanying consolidated financial statements reflect all adjustments (consisting only of normal recurring items) considered necessary for a fair statement of the results for the second-quarter periods. Operating results for the three-month and six-month periods ended June 30, 2014, are not necessarily indicative of the results that may be expected for the year ending December 31, 2014.

2.
EARNINGS PER SHARE
Stratus’ basic net income per share of common stock was calculated by dividing the net income attributable to Stratus common stock by the weighted-average shares of common stock outstanding during the second-quarter and six-month periods. Following is a reconciliation of net income and weighted-average shares of common stock outstanding for purposes of calculating diluted net income per share (in thousands, except per share amounts):
 
Three Months Ended
 
Six Months Ended
 
 
June 30,
 
June 30,
 
 
2014
 
2013
 
2014
 
2013
 
Net income
$
1,264

 
$
2,967

 
$
4,156

 
$
4,798

 
Net income attributable to noncontrolling interests in subsidiaries
(1,045
)
 
(2,335
)
 
(2,840
)
 
(3,013
)
 
Net income attributable to Stratus common stock
$
219

 
$
632

 
$
1,316

 
$
1,785

 
 
 
 
 
 
 
 
 
 
Weighted-average shares of common stock outstanding
8,030

 
8,099

 
8,040

 
8,102

 
Add shares issuable upon exercise or vesting of:
 
 
 
 
 
 
 
 
Dilutive stock options
15

 
8

a 
15


7

a 
Restricted stock units
23

 
24

 
30

 
24

 
 
 
 
 
 
 
 
 
 
Weighted-average shares of common stock outstanding for purposes of calculating diluted net income per share
8,068

 
8,131

 
8,085

 
8,133

 
 
 
 
 
 
 
 
 
 
Diluted net income per share attributable to Stratus common stock
$
0.03

 
$
0.08

 
$
0.16

 
$
0.22

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

Outstanding stock options with exercise prices greater than the average market price for Stratus' common stock during the period are excluded from the computation of diluted net income per share of common stock. Excluded were approximately 28,100 stock options with a weighted-average exercise price of $27.20 for the second quarter and first six months of 2014, approximately 63,100 stock options with a weighted-average exercise price of $21.00 per option for second-quarter 2013 and approximately 65,600 stock options with a weighted-average exercise price of $20.69 for the first six months of 2013.

3.
JOINT VENTURE WITH CANYON-JOHNSON URBAN FUND II, L.P.
Stratus and Canyon-Johnson Urban Fund II, L.P. (Canyon-Johnson) are participants in a joint venture, CJUF II Stratus Block 21, LLC (the Block 21 Joint Venture), for a 36-story mixed-use development in downtown Austin, Texas, anchored by a W Hotel & Residences (the W Austin Hotel & Residences project). Stratus is the manager of, and has an approximate 40 percent interest in, the Block 21 Joint Venture, and Canyon-Johnson has an approximate 60 percent interest in the Block 21 Joint Venture. As of June 30, 2014, cumulative capital contributions totaled $71.9 million for Stratus and $94.0 million for Canyon-Johnson. Distributions in second-quarter 2014 totaled $1.9 million to Stratus and $2.5 million to Canyon-Johnson. As of June 30, 2014, inception-to-date distributions totaled $47.3 million for Stratus and $54.2 million for Canyon-Johnson. The Block 21 Joint Venture is consolidated in Stratus’ financial statements based on Stratus' assessment that the Block 21 Joint Venture is a variable interest

7


entity (VIE) and that Stratus is the primary beneficiary. Stratus will continue to periodically evaluate which entity is the primary beneficiary of the Block 21 Joint Venture in accordance with applicable accounting guidance. See Note 2 of the Stratus 2013 Form 10-K for further discussion.

Stratus’ consolidated balance sheets include the following assets and liabilities of the Block 21 Joint Venture (in thousands):
 
June 30,
 
December 31,
 
2014
 
2013
Assets:
 
 
 
Cash and cash equivalents
$
16,544

 
$
13,192

Restricted cash
4,547

 
5,069

Real estate held for sale
8,107

 
10,942

Real estate held for investment, net
153,984

 
157,541

Other assets
7,474

 
7,631

    Total assets
190,656

 
194,375

Liabilities:
 
 
 
Accounts payable
2,801

 
3,428

Accrued liabilities
4,775

 
6,856

Debt
99,017

 
99,754

Other liabilities
6,021

 
4,761

    Total liabilities
112,614

 
114,799

Net assets
$
78,042

 
$
79,576

 
 
 
 

Profits and losses among partners in a real estate venture are allocated based on how changes in net assets of the venture would affect cash payments to the partners over the life of the venture and on its liquidation. The amount of the ultimate profits earned by the W Austin Hotel & Residences project will affect the ultimate profit sharing ratios because of provisions in the joint venture agreement, which would require Stratus to return certain previously received distributions to Canyon-Johnson under certain circumstances. Because of the uncertainty of the ultimate profits and, therefore, profit-sharing ratios, the W Austin Hotel & Residences project’s cumulative profits or losses are allocated based on a hypothetical liquidation of the Block 21 Joint Venture’s net assets as of each balance sheet date. As of June 30, 2014, the cumulative earnings for the W Austin Hotel & Residences project were allocated based on 42 percent for Stratus and 58 percent for Canyon-Johnson.

4. JOINT VENTURE WITH LCHM HOLDINGS, LLC
In 2011, Stratus entered into a joint venture (the Parkside Village Joint Venture) with Moffett Holdings, LLC (Moffett Holdings) for the development of Parkside Village, a retail project in the Circle C Community. On March 3, 2014, Moffett Holdings redeemed and purchased the membership interest in Moffett Holdings held by LCHM Holdings, LLC (LCHM Holdings). In connection with the redemption, (1) LCHM Holdings received the 625,000 shares of Stratus common stock held by Moffett Holdings and (2) LCHM Holdings entered into an assignment and assumption agreement pursuant to which Moffett Holdings assigned to LCHM Holdings its rights and obligations under the Investor Rights Agreement between Moffett Holdings and Stratus dated as of March 15, 2012. See Note 3 of the Stratus 2013 Form 10-K for further discussion.

5.
FAIR VALUE MEASUREMENTS
Fair value accounting guidance includes a hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 inputs) and the lowest priority to unobservable inputs (Level 3 inputs).


8


The carrying value for certain Stratus financial instruments (i.e., cash and cash equivalents, restricted cash, accounts payable and accrued liabilities) approximates fair value because of their short-term nature and generally negligible credit losses. A summary of the carrying amount and fair value of Stratus' other financial instruments follows (in thousands):
 
June 30, 2014
 
December 31, 2013
 
Carrying
Value
 
Fair
Value
 
Carrying
Value
 
Fair
Value
Assets:
 
 
 
 
 
 
 
Interest rate cap agreement
$
100

 
$
100

 
$
351

 
$
351

Liabilities:
 
 
 
 
 
 
 
Interest rate swap agreement
467

 
467

 
32

 
32

Debt
168,937

 
170,319

 
151,332

 
151,584


Interest Rate Cap Agreement. On September 30, 2013, the Block 21 Joint Venture paid $0.5 million to enter into an interest rate cap agreement, which caps the one-month London Interbank Offered Rate (LIBOR), the variable rate in the Bank of America loan agreement (the BoA Loan) relating to the W Austin Hotel & Residences project, at 1 percent for the first year the BoA Loan is outstanding, 1.5 percent for the second year and 2 percent for the third year. Stratus uses an interest rate pricing model that relies on market observable inputs such as LIBOR to measure the fair value of the interest rate cap agreement. Stratus also evaluated the counterparty credit risk associated with the interest rate cap agreement, which is considered a Level 3 input, but did not consider such risk to be significant. Therefore, the interest rate cap agreement is classified within Level 2 of the fair value hierarchy.

Interest Rate Swap Agreement. On December 13, 2013, the Parkside Village Joint Venture entered into an interest rate swap agreement with Comerica Bank that effectively converts the Parkside Village loan's variable rate from one-month LIBOR to a fixed rate of 2.3 percent. With the interest rate swap agreement in place, the Parkside Village Joint Venture's interest cost on the Parkside Village loan will be 4.8 percent through the December 31, 2020, maturity date. Stratus also evaluated the counterparty credit risk associated with the interest rate swap agreement, which is considered a Level 3 input, but did not consider such risk to be significant. Therefore, the interest rate swap agreement is classified within Level 2 of the fair value hierarchy.

Debt. Stratus' debt is recorded at cost and is not actively traded. Fair value is estimated based on discounted future expected cash flows at estimated current market interest rates. Accordingly, Stratus' debt is classified within Level 2 of the fair value hierarchy. The fair value of debt does not represent the amounts that will ultimately be paid upon the maturities of the loans.

6.
DEBT AND EQUITY TRANSACTIONS
Barton Creek Village Term Loan. On June 27, 2014, Stratus entered into a $6 million term loan agreement with PlainsCapital Bank (the PlainsCapital loan). The PlainsCapital loan matures on June 27, 2024, and is secured by assets at Barton Creek Village. The interest rate is 4.19 percent and payments of principal and interest are due monthly. As required by the PlainsCapital loan, $4.3 million of the proceeds were used to fully repay the existing Barton Creek Village loan, which was scheduled to mature on June 30, 2014.

Interest Expense and Capitalization. Interest expense (before capitalized interest) totaled $1.9 million for second-quarter 2014, $3.0 million for second-quarter 2013, $3.6 million for the six months ended June 30, 2014, and $6.0 million for the six months ended June 30, 2013. Stratus' capitalized interest costs totaled $1.0 million for each of the second quarters of 2014 and 2013, $1.8 million for the six months ended June 30, 2014, and $1.7 million for the six months ended June 30, 2013. Capitalized interest costs for the 2014 and 2013 periods primarily related to development activities at properties in Barton Creek, Circle C and Lakeway, Texas.

Common Stock Repurchases. During the six months ended June 30, 2014, Stratus purchased 36,900 shares of its common stock for $0.6 million ($17.26 per share). Stratus obtained lender approval for these repurchases. See Note 9 of the Stratus 2013 Form 10-K for further discussion of common stock repurchases permitted under Stratus' debt agreements.


9


7.
INCOME TAXES
Stratus’ accounting policy for and other information regarding its income taxes is further described in Notes 1 and 8 of the Stratus 2013 Form 10-K.

Stratus evaluated the recoverability of its deferred tax assets and considered available positive and negative evidence, giving greater weight to losses in recent years, the absence of taxable income in the carry-back period and uncertainty regarding projected future financial results. As a result, Stratus concluded that there was not sufficient positive evidence supporting the realizability of its deferred tax assets beyond an amount totaling $0.3 million at June 30, 2014, and December 31, 2013.

Stratus’ future results of operations may be negatively impacted by an inability to realize a tax benefit for future tax losses or for items that will generate additional deferred tax assets. Stratus’ future results of operations may be favorably impacted by reversals of valuation allowances if Stratus is able to demonstrate sufficient positive evidence that its deferred tax assets will be realized.

The difference between Stratus’ consolidated effective income tax rate for the six months of 2014 and 2013, and the U.S. federal statutory tax rate of 35 percent was primarily attributable to the realization of deferred tax assets.

8.
BUSINESS SEGMENTS
Stratus currently has four operating segments: Real Estate Operations, Hotel, Entertainment and Commercial Leasing.

The Real Estate Operations segment is comprised of Stratus’ real estate assets (developed, under development and undeveloped), which consists of its properties in the Barton Creek community, the Circle C Community, Lantana, and Lakeway, Texas, and the condominium units at the W Austin Hotel & Residences project.

The Hotel segment includes the W Austin Hotel located at the W Austin Hotel & Residences project.

The Entertainment segment includes ACL Live, a live music and entertainment venue and production studio at the W Austin Hotel & Residences project. In addition to hosting concerts and private events, this venue is the home of Austin City Limits, a television program showcasing popular music legends. The Entertainment segment also includes revenues and costs associated with events hosted at other venues, and the results of the Stageside Productions joint venture with Pedernales Entertainment LLC.

The Commercial Leasing segment includes the office and retail space at the W Austin Hotel & Residences project, a retail building and a bank building in Barton Creek Village, and 5700 Slaughter and Parkside Village in the Circle C Community.

Stratus uses operating income or loss to measure the performance of each segment. Stratus allocates parent company general and administrative expenses that do not directly relate to a particular operating segment between the Real Estate Operations and Commercial Leasing segments based on projected annual revenues for each segment. General and administrative expenses related to the W Austin Hotel & Residences project are allocated to the Real Estate Operations, Hotel, Entertainment and Commercial Leasing segments based on projected annual revenues for the W Austin Hotel & Residences project. The following segment information reflects management’s determinations that may not be indicative of what actual financial performance of each segment would be if it were an independent entity.


10


Segment data presented below was prepared on the same basis as Stratus’ consolidated financial statements (in thousands).
 
Real Estate
Operationsa
 
Hotel
 
Entertainment
 
Commercial Leasing
 
Eliminations and Otherb
 
Total
Three Months Ended June 30, 2014:
 
 
 
 
 
 
 
 
 
 
 
Revenues:
 
 
 
 
 
 
 
 
 
 
 
Unaffiliated customers
$
6,824

 
$
10,560

 
$
3,513

 
$
1,624

 
$

 
$
22,521

Intersegment
24

 
99

 
11

 
132

 
(266
)
 

Cost of sales, excluding depreciation
4,696

 
7,642

 
2,598

 
727

 
(122
)
 
15,541

Depreciation
57

 
1,457

 
311

 
438

 
(38
)
 
2,225

Insurance settlement
(46
)
 

 

 

 

 
(46
)
General and administrative expenses
1,465

 
143

 
52

 
445

 
(146
)
 
1,959

Operating income
$
676

 
$
1,417

 
$
563

 
$
146

 
$
40

 
$
2,842

Capital expendituresc
$
16,826

 
$
27

 
$

 
$
438

 
$

 
$
17,291

Total assets at June 30, 2014
156,604

 
113,048

 
50,054

 
49,587

 
(5,761
)
 
363,532

 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended June 30, 2013:
 

 
 

 
 

 
 

 
 

 
 

Revenues:
 
 
 
 
 
 
 
 
 
 
 
Unaffiliated customers
$
28,043

 
$
9,816

 
$
3,424

 
$
1,242

 
$

 
$
42,525

Intersegment
26

 
50

 
15

 
150

 
(241
)
 

Cost of sales, excluding depreciation
23,861

 
7,532

 
3,000

 
705

 
(63
)
 
35,035

Depreciation
59

 
1,558

 
310

 
418

 
(37
)
 
2,308

Insurance settlement
(1,785
)
 

 

 

 

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

 
116

 
51

 
325

 
(139
)
 
2,014

Operating income (loss)
$
4,273

 
$
660

 
$
78

 
$
(56
)
 
$
(2
)
 
$
4,953

Capital expendituresc
$
5,060

 
$
2

 
$
110

 
$
450

 
$

 
$
5,622

Total assets at June 30, 2013
165,902

 
116,750

 
45,804

 
46,820

 
(6,082
)
 
369,194

 
 
 
 
 
 
 
 
 
 
 
 
Six Months Ended June 30, 2014:
 
 
 
 
 
 
 
 
 
 
 
Revenues:
 
 
 
 
 
 
 
 
 
 
 
  Unaffiliated customers
$
12,255

 
$
21,372

 
$
9,000

 
$
3,193

 
$

 
$
45,820

  Intersegment
47

 
229

 
18

 
255

 
(549
)
 

Cost of sales, excluding depreciation
8,566

 
15,274

 
6,667

 
1,452

 
(246
)
 
31,713

Depreciation
113

 
2,930

 
630

 
873

 
(74
)
 
4,472

Insurance settlement
(576
)
 

 

 

 

 
(576
)
General and administrative expenses
3,093

 
215

 
79

 
946

 
(312
)
 
4,021

Operating income
$
1,106

 
$
3,182

 
$
1,642

 
$
177

 
$
83

 
$
6,190

Capital expendituresc
$
24,817

 
$
76

 
$
32

 
$
845

 
$

 
$
25,770

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

 
$
19,895

 
$
6,632

 
$
2,552

 
$

 
$
75,984

  Intersegment
40

 
132

 
23

 
281

 
(476
)
 

Cost of sales, excluding depreciation
39,841

 
14,812

 
5,489

 
1,387

 
(150
)
 
61,379

Depreciation
123

 
3,035

 
617

 
837

 
(74
)
 
4,538

Insurance settlement
(1,785
)
 

 

 

 

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

 
190

 
74

 
627

 
(277
)
 
3,778

Operating income (loss)
$
5,602

 
$
1,990

 
$
475

 
$
(18
)
 
$
25

 
$
8,074

Capital expendituresc
$
8,728

 
$
3

 
$
119

 
$
510

 
$

 
$
9,360

a.
Includes sales commissions and other revenues together with related expenses.
b.
Includes eliminations of intersegment amounts, including the deferred development fee income between Stratus and the Block 21 Joint Venture (see Note 3).
c.
Also includes purchases and development of residential real estate held for sale.

11


9.
NEW ACCOUNTING STANDARDS
In May 2014, the Financial Accounting Standards Board (FASB) issued an Accounting Standards Update (ASU) which outlines a single comprehensive model and supersedes most of the current revenue recognition guidance. For public entities, this ASU is effective for annual reporting periods beginning after December 15, 2016, and interim periods within that reporting period. Early adoption is not permitted. Stratus is evaluating this new guidance, but does not expect it to have a significant impact on its current revenue recognition policies.

In April 2014, FASB issued an ASU which revises the guidance for reporting discontinued operations. This ASU amends the definition of a discontinued operation and requires additional disclosures about disposal transactions that do not meet the definition of a discontinued operation. For public entities, this ASU is effective for annual periods beginning on or after December 15, 2014, and interim periods within that year. Early adoption is permitted, but only for disposals (or classifications as held for sale) that have not been reported in financial statements previously issued or available for issuance. Stratus adopted this ASU in first-quarter 2014.

10.
SUBSEQUENT EVENTS
Slaughter Term Loan. On July 18, 2014, Stratus entered into a $7 million term loan agreement with United Heritage Credit Union (the United loan). The United loan matures on July 31, 2024, and is secured by 5700 Slaughter. The interest rate is 4.50 percent through July 31, 2019. Beginning August 1, 2019, and continuing through the maturity date, interest will accrue at the greater of the Prime Interest Rate plus 1.25 percent or 4.95 percent. As required by the United loan, $5.0 million of the proceeds were used to fully repay the existing 5700 Slaughter term loan, which was scheduled to mature on January 31, 2015.

Stratus evaluated events after June 30, 2014, and through the date the financial statements were issued, and determined any events or transactions occurring during this period that would require recognition or disclosure are appropriately addressed in these financial statements.


12


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

OVERVIEW

In management’s discussion and analysis of financial condition and results of operations, “we,” “us,” “our” and "Stratus" refer to Stratus Properties Inc. (Stratus) and all entities owned or controlled by Stratus. You should read the following discussion in conjunction with our financial statements, the related management's discussion and analysis of financial condition and results of operations and the discussion of our business and properties included in our Annual Report on Form 10-K for the year ended December 31, 2013 (2013 Form 10-K) filed with the Securities and Exchange Commission (refer to "Cautionary Statement" of this Form 10-Q for further discussion). The results of operations reported and summarized below are not necessarily indicative of future operating results, and future results could differ materially from those anticipated in forward-looking statements. All subsequent references to “Notes” refer to Notes to Consolidated Financial Statements (Unaudited) located in Part I, Item 1. “Financial Statements” of this Form 10-Q, unless otherwise stated.

We are a diversified real estate company engaged in the acquisition, development, management, operation and/or sale of commercial, hotel, entertainment, and multi- and single-family residential real estate properties located in Texas, primarily in the Austin and central-Texas areas. We generate revenues from sales of developed properties, from our hotel and entertainment operations and from rental income from our commercial properties. See Note 8 for further discussion of our operating segments.

Developed property sales can include condominium units at the W Austin Hotel & Residences project, an individual tract of land that has been developed and permitted for residential use or a developed lot with a home already built on it. We may, on occasion, sell properties under development, undeveloped properties or commercial properties, if opportunities arise that we believe will maximize overall asset values.

Our principal real estate holdings are in southwest Austin, Texas. The number of developed lots/units, under development acreage and undeveloped acreage as of June 30, 2014, that comprise our principal real estate development projects are presented in the following table.
 
 
 
 
 
Acreage
 
 
 
 
 
Under Development
 
Undeveloped
 
 
 
Developed
Lots/Units
 
Single
Family
 
Commercial
 
Total
 
Single
family
 
Multi-family
 
Commercial
 
Total
 
Total
Acreage
Austin:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Barton Creek
21

 
166

 

 
166

 
512

 
327

 
418

 
1,257

 
1,423

Circle C
57

 

 
23

 
23

 

 
36

 
228

 
264

 
287

Lantana

 

 

 

 

 

 
43

 
43

 
43

Lakeway

 

 

 

 

 

 
40

 
40

 
40

W Austin Residences
6

 

 

 

 

 

 

 

 

San Antonio:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Camino Real

 

 

 

 

 

 
2

 
2

 
2

Total
84

 
166

 
23

 
189

 
512

 
363

 
731

 
1,606

 
1,795


Our principal residential holdings at June 30, 2014, included developed lots at Barton Creek and the Circle C Community, and condominium units at the W Austin Hotel & Residences project. See "Development Activities - Residential" for further discussion. Our principal commercial holdings at June 30, 2014, in addition to the W Austin Hotel & Residences project, consisted of the first phase of Barton Creek Village, and the 5700 Slaughter retail complex and Parkside Village, which are both in the Circle C Community. See "Development Activities - Commercial" for further discussion.

The W Austin Hotel & Residences project is located on a two-acre city block in downtown Austin and contains a 251-room luxury hotel, 159 residential condominium units, and office, retail and entertainment space. The hotel is managed by Starwood Hotels & Resorts Worldwide, Inc. The office space totals 39,328 square feet and the retail space totals 18,362 square feet. The entertainment space, occupied by Austin City Limits Live at the Moody Theater (ACL Live), includes a live music and entertainment venue and production studio.


13


For second-quarter 2014, our revenues totaled $22.5 million and our net income attributable to common stock totaled $0.2 million, compared with revenues of $42.5 million and net income attributable to common stock of $0.6 million for second-quarter 2013. For the first six months of 2014, our revenues totaled $45.8 million and our net income attributable to common stock totaled $1.3 million, compared with revenues of $76.0 million and net income attributable to common stock of $1.8 million for the first six months of 2013. The decrease in revenues primarily relates to a decrease in condominium unit sales at the W Austin Residences as inventory has declined, as well as a decrease in Verano Drive lot sales. Only six condominium units remained available for sale at June 30, 2014. The results for second-quarter 2013 included income of $1.8 million related to an insurance settlement. The results for the first six months of 2014 included income of $0.6 million associated with an insurance settlement. The results for the first six months of 2013 included a gain of $1.5 million associated with the sale of a 16-acre tract of land at Lantana and income of $1.8 million related to an insurance settlement.

BUSINESS STRATEGY AND RELATED RISKS

Our business strategy is to create value for our shareholders by methodically developing high-quality residential and commercial projects using our existing assets and selectively pursuing new development opportunities. We believe that Austin, and other Texas markets, continue to be desirable. Many of our developments are in unique locations where development approvals have historically been subject to regulatory constraints, making it difficult to obtain entitlements. Our Austin assets, which are located in desirable areas with significant regulatory constraints, are highly entitled and, as a result, we believe that through strategic planning and development, we can maximize and fully exploit their value. Additionally, we believe the W Austin Hotel sets a high standard for contemporary luxury in downtown Austin and competes favorably with other hotels and resorts in our geographic market. Our entertainment operations provide quality live music experiences that create awareness for our ACL Live venue and brand, enhancing the overall value of the W Austin Hotel & Residences project. Our current focus is to proceed with the development of our properties, to seek new opportunities to acquire additional properties for potential mixed-use and retail development projects, including with strategic partners where beneficial, and to continue to effectively operate our hotel and entertainment businesses.
In years past, economic conditions, including the constrained capital and credit markets, negatively affected the execution of our business plan, primarily by decreasing the pace of development to match economic and market conditions. We responded to these conditions by successfully restructuring our existing debt, including reducing interest rates and extending maturities, which enabled us to preserve our development opportunities until market conditions improved. Economic conditions have improved and we believe we have the financial flexibility to fully exploit our development opportunities and resources. In the first six months of 2014, the joint venture for the W Austin Hotel & Residences project, CJUF II Stratus Block 21, LLC (the Block 21 Joint Venture), paid $2.6 million in distributions to Stratus and $3.6 million to Canyon-Johnson Urban Fund II, L.P. (Canyon Johnson), Stratus' joint venture partner. As of June 30, 2014, we had $18.3 million of availability under our revolving line of credit with Comerica Bank and $6.9 million in cash and cash equivalents available for use in our real estate operations, excluding cash balances held at our joint ventures, as shown below (in thousands):
Cash and cash equivalents
 
$
24,260

 
Less: Block 21 Joint Venture cash
 
16,544

 
Less: Parkside Village Joint Venture cash
 
838

 
Net cash available
 
$
6,878

 
 
 
 
 
Although we have near-term debt maturities and significant recurring costs, including property taxes, maintenance and marketing, we believe we have sufficient liquidity to address our near term requirements. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors” in the Stratus 2013 Form 10-K for further discussion.

14


DEVELOPMENT ACTIVITIES

Residential. As of June 30, 2014, the number of our residential developed lots/units, lots under development and lots for potential development by area are shown below (excluding lots associated with our unconsolidated joint venture with Trammell Crow Central Texas Development, Inc. relating to Crestview Station (the Crestview Station Joint Venture)):

 
 
Residential Lots/Units
 
 
Developed
 
Under
Development
 
Potential Developmenta
 
Total
W Austin Hotel & Residences project:
 
 
 
 
 
 
 
 
Condominium unitsb
 
6

 

 

 
6

Barton Creek:
 
 
 
 
 
 
 
 
Amarra Drive:
 
 
 
 
 
 
 
 
Phase II Lots
 
21

 

 

 
21

Phase III Lots
 

 
64

 

 
64

Townhomes
 

 

 
214

 
214

Section N Multi-family
 

 

 
1,860

 
1,860

Other Barton Creek Sections
 

 

 
155

 
155

Circle C:
 
 
 
 
 
 
 
 
Meridian
 
57

 

 

 
57

Tract 101 Multi-family
 

 

 
240

 
240

Tract 102 Multi-family
 

 

 
56

 
56

Total Residential Lots/Units
 
84

 
64

 
2,525

 
2,673

a.
Our development of the properties identified under the heading “Potential Development” is dependent upon the approval of our development plans and permits by governmental agencies, including the City of Austin (the City). Those governmental agencies may either not approve one or more development plans and permit applications related to such properties or require us to modify our development plans. Accordingly, our development strategy with respect to those properties may change in the future. While we may be proceeding with approved infrastructure projects on some of these properties, they are not considered to be “under development” for disclosure in this table unless other development activities necessary to fully realize the properties’ intended final use are in progress or scheduled to commence in the near term.
b.
Owned through a joint venture.

W Austin Hotel & Residences project.  Delivery of the first condominium units at the W Austin Residences began in January 2011. As of June 30, 2014, sales of 153 of the 159 condominium units had closed for $178.7 million (including one unit for $2.7 million in second-quarter 2014). In July 2014, we sold one condominium unit for $1.0 million and as of July 31, 2014, had five condominium units available for sale.

Barton Creek.

Calera. Calera is a residential subdivision with plat approval for 155 lots. Construction of the final phase, known as Verano Drive, was completed in July 2008 and includes 71 single-family lots. During second-quarter 2014, we sold the remaining six Verano Drive lots.

Amarra Drive. In 2008, we commenced development of Amarra Drive Phase II, which consists of 35 lots on 51 acres. Development was substantially completed in October 2008. During late 2013, we commenced development of Amarra Phase III, which consists of 64 lots on 166 acres. During the first six months of 2014, we sold nine Phase II lots and as of June 30, 2014, 21 lots remain unsold. During July 2014, we sold one Phase II lot, and as of July 31, 2014, six Phase II lots were under contract.


15


Circle CWe are developing the Circle C Community based on the entitlements secured in our Circle C settlement with the City. Our Circle C settlement, as amended in 2004, permits development of 1.16 million square feet of commercial space, 504 multi-family units and 830 single-family residential lots. Meridian is an 800-lot residential development at the Circle C Community. Development of the final phase of Meridian, which consists of 57 one-acre lots, was completed in first-quarter 2014. As of July 31, 2014, six Meridian lots were under contract.

Commercial. As of June 30, 2014, the number of square feet of our commercial property developed, under development and our remaining entitlements (i.e., potential development) is shown below:
 
Commercial Property
 
Developed
 
Under Development
 
Potential Developmenta
 
Total
W Austin Hotel & Residences project:
 
 
 
 
 
 
 
Officeb
39,328

 

 

 
39,328

Retailb
18,362

 

 

 
18,362

Barton Creek:
 
 
 
 
 
 
 
Treaty Oak Bank
3,085

 

 

 
3,085

Barton Creek Village Phase I
22,366

 

 

 
22,366

Barton Creek Village Phase II

 

 
16,000

 
16,000

Entry Corner

 

 
5,000

 
5,000

Amarra Retail/Office

 

 
83,081

 
83,081

Section N

 

 
1,500,000

 
1,500,000

Circle C:
 
 
 
 
 
 
 
Chase Bank Ground Lease
4,450

 

 

 
4,450

5700 Slaughter
21,248

 

 

 
21,248

Parkside Villageb
77,641

 
12,543

 

 
90,184

Tract 110

 

 
614,500

 
614,500

Tract 114

 

 
78,357

 
78,357

Lantana:
 
 
 
 
 
 
 
Tract GR1

 

 
325,000

 
325,000

Tract G07

 

 
160,000

 
160,000

Austin 290 Tract

 

 
20,000

 
20,000

Total Square Feet
186,480

 
12,543

 
2,801,938

 
3,000,961

a.
Our development of the properties identified under the heading “Potential Development” is dependent upon the approval of our development plans and permits by governmental agencies, including the City. Those governmental agencies may either not approve one or more development plans and permit applications related to such properties or require us to modify our development plans. Accordingly, our development strategy with respect to those properties may change in the future. While we may be proceeding with approved infrastructure projects on some of these properties, they are not considered to be “under development” for disclosure in this table unless other development activities necessary to fully realize the properties’ intended final use are in progress or scheduled to commence in the near term.
b.
Owned through a joint venture.
 
W Austin Hotel & Residences project. The project has 39,328 square feet of leasable office space, including 9,000 square feet for our corporate office. As of June 30, 2014, occupancy for the office space was 91 percent, with leasing activities for the remaining office space ongoing. The project also has 18,362 square feet of retail space, all of which became fully leased and occupied in first-quarter 2014.

Barton Creek. The first phase of the Barton Creek Village consists of a 22,366-square-foot retail complex, which includes a 3,085-square-foot bank building. As of June 30, 2014, occupancy was 100 percent for the retail complex, and the bank building is leased through January 2023.

Circle C. In 2008, we completed the construction of two retail buildings, totaling 21,248 square feet, at 5700 Slaughter in the Circle C Community (5700 Slaughter). This retail project also includes a 4,450-square-foot bank building on an existing ground lease, which expires in 2025. As of June 30, 2014, aggregate occupancy for the two retail buildings was approximately 91 percent.


16


The Circle C Community also includes Parkside Village, a 90,184-square-foot retail project, which is currently under construction. This retail project consists of a 33,650-square-foot full-service movie theater and restaurant, a 13,890-square-foot medical clinic and five other retail buildings, including a 14,926-square-foot building, a 10,175-square-foot building, an 8,043-square-foot building, a 4,500-square-foot building and a stand-alone 5,000-square-foot building. In February 2011, we entered into the Parkside Village Joint Venture, obtained final permits and entitlements and began construction on the rental project. Construction of the final two buildings at Parkside Village is expected to be completed in October 2014. As of June 30, 2014, occupancy of the completed 77,641 square feet was 95 percent. The remaining buildings under development, the 8,043-square-foot building and the 4,500-square-foot building, are fully pre-leased.

Lantana. Lantana is a partially developed, mixed-use real estate development project. During first-quarter 2013, we sold a 16-acre tract for $2.1 million, which had entitlements for approximately 70,000 square feet of office space. As of June 30, 2014, we had entitlements for approximately 485,000 square feet of office and retail space on the remaining 43 acres. Regional utility and road infrastructure is in place with capacity to serve Lantana at full build-out permitted under our existing entitlements.

Unconsolidated Affiliate.
Crestview Station. Crestview Station is a single-family, multi-family, retail and office development, which is located on the site of a commuter line. Crestview Station sold substantially all of its multi-family and commercial properties in 2007 and one commercial site in 2008, while retaining the single-family component. Crestview Station has entered into an agreement to sell the remaining residential land to DR Horton. The contract with DR Horton provides for the sale of 304 lots over four years for a total contract price of $15.8 million. The results of the first three closings are shown below (in millions, except lots closed).
Closing Date
 
Lots Closed
 
Sale Price
 
Gross Profit
April 2012
 
73

 
$
3.8

 
$
0.4

May 2013
 
59

 
3.4

 
0.7

March 2014
 
59

 
3.5

 
0.8

 
We account for our 50 percent interest in the Crestview Station Joint Venture under the equity method.

RESULTS OF OPERATIONS

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

The following table summarizes our results (in thousands):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2014
 
2013
 
2014
 
2013
Operating income:
 
 
 
 
 
 
 
Real estate operations
$
676

 
$
4,273

 
$
1,106

 
$
5,602

Hotel
1,417

 
660

 
3,182

 
1,990

Entertainment
563

 
78

 
1,642

 
475

Commercial leasing
146

 
(56
)
 
177

 
(18
)
Eliminations and other
40

 
(2
)
 
83

 
25

Operating income
$
2,842

 
$
4,953

 
$
6,190

 
$
8,074

Interest expense, net
$
(974
)
 
$
(2,008
)
 
$
(1,823
)
 
$
(4,307
)
Net income
$
1,264

 
$
2,967

 
$
4,156

 
$
4,798

Net income attributable to noncontrolling interests in subsidiaries
$
(1,045
)
 
$
(2,335
)
 
$
(2,840
)
 
$
(3,013
)
Net income attributable to Stratus common stock
$
219

 
$
632

 
$
1,316

 
$
1,785


We have four operating segments: Real Estate Operations, Hotel, Entertainment and Commercial Leasing (see Note 8 for further discussion). The following is a discussion of our operating results by segment.


17


Real Estate Operations
The following table summarizes our Real Estate Operations operating results (in thousands):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2014
 
2013
 
2014
 
2013
Revenues:
 
 
 
 
 
 
 
Developed property sales
$
6,777

 
$
27,843

 
$
12,126

 
$
44,501

Undeveloped property sales

 

 

 
2,100

Commissions and other
71

 
226

 
176

 
344

Total revenues
6,848

 
28,069

 
12,302

 
46,945

Cost of sales, including depreciation
4,753

 
23,920

 
8,679

 
39,964

Insurance settlement
(46
)
 
(1,785
)
 
(576
)
 
(1,785
)
General and administrative expenses
1,465

 
1,661

 
3,093

 
3,164

Operating income
$
676

 
$
4,273

 
$
1,106

 
$
5,602

 
 
 
 
 
 
 
 

Developed Property Sales. The following table summarizes our developed property sales (dollars in thousands):
 
Three Months Ended June 30,
 
2014
 
2013
 
Units/Lots
 
Revenues
 
Average Cost per Unit/Lot
 
Units/Lots
 
Revenues
 
Average Cost Per Unit/Lot
W Austin Hotel & Residences Project
 
 
 
 
 
 
 
 
 
 
 
Condominium Units
1

 
$
2,700

 
$
2,295

 
16

 
$
23,777

 
$
1,236

 
 
 
 
 
 
 
 
 
 
 
 
Barton Creek
 
 
 
 
 
 
 
 
 
 
 
Calera:
 
 
 
 
 
 
 
 
 
 
 
Verano Drive
6

 
2,370

 
179

 
8

 
2,486

 
180

Calera Drive