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, 2015March 31, 2016
 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: 000-19989001-37716
 
Stratus Properties Inc.
(Exact name of registrant as specified in its charter)
Delaware72-1211572
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer Identification No.)
  
212 Lavaca St., Suite 300 
Austin, Texas78701
(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 þ         Non-accelerated filer ¨          Smaller reporting company ¨

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 October 30, 2015,April 29, 2016, there were issued and outstanding 8,067,3568,092,140 shares of the registrant’s common stock, par value $0.01 per share.

Table of Contents



STRATUS PROPERTIES INC.
TABLE OF CONTENTS
  
  
 Page
  
Part I. Financial Information
2
  
Item 1. Financial Statements
2
  
Consolidated Balance Sheets (Unaudited)
2
  
Consolidated Statements of IncomeOperations (Unaudited)
3
  
Consolidated Statements of Comprehensive (Loss) Income (Unaudited)
4
  
Consolidated Statements of Cash Flows (Unaudited)
5
  
Consolidated Statements of Equity (Unaudited)
6
  
Notes to Consolidated Financial Statements (Unaudited)
7
  
Item 2. Management’s Discussion and Analysis of Financial Condition
 
and Results of Operations
1312
  
Item 3. Quantitative and Qualitative Disclosures About Market Risk
2623
  
Item 4. Controls and Procedures
2524
  
Part II. Other Information
2524
  
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
2524
  
Item 6. Exhibits
2524
  
Signature
S-1
  
Exhibit Index
E-1
  


Table of Contents


PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

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

September 30,
2015		 December 31,
2014		March 31,
2016		 December 31,
2015
ASSETS      
Cash and cash equivalents$33,190
 $29,645
$11,285
 $17,036
Restricted cash8,181
 7,615
8,293
 8,731
Real estate held for sale27,013
 12,245
24,999
 25,944
Real estate under development153,241
 123,921
141,218
 139,171
Land available for development24,223
 21,368
14,433
 23,397
Real estate held for investment, net151,285
 178,065
208,779
 186,626
Deferred tax assets15,977
 11,759
15,351
 15,329
Other assets16,434
 18,069
15,264
 13,871
Total assets$429,544
 $402,687
$439,622
 $430,105
      
LIABILITIES AND EQUITY      
Liabilities:      
Accounts payable$16,546
 $8,076
$14,552
 $14,182
Accrued liabilities11,298
 9,670
6,656
 10,356
Debt255,567
 196,477
274,734
 260,592
Other liabilities and deferred gain9,788
 13,378
Other liabilities8,708
 8,301
Total liabilities293,199
 227,601
304,650
 293,431
      
Commitments and contingencies
 

 
      
Equity:      
Stratus stockholders’ equity:      
Common stock91
 91
92
 91
Capital in excess of par value of common stock192,103
 204,269
192,392
 192,122
Accumulated deficit(35,450) (47,321)(36,827) (35,144)
Accumulated other comprehensive loss—
 (279)
Common stock held in treasury(20,470) (20,317)(20,760) (20,470)
Total stockholders’ equity136,274
 136,443
134,897
 136,599
Noncontrolling interests in subsidiaries71
 38,643
75
 75
Total equity136,345
 175,086
134,972
 136,674
Total liabilities and equity$429,544
 $402,687
$439,622
 $430,105

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


2
Table of Contents


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

Three Months Ended Nine Months EndedThree Months Ended 
September 30, September 30,March 31, 
2015 2014 2015 20142016 2015 
Revenues:           
Hotel$8,521
 $9,714
 $31,194
 $31,086
$10,575
 $11,619
 
Entertainment4,143
 4,309
 
Real estate operations6,210
 6,562
 10,920
 18,817
2,255
 2,476
 
Entertainment4,159
 3,659
 13,463
 12,659
Commercial leasing787
 1,695
 4,311
 4,888
2,053
 1,821
 
Total revenues19,677
 21,630
 59,888
 67,450
19,026
 20,225
 
Cost of sales:           
Hotel6,782
 7,542
 23,159
 22,815
7,681
 8,082
 
Entertainment3,044
 3,403
 
Real estate operations4,459
 5,478
 8,580
 13,978
2,209
 2,110
 
Entertainment3,423
 3,003
 10,514
 9,539
Commercial leasing516
 1,045
 2,216
 2,449
862
 741
 
Depreciation2,063
 2,241
 6,713
 6,713
1,682
 2,304
 
Total cost of sales17,243
 19,309
 51,182
 55,494
15,478
 16,640
 
General and administrative expenses2,187
 1,741
 6,308
 5,762
3,075
 1,976
 
Gain on sales of assets(20,729) —
 (20,729) —
Litigation and insurance settlements—
 (1,506) —
 (2,082)
Total costs and expenses(1,299) 19,544
 36,761
 59,174
18,553
 18,616
 
Operating income20,976
 2,086
 23,127
 8,276
473
 1,609
 
Interest expense, net(855) (974) (2,736) (2,797)(1,969) (850) 
(Loss) gain on interest rate derivative instruments(918) 15
 (986) (236)
Loss on interest rate derivative instruments(374) (55) 
Loss on early extinguishment of debt—
 (19) —
 (19)(837) —
 
Other income, net15
 3
 304
 25
4
 4
 
Income before income taxes and equity in unconsolidated affiliates' (loss) income19,218
 1,111
 19,709
 5,249
Equity in unconsolidated affiliates' (loss) income(280) (190) (398) 248
Provision for income taxes(5,197) (143) (5,244) (563)
Income from continuing operations13,741
 778
 14,067
 4,934
(Loss) income before income taxes and equity in unconsolidated affiliates' income(2,703) 708
 
Equity in unconsolidated affiliates' income98
 121
 
Benefit from (provision for) income taxes922
 (263) 
(Loss) income from continuing operations(1,683) 566
 
Income from discontinued operations, net of taxes—
 —
 3,218
 —
—
 3,218
 
Net income13,741
 778
 17,285
 4,934
Net (loss) income(1,683) 3,784
 
Net income attributable to noncontrolling interests in subsidiaries(3,493) (181) (5,414) (3,021)—
 (1,042) 
Net income attributable to common stock$10,248
 $597
 $11,871
 $1,913
Net (loss) income attributable to common stockholders$(1,683) $2,742
 
           
Basic and diluted net income per share attributable to common stockholders:       
Basic and diluted net (loss) income per share attributable to common stockholders:    
Continuing operations$1.27
 $0.07
 $1.07
 $0.24
$(0.21) $(0.06) 
Discontinued operations$—
 $—
 $0.40
 $—
—
 0.40
 
Basic and diluted net income per share attributable to common stockholders$1.27
 $0.07
 $1.47
 $0.24
Basic and diluted net (loss) income per share attributable to common stockholders$(0.21) $0.34
 
           
Weighted-average shares of common stock outstanding:           
Basic8,063
 8,032
 8,055
 8,037
8,071
 8,041
 
Diluted8,094
 8,067
 8,085
 8,078
8,071
 8,079
 

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

3
Table of Contents


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

 Three Months Ended Nine Months Ended
 September 30, September 30,
 2015 2014 2015 2014
        
Net income$13,741
 $778
 $17,285
 $4,934
        
Other comprehensive loss, net of taxes:       
Income (loss) on interest rate swap agreement438
 98
 457
 (337)
Other comprehensive income (loss)438
 98
 457
 (337)
        
Total comprehensive income14,179
 876
 17,742
 4,597
Total comprehensive income attributable to noncontrolling interests(3,666) (211) (5,592) (2,920)
Total comprehensive income attributable to common stock$10,513
 $665
 $12,150
 $1,677
        
 Three Months Ended 
 March 31, 
 2016 2015 
     
Net (loss) income$(1,683) $3,784
 
     
Other comprehensive loss, net of taxes:    
Loss on interest rate swap agreement—
 (163) 
Other comprehensive loss—
 (163) 
     
Total comprehensive (loss) income(1,683) 3,621
 
Total comprehensive income attributable to noncontrolling interests—
 (974) 
Total comprehensive (loss) income attributable to common stockholders$(1,683) $2,647
 
     
The accompanying Notes to Consolidated Financial Statements (Unaudited) are an integral part of these consolidated financial statements.



4
Table of Contents


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

 Nine Months Ended
 September 30,
 2015 2014
Cash flow from operating activities:   
Net income$17,285
 $4,934
Adjustments to reconcile net income to net cash provided by (used in) operating activities:   
Depreciation6,713
 6,713
Cost of real estate sold4,935
 9,772
Deferred gain on sale of 7500 Rialto(5,000) —
Gain on sales of assets(20,729) —
Loss on early extinguishment of debt—
 19
Stock-based compensation421
 348
Equity in unconsolidated affiliates' loss (income)398
 (248)
Deposits1,267
 597
Deferred income taxes3,252
 —
Purchases and development of real estate properties(20,591) (47,611)
Municipal utility district reimbursement5,307
 —
Increase in other assets(1,777) (2,939)
Increase in accounts payable, accrued liabilities and other11,863
 3,334
Net cash provided by (used in) operating activities3,344
 (25,081)
    
Cash flow from investing activities:   
Capital expenditures(37,383) (2,263)
Net proceeds from sales of assets43,266
 —
Return of investment in unconsolidated affiliates6
 1,368
Net cash provided by (used in) investing activities5,889

(895)
    
Cash flow from financing activities:   
Borrowings from credit facility55,826
 28,500
Payments on credit facility(20,857) (9,782)
Borrowings from project loans60,202
 29,812
Payments on project and term loans(36,081) (12,079)
Purchase of noncontrolling interest(61,991) —
Stock-based awards net proceeds (payments), including excess tax benefit1,722
 (125)
Noncontrolling interests distributions(4,244) (4,275)
Repurchase of treasury stock—
 (637)
Financing costs(265) (69)
Net cash (used in) provided by financing activities(5,688) 31,345
Net increase in cash and cash equivalents3,545
 5,369
Cash and cash equivalents at beginning of year29,645
 21,307
Cash and cash equivalents at end of period$33,190
 $26,676
 Three Months Ended
 March 31,
 2016 2015
Cash flow from operating activities:   
Net (loss) income$(1,683) $3,784
Adjustments to reconcile net (loss) income to net cash used in operating activities:   
Depreciation1,682
 2,304
Cost of real estate sold970
 1,167
Loss on early extinguishment of debt837
 —
Loss on interest rate derivative contracts374
 55
Debt issuance cost amortization and stock-based compensation365
 365
Deferred gain on sale of 7500 Rialto, net of tax—
 (3,218)
Equity in unconsolidated affiliates' income(98) (121)
Deposits(114) (98)
Deferred income taxes(22) 98
Purchases and development of real estate properties(3,125) (6,563)
(Increase) decrease in other assets(710) 972
Decrease in accounts payable, accrued liabilities and other(3,182) (577)
Net cash used in operating activities(4,706) (1,832)
    
Cash flow from investing activities:   
Capital expenditures(13,868) (8,276)
Investment in unconsolidated affiliates(187) 35
Net cash used in investing activities(14,055)
(8,241)
    
Cash flow from financing activities:   
Borrowings from credit facility5,500
 14,500
Payments on credit facility(1,931) (6,946)
Borrowings from project loans160,424
 6,774
Payments on project and term loans(149,882) (9,083)
Stock-based awards net payments, including excess tax benefit(158) (93)
Financing costs(943) —
Net cash provided by financing activities13,010
 5,152
Net decrease in cash and cash equivalents(5,751) (4,921)
Cash and cash equivalents at beginning of year17,036
 29,645
Cash and cash equivalents at end of period$11,285
 $24,724

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

5
Table of Contents


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, 2014 9,116
 $91
 $204,269
 $(47,321) $(279) 1,081
 $(20,317) $136,443
 $38,643
 $175,086
Exercised and issued stock-based awards 42
 —
 —
 —
 —
 —
 —
 —
 —
 —
Stock-based compensation 2
 —
 421
 —
 —
 —
 —
 421
 —
 421
Tax benefit for stock-based awards

 —
 —
 1,866
 —
 —
 —
 —
 1,866
 —
 1,866
Tender of shares for stock-based awards —
 —
 —
 —
 —
 12
 (153) (153) —
 (153)
Noncontrolling interests distributions —
 —
 —
 —
 —
 —
 —
 —
 (4,244) (4,244)
Purchase of noncontrolling interest in consolidated subsidiary, net of taxes —
 —
 (14,453) —
 —
 —
 —
 (14,453) (39,920) (54,373)
Total comprehensive income —
 —
 —
 11,871
 279
 —
 —
 12,150
 5,592
 17,742
Balance at September 30, 2015 9,160
 $91
 $192,103
 $(35,450) $—
 1,093
 $(20,470) $136,274
 $71
 $136,345
  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, 2015 9,160
 $91
 $192,122
 $(35,144) $—
 1,093
 $(20,470) $136,599
 $75
 $136,674
Exercised and issued stock-based awards 37
 1
 (1) —
 —
 —
 —
 —
 —
 —
Stock-based compensation —
 —
 139
 —
 —
 —
 —
 139
 —
 139
Tax benefit for stock-based awards

 —
 —
 132
 —
 —
 —
 —
 132
 —
 132
Tender of shares for stock-based awards —
 —
 —
 —
 —
 12
 (290) (290) —
 (290)
Total comprehensive loss —
 —
 —
 (1,683) —
 —
 —
 (1,683) —
 (1,683)
Balance at March 31, 2016 9,197
 $92
 $192,392
 $(36,827) $—
 1,105
 $(20,760) $134,897
 $75
 $134,972

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)
Balance at December 31, 2014 9,116
 $91
 $204,269
 $(47,321) $(279) 1,081
 $(20,317) $136,443
 $38,643
 $175,086
Exercised and issued stock-based awards 40
 —
 65
 —
 —
 —
 —
 65
 —
 65
 37
 —
 —
 —
 —
 —
 —
 —
 —
 —
Stock-based compensation —
 —
 348
 —
 —
 —
 —
 348
 —
 348
 —
 —
 136
 —
 —
 —
 —
 136
 —
 136
Tax benefit for stock-based awards —
 —
 60
 —
 —
 —
 —
 60
 —
 60
Tender of shares for stock-based awards —
 —
 —
 —
 —
 11
 (190) (190) —
 (190) —
 —
 —
 —
 —
 12
 (153) (153) —
 (153)
Noncontrolling interests distributions —
 —
 —
 —
 —
 —
 —
 —
 (4,275) (4,275)
Total comprehensive income (loss) —
 —
 —
 1,913
 (236) —
 —
 1,677
 2,920
 4,597
 —
 —
 —
 2,742
 (95) —
 —
 2,647
 974
 3,621
Balance at September 30, 2014 9,116
 $91
 $204,137
 $(58,811) $(258) 1,078
 $(20,275) $124,884
 $44,340
 $169,224
Balance at March 31, 2015 9,153
 $91
 $204,465
 $(44,579) $(374) 1,093
 $(20,470) $139,133
 $39,617
 $178,750

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



6
Table of Contents


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, 20142015, included in Stratus Properties Inc.’s (Stratus) Annual Report on Form 10-K (Stratus 20142015 Form 10-K) filed with the United States 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 interim periods reported. Operating results for the three-month and nine-month periodsperiod ended September 30, 2015March 31, 2016, are not necessarily indicative of the results that may be expected for the year ending December 31, 20152016.

2.EARNINGS PER SHARE
Stratus’ basic net (loss) income per share of common stock was calculated by dividing the net (loss) income attributable to common stock by the weighted-average shares of common stock outstanding during the third-quarter and nine-monthfirst quarter periods. A reconciliation of net (loss) income and weighted-average shares of common stock outstanding for purposes of calculating diluted net (loss) income per share (in thousands, except per share amounts) follows:
Three Months Ended Nine Months Ended Three Months Ended 
September 30, September 30, March 31, 
2015 2014 2015 2014 2016 2015 
Net income$13,741
 $778
 $17,285
 $4,934
 
Net (loss) income$(1,683) $3,784
 
Net income attributable to noncontrolling interests in subsidiaries(3,493) (181) (5,414) (3,021) —
 (1,042) 
Net income attributable to Stratus common stock$10,248
 $597
 $11,871
 $1,913
 
Net (loss) income attributable to Stratus common stockholders$(1,683) $2,742
 
            
Weighted-average shares of common stock outstanding8,063
 8,032
 8,055
 8,037
 8,071
 8,041
 
Add shares issuable upon exercise or vesting of:            
Dilutive stock options6
 7
 6

12
 —
 6
 
Restricted stock units (RSUs)25
a 
28
a 
24
a 
29
a 
—
 32
a 
            
Weighted-average shares of common stock outstanding for purposes of calculating diluted net income per share8,094
 8,067
 8,085
 8,078
 8,071
 8,079
 
            
Diluted net income per share attributable to common stock$1.27
 $0.07
 $1.47
 $0.24
 
Diluted net (loss) income per share attributable to common stockholders$(0.21) $0.34
 
a. Excludes approximately 36 thousand shares of common stock totaling approximately 22 thousand for third-quarter 2015, 28 thousand for the first nine months of 2015 and 30 thousand for the third quarter and first nine months of 2014 associated with anti-dilutive RSUs.

Stock options and RSUs representing 71 thousand shares of common stock were excluded for first-quarter 2016 from weighted-average common shares outstanding for purposes of calculating diluted net loss per share because they were anti-dilutive. 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. ExcludedStock options representing approximately 28 thousand shares of common stock options totaled approximately 18 thousandwere excluded for third-quarter 2015, 24 thousand for the first nine months of 2015, 57 thousand for third-quarter 2014 and 38 thousand for the first nine months of 2014.first-quarter 2015.

3.JOINT VENTURE WITH CANYON-JOHNSON URBAN FUND II, L.P.
On September 28, 2015, Stratus completed the purchase of Canyon-Johnson Urban Fund II, L.P.'s (Canyon-Johnson) approximate 58 percent interest in the CJUF II Stratus Block 21, LLC joint venture (the Block 21 Joint Venture), which owns a 36-story mixed-use development in downtown Austin, Texas, anchored by a W Austin Hotel & Residences (the W Austin Hotel & Residences project), for approximately $62 million. Canyon-Johnson triggered the process on May 12, 2015, requiring Stratus to elect to either sell its interest in the Block 21 Joint Venture to Canyon-Johnson for $44.5 million or purchase Canyon-Johnson’s interest in the Block 21 Joint Venture. On July 6, 2015, Stratus notified Canyon-Johnson of its election to purchase Canyon-Johnson’s interest in the Block 21 Joint Venture. The Block 21 Joint Venture, which was previously a variable interest entity consolidated by Stratus, is now a wholly owned subsidiary of Stratus and continues to be consolidated. The change in ownership was reflected in stockholder's equity on the Consolidated Balance Sheet, primarily as a reduction in noncontrolling interests in subsidiaries and capital in excess of par value, and an increase in deferred tax assets.

Stratus funded its acquisition of Canyon-Johnson’s interest in the Block 21 Joint Venture with (1) $32.3 million from its non-recourse term loan with Bank of America, (2) a $20.0 million term loan under Stratus’ credit facility with Comerica Bank and (3) $9.7 million in cash.


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Prior to Stratus' purchase of Canyon-Johnson's interest on September 28, 2015, cumulative capital contributions totaled $71.9 million for Stratus and $94.0 million for Canyon-Johnson, and the inception-to-date distributions totaled $53.4 million to Stratus and $62.6 million to Canyon-Johnson.

Prior to the purchase transaction, the Block 21 Joint Venture's cumulative profits were allocated based on a hypothetical liquidation of the Block 21 Joint Venture’s net assets as of each balance sheet date and through September 28, 2015, the allocation was 42 percent for Stratus and 58 percent for Canyon-Johnson.

4.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).

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.


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A summary of the carrying amount and fair value of Stratus' other financial instruments follows (in thousands):
September 30, 2015 December 31, 2014March 31, 2016 December 31, 2015
Carrying
Value
 
Fair
Value
 
Carrying
Value
 
Fair
Value
Carrying
Value
 
Fair
Value
 
Carrying
Value
 
Fair
Value
Assets:              
Interest rate cap agreement$2
 $2
 $79
 $79
$—
 $—
 $1
 $1
Liabilities:              
Interest rate swap agreement909
 909
 596
 596
1,019
 1,019
 646
 646
Debt255,567
 255,578
 196,477
 196,856
274,734
 277,368
 260,592
 263,303

Interest Rate Cap Agreement. On September 30, 2013, theStratus’ joint venture with Canyon-Johnson Urban Fund II, L.P. (the Block 21 Joint VentureVenture) paid $0.5 million to enter into an interest rate cap agreement, which capscapped the one-month London Interbank Offered Rate (LIBOR), the variable rate in the Bank of America loan agreement relating to the W Austin Hotel & Residences project (the BoA loan), at 1 percent until October 5, 2014, 1.5 percent from October 6, 2014, to October 4, 2015, and caps the one-month LIBOR at 2 percent from October 5, 2015, to September 29, 2016 (see Note 4 for the first yearadditional information regarding repayment of the BoA loan is outstanding, 1.5 percent for the second year and 2 percent for the third year.in January 2016). 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, Stratus' joint venture with LCHM Holdings, LLC, formerly Moffett Holdings, LLC, for the development of Parkside Village (the Parkside Village Joint Venture), entered into an interest rate swap agreement with Comerica Bank that Stratus had designated as a cash flow hedge with changes in fair value of the instrument recorded in other comprehensive income.income (loss). The instrument effectively converted the variable rate portion of Parkside Village's loan from Comerica Bank (the Parkside Village loan) from one-month LIBOR to a fixed rate of 2.3 percent. On July 2, 2015, Stratus completedIn connection with the sale of the Parkside Village property (see Note 9). In connection with the sale,on July 2, 2015, Stratus fully repaid the amount outstanding under the Parkside Village loan. Stratus assumed the interest rate swap agreement and as a result, the instrument no longer qualifies for hedge accounting. Accordingly, the liabilityaccumulated other comprehensive loss balance of $0.6 million on July 2, 2015, was reclassified to the statementConsolidated Statement of incomeOperations as a loss on interest rate derivative instruments, and future changes in the fair value of the instrument will beare being recorded in the statementConsolidated Statement of incomeOperations (including a loss of $0.3$0.4 million in third-quarter 2015)first-quarter 2016). 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.

4.DEBT
The components of Stratus' debt are as follows:
 March 31, 2016 December 31, 2015 
Goldman Sachs loan$148,314
 $—
 
BoA loan—
 128,230
 
Lakeway construction loan48,349
 45,931
 
Comerica credit facility36,718
 53,149
 
Santal construction loan23,972
 15,874
 
Diversified Real Asset Income Fund (DRAIF) term loan7,995
 7,993
 
Barton Creek Village term loan5,653
 5,689
 
Magnolia loan3,733
 3,726
 
Total debta
$274,734
 $260,592
 
a.Includes net reductions for unamortized debt issuance costs of $2.5 million for each of March 31, 2016, and December 31, 2015. See Note 7 for a discussion of a change in presentation of debt issuance costs.

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5.DEBT
BankOn January 5, 2016, Stratus completed the refinancing of America Loan. On September 28, 2015, Stratus amended its term loan with Bank of America, N.A. (the BoA Loan). Pursuant to the BoA Loan amendment and among other revisions, (1) the $100.0W Austin Hotel & Residences. Goldman Sachs Mortgage Company provided a $150.0 million, ten-year, non-recourse term loan previously made available to the Block 21 Joint Venture was increased to $130.0 million, (2) the(the Goldman Sachs loan) with a fixed interest rate was reducedof 5.58 percent per annum and payable monthly based on a 30-year amortization. Stratus used the proceeds from the Goldman Sachs loan to fully repay its existing obligations under the LIBOR daily floating rate plus 2.35 percentBoA loan and (3) the maturity date was extended from September 29, 2016, to September 28, 2020. In addition, Canyon-Johnson was released$20.0 million Comerica term loan included as a guarantor. Accordingly, certain obligationspart of the Block 21 Joint Venture, including environmental indemnification and other customary carve-out obligations, are guaranteed by Stratus. All other terms and conditions remain unchanged.

Comerica Credit Facility. On August 21, 2015, Stratus amended its $48.0 million credit facility with Comerica (the Comerica credit facility), that was scheduled to mature on August 31, 2015. The amendment increases the borrowing capacity under the Comerica credit facility to $72.5 million, comprised offacility. For a $45.0 million revolving line of credit, a $7.5 million tranche for letters of credit and a $20.0 million term loan. The interest rate applicable to amounts borrowed under the Comerica credit facility is LIBOR plus 4.0 percent, with a minimum interest rate of 6.0 percent. The Comerica credit facility matures on August 31, 2017, however, to the extent amounts are outstanding under the $20.0 million term loan, a principal payment of $8.0 million is required on or before December 31, 2015, with quarterly principal payments of $1.75 million due thereafter. The Comerica credit facility is secured by substantially alldescription of Stratus' assets except for properties that are encumbered by separate loan financing.The Comerica credit facility contains customary financial covenants including a requirement that Stratus maintain a minimum total stockholders' equity balance of $110.0 million. As of September 30, 2015, Stratus had $58.1 million outstanding under the Comerica credit facility, which was comprised of $38.1 million under the revolving line of credit and $20.0 million under the term loan.

Santal (formerly Tecoma) Construction Loan. On January 8, 2015, a Stratus subsidiary entered into a $34.1 million construction loan agreement with Comerica Bankother loans, refer to fund the development and construction of the first phase of a multi-family development in Section N of Barton Creek, which is referred to as the Santal Barton Creek multi-family project (the Santal construction loan). The interest rate on the Santal construction loan is a LIBOR-based rate (as definedNote 7 in the loan agreement) plus 2.5 percent. The Santal construction loan matures on January 8, 2018, and Stratus has the option to extend the maturity date for two additional twelve-month periods, subject to certain debt service coverage conditions. The Santal construction loan is fully guaranteed by Stratus until certain operational milestones (as defined in the loan agreement) are met.2015 Form 10-K.

Interest Expense and Capitalization. Interest expense (before capitalized interest) totaled $3.7 million for first-quarter 2016 and $2.2 million for third-quarterfirst-quarter 2015, $2.0 million for third-quarter 2014, $6.8 million for the nine months ended September 30, 2015, and $5.6 million for the nine months ended September 30, 2014.. Stratus' capitalized interest costs totaled $1.41.8 million for third-quarter 2015first-quarter 2016, and$1.11.4 million for third-quarter 2014first-quarter 2015, $4.1 million for the nine months ended September 30, 2015, and $2.8 million for the nine months ended September 30, 2014.. Capitalized interest costs for the 20152016 and 20142015 periods primarily related to development activities at Lakeway and certain properties in Barton Creek.Creek and at Lakeway.

6.5.INCOME TAXES
Stratus’ accounting policy for and other information regarding its income taxes is further described in Notes 1 and 8 in the Stratus 20142015 Form 10-K.

Stratus had deferred tax assets (net of deferred tax liabilities) totaling $16.0$15.4 million at September 30, 2015March 31, 2016, and $11.815.3 million at December 31, 20142015. 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.

The difference between Stratus' consolidated effective income tax rate for third-quarterfirst-quarter 2016, and the first nine monthsU.S. Federal statutory income tax rate of 35 percent, was primarily attributable to the state margin tax. The difference between Stratus' consolidated effective income tax rate for first-quarter 2015, and the U.S. Federal statutory income tax rate of 35 percent, was primarily attributable to the state income taxesmargin tax partially offset by the tax effect of income attributable to noncontrolling interests. During the first nine months of 2014, Stratus was subject to state income taxes while maintaining a valuation allowance against its deferred tax assets related to federal income taxes. During fourth-quarter 2014, Stratus released the valuation allowance and recorded a tax benefit.


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

The Real Estate Operations segment is comprised of Stratus’ real estate assets (developed, under development and available for development), which consist of its properties in Austin, Texas (the Barton Creek community, the Circle C community, Lantana and the condominium units at the W Austin Hotel & Residences project); in Lakeway, Texas (The Oaks at Lakeway) located in the greater Austin area; in Magnolia, Texas located in the greater Houston area; and in Killeen, Texas (The West Killeen Market).

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

The Entertainment segment includes ACL Live, a live music and entertainment venue and production studio at the W Austin Hotel & Residences project.Residences. 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, including the recently opened 3TEN ACL Live, which opened in March 2016 on the site of the W Austin Hotel & Residences, and the results of the Stageside Productions joint venture with Pedernales Entertainment LLC (see Note 2 in the Stratus 20142015 Form 10-K for further discussion).

The Real Estate Operations segment is comprised of Stratus’ real estate assets (developed, under development and available for development), which consists of its properties in Austin, Texas (the Barton Creek community, the Circle C community, Lantana and the condominium units at the W Austin Hotel & Residences); in Lakeway, Texas (The Oaks at Lakeway) located in the greater Austin area; in Magnolia, Texas located in the greater Houston area; and in Killeen, Texas (The West Killeen Market).

The Commercial Leasing segment includes the office and retail space at the W Austin Hotel & Residences, project and a retail building and a bank building in Barton Creek Village. On July 2,Village, a retail building at The Oaks at Lakeway and the first phase of the Santal multi-family project. During 2015,, Stratus completed the sales of the Parkside Village and 5700 Slaughter properties, which were included in the Commercial Leasing segments. See Note 9 for further discussion.segment.

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 projectprimarily consist of employee salaries, wages and other costs, and beginning January 1, 2016, are managed on a consolidated basis and are not allocated to Stratus' operating segments. The segment disclosures for first-quarter 2015 have been recast to be consistent with the Real Estate Operations, Hotel, Entertainment and Commercial Leasing segments based on projected annual revenues for the W Austin Hotel & Residences project.first-quarter 2016 presentation. The following segment information reflects management determinations that may not be indicative of what the actual financial performance of each segment would be if it waswere an independent entity.


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Segment data presented below waswere prepared on the same basis as Stratus’ consolidated financial statements (in thousands).
Real Estate
Operationsa
 Hotel Entertainment 
Commercial Leasingb
 
Eliminations and Otherc
 TotalHotel Entertainment 
Real Estate
Operationsa
 
Commercial Leasingb
 
Corporate, Eliminations and Otherc
 Total
Three Months Ended September 30, 2015:           
Three Months Ended March 31, 2016:           
Revenues:                      
Unaffiliated customers$6,210
 $8,521
 $4,159
 $787
 $—
 $19,677
$10,575
 $4,143
 $2,255
 $2,053
 $—
 $19,026
Intersegment8
 76
 22
 134
 (240) —
89
 33
 8
 136
 (266) —
Cost of sales, excluding depreciation4,458
 6,792
 3,493
 524
 (87) 15,180
7,710
 3,105
 2,209
 870
 (98) 13,796
Depreciation58
 1,494
 323
 222
 (34) 2,063
846
 335
 60
 476
 (35) 1,682
General and administrative expenses1,672
 120
 43
 497
 (145) 2,187
—
 —
 —
 —
 3,075
d 
3,075
Gain on sales of assets—
 —
 —
 (20,729) —
 (20,729)
Operating income$30
 $191
 $322
 $20,407
 $26
 $20,976
Capital expendituresd
$4,888
 $241
 $52
 $20,350
 $—
 $25,531
Total assets at September 30, 2015233,295
 108,877
 49,039
 26,629
 11,704
 429,544
Operating income (loss)$2,108
 $736
 $(6) $843
 $(3,208) $473
Capital expenditurese
$87
 $24
 $3,125
 $13,757
 $—
 $16,993
Total assets at March 31, 2016106,284
 42,311
 197,616
 81,290
 12,121
 439,622
Three Months Ended September 30, 2014: 
  
  
  
  
  
Revenues:           
Unaffiliated customers$6,562
 $9,714
 $3,659
 $1,695
 $—
 $21,630
Intersegment24
 85
 12
 131
 (252) —
Cost of sales, excluding depreciation5,494
 7,548
 3,066
 1,069
 (109) 17,068
Depreciation53
 1,460
 313
 452
 (37) 2,241
Litigation settlement(1,506) —
 —
 —
 —
 (1,506)
General and administrative expenses1,344
 83
 31
 412
 (129) 1,741
Operating income (loss)$1,201
 $708
 $261
 $(107) $23
 $2,086
Capital expendituresd
$22,794
 $57
 $23
 $1,230
 $—
 $24,104
Total assets at September 30, 2014179,741
 112,747
 51,418
 49,630
 (5,598) 387,938
Nine Months Ended September 30, 2015:           
Revenues:           
  Unaffiliated customers$10,920
 $31,194
 $13,463
 $4,311
 $—
 $59,888
  Intersegment58
 217
 124
 386
 (785) —
Cost of sales, excluding depreciation8,580
 23,247
 10,666
 2,274
 (298) 44,469
Depreciation183
 4,484
 965
 1,190
 (109) 6,713
General and administrative expenses4,667
 510
 184
 1,396
 (449) 6,308
Gain on sales of assets—
 —
 —
 (20,729) —
 (20,729)
Operating (loss) income$(2,452) $3,170
 $1,772
 $20,566
 $71
 $23,127
Income from discontinued operationse
$—
 $—
 $—
 $3,218
 $—
 $3,218
Capital expendituresd
20,591
 689
 121
 36,573
 —
 57,974
           
Nine Months Ended September 30, 2014:           
Three Months Ended March 31, 2015: 
    
  
  
  
Revenues:                      
Unaffiliated customers$18,817
 $31,086
 $12,659
 $4,888
 $—
 $67,450
$11,619
 $4,309
 $2,476
 $1,821
 $—
 $20,225
Intersegment71
 314
 30
 386
 (801) —
72
 23
 25
 86
 (206) —
Cost of sales, excluding depreciation14,060
 22,822
 9,733
 2,521
 (355) 48,781
8,102
 3,429
 2,111
 765
 (71) 14,336
Depreciation166
 4,390
 943
 1,325
 (111) 6,713
1,494
 324
 57
 467
 (38) 2,304
Insurance settlement(2,082) —
 —
 —
 —
 (2,082)
General and administrative expenses4,437
 298
 110
 1,358
 (441) 5,762
—
 —
 —
 —
 1,976
 1,976
Operating income$2,307
 $3,890
 $1,903
 $70
 $106
 $8,276
Capital expendituresd
$47,611
 $133
 $55
 $2,075
 $—
 $49,874
Operating income (loss)$2,095
 $579
 $333
 $675
 $(2,073) $1,609
Income from discontinued operationsf
$—
 $—
 $—
 $3,218
 $—
 $3,218
Capital expenditurese
391
 61
 6,563
 7,824
 —
 14,839
Total assets at March 31, 2015109,669
 50,993
 190,448
 47,880
 4,390
 403,380
a.Includes sales commissions and other revenues together with related expenses.
b.Includes the results of the Parkside Village and 5700 Slaughter commercial properties through July 2, 2015 (see Note 9).2015.
c.Includes consolidated general and administrative expenses and eliminations of intersegment amounts.
d.General and administrative costs were higher in first-quarter 2016, compared with first-quarter 2015, primarily reflecting higher legal and consulting fees mainly due to costs associated with the proxy contest commenced by Carl Berg.
e.Also includes purchases and development of residential real estate held for sale.
e.f.Represents a deferred gain, net of taxes, associated with the 2012 sale of 7500 Rialto that was recognized in first-quarter 2015 (see Note 9).2015.


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8.7.NEW ACCOUNTING STANDARDS
In April and August 2015, the Financial Accounting Standards Board (FASB) issued an Accounting Standards Update (ASU)Updates (ASUs) to simplify the presentation of debt issuance costs. This ASU requiresThese ASUs require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. For public entities, this ASU isthese ASUs are effective for annual periods beginning after December 15, 2015, and interim periods within those fiscal years. Stratus adopted these ASUs and retrospectively adjusted its previously issued financial statements. Upon adoption, Stratus adjusted its December 31, 2015, balance sheet by decreasing other assets and long-term debt by $2.5 million for debt issuance costs related to corresponding debt balances. Stratus elected to continue presenting debt issuance costs for its revolving credit facility as a deferred charge (asset) because of the volatility of its borrowings and repayments under the facility.

In January 2016, the FASB issued an ASU that amends the current guidance on the classification and measurement of financial instruments. This ASU makes limited changes to existing guidance and amends certain disclosure requirements. For public entities, this ASU is effective for interim and annual periods beginning after December 15, 2017. Early adoption is not permitted, except for the provision on recording fair value changes for financial statements that have not been previously issued. Retrospective application ofliabilities under the ASUfair value option. Stratus is required upon adoption andcurrently evaluating the impact of adopting this ASU will have on its financial reporting and disclosures, but at this time does not expect the Consolidated Balance Sheets would be a decrease in other assets and debtadoption of $2.8 million at September 30, 2015, and $2.6 million at December 31, 2014. Stratus plans to adopt this ASU will have a material impact on January 1, 2016.

9.ASSET SALES AND DISCONTINUED OPERATIONS
Parkside Village and 5700 Slaughter. As of June 30, 2015, Stratus' balance sheet had approximately $24.3 million of assets and $26.0 million of liabilities associated with the Parkside Village and 5700 Slaughter commercial properties. On July 2, 2015, Stratus completed the sales of its Austin-area Parkside Village and 5700 Slaughter commercial properties, both located in the Circle C community, to Whitestone REIT. The Parkside Village retail project, owned in a joint venture with LCHM Holdings, LLC, consisted of 90,184 leasable square feet and was sold for $32.5 million. The 5700 Slaughter retail project, wholly owned by Stratus, consisted of 25,698 leasable square feet and was sold for $12.5 million. Stratus used proceeds from these transactions to repay the $26 million outstanding under the Parkside Village construction loan with Comerica Bank and the term loan with United Heritage Credit Union, with the remainder being held in escrow while Stratus assessed potential tax free like-kind exchange transactions. In September 2015, Stratus used $2.6 million of the escrow funds to purchase an undeveloped tract of land for the West Killeen Market project and withdrew $12.1 million to fund distributions to Stratus and LCHM Holdings, of $9.4 million and $3.2 million respectively. The remaining proceeds are expected to be distributed to Stratus in fourth-quarter 2015. After debt repayments and closing costs, cash proceeds from these transactions approximated $17 million, and Stratus recorded a pre-tax gain in third-quarter 2015 of approximately $21 million, of which the noncontrolling interest share was $4 million. Stratus has determined that the sales of the Parkside Village and 5700 Slaughter commercial properties do not meet the criteria for classification as discontinued operations.

Net (loss) income before income taxes and net (loss) income attributable to Stratus associated with Parkside Village and 5700 Slaughter follow (in thousands):
  
January 1, 2015,
to July 2, 2015
 Nine Months Ended September 30, 2014
     
Net (loss) income before income taxes $(46) $275
Net (loss) income attributable to Stratus (47) 178

7500 Rialto. In 2012, Stratus sold 7500 Rialto, an office building in Lantana. In connection with the sale, Stratus recognized a gain of $5.1 million and deferred a gain of $5.0 million because of a guaranty provided to the lender in connection with the buyer's assumption of the loan related to 7500 Rialto. The guaranty was released in January 2015, and Stratus recognized the deferred gain totaling $5.0 million ($3.2 million to net income attributable to common stock) in first-quarter 2015.

10.SUBSEQUENT EVENTS
On October 30, 2015, Stratus sold the Austin 290 undeveloped tract of land for $1.2 million, with the proceeds being held in escrow for potential tax free like-kind exchange transactions. Stratus expects to record a pre-tax gain of approximately $0.5 million in fourth-quarter 2015.

On December 2, 2010, and December 13, 2012, the Block 21 Joint Venture entered into common stock purchase warrants agreement with Ticketfly, Inc. to purchase 75,000 shares of common stock at an average price of $0.78 per share. In October 2015, Stratus received notification that it would receive $9.6195 per share in cash in exchange for the warrants as a result of Pandora Media, Inc.’s merger with Ticketfly, Inc. Prior to this notification, Stratus did not assign a value to these warrants, as Ticketfly, Inc. was a privately-held company and their value could not be readily determined. Stratus expects to record a gain of approximately $0.7 million in fourth-quarter 2015.financial statements.



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In February 2016, the FASB issued an ASU that will require lessees to recognize most leases on the balance sheet. This ASU allows lessees to make an accounting policy election to not recognize a lease asset and liability for leases with a term of 12 months or less and that do not have a purchase option that is expected to be exercised. For public entities, this ASU is effective for interim and annual reporting periods beginning after December 15, 2018, with early adoption permitted. This ASU must be applied using the modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements. Stratus is currently evaluating the impact this guidance will have on its financial statements.

In March 2016, the FASB issued an ASU that simplifies various aspects of the accounting for share-based payment
transactions, including the income tax consequences, statutory tax withholding requirements, an accounting policy
election for forfeitures and the classification on the statement of cash flows. For public entities, this ASU is effective
for interim and annual periods beginning after December 15, 2016, with early adoption permitted. Each of the amendments in this ASU provides specific transition requirements. Stratus is currently evaluating the impact this
guidance will have on its financial statements.

8.SUBSEQUENT EVENTS
Stratus evaluated events after March 31, 2016, 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.


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

OVERVIEW

In management’s discussionManagement’s Discussion and analysisAnalysis of financial conditionFinancial Condition and resultsResults of operations,Operations, “we,” “us,” “our” and "Stratus" refer to Stratus Properties Inc. and all entities owned or controlled by Stratus Properties Inc. You should read the following discussion in conjunction with our financial statements, the related management's discussionManagement's Discussion and analysisAnalysis of financial conditionFinancial Condition and resultsResults of operationsOperations and the discussion of our business and properties included in our Annual Report on Form 10-K for the year ended December 31, 20142015 (20142015 Form 10-K) filed with the United States Securities and Exchange Commission.Commission (SEC). 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 (refer to "Cautionary Statement" for further discussion). 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 primarily in the acquisition, entitlement, development, management, operation and sale of commercial, hotel, entertainment, and multi- and single-family residential real estate properties, primarily located in the Austin, Texas area, but including projects in certain other select markets in Texas. We generate revenues from sales of developed properties, from our hotel and entertainment operations and from rental income from our commercial properties. See Note 76 for further discussion of our operating segments.

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

The principal holdings in our Real Estate Operations operating segment are in southwest Austin, Texas. The number of developed lots/units, acreage under development and undeveloped acreage as of September 30, 2015March 31, 2016, that comprise our real estate development operations are presented in the following table.
  Acreage    Acreage  
  Under Development Undeveloped    Under Development Undeveloped  
Developed
Lots/Units
 
Multi-
family
 Commercial Total 
Single
family
 Multi-family Commercial Total 
Total
Acreage
Developed
Lots/Units
 
Multi-
family
 Commercial Total 
Single
family
 Multi-family Commercial Total 
Total
Acreage
Austin:                                  
Barton Creek71
 18
 —
 18
 512
 308
 418
 1,238
 1,256
127
 38
 —
 38
 512
 289
 398
 1,199
 1,237
Circle C32
 —
 —
 —
 —
 36
 228
 264
 264
26
 —
 —
 —
 —
 36
 216
 252
 252
Lantana—
 —
 —
 —
 —
 —
 44
 44
 44
—
 —
 —
 —
 —
 —
 56
 56
 56
W Austin Residences2
 —
 —
 —
 —
 —
 —
 —
 —
2
 —
 —
 —
 —
 —
 —
 —
 —
                 
The Oaks at Lakeway—
 —
 87
 87
 —
 —
 —
 —
 87
—
 —
 87
 87
 —
 —
 —
 —
 87
Magnolia—
   —
 —
 —
 —
 124
 124
 124
—
   —
 —
 —
 —
 124
 124
 124
West Killeen Market—
 —
 9
 9
 —
 —
 —
 —
 9
—
 —
 —
 —
 —
 —
 9
 9
 9
San Antonio:                                  
Camino Real—
 —
 —
 —
 —
 —
 2
 2
 2
—
 —
 —
 —
 —
 —
 2
 2
 2
Total105
 18
 96
 114
 512
 344
 816
 1,672
 1,786
155
 38
 87
 125
 512
 325
 805
 1,642
 1,767

Our residential holdings at September 30, 2015March 31, 2016, included developed lots at Barton Creek and the Circle C community, and condominium units at the W Austin Hotel & Residences project.Residences. See "Development Activities - Residential" for further discussion. Our commercial leasing holdings at September 30, 2015March 31, 2016, consisted of the office and retail space at the W Austin Hotel & Residences, project, and the first phase of Barton Creek Village, inThe Oaks at Lakeway and the Circle C community.first phase of the Santal multi-family project. 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 (of which the remaining two unsold units were being marketed as of September 30, 2015March 31, 2016), and office, retail and entertainment space. The hotel is managed by Starwood

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Hotels & Resorts Worldwide, Inc. 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. Our 3TEN ACL Live venue opened in March

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2016. The venue is located on the site of the W Austin Hotel & Residences, and, with a capacity of approximately 350 people, is designed to be more intimate than ACL Live, which can accommodate approximately 3,000 people.

For third-quarter 2015first-quarter 2016, our revenues totaled $19.719.0 million and our net incomeloss attributable to common stockstockholders totaled $10.2$1.7 million, compared with revenues of $21.620.2 million and net income attributable to common stockstockholders of $0.6$2.7 million for third-quarter 2014first-quarter 2015. For the first nine months of 2015, our revenues totaled $59.9 million and our net income attributable to common stock totaled $11.9 million, compared with revenues of $67.5 million and net income attributable to common stock of $1.9 million for the first nine months of 2014. The decrease in revenues in the 2015 periods2016 period primarily relates to fewer condominium unit sales atreflects lower room revenues from the W Austin Residences and fewer lot sales at Verano Drive and Amarra Drive Phase II as inventory has declined as a result of previous sales activity. OurHotel. The results for first-quarter 2016 reflected an increase in general and administrative expenses due to costs associated with the third quarterproxy contest commenced by Carl Berg. In January 2016, we refinanced debt associated with our fully owned W Austin Hotel & Residences with longer-term, fixed-rate debt, and first nine monthsreported a loss on early extinguishment of 2015 included a gain of $20.7debt totaling $0.8 million ($10.80.5 million to net incomeloss attributable to common stock) onstockholders). Increased interest expense in the sales of our Parkside Village2016 period primarily resulted from increased borrowings and 5700 Slaughter commercial developments (see "Results of Operations - Commercial Leasing").higher interest rates. The results for the first nine months offirst-quarter 2015 also included the recognition of a deferred gain associated with the 2012 sale of 7500 Rialto totaling $5.0 million ($3.2 million to net income attributable to common stock). The results for the first nine monthsstockholders) and reflected a reduction of 2014 included income of $2.5 million (including $1.5$1.0 million for third-quarter 2014) associated with a litigation settlement, an insurance settlement and the recovery of building repair costs associated with damage caused by the June 2011 balcony glass breakage incidents atnet income attributable to noncontrolling interests in subsidiaries relating to our former joint venture partner’s interest in the W Austin Hotel & Residence project.Residences.

In third-quarter 2015, we purchased the noncontrolling interest share of the CJUF II Stratus Block 21, LLC joint venture (the Block 21 Joint Venture) and we now own 100 percent of the joint venture (see "Business Strategy and Related Risks" below).

For discussion of operating cash flows and debt transactions, including our refinancing of the W Austin Hotel & Residences, see "Capital Resources and Liquidity" below.

BUSINESS STRATEGY AND RELATED RISKS

Our businessoverall strategy ishas been to enhance the value of our properties by securing and maintaining development entitlements and developing and building real estate projects on these properties for sale or investment. We have also pursued opportunities for new projects that offer the possibility of acceptable returns and risks.
OurIn January 2015, we and Canyon-Johnson Urban Fund II, L.P. (Canyon-Johnson), our partner in the joint venture that owned the W Austin Hotel & Residences (the Block 21 Joint Venture), engaged a financial advisor to explore a possible sale of the W Austin Hotel & Residences. This process did not result in a transaction acceptable to both parties, and on May 12, 2015, Canyon-Johnson triggered the process of requiring us to elect to either sell our approximate 42 percent interest in the Block 21 Joint Venture to them for $44.5 million or purchase their approximate 58 percent interest in the Block 21 Joint Venture. We did not believe that $44.5 million adequately reflected the value of our interest in the Block 21 Joint Venture. Accordingly, on July 6, 2015, we notified Canyon-Johnson of our election to purchase their interest in the Block 21 Joint Venture and on September 28, 2015, we completed the purchase of Canyon-Johnson’s interest in the Block 21 Joint Venture for approximately $62 million.

We believe the pricing of our purchase of Canyon-Johnson’s interest in the Block 21 Joint Venture compares favorably to recent third party appraisals and hotel sales in the Austin market. Appraisals obtained by banks in the refinancing process reflected valuations of the W Austin Hotel & Residences of approximately $239 million. After allocating values to the live music and entertainment venue and office and retail space at the W Austin Hotel & Residences (based on the allocation methodology in each bank’s appraisal), our net cost per room was approximately $510,000. The Four Seasons Hotel Austin, built in 1987, was sold in August of 2015 for a reported $677,000 per room. We completed the refinancing of the W Austin Hotel & Residences in January 2016. See "Capital Resources and Liquidity - Credit Facility and Other Financing Arrangements."

In March 2015, Stratus announced that our board of directors hashad unanimously approved a five-year plan to create value for stockholders by methodically developing certain existing assets and activelystrategically marketing other assets for possible sale at appropriate values. Under the plan, any future new projects will be complementary to existing operations and will be projected to be developed and sold within a five-year time frame. Consistent with our five-year plan, on July 2, 2015, we completed the sales of our Austin-area Parkside Village and 5700 Slaughter commercial properties, both located in the Circle C community, for $32.5 million and $12.5 million, respectively. WeAs discussed further below under “Development Activities,” we are also in negotiations to sell The Oaks at Lakeway, continue to market our completed single-family homesites, continue construction on our Santal multi-family project at Barton Creek Section N, and continue to progress our development projects and plans, including additional HEB-anchored projects.

In April 2016, we announced that our board of directors authorized management to explore a full range of strategic alternatives to enhance value for our stockholders, including, but not limited to, a sale of Stratus, a sale of certain of our core assets, a share repurchase program, and continuing our long-term plans to develop the value of our properties. After conducting a thorough process of engaging or consideringevaluating several financial advisors, we have engaged

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Hentschel & Company, a premier boutique investment banking advisory firm focused on the engagement of advisers to market other developed and undeveloped properties.
Additionally, on September 28, 2015, we completed the purchase of Canyon-Johnson Urban Fund II, L.P.'s (Canyon-Johnson’s) approximate 58 percent interestreal estate industry, as financial advisor in the Block 21 Joint Venture, for approximately $62 million. See Note 3 for further discussion. In connection with our acquisitionthe review of Canyon-Johnson's intereststrategic alternatives. The board of directors has not set a definitive timeline for completion of this review process and has not determined to pursue any particular strategic alternative or enter into any transaction. There can be no assurance that this process will result in any change to the Block 21 Joint Venture, we completed the refinancing of the Block 21 Joint Venture. See "Capital Resources and Liquidity - Credit Facility and Other Financing Arrangements."previously announced five-year plan, a sale transaction or any other transaction.
We believe that the Austin and surrounding sub-markets continue to be desirable. Many of our developments are in locations where development approvals have historically been subject to regulatory constraints, which has made it difficult to obtain entitlements. Our Austin assets, which are located in desirable areas with significant regulatory constraints, are highly entitled and asnow have utility capacity for full buildout. As a result, we believe that through strategic planning, development and development,marketing, as provided in our five-year plan, we can maximize and fully realize their value. Our development plans require significant additional capital, and may be pursued through joint ventures or other means. In addition, our strategy is subject to continued review by our board of directors and may change as a result of the outcome of our recently-announced review of strategic alternatives, market conditions or other factors deemed relevant by our board of directors.
In years past, economic conditions, including the constrained capital and credit markets, negatively affected the execution of our business plan, primarily by decreasing theour 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

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exploit our development opportunities and resources.resources in accordance with our five-year plan. During the first nine months of 2015,first-quarter 2016, our operating cash flows reflect purchases and development of real estate properties totaling $20.6$3.1 million, funded primarily from construction and term loans, to invest in new development opportunities to be executed over the next 24 months.
As of September 30, 2015,March 31, 2016, we had $33.2 million in cash and cash equivalents and $6.9$8.3 million of availability under our revolving line of credit with Comerica Bank, which matures in August 2017.

Although as of March 31, 2016, we have scheduled debt maturities of $16.2$13.4 million in fourth-quarter 20152016 and $20.8$39.3 million in 2016,2017, and significant recurring costs, including property taxes, maintenance and marketing, we believe we will have sufficient sources of debt financing and cash from operations to address our cash requirements. See "Capital Resources and Liquidity" below regarding recent debt repayments and refinancing and “Risk Factors” included in Part 1, Item 1A. of our 20142015 Form 10-K for further discussion.
DEVELOPMENT ACTIVITIES

Residential. As of September 30, 2015March 31, 2016, the number of our residential developed lots/units, lots under development and lots for potential development by area are shown below:
 Residential Lots/Units Residential Lots/Units
 Developed 
Under
Development
 
Potential Developmenta
 Total Developed 
Under
Development
 
Potential Developmenta
 Total
Barton Creek:                
Amarra Drive:                
Phase II Lots 14
 —
 —
 14
 13
 —
 —
 13
Phase III Lots 57
 —
 —
 57
 54
 —
 —
 54
Townhomes —
 —
 190
 190
 —
 20
 170
 190
Section N Multi-family                
Santal Multi-family —
 236
 —
 236
 60
 176
 —
 236
Other Section N —
 —
 1,624
 1,624
 —
 —
 1,624
 1,624
Other Barton Creek sections —
 —
 156
 156
 —
 —
 156
 156
Circle C:                
Meridian 32
 —
 —
 32
 26
 —
 —
 26
Tract 101 Multi-family —
 —
 240
 240
 —
 —
 240
 240
Tract 102 Multi-family —
 —
 56
 56
 —
 —
 56
 56
W Austin Hotel & Residences project:        
Flores Street —
 —
 6
 6
W Austin Hotel & Residences:        
Condominium units 2
 —
 —
 2
 2
 —
 —
 2
Total Residential Lots/Units 105
 236
 2,266
 2,607
 155
 196
 2,252
 2,603

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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 not approve one or more development plans and permit applications related to such properties or may 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.

Amarra Drive. Amarra Drive Phase I, which was the initial phase of the Amarra Drive subdivision, was completed in 2007 and included six lots with sizes ranging from approximately one to four acres. Amarra Drive Phase II, which consistedconsists of 35 lots on 51 acres, was substantially completed in October 2008. We have notDuring first-quarter 2016, we sold any
one Phase II lots in 2015. During the first nine months of 2014, we sold 12 Phase II lotslot for $5.9$0.6 million including 3 lots for $1.7 million in third-quarter 2014. Asand as of September 30, 2015March 31, 2016, 1413 Phase II lots remained unsold.available for sale.
In first-quarter 2015, we completed the development of Amarra Drive Phase III, which consists of 64 lots on 166 acres. During the first nine monthsAs of 2015, we sold 7March 31, 2016, 54 Phase III lots remained unsold. As of April 30, 2016, 2 Phase III lots were under contract and 52 Phase III lots remained available for $5.1 million (including 4 lots for $3.3 millionsale.

The Amarra Villas, the last phase of the Amarra Drive subdivision, is a 20-unit townhome development. We completed site work in third-quarter 2015)late 2015 and construction began in March 2016 on the first five homes, and as of SeptemberApril 30, 2015, 57 lots remained unsold. During October 2015,2016, we sold one lot and as of October 31, 2015, four lots were under contract.have begun marketing them for sale.

Santal (formerly Tecoma) Multi-family. The Santal Multi-familymulti-family project is a garden-style apartment complex consisting of 236 units. Construction commenced in January 2015 and pre-leasing is expected to beginbegan in SeptemberNovember 2015. The first units were completed in January 2016, and the project is expected to be completed in AprilJune 2016. We recognized rental revenue, which is included in the Commercial Leasing segment, from the first phase of units starting in January 2016.

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Circle C. We 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 consisted of 57 one-acre lots, was completed in first-quarter 2014. During the first first-quarternine months of 2015,2016, we sold 185 Meridian lots for $5.0$1.5 million (including 9 lots for $2.6 million in third-quarter 2015) and as of September 30, 2015March 31, 2016, 3226 lots remained unsold. Asavailable for sale. During April 2016, we sold 3 additional Meridian lots and as of October 31, 2015, twoApril 30, 2016, 5 lots were under contract.

Calera. Calera is a residential subdivision with plat approvalcontract and 18 lots remained available for 155 lots. The initial phase of the Calera subdivision included 16 courtyard homes at Calera Court. The second phase of the Calera subdivision, Calera Drive, consisted of 53 single-family lots. Construction of the final phase, known as Verano Drive, was completed in July 2008 and included 71 single-family lots. During 2014, we sold the remaining nine Verano Drive lots for $3.5 million.sale.

W Austin Residences.During the first nine months As of 2014, we sold five condominium units for $7.9 million, including two units for $3.5 million in third-quarter 2014. There were no sales during the first nine months of 2015 and as of September 30, 2015,March 31, 2016, two condominium units remained unsold. The two unsold unitsavailable for sale and are being marketed for sale.


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Commercial. As of September 30, 2015March 31, 2016, the number of square feet of our commercial property developed, under development and our remaining entitlements for potential development (excluding property associated with our unconsolidated joint venture with Tramell Crow Central Texas Development, Inc. relating to Crestview Station in Austin (the Crestview Station Joint Venture)) are shown below:
Commercial PropertyCommercial Property
Developed Under Development 
Potential Developmenta
 TotalDeveloped Under Development 
Potential Developmenta
 Total
Barton Creek:              
Treaty Oak Bank3,085
 —
 —
 3,085
3,085
 —
 —
 3,085
Barton Creek Village Phase I22,366
 —
 —
 22,366
22,366
 —
 —
 22,366
Barton Creek Village Phase II—
 —
 16,000
 16,000
—
 —
 16,000
 16,000
Entry corner—
 —
 5,000
 5,000
—
 —
 5,000
 5,000
Amarra retail/office—
 —
 83,081
 83,081
—
 —
 83,081
 83,081
Section N—
 —
 1,500,000
 1,500,000
—
 —
 1,500,000
 1,500,000
Circle C:              
Tract 110—
 —
 614,500
 614,500
—
 —
 614,500
 614,500
Tract 114—
 —
 78,357
 78,357
—
 —
 78,357
 78,357
Lantana:              
Tract GR1—
 —
 325,000
 325,000
—
 —
 325,000
 325,000
Tract G07—
 —
 160,000
 160,000
—
 —
 160,000
 160,000
W Austin Hotel & Residences project:       
W Austin Hotel & Residences:       
Office38,316
 —
 —
 38,316
38,316
 —
 —
 38,316
Retail18,327
 —
 —
 18,327
18,327
 —
 —
 18,327
Lakeway:       
The Oaks at Lakeway—
 245,022
 —
 245,022
210,102
 21,334
 —
 231,436
Magnolia—
 —
 351,000
 351,000
—
 —
 351,000
 351,000
Killeen Center—
 45,000
 —
 45,000
Austin 290 Tractb
—
 —
 20,000
 20,000
West Killeen Market—
 —
 44,000
 44,000
Total Square Feet82,094
 290,022
 3,152,938
 3,525,054
292,196
 21,334
 3,176,938
 3,490,468
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 not approve one or more development plans and permit applications related to such properties or may 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.On October 30, 2015, Stratus sold the Austin 290 tract (see Note 10).

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Barton Creek. The first phase of Barton Creek Village consists of a 22,366-square-foot retail complex and a 3,085-square-foot bank building. As of September 30, 2015March 31, 2016, occupancy was 100 percent for the retail complex, and the bank building is leased through January 2023.

Circle C.  On July 2, 2015, we completed the sales of our Austin-area Parkside Village and 5700 Slaughter commercial properties, both located in the Circle C community. The Parkside Village retail project, which we owned in a joint venture with LCHM Holdings, LLC, consisted of 90,184 leasable square feet and was sold for $32.5 million. The 5700 Slaughter retail project, which we previously wholly owned, consisted of 25,698 leasable square feet and was sold for $12.5 million.

Lantana.  Lantana is a partially developed, mixed-use real-estate development project. As of March 31, 2016, we had entitlements for approximately 485,000 square feet of office and retail space on the remaining 56 acres. Regional utility and road infrastructure is in place with capacity to serve Lantana at full build-out as permitted under our existing entitlements. We received final approval from the City in August 2015 for a 325,000 square-foot mixed-use development and we expect to move forward with development during 2016.

W Austin Hotel & Residences. The W Austin Hotel & Residences project. The project has 38,316 square feet of leasable office space, including 9,000 square feet occupied by our corporate office, and 18,327 square feet of retail space. As of September 30, 2015,March 31, 2016, occupancy for both the office space was 100 percentand occupancy for the retail space was 74nearly 100 percent. Leasing is ongoing for the remaining retail space. See "Business Strategy and Related Risks" for information on our acquisition


16
Table of the interest of our joint venture partner.Contents


The Oaks at Lakeway. The Oaks at Lakeway is a HEB Grocery Company, L.P. (HEB) anchored retail project planned for 245,022231,436 square feet of commercial space. LeasesAs of March 31, 2016, leases for 6886 percent of the space, including the HEB lease, have been executed and leasing for the remaining space is underway.under way. The project is currently under construction, and the HEB store opened in October 2015.2015, and several other retail tenants have opened in 2016. Construction of the remainder of the project is ongoing. We have received attractive bids for the project and are in active negotiations to sell the property.

Magnolia. The Magnolia project is a HEB-anchored retail project planned for 351,000 square feet of commercial space. Planning and infrastructure work by the city of Magnolia and road expansion by the Texas Department of Transportation are in progress and construction is expected to beginbe completed in 2016.2017. The HEB store is expected to open in fourth-quarter 2017.

West Killeen Market. TheIn 2015, we acquired approximately 21 acres in Killeen, Texas, to develop the West Killeen Market project, is a HEB-anchored retail project planned for 45,00044,000 square feet of commercial space and three pad sites adjacent to a 90,000 square-foot HEB grocery store. Construction is expected to begin in third-quarter 2016, and the HEB store is expected to open in March 2017.

UNCONSOLIDATED AFFILIATE

Crestview Station. The Crestview Station Joint Venture is a single-family, multi-family, retail and office development, located on the site of a commuter rail line. As of September 30, 2015,March 31, 2016, the Crestview Station Joint Venture has sold all of its properties except for one commercial site (see Note 6 in our 20142015 Form 10-K). 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 and sale 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.


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The following table summarizes our results (in thousands):
Three Months Ended September 30, Nine Months Ended September 30,Three Months Ended March 31, 
2015 2014 2015 20142016 2015 
Operating income (loss):           
Real estate operations$30
 $1,201
 $(2,452) $2,307
Hotel191
 708
 3,170
 3,890
$2,108
 $2,095
 
Entertainment322
 261
 1,772
 1,903
736
 579
 
Real estate operations(6) 333
 
Commercial leasing20,407
 (107) 20,566
 70
843
 675
 
Eliminations and other26
 23
 71
 106
Corporate, eliminations and other(3,208) (2,073) 
Operating income$20,976
 $2,086
 $23,127
 $8,276
$473
 $1,609
 
Interest expense, net$(855) $(974) $(2,736) $(2,797)$(1,969) $(850) 
Income from discontinued operations, net of taxes$—
 $—
 $3,218
 $—
$—
 $3,218
 
Net income$13,741
 $778
 $17,285
 $4,934
Net (loss) income$(1,683) $3,784
 
Net income attributable to noncontrolling interests in subsidiaries$(3,493) $(181) $(5,414) $(3,021)$—
 $(1,042) 
Net income attributable to Stratus common stock$10,248
 $597
 $11,871
 $1,913
Net (loss) income attributable to Stratus common stockholders$(1,683) $2,742
 

We have four operating segments: Hotel, Entertainment, Real Estate Operations Hotel, Entertainment and Commercial Leasing (see Note 76 for further discussion). The following is a discussion of our operating results by segment.


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Hotel
The following table summarizes our Hotel operating results (in thousands):
 Three Months Ended March 31, 
 2016 2015 
Hotel revenue$10,664
 $11,691
 
Hotel cost of sales, excluding depreciation7,710
 8,102
 
Depreciation846
 1,494
 
Operating income$2,108
 $2,095
 

Hotel Operating Income. Operating income for the Hotel segment increased slightly quarter over quarter, as lower revenues were more than offset by reduced cost of sales and depreciation.

Hotel Revenue. Hotel revenue primarily includes revenue from W Austin Hotel room reservations and food and beverage sales. Revenue per available room, which is calculated by dividing total room revenue by the average total rooms available during the quarter, was $282 for first-quarter 2016, compared with $320 for first-quarter 2015. Lower Hotel revenues for first-quarter 2016, compared to first-quarter 2015, primarily reflects decreased room revenues as a result of lower demand during the music portion of the South-by-Southwest festival.

Hotel Cost of Sales. Hotel operating costs (excluding depreciation) totaled $7.7 million in first-quarter 2016, compared with $8.1 million in first-quarter 2015. Lower costs in first-quarter 2016, compared with first-quarter 2015, primarily reflect lower management fees and decreased room, food and beverage costs.

Hotel Depreciation. Hotel depreciation totaled $0.8 million in first-quarter 2016, compared with $1.5 million in first-quarter 2015. Lower depreciation expense in first-quarter 2016, compared with first-quarter 2015, primarily reflects certain furniture and equipment being fully depreciated as of December 31, 2015.

Entertainment
The following table summarizes our Entertainment operating results (in thousands):
 Three Months Ended March 31, 
 2016 2015 
Entertainment revenue$4,176
 $4,332
 
Entertainment cost of sales, excluding depreciation3,105
 3,429
 
Depreciation335
 324
 
Operating income$736
 $579
 

Entertainment Operating Income. Operating income for the Entertainment segment increased from $0.6 million in first-quarter 2015 to $0.7 million in first-quarter 2016 primarily due to lower costs of sales.

Entertainment Revenue. Entertainment revenue primarily reflects the results of operations for ACL Live, including ticket sales, revenue from private events, sponsorships, personal seat license sales and suite sales, and sales of concessions and merchandise. Entertainment revenue also reflects revenues associated with events hosted at venues other than ACL Live, including our recently opened 3TEN ACL Live, and production of recorded content for artists performing at ACL Live or 3TEN ACL Live, as well as the results of the Stageside Productions joint venture with Pedernales Entertainment LLC. Revenues from the Entertainment segment will vary from period to period as a result of factors such as the price of tickets and number of tickets sold, as well as the number and type of events. The decrease in entertainment revenue for first-quarter 2016 primarily reflects lower average ticket prices.


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Certain key operating statistics specific to the concert and event hosting industry are included below to provide additional information regarding our ACL Live operating performance.
 Three Months Ended March 31, 
 2016 2015 
Events:    
Events hosted51
 48
 
Estimated attendance54,351
 55,845
 
Ancillary net revenue per attendee$56.53
 $49.01
 
Ticketing:    
Number of tickets sold33,576
 33,762
 
Gross value of tickets sold (in thousands)$1,376
 $1,781
 

Entertainment Cost of Sales. Entertainment operating costs (excluding depreciation) totaled $3.1 million in first-quarter 2016, compared with $3.4 million in first-quarter 2015. Costs from the Entertainment segment will vary from period to period as a result of the number and types of events hosted. The decrease in Entertainment operating costs in first-quarter 2016 primarily reflects lower direct costs associated with ticketed events.

Real Estate Operations
The following table summarizes our Real Estate Operations operating results (in thousands):
Three Months Ended September 30, Nine Months Ended September 30,Three Months Ended March 31, 
2015 2014 2015 20142016 2015 
Revenues:           
Developed property sales$5,900
 $6,378
 $10,150
 $18,504
$2,065
 $2,205
 
Commissions and other318
 208
 828
 384
198
 296
 
Total revenues6,218
 6,586
 10,978
 18,888
2,263
 2,501
 
Cost of sales, including depreciation4,516
 5,547
 8,763
 14,226
2,269
 2,168
 
Litigation and insurance settlements—
 (1,506) —
 (2,082)
General and administrative expenses1,672
 1,344
 4,667
 4,437
Operating income (loss)$30
 $1,201
 $(2,452) $2,307
Operating (loss) income$(6) $333
 
           
Real Estate Operations Operating (Loss) Income. The Real Estate Operations segment essentially broke even for first-quarter 2016, compared to operating income of $0.3 million for first-quarter 2015.

Developed Property Sales. The following table summarizes our developed property sales (dollars in thousands):
Three Months Ended September 30,Three Months Ended March 31,
2015 20142016 2015
Lots/Units Revenues Average Cost Per Lot/Unit Lots/Units Revenues Average Cost Per Lot/UnitLots Revenues Average Cost Per Lot Lots Revenues Average Cost Per Lot
Barton Creek                      
Amarra Drive:                      
Phase II Lots—
 $—
 $—
 3
 $1,743
 $212
1
 $550
 $190
 —
 $—
 $—
Phase III Lots4
 3,340
 401
 —
 —
 —
                      
Circle C                      
Meridian9
 2,560
 161
 4
 1,180
 166
5
 1,515
 170
 8
 2,205
 156
                      
W Austin Hotel & Residences Project           
Condominium Units—
 —
 —
 2
 3,455
 1,567
Total Residential13
 $5,900
   9
 $6,378
  6
 $2,065
   8
 $2,205
  

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 Nine Months Ended September 30,
 2015 2014
 Lots/Units Revenues Average Cost Per Lot/Unit Lots/Units Revenues Average Cost Per Lot/Unit
Barton Creek           
Calera:           
Verano Drive—
 $—
 $—
 9
 $3,524
 $181
Amarra Drive:           
Phase II Lots—
 —
 —
 12
 5,925
 192
Phase III Lots7
 5,110
 351
 —
 —
 —
            
Circle C           
Meridian18
 5,040
 159
 4
 1,180
 166
            
W Austin Hotel & Residences Project           
Condominium Units—
 —
 —
 5
 7,875
 1,365
Total Residential25
 $10,150
   30
 $18,504
  
            
The decrease in developed property sales revenues in the 2015 periodsfirst-quarter 2016 primarily resulted from fewer sales of higher priced condominium units at the W Austin Residences and fewera decrease in lot sales at Verano Drive andMeridian, partly offset by the sale of one Amarra Drive Phase II as inventories have declined, partly offset by increased lot sales at Meridian and Amarra Drive Phase III, which was completed in first-quarter 2015.lot.

Commissions and Other. Commissions and other totaled $0.3$0.2 million for third-quarter 2015first-quarter 2016, and$0.20.3 million for third-quarter 2014, $0.8 million for the first nine months of 2015 and $0.4 million for the first nine months of 2014.first-quarter 2015.
 
Cost of Sales. Cost of sales includes cost of property sold, project operating and marketing expenses and allocated overhead costs, partly offset by reductions for certain municipal utility district (MUD) reimbursements. Cost of sales totaled $4.52.3 million for third-quarter 2015first-quarter 2016 and $8.8 million for the first nine months of 2015,, compared with $5.52.2 million for third-quarter 2014first-quarter 2015 and $14.2 million for the first nine months of 2014.. The decreaseincrease in cost of

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sales for thefirst-quarter 2016, compared with first-quarter 2015, periods primarily reflects lower sales of condominium units that have higher average costs. Cost of sales for our real estate operations also includes significantreflect increased recurring costs (including property taxes, maintenance and marketing), which totaled $1.4$1.1 million for third-quarter 2015first-quarter 2016 and $3.4 million for the first nine months of 2015,, compared with $1.0$0.9 million for third-quarter 2014 and $2.9 million for the first nine months of 2014. Cost of sales for the first nine months offirst-quarter 2015 included Barton Creek MUD reimbursements totaling less than $0.1 million. Cost of sales also included costs of $0.1 million for third-quarter 2014 and credits of $0.4 million for the first nine months of 2014 related to the recovery of building repair costs associated with damage caused by the June 2011 balcony glass breakage incidents at the W Austin Hotel & Residences project.

Litigation and Insurance Settlements. We recorded a gain on a litigation settlement totaling $1.5 million in the third quarter and first nine months of 2014 related to the termination of a lease. The first nine months of 2014 also reflected a gain of $0.6 million related to an insurance settlement.

General and Administrative Expenses. Consolidated general and administrative expenses primarily consist of employee salaries, wages and other costs and totaled $2.2 million in third-quarter 2015 and $6.3 million for the first nine months of 2015, compared with $1.7 million in third-quarter 2014 and $5.8 million for the first nine months of 2014. Costs were higher in the 2015 periods, primarily reflecting higher legal fees associated with debt modifications and the purchase of Canyon-Johnson's interest in the Block 21 Joint Venture. General and administrative expenses allocated to real estate operations totaled $1.7 million for third-quarter 2015 and $4.7 million for the first nine months of 2015, compared with $1.3 million for third-quarter 2014 and $4.4 million for the first nine months of 2014. For more information about the allocation of general and administrative expenses to our operating segments, see Note 7.


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Hotel
The following table summarizes our Hotel operating results (in thousands):
 Three Months Ended September 30, Nine Months Ended September 30,
 2015 2014 2015 2014
Hotel revenue$8,597
 $9,799
 $31,411
 $31,400
Hotel cost of sales, excluding depreciation6,792
 7,548
 23,247
 22,822
Depreciation1,494
 1,460
 4,484
 4,390
General and administrative expenses120
 83
 510
 298
Operating income$191
 $708
 $3,170
 $3,890

Hotel Revenue. Hotel revenue reflects the results of operations for the W Austin Hotel, and primarily includes revenue from room reservations and food and beverage sales. Revenue per Available Room, which is calculated by dividing total room revenue by total rooms available, averaged $241 for third-quarter 2015 and $282 for the first nine months of 2015, compared with $264 for third-quarter 2014 and $286 for the first nine months of 2014. Lower hotel revenues for third-quarter 2015, compared to third-quarter 2014, primarily reflects decreased food and beverage sales and room revenue.

Hotel Cost of Sales. Hotel operating costs totaling $6.8 million in third-quarter 2015, were lower compared with $7.5 million in third-quarter 2014, primarily related to decreased food and beverage sales. Hotel operating costs totaled $23.2 million for the first nine months of 2015, compared with $22.8 million for the first nine months of 2014. The increase in hotel cost of sales for the first nine months of 2015 primarily reflects higher property taxes.

Entertainment
The following table summarizes our Entertainment operating results (in thousands):
 Three Months Ended September 30, Nine Months Ended September 30,
 2015 2014 2015 2014
Entertainment revenue$4,181
 $3,671
 $13,587
 $12,689
Entertainment cost of sales, excluding depreciation3,493
 3,066
 10,666
 9,733
Depreciation323
 313
 965
 943
General and administrative expenses43
 31
 184
 110
Operating income$322
 $261
 $1,772
 $1,903

Entertainment Revenue. Entertainment revenue primarily reflects the results of operations for ACL Live including ticket sales, revenue from private events, sponsorships, personal seat license sales and suite sales, and sales of concessions and merchandise. Entertainment revenue also reflects revenues associated with outside events hosted at venues other than ACL Live and production of recorded content for artists performing at ACL Live, as well as the results of the joint venture with Pedernales Entertainment LLC relating to Stageside Productions. Revenues from the Entertainment segment will vary from period to period as a result of factors such as the price of tickets and number of tickets sold, as well as the number and type of events. The increase in entertainment revenue for the 2015 periods primarily resulted from increases in the number of events hosted and ticket sales.

Certain key operating statistics specific to the concert and event hosting industry are included below to provide additional information regarding our ACL Live operating performance.
 Three Months Ended September 30, Nine Months Ended September 30,
 2015 2014 2015 2014
Events:       
Events hosted49
 46
 152
 142
Estimated attendance55,200
 52,300
 174,400
 154,700
Ancillary net revenue per attendee$35.35
 $33.25
 $44.56
 $43.07
Ticketing:       
Number of tickets sold45,400
 37,300
 123,100
 103,600
Gross value of tickets sold (in thousands)$2,806
 $2,376
 $7,596
 $5,827

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Entertainment Cost of Sales. Entertainment operating costs totaled $3.5 million in third-quarter 2015 and $10.7 million for the the first nine months of 2015, compared with $3.1 million in third-quarter 2014 and $9.7 million for the first nine months of 2014. Costs from the Entertainment segment will vary from period to period as a result of the number and types of events hosted. The increase in Entertainment operating costs in the 2015 periods primarily reflects higher costs associated with an increase in the number of events hosted.

Commercial Leasing
The following table summarizes our Commercial Leasing operating results (in thousands):
Three Months Ended September 30, Nine Months Ended September 30,Three Months Ended March 31, 
2015 2014 2015 20142016 2015 
Rental revenue$921
 $1,826
 $4,697
 $5,274
$2,189
 $1,907
 
Rental cost of sales, excluding depreciation524
 1,069
 2,274
 2,521
870
 765
 
Depreciation222
 452
 1,190
 1,325
476
 467
 
General and administrative expenses497
 412
 1,396
 1,358
Gain on sales of assets(20,729) —
 (20,729) —
Operating income (loss)$20,407
 $(107) $20,566
 $70
Operating income$843
 $675
 

Commercial Leasing Operating Income. Operating income from the Commercial Leasing segment increased from $0.7 million in first-quarter 2015 to $0.8 million in first-quarter 2016.

Rental Revenue. Rental revenue primarily reflects revenue from theThe Oaks at Lakeway, office and retail space at the W Austin Hotel & Residences project,and Barton Creek Village, andVillage. Rental revenue for first-quarter 2015 also included revenue from Parkside Village and 5700 Slaughter, which arewere both in the Circle C community. Onsold on July 2, 2015. The increase in rental revenue in first-quarter 2016, compared with first-quarter 2015 we completedreflects rental revenues from The Oaks at Lakeway, partially offset by a decrease related to the sales of Parkside Village and 5700 Slaughter for $32.5 million and $12.5 million, respectively. See Note 9 for further discussion. The decrease in rental revenue in the 2015 periods primarily reflects the sales of Parkside Village and 5700 Slaughter.July 2015.

Rental Cost of Sales. Rental operating costs totaled $0.5$0.9 million in third-quarter 2015 and $2.3 millionfor the the first nine months of 2015,first-quarter 2016, compared with $1.1$0.8 million in third-quarter 2014 and $2.5 million for the first nine months of 2014.first-quarter 2015. The decreaseincrease in rental costs in the 2015 periodsfirst-quarter 2016 primarily reflects increased operating expenses relating to The Oaks at Lakeway and Santal, partially offset by a decrease in operating expenses related to the sales of Parkside Village and 5700 Slaughter (see Note 9).in July 2015.

Corporate, Eliminations and Other
GainCorporate, eliminations and other includes consolidated general and administrative expenses, which primarily consist of employee salaries, wages and other costs and totaled $3.1 million in first-quarter 2016, compared with $2.0 million in first-quarter 2015. Beginning January 1, 2016, general and administrative expenses are managed on Salesa consolidated basis and are not allocated to our operating segments. The segment disclosures for first-quarter 2015 have been recast to be consistent with the first-quarter 2016 presentation. Costs were higher in first-quarter 2016, primarily reflecting higher legal and consulting fees mainly due to costs associated with the proxy contest commenced by Carl Berg. Corporate, eliminations and other also includes eliminations of Assets. Gains on sales of assets totaled $20.7 million forintersegment amounts incurred by the third quarter and first nine months of 2015 related to the sales of the Parkside Village and 5700 Slaughter commercial properties (see Note 9).four operating segments.

Non-Operating Results
Interest Expense, Net. Interest expense (before capitalized interest) totaled $3.7 million for first-quarter 2016, compared with $2.2 million for third-quarterfirst-quarter 2015 and $6.8 million for the first nine months of 2015, compared with $2.0 million for third-quarter 2014 and $5.6 million for the first nine months of 2014.. The increase in interest expense in thefirst-quarter 2016, compared with first-quarter 2015, periods primarily reflects higher average debt balances. interest rates.

Capitalized interest totaled $1.4 million for third-quarter 2015 and $4.1$1.8 million for the first nine months of 2015first-quarter 2016, compared with $1.11.4 million for third-quarter 2014 and $2.8 million for the first nine months of 2014,first-quarter 2015 and is primarily related to development activities at certain properties in Barton Creek and development activities at The Oaks at Lakeway.

(Loss) GainLoss on Interest Rate Derivative Instruments. We recorded losses of $0.9$0.4 million for third-quarter 2015first-quarter 2016 and $1.0 million for, associated with changes in the first nine monthsfair value of 2015, compared withour interest rate swap agreement. We recorded a gainloss of less than $0.1 million in third-quarter 2014 and a loss of $0.2 million for the first nine months of 2014,first-quarter 2015, associated with changes in the fair value of our interest rate cap agreement and the recognition of cumulative changes in the fair value of our interest rate swap agreement in third-quarter 2015 because it no longer qualified for hedge accounting treatment (see Note 4).agreement.

Loss on Early Extinguishment of Debt.We recorded a loss on early extinguishment of debt totaling less than $0.1of $0.8 million for the third quarter and first nine months of 2014first-quarter 2016, associated with Stratus using the refinancing in July 2014proceeds from the Goldman Sachs loan to fully repay its existing obligations under the Bank of the term loan secured by 5700 Slaughter.America loan.

Other Income, Net. We recorded other income of less than $0.1 million for third-quarter 2015each of first-quarter 2016 and $0.3 million for the first nine months of 2015, compared with less than $0.1 million for the third quarter and first nine months of 2014. The increase in other income in the first nine months of 2015 primarily reflects interest received in connection with Barton Creek MUD reimbursements.first-quarter 2015.


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Equity in Unconsolidated Affiliates' (Loss) Income. We account for our interests in our unconsolidated affiliates, Crestview Station, Stump Fluff and Guapo Enterprises, using the equity method. Our equity in the net (loss) income of these entities totaled $(0.3)0.1 million for each of third-quarter 2015first-quarter 2016 and $(0.4) million for the first nine months offirst-quarter 2015 compared with $(0.2) million for third-quarter 2014 and $0.2 million for the first nine months of 2014. The decrease in the first nine months of 2015 reflects the third closing in the take-down agreement between Crestview Station and DR Horton and a decrease in the number of events hosted by Stump Fluff during the South by Southwest festival, both of which occurred in the first nine months of 2014..

Provision forBenefit from (provision for) Income Taxes. We recorded a tax benefit from income taxes of $0.9 million for first-quarter 2016, compared with a provision for income taxes of $5.2$0.3 million for first-quarter 2015. Both the third quarter2016 and first nine months of 2015 compared with $0.1 million for third-quarter 2014 and $0.6 million for the first nine months of 2014. Our tax provision for both the 2015 and 2014 periods also includesinclude the Texas state margin tax. The difference between ourStratus' consolidated effective income tax rate for each of the 2015 and 2014 periods,first-quarter 2016, and the U.S. Federal statutory income tax rate of 35 percent, was primarily attributable to the state margin tax. The difference between Stratus' consolidated effective income taxestax rate for first-quarter 2015, and the U.S. Federal statutory income tax rate of 35 percent, was primarily attributable to the state margin tax partially offset by the tax effect of income attributable to non-controllingnoncontrolling interests. During the first nine months of 2014, we were subject to state income taxes while maintaining a valuation allowance against our deferred tax assets related to federal income taxes. During fourth-quarter 2014, we released the valuation allowance and recorded a tax benefit.

Net Income Attributable to Noncontrolling Interests in Subsidiaries. Net income attributable to noncontrolling interests in subsidiaries totaled $3.5 million for third-quarter 2015 and $5.4 million for the first nine months of 2015, compared with $0.2$1.0 million for third-quarter 2014 and $3.0 million forfirst-quarter 2015. Stratus did not have net income attributable to noncontrolling interests in subsidiaries in first-quarter 2016, primarily because of Stratus' purchase of Canyon-Johnson’s approximate 58 percent interest in the first nine monthsBlock 21 Joint Venture in September 2015, resulting in Stratus owning 100 percent of 2014. The increase for the 2015 periods primarily relates to the gain on the sale of Parkside Village (see Note 9).entity.

DISCONTINUED OPERATIONS

In 2012, we sold 7500 Rialto, an office building in Lantana. In connection with the sale, we recognized a gain of $5.1 million and deferred a gain of $5.0 million because of a guaranty provided to the lender in connection with the buyer's assumption of the loan related to 7500 Rialto. The guaranty was released in January 2015, and we recognized the deferred gain totaling $5.0 million ($3.2 million to net income attributable to common stock)stockholders) in first-quarter 2015.

CAPITAL RESOURCES AND LIQUIDITY

Volatility in the real estate market, including the markets in which we operate, can impact sales of our properties from period to period. However, we believe that the unique nature and location of our assets will provide us positive cash flows over time. See "Business Strategy and Related Risks" for further discussion of our liquidity.

Comparison of Cash Flows for the NineThree Months Ended September 30, 2015March 31, 2016 and 20142015
Operating Activities. Cash provided by (used in)used in operating activities totaled $3.34.7 million during the first nine months of 2015,first-quarter 2016, compared with $(25.1)$1.8 million during the first nine months of 2014.first-quarter 2015. Expenditures for purchases and development of real estate properties totaled $20.63.1 million during the first nine months of 2015first-quarter 2016 and $47.6$6.6 million during the first nine months of 2014,first-quarter 2015, and primarily included development costs for our Barton Creek properties and for the West Killeen Market project. First-quarter 2016, compared with first-quarter 2015, also reflects increased property tax and other payments.

Investing Activities. Cash provided by (used in)used in investing activities totaled $5.914.1 million during the first nine months of 2015,first-quarter 2016, compared with $(0.9)$8.2 million during the first nine months of 2014.first-quarter 2015. Development of commercial leasing properties increased during the first nine months of 2015first-quarter 2016 to $36.6$13.8 million, compared with $2.1$7.8 million during the first nine months of 2014,first-quarter 2015, primarily for the Santal multi-family and The Oaks at Lakeway projects and Santal multi-family projects. The first nine months of 2015also included $43.3 million in proceeds from the sales of the Parkside Village and 5700 Slaughter commercial properties. The first nine months of 2014 included a return of investment from Crestview Station totaling $1.4 million.recently opened 3TEN ACL Live.

Financing Activities. Cash (used in) provided by financing activities totaled $(5.7)13.0 million for the first nine months of 2015,during first-quarter 2016, compared with $31.3$5.2 million during the first nine months of 2014.first-quarter 2015. During the first nine months of 2015,first-quarter 2016, net borrowings on the Comerica credit facility totaled $35.03.6 million, compared with $18.77.6 million for the first nine months of 2014.first-quarter 2015. Net borrowings on other project and term loans totaled $24.1$10.5 million for the first nine months of 2015,first-quarter 2016, compared with $17.7net payments of $2.3 million for the first nine months of 2014.first-quarter 2015. The increase in borrowings for the 2015 periodfirst-quarter 2016 primarily reflects borrowings to fund the amendments todevelopment of the BoA loanSantal multi-family and Comerica Credit facilityThe Oaks at Lakeway projects (see Note 5)4). Noncontrolling interest distributions for the Parkside Village Joint Venture and the Block 21 Joint Venture (see Note 3) totaled $4.2We also incurred $0.9 million for the first nine months of 2015 and $4.3 million for the first nine months of 2014. Additionally, on September 28, 2015, we

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completed the purchase of Canyon-Johnson’s approximate 58 percent interest in the Block 21 Joint Venture for approximately $62 million.financing costs in first-quarter 2016 related to our new Goldman Sachs loan. See also Note 5 and “Credit Facility and Other Financing Arrangements” for a discussion of our outstanding debt at September 30, 2015March 31, 2016.


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Credit Facility and Other Financing Arrangements
At September 30, 2015,March 31, 2016, we had total debt based on the principal amounts outstanding of $255.6$277.2 million,, compared with $196.5$263.1 million at December 31, 20142015. IncreasedOur debt since year-end 2014 is primarily relatedat March 31, 2016, consisted of the following:

$149.7 million under the Goldman Sachs loan, the proceeds of which were used to increased borrowingsrefinance the W Austin Hotel & Residences.

$49.1 million under our Comerica revolving credit facility to fund the purchase of Canyon-Johnson's interest in the Block 21 Joint Venture and the construction loan agreement with PlainsCapital Bank to fund the construction, development and leasing of The Oaks at Lakeway in Lakeway, Texas (the Lakeway construction loan). Our debt outstanding at September 30, 2015, consisted of the following:

$130.0 million outstanding under the BoA loan related to the W Austin Hotel & Residences project (see Note 5).

$58.136.7 million outstanding under the $72.5$52.5 million Comerica credit facility, which is comprised of a $45.0 million revolving loan, $6.9$8.3 million of which was available at September 30, 2015;March 31, 2016, and a $7.5 million letters of credit tranche, against which $2.4$2.3 million of letters of credit were committed and $5.1$5.2 million was available at September 30, 2015; and a $20.0 million term loan, none of which was available at September 30, 2015 (see Note 5).March 31, 2016. The Comerica credit facility is secured by substantially all of our assets except for properties that are encumbered by separate loan financing.

$24.3 million under the construction loan agreement to fund the development and construction of the first phase of a multi-family development in Section N of Barton Creek (the Santal construction loan).

$34.38.0 million outstanding under the Lakeway construction loan.

$14.5 million outstanding under the threean unsecured term loansloan with Diversified Real Asset Income Fund (DRAIF), formerly American Strategic Income Portfolio or ASIP, which include an $8.0 million loan, a $3.5 million loan and a $3.0 million loan.ASIP.

$9.1 million outstanding under the Santal construction loan (see Note 5).
 
$5.8 million outstanding under the term loan agreement with PlainsCapital Bank secured by assets at Barton Creek Village (the Barton Creek Village term loan).

$3.8 million outstanding under the term loan agreement with Holliday Fenoglio Fowler, L.P., the proceeds of which were used to purchase approximately 142 acres of land in Magnolia, Texas (the Magnolia loan).

The Comerica credit facility and our DRAIF unsecured term loans contain customary financial covenants, includingloan include a requirement that we maintain a minimum total stockholders’ equity balance of $110.0 million. As of September 30, 2015March 31, 2016, Stratus' total stockholders' equity was $136.3134.9 million. See Note 7 in our 20142015 Form 10-K for further discussion of our outstanding debt.

The following table summarizes our debt maturities based on the principal amounts outstanding as of September 30, 2015March 31, 2016 (in thousands):
                          
2015 2016 2017 2018 2019 Thereafter Total2016 2017 2018 2019 2020 Thereafter Total
BoA loan$1,642
 $1,942
 $2,042
 $2,146
 $2,256
 $119,972
 $130,000
Goldman Sachs loan$1,497
 $2,096
 $2,215
 $2,342
 $2,477
 $139,049
 $149,676
Lakeway construction loan—
 315
 1,284
 47,459
 

 —
 49,058
Comerica credit facility8,000
a 
7,000
 43,055
 —
 —
 —
 58,055
—
 36,718
 —
 —
 —
 —
 36,718
Lakeway construction loan—
 —
 —
 —
 34,313
 —
 34,313
DRAIF term loans6,500
b 
8,000
 —
 —
 —
 —
 14,500
Santal construction loan—
 —
 24,268
 —
 —
 —
 24,268
DRAIF term loan8,000
 —
 —
 —
 —
 —
 8,000
Barton Creek Village term loan36
 146
 153
 160
 167
 5,165
 5,827
110
 153
 160
 167
 173
 4,992
 5,755
Magnolia loan—
 3,750
 —
 —
 —
 —
 3,750
3,750
 —
 —
 —
 —
 —
 3,750
Santal construction loan—
 —
 —
 9,122
 —
 —
 9,122
Total$16,178
 $20,838
 $45,250
 $11,428
 $36,736
 $125,137
 $255,567
$13,357
 $39,282
 $27,927
 $49,968
 $2,650
 $144,041
 $277,225
a.Term loan principal payment of $8.0 million is due December 31, 2015.
b.The $3.5 million loan and the $3.0 million loan both mature in December 2015.

Stratus expectsWe expect to repay or refinance itsour near-term debt maturities in the normal course of business.business and believe we have the ability to do so.


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Table of ContentsCONTRACTUAL OBLIGATIONS

There have been no material changes in our contractual obligations since December 31, 2015, other than our debt obligations described above. Refer to Part II, Items 7. and 7A. in our 2015 Form 10-K, for further information regarding our contractual obligations.

NEW ACCOUNTING STANDARDS

We do not expect theRefer to Note 7 for discussion of recently issued accounting standards to have a significantand their impact on our future financial statements and disclosures.

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OFF-BALANCE SHEET ARRANGEMENTS

There have been no material changes in our off-balance sheet arrangements since December 31, 2014.2015. See Note 10 in our 20142015 Form 10-K for further information.

CAUTIONARY STATEMENT

Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements in which we discuss factors we believe may affect our future performance. Forward-looking statements are all statements other than statements of historical facts, such as statements regarding the implementation and potential results of our five-year plan, projections or expectations related to operational and financial performance or liquidity, reimbursements for infrastructure costs, financing and regulatory matters, development plans and sales of properties, commercial leasing activities, timeframes for development, construction and completion of our projects, capital expenditures, liquidity and capital resources, and other plans and objectives of management for future operations and activities. The words “anticipates,” “may,” “can,” “plans,” “believes,” “potential,” “estimates,” “expects,” “projects,” “intends,” “likely,” “will,” “should,” “to be” and any similar expressions and/or statements that are not historical facts are intended to identify those assertions as forward-looking statements.

We caution readers that forward-looking statements are not guarantees of future performance and actual results may differ materially from those anticipated, projected or assumed in the forward-looking statements. Important factors that can cause our actual results to differ materially from those anticipated in the forward-looking statements include, but are not limited to, the outcome of the strategic review process, our ability to refinance and service our debt and the availability of financing for development projects and other corporate purposes, our ability to sell properties at prices our board considers acceptable, a decrease in the demand for real estate in the Austin, Texas market, changes in economic and business conditions, reductions in discretionary spending by consumers and corporations, competition from other real estate developers, hotel operators and/or entertainment venue operators and promoters, business opportunities that may be presented to and/or pursued by us, the failure of third parties to satisfy debt service obligations, the failure to complete agreements with strategic partners and/or appropriately manage relationships with strategic partners, the termination of sales contracts or letters of intent due to, among other factors, the failure of one or more closing conditions or market changes, the failure to attract customers for our developments or such customers' failure to satisfy their purchase commitments, increases in interest rates, declines in the market value of our assets, increases in operating costs, including real estate taxes and the cost of construction materials, changes in external perception of the W Austin Hotel, changes in consumer preferences, changes in laws, regulations or the regulatory environment affecting the development of real estate, opposition from special interest groups with respect to development projects, weather-related risks and other factors described in more detail under the heading “Risk Factors” in Part I, Item 1A. in our 20142015 Form 10-K filed with the U.S. Securities and Exchange Commission (SEC),SEC, as updated by our subsequent filings with the SEC.

Investors are cautioned that many of the assumptions upon which our forward-looking statements are based are likely to change after the forward-looking statements are made. Further, we may make changes to our business plans that could affect our results. We caution investors that we do not intend to update our forward-looking statements notwithstanding any changes in our assumptions, business plans, actual experience, or other changes, and we undertake no obligation to update any forward-looking statements, except as required by law.

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Table of Contentsstatements.


Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Not applicable.There have been no material changes in our market risks since December 31, 2015. For additional information on our market risks, refer to “Disclosures About Market Risks” included in Part II, Items 7. and 7A. of our 2015 Form 10-K.

In January 2016 we fully repaid our existing obligations under the BoA loan. See Note 4 for additional information.

At March 31, 2016, $110.0 million face value of our total outstanding debt of $274.7 million bears interest at variable rates. An increase of 100 basis points in annual interest rates for this variable-rate debt would increase our annual interest costs by $1.1 million.



23

Item 4. Controls and Procedures.

(a)           Evaluation of disclosure controls and procedures. Our Chief Executive Officer and Chief Financial Officer, with the participation of management, have evaluated the effectiveness of our “disclosure controls and procedures” (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934). Based on this evaluation, they have concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.

(b)           Changes in internal control over financial reporting. There was no change in our internal control over financial reporting that occurred during the quarter ended September 30, 2015March 31, 2016, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION
 

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

The following table sets forth information with respect to shares of our common stock that we repurchased under the board-approved open market share purchase program during the three months ended September 30, 2015March 31, 2016.
  (a) Total   (c) Total Number of (d) Maximum Number
  Number (b) Average Shares Purchased as Part of Shares thatThat May
  of Shares Price Paid of Publicly Announced Yet Be Purchased Under
Period Purchased Per Share 
Plans or Programsa
 
the Plans or Programsa
JulyJanuary 1 to 31, 20152016 —
 $—
 —
 991,695
AugustFebruary 1 to 31, 201529, 2016 —
 —
 —
 991,695
SeptemberMarch 1 to 30, 201531, 2016 —
 —
 —
 991,695
Total —
 —
 —
  
a.In November 2013, the board of directors approved an increase in our open-market share purchase program, initially authorized in 2001, for up to 1.7 million shares of our common stock. The program does not have an expiration date.
Stratus' loan agreements with Comerica Bank and Diversified Real Asset Income Fund require lender approval of any common stock repurchases.

Item 6. Exhibits.

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


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SIGNATURE


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

STRATUS PROPERTIES INC.

By: /s/ Erin D. Pickens
----------------------------------------
Erin D. Pickens
Senior Vice President and
Chief Financial Officer
(authorized signatory and
Principal Financial Officer)

Date: November 9, 2015May 10, 2016

S-1
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STRATUS PROPERTIES INC.
EXHIBIT INDEX
      Incorporated by Reference
Exhibit
Number
 Exhibit Title Filed with this Form 10-Q Form File No. Date Filed
3.1 Composite Certificate of Incorporation of Stratus Properties Inc.   8-A/A 000-19989 8/26/2010
           
3.2 By-lawsAmended and Restated By-Laws of Stratus Properties Inc., as amended November 6, 2007.effective March 9, 2016.   10-Q10-K 000-19989001-37716 8/11/20083/15/2016
           
4.1 Second Amended and Restated Rights Agreement dated as of April 13, 2012,March 9, 2016 between Stratus Properties Inc. and Computershare Shareowner Services LLC,Inc. as Rights Agent, which includes the Form of Certificate of Designations of Series C Participating Cumulative Preferred Stock, the Form of Right Certificate, and the Summary of Stockholder Rights.Agent.   8-K 000-19989 4/18/20123/10/2016
           
4.2 Investor Rights Agreement by and between Stratus Properties Inc. and Moffett Holdings, LLC dated as of March 15, 2012.   8-K 000-19989 3/20/2012
           
4.3 Assignment and Assumption Agreement by and among Moffett Holdings, LLC, LCHM Holdings, LLC and Stratus Properties Inc., dated as of March 3, 2014.   13D 000-19989 3/5/2014
           
4.410.1 
Amendment No. 1, dated May 28, 2015, to Amended and Restated RightsLoan Agreement, dated as of April 13, 2012,January 5, 2016, between Stratus Properties Inc. and Computershare Inc., successor-in-interest to Computershare Shareowner ServicesBlock 21, LLC, as Rights Agent.

borrower, and Goldman Sachs Mortgage Company, as lender, as amended through January 27, 2016.		   8-K10-K 000-19989001-37716 5/28/2015
10.1
Amended and Restated Loan Agreement by and between Stratus Properties Inc., Stratus Properties Operating Co., L.P., Circle C Land, L.P., Austin 290 Properties, Inc., Overlook at Amarra, L.L.C. and Comerica Bank dated as of August 21, 2015.


8-K000-19989
8/26/2015

3/15/2016
           
10.2 
Amended and Restated Revolving Promissory Note by andA-1, dated February 1, 2016, between Stratus Properties Inc., Stratus Properties Operating Co., L.P., Circle C Land, L.P., Austin 290 Properties, Inc., Overlook at Amarra, L.L.C.Block 21, LLC and Comerica Bank dated as of August 21, 2015 ($45.0 million revolving line of credit).

Goldman Sachs Mortgage Company.		   8-K10-K 000-19989001-37716 8/26/20153/15/2016
           
10.3 
Amended and Restated Promissory Note by andA-2, dated February 1, 2016, between Stratus Properties Inc., Stratus Properties Operating Co., L.P., Circle C Land, L.P., Austin 290 Properties, Inc., Overlook at Amarra, L.L.C.Block 21, LLC and Comerica Bank dated as of August 21, 2015 ($7.5 million letters of credit).

Goldman Sachs Mortgage Company.		   8-K10-K 000-19989001-37716 8/26/20153/15/2016
           
10.4
10.4*
 
Installment Note bySeverance and Change of Control Agreement between Stratus Properties Inc., Stratus Properties Operating Co., L.P., Circle C Land, L.P., Austin 290 Properties, Inc., Overlook at Amarra, L.L.C. and Comerica Bank dated as of August 21, 2015 ($20.0 million term loan).

8-K000-199898/26/2015
10.5
Agreement Regarding Sale and Purchase by and between CJUF II Block 21 Member, LLC, Canyon-Johnson Urban Fund II, L.P., Stratus Block 21 Investments, L.P., Stratus Block 21 Holdings, Inc., and Stratus Properties Inc.,William H. Armstrong III, effective as of September 28, 2015.

8-K000-1998910/1/2015

E-1
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STRATUS PROPERTIES INC.

EXHIBIT INDEX

Incorporated by Reference
Exhibit
Number
Exhibit TitleFiled with this Form 10-QFormFile No.Date Filed
10.6
First Amendment to Loan Documents by and among CJUF II Stratus Block 21 LLC, as borrower, Stratus Properties Inc., as guarantor, and Bank of America, N.A., as administrative agent on behalf of the lenders from time to time party thereto, effective as of September 28, 2015.

8-K000-1998910/1/2015
10.7
Amended and Restated Promissory Note by and among CJUF II Stratus Block 21 LLC, Stratus Properties Inc., and Bank of America, N.A., dated September 28, 2015.

8-K000-1998910/1/2015
10.8Fifth Amendment to Construction Loan Agreement among Stratus Lakeway Center L.L.C., as Borrower, Plains Capital Bank, as Administrative Agent and the Other Financial Institutions Party thereto, as Lenders dated as of October 29, 2015.April 1, 2016. X      
           
10.9*10.5*
 
FormSeverance and Change of Notice of Grant of Restricted Stock Units under theControl Agreement between Stratus Properties Inc. 2013 Stock Incentive Plan (adopted August 2015)

and Erin D. Pickens, effective as of April 1, 2016.		 X      
           
31.1
 Certification of Principal Executive Officer pursuant to Rule 13a-14(a)/15d-14(a). X      
           
31.2
 Certification of Principal Financial Officer pursuant to Rule 13a-14(a)/15d-14(a). X      
           
32.1
 Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350. X      
           
32.2
 Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350. X      
           
101.INS XBRL Instance Document. X      
           
101.SCH XBRL Taxonomy Extension Schema. X      
           
101.CAL XBRL Taxonomy Extension Calculation Linkbase. X      
           
101.DEF XBRL Taxonomy Extension Definition Linkbase. X      
           
101.LAB XBRL Taxonomy Extension Label Linkbase. X      
           
101.PRE XBRL Taxonomy Extension Presentation Linkbase. X      
           
* Indicates management contract or compensatory plan or arrangement.

E-2E-1