7 Annual Report and Form 10-K TO MY FELLOW STOCKHOLDERS: 2017 was an exciting year for Stratus Properties. We increased net income to $3.9 million, $0.47 per share, reduced consolidated debt by 24%, recognized a significant portion of the deferred gain on the sale of The Oaks at Lakeway, and returned $8.1 million in capital to stockholders by way of a $1.00 per share special cash dividend. Our sale of The Oaks at Lakeway demonstrates the strength of our development strategy, which we continued to advance throughout 2017 with increased capital expenditure investments and proactive development, leasing and marketing activities. Moving forward in 2018, we intend to continue focusing on our active development plan, which has played a significant role in Stratus Properties generating a total stockholder return of 262% over the last five years, which far exceeded comparable returns from peer real estate companies (39%), the Dow Jones U.S. Real Estate Index (56%) and the S&P 500 (101%). Our expansive development portfolio consists of existing and future commercial, multi-family and single-family projects, several of which are in the development stage. In 2017, we completed construction of West Killeen Market, an HEB-anchored retail development in Killeen, on schedule and under budget and made significant progress in advancing our other development projects by: • securing project financing and commencing construction of Lantana Place, a mixed-use development in southwest Austin; • securing project financing and commencing construction of Jones Crossing, an HEB-anchored mixed use development in College Station; • securing project financing and commencing construction of Santal Phase II, a multi-family development located adjacent to Santal Phase I in Barton Creek; • securing final building permits for the St. Mary, a new multi-family development we plan to construct in Circle C; and • advancing development plans for Magnolia, a new HEB-anchored retail development project we plan to construct in Magnolia. We also secured approval from the City of Magnolia and the State of Texas for a new Municipal Utility District (MUD), which will allow us to recoup approximately $26 million of future road and utility infrastructure costs over the life of the Magnolia development project. We believe our active development plan benefits from a diverse portfolio of retail, residential, office, entertainment, and hotel properties. In particular, steadier cash flows from our Leasing, Entertainment and Hotel segments support our longer term development projects. Our Leasing segment includes Santal Phase I, a garden-style apartment complex in the upscale Barton Creek area that was completed in 2016 and that is now 95% leased. Based on the success of Santal Phase I, we elected to develop Santal Phase II, which will add 212 units to the overall complex. Our Hotel segment includes the W Austin Hotel in downtown Austin, which generated revenue per available room of $253 in 2017, fourth overall among all Texas hotels, despite increased competition from new hotels. Our Entertainment segment includes the world famous Austin City Limits Live music venue, site of the longest running music series in American history, and 3TEN ACL Live, a popular music venue that we opened in 2016 to host more intimate shows. 2017 was a record year for ACL Live, with more than 221,000 tickets sold for 224 events, including sold-out shows by Dave Chappelle, Sting, The Zac Brown Band, Don Henley, Willie Nelson and Diana Ross. We believe that our full-cycle development process creates a strong synergy across our operating segments, which enables us to generate high returns for our fellow stockholders. The majority of our real estate assets are located in the Austin metropolitan area, which continues to experience significant population growth and development. We continue to successfully leverage the expertise and relationships that we have developed through our strong position in the Austin market to expand our developments to other select, fast-growing Texas markets such as Killeen, Magnolia and College Station. Our expansion beyond Austin has been facilitated by our positive working relationships with our tenants, lenders, regulators, community stakeholders and government officials. In our view, our ability to foster these key relationships in the communities where we invest has been and will continue to be one of our greatest strengths. We would like to thank our employees for their commitment and hard work, which has contributed to our important progress during 2017. Looking ahead to 2018, we plan to continue our successful program of actively developing our properties and strategically marketing and selling them at appropriate times to maximize stockholder value. We remain confident in the attractiveness of our W Austin Hotel, Santal multi-family development and ACL Live and 3TEN ACL Live entertainment venues, and our ability to use cash flows generated by these assets to support our development projects. We will continue leveraging our competitive strengths to take advantage of favorable economic conditions in Texas generally, and Austin in particular. We will benefit from the astute guidance and oversight of our Board of Directors as we continue to evaluate markets, invest in new developments and capture opportunities to enhance the value of our properties to create value for shareholders. Very truly yours, William H. Armstrong III Chairman of the Board, President and Chief Executive Officer April 4, 2018 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2017 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number: 000-19989 Stratus Properties Inc. (Exact name of registrant as specified in its charter) Delaware 72-1211572 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 212 Lavaca St., Suite 300 Austin, Texas 78701 (Address of principal executive offices) (Zip Code) (512) 478-5788 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered Common Stock, par value $0.01 per share The NASDAQ Stock Market Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes No Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes 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). Yes No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. Large accelerated filer Accelerated filer Non-accelerated filer Smaller reporting company Emerging growth company If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes No The aggregate market value of common stock held by non-affiliates of the registrant was $146.4 million on February 28, 2018, and $149.3 million on June 30, 2017. Common stock issued and outstanding was 8,133,502 shares on February 28, 2018, and 8,126,502 shares on June 30, 2017. DOCUMENTS INCORPORATED BY REFERENCE Portions of our proxy statement for our 2018 annual meeting of stockholders are incorporated by reference into Part III (Items 10, 11, 12, 13 and 14) of this report. STRATUS PROPERTIES INC. TABLE OF CONTENTS Page Part I 1 Items 1. and 2. Business and Properties 1 Overview 1 Operations 1 Properties 3 Competition 5 Credit Facility and Other Financing Arrangements 6 Regulation and Environmental Matters 6 Employees 6 Item 1A. Risk Factors 6 Item 1B. Unresolved Staff Comments 13 Item 3. Legal Proceedings 13 Item 4. Mine Safety Disclosures 13 Executive Officers of the Registrant 14 Part II 15 Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 15 Item 6. Selected Financial Data 17 Items 7. and 7A. Management’s Discussion and Analysis of Financial Condition and Results of Operations and Quantitative and Qualitative Disclosures About Market Risk 18 Item 8.