Forestar Group Inc (FOR) 2010 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fourth quarter 2010 Forestar Group, Inc., earnings conference call. My name is Genaida, and I will be your operator for today. At this time, all participants are in listen-only mode. Later we will conduct a question and answer session.

(Operator Instructions.)

As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Mr. Chris Nines. Please proceed.

Thank you and good morning. This is Chris Nines, Chief Financial Officer of Forestar Group. I'd like to welcome each of you who have joined us by conference call or webcast this morning to discuss the results for fourth quarter and full year 2010. Joining me this morning is Jim DeCosmo, President and CEO of Forestar.

As a reminder, please review our warning statements and our press release in our slides, as we will make forward-looking statements during this presentation. This morning we will present the financial results and highlights for the fourth quarter and full year 2010. At the completion of the presentation, we will be happy to take your questions.

Unfortunately, due to the implementation of rolling power outages in the state of Texas associated with unprecedented electricity demand from cold weather, there is a possibility that our conference call and webcast will be cut short due to a loss of power. If this occurs, we do not anticipate that Forestar will be able to resume the call and webcast this morning. If our call is somehow cut short due to a loss of power, please watch for an announcement from Forestar with additional information regarding a future discussion of fourth quarter and full year 2010 financial results and highlights. Thanks again for your interest in Forestar. Now let me turn the call over to Jim.

Thank you, Chris, and let me add my warm welcome to all of you joining us this morning. I want to take just a moment to provide you with a brief overview of what we plan to cover with you today. If I could headline the call this morning, it would be Position for the future. I'll come back to this theme later, but first, Chris is going to review our financials. And then I'll provide you with some market insights as I walk you through the highlights of the quarter and year, and close with some of our thoughts about the future. Chris?

Thanks, Jim. Forestar reported net income of $2.4 million, or $0.07 per diluted share, in fourth quarter 2010, compared with a net loss of $7.4 million, or $0.21 per share in fourth quarter of 2009. Our fourth quarter 2010 results include a pre-tax gain of approximately $13.2 million from the sale of over 9,800 acres of timberland.

For the year 2010, Forestar reported net income of $5.1 million, or $0.14 per diluted share, compared with net income of $59.1 million, or $1.64 per share, in 2009. In accordance with the execution of our near-term strategic initiative, full year 2010 financial results include a pre-tax gain of approximately $28.6 million from the sale of almost 24,000 acres of timberland, compared with a pre-tax gain of approximately $104 million from the sale of about 95,000 acres of timberland in 2009.

Turning to our segment results, our real estate operation reported a segment loss of $5.5 million in the fourth quarter of 2010, compared with a segment loss of $2.5 million in fourth quarter 2009. Fourth quarter 2010 real estate segment earnings include non cash impairment charges of approximately $10.4 million, primarily associated with owned residential development projects located near Atlanta, Georgia, and Ft. Worth, Texas, and a commercial tract located on the Texas Gulf Coast held in a venture. Our fourth quarter 2009 real estate segment results include nine cash impairment charges of $2.7 million and a $3.6 million charge for environmental remediation activity.

Our real estate segment reported a segment loss of $4.6 million for full year 2010, compared with segment earnings of $3.2 million for 2009. Our full year 2010 real estate segment results include non-cash impairment charges of $11.3 million, compared with $10.6 million in 2009.

Mineral resources segment earnings were $6.1 million in fourth quarter 2010, compared with $3.3 million in fourth quarter of 2009. Our full year 2010 mineral resources segment earnings were $22.8 million, compared with $32.4 million in 2009. Our mineral resources segment earnings in 2009 include $21.3 million in bonus payments associated with leasing over 25,800 net mineral acres.

Fiber resources reported segment earnings of $1.2 million in fourth quarter 2010, compared with $1.4 million in fourth quarter 2009. Full year 2010 fiber resources segment earnings were $5 million, compared with $9.6 million in 2009. The decline in segment earnings was driven by the sale of over 140,000 acres of timberland since the first quarter of 2009 in connection with our near-term strategic initiative and retail land sales program.

Now let me turn the call back over to Jim, who will walk you through the key performance indicators for each of our segments, our real estate pipeline, and provide an update on our strategy and business performance.

Thanks, Chris. As I mentioned at the outset, I want to walk you through some of the highlights of the quarter. And I'm going to do it through a different lens than we've traditionally used to discuss the business. It incorporates some thinking and planning with our senior leadership team to provide you with a greater clarity on how we're positioned for the future.

We refer to it as our dimensional land model, and you can see it depicted in the graphic on the slide. It's quite simple -- for all land and resources that are part of Forestar today or in the future, we will responsibly deliver the greatest value from every acre. Our people have the vision and the proven ability to recognize and deliver value above and below the ground, yielding both real estate and natural resource products that include multiple dimensions of community development, minerals, forest, and water. Products may be delivered simultaneously or in time, but in a way that meets our return expectations and core values.

I think it's important to note at the outset that we have established operating principles, discipline, and a philosophy that begins with a vision for every acre we own or that we may acquire in the future.

Chris shared with you earlier that we continue to sell and reposition land. Two basic reasons -- Number one, land we sell does not strategically fit into the Forestar dimensional land model. These properties are limited in the characteristics required to create and deliver value in a timely manner. And number two, the net proceeds improve our position and capitalize on opportunities as we come from one of the worst economic downturns since the Great Depression. The depth of the downturn determines the height of the opportunity.

As we've stated, we made good progress in 2010, and we are firmly focused on the opportunities ahead. We believe that Forestar is uniquely positioned to help solve some of the difficult and interconnected housing and resource challenges that lie ahead.

Let me share a few highlights with you. We invested about $77 million in 2010 -- $15 million in stock repurchases, a 1031 exchange of timberland for a class A multifamily complex in Houston, $22 million in equity, $28 million in project-level financing, and $12 million for a small, but well-positioned water resources company in central Texas. Significant value creation, while adding only $5 million in debt to our balance sheet.

Underlying business performance enabled us to make these investments, generating the greatest value for every acre, and using resources to their highest purpose. Certainly a highlight for the year was the opening and successful first year of the J.W. Marriott Resort at Cibolo Canyon, a hallmark project where we're four-star recognized, and it is responsibly delivering the greatest value from every acre.

Land sales for 2010 totaled almost 30,000 acres for about $59 million. An average price of $1,975 an acre is about 36% higher than the 2009 average, while reserving minerals on acreage recognized as having future potential. Despite low natural gas prices and E&P companies focusing their capital investments on drilling, we were still successful in leasing almost 17,000 acres, a key step in moving acreage toward its greatest value. And last, we achieved entitlements on over 1,000 acres, continuing to improve our position and ability to respond to future housing needs.

I want to take just a minute and talk about the US housing market and its dislocation as a result of the recent downturn. Consider this -- affordability is strong; certainly not a constraint. Mortgage rates are near historic lows, although qualifying requires a stable job and a good credit score. And new home inventory is at a 40-year low, and starts remain at the lowest level in the last 50 years. Yes, we have these key issues. Consumer confidence is low, but appears to be improving. Credit is constrained to small business, especially developers and home builders. And unemployment is high, yet we're beginning to see some regions rebound.

Foreclosure sales account for about a third of existing home sales, keeping downward pricing pressure on homes, which becomes a common national media headline that reinforces poor buyer sentiment, while, at the same time, population continues to expand. Households continue to form. In fact, the US Census Bureau estimated that we formed about 1.2 million households in 2009. That may be true, but I would contend that many fail to launch. So where is everybody living? Or, better yet, as jobs are created and households start to buy or rent, will there be available housing stock?

Let me drill into Texas, which is certainly important to Forestar, and equally, if not more interesting. New home inventory is low. The foreclosure rate is less than half the national average. Affordability is in the nation's top quartile, and the state is a national leader in population and job growth. It would appear that the stage is set for a Texas housing recovery. Yet prospective Texas homebuyers still see and hear mostly negative housing coverage by the national media, a crosswind for prospective homebuyers' confidence and sentiment.

Last point -- In the last several years, there's been minimal development of land and new home construction, due to a lack of credit for a majority of the surviving regional and local developers and builders, a significant supply constraint. We believe our dimensional land model, pipeline, and balance sheet have Forestar well-positioned to meet the growing needs and, potentially, even pent-up demand.

Moving on to real estate results. A few key takeaways from the real estate key performance indicators. Number one, 2010 lot sales are up over 2009, with average lot sales price and profit down the ladder about 5%. Number two, commercial tract sale acreage is up, with average price down principally, driven by the type you use. And three, retail land sale acreage is down significantly year over year, while price is up. More acreage continues to come to market, while the number of prospective buyers remains fairly stable, creating pricing pressure. Because we're not a distressed seller, and have a good understanding of our land values, we'll remain patient and disciplined.

Segment revenues and earnings are down from 2009, primarily due to lower retail land sales. Included in segment revenue and earnings is a tract sale at our Summer Creek venture project in the Ft. Worth, Texas, market. The lot and acreage counts are not included in the KPIs. I'll provide you with more detail about this project in upcoming slides.

This is an update of information we've shared with you in the past. As I mentioned earlier, lot sales are up over 2009, yet less than 25% of 2006 sales. Key point. The new home construction industry has primarily been operating out of their own land and lot inventory for the last several years. Because a majority of our real estate investment sales are in the major markets of Texas, our average lot price has held up well. Based on discussions with active builders, it's clear that builder home inventory -- and, for that matter, lot inventory -- in certain markets is going to require replenishing.

Housing starts over the last few years have primarily been on good lots and good locations, with minimal replacement. The supply of A-lots and A-locations is getting very low. Even in our case, particularly in Texas, residential lot inventories have steadily declined for the last four years. Most of the national builders have adopted a land-lite strategy, and many of the surviving regional and local developers are constrained by lack of credit, which means certain markets and locations run the risk of a void in inventory.

Finished vacant new home inventory is a similar story. Months of supply are low in our Texas market, and keeping in mind that the months of supply is based on a very low sales rate. We have Forestar poised to respond to the demand, not only delivering lots, but great communities.

The primary change to our real estate value creation pipeline from the third quarter's reduction of about 11,000 acres from our undeveloped land category -- lots developed and under development are down for the fourth consecutive year. And as you can see toward the bottom, we have a pipeline of products well-positioned for future needs -- 99 total, with 59 developed or under development, 22 in title, and 18 in the entitlement process. Even after our sales of undeveloped land over the last two years, our pipeline is still comprised of our best and highest-value creation opportunity.

You heard me say that one of our distinct competitive advantages is our dimensional land model, leveraging our land and resources to their greatest value. The 1031 exchange of our lowest returning timberland for the Broadstone Apartment is a solid example of value enhancement. We tax efficiently transitioned low returning timberland into a stabilized multi-family asset financed with sub-5% interest fixed-rate non-recourse agency debt, and exceeding our return requirement, a material step forward in moving land to a higher use, and a positive step toward positioning our assets and resources in the heart of demand. The 401-unit class-A Broadstone Apartment project is centered in the Houston Energy Quarter, a great location to participate in the benefits, both economic and job-growth.

In addition to transitioning timberland to higher-return real estate assets, our real estate pipeline and model is designed to produce multi-family sites. This is a great acquisition for Forestar, but represents only the first step in our multi-family value creation strategy.

As you can see on the map on the right, we currently have about seven high-quality sites in the major markets of Texas. In addition, we have the skill-set, resources, and foundation to leverage our position into the marketplace, capturing a unique and timely value opportunity. Our objective is to position our multi-family business to generate earnings from fees, services, and (inaudible) from the value we provide and create.

We believe in both the short- and long-term demand for multi-family housing. Minimal starts, constrained capital, and the largest segment of the US population moving in the peak household formation years, coupled with record levels of personal debt, equals short- and long-term demand. What happened to multi-family is interesting. If you look at the last ten years of multi-family starts, you'll see there was a thrust without a boom. We are well-positioned.

Moving on to another example of generating the greatest value from every acre -- creating realizing value through mitigation. Simply stated, it's just providing environmental offsets for impact associated principally with development. The objective of federal and state policies is no net loss of habitat or functionality of natural resources. In this example, the mitigation or offset is for the loss of streams. We have entered into an agreement to provide 130,000 credits for $30 a credit. When fully developed and sold out, the mitigation bank will have produced an estimated 250,000 credits.

The estimated undiscounted project economics will net Forestar about $7.7 million, including land costs at market, or about $9.4 million in cash. There'll be conservation requirements associated with the 900 acres in the bank. Given our core values and our commitment to being responsible and accountable, we believe this acreage should be conserved, yet still eligible for recreational lease and selective timber harvest. The balance of the tract would be managed according to our model -- greatest value for every acre.

There's opportunity well beyond the example I just reviewed. Based on our analysis and vision today, there's an estimated 22,600 acres of mitigation potential in our pipeline. As you can see, there's a significant value potential, even using $30 stream credit value. Our objective is to be the preferred mitigation supplier in North Georgia.

Let me give you another example of greatest value from every acre. Our Summer Creek Ranch venture project sale in the fourth quarter was not included in the real estate KPIs. The first question -- Why the tract sale? Simply because the projected return on development would not meet our return criteria or exceed the value of the offer. In addition, we have only one mixed-use project in the southwest submarket of Ft. Worth.

Now, the economics, or the dimensional land model. The venture's basis in the project prior to the tract sale was approximately $23 million. We sold 625 of the 1,000 surface acres for $20.3 million in the fourth quarter. In addition, and prior to 2010, we generated $2.2 million in lease bonus receipts. In 2010, the venture was paid for about 1.15 billion cubic feet equivalent of natural gas at just over $4 and in BTUs. That's an additional $4.7 million. Through a combination of real estate and natural resources, the ventures generated about $27 million in sales.

Going forward, the venture has about 480 planned residential lots, 71 commercial acres, and royalty interests from 23 Barnett Shale wells. In the fourth quarter of 2010, Forestar realized about $10 million in cash and $6.3 million in real estate segment earnings, plus about $2 million in royalty income in our minerals segment.

Now, naturally, the next question is, are there other opportunities like Summer Creek Ranch? We currently have about seven real estate projects with mineral rights and activity. The projects are located in Ft. Worth, Texas, and Denver, Colorado, and in various stages of value creation, from both a real estate and a minerals perspective. On the surface, projects range from in title to in development, and subsurface, from available for lease, leased, drilling, or held by production. This is the Forestar dimensional land model at work. Greatest value from every acre through a combination of our real estate, minerals, oil, and gas expertise.

Shifting gears and focusing on minerals, oil, and gas. Oil prices remain strong anticipating growing demand driven by global economic expansion. Natural gas, on the other hand, is challenged by plentiful supplies, inventories, and a domestic energy policy that fails to capitalize on our abundant natural gas resource enabling the US to become less dependent on oil imports.

A short-term positive for natural gas, and certainly today, has been an unseasonable cold winter, which caused a draw-down in inventories, but expected to be replenished, given the current US natural gas supply and production capacity. As a general rule, a majority of the E&P companies in our basin have focused capital on drilling to hold leases and prove reserves. There have been some cases of lease activity that I'll cover on the next slide.

In the fourth quarter, we leased 5,200 acres primarily in Louisiana. Similar to our recent Louisiana lease is the target -- is the Austin Chalk. Year-over-year lease acreage in average bonus per acre is down primarily due to a majority of the acreage leased being in Louisiana, where lease bonus rates have historically been lower. Our share of the production of both natural gas and oil is up about 16% over 2009, with the price of oil being up considerably. Segment income was down from 2009 primarily due to leasing activity and bonus price. We ended the year with 494 wells producing royalty, up 22 from year-end 2009. We have not finalized our year-end reserves, but we'll report in the 2010 10K when filed.

We continue to see positive developments related to the Bossier-Haynesville. One Chesapeake and two EOG wells came online with IP rates ranging from 18.4 to 22.2 mean cubic feet per day, which are good wells. Two wells have started drilling -- EnCana BP Blackstone and the Goodrich H Nelson 1H. Assuming the wells are economic, they'll extend the trend south and west.

There was a significant volume of leasing activity in 2008 related to the Bossier-Haynesville, including Forestar's mineral. Given that our leases were generally three-year terms, let me share with you our lease exploration schedule.

We've highlighted about 50,000 acres that will be subject to drilling if the lessees intend to hold the leases. The colors represent various lease agreements. Principally, other than the Trinity County lease, the terms and conditions reflect what I refer to as legacy leases. Our Ft. Worth team negotiated the Trinity County lease, which was finalized in 2009. It includes the higher minimum drilling requirement. We expect that there'll be a combination of drilling and interest in renegotiating lease terms. In fact, we granted an option to extend a 32,000 acre lease in the fourth quarter of 2010 for about $1 million. Regardless of outcome, Forestar Minerals will be positioned to realize the greatest value from every acre.

Turning to fiber. Fiber volumes were down due to 140,000 fewer acres and reduced harvesting activity on properties held for sale. Pulpwood prices were up in 2010, while saw timber price was down almost $2 per ton compared to 2009. In total, volume was down and prices were up marginally, primarily due to the mix of pulpwood and saw timber. The team continued to do a nice job in keeping the majority of available acreage leased for recreational purposes. Segment earnings are down from $9.6 million in 2009 to $5 million in 2010 due to lower acreage.

In the last two years, we've been executing several near-term strategic initiatives, which were designed and focused on positioning Forestar for the future. Today we have a strong balance sheet, great people and teams, resources, a plan, and a model strategically designed to recognize and responsibly deliver the greatest value from every acre. It's a Forestar distinctive, and a competitive advantage.

In closing, let me leave you with three points. Number one -- we continue to navigate through these difficult market conditions, which have created many dislocations in housing and natural resources, yet will be the source of future growth opportunity. Number two -- we're moving forward and excited about our prospects. I am optimistic, yet we will remain cautious and disciplined. And number three -- we are well-positioned to take advantage of opportunities to strategically grow through disciplined investment in our businesses. In multi-family, community development, mitigation, and natural resources, including minerals, oil, and gas and water. I'd like to open up the call for questions.

(Operator Instructions.)

Your first question comes from the line of Mark Weintraub with Buckingham Research. Please proceed.

Thank you. Seems like a pretty busy time. I was hoping to get a little bit more on the economics of the multi-family. If I understand rightly, you invested $50 million using tax-deferred money, and if you could explain exactly how that works. And then, do you have an ongoing income stream that comes from the multi-family? Or how does that work?

Yes, Mark, the 1031 exchange enables us to reposition, if you will, 100 -- a majority, if not all, of the proceeds from the timberland sale. So it's very tax-efficient. It's a deferral. You were right in the mix. It's the [$22 million] from the land sale, and the balance of it was non-recourse agency financing. The returns -- what I can tell you is they clearly exceed our return threshold, obviously north of our cost of capital. And yes, there will be a recurring income stream from these properties, or from this complex.

Mark, as I said in the comments, we think this is just the first step, as it relates to opportunity in the multi-family business. It's clearly a very good asset. But we think, given the market conditions today and what we see going forward, that this asset -- our other assets and resources in combination of the other elements of our business -- will provide us a good opportunity to capture not only this value but other values associated with what we can provide to the market in fees and promote.

And I apologize. I realize this is a fairly basic question, but how does the multi-family model work? How is it different than the other land ownership models that you have for real estate?

Well, first and foremost, Mark, Forestar naturally produces multi-family sites out of our pipeline. You know, if you look at the mix of projects that we have, they're generally mixed use. And one of those uses is multi-family or for-site. You know, what we see is that, where we develop single-family communities, we've got the opportunity to participate in the development of multi-family. But what we envision -- our objective -- is to do it in such a way that we really leverage our resources along with others and be able to position Forestar to be able to participate in value that we provide, as well as what we create.

Let me ask the question a little bit different. So what is it exactly that you acquired? Is it -- you know, obviously there is the raw land. And then what's already on the land?

The Broadstone Apartment complex is a stabilized multi-family project. There's a little over 400 units. It's currently about 93% leased up. It's not just land. It's an existing project. The photo on the slide, Mark, is a picture of that project.

And so presumably you're receiving rents related to those units.

Absolutely. It's currently about 93% leased up.

And so, basically, is that the model? You just keep collecting rents from the units? Or do you then, at a later date, sell the unit -- how do you -- or do you plan to sell the units at a later date?

Obviously, for some interim period of time, we'll continue to receive the rent income. And at some point in time in the future, I think what it provides us, Mark, is the opportunity to either continue with that lease income and/or potentially contribute to some type of entity that will enable us to realize even more value.

Can you share with us what the rental income is expected to be in 2012, for example? Or 2011?

What I would tell you, Mark, is the -- when we underwrote the project, the rental income was certainly positive. I'd already tell you that, based on the change in the rents and the turnover we're seeing so far after concessions are burning off, it's even exceeding our expectations. But I can tell you that, from a return perspective, if you look at what we believe to be fairly conservative underwriting standards, that this project clearly jumps our hurdle as well as cost of capital.

Okay. And the water resource company. I recognize that it's not a huge investment, but how does that fit in to your broader water resource strategy?

Yes, it's a -- as you said, it's not a big acquisition. But it's very nice as it relates to a complement to what we already have. This is a company that's been working on these assets and this business for quite some time, and, in our opinion, has generated quite a bit of value. Not only in the leases and the assets that are actually leased on one of the -- an aquifer with one of the highest recharge rates in the state. But it's also a nice avenue into the I-35 growth corridor.

And, you know, if you look at the maps that we've provided in the past, that's really our target and our objective and our objective for water, is to be a sustainable supplier to the I-35 growth corridor. So, you know, not only do you pick up some nice resources. You pick up a lot of progress that's been made in the development of that business, as well as some really good talent that not only has the experience, but really good relationships in the appropriate networks to advance our entire business.

Okay. So you're paying mostly for the intellectual capital? Or is it kind of a split?

Mark, there's a -- no, it's the intellectual capital, plus there's approximately 18,000 acres of leases over what's called the Simsboro Aquifer.

Okay. And so that, again, also, with the recurring income stream?

At some point in time. That's the vision.

Okay. And then, lastly, can you share with us how much land you still have left to sell related to your initial strategic initiatives program?

Mark, it's somewhere around 55,000 acres.

And would you anticipate a substantial portion of that, market conditions being acceptable, being executed this year? Or what's the kind of timeline for that?

Mark, I think that it's difficult to forecast how fast we'll get through the 55,000 acres. You know, all it takes is one phone call from the right buyer, and it's pretty much done. Or it could be an assemblage of a number of sales. You know, the number of conversations and discussions we're having are encouraging. There's a lot of, I would say, attraction to the properties, but, as I said earlier, we think we've got a pretty good understanding of their potential value. We're just going to be patient, but at the same time, disciplined. But we won't be penny wise and pond foolish.

Okay, great. Well, I'll let somebody else ask some questions and come back to you later.

All right. Thank you, Mark.

Your next question comes from the line of Jim Wilson with JMP Securities. Please proceed.

Thanks. Good morning, Jim and Chris. Just wondering, first, I guess, getting to the apartments on (inaudible), can a cap rate or yield an initial (inaudible) market range 5% of [shrink]?

Jim, it's actually a little bit north of that. But when you look at the entire deal, as I was mentioning to Mark, going cap rates are important. I think using a very conservative cap rate coming out is equally important. But even with conservative underwriting, what I would tell you is that it clearly meets our expectations and hurdle rate.

Okay. All right, then. And then, the seven multi-family sites. Obviously an existing community is for development yourself. I think we've talked about that before, but, what you're referring to, correct?

Yes, Jim, those are -- there's about seven that we've currently identified. As I said earlier, and I think it's an important point, you think about Forestar -- you know, our business and our model just is going to continue to produce these multi-family sites. Now, with regards to the development, you know, there are a couple of different alternatives or options, as we think about it. You know, ideally, we would like to be able to participate in such a way that we would be positioned for fees and earnings and promotes and returns. But leverage our resources in such a way that really maximizes our returns.

So what I would tell you -- there are a couple different ways to go about it, but the most compelling part of this business is just the fundamentals and where multi-family is today, and we just think it's a great opportunity. And there are a couple different ways for us to seize that opportunity.

(inaudible) with others. Yes, that makes sense. I like the strategy.

We do, too.

Well, it's more important that you do. On the real estate side, the margins you reported were very good. I assume that's as a result of the property sale out of Summer Creek, as opposed to any particular change on the margins from individual lot sales?

Jim, can you repeat the question, please? It's kind of difficult to hear you.

Oh, I'm sorry. On the real estate segment, the margins you reported were very good. Was it primarily from the Summer Creek property sale?

No.

Or is it from the individual lots?

No. Jim, actually, the Summer Creek sale was not even included in the KPIs and the margins from the lot sales. That was principally from all of our projects from (inaudible) markets. But a majority of all those sales, Jim, were principally from the Texas projects. In fact, of our total lot sales in 2010, about 725 or 726 were from Texas projects.

Okay, but the margins improved quite a bit, that you reported. Is that simply a lot better margins at those communities?

Jim, the margin -- if you look at the margin year over year, it's actually down just a little bit from 2010 to 2009. Obviously there's a little bit of mix in there, but the projects that are selling the best for us are the master plan community, obviously in the major markets of Texas. But principally, where buyers are going in and have interest and confidence in buying a home, where they see minimal downside risk to value. So with regards to our margins, I know it's somewhat counterintuitive, but it's principally a reflection of the type of projects to price point that we're in, as well as the market.

Okay. And then, just a final thing. Any thoughts on future share repurchases after what you did in 2010?

Sure. You know, Jim, Forestar is very fortunate in that we believe we have a number of really good options and alternatives as it relates to uses of cash. Obviously, share repurchase is one of those, and we were active in 2010. That is still obviously on the table for us, in addition to the other investment opportunities that I mentioned. At the end of the day, Jim, we want to make sure that the available cash that we have -- we use it in a way that we believe creates the greatest value for shareholders in the business.

All right. Very good. Thanks.

Thank you, Jim.

Your next question comes from the line of Lee Matheson with Broadview Capital Management. Please proceed.

Hi, guys. Just a quick question. I think when we last spoke we were discussing the idea of Forestar pursuing a sort of third party capital provider model, in terms of maybe rolling some assets into a managed fund. Have you made any progress in terms of discussions along those lines? And what's -- we tend to agree with you in terms of the points in your slide presentation about the attractiveness of the asset class, and I was wondering if institutional investors are as keen on it as we are.

Yes, Lee, what I would say is, you know, I apologize for repeating myself. The opportunity we see is in an entity or a type of relationship that enables us to leverage our resources, our sites, our people, everything that we have into the marketplace. We believe that the market recognizes this opportunity as well as we do, and that opportunity exists regardless of what type of ultimate structure that it would take. Ultimate structure or form.

So have you pursued it at all, just in terms of just playing out the potential scenario with a venture fund or something like that?

Lee, I think the best way to respond to that is that we're very active and we've done a lot of work.

Yes, okay, good.

And we continue to be very active and diligent and focused on that opportunity. And, as I said earlier, Lee, there's a myriad of options that we could take there.

Good. Okay. And then, finally, just on the apartment complex. Just looking at the website, it looks like sort of rents in the $1,500 range per month. We're back into a nice cap rate on the $50 million. Do you perhaps have the information on what it costs to build the project, and maybe help us understand who the sellers are and were they desperate? Or ultimately are they going to be partners going forward from a development standpoint for the multi-family business model?

Lee, what I would tell you is that, in this acquisition, there were some issues as it relates to the sellers. I don't want to discount -- I don't see them as long-term partners, and no, they're not a part of this project on a go-forward basis. And there's some indication that our purchase price was less than the replacement value.

Okay, good. And that replacement value, to be clear, was about -- I mean, your purchase price was about $25,000 a door?

I'm sorry, Lee, can you repeat that?

I think, based on, if it's a $50 million purchase price, at about 400 units, you're talking about $125,000 a door?

Yes.

And you believe that's below replacement?

Yes. For that -- yes, for that type of asset it is, Lee. It's a class A project that's probably -- it's not but two or three years old, I believe.

Okay, great.

Also got a -- Lee, I think the other point it's important to make is that it is centrally located in the energy quarter in Houston, Texas, and it's just a phenomenal location.

Excellent. Okay. Thanks, guys. Keep it up.

I thank you, Lee.

At this time, there are no further questions. I would now like to turn the call back over to Jim DeCosmo for any closing remarks.

Good. Thank you. Once again, I do appreciate everybody calling in this morning, being a part of the call, as well as your interest in Forestar. And I just want to encourage everybody to stay as warm as they can. Thank you.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.