Forestar Group Inc (FOR) 2013 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the third-quarter 2013 Forestar Group earnings conference call. My name is Jackie, and I will be your coordinator today. At this time, all participants are in a listen-only mode. Following the prepared remarks, there will be a question and answer session. (Operator Instructions).

As a reminder, this conference is being recorded for replay purposes. I will now like to turn the presentation over to Ms. Anna Torma, Senior Vice President, Corporate Affairs. Please proceed.

Thanks and good morning. I would like to welcome each of you who have joined us by conference call or webcast this morning to discuss Forestar's third-quarter 2013 results.

I am Anna Torma, Senior Vice President, Corporate Affairs. And joining me on the call today is Jim DeCosmo, President and CEO; Chris Nines, Chief Financial Officer; and Flavius Smith, Chief Oil and Gas Officer.

This call is being webcast, and copies of the earnings release and presentation slides are now available on the Investor Relations section of our website at forestargroup.com.

Before we get started, let me remind you to please review the warning statements in our press release and our slides as we will make forward-looking statements during the presentation.

In addition, this presentation includes non-GAAP financial measures. The required reconciliation to GAAP financial measures can be found at the back of our earnings release and slides or on our website.

Now let me turn the call over to Chris for a review of our financial results.

Thank you, Anna, and welcome to everybody joining us on the call this morning. Let me begin by highlighting our financial results.

In third-quarter 2013, Forestar reported net income of approximately $11.8 million, or $0.33 per share, compared with a net loss of $700,000 or $0.02 per share in third-quarter 2012. Our third-quarter 2013 results include a previously unrecognized tax benefit of approximately $6.3 million, or $0.17 per share, related to qualified timber gains associated with timberland sales in 2009.

In addition, let me remind you that our third-quarter 2012 financial results include a gain of approximately $10.2 million, or $0.19 per share, after-tax, related to the sale of Broadstone, a multifamily property located in Houston.

In addition, third-quarter 2012 results include expenses of approximately $5 million, or $0.14 per share after-tax, associated with the acquisition of Credo Petroleum and the amendment and extension of our term loan.

Now let me turn to the segment results. In third-quarter 2013, total segment earnings were approximately $22.2 million, up almost 8% compared with $20.6 million in third-quarter 2012, driven by improved operating performance of Oil and Gas and Real Estate segments. Real Estate segment earnings were $13.2 million in third-quarter 2013, compared with $12.7 million in third-quarter 2012. The primary driver of this improvement in Real Estate segment results is an increase in residential lot sales and margins, which Jim will share in greater detail in just a few slides.

Oil and Gas segment earnings were $8.5 million in third-quarter 2013 compared with $7.3 million in third-quarter 2012. This increase is principally due to higher oil production and higher average oil and gas prices. Other natural resources reported total segment earnings of $500,000 in third-quarter 2013 compared with $600,000 in third-quarter 2012. This modest decline was principally driven by lower fiber sales volumes.

Now let me turn the call over to Jim for some additional operating highlights from the quarter.

Thank you, Chris, and I would also like to welcome everyone who has joined us on the call this morning.

As we head towards the end of the year and into 2014, the momentum we have generated in Forestar has us on the right track to deliver our treatment for initiatives. Oil and Gas investment results are exceeding production expectations and targeted returns, and Real Estate continues to extend this trend of increasing sales and earnings.

Let's review just a few of the highlights from the third quarter this year in comparison to the third quarter of last year.

First, a nice step-up in residential lots and track sales, coupled with really good margins. Second, we are making progress in multifamily with 915 units under construction and with two of the three projects currently leasing.

Third, oil and gas production is up over 170%, and that is reflective of our acquisitions and investments in drilling and completion.

Fourth, fiber sales remain strong with a higher sawlog mix, and that is primarily due to timing.

And, last, we generate over $28 million in total segment EBITDA in the third quarter.

In addition, we invested about $50 million of capital weighted toward oil and gas working interest and the development of residential lots.

As you'll see, these investments are delivering additional value to Forestar and our shareholders.

Let's take a closer look at the Real Estate segment with first kind of current market conditions. Texas continues to be a leader in job growth, and that's the cornerstone of housing demand.

As the chart at the top illustrates, when it comes to jobs, Texas is the pacesetter. And as the table at the bottom highlights, we continue to be in good position relative to delivering lots and products is expanding housing markets in Texas.

In the four major metros, we have got 41 active selling projects with over 1500 finished lots -- 735 in development and over 10,000 to be developed. Our pipeline of projects in desirable locations, coupled with the capability and resources of developed lots, is a Forestar distinctive.

Now let's review the Real Estate segment results for the third quarter. In the third quarter of this year, Real Estate segment earnings were $13.2 million. That is up $500,000 compared with the same quarter last year, which included $10.2 million gain on the sale of Broadstone, which was one of our multi-family communities in Houston.

As the chart illustrates, the main driver in the third quarter was the sale of 547 lots with a gross margin of 46%. That is up from 37% in the third quarter of last year. We had not experienced this level of lot sales since the second quarter of 2007.

Also contributing to the quarter was the sale of 46 acres or residential tracks for $109,000 an acre and 19 commercial acres for nearly $258,000 an acre. That is an indication of the strength in real estate fundamentals in many of our core markets.

Let me call your attention to residential tract sales. On occasion, I am asked would we consider selling undeveloped lots or paper lots, and that is what these presidential track sales represent. In this case, selling 171 paper lots generated a better return than developing and selling finished lots to builders.

Also note, we don't include paper lots in our sales count.

Now, looking more closely at our lot sales trend. Sales of 547 lots in the third quarter is up over 103% from the third quarter of last year and brings the year-to-date sales up to 1353. The trend is headed in the right direction, but let me remind you, lot sales tend to be a little bit lumpy on a quarterly basis. Barring any significant movement in the schedule, we would expect closings in the fourth quarter to be in the 550 to 650 range and in the 1900 to 2000 range for the year, and that would be up about 40% year over year.

Likewise, our backlog of lots on a contract with builders remains healthy, at a little over 1600 lots. Shifting gears to multifamily.

We are on schedule with two multi-family venture projects -- Eleven, which is located here in Austin, and 360, which is located in the Denver Tech Center. Eleven, our 257-unit community, is over 80% complete, and we hosted the grand opening about two weeks ago. Plans are to reach stabilization and sale in the first half of next year. 360, our 340-unit community, is roughly 50% complete. Pre-leasing is underway, and we expect the first units to be delivered in the first quarter of 2014.

Midtown Cedar Hill, which is located in the Dallas Metro, is under construction, and it is being built on balance sheet very similar to Promesa, which we sold in the first quarter of this year. We expect to start construction on our Nashville and Charlotte projects in 2014, plus a site in Denver that we recently closed.

In line with our business plan, we are also evaluating a number of prospective sites for future projects. The team has done a nice job of focusing on planning and details and, most importantly, execution. High quality finishes, thoughtful amenities, and great locations have become a trademark of our multifamily team and our brand.

Going forward, we will continue to capitalize on the housing recovery by growing lot sales and margins, generating commercial and residential tract sales, and expanding our multifamily pipeline. In the third quarter, we generated Real Estate segment EBITDA of $13.9 million and $43.2 million through the first nine months of the year. The Real Estate team generated momentum in the business and have it headed in the right direction. They have done a nice job driving sales and earnings.

Keep in mind, this is a significant part of our Triple in FOR initiative -- proving up the value of the potential of assets, but more importantly the ability of the team to deliver results.

Let's shift to Oil and Gas. In the third quarter, Oil and Gas segment earnings were $8.5 million. That is up about $1.2 million from the same quarter last year. The increase is primarily due to higher oil production. As we mentioned, that is up over 170% from a year ago, principally reflecting the results of our investments in the Bakken Three Forks and the Lansing-Kansas City formations.

We continue to see minimal activity in the East Texas and Gulf Coast basins, given the predominance of gas plays and the current natural gas prices. Both leasing activity and oil production from royalty interests are down. Nonetheless, we did execute 7500 acres in lease agreements, principally in East Texas with deeper natural gas as the target.

Low segment earnings is the EBITDAX reconciliation. EBITDAX is a non-GAAP measure with a reconciliation of segment earnings included in the appendix of the presentation. EBITDAX is a commonly used oil and gas metric that is more reflective of cash flow generated by the business before capital investments. Year over year, EBITDAX is up $7.4 million.

Commensurate with investments, exploration and drilling has picked up, as the slide indicates. At the end of the quarter, we had about 460 wells generating sales from working interest, 18 wells at total depth waiting on completion, nine wells drilling, and 28 wells scheduled to be drilled in the fourth quarter. We are encouraged by results to date, and we fully expect our oil and gas investments to drive production, reserves, earnings, and value going forward.

As Anna mentioned, Flavious Smith, our Chief Oil and Gas Officer, is joining us on the call this morning, and I am going to turn the call over to Flav to review a few of the operating investment highlights for the segment.

Thanks, Jim, and good morning.

The rate of drilling in the Bakken/Three Forks continues to pick up as operators transition to pad drilling, which enables operators to drive down well costs. Frac design improvements have increased oil recovery, and with additional research and exploration, operators are seeking to extend the play in the lower benches of Three Forks formation, all of which has increased our profitability in the Bakken/Three Forks position.

At quarter end, 63 wells were producing with nine added during the quarter. Also, at quarter end, eight wells were drilling with an additional 18 wells at total depth and waiting on completion. Based on our evaluation of operator drilling plans, we continue to expect a total of about 54 wells to be drilled in 2013 with 41 of the 54 producers by year end.

As we expect, our average working interest in wells drilled in the third quarter was nearly 7% per well, higher than the 4.8% average in the first half of the year. As a result, we anticipate production picking up in the fourth quarter and on into 2014.

During the third quarter, five Bakken and Three Forks wells went on to production in sales, generating average IP rates of about 1500 barrels of oil equivalent per day. In three of these wells operated by Halcon, we have working interest averaging just over 12%. These wells IPed mid to late September and will benefit our fourth-quarter production volumes.

Our investment to date in the Bakken/Three Forks has generated solid production and earnings growth. With 18 Bakken/Three Forks wells waiting on completion, we expect to see a significant stepup in fourth-quarter production.

In addition, we've also approved AFEs for several Bakken/Three Forks wells scheduled to be drilled in the fourth quarter of this year and the first quarter of 2014. Estimated ultimate recoveries, or EURs, in the Bakken/Three Forks continue to show improvement ramping up from 500,000 to 600,000 barrels. Some operators now estimate EURs as high as 700,000 barrels of oil equivalent per well. At the 500,000 EUR level, when fully loaded with costs, including land, drilling completion, lease operating expenses and production severance taxes, we project returns well above our cost to capital and our minimum investment hurdle target of 20%.

Based on our engineering analysis, the average type curve for the [three] producing wells in which we participate includes EURs averaging about 600,000 barrels of oil equivalent. Based on our current assumptions, this additional 100,000 barrel of oil equivalent recovery per well will improve our estimated returns significantly above our cost of capital. For every 50 wells drilled, we would add about $35 million in value, using the assumptions in the footnote. Given the success to date and early indications for operators, we expect our working interest investments in 2014 to essentially double compared to 2013.

Let's move to another important region, Kansas and Nebraska. To date, we have generated better than 50% success rate in the Lansing-Kansas City. 11 wells were added in the third quarter, bringing our total in Kansas and Nebraska to over 90 producing wells. Our 2013 plan remains to add about 37 new producing wells for the full year, most of which we operate.

In the fourth quarter, we expect to drill an additional 15 wells. We are continuing to develop a pipeline of prospects in Kansas and Nebraska and, at its current pace, we anticipate several years of solid available drilling locations. We leased about 6000 net mineral acres in the third quarter and have added about 52,000 net mineral acres year to date. At quarter end, we owned over 160,000 net acres in the play.

Economics on a risk well basis continues to support returns well above our 20% target when fully loaded with costs, including land, seismic drilling, production severance taxes, and lease operating expenses. As a result, we continue to ramp up 3-D seismic shoots to define drillable locations, anticipated in accelerating our drilling in 2014 to nearly double 2013 levels.

Now let's take a look at how the growth of our Oil and Gas investments are generating production and earnings momentum. Our Oil and Gas investments have enabled us to grow our production throughout 2013. As we've mentioned on previous calls, production associated with investments is weighted toward the latter half of 2013 and expected to accelerate in 2014. As a result, we currently anticipate oil production in our fourth quarter to increase almost 50% compared to the first-quarter levels. Our investments have yielded favorable returns about our target levels and are expected to provide incremental earnings contributions in the fourth quarter of 2013 and continue on into 2014.

During the third quarter, we invested $25 million in exploration drilling and lease acquisitions, primarily in the Bakken/Three Forks and the Lansing-Kansas City formations, and about $60 million through the first nine months. Given higher working interest and the higher pace of drilling in North Dakota, Kansas, Nebraska, we expect the level of investment to pick up in the fourth quarter of 2013 and on into 2014.

As the chart illustrates, we expect our investments to result in production of about 1.1 million of barrels of oil equivalent, essentially meeting our Triple in FOR target. As our Oil and Gas investments continue, we expect to further accelerate production growth in 2014.

From a cost perspective, you can see our gross margin for the segment is over 30% or $23 per barrel of oil equivalent. Keep in mind, cost of $46 per barrel of oil equivalent includes all segment operating costs divided by production. We continue to focus on profitably growing our Oil and Gas business. Assuming the Oil and Gas market conditions remain relatively stable, I fully expect our results to continue to improve.

You and the team have done a really nice job building a good solid foundation underneath our Oil and Gas business. But I would say what is even more important is investing in growing the business in a way that is creating and delivering value, not only at Forestar, but our shareholders.

Thank you for the progress to date. Now let me shift gears to Natural Resources. Our Natural Resources segment includes sales from timberlands and the costs associated with the development of our water business. In the third quarter, the fiber sales were 29% lower than the third-quarter 2012. In large part, that is due to IP's Rome, Georgia liner board mill taking an outage in the quarter.

As a result, the saw timber represented about 53% of quarterly sales, which drove our average fiber pricing up nearly 50%. For the year, we are on track to sell about 650,000 tons of fiber.

In the last section of the call this morning, I want to update you on the execution of our Triple in FOR strategic initiatives. We remain steadfast in our commitment to deliver Triple in FOR. We have made good progress since the first quarter of 2012, driving segment EBITDA performance, improving transparency and disclosure, and growing Forestar through investments that clearly exceed our cost to capital.

Let's take a look at the few of the key Triple in FOR metrics. Number one, Triple total segment EBITDA. 2013 year-to-date total segment EBITDA is about $78 million. I am confident we are on track to reach an average of $120 million a year from 2000 through 2015 timeframe. Number two, triple oil and gas production. Oil and gas production for the first nine months of this year was over 70% of the weight in our Triple in FOR goal. Given our success in capital investments, I believe our production goal of 1.1 million BOEs will be achieved well ahead of plan. And number three, residential lot sales of 2200 lots.

Not including paper lots, we sold over 1350 lots for the third quarter, and we are on track to sell 1900 to 2000 lots this year. Demand for new homes in Forestar markets continues to strengthen, while inventories remain relatively tight. Barring any unforeseen events that might derail the housing recovery, we should be able to reach our lot sales goal of 2200 a year.

Let me close by saying I am encouraged by the momentum we generated in Forestar, and I firmly believe our team will keep us on track to deliver Triple in FOR. We are stepping up our investment in oil and gas, resulting in higher production, reserves earnings and, most important, returns in excess of our target and our cost to capital. Likewise, given housing supply and demand fundamentals, we are looking forward to continuing to invest in real estate development. And where opportunities meet our return criteria, we expect to further develop our pipeline of land and community positions.

Given the capital needs and opportunities, we continue to evaluate our financing options, which include debt, equity, securities, and our asset sales. As in the past, the objective is to maintain balance sheet strength, financial flexibility and maximize long-term shareholder value.

As our strategy states, we will grow through strategic and disciplined investments with emphasis on discipline. These are investments that will create and deliver value for Forestar and our shareholders.

Once again, let me thank you for joining us on the call this morning, as well as your interest in Forestar, and I would like to open up the call for questions.

(Operator Instructions). Steve Chercover, D. A. Davidson.

Just a couple of quick questions, first on Real Estate and then a couple on the Oil and Gas. So at the current pace, you have got about a five-year inventory of lots. So when do you start to replenish that pipeline, and do you do so by entitling your existing land or going into the marketplace?

It is a combination of both, Steve. In your comment, relative to the five-year supplies limited to Texas, the chart that we had on the bottom of the slide was just for the major market of Texas. So keep in mind that we have got projects in other markets as well.

Also, in the release, there is another pipeline where we provide a more comprehensive view of the lots that are in entitlement or have been entitled and what is in development.

We will also continue to look for opportunities in the marketplace. We have made some acquisitions this year, Steve. They are not large acquisitions, but they are generating really good returns. So in your response, just a combination of both. It is going to be both entitlement, as well as acquisitions that meet our return criteria.

Got it. And switching over to the Oil and Gas segment. For 2014, of your target 1.6 million BOE production, what would the ratio of oil to natural gas be?

Steve, I think oil is going to be somewhere in the 70% to 75% range. Maybe as high as 80%, but I would say 70%, 75%. Flav, that sound reasonable?

I think that's about right.

Yes. Okay.

Okay. Great. And will the margins be stable, or do you think they are going to expand?

You know, we would certainly expect them to be stable, given assumptions that we have shared with you. There is an opportunity for them to expand. As Flav said in his comments, as these operators continue to transition to pad drilling, typically what you see is the well cost goes down, and you see some improvements in completion in EUR. So there is an opportunity that the margins would widen going forward.

Perfect. And my final question is, is the Oil and Gas segment now effectively self-sufficient from a capital perspective?

You know, Steve, it could be, if you held investment flat. You know, Flav said in his comments that we expect to, in essence, double the amount of drilling in the Bakken/Three Forks, as well as in Kansas and Nebraska in the Central Uplift next year. So given the track record, knowing the plays and the locations and returns associated with that, we are looking forward to stepping up the investment there.

Mark Weintraub, Buckingham Research Group.

Following up on the spend in Oil and Gas, can you kind of bracket if you do double the drilling, et cetera, roughly how much spend that would be in 2014? And maybe if you have a number for the fourth quarter as well.

Okay. Mark, this year between the Bakken/Three Forks and Central Uplift drilling completion, a little bit of leasing activity, it is going to be in that $100 million range. And assuming that we double next year, we would be in the $200 million range. I think that kind of brackets our thoughts around capital. But most importantly, Mark, what we are looking forward to is, given the success and the track record we have, we are looking forward to making those investments.

Understood. And, I'm sorry, through the first three quarters, how much of that $100 million has already been spent, order of magnitude?

About $60 million to $65 million, and the balance of it is projected for the fourth quarter. As Flav said, in his comments, there are several wells in the fourth quarter with a much higher working interest than what we saw in the first part of the year. So based on the schedules and ASEs that we have signed and approved, that would be our estimate.

And when you think about capital structure, I guess there is kind of this moving transition in that you're going to be spending the money before, obviously, the earnings in cash get generated from it. So how do you think about what are comfortable and appropriate debt to EBITDA or debt capital -- whatever metrics that you focus on in thinking through what is the right capital structure at any given point in time?

Yes. Mark, we have, as you know, there is a concerted effort early in the Forestar life to get the balance sheet in a condition that provided us the flexibility and liquidity we need to run this business. And, for Forestar, that is a debt to cap somewhere in the 35% to 40% range. So, as we think about our investments going forward and the capital structure for the business, that is kind of a cornerstone, if you will, of what drives our decisions.

And, I think you had talked about that there are different ways, obviously, to finance this growth. One of them I think you referenced were additional asset sales. What is in the portfolio that would lend itself, perhaps, to fairly rapid monetizations at this point?

Mark, as you know, in the past, we have -- we sold quite a bit of Timberland in and around Atlanta, a little bit in East Texas. So there continues to be some Timberland that would be a candidate for asset sales. I would say that is probably the most likely asset. But keep in mind, there's other alternatives, and we are going to examine all three of those as we consider the best structure for Forestar for the near term.

Okay. And in terms of the investments, beyond Oil and Gas, would you anticipate there is going to be from a point of magnitude an equal focus on Real Estate, or is more of the investment going from a dollar perspective likely, because of the opportunities you see, likely be on the oil and gas side?

I think that what we see, Mark, is the investment in Real Estate is being substantive. I don't know that it is at the same level as Oil and Gas. I will try to bookend it for you. Assuming that we were to develop a couple of thousand lots or maybe 2500 lots, that is going to be $50 million to $60 million. The acquisition of a few multifamily sites and equity investments and maybe a couple of opportunistic acquisitions kind of back to Steve's question, on the single-family side, maybe another $50 million to $60 million.

So if you were to put it all together, call it in the range of $200 million for Oil and Gas and $100 million plus in the Real Estate, that is going to be somewhere in the $300 million range.

Okay. And then, just shifting back on the pickup in drilling, and I think you had indicated there is going to be, as you see the benefits of that, a substantial increase in EBITDA and profits in 2014 from the Oil and Gas business. If one were to assume prices stay where they are, is it fair to give an indication on what type of EBITDA and/or profitability the Oil and Gas would likely be generating, given the schedule you have in front of you in 2014?

Yes. Here is a way to think about that, Mark. If you look at the EBITDA contribution from Oil and Gas on a quarterly basis over the first -- over the four quarters of 2013 and you look at continuing on that trend through 2014, I think that probably would put it in the ballpark.

Okay. So, but, and it would be fair to expect a continued ramp as 2014, so it wouldn't be taking fourth-quarter 2013 and timesing it by 4. You would actually expect to see a continued ramp as 2014 progresses.

Yes. I think that would be more appropriate.

David Woodyatt, Keeley Asset Management.

Yes. Is there anything new you can report with regard to possible monetizing of some or all of the Marriott resort and the surrounding property?

Cibolo Canyons, I think, is what you are referring to, David.

Yes.

Right. There is a couple of comments there. The sales pace that Cibolo continues to pick up, not only in single-family lots, but also other commercial uses. So there is quite a bit of activity there. So I would see the rate of sales continue to pick up at Cibolo in the development part of the project.

Relative to the resort, as I said on a couple of occasions, we continue to work with the district in examining various alternatives and options for monetizing part of that cash flow. I would tell you, I think we have had very constructive discussions and conversations, and I will be the first one to report that, when we get something over the goal line, we will be quick to let the market know -- let you and the market know.

Okay. Just one other subject. I think you made a quick reference to it, but is there anything new you can report in the water area?

David, there has actually been quite a bit of press over the last, oh, call it, last four to eight weeks. We have been very diligent and focused on securing a groundwater withdrawal permit here in central Texas. It has created quite a bit of interest and a lot of media coverage, which is, I think, a positive indication, but one that would also reinforce the comment that we made is that it is going to take some time.

Also in that -- in the coverage, it was announced that we signed an agreement with Hayes County, which is on the south side of Austin, to purchase up to 45,000 acre feet a year of water. Initially, it is a reservation and with the option to transition into a development agreement.

So those are positive steps in the right direction. We are encouraged by that, but, once again, we are taking that a step at a time. And then, I think, as we have communicated before, there's two or three other projects that we continue to work on and focus on that we believe will be a -- should be a part of the Texas water solution.

Albert Sebastian, Prospect Advisors.

Jim, can you just explain a little bit the conditions with regards to the commercial track that you sold, 19 acres, and the price you realized per acre was quite good, as well as the residential track tracks -- well, the undeveloped land that you sold, which realized almost $5000 per acre. What were the conditions that existed for those type of prices to be realized?

Yes. The first question pertains to the commercial tract sale. There is a project where we have investments in Houston. That project has got quite a bit of commercial acreage. For the last four or five years, it has been pretty dormant relative to activity, but as economies pick up and recover, rooftops coming back and increases in population in the commercial, the residential tract sales will follow, particularly the commercial tract sales. So that price of, I don't know, $260,000 an acre or something like that, that was -- that's a good price. And it is going to vary by location, Al. In the past, we have sold some for $80,000, $90,000 an acre, and there has been some north of the $258,000. So it is very dependent upon location as well as use. But that's the main driver.

As I said in my comments, hopefully, as this economy or economies in which we have investments continue to recover, then we will see a pickup in commercial tract sales.

Relative to the residential tract, that is a sale to a builder who will, in essence, develop the lots on their own balance sheet. I have said on a number of occasions, that is an indication of a recovering housing market. When the builders want to take down an entire phase or section or whatever the case may be, that is a good sign. This is one that made good economic sense to us. So instead of developing and using capital for the 170 lots, we will let the builder use his capital.

As you would imagine, we will run the numbers, and we will look at the capital required for development and the price of developed lot versus the paper lot. And, in this case, it made better sense to sell it as a paper lot.

Okay. A couple of other questions. With regards to the cap rates associated with the multifamily projects, specifically Eleven and 360, what type of cap rates do you think would apply to those projects?

What I would tell you, is that both those projects, particularly Eleven and Austin, is principally urban, not quite so much so as the project in the Denver Tech Center, but pretty close to that, given the proximity to jobs and whatnot.

Today, what I would say is probably in the [5.5] to [6.5] range, but, here again, I think it is most important to wait until these projects are ready for sale. It is a little bit dangerous trying to forecast the cap rate one to two to three quarters out in front of you.

Okay. Okay. Thank you.

(Operator Instructions).

As always, we appreciate all the questions, as well as the interest in Forestar, and looking forward to the balance of the fourth quarter in 2014. Thank you for joining us this morning.

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