Forestar Group Inc (FOR) 2014 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Q1 2014 Forestar Group earnings conference call. My name is Allison and I will be your operator for today. (Operator Instructions) As a reminder, this call is being recorded for replay purposes.

I would now like to turn the call over to Ms. Anna Torma, Senior Vice President, Corporate Affairs. Please proceed, ma'am.

Thanks and good morning. I would like to welcome each you who have joined us by conference call or webcast this morning to discuss Forestar's first-quarter 2014 results. I am Anna Torma, Senior Vice President, Corporate Affairs. Joining me on the call today is Jim DeCosmo, President and CEO; Chris Nines, Chief Financial Officer; and Flavious 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, in slides, or on our website.

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

Thanks, Anna, and welcome to everybody joining us on the call this morning. Let me begin by highlighting our first-quarter 2014 financial results.

For the first quarter of 2014, Forestar reported net income of approximately $8.3 million or $0.19 per diluted share compared with net income of $4 million or $0.11 per share in the first quarter of 2013. The primary driver of the change in earnings was lower share-based compensation expense. Real estate segment earnings were $22.6 million in first-quarter 2014, up compared with $19.4 million in the first quarter of 2013.

The primary driver of the improvement in real estate is an increase in undeveloped land sales and higher residential lot sales, which Jim will share with you in greater detail in just a few slides.

Our first-quarter 2014 real estate segment results also include $2.3 million in charges associated with additional costs at two multifamily ventures in Austin and Denver, where Forestar is the general contractor for these developments. In addition, our first-quarter 2013 results include pre-tax earnings of approximately $10.9 million associated with the sale of Promesa, a multifamily community we developed in Austin.

Oil and gas segment earnings were $0.8 million in the first quarter of 2014 compared with $5.1 million in the first quarter of 2013. This decline is principally due to higher exploration, production, and operating expenses and lower production volumes related to our own mineral interests and the impact of severe weather conditions, principally in North Dakota.

Other Natural Resources segment loss was $0.5 million in the first quarter of 2014 compared with segment earnings of $1.3 million in the first quarter of 2013. This decline was principally due to lower fiber sales volumes.

Total segment earnings were $23.9 million in the first quarter of 2014 compared with $25.8 million in the first quarter of 2013. Before I turn the call back over to Jim, let me quickly review our balance sheet liquidity profile and a proposed debt transaction we currently have in the market.

As we've have shared with you in the past, we are very committed to maintaining our financial strength and flexibility while executing our growth strategy. At the end of the first quarter, we had almost $300 million in available liquidity. In addition, on April 29, we announced that our subsidiary, Forestar USA Real Estate Group Inc., intends to offer up to $250 million of senior secured notes due in 2022.

If the offering is completed, we intend to use the net proceeds to repay all of the $200 million of outstanding term loans currently outstanding under our senior credit facility with any remainder for general corporate purposes. This financing would be expected to provide a better match between our debt maturities and the duration of the assets in our portfolio and increased financial flexibility. The offering is subject to market and other conditions.

We expect our cash flows and available liquidity should adequately fund our Growing FORward strategic initiatives.

Now let me turn the call back over to Jim for some additional operating highlights from the first quarter of 2014.

Thank you, Chris, and I'd also like to welcome everybody who has joined us on the call this morning. While we continue to see solid momentum in real estate in the first quarter, oil and gas production continue to be impacted by adverse weather as well as declining royalty income. However, with housing starts [$500,000] below the long-term annual average of $1.5 million, we believe there are still several innings of recovery in front of us.

Relative to oil and gas, drilling completion operations has picked up with more moderate weather conditions, and as a result, we expect to see an increase in working interest production throughout the year.

This morning, we'll review the first-quarter 2014 results and provide an update on our Growing FORward initiatives and, in particular, our updated 2014 capital plan. I will begin with our real estate segment results.

In the first quarter, real estate segment earnings were $23.6 million. That's up over 21% compared with the first quarter of last year. As the chart illustrates, the main driver was higher undeveloped land and lot sales. We sold over 9300 acres of undeveloped land for over $2100 an acre, with those lands primarily located in East Texas. These sales represent a meaningful step toward monetizing $100 million of non-core assets in connection with our Growing FORward strategic initiatives.

We sold 974 lots in the first quarter of this year and that's up 118% compared with the first quarter of last year. In addition, we sold 831 acres of residential tracts. Of these sales, 360 lots and 831 acres of residential tract were sold in bulk, which closed out two non-core communities near Atlanta. Excluding these bulk sales, average life prices and gross profit per lot was 7% higher compared with the first quarter of last year.

We continue to capitalize on the housing recovery by delivering lots from our solid pipeline or projects in growing markets with tight lot inventories. Now let's take a little bit closer look at sales trends.

Barring any major shock to housing, we anticipate lot sales in 2014 to exceed 2200 lots. That's up about 17% over 2013. That's also up from the 2100 we referenced on the February earnings call. Including the bulk sales in Q1, we expect lot margins to be comparable to 2013. Given the current level of housing demand, we continue to operate with a majority of all lots in development under contract.

Relative to the location of sales, Texas accounts for the majority of our sales, and as you would expect, given that most of our investment projects are in Texas, one of the strongest state economies in the nation. Even though Texas is doing well, we're seeing other markets and investments gain momentum.

Aside from the bulk sales, 33 lots were sold in Atlanta, plus another 57 lots in Denver and Nashville. And last, gross profit from lot sales is up year over year and is holding up well across all age classes of acquisitions.

One of the major competitive advantages we have today is that we came out of the housing recession with a strong portfolio of assets, balance sheet liquidity, and an experienced team that's certainly capable of developing lots to meet demand in these inventory-constrained markets. Over the trailing 24 months, we've also been successful, yet I would add yet disciplined, in acquiring tracts for replacing lots or units sold -- in some cases, even extending our position in certain submarkets.

Since the second quarter of 2012, we have acquired 9 projects in 5 markets, which we anticipate will produce about 2000 lots generating north of a 20% return while maintaining close to a 40% profit margin. Relative to capitalized development expense, a majority of all investments are in our selling communities with the major -- with the majority in Texas, followed by Colorado, which is primarily development expense associated with previous sales at our [Piney West] project, located in a submarket at Denver.

The following slides are intended to provide you with additional visibility into recent capital that we invested in real estate acquisitions and extensions. Lantana is one of our most successful communities held in a partnership, with lot sales among our top five selling communities.

Lantana is centrally located between Dallas and Fort Worth. It's just 15 miles north of the DFW National Airport. It's also less than 2 miles away from over 1 million square feet of retail, entertainment, and restaurants.

This master-plan community has been awarded Community of the Year in Dallas-Fort Worth on a number of occasions and has been one of the top selling communities in DFW over the last five years.

In the first quarter, we had the opportunity to purchase the remaining venture interest from our partner for approximately $8.2 million. We'll now have 100% interest in 285 lots under development and about 517 lots to be developed, plus all the reimbursements from two water supply districts. The investment has a projected IRR in excess of 20% and doesn't materially change the gross profit for lots.

Let's look at the progress of another recent acquisition, which is Morgan Farms in Nashville. Late in 2012, we acquired a 208-acre site in Brentwood, which is a prime submarket south of Nashville, for $7 million. Expected to yield about 173 lots. This site is 10 miles from the Brentwood, Cool Springs business center, which has 13 million square feet of office, and is one of the best school districts in the state.

This is an example of an acquisition brought to us by a local builder, who had taken the property through entitlement and was looking for the right developer to take over the project. Forestar's competitive advantage for being a developer with a balance sheet, available liquidity, and a reputation for best-of-class planning and execution of development projects was a deciding factor.

Morgan Farms will include three price points and a group of local and regional builders include Drees Homes, Turnberry Homes, and three custom builders. As of today, 75% of all the lots are under contract with multi-year takedown schedules. Our pro forma cash flows indicate breakeven at about 45% of the project life, with gross lot margins expected to be similar to our 2013 average of 40%.

Now let's turn to multifamily. In addition to our single-family communities, we've got four multifamily projects currently under construction, with one project in Littleton, a submarket of Denver, about to break ground. In total, about 1620 units. Eleven, which is our 257-unit community here in downtown Austin, is over 98% complete and about 65% leased. Eleven is currently being marketed for sale and we expect it to close late in the second quarter or early in the third.

The balance of our multifamily development projects are progressing well and as the chart illustrates, we expect these investments to yield a 2 to 3 cash multiple in 36 to 48 months following the start of construction. We acquired two the sites in Austin for projects which are expected to be in ventures and start construction in 2015.

In the next two slides, I'll review our multifamily development project in Nashville and the two recent site acquisitions. We broke ground at the end of 2013 at our multifamily project located in Nashville, which we call Acklen, which is 30% owned by Forestar in a venture with MassMutual. We sourced and purchased this three-point acre site during the third quarter of 2012 for $11 million.

It's an excellent location, adjacent to the Vanderbilt University campus and several hospital campuses. The surrounding employment base is in excess of 46,000 employees. Acklen is just 3 miles from downtown Nashville and 10 minutes from the airport. The project will be a 300-unit Class A multifamily project with a best-of-class amenity package.

Forestar's equity in the project is $6 million with pro forma cash of Forestar of $14 million, a 2 to 2 1/2 cash multiple. This should be another successful project. It's in a great location, and with a balance of supply coming online over the next few years, which should keep the submarket fully occupied at around 94% through the time of completion.

Next, looking at two sites we've acquired. We recently purchased and closed two sites for future multifamily projects, both located here in Austin. Pressler Park is located in Austin central business district, a short walk from the capital and the University of Texas.

As you can see, the site also fronts Austin Central Park system and the elevation it provides premier views of Lady Bird Lake, plus easy access to running trails, parks, and boating. Just a few of the amenities.

The second site is currently called Westlake and it's a [first ring] suburban 20-acre project located in West Austin with direct access to Highway 360, a major transportation corridor here in Austin. For a comparison purposes, this site is much closer to downtown Austin than our successful Promesa project that sold in the first quarter of last year.

Other key factors include being a part of the Eanes school district, where all nine schools are rated exemplary. That's the highest possible designation. When this project is completed, it will be one of three multifamily locations in the submarket. We'll keep you posted on the status of these projects as we make progress.

Going forward, consistent with our initiatives, we'll continue to capitalize on the housing recovery by growing sales across the board -- lots, residential, and commercial tract. And we'll remain disciplined as we evaluate future investments in real estate, both development as well as acquisitions and extensions.

Let's shift gears to Other Natural Resources. First-quarter 2014, Other Natural Resources segment losses were approximately $0.5 million compared with segment earnings of $1.3 million in the first quarter of last year. During the first quarter, we sold over 57,000 tons of fiber. That's down from 191,000 tons in the first quarter of last year. For the year, we anticipate fiber sales to be approximately 350,000 tons.

Now let's turn to oil and gas. As I'd mentioned, the first-quarter 2013 results continue to be adversely impacted by unseasonable weather conditions. As expected, first-quarter oil and gas segment earnings were $0.8 million, down over $4 million compared with the first quarter of last year.

Q1 production and revenue from working interest was up 27% and $3.4 million, respectively, yet offset by expiration production and DD&A expenses that were up $4.7 million. And last, royalty income was down $1.3 million, primarily due to volume.

The table at the bottom right shows the quarter-end status of our working interest wells. During the first quarter, our average daily production was over 1900 barrels a day, up about 27% over the first quarter of last year. Due to cold conditions, only three Bakken/Three Forks producers were added during the first quarter. However, three wells were drilling and approximately 18 wells were waiting on completion at the end of March.

As conditions improve, we're seeing a pickup in funding requests and completion of wells. With the sale of a smaller non-core operating area associated with the CREDO acquisition, and a step up in production, we expect the second-quarter segment earnings to be in the $5 million to $7 million range.

Flow segment earnings is the EBITDAX reconciliation. That's a non-GAAP measure that we provide a reconciliation and segment earnings in the appendix of the presentation. First-quarter 2014 EBITDAX of $9.8 million was down only $0.4 million over the first quarter of last year.

Now I'd like to turn the call over to Flavious Smith, who will provide you with an update and some additional insight into our oil and gas operations.

Thanks, Jim. As we have discussed in prior calls, we have about 7600 net acres leased in the Bakken/Three Forks play of North Dakota. These wells of interest are located in what is considered to be the Bakken core. The map on the left illustrates the locations, the most productive wells, and the most productive wells in the Bakken, shown in orange and yellow.

The location of these leases is highlighted and you can see on the wells in and around our leasehold have EURs generally on the higher end of the range.

We have added about 1600 acres since the acquisition of CREDO for an average of about 6000 per acre. All are located in the core and expected to generate returns that will exceed our hurdle rates. Under current spacing, we have about 450 Bakken/Three Forks locations, with nearly 370 undrilled and ahead of us. We ended the quarter with over half of these locations held by production.

As Jim said earlier, due to the cold winter weather, only three Bakken/Three Forks wells came online in the first quarter of 2014. Including these three wells, we now have an interest in 83 gross wells. In addition to the weather delay, our average working interest was only about 3% in the quarter.

However, at the end of the first quarter, we had 21 wells either drilling or waiting on completion crews, with an average working interest of 8%. Some of these wells will have working interest as high as 18%.

We anticipate adding about 57 additional producing wells in 2014 in the Bakken. These would be down from our previous expectations of about 85 wells, again, due primarily from delays in drilling starts due to weather. However, we expect our average working interest to be up 10% from the 7% in 2013.

The table on the upper right shows our expected IRR in the Bakken/Three Forks at 500 to 600 EURs. The average type curve of our producing wells continue to show EURs above 500 MBOE, with many approaching 600,000 barrels of oil equivalent and greater. Assuming our additional 370 wells noted earlier, and using a PB10 of only about 500,000 per well, the potential discounted cash flow in our Bakken/Three Forks position approaches $185 million.

The chart on the left provides an illustrative cumulative cash flow earnings example of the Bakken/Three Forks well. On average, these wells go cash flow positive three years after completion and surpass our investment return hurdle rate of 20%.

Let's move south to another important region, which is Kansas and Nebraska. Our operations in Kansas and Nebraska continue to focus on Lansing-Kansas City. At the end of the first quarter of 2014, we have leased 195,000 net acres. In April, we acquired an additional 61,000 net acres of leasehold in Nebraska. This additional acreage should enable us to build a pipeline of drilling locations for at least the next 18 months.

As you know from previous presentations, the Kansas-Nebraska project area consists of stacked pay intervals and we have been successfully delineating structure with 3D seismic. However, there are times when these stacked pays are high and tight and won't produce. This accounts for about our four in ten success rate.

Let's take a closer look at our first-quarter Kansas-Nebraska activity. In the first quarter of 2014, we had a 40% drilling success rate in line with our historical program average. We added 12 new gross producing wells, however, as the Bakken -- however, as with the Bakken and Three Forks, the cold weather impacted our drilling and production activities.

As a result, we have reduced our 2014 plan. We now expect to drill 90 gross wells, which should add about 36 new gross producers, risk at about 40% success. As you know, we operate the majority of the wells in our Kansas and Nebraska project area.

Economics on a risk-adjusted basis have continued to support returns above our 20% target. As we have discussed in prior calls, we fully burdened our economics with dry hole, land seismic drilling and completion costs, lease operating, and production severance tax costs. When we review all these project areas quarterly, so as to evaluate our results in future prospects, at present, based on the acceptable project metrics, we will continue to further develop our inventory of drillable locations.

Again, the chart on the left provides illustrative cumulative cash flow and earnings example of a Kansas-Nebraska well. Positive cash flows begin two years after completion and generate approximately $500,000 in discounted cash flow per well.

Let's now take a look at some activities in the Texas Panhandle. We are currently operating two horizontal development wells in the Texas Panhandle on acreage that was part of the CREDO acquisition. These wells are targeting the Cleveland formation. Our estimated total cost for these two wells was approximately $1.3 million. Based upon our expected EUR as noted on the slide, we expect an IRR above our hurdle rates.

In addition to the Cleveland, we have other targets in the area, including the Tonkawa and Mara. Over the next few months, we will evaluate our current well results and another activity in the area and determine next steps. Bottom line is to invest with this one.

Now I'll hand it back over to Jim.

Thank you, Flav. Just a couple of closing comments on our oil and gas business. Even though the drilling operations were impacted through the long winter, we still expect production to pick up as operations return to a more normal level. Based on our current estimate, we would expect 2014 working interest production to be up about 400,000 BOEs, royalty down approximately 150,000, netting increase of about 250,000 BOEs over the 2013 production of 1.1 million BOEs.

Consistent with our initiatives, our focus is to first, invest in existing locations expected to drive earnings and returns. Second, evaluate non-core assets and sell those deemed to be non-core. And third, manage capital accordingly.

In the last section of the review of this morning, I'll give you an update on our Growing FORward initiatives, in particular, and update on our capital plans. We remain focused on executing our strategic initiatives, Growing FORward specifically designed to create and deliver shareholder value.

As a reminder, there's three primary components. Number one -- growing through strategic and disciplined investment. With our 2016 operating EBITDA target of $200 million, EBITDA per share would be about 4.5 times higher than the annual average from 2008 through 2011.

Number two -- proving out the value of our portfolio by increasing return on assets. That's a key metric that is proven to be highly correlated with shareholder value. And number three -- monetizing $100 million of non-core assets by 2016.

To further incent the execution of our initiatives, our compensation plan is primarily based on ROA and earnings performance. Let's take a closer look at our updated 2014 capital plan.

Given that the first quarter investments were less than expected, we're providing an updated estimate of our 2014 capital plan. As you can see in the table, real estate is relatively flat with a downward bias, and oil and gas is estimated to be down materially from the original plan, yet up about 20% to 25% from the 2013 actual.

The primary driver in oil and gas reductions and seismic lease extensions and exploration drilling in the Bakken/Three Forks are principally weather-related. It's important to note that a majority of the capital plan is investment and development of existing locations and communities. In real estate, development expense is capitalized with the majority in investment used to develop infrastructure in lots and existing communities that are generating solid margins and returns.

Similar to real estate, oil and gas development capital is primarily used to drill and produce existing locations, heavily weighted toward the Bakken/Three Forks, followed by the Central Uplift in Kansas and Nebraska, both locations generating above target returns.

And relative to investments in acquisitions and extensions, they are contingent upon identifying locations in both real estate and oil and gas that may either exceed our hurdle return rates. In the case that source locations don't meet our underwriting criteria in hurdle, that capital won't be invested.

In oil and gas, the capital is primarily for extensions and bolt-ons in the Bakken/Three Forks and the Central Uplift, as Flav reviewed. He also noted in the oil and gas review that we have secured an additional 1600 net mineral acres in the Bakken/Three Forks core since year-end 2012. And we recently acquired 61,000 acres in a bulk transaction. And last, we will look to identify and secure positions in emerging resource plays.

In closing, I will tell you that we remain focused on delivering our Growing FORward initiatives. First, as illustrated on a previous slide, capital investment of $75 million in the first quarter was less than the original plan due to weather, but more important, discipline. Second, we divested about $20 million in non-core properties. That's a combination of undeveloped land and real estate projects and it's a significant step toward our goal of $100 million by 2016.

Furthermore, in Q2, we sold our interest in a small oil and gas field that was a part of the CREDO acquisition. So in the first half, we'll have generated non-core sales from across the business.

Third, relative to operating with discipline, we expect our cash flows and available liquidity to adequately fund our Growing FORward initiatives. You have now looked for housing, energy in our positions, and real estate and oil and gas. I remain optimistic and I'm looking forward to Forestar's future.

Once again, I want to thank you for joining us on the call this morning and now I'd like to open up the session for questions.

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

I have a couple. Starting with Eleven, it's a little bit smaller than Promesa was. Promesa was 289 units and given that prices are up, should we anticipate effectively similar sales in earnings?

Steve, Eleven is likely going to outperform Promesa from a financial perspective. If you go back to slide 11, you'll see that on Eleven, we expect the cash to come out of Eleven at the time of close to be about $12 million, which is about a 3 multiple from the extra we have invested.

Thank you. Sorry, there's so many slides. And then in the real estate pipeline, would you say that it's where you want it to be? It looks like your acreage's down about 12,000 acres, presumably due to that bulk sale, and lots are down about 4500. So I know you are investing in it, but do you view the pipeline as getting smaller or is it where you want it to be?

Steve, there's been some changes, but I would say it's minor. If we look at the inventory of developed lots and lots to be developed and also take into consideration the acquisitions over the last 24 months, the pipeline is pretty stable. We've been maybe just a little bit short of replacing sales, but that's okay, given the size of the pipeline number of projects.

We've got the ability to be -- to exercise discretion and discipline. To the extent -- as I said in my comments, that we can find opportunities that meet our underwriting criteria and meet our return hurdles, and we'll certainly make those investments.

Certainly. In those 8400 acres that you sold at $1850, that seems to me about timberland values in the South, although it was classified as real estate. From a tax perspective, were those operating timberlands?

Yes. Steve, I think I had mentioned that a majority of those tracks were in East Texas. Those were not properties that were in and around Atlanta. So you are correct -- they were much more timberland-like than HBU.

But it still appropriate to call it real estate from a --

Yes, it's just how we reported it in the segment, Steve.

Okay. So switching to resource, why was the pulp and saw log volume down so significantly from 191,000 to 57,000 tons?

Yes, it's just a comparison between a really strong quarter and a weak quarter. In the first quarter of 2013, inventories were relatively low in that basin and there was a lot of harvest. And it's just the opposite in the first quarter of 2014. Inventories were low and harvest was down. So that was the principal reason for the significant variance in volume.

What would be a good run rate there?

Well, as we said, we expect the harvest this year to be, call it 350,000 tons, something like that. So that's roughly 80,000 tons, 89,000 tons a quarter.

Got it.

But there's going to be a little bit of variability. Steve, I think you know that it varies a little bit throughout the year, depending upon whether it's inventory build or inventory depletion. It's converting facilities.

Okay, and I'm sure I just missed this one, but $100 million asset sales, that $20 million that you sold in Q1, does that mean there's $80 million left or there's $100 million over and above this? I apologize if I --

Yes. The $20 million goes towards the $100, million, Steve, so there would be $80 million left.

Got it. Thanks, Jim, for taking all those questions.

Mark Weintraub, BRG.

Thank you. A couple of clarifications, if I could. First off, the original guidance you gave on real estate lots, has that included the 367 bulk lot sales or was that opportunistic?

It included it, Mark. It was a little bit earlier in the year than what we had estimated, so the 2100 included that bulk, and as I said, we expect that -- based on what we can see today, that lot sales would be 2200, possibly a bit north [this year].

Or 2300, I believe, is what you are forecasting now. Is that right?

Yes, Mark, I said 2200 with a little bias to the north of that.

Oh, okay. And so that is a pickup. I believe you had 2100, originally. Where is the added strength been most visible?

The market's really across the board. Texas is doing well, and as I said when I was discussing lot sales, we're beginning to see a pickup in Atlanta. We made a couple of investments in Nashville that are gaining a lot of traction and momentum and we even generated some recent sales in Denver. So it's -- I think it's appropriate to say that it's across the board.

Okay. And then on that $100 million or $80 million to go in repositioned assets, is that all focused on timberland/real estate non-core sales?

No, Mark, as I commented, the first $20 million was a combination of undeveloped land or timberland and then a couple of non-core projects, where we sold out of both finished lots and residential tract.

I also commented that in the second quarter of this year, Flav and his team have consummated a sale of a non-core location that was part of the CREDO acquisition, so what I would tell you is that if we look at Forestar, our portfolio, our business or businesses, we're evaluating everything.

Okay. And of the $200 million in 2016 EBITDA target, can you give us a sense as to roughly how much of that would be coming from the oil and gas business and is that from the existing footprint?

Yes, it's principally from the existing footprint and it's pretty evenly split, Mark, between real estate and oil and gas.

Okay. And obviously it's been a little bit slower in ramping up the oil and gas earnings than you were hoping. And you pointed to weather as being the reason. Are there any other insights that you can share as to -- was there anything else going on? Costs seem higher.

Again, it could all fall under the umbrella of weather, but it's hard to -- from the outside, it's hard to have a really good look. Any other learning experiences that you've been having as you've been ramping the business up?

Good question, Mark. There's really two things. Obviously, the fourth quarter and the first quarter were impacted by weather, just from an operating perspective. But as I also said, the volume from our -- from royalties, from the owned minerals, has been in decline and we expect that to be down roughly 150,000 barrels or BOE equivalents in 2014 as compared to 2013.

So that's a little bit of a headwind as it relates to both production and earnings, but fortunately, today, with natural gas prices in the mid-$4s, there's a little bit more of an appetite for activity investment than it was at $2.50, for sure. But those are the two key reasons, Mark, is weather, but also the decline in royalty volume.

And so is what happens to royalty volume pretty much a function of the nat gas price or is there a built-in decline separate from nat gas prices?

It's a built-in decline, Mark. As we look back -- you know, Flav would -- there's been hardly any drilling over the last, what, 12 to 18 months? There's maybe a few wells that have been drilled. So you've got to continue to have some wells coming online in order to maintain your volume.

Hi, Mark. What I would tell you is that East Texas, where most of our land is -- most of our middle interest is -- is a really high cost basin, and it's a gas basin, primarily. And with gas prices at $2.50 and $3 over the less two, three years, it really has come to a screeching halt for exploration.

So we don't see any opportunity there to see much growth until we get about $5 or $6 -- and that's coming. We think that's coming and we'll see some more activity and we'll start to quell the decline, hopefully, in the legacy minerals.

Okay, thanks for the color.

Robert Howard, Prospector Partners.

A couple of things. That Kansas-Nebraska acreage that you bought, can you tell us how much it costs?

Yes it was -- yes, go ahead, Flav.

Yes, Robert, it was an Apache deal and it was $95 an acre and really contiguous acreage and to a lot of our -- it was contiguous to itself and it was also contiguous to a lot of our existing prospects, so it really fit into the puzzle up there to help us generate more locations.

I'm sorry, $9500?

No, $95 an acre.

$95 an acre. Okay, all right. Okay, just wanted to -- okay. And then the oil and gas CapEx, does that sort of decline in 2014? Does that get shifted forward into 2015 or does it -- kind of other things put into play and you can't immediately make that assumption.

Yes, Rob, I would say a majority of the reduction is -- it was just the slowdown in the first quarter and just reevaluating the plan. We continue to look at all of the investment alternatives and options that we have. And I'd tell you, it's principally a push forward.

And typically in the locations when highlighting the Bakken/Three Forks and Central Uplift, those are good investments. And as I said in my comments, it's principally development, but, as much as anything, it's a push out.

We had 85 wells in the plan -- in the Bakken, and that's down to 57 and that's simply because the wells are -- the wells weren't getting drilled in the first quarter as we expected because it was just too cold.

Yes, okay. And is there just, I guess, for the next couple of years, that CapEx level, does this say $125 million to $200 million range, is that sort of what you see as being a reasonable assumption going forward or could there be an even bigger number or how do you kind of see this a little longer term?

Yes, Rob, what I would tell you is that given the footprint in the locations of portfolio today, I think we'd look at 2013, 2014 capital as kind of being in the ballpark of what we see today for an investment level.

The biggest delta is, obviously, the drilling plans and, more importantly, the execution of those plans in the Bakken/Three Forks. When we look at the mix of capital in oil and gas, it's pretty heavily weighted toward the Bakken/Three Forks.

In the discussions that Flav and I have had, and with the team, they've had with the operators. There's a certain amount of services and drilling rigs in the basin and that kind of limits the rate, so assuming that that level of services and rigs stays in the basin, then we would expect it to be fairly consistent going forward.

Okay. And sort of the -- I guess the cash flows -- the cash to cover this CapEx, you kind of at least were somewhat implying, at least for this year, that you weren't really going to need too much more. And are these wells that you're drilling now, is the sort of the cash flow that's coming from these new wells going to be able to kind of sustain this drilling level that we're talking about or how much need might there be for outside financing to kind of keep up with the drilling CapEx?

Yes, Rob, what I commented on and I think Chris made the same comment in his remarks was that given where we are today with our available liquidity and the cash flows that we see going forward, that we firmly believe that we are adequately funded to cover our Growing FORward initiatives.

Okay. And then just lastly, on the -- some of these lot sales, you talked about Atlanta recovering and you had 400 lot sales there. I guess 33, excluding the bump, but Texas -- the 400 lot sales you had, that's obviously a very large number of the total for the quarter, and yet Texas was 80% of the profit.

And I'm -- just off the top of my head, thinking that this Atlanta land would be sort of legacy low-cost basis land and -- which would mean that -- I don't know, it just sounds like you might not have been selling it for much, so I just kind of wondered sort of how the profits worked and is it sort of similar to some of the land sales you've had before, where you're just sort of saying these are lots that we're not going to be able to monetize in the near future and at the present values, better take the money now and put it somewhere else or what was going on there?

Yes, Rob, if I understood your comment and question correctly, it would be the latter. When we look at the projects -- the real estate development projects that we have, we look at the returns that we would generate from development and if it doesn't meet our criteria, then those are deemed non-core. Particularly, if we don't think there's a recovery in sight. That was the case for the two projects that we sold out of in Atlanta.

And another comment that I would make is that one of the two were a part of the old Timco joint venture that LIC had with Cousins back in the early 1990s, so it was an old project that there was some interest in and we were able to amonetize that.

Relative to the contribution of profits -- obviously, the -- since the predominance of the finished lot sales are coming out of Texas, it's going to drive the gross profit margin. But I would also tell you that of the lot sales that were not bulk in Atlanta, as well as Nashville and Denver, they are also generating some pretty attractive profit margins.

Okay, great. Thanks, guys.

Craig Gilbert, Linden Advisors.

I appreciate the color on some of the royalty income. I wanted to expand upon that a little bit. It sounded like the bulk of it was coming from East Texas. If natural gas hovers around where it is currently, will that income continue to decline and can you give us a sense of the magnitude? It sounds like it's doing about $9 million of cash flow the last 12 months?

Yes, I think that's in the ballpark. I will tell you, and I'll ask Flav to comment on this is well, is that gas is trading roughly at $4.50 or something like that. That improves the appetite, and as Flav said, the East Texas and the Gulf Coast basins are gassier. But most of the activity that we're seeing today is not just dry gas; it's a combination of dry gas and condensate NGLs and oils.

So there's some things happening out there. There's some nice trends of other plays. I think probably a little too early to comment on exactly where those may end up, but we are encouraged by what we're seeing. And Flav, you can comment on this, I would say we're probably getting more phone calls and interest today that we were two years ago.

Yes, especially East Texas again. Louisiana is a little more oily, a little more liquids-rich. There are a few wells being drilled there. But everybody has kind of been through a pick on the Wilcox, so that was a big majority of the work on our acreage in Louisiana.

The Austin Chalk as well -- two or three years ago we were at $6, $7. The Austin Chalk was really busy, with Anadarko and Swift, and that has come to a screeching halt. So really, we have large blocks of acreage in the Bossier Shale, but you need $6 or $7.

We have large blocks of acreage in the Austin Chalk, which again you need $5 to $6, so as it eases up, we're going to see more activity. And we evaluate our acreage all the time and we have people call about our acreage all the time to determine whether we want to drill some wells on it or whether we want to lease it to somebody else. And those phone calls are starting to pick up a little, but it's not like it was in the past.

And we do have our own projects there. The problem is we need a little help, too, with prices. So it will come to us, it's just we're in the down cycle right now on those basins.

Right, no, that makes sense. If it kind of continues steady state where it is, will that income continue to decline as some of those leases expire and they don't renew them? Did I think about that right?

These aren't leases -- their leases will expire on our minerals, but if they're not producing, we'll get it back. But on the -- but the natural decline will continue until we see wells drilled down there. You'll see a normal decline of the minerals resource base overtime.

It's just part of -- the cycle that you're seeing is part of the oil in the basin price. If we look back over the last 10 to 15, 20 years, it is -- there have been periods of a lot of activity and a lot of leasing in drilling and other times it's been slower. And the other thing that we didn't speak to is -- that happens concurrently is just continued advancement in technology.

So something that may not have been economic 5 or 10 years ago, with some changes in technology, it reduces cost or increases the EURs and it helps in addition to just straight commodity price.

Okay, and my second question is just on the water assets. Are those part of the non-core bucket of the $80 million remaining and other any metrics you can give us in terms of the value? I believe book value is not representative, it's recorded at a very low basis.

Yes, that's correct. I would not classify the water assets is non-core today. There's -- we think that there's a lot of option value there. We are focused with a small team that's dedicated everyday to work on securing groundwater withdrawal permits and negotiating purchase and sale agreements. We believe that is the greatest value to be created and ultimately realized in that business.

Okay, thanks very much.

Ben Claremon, Cove Street Capital.

I'm not an oil and gas expert, so I have to apologize, but I'm going to ask a question about the Texas Panhandle slide that you have in the deck. I'm not sure if this is exactly what Flav said, but, apparently, the wells cost about $4.5 million in the Cleveland and the Tonkawa? That right?

That right? Yes, each. Our share -- we don't have 100% of those wells. Our share was, what? $1.3, $1.4 (multiple speakers)

Now I've got it. Okay. So who is going to be drilling those primarily? I'm just wondering because I don't know if CREDO had a whole lot of experience in horizontal drilling, being non-op in the Bakken and being kind of vertical drilling in Kansas and Nebraska, so maybe you can talk about your partner is there and who's going to be drilling, because these are definitely more complicated wells than I think that have been drilled, especially Kansas and Nebraska.

Well, the Texas Panhandle, yes, these were horizontal wells. And we built our team with expertise to do this from companies like EOG and Quicksilver and several other companies. So internally, we have the engineering -- the drilling, engineering, completion expertise, the geological expertise to drill these wells and we are the operator.

And actually one of those wells is drilled and waiting on frac and the other well is drilling at almost TD in the horizontal. And we will frac those wells together. So we feel really good about our operational experience there.

Obviously, our Kansas-Nebraska vertical well, that's conventional. There is no frac. So those are very simple, old-school -- that technology -- you could drill those with cable tool rigs. That's old technology.

And then our operators in North Dakota, primarily is Halcon, and you know, those guys are all petrohawk guys, so they have the technology to drill deeper horizontal wells. We feel pretty good about them. Matter of fact, about seven or eight wells that are currently waiting on frac and IP are Halcon wells that we are willing to pad, so -- or we'll unpad.

So we have really good operators in North Dakota. We have the expertise to drill wells like that in-house, but our working interest is very small. And so we're not going to put ourselves in that position for a 10% working interest. But we have a pretty broad skill set in both divisions, in the south and in the north, to drill the type of wells that we're looking at.

Ben, I would also say, too, that the wells that Flav referred to in the Panhandle, they are essentially offsets. These are development wells that are adjacent to or offset existing Cleveland and/or Tonkawa wells.

Yes, these were (technical difficulty) in probably in a section. We have wells on both sides of us, of the section, so we are pretty comfortable where we are there.

And maybe just a quick follow up on that. As you continue to think about the opportunity at Texas Panhandle and we see -- I guess you are indicating that these are low-hanging fruit and you know the geology there. What about the opportunity to expand there? Can you maybe talk a little bit about well costs and kind of the opportunity you see?

Hey, Ben. The path forward there is to continue to focus on the positions and locations that we have. I think we've commented on a number of calls that there are certain occasions where it makes the most sense for Forestar to stay in a no-cost royalty position, sometimes a working interest position, and then there's going to be occasions where it makes good sense for us to operate. And it's really just based on risk and cost. So that's the principle driver of those decisions.

Okay. And then one final question. Thank you for your time. I guess what I'm hearing from you is that the capital spend is going to be -- at least in oil and gas -- is going to be somewhere near where it's been, based on your requirements in the Bakken and other things that you're doing.

And I guess where a lot of people, I think, are having trouble understanding is how shareholders eventually benefit as you continue to outspend your cash flows. And you focused a lot on free cash flow, which would be cash flow after CapEx and being positive. And so maybe just talk a little bit about how you envision the shareholder base benefiting from the level of spending that's occurring today?

Yes, Ben, I had mentioned, once again, that when we look at where we are today and the opportunities that we have going forward, we think that, given the liquidity that we have today and the cash flows going forward, that we're in good shape and we will certainly have the ability to adequately fund our Growing FORward initiatives.

So we believe that, based on our estimates, that cash flow's going to continue to ramp up and we will be in good shape. Chris, you want to comment?

Yes, as we said earlier, I think Ben, as Jim mentioned, we see cash flows increasing from the improvements in the business. And based on that and the financial transactions that have taken place over the last 12 to 18 months, our balance sheet is in good shape to finance those investments over the next few years and we will successfully fund our Growing FORward initiatives, which includes driving total segment EBITDA and earnings to the bottom line.

And when you drive return on assets, as we are all aware, that's closely aligned with how shareholders do. So if we can drive segment EBITDA and return on assets, we think we'll drive shareholder value. And we think we are fully funded to do that over the next few years.

All right, everyone. I hope you are right about that. Thanks for taking my call.

Richard Dearnley, Longport Partners.

The comment about the stacked pays in Kansas and Nebraska being high and tight and won't produce, can you -- are you getting better and being able to see those on 3D?

Yes, Ben, this is Flavious. We shoot 3D on almost all of our acreage that we acquire. And for the sole purpose of finding the highs. And we don't -- now, really, we don't miss the highs anymore. Very, very seldom do we have a bust on seeing the highs. But the problem is and has always been the case in the Lansing-Kansas City, sometimes it's high and the rocks are tight. And if the rocks are tight and high, the oil just can't get through them. There may be oil there, but you just can't produce it.

So that accounts for our dry holes. We don't drill low wells; we don't drill off-structure wells. We drill the highs. There's just sometimes it won't produce, but 4 out of 10 times, it does produce, and those four wells carry those 10 and still make our rate of return.

Okay. I see. And the folks at the synergy on a call referenced pools that were 0.5 million to over 1 million barrels. Have you -- that is a whole lot different than 30,000, 40,000 EURs that you are talking about.

Keep in mind that those were fields and we have the Tracy field, which has got 6, 8, or 10 wells in it. And those wells are going to, together, cumulatively -- if you got 10 wells and they all make 40,000 barrels, that's 400,000 barrels. So what they are referencing is what we see and what we are looking for. When we drill wells, we are looking for 1 million barrel fields.

The problem is you've got to continue to drill wells on a methodical basis, make sure that you are hitting your rate of returns as you do this exploration, because a lot of this is exploration as you move out into some of these areas. And when it is -- when we find it, we hit the highs, and we will find those wells. In the Tracy field, one of fields we have, we have discovered is one of those type fields.

To Flav's point, it's just a function of how many wells that you're able to drill in that structure. If it's 10 wells, it's 40,000 barrels and 400,000 barrels. If it's 20 wells, then it's 800,000 barrels. It's really just a -- the size of the structure.

So you can't see the fields on 3D?

You can see the highs and then you drill the highs, and if it is not tight, then -- like the Tracy is, we've got 10 wells in there now and we are continuing to develop that. You just have to continue to find the edges of those fields. And at some point, that structure, that field -- you will reach the limits of where the wells are produced.

We just haven't reached the limit there yet. And again, we make other discoveries and when we make those discoveries, we start to develop those fields as well. Some of the fields are two wells. Some of the fields are 100 wells, south of us. So we hope to find 100-well fields, but that's just part of the game and the model.

I understand. And then on the slide 21, the graphic about the acreage you added in Kansas and Nebraska -- now maybe those are small counties, but the four-star 2Q leases in sort of light blue looks a lot more like -- like more than 1700 acres. Was the 1700 really just talking about up in the Bakken?

Yes. Yes, that was 1600 since the CREDO acquisition that we added --

Oh, Oh I see. Okay, that's accretive.

Right

Okay. Thank you very much.

Anthony Hammill, Broadview Capital Management.

Firstly, on the non-core assets, you mentioned $100 million, of which $20 million had been sold. Is this from a pool of more than $100 million that you are looking to sell? You might have 10 assets or plays that, if you sold all of them, could be well in excess of $100 million or was there a specific $100 million worth of assets that those are the only things you would consider to be non-core?

It's more the latter. We have targeted and identified roughly $100 million in what we believe to be non-core assets today. It's not a $100 million out of a pool of $200 million.

Okay. So to get to that target, you have to sell that entire portfolio -- like all of those deals have to close by 2016?

That would be true. It's not exactly $100 million, but based on all of the valuations, analysis, that we've done, we feel, particularly given the progress we've made so early, that we'll be successful in delivering that initiative.

Okay. And it might be a little early, but when the queue comes out, will there be anything from that portfolio that will show up as an asset held for sale or will be specifically donated on the balance sheet that we can see what the book value is there?

Correct. It will not be identified as assets held for sale. As I commented a few times, it's a combination of what we deem to be non-core across the business, whether it's real estate or undeveloped land or even oil and gas.

Right. And I'm not you'll be able to answer this, but is -- maybe slightly within the context of that question, are there any long-term thoughts or a change in your thinking on the Radisson in Austin, and that as a -- sitting on such a spectacular piece of real estate and what that could be for -- as a long-term asset either for redevelopment that you are involved in or in answer to someone else?

The thoughts really hadn't change there that the Radisson is in a very good location, but commensurate that, it generates a very attractive cash flow and return that I think it makes a very nice contribution to the business. We are in the process of investing some capital in the Radisson and some refurbishments. And based on the results that we're seeing today, it's generating returns in cash back that exceed our expectations. It's a great piece of real estate.

Yes, yes, no doubt. And how much capital have you put into that refurbishment?

I think there's going to be a total of about $15 million that's going in and that includes all the rooms, the restaurant, and the ballroom. The restaurant and the ballroom have just been transformed and it's probably something -- it's probably capital we should have invested in that location a couple years ago.

Okay, and that has already been spent or that will be the total that's spent?

Probably a little over half of that has already been invested.

Okay. And in Austin, with the two multifamily ventures there; at this point, are you able to say what Forestar's total cost will be? And is it going to be -- looks likely to be higher than anything that you've done already, particularly at Pressler.

And because you are putting in more capital, is it potential that the multiple you will receive on that might be lower, because you are coming in with buying land at market as opposed to coming in with, perhaps, some legacy cost land?

Yes, two comments. One, a majority of all of our sales have been on properties or sites that have been at market that has not been legacy if you will. The legacy is really -- is timberland in and around Atlanta, which is on the books for maybe $500 an acre. The rest of our real estate has been acquired in the open market. Relative to (multiple speakers)

Yes, I don't mean in the open market, I mean in the context of the current market as opposed to something you may have acquired five years ago at a lower -- that would be below --

Yes. Even what you see when you go back and look at the pipeline on slide 11, those are all relatively recent acquisitions.

Well, yes, I guess Nashville was done for sure, definitely.

Yes. But relative to the capital that would go in these two projects in Austin, my expectations today, and we are not there yet, is that they would also be part of a venture -- in most cases, when we take down the sites and we put all the plans together and do the entitlement underwriting -- when we close the venture, typically cash comes back to us.

Right, okay. So that will be the same with the Austin properties that you will be bringing in other bank financing or other equity partners?

Yes, that's a majority of the products we have. We bring in an equity partner and all sorts of secure project level financing.

Okay, so there's not going to be significant amount of capital in addition to the cost of land coming from Forestar.

No, no. In fact, net net would probably -- from where we are today, you've got cash coming back.

Right, okay. And now -- this is sort of the bigger picture question. Again, you reported very strong numbers on the real estate side; stock price goes down again. The capital plan, the amount of money you're spending on oil and gas, the results still aren't there for -- other than perhaps geologists to be able to see where the value's going to be from there.

Now you mentioned that the reduction in capital plan is primarily due to weather and the inference is that you are just going to spend it regardless. Is there any set of circumstances or -- if we look at a couple quarters out and you are still not seeing tangible financial results from the oil and gas business, that perhaps we will see a tightening and more success-based or more disciplined spending on the oil and gas business?

Because we can see it with real estate. When you put money into real estate, we have tangible precedents of you making solid returns. Oil and Gas, we have yet to see that.

Anthony, what I would say is that the adjustments that we have made into the oil and gas capital plan has been a combination of both weather-related as well as a tightening, if you will. So it's combination of both. Yes, some of it is timing and weather-related, but I will tell you, we are equally as focused on ensuring that the capital that we would allocate and invest in oil and gas will generate returns, so I can assure you that it is a major focus for Forestar.

But I've said now, on a couple of occasions, that the fourth and the first quarter were more challenged, just due to the inclement weather, but we fully expect that as things normalize, we'll begin to see a pickup in production and that's ultimately going to be reflected in the bottom line.

Okay. And just one last comment. The analyst from Davidson mentioned, kind of slightly exasperatedly, that there's just so many slides. And that's not a comment that -- we appreciate disclosure, but just as a final comment, until we can get to a point where there's less than 40 slides, I really don't believe that the market will be able to see the value in this Company until it does get simplified and it becomes something that is either a real estate company or an oil and gas company.

So we, and I'm sure other shareholders, would ask that at some point in the not-too-distant future, you work towards that. Thanks for hearing my questions.

Albert Sebastian, Prospect Advisors.

Just a few questions on the proxy. It lists the events that constitute a change of control and it lists six events. And in the proxy -- the first one, for example, is 20% ownership by any entity could trigger a change in (technical difficulty). But the last one is that any other event that the Board determines to be a change in control. And I've never seen anything this broad, where the Board can basically just determine that any event is a change in control. Can you explain that?

Al, I think it's fairly standard language and it's not unique to Forestar.

Okay. So you feel that this is just standard language and therefore it's appropriate?

Yes, when those who developed the proxy language whatnot, I would tell you that our language is going to be in the fairway of most all C-corps, corporations.

Okay, okay. And let me ask you one other thing and we'll move on to some other questions. In terms of the payments to the management group on a change in control, there's five individuals, one of them, of course, is yourself. And when I add up all these payments that management would get on a change of control, it's over $30 million.

From what I've seen -- I could be wrong, but from what I've seen, that seems quite large relative to the size of the Company. Of course, they only earned last year, I think, about $29 million. So how does the Board look at this and determine that this is appropriate for the management group to receive these payments on a change of control?

Yes, it includes both the change of control as well as a termination in employment. But Al, I would tell you, that the Board is going to include in commitments and contracts and agreements with management terms and conditions that are kind of commensurate with where the market is and what the norm has.

I don't -- Al, as you probably know, I don't spend a lot of time focused on those types of issues. My primary concern and focus is on creating and delivering value through the -- through Forestar and its operations.

Okay. And Jim, just a question on water. It's been quite a while since we've seen a transaction in water. I think the last transaction was in 2011. I think you sold some mitigation rights. And you have devoted a fair number of resources to water.

I know Phil Weber is working very hard on that and he's in the executive management group, but I guess why haven't we seen more value creation in water and more transactions, given the resources you've devoted to that?

Al, I think that since 2011, there have been some other sales from mitigation and mitigation banks, but I would also tell you that the water business that we are developing here, focusing on Texas, continues to make progress, but what I would point to is if you look at the marketplace, there is very few, if any, transactions that have taken place.

I will tell you that Forestar, in my opinion, has probably made as much if not more progress than anybody. This is -- it's early in developing a water market, but as I've said on a number of occasions, I really like our position, but the timing is much more of a challenge to predict.

And just one last question, Jim, and if anyone else has a comment on this, please chime in. But when you take a look at the share prices, it's at, around $17 and the book value -- at least on using the basic shares outstanding, is over $20. And clearly, there are assets on the books which are below market. The timberlands are historically on the books for $600 an acre, etc., and the book value for the Radisson is well below what it's worth.

So here we are -- we sit with the share price selling meaningfully below book and the book value is clearly understated. Why do you think that is the case? Why do you think the market doesn't recognize the value of the Company and to what extent is that a reflection of management action?

Al, I would say that, from all the conversations that I've had and the interactions and my perception, is that the market is more comfortable, and confident, in the real estate assets in the business. It's much more mature and it's had a much longer run and we were able to provide a different level of history and transparency there.

We, in essence, have been in the oil and gas business in a more formal way over the last year to year and a half. And in that year, year and a half, we've had almost six months of that being impacted by some unseasonable weather conditions. My belief is -- at the end of the day, Al, is that the investments that you make, whether it's in real estate or its oil and gas, you've got to generate returns and show the performance.

And that's why we've got the initiatives we have and the plans we have and taking all the steps that we've made, particularly in Growing FORward to drive performance, whether it's in EBITDA or return on assets. And then, kind of to your point, is also being diligent in bringing to market any properties or assets within this portfolio that we don't believe are going to generate growth and expect returns over time.

So Al, I thank you for your questions. I think we've got one more.

Edward Okine, Basso Capital.

My question is in line with -- the question that I have is -- hello, can you hear me?

Yes.

Okay. It's just in line with the prior question and then basically just a question on valuation. Is this like a -- if we look at -- just looking at where the asset value of the non-oil and gas assets should be, with the support -- the current [plutile] enterprise value of the Company. And my question is would you tell -- maybe just give guidance on what the Company's strategy is in terms of [heart of] as well as maybe eventually once the oil and gas entity is able to stand on its feet, do we separate it from the real estate business.

Because as long as this [copies ago my], it seems like you're going to have a mini conglomerate discount, because there are two completed asset, different assets measured on different metrics and the market doesn't like that. (multiple speakers)

Yes, Edward, I will comment. The business that we have today within Forestar in the segments is principally a reflection of the portfolio of assets that we were blessed with at the time of spend from Temple Inland. Our focus has been on investing in these businesses to prove up and realize value.

We believe that the greatest value to be realized is to invest and grow these businesses where they generate very high quality earnings and returns and ultimately are able to operate within their cash flows at some point in time. To your point, we think that we'll have created a lot of value and we'll certainly evaluate our alternatives and options at that point in time.

Okay, all right, thank you. Sure.

Thank you -- (multiple speakers)

Thank you for your questions and that was our last question for the morning. We once again appreciate your interest in Forestar and your participation in the call and wish everybody a great day. Thank you.

Thank you, ladies and gentlemen. Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect and have a great day.