The Baldwin Insurance Group, Inc. (BWIN) Q4 2012 Earnings Report, Transcript and Summary

This is the Chorus Call conference operator. Welcome to the Brookfield Residential Properties Inc. conference call and webcast to present the company's 2012 fourth quarter results to shareholders. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Alan Norris, President and Chief Executive Officer. Please go ahead, Mr. Norris.

Thank you. Good morning, ladies and gentlemen, and thank you for joining us today for Brookfield Residential's Year-End Conference Call. In the call today, I'll be providing some comments about the current market conditions, and we'll highlight some of our accomplishments over the last year and our outlook going forward. With me today is Craig Laurie, our Chief Financial Officer, who will be discussing our financial and operational results. I would, at this time, remind you that in responding to questions and in talking about new initiatives and our financial and operating performance, we will make forward-looking statements. These statements are subject to known and unknown risks, and future results may differ materially. For further information, I would encourage investors to review the corporate profile on our website. In 2012, we're pleased to report that Brookwood Residential delivered strong performance. Income before income taxes increased to $129 million compared to recurring income before income taxes of $81 million in 2011. And our net income also improved markedly, increasing to $93 million or $0.91 per share from net income of $7 million or $0.07 per share in 2011. Our Canadian operations in both Alberta and Ontario continue to perform well, and we've also seen great improvement in the U.S. housing market. While each regional market is in a slightly different stage of recovery, it appears that supply is tightening, demand is increasing, and hence, house prices are rising in most markets. We are optimistic about 2013 and feel that we are well positioned to take advantage of the improving market conditions. During the fourth quarter, we've completed some strategic initiatives, including a joint venture with the California State Teachers' Retirement System, to develop a 370-acre parcel of premier land in the highly desirable northwest quadrant of Calgary, overlooking the Bow River. On completion, it is anticipated that this project will have 2,500 developed lots. Another key transaction was the acquisition of the Playa Capital Company in California. This company owned approximately 2,250 units on more than 65 acres of land at Playa Vista in Los Angeles. Immediately after the acquisition, we sold 3 apartment sites totaling about 22 acres or 1,500 units and 195 for-sale residential lots to 3 different and well-respected builders. Our nominal profit was recorded on these concurrent sales. The transaction was completed on a relatively capital-neutral basis. We are proud to bring the final stage of this master plan community to development and will include approximately 500 mixed-use lots. The area is highly desirable and is located close to the ocean, job markets and schools. Brookfield Homes, a division of Brookfield Residential, will also be building on a select number of the remaining lots. We're also very successful in executing our capital plan whereby we issued $233 million of common equity and completed an offering of $600 million of 8-year senior unsecured notes at 6.5%. The equity offering allowed us to reduce our year-end debt-to-capital ratio to 43% from 58% at the end of the third quarter and also provided a more robust public float for our shareholders. The new debt replaced our existing transaction debt, which arose from our 2001 merger, and enabled us to pay down certain other project debt while lowering our overall interest cost. We ended 2012 with a market capital of over $2 billion and available liquidity of approximately $650 million, including undrawn credit lines and cash on hand, providing a solid capital base from which to move forward. As we move forward, there's some exciting initiatives on the horizon. 2013, we have added homebuilding operations in Denver, Colorado where we've previously focused on land development, and we're also exploring the opportunity to develop a program that will support infrastructure financing of third-party residential real estate development in select markets. Our view for the coming year is for a much improved U.S. housing market and a generally stable Canadian market. As the U.S. housing market improves and house prices increase, we anticipate that our land assets will continue to appreciate in value. In many of our markets, a 10% increase in house prices can translate into a 20% to 30% increase in the underlying finished lot value. This inherent leverage in our existing lands is what differentiates us from many others in the residential arena. Our sizable land inventory places us in the enviable position of not having to replenish lands each year at ever increasing prices, that we are able to optimize returns on our assets by selling finished lots into a supply constrained environment. Given our strong asset base and our solid capital position, we believe that we are positioned for success and therefore, optimistic that our 2013 income before income taxes will exceed 2012 due to improved U.S. operations, reduced overall interest cost as a result of the equity and debt offerings. This is partially offset by reduced multi-family industrial and commercial parcel sales. These parcel sales, while very meaningful, have variability from year-to-year. At this point, I'd like to turn the call over to Craig Laurie, our CFO, who will provide details on our financial results.

Thank you, Alan, and good morning, everyone. Net income for the 3 months ended December 31, 2012, totaled up $56 million or $0.52 per share compared to $26 million or $0.25 per share for the 3 months ended December 31, 2011. Land revenue for the 3 months ended December 31, 2012, totaled $407 million compared to $166 million during the same period in 2011. Included in 2012's land revenue was approximately $264 million from the sale of 3 apartment sites and 195 for-sale residential lots at the recently acquired Playa Vista community. Approximately $36 million of land revenue from 2011 was due to the nonrecurring change in business practice for lot sales in Alberta. Taking both of these items into account, land revenue increased by $14 million over the same period of 2011 and was driven by increased lot sales in our U.S. -- in the U.S. as our markets improved. Housing revenue for the 3 months ended December 31, 2012, increased 55% to $308 million from $199 million during the same period of 2011. This increase in housing revenue reflects a 37% increase in home closings and a 12% increase in our average home selling price. Sales activity continued to be strong in the fourth quarter with a 25% year-over-year increase in our overall net new home orders. For the 12 months ended December 31, 2012, net income increased significantly to $93 million or $0.91 per share from $7 million or $0.07 per share for the 12 months ended December 31, 2011. For the 12 months ended December 31, 2012, land revenue totaled $622 million compared to $524 million during the same period in 2011. Approximately $189 million of the land revenue from 2011 was due to the change in business practice referred to above. About $264 million of the 2012 revenue is from sales of Playa Vista. Taking this into account, land revenue for the 12 months ended December 31, 2012, increased by $23 million or 7% over the same period of 2011, driven by the sale of multi-family and commercial parcels in Canada and higher lot closings in both Canada and the U.S. Housing revenue increased by $234 million or 48% compared to the same period in 2011 to $718 million. This improvement reflects a 40% increase in home closings and a 6% increase in our average home selling price compared to the same period in 2011. At December 31, 2012, the backlog of units increased by approximately 27% to 817 homes from 645 homes at December 31, 2011, reflecting stronger sales demand in all our markets. Moving to our balance sheet. As of December 31, 2012, our assets totaled approximately $2.8 billion, an increase of $236 million compared to December 31, 2011. Our land and housing inventory and investments in unconsolidated entities are our most significant assets, with a combined book value of $2.4 billion or approximately 85% of our total assets. Our land and housing assets increased when compared to December 31, 2011, due to strategic land purchases of approximately $504 million and land development activity of approximately $200 million, partially offset by increased sales activity. Acquisitions in 2012 totaled $504 million, consisting of $136 million in Canada, $16 million in Central and Eastern U.S. and $352 million in California. Included in the California number is the $258 million for Playa Vista, which was recaptured with the subsequent sales. As Alan mentioned, we made tremendous strides, strengthening our balance sheet this year. The proceeds of our common share issuance of approximately $230 million and unsecured senior notes of $600 million was used to repay our notes payable and project-specific debt and other financing and credit lines. Thank you for joining us in our quarter-end conference call. I'll now turn the call back over to our operator who will moderate questions.

[Operator Instructions] The first question comes from Sam McGovern of Credit Suisse.

I guess, a couple questions just around Playa Vista. In terms of the future sales there, should we -- are you guys done with sort of the no-margin sort of capital neutral sales to complete in the fourth quarter? Or should we expect some of that to roll over into the first quarter?

Yes, Sam, it's Alan here. Yes, I mean, I think really because of the concurrent nature of the transaction, that's why we recorded nominal profit. Obviously, we think there is -- it's a very good project. And we will realize -- it's going to be a profitable project going forward, obviously, that's why we bought it. So it was really just...

So margins there should be more in line with what one would expect from sort of a normal land development project?

We think it'll be an excellent project going forward.

Got you. And then in terms of when I look at it beyond that, your gross margins x Playa Vista, you're still down year-over-year. I know -- it looks like home building gross margins improved year-over-year in the fourth quarter, which makes sense, but the Canada land development gross margin was down year-over-year. Can you talk a little bit about why that was down?

I think some of it is really just more from a mix perspective, Sam. I mean, from a pricing point of view, just to give you some perspective, I mean, prices in Calgary have probably increased 3% to 4%, quite honestly, over the calendar year. And so I would say it's mostly a mix issue. Going forward, we do anticipate having a slightly higher mix of lots in Edmonton going forward, which will have slightly less margin than we've had in Calgary, as an example. But that's coming up in 2013. That's not reflective in '12, mostly a mix issue from a Canadian point of view.

Yes, I was going to add that the actual dollar value of the margin obviously went up, Sam. But to your point, the percentage would've gone down very marginally in Canada and that's just mix. And you said, in terms of the housing growth margin, that has been increasing in both countries. And in the U.S., we would expect it to continue to increase, really, two-fold as a bunch of new projects come on stream. But then also, as we talked about with the Bay Area starting to produce more homes, we get both better percentage margin, but also better dollar value margin coming out of those homes.

Got it. And then in terms of the U.S. land development side, excluding Playa Vista, it looks like the overall figures in terms of both volume and sort of sales and gross margin are not of that much versus fourth quarter of 2011. Should we expect, as we go into the -- into 2013 that, that sort of year-over-year comparable should look a lot stronger?

Yes, I mean, I think that it's a critical question. I mean, we are seeing good price appreciation in just about all of the markets, Sam. I mean, the question we have to -- that we're facing is, obviously, do we sell into that rising market or do we actually have better appreciation on holding, in some cases? I'm not saying we're not going to crystalize, not in the slightest, but just finding the right balance between continuing momentum in some of the land communities. And in some cases, we believe that some of the prices will increase quite substantially over the next year or 2. As house prices increase, the inherent land value is going up substantially as you're well aware.

Right, right. And then you guys mentioned in your press release that in some of your communities, a 10% increase in home prices can sort of translate to 20%, 30% in lot prices. I mean, when you sort of think about it, how much of your business does that sort of apply to and for the areas where it's not, how much less is it?

Well, I mean, we're primarily talking about the U.S. markets. Obviously, the Canadian markets are much more stable. I would say that -- I mean, from a California point of view, we've seen those price increases in most of the markets in California. We're starting to see a little bit less in Denver and getting close to that in Austin. D.C. is not quite as much. But I would say that -- I mean, California, most definitely, we're starting to see that pricing pressure, which has existed in most of the coastal areas and is now starting to go inland as well.

Got it. And to your point earlier about when you guys decide to sort of, actually, crystalize some of the gain in terms of the improvement that we're seeing in land prices, how do you guys -- we hear constantly from the homebuilders about the shortage for lots that are developable this year and next year. I mean, how do you guys look at your mix of businesses? How much of it, if you guys want to, could you take advantage of now? I mean, is this a substantial portion? Or most of your lots sort of further out in this sort of maturity curve?

I mean, I think one of our things is -- I mean, we're big believers in the recovery. And I think one of the things you've got to try and match up as best as we can is we don't want to end up flooding out there a number of lot sales that is, say, the next 3 years' production when we do believe that prices are continuing to increase over the next little while. So I think what we're trying to measure is what we think the actual underlying absorption is on the part of the customer who's going to be buying the lots from us and make sure that we don't get too far ahead of the marketplace in that respect while still giving them sufficient visibility and pipeline that allows them to have an economic program, if you see what I mean.

Got it. And then just some housekeeping items. You guys, in terms of land spend for 2013, can you talk about where you see that being and then also where that compares to 2012?

I mean, I think, for the most part, probably a little bit more, obviously, from a U.S. perspective. Canada is fairly stable, I would suggest. I mean, you're talking about new acquisitions or the development?

Yes, new acquisitions of land and...

I see. Yes, I mean, I think we're-- I mean, from a Canadian point of view in Alberta, we've managed to -- we're a little bit more lumpy there, so I don't see us having to be out there as frequently. We did some critical acquisitions in the last year, which I think will set us up very well going forward. I mean, obviously, the Playa deal from a U.S. point of view was very opportunistic and was a bit of a one-off. I think if we can find some larger deals in some of the areas, we would look at it, but we're not in a position. We have to be out there doing those, as we said, and we're in a very fortunate position that we don't have to replenish. And so we don't have anything major. We are talking to a number of different groups on different types of deals, but we do that on a constant basis. These are ongoing conversations. Some of them work, some of them don't. So the Playa deal did, and there's a number of other ones, but they didn't all come to fruition.

Got it. And then just, Craig, what is cash interest going forward following the transactions in fourth quarter? And then it looks like you guys paid down some debt post those transactions as well.

Yes. So in terms of '12, actual cash interest paid was about $72 million for the year. The interest incurred and capitalized was $33 million and then we obviously had the interest on the balance sheet -- I mean, sorry, in the income statement. The cash capitalization that was expensed during the fourth quarter through cost of goods was about -- sorry, through the year was about $46 million, just to kind of frame it for '12. In terms of '13, obviously, we obviously have the $600 million at 6.5% and then we do have our bank debt, which we do talk about. Those are all floating rates. So in general, obviously, I would expect the overall interest to be down. I can't give you an exact number right now because, as you just mentioned, it will depend if we do acquisitions and those type of things.

Got it. Great. And when do you guys plan on posting your annual report?

We're working to post that this week.

The next question is from Adam Rudiger of Wells Fargo.

Going back to Playa Vista, am I reading it correctly that you basically got 500-plus lots for free? And if so, how did that -- how did you do that?

So Adam, what happened was we bought an active company, which had those -- the acreages and the lots, but we also assumed certain costs to complete obligations and other obligations within the company as well. So we inherited those obligations which are detailed in our disclosure documents.

Okay. So that interpretation is not totally correct, given the assumption of the liabilities?

What we were trying to do was we were trying to explain it from a pure cash perspective. It was relatively capital neutral, but we did assume some ongoing obligations, which obviously formed basis for lots going forward.

Okay. And then similarly recalling your discussion before, you mentioned prices are rising in many of your markets and your previous questions, you talked about increased language out of the big builders for land and land tightness. I was wondering if you had seen kind of an increase in inbound calls, so to speak, in terms of people looking for land, if that actually has been occurring. And if so, what markets and kind of what the pace of the increase has been as of late?

Yes, I would say that it's been very tight up in the Bay Area for some time. I would say Southern California has picked up a fair bit. Austin has picked up recently over the last 3, 4 months. And even actually in Denver, we've had a number of more incoming calls with respect to projects that we had literally put on hold during the downturn. And we are now getting some expressions of interest from some of the nationals on entering those communities. So it's generally positive. It's still the early stages of it, but we're starting to see some -- a lot more calls coming in as opposed to going out, let's put it that way.

Okay. And then last question. I noticed in the back of your slides, when you break out your inventory by bucket, the land, I think, held for development or under development, you now are expecting, I think, $5 billion in cash flows versus, I think, it was $4.5 billion previously, and it looks like more of those are expected to come within 10 years than you had in your previous slide decks. I was wondering what drove that. That was my last question.

Yes, Adam, this is Craig. So it's really 2 things. It's not a change in assumptions or anything like that. It's really -- obviously, we did a series of acquisitions, which is going to increase that cash flow. A lot of the acquisitions were longer-term land, land for development. The second piece is, again, we did spend money and so that drops off some of the negative. So it's a combination of the acquisitions and then the actual real dollars spent that increased that number in totality. In terms of the term being 10 years, I think it's just the land has continued to -- projects have marched forward than more would have fallen into the 2003 [ph] end year bucket.

The next question is from Frank Mayer of Vision Capital.

I'm wondering, in light of the optimistic nature of your comments, if the changing status of the American markets, in particular, would lead you to spend more money on getting unentitled lots entitled more quickly than you would have in the past? And what that would entail?

Yes, that's a good question, Frank. I mean, the reality is people are going further back on the supply chain. There's no question. I mean, we know it's a very dog eat dog situation at the finished lot stage. And even at the entitled and yet-to-finish stage, it's getting competitive there as well. Where it is not competitive right now is exactly where you're pointing out. We have -- we do have the ability to go further back there because, one, there's not many other people there and as long as we think it's a market where you do get rewarded for the entitlement process. And some of the markets -- some people are just not -- the pricing is still a little bit of a disconnect, Frank, but we are evaluating that because, as you well know, we try and make sure that we're in an area where most other people are not, if we possibly can. And we've got the patience to stay with our program to go through the entitlement and then bring it to market. So it is something we're looking in some of the markets.

So is this part of where you have your $650 million on liquidity targeted for?

I mean, it could be, absolutely. I mean, we don't have anything lined up at this point. We have ongoing conversations with a number of different groups. And we always have our strategic land studies always up to date in each of our markets. And if the right opportunity comes along, we're in a very fortunate position. We can take advantage of it. But as we said earlier, and as you well know, we don't have to be out there replenishing. We can be very choosy as to which opportunities we take advantage of because we do have a very solid asset base already.

Just to clarify the $5 billion number, if I might, can I presume that's after tax?

No. Frank, it's Craig. It's before tax.

Before tax. And it says more than $5 billion -- or rather because the right word is over $5 billion, can I presume that it's not so much over that you would -- should have said $5.5 billion?

That's a correct assumption, yes.

Correct assumption. And I believe that's only on land held for development?

Right.

What about land under development? If you were to include that and do that exercise for that land, how would it change the $5 billion number?

It's in the profile, I think, Frank...

Frank, it's Craig. So we don't disclose that cash flow that would come from land under development. We do print out information that if someone wanted to come up with net asset value based on our actual selling prices, we do show the cost to complete as well.

The land under development, correct me if I'm wrong, would encompass what kind of time period? Is it 1 year, 2 years, 3 years?

In a lot of markets, I would say, is 1 to 2 years. In some markets, it might be 2 to 3.

I see. Okay. So my time zone is right. What was your thinking in terms of taking on a joint venture partner in the new piece of land in Calgary?

Sorry, Frank?

Obviously, you have a very strong balance sheet. You have liquidity. I mean, what does the partner bring to bear?

A great relationship. We have a relationship with them in Southern California. And we had conversations with them and they expressed the desire to explore the Canadian markets. And we still believe that, going forward, it's a very capital-intensive business and we want to further those relationships with good partners. And so that's why we did the deal with them. I mean, you're right, we could have done it on our own without any question, but again, looking at it in the long haul, we believe that having those strong strategic relationships is critical for a go-forward basis.

Could you outline the nature of the relationship? I don't know if I've ever seen it discussed.

Just basically, it's just had a JV relationship, 50-50. We manage and they invest capital side by side with us.

And what's the profit split?

That's too much detail, Frank. It's a 50-50, for the most part in all of the ventures that we do in Southern California. And there's typical relationship for managing projects, et cetera. But it's a very strong relationship that we have with CalSTRS. And we've had it for a number of years there in Southern California. And as I said, they ventured into Calgary with us.

Any problems getting the lots entitled to the north of the city? I've forgotten the name of the project.

Which city?

Stoney. Stoney, if I'm not mistaken?

No, we've got area structure plan approval for those lands. We've got that last July and we're now in the process of trying to outline plans.

So how far away do you think that entitlement -- until entitlement in terms of time?

I'd like to think we're in the ground later next year.

Next question is from Stefan Mykytiuk of Pike Place Capital.

Just a couple of questions now. The -- on the Playa, the revenues, the $264 million, that was -- that's for the apartment sites plus the 195 lots?

Correct.

Okay. And then the remaining 500 lots, what's the time period you have for which you'll bring those, the amount?

We're probably not dealing with anything this year because we have to -- in fairness to the builders who bought 195 lots, there's slightly different lots going forward, but generally speaking, I would think we would start to do some of the other lots maybe early 2014. We still have to -- the 195 lots we sold concurrently, the models, we'll just have to provide those lots to them by, I think, it's May or June of this year. So we don't want to be going in and competing directly with them immediately. But we think it'll be over the next -- starting in '14 for the next 3, 4 years or whatever.

Okay, okay. And those 195, I'm assuming you sold those at slightly lower prices because it was funding -- in effect, funding the deal at the time of the close. Do they get -- in other words, do they get a better deal?

No, no, retail price.

Okay, okay. And that was in the -- they were part of the -- so they were part of the 345 lots in the Q4 numbers and the $205,000 average price for California?

Craig's just looking this up.

Yes, it would've been in there.

It would have been in there, yes, absolutely.

Okay. All right. How variable are the lots across that -- like are some for common -- more townhouses and others are single-family? I'm just curious whether the 500 you got are going to be similar to the 195 you sold. Or there are big...

There is a variety and I don't have it in my fingertips, but we can try and get that to you. But there is a variety of some detached, some attached products, some tri-plexes, might be even some 6-plexes or whatever. So there is a variety of different lot sizes, I don't have it in my fingertips right now.

Okay. So that $205,000 for California, obviously, it includes non-Playa Vista. But that's not necessarily an indicator of what the value is of the 500 you got, you kept?

Correct.

Yes. I think, Stefan, the value of Playa Vista would have been above the $207,000 and we would have had some assessment for other sites [ph] and a few other places that would have brought the average below the $207,000. And so in general, you get to an average of $207,000.

Right, right. Okay. That's where I was going on. So the Playa Vista value is above the $205,000 because one of the buyers had indicated to me that it was -- they were paying substantially more than that $205,000, so that's just what I was getting at. Okay, okay. SG&A was up a lot in the fourth quarter. Was that just because of incentive compensation kicked in or...

As you pointed out, there was selling cost and there was increased activity, and then as you said, there were certain performance targets achieved within the fourth quarter for incentive compensation across the company.

Okay. All right. And then coming back to California, what's the status of your -- you had a bunch of projects coming online in Northern California, actual home building projects. Are those -- how are those doing? And what's the pace of new community openings in that market?

Yes, I mean, I would say that we met all of our expectations from an internal point of view for Northern California through -- I mean, we occupied 64 homes in the fourth quarter there, which was a tremendous effort on the part of our Bay Area team. We're on track for all of the projects we bought into over the last 18 months from a Northern California point of view. And down in Southern California, here, we've got about 13 new communities opening from a housing point of view this year on housing sites, so from a product segment point of view. So we're very excited on both sides of California at this point. That Southern Cal includes the San Diego area as well. So it's a busy time and it's -- everybody's sort of rejuvenated. And we're actually in California right now taking the call and the teams are all pretty pumped.

Okay. And Northern California, how many communities you're going to open this year?

Don't have -- just trying to figure...

Yes, I would say we wouldn't be opening too many there...

Yes, it's just continuing some of the ones that we bought. We're just in the early stages of doing some of those ones that we've opened up and were continuing. But there may be one more or 2 more, I just -- I can't recall.

Okay. And then you've got some in backlog from the stuff that you opened and then some things that are -- that were -- you started the community, but you haven't sold the homes yet?

Absolutely, no. We're obviously anticipating much higher closings in 2013 from our Bay Area, just from what we've done already. Never mind adding nothing new.

The next question's from Mario Saric of Scotiabank.

Just a real quick question on Calgary. We've had a lot of press recently with respect to the lack of pipeline capacity squeezing provincial coffers from a revenue standpoint, but it sounds like the appetite for home ownership is still pretty strong in the province. So can you maybe just talk about what you're seeing on the margin as far as home ownership psychology as concerned in Calgary, as well as...

Yes, I would still see there's good optimism in the Calgary marketplace. I mean, we obviously still had significant immigration to the province over the last year, Mario. I mean, the pipeline capacity thing is obviously a longer-term concern and issue because of the price discount for the price -- it could ultimately lead to some deferral of some capital projects up north. But I mean, I think there's other plans available. But we're not seeing anything in the marketplace just now. The challenge is just to continue to get entitlements through the city. And actually, there is a slight constraint on supply, which candidly we end up being the beneficiary because we've got a fair bit of the entitled land at this point. So it's -- that constraint has actually continued to help pricing, as I touched on earlier in the call. We've seen some price appreciation on the lots over the last 12-month period. But on the bigger picture, obviously, Alberta does have to solve the price discount for -- just to get it all to market.

And have you noted any shift from the municipalities as far as the entitlement process is concerned, as far being a bit easier, a bit more challenging or complex going forward?

I say that it's -- as with many municipalities, they're just wrestling with -- I mean, we're a fairly dense city at the greenfield level already in Calgary. Many people don't understand that. But our new communities are obviously as close to 10 units per acre in the greenfield sense. So there's definitely a shift to try and get a bit more infill. But we strongly believe that still 60% to 65% at least is going to be greenfield and we just have to get some of that product through the entitlement process because infill will become a slightly larger piece of the pie. But it's not going to happen overnight. It will take a little bit of time. So we just have to help the municipalities on some of the infrastructure challenges and deal with some of those things to bring on the communities. That goes back to my comment earlier on of becoming a more capital-intensive business. But we still think it's a very positive market to be in. This is one of the better markets in North America, as well as Edmonton.

Okay. And then just maybe shifting gears just to California, a market that I'm not as familiar with. The rental market in the U.S. has done really well in the last couple of years. And I'm just wondering if you could give me a sense of kind of the rent versus own dynamics in some of your bigger markets in California today from a pricing perspective?

I can't quote you chapter and verse, but we do know in most of our markets that it is actually cheaper to, from a monthly obligation point of view, to own rather than rent, the big difference being just the down payment. And -- but we are -- people can get into the home ownership thing. But actually, in many cases, affordability is still very, very strong on the home ownership side. And we know that on the rental side, I mean, a lot of stuff has been built and the yields were fairly tight, I would say, for those buying into the multi-business. And I would say that most of their upside is going to be coming from rent increases, which is a real help for us in the home ownership side because as we get back to the basics of as rental goes up, people move into home ownership. And the longer it goes, the more confident people feel and they're probably more likely to take the plunge and have accumulated enough from a down payment point of view. So we think the cycle is going back to a more normalized level, at least as we go forward.

The next question is from Andrew Berg of Post Advisory Group.

Let me try this again. First of all, Craig, cash taxes for the year?

I can get it for you. It was about $42 million.

Okay. And then you asked earlier about the increase in SG&A, part of which is incentive comp. Was that incentive comp all cash or was some of that in stock?

There is some that is in stock that's primarily for the corporate team. Incentives within the operations will be in cash.

Any ballpark how much of the increase was stock?

Pardon?

Any ballpark how much was stock comp in that number?

$10 million. The stock was probably about $3 million and then the remainder would have been component of cash.

[Operator Instructions] There is a follow-up question from Frank Mayer of Vision Capital.

Regarding the chart dealing with the $5 billion cash flow from land held for development, it indicates that the split between Canada and the United States is 38% U.S. and 62% Canadian. However, you've indicated that there is a relationship between housing prices and land prices of 10%. If land prices -- if housing prices go up 10%, then land prices will go up 20% to 30%, and I'm wondering, some -- I've heard some experts suggest that there'll be significant increases for next 3 or 4 years. I'm wondering if you've put any thought to the -- what will happen to this ratio over the next 4 years or at the end of the next -- or at the end of a 4-year period in which there's a significant recovery in American housing prices and what the ratio will look like then.

Yes, I mean, I think, we have built in, in some cases, when we think that recovery is coming, Frank, and I would just say that it's probably a little bit quicker than what we thought. So -- and in some cases, maybe a little bit more. I mean, if it goes up by what you just mentioned, yes, that a very positive story for us.

So I mean, I was in a back of an envelope type of things, saying, it could get to 45-55 instead of a 38-62. I mean, would you have any problem with that type of number?

I'm just speculating. I mean, we think we're well positioned, Frank. I mean, the inherent leverage we have, as I touched on, I mean, you know the math as well. It's just that [indiscernible] has gone up $30,000. I mean, a lot of that falls to the bottom -- to the underlying land, albeit, we will -- and some of it, we got to keep in mind as there will, as time goes on, there will be construction cost pressures as the market starts to recover. So some more of that house price increase will start to fall through construction costs, et cetera...

No. I mean, that neatly leads me to a question that I hadn't intended to ask, but let me ask it nonetheless. In terms of your projections, obviously, you took these numbers out 10 years or more. What kind of price increases, and for that matter, cost increases did you assume in the calculation of the $5 billion number?

For the most part, we do not build inflation into our numbers, albeit we do build in when we think there could be some form of a market recovery, Frank, just to give you some perspective. So if we thought that the market -- if we had a project that we thought we'd put on hold and we thought the market was coming back in 2015, we would assume some enhanced cash flow at that point in time. But then, we will go constant dollars at that point.

So in other words, your cash flow projections on that $5 billion number would assume -- would take into cognizance any entitlement or other changes that enhance the value of the land, plus any significant change in market conditions. But it wouldn't take into account, as one housing expert had suggested, that housing prices in the United States could average an increase of 10% over the next 4 years -- each of the next 4 years. Is that a...

It would not, no.

There are no more questions at this time. I'll turn the conference over to Mr. Norris.

Thank you very much. Thanks once again, everyone, for taking the time to dial in. We believe our company is uniquely positioned as a land developer and home builder in the premier regions in North America. So we feel very positive about the upcoming year and ready for growth as the U.S. housing market recovers and the market value of our properties continue to increase. So thank you very much indeed for taking the time, and we will chat with you next quarter. Thank you.

Ladies and gentlemen, this concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.