Good day ladies and gentlemen and welcome to the 2008 fourth quarter Forestar Group earnings conference call. My name is Chanel and I will be your coordinator for today. At this time all participants are in a listen only mode. We will be facilitating a question and answer session towards the end of this conference. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today’s call, Mr. Chris Nines, Chief Financial Officer.

Thank you and good morning. This is Chris Nines, Chief Financial Officer of Forestar. I’d like to welcome each of you who have joined us by conference call or webcast this morning to discuss the results for fourth quarter and full year 2008. Joining me this morning is Jim DeCosmo, President and CEO of Forestar. Let me remind you to please review the warning statements in our press release and our slides concerning forward-looking statements as we will make forward-looking statements during this presentation. This morning Jim and I will provide an update on our value creation activities and financial results for fourth quarter and full year 2008. At the completion of our presentation, we will be happy to take your questions. Thanks again for your interest in Forestar. I’d now like to turn the call over to Jim.

Thank you Chris and good morning. Welcome, and thank you for joining us on the call and the webcast. Before Chris reviews the financials I want to make a few comments relevant to the markets 2008 as well as our near term focus. The housing markets continue to battle through a rough storm. As a result we’ll continue to reduce costs and investments in development. As resources continue to perform well, lease bonus acreage and oil and gas production were up significantly, offset lower oil and gas prices and difficult real estate market conditions. For the quarter and the year we did not acquire any new real estate project. Unlike many, Forestar has a strong mix of low basis assets, active real estate projects principally located in the major markets of Texas, productive natural resources and a lean organization, led by a proven and experienced management team navigating our business through this phase of the cycle. The team is very focused on creating shareholder value, generating positive cash flow, and continuing to strengthen our balance sheet. In the next few slides I want to briefly comment on our 2008 performance. In 2008 we sold over 6,000 undeveloped acres at an average price for approximately $4800 per acre, generating about $29 million in sales. We continue creating value through entitlement. Entitlement activities were initiated on additional $7300 acres and now total 25 projects and 33,700 acres in the entitlement process. Five projects were seasoned entitlement totaling 2500 acres yielding approximately 1050 lots and 580 commercial acres. We focus our entitlement activities on acreage having the greatest commercial potential and locations expected to benefit from economic investment and expansion. Real estate sales: 1060 lots at an average price of $48,500 per lot. Including in these sales are 117 lots sold in a…

Thanks, Jim. Net income for fourth quarter 2008 was $1.7 million or $0.05 per diluted share outstanding compared with essentially breakeven results for fourth quarter 2007. For the year 2008 Forestar reported net income of $12 million or $0.33 per diluted share, compared with net income of $24.8 million or $0.70 per diluted share. Despite challenging market conditions, fourth quarter and full year 2008 financial results reflect the benefit of our leasing and royalty income related to our oil and gas minerals, a low cost operation, and our value creation strategy for our real estate and natural resources assets. Full year 2008 weighted average diluted shares outstanding were 35.9 million shares. Now let me turn to our segment results. We manage our operations through three business segments: real estate, mineral resources, and fiber resources. Our real estate operation reported segment earnings of $3 million in fourth quarter 2008 compared with a segment loss of $0.2 million in fourth quarter 2007. The year-over-year improvement in segment earnings was principally due to increased sales of undeveloped land. Our real estate segment results were negatively impacted by impairment expense of $3.3. million in fourth quarter 2008 and $3.9 million in fourth quarter 2007. Full year 2008 real estate segment earnings were $9.1 million compared with $39.5 million in 2007. This decline was primarily due to residential lot sales and commercial track sales due to the continued slowdown in new home construction activity. Jim will walk you through our real estate sales and entitlement activity for fourth quarter and full year 2008 in a few slides. Mineral resources reported segment earnings of $6.1 million in fourth quarter 2008 compared with $3.7 million in fourth quarter 2007. Full year 2008 mineral resources segment earnings were $44.1 million compared with $18.6 million in 2007. These improvements…

Our real estate pipeline is comprised of four distinct value categories with the strategy being to create value by moving acreage through the value chain from left to right. At the end of 2008 we had approximately 315,000 low basis undeveloped acres of real estate principally located in and around Atlanta. The majority of this segment is comprised of acreage we selected from the 2 million acre timberland portfolio once owned by Temple Inland We have just under 34,000 acres in entitlement process, just over 14,000 acres in titles, and just under 2800 acres in the development category, [inaudible] our real estate portfolio of just over 365,000 acres. In addition we have about 25,000 lots in the title category, many originating from our low basis land with minimal investment. We have 4,421 lots in some phase of development defined as engineered with no physical platework [inaudible] for sale. Not reflected in the acreage is a 58% ownership interest in Ironstob Venture which controls over 2000 acres in North Georgia. This acreage is principally located in Paulding, Holt and Harrellson Counties. This next series of slides are our real estate key performance indicators a reconciliation of our progress in creating value by moving acreage through the pipeline. Revenue and earnings were down year-over-year principally due to reduced residential and commercial sales. Land sales, we sold over 6,000 acres for the year in 36 transactions at an average price of $4800 an acre. We have an upcoming slide providing additional detail in transparency. In 2008 we sold 120 acres of commercial property at an average price of $232,400 per acre. We sold 259 lots in the fourth quarter of 2008 including 117 lots at $11,000 in the bulk sales at Parks at Deer Creek, once again an entry level project in South…

(Operator Instructions) Your first question comes from Robert Howard of Prospector Partners.

Just a couple things. The Q4 mineral results, did that... I guess are these results are sort of based on current commodity prices or would there have been any additional uplift that it could have benefited from old $100 oil prices that it’s somehow subcontracted kind of come along and maybe have those revenues maybe be a little bit higher than you would have expected from just sort of a straight current commodity price level.

Our prices that we report are generally anywhere from a 60 to a 90 day lag. We get paid at the well head and there’s a bit of accounting and time lag between when the oil or gas is produced and when we get paid so we’re generally as I said about 60 to 90 days in arrears or lag in price.

So the earnings or revenues that you get, it’s all based on when the cash comes in as opposed to some type of based on the oil came up in October and the revenue gets credited when you get the cash as opposed to when the oil was taken out of the ground.

That’s correct.

Where are you guys in terms of completing your inventory of your mineral resources and I know one of your big tasks is trying to get your hands completely around everything you’ve got, how is that process going?

As I stated in my comments, the new mineral, oil, and gas team is in place. Their number one priority is to generate the transparency and the disclosures required for you in the balance of the market to be able to fully understand and value these mineral, oil, and gas resources. As I also stated, our target is to provide a significant amount of additional information in our second quarter. So I will tell you there’s a full court press.

Have you guys, I guess with the current economic environment, anything about what your debt levels are? Are you sort of happy with the way your debt liquidity or situation is? Do you want to pay down some of that at all or what are your kind of thinking in how to deal with the economic environment on that end of things?

We ended 2008 with debt to cap somewhere around 42%, 23%, something like that. I can tell you kind of based once again on the comment that I made, we expect 2009 to be another really challenging year, so addressing the balance sheet and in some prudent manner would probably be in the best interest of the business.

Your next question comes from Mark Winetraub of Buckingham Research.

Jim, I wanted to get a little bit more detail on Slide 22 and go over the three elements of the near term strategic initiative to drive higher free cash flow, maybe get a little bit more specificity if possible, and maybe first what the kind of minimum which is reduced in investment and development. Can you tell us how much in terms of obligations or capital that you need to spend in ’09 that there is still on the table as a starting point?

As I said in my comments, we expect that our initiatives and ongoing efforts to make a significant reduction in spend for development in ’09. The biggest obligation that we have in commitment is clearly Cibolo Canyon is related to the resort. Palisades West which was a significant investment in 2008 for the most part has been satisfied. There will be a little bit that rolls over into the first quarter of this year. Those two projects along, Cibolo Resort, the development in 2008 represented about 44 million of our investment in development, so you can see just in those two projects alone represented a significant share of development, so I would also tell you in 2009 looking back at our investments, a lot of the major track is in at Cibolo. A couple of the most significant expenses were the two parkways. There’s a TPC Parkway that goes to the resort and also another Cibolo Canyons Parkway that goes to the resort and both those are divided highways with medians and significant investment. Both those are in and almost fully landscaped.

So order of magnitude, Cibolo Canyons and Palisades West in 2009, what’s the commitment that you have?

Palisades is just about done. I can’t tell you exactly what the number is for Cibolo’s development for the residential piece. It will certainly be down given investments in the major track that we had last year in the resort. I think we’re roughly $26.5 median on an existing $38 million commitment.

So I guess there’s $12 million remaining, which some of which could be in ’09, some could be in 2010.

Yeah, it’s just a function of the pace of construction development on the resort. As I said in my comment, there’s an expectation by Marriott and Miller that the resort will be completed by the end of the year and [inaudible] over a year from now in the first quarter ’10.

And so then beyond Cibolo Canyons and Palisades, it seems you probably spend about $35 million if you take the $80 million and subtract the $44 million, order of magnitude $35 million for other projects. What type of number do you think is realistic for ’09?

We reduced the investment and development in all projects. I think Cibolo and Palisades is a prime example. There’s a handful of projects that it continues to do well even in today’s environment and, as I’ve said on a number of occasions, that’s where we’ll consider any investment in development.

So order of magnitude when we put it all together for ’09, should we be thinking $30 million or so of development? $40 million of development spending? Or can it be even less than that?

Mark, I won’t give you a specific number. I’ll just go back to my prepared comment and say that in comparison to ’08 it will be a significant reduction.

Okay. And on the operating expense reduction, you indicated you’re already very lean. Where can you get further leverage to reduce operating expenses and what type of magnitude opportunity is that?

In OpEx and G&A in 2008, Mark, being the first year of standalone public, there was certainly some start up and ramp up costs that we have continued to move out of the operations and the system. The latter half of the year, we’ll continue to do that in the first quarter. I’ll tell you this, as far as employees that we have on board, it’s down from its peak. The number of consultants and contractors that were providing support for startup is almost nonexistent today. So those are the two primary and biggest areas.

Okay. And then when you talked about generating sales across all lines of business, I imagine you do that all the time. You made a reference to the retail land sales program and that you certainly laid out an enhanced strategy there. Are there other areas where we should be thinking that there could be a renewed or more aggressive effort to realize revenues sooner rather than later across the business lines?

Yes, across all lines of business. I think my comments were appropriate for the morning, Mark.

Then lastly, when you put all this together, you come to increased free cash flow. Is it well within your capabilities to be free cash flow positive in 2009, i.e. to be in a debt reduction mode in 2009?

That’s clearly our target and focus.

Okay. And then lastly, I recognize that it’s the Board’s role to respond to that Holland Ware proposal and I understand that you can’t comment on that, but is there a particular timeline in which you would expect to be able to give us feedback on that?

Mark, as we said in our press release, the board will address it in due course.

Your next question comes from Eric Anderson – Hartford Financial. Eric Anderson – Hartford Financial : I wonder if you could just give us a little bit of history as to the... if you look at the timberland that you retained that was not sold in the two million shared transaction that you referenced earlier, how was it decided what you kept? Was it just things that didn’t get the appropriate bid, or were there some strategic thought as to what you wanted to keep in order to put into the company? The second part of my question relates to the mineral rights. I believe you’ve got mineral rights on about 600,000 acres and does that imply that some of the two million acres that were sold either didn’t have them or you were not able to retain those mineral rights?

First question, criteria for the property that we selected, Eric, beginning in early 2000, we put a team in place in Georgia and started examining all of the property in that region to determine which ones had the potential to create multiples of value through entitlement and then subsequent development. So there’s a fairly exhaustive analysis that started years and years ago looking at these properties. It’s a function of estimates, infrastructure development, infrastructure plans, infrastructure that’s in place, population growth, demographics, principally related to Atlanta but also in consideration with Birmingham and Chattanooga. So we started that in the early 2000s prior to spending out and as part of Temple Inland transformation plan. There was one more evaluation of all the properties and selections were made. So our selections were based on, I believe, that these properties had the potential to create multiples of value and/or had multiples of value above and beyond timberland just based on other special uses. Eric Anderson – Hartford Financial : So then if they’re presently still just primarily just timberland holdings, that doesn’t imply that they always will be?

That’s true. When you look at these properties, it would look like timberland but so did some of the maps for developments that are in Georgia today. And the feedstock for development is either agriculture or timberland and when you look at our value creation strategy, there’s that undeveloped land that’s in the bottom that we move it up into entitlement when it’s ready, so prior to been development then subsequent development. We’ll make those investments when we can meet our return expectations. Eric Anderson – Hartford Financial : So then basically then, whatever you have today is the stuff that you wanted to keep not that you had to keep?

Correct. Absolutely. Those were our selection. Second part of your question, 622,000 net mineral acres, the simple answer to that is that over the decades, as Temple Inland bought and sold property, they would generally reserve mineral rights. So if you look at Texas and Louisiana, we own something just north of 50,000 surface acres and I think mineral acreage is north of 350,000. So in most cases, we don’t own the surface but we do own the minerals. Eric Anderson – Hartford Financial : Okay. Well, that’s very helpful.

Which is a dominant estate.

I was wondering if you could just help us with the date of the next board meeting, regularly scheduled or otherwise.

Gerard, our board meets quarterly and as I’ve said the board will entertain and review proposals in due course.

So there’s no date set at the moment but the board does meet quarterly?

Yes.

Okay, thank you.

That was our last question. Once again, I want to thank you all for joining us all in the call this morning as well as your interest in investment in Forestar.

Ladies and gentleman, that concludes the presentation. Thank you for your participation. You may now disconnect. Have a great day.