Good day, ladies and gentlemen, and welcome to the Quarter 1 2013 Forestar Group Earnings Conference Call. My name is Patrick, and I will be your operator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to Ms. Anna Torma, Senior Vice President of Corporate Affairs. Please proceed.

Thanks, and good morning. I would like to welcome each of you who have joined us by conference call or webcast this morning to discuss Forestar's first quarter 2013 results. I'm Anna Torma, Senior Vice President, Corporate Affairs. And joining me on the call today is Jim DeCosmo, President and CEO; and Chris Nines, Chief Financial Officer. This call is being webcast. And copies of the earnings release and presentation slides are now available on the Investor Relations section of our website at forestargroup.com. Before we get started, let me remind you to please review the warning statements in our press release and our slides, as we will make forward-looking statements during the presentation. In addition, this presentation includes non-GAAP financial measures. The required reconciliation to GAAP financial measures can be found at the back of our earnings release and slides or on our website. Now let me turn the call over to Chris for a review of our financial results.

Thanks, Anna. And welcome, everyone joining us on the call this morning. Let me begin by highlighting our first quarter financial results. In first quarter 2013, Forestar reported net income of approximately $4 million or $0.11 per share compared with net income of $2.8 million or $0.08 per share in 2012. This first slide provides a high-level reconciliation between our first quarter 2013 and first quarter 2012 financial results. Real estate segment results improved approximately $7.9 million or $0.14 per share, which principally reflects a 56% increase in residential lot sales activity. Other natural resources segment earnings increased by $2.1 million or $0.04 per share primarily due to higher fiber sales and pricing. The most significant negative variance was share-based compensation expense, which negatively impacted earnings by $5.2 million or $0.09 per share, as compared with first quarter 2012, which was driven by a 26% increase in our share price in first quarter 2013 and the fair value accounting for cash-settled awards. In addition, oil and gas earnings were down approximately $2 million or $0.03 per share principally due to lower volumes of higher-margin oil royalties, reduced delay rental revenues and increased costs associated with building out our oil and gas team. And finally, interest expense, taxes and other costs were impacted principally from the issuance of the convertible notes during the first quarter 2013, which I will discuss in greater detail in just a moment. Now let me highlight the changes to our segment financial reporting. We have realigned our business segment reporting to better reflect the operating strategy of our business. The primary change is the movement of our water resources operating results from our mineral resources segment and aggregating those with fiber activity to form the other natural resources segment. Our real estate segment has had no…

Thanks, Chris. And as always, welcome to everybody who's joined us on the call and the webcast this morning. I'm encouraged by our results and also believe the momentum we've generated will help fuel Forestar's performance going forward. Let's review just a few of the highlights for the first quarter, as compared to Q1 of '12. First, 446 lots sold is a nice step-up, with a healthy backlog of 1,800 lots on a contract at the end of the quarter. Second, the sale of Promesa contributed $10.9 million in earnings. Third, oil and gas production is up 113%, and that's reflective of our acquisition of Credo Petroleum. As planned, drilling activity is up and is expected to drive reserve additions and production in coming quarters. And last, fiber sales were up over 162,000 tons. We're off to a solid start in 2013, and I believe we're on track to deliver our Triple in FOR strategic initiatives. So let's take a closer look at our real estate segment and the current market conditions. The housing market is in recovery. Single-family starts were up 29% in March from year-ago levels, but that's still well below the historic average of about 1.1 million. Including multifamily starts, we exceeded 1 million -- did 1 million start level for the first time since mid-2008. I think it's also important that you keep in mind that the U.S. has averaged 1.5 million total housing starts a year for the past 50 years. As I've said on a number of occasions, demand is ultimately driven by job growth and household formation. To the extent our markets continue to generate positive job growth and maintain healthy levels of inventory, I don't see any reason why we shouldn't continue to benefit from the housing recovery. So let's take a…

[Operator Instructions] And gentlemen, your first question comes from the line of Mark Weintraub with Buckingham Research Group.

I was hoping to get a little bit of a sense as to whether any of the lands around Atlanta are beginning to have visibility where they might become development property initiatives. And I'm talking about the one that had once been called the Wolf Creeks, et cetera, of the world. So can -- I see the pipeline, where you're buying properties and you're turning them into multifamily, et cetera. How about some of the longer-held land that's had very low land bases where you've been going through the entitlement process?

Yes, Mark, what I would say is that the Atlanta market is doing better. As I've said on previous calls, it's coming off a pretty deep bottom. A couple of the indicators that I will share with you -- if -- I'll talk about undeveloped land and interest there as well as some of the active projects, development projects, we have. Relative to Seven Hills and some of the other development projects, interest in sales have picked up nicely. There's a significant amount of interest, which is good. The starts are picking up, sales are picking up, so we're encouraged by that. Another indicator would be the interest in the smaller retail undeveloped land sales. The amount of traffic and interest there has picked considerably so. For me, those are indicators that the markets begin to recover. Once again, as I said a number of times, Mark, one things that we're going to be very sensitive to is investing in development in Atlanta or anywhere else. If you look at cost of sales associated with lots or commercial tracts, roughly 2/3 of that cost is associated with development, and it's capital intensive. So what I want to make sure is that whatever capital that we deploy is going to the highest and best use and the greatest return. If that's Atlanta, great. If there's other opportunities, then that's where we will invest.

Okay. And then separately, any update on water initiatives? Any progress there?

Mark, the team has -- is -- remained fully engaged in securing withdrawal permits, as well as negotiating purchase and sale agreements with potential buyers. So I would say that there's progress. I don't have anything to report on the call this morning relative to actual permits in hand or sales agreements in hand, but I do believe we are making good progress.

Your next question comes from the line of Steve Chercover with DA Davidson. Steven Chercover - D.A. Davidson & Co., Research Division: First question. You've given us insights into your lot sales for the year. Do you have an early view into 2014? Or for modeling purposes, should we just kind of maintain a run rate until the U.S. hits kind of midcycle or 1.5 million starts?

Steve, my -- we have not put together a projection for 2014. But intuitively, as long as these markets continue to generate positive job growth and inventories stay in balance, then I expect that the lot sales would continue to increase into 2014. If you recall, there was a slide in previous releases and/or calls where we illustrated in our 2012 Triple in FOR initiatives that we target to average 22,000 lots per year over the time period from 2012 through 2015. So that's -- that would be my response. Steven Chercover - D.A. Davidson & Co., Research Division: And then congratulations on the fantastic job you did on Promesa, selling it, I guess, faster than average. Can you give us a sense of when the next one might gain traction or even which project it might be?

Yes. Thank you for the compliment, Steve, but all the credit goes to the multifamily team. They're the ones who make things happen. I'm -- I just reported the results. I would tell you that, sitting here this morning, most likely, the next sale would be for the project that we call Eleven here in Austin. As I said, it's a little over 40% complete and we started pre-leasing, so I would anticipate that would be the next project that would make it to market. Steven Chercover - D.A. Davidson & Co., Research Division: So that might be like a year from now. Would that be a reasonable time frame?

What I would tell you this morning, Steve, this is probably going to be some time, I'd say, in the first half of 2014. Steven Chercover - D.A. Davidson & Co., Research Division: Perfect. And then finally, share-based compensation was up sharply due to the share price. Is that really a front-end-loaded issue so we've seen the majority of it for the year?

Steve, of the share-based comp expense for the quarter, I think maybe 6 of the 10 was driven by the share price being up. But generally speaking, if you look at historical cost, Q1 usually is higher than the balance of the quarters in the year. Steven Chercover - D.A. Davidson & Co., Research Division: Yes, and I think that's my experience with the majority of my companies. It is you see most of it in Q1, so I just wanted to, I guess, for my own purposes, make sure that's not a run rate. Okay, that was all I had.

Your next question comes from the line of Eric Anderson with Hartford Financial. It appears that question has been withdrawn. Your next question comes from the line of Daniel Downes with BC Holdings.

Can you talk a little bit about your appetite for making acquisitions? I think a lot of the discussion so far has been on recent sales and creating value that way. But on the other side of the ledger, what is the activity level out there? And up to what size deal would you do? If you could spend a minute just talking about your capacity and whether you'd do a stock deal. I know there was one packaging company in particular, it's hired bankers to evaluate their land holdings which, to some of the outset, seems like it would be a nice fit for what you guys do.

We have always been opportunistic relative to investments, whether it's at the operating or a strategic level. And Daniel, I think you know that we acquired Credo Petroleum and we closed in the third quarter of last year. We made a number of sizable investments in real estate in buying out a significant number of properties and assets out of ventures. But on a go-forward basis, I would tell you we would maintain the same discipline and temperament. If we see an opportunity that creates a lot of value and is good for Forestar and shareholders and generates returns that meet our expectations, we would entertain that. Obviously, we'd -- we keep our eyes open. However, at this point in time, we're very focused on making sure that our cooperation is just performing and generating the results that we expect. Relative to your comment on some entities potentially offering properties to the market or are looking for transactions, I won't comment on that, other than to say that we look at things that makes sense and -- but we're very selective and judicial and disciplined in that review and that exercise. So those would be my comments.

[Operator Instructions] Your next question comes from the line of Albert Sebastian with Prospect Advisors.

Jim, question on the Triple in FOR initiatives. The goal of tripling total segment EBITDA, does that number include the costs associated with general and administrative expense and share-based compensation?

No. It's EBITDA at the operating level or at the segment level.

Okay. My question is, why doesn't it include that? Isn't that a cost to the company and a cost to shareholders? Shouldn't it reflect that as well?

Al, absolutely. We're just as focused on all expenses and all costs in Forestar. However, the engine in Forestar is your operations and your segment performance. We can obviously cut costs, and we've done that and we'll continue to do that and we'll continue to be judicious. But the lever relative to value creation and realization is in your operations and in your segments, and that's where the focus is.

Okay, okay, yes. I just -- my -- I just -- would just make a comment here. I think it should include that since that is -- and I don't know how others feel, but I -- given that it is...

Al? Al, let me say it this way: The focus on Triple in FOR is per-segment performance, it's on segment performance, which is the engine of the business. It doesn't mean that we discount or disregarded other cost. So it is not that those are not important or that they're not parts of the business that we focus on or pay attention to.

Okay. Yes, as I said I think I understand in terms of just from a reporting standpoint, but obviously, the value to the shareholder is after the payment of those expenses...

Right, I wouldn't argue that.

Okay. The other thing is, Jim, since that we are in the proxy season and we're being asked to vote on the proxy as shareholders: One thing going through the proxy vote this year and last year is, the compensation committee has cited specifically these value-creating events, which when I look at them, I think they're value-creating events as well, but has the compensation committee ever cited a value-destroying events?

A value-destroying event. Al, I don't know that the comp committee has identified a value-destroying event, but they have certainly exercised their discretion to make adjustments in compensation, particularly in incentive, based on the quality and the performance of the returns and the earnings.

Yes. It's just that I would think that, when you -- when we talk about it and the competition committee cites these value-creating events, and I look at them, and I think that they're -- I think they're value-creating events as well. I think you've made some very good and done some very good transactions. It's just that I would just think -- we're not sure if the value-creating transactions -- and in the future, wouldn't it show up and improve the operating results, therefore reflects -- will reflect a higher return on assets in sort of a -- that particular point in time, as shareholders will be able to conclude that -- those events actually did create value for the shareholders? And shouldn't it be recognized at that particular point in time?

Yes, Al, that's true and that's accurate. Keep in mind that the incentive reward associated with value creation is a very, very small part of the estimated value that had been created. It's just to recognize the actions and the investment and the performance associated with longer-term investments. This is a long-term business, and we want to recognize and reward those actions that are going to create long-term value. So there's a very small part of the plan associated with value creation, a majority of it is driven by the performance of the business, and that's ROA at the corporate level and then also segment performance. Okay. That was our last question. Thank you for your questions. Thank you for your interest in Forestar. And I hope that you have a wonderful day.

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