Forestar Group Inc. (FOR) Q3 2013 Earnings Report, Transcript and Summary

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

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

Thank you, Anna, and welcome to everybody joining us on the call this morning. Let me begin by highlighting our financial results. In third quarter 2013, Forestar reported net income of approximately $11.8 million or $0.33 per share compared with a net loss of $700,000 or $0.02 per share in third quarter 2012. Our third quarter 2013 results include a previously unrecognized tax benefit of approximately $6.3 million or $0.17 per share related to qualified timber gains associated with timberland sales in 2009. In addition, let me remind you that our third quarter 2012 financial results include a gain of approximately $10.2 million or $0.19 per share after tax related to the sale of Broadstone, a multifamily property located in Houston. In addition, third quarter 2012 results include expenses of approximately $5 million or $0.14 per share after tax associated with the acquisition of Credo Petroleum and the amendment and extension of our term loan. Now let me turn to the segment results. In third quarter 2013, total segment earnings were approximately $22.2 million, up almost 8% compared with $20.6 million in third quarter 2012 driven by improved operating performance of oil and gas and real estate segments. Real estate segment earnings were $13.2 million in third quarter 2013 compared with $12.7 million in third quarter 2012. The primary driver of this improvement in real estate segment results is an increase in residential lot sales and margins, which Jim will share in greater detail in just a few slides. Oil and gas segment earnings were $8.5 million in third quarter 2013 compared with $7.3 million in third quarter 2012. This increase is principally due to higher oil production and higher average oil and gas prices. Other natural resources reported total segment earnings of $1.5 million in third quarter 2013 compared with $600,000 in third quarter 2012. This modest decline was principally driven by lower fiber sales volumes. Now let me turn the call over to Jim for some additional operating highlights from the quarter.

Thank you, Chris. And I'd also like to welcome everyone who's joining us on the call this morning. As we head towards end of the year and into 2014, the momentum we've generated in Forestar has us on the right track to deliver our Triple in FOR initiatives. Our oil and gas investment results are exceeding production expectations and targeted returns, and real estate continues to extend its trend of increasing sales in earnings. Let's review just a few of the highlights from the third quarter this year in comparison to the third quarter of last year. First, a nice step up in residential lots and track sales coupled with really good margins. Second, we're making progress in multifamily with 915 units under construction, and with 2 to 3 projects currently leasing. Third, our oil and gas production is up over 170%, and that's reflective of our acquisitions and investments in drilling and completion. Fourth, fiber sales remains strong with a higher sawlog mix and that's primarily due to timing. And last, we generated over $28 million in total segment EBITDA in the third quarter. In addition, we invested about $50 million of capital weighted towards oil and gas working interest and in development of residential lots. As you'll see, these investments are delivering additional value to Forestar and our shareholders. Let's take a closer look at the real estate segment, but first, kind of current market conditions. Texas continues to be a leader in job growth and that's the cornerstone of housing demand. As the chart at the top illustrates, when it comes to jobs, Texas is the pacesetter. And as the table at the bottom highlights, we continue be in good position relative to delivering lots and products to the expanding housing markets in Texas. In the 4 major metros, we got 41 active-selling projects with over 1,500 finished lots, 735 in development, and over 10,000 to be developed. Our pipeline of projects and desirable locations coupled with the capability and resources to develop lots is a Forestar distinctive. Now let's review the real estate segment results for the third quarter. In the third quarter of this year, real estate segment earnings were $13.2 million. That's up $500,000 compared with the same quarter last year, which included $10.2 million gain on the sale of Broadstone, which was one of our multifamily communities in Houston. As the chart illustrates, the main driver in the third quarter was the sale of 547 lots with a gross margin of 46%. That's up from 37% in the third quarter of last year. We hadn't experienced this level of lot sales since the second quarter of 2007. Also contributing to the quarter was the sale of 46 acres of residential tracts for $109,000 an acre, and 19 commercial acres for nearly $258,000 an acre. That's an indication of the strengthening real estate fundamentals in many of our core markets. Let me call your attention to residential tract sales. On occasion, I'm asked would we consider selling undeveloped lots or paper lots, and that's what these residential tract sales represent. In this case, selling 171 paper lots generated a better return than developing and selling finished lots to builders. Also note, we don't include paper lots in our sales count. Now looking more closely at our lot sales trend. Sales of 547 lots in the third quarter is up over 103% from the third quarter of last year and brings the year-to-date sales up to 1,353. The trend's headed in the right direction, but let me remind you, lot sales tend to be a little bit lumpy on a quarterly basis. Barring any significant movement in the schedule, we'd expect closings in the fourth quarter to be in the 550 to 650 range and in the 1,900 to 2,000 range for the year. And that'd be up about 40% year-over-year. Likewise, our backlog of lots under contract with builders remains healthy, a little over 1,600 lots. Shifting gears to multifamily. We're on schedule with 2 multifamily venture projects: Eleven, which is located here in Austin; and 360, which is located in the Denver Tech Center. Eleven, our 257-unit community is over 80% complete, and we hosted the grand opening about 2 weeks ago. Our plans are to reach stabilization and sale in the first half of next year. 360, our 340-unit community is roughly 50% complete. Pre-leasing is under way and we expect the first units to be delevered in the first quarter of 2014. Midtown Cedar Hill, which is located in the Dallas Metro, is under construction. And it's being built on balance sheet very similar to Promesa, which we sold in the first quarter of this year. We expect to start construction on our Nashville and Charlotte projects in 2014, plus the site in Denver that we recently closed. In line with our business plan, we're also evaluating a number of prospective sites for future projects. The team has done a nice job of focusing on planning detail and, most importantly, execution. High quality finishes, thoughtful amenities and great locations have become a trademark of our multifamily team and our brand. Going forward, we'll continue to capitalize on the housing recovery by growing lot sales and margins, generating commercial and residential tract sales, and expanding our multifamily pipeline. In the third quarter, we generated real estate segment EBITDA of $13.9 million and $43.2 million through the first 9 months of the year. The real estate team has generated momentum in the business and have us headed in the right direction. They've done a nice job driving sales and earnings. Keep in mind, this is a significant part of our Triple in FOR initiatives. Proving up the value of the potential of the assets, but more importantly, the ability of the team to deliver results. Let's shift to oil and gas. In the third quarter, oil and gas segment earnings were $8.5 million, that's up about what $1.2 million from the same quarter last year. The increase is primarily due to higher oil production. As we mentioned, that's up over 170% from a year ago, principally reflecting the results of our investments in the Bakken/Three Forks in the Lansing-Kansas City formation. We continue to see minimal activity in East Texas and Gulf Coast Basins given the predominance of gas plays and the current natural gas prices. Both leasing activity and the oil production from royalty interests are down. Nonetheless, we did execute 7,500 acres in lease agreements, principally in East Texas with deeper natural gas as the target. Below segment earnings is the EBITDAX reconciliation. EBITDAX is a non-GAAP measure with a reconciliation of segment earnings included in the appendix of the presentation. EBITDAX is a commonly used oil and gas metric that's more reflective of cash flow generated by the business before capital investments. Year-over-year, EBITDAX is up $7.4 million. Commensurate with investments, exploration and drilling has picked up as the slide indicates. At the end of the quarter, we had about 460 wells generating sales from working interest, 18 wells at total depths waiting on completion, 9 wells drilling and 28 wells scheduled to be drilled in the fourth quarter. We're encouraged by our results to date and we fully expect our oil and gas investments to drive production, reserves, earnings and value going forward. As Anna mentioned, Flavious Smith, our Chief Oil and Gas Officer, is joining us on the call this morning. I'm going to turn the call over to Flav to review a few of the operating investment highlights for the segment. Flav?

Thanks, Jim, and good morning. The rate of drilling in the Bakken/Three Forks continues to pick up as operators transition to pad drilling, which enables operators to drive down well cost. Frac design improvements have increased oil recovery and with additional research and exploration, operators are seeking to extend the play in the lower benches of Three Forks formation, all of which should increase our profitability in the Bakken/Three Forks position. At quarter end, 63 wells were producing with 9 added during the quarter. Also at quarter end, 8 wells were drilling, with an additional 18 wells at total depth and waiting on completion. Based on our evaluation of operator drilling plans, we continue to expect a total of about 54 wells to be drilled in 2013, with 41 of the 54 producers by year end. As we expected, our average working interest in wells drilled in the third quarter was nearly 7% per well, higher than the 4.8% average in the first half of the year. As a result, we anticipate production picking up in the fourth quarter and on into 2014. During the third quarter, 5 Bakken and Three Forks wells went onto production and sales generating average IP rates of about 1,500 barrels of oil equivalent per day. In 3 of these wells operated by Halcon, we have working interest averaging just over 12%. These wells IP-ed mid to late September and will benefit our fourth quarter production volumes. Our investment to date in the Bakken/Three Forks has generated solid production earnings growth. With 18 Bakken/Three Forks wells waiting in completion, we expect to see a significant step-up in fourth quarter production. In addition, we've also approved AFEs for several Bakken/Three Forks wells scheduled to be drilled in the fourth quarter of this year and the first quarter of 2014. Estimated ultimate recoveries or EURs in the Bakken/Three Forks continues to show improvement ramping up from 500,000 to 600,000 barrels. Some operators now estimate EURs as high as 700,000 barrels of oil equivalent per well. At the 500,000 EUR level, when fully loaded with costs including land, drilling, completion, lease operating expenses and production severance taxes, we project returns well above our cost-to-capital and our minimum investment hurdle target of 20%. Based on our engineering analysis, the average type curve for the 53 -- for the 63 producing wells in which we participate includes EURs averaging about 600,000-barrel of oil equivalent. Based on our current assumptions, this initial 100,000-barrel of oil equivalent recovery per well will improve our estimated return significantly above our cost of capital. For every 50 wells drilled, we would add about $35 million in value using the assumptions in the footnote. Given the success to date, and early indications for operators, we expect our working interest investments in 2014 to essentially double compared to 2013. Let's move to another important region, Kansas and Nebraska. To date, we have generated better than 50% success rate in the Lansing-Kansas City. 11 wells were added in the third quarter, bringing our total in Kansas and Nebraska to over 90 producing wells. Our 2013 plan remains to add about 37 new producing wells for the full year, most of which we operate. In the fourth quarter, we expect to drill an additional 15 wells. We're continuing to develop a pipeline of prospects in Kansas and Nebraska. At the current pace, we anticipate several years of solid available drilling locations. We leased about 6,000 net mineral acres in the third quarter and have added about 52,000 net mineral acres year-to-date. At quarter end, we own over 160,000 net acres in the play. Economics on a risk-well basis continues to support returns well above our 20% target when fully loaded with costs including land, seismic drilling, production, severance taxes and lease operating expenses. As a result, we continue to ramp up 3D-seismic chutes to define drillable locations, anticipating accelerating our drilling in 2014 to nearly double 2013 levels. Now let's take a look at how the growth of our oil and gas investments are generating production in earnings momentum. Our oil and gas investments have enabled us to grow our production throughout 2013. As we've mentioned on previous calls, production associated with investments is weighted towards the latter half of 2013 and expected to accelerate in 2014. As a result, we currently anticipate oil production in our fourth quarter to increase almost 50% compared to the first quarter levels. Our investments have yielded favorable returns above our target levels and are expected to provide incremental earnings contributions in the fourth quarter of '13 and continue on into 2014. During the third quarter, we invested $25 million in exploration drilling and lease acquisition, primarily in the Bakken/Three Forks and the Lansing-Kansas City formations, and about $60 million to the first 9 months. Given higher working interest and a higher pace of drilling in North Dakota, Kansas, Nebraska, we expect the level of investment to pick up in the fourth quarter of 2013 and on into 2014. As the chart illustrates, we expect our investments to result in production of about 1.1 million barrels of oil equivalent, essentially meeting our Triple in FOR target. As our oil and gas investments continue, we expect to further accelerate production growth in 2014. From a cost perspective, you can see our gross margin for the segment is over 30% or $23 per barrel of oil equivalent. Keep in mind, cost of $46 per barrel of oil equivalent includes all segment operating costs divided by production. We continue to focus on profitably growing our oil and gas business. Assuming oil and gas market conditions remain relatively stable, I fully expect our results to continue to improve.

Flav, you and the team have done a really nice job building a good solid foundation underneath our oil and gas business. But I'd say what's even more important is investing in growing the business in a way that's creating and delivering value, not only at Forestar but our shareholders. Thank you for the progress to date. Now let me shift gears to natural resources. Our natural resources segment includes sales from Timberlands and the costs associated with the development of our water business. In the third quarter, the fiber sales were 29% lower than the third quarter of 2012. In a large part, that's due to IP's Rome, Georgia linerboard mill taking an outage in the quarter. As a result, the sawtimber represented about 53% of the quarterly sales, which drove our average fiber pricing up nearly 50%. For the year, we're on track to sell about 650,000 tons of fiber. In the last section of the call this morning, I want to update you on the execution of our Triple in FOR strategic initiatives. We remain steadfast in our commitment to deliver Triple in FOR. We've made good progress since the first quarter of 2012, driving segment EBITDA performance, improving transparency and disclosure, and growing Forestar through investments that clearly exceed our cost-to-capital. Let's take a look at a few of the key Triple in FOR metrics. Number one, triple total segment EBITDA. 2013 year-to-date total segment EBITDA is about $78 million. I'm confident we're on track to reach an average of $120 million a year from 2000 through 2015 timeframe. Number two, triple oil and gas production. Oil and gas production for the first 9 months of this year was over 70% of the way to our Triple in FOR goal. Given our success in capital investments, I believe our production goal of 1.1 million BOEs will be achieved well ahead of plan. And number three, residential lot sales of 2,200 lots. Not including paper lots, we sold over 1,350 lots for the third quarter and we're on track to sell 1,900 to 2,000 lots this year. Demand for new homes in the Forestar markets continues to strengthen while the inventories remain relatively tight. Barring any unforeseen events that might derail the housing recovery, we should be able to reach our lot sales goal of 2,200 a year. Let me close by saying I'm encouraged by the momentum we've generated in Forestar, and I firmly believe our team will keep us on track to deliver Triple in FOR. We're stepping up our investment in oil and gas resulting in higher production, reserves, earnings and most important, returns in excess of our target and our cost of capital. Likewise, given housing supply-and-demand fundamentals, we're looking forward to continue and invest in real estate development. And where opportunities meet our return criteria, we expect to further develop our pipeline of land and community positions. Given the capital needs and opportunities, we continue to evaluate our financing options, which include debt, equity, securities and/or asset sales. As in the past, the objective is to maintain balance sheet strength, financial flexibility and maximize long-term shareholder value. As our strategy states, we'll grow through strategic and disciplined investments with emphasis on discipline. These are investments that will create and deliver value for Forestar and our shareholders. Once again, let me thank you for joining us on the call this morning, as well as your interest in Forestar. And I'd like to open up the call for questions.

[Operator Instructions] And our first question comes from the line of Steve Chercover with D.A. Davidson. Steven Chercover - D.A. Davidson & Co., Research Division: Just a couple of quick questions, first on real estate and then a couple on the oil and gas. So at the current pace, you've got about a 5-year inventory of lots. So when do you start to replenish that pipeline, and do you do so by entitling your existing land or going into the marketplace?

It's a combination of both, Steve. In your comment relative to the 5-year supplies limited to Texas, the chart that we had on the bottom of the slide was just for the major markets of Texas. So keep in mind that we got projects in other markets as well. Also in the release, there's another pipeline where we provide a more comprehensive view of the lots that are in entitlement or have been entitled and what's in development. We'll also continue to look for opportunities in the marketplace. We've made some acquisitions this year, Steve. They're not large acquisitions, but they are generating really good returns. So in your response, it's a combination of both. It's going to be both entitlement as well as acquisitions that meet our return criteria. Steven Chercover - D.A. Davidson & Co., Research Division: Got it. And switching over to the oil and gas segment. For 2014, of your target 1.6 million BOE production, what would the ratio of oil to natural gas be?

Steve, I think oil is going to be somewhere in the 70% to 75% range, maybe as high as 80%. But I'd say 70%, 75%. Flav, does that sounds reasonable?

I think that's about right.

Yes. Okay. Steven Chercover - D.A. Davidson & Co., Research Division: Okay, great. And will the margins be stable or do you think they're going to expand?

We had certainly expected them to be stable, given assumptions that we've shared with you. There is an opportunity for them to expand. As Flav said in his comments, as these operators continue to transition to pad drilling, typically what you see is the well costs goes down and you see some improvements in completion in EUR, so there's an opportunity that the margins would widen going forward. Steven Chercover - D.A. Davidson & Co., Research Division: Perfect. And my final question is, is the oil and gas segment now effectively self-sufficient from a capital perspective?

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

And your next question comes from the line of Mark Weintraub with Buckingham Research Group.

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

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

Understood. And -- I'm sorry, through the first 3 quarters, how much of that $100 million has already been spent, order magnitude?

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

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

Yes. Mark, we have, as you know, there was a concerted effort early in the Forestar life to get the balance sheet in a condition that provided us the flexibility and liquidity we need to run this business. And for Forestar, that's a debt-to-cap somewhere in the 35% to 45% range. So as we think about our investments going forward and the capital structure for the business, that's kind of a cornerstone, if you will, of what drives our decisions.

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

Mark, as you know, in the past we have -- we've sold quite a bit of timberland in and around Atlanta, a little bit in East Texas. So there continues to be some timberland that would be a candidate for asset sales. I'd say that's probably the most likely asset. But keep in mind, there's other alternatives and we're going to examine all 3 of those as we consider the best structure for Forestar for the near term.

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

I think that what we see, Mark, is the investment in real estate has been subsiditive (sic) [subsidized]. I don't know that it's at the same level as oil and gas. I'll try to bookend it for you. Assuming that we were to develop a couple thousand lots or maybe 2,500 lots, that's going to be $50 million to $60 million. The acquisition of a few multifamily sites and equity investments and maybe a couple of opportunistic acquisitions, kind of back to Steve's question, on the single-family side, maybe another $50 million to $60 million. So if you were to put it all together, call it, in the range of $200 million for oil and gas and $100-plus million in the real estate, that's going to be somewhere in the $300 million range.

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

Yes. Here's a way to think about that, Mark. If you look at the EBITDA contribution from oil and gas on a quarterly basis, over the first -- over the full course of 2013, and you look at continuing on that trend through 2014, I think that probably would put it in the ballpark.

Okay, so -- but and it would be fair, though, to expect to continue to ramp as -- so it wouldn't be taking fourth quarter '13 and times-ing it by 4, you'd actually expect to see a continued ramp as 2014 progresses?

Yes. I think that'd be more appropriate.

And your next question comes from the line of David Woodyatt with Keeley Asset Management.

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

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

Yes.

Right. There's a couple of comments there. The sales pace at Cibolo continues to pick up, not only in the single-family lots, but also other commercial uses. So there's quite a bit of activity there. So I would see the rate of sales to continue to pick up at Cibolo in the development part of the project. Relative to the resort, as I said on a couple of occasions, we continue to work with the district at examining various alternatives and options for monetizing part of that cash flow. I will tell you, I think we've had very constructive discussions and conversations. And I'll be the first one to report that when we get something over the goal line, we'll be quick to let the market know -- let you and the market know.

Okay. And just one other subject, I think you made a quick reference to it. But could -- is there anything new you can report in the water area?

David, there's actually been quite a bit of press over the last, oh, call it, last 4 to 8 weeks. We have been very diligent and focused on securing a groundwater withdrawal permit here in central Texas. It's created quite a bit of interest and a lot of media coverage which is, I think, a positive indication but one that would also reinforce the comment that we've made, is that it's going to take some time. Also in the coverage, it was announced that we signed an agreement with Hays County, which is on the south side of Austin, to purchase up to 45,000-acre feet a year of water. Initially, it's a reservation and with the option to transition into a development agreement. So those are positive steps in the right direction. We're encouraged by that. But once again, we're taking that a step at a time. And then I think, as we've communicated before, there's 2 or 3 other projects that we continue to work on and focus on that we believe will be -- should be a part of the Texas water solution.

And your next question comes from the line of Albert Sebastian with Prospect Advisors.

Jim, can you just explain a little bit the conditions with regards to the commercial tracts that you sold, 19 acres, and the price you realized per acre was quite good, as well as the residential tracts -- well, the undeveloped land that you sold, which realized almost $5,000 per acre. What were the conditions that existed for those type of prices to be realized?

Yes. Al, the first question pertains to the commercial tract sales. That is a project where we have investments in Houston. That project has got quite a bit of commercial acreage. For the last 4 or 5 years, it's been pretty dormant relative to the activity. But as economies pick up and recover, get rooftops coming back and increases in population in the commercial, and the residential tract sales will follow, particularly the commercial tract sales. So that price of, I don't know, $260,000 an acre or something like that, that's a good price. And it's going to vary by location, Al. As in the past, we sold some for $80,000, $90,000 an acre, and there's been some north of $258,000, so it's very dependent upon location, as well as use. But that's the main driver. As I said in my comments, hopefully, as this economy or economies in which we have investments continue to recover, then we'll see a pickup in commercial tract sales. Relative to the residential tract, that's a sale to a builder who will, in essence, develop the lots on their own balance sheet. I've said on a number of occasions, that's an indication of a recovering housing market. When the builders want to take down an entire phase or section or whatever the case may be, that's a good sign. This is one that made good economic sense to us. So instead of developing and using the capital for the 170 lots, we'll let the builder use his capital. As you would imagine, we'll run the numbers and we'll look at the capital required for development and the price of developed lot versus the paper lot. And in this case, it made a better sense to sell it as a paper lot.

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

Al, what I would tell you is that both those projects, particularly Eleven in Austin, is principally urban, not quite so much so as the project in the Denver Tech Center, but pretty close to that given the proximity to jobs and whatnot. Today, Al, what I would say is, probably in the 5.5 to 6.5 range. But here again, I think it's most important to wait until these projects are ready for sale. It's a little bit dangerous trying to forecast the cap rate, 1 to 2 to 3 quarters out in front of you. As always, we appreciate all the questions, as well as the interest in Forestar, and looking forward to the balance of the fourth quarter in 2014. Thank you for joining us this morning.

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