OUTLOOK“We continue to generate momentum through our oil and gas initiatives to increase exploration, production and reserves. Higher oil prices have increased exploration and production in Louisiana. In addition, our working interests in three oil wells in Beauregard Parish, Louisiana continue to provide incremental value realization. Going forward, we expect to participate in additional non-operating working interest investments, which provide Forestar with an additional low-cost, low-risk opportunity to realize the greatest value from every acre by securing a greater interest in oil and gas production. “Natural gas prices remained under pressure during first quarter, principally due to mild temperatures and record inventory levels, resulting in lower demand for mineral leases in East Texas. Longer-term, we are more positive on the outlook for natural gas given the abundance of domestic supplies which reduces the potential impact from geopolitical risk. In addition, natural gas value is currently 80% less than crude oil on an energy equivalent basis. “We continue to see improving housing fundamentals in Texas, due to a continued reduction in finished residential lot inventories and relatively stable market demand. In addition, we remain confident that underlying fundamental demand for single and multifamily housing will improve as markets generate positive job growth. In April 2012, we delivered the first units at our Promesa multifamily community in Austin, Texas, an important milestone in the execution of our multifamily initiatives. “We are focused on recognizing and responsibly generating the greatest value from every acre and achieving our Triple in FOR strategic initiatives, reflecting our commitment to accelerate value realization, further strengthen our balance sheet, and increase financial flexibility. Since year-end 2011, we completed the sale of our interest in Palisades West for $32 million, generating a gain of $11.7 million. In April, Forestar/RPG Land Company LLC, a consolidated venture, sold approximately 800 acres near Dallas, Texas (Light Farms real estate project) for $56 million in total consideration, resulting in a gain of approximately $3.4 million. As a result of these two transactions, Forestar received $57 million in cash proceeds and reduced consolidated debt by $31 million, which positions us to take advantage of strategic growth and investment opportunities,” concluded Mr. DeCosmo.