I N V E S T O R P R E S E N T A T I O N
Q 1 2 0 2 0
FORWARD LOOKING STATEMENTS
This presentation may include "forward‐looking statements" as defined by the Private Securities Litigation Reform Act of 1995. Although Forestar believes any such statements are based on reasonable assumptions, there is no assurance that actual outcomes will not be materially different. Factors that may cause the actual results to be materially different from the future results expressed by the forward‐looking statements include, but are not limited to: the effect of D.R. Horton's controlling level of ownership on us and the holders of our securities; our ability to realize the potential benefits of the strategic relationship with D.R. Horton; the effect of our strategic relationship with D.R. Horton on our ability to maintain relationships with our vendors and customers; demand for new housing, which can be affected by a number of factors including the availability of mortgage credit, job growth and fluctuations in interest rates; competitive actions by other companies; accuracy of estimates and other assumptions related to investment in and development of real estate, the expected timing and pricing of land and lot sales and related cost of real estate sales; our ability to comply with our debt covenants, restrictions and limitations; our ability to hire and retain key personnel; changes in governmental policies, laws or regulations and actions or restrictions of regulatory agencies; general economic, market or business conditions where our real estate activities are concentrated; our ability to achieve our strategic initiatives; our ability to obtain future entitlement and development approvals; our ability to obtain or the availability of surety bonds to secure our performance related to construction and development activities and the pricing of bonds; obtaining reimbursements and other payments from governmental districts and other agencies and timing of such payments; the levels of resale housing inventory in our projects and the regions in which they are located; fluctuations in costs and expenses, including impacts from shortages in materials or labor; the opportunities (or lack thereof) that may be presented to us and that we may pursue; the strength of our information technology systems and the risk of cybersecurity breaches; and the conditions of the capital markets and our ability to raise capital to fund expected growth. Additional information about factors that could lead to material changes in performance is contained in Forestar's annual report on Form 10‐K, which is filed with the Securities and Exchange Commission (SEC).
2
FORESTAR OVERVIEW
- Forestar Group Inc. ("Forestar" or "FOR") is a highly differentiated, national residential lot developer
- Develop and sell lots for single‐family homes to D.R. Horton and other local, regional and national homebuilders
- Focused on phased development of short duration, fully‐ entitled lot development projects
- High turnover, lower risk lot manufacturing strategy with intense focus on returns
- Majority-ownedsubsidiary of D.R. Horton, Inc. ("D.R. Horton" or "DHI"), the nation's largest builder
- 75% of common shares acquired by DHI in 2017 for ~$560M; 65% owned today by DHI
- One of only two investment grade rated public homebuilders in the U.S.
- Highly strategic relationship supports and de‐risks Forestar's significant growth ramp
- Rapidly expanding to fulfill market demand
- Diversified and growing national footprint
- Existing lot and liquidity position sufficient to support near‐ term growth
- Builder preference for 'land light' enhances opportunity
Operations in 51 markets across 20 states(1)
/ | Current FOR markets / states | ||
Current Snapshot(1) | |||
Owned and Controlled Lot Position | 44,500 | ||
Owned Lots Under Contract or | 25,600 | ||
Subject to Right of First Offer to DHI | |||
Revenues | $637M | ||
Liquidity (2) | ~$720M | ||
Equity Market Cap (3) | ~$1.07B |
(1) | As of or for the TTM ended 12/31/19 unless otherwise noted | 3 |
(2) | Liquidity defined as unrestricted cash and cash equivalents plus revolving credit facility availability as governed by the borrowing base | |
(3) | As of 1/22/20 |
THE FORESTAR VALUE PROPOSITION
DIFFERENTIATED BUSINESS MODEL DESIGNED TO ADDRESS A SIGNIFICANT MARKET NEED
- Returns focused residential lot development business model
- High turnover, lower risk lot manufacturing strategy focused on returns
- Under‐served lot development market with lack of well‐capitalized and/or national participants
SIGNIFICANT GROWTH OPPORTUNITY
- Current lot supply provides roadmap for top‐line growth for coming years
- Opportunity for increased scale within existing markets and entrance into new markets
- Portfolio and platform expansion designed to increase returns and margins
INTENSE FOCUS ON RISK MITIGATION
- Short duration, fully‐entitled projects
- Phased development and largely discretionary cash spend
- Geographic diversification
- Maintain strong liquidity and conservative leverage with balance between debt and equity
HIGHLY STRATEGIC RELATIONSHIP WITH D.R. HORTON ENHANCES BUSINESS MODEL,
GROWTH AND RISK PROFILE
- Strategic alignment with and access to DHI network of markets, experienced team and business relationships
- Instills culture of manufacturing‐like approach and conservative operating strategy
- Significant built‐in demand for current and future lot deliveries
- De‐risks expansion of operating platform and entrance into new markets
- Enhanced access to capital markets
4
EXECUTING ON OUR PLANS
Fiscal 2019
Lots delivered
Revenues
Pre-tax profit margin
Capital markets
Investment in land
GUIDANCE(1)
4,000
$300M to $350M
Mid-single digit
Opportunistically
access capital markets
ACTUAL
- 4,132
- $428M
- 11%
- $350M debut bond offering
- ~$100M equity offering
acquisition and
development
Fiscal 2020-2021
Guidance(2)
More than $800M | $850M |
- Fiscal 2020: Expect to deliver 10,000 lots and generate $800M - $850M of revenue with a mid-to-high single digit pre-tax profit margin
- Fiscal 2021: Expect to deliver 12,000 lots and generate approximately $1B of revenue with a pre-tax profit margin of ~10%
(1) | As outlined on the Company's December 2018 investor call | 5 |
(2) | As outlined on the Company's Q1 FY 2020 conference call on 1/23/20 |
FORESTAR INVESTMENT HIGHLIGHTS
Unique Returns‐ | Strategic Relationship | Geographic | ||||
Focused Lot | With D.R. Horton | Significant Growth | ||||
Diversification and | ||||||
Manufacturing | Supports Ability to Scale | Trajectory | ||||
Growing Footprint | ||||||
Business Model | and De‐Risks Expansion | |||||
Homebuilders' | Proven / Seasoned | |||||
Primary Focus on | Management Team | Strong Balance | ||||
Increasing Preference | ||||||
Attractive Entry‐ | With Decades of | Sheet and Liquidity | ||||
for Lots Developed by | ||||||
Level Segment | Real Estate | Position | ||||
3rd Parties | ||||||
Experience | ||||||
6
UNIQUE LOT MANUFACTURER BUSINESS MODEL
FOR's unique lot manufacturing model is highly differentiated from that of a typical land developer
- Business model designed to achieve scale and consistency, while minimizing risk
- At scale, FOR's high turnover, lower risk "lot manufacturing" strategy is expected to generate returns similar to an efficient, production‐oriented homebuilder
FORESTAR
- Short duration, fully‐entitled lot development projects
- Large scale with national footprint and in‐market depth
- Returns-focused,lower risk inventory model
- Consistent operating results at scale and currently profitable
- Understandable, growth-orientedbusiness model
- Strong liquidity and access to debt and equity capital
- Phased, discretionary land development with known buyer
TYPICAL LAND DEVELOPER
- Long‐term, often complex or unentitled, real estate projects
- Lack of geographic diversification and depth in markets
- Lower return, unpredictable inventory model
- Lack of consistent profitability
- Limited visibility into future growth
- Limited access to and high cost of capital
- Speculative land with undefined buyer
7
BUSINESS OVERVIEW
Forestar Capital Deployment and Cash Generation
Source land | Place land under | Close acquisition | Lot development | |||||||
acquisition | contract and complete | of entitled land | (~70% finished lot cost) | |||||||
opportunities | due diligence | (~30% finished lot cost) | ||||||||
• Forestar, D.R. | • Environmental, market, | • Initial Forestar capital | • | Phased development | ||||||
Horton and other | entitlement, planning, | commitment | • | Grading, roads, utilities | ||||||
national, regional | engineering and | and landscape / | ||||||||
and local 3rd party | permitting review | amenities | ||||||||
homebuilders | ||||||||||
ILLUSTRATIVE FORESTAR PROJECT | ||||||||||
Phase I development | Phase II development | Complete lot development | ||||||||
12 | 24 | 36 | 42 | |||||||
months | months | months | months | |||||||
Close on | Achieve first | Recovery of Initial | Complete |
acquisition of | lot sales | Cash Investment (2) | lot sales |
entitled land | (Phase I) |
Deliver finished lots to builders
- D.R. Horton as well as other national, regional and local 3rd party builders
Underwriting
Criteria
- >15% Return on Inventory (1)
- <36 month return of initial investment
(1) | Return on inventory is calculated as pre‐tax income divided by average inventory over the life of a project | 8 |
(2) | Includes land purchase price and development costs for first phase of lots |
INVESTMENT PORTFOLIO
LOT
DEVELOPMENT
PROJECTS
SHORT-TERM LOT BANKING PROJECTS
- Shorter duration, phased developments with lower market risk
- Includes projects sourced by either DHI or FOR to sell lots to both DHI and other builders
- Minimum annual returns on inventory of 15%(1)
- Gross margin percentage varies with project duration and the extent of FOR's involvement in sourcing, pre‐acquisition entitlement work, development and other value creation activities
- Gross margin percentage range of 14% to 22% (expect most projects to be at lower end of range during FY20)
- As FOR's development portfolio and operating platform matures over the next several years, lot development returns and margins are expected to increase
- Short‐term investments of available capital prior to deployment into new development projects, primarily with DHI
- Level of lot banking managed relative to short term liquidity and expected future cash requirements of lot development investments
- Annual returns on inventory of 12% to 16%(1)
- Gross margin percentage range of 3% to 9% based on current average portfolio duration
- Expected to be roughly 1/3 of lot deliveries in FY20 and will likely decline as a percentage of the portfolio mix over time as FOR's development platform expands
(1) Return on inventory is calculated as pre‐tax income divided by average inventory over the life of a project
9
BENEFITS OF HIGHLY STRATEGIC FOR AND DHI ALIGNMENT
BENEFITS TO FOR
- Enhanced, experienced leadership team
- Supports ability to scale to national platform
- Significant built‐in demand for lots
- Improved access to capital markets
- Shared Services from DHI
STRONG AND
SYMBIOTIC STRATEGIC
RELATIONSHIP
BENEFITS TO DHI
- Long‐term consistent supplier of finished lots across DHI's national footprint (90 markets in 29 states)
- Integral component of DHI's operational strategy
- Participate in value creation of FOR
Alignment with DHI, the nation's largest builder since 2002, supports FOR's transformation into a national, well-capitalized lot manufacturer
- DHI's annual purchases of finished lots through market cycles significantly exceed FOR's near‐term growth plans
- DHI is committed to owning no more than a 2 to 3‐year supply of lots and to increasing its mix of optioned lots in inventory
- Most land developers lack the scale and access to capital to be consistent suppliers of lots to DHI across its national footprint
- Master Supply, Stockholder and Shared Services Agreements formalize the business relationship and protect FOR's interests(1)
- DHI plans to maintain a significant ownership position in FOR over the long‐term
Relationship with DHI further strengthens FOR's competitive advantages and DHI's interests are
fully-aligned with shareholders to ensure the profitable expansion of FOR's platform
(1) MSA, Stockholder's Agreement and Shared Services Agreement summaries included in Appendix
10
SIGNIFICANT AND SUSTAINABLE GROWTH THROUGH NUMEROUS LEVERS
Built-in growth from
DHI relationship
Expand relationships with
3rd party homebuilders
Increase scale in existing markets
Expand into new markets
Efficiently leverage overhead
Opportunistic consolidation
- In FY 2019, FOR sold DHI 3,728 lots or ~7% of DHI's 56,975 closings
- 12,700 of FOR's owned lots at 12/31/19 are under contract to sell to DHI, representing ~$1 billion of future revenue
- Over time, DHI may source more than 30% of its lots from FOR
- FOR sold finished lots to 12 different homebuilders in fiscal year 2019 and 7 different homebuilders in Q1 2020
- As FOR builds out its infrastructure, capacity to work with other builders will increase
- FOR currently operates in some of the largest homebuilding markets in the country
- As FOR gains scale and develops its own team in its existing markets, the Company will source more deals independently, which is expected to improve pre‐tax profit margins and returns
- 39 markets in which DHI has a presence but FOR does not at 12/31/19
- As FOR expands into new markets, it leverages DHI's infrastructure to generate a revenue stream before incurring incremental costs
- Over time, FOR should operate with lower overhead expenses than a typical homebuilder given the wholesale nature of its business without the need for an extensive retail sales force and less reliance on labor / trades
- Consolidation opportunities in the highly fragmented lot development industry (similar to the homebuilder industry in the 1990s)
11
LAND AND DEVELOPMENT INVESTMENTS
Investing in land acquisition and development to support significant expected growth in lot deliveries
Quarter Ended
$221 | $236 | |||||
$57 | $114 | |||||
$64 | $164 | |||||
$17 | $122 | |||||
$47 | ||||||
12/31/2017 | 12/31/2018 | 12/31/2019 | ||||
Land Acquisition | Land Development | |||||
FY 2018 - FY 2020
~$1,000
$850
$480
FY18(1) | FY19 | FY20e(2) |
$ in millions | ||
(1) | Effective 1/1/18, FOR changed its fiscal year‐end from 12/31 to 9/30; as presented, FY18 reflects the trailing twelve months ended 9/30/18 | 12 |
(2) | FY20 expectations as outlined on the Company's Q1 FY20 earnings conference call |
SIGNIFICANT NEAR-TERM GROWTH
- Expect 8x two-year increase in deliveries to 10,000 lots by FY20 and to generate $800M to $850M of revenue
- Expect a mid- to high-single digit pre-tax profit margin percentage (PTI%) in FY20, with significant quarterly fluctuations, and ~10% PTI% for the full year of FY21
Lot Deliveries | Revenue | |
12,000
$900 - $1,000
10,000 | $800 - $850 |
4,132 | $428 | |||||||
1,279 | $109 | |||||||
FY 2018(1) | FY 2019 | FY 2020e | FY2021e | |||||
FY 2018(1) | FY 2019 | FY 2020e | FY 2021e | |||||
$ in millions | |
(1) Effective 1/1/18, FOR changed its fiscal year‐end from 12/31 to 9/30; as presented, FY 2018 reflects the trailing twelve months ended 9/30/18 | 13 |
and excludes lots sold to unconsolidated ventures |
DIVERSIFIED AND GROWING FOOTPRINT
Own and control 44,500 lots at 12/31/19
80% of owned lots are under contract to sell or subject to a right of first offer to DHI
Expect to own a 3 to 4 year lot inventory
12/31/19
51 Markets
20 States
12/31/18
35 Markets
16 States
-
Current FOR markets / states
DHI states where FOR does not currently operate
FOR division offices open as of 1/17/20
Lot Position by State and Markets as of 12/31/19
Lot counts are approximate14 Of total lot position at 12/31/19, 32,200 are owned and 12,300 are controlled through purchase contracts
PRIMARY FOCUS ON ATTRACTIVE ENTRY-LEVEL SEGMENT
- Majority of recent Forestar investments have been focused on lots for homes at affordable / entry‐level price points
- Average Forestar residential lot sale price for the TTM ended 12/31/19 was ~$87,500(1)
- Compelling demand from entry‐level buyers, but lack of inventory has been a constraint
- D.R. Horton offers homes at all price points, with entry‐level / first‐time buyers representing a majority of closings
- Entry‐level Express Homes brand has increased from 5% of DHI closings in fiscal 2014 to 35% of closings in fiscal 2019
- Public homebuilders have shifted towards entry‐ level, with the establishment of numerous entry‐ level brands over past five years
Source: Company filings, Census, John Burns Real Estate Consulting
- Excludes any impact from change in contract liabilities
- Based on rolling twelve month average of homes sold as of October 2019
- Based on homes closed in TTM ended 12/31/19
- Based on fiscal year‐end closings
$200k ‐ $300k homes average sales price (ASP) represents the largest cohort of homes sold by D.R. Horton and the broader housing market
17% | 7%5% | |||||||
13% | 45% | 20% | ||||||
68% | ||||||||
25% | ||||||||
Industry(2) | D.R. Horton(3) | |||||||
Homes ASP: | <$300k | $300k ‐ $400k | $400k ‐ $500k | $500k+ | ||||
D.R. Horton's Express Homes brand is a top 5 homebuilder by volume today(4)
20,000
15,000
10,000
5,000
0
2015 | 2016 | 2017 | 2018 | 2019 |
15
BUILDERS' PREFERENCE FOR 'LAND LIGHTER' STRATEGY ENHANCES OPPORTUNITY
As homebuilders increase their optioned land and shorten their owned land positions to improve returns, FOR is uniquely positioned to capitalize on residential lot development opportunities
Optioned Land/Lot Position as a | Number of Years of Owned Land | ||||||||||
% of Total Owned & Controlled | Based on TTM Closings | ||||||||||
60% | 4.6 | ||||||||||
57% | 4.0 | ||||||||||
50% | 3.2 | 3.5 | 3.4 | 3.6 | |||||||
45% | |||||||||||
36% | 39% | 37% | 2.8 | 2.7 | |||||||
32% | 30% | 32% | 2.4 | 2.1 | |||||||
DHI ‐ HB segment | Average Public HB | DHI ‐ HB segment | Average Public HB | |||||||||||||||
9/30/2015 | 9/30/2016 | 9/30/2017 | 9/30/2018 | 9/30/2019 | 9/30/2015 | 9/30/2016 | 9/30/2017 | 9/30/2018 | 9/30/2019 | |||||||||
Source: FactSet and respective Company SEC filings | |
Notes: Average Public Homebuilder (HB) data represents the land and lot positions of LEN, PHM, TOL, NVR, MTH, MDC, TMHC, TPH, LGIH and KBH | |
For LEN and KBH, data is as of the periods ended August 31 | 16 |
For TOL, data is as of the periods ended October 31 |
SEASONED LEADERS WITH DECADES OF LAND DEVELOPMENT EXPERIENCE
Management team has ability to scale FOR and replicate DHI's success
DON TOMNITZ | DAN BARTOK |
Executive Chairman | CEO |
Formerly President & CEO of DHI for | Joined FOR in December 2017; |
over a decade and joined FOR in | formerly EVP of Owned Real Estate |
October 2017 | for Wells Fargo, with 40 years |
experience in homebuilding & land | |
development industry | |
TOM BURLESON | MARK WALKER | NICOLAS APARICIO | IAN CUDE |
West Region President | East Region President | Florida Region President | South Central Region President |
With FOR since 2003 and | With DHI since 2012 and | With DHI since 2011 and | With DHI since 2012 and |
has over 25 years of real | joined FOR in February 2019 with | joined FOR in December 2018 with | joined FOR in November 2019 with |
estate experience | 18 years of real estate experience | 20 years of real estate experience | 22 years of real estate experience |
Dates with FOR include time with predecessor entities prior to 2008 when FOR became a standalone public company | 17 |
FINANCIAL POSITION AND POLICY
In September 2019, Forestar further strengthened its financial position by issuing 6.04M shares of common stock for net proceeds of $100.7M
FINANCIAL POSITION AS OF 12/31/19
- $373M unrestricted cash and cash equivalents
- $380M 3‐year unsecured revolving credit facility
- ~$720M total liquidity(1)
- $119M convertible notes due 2020
- $350M 8.0% senior notes due 2024
- $826M stockholders' equity
- 9.7% net debt to total capital(2)
DISCIPLINED FINANCIAL POLICY
- Strict lot development investment underwriting:
- ≥ 15% return on inventory (ROI)(3)
- ≤ 36-month cash recovery of phase 1 investment
- Net debt to capital(2) of ≤ 40%
- Maintain strong liquidity
- Balanced financing plan including both debt and equity
(1) | Liquidity defined as unrestricted cash balance plus revolving credit facility availability as governed by the borrowing base | |
(2) | Net debt to capital is calculated as debt net of unrestricted cash divided by debt net of unrestricted cash plus stockholders' equity | 18 |
(3) | ROI is calculated as pre‐tax income divided by average inventory over the life of a project |
Q1 FY 2020 AND FY 2019 HIGHLIGHTS
- Operating highlights
- Residential lots sold increased 368% to 2,422 lots compared to 518 lots in the same quarter of fiscal 2019
- 44,500 lots at 12/31/19, of which 32,200 were owned and 12,300 were controlled through purchase contracts
- 25,600, or 80%, of owned lots were under contract to sell or subject to a right of first offer to D.R. Horton
Financial highlights
Three months ended 12/31/19 | Fiscal year ended 9/30/19 | |
$247M | 542% | $428M | 292% |
Revenues | YoY Revenue Growth | Revenues | YoY Revenue Growth |
$11M | 4% | $29M | 7% |
SG&A Expense | SG&A Margin | SG&A Expense | SG&A Margin |
$22M | 9% | $46M | 11% |
Pre-Tax Income | Pre-Tax Margin | Pre-Tax Income | Pre-Tax Margin |
$17M | $0.35 | $33M | $0.79 |
Net Income | Net Income per Share | Net Income | Net Income per Share |
19
FORESTAR INVESTMENT HIGHLIGHTS
Unique Returns‐ | Strategic Relationship | Geographic | ||||
Focused Lot | With D.R. Horton | Significant Growth | ||||
Diversification and | ||||||
Manufacturing | Supports Ability to Scale | Trajectory | ||||
Growing Footprint | ||||||
Business Model | and De‐Risks Expansion | |||||
Homebuilders' | Proven / Seasoned | |||||
Primary Focus on | Management Team | Strong Balance | ||||
Increasing Preference | ||||||
Attractive Entry‐ | With Decades of | Sheet and Liquidity | ||||
for Lots Developed by | ||||||
Level Segment | Real Estate | Position | ||||
3rd Parties | ||||||
Experience | ||||||
20
APPENDIX
21
SOLID LONG-TERM INDUSTRY FUNDAMENTALS
Long-term housing industry fundamentals remain solid
- Limited supply of homes at affordable price points
- Unemployment rate near or at record lows for almost all groups of Americans
- Hourly wages growing
- Interest rates remain near historic lows
- Favorable demographics
- High consumer confidence
SURPLUS / (DEFICIT) TO HISTORIC AVERAGE HOUSING STARTS (mm)(1)
From 1999 - 2006, Housing Starts surpassed the | Long‐term (1959‐2018) Average Housing Starts: 1.4mm | |||||||||||||||||||||
2.5 | long-term average, generating a supply surplus | |||||||||||||||||||||
New Privately Owned Annual Housing Starts | ||||||||||||||||||||||
2.0 | Annual Deficit to LT Average Housing Starts | |||||||||||||||||||||
1.5 | ||||||||||||||||||||||
1.0 | 1.6 | 1.6 | 1.6 | 1.7 | 1.8 | 2.0 | 2.1 | 1.8 | 1.3 | 1.2 | 1.3 | 1.3 | ||||||||||
0.5 | 1.4 | 0.9 | 0.9 | 1.0 | 1.1 | 1.2 | 1.2 | |||||||||||||||
0.6 | 0.6 | 0.8 | ||||||||||||||||||||
0.6 |
‐
'99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19E '20E '21E
Since 2007, Housing Starts have fallen short of the long-term average, generating a supply deficit.
That deficit is expected to increase in the near-term to ~3mm starts
HISTORIC UNEMPLOYMENT RATES(2) | HISTORIC MORTGAGE RATES(2) |
10.0% | 10.0% | ||||||||
5.0% | 5.9% | 5.0% | 5.2% | ||||||
3.5% | 3.7% | ||||||||
‐ | ‐ | ||||||||
1999 | 2004 | 2009 | 2014 | 2019 | 1999 | 2004 | 2009 | 2014 | 2019 |
Unemployment Rate | |||||||||
30 Year Conventional Mortgage | |||||||||
20‐year Average | |||||||||
20‐year Average | |||||||||
Source: Federal Reserve Bank of St. Louis, Freddie Mac, National Association of Realtors, NAHB, U.S. Census Bureau | ||
Notes: Unemployment and mortgage rate data as of December 2019 | ||
(1) | 2019e ‐ 2021e starts are based on annual estimates from the NAHB | 22 |
(2) | Represent monthly rates |
DHI GROWTH, CONSOLIDATION AND MARKET SHARE GAINS PROVIDE ROADMAP FOR FORESTAR
Total U.S. Single‐Family New Home Sales ('000s) | DHI Closings as a Percentage of U.S. | |
1,400 | Single‐Family New Home Sales | 10% |
9% | ||
1,200 | ||
8% | ||
1,000 | 7% | |
800 | 6% | |
5% | ||
600 | 4% | |
400 | 3% | |
2% | ||
200 | ||
1% | ||
0 | 0% |
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Source: Company filings, Census | 23 |
Note: Periods represent full calendar year | |
INCOME STATEMENT
FISCAL YEAR | 12 MONTHS | |||||||||||
3 MONTHS ENDED | ENDED | ENDED | ||||||||||
12/31/2019 | 12/31/2018 | 9/30/2019 | 9/30/2018 | |||||||||
Residential lots sold: | 2,422 | 518 | 4,132 | 1,279 | ||||||||
Development projects | 1,406 | 462 | 2,610 | 1,190 | ||||||||
Lot banking projects | 1,016 | 56 | 1,522 | 89 | ||||||||
Average sales price per lot(1) | $ | 90,300 | $ | 74,000 | $ | 84,200 | $ | 77,800 | ||||
Revenues(2) | $ | 247.2 | $ | 38.5 | $ | 428.3 | $ | 109.2 | ||||
Gross profit | 30.6 | 7.8 | 65.6 | 37.1 | ||||||||
Selling, general and administrative expense | 10.5 | 5.7 | 28.9 | 43.5 | ||||||||
Loss (gain) on sale of assets | 0.1 | (0.9) | (3.0) | (27.8) | ||||||||
Equity in earnings of unconsolidated ventures | (0.5) | (0.6) | (0.5) | (11.8) | ||||||||
Interest and other (income) expense | (1.7) | (1.3) | (5.5) | (1.2) | ||||||||
Income from continuing operations before taxes | 22.2 | 4.9 | 45.7 | 34.4 | ||||||||
Income tax expense (benefit) | 5.4 | 1.0 | 9.4 | (12.8) | ||||||||
Net income from continuing operations | 16.8 | 3.9 | 36.3 | 47.2 | ||||||||
Income from discontinued operations, net of taxes | ‐ | ‐ | ‐ | 7.2 | ||||||||
Net income (loss) attributable to noncontrolling interests | (0.1) | 0.6 | 3.3 | 3.2 | ||||||||
Net income attributable to Forestar Group Inc. | $ | 16.9 | $ | 3.3 | $ | 33.0 | $ | 51.2 | ||||
Net income per diluted share | $ | 0.35 | $ | 0.08 | $ | 0.79 | $ | 1.22 | ||||
- in millions except per share data Unaudited
(1) | Excludes any impact from change in contract liabilities or deferred revenue | |
(2) | Revenues include $30.1 million and $3.8 million in tract sales and other revenue for three months ended December 31, 2019 and 2018, respectively, | 24 |
and $76.6 million and $6.3 million in tract sales and other revenue for the fiscal year and twelve months ended September 30, 2019 and 2018, | ||
respectively.
BALANCE SHEET
12/31/2019 | 9/30/2019 | 12/31/2018 | |||||
Cash and cash equivalents(1) | $ | 373.3 | $ | 382.8 | $ | 170.3 | |
Real estate | 1,066.8 | 1,028.9 | 693.2 | ||||
Investment in unconsolidated ventures | 5.9 | 7.3 | 7.4 | ||||
Other assets | 22.1 | 19.3 | 22.3 | ||||
Deferred income taxes, net | 11.8 | 17.4 | 25.5 | ||||
Total assets | $ | 1,479.9 | $ | 1,455.7 | $ | 918.7 | |
Debt | $ | 462.1 | $ | 460.5 | $ | 112.9 | |
Earnest money deposits on sales contracts | 89.7 | 89.9 | 68.2 | ||||
Other liabilities | 102.5 | 96.4 | 59.6 | ||||
Shareholders' equity | 825.5 | 808.3 | 676.7 | ||||
Noncontrolling interests | 0.1 | 0.6 | 1.3 | ||||
Total equity | 825.6 | 808.9 | 678.0 | ||||
Total liabilities and equity | $ | 1,479.9 | $ | 1,455.7 | $ | 918.7 | |
Net debt to total capital(2) | 9.7% | 8.8% | ‐6.5% | ||||
Debt to total capital(2) | 35.9% | 36.3% | 14.3% |
$ in millions except per share data | |
Unaudited | |
(1) Cash and cash equivalents presented above includes $0, $0, and $16.1 million of restricted cash for the periods ended 12/31/19, 9/30/19 and 12/31/18, | |
respectively. | |
(2) Debt to capital is calculated as debt divided by stockholders' equity plus debt; net debt to capital is calculated as debt net of unrestricted cash divided | 25 |
by debt net of unrestricted cash plus stockholders' equity | |
ILLUSTRATIVE FORESTAR PROJECT CASH FLOWS & RETURN
Project Cash Flows
60 Lot Sales | 120 Lot Sales | 120 Lot Sales | 50 Lot Sales | ||||||
$10.0 | $9.4 | $8.1 | |||||||
$5.4 | $3.4 | ||||||||
millions | $0.0 | ||||||||
($4.0) | ($3.0) | ($0.1) | |||||||
in | ‐$10.0 | ||||||||
$ | |||||||||
‐$20.0 | ($15.0) | ||||||||
Year 1 | Year 2 | Year 3 | Year 4 | ||||||
Cash Outflow(1) | Cash Inflow (2) | ||||||||
Project Inventory and Returns
$15.0 | 34% | 40% | ||||
35% | ||||||
$11.2 | ||||||
millions | 30% | |||||
$10.0 | ||||||
$7.6 | 21% | 25% | ||||
20% | ||||||
in | ||||||
15% | ||||||
$ | $5.0 | 15% | ||||
$3.0 | ||||||
7% | 10% | |||||
$0.0 | 5% | |||||
$0.0 | 0% | |||||
Year 1 | Year 2 | Year 3 | Year 4 | |||
Inventory at Period End | Annual Return on Average Inventory (4) |
Note: For illustrative purposes only; projects can have a wide range of cash flows and returns
- Cash outflows include land acquisition and development spend and direct project overhead
- Cash inflows include lot sales and impact of earnest money
- Defined as the number of months required to recover Forestar's initial cash investment, including (i) land acquisition costs and (ii) development spend required to deliver the first phase of the project
- Represents annual return except for year 4, which represents partial year return through the end of the project
Project Metrics
Size & Duration:
- Project Size: 350 lots
- Project Life: 42 months
- Development Phasing: 2 phases
- Lot Sale Takedown Schedule: 6 lot sale dates per phase
Cash Flows & Inventory:
- Lot Sale Revenues: $26.3M ($75,000 per lot)
- Land Acquisition Cost: $6.3M ($18,000 per lot)
- Development Spend: $14.7M ($42,000 per lot)
- 1st Phase Development: $8.5M
- Net Cash Flow: $4.2M
- Average Monthly Inventory: $7.9M
Project Metrics:
- Gross Margin: 20.0%
- Return on Average Inventory: 15.0%
- Initial Cash Recovery(3): ~27 months
26
ILLUSTRATIVE HOMEBUILDER VS. LOT
MANUFACTURER PROJECT ECONOMICS
Entitled Land | Lot Development | Finished Lot | Home Construction | Commissions & Other | Margin | ||||
ASP: $300,000ASP: $300,000
$72,000 | $57,000 | |
$18,000 | ||
$18,000 | ||
$150,000
$150,000
ASP: $75,000 | |||||||
$15,000 | |||||||
$42,000 | $75,000 | $42,000 | |||||
$18,000 | $18,000 | ||||||
Homebuilder ‐ Self Developed Lots | Homebuilder ‐ Optioned Finished Lots | Lot Manufacturer |
Note: For illustrative purposes only; projects can have a wide range of economics | 27 |
FOR & DHI RELATIONSHIP OVERVIEW
Stockholder's
Agreement
Capital Markets
Supports growth by providing
public debt and equity
LAND SOURCING AND LOT SALES STRUCTURE PER THE MSA(1)
Project sourced by | DHI Right of First Offer (ROFO) Structure |
• ROFO on 100% of lots | |
• ROFO on 50% of lots in 1st phase | |
• ROFO on 50% of lots in any subsequent phase, in which | |
DHI purchased 25%+ of lots in previous phase | |
3rd Party Homebuilder | • No DHI ROFO on lots |
Shared Services
Agreement
DHI holds majority stake of ~65% in FOR
as of 12/31/19
Master Supply
Agreement ("MSA")
(1) Lots are sold to DHI and other builders at market pricing | 28 |
MASTER SUPPLY AGREEMENT (MSA)
- Establishes business relationship between DHI and FOR as both companies identify residential real estate opportunities
- Provides DHI the right of first offer (ROFO) to purchase up to 100% of the lots from DHI sourced projects at market prices
- Provides DHI the ROFO to purchase up to 50% of the lots in the first phase of a Forestar sourced project and 50% of the lots in any subsequent phase in which DHI purchases at least 25% of the lots in the previous phase
- DHI has no ROFO rights on third‐party builder sourced development opportunities provided to FOR
- Continues until the earlier of (i) the date which DHI owns less than 15% of voting shares of FOR or (ii) June 29, 2037; however, FOR may terminate the MSA at any time when DHI owns less than 25% of the voting stock of Forestar
29
STOCKHOLDER'S AGREEMENT
- DHI has the right to nominate FOR's board members commensurate with DHI's equity ownership
- DHI nominated four of FOR's five board members
- FOR Board of Directors must include at least three independent directors (currently has four)
- Established an investment committee to approve new lot development and banking projects
- As long as DHI owns at least 35% of FOR's outstanding voting shares, FOR must obtain DHI consent in order to:
- Issue equity
- Incur, assume, refinance or guarantee debt that would increase FOR's gross leverage to greater than 40%
- Select, terminate, remove or change compensation arrangements for the Executive Chairman, CEO, CFO and other key senior management
- Make an acquisition or investment greater than $20 million
- As long as DHI owns at least 20% of FOR's outstanding equity:
- DHI has the right to designate individuals to FOR's Board based on DHI's ownership percentage
- DHI has the right to designate the Executive Chairman of FOR
30
SHARED SERVICES AGREEMENT
- Shared Services Agreement between FOR and DHI defines the terms under which DHI may provide administrative, compliance, operational and procurement services to FOR
- Scope and cost of services provided to FOR are mutually agreed upon by FOR and DHI management teams and are adjusted periodically as necessary
- Services provided currently include:
- Accounting, Finance and Treasury
- Tax
- Human Resources, Payroll and Benefits
- Legal: Securities, Corporate Governance, Litigation and Risk Management
- Internal Audit
- Information Technology
- Investor and Public Relations
- FOR also contracts with DHI for lot development services in projects owned by FOR in geographic markets where FOR has not yet established development teams and capabilities
- FOR pays DHI a fixed fee for each lot developed, which is mutually agreed upon for each project
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Forestar Group Inc. published this content on 23 January 2020 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 23 January 2020 22:39:09 UTC