Forestar Group Inc.

Previous wording

Forestar Group Inc. is a national, well-capitalized residential lot development company focused primarily on making investments in land acquisition and development to sell finished single-family residential lots to homebuilders. Our common stock is listed on the New York Stock Exchange (NYSE) under the ticker symbol "FOR." The terms "Forestar," the "Company," "we" and "our" used herein refer to Forestar Group Inc., a Delaware corporation, and its predecessors and subsidiaries.

Current wording

Forestar Group Inc. is a national, well-capitalized residential lot development company focused primarily on making investments in land acquisition and development to sell finished single-family residential lots to homebuilders. Our common stock is listed on the New York Stock Exchange under the ticker symbol "FOR." The terms "Forestar," the "Company," "we" and "our" used herein refer to Forestar Group Inc., a Delaware corporation, and its predecessors and subsidiaries.

Previous wording

Our real estate segment conducts a wide range of project planning and management activities related to the entitlement, acquisition, community development and sale of residential lots. We generally secure entitlements while the land is under contract by creating plans that meet the needs of the markets where we operate, and we aim to have all entitlements secured before closing on the investment. Moving land through the entitlement and development process creates significant value. We primarily invest in entitled short-duration projects that can be developed in phases, enabling us to complete and sell lots at a pace that matches market demand, consistent with our focus on maximizing capital efficiency and returns. We occasionally make short-term strategic investments in finished lots (lot banking) and undeveloped land (land banking) with the intent to sell these assets within a short time period to utilize available capital prior to its deployment into longer-term lot development projects. For the three months ended December 31, 2024, we sold 2,333 lots with an average sales price of $105,500. At December 31, 2024, our lot position consisted of 106,000 residential lots, of which approximately 68,300 were owned and 37,700 were controlled through purchase contracts. Of our 68,300 owned lots, approximately 25,200 lots are under contract to be sold for an aggregate remaining sales price of approximately $2.2 billion.

Current wording

Our real estate segment conducts a wide range of project planning and management activities related to the entitlement, acquisition, community development and sale of residential lots. We generally secure entitlements while the land is under contract by creating plans that meet the needs of the markets where we operate, and we aim to have all entitlements secured before closing on the investment. Moving land through the entitlement and development process creates significant value. We primarily invest in entitled short-duration projects that can be developed in phases, enabling us to complete and sell lots at a pace that matches market demand, consistent with our focus on maximizing capital efficiency and returns. We occasionally make short-term strategic investments in finished lots (lot banking) and undeveloped land (land banking) with the intent to sell these assets within a short time period to utilize available capital prior to its deployment into longer-term lot development projects. For the six months ended March 31, 2025, we sold 5,744 lots with an average sales price of 103,200. At March 31, 2025, our lot position consisted of 105,900 residential lots, of which approximately 68,400 were owned and 37,500 were controlled through purchase contracts. Of our 68,400 owned lots, approximately 25,400 lots are under contract to be sold for an aggregate remaining sales price of approximately $2.3 billion.

Previous wording

We have expanded and diversified our lot development operations across 62 markets in 24 states by investing available capital into our existing markets and by entering new markets. We believe our geographically diverse operations provide a strong platform for us to consolidate market share in the highly fragmented lot development industry. We also believe our geographic diversification lowers our operational risks and enhances our earnings potential by mitigating the effects of local and regional economic cycles.

Current wording

We have expanded and diversified our lot development operations across 65 markets in 24 states by investing available capital into our existing markets and by entering new markets. We believe our geographically diverse operations provide a strong platform for us to consolidate market share in the highly fragmented lot development industry. We also believe our geographic diversification lowers our operational risks and enhances our earnings potential by mitigating the effects of local and regional economic cycles.

Previous wording

In the three months ended December 31, 2024, total lots closed and total residential lot sales revenue decreased 26% and 19%, respectively, compared to the prior year period primarily due to builders moderating their pace of new home starts to better match current market conditions and sell through existing inventories. Although the level of new and existing home inventories has increased from historically low levels, the supply of homes at affordable price points generally remains limited, and demographics supporting housing demand remain favorable, despite continued affordability challenges. Mortgage rate buy down incentives offered by builders have helped to address affordability and spur demand. Our ongoing focus is primarily to develop lots for homes at affordable price points. While disruptions in the supply chain for certain construction materials and tightness in the labor market have largely subsided, municipality delays are still extending development cycle times, and development costs remain elevated. We attempt to offset cost increases in one component with savings in another, and we increase our land and lot sales prices when market conditions permit. However, if market conditions are challenging, we may have to reduce selling prices or may not be able to offset cost increases with higher selling prices.

Current wording

In the six months ended March 31, 2025, total lots sold and total residential lot sales revenue decreased 11% and 6%, respectively, compared to the prior year period primarily due to builders moderating their pace of new home starts to better match current market conditions and sell through existing inventories. The 2025 spring selling season has begun, and the new home demand has been slower than expected due to uncertainty among potential homebuyers caused by continued affordability constraints, elevated mortgage interest rates and declining consumer confidence. Despite current market conditions, total lots sold and total residential lot sales revenue in the three months ended March 31, 2025 increased 4% and 6%, respectively, compared to the prior year period. Mortgage rate buy down incentives offered by homebuilders have helped to address affordability and spur demand. Our ongoing focus is primarily to develop lots for homes at affordable price points. While disruptions in the supply chain for certain construction materials and tightness in the labor market have largely subsided, municipality delays are still extending development cycle times, and development costs remain elevated. We attempt to offset cost increases in one component with savings in another, and we increase our land and lot sales prices when market conditions permit. However, if market conditions are challenging, we may have to reduce selling prices or may not be able to offset cost increases with higher selling prices.

Previous wording

We believe we are well-positioned to consolidate market share in the highly fragmented lot development industry because of our low net leverage and strong liquidity position, low overhead model, geographically diverse lot portfolio that is focused on affordable price points and strategic relationship with D.R. Horton. We plan to remain disciplined when investing in land opportunities and to remain focused on managing our lot sales pace and lot pricing at each community to optimize the return on our investments.

Current wording

We believe we are well-positioned to consolidate market share in the highly fragmented lot development industry because of our national footprint and strong local teams, our low net leverage and strong liquidity position, lower overhead model, geographically diverse lot portfolio that is focused on affordable price points and strategic relationship with D.R. Horton. We plan to remain disciplined when investing in land opportunities and to remain focused on managing our lot sales pace and lot pricing at each community to optimize the return on our investments.

Previous wording

The following tables and related discussion set forth key operating and financial data as of and for the three months ended December 31, 2024 and 2023.

Current wording

The following tables and related discussion set forth key operating and financial data as of and for the three and six months ended March 31, 2025 and 2024.

Previous wording

Residential lots sold and residential lot sales revenues in the three months ended December 31, 2024 decreased compared to the prior year period primarily due to builders moderating their pace of new home starts to better match current market conditions and sell through existing inventories.

Current wording

Residential lots sold and residential lot sales revenues in the three months ended March 31, 2025 increased compared to the prior year period primarily due to an increase in lot sales to customers other than D.R. Horton. Residential lots sold and residential lot sales revenues in the six months ended March 31, 2025 decreased compared to the prior year period primarily due to builders moderating their pace of new home starts to better match current market conditions and sell through their existing inventories.

Previous wording

Lots sold to customers other than D.R. Horton in the three months ended December 31, 2023 included 124 lots that were sold for $15.1 million to a lot banker who expects to sell those lots to D.R. Horton at a future date.

Current wording

Lots sold to customers other than D.R. Horton in the three and six months ended March 31, 2025 included 362 lots that were sold for $18.8 million to a lot banker who expects to sell those lots to D.R. Horton at a future date. Lots sold to customers other than D.R. Horton in the six months ended March 31, 2024 included 124 lots that were sold for $15.1 million to a lot banker who expects to sell those lots to D.R. Horton at a future date.

Previous wording

Cost of sales in the three months ended December 31, 2024 decreased compared to the prior year period primarily due to the decrease in the number of lots sold.

Current wording

Cost of sales in the three months ended March 31, 2025 increased compared to the prior year period primarily due to the increase in the number of lots sold and cost of sales in the six months ended March 31, 2025 decreased compared to the prior year period primarily as a result of the decrease in the number of lots sold.

Previous wording

Each quarter, we review the performance and outlook for all of our real estate for indicators of potential impairment and perform detailed impairment evaluations and analyses when necessary. As a result of this process, no impairment charges were recorded in the three months ended December 31, 2024 and 2023. In the three months ended December 31, 2024, land purchase contract deposit and pre-acquisition cost write-offs related to land purchase contracts that we have terminated or expect to terminate were $1.1 million compared to $0.2 million in the prior year period.

Current wording

Each quarter, we review the performance and outlook for all of our real estate for indicators of potential impairment and perform detailed impairment evaluations and analyses when necessary. As a result of this process, no impairment charges were recorded in the three and six months ended March 31, 2025 and 2024. In the three and six months ended March 31, 2025, land purchase contract deposit and pre-acquisition cost write-offs related to land purchase contracts that we have terminated or expect to terminate were $0.9 million and $2.0 million, respectively, compared to $0.2 million and $0.4 million in the prior year periods.

Previous wording

We capitalize interest costs throughout the development period (active real estate). Capitalized interest is charged to cost of sales as the related real estate is sold to the buyer. Interest incurred was $8.3 million in the three months ended December 31, 2024 compared to $8.1 million in the prior year period. Interest charged to cost of sales in the three months ended December 31, 2024 was 1.8% of total cost of sales (excluding impairments and land option charges) compared to 2.6% in the prior year period.

Current wording

We capitalize interest costs throughout the development period (active real estate). Capitalized interest is charged to cost of sales as the related real estate is sold to the buyer. Interest incurred was $10.6 million and $18.8 million in the three and six months ended March 31, 2025 compared to $8.2 million and $16.3 million in the prior year periods. Interest charged to cost of sales in the three and six months ended March 31, 2025 was 2.4% and 2.1% of total cost of sales (excluding impairments and land option charges) compared to 2.6% for both the prior year periods.

Previous wording

SG&A expense in the three months ended December 31, 2024 was $36.0 million compared to $28.0 million in the prior year period. SG&A expense as a percentage of revenues was 14.4% in the three months ended December 31, 2024 compared to 9.2% in the prior year period. Our SG&A expense primarily consisted of employee compensation and related costs. Our business operations employed 427 and 329 employees at December 31, 2024 and 2023, respectively. We attempt to control our SG&A costs while ensuring that our infrastructure supports our operations; however, we cannot make assurances that we will be able to maintain or improve upon the current SG&A expense as a percentage of revenues.

Current wording

SG&A expense in the three and six months ended March 31, 2025 was $38.4 million and $74.3 million compared to $29.2 million and $57.2 million in the prior year periods. SG&A expense as a percentage of revenues was 10.9% and 12.4% in the three and six months ended March 31, 2025 compared to 8.7% and 8.9%in the prior year periods. Our SG&A expense primarily consisted of employee compensation and related costs. Our business operations employed 440 and 340 employees at March 31, 2025 and 2024, respectively. We attempt to control our SG&A costs while ensuring that our infrastructure supports our operations; however, we cannot make assurances that we will be able to maintain or improve upon the current SG&A expense as a percentage of revenues.

Previous wording

Income tax expense for the three months ended December 31, 2024 was $5.4 million compared to $13.0 million in the prior year period. Our effective tax rate was 24.7% for the three months ended December 31, 2024 compared to 25.4% in the prior year period. The effective tax rate for both periods included an expense for state income taxes and nondeductible expenses.

Current wording

Income tax expense for the three and six months ended March 31, 2025 was $9.1 million and $14.5 million compared to $13.9 million and $26.9 million in the prior year periods. Our effective tax rate was 22.4% and 23.2% for the three and six months ended March 31, 2025 compared to 23.6% and 24.4% in the prior year periods. The effective tax rate for all periods included an expense for state income taxes and nondeductible expenses and a benefit for stock-based compensation. The effective tax rate for the three and six months ended March 31, 2025 also included a benefit for nontaxable income.

Previous wording

At December 31, 2024, we haddeferred tax liabilities, net of deferred tax assets, of $65.8 million. The deferred tax assets were partially offset by a valuation allowance of $0.8 million, resulting in a net deferred tax liability of $66.6 million. At September 30, 2024, deferred tax liabilities, net of deferred tax assets, were $66.7 million. The deferred tax assets were partially offset by a valuation allowance of $0.8 million, resulting in a net deferred tax liability of $67.5 million. The valuation allowance for both periods was recorded because it is more likely than not that a portion of our state deferred tax assets, primarily net operating loss (NOL) carryforwards, will not be realized because we are no longer operating in some states or the NOL carryforward periods are too brief to realize the related deferred tax asset. We will continue to evaluate both the positive and negative evidence in determining the need for a valuation allowance on our deferred tax assets. Any reversal of the valuation allowance in future periods will impact our effective tax rate.

Current wording

At March 31, 2025, we haddeferred tax liabilities, net of deferred tax assets, of $74.2 million. The deferred tax assets were partially offset by a valuation allowance of $0.7 million, resulting in a net deferred tax liability of $74.9 million. At September 30, 2024, deferred tax liabilities, net of deferred tax assets, were $66.7 million. The deferred tax assets were partially offset by a valuation allowance of $0.8 million, resulting in a net deferred tax liability of $67.5 million. The valuation allowance for both periods was recorded because it is more likely than not that a portion of our state deferred tax assets, primarily net operating loss (NOL) carryforwards, will not be realized because we are no longer operating in some states or the NOL carryforward periods are too brief to realize the related deferred tax asset. We will continue to evaluate both the positive and negative evidence in determining the need for a valuation allowance on our deferred tax assets. Any reversal of the valuation allowance in future periods will impact our effective tax rate.

Previous wording

At December 31, 2024, we had $132.0 million of cash and cash equivalents and $512.5 million of available borrowing capacity on our revolving credit facility. We have no senior note maturities until fiscal 2026. We believe we are well-positioned to operate effectively during changing economic conditions because of our low net leverage and strong liquidity position, our low overhead model and our strategic relationship with D.R. Horton.

Current wording

At March 31, 2025, we had $174.3 million of cash and cash equivalents and $617.7 million of available borrowing capacity on our revolving credit facility. We have no senior note maturities until fiscal 2026. We believe we are well-positioned to operate effectively during changing economic conditions because of our low net leverage and strong liquidity position, our low overhead model and our strategic relationship with D.R. Horton.

Previous wording

At December 31, 2024, our ratio of debt to total capital (debt divided by stockholders’ equity plus debt) was 33.3% compared to 30.7% at September 30, 2024 and 33.4% at December 31, 2023. Our ratio of net debt to total capital (debt net of unrestricted cash divided by stockholders’ equity plus debt net of unrestricted cash) was 29.5% compared to 12.4% at September 30, 2024 and 14.9% at December 31, 2023. Over the long term, we intend to maintain our ratio of net debt to total capital at approximately 40% or less. We believe that the ratio of net debt to total capital is useful in understanding the leverage employed in our operations.

Current wording

At March 31, 2025, our ratio of debt to total capital (debt divided by stockholders’ equity plus debt) was 34.7% compared to 30.7% at September 30, 2024 and 32.4% at March 31, 2024. Our ratio of net debt to total capital (debt net of unrestricted cash divided by stockholders’ equity plus debt net of unrestricted cash) was 29.8% compared to 12.4% at September 30, 2024 and 16.4% at March 31, 2024. Over the long term, we intend to maintain our ratio of net debt to total capital at approximately 40% or less. We believe that the ratio of net debt to total capital is useful in understanding the leverage employed in our operations.

Previous wording

We have a senior unsecured revolving credit facility that was amended in December 2024 to increase its capacity from $410 million to $640 million and to raise the uncommitted accordion feature that could increase the size of the facility to $1 billion, subject to certain conditions and availability of additional bank commitments. The amendment also extended the maturity date of the facility. The facility includes bank commitments of $575 million maturing on December 18, 2029 and $65 million maturing on October 28, 2026. The facility also provides for the issuance of letters of credit with a sublimit equal to the greater of $100 million and 50% of the total revolving credit commitments. Borrowings under the revolving credit facility are subject to a borrowing base calculation based on the book value of our real estate assets and unrestricted cash. Letters of credit issued under the facility reduce the available borrowing capacity. At December 31, 2024, there were $100 million of borrowings outstanding at a 5.9% annual interest rate and $27.5 million of letters of credit issued under the revolving credit facility, resulting in available capacity of $512.5 million.

Current wording

We have a $640 million senior unsecured revolving credit facility with an uncommitted accordion feature that could increase the size of the facility to $1 billion, subject to certain conditions and availability of additional bank commitments. The facility includes bank commitments of $575 million maturing on December 18, 2029 and $65 million maturing on October 28, 2026. The facility also provides for the issuance of letters of credit with a sublimit equal to the greater of $100 million and 50% of the total revolving credit commitments. Borrowings under the revolving credit facility are subject to a borrowing base calculation based on the book value of our real estate assets and unrestricted cash. Letters of credit issued under the facility reduce the available borrowing capacity. At March 31, 2025, there were no borrowings outstanding and $22.3 million of letters of credit issued under the revolving credit facility, resulting in available capacity of $617.7 million.

Previous wording

Our $400 million principal amount of 3.85% senior notes (the "2026 notes") mature May 15, 2026 with interest payable semi-annually. On or after May 15, 2023, the 2026 notes may be redeemed at 101.925% of their principal amount plus any accrued and unpaid interest. In accordance with the indenture, the redemption price decreases annually thereafter, and the 2026 notes can be redeemed at par on or after May 15, 2025 through maturity. The annual effective interest rate of the 2026 notes after giving effect to the amortization of financing costs is 4.1%.

Current wording

Our $70.6 million remaining principal amount of 2026 notes mature May 15, 2026 with interest payable semiannually. Until May 15, 2025, the 2026 notes may be redeemed at 100.963% of their principal amount plus any accrued and unpaid interest, and the 2026 notes can be redeemed at par on or after May 15, 2025 through maturity. The annual effective interest rate of the 2026 notes after giving effect to the amortization of financing costs is 4.1%.

Previous wording

We also have $300 million principal amount of 5.0% senior notes (the "2028 notes") outstanding, which mature March 1, 2028 with interest payable semi-annually. On or after March 1, 2023, the 2028 notes may be redeemed at 102.5% of their principal amount plus any accrued and unpaid interest. In accordance with the indenture, the redemption price decreases annually thereafter and the 2028 notes can be redeemed at par on or after March 1, 2026 through maturity. The annual effective interest rate of the 2028 notes after giving effect to the amortization of financing costs is 5.2%.

Current wording

We also have $300 million principal amount of 5.0% senior notes (the "2028 notes") outstanding, which mature March 1, 2028 with interest payable semiannually. Until March 1, 2026, the 2028 notes may be redeemed at 100.833% of their principal amount plus any accrued and unpaid interest, and the 2028 notes can be redeemed at par on or after March 1, 2026 through maturity. The annual effective interest rate of the 2028 notes after giving effect to the amortization of financing costs is 5.2%.

Previous wording

The indentures governing our senior notes require that, upon the occurrence of both a change of control and a rating decline (as defined in each indenture), we offer to purchase the applicable series of notes at 101% of their principal amount. If we or our restricted subsidiaries dispose of assets, under certain circumstances, we will be required to either invest the net cash proceeds from such asset sales in our business within a specified period of time, repay certain senior secured debt or debt of our non-guarantor subsidiaries, or make an offer to purchase a principal amount of such notes equal to the excess net cash proceeds at a purchase price of 100% of their principal amount. The indentures contain covenants that, among other things, restrict the ability of us and our restricted subsidiaries to pay dividends or distributions, repurchase equity, prepay subordinated debt and make certain investments; incur additional debt or issue mandatorily redeemable equity; incur liens on assets; merge or consolidate with another company or sell or otherwise dispose of all or substantially all of our assets; enter into transactions with affiliates; and allow to exist certain restrictions on the ability of subsidiaries to pay dividends or make other payments. At December 31, 2024, we were in compliance with all of the limitations and restrictions associated with our senior note obligations.

Current wording

The indentures governing our senior notes require that, upon the occurrence of both a change of control and a rating decline (as defined in each indenture), we offer to purchase the applicable series of notes at 101% of their principal amount, plus accrued and unpaid interest. Under the indentures governing the 2026 notes and 2028 notes, if we or our restricted subsidiaries dispose of assets, under certain circumstances, we will be required to either invest the net cash proceeds from such asset sales in our business within a specified period of time, repay certain senior secured debt or debt of our non-guarantor subsidiaries, or make an offer to purchase a principal amount of such notes equal to the excess net cash proceeds at a purchase price of 100% of their principal amount.

Previous wording

We have an effective shelf registration statement filed with the Securities and Exchange Commission in September 2024, registering $750 million of equity securities, of which $300 million was reserved for sales under our at-the-market equity offering program that we entered into in November 2024. In the three months ended December 31, 2024, we did not issue any shares of common stock under our at-the-market equity offering program. At December 31, 2024, the full $750 million remained available for issuance under the shelf registration statement, with $300 million reserved for sales under our at-the-market equity offering program.

Current wording

We have an effective shelf registration statement filed with the Securities and Exchange Commission in September 2024, registering $750 million of equity securities, of which $300 million was reserved for sales under our at-the-market equity offering program that we entered into in November 2024. In the six months ended March 31, 2025, we did not issue any shares of common stock under our at-the-market equity offering program. At March 31, 2025, the full $750 million remained available for issuance under the shelf registration statement, with $300 million reserved for sales under our at-the-market equity offering program.

Previous wording

In the three months ended December 31, 2024, net cash used in operating activities was $450.0 million, which was primarily the result of the increase in real estate and the decreases in accounts payable and other liabilities and accrued development costs, partially offset by net income generated in the period and the increase in earnest money on sales contracts. In the three months ended December 31, 2023, net cash used in operating activities was $156.7 million, which was primarily the result of the increase in real estate, partially offset by net income generated in the period and the increases in earnest money on sales contracts.

Current wording

In the six months ended March 31, 2025, net cash used in operating activities was $469.8 million, which was primarily the result of the increase in real estate and the decreases in accounts payable and other liabilities and accrued development costs, partially offset by net income generated in the period and the increase in earnest money on sales contracts. In the six months ended March 31, 2024, net cash used in operating activities was $215.9 million, which was primarily the result of the increase in real estate, partially offset by net income generated in the period and the increases in earnest money on sales contracts.

Previous wording

In the three months ended December 31, 2024, net cash provided by investing activities was $0.9 million compared to $0.2 million of net cash used in the prior year period.

Current wording

In the six months ended March 31, 2025, net cash provided by investing activities was $0.2 million compared to $0.8 million of net cash used in investing activities in the prior year period.

Previous wording

In the three months ended December 31, 2024, net cash provided by financing activities was $99.9 million compared to $0.2 million of net cash used in financing activities in the prior year period. Cash provided by financing activities in the three months ended December 31, 2024 was primarily the result of $100 million of borrowings under our senior unsecured revolving credit facility.

Current wording

In the six months ended March 31, 2025, net cash provided by financing activities was $162.7 million which was primarily the result of proceeds from the issuance of $500 million principal amount of our 2033 notes and $245 million of borrowings under our senior unsecured revolving credit facility, which were partially offset by the repurchase of $329.4 million of our $400 million principal amount of 2026 notes and $245 million in repayments under our senior unsecured revolving credit facility. Cash provided by financing activities in the six months ended March 31, 2024 was primarily the result of the issuance of common stock under our at-the-market equity offering program for net proceeds of $19.7 million.