Investor Information | Newsroom

Maximizing Value in Community Development

Printer Friendly Version View printer-friendly version
<< Back
Download PDF PDF Version
Forestar Group Inc. Reports Second Quarter 2016 Results

Second Quarter 2016 Highlights

  • Core community development business sold 489 residential lots for over $66,600 per lot
    • Over 1,680 lots currently under option contracts with builders
    • Texas finished vacant housing inventory remains within equilibrium levels
  • Reduced outstanding debt $260.9 million
    • Retired $216.6 million of 8.50% Senior Secured Notes
    • Retired $5.0 million of 3.75% Convertible Senior Notes
    • Repaid $39.3 million in project level debt; Radisson Hotel & Suites and Eleven
  • Reduced annual interest expense by approximately $19.7 million through combined debt reductions
  • Reduced SG&A, including discontinued operations, by 23% compared with second quarter 2015
  • Sold Radisson Hotel & Suites for $130.0 million
  • Sold Eleven multifamily community for $60.2 million
  • Sold remaining Bakken / Three Forks oil and gas assets for $50.0 million
  • Sold Dillon multifamily site for $26.0 million
  • Engaged LandVest to market approximately 70,000 acres of timberland and undeveloped land, primarily in Georgia

AUSTIN, Texas--(BUSINESS WIRE)--Jul. 29, 2016-- Forestar Group Inc. (NYSE: FOR) (“Forestar” or the “Company”) today reported second quarter 2016 net income of approximately $9.6 million, or $0.23 per share outstanding, compared with second quarter 2015 net loss of approximately ($34.5) million, or ($0.81) per share outstanding. Second quarter 2016 earnings from continuing operations were approximately $11.7 million, or $0.28 per share outstanding, compared with second quarter 2015 earnings from continuing operations of approximately $2.5 million, or $0.06 per share outstanding.

Solid Core Community Development Results

“Builder demand for residential lots in our key communities remains steady. In the second quarter of 2016, Forestar sold 489 residential lots for over $66,600 per lot. Forestar has over 1,680 lots currently under option contracts with builders,” said Phil Weber, Chief Executive Officer of Forestar.

Significant Progress: Strengthened Balance Sheet, Reduced Costs and Completed Non-Core Asset Sales

“We made significant progress during second quarter 2016 toward transforming Forestar. Key highlights include reducing outstanding debt by $260.9 million and reducing annual interest expense by approximately $19.7 million going forward. As a result of the cash tender offer on our 8.50% Senior Secured Notes, we received consent from holders of the Notes to eliminate or modify certain covenants, events of default and other provisions contained in the indenture governing the Notes, and to release the subsidiary guarantees and collateral securing the remaining Notes. We have also identified an additional $6 million in annual run-rate cost reductions, lowering our target annual SG&A to an estimated $33 million, which is expected to be achieved once the previously announced non-core asset sales are completed,” said Mr. Weber.

“Significant non-core asset sales were completed in second quarter 2016. Key highlights include the sale of the Radisson Hotel & Suites which generated net proceeds of $113.4 million after debt repayment, the sale of Eleven multifamily community which generated net proceeds of $35.8 million after debt repayment, and the sale of Dillon multifamily community site which generated net proceeds of $25.4 million. Additionally, in second quarter 2016, Forestar sold its remaining Bakken / Three Forks oil and gas assets which generated $46.5 million in net proceeds. With the completion of this sale, Forestar has exited substantially all of our oil and gas working interest assets and is reporting the results of operations and financial position of all working interest assets as discontinued operations. Forestar also recorded $48.8 million in non-cash impairment charges related to five non-core community development projects and one multifamily site. We plan to exit these communities over time, reducing annual carry costs and generating tax losses to offset tax gains from other non-core asset sales. We remain focused on executing our key initiatives and delivering value for shareholders,” said Mr. Weber.

Transforming Capital Structure

“Since undertaking our key initiatives we have made significant progress in transforming our capital structure and reducing interest expense. We have generated $366 million in pre-tax proceeds from non-core asset sales since third quarter-end 2015, and have used $349 million in proceeds to reduce outstanding debt. Our total debt to total capital ratio at the end of second quarter 2016 was 18% compared with 46% at the end of third quarter 2015. With the execution of non-core asset sales and corresponding reduction in debt, we have strengthened our balance sheet and created financial flexibility,” said Chuck Jehl, Chief Financial Officer.

Business Segments

Forestar manages its operations through three business segments: real estate, mineral resources and other. In second quarter 2016, we changed the name of our oil and gas segment to mineral resources to reflect the strategic shift from oil and gas working interest investments to owned mineral interests.

REAL ESTATE

Second Quarter 2016 Highlights (Includes Ventures)

  • Sold Radisson Hotel & Suites, generating a $95.3 million gain
  • Sold Eleven multifamily community, generating a $9.1 million gain
  • Sold Dillon multifamily site, generating a $1.2 million gain
  • Incurred $48.8 million in non-cash impairments
  • Sold 489 developed residential lots for over $66,600 per lot
  • Sold 10 residential tract acres for over $35,500 per acre
  • Sold 3 commercial acres for over $376,000 per acre
  • Sold 5,425 acres of undeveloped land for $2,360 per acre

Segment Financial Results:

($ in millions)       Q2 2016       Q2 2015       Q1 2016
Segment Revenues $46.4 $39.4 $36.1
Segment Earnings $73.3 $15.5 $20.2
 

Real estate segment earnings increased in second quarter 2016 compared with second quarter 2015 principally due to a $95.3 million gain associated with the sale of Radisson Hotel & Suites and over $10.3 million in gains associated with the sale of our Eleven multifamily community and sale of our Dillon multifamily site. These gains were partially offset by non-cash impairment charges of $48.8 million related to five non-core community development projects and one multifamily site. Second quarter 2016 residential lot sales activity was down slightly from second quarter 2015 levels with lower average pricing, due to mix of product sold. Real estate segment earnings increased in second quarter 2016 compared with first quarter 2016 principally due to gains on non-core asset sales, higher undeveloped land sales and higher lot sales activity. First quarter 2016 real estate segment earnings also include $13.6 million in earnings generated by the sale of our interest in the 360° multifamily venture and sale of our wholly-owned Music Row multifamily site.

MINERAL RESOURCES

Second Quarter 2016 Highlights (Includes Ventures)

  • Leased 984 mineral acres for $257 / acre

Segment Financial Results:

($ in millions)       Q2 2016       Q2 2015       Q1 2016
Segment Revenues $1.3 $2.4 $1.1
Segment Earnings (Loss) $0.9 $1.8 $0.6
 

Mineral Resources segment results decreased in second quarter 2016 compared with second quarter 2015 principally due to lower oil and gas prices and production volumes.

OTHER

Segment Financial Results:

($ in millions)       Q2 2016       Q2 2015       Q1 2016
Segment Revenues $0.3 $1.9 $0.7
Segment Earnings (Loss) ($0.2) $0.0 ($0.6)
 

Second quarter 2016 other segment results decreased compared with prior year principally due to lower fiber sales and termination of a groundwater reservation agreement in second quarter 2015, partially offset by lower operating expenses. Second quarter 2016 other segment revenues decreased compared with second quarter 2015 and first quarter 2016 principally due to deferral of timber harvest activity in support of our key initiative to exit our non-core timberland and undeveloped land.

OUTLOOK

Fundamentals Stable in Forestar's Community Development Markets

“We continue to see steady builder demand in our key communities, supported by low developed lot supply inventory. Forestar sold 773 residential lots in the first half of 2016 and we continue to project 2016 residential lot sales volume to be in the range of 1,600 - 1,800 lots,” said Michael Quinley, President - Community Development.

Executing Key Initiatives

“We remain focused on selling non-core assets, reducing costs, and on maximizing shareholder value as the Board and management team evaluate the next best steps for Forestar,” concluded Mr. Weber.

The Company will host a conference call on July 29, 2016 at 10:00 am ET to discuss results of second quarter 2016. The meeting may be accessed through webcast or by conference call. The webcast may be accessed through Forestar’s Internet site at www.forestargroup.com. To access the conference call, listeners calling from North America should dial 1-844-634-1445 at least 15 minutes prior to the start of the meeting. Those wishing to access the call from outside North America should dial 1-615-247-0254. The password is Forestar. Replays of the call will be available for two weeks following the completion of the live call and can be accessed at 1-855-859-2056 in North America and at 1-404-537-3406 outside North America. The password for the replay is 44307555.

About Forestar Group

Forestar is a residential and mixed-use real estate development company. At second quarter-end 2016, we own directly or through ventures interests in 56 residential and mixed-use projects comprised of approximately 7,000 acres of real estate located in 11 states and 15 markets. The company also owns approximately 590,000 net acres of oil and gas fee minerals located in Texas, Louisiana, Georgia and Alabama. The company has water interests in 1.5 million acres which include a 45 percent nonparticipating royalty interest in groundwater produced or withdrawn for commercial purposes or sold from 1.4 million acres in Texas, Louisiana, Georgia and Alabama, and 20,000 acres of groundwater leases in central Texas. The company's non-core assets include about 81,000 acres of timberland and undeveloped land, and commercial and income producing properties which consist of three multifamily projects and two multifamily sites. Forestar operates in three business segments: real estate, mineral resources and other. Forestar’s address on the World Wide Web is www.forestargroup.com.

Forward-Looking Statements

This release contains “forward-looking statements” within the meaning of the federal securities laws. Forward-looking statements are typically identified by words or phrases such as “will,” “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” “target,” “forecast,” and other words and terms of similar meaning. These statements reflect management’s current views with respect to future events and are subject to risk and uncertainties. We note that a variety of factors and uncertainties could cause our actual results to differ significantly from the results discussed in the forward-looking statements, including but not limited to: general economic, market, or business conditions; market demand for our non-core assets; changes in commodity prices; opportunities (or lack thereof) that may be presented to us and that we may pursue; fluctuations in costs and expenses including development costs; demand for new housing, including impacts from mortgage credit rates or availability; lengthy and uncertain entitlement processes; cyclicality of our businesses; accuracy of accounting assumptions; competitive actions by other companies; changes in laws or regulations; and other factors, many of which are beyond our control. Except as required by law, we expressly disclaim any obligation to publicly revise any forward-looking statements contained in this news release to reflect the occurrence of events after the date of this news release.

         
 
FORESTAR GROUP INC.
(UNAUDITED)

Business Segments

 
Second Quarter First Six Months
2016     2015 2016     2015
(In thousands)
Revenues:
Real estate $ 46,381 $ 39,409 $ 82,479 $ 72,239
Mineral resources 1,337 2,360 2,419 5,114
Other   274     1,856     712     3,646  
Total revenues $ 47,992   $ 43,625   $ 85,610   $ 80,999  
Segment earnings (loss):
Real estate $ 73,290 $ 15,527 $ 93,514 $ 24,593
Mineral resources 933 1,766 1,486 3,138
Other   (197 )   (43 )   (778 )   (434 )
Total segment earnings (loss) 74,026 17,250 94,222 27,297
Items not allocated to segments:
General and administrative expense (4,514 ) (5,177 ) (9,487 ) (11,197 )
Share-based and long-term incentive compensation expense (412 ) (23 ) (1,956 ) (3,481 )
Interest expense (6,918 ) (8,715 ) (14,557 ) (17,536 )
Loss on extinguishment of debt, net (35,766 ) (35,864 )
Other corporate non-operating income   175     47     225     95  
Income (loss) from continuing operations before taxes 26,591 3,382 32,583 (4,822 )
Income tax (expense) benefit   (14,929 )   (897 )   (17,081 )   1,869  
Net income (loss) from continuing operations attributable to Forestar Group Inc. 11,662 2,485 15,502 (2,953 )
Loss from discontinued operations, net of taxes   (2,048 )   (36,992 )   (10,264 )   (39,712 )
Net income (loss) attributable to Forestar Group Inc.   9,614     (34,507 )   5,238     (42,665 )
Net income (loss) per diluted share:
Continuing operations $ 0.28 $ 0.06 $ 0.37 $ (0.09 )
Discontinued operations   (0.05 )   (0.87 )   (0.24 )   (1.16 )
Net income (loss) per diluted share $ 0.23   $ (0.81 ) $ 0.13   $ (1.25 )
 
Weighted average common shares outstanding (in millions):
Basic 34.3 34.3 34.3 34.2
Diluted (a) 42.4 42.3 42.4 34.2
 
 

Second
Quarter

Year-End
Supplemental Financial Information: 2016 2015
(In thousands)
Cash and cash equivalents $ 107,421 $ 96,442
 
Senior secured notes 5,189 224,647
Convertible senior notes, net of discount 102,602 104,719
Tangible equity unit notes, net of discount 4,403 8,666
Other debt (b)   1,991     43,483  
Total debt (c) $ 114,185   $ 381,515  
Net debt $ 6,764   $ 285,073  
_____________________
(a)   Weighted average diluted shares outstanding for first six months 2015 excludes 7.9 million shares associated with tangible equity units issued during fourth quarter 2013. The actual number of shares to be issued in December 2016 will be between 6.5 million - 7.9 million shares based on the market value of our stock.
(b) Other debt for second quarter-end 2016 and 2015 excludes unconsolidated venture debt of $119.8 million and $127.6 million and outstanding letters of credit of approximately $15.3 million and $14.8 million. Other debt at year-end 2015 consists principally of $39.3 million in senior secured loans for Radisson Hotel & Suites and Eleven multifamily property. In second quarter, 2016, we sold Radisson Hotel & Suites and Eleven for $130.0 million and $60.2 million. The proceeds were used to payoff the related senior secured loans of $39.3 million.
(c) At second quarter-end 2016 and year-end 2015, $1,907,000 and $8,267,000 of unamortized deferred financing fees are deducted from our outstanding debt.
 
         
FORESTAR GROUP INC.
REAL ESTATE SEGMENT
PERFORMANCE METRICS
 
Second Quarter First Six Months
2016     2015 2016     2015
REAL ESTATE
Owned, Consolidated & Equity Method Ventures:
Residential Lots Sold 489 519 773 808
Revenue per Lot Sold $ 66,600 $ 73,413 $ 67,973 $ 74,422
Commercial Acres Sold 3 21 11 54
Revenue per Commercial Acre Sold $ 375,743 $ 82,679 $ 342,168 $ 224,479
Undeveloped Acres Sold 5,425 1,248 7,397 1,979
Revenue per Acre Sold $ 2,362 $ 3,027 $ 2,504 $ 2,928
Owned & Consolidated Ventures:
Residential Lots Sold 455 271 703 513
Revenue per Lot Sold $ 65,448 $ 71,465 $ 66,594 $ 72,219
Commercial Acres Sold 20 8 24
Revenue per Commercial Acre Sold $ $ 73,345 $ 331,033 $ 117,014
Undeveloped Acres Sold 5,425 903 7,397 1,634
Revenue per Acre Sold $ 2,362 $ 3,044 $ 2,504 $ 2,916
Ventures Accounted For Using the Equity Method:
Residential Lots Sold 34 248 70 295
Revenue per Lot Sold $ 82,015 $ 75,543 $ 81,823 $ 78,253
Commercial Acres Sold 3 1 3 30
Revenue per Commercial Acre Sold $ 375,743 $ 303,734 $ 375,743 $ 311,995
Undeveloped Acres Sold 345 345
Revenue per Acre Sold $ $ 2,983 $ $ 2,983
 
           
SECOND QUARTER 2016
RESIDENTIAL REAL ESTATE PIPELINE
 
Real Estate Entitled Acres

Developed &
Under
Development
Acres

Total Acres (a)
Residential
Owned 3,998 571
Ventures 1,001 186 5,756
Commercial
Owned 549 271
Ventures 196 97 1,113
Total Acres 5,744 1,125 6,869
_____________________
(a)   Excludes acres associated with commercial and income producing properties.
 
           
FORESTAR GROUP INC.
PROJECTS IN ENTITLEMENT
 

A summary of our real estate projects in the entitlement process (a) at second quarter-end 2016 follows:

 

Project

County Market Project Acres (b)
California
Hidden Creek Estates Los Angeles Los Angeles 700
Terrace at Hidden Hills Los Angeles Los Angeles 30
Texas
Lake Houston Harris/Liberty Houston 3,700
Total 4,430
_____________________
(a)   A project is deemed to be in the entitlement process when customary steps necessary for the preparation of an application for governmental land-use approvals, like conducting pre-application meetings or similar discussions with governmental officials, have commenced, or an application has been filed. Projects listed may have significant steps remaining, and there is no assurance that entitlements ultimately will be received.
(b) Project acres are approximate and the actual number of acres entitled may vary.
 
     
TIMBERLAND AND UNDEVELOPED LAND
 

A summary of our non-core timberland and undeveloped land at second quarter-end 2016 follows:

 
Acres
Timberland
Alabama 1,900
Georgia 44,500
Texas 9,800
Higher and Better Use Timberland
Georgia 19,800
Entitled Undeveloped Land
Georgia 5,100
Total 81,100
 
                 
FORESTAR GROUP INC.
REAL ESTATE PROJECTS
 

A summary of activity within our projects in the development process, which includes entitled, developed and under development real estate projects, at second quarter-end 2016 follows:

 
Residential Lots/Units Commercial Acres
Project County Interest
Owned (a)

Lots/Units
Sold
Since
Inception

    Lots/Units
Remaining

Acres Sold
Since
Inception

   

Acres
Remaining

 
Texas

Austin

Arrowhead Ranch Hays 100 % 2 382 19
The Colony Bastrop 100 % 463 1,460 22 5
Double Horn Creek Burnet 100 % 166 2
Entrada (b) Travis 50 % 821
Hunter’s Crossing Bastrop 100 % 510 54 51
La Conterra Williamson 100 % 202 3 55
Westside at Buttercup Creek Williamson 100 % 1,497 66
2,840 2,665 145 130

Corpus Christi

Caracol Calhoun 75 % 13 61 14
Padre Island (b) Nueces 50 % 15
Tortuga Dunes Nueces 75 % 134 4
13 195 33

Dallas-Ft. Worth

Bar C Ranch Tarrant 100 % 419 702
Keller Tarrant 100 % 1
Lakes of Prosper Collin 100 % 157 130 4
Lantana Denton 100 % 3,606 495 44
Maxwell Creek Collin 100 % 975 26 10
Parkside Collin 100 % 46 154
The Preserve at Pecan Creek Denton 100 % 611 171 7
River's Edge Denton 100 % 202
Stoney Creek Dallas 100 % 286 410
Summer Creek Ranch Tarrant 100 % 983 246 35 44
Timber Creek Collin 88 % 41 560
Village Park Collin 100 % 567 3 2
7,691 3,096 97 53

Houston

Barrington Kingwood Harris 100 % 176 4
City Park Harris 75 % 1,468 58 104
Harper’s Preserve (b) Montgomery 50 % 513 1,169 30 49
Imperial Forest Harris 100 % 55 373
Long Meadow Farms (b) Fort Bend 38 % 1,578 219 193 107
Southern Trails (b) Brazoria 80 % 938 57 1
Spring Lakes Harris 100 % 348 25 4
Summer Lakes Fort Bend 100 % 744 323 56
Summer Park Fort Bend 100 % 119 80 34 62
Willow Creek Farms II Waller/Fort Bend 90 % 90 160
6,029 2,385 397 326
 
 
Residential Lots/Units Commercial Acres
Project County

Interest
Owned (a)

Lots/Units
Sold
Since
Inception

Lots/Units
Remaining

Acres Sold
Since
Inception

Acres
Remaining

San Antonio

Cibolo Canyons Bexar 100 % 1,072 718 130 58
Oak Creek Estates Comal 100 % 313 240 13
Olympia Hills Bexar 100 % 743 11 10
Stonewall Estates (b) Bexar 50 % 373 13
2,501 982 153 58
Total Texas 19,074 9,323 792 600
 
Colorado

Denver

Buffalo Highlands Weld 100 % 164
Johnstown Farms Weld 100 % 281 335 2
Pinery West Douglas 100 % 86 20 106
Stonebraker Weld 100 % 603
367 1,102 22 106
Georgia

Atlanta

Harris Place Paulding 100 % 22 5
Montebello (b) Forsyth 90 % 220
Seven Hills Paulding 100 % 880 199 26 113
West Oaks Cobb 100 % 56
902 480 26 113
North & South Carolina

Charlotte

Ansley Park Lancaster 100 % 309
Habersham York 100 % 62 125 6
Walden Mecklenburg 100 % 384
62 818 6

Raleigh

Beaver Creek (b) Wake 90 % 14 179
14 179
76 997 6
Tennessee

Nashville

Beckwith Crossing Wilson 100 % 19 80
Morgan Farms Williamson 100 % 121 52
Vickery Park Williamson 100 % 197
Weatherford Estates Williamson 100 % 8 9
148 338
Wisconsin

Madison

Juniper Ridge/Hawks Woods (b) (d) Dane 90 % 5 210
Meadow Crossing II (b) (c) Dane 90 % 1 171
6 381
 
 
Residential Lots/Units Commercial Acres
Project County

Interest
Owned (a)

Lots/Units
Sold
Since
Inception

Lots/Units
Remaining

Acres Sold
Since
Inception

Acres
Remaining

Arizona, California, Missouri, Utah

Tucson

Boulder Pass (b) (c) Pima 50 % 1 87
Dove Mountain Pima 100 % 98

Oakland

San Joaquin River Contra Costa/Sacramento 100 % 288

Kansas City

Somerbrook Clay 100 % 173 222

Salt Lake City

Suncrest (b) (c)

Salt Lake 90 % 171
174 578 288
Total 20,747 13,199 840 1,113
____________________
(a)   Interest owned reflects our total interest in the project, whether owned directly or indirectly, which may be different than our economic interest in the project.
(b) Projects in ventures that we account for using equity method
(c) Venture project that develops and sells homes.
(d) Venture project that develops and sells lots and homes.
 
 

A summary of our significant non-core commercial and multifamily properties, excluding two multifamily sites, at second quarter-end 2016 follows:

Project     Market    

Interest
Owned (a)

    Type     Acres     Description
Elan 99 (b) Houston 90% Multifamily 17 360-unit luxury apartment
Acklen (b) Nashville 30% Multifamily 4 320-unit luxury apartment
HiLine (b) Denver 25% Multifamily 18 385-unit luxury apartment
_____________________
(a)   Interest owned reflects our total interest in the project, whether owned directly or indirectly, which may be different than our economic interest in the project.
(b) Construction in progress.

Source: Forestar Group Inc.

Forestar Group Inc.
Anna E. Torma, 512-433-5312