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Maximizing Value in Community Development

Forestar Group Inc. Reports First Quarter 2016 Results

Additional progress executing key initiatives to reduce costs, exit non-core assets and focus on maximizing shareholder value

First Quarter 2016

  • Sold Kansas / Nebraska oil and gas assets for $21.0 million
  • Sold over 900 net acres and 9 producing wells in Bakken / Three Forks for $9.5 million
  • Sold Music Row multifamily site for $15.0 million
  • Sold 360° multifamily venture interest and received a development fee for a total of $15.1 million
  • Retired $8.6 million of senior secured notes, reducing annual interest expense by $0.7 million
  • Reduced SG&A by 24% compared with first quarter 2015

Subsequent Events - Second Quarter 2016

  • Sold remaining Bakken / Three Forks oil and gas assets for $50.0 million - over 130 producing wells and nearly 8,100 net acres
  • Sold Eleven, a stabilized multifamily community, for $60.2 million
  • Sold Radisson Hotel & Suites for $130.0 million
  • Engaged LandVest to market approximately 72,000 acres of timberland and undeveloped land, primarily in Georgia

AUSTIN, Texas--(BUSINESS WIRE)--May 10, 2016-- Forestar Group Inc. (NYSE: FOR) (“Forestar” or the “Company”) today reported first quarter 2016 net loss of approximately ($4.4) million, or ($0.13) per share outstanding, compared with first quarter 2015 net loss of approximately ($8.2) million, or ($0.24) per share outstanding.

Focused on Significantly Reducing Costs and Completing Non-Core Asset Sales

“Forestar has made additional progress reducing costs and exiting non-core assets. Key accomplishments include the sale of our Bakken / Three Forks oil and gas assets for nearly $60.0 million in two transactions and closing the previously announced sale of Kansas / Nebraska oil and gas assets for $21.0 million. These transactions substantially complete our exit of non-core oil and gas working interest assets. In multifamily, in the first quarter, Forestar sold our Nashville Music Row community site and our Denver 360° venture interest generating combined proceeds of $29.1 million. Additionally, in second quarter 2016, we closed the sale of Eleven, a stabilized multifamily community in Austin, generating proceeds of $35.2 million net of repayment of $23.9 million in debt and the sale of the Radisson Hotel & Suites in Austin generating proceeds of $112.0 million net of debt repayment of $15.4 million. We are focused on executing our key initiatives and delivering value for shareholders,” said Phil Weber, Chief Executive Officer of Forestar.

Residential Housing Demand Remains Favorable

“We continue to see favorable market demand for our communities supported by low developed lot supply inventory in all of our key markets, and above national average job growth in almost all of our markets. First quarter 2016 lot sales were in-line with prior year levels,” said Michael Quinley, President - Community Development.

Forestar manages its operations through three business segments: real estate, oil and gas and other natural resources.

REAL ESTATE

First Quarter 2016 Highlights (Includes Ventures)

  • Sold Music Row multifamily site generating $4.0 million in earnings
  • Sold 360° multifamily venture interest generating $10.8 million in earnings, including development fee
  • Sold 284 developed residential lots for over $70,300 per lot
  • Sold 8 commercial acres for over $331,000 per acre
  • Sold 1,972 acres of undeveloped land for $2,890 per acre
   
Segment Financial Results:
($ in millions)     Q1 2016     Q1 2015     Q4 2015
Segment Revenues $36.1     $32.8     $102.6
Segment Earnings $20.2 $9.1 $37.9
 

Real estate segment earnings increased in first quarter 2016 compared with first quarter 2015 principally due to $13.6 million in gains in first quarter 2016 associated with the sale of our interest in the 360° multifamily venture and sale of our wholly-owned Music Row multifamily community site. First quarter 2016 residential lot sales activity was in-line with first quarter 2015 levels with lower average pricing, due to mix. Real estate segment earnings declined in first quarter 2016 compared with fourth quarter 2015 principally due to lower residential lot and tract sales volumes. Fourth quarter 2015 real estate segment earnings also include $9.3 million in earnings generated by the sale of Midtown Cedar Hill multifamily community for $42.8 million.

OIL AND GAS

First Quarter 2016 Highlights (Includes Ventures)

  • Generated approximately $21.0 million in proceeds from selling Kansas / Nebraska properties
  • Generated $9.5 million in proceeds from the sale of over 900 net acres in the Bakken / Three Forks, 9 gross producing wells and reimbursement of capital costs on in progress wells
  • Reduced operating expenses by approximately 72% compared with first quarter 2015
   
Segment Financial Results:
($ in millions)     Q1 2016     Q1 2015     Q4 2015
Segment Revenues $5.4     $13.2     $10.1
Segment Earnings (Loss) ($12.4) $(2.9) ($38.4)
 

Oil and gas segment results decreased in first quarter 2016 compared with first quarter 2015 principally due to a net loss of ($11.0) million associated with the sale of 190,960 net leasehold acres and 185 gross (66 net) producing oil and gas wells primarily in Nebraska, Kansas, Oklahoma and North Dakota. Lower oil and gas prices and lower production volumes also contributed to the year over year decline. Total oil and gas segment operating expenses were down approximately 72% in first quarter 2016 compared with first quarter 2015, principally due to lower staffing costs as result of our key initiative to exit non-core assets. First quarter 2015 oil and gas segment results include $2.8 million in restructuring costs partially offset by $1.2 million in gains associated with the sale of 290 net acres of leasehold interest in the Bakken / Three Forks. Oil and gas segment results in fourth quarter 2015 include non-cash impairment charges of $37.6 million.

OTHER NATURAL RESOURCES

First Quarter 2016 Highlights (Includes Ventures)

  • Sold over 8,500 tons of fiber for $13.30 per ton
   
Segment Financial Results:
($ in millions)     Q1 2016     Q1 2015     Q4 2015
Segment Revenues $0.4     $1.8     $1.3
Segment Earnings (Loss) ($0.6) ($0.4) ($0.1)
 

First quarter 2016 other natural resources 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. First quarter 2016 other natural resources segment results decreased compared with fourth quarter 2015 principally due to lower fiber sales. In first quarter 2016, we limited harvest activity as a result of exploring opportunistic exit of timberland and undeveloped land.

OUTLOOK

Fundamentals Stable in Forestar's Community Development Markets

“Residential lot demand continues to reflect relatively stable supply and demand fundamentals in our key communities. Second quarter is off to a solid start with over 150 lots closing from Houston area communities alone in the month of April. In addition, we expect incremental lot sales activity from new communities, including Charlotte and Nashville, throughout the year. With nearly 1,390 lots currently under option contracts with builders, we continue to project 2016 residential lot sales volume to be in the range of 1,600 - 1,800 lots,” said Michael Quinley.

Executing Key Initiatives

“Forestar has made significant progress executing our key initiatives. We remain focused on selling non-core assets and further reducing both segment and general and administrative costs,” concluded Mr. Weber.

In furtherance of the Company's initiative to reduce costs, the Board has elected to reduce its size from nine to seven members effective September 1, 2016. In support of this action, William G. Currie and David L. Weinstein have notified the Company that they will retire from the Board at that time. “On behalf of the Board, I would like to thank Bill Currie and David Weinstein for their service to Forestar,” said James A. Rubright, Chairman of the Board of Directors. “Their insights and contributions are greatly appreciated.”

The Company will host a conference call on May 11, 2016 at 10:00 am ET to discuss results of first 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 1-855-546-9555 at least 15 minutes prior to the start of the meeting. Those wishing to access the call from outside North America should dial 1-412-455-6094. 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 93548993.

About Forestar Group

Forestar is a residential and mixed-use real estate development company. At first quarter-end 2016, we own directly or through ventures interests in 57 residential and mixed-use projects comprised of approximately 7,000 acres of real estate located in 11 states and 15 markets. We also own approximately 590,000 net acres of oil and gas fee minerals located in Texas, Louisiana, Georgia and Alabama. In addition, we own interests in various other assets that have been identified as non-core that the company will exit opportunistically over time. Our non-core assets include our investment in oil and gas working interests, about 87,000 acres of timberland and undeveloped land, and commercial and income producing properties which consist of one hotel, five multifamily projects and two multifamily sites. Forestar operates in three business segments: real estate, oil and gas and other natural resources. 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

 
First Quarter
2016     2015
(In thousands)
Revenues:
Real estate $ 36,098 $ 32,830
Oil and gas 5,352 13,185
Other natural resources   438     1,790  
Total revenues $ 41,888   $ 47,805  
Segment earnings (loss):
Real estate $ 20,224 $ 9,066
Oil and gas (12,441 ) (2,941 )
Other natural resources   (581 )   (391 )
Total segment earnings (loss) 7,202 5,734
Items not allocated to segments:
General and administrative expense (4,973 ) (6,020 )
Share-based and long-term incentive compensation expense (1,544 ) (3,458 )
Interest expense (7,639 ) (8,821 )
Other corporate non-operating income   (48 )   48  
Income (loss) before taxes (7,002 ) (12,517 )
Income tax (expense) benefit   2,626     4,359  
Net income (loss) attributable to Forestar Group Inc. $ (4,376 ) $ (8,158 )
 
Net income (loss) per common share:
Diluted $ (0.13 ) $ (0.24 )
 
Weighted average common shares outstanding (in millions):
Diluted (a) 34.3 34.2
 
       
First Quarter Year-End
Supplemental Financial Information: 2016 2015
(In thousands)
Cash and cash equivalents $ 142,646 $ 96,442
 
Senior secured notes 216,495 224,647
Convertible senior notes, net of discount 105,798 104,719
Tangible equity unit notes, net of discount 6,552 8,666

Other debt (b)

  43,914   43,483

Total debt (c)

$ 372,759 $ 381,515
Net debt $ 230,113 $ 285,073
_____________________
(a)   Weighted average diluted shares outstanding during first quarter 2016 and 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 first quarter-end 2016 and 2015 excludes unconsolidated venture debt of $99.9 million and $123.5 million and outstanding letters of credit of approximately $15.8 million and $15.5 million. Other debt for first quarter-end 2016 consists principally of $39.3 million in senior secured loans for Radisson Hotel & Suites and Eleven multifamily property. On April 18, 2016, we sold Eleven for $60.2 million. The proceeds were used to payoff the related senior secured loan of $23.9 million. On May 4, 2016, we sold Radisson Hotel & Suites for $130.0 million. The proceeds were used to payoff the related senior secured loan of $15.4 million.

(c)

At first quarter-end 2016 and year-end 2015, $7,953,000 and $8,267,000 of unamortized deferred financing fees are deducted from our outstanding debt.
 
   
FORESTAR GROUP INC.
REAL ESTATE SEGMENT
PERFORMANCE METRICS
 
First Quarter
2016     2015
REAL ESTATE
Owned, Consolidated & Equity Method Ventures:
Residential Lots Sold 284 289
Revenue per Lot Sold $ 70,337 $ 76,233
Commercial Acres Sold 8 33
Revenue per Commercial Acre Sold $ 331,033 $ 314,438
Undeveloped Acres Sold 1,972 731
Revenue per Acre Sold $ 2,892 $ 2,758
Owned & Consolidated Ventures:
Residential Lots Sold 248 242
Revenue per Lot Sold $ 68,696 $ 73,064
Commercial Acres Sold 8 4
Revenue per Commercial Acre Sold $ 331,033 $ 329,863
Undeveloped Acres Sold 1,972 731
Revenue per Acre Sold $ 2,892 $ 2,758
Ventures Accounted For Using the Equity Method:
Residential Lots Sold 36 47
Revenue per Lot Sold $ 81,643 $ 92,551
Commercial Acres Sold 29
Revenue per Commercial Acre Sold $ $ 312,237
Undeveloped Acres Sold
Revenue per Acre Sold $ $
 
           
FIRST QUARTER 2016
REAL ESTATE PIPELINE
 
Real Estate Entitled Acres

Developed &
Under
Development
Acres

Total Acres (a)
Residential
Owned 3,942 571
Ventures 1,070 162 5,745
Commercial
Owned 561 276
Ventures 204 100 1,141
Total Acres 5,777 1,109 6,886
 
Estimated Residential Lots 10,251 2,578 12,829
_____________________

(a)

  Excludes acres associated with commercial and income producing properties and units associated with venture projects that develops and sell homes.
 
           
FORESTAR GROUP INC.
PROJECTS IN ENTITLEMENT
 

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

 
Acres
Timberland
Alabama 1,900
Georgia 45,500
Texas 14,300
Higher and Better Use Timberland
Georgia 19,800
Entitled Undeveloped Land
Georgia 5,100
Total 86,600
 
               
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 first 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% 2 379 11
The Colony Bastrop 100% 461 1,423 22 31
Double Horn Creek Burnet 100% 96 3
Entrada (b) Travis 50% 821
Hunter’s Crossing Bastrop 100% 510 54 49
La Conterra Williamson 100% 202 3 55
Westside at Buttercup Creek Williamson 100% 1,496 1 66
2,767 2,627 145 146

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% 384 721
Keller Tarrant 100% 1
Lakes of Prosper Collin 100% 157 130 4
Lantana Denton 100% 1,262 502 14
Maxwell Creek Collin 100% 959 42 10
Parkside Collin 100% 33 167
The Preserve at Pecan Creek Denton 100% 604 178 7
River's Edge Denton 100% 202
Stoney Creek Dallas 100% 271 425
Summer Creek Ranch Tarrant 100% 983 268 35 44
Timber Creek Collin 88% 601
Village Park Collin 100% 567 3 2
5,220 3,236 67 53

Houston

Barrington Kingwood Harris 100% 176 4
City Park Harris 75% 1,312 156 58 107
Harper’s Preserve (b) Montgomery 50% 513 1,215 30 49
Imperial Forest Harris 100% 45 383
Long Meadow Farms (b) Fort Bend 38% 1,568 229 190 115
Southern Trails (b) Brazoria 80% 925 71 1
Spring Lakes Harris 100% 348 25 4
Summer Lakes Fort Bend 100% 739 330 56
Summer Park Fort Bend 100% 102 97 34 62
Willow Creek Farms II Waller/Fort Bend 90% 90 175
5,818 2,660 394 337
 
 
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% 1,026 743 130 56
Oak Creek Estates Comal 100% 287 267 13
Olympia Hills Bexar 100% 742 12 10
Stonewall Estates (b) Bexar 50% 375 15
2,430 1,037 153 56
Total Texas 16,248 9,755 759 625
 
Colorado

Denver

Buffalo Highlands Weld 100% 164
Johnstown Farms Weld 100% 281 313 2 3
Pinery West Douglas 100% 86 20 106
Stonebraker Weld 100% 603
367 1,080 22 109
Georgia

Atlanta

Harris Place Paulding 100% 22 5
Montebello (b) (c) Forsyth 90% 220
Seven Hills Paulding 100% 870 210 26 113
West Oaks Cobb 100% 56
892 491 26 113
North & South Carolina

Charlotte

Ansley Park Lancaster 100% 304
Habersham York 100% 41 146 6
Walden Mecklenburg 100% 387
41 837 6

Raleigh

Beaver Creek (b) Wake 90% 6 187
6 187
47 1,024 6
Tennessee

Nashville

Beckwith Crossing Wilson 100% 12 87
Morgan Farms Williamson 100% 108 65
Vickery Park Williamson 100% 197
Weatherford Estates Williamson 100% 8 9
128 358
Wisconsin

Madison

Juniper Ridge/Hawks Woods (b) (c) Dane 90% 215
Meadow Crossing II (b) (c) Dane 90% 172
387
 
 
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% 88
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) (d)

Salt Lake 90% 181
173 589 288
Total 17,855 13,684 807 1,141

____________________

(a)

  Interest owned reflects our net equity interest in the project, whether owned directly or indirectly. There are some projects that have multiple ownership structures within them. Accordingly, portions of these projects may appear as owned, consolidated or accounted for using the equity method.

(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 first quarter-end 2016 follows:

 
Project Market

Interest
Owned (a)

Type Acres Description
Radisson Hotel & Suites (b) Austin 100% Hotel 2 413 guest rooms and suites
Dillon (c) Charlotte 100% Multifamily 3 379-unit luxury apartment
Eleven (d) Austin 100% Multifamily 3 257-unit luxury apartment
Elan 99 (e) Houston 90% Multifamily 17 360-unit luxury apartment
Acklen (e) Nashville 30% Multifamily 4 320-unit luxury apartment
HiLine (e) Denver 25% Multifamily 18 385-unit luxury apartment

_____________________

(a)

  Interest owned reflects our total interest in the project, whether owned directly or indirectly.

(b)

Sold on May 4, 2016 for $130.0 million.

(c)

Under contract to be sold and the transaction is expected to close in second quarter 2016.

(d)

Sold on April 18, 2016 for $60.2 million.

(e)

Construction in progress.

Source: Forestar Group Inc.

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