Slide 1: Second Quarter 2014 Financial Results
Second Quarter 2014 Financial Results August 6, 2014 Growing Forward Through Strategic and Disciplined Investment and Increasing Returns
Slide 2: Notice To Investors
Notice To Investors This presentation 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,”
Slide 3: On Track to Deliver Growing FORward Strategic Initiatives
On Track to Deliver Growing FORward Strategic Initiatives 3 Initiatives Q2 2014 Results Accelerating total segment EBITDA and return on assets Total segment EBITDA of $47 million up 150% vs. Q2 2013 Growing through strategic and disciplined investments in existing markets and communities, and proven
Slide 4: Accelerating Real Estate and Oil and Gas Segment Earnings
Accelerating Real Estate and Oil and Gas Segment Earnings Total Segment Earnings Up Almost 200% in Q2 2014 vs. Q2 2013 4 • 2nd quarter 2014 real estate segment results include a $10.5 million gain, pre-tax, associated with the exchange of over 10,000 acres of timber leases for 5,400 acres of undevel
Slide 5: Improving Financial Strength and Liquidity While Executing Growth Strategy
Improving Financial Strength and Liquidity While Executing Growth Strategy Execution of Strategic Initiatives Positions Forestar with Strong Balance Sheet, Ample Liquidity and Assets Well Positioned to Generate Earnings and Cash Flow Going Forward 1 Fair value of convertible notes as of Q2 2014 is $
Slide 6: Real Estate Second Quarter 2014 Highlights
Real Estate Second Quarter 2014 Highlights Building Momentum By Accelerating Real Estate Sales and Building a Solid Multifamily Pipeline 6
Slide 7: Real Estate – Results Reflect Stable Demand and Forestar's Ability to Deliver
($1.6) ($0.1) $8.1 $10.5 $7.4 $3.0 $27.3 $0 $10 $20 $30 $40 Q2 2013 Gain on Ironstob Exchange Residential & Commercial Sales Undeveloped Land Sales Opex Income Producing Properties Q2 2014 Q2 2014 Highlights • Residential Lots – 537 lots • Up almost 50% vs Q2 2013 • Average $64,100 per lot, 11% high
Slide 8: Real Estate Capitalizing on Well Located Communities, Low Inventories and Solid Job Growth
* Actual results may vary A n n u al Lo t Sal e s 2006 Peak Sales = 3,600 lots Annual Lot Sales & Avg. Lot Margin 8 Real Estate Capitalizing on Well Located Communities, Low Inventories and Solid Job Growth $0 $5,000 $10,000 $15,000 $20,000 $25,000 $30,000 0 500 1,000 1,500 2,000 2,500 2008 2009 201
Slide 9: Ironstob Conversion – Value Creation
• Joint venture formed (Forestar 58% interest) with partial sale of 6,900 acres as conservation land • Converted over 10,000 acres of timber rights for ownership of 5,400 acres of undeveloped land from Ironstob venture • Monetize acres through retail program • ~2,000 acres of undeveloped land remain
Slide 10: Building Solid Pipeline of Multifamily Development Opportunities
Building Solid Pipeline of Multifamily Development Opportunities (Proforma) Proforma Project Cash Flows Expected Forestar Cash Flows Project Market % Complete Units FOR Ownership Total Development Cost Expected Project NOI FOR Equity FOR Total Cash Cash Multiple* Eleven Austin 100% 257 25% $40 – 45
Slide 11: Accelerating Value Realization
Note: Includes consolidated ventures, but excludes mitigation. Forestar Real Estate Revenues (Excluding Timberland & Multifamily Revenues) Capitalizing on Well Located Communities, Low Inventories and Forestar’s Ability to Deliver 11 • Driving residential lot and tract sales in good locations and he
Slide 12: Other Natural Resources Second Quarter 2014 Highlights
Other Natural Resources Second Quarter 2014 Highlights Building Momentum Through Sustainable Harvests and Delivering Economic Water Solutions 12
Slide 13: Other Natural Resources Segment Results
Other Natural Resources Segment Results $1.0 $0.3 ($0.6) $2.1 $0.7 $0.7 $0.0 $1.0 $2.0 $3.0 Q2 2013 Water Reservation Gain on Termination of Timber Lease Operating Expenses Fiber Sales Q2 2014 Se gm en t Ea rn in gs Q2 2014 Highlights • Signed amended groundwater reservation agreement, generating $0
Slide 14: Oil and Gas Second Quarter 2014 Highlights
Oil and Gas Second Quarter 2014 Highlights Building Momentum By Driving Leasing and Exploration to Increase Production and Reserves 14
Slide 15: Investments and Asset Sales Drive Higher EBITDAX
Investments and Asset Sales Drive Higher EBITDAX Q2 2014 Highlights • Working interest volume up 56% vs. Q2 2013 • Mineral royalties volume down 28% vs. Q2 2013 • Sold leasehold interest in 223 net mineral acres in the Bakken/Three Forks generating $1.2 million gain • Sold working interest in 97 gro
Slide 16: Drilling and Completion Investments Driving Production Growth and Improved EBITDAX
16 Drilling and Completion Investments Driving Production Growth and Improved EBITDAX 50,000 100,000 150,000 200,000 250,000 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 B O E Working Interest Legacy Minerals Quarterly Oil & Gas Production Quarterly Oil & Gas EBITDAX $0 $2,000 $4,000 $6,0
Slide 17: Initial Production Rates and Well Performance Improving
HALCON Ft. Berthold 3B-10-4H FOR : 18.75% IP : 2,301 BOEPD HALCON Ft. Berthold 3B-10-5H FOR : 18.75% IP : 1,856 BOEPD Initial Production Rates and Well Performance Improving 17 * Represents highest initial production rates on a barrel of oil equivalent per day Note: wells are non-operated Bakken Wel
Slide 18: Bakken / Three Forks Drilling Activity
18 18 Bakken / Three Forks Leasehold Interests 2014 Producers Added During Q1 2014 3 Producers Added During Q2 2014 17 Average WI Q2 2014 ~7% Drilling & Awaiting Frac at End Q2 2014 12 Total Wells Drilled 2014 Est* 50 Expected WI Average - Wells Drilled in 2014 ~10% Bakken / Three Forks Drilling Act
Slide 19: Accelerating Value Realization and Growing Net Asset Value
Accelerating Value Realization and Growing Net Asset Value Focused on investments that accelerate earnings and cash flow Increasing oil production and proven reserves Expected working interest investment returns above cost of capital 19 0 50 100 150 200 250 300 350 $0 $5 $10 $15 $20 $25 $30 Q2 2010
Slide 20: Strategic Initiatives Update
Strategic Initiatives Update Building Momentum By Accelerating Value Realization, Optimizing Transparency and Growing Net Asset Value 20
Slide 21: Growing FORward Initiatives on Track
Growing FORward Initiatives on Track Growing Long-Term Shareholder Value Growing Through Strategic and Disciplined Investment Increasing Returns 21 • Development of Existing Locations • Acquisitions and Extensions 2016 Targets: • Total Segment EBITDA of $200 million • Return on Assets of 10.0% • Rep
Slide 22: Second Quarter 2014 Financial Results
Second Quarter 2014 Financial Results For questions, please contact: Anna Torma SVP Corporate Affairs Forestar Group Inc. 6300 Bee Cave Road Building Two, Suite 500 Austin, TX 78746 512-433-5312 annatorma@forestargroup.com 22
Slide 23: Second Quarter 2014 Appendix
Second Quarter 2014 Financial Results Second Quarter 2014 Appendix - Segment KPI’s - Earnings Reconciliations - Reconciliation of Non-GAAP Financial Measures 23
Slide 24: Real Estate Segment KPIs
Q2 2014 Q2 2013 YTD Q2 2014 YTD Q2 2013 Residential Lot Sales Lots Sold 537 360 1,511 806 Average Price / Lot $64,100 $57,600 $50,200 $54,400 Gross Profit / Lot $27,400 $24,600 $20,200 $22,700 Commercial Tract Sales Acres Sold 3 34 3 37 Average Price / Acre $96,800 $103,100 $96,800 $125,700 Land Sal
Slide 25: Oil and Gas Segment KPIs
Q2 2014 Q2 2013 YTD Q2 2014 YTD Q2 2013 Fee Leasing Activity Net Fee Acres Leased 1,380 515 3,121 825 Avg. Bonus / Acre $352 $343 $347 $333 Total Oil and Gas Interests* Oil Produced (Barrels) 225,300 152,700 382,300 286,100 Average Price / Barrel $95.38 $90.64 $93.75 $92.86 NGL Produced (Barrels) 12
Slide 26: Other Natural Resources Segment KPIs
26 Q2 2014 Q2 2013 YTD Q2 2014 YTD Q2 2013 Fiber Sales Pulpwood Tons Sold 58,200 128,100 86,400 248,700 Average Pulpwood Price / Ton $11.42 $8.66 $10.85 $9.19 Sawtimber Tons Sold 49,600 56,900 78,500 127,800 Average Sawtimber Price / Ton $23.23 $23.87 $22.67 $23.04 Total Tons Sold 107,800 185,000 16
Slide 27: Second Quarter 2014 Earnings Reconciliation
Second Quarter 2014 Earnings Reconciliation $0.5 $14.8 $3.4 $12.5 $0.7 ($1.1) ($1.0) ($0.2) $0.0 $5.0 $10.0 $15.0 $20.0 Q2 2013 Real Estate Oil & Gas Other Natural Resources Share Based Comp Interest, Taxes & Other Expenses G&A Q2 2014 ($ in millions) 27 $0.02 $0.29 $0.08 $0.02 ($0.03) ($0.03) ($0.0
Slide 28: Reconciliation of Non-GAAP Financial Measures: Segment EBITDA
28 Forestar’s Segment EBITDA is a non-GAAP financial measure within the meaning of Regulation G of the Securities and Exchange Commission. Non-GAAP financial measures are not in accordance with, or an alternative to, U.S. Generally Accepted Accounting Principles (GAAP). The company believes presenti
Slide 29: Reconciliation of Non-GAAP Financial Measures: Oil and Gas EBITDAX
29 Forestar’s Oil and Gas Segment EBITDAX is a non-GAAP financial measure within the meaning of Regulation G of the Securities and Exchange Commission. Non-GAAP financial measures are not in accordance with, or an alternative to, U.S. Generally Accepted Accounting Principles (GAAP). The company beli
Slide 30: Second Quarter 2014 Financial Results
Second Quarter 2014 Financial Results For questions, please contact: Anna Torma SVP Corporate Affairs Forestar Group Inc. 6300 Bee Cave Road Building Two, Suite 500 Austin, TX 78746 512-433-5312 annatorma@forestargroup.com 30