Slide 1: First Quarter 2014 Financial Results
First Quarter 2014 Financial Results May 7, 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: Real Estate Driving Segment Operating Results
Real Estate Driving Segment Operating Results 3 • Share-based compensation expense declined from $10.4 million in 1st quarter 2013 to $0.3 million in 1st quarter 2014 principally due to a decline in our stock price and the accounting impact on our cash settled awards. • 1st quarter 2014 real estate
Slide 4: Maintaining Financial Strength and Flexibility While Executing Growth Strategy
Maintaining Financial Strength and Flexibility While Executing Growth Strategy Execution of Strategic Initiatives Positions Forestar with Stronger Balance Sheet, Ample Liquidity and Cash Flows to Execute Growing FORward Initiatives 1 Fair value of convertible notes as of Q1 2014 is $101 million; pri
Slide 5: Real Estate First Quarter 2014 Highlights
Real Estate First Quarter 2014 Highlights Building Momentum By Accelerating Real Estate Sales and Building a Solid Multifamily Pipeline 5
Slide 6: Real Estate – Results Reflect Steady Demand and Forestar's Ability to Deliver
($1.1) $23.6 $19.4 $14.0 $4.8 ($13.5) $0 $10 $20 $30 $40 $50 Q1 2013 Undeveloped Land Sales Residential & Commercial Sales Income Producing Properties Opex Q1 2014 Q1 2014 Sales Highlights • Residential Lots – 974 lots • Up 118% vs Q1 2013 • Margins 7% higher vs Q1 2013, excluding bulk sales • Sold
Slide 7: Real Estate Capitalizing on Housing Recovery
7 * Actual results may vary A nn ua l L ot S al es 2006 Peak Sales = 3,600 lots Annual Lot Sales & Avg. Lot Margin 7 Real Estate Capitalizing on Housing Recovery $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 2010 2011 2012 2013 2014E* Lot Sales Average Lot
Slide 8: Disciplined Investing Developing Lots in Line with Builder Demand
Real estate acquisition and development activity driven by Return on Cost (ROC) discipline targeted at 35% (including imputed interest) which equates to ~ 20 - 25% IRR 8 Disciplined Investing Developing Lots in Line with Builder Demand Texas, 61% Georgia, 7% Tennessee, 6% Colorado, 19% Other, 7% Lot
Slide 9: Lantana - Acquisition of Partner Interest
Lantana - Acquisition of Partner Interest • Acquired interest of JV partner in Lantana community for $8 million • Located north of Dallas and Ft. Worth close to exemplary schools, major employers, a wide range of retail and recreational amenities. • Award-winning master-plan community with strong hi
Slide 10: Nashville – Morgan Farms
Nashville – Morgan Farms • Acquired 280 acre entitled site in Brentwood, Tennessee, suburb south of Nashville, in late 2012 for $7 million • 173 planned lots in luxury community with three housing price points: $700,000 - $1.5 million • Extensive amenities – club house, pool, three outdoor living sp
Slide 11: 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 98% 257 25% $40 – 45 $
Slide 12: Acklen Multifamily Development in Nashville
Accelerating Multifamily Value Creation Through Development of Attractive Site in Nashville, TN • 3.7 acre site purchased Q3 2012 • 320-unit Class A luxury multifamily project with studio, one and two bedroom units • Extensive amenities including clubhouse, fitness center, pool, cyber café, courtyar
Slide 13: Building Multifamily Pipeline Through Acquisition of Premier Sites
Building Multifamily Pipeline Through Acquisition of Premier Sites • Purchased 2.3 acre site for $11.7 million • Planned 280-unit Class A luxury multifamily project with studio, one and two bedroom units and extensive amenities • Location offers nearby employment, retail and recreational amenities i
Slide 14: Real Estate Business Capitalizing on Housing Recovery
Note: Includes consolidated ventures, but excludes mitigation. Forestar Real Estate Revenues (Excluding Timberland & Multifamily Revenues) Real Estate Business Capitalizing on Housing Recovery 14 • Capitalizing on housing recovery by driving residential lot and tract sales • Selling commercial tract
Slide 15: Other Natural Resources First Quarter 2014 Highlights
Other Natural Resources First Quarter 2014 Highlights Building Momentum Through Sustainable Harvests and Maximizing Recreational Lease Activity 15
Slide 16: Other Natural Resources Segment Results
Other Natural Resources Segment Results $1.3 ($0.1) ($0.5) ($1.7) -$1.0 $0.0 $1.0 $2.0 Q1 2013 Fiber Sales Operating Expenses Q1 2014 Se gm en t Ea rn in gs Q1 2014 Highlights • Sold over 57,000 tons of fiber • Average fiber pricing $15.77 per ton, up over 9% vs. Q1 2013 • 99% of land leased for rec
Slide 17: Oil and Gas First Quarter 2014 Highlights
Oil and Gas First Quarter 2014 Highlights Building Momentum By Driving Leasing and Exploration to Increase Production and Reserves 17
Slide 18: Severe Weather and Lower Royalties Impact Results
Severe Weather and Lower Royalties Impact Results Q1 2014 Highlights • Working interest volume up 27% vs. Q1 2013 • Working interest revenues up $3.4 million vs Q1 2013 • Exploration, production and DD&A up $4.7 million vs Q1 2013 • Royalty volume down 28% vs. Q1 2013 • 1,741 fee mineral acres lease
Slide 19: Core Bakken Locations Provide Significant Value Creation Potential
Core Bakken Locations Provide Significant Value Creation Potential 7,600 net mineral acres - Bakken / Three Forks *Major operators in Core Acreage Position 19 Bakken Operators* *Wells and acreage are approximate Bakken / Three Forks Percentile Ranked Production (60-90 Days) Bakken / Three Forks Leas
Slide 20: Bakken / Three Forks Drilling Activity
20 20 Bakken / Three Forks Leasehold Interests 2013 Gross Wells Producers Added During 2013 44 Producers at YE 2013 * 80 Q1 2014 Producers Added During Q1 2014 3 Average WI Q1 2014 3.13% Drilling & Awaiting Frac at End Q1 2014 21 Total Wells Planned 2014** 63 Expected Average WI 2014 10.0% Bakken /
Slide 21: Bakken / Three Forks Wells Expected to Generate Favorable Risk-Adjusted Returns
-15 -10 -5 0 5 10 15 ($1,500) ($1,000) ($500) $0 $500 $1,000 $1,500 20142015201620172018201920202021202220232024202520262027202820292030203120322033203420352036203720382039204020412042 V ol um e (M B O E) ($ M ill io ns ) 21 21 Bakken / Three Forks Wells Expected to Generate Favorable Risk-Adjusted
Slide 22: Kansas/Nebraska: Central Kansas Uplift & Western Kansas Plays
Kansas/Nebraska: Central Kansas Uplift & Western Kansas Plays Shallow Conventional Statistical Play 22 *Wells and acreage are approximate Kansas/Nebraska Acreage Position Kansas / Nebraska Leasehold Interests Key Metrics Net Mineral Acres Leased as of Q1 2014 195,000 Net Mineral Acres Leased in Apri
Slide 23: Kansas / Nebraska Drilling Activity Achieves 40% Success Rates
Kansas / Nebraska Drilling Activity Achieves 40% Success Rates 23 23 Kansas / Nebraska Leasehold Interests Activity Gross Wells Producers Added During 2013 36 Producers at YE 2013**** 97 Producers Added Q1 2014 *** 12 Total Wells Planned for Drilling in 2014 90 Key Metrics Success Rate FY 2013 47% S
Slide 24: Kansas / Nebraska Drilling Activity Accelerating Production and Value Growth
Kansas / Nebraska Drilling Activity Accelerating Production and Value Growth 24 24 Kansas / Nebraska Leasehold Interests Single-Well Economics Risked (Illustrative)* Estimated EUR 35 - 40K PV-10 $0.5 Returns (IRR) * (Based on 40% success rate) > 60% *Includes 1.5 dry hole costs @ $230,000 + 1.0 comp
Slide 25: Texas Development Activity – Drilling PUD's
Texas Development Activity– Drilling PUD’s Target - Cleveland Texas Panhandle: Bussard Cameron and JK Cameron Wells Single Well Parameters: • Total Depth: 8,000’TVD; 13,000’MD • Horizontal Well • EUR: 150 MBO + 675 MMCF • Well Cost: ~$4.5 MM • FOR WI: 14.8%; NRI: 11.5% Target - Tonkawa Single Well P
Slide 26: Focused on Increasing Earnings and Returns
Focused on Increasing Earnings and Returns Building Momentum By Accelerating Value Realization and Growing Net Asset Value • Development of existing locations • Evaluating non-core asset sales • Reduced capital plan for G&G and exploration 26
Slide 27: Strategic Initiatives Update
Strategic Initiatives Update Building Momentum By Accelerating Value Realization, Optimizing Transparency and Growing Net Asset Value 27
Slide 28: Strategic Initiative: Growing FORward
Strategic Initiative: Growing FORward Growing Long-Term Shareholder Value Growing Through Strategic and Disciplined Investment Increasing Returns 28 * Excludes gains from strategic timberland sales • Development of Existing Locations • Acquisitions and Extensions 2016 Targets: • Total Segment EBITDA
Slide 29: 2014 Capital Plan Weighted on Existing Communities and Locations
2014 Capital Plan Weighted on Existing Communities and Locations 29 Delivering Value Through Execution of Strategic Initiatives • Reduction in seismic, lease acquisitions/extensions and exploration • Lower drilling and completion – Bakken/Three Forks • Primarily for development of existing locations
Slide 30: Delivering Shareholder Value Through Execution of Strategic Initiatives
Delivering Shareholder Value Through Execution of Strategic Initiatives Growing Forward Initiatives On Track: • Disciplined investment in opportunities • Invested $73 million in Q1 2014 • Divesting $100 million of non-core assets • Sold $20 million of non-core assets in Q1 2014 • Cash flows and liqu
Slide 31: First Quarter 2014 Financial Results – Contact
First 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 31
Slide 32: First Quarter 2014 Appendix
First Quarter 2014 Financial Results First Quarter 2014 Appendix - Segment KPI’s - Earnings Reconciliations - Reconciliation of Non-GAAP Financial Measures 32
Slide 33: Real Estate Segment KPI's
Q1 2014 Q1 2013 Residential Lot Sales Lots Sold 974 446 Average Price / Lot $42,600 $51,900 Gross Profit / Lot $16,300 $21,100 Commercial Tract Sales Acres Sold -- 3 Average Price / Acre -- $382,700 Land Sales Acres Sold 9,329 919 Average Price / Acre $2,100 $2,900 Segment Revenues ($ in Millions) $
Slide 34: Oil and Gas Segment KPI's
Q1 2014 Q1 2013 Fee Leasing Activity Net Fee Acres Leased 1,741 310 Avg. Bonus / Acre $343 $316 Total Oil and Gas Interests* Oil Produced (Barrels) 172,000 147,900 Average Price / Barrel $87.18 $89.19 Natural Gas Produced (MMCF) 486.5 593.8 Average Price / MCF $4.37 $3.27 Total BOE 253,100 246,800 A
Slide 35: Other Natural Resources Segment KPI's
35 Q1 2014 Q1 2013 Fiber Sales Pulpwood Tons Sold 28,200 120,600 Average Pulpwood Price / Ton $9.66 $9.76 Sawtimber Tons Sold 28,900 70,900 Average Sawtimber Price / Ton $21.71 $22.36 Total Tons Sold 57,100 191,500 Average Price / Ton $15.77 $14.43 Recreational Leases Average Acres Leased 115,200 12
Slide 36: First Quarter 2014 Earnings Reconciliation
First Quarter 2014 Earnings Reconciliation $3.6 $8.3 $2.7 $6.6 ($2.8) ($1.2) ($0.4) ($0.2) $0.0 $5.0 $10.0 $15.0 Q1 2013 Share Based Comp Real Estate Oil & Gas Other Natural Resources Interest, Taxes & Other Expenses G&A Q1 2014 ($ in millions) 36 $0.11 $0.15 $0.06 ($0.07) ($0.03) ($0.02) ($0.01) $0
Slide 37: Total Segment EBITDA Reconciliation
37 Forestar’s Total 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 pr
Slide 38: Real Estate Segment EBITDA Reconciliation
38 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 39: Oil and Gas Segment EBITDAX Reconciliation
39 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 40: First Quarter 2014 Financial Results – Contact
First 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 40