Forestar Group Inc · NYSE:FOR
Forestar — Q4 2020 Earnings Presentation
26 slides from Forestar's earnings presentation, Nov 13, 2020
Slide 1: Investor Presentation Q4 2020
Investor Presentation Q4 2020
Slide 2: Forward Looking Statements
F O R W A R D L O O K I N G S TAT E M E N T S This presentation may include “forward‐looking statements” as defined by the Private Securities Litigation Reform Act of 1995. Although Forestar believes any such statements are based on reasonable assumptions, there is no assurance that actual outcomes
Slide 3: Forestar Overview
F O R E S TA R OV E R V I E W • Forestar Group Inc. (“Forestar” or “FOR”) is a highly Operations in 49 markets across 21 states(1) differentiated, national residential lot developer – Develop and sell lots for single‐family homes to D.R. Horton and other local, regional and national homebuilders – F
Slide 4: The Forestar Value Proposition
T H E F O R E S TA R VA LU E P R O P O S I T I O N DIFFERENTIATED BUSINESS MODEL DESIGNED TO ADDRESS A MARKET NEED • Return focused residential lot development business model • Higher turnover, lower risk lot manufacturing strategy focused on returns • Under‐served lot development market with lack o
Slide 5: Forestar Investment Highlights
F O R E S TA R I N V E S T M E N T H I G H L I G H T S Unique Return‐ Focused Lot Strategic Relationship Long‐Term Market Geographic Manufacturing With D.R. Horton Share Gains Diversification Business Model Proven / Seasoned Homebuilders’ Management Team Primary Focus on Strong Balance Increasing Pr
Slide 6: Unique Lot Manufacturer Business Model
U N I Q U E L OT M A N U FA C T U R E R B U S I N E S S M O D E L FOR’s unique lot manufacturing model is highly differentiated from that of a typical land developer • Business model designed to operate consistently at scale, while minimizing risk • At scale, FOR’s high turnover, lower risk “lot man
Slide 7: Business Overview
B U S I N E S S OV E R V I E W Forestar Capital Deployment and Cash Generation Source land Place land under Close acquisition Lot development Deliver finished acquisition contract and complete of entitled land (~70% finished lot cost) lots to builders opportunities due diligence (~30% finished lot c
Slide 8: Benefits of Highly Strategic Alignment with DHI
B E N E F I T S O F H I G H LY S T R AT E G I C A L I G N M E N T W I T H D H I BENEFITS TO FOR BENEFITS TO DHI • Supports Forestar’s national platform • Long‐term consistent supplier of finished lots across DHI’s national footprint (88 • Significant built‐in demand for lots STRONG AND markets in 29
Slide 9: DHI Growth, Consolidation and Market Share Gains Provide Roadmap to FOR
D H I G R O W T H , C O N S O L I DAT I O N A N D M A R K E T S H A R E G A I N S P R OV I D E R OA D M A P TO F O R Total TotalNew U.S. U.S. Single‐Family Single‐Family NewHouses Sold ('000s) Home Sales (‘000s) Series DHI’s 3 Closed as a Percentage Homes 1,400 of U.S. Single‐Family New Home Sales 1
Slide 10: FOR's Growing Share of DHI's Lot Needs
F O R ’ S G R O W I N G S H A R E O F D H I ’ S L OT N E E D S Lots sold to DHI as a percentage of DHI’s closings have more than doubled year-over-year 70,000 18% 16% 16% 60,000 14% 50,000 12% 40,000 10% 30,000 7% 8% 6% 20,000 4% 10,000 1% 2% 0% 0 0% FY 2017 FY 2018 FY 2019 FY 2020 DHI Closings FOR
Slide 11: Significant Growth Ramp
SIGNIFICANT GROWTH RAMP Forestar delivered over 10,000 lots in fiscal 2020, more than double its fiscal 2019 deliveries Based on current market conditions, Forestar expects to grow its lot deliveries 25% to 30% in fiscal 2021 and to generate approximately $1.1 billion of revenue, with a pre-tax
Slide 12: Land and Development Investments
LAND AND DEVELOPMENT INVESTMENTS Despite briefly restricting its land purchase activity earlier in the year due to C-19, Forestar invested more than $1.0 billion in land acquisition and development in fiscal 2020 and expects to invest at least $1.25 billion in fiscal 2021 Fiscal Year Ended Quarter E
Slide 13: Lot Position
LOT POS ITION • Forestar is well-positioned to continue to significantly grow its lot deliveries • Consistent with Forestar’s focus on capital efficiency, the portion of its land and lot supply that is controlled via purchase contracts has increased 60,500 52,300 50,700 18,100 44,500 16,500 12,400 3
Slide 14: Sourcing of Owned Lots
SOURCING OF OWNED LOTS As Forestar has expanded its operating platform, Forestar-sourced lots have increased to 39% of total owned lots, up from 28% a year ago, which is expected to drive improved pre-tax profit margins 45,000 40,000 35,000 16,700 13,100 30,000 11,100 9,400 25,000 8,200 20,000 15,00
Slide 15: Diversified Footprint
DIVERSIFIED FOOTPRINT Own and control 60,500 lots at 9/30/2020 72% of owned lots are under contract to sell or subject to a right of first offer to DHI Targeting a 3‐ to 4‐year owned lot inventory 9/30/20 49 Markets 21 States 9/30/18 24 Markets 14 States / Current FOR markets / states DHI states whe
Slide 16: Primary Focus on Attractive Entry-Level Segment
P R I M A RY F O C U S O N AT T R A C T I V E E N T RY- L E V E L SEGMENT • Majority of recent Forestar investments have been $200k ‐ $300k homes average sales price (ASP) represents focused on lots for homes at affordable / entry‐level the largest cohort of homes sold by D.R. Horton and the broader
Slide 17: Uniquely Positioned to Provide Residential Finished Lots
U N I Q U E LY P O S I T I O N E D TO P R OV I D E R E S I D E N T I A L F I N I S H E D L OT S Builders preference for ‘land lighter’ models enhances opportunity, and in times of economic uncertainty, homebuilders shift their land strategies to slow raw land purchases and focus on purchasing finish
Slide 18: Seasoned Leaders with Decades of Land Development Experience
SEASONED LEADERS WITH DECADES OF LAND DEVELOPMENT EXPERIENCE Experienced management team that knows how to consolidate market share and navigate through industry and economic cycles DON TOMNITZ DAN BARTOK JIM ALLEN Executive Chairman CEO CFO Formerly President & CEO of DHI for Joined FOR in December
Slide 19: Financial Position and Policy
FINANCIAL POSITION AND POLICY Forestar is well-positioned with low net leverage of 22.1% and strong liquidity position of ~$740 million FINANCIAL POSITION AS OF 9/30/20 DISCIPLINED FINANCIAL POLICY • $394M unrestricted cash and cash equivalents • Strict lot development investment underwriting: • $38
Slide 20: Q4 2020 and FY 2020 Highlights
Q4 2020 AND FY 2020 HIGHLIGHTS Operating highlights - Residential lots sold increased 108% to 3,977 lots in Q4 FY 2020 compared to 1,908 lots in Q4 FY 2019 - 60,500 lots at 9/30/20, of which 42,400 were owned and 18,100 were controlled through purchase contracts 30,400, or 72%, of owned lots wer
Slide 21: Appendix
APPENDIX ky FORESTAR
Slide 22: Income Statement
I N C O ME S TATE ME N T 3 MONTHS ENDED 12 MONTHS ENDED 9/30/2020 9/30/2019 9/30/2020 9/30/2019 Residential lots sold: 3,977 1,908 10,373 4,132 Development projects 3,082 1,013 7,316 2,610 Lot banking projects 895 895 3,057 1,522 Average sales price per lot (1) $ 86,000 $ 90,400 $ 84,600 $ 84,200 Re
Slide 23: Balance Sheet
BA L A NC E SH E ET 9/30/2020 9/30/2019 Cash and cash equivalents $ 394.3 $ 382.8 Real estate 1,309.7 1,028.9 Investment in unconsolidated ventures 3.6 7.3 Other assets 32.3 19.3 Deferred tax asset, net ‐ 17.4 Total assets $ 1,739.9 $ 1,455.7 Debt $ 641.1 $ 460.5 Earnest money on sales contracts 98.
Slide 24: Master Supply Agreement (MSA)
M A S T E R S U P P LY A G R E E M E N T ( M S A ) • Defines business relationship between DHI and FOR as both companies identify residential real estate opportunities • Provides DHI the right of first offer (ROFO) to purchase up to 100% of the lots from DHI sourced projects at market prices • Provi
Slide 25: Stockholder's Agreement
S TO C K H O L D E R ’ S A G R E E M E N T • FOR Board of Directors must include at least three independent directors (currently has four) • As long as DHI owns at least 20% of FOR’s outstanding equity: – DHI has the right to designate individuals to FOR’s Board based on DHI’s ownership percentage –
Slide 26: Shared Services Agreement
SHARED SERVICES AGREEMENT • Shared Services Agreement between FOR and DHI defines the terms under which DHI may provide administrative, compliance, operational and procurement services to FOR • Scope and cost of services provided to FOR are mutually agreed upon by FOR and DHI management teams and ar