Forestar Group Inc · NYSE:FOR
Forestar — Q2 2023 Earnings Presentation
31 slides from Forestar's earnings presentation, Apr 20, 2023
Slide 1: Investor Presentation Q2 2023
Investor Presentation Q2|23 Wop Fore
Slide 2: Forward-Looking Statements
FORWARD-LOOKING STATEMENTS 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 will not be materia
Slide 3: Forestar Overview
FORESTAR OVERVIEW RETURNS Track record of solid operational results FOCUSED Forestar Group Inc. (“Forestar” or “FOR”) is a highly differentiated, pure-play, PRUDENT Fully-entitled projects with short durations residential lot developer for the affordably- priced single-family home market Investing c
Slide 4: Q2 FY 2023 Financial Highlights
Q2 FY 2023 FINANCIAL HIGHLIGHTS Solid execution during a market transition • Generated $302 million of revenues and $27 million of net income on 2,979 lots sold • Pre-tax profit margin of 11.9% • Total liquidity increased 12% to $654 million • Real estate book value of $2.0 billion • Return on equit
Slide 5: Forestar Supplies the First Input to Building a Home
FORESTAR SUPPLIES THE FIRST INPUT TO BUILDING A HOME Key Components to Building a Home: • Finished Lot (~20-30% of ASP) • Concrete • Lumber • Roofing materials • Siding / Brick • Windows • Insulation • HVAC / Plumbing / Electrical • Cabinets / Flooring / Paint • Appliances Note: ASP refers to the av
Slide 6: The Market Opportunity
THE MARKET OPPORTUNITY As the leading pure-play residential lot supplier in the nation, Forestar has become a reliable source for finished lots and will continue to gain market share 2022 U.S. Single-Family Housing Starts ~65% of new housing starts were for single-family homes ~1,004,900 Estimated T
Slide 7: Uniquely Positioned to Provide Finished Lots
UNIQUELY POSITIONED TO PROVIDE FINISHED LOTS Builders' preference for ‘land lighter’ models enhances opportunity, and in times of economic uncertainty, many homebuilders shift their land strategies to slow raw land purchases and focus on purchasing finished lots Optioned Land/Lot Position as a Numbe
Slide 8: Project-Level Land Development Financing Snapshot
PROJECT-LEVEL LAND DEVELOPMENT FINANCING SNAPSHOT According to NAHB’s Survey on Acquisition, Development & Construction Financing, credit continued to become less available and more expensive on loans for acquisition and development in the fourth quarter of 2022 Percent of Respondents Saying Land De
Slide 9: Constrained Lot Supply
CONSTRAINED LOT SUPPLY • Availability of lots is improving from historic lows, however the 4Q 2022 data still reflects a significantly undersupplied market nationally • New home construction has been constrained by the availability of lots, labor and materials shortages, increased regulation and tig
Slide 10: Intermediate Term Growth Goals
INTERMEDIATE TERM GROWTH GOALS Forestar has a visible path to capturing 5% market share within the highly-fragmented U.S. single-family residential lot development industry* Organic Inorganic Margin Annual Lot Deliveries Growth Growth Expansion • Gain market share within • Expand into new markets •
Slide 11: Manufacturing Approach to Land Development
MANUFACTURING APPROACH TO LAND DEVELOPMENT Forestar has built a fundamentally strong business model with repeatable results, rooted in a relentless focus on returns Short duration, fully- Large scale with Returns-focused, with strict Predictable operating Strong liquidity and entitled lot national f
Slide 12: Unique Approach to Lot Development — DuPont Analysis
UNIQUE APPROACH TO LOT DEVELOPMENT — DUPONT ANALYSIS Forestar’s lot manufacturing strategy has positioned the Company closer to a building products manufacturer than a traditional land developer Return on Equity(1) Pre-Tax Profit Margin(2) 31.8% 37.5% 15.2% 15.1% 10.0% 8.8% 16.3% 11.7% 11.4% 5.2% (2
Slide 13: Diversified National Footprint
DIVERSIFIED NATIONAL FOOTPRINT 52 MARKETS | 20 STATES Portfolio of 76,400 lots as of March 31, 2023 / FOR markets / states DHI states where FOR does not currently operate Lot Position by State and Markets as of 3/31/23 Of total lot position at 3/31/23, 57,800 are owned and 18,600 are controlled thro
Slide 14: Highly Strategic Alignment with DHI
HIGHLY STRATEGIC ALIGNMENT WITH DHI BENEFITS TO FOR BENEFITS TO DHI • Supports Forestar’s national platform • Long-term consistent supplier of finished lots SYMBIOTIC across DHI’s national footprint (110 markets in • Significant built-in demand for lots RELATIONSHIP 33 states) • Improved access to c
Slide 15: Master Supply Agreement
MASTER SUPPLY AGREEMENT The Master Supply Agreement formalizes the business relationship with DHI as both companies identify real estate opportunities and protects FOR's interests via the Right of First Offer process A Right of First Offer (ROFO) is very 1 Lots Sourced by DHI different than a Right
Slide 16: DHI Track Record Provides Roadmap to FOR
DHI TRACK RECORD PROVIDES ROADMAP TO FOR DHI’s 30-year public track record provides a blueprint to FOR to achieve its own growth, consolidation and market share gains Total New U.S. Single-Family Houses Sold ('000s) DHI’s Homes Closed as a Percentage of New U.S. Single-Family Houses Sold Represents
Slide 17: FOR Is an Essential Lot Supplier to DHI
FOR IS AN ESSENTIAL LOT SUPPLIER TO DHI FOR has expanded its market share within DHI and has a goal to supply approximately one third of DHI's annual lot needs DHI Homes Started FOR Lots Sold to DHI as a % of Homes Started 100,000 30% 90,000 80,000 25% 70,000 60,000 18% 20% 16% 17% 50,000 40,000 13%
Slide 18: Proactively Reduced New Land Investment
PROACTIVELY REDUCED NEW LAND INVESTMENT As the public homebuilders continued to quickly build their owned and controlled lot positions, Forestar remained disciplined and proactively reduced quarterly land investment to wait for a more attractive entry point Aggregate Public Builder Owned and Control
Slide 19: Land and Development Investments
LAND AND DEVELOPMENT INVESTMENTS Forestar remains very selective when investing in new projects and is focused on managing development in phases to strive to deliver finished lots at a pace that matches market demand, consistent with its focus on capital efficiency and returns As of the Fiscal Year
Slide 20: Lot Position
LOT POSITION • Forestar's owned and controlled lot position has decreased as the majority of investment has shifted towards land development, while selectively replenishing lot supply to support future growth • It is a common industry practice for homebuilders to source land acquisition opportunitie
Slide 21: Lot Sourcing Capabilities
LOT SOURCING CAPABILITIES FOR's improvement in gross profit margin is primarily due to increased margins on lot sales from development projects sourced by Forestar TTM FOR Sourced Lots Sold as a % of Total Lots Sold TTM Gross Profit Margin 36% 35% 22.4% 33% 22.1% 21.3% 25% 20.0% 20% 18.7% 3/31/22 6/
Slide 22: Solid Balance Sheet and Liquidity Position
SOLID BALANCE SHEET AND LIQUIDITY POSITION • Forestar is well-positioned with conservative net leverage(1) of 1.9x, net debt to capital(2) of 25.2% and a strong liquidity position of ~$650 million at 3/31/23 • Balanced financing plan includes both debt and equity — net debt to capital(2) target of ≤
Slide 23: Committed Leadership with Decades of Experience
COMMITTED LEADERSHIP WITH DECADES OF EXPERIENCE Management team includes land development veterans experienced in consolidating market share and navigating through industry and economic cycles “ We have a high performing team that are relentless DON TOMNITZ DAN BARTOK problem solvers. Executive Chai
Slide 24: Appendix
APPENDIX bey FORESTAR *
Slide 25: Business Overview
BUSINESS OVERVIEW 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 cost) • Phased
Slide 26: Income Statement
INCOME STATEMENT 3 MONTHS ENDED 6 MONTHS ENDED 3/31/23 3/31/22 3/31/23 3/31/22 Residential lots sold: 2,979 5,788 5,242 10,304 Development projects 2,979 4,806 5,242 9,187 Lot banking projects — 195 — 330 Deferred development projects — 787 — 787 Average sales price per lot(1) $ 84,700 $ 81,900 $ 87
Slide 27: Adjusted EBITDA Reconciliation
ADJUSTED EBITDA RECONCILIATION Reconciliation of Adjusted Non-GAAP Financial Measures to their GAAP equivalents 3 MONTHS ENDED 12 MONTHS ENDED 3/31/23 3/31/22 3/31/23 3/31/22 Net income attributable to Forestar Group Inc. $ 26.9 $ 47.8 $ 138.2 $ 148.1 Net income attributable to noncontrolling intere
Slide 28: Balance Sheet
BALANCE SHEET 3/31/23 9/30/22 3/31/22 Cash and cash equivalents $ 286.7 $ 264.8 $ 233.7 Real estate 1,988.0 2,022.4 1,960.5 Investment in unconsolidated ventures 0.5 0.5 0.5 Other assets 61.1 55.3 36.9 Total assets $ 2,336.3 $ 2,343.0 $ 2,231.6 Debt $ 706.8 $ 706.0 $ 705.3 Accrued development costs
Slide 29: Master Supply Agreement
MASTER SUPPLY AGREEMENT The Master Supply Agreement (MSA) formalizes the business relationship with DHI as both companies identify real estate opportunities and protects FOR's interests via the Right of First Offer (ROFO) process • A ROFO is different than a Right of First Refusal (ROFR) ◦ The ROFO
Slide 30: Stockholder's Agreement
STOCKHOLDER’S AGREEMENT • 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 – DHI has the right
Slide 31: 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