Forestar Group Inc · NYSE:FOR
Forestar — Q3 2021 Earnings Presentation
26 slides from Forestar's earnings presentation, 2021
Slide 1: Investor Presentation 3Q 2021
Investor Presentation 3Q 2021 1
Slide 2: Forward-Looking Statements
F O R W A R D ‐ LO 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 RV I E W Forestar Group Inc. (“Forestar” or “FOR”) is a national, highly differentiated residential lot developer for the affordable single-family home market • Develop and sell lots for single-family homes to D.R. Horton and Operations in 55 markets across 22 states(1) other loc
Slide 4: The Forestar Value Proposition
T H E F O R E S TA R VA LU E P RO P O S I T I O N DIFFERENTIATED BUSINESS • Return focused residential lot development business model MODEL DESIGNED TO • Higher turnover, lower risk lot manufacturing strategy focused on returns ADDRESS A MARKET NEED • Under-served lot development market with lack of
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 Manufacturing Business Model Strong Balance Strategic Sheet and Liquidity Relationship With Position D.R. Horton Proven / Seasoned Management Team Long-Term Market With Decades of Share Gains Real Estate Experience Hom
Slide 6: Compelling Growth Story
C O M P E L L I N G G ROW T H S TO RY Based on FYTD results and current market conditions, Forestar expects to grow its lot deliveries 49% to 54% in fiscal 2021 and to generate approximately $1.3 billion of revenue, with a pre-tax profit margin of 11.5% to 12.0%* Lot Deliveries Revenue ~$1,300 15,50
Slide 7: Track Record of Profitability and Growth
T R AC K R E C O R D O F P RO F I TA B I L I T Y A N D G ROW T H Forestar is delivering consistent growth and margin expansion through the execution of the strategic plan and a disciplined, returns-focused approach to capital allocation Lot Deliveries Revenue 14,990 $1,255 13,155 $1,120 11,518 10,37
Slide 8: 3Q FY21 Financial Highlights
3 Q F Y 2 1 F I NA N C I A L H I G H L I G H T S Compelling growth story with increasing profitability • 4th consecutive quarter of pre-tax profit margin improvement • 5th consecutive quarter of return on equity (ROE) improvement(1) Lot Deliveries Revenue Pre-Tax Profit Margin(2) $312.9 12.5% 3,858
Slide 9: Highly Strategic Alignment with DHI
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 • Significant built-in demand for lots lots across DHI’s national footprint (96 STRONG AND markets in 30 states) • Improved
Slide 10: DHI Track Record Provides Roadmap to FOR
D H I T R AC K R E C O R D P ROV I D E S ROA D M A P TO F O R DHI’s 28-year public track record provides a guide 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 U.S. Single-Family Houses Sol
Slide 11: FOR's Growing Share of DHI's Lot Needs
F O R ’ S G ROW I N G S H A R E O F D H I ’ S LOT N E E D S FOR is quickly becoming an essential lot supplier to DHI DHI Closings FOR Lots Sold to DHI as a % of Closings 90,000 20% 18% 80,000 18% 16% 16% 70,000 13% 14% 60,000 12% 50,000 10% 40,000 7% 8% 30,000 6% 20,000 4% 10,000 1% 2% 0% 0 0% FY 20
Slide 12: Land and Development Investments
L A N D A N D D E V E LO P M E N T I N V E S T M E N T S Forestar expects to invest more than $1.6 billion in land acquisition and development in fiscal 2021 Fiscal Year Ended Quarter Ended Land Development Land Acquisition Land Development Land Acquisition $477 $1,054 $405 $377 $850 $320 $295 $170
Slide 13: Growing Lot Position
G ROW I N G LOT P O S I T I O N Consistent with Forestar’s focus on capital efficiency, the portion of its land and lot supply that is controlled via purchase contracts is increasing, supporting higher returns in the future Owned Controlled 96,600 84,500 77,500 32,400 25,800 60,500 25,200 50,700 18,
Slide 14: Expanding Lot Sourcing Capabilities
E X PA N D I N G LOT S O U RC I N G C A PA B I L I T I E S • Forestar sourced lots have increased to 51% of total owned lots, up from 34% a year ago, which is expected to drive increases in gross and pre-tax profit margins • Forestar is targeting a 3- to 4-year owned lot inventory FOR Sourced Owned
Slide 15: Diversified Footprint Markets
D I V E R S I F I E D F O OT P R I N T 5 5 M A R K E T S | 2 2 S TA T E S Portfolio of 96,600 lots as of June 30, 2021 / FOR markets / states DHI states where FOR does not currently operate FOR division offices open as of 6/30/21 Lot Position by State and Markets as of 6/30/21 Of total lot position
Slide 16: Uniquely Positioned to Provide 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 F I N I S H E D LOT 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 finished lots Optioned Land/
Slide 17: Seasoned Leaders with Decades of Experience
SEASONED LEADERS WITH DECADES OF EXPERIENCE Management team includes land development veterans experienced in consolidating market share and navigating through industry and economic cycles DON TOMNITZ DAN BARTOK JIM ALLEN Executive Chairman CEO CFO Formerly President & CEO of DHI for Joined FOR in D
Slide 18: Financial Position and Policy
F I NA N C I A L P O S I T I O N A N D P O L I C Y • Forestar is well-positioned with low net leverage of 37.8% and strong liquidity position of ~$470 million • In April 2021, Forestar issued $400 million of 3.85% senior notes due 2026 replacing $350 million of 8.00% senior notes due 2024, which wil
Slide 19: Appendix
APPENDIX CR «8. ‘) FORESTAR *
Slide 20: Business Overview
BU S I N E S S OV E RV 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 cos
Slide 21: Unique Lot Manufacturer Business Model
U N I Q U E LOT M A N U FAC T U R E R BU 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 TYPICAL LAND DEVELOPER Short duration, fully-entitled lot development projects X Long-term, often complex or unentitled, real estate pr
Slide 22: Income Statement
I N C O M E S TAT E M E N T 3 MONTHS ENDED 9 MONTHS ENDED 6/30/2021 6/30/2020 6/30/2021 6/30/2020 Residential lots sold: 3,858 2,023 11,013 6,396 Development projects 3,330 1,556 9,606 4,234 Lot banking projects 528 467 1,407 2,162 Average sales price per lot(1) $ 80,700 $ 79,900 $ 81,600 $ 83,800 (
Slide 23: Balance Sheet
BA L A N C E S H E E T 6/30/2021 9/30/2020 6/30/2020 Cash and cash equivalents $ 116.0 $ 394.3 $ 355.6 Real estate 1,861.4 1,309.7 1,287.1 Investment in unconsolidated ventures 0.7 3.6 5.5 Other assets 36.9 32.3 37.2 Total assets $ 2,015.0 $ 1,739.9 $ 1,685.4 Debt $ 704.1 $ 641.1 $ 640.6 Earnest mon
Slide 24: Master Supply Agreement (MSA)
M A S T E R S U P P LY AG 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 • Provid
Slide 25: Stockholder's Agreement
S TO C K H O L D E R ’ S AG 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
S H A R E D S E RV I C E S AG R E E M E N T • 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 manag