Forestar Group Inc · NYSE:FOR
Forestar — Q1 FY2020 Earnings Presentation
31 slides from Forestar's earnings presentation, January 2020
Slide 1: Investor Presentation Q1 2020
I N V E S T O R P R E S E N T A T I O N Q1 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 51 markets across 20 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 SIGNIFICANT MARKET NEED • Returns focused residential lot development business model • High turnover, lower risk lot manufacturing strategy focused on returns • Under‐served lot development market
Slide 5: Executing on Our Plans
EXECUTING ON OUR PLANS GUIDANCE(1) ACTUAL Lots delivered 4,000 4,132 Revenues $300M to $350M $428M Fiscal 2019 Pre-tax profit margin Mid-single digit 11% Opportunistically $350M debut bond offering Capital markets access capital markets ~$100M equity offering Investment in land acquisition
Slide 6: 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 Returns‐ Strategic Relationship Geographic Focused Lot With D.R. Horton Significant Growth Diversification and Manufacturing Supports Ability to Scale Trajectory Growing Footprint Business Model and De‐Risks Expansion Proven / Seasoned Ho
Slide 7: 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 achieve scale and consistency, while minimizing risk • At scale, FOR’s high turnover, lower risk “lot man
Slide 8: 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 9: Investment Portfolio
INVESTMENT PORTFOLIO • Shorter duration, phased developments with lower market risk • Includes projects sourced by either DHI or FOR to sell lots to both DHI and other builders • Minimum annual returns on inventory of 15%(1) LOT • Gross margin percentage varies with project duration and the extent o
Slide 10: Benefits of Highly Strategic FOR and DHI Alignment
B E N E F I T S O F H I G H LY S T R AT E G I C F O R A N D D H I ALIGNMENT BENEFITS TO FOR BENEFITS TO DHI • Enhanced, experienced leadership team • Long‐term consistent supplier of finished lots across DHI’s national footprint (90 • Supports ability to scale to national STRONG AND markets in 29 st
Slide 11: Significant and Sustainable Growth Through Numerous Levers
S I G N I F I C A N T A N D S U S TA I N A B L E G R O W T H T H R O U G H NUMEROUS LEVERS In FY 2019, FOR sold DHI 3,728 lots or ~7% of DHI’s 56,975 closings Built-in growth from 12,700 of FOR’s owned lots at 12/31/19 are under contract to sell to DHI, representing DHI relationship ~$1 billion
Slide 12: Land and Development Investments
LAND AND DEVELOPMENT INVESTMENTS Investing in land acquisition and development to support significant expected growth in lot deliveries Quarter Ended FY 2018 – FY 2020 ~$1,000 $236 $850 $221 $57 $114 $480 $64 $164 $17 $122 $47 12/31/2017 12/31/2018 12/31/2019 FY18(1) FY19 FY20e(2) Land Acquisition L
Slide 13: Significant Near-Term Growth
SIGNIFICANT NEAR-TERM GROWTH • Expect 8x two-year increase in deliveries to 10,000 lots by FY20 and to generate $800M to $850M of revenue • Expect a mid- to high-single digit pre-tax profit margin percentage (PTI%) in FY20, with significant quarterly fluctuations, and ~10% PTI% for the full year of
Slide 14: Diversified and Growing Footprint
DIVERSIFIED AND GROWING FOOTPRINT Own and control 44,500 lots at 12/31/19 80% of owned lots are under contract to sell or subject to a right of first offer to DHI Expect to own a 3 to 4 year lot inventory 12/31/19 51 Markets 20 States 12/31/18 35 Markets 16 States / Current FOR markets / states DHI
Slide 15: 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 16: Builders' Preference for 'Land Lighter' Strategy Enhances Opportunity
BUILDERS’ PREFERENCE FOR ‘LAND LIGHTER’ S T R AT E G Y E N H A N C E S O P P O R T U N I T Y As homebuilders increase their optioned land and shorten their owned land positions to improve returns, FOR is uniquely positioned to capitalize on residential lot development opportunities Optioned Land/Lot
Slide 17: Seasoned Leaders with Decades of Land Development Experience
SEASONED LEADERS WITH DECADES OF LAND DEVELOPMENT EXPERIENCE Management team has ability to scale FOR and replicate DHI’s success DON TOMNITZ DAN BARTOK Executive Chairman CEO Formerly President & CEO of DHI for Joined FOR in December 2017; over a decade and joined FOR in formerly EVP of Owned Real
Slide 18: Financial Position and Policy
FINANCIAL POSITION AND POLICY In September 2019, Forestar further strengthened its financial position by issuing 6.04M shares of common stock for net proceeds of $100.7M FINANCIAL POSITION AS OF 12/31/19 DISCIPLINED FINANCIAL POLICY • $373M unrestricted cash and cash equivalents • Strict lot develop
Slide 19: Q1 FY 2020 and FY 2019 Highlights
Q1 FY 2020 AND FY 2019 HIGHLIGHTS • Operating highlights - Residential lots sold increased 368% to 2,422 lots compared to 518 lots in the same quarter of fiscal 2019 - 44,500 lots at 12/31/19, of which 32,200 were owned and 12,300 were controlled through purchase contracts 25,600, or 80%, of owned
Slide 20: 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 Returns‐ Strategic Relationship Geographic Focused Lot With D.R. Horton Significant Growth Diversification and Manufacturing Supports Ability to Scale Trajectory Growing Footprint Business Model and De‐Risks Expansion Proven / Seasoned Ho
Slide 21: Appendix
APPENDIX ky FORESTAR
Slide 22: Solid Long-Term Industry Fundamentals
S O L I D L O N G - T E R M I N D U S T RY F U N DA M E N TA L S SURPLUS / (DEFICIT) TO HISTORIC AVERAGE HOUSING STARTS (mm)(1) Long-term housing industry fundamentals remain solid 2.5 From 1999 – 2006, Housing Starts surpassed the long-term average, generating a supply surplus Long‐term (1959‐2018)
Slide 23: DHI Growth, Consolidation and Market Share Gains Provide Roadmap for Forestar
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 F O R F O R E S TA R Total TotalNew U.S. U.S. Single‐Family Single‐Family NewHouses Sold ('000s) Home Sales (‘000s) DHISeries Homes 3 Closed as a Percentage of 1,400 U.S. Single‐Family New Hom
Slide 24: Income Statement
I N C O ME S TATE ME N T FISCAL YEAR 12 MONTHS 3 MONTHS ENDED ENDED ENDED 12/31/2019 12/31/2018 9/30/2019 9/30/2018 Residential lots sold: 2,422 518 4,132 1,279 Development projects 1,406 462 2,610 1,190 Lot banking projects 1,016 56 1,522 89 Average sales price per lot (1) $ 90,300 $ 74,000 $ 84,20
Slide 25: Balance Sheet
BA L A NC E SH E ET 12/31/2019 9/30/2019 12/31/2018 (1) Cash and cash equivalents $ 373.3 $ 382.8 $ 170.3 Real estate 1,066.8 1,028.9 693.2 Investment in unconsolidated ventures 5.9 7.3 7.4 Other assets 22.1 19.3 22.3 Deferred income taxes, net 11.8 17.4 25.5 Total assets $ 1,479.9 $ 1,455.7 $ 918.7
Slide 26: Illustrative Forestar Project Cash Flows & Return
I L LU S T R AT I V E F O R E S TA R P R O J E C T C A S H F L O W S & RETURN Project Cash Flows Project Metrics 60 Lot Sales 120 Lot Sales 120 Lot Sales 50 Lot Sales Size & Duration: • Project Size: 350 lots $9.4 $8.1 $10.0 $5.4 • Project Life: 42 months $3.4 • Development Phasing: 2 phases $0.0 •
Slide 27: Illustrative Homebuilder vs. Lot Manufacturer Project Economics
I L LU S T R AT I V E H O M E B U I L D E R V S . L OT M A N U FA C T U R E R P R O J E C T E C O N O M I C S Entitled Land Lot Development Finished Lot Home Construction Commissions & Other Margin ASP: $300,000 ASP: $300,000 $57,000 $72,000 $18,000 $18,000 $150,000 $150,000 ASP: $75,000 $15,000 $42
Slide 28: FOR & DHI Relationship Overview
F O R & D H I R E L AT I O N S H I P OV E R V I E W Stockholder’s Shared Services Agreement Agreement Capital Markets Supports growth by providing DHI holds majority stake of ~65% in FOR public debt and equity as of 12/31/19 Master Supply Agreement (“MSA”) LAND SOURCING AND LOT SALES STRUCTURE PER T
Slide 29: 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 ) • Establishes 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 • P
Slide 30: Stockholder's Agreement
S TO C K H O L D E R ’ S A G R E E M E N T • DHI has the right to nominate FOR’s board members commensurate with DHI’s equity ownership – DHI nominated four of FOR’s five board members – FOR Board of Directors must include at least three independent directors (currently has four) • Established an in
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