Forestar Group Inc · NYSE:FOR
Forestar — Q4 2024 Earnings Presentation
31 slides from Forestar's earnings presentation, Oct 29, 2024
Slide 1: Investor Presentation Q4 2024
Investor Presentation Q4 2024
Slide 2: Forward-Looking Statements
FORWARD-LOOKING STATEMENTS Factors that may cause the actual results to be materially different from the future results expressed by the forward-looking statements include, but are not limited to: the effect of D.R. Horton’s controlling level of ownership on us and the holders of our securities; our
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: Q4 FY 2024 Highlights
Q4 FY 2024 HIGHLIGHTS Solid execution with strong profitability • Earnings per diluted share increased 11% to $1.60 • Pre-tax income increased 14% to $108.5 million, with a pre-tax profit margin of 19.7% • Revenues of $551.4 million • Return on equity(1) improved 60 basis points to 13.8% • Net debt
Slide 5: Returns Focused Execution
RETURNS FOCUSED EXECUTION Forestar is driving shareholder value creation through the execution of its clear, strategic plan and a disciplined, returns- focused approach to capital allocation Talented Team + Solid Profitability + Strong Customer Relationship = Industry Leading Residential Lot Develop
Slide 6: FY 2024: Strong Execution Driving Financial Performance
FY 2024: STRONG EXECUTION DRIVING FINANCIAL PERFORMANCE Solid • Revenues increased 5% to $1.5 billion Operational Execution • Delivered 15,068 residential lots, a 7% increase • Pre-tax income increased 22% to $270.1 million, while pre-tax profit margin improved 250 basis Increased points to 17.9% Pr
Slide 7: Solid Performance While Positioning for Future Growth
SOLID PERFORMANCE WHILE POSITIONING FOR FUTURE GROWTH Forestar expects to grow its lot deliveries ~6% to 10% in fiscal 2025, generating between $1.6 billion and $1.65 billion of revenue Lot Deliveries Revenue 16,000 - 16,500 16,250 $1.6$1.7 - $1.65 15,068 14,040 $1.5 $1.4 FY 2023 FY 2024 FY 2025E FY
Slide 8: Delivering Profitable Growth
DELIVERING PROFITABLE GROWTH Forestar is creating long-term value for shareholders by generating strong profitability and returns Pre-Tax Income and Margin Net Income and ROE Pre-Tax Income Pre-Tax Profit Margin Net Income ROE 17.9% 16.2% 15.5% 15.4% 13.8% 13.2% $270.1 11.7% 11.1% $235.8 $203.4 8.4%
Slide 9: 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 10: 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 11: Project-Level Land Development Financing Snapshot
PROJECT-LEVEL LAND DEVELOPMENT FINANCING SNAPSHOT According to the NAHB’s Survey on Acquisition, Development & Construction Financing, land development loan availability continues to be expensive and hard to secure Effective Interest Rate of Financing NAHB AD&C Financing Survey Index Land Developmen
Slide 12: Constrained Lot Supply
CONSTRAINED LOT SUPPLY • Availability of lots is improving from historic lows; however, calendar 2Q 2024 data still reflects a significantly undersupplied market nationally • The improvement in lot availability is likely brief given the recent acceleration of single-family housing starts • New home
Slide 13: 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 Maximize Annual Lot Deliveries Growth Growth Returns • Gain market share within • Expand into new markets •
Slide 14: Manufacturing Approach to Land Development
MANUFACTURING APPROACH TO LAND DEVELOPMENT Forestar has built a unique lot manufacturing model that enables it to be a consistent supplier of lots to homebuilders, while producing strong risk-adjusted returns Short duration, fully- Large scale with Returns-focused, with strict Predictable operating
Slide 15: 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) 60.8% 15.0% 13.8% 12.0% 9.8% 7.6% 23.4% 17.9% 8.6% 7.9% 0.1%
Slide 16: Diversified National Footprint
DIVERSIFIED NATIONAL FOOTPRINT 59 MARKETS | 24 STATES Portfolio of 95,100 lots as of September 30, 2024 / FOR markets / states DHI states where FOR does not currently operate Of total lot position at 9/30/24, 57,800 are owned and 37,300 are controlled through purchase contracts 16
Slide 17: 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 (125 markets in • Significant built-in demand for lots RELATIONSHIP 36 states) • Improved access to c
Slide 18: 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 19: DHI Track Record Provides Roadmap to FOR
DHI TRACK RECORD PROVIDES ROADMAP TO FOR DHI’s 30-year 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 FOR's L
Slide 20: FOR Is an Essential Lot Supplier to DHI
FOR IS AN ESSENTIAL LOT SUPPLIER TO DHI FOR maintains solid 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 19% 60,000 20% 50,000 16% 16% 16% 40,000
Slide 21: Land and Development Investments
LAND AND DEVELOPMENT INVESTMENTS • Accelerating investing in new projects while maintaining a disciplined and conservative approach to underwriting • Continuing to focus on phased development to deliver finished lots at a pace that matches market demand, consistent with its focus on capital efficien
Slide 22: Lot Position
LOT POSITION • Owned and controlled lot position is increasing to support future growth; targeting a 3- to 4-year owned inventory of lots • Consistent with Forestar's focus on capital efficiency, the portion of its land and lot supply that is controlled via purchase contracts is increasing • Strong
Slide 23: Solid Balance Sheet and Liquidity Position
SOLID BALANCE SHEET AND LIQUIDITY POSITION • Forestar is well-positioned with conservative net leverage(1) of 0.8x, net debt to capital(2) of 12.4% and a strong liquidity position of ~$860 million at 9/30/24 • Balanced financing plan includes both debt and equity — net debt to capital(2) target of ≤
Slide 24: 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 DON TOMNITZ ANDY OXLEY Executive Chairman CEO Formerly President & CEO of DHI for over Joined FOR in Januar
Slide 25: Appendix
APPENDIX bey FORESTAR *
Slide 26: 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 27: Income Statement
INCOME STATEMENT 3 MONTHS ENDED 12 MONTHS ENDED 9/30/24 9/30/23 9/30/24 9/30/23 Residential lots sold: 5,374 4,986 15,068 14,040 Development projects 5,176 4,986 14,769 14,040 Lot banking projects 198 — 299 — Average sales price per lot(1) $ 97,300 $ 97,400 $ 96,600 $ 90,900 Revenues(2) $ 551.4 $ 54
Slide 28: Adjusted EBITDA Reconciliation
ADJUSTED EBITDA RECONCILIATION Reconciliation of Adjusted Non-GAAP Financial Measures to their GAAP equivalents 3 MONTHS ENDED 12 MONTHS ENDED 9/30/24 9/30/23 9/30/24 9/30/23 Net income $ 81.6 $ 72.4 $ 203.4 $ 166.9 Income tax expense 26.9 23.0 66.7 54.7 Interest charged to cost of sales 9.7 10.2 28
Slide 29: Balance Sheet
BALANCE SHEET 9/30/24 9/30/23 Cash and cash equivalents $ 481.2 $ 616.0 Real estate 2,266.2 1,790.3 Investment in unconsolidated ventures 0.3 0.5 Other assets 92.4 63.9 Total assets $ 2,840.1 $ 2,470.7 Debt $ 706.4 $ 695.0 Accrued development costs 144.6 104.1 Earnest money on sales contracts 172.3
Slide 30: Stockholder's Agreement
STOCKHOLDER’S AGREEMENT • FOR Board of Directors must include at least five independent directors (currently has five) • 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 t
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