Forestar Group Inc · NYSE:FOR

Forestar — Q1 2012 Earnings Presentation

36 slides from Forestar's earnings presentation, May 10, 2012

1. Slide 1: First Quarter 2012 Financial Results

   First Quarter 2012 Financial Results May 10, 2012 Accelerating Value Realization By Increasing Oil Production and Residential Lot Sales and Growing Net Asset Value by Capitalizing on Strategic Growth and Investment Opportunities

2. Slide 2: Notice to Investors

   Notice to Investors This presentation contains “forward-looking statements” within the meaning of the federal securities laws. These statements reflect management’s current views with respect to future events and are subject to risk and uncertainties. We note that a variety of factors and uncertaint

3. Slide 3: Delivering Value Through Triple In FOR

   Delivering Value Through Triple In FOR Focus on accelerating value realization: Increased oil production volumes and royalties Sold 25% interest in Palisades West for $32 million Light Farms venture sold 800 acres for $56 million in total consideration Momentum in residential lot sales Optimize tran

4. Slide 4: First Quarter 2012 Financial Results

   First Quarter 2012 Financial Results 4 Accelerating Value Realization By Increasing Oil Production and Residential Lot Sales and Growing Net Asset Value by Capitalizing on Strategic Growth and Investment Opportunities

5. Slide 5: Accelerating Value Realization Drives Improved First Quarter 2012 Financial Results

   Accelerating Value Realization Drives Improved First Quarter 2012 Financial Results 5 ($ in Millions, except per share data) 1st Quarter 2012 1st Quarter 2011 Net Income (Loss) $2.8 ($2.5) Earnings (Loss) Per Share $0.08 ($0.07) Segment Earnings: Mineral Resources $5.9 $5.6 Real Estate 11.5 2.6 Fibe

6. Slide 6: First Quarter 2012 Operating Highlights

   First Quarter 2012 Operating Highlights 6 Accelerating Value Realization By Increasing Oil Production and Residential Lot Sales and Growing Net Asset Value by Capitalizing on Strategic Growth and Investment Opportunities

7. Slide 7: Building Momentum - First Quarter Highlights

   Building Momentum - First Quarter Highlights Oil production up over 115% vs. Q1 2011 Four additional wells completed – 534 total producing wells Invested $1.8 million in working interest in Louisiana well Sold 7 acres of impervious cover development rights* for > $1MM Sold 25% interest in Palisades

8. Slide 8: First Quarter 2012 Minerals – Oil & Gas Highlights

   First Quarter 2012 Minerals – Oil & Gas Highlights 8 Building Momentum By Driving Leasing and Exploration to Increase Production and Reserves 8

9. Slide 9: Strong Oil Markets Driving Exploration & Production

   Strong Oil Markets Driving Exploration & Production • Oil prices remained firm due to demand growth from emerging markets and geopolitical risk • Natural gas prices remained under pressure due to record inventory levels, mild winter temperatures and high levels of production • Minimal lease activity

10. Slide 10: Increased Oil Production Driving Higher Royalties

    Increased Oil Production Driving Higher Royalties $5.6 $3.8 ($2.0) ($1.5)* $5.9 $0.0 $2.0 $4.0 $6.0 $8.0 $10.0 Q1 2011 Royalties Leasing & Delay Rentals Cost of Sales & Operating Expenses Q1 2012 Segment Earnings Segment Earnings Reconciliation Q1 2011 vs. Q1 2012 Q1 2012 Highlights • Oil production

11. Slide 11: Increased Oil Production Driving Higher Royalties

    440 465 490 515 540 Q1 11 Q2 11 Q3 11 Q4 11 Q1 12 Well Count 496 32,000 69,200 467 452 Q1 11 Q2 11 Q3 11 Q4 11 Q1 12 Oil Produced (Bbls) Natural Gas Produced (MMcf) Forestar’s Share of Quarterly Oil & Gas Production Q1 2011 – Q1 2012 Growth in Drilling Activity Well Count Q1 2011 – Q1 2012 Note: Inc

12. Slide 12: Target Formations East Texas and Gulf Coast Basins

    Target Formations East Texas and Gulf Coast Basins Wells Drilled Last 12 months Target Frio / Hackberry 1 Yegua / Cockfield 2 Wilcox 12 Austin Chalk 3 Rodessa James Lime Pettit (Sligo) Travis Peak (Hosston) Cotton Valley Bossier 3 Haynesville 2 Fort Worth Basin Barnett Shale 6 Colorado Niobrara / Co

13. Slide 13: Austin Chalk Drilling Activity Increasing

    Vernon Newton Beauregard 13 TEXAS LOUISIANA Austin Chalk Drilling Activity Increasing Masters Creek Trend Byerley A-32 Unit 2-1 Byerley A-32 Unit 2-2 Keaghey A-2 1 Blackstone A-90 1 Leased Available For Lease HBP FOR Interest in Austin Chalk wells Brookeland Trend

14. Slide 14: Austin Chalk Drilling Activity Increasing

    14 ($ in millions) Estimated Ultimate Recoveries Well Completion Date FOR Net Royalty Interest Condensate MB Natural Gas Liquids MB Dry Gas MB Total MMBOE Forestar Blackstone A-90 Unit 1 Nov-09 7.6% 29 38 482 0.1 Forestar Keaghey A-253 Unit 1 Jan-11 5.1% 13 15 172 0.1 Forestar Byerley A-32 Unit 1 No

15. Slide 15: First Quarter 2012 Fiber Resources Highlights

    First Quarter 2012 Fiber Resources Highlights 15 Building Momentum Through Sustainable Harvests and Maximizing Recreational Lease Activity

16. Slide 16: Land Sales Impact Fiber Resources

    Land Sales Impact Fiber Resources $0.6 ($0.4) $0.4 $0.2 $0.0 $0.5 $1.0 Q1 2011 Gain on Lease Termination Fiber Sales Q1 2012 Segment Earnings Segment Earnings Reconciliation Q1 2011 vs. Q1 2012 Q1 2012 Highlights • Sold over 28,800 tons of fiber • >99% of land leased for recreation • Harvest down vs

17. Slide 17: First Quarter 2012 Real Estate Highlights

    First Quarter 2012 Real Estate Highlights 17 Building Momentum By Increasing Residential Lot Sales and Capitalizing on Growth Opportunities

18. Slide 18: Texas Markets To Lead Housing Recovery

    Texas Markets To Lead Housing Recovery Sources: CoreLogic, Bureau of Labor Statistics, Census Bureau, Metrostudy, RealtyTrac and Brookings Market Jobs Created Job Growth % House Price Changes # of Projects Forestar Investment in Development Dallas 72,900 2.5% (1.0%) 14 $91 San Antonio 12,700 1.5% (0

19. Slide 19: Accelerating Value Realization Driving Improved First Quarter Results

    $2.6 $11.7 $0.9 $1.0 $0.1 $11.6 ($4.7) $0.0 $10.0 $20.0 Q1 2011 Gain on Sale of Palisades West Venture Sale of Development Rights & Other Residential & Commercial Sales Income Producing Properties Undeveloped Land Sales Q1 2012 Accelerating Value Realization Driving Improved First Quarter Results Q1

20. Slide 20: Increased Residential Lot Sales Reflects Stable Demand

    Increased Residential Lot Sales Reflects Stable Demand and Reduced Finished Lot Inventories in Texas Residential Lot Sales * Q1 2011 – Q1 2012 20 214 285 100 200 300 $0 $20,000 $40,000 $60,000 Q1 11 Q2 11 Q3 11 Q4 11 Q1 12 Quarterly Lot Sales Avg. Lot Sales Price Quarterly Lot Sales Average Lot Sale

21. Slide 21: Real Estate Pipeline Well Positioned For Recovery

    Real Estate Pipeline Well Positioned For Recovery Note: Information as of Q1 2012; includes ventures * Includes 4 significant commercial and income producing properties. Real Estate Undeveloped In Entitlement Process Entitled Developed and Under Development Total Acres Undeveloped Land Owned 95,360

22. Slide 22: First Quarter 2012 Triple In FOR Strategic Initiatives

    First Quarter 2012 Triple In FOR Strategic Initiatives 22 Accelerating Value Realization, Optimizing Transparency and Raising NAV Through Disciplined Investments

23. Slide 23: Our Focus: Triple In FOR Initiatives

    Our Focus: Triple In FOR Initiatives 2012 Activity Focus on Accelerating Value Realization Triple Residential Lot Sales • Lot sales up 33% • Oil production up 115% • Sold interest in Palisades West for $32 million • Light Farms venture sold 800 acres for $56 million Triple Oil & Gas Production (Mcfe

24. Slide 24: Accelerating Value Realization from Sale of Palisades West

    ACCELERATING VALUE REALIZATION FROM SALE OF OWNERSHIP INTEREST IN PALISADES WEST FOR $35 MILLION Sale of Palisades West Ownership Office venture: Cousins Properties - 50% Dimensional Fund Advisors - 25% Forestar - 25% 375k sq. ft. office project in Austin, TX 99% Leased at YE 2011 Accelerating Value

25. Slide 25: Increasing Our Financial Flexibility: Light Farms Venture Sale

    INCREASING OUR FINANCIAL FLEXIBILITY LIGHT FARMS VENTURE SOLD 800 ACRES FOR $56 MILLION Kingwood 25 April 2012: Light Farms Sale FOR / RPG Land Company sold 800 acres from proposed residential community near Dallas, TX for $56 million in total consideration FOR received $25 million in cash proceeds

26. Slide 26: Forestar Website – The Dimensional Land Model

    Forestar Website – The Dimensional Land Model TM • New corporate website available today • Site driven by Dimensional Land ModelTM • Additional features: – Minerals map with stratigraphic column detail – New Water & Multifamily sections of website – Informative and engaging videos 26 www.forestargro

27. Slide 27: Acquired Remaining Interest in 17 Real Estate Projects

    STRATEGIC AND DISCIPLINED INVESTMENT ACQUIRED REMAINING INTEREST IN 17 REAL ESTATE PROJECTS FOR $23.5 MILLION Kingwood Note: Following purchase, TEMCO and CL Realty will continue to own 5,800 acres of undeveloped land in Paulding County, GA, Bentwater Golf Course, 12-acre tract on Padre Island, TX a

28. Slide 28: Promesa – Multifamily Community Recently Opened

    Promesa – Multifamily Community Recently Opened Promesa 289-unit Class A multifamily property Located in west Austin, TX Each apartment certified under Austin Energy Green Building program First units delivered in April; approximately 50% complete $21 million total investment at Q1 2012; total inves

29. Slide 29: Building a Multifamily Pipeline

    Building a Multifamily Pipeline Business model is to leverage our existing sites and investments with capital from our partners to create and realize value 29 Example Venture Project Economics Project Development: FOR equity contribution* $4 Third-party equity 7 Financing 21 Total project cost $32 P

30. Slide 30: Enhancing Minerals Value Creation and Realization

    Enhancing Minerals Value Creation and Realization 30 Value Components % of Well Economics Capital Wells Operating 50 - 75% Moderate -- Working Interest 10 – 50% Low 10 Royalties 20 – 25% None 534 Leases < 5% None -- Total 100% 534* Value Creation & Realization Q1 2012 * FOR may have a working intere

31. Slide 31: Anna Torma, SVP Corporate Affairs

    Anna Torma SVP Corporate Affairs Forestar Group Inc. 6300 Bee Cave Road Building Two, Suite 500 Austin, TX 78746 512-433-5312 annatorma@forestargroup.com 32

32. Slide 32: Appendix - Segment KPI's

    First Quarter 2012 Appendix - Segment KPI’s 33

33. Slide 33: Mineral Resources Segment KPI's

    34 MINERAL RESOURCES SEGMENT KPI'S 1st Quarter 2012 1st Quarter 2011 4th Quarter 2011 Leasing Activity Net Acres Leased 800 4,900 320 Avg. Bonus / Acre $360 $340 $57 Royalties* Oil Produced (Barrels) 69,200 32,000 49,700 Average Price / Barrel $97.57 $82.49 $102.19 Natural Gas Produced (MMCF) 452.2

34. Slide 34: Real Estate Segment KPI's

    REAL ESTATE SEGMENT KPI'S 1st Quarter 2012 1st Quarter 2011 4th Quarter 2011 Residential Lot Sales * Lots Sold 285 214 309 Average Price / Lot $53,000 $48,200 $43,300 Gross Profit / Lot $20,800 $18,500 $15,200 Commercial Tract Sales * Acres Sold - 20 2.4 Average Price / Acre - $152,500 $547,200 Land

35. Slide 35: Fiber Resources Segment KPI's

    36 FIBER RESOURCES SEGMENT KPI'S 1st Quarter 2012 1st Quarter 2011 4th Quarter 2011 Fiber Sales Pulpwood Tons Sold 24,400 65,600 44,100 Average Pulpwood Price / Ton $10.18 $9.18 $9.31 Sawtimber Tons Sold 4,400 15,500 5,600 Average Sawtimber Price / Ton $19.48 $16.98 $22.17 Total Tons Sold 28,800 81,

36. Slide 36: Anna Torma, SVP Corporate Affairs

    Anna Torma SVP Corporate Affairs Forestar Group Inc. 6300 Bee Cave Road Building Two, Suite 500 Austin, TX 78746 512-433-5312 annatorma@forestargroup.com 37

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