Forestar Group Inc. Reports Second Quarter 2016 Results

Forestar Group Inc. (NYSE: FOR) (“Forestar” or the “Company”) today reported second quarter 2016 net income of approximately $9.6 million, or $0.23 per share outstanding, compared with second quarter 2015 net loss of approximately ($34.5) million, or ($0.81) per share outstanding. Second quarter 2016 earnings from continuing operations were approximately $11.7 million, or $0.28 per share outstanding, compared with second quarter 2015 earnings from continuing operations of approximately $2.5 million, or $0.06 per share outstanding.

Solid Core Community Development Results

“Builder demand for residential lots in our key communities remains steady. In the second quarter of 2016, Forestar sold 489 residential lots for over $66,600 per lot. Forestar has over 1,680 lots currently under option contracts with builders,” said Phil Weber, Chief Executive Officer of Forestar.

Significant Progress: Strengthened Balance Sheet, Reduced Costs and Completed Non-Core Asset Sales

“We made significant progress during second quarter 2016 toward transforming Forestar. Key highlights include reducing outstanding debt by $260.9 million and reducing annual interest expense by approximately $19.7 million going forward. As a result of the cash tender offer on our 8.50% Senior Secured Notes, we received consent from holders of the Notes to eliminate or modify certain covenants, events of default and other provisions contained in the indenture governing the Notes, and to release the subsidiary guarantees and collateral securing the remaining Notes. We have also identified an additional $6 million in annual run-rate cost reductions, lowering our target annual SG&A to an estimated $33 million, which is expected to be achieved once the previously announced non-core asset sales are completed,” said Mr. Weber.

“Significant non-core asset sales were completed in second quarter 2016. Key highlights include the sale of the Radisson Hotel & Suites which generated net proceeds of $113.4 million after debt repayment, the sale of Eleven multifamily community which generated net proceeds of $35.8 million after debt repayment, and the sale of Dillon multifamily community site which generated net proceeds of $25.4 million. Additionally, in second quarter 2016, Forestar sold its remaining Bakken / Three Forks oil and gas assets which generated $46.5 million in net proceeds. With the completion of this sale, Forestar has exited substantially all of our oil and gas working interest assets and is reporting the results of operations and financial position of all working interest assets as discontinued operations. Forestar also recorded $48.8 million in non-cash impairment charges related to five non-core community development projects and one multifamily site. We plan to exit these communities over time, reducing annual carry costs and generating tax losses to offset tax gains from other non-core asset sales. We remain focused on executing our key initiatives and delivering value for shareholders,” said Mr. Weber.

Transforming Capital Structure

“Since undertaking our key initiatives we have made significant progress in transforming our capital structure and reducing interest expense. We have generated $366 million in pre-tax proceeds from non-core asset sales since third quarter-end 2015, and have used $349 million in proceeds to reduce outstanding debt. Our total debt to total capital ratio at the end of second quarter 2016 was 18% compared with 46% at the end of third quarter 2015. With the execution of non-core asset sales and corresponding reduction in debt, we have strengthened our balance sheet and created financial flexibility,” said Chuck Jehl, Chief Financial Officer.

Business Segments

Forestar manages its operations through three business segments: real estate, mineral resources and other. In second quarter 2016, we changed the name of our oil and gas segment to mineral resources to reflect the strategic shift from oil and gas working interest investments to owned mineral interests.

REAL ESTATE

Second Quarter 2016 Highlights (Includes Ventures)

• Sold Radisson Hotel & Suites, generating a $95.3 million gain
• Sold Eleven multifamily community, generating a $9.1 million gain
• Sold Dillon multifamily site, generating a $1.2 million gain
• Incurred $48.8 million in non-cash impairments
• Sold 489 developed residential lots for over $66,600 per lot
• Sold 10 residential tract acres for over $35,500 per acre
• Sold 3 commercial acres for over $376,000 per acre
• Sold 5,425 acres of undeveloped land for $2,360 per acre

Segment Financial Results:

($ in millions)				Q2 2016				Q2 2015				Q1 2016
Segment Revenues				$46.4				$39.4				$36.1
Segment Earnings				$73.3				$15.5				$20.2

Real estate segment earnings increased in second quarter 2016 compared with second quarter 2015 principally due to a $95.3 million gain associated with the sale of Radisson Hotel & Suites and over $10.3 million in gains associated with the sale of our Eleven multifamily community and sale of our Dillon multifamily site. These gains were partially offset by non-cash impairment charges of $48.8 million related to five non-core community development projects and one multifamily site. Second quarter 2016 residential lot sales activity was down slightly from second quarter 2015 levels with lower average pricing, due to mix of product sold. Real estate segment earnings increased in second quarter 2016 compared with first quarter 2016 principally due to gains on non-core asset sales, higher undeveloped land sales and higher lot sales activity. First quarter 2016 real estate segment earnings also include $13.6 million in earnings generated by the sale of our interest in the 360° multifamily venture and sale of our wholly-owned Music Row multifamily site.

MINERAL RESOURCES

Second Quarter 2016 Highlights (Includes Ventures)

• Leased 984 mineral acres for $257 / acre

Segment Financial Results:

($ in millions)				Q2 2016				Q2 2015				Q1 2016
Segment Revenues				$1.3				$2.4				$1.1
Segment Earnings (Loss)				$0.9				$1.8				$0.6

Mineral Resources segment results decreased in second quarter 2016 compared with second quarter 2015 principally due to lower oil and gas prices and production volumes.

OTHER

Segment Financial Results:

($ in millions)				Q2 2016				Q2 2015				Q1 2016
Segment Revenues				$0.3				$1.9				$0.7
Segment Earnings (Loss)				($0.2)				$0.0				($0.6)

Second quarter 2016 other segment results decreased compared with prior year principally due to lower fiber sales and termination of a groundwater reservation agreement in second quarter 2015, partially offset by lower operating expenses. Second quarter 2016 other segment revenues decreased compared with second quarter 2015 and first quarter 2016 principally due to deferral of timber harvest activity in support of our key initiative to exit our non-core timberland and undeveloped land.

OUTLOOK

Fundamentals Stable in Forestar's Community Development Markets

“We continue to see steady builder demand in our key communities, supported by low developed lot supply inventory. Forestar sold 773 residential lots in the first half of 2016 and we continue to project 2016 residential lot sales volume to be in the range of 1,600 - 1,800 lots,” said Michael Quinley, President - Community Development.

Executing Key Initiatives

“We remain focused on selling non-core assets, reducing costs, and on maximizing shareholder value as the Board and management team evaluate the next best steps for Forestar,” concluded Mr. Weber.

The Company will host a conference call on July 29, 2016 at 10:00 am ET to discuss results of second quarter 2016. The meeting may be accessed through webcast or by conference call. The webcast may be accessed through Forestar’s Internet site at www.forestargroup.com. To access the conference call, listeners calling from North America should dial 1-844-634-1445 at least 15 minutes prior to the start of the meeting. Those wishing to access the call from outside North America should dial 1-615-247-0254. The password is Forestar. Replays of the call will be available for two weeks following the completion of the live call and can be accessed at 1-855-859-2056 in North America and at 1-404-537-3406 outside North America. The password for the replay is 44307555.

About Forestar Group

Forestar is a residential and mixed-use real estate development company. At second quarter-end 2016, we own directly or through ventures interests in 56 residential and mixed-use projects comprised of approximately 7,000 acres of real estate located in 11 states and 15 markets. The company also owns approximately 590,000 net acres of oil and gas fee minerals located in Texas, Louisiana, Georgia and Alabama. The company has water interests in 1.5 million acres which include a 45 percent nonparticipating royalty interest in groundwater produced or withdrawn for commercial purposes or sold from 1.4 million acres in Texas, Louisiana, Georgia and Alabama, and 20,000 acres of groundwater leases in central Texas. The company's non-core assets include about 81,000 acres of timberland and undeveloped land, and commercial and income producing properties which consist of three multifamily projects and two multifamily sites. Forestar operates in three business segments: real estate, mineral resources and other. Forestar’s address on the World Wide Web is www.forestargroup.com.

Forward-Looking Statements

This release contains “forward-looking statements” within the meaning of the federal securities laws. Forward-looking statements are typically identified by words or phrases such as “will,” “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” “target,” “forecast,” and other words and terms of similar meaning. 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 uncertainties could cause our actual results to differ significantly from the results discussed in the forward-looking statements, including but not limited to: general economic, market, or business conditions; market demand for our non-core assets; changes in commodity prices; opportunities (or lack thereof) that may be presented to us and that we may pursue; fluctuations in costs and expenses including development costs; demand for new housing, including impacts from mortgage credit rates or availability; lengthy and uncertain entitlement processes; cyclicality of our businesses; accuracy of accounting assumptions; competitive actions by other companies; changes in laws or regulations; and other factors, many of which are beyond our control. Except as required by law, we expressly disclaim any obligation to publicly revise any forward-looking statements contained in this news release to reflect the occurrence of events after the date of this news release.

FORESTAR GROUP INC.
(UNAUDITED)
Business Segments
			Second Quarter											First Six Months
			2016					2015						2016					2015
			(In thousands)
Revenues:
Real estate			$	46,381				$	39,409					$	82,479				$	72,239
Mineral resources				1,337					2,360						2,419					5,114
Other				274					1,856						712					3,646
Total revenues			$	47,992				$	43,625					$	85,610				$	80,999
Segment earnings (loss):
Real estate			$	73,290				$	15,527					$	93,514				$	24,593
Mineral resources				933					1,766						1,486					3,138
Other				(197	)				(43	)					(778	)				(434	)
Total segment earnings (loss)				74,026					17,250						94,222					27,297
Items not allocated to segments:
General and administrative expense				(4,514	)				(5,177	)					(9,487	)				(11,197	)
Share-based and long-term incentive compensation expense				(412	)				(23	)					(1,956	)				(3,481	)
Interest expense				(6,918	)				(8,715	)					(14,557	)				(17,536	)
Loss on extinguishment of debt, net				(35,766	)				—						(35,864	)				—
Other corporate non-operating income				175					47						225					95
Income (loss) from continuing operations before taxes				26,591					3,382						32,583					(4,822	)
Income tax (expense) benefit				(14,929	)				(897	)					(17,081	)				1,869
Net income (loss) from continuing operations attributable to Forestar Group Inc.				11,662					2,485						15,502					(2,953	)
Loss from discontinued operations, net of taxes				(2,048	)				(36,992	)					(10,264	)				(39,712	)
Net income (loss) attributable to Forestar Group Inc.				9,614					(34,507	)					5,238					(42,665	)
Net income (loss) per diluted share:
Continuing operations			$	0.28				$	0.06					$	0.37				$	(0.09	)
Discontinued operations				(0.05	)				(0.87	)					(0.24	)				(1.16	)
Net income (loss) per diluted share			$	0.23				$	(0.81	)				$	0.13				$	(1.25	)
Weighted average common shares outstanding (in millions):
Basic				34.3					34.3						34.3					34.2
Diluted (a)				42.4					42.3						42.4					34.2
														Second Quarter					Year-End
Supplemental Financial Information:														2016					2015
														(In thousands)
Cash and cash equivalents														$	107,421				$	96,442
Senior secured notes															5,189					224,647
Convertible senior notes, net of discount															102,602					104,719
Tangible equity unit notes, net of discount															4,403					8,666
Other debt (b)															1,991					43,483
Total debt (c)														$	114,185				$	381,515
Net debt														$	6,764				$	285,073

_____________________
(a)		Weighted average diluted shares outstanding for first six months 2015 excludes 7.9 million shares associated with tangible equity units issued during fourth quarter 2013. The actual number of shares to be issued in December 2016 will be between 6.5 million - 7.9 million shares based on the market value of our stock.
(b)		Other debt for second quarter-end 2016 and 2015 excludes unconsolidated venture debt of $119.8 million and $127.6 million and outstanding letters of credit of approximately $15.3 million and $14.8 million. Other debt at year-end 2015 consists principally of $39.3 million in senior secured loans for Radisson Hotel & Suites and Eleven multifamily property. In second quarter, 2016, we sold Radisson Hotel & Suites and Eleven for $130.0 million and $60.2 million. The proceeds were used to payoff the related senior secured loans of $39.3 million.
(c)		At second quarter-end 2016 and year-end 2015, $1,907,000 and $8,267,000 of unamortized deferred financing fees are deducted from our outstanding debt.

FORESTAR GROUP INC.
REAL ESTATE SEGMENT
PERFORMANCE METRICS
			Second Quarter									First Six Months
			2016				2015					2016				2015
REAL ESTATE
Owned, Consolidated & Equity Method Ventures:
Residential Lots Sold				489				519					773				808
Revenue per Lot Sold			$	66,600			$	73,413				$	67,973			$	74,422
Commercial Acres Sold				3				21					11				54
Revenue per Commercial Acre Sold			$	375,743			$	82,679				$	342,168			$	224,479
Undeveloped Acres Sold				5,425				1,248					7,397				1,979
Revenue per Acre Sold			$	2,362			$	3,027				$	2,504			$	2,928
Owned & Consolidated Ventures:
Residential Lots Sold				455				271					703				513
Revenue per Lot Sold			$	65,448			$	71,465				$	66,594			$	72,219
Commercial Acres Sold				—				20					8				24
Revenue per Commercial Acre Sold			$	—			$	73,345				$	331,033			$	117,014
Undeveloped Acres Sold				5,425				903					7,397				1,634
Revenue per Acre Sold			$	2,362			$	3,044				$	2,504			$	2,916
Ventures Accounted For Using the Equity Method:
Residential Lots Sold				34				248					70				295
Revenue per Lot Sold			$	82,015			$	75,543				$	81,823			$	78,253
Commercial Acres Sold				3				1					3				30
Revenue per Commercial Acre Sold			$	375,743			$	303,734				$	375,743			$	311,995
Undeveloped Acres Sold				—				345					—				345
Revenue per Acre Sold			$	—			$	2,983				$	—			$	2,983

SECOND QUARTER 2016
RESIDENTIAL REAL ESTATE PIPELINE
Real Estate			Entitled Acres			Developed & Under Development Acres			Total Acres (a)
Residential
Owned			3,998			571
Ventures			1,001			186			5,756
Commercial
Owned			549			271
Ventures			196			97			1,113
Total Acres			5,744			1,125			6,869

_____________________
(a)		Excludes acres associated with commercial and income producing properties.

FORESTAR GROUP INC.
PROJECTS IN ENTITLEMENT
A summary of our real estate projects in the entitlement process (a) at second quarter-end 2016 follows:
Project			County			Market			Project Acres (b)
California
Hidden Creek Estates			Los Angeles			Los Angeles			700
Terrace at Hidden Hills			Los Angeles			Los Angeles			30
Texas
Lake Houston			Harris/Liberty			Houston			3,700
Total									4,430

_____________________
(a)		A project is deemed to be in the entitlement process when customary steps necessary for the preparation of an application for governmental land-use approvals, like conducting pre-application meetings or similar discussions with governmental officials, have commenced, or an application has been filed. Projects listed may have significant steps remaining, and there is no assurance that entitlements ultimately will be received.
(b)		Project acres are approximate and the actual number of acres entitled may vary.

TIMBERLAND AND UNDEVELOPED LAND
A summary of our non-core timberland and undeveloped land at second quarter-end 2016 follows:
				Acres
Timberland
Alabama				1,900
Georgia				44,500
Texas				9,800
Higher and Better Use Timberland
Georgia				19,800
Entitled Undeveloped Land
Georgia				5,100
Total				81,100

FORESTAR GROUP INC.
REAL ESTATE PROJECTS
A summary of activity within our projects in the development process, which includes entitled, developed and under development real estate projects, at second quarter-end 2016 follows:
										Residential Lots/Units							Commercial Acres
Project			County			Interest Owned (a)				Lots/Units Sold Since Inception			Lots/Units Remaining				Acres Sold Since Inception			Acres Remaining
Texas
Austin
Arrowhead Ranch			Hays			100	%			2			382				—			19
The Colony			Bastrop			100	%			463			1,460				22			5
Double Horn Creek			Burnet			100	%			166			2				—			—
Entrada (b)			Travis			50	%			—			821				—			—
Hunter’s Crossing			Bastrop			100	%			510			—				54			51
La Conterra			Williamson			100	%			202			—				3			55
Westside at Buttercup Creek			Williamson			100	%			1,497			—				66			—
										2,840			2,665				145			130
Corpus Christi
Caracol			Calhoun			75	%			13			61				—			14
Padre Island (b)			Nueces			50	%			—			—				—			15
Tortuga Dunes			Nueces			75	%			—			134				—			4
										13			195				—			33
Dallas-Ft. Worth
Bar C Ranch			Tarrant			100	%			419			702				—			—
Keller			Tarrant			100	%			—			—				1			—
Lakes of Prosper			Collin			100	%			157			130				4			—
Lantana			Denton			100	%			3,606			495				44			—
Maxwell Creek			Collin			100	%			975			26				10			—
Parkside			Collin			100	%			46			154				—			—
The Preserve at Pecan Creek			Denton			100	%			611			171				—			7
River's Edge			Denton			100	%			—			202				—			—
Stoney Creek			Dallas			100	%			286			410				—			—
Summer Creek Ranch			Tarrant			100	%			983			246				35			44
Timber Creek			Collin			88	%			41			560				—			—
Village Park			Collin			100	%			567			—				3			2
										7,691			3,096				97			53
Houston
Barrington Kingwood			Harris			100	%			176			4				—			—
City Park			Harris			75	%			1,468			—				58			104
Harper’s Preserve (b)			Montgomery			50	%			513			1,169				30			49
Imperial Forest			Harris			100	%			55			373				—			—
Long Meadow Farms (b)			Fort Bend			38	%			1,578			219				193			107
Southern Trails (b)			Brazoria			80	%			938			57				1			—
Spring Lakes			Harris			100	%			348			—				25			4
Summer Lakes			Fort Bend			100	%			744			323				56			—
Summer Park			Fort Bend			100	%			119			80				34			62
Willow Creek Farms II			Waller/Fort Bend			90	%			90			160				—			—
										6,029			2,385				397			326
										Residential Lots/Units							Commercial Acres
Project			County			Interest Owned (a)				Lots/Units Sold Since Inception			Lots/Units Remaining				Acres Sold Since Inception			Acres Remaining
San Antonio
Cibolo Canyons			Bexar			100	%			1,072			718				130			58
Oak Creek Estates			Comal			100	%			313			240				13			—
Olympia Hills			Bexar			100	%			743			11				10			—
Stonewall Estates (b)			Bexar			50	%			373			13				—			—
										2,501			982				153			58
Total Texas										19,074			9,323				792			600
Colorado
Denver
Buffalo Highlands			Weld			100	%			—			164				—			—
Johnstown Farms			Weld			100	%			281			335				2			—
Pinery West			Douglas			100	%			86			—				20			106
Stonebraker			Weld			100	%			—			603				—			—
										367			1,102				22			106
Georgia
Atlanta
Harris Place			Paulding			100	%			22			5				—			—
Montebello (b)			Forsyth			90	%			—			220				—			—
Seven Hills			Paulding			100	%			880			199				26			113
West Oaks			Cobb			100	%			—			56				—			—
										902			480				26			113
North & South Carolina
Charlotte
Ansley Park			Lancaster			100	%			—			309				—			—
Habersham			York			100	%			62			125				—			6
Walden			Mecklenburg			100	%			—			384				—			—
										62			818				—			6
Raleigh
Beaver Creek (b)			Wake			90	%			14			179				—			—
										14			179				—			—
										76			997				—			6
Tennessee
Nashville
Beckwith Crossing			Wilson			100	%			19			80				—			—
Morgan Farms			Williamson			100	%			121			52				—			—
Vickery Park			Williamson			100	%			—			197				—			—
Weatherford Estates			Williamson			100	%			8			9				—			—
										148			338				—			—
Wisconsin
Madison
Juniper Ridge/Hawks Woods (b) (d)			Dane			90	%			5			210				—			—
Meadow Crossing II (b) (c)			Dane			90	%			1			171				—			—
										6			381				—			—
										Residential Lots/Units							Commercial Acres
Project			County			Interest Owned (a)				Lots/Units Sold Since Inception			Lots/Units Remaining				Acres Sold Since Inception			Acres Remaining
Arizona, California, Missouri, Utah
Tucson
Boulder Pass (b) (c)			Pima			50	%			1			87				—			—
Dove Mountain			Pima			100	%			—			98				—			—
Oakland
San Joaquin River			Contra Costa/Sacramento			100	%			—			—				—			288
Kansas City
Somerbrook			Clay			100	%			173			222				—			—
Salt Lake City
Suncrest (b) (c)			Salt Lake			90	%			—			171				—			—
										174			578				—			288
Total										20,747			13,199				840			1,113

____________________
(a)		Interest owned reflects our total interest in the project, whether owned directly or indirectly, which may be different than our economic interest in the project.
(b)		Projects in ventures that we account for using equity method
(c)		Venture project that develops and sells homes.
(d)		Venture project that develops and sells lots and homes.

A summary of our significant non-core commercial and multifamily properties, excluding two multifamily sites, at second quarter-end 2016 follows:

Project

Market

Interest Owned (a)

Type

Acres

Description

Elan 99 (b)

Houston

90%

Multifamily

17

360-unit luxury apartment

Acklen (b)

Nashville

30%

Multifamily

4

320-unit luxury apartment

HiLine (b)

Denver

25%

Multifamily

18

385-unit luxury apartment

_____________________
(a)		Interest owned reflects our total interest in the project, whether owned directly or indirectly, which may be different than our economic interest in the project.
(b)		Construction in progress.

View source version on businesswire.com: http://www.businesswire.com/news/home/20160729005141/en/

Source: Business Wire (July 29, 2016 - 6:30 AM EDT)

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