Forestar Group Inc. Provides Additional Information on Execution of Key Initiatives and Reports Full Year and Fourth Quarter 2016 Results

2016 was a transformative year for Forestar with exceptional progress on its key initiatives.

AUSTIN, Texas--()--Forestar Group Inc. (NYSE: FOR):

2016 Transformation - Highlights

Core Community Development:

  • Sold 1,940 developed residential lots for approximately $68,200 per lot with average gross profit of approximately $23,400 per lot
    • Excluding 235 bulk lot sales from non-core projects, average price was $72,200 per lot with average gross profit of approximately $26,500 per lot
    • Over 2,100 lots currently under option contracts with builders at year-end 2016
  • Sold 298 commercial acres for approximately $44,600 per acre (principally non-core projects)
  • Sold 1,792 residential tract acres for approximately $8,700 per acre (principally non-core projects)

Cost Reductions:

  • Actions taken to eliminate nearly $60 million in annualized SG&A, once all non-core assets are sold
    • Reduced SG&A, including discontinued operations, by over 28% compared with 2015 actuals
    • Additional 34% reduction in work force in March 2017 compared to year-end 2016
    • Following the March 2017 reduction will have reduced headcount by over 70% compared with 2014 peak

Divest Non-Core Assets:

  • Executed non-core asset sales generating $481.9 million in pre-tax net proceeds:
          Asset   Pre-Tax Net Proceeds
  (In millions)
Timberland and Undeveloped Land (bulk and retail, ~73,000 acres sold) $ 138.0
Radisson Hotel & Suites 128.8
Multifamily properties (five sold) 118.7
Oil and Gas Working Interests 77.1
Non-Core Community Development Projects (five sold)   19.3
$ 481.9
 

Strengthened Balance Sheet:

  • Reduced outstanding debt by $277.8 million in 2016 and by $323.3 million since third quarter-end 2015
    • Reduces annual interest expense by approximately $23 million going forward
    • Year-end 2016 debt to capital ratio of 16%
  • Consolidated cash of $265.8 million at year-end 2016 and $331.4 million as of February 28, 2017

Subsequent Event - First Quarter 2017

  • Sold non-core mineral assets for $85.6 million in first quarter 2017

Forestar Group Inc. (NYSE: FOR) today reported full year 2016 net income of approximately $58.6 million, or $1.38 per share outstanding, compared with full year 2015 net loss of approximately $(213.0) million, or $(6.22) per share outstanding. Full year 2016 earnings from continuing operations were approximately $75.5 million, or $1.78 per share outstanding, compared with full year 2015 net loss from continuing operations of approximately $(26.9) million, or $(0.79) per share outstanding.

Full year 2016 results include pre-tax net gains of approximately $153.1 million related to the sale of non-core assets, including discontinued operations, which was partially offset by non-cash impairment charges of $(56.5) million related to six non-core community development projects and two multifamily sites. Full year 2015 results include pre-tax charges of approximately $(264.1) million related to impairment of proved properties and unproved leasehold interests associated with non-core oil and gas assets, a deferred tax asset valuation allowance, and severance related charges.

Significant progress: Sold Non-Core Assets, Strengthened Balance Sheet, Reduced Costs and Focused on Core Community Development Business

"2016 was a transformative year for Forestar. We made exceptional progress executing our key initiatives to divest non-core assets, reduce outstanding debt, reduce SG&A costs and focus on maximizing shareholder value from our core community development business. Key highlights included selling nearly $482 million in non-core assets, reducing outstanding debt by over $320 million since third quarter 2015, and reducing annual interest expense by approximately $23 million going forward. Forestar is actively selling or preparing to sell its nine remaining non-core assets in 2017, four of which are already under contract to be sold. Sales of these remaining non-core assets will generate additional cash and annual SG&A savings,” said Phil Weber, Chief Executive Officer of Forestar.

"In addition to executing these key initiatives, we have focused on maximizing shareholder value delivered from our core community development business. Builder demand for residential lots in our key communities remains steady. We sold 1,940 residential lots in 2016 and we began 2017 with approximately 2,100 residential lots under option contract with builders," continued Mr. Weber.

Fourth Quarter 2016 Financial Results

Forestar reported fourth quarter 2016 net income of approximately $43.7 million, or $1.03 per share, compared with a fourth quarter 2015 net loss of approximately $(6.2) million, or $(0.14) per share outstanding. Fourth quarter 2016 earnings from continuing operations were approximately $43.2 million, or $1.02 per share outstanding, compared with fourth quarter 2015 earnings from continuing operations of approximately $33.3 million, or $0.79 per share outstanding.

Fourth quarter 2016 results include pre-tax gains of $48.9 million related to the sale of over 58,300 acres of non-core bulk timberland and undeveloped land. Fourth quarter 2015 results include pre-tax non-cash impairment charges and changes in deferred tax asset valuation allowance of approximately ($34.8) million principally related to proved properties and unproved leasehold interest impairments related to discontinued operations.

Fourth Quarter 2016 Significant Highlights (Includes Ventures)

  • Sold 835 developed residential lots for approximately $67,600 per lot with average gross profit of approximately $21,500 per lot
    • Excluding 235 bulk lot sales from non-core projects, average price was approximately $78,900 per lot with average gross profit of approximately $29,300 per lot
  • Sold 1,539 residential tract acres for approximately $5,700 per acre (principally non-core projects)
  • Sold 178 commercial acres for approximately $7,400 per acre (non-core projects)
  • Sold 58,300 acres of non-core timberland and undeveloped land in three separate transactions for net proceeds of $103.2 million which generated combined gains of $48.9 million
  • Incurred a $3.9 million non-cash impairment charge of goodwill related to our water interests as a result of entering into an agreement to sell these assets

Fourth Quarter and Full Year 2016 Segment Financial Results (Includes Ventures)

Real Estate

($ in millions)   Q4 2016   Q4 2015   FY 2016   FY 2015
Segment Revenues $ 62.5 $ 102.6 $ 190.3 $ 202.8
Segment Earnings $ 12.9 $ 37.9 $ 121.4 $ 67.7
 

Full year 2016 real estate segment earnings were higher compared with full year 2015 due to gain on sale of assets of $117.9 million in 2016, principally due to a $95.3 million gain associated with the sale of the Radisson Hotel & Suites and $20.8 million in gains associated with the sale of five multifamily assets, compared with $1.6 million in 2015, which was partially offset by non-cash impairment charges of ($56.5) million in 2016. Fourth quarter 2016 real estate segment earnings and revenues were lower compared with fourth quarter 2015 principally due to sale of Midtown Cedar Hill and higher undeveloped retail land sales in 2015.

Mineral Resources

($ in millions)   Q4 2016   Q4 2015   FY 2016   FY 2015
Segment Revenues $ 1.2 $ 1.5 $ 5.1 $ 9.1
Segment Earnings $ 0.7 $ 1.0 $ 3.3 $ 4.2
 

In fourth quarter and full year 2016, mineral resources segment revenues and earnings decreased principally due to lower realized oil and gas prices and lower production volumes from our royalty interests.

Other

($ in millions)   Q4 2016   Q4 2015   FY 2016   FY 2015
Segment Revenues $ 0.8 $ 1.3 $ 2.0 $ 6.7
Segment Loss ($3.7 ) ($0.1 ) ($4.6 ) ($0.6 )
 

Fourth quarter and full year 2016 other segment loss increased compared with fourth quarter and full year 2015 principally due to the deferral of timber harvest activity in support of our key initiative to divest our non-core timberland and undeveloped land and a $3.9 million goodwill non-cash impairment charge related to our water interests in groundwater leases in central Texas as result of entering into an agreement to sell these assets.

OUTLOOK

Fundamentals Stable in Forestar's Community Development Markets

“Finished vacant home inventories in Forestar's target markets remain in the equilibrium range, vacant developed lot supply remains low, and housing costs remain affordable relative to other markets. Our communities in major markets are well located in areas of housing demand, and favorable job and population growth," said Phil Weber.

The Company will host a conference call on March 2, 2017 at 10:00 am ET to provide additional information on execution of key initiatives and discuss results of full year and fourth 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 call. Those wishing to access the call from outside North America should dial 1-615-247-0254. The passcode 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 51065997.

About Forestar Group

Forestar is a residential and mixed-use real estate development company. At year-end 2016, we own directly or through ventures interests in 50 residential and mixed-use projects comprised of approximately 4,600 acres of real estate located in 10 states and 14 markets. In addition, we own interests in various other assets that have been identified as non-core that the company is divesting opportunistically over time. At year-end 2016, our remaining non-core assets principally include over 523,000 net acres of owned mineral assets principally located in Texas, Louisiana, Georgia and Alabama, 19,000 acres of timberland and undeveloped land (including mitigation banking), four multifamily assets and approximately 20,000 acres of groundwater leases in central Texas. On February 17, 2017, we sold our owned mineral assets for $85.6 million. 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

 
Fourth Quarter Full Year
  2016       2015     2016       2015  
(In thousands)
Revenues:
Real estate (a) $ 62,497 $ 102,634 $ 190,273 $ 202,830
Mineral resources 1,234 1,478 5,076 9,094
Other   766     1,280     1,965     6,652  
Total revenues $ 64,497   $ 105,392   $ 197,314   $ 218,576  
Segment earnings (loss):
Real estate $ 12,889 $ 37,931 $ 121,420 $ 67,678
Mineral resources 659 1,015 3,327 4,230
Other   (3,651 )   (97 )   (4,625 )   (608 )
Total segment earnings (loss) 9,897 38,849 120,122 71,300
Items not allocated to segments:
General and administrative expense (4,282 ) (5,262 ) (18,274 ) (24,802 )
Share-based and long-term incentive compensation expense (1,445 ) 1,252 (4,425 ) (4,474 )
Gain on sale of assets 48,891 48,891
Interest expense (2,059 ) (8,215 ) (19,985 ) (34,066 )
Loss on extinguishment of debt, net (35,864 )
Other corporate non-operating income   67     123     350     256  
Income (loss) from continuing operations before taxes 51,069 26,747 90,815 8,214
Income tax (expense) benefit   (7,887 )   6,568     (15,302 )   (35,131 )
Net income (loss) from continuing operations attributable to Forestar Group Inc. 43,182 33,315 75,513 (26,917 )
Net income (loss) from discontinued operations, net of taxes (b)   563     (39,481 )   (16,865 )   (186,130 )
Net income (loss) attributable to Forestar Group Inc. $ 43,745   $ (6,166 ) $ 58,648   $ (213,047 )
 
Net income (loss) per diluted share:
Continuing operations $ 1.02 $ 0.79 $ 1.78 $ (0.79 )
Discontinued operations $ 0.01   $ (0.93 ) $ (0.40 ) $ (5.43 )
Net income (loss) per diluted share $ 1.03   $ (0.14 ) $ 1.38   $ (6.22 )
 
Weighted average common shares outstanding (in millions):
Basic 35.5 34.3 34.5 34.3
Diluted 42.3 42.4 42.3 34.3
 
Year-End
Supplemental Financial Information:   2016     2015  
(In thousands)
Cash and cash equivalents $ 265,798 $ 96,442
 
Senior secured notes 5,200 224,647
Convertible senior notes, net of discount 104,673 104,719
Tangible equity unit notes, net of discount 8,666
Other debt (c)   485   43,483  
Total debt (d)   110,358   381,515  
Net cash (debt) $ 155,440 $ (285,073 )

_____________________

(a)   Fourth quarter and full year 2015 real estate revenues include the sale of Midtown Cedar Hill, a 354-unit multifamily property we developed near Dallas, for $42.9 million.
(b) Fourth quarter and full year 2015 discontinued operations results include non-cash impairment charges of $37.6 million and $164.8 million related to unproved leasehold interests and proved properties.
(c)

Other debt at year-end 2015 consisted principally of a $23.9 million senior secured note for one multifamily property and $15.4 million secured promissory note associated with our hotel property. 2016 debt excludes approximately $128.3 million of unconsolidated venture debt and approximately $14.9 million of outstanding letters of credit. In 2016, we sold Radisson Hotel & Suites and Eleven for $130.0 million and $60.2 million. The proceeds were used to pay off the related senior secured loans of $39.3 million.

(d) At year-end 2016 and 2015, $1,633,000 and $8,267,000 of unamortized deferred financing fees are deducted from our outstanding debt.
   
FORESTAR GROUP INC.
REAL ESTATE SEGMENT
PERFORMANCE METRICS
 
Fourth Quarter Full Year
  2016     2015   2016     2015
REAL ESTATE
Owned, Consolidated & Equity Method Ventures:
Residential Lots Sold 835 363 1,940 1,472
Revenue per Lot Sold $ 67,594 $ 83,739 $ 68,152 $ 77,170
Commercial Acres Sold 178 7 298 63
Revenue per Commercial Acre Sold $ 7,442 $ 491,723 $ 44,623 $ 248,278
Undeveloped Acres Sold 1,016 7,267 14,914 13,862
Revenue per Acre Sold $ 2,395 $ 2,192 $ 2,455 $ 2,296
Owned & Consolidated Ventures:
Residential Lots Sold 687 273 1,662 972
Revenue per Lot Sold $ 65,832 $ 85,063 $ 66,694 $ 76,594
Commercial Acres Sold 178 4 294 31
Revenue per Commercial Acre Sold $ 7,442 $ 657,530 $ 37,312 $ 182,184
Undeveloped Acres Sold 540 7,267 14,438 9,645
Revenue per Acre Sold $ 3,123 $ 2,192 $ 2,485 $ 2,369
Ventures Accounted For Using the Equity Method:
Residential Lots Sold 148 90 278 500
Revenue per Lot Sold $ 75,775 $ 79,725 $ 76,866 $ 78,288
Commercial Acres Sold 3 4 32
Revenue per Commercial Acre Sold $ $ 283,428 $ 527,152 $ 309,224
Undeveloped Acres Sold 476 476 4,217
Revenue per Acre Sold $ 1,567 $ $ 1,567 $ 2,129
       
YEAR-END 2016
REAL ESTATE PIPELINE
 
Real Estate Entitled Acres

Developed &
Under
Development
Acres

Total Acres
Residential
Owned 2,603 466
Ventures 656 145 3,870
Commercial
Owned 335 165
Ventures 179 88 767
Total Acres 3,773 864 4,637
     
FORESTAR GROUP INC.
PROJECTS IN ENTITLEMENT
 

A summary of our real estate projects in the entitlement process (a) at year-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
Total 730

_____________________

(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, which are the total for the project regardless of our ownership interest, are approximate. The actual number of acres entitled may vary.

 
UNDEVELOPED LAND
 
A summary of our non-core timberland and undeveloped land classified as held for sale at year-end 2016 follows:
 
Acres
Timberland
Georgia 11,100

Texas (a)

7,900
Total 19,000

_____________________

(a)   Includes 3,700 acres in Houston that was previously in the entitlement process.
       
FORESTAR GROUP INC.
REAL ESTATE PROJECTS
 

A summary of activity within our projects in the development process, which includes entitled, developed and under development single-family and mixed-use projects, at year-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

Projects with lots/units in inventory, under development or future planned development, projects with remaining commercial acres only and projects sold out in 2016
Texas

Austin

Arrowhead Ranch Hays 100 % 6 378 19
The Colony Bastrop 100 % 566 27
Double Horn Creek Burnet 100 % 167
Hunter's Crossing Bastrop 100 % 510 54 51
La Conterra Williamson 100 % 202 3
Westside at Buttercup Creek Williamson 100 % 1,497 66
2,948 378 150 70

Corpus Christi

Caracol Calhoun 75 % 65 14
Padre Island (b) Nueces 50 % 15
Tortuga Dunes Nueces 75 % 95 4
160 18 15

Dallas-Ft. Worth

Bar C Ranch Tarrant 100 % 467 654
Keller Tarrant 100 % 1
Lakes of Prosper Collin 100 % 187 100 4
Lantana Denton 100 % 3,670 432 44
Maxwell Creek Collin 100 % 1,001 10
Parkside Collin 100 % 138 62
The Preserve at Pecan Creek Denton 100 % 631 151 7
River's Edge Denton 100 % 202
Stoney Creek Dallas 100 % 320 376
Summer Creek Ranch Tarrant 100 % 983 245 35 44
Timber Creek Collin 88 % 80 521
Village Park Collin 100 % 567 3 2
8,044 2,743 97 53

Houston

Barrington Kingwood Harris 100 % 176 4
City Park Harris 75 % 1,468 58 104
Harper's Preserve (b) Montgomery 50 % 588 1,094 30 49
Imperial Forest Harris 100 % 84 347
Long Meadow Farms (b) Fort Bend 38 % 1,648 149 194 99
Southern Trails (b) Brazoria 80 % 954 41 1
Spring Lakes Harris 100 % 348 25 4
Summer Lakes Fort Bend 100 % 780 294 56
Summer Park Fort Bend 100 % 125 74 34 67
Willow Creek Farms II Waller / Fort Bend 90 % 154 111
6,325 2,114 398 323
 
 
 
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 % 1,142 649 97 58
Oak Creek Estates Comal 100 % 326 227 13
Olympia Hills Bexar 100 % 747 7 10
Stonewall Estates (b) Bexar 50 % 378 8
2,593 891 120 58
Total Texas 20,070 6,126 783 519

Colorado

Denver

Buffalo Highlands Weld 100 % 164
Cielo Douglas 100 % 343
Johnstown Farms Weld 100 % 281 317 2
Pinery West Douglas 100 % 86 20 104
Stonebraker Weld 100 % 603
367 1,427 22 104

Georgia

Atlanta

Harris Place Paulding 100 % 22 5
Montebello (b) Forsyth 90 % 224
Seven Hills Paulding 100 % 912 341 26 113
West Oaks Cobb 100 % 6 50
940 620 26 113

North & South Carolina

Charlotte

Ansley Park Lancaster 100 % 307
Habersham York 100 % 91 96 6
Moss Creek Cabarrus 100 % 84
Walden Mecklenburg 100 % 384
91 871 6

Raleigh

Beaver Creek (b) Wake 90 % 31 162
31 162
122 1,033 6
Tennessee

Nashville

Beckwith Crossing Wilson 100 % 32 67
Morgan Farms Williamson 100 % 132 41
Scales Farmstead Williamson 100 % 26 171
Weatherford Estates Williamson 100 % 8 9
198 288
Wisconsin

Madison

Juniper Ridge/Hawks Woods (b) (d) Dane 90 % 18 196
Meadow Crossing II (b) (c) Dane 90 % 7 165
25 361
 
 
 
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) (d) Pima 50 % 29 59
Dove Mountain Pima 100 % 98

Oakland

San Joaquin River Contra Costa/Sacramento 100 % 264 25

Kansas City

Somerbrook Clay 100 % 185

Salt Lake City

Suncrest (b) (c) Salt Lake 90 % 171
214 328 264 25
Total 21,936 10,183 1,095 767

____________________

(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 non-core multifamily properties, excluding one multifamily site in Austin classified as held for sale, at year-end 2016 follows:

         
Project Market Interest

Owned (a)

Type Acres Description
Elan 99 Houston 90 % Multifamily 17 360-unit luxury apartment
Acklen Nashville 30 % Multifamily 4 320-unit luxury apartment
HiLine 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.

Contacts

Forestar Group Inc.
Charles D. Jehl, 512-433-5229

Contacts

Forestar Group Inc.
Charles D. Jehl, 512-433-5229