Forestar Group Inc · NYSE:FOR
Forestar — Investor Presentation (March 2022)
29 slides from Forestar's investor presentation, Mar 31, 2022
Slide 1: Investor Presentation Q2|22
Investor Presentation Q2|22
Slide 2: Forward-Looking Statements
FORWARD‑LOOKING STATEMENTS 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 will not be materia
Slide 3: Forestar Overview
FORESTAR OVERVIEW RETURNS Track record of solid operational results with increasing FOCUSED margins 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
Slide 4: Q2 FY 2022 Financial Highlights
Q2 FY 2022 FINANCIAL HIGHLIGHTS Compelling growth story with increasing profitability • Residential lots sold increased 61% to 5,788 • Net income increased 68% to $48 million • Pre-tax income increased 68% to $63 million • 8th consecutive quarter of return on equity (ROE) improvement(1) Revenue Pre-
Slide 5: Track Record of Profitability and Growth
TRACK RECORD OF PROFITABILITY AND GROWTH Forestar is delivering strong growth and consistent margin expansion through the execution of its strategic plan and a disciplined, returns-focused approach to capital allocation TTM Lot Deliveries TTM Revenue 19,064 $1,561 16,864 $1,426 14,990 15,915 $1,326
Slide 6: Compelling Growth Story
COMPELLING GROWTH STORY Forestar expects to grow its lot deliveries 23% to 26% in fiscal 2022, generating ~$1.7 billion of revenue with a pre-tax profit margin between 14.0% and 14.5%* Lot Deliveries Revenue 19,500 - 20,000 ~$1,700 GR 15,915 AG R $1,326 CA %C % 58 68 $932 10,373 $428 4,132 FY 2019 F
Slide 7: The Market Opportunity
THE MARKET OPPORTUNITY As the leading pure-play residential lot supplier in the nation, Forestar has become a reliable source for finished lots and will continue to capture market share 2021 U.S. Single-Family Housing Starts ~70% of new housing starts were for single-family homes ~1,127,000 Estimate
Slide 8: 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 Margin Annual Lot Deliveries Growth Growth Expansion • Gain market share within • Expand into new markets •
Slide 9: Manufacturing Approach to Land Development
MANUFACTURING APPROACH TO LAND DEVELOPMENT Forestar has built a fundamentally strong business model with repeatable results, rooted in a relentless focus on returns Short duration, fully- Large scale with Returns-focused, with strict Consistent operating Strong liquidity and entitled lot national fo
Slide 10: 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 11: 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) 14.5% 37.0% 13.2% 13.0% 6.1% 12.6% 1.5% 1.0% 5.8% 5.5% 4.5%
Slide 12: 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 (104 markets in • Significant built-in demand for lots RELATIONSHIP 32 states) • Improved access to c
Slide 13: DHI Track Record Provides Roadmap to FOR
DHI TRACK RECORD PROVIDES ROADMAP TO FOR DHI’s 29-year public 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
Slide 14: FOR Is an Essential Lot Supplier to DHI
FOR IS AN ESSENTIAL LOT SUPPLIER TO DHI FOR has consistently expanded its market share within DHI and has a goal to supply approximately one third of DHI's annual lot needs DHI Closings FOR Lots Sold to DHI as a % of Closings 100,000 30% 90,000 25% 80,000 70,000 18% 19% 20% 60,000 16% 50,000 15% 40,
Slide 15: Land and Development Investments
LAND AND DEVELOPMENT INVESTMENTS Forestar expects to invest approximately $1.75 billion in land acquisition and development in fiscal 2022 Fiscal Year Ended Quarter Ended Land Development Land Acquisition Land Development Land Acquisition $1,630 $405 $377 $371 $380 $336 $779 $170 $125 $135 $1,054 $8
Slide 16: Growing Lot Position
GROWING LOT POSITION Consistent with Forestar’s focus on capital efficiency, the portion of its land and lot supply that is controlled via purchase contracts is increasing, supporting higher returns in the future Owned Controlled 103,300 96,600 97,000 96,500 84,500 32,400 32,600 37,600 32,300 25,800
Slide 17: Expanding Lot Sourcing Capabilities
EXPANDING LOT SOURCING CAPABILITIES • Forestar sourced lots have increased to 55% of total owned lots, up from 48% a year ago, which is expected to drive further increases in annual gross and pre-tax profit margins • Forestar is targeting a 3- to 4-year owned lot inventory FOR Sourced Owned Lots DHI
Slide 18: Solid Balance Sheet and Liquidity Position
SOLID BALANCE SHEET AND LIQUIDITY POSITION • Forestar is well-positioned with conservative net leverage(1) of 1.9x and net debt to capital(2) of 29.9%, and a strong liquidity position of ~$583 million at 3/31/22 • Corporate credit rating recently upgraded to Ba3 and B+ from Moody's and S&P, respecti
Slide 19: 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 DAN BARTOK JIM ALLEN MARK WALKER Executive Chairman CEO CFO Regional President Formerly Preside
Slide 20: Diversified National Footprint
DIVERSIFIED NATIONAL FOOTPRINT 53 MARKETS | 23 STATES Portfolio of 96,500 lots as of March 31, 2022 / FOR markets / states DHI states where FOR does not currently operate Lot Position by State and Markets as of 3/31/22 Of total lot position at 3/31/22, 64,200 are owned and 32,300 are controlled thro
Slide 21: Appendix
APPENDIX bey FORESTAR
Slide 22: 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 23: 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, homebuilders shift their land strategies to slow raw land purchases and focus on purchasing finished lots Optioned Land/Lot Position as a Number of
Slide 24: Income Statement
INCOME STATEMENT 3 MONTHS ENDED 6 MONTHS ENDED 3/31/22 3/31/21 3/31/22 3/31/21 Residential lots sold: 5,788 3,588 10,304 7,155 Development projects 4,806 3,174 9,187 6,276 Lot banking projects 195 414 330 879 Deferred development projects 787 — 787 — Average sales price per lot(1) $ 81,900 $ 78,100
Slide 25: Adjusted EBITDA Reconciliation
ADJUSTED EBITDA RECONCILIATION Reconciliation of Adjusted Non-GAAP Financial Measures to their GAAP equivalents 6 MONTHS ENDED 12 MONTHS ENDED 3/31/22 3/31/21 3/31/22 9/30/21 Net income attributable to Forestar Group Inc. $ 88.3 $ 50.4 $ 148.1 $ 110.2 Net income attributable to noncontrolling intere
Slide 26: Balance Sheet
BALANCE SHEET 3/31/22 9/30/21 Cash and cash equivalents $ 233.7 $ 153.6 Real estate 1,960.5 1,905.2 Investment in unconsolidated ventures 0.5 0.9 Other assets 36.9 42.0 Total assets $ 2,231.6 $ 2,101.7 Debt $ 705.3 $ 704.5 Earnest money on sales contracts 141.9 148.3 Other liabilities 254.0 208.6 De
Slide 27: Master Supply Agreement (MSA)
MASTER SUPPLY AGREEMENT (MSA) • Defines 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 • Provides DHI the ROFO to p
Slide 28: Stockholder's Agreement
STOCKHOLDER’S AGREEMENT • FOR Board of Directors must include at least three independent directors (currently has four) • 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
Slide 29: 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