Forestar Group Inc · NYSE:FOR
Forestar — Q3 2020 Earnings Presentation
28 slides from Forestar's earnings presentation, 2020
Slide 1: Investor Presentation Q3 2020
I N V E S T O R P R E S E N T A T I O N Q3 2020
Slide 2: Forward Looking Statements
F O R W A R D L O O K I N G S TAT E M E N T S 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
Slide 3: COVID-19
C OV I D - 1 9 • During the latter part of March, the impacts of the COVID‐19 pandemic (C‐19) and the related widespread reductions in economic activity began to temporarily affect the Company’s business operations and demand for its residential lots • Residential construction is designated as an es
Slide 4: Forestar Overview
F O R E S TA R OV E R V I E W • Forestar Group Inc. (“Forestar” or “FOR”) is a highly Operations in 51 markets across 22 states(1) differentiated, national residential lot developer – Develop and sell lots for single‐family homes to D.R. Horton and other local, regional and national homebuilders – F
Slide 5: The Forestar Value Proposition
T H E F O R E S TA R VA LU E P R O P O S I T I O N DIFFERENTIATED BUSINESS MODEL DESIGNED TO ADDRESS A MARKET NEED • Returns focused residential lot development business model • Higher turnover, lower risk lot manufacturing strategy focused on returns • Under‐served lot development market with lack
Slide 6: Forestar Investment Highlights
F O R E S TA R I N V E S T M E N T H I G H L I G H T S Unique Returns‐ Focused Lot Strategic Relationship Long‐Term Market Geographic Manufacturing With D.R. Horton Share Gains Diversification Business Model Proven / Seasoned Homebuilders’ Management Team Primary Focus on Strong Balance Increasing P
Slide 7: Unique Lot Manufacturer Business Model
U N I Q U E L OT M A N U FA C T U R E R B U S I N E S S M O D E L FOR’s unique lot manufacturing model is highly differentiated from that of a typical land developer • Business model designed to achieve scale and consistency, while minimizing risk • At scale, FOR’s high turnover, lower risk “lot man
Slide 8: Business Overview
B U S I N E S S OV E R V I E W 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 c
Slide 9: Benefits of Highly Strategic FOR and DHI Alignment
B E N E F I T S O F H I G H LY S T R AT E G I C F O R A N D D H I ALIGNMENT BENEFITS TO FOR BENEFITS TO DHI • Enhanced, experienced leadership team • Long‐term consistent supplier of finished lots across DHI’s national footprint (88 • Supports Forestar’s national platform STRONG AND markets in 29 st
Slide 10: DHI Growth, Consolidation and Market Share Gains Provide Roadmap for Forestar
D H I G R O W T H , C O N S O L I DAT I O N A N D M A R K E T S H A R E G A I N S P R OV I D E R OA D M A P F O R F O R E S TA R Total TotalNew U.S. U.S. Single‐Family Single‐Family NewHouses Sold ('000s) Home Sales (‘000s) DHISeries Homes 3 Closed as a Percentage of 1,400 U.S. Single‐Family New Hom
Slide 11: Lot Deliveries & Revenue
LOT DELIVERIES & REVENUE The Forestar team delivered strong FTYD 6/30/20 growth, with lot deliveries and lot sales revenue increasing 188% and 213%, respectively, from the same period in the prior year Lot Deliveries Lot Sales Revenue 6,396 $538 4,132 $352 2,224 $172 1,279 $95 FY 2018(1) FY 2019 FYT
Slide 12: Significant Growth Ramp
SIGNIFICANT GROWTH RAMP Based on today’s market conditions, the Company now expects to deliver between 8,700 and 9,000 lots for the full year of fiscal 2020 and to grow its lot deliveries to a range of 10,500 to 11,500 lots in fiscal 2021 Lot Deliveries 10,500 – 11,500 8,700 – 9,000 4,132 1,279 FY 2
Slide 13: Land and Development Investments
LAND AND DEVELOPMENT INVESTMENTS Although Forestar temporarily restricted its land purchase activity early in the quarter due to COVID-19, the Company returned to more normalized levels of land and development investments as housing market conditions improved in May and June Quarter Ended Quarter En
Slide 14: Lot Position
LOT POS ITION Forestar is well-positioned to respond to demand for residential lots 52,300 50,700 44,500 16,500 12,400 37,400 38,300 12,300 8,600 8,600 20,100 1,900 35,800 38,300 29,700 32,200 28,800 18,200 9/30/18 6/30/19 9/30/19 12/31/19 3/31/20 6/30/20 Owned Controlled Includes lots that DHI has
Slide 15: Diversified Footprint
DIVERSIFIED FOOTPRINT Own and control 50,700 lots at 6/30/2020 77% of owned lots are under contract to sell or subject to a right of first offer to DHI Targeting a 3 to 4 year owned lot inventory 6/30/20 51 Markets 22 States 9/30/18 24 Markets 14 States / Current FOR markets / states DHI states wher
Slide 16: Primary Focus on Attractive Entry-Level Segment
P R I M A RY F O C U S O N AT T R A C T I V E E N T RY- L E V E L SEGMENT • Majority of recent Forestar investments have been $200k ‐ $300k homes average sales price (ASP) represents focused on lots for homes at affordable / entry‐level the largest cohort of homes sold by D.R. Horton and the broader
Slide 17: Uniquely Positioned to Provide Residential Finished Lots
U N I Q U E LY P O S I T I O N E D TO P R OV I D E R E S I D E N T I A L F I N I S H E D L OT S 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 finish
Slide 18: Seasoned Leaders with Decades of Land Development Experience
SEASONED LEADERS WITH DECADES OF LAND DEVELOPMENT EXPERIENCE Experienced management team that knows how to navigate through market cycles DON TOMNITZ DAN BARTOK JIM ALLEN Executive Chairman CEO CFO Formerly President & CEO of DHI for Joined FOR in December 2017; Joined FOR in March 2020 with over 35
Slide 19: Financial Position and Policy
FINANCIAL POSITION AND POLICY Forestar is well-positioned with its low net leverage of 25.2% and strong liquidity position of ~$700 million FINANCIAL POSITION AS OF 3/31/20 DISCIPLINED FINANCIAL POLICY • $356M unrestricted cash and cash equivalents • Strict lot development investment underwriting: •
Slide 20: Q3 FY 2020 and FYTD 2020 Highlights
Q3 FY 2020 AND FYTD 2020 HIGHLIGHTS • Operating highlights - Residential lots sold increased 75% to 2,023 lots compared to 1,158 lots in the same quarter of fiscal 2019 - 50,700 lots at 6/30/20, of which 38,300 were owned and 12,400 were controlled through purchase contracts 29,600, or 77%, of own
Slide 21: Forestar Investment Highlights
F O R E S TA R I N V E S T M E N T H I G H L I G H T S Unique Returns‐ Focused Lot Strategic Relationship Long Term Market Geographic Manufacturing With D.R. Horton Share Gains Diversification Business Model Proven / Seasoned Homebuilders’ Management Team Primary Focus on Strong Balance Increasing P
Slide 22: Appendix
APPENDIX ky FORESTAR 2
Slide 23: Income Statement
I N C O ME S TATE ME N T 3 MONTHS ENDED 9 MONTHS ENDED 6/30/2020 6/30/2019 6/30/2020 6/30/2019 Residential lots sold: 2,023 1,158 6,396 2,224 Development projects 1,556 723 4,234 1,597 Lot banking projects 467 435 2,162 627 Average sales price per lot(1) $ 79,900 $ 77,400 $ 83,800 $ 78,800 Revenues(
Slide 24: Balance Sheet
BA L A NC E SH E ET 6/30/2020 9/30/2019 6/30/2019 (1) Cash and cash equivalents $ 355.6 $ 382.8 $ 223.2 Real estate 1,287.1 1,028.9 1,049.5 Investment in unconsolidated ventures 5.5 7.3 7.3 Other assets 37.2 19.3 24.2 Deferred income taxes, net 0.0 17.4 21.0 Total assets $ 1,685.4 $ 1,455.7 $ 1,325.
Slide 25: FOR & DHI Relationship Overview
F O R & D H I R E L AT I O N S H I P OV E R V I E W Stockholder’s Shared Services Agreement Agreement Capital Markets Supports growth by providing DHI holds majority stake of ~65% in FOR public debt and equity as of 6/30/2020 Master Supply Agreement (“MSA”) LAND SOURCING AND LOT SALES STRUCTURE PER
Slide 26: Master Supply Agreement (MSA)
M A S T E R S U P P LY A G R E E M E N T ( M S A ) • Establishes 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 • P
Slide 27: Stockholder's Agreement
S TO C K H O L D E R ’ S A G R E E M E N T • DHI has the right to nominate FOR’s board members commensurate with DHI’s equity ownership – DHI nominated four of FOR’s five board members – FOR Board of Directors must include at least three independent directors (currently has four) • Established an in
Slide 28: 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