Forestar Group Inc · NYSE:FOR
Forestar — Q2 2020 Earnings Presentation
27 slides from Forestar's earnings presentation, 2020
Slide 1: Investor Presentation Q2 2020
I N V E S T O R P R E S E N T A T I O N Q2 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 • Economic fundamentals remained solid in the housing and residential lot development markets throughout most of Q2 FY 2020; however, during the latter part of March and into April, the impacts of the COVID‐19 pandemic (COVID‐19) and the related widespread reductions in economic activ
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 50 markets across 21 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 (89 • 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 a strong first 6 months of the year; however, as a result of COVID-19, the Company has withdrawn its lot delivery and revenue guidance for fiscal 2020 and 2021 Lot Deliveries Lot Sales Revenue 4,373 4,132 $352 $374 1,279 1,066 $95 $84 FY 2018(1) F
Slide 12: Land and Development Investments
LAND AND DEVELOPMENT INVESTMENTS As a result of COVID-19, Forestar has temporarily restricted its land purchase activity and is continuing to closely manage all lot development spending Quarter Ended Quarter Ended 3/31/20 by Month $271 $260 $236 $199 $83 $110 $171 $114 $105 $101 $62 $88 $34 $36 $65
Slide 13: Lot Position
LOT POS ITION Forestar is prepared to quickly respond to demand for residential lots both during and after the pandemic 52,300 44,500 16,500 38,300 12,300 31,400 8,600 5,200 20,100 1,900 35,800 29,700 32,200 26,200 18,200 9/30/18 3/31/19 9/30/19 12/31/19 3/31/20 Owned Controlled Includes lots that D
Slide 14: Diversified Footprint
DIVERSIFIED FOOTPRINT Own and control 52,300 lots at 3/31/20 80% 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 3/31/20 50 Markets 21 States 3/31/19 41 Markets 17 States / Current FOR markets / states DHI states where
Slide 15: 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 16: 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 17: 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 18: Financial Position and Policy
FINANCIAL POSITION AND POLICY In February 2020, Forestar further strengthened its financial position by issuing $300M of 5.0% senior notes due 2028 FINANCIAL POSITION AS OF 3/31/20 DISCIPLINED FINANCIAL POLICY • $438M unrestricted cash and cash equivalents • Strict lot development investment underwr
Slide 19: Q2 FY 2020 and FYTD 2020 Highlights
Q2 FY 2020 AND FYTD 2020 HIGHLIGHTS • Operating highlights - Residential lots sold increased 256% to 1,951 lots compared to 548 lots in the same quarter of fiscal 2019 - 52,300 lots at 3/31/20, of which 35,800 were owned and 16,500 were controlled through purchase contracts 28,600, or 80%, of owne
Slide 20: 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 21: Appendix
APPENDIX ky FORESTAR
Slide 22: Income Statement
I N C O ME S TATE ME N T 3 MONTHS ENDED 6 MONTHS ENDED 3/31/2020 3/31/2019 3/31/2020 3/31/2019 Residential lots sold: 1,951 548 4,373 1,066 Development projects 1,272 412 2,678 874 Lot banking projects 679 136 1,695 192 Average sales price per lot(1) $ 79,700 $ 86,200 $ 85,600 $ 80,200 Revenues(2) $
Slide 23: Balance Sheet
BA L A NC E SH E ET 3/31/2020 9/30/2019 3/31/2019 (1) Cash and cash equivalents $ 438.2 $ 382.8 $ 82.1 Real estate 1,199.2 1,028.9 851.5 Investment in unconsolidated ventures 5.7 7.3 7.4 Other assets 24.5 19.3 21.0 Deferred income taxes, net 8.0 17.4 22.9 Total assets $ 1,675.6 $ 1,455.7 $ 984.9 Deb
Slide 24: 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 3/31/2020 Master Supply Agreement (“MSA”) LAND SOURCING AND LOT SALES STRUCTURE PER
Slide 25: 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 26: 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 27: 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