FOR Forestar Group Inc

Forestar significantly transformed in one year through execution of our key initiatives to reduce costs, divest non-core assets, strengthen balance sheet and focus on maximizing shareholder value.

Transformation - Highlights

• Actions taken to eliminate over $50 million in annualized SG&A, expect full cost savings realization once all non-core assets are sold
• Decreased headcount by over 50% compared to 2014 peak
• Executed $425 million in non-core asset sales
• Reduced outstanding debt by over $320 million - reducing annual interest expense by approximately $23 million going forward

Forestar Group Inc. (NYSE: FOR) (“Forestar” or the “Company”) today reported third quarter 2016 net income of approximately $9.7 million, or $0.23 per share outstanding, compared with third quarter 2015 net loss of approximately ($164.2) million, or ($4.79) per share outstanding. Third quarter 2016 earnings from continuing operations were approximately $16.8 million, or $0.40 per share outstanding, compared with third quarter 2015 net loss from continuing operations of approximately ($57.3) million, or ($1.67) per share outstanding.

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

"In one year, we have made significant progress transforming Forestar through the execution of our key initiatives to divest non-core assets, reduce outstanding debt, reduce SG&A costs and focus on maximizing shareholder value. Key highlights include selling $425 million in non-core assets, reducing outstanding debt by over $320 million, and reducing annual interest expense by approximately $23 million going forward. Once non-core asset sales are fully executed, projected annual SG&A costs are expected to decrease by over $50 million compared with 2015 actuals. In addition, we have transformed our capital structure by significantly reducing leverage, which has strengthened our balance sheet and created flexibility," said Phil Weber, Chief Executive Officer of Forestar.

"In addition to executing these 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. At third quarter-end 2016, we have over 2,080 residential lots under option contract with builders, the highest number of lots under option contract in over five years," continued Mr. Weber.

Business Segments

Forestar manages its operations through three business segments: real estate, mineral resources and other.

REAL ESTATE

Third Quarter 2016 Highlights (Includes Ventures)

• Sold 332 developed residential lots for $70,000 per lot
• Sold 243 residential tract acres for $26,800 per acre
• Sold 110 commercial acres for approximately $76,200 per acre
  • Includes 108 acres - Antioch, CA project for $7 million
• Sold approximately 6,500 acres of undeveloped land for $2,410 per acre
• Incurred $7.6 million in non-cash impairments, primarily related to a multifamily site under contract in Austin

           

Segment Financial Results:

  ($ in millions) Q3 2016 Q3 2015 Q2 2016 Segment Revenues $45.3 $28.0 $46.4 Segment Earnings $15.0 $5.2 $73.3  

Real estate segment earnings increased in third quarter 2016 compared with third quarter 2015 principally due to higher undeveloped land sales activity which was offset by non-cash impairment charges of $7.6 million related to one non-core multifamily site and two non-core community development projects. Commercial sale activity in third quarter 2016 is primarily related to sale of 108 acres from our San Joaquin River project in Antioch, California for $7 million which generated approximately $37 million in tax losses to offset tax gains. Residential tract sale activity in third quarter 2016 is related to the bulk sale of 243 acres from a venture project near Austin for $6.5 million which contributed approximately $1.4 million in segment earnings. Second quarter 2016 real estate segment earnings includes gain on sale of non-core assets of $107.7 million, principally due to a $95.3 million gain associated with the sale of the 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, which were partially offset by non-cash impairment charges of $48.8 million related to five non-core community development projects and one non-core multifamily site.

MINERAL RESOURCES

Segment Financial Results:

            ($ in millions) Q3 2016 Q3 2015 Q2 2016 Segment Revenues $1.4 $2.5 $1.3 Segment Earnings $1.2 $0.1 $0.9  

Mineral Resources segment earnings increased in third quarter 2016 compared with third quarter 2015 principally due to a non-cash impairment charge of $1.8 million related to Louisiana wells in third quarter 2015. In third quarter 2016, royalty revenues declined principally due to lower oil and gas production volumes and prices.

OTHER

Segment Financial Results:

            ($ in millions) Q3 2016 Q3 2015 Q2 2016 Segment Revenues $0.5 $1.7 $0.3 Segment Earnings (Loss) ($0.2) ($0.1) ($0.2)  

Third quarter 2016 other segment revenues decreased compared with third quarter 2015 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

“Fundamentals are stable in our community development markets supported by low developed lot inventories. Forestar sold 1,105 residential lots in the first nine months 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

“Our entire organization has worked extremely hard to execute our key initiatives and produce these significant results in one year. On behalf of the entire board, I would like to personally thank our team for their efforts to move our Company forward. We remain focused on maximizing shareholder value, including evaluating the next best steps for Forestar,” added Jim Rubright, Chairman of the Board.

The Company will host a conference call on November 9, 2016 at 10:00 am ET to discuss results of third 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 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 passcode for the replay is 97993686.

About Forestar Group

Forestar is a residential and mixed-use real estate development company. At third quarter-end 2016, we own directly or through ventures interests in 55 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 75,000 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

  Third Quarter First Nine Months 2016     2015 2016     2015 (In thousands) Revenues: Real estate $ 45,297 $ 27,957 $ 127,776 $ 100,196 Mineral resources 1,423 2,502 3,842 7,616 Other   487     1,726     1,199     5,372   Total revenues $ 47,207   $ 32,185   $ 132,817   $ 113,184   Segment earnings (loss): Real estate $ 15,017 $ 5,154 $ 108,531 $ 29,747 Mineral resources 1,182 77 2,668 3,215 Other   (196 )   (77 )   (974 )   (511 ) Total segment earnings 16,003 5,154 110,225 32,451 Items not allocated to segments: General and administrative expense (4,505 ) (8,343 ) (13,992 ) (19,540 ) Share-based and long-term incentive compensation expense (1,024 ) (2,245 ) (2,980 ) (5,726 ) Interest expense (3,369 ) (8,315 ) (17,926 ) (25,851 ) Loss on extinguishment of debt, net — — (35,864 ) — Other corporate non-operating income   58     38     283     133   Income (loss) from continuing operations before taxes 7,163 (13,711 ) 39,746 (18,533 ) Income tax (expense) benefit   9,666     (43,568 )   (7,415 )   (41,699 ) Net income (loss) from continuing operations attributable to Forestar Group Inc. 16,829 (57,279 ) 32,331 (60,232 ) Loss from discontinued operations, net of taxes   (7,164 )   (106,937 )   (17,428 )   (146,649 ) Net income (loss) attributable to Forestar Group Inc.   9,665     (164,216 )   14,903     (206,881 ) Net income (loss) per diluted share: Continuing operations $ 0.40 $ (1.67 ) $ 0.76 $ (1.76 ) Discontinued operations   (0.17 )   (3.12 )   (0.41 )   (4.28 ) Net income (loss) per diluted share $ 0.23   $ (4.79 ) $ 0.35   $ (6.04 )   Weighted average common shares outstanding (in millions): Basic 34.1 34.3 34.2 34.2 Diluted (a) 42.3 34.3 42.3 34.2     Third Quarter     Year-End Supplemental Financial Information: 2016     2015 (In thousands) Cash and cash equivalents $ 122,130 $ 96,442   Senior secured notes, net 5,195 224,647 Convertible senior notes, net of discount 103,637 104,719 Tangible equity unit notes, net 2,219 8,666 Other debt, net (b)   1,297     43,483   Total debt (c) $ 112,348   $ 381,515   Net cash (debt) $ 9,782   $ (285,073 ) _____________________ (a)   Weighted average diluted shares outstanding for third quarter and first nine 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 third quarter-end 2016 and year-end 2015 excludes unconsolidated venture debt of $126.1 million and $134.7 million and outstanding letters of credit of approximately $13.7 million and $15.9 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 pay off the related senior secured loans of $39.3 million.

(c) At third quarter-end 2016 and year-end 2015, $1,768,000 and $8,267,000 of unamortized deferred financing fees are deducted from our outstanding debt.           FORESTAR GROUP INC. REAL ESTATE SEGMENT PERFORMANCE METRICS   Third Quarter First Nine Months 2016     2015 2016     2015 REAL ESTATE Owned, Consolidated & Equity Method Ventures: Residential Lots Sold 332 301 1,105 1,109 Revenue per Lot Sold $ 69,970 $ 76,623 $ 68,573 $ 75,019 Commercial Acres Sold 110 2 120 56 Revenue per Commercial Acre Sold $ 76,187 $ 28,037 $ 99,800 $ 216,997 Undeveloped Acres Sold 6,501 4,616 13,898 6,595 Revenue per Acre Sold $ 2,410 $ 2,190 $ 2,460 $ 2,411 Owned & Consolidated Ventures: Residential Lots Sold 272 186 975 699 Revenue per Lot Sold $ 69,131 $ 76,232 $ 67,301 $ 73,287 Commercial Acres Sold 108 2 116 27 Revenue per Commercial Acre Sold $ 64,923 $ 28,037 $ 83,347 $ 109,802 Undeveloped Acres Sold 6,501 744 13,898 2,378 Revenue per Acre Sold $ 2,410 $ 2,900 $ 2,460 $ 2,911 Ventures Accounted For Using the Equity Method: Residential Lots Sold 60 115 130 410 Revenue per Lot Sold $ 73,773 $ 77,256 $ 78,108 $ 77,973 Commercial Acres Sold 2 — 4 29 Revenue per Commercial Acre Sold $ 750,902 $ — $ 527,152 $ 311,995 Undeveloped Acres Sold — 3,872 — 4,217 Revenue per Acre Sold $ — $ 2,053 $ — $ 2,129               THIRD QUARTER 2016 RESIDENTIAL REAL ESTATE PIPELINE   Real Estate Entitled Acres

Developed &UnderDevelopmentAcres

Total Acres (a) Residential Owned 4,030 691 Ventures 739 182 5,642 Commercial Owned 440 217 Ventures 191 94 942 Total Acres 5,400 1,184 6,584 _____________________ (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 third 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 third quarter-end 2016 follows:

  Acres Timberland Alabama 1,900 Georgia 44,300 Texas 4,400 Higher and Better Use Timberland Georgia 18,900 Entitled Undeveloped Land Georgia 5,100 Total 74,600    

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 third quarter-end 2016 follows:             Residential Lots/Units     Commercial Acres Project County

InterestOwned (a)

Lots/Units SoldSince Inception     Lots/UnitsRemaining Acres SoldSince Inception     Acres Remaining   Texas

Austin

Arrowhead Ranch Hays 100 % 2 382 — 19 The Colony Bastrop 100 % 475 1,448 22 5 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 — 2,853 1,830 145 75

Corpus Christi

Caracol Calhoun 75 % 16 58 — 14 Padre Island (b) Nueces 50 % — — — 15 Tortuga Dunes Nueces 75 % — 134 — 4 16 192 — 33

Dallas-Ft. Worth

Bar C Ranch Tarrant 100 % 448 673 — — Keller Tarrant 100 % — — 1 — Lakes of Prosper Collin 100 % 165 122 4 — Lantana Denton 100 % 3,617 484 44 — Maxwell Creek Collin 100 % 982 19 10 — Parkside Collin 100 % 60 140 — — The Preserve at Pecan Creek Denton 100 % 619 163 — 7 River's Edge Denton 100 % — 202 — — Stoney Creek Dallas 100 % 292 404 — — Summer Creek Ranch Tarrant 100 % 983 246 35 44 Timber Creek Collin 88 % 61 540 — — Village Park Collin 100 % 567 — 3 2 7,794 2,993 97 53

Houston

Barrington Kingwood Harris 100 % 176 4 — — City Park Harris 75 % 1,468 — 58 104 Harper's Preserve (b) Montgomery 50 % 522 1,160 30 49 Imperial Forest Harris 100 % 74 354 — — Long Meadow Farms (b) Fort Bend 38 % 1,611 186 194 99 Southern Trails (b) Brazoria 80 % 942 53 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 % 154 111 — — 6,158 2,271 398 318         Residential Lots/Units Commercial Acres Project County Interest Owned (a) Lots/Units SoldSince Inception Lots/UnitsRemaining Acres SoldSince Inception Acres Remaining

San Antonio

Cibolo Canyons Bexar 100 % 1,104 721 97 58 Oak Creek Estates Comal 100 % 313 240 13 — Olympia Hills Bexar 100 % 743 11 10 — Stonewall Estates (b) Bexar 50 % 377 9 — — 2,537 981 120 58 Total Texas 19,358 8,267 760 537 Colorado

Denver

Buffalo Highlands Weld 100 % — 164 — — Cielo Douglas 100 % — 343 — — Johnstown Farms Weld 100 % 281 335 2 — Pinery West Douglas 100 % 86 — 20 106 Stonebraker Weld 100 % — 603 — — 367 1,445 22 106 Georgia

Atlanta

Harris Place Paulding 100 % 22 5 — — Montebello (b) Forsyth 90 % — 224 — — Seven Hills Paulding 100 % 889 189 26 113 West Oaks Cobb 100 % 6 50 — — 917 468 26 113 North & South Carolina

Charlotte

Ansley Park Lancaster 100 % — 307 — — Habersham York 100 % 76 111 — 6 Walden Mecklenburg 100 % — 384 — — 76 802 — 6

Raleigh

Beaver Creek (b) Wake 90 % 24 169 — — 24 169 — — 100 971 — 6 Tennessee

Nashville

Beckwith Crossing Wilson 100 % 24 75 — — Morgan Farms Williamson 100 % 125 48 — — Scales Farmstead Williamson 100 % — 197 — — Weatherford Estates Williamson 100 % 8 9 — — 157 329 — — Wisconsin

Madison

Juniper Ridge/Hawks Woods (b) (d) Dane 90 % 8 206 — — Meadow Crossing II (b) (c) Dane 90 % 3 169 — — 11 375 — —               Residential Lots/Units Commercial Acres Project County Interest Owned (a) Lots/Units SoldSince Inception Lots/UnitsRemaining Acres SoldSince Inception Acres Remaining Arizona, California, Missouri, Utah

Tucson

Boulder Pass (b) (c) Pima 50 % 3 85 — — Dove Mountain Pima 100 % — 98 — —

Oakland

San Joaquin River Contra Costa/Sacramento 100 % — — 108 180

Kansas City

Somerbrook Clay 100 % 173 222 — —

Salt Lake City

Suncrest (b) (c) Salt Lake 90 % — 171 — — 176 576 108 180 Total 21,086 12,431 916 942 ____________________ (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 two multifamily sites classified as held for sale, at third quarter-end 2016 follows:

Project     Market    

InterestOwned (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.

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