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Item 1. Business

2022-11-17 compared with 2021-11-18 · 113 added, 70 removed, 165 unchanged (53% of the section changed)

We are a national, well-capitalized residential lot development company focused primarily on selling finished single-family residential lots to homebuilders.

Our strategy is focused on making investments in land acquisition and development to expand our residential lot development business across a geographically diversified national platform while consolidating market share in the fragmented U.S.

lot development industry.

We are primarily investing in short-duration, phased development projects.

Forestar Group Inc.

is a national, well-capitalized residential lot development company focused primarily on making investments in land acquisition and development to sell finished single-family residential lots to homebuilders.

Our common stock is listed on the New York Stock Exchange (NYSE) under the ticker symbol “FOR.” The terms “Forestar,” the “Company,” “we” and “our” used herein refer to Forestar Group Inc., a Delaware corporation, and its predecessors and subsidiaries.

We conduct a wide range of project planning and management activities related to the entitlement, acquisition, community development and sale of residential lots.

We generally secure entitlements while the land is under contract by creating plans that meet the needs of the markets where we operate, and we aim to have all entitlements secured before closing on the investment.

Moving land through the entitlement and development process creates significant value.

We primarily invest in entitled short-duration projects that can be developed in phases, enabling us to complete and sell lots at a pace that matches market demand, consistent with our focus on maximizing capital efficiency and returns.

This strategy is a unique, lower-risk business model that we expect will produce more consistent returns than other public and private land developers.

We also make strategic short-term investments in finished lots (lot banking) and undeveloped land with the intent to sell these assets within a short time period utilizing available capital prior to its deployment into longer-term lot development projects.

At September 30, 2021, we had operations in 56 markets in 23 states, and our lot position consisted of 97,000 residential lots, of which approximately 64,400 were owned and 32,600 were controlled through purchase contracts.

At September 30, 2021, our lots owned included approximately 5,300 lots that are fully developed, of which approximately 300 are related to lot banking.

In October 2017, we became a majority-owned subsidiary of D.R.

Horton) by virtue of a merger with a wholly-owned subsidiary of D.R.

We also make short-term strategic investments in finished lots (lot banking) and undeveloped land (land banking) with the intent to sell these assets within a short time period to utilize available capital prior to its deployment into longer-term lot development projects.

For the year ended September 30, 2022, we sold 17,691 lots with an average sales price of $86,300.

At September 30, 2022, our lot position consisted of 90,100 residential lots, of which approximately 61,800 were owned and 28,300 were controlled through purchase contracts.

Of our 61,800 owned lots, approximately 19,200 lots are under contract to be sold for an aggregate remaining sales price of approximately $1.5 billion.

We have expanded and diversified our lot development operations across 53 markets in 21 states by investing available capital into our existing markets and by entering new markets.

We believe our geographically diverse operations provide a strong platform for us to consolidate market share in the highly fragmented lot development industry.

We also believe our geographic diversification lowers our operational risks and enhances our earnings potential by mitigating the effects of local and regional economic cycles.

Our customers are primarily local, regional and national homebuilders.

The lots we deliver in our communities are primarily for entry-level, first-time move-up and active adult homes.

Entry-level and first-time move-up homebuyers are the largest segments of the new home market.

We also market some of our communities towards build-to-rent operators.

Our real estate origins date back to the 1954 incorporation of Lumbermen’s Investment Corporation, which became a wholly-owned subsidiary of the predecessor to Temple-Inland Inc.

("Temple-Inland") in 1971.

We changed our name to Forestar Real Estate Group Inc.

after Temple-Inland began reporting us as a separate business segment in 2006, and in 2007, Temple-Inland completed a tax-free distribution of our shares to its stockholders, making us an independent publicly-traded company.

In 2008, we changed our name from Forestar Real Estate Group Inc.

to Forestar Group Inc.

We became a majority-owned subsidiary of D.R.

Horton") in October 2017 by virtue of a merger with a wholly-owned subsidiary of D.R.

Immediately following the merger, D.R.

Horton owned 75% of our outstanding common stock, and as of September 30, 2021 they owned 63% of our outstanding common stock.

Horton owned 75% of our outstanding common stock, and as of September 30, 2022 they owned approximately 63% of our outstanding common stock.

As our controlling shareholder, D.R.

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Under the terms of the Master Supply Agreement, we supply finished lots to D.R.

Horton at market terms and both companies identify land development opportunities to expand our portfolio of assets.

Of our total owned residential lots, approximately 21,000 are under contract to sell to D.R.

Additionally, D.R.

Horton has the right of first offer on approximately 18,200 of our owned residential lots based on executed purchase and sale agreements.

Horton at market terms offered by Forestar and both companies identify land development opportunities to expand our portfolio of assets.

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We manage our operations through our real estate segment.

Our results of operations, including information regarding our real estate segment, are discussed in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, and in Item 8, Financial Statements and Supplementary Data.

We conduct our operations in the states and markets listed below.

Our national footprint provides diversification in our real estate inventory investments and our sources of revenues and earnings.

At September 30, 2022, we conducted our operations in the states and markets listed below.

State Market State Market

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Mobile/Baldwin County Minnesota Minneapolis/St.

Arizona Phoenix Nevada Las Vegas

Nevada Las Vegas

Arizona Phoenix Reno

New Jersey Southern New Jersey

California San Diego County

Riverside County New Mexico Albuquerque/Santa Fe

Modesto North Carolina Charlotte

Raleigh-Durham

Colorado Denver Asheville

Fort Collins Greensboro

Florida Fort Myers/Naples

Volusia County Ohio Columbus

Lakeland Oregon Portland/Salem

West Palm Beach Pennsylvania Allentown/Bethlehem/Easton

Melbourne South Carolina Charleston

Pensacola/Panama City Myrtle Beach

Lucie Greenville

Tampa/Sarasota

Ocala Tennessee Nashville

Gainesville Knoxville

Georgia Atlanta Texas Austin

Augusta Dallas

Illinois Chicago San Antonio

Indiana Indianapolis Utah Salt Lake City

California Riverside County

New Mexico Albuquerque

Colorado Denver

Fort Collins North Carolina Asheville

Florida Fort Myers/Naples Greensboro

Gainesville Greenville

Jacksonville Raleigh-Durham

Lakeland Wilmington

Miami/Fort Lauderdale Ohio Columbus

Ocala Cincinnati

Pensacola/Panama City Pennsylvania Allentown/Bethlehem/Easton

Tampa/Sarasota South Carolina Charleston

Volusia County Greenville/Spartanburg

West Palm Beach Hilton Head

Georgia Atlanta Tennessee Nashville

Savannah Texas Austin

Illinois Chicago Fort Worth

Indiana Indianapolis San Antonio

Iowa Des Moines Washington Seattle/Tacoma/Everett

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When evaluating new or existing markets for purposes of capital allocation, we consider local, market-specific factors, including, among others:

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• employment levels and job growth;

• Local housing affordability;

• housing demand and affordability;

• availability of land and lots in desirable locations on acceptable terms;

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The majority of our real estate projects are single-family residential communities.

We develop lots for single-family homes on sites we typically purchase in the open market and sell residential finished lots primarily to local, regional and national homebuilders.

In select situations, we contract with D.R.

Horton for land development services, generally in geographic markets where we do not have established development teams and capabilities.

We primarily purchase land in the open market and install the necessary infrastructure to develop the land into finished residential lots for single-family homes.

Our customers are primarily local, regional and national homebuilders.

Our managers are responsible for the following activities related to our land and lot acquisition and development activities:

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• coordinating all interactions with customers throughout the lot sale process.

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Our corporate executives and corporate office personnel provide control and oversight functions to many important risk elements in our operations, including:

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• review of major personnel decisions and incentive compensation plans.

Our corporate executives and corporate office personnel are responsible for establishing our operational policies and internal control standards and for monitoring compliance with established policies and controls throughout our operations.

Our corporate executives and office personnel are responsible for establishing our operational policies and internal control standards and monitoring compliance with established policies and controls throughout our operations.

We have a Shared Services Agreement with D.R.

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Horton provides us with certain administrative, compliance, operational and procurement services.

Our corporate executives and corporate office departments are responsible for, and provide oversight and review for, the following shared services performed by D.R.

Our corporate executives and office personnel are responsible for, and provide oversight and review for, the following shared services performed by D.R.

• finance and treasury;

• Risk and litigation management;

• risk and insurance;

• information technology;

• internal audit;

• Investor and media relations;

• investor relations;

• human resources, payroll and employee benefits.

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The agreement provides D.R.

Horton the right of first offer to purchase, at market prices and terms, up to 100% of the lots from D.R.

Horton the right of first offer to purchase, at market prices and terms offered by Forestar, up to 100% of the lots from D.R.

Horton sourced projects, up to 50% of the lots in the first phase of a Forestar sourced project and up to 50% of the lots in any subsequent phase in which D.R.

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Horton’s right to nominate members to our Board, requires D.R.

Horton’s consent for certain transactions and established an investment committee.

Horton’s consent for certain transactions and establishes an investment committee.

Horton has the right to nominate our Board members commensurate with its equity ownership.

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and (iv) make an acquisition or investment greater than $20 million.

The Stockholder’s Agreement also established an investment committee to approve new investments up to $20 million.

The Stockholder’s Agreement also establishes an investment committee to approve new investments up to $20 million.

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Land/Lot Acquisition and Inventory Management

We acquire land for use in our development operations after we have completed due diligence and after we have obtained the development rights (known as entitlements).

We acquire land for use in our development operations after we have completed due diligence and obtained the development rights (known as entitlements).

Before we acquire lots or tracts of land, we complete a feasibility study, which includes soil tests, independent environmental studies, other engineering work and financial analysis.

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Although we purchase and develop land primarily to sell finished lots to homebuilders, we may sell land where we have excess land positions or for other strategic reasons.

We also enter into land purchase contracts, in which we obtain the right, but generally not the obligation, to buy land at predetermined prices on a defined schedule commensurate with planned development.

We also enter into land purchase contracts, whereby we obtain the right, but generally not the obligation, to buy land at predetermined prices on a defined schedule commensurate with planned development.

These contracts generally are non-recourse, which limits our financial exposure to our earnest money deposited into escrow under the terms of the contract and any pre-acquisition due diligence costs we incur.

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• limiting the size of our land development projects and focusing on short duration projects;

• Acquiring fully-entitled land and developing the land in phases;

• acquiring land entitled for single-family residential housing and managing our development in phases;

• focusing on developing lots for entry-level housing, the segment where housing demand has been the highest;

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Generally, the materials used in our operations have been readily available from numerous sources.

More recently, the effects of the COVID-19 pandemic, combined with the improvement in economic conditions and strong demand in the real estate industry, have caused disruptions in our supply chain and resulted in shortages in certain construction materials and tightness in the labor market, which has caused our development cycle to lengthen in some markets.

In fiscal 2021, our development cycle time lengthened primarily due to the COVID-19 pandemic and its effects on our supply chain, which resulted in shortages of certain construction materials and tightness in the labor market.

Continuing supply chain delays and disruptions during fiscal 2022 lengthened our development cycle time further.

We are subject to governmental regulations that affect our land development operations.

In fiscal 2021 and 2022, municipalities and other government agencies were frequently delayed in granting the proper approvals to us, which delayed our development activities in certain markets.

In select situations, we contract with D.R.

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Lot/Land Banking

In addition to our residential lot development activities, we also make strategic short-term investments in finished lots (lot banking) and undeveloped land with the intent to sell these assets within a short time period, primarily to D.R.

In addition to our residential lot development activities, we also make strategic short-term investments in finished lots (lot banking) and undeveloped land (land banking) with the intent to sell these assets within a short time period, primarily to D.R.

Horton, utilizing available capital prior to its deployment into longer term lot development projects.

We manage our level of lot/land banking relative to short-term liquidity and expected future cash requirements for lot development projects.

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Cost Controls

We control development costs by obtaining competitive bids for materials and labor.

We monitor our land development expenditures versus budgets for each project, and we review our inventory levels, margins, expenses, profitability and returns for each project compared to both its business plan and our performance expectations.

We control development costs by designing our communities efficiently and by obtaining competitive bids for materials and labor.

We monitor our land development expenditures versus budgets for each project, and we review our inventory levels, margins, expenses, profitability and returns for each project compared to its business plan and our performance expectations.

We face significant competition for the acquisition, development and sale of real estate in our markets.

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During periods when access to capital is restricted, participants in a weaker financial condition tend to be less active.

Sales Contracts and Backlog

Our lot sales contracts require an earnest money deposit, which can vary in amount across our markets and communities.

We have the right to either retain or refund customer deposits on canceled lot purchase contracts, depending upon the applicable provisions of the contract or other circumstances.

The length of time between the signing of a lot sales contract and delivery of the lot to the customer (closing) is generally from three to twelve months.

At September 30, 2022, our lots owned included approximately 19,200 lots (31%) that were under contract to be sold, of which approximately 17,800 lots are under contract to D.R.

Human Capital Resources

People and Culture

For the past two fiscal years, despite the COVID-19 pandemic, we increased our number of employees and made no reductions to our employee compensation plans or employee benefit plans.

For the past three fiscal years, despite the COVID-19 pandemic, we increased the number of employees and made no reductions to our employee compensation plans or employee benefit plans.

We have increased our number of employees from 250 at September 30, 2021 to 291 at September 30, 2022 to support the growth of our residential lot development business across a geographically diversified platform.

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Our people are expected to exhibit and promote honest, ethical and respectful conduct in the workplace.

All of our employees must adhere to a code of conduct that sets standards for appropriate behavior and includes required internal training on preventing, identifying, reporting and stopping any type of discrimination.

All of our employees must certify to their understanding of and adhere to a code of conduct that sets standards for appropriate behavior and includes required internal training on preventing, identifying, reporting and stopping any type of discrimination.

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Recruitment, Development and Retention

We are committed to hiring, developing and supporting a diverse workforce and maintaining an inclusive workplace.

We are committed to hiring, developing and supporting an energetic, diverse workforce and maintaining a productive, positive and inclusive workplace.

We believe diversity in the workplace produces unique perspectives and fresh ideas and helps us better serve our customers.

We have an active recruiting team that partners with college campuses and external organizations to identify strong new hires and experienced professionals.

Our paid internship program provides college students and recent graduates an opportunity to work alongside some of the most experienced professionals in the land development industry.

Management is committed to supporting the development of our employees in many ways including onboarding programs, training and providing employees exposure to senior management.

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We believe this provides long-term focus and continuity to our operations while also providing opportunities for the growth and advancement of our employees.

During fiscal 2022, 19 employees were placed into new leadership positions in our regional and divisional offices, and of those, 74% were promoted from within the organization.

Compensation and Benefits

We believe our compensation package and benefits are competitive with others in our industry.

In addition to base pay, all eligible employees participate in our short-term incentive bonus program and certain employees participate in our long-term stock incentive program.

We also offer our employees a broad range of benefits, including medical, dental and vision healthcare benefits and paid parental leave.

In addition to base pay, eligible employees may participate in our incentive bonus and stock compensation plans, which align their compensation to the interests of our shareholders.

We also offer our employees a broad range of benefits, including paid vacation, holidays, sick time and parental leave;

medical, dental and vision healthcare insurance and life insurance and disability coverage.

We are committed to supporting our employees in their health, wellness and financial planning goals.

Additional benefits offered include a 401(k) savings plan, employee stock purchase plan and access to professional resources to support employees with their mental and physical health, financial planning, identify theft protection and legal needs.

Additional information about our employee benefit plans is included in Note 11 to the accompanying financial statements.

Workplace Safety and Wellness

The safety and well-being of our employees is our first priority.

The safety and well-being of our employees are our first priority.

We take workplace safety seriously at our construction sites and in our offices.

We provide certification training to our field personnel through an Occupational Safety and Health Administration (OSHA) authorized third-party vendor, and we communicate with all of our employees through a monthly safety newsletter to inform and reinforce our commitment to and concern for their well being.

Our organization strives for a zero-incident safety culture and full compliance with safety regulations.

We provide certification training to our field personnel through an Occupational Safety and Health Administration authorized third-party vendor;

we provide our teams with an abundance of safety resources, including safety checklists, policies, procedures, and best practices;

and we communicate with all of our employees through a monthly safety newsletter to inform and reinforce our commitment to and concern for their well-being.

We also require certain personal protective equipment, such as hard hats, high visibility safety wear and hearing and eye protection to be worn in certain circumstances at our active development sites.

During the COVID-19 pandemic, we implemented safety protocols to protect our employees and our contractors.

These protocols include complying with health and safety standards as required by federal, state and local government agencies, taking into consideration guidelines of the Centers for Disease Control and Prevention and other public health authorities.

Many of our administrative and operational functions during this time have required modification, including some of our workforce working remotely.

Our experienced teams of people adapted to the changes in our work environment and have managed our business successfully during this challenging time.

Additionally, because substantially all of our land development work is performed by subcontractors, we require that our subcontractors maintain safety programs.

During the COVID-19 pandemic, we implemented safety protocols to protect our employees and contractors.

These protocols included complying with health and safety standards as required by federal, state and local government agencies, taking into consideration guidelines of the Centers for Disease Control and Prevention and other public health authorities.

Many of our administrative and operational functions during this period required modification, including some of our workforce working remotely.

Our teams adapted to the changes in our work environment and managed our business successfully during this challenging time.

To support our employees throughout the pandemic, employee access to remote work and virtual meetings was expanded.

Once available, COVID-19 vaccinations were provided at no charge through Company sponsored health insurance plans.

We also have had no workforce or salary reductions related to the pandemic.

Governmental Regulation and Environmental Matters

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We, and the subcontractors we use, must comply with many federal, state and local laws and regulations.

These include zoning, density and development requirements, and building, environmental, advertising, labor and real estate sales rules and regulations.

These regulations and requirements affect substantially all aspects of our land development and sales processes in varying degrees across our markets.

These include zoning, permitting, density and development requirements, and building, environmental, advertising, labor and real estate sales rules and regulations.

These regulations and requirements substantially affect all aspects of our land development and sales processes in varying degrees across our markets.

Our properties are subject to inspection and approval by local authorities where required and may be subject to various assessments for schools, parks, streets, utilities and other public improvements.

We may experience delays in receiving the proper approvals from local authorities that could delay our anticipated development activities in certain projects.

Our land development activities are also subject to an extensive array of local, state and federal statutes, ordinances, rules and regulations concerning protection of health, safety and the environment.

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Our land development activities are also subject to an extensive array of local, state and federal statutes, ordinances, rules and regulations concerning protecting health, safety and the environment.

The particular compliance requirements for each site vary greatly according to location, environmental condition and the present and former uses of the site and adjoining properties.

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On the Investor Relations section of our website, www.forestar.com , you may obtain additional information about us, including:

• our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and other documents as soon as reasonably practicable after we file them with the SEC;

• our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and other documents as soon as reasonably practicable after we file them with the Securities and Exchange Commission ("SEC");

• copies of certain agreements with D.R.

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– standards of business conduct and ethics,

– environmental policy,

– human rights policy,

– code of ethics for senior financial officers, and

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The SEC also maintains a website ( www.sec.gov ) that contains reports, proxy and information statements and other information that is filed electronically with the SEC.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business