What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2025-04-22 compared with 2025-01-23 · 81 added, 55 removed, 185 unchanged (42% of the section changed)

7 unchanged sentences

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.

Our common stock is listed on the New York Stock Exchange 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.

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

2 unchanged sentences

Horton owned 75% of our outstanding common stock.

As of December 31, 2024, D.R.

As of March 31, 2025, D.R.

Horton owned approximately 62% of our outstanding common stock.

9 unchanged sentences

We occasionally 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 three months ended December 31, 2024, we sold 2,333 lots with an average sales price of $105,500.

At December 31, 2024, our lot position consisted of 106,000 residential lots, of which approximately 68,300 were owned and 37,700 were controlled through purchase contracts.

For the six months ended March 31, 2025, we sold 5,744 lots with an average sales price of 103,200.

At March 31, 2025, our lot position consisted of 105,900 residential lots, of which approximately 68,400 were owned and 37,500 were controlled through purchase contracts.

Of our 68,400 owned lots, approximately 25,400 lots are under contract to be sold for an aggregate remaining sales price of approximately $2.3 billion.

5 unchanged sentences

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

In the three months ended December 31, 2024, total lots closed and total residential lot sales revenue decreased 26% and 19%, respectively, compared to the prior year period primarily due to builders moderating their pace of new home starts to better match current market conditions and sell through existing inventories.

Although the level of new and existing home inventories has increased from historically low levels, the supply of homes at affordable price points generally remains limited, and demographics supporting housing demand remain favorable, despite continued affordability challenges.

Mortgage rate buy down incentives offered by builders have helped to address affordability and spur demand.

In the six months ended March 31, 2025, total lots sold and total residential lot sales revenue decreased 11% and 6%, respectively, compared to the prior year period primarily due to builders moderating their pace of new home starts to better match current market conditions and sell through existing inventories.

The 2025 spring selling season has begun, and the new home demand has been slower than expected due to uncertainty among potential homebuyers caused by continued affordability constraint s, elevated mortgage interest rates and declining consumer confidence.

Des pite current market conditions, total lots sold and total residential lot sales revenue in the three months ended March 31, 2025 increased 4% and 6%, respectively, compared to the prior year period.

Mortgage rate buy down incentives offered by homebuilders have helped to address affordability and spur demand.

Our ongoing focus is primarily to develop lots for homes at affordable price points.

2 unchanged sentences

However, if market conditions are challenging, we may have to reduce selling prices or may not be able to offset cost increases with higher selling prices.

We believe we are well-positioned to consolidate market share in the highly fragmented lot development industry because of our low net leverage and strong liquidity position, low overhead model, geographically diverse lot portfolio that is focused on affordable price points and strategic relationship with D.R.

We believe we are well-positioned to consolidate market share in the highly fragmented lot development industry because of our national footprint and strong local teams, our low net leverage and strong liquidity position, lower overhead model, geographically diverse lot portfolio that is focused on affordable price points and strategic relationship with D.R.

We plan to remain disciplined when investing in land opportunities and to remain focused on managing our lot sales pace and lot pricing at each community to optimize the return on our investments.

Results of Operations

The following tables and related discussion set forth key operating and financial data as of and for the three months ended December 31, 2024 and 2023.

The following tables and related discussion set forth key operating and financial data as of and for the three and six months ended March 31, 2025 and 2024.

Operating Results

Components of income before income taxes were as follows:

Three Months Ended December 31,

Three Months Ended March 31, Six Months Ended March 31,

2025 2024 2025 2024

(In millions)

4 unchanged sentences

Interest and other income (1.0) (5.0) (3.3) (11.3)

Loss on extinguishment of debt 1.1 — 1.1 —

Income before income taxes $ 40.7 $ 58.9 $ 62.6 $ 110.1

Residential lots sold consisted of:

Three Months Ended December 31,

Three Months Ended March 31, Six Months Ended March 31,

2025 2024 2025 2024

Development projects 3,334 3,280 5,625 6,430

Lot banking projects 77 9 119 9

3,411 3,289 5,744 6,439

Average sales price per lot (a)

3 unchanged sentences

Revenues consisted of:

Three Months Ended December 31,

Three Months Ended March 31, Six Months Ended March 31,

2025 2024 2025 2024

(In millions)

3 unchanged sentences

Decrease in contract liabilities

— 2.1 1.2 2.8

346.9 325.9 594.2 630.1

Deferred development projects — 1.7 — 3.0

346.9 327.6 594.2 633.1

Tract sales and other 4.1 6.2 7.1 6.6

Total revenues $ 351.0 $ 333.8 $ 601.3 $ 639.7

Residential lots sold and residential lot sales revenues in the three months ended December 31, 2024 decreased compared to the prior year period primarily due to builders moderating their pace of new home starts to better match current market conditions and sell through existing inventories.

Residential lots sold and residential lot sales revenues in the three months ended March 31, 2025 increased compared to the prior year period primarily due to an increase in lot sales to customers other than D.R.

Residential lots sold and residential lot sales revenues in the six months ended March 31, 2025 decreased compared to the prior year period primarily due to builders moderating their pace of new home starts to better match current market conditions and sell through their existing inventories.

Residential lot sales to D.R.

1 unchanged sentence

Horton consisted of:

Three Months Ended December 31,

Three Months Ended March 31, Six Months Ended March 31,

2025 2024 2025 2024

Residential lots sold to D.R.

2 unchanged sentences

Horton 910 184 1,131 500

3,411 3,289 5,744 6,439

Residential lot revenues from lot sales to D.R.

1 unchanged sentence

Horton, before deferred development projects and changes in contract liabilities, consisted of:

Three Months Ended December 31,

Three Months Ended March 31, Six Months Ended March 31,

2025 2024 2025 2024

(In millions)

5 unchanged sentences

Lots sold to customers other than D.R.

Horton in the three months ended December 31, 2023 included 124 lots that were sold for $15.1 million to a lot banker who expects to sell those lots to D.R.

Horton in the three and six months ended March 31, 2025 included 362 lots that were sold for $18.8 million to a lot banker who expects to sell those lots to D.R.

Horton at a future date.

Tract sales and other revenue in the three months ended December 31, 2024 primarily consisted of $2.0 million of revenue recognized related to land banking contracts with D.R.

Lots sold to customers other than D.R.

Horton in the six months ended March 31, 2024 included 124 lots that were sold for $15.1 million to a lot banker who expects to sell those lots to D.R.

Horton at a future date.

Cost of Sales, Real Estate Impairment and Land Option Charges and Interest Incurred

Cost of sales in the three months ended December 31, 2024 decreased compared to the prior year period primarily due to the decrease in the number of lots sold.

Cost of sales in the three months ended March 31, 2025 increased compared to the prior year period primarily due to the increase in the number of lots sold and cost of sales in the six months ended March 31, 2025 decreased compared to the prior year period primarily as a result of the decrease in the number of lots sold.

Each quarter, we review the performance and outlook for all of our real estate for indicators of potential impairment and perform detailed impairment evaluations and analyses when necessary.

As a result of this process, no impairment charges were recorded in the three months ended December 31, 2024 and 2023.

In the three months ended December 31, 2024, land purchase contract deposit and pre-acquisition cost write-offs related to land purchase contracts that we have terminated or expect to terminate were $1.1 million compared to $0.2 million in the prior year period.

As a result of this process, no impairment charges were recorded in the three and six months ended March 31, 2025 and 2024.

In the three and six months ended March 31, 2025, land purchase contract deposit and pre-acquisition cost write-offs related to land purchase contracts that we have terminated or expect to terminate were $0.9 million and $2.0 million, respectively, compared to $0.2 million and $0.4 million in the prior year periods.

We capitalize interest costs throughout the development period (active real estate).

Capitalized interest is charged to cost of sales as the related real estate is sold to the buyer.

Interest incurred was $8.3 million in the three months ended December 31, 2024 compared to $8.1 million in the prior year period.

Interest charged to cost of sales in the three months ended December 31, 2024 was 1.8% of total cost of sales (excluding impairments and land option charges) compared to 2.6% in the prior year period.

Interest incurred was $10.6 million and $18.8 million in the three and six months ended March 31, 2025 compared to $8.2 million and $16.3 million in the prior year periods.

Interest charged to cost of sales in the three and six months ended March 31, 2025 was 2.4% and 2.1% of total cost of sales (excluding impairments and land option charges) compared to 2.6% for both the prior year periods.

Selling, General and Administrative (SG&A) Expense and Other Income Statement Items

SG&A expense in the three months ended December 31, 2024 was $36.0 million compared to $28.0 million in the prior year period.

SG&A expense as a percentage of revenues was 14.4% in the three months ended December 31, 2024 compared to 9.2% in the prior year period.

SG&A expense in the three and six months ended March 31, 2025 was $38.4 million and $74.3 million compared to $29.2 million and $57.2 million in the prior year periods.

SG&A expense as a percentage of revenues was 10.9% and 12.4% in the three and six months ended March 31, 2025 compared to 8.7% and 8.9%in the prior year periods.

Our SG&A expense primarily consisted of employee compensation and related costs.

Our business operations employed 427 and 329 employees at December 31, 2024 and 2023, respectively.

Our business operations employed 440 and 340 employees at March 31, 2025 and 2024, respectively.

We attempt to control our SG&A costs while ensuring that our infrastructure supports our operations;

however, we cannot make assurances that we will be able to maintain or improve upon the current SG&A expense as a percentage of revenues.

Loss on extinguishment of debt of $1.1 million in the three and six months ended March 31, 2025 was due to the partial repurchase of our $400 million principal amount of 3.85% senior notes due 2026 in March 2025.

Interest and other income primarily represents interest earned on our cash deposits.

Income tax expense for the three months ended December 31, 2024 was $5.4 million compared to $13.0 million in the prior year period.

Our effective tax rate was 24.7% for the three months ended December 31, 2024 compared to 25.4% in the prior year period.

The effective tax rate for both periods included an expense for state income taxes and nondeductible expenses.

At December 31, 2024, we had deferred tax liabilities, net of deferred tax assets , of $65.8 million.

Income tax expense for the three and six months ended March 31, 2025 was $9.1 million and $14.5 million compared to $13.9 million and $26.9 million in the prior year periods.

Our effective tax rate was 22.4% and 23.2% for the three and six months ended March 31, 2025 compared to 23.6% and 24.4% in the prior year periods.

The effective tax rate for all periods included an expense for state income taxes and nondeductible expenses and a benefit for stock-based compensation.

The effective tax rate for the three and six months ended March 31, 2025 also included a benefit for nontaxable income.

At March 31, 2025, we had deferred tax liabilities, net of deferred tax assets , of $74.2 million.

The deferred tax assets were partially offset by a valuation allowance of $0.7 million, resulting in a net deferred tax liability of $74.9 million.

5 unchanged sentences

Land and Lot Position

Our land and lot position at December 31, 2024 and September 30, 2024 is summarized as follows:

December 31, 2024 September 30, 2024

Our land and lot position at March 31, 2025 and September 30, 2024 is summarized as follows:

March 31, 2025 September 30, 2024

Lots owned 68,400 57,800

10 unchanged sentences

Liquidity and Capital Resources

At December 31, 2024, we had $132.0 million of cash and cash equivalents and $512.5 million of available borrowing capacity on our revolving credit facility.

At March 31, 2025, we had $174.3 million of cash and cash equivalents and $617.7 million of available borrowing capacity on our revolving credit facility.

We have no senior note maturities until fiscal 2026.

We believe we are well-positioned to operate effectively during changing economic conditions because of our low net leverage and strong liquidity position, our low overhead model and our strategic relationship with D.R.

At December 31, 2024, our ratio of debt to total capital (debt divided by stockholders’ equity plus debt) was 33.3% compared to 30.7% at September 30, 2024 and 33.4% at December 31, 2023.

Our ratio of net debt to total capital (debt net of unrestricted cash divided by stockholders’ equity plus debt net of unrestricted cash) was 29.5% compared to 12.4% at September 30, 2024 and 14.9% at December 31, 2023.

At March 31, 2025, our ratio of debt to total capital (debt divided by stockholders’ equity plus debt) was 34.7% compared to 30.7% at September 30, 2024 and 32.4% at March 31, 2024.

Our ratio of net debt to total capital (debt net of unrestricted cash divided by stockholders’ equity plus debt net of unrestricted cash) was 29.8% compared to 12.4% at September 30, 2024 and 16.4% at March 31, 2024.

Over the long term, we intend to maintain our ratio of net debt to total capital at approximately 40% or less.

5 unchanged sentences

Bank Credit Facility

We have a senior unsecured revolving credit facility that was amended in December 2024 to increase its capacity from $410 million to $640 million and to raise the uncommitted accordion feature that could increase the size of the facility to $1 billion, subject to certain conditions and availability of additional bank commitments.

The amendment also extended the maturity date of the facility.

We have a $640 million senior unsecured revolving credit facility with an uncommitted accordion feature that could increase the size of the facility to $1 billion, subject to certain conditions and availability of additional bank commitments.

The facility includes bank commitments of $575 million maturing on December 18, 2029 and $65 million maturing on October 28, 2026.

2 unchanged sentences

Letters of credit issued under the facility reduce the available borrowing capacity.

At December 31, 2024, there were $100 million of borrowings outstanding at a 5.9% annual interest rate and $27.5 million of letters of credit issued under the revolving credit facility, resulting in available capacity of $512.5 million.

At March 31, 2025, there were no borrowings outstanding and $22.3 million of letters of credit issued under the revolving credit facility, resulting in available capacity of $617.7 million.

The revolving credit facility is guaranteed by our wholly-owned subsidiaries that are not immaterial subsidiaries and have not been designated as unrestricted subsidiaries.

3 unchanged sentences

A failure to comply with these financial covenants could allow the lending banks to terminate the availability of funds under the revolving credit facility or cause any outstanding borrowings to become due and payable prior to maturity.

At December 31, 2024, we were in compliance with all of the covenants, limitations and restrictions of our revolving credit facility.

At March 31, 2025, we were in compliance with all of the covenants, limitations and restrictions of our revolving credit facility.

We have outstanding senior notes as described below that were issued pursuant to Rule 144A and Regulation S under the Securities Act of 1933, as amended.

1 unchanged sentence

The notes are guaranteed by each of our subsidiaries to the extent such subsidiaries guarantee our revolving credit facility.

Our $400 million principal amount of 3.85% senior notes (the "2026 notes") mature May 15, 2026 with interest payable semi-annually.

On or after May 15, 2023, the 2026 notes may be redeemed at 101.925% of their principal amount plus any accrued and unpaid interest.

In accordance with the indenture, the redemption price decreases annually thereafter, and the 2026 notes can be redeemed at par on or after May 15, 2025 through maturity.

In March 2025, we issued $500 million principal amount of 6.5% senior notes due March 15, 2033 (the "2033 notes"), with interest payable semiannually.

The annual effective interest rate of the 2033 notes after giving effect to the amortization of financing costs is 6.7%.

We also have $300 million principal amount of 5.0% senior notes (the "2028 notes") outstanding, which mature March 1, 2028 with interest payable semi-annually.

On or after March 1, 2023, the 2028 notes may be redeemed at 102.5% of their principal amount plus any accrued and unpaid interest.

The net proceeds from this issuance were primarily used to fund our tender offer to purchase any and all of our outstanding $400 million principal amount of 3.85% senior notes due 2026 (the "2026 notes"), of which $329.4 million aggregate principal amount was tendered.

The repurchase price of $333.4 million included accrued and unpaid interest of $4.2 million.

We recognized a $1.1 million loss on extinguishment of debt upon repurchase of the notes.

At any time prior to March 15, 2028, we may, on one or more occasions, redeem up to 40% of the aggregate principal amount of the 2033 notes with the net cash proceeds from certain equity offerings at a redemption price of 106.5% of the principal amount of the 2033 notes being redeemed.

At any time prior to March 15, 2028, we may redeem some or all of the 2033 notes at a redemption price of 100% of the principal amount thereof plus a specified “make whole” premium described in the indenture.

We also have the option, at any time on or after March 15, 2028 to redeem some or all of the 2033 notes at 103.25% of their principal amount plus any accrued and unpaid interest.

In accordance with the indenture, the redemption price decreases annually thereafter and the 2033 notes can be redeemed at par on or after March 15, 2030 through maturity.

Our $70.6 million remaining principal amount of 2026 notes mature May 15, 2026 with interest payable semiannually.

Until May 15, 2025, the 2026 notes may be redeemed at 100.963% of their principal amount plus any accrued and unpaid interest, and the 2026 notes can be redeemed at par on or after May 15, 2025 through maturity.

The annual effective interest rate of the 2026 notes after giving effect to the amortization of financing costs is 4.1%.

The indentures governing our senior notes require that, upon the occurrence of both a change of control and a rating decline (as defined in each indenture), we offer to purchase the applicable series of notes at 101% of their principal amount.

If we or our restricted subsidiaries dispose of assets, under certain circumstances, we will be required to either invest the net cash proceeds from such asset sales in our business within a specified period of time, repay certain senior secured debt or debt of our non-guarantor subsidiaries, or make an offer to purchase a principal amount of such notes equal to the excess net cash proceeds at a purchase price of 100% of their principal amount.

The indentures contain covenants that, among other things, restrict the ability of us and our restricted subsidiaries to pay dividends or distributions, repurchase equity, prepay subordinated debt and make certain investments;

We also have $300 million principal amount of 5.0% senior notes (the "2028 notes") outstanding, which mature March 1, 2028 with interest payable semiannually.

Until March 1, 2026, the 2028 notes may be redeemed at 100.833% of their principal amount plus any accrued and unpaid interest, and the 2028 notes can be redeemed at par on or after March 1, 2026 through maturity.

The annual effective interest rate of the 2028 notes after giving effect to the amortization of financing costs is 5.2%.

Under the indentures governing the 2026 notes and 2028 notes, if we or our restricted subsidiaries dispose of assets, under certain circumstances, we will be required to either invest the net cash proceeds from such asset sales in our business within a specified period of time, repay certain senior secured debt or debt of our non-guarantor subsidiaries, or make an offer to purchase a principal amount of such notes equal to the excess net cash proceeds at a purchase price of 100% of their principal amount.

The indentures governing the 2026 notes and 2028 notes contain covenants that, among other things, restrict the ability of us and our restricted subsidiaries to pay dividends or distributions, repurchase equity, prepay subordinated debt and make certain investments;

incur additional debt or issue mandatorily redeemable equity;

3 unchanged sentences

and allow to exist certain restrictions on the ability of subsidiaries to pay dividends or make other payments.

At December 31, 2024, we were in compliance with all of the limitations and restrictions associated with our senior note obligations.

The indenture governing the 2033 notes contains certain covenants that, among other things, restrict the ability of us and our restricted subsidiaries to create certain liens on assets;

engage in certain sale and leaseback transactions;

and merge or consolidate with another company or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of our assets.

At March 31, 2025, we were in compliance with all of the limitations and restrictions associated with our senior note obligations.

Effective April 30, 2020, our Board of Directors authorized the repurchase of up to $30 million of our debt securities.

The authorization has no expiration date.

All of the $30 million authorization was remaining at December 31, 2024.

All of the $30 million authorization was remaining at March 31, 2025.

Other Note Payable

3 unchanged sentences

We have an effective shelf registration statement filed with the Securities and Exchange Commission in September 2024, registering $750 million of equity securities, of which $300 million was reserved for sales under our at-the-market equity offering program that we entered into in November 2024.

In the three months ended December 31, 2024, we did not issue any shares of common stock under our at-the-market equity offering program.

At December 31, 2024, the full $750 million remained available for issuance under the shelf registration statement, with $300 million reserved for sales under our at-the-market equity offering program.

In the six months ended March 31, 2025, we did not issue any shares of common stock under our at-the-market equity offering program.

At March 31, 2025, the full $750 million remained available for issuance under the shelf registration statement, with $300 million reserved for sales under our at-the-market equity offering program.

Operating Cash Flow Activities

In the three months ended December 31, 2024, net cash used in operating activities was $450.0 million, which was primarily the result of the increase in real estate and the decreases in accounts payable and other liabilities and accrued development costs, partially offset by net income generated in the period and the increase in earnest money on sales contracts.

In the three months ended December 31, 2023, net cash used in operating activities was $156.7 million, which was primarily the result of the increase in real estate, partially offset by net income generated in the period and the increases in earnest money on sales contracts.

In the six months ended March 31, 2025, net cash used in operating activities was $469.8 million, which was primarily the result of the increase in real estate and the decreases in accounts payable and other liabilities and accrued development costs, partially offset by net income generated in the period and the increase in earnest money on sales contracts.

In the six months ended March 31, 2024, net cash used in operating activities was $215.9 million, which was primarily the result of the increase in real estate, partially offset by net income generated in the period and the increases in earnest money on sales contracts.

Investing Cash Flow Activities

In the three months ended December 31, 2024, net cash provided by investing activities was $0.9 million compared to $0.2 million of net cash used in the prior year period.

In the six months ended March 31, 2025, net cash provided by investing activities was $0.2 million compared to $0.8 million of net cash used in investing activities in the prior year period.

Financing Cash Flow Activities

In the three months ended December 31, 2024, net cash provided by financing activities was $99.9 million compared to $0.2 million of net cash used in financing activities in the prior year period.

Cash provided by financing activities in the three months ended December 31, 2024 was primarily the result of $100 million of borrowings under our senior unsecured revolving credit facility.

In the six months ended March 31, 2025, net cash provided by financing activities was $162.7 million which was primarily the result of proceeds from the issuance of $500 million principal amount of our 2033 notes and $245 million of borrowings under our senior unsecured revolving credit facility, which were partially offset by the repurchase of $329.4 million of our $400 million principal amount of 2026 notes and $245 million in repayments under our senior unsecured revolving credit facility.

Cash provided by financing activities in the six months ended March 31, 2024 was primarily the result of the issuance of common stock under our at-the-market equity offering program for net proceeds of $19.7 million.

Critical Accounting Policies and Estimates

38 unchanged sentences

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-Q

Item 2. Management’s Discussion and Analysis