What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-07-23 compared with 2025-04-22 · 65 added, 52 removed, 214 unchanged (35% of the section changed)

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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 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 and the NYSE Texas under the ticker symbol "FOR." The listing and trading of the Common Stock on the NYSE Texas commenced on July 1, 2025.

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.

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Horton owned 75% of our outstanding common stock.

As of March 31, 2025, D.R.

As of June 30, 2025, D.R.

Horton owned approximately 62% of our outstanding common stock.

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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 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.

For the nine months ended June 30, 2025, we sold 9,349 lots with an average sales price of $104,500.

At June 30, 2025, our lot position consisted of 102,300 residential lots, of which approximately 68,300 were owned and 34,000 were controlled through purchase contracts.

Of our 68,300 owned lots, approximately 25,700 lots are under contract to be sold for an aggregate remaining sales price of approximately $2.3 billion.

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

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.

While disruptions in the supply chain for certain construction materials and tightness in the labor market have largely subsided, municipality delays are still extending development cycle times, and development costs remain elevated.

During the nine months ended June 30, 2025, total residential lots sold decreased by 4% while the average sales price per lot increased 9% resulting in a 4% increase in total residential lot sales revenue compared to the prior year period.

Our consolidated revenues increased 4% to $991.9 million compared to $958.0 million.

Our pre-tax income was $106.2 million in the nine months ended June 30, 2025 compared to $161.6 million in the prior year period, and our pre-tax operating margin was 10.7% compared to 16.9%.

Net income was $81.0 million in the nine months ended June 30, 2025 compared to $121.8 million in the prior year period, and our diluted earnings per share was $1.59 compared to $2.40.

During the third quarter, new home demand continued to be impacted by uncertainty among potential homebuyers due to ongoing affordability constraint s and cautious consumer sentiment.

Homebuilders have continued to offer elevated levels of sales incentives, such as mortgage rate buydowns, to address affordability and spur the demand for new homes.

Des pite current market conditions, total lots sold and total residential lot sales revenue in the three months ended June 30, 2025 increased 11% and 25%, respectively, compared to the prior year period.

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

We attempt to offset cost increases in one component with savings in another, and we increase our land and lot sales prices when market conditions permit.

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Results of Operations

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.

The following tables and related discussion set forth key operating and financial data as of and for the three and nine months ended June 30, 2025 and 2024.

Operating Results

Components of income before income taxes were as follows:

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

Three Months Ended June 30, Nine Months Ended June 30,

2025 2024 2025 2024

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Equity in earnings of unconsolidated ventures — — (0.6) —

Gain on sale of assets — (5.0) — (5.0)

Interest and other income (1.3) (4.4) (4.6) (15.7)

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Residential lots sold consisted of:

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

Three Months Ended June 30, Nine Months Ended June 30,

2025 2024 2025 2024

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Revenues consisted of:

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

Three Months Ended June 30, Nine Months Ended June 30,

2025 2024 2025 2024

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Lot banking projects 10.9 10.3 24.1 11.0

Decrease in contract liabilities

(Increase) decrease in contract liabilities

(1.3) (0.2) (0.1) 2.6

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Total revenues $ 390.5 $ 318.4 $ 991.9 $ 958.0

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 revenues in the three months ended June 30, 2025 increased compared to the prior year period due to the increase in lots sold to both D.R.

Horton and customers other than D.R.

Horton and the increase in our average sales price per lot.

Residential lot sales revenues in the nine months ended June 30, 2025 increased compared to the prior year period, primarily due to the increase in lot sales to customers other than D.R.

Horton and the increase in our average sales price per lot, partially offset by the decrease in lots sold to D.R.

Residential lot sales to D.R.

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Horton consisted of:

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

Three Months Ended June 30, Nine Months Ended June 30,

2025 2024 2025 2024

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

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

Three Months Ended June 30, Nine Months Ended June 30,

2025 2024 2025 2024

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Lots sold to customers other than 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 in the three and nine months ended June 30, 2025 included 331 lots and 693 lots, respectively, that were sold for $37.5 million and $56.3 million to a lot banker who expects to sell those lots to D.R.

Horton at a future date.

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 in the nine months ended June 30, 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 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.

Cost of sales in the three and nine months ended June 30, 2025 increased compared to the prior year periods primarily due to the increase in lot sales revenues.

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 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.

As a result of this process, no impairment charges were recorded in the three and nine months ended June 30, 2025 and 2024.

In the three and nine months ended June 30, 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 $1.9 million and $3.9 million, respectively, compared to $0.7 million and $1.0 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 $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.

Interest incurred was $13.4 million and $32.3 million in the three and nine months ended June 30, 2025 compared to $8.2 million and $24.5 million in the prior year periods.

Interest charged to cost of sales in the three and nine months ended June 30, 2025 was 2.3% and 2.2% of total cost of sales (excluding impairments and land option charges) compared to 2.4% and 2.5% for the prior year periods.

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

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.

SG&A expense in the three and nine months ended June 30, 2025 was $37.4 million and $111.8 million compared to $29.3 million and $86.5 million in the prior year periods.

SG&A expense as a percentage of revenues was 9.6% and 11.3% in the three and nine months ended June 30, 2025 compared to 9.2% and 9.0% in the prior year periods.

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

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

Our business operations employed 443 and 376 employees at June 30, 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.

Loss on extinguishment of debt of $1.1 million in the nine months ended June 30, 2025 was due to the partial repurchase of our $400 million principal amount of 3.85% senior notes due 2026 in March 2025.

The gain on sale of assets of $5.0 million in the three and nine months ended June 30, 2024 was due to excess hotel occupancy and sales and use tax revenues collected from the Cibolo Canyons Special Improvement District.

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

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.

Income tax expense for the three and nine months ended June 30, 2025 was $10.7 million and $25.2 million compared to $12.9 million and $39.8 million in the prior year periods.

Our effective tax rate was 24.5% and 23.7% for the three and nine months ended June 30, 2025 compared to 25.0% and 24.6% 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 effective tax rate for the three and nine months ended June 30, 2025 also included a benefit for nontaxable income.

At June 30, 2025, we had deferred tax liabilities, net of deferred tax assets , of $77.2 million.

The deferred tax assets were partially offset by a valuation allowance of $0.7 million, resulting in a net deferred tax liability of $77.9 million.

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Any reversal of the valuation allowance in future periods will impact our effective tax rate.

On July 4, 2025, the President signed the One Big Beautiful Bill Act into law (the "new law").

We are evaluating the impact of the new law;

however, none of the tax provisions are expected to have a significant impact on our financial statements.

Land and Lot Position

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

March 31, 2025 September 30, 2024

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

June 30, 2025 September 30, 2024

Lots owned 68,300 57,800

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Liquidity and Capital Resources

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.

At June 30, 2025, we had $189.2 million of cash and cash equivalents and $602.8 million of available borrowing capacity on our revolving credit facility.

We have $70.6 million principal amount of senior note maturities in the next twelve months.

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 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.

At June 30, 2025, our ratio of debt to total capital (debt divided by stockholders’ equity plus debt) was 34.2% compared to 30.7% at September 30, 2024 and 31.8% at June 30, 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 28.9% compared to 12.4% at September 30, 2024 and 18.7% at June 30, 2024.

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

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

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.

At June 30, 2025, there were no borrowings outstanding and $37.2 million of letters of credit issued under the revolving credit facility, resulting in available capacity of $602.8 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.

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

At June 30, 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.

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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 2026 notes can be redeemed at par 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%.

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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.

At June 30, 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 March 31, 2025.

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

Other Note Payable

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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 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.

In the nine months ended June 30, 2025, we did not issue any shares of common stock under our at-the-market equity offering program.

At June 30, 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 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.

In the nine months ended June 30, 2025, net cash used in operating activities was $454.0 million, which was primarily the result of the increases in real estate and other assets 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 nine months ended June 30, 2024, net cash used in operating activities was $277.6 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 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.

In the nine months ended June 30, 2025, net cash used in investing activities was $0.6 million compared to $3.7 million of net cash provided by investing activities in the prior year period.

Cash provided by investing activities in the nine months ended June 30, 2024 included $5.0 million of excess hotel occupancy and sales and use tax revenues collected from the Cibolo Canyons Special Improvement District.

Financing Cash Flow Activities

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.

In the nine months ended June 30, 2025, net cash provided by financing activities was $162.6 million which was primarily the result of proceeds from the issuance of $500 million principal amount of our 2033 notes and $280 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 $280 million in repayments under our senior unsecured revolving credit facility.

Cash provided by financing activities in the nine months ended June 30, 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

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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-Q

Item 2. Management’s Discussion and Analysis