Forestar Group Inc. Reports Full Year and Fourth Quarter 2012 Results

Forestar Group Inc. Reports Full Year and Fourth Quarter 2012 Results

Delivering the Greatest Value From Every Acre, Accelerating Value Realization and Growing Through Strategic Investments

AUSTIN, Texas--(BUSINESS WIRE)-- Forestar Group Inc. (NYS: FOR) today reported full year 2012 net income of approximately $12.9 million, or $0.36 per diluted share, compared with full year 2011 net income of approximately $7.2 million, or $0.20 per diluted share outstanding.

Full year 2012 results include after-tax expenses of approximately ($4.1) million, or ($0.12) per share, associated with acquisition of CREDO Petroleum Corporation, and an after-tax loss of ($2.9) million, or ($0.08) per share, associated with loss on extinguishment of debt related to amendment and extension of our term loan. Full year 2011 results include an after-tax gain of $40.2 million, or $1.12 per share, related to sale of about 57,000 acres of timberland, an after-tax loss of ($29.4) million or ($0.82) per share principally related to non-cash asset impairments associated with entering into agreements to acquire certain assets from the CL Realty and TEMCO ventures and an after-tax loss of ($2.1) million, or ($0.06) per share, associated with proposed private debt offerings. Full year 2012 net income excluding special items was $19.9 million, or $0.56 per share, compared with a net loss before special items of ($1.5) million or ($0.04) per share in 2011.

^*These are Non-GAAP financial measures.The reconciliation between GAAP and Non-GAAP measures is provided in the tables following this press release, and on the investor relations section of the company's website.

"Our 2012 results are beginning to reflect the benefit of our Triple in FOR strategic initiatives focused on accelerating value realization, optimizing transparency and disclosure, and growing our net asset value through strategic and disciplined investments," said Jim DeCosmo, president and chief executive officer of Forestar Group.

Full Year 2012 Significant Highlights (includes ventures)

Mineral Resources - Oil & Gas

• Oil production increased over 144% compared with 2011

• 29 additional oil and gas wells completed; 936 total producing wells at year-end

• 8,910 net mineral acres leased to exploration and production companies

Real Estate

• Sold 1,365 developed residential lots, a 22% increase compared with 2011 - almost 1,340 lots under option contracts at year-end

• Generated $18.4 million in gross profit from residential lot sales, including our share of venture activity, up 60% compared with 2011

• Acquired entire interest in 17 residential and mixed-use real estate projects from the CL Realty and TEMCO ventures for a net investment of approximately $23.5 million

• Sold approximately 9,330 acres of undeveloped land for about $19 million through our retail sales program

• Sold two stabilized multifamily communities, Broadstone Memorial and Las Brisas, generating approximately $40 million in cash flow

• Completed construction of Promesa, a 289-unit multifamily community in Austin, Texas

• Initiated development of two multifamily venture properties, with locations in Austin and Denver

Strategic Initiatives

• Completed the acquisition of CREDO Petroleum in an all cash transaction for $14.50 per share, representing an equity purchase price of $146 million

Fourth Quarter 2012 Significant Highlights

The company reported fourth quarter 2012 net income of approximately $10.0 million, or $0.28 per diluted share, compared with a fourth quarter 2011 net loss of approximately ($22.9) million, or ($0.65) per share outstanding.

Fourth quarter 2012 results include after-tax expenses of approximately ($0.4) million, or ($0.01) per share, associated with acquisition of CREDO Petroleum. Fourth quarter 2011 results include an after-tax loss of ($28.9) million, or ($0.82) per share principally related to non-cash asset impairments associated with entering into agreements to acquire the entire interest in 17 projects from the CL Realty and TEMCO ventures. Fourth quarter 2012 net income excluding special items was $10.4 million, or $0.29 per share, compared with net income excluding special items of $6.0 million, or $0.17 per share in 2011.

^*These are Non-GAAP financial measures.The reconciliation between GAAP and Non-GAAP measures is provided in the tables following this press release, and on the investor relations section of the company's website.

MINERAL RESOURCES

Fourth Quarter 2012 Significant Highlights

• Oil production up almost 122,000 barrels or 245% compared with fourth quarter 2011, including over 116,500 barrels of production from acquisition of CREDO Petroleum

• Leased almost 5,000 net mineral acres to exploration and production companies for almost $300 per acre

• 16 wells drilled; 936 gross producing wells, up 406 compared with fourth quarter 2011 principally due to acquisition of Credo Petroleum during third quarter 2012

Mineral Resources Segment Financial Results:

¹Full year 2012 and 2011 mineral resources segment results include $5.0 million and $3.8 million, respectively, in costs principally associated with development of our water resource initiatives.

Mineral resources segment earnings increased in fourth quarter and full year 2012 compared with fourth quarter and full year 2011 principally due to higher oil production primarily due to the acquisition of CREDO Petroleum and higher lease bonus revenues, which more than offset lower oil and gas pricing and increased costs.

REAL ESTATE

Fourth Quarter 2012 Significant Highlights

• Sold 384 fully developed residential lots, up 24% from fourth quarter 2011, with average lot prices up 34% compared with fourth quarter 2011

• Sold 40 commercial acres for approximately $208,300 per acre

• Sold almost 7,400 acres of undeveloped land for $1,900 per acre

• Venture completed sale of Las Brisas multifamily community near Austin, TX, generating almost $10 million in cash proceeds to Forestar

• Purchased multifamily site in Charlotte, NC for approximately $5.6 million

Real Estate Segment Financial Results:

Fourth quarter 2012 real estate segment earnings were higher compared with fourth quarter 2011 principally due to higher residential lot sales, $8.2 million in earnings associated with venture's gain on sale of Las Brisas multifamily community, and increased commercial tract sales. In addition, fourth quarter and full year 2011 real estate segment results were negatively impacted by ($44.5) million and ($45.2) million in non-cash asset impairment charges, principally related to the acquisition of certain assets from CL Realty and TEMCO ventures.

FIBER RESOURCES

Fourth Quarter 2012 Significant Highlights

• Sold over 162,000 tons of fiber - recreational leasing remains strong

Fiber Resources Segment Financial Results:

Fourth quarter and full year 2012 fiber resources segment earnings increased compared with fourth quarter and full year 2011 principally due to increased fiber sales activity and higher pricing. Recreational leasing activity remained strong during fourth quarter, with almost 99% of available land leased for recreation.

OUTLOOK

"We continue to build momentum through execution of our Triple in FOR strategic initiatives, focused on accelerating value realization, increasing transparency and disclosure and growing through strategic and disciplined investments. We have made great progress, but I believe Forestar is just beginning to realize its full potential," said Jim DeCosmo, president and chief executive officer of Forestar Group.

"Our preliminary year-end 2012 total proven reserves are approximately 5.6 million BOE (barrels of oil equivalent), up over 87% compared with year-end 2011, driven by the acquisition of CREDO Petroleum. Our oil and gas strategic initiatives are focused on increasing exploration, production and reserves, a key driver of future earnings and cash flow. In addition, we are committed to delivering the growth and returns associated with acquisition of CREDO Petroleum. We anticipate participating in over 50 non-operating working interest oil wells in the Bakken and Three Forks formations in 2013, and we are planning to drill or participate in over 80 additional oil wells in the Lansing-Kansas City formation in Kansas and Nebraska. These three formations offer lower-risk, repeatable drilling opportunities that we expect to significantly exceed our target returns. As a result, we expect 2013 capital expenditures for drilling and participation in working interests to exceed $70 million and anticipate our share of total production in 2013 to exceed one million barrels of oil equivalent, an over 50% increase compared with 2012.

"Housing markets are experiencing solid signs of a long-term sustainable recovery, with growing demand for residential lots and increased interest in residential and commercial tracts. Our backlog remains strong, and we are well positioned to increase sales, with a solid portfolio of over 50 active residential and mixed-use communities in the major markets of Texas.

"We continue to build a solid pipeline of multifamily development properties, including the acquisition of a well-located multifamily development site in Charlotte, North Carolina for approximately $5.6 million during fourth quarter. We substantially completed construction of our Promesa multifamily community in 2012 and expect the project to reach stabilization and be positioned for sale during first half of 2013. In addition, we initiated construction of two multifamily projects: Eleven, in Austin and 360°, in Denver, both of which are held in ventures and remain on target for unit deliveries to begin in late 2013.

"We are well positioned to recognize and responsibly deliver the greatest value from every acre and grow our business through strategic and disciplined investments. Our portfolio is comprised of the strongest assets since we became a public company at year-end 2007, and I believe has the potential to generate significant earnings and cash flow as we accelerate value realization," concluded Mr. DeCosmo.

The Company will host a conference call on February 14, 2013 at 10:00 am ET to discuss results of fourth quarter and full year 2012. The meeting may be accessed through webcast or conference call. The webcast may be accessed through Forestar's Internet site at www.forestargroup.com. To access the conference call, listeners from North America should dial 1-800-510-9836 at least 15 minutes prior to the start of the call. Those wishing to access the call from outside North America should dial 1-617-614-3670. The password is Forestar. Replays of the call will be available for two weeks following the live call and can be accessed at 1-888-286-8010 in North America and at 1-617-801-6888 outside North America. The password for the replay is 31120450.

About Forestar Group

Forestar Group Inc. operates in three business segments: real estate, mineral resources and fiber resources. At the end of fourth quarter 2012, the real estate segment owns directly or through ventures almost 136,000 acres of real estate located in ten states and fourteen markets in the U.S. The real estate segment has 15 real estate projects representing approximately 26,070 acres currently in the entitlement process, and 74 entitled, developed and under development projects in seven states and eleven markets encompassing almost 14,400 acres, comprised of 23,800 planned residential lots and almost 2,400 commercial acres. The mineral resources segment includes approximately 752,000 net acres of oil and gas mineral interests, with approximately 590,000 acres of fee ownership located principally in Texas, Louisiana, Alabama, and Georgia and about 162,000 net acres of leasehold and overriding royalty interests principally located in Nebraska, Kansas, Oklahoma, North Dakota and Texas. These leasehold interests include almost 6,000 net mineral acres in the core of the prolific Bakken and Three Forks formations. In addition, the mineral resources segment owns a 45% nonparticipating royalty interest in groundwater produced or withdrawn for commercial purposes from approximately 1.4 million acres in Texas, Louisiana, Georgia and Alabama and about 20,000 acres of groundwater leases in central Texas. The fiber resources segment includes the sale of wood fiber and management of our recreational leases. 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 our ability to achieve synergies and value creation contemplated by the merger with Credo, and our ability to promptly and effectively integrate Credo's businesses. Other factors and uncertainties that might cause such differences include, but are not limited to: general economic, market, or business conditions; 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 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.