Forestar Group Inc. Reports Second Quarter 2013 Results

Forestar Group Inc. Reports Second Quarter 2013 Results

AUSTIN, Texas--(BUSINESS WIRE)-- Forestar Group Inc. (NYS: FOR) today reported second quarter 2013 net income of approximately $0.5 million, or $0.02 per diluted share, compared with second quarter 2012 net income of approximately $0.8 million, or $0.02 per diluted share outstanding. Second quarter 2012 results include after-tax expenses of approximately ($1.6) million, or ($0.05) per diluted share, associated with the acquisition of Credo Petroleum Corporation.

"During second quarter, we remained on track executing our Triple in FOR strategic initiatives. In real estate, residential lot demand remains favorable with option contracts with homebuilders at the strongest level since the start of the housing recovery and higher average per lot pricing compared with second quarter 2012. We continue to focus on building a solid multifamily pipeline in our target markets, which continue to exhibit favorable multifamily market conditions. During the quarter, we began construction on a new multifamily community near Dallas and started pre-leasing at Eleven in Austin. Oil and gas operations continued to gain momentum, with accelerating oil production in the Bakken and Three Forks formations in North Dakota and Lansing-Kansas City formation in Kansas and Nebraska. We are focused on accelerating value realization and capitalizing on strategic and disciplined growth opportunities," said Jim DeCosmo, president and chief executive officer of Forestar Group.


Second Quarter 2013 Significant Highlights

  • Sold 360 developed residential lots, with average pricing per lot up nearly 29% compared with second quarter 2012
  • Oil production up nearly 170% compared with second quarter 2012, principally due to the acquisition of Credo Petroleum
  • Acquired leasehold interests in over 17,000 net mineral acres, principally located in Nebraska and Kansas

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

REAL ESTATE

Second Quarter 2013 Significant Highlights

  • Sold 360 developed residential lots - Over 1,900 lots under option contracts with homebuilders
  • Residential lot margins up 66% compared with second quarter 2012
  • Sold 1,042 acres of undeveloped land for nearly $2,580 per acre
  • Sold 34 commercial acres for over $103,000 per acre
  • Began construction on Midtown Cedar Hill, 354-unit multifamily community near Dallas, Texas
  • Pre-leasing begins at Eleven, 257-unit multifamily community in Austin, Texas

Segment Financial Results:

($ in millions)  2Q 2013  2Q 2012  1Q 2013
Segment Revenues$41.2$26.6$78.7
Segment Earnings$8.1$7.7$19.4
 

Second quarter 2013 real estate segment earnings were higher compared with second quarter 2012 principally due to higher average prices for residential lots and commercial tracts sold which were somewhat offset by lower lot sales volumes and commercial acres sold. In addition, second quarter 2013 real estate segment earnings increased primarily due to the sale of the remaining 440 undeveloped residential acres from a project in Florida for $3.5 million, generating approximately $0.7 million in segment earnings. First quarter 2013 results include earnings of $10.9 million associated with the sale of Promesa, a wholly-owned multifamily community we developed in Austin. Real estate segment earnings declined in second quarter 2013 compared with first quarter 2013, excluding the earnings associated with the sale of Promesa, primarily due to lower residential lot sales.

Second quarter 2012 real estate segment earnings include a $3.4 million gain associated with the sale of 800 acres from the Light Farms venture near Dallas.

OIL AND GAS

Second Quarter 2013 Significant Highlights

  • Oil production up nearly 170% compared with second quarter 2012, principally due to the acquisition of Credo Petroleum
  • 18 new productive oil and gas wells drilled; 983 producing wells at quarter-end, up from 541 wells in second quarter 2012, principally due to acquisition of Credo Petroleum
  • Drilling and completion capital investment of nearly $11.7 million
  • Leased over 17,000 net mineral acres principally in Kansas and Nebraska

Segment Financial Results:

($ in millions)  2Q 2013  2Q 2012  1Q 2013
Segment Revenues$15.8$7.1$15.5
Segment Earnings$4.2$5.0$5.1
 

Oil and gas segment earnings decreased in second quarter 2013 compared with second quarter 2012 principally due to reduced oil volumes associated with royalties from our owned mineral interests, lower oil prices, decreased delay rental revenues and incremental personnel costs, which were partially offset by increased oil production attributable to the acquisition of Credo Petroleum. Oil and gas segment earnings decreased in second quarter 2013 compared with first quarter 2013 principally due to lower oil and gas prices and lower natural gas production, which was partially offset by higher oil production.

OTHER NATURAL RESOURCES

Second Quarter 2013 Significant Highlights

  • Sold nearly 185,000 tons of fiber for $14.85 per ton
  • Recreational leasing remains strong

Segment Financial Results:

($ in millions)  2Q 2013  2Q 2012  1Q 2013
Segment Revenues$3.0$1.5$3.3
Segment Earnings (Loss)$1.0(0.5)$1.3
 

Second quarter 2013 other natural resources segment earnings were higher compared with second quarter 2012 principally due to over 79,000 tons of additional fiber sales and a 27% increase in average pricing per ton. Other natural resources segment earnings decreased in second quarter 2013 compared with first quarter 2013 principally due to lower fiber sales and pricing.

OUTLOOK

"Housing markets continue to show solid signs of 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 accelerate real estate sales during this housing recovery. Our multifamily team continues to build a solid pipeline of multifamily development opportunities, with construction at our multifamily ventures in Austin and Denver on target to begin delivering units in 2013, and our sites in Dallas and Nashville should be under construction by year-end. We will continue to evaluate and acquire additional multifamily sites to further develop our pipeline.

"We continue to generate positive momentum through our oil and gas initiatives to increase exploration activity, production and reserves. During second quarter, we experienced a continued increase in North Dakota drilling activity, with approximately seven Bakken or Three Forks wells (5.2% average working interest) reaching total depth during the quarter. We anticipate drilling activity in the Bakken to accelerate in the second half of 2013 with a higher average working interest. In addition, exploration and drilling activity in Kansas and Nebraska also continued to accelerate during second quarter, with 17 wells reaching total depth, 11 of which have been economic, a level of success which exceeds our expectations. Given the success of our exploration activity in these basins, during second quarter 2013 we acquired leasehold interests in over 17,000 net mineral acres in new and existing prospects principally in Nebraska and Kansas.

"We continue to increase our momentum toward delivering our Triple in FOR strategic initiatives, focused on accelerating value realization, increasing transparency and disclosure, and growing our net asset value through strategic and disciplined investments. We are well positioned for 2013 and for continued momentum in 2014," concluded Mr. DeCosmo.

The Company will host a conference call on August 7, 2013 at 10:00 am ET to discuss results of second quarter 2013. The meeting may be accessed through webcast or by conference call. The webcast may be accessed through Forestar's Internet site at www.forestargroup.com. To access the conference call, listeners calling from North America should dial 1-866-515-2912 at least 15 minutes prior to the start of the meeting. Those wishing to access the call from outside North America should dial 1-617-399-5126. The password is Forestar. Replays of the call will be available for two weeks following the completion of the live call and can be accessed at 1-888-286-8010 in North America and at 1-617-801-6888 outside North America. The password for the replay is 42167086.

About Forestar Group

Forestar Group Inc. operates in three business segments: real estate, oil and gas and other natural resources. At the end of second quarter 2013, the real estate segment owns directly or through ventures over 133,000 acres of real estate located in ten states and 14 markets in the U.S. The real estate segment has 14 real estate projects representing approximately 26,000 acres currently in the entitlement process, and 72 entitled, developed and under development projects in eight states and 12 markets encompassing almost 13,900 acres, comprised of almost 23,200 planned residential lots and approximately 2,300 commercial acres. The oil and gas segment includes approximately 808,000 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 almost 218,000 net acres of leasehold interests principally located in Nebraska, Kansas, Oklahoma, North Dakota and Texas. These leasehold interests include about 7,000 net mineral acres in the core of the prolific Bakken and Three Forks formations. The other natural resources segment includes sale of wood fiber and management of our recreational leases, and approximately 1.5 million acres of groundwater resources, including 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. 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.

    
FORESTAR GROUP INC.
(UNAUDITED)
 

Business Segments

 
Second QuarterFirst Six Months
2013  20122013  2012
(In thousands)
Revenues:
Real estate$41,219$26,647$119,908$44,569
Oil and gas15,8317,14831,33516,574
Other natural resources 3,029  1,517  6,307  2,261 
Total revenues$60,079 $35,312 $157,550 $63,404 
Segment earnings:
Real estate$8,104$7,666$27,550$19,243
Oil and gas4,2435,0059,37012,133
Other natural resources 991  (458) 2,243  (1,321)
Total segment earnings13,33812,21339,16330,055
Items not allocated to segments:
General and administrative expense(5,329)(7,120)(10,287)(11,482)
Share-based compensation expense(1,460)67(11,875)(5,164)
Interest expense(5,122)(3,664)(9,661)(7,555)
Other corporate non-operating income 25  47  56  111 
Income before taxes1,4521,5437,3965,965
Income tax expense (911) (732) (2,904) (2,352)
Net income attributable to Forestar Group Inc.$541 $811 $4,492 $3,613 
 
Net income per common share:
Basic$0.02$0.02$0.13$0.10
Diluted$0.02$0.02$0.13$0.10
 
Weighted average common shares outstanding (in millions):
Basic35.435.235.335.2
Diluted36.135.435.935.4
 
  Second Quarter
Supplemental Financial Information:2013  2012
(In thousands)
Cash and cash equivalents$69,138  $45,474
 
Borrowings under credit facility200,000130,000
Convertible senior notes, net of discount 198,353

Other debt 2

 33,294 71,943
Total debt$331,647$201,943

_____________________

1 Represents $125 million convertible senior notes issued February 2013, net of unamortized discount
2 Consists principally of consolidated venture non-recourse debt.

     
FORESTAR GROUP INC.
REAL ESTATE SEGMENT
PERFORMANCE METRICS
 
Second QuarterFirst Six Months
2013  20122013  2012
REAL ESTATE
Owned, Consolidated & Equity Method Ventures:
Residential Lots Sold360427806712
Revenue per Lot Sold$57,588$44,694$54,432$48,003
Commercial Acres Sold34383738
Revenue per Commercial Acre Sold$103,102$47,040$125,706$47,040
Undeveloped Acres Sold1,0429331,9611,388
Revenue per Acre Sold$2,579$2,765$2,753$2,640
Owned & Consolidated Ventures:
Residential Lots Sold259345614482
Revenue per Lot Sold$57,154$42,725$54,440$48,210
Commercial Acres Sold32383538
Revenue per Commercial Acre Sold$74,166$47,040$100,311$47,040
Undeveloped Acres Sold1,0009331,9191,253
Revenue per Acre Sold$2,576$2,765$2,755$2,645
Ventures Accounted For Using the Equity Method:
Residential Lots Sold10182192230
Revenue per Lot Sold

$

58,700$52,979$54,407$47,568
Commercial Acres Sold22
Revenue per Commercial Acre Sold$652,886$$652,886$
Undeveloped Acres Sold42
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