Forestar Group Inc.

Forestar Group Inc. Annual Review – Investor Summary

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1. What They Do & This Year’s Performance

Forestar buys raw land, turns it into ready-to-build neighborhoods (adding roads, utilities), and sells these lots to homebuilders. They’re the "first step" in creating new communities.
2023 Highlights:

• Sold 14,240 lots (up 12% from 2022) at an average price of $108,400 per lot.
• Expanded to 23 states (64 markets), including new growth in Florida.
• Pure focus on land development—no distracting side businesses.

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2. Financial Growth: Steady, But Costs Are Rising

• Revenue: Up 10% to $1.66 billion (from $1.51B last year).
• Profit: Net income grew 10% to $200 million, but margins tightened as development costs rose 13% to $1.3B.
• Future Sales Locked In: 23,800 lots already under contract worth $2.1 billion (37% of their owned lots are pre-sold).
• Cash & Debt: $400M cash on hand, low debt (20% debt-to-equity ratio vs. 30-40% for peers).

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3. Big Wins vs. Challenges

Wins:

• Partnered with D.R. Horton (owns 62% of Forestar) for steady demand.
• Land Bank: 99,800 lots in the pipeline (enough for ~7 years of sales).
• Entered fast-growing markets like Florida and Texas.
• Testing "build-to-rent" and multifamily projects for future growth.

Challenges:

• Development costs outpaced revenue growth (13% vs. 10%).
• Permit delays in new markets slowed progress.
• Relies heavily on D.R. Horton—could limit partnerships with other builders.

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4. Financial Health: Strong Foundation

• Positive cash flow for 5 straight years.
• Invested $595M in new land and $1.1B in development this year.
• Land value up 17% to $2.65B.
• Low debt and $400M cash reserves provide flexibility.

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5. Risks to Consider

• Housing Market Sensitivity: Rising interest rates or a recession could hurt demand.
• D.R. Horton Dependency: 62% ownership by one buyer creates concentration risk.
• Regulatory Delays: Slow permits or environmental rules could delay projects.
• Land Inflation: Paying more for raw land could squeeze profits.

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6. How They Compare to Competitors

• Growth Leader: 12% lot sales growth vs. industry average of 8%.
• National Scale: Operates in 64 markets—bigger than most regional rivals.
• Niche Focus: Only does land development (unlike builders who construct homes).

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7. What’s Next for 2024?

• Target: Sell 16,000+ lots (10% growth).
• Expand in the Southeast (South Carolina, Florida).
• Margins may improve if material costs ease.
• Exploring multifamily housing (apartments/townhomes).

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Investment Takeaway

Consider Forestar if:
✅ You’re bullish on long-term housing demand (millennials aging into homeownership, build-to-rent growth).
✅ You want a company with low debt, strong cash reserves, and locked-in future sales.
✅ You’re comfortable with risks tied to interest rates and builder partnerships.

Be cautious if:
❌ You’re worried about recession impacts or rising land costs.
❌ You prefer companies with diversified customer bases (not reliant on one major buyer).

Bottom Line: Forestar is growing steadily and financially healthy, but its fortunes are closely tied to the housing market and its partnership with D.R. Horton. If the economy avoids a major downturn, this could be a solid pick for exposure to housing development—without the volatility of homebuilding stocks.