Forestar Real Estate Group Inc. Reports Second Quarter 2008 Results
Forestar Real Estate Group Inc. (NYSE: FOR) today reported second quarter 2008 net income of $9.6 million, or $0.27 per diluted share, compared with second quarter 2007 net income of $14.4 million, or $0.41 per diluted share, and a first quarter 2008 net loss of ($0.2 million), or ($0.01) per basic share outstanding. Results for second quarter 2008 include a net after-tax charge of $2.3 million, or $0.06 per diluted share, principally related to environmental remediation activities at our San Joaquin River project located near Antioch, California.
“Second quarter 2008 results reflect the benefit of our value creation strategy and maximizing the value of our natural resources by driving activity on our mineral acres,” said Jim DeCosmo, president and chief executive officer of Forestar Real Estate Group. “In addition, we continue maximizing long-term real estate values through entitlement. Our second quarter 2008 value creation activities include:
— 47,000 net mineral acres leased to oil and gas companies for exploration and production activities,
— 2,000 acres entitled, including over 930 residential lots and about 280 commercial acres, and
— 4,500 acres moved into entitlement process around Atlanta, Georgia.”
Forestar Real Estate Group manages its operations through three business segments:
— Real estate,
— Mineral resources, and
— Fiber resources
Real estate secures entitlements and develops infrastructure on our lands, primarily for single-family residential and mixed-use communities, and manages our undeveloped land and commercial properties. Our real estate segment includes approximately 371,000 acres of land owned directly or through ventures located in ten states and thirteen markets. Mineral resources include about 622,000 net acres of oil and gas mineral interests located in Texas, Louisiana, Alabama and Georgia. Fiber resources include the sale of wood fiber, primarily in Georgia, and manages our recreational leases.
REAL ESTATE
($ in Millions) 2nd Qtr. 2nd Qtr. 1st Qtr. 2008 2007 2008 —————————————————- Segment Earnings $0.9 $23.0 $3.5 —————————————————-
Second quarter 2008 real estate segment earnings were negatively impacted by a $3.5 million pre-tax charge principally related to environmental remediation activities at our San Joaquin River project located near Antioch, California.
Second quarter 2007 real estate segment earnings include the sale of 61 acres of commercial land for $294,300 per acre, generating approximately $13 million in earnings.
Real Estate Sales Activity
Q2 2008 Q2 2007 Sales Price Sales Price ———————– ———————– Undeveloped Land(a) 504 acres $5,900/acre 886 acres $7,000/acre Residential Lots(a) 264 lots $55,000/lot 581 lots $51,200/lot Commercial Acres(a) 47 acres $271,700/acre 61 acres $294,300/acre ———————– ———————–
(a) Includes venture activity
During second quarter 2008, 504 acres of undeveloped land were sold at an average sales price of approximately $5,900 per acre.
Residential sales activity for all wholly and partially-owned projects during second quarter 2008 included the sale of 264 lots at an average price of approximately $55,000 per lot. Wholly-owned and partially-owned project lot sales during second quarter 2008 were located principally in the major markets of Texas.
Commercial activity for all wholly and partially-owned projects during second quarter 2008 included the sale of 47 acres at an average price of approximately $271,700 per acre. A majority of these acres were sold at our Long Meadow Farms mixed-used venture located near Houston, Texas.
Real Estate Pipeline
Forestar’s real estate segment includes approximately 371,000 acres of land owned directly or through ventures located in ten states and thirteen markets.
In Developed & Entitlement Under Total Real Estate Undeveloped Process Entitled Development Acres(a) ————- ———– ———— ——– ———— ——— Undeveloped Land Owned 311,644 Ventures 7,363 319,007 Residential Owned 28,529 8,411 1,429 Ventures 920 4,803 1,344 45,436 Commercial Owned 4,151 978 482 Ventures 535 263 6,409 Total Acres 319,007 33,600 14,727 3,518 370,852 ———– ———— ——– ———— ——— ———————————————————————- Estimated Residential Lots 25,030 4,793 29,823 ———————————————————————-
(a) Total acres excludes Forestar’s 58% ownership interest in the Ironstob, LLC venture which controls approximately 17,000 acres of undeveloped land.
Entitlement Activity
Forestar has 26 real estate projects representing over 33,000 acres in the entitlement process, including ventures. During second quarter 2008, over 2,000 acres were entitled, representing an estimated 930 residential lots and about 280 commercial acres. In addition, over 4,500 acres were moved into the entitlement process.
Including venture activity, Forestar currently has almost 15,000 acres of entitled land, representing over 25,000 residential lots and 1,513 commercial acres.
Development and Investment Activity
Forestar has 3,518 acres developed and under development owned directly or through ventures, which represent 4,793 lots and 745 commercial acres.
During second quarter 2008, Forestar did not acquire additional real estate projects. However, the company invested $30.3 million in development activity in our existing owned and consolidated projects.
“Forestar is committed to investing only in markets which support sales,” said Mr. DeCosmo. “During second quarter 2008, our investment activity was focused principally in the major markets of Texas.”
MINERAL RESOURCES
Segment Earnings 2nd Qtr. 2nd Qtr. 1st Qtr. 2008 2007 2008 ———————————————————————- ($ in Millions) $23.2 $4.7 $6.5 ———————————————————————-
Second quarter 2008 mineral resources segment earnings include $18.5 million in bonus payments generated from new mineral leases.
Mineral Activity
Forestar owns 622,000 net acres of oil and gas mineral interests in Texas, Louisiana, Alabama and Georgia.
Mineral Value Chain Q2 2008 Net Acres Q2 2008 Revenues ———————- ———————- ———————— Royalties 26,000 $5.1 million Leased 122,000 $19.3 million Available for Lease(a) 474,000 ———————- Total 622,000 $24.4 million ———————- ————————
(a) Includes approximately 17,000 net acres subject to lease option.
During second quarter 2008, over 47,000 net mineral acres were leased, generating $18.5 million in bonus revenues. This leasing activity was located principally in East Texas and driven by activity associated with the Cotton Valley, James Lime and Haynesville natural gas formations.
During second quarter 2008, our share of oil and gas production related to our royalty interests was over 23,000 barrels of oil and approximately 277 MMCF of natural gas.
FIBER RESOURCES
Segment Earnings 2nd Qtr. 2nd Qtr. 1st Qtr. 2008 2007 2008 ———————————————————————- ($ in Millions) $1.4 $2.4 $2.8 ———————————————————————-
First quarter 2008 fiber resources segment earnings include a $1.4 million gain associated with the partial termination of a timber lease in connection with the operation of the Ironstob venture.
Fiber Sales Activity
During second quarter 2008 Forestar generated approximately $2.6 million in revenues from the sale of about 262,000 tons of fiber, the majority of which was sold to Temple-Inland Inc. at market prices.
Comments
In announcing second quarter 2008 results, Mr. DeCosmo said, “Despite challenging market conditions for our real estate segment, we remain focused on maximizing long-term shareholder value through entitlement and development of real estate, maximizing the value of our natural resources, and growing our business. During second quarter 2008 we moved over 4,500 acres of undeveloped land into the entitlement process and over 2,000 acres were entitled. Entitlement activities create significant real estate value and position Forestar to create incremental value through development when market conditions improve.
“Our mineral resources segment continues to benefit from increased leasing, exploration and production activities associated with higher oil and gas prices and improved technology. During second quarter 2008 our increased mineral leasing activity located in East Texas was principally driven by our proximity to the Cotton Valley, James Lime and Haynesville natural gas formations,” added Mr. DeCosmo.
“Significantly challenged real estate market conditions will create acquisition opportunities. We have positioned Forestar to take advantage of these growth opportunities to acquire discounted real estate assets,” concluded Mr. DeCosmo.
The Company will host a conference call on August 6, 2008 at 10:00 am EDT to discuss results of second quarter 2008. 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 1-800-659-2037 at least 15 minutes prior to the start of the meeting. Those wishing to access the call from outside North America should dial 1-617-614-2713. The password is Forestar. Replays of the call will be available for two weeks following 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 82954685.
About Forestar Real Estate Group
Forestar Real Estate Group Inc. operates in three business segments: real estate, mineral resources and fiber resources. The real estate segment owns directly or through ventures about 371,000 acres of real estate located in 10 states and 13 markets in the U.S. The real estate segment has 26 real estate projects representing over 33,000 acres currently in the entitlement process, and 77 entitled, developed and under development projects in eight states and twelve markets encompassing about 18,000 acres, comprised of about 29,800 residential lots and over 2,200 commercial acres. The mineral resources segment manages about 622,000 net acres of oil and gas mineral interests. The fiber resources segment sells wood fiber from its land primarily located in Georgia, and leases land for recreational uses. 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. 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. Factors and uncertainties that might cause such differences include, but are not limited to: general economic, market, or business conditions; the availability of loans and fluctuations in the credit markets; the 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; changes in federal energy policies; demand for oil and gas; 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 release.
FORESTAR REAL ESTATE GROUP INC. (UNAUDITED) Business Segments ———————————————————————- Second Quarter First Six Months —————– ——————- 2008 2007 2008 2007 ——– ——– ———- ——– (In thousands, (In thousands, except per share) except per share) Revenues ——————————- Real estate $ 24,118 $ 47,317 $ 52,561 $ 74,883 Mineral resources 24,386 5,186 30,654 9,040 Fiber resources 3,093 3,782 5,605 6,818 —————– ——————- Total revenues $ 51,597 $ 56,285 $ 88,820 $ 90,741 Segment earnings ——————————- Real estate $ 874 $ 23,040 $ 4,417 $ 26,776 Mineral resources 23,247 4,693 29,752 8,072 Fiber resources 1,411 2,353 4,251 2,698 —————– ——————- Total segment earnings 25,532 30,086 38,420 37,546 Expenses not allocated to segments General and administrative (5,348) (4,139) (10,354) (8,051) Share-based compensation (847) (684) (3,528) (1,542) Interest expense (5,002) (2,534) (10,668) (4,241) Other non-operating income 72 52 154 112 —————– ——————- Income before taxes 14,407 22,781 14,024 23,824 Income tax expense (4,811) (8,349) (4,666) (8,731) —————– ——————- Net income $ 9,596 $ 14,432 $ 9,358 $ 15,093 ================= =================== Diluted earnings per share: ——————————- Net income $ 0.27 $ 0.41 $ 0.26 $ 0.43 ================= =================== Average diluted shares outstanding 36.1 35.4 36.1 35.4 Second Quarter —————– Supplemental Financial Information 2008 2007 ——————————- ——– ——– (In thousands) Borrowings under credit facility $205,000 $131,561 Other debt(a) 92,024 70,281 —————– Total Debt $297,024 $201,842 =================
(a) Consists principally of consolidated venture non-recourse debt.
Information about our real estate projects and our ventures for second quarter-end follows: Second Quarter-End —————— 2008 2007 ——— ——- Owned & Consolidated Ventures: Entitled, developed and under development land Number of projects 56 52 Residential lots remaining 20,737 20,434 Commercial acres remaining 1,604 1,224 Undeveloped land Number of projects 24 22 Acres in entitlement process 32,680 26,100 Acres sold (for first six months) 1,853 1,154 Acres undeveloped 312,880 325,115 Ventures accounted for using the equity method: Ventures’ lot sales (for first six months) Lots sold 153 416 Revenue per lot sold $ 52,549 $ 54,505 Ventures’ entitled, developed, and under development land Number of projects 21 22 Residential lots remaining 9,086 9,734 Commercial acres remaining 654 721 Ventures’ undeveloped land Number of Projects 2 2 Acres in entitlement process 920 860 Acres sold (for first six months) – – Acres undeveloped 6,127 6,258
A summary of projects in the entitlement process(a) at second quarter- end 2008 follows: Project Project County Acres(b) ———- —————- —————— California ———- Hidden Creek Estates Los Angeles 700 Terrace at Hidden Hills Los Angeles 30 Georgia ———- Ball Ground Cherokee 500 Burt Creek Dawson 970 Coweta South Industrial Coweta Park 40 Creekview Troup 470 Crossing Coweta 230 Dallas Highway Haralson 1,060 Fincher Road Cherokee 3,950 Fox Hall Coweta 960 Garland Mountain Cherokee/Bartow 350 Home Place Coweta 1,510 Hutchinson Mill Troup 880 Jackson Park Jackson 700 Lithia Springs Haralson 120 Martin’s Bridge Banks 970 Mill Creek Coweta 770 Serenity Carroll 440 Three Creeks Troup 740 Waleska Cherokee 150 Wolf Creek Carroll/Douglas 12,230 Yellow Creek Cherokee 1,060 Texas ———- Lake Houston Harris/Liberty 3,700 San Jacinto Montgomery 150 Entrada(c) Travis 240 Woodlake Village(c) Montgomery 680 —————— Total 33,600 ==================
(a) A project is deemed to be in the entitlement process when customary steps necessary for the preparation and submittal of an application, like conducting pre-application meetings or similar discussions with governmental officials, have commenced, or an application has been filed. Projects listed may have significant steps remaining, and there is no assurance that entitlements ultimately will be received.
(b) Project acres, which are the total for the project regardless of our ownership interest, are approximate. The actual number of acres entitled may vary.
(c) We own a 50% interest in these projects.
A summary of activity within our entitled,(a) developed and under development projects at second quarter-end 2008 follows: Residential Lots (c) ——————– Lots Sold Interest Since Lots Project County Owned(b) Inception Remaining ——————— —————– ——— ——— ———- Projects we own California ——————— San Joaquin River Contra Costa/Sacramento 100% – – Colorado ——————— Buffalo Highlands Weld 100% – 164 Johnstown Farms Weld 100% 115 493 Pinery West Douglas 100% – – Stonebraker Weld 100% – 603 Westlake Highlands Jefferson 100% – 21 Texas ——————— Arrowhead Ranch Hays 100% – 232 Caruth Lakes Rockwall 100% 245 404 Cibolo Canyons Bexar 100% 506 1,241 Harbor Lakes Hood 100% 198 251 Harbor Mist Calhoun 100% – 200 Hunter’s Crossing Bastrop 100% 308 183 La Conterra Williamson 100% 8 501 Maxwell Creek Collin 100% 625 398 Oak Creek Estates Comal 100% – 648 The Colony Bastrop 100% 400 2,244 The Gables at North Collin Hill 100% 194 89 The Preserve at Denton Pecan Creek 100% 183 636 The Ridge at Travis Ribelin Ranch 100% – – Westside at Williamson Buttercup Creek 100% 1,251 263 Other projects (9) Various 100% 2,536 125 Georgia ——————— Towne West Bartow 100% – 2,674 Other projects (12) Various 100% – 2,848 Missouri and Utah ——————— Other projects (3) Various 100% 786 231 ——— ———- 7,355 14,449 Projects in entities we consolidate Texas ——————— City Park Harris 75% 1,081 230 Lantana Denton 55% (e) 417 1,933 Light Farms Collin 65% – 2,501 Stoney Creek Dallas 90% 56 698 Timber Creek Collin 88% – 614 Other projects (5) Various Various 1,000 312 Tennessee ——————— Youngs Lane Davidson 60% – – ——————– 2,554 6,288 ——— ———- Total owned and consolidated 9,909 20,737 Projects in ventures that we account for using the equity method Georgia ——————— Seven Hills Paulding 50% 634 446 The Georgian Paulding 38% 288 1,097 Other projects (5) Various Various 1,845 249 Texas ——————— Bar C Ranch Tarrant 50% 176 1,005 Fannin Farms West Tarrant 50% 248 195 Lantana Denton Various (e) 1,799 49 Long Meadow Farms Fort Bend 19% 602 1,504 Southern Trails Brazoria 40% 294 768 Stonewall Estates Bexar 25% 124 257 Summer Creek Ranch Tarrant 50% 795 1,356 Summer Lakes Fort Bend 50% 325 819 Village Park Collin 50% 337 232 Waterford Park Fort Bend 50% – 493 Other projects (2) Various Various 286 244 Florida ——————— Other projects (3) Various Various 473 372 ——— ———- Total in ventures 8,226 9,086 ========= ========== Combined Total 18,135 29,823 ========= ========== Commercial Acres (d) ———————— Acres Sold Since Acres Project Inception Remaining ———————— ———- ———— Projects we own California ———————— San Joaquin River – 288 Colorado ———————— Buffalo Highlands – – Johnstown Farms – 10 Pinery West – 115 Stonebraker – 13 Westlake Highlands – – Texas ———————— Arrowhead Ranch – 5 Caruth Lakes – – Cibolo Canyons 64 81 Harbor Lakes – 14 Harbor Mist – – Hunter’s Crossing 38 68 La Conterra – 60 Maxwell Creek – – Oak Creek Estates 13 – The Colony 22 49 The Gables at North Hill – – The Preserve at Pecan Creek – 9 The Ridge at Ribelin Ranch 179 22 Westside at Buttercup Creek 66 – Other projects (9) 245 23 Georgia ———————— Towne West – 121 Other projects (12) – 582 Missouri and Utah ———————— Other projects (3) – – ———- ———— 627 1,460 Projects in entities we consolidate Texas ———————— City Park 50 105 Lantana – – Light Farms – – Stoney Creek – – Timber Creek – – Other projects (5) 24 23 Tennessee ———————— Youngs Lane – 16 ———————— 74 144 ———- ———— Total owned and consolidated 701 1,604 Projects in ventures that we account for using the equity method Georgia ———————— Seven Hills 26 – The Georgian – – Other projects (5) 3 – Texas ———————— Bar C Ranch – – Fannin Farms West – – Lantana 5 75 Long Meadow Farms 54 156 Southern Trails – – Stonewall Estates – – Summer Creek Ranch – 363 Summer Lakes 48 3 Village Park – 5 Waterford Park – 37 Other projects (2) – 15 Florida ———————— Other projects (3) – – ———- ———— Total in ventures 136 654 ========== ============ Combined Total 837 2,258 ========== ============
(a) A project is deemed entitled when all major discretionary land-use approvals have been received. Some projects may require additional permits for development.
(b) Interest owned reflects our net equity interest in the project, whether owned directly or indirectly. There are some projects that have multiple ownership structures within them. Accordingly, portions of these projects may appear as owned, consolidated and/or accounted for using the equity method.
(c) Lots are for the total project, regardless of our ownership interest.
(d) Commercial acres are for the total project, regardless of our ownership interest and are net developable acres, which may be fewer than the gross acres available in the project.
(e) The Lantana project consists of a series of 22 partnerships in which our voting interests range from 25% to 55%. We account for eight of these partnerships using the equity method and we consolidate the remaining partnerships.