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Forestar Real Estate Group Inc. Reports Fourth Quarter and Full Year 2007 Results
AUSTIN, Texas-(Business Wire)-February 6, 2008 - Forestar Real Estate Group Inc. (NYSE: FOR) today reported essentially break-even results in fourth quarter 2007. Net income for full year 2007 was $24.8 million, or $0.69 per proforma diluted share.
"The spin-off of Forestar Real Estate Group Inc. as an independent company from Temple-Inland Inc. was completed December 28, 2007," said Jim DeCosmo, president and chief executive officer of Forestar Real Estate Group. "Forestar is focused on maximizing long-term shareholder value through entitlement and development of real estate, realization of value from natural resources and accelerated growth through strategic and disciplined investment.
"Results for Forestar Real Estate Group are reported in two business segments: real estate and natural resources. Forestar real estate includes about 373,000 acres of land owned directly or through ventures located in ten states and thirteen markets. Forestar natural resources includes 622,000 net acres of oil and gas mineral interests. In addition, Forestar sells wood fiber from its land primarily located in Georgia.
"Our 2007 value creation activities include:
— Entitling approximately 1,700 acres, representing over 900 residential lots, and moving nearly 4,300 acres into the entitlement process
— Negotiating 58% ownership interest in Ironstob, LLC venture with the Jones Company which includes 17,000 acres of undeveloped land
— Entering into an agreement with Marriott, TPC, and Miller Global for the development of a Marriott resort hotel, spa and two TPC golf facilities at our Cibolo Canyons mixed-use development near San Antonio, Texas
— Acquiring nearly 3,700 acres, representing 5,500 estimated residential lots and 140 commercial acres
— Leasing to oil and gas companies approximately 30,000 net mineral acres for exploration and production activities -0- *T Real Estate ——————————————————————————————————— 4th Qtr. 4th Qtr. 3rd Qtr. Year Year Segment Earnings 2007 2006 2007 2007 2006 ——————————— ———— ———— ————- ———— ————— ($ in Millions) ($0.2) $15.4 $13.0 $39.5 $70.3 ——————————— ———— ———— ————- ———— ————— *T
Fourth quarter 2007 segment earnings were negatively impacted by $3.9 million impairment expense principally associated with a commercial golf club operation in Granbury, Texas. -0- *T Sales Activity ——————————————————————————————————— Q4 2007 Full Year 2007 —————————————- ————————————- Sales Price Sales Price ——————- ——————- —————- ——————- Undeveloped Land 693 acres $5,900/acre 2,617 acres $6,700/acre Residential Lots 309 lots $45,900/lot 1,707 lots $52,900/lot Commercial Acres 23 acres $390,600/acre 198 acres $261,200/acre ———————— ——————- ——————- —————- ——————- *T
Including joint-venture activity, 693 acres of undeveloped land were sold during fourth quarter 2007 at an average sales price of approximately $5,900 per acre.
Residential development activity for all wholly and partially-owned projects during fourth quarter 2007 included the sale of 309 lots at an average price of approximately $45,900 per lot.
Commercial activity for all wholly and partially-owned projects during fourth quarter 2007 included the sale of 23 acres at an average price of $390,600 per acre.
Real Estate Pipeline
Forestar's real estate segment includes about 373,000 acres of land owned directly or through ventures located in ten states and thirteen markets. -0- *T In Developed & Entitlement Under Total Real Estate Undeveloped Process Entitled Development Acres(a) ——————- —————- —————— ———— —————— ————- Undeveloped Land Owned 320,458 Ventures 7,363 327,821 Residential Owned 24,814 7,885 445 Ventures 870 4,905 1,363 40,282 Commercial Owned 2,906 658 324 Ventures 585 288 4,761 Total Acres 327,821 28,590 14,033 2,420 372,864 —————- —————— ———— —————— ————- ——————————————————————————————————— Estimated Residential Lots 24,760 5,090 29,850 ——————————————————————————————————— (a) Total acres excludes Forestar's 58% ownership interest in Ironstob, LLC venture with Jones Company which controls approximately 17,000 acres of undeveloped land. *T
Entitlement Activity
At year end 2007, Forestar has 24 real estate projects representing over 28,000 acres in the entitlement process, including ventures. During fourth quarter 2007, two projects, representing 741 acres were entitled, which include over 290 residential lots.
"Our real estate operation continues to focus on maximizing long-term shareholder value through the entitlement process," said Mr. DeCosmo. "During 2007, nearly 4,300 acres of undeveloped land were moved into entitlement. In addition, seven projects, comprising approximately 1,700 acres were entitled in 2007, which represent over 900 residential lots."
Including venture activity, Forestar currently has approximately 14,033 acres of entitled land, representing approximately 24,760 residential lots and 1,243 commercial acres.
Development Activity
Forestar has 2,420 acres developed and under development directly or through ventures, which represent 5,090 lots and 612 commercial acres.
In 2007, Forestar entered into an agreement with Marriott, TPC, and Miller Global for the development of a 1,002 room Marriott resort hotel, spa and two TPC golf facilities at our 2,800 acre Cibolo Canyons mixed-use development near San Antonio, Texas.
"Forestar is focused on investment in development where market conditions support lot sales to homebuilders," said Mr. DeCosmo.
Venture Activity
During fourth quarter 2007, the company entered into the Ironstob, LLC venture with The Jones Company, Ltd. of Dallas, Georgia. The venture controls approximately 17,000 acres of undeveloped land in Georgia owned by The Jones Company. This land is located principally in Paulding County, and is subject to a long-term timber lease with Forestar Real Estate Group. Forestar is the venture's managing member with 58% ownership and Atlanta-based Bullock-Mannelly Partners will serve as the local operating manager. "This venture further improves our company's strategic land positions in Georgia, and provides significant long-term value for our shareholders," said Mr. DeCosmo.
Investment Activity
During 2007, Forestar invested $54.4 million in nine real estate projects, which include 3,600 acres of residential and 140 acres of commercial property. Seven of the nine projects acquired were in the major markets of Texas.
"Forestar continues to examine opportunities to acquire discounted real estate assets," said Mr. DeCosmo. -0- *T Natural Resources ——————————————————————————————————— 4th Qtr. 4th Qtr. 3rd Qtr. Year Year Segment Earnings 2007 2006 2007 2007 2006 ————————————- ———— ————- ———— ———- ———— ($ in Millions) $7.5 $2.8 $8.3 $26.5 $33.0 *T
Fourth quarter 2007 segment earnings include a $2.2 million gain from the partial termination of a timber lease with the Jones Company in connection with the formation of the Ironstob venture.
Mineral Activity
Forestar owns 622,000 net acres of oil and gas mineral interests in Texas, Louisiana, Alabama and Georgia. -0- *T Mineral Value Chain YE 2007 Net Acres 2007 Revenues ——————————— ————————- ——————- Royalty Interest 25,000 $13.1 million Leased 77,000 $7.7 million Available for Lease(a) 520,000 ————————- Total 622,000 $20.8 million ——————————— ————————- ——————- (a) Includes approximately 46,000 net acres subject to a lease option. *T
During 2007, Forestar leased 30,000 net mineral acres generating $7.7 million from lease bonuses and delay rental payments. In addition, Forestar received royalty interest revenues from 331 producing wells owned and operated by third parties on its mineral acres, up from 294 active wells at year end 2006. During 2007, our share of oil and gas produced related to our royalty interests was over 87,000 barrels of oil and approximately 500,000 MCF of natural gas.
"Forestar continues to benefit from high oil and gas prices," said Mr. DeCosmo.
Fiber Sales Activity
During 2007 Forestar generated $13.7 million in revenues from the sale of approximately 1.2 million tons of fiber, the majority of which was sold to Temple-Inland Inc. at market prices.
Comments
In announcing fourth quarter and full year 2007 results, Mr. DeCosmo said, "Despite challenging market conditions for our real estate segment, we remain committed to maximizing long-term shareholder value through entitlement and development of real estate and realization of value from natural resources.
"In addition, we are also committed to increasing the value of our land through economic development activities. During 2007, we hired Glenn Cornell, former Commissioner of the Georgia Department of Economic Development, as senior vice president of economic development in Georgia. Glenn brings more than 40 years of statewide business and economic development experience, including leadership positions in government, banking, and real estate. We believe his unique qualifications will assist in the execution of Forestar's strategy to maximize and grow long-term shareholder value."
"Forestar's management team is excited about our spin-off from Temple-Inland, and is committed to executing our strategy to deliver long-term value for shareholders," concluded Mr. DeCosmo.
The Company will host a conference call on February 6, 2008 at 11:00 am EST to discuss results of fourth quarter and full year 2007. 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 1-800-638-5439 at least 15 minutes prior to the start of the meeting. Those wishing to access the call from outside North America should dial 1-617-614-3945. 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 88089998.
About Forestar Real Estate Group
Forestar Real Estate Group Inc. operates in two business segments: real estate and natural resources. The real estate segment owns directly or through ventures about 373,000 acres of real estate located in ten states and thirteen markets in the U.S. The real estate segment has 24 real estate projects representing over 28,000 acres currently in the entitlement process and over 75 active development projects in eight states and 12 markets encompassing approximately 16,000 acres, comprised of about 30,000 residential lots and approximately 1,900 commercial acres. The natural resources segment manages about 622,000 net acres of oil and gas mineral interests, 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 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. -0- *T FORESTAR REAL ESTATE GROUP UNAUDITED Business Segments ——————————————————————————————————— Fourth Quarter Full Year ——————————- —————————- 2007 2006 2007 2006 ————- ————- ———— ———— (In thousands, (In thousands, except per share) except per share) Revenues ————————————- Real estate $ 27,462 $ 35,154 $ 142,729 $ 180,151 Natural resources 8,151 6,958 35,257 45,409 ————- ————- ———— ———— Total revenues $ 35,613 $ 42,112 $ 177,986 $ 225,560 Segment earnings ————————————- Real estate $ (223) $ 15,439 $ 39,507 $ 70,271 Natural resources 7,481 2,784 26,531 33,016 ————- ————- ———— ———— Total segment earnings 7,258 18,223 66,038 103,287 Expenses not allocated to segments General and administrative (5,158) (3,675) (17,413) (14,048) Share-based compensation 481 (361) (1,397) (1,275) Interest expense (2,768) (1,549) (9,229) (6,229) Other non-operating income (expense) 251 71 705 79 ————- ————- ———— ———— Income before taxes 64 12,709 38,704 81,814 Income (taxes) benefit 42 (4,774) (13,909) (29,970) ————- ————- ———— ———— Net income $ 106 $ 7,935 $ 24,795 $ 51,844 ========= ========= ======== ======== Proforma diluted earnings per share: ————————————- Net income $ - $ n/a $ 0.69 $ n/a ========= ========= ======== ======== Proforma average diluted shares outstanding 36.0 n/a 36.1 n/a Reconciliation of Non- GAAP Financial Measures: ————————————- Weighted avg. shares outstanding - basic 35.4 35.4 Proforma dilutive effect of stock options 0.6 0.7 ———— ———— Proforma weighted avg. shares outstanding - diluted 36.0 36.1 Full Year —————————- Supplemental Financial Information 2007 2006 ————————————- ———— ———— ($ in thousands) Borrowings under credit facility $ 175,000 $ 110,506 Other debt(a) 91,015 50,611 ———— ———— Total Debt $ 266,015 $ 161,117 (a) Consists principally of consolidated venture non-recourse debt. *T -0- *T A summary of projects in the entitlement process(a) at year-end 2007 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 Corinth Landing Coweta 850 Crossing Coweta 230 Fincher Road Cherokee 1,060 Fox Hall Coweta 930 Garland Mountain Cherokee/Bartow 350 Genesee Coweta 720 Grove Park Coweta 150 Home Place Coweta 1,500 Jackson Park Jackson 690 Lithia Springs Haralson 120 Mill Creek Coweta 770 Pickens School Pickens 420 Serenity Carroll 440 Waleska Cherokee 150 Wolf Creek Carroll 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 630 —————— Total 28,590 ============ (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. *T -0- *T A summary of activity within our entitled,(a) developed and under development projects at year-end 2007 follows: Interest Project County Owned(b) —————————————— —————— —————— Projects we own California —————————————— San Joaquin River Contra Costa 100% Colorado —————————————— Buffalo Highlands Weld 100% Johnstown Farms Weld 100% Pinery West Douglas 100% Stonebraker Weld 100% Westlake Highlands Jefferson 100% Texas —————————————— Arrowhead Ranch Hays 100% Caruth Lakes Rockwall 100% Cibolo Canyons Bexar 100% Harbor Lakes Hood 100% Harbor Mist Calhoun 100% Hunter's Crossing Bastrop 100% Katy Freeway Harris 100% La Conterra Williamson 100% Maxwell Creek Collin 100% Oak Creek Estates Comal 100% The Colony Bastrop 100% The Gables at North Hill Collin 100% The Preserve at Pecan Denton Creek 100% The Ridge at Ribelin Ranch Travis 100% Westside at Buttercup Williamson Creek 100% Other projects (10) Various 100% Georgia —————————————— Towne West Bartow 100% Other projects (9) Various 100% Missouri and Utah —————————————— Other projects (3) Various 100% Projects in entities we consolidate Texas —————————————— City Park Harris 75% Lantana Denton 55%(e) Light Farms Collin 65% Stoney Creek Dallas 90% Timber Creek Collin 88% Other projects (6) Various Various Tennessee —————————————— Youngs Lane Davidson 60% Total owned and consolidated Projects in ventures that we account for using the equity method Georgia —————————————— Seven Hills Paulding 50% The Georgian Paulding 38% Other projects (5) Various Various Texas —————————————— Bar C Ranch Tarrant 50% Fannin Farms West Tarrant 50% Lantana Denton Various(e) Long Meadow Farms Fort Bend 19% Southern Trails Brazoria 40% Stonewall Estates Bexar 25% Summer Creek Ranch Tarrant 50% Summer Lakes Fort Bend 50% Village Park Collin 50% Waterford Park Fort Bend 50% Other projects (3) Various Various Florida —————————————— Other projects (3) Various Various Total in ventures Combined Total Residential Lots (c) Commercial Acres (d) —————————— ——————————- Lots Sold Acres Sold Since Lots Since Acres Project Inception Remaining Inception Remaining —————————————- ————- ————— ————— ————— Projects we own California —————————————- San Joaquin River - - - 285 Colorado —————————————- Buffalo Highlands - 164 - - Johnstown Farms 115 699 - - Pinery West - - - 115 Stonebraker - 603 - 13 Westlake Highlands - 21 - - Texas —————————————- Arrowhead Ranch - 232 - 5 Caruth Lakes 245 404 - - Cibolo Canyons 466 1,283 64 81 Harbor Lakes 197 252 - 14 Harbor Mist - 1,393 - 36 Hunter's Crossing 308 183 23 83 Katy Freeway - - 38 - La Conterra - 509 - 60 Maxwell Creek 594 429 - - Oak Creek Estates - 648 13 - The Colony 380 1,045 22 50 The Gables at North Hill 193 90 - - The Preserve at Pecan Creek 156 663 - 9 The Ridge at Ribelin Ranch - - 179 22 Westside at Buttercup Creek 1,239 289 66 - Other projects (10) 2,879 128 233 48 Georgia —————————————- Towne West - 2,674 - 121 Other projects (9) - 1,777 - 40 Missouri and Utah —————————————- Other projects (3) 775 242 - - ————- ————— ————— ————— 7,547 13,728 638 982 Projects in entities we consolidate Texas —————————————- City Park 873 438 50 115 Lantana 346 2,004 - - Light Farms - 2,501 - - Stoney Creek 1 753 - - Timber Creek - 654 - - Other projects (6) 997 387 24 23 Tennessee —————————————- Youngs Lane - - - 16 ————————————————————— 2,217 6,737 74 154 ————- ————— ————— ————— Total owned and consolidated 9,764 20,465 712 1,136 Projects in ventures that we account for using the equity method Georgia —————————————- Seven Hills 627 453 26 - The Georgian 287 1,098 - - Other projects (5) 1,844 188 3 - Texas —————————————- Bar C Ranch 175 1,006 - - Fannin Farms West 236 207 - - Lantana 1,764 84 3 77 Long Meadow Farms 598 1,508 24 186 Southern Trails 250 812 - - Stonewall Estates 114 138 - - Summer Creek Ranch 793 1,695 - 374 Summer Lakes 294 850 48 3 Village Park 335 234 - 5 Waterford Park - 493 - 37 Other projects (3) 282 247 - 37 Florida —————————————- Other projects (3) 473 372 - - ————- ————— ————— ————— Total in ventures 8,072 9,385 104 719 ========= ========== ========== ========== Combined Total 17,836 29,850 816 1,855 ========= ========== ========== ========== (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 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 21 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. *T
