Forestar Group Inc. SEC 10-K Report

Forestar Group Inc., a national residential lot development company, has released its annual Form 10-K report, providing a comprehensive overview of its financial and operational performance for the fiscal year ended September 30, 2025. The report highlights the company's strategic initiatives, financial health, and the challenges it faces in the competitive real estate development industry.

Financial Highlights

• Revenues: $1,662.4 million, reflecting a 10% increase from the prior year period, primarily due to an increase in average selling price per lot.
• Cost of Sales: $1,298.9 million, increased due to higher revenues and elevated development costs.
• Selling, General and Administrative Expense: $154.4 million, representing 9.3% of revenues, up from 7.9% in the previous year, primarily due to increased employee compensation and related costs.
• Income before Income Taxes: $219.3 million, a decrease from $270.1 million in the prior year, impacted by higher SG&A expenses and a loss on extinguishment of debt.
• Net Income: $167.9 million, down from $203.4 million in the previous year, reflecting the impact of increased costs and expenses.
• Basic Net Income Per Common Share: $3.30, compared to $4.03 in the prior year, due to the decrease in net income.
• Diluted Net Income Per Common Share: $3.29, compared to $4.00 in the prior year, reflecting the overall decrease in net income.

Business Highlights

• Business Overview: Forestar Group Inc. is focused on land acquisition and development to sell finished single-family residential lots to homebuilders. The company operates in 64 markets across 23 states, providing a strong platform for consolidating market share in the fragmented lot development industry.
• Geographical Performance: The company has expanded its operations across 64 markets in 23 states, which provides geographic diversification that lowers operational risks and enhances earnings potential by mitigating the effects of local and regional economic cycles.
• Sales Units: For the year ended September 30, 2025, Forestar sold 14,240 lots with an average sales price of $108,400. The lot position at the end of the period consisted of 99,800 residential lots, with 65,100 owned and 34,700 controlled through purchase contracts.
• Customer Segments: The primary customers are local, regional, and national homebuilders, with lots delivered mainly for entry-level, first-time move-up, and active adult homes. The company also markets some communities towards build-to-rent operators.
• Operational Strategy: Forestar focuses on entitled short-duration projects that can be developed in phases, allowing for completion and sale of lots at a pace that matches market demand. This strategy aims to maximize capital efficiency and returns.
• Future Outlook: The company plans to remain disciplined in investing in land opportunities and managing lot sales pace and pricing to optimize returns. Forestar is well-positioned to consolidate market share due to its national footprint, strong local teams, and strategic relationship with D.R. Horton.
• Operational Challenges: The company faces ongoing affordability constraints and cautious consumer sentiment, with homebuilders offering sales incentives to spur demand. Delays in municipal approvals are extending development cycle times in certain markets, and development costs remain elevated.
• Strategic Relationship: As a majority-owned subsidiary of D.R. Horton, Forestar benefits from a strategic relationship that includes a Master Supply Agreement, providing D.R. Horton the right of first offer on lots from certain projects.

Strategic Initiatives

• Market Consolidation: The company is focused on consolidating market share in the fragmented lot development industry by leveraging its national footprint, strong local teams, and strategic relationship with D.R. Horton. It plans to remain disciplined in land investments and manage lot sales pace and pricing to optimize returns.
• Debt Management: The company issued $500 million of 6.5% senior notes due 2033 to fund a tender offer for its 3.85% senior notes due 2026, reflecting a strategic move to manage its debt profile.
• Capital Management: The company maintains a strong liquidity position with $379.2 million in cash and cash equivalents and $588.9 million available under its revolving credit facility. It has no senior note maturities until fiscal 2028, and its debt to total capital ratio is 31.2%. The company has an effective shelf registration statement for $750 million of equity securities, with $300 million reserved for an at-the-market equity offering program. Additionally, the company has a $640 million senior unsecured revolving credit facility, which was increased to $665 million post-September 30, 2025.
• Future Outlook: The company intends to maintain its net debt to total capital ratio at approximately 40% or less over the long term. It plans to continue managing its capital structure and liquidity profile to support growth objectives, with a focus on obtaining financing to fund expected growth. The company is also evaluating the impact of new accounting standards on its financial statements and disclosures, which may influence future capital management strategies.

Challenges and Risks

• Competitive Industry: Forestar Group Inc. operates in a highly competitive and fragmented real estate development industry, facing competition from both larger entities with greater resources and smaller entities with lower cost structures. The company's strategic relationship with D.R. Horton, while beneficial, also presents risks related to concentrated ownership and potential conflicts of interest.
• Economic Conditions: The company is subject to various risks, including those related to its concentrated ownership by D.R. Horton, which limits the influence of other shareholders and may lead to conflicts of interest. Economic conditions, such as inflation and interest rate fluctuations, pose significant risks to the homebuilding and lot development industries.
• Operational Risks: Supply chain disruptions, labor shortages, and regulatory challenges, including environmental regulations and climate change-related policies, could adversely impact operations. Cybersecurity threats and compliance with evolving privacy and data protection laws also present significant risks.
• Management Strategies: Management highlights ongoing affordability constraints and cautious consumer sentiment as challenges impacting new home demand. Despite these conditions, the company has increased revenues by focusing on affordable price points and leveraging its strategic relationship with D.R. Horton. However, delays in municipal approvals and elevated development costs remain challenges. The company plans to consolidate market share by maintaining a geographically diverse lot portfolio and managing lot sales pace and pricing to optimize returns.
• Market Risks: The company is exposed to market risks, including interest rate fluctuations that affect the cost of debt service obligations. The reliance on variable rate debt linked to the Secured Overnight Financing Rate (SOFR) introduces additional financial risk. Changes in debt ratings could impact the company's ability to access capital markets or obtain credit on favorable terms.

SEC Filing: Forestar Group Inc. [ FOR ] - 10-K - Nov. 19, 2025