Forestar : Q1 FY 2020 Investor Presentation

I N V E S T O R P R E S E N T A T I O N

Q 1 2 0 2 0

FORWARD LOOKING STATEMENTS

This presentation may include "forward‐looking statements" as defined by the Private Securities Litigation Reform Act of 1995. Although Forestar believes any such statements are based on reasonable assumptions, there is no assurance that actual outcomes will not be materially different. Factors that may cause the actual results to be materially different from the future results expressed by the forward‐looking statements include, but are not limited to: the effect of D.R. Horton's controlling level of ownership on us and the holders of our securities; our ability to realize the potential benefits of the strategic relationship with D.R. Horton; the effect of our strategic relationship with D.R. Horton on our ability to maintain relationships with our vendors and customers; demand for new housing, which can be affected by a number of factors including the availability of mortgage credit, job growth and fluctuations in interest rates; competitive actions by other companies; accuracy of estimates and other assumptions related to investment in and development of real estate, the expected timing and pricing of land and lot sales and related cost of real estate sales; our ability to comply with our debt covenants, restrictions and limitations; our ability to hire and retain key personnel; changes in governmental policies, laws or regulations and actions or restrictions of regulatory agencies; general economic, market or business conditions where our real estate activities are concentrated; our ability to achieve our strategic initiatives; our ability to obtain future entitlement and development approvals; our ability to obtain or the availability of surety bonds to secure our performance related to construction and development activities and the pricing of bonds; obtaining reimbursements and other payments from governmental districts and other agencies and timing of such payments; the levels of resale housing inventory in our projects and the regions in which they are located; fluctuations in costs and expenses, including impacts from shortages in materials or labor; the opportunities (or lack thereof) that may be presented to us and that we may pursue; the strength of our information technology systems and the risk of cybersecurity breaches; and the conditions of the capital markets and our ability to raise capital to fund expected growth. Additional information about factors that could lead to material changes in performance is contained in Forestar's annual report on Form 10‐K, which is filed with the Securities and Exchange Commission (SEC).

2

FORESTAR OVERVIEW

• Forestar Group Inc. ("Forestar" or "FOR") is a highly differentiated, national residential lot developer
• • Develop and sell lots for single‐family homes to D.R. Horton and other local, regional and national homebuilders
  • Focused on phased development of short duration, fully‐ entitled lot development projects
  • High turnover, lower risk lot manufacturing strategy with intense focus on returns
• Majority-ownedsubsidiary of D.R. Horton, Inc. ("D.R. Horton" or "DHI"), the nation's largest builder
• • 75% of common shares acquired by DHI in 2017 for ~$560M; 65% owned today by DHI
  • One of only two investment grade rated public homebuilders in the U.S.
  • Highly strategic relationship supports and de‐risks Forestar's significant growth ramp
• Rapidly expanding to fulfill market demand
• • Diversified and growing national footprint
  • Existing lot and liquidity position sufficient to support near‐ term growth
  • Builder preference for 'land light' enhances opportunity

Operations in 51 markets across 20 states(1)

/		Current FOR markets / states
		Current Snapshot(1)
Owned and Controlled Lot Position	44,500
Owned Lots Under Contract or	25,600
Subject to Right of First Offer to DHI
Revenues	$637M
Liquidity (2)	~$720M
Equity Market Cap (3)	~$1.07B

(1)	As of or for the TTM ended 12/31/19 unless otherwise noted	3
(2)	Liquidity defined as unrestricted cash and cash equivalents plus revolving credit facility availability as governed by the borrowing base
(3)	As of 1/22/20

THE FORESTAR VALUE PROPOSITION

DIFFERENTIATED BUSINESS MODEL DESIGNED TO ADDRESS A SIGNIFICANT MARKET NEED

• Returns focused residential lot development business model
• High turnover, lower risk lot manufacturing strategy focused on returns
• Under‐served lot development market with lack of well‐capitalized and/or national participants

SIGNIFICANT GROWTH OPPORTUNITY

• Current lot supply provides roadmap for top‐line growth for coming years
• Opportunity for increased scale within existing markets and entrance into new markets
• Portfolio and platform expansion designed to increase returns and margins

INTENSE FOCUS ON RISK MITIGATION

• Short duration, fully‐entitled projects
• Phased development and largely discretionary cash spend
• Geographic diversification
• Maintain strong liquidity and conservative leverage with balance between debt and equity

HIGHLY STRATEGIC RELATIONSHIP WITH D.R. HORTON ENHANCES BUSINESS MODEL,

GROWTH AND RISK PROFILE

• Strategic alignment with and access to DHI network of markets, experienced team and business relationships
• Instills culture of manufacturing‐like approach and conservative operating strategy
• Significant built‐in demand for current and future lot deliveries
• De‐risks expansion of operating platform and entrance into new markets
• Enhanced access to capital markets

4

EXECUTING ON OUR PLANS

Fiscal 2019

Lots delivered

Revenues

Pre-tax profit margin

Capital markets

Investment in land

GUIDANCE(1)

4,000

$300M to $350M

Mid-single digit

Opportunistically

access capital markets

ACTUAL

• • 4,132
  • $428M
  • 11%
• $350M debut bond offering
• ~$100M equity offering

acquisition and

development

Fiscal 2020-2021

Guidance(2)

More than $800M

 $850M

• Fiscal 2020: Expect to deliver 10,000 lots and generate $800M - $850M of revenue with a mid-to-high single digit pre-tax profit margin
• Fiscal 2021: Expect to deliver 12,000 lots and generate approximately $1B of revenue with a pre-tax profit margin of ~10%

(1)	As outlined on the Company's December 2018 investor call	5
(2)	As outlined on the Company's Q1 FY 2020 conference call on 1/23/20

FORESTAR INVESTMENT HIGHLIGHTS

Unique Returns‐		Strategic Relationship				Geographic
Focused Lot		With D.R. Horton		Significant Growth
			Diversification and
Manufacturing		Supports Ability to Scale		Trajectory
			Growing Footprint
Business Model		and De‐Risks Expansion

		Homebuilders'		Proven / Seasoned
Primary Focus on			Management Team		Strong Balance
	Increasing Preference
Attractive Entry‐			With Decades of		Sheet and Liquidity
	for Lots Developed by
Level Segment			Real Estate		Position
	3rd Parties
			Experience

6

UNIQUE LOT MANUFACTURER BUSINESS MODEL

FOR's unique lot manufacturing model is highly differentiated from that of a typical land developer

• Business model designed to achieve scale and consistency, while minimizing risk
• At scale, FOR's high turnover, lower risk "lot manufacturing" strategy is expected to generate returns similar to an efficient, production‐oriented homebuilder

FORESTAR

• Short duration, fully‐entitled lot development projects
• Large scale with national footprint and in‐market depth
• Returns-focused,lower risk inventory model
• Consistent operating results at scale and currently profitable
• Understandable, growth-orientedbusiness model
• Strong liquidity and access to debt and equity capital
• Phased, discretionary land development with known buyer

TYPICAL LAND DEVELOPER

• Long‐term, often complex or unentitled, real estate projects
• Lack of geographic diversification and depth in markets

• Lower return, unpredictable inventory model
• Lack of consistent profitability
• Limited visibility into future growth
• Limited access to and high cost of capital
• Speculative land with undefined buyer

7

BUSINESS OVERVIEW

Forestar Capital Deployment and Cash Generation

	Source land	Place land under	Close acquisition		Lot development
	acquisition	contract and complete	of entitled land		(~70% finished lot cost)
	opportunities		due diligence	(~30% finished lot cost)
	• Forestar, D.R.	• Environmental, market,	• Initial Forestar capital	•	Phased development
	Horton and other	entitlement, planning,	commitment	•	Grading, roads, utilities
	national, regional	engineering and				and landscape /
	and local 3rd party	permitting review				amenities
	homebuilders
ILLUSTRATIVE FORESTAR PROJECT
	Phase I development		Phase II development		Complete lot development
		12	24		36	42
		months	months		months	months

Close on	Achieve first	Recovery of Initial	Complete
acquisition of	lot sales	Cash Investment (2)	lot sales
entitled land	(Phase I)

Deliver finished lots to builders

• D.R. Horton as well as other national, regional and local 3rd party builders

Underwriting

Criteria

• >15% Return on Inventory (1)
• <36 month return of initial investment

(1)	Return on inventory is calculated as pre‐tax income divided by average inventory over the life of a project	8
(2)	Includes land purchase price and development costs for first phase of lots

INVESTMENT PORTFOLIO

LOT

DEVELOPMENT

PROJECTS

SHORT-TERM LOT BANKING PROJECTS

• Shorter duration, phased developments with lower market risk
• Includes projects sourced by either DHI or FOR to sell lots to both DHI and other builders
• Minimum annual returns on inventory of 15%(1)
• Gross margin percentage varies with project duration and the extent of FOR's involvement in sourcing, pre‐acquisition entitlement work, development and other value creation activities
• Gross margin percentage range of 14% to 22% (expect most projects to be at lower end of range during FY20)
• As FOR's development portfolio and operating platform matures over the next several years, lot development returns and margins are expected to increase
• Short‐term investments of available capital prior to deployment into new development projects, primarily with DHI
• Level of lot banking managed relative to short term liquidity and expected future cash requirements of lot development investments
• Annual returns on inventory of 12% to 16%(1)
• Gross margin percentage range of 3% to 9% based on current average portfolio duration
• Expected to be roughly 1/3 of lot deliveries in FY20 and will likely decline as a percentage of the portfolio mix over time as FOR's development platform expands

(1) Return on inventory is calculated as pre‐tax income divided by average inventory over the life of a project

9

BENEFITS OF HIGHLY STRATEGIC FOR AND DHI ALIGNMENT

BENEFITS TO FOR

• Enhanced, experienced leadership team
• Supports ability to scale to national platform
• Significant built‐in demand for lots
• Improved access to capital markets
• Shared Services from DHI

STRONG AND

SYMBIOTIC STRATEGIC

RELATIONSHIP

BENEFITS TO DHI

• Long‐term consistent supplier of finished lots across DHI's national footprint (90 markets in 29 states)
• Integral component of DHI's operational strategy
• Participate in value creation of FOR

Alignment with DHI, the nation's largest builder since 2002, supports FOR's transformation into a national, well-capitalized lot manufacturer

• DHI's annual purchases of finished lots through market cycles significantly exceed FOR's near‐term growth plans
• DHI is committed to owning no more than a 2 to 3‐year supply of lots and to increasing its mix of optioned lots in inventory
• Most land developers lack the scale and access to capital to be consistent suppliers of lots to DHI across its national footprint
• Master Supply, Stockholder and Shared Services Agreements formalize the business relationship and protect FOR's interests(1)
• DHI plans to maintain a significant ownership position in FOR over the long‐term

Relationship with DHI further strengthens FOR's competitive advantages and DHI's interests are

fully-aligned with shareholders to ensure the profitable expansion of FOR's platform

(1) MSA, Stockholder's Agreement and Shared Services Agreement summaries included in Appendix

10

SIGNIFICANT AND SUSTAINABLE GROWTH THROUGH NUMEROUS LEVERS

Built-in growth from

DHI relationship

Expand relationships with

3rd party homebuilders

Increase scale in existing markets

Expand into new markets

Efficiently leverage overhead

Opportunistic consolidation

• In FY 2019, FOR sold DHI 3,728 lots or ~7% of DHI's 56,975 closings
• 12,700 of FOR's owned lots at 12/31/19 are under contract to sell to DHI, representing ~$1 billion of future revenue
• Over time, DHI may source more than 30% of its lots from FOR
• FOR sold finished lots to 12 different homebuilders in fiscal year 2019 and 7 different homebuilders in Q1 2020
• As FOR builds out its infrastructure, capacity to work with other builders will increase
• FOR currently operates in some of the largest homebuilding markets in the country
• As FOR gains scale and develops its own team in its existing markets, the Company will source more deals independently, which is expected to improve pre‐tax profit margins and returns
• 39 markets in which DHI has a presence but FOR does not at 12/31/19
• As FOR expands into new markets, it leverages DHI's infrastructure to generate a revenue stream before incurring incremental costs
• Over time, FOR should operate with lower overhead expenses than a typical homebuilder given the wholesale nature of its business without the need for an extensive retail sales force and less reliance on labor / trades
• Consolidation opportunities in the highly fragmented lot development industry (similar to the homebuilder industry in the 1990s)

11

LAND AND DEVELOPMENT INVESTMENTS

Investing in land acquisition and development to support significant expected growth in lot deliveries

Quarter Ended

				$221	$236
				$57		$114
$64		$164
$17		$122
$47
12/31/2017	12/31/2018	12/31/2019
		Land Acquisition			Land Development

FY 2018 - FY 2020

~$1,000

$850

$480

FY18(1)

FY19

FY20e(2)

$ in millions
(1)	Effective 1/1/18, FOR changed its fiscal year‐end from 12/31 to 9/30; as presented, FY18 reflects the trailing twelve months ended 9/30/18	12
(2)	FY20 expectations as outlined on the Company's Q1 FY20 earnings conference call

SIGNIFICANT NEAR-TERM GROWTH

• Expect 8x two-year increase in deliveries to 10,000 lots by FY20 and to generate $800M to $850M of revenue
• Expect a mid- to high-single digit pre-tax profit margin percentage (PTI%) in FY20, with significant quarterly fluctuations, and ~10% PTI% for the full year of FY21

Lot Deliveries		Revenue

12,000

$900 - $1,000

10,000	$800 - $850

	4,132					$428
1,279				$109
					FY 2018(1)	FY 2019	FY 2020e	FY2021e
FY 2018(1)	FY 2019	FY 2020e	FY 2021e

$ in millions
(1) Effective 1/1/18, FOR changed its fiscal year‐end from 12/31 to 9/30; as presented, FY 2018 reflects the trailing twelve months ended 9/30/18	13
and excludes lots sold to unconsolidated ventures

DIVERSIFIED AND GROWING FOOTPRINT

Own and control 44,500 lots at 12/31/19

80% of owned lots are under contract to sell or subject to a right of first offer to DHI

Expect to own a 3 to 4 year lot inventory

12/31/19

51 Markets

20 States

12/31/18

35 Markets

16 States

• Current FOR markets / states
  DHI states where FOR does not currently operate
  FOR division offices open as of 1/17/20

Lot Position by State and Markets as of 12/31/19

Lot counts are approximate14 Of total lot position at 12/31/19, 32,200 are owned and 12,300 are controlled through purchase contracts

PRIMARY FOCUS ON ATTRACTIVE ENTRY-LEVEL SEGMENT

• Majority of recent Forestar investments have been focused on lots for homes at affordable / entry‐level price points
• Average Forestar residential lot sale price for the TTM ended 12/31/19 was ~$87,500(1)
• Compelling demand from entry‐level buyers, but lack of inventory has been a constraint
• D.R. Horton offers homes at all price points, with entry‐level / first‐time buyers representing a majority of closings
• • Entry‐level Express Homes brand has increased from 5% of DHI closings in fiscal 2014 to 35% of closings in fiscal 2019
  • Public homebuilders have shifted towards entry‐ level, with the establishment of numerous entry‐ level brands over past five years

Source: Company filings, Census, John Burns Real Estate Consulting

1. Excludes any impact from change in contract liabilities
2. Based on rolling twelve month average of homes sold as of October 2019
3. Based on homes closed in TTM ended 12/31/19
4. Based on fiscal year‐end closings

$200k ‐ $300k homes average sales price (ASP) represents the largest cohort of homes sold by D.R. Horton and the broader housing market

17%			7%5%
13%	45%	20%
					68%
25%
		Industry(2)		D.R. Horton(3)
Homes ASP:		<$300k		$300k ‐ $400k		$400k ‐ $500k		$500k+

D.R. Horton's Express Homes brand is a top 5 homebuilder by volume today(4)

20,000

15,000

10,000

5,000

0

2015

2016

2017

2018

2019

15

BUILDERS' PREFERENCE FOR 'LAND LIGHTER' STRATEGY ENHANCES OPPORTUNITY

As homebuilders increase their optioned land and shorten their owned land positions to improve returns, FOR is uniquely positioned to capitalize on residential lot development opportunities

Optioned Land/Lot Position as a			Number of Years of Owned Land
% of Total Owned & Controlled				Based on TTM Closings
	60%								4.6
57%								4.0
50%						3.2		3.5	3.4	3.6
45%
			36%	39%	37%	2.8	2.7
32%	30%	32%						2.4	2.1

DHI ‐ HB segment

Average Public HB

DHI ‐ HB segment

Average Public HB

9/30/2015

9/30/2016

9/30/2017

9/30/2018

9/30/2019

9/30/2015

9/30/2016

9/30/2017

9/30/2018

9/30/2019

Source: FactSet and respective Company SEC filings
Notes: Average Public Homebuilder (HB) data represents the land and lot positions of LEN, PHM, TOL, NVR, MTH, MDC, TMHC, TPH, LGIH and KBH
For LEN and KBH, data is as of the periods ended August 31	16
For TOL, data is as of the periods ended October 31

SEASONED LEADERS WITH DECADES OF LAND DEVELOPMENT EXPERIENCE

Management team has ability to scale FOR and replicate DHI's success

DON TOMNITZ	DAN BARTOK
Executive Chairman	CEO
Formerly President & CEO of DHI for	Joined FOR in December 2017;
over a decade and joined FOR in	formerly EVP of Owned Real Estate
October 2017	for Wells Fargo, with 40 years
	experience in homebuilding & land
	development industry

TOM BURLESON	MARK WALKER	NICOLAS APARICIO	IAN CUDE
West Region President	East Region President	Florida Region President	South Central Region President
With FOR since 2003 and	With DHI since 2012 and	With DHI since 2011 and	With DHI since 2012 and
has over 25 years of real	joined FOR in February 2019 with	joined FOR in December 2018 with	joined FOR in November 2019 with
estate experience	18 years of real estate experience	20 years of real estate experience	22 years of real estate experience

Dates with FOR include time with predecessor entities prior to 2008 when FOR became a standalone public company

17

FINANCIAL POSITION AND POLICY

In September 2019, Forestar further strengthened its financial position by issuing 6.04M shares of common stock for net proceeds of $100.7M

FINANCIAL POSITION AS OF 12/31/19

• $373M unrestricted cash and cash equivalents
• $380M 3‐year unsecured revolving credit facility
• ~$720M total liquidity(1)
• $119M convertible notes due 2020
• $350M 8.0% senior notes due 2024
• $826M stockholders' equity
• 9.7% net debt to total capital(2)

DISCIPLINED FINANCIAL POLICY

• Strict lot development investment underwriting:
• • ≥ 15% return on inventory (ROI)(3)
  • ≤ 36-month cash recovery of phase 1 investment
• Net debt to capital(2) of ≤ 40%
• Maintain strong liquidity
• Balanced financing plan including both debt and equity

(1)	Liquidity defined as unrestricted cash balance plus revolving credit facility availability as governed by the borrowing base
(2)	Net debt to capital is calculated as debt net of unrestricted cash divided by debt net of unrestricted cash plus stockholders' equity	18
(3)	ROI is calculated as pre‐tax income divided by average inventory over the life of a project

Q1 FY 2020 AND FY 2019 HIGHLIGHTS

• Operating highlights
• • Residential lots sold increased 368% to 2,422 lots compared to 518 lots in the same quarter of fiscal 2019
  • 44,500 lots at 12/31/19, of which 32,200 were owned and 12,300 were controlled through purchase contracts
  • • 25,600, or 80%, of owned lots were under contract to sell or subject to a right of first offer to D.R. Horton

 Financial highlights

Three months ended 12/31/19		Fiscal year ended 9/30/19

$247M	542%	$428M	292%
Revenues	YoY Revenue Growth	Revenues	YoY Revenue Growth
$11M	4%	$29M	7%
SG&A Expense	SG&A Margin	SG&A Expense	SG&A Margin
$22M	9%	$46M	11%
Pre-Tax Income	Pre-Tax Margin	Pre-Tax Income	Pre-Tax Margin
$17M	$0.35	$33M	$0.79
Net Income	Net Income per Share	Net Income	Net Income per Share

19

FORESTAR INVESTMENT HIGHLIGHTS

Unique Returns‐		Strategic Relationship				Geographic
Focused Lot		With D.R. Horton		Significant Growth
			Diversification and
Manufacturing		Supports Ability to Scale		Trajectory
			Growing Footprint
Business Model		and De‐Risks Expansion

		Homebuilders'		Proven / Seasoned
Primary Focus on			Management Team		Strong Balance
	Increasing Preference
Attractive Entry‐			With Decades of		Sheet and Liquidity
	for Lots Developed by
Level Segment			Real Estate		Position
	3rd Parties
			Experience

20

APPENDIX

21

SOLID LONG-TERM INDUSTRY FUNDAMENTALS

Long-term housing industry fundamentals remain solid

• Limited supply of homes at affordable price points
• Unemployment rate near or at record lows for almost all groups of Americans
• Hourly wages growing
• Interest rates remain near historic lows
• Favorable demographics
• High consumer confidence

SURPLUS / (DEFICIT) TO HISTORIC AVERAGE HOUSING STARTS (mm)(1)

	From 1999 - 2006, Housing Starts surpassed the				Long‐term (1959‐2018) Average Housing Starts: 1.4mm
2.5	long-term average, generating a supply surplus
			New Privately Owned Annual Housing Starts
2.0												Annual Deficit to LT Average Housing Starts
1.5
1.0	1.6	1.6	1.6	1.7	1.8	2.0	2.1	1.8											1.3	1.2	1.3	1.3
0.5					1.4	0.9					0.9	1.0	1.1	1.2	1.2
							0.6	0.6	0.8
									0.6

‐

'99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19E '20E '21E

Since 2007, Housing Starts have fallen short of the long-term average, generating a supply deficit.

That deficit is expected to increase in the near-term to ~3mm starts

HISTORIC UNEMPLOYMENT RATES(2)

HISTORIC MORTGAGE RATES(2)

10.0%					10.0%
5.0%				5.9%	5.0%				5.2%
			3.5%				3.7%
‐					‐
1999	2004	2009	2014	2019	1999	2004	2009	2014	2019
		Unemployment Rate
				30 Year Conventional Mortgage
		20‐year Average
					20‐year Average

Source: Federal Reserve Bank of St. Louis, Freddie Mac, National Association of Realtors, NAHB, U.S. Census Bureau
Notes: Unemployment and mortgage rate data as of December 2019
(1)	2019e ‐ 2021e starts are based on annual estimates from the NAHB	22
(2)	Represent monthly rates

DHI GROWTH, CONSOLIDATION AND MARKET SHARE GAINS PROVIDE ROADMAP FOR FORESTAR

Total U.S. Single‐Family New Home Sales ('000s)	DHI Closings as a Percentage of U.S.
1,400	Single‐Family New Home Sales	10%
		9%
1,200
		8%
1,000		7%
800		6%
		5%
600		4%
400		3%
		2%
200
		1%
0		0%

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Source: Company filings, Census	23
Note: Periods represent full calendar year

INCOME STATEMENT

							FISCAL YEAR		12 MONTHS
		3 MONTHS ENDED			ENDED			ENDED
	12/31/2019	12/31/2018			9/30/2019			9/30/2018
Residential lots sold:		2,422			518			4,132			1,279
Development projects		1,406			462			2,610			1,190
Lot banking projects		1,016			56			1,522			89
Average sales price per lot(1)	$	90,300	$	74,000	$	84,200	$	77,800
Revenues(2)	$	247.2	$	38.5	$	428.3	$	109.2
Gross profit		30.6			7.8			65.6			37.1
Selling, general and administrative expense		10.5			5.7			28.9			43.5
Loss (gain) on sale of assets		0.1			(0.9)			(3.0)			(27.8)
Equity in earnings of unconsolidated ventures		(0.5)			(0.6)			(0.5)			(11.8)
Interest and other (income) expense		(1.7)			(1.3)			(5.5)			(1.2)
Income from continuing operations before taxes		22.2			4.9			45.7			34.4
Income tax expense (benefit)		5.4			1.0			9.4			(12.8)
Net income from continuing operations		16.8			3.9			36.3			47.2
Income from discontinued operations, net of taxes		‐			‐			‐			7.2
Net income (loss) attributable to noncontrolling interests		(0.1)			0.6			3.3			3.2
Net income attributable to Forestar Group Inc.	$	16.9	$	3.3	$	33.0	$	51.2
Net income per diluted share	$	0.35	$	0.08	$	0.79	$	1.22

• in millions except per share data Unaudited

(1)	Excludes any impact from change in contract liabilities or deferred revenue
(2)	Revenues include $30.1 million and $3.8 million in tract sales and other revenue for three months ended December 31, 2019 and 2018, respectively,	24
	and $76.6 million and $6.3 million in tract sales and other revenue for the fiscal year and twelve months ended September 30, 2019 and 2018,

respectively.

BALANCE SHEET

		12/31/2019		9/30/2019		12/31/2018
Cash and cash equivalents(1)	$	373.3	$	382.8	$	170.3
Real estate		1,066.8		1,028.9		693.2
Investment in unconsolidated ventures		5.9		7.3		7.4
Other assets		22.1		19.3		22.3
Deferred income taxes, net		11.8		17.4		25.5
Total assets	$	1,479.9	$	1,455.7	$	918.7
Debt	$	462.1	$	460.5	$	112.9
Earnest money deposits on sales contracts		89.7		89.9		68.2
Other liabilities		102.5		96.4		59.6
Shareholders' equity		825.5		808.3		676.7
Noncontrolling interests		0.1		0.6		1.3
Total equity		825.6		808.9		678.0
Total liabilities and equity	$	1,479.9	$	1,455.7	$	918.7
Net debt to total capital(2)		9.7%		8.8%		‐6.5%
Debt to total capital(2)		35.9%		36.3%		14.3%

$ in millions except per share data
Unaudited
(1) Cash and cash equivalents presented above includes $0, $0, and $16.1 million of restricted cash for the periods ended 12/31/19, 9/30/19 and 12/31/18,
respectively.
(2) Debt to capital is calculated as debt divided by stockholders' equity plus debt; net debt to capital is calculated as debt net of unrestricted cash divided	25
by debt net of unrestricted cash plus stockholders' equity

ILLUSTRATIVE FORESTAR PROJECT CASH FLOWS & RETURN

Project Cash Flows

			60 Lot Sales	120 Lot Sales		120 Lot Sales	50 Lot Sales
	$10.0			$9.4	$8.1
		$5.4				$3.4
millions	$0.0
		($4.0)	($3.0)	($0.1)
in	‐$10.0
$
	‐$20.0		($15.0)
		Year 1		Year 2		Year 3	Year 4
						Cash Outflow(1)		Cash Inflow (2)

Project Inventory and Returns

	$15.0				34%	40%
					35%
		$11.2
millions					30%
$10.0
	$7.6	21%		25%
				20%
in
					15%
$	$5.0		15%
	$3.0
	7%		10%
					$0.0	5%
	$0.0				0%
		Year 1	Year 2	Year 3	Year 4
			Inventory at Period End	Annual Return on Average Inventory (4)

Note: For illustrative purposes only; projects can have a wide range of cash flows and returns

1. Cash outflows include land acquisition and development spend and direct project overhead
2. Cash inflows include lot sales and impact of earnest money
3. Defined as the number of months required to recover Forestar's initial cash investment, including (i) land acquisition costs and (ii) development spend required to deliver the first phase of the project
4. Represents annual return except for year 4, which represents partial year return through the end of the project

Project Metrics

Size & Duration:

• Project Size: 350 lots
• Project Life: 42 months
• Development Phasing: 2 phases
• Lot Sale Takedown Schedule: 6 lot sale dates per phase

Cash Flows & Inventory:

• Lot Sale Revenues: $26.3M ($75,000 per lot)
• Land Acquisition Cost: $6.3M ($18,000 per lot)
• Development Spend: $14.7M ($42,000 per lot)
• • 1st Phase Development: $8.5M
• Net Cash Flow: $4.2M
• Average Monthly Inventory: $7.9M

Project Metrics:

• Gross Margin: 20.0%
• Return on Average Inventory: 15.0%
• Initial Cash Recovery(3): ~27 months

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ILLUSTRATIVE HOMEBUILDER VS. LOT

MANUFACTURER PROJECT ECONOMICS

Entitled Land		Lot Development		Finished Lot		Home Construction		Commissions & Other	Margin

ASP: $300,000ASP: $300,000

$72,000	$57,000
		$18,000
$18,000

$150,000

$150,000

						ASP: $75,000
						$15,000
	$42,000			$75,000		$42,000
	$18,000					$18,000
Homebuilder ‐ Self Developed Lots	Homebuilder ‐ Optioned Finished Lots	Lot Manufacturer

Note: For illustrative purposes only; projects can have a wide range of economics	27

FOR & DHI RELATIONSHIP OVERVIEW

Stockholder's

Agreement

Capital Markets

Supports growth by providing

public debt and equity

LAND SOURCING AND LOT SALES STRUCTURE PER THE MSA(1)

Project sourced by	DHI Right of First Offer (ROFO) Structure
	• ROFO on 100% of lots
	• ROFO on 50% of lots in 1st phase
	• ROFO on 50% of lots in any subsequent phase, in which
	DHI purchased 25%+ of lots in previous phase
3rd Party Homebuilder	• No DHI ROFO on lots

Shared Services

Agreement

DHI holds majority stake of ~65% in FOR

as of 12/31/19

Master Supply

Agreement ("MSA")

(1) Lots are sold to DHI and other builders at market pricing

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MASTER SUPPLY AGREEMENT (MSA)

• Establishes business relationship between DHI and FOR as both companies identify residential real estate opportunities
• Provides DHI the right of first offer (ROFO) to purchase up to 100% of the lots from DHI sourced projects at market prices
• Provides DHI the ROFO to purchase up to 50% of the lots in the first phase of a Forestar sourced project and 50% of the lots in any subsequent phase in which DHI purchases at least 25% of the lots in the previous phase
• DHI has no ROFO rights on third‐party builder sourced development opportunities provided to FOR
• Continues until the earlier of (i) the date which DHI owns less than 15% of voting shares of FOR or (ii) June 29, 2037; however, FOR may terminate the MSA at any time when DHI owns less than 25% of the voting stock of Forestar

29

STOCKHOLDER'S AGREEMENT

• DHI has the right to nominate FOR's board members commensurate with DHI's equity ownership
• • DHI nominated four of FOR's five board members
  • FOR Board of Directors must include at least three independent directors (currently has four)
• Established an investment committee to approve new lot development and banking projects
• As long as DHI owns at least 35% of FOR's outstanding voting shares, FOR must obtain DHI consent in order to:
• • Issue equity
  • Incur, assume, refinance or guarantee debt that would increase FOR's gross leverage to greater than 40%
  • Select, terminate, remove or change compensation arrangements for the Executive Chairman, CEO, CFO and other key senior management
  • Make an acquisition or investment greater than $20 million
• As long as DHI owns at least 20% of FOR's outstanding equity:
• • DHI has the right to designate individuals to FOR's Board based on DHI's ownership percentage
  • DHI has the right to designate the Executive Chairman of FOR

30

SHARED SERVICES AGREEMENT

• Shared Services Agreement between FOR and DHI defines the terms under which DHI may provide administrative, compliance, operational and procurement services to FOR
• Scope and cost of services provided to FOR are mutually agreed upon by FOR and DHI management teams and are adjusted periodically as necessary
• Services provided currently include:
• • Accounting, Finance and Treasury
  • Tax
  • Human Resources, Payroll and Benefits
  • Legal: Securities, Corporate Governance, Litigation and Risk Management
  • Internal Audit
  • Information Technology
  • Investor and Public Relations
• FOR also contracts with DHI for lot development services in projects owned by FOR in geographic markets where FOR has not yet established development teams and capabilities
• • FOR pays DHI a fixed fee for each lot developed, which is mutually agreed upon for each project

31