Forestar posts Q2 net loss of US$3.9M compared with net loss of US$3.3M a year ago, primarily due to declines in mineral resources, fiber resources segments; revenue for the quarter fell to US$25.5M year-over-year from US$28.1M

Michelle Rivera

AUSTIN, Texas , August 3, 2011 (press release) – * Entered into definitive agreement to sell 50,000 acres of timberland for $75 million
* Sold 283 residential lots, a 32% increase compared with first quarter 2011 and a 20% increase compared with second quarter 2010 – Almost 1,500 residential lots under contract
* Entitled 1,068 acre mixed-use project located near Atlanta, Georgia
* Executed leases on 2,500 net mineral acres and exploration agreements on 28,500 net mineral acres in Louisiana and Texas
* Initiated construction of 289 unit multifamily residential development in Austin, Texas
* Acquired non-performing bank loan for $21 million, secured by a 900 acre master-planned, mixed-use community located in Houston, Texas

Forestar Group Inc. (NYSE:FOR - News) today reported a second quarter 2011 net loss of approximately ($3.9) million, or ($0.11) per basic share, compared with a second quarter 2010 net loss of ($3.3) million, or ($0.09) per basic share outstanding.

“During second quarter, amidst continued poor real estate market conditions, we made solid progress improving Forestar’s ability to capitalize on distressed real estate markets and to benefit when economic activity improves and housing markets recover,” said Jim DeCosmo, president and chief executive officer of Forestar Group. “Despite difficult real estate markets, our increased residential lot sales activity reflects relatively stable demand in our Texas markets where finished lot inventories continue to decline. In our mineral basins, drilling activity remains steady in East Texas, while we have generated increased leasing, seismic and exploration activity associated with our Louisiana mineral acres, principally driven by higher oil prices and increased activity in the area.”

Forestar manages its operations through three business segments: Real Estate, Mineral Resources and Fiber Resources.

REAL ESTATE

* Sold 283 residential lots, a 32% increase compared with first quarter 2011 and a 20% increase compared with second quarter 2010 – Almost 1,500 residential lots under contract
* Sold four commercial acres at Cibolo Canyons for $740,000 ($185,000 per acre)
* Sold 780 acres of undeveloped land for $3,300 per acre
* Entitled 1,068 acre mixed-use project located near Atlanta, Georgia
* Received $1.6 million from Cibolo Canyons Special Improvement District
* Initiated construction of 289 unit multifamily residential development in Austin, Texas

Second quarter 2011 real estate segment earnings were down compared with second quarter 2010 and first quarter 2011 principally due to lower undeveloped land sales.

MINERAL RESOURCES

* Executed seismic and exploration agreement on 28,500 net mineral acres in Louisiana
* Leased over 2,500 net mineral acres in Louisiana and Texas
* Almost 67,000 net mineral acres put in play during 2011
* Five new wells completed, with 501 active wells, up 19 compared with second quarter 2010

Mineral resources segment earnings declined in second quarter 2011 compared with second quarter 2010 principally due to increased costs associated with developing our water initiatives as a result of our acquisition of a water resources company in fourth quarter 2010. Excluding these incremental operating expenses associated with this acquisition, segment earnings would have declined only slightly in second quarter 2011 compared with second quarter 2010. Segment earnings declined in second quarter 2011 compared with first quarter 2011 primarily due to lower lease bonus revenues. First quarter 2011 results include almost $1.6 million in revenues related to a seismic exploration agreement for 31,100 net mineral acres in Louisiana.

FIBER RESOURCES

* Sold over 83,000 tons of fiber
* Recreational leasing activity remains strong, almost 98% of available land leased

Second quarter 2011 fiber resources segment earnings declined compared with second quarter 2010 principally due to reduced harvest volumes associated with the sale of over 30,000 acres of timberland during 2010. Recreational leasing activity remained strong with higher average lease rates. Segment earnings increased slightly in second quarter 2011 compared with first quarter 2011 principally due to a gain from termination of a timber lease.

OUTLOOK

“We see improving fundamentals in our Texas markets, despite national housing starts bouncing along the bottom of a deep trough. In addition, we remain confident that underlying demand for single and multifamily housing will grow as markets recover from the downturn. Current oil and gas market conditions are anticipated to generate continued interest in our minerals which will create additional opportunities to deliver value through lease-bonus, increasing royalty income and working interest opportunities. Our team will continue to position Forestar’s water interests to provide comprehensive and sustainable solutions for the future water needs of central Texas, particularly the I-35 growth corridor.

“We remain confident that through our dimensional land model, real estate and natural resources will provide significant opportunities as we focus on recognizing and responsibly delivering the greatest value from every acre. Through the successful implementation of our strategic initiatives, Forestar has been positioned to grow its businesses and maximize long-term value for shareholders,” concluded Mr. DeCosmo.

The Company will host a conference call on August 3, 2011 at 10:00 am ET to discuss results of second quarter 2011. 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 1-866-383-8003 at least 15 minutes prior to the start of the meeting. Those wishing to access the call from outside North America should dial 1-617-597-5330. 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 32562501.

About Forestar Group

Forestar Group Inc. operates in three business segments: real estate, mineral resources and fiber resources. At the end of the second quarter 2011, the real estate segment owns directly or through ventures over 217,000 acres of real estate located in nine states and twelve markets in the U.S. The real estate segment has 17 real estate projects representing over 28,600 acres currently in the entitlement process, and 74 entitled, developed and under development projects in seven states and eleven markets encompassing over 16,100 acres, comprised of 28,200 residential lots and over 2,300 commercial acres. The mineral resources segment manages about 603,000 net acres of oil and gas mineral interests located principally in Texas, Louisiana, Alabama, and Georgia. Also included in the mineral resources segment is a 45% nonparticipating royalty interest in groundwater produced or withdrawn for commercial purposes from approximately 1.4 million acres in Texas, Louisiana, Georgia and Alabama and about 17,800 acres of groundwater leases in central Texas. The fiber resources segment includes the sale of wood fiber and management of our recreational leases. Forestar’s address on the World Wide Web is www.forestargroup.com.

Industry Intelligence Editor's Note: In an omitted table, Forestar's total revenue for Q2 2011 was US$25.5 million. In Q2 2010, the company's total revenue was US$28.1 million.

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