Forestar Q4 Profit Falls Despite Higher Lot Sales

Forestar Group Inc. (NYSE: FOR) reported lower fiscal fourth-quarter revenue and earnings even as residential lot deliveries increased, reflecting a decline in the average sales price per lot and lower tract sales and other revenue. The residential lot developer also projected fiscal 2027 lot sales of 12,000 to 13,000, compared with 13,545 lots delivered in fiscal 2026.

For the quarter ended Sept. 30, 2026, revenue fell to $580.8 million from $670.5 million a year earlier, while residential lots sold rose 2% to 5,004 from 4,891. The average sales price per lot, excluding the impact of changes in contract liabilities, declined to $108,300 from $115,700.

Quarterly net income attributable to Forestar decreased to $59.2 million, or $1.15 per diluted share, from $87.0 million, or $1.70 per share, in the prior-year period. Pre-tax income was $78.6 million, representing a 13.5% pre-tax margin, compared with $113.1 million a year earlier.

Gross profit declined to $103.1 million from $149.7 million. The latest quarter included a $7.6 million real estate impairment and a $10.0 million gain on asset sales. Adjusted EBITDA, a non-GAAP measure, fell to $86.2 million from $123.1 million, while the adjusted EBITDA margin narrowed to 14.8% from 18.4%.

Tract sales and other revenue totaled $38.7 million in the quarter, down from $103.4 million a year earlier. Development-project deliveries increased to 4,980 lots from 4,743, while lot-banking project deliveries declined to 24 from 148.

Full-year profit declines as lot deliveries fall

For fiscal 2026, Forestar generated revenue of $1.64 billion, compared with $1.66 billion in fiscal 2025. The company delivered 13,545 residential lots, down from 14,240, although its average sales price per lot increased to $111,200 from $108,400.

Full-year net income attributable to Forestar fell to $142.6 million, or $2.78 per diluted share, from $167.9 million, or $3.29 per share. Pre-tax income declined to $192.1 million from $219.3 million, producing an 11.7% pre-tax margin. Adjusted EBITDA decreased to $221.4 million from $250.6 million, and the adjusted EBITDA margin was 12.9%, compared with 15.1%.

Selling, general and administrative expenses represented 9.2% of annual revenue. Forestar said it invested approximately $1.3 billion in land acquisition and development during the year while maintaining operations in 65 markets across 24 states.

Liquidity strengthens as lot portfolio contracts

Forestar ended fiscal 2026 with $657.0 million of cash and cash equivalents and total liquidity of approximately $1.31 billion, up from about $1.0 billion a year earlier. Debt stood at $794.2 million, while net debt to total capital improved to 6.7% from 19.3%. The company reported no senior note maturities until fiscal 2028.

Stockholders’ equity increased to $1.92 billion from $1.77 billion, and book value per share rose 8% to $37.56. Return on equity for the trailing 12 months was 7.8%.

The company owned or controlled 84,400 lots at Sept. 30, including 58,200 owned lots and 26,200 lots controlled through purchase contracts. That compared with a total position of 99,800 lots a year earlier. Forestar said it is targeting an owned inventory equal to three to four years of lot supply.

Forestar had 21,500 owned lots under contract for sale, equal to 37% of its owned lot position. Those contracts were backed by $202 million of hard earnest-money deposits and are expected to generate approximately $2.2 billion of future revenue. D.R. Horton, which owned 62% of Forestar at fiscal year-end, had 38,400 lots under contract or subject to a right of first offer.

Fiscal 2027 outlook emphasizes disciplined investment

Based on market conditions at the time of its Oct. 29 conference call, Forestar expects fiscal 2027 residential lot sales of 12,000 to 13,000 and consolidated revenue of $1.4 billion to $1.5 billion. Management also plans to invest about $1.3 billion in land acquisition and development, with most of that spending directed toward development.

The company said its priorities include aligning investment with market conditions, expanding share in existing markets, increasing book value per share and maintaining a strong balance sheet. Forestar also intends to evaluate opportunistic acquisitions while retaining its return-focused underwriting standards, which require projects to target a return on average inventory above 15% and recovery of the initial first-phase investment within 36 months.

Forestar’s outlook remains exposed to the cyclical homebuilding and land-development markets, interest rates, inflation, land and labor availability, and access to capital. The company also depends on relationships with homebuilders, particularly D.R. Horton, whose controlling ownership may affect Forestar and its shareholders. Other identified uncertainties include regulatory changes, weather and natural disasters, cybersecurity incidents, debt-management requirements and the timing of reimbursements from governmental entities.