10-K: Forestar Reports 10% Revenue Growth, Net Income Declines 17% in FY25

Sentiment:

Annual Report 19 November 2025 12:20 PM

Forestar Group Inc. reported a 10% increase in revenues to $1.66 billion for fiscal year 2025, driven by higher average lot prices, despite a 17% drop in net income to $167.9 million.

Delay expectedDelays in receiving necessary approvals from municipalities are still extending development cycle times in certain markets.Governmental authorities were frequently delayed in granting proper approvals, which delayed development activities in certain markets in recent years.Construction time for lots depends on the availability of labor, materials, supplies, weather, and other factors.Delays or failures by governmental districts to issue bonds to reimburse for qualified expenses can delay reimbursement of costs.

Capital raiseThe company has an effective shelf registration statement, filed in September 2024, registering $750 million of equity securities.$300 million of the shelf registration is reserved for sales under an at-the-market equity offering program entered into in November 2024.The company plans to raise additional capital in the future, in the form of additional debt or equity, to fund business needs, future growth plans, and repay existing indebtedness.In March 2025, the company issued $500 million principal amount of 6.5% senior notes due 2033.

Worse than expectedNet income decreased by 17.4% from $203.4 million in fiscal 2024 to $167.9 million in fiscal 2025.Income before income taxes decreased by 18.8% from $270.1 million in fiscal 2024 to $219.3 million in fiscal 2025.Total residential lots sold decreased by 5.5% from 15,068 in fiscal 2024 to 14,240 in fiscal 2025.SG&A expense as a percentage of revenues increased from 7.9% in fiscal 2024 to 9.3% in fiscal 2025.Net cash used in operating activities increased from $158.4 million in fiscal 2024 to $197.7 million in fiscal 2025.Net debt to total capital ratio increased from 12.4% in fiscal 2024 to 19.3% in fiscal 2025.

Summary

Revenues increased by 10% to $1.66 billion in fiscal year 2025, up from $1.51 billion in fiscal year 2024.
Net income decreased by 17.4% to $167.9 million in fiscal year 2025, down from $203.4 million in fiscal year 2024.
Income before income taxes declined by 18.8% to $219.3 million in fiscal year 2025 from $270.1 million in fiscal year 2024.
Total residential lots sold decreased by 5.5% to 14,240 in fiscal year 2025, compared to 15,068 in fiscal year 2024.
The average sales price per lot increased by 12.2% to $108,400 in fiscal year 2025, from $96,600 in fiscal year 2024, primarily due to changes in the regional mix of lot sales.
SG&A expense increased to $154.4 million (9.3% of revenues) in fiscal year 2025 from $118.5 million (7.9% of revenues) in fiscal year 2024.
Total lot position grew to 99,800 residential lots at September 30, 2025, up from 95,100 lots at September 30, 2024.
Owned lots under contract to be sold totaled 23,800, with an aggregate remaining sales price of approximately $2.1 billion.
Cash and cash equivalents decreased to $379.2 million at September 30, 2025, from $481.2 million at September 30, 2024.
Net cash used in operating activities increased to $197.7 million in fiscal year 2025 from $158.4 million in fiscal year 2024.
The company issued $500 million of 6.5% senior notes due 2033 and repurchased $400 million of 3.85% senior notes due 2026, resulting in a $1.2 million loss on extinguishment of debt.
Debt increased to $802.7 million at September 30, 2025, from $706.4 million at September 30, 2024.
The ratio of net debt to total capital increased to 19.3% at September 30, 2025, from 12.4% at September 30, 2024.

Sentiment

Score: 4

Explanation: While revenues increased and the company maintains a strong lot position and liquidity, the significant decline in net income and EPS, coupled with increased SG&A and cash used in operations, indicates a challenging year for profitability. The increase in net debt to total capital and ongoing legal proceedings also contribute to a cautious outlook, despite management's positive framing of strategic positioning.

Positives

Revenues increased by 10% year-over-year, demonstrating continued top-line growth.
Average sales price per lot increased by 12.2% to $108,400, indicating favorable pricing power or a shift to higher-value lots.
Total lot position expanded to 99,800 residential lots, providing a strong pipeline for future development and sales.
A significant portion of owned lots (23,800, or 37%) are already under contract to be sold for an aggregate remaining sales price of approximately $2.1 billion, providing revenue visibility and stability.
Strong liquidity position with $379.2 million in cash and cash equivalents and $588.9 million available on the revolving credit facility.
Low net leverage, with a net debt to total capital ratio of 19.3%, well below the long-term target of 40% or less.
Geographically diverse operations across 64 markets in 23 states, which helps mitigate local economic risks.
Focus on developing lots for entry-level, first-time move-up, and active adult homes, which are identified as the largest segments of the new home market.
Effective internal control over financial reporting as of September 30, 2025, as attested by management and independent auditors.

Negatives

Net income decreased by 17.4% to $167.9 million and income before income taxes decreased by 18.8% to $219.3 million year-over-year, indicating reduced profitability.
Total residential lots sold decreased by 5.5% to 14,240, suggesting a slowdown in sales volume.
SG&A expense increased significantly by $35.9 million and as a percentage of revenues (from 7.9% to 9.3%), impacting profitability.
Net cash used in operating activities increased to $197.7 million from $158.4 million, indicating higher cash outflow for operations.
Net debt to total capital ratio increased from 12.4% to 19.3%, reflecting increased leverage.
Land purchase contract deposit and pre-acquisition cost write-offs increased to $7.2 million from $4.1 million, indicating more terminated contracts or unrecoverable costs.
Interest incurred increased to $45.5 million from $32.6 million, contributing to higher costs.
A $1.2 million loss on extinguishment of debt was recognized due to the repurchase and redemption of senior notes.
The company is involved in a derivative lawsuit alleging breach of fiduciary duty related to lot sale transactions with D.R. Horton, with an uncertain outcome.
A lawsuit from the Maryland Department of Environment regarding alleged stormwater compliance issues and violations.

Risks

D.R. Horton's controlling ownership (approximately 62%) limits the ability of other stockholders to influence matters and its interests may conflict with other stakeholders.
D.R. Horton's approval is required for certain actions, including equity issuances, debt, acquisitions, and executive compensation, as long as it owns 35% or more of voting securities.
D.R. Horton has the right to designate four out of seven Board members, which may make it difficult to recruit independent directors.
As a controlled company, Forestar may elect exemptions from NYSE corporate governance requirements, reducing protections for other stockholders.
Inability to resolve favorably any disputes that may arise between Forestar and D.R. Horton could significantly reduce revenues and earnings.
D.R. Horton is not restricted from competing with Forestar or taking corporate opportunities for itself or its affiliates.
Forestar may not realize potential benefits from the strategic relationship with D.R. Horton, including the transactions contemplated by the Master Supply Agreement.
D.R. Horton's control or the strategic relationship may negatively affect business relationships with other builder customers, who may believe Forestar favors D.R. Horton.
The homebuilding and lot development industries are cyclical and significantly affected by changes in economic, real estate, or other conditions such as employment levels, consumer confidence, housing demand, financing availability, interest rates, and inflation.
Significant inflation, higher interest rates, or deflation could adversely affect business by increasing costs of land, materials, labor, and capital, reducing lot affordability, and impacting profit margins.
Supply shortages and other risks related to acquiring land, materials, and skilled labor, and obtaining regulatory approval, could increase costs and delay lot deliveries.
Public health issues such as a major epidemic or pandemic could adversely affect business and financial results by reducing homebuilder traffic, disrupting the supply chain, or tightening the labor market.
Weather conditions and natural disasters (e.g., hurricanes, wildfires) can harm business by delaying development, affecting material/labor costs, damaging property, and impacting demand.
Health and safety incidents relating to operations could be costly in terms of potential liability and reputational damage.
The unavailability of performance bonds could adversely affect results of operations and cash flows.
Information technology failures, cybersecurity incidents, and the failure to satisfy privacy and data protection laws and regulations could harm business, leading to litigation, significant costs, and reputational damage.
Forestar is subject to litigation or other claims, which could materially and adversely affect the company through significant defense costs and potential judgments.
Governmental regulations and environmental matters could increase the cost and limit the availability of property suitable for residential lot development and adversely affect business and financial results.
Subcontractors' failure to comply with applicable laws could result in reputational damage and liability for Forestar.
Changes in income tax and securities laws could adversely affect business and financial results by impacting effective tax rates, deferred tax assets, and increasing compliance costs.
There is no assurance that the current business strategy will be successful, potentially negatively affecting business, results of operations, cash flows, and financial condition.
Continuing liabilities relating to assets that have been sold could adversely impact results of operations.
Financial results may be significantly influenced by the local economies of the markets where real estate development activity is concentrated.
Forestar's real estate development operations are highly dependent upon national, regional, and local homebuilders.
Delays or failures by governmental authorities to take expected actions could reduce returns or cause losses on certain real estate development projects.
Failure to succeed in new markets may limit growth.
Plans to raise additional capital in the future, but such capital may not be available when needed or at all, or only on unfavorable terms.
The real estate development industry is highly competitive, with larger competitors having greater resources and smaller ones having lower cost structures, which may adversely affect results of operations.
Significant amounts of consolidated debt and potential for additional debt could require a substantial portion of cash flow for debt payments, limit flexibility, and restrict future financing.
Inability to comply with debt covenants, restrictions, or limitations could adversely affect financial condition.
Changes in prevailing interest rates may affect the cost of debt service obligations for variable rate debt.
Any lowering of debt ratings could make accessing capital markets or obtaining additional credit more difficult and/or expensive.
A change of control triggering event could require Forestar to offer to repurchase senior notes at a premium or accelerate repayment of the revolving credit facility.
Restrictive covenants in debt agreements limit the ability to finance future operations, acquisitions, or capital needs or engage in other business activities.
The market price and trading volume of common stock may be volatile due to various factors beyond control.
Loss of key personnel could adversely affect business if retention, succession, and transition implementation efforts are unsuccessful.

Future Outlook

The company plans to remain disciplined in land investment, focusing on managing lot sales pace and pricing to optimize returns. It aims to maintain its net debt to total capital ratio at approximately 40% or less over the long term. The company believes it is well-positioned to consolidate market share due to its national footprint, strong local teams, low net leverage, strong liquidity, low overhead model, geographically diverse lot portfolio focused on affordable price points, and strategic relationship with D.R. Horton. It regularly assesses capital requirements and evaluates opportunities to raise additional capital (debt or equity) to fund growth and repay debt.

Management Comments

Our ongoing focus is primarily to develop lots for homes at affordable price points.
We attempt to offset cost increases in one component with savings in another, and we increase our land and lot sales prices when market conditions permit.
We remain focused on managing the pricing and sales pace in each of our communities to optimize the returns on our inventory investments and adjust to local market conditions and demand.
We believe we are well-positioned to consolidate market share in the highly fragmented lot development industry because of our national footprint and strong local teams, our low net leverage and strong liquidity position, lower overhead model, geographically diverse lot portfolio that is focused on affordable price points and strategic relationship with D.R. Horton.
We plan to remain disciplined when investing in land opportunities and to remain focused on managing our lot sales pace and lot pricing at each community to optimize the return on our investments.
We believe the people who work for our company are our most important resources and are critical to our continued success.
Management is committed to supporting the development of our employees in many ways including onboarding programs, training and providing employees exposure to senior management.
We believe our compensation package and benefits are competitive with others in our industry.
The safety and well-being of our employees are our first priority. We take workplace safety seriously at our development sites and in our offices.
Management believes that our internal control over financial reporting is effective as of September 30, 2025.

Industry Context

The filing highlights that the homebuilding and lot development industries are cyclical and significantly affected by economic conditions, including employment levels, consumer confidence, housing demand, financing availability, interest rates, and inflation. The company notes that new home demand continued to be impacted by affordability constraints and cautious consumer sentiment in fiscal 2025, leading homebuilders to offer elevated sales incentives. Despite these challenges, Forestar's strategy focuses on entry-level, first-time move-up, and active adult homes, which are identified as the largest segments of the new home market. The company also emphasizes its national footprint and diversified operations as a means to consolidate market share in the highly fragmented lot development industry and mitigate local/regional economic cycles. The increase in average sales price per lot, despite a decrease in lot sales volume, suggests a market where demand for certain lot types or regions allows for higher pricing, potentially reflecting a shift in product mix or localized strength.

Comparison to Industry Standards

Forestar's stock performance for the period September 30, 2020, through September 30, 2025, shows a cumulative return of 50.23%, underperforming the Russell 2000 Index (72.78%).
Over the same period, Forestar's stock performance outperformed its peer group (18.67%), which includes American Woodmark Corporation, Beazer Homes USA, Inc., Century Communities, Inc., Five Point Holdings, LLC, Howard Hughes Holdings Inc., JELD-WEN Holding, Inc., LGI Homes, Inc., M/I Homes, Inc., and MasterBrand, Inc.
The company's net debt to total capital ratio of 19.3% is significantly lower than its long-term target of 40% or less, suggesting a conservative financial posture compared to its own internal benchmarks and potentially industry peers.
Forestar leverages D.R. Horton's recruiting team and shared services, which could be a competitive advantage in talent acquisition and operational efficiency compared to smaller, independent developers.

Corporate Governance

Change Type	Description	Effective Date	Impact Assessment
Ownership Influence	D.R. Horton, as the controlling shareholder (approximately 62% ownership), has significant influence over strategic direction and operations.	October 2017	Limits the ability of other stockholders to influence corporate matters and may lead to decisions that do not align with all stakeholders' interests.
Board Composition	D.R. Horton has the right to designate a number of Board members commensurate with its equity ownership, currently four out of seven members.	Ongoing	May make it difficult to recruit independent directors and ensures D.R. Horton's strategic alignment.
Strategic Transaction Approval	D.R. Horton's consent is required for certain transactions (equity issuances, debt, acquisitions, executive hiring/termination/compensation) as long as it owns at least 35% of voting securities.	Ongoing	Restricts Forestar's autonomy in key strategic and financial decisions.
Controlled Company Status	The company qualifies as a 'controlled company' under NYSE rules but has not elected to utilize the exemptions from certain corporate governance requirements at this time.	Ongoing	Provides flexibility to potentially reduce certain corporate governance requirements, but if utilized, would reduce protections for stockholders.
Risk Oversight	The Board of Directors considers cybersecurity and other information technology risk as part of its risk oversight function, receiving annual presentations from D.R. Horton's CIO and CSRO.	Ongoing	Enhances oversight of critical operational risks, leveraging expertise from the controlling shareholder.
Accounting Standard Adoption	Adopted the annual requirements of ASU 2023-07, 'Segment Reporting Improvements to Reportable Segment Disclosures,' with new interim period disclosures required beginning in the first quarter of fiscal 2026.	November 2023 (annual), Q1 Fiscal 2026 (interim)	Improves transparency in segment reporting, providing more detailed financial information to stakeholders.
Debt Repurchase Authorization	The Board of Directors authorized the repurchase of up to $30 million of debt securities, with the full amount remaining available at September 30, 2025.	April 30, 2020	Provides flexibility for capital management and potentially enhancing shareholder value through debt reduction.
Employee Stock Purchase Plan	The 2022 Employee Stock Purchase Plan (ESPP) was adopted by the Board in October 2022 and approved by shareholders in January 2023.	January 2023	Aligns employee interests with shareholders and serves as a retention tool.
Incentive Bonus Plan	The Incentive Bonus Plan began in fiscal 2025, providing short-term performance bonuses to senior management based upon the level of achievement of certain criteria, such as pre-tax income.	Fiscal 2025	Motivates senior management to achieve financial targets, aligning compensation with company performance.
Stock Incentive Plan	The Stock Incentive Plan provides for the granting of equity awards (PSUs and RSUs) to executive officers, other key employees, and non-management directors.	Ongoing	Long-term incentive program designed to attract, retain, and motivate key personnel by aligning their interests with shareholder value.

Legal Proceedings

Mississippi Public Employees Retirement System v. D.R. Horton, Inc.: A derivative complaint filed on April 29, 2025, in the Delaware Court of Chancery, on behalf of Forestar, against D.R. Horton, the Executive Chairman, and certain directors. The complaint asserts claims for breach of fiduciary duty arising out of lot sale transactions between Forestar and D.R. Horton, seeking damages and legal fees. The outcome is uncertain, and the company cannot estimate a possible loss or range of loss.
Maryland Department of Environment (MDE) Suit: Filed on September 6, 2024, in the Circuit Court for Harford County, Maryland, against Forestar regarding various alleged stormwater compliance issues and violations at a project from 2022 through 2024. The MDE is seeking injunctive relief and civil penalties. Forestar does not believe it is reasonably possible that this matter would result in a material adverse effect on its consolidated financial position, results of operations, or cash flows.

Related Party Transactions

D.R. Horton owned approximately 62% of Forestar's outstanding common stock as of September 30, 2025.
Shared Services Agreement: D.R. Horton provides administrative, compliance, operational, and procurement services. Forestar incurred $7.3 million in fiscal 2025 for these services, reimbursed D.R. Horton $14.4 million for health insurance and employee benefits, and $1.6 million for other corporate and administrative expenses.
Tax Sharing Agreement: Forestar reimbursed D.R. Horton $0.9 million in fiscal 2025 for state and local income, margin, or franchise tax expense.
Master Supply Agreement: Forestar supplies finished lots to D.R. Horton at market terms. D.R. Horton has a right of first offer for up to 100% of lots from D.R. Horton sourced projects and up to 50% of lots in Forestar sourced projects.
Residential lots sold to D.R. Horton: 11,751 lots for $1,277.6 million in revenue in fiscal 2025.
Tract sales and other revenues from D.R. Horton: $99.5 million in fiscal 2025, including a multifamily site (273 rental units) sold for $10.7 million.
Owned lots under contract to sell to D.R. Horton: 22,800 lots with a remaining sales price of $2.0 billion at September 30, 2025.
Owned lots subject to right of first offer with D.R. Horton: 17,600 lots at September 30, 2025.
Earnest money deposits from D.R. Horton for lots under contract: $179.7 million at September 30, 2025.
Reimbursed D.R. Horton for previously paid earnest money: $20.6 million in fiscal 2025.
Reimbursed D.R. Horton for pre-acquisition and other due diligence/development costs: $26.5 million in fiscal 2025.
Purchased $2.1 million of water rights from D.R. Horton in fiscal 2025.
Paid D.R. Horton $0.4 million for land development services in fiscal 2025.
Land held for future development primarily consisted of undeveloped land under contract to sell to D.R. Horton at carrying value plus additional consideration of 12% to 16% per annum.
Accrued expenses and other liabilities included $2.2 million owed to D.R. Horton at September 30, 2025.
Double R DevCo, LLC (R&R): In fiscal 2024, Forestar acquired a tract of residential real estate from R&R for $11.3 million. R&R is owned and controlled by Ryan Horton and Reagan Horton, adult sons of the late Donald R. Horton (former Chairman of D.R. Horton).

Stakeholder Impact

Shareholders: Experienced a decrease in net income and EPS, potentially impacting returns. D.R. Horton's controlling ownership limits the influence of other shareholders, and stock price volatility remains a risk. A derivative lawsuit alleging breach of fiduciary duty related to D.R. Horton transactions creates uncertainty.
Employees: The number of employees increased to 433, with total compensation and benefits costing $105.3 million. The company emphasizes recruitment, development, retention, competitive compensation, and benefits, including an Incentive Bonus Plan and ESPP.
Customers (Homebuilders): Lot sales volume decreased, but the average sales price increased. D.R. Horton remains a primary customer, but other builder customers may perceive favoritism due to the strategic relationship.
Suppliers/Subcontractors: Substantially all land development work is performed by subcontractors. Supply chain disruptions and labor market tightness can affect costs and timing of projects.
Creditors: Debt increased, but the company remains in compliance with all debt covenants and maintains low net leverage. New senior notes were issued, and older ones redeemed, indicating active debt management.
Regulatory Authorities: The company is subject to extensive regulations and potential litigation, such as the MDE lawsuit regarding stormwater compliance. Climate-related disclosure legislation could increase compliance costs.

Next Steps

Continue to evaluate alternatives for managing capital structure and liquidity profile.
Consider or prepare for the purchase or sale of debt securities, common stock, or a combination thereof.
Implement new interim period disclosures for ASU 2023-07 starting in the first quarter of fiscal 2026.
Evaluate the impact of ASU 2023-09 (effective fiscal 2026) and ASU 2024-03 (effective fiscal 2028) on financial statements and disclosures.
Resolve the derivative lawsuit filed on April 29, 2025, and the MDE lawsuit filed on September 6, 2024.
Continue to enhance practices and procedures related to stormwater compliance.
Purchase the majority of land and lots under contract within 3 years.
The $9.9 million note payable matures in December 2025.

Key Dates

Date	Description
April 30, 2020	Board of Directors authorized the repurchase of up to $30 million of debt securities.
October 2022	Board of Directors adopted the 2022 Employee Stock Purchase Plan (ESPP).
December 2023	Issued a non-recourse note payable of $9.9 million as part of a real estate acquisition.
January 2023	Shareholders approved the 2022 Employee Stock Purchase Plan (ESPP).
September 6, 2024	Maryland Department of Environment (MDE) filed suit against the company regarding alleged stormwater compliance issues.
September 2024	Filed an effective shelf registration statement with the SEC, registering $750 million of equity securities.
November 2024	Entered into an at-the-market equity offering program for $300 million under the shelf registration statement.
March 2025	Issued $500 million principal amount of 6.5% senior notes due March 15, 2033.
April 29, 2025	A verified stockholder filed a derivative complaint against D.R. Horton, the Executive Chairman, and certain directors.
July 1, 2025	Common Stock listing and trading commenced on the NYSE Texas.
July 4, 2025	The One Big Beautiful Bill Act was signed into law.
September 2025	Redeemed the remaining $70.6 million principal amount of 3.85% senior notes due 2026.
September 30, 2025	Fiscal year end for the annual report.
October 30, 2025	Exercised the accordion feature under the credit facility, increasing total commitments by $25 million to $665 million.
November 14, 2025	Date for outstanding common stock count.
November 19, 2025	Date of the Annual Report on Form 10-K.
December 2025	Maturity date for the $9.9 million other note payable.
March 1, 2026	Date on or after which 5.0% senior notes due 2028 can be redeemed at par.
Fiscal 2026	New interim period disclosures for ASU 2023-07 are required; ASU 2023-09 is effective for annual periods.
October 28, 2026	Maturity date for $65 million of the revolving credit facility commitments.
September 2027	Vesting date for Performance-Based Restricted Stock Unit Equity Awards granted in October 2024.
March 1, 2028	Maturity date for the $300 million principal amount of 5.0% senior notes.
March 15, 2028	Date prior to which up to 40% of 2033 notes can be redeemed with equity offering proceeds at 106.5%; also, date on or after which some or all 2033 notes can be redeemed at 103.25%.
December 18, 2029	Maturity date for $600 million of the revolving credit facility commitments.
March 15, 2030	Date on or after which 6.5% senior notes due 2033 can be redeemed at par through maturity.
March 15, 2033	Maturity date for the $500 million principal amount of 6.5% senior notes.
June 29, 2037	Master Supply Agreement with D.R. Horton continues until this date (unless D.R. Horton owns less than 15% of voting shares).
Fiscal 2028	ASU 2024-03 is effective for annual periods.
Fiscal 2029	ASU 2024-03 is effective for interim periods.

Recommendation

hold

While Forestar Group Inc. demonstrated revenue growth and expanded its lot position, the significant decline in net income and earnings per share for fiscal year 2025 is a concern. The increase in SG&A expenses and cash used in operating activities, alongside a rising net debt to total capital ratio, suggests operational inefficiencies or increased investment costs that are currently impacting profitability. The company's strong relationship with D.R. Horton provides a stable customer base and strategic advantages, but also introduces governance risks and potential conflicts of interest. The ongoing legal proceedings add a layer of uncertainty. Given the mixed financial performance, the cyclical nature of the industry, and the inherent risks, a 'hold' recommendation is appropriate. Investors should monitor the company's ability to improve profitability, manage costs, and navigate market conditions, particularly the impact of higher interest rates and inflation on housing affordability, before considering a stronger position.

Keywords

Residential lot development, Homebuilding, Land acquisition, D.R. Horton, Real estate, SEC filing, 10-K, Financial results, Corporate governance, Risk management, Capital markets, Debt, Liquidity, Market share, NYSE, FOR

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