DEF: Forestar Group: 2026 Proxy Statement & Fiscal 2025 Highlights

Forestar Group Inc. announces its 2026 Annual Meeting agenda, including director elections, executive compensation advisory vote, and auditor ratification, alongside solid fiscal 2025 operating and financial results.

Summary

• The 2026 Annual Meeting of Stockholders will be held on Monday, January 19, 2026, at 12:00 p.m. Central Time, at the corporate office in Arlington, Texas.
• Stockholders will vote on the election of seven directors, an advisory vote on executive compensation, and the ratification of Ernst & Young LLP as the independent registered public accounting firm for fiscal year 2026.
• Consolidated revenues for fiscal 2025 totaled $1.7 billion on 14,240 lots sold.
• Over the last five years (2021-2025), consolidated revenues increased nearly 80%, pre-tax income increased by more than 180%, diluted earnings per share increased 161%, and book value per share increased 92%.
• Net income for fiscal 2025 was $167.9 million, or $3.29 per diluted share, with pre-tax income of $219.3 million and a 13.2% pre-tax profit margin.
• At year-end September 30, 2025, liquidity totaled $968.1 million, consisting of $379.2 million in cash and cash equivalents and $588.9 million of availability on the revolving credit facility.
• The company has no senior note maturities until fiscal 2028.
• Return on equity for fiscal 2025 was 10.1%, and book value per diluted share increased 11% to $34.78.
• Forestar delivered 14,240 residential lots and expanded operations into seven new markets, now operating in 64 markets across 23 states.
• The company owned and controlled 99,800 lots at September 30, 2025, with 65,100 owned and 34,700 controlled through purchase contracts.
• Investment in land acquisition and development increased 8% over fiscal 2024 to $1.7 billion.
• The executive compensation program shifted to a more formulaic incentive-based approach for fiscal 2025, introducing performance-based restricted stock units (PSUs) and a cash incentive plan tied to pre-tax income.
• D.R. Horton, Inc. beneficially owned approximately 62% of Forestar's outstanding common stock as of September 30, 2025.

Sentiment

Score: 6

Explanation: The filing presents a mixed picture. While highlighting strong long-term growth and strategic expansion, fiscal 2025 saw year-over-year declines in key financial metrics like diluted EPS, net income, and stock price. The enhanced executive compensation structure and robust governance practices are positive, but the 'controlled company' status and significant related-party transactions with D.R. Horton introduce complexities. The overall sentiment is cautiously optimistic, acknowledging both strengths and recent performance dips.

Positives

• Achieved solid fiscal 2025 operating and financial results, including $1.7 billion in revenues and 14,240 lots sold.
• Demonstrated significant five-year growth with revenues up nearly 80%, pre-tax income up over 180%, diluted EPS up 161%, and book value per share up 92%.
• Maintained a strong pre-tax profit margin of 13.2% in fiscal 2025.
• Possesses robust liquidity of $968.1 million at year-end, with no senior note maturities until fiscal 2028, indicating financial stability.
• Generated a healthy Return on Equity of 10.1% and increased book value per diluted share by 11% to $34.78.
• Successfully diversified operations by entering seven new markets, now active in 64 markets across 23 states, which is expected to lower operational risks.
• Secured a substantial land pipeline with 99,800 owned and controlled lots, positioning for future growth.
• Increased investment in land acquisition and development by 8% to $1.7 billion, supporting platform expansion.
• Strengthened customer relationships by selling to 29 unique customers, with D.R. Horton utilizing Forestar lots for 15% of its home starts.
• Secured significant future revenue with 23,800 owned lots under contract to sell, projected to generate $2.1 billion.
• Enhanced executive compensation structure with new performance-based restricted stock units (PSUs) and a cash incentive plan tied to pre-tax income, aligning executive interests with shareholder value.
• The Board underwent refreshment in October 2024, adding two new independent directors, including one woman and one man.
• Stockholders showed strong support for the executive compensation program, with approximately 97% of votes cast in favor at the 2025 Annual Meeting.

Negatives

• Common stock price decreased by 17.8% from $32.37 in fiscal 2024 to $26.59 in fiscal 2025.
• Total equity market capitalization decreased by 17.5% from $1,640 million in fiscal 2024 to $1,352 million in fiscal 2025.
• Diluted earnings per common share decreased by 17.8% from $4.00 in fiscal 2024 to $3.29 in fiscal 2025.
• Net income decreased from $203.4 million in fiscal 2024 to $167.9 million in fiscal 2025.
• Pre-tax income decreased from $270.1 million in fiscal 2024 to $219.3 million in fiscal 2025.
• Return on equity decreased from 12.8% in fiscal 2024 to 10.1% in fiscal 2025.
• The company's status as a 'controlled company' by D.R. Horton means D.R. Horton's prior written consent is required for certain key actions, potentially limiting Forestar's independent strategic and financial flexibility.

Risks

• Environmental and climate-related risks could have an adverse impact on the company.
• Human capital risks, such as employee health and safety, are overseen by the Nominating and Governance Committee.
• Potential IT failures or data security incidents (cybersecurity risk) could adversely impact operations, despite oversight and mitigation efforts.
• Operational risks associated with local and regional economic cycles, although mitigated by geographic diversification, remain a factor.
• The 'controlled company' status and D.R. Horton's consent rights over certain strategic and financial decisions could pose challenges or limitations.
• Executive compensation tied to performance goals carries the risk of lower payouts if pre-established targets for relative TSR, Return on Inventory, and Market Share are not met.

Future Outlook

The company expects its unique, lower-risk business model to produce more consistent returns than other public and private land developers. Geographic diversification is anticipated to lower operational risks and enhance earnings potential by mitigating the effects of local and regional economic cycles. The 23,800 owned lots currently under contract to sell are expected to generate approximately $2.1 billion of future revenue. The Board has committed to holding annual advisory votes on executive compensation, with the next one scheduled for the 2027 Annual Meeting. For fiscal 2026, the company has approved slightly increased PTI Bonus percentages for executives and introduced book value per share as a new performance goal for the 2028 PSUs to further incentivize profitability and shareholder value growth.

Management Comments

• The Forestar team, led by our executive officers, delivered solid operating and financial results during fiscal 2025.
• Our results reflect the strength of our experienced operational teams, differentiated business model, broad geographic footprint and strong customer base.
• We believe our geographically diverse operations provide a strong platform for us to consolidate market share in the highly fragmented lot development industry.
• We also believe our geographic diversification lowers our operational risks and enhances our earnings potential by mitigating the effects of local and regional economic cycles.
• The Compensation Committee believes that these changes [to executive compensation] further strengthen the alignment of executive incentives with the interests of the Company's stockholders.
• The Compensation Committee chose to further incentivize these executive officers by including a maximum payout at two times the target amounts in the event that maximum performance is achieved on each of the three performance goals.
• The Compensation Committee added book value per share as a new performance goal for the 2028 PSUs in order to incentivize our NEOs to grow profitability and continue to build shareholder value.

Industry Context

Forestar Group operates in the fragmented residential lot development industry, aiming to consolidate market share through its unique, lower-risk business model. The company's strong relationship with D.R. Horton, its majority owner and a key customer, is a significant factor, with 15% of D.R. Horton's home starts utilizing Forestar-developed lots. This integration provides a stable demand channel within the broader homebuilding ecosystem. The company's strategy of geographic diversification across 64 markets in 23 states is a direct response to mitigate the effects of local and regional economic cycles common in the real estate sector.

Comparison to Industry Standards

• Executive compensation practices are benchmarked against a peer group selected for similarities in industry focus, market capitalization, and business models, including American Woodmark Corporation, Five Point Holdings, LLC, LGI Homes, Inc., Beazer Homes USA, Inc., Howard Hughes Holdings Inc., M/I Homes, Inc., Century Communities, Inc., JELD-WEN Holding, Inc., and MasterBrand, Inc.
• The company's business model is described as 'unique, lower-risk' and expected to produce 'more consistent returns' compared to other public and private land developers, implying a differentiation from broader industry standards in risk profile and return consistency.

Management Changes

Corporate Governance

Related Party Transactions

• D.R. Horton, Inc. beneficially owned approximately 61.8% of Forestar's common stock as of November 24, 2025.
• Master Supply Agreement: Forestar presents single-family residential lot development opportunities to D.R. Horton, and D.R. Horton has a right of first offer (ROFO) on up to 50% of lots in Company Sourced Developments and the right to purchase up to 100% of lots in D.R. Horton Sourced Developments at fair market price.
• Shared Services Agreement: Forestar paid D.R. Horton approximately $7.3 million for administrative, compliance, operational, and procurement services and $14.4 million for health insurance and other employee benefits in fiscal 2025.
• Tax Sharing Agreement: Forestar reimbursed D.R. Horton $0.9 million in fiscal 2025 for fiscal 2024 tax expense.
• Real Property Transactions: During fiscal 2025, Forestar sold 11,751 residential lots to D.R. Horton for approximately $1.3 billion and 414 residential tract acres for $91.2 million. Forestar also recognized $8.3 million in other revenues from D.R. Horton transactions.
• Reimbursements to D.R. Horton: In fiscal 2025, Forestar reimbursed D.R. Horton $20.6 million for earnest money and $26.5 million for pre-acquisition and other due diligence and development costs.
• Intercompany Balances: At September 30, 2025, Forestar owed $2.2 million to D.R. Horton for accrued and unpaid shared service charges, land purchase contract deposits, due diligence, and other intercompany transactions.
• Payments for Services/Assets: In fiscal 2025, Forestar paid D.R. Horton $0.4 million for land development services, $0.1 million to D.R. Horton's wholly-owned title company, $2.1 million for water rights, and $0.4 million for office space leases.
• Corporate Expense Reimbursement: Forestar reimbursed D.R. Horton $1.2 million for corporate and administrative expenses paid on behalf of the company in fiscal 2025.
• Lot Contracts: At September 30, 2025, approximately 22,800 owned residential lots were under contract to sell to D.R. Horton, and D.R. Horton had a right of first offer on approximately 17,600 owned residential lots.
• Earnest Money Deposits: At September 30, 2025, Forestar held approximately $179.7 million in earnest money deposits from D.R. Horton related to land and lot purchase contracts.
• Employment: Taylor Tomnitz, adult daughter of Executive Chairman Donald J. Tomnitz, is employed as a Marketing Associate and earned $111,001 in cash compensation in fiscal 2025, consistent with others in similar roles.

Stakeholder Impact

• **Shareholders**: Impacted by the year-over-year decline in stock price, EPS, and net income, despite strong long-term growth. The 'controlled company' status and D.R. Horton's influence on strategic decisions are significant. The shift to performance-based executive compensation aims to align management interests with shareholder value.
• **Employees**: The company increased its team size by 10% in fiscal 2025, with 90% of new hires in local market operations, indicating growth opportunities. Employees benefit from health and welfare plans, 401(k) matching contributions, and the Supplemental Executive Retirement Plan (SERP 2) for eligible executives. Mandatory cybersecurity training is provided.
• **Customers**: The company's expansion into new markets and diversification of its customer base (29 unique customers) benefits customers by offering a broader supply of residential lots. The strong relationship with D.R. Horton ensures a consistent supply for a major homebuilder.
• **Suppliers/Partners**: D.R. Horton is a critical partner, involved in numerous transactions including land sales, shared services, and development agreements, indicating a highly integrated operational relationship.
• **Creditors**: The company's strong liquidity position ($968.1 million) and absence of senior note maturities until fiscal 2028 provide comfort regarding its ability to meet financial obligations.

Next Steps

• Stockholders will vote on the election of seven directors at the 2026 Annual Meeting on January 19, 2026.
• Stockholders will cast an advisory vote on executive compensation at the 2026 Annual Meeting.
• Stockholders will vote on the ratification of Ernst & Young LLP as the independent registered public accounting firm for fiscal year 2026.
• The company will hold annual advisory votes on executive compensation, with the next one scheduled for the 2027 Annual Meeting.
• The 2028 Performance Stock Units (PSUs) will vest based on performance over a three-year period from October 1, 2025, through September 30, 2028.

Key Dates

Recommendation

While Forestar Group demonstrates strong long-term growth and a robust strategic position within the fragmented residential lot development industry, the year-over-year decline in key profitability metrics (net income, EPS, pre-tax income) and stock price for fiscal 2025 is a concern. The company's 'controlled company' status and extensive related-party transactions with D.R. Horton present both stability and potential limitations on independent action. The shift to more performance-based executive compensation is a positive governance step. Given the mixed short-term financial performance against a backdrop of solid long-term strategy and significant D.R. Horton influence, a 'hold' recommendation is appropriate for investors to monitor the execution of its growth strategy and the impact of market conditions on its profitability.

Keywords

Residential lot development, Homebuilding, Real estate, Proxy statement, Corporate governance, Executive compensation, D.R. Horton, Land acquisition, Financial performance, Stock awards, Risk management, Shareholder value, SEC filing