Forestar Group Inc. Reports Second Quarter 2010 Results

Forestar Group Inc. (NYSE: FOR) today reported a second quarter 2010 net loss of approximately ($3.3) million, or ($0.09) per basic share, compared with second quarter 2009 net income of $50.9 million, or $1.41 per diluted share outstanding. Second quarter 2009 results include a gain of $1.37 per diluted share, after-tax, from the sale of about 75,000 acres of timberland in Georgia and Alabama for approximately $120 million.

"Our second quarter results reflect current market conditions across our businesses,” said Jim DeCosmo, president and chief executive officer of Forestar Group. "Demand for residential lots and commercial tracts have been impacted principally from low consumer confidence, high levels of unemployment, reduced capital availability, and uncertainty regarding the future of the economy. Mineral leasing activity was affected by exploration and production companies concentrating their efforts on drilling wells to hold existing mineral leases and prove reserves, rather than investing in new mineral interests.

"Despite challenging market conditions, we firmly believe that our business is well positioned in many of the healthiest markets, and poised to benefit from improving economic conditions and positive long-term demographic trends,” concluded Mr. DeCosmo.

Forestar Group manages its operations through three business segments:

• Real estate,
• Mineral resources, and
• Fiber resources

At the end of second quarter 2010, our real estate segment includes over 247,000 acres of land owned directly or through ventures located in nine states and twelve markets. Mineral resources include approximately 620,000 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 Also included in the mineral resources segment is a 45% nonparticipating royalty interest in groundwater produced or withdrawn for commercial purposes from approximately 1.4 million acres in Texas, Louisiana, Georgia and Alabama. Fiber resources include the sale of wood fiber and management of our recreational leases.

REAL ESTATE

Second quarter 2010 real estate segment earnings include the sale of approximately 700 acres of land in the entitlement process for almost $8,200 per acre near Atlanta, Georgia.

During second quarter 2010, a joint-venture project located near Houston, Texas received entitlements, which is planned to include up to 1,722 residential lots and 72 commercial acres.

MINERAL RESOURCES

Second quarter 2010 mineral resources segment earnings were impacted by reduced mineral leasing activity. Since year-end 2009, exploration and production companies operating in our basins have concentrated their efforts on drilling wells to hold existing mineral leases and prove reserves.

First quarter 2010 mineral resources segment earnings include approximately $3.2 million in lease bonus revenues associated with leasing over 2,100 net mineral acres for $1,495 per acre.

FIBER RESOURCES

During second quarter 2010 Forestar generated approximately $1.5 million from the sale of over 119,000 tons of fiber, the majority of which was sold to Temple-Inland Inc. at market prices. Sales of fiber in second quarter 2010 were impacted by the sale of over 110,000 acres of timberland in 2009 associated with our near-term strategic initiatives and retail land sales program and postponing harvest plans on approximately 74,000 acres currently held for sale.

SUMMARY

"Market conditions remain challenging for our business. Demand for our real estate has been impacted by a lack of consumer confidence, high unemployment, reduced credit availability and concerns over the economy, despite mortgage rates at historic lows and improved housing affordability. However, several Texas markets are now reporting positive job growth in second quarter 2010, a fundamental driver of long-term housing demand. Forestar is well positioned to maximize and grow long-term shareholder value through the execution of our strategy and improving market conditions,” concluded Mr. DeCosmo.

The Company will host a conference call on August 4, 2010 at 10:00 am EDT to discuss results of second quarter 2010. 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 1-866-730-5769 at least 15 minutes prior to the start of the meeting. Those wishing to access the call from outside North America should dial 1-857-350-1593. 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 64750709.

About Forestar Group

Forestar Group Inc. operates in three business segments: real estate, mineral resources and fiber resources. The real estate segment owns directly or through ventures over 247,000 acres of real estate located in nine states and twelve markets in the U.S. The real estate segment has 18 real estate projects representing over 29,600 acres currently in the entitlement process, and 75 entitled, developed and under development projects in seven states and eleven markets encompassing over 16,800 acres, comprised of over 29,300 residential lots and almost 2,600 commercial acres. The mineral resources segment manages about 620,000 net acres of oil and gas mineral interests. The fiber resources segment includes the sale of wood fiber and management of our recreational leases. The company also has 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. Forestar’s address on the World Wide Web is www.forestargroup.com.

Forward-looking Statements

This release contains "forward-looking statements” within the meaning of the federal securities laws. These statements reflect management’s current views with respect to future events and are subject to risk and uncertainties. We note that a variety of factors and uncertainties could cause our actual results to differ significantly from the results discussed in the forward-looking statements. Factors and uncertainties that might cause such differences include, but are not limited to: general economic, market, or business conditions; the opportunities (or lack thereof) that may be presented to us and that we may pursue; fluctuations in costs and expenses including development costs; demand for new housing, including impacts from mortgage credit availability; lengthy and uncertain entitlement processes; cyclicality of our businesses; accuracy of accounting assumptions; competitive actions by other companies; changes in laws or regulations; and other factors, many of which are beyond our control. Except as required by law, we expressly disclaim any obligation to publicly revise any forward-looking statements contained in this news release to reflect the occurrence of events after the date of this news release.

(a) First six months 2009 general and administrative costs include approximately $3.2 million paid to outside advisors regarding an evaluation by our Board of Directors of an unsolicited shareholder proposal.

(b) Consists principally of consolidated venture non-recourse debt.

* In addition, Forestar owns a 58% interest in a venture which controls approximately 16,000 acres of undeveloped land in Georgia with minimal investment.

¹ Includes 100% of venture activity. Venture natural gas production activity is 362 MMcf and 415 MMcf in second quarter and first six months 2010, and 12 MMcf and 39 MMcf in second quarter and first six months 2009. Forestar owns a 50% interest in this venture.

² MMcfe - Million Cubic Feet Equivalent (converting oil to natural gas at 6 Mcfe / Bbl)

³ Wells are owned and operated by third-party lessees / operators

Forestar’s mineral resources segment includes approximately 620,000 net mineral acres principally located in Texas, Louisiana, Alabama and Georgia.

¹ Includes ventures

² Excludes 463 net mineral acres located in Colorado

*The majority of our fiber sales were to Temple-Inland Inc. at market prices.

(a) A project is deemed to be in the entitlement process when customary steps necessary for the preparation of an application for governmental land-use approvals, like conducting pre-application meetings or similar discussions with governmental officials, have commenced, or an application has been filed. Projects listed may have significant steps remaining, and there is no assurance that entitlements ultimately will be received.

(b) Project acres, which are the total for the project regardless of our ownership interest, are approximate. The actual number of acres entitled may vary.

^(a) A project is deemed entitled when all major discretionary governmental land-use approvals have been received. Some projects may require additional permits and/or non-governmental authorizations for development.

^(b) Interest owned reflects our net equity interest in the project, whether owned directly or indirectly. There are some projects that have multiple ownership structures within them. Accordingly, portions of these projects may appear as owned, consolidated and/or accounted for using the equity method.

^(c) Lots are for the total project, regardless of our ownership interest. Lots remaining represent vacant developed lots, lots under development and future planned lots and are subject to change based on business plan revisions.

^(d) Commercial acres are for the total project, regardless of our ownership interest and are net developable acres, which may be fewer than the gross acres available in the project.

^(e) The Lantana project consists of a series of 15 partnerships in which our voting interests range from 25% to 55%. We account for three of these partnerships using the equity method and we consolidate the remaining partnerships.

A summary of our significant commercial and income producing properties at second quarter-end 2010 follows: