FORESTAR GROUP INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, 2026 September 30, 2025
(In millions, except share data)
ASSETS
Cash and cash equivalents $ 394.9 $ 379.2
Real estate 2,711.5 2,645.1
Property and equipment, net 7.3 8.1
Other assets 106.9 104.6
Total assets $ 3,220.6 $ 3,137.0
LIABILITIES
Accounts payable $ 65.3 $ 71.0
Accrued development costs 120.1 131.8
Earnest money on sales contracts 202.2 193.3
Deferred tax liability, net 92.8 86.2
Accrued expenses and other liabilities 88.6 83.1
Debt 793.8 802.7
Total liabilities 1,362.8 1,368.1
Commitments and contingencies (Note 11)
EQUITY
Common stock, par value $1.00 per share, 200,000,000 authorized shares,51,008,733 and 50,833,171 shares issued and outstandingat June 30, 2026 and September 30, 2025, respectively 51.0 50.8
Additional paid-in capital 676.1 671.0
Retained earnings 1,129.5 1,046.1
Stockholders' equity 1,856.6 1,767.9
Noncontrolling interests 1.2 1.0
Total equity 1,857.8 1,768.9
Total liabilities and equity $ 3,220.6 $ 3,137.0
See accompanying notes to consolidated financial statements.
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FORESTAR GROUP INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended June 30, Nine Months Ended June 30,
2026 2025 2026 2025
(In millions, except per share amounts)
Revenues $ 407.0 $ 390.5 $ 1,054.3 $ 991.9
Cost of sales 322.9 310.8 835.0 778.0
Selling, general and administrative expense 38.3 37.4 112.6 111.8
Equity in earnings of unconsolidated ventures — — — (0.6)
Interest and other income (2.9) (1.3) (6.8) (4.6)
Loss on extinguishment of debt — — — 1.1
Income before income taxes 48.7 43.6 113.5 106.2
Income tax expense 12.7 10.7 29.8 25.2
Net income 36.0 32.9 83.7 81.0
Net income attributable to noncontrolling interests 0.1 — 0.2 —
Net income attributable to Forestar Group Inc. $ 35.9 $ 32.9 $ 83.5 $ 81.0
Basic net income per common share $ 0.70 $ 0.65 $ 1.63 $ 1.59
Weighted average number of common shares 51.1 50.9 51.0 50.8
Diluted net income per common share $ 0.70 $ 0.65 $ 1.63 $ 1.59
Adjusted weighted average number of common shares 51.3 51.0 51.2 51.0
See accompanying notes to consolidated financial statements.
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FORESTAR GROUP INC.
CONSOLIDATED STATEMENTS OF TOTAL EQUITY
(Unaudited)
Common Stock Additional Paid-in Capital Retained Earnings Non-controlling Interests Total Equity
(In millions, except share amounts)
Balances at September 30, 2025 (50,833,171 shares) $ 50.8 $ 671.0 $ 1,046.1 $ 1.0 $ 1,768.9
Net income — — 15.4 — 15.4
Stock issued under employee benefit plans (52,154 shares) 0.1 — — — 0.1
Cash paid for shares withheld for taxes — (0.5) — — (0.5)
Stock-based compensation expense — 3.1 — — 3.1
Balances at December 31, 2025 (50,885,325 shares) $ 50.9 $ 673.6 $ 1,061.5 $ 1.0 $ 1,787.0
Net income — — 32.1 0.1 32.2
Stock issued under employee benefit plans (123,408 shares) 0.1 0.2 — — 0.3
Cash paid for shares withheld for taxes — (1.5) — — (1.5)
Stock-based compensation expense — 1.9 — — 1.9
Balances at March 31, 2026 (51,008,733 shares) $ 51.0 $ 674.2 $ 1,093.6 $ 1.1 $ 1,819.9
Net income — — 35.9 0.1 36.0
Stock-based compensation expense — 1.9 — — 1.9
Balances at June 30, 2026 (51,008,733 shares) $ 51.0 $ 676.1 $ 1,129.5 $ 1.2 $ 1,857.8
Common Stock Additional Paid-in Capital Retained Earnings Non-controlling Interests Total Equity
(In millions, except share amounts)
Balances at September 30, 2024 (50,653,637 shares) $ 50.7 $ 665.2 $ 878.2 $ 1.0 $ 1,595.1
Net income — — 16.5 — 16.5
Stock issued under employee benefit plans (16,309 shares) — — — — —
Cash paid for shares withheld for taxes — (0.1) — — (0.1)
Stock-based compensation expense — 2.6 — — 2.6
Balances at December 31, 2024 (50,669,946 shares) $ 50.7 $ 667.7 $ 894.7 $ 1.0 $ 1,614.1
Net income — — 31.6 — 31.6
Stock issued under employee benefit plans (153,854 shares) 0.1 — — — 0.1
Cash paid for shares withheld for taxes — (1.6) — — (1.6)
Stock-based compensation expense — 1.7 — — 1.7
Balances at March 31, 2025 (50,823,800 shares) $ 50.8 $ 667.8 $ 926.3 $ 1.0 $ 1,645.9
Net income — — 32.9 — 32.9
Stock-based compensation expense — 1.5 — — 1.5
Balances at June 30, 2025 (50,823,800 shares) $ 50.8 $ 669.3 $ 959.2 $ 1.0 $ 1,680.3
See accompanying notes to consolidated financial statements.
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FORESTAR GROUP INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended June 30,
2026 2025
(In millions)
OPERATING ACTIVITIES
Net income $ 83.7 $ 81.0
Adjustments:
Depreciation and amortization 2.3 2.6
Deferred income taxes 6.6 10.4
Equity in earnings of unconsolidated ventures — (0.6)
Stock-based compensation expense 6.9 5.8
Impairments and land option charges 8.0 3.9
Loss on extinguishment of debt — 1.1
Changes in operating assets and liabilities:
Increase in real estate (69.3) (561.0)
Decrease (increase) in other assets 4.7 (15.4)
Decrease in accounts payable and other accrued liabilities (12.5) (23.6)
Decrease in accrued development costs (11.7) (15.5)
Increase in earnest money deposits on sales contracts 8.9 57.3
Net cash provided by (used in) operating activities 27.6 (454.0)
INVESTING ACTIVITIES
Expenditures for property, equipment, software and other (0.3) (1.5)
Return of investment in unconsolidated ventures — 0.9
Net cash used in investing activities (0.3) (0.6)
FINANCING ACTIVITIES
Additions to debt — 780.0
Repayment of debt (9.9) (609.4)
Deferred financing fees — (6.3)
Stock issued under employee benefit plans 0.3 —
Cash paid for shares withheld for taxes (2.0) (1.7)
Net cash (used in) provided by financing activities (11.6) 162.6
Increase (decrease) in cash and cash equivalents 15.7 (292.0)
Cash and cash equivalents at beginning of period 379.2 481.2
Cash and cash equivalents at end of period $ 394.9 $ 189.2
See accompanying notes to consolidated financial statements.
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FORESTAR GROUP INC.
Notes to Consolidated Financial Statements
(Unaudited)
Note 1 — Basis of Presentation
The accompanying unaudited consolidated financial statements include the accounts of Forestar Group Inc. ("Forestar") and all of its 100% owned, majority-owned and controlled subsidiaries, which are collectively referred to as the Company unless the context otherwise requires. The Company accounts for its investment in other entities in which it has significant influence over operations and financial policies using the equity method. All intercompany accounts, transactions and balances have been eliminated in consolidation. Noncontrolling interests in consolidated pass-through entities are recognized before income taxes. The transactions included in net income in the consolidated statements of operations are the same as those that would be presented in comprehensive income. Thus, the Company's net income equates to comprehensive income.
The financial statements have been prepared in accordance with U.S. Generally Accepted Accounting Principles ("GAAP") for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. In the opinion of management, these financial statements reflect all adjustments considered necessary to fairly state the results for the interim periods shown, including normal recurring accruals and other items. These financial statements, including the consolidated balance sheet as of September 30, 2025, which was derived from audited financial statements, do not include all of the information and notes required by GAAP for complete financial statements, and should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company’s annual report on Form 10-K for the fiscal year ended September 30, 2025.
In October 2017, Forestar became a majority-owned subsidiary of D.R. Horton, Inc. ("D.R. Horton") by virtue of a merger with a wholly-owned subsidiary of D.R. Horton. Immediately following the merger, D.R. Horton owned 75% of the Company's outstanding common stock. In connection with the merger, the Company entered into certain agreements with D.R. Horton, including a Stockholder’s Agreement, a Master Supply Agreement and a Shared Services Agreement. D.R. Horton is considered a related party of Forestar under GAAP. As of June 30, 2026, D.R. Horton owned approximately 62% of the Company's outstanding common stock.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from those estimates.
Seasonality
Although the growth of the Company's business and significant changes in market conditions have impacted its seasonal patterns in the past and could do so again in the future, the Company generally delivers more lots and generates greater revenues and pre-tax income in the fourth quarter of its fiscal year. As a result of seasonal activity, the Company's quarterly results of operations and financial position at the end of a particular fiscal quarter are not necessarily representative of the balance of its fiscal year.
Recent Accounting Pronouncements
In December 2023, the Financial Accounting Standards Board (FASB) issued ASU 2023-09, "Income Taxes Improvements to Income Tax Disclosures," which requires disclosure of disaggregated income taxes paid, prescribes standard categories for the components of the effective tax rate reconciliation and modifies other income tax related disclosures. The standard became effective for the Company’s annual periods beginning in fiscal 2026. The standard will impact certain of the Company's income tax disclosures but will not impact its consolidated financial statements.
In November 2024, the FASB issued ASU 2024-03, "Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures," which requires disclosure of certain costs and expenses on an interim and annual basis in the notes to the financial statements. The standard is effective for the Company's annual periods beginning in fiscal 2028 and interim periods beginning in the first quarter of fiscal 2029, with early adoption permitted. The Company is currently evaluating the impact this standard will have on its disclosures.
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Note 2 — Segment Information
The Company manages its operations through its real estate segment, which is its only operating and reporting segment. The real estate segment is the Company's core business and generates substantially all of its revenues. The real estate segment primarily acquires land and installs infrastructure for single-family residential communities, and its revenues generally come from sales of residential single-family finished lots to local, regional and national homebuilders. The Company has other business activities for which the related assets and operating results are immaterial and therefore are included within the Company's real estate segment.
The Company's Executive Chairman of the Board, the Chief Executive Officer, the Chief Operating Officer, and the Chief Financial Officer are its chief operating decision makers (CODM). The CODM use income before income taxes as reported on the Consolidated Statements of Operations as the primary measure to allocate capital resources and assess the operating performance of the real estate segment. The CODM analyze income before income taxes at least quarterly to review comparative period variances and to monitor performance, identify trends, and guide strategic and operational decisions. There are no significant segment operating expenses that are reviewed by the CODM other than those included in the expense categories reported on the Company’s consolidated statements of operations.
All revenues and real estate assets are attributable to operations in the United States. Segment assets that are reported as total assets and capital expenditures are reviewed by the CODM and are presented on the consolidated balance sheets and consolidated statements of cash flows, respectively. For the three and nine months ended June 30, 2026 and 2025, transactions with D.R. Horton accounted for more than 10% of the Company's total revenues. D.R. Horton is a related party and additional information regarding transactions with D.R. Horton is disclosed in Note 12 - Related Party Transactions.
Note 3 — Real Estate
Real estate consists of:
June 30, 2026 September 30, 2025
(In millions)
Developed and under development projects $ 2,557.5 $ 2,465.1
Land held for future development 154.0 180.0
$ 2,711.5 $ 2,645.1
In the nine months ended June 30, 2026, the Company invested $214.8 million for the acquisition of residential real estate and $791.2 million for the development of residential real estate. At June 30, 2026 and September 30, 2025, land held for future development primarily consisted of undeveloped land which the Company has under contract to sell to D.R. Horton at a sales price equal to the carrying value of the land at the time of sale plus additional consideration of 12% to 16% per annum.
Each quarter, the Company reviews the performance and outlook for all of its real estate for indicators of potential impairment and performs detailed impairment evaluations and analyses when necessary. As a result of this process, no impairment charges were recorded for either period presented in the consolidated statements of operations.
In the three and nine months ended June 30, 2026 and 2025, land purchase contract deposit and pre-acquisition cost write-offs related to land purchase contracts that the Company has terminated or expects to terminate were $0.8 million and $8.0 million, respectively, compared to $1.9 million and $3.9 million in the prior year periods. These land option charges are included in cost of sales in the consolidated statements of operations.
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Note 4 — Revenues
Revenues consist of:
Three Months Ended June 30, Nine Months Ended June 30,
2026 2025 2026 2025
(In millions)
Residential lot sales $ 397.4 $ 383.0 $ 963.9 $ 977.3
Tract sales and other 9.6 7.5 90.4 14.6
$ 407.0 $ 390.5 $ 1,054.3 $ 991.9
Note 5 — Capitalized Interest
The Company capitalizes interest costs to real estate throughout the development period (active real estate). Capitalized interest is charged to cost of sales as the related real estate is sold. During periods in which the Company’s active real estate is lower than its debt level, a portion of the interest incurred is reflected as interest expense in the period incurred. In the first nine months of fiscal 2026 and fiscal 2025, the Company’s active real estate exceeded its debt level, and all interest incurred was capitalized to real estate.
The following table summarizes the Company’s interest costs incurred, capitalized and expensed in the three and nine months ended June 30, 2026 and 2025.
Three Months Ended June 30, Nine Months Ended June 30,
2026 2025 2026 2025
(In millions)
Capitalized interest, beginning of period $ 91.5 $ 71.9 $ 77.8 $ 63.0
Interest incurred 12.4 13.4 37.4 32.3
Interest charged to cost of sales (7.4) (7.0) (18.7) (17.0)
Capitalized interest, end of period $ 96.5 $ 78.3 $ 96.5 $ 78.3
Note 6 — Other Assets, Accrued Expenses and Other Liabilities
The Company's other assets at June 30, 2026 and September 30, 2025 were as follows:
June 30, 2026 September 30, 2025
(In millions)
Receivables, net $ 18.2 $ 20.2
Lease right of use assets 15.4 13.7
Prepaid expenses 14.3 17.5
Land purchase contract deposits 33.7 34.5
Income taxes receivable — 1.4
Pledged reimbursements asset 22.4 14.0
Other assets 2.9 3.3
$ 106.9 $ 104.6
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The Company's accrued expenses and other liabilities at June 30, 2026 and September 30, 2025 were as follows:
June 30, 2026 September 30, 2025
(In millions)
Accrued employee compensation and benefits $ 9.0 $ 16.9
Accrued property taxes 5.9 6.2
Lease liabilities 16.4 14.4
Accrued interest 14.4 2.5
Contract liabilities 4.5 0.7
Deferred income 4.1 4.1
Income taxes payable 3.2 11.9
Other accrued expenses 5.0 4.3
Pledged reimbursements liability 22.4 14.0
Other liabilities 3.7 8.1
$ 88.6 $ 83.1
Note 7 — Debt
The Company's notes payable at their carrying amounts consist of the following:
June 30, 2026 September 30, 2025
(In millions)
Unsecured:
Revolving credit facility $ — $ —
5.0% senior notes due 2028 (1) 299.1 298.7
6.5% senior notes due 2033 (1) 494.7 494.1
Other note payable — 9.9
$ 793.8 $ 802.7
______________
(1)Unamortized debt issuance costs that were deducted from the carrying amounts of the senior notes totaled $6.2 million and $7.2 million at June 30, 2026 and September 30, 2025, respectively.
Bank Credit Facility
The Company has a $715 million senior unsecured revolving credit facility with an uncommitted accordion feature that could increase the size of the facility to $1 billion, subject to certain conditions and availability of additional bank commitments. The current capacity of the facility reflects additional bank commitments of $25 million and $50 million obtained in October 2025 and March 2026, respectively. Of the total commitments, $650 million matures on December 18, 2029 and $65 million matures on October 28, 2026. The facility also provides for the issuance of letters of credit with a sublimit equal to the greater of $100 million and 50% of the total revolving credit commitments. Borrowings under the revolving credit facility are subject to a borrowing base calculation based on the book value of the Company's real estate assets and unrestricted cash. Letters of credit issued under the facility reduce the available borrowing capacity. At June 30, 2026, there were no borrowings outstanding and $45.1 million of letters of credit issued under the revolving credit facility, resulting in available capacity of $669.9 million.
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The revolving credit facility is guaranteed by the Company’s wholly-owned subsidiaries that are not immaterial subsidiaries and have not been designated as unrestricted subsidiaries. The revolving credit facility includes customary affirmative and negative covenants, events of default and financial covenants. The financial covenants require a minimum level of tangible net worth, a minimum level of liquidity and a maximum allowable leverage ratio. These covenants are measured as defined in the credit agreement governing the facility and are reported to the lenders quarterly. A failure to comply with these financial covenants could allow the lending banks to terminate the availability of funds under the revolving credit facility or cause any outstanding borrowings to become due and payable prior to maturity. At June 30, 2026, the Company was in compliance with all of the covenants, limitations and restrictions of its revolving credit facility.
Senior Notes
The Company has outstanding senior notes as described below that were issued pursuant to Rule 144A and Regulation S under the Securities Act of 1933, as amended (the "Securities Act"). The notes represent senior unsecured obligations that rank equally in right of payment to all existing and future senior unsecured indebtedness and may be redeemed prior to maturity, subject to certain limitations and premiums defined in the indenture agreements. The notes are guaranteed by each of the Company's subsidiaries to the extent such subsidiaries guarantee the Company's revolving credit facility.
The Company's $300 million principal amount of 5.0% senior notes (the "2028 notes") mature March 1, 2028 with interest payable semiannually. The 2028 notes can be redeemed at par after March 1, 2026 through maturity. The annual effective interest rate of the 2028 notes after giving effect to the amortization of financing costs is 5.2%.
The Company's $500 million principal amount of 6.5% senior notes (the "2033 notes") mature March 15, 2033, with interest payable semiannually. At any time prior to March 15, 2028, the Company may, on one or more occasions, redeem up to 40% of the aggregate principal amount of the 2033 notes with the net cash proceeds from certain equity offerings at a redemption price of 106.5% of the principal amount of the 2033 notes being redeemed. At any time prior to March 15, 2028, the Company may redeem some or all of the 2033 notes at a redemption price of 100% of the principal amount thereof plus a specified “make whole” premium described in the indenture. The Company also has the option, at any time on or after March 15, 2028 to redeem some or all of the 2033 notes at 103.25% of their principal amount plus any accrued and unpaid interest. In accordance with the indenture, the redemption price decreases annually thereafter and the 2033 notes can be redeemed at par on or after March 15, 2030 through maturity. The annual effective interest rate of the 2033 notes after giving effect to the amortization of financing costs is 6.7%.
The indentures governing the senior notes require that, upon the occurrence of both a change of control and a rating decline (as defined in each indenture), the Company offer to purchase the applicable series of notes at 101% of their principal amount, plus accrued and unpaid interest. Under the indenture governing the 2028 notes, if the Company or its restricted subsidiaries dispose of assets, under certain circumstances, the Company will be required to either invest the net cash proceeds from such asset sales in its business within a specified period of time, repay certain senior secured debt or debt of its non-guarantor subsidiaries, or make an offer to purchase a principal amount of such notes equal to the excess net cash proceeds at a purchase price of 100% of their principal amount.
The indenture governing the 2028 notes contains covenants that, among other things, restrict the ability of the Company and its restricted subsidiaries to pay dividends or distributions, repurchase equity, prepay subordinated debt and make certain investments; incur additional debt or issue mandatorily redeemable equity; incur liens on assets; merge or consolidate with another company or sell or otherwise dispose of all or substantially all of the assets of the Company and its restricted subsidiaries (taken as a whole); enter into transactions with affiliates; and allow to exist certain restrictions on the ability of subsidiaries to pay dividends or make other payments. The indenture governing the 2033 notes contains certain covenants that, among other things, restrict the ability of the Company and its restricted subsidiaries to create certain liens on assets; engage in certain sale and leaseback transactions; and merge or consolidate with another company or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of the assets of the Company and its restricted subsidiaries (taken as a whole). At June 30, 2026, the Company was in compliance with all of the limitations and restrictions associated with its senior note obligations.
Effective April 30, 2020, the Board of Directors authorized the repurchase of up to $30 million of the Company’s debt securities. The authorization has no expiration date. All of the $30 million authorization was remaining at June 30, 2026.
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Other Note Payable
In December 2025, the Company repaid the $9.9 million principal amount of a note payable that was issued as part of a transaction to acquire real estate for development. The note was non-recourse, was secured by the underlying real estate, and accrued interest at 4.0% per annum.
Note 8 — Earnings per Share
The computations of basic and diluted earnings per share are as follows:
Three Months Ended June 30, Nine Months Ended June 30,
2026 2025 2026 2025
(In millions, except share and per share amounts)
Numerator:
Net income attributable to Forestar Group Inc. $ 35.9 $ 32.9 $ 83.5 $ 81.0
Denominator:
Weighted average common shares outstanding — basic 51,110,896 50,931,777 51,036,627 50,849,223
Dilutive effect of stock-based compensation 139,797 73,353 177,299 196,702
Total weighted average shares outstanding — diluted 51,250,693 51,005,130 51,213,926 51,045,925
Basic net income per common share $ 0.70 $ 0.65 $ 1.63 $ 1.59
Diluted net income per common share $ 0.70 $ 0.65 $ 1.63 $ 1.59
Note 9 — Income Taxes
The Company’s income tax expense for the three and nine months ended June 30, 2026 was $12.7 million and $29.8 million compared to $10.7 million and $25.2 million in the prior year periods. The effective tax rate was 26.1% and 26.3% for the three and nine months ended June 30, 2026 compared to 24.5% and 23.7% in the prior year periods. The effective tax rate for all periods included an expense for state income taxes and nondeductible expenses and a benefit for nontaxable income. The effective tax rate for the nine months ended June 30, 2026 and the three and nine months ended June 30, 2025 also included a benefit for stock-based compensation.
At June 30, 2026, the Company had deferred tax liabilities, net of deferred tax assets, of $92.2 million. The deferred tax assets were partially offset by a valuation allowance of $0.6 million, resulting in a net deferred tax liability of $92.8 million. At September 30, 2025, deferred tax liabilities, net of deferred tax assets, were $85.6 million. The deferred tax assets were partially offset by a valuation allowance of $0.6 million, resulting in a net deferred tax liability of $86.2 million. The valuation allowance for both periods was recorded because it is more likely than not that a portion of the Company's state deferred tax assets, primarily net operating loss (NOL) carryforwards, will not be realized because the Company is no longer operating in some states or the NOL carryforward periods are too brief to realize the related deferred tax asset. The Company will continue to evaluate both the positive and negative evidence in determining the need for a valuation allowance on its deferred tax assets. Any reversal of the valuation allowance in future periods will impact the effective tax rate.
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Note 10 — Stockholders' Equity and Stock-Based Compensation
Stockholders' Equity
The Company has an effective shelf registration statement, filed with the Securities and Exchange Commission in September 2024, registering $750 million of equity securities, of which $300 million is reserved for sales under the at-the-market equity offering program that the Company entered into in November 2024. During the three and nine months ended June 30, 2026, the Company did not issue any shares under its at-the-market equity offering program. At June 30, 2026, the full $750 million remained available for issuance under the Company's shelf registration statement, with $300 million reserved for sales under the at-the-market equity offering program.
Stock-Based Compensation
The Company’s Stock Incentive Plan provides for the granting of equity awards, such as performance stock units (PSUs) and restricted stock units (RSUs), to executive officers, other key employees and non-management directors. PSUs are earned by achieving key performance criteria and RSUs are earned through continued employment with the Company over a requisite time period. Each stock unit represents the contingent right to receive one share of the Company’s common stock if the performance criteria and/or vesting conditions are satisfied. The stock units have no dividend or voting rights until vested.
In October 2025, the Company granted 114,565 PSUs to its executive officers. The number of units that ultimately vest depends on the achievement of four performance criteria which are (i) relative total stockholder return, (ii) return on inventory, (iii) market share goals, and (iv) book value per share, and can range from 0% to 200% of the number of units granted. The four performance criteria are weighted equally. These awards vest at the end of a three year performance period ending September 30, 2028. The grant date fair value of these equity awards was $27.94 per unit. Compensation expense related to this grant was $0.3 million and $0.8 million in the three and nine months ended June 30, 2026, respectively, based on an estimate of the Company’s achievement of the four performance criteria, the elapsed portion of the performance period and the grant date fair value of the award.
In the nine months ended June 30, 2026, a total of 321,285 RSUs were granted. The weighted average grant date fair value of these equity awards was $27.07 per unit, and they vest annually in equal installments over periods of three to five years. Compensation expense related to this grant was $0.4 million and $2.2 million in the three and nine months ended June 30, 2026, respectively. Stock-based compensation expense in the nine months ended June 30, 2026 included $1.1 million of expense recognized for employees that were retirement eligible on the date of the grant.
Total stock-based compensation expense related to the Company's equity awards for the three and nine months ended June 30, 2026 was $1.9 million and $6.9 million, respectively, compared to $1.5 million and $5.8 million in the prior year periods.
Note 11 — Commitments and Contingencies
Contractual Obligations and Off-Balance Sheet Arrangements
In support of the Company's residential lot development business, it issues letters of credit under the revolving credit facility and has a surety bond program that provides financial assurance to beneficiaries related to the execution and performance of certain development obligations. At June 30, 2026, the Company had outstanding letters of credit of $45.1 million under the revolving credit facility and surety bonds of $874.3 million issued by third parties to secure performance under various contracts. The Company expects that its performance obligations secured by these letters of credit and bonds will generally be completed in the ordinary course of business and in accordance with the applicable contractual terms. When the Company completes its performance obligations, the related letters of credit and bonds are generally released shortly thereafter, leaving the Company with no continuing obligations. The Company has no material third-party guarantees.
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Litigation
On April 29, 2025, a verified stockholder of the Company filed a derivative complaint in the Delaware Court of Chancery, on behalf of the Company, against D.R. Horton, Inc., the Company’s Executive Chairman and certain of the Company’s directors. The complaint, which is captioned Mississippi Public Employees’ Retirement System v. D.R. Horton, Inc., C.A. No. 2025-0465-MTZ, asserts claims for breach of fiduciary duty arising out of lot sale transactions between the Company and D.R. Horton. The complaint seeks judgment awarding the Company damages against the defendants and awarding the plaintiff the costs and disbursements of the action, including reasonable attorneys and experts fees.
The Company disputes the allegations of wrongdoing in this matter. Nevertheless, the outcome of this lawsuit is uncertain and cannot be predicted with any certainty. Accordingly, at this time, the Company is not able to estimate a possible loss or range of loss that may result from this lawsuit or to determine whether such loss, if any, would have a material adverse effect on its business, financial condition, results of operations or liquidity.
On September 6, 2024, the Maryland Department of Environment (MDE) filed suit in the Circuit Court for Harford County, Maryland against the Company and D.R. Horton regarding various alleged stormwater compliance issues and violations at a project in Maryland dating from 2022 through 2024, seeking injunctive relief and civil penalties. These matters were resolved through a consent decree with MDE entered into in May 2026 which implemented certain additional best management practices at the project and required defendants to pay civil penalties, to contribute funds to a trust for use in restoration of impacted waters, and attorneys' fees of which Forestar’s payments were $637,500, $840,000 and $325,000, respectively.
In addition, the Company is involved in various other legal proceedings that arise from time to time in the ordinary course of business and believes that adequate reserves have been established for any probable losses. The Company does not believe that the outcome of any of these proceedings will have a significant adverse effect on its financial position, long-term results of operations or cash flows. It is possible, however, that charges related to these matters could be significant to the Company's results or cash flows in any one accounting period.
Land Purchase Contracts
The Company enters into land purchase contracts to acquire land for the development of residential lots. Under these contracts, the Company will fund a stated deposit in consideration for the right, but not the obligation, to purchase land or lots at a future point in time with predetermined terms. Under the terms of many of the purchase contracts, the deposits are not refundable in the event the Company elects to terminate the contract. Land purchase contract deposits and capitalized pre-acquisition costs are expensed to cost of sales when the Company believes it is probable that it will not acquire the property under contract and will not be able to recover these costs through other means.
At June 30, 2026, the Company had total deposits of $33.7 million related to contracts to purchase land with a total remaining purchase price of approximately $615.9 million. The majority of land and lots under contract are currently expected to be purchased within 3 years. None of the land purchase contracts were subject to specific performance provisions at June 30, 2026.
Note 12 — Related Party Transactions
D.R. Horton
The Company has a Shared Services Agreement with D.R. Horton whereby D.R. Horton provides the Company with certain administrative, compliance, operational and procurement services. In the nine months ended June 30, 2026 and 2025, selling, general and administrative expense in the consolidated statements of operations for both periods included $5.4 million for these shared services, $12.1 million and $10.8 million, respectively, reimbursed to D.R. Horton for the cost of health insurance and other employee benefits and $1.6 million and $0.7 million, respectively, for other corporate and administrative expenses.
Under the terms of the Master Supply Agreement with D.R. Horton, both companies identify land development opportunities to expand Forestar's portfolio of assets. At June 30, 2026 and September 30, 2025, the Company owned approximately 62,200 and 65,100 residential lots, respectively, with which D.R. Horton had the following involvement.
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June 30, 2026 September 30, 2025
(Dollars in millions)
Residential lots under contract to sell to D.R. Horton 21,800 22,800
Owned lots subject to right of first offer with D.R. Horton based on executed purchase and sale agreements 19,200 17,600
Earnest money deposits from D.R. Horton for lots under contract $ 195.3 $ 179.7
Remaining sales price of lots under contract with D.R. Horton $ 2,095.1 $ 2,000.0
Lot and land sales to D.R. Horton in the three and nine months ended June 30, 2026 and 2025 were as follows:
Three Months Ended June 30, Nine Months Ended June 30,
2026 2025 2026 2025
(Dollars in millions)
Residential lots sold to D.R. Horton 3,370 3,075 7,447 7,688
Residential lot sales revenues from sales to D.R. Horton $ 361.1 $ 325.0 $ 829.2 $ 810.2
Decrease in contract liabilities $ (0.6) $ (1.3) $ (0.6) $ (0.1)
Tract sales and other revenues from D.R. Horton $ 0.5 $ 3.8 $ 20.7 $ 7.7
In the three and nine months ended June 30, 2026, the Company reimbursed D.R. Horton approximately $7.0 million and $27.0 million for pre-acquisition and other due diligence and development costs related to land purchase contracts identified by D.R. Horton that the Company independently underwrote and closed compared to reimbursements of $9.5 million and $17.7 million in the prior year periods. In the three and nine months ended June 30, 2026, the Company reimbursed D.R. Horton approximately $0.7 million and $4.2 million for previously paid earnest money related to those land purchase contracts compared to reimbursements of $4.2 million and $18.8 million in the prior year periods. In the nine months ended June 30, 2025, the Company purchased $2.1 million of water rights from D.R. Horton.
In the three and nine months ended June 30, 2026, the Company paid D.R. Horton $0.1 million and $0.4 million for land development services compared to $0.1 million and $0.3 million for these services in the prior year periods. These amounts are included in cost of sales in the Company’s consolidated statements of operations.
At June 30, 2026 and September 30, 2025, land held for future development primarily consisted of undeveloped land which the Company has under contract to sell to D.R. Horton at a sales price equal to the carrying value of the land at the time of sale plus additional consideration of 12% to 16% per annum.
At June 30, 2026, accrued expenses and other liabilities on the Company's consolidated balance sheets included $2.6 million owed to D.R. Horton for any accrued and unpaid shared service charges, land purchase contract deposits and due diligence and other development cost reimbursements compared to $2.2 million at September 30, 2025.
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Note 13 — Fair Value Measurements
Fair value is the exchange price that would be received for an asset or paid to transfer a liability in an orderly transaction between market participants. In arriving at a fair value measurement, the Company uses a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable. The three levels of inputs used to establish fair value are the following:
•Level 1 — Quoted prices in active markets for identical assets or liabilities;
•Level 2 — Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and
•Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
The Company elected not to use the fair value option for cash and cash equivalents and debt.
For the financial assets and liabilities that the Company does not reflect at fair value, the following tables present both their respective carrying value and fair value at June 30, 2026 and September 30, 2025.
Fair Value at June 30, 2026
Carrying Value Level 1 Level 2 Level 3 Total
(In millions)
Cash and cash equivalents (a) $ 394.9 $ 394.9 $ — $ — $ 394.9
Debt (b) 793.8 — 807.8 — 807.8
Fair Value at September 30, 2025
Carrying Value Level 1 Level 2 Level 3 Total
(In millions)
Cash and cash equivalents (a) $ 379.2 $ 379.2 $ — $ — $ 379.2
Debt (b) (c) 802.7 — 808.9 9.9 818.8
___________________
(a) The fair values of cash and cash equivalents approximate their carrying values due to their short-term nature and are classified as Level 1 within the fair value hierarchy.
(b) At June 30, 2026 and September 30, 2025, debt primarily consisted of the Company's senior notes. The fair value of the senior notes is determined based on quoted market prices in markets that are not active, which is classified as Level 2 within the fair value hierarchy.
(c) The fair value of the Company's other note payable approximates its carrying value due to its short-term nature and is classified as Level 3 within the fair value hierarchy.
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