# Forestar Group Inc.: Form 10-Q for the period ended Jun 30, 2023

- Company: [Forestar Group Inc.](/companies/for.md) (CIK 1406587)
- Form: 10-Q
- Filed: 2023-07-21
- Accepted by EDGAR: Jul 21, 2023, 13:14 ET
- Period: 2023-06-30
- Accession: 0001406587-23-000097
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1406587/000140658723000097/for-20230630.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1406587/000140658723000097/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-06-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-04-01 to 2023-06-30 | $368.9m | us-gaap:Revenues |
| Revenue | 9 months, 2022-10-01 to 2023-06-30 | $887.1m | us-gaap:Revenues |
| Cost of revenue | 3 months, 2023-04-01 to 2023-06-30 | $283.9m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 9 months, 2022-10-01 to 2023-06-30 | $698.7m | us-gaap:CostOfGoodsAndServicesSold |
| Selling, general and administrative | 3 months, 2023-04-01 to 2023-06-30 | $26.4m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2022-10-01 to 2023-06-30 | $71.3m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Income tax | 3 months, 2023-04-01 to 2023-06-30 | $15.6m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2022-10-01 to 2023-06-30 | $31.7m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-04-01 to 2023-06-30 | $46.8m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2022-10-01 to 2023-06-30 | $94.5m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-04-01 to 2023-06-30 | $0.93 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2022-10-01 to 2023-06-30 | $1.89 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-04-01 to 2023-06-30 | $0.94 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2022-10-01 to 2023-06-30 | $1.89 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-04-01 to 2023-06-30 | 50,175,794 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2022-10-01 to 2023-06-30 | 50,028,451 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2022-10-01 to 2023-06-30 | $136.2m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2022-10-01 to 2023-06-30 | $800.0k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2023-06-30 | $401.0m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Total assets | at 2023-06-30 | $2.38bn | us-gaap:Assets |
| Total liabilities | at 2023-06-30 | $1.08bn | us-gaap:Liabilities |
| Long-term debt | at 2023-06-30 | $707.2m | us-gaap:LongTermDebt |
| Shareholders' equity | at 2023-06-30 | $1.30bn | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 28,691 characters.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes included in this quarterly report and with our annual report on Form 10-K for the fiscal year ended September 30, 2022. Some of the information contained in this discussion and analysis constitutes forward-looking statements that involve risks and uncertainties. Actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to these differences include, but are not limited to, those described in the “Forward-Looking Statements” section following this discussion.

### Our Operations

Forestar Group Inc. is a national, well-capitalized residential lot development company with operations in 52 markets in 20 states as of June 30, 2023. We are focused primarily on making investments in land acquisition and development to sell finished single-family residential lots to homebuilders. Our common stock is listed on the New York Stock Exchange (NYSE) under the ticker symbol “FOR.” The terms “Forestar,” the “Company,” “we” and “our” used herein refer to Forestar Group Inc., a Delaware corporation, and its predecessors and subsidiaries. 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. As of June 30, 2023, D.R. Horton owned approximately 63% of the Company's outstanding common stock. As our controlling shareholder, D.R. Horton has significant influence in guiding our strategic direction and operations.

We manage our operations through our real estate segment, which is our core business and generates substantially all of our 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. We have other business activities for which the related assets and operating results are immaterial and therefore are included within our real estate segment.

Our real estate segment conducts a wide range of project planning and management activities related to the entitlement, acquisition, community development and sale of residential lots. We generally secure entitlements while the land is under contract by creating plans that meet the needs of the markets where we operate, and we aim to have all entitlements secured before closing on the investment. Moving land through the entitlement and development process creates significant value. We primarily invest in entitled short-duration projects that can be developed in phases, enabling us to complete and sell lots at a pace that matches market demand, consistent with our focus on maximizing capital efficiency and returns. We occasionally make short-term strategic investments in finished lots (lot banking) and undeveloped land (land banking) with the intent to sell these assets within a short time period to utilize available capital prior to its deployment into longer-term lot development projects. Our customers are primarily local, regional and national homebuilders. The lots we deliver in our communities are primarily for entry-level, first-time move-up and active adult homes. Entry-level and first-time move-up homebuyers are the largest segments of the new home market. We also market some of our communities towards build-to-rent operators.

Throughout the majority of fiscal 2022, demand for our residential lots remained strong. In the fourth quarter of fiscal 2022, we began to see weakening demand that persisted through the end of the second quarter of fiscal 2023 as mortgage interest rates increased substantially and inflationary pressures remained elevated. In the three months ended June 30, 2023, demand for finished lots improved as homebuilders increased their pace of new home starts to better match the stronger demand for new homes, particularly at affordable price points. We increase our land and lot sales prices when market conditions permit, and we attempt to offset cost increases in one component with savings in another. However, if market conditions are challenging, we may have to reduce selling prices or may not be able to offset cost increases with higher selling prices. We believe we are well-positioned to operate effectively through changing economic conditions because of our low net leverage and strong liquidity position, our low overhead model and our strategic relationship with D.R. Horton.

### Results of Operations

The following tables and related discussion set forth key operating and financial data as of and for the three and nine months ended June 30, 2023 and 2022.

### Operating Results

Components of income before income taxes were as follows:

*(In millions)*

|  | Three Months Ended June 30, 2023 | 2022 | Nine Months Ended June 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Revenues | $368.9 | $308.5 | $887.1 | $1,137.7 |
| Cost of sales | 283.9 | 234.6 | 698.7 | 902.9 |
| Selling, general and administrative expense | 26.4 | 24.1 | 71.3 | 69.9 |
| Equity in earnings of unconsolidated ventures | — | — | — | (1.1) |
| Gain on sale of assets | — | (2.7) | (1.6) | (3.2) |
| Interest and other income | (3.8) | (0.2) | (7.5) | (0.2) |
| Income before income taxes | $62.4 | $52.7 | $126.2 | $169.4 |

### Lot Sales

Residential lots sold consisted of:

|  | Three Months Ended June 30, 2023 | 2022 | Nine Months Ended June 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Development projects | 3,812 | 3,406 | 9,054 | 12,593 |
| Lot banking projects | — | — | — | 330 |
|  | 3,812 | 3,406 | 9,054 | 12,923 |
| Deferred development projects | — | 67 | — | 854 |
|  | 3,812 | 3,473 | 9,054 | 13,777 |
| Average sales price per lot (a) | $87,700 | $86,500 | $87,300 | $85,600 |

(a) Excludes lots sold from deferred development projects and any impact from change in contract liabilities.

### Revenues

Revenues consisted of:

*(In millions)*

| Residential lot sales: | Three Months Ended June 30, 2023 | 2022 | Nine Months Ended June 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Development projects | $334.2 | $294.6 | $790.3 | $1,078.8 |
| Lot banking projects | — | — | — | 27.3 |
| Decrease in contract liabilities | 0.6 | 0.5 | 4.0 | 2.1 |
|  | 334.8 | 295.1 | 794.3 | 1,108.2 |
| Deferred development projects | 10.3 | 7.9 | 24.6 | 20.4 |
|  | 345.1 | 303.0 | 818.9 | 1,128.6 |
| Tract sales and other | 23.8 | 5.5 | 68.2 | 9.1 |
| Total revenues | $368.9 | $308.5 | $887.1 | $1,137.7 |

Residential lots sold and residential lot sales revenues in the three months ended June 30, 2023 have increased compared to the prior year primarily as a result of improved demand for finished lots as homebuilders have increased their pace of new home starts to better match the stronger demand for new homes, particularly at affordable price points. Residential lots sold and residential lot sales revenues in the nine months ended June 30, 2023 have decreased compared to the prior year period primarily as a result of the moderation in demand for finished lots that persisted throughout the first six months of the current fiscal year as homebuilders had reduced their pace of new home starts to better match the moderation of housing demand caused by increases in mortgage rates and elevated inflationary pressures.

Residential lot sales to D.R. Horton and customers other than D.R. Horton, excluding deferred development projects, consisted of:

|  | Three Months Ended June 30, 2023 | 2022 | Nine Months Ended June 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Residential lots sold to D.R. Horton | 3,187 | 3,038 | 7,947 | 11,823 |
| Residential lots sold to customers other than D.R. Horton | 625 | 368 | 1,107 | 1,100 |
|  | 3,812 | 3,406 | 9,054 | 12,923 |

Residential lot revenues from lot sales to D.R. Horton and customers other than D.R. Horton, before deferred development projects and changes in contract liabilities, consisted of:

*(In millions)*

|  | Three Months Ended June 30, 2023 | 2022 | Nine Months Ended June 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Revenues from lot sales to D.R. Horton | $270.4 | $257.6 | $677.4 | $975.7 |
| Revenues from lot sales to customers other than D.R. Horton | 63.8 | 37.0 | 112.9 | 130.4 |
|  | $334.2 | $294.6 | $790.3 | $1,106.1 |

Lots sold to customers other than D.R. Horton in the three and nine months ended June 30, 2023 included 105 and 252 lots that were sold for $12.2 million and $28.2 million to a lot banker who expects to sell those lots to D.R. Horton at a future date. Lots sold to customers other than D.R. Horton in the nine months ended June 30, 2022 included 358 lots that were sold for $63.0 million to a lot banker who expects to sell those lots to D.R. Horton at a future date.

In the three and nine months ended June 30, 2022 we sold 67 and 854 deferred development lots to a customer other than D.R. Horton for a total transaction price of $9.4 million and $64.1 million, respectively. In the three and nine months ended June 30, 2023, we recognized $10.3 million and $24.6 million of revenues as a result of our progress towards completion of our remaining unsatisfied performance obligations on deferred development projects, compared to $7.9 million and $20.4 million in the prior year periods.

Tract sales and other revenue in the three months ended June 30, 2023 primarily consisted of 45 tract acres sold to D.R. Horton for $22.8 million compared to 12 tract acres sold to a customer other than D.R. Horton for $5.1 million in the prior year period. In the nine months ended June 30, 2023, tract sales and other revenue primarily consisted of 424 tract acres sold to D.R. Horton for $55.3 million and 34 tract acres sold to a customer other than D.R. Horton for $8.0 million compared to 50 tract acres sold to customers other than D.R. Horton for $8.5 million in the prior year period.

### Cost of Sales, Real Estate Impairment and Land Option Charges and Interest Incurred

Cost of sales in the three months ended June 30, 2023 increased compared to the prior year period primarily due to the increase in the number of lots sold. Cost of sales in the nine months ended June 30, 2023 decreased compared to the prior year period primarily due to the decrease in the number of lots sold. Cost of sales related to tract sales and other revenues in the three and nine months ended June 30, 2023 was $17.5 million and $43.0 million compared to $3.8 million and $6.5 million in the prior year periods.

Each quarter, we review the performance and outlook for all of our real estate for indicators of potential impairment and perform detailed impairment evaluations and analyses when necessary. As a result of this process, no impairment charges were recorded during the three months ended June 30, 2023. In the nine months ended June 30, 2023 and 2022, we recorded non-cash impairment charges of $19.4 million and $3.8 million. In the three and nine months ended June 30, 2023, land purchase contract deposit and pre-acquisition cost write-offs related to land purchase contracts that the we have terminated or expect to terminate were $0.9 million and $4.2 million, respectively, compared to $1.0 million and $3.2 million in the prior year periods.

We capitalize interest costs throughout the development period (active real estate). Capitalized interest is charged to cost of sales as the related real estate is sold to the buyer. Interest incurred was $8.2 million and $24.6 million in the three and nine months ended June 30, 2023 compared to $8.3 million and $24.7 million in the prior year periods. Interest charged to cost of sales was 2.3% and 2.5% of total cost of sales (excluding impairments and land option charges) in the three and nine months ended June 30, 2023 compared to 3.1% and 3.0% in the prior year periods.

### Selling, General and Administrative (SG&A) Expense and Other Income Statement Items

SG&A expense in the three and nine months ended June 30, 2023 was $26.4 million and $71.3 million compared to $24.1 million and $69.9 million in the prior year periods. SG&A expense as a percentage of revenues was 7.2% and 8.0% in the three and nine months ended June 30, 2023 compared to 7.8% and 6.1% in the prior year periods. Our SG&A expense primarily consisted of employee compensation and related costs. Our business operations employed 282 and 312 employees at June 30, 2023 and 2022, respectively. We attempt to control our SG&A costs while ensuring that our infrastructure supports our operations; however, we cannot make assurances that we will be able to maintain or improve upon the current SG&A expense as a percentage of revenues.

### Income Taxes

Our income tax expense for the three and nine months ended June 30, 2023 was $15.6 million and $31.7 million compared to $13.0 million and $41.4 million in the prior year periods. Our effective tax rate was 25.0% and 25.1% for the three and nine months ended June 30, 2023 compared to 24.7% and 24.4% in the prior year periods. Our effective tax rate for all periods included an expense for state income taxes and nondeductible expenses.

At June 30, 2023, we had deferred tax liabilities, net of deferred tax assets, of $33.2 million. The deferred tax assets were partially offset by a valuation allowance of $0.9 million, resulting in a net deferred tax liability of $34.1 million. At September 30, 2022, deferred tax liabilities, net of deferred tax assets, were $35.9 million. The deferred tax assets were partially offset by a valuation allowance of $1.0 million, resulting in a net deferred tax liability of $36.9 million. The valuation allowance for both periods was recorded because it is more likely than not that a portion of our state deferred tax assets, primarily NOL carryforwards, will not be realized because we are no longer operating in some states or the NOL carryforward periods are too brief to realize the related deferred tax asset. We will continue to evaluate both the positive and negative evidence in determining the need for a valuation allowance on our deferred tax assets. Any reversal of the valuation allowance in future periods will impact our effective tax rate.

### Land and Lot Position

Our land and lot position at June 30, 2023 and September 30, 2022 is summarized as follows:

|  | June 30, 2023 | September 30, 2022 |
| --- | ---: | ---: |
| Lots owned | 53,700 | 61,800 |
| Lots controlled through land and lot purchase contracts | 19,300 | 28,300 |
| Total lots owned and controlled | 73,000 | 90,100 |
| Owned lots under contract to sell to D.R. Horton | 13,600 | 17,800 |
| Owned lots under contract to customers other than D.R. Horton | 1,300 | 1,400 |
| Total owned lots under contract | 14,900 | 19,200 |
| Owned lots subject to right of first offer with D.R. Horton based on executed purchase and sale agreements | 16,900 | 18,900 |
| Owned lots fully developed | 7,800 | 5,500 |

### Liquidity and Capital Resources

### Liquidity

At June 30, 2023, we had $401.0 million of cash and cash equivalents and $380.2 million of available borrowing capacity on our revolving credit facility. We have no senior note maturities until fiscal 2026. We believe we are well-positioned to operate effectively during changing economic conditions because of our low net leverage and strong liquidity position, our low overhead model and our strategic relationship with D.R. Horton.

At June 30, 2023, our ratio of debt to total capital (debt divided by stockholders’ equity plus debt) was 35.3% compared to 37.1% at September 30, 2022 and 38.1% at June 30, 2022. Our ratio of net debt to total capital (debt net of unrestricted cash divided by stockholders’ equity plus debt net of unrestricted cash) was 19.1% compared to 26.9% at September 30, 2022 and 32.8% at June 30, 2022. Over the long term, we intend to maintain our ratio of net debt to total capital at approximately 40% or less. We believe that the ratio of net debt to total capital is useful in understanding the leverage employed in our operations.

We believe that our existing cash resources and revolving credit facility will provide sufficient liquidity to fund our near-term working capital needs. Our ability to achieve our long-term growth objectives will depend on our ability to obtain financing in sufficient amounts. We regularly evaluate alternatives for managing our capital structure and liquidity profile in consideration of expected cash flows, growth and operating capital requirements and capital market conditions. We may, at any time, be considering or preparing for the purchase or sale of our debt securities, the sale of our common stock or a combination thereof.

### Bank Credit Facility

We have a $410 million senior unsecured revolving credit facility with an uncommitted accordion feature that could increase the size of the facility to $600 million, subject to certain conditions and availability of additional bank commitments. 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 our real estate assets and unrestricted cash. Letters of credit issued under the facility reduce the available borrowing capacity. The maturity date of the facility is October 28, 2026. At June 30, 2023, there were no borrowings outstanding and $29.8 million of letters of credit issued under the revolving credit facility, resulting in available capacity of $380.2 million.

The revolving credit facility is guaranteed by our wholly-owned subsidiaries that are not immaterial subsidiaries or 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, 2023, we were in compliance with all of the covenants, limitations and restrictions of our revolving credit facility.

### Senior Notes

We have 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 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 respective indenture. The notes are guaranteed by each of our subsidiaries to the extent such subsidiaries guarantee our revolving credit facility.

Our $400 million principal amount of 3.85% senior notes (the "2026 notes") mature May 15, 2026 with interest payable semi-annually. On or after May 15, 2023, the 2026 notes may be redeemed at 101.925% of their principal amount plus any accrued and unpaid interest. In accordance with the indenture, the redemption price decreases annually thereafter, and the 2026 notes can be redeemed at par on or after May 15, 2025 through maturity. The annual effective interest rate of the 2026 notes after giving effect to the amortization of financing costs is 4.1%.

We also have $300 million principal amount of 5.0% senior notes (the "2028 notes") outstanding, which mature March 1, 2028 with interest payable semi-annually. On or after March 1, 2023, the 2028 notes may be redeemed at 102.5% of their principal amount plus any accrued and unpaid interest. In accordance with the indenture, the redemption price decreases annually thereafter and the 2028 notes can be redeemed at par on or 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 indentures governing our senior notes require that, upon the occurrence of both a change of control and a rating decline (as defined in each indenture), we offer to purchase the applicable series of notes at 101% of their principal amount. If we or our restricted subsidiaries dispose of assets, under certain circumstances, we will be required to either invest the net cash proceeds from such asset sales in our business within a specified period of time, repay certain senior secured debt or debt of our 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 indentures contain covenants that, among other things, restrict the ability of us and our 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 our assets; enter into transactions with affiliates; and allow to exist certain restrictions on the ability of subsidiaries to pay dividends or make other payments. At June 30, 2023, we were in compliance with all of the limitations and restrictions associated with our senior note obligations.

Effective April 30, 2020, our Board of Directors authorized the repurchase of up to $30 million of our debt securities. The authorization has no expiration date. All of the $30 million authorization was remaining at June 30, 2023.

### Other Note Payable

We also have a note payable of $12.5 million that was issued as part of a transaction to acquire real estate for development. The note is non-recourse, is secured by the underlying real estate, accrues interest at 4.0% per annum and matures in October 2023.

### Issuance of Common Stock

We have an effective shelf registration statement filed with the Securities and Exchange Commission in October 2021, registering $750 million of equity securities, of which $300 million was reserved for sales under our at-the-market equity offering program that became effective November 2021. In the nine months ended June 30, 2023, we issued no shares of common stock under our at-the-market equity offering program. At June 30, 2023, $748.2 million remained available for issuance under the shelf registration statement, of which $298.2 million was reserved for sales under our at-the-market equity offering program.

### Operating Cash Flow Activities

In the nine months ended June 30, 2023, net cash provided by operating activities was $136.2 million, which was primarily the result of our net income generated in the period adjusted for impairments and land option charges and the decrease in real estate, partially offset by the decreases in accounts payable and other accrued liabilities and accrued development costs. In the nine months ended June 30, 2022, net cash used in operating activities was $10.2 million, which was primarily the result of the increase in real estate, partially offset by net income generated in the period.

### Investing Cash Flow Activities

In the nine months ended June 30, 2023, net cash provided by investing activities was $0.8 million compared to $1.6 million in the nine months ended June 30, 2022. The cash provided by investing activities in both periods consisted primarily of cash received from the sale of assets.

### Financing Cash Flow Activities

In the nine months ended June 30, 2023, net cash used in financing activities was $0.8 million compared to $1.3 million of cash provided by financing activities in the prior year period.

### Critical Accounting Policies and Estimates

There have been no material changes in our critical accounting policies or estimates from those disclosed in our 2022 Annual Report on Form 10-K.

### New and Pending Accounting Pronouncements

Please read **Note 1—Basis of Presentation** to the consolidated financial statements included in this Quarterly Report on Form 10-Q.

### Forward-Looking Statements

This Quarterly Report on Form 10-Q and other materials we have filed or may file with the Securities and Exchange Commission contain “forward-looking statements” within the meaning of the federal securities laws. These forward-looking statements are identified by their use of terms and phrases such as “believe,” “anticipate,” “could,” “estimate,” “likely,” “intend,” “may,” “plan,” “expect,” and similar expressions, including references to assumptions. These statements reflect our current views with respect to future events and are subject to risks 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:

- the effect of D.R. Horton’s controlling level of ownership on us and the holders of our securities;
- our ability to realize the potential benefits of the strategic relationship with D.R. Horton;
- the effect of our strategic relationship with D.R. Horton on our ability to maintain relationships with our customers;
- the cyclical nature of the homebuilding and lot development industries and changes in economic, real estate and other conditions;
- the impact of significant inflation, higher interest rates or deflation;
- supply shortages and other risks of acquiring land, construction materials and skilled labor;
- the effects of public health issues such as a major epidemic or pandemic, including the impact of COVID-19 on the economy and our business;
- the impacts of weather conditions and natural disasters;
- health and safety incidents relating to our operations;
- our ability to obtain or the availability of surety bonds to secure our performance related to construction and development activities and the pricing of bonds;
- the impact of governmental policies, laws or regulations and actions or restrictions of regulatory agencies;
- our ability to achieve our strategic initiatives;
- continuing liabilities related to assets that have been sold;
- the cost and availability of property suitable for residential lot development;
- general economic, market or business conditions where our real estate activities are concentrated;
- our dependence on relationships with national, regional and local homebuilders;
- competitive conditions in our industry;
- obtaining reimbursements and other payments from governmental districts and other agencies and timing of such payments;
- our ability to succeed in new markets;
- the conditions of the capital markets and our ability to raise capital to fund expected growth;
- our ability to manage and service our debt and comply with our debt covenants, restrictions and limitations;
- the volatility of the market price and trading volume of our common stock;
- our ability to hire and retain key personnel; and
- the strength of our information technology systems and the risk of cybersecurity breaches and our ability to satisfy privacy and data protection laws and regulations.

Other factors, including the risk factors described in Item 1A of our 2022 Annual Report on Form 10-K, may also cause actual results to differ materially from those projected by our forward-looking statements. New factors emerge from time to time and it is not possible for us to predict all such factors, nor can we assess the impact of any such factor on our business or the extent to which any factor, or combination of factors, may cause results to differ materially from those contained in any forward-looking statement.

Any forward-looking statement speaks only as of the date on which such statement is made, and, except as required by law, we expressly disclaim any obligation or undertaking to disseminate any updates or revisions to any forward-looking statement to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events.

## Market risk

As filed, 1,490 characters.

### Interest Rate Risk

We are subject to interest rate risk on our senior debt, revolving credit facility and our other note payable. We monitor our exposure to changes in interest rates and utilize both fixed and variable rate debt. For fixed rate debt, changes in interest rates generally affect the fair value of the debt instrument, but not our earnings or cash flows. Conversely, for variable rate debt, changes in interest rates generally do not impact the fair value of the debt instrument, but may affect our future earnings and cash flows. Except in very limited circumstances, we do not have an obligation to prepay fixed-rate debt prior to maturity and, as a result, interest rate risk and changes in fair value would not have a significant impact on our cash flows related to our fixed-rate debt until such time as we are required to refinance, repurchase or repay such debt.

At June 30, 2023, our fixed rate debt consisted of $400 million principal amount of 3.85% senior notes due May 2026, $300 million principal amount of 5.0% senior notes due March 2028 and $12.5 million principal amount of 4.0% other note payable due October 2023. Our variable rate debt consisted of the outstanding borrowings on our $410 million senior unsecured revolving credit facility, of which there were none at June 30, 2023.

### Foreign Currency Risk

We have no exposure to foreign currency fluctuations.

### Commodity Price Risk

We have no significant exposure to commodity price fluctuations.

## Controls and procedures

As filed, 1,473 characters.

(a) Disclosure controls and procedures

Our management, with the participation of the Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")), as of the end of the period covered by this report. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, our disclosure controls and procedures were effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by us in the reports that we file or submit under the Exchange Act and were effective in ensuring that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

(b) Changes in internal control over financial reporting

There have been no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended June 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Filed Jul 21, 2023.
Source: SEC EDGAR, the filing index for accession 0001406587-23-000097. Last ingested by Listed: Nov 6, 2026, 16:30 ET. No prices; not investment advice.