Forestar Group Inc. Reports First Quarter 2011 Results

Forestar Group Inc. (NYSE: FOR) today reported a first quarter 2011 net loss of approximately ($2.5) million, or ($0.07) per basic share, compared with a first quarter 2010 net loss of ($3.0) million, or ($0.08) per basic share outstanding.

"Our first quarter results reflect current market conditions for our real estate and natural resources,” said Jim DeCosmo, president and chief executive officer of Forestar Group. "Residential markets remain challenging; however, inventories of finished lots and new home inventories have declined to near historical lows, and the major markets of Texas have stabilized and are improving, in many cases leading the nation in recovery. In addition, we are encouraged by the level of leasing and drilling activity in our basins despite current natural gas inventories and prices. We are committed to our strategy, recognizing and responsibly delivering the greatest value from every acre and growing through strategic and disciplined investments.”

Mr. DeCosmo noted that the Company’s first quarter 2011 highlights included:

• Generating a seismic exploration agreement on over 31,000 net mineral acres
• Leasing approximately 4,900 net mineral acres to oil and gas companies for exploration and production activities
• Acquiring undeveloped land near our Cibolo Canyons development in San Antonio, Texas, securing substantial environmental and development credits
• Closing 214 residential lot sales at an average price of $48,200 per lot
• Selling over 2,600 acres of timberland for $6.1 million

Forestar Group manages its operations through three business segments:

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

At the end of first quarter 2011, our real estate segment includes approximately 219,000 acres of land owned directly or through ventures located in nine states and twelve markets. Mineral resources include approximately 604,000 net acres of oil and gas mineral interests located principally in Texas, Louisiana, Alabama, and Georgia. Also included is a 45% nonparticipating royalty interest in groundwater produced or withdrawn for commercial purposes from approximately 1.4 million acres in Texas, Louisiana, Georgia and Alabama and about 17,800 acres of ground water leases in central Texas. Fiber resources include the sale of wood fiber and management of our recreational leases.

REAL ESTATE

First quarter 2011 real estate segment earnings include $6.1 million in undeveloped land sales, compared with $4.7 million in first quarter 2010 and $2.8 million in fourth quarter 2010. First quarter 2011 real estate segment earnings include the sale of over 1,400 acres of undeveloped land in East Texas for approximately $2,100 per acre.

Fourth quarter 2010 real estate segment earnings were negatively impacted by non-cash impairment charges of $10.4 million primarily associated with residential development projects located near Atlanta, Georgia and Fort Worth, Texas and a commercial real estate tract held in a venture near the Texas Gulf Coast.

MINERAL RESOURCES

First quarter 2011 mineral resources segment earnings include almost $1.7 million in bonus revenues from leasing almost 4,900 net mineral acres for $343 per acre principally located in Louisiana. In addition, first quarter 2011 results include almost $1.6 million related to a seismic exploration agreement covering over 31,100 net mineral acres in Louisiana.

FIBER RESOURCES

During first quarter 2011 Forestar generated almost $0.9 million in revenues from the sale of over 81,000 tons of fiber, a majority of which was sold to Temple-Inland at market prices.

SUMMARY

"Since first quarter 2009 we have been focused on executing our strategy and implementing near-term strategic initiatives to reduce debt, increase financial flexibility, and position our business for growth. We have made investments in our management team, with individuals who bring a proven track record of real estate and natural resources value creation to Forestar. The combination of our value creation strategy, and a portfolio of competitive and well-located assets, uniquely positions our company to benefit from improving market conditions. In addition, our increased financial flexibility and dynamic and experienced management team have Forestar well positioned to take advantage of acquisition and investment opportunities which have been created by the dislocation in real estate markets,” concluded Mr. DeCosmo.

The Company will host a conference call on May 4, 2011 at 10:00 am EDT to discuss results of first quarter 2011. 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 1-866-783-2140 at least 15 minutes prior to the start of the meeting. Those wishing to access the call from outside North America should dial 1-857-350-1599. 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 83876744.

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 approximately 219,000 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 73 entitled, developed and under development projects in seven states and eleven markets encompassing almost 15,800 acres, comprised of over 27,200 planned residential lots and over 2,300 commercial acres. The mineral resources segment manages about 604,000 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 and about 17,800 acres of ground water leases in Central Texas. 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) 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.

¹ Includes our share of activity from a venture in which we own a 50% interest. Our share of venture natural gas production activity is 158.6 MMcf in first quarter 2011, and 26.6 MMcf in first quarter 2010.

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

FIRST QUARTER 2011
MINERAL RESOURCES PIPELINE¹

Forestar’s mineral resources segment includes approximately 604,000 net mineral acres principally located in Texas, Louisiana, Alabama and Georgia.

¹ Includes ventures

² Includes leases in primary lease term or for which a delay rental payment has been received. In the ordinary course of business, leases covering a significant portion of leased net mineral acres may expire from time to time in a single reporting period.

³ Excludes 477 net mineral acres located in Colorado, including 382 acres leased and 26 acres held by production.

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

Note: Sales of fiber in first quarter 2011 were impacted by the sale of approximately 30,000 acres of timberland associated with our strategic initiatives and retail land sales program since first quarter 2010 and delaying harvest plans on about 55,000 acres currently held for sale.

FORESTAR GROUP INC.
PROJECTS IN ENTITLEMENT

A summary of projects in the entitlement process^(a) at first quarter-end 2011 follows:

(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.

FORESTAR GROUP INC.
REAL ESTATE PROJECTS

A summary of our entitled,^(a) developed & under development projects at first quarter-end 2011 follows:

^(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 19 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 first quarter-end 2011 follows:

^(a) Interest owned reflects our net equity interest in the project, whether owned directly or indirectly.