Forestar Group Inc. (NYSE: FOR) today reported second quarter 2009 net income of $50.9 million, or $1.41 per diluted share, compared with second quarter 2008 net income of $9.6 million, or $0.27 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 to Hancock Timber Resource Group for approximately $120 million.

“During second quarter 2009 we made significant progress in executing our strategic initiatives, which include:

• Selling 75,000 acres of timberland in Georgia and Alabama for approximately $120 million
• Executing agreements for the sale of about 20,000 acres of HBU timberland in Georgia for $39.5 million
• Reducing debt over $110 million
• Lowering operating and general and administrative expenses
• Reducing investment in real estate development
• Improving transparency and disclosure related to our mineral assets, including proved developed producing reserve estimates

We firmly believe the execution of our strategic initiatives will enhance shareholder value,” said Jim DeCosmo, president and chief executive officer of Forestar Group.

Forestar Group manages its operations through three business segments:

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

At the end of second quarter 2009, our real estate segment includes over 280,000 acres of land owned directly or through ventures located in nine states and twelve markets. Mineral resources include about 622,000 net acres of oil and gas mineral interests located principally in Texas, Louisiana, Alabama and Georgia. Mineral resources also include a 45% nonparticipating royalty interest in groundwater produced or withdrawn for commercial purposes from approximately 1.38 million acres in Texas, Louisiana, Georgia and Alabama.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 2009 real estate segment earnings were negatively impacted by a $4.1 million loss from equity in earnings of unconsolidated ventures, principally due to an impairment charge related to a venture investment in a project located near Atlanta, Georgia.

Second quarter 2008 real estate segment earnings were negatively impacted by a $3.5 million charge principally related to environmental remediation activities at our San Joaquin River project located near Antioch, California.

Sales Activity

During second quarter 2009, 7,460 acres of undeveloped land were sold at an average sales price of approximately $2,300 per acre, including a sale of about 5,500 acres of undeveloped land located in some of our most rural locations.

Residential sales activity for all wholly and partially-owned projects during second quarter 2009 included the sale of 165 lots at an average price of approximately $59,200 per lot.

No commercial acres were sold in second quarter 2009.

“Increased undeveloped land sales in second quarter 2009 reflect allocation of additional internal resources and increased marketing efforts focused on generating sales activity,” added Jim DeCosmo.

Real Estate Pipeline

At the end of second quarter 2009, our real estate segment includes over 280,000 acres of land owned directly or through ventures located in nine states and twelve markets.

Entitlement Activity

Including ventures, Forestar has 24 real estate projects representing 33,600 acres in the entitlement process, and over 14,000 acres of entitled land, representing over 25,600 residential lots and almost 1,600 commercial acres.

Development Activity

Forestar has over 2,800 acres developed and under development owned directly or through ventures. During second quarter 2009 the company invested $7.0 million in real estate development activity, compared with $30.3 million in second quarter 2008. “Excluding our contributions to the resort at Cibolo Canyons, second quarter 2009 investment in development was down over 80% compared with second quarter 2008,” added Mr. DeCosmo.

Investment Activity

During second quarter 2009, Forestar did not acquire additional real estate.

MINERAL RESOURCES

Second quarter 2008 mineral resources segment earnings include $18.5 million in lease bonus payments generated from 47,000 net mineral acres leased to oil and gas companies for exploration and production activities.

Including ventures, our share of oil and gas production related to our royalty interests was about 24,800 barrels of oil and approximately 309.8 MMCF of natural gas during second quarter 2009. In addition, Forestar generated other lease revenues of $4.6 million principally related to leasing approximately 8,200 net mineral acres for $357 per acre and delay rentals.

Forestar’s mineral resources segment includes approximately 622,000 net mineral acres located in Texas, Louisiana, Alabama and Georgia.

FIBER RESOURCES

Fiber Sales Activity

During second quarter 2009 Forestar generated approximately $4.4 million in revenues from the sale of approximately 380,000 tons of fiber, the majority of which was sold to Temple-Inland Inc. at market prices.

Comments

“During second quarter 2009 we made significant progress in executing our near-term strategic initiatives, despite difficult market conditions. In addition, we have provided more transparency and disclosure related to our mineral assets, including proved developed producing reserve estimates, which represent only one component of value associated with our mineral interests. We are committed to improving the transparency and disclosure of our mineral assets,” said Mr. DeCosmo.

“On August 4, 2009 we closed the sale of about 20,000 acres of HBU timberland for approximately $39.5 million. Since the announcement of our strategic initiatives, we have sold over 95,000 acres of timberland for almost $160 million. We firmly believe the execution of our strategic initiatives will enhance shareholder value.”

The Company will host a conference call on August 5, 2009 at 10:00 am EDT to discuss results of second quarter 2009. 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 1-866-383-7989 at least 15 minutes prior to the start of the meeting. Those wishing to access the call from outside North America should dial 1-617-597-5328. 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 58581442.

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 260,000 acres of real estate located in nine states and twelve markets in the U.S. The real estate segment has 24 real estate projects representing 33,600 acres currently in the entitlement process, and 75 entitled, developed and under development projects in seven states and eleven markets encompassing over 16,000 acres, comprised of over 29,700 residential lots and over 2,300 commercial acres. The mineral resources segment manages about 622,000 net acres of oil and gas mineral interests. The fiber resources segment include 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 1.38 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) A project is deemed to be in the entitlement process when customary steps necessary for the preparation and submittal of an application, 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.

^(c) We own a 50% interest in these projects.

^(a) A project is deemed entitled when all major discretionary land-use approvals have been received. Some projects may require additional permits 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.

^(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.

Forestar Group Inc.
Chris L. Nines, 512-433-5210