Five Point Holdings

Good day, everyone. Welcome to the Five Point Holdings first quarter 2020 conference call. Currently, all participants are in a listen-only mode. As a reminder, this conference call is being recorded. Today's conference may include forward-looking statements regarding Five Point's business, financial condition, operations, cash flow, strategy, and prospects. Forward-looking statements represent only Five Point's estimates on the date of this conference call and are not intended to give any assurance as to the actual future results. Because forward-looking statements relate to matters that have not yet occurred, these statements are inherently subject to risk and uncertainties. Many factors could affect future results and may cause five points actual activities or results to differ materially from the activities and results anticipated in forward-looking statements. These factors include those described in today's press release and five points SEC filings, including those in the risk factors section of the most recent annual report on Form 10-K, and quarterly report on Form 10-Q filed with the SEC. Please note that Five Points assumes no obligation to update any forward-looking statements. And now I'd like to turn the call over to Mr. Amil Haddad, Chairman and CEO of Five Points. Please go ahead, sir.

Thank you very much. Good afternoon and thank you for joining us. I hope that everyone on your side is healthy. Today I'm joined by Lynn Yochum, our Chief Operating Officer, by Eric Higgins, our Chief Financial Officer, and by Mike Alvarado, our Chief Legal Officer. On March 16, we had our fourth quarter call, and I shared with you that the previous Friday we had asked all of our associates to work from home. I also told you that we always ran the company with a plan which is ready to be implemented in case of an unexpected event which creates a major sudden shift. On that day, we started implementing that plan, which is comprised of the following. One, considering the potential for no land sales in Valencia and the Great Park for the remainder of 2020, we are managing land development operations to only support the efforts of our guest builders who are still moving forward with construction activities. If there is demand for builders earlier, we need approximately 45 days to finish development of home sites at the Great Park. And at Valencia, we have inventory ready for sale. We have benefited from the fact that approximately two-thirds of our total expenditures are variable costs. Two, we also shared in the past that 50% of our G&A related to our employment costs our discretionary bonuses we pay in January. That gives us the ability to reduce G&A significantly without the need to reduce our workforce if we elect not to pay or reduce our discretionary bonuses. Three, we amended our internal financial authority policies to limit the ability to commit the company to binding contracts or approve invoices. The only people who have that authority since then are our CFO, COO, CLO, and me. Four, since March 16, the four of us have been at the office every day making sure that the plan is implemented, that our associates are well, and that we are doing what we needed as a responsible corporate system. On the transaction side, Since the middle of March and during our stay-at-home orders here in California, we closed the second takedown of 34 home sites at the Great Park for $20.3 million and 70 home sites previously sold in Valencia for $16.5 million. We carried a note on that deal that is due at the end of the year. We view these transactions as a vote of confidence in our communities by our guest builders and speaks to our strategic partnership with those builders. We are on the eve of taking the first step to memorize our strategic partnership with the City of Hope by closing on the sale of an office building at Five Point Gateway Campus, which will be developed and operated as a comprehensive cancer center. This closing is much more than a transaction. It is a strategic partnership which, in collaboration with other healthcare providers, will envision the future of healthcare and prove new concepts of healthcare delivery in our communities. This was the vision before COVID-19, and the impact of the virus on our lives is amplifying the need for a better way of healthcare delivery utilizing technology. It was fortuitous that we started planning for a substantial portion of our non-residential land to be utilized for healthcare, both providers and research. In terms of builders' home sales at the Great Park, the first five weeks of the stay-at-home order, we saw no home sales. builders shut down their sales offices and started selling virtually. Over the past four weeks, however, we started seeing weekly sales go back to almost three COVID-19 levels. Last week, we had 10 net sales, which is pretty much our historical average for the Great Park. The lack of inventory of homes in general, and in our markets in particular, is helping maintain home values and boards well for the future of the residential market. This is especially true when it is coupled with historically low mortgage rates. On a different note, I have been asked to serve on the Governor's Task Force on Business and Job Recovery, and I am co-chairing the Capital Market and Infrastructure Committee. The Task Force is not only looking at short-term plans to reopen California's economy, but is acting as a think tank of mid- and long-term initiatives ranging from housing to innovation to climate change. Now I would like to turn it over to Eric, who will report on our Q1 financial results.

Thanks, Emil. Our 10Q was filed on May 11th, and a summary of our financial results was included in the earnings release issued earlier today. As Anil noted, the first quarter was an interesting one as we adjusted our business to address the potential impacts from the COVID-19 pandemic. In response to the pandemic, we are taking immediate steps to protect the health and well-being of our associates and to preserve the financial strength of the company. Our associates are working remotely, and the team is analyzing the impact of deferred land sale revenues caused by the pandemic. Our financial performance in the first quarter reflects our investment and inventory expenditures at Valencia, the collection of management fees, and then accounting valuation adjustment to our equity method investment in the Great Park Venture. I'll start with our consolidated results and then address each one of our four segments. The company's consolidated revenues for the first quarter totaled $9.2 million and primarily reflect the recognition of revenue generated from management services. Equity and loss from our two unconsolidated entities was $30.9 million for the quarter. This includes the $26.9 million impairment which we recorded against our investment in Great Park Venture. Total consolidated costs and expenses were $32.6 million, including $24.6 million of selling, general, and administrative expenses for the quarter. Net loss for the quarter was $53.2 million, of which $28.4 million was allocated to the non-controlling interests, leaving $24.8 million attributable to the company. Moving to the segment results, the Valencia segment is consolidated for accounting purposes. Revenues for Valencia segment were $0.8 million, primarily related to agriculture and energy operations. SG&A expenses totaled $3.7 million for the quarter and the Valencia segment loss for the quarter was $4.8 million. The San Francisco segment is also consolidated for accounting purposes. Revenues for the San Francisco segment were approximately $1 million and were primarily related to management services. SG&A expenses were $3.6 million for the quarter and the segment loss for the quarter was $3.1 million. The Great Park segment includes operations of the Great Park Venture, the owner of the Great Park neighborhoods, as well as management services provided by the management company to the Great Park Venture. Just as a reminder, we own 37.5% of the non-legacy percentage interests of the Great Park Venture and 100% of the management company. The Great Park Venture is an unconsolidated entity with our investment in the venture accounted for under the equity method of accounting. For segment reporting, we include the full results of the Great Park Venture at the Venture's historical basis of accounting. The Great Park Venture is self-funding operation with no debt. The Great Park segment revenues were $29.5 million for the first quarter, of which $22.2 million was related to the Great Park Venture and $7.3 million was related to the management company. The Great Park Venture closed 35 home sites during the quarter which was the second and final takedown from a sales contract that was closed in the fourth quarter of 2019. The base purchase price for these home sites was $20.3 million. The first quarter net loss for the Great Park segment totaled $2.5 million, consisting of $1.8 million of net income related to the management company and a loss of $4.3 million for the Great Park Venture operations. The company recognized a loss of $30.4 million on its investment in the Great Park Venture, which includes our share of the Great Park Venture's loss and a $26.9 million impairment recognized against our investment balance. For our commercial segment, it includes the operations of Gateway Commercial Venture and management services provided by the management company. to the Great Gateway Commercial Venture. We own 75% of Gateway Commercial Venture and 100% of the management company. The Gateway Commercial Venture is an unconsolidated entity with our investment in the venture accounted for in our equity method of accounting. Commercial segment revenues were $8.6 million for the quarter. Operating expenses, interest, depreciation, and amortization totaled $9.2 million. The commercial segment loss for the quarter was $0.6 million, comprised of $0.1 million of income related to the management company, offset by $0.7 million loss for the gateway commercial venture operations. The company recognized a loss of $0.6 million on its investment in the gateway commercial venture. I'll wrap it up with a few comments related to our balance sheet and liquidity positions. As of the end of the quarter, total liquidity was approximately $372 million, which was comprised of cash and cash equivalents totaling $248 million and borrowing availability of $124 million under our corporate revolver. Our balance sheet is solid with a debt-to-total capital ratio of $25.5 million. Let me turn it back to the operator who now opened it up for questions.