Five Point Holdings

Good day, everyone. Welcome to the Five Points Holding Second Quarter 2020 Conference Call. Currently, all participants are in listen-only mode. As a reminder, this conference call is being recorded. Today's conference may include forward-looking statements regarding Five Points business, financial conditions, operations, cash flow, strategy, and prospects. Forward-looking statements represent only Five Points estimates on the date of this conference call and are not intended to give any assurance or as to the actual future results. Because forward-looking statements relate to matters that have not yet occurred, these statements are inherently subject to risks and uncertainties. Many factors could affect future results and may cause five-point actual results or activities 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-point 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 FivePoint assumes no obligation to update any forward-looking statements. And now I'd like to turn the call over to Mr. Emil Haddad, Chairman and CEO of FivePoint. Please go ahead, sir.

Thank you very much, operator. Hello, everyone. And I hope that as we have this call, everyone on your side is healthy and safe. On the last running call on May 21st, we shared with you that the company had implemented a COVID-19 contingency plan, which was focused on preserving our strong liquidity position. The levers that we pull on to do so are, one, an ability to shut down two-thirds of our operational expenditures on short notice, and two, that 50% of our employment-related G&A costs are discretionary. In May, we shared that in light of the uncertainty at that time, we had shut down all land development activities except those needed to support our existing builders. We did that assuming the economic conditions were going to halt land acquisitions by builders. We also shared that we had started seeing home sales go back to a pre-COVID-19 level at the Great Park, but we didn't have enough data to draw any clear conclusions. The good news is that today we can look back and see a very consistent sales pace over the 12 weeks since our last call. The median number of home sales in the first quarter was 10 sales per week. In the second quarter, it was eight sales per week. And so far this quarter, there have been 12 sales per week. I am sure that most of you have seen the strong reporting of sales from the public builders. We see the positive sentiment of builders reflected in the engagement we have with them on purchasing home sites in Valencia. We also see it in the continuation of construction by our existing guest builders. In addition, The feedback we are hearing is that many homebuyers, as a result of COVID-19, are making the move to lower-density communities with extensive open space and trails and close proximity to employment and major health care facilities. That's making our communities very attractive. On the last call, we also shared with you the sale of 70 homesites in Valencia, which is reflected in our second quarter financials. The sale, as reported, included a portion of the purchase price payable through seller financing that comes due in December 2020. Last week, the builder chose to pay off over 90% of the seller financing much earlier than the due date. Today, we close the sale of the two Broadcom buildings at the Five Point Gateway campus. When we announced the sale on June 26th, the Orange County Business Journal reported that this sale was a new high in terms of price per square foot at $537 per square foot versus previous highs in the $400s per square foot. Similar to other transactions, we retain the right to repurchase the buildings if the buyer decides to exit in the future. If you recall, that's how we repurchased the campus from dot-com. Our vision of building fully integrated, multi-generational communities with world-class sports and entertainment amenities, as well as excellent public schools, has not only attracted homebuyers, but now investors and users of commercial space, all of whom can see the accretion in value that is created by the synergy of the live, work, play, learn, and connect elements. Previously, I mentioned that I have been asked to serve on the Governor's Task Force on Business and Job Recovery. I am serving as a co-chair of the Finance and Infrastructure Committee and can tell you that housing has been identified as a top priority as the lack of housing supply in our markets has not changed and, if anything, has only gotten worse as a result of COVID-19. This month, we launched our new website at fivepoint.com If you have time at home, we encourage you to explore the site. It is a good tool to understand the company strategy and its approach to community building. Finally, I hope that you stay healthy and that the positive trend we are seeing continues. Until the visibility of the road ahead is clearer, we will keep one foot on the accelerator and one foot on the brake. Thank you.

Thanks, Mel. This is Eric. Our 10Q was submitted on August 7th, and a summary of our financial results was included in the earnings release issued earlier today. I'll start with our consolidated results and then address each of our four segments and conclude with comments about our balance sheet and liquidity position. The company's consolidated revenues for the second quarter totaled $24.3 million, and primarily consisted of a land sale at Valencia generating $17 million and recognition of revenue generated from management services. We recognized $23.9 million in earnings from our two joint ventures, including earnings of $28 million from our 75% interest in the Gateway commercial venture. Total consolidated costs and expenses were approximately $34.3 million, including $11.9 million in cost of sales related to the land sale of Palencia and $16.3 million of selling general and administrative expenses for the quarter. Net income for the quarter was approximately $14.2 million, of which $7.6 million was allocated to the non-controlling interests, leaving $6.6 million attributable to the company. Moving to segments. The Valencia segment is consolidated for accounting purposes. Revenues for the Valencia segment were $17.9 million, primarily related to the closing of 70 home sites during the quarter for a base purchase price of $16.6 million. The sale generated a 30% gross margin and was structured with a 10% cash payment and a $14.9 million note due in December of 2020. As Emile mentioned, the net was reduced by approximately $13.9 million during the third quarter prior to the maturity date. The Valencia segment income for the quarter was $1.7 million. The San Francisco segment is also consolidated for accounting purposes. The San Francisco segment's net loss for the quarter was $2.5 million, which was primarily STNA expenses. 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. As a reminder, we own 37.5% of the non-legacy percentage interest 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 a self-funding operation with no debt. The Great Park segment revenues were $6.8 million in the second quarter, consisting primarily of revenue recognized under the management agreement. The second quarter net loss for the Great Park segment totaled $10.2 million, consisting of $1.8 million of net income related to the management company and a loss of $12 million for the Great Park Venture operations. The company recognized a loss of $4.1 million on its investment in the Great Park Venture, which includes our share of the Great Park Venture's loss. Our commercial segment includes operations of the Gateway Commercial Venture and management services provided by the management company to the Gateway Commercial Venture. We own 75% of the Gateway Commercial Venture and 100% of the management company. The Gateway Commercial Venture is an unconsolidated entity with our investment in the venture accountable under the equity method of accounting. For segment reporting, we include the full results of the Gateway commercial venture at the venture's historical basis of accounting. The commercial segment income was $37.4 million for the quarter, primarily related to the sale of 11 acres and a 189,000-square-foot building to City of Hope. The real estate was sold for $108 million. The company recognized approximately $28 million of income on its investment and the Gateway Commercial Venture. The Gateway Commercial Venture made a $75 million cost distribution to its members during the quarter, of which 5.75% share was $56.3 million. As Amir mentioned, today the Gateway Commercial Venture sold two buildings currently occupied by Broadcom for $355 million. We expect the venture to make a cash distribution of approximately $100 million in connection with the sale, of which 75% will be distributed to FivePoint. When combining this sale with the City of Hope and excess entitlement sale, the venture has generated approximately $481 million compared to the venture's $443 million acquisition price in 2017. The venture and its members have recovered the initial investment, and the venture still owns one of the four buildings on the campus and development rights for future expansion. I'll wrap it up with a few comments related to our balance sheet and liquidity position. As of June 30, 2020, total liquidity was approximately $339.7 million, which is comprised of cash and cash equivalents totaling $215 million and borrowing capacity of $124.7 million under our unsecured revolving line of credit. Our balance sheet is solid with a debt-to-total capital ratio of 25.4%. With that, I'll turn it back to the operator, who will now open it up for questions.