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spk08: Thank you. Thank you. Good day, everyone. Welcome to today's Five Point Holdings third quarter 2020 conference call. Currently, all participants are in a listen-only mode. As a reminder, today's program is being recorded. Today's conference may include forward-looking statements regarding Five Point's business, financial conditions, 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 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 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 FivePoint assumes no obligation to update any forward-looking statement. Now I'd like to turn the call over to Mr. Amil Haddad, Chairman and CEO of FivePoint. Please go ahead, sir.
spk02: Thank you, Greg, and welcome, everyone. I hope that you and your loved ones are all healthy. The results of our third quarter speak to the main tenets of our strategy of maintaining a strong balance sheet and continuing to invest in our communities. This investment in the infrastructure and amenities that characterize a pipeline community is driving value by creating great places for people of all walks of life to live, work, connect with each other, and with nature. We have highlighted often the premiums that our homebuyers are paying to live close to state-of-the-art sports and entertainment facilities and to have their children enroll in our excellent public school systems. The project achieved with the sale of two of our buildings at our Gateway Campus in Irvine is a clear example of the premium put on our commercial real estate as a result of our investment in the overall community. Today, the Great Park in Irvine is being recognized as one of the premier communities in the country. Soon, our proof of concept will be seen in Valencia as families are expected to move into their new homes in 2021. The housing market is doing very well, thanks to historically low interest rates and higher demand for homes in our type of communities. Our markets in Los Angeles and Orange County have seen home price appreciation of 8.2% and 4.7% over the last 12 months, respectively, according to Zillow, and are projected to see another 8.1% and 7.4% over the next 12 months, according to the same source. Finally, before I hand it over to Eric to go over our financial results, let me give you an update on our thinking about an investor's vision that will address our view of the disconnect between the real value of the company and our share price. At the end of 2019, you'll recall that we were planning for a two-day investors meeting and two of our communities. Unfortunately, COVID-19 disrupted those plans. Our hope is that we will be able to hold a two- and in-person meeting next year so we can show you the communities. However, if the conditions don't allow for that, we plan for a virtual meeting early next year that we hope will help you understand the value of the company the way you see it every day. Now let me turn it over to Eric, who will report on our Q3 financial results, and I will take questions after that.
spk01: Thank you, Neil. Our Q10 was followed on November 6th, and the summary of our financial results is included in the earnings release issued earlier today. I'll start with our consolidated results, then I'll address each of our four segments and conclude with comments about our balance sheet in our liquidity position. The company's consolidated revenues for the third quarter totaled $8.4 million, primarily related to the recognition of revenue generated from related party management services. We recognized $52.4 million in earnings from our two unconsolidated joint ventures, including earnings of $56.6 million from our 75% interest in the Gateway commercial venture as a result of the sale of two buildings occupied by Broadcom at the Five Point Gateway campus. Total consolidated costs and expenses were approximately $24.5 million, including selling, general, and administrative expenses of $17.7 million for the quarter. Net income for the quarter was $36.4 million, of which $19.5 million was allocated to the non-controlling interests leaving approximately $17 million attributable to the company. Moving to the segment results. The Valencia segment is consolidated for accounting purposes. The segment lost in a quarter was $3.2 million, which was primarily selling general and administrative expenses. We collected $13.9 million against a land sale note related to a land sale that occurred earlier in the year. The San Francisco segment is also consolidated for accounting purposes. The San Francisco segment's net loss for the quarter was $1.8 million, which was primarily SD&A 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 cost basis of accounting. The Great Park Venture is a self-funding operation with no project-level debt. The Great Park segment revenues were $8.1 million for the third quarter, consisting primarily of revenue recognized under the management agreement. The third 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 the loss of $4.2 million on its investment in the Great Park Venture, which includes our share of the Great Park Venture's losses. 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 also an unconsolidated entity, with our investment in the venture accounting for 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. Commercial segment income was $75.6 million for the quarter, primarily related to the sale of two office buildings occupied by Broadcom at the Five Point Gateway campus. These buildings were sold for $355 million. The JV paid off $245 million in project-level debt in connection with the sale and made a cash distribution of $107 million to its members, of which Y-Point received $80.3 million. The company recognized approximately $56.6 million of income on its investment in the Gateway commercial venture. For historical purpose perspective on our 75% investment in the Gateway commercial venture, the company contributed approximately $107 million to the JV in August of 2017 in connection with the venture's acquisition of the 73-acre campus, which included four buildings totaling approximately 1 million square feet of office space. As of today, FlyPoint has received 30, I'm sorry, received $136.6 million in cash distributions from the sale of three buildings and approximately 11 acres. The venture currently owns one of the four buildings and approximately 50 acres of commercial land with additional development rights at the campus. I'll wrap it up with a few comments related to our balance sheet and liquidity position. Our cash position increased by $55.5 million for the quarter. The increase was primarily the result of $80.3 million in cash distributions from the Gateway Commercial Venture and collected $13.9 million against the land sale note offset by continued inventory expenditures of Valencia and SG&A expenses. As of September 30, 2020, total liquidity was approximately $395.2 million which was comprised of our cash balance of $270.6 million and borrowing availability of $124.7 million under our $125 million unsecured revolving credit facility. Our balance sheet is strong with the debt to total capital ratio of 25%. Let me turn it now back to the operator who will open up for questions.
spk08: Thank you very much, sir. And ladies and gentlemen, if you have any questions at this time, please join the queue by pressing star 1 on your telephone keypad. If you just make sure that you have your mute function turned off to allow us to receive that signal. Once again, star 1 for any questions at this time. We'll pause for just a moment to allow everyone an opportunity to signal for questions. All right. And first, we'll hear from Stephen Kim, who's with Evercore ISI.
spk04: Thanks very much, guys. Honestly, a lot has changed over the course of this interesting year, and probably No one thing has changed more than the attitude or the perspective on home price appreciation, particularly near-term home price appreciation. Obviously, I know your business, you don't run it for a quarter or even one year. But given your unique vantage point in the industry, I was curious if you could comment on The trends you're seeing and the degree to which what you have seen thus far and the near-term outlook, I think you talked about 7%, 8% price growth in the neighboring markets near Newhall, for example, which I think is very different from what was conceived of maybe six, nine months ago, how those changes are factoring into your thinking as to the stream of cash flows perhaps in the future from Newhall or just in general how you may be approaching the best way, what might be the best way to monetize your long-term investments in the Great Park, both remaining in Great Park as well as in Newhall?
spk02: Thanks, Stephen. Nice to hear from you. Look, I think that the answer to your question is there's a very consistent view that we have and we've always had on the uniqueness of our community's location-wise, size-wise, and ability to put in amenities that are very unique, as you have seen at the Great Park, and create value that way. Coupled with the fact that we really are the, in many ways, we're the only game in town in Los Angeles County as well as in Orange County to a great extent, and that gives us a huge advantage in terms of supplying a market that is start for housing and has been with a huge amount of pent-up demand. That hasn't changed anything. I think it has been even more aggravated. What has changed though is, as you highlighted, is an attitude of the consumer to migrate more to our type of communities with open space, with trails, with lower density, and with amenities but today people are appreciating much more than they were actually appreciating before COVID-19. So that obviously is a factor that has helped a lot at the Great Park, and we're seeing now that through the interest from our builders, certainly to Valencia as well, and we are expecting that there's going to be a lot of interest from the higher density in Los Angeles to be up there. So that we're seeing... In terms of the appreciation and whether it's short-term or long-term, look, appreciation is a function of an imbalance of supply-demand, and nothing on the horizon shows us that there's going to be an increase in the supply. And if anything, as I said before, we're seeing the demand go higher, and it's translating to some of the numbers I gave you in terms of appreciation that is Today, we're seeing in the rearview mirror that there's more than what I think a lot of people are speculating was going to happen in 2020. To summarize, we have always believed that we are going to be in this unique position in these markets, and now that both of our assets have reached the maturity they've reached and we can now start monetizing, it happens to be at a time when interest rates are low, there's a high level of interest on the and it's only going to accelerate, I think, our thinking. Now, in terms of whether the question is, are we going to be increasing the amount of supply or not of home sites, we have to be very careful for two reasons. One, this is the beginning of a large, massive bank community. As you know, there's going to be 21,000 homes, and it is extremely important for us to allow our first group of builders to make money, to go in and not to have to stretch, and to create the right momentum for the community. And two, the infrastructure timeline sometimes dictates how much can we put on the market in terms of home sites. This is not flat land where we can go and do whatever we want. But the simple answer is, right now we have demand from the builders higher than we were projecting several months ago. And we'll be extremely careful about how much of that we want to put on the market and how much we want. And hopefully by the next time we have this call, we'll be able to tell you exactly what happened.
spk04: Yeah, that would be great. And, you know, correct me if I'm wrong, but I recall that perhaps earlier this year, at the end of last year, when there was a rethinking of HPA, your longer-term HPA assumptions. I seem to recall a number around 3.5% or something. Can you comment on how your thinking around HPA that you've been embedding in your longer-term models has changed in the last 12 months?
spk02: Yeah, I mean, look, I think that, you know, we don't regularly do life of the deal cash flow for something that goes, you know, as long as this is. We tend to look more in terms of, you know, three years ahead, between two to four years, three years ahead. And we have not changed our assumptions. There's no reason for us to change our assumptions because, you know, we already have reported very healthy margins and, you know, you change your assumptions after all you're doing, you're just moving the news along the margin. So from my perspective, do I believe it's going to be higher? I think if the dynamics stay the same, if the interest rates stay as low as they are, the answer is yes. But there's no reason for us to change those assumptions.
spk04: Great. I recall asking earlier this year when there seemed to be a big change happening in buyer preferences, whether or not you thought that there was a potential that some of these changes, particularly as it related to the attractiveness of food and beverage and entertainment venues and things like that, that at the time you felt like it would be a mistake to presume that some of the changing, you know, elevated concerns and therefore reduced preference for some of those venues, it would be a mistake to assume that that would be a semi-permanent kind of a situation. More recently, I've heard you talk about the importance, you think, of providing opportunities for conversation, relationships, and it seems like you're sort of leaning into this idea that as we go forward here, perhaps in the next year or two, you will actually see the preference for those kinds of venues to, if anything, increase relative to what they had been before. I'm curious if I'm reading what I heard correctly. or if you could give any kind of update on what you think about the longer term or the durability of some of the more recent trends that we've seen in customer behavior and homeowner's behavior.
spk02: Yeah, I mean, look, here's what I've been saying. First, I think I want to jump to a quick conclusion that the design of the home is going to have to change because everybody's going to be working out of their home. or that the office space is obsolete because nobody's going to want to come to an office. I said and I still say that we're going to be watching the consumer's behavior and how much of the consumer's behavior is going to change as a result of the acceleration of some things that were going to happen anyway in the future with this COVID-19 situation, and we are doing that. I can tell you, though, that I believe you asked about the short term and the long term. Obviously, the short term, the communities themselves are serving the purpose because of the open space and the type of amenities that the consumer is looking for in this environment. Long term, I can tell you we started thinking about even accelerating and enhancing some of our lifestyle and entertainment venues Because I, for one, believe that once the virus is behind us, once people are going to forget about the virus, I think you're going to see something very similar to our early 20s because of the amount of pent-up demand for normality, social life, and everything else. And as you remember, before the COVID-19, a lot of what we were focusing on was either healthcare-related on the commercial, which we are still doing that, as well as very unique lifestyle, food, beverage, entertainment that we're going to be building as basically our hub of our community. I think that long-term, I think that's going to be even more focused on. The one area that I think we don't have a lot of and we will have to watch is the office space because there's a very good chance that the office space itself is going to start changing in configurations.
spk04: Yeah, sure. Okay, great. Thanks very much, Emil. Appreciate it.
spk08: All right, moving on. From J.P. Morgan, we have Michael Reout.
spk05: Hi, this is Alon Helman on for Mike. Thanks for taking my questions. So first, I was wondering if you could comment on what you saw from HomeBuilders on the stronger monthly sales trends at Great Park during the quarter, and also whether you saw any seasonal swelling in October.
spk02: I'm sorry, I didn't hear the second part. The first part was you're asking me about the rate of sales, I think, is a great part. And we have seen an increase from the first quarter. So the way I look at the year is I look at the first quarter, which was before the COVID-19 lockdown. And at that time, we were running about 10 sales a week. I can tell you in the last quarter, you know, for the last 90 days, We've been seeing more like 12. So we've had an increase. And I think that's really what's telling us that there's a higher demand we hear from our builders as well. And it's across the board. So I'm sorry, what was the second part of the question I didn't catch?
spk05: I was wondering about October, whether that strength has continued into October.
spk02: Yes. Yeah, we're seeing it all through last reporting, which was last week.
spk05: Great, that's very helpful. And then secondly, just following up there, are you seeing builders more engaged in the market in the sense that they may be willing to pay more for your home sites at Great Park in Valencia versus last quarter? And then also, have you started to re-ramp any development activities for your home sites at Great Park in Valencia? Yeah.
spk02: The answer to your question is that we, in the great part, let me start with that, we don't intend to go to sale with another round of home sites until later next year, and therefore we haven't priced our land. We still feel, based on everything we see in the market, that the price for land is moving up, but I can't tell you where we're going to be because we're not going to be in that position until mid of next year sometime. In terms of Valencia, we have not changed our asking prices. As I said before, we just want to make sure that our builders are comfortable, that they're going to be able to start their sales program and have success because the last thing we've won is to not have the right momentum with the first group of home sites. However, I can tell you that in the last probably 60 days, we've had a lot of more engagement from builders a lot of more interest from builders in Valencia. And I think that by the end of this year, hopefully we'll be able to share with you all some of these deals that have been done.
spk07: Okay, great. Thank you.
spk08: Once again, folks, that's Star 1. If you do have any questions, we'll move on next to Alan Ratner, who's with Zellman & Associates.
spk06: Hey guys, good afternoon and glad to hear everyone's doing well on your end. Emil, just on that last point on Valencia, I just want to hopefully make sure I'm interpreting that right because I believe last quarter you updated that you had about 250 standing finish lots still left to sell on Valencia and I think another 100, 150 or so that maybe were partially developed. Is that what you're referring to that you've been talking to builders about lately and potentially could announce a sale there before the end of the year, or am I thinking about that wrong?
spk02: No, you're not. You're right. We have about 250 standing inventory, and those are already in negotiations with builders and discussions. I also mentioned that there's a higher demand, and therefore we're doing some land development for additional home sites. and the expectation is that those will be all hopefully concluded either by the end of the year or shortly after the end of the year. As much as we are focusing on the year-end, we also want to make sure that we don't force a closing at the year-end. That might not be the right valuation or might create a situation that is not the right business decision. But I would tell you that I think that our goal right now And every indication shows us that we're going to get there, is that we're going to get to somewhere between 350 and 400 onsets.
spk06: Great. That's very helpful. Second question, a little bit just housekeeping. I think you made a comment that your development activity is resuming again. So from a cash flow perspective, should we think about kind of the quarterly increase in inventory that you were seeing pre-COVID as realistic guide going forward. I think it was roughly $70 to $80 million or so a quarter is the run rate you were running at previously.
spk02: I don't have the numbers in front of me, and I hesitate to give it in terms of a burn rate just because, as you know, land development is not as consistent quarter to quarter in terms of spending. But I don't think you should expect the same amount that we were incurring as we were gearing up for the first phase of sales. The first two years of land development in Valencia was a heavy lift and was very costly. I don't think it's going to be that much, but the answer to the question is we are starting to gear up for land development for at least the additional home sites we're talking about. As we see how the builders do, we will start thinking about how many more home sites we want to manufacture. But just on the margin note, Valencia is not a subdivision where you look at it as if your dollars that you're going in are just simply going to develop home sites. We have a lot of major infrastructure that we're doing because we're basically building a city. And that will probably have less to do with how many home sites are going to be online and how many Homes are not going to be online. It's obligations we're going to do. But I don't think you should expect the same amount of burn rates. Okay.
spk06: That's very helpful. I have two more quick ones if I could. First, on Great Park, thank you for that timeline as far as the next round of lot sales. Should we think about that also coinciding with when you guys would expect to receive your first distribution from the joint venture? Sure.
spk02: Well, I mean, I think that the distribution, there's a distribution that still is needed to satisfy the legacy, but we're expecting that there will be enough sales of home sites next year, enough revenue to where we will start seeing distributions come to five points past the point of satisfying the legacy, which, you know, put it in perspective. I mean, that's a major statement. to be able to say that over the last few years we've been able to satisfy the legacy distribution, which was about 500 plus million dollars. But our expectations right now, Alan, is that we will see a distribution from the Great Park next year, and we're monitoring the rate of sales, and if the rate of sales keep on going as well as they're going, that will determine when we go to market with additional homesites because that's how we look at these things. We dovetail when a community is burning out to when a replacement comes in.
spk06: Understood. That's helpful. And finally, obviously you're incredibly connected from a political landscape throughout your markets of operation in California. So now with Election Day behind us, Just curious if you can give us a little bit of an update on if anything's kind of changed locally on the political landscape that would affect your business one way or another across either Orange County, L.A. County, or even up in San Francisco.
spk02: Well, locally, all of the results of the elections make us feel very comfortable that we're not going to see anything here that is going to mean anything different The good news for us is we used to worry about these things much more a few years ago when we were in the entitlement process. As you know, we've crossed that hurdle and we're entitled, but we still have to deal with a lot of issues at the local level, and we're very, very comfortable that our partnership with the city of Irvine, our partnership with LA County, and our partnership with San Francisco is very much on solid ground. So at the local level, All the results are good results. None of them are results that are making us rethink anything. Obviously, at the state level, today, you know, California has even a more prominent position at the federal level with the Vice President and with the Speaker of the House, assuming nothing changes there. And, you know, we have great relationship with both sides of the aisle, and California becomes even much more of a focus as a result of the latest election, we believe.
spk06: Great. Appreciate that, and good luck.
spk00: Sure.
spk08: All right, moving on from Wells Fargo, we have Truman Patterson.
spk03: Hey, good afternoon, everyone. Last quarter, you all discussed in the Great Park of being a fee builder – I believe with kind of a partnership with New Home to prove the market feasibility of some of the higher price points. Could you just give an update there? I believe it was supposed to start in one queue, but just give an update there. And do you still see the need given the rebound in the market?
spk02: Well, look, I mean, first of all, the New Home company is under construction. They're moving forward. I don't have a the report of sales yet, but they're moving forward. I think even in their own earnings call, they referenced that opportunity and how they view that as a very positive relationship. I just want to make sure that I didn't say something that might have been misunderstood. The relationship with the new home company wasn't because we couldn't sell something or because the market was weak. we basically said that there are certain products, when you develop 15 to 20 different product lines, there might be one product that might be a unique product, and as you know, we design the products, that might not be a product that is very comfortable for your big builders to build because it's much more of a niche builder product. And as such, rather than changing the product, and duplicating something that already exists, we will then go down the path of the fee build with somebody like the new home company, a company that actually has done very well in this type of mixed building. So this is not because we couldn't sell the product or because the market is weak. It's just because we did not want to compromise the integrity of the product segmentation and mix by taking the product out that might not be as comfortable for a production builder to be embarking on.
spk03: Okay, fair enough. And then in Valencia, I believe the home builders were supposed to be grand opening in January, but I know a lot of times prior to the hard grand opening, they'll have trailers and open up sales a few months ahead of time. Could you give an update there how the home builder sales have trended in Valencia so far if they've actually been kind of pre-selling out of trailers?
spk02: They have not. And the grand opening was scheduled to be for March. And right now we are on a parallel path of a physical grand opening as we are building right now parks and amenities and things like that to enable the builders and enable ourselves to have the typical grand opening that we have, knowing that we probably will have still some limitations even at night. We're at least planning for something physical, but at the same time, we're running a parallel strategy of virtual grand opening, and we're making a big investment to help our builders in terms of any virtual type of selling. From our perspective, we need to make sure that the builders have an ability to sell potential buyers on the amenities and all the different things that they're going to get which typically they see it physically uh but the grand opening was always scheduled for march builders are could start pre-selling and selling softly in january but nobody has started selling okay okay okay no fair enough and then i believe you you put some numbers around valencia but i'm just hoping for a little bit of clarity you know as we look out over
spk03: you know, the next year or so, 21, what would you consider, you know, a successful year regarding lot sales that, you know, you can develop and close at both the Great Park and Valencia?
spk02: Well, look, I mean, I think we said last year when we started, we said if we can go out with the first group of home sites of 500 and then follow with another probably 250 or so, for the first year, 750 was going to be a a good number for us because that would have put us in a position to say we have enough product segmentation, enough activity, but not oversupply the market. We went from the 500 to 781 and we're talking about potentially another 300 to 400. We obviously are exceeding what we thought we were going to do and we're doing it not because we need to or because we wanted to supply the market, it's really more driven by the demand from the builders and its diversified builders. That's what's driving us. If you're asking me, I've always said in the first year or two or three even in Valencia, if we can do 1,000 a year, that would be a good start that can ramp up to about 1,500. It looks right now that we're going to might be even more than that. That's very exciting for us, but it's not surprising because there's no supply.
spk03: All right, thank you for that. I appreciate it.
spk08: Once again, folks, star one for any questions. We'll move on to Scott Field with Backfoot.
spk07: Hi, I was wondering if you guys calculate like a book value but market value base, like the actual rough price of the building and so on, back of the envelope type of calculation. Or another way of asking, what do you think the share price range is that's fair value? You mentioned earlier in the call that it's clearly undervalued.
spk02: Well, look, we have a book value of about $2 billion, and that translates to $14 a share. And that's a book value that came about as a result of a combination of different entities that had very sophisticated investors in it in each of the assets. Because at the time that we did the combination before the IPO, we wanted to make sure that we don't trigger property tax readjustments because California has that unique situation. Newhall was deemed to be the acquirer in that combination and Newhall had a very low historic book value because it came out of a restructuring in chapter 11. Basically, our view when we went public, that although our stated book value is $14 per share, we believe that based on if you were to adjust Valencia up to market like the other assets were adjusted, we believe at that time that we could be more in the range of about $17 and $18. That's what we said at that time. The book value obviously hasn't changed, and we still stand behind that. If anything, over the last three years, based on home price appreciation as well as value creation with all the things that we've put in, as I mentioned before, we have our own belief that we are understated
spk07: I agree. Thank you.
spk02: Well, we appreciate that. Thank you. All right.
spk08: Folks, it looks like we have no further questions in the queue. I'd like to turn the floor back to the management team just for any additional or closing remarks that they have.
spk02: Well, just in conclusion, thank you very much for dialing in. Hopefully, by the time we have this call next time, we will be able to report more on the activities in Valencia. And as I said, from where we sit, we look at 2021 as a great year, hopefully assuming that the backdrop in terms of the coronavirus is behind us because we would be in deep in production and selling homes and moving families into Valencia, which is something that we've been waiting for for many, many years. And in the meanwhile, just stay healthy and thanks for your interest in the company and look forward to talking to you again. Thank you very much.
spk08: Folks, that does conclude our conference for today. We appreciate you dialing in. Thank you.
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