Five Point Holdings

Greetings, and welcome to the Five Point Holdings LLC fourth quarter 2020 conference call. Currently, all participants are in a listen-only mode. As a reminder, this call is being recorded. Today's conference may include forward-looking statements regarding five-point business, financial conditions, operations, cash flow, strategic prospects, forward-looking statements, represents only five-point estimates on the date of this conference call and are not intended to give any assurance as to actual future results. Because the 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-point 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 Point's SEC filings, including those in the risk factors section of the most recent annual report included in Form 10-K filed with the SEC. Please note that Five Point assumes no obligation to update any forward-looking statements. And now I would like to turn over the call to Mr. Emile Haddad, Chairman and CEO of FivePoint. Please go ahead, sir.

Thank you, Sarah. Welcome to our call and happy St. Patrick's Day. A year ago yesterday, we had our year-end earnings call on the heels of sending everyone home to comply with the COVID stay-at-home orders and to ensure the well-being of our associates. Within just a few days, we set in motion our emergency plan that shut down discretionary spending, thereby preserving cash and protecting our balance sheets. At that time, our great park venture chose not to sell any home sites for the balance of 2020 in order to allow our builders to sell homes without the pressure of added inventory. This allowed us to continue to optimize the pace of our landfill and to maintain the value of our land which is a limited resource in our submarkets. The fact that we have approximately $180 million in cash on the Great Park Ventures balance sheet, in addition to the cash we have on the company's balance sheet, gave us the flexibility to make these type of practical decisions as we believed necessary. We did this all while helping our communities cope with the impact of the virus, including donating badly needed PPE that was in short supply in the early months of the pandemic. Today, as we look back at a very unusual year, we are proud that we accomplished all our goals for 2020. As stated in our earnings release, our balance sheet is well positioned with ample liquidity and low leverage. We believe that our assets have become more valuable as a result of the strength of the housing market and the migration of homebuyers to the types of communities that we are building, ones that include quality public schools, abundant open space, and state-of-the-art sports fields and amenities. At the same time, the bonds among our associates have grown stronger, and the commitment made by everyone to ensure that the company comes out stronger has been more effective than any team-building program that I have ever seen. Companies with a strong culture were able to function much better in a virtual environment than those without. As 2020 unfolded, it turned out that the bright spot in the economy was housing, driven by lower interest rates and what I have been referring to as a cocoon factor, where people find themselves spending more time in their homes. According to CoreLogic, in 2020, median prices of existing homes in LA County went up by 18.2% and 12.6% in Orange County. What we have seen so far in 2021 is a strengthening in the housing market in general and an increase in demand for homes in our community in particular, resulting in a bigger interest from builders to buy land. At the Great Park, comparing home sales and cancellations for the period of December 2019 through mid-March 2020 versus the same period in 2020 and 2021, the number of homes sold increased from 177 to 257, and the number of cancellations dropped from 41 to 10, yielding an almost doubling in the rate of net sales. We view the trend in lower cancellations as the leading indicator of homebuyers' confidence as well as their ability to qualify for mortgages. We are currently engaged with our guest builders regarding the next phase of home site sales, which we currently anticipate closing in Q2 or Q3. The anticipated proceeds from these sales are expected to be sufficient to pay the last $45 million of priority legacy distributions, which totals $476 million, and to provide for a distribution to typefarm. We also recently kicked off home sales at our pre-built program at the Great Park with the new home company. The program is off to a great start. On March 6th, the first eight homes were released for sale, and within a few days, five of these homes were sold and one more reserved at prices between $1.5 and $1.6 million. In Valencia, with the sale of the additional 487 home sites in Q4 to NBC, TriPoint, Toll Brothers, and KB, our builders are currently either building their first model homes or getting ready to do so very shortly. The first home sales in this first phase, which also includes our fifth builder, Lunar, are scheduled to start next month. In total, this first phase includes 1,268 homes. Later this year, prospective buyers will be able to visit approximately 50 separate model homes that will have a very wide range of pricing and will cater to a broad base of home buyers. Valencia will be the biggest provider of new homes in Los Angeles County by far. I have been in this business for 35 years and I've never seen a political environment that is more favorable focused on new housing. There are multiple pro-housing goals in the pipeline. and the governor has set a target of building 3.5 million new homes by 2025, which is approximately a 500% increase from the current annual pace of home production. This is all coming to pass due to the severe housing shortage in California that has been growing for many years, particularly in our markets where there is a high demand for housing and little supply of land for new homes. The state's most recent housing needs assessment has confirmed this fact and shows a need of over 1.3 million housing units in Southern California and over 400,000 units in the Bay Area. As part of the state's assessment, each county and city within these regions gets allocated a share of the housing needs, which it has been required to plan for in its zoning and general plan to meet the housing needs for everyone in the community. We are having active dialogues with our local public partners to explore opportunities for intensification within some of our communities to provide more housing and assist in mitigating the shortfall. We believe that the next few years will provide a good environment for housing. As the largest provider of diversified residential opportunities in main markets in California, we are positioned extremely well to capitalize on these conditions. Finally, with the vaccinations underway and the hope that by early summer, we will be able to start having in-person meetings, we are currently targeting June as a potential investors meeting that will be both virtual and in-person. Now, let me turn it over to Eric, who will report on our 2020 Q4 and year-end financials, and then we'll be happy to take questions after that.

Thanks, Emil. A summary of our financial results. was included in the earnings release issued yesterday, and our 10K was filed last week. Our financial results for the fourth quarter were highlighted by the previously announced second round of land sales in Valencia, where we closed on 442 home sites and entered into a contract to sell an additional 45, which will close in 2021. Our cash position improved by $27.6 million to $298 million and we had no borrowings under our $125 million corporate revolving line of credit. Debt to total capitalization at the end of the year was stable at 24.9%. Net debt to total capitalization at the end of the year, taking into account our cash balance, was 14.8%. Revenues under management were $115.6 million for the quarter, After eliminating revenues from the unconsolidated entities, our consolidated revenues were $111.7 million. The land sales in Valencia generated $105.5 million in revenue. Management fee revenue of $5.6 million was recognized during the quarter, primarily as a result of management services we provide to the Great Park Venture. ST&A for the quarter was $24.9 million. The company's share of fourth quarter loss in unconsolidated entities, which includes the Great Park Venture, the Gateway Commercial Venture, and the newly formed Valencia Land Bank Venture, was $3.1 million. Net income was $3.7 million for the quarter. The company has four reporting segments, Valencia, San Francisco, Great Park, and Commercial. The segment results for the fourth quarter are as follows. The Valencia segment is consolidated for accounting purposes. Total revenues for the Valencia segment were $106 million for the fourth quarter, which included the land sales as well as marketing key revenue we expect to collect as homes are sold. We closed on 442 home sites for $102.2 million. We entered into a sales contract for an additional 45 home sites, which were closed in 2021. 210 of the 442 home sites closed were sold to the newly formed Valencia Land Bank Venture, in which Five Point owns a 10% equity interest. The land bank was formed to facilitate land sales at Valencia to home builders who are pursuing balance sheet alternatives to land acquisition and just-in-time delivery of home sites. Revenues associated with these closings are reported as related party land sales and 10% of the gross margin from the land sale is deferred until the land bank sells the land to the third party home builder. The Valencia Land Bank Venture is an unconsolidated entity and its operations will be accounted for under the equity method of accounting. Five Point contributed $4.2 million to the land bank in the fourth quarter and $1.6 million of the gross margin from the sale to the land bank was deferred through equity and loss from unconsolidated entities. The Valencia segment profit was $27.5 million for the quarter. The San Francisco segment is consolidated for accounting purposes and recognized a loss of $3 million for the quarter, which was primarily related to ST&A for the segment. The Great Park segment includes operations of the Great Park Venture, the owner of the Great Park neighborhoods, as well as the management services provided by the management company to the Great Park Venture. As a reminder, we own 37.5% percentage interest of the Great Park Venture and 100% of the management company. The operations of the Great Park Venture are accounted for under the equity method of accounting, and therefore, the assets and the liabilities of the Great Park Venture are not included in our consolidated financial statements. The Great Park Venture is a self-funding operation with no debt and had a cash balance of approximately $128 million at the end of the year, which is not included in FivePoint's consolidated cash balance. Ownership interests in Great Park Venture are either percentage interests, of which FivePoint owns 37.5%, or legacy interests. Holders of the legacy interests are entitled to receive priority distributions of available cash in an amount of up to $565 million. To date, the legacy interests have received distributions of $431.3 million, including a $76.3 million legacy distribution, which was made in January of 2020. The remaining aggregate distributions payable to the holders of the legacy interests total $134 million. Of that $134 million, The first $45 million will be paid to the holders of the legacy interest prior to the commencement of distributions to the holders of the percentage interest. We anticipate the next round of land sales at the Great Park later this year to generate enough available cash to fund the $45 million priority distribution to the holders of the legacy interest and to commence distributions to the percentage interest, of which 5.0 will receive 37.5%. For the fourth quarter, the Great Park Segment revenues were $7.2 million, which were primarily related to $5.5 million in management fee revenue recognized by the management company for services provided to the Great Park Venture. Net income for the Great Park Segment was $0.4 million for the fourth quarter, which was comprised of approximately $1.6 million of income from the management company and a $1.2 million loss from the Great Park Venture operations. The company's equity and loss from the Great Park Venture after adjusting for a difference in investment basis was $1.3 million per quarter. 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 operations of the commercial gateway venture are accounted for under the equity method of accounting, and therefore the assets and the liabilities of the gateway commercial venture are not included in our consolidated financial statements. Commercial segment revenues were $2.2 million for the quarter, which reflects a reduction in rent as a result of the sale of the two office buildings occupied by Broadcom earlier in the year. Commercial segment loss for the quarter was $0.1 million. The company's equity loss from the Gateway Commercial Venture was 0.2 million. With that, I'll turn it over to Sarah, our operator, for questions.