Five Point Holdings

We are currently holding for the Five Point Holdings LLC first quarter 2021 conference call. At this time, we are assembling our audience and will be underway in about two minutes. We thank you for your patience in holding and ask that you please remain on the line. Thank you. Greetings and welcome to the Five Point Holdings LLC first quarter 2021 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's business, financial conditions, operations, cash flow, strategy, and prospects. Forward-looking statements represent 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 included in Form 10-K filed with SEC. Please note that Five Points assumes no obligation to update any forward-looking statements. And now I would like to turn the call over to Mr. Amil Haddad, Chairman and CEO.

Thank you, Jenny. Good afternoon, everyone, and thank you for joining us today. As you know by now, we are not a quarterly business. The timing of our residential land sales is driven by the velocity of home sales by our guest builders. We time our delivery of specific home size to builders to dovetail with the build-out of similar products that they are building and selling. The new home sites are designed to accommodate replacement for the size of type or type of homes that have been sold out. This is one of the mechanisms we use to control supply, thus maintaining the integrity of home pricing and protecting our builders. This is why our sales in each of our communities happen once or sometimes twice a year. As such, our quarterly reports do not necessarily provide an ability to monitor market conditions or the performance of the company. We use the pace of home sales by our builders as a way to measure the strength of the market, and we view the number of cancellations as a change in buyer sentiment or difficulty in mortgage qualifications. To that end, at the Great Park, the rate of sales has been over 2x year-to-date through April as compared to the same period last year, and the number of cancellations is very low compared to historical averages. More specifically, in the same period last year, our builders had approximately 162 net sales after 55 cancellations versus 162 339 net sales after just 16 cancellations. The feedback we are getting from our builders is that homebuyers are attracted to the quality of the public schools in our community, the safety of our neighborhoods, and the exceptional quality and number of amenities. Our fee-billed program with the new home company is doing great. The rate of sales is approximately 300% from our underwriting and prices are above underwriting as well. We are nearing completion of the selection of builders for the next neighborhoods to be sold at the Great Park and currently anticipate completing the transaction in the second quarter of this year. The total number of home sites in this phase is expected to be approximately 850 with a mix of product like we typically sell. In Valencia, after over 17 years Since the approval of the specific plan for the project by the Los Angeles County Board of Supervisors, last week our builders reported their first sales of the first phase, with starting prices coming in above underwriting and a growing interest list in the hundreds. The first phase includes 1,268 home sites and is segmented into 18 products being built by five builders, This year, buyers will be able to visit over 60 models to choose their preferred home. As a net zero energy and net zero greenhouse gas community, Valencia is being pointed to as the model of an environmentally responsible community. The wide range of market rate homes, coupled with the future affordable rate housing and the quality of public education, provide a balance of social equity to this environmentally responsible community. A lot is being said about ESG these days, and every company is looking for ways to set goals in the areas of environmental responsibility, social equity, and governance. For us, ESG is in our DNA. Soon, we will be publishing our ESG report that highlights all of the environmental and social responsible initiatives we have been pursuing for many years at our communities, as well as other information about our company. We are very excited to share with you all that has been accomplished and know that more is to come. In San Francisco, we are seeing activity by the Navy in its resampling of areas within Hunter's Point. The Navy recently updated the schedule showing estimated dates for the completion of its regulatory assessment process and for the transfer of the balance of the parcels. We are cautiously optimistic that the re-evaluation process that the Navy must undertake will proceed now without further delays. To that end, we will continue to work with the City of San Francisco and other agencies to more clearly establish the timing of these land transfers and the phasing of the project. On our last call, we shared with you that the issue of housing has moved up to the top of the priority list in the state of California and every city and county within it. As one of the largest owners of entitled residential land in the state, we have started engaging with some of our public partners about ways to help with housing requirements by potentially adding more homes in our communities. On the non-residential front, almost three years ago, we made a decision to designate a significant amount of our non-residential entitlement to healthcare and life science-focused uses. Our partnership with the City of Hope has laid the foundation for that. The $1 billion cancer center is under construction at the Great Park and is anticipated to open next year. The three markets we have a major presence in, San Francisco, Los Angeles, and Orange County, are now among the top markets targeted by healthcare and life science companies and capital providers. This reinforces the decision we made and we believe that with the proximity of housing, public education, open space, and quality and number of amenities in our communities, we are positioned to be the location of choice to build a campus for these users. Last quarter, we talked about holding an investor meeting, which we had postponed last year due to the pandemic. Our original thinking was to have it virtually in June. However, in light of the announcement by the state to allow for everything to be open as early as mid-June, we have decided to hold the meeting in person and have targeted it for September 15th. Bob Waterhall will coordinate with you shortly in order to avoid any major time conflicts, and we will confirm that date with everyone shortly. Of course, we will give those who still want to participate virtually the option to do so, but we think that you all will be more informed by being able to see our communities in person. As we commented previously, the goal is to share more information in order to assist your understanding of the real value of the company. We believe that for a company like ours with elongated assets, the best way to look at valuation is the net asset value. We plan to share our calculation of the NAV at the meeting with approximately 2,300 remaining buildable acres in Valencia, where our current residential land sales are in the mid $2 million per acre, and approximately 500 buildable acres at the Great Park, where our current residential land sales are in the mid $5 million per acre, we are confident that when we finish our investor meeting in September, you will share our excitement about the real value of the company. There's a lot of noise today about the state of California and the number of people leaving the state. I came to California over 35 years ago, and I have been hearing about the demise of the state since then. Sure, the state has a lot of issues to address. As a partner of the state and the communities in which we work, we will always bring perspective and help any way we can. California is the fifth largest economy in the world with a very diversified population. It is the epicenter of innovation and the birthplace of many of the ideas that have changed the way the world lives and works today. For us, we know California, and California knows us. Finally, let me conclude by thanking all of our associates for all their contributions despite the tough remote working conditions we are still operating under. It appears that we'll be ending shortly, and I think We are all looking forward to seeing each other in person soon. Now let me turn it over to Eric, who will report on our 2021 Q1 financials, and we'd be happy to take your questions afterwards.

Thanks, Emile. A summary of our financial results was included in the earnings release issued earlier today, and our 10Q has been filed with the SEC and is available for review on our website. The consolidated results for the first quarter are as follows. Revenues for the quarter were $13.2 million, which were primarily generated from management fees. The net loss for the quarter was $21 million, after $19.5 million in SD&A expenses and $3.6 million in losses from our unconsolidated entities. While there were no land sales during the quarter, we continued to invest in inventory, which increased by $52.5 million during the quarter, primarily related to land development expenditures in Valencia. Our cash balance at the end of the quarter was $230 million, and we had no outstandings against our $125 million unsecured revolving line of credit. Our debt to total capital ratio was stable at 25.1%, and our net debt to capitalization ratio, when taking into account our cash balance, was 17.5%. In April, the maturity date on our 125 million revolver was extended another two years to April 2024. Moving to the segment results, the company has four reporting segments, Valencia, San Francisco, Great Park, and Commercial. The segment results for the first quarter are as follows. The Valencia segment is consolidated for accounting purposes. The segment loss was $4.9 million for the quarter, and there were no land sales in Valencia during the quarter. The San Francisco segment is consolidated for accounting purposes and recognized $94,000 in income for the quarter. 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. We own 37.5% of the 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 $155 million at the end of the quarter, which is not included in FivePoint's consolidated cash balance. The net loss for the Great Park segment was $10.9 million for the first quarter, which was comprised of approximately $1.6 million in income from the management company and a $12.5 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 $3.9 million for the quarter. We are currently working on our next round of land sales at Great Park Neighborhoods, which we anticipate will close later this year. We expect the cash proceeds from these sales and the Venture's existing cash balance to result in distributions to the venture's partners sufficient to clear out the remaining $45 million priority distribution to the legacy interests and to commence distribution to 5.37.5% percentage interest. 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 Gateway Commercial Venture are accounted for. The assets and the liabilities of the Gateway Commercial Venture are not included in our consolidated financial statements. Commercial segment income was $579,000 for the quarter, which included approximately $99,000 from the management company and $480,000 from the operations of the Gateway Commercial Venture. Five points equity and earnings from the Gateway Commercial Venture was approximately $360,000. With that, I'll turn it over to Jenny, our operator, for questions.