Five Point Holdings

Greetings and welcome to the Five Point Holdings LLC second quarter 2021 conference call. Currently, all participants are in a listen-only mode. As a reminder, this call is being recorded. Today's conference call may include forward-looking statements regarding Five Points business financial conditions, operations, cash flow, strategy, and prospects. Forward-looking statements represent Five Points estimates on the date of this conference call and are not intended to give any assurance 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 Points actual activities or results to differ materially from those 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 the SEC. Please note that Five Point assumes no obligation to update any forward-looking statements. And now, I would like to turn the call over to Mr. Emile Haddad, Chairman and CEO.

Thank you, Shannon. Good afternoon, everyone, and thank you for joining us today. This past quarter marks another step forward in our long-term strategy, which is founded on maintaining a solid balance sheet and low debt and ample liquidity enabling us to monetize our irreplaceable assets. As evidence of this progress, FivePoint received nearly $100 million in distributions and incentive compensation payments from the Great Park Venture in the second quarter following the satisfaction of the Priority Legacy distributions. You may recall that the first $476 million in distributions out of the Great Park Venture all went to the legacy partners, and any distributions to Five Point were subordinate to such priority. The distributions received this quarter marked the commencement of distributions on Five Point's 37.5 percent interest in the Great Park Venture. In addition, home sales at the Great Park remain very strong. Through July of this year, the net home sales at the Great Park have totaled 516 homes out of an average of 14 products compared to 291 net sales out of an average of 20 products for the same period last year. This quarter also marked another milestone in our Valencia community. After almost two decades of entitlements, litigation, and land development, our guest builders started selling homes, and the rate of sales have been impressive. There's the first first home sales in mid May that have been 110 homes sold with an average of 8 product lines open for sale over this brief time period. At this rate, the annualized home sales would be around 1200 homes once all 18 products are selling. Once yesterday is being recognized not only as the biggest supplier of homes in LA County, but as what we believe is the largest net-zero energy mixed-use plan community in the country. The strength in the housing market is providing a strong tailwind to our already highly sought-after communities. The higher demand for homes is leading the builders to look for replacement of ready-to-build home sites. The lack of supply in our markets is driving double-digit home price appreciation, which is resulting in higher land prices. Many companies are allowing their employees to work remotely, and we believe this trend will continue. This, coupled with the favorable mortgage environment, is creating greater incentives for families to buy in communities like Valencia and the Great Park, benefiting from quality public education and highly amenitized communities. On our call last quarter, and in light of the governor's announcement at the time, of the reopening of the state, we discussed holding an investors meeting in the fall. However, due to the surge in COVID cases with the new Delta variant and the potential of new restrictions being imposed once again, the investors meeting will remain on hold until we get more clarity. In conclusion, the results of this quarter underscore the execution of the team at five points. Shareholders should derive comfort from the commitment of our leadership team, which has invested two decades into bringing our unique assets to maturity. There's a lot being said about the lack of supply of approved residential land in California because of the lengthy and complicated entitlement process. Shareholders today benefit from the fact that the majority of those hurdles have been crossed, and we are uniquely positioned to be the largest provider of home sites in the California coastal markets. The company also has over 20 million square feet of commercial development opportunities within its own communities that it can capitalize on. Our balance sheet gives us the ability to keep one foot on the accelerator and one on the brakes to react to sudden changes in conditions. Our partnership with the state of California and each of the jurisdictions in which we build distinguishes us from our peers. Lastly, our relationships with our home builders have grown broader and deeper. And our relationship with Lenoir, the number one builder in the country, is unique in that not only are they our largest shareholder and intimately familiar with our assets and leadership team, but they also have been the largest buyer of home sites in Valencia and the Great Park communities in which they have a long history of investment and a fundamental understanding of our vision and needs of our residents. Now, let me turn it over to Eric, who will report on our 2021 Q2 financial results, and we'll be happy to take questions after that.

Eric Coyle- Thanks, Emile. Good afternoon. 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, starting with the consolidated results. The company's consolidated revenues for the second quarter totaled $8.3 million. We did not have any land sales at either Valencia or San Francisco during the quarter, and as a result, the revenue for the quarter primarily consisted of revenue generated from management services. The Great Park Venture, our unconsolidated joint venture in Irvine, closed sales on land entitled for 774 home sites during the quarter, generating sales proceeds of $328.2 million. Under the equity method of accounting, our consolidated income statement for the quarter does not include the revenues and the expenses of the Great Park Venture. Instead, we recognize our share of the net income of the Great Park Venture as equity in earnings from unconsolidated entities. After adjusting for our basis difference, we recognized $11.9 million in earnings from our share of the Great Park Venture's net income for the quarter. Total consolidated costs and expenses were approximately $26.5 million including $19.2 million of selling general and administrative expenses for the quarter, as well as $5.8 million in expenses incurred in connection with providing management services to the Great Park Venture. The net loss for the quarter was approximately $4.9 million, of which $2.6 million was allocated to the non-controlling interests, leaving $2.3 million attributable to the company. segment results. The Valencia segment is consolidated for accounting purposes. The Valencia segment includes our Valencia community that is approximately 15,000 acres in northern Los Angeles County and is designed to include approximately 21,500 home sites and approximately 11.5 million square feet of commercial space. As of June 30th, 2021, 1,268 home sites had been sold. While there were no land sales in Valencia during the quarter, development of infrastructure improvements and amenities in the community continued and our community marketing efforts picked up as our guest builders readied their models and began selling to home buyers during the quarter. The Valencia segment for the quarter, the Valencia segment loss for the quarter was $6.1 million, comprised mostly of selling, general, and administrative expenses, including community marketing expenses. The San Francisco segment is also consolidated for accounting purposes. The San Francisco segment includes our candlestick and the San Francisco shipyard communities that are on approximately 800 acres of Bayfront property in the city of San Francisco. Candlestick and the San Francisco Shipyard are currently planned to include 12,000 home sites with approximately 6.3 million square feet of commercial space. The San Francisco segment's net loss for the quarter was 0.8 million, which was primarily general and administrative expenses. Moving to the Great Park. 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. Great Park Neighborhoods consists of approximately 2,100 acres in the city of Irvine. The community is currently designed to include 10,500 home sites and approximately 4.9 million square feet of commercial space. As of June 30th, 2021, 6,000, 970 homesites, including 709 affordable homesites, had been sold. The Great Park Segment revenues were $344.4 million in the second quarter, attributable to the recognition of revenue from the sale of 774 homesites on approximately 58 acres during the quarter, and revenue recognized under the management agreement. The base sales price for the 774 home sites was $328.2 million. Additional revenue of $7.6 million was recognized in connection with marketing fees, which are expected to be received at the time of the home closings. The second quarter net income for the Great Park segment totaled $70.8 million, consisting of $69.1 million of net income related to the Great Park venture and $1.7 million of net income from the management company. In addition to their operating results, the Great Park Venture also made a distribution to its members during the quarter. The payments to both the legacy and percentage interest holders totaled $255.3 million. As a 37.5 percent percentage interest holder, FivePoint received $76.6 million in distributions. The management company also collected 21, excuse me, 20.7 million of incentive compensation payments under the provisions of the development management agreement with the Great Park Venture and another 1 million for an indirect legacy interest we hold. In total, FivePoint received 98.3 million from the Great Park Venture during the quarter in distributions and incentive compensation payments. Of the $565 million in distributions, which are ultimately due to the legacy interest holders, $482.3 million has been paid, leaving a remaining balance of $82.7 million. The priority component of the legacy distribution has been satisfied, and the remaining $82.7 million will be paid out of future distributions with approximately 10% going to the legacy holders and 90% going to the holders of the percentage interests until the $82.7 million is paid in full. This latest distribution by the Great Park Venture is an important milestone in that FivePoint is now participating in the distributions made by the Great Park Venture. As a result of the quarter's activities at the Great Park Venture, the carrying value of our investment in the Great Park Venture that is included in our consolidated balance sheet had a net decrease of $64.7 million. This change consisted of an increase in the investment of $11.9 million from recognition of our share in the earnings of the Great Park Venture after adjusting for our basis difference, which was offset by a decrease to the investment in connection with the receipt of the $76.6 million cash distribution from the Great Park Venture. As of June 30th, our investment balance in the Great Park Venture was $322.8 million. Our commercial segment includes operations of the Commercial Gateway 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 accounted for under the equity method of accounting. For reporting purposes, we include the full results of the Commercial Gateway Venture at the venture's historical basis of accounting. After selling three of the four buildings located on the campus in 2020, the Commercial Gateway Venture currently owns one building and approximately 50 acres of commercial land with additional development rights at the campus. The commercial segment revenue was 2.3 million for the quarter, and the net income was approximately 300,000. I'll wrap it up with a few comments related to the balance sheet and our liquidity position. As of June 30th, total liquidity was approximately 361.2 million, which was comprised of cash and cash equivalents totaling 236.5 million and borrowing availability of $124.7 million under our $125 million unsecured revolving credit facility. The maturity date of our unsecured revolving credit facility was extended to April 2024 during the quarter. Our balance sheet is solid with a debt to total capital ratio of 25.2% and a net debt to total capital ratio after taking into account our cash balance of 17.3%. With that, let me turn it back to the operator who will now open it up for questions.