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spk00: Greetings and welcome to the Five Point Holdings LLC second quarter 2022 conference call. As a reminder, this call is being recorded. Today's conference may include forward-looking statements regarding Five Point's business financial condition, 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 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 Factor section of Five Points' most recent annual report on Form 10-K filed with the SEC. Please note that FivePoint assumes no obligation to update any forward-looking statements. And now I would like to turn the call over to Mr. Dan Hennigan, Chief Executive Officer. Please go ahead.
spk04: Good afternoon, everyone, and thank you for joining our call. I am joining remotely today as I have COVID and I'm still under the restrictions to isolate. So I am calling in from my home office. And we have Leo Key, our interim chief financial officer, and Mike Alvarado, our chief legal officer at our offices in Irvine. And Stuart Miller, our executive chairman, is also joining us from Colorado. I'm very pleased to update you today on the progress of the company through the second quarter of 2022. We'll also update you on our team's focus during the quarter and on the steps we have taken towards implementing our strategies. Then Leo will give an overview of the company's financial performance and conditions. We'll then open the line for questions to our management team. Let me begin by saying that our second quarter has been a pivotal quarter for FivePoint as we have focused our attention on positioning and building for our future. Although we have not actually closed land sales this quarter and we recorded an overall $11 million loss, we are positioned with near-term residential land closings that will be profitable and will fortify our already strong balance sheet. We have right-sized our operating platform with our do more with less overhead strategy and we're executing a carefully crafted commercial property strategy that will begin to produce results as well. Let me break this down and give you some more detail. Everything at five points today starts with our doing more with less operating strategy. While we have carefully managed our master plan communities, we have concurrently focused our attention on managing our costs of doing business. Our efforts to manage costs in our prior quarter restructuring has now resulted in approximately 34% reduction in our expenses over the same quarter last year and approximately 25% reduction in our expenses from the first quarter. We're continuing to focus on managing our costs and at the same time creating greater efficiencies in our day-to-day operations as we continue to drive greater productivity across our platform. With a smaller and more efficient operating team, we have done a top-to-bottom reevaluation of each of our communities, carefully positioning our high-quality residential sales, begun a commercial properties execution program, and reconfigured our engagement with our public partners in San Francisco, positioned our high-value properties there for contribution in the future. On the residential side of our business, our second quarter activity was focused on moving our residential programs forward by closely monitoring the current macroeconomic headwinds facing the housing market. even while the residential markets have cooled both nationally and in California, as expected in response to the Fed's aggressive and rapid interest rate moves for action to inflation. Well-located residential land in California is still on demand as the California housing shortage continues to be a dominant theme. While there is some uncertainty in the new home market, the long-term outlook remains quite favorable given disciplined mortgage underwriting standards that have been in place, the favorable demographics to support the need for new housing, as well as the general overall shortage of housing supply. Experience tells us that at times like these in the new home market, the very best well-planned and executed master plan communities retain the greatest value and move through market uncertainties with the best results. FivePoint has two active and very strong master plan communities with a level of maturity and position in the market that we believe will, along with our strong balance sheet, allow us to address market demands while outperforming current market conditions. Accordingly, we are moving forward with land sales that are expected to close in the third and fourth quarters of this year, which will build profitability and enhance our already strong balance sheet. In addition to our high-quality residential land strategies, we're now beginning to market some extraordinary commercial land opportunities in both the Great Park and in Valencia. With the maturity of both these communities and our current stage of completed land development, we're in a position to begin blending our commercial opportunities with our continuing residential land sales programs. We're quite certain that these first-of-their-kind offerings in very constrained commercial markets will meet with strong market acceptance, and we look forward to building stronger revenues, greater cash flow, and greater bottom-line profitability as these commercial properties come online. Of course, our strong communities and our unique product offerings are complemented by our extremely well-positioned balance sheet to enable us to maximize value with patient offerings to allow us to match the right offering with the right purchaser. At quarter end, our balance sheet was rock solid with a 25% debt to total capital ratio, $128 million of cash on hand, and $0 drawn on our $125 million revolver, giving us available liquidity of $253 million. My five point has a very solid balance sheet. We're looking to strengthen that position as we run an ever more efficient business. For increasing our focus on cost management and increasing cash flow, a particular focus on carefully matching land development capital deployed to residential and commercial land sale executions in order to create more revenue with less cash deployed. Again, our strategy is produce more with less. Five Point is driving efficiency in every part of our business. Excuse me. Now let me turn to our community review. The five point communities at Great Park and Valencia continue to sell homes but at a somewhat reduced absorption rates. As has been the pattern in prior new home sales slowdowns, coastal California holds up better than the inland markets and that is what we're seeing at our communities. During the second quarter, builders at our Great Park community sold 37 homes down from 94 homes in the first quarter. to a large part to limited inventory of homes for sale. And our only open neighborhood, Rise, and the recently opened Solis Park. Rise is nearly sold out with only 22 homes remaining to be sold. Solis Park with 849 homes had the first model complex open in July. The balanced neighborhoods planned to open late August through September. These openings will greatly expand available homes for sale at the Great Park and should increase home sales in the community as well. During the quarter, we initiated the land sales process in our next residential community, seeking bids for District 5 South, a community of 719 homes in 11 neighborhoods. Even with the uncertainty in the market, we received strong interest and have accepted bids on eight of the 11 neighborhoods that were in the offering. We're now working with successful bidders complete their due diligence, and move forward in the sales process. These eight programs are with seven different builders, which provides our Great Park Country with good diversity and our builder base and minimizes the impact of any one builder on the closings for this community. While our venture had bids on the three remaining programs, we feel there will be more value created by either holding them off the market for now or working with our gift builders to design higher value new home programs for these three sites. As for the eight programs we were proceeding with, the bids were highly competitive and the pricing was strong. We did not end up contracting for the last three neighborhoods this year. Our anticipated Great Park land closings are projected to be approximately 660 homes for the year versus our original projection of approximately 850 home sites. And we'll push the sale of the remaining 190 home sites into 2023. And Valencia, new home sales by builders totaled 168 during the second quarter, down from 211 homes in the first quarter. Valencia has now sold a total of 725 homes out of 1,268 home sites in our first 18 neighborhoods since our opening in May 2021 through June 2022. We now have 16 open neighborhoods as two substantially sold out during the quarter. We have also now closed our 500th home and the community is filling with families and taking on a life of its own. We have also been looking at our planned home site sales in Lynch in the fourth quarter of this year to better match the current sales pace and market demand. Looking at the current market, our current expectation is we'll reduce our anticipated lot sales from our original projection of approximately 350 home sites to approximately 160 home sites. The reduction will be primarily and the higher density product segments to avoid additional product overlap and to give the existing builders more time to work through their open programs. As a master developer, we feel it is important to continue to monitor the market and work towards the sales success of all the neighborhoods in the community. Sales lease home sites will move into 2023. San Francisco remains a priority for Five Point and for the City and County of San Francisco. It is irreplaceable land along San Francisco Bay with a broad mix of approved development opportunities. This quarter, a new executive director of the Office of Community Investment Infrastructure, the lead government agency for the project, was appointed. We're actively engaged with new leadership to understand the economics of the current development plan and how the current items can be rebalanced in order to move forward across the two sites to allow Candlestick to move forward ahead of Hunter's Point. Hunter's Point Shipyard. Working with our public partners and using our experience and lessons learned from our other fan communities, we continue to review the various options to initiate development in San Francisco, including how best to leverage the tax increment financing available to the project. San Francisco will remain a work in progress as we work through these issues, but it is a project we are focused on and to which we are fully committed. I'm pleased by the swift action and progress we have made to advance our five core strategies. While some of this will repeat prior comments, I think it's important to not lose track of these important priorities and where we stand on each. Optimization and rationalization of our cost structure is a continuing focus. We continue to focus on a strategy of doing more with less. We continue to look for opportunities to create operating efficiencies across the company. With a focus on accountability, we're looking to drive bottom line performance, drive cash flow, and fortify our balance sheet while building shareholder value. Another core priority has been to continue our work on development plans for the 23 million square feet of planned commercial opportunities in our three communities with an active focus on the Great Park and Valencia. We've completed our full review of commercial opportunities at the Great Park and are in the process of doing the same in Valencia. On top of the ongoing residence opportunities at Great Park, our commercial parcels will offer to the Orange County commercial market something that has not been available for years, large parcels of entitled land of flexible entitlement, which can allow for a multitude of uses, including life sciences, R&D, office, and industrial. A majority of these commercial parcels are near City of Hope's new cancer treatment facility and future dedicated cancer hospital. which broke ground last week, and a perfect use to support a strong life sciences market. These unique attributes create a great opportunity for the Great Park Venture and one we will be patient with in order to drive maximum revenue and maximum bottom line. We are also actively working with the City of Irvine to support their vision for completing the Great Park and to add multi-family housing opportunities to build much needed housing to fill the ongoing California housing shortage. We'll create value for the City of Irvine and support and enhance the value of our ongoing residential and commercial landholders. We anticipate all these ongoing efforts will drive greater cash flow in 2023 for Great Park Venture in each year thereafter, which will result in greater distributions to Five Point. On top of our commercial review at Valencia, We're also actively looking to add multifamily opportunities to our mix of land offerings. Multifamily is both a strong real estate segment. It will also help address California's current housing shortage. We're committed to continue to work with our public partners and community leaders to help address the current housing shortage. I've mentioned San Francisco in my community remarks. It is one of our five priorities. We'll continue to work with our public partners in San Francisco to move the community forward in a cooperative and economically viable manner. Last but not least, FivePoint continues to look for opportunities to expand our leadership in building sustainable mixed-use communities in California. Our certified program to deliver a net-zero greenhouse gas fee to Valencia has set an industry standard. This differentiation from other planning communities will continue to support our home sales. In summary, our second quarter has been one of progress for FivePoint. We are gaining confidence in our strategies and feeling that ever more enthusiastic about our future. We have made material progress in rationalizing our cost structure, enhancing our residential offerings, while at the same time looking to seize upon our commercial opportunities and enhance our commercial revenue. I remain optimistic about both the short and long-term future of our company, acknowledging that the housing market is in a period of flux because of the Fed's aggressive efforts to address inflation through interest rate increases. We have two very well-located attractive, open communities and are well-positioned to ride out the current market uncertainty, but know that as market uncertainty clears, we will be best positioned for continuing success. We are monitoring the impact of rising interest rates and inflation on buyer demand for housing and will adjust our plans proactively to maintain the values of our master plan communities. Now let me turn it over to Leo, who will report on our financial results.
spk01: Thanks, Dan. A summary of our financial results was included in an earnings release issued earlier today in which we reported a consolidated net loss of $11 million for the quarter. While no land sales were closed, we did recognize $5.4 million in revenue that was mostly generated by our Valencia and management company operations. Selling general and administrative expenses were $12.7 million, which represents a significant reduction compared to $19.2 million for the same quarter last year. The decrease is primarily the result of our reduction in headcount, and as Dan has pointed out, and as reported during our previous earnings call, we continue to invest in inventory during the quarter, which increased by $42.9 million. This is mostly related to land development and activities in Valencia. Also included in this increase is capitalized interest on our senior notes. Reflective of our continued investment in our inventory and a $24.6 million interest payment on our senior notes, our cash balance decreased to $127.8 million at the end of the quarter. We currently have no outstanding borrowings under our $125 million unsecured revolving line of credit. Our debt to total capitalization ratio was stable at 25.2%, and our net debt to capitalization ratio after taking into account our cash balance was 21.1%. The company has four reporting segments, Valencia, San Francisco, Great Park, and Commercial. Segment results for the second quarter are as follows. The Valencia segment recognized a 2.8% $9 million loss for the quarter. There were no land sale closings in Valencia. However, the segment did report revenue of $2.6 million. Most of this revenue related to changes in estimates of variable consideration from those amounts previously recorded. This includes profit participation that we collect from our home builders. Some general and administrative costs of $3.6 million were primarily comprised of selling and marketing expenses in support of our first development area, as well as employee compensation costs incurred to support the segment's operations. The San Francisco segment recognized an $814,000 loss for the quarter. This loss is comprised of general and administrative costs incurred to support the segment's operations as they focus on reassessing the development plan and approval process for our San Francisco assets. Our Great Park segment reported a net profit of $1.9 million for the second quarter, which was comprised of $1.5 million in income from the Great Park Ventures operations and approximately $400,000 in income from management services we provide to the venture. Segment revenues were $27.9 million, which included $23.3 million from the closing of 13 homes under the Ventures Fee Build Program. Also, the segment recognized $2.6 million in management fee revenues. There were no land sale closings at the Great Park in the second quarter. The profit, recognized by the fee-billed home sales of $5.4 million, was partially offset by the venture's selling, general, and administrative expenses of $4.4 million. The expenses were mostly comprised of selling and marketing costs, encouraged as support incurred in support of home sales, including those anticipated at the next neighborhood plan to fully open later this summer, Solis Park. The remainder of the expenses relates to general administrative costs incurred to support the venture's operations. During the second quarter, and as previously announced, the initial term of our development management agreement with the Great Park Venture was extended through December 31st, 2022. Compensation for this extension was revised to eliminate the variable cost reimbursement component and to increase the 2022 annual fixed base fee to $12 million. This extension did not change the agreement's incentive compensation provisions applicable to the initial term. The provision continues to provide for incentive compensation payments equal to 9% of the venture's distributions available to be made to holders of percent interest ownership. However, if the development management agreement is not extended by mutual agreement of the parties beyond December 31st, 2022, the management company will only be entitled to incentive compensation payments equal to 6.75% of distributions paid during 2022 and thereafter. We own 37.5% of the interest of the Great Park Venture and 100% of the management company. Although the Great Park segment reports the full results of the Great Park venture, our investment in the venture is reported under the equity method of accounting, and therefore the assets, liabilities, results of operations, and cash flows of the venture are not consolidated with our financial statements. The company's equity and earnings from the Great Park venture, after adjusting for a difference in investment basis, was approximately $200,000 for the quarter. The Great Park Venture is a self-funding operation with no debt and had a cash balance of $118 million at the end of the quarter. Our commercial segment income was approximately $200,000 for the quarter, which included $100,000 from operations of the Gateway Commercial Venture and $100,000 from the services provided by our management company. We own 75% of the Gateway Commercial Venture and 100% of the management company. Our investment in the venture is reported under the equity method of accounting, and therefore the assets, liabilities, cash flows, and results of operations of the venture are not consolidated within our financial statements. Five points equity and earnings for the quarter from Gateway Commercial Venture was $100,000. With that, I'll turn it over to the operator for questions.
spk00: Thank you. If you would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you're using a speakerphone, please make sure that your mute function is turned off to allow your signal to reach our equipment. Once again, that is star 1 if you'd like to ask a question. We'll take our first question from Alan Ratner with Zellman and Associates.
spk02: Hey, guys. Good afternoon. Dan, hope you feel better. soon. Quick recovery. So I guess first question on the discussion on the commercial side, you know, I was wondering if you could maybe help frame that a little bit for us, just in terms of, you know, either magnitude of transactions that you're anticipating, you know, over the next 12 months or so, you know, price point in terms of acreage, any kind of
spk04: color you can give us a little bit in terms of where you anticipate that going i think would be helpful considering it hasn't really been a you know a core part of your business up to this point well let me uh well there i thank you uh i actually am feeling pretty good but you might notice that uh my throat gives out on me every once in a while so i've been uh one of the very fortunate folks i i would call a the head cold case of covet but that still gets your throat so If I pause here, it's because I need to take a drink of hot tea I have in front of me. But on the commercial side, Alan, one of the, you know, the Irvine Company is our neighbor on many sides. And their commercial development spectrum kind of ends where our property starts. And so there's been a natural market created in that area. And the Irvine Company hasn't sold large blocks of land in a long time. And if you had the opportunity to visit our properties, we do have large contiguous blocks of land that have not been in the market. Now, we obviously have been doing extensive review of those assets over the last quarter. And we are working with CBRE and looking at a strategy for bringing these properties forward. As with everything we do, we want to be sure we're really going to maximize the value across all of our assets. And so we don't think it's one of these things where we should flood the market as much as we should be strategic about what and when we bring it to the market. So that sizing is literally, as we're talking, we're in active conversations where we are kind of sizing what we think the market will take right now. But as many of you know, we have very flexible zoning in our commercial properties, which is also a very unique attribute, and with our development agreements in place today. So when we get on the call for third quarter, I'll be able to give you some very specific information, both about what land we thought was the right size to take to the market right now. But if you've been following the industrial market at all, and I'm sure you have, we think our values are very competitive with what folks are seeing in this area on the industrial side. But that's only one use. We have incredible synergy with City of Hope there now. So we think there's a lot of opportunities. So we're trying to be very strategic to really maximize our income. Got it.
spk02: I appreciate the extra color there.
spk04: But if you kind of think about it, if you know the property, we have something we call South. of the railroad tracks, which is most of our commercial holdings, although there'll be some on the other side. You know, there's almost 200 acres there. And, you know, industrial properties today in parts of Southern California are going between $5 and $7 million an acre.
spk02: Got it. Okay. That's helpful. I think that sounds, yeah, that sounds higher than maybe what the implied value was when you guys did the City of Hope, if I remember correctly.
spk04: The market has moved in our favor.
spk02: Perfect. Thank you for all of that color there, Dan. Second question, I know it's probably a little bit ways off into the future, but just given that you kind of reiterated the commitment to San Francisco, can you just help us think a little bit about what the cash flow needs of that project will look like once it does get off of the ground? I mean, if I look back at Valencia, you had about a year's worth of development before your first lot sale there. It looks like maybe that totaled $250 million, $300 million before revenue started coming in the door there. So I would imagine there's going to be a period when San Francisco does get up and running where it will be a cash flow. drain on the company. And while you have liquidity today, which obviously can fund your current operations, I would think that that would be something that would require some type of capital raise. So any commentary or any thoughts there just either in terms of timing, magnitude of kind of the expected outlay before that project starts the cash flow?
spk04: Well, you know, the The part that is maybe not as clear, the whole project has an extensive underwriting and thought through that process. It was always thought of as one project, not as two standalone projects. The biggest thing that we're working on right now, and we've had some very positive meetings with the public officials up there, is that we need to rationalize the economics so that we can move more quickly on candlestick. Those type of questions are actually perfect questions, Alan, and they're good questions. But until we can really work with the public officials to kind of understand how we're going to move forward as two standalone projects as opposed to one concurrent project, Hunter's point will follow. But I think that it will be a lot like what we're doing today, even though it will require some cash. Along the way, it's going to generate cash both from sales, you know, it'll have opportunities for sales there, especially commercial sales there. The first pad we have out there identified as a commercial pad. And then we also have, you know, public financing that can support us. So I don't have an exact budget date, but it is one of the things that we are deep diving with the public officials to understand that and how best to move forward.
spk02: All right. Okay. Well, we eagerly await more details on that. So... Looking forward to hearing more about that. Thanks a lot.
spk00: Thank you. And once again, that's Star 1. If you'd like to ask a question, we'll take our next question from Ryan Dobratz with Third Avenue Management.
spk03: Hi, Dan and Leo. Thank you for holding the call. And, Dan, glad to hear that you're doing well considering the circumstances. We also appreciate you providing the very thorough update on the five core strategies, which the company's focused on. We're just hoping to ask, I guess, a few quick questions here about the communities and positioning going forward. If I could just jump in, it'd be terrific to start with Gray Park. Clearly, there's a lot of momentum there. With that being the case, would it be possible to add any context relating to the revised management contract for the venture? You know, in particular, maybe why it was only extended through year end as opposed to maybe a more traditional multi-year arrangement? Sure.
spk04: I mean, absolutely no problem at all. You know, obviously we've been in partnership with our other three partners there for a number of years, and we actually thought that the best way to move forward with them, you know, we're in a transition period, a transition period with management, with myself joining the company. And we actually thought that, you know, we need to get them comfortable with what we're doing, where we're going, who I am, and that rather than, you know, the contemplated three-year agreement, kind of have them try to make a lot of near-term decisions, we thought it would be more fair to them to just move forward on a one-year basis and really build that relationship that we need with them to kind of work through everything. And to date, I will tell you, we're working very comfortably with them. It's going really well. We're having calls with them every two weeks. Very, you know, very positive calls because we talked about that commercial strategy at Great Park. They're an integral part of that. And so we need to work with them closely. And they're very supportive of where we're heading and what we're doing. So it was really just kind of a decision that that was how best to kind of really respect those partners and give them an opportunity to get to know me and know where we're heading on a transition basis.
spk03: Okay, that's hopeful and, you know, great to see that the City of Hope Center opened last week with the ribbon cutting. Very exciting. I'm sorry.
spk04: It was very exciting. For those of us who were there, it's an amazing facility. And if you guys, you know, don't know, City of Hope is ranked the seventh cancer hospital in the country. So it is a huge facility. That is a huge position in the country, so it's a really value add to our holdings.
spk03: If it would be all right to maybe just turn over to Valencia real quick. It seems like things are generally progressing there quite well. Would it be possible to provide a frame of reference of how much more capital is going to be needed there to build out the 2,100 or so remaining lots at Mission Village?
spk04: Sure. You know, there's a lot of in-place infrastructure, especially some of the near-term commercial we're looking at there, all the infrastructure is in place and all of the current residential infrastructure is in place. But as you talk about the build-out, you know, it's probably, and it's over the next couple of years, it's not anything necessarily near-term, There's probably a couple hundred million of capital that's required, and some of it's actually for development there, and some of it is really kind of getting us positioned for additional communities that are coming down. And a lot of it, you know, is timing dependent. So it isn't something we have to do at a particular time. It's going to be dependent upon the market and what our needs are. But at a rough level, it would be a couple hundred million over a couple years, but also should be offset with revenue opportunities that are coming in concurrently or very near to concurrently. So we'll be harvesting revenue and we'll also be investing some capital.
spk03: Okay. That's helpful. I mean, you know, putting per lot values up there at call it 250 to 300 a lot with, you know, 2,100 lots remaining, that would get you to a figure that's one excess of I guess what was sort of indicated would be needed there to finish it out. So that's positive. And I guess somewhat related to, you know, Valencia, it really hasn't been much of a focus more recently, but, you know, the company owns, you know, approximately 16,000 acres in Ventura County as well. I think it generates, you know, some ag and energy income and while we recognize that you're still kind of settling into your role, have you given any thought to what the potential use or value of this really unique land position could be over the medium to long term?
spk04: You know, I haven't really spent any time really considering that. I've been really focused on what we have in place, the residential, the commercial opportunities we have. And, you know, you're right in identifying that as a as a kind of a deep long-term asset, but we really haven't looked at the opportunities because, you know, in front of us we have a lot of entitlement in Valencia that we really need to focus on. And so we really haven't focused on where that one could go. But you're right, it's actually out of the county. It's in Ventura. So it would really be a different jurisdiction. And we're currently working, obviously, closely with the county of Los Angeles for our current Valencia program. But that's one. I think we're going to – that one is a great kind of future opportunity, but it really is a future day before we start digging into that with any level of detail.
spk03: Is it a contiguous piece of land? There's not a great deal of information on the entire 16,000-acre land position.
spk04: Well, it is all held together. Some portions of it, as you would expect if you kind of followed – you know, development in California, some portions of it's dedicated open space, you know, it's already dedicated and it's part, you know, even parts of that are tied into our entitlement at Valencia. So, but, you know, it really was, you know, Newhall Ranch was an incredible piece of property and it does kind of extend into Ventura County, but that's kind of a, I would call that the deep future for another day. Always great to own California land if you've got a long view.
spk03: Yeah. All right. And then I just had one final question, if I may, and more of a just kind of industry specific question. And, you know, you clearly have had a lot of great experience at Irvine, which is, you know, a wildly successful private enterprise. Now that you've been in your, you know, CEO seat for a few quarters, just wondered if you could maybe talk about what some of the advantages as well as maybe disadvantages are running kind of a land development company as a public entity versus as a private entity. I would imagine there's tradeoffs on both sides. It would be great to hear your perspective on that.
spk04: You know, I'm going to have to have a glass of wine someday and go through that. I mean, there are pros and cons on both sides. You're right, I've looked at it from both sides and seen it from both sides. You know, land is such a unique resource that when I really think about it, you know, when I really think about it, the biggest challenge we have in this business right now as public is the quarterly reporting. You know, beyond that, you know, I've got lots of land development experience. I've been through lots of cycles up, down, you name it, after 30 plus years. The only thing is when you try to think about land as a quarterly enterprise, it doesn't break down well as a quarterly enterprise, but that's probably the biggest differentiation. Once again, though, the the biggest thing, you know, and I come from a background of discipline is that, you know, the public market does put a discipline on us that we're going to have to, we have to do more with less, especially kind of with the, you know, with the quarterly reporting, you know, and, and I'm, and I'm really bringing kind of that focus to our team right now because, you know, I know I'm going to get to chat with all of you every quarter and I want to be able to kind of hold true to what we're trying to accomplish as a company. But, you know, Once again, public-private discipline is incredibly important to be successful, but you guys are going to hold me accountable every quarter. That's a real difference. So, I mean, I can't, you know, but I just say land development, you know, it has its unique attributes, and I don't think it changes by whether you're private or public. But it does take, you know, it just does take a lot of patience to be to really maximize value over time. You don't want to be in this business with a short view.
spk03: All right. Well, thank you for that and congrats on the progress so far. It's been impressive. So, thank you. Thank you.
spk00: Thank you. We'll take our next question from John Moran with Robadi and Company.
spk05: Hi. Thanks for taking my question. Just in reference to your comments about improving the balance sheet. I think you've made them in the past few quarters as well. In terms of the commercial property sales or deals, you said something about marketing commercial opportunities. Are those outright land sales? And also, you didn't mention anything about Valencia. Is there anything active commercially in Valencia?
spk04: John, thank you. Thank you for the question. And you know what, let me start with your second question because if I haven't been clear, I apologize. Absolutely. There are commercial opportunities in Valencia. You know, we are actually refining, refining those a little bit more. You know, we really started with refining Great Park commercial, but we actually are in the process in Valencia and there are commercial sites available to us today with infrastructure and that conversation about infrastructure. doesn't need infrastructure. So we actually are actively looking at all those right now. We do believe there's commercial opportunities there that we'll shortly be bringing to market. Once again, we're trying to really do the same discipline study we did in Great Park for Valencia. So that process is just kicking off. We did one, now we're rolling into the second. But there are opportunities there. And then, John, I'm sorry, what was the first part of your question?
spk05: Well, are those – so I can – I thought what you mentioned, yeah, sales and what you, your comments at Great Park were really helpful about values there and how much land is left. So, you know, obviously if you liquidated that, that would have a material impact. I don't think that's what you were suggesting, but my point is if you're going to improve the capital structure, strengthen the balance sheet, that, I mean, the only thing, when I look at your company, That suggests outright land sales or asset sales. So can you confirm that's being contemplated?
spk04: Yeah, John. First of all, one of the words you used, I want to be sure you know that it's not in my vocabulary, liquidation. That's not our business.
spk05: And so I know you're not applying. Dispositions. So selling land.
spk04: I like that word better. Thank you. But yes, our thought is, and once again, in a very measured, managed, disciplined approach, we are looking at commercial land sales. And the thinking around that is that really looking at where the most, the highest value demand is today and then only offering a portion of our property to the market because we think over time we're going to build a lot more value. We want to be sure we continue to build on that. But the current, absolutely, the current thinking is now there are land sales, but with capital we could do more. It's kind of like it'll be a process, but right now there would be cash generating land sales, and they're going to be measured to really maximize value.
spk05: I just might make a comment in closing for me. I think since this company's come public, Every quarter there's a reference to debt to total capital or debt to total assets. And I understand that in a textbook, 20% debt to capital would be a low debt balance, but it's something altogether different when the left side of the balance sheet is all land. that essentially isn't earning anything and the velocity on it and the turnover is gonna slow down. The coupon that's on the debt, I think is expressive of how conservative or lack thereof is embedded in the balance sheet. And I know there's not much trading volume in the bonds, but they're trading at 86 or something. To yield double digits, So my point is that when you go into a recession, you own land. And the predecessor company could, I think, vouch for that. Those ratios mean nothing because you can't borrow on land in a recession or a downturn. So I'm in big favor of selling some land assets And there's a lot of capital commitments or needs ahead of you. And I just assume this thing be run debt-free when you've got hundreds of millions of dollars in spend in front of you. Anyway, that's just my two cents. But I appreciate your taking the question.
spk04: All right, John, appreciate that. You know, and once again, I'm looking forward to talking to you in the third quarter. I think that we'll have a much better idea on those commercial sales we're talking about now come third quarter. So I think that some of your questions will be better for us to – will be better able to address after we get through one more quarter. Thanks very much. All right, John.
spk00: Thank you. And at this time, that does conclude our question and answer session. I'd like to turn the conference back over to Mr. Hedigan for any additional or closing remarks.
spk04: Well, thank you. On behalf of our management team, we want to thank you for joining us today on today's call, and we look forward to speaking with you next quarter. Thanks again.
spk00: Thank you. And that does conclude today's conference. We thank you all for your participation, and you may now disconnect.
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