Five Point Holdings

Greetings and welcome to the Five Point Holdings Second Quarter 2024 Conference Call. As a reminder, this call is being recorded. Today's call 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 dates of this conference call and are not intended to give any assurance as to actual future results. Because forward-looking statements relate to matters that have not yet occurred, these statements are inherently subject to risk and uncertainty. 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 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. Now, I would like to turn the call over to Dan Hedigan, Chief Executive Officer.

Thank you, Paul. Good afternoon, and thank you for joining our call. Just a little announcement beforehand, I am recovering from a cold, so my voice is going to sound a little bit different, and hopefully it doesn't flare up in the middle of the but I just want to let you all know that. I have with me today Kim Tobler, our Chief Financial Officer, Mike Alvarado, our Chief Operating Officer and Chief Legal Officer, and Leo Key, our Senior Vice President of Finance and Reporting. Stuart Miller, our Executive Chairman, is joining us remotely. On today's call, I'll update you on our Q2 results, on our team's focus during the quarter, and the steps we're taking to implement our strategic priorities. Next, I've asked Mike Alvarado to overview FivePoint's experience managing and participating in our joint venture at the Great Park, given the meaningful improvement and execution at the venture over the past two years. We believe this experience represents a proxy for potential opportunities to grow as we look towards the future in our existing master plan communities and beyond. Last, Kim will give an overview of the company's financial performance and condition. with some limited guidance for the third quarter and the full year. We'll then open the line for questions to our management team. So let's begin. I'm very pleased to report a strong quarterly performance as we continue to focus on fortifying our balance sheet by generating revenue, controlling our expenses, and carefully managing our capital spend to match near-term revenues. In the second quarter, we generated net income of $38.2 million which reflects the continued strength of builder demand for residential land. In this quarter, most of our performance is driven by execution in our Great Park community, as evidenced in part by our closing during the quarter of 12.3 acres of land at the Great Park to $96.1 million, betting $7.8 million per acre at a 70% profit margin. This sale contributed to the $15.5 million of equity and earnings from unconsolidated investments for the quarter, additional income derived from participation in better performance on prior land sales in the Great Park. Additionally, consistent with our focus on holding down costs, we held our overall SG&A at $12.2 million, which is slightly less than the second quarter of last year and the first quarter of this year. During the quarter, in addition to the previously mentioned closed sale, our Great Park Venture also signed a contract to sell additional home sites in our next development area for $9.6 million an acre for a total purchase price of just over $300 million. This sale is anticipated to close in the fourth quarter of the year. Our venture also recently marketed for sale additional residential land in another development area in the Great Park that we would anticipate closing in the first half of next year. We were not surprised that we received strong builder interest in these home sites with continuing increases in per acre land values. We're now in negotiations to document those transactions. While increases in per acre land values can be attributed in part to market conditions, we've begun allowing builders to design the home programs in our communities, as this change has also contributed towards the higher land residual values for us. As we look to increase the engagement we have with our gift builders in design to drive land value, we will always maintain our role as master developer to ensure that we segment the programs being built and sold by the builders in order to maintain an appropriate velocity in each community. While the news regarding interest rates and inflation continued to send mixed signals during the quarter, we were able to achieve these results due to the team's execution and our ability to capitalize on the fact that California generally and our community specifically remain in chronically undersupplied residential landmarks. The shortage is primarily driven by California's challenging land use approval process. We expect shortages of entitled land and existing home inventory will continue to drive strong demand from builders. Moving to our balance sheet, we ended the quarter in a healthy liquidity position with $217 million in cash and $0 drawn on our $125 million revolver, giving us a total liquidity of $342 million. Kim will cover more details regarding our financial financials during his comments. Let me now expand a bit on general market conditions. While interest rates trended up during most of the second quarter, they trended down towards the end of the quarter and generally have continued in that direction since quarter end. The continued lack of existing home inventory coupled with low unemployment and fairly strong consumer confidence has helped sustain demand for new homes in our communities and therefore land acquisitions from our guest builders. The limiting factor on new home demand remains affordability, which is driven in large part by the impact of higher interest rates. Conditions in our markets remain relatively strong for home builders. As we have mentioned in the past, our home builders, who for the most part are large, publicly owned builders, have a variety of incentive structures to mitigate the impacts of interest rates to support new home sales. With the ability to adjust those incentives in response to interest rate movements, these homebuilders remain uniquely able to capture and sustain demand to allow new home sales to continue. While there have been reports of a slowing in new home sales nationally in Q2, we saw our guest builders close 84 new home sales at Valencia compared to 62 in Q1 and 63 new home sales at Great Park compared to 69 in Q1, despite very limited inventory. On the commercial land side of our business, we currently are only actively marketing two sites at the Great Park as the commercial-oriented land in our other communities won't come in line for some time. While we are still seeing interest from both developers and users for these sites, we're also looking at opportunities to repurpose these sites for residential use given the depth of demand and values being driven by residential uses, much like we did with the 35-acre commercial site in Valencia that we converted to a residential use. We'll have more to report on this in the coming quarters. Let me now provide you with some updates on our communities, starting first with the Great Park neighborhoods. As a reminder, the Great Park is the most mature of our communities, and its ongoing contribution to our financial results reflect the benefit that we and our Great Park Venture partners are receiving from the investments made in this community in prior years. During the first quarter, Builders in our Great Park community sold 63 homes. As I noted earlier, that number is lower than normal due to the limited number of open builder programs at Great Park. During the quarter, there were only two to three actively selling products in our two open neighborhoods. Our Soles neighborhood currently has one builder product open for sale, and Luna Park, our newest neighborhood, only has two builder products open for sale. We anticipate another six builder products to open in the third quarter at Luna Park. As these programs open, we'll once again be able to offer a wide variety of housing options in Great Park neighborhoods. Despite the limited inventory, we are encouraged by sustained interest in trafficking the community, affirming the ongoing appeal to Great Park neighborhoods to prospective homebuyers. As I mentioned earlier, there remains strong homebuilder interest in acquiring home sites at Great Park. In this quarter, we completed the bidding process for a group of five new residential programs, which is under a signed contract with a meaningful deposit received by the Great Park Venture. We have also completed the bidding process and are negotiating the contracts with our home builder partners for sale of five additional programs with approximately 400 home sites. We'll have more to report on these programs later in the year. Now I'll move to Valencia, our other active community. Valencia is still in its early stages of development, with many future phases of land delivery ahead of it. which will enable us to add much needed supply for housing, particularly in the Los Angeles market. During the second quarter, our gift builders sold 84 new homes. Valencia's initial phase of 1,268 homes is now sold out. In our current Valencia development areas, we have seven builder programs open and actually selling. Additionally, from the land we sold at the end of last year, there are six programs we anticipate will open in late 2024 and early 2025. offering more product diversity for prospective homebuyers. As I noted above, on our last few calls, we have discussed the potential conversion of a 35-acre site from commercial to residential use, which is permitted under our flexible zoning. We are now finalizing a contract with a homebuilder to sell this 35-acre mixed-use site for 179 homes, with the sale anticipated to close in the fourth quarter of this year. We've also completed the bidding process for four additional programs with approximately 300 home sites. We currently anticipate that these four programs will also close in the fourth quarter of this year. As we work closely with our builders to develop products in Valencia, it has become clear that the current fire insurance situation in California is requiring us to move away from attached programs to single-family homes and detached condominiums to meet current insurance underwriting restrictions allow for more reasonable insurance premiums. While the state is also working to address the current limits on insurance availability, our proactive approach will allow us to continue to meet the demand for housing in California. Finally, we continue to work with Los Angeles County and other agencies to perfect the entitlements for our future development areas, which will allow for delivery of thousands of additional home sites and commercial acreage and will add much-needed supply to this land-constrained market. While the state has been passing a variety of new laws in an effort to expedite delivery of housing, the regulatory approval process remains challenging to get completed in a timely manner. That said, we have been in this business a long time. With our proven track record of delivering first-class master plan communities, we hope to finalize these approval processes with a reasonable balance between expediency and feasible conditions. Turning to San Francisco, I'm happy to report that the city, county, and other political regulatory agencies have initiated the public approval process to rebalance the entitlements between our two San Francisco communities, Candlestick and the Shipyard. As I discussed before, we are seeking the rebalancing to enable the development of Candlestick as a standalone project. This rebalancing will allow us to begin the development at Candlestick without having to wait for the Navy to complete its remediation activities at the Shipyard. With the current momentum to complete the rebalancing, we're now turning our efforts to identifying a partner to work with us on this amazing piece of property to begin the process of creating the large mixed-use communities that have always been envisioned for these irreplaceable sites along the San Francisco Bay, starting with Candlestick. We expect that a properly constructed partnership can work much like our Great Park Partnership with capital partners working closely with our management oversight team This coordinated engagement will focus on maximizing value and executing a well-crafted development plan. I've asked Mike Alvarado to briefly describe the workings of our Great Park Partnership, which has driven its extraordinary performance as a model for future five-point opportunities. Let me conclude by saying our second quarter has seen continuing progress on our three main priorities, generating revenue and positive cash flow, controlling SG&A costs, and managing capital spend to match near-term revenue opportunities. Additionally, our entire team is focused on progressing entitlements for our next neighborhoods in Valencia and moving Candlestick forward through their balancing process and beginning development. While economic and geopolitical events may continue to impact the financial markets, home buyers in our markets continue to show interest in our communities, and we believe that pent-up demand will continue to be a driving force for our land sales to builders. Land development is a very long game in California, that has structurally produced a severe supply shortage. Our efforts today are ensuring we are well positioned within that long game while recognizing the importance of creating and maintaining shareholder value. Now let me turn it over to Mike, who will briefly discuss our partnership experience, and then to Kim, who will report on our financial results and will provide some limited guidance for the remainder of the year.

Thanks, Dan. In the past, you have heard us talk about the life cycle of our three communities. and where each one of them stands in terms of its development status. The Great Park is clearly the most mature of our communities in terms of development and revenue generation and is proving year after year the value creation within this community. What is more interesting about the Great Park, however, is its organizational and operational structure that we believe has resulted in excellent performance. The Great Park is the one master plan community asset in which we own a minority capital interest and operate under a joint venture management structure. We operate and manage the Great Park Venture alongside our other capital partners with whom we engage on a weekly basis in order to maximize value and returns and to provide a built-in system of accountability. Our partners provide their own unique perspectives on a variety of matters when dealing with developments of this scale and together with aligned interests we have executed our plan with continuously improved bottom line performance. We believe this is a structural advantage to our existing business model. As I mentioned, at the Great Park we own an equity interest, but we also provide management services to the venture, and we earn an incentive promoted interest for excellent performance. We are paid for our management services through a stipulated management fee that allows us to recover our costs for delivering these services. plus that incentive compensation component, the promote, that has delivered significant revenue to and earnings for the company. We believe this structure and equity interests coupled with a management services component is one that can be repeated in the future, not only within our other existing communities, but also in future projects as we consider the growth of FivePoint beyond our existing communities. We are enthusiastic about this business model and believe it can be replicated. Bringing in capital partners reduces our capital investment and gives FivePoint opportunities to move to an asset-lighter balance sheet model under a well-crafted partnership program. Management fee income offsets our SG&A while a promoted economic interest aligns interests while embedding a system of accountability to drive performance. At Valencia, while there is more work to be done to advance our entitlements, Once achieved, we expect to engage in a possible venture arrangement like the Great Park. With approvals in place, we view Valencia as no different than the Great Park in terms of potential for engagement with partners who can add value and also share in the development lifecycle as this community matures. In San Francisco, as you know from our prior calls, we have been talking about a partner for some time now. As we finalize our entitlement rebalancing efforts, That accomplishment will provide a catalyst for advancing conversations with potential venture partners. We have a proven track record with a great park venture whose members have seen rising returns over the past several years, driven by our management working together with their active engagement. We believe this is a business model that we can take advantage of as we look at other opportunities for future growth of the company. We hope to have more to report on this in the near future. Now let me turn it over to Kim to report on our financial results for the quarter.