Five Point Holdings

Greetings and welcome to the Five-Pole Holdings LLC fourth quarter and year end 2024 conference call. As a reminder, this call is being recorded. Today's 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 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 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 Point's SEC filings, including those in the risk factors section of Five Point's most recent annual report on Form 10-K, filled with the SEC. Please note that the Five Point assumes no obligation to update any forward-looking statements. Now I would like to turn the call over to Dan Hedigen, Chief Executive Officer.

Thank you. Good afternoon, and thank you for joining our call. I have with me today Mike Alvarado, our Chief Operating Officer and Chief Legal Officer, Kim Tobler, our Chief Financial Officer, and Leo Key, our Senior Vice President of Finance and Reporting. Just to let you know, I'm getting over a small cold, so excuse my voice if it sounds a little different. Before I get into the business side of our call, I wanted to take a moment to express on behalf of myself and Five Points our sadness for those affected by the devastating fires in Los Angeles. While our communities were not directly affected by the fires, our Valencia community is situated nearby the Hughes Fire near Castaic Lake that broke out yesterday, but has now been largely contained and evacuation zones never extended to our community. Although our Southern California communities are further to the north and to the south of the areas affected by the Palisades and Eaton fires, We share the deep sense of loss that permeates all of Southern California. Like many organizations and individuals, we have been working with public officials, agencies, and industry partners to assist the families impacted by these fires, as well as the courageous firefighters and first responders who work tirelessly to protect lives and property. Although our communities were not directly impacted, We fully expect to be part of the many solutions that will build a bridge to a better future for Southern California. We begin with philanthropic contributions. We're also well aware of the significant effort it will take for the County of Los Angeles and other relevant agencies to support the rebuilding of the affected areas. FIFON will be there to support the County in its rebuilding efforts, as we expect that expedited actions and approvals will enable a swift response to current needs. As a company that is deeply involved in building fire-resistant and resilient mixed-use communities, we stand ready to provide expertise and execution as needed. So with that said, let me begin. On today's call, I will update you on our record-breaking fourth quarter and our year-end results. Additionally, I will review Five Point's go-forward operating strategy, our team's focus during the quarter, And then finally, our strategic priorities and expectations for 2025. Mike will then discuss the growth element of our operating strategy. After which, Kim will give an overview of the company's financial performance and condition with guidance for the first quarter of 2025 and the full year. We will then open the line for questions. Turning to the fourth quarter, I'm pleased to report another very successful quarter 5.0. as we continue to build a program of consistent profitability with a defined pathway to growth for our future. In the fourth quarter, we generated stronger than expected net income of $121 million, which is a record for quarterly income for us, and is our seventh consecutive quarter reporting net income, as we remain to focus on generating revenue, controlling our expenses, and managing our capital spend. During the three months into December 31, 2024, we were able to close all of our anticipated residential land sales. In Valencia, we closed four new home programs, totaling 492 home sites on 54.4 acres to four distinct builders for an aggregate purchase price of $137.9 million. And at the Great Park, the venture closed five new home programs with 372 home sites totaling on 32.2 acres to a single builder for a good purchase price of $309.3 million. As a result of Great Park operations during the quarter, we received 121.5 million in distributions and incentive compensation payments from the Great Park Venture. Additionally, we had a singular commercial closing as a Gateway Venture closed on the sale of its remaining interest in the Five Point Gateway campus during the fourth quarter and distributed proceeds to its members, with FivePoint receiving $17.2 million. Kim will discuss all these transactions further in his report. Even while achieving record net income levels, we remained disciplined and focused on managing costs and held our fourth quarter SG&A to $14.2 million and full year SG&A to $51.2 million, which is flat year over year. We remained vigilant about managing an excellent business with tightly controlled overhead, even as we look to expand our business. In addition to managing our SG&A, we have carefully matched the expenditure of development dollars in close coordination with expected revenue recognition. This has enabled us to maximize cash generation. I want to thank everyone on our team, as well as our partners at Drake Park Venture, who have been focused and supportive as we have executed this critical element of our business strategy. Alongside our successful fourth quarter, I'm also happy to announce they're reporting record net income for the full year of $177.6 million. We finished the year with total liquidity of $555.9 million, a price of cash and cash equivalents totaling $430.9 million, and borrowing availability of $125 million under our unsecured revolving credit facility. As we look ahead to 2025, we remain well-positioned to continue executing on land sales to our gift builders at the Great Park neighborhoods and Valencia. The completion of our rebalancing efforts in San Francisco has put us in a good position to start development of our candlestick community, while the progression of our entitlements at Valencia positions us to extend our pipeline of home sites and that master plan community. Given our successful results in 2024, and expectation of continued success in 2025, we feel we are well positioned to move forward on implementation of growth initiatives to complement our three existing communities. These growth initiatives represent an expansion of the operating strategy we have been executing for the past four years. Our expanded operating strategy now consists of four key elements. One, we'll continue to operate and maximize value on our existing three premier master plan communities. Two, we'll continue to carefully manage overhead even while we grow our bottom line. Three, we'll continue to match development expenditures with revenue generation. And four, finally, we have begun to seek capital partners for new acquisitions through joint ventures to ensure a growing future for FivePoint. To that end, our existing Great Park Venture Model is one that we believe can be repeated for new acquisitions as we grow FivePoint into a best-in-class asset lighter, land partnership, and development company. We'll discuss this in more detail later in the call. So what does all this great work suggest for FivePoint for the new year? We currently expect that our earnings for 2025 will exceed 2024. Expect to see earnings growth of approximately 10%, bringing us close to $200 million in net income. With the caveat that our expectation is that processes in the County of Los Angeles will function as we hoped going into the year. Our focus will be on building a platform that produces recurring earnings along with sustainable long-term growth. Kim will provide more detail about our guidance for 2025 during his remarks. I'd like to now touch on market conditions, and I'm pleased to note that we were able to achieve record-breaking 2024 results even though the macroeconomic environment remains somewhat challenging. Although the Federal Reserve has cut rates by 100 basis points in September, interest rates and inflation have continued to send mixed signals, with key mortgage interest rates moving mostly higher during the quarter. We remain mindful of potential impacts to affordability created by mortgage rates. Most of our guest builders have been able to mitigate the impacts of higher rates through the use of a variety of incentive structures, including mortgage rate buy-downs. Although interest rates are a key data point in the housing market, California generally, and our community specifically, remain in chronically undersupplied residential land markets, primarily due to California's challenging and restrictive land use approval process. The devastating fires in Los Angeles County will only exacerbate the undersupply in Southern California as displaced residents look for alternative housing options. We currently expect that there will be relief from some of the restrictive approval processes to allow quicker access to available land inventory in our communities and across the state to assist with these housing options. We also expect that shortages of entitled land and existing home inventory will continue to drive strong demand for more homes from our builders. The commercial land side of our business continues to be more rate-sensitive than residential. Accordingly, Given the depth of demand and values being driven by residential uses, we have been evaluating opportunities in the Great Park neighborhoods to re-plan some of our commercial sites for residential use under the City of Irvine recently adopted RENA program. We'll have more to report on this effort 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 reflects the benefits that we and our Great Park Venture partners are receiving from the investments made in this community in prior years. During the fourth quarter, builders in our Great Park community sold 143 homes versus 166 in Q3. This decrease in sales is primarily attributable to seasonality. We currently have 14 actually selling programs in the Great Park neighborhoods with five additional programs planned to open later this year. With the existing and future planned programs, we'll be able to continue to offer a wide variety of housing options in Great Park neighborhoods. In addition to high levels of homebuyer interest, we're still seeing strong demand from builders for our land at the Great Park. We have finalized contracts with three builders for five different residential programs that are planned to close in the first half of 2025. Four of these sales are currently planned to close in the first quarter and the final one in quarter two. The contracted sales prices are consistent with or higher than our most recent sales. As discussed in our last call, we have also completed the bidding process for a group of nine new residential programs totaling 572 homes. Builders are completing due diligence with the expectation that these land sales will close in the fourth quarter of this year. We received strong interest in all nine programs and awarded the sites to six different builders. The offered sales prices are also consistent with or higher than our most recent sales. As I mentioned earlier, the City of Irvine completed state-mandated RENA general plan and zoning updates for the Great Park Planning Area, which provide the Great Park Venture with the opportunity to convert some or substantial portions of its remaining commercial land holdings to residential uses. We're continuing to study these options and have initiated discussions with the city to consider residential uses consistent with the RHNA program adopted by the city. Next, I'll move to Valencia, our other active community. As a reminder, Valencia is in the early stages of its development. It still has many future phases of land delivery ahead of it, which will enable us to provide much-needed housing in the Los Angeles market. During the fourth quarter, home sales remained relatively steady after accounting for seasonality, as our gift builders sold 74 new homes versus 89 in Q3. During the fourth quarter, two programs sold out in Valencia, and we now have six builder programs open and actively selling. Additionally, from the land we sold at the end of 2023, there are seven programs that we anticipate will open during 2025, offering a greater diversity of home offerings for prospective homebuyers. As I mentioned, we closed all of our projected land sales for the fourth quarter. During the first quarter, we'll take approximately 200 more home sites to market, anticipating that those sales will close towards the end of the year. As we look at our next phases of development at Valencia, we continue to work with Los Angeles County and other agencies on approvals to allow us to build with thousands of additional home sites in the county's severely undersupplied market. One of these development areas is known as Entrada South, which is expected to consist of approximately 116 net acres of residential land, over 1,300 market-rate home sites, and approximately 44 net acres of commercial land. Another development area is Valencia Commerce Center, which is expected to include approximately 139 net acres and will cater towards industrial-focused uses. We anticipate county approval of these development areas later this year. We're also concurrently processing additional approvals of the county under statewide pro-housing legislation for three other development areas that are planned to provide approximately 7,600 home sites to this very supply-constrained market. As part of the approvals in these new development areas, we'll continue to implement fire resistance and fire mitigation strategies like we have been doing in our master plan communities for many years. These strategies are specifically designed to mitigate wildfire risks have proven to be successful in protecting homes in these master-planned communities from the unfortunate devastation they've recently seen in older communities. Turning to San Francisco, the city and county and other applicable regulatory agencies have given final approval to our plan to rebalance the entitlements between our two San Francisco communities, Candlestick and the Shipyard. We're excited about the near-term possibilities at Candlestick, and we have commenced engineering for the initial phase of infrastructure The expectation of starting construction early next year allowing us to unlock the value of this spectacular pay-front land in the city of San Francisco. Let me conclude by saying my optimism about the future of Five Point continues to grow. Our fourth quarter and year-end results represents our continued focus on three main priorities, generating revenue and positive cash flow, controlling SG&A, and managing capital spend to match near-term revenue opportunities. Execution on these key priorities has resulted in a stronger balance sheet and growing liquidity. As a result, we're able to focus more attention on growth opportunities as we continue to work towards an asset lighter land partnership and development model. Now, let me turn over to Mike, who will discuss Five Points growth opportunities.

Thanks, Dan. Let me briefly report where FivePoint sees opportunities to grow our business. As Dan noted, with the success of 2024 and our expectations for 2025, FivePoint is now in the enviable position of pursuing growth opportunities. And as much as homebuilders are following the path of growth in population and job centers, they continue to implement longer-term land acquisition strategies. these longer-term land acquisition and development projects do not lend themselves to a land-light strategy that a number of publicly traded homebuilders are now gravitating towards. This dynamic gives FivePoint the opportunity to work alongside the builders in these paths of growth in a win-win scenario that allows builders to follow their land-light strategy and FivePoint to play to its strength in the land development business. Our current communities fit this longer-term land profile And that is where Five Point and its management team have a unique skill set and where we have been executing for many years. This is our core business, where we bring our entitlement and land development expertise to the forefront in everything we do. These assets are ones that often have value-add opportunities, like what we have done at the Great Park, taking an original master plan entitlement from just over 3,600 homesites to over 10,500 homesites. or at our San Francisco asset, where we recently extended our tax increment financing by over 30 years and modified our entitlements to allow for the shifting of 2 million square feet of R&D and life science space from one development area to another to meet market timing and demand. Because of our execution on such large-scale projects, as well as our ability to leverage our existing relationships with the public home builders with whom we regularly engage, we will have the opportunity to expand this part of our business. Indeed, Five Point has all the infrastructure in place to expand this part of our business, leadership, purchasing and contracting, land development, financing, accounting, legal, et cetera. That said, new acquisitions do not necessarily need to be at the same size or scale as our existing communities. While the public builders are following the path of new growth in certain markets, there is substantial demand for housing in existing urban areas where housing demand has greatly exceeded supply. To that end, we have already been seeing opportunities for value-add land acquisitions that are infill and thus smaller in scale. The repurposing of land in housing-constrained areas will be a market on which we focus. Whether an infill site or a new development area, we likely will be targeting opportunities that are more midterm land holdings versus the much longer hold periods required for large-scale master plan communities. Given the now urgent need for housing in Southern California markets, and with our expertise and the expedited approval processes needed for new housing, we can add value to the public agencies and community in order to facilitate this much-needed housing. As you've heard us discuss in the past, we believe the Great Park venture business model is one that can be repeated, not only within our other existing communities, but also in future projects as we consider the growth of FivePoint. To remind you, this model is one in which we own an equity interest in the venture, provide management services to the venture, and have the ability to earn an incentive promoted interest for excellent performance. Bringing in capital partners reduces our capital investment, and gives five-point opportunities to move to an asset lighter balance sheet model under a well-crafted partnership program. Management fee income should offset our SG&A, and the promoted income interest aligns our interests while embedding a system of accountability to drive performance. We have a proven track record with the Great Park Venture, whose members have seen rising returns over the last several years, driven by a combination of our management of the asset and the active engagement of the partners. 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. While we don't have any transactions to report at this time, we anticipate sharing new opportunities with you before the end of the year. To assist us in sourcing new capital and structuring potential joint ventures, we have extended the engagement of our former CEO, Emil Haddad, under a modified incentive-based consultant arrangement. As founder, chairman emeritus, and immediate past CEO of FivePoint, Emil has a unique and deep understanding of FivePoint and the markets in which we operate. Additionally, in his role as Lennar's former chief investment officer, Mr. Herdad oversaw Lennar's land investments and led destruction of joint ventures, such as Heritage Fields, the venture that is the owner and developer of the Great Park Neighborhoods in Irvine. Between sourcing capital providers in the land development space and bringing his expertise in structuring these arrangements, we expect Mr. Herdad to help accelerate Five Points growth strategy prospects over the next few years. Now, let me turn it over to Kim to report on our financial results for the quarter.