Q3 2019 Earnings Call

Begins and welcome to the five point Holdings third quarter 2019 Conference call. Currently all participants are any listen only mode. I assume I know this conference is being recorded todays conference call May include forward looking statements regarding five points business.

<unk> condition operations cash flow strategy and prospects forward looking statements represent only five point 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 call. It five points actual activities or results to differ materially from the activities and results anticipated in forward looking statements. These factors include those display.

Right in today's press release and five point.

So you see filings, including those in the risk factor section of the most recent annual report included in Form 10-K filed with the FCC. Please note that five point assumes no obligation to update any forward looking statements I'd now like to turn the call over to Bob Wetenhall with executive Vice President of capital markets. Please.

Go ahead Sir.

Thank you operator this morning, I'm here with our CEO email the Dod our CFO Eric Hagen.

Our chief legal officer, Mike Alvarado, and our co COO, most kofi Bonner and linear outcome Emil will now provide an overview of recent developments.

Eric will then review quarterly financial performance.

Good afternoon, and thank you for joining us.

Oh patient need this has been a very busy for the for the company.

In Valencia in Los Angeles County.

We continued our land development activity and we remain on schedule to deliver our first home sites to build those next month.

This fourth quarter it wouldn't be a major milestone for the company as we start generating revenues in Valencia after many years of litigation.

Well, let's see I wouldn't be the biggest provided all presidential own sites in Los Angeles County, and we'd be another five point mixed use community with recreation Entertainment retail hospitality and high standards a public education.

Anyone who visits the great Pagano barn can see proof of concept of how we build communities.

Right Great for community. Another one home sales by I would guess, though those remain consistent with seasonal trends.

We received approvals last month from the city to move forward with the hundreds and 25000 square foot fitness facility.

Which will be a build to suit 40 nationally recognized blue chip Brett.

We also received approvals for 428000 square foot mixed used retail and commercial center.

I think lose their homes with an 80 room extended stay hotel and the onto the 61 room boutique hotel that wouldnt be built adjacent to the sports book and the five point I said, he now which showcases our partnership with their nine Bucks.

Finally, we received approvals to build the state of the odds fieldhouse as well as a world class aquatic summed up.

Which will be bought the new home of the U.S. national water quality and will be part of the Los Angeles 28 Olympic program.

These facilities will complement existing sports complex and will not only create high demand for our retail and hospitality development to be located just across the street, but will also add tremendous value to all residential neighborhoods.

In San Francisco, we received approval for the revised plans for our first phase that cannibalistic.

This first phase is comprised of approximately 1600 homes.

750000 square feet above us and 300000 square feet up lifestyle retail focused on focused mainly on food and beverage.

As we look ahead.

We believe that we ought didn't unique position to capitalize on some of the best assets in the country and some of the most dynamic markets.

Our balance sheet and liquidity afford us the ability to opportunistically.

Build millions of square feet of commercial space in our communities in the near future.

That complement our existing Fiberlan gateway campus and thereby.

During the past 18 months, we have seen the big disconnect between the value of our assets and the price of our stock.

We acknowledge there are a variety of factors that have created frustration for our shareholders.

2020 wouldn't be a pivot yet for the company.

And the early part of the.

We will hold at Investor day.

Shed more light on what's ahead.

Answer any questions you have and show the real value of the company.

More information would be forthcoming.

But I can speak what I would hold team when I say that we are looking forward to shedding more fully the vision to which we have dedicated most about carriers.

Okay.

Thanks Neil.

A summary of our financial results was included in the earnings release issued earlier this morning.

Our financial performance in the third quarter reflects continued investment in horizontal development, if the onesubsea and the recognition of management fees. The Great Park venture closed on 89 home sites, representing the final take down over the last sale that was announced in the first quarter.

Additionally, as previously announced the company closed on a 125 million add on to its 2025 senior notes in July .

I'll start with our consolidated results and then address each of our four segments and then conclude with some comments about our balance sheet and liquidity position.

The Companys consolidated revenues for the third quarter totaled 12 million in primarily reflect recognition of revenue generated from our rent from management services.

Revenues from land sales, a great park venture and rental income from the commercial from the Gateway commercial venture are not reflected in our consolidated revenues as we account for our investment in both ventures using the equity method of accounting however, due to our role in managing both ventures operation.

We include these revenues in our segment results, which I'll discuss shortly.

Equity in our loss equity in loss from our two unconsolidated entities was 1.8 million for the quarter.

We recognized point 7 million in loss due to our proportionate share of the great part ventures net loss of 2.4 million for the quarter after adjusting for the amortization and the accretion of the basis difference.

Further our share at the Gateway commercial ventures 1.4 million loss was approximately 1.1 million for the quarter.

Total consolidated cost and expenses were approximately 35 million, including 25.9 million of selling general and then maybe straight of expenses for the quarter net loss for the quarter was approximately 23 million, which 12.3 million was allocated to or non controlling interests.

Leaving 10.5 million or 10.7 million attributable to the company.

Moving to the segment results.

The Valencia segment is consolidated for accounting purposes significant expenditures on land development continued in the third quarter as we work to prepare the first phase of their community for Lam sales to homebuilders later this year.

Revenues for the Valencia segment were point 2 million, primarily related to agriculture, and energy operations, selling general and administrative expenses totaled 3.7 million for the quarter.

The Valencia segment loss for the quarter was 4.9 million.

Moving on to San Francisco.

San Francisco segment is also consolidated for accounting purposes revenues for the San Francisco segment were approximately 1 million and were primarily related to management services and marketing fees recognized from prior period land sales selling general and administrative expenses were 4.4 million for the quarter.

The San Francisco segments net loss for the quarter was 3.7 million.

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 degrade Park venture.

As a reminder, we own 37.5% of the non legacy percentage interest integrate part venture and 100% of the management company.

The great part 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 at the great part venture at the ventures historical basis of the county.

The great parked venture is a self funding operation with no debt.

The Grey card segment revenues were 49.5 million in the quarter of which 38.6 million was related to the great part venture.

The great part venture close 89 home sites during the quarter.

Initial gross proceeds from the sale were 53.3 million I'm, sorry, 35.3 million, representing a base purchase the base purchase price.

In addition to the base purchase price the grey part venture recognized approximately 2.8 million in estimated variable consideration from marketing fees expects to be entitled to receive.

The gross margin on the sales in the quarter for the partnership was approximately 32.3%.

Net income for the Great Park segment totaled 1 million for the quarter comprised of approximately 3.3 million of income related to the management company for services. It provides to the great part venture offset by 2.4 million net loss from the Great Park ventures operations.

Our commercial segment includes operations of the Gateway commercial venture and management services provided by the management company to the gateway commercial venture.

We own 75% of the gateway commercial venture and 100% of the management company.

The gateway commercial ventures, an unconsolidated entity with our investment in the venture accounted for under the equity method of accounting.

For segment purposes.

For segment reporting we include the full results of the gateway commercial venture at the ventures historical cost basis.

[noise] commercial segment revenues were 87 or I'm, sorry were 8.7 million for the quarter.

Operating expenses interest depreciation and amortization totaled 10 million.

Commercial segment loss for the quarter was 1.3 million comprised of point 1 million of income related to the management company for management fees offset by $1.4 million loss for the commercial gateway venture operations.

I'll wrap it up with a few comments related to the balance sheet and our liquidity position as of September Thirtyth 2019, total liquidity was approximately 454 million, which was comprised of cash and cash equivalents totaling 330 million and borrowing capacity.

Under our 124 million dollar $25 million revolver.

As previously announced in July the company closed on a 125 million add on to our 2025 senior notes increasing our liquidity.

Our debt to total cap ratio was 25.1% at the ended the quarter.

With that I'll turn it back to the operator for questions.

Thank you. The question answer session will be conducted electronically if you'd like to ask a question. Please do so my first Cindy Starkey, although by that did you want on your touched on telephone for use in the speakerphone. Please be sure. Your mute function just turn off the like your signal to reach our equipment once again, ladies and gentlemen, Please press star one.

Ask a question and we'll take our first question from Alan Ratner with Zelman and associates.

Hey, guys. Good afternoon, Thanks for taking my question.

So first off a great to hear that you're still on track and Valencia for those lot sales before the end of the year I'm, assuming based on that that unfortunately, it sounds like the the fires didn't affect you guys. There at much with the timeline.

Is there any color you can you just provide at this point I mean, we're we're six weeks before the end of the year and you know just in terms of how many how many lot sales or I mean like should we expect in this round and any information on the type of product that will be in the initial phase any economics behind that that you can share with us I think would obviously be very helpful.

Hi, Alan this is a meal must not sitting from you well first of all we have not been impacted by the fires in and thank God you know that's not close and into is.

The new development builds to a higher different standards and ER and that floor, we feel much more comfortable and new development with all the.

He quadrants, we'd have to go through followed by a buffers.

In terms of color you know, we've always guided up to about five under the home sites I think I I'm confident that we will be.

Above that number I can't yet shed what what they'd number is but I think we're going to be above that number in terms of products. There would be multiple products up probably more than seven or eight products somewhat in that range at least.

We will doing which provides for the proper segmentation.

And ER and cover the rights wide range of pricing.

You know that we always aim at as as you recall, we tried to target about 40% of the start from a 40% of the median home price in our marketplace to about 1.7, and a and I think this but this initial product offering will be covering those type of phrases.

I can't talk about economics, yet since we haven't closed but stay tuned and you know by the time, we bought the fourth quarter, you'll be able to see a while we've been excited and waiting for bless you.

Okay. We are eagerly awaiting appreciate that a meal second question. You know you guys were in the capital markets during the quarter with attack on and I'm. Just curious if there's anything you could share maybe forthcoming on the commercial side that you saw an opportunity to two I raise that capital or a is that just more.

Being proactive for for opportunities down the road and I guess, just generally how you're thinking about the commercial opportunity at this point.

Sure. So we are you know, we we talked about that the last quarter as questions were asked about why did we raise the additional 125 and I've said, we didn't you are giving ourselves a capital that allows us to stopped capitalizing on our commercial opportunities now that we are in that position to have.

Several million square feet built over the coming you know three or four years Opportunistically, we're not gonna be building on spec.

And ER you know we have at least now one deal done and we're going to have oil is done and then we up towards the others in the works that would be a build to suit and a lot on t., we intend to use the cash on the balance sheet as our equity and and we will do construction finance.

Thing and then later on convert that the permanent.

That based on market availability and what the market will provide.

And that's easy was the main reason why we raised 125 is to make sure that we have the equity between that and the land value to be able to move forward. So I think you should expect us over the coming you know the two or three or four quarters to be.

Daylighting more commercial opportunities as they.

Get finalized.

Great all right. Thanks, a lot.

And exit will go to a Stephen Kim with Evercore.

Thanks, very much guys.

Looking forward to 2020 looks like it's gonna be a pretty interesting.

For you.

Two general questions I had one on the commercial side the other one on valencienne long term planning there.

I guess, if we start with the commercial.

Wondering if you could update us I think.

Last we heard from you gateways, and Hawaii and 2020 $27 million still wondering if that's a good estimate and also if you could give us some sense of when we might see the first recognize revenues.

Okay, Great Park, a non gateway a great park assets as well as new Hall and shipyard.

And I guess I'm throwing if there's any comps to help us sanity check longer term our longer term outlook for.

Growth in the in a division.

Sure so.

So look I I as I said I think we are going to be looking at each of our commercial opportunities in a very strategic way.

Oh, we we announced the studio Pope deal and hopefully we get their approval is very quickly to convert.

The building from office to medical and that has now become a catalyst for a much larger healthcare opportunity that we have is a great park and as we finalize some of these discussions with some of these healthcare providers, we'd be able to give you little bit more color on that we also now that we've come to you.

Did the sports complex some of the ice that he now now that we have.

The the waterfall facility and then the field aus.

We have you know a very high amount of people that go through all these facilities and and that's why we're building the.

Commercial in hospitality across the seat.

So we can they look at each of these opportunities up you know individually and look at it strategically the same thing with well answer, but let me let me back of this by saying as we now completed development and and blends yet and as we.

And now have developed the landal, but he had integrate park.

Oh, we think we have an ability to bill you know more than two two and a half million square feet within and complete them within the coming.

For years that doesn't mean, that's what we're going to do.

But that that opportunities available and I think that then thoughts, giving us the opportunity to keep on growing got commercial portfolio.

Yeah, we expect to be.

Getting returns that are very consistent with what the market expects and the good news as we on the land.

So we feel extremely comfortable that we have an ability to.

Just bought building our NOI as we talked about during the Roadshow, we are very consistent with exactly I wish that did you we've talked about.

And we are fortunate enough to have an ability to be ready opportunistic and very strategic about those.

Just following up on that so the two to two and a half million square feet of commercial that you said you have the ability to build my guess is that.

What can you give us a sense for how you might see that broken up between the various assets and in particular when do you think we might see the first.

Revenues out of those assets.

2020 event or do you think.

Maybe in the case grade Park, where do you think it'll be further out than that.

And same with New Hall, and if you could hazard, a guess and shipyard just so for modeling what year, we could maybe begin.

Yeah, I don't think you should expect anything in 2020, I think that what we are we'd be doing right. Now is we have a they approvals and we have deals in the works.

I think a good part of 2020, we'll be doing all the engineering and planning for all of these opportunities and hope to start sometime in the later part of 20 on some of them and or early part of 21 then.

Do you assume that these type of deals take about 18 months to two years to build so we're talking about you know when you start seeing major growth and out and then why would be more in the early 2022, probably late 21 or the 22.

You did and and the good news is at that point in time, there's a long runway of ability to keep on growing that that NOI.

Yeah.

Okay excellent.

Second Gen set of questions related to.

I guess, particularly Valencia I'm curious about.

You have the ability with these unique assets given their size and scale to really get in front of some of the changes that were seeing.

In terms of how people are choosing the live and we've actually seen over the last decade, a pretty dramatic shift in in the marketplace and I'm curious as to whether or not you have a being able to.

Repair and engineering your projects to future proof them in a way for something.

I think you've talked in the past electrical vehicles or even autonomous vehicles.

Occasions that might have probably like developer community I was wondering if you could speak to that and also.

Well family Bill to rent.

Multi generational housing all these kinds of things I was wondering if you had any thoughts on how youre communities might be able to optimize or be optimized for some of the changing preferences, which one do you think are important and how you would be able to adjust your planning for those.

Sure well if you look at what we have done at the great blogs that there's a good example, Apollo we keep on working on products to meet.

Existing market conditions and look forward. So you know we have several multi generation products over here.

We have a very wide ethnic buyer group has a great bark and therefore, we have homes that have an ability to.

To deal with a lot of cultures, including master bedroom down master bedroom up units within two kitchens. Some for heavy cooking, we are constantly listening to what the market is telling us about our bias, although we don't build the homes, but as you know we designed the actually the homes.

Himself and in partnership with other builders.

Everything we do you had an hour macguffins function way because you know this is a big market that that is.

It was about a culture.

And belief and and as we start building up in the a in Valencia. We are doing the same thing our biggest focused right now is to make sure that we build a enough of a range of product offerings from the pricing point of view and lifestyle.

To appeal to a why the base than most developments can do as you know we let the pointing to cycle right now what land prices are pushed up and it's pushing a lot of the builders to start building bigger homes more extensive to to be able to justify the pricing of land and that's actually starting to foreclose on the opportunities.

For a wide the base of buyers that doesn't it won't have the ability to buy that type of a product.

Well actually we have because of the size of our communities and our ability to bring multiple products online. The same time, because we can actually is thought building from as a sub 40% of median home price and I will not get up to 1.7, if you come to the great bought today you'd be able to visit the about 50 different models that go.

So you know cover the whole range both in terms of flights <unk> lifestyle.

And in terms of size.

Look we are also very carefully looking at the efficiency of space one of the things that that's happened over the years is the fact that the size of the home started growing because it was more of the entertainment place and now we're trying to harvest space to make it more efficient if you see out homes.

You will see that we eliminated the while ago the form of living room and replaced it with more and an odd dog gold room larger or even a longer. These space. So we are constantly looking for the efficiency of the space because I was spaces that expensive.

At the same time, when we look out looking forward in terms of.

Electric vehicles.

Well, let's see I wouldn't be the first city office nature that would be a net zero greenhouse gas.

Emission community and it's being used as an example every home will have a charging station. We would have 2000 charging stations within the community homes will come with parking.

For electric vehicles.

We are very much focused on that.

But realistically you can just assume that the its own Scott is gonna be around to coordinate and start designing for that because you know we're not there. So we have to be.

To be able to provide for flexibility in the future.

But not me too far into the future now design otherwise you know, we're not gonna be realistic so.

Well, we can spend as much time offline on that as you know I am very much involved in every one of these things and looking into the future and demographics, but that's some of the things that we do and I hope that helps.

Great.

Thanks very much.

<unk>.

All right.

Good to our next question, Chris Kolata with RBC capital markets [noise].

Hey, guys. Thanks for taking my question. My first question just on that what you guys are saying on the ground in your market.

Conditions improve.

[noise] that.

You guys are thing and then and then secondly [noise].

Back to Valencia is there any chance it gets used at Liberty to late at all for you guys to capital.

Actually improved pricing environment.

I'm, sorry, breaking it another little bit of the question.

First of all [noise].

[noise] question about our pockets and [noise].

Good luck that [noise].

[noise] first lots of these.

Yeah.

The market.

[noise] pick markets and if there's any chance we could see delays in Valencia at all to capitalize on potentially improving price environment.

No. We first of all our markets are performing very well a you know the submarkets that are very unique in terms of lack of supply and high demand than job creation. You know we go from.

A ratio of job jobs to be that to a thermos up anywhere from.

For the and I have to six but jobs to a format. So obviously, there's a huge imbalance and that that's been going on for a long time and therefore, there's a big pent up demand. So you don't want consists of performing very very well.

What we do with our the velocity of our Oh.

Our you know supply.

Is that we look at and optimizing the absorption rate.

You don't want to go too fast and therefore, you basically not pricing right and you don't want to go to slow because that means that you're actually not optimizing its done.

So we try to get to somewhat around in other markets somewhere you know that touches about the three.

Third month third product.

The home sales.

And when we sell at home sites, all builders, we monitored on weekly basis each of the products absorption.

And I thought gauging one we bring the new replacement a product online to dovetail with that so we don't have a lot of overlap and that bought stock disrupting the pricing structure. So we spend a lot of time on making sure that we are monitoring in real time and timing the next.

Product offering.

At the right time, so you know, it's not the random a acceleration or deceleration.

I believe it or not there's a lot of science behind.

Got it understood very helpful. And then just for my second question I didn't see anything in the press release, but could you just provide an update on the deep hole partnership and how that's been progressing.

The partnership.

Oh city of hope obviously been so.

The it's going really great and if you want to talk to them they'll tell you that you know what do we started than what we are today has been extremely exciting that office with us over here.

We started with a small transaction that though as extend into it because transaction and I think you should expect says as we go for what.

They're going to be a big part of our job I will health care.

Is extremely important you not in my opinion in in community building.

And gas at a nice on everybody's mind, and we're fortunate enough to partner with the best Cancer Center on the West.

And people who are like minded in terms of community involvement so.

It's gotten great the transaction itself that we talked about.

As I said before we're hoping that it would be approved by the city. The conversion to medical you know, what they're becoming short period and therefore, they can start that tenant improvements and be on target to open that facility by the early part of 2021.

And as a result of their presence now we have had a lot of discussions with other healthcare providers, who wants to be in the universe [noise].

[noise] companies that are associated with them that want to be part of that so that's a relationship as being a really wonderful relationship.

Got it appreciate you guys taking questions.

Sure.

Okay and next well go to a Sam Mcgovern with credit Suisse.

Hey, guys. Thanks for taking my questions. You know you in your press release, when you guys talk about their strong 2020, <unk> is that more broad based as the visibility for certain projects and when you think about your the interest level from builders are what's the level of engagement. Other currently let or letters of intent process or where are we at that stage.

Okay. So I mean, yes that it does that is right right now a lot of back and forth I would call it a between us and the.

Builder, so far that have been selected for the first on the Valencia I can speak more about that until it's it's a little bit more inked, but ah.

Let me go back to I think the first part of your question as to the statement about 2020 like we have been very upfront about the fact that you know the timing of all gone public I'll watch premature.

From an operation point of view and we had a lot of factors that had us a goal for the public offerings, we Oh I've, often said that I believe that a going to the market.

In 2020 would give the markets inability to understand the company more to see more visibility in terms of revenue the biggest assets of the company's Valencia envelopes, yeah as being tied up in litigation for you know for 15 years and that's what a lot of people were basically discounting dolton either.

Let's say whatever happened when I went on the road show a lot of people who were questioning if it like what happened because they have over and over that doesn't happen.

Today, we can say it's happening today you can go see US today, you can you're gonna have homes occupied next year.

We're going to start talking about building commercial over there so for us that's a major step forward to be able to say, we now have the largest community in L.A. county, providing a residential opportunities in a market that has virtually no supply and it's the largest smuggled in California. So you know that's it.

Major thing for US. It's also you know unfortunately up to now because the only provide that off off revenue is being the great Bart and it's an unconsolidated venture. It does confuse a lot of our financial reporting because it doesn't show up in the top line and I think the lesson I was going to start.

Enabling people to see that this is a company that actually generates a lot of revenue.

Unfortunately, not all of it shows up on the revenue line and therefore, it skews up a lot of the numbers.

The other thing is you know a lot of questions. We have been asked about liquidity of this company and whether we're going to come back to the marketing and ask for more capital and they were saying that we are in a great position from a liquidity point of view and we expect showed off the market shifting on us. That's we will be a bunch of capital company going forward.

That's a major statements for land company with a 25% that took up.

And that is one of the best balance sheets I think in industry.

We have a commercial opportunities now that that matured enough and we're going to start recognizing.

Revenue out of those that that becomes more consistent revenue like wasn't new bases, which I know, it's something that the market. This one was looks for from a land company. So we have a lot of things of that old converging in 2020, that's going to enable us to start talking to you all about the real value of this company and not have the frustration of People's writing today.

Need them between the lights.

Oh, that's that's incredibly helpful. On I think you sort of foreshadowed My My next question, which was actually you know about the cash flow and sort of the sources and uses going forward. Obviously, you did tap the the debt market. This summer, but with the health care camp is going vertical and the other commercial opportunities around term how do how should we think.

[noise] usage over the next year or two and you know how do we think about the cash flows is it all going to be generated from cash flow or are there others sources and uses that you're gonna have to sort of be out there looking out.

Well look I think we've been very consistent about the fact that we are fully funded for land development that have been saying that's for awhile and I think the numbers now show you that.

We also were very clear last.

Quarter, when we raised 125, but this wasn't because we would not telling the truth about our fully funded position, but really more to provide ourselves with the capital to start capitalizing on our commercial opportunities I think as we sit today. We believe that we are in great shape from a.

Self generating cash flow point of view to capitalize on all the opportunities out of US no something comes up that's a great opportunity that we all want to consider doesn't take to our board and as a result want to go raise capital for it that's something that you know I don't want to say, we're going to absolutely not consider but as I look.

The business and I have enough visibility today ahead of me what at least three years showed off market conditions changing I'm very confident to say that we are.

Well positioned to use our own cash and cash generation to cap laws and everything we want to do.

Okay got it and then just last question with regards the commercial labs assets. When do you think that that sort of achieves the sort of more stabilized consistent level of an NOI.

Well I mean look we it's a when you say stabilized NOI I think that.

This out in Hawaii will be a growing and Hawaii as we go forward and start building.

Just to refresh everybody's nobody I mean, we have 23 million square feet of commercial opportunities that we can build over the years today pipe on gateway is about a million square feet.

And as I said, we have several million square feet that we can build over the coming you know three to five years and start growing that then why are significantly from the stabilization point of view because of the nature of how we're doing these deals we basically have a tenant does it.

In the issue all you know the fitness facility is a good example, we already have it down and we already know that once the building has done we have a stabilized situation with a with the tenants. So we're not building anything stuck here than we.

We're fortunate enough to having a lot of people want to now be part of all committees and and therefore, if your question is about stabilization from a tradition of this interim sands.

In many ways were stable the minutes, we actually finished the buildings and if your question in terms of stabilization of the dollar amount of the N.Y. I think you should expect that that NOI will be growing at all and a lie over the several years ahead of us.

Okay, great. Thanks, Thanks to watch all possible.

And as a reminder, ladies and gentleman to ask a question star wanting your telephone keypad next well go to Michael Rehaut with JP Morgan.

Hi, This is a lot on for Mike.

Question I just wanted to.

Understand better than levels, and then change anything from public versus private builders anything changing Nick and maintenance hybrid persons public.

[noise] well look I think that the landscape obviously over the last I'm going to say you know two decades even.

In our markets up shifted a lot from the private to the public.

Back in the in the.

Late nineties.

There were no one or two publix in our markets and most of them are privates today I would say you have probably one or two private most of them are public so I I think because of.

The makeup of the market itself.

But definitely seeing more interest from the public's.

The the pricing of our land.

As such that you know not many private have the balance sheet than the capacity to buy land and ER and build with our communities. We always like to head up one or two privates build in our communities just because I think thats mix helps a lot, but I would say definitely we're seeing more interest from the public's.

Yeah.

Okay. Thanks, that's helpful. On just following up there I'm on the land prices.

You know given the fact that it's been a.

That's pretty strong deceleration home price appreciation here in California, and especially in San Francisco or home prices, even carrying negative how should be thinking about the relationship between the homeland, probably think California, I know it how could that impact your business, how could that impact the land prices I would actually could you take mitigate does impact and.

With that then maybe lead the way it from a private again, Rob thanks.

Like I I would not telling you know pipeline is not selling homes in San Francisco. So we're not exposed to a any of the issues in San Francisco from residential point of view.

As it relates to the market that we had been selling you know here are our real does that mean selling.

The issue as being a consistent ratio.

Of around the you know between 50 and 54% of the price off at home is actually a finished homesite value.

And the L.A. market, we expected to be more in the property.

35% to 6% somebody that range that's typical.

And ER and set the way up with things, we're still seeing home price appreciation.

Which translates to a land transaction because of the residual nature of the pricing.

Okay. Thank you.

Yeah.

Okay and next well go to a price schabowski with Paul for Ciborowski with Wells Fargo.

Thanks, I guess first question.

How many large do you have left.

Okay.

Yeah.

Okay and novel Park in.

They're absorptions and meeting your three per month target or.

Any potential that that could.

The second half of last year or earlier this year.

2020 [noise].

Well, we're still seeing.

As I said was it we're still seeing consistent seasonal absorption as you know we still have a little with a fluctuation on the seasonal aside up so we're.

Pretty much consistent with what Riyadh.

And we were expected to be a in terms of how many I'm just looking up to see how many home sites I still living.

We have a 384 homes remaining to be absorbed.

And.

That's that's about a third of what are what that cadences.

And by the time, we have the opening of our next neighborhoods wouldnt be which should be sometime in the middle of next year or then this would be almost you know built out and salt and we will.

Dovetail into the new community.

Okay.

And then.

Could you update us on that Don.

For a long runway to Irvine ranch.

No.

Back to their home or lot availability and.

How much how long is there something like six on the sell through and then hazard pick hazard, a guess on what that might do for demand, but they're a great park either with respect of all your pricing.

Sure. So what we have been seeing and what we are projecting it obviously, we don't know exactly what's happening in the airline companies. So we are our markets. These so right now shows that we are starting to get a bigger market share or not because.

You know, we're performing about them, but because they're running out of.

For sale residential and as you know there everyone company has shifted a lot to apartments.

In the last few years. So we know based on our numbers right now we expect that as of next year in and beyond.

We will be the bigger market share in the market and I think that based on our projections right now it looks like we're going to be a you know the majority of the market within the coming you know a couple of years.

Yes.

Okay. Thank you appreciate it.

And next well go to John Moran with Moran with robot in company.

Oh, Hi, sorry, just a couple of questions are or new Hall.

The first be influence your your go to <unk> the fourth quarter will.

Couple or something about I guess when values for the.

First lots sold but can you.

Do you feel like that it will be revealing in terms of the value creation opportunity there or.

Are we call it 4000.

Units that you're doing the infrastructure work on your or you know you're starting with 500 units or maybe it's a thousand units in the next.

Here are something will that be.

Reported results pretty cloudy.

Are we not no they.

Yeah, no. They reported results would be I think very clear and we'll be very revealing.

And you know we have you know we're anxious to get those deals done and be able to give us more visibility to the value of Oh Valencia, Yes, you're right. The first villages up 4000 home sites and that's what we're working on on infrastructure, we have a the first.

You know.

Well at 700, there so developed and we keep on developing now going forward and obviously, we keep on monitoring market demand. So we're not too far ahead than our infrastructure.

But I think when we report you're going to be able to see.

You know the margins over there you got to be able to see the pricing over that and is hopefully it's going to enable you and others to extrapolate from that.

The real value that we have and that's one asset alone.

[laughter] second related to a new hole.

[laughter], how soon might we see the first commercial.

Deal there and does the commercial there is there no for Jason see to whats already in Valencia accrue to market.

Outside.

Well, if your availability there now [laughter].

Yeah, I mean first of all Oh.

The new Valencia, which used to be called New Hall is a brand new city basically across the freeway and if you have seen what we've done at the Great Park that'd be a lot of similarity over there in terms of what we're going to do and the lifestyle over that and all of them out of the commercial that we not only look at as a stand up and.

On investment.

But also as a major amenity to create value for our homeowners.

We are going to be hugging.

The six flags Magic Mountain, which brings about 4 million people year over there and we're going to be able to capitalize on that topic for food and beverage hospitality and by creating an expanded entertainment and and area for experience. We believe that traffic wouldnt be very helpful. In terms of validating.

Love them all commercial.

In terms of all the timing I would say that would because focus obviously has been our residential opportunities and once we know that we are in motion over that and go forward twentyth when he will be yet will restart.

Flattening and thinking and finalizing our thoughts on the commercial sides and hopefully we'll be able to start talking more about that as the ER as the year 2020 unfolds.

Okay last one is just at gateway.

You're you're now the steel with city of hope and I'm just wondering when.

When that might close.

And I mean, given you you bought that property.

I don't know two years ago, it'd be interesting or no.

What those numbers look like relative to what exactly what you paid.

Can you say, whether or not that were significantly profitable or or how we might measured I know that you're putting away and then for the 75000 [laughter] square foot cell line.

Yeah. So in terms of timing or we would expect and get to close in the first quarter of 2020.

In terms of profitability I I hate to up to a drug definition on whats significant means to you versus us, but I can tell you we're very happy with this transaction.

And it's one that I think is going to outside the market.

[noise], but profitable.

Yes profitable I mean other <unk>. The other words are trying to deal just made forget them in there.

Well I suppose director.

It's a problem transaction, but more importantly, we're very excited the here, but there's a profitable transaction [noise].

Okay, and then related <unk>. There's I think are still are at last quarter geared recorders, 170 odd million and or [noise].

And the great part joint venture can you say anything about what.

What.

Got to be covered our cash whether it be distribution or is that for vertical development or any color around that that's all thank you.

Sure well look or the a great ball is self funding and has a lot of excess gosh I think we should expect some distributions.

On top of the reserve, we haven't defensive for future development. So I think that's that's one asset that hopefully as we start seeing more you start seeing more the ER the financial performance of that deal a you'll be able to start seeing what's going to happen in Valencia as well, but I think you should expect that there will be board.

Fusion as well as a lot of cash on the balance sheet that we keep for it off what opportunities to develop going for.

So is it possible that will generate care for five point and.

2020, or first half 2020 record Uh huh.

Well, we're expecting a distributions in two pipeline, meaning we expect the a priority distribution to burn off and we start seeing distribution to five point in 2020, I don't want to commit to a whether it's the first half or the second half of the I'd just because I have partners with US who will have a say about the timing of that.

Distributions.

[noise] Gregory.

And next well go to a need to red leaf with walks or.

Hi, Thanks for taking my question just.

As it relates to the first phase or the San Francisco project do you guys have.

Final final approvals from the city to the point, where you can start to come out of the ground on stuff for their.

Additional additional approvals you need from the city and then I guess related to that how much how much site work do you need to do there.

Before you can either start delivering residential lots or you don't come out of the crown commercial structure.

All right. So the answer is yes, we have final approval the way we define approvals because you know for US is discretionary approval over the city that then turns into more of engineering and more things that.

We have less risk to them a the most important thing in our businesses to get the discretionary approval by by cities and counties and they answer to that questions. Yes, we'll see if that's approval.

The 2020 will be a year, where we will be working on.

Reengineering and working on a lot of the technical side.

To to start to be thinking about that side not as they regional outlet mall, but more as the mixed use development that we got approval. So expect that 2020 would be more.

Going forward with engineering and things like that and as I said on the last call. Oh. This is the deal that we fully expect to do with a partner at least one partner and a and we've had a lot of inquiries that we have not just one that we did not want to respond to until the approvals and I can share with you that since we got their approval last week.

Oh, we're having discussions with people who have expressed an interest in that phase and and hopefully in twenties. When you wouldn't be able to a to be talking more about that but in terms of timing of when we started going vertical I don't think that you should expect us to go vertical before sometime in 2021, and probably later part of 22 anyway.

Great. Thank you.

And this concludes today's question and answer session. We thank you for your time out.

Interest on behalf of five point that does conclude todays conference you may now disconnect.

Thank you everyone.

[noise] Oh.