Q2 2021 Five Point Holdings LLC Earnings Call

It gives us the ability to keep 1 foot on the accelerator.

And 1 on the brakes to react to sudden changes in conditions.

Our partnership with a state of California, and each of the jurisdictions in which we build distinguishes us from our peers.

Lastly, our relationships with our homebuilders has grown broader and deeper.

And our relationship with Lamar and the number 1 builder in the country is unique in that not only are they are our largest shareholder and intimately familiar with our assets.

And leadership team, but they also have been the largest buyer of homesites at Valencia on the Great Park communities in which they have a long history of investment and a fundamental understanding of our vision and needs of a residence.

Now, let me turn it over to Eric who will report on our 2021 and Q2 financial results and we'll be happy to take questions after that.

Or approximately $26.5 million, including $19.2 million, a selling general and administrative expenses for the quarter as well as $5.8 million and expenses incurred in connection with providing management services to the Great Park venture.

The net loss for the quarter was approximately $4.9 million of which $2.6 million was allocated to the noncontrolling interests.

Leaving $2.3 million attributable to the company.

Moving to the segment results.

The Valencia segment is a consol is consolidated for accounting purposes.

<unk> segment includes our Valencia, a community that is approximately 15000 acres in northern Los Angeles County.

And is designed to include approximately 12, I'm, sorry, 21500, Homesites and approximately $11.5 million square feet a commercial space.

As of June 32021, 1268, Homesites had been sold.

While there were no land sales in Valencia during the quarter development, a infrastructure improvements and amenities in the community continued in our community marketing efforts picked up as our guest builders readied their models and began selling to homebuyers during the quarter.

<unk>, a approximately 152100 acres and a city a burger on the community is currently designed to include 10500 home sites and approximately 4.9 million square feet a commercial space.

As a June 30th 2021, 6970, homesites, including 709 affordable on them sites have been sold.

The Great Park segment revenues were $344.4 million in a second quarter attributable to the recognition of revenue from the sale a 770 for home sites on approximately 58 acres during the quarter and revenue recognized under the management agreement.

The base sales price for the 770 for home sites was 328.2 million a.

Additional revenue a 7.6 million was recognized in connection with marketing fees, which are expected to <unk> to be received at the time of the home closings.

The second quarter net income for the Great Park segment total of 78 million consisting of $69.1 million, a net income related to the great part venture and $1.7 million a net income from the management company.

In addition to the operating results the great part venture also made a distribution to its members during the quarter.

The payments to both the legacy in percentage interest holders total a $255.3 million.

As a 37.5% percentage interest holder 5 point received $76.6 million in distributions.

The management company also collected 21, excuse me 27 million of incentive compensation payments under the provisions of the development management agreement with a great Park venture.

And another 1 million for an indirect a legacy interest we hold.

In total 5 point received $98.3 million from the great part venture during the quarter and distributions and incentive compensation payments.

Of the $565 million, a distributions, which are ultimately due to the legacy interest holders.

As of June 30th total liquidity was approximately $361.2 million, which was comprised of cash and cash equivalents totaling $236.5 million and borrowing availability of $124.7 million under a 125 million unsecured revolving credit.

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The maturity date of our unsecured revolving credit facility was extended to April 2020 for during the quarter.

Our balance sheet, a solid with a debt to total capital ratio of 25, 2% and.

And a net debt to total capital ratio after taking into account our cash balance of 17, 3%.

With that let me turn it back to the operator will now open it up for questions.

Thank you, ladies and gentlemen, if you would like to ask a question. Please do so by pressing the star can't followed by the number 1 on your telephone keypad. If you are using a speaker phone. Please make sure that you're on mute function is turned off to a lawyer a signal to reach our equipment. Once again, let a star 1 for signal for a question.

And our first question will come from Stephen Kim of Evercore ISI.

Yeah.

Hey, guys. Thanks, very much a.

Good job on the quarter, a nice to see the a 100 million and a great Park I wanted to ask you about San Francisco, though if I could.

I think last quarter, you had talked about a report from the Navy about that referred to a timeline, but I wanted to see if there was some sort of update or a little bit more clarity around a.

The timeline of a deliveries there of a third the delivery of land to you from from the Navy and what that might mean for 5 point in a let's say in 2023.

Yeah.

Hi, Steven for you from you again.

So let me let me answer to that for a first of all.

We have lines of communication open with both the city and in Washington D. C right now.

There's a lot of discussion going on about a.

Accelerating the process at the highest level in government.

So that I can tell you.

That is actually hopefully would lead to more clarity in a timeline that is much more from the so there is not much I can tell you more than we've talked about before in terms of deliveries. The Navy had issued a schedule of when they deliver the parcels on when do you expect them to.

As I noted a parcels, but we want to make sure the debt commitment is cast in stone and that's what's happening right now.

However in terms of timing of development as you know.

At this point is the only a component of the assets.

Is tied up in this cleanup issue, we still have Kansas stake, which we have now.

Phase the whole project to a Kansas stack would be the first phase and we can start on kind of a stake at any point in time, but we are not going to start in Canada has taken a because we have certain day on hunters point because the 2 are.

Connected together from an <unk> point of view.

In the Meanwhile, we have now moderated all of our expenditures in San Francisco to limit to only contractual obligations.

Then we have the commitments that we need to get from the Navy and from the.

Other agencies in terms of delivery. So I wish I can give you more than that I can tell you things are moving a few would have asked the same question 9 months ago I wouldn't have been able to tell you that there is so much movements right now going on but there's a lot of moving going on.

Okay, well, that's encouraging and I know that was kind a part of a broader conversation about the state of California's interest in addressing the housing shortage that you have there through densification and I frankly that was a conversation that I think extend it a great park as well from a theoretical perspective.

Thank you drew a comparison to the amount a density that you know that they have in Irvine vs. In Great Park.

I think you said it could add 5 to 7000 more units theoretically and I guess my question was is there anything tangible with respect to a.

In effort to actually realize some increase in permitted a permanent a sites and is there a optimal point in the development of the project a.

As we think about the lifecycle of a big Master planned community like that where such an increase would.

B, either most likely or most beneficial to you.

So let me start with the last part of your question and that is a likelihood.

I would say that in light of the shift.

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Sentiment in the state of California in favor of housing and in light of the fact that we are seeing policymaking, all now being in favor of housing which is something that in all my 37 years of being in this business I've never.

<unk> seen policymakers focused on housing as much as they are right now both of the state level as well as a local level I will tell you that the likelihood of a seeing something happened at a great part is good.

We have a great partnership with a favorable Irvine for <unk>.

The city of Irvine has a and <unk>.

Sensitive to comply with the state's requirement of having additional housing as I said the last call. This data is now allocated the shortfall of housing to each of the cities and counties. We know what the needs are and we are the best positioned to help.

He is not a volume in meeting debt and we have the ability to intensify.

No.

If you're asking me do I feel good about that happening the answer is yes.

The only thing that I can tell you a concrete is that we've had a lot of discussions with the city.

And the city now has this.

There has been an extension of the timeline has been set by the state of California, and every city is a requirement to deliver it to the state program.

But we have a program and we think that there is going to go forward.

And I feel like right now if you're asking me do I feel that there is a probability of getting a few thousand more a homesites and intensification of the straightforward answer would be yes.

That then indirectly impact for us because we have the partnership with a builders and we want to make sure that the cost that is coming out of that shortage doesn't translate to higher cost of building now.

We have a very very unique position that I think is not highlighted enough in terms of how we can actually help our partners are builders on the on the labor shortage.

When you look at the large builders today Steve.

When they go to bid that project that a bidding every project separately and third for when you go to somebody who is doing.

A.

Any trade there regardless of the size of the buildup, we're bidding it based on the 50 or 60 homes for their bidding on what we're now doing with our business as we're sitting down with them and saying look you are a guest builders in Europe is going to be a repeat builder.

And because we have something like Valencia, there's gonna have a production that goes on for 10.15 years.

We have an ability together to sit down with the trades and cut a totally different deal for help the business got a total different deals rather than bidding it on a 1 project here another project several miles away and Theres a lot a discussion that we're having about how do we help.

With our builders in mitigating the cost and creating that.

A long runway.

It helps them to trade commit to a market and that's the biggest challenge we have in California as debt.

Because of a lack of supply.

Can have that so.

We're working on a lot with our builders I think we're gonna be extremely helpful. But if you're asking me if the labor shortages impacting us directly there for us now.

Great No. That's very helpful. Thanks, a lot a sense. Thanks, a lot a meal a real bummer about the first day, but I guess you can't do much about that 1.

Do you know what as Dave I mean, we debated that and actually we made a decision this morning.

And I can tell you I just came back from overseas and this whole delta is creating a lot a confusion right now and we've waited so long to have this in vessels meeting and we got excited that we can do it in person and I really don't want to end up changing a to a virtual if we can wait a little bit and see what comes on.

Out of this volume.

But if we if you're asking me if I'd much rather delayed 2 or 3 months and haven't been a person rather than have a virtual all of these areas to 3 months and have a person because as you know.

Seeing the communities and touching and feeling and being there is totally different than anything I can describe.

Yeah totally agree on.

Alright, well be weighted thanks, very much a mill thanks, Steve by the way.

If you're in town and you want to chat we're on.

It was here.

Sounds good.

And once again, ladies and gentlemen that a star 1 if you'd like to signal for a question. Our next question comes from Alan Ratner with Zelman on a personal.

Hey, guys. Good afternoon, thanks for taking my questions.

So first 1 on I'd love to just get a little bit more color on the Great Park land sale, if I could.

I know that each phase you guys are doing there is obviously a little bit different than the last but.

From if I'm looking at this correctly it looks like.

The price per acre that you guys got on this recent round of sales was roughly in line with the last Big deal you did in early 2019, I'm getting to $5.7 million per acre versus 5.3 back then.

A lot cost per watt is also a pretty similar so.

Immediately expected that number to be a bit higher just given how much both home prices and land values a run up a since then but I do recognize that every every a fees is a bit different. So maybe you can give a bit more color. There about this particular phase how it compares to prior ones.

Any any more info you can give would be great.

Yep.

Alan less chatting with you and thanks for the question look.

On.

The reason, we do not focus so much on squeezing for large dollars for land sales that we have a profit participation with our builders as you know we report space above an 8% pretax 50, 50 with our builders and therefore.

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On the price of land could have been a couple of hundred thousand dollars more per acre we captured in the participation..1 of the things is I think is very important for US is the change of the narrative between a land sellers on land developer and builder, we are free to trying very hard to say.

On the message that this is not a transactional business. This is a relationship business, we want the builders to succeed and we want to be able to have a dependency on them as much as they have announced because at the end of the day the shortfall in land in California is creating a lot of a challenge for the builders.

For a land developers also the consolidated nature of the business is going to create a challenge because back in 2013.14 I used to go out with a package of twenty-three packages to builders today, you know that universe a strong. So it is very important to start changing debt. So you know.

We decided to not push the last dollar out.

On the sale and Thats a decision made by the partnership to a.

The builders to execute and keep on executing properly and those discussions that we had with the build a started a while ago and.

I have no doubt at the end of the day debt.

There was a possibility on pushing the price up we're going to capture it and even more in the participation anyway.

That's really helpful. I appreciate the a walk me through the thought process. There on I think it makes a lot a sense.

Second question, you know I think a quarter or 2 ago. You mentioned there were some some conversations occurring at the board level about whether.

Whether it's a maybe investing alongside some partners a on either apartments or I think you kind of maybe temporarily temporarily ruled out single family built for rent, but I was just curious you know either in in a.

For once a year or great Park, if theres been any developments there about a outside of the traditional single family lot sales for any additional opportunities going forward.

Yes.

In Valencia, we have right now at least 1 site.

Thanks for that too that we're looking at assets.

An appointment side, that's scheduled for sale by the end of this year.

Whether the sale ends up happening to a entity that we participate in or a sale to a third party. That's something that we will decide on in a later in the year.

But we have all of the expectation we have a expectation too.

Are we seeing more for rent products, and our communities and hopefully for us to postpaid and debt on the vertical side as well. So a great Park, we will if we go through the interpretation is that was a.

Articulating before Steve.

A good part of debt and Densification would potentially be product that is an attached product that is for for ramp Kansas. So far we have not done anything in Irvine with a great Park that is for rent for 2 reasons 1.

It was a very important for us to generate a cash and put ourselves in a position. We're in from a liquidity point of view of the a debenture level plus making the proper distributions to some of the partners who have been in this investment for a long time, but more importantly.

We came into this market and a coexisting with the Irvine company and it was very important for us to establish a proper synergy.

They are buying a company and as you know <unk> been very much focused on apartments, and we did not want to put ourselves in a position to compete with them and really establish a relationship that's more a naval Lee relationship and respectful of the fact that this has been their market.

There's obviously a different phase right now and they're starting to get to a point, where they're shifting away from apartments on going to office and that gives us now the opportunity to start getting more into the apartment. So you will see us build more income producing and hold more income producing whether we do it all on the balance sheet.

Or important ship, it's to be seen and the board will have those discussions over the coming several months.

Perfect I appreciate all the detail thanks, a lot guys.

Of course.

And Mr. <unk>. It appears there are no further questions I'll turn the conference back over to you for any additional or closing remarks.

Thank you very much channel and thanks for everybody.

Joining us today.

We really are excited.

On a different company and I know that the reporting that we have is a little bit different than a quarterly reporting but I can tell you from the perspective of everybody who sit around the table with me here. We're extremely excited about where we are as a company and I think as the next quarter or 2 unfolds, there's going to be even more of a news to be.

So thank you for joining us and we look forward to talking to you soon.

Soon.

And that does conclude today's teleconference. Thank you all for your participation you may now disconnect.

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