Q3 2021 Five Point Holdings LLC Earnings Call
Ladies and gentlemen, you are currently standing pie by for the five point Holdings LLC third quarter of 2021 conference call. At this time, we are still admitting additional participants and plan to be underway. Shortly we do appreciate your patience and please remain on the line.
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[noise] greetings and welcome to the five point Holdings LLC third quarter 2021 conference call. As a reminder, this call is being recorded.
Today's conference May include forward looking statement 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 the actual future results.
Is forward looking statements relate to matters that have not yet occurred. These statements are inherently subject to risks 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 and forward looking statements.
These factors include those described in today's press release, and the five points SEC filings, including those in the risk factors section of our most recent annual report included in Form 10-K filed with the SEC.
Please note that five point assumes no obligation to update any forward looking statements.
Now I would like to turn the call over to Lynn Yokum, President and C O O.
Good afternoon, everyone and thank you for joining us for our third quarter earnings update.
This is my first quarterly call as President of five boy and I'm joined here today by our management team, Eric Higgins, Our Chief Financial Officer, Mike Alvarado, Our Chief Legal Officer, and Greg Mcwilliams, Our Chief Policy Officer, and also by Stuart Miller, Our executive chair at a meal.
Our chairman the Meredith.
I would like to take this moment to share my appreciation to our board for Entrusting me with this leadership role and to my team for remaining by my side as we continue to implement this strategy of five point and our vision for the community.
I am very pleased to update you on the progress of the company and the activities for the quarter.
I'll also share some thoughts about our strategy going forward and Eric will get an overview of the company's financial performance and conditions will then open the lines for questions to our management team.
Let me begin by saying that it couldn't be more optimistic about the current position of five as a leader in building blue chips sustainable mixed use community.
Business conditions continue to be favorable for five point in its homebuilding partners.
As we noted in our press release homebuilders or continue indices strong demand throughout California, and this is especially true in our unique five communities.
During the third quarter, we've made significant progress in preparing our company and our communities for success.
At the Great Park community home sales remains strong entered 135 during the third quarter, bringing year to date total to 591, which is a 44% increase compared to the first nine months of 2012.
Great Park neighborhood is now capturing approximately 23% of the new home sales in Orange County over the last 12 months a.
Additionally, our venture sold 133 Homesites to builders this quarter with the continued strong pace of home sales, we expect to have a meaningful land sales in the second half of 2022.
We're also working with the community leaders to pave the way for additional an essential homesite entitlements to help our public partner at the city of Irvine to comply with the state housing mandate and to mitigate California's housing shortage.
In Valencia, our first home sales have now given rise to our first residents.
This committee is now starting to really build momentum home prices range from approximately 400000 to 1.3 million.
New home sales totaled 156 during the quarter, bringing the total to 199 homes. So since sales commenced in may.
This initial activity is occurring within the initial 11 neighborhoods open for sale and we expect increased sales as an additional seven neighborhoods open for the next quarter.
Given strong sales activity, we anticipate meaningful land sales at Valencia in the fourth quarter or the first quarter of 2022.
Finally in San Francisco, where leadership is focused on the need for additional housing I personally spent numerous days in San Francisco working with our team emissary to optimize the planning and development process. So we can activate these extraordinary properties.
In summary, this is an excellent quarter of meaningful progress.
Looking for the core elements of our strategy will drive the future success of five point.
Let me briefly review these elements.
First we will continue to build leading sustainable mixed use communities, which we believe will drive short term and long term value.
Simply put.
At Fibroid sustainability matters, while the rest of the World is just talking about sustainability, we remain committed to performance and access.
To that end in Valencia, we are very proud to say that our first homeowners moved into what we believe to be the only certified net zero greenhouse gas community of its size in the country together.
Together with community leaders and the top development professionals, we have woven sustainability into every element of Valencia marketed as a feature of community lifestyle and have found that is a recipe for financial success as well.
Our new residents live in homes with solar rooftops Baronet energy design elements that provide an energy balance lifestyle.
A level too easy charter is included in every home and eat recharging stations will populate the community to encourage residents to be adopters of electrical vehicles to be part of the transition to clean transportation.
The community common areas incorporate that complement the natural environment, whether supporting the reintroduction an expansion of the once thought to be extinct San Fernando valley buying flower or the conservation of wetlands and wildlife habitat Valencia residents are an integral part of five stewardship of these special areas.
For enjoyment by future generations.
In fact, there are 13 components that work together to qualify Valencia as a certified net their community and our residents benefit from each of them.
After only a few months of Sally and before all of our guests builders are open for sale. Our newest neighborhoods have captured approximately 24% of total weekly Los Angeles County, New home sales on average already are builders of reporting average home price appreciation of approximately 7% over the past six months of sales.
Additionally are lower priced homes, which start at less than 50% of the median price of existing homes in Los Angeles County help address the affordability issue that California always struggled with.
We believe building sustainable mixed use communities make for a better world, while enhancing long term financial value for all of our stakeholders at five point.
We can do well while also doing good and that is a core value.
Second we will enhance entitlements to address California's current housing shortage each of our communities presents an opportunity to build avoided this housing shortage and as much as we can help solve the housing shortage together with our approaches sustainability. We are hopeful that community leaders will work co operatively with us.
Third we aircraft in a renewed strategy approach for the 23 million square feet of plans commercial opportunities in these III communities given.
Given the location of and the growing population within our communities and the investment we have made an infrastructure and amenities. We are seeing increased demand for a commercial landholdings where are mixed use zoning allows for a multitude of uses allowing us to respond to changing market conditions.
Fourth we will intensify our focus on bringing are extraordinary properties in San Francisco to market. These properties in San Francisco represent a pivotal opportunity to bring five to maximum operational efficiency like.
Like most jurisdictions in this state San Francisco is focused on the urgent need for housing and we are confident that we will reach an accord to activate these extraordinary properties under the proper planning and development plan for a significant portion of the approved residential homes are planned to be affordable that are urgently needed in this city.
We will also continue to hold the navy accountable to its commitments at the shipyard and transfer the land to us. So we can bring the economic and development activity that we at this community were promised so many years ago.
And fifth we will optimise and rationalize our cost structure to properly fit in size scale of our business. This will be an ongoing exercise for us that we expect to evolve over time through a variety of means including for example, the adoption of advancing technologies centralization of critical function and maximize.
Our purchasing power given the size and scale of our development.
I expect to make this a company wide initiative in order to rethink our business practices and efficiencies. So that we will drive bottom line performance.
So that is our focus on our plan.
Our entire management team and our company are focused everyday on each of these five strategic objectives.
I plan to report each quarter on our progress on each of these goals as we build Tesla build our bottom line and learn the confidence of our shareholder base.
Let me conclude by saying that are replaced irreplaceable assets and strong business conditions leaves me optimistic about the both the long term and the short term future of our company with a clearly defined strategy and a commitment to excellence by our associates. We will continue to lead a sustainable community development, while we focus on me.
<unk> returns and driving shareholder value.
Now, let me turn it over to Eric who report on our two <unk> 2021, Q3 financial results X.
Great. Thanks Man, Okay, a summary of our financial results was included in the earning foos issued earlier today.
I'll start with a consolidated results and then address each of our four segments and conclude with comments about our balance sheet and liquidity position.
The companies consolidated revenues for the third quarter totaled $27 million the.
The company received a 10 million dollar payment related to a nonresidential properties, which was initially sold in 2011 the.
The balance of the consolidated revenue for the quarter, primarily consisted of $10.2 million in revenue gender.
Generated for management fee services provided to the group hurt venture.
Are great perk venture to learn consolidated joint venture sold 113, Homesites to builders and eight homes during the quarter generating sales proceeds of $78 million.
Under the equity method of attorney are consolidated income statement for the quarter does not include the revenues and expenses of the group or adventure instead, we recognize our share of the net income from the great part venture of equity in earnings from unconsolidated entities.
After adjusting for our basis differs we recognize 367000 earnings from our share of the great part ventures net income for the quarter.
Total consolidated costs and expenses were approximately 39 billion, including 28 million of sewing general and administrative expenses for the quarter as well as $8 $1 million in expenses incurred in connection with providing management services to the great per adventure.
The net loss for the quarter.
Or actually $8 2 million of which $4 4 million was allocated to the non controlling interests, leaving three $8 million attributable to the company.
Moving to the segment results.
The Valencia segment as it is consolidated for accounting purposes.
<unk> segment includes our Valencia community those approximately 15000 acres in northwestern Andrews County, and is designed to include approximately 21500 homes sites and approximately 11.5 million square feet of commercial space.
<unk> initial oilfields at the end of 2019 1268 film sites have been sold to builders.
The third quarter marked a significant milestone for the company is the first home buyers and our Valencia community moved into their new homes.
The sales pace of our just builders.
Has been strong in the initial market reaction to the first phase of the community is encouraging.
Development of infrastructure improvements women melodies in the community continued during the quarter while.
While there were no landfills influence here during the quarter. We are in discussions with builders for the next round of Wham sales, which are expected to close either in the fourth quarter or the first quarter of 2022.
The Valencia segment revenues were $10 $4 million for the quarter, consisting primarily of the 10 million dollar payment received in connection with demand residential landfill, which initially closed in 2011.
Income for the Valencia segment was $4.8 million for the quarter.
The San Francisco said, when there's also consolidated for accounting purposes. The San Francisco segment includes our Candlestick in San Francisco Shipyard communities. The other and approximately 800 acres of different property in the city of San Francisco.
Candlestick in the ship San Francisco Shipyard are currently planned to include approximately 12000 Homesites in approximately six 3 million square feet of commercial space.
The San Francisco segments net loss for the quarter.
8 million, which was primarily SG&A expenses.
The great Perk segment includes the operations of the great part venture the owner of the great Perk neighborhoods as well as management services provided by the management company to the great part venture.
As a reminder, we owned 37.5% to demand legacy percentage interests of the great part venture and 100% of the management company.
The great Perk ventures of unconsolidated entity with our investment in the venture accounted for under the equity method of accounting.
For segment reporting we include the full results of the great part venture adventures historical basis of accounting.
The great part venture as a self funding operation with no project.
Great Perk neighborhoods consists of approximately 2100 acres in the city of Irvine.
The community is currently designed to include 10500 homes sites and approximately 4.9 million square feet of commercial space.
The great Perk segment revenues were $92.5 million for the third quarter.
The sale of 113 Homesites during the quarter contributed $66.5 million for revenues.
In addition, eight of the 38 homes under our previously announced female program closed during the third quarter contributing $12 $9 million in revenues.
Also included in the segment revenue was approximately $10 million in management fee revenue, which was recognized by the management company for services provided to the great part venture.
Net income for the Great Perk segment totaled $9 million in the third quarter, which included $7 million from a great perk venture and an additional 2 million related to the management company.
While the great part venture do not make any distributions to its members during the third quarter, we expect distributions to coincide with the next meaningful landfills, which we believe will occur in the second half of 2022.
Our commercial segment includes operations of the Gateway commercial venture and management services provided by the management company to the gateway commercial venture.
We owned 75% of the gateway commercial venture and 100% of the management company.
The gateway commercial ventures in unconsolidated entity with our investment <unk> adventure accounted for enter the equity method of accounts.
After selling three of the four buildings located on the campus in 2020, the Gateway commercial adventure currently owns one building and approximately 50 acres of commercial and with additional development rights of the company that the campus.
Commercial segment revenue was $2.2 million for the quarter and net income was approximately 48000.
Ah wrap it up with a few comments related to our balance sheet and liquidity position.
As of September 30th total liquidity was approximately $315.8 million, which was comprised of cash and cash equivalents totaling 191.1 million and borrowing availability of 124 7 million under our 125 million unsecured.
Third revolving line of credit.
Our balance sheet is solid with a debt to total capital ratio of $25, 3%.
And our net debt to total capital ratio after taking into account our cash balance is 19%.
With that let me turn it back to the operator, who will now open it up for questions.
Thank you if you'd like to ask a question at this time. Please press star followed by the number one on your telephone keypad, if you're calling from a speaker phone. Please make sure. Your meat function is off to assure you should take note can reach our equipment.
Again star one to ask a question.
And we'll take our first question from Alan Ratner was Salminen Associates. Your line is open.
Hey, guys good afternoon, and when congratulations on the new opportunity enroll looking forward to chatting with you going forward.
So first question just as far as the outlook on Valencia landfills, either next quarter or or the first quarter of 22 I was wondering if you could give us a little bit of a framework on what to expect their.
Thinking in the past you might have indicated in addition to lock sales maybe there were some opportunities for apartment sales and maybe even commercial sales I'm. Just curious how you see that playing out over the next few quarters.
Thank you and thank you for your kind of work for my first call today.
Yes, we are.
Currently speaking with the builders.
Many of them, who are already been a part of the Valencia community and have had great success up there. When we opened earlier. This year, we are in conversations with them on on Homesites that we're hoping then they have the opportunity to themselves bring the market and later of 22 new homes.
Continuing to evaluate the apartment opportunities as well as the commercial opportunities up there.
Gotcha cause at this point no no target number of lots are are acres or anything you want to put out there just as far as helping us thinking about the next day or.
Model.
Overall I think we are looking to at least get few 345 hundred home, maybe 500 homes out there.
To be able to continue the.
Homes that are already selling like I said, they're home tho those are seeing successes and they're looking to carry on and keeping their programs going.
Got it okay.
That's helpful. We spent 500 mark.
Second question might maybe just one favorite, but I'm just thinking about the balance sheet obviously.
For now the liquidity position remains quite strong but can't.
Can't cash balance has been continuing to drift lower here and.
Obviously, the San Francisco projects for big wildcard and whenever that.
Kind of gets off the ground I would imagine there's gonna be some upon development costs and expenses I need to go along with that so how are you thinking about the cash position.
22, 23, I'm, assuming San Francisco was able to kind of get off the ground here is there.
The potential for another dead raise capital raised that we need to find that or do you think the Valencia and great Park distribution is enough to satisfy the funding for the first round of development there whenever it occurs.
Hey, Thanks one.
Look at a $191 million, we feel very comfortable that we have sufficient capital and liquidity to continue implementing on our strategy at Valencia, and we anticipate distributions from the great part venture as well to augment that.
And so we're not we're.
No we're not planning on San Francisco contributing.
In the next year or two and so.
We don't have any plans to raise additional equity or additional debt because we feel very comfortable with liquidity position that we have right now and looking at our cash coming in from landfills and cash going out towards inventory expenditures to further develop plan.
Alright, alright, thanks monitor good luck.
And again, if you'd like to ask a question. Please press star followed by the number one on your telephone keypad next will come to you Stephen Kim from Evercore ISI. Your line is open.
Yeah, Thanks, very much guys and let me offer my congratulations to <unk>.
I wanted to start off by addressing something that you all refer to with respect to the dressing of the chronic health and shortage in California, I was curious as to.
I noticed recently there has been.
Some movement in the state to sort of directly tackle that I was curious if you could talk about.
Perhaps how five point with its unique positioning in the market.
To what degree are you involved in some of those conversations and have you seen anything in particular.
Please particularly to your to your strengths are things that you can do to improve the situation.
Thank you Stephen and again, thank you for that kind of work.
For today is my first call as you know where where we are located in these three very strategic marketplaces. They are locations that have had.
Little supply over the years and.
Jurisdictions that today because of the state mandate are looking to expand.
<unk> their housing housing market we.
Haven't been in discussions and Irvine for some time since it program came out.
The Arena program regional housing needs assessment across the state of California, which has gone through the state and evaluated the housing needs in in every jurisdiction across the state Irvine.
Irvine itself is one that we like I said, we've had a lot of conversations with.
We are engaged with them are opportunities here at the Great Park and how we can provide that necessary housing that they have been targeted to deliver in.
In order to meet the state needs.
So that's F Irvine, where so working through what that what that means.
How much that would be and what kind of that type of housing that would be.
Other markets in Valencia, and in San Francisco, where we have been approved for a substantial housing and these marketplaces. We are continuing to work with those jurisdictions to get that market online and out to the community and out to the home buyers as quickly as we can and coordinating with them on different opera.
Attunity in order to do that.
Yeah that certainly seems like.
You all are doing your part.
My second question actually relates to the vehicle, bringing of these communities online and bringing this product to the market one of the things. We've obviously seen over the last nine months has been a real sea change in the where the bottlenecks are particularly.
Particularly the builders have found that access to materials with.
With the supply chain Dysfunctionality of Superceded Zara access the trouble gaining asked us to do incremental lots for example, I'm curious if there's anything that you've seen over the last nine months, let's say.
That has altered your thinking at all with respect to your builder partners. For example have you seen.
Any material difference and builders ability to navigate through some of these issues have.
Have you any thoughts of that perhaps the ability to support incremental unit is maybe a little less than you had previously thought.
As a result of some of these bottlenecks and.
Supply chain problems lasting maybe a little longer things of that nature I am curious if anything about the supply chain problem over the last nine months has changed your thinking at all about your future plans.
And thank you again and it really hasn't Steven.
We are been partners with our builders in these communities for quite some time and we work as partners. We solve problems as partners as like I said, they have been repeated buyers I know that many of the builders are navigating their water's through finding resources and things in order to deliver homes, but we have not.
Not seeing any issue right now as we speak to.
Their ability to continue to be active in our community is going forward.
Okay, that's encouraging thanks very much.
Mhm.
And at this time I will turn it back to lend yokum for closing remarks.
Thank you all I just wanted to say again.
There's always the first day for everything and we appreciate you participating in the call and thank you again.
And that does conclude our call for today. Thank you for your participation you may now disconnect.
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