Q1 2024 Five Point Holdings LLC Earnings Call
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Operator: Greetings and welcome to the Five Point Holdings LLC first quarter 2024 conference call. As a reminder, this call is being recorded.
Greetings and welcome to the five point Holdings LLC first quarter 2024 conference call.
As a reminder, this call is being recorded.
Operator: Today's call may include forward-looking statements regarding Five Point's business financial conditions, operations, cash flow, strategy, and prospects. Forward-looking statements represent Five Point estimates on the data of this conference call and are not intended to give any assurance as to actual future results because forward-looking statements relate to matters that have not yet occurred. These statements are inherently subject to risk and uncertainty. Many factors could affect future results and may cause Five Point's actual activities or results to differ materially from the activities and results anticipated in forward-looking statements.
Today's call May include forward looking statements regarding five point's business financial condition operations cash flow strategy and prospects.
Forward looking statements represent five point's estimates on the data of this conference call and are not intended to give any assurance to actual future results.
Because forward looking statements relate to matters that have not yet occurred. These statements are inherently subject to risks and uncertainties.
Many factors could actual or could affect future.
Future results and May cause five point's actual activities or results to differ materially from the activities and results anticipated in forward looking statements.
Operator: These factors include those described in today's press release and Five Point's SEC filings, including those in the risk factor section of Five Point's most recent annual report on 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 Dan Hedigan, Chief Executive Officer.
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 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 Dan had again Chief Executive Officer.
Daniel Hedigan: Good afternoon, and thank you for joining our call. I have with me today Kim Tobler, our Chief Financial Officer, Mike Alvarado, our Chief Operating Officer and Chief Legal Officer, and Leo Kij, our Senior Vice President of Finance and Reporting. Stuart Miller, our Executive Chairman, is joining us remotely.
Dan: Thank you.
Dan: Good afternoon, and thank you for joining our call I have with me today, Kim Tobler, Chief Financial Officer, Mike Alvarado, Our Chief operating Officer, and Chief Legal Officer, and Leo Key our senior Vice President of Finance and reporting.
Dan: Stuart Miller, our executive Chairman is joining us remotely.
Daniel Hedigan: In today's call, I'll update you on our Q1 results, on our team's focus during the quarter, and the steps we are taking to implement our strategic priorities. Next, Kim will give an overview of the company's financial performance and condition with some limited guidance for the second quarter and the full year, and will then open the line for questions to our management team. So let's begin.
Dan: On today's call I'll update you on our Q1 results on our team's focus during the quarter and the steps were taking to implement our strategic priorities.
Kim Tobler: Next Ken will give an overview of the company's financial performance and condition with some limited guidance for the second quarter and the full year.
Ken: We'll then open the line for questions to our management team.
Speaker Change: So let's begin.
Daniel Hedigan: I am very pleased to report another strong quarterly performance for Five Point as we continue to focus on fortifying our balance sheet, controlling our Expenses, and Carefully Managing Our Capital Spend to Match Near-Term Revenues. Quarterly, we're happy to report a profitable first quarter, consistent with our expectations as we started the year. Our net income for the quarter was $6.1 million, which reflects the strength of the builder interest and our two active communities.
Speaker Change: I am very pleased to report another strong quarterly performance for five point as we continue to focus on fortifying our balance sheet.
Speaker Change: Trolling, our expenses and carefully manage our capital spend to match near term revenues.
Speaker Change: Accordingly, we are happy to report a profitable first quarter.
Speaker Change: With our expectations as we started the year.
Speaker Change: Our net income for the quarter was $6 $1 million.
Speaker Change: It reflects the strength of the builder interest in our two active communities.
Daniel Hedigan: Specifically, in February, we sold 11.6 acres of land at the Great Park for $6.4 million per acre, for a total sales price of $74.6 million, with a 60% profit margin. This sale contributed to the $17.7 million of equity and earnings from unconsolidated investments for the quarter.
Speaker Change: Specifically in February we sold 11 six acres of land at the Great Park for $6 $4 million per acre for total sales price of $74 6 million with a 60% profit margin.
Speaker Change: This sale contributed to the $17 7 million of equity and earnings from unconsolidated investments for the quarter.
Daniel Hedigan: Additionally, consistent with our focus on holding down costs, we held our SG&A to $12.9 million, which is 6.5% less than the first quarter of last year. We achieve these results because there remains uncertainty around interest rates and inflation. We've been managing our business with the assumption that interest rates will remain elevated for longer than originally anticipated. While interest rates are relevant in our chronically undersupplied California market, shortages of entitlement land and existing home inventory continue to drive strong demand from builders.
Speaker Change: Additionally, consistent with our focus on holding down costs, we hold our SG&A dollars to $12 9 million, which was six 5% less in the first quarter of last year.
Speaker Change: We achieved these results while there remains uncertainty around interest rates and inflation.
Speaker Change: We've been managing our business with the assumption that interest rates will remain elevated for longer than originally anticipated.
Speaker Change: While interest rates are relevant and are chronically under supplied California market shortages of entitled land and existing home inventory continue to drive strong demand from builders.
Daniel Hedigan: Moving to our balance sheet, in connection with the highly successful exchange of our senior notes, we paid down our debt by $100 million, resulting in an improved debt to total capitalization ratio of 20.9%. We ended the quarter in a healthy liquidity position with $233 million in cash and $0 drawn on our $125 million revolver, giving us total liquidity of $358 million.
Speaker Change: Moving to our balance sheet in connection with the highly successful exchange of our senior notes, we paid down our debt by $100 million, resulting in an improved debt to total capitalization ratio of 29%.
Speaker Change: We ended the quarter in a healthy liquidity position with $233 million in cash and $0 drawn on our $125 million revolver.
Speaker Change: Giving us total liquidity of $358 million.
Daniel Hedigan: Kim will cover more details regarding our financials during his comments. Further validating our consistent progress, I'm happy to report that S&P Global has raised our issuer credit rating to B-minus and upgraded our outlook to stable. S&P also raised the ratings on our Senior Unsecured Notes to B.
Speaker Change: Jim will cover more details regarding our financials during his comments.
Speaker Change: Further validating our consistent progress I'm happy to report that S&P Global has raised our issuer credit rating to B minus and upgraded our outlook to stable S&P.
Speaker Change: S&P also raised our ratings on our senior unsecured notes to be.
Daniel Hedigan: These upgrades reflect the team's hard work and continuing focus on our three main priorities, generating revenue and positive cash flow, controlling SG&A costs, and managing capital spend to match near-term revenue opportunities. Also, reflecting the tremendous progress that we have made as a team, I'd like to parenthetically note that Mike Alvarado has added new responsibilities as our Chief Operating Officer. The addition of these duties is a recognition of the expanded role Mike has already been playing for Five Point and a significant contribution to our overall operational and strategic progress.
Speaker Change: These upgrades reflect the team's hard work and continuing focus on our three main priorities generating revenue and positive cash flow controlling SG&A costs and managing capital spend to match near term revenue opportunities.
Speaker Change: Also reflecting the tremendous progress we have made as a team I'd like to Parenthetically note that Mike Alvarado was added as added new responsibilities as our chief operating officer.
Speaker Change: The addition of these duties as a recognition of the expanded role Mike has already been playing for five point and a significant contribution to our overall operational and strategic progress.
Daniel Hedigan: Mike has been intimately involved with the company's assets and operations going back nearly 20 years. In his expanded role, Michael will be focused on, among other things, ensuring that we execute efficiently on our business plan and overseeing entitlement efforts across our community. I am confident Mike will see continued success in this new role, and that his leadership will help drive shareholder value. Congratulations, Mike.
Speaker Change: Mike has been intimately involved with the company's assets in operation going back nearly 20 years.
Speaker Change: His expanded role Mike will be focused on among other things ensuring that we execute efficiently on our business plan and overseeing entitlement efforts across our communities.
Speaker Change: I am confident Mike we'll see continued success in this new role that his leadership will help drive shareholder value Congratulations Mike.
Daniel Hedigan: Let me now expand a bit on general market conditions. Now, withstanding last week's economic news on inflation, conditions in our markets remain relatively strong for homebuilders. Continued Lack of Existing Home Inventory, Coupled with Low Unemployment and Fairly Strong Consumer Competence, helps sustain strong demand for our land and our community. The limiting factor in demand remains affordability, which is driven in large part by the impact of higher interest rates and stubborn inflation.
Speaker Change: Let me now expand a bit on general market conditions.
Speaker Change: Notwithstanding last week's economic news on inflation conditions in our markets remain relatively strong for homebuilders. The continued lack of existing home inventory, coupled with low unemployment and fairly strong consumer confidence is.
Speaker Change: This helps sustained strong demand for our land and our communities.
Speaker Change: Preliminary factor and demand remains affordability, which is driven in large part by the impact of higher interest rates and stubborn inflation.
Daniel Hedigan: Although interest rates have been fluctuating, builders have a variety of incentive structures to support new home sales. With the ability to adjust those incentives in response to interest rate movements, homebuyers have been uniquely able to capture and sustain demand to allow new home sales to continue. In the early months of 2024, we have seen strong builder interest in our residential land offerings, as well as sustained new home demand. We believe that demand for encumbered land in our communities will continue to exceed supply.
Speaker Change: Interest rates have been fluctuating builders have a variety of incentive structure support new home sales.
Speaker Change: With the ability to adjust those incentives in response to interest rate movements homebuilders have been uniquely able to capture and sustained demand to allow new home sales to continue.
Speaker Change: In the early months of 2024, we have seen strong builder interest in a residential land offerings as well as sustained new home demand.
Speaker Change: We believe the demand for entitled Land in our communities will continue to exceed supply.
Daniel Hedigan: On the commercial side of our business, as we have noted before, capital markets have slowed for speculative commercial development, but we are still seeing interest from both developers and users. We're currently viewing user offers on certain commercial sites, and we expect this interest will continue to support commercial demand. The regional housing needs assessment process that is ongoing in California may also give us the option to consider multifamily or for sale housing on certain of our commercial sites.
Speaker Change: On the commercial side of our business as we have noted before capital markets have slowed perspective commercial development, but we are still seeing interest from both developers and users.
Speaker Change: We're currently viewing user offers on certain commercial sites and we expect this interest will continue to support commercial demand.
Speaker Change: Regional housing needs assessment arena process that is ongoing in California may also give us optionality to consider multifamily our for sale housing on certain of our commercial sites.
Speaker Change: Yeah.
Daniel Hedigan: Let me now provide you with some updates on our community, starting first with the Great Park neighborhood. As a reminder, 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 the community in previous years.
Speaker Change: Let me now provide you with some updates on our communities starting first with the Great Park neighborhoods.
Speaker Change: 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 the community in prior years.
Speaker Change: During the first quarter build isn't a great Park community sold 69 times.
Daniel Hedigan: During the first quarter, builders in our Great Park community sold 69 homes. That number is lower than normal due to the extremely limited inventory at Solis Park, with only two remaining builder programs currently selling. Despite the limited inventory, we're encouraged by sustained interest in traffic in the community, affirming the ongoing appeal of the Great Park neighborhoods to prospective homebuyers. We believe that builders share our sentiment as we are actively engaged with multiple builders on new land sale opportunities. Our next major neighborhood, Luna Park, opened one out of 13 planned programs at the end of 2023. And That program has already sold out.
Speaker Change: That number is lower than normal due to extremely limited inventory at solar park with only two remaining builder programs currently selling.
Speaker Change: Despite the limited inventory, we're encouraged by sustained interest in traffic in the community.
Speaker Change: Affirming the ongoing appeal of the Great Park neighborhoods to prospective homebuyers.
Speaker Change: We believe the builder share our sentiment as we are actively engaged with multiple builders on new land sale opportunities.
Our next major neighborhood Luna Park opened one out of 13 planned programs at the end of 2023 and that program has already sold out.
Speaker Change: The remaining lunar builder programs are anticipated to start opening this month with openings continuing through September.
Speaker Change: As these programs open we will once again be able to offer a wide variety of housing options and great Park neighborhoods.
Speaker Change: As I mentioned in my last earnings call, we anticipated two builder sales in Q1 at Great Park. The first plant home sale closed as scheduled the <unk>.
Daniel Hedigan: The remaining Luna builder programs are anticipated to start opening this month, with openings continuing through September. As these programs open, we will once again be able to offer a wide variety of housing options in Great Park Neighborhood. As I mentioned in my last earnings call, we anticipated two builder sales in Q1 at Great Park. The first planned home sale closed as scheduled, and the second sale required the completion of some additional work before closing. Despite this closing, we split the sale into two phases, one of which already closed in Q2.
Speaker Change: Second sale required the completion of some additional work before closing to expedite. This closing we split the sale into two phases, one of which already closed in Q2, we anticipate closing the second phase next month.
Speaker Change: As I mentioned earlier, there remains strong homebuilder interest in acquiring homes sites at Great Park.
And this quarter, we completed the bidding process process for a group of six new home programs with approximately 400 home sites.
Speaker Change: We are currently finalizing contract negotiations on those Homesites.
Daniel Hedigan: We anticipate closing the second phase next month. As I mentioned earlier, there remains strong homebuilder interest in acquiring home sites at Great Parks. In this quarter, we completed the bidding process for a group of six new home programs with approximately 400 home sites. We're currently finalizing contract negotiations on those home sites. We've also started the bidding process with our home builder partners for sale of four new programs with approximately 300 homesites. We will have more to report on those programs later in the year.
Speaker Change: We've also started the bidding process with a homebuilder partners for sale of four new programs with approximately 300 home sites well.
Well have more to report on those programs later in the year.
Speaker Change: Now I'll move to Valencia or other active community.
Speaker Change: We'll launch it is still in its early stages of development with many future phases of land of liver delivery ahead of us.
Speaker Change: Which will help which will also help address the land charges I discussed earlier.
Speaker Change: During the first quarter to builders sold 62, new homes.
Speaker Change: There are now only 27 homes remaining our initial offering of 268 homes.
Speaker Change: And our newest Valencia development area, we now have five new homebuilder programs open with two more still to be opened later this year.
Daniel Hedigan: Now I'll move to Valencia, our other active community. Valencia is still in its early stages of development with many future phases of land delivery ahead of us, which will also help address the land shortages I discussed earlier. During the first quarter, the builders sold 62 new homes. There are now only 27 homes remaining in our initial offering of 1,268 homes.
We're seeing continued strong demand in Valencia.
These new offerings will augment our current lineup and we anticipate that these openings will result in increased home sales.
The six new programs, who sold it in the last year are anticipated to open in late 2024 or in early 'twenty five.
Speaker Change: Homebuilders remain engaged with us in Valencia.
Speaker Change: On the last call, we mentioned our plan to potentially convert a 35 acre site from commercial to residential use which is permitted under our flexible zoning.
Daniel Hedigan: In our newest Flintshire development area, we now have five new home builder programs open, with two more still to be opened later this year. We're seeing continued strong demand in Valencia. These new offerings will augment our current lineup, and we anticipate that these openings will result in increased home sales. The six new programs we sold in the last year are anticipated to open in late 2024 and early 2025. I'm going to remain engaged with us in Valencia.
Speaker Change: We're now finalizing an agreement to sell this 35 acre mixed use site for 179 homes with the sale of anticipated to close in the fourth quarter. This year.
Speaker Change: We also have three additional programs with approximately 200 homesites out to our homebuilder partners for bidding and we expect to have more to report on those programs later in the year.
Speaker Change: Turning to San Francisco.
Speaker Change: We're continuing to work with the city and county of San Francisco to rebalancing titles between our two San Francisco communities cannibalistic in the shipyard.
Speaker Change: As I've discussed before we're seeking the rebalancing to enable the development of Candlestick as a standalone project.
Daniel Hedigan: On the last call, we mentioned our plan to potentially convert a 35-acre site from commercial to residential use, which is permitted under our flexible zoning. We're now finalizing an agreement to sell this 35 acre mixed-use site for 179 homes, with the sale anticipated to close in the fourth quarter this year. We also have three additional programs with approximately 200 home sites out to our home builder partners for bidding, and we expect to have more to report on those programs later in the year. Turning to San Francisco.
Speaker Change: This would allow us to begin development of candlestick without having to wait for the Navy to complete remediation activities at the shipyard.
We are very focused on obtaining the necessary approvals from various city and county agencies and on maintaining momentum to activate candlestick as the initial phase of this larger mixed use community located on irreplaceable land along the San Francisco Bay.
Speaker Change: Let me conclude by saying our first quarter has seen continuing progress on our three main priorities genera.
Speaker Change: Generating revenue and positive cash flow.
Speaker Change: <unk> SG&A costs, and managing capital spend to match near term revenue opportunities.
Additionally, our entire team is focused on progressing entitlements for our next neighborhoods in Valencia.
Daniel Hedigan: We are continuing to work with the City and County of San Francisco to rebalance the entitlements between our two San Francisco communities, Handlestick and The Shipyard. As I've discussed before, we're seeking the rebalancing to enable the development of Candlestick without having to wait for the Navy to complete its remediation activities at the shipyard.
Speaker Change: And in moving Candlestick forward through rebalancing process.
Speaker Change: While economic and geopolitical events have impacted the financial markets during the quarter homebrew.
Speaker Change: Homebuyers and our markets continue to show interest in our communities.
Speaker Change: I believe that pent up demand will continue to be a driving force for our land sales to builders.
Speaker Change: The underlying housing environment reflects a chronic supply shortage that is compound compounded by limited inventory of existing homes.
Speaker Change: Land development is a long game and we have continuously been improving our financial condition. Our efforts today are ensuring we are well positioned within that long game are recognizing the importance of creating and maintaining shareholder value.
Daniel Hedigan: We are very focused on obtaining necessary approvals from various city and county agencies and on maintaining momentum to activate Candlestick as the initial phase of this larger mixed-use community located on irreplaceable land along the San Francisco Bay. Let me conclude by saying that our first quarter has seen continuing progress on our three main priorities. Generating revenue and positive cash flow. Controlling SG&A costs and managing capital spend to match near-term revenue opportunities. Additionally, our entire team is focused on progressing entitlements for our next neighborhoods in Valencia and moving Candlestick forward through the rebalancing process.
Speaker Change: Now, let me turn it over to Kim who will report on our financial results I will provide some limited guidance for the remainder of the year.
Kim Tobler: Thank you Dan as Dan mentioned, we were pleased to see S&P upgrade both our issuer and instrument ratings to stable b minus and <unk> respectively.
Kim Tobler: We believe that this upgrade is reflective of our improved performance and S&P's mindful understanding of the company and its assets.
Kim Tobler: Let me give you a little more background on our operating results.
Kim Tobler: For the first quarter of 2024, we reported consolidated net income of $6 1 million, which included $9 $9 million of revenue.
And $17 $7 million of equity in earnings from our investment in the Great Park venture.
Daniel Hedigan: Economic and geopolitical events have impacted the financial markets during the quarter. However, homebuyers in our markets continue to show interest in our communities, believe that pent-up demand will continue to be a driving force for our land sales. The underlying housing environment reflects a chronic supply shortage that is compounded by a limited inventory of existing homes. Land development is a long game, and we have continuously been improving our financial condition. Our efforts today are ensuring we're well positioned within that long game by recognizing the importance of creating and maintaining shareholder value. Now, let me turn it over to Kim, who will report on our financial results and will provide some limited guidance for the remainder of the year.
Kim Tobler: It also included within the.
Kim Tobler: Revenue $8 $7 million of the revenue was related to a management services.
Kim Tobler: The equity in earnings from the Great Park venture was generated primarily from a sale in February of 82 home sites on 11 six acres of land.
Kim Tobler: With a land sales price of $74 $6 million and a profit margin of 60% before closing costs. This sale comes out to a $6 $4 million per acre.
Kim Tobler: The venture also recognized $17 $6 million of profit participation or so-called Papa revenue related to prior year land sales.
Kim Tobler: Consistent with our continued focus on managing our costs, our SG&A expense was $12 $9 million.
Kim Tobler: Compared to the prior year of $13 8 million.
Kim Tobler: Thank you, Dan. As Dan mentioned, we were pleased to see S&P upgrade both our issuer and instrument ratings to stable B- and B, respectively. We believe that this upgrade is reflective of our improved performance and S&P's mindful understanding of the company and its assets. Let me give you a little more background on our operating results. For the first quarter of 2024, we reported consolidated net income of $6.1 million, which included $9.9 million of revenue and $17.7 million of equity and earnings from our investment in the Great Park Venture.
Now, let me turn to liquidity and cash we ended the quarter with $232 $7 million of cash as well as $125 million of availability on our revolving credit facility, resulting in total liquidity of $357 $7 million.
Kim Tobler: At the end of the quarter, our debt to total capitalization was an improved 29%.
Kim Tobler: The things that materially impacted our cash balance this quarter were first.
Kim Tobler: The $100 million payment to settle our very successful senior note exchange together with $8 $3 million of accrued interest and $7 $6 million of transaction costs.
Kim Tobler: It also includes, within the revenue, $8.7 million of the revenue was related to our management services. The equity and earnings from the Great Park Venture were generated primarily from a sale in February of 82 home sites on 11.6 acres of land, with a land sales price of $74.6 million and a profit margin of 60% before closing costs. This sale comes out to $6.4 million per acre. The venture also recognized $17.6 million of profit participation, or so-called PAPA revenue, related to prior year land sales.
Kim Tobler: Second we received $24 million in equity distributions of which $17 $7 million is reflected in our statement of cash flows as a return on our investment in our operating activities.
Kim Tobler: And third we received $6 4 million dollar incentive compensation payment from the Great Park venture.
Kim Tobler: Now, we also spent $17 $4 million in development costs.
Kim Tobler: At Valencia, and $1 $7 million at San Francisco.
Kim Tobler: I'd like to take a minute to emphasize the significance of the great Park venture in our financial results.
Kim Tobler: Consistent with our continued focus on managing our costs, our SG&A expense was $12.9 million compared to the prior year of $13.8 million. Now, let me turn to liquidity and cash. We ended the quarter with $232.7 million of cash, as well as $125 million of availability on a revolving credit facility, resulting in total liquidity of $357.7 million. At the end of the quarter, our debt to total capitalization was an improved 20.9%.
Kim Tobler: While we are actively selling land at both our Valencia project in the Great Park venture the Great Park venture is a more mature master planned community. While the Lindsay is still in its early stages to that point in Valencia, we are still working through the development and sales in our first of nine villages. This first of all.
Kim Tobler: <unk> represents only about 3600 home sites of a total of up to approximately 21500 home sites.
Kim Tobler: And our Great Park venture most of the major capital costs have been incurred in our continuing capital costs generally have been or will be recovered.
Kim Tobler: Through Cfd reimbursements.
Kim Tobler: The things that materially impacted our cash balance this quarter were the first, a hundred million dollar payment to settle our very successful senior note exchange, together with $8.3 million of accrued interest and $7.6 million of transaction costs. Second, we received $24 million in equity distributions, of which $17.7 million is reflected in our statement of cash flows as a return on our investment and our operating activity, and third, we received $6.4 million in an incentive compensation payment from the Great Park Venture.
Kim Tobler: To review in 2023, the Great Park venture sold 798, Homesites on 84 acres and sold another 37 nine acres of commercial land for total revenue of $532 million.
Kim Tobler: The venture also recognized $21 million.
Kim Tobler: A profit participation or Papa <unk>.
Kim Tobler: The venture made equity distributions of $411 $2 million to.
Kim Tobler: Two holders of percentage interest of which five point received $154 2 million $5 also received $41 6 million of.
Of incentive compensation payments.
Kim Tobler: While we consult regularly with our venture partners five point is the manager of the venture and we are responsible for the day to day operations and direction of the development.
Kim Tobler: Now, we also spent $17.4 million in development costs at Valencia and $1.7 million in San Francisco. I'd like to take a minute to emphasize the significance of the Great Park Venture in our financial results. While we are actively selling land at both our Valencia project and the Great Park Venture, the Great Park Venture is a more mature master plan community, while Valencia is still in its early stages. To that point, in Valencia, we're still working through the development and sales in our first of nine villages. This first village represents only about 3,600 home sites of a total of up to approximately 21,500 home sites.
Kim Tobler: We currently expect to maintain the current pace of sales and development for the next several years.
Speaker Change: Now for some limited guidance.
Speaker Change: We expect the second quarter net income to be similar to or slightly higher than the first quarter.
Speaker Change: As Dan mentioned, we have already had one sale closed at the Great Park this quarter.
Speaker Change: In the second quarter and are expecting another one before the end of the second quarter.
Speaker Change: For the year, we expect a total of between 75 and $100 million of net income with the majority of that income being recognized in the fourth quarter.
Speaker Change: We are also expecting to end the year with between $250 million to $300 million of cash.
Kim Tobler: At our great park venture, most of the major capital costs have been incurred, and our continuing capital costs generally have been or will be recovered through CFD reimbursement. To review, in 2023, the Great Park Venture sold 798 home sites on 84 acres and sold another 37.9 acres of commercial land for a total revenue of $532 million. The venture also recognized $21 million of profit participation, or POPPA. The venture made equity distributions of $411.2 million to holders of percentage interests, of which Five Point received $154.2 million. Five Point also received $41.6 million in incentive compensation payments.
Speaker Change: We continue to see positive momentum and believe that we are seeing benefits from the company's focus and attention on our three main priorities with that I'll turn the call back to the operator.
Speaker Change: Thank you, ladies and gentlemen at this time well be conducting a question and answer session.
Speaker Change: If you'd like to ask a question you May press star one on your telephone keypad.
Speaker Change: Confirmation tone will indicate your line is in the question queue.
Speaker Change: You May press Star two if you would like to remove your question from the Q4.
Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key.
Speaker Change: Our first question comes from the line of Alan Ratner with Zelman <unk> Associates. Please proceed with your question.
Alan S. Ratner: Hey, guys. Good afternoon, thanks for all the detail so far I appreciate it.
Kim Tobler: While we consult regularly with our venture partners, Five Point is the manager of the venture, and we are responsible for the day-to-day operations and direction of the development. We currently expect to maintain the current pace of sales and development for the next several years. Now for some limited guidance.
Alan S. Ratner: Yeah I guess my question is more around some of the near term conversations you've had with builders and sounds like you've got a number of parcels that for bidding.
Alan S. Ratner: I think were unfortunately.
Alan S. Ratner: Probably three months ago, we were all.
Kim Tobler: We expect the second quarter net income to be similar to or slightly higher than the first quarter. As Dan mentioned, we have already had one sale close at the Great Park this quarter in the second quarter, and we are expecting another one before the end of the second quarter. For the year, we expect a total of between $75 and $100 million of netting, with the majority of that income being recognized in the fourth quarter.
Alan S. Ratner: Hopeful that the rate outlook would look a bit better than it does today.
Alan S. Ratner: With rates climbing higher certainly.
Alan S. Ratner: The equity markets are beginning the pricing risk of a slowdown.
Alan S. Ratner: Curious if theres anything youre seeing in your communities either on the home sales side or in terms of the conversations with builders that would suggest.
Alan S. Ratner: Any of that concern or cautiousness, we're seeing in the market is beginning to filter through to the housing side of things.
Kim Tobler: We are also expecting to end the year with between $250 million and $300 million of cash. We continue to see positive momentum and believe that we are seeing benefits from the company's focus and attention on our three main priorities. With that, I will turn the call back to the office.
Speaker Change: Thanks Alan.
Alan S. Ratner: He's good.
Hear from you.
Speaker Change: Interesting Alan as I think I.
Speaker Change: I mentioned in my remarks, what we're really seeing here is the chronic shortage of land and in particular builder will land building global land entitled Land and home sites is really driving.
Operator: Thank you. Ladies and gentlemen, at this time, we will be conducting a question and answer session. If you'd like to ask a question, you may press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. Our first question comes from the line of Alan Ratner with Zellman & Associates. Please proceed with your question.
Speaker Change: What we're seeing is we're talking to and actually actively bidding with builders.
Speaker Change: And that shortage of housing is actually seen extremely strong bids and active participation by multiple builders on everything we're taking the market right now and once again I think it's I know that.
California's in such a unique place there is no new home inventory are limited.
Speaker Change: Limited resale inventory and limited entitled Land and lot. So.
Alan S. Ratner: Hey guys, good afternoon. Thanks for all the details so far. I appreciate it.
Speaker Change: We have not seen any drop off.
Daniel Hedigan: Dan, I guess, you know, my question is more around some of the near-term conversations you've had with builders. It sounds like, you know, you've got a number of parcels out for bidding. And, you know, I think we're – unfortunately, you know, probably three months ago, we were all hopeful that the rate outlook would look a bit better than it does today. And with rates climbing higher, I certainly think the equity markets are beginning to price in some risk of a slowdown.
Speaker Change: Due to the current financial market and as I say, the the new homebuilders are uniquely positioned to keep sales going and so that is.
Speaker Change: That's exactly what we're experiencing in the market.
Speaker Change: Great that's encouraging to hear.
Speaker Change: On the Great Park sale in the quarter. So if I look at the price per acre of $6 4 million well above the.
Speaker Change: Sales you recorded last year I think the average was about $4 3 million per acre and I know that's a lumpy number it looks like there might have been one of their sale that was in a similar range that all the way back in 2019, but I think that the average has been more in the fives over the last few years. So is there anything unique.
Daniel Hedigan: You know, I'm curious if there's anything you're seeing in your communities, either on the home sale side or in terms of the conversations with builders that would suggest, you know, any of that concern or cautiousness we're seeing in the markets is beginning to filter through to the housing side of things.
Speaker Change: This parcel that would command a premium or do you feel like this is fairly representative.
Daniel Hedigan: Thanks, Alan. It's always good to hear from you.
Speaker Change: Water inflation on my pricing that Youre seeing in the community right now.
Daniel Hedigan: Interesting, Alan, as I think I mentioned in my remarks, what we're really seeing here is the chronic shortage of land, and in particular, buildable land, entitlements, and home sites are really driving what we're seeing as we're talking to and actually actively bidding with builders. And that shortage of housing is actually seeing extremely strong bids and active participation by multiple builders on everything we're taking to market right now. And once again, I think it's, you know, I know that California is in such a unique place; there is no new home inventory or, I'm sorry, limited resale inventory, and limited entitlement land and lots.
Speaker Change: Well one thing I had mentioned to you and I know the sale that you are reflecting back to had a unique structure and so youre looking at kind of the going in price, but theyre coming out price, we expect to be much higher and then as to this specific sale no. It really is reflective of the market Theres nothing unique about this it really is.
Speaker Change: What we're seeing in the market today.
Speaker Change: Got it so as we think about the next two deals you've got under contract.
Speaker Change: Obviously, it's going to be maybe a little volatile, but something in that current range. I guess is where we should think about the future sales coming in at.
Speaker Change: Yes, absolutely great perfect.
Speaker Change: Perfect I appreciate that thank you very much.
Thanks Alan.
Daniel Hedigan: So we are not seeing any drop off kind of due to the current financial market. And as I say, new home builders are uniquely positioned to keep sales going. And so that is, you know, that's exactly what we're experiencing in the market.
Speaker Change: Our next question comes from the line of Myron Kaplan a private Investor. Please proceed with your question.
Myron Kaplan: Yes, Hi, gentlemen.
Myron Kaplan: Thanks, and thanks for.
Myron Kaplan: Color in.
Myron Kaplan: And running running things well with I.
Alan S. Ratner: Great. That's encouraging to hear.
I guess, you would say with the SG&A under control and so forth.
Daniel Hedigan: On the Great Parks sale in the quarter, so if I look at the price per acre, $6.4 million, it's well above the sales you recorded last year. I think the average was about $4.3 million per acre. And I know that's a lumpy number, but it looks like there might have been one other sale that was in a similar range all the way back in 2019. But I think that the average has been more in the fives over the last few years. So is there anything unique to this parcel that would command a premium? Or do you feel like this is fairly representative of the broader inflation on lot prices that you're seeing in the community right now?
Speaker Change: Thank you yeah, Thanks, Mike I appreciate it.
Speaker Change: I guess.
Speaker Change: The one thing I wanted to ask with.
Speaker Change: With the pain.
Speaker Change: Distribution at the Great Park is the legacy interest paid out in the fall at this point.
Speaker Change: It is not we expect it to be paid out this year in total so those there's about $40 million left.
Speaker Change: Okay.
Speaker Change: And the other.
Speaker Change: Myron I'm, sorry, there's only $10 million left.
Speaker Change: Okay.
Speaker Change: So that's after this last distribution.
Speaker Change: Yes.
So in Valencia.
Speaker Change: If you haven't got inventory in Valencia and this.
Speaker Change: And the first village.
Daniel Hedigan: Well, one thing I mentioned to you, I know the sale that you're reflecting back on had a unique structure. And so you're looking at kind of the going in price, but the coming out price, we expect to be much higher. And then as to this specific sale, no, it really is reflective of the market. There's nothing unique about this. It really is just what we're seeing in the market today. Got it. So as we
Speaker Change: Except for the mix you show me.
Speaker Change: And.
Speaker Change: Last call I think this year about 140 or 50 acres left.
Speaker Change: How can you really do business in.
Speaker Change: Talk about cash flow.
Speaker Change: How can you close them.
Speaker Change: So one of the things that.
Yes.
Speaker Change: Right the first.
Speaker Change: Group of lots, we opened we're down to a very small inventory there, but there is another area that there is ultimately going to be seven programs at five are open and those were actually actively selling and we will see more of those selling and closing later this year and so there's two more to open there is two more communities opening there and then we did six <unk>.
Daniel Hedigan: Got it. So as we think about the next two deals you've got under contract, obviously, it's going to be maybe a little volatile, but something in the current range, I guess, is where we should think about future sales coming in.
<unk> last year and those the first one shipment at the end of this year and the remainder are shown at the beginning of 'twenty five so that.
Speaker Change: That inventory will that those homes will keep selling which is why we also as I mentioned, we have our sights out to bid now with builders to keep that going the 179 homes that you mentioned those are going to lag the market those should be up.
Daniel Hedigan: Yes, absolutely. Great. Perfect. I appreciate that. Thank you very much.
Myron Kaplan: Our next question comes from the line of Myron Kaplan, a private investor. Please proceed with your question.
Speaker Change: Next year also.
Speaker Change: So.
Myron Kaplan: Yeah, hi gentlemen, yeah, yeah, thanks. Thanks for Owner Normal Owner Microsoft Office Word Myron Kij, Kim Tobler, Myron Kaplan, Five Point Holdings LLC Class A, I guess you would say with the SG&A under control and so.
Speaker Change: We actually were worse.
Where's the money.
Speaker Change: Uh huh.
Speaker Change: A lot of this is sort of one off in the future yes.
Speaker Change: Not not to I mean again, we're actively selling in Valencia this year and next year.
Daniel Hedigan: Thank you. Yeah, thanks, Myron. I appreciate it.
Speaker Change: And then we'll be announcing more about what's following that as we get closer to it.
Myron Kaplan: One thing I wanted to ask was with this distribution at the Great Park, is the legacy interest paid out in full? It is not.
Speaker Change: Okay.
Speaker Change: So just one question.
Daniel Hedigan: We
Speaker Change: One item.
Daniel Hedigan: It is not. We expect it to be paid out this year in total. So there's about $40 million left. Unknown Attendee, Daniel Hedigan, Leo Kij, Kim Tobler, Myron Kaplan, Five Point Holdings LLC Class A
Speaker Change: And Luna Park I didn't understand it at all.
Speaker Change: What's the situation in Luna Park.
Speaker Change: So yes.
Speaker Change: Luna Park was the transaction that closed early.
Myron Kaplan: So that's after this last distribution. Yes, don't Valencia what can help you if you haven't got inventory in Valencia Unknown Attendee, Daniel Hedigan, Myron Kaplan, Five Point Holdings LLC Class A, Owner Normal Owner Microsoft Office Word Myron Kaplan, Kim Tobler, Five Point Holdings LLC Class A Title Microsoft Office Word Document MSWordDoc Word. Document.8 last call, I think that you had about 104 or 50 acres. So how can you really do business? Lots of cash flow. Okay, how can you close?
Speaker Change: Early last year by probably about this time last year, when I think about it and they have been working on the models and there was 13 programs. It was 799 Homesites 13 programs. The first one was a very small program its opened and sold out and they are now. The next 12 are opening they're starting to open this month and they are going to continue opening.
Speaker Change: And so we will have all of those open sometime this year and once again, it's the.
Speaker Change: Yes.
Speaker Change: This we had sold which is winding down now Luna is another brand new community large community like we do at the Great Park neighborhoods and it is in the process of opening up all of its models, so youll be able to sell sites.
Daniel Hedigan: So, Myron, one of the things that you're certainly right about. The first group of lots we opened, we're down to a very small inventory there, but there's another area that there are ultimately going to be seven programs at. Five are open, and those are actually actively selling, and we'll see more of those selling and closing later this year. And so there are two more to open there, two more communities opening there, and then we did six communities last year, and those, the first one should open at the end of this year, and the remainder should open at the beginning of 2025.
Yes.
Speaker Change: Myra.
Speaker Change: We're still selling sites, yes sure.
So you can sell sides.
Speaker Change: The builders are showing lots of homes.
Speaker Change: Following a lot of the sites.
Myra: Yes, so mark to that point I mean, we always like to give the color on what the sales pieces of the builders and then we try to we tried to illustrate that we are still selling lots to them as well that's why Dan mentioned those additional sales.
Daniel Hedigan: So that inventory will keep growing, those homes will keep selling, which is why we also, as I mentioned, we have sites out to bid now with builders to keep that going. The 179 homes that you mentioned are going to leg the market, but those should be open next year also.
Myra: Respective sales.
Myra: Respective sales yes.
Myra: Uh huh.
Myra: Alright.
Myra: Yes.
Myra: As you say, it's a long game it certainly is.
Mitra: Thanks Mitra.
Mitra: As a reminder, ladies and gentlemen, it is star one to ask a question.
Kevin: We have a question from the line of Kevin of Ken Hanson with Stifel. Please proceed with your question.
Myron Kaplan: So, when we ask you, you know, where's the money? A lot of this is sort of off in the future.
Kevin: Yes.
Daniel Hedigan: Not not to I mean, again, we're actively selling in Valencia this year and next year, and then we'll be announcing more about what's following that as we get closer to it.
Kevin Hanson: Thanks for taking my question.
Kevin Hanson: Just for.
Kevin Hanson: Full disclosure.
Kevin Hanson: CFA, but but not representing Stifel on the call.
Myron Kaplan: So just one question, one item, as you mentioned Luna Park, I didn't understand at all. What's the situation at Luna Park?
I'm, representing my own my.
Kevin Hanson: My own shareholder interest.
Kevin Hanson: I like the.
Kevin Hanson: Second priority that you identified as the controlling of cost and I know Dan when you came on board you had.
Daniel Hedigan: So Luna Park was the transaction we closed early, early last year, probably about this time last year when I think about it. And they've been working on the models.
Kevin Hanson: A significant reduction in.
Kevin Hanson: Employee count I think it was maybe a 30% reduction in something like that.
Daniel Hedigan: And there are 13 programs; there were 799 home sites, 13 programs. The first one was a very small program; it was open and sold out. And now the next 12 are opening, they're starting to open this month, and they're going to continue opening. And so we'll have all of those open sometime this year. And once again, we had Solis, which is winding down; now Luna is another brand new community, a large community like we do at the Great Park Neighborhoods, and it is in the process of opening up all of its models.
Kevin Hanson: And Thats been helpful I think.
Kevin Hanson: I'm just wondering now what you think about the size of the board.
Kevin Hanson: I think it was 11 when you came on board and maybe it's down to nine but when you think about.
Kevin Hanson: The ratio of board members employees, it seems a bit a bit heavy.
Speaker Change: Not a bit heavy a lot heavy.
Speaker Change: <unk> has the same number of board members I think and they have 12000 employees. So I'm wondering if.
Speaker Change: Maybe just an optics thing.
Speaker Change: But.
Speaker Change: Maybe it's a flexibility thing as well and certainly it will be a cost savings yes.
Myron Kaplan: So you'll be able to sell sites?
Daniel Hedigan: Yeah, Myron, we're still selling sites. Yes.
Speaker Change: Bard were smaller so could you just comment on.
Myron Kaplan: thing so you can sell sites because it's like the builders are selling lots of homes, but you're not selling a lot of sites.
Speaker Change: The size of the current board and any.
Speaker Change: Interest you have and making it more nimble and responsive.
Daniel Hedigan: Yes. So Myron, to that point, we always like to give the color on what the sales pace is for the builders, and then we try to illustrate that we're still selling lots to them as well. That's why Dan mentioned those additional sales.
Ken Thanks for your question.
Ken: The board has been nine as long as I've been here I don't know if it was 11 ones that you mentioned, but certainly it's been nine as long as I've been here and I can tell you that the board actually does take a look at.
Their function and operation every year and at this point the board is.
Myron Kaplan: respective Perspective Sales. All right, well, I guess. As you say, it's a long game. It certainly is. Thanks, Myron. Bye.
Ken: As a functioning well.
Speaker Change: And I would just have to defer that to the board to make those type of decisions not to me per se, but we have.
Operator: As a reminder, ladies and gentlemen, it is star number one to ask a question. We have a question from the line of Kevin from Ken Hanson, which default, please proceed with your question.
Speaker Change: I think we are very active board that has been very supportive.
Unknown Attendee: Thanks for taking my question. For full disclosure, I'm a CFA but not representing STFL on the call; I'm representing my own, my own shareholder interest. I like the The second priority that you've identified is the control of costs, and I know, Dan, when you came on board, you had a significant reduction in Unknown Attendee, Daniel Hedigan, Leo Kij, Kim Tobler, Myron Kaplan, Five Point Holdings. The ratio of board members to employees seems a bit, a bit heavy, not a bit heavy, a lot heavy.
Speaker Change: My transition into this role.
Speaker Change: Sure.
Unknown Attendee: And I know I think Mr. Miller's on on remote can he respond to that.
Miller: Yes, I don't think that would be appropriate to get into debating our board on this call, but we appreciate that we appreciate the question.
Unknown Attendee: Okay, and I am on remote.
Dan: I agree with Dan.
Speaker Change: That concludes.
Mr. Hagan: <unk>, our question and answer session I would like to hand, it back to Mr. Hagan for closing remarks.
Mr. Hagan: Thank you so much on behalf of our management team. We thank you for joining us on today's call and we look forward to speaking with you next quarter.
Mr. Hagan: Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation you may disconnect. Your lines at this time and have a wonderful day.
Unknown Attendee: Lenar has the same number of board members, I think, and they have 12,000 employees. So I'm wondering if, maybe just an optics thing, but maybe it's a flexibility thing as well. And certainly it would be a cost savings if the board were smaller. So could you just comment on the size of the current board and any interest you have in making it more nimble and responsive. Thanks.
Mr. Hagan: [music].
Mr. Hagan: Okay.
Mr. Hagan: Sure.
Mr. Hagan: [music].
Daniel Hedigan: Again, thanks for your question. The board has been nine for as long as I've been here. I don't know if it was 11 once that you mentioned, but certainly it's been nine for as long as I've been here.
Daniel Hedigan: And I can tell you that the board actually does take a look at its function and operation every year. And at this point, the board is, you know, functioning well. And I would, I just have to defer that to the board to make those type of decisions, not to me per se. But we have a, I think we have a very active board that has been very supportive in my transition into this role.
Unknown Attendee: And I know I think Mr. Miller's on the remote control. Can he respond to that?
Unknown Attendee: and I don't think it would be appropriate to get into debating our board on this call, but we appreciate that. We appreciate the question. Okay, and I'm on remote. I agree with Dan.
Okay.
Mr. Hagan: [music].
Operator: That concludes our question and answer session. I'd like to hand it back to Mr. Hedigan for closing remarks.
Daniel Hedigan: Thank you so much. On behalf of our management team, we thank you for joining us on today's call and we look forward to speaking with you next quarter.
Mr. Hagan: Okay.
Mr. Hagan: [music].
Operator: Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time and have a wonderful day.
unknown: Myron Kaplan, Kim Tobler, Myron Kaplan, Daniel Hedigan, Myron Kaplan, Leo Kij, Kim Tobler, Myron Kaplan, Five Point Holdings LLC Class A
Mr. Hagan: Okay.
Mr. Hagan: Yes.
Mr. Hagan: [music].