Greetings and welcome to the Five Point Holdings LLC Third Quarter 2023 Conference Call. As a reminder this call is being recorded. Today's conference may include forward-looking statements regarding Five Point business financial condition, operations, cash flow, strategy, and perspectives. Forward-looking statements represent Five Point’s estimates on the date of this conference call and are not intended to give any assurance as to the 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 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. 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'd like to turn the call over to Dan Hedigan, Chief Executive Officer. Thank you. Good afternoon and thank you for joining our call. I have with me today Kim Tobler, our Chief Financial Officer; Mike Alvarado, our Chief Legal Officer, and Leo Kij, our former Interim Chief Financial Officer, who is now our Senior Vice President of Finance and Reporting; Stuart Miller, our Executive Chairman, is joining us remotely. Before we get into the quarterly update, I'd like to mention some positive news on recent management changes. Since our last call, Kim Tolber was promoted from his position as Vice President of Treasury and Tax to his new role as Chief Financial Officer. Kim brings a great deal of valuable background and experience to this position and is well suited to help us navigate the current…

Thanks, Dan. A summary of our financial results was included in the earnings release issued earlier today. As Dan mentioned, we reported consolidated net income of $14.2 million for the quarter. We recognized $65.9 million in revenue which was primarily generated by the sale of 25.8 acres of land entitled for 146 home sites for cash proceeds of $60.7 million before our traditional profit participation. Two separate home builders purchased those parcels. At the Valencia project, we recognized a 34.2% gross margin on these sales. In addition, we recognized $4.5 million in management services revenue and other revenue of $700,000. Selling, general and administrative expenses were $11.9 million, which is slightly lower than our projected average quarterly range of $12 million to $13 million. This reflects our efforts to hold the line on administrative costs. We expect the fourth quarter SG&A to be within the projected range. The cost of management services was $2.4 million, which includes $600,000 for intangible asset amortization expense at our Great Park segment. We also earned $2.4 million in interest income on our cash and cash equivalents for the quarter. Equity and earnings from our unconsolidated entities for the quarter was a loss of $600,000. This includes small amounts of income or loss from the Great Park Venture, the Gateway Venture, and our Valencia Land Bank Venture. Although the Great Park Venture didn't have any land sales during the quarter, it did recognize profit participation revenue, which together with interest income, offset most of its operating expenses. Before I talk about our inventory changes, I'd like to take a moment to review the role of CFDs and TIF play in our business. Since our last call, we've received numerous questions regarding our CFD and TIF reimbursements. So I thought it would be helpful to provide…

Thank you. Ladies and gentlemen, at this time we'll be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Arun Seshadri with BNP. Please proceed with your question.

Yes, hi. Thank you, sir. Thank you for taking my questions. And a good job in a difficult environment. I just wanted to first talk a little bit about Great Park, I know I think the last time you talked about interest in both the residential, as well as the commercial and marketing. I think you talked about 40 acres as being the expectation. Just wanted to see if there's any update there and, you know, maybe start with that.

Thank you. The 40 acres is still progressing. We still anticipate it to be closed at the end of this year. It does take some actions by the city, which means it could slip a little bit. But right now we're still on track with that. We still also have another 100 acres of commercial land that we are only marketing on a kind of a lot by lot basis. It's not all on the market, but we're actually looking at, as we close on this last 40 acres, of moving another group, another section of land into the market.

Got it, Thank you, Dan. And then, can you also talk a little bit about, I think in your prepared comments, you had mentioned the headwinds created by the interest rate environment. Can you talk a little bit broadly about your expectations in terms of maybe modest slippage in the sort of year-end cash guidance. Do you still sort of expect that maybe to be, you know, instead of end of the year, maybe like early next year? Is that sort of the thought process? And are there any additional sort of details you can provide in terms of where exactly you're seeing the impact of high interest rates?

Well, first on the year-end guidance, we actually are on track, consistent with that guidance. And so at this point, we're feeling very good about that based on various transactions that are in escrow or very close to being finalized. On the issue of interest rates, that's a very, kind of very interesting question. You know, home buyers, kind of, went through a shock of very quickly rising rates, and you know, adjusted to what is the new normal, and they have been buying homes at our communities. Now, in many instances, the home builders are buying down interest rates to support those sales. And we think builders will keep doing that. When a market hour rates are ticking back up again, which will drive towards another new normal, but we believe demand will find its way over these increases. And the thing we're facing in California is just a terrible shortage of housing. And with interest rates, the resale market is very limited. So affordability will always be an issue, so I don't want to make light of that. But the extent a buyer can afford a new home, there is going to be -- we feel there is going to be demand.

Got it. Thank you. One last question, and then maybe this is for Kim, which by the way, Kim, congratulations on your elevation. Just wanted to maybe talk a little bit about the revolver extension. Great job in getting that done. Just a sense of any terms around the revolver extension and sort of any details you could provide around the terms and whether there's any conditionality on the bond maturity. That's all from me. Thanks.

Yes. So as it relates to the revolver, we'll be publishing an 8-K and you'll be able to read the documents and see there. But largely it was rolling forward the existing terms. And really the only thing was they raised the cost. So we're going to have to pay more when we draw on the revolver. But beyond that, it stayed pretty close to what we've done. We lost what's known as a term out. So we had a term out which allowed us to take whatever balance was due with the maturity and pay out over 12 months equally, that's an unusual provision in a revolver like ours. And so the banks came back and said they didn't see how they could continue that in the current market. And we understood that and we're willing to give that up. But they gave us a two-year extension, which we were very grateful for and thought we deserved. And very glad that the four banks stayed all together. And we kept the 125 in place. As it relates to the senior notes, as Dan said, we're turning our attention to that. Don't want anyone to think that we're not thinking about those. We've been regularly meeting with our board and together as management reviewing the different options that we think we may have. That's part of the reason why we've been working so hard to increase our cash balances, so that we have some things to work with. But we don't have anything really specific that I can talk about right now that we've done. So Arun, it's good to hear you and look forward to talking more in the future.

Thanks very much.

Our next question comes from the line of Alan Ratner with Zelman & Associates. Please proceed with your question.

Hey, guys. Good afternoon. Thanks for all the detail, and congrats on the progress here. First question on the Valencia sale. It looks like the, I guess, the composition of this particular lot sale was quite different than your prior ones, much lower density, much higher price per lot. I'm just curious, if you can give a little bit more detail in terms of how you're thinking about segmentation of product and lot sales in Valencia in the intermediate term? Is this a concerted effort to kind of mix in more move-up product or lower density product and any kind of guidance you can give on the expected fourth quarter lot sale, if it's going to look similar or different would be helpful.

Thanks, Alan. Valencia actually has a broad level of segmentation. In its entitlement, it actually has zones that are identified for lower density and higher density. And what you're seeing in the two sales that closed this quarter, they're in the area that was by design set up for lower density. And we are seeing good demand for that move-up buyer in Valencia. We're talking very traditional homes with driveways and backyards, and we're definitely seeing buyer demand there. As I think I've commented in the past, I'm really trying to work with the builders to be sure our product is really responding to the market, but some of our product is kind of preset just on where we're at, but both of those were previously identified and they were just in a lower density area. As to the fourth quarter land sales, they're actually going to be in different sections of the Velencia project, and so there's going to have a mix of product. There's going to be some that is, you know, our traditional detached condos, and there'll also be a small portion that'll be attached. But it will be more diverse than what you're seeing that closed this quarter.

Understood, that's helpful color Dan. Second, I know the timeline is still uncertain with San Francisco and you haven't given a target there, but my question is, when that project does get off the ground, is there any way you can kind of help us think through what the cashflow impact would look like initially? I would imagine you would have to put up some development dollars before the first phase of land would be ready for sale. So any way to think about what that initial outlay might look like, how long that might be before revenues begin to recognize, just kind of thinking through the forward look there?

Well, when we think about San Francisco, we really do think of ourselves as the horizontal developer. You know, there will always be the need for vertical development in that site, but we are the horizontal developers. So from a standpoint of revenue events on the land side, they will be pretty much tied to completion of a deliverable site. And as part of the conversations we're having right now with the city and county of San Francisco, is we are looking at that first phase and how you access that first phase. But there's always going to be kind of a variety of options of how we approach that as far as matching, you know, the spend to capital and near-term revenue. But the revenue really does, it does flow from the horizontal development. We're not really going to need the vertical development. That vertical development, as Kim talked about, is going to be a big part of future capital through CFDs and TIF. But the initial revenue is going to be tied to horizontal land sales.

Just to follow-up on that, Dan, because, yes, I think I understood that. But is that kind of like a 12-month horizontal development lead time from shoveling ground to having a parcel ready to sell and begin to recognize revenue on? Is it longer, shorter? What any frame of reference there?

Well, from the standpoint of getting to the first phase, you know, all things always are driven by having the approvals from the city to move forward. But what I think I would say on that, I mean, to get to the first phase is not going to be extraordinarily long. I don't want to try to put a time frame on it today simply, because there's so many variables that we'd be dealing with. But the initial phase once we are positioned and, you know, kind of have the rebalancing done is actually not that hard to get to, especially in Candlestick.

Got it. Okay. That's helpful. Thanks a lot, guys. Appreciate it.

[Operator Instructions] Our next question comes from the line of Myron Kaplan, Private Investor. Please, proceed with your question.

Yes, hi. Thanks for taking my questions. First of all, I'd like to commend you for a timely and ship-shaped reporting. Congratulations, Kim, for your elevation.

Thanks, Myron. It's good to hear from you.

Yes. I wanted to ask, what's the rate of the senior notes that are due in 2025, the coupon?

7.875%.

And what's the principal amount?

$625 million.

That's really the elephant in the room, so to speak.

It is the elephant I look at every day when I get in, when I wake up.

Yes. Right off. I just wanted to ask just an informational question. What -- I didn't understand what's the -- you were talking about a parcel in the Great Park of 40 acres of commercial land?

Yes, those are actually two pieces, that's a combination of two pieces of property that are actually in escrow today. So those would be closing we anticipate by the end of the year.

I see. So those are basically under contract.

Correct.

Yes, and also just an informational question, or maybe it's a -- at the Great Park, you have builder sales of 113 homes. So those revenues are substantial, but unconsolidated, yes?

That's correct. Those are the sales that the builders themselves are reporting. They bought the land and they're reporting those sales on their financials.

Oh, I see. So you've previously sold them the land.

Yes. We give that guidance, Myron, so that people can understand the pace of sales of homes because that indicates when they'll need more land in the future.

Right. So then you said you're releasing some more tranches, so that you'll be able to put more revenue. Well, I guess that's pretty much what I -- thank you for taking the questions. And my -- it seems like you're doing pretty well in a very tough environment.

Myron, thank you.

Our next question comes from the line of Ben Fader-Rattner with Space Summit Capital. Please proceed with your question.

Hi. Just going back to the Valencia sale, unless I'm doing the math wrong, it looks like it was over $400,000 per home site. And I think in the past you talked about an average more in the 200s. Was this sale above expectations? I wasn't clear from the answer to the previous question or you know if this was more of an expected outlier or there's some other read through on this sale.

No thanks you know it is not an outlier it really is you know the different most of the homes in our initial phase, we have two phases we talk about. The kind of initial first phase is about 1,200 homes. And then we have another phase which has about 800 homes. And so as part of that overall land plan that was put in place. There are always larger lots in a certain area that actually by zoning are supposed to be lower density. So they were zoned to be lower density and it would have been produced. So all we're really seeing is that we're actually finally getting to them. You know, the infrastructure's kind of caught up to them. It's kind of followed to them. And so we've had some traditional SFD lots in the market before, but not a whole lot of them. And in particular, toll had a project up there that's selling right now and selling very well. And they basically saw an opportunity to kind of continue that program through lots that were coming available in the due course based on our development course that is a larger traditional SFD. So it's kind of all due course. It's just how the land and when we get to the land, how it's been flowing.

Well, can you Give a sense for if you look across the land bank in Valencia, what sales price per home site you would expect or maybe a range? And is this, am I correct in thinking that this is consistent with your expectations? Is this just a higher value entitlement as compared to perhaps some other acreage that you have in the portfolio?

So I think the best way to answer that, consistent with this density and product type, that is definitely kind of in the ballpark of what we'd expect. On the other hand, as we look at what's coming up in the market, I don't think I have anything else that's additional SFDs, and part of it's just where we're at, kind of in the land plan that's out there. So most of them are going to be either detached condominiums or attached, and all of those have higher density, and they will definitely have a lower price per unit. And so it really is very product specific, and this product is what's driving those numbers you're looking at.

I see, okay. All right, thank you. Thank you on that. And then just one other question, and I know you haven't given numbers on ‘24, and I'm not asking for them, but I guess if you could, as you think about now versus the point at which you'd proactively refinance the bonds. Are you comfortable with the cash balance here or do you think the cash balance is likely to be higher at the point at which you proactively decide to refinance your bond?

Ben, this is Kim. I would tell you that we're monitoring that regularly. And again, given Dan's leadership, we've been focused on increasing our cash balance strategically, and we're going to keep working on that. The moment when we're going to deal with the bonds is going to be based on the market, and we're not going to wait for a certain amount of cash. We wanted to have enough as soon as possible so that we had options. So, again, we're still optimistic about ‘24, and we haven't given any guidance on that, but the challenge we've been given and that we've been trying to address is more regular positive cash and earnings each quarter, which is, you know, something we're trying to maintain, but can't promise every quarter. But so what I would say is we're focused on increasing our cash, and then we'll be watching and working with the market to figure out when we can go into it and deal with our senior notes, if that makes sense.

Yes, no, that does. And then just when you say you're optimistic on ‘24, is it, am I correct in assuming that you believe that in ‘24, land sale proceeds will be in excess of G&A costs and interest expense and any other fixed obligations?

If you were to ask me today, that's what our plan is to do.

Okay, okay. Obviously it's uncertain, but that's very helpful. Thank you.

Yes.

Our next question comes from a line of Kyle Chung, a Private Investor. Please proceed with your question.

Hi, thanks for taking my question, and congrats on a great quarter. I'm actually going to congrats on what you guys have accomplished for the past year or so. So I want to commend you on that first. My first question is if I did my math right, it looks like your fourth quarter free cash flow guidance is between $32 million and $82 million, which seems like a relatively wide guidance range. And that's $50 million range, I'd like to understand why it's so wide. I mean, is it wide because the acreage and the price that you expect to close for fourth quarter is uncertain? Or is it wide because the closing date might slip from fourth quarter into first quarter? And so is it more of a timing issue or is it because the amount and the price of the land for sale, that's uncertain?

Thanks, Kyle, this is Kim. Yes, it is a timing issue. We don't control everything as it relates to when we can get something closed. And as we've been saying, something may slip from the fourth quarter into the first quarter, because all of the municipal approvals didn't get received in a timely fashion. So we are still expecting those sales. It's not a question of how much is going to be received.

Right. So just to be 100% clear, if it turns out that your fourth quarter free cash flow ends up being $32 million, what investors should take from that is that $50 million got pushed to first quarter. Is that right? Is that the right way to think about it?

Yes. Given that math, yes. And it would add to what we are planning to do in the first quarter.

Right. Okay. So that's really helpful. Thank you. And my second question is, congrats on renewing your revolver. And I think the 8-K on the credit agreement has been filed yet, but under the new revolver, do you have enough restricted payment capacity to, if you elect to do so, buy back the bonds, buy back the senior notes at a discount?

Well, I mean, there isn't enough capacity to buy back the senior notes at a discount. Again, the entire revolver is only $125 million. So…

What I mean is for you to like you know do a partial tender or just buy back you know bonds at a discounted open market. Do you have restricted payment capacity under the revolver for that or no?

We don't have a restriction that would not allow us to do that.

Okay, great. Great, thank you very much.

There are no further questions in the queue. I’d like to hand the call back to management for closing remarks.

Thank you. On behalf of our management team, we thank you for joining us on today's call. We look forward to speaking with you next quarter.

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.