Greetings, and welcome to the Five Point Holdings Fourth Quarter and Year End 2019 Conference Call. Currently all participants are in a listen-only mode. As a reminder, this conference is being recorded.

Today's conference call may include forward-looking statements regarding Five Point's business, financial condition, operations, cash flows, strategy and prospects. Forward-looking statements represent only Five Point's estimates on the date of this conference call and are not intended to give any assurance as to actual future results.

Because forward-looking statements relate to matters that have not yet occurred, these statements are inherently subject to 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 Factors section of the 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. I'd now like to turn the call over to Mr.

Bob Wetenhall, Executive Vice President of Capital Markets. Please go ahead, sir..

Thank you, operator. Good afternoon everyone. I'm joined today by our CEO, Emile Haddad; our COO, Lynn Jochim; our CFO, Erik Higgins; and our Chief Legal Officer, Mike Alvarado. Emile will provide an overview after which Eric will review fourth quarter and full year 2019 financial performance..

Thanks Bob. Good afternoon and thank you all for joining us despite the environment we are living in, especially on a day like today. We're going to make our comments as brief as possible, give you the chance to ask questions, and allow you to go back to your priorities as quickly as possible.

A few weeks ago, as we started preparing for this call, we were looking forward to setting the stage for a two-day investor meeting. Our goal was to report the results of our fourth quarter and highlight the fact that the transition between 2019 and 2020 marked an inflection point for our company.

Our hope is still that the unprecedented conditions we are living in will be short lived and that we will be able to go back to our original agenda. However, today we believe that it is important to have you leave this call with a peace of mind that the company is positioned well to withstand the rough period ahead. To that end, let us share why.

One, our balance sheet is our first line of defense. As reported, our liquidity at year-end was approximately 471 million, which is comprised of approximately 337 million in cash, and we have no outstanding borrowings under our 125 million revolver.

Our senior notes do not mature for five more years and our debt-to-capitalization ratio is at 25%, In addition, neither Valencia nor the Great Park community is encumbered with project debts. Two, over 60% of our expenditures are variable costs.

Our contracts give us the right to suspend or terminate work on less than 30 day notice, giving us the ability to slow down or if needed stop such expenditures if conditions deteriorate. Three, our next homesite sales are not scheduled until this summer. We are currently in discussions with builders for these sales.

However, if warranted, we will push back these sales and recalibrate the pace of land development activities accordingly, reducing the amount of cash spent to finish development of these homesites. Four, our land development activities are insulated from supply chain disruption.

Accordingly, we expect to avoid the type of disruption that many other companies will be facing in the near future. Many companies today are implementing measures to weather the storm. We have always run the company with protecting the downsides first, and being prepared for unforeseen conditions. No one knows how long or bad things might get.

However, we feel that we are as prepared as we can be, and we will continue to adapt to these evolving conditions. This dark period will end, and if history repeats itself, people will find comfort in their homes. This cocoon feeling coupled with a low interest rate environment should bode well for the residential real estate market in the long run.

In the meanwhile, we will be focusing on the well-being of our associates and communities and maintaining the health of our company. Thank you again, and we hope that the next time we have our call, things will be better and all of you will be healthy. Now, let me turn it over to Erik..

Thanks Emile. A summary of our quarterly financial results is included in the earnings release issued earlier this afternoon, and 10-K was filed last Friday. Today, I'll provide a summary of our results for 2019. Our revenue for the quarter was 147 million and 184 million for the year.

Net income for this quarter was 15.1 million and 22.3 million for the full year. After deducting non-controlling interests, net income attributable to the company was 6.4 million for the three months and 9 million for the 12 months. Our financial performance in the fourth quarter was highlighted by our first land sales in Valencia.

After almost two years of land development, we closed our first land sales comprised of 711 homesites. GAAP revenues recognized at the closing were 140 million, which included 135 million from the base purchase price, and approximately 5 million in non-cash marketing fee revenue we expect to collect when the homes are sold.

The gross margin recognized on these land sales was approximately 31%. Great Park Neighborhoods continues to mature and evolve into an amazing place for people to live and gather.

We continue to invest in amenities and the infrastructure throughout the year and recently completed Rise Park, a community park located within the community's newest neighborhood, similarly named Rise.

We also received approvals for an additional 1,056 homesites in early 2019, bringing the total approval to 10,556 homesites, of which 6,161 had been sold to date. Included in net income for the quarter, there's a loss of 1.1 million from our 37.5% percentage interest in the Great Park venture.

For the full year, our interest contributed income of 6.2 million. During the fourth quarter, The Great Park Venture sold 69 homesites for approximately 38 million, bringing 2019’s total to 587 homesites sold for gross sales proceeds of 255 million. In early 2020, the partnership made a distribution of 76 million to the holders of legacy interest.

Since late 2017, the partnership has made aggregate legacy interest distributions of 431 million, reducing the remaining legacy distributions from 210 million at the end of 2019 to 134 million as of today.

The next 45 million in distributions made by the partnership will go to complete the payment of priority distributions to the holders of legacy interests. Thereafter, distributions are contractually shared between legacy and percentage interest holders until the remaining legacy amounts have been satisfied.

At our Five Point Gateway campus in Irvine, which is approximately 80% leased, we’ve recognized for like 75% interest in the asset, a loss of 1.1 million for the quarter and a loss for the year of 3.9 million.

As previously announced, we are currently negotiating a sale of one of the four buildings to the City of Hope that will generate significant cash and create additional development opportunities for the campus. In San Francisco, in early 2019, we unwound the Macerich deal allowing us to control the parcel and retake [indiscernible] for Candlestick.

During the fourth quarter, the modified land plan for Candlestick was approved by the City of San Francisco, which includes less retail and more office. We recognized a $65 million non-cash gain in early 2019 in connection with the unwinding of the Macerich transaction. SG&A costs were 26 million for the quarter and 104 million for the 12 months.

Our liquidity position is strong with the year-end cash balance of 347 million and no borrowings against our 125 million revolving line of credit. And as Emile mentioned, our debt to total capital ratio was stable at approximately 25%. So with that, I'll turn it back over to the operator for questions..

Thank you. [Operator Instructions] We'll take our first question from Paul Przybylski with Wells Fargo. Please go ahead, sir..

Thank you. I guess first, to start off, you mentioned that 62% of your planned development costs were variable. Can you give us any more color on what your expectations are for 2020 given the current environment, are you still all systems go as of now or you already started to make contingency plans to pull that in..

Hi, Paul. As I said, we have our first sale or our next sales are scheduled for summer. We have been in discussions with builders and as this thing has been moving very quickly, we are in real time talking to builders who are going to be lined up for the sales.

And if we decide that the market is not ready for deliveries in summer, we can push back, and as a result we can delay the expenditures. Right now we have not made any decisions to shut down anything. Most of the homesites that are going to be delivered in summer are substantially complete. So, we are not going to be spending a lot of money on them.

But the management team is meeting every day to monitor, and as I said, we have an ability to pull on the lever at any point in time, and more than 60% of our expenditures will be able to be avoided if the market keeps on moving in the wrong direction..

And then with respect to Valencia, congratulations on the land sales.

When do you expect the builders to open for sale and do you have any type of grand opening event plan? And if that's in the relatively near term, do you think that might get pushed out a little bit given the current environment?.

Well, look, I don't happen to know more than anybody else in terms of what's going to happen tomorrow. This is moving very quickly. But as we sit today, the builders are scheduled to open by the end of the year for sales.

We tend to have a what we call the first day experience, which means that a big grand opening for all of the products, that probably would not happen until January, but builders will probably be able to start selling sometime by the last couple of months of the year..

Okay, and then with respect to the Great Park, can you give us any kind of color on the past three weeks as far as there's traffic and sales trends?.

Yeah, sure and I expected somebody to ask the question, because that's a good gauge of what's happening on the ground versus what we're seeing in the stock market. So I'm going to actually give you from the beginning of the year, week-by-week, the number of sales that we've seen, and that way you'll be able to gauge for yourself.

So, from the beginning of the year, the first week we had 10 net sales. The second we had 11, then 13, then 9, then 16, then 9, then 9, and then 14.

And as we got into the end of February and March, which is the period when we started realizing the impact of the coronavirus, we jumped to 25 net sales, then 24 net sales, and this week which ended on Sunday, we had 9 net sales, which is basically our average. So interesting enough, we haven't seen a drop on home sales.

We have heard from the builders that the traffic is now less and reduced, but it's basically people who are going to go and look at the models. It seems like the quality of traffic is still good and the capture rate is still very high..

I appreciate your time. Thank you..

Sure..

Thank you. We'll move on to our next question from Stephen Kim with Evercore ISI..

Hey guys, it’s actually Trey on for Steve. Thanks for taking my question.

So big picture, is there, potentially a logical stopping point or some time where it might be easier in the build out of Valencia to -- or a sensible time to push a pause button on development? And what are those kinds of things that you look for like, okay, here's a natural stopping point.

And then how far away are we potentially from the first in one of those?.

I'm sorry. You were coming a little bit muffled, so I'm just going to try to see if I understood the question. The question was when do we start pulling back on Valencia, can you repeat because you came very muffled..

Let me try this again.

Is there a logical stopping point where it's easier and more sensible to press the pause button on development, and what will be that kind of thing and how far away from that are we?.

First of all, in Valencia, we have actually, inventory we have homesites finished. So, we have an ability to still sell homesites that we've already spent the money on. We have – most of the major infrastructure is already in.

So, what we have an ability to do is just simply make a decision that the market is not going to be there six months or nine months from now and stop developing right now and monitor the market accordingly.

So, that's what I was saying is, we're fortunate enough to have an ability to make a decision, and within 30 days, we can actually either slow down or shut down development.

But in Valencia, as you know, we've sold 781 homesites, we still have probably about 200 that are available if the builders have an interest in them, and so far we've had an interest from builders, but we don't really need to spend a lot of money in Valencia unless we feel the market is liquid and we can keep on selling at the pace that we're expecting to sell on an annual basis..

Okay, thanks for that. And then the gross margin and lunch on the land sales sounds like it was 31%. That seems a bit low relative to what we're thinking.

Were there some additional costs in those initial land sales, because they're first off, the line or something like that that would be drag dragging that down, and how do you think about that margin progression going forward?.

Again, if you'd have asked me the question three weeks ago, I would have said to you, this is our first sales log in and hopefully as we go forward, you'll see the margin move up, but in light of where we are today, I don't think I or anybody else can make any bullish statement.

But if we were to go back to a more normal market, my expectations is as time goes by, you will see the margin start moving up..

Okay, thank you very much Emile..

Of course..

Thank you. We'll take our next question from Mike Aaron with JP Morgan..

Hi, this is Elad on for Mike. First of all congrats on the sales at Valencia and I was wondering if you could talk a bit about the range of products you sold this quarter and some of the buyer profiles..

The best buyer profile of the good price has not really changed. We haven't seen – I've been monitoring sales report on a weekly basis, and the profile hasn't changed. I know there's a lot of people who are talking about certain groups that are not buying.

We're not a community that's selling to investors, even where names of people that come from the Greater Asia, those are people who are a product of household formation within the market itself.

40% of the population of Irvine comes from Greater Asia and it's having household formation and culturally, people like to help their kids buy homes and keep them close to them. So I can tell you, we haven't seen a slowdown. We haven't seen any movement in the wrong direction so far. And we haven't seen any change in the profile.

In the last, I would say, probably 18 months, we started seeing an increase in buyers who are down and move up in Irvine. They are local, but nothing has changed in the last three weeks. And this is one thing that we are monitoring very, very closely to see if there's any shift here as a result of the environment we live in..

Okay, thanks. And my second question is I was wondering if you could provide some more details on the consulting arrangement with San Francisco Advisory Group. Why do you feel like the chunk here is about approach and maybe comment on the payment structure or any transfer of ownership or any changes operationally to that division? Thanks..

Of course, so as I have said on previous calls, San Francisco is in – has two parts to it. The Shipyard, which is the Old Navy base where the land is still owned by the Navy and we will take delivery of that land phase by phase when it gets clearance from all agencies.

The other part of San Francisco is the Candlestick Point where the San Francisco 49ers stadium used to be and that has nothing to do with the Navy or the cleanup. And that's the area that the stadium has been demolished and we started putting infrastructure in. When we took over that asset, there was a deal with Macerich to build an outlet mall.

And as I said before, we evaluated that with Macerich and came to a conclusion that that's not the right use for the asset in light of the shift in retail world. That then ended up unwinding the deal of except, we then went back to the City and revised the plan and go it approved last October.

So from a timeline point of view, first deal was to unwind the Macerich deal, and last October, we got the approval. And now what we've done is we basically have taken San Francisco and are looking at it as the Candlestick being within our operation, meaning it is operational, and we will be talking to the partners on it.

And so far, we've had an interest from several groups on the Candlestick side. On Hunters Point, we went back to Mayor Brown, who was the Mayor when we started that process, and I was at that time leading that effort for Lennar and we went back and put together the advisory – they put together an advisory group and we ended up for the agreement.

Kofi, who has the history over here, and he's very well respected in the city from a political point of view, as well as Mayor Brown and his partner, Steven Kay, we believe, make up the best team that could help us navigate the waters of the Navy and the agencies, so we can get to a resolution quickly and get that side to move forward.

So as a company, our focus right now is going to be on Candlestick and over the coming period, notwithstanding the shift in the conditions in the last three weeks, our focus is going to be on Candlestick and seeking the right partners or partners, and then moving forward in Candlestick, while we work with the advisory group to start talking to the government about moving forward with the cleanup, and the testing and everything else.

So that's really the strategy. This has been a strategy that has been in process. And what we said with this announcement we have nothing but the next phase of that strategy..

Thank you..

Of course..

Thank you. That does conclude today's question-and-answer session as well as today's conference. Thank you all for your participation. You may now disconnect..