Five Point Holdings, LLC Class A Common Shares 2026 Q3 Earnings Call

Thank you. Good afternoon, everyone, and thank you for joining us today for review of Five Point's third quarter results and a discussion of our outlook. I have with me today Mike Alvarado, our Chief Operating Officer and Chief Legal Officer, Kim Tobler, our Chief Financial Officer, and Leo Kij, our Senior Vice President of Finance and Reporting. Stuart Miller, our Executive Chairman, is joining us remotely. Today, I'll review our third quarter results and outlook for the remainder of the year. Mike will then discuss our operational highlights in more detail. After which, Kim will review our financial results. We will then open the line for questions. During the third quarter, we continued making progress on several important fronts, even as market conditions have remained uncertain, with higher interest rates driven by inflation concerns and weaker consumer confidence.

Against this backdrop, we are focused on maximizing the long-term value of our California master-planned communities, while we are also expanding our relationships with leading home builders for our Hearthstone Residential Land Banking platform. Our long-term strategy remains unchanged. We are focused on building a more diversified company that combines a significant embedded value in our strategic cash-generating assets, along with a growing stream of recurring asset-light fee-based income. We believe these complementary businesses provide Five Point with multiple avenues for long-term value creation. Perhaps most importantly, we continue to maintain a strong balance sheet, which gives us the financial flexibility to execute our strategy while navigating the current challenges in the housing market. Turning to our financial results. Five Point generated consolidated revenue of $14.6 million for the third quarter and a small consolidated net loss of $4.4 million.

As we detailed in our second quarter call, we did not close any significant land sale transactions at our active communities in the third quarter. As we have discussed previously, the timing and size of individual land sale transactions can create considerable variability in our reported quarterly earnings. Importantly, Great Park continued to generate meaningful cash for Five Point, with distributions and incentive compensation payments totaling $40.4 million during the quarter. We ended September with $358.7 million in cash and cash equivalents, total liquidity of $576.2 million, and a debt to total capitalization ratio of 16.2%, which gives us a net debt to total capitalization ratio of just 3.8%. These metrics underscore the financial strength of our company and our ability to take a disciplined, long-term approach to managing our assets. As has been widely reported, the new home market has faced considerable challenges in recent months.

Higher mortgage rates driven by inflation and geopolitical uncertainty, along with weaker consumer confidence, have combined to pressure housing affordability and caused many prospective home buyers to delay purchasing decisions. Slowing home buyer demand influences our decisions regarding additional land sales as we carefully balance absorption and demand within our communities to preserve and maximize the value of our remaining land. As a result, we will likely elect to defer certain land sales that we previously anticipated closing in 2026 rather than transact in a less favorable market. Fortunately, as I said before, they're not making more land, and entitlements in California remain difficult to achieve, and land does not spoil. The strength of our balance sheet gives us the flexibility to be patient and pursue land sales when market conditions support the values we believe our assets deserve.

As a result, we now expect to generate a small amount of consolidated net income in the fourth quarter and to end the year with approximately $20 million in net income. I want to emphasize an important point. Our revised outlook reflects the anticipated timing of land transactions rather than a decision on our part to reduce land pricing to accelerate sales. While we cannot control market conditions, we can control how we manage our land portfolio and protect the value of our assets. We remain focused on maximizing the long-term value of our land. We have consistently taken a disciplined and prudent approach to developing and monetizing our communities, and maintaining that discipline remains particularly important in the current environment. Despite the more challenging housing backdrop, we achieved several important milestones during the quarter. At Great Park, the venture renewed our development management agreement through December 31, 2028.

We believe this renewal reflects the value of our development expertise and our continued commitment to the successful execution of one of the country's premier master-planned communities. At Valencia, we made significant progress on entitlements, including approvals related to our Homestead South Village, which is planned for over 3,600 home sites. This represents an important step in expanding our inventory of entitled home sites and positions Valencia for future development and monetization. In San Francisco, we recently celebrated a groundbreaking for development activities at Candlestick, marking a significant milestone in advancing this unique waterfront property towards the next phase of development.

I've been involved in several master planned communities within California throughout my career, and I can say with conviction that opportunities to create an entire neighborhood of this scale from the ground up in a community as large and iconic as San Francisco simply do not come along very often. With 7,200 home sites, 2.8 million square feet of planned commercial space, and 550,000 square feet of space for retail, hotel, entertainment, and other community uses, we envision creating a vibrant and multifaceted community that will contribute to San Francisco's future as a global hub of technology and innovation. Meanwhile, Hearthstone continues to broaden our participation in the home building industry nationally through strengthened relationships with institutional capital providers and home builders.

This asset management business adds an increasingly important source of recurring fee-based revenue and provides opportunities for growth that require substantially less direct balance sheet investment than traditional land development. Our balance sheet remains a cornerstone of our strategy. With more than $350 million in cash at quarter end, substantial additional borrowing capacity, and no scheduled debt maturities until 2030, we believe we are well-positioned to manage through the current housing cycle while continuing to invest in opportunities that create long-term value. Our capital allocation philosophy remains focused on disciplined investment in our communities, expanding Hearthstone's capital-light business model, maintaining financial flexibility, and evaluating opportunities to enhance shareholder value. We believe strongly in the underlying value of our California land holdings and the long-term potential of Hearthstone. We remain committed to demonstrating that value through continued progress, thoughtful monetization of our assets, and growth in recurring fee-based income.

While the timing of ventures or transactions may affect quarterly earnings, we believe the fundamental strengths of our business remain intact. Our substantial portfolio of entitled California land, established relationships with leading home builders, growing national investment management platform, and strong financial position provide a solid foundation for future growth and shareholder value creation. We believe we have the right strategy, the right assets, and the financial flexibility to successfully navigate the current market environment. While we recognize the challenges facing the housing industry today, we remain optimistic about the opportunities ahead and confident in our ability to continue creating meaningful value for our shareholders. With that, I'll turn the call over to Mike for an update on our operating activities.

Thank you, Dan. I'll begin with an update on our California Master Plan communities, followed by a discussion of Hearthstone and the trends we're seeing across our home builder relationships. Starting with the Great Park, the venture continued advancing development activities during the third quarter. Builders sold 54 homes during the quarter, compared with 56 in the second quarter. While absorptions remain below the levels we would like to see, Great Park continues to benefit from its premier Orange County location, established infrastructure, and highly desirable residential communities. As Dan mentioned, we will likely elect to defer several land sale transactions that we previously anticipated closing in the fourth quarter. We continue to work closely with our builder partners to evaluate the timing and structure of land sales while remaining focused on protecting the long-term value of the land.

We also reached an important milestone with the renewal of our development management agreement through December of 2028. This agreement extends our role in managing the continued development of Great Park and provides an ongoing source of fee-based revenue. As a reminder, we are also entitled to incentive compensation payments equal to 9% of all distributions to the Great Park Venture partners. During the quarter, our Great Park Management Services business generated $7.4 million in revenue, bringing the year-to-date total to $23.4 million. We believe Great Park remains exceptionally well-positioned, supported by the scarcity of developable land in Orange County, the quality of the community, and the significant development opportunities that remain. Turning to Valencia, we made significant progress during the quarter on an important entitlement initiative that substantially expands our future development opportunities in Los Angeles.

In September, the Los Angeles County Board of Supervisors confirmed the approval of the Homestead South project that had first been approved by the Planning Commission earlier in the quarter. Homestead South encompasses approximately 752 acres and is planned for over 3,600 home sites. With this milestone, we have now more than 6,600 home sites in Los Angeles County that have approved subdivision maps, and we are working toward increasing that figure to approximately 10,000 over the coming quarters, subject to the remaining approval processes. This represents an important addition to our portfolio of entitled land and supports our long-term strategy of creating value through the entitlement and development process. Importantly, securing entitlements across multiple villages provides us with optionality with respect to development sequencing and product segmentation that will allow us to thoughtfully allocate capital and optimize revenues at Valencia.