Good day everyone, and welcome to the Five Point Holdings First Quarter 2020 Conference Call. Currently, all participants are in a listen-only mode. As a reminder, this conference call is being recorded. Today’s conference may include forward-looking statements regarding Five Point’s business, financial condition, operations, cash flow, 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 risk and uncertainties. Many factors could affect the 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 on Form 10-K and quarterly report on form 10-Q filed with the SEC. Please note that Five Point assumes no obligation to update any forward-looking statements. And now, I’d like to turn the call over to Mr. Emile Haddad, Chariman and CEO of Five Point. Please go ahead, sir.

Thank you very much. Good afternoon and thank you for joining us. I hope that everyone on your side is healthy. Today I'm joined by Lynn Jochim, our Chief Operating Officer, by Erik Higgins, our Chief Financial Officer and by Mike Alvarado our Chief Legal Officer. On March 16 we had our fourth quarter call and I shared with you that the previous Friday we had asked all of our associates to work from home. I also told you that we always ran the company with the plan which is ready to be implemented in case of any unexpected event which creates a major sudden shift. On that day we started implementing that plan which is comprised of the following. One, considering the potential for no land sales in Valencia and the Great Park for the remainder of 2020 we are managing land development operations to support, to only support the efforts of our guest builders, who are still moving forward with construction activity. If there is demand for builders earlier, we need approximately 45 days to finish development of concerts at the Great Park. And at Valencia, we have inventory early for sale. We have benefited from the fact that approximately two thirds of our total expenditures are variable costs. Two, we also said in the past that 50% of our G&A related to our employment costs, our discretionary bonuses we pay in January. That gives us the ability to reduce G&A significantly without the need to reduce our workforce if we elect not to pay or reduce our discussion bonuses. Three, we amended our internal financial authority policies to limit the ability to commit the company to buy new contracts or approve invoices. The only people who have that authority since then are our CFO, COO, CLO, and…

Thank you, Emile. Our key – our 10-Q was filed on May 11 and a summary of our financial results was included in the earnings release issued earlier today. As Emile noted, the first quarter was an interesting one as we adjusted our business to address the potential impacts from the COVID-19 pandemic. In response to the pandemic we are taking immediate steps to protect the health and well-being of our associates and to preserve the financial strength of the company. Our associates are working remotely and the team is analyzing the impact of the deferred land sale revenues caused by the pandemic. Our financial performance in the first quarter reflects our investment in inventory expenditures at Valencia, the collection of management fees and then accounting valuation adjustment to our equity method investment in the Great Park Venture. I’ll start with our consolidated results and then address each one of our four segments. The company’s consolidated revenues for the first quarter total $9.2 million and primarily reflect the recognition of revenue generated from management services. Equity and loss from our two unconsolidated entities was $30.9 million for the quarter. This includes the $26.9 million impairment which we recorded against our investment in Great Park Venture. Total consolidated costs and expenses were $32.6 million including $24.6 million of selling, general and administrative expenses for the quarter. Net loss for the quarter was $53.2 million of which $28.4 million was allocated to the noncontrolling interest $24.8 million attributable to the company. Moving to the segment results, the Valencia Segment is consolidated for accounting purposes, revenues for Valencia Segment were $0.8 million primarily related to agriculture and energy operations. SG&A expenses totaled $3.7 million for the quarter and the Valencia Segment loss for the quarter was $4.8 million. The San Francisco Segment is…

Thank you.[Operator Instructions] We’ll hear first today from Stephen Kim with Evercore ISI.

Yeah, Thanks a lot guys. Appreciate the info. I wanted to ask you a bigger picture question first. The early signs are that the pandemics driving a pretty significant shift in attitudes towards both home buying as well as recreation you know with regards to either home size, densification, working from home, communal venues and stuff like that, I'm wondering which of the shifts do you think are temporary and which you think are likely to be more lasting. Can you give us an idea of how you think maybe some of the longer lasting changes will influence what would be the optimal design of a master plan community such as yours in the future

Yeah. Hi, Stephen. That’s a – it’s a great question. It’s a question that we obviously asked a lot and my experience in conditions like this and I've had that in previous life is you have to be very careful about extrapolating from a moment in time when we're all behaving in a very unnatural way because we are forced to do it. And I think about that we mistake to assume that because people today for instance are weary about being in higher density places that – that means we're never going to see higher density. I think what you have to wait for is what is the behavior of the consumer are going to look like when this issue is behind us because there is no doubt that there will be a modification to the consumer behavior. I mean, probably the simplest – simplest example is there is a certain segment of population that the elderly people, but was not comfortable using online shopping and because now they are forced to do it and they found that it is convenient. I'm sure that that's actually part of the consumption is going to change because a lot of people are going to say it's nice. This thing will be delivered at home. I think that the work at home is going to actually force all of us as companies to start rethinking our whole model that we've been living with of employment for the last you know several decades, be with 9 to 5 and all these things that I think were product of the previous revolutions as industry revolution and the fact. That means that you doesn’t have to start thinking more about maybe some of our workforce might work part time or maybe even full time I'll be at home and therefore we should be thinking about designing the homes with a much more fully-equipped office. I personally think that technology and diagnostics at home and telemedicine is going to become refer and I think as a part we will probably start thinking of that. I can tell you for us as a company we are not ready yet to jump into any conclusion until we see what the consumer is looking for after this thing is behind us. Now the good news for us is when we come to the Great Park you know the way we design the Great Park with a lot of trails and open space and a lot of areas, today is proven to be very helpful for our residents because people are going out and walks and being able to actually have that ability whereas in other places they don't. But I'm not in a position right now to jump to any conclusion I think it's too early and we are in a very unnatural situation right now.

Yeah, that makes sense, and certainly the Great Park your pivot to a little bit more of a healthcare focus certainly seems pretty prescient at this point. So I'm sure this is going to be an issue we'll hear more and we'll discuss with you in the months and years ahead probably. The second question…

Yes.

I had -- it relates more specifically to Newhall, and I was curious as to when you think you may have another round of land sales. How your thinking evolved or changed in any way regarding the next set of land sales there?

Sure. So I'm going to take you back to before the end of 2019 when we were guiding about our – the number of home sites that we were expecting to sell and at that time we were talking about something around 500. We had more demand and as a result we ended up doing the 784 out of close to 711 closed in the year we just announced the actually 781 and we just announced the closing of the other 70, that leaves us with about 257 of inventory standing right now and I can share with you that we have builders who are now already started talking to us and have an interest in being there and actually moving forward with some of these transactions. We're not in need of it, we're not going to force it, we want to make sure that the builders who are actually already closed on the transactions are moving forward and comfortable but I would not be surprised if you didn't hear some announcements in the near future about transactions with other builders. So we're going to do what the builders feel comfortable doing and we're not going to force anything I have zero interest in discounting land over there. And but I think that based on what you're seeing right now I think we have builders who believe that the markets like that is in demand at housing and the environment is like.

All right. Thanks very much guys.

Of course.

We'll hear next from Trevor Allinson with Wells Fargo.

Hi good afternoon guys. And I’m glad to hear you all are healthy. The first question on the impairment equity part for $27 million impairment could you just elaborate on that a little bit what occurred I imagine it's from riding off the land and possibly some what we're pricing. But could you just run us through the moving parts of that and some of your assumptions.

Allison and I was hoping that somebody will ask that question because it's probably one of those areas that people are misunderstanding not because of anything it’s just because they say it's a little bit of a – an odd situation that has to do with accounting, so let me take a shot at it, and then, if you need any more color, Eric will give you that. So there are two methods – accounting methods but you use to analysis impairments. And first method applies to wholly-owned assets where it’s a static analysis, it simple says, if I look at the life of any deal that I owned and with at the end of the day, I am able to prove that I’m going to recover my investment plus a dollar, then it is not impairment. So it’s really especially for assets that are – the size of our assets and take as long would become easy to look at an asset and sell it, if I have the time and I look at it, I’m going to be able to recover my investment plus a dollar, and that’s why we don’t see anything close to impairments on the other two assets. So we would have applied the same method to the asset itself being at the Great Park, it wouldn’t be impaired. However, the accounting rules says that if we are in an unconsolidated venture, we have to do an analysis of our distributions from that venture, and do this current method, which is the net present value of that scheme of distribution. So it becomes very punitive because now you're not looking at the static analysis, you're looking at a cash flow and a this type of cash flow. And the reason why we ended up in a impairment of our investment is because we have a stream of cash flow that is coming out of that based on distribution and we've been doing this analysis every quarter since we did the consolidated back in 2016 and we haven't been impairing it. But what we did now after COVID-19 is we assumed that home prices are going to stay flat for 2020 and then because we delayed land sales, that and with that ended up pushing back our distributions from the venture and the combination of the two when you discounted and we use the 9% unlevel discount rates there is a negative arbitrage that ends up creating an impairment to our bases because we knocked our bases up in 2016 to market and that's really why you have this impairment. Again if I were to look at it as if I'm looking at it at the asset level this will be far from being impaired but because of the method of accounting for unconsolidated ventures, we end up having to impair the investment.

Okay. And if I'm understanding this correctly as well I'm thinking of maybe all the debt analysis at the end of the quarter, at the end of March whenever conditions were much more uncertain, whereas today, I believe you said Great Park demand is back to pre-COVID levels. I would imagine if you did an analysis today you might not have written off the land, is that a fair assumption?

Well, it's a very interesting point because we have that discussion even with our accountants and there is actually there could that be in a way for us to look at the situation as a temporary situation and therefore we could have waited until we see what happens and then make a decision whether there is an impairment or not in a – and the you know second or third quarter because we are using the cash flow right now for an ongoing concern and that’s the cash flow that we're using to run the business. I did not feel comfortable at all, maybe subjective decisions. That's overwrite what the math is telling us based on cash flows we are using. That would left with us in a position to look like we were trying to avoid an impairment. If the math at that moment shows an impairment, we made a decision to take an improvement and explain what it is and the fact that this impairment has nothing to do with the value of the offer. It just has to do with the way the math works for a nonconsolidated venture.

Okay. Okay. This next question is also on Great Park. And you know it's kind of a multipart question. But could you just give the builder orders cadence from March through May, maybe a little bit more color as well as what incentives are doing there?

Sure.

And then…

I think…

Sorry. Could you also discuss your lot sales in Great Park how you're thinking about those in 2020 and whether or not you're seeing builders starting to add to their lot positions or want to add to their lot position in Southern California because we've been hearing a lot of builders are completely pulling back on the land market. Maybe more recently over the past week or two weeks they’ve started to reengage in that a little bit more, but wanted to understand that a little better?

Sure. let me give you the – I'm going to give the sales numbers, net sales numbers as of the beginning of March on a week-by-week basis. And actually, I'm going to go back even beginning in that, so that everybody has a clear idea as to how this – the sales have moved. So, on the first week of the year, we have 10 net sales, then 11, then 13, then nine, then 16, then nine, then nine then 14 and then we jumped to 21 and 28 that’s at the beginning of March. Then we go to nine and that's when we started the stay at home orders in California at that point in time we had zero sales. We had negative four, negative three, then four sales and zero sales those of the five weeks following the stay at home. Then we ended up having nine sales, seven, three and last week 10 on a net basis. So that's basically has been the rate of sales and as you look when you look at all of that the term is pretty much on an average remind you that builders I think except or maybe one builder are still selling virtually and not from sales office. And so from what I said you have 10 net sales without any interaction with salespeople or going and seeing models especially in [indiscernible]. So and we're watching the trend. Let me answer the second part of your question which is our home side sales. So on the great part because we have a cadence of sales what we do is we usually end up making sure that we monitor the rate of sales per rollout and how it's moving. And as a result we then a bring on a product that…

Oh, yeah. Sorry about that.

Oh, no problem, I just want to make sure that. Okay. Perfect.

Yeah. That definitely helps. Sorry, I was on mute. One other item the incentives, how are the builder incentives trending.

How, you mean, interest from builders.

Yeah. The home builders incentives.

What I don't think we've seen any real major in some of this, is just something that is unusual. It's probably very consistent with the same type of incentives you would see when they want to close the home or to the end of the quarter.

Okay. Thank you

Thank you. We'll hear next from Michael Rehaut with JPMorgan.

Hi. This is Lloyd on for Mike. Thank you so much for the color you did on sales trends and weekly sales trends. Very helpful. I just wanted to dive into the drivers of some of those moves, maybe first just what – what do you think we’re sort of the driver of this big jump at the end of February or early March in sales per week went up in those – in that you know 20 sales per week type range and even little higher? And then, secondly, more recently where is that debt maybe two weeks ago. So it went from the year range to 9, 7, and then gets down to 3 and back up to 10. What do you think is kind of driving on some of those moves?

Well, I mean, I think that the math of them into in two ways. So, yes, I think about the different periods. I think that what we started seeing in the – the drivers behind why all of a sudden we jumped to 21 and 28 in the beginning two weeks of March. Honestly, I think that it probably was what I'm looking at which ones were the sales. They were driven by two different reasons. One, we have a lot of sales on the first week, which is 21 part of Novel Park, which is the small product and very affordable product. And I think it might have been driven by people’s expectation that rates were going to go down and that product is really the product that competes with good rental in this market. So I'm speculating that there is probably people who were interested than a price point and then the week after out of the 28 we have 12 out of price which is our new that we open and we typically see a jump in the opening opportunity for two reasons. One is excitement and two you would have had a lot of builders who have had an interest from buyers and they convert them within a week and therefore you see a jump. So that probably will be those will be the two factors. In terms of the last four weeks honestly I think today a lot of the driving factors beyond buying are emotional and all driven by whatever the news is telling you. If you look at the news today and the fact that people are starting to talk about you know depression and loss of jobs and all of that and you're still selling homes as [indiscernible] something. So I don't know if you’re asking me about why we have three in the last four weeks versus 9, 7 and 10 I really can’t tell you why.

Okay, fair enough. Thank you. My second question is just kind of shifting over to your land development activities and kind of you opening a lot of those, if you're starting to build toward that and you know if you push out some of the home site deliveries that you’re expecting kind of how far or what your thinking is about the potential timing around those deliveries and lands on it? Thanks.

So, sorry, I mean, I’m going to take each of the three of these separately. So in Valencia we have 257 home sites in inventory and we could fairly quickly develop another 230 home sites. So we would go through the standing inventory first, and get those very enough buyers for them at the right value and builders feel like, it's time for them to move and then so we have people who have expressed interest. So we don't really need to spend much in land development to sell the first 200 and kept 57, and a lot of the major land development for the other 230 is already done. And so as a result we have basically stopped land development for any of the future deliveries at Valencia except for any activity that supports the builders construction and movement for moving forward. At the Great Park, we basically have seen right now that we're not going to have any, there are something we need – when we put this plan together. Well, that we’re not going to have any homesite sales until next year, and therefore we totally stopped land development. But as we said, if we see that there – that there's an opportunity to move up the land sales and we will see and we can go ahead and do that. It will take us 45 days from when we start land development again to when we finish homesties so we can have delivery. So we're monitoring here every day as we said the four of us are together every day and we're monitoring every one of these situations in real-time ourselves and we make the right decision at the right time. But it takes us, as I said, about 45 days to deliver a homesite in at the Great Park, and I can tell you if we see a rate of sales similar to what we’ve seen in the last two weeks or somewhere between 9 and 10, then chances are going to be higher that we're going to have more deliveries or earlier deliveries than we thought.

Okay. Great. Thank you.

Sure.

[Operator Instructions] Next we'll go to Zelman & Associates, Alan Ratner.

Hey guys good afternoon. I'm glad to hear everyone is doing well. Thanks for all the detail.

Yeah, hi Alan.

First just on the great park you had given that you kind of just went through the analysis that I know you had been expecting a distribution this year. It sounds like that's getting pushed out. So is it safe to assume now that kind of your internal expectations is now 2021 is when kind of cash will start coming in the door from Great park and if so can you share any magnitude that that you're currently anticipating.

You’re right. I mean if we end up performing or actually ended up moving forward based on our existing plan that we've just started implementing in March. We will have [indiscernible] solutions out of the Great Park and in 2020 we will have this solution in 2021. Remind you that that's an asset that's self-funding and have enough cash over there to self-fund so it doesn't require any cash and because of all of the measures we've taken to conserve gas we feel very comfortable with where we are in terms of liquidity. And therefore the fact that we will have a delay in distribution from the great part is not that we’re going to have any impact on our liquidity or our ability to go forward.

Got it. Okay that's helpful. And I guess the second one I fully appreciate the comments and agree with them as far as not extrapolating what is going on today as far as longer term investment decisions. But at the same time I know you guys are in the midst of the planning process up in San Francisco and that was a project or is a project where there is a very large commercial component to it. And for that matter all of your projects have that but specifically San Francisco because it's in planning now how are you thinking about the future of commercial real estate because I know office users certainly a big expectation there and now with the remote working and you know it's just a lot of ideas that perhaps there might not be as much need for as much office space going forward? Are you thinking about adjusting those plans or contemplating that at all or maybe just you know kind of push that a little bit until there's a clear picture about what – what the future might look like.

So I think as I said before we have been rethinking the uses of our commercial starting with retail and what we did in San Francisco when we came to conclusion that the outlet mall is not the right answer and we went through a couple of years on one that real and when we started rethinking that whole components in each of the communities, in the Great Park we concluded and with the partnership that we have now with the City of Hope and others that will come soon. We have made a decision to pivot a while ago to pivot to a healthcare-related uses over here and we have a lot of interest right now basically because the City of Hope is a big catalyst for all of that and a lot of people want to be in that world. So here it's easy. We’ve concluded what we wanted and we are looking at it as a – as if you're looking at a campus. We're looking at the healthcare providers with research, with housing, with lifestyle, with schools with all the elements to start them with Great Park as a – as a campus in that sense with the main source of you know the main commercial source being [indiscernible]. The same thing in Valencia. Actually we started a while ago looking Valencia actually we’ve started a while ago looking that and we out of the first village of the Neighborhoods we have 750,000 square feet of our commercial is earmarked for health care and we have a lot of interested for these of that. In San Francisco our commercial is divided into Hunters Point and Candlestick. On Candlestick we have 1 million square feet of office, we have about 300,000 square feet of lifestyle retail and we have about 7,000 homes that's what Candlestick is and as we said before we're leaving with Candlestick as our first – as our first phase. I can tell you that there is a very good chance that the 1 million square feet might also being health care related. I can't speak about it yet. I don't know that I -- you know we have anything firm, but I won't be surprised if it's also is something that such as health care as well. We can't give them that a fall of the different segments of commercial probably industrial and health care are the safest right now. And know our land does not made for the industrial substantial. So that's why I think you know the long answer to the question is health care, health care and health care.

Got you. That’s very helpful, appreciate that. And then just a final one on just kind of more builder appetite for land and others kind of few questions and it sounds like builders have been performing on the take downs up to this point. A lot of the publics’ when they were reporting their first quarter you know they said that they've been negotiating extensions on take downs maybe et cetera and it didn't sound like you guys experienced that much. But is there any sense just from looking not necessarily in your communities but elsewhere negotiating extensions on takedowns 90 days et cetera and it didn't sound like you guys experience that much. But is there any sense just from looking not necessarily in your communities but elsewhere people you talk to are the builders to come back off the sidelines again in terms of their appetite for land or are they still seemingly proceeding cautiously because the sales results to your point have been rebounding quite nicely. So I'm just curious at what point did they - do they get comfortable enough to which firms to the level they were at before.

So I'm going to put them in three different categories. One category is a group that never talks us into this and we have discussions the buyer on the [indiscernible] side could have easily walked away from the deal and honestly speaking Alan it was we gave you home. I told them I'd know these guys very well and in light of the fact that the real trip that since we make the deal with them and in light of the fact that the every builder was that you probably do saying they're going to shut down the land acquisition which is very usual I call them and they will confirm that and look If you are not comfortable in moving forward the last thing I want is for any of builders [indiscernible] to move forward feeling like they're only doing it in order for them not to lose a deposit. So if you want I can give your deposit back and we will talk after COVID 19 if you still have an interest or if you want to move forward I'm willing to look at what your needs are and what’s the deal that’s works very comfortable. They came and like said now we would like to move but if you could give us an ability to close with the note that gets paid by the end of the year after the year end probably or something like that may be in November 30 we will do that and that's exactly what we did. So you have people who still are engaging with us and because of our relationship with builders we're not a one-time seller. Our discussion with the builders is more about the partners. We have another builder that was interested but didn't want to close before year-end, and we are engaged with them, we are talking to them, and we basically are having the same conversation. Is there something that works for everybody because we're living in an environment that's unusual. And so you have builders, and many other group of builders, second group that went silent and then in the last probably week or two started making calls and talking to lenders [ph] and others about, hey we haven't gotten to the green light yet but it sounds like we might be able to start looking at acquisition again, and if we’re going to do that we want to be looking in the market to you are used to comfortable with. And Valencia and the Greek Park are easy ones to look at. And then we have a group of builders who are basically still sad. There's still a mandate from corporate with no acquisition and therefore we can't talk about anything but we'll see what happens in the future.

And is that third group still are a large number or is it –is that diminishing.

It’s like – it's interesting because the group of builders in totality is that not log anymore. I mean with the consolidation and with the type that we have some builders who are not even in our markets. I mean we're talking about probably about less than 10 builders that we actually talk to. So I would say of the first category, there's about three, on the second category there’s about two or three and then the last category is the same, sort of other things.

Got it. No, that’s really helpful. I appreciate it. Thanks a lot.

Sure. Are there any questions?

Sorry, with no other questions, on behalf of Five Point and Emile Haddad, I’d like to thank everyone for participating in today's call. And that will conclude today's conference. You may now disconnect.