Greetings and welcome to the Five Point Holdings LLC Third Quarter 2022 Conference Call. As a reminder, this 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 Five Point's estimates on the date of this conference call and are not intended to give any assurance to the actual future results. Such 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 included those described in today's press release and Five Point's SEC filings, including those in the Risk Factors section. 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. And now, I would like to turn the call over to Mr. Dan Hedigan, Chief Executive Officer. Please go ahead.

Thank you. Good afternoon, everyone, and thank you for joining our call. I have with me today Leo Kij, our Interim Chief Financial Officer; Mike Alvarado, our Chief Legal Officer; and Kim Tobler, our Vice President Treasurer and Tax. Stuart Miller, our Executive Chairman is joining us remotely. I'm pleased to update you today on the progress of the Company through the third quarter of 2022. I will also update you on our team's focus during the quarter and on the steps we have taken towards implementing our strategies. Next, Leo will give an overview of the Company's financial performance and condition. We'll then open the line for questions to our management team. Let me begin by saying that our third quarter results reflect the hard work and determination of our strong team as they focus on managing through what is becoming a very difficult market cycle. While the third quarter was a tough quarter for our primary residential land sale business, given the changing market conditions, our team executed efficiently and effectively by focusing on limiting our cash spend and managing costs and in the quarter the net loss of $9.5 million. During the quarter, the Federal Reserve raised interest rates at the most aggressive pace since early 1980s. Cash costs caused our homebuilder customers to rebalance their home pricing and sales pace assumptions, which directly impact our land acquisition timing and values. We'll remain very close to our homebuilding partners, and our focus on working with them to meet their needs is to support their continued purchase of residential loss. Nevertheless, in our California markets, housing is still in short supply, and there is still demand for well located homes in master plan communities. We'll take some time for the housing market to reset on both the homebuyer…

Thank you, Dan. A summary of our financial results included in the earnings release issued earlier today, in which we reported a consolidated net loss of $9.5 million for the quarter. While no land sales were closed, we did recognize $15.4 million in revenue that was mostly generated by our Valencia and management company operations. Selling, general and administrative expenses were $12 million, which is consistent with the prior quarter and represents a reduction of 42% compared to the same quarter last year. The decrease is primarily the result of our reduction in headcount as reported during our first quarter earnings call. As Dan previously mentioned, total liquidity was $211 million at quarter end and is comprised of $86.3 million of cash and cash equivalents and $124.7 million of available borrowing capacity under our revolving credit facility. No amounts were drawn on our $125 million revolver; however, letters of credit of approximately $300,000 are issued and outstanding under the facility. Our debt to total capitalization ratio was stable at 25.3% and our net debt to capitalization ratio after taking into account, our cash balance was 22.6%. The Company has four reporting segments Valencia, San Francisco, Great Park and Commercial. Segment results for the third quarter are as follows. The Valencia segment recognized a $543,000 loss for the quarter. There were no land sale closings in Valencia; however, the segment did report revenue of $3.1 million. Most of this revenue related to changes in estimates of variable consideration from the amounts previously recorded on prior land sales, which includes profit participation that we collect from our homebuilders. Segment revenue was offset by selling, general and administrative costs of 2.5 million that were mostly comprised of employee compensation cost as well as selling and marketing expenses in support of our access development…

Thank you. [Operator Instructions] Our first question comes from Dominick D'Angelo with O'Keefe Stevens Advisory. Please go ahead.

Hi, guys. Thanks for taking my questions. I had a couple. On the $625 million debt, just based on where the fair value of it was last quarter in your release. It seems like that debt markets are relatively closed or the really high interest rate, if you ever had to refinance asset in this market. Can you just talk about your plan? What you guys see happening to that $625 million in debt?

Dominick, thank you for that question. The maturity is in '25 and we obviously have done a lot of thought about how our cash flow looks between now and '25 and the opportunity to retire that debt. We have looked at opportunities to refinance the debt, and you are right, today Capital markets are a little bit dicey. And so, I think what I'd like to give you a direct answer. I think it's always going to be kind of market dependent. But as we said, from a balance sheet perspective, we are always looking for opportunities to generate cash. And we may elect at some point to use some of that cash to pay down the debt. But I think what we are going to do -- have to do is just see how the market progresses over the next three years and really take it from there.

Got it. Okay. Thank you. Next just on the Great Park Venture, you guys talked about it being self funding, no debt, $129 million in cash. Is any of that able to be distributed to Five Point? Or how, I guess, what's the point of that cash being at equity ventures?

So, that might be -- obviously, it's a partnership, as you know, and we actually do distributions from time to time. And as part of discipline that we work with all the partners to make sure that we have plenty of cash. So, it does self fund and there is no additional needs. But what we do is quarterly, we do look at those balances, we look at future needs. We look at upcoming closings, and we do make distributions. So when you see that balance, that's a conservative balance. But as cash grows, we will make distributions, but it really is just to make sure that we're well positioned there and have no cash needs.

Is there like $1 amount that if there were due surpass, there would be I don't know, like an automatic distribution? Or is it just a case by case basis?

There is no kind of mathematical, it really is a case by case basis all the partners discuss the available cash and agree on the distribution. But it is looked at on a regular basis, because you're correct. There's no rational reason to leave it there if you don't need it.

And then just last question from me, I believe you guys had a $56.3 million I think was a related party like principal payment. That was in your annual report. Is that going to be paid this year? I know there was way you could defer it. Just any update on that.

Dominick, one more time, what was the payment you're asking about? I'm sure. I'm not sure I followed it.

I thought there was a $56.3 million principle, some sort of related party principle payment that you guys were going to get making?

That's not all due in the current year, that's phased out over multiple years as the reimbursement needs to be funded. It's not currently due.

[Operator Instructions] We'll take our next question from Alan Ratner with Zelman & Associates. Please go ahead.

Dan, if you kind of walk through the sales activity in your communities, and I think we've heard from a lot of builders about what's going on there. I'm just curious if you can talk a little bit about what's going on in the pricing side, the home price side. We've heard over the course of earnings calls this week, incentives across the industry have increased pretty significantly. And I'm just curious as you as you track not only the sales activity, but also the discounting and the incentives. What type of price adjustments if any, you guys have seen in your communities?

This damn exercise missed your team earlier this month when I wasn't available and you're out here. But every builder is kind of have their own model for what they're doing. And from a standpoint, as a master developer and the way our land sales work, once they close on the land, we obviously know their pricing. We know whatever incentives they're using, but we don't get to control it. And what we're seeing now and I'm sure you're aware of that, really kind of seeing different approaches. Some voters are looking just at price. Some builders are looking at interest rate buy downs. And there's really is no one answer and there is no one amount. What we're finding is which probably won't surprise you is that, it really varies a lot by product. There's some product that there is, as needs less work to sell, and some that needs a little more push. So there, I can't tell you there's one answer to that, but you're certainly right from your conversations with other builders. They all have become proactive in the market to continue absorption through. So, but it really varies a lot. And I have looked at Alan, and there really is, there was one answer, I'd give it to it. Everyone's got a different program.

And I guess, second question and this is just more thinking out loud here. So, but once he is still pretty early on in its lifecycle, you've got a lot of a lot of runway out ahead of you there. And I certainly understand not wanting to impair any of the values there by selling land at a price that you don't think it's too low. But on the flipside to just putting on like pretending I was at the homebuilder here, you guys are in a unique position because your land cost basis, in the near-term you're probably less focused on margin, for example, and more focused on cash flow and cash generation. So why not kind of lean into that, why not take a phase, maybe even Valencia and offer a discounted lot price to try to get the builders comfortable with, them being able to offer a product that's affordable in today's market and maybe ultra competitive? It would seem like it'd be a win-win. You would get the builders active and being able to build product at an affordable price point and also get some cash flow in your door during a difficult operating environment?

That's a very interesting thought. And having done this a long time and sold land through good times and bad times, you're absolutely right, we're going to need to be somewhat creative at times and proactive. But with what the often things we have today and what the communities that are that landed and sold, what I'm always trying to be sure we're doing is supporting the brothers are in place today. And so, I would not want to discount land to under price what's coming, but I think that there are some things we can do in the future current on this scope and scale of this kind of market correction. There's a lot of things around structure that I think we can do that allows us to continue to move land into work with the builders, but I always start with, how do I be sure that the builders that are in place and have land are successful.

Yes, that makes that makes a lot of sense. And I can understand that I'm just thinking maybe a project as large as Valencia is perhaps there's a way to offer a different product, different density, that was affordable and maybe not competitive to the land that that builders are currently building on and also finding a way to generate some activity during a softer period for the next year or two. So, it'll be interesting to see how you guys handle that.

What you just said would be key, if you truly could find a non-competitive different segment then you could work on that concept, but that really would be the key.

It's your stock obviously it's trading below book value. So, the markets not giving you credit for the value, the long-term value of the land here. I think it's telling you that they are concerned about the more of the shorter term cash flow generation. So, selling even land at potentially a book value discount, I don't think is necessarily going to be viewed negatively by the investment community?

There are some other thoughts out there that we are actually looking at, because even homes for rent, we are not in that segment out there, but there are a couple of folks we are talking to about that too. So that would be a totally different segment. And it could give us an opportunity to generate cash flow with not -- without hurting our current builders and maybe generating some future homebuyers. So, there are a couple of ideas out there that we are definitely looking at.

Great. Well, thanks for talking it through with me and good luck. And hope you guys all have a great holiday season.

[Operator Instructions] It appears there are no further questions at this time. I'd like to turn the conference back to Dan Hedigan.

Thank you. On behalf of our management team, we thank you for joining us today on today's call, and we look forward to speaking with you next quarter. And as Alan just reminded me, I can't believe it's almost November, so happy holidays to everyone, and we will look forward to seeing you in January.

This concludes today's call. Thank you for your participation and you may now disconnect.