Five Point Holdings, LLC (NYSE:FPH) Q4 2024 Earnings Call Transcript

Five Point Holdings, LLC (NYSE:FPH) Q4 2024 Earnings Call Transcript January 23, 2025

Operator: Greetings, and welcome to the Five Point Holdings, LLC Fourth Quarter and Year-End 2024 Conference Call. As a reminder, this call is being recorded. Today’s call may include forward-looking statements regarding Five Point’s business, financial conditions, 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 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 factor section of the 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 would like to turn the call over to Dan Hedigan, Chief Executive Officer.

Dan Hedigan: Thank you. Good afternoon, and thank you for joining our call. 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. Just to let you know, I’m getting over a small cold, so excuse my voice if it sounds a little different. Before I get into the business side of our call, I wanted to take a moment to express on behalf of myself and Five Point, our sadness for those affected by the devastating fires in Los Angeles. While our communities were not directly affected by the fires, our Valencia community is situated nearby the Hughes Fire near Castaic Lake that broke out yesterday, but has now been largely contained and evacuation zones never extended to our community.

Although our Southern California communities are further to the North and to the South of the areas affected by the Palisades and Eaton fires, we shared the deep sense of loss that permeates all of Southern California. Like many organizations and individuals, we have been working with public officials, agencies, and industry partners to assist the families impacted by these fires as well as the courageous firefighters and first responders who worked tirelessly to protect lives and property. Although our communities were not directly impacted, we fully expect to be part of the many solutions that will build a bridge to a better future for Southern California. Begin with philanthropic contributions. We are also well aware of the significant effort it will take for the County of Los Angeles and other relevant agencies to support the rebuilding of the affected areas.

Five Point will be there to support the County in its rebuilding efforts, as we expect that expedited actions and approvals will enable a swift response to current needs. As a company that is deeply involved in building fire resistant and resilient mixed-use communities, we stand ready to provide expertise and execution as needed. So with that said, let me begin. On today’s call, I will update you on our record-breaking fourth quarter and our year-end results. Additionally, I will review Five Point’s go-forward operating strategy, our team’s focus during the quarter, and then finally, our strategic priorities and expectations for 2025. Mike will then discuss the growth element of our operating strategy. After which, Kim will give an overview of the company’s financial performance and condition with guidance for the first quarter of 2025 and the full-year.

We will then open the line for questions. Turning to the fourth quarter. I’m pleased to report another very successful quarter for Five Point, as we continue to build a program of consistent profitability with a defined pathway to growth for our future. In the fourth quarter, we generated stronger than expected net income of $121 million, which is a record for quarterly income for us and is our seventh consecutive quarter reporting net income, as we remained focused on generating revenue, controlling our expenses and managing our capital spend. During the three months ended December 31, 2024, we are able to close all of our anticipated residential land sales. In Valencia, we closed four new home programs, totaling 493 homesites on 54.4 acres to four distinct builders for an aggregate purchase price of $137.9 million.

And at the Great Park, the venture closed five new home programs with 372 homesites on 32.2 acres to a single builder for an aggregate purchase price of $309.3 million. As a result of Great Park operations during the quarter, we received $121.5 million in distributions and incentive compensation payments from The Great Park Venture. Additionally, we had a singular commercial closing as a Gateway Venture closed on the sale of its remaining interest in the Five Point Gateway Campus during the fourth quarter and distributed proceeds to its members with Five Point receiving $17.2 million. Kim will discuss all these transactions further in his report. Even while achieving record net income levels, we remain disciplined and focused on managing costs and held our fourth quarter SG&A to $14.2 million and full-year SG&A to $51.2 million, which is flat year-over-year.

We remain vigilant about managing an excellent business with tightly controlled overhead even as we look to expand our business. In addition to managing our SG&A, we have carefully matched the expenditure of development dollars in close coordination with expected revenue recognition. This has enabled us to maximize cash generation. I want to thank everyone on our team as well as our partners at Great Park Venture who have been focused and supportive, as we have executed this critical element of our business strategy. Alongside our successful fourth quarter, I’m also happy to announce, the reporting record net income for the full-year of $177.6 million. We finished the year with total liquidity of $555.9 million comprised of cash and cash equivalents totaling $430.9 million and borrowing availability of $125 million under our unsecured revolving credit facility.

As we look ahead to 2025, we remain well positioned to continue executing on land sales to our guest builders at The Great Park Neighborhoods and Valencia. The completion of our rebalancing efforts in San Francisco has put us in a good position to start development of our Candlestick community, while the progression of our entitlements at Valencia positions us to extend our pipeline of homesites in that master planned community. Given our successful results in 2024, an expectation of continued success in 2025, we feel we are well positioned to move forward on implementation of growth initiatives to complement our three existing communities. These growth initiatives represent an expansion of the operating strategy we have been executing for the past four years.

Our expanded operating strategy now consists of four key elements: One, we will continue to operate and maximize value on our existing three premier master planned communities. Two, we will continue to carefully manage overhead even while we grow our bottom line. Three, we will continue to match development expenditures with revenue generation. And four, finally, we have begun to seek capital partners for new acquisitions through joint ventures to ensure a growing future for Five Point. To that end, our existing Great Park Venture model is one that we believe can be repeated for new acquisitions as we grow Five Point into a best-in-class asset lighter, land partnership and development company. We will discuss this in more detail later in the call.

So what does all this great work suggest for Five Point for the new year? We currently expect that our earnings for 2025 will exceed 2024. We expect to see earnings growth of approximately 10%, bringing us close to $200 million in net income with the caveat that our expectation is that processes within County of Los Angeles will function as we hoped going into the year. Our focus will be on building a platform that produces recurring earnings along with sustainable long-term growth. Kim will provide more detail about our guidance for 2025 during his remarks. I’d like to now touch on market conditions, and I’m pleased to note that we are able to achieve record-breaking 2024 results, even though the macroeconomic environment remains somewhat challenging.

Although the Federal Reserve has cut rates by 100 basis points in September, interest rates and inflation have continued to send mixed signals with key mortgage interest rates moving mostly higher during the quarter. We remain mindful of potential impacts to affordability created by mortgage rates. Most of our guest builders have been able to mitigate the impacts of higher rates through the use of a variety of incentive structures, including mortgage rate buy-downs. Although interest rates are a key data point in the housing market, California generally, and our community specifically remain in chronically undersupplied residential land markets, primarily due to California’s challenging and restrictive land use approval process. The devastating fires in Los Angeles County will only exacerbate the undersupply in Southern California as displaced residents look for alternative housing options.

We currently expect that there will be a relief from some of the restrictive approval processes to allow quicker access to available land inventory in our communities and across the state to assist with these housing options. We also expect that shortages of entitled land and existing home inventory will continue to drive strong demand for more homes from our builders. The commercial land side of our business continues to be more rate-sensitive in residential. Accordingly, given the depth of demand and values being driven by residential uses, we have been evaluating opportunities in The Great Park Neighborhoods to replan some of our commercial sites for residential use under City of Irvine recently adopted Reno program. We will have more to report on this effort in the coming quarters.

Let me now provide you with some updates on our communities, starting first with The Great Park Neighborhoods. As a reminder, The Great Park is the most mature of our communities and its ongoing contribution to our financial results reflects the benefits that we and our Great Park Venture partners are receiving from the investments made in this community in prior years. During the fourth quarter, builders in our Great Park community sold 143 homes versus 166 in Q3. This decrease in sales was primarily attributable to seasonality. We currently have 14 actively selling programs in The Great Park Neighborhoods with five additional programs planned to open later this year. With the existing and future planned programs, we will be able to continue to offer a wide variety of housing options in Great Park Neighborhoods.

In addition to high levels of homebuyer interest, we are still seeing strong demand from builders for our land at The Great Park. We have finalized contracts with three builders for five different residential programs, that are planned to close in the first half of 2025. Four of these sales are currently planned to close in the first quarter and the final one in quarter two. The contracted sales prices are consistent with or higher than our most recent sales. As discussed on our last call, we have also completed the bidding process for a group of nine new residential programs totaling 572 homes. Builders are completing due diligence with the expectation that these land sales will close in the fourth quarter of this year. We received strong interest in all nine programs and awarded the sites to six different builders.

The offered sales prices are also consistent with or higher than our most recent sales. As I mentioned earlier, the City of Irvine completed state-mandated Reno general plan and zoning updates for The Great Park planning area, which provide The Great Park Venture with the opportunity to convert some or substantial portions of its remaining commercial land holdings to residential uses. We are continuing to study these options and have initiated discussions with the city to consider residential uses consistent with the Reno program adopted by the city. Next, I’ll move to Valencia, our other active community. As a reminder, Valencia is in the early stages of its development, it still has many future phases of land delivery ahead of it, which will enable us to provide much needed housing in the Los Angeles market.

During the fourth quarter, home sales remained relatively steady after accounting for seasonality, as our guest builders sold 74 new homes versus 89 in Q3. During the fourth quarter, two programs sold out in Valencia, and we now have six builder programs open and actively selling. Additionally, from the land we sold at the end of 2023, there are seven programs that we anticipate will open during 2025, offering a greater diversity of home offerings for prospective homebuyers. As I mentioned, we closed all of our projected land sales for the fourth quarter. During the first quarter, we will take approximately 200 more homesites to market, anticipating that those sales will close towards the end of the year. As we look at our next phases of development at Valencia, we continue to work for Los Angeles County and other agencies on approvals to allow us to deliver thousands of additional home sites in the counties severely undersupplied market.

One of these development areas is known as Entrada South, which is expected to consist of approximately 116 net acres, a residential land over 1,300 market-rate homesites and approximately 44 net acres of commercial land. Another development area is Valencia Commerce Center, which is expected to include approximately 139 net acres that cater towards industrial-focused uses anticipate the County approval of these development areas later this year. We are also concurrently processing additional approvals of County under statewide pro housing legislation for three other development areas that are planned to provide approximately 7,600 homesites to this very supply-constrained market. As part of the approvals in these new development areas, we will continue to implement fire resistance and fire mitigation strategies like we have been doing in our master planned communities for many years.

These strategies are typically designed to mitigate wildfire risk, and have proven to be successful in protecting homes in these master planned communities from the unfortunate devastation we have recently seen in older communities. Turning to San Francisco. The city and county and other applicable regulatory agencies have given final approval to our plan to rebalance the entitlements between our two San Francisco communities, Candlestick and The Shipyard. We are excited about the near-term possibilities of Candlestick and we have commenced engineering for the initial phase of infrastructure, with the expectation of starting construction early next year, allowing us to unlock the value of the spectacular bayfront land in the City of San Francisco.

Let me conclude by saying my optimism about the future of Five Point continues to grow. Our fourth quarter and year-end results represent our continued focus on three main priorities: generating revenue and positive cash flow, controlling SG&A and managing capital spend to match near-term revenue opportunities. Execution on these key priorities has resulted in a stronger balance sheet and growing liquidity. As a result, we are able to focus more attention on growth opportunities as we continue to work towards an asset-lighter land partnership and development model. Now let me turn it over to Mike, who will discuss Five Point’s growth opportunities.

Mike Alvarado: Thanks, Dan. Let me briefly report where Five Point sees opportunities to grow our business. As Dan noted, with the success of 2024 and our expectations for 2025, Five Point is now in the enviable position of pursuing growth opportunities. And as much as homebuilders are following the path of growth in population and job centers, they continue to implement longer-term land acquisition strategies. These longer-term land acquisition and development projects do not lend themselves to a land-light strategy that a number of publicly traded homebuilders are now gravitating towards. This dynamic gives Five Point the opportunity to work alongside the builders in these paths of growth in a win-win scenario that allows builders to follow their land-light strategy in Five Point to play to its strength in our land development business.

Our current communities fit this longer-term land profile and that is where Five Point and its management team have a unique skill set in where we have been executing for many years. This is our four business, where we bring our entitlement and land development expertise to the [indiscernible] and everything we do. These assets are once that often have value-add opportunities like we have done at The Great Park, taking in original master planned entitlement from just over 3,600 homesites to over 10,500 homesites or at our San Francisco asset where we recently extended our tax income and financing by over 30 years and modified our entitlements to allow for the shifting of 2 million square feet of R&D and life science base from one development area to another to meet market timing and demand.

Because of our execution on such large-scale projects, as well as our ability to leverage our existing relationships with the public homebuilders with whom we regularly engage, we will have the opportunity to expand this part of our business. Indeed, Five Point has all the infrastructure in place to expand this part of our business, leadership, purchasing and contracting, land development, financing, accounting, legal, et cetera. That said, new acquisitions do not necessarily need to be at the same size or scale as our existing communities. While the public builders are following the path of new growth in certain markets, there is substantial demand for housing in existing urban areas where housing demand has greatly exceeded supply. To that end, we have already been seeing opportunities for value-add land acquisitions that are infill and thus smaller in scale.

The re-purposing of land and housing constrained areas will be a market on which we focus. Whether an infill site or a new development area, we likely will be targeting opportunities that are more mid-term land holdings versus the much longer hold periods required for large-scale master planned communities. Given the now urgent need for housing in Southern California markets and with our expertise and the expedited approval processes needed for new housing, we can add value to the public agencies and community in order to facilitate this much needed housing. As you have heard us discussed in the past, we believe The Great Park Venture business model is one that can be repeated, not only within our other existing communities, but also in future projects as we consider the growth of Five Point.

To remind you, this model is one in which we own an equity interest in the venture, provide management services to the venture and have the ability to earn an incentive promoted interest for excellent performance. Bringing in capital partners reduces our capital investment and gives Five Point opportunities to move to an asset-lighter balance sheet model under a well-crafted partnership program. Management fee income should be offset – should offset our SG&A and the promoted income interest aligns our interests while embedding a system of accountability to drive performance. We have a proven track record with the Great Park Venture, whose members have seen rising returns over the last several years, driven by a combination of our management of the asset and the active engagement of the partners.

We believe this is a business model that we can take advantage of, as we look at other opportunities for future growth of the company. While we don’t have any transactions to report at this time, we anticipate sharing new opportunities with you before the end of the year. To assist us in sourcing new capital and structuring potential joint ventures, we have extended the engagement of our former CEO, Emile Haddad, under a modified incentive base consulting arrangement. As Founder, Chairman Emeritus and immediate past CEO of Five Point Emile has a unique and deep understanding of Five Point and the markets in which we operate. Additionally, in his role as Lennar’s former Chief Investment Officer, Mr. Haddad oversaw Lennar’s land investments and led construction of joint ventures such as Heritage Fields, the venture that is the owner and developer of the Great Park Neighborhoods in Irvine.

Between sourcing capital providers in the land development space and bringing his expertise in structuring these arrangements, we expect Mr. Haddad to help accelerate Five Point’s growth strategy prospects over the next few years. Now let me turn it over to Kim to report on our financial results for the quarter.

Kim Tobler: Thank you, Mike. As Dan and Mike have shared, we finished an exciting year well and are positioned to grow in the coming years. I’m going to review our fourth quarter and annual results for our fiscal year ended December 31, 2024. And then I’d like to give you some additional background regarding the Gateway Commercial Venture sale of its remaining interest in the Five Point Gateway Campus. And then I will conclude with the trends we’ve seen from 2022 to 2024 with some guidance of what we are expecting in 2025. In the fourth quarter, we recognized $121 million of net income. This was made up of the following components; $137.9 million of residential land sales at our Valencia project, we are reporting a 34.7% gross margin, which results in the cost of sales of $91.1 million.

We also had $21.4 million of management services revenue, $18.3 million of that, which is associated with the incentive compensation from the Great Park. Our fourth quarter SG&A was $14.2 million. And we recognized $87.5 million of equity and earnings from our unconsolidated entities, $74.6 million from The Great Park Venture and $13 million from the Gateway Commercial Venture. The equity and earnings from the Great Park Venture was attributable to net income of $217.7 million, which resulted from land sales revenue of $309.3 million and a 75% gross margin. The equity and earnings from the Gateway Commercial Venture is attributable to the sale of the remaining building and other interests that I will discuss in more detail later. Finally, we recognized $18.8 million of tax expense.

Now moving to our 2024 annual results. As Dan mentioned, 2024 was more successful than 2023, and we are seeing the fruits of the focus and discipline that we have been exercising these last few years. For the year 2024, we recognized $177.6 million of net income that is made up of the following components; $137.9 million of residential land sales at our Valencia project and we’re reporting the 34.7% gross margin, which results in cost of sales of $90.1 million. We also had $96.4 million of management services revenue, $84 million of which is associated with the incentive compensation from The Great Park. 2024 SG&A was $51.2 million, which was slightly less than the 2023 SG&A of $51.5 million. We recognized $132.6 million of equity and earnings from our unconsolidated entities, consisting of $119.8 million from The Great Park Venture and $12.3 million from the Gateway Commercial Venture.

The equity and earnings from The Great Park Venture was attributable to net income of $349.2 million, which resulted from land sales and price participation revenue of $572.1 million, and a gross margin of $429.1 million. Additionally, we recognized $27.5 million of tax expense. Now a few words about our liquidity and cash. As Dan mentioned, we ended the quarter with $430.9 million of cash, as well as $125 million of availability on our revolving credit facility, resulting in total liquidity of $555.9 million. At the end of the quarter, our debt to total capitalization was 19.6%. Now let me turn to a little more detail about the Gateway Commercial Venture and our sale. You may recall Five Point owns 75% of the Gateway Commercial Venture with two of our three other partners in The Great Park Venture.

The Gateway Commercial Venture acquired the campus from Broadcom in August of 2017, which included two completed buildings that Broadcom intended to occupy, and two partially completed buildings they did not intend to occupy for a total of approximately 1 million square feet of research and development and office space – for $443 million or $426 per square foot. The Gateway Commercial Venture made the purchase pursuant to a repurchase option that the Great Park Venture had retained when sold the underlying land to Broadcom in 2015 and later assigned that right to The Gateway Commercial Venture. Following the purchase, subsidiaries of Five Point and the Lennar Corporation leased three of the four floors of one of the unfinished buildings. At the time we entered into the Gateway Commercial Venture, it was an opportunistic investment that was consistent with statements that we had made that we might retain a portion of the commercial or multifamily properties in our communities as income-producing assets.

Over the course of holding this asset, we have been presented with a number of opportunities to monetize our investment. As you may recall, in May of 2020, the venture sold the remaining unfinished 181,000 square foot building to City of Hope for $108 million, which they converted into a world-class cancer treatment center. City of Hope also acquired the right to build a cancer hospital adjacent to the cancer treatment center. In August of 2020, the venture sold the two buildings occupied by Broadcom, a combined 64,100 square feet to an investment group for $355 million. The sale of the final building of which we are a tenant in December of 2024 to City of Hope, completes the monetization of the venture’s investment in the campus. The sale included the final 189,000 square foot building and the ability to build up to an additional 189,000 square feet of improvement within the campus, depending upon the specific uses.

The consideration for the property was $45 million in cash and a secured interest-bearing note of $43.5 million due in two years for total consideration of $88.5 million. At the time of the sale, the property was subject to a mortgage of $28.8 million, which was retired with the cash proceeds. Even while the commercial office market remains depressed, the implied cap rate for this sale was 5.2%. For the life of the overall investment, we have achieved a levered IRR just under 17% and the blended sales price per square foot for all of the buildings was $550 compared to the acquisition price per square foot of $426. Since the Gateway Commercial Venture was the only asset in our Commercial segment, we are now eliminating that segment. This doesn’t mean we will never invest in operating properties again, but it isn’t a priority at this time as we prepare to expand our Horizontal Development business.

I hope that this is helpful in understanding the sale of that asset. Now I’d like to take a moment to review what we have accomplished financially over the last couple of years. At the end of 2022, we reported a $34.9 million net loss and finished the year with $131.8 million of cash and senior notes of $625 million. For 2023, we reported $113.7 million of net income and finished the year with $353.8 million in cash and senior notes still of $625 million. This year, we are reporting $177.6 million of net income. We paid our senior notes down by $100 million to a balance of $525 million, and are ending the year with $430.9 million of cash and total liquidity of $555.9 million. We believe that our hard work and focus are truly paying off, and as Dan and Mike have suggested, we are now on our front foot and preparing to grow while still exhibiting the same work ethic and focus.

What makes me even more excited about our current position is what I’m about to share about our expectations for 2025. As Dan mentioned, for 2025, we currently expect to exceed the net income we are reporting for 2024 by approximately 10%, bringing us close to $200 million for the year, and expect to continue our quarterly profitability in Q1 of 2025 with $40 million to $50 million of net income. For the year, we are expecting Valencia’s contribution to net income to be slightly less than 2024 and occurring late in the year. This is, of course, subject to L.A. County’s ability to participate as we have expected in the process of approving plans, performing inspections and the like. While it is still early to draw any conclusions regarding impacts from the fires, I am confident that the county will take seriously the need to quickly gear up to keep the housing pipeline moving, after they have dealt with the immediate critical needs that the active fires require.

In 2025, we are expecting the majority of our earnings to come from our investment in and management of the Great Park Venture. That contribution will be coming from the future sales beginning in Q1 that Dan gave color on in his comments, and from the continuing price participation at the Luna Park Neighborhood that I have discussed in the past, which is expected to be closing homes through 2025 and finishing in early 2026. Finally, I’m certain that you are interested in what we expect to do with the cash that we have accumulated. While we continue to review our options and to monitor market conditions, but at this time, it is our expectation that we will pay down our senior notes by $100 million to $200 million before the end of the year. With that said, we still expect to have sufficient cash flow to maintain our development at Valencia begin our development at San Francisco and invest in our growth activities.

I hope you can tell how excited I am for what 2025 and beyond hold for us. With that, let me turn it back to the operator, who will now open it up for questions.

Q&A Session

Operator: Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Alan Ratner with Zelman & Associates. Please proceed with your question.

Alan Ratner: Hey, guys. Good afternoon. Wow, congrats on all the progress this year. It’s really amazing what you guys have been able to do here in terms of the consistency now of the cash flow and the income. It’s great to see. I’m happy to hear that you guys at least were not directly impacted by the fires, and I think it makes a lot of sense that your projects could be potential beneficiaries of the rebuild or at least a role in that process. I am curious, though, just in terms of – I know it’s early, but you’ve – Dan, you flagged the challenges of insurance in the state of California in the past. I think you even mentioned one quarter or two ago having to kind of rejigger a little bit some of the attached versus detached split of your business in Valencia.

And I’m just curious, based on your conversations you’re having so far, whether you think that this unfortunate event would be a catalyst for further tightening of that insurance market and potentially create some challenges for you guys as well as obviously the homebuilding community within California going forward?

Dan Hedigan: Well, thanks, Alan. Insurance is obviously going to be a question that’s abated a lot in the State of California. And you’re right, because of insurance availability, we have moved away from our builders have really moved away from large tax buildings where multiple units could be at risk to nothing more than a duplex just because the insurance market available for those products for motor courts, traditional SFD, there have not been an impact to the market at all. So the – it’s critical that California has insurance, and we do think that the state is going to be carefully managing that to make sure that insurance is available. The thing that we still are very unique, we’re – our master plan communities through any number of incidents in Southern California have really proved the test of time that the design the fire hardening, the fire resistance that is built into these communities has worked.

And so that realization, we are hopeful will help keep us moving forward. And as you said, there’s a lot of devastation, there’s a lot of lost homes. We’re actually in the position that we could build additional deliver additional land in our master planned communities, which have all of the most recent thinking around how do you build in California, which has a wildfire zone. Once again, there’s numerous recent situations where all these new communities have held up extremely well. So right now, we think we’ll be okay on the insurance side, although I do think that our product will stay to focus on individual insurance policies as opposed to large buildings.

Alan Ratner: Got it. That’s helpful. Dan, appreciate that. Second, the growth opportunities here, I think, is obviously what everybody has been waiting for, for a long time and diversifying the asset base, but also kind of providing that roadmap for sustainability beyond Great Park whenever that project sells through. I know you mentioned kind of the infill opportunities, but I’d love to just drill on – if possible a little bit on San Francisco more so and just better understand the strategy there? It sounds like you guys are ready to start putting some shovels in the ground here in 2024 unless I misinterpreted that. But I’m just trying to understand how you’re thinking through the initial capital outlay that’s going to be required before you start getting dollars back in.

I think you kind of mentioned maybe some more asset-light strategies or joint venture partners. Is it possible at all to just put some dollars to all of this so we can better understand what the outflows might look like in the near term and then when the inflows do start, how that can flow through?

Dan Hedigan: Well, Alan, let me start off by being sure – if I was clear. Right now, we are – by the way, we are very, very happy with the support we got from the County of San Francisco, The City, The Mayor’s office, they were very supportive in have getting us well positioned to start that project. So we actually had previously had the design for the first phase. And the first phase is infrastructure to give us flat pads. It opens up a large commercial site and then multiple residential sites for development. So when we think about that – and once again now we also have flexibility. We have flexibility to go faster in commercial, slower in commercial, faster on housing. But our initial focus is engineering this year and then early next year, assuming we have all our permits, we’ll start with that first phase of infrastructure.

And we’re going to be focusing completely on the horizontal and from a cash perspective, we’re in a position to finance the horizontal development. But then we also have lots of opportunities on how to approach the vertical. And so we haven’t decided what the best answer is there. We felt that it was really important to get the rebalancing done because we think that, that gives us the best value position on that asset. So at this point, just think about it as we’re going into construction in 2026 – the first phase will take at least 12 to 18 months to complete that first phase. So we’ll be in the market sometime after that and seeing where that horizontal market is. We think there’s a lot of opportunities up there.

Alan Ratner: Great. Very helpful. Thank you very much.

Operator: Thank you. Our next question comes from the line of Robert Heimowitz with Concise Capital. Please proceed with your question.

Robert Heimowitz: Hey, guys. Congrats on the results. I just wanted to ask about the notes. They’re set to go to a 12% coupon at – when they were originally set to mature on 11.15%. So I’m just wondering how you think about them with – it feels like maybe some cash is leaking outside of the system with such an asset-heavy company, with so much cash? Like how do you think about addressing them? Like are you thinking of a refi or you just want to get the balance down first and then think about it?

Kim Tobler: Yes. Robert, it’s good to talk to you. This is Kim. And first of all, it goes to 11% in November of this year and then 12% the following year, just to be clear. But with that said, we’re actively looking at the possibility of a refinance. I can’t commit to that we’ll be doing something like that, but we’re watching the prices. The tenure has been not necessarily accommodating us. But I will tell you that given our financial position at this time, we think we’re a better credit than the bonds reflect right now. And it would be my expectation to take advantage of that in the market, when it’s appropriate to do so. And we’re – we’ll discuss that with our Board and other advisers and make sure that we’re doing the right thing. But either way, whether we do a refinance or not, we think it’s prudent to pay down the notes even with the premium that they carry today perhaps.

Robert Heimowitz: Okay. Thanks for the correction there. So just a quick follow-up on the new ventures. Is there any intention to put even, I don’t know, even a small amount of capital into them as a way to show like alignment as a sponsor or – or how are you thinking about these growth opportunities?

Mike Alvarado: This is Mike Alvarado. Yes, we would expect to have some equity investment in these ventures, probably not as large as what you see with the Great Park where we have a 37.5 percentage interest – ownership interest. But yes, we would expect to have some equity position in them.

Robert Heimowitz: Okay. Thanks, guys.

Operator: Thank you. Our next question comes from the line of [Andrew Acon], a Private Investor. Please proceed with your question.

Unidentified Analyst: Thanks guys and really good quarter. I guess my question goes back to demand, at Valencia. And we really haven’t seen sales greater than 100 homes a quarter, and you appear to be selling lots, obviously, a lot quicker than that. Can you talk about like why you think the demand hasn’t picked up? And also, have you guys seen any impact from Chiquita Canyon at all?

Dan Hedigan: Andrew, thank you for the question. So on this question of absorption, one of the things that in a master planned community, six active programs is actually pretty small. And the – I would tell you that one of the things we really need to do there is get some of the new programs open, because I think that gives a lot more product options to people. So I agree with you that we haven’t seen a lot of sales, but we haven’t had a lot of availability of programs either. And once again, the programs are – you got to have the right program right for the buyers, a whole diverse group of buyers that would be going up there. So we think that with the additional homes, our programs will be opening up this year. And you’re right, we’re putting – we put lots out there ahead of time.

But generally, it’s taking about a year for a builder to close on land and to be in a position to enter the market with new product. So there’s kind of the cycle that we really need to kind of get kick-started up there with a robust offering. So we’re in the process of making that happen. And on your question on the landfill, we have not seen an impact. And I don’t know that you have heard, but it’s our understanding that the landfill has closed down as of December 31.

Unidentified Analyst: Yes, that’s what they have on their website. Okay. And so are you talking about buying back – settling some of the debt and paying the 2% premium before November of this year?

Kim Tobler: Yes, Andrew, we’re considering that. If it’s – again, if we can save money by paying down the debt and paying less for the year and total interest cost, we’ll consider paying the [102].

Unidentified Analyst: Okay. Thanks a lot guys. A lot of good quarters. Thanks a lot.

Dan Hedigan: Thank you, Andrew.

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

Unidentified Analyst: Hi, guys.

Dan Hedigan: Hi, Myron.

Unidentified Analyst: Hi. Nice – well done. That’s what I could say. You had a phenomenal year now.

Dan Hedigan: Well, that’s high praise from you, Myron.

Unidentified Analyst: Well, I’ve been believing in you and so forth. I have a question, it’s a little retro is – what happened in the Hurst fire that was south of the newhall property or the Valencia property, a couple of weeks ago?

Dan Hedigan: Yes, it was a South and West of us.

Unidentified Analyst: And the Hughes fire, this new Hughes fires to the Northwest?

Dan Hedigan: It’s North and East. Yes, I’m sorry. Yes. It was South and West and North and East.

Unidentified Analyst: Right. Okay. All right. So we talked about San Francisco, you’re trying to expand Valencia, and again with the bonds because you’re paying out a little over $50 million in insurance. So I guess – I just add my vote to I hope that you’ll be able to find a favorable refinance, especially since the company will be so will be relatively liquid you ought to be an awfully good credit by now by the end of the year, let’s say, by the middle of the year.

Dan Hedigan: That’s our expectation, Myron. We believe our credit profile has dramatically changed and that we can do better in the market. Right now, we need the market to understand these fire events because people are a little skittish about residential in California. But we think as it come to understand how the new communities are built and that this is actually something that needs to happen in the state to move forward.

Unidentified Analyst: Okay. I mean, frankly, I’m surprised, I mean, I guess, or surprised and skeptical because it seems to me that the present – the rate of sale of houses in L.A. County right now is probably heading towards zero, because people are, as you say, skittish and so forth, but I guess, hopefully, some kind of new order will emerge and they’ll – you’ll be able to take advantage of it?

Dan Hedigan: I think we will, Myron.

Unidentified Analyst: Yes. As far as San Francisco is concerned, I mean – if you provide the infrastructure and you’re doing the horizontal development, and somebody comes along, who wants to do the vertical, it seems to me that you ought to be able to wangle a small equity interest without a capital contribution?

Dan Hedigan: Well, I’ll tell you, we’re looking at all those options.

Unidentified Analyst: Okay. Well, all right. Well, you guys got some great moment. I think it’s well done and impressive. Thanks for taking a top job.

Dan Hedigan: Thanks, Myron.

Kim Tobler: Thank you.

Operator: Thank you. There are no further questions at this time. I’d like to pass the call back over to Dan for any closing remarks.

Dan Hedigan: Thank you. On behalf of our management team, we thank you for joining us on today’s call, and we look forward to speaking with you next quarter.

Operator: This concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.