Robert Wetenhall - EVP, Capital Markets Emile Haddad - CEO Erik Higgins - CFO

Stephen Kim - Evercore ISI Michael Eisen - RBC Capital Markets Paul Przybylski - Wells Fargo Alan Ratner - Zelman & Associates Tim Daley - Deutsche Bank

Greetings and welcome to the Five Point Holdings Fourth Quarter Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. Before I turn the conference over, I would like to read the following forward-looking statements. Thank you and good afternoon. Today's conference call may include forward-looking statements including statements regarding Five Points' business, financial condition, results of operations, cash flows, strategies, and prospects. Forward-looking statements represent only Five Points' estimates on the date of this conference call and are not intended to give any assurance as to actual future results. Because forward looking statements relate to matters that have not yet occurred, these statements are inherently subject to risks and uncertainties. Many factors could affect future results and may cause Five Points' 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 Points' SEC filings, including those included in the Risk Factors section of the most recent Quarterly Report on Form 10-Q filed with the SEC. Please note that Five Point assumes no obligation to update any forward-looking statements. I now would like to turn the conference over to Mr. Bob Wetenhall, EVP of Capital Markets. Please go ahead, sir.

Good afternoon. Thank you for joining our fourth quarter and 2017 year-end conference call. I'm here this afternoon with CEO, Emile Haddad; CFO, Erik Higgins; Chief Legal Officer, Mike Alvarado; Chief Policy Officer, Greg McWilliams; and our Co-COO's, Kofi Bonner and Lynn Jochim. I'm going to hand it off to Emile who will provide a brief recap of 2017 and our outlook for 2018 after which Erik will provide additional detail regarding our recent financial performance, as well as an update on liquidity. We'd like to ask during the Q&A portion of the call that you limit your questions to one question and a follow-up so we can accommodate as many people as possible.

Thanks, Bob and welcome everyone. 2017 was a transformational year for Five Point. We raised $420 million when we completed our IPO and private placements in May, and then another $500 million of capital when we issued senior notes in November. These transactions have put us in a strong financial position where we are fully funded in terms of being able to meet our land development fees. Erik will elaborate more on this later but I want to emphasize that Five Point is now a much stronger company than it was even just a year ago. We also had a lot of operational success last year including continued development at the Great Park and the start of development activities in Newhall. Our residential efforts were complemented by our entrance into the commercial markets with the acquisition of a 75% interest in Five Point Gateway, which is a $1 million square foot commercial development [ph]. We finished the year on a high note with lots of momentum. 2018 has gotten off to a good start, K4 [ph] remains solid and is a specialist on in the three markets in which we operate. Limited residential construction activity resulting from land constraints has also created a tight housing market. We think the combination of vibrant job growth and limited housing supply in San Francisco, Los Angeles and Orange County will create tailwinds that support sustained home price appreciation and a continued increase in the value of our land portfolio. In the Great Park, consistent demand since the beginning of the year gives us confidence that the spring selling season will be a rewarding one for home owners. We are more than 90% sold at Parasol Park, and the bliss pace of sales bodes well for Cadence Park, our newest neighborhood that opened earlier this month with our Great Park venture that has already delivered a 1,007 home sites to 8 builders. We also expect to have additional residential land sales in 2018. Switching to Newhall, we have continued with our development activities and currently expect to start delivery in Mission Village sometimes towards the end of 2019. The opening of Mission Village which is approved for upto 4,055 home sites and approximately 1.6 million square feet of commercial development should benefit from the robust job growth and the limited availability of home sites in Los Angeles County. In San Francisco we are moving forward with our land development activities. Our design and development program for residential, retail and commercial users continues to be refined with a focus on the canvastic [ph] portion of the community. Finally, our efforts to secure approval for an additional 2 million square feet of office space remains underway and we expect the process -- we conclude sometime before the end of 2018. With that, I'd like to turn it over to Erik to discuss our financial performance.

Thanks, Emile and thanks again to everybody joining us this afternoon. A summary of our financial results was included in the earnings release issued earlier this afternoon. First quarter financial performance reflects the continued investment in our communities. As a reminder, our Newhall and San Francisco communities are wholly owned and are consolidated on our financial statements while the Great Park venture and the Five Point Gateway venture are unconsolidated entities which are accounted for under the equity method of accounting. Fourth quarter results included material reduction in the liability recorded for our tax receivable agreement to reflect the passage of lower corporate taxes in December. This change is estimate for the tax receivable agreement runs through our statement of operations. I also want to remind investors that Five Point raised nearly $1 billion in fresh capital in 2017 as a result of our IPO in May, the issuance of senior notes in November and expansion of our corporate revolving line of credit. Our operating results for the quarter included consolidated revenues of $22.3 million generated largely by the sale of two non-core residential land parcels, the collection of management fees and revenue from our golf and agricultural operations. The Company did not sell any lands at Newhall Ranch or the San Francisco shipyard and Candlestick Point during the quarter. Our investment in unconsolidated entities which consists of our 37.5% interest in Great Park venture and our 75% interest in Gateway Commercial venture decreased by $11.8 million for the quarter. This was primarily related to the Great Park ventures recognition and accrual of incentive compensation management fee expense for services provided by the Great Park ventures managers. The Great Park venture did not sell any land during the fourth quarter. Our investment in Gateway Commercial venture was unchanged. In terms of operating costs corporate and divisional SG&A was $30 million for the quarter. As I mentioned earlier, we recalculated the liability of tax receivable agreement using a lower corporate tax rate due to the recent tax reform legislation which was passed in December. Going forward, our blended federal and state tax rate will decrease from 41% to 28%. As a result, the TRA liability decreased by $105.6 million from $258 million down to $152 million. This change in estimate runs through our statement of operations. For the fourth quarter, the net income was $81.9 million driven primarily by the impact of the $105.6 million decline in the liability associated with the TRA. The net loss attributable to the non-controlling interests totaled $13.4 million. As a result, net income attributable to the Company was $95.3 million. I want to conclude by discussing liquidity and our capital position. At December 31, 2017 we had total liquidity of $972.5 million comprised of our cash balance of $848.5 million and borrowing availability of $124 million. During the fourth quarter, our cash balance increased from $386.9 million to $848 million. The large increase reflects the issuance of $500 million of senior notes in November of 2017. Our $125 million unsecured line of credit remains available except for $1 million of undrawn letters of credit. We currently expect to have sufficient liquidity to fund horizontal development within our communities in accordance with our development plans without the need to access the capital markets. Our capital raising efforts last year have enabled us to move forward with this development program without straining liquidity. Finally, total capital at the end of the fourth quarter was $1.9 billion and our debt to total cap ratio is approximately 24% at the end of the year. With that, I'll turn it over to the operator.

[Operator Instructions] Our first question comes from the line of Stephen Kim from Evercore ISI. Please proceed with your question.

I guess my first one relates to San Francisco, we understand you've been shifting the priority there [indiscernible] portion. I was wondering if you could give us little bit of a catch up on how the developments have been going there with respect to clean-up and just how we should be thinking that might affect the cadence of deliveries over the course of the next few years?

Just to remind everybody, the issue of the clean-up is only applicable to the Hunter's Point at Shipyard site, not to Candlestick. And as you know, we have been in the business of redevelopment of Navy bases for 20 years and this comes up sometimes where there is some delay. So we've always maintained flexibility of moving phases around to in contemplation of something like that. The shift to Candlestick is because we have no issues of cleanup in Candlestick because we're putting a lot of infrastructure in Candlestick and that will allow us now to move forward without any disruption of our business plans as we wait for the navy to complete it's obligation and deliver the parcels [ph].

So in terms of the amount of revenue that you might expect to recognize over the course of the next several years, is there any change to that as you have shifted more of the focus to Candlestick or is it pretty much going to be -- and I should also add not just the revenues recognized but also the cash outlays required; is there going to be any change to that net numbers -- those net numbers?

There will be but they will be to the positive when you look at it from a net cash point of view. We have spent a lot of time with Kofi and his group on making sure that when we are putting the infrastructure, the infrastructure is optimized; and as a result, I think we expect to have less outlay and the revenue from Candlestick will probably increase, not decrease. So I can't give you a number right now because we're in the middle of all of that but I can tell you that it's going to be more -- more actually optimized than we have before.

Thank you. Operator, next question please?

Our next question comes from the line of Michael Eisen from RBC Capital Markets. Please proceed with your question.

Just wanted to add a quick question; your liquidity position is very strong and you guys continue to make good progress on that [ph]. Can you talk to a little bit about where you fit from a development standpoint; how your current funds under that cover that and what would cause you to win additional capital rates to be able to help the development?

Right now as we've stated, the capital we have -- the liquidity we have, we expect that to cover us for all of our land development activities and all the assets. Unless something changes, our need to grow -- raise capital will be more for strategic reasons, whether we want to go ahead and raise capital for any vertical opportunities or things like that, that's something that we really evaluate as we go but for land developments, we have the liquidity that we need to move forward through our plan.

And then just following up on those comments and thinking about the strategic position you're in and some commentary around your ability to get additional entitlement. Have you guys been looking for any change in the original entitlement plan? Have there been any additions to what the lot size are of the three communities and is there any potential for more vertical development on these communities in the next couple of years?

I think 3 different questions. One is, in terms of the entitlement, we're always looking for opportunities to make sure that our entitlements match market fees and that's one of the benefits we have. When you talk -- ask about editors, as I said, in San Francisco we are going through that process right now with the city. We expect that sometimes before the end of the year we'll add 2 million square feet of office entitlements to what we have right now. In terms of lot sizes and configuration, that's something that we visit in real-time every day to make sure that we are catering to the widest base buyers in the market and we are optimizing the value of our land. And I think that was the -- last one on vertical. The answer is yes, you should expect that we're going to be talking more and more about us going vertical on the income producing side [indiscernible].

Our next question comes from the line of Steven [ph] from Wells Fargo.

First question I have is on Newhall; is there any update on maybe the number of lots that you expect to sell next year or the revenue that could generate?

No, we're not in a position to give exact numbers yet. I think that as I said, our first Village is approved for 4,055 home sites and 1.6 million square feet of commercial. And we are right now 7 months into land development and until later in the year we really won't be able to get a good feel for exactly how many home sites we will be delivering but we know that we will have deliveries next year unless we end up with rainy season that's not expected next year. And -- but I can't tell you exactly the number of contacts here.

Okay. And then, do you have any expectations on the delay for the latest conveyance in Orlando and San Francisco?

No, as I said, I mean -- we -- what we did with the potential delay as we shifted our focus to Candlestick and really none of these parcels that are subject to this potential delay are in our business plan, and more in the near future we shifted all of that to Candlestick and therefore we're going to let the navy go through it's issues and we will take the land when the land is ready and signed off why everybody.

Finally, I just have a book-keeping question. With regards to the interest on your new debt, how should we think of the breakout of that that will be capitalized versus directly expensed quarterly or will you be able to capitalize all of it?

Yes, we'll be capitalizing all the interest expense.

Our next question comes from the line of Alan Ratner from Zelman & Associates. Please proceed with your question.

First one just on development spend; do you have a final number for '17 on what you spend on development at Hunter's Point and Newhall and a forecast for '18?

No, we don't and I don't think we are planning to give these type of breakdowns going forward, I list that already in the financials of the…

I think -- well, insurance for the year at Newhall, I think there are additions to inventory of about $85 million and at San Francisco they are about $65 million, right around there? And that's a different inventory.

Right, but since there were no sales there that we should think about that as development spend, right?

So we had a large sale in San Francisco, so the cost of sales on that was a little over $80 million. So the numbers that I referenced to you were the additions to inventory, the changes in inventory would have the cost of sales.

And then just two more kind of book-keeping ones; just on the May search [ph] JV, is the change there -- I would imagine it's not because that's a Candlestick but does that affect the timing at all of that joint venture?

It could affect the timing and we are in real-time in discussions with May Search [ph] on the retail configuration. It's not a secret that the retail world has gone through some major shifts and we want to make sure that what we're doing is actually something that's going to work for the future and we feel like we have a partner who is best in reading that well and we look to them to help us understand that but some of that redesign and some of the rethinking might have an impact on the timing.

And final question, just a little bit more strategic; given tax reform and the moving rates that we've seen -- although we've seen some moderation more recently, just curious as you think about the next phase at Great Park and maybe the first phase at Newhall; are you changing your thinking this far as either lap sizes or product type based on more concern over affordability at all or have you not seen any impact from that?

Well, I think we're always looking at the size of -- and the configuration of our home sites in our homes with an eye on affordability. We haven't reached a point of real concern yet in our markets, it's notwithstanding the fact that we are starting to see some real price escalation. But if you see what we've done at the Great Park, you will see that we have a very diversified product offering and what we do is, we don't look on the size of the homes because higher density homes on a standalone are not -- that doesn't give you the answer, so we look at that combined with the lifestyle around it that people would like to be living within. So the answer to your question is yes, and we do that believe or not, almost weekly.

Our next question comes from the line of Michael [ph] from JPMorgan. Please proceed with your question.

I guess I just wanted to take a step back, obviously, different moving pieces with Great Park, Newhall and particularly the Shipyard; coming out of the box a year ago the overall trajectory of consolidated cash flows from operations was -- negative cash flow and we had in our model an average of roughly negative $200 million in '18 and '19; then being roughly breakeven in 2020 before generating size of all cash flow in 2021. Given some of the developments obviously over the last 6 months and it was interesting Emile that you mentioned that; do you think the changes would be -- actually a net positive for the shift in approach in the Shipyard? I was hoping to get an update to that type of broad cash flow timeline, if that's still the case that you're looking at still sadly negative cash flows in '18 and '19, roughly breakeven in 2020 before a strong year in 2021? Or is there any type of -- perhaps moderation of those negative cash flows relative to original expectations in this year or next or just had to think about that if there is any kind of change in timing, let's say?

Sure. Well, if you're trying to benchmark what you saw when we were going through the IPO. We moved up the timing of land development -- the start of land development and deliveries at Newhall by a year; that obviously meant that we now started spending money on Newhall earlier than we projected and we started in '17 and the later part of '17 and we will be spending a lot of money in '18 and '19 to get through the point where we move to a cash flow positive. Probably the biggest impact on the cash flow comes from the activities on Newhall but it's good news because it's actually moved up. As it relates to what happens post '20, right now the way we look at it is, that also moved up by about a year where we rather than late until the end of 2020, beginning of 2021 to turn cash flow positive. Right now our plans show us that we will actually be in that position a year earlier by the first quarter of 2020 rather than the first quarter of 2021.

And then, like what you're saying also is to your earlier point around the Shipyard that -- the Shipyard cash flows would also be slightly better in the near to medium term as well?

Yes, we expect that to happen and as I said, it's all in the works right now but we expect that you're going to see more efficiency coming out of this kind of size than we have before.

Our next question comes from the line of Nisha Sood from Deutsche Bank. Please proceed with your question.

So I guess first; so [indiscernible] have gotten a boost in buying power following these tax reforms. So in your discussions with land acquisitions in Delaware management over the last couple of months, have you noticed a change in their willingness to maybe spend a bit more or have they noticed easing of underwriting standards, competition gearing up? If you can, just help us understand pre and post-tax reform, how you're dealing with the builders?

Well, I mean -- I don't think that there is easing and underwriting because I think that you have a breed of builders today that at least we sell to who are very smart in the way underwriting and I think that what we see at least in our markets which are very unique markets is an extreme lack of supply of home sites and a high demand because of the job creation in San Francisco, Los Angeles and Orange County. The builders have performed very well in our communities and I think we're seeing repeat buyers and we still see builders active in home price appreciation in our marketplace. And I haven't seen anything directly related to the taxes or anything like that but I can tell you that we are seeing a lot of enthusiasm from our builders and a lot of questions about when is the next round of home site sales.

Understood, it's good to hear. And then, well, just sticking with the tax reform; so other than the TRA has there been any other changes to kind of the ownership structure, any of the promoted distribution along those lines and just as things have changed in the corporate tax rate? Thank you.

No.

Ladies and gentlemen, we have reached the end of the question-and-answer session. I would now like to turn the call back over to management for closing remarks.

Everybody, thank you for joining us, we appreciate it and look forward to speaking with you next quarter. Have a great afternoon.

This concludes today's conference. You may disconnect your lines at this time.