Five Point Holdings LLC

NYSE:FPH

Earnings Call Analysis

Earnings Call Transcript 2024-Q2

[Operator]

Greetings, and welcome to the Five Point Holdings Second Quarter 2024 Quarter Conference Call. As a reminder, this call is being recorded.

Today's call 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 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 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 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.

[Daniel Hedigan, executive]

Thank you, Paul. Good afternoon, and thank you for joining our call. Just a little announcement, I am recovering from a cold, so my voice is going to sound a little bit different. And hopefully, it doesn't flare up in the middle of the call, but I just want to let you all know that. I have with me today, Kim Tobler, our Chief Financial Officer; Mike Alvarado, our Chief Operating Officer and Chief Legal Officer; and Leo Kij, our Senior Vice President of Finance and Reporting; Stuart Miller, our Executive Chairman, is joining us remotely.

On today's call, I'll update you on our Q2 results, on our team's focus during the quarter and the steps we are taking to implement our strategic priorities. Next, I've asked Mike Alvarado to overview Five Point's experience managing and participating in our joint venture at the Great Park, given the meaningful improvement and execution of the venture over the past 2 years. We believe this experience represents a proxy for potential opportunity to grow as we look towards the future in our existing master plan of communities and beyond. Last, Kim will give an overview of the company's financial performance and conditions with some limited guidance for the third quarter and the full year. We'll then open the line for questions to our management team.

So let's begin. I'm very pleased to report a strong quarterly performance as we continue to focus on fortifying our balance sheet by generating revenue, controlling our expenses and carefully managing our capital spend to match near-term revenues. In the second quarter, we generated net income of $38.2 million, which reflects the continued strength of builder demand for residential land. In this quarter, most of our performance is driven by execution on our Great Park community as evidenced in part by our closing during the quarter of 12.3 acres of land at the Great Park for $96.1 million, adding $7.8 million per acre at a 70% profit margin. This sale contributed to the $15.5 million of equity in earnings from unconsolidated investments for the quarter. Additional income derived from participation and better performance on prior land sales in the Great Park.

Additionally, consistent with our focus on holding down costs, we held our overall SG&A to $12.2 million, which is slightly less than the second quarter of last year and the first quarter of this year. During the quarter, in addition to the previously mentioned closed sale, our Great Park Venture also signed a contract to sell additional home sites in our next development area for $9.6 million an acre, for a total purchase price of just over $300 million. This sale is anticipated to close in the fourth quarter of the year.

Our venture also recently marketed for sale additional residential land and another development area in the Great Park that we would anticipate closing in the first half of next year. We were not surprised that we received strong builder interest in these homesites with continued increases in per acre land values, and we are now in negotiations to document those transactions. While increases in per acre land values can be attributed in part to market conditions, we've begun allowing builders to design the home programs in our communities as this change has also contributed towards the higher land residual values for us. As we look to increase the engagement we have with our guest builders and design to drive land value, we will always maintain our role as mass developer to ensure that we segment the program is being built and sold by the builders in order to maintain an appropriate velocity in each community.

While the news regarding interest rates and inflation continued to send mixed signals during the quarter, we're able to achieve these results due to the team's execution and our ability to capitalize on the fact that California generally and our community specifically remaining chronically undersupplied to residential land market. The shortage is primarily driven by California's challenging land use approval process. We expect shortage of entitled land and existing home inventory will continue to drive strong demand from builders.

Moving to our balance sheet. We ended the quarter in a healthy liquidity position with $217 million in cash and $0 drawn on our $125 million revolver, giving us a total liquidity of $342 million. Kim will cover more details regarding our financials during his comments.

Let me now expand a bit on general market conditions. While interest rates trended up during most of the second quarter, they trended down towards the end of the quarter and generally have continued in that direction since quarter end. The continued lack of existing home inventory coupled with low unemployment and fairly strong consumer confidence has helped sustain demand for new homes in our communities and therefore, land acquisitions from our guest builders.

The limiting factor on new home demand remains affordability which is driven in large part by the impact of higher interest rates. Conditions in our markets remain relatively strong for homebuilders. As we have mentioned in the past, our homebuilders who, for the most part, are large publicly-owned builders have a variety of incentive structures to mitigate the impacts of interest rates to support new home sales.

With the ability to adjust those incentives in response to interest rate movements, these homebuilders remain uniquely able to capture and sustain demand to allow new home sales to continue. While there have been reports of slowing in new home sales nationally in Q2, we saw our guest builders closed 84 new home sales at Valencia compared to 62 in Q1 and 63 new home sales at Great Park compared to 69 in Q1 despite very limited inventory.

On the commercial land side of our business, we currently are only actively marketing 2 sites at the Great Park as a commercial oriented-land and our other communities won't come online for some time. While we are still seeing interest from both developers and users for these sites, we're also looking at opportunities to repurpose these sites for residential use, given the depth of demand and values being driven by residential uses much like we did with the 35-acre commercial site in Valencia that we converted to residential use. We'll have more to report on this 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 reflect the benefit that we and our Great Park Venture partners are receiving from the investments made in this community in prior years.

During the first quarter, builders in our Great Park community sold 63 homes. As I noted earlier, that number is lower than normal due to limited number of open builder programs at Great Park. During the quarter, there were only 2 to 3 actively selling products in our 2 open neighborhoods. Our Solis Neighborhood currently has one builder product open for sale and Luna Park, our newest neighborhood, only has 2 builder products open for sale. We anticipate another 6 builder products opened in the third quarter at Luna Park. As these programs open will once again be able to offer a wide variety of housing options in Great Park Neighborhood.

Despite the limited inventory, we are encouraged by sustained interest in traffic in the community, affirming the ongoing appeal of the Great Park Neighborhood to prospective homebuyers. As I mentioned earlier, there remains strong homebuilder interest in acquired homesites at Great Park. This quarter, we completed the bidding process for a group of 5 new residential programs, which is under a signed contract with a meaningful deposit received by the Great Park Venture. We have also completed the bidding process and negotiating the contracts with our homebuilder partners for a sale of 5 additional programs with approximately 400 home sites. We'll have more report on these programs later in the year.

Now I'll move to Valencia, our other active community. Valencia is still in its early stages of development with many future phases of land delivery ahead of it, which will enable us to add much needed supply for housing, particularly in the Los Angeles market. During the second quarter, our guest builders sold 84 new homes. Valencia's initial phase of 1,268 homes is now sold out. In our current Valencia development areas, we have 7 builder programs open and actively selling. Additionally, from the land we sold at the end of last year, there are 6 programs anticipated to open in late 2024 and early '25, offering more product diversity for prospective homebuyers.

As I noted above, on our last few calls, we have discussed the potential conversion of a 35-acre site from commercial to residential use, which is permitted under our flexible zoning. We are now finalizing a contract with the homebuilder to sell this 35-acre mixed-use sites for 179 homes, with the sale anticipated to close in the fourth quarter of this year. We also completed the bidding process for 4 additional programs with approximately 300 home sites and we are currently anticipating that these 4 programs will also close in the fourth quarter of this year.

As we work closely with our builders in all products in Valencia, it has become clear that the current fire insurance situation in California is requiring us to move away from detached programs to single-family homes and detached condominiums to meet current insurance underwriting restrictions to allow for a more reasonable insurance premiums. The state is also working to address the current limits on insurance availability, our proactive approach will allow us to continue to meet the demand for housing in California.

Finally, we continue to work in Los Angeles County and other agencies perfecting entitlements for our future development areas, which will allow for delivery of thousands of additional home sites in commercial acreage and will add much need to supply to this land-constrained market.

While the status in passing a variety of new laws and effort to expedite delivery of housing, the regulatory approval process remains challenging to get completed in a timely manner. That said, we have been in this business a long time, with our proven track record of delivering first-class master planned communities, we hope to finalize these approval processes with a reasonable balance between expediency and feasible conditions.

Turning to San Francisco. I'm happy to report that the city, county and other applicable regulatory agencies have initiated the public approval process to rebalance the entitlements between our 2 San Francisco communities: Candlestick and the Shipyard. As I discussed before, we are seeking the rebalancing to enable the development of Candlestick as a stand-alone project. This rebalancing will allow us to begin the development at Candlestick without having to wait for the Navy to complete these remediation activities at the Shipyard.

With the current momentum to complete the rebalancing, we're now turning our efforts to identifying a partner to work with us on this amazing piece of property to begin the process of creating the large mixed-use communities that have always been envisioned for these irreplaceable sites along the San Francisco Bay, starting with Candlestick. We expect that a properly constructive partnership can work much like our Great Park partnership with capital partners working closely with our management oversight team. This court-mandated engagement will focus on maximizing value and executing a well-crafted development plan. I've asked Mike Alvarado to briefly describe the workings of our Great Park partnership, which has driven its extraordinary performance as a model for future Five Point opportunities.

Let me conclude by saying our second quarter has seen continuing progress on our 3 main priorities: generating revenue and positive cash flow, controlling SG&A costs and managing capital spend to match near-term revenue opportunities. Additionally, our entire team is focused on progressing entitlements for our next neighborhoods in Valencia and moving Candlestick forward through [ the balancing ] process and beginning development. While economic and geopolitical events may continue to impact the financial markets, home buyers in our markets continue to show interest in our communities, and we believe that pent-up demand will continue to be a driving force for our land sales to builders.

Land development is a very long game in California that has structurally produced a severe supply shortage. Our efforts today are ensuring we are well positioned within that long game while recognizing the importance of creating and maintaining shareholder value.

Now let me turn it over to Mike, who will briefly discuss our partnership experience and then to Kim, who will report on our financial results and will provide some limited guidance for the remainder of the year.

[Michael Alvarado, executive]

Thanks, Dan. In the past, you have heard us talk about the life cycle of our 3 communities and where each one of them stands in terms of its development status. The Great Park is clearly the most mature of our communities in terms of development and revenue generation and has proven year after year the value creation within this community. What is more interesting about the Great Park, however, is its organizational and operational structure that we believe has resulted in excellent performance.

The Great Park is the one master plan community asset in which we own a minority capital interest and operate under a joint venture management structure. We operate and manage the Great Park Venture alongside our other capital partners with whom we engage on a weekly basis in order to maximize value and returns and to provide a built-in system of accountability. Our partners provide their own unique perspectives on a variety of matters when dealing with developments of this scale. And together with aligned interests, we have executed our plan with continuously improved bottom line performance. We believe this is a structural advantage to our existing business model.

As I mentioned, at the Great Park, we own an equity interest, but we also provide management services to the venture, and we earn an incentive promoted interest for excellent performance. We are paid for our management services through a stipulated management fee that allows us to recover our costs for delivering these services, plus that incentive compensation component, [ promote ] that has delivered significant revenue to -- in earnings for the company. We believe this structure and equity interest coupled with a management services component is one that can be repeated in the future, not only within our existing or other existing communities, but also in future projects as we consider the growth of Five Point beyond our existing communities.

We are enthusiastic about this business model and believe it can be replicated. 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 offsets our SG&A, while a promoted economic interest aligns interest while embedding a system of accountability to drive performance. At Valencia, while there is more work to be done to advance our entitlements, once achieved, we expect to engage in a possible venture arrangement like the Great Park.

With approvals in place, we view Valencia as no different than the Great Park in terms of potential for engagement with partners who can add value and also share in the development life cycle as this community matures. In San Francisco, as you know from our prior calls, we have been talking about a partner for some time now. As we finalize our entitlement rebalancing efforts, that accomplishment will provide a catalyst for advancing conversations with potential venture partners.

We have a proven track record with the Great Park Venture, whose members have been seen -- who have seen rising returns over the past several years, driven by our management working together with their active engagement. 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. We hope to have more to report on this in the near future.

Now let me turn it over to Kim to report on our financial results for the quarter.

[Kim Tobler, executive]

Thank you, Mike. Let me give you a little more background on our operating results. For the second quarter of 2024, we reported consolidated net income of $38.2 million, which was generated primarily from $47.2 million of revenue from incentive management compensation and $15.5 million of equity and earnings from our investment in the Great Park Venture. As Dan noted, the Great Park Venture's income for the quarter was largely generated by the sale of 105 home sites on 12.3 acres of land with a sale price of $96.1 million and a profit margin of 70% before closing costs. We will note that the profit margin improved from last quarter's 60%. This sale comes out to a $7.8 million per acre.

The venture also recognized $6.4 million of profit participation revenue related to prior year land sales and $36.6 million of price participation revenue associated with last made land sale of 798 homesites, which is now the Luna Park community. I'll have more to say about that additional price participation revenue later in my comments.

Turning back to Five Point's consolidated results. For the first 6 months of the year, we have recognized net income of $44.3 million. Our first half results included $61.1 million of total revenue and equity and earnings from the Great Park Venture of $33.1 million. Consistent with our continued focus on managing our costs, our second quarter SG&A expense was $2.2 million compared to the prior year second quarter of $12.7 million and $12.9 million in the first quarter of this year.

Now let me turn to liquidity and cash. We ended the quarter with $217.4 million of cash as well as $125 million of availability on our revolving credit facility, resulting in total liquidity of $342.4 million. At the end of the quarter, our debt to total capitalization was 20.6%. I'll also give you a little more detail around our cash flow for the quarter and year-to-date.

For the quarter, before debt service, we had positive cash flow of $3 million. For the year-to-date before debt service, including the senior note transaction costs, we had negative cash flow of $2.2 million. The significant sources of cash have been equity distributions from the Great Park Venture of $23.4 million for the quarter and $47.3 million year-to-date, and incentive management compensation of $6.3 million for the quarter and $12.8 million to date.

The significant uses of cash other than SG&A and debt service have been development costs at Valencia of $14 million for the quarter and $31.4 million year-to-date, which are largely related to entitlement activities and preparing for the sales expected to close in the fourth quarter.

In addition, we incurred development costs at San Francisco of $7.3 million for the quarter and $8.4 million for the year that are largely associated with the rebalancing efforts and our litigation against Tetra Tech and the Navy.

Last quarter, I took time to emphasize the significance of the Great Park Venture in our financial results. This quarter, it continued to stand out in 2 particular places. Firstly, as an unconsolidated joint venture, we report our proportionate share of the venture's earnings and received distributions for our ownership percentage interest. Secondly, we provide management services as Mike discussed, to the Great Park Venture. As compensation for these management services, we receive a fixed monthly base fee and incentive management compensation, which is expressed generally as a 9% of the distributions that the venture makes to its members.

We often give specific information about the Great Park Venture's activity because of the significant impact they have on Five Point's results. When we do so, we try to advise the listeners that we are speaking about the Great Park Venture and not Five Point operations.

Now I'd like to give you a little bit more background about the Great Park Venture's contributions to this quarter's results. First, in addition to the land sale at the Great Park Venture during the quarter, as I noted earlier, the Venture also recognized additional revenue as variable price participation consideration. As you will recall, as I mentioned earlier, in May of 2023, the Great Park Venture recognized revenue of $357.8 million from the sale of 798 homesites on approximately 84 acres of land, which we now call the Luna Park community. The land sale agreement was comprised of a fixed amount paid at closing and a price participation component to be paid from future homebuilder home sales.

Accordingly, the revenue recognized consisted of $214 million of -- paid at closing, plus $143 million for recognition of a contract asset. You might think of it as a receivable, representing the Venture's estimate of variable consideration from future press participation payments. The homebuilder is now actively selling homes in the community, and based upon actual experience and near-term forecasts of future home pricing, the Venture made the assessment that under applicable accounting guidelines, it was appropriate to increase the estimate of variable consideration by $36.6 million to a total of $179.7 million.

Now the other area where the Great Park Venture performance influenced our consolidated results this quarter is with respect to the $47.2 million of incentive management compensation revenue that Five Point is reporting. Here also, we are required to estimate the amount of incentive compensation that Five Point expects to receive under our management agreement and to report revenue as it is earned by recording a contract asset, which may be in advance of receiving the actual payment. In order to do so, we have to estimate the activity of the venture and project distributions that the activity will generate. If there are significant changes in that estimate, it can lead to adjustments to the amounts previously recognized.

Since the Venture's Luna Park sale in May of 2023 at a base price of $4.3 million an acre, which is currently at $4.7 million an acre with the additional variable price participation consideration that I just discussed, the venture had a sale in the first quarter at $6.4 million per acre and the sale in the second quarter that was just reported at $7.8 million per acre. In Dan's comments, he mentioned that we are currently under contract for a sale expected to close in December at $9.6 million per acre, partly as a result of this trend of increasing land values and other market factors, we adjusted our estimates of future distributions, and the resulting increase gave rise to the majority of the $47.2 million in revenue recognized by Five Point this quarter from incentive management compensation for our management of the Great Park Venture.

As a result of this additional revenue, as of June 30, Five Point has a contract asset for expected future incentive management compensation payments of $104.6 million that will be received when future distributions to members occur. These cumulative adjustments to revenue are attributable to changes in estimates and may not be reoccurring in nature.

Now for some limited guidance. The second quarter performed better than we expected, which was primarily attributable to the strong performance of the Great Park. Currently, we are not expecting to close any residential land sales in the third quarter and therefore, expect to have a small reported loss of $5 million to $10 million for the quarter. This will turn around in the fourth quarter as we finished the year strong with sales at both Valencia and the Great Park that Dan mentioned earlier. Therefore, we expect to end the year with annual net income of over $100 million and a cash balance in excess of $300 million.

It remains critical for us to stay focused on our strategic priorities of generating revenue, controlling our expenses and carefully managing our capital spend to match near-term revenues, and we are committed to those priorities.

With that, I will return the call back to the operator.

[Operator]

[Operator Instructions] Our first question is from Alan Ratner with Zelman & Associates.

[Alan Ratner, analyst]

Congrats on the continued progress. Great to see, and thank you for all the additional color this quarter, very helpful, given all the moving pieces.

My first question, I just want to make sure I understand the management service revenue this quarter, and I think you explained it well. But am I right to think about this quarter's revenue as more of kind of a gross up and going forward, assuming there's no major changes in your estimates from this point that the quarterly run rate would look more similar to kind of what it's been over the last several years kind of in that $10 million per quarter range? Or is this kind of resetting a higher bar and we should think about for modeling purposes, a higher number going forward?

[Daniel Hedigan, executive]

Yes. Thanks, Alan. Always good to hear from you. Let me ask Kim to answer that question, so I make sure we get it from the authority.

[Kim Tobler, executive]

Yes, Alan, you identified it. It's a catch-up because of the additional projected income that we're expecting. And so there's a catch-up, but it will go back to a more regular flow, as you mentioned.

[Alan Ratner, analyst]

Got it. Okay. That's helpful. All right. 2 more questions for me, if I can. Number one, Dan, you mentioned some of the issues you're facing with fire insurance, in the state and changing, I guess, a little bit the plans related to the product you're bringing for -- you mentioned Valencia. So I wasn't -- first of all, I wasn't sure if that applies to Great Park as well.

But I guess my question is if the plans, at least in the near term, are going to be skewed more towards detached product, which is what I think you said. Does that change the density opportunity within the community, meaning are we now -- should we think about a smaller number of home sites over the length of the community if you're skewing more towards detached?

[Daniel Hedigan, executive]

Well, Alan, those are actually very good questions. First, we're really not seeing any fire insurance issues in the Great Park just because of where it's at and how it's situated. In Valencia, because of its new development and it's on the edge of some open space areas, it does -- there is an issue, I shouldn't say there's an issue. There's fire insurance available, but the premiums have increased.

So working with the builders, what they found in the attached projects, the higher HOA dues make that home, an attached home, uncompetitive from a cost perspective. So we're still moving with density, but they're using high-density motor cords, duplexes, get separate insurance, so they can still use duplexes. So we really have gone away from is the kind of 10-unit, 11-unit high-density buildings. Those were good for the market because they allowed us to have a lower price point for people to get entry into the market. So it's a segment that we actually liked, and we do expect the state to sort out what's happening on fire insurance, and we'll be able to go back to that type of product. Once again, it's really that entry-level product that we do think is important to the market.

As far as the -- we have so much land and so much time still there. Our units really can move around. So I think we would, at this point, still anticipate we'd have very similar unit counts because we think this is a temporary issue. But once again, the current market condition, the HOA dues are really material. So that's really why we've kind of -- the builders have come to us and said, we still want to land, we can still pay same amount for land, but we do need to make some adjustments to products. So we've just been very proactive in getting ahead of that issue. But I think that long term, it fixes itself and we probably end up with similar unit counts. But one of the -- yes?

[Alan Ratner, analyst]

That's really helpful, Dan, I appreciate that. And then -- sorry, were you going to say something else there?

[Daniel Hedigan, executive]

No, I was just saying it doesn't really -- it hasn't really had an impact on any of our valuations on land. We still obviously -- we think about it in units, but we're always selling land, and I'm going to use all the same land and it hasn't had an impact on valuation at all. So it's really just about having a broader segmentation in the market, which we really like to have.

[Alan Ratner, analyst]

Got it. This wasn't my other question, but I guess just to follow up on that then. If you're kind of eliminating that entry-level price point, and maybe you can say what that was. And now what is kind of -- at least in the way you see it in the near term, your kind of entry-level price point given the shift? Like how much has it gone up by?

[Daniel Hedigan, executive]

Well, with some of the density that we're able to get in detached and also with duplexes, we probably -- when we opened up the community a couple of years ago and a lot of things happened a couple of years ago, we were able to deliver high-density detached product under $500,000 a home. That was naturally moving up through the pandemic and through cost increases and things of that nature. But I would say what we probably have done is probably moved from that high 5s, low 6, more like high 6, low 7 as far as entry level. But that's hopefully a temporary situation, and we'll be able to bring back.

In our future communities, we still have real opportunities for more density, more variability in the product. So we hope we'll be able to bring that back. But I would tell you now if you're thinking about it, it's probably somewhere around the mid-6s.

[Operator]

Our next question is from Matt Jackson with Mycor Capital.

[Matthew Jackson, analyst]

Just 2 quick ones and congratulations on the progress on Candlestick. Just curious, did you also mention that you would look to do a similar structure for Valencia and kind of move that to being more of a joint venture?

And then I guess on both of those projects, like how should we think about that? Are you just going to look for a partner like a partnership there? Or is there going to be some capital that could come into the business to help you guys. Obviously, you have this expensive debt still outstanding. Just kind of curious like how you think all the moving parts will shake out maybe a year in the future and what you ultimately hope the company looks like?

[Daniel Hedigan, executive]

Well, Matt, thank you for that question. First, on both of those communities, Candlestick and Valencia, we are working from an entitlement-first strategy. We think that before we look at partners or additional capital joining us, we need to deliver on the entitlement. And so both of those are our highest priorities for both of those communities. And so Valencia has got a longer runway to get to that additional entitlement that we're working on.

As I noted, Candlestick and the City and County of San Francisco, we're all working hand-in-hand to move that towards completion. And we've had a number of folks reach out to us in the past. So there's not any one particular structure we're looking at. And once again, it's going to be making sure that we do whatever is best and create some of the most value for our shareholders. So we haven't tried to land on a structure. As Mike indicated, we do have a model that has worked very well for us here at the Great Park. So that's probably how we lean, but as part of it is going to be seen who's -- who we end up working with in that area. So -- and from a pure structure perspective, the idea would be to attract a partnership that would include capital coming into the company.

[Matthew Jackson, analyst]

Great. That's super helpful. And then I guess just more on a housekeeping item. It looks like some times you've reported the homesites at Valencia, and other times not -- haven't been following the [ name ] of that one. I'm just curious, does that imply no homesites were sold at Valencia this quarter, am I correct?

[Daniel Hedigan, executive]

This quarter, we didn't close any sales at Valencia. Any land sales to builders you're talking about, is that correct?

[Matthew Jackson, analyst]

Yes. Yes, land sales to builders. Yes.

[Daniel Hedigan, executive]

Yes, we did not closing land sales of builders this quarter at Valencia. Those -- the sales we have queued up there, the ones we're talking about will all closed in the fourth quarter.

[Operator]

Our next question is from [ Kyle Chen ], Private Investor.

[Unknown Attendee]

I actually have kind of a big picture question, if I can. Dan, I think you and your team for the past 2.5 years, you guys have done a great job of highlighting the valuable assets that are in the company. You've lowered SG&A, you've pushed out the debt maturity. You've done all these things and you are selling the commercial, residential and all these things. And despite all that, your stock is still trading at $3 a share. The public investors just don't seem to care.

So my question is, what's the benefit of staying public? I mean, why -- I mean I guess another way is why not launch a formal process to see if there are private investors who will value these assets at something that's closer to book value than what the public investors are doing?

[Daniel Hedigan, executive]

Well, Kyle, thank you for the question. And I'll kind of just start with one of the things you should always know is that our Board of Directors is always very engaged. And if there are opportunities, as you mentioned, that would come towards us, our Board would certainly take a look at those opportunities. And once again, we're always about trying to support our shareholders. But one of the things that we do understand is that we don't really get to set the price in the market.

And you're right, we're trying to -- there's a lot of good things going on here, and we're hopeful that, that market will, at some point, recognize some of those things. We're really focused on -- we've been focused on the G&A and cash and capital outlay. And so we think that will sometime, hopefully, in the market be recognized. But going back to your original question, we are always open to considering all options. It's just what presents itself to us.

[Unknown Attendee]

Well, I guess a different way to ask that question. I think what I'm hearing you say is that you are waiting for like an inbound inquiry, and I mean, there's -- you're doing all the right things, you're pulling all the right levers and the public investors don't seem to care. Then -- and you also -- being a public company, you incur cost along with that? And there doesn't seem to be any strategic reason to have a small, low stock trading in the public market. Why not formally launch a process, put a -- let the private investors out there know that the company is exploring options.

[Daniel Hedigan, executive]

Well, the team you have here on the phone today, we really focus day-to-day on running the business. But I can just assure you, our Board has considered all options. And we're not waiting necessarily for inbound offers. The Board has and continues to consider all options that are available to them.

[Operator]

Our next question is from Robert Cohen, private investor.

[Unknown Attendee]

My first question relates to the 75% owned Gateway Commercial Venture. I just wanted to clarify one thing on that venture. I believe a few years ago, they said that venture owns 50 acres next to your office building, is that correct? And if so, are you planning on selling those acres at some point?

[Daniel Hedigan, executive]

So I might have Kim talk about that. But I understand what that really is, is there's a campus here and part of those acres you are looking at, as part of an REA, it's a parking lot, it's the other aspects of the overall campus. But let Mike actually -- Mike can probably speak to that. He's been here longer when the building was built and purchased.

[Michael Alvarado, executive]

Yes. This campus was originally sold to Broadcom. It was 70 acres where they were going to build a 2 million-square foot campus. In 2017, we acquired the campus back and into that venture, that venture in which we own a 75% interest. So the campus has really been envisioned as an R&D and now, of course, let's see and hope R&D plus cancer/medical uses. So the acreage is really living on the campus ready for future commercial/development.

[Unknown Attendee]

Okay. So at some point, you could be selling that?

[Michael Alvarado, executive]

Yes.

[Daniel Hedigan, executive]

Absolutely.

[Unknown Attendee]

At 75% owned, that could be quite valuable.

[Michael Alvarado, executive]

Yes. And keep in mind that we already sold 2 other buildings to -- to a triple net investor that Broadcom is their tenant and then we sold, of course, another building to City of Hope. So 3 of the 4 buildings are owned by other parties at this point.

[Unknown Attendee]

Okay. And my next question relates to the value of the land in Valencia. So I know, obviously, the land in the Great Park has appreciated quite rapidly over the past year. I was wondering if you could comment on how much, if any, the land in Valencia has increased in value over the past year?

[Daniel Hedigan, executive]

Well, Robert, one of the things that we've been working on in Valencia, just like we've been working on here at the Great Park, is really trying to work with our builders to be sure that we're developing and identifying the highest value land for that property. And I think we're -- once again, with Great Park in a much more mature -- one of our master plans, we've been able to really make some big changes quickly, both kind of market and product-driven changes.

In Valencia, we're doing the same thing, and we actually have seen land values increasing in Valencia but not to the same level as Great Park. And I think part of the process is there. There are certain fixed pieces that we can't change, we have to stay with. And we're now in Great park, we're fully into the areas where we can change all the pieces. Haven't been able to achieve that. We haven't gotten to that point, I should say. We haven't got to that point in Valencia, but we expect to achieve it. But Irvine is always going to be a little bit of a unique market, but we are seeing appreciation and we're going to continue to work with the builders to find ways to create higher value for that land.

[Unknown Attendee]

Okay. And my last question relates to your largest shareholder, Lennar. I don't know if you can answer this question. But they're moving to an asset-light model. And I was just wondering if you know how Five Points fits into their plans? Will they be transferring, I believe their 40% stake into a plant spinoff? Or will they be selling the stake? Do you have any knowledge about what they'll be doing?

[Daniel Hedigan, executive]

Robert, we do not.

[Unknown Attendee]

Okay. Okay. Yes, I wasn't sure. I know there's a lot of -- I know they've been going back and forth in their communications about their plans. But so you have no input on -- you have no knowledge of what's going to be taking place.

[Operator]

Our next question is from [ Andrew Okon ], private investor.

[Unknown Attendee]

My question is associated with Candlestick. And I read in the news recently that it appears that you guys are setting up to do approximately 7,000 residential units and the rest would be office and lab space. And I'm wondering, is that mix -- is that what the mix is going to be because obviously, office and labs seem like a pretty difficult market right now.

[Daniel Hedigan, executive]

So Andrew, Candlestick and Hunters Point were designed as kind of a comprehensive community with a with kind of a preset amount of commercial square footage and within that commercial square footage there are certain uses that are allowed in a preset number of residential units. And all that we're doing right now, what we've been working with the city in Canyon because of the delays at Hunters Point, we needed flexibility because we -- early on before the anticipated delays there was a strategy of how you would balance between the 2 because you build them both concurrently. But what happened with the delay is that we can't build them both concurrently.

So we really are working with them, when we talk about the rebalancing, it really gives us flexibility to be able to meet the market. And if the market is more residential oriented, it will be more residential. If it's more commercial, it will be more commercial. But the type of commercial we're looking at there is really R&D -- it isn't commercial office. It's something that needs different floor plates and needs labs and different uses. There's a whole different market segment out there than what the traditional commercial office that you would think of.

But the idea -- we don't have a set plan for our next development. What we're really doing is working with the city to say, let us have an opportunity to work where the market is strongest, but we need flexibility to do that. And this is where the city and county understand that. We still, long term, when we have one basket of entitlement, but now we're going to be able to use it more flexibly to really meet the market. So we're going to build what the market tells us, creates the best value out there.

[Unknown Attendee]

Okay. So are you saying that your residential units will be capped at what the combined was previously, entitled before the -- when you guys are going to build together?

[Daniel Hedigan, executive]

Yes. Well, once again, we're not trying to add or subtract anything out there. It really is to kind of keep the master plan in place and just have flexibility to move them around. So once again, your question though, once again, Candlestick is a long development process. That's not to say that pick your favorite time frame that we couldn't go back and ask the city for more residential. There will be opportunities to adjust that, but there's nothing today that tells us we need to adjust what was approved. It's really about flexibility, how and where we use it.

[Operator]

Our next question is from Myron Kaplan , private investor.

[Myron Kaplan]

I just have one, this is just a technical thing. In the first paragraph of today's release, you say that the Great Park Venture distributions totaled $29.7 million. And then when I go to the next page, which there's equity and earnings from unconsolidated entities. First, on that paragraph, it says that the share of net income was $15.5 million. And if I turn the page, then you have a contribution of $23.4 million for the 37.5 percentage interest. So how come -- could be 3 different numbers?

[Kim Tobler, executive]

First of all, Myron, it's good to hear you again today. This is Kim. And what you want to note is that there are distributions that are being received. So one of the numbers is the cash that we're receiving. The other is our share of the earnings, and there'll be quarter-to-date numbers, and there'll be year-to-date numbers. And so you need to line those up, so you know which one you're looking at.

[Myron Kaplan]

So what was the cash contribution from Great Park Venture to Five Point in the second quarter?

[Kim Tobler, executive]

In the second quarter?

[Myron Kaplan]

Yes.

[Kim Tobler, executive]

The cash distribution was $23.4 million. And the equity in earnings was $15.5 million. So $15.5 million was our share of their earnings, and $23.4 million is the amount of cash they gave us. And then for the 6 months, Myron, we had equity and earnings of $33.1 million and we received cash of $47.3 million.

[Myron Kaplan]

Right. Okay. Well, that's good. Certainly welcome.

[Kim Tobler, executive]

You're very welcome.

[Myron Kaplan]

And I'm glad to see that you're stepping up, and I think you're trying to step up the throttle or put, let's say, push the pedal down in Valencia, which you've been pretty much been running on about 3 cylinders for a long time. I mean it's such a vast project and you would think that there's opportunities to do a lot more volume if you can get these villages entitled.

[Daniel Hedigan, executive]

We agree.

[Myron Kaplan]

Can I ask me why you haven't done it before?

[Daniel Hedigan, executive]

As you said, it's the pace at which we can get the entitlements through the County of Los Angeles, that's what our limiting factor is.

[Myron Kaplan]

I see. And your sale -- if you're talking about that's going to take place where there's a contract in the fourth quarter, is that the piece that's that 35-acre mixed-use parcel that you had near the county line?

[Daniel Hedigan, executive]

Yes.

[Myron Kaplan]

So that's going to become mostly residential or commercial?

[Daniel Hedigan, executive]

It's going to be a traditional SFD for sale.

[Myron Kaplan]

I'm sorry?

[Daniel Hedigan, executive]

It's going to be traditional housing. Single-family detached housing.

[Myron Kaplan]

Very good. I mean it's terrific. I mean it's all good. Yes. I mean -- so I guess, basically, we just have to snooze until the end of the year, and then you'll have a great outcome, and the company is going to be in an even more secure basis.

[Daniel Hedigan, executive]

I assure you, this team will not be snoozing to year-end. We're going to be working hard.

[Myron Kaplan]

No, you're like cowboys, you got to whip to steer so you get them to keep moving. But at the end of the day, when it gets dark, you'll be in a town and there'll be a [indiscernible] have the money in the bank.

[Daniel Hedigan, executive]

Thanks, Myron.

[Myron Kaplan]

You're doing pretty well. I think you're doing things -- it looks like things are going quite well for the company. And I guess, we stockholders ought to be pleased even though, "the market, the retail investor doesn't care."

[Daniel Hedigan, executive]

Well, thank you.

[Operator]

Thank you. There are no further questions at this time. I would like to hand the floor back over to Dan Hedigan for any closing comments.

[Daniel Hedigan, executive]

Well, thank you, everyone. 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 conference. You may disconnect your lines at this time. Thank you for your participation.