Five Point Holdings LLC

NYSE:FPH

Earnings Call Analysis

Five Point Holdings Optimistic Despite Market Volatility

Five Point Holdings highlighted progress and optimism in their earnings call, reporting strong demand in Valencia with steady home and homesite sales contributing to record annual earnings in 2023. The company saw over $58.7 million in Q4 net income, and $113.7 million for the year, slightly surpassing guidance expectations. Revenue included $100.1 million from land sales and $18.1 million from management services in Q4. The company remains strategically positioned, focusing on asset monetization, land planning, and managing capital. With a largely stable SG&A, they anticipate similar costs in 2024 and are considering opportunities for additional residential units at Great Park, with the possibility of increasing the initial 10,500-lot entitlement.

Strong Finish to a Record Year Despite Market Headwinds

Five Point Holdings, LLC concluded 2023 with remarkable success, registering its most profitable year since inception, driven by disciplined focus on their core priorities. Despite initial market reluctance and headwinds faced by the commercial sector, the company achieved a robust consolidated net income of $58.7 million in Q4, elevating the annual net income to $113.7 million.

Substantial Liquidity and Fiscal Strength

With strategic financial management nurturing a healthy cash reserve, the company reported $353.8 million in cash, coupled with an untouched $125 million credit facility, summing up to an impressive total liquidity of $478.8 million. In a substantial move, Five Point also successfully carried out a debt restructuring, exchanging 7.875% senior notes due in 2025 for new 10.5% initial rate senior notes due in 2028, achieving over 99% participation.

Navigating Through Economic Uncertainties

As fiscal realities such as high interest rates tested home affordability and curbed demand, Five Point remained agile by focusing on revenue generation, cost control, and capital management to match revenue opportunities. Homebuilders supported market stability by adjusting mortgage rates, and as the Federal Reserve hinted at a potential easing of the tightening cycle, an uptick in new home sales was observed towards the end of the year.

Operating Priorities and Land Sales Fueling Growth

Aligning with government agencies and builders, Five Point has orchestrated a strategy to provide housing across different price points in supply-constrained markets. The company's adaptability in toggling between residential and commercial land sales has been crucial in persisting market conditions. Bolstered by steady interest from builders, commercial and residential land sales flourished, notably with 76 homes sold in the Great Park community in Q4.

Optimistic Outlook Despite Earnings Normalization

While Five Point anticipates a normalized earnings trajectory in 2024, following an exceptional 2023, the company remains robust with a cash flow positive outlook and substantial earnings expectation.

Commitment to Community Development and Expansion

The company is progressing with its strategic developments across California, with new neighborhood openings adding to robust demand, particularly in Valencia, where 31 new homes were sold in Q4. The company is also working closely with the City and County of San Francisco to develop Candlestick as a stand-alone project in line with public financing benefits.

Reflecting on a Pivotal Year and Sailing into Future Strength

Five Point looks back on 2023 as a year of strategic redirection and progress, yielding record earnings despite market volatility. The company maintains an optimistic stance about its future and the resilience of its communities.

Financial Foundations and Future Guidance

With strong financial foundations in place, Five Point is well-equipped to seize market opportunities as they arise, supported by a chronic supply shortage and growing pent-up demand for housing in California. The company expressed a long-term vision for land development and a commitment to creating shareholder value, highlighting stability in SG&A expenses and forthcoming guidance.

Revenue Streams and Cost Management

Q4 saw the recognition of $100.1 million in land sales revenue, stemming predominantly from a $101.8 million sale of land at Valencia, while the year's management services revenue reached $47.6 million. The company's SG&A costs have been consistent, and with a recent senior note exchange, it experienced $1.8 million of other expenses. An additional $6 million in transaction costs is projected for Q1 2024.

Earnings Call Transcript 2023-Q4

[Operator]

Greetings, and welcome to the Five Point Holdings, LLC Fourth Quarter and Year-End 2023 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 the 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 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. Please go ahead.

[Daniel Hedigan, executive]

Thank you. Good afternoon, and thank you for joining our call. I'm going to start off by telling you that I have picked up the cold that seems to be going around to a lot of people. So if I don't sound like myself, that's the reason.

I have with me today, Kim Tobler, our Chief Financial Officer; Mike Alvarado, our Chief Legal Officer; and Leo Kij, our Senior Vice President of Finance and Reporting; Stuart Miller, our Executive Chairman, is joining us remotely.

In my remarks, I'll update you on our Q4 and year-end results, on our team's focus during the quarter and on the steps we are taking to implement our strategic priorities. Next, Kim will give an overview of the company's financial performance and condition. We'll then open the line for questions to our management team.

So let's begin. First, let me congratulate our team on a very strong quarter and year. We started the year [indiscernible] still somewhat uncertain about the market and reluctant to make commitments to acquire additional home sites. And we finished the year with capital markets making it more difficult for commercial developers to pursue new speculative development projects.

Yet, despite those headwinds, we ended the year strongly with consolidated net income of $58.7 million in the fourth quarter, resulting in a net income for the year of $113.7 million. We're able to accomplish these results by continuing to focus on our 3 main priorities: generating revenue and positive cash flow, controlling SG&A costs and probably most importantly, this past year, managing capital spend to match near-term revenue opportunities.

Second, I would like to take a moment to note that this is the most consolidated net income that Five Point has generated in a single year since its formation.

We also ended the year with $353.8 million in cash and $0 drawn on $125 million revolver, for total liquidity of $478.8 million. In addition to executing on our operating priorities, we also initiated an exchange offer for our $625 million, 7.875% senior notes due November 2025, for new 10.5% initial rate senior notes due January of 2028. I'm happy to announce that on Tuesday of this week, we successfully settled with a participation rate over 99%.

As part of the exchange, we reduced our outstanding debt by $100 million, in which will reduce our cash balance, which will be reflected in our first quarter release. This exchange strengthens our balance sheet and provides us additional time to monetize our land development investments and prepare the company for growth. Kim will cover more details regarding this exchange during his comments.

Since I arrived at Five Point, we've been working on a number of initiatives underlying our 3 main operating priorities. In particular, we have focused on our government relationships, assisting local agencies to deliver badly needed housing in these supply-constrained markets, in a manner that maintains the attractiveness of our communities to today's consumer and with product offerings at several different pricing levels. We have reengaged with the builders, drawing on my deep relationships with them, in order to drive higher land residuals by allowing them to design and build more efficient housing products. You've heard me speak to this in the past, and we have seen this come to fruition in our more recent land sales.

Finally, we spent considerable time at the end of 2022 and beginning of 2023, analyzing the different commercial uses that could be developed on our commercial land holdings at a time when residential was lagging, allowing us to pursue industrial land sales transactions that we're able to close in Q4, despite the challenges that most commercial markets felt in the second half of 2023.

The work we have done and continue to do regarding our commercial land allow us to be able to toggle back and forth between residential and commercial land sales as current market conditions dictate. Our focus on these initiatives allowed us to have a strong year, notwithstanding the changing economic client we experienced in 2023. We intend to stay the course in 2024, building on the successes we have achieved to date.

To that end, while we do not expect to have the same record-breaking earnings in 2024 that we had in '23, we do expect to be cash flow positive and generate substantial earnings, which will strengthen our balance sheet and prepare the company for the future.

Let's now move to a market update. The macroeconomic environment for most of 2020 is challenging for new home sales, the dominant theme being the impact of higher interest rates on the home buyer. It was a year when home affordability was tested and demand was constrained by the ability of the home buyer to purchase. In that environment, homebuilders assisted in stabilizing demand by offering mortgage products with reduced interest rates that allowed new home sales to continue even as the resale market slowed.

At the end of the third quarter, the market was expecting rates to stay at elevated levels for longer than originally anticipated. However, as we entered the fourth quarter, the Fed signaled that we might be closer to the end of the tightening cycle, and we might see lower rates in 2024. Year-end sales reports from builders support improvement in new home sales as interest rates moderated and home buyers have more confidence in moving forward with a new home purchase. This has led to improvement in homebuilder confidence, which we expect will translate into greater builder demand for residential land in our communities.

California's housing dynamics are still very favorable new home sales. The housing shortage is a driving force with production constrained by availability of land, labor and materials. Owned and rental occupancies remain extremely tight, clearly signaling that more homes are needed. In this backdrop, we feel good about our position in the California market with entitled and irreplaceable land at Great Park in Irvine. Valencia in North Los Angeles County and at Candlestick at Hunters Point in San Francisco. And we still have strong interest from homebuilders for pipeline in these key California markets.

On the commercial side of our business, [ site-wide ] markets have slowed for speculative commercial development, but we are still seeing interest from the user market as users have limited options if they want to design, own and control their own facilities on a long-term basis. We expect this user interest will continue to support demand in this preferred asset class. We also believe that the retail housing needs assessment or some of you may know it as RINA, process that is ongoing in California will give us an opportunity to add more entitled housing units, thereby creating options to consider multifamily or for-sale housing on our remaining commercial site, with the most likely outcome being a combination of commercial and residential uses on these sites. We're actively studying these options to be sure we are maximizing both land value and shareholder value. Let me pivot now and provide you with some updates on our communities, starting first with the Great Park neighborhoods.

During the fourth quarter, builders in our Great Park community sold 76 homes. That number, which is low by comparison to more recent quarters, was driven by very limited inventory at Solus Park, our only actively selling neighborhood in Great Park. Despite the limited inventory, we're encouraged by the substantial interest in traffic in the community, affirming the ongoing appeal of our homes to respective buyers. We believe the builders share our sentiment as we are actively engaged with multiple builders on new land sale opportunities at the Great Park.

Our next major neighborhood, Luna Park will debut with 79 homes across 13 collections is projected to open the phases from March through December of this year.

In the first half of the year in Great Park, we anticipate closing 2 land sales totaling 187 home sites and approximately 24 acres. As I mentioned earlier, there remains strong homebuilder interest in acquiring homesites at Great Park, and we anticipate putting additional home sites out to market during the year, which could close either this year or next.

Moving to our commercial land. During the fourth quarter, we closed on 2 commercial land sales totaling approximately 38 acres of land for an aggregate purchase price of $174.2 million. This was the balance of the 80 acres we had taken to market to initiate our commercial land sales program at Great Park. We had initially enter into these land sale agreements early in 2023 and before the capital market started adjusting throughout the year.

Our speculative offers avoided closing on new land acquisitions, if many, if not most markets, we are able to close these transactions. The ultimate closing price reflected the increased borrowing costs and higher financial returns to institutional developers expect on spec development projects in this market, but are still strong [indiscernible] values by even recent historic measures.

As we move forward into 2024, we'll look to bring additional commercial land to the market, focusing on users, while using our flexible zoning to evaluate the opportunity for commercial and/or residential land users on these sites from which provides the highest land value. While there has been a reduction in structure building in relevant Southern California markets, which has slowed the pace and pricing of offers for commercial land, our location in the heart of Orange County has supported continued interest in our commercial land for various uses, and we do not anticipate that changing in 2024.

Now moving to Valencia, our other active community. During the fourth quarter, the builders sold 31 new homes. As of year-end, 1,202 homes of our initial offering of 1,268 homes have been sold with only 66 homes remaining, which is 5% of that initial offering. In our newest Valencia development area. We now have 3 new neighborhoods open, with 4 more still to be opened. We are seeing continued strong demand in Valencia. These new offerings will augment our current lineup and we anticipate that these openings will result in an increased pace of sales.

Builders remain engaged with us in Valencia, during the fourth quarter, we sold 583 home sites dispersed across 6 programs and approximately 46 cumulative acres for $101.8 million. In furtherance of our priority to minimize capital spend with this land sale, we shifted to some of the final horizontal development costs to the builder. So the final consideration pay reflects the fact that the builder will take on these development costs.

As we move forward with monetizing our Valencia land holdings, we are well positioned to expand on our capital management strategy, both by tying our capital expenditures and near-term revenue events and by structuring land sales with our homebuilder partners to where practical, shift land improvement costs to the builders.

We also continue to market a prime 35-acre mixed-use site in the community. We are still marketing for commercial uses, with adjustments to the commercial market driven by changes in interest rates and expected financial returns for developers, but also studying residential options for the site for their homebuilding partners. We expect to have more to report on this later in the year.

Turning to our communities in San Francisco. With the passage of state legislation that allows for the extension of the existing tax increment financing program for Candlestick in Hunters Point Shipyard, we're now focusing our attention on working with the City and County of San Francisco, to progress the rebalancing of the underlying entitlements. You recall that one of the main priorities of the rebalancing is to establish Candlestick as a stand-alone project, separate from but complementary to the ultimate development of the shipyard site, which will be developed once the Navy has completed its remediation activities.

While timing to commence development of Candlestick is dependent on completing processing of approvals through various city and county agencies, with the state's legislation benefiting the public financing program, we believe that we are building momentum to move forward with the stand-alone development of Candlestick. Candlestick will be the first phase of this larger mixed-use community located on irreplaceable land along the San Francisco Bay.

In closing, 2023 was a year of both progress and redirection for Five Point, starting with great uncertainty in January around the direction of interest rates and finishing with a positive view around interest rates and economic growth. Against this backdrop in 2023, we had a record year of earnings despite the market volatility. Five Point has positive momentum, and we remain optimistic about our communities in our future.

As we look ahead to 2024, opportunities remain strong as we build on successes in our core strategies. As I noted earlier, we are positive about our liquidity and balance sheet. We are well positioned to harvest opportunities that present themselves in this ever-changing environment. The underlying housing environment reflects a chronic supply shortage as well as a growing pent-up demand for housing that has been held back by materially higher interest rates.

As I noted last quarter, land development is a long game, and we have continuously been improving our financial condition with each passing quarter, we're better positioned to bring our unique land offerings to market. They're not making any more land and there will never be an abundance of entitled land in California. Our efforts today are ensuring we are well positioned with that long game well while recognizing the importance of focusing on creating and maintaining shareholder value.

Now let me turn it over to Kim, who will report on our financial results and provide some limited guidance for next year.

[Kim Tobler, executive]

Thank you, Dan. A summary of our financial results was included in the earnings release issued earlier today. And as Dan mentioned, we reported consolidated net income of $58.7 million for the quarter and $113.7 million for the year.

Since the guidance we gave for the second half of the year was $50 million to $70 million, I wanted to note that we are reporting $72.9 million in consolidated net income for the second half of the year, slightly higher than we had anticipated, and that contributed to our record full year earnings for the company.

I'm now going to review the sources of revenue, our SG&A and other costs the impacts of our equity and earnings for our unconsolidated entities, our development spend, our recent senior note exchange and liquidity for the quarter and for the full year. In the course of the discussion, I will give some high-level guidance, and we'll finish with an outlook for 2024.

First, revenue. In Q4, we recognized $100.1 million in land sales revenue, which was primarily generated by the $101.8 million sale of 46 acres of land entitled for 583 home sites to a single homebuilder at our Valencia community. We recognized a 34.7% gross margin on that sale.

For the full year, we recognized $161.4 million in land sales revenue which was primarily generated by the sale of 72 acres of land entitled for 729 home sites to 3 different homebuilders at our Valencia community.

In addition, we recognized $18.1 million of management services revenue for the quarter, which was comprised of $3.1 million in base fee payments and $15 million in incentive compensation revenue. And for the year, $47.6 million, which was comprised of $12.4 million in base fee payments and $35.2 million in incentive compensation revenue.

The Great Park Venture made an incentive compensation payment to Five Point during the quarter of $19.5 million, and for the full year, Five Point received incentive compensation payments of $41.6 million.

Our selling, general and administrative expenses remained stable throughout the year. SG&A was $13.1 million for the quarter and $51.5 million for the year. We generally expect to stay in that range in the coming year. The cost of management services for the quarter was $7.8 million, which included $5.8 million of intangible amortization expense. For the year, it was $22.2 million and included $15 million of intangible amortization expense.

We also reported $1.8 million of other expense during the quarter associated with third-party costs incurred for our senior note exchange transaction. I will discuss the exchange more in a moment. However, I want to note here that the exchange will be accounted for as a modification of our existing debt as opposed to an extinguishment. Therefore, third-party transaction costs will be expensed as incurred in the fourth quarter of 2023 and in the first quarter of 2024. We estimate additional third-party transaction costs of approximately $6 million will be incurred in the first quarter.

Now let me turn to the contributions from our unconsolidated investments. Equity and earnings from our unconsolidated entities for the quarter was $24 million which included our 37.5%share of the Great Park Venture's quarterly net income of $81.1 million or $30.4 million for us, partly offset by a basis difference amortization of $4.5 million and our share of a net loss from the Gateway Venture of $1.9 million.

For the year, we recognized equity and earnings of $76.6 million, which included our 37.5% share of the Great Park Venture's annual net income of $250.6 million or $94 million for Five Point, partially offset by basis difference amortization of $15 million, and our share of a net loss from the great -- Gateway venture of $2.9 million.

Given its significance to our performance, I'd like to give a little more detail about the Great Park Venture's contribution to our earnings this quarter and this year. During the fourth quarter, the venture closed the sale of 2 commercial land parcels to 2 separate developers, totaling approximately 38 acres for a combined sales price of $174.2 million or $4.6 million per acre on a blended basis for both sales. The venture recognized a 59.7% gross margin on those sales.

Additionally, the venture recognized $7.5 million of profit participation revenue during the fourth quarter. For the full year, the venture recognized a total of $532 million of sales revenue from residential and commercial land sales and $21 million of profit participation revenue.

In the fourth quarter, the Great Park Venture made an equity distribution to Five Point for $72.4 million. For the full year, Five Point received equity distributions totaling $154.2 million. At year-end, the venture had a cash balance of $61 million.

Now let's turn to our development spend at our 2 active projects. At Valencia, during the quarter, we added $13.5 million of development costs and $5.2 million of capitalized interest to inventory, offset by $1.2 million of CFD reimbursements, for a net addition of $17.4 million before cost of sales, inventory relief.

For the year, Valencia added $76.5 million of development costs and $20.9 million of capitalized interest to inventory, offset by $44.5 million of recoveries and $18.9 million of CFD reimbursements, for a net addition of $34 million before cost of sales, inventory relief.

For 2024, we are expecting a little higher development spend and a little more than half of the CFD reimbursements we received in 2023.

During the -- now let me turn to the Great Park Venture. During the quarter, the Great Park Venture added $20.6 million of development costs and $11.1 million of capitalized interest to inventory, offset by $6.8 million of CFD reimbursements, for a net addition of $24.9 million before cost of sales inventory relief.

For the year, the venture added $86.3 million of development costs and $23.3 million of capitalized interest to inventory, offset by $89.9 million of CFD reimbursements, for a net addition of $19.8 million before cost of sales inventory relief.

For 2024, we are expecting the development spend to exceed $100 million, with approximately 1/3 less CFD reimbursements than what was received in 2023.

Now let me discuss the senior note exchange. As Dan mentioned, this Tuesday, we successfully settled our senior note exchange, which helped us to proactively address our senior notes that were slated to mature in November of 2025. We would like to thank our bondholders for continuing to have confidence in the company and electing to extend their relationship with us through January 2028. 99.76% of our bondholders elected to participate in the exchange which provided for a $100 million cash payment and $523.5 million of new 10.5% initial rate senior notes with the following terms: we will be paying a coupon of 10.5% from the settlement date through November 15, 2025, then the coupon will move to 11% until November 15, 2026, and finally, the coupon of 12% until the notes mature in January -- on January 15, 2028.

The new notes have a call premium schedule of 104 through November 15, 2024, then 102 through November 15, 2025, and 100 thereafter through the maturity. A copy of the indenture for the new notes was on the 8-K we filed on Tuesday. There are still $1.5 million of the old 7 7/8% senior notes outstanding that will mature on November 15, 2025. For the first 2 years, our interest payments will be approximately $6 million more a year than what we've paid historically.

Now let me turn to our liquidity. I'd like to emphasize Dan's earlier comments about our liquidity. At year-end, we had cash and cash equivalents of $353.8 million, and $125 million of available borrowing capacity under our revolving credit facility, giving us total liquidity of $478.8 million. Our debt-to-total capitalization was 24%.

Following the close of the exchange, we still have significant liquidity, and our debt-to-total capitalization ratio has dropped to approximately 21%. We have adequate liquidity to thoughtfully continue the development of our 3 projects and prepare Five Point for growth.

Now let me conclude. I'd like to give some limited guidance relative to 2024. We remain committed to our 3 priorities: that is, generating revenue and positive cash flow; -- controlling SG&A costs and managing capital spend to match near-term revenue opportunities.

For the full year 2024, we currently expect to generate earnings and positive cash flow from what we can see right now if the 2 sales that Dan described occur in the first quarter, it should put us on that path, after adjusting for all of the exchange-related payments. After the first quarter, we will be able to give further guidance as to how we expect the year to develop. We are actively managing everything we can control and are not letting the business run us.

With that, I'll turn the call back to Camilla and look forward to your questions.

[Operator]

[Operator Instructions] Our first question will come from the line of Alan Ratner with Zelman & Associates.

[Alan Ratner, analyst]

Congrats on all of the progress you made this year. It was a busy one for you guys, but certainly entering '24, a much stronger financial shape than '23. So congrats on all the great work there. First, Dan, you ran through a lot of detail, which I appreciate. Can you just reiterate what -- I think you mentioned there's 2 sales expected, I think, in the first quarter. Can you just repeat what those sales expected are? Was it the 35 acres in Valencia that you were referring to?

[Daniel Hedigan, executive]

The 2 sales in the first quarter. Alan, it's good to hear from you. But those first 2 sales are in the Great Park. It's 187 home sites and approximately 24 acres.

[Alan Ratner, analyst]

Got it. Okay. So the -- and so you're referring to the cash flow and the profitability is specific to that transaction occurring?

[Daniel Hedigan, executive]

Yes.

[Alan Ratner, analyst]

The guidance? Got it. Second question, I don't know if you'll be able to help us with this, but there's been a lot of moving pieces in -- especially in Valencia and Great Park over the last year or 2, with land transactions and maybe some rezoning or thoughts of rezoning. Is it possible to provide a snapshot of where you sit in both of those projects today in terms of kind of lots still yet to be sold both in the residential and the commercial arenas?

[Daniel Hedigan, executive]

And Alan, let me ask you to kind of repeat that. You're saying that in Valencia. And which areas are you focused on in Valencia, on Mission Village or?

[Alan Ratner, analyst]

I was referring to -- no, the project as a whole, just in terms of current lot count that you, obviously, Valencia is still much earlier on, but just trying to figure out kind of what the runway is ahead of us for both of those projects?

[Daniel Hedigan, executive]

Well, so there's the -- overall Valencia, and I can -- I think we're currently saying there's about 17,000 lots up in Valencia, is that?

[Kim Tobler, executive]

Yes. I mean this is -- Alan, what I would tell you, what's ready and available, there's about 131 acres at Mission Village that's still available for sale. When you get past that, we're still land planning those other things. And so I would I would defer that to a future discussion. Everybody is anxious to get that information. I'm getting a lot of requests for that. And so internally, we're trying to figure out the best way to do it. But right now, what's available in the near term, is 131 acres in Mission Village.

[Alan Ratner, analyst]

Okay. That's helpful. And that does not include the commercial site that you referenced earlier, is that...

[Kim Tobler, executive]

No, that would include -- that's in its entirety. That includes that 34 acres.

[Alan Ratner, analyst]

Got it. Okay.

[Kim Tobler, executive]

And again, that could -- and that could become residential or could stay commercial. We're trying to figure out what's the best value per acre we can get.

[Alan Ratner, analyst]

Got it. Okay. That's really helpful. And then do you have a similar number in Great Park, just in terms of kind of lots that are on the ground ready to go? I know you mentioned the first quarter sales. Is that the entirety of it?

[Daniel Hedigan, executive]

No. I mean, from a standpoint of Great Park and -- Great Park has a very specific entitlement for lots, about 10,500, including all the affordable. And I think right now, we probably have sold to builders and obviously, they've been sold to homeowners. But I think we're about -- we have about 2,000, I think, left to go. I think we're about, I think, I'm doing the math, I think we're probably about 7,000 lots sold. We have 9,500 market rate lots, so probably about -- we're probably right around 7,000 lots sold.

But I think the thing that we need to understand about Great Park is that we really do have flexible zoning on our commercial land, and the city of Irvine is pushing hard in the arena process. So we have -- I think we -- once again, it's always about what's going to return the most to the land, and so we do have a real opportunity for real opportunity for having additional residential units in the Great Park. And -- but that's something again we're studying. And as we think -- you talk about the lots that we're closing in the first quarter, we have other land ready to sell this year that's entitled and ready to go and mass quoted.

So we have a pipeline there. Once again, it's always about really trying to make sure we're maximizing the value as we go through there. But I think that RINA we'll be talking about it this year. We're spending a lot of time with the City of Irvine. But I think RINA will give us an opportunity to look at additional residential opportunities there. So that 10,500 number that we've always kind of looked at as our cap. We think there is a true opportunity this year to see that move. But we'll -- once again, it's all about land value.

[Alan Ratner, analyst]

Got it. That's really helpful, guys. I appreciate all the detail and best of luck in the upcoming year. Thanks again.

[Operator]

[Operator Instructions] Our next question comes from the line of Myron Kaplan with the private investor.

[Myron Kaplan, analyst]

Yes. You really write the ship great venture in the last 2 years when the stock was kicked out of the Morgan Stanley Index, and then you're subjected to all kinds of viral rumors of imminent bankruptcy because we've put that issue behind you and which is done -- absolutely shown that you can sail the ship to, you might say, ship shape and so forth.

I have a couple of questions about the exchange offer, is that you mentioned in the in the papers, what are the important ways that the company in which the company has released from what you consider overly-restricted covenants gives you -- now that you have more freedom.

[Daniel Hedigan, executive]

Myron, can you just clarify that? I'm just not following what your question is.

[Myron Kaplan, analyst]

There were some text in -- somewhere in the exchange offer. I believe that the management felt you were -- the corporation -- you were able to be able to -- in the new indenture, which is, I guess, the third that you were able to be released from some overly restrictive covenants.

[Daniel Hedigan, executive]

No. I mean, no, we weren't released of any overly-restricted covenants. We didn't add any restricted covenants and the old notes had a covenant strip. Just to be clear, with the new notes, we did add a covenant that we will not make dividend payments or buy back stock while it's outstanding. We're investing in the company. So that's what we're doing there, but that was the only thing we added other than what was already existing.

[Myron Kaplan, analyst]

I see. Okay. The other thing I wanted to ask you is you referred already to the state's drive, California's drive for affordable housing. I believe that there is going in the fall of referendum on the ballot for a $10 billion bond for affordable housing. Does that possibly help you deliver the kind of re-entitled properties to -- for such a program?

[Daniel Hedigan, executive]

What I would tell you, Myron, is, anything that the state does to improve the ability to provide low-income housing will ultimately provide some benefit to us in some way. We're having to explore how that will occur. And so -- but I wouldn't say that that's going to be a boon. We have already accounted for what it takes for us to do that, and most of that kind of governmental assistance would be on the margins.

[Myron Kaplan, analyst]

The one question I had technically is this reimbursement that you get, what you call is called CRP?

[Daniel Hedigan, executive]

CFD.

[Myron Kaplan, analyst]

CFD, what -- why will the reimbursement go -- be cut in half this year?

[Daniel Hedigan, executive]

Only because we have fewer costs that we have available to request at this time.

[Myron Kaplan, analyst]

Okay. Well, all I can say is that the prospect of shareholder value is way up in the blue given quality of your land and you seem to absolutely be managing it excellently.

[Daniel Hedigan, executive]

Thanks, Myron.

[Kim Tobler, executive]

Thank you.

[Operator]

We have reached the end of our question-and-answer session. I'd like to turn the floor back over to CEO, Dan Hanigan for closing comments.

[Daniel Hedigan, executive]

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

[Operator]

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.