NYSE:FPH Five Point Q2 2025 Earnings Report $5.46 -0.97 (-15.01%) Closing price 03:59 PM EasternExtended Trading$5.48 +0.01 (+0.18%) As of 07:39 PM Eastern Extended trading is trading that happens on electronic markets outside of regular trading hours. This is a fair market value extended hours price provided by Polygon.io. Learn more. ProfileEarnings HistoryForecast Five Point EPS ResultsActual EPS$0.05Consensus EPS N/ABeat/MissN/AOne Year Ago EPSN/AFive Point Revenue ResultsActual Revenue$7.47 millionExpected RevenueN/ABeat/MissN/AYoY Revenue GrowthN/AFive Point Announcement DetailsQuarterQ2 2025Date7/24/2025TimeAfter Market ClosesConference Call DateThursday, July 24, 2025Conference Call Time5:00PM ETConference Call ResourcesConference Call AudioConference Call TranscriptPress Release (8-K)Quarterly Report (10-Q)SEC FilingEarnings HistoryCompany ProfilePowered by Five Point Q2 2025 Earnings Call TranscriptProvided by QuartrJuly 24, 2025 ShareLink copied to clipboard.Key Takeaways Positive Sentiment: Five Point reported Q2 net income of $8.6 million, driven by Great Park land sales and in line with guidance. Positive Sentiment: The company ended the quarter with $581.6 million of total liquidity, a 19.1% debt-to-capitalization ratio and net debt of $68.4 million. Neutral Sentiment: Residential markets have softened amid higher rates and lower consumer confidence, but demand persists in undersupplied California communities. Positive Sentiment: Five Point expects to finish 2025 with net income consistent with $177.6 million in 2024, despite current homebuilding industry uncertainty. Positive Sentiment: The announced acquisition of a 75% stake in Hearthstone aims to add recurring revenue streams and broaden capital-solutions offerings for land-light growth. AI Generated. May Contain Errors.Conference Call Audio Live Call not available Earnings Conference CallFive Point Q2 202500:00 / 00:00Speed:1x1.25x1.5x2xThere are 7 speakers on the call. Operator00:00:00Greetings, and welcome to the Five Point Holdings Second Quarter twenty twenty five 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, acquisitions 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. Operator00:00:33Many 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 filings 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 ks 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 Hetigan, President and Chief Executive Officer. Speaker 100:01:09Thank you, Paul. Good afternoon, and thank you for joining our call. I have with me today Mike Alvarado, our Chief Operating Officer and Chief Legal Officer Kim Tobler, our Chief Financial Officer and Leo Key, 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, which reflects the company's consistent cadence of quarterly profitability. Speaker 100:01:38I'll provide a snapshot of the status of the company's current operations including our strategic priorities and expectations for remainder of 2025. I'll also provide a brief update on our announced acquisition of 75% of the Hearthstone land banking and residential advisory platform. Additionally, I've asked Mike to discuss the Hearthstone acquisition and Five Point's growth strategy in more detail. And finally, Kim will give an overview of the company's financial performance and condition with updated guidance for the remainder of 2025. We will then open the line for questions. Speaker 100:02:17I'd like to ask that you please limit yourself to one question and one follow-up. Turning to the second quarter, I'm pleased to report another profitable quarter for Five Point. We had anticipated that Q2 would be relatively quiet in comparison to the beginning and end of the year. However, we remained profitable and generated net income of $8,600,000 which is largely in line with our guidance for the quarter. The primary driver of this profitability was Great Park land sales. Speaker 100:02:47The Great Park Venture closed on a residential land sale consisting of 82 home sites on approximately 5.7 acres for aggregate purchase price of $63,600,000 This enabled the Great Park Venture to generate net income of $48,400,000 during the quarter, our share of which adjusted for basis differences was $16,700,000 From a balance sheet perspective, we finished the quarter with total liquidity of $581,600,000 comprised of cash and cash equivalents totaling $456,600,000 and borrowing availability of 125,000,000 under our unsecured revolving credit facility. Against that backdrop, residential markets in general have weakened as a result of higher interest rates and lower consumer confidence. This has been widely reported by many of our builder customers as they have reported in their earnings calls. Nevertheless, our results reflect our continued focus on generating revenue, controlling our expenses and managing our capital spend. As we look at the remainder of the year, we expect a strong finish to 2025 with anticipated residential land sale closings at the Great Park in Q3 and Q4, notwithstanding current uncertainty in the homebuilding industry. Speaker 100:04:12While these challenges are leading to slower new home sales by many of the public builders, to our benefit, our existing communities are located in California markets that are chronically undersupplied. Even with the current market conditions, there is continued interest in our communities. On my last call, I indicated that we believe we were on track to meet our prior guidance with estimated earnings for 2025 that would exceed twenty twenty four's net income of $177,600,000 Even in light of the current market environment, we believe that we will end the year with net income consistent with last year's earnings. Obviously, the market is very dynamic at this moment and we will continue to monitor evolving market conditions as the year progresses. Kim will provide more details on our guidance for the remainder of 2025 during his remarks. Speaker 100:05:07Now let me turn briefly to our current operating strategy. As a reminder, the key elements of this strategy are first, optimizing homesite value within our existing three premier master plan communities by matching homesite sales to current homebuilder demand. As I mentioned, homebuilder demand is softening currently. Now withstanding these current conditions, we are positioned to remain patient and continue to optimize the value in our uniquely positioned land, which should allow us to maintain the margins embedded in that value. Second, we are carefully managing our fixed costs and overhead even while we pursue growth opportunities. Speaker 100:05:47Although there are additional costs associated with our planned growth, we're maintaining our lean operating structure. We anticipate that our acquisition of Hearthstone will be accretive to earnings, notwithstanding the additional labor costs associated with the acquisition. Third, we're continuing to match development expenditures with revenue generation to ensure that we are not deploying cash too far out in front of the needs of the development. And fourth, while we anticipate closing Hearthstone in the third quarter and we'll be working to integrate its operations into our platform, we'll continue to seek growth opportunities on an opportunistic basis through new acquisitions, joint ventures and strategic relationships. Our focus will remain on these strategic elements of our operating platform as we produce recurring earnings along with sustainable long term growth. Speaker 100:06:39With that said, the members of our executive team have all been in this business long enough to know we'll need to navigate through uncertainty from time to time. Let me now provide you with some updates on our communities. Of note, across both are actually selling new home communities, Great Park and Valencia, we have seen a slowdown in new home sales since early April. At this time, given the housing shortage, we believe this is a temporary condition in the new home market, which will self correct over the next quarters. As I mentioned earlier, the market is very dynamic at this moment and we will continue to monitor and adjust as warranted by conditions at both the national and local levels. Speaker 100:07:22So let me turn first to our Great Park Neighborhoods community. During the second quarter, builders in this community sold 112 homes versus two thirty three homes in Q1 of twenty twenty five. We currently have 13 actually selling programs in the Great Park, roughly half of which we expect to be sold out by the end of twenty twenty five. 10 additional programs are anticipated to start sales later this year. I also previously reported the completion of bidding and contracting for a group of nine new residential programs at the Great Park totaling five seventy two homesites, which are being sold to six builders. Speaker 100:08:00We still anticipate that these land sales will close either late third quarter or early fourth quarter of this year. We'll have more to report on these sales next quarter. I've also previously reported that the City Of Irvine completed its state mandated regional housing needs assessment, general plan and zoning updates for the Great Park planning area, which will provide the Great Park Venture with the opportunity to convert some or substantial portions of its remaining commercial land holdings to a residential uses. We continue to work with the city to expand our residential opportunities on our remaining land consistent with the Arena program adopted by the city. Now let me discuss Valencia, our other active community. Speaker 100:08:42As a reminder, Valencia is in the early stages of its development and still has many future phases of land delivery ahead of it, which will enable us to provide much needed housing in the Los Angeles market. During the second quarter, our guest builders sold 49 new homes or 69 in quarter one. We currently have six actually selling programs in Valencia with one of those expected to sell out before year end. Additionally, we anticipate another four programs will open during the last 2025 providing a greater diversity of home offerings for prospective home buyers. We're continuing to work with builders on the potential sale of two new communities. Speaker 100:09:23As I previously discussed, we also continue to work with Los Angeles County and other agencies on our regulatory approvals for future development areas in Valencia that will allow us to deliver thousands of additional home sites in the county severely undersupplied market. In total, these developments are expected to consist of approximately 8,900 market rate home sites and 183 net acres of commercial land, approximately 139 of which is expected to cater towards industrial focused uses. Turning to San Francisco. We are currently working on our engineering for the next phase of infrastructure with the expectation of starting construction early next year. As we work on these plans, we continue to explore opportunities to bring in a strategic partner or other capital sources for this mixed use Bayfront community. Speaker 100:10:15So let me now move to the Hearthstone acquisition. As we recently announced, Five Point entered into an agreement to acquire controlling interest in newly formed entity that will include substantially all the business and operations of Hearthstone, a provider of capital solutions to The U. S. Homebuilding industry, a move that represents a meaningful step forward in our long term growth strategy. We believe that this acquisition provides Five Point with a number of benefits and opportunities. Speaker 100:10:43First, provides us with a platform to offer broader capital solutions for the many homebuilders that are already Five Point customers as they continue to adopt land light strategies. We believe this will help fortify their already strong relationship with these customers and will add new ones. Second, this acquisition enhances Five Point's evolution into a capital allocator and manager of institutional capital through joint venture structures which complements our deep land development expertise. Third, with a proven national platform, Harson allows us to immediately expand our geographic reach, client relationships and capabilities. Fourth and most importantly, it introduces recurring revenue streams while also connecting us to a broader network of institutional capital providers and builder clients. Speaker 100:11:36We're well on our way to obtaining all the necessary third party consents and we anticipate that the acquisition will close during the third quarter. Let me conclude by saying that while homebuilders are navigating the market uncertainty caused in part by reduced consumer confidence, our balance sheet and liquidity position allow us the flexibility to patiently optimize our land values while still working with our guest builders to ensure the prudent development of our master plan communities. Fundamentally, land is still about location and scarcity. We have well located land in extremely supply constrained markets. Now let me turn over Speaker 200:12:14to Mike, who will provide more information on the Hearthstone acquisition and will discuss Five Point's continued focus on additional growth opportunities. Thanks Dan. Let me briefly provide some additional information about our vision for the possibilities with a new Hearthstone venture, as well as our continued efforts to pursue additional growth opportunities. As Dan mentioned, this represents a targeted acquisition for Five Point and is the realization of our efforts to better serve the land light strategy that a number of publicly traded homebuilders have gravitated towards in recent years. It's been reported that over 70% of land pipelines for homebuilders are optioned rather than purchased outright and that the public homebuilders buy and develop over $35,000,000,000 in land per year. Speaker 200:13:02We believe our venture has the opportunity to capture a meaningful portion of that market. For those of you who may not be familiar with Hearthstone, they are a market leader in providing these off balance sheet capital solutions to U. S. Homebuilders, with current assets under management of approximately $2,600,000,000 Hearthstone started its slot option program back in 1996, and we believe they are the only lot option investor operating today that has been through multiple business cycles, including the great financial crisis. Over time, the land banking space has become increasingly important as homebuilders have strategically sought to avoid holding land on their balance sheets and have come to rely upon land banking and capital partnerships to secure homesites. Speaker 200:13:50Hearthstone's model is perfectly aligned with a shift and their proven platform provides Five Point with immediate scale and credibility in this space. Heartstone's disciplined underwriting and their focus on risk managed capital deployment aligned with Five Point's commitment to delivering strong long term returns for shareholders. Our Stone's experienced team combined with Five Point's public company infrastructure and development capabilities will allow us to grow the new venture efficiently and responsibly. For Five Point, this venture helps our transition into an asset light structure, where almost all of the capital for the lot option investments will be provided by third party capital sources through a joint venture arrangement. Hearthstone serves as the operator in these joint ventures and earns asset management fees that are payable monthly and additional performance based fees when certain financial hurdles are met, while typically only having to contribute 1% of the venture's equity needs. Speaker 200:14:59Beyond the immediate financial benefits, we believe that Hearthstone's relationships with capital providers and builders across the country will complement Five Point's existing relationships and will unlock additional strategic growth opportunities for Five Point. As part of that growth, we see a major opportunity in the mid term land market, a segment currently underserved by traditional capital providers. We have already had conversations with capital providers and builders who have expressed an interest in discussing joint ventures or acquisition opportunities for land that does not fit in the shorter term land banking model. These are the types of assets that fit into the core of what we do as a land development company. In sum, this is not just an acquisition. Speaker 200:15:49It's a strategic move that reinforces our position in the evolving housing ecosystem and positions us for long term sustainable growth. Now let me turn it over to Kim to report on our financial results for the quarter. Speaker 300:16:04Thank you, Mike. As Dan and Mike have shared, we are very excited about the progress Five Point is making in executing on our strategic priorities, including the Hearthstone transaction and the potential it provides to drive revenue growth for the company. I'm now going to review our second quarter financial results and some information about our expectations for the Hearthstone venture. Then I will conclude by updating the guidance of what we are expecting in 2025. In the second quarter, we recognized $8,600,000 of net income, bringing us to $69,200,000 for the six months ended June 30. Speaker 300:16:43The quarter's net income is made up of the following two components. We recognized $17,100,000 of equity and earnings from our unconsolidated entities, 16,700,000.0 of which came from the Great Park Venture. The equity and earnings from the Great Park Venture was attributable to net income of $48,400,000 which resulted from land sales revenue of $63,600,000 and a 75% gross margin. The venture also had $8,600,000 of price participation and profit participation revenue in the aggregate as the venture enjoys revenue streams that come from these different types of land sales structures. Five Point added $7,000,000 of management services revenue, 30,600,000.0 of which is associated with incentive compensation from the Great Park Venture. Speaker 300:17:38Our second quarter SG and A was $15,600,000 And finally, we recognized $1,300,000 of tax expense. Now let me provide a little detail about our liquidity and cash. As Dan mentioned, we ended the quarter with $456,600,000 of cash as well as $125,000,000 of availability on our revolving credit facility, resulting in total liquidity of $581,600,000 At the end of the quarter, our debt to total capitalization was 19.1% and our net debt was $68,400,000 During the quarter, our cash went down by $71,700,000 This was largely attributable to $32,000,000 of development costs at Valencia and interest on our senior notes of $27,500,000 While we had a sale at the Great Park Venture, the venture did not make a distribution this quarter and had a cash balance of $168,200,000 at quarter end. While Dan and Mike have shared a great deal about the Hearthstone transaction and the transformative nature of this acquisition, I thought I would give some limited information about the expected financial implications to Five Point. First, I want to emphasize that we haven't completed our accounting analysis for the transaction. Speaker 300:19:01So what I share is subject to the completion of that analysis after we close transaction. Since Five Point will own 75% of the common units in the Hearthstone Venture and will control the executive committee that manages the business and affairs of the Venture, we will be expecting to consolidate the activities of the Hearthstone Venture in our financial statements. These activities include asset management and co investment with the managed capital that is raised. As Mike mentioned, the Venture generally expects to invest 1% of the required capital alongside the capital that is raised to finance the lot option fund joint venture structures that it is managing. Please note that these fund structures are not expected to consolidate with Five Point. Speaker 300:19:51Some of those fund structures currently use limited amounts of borrowed capital to augment the equity capital. That indebtedness is not expected to be consolidated on Five Point's balance sheet. As I mentioned, this treatment is all subject to our final accounting analysis. Now if you reviewed our eight ks announcing the transaction, you may have noted that in addition to the $56,300,000 acquisition price, Five Point expects to contribute an additional $37,500,000 over time in order to fund the co investment as the assets under management grow, which as I mentioned is generally 1% of invested capital. Depending upon the amount of leverage that is utilized in the new funds, this would suggest that we can grow the assets under management from the current $2,600,000,000 to 7,000,000,000 or $8,000,000,000 We believe that this growth can occur over the next two to three years and that we can achieve that growth without materially increasing the personnel required to service those funds. Speaker 300:21:01The Hearthstone joint venture is expected to be profitable this year. However, we do not expect it to materially contribute to our results for 2025, but expect a larger contribution in 2026 and I will be giving more guidance in that regard at year end. I'd like to now update our guidance for the balance of 2025. We currently believe that we will end the year with net income consistent with last year's net income of $177,600,000 This change largely reflects the possibility that certain land sales might close in 2026 rather than 2025. As we mentioned last quarter, we continue to monitor the debt markets and remain ready to consummate a right refinance transaction for our senior notes, including a pay down of some amount of principal when we determine it is prudent to do so. Speaker 300:21:56With that, let me turn it back to the operator who will now open it up for questions. Operator00:22:03Thank you. We'll now be conducting a question and answer Thank you. Our first question is from Alan Ratner with Zelman and Associates. Speaker 400:22:37Hey guys, good afternoon. Congrats on the Hearthstone deal, exciting growth opportunity for company. I know you'll give more 26 color in a few months, but I just I'm curious in terms of the economics of it, should we just think broadly as that business kind of being a percentage of assets under management less some type of personnel expenses? Is that the right way to think about modeling that longer term? Speaker 300:23:03Yes. Alan. That's the way you should look at that. Speaker 400:23:07Okay, great. And then just in terms of the business itself, there's been quite a few new entrants into the land banking space over the last year or two and we've seen generally kind of terms and structures getting more competitive in that space. Think specifically with Millrose and smaller deposits and kind of smaller interest carry compared to what we've heard was kind of ongoing previously in the private arena. Have you given any contemplation to kind of products or new terms or financing vehicles that you're going to be offering the public community to get that assets under management up to 7,000,000,000 or 8,000,000,000 over the next few years? Speaker 100:23:53Thanks, Alan for that question. It's a very good question. You're right. There is a lot of let's just say movement in this space right now. But what I think what we see out there is that demand is much greater than current supply. Speaker 100:24:10So we don't need to really make any changes from what we're currently or what Hearthstone is currently doing. Working with them, we're going to hopefully expand their capital base and there should be a lot more there's a lot of need in this space in the homebuilding world. So we don't think we have to change anything. Hearthstone's got a great platform and business model and we think we can stay consistent with that. Speaker 400:24:36Great. I appreciate that, Dan. So pivoting to, I guess, the core business, if you will, just on the land side. We've been hearing from a lot of public builders the last few days about their business. It seems like everybody is pulling back starts, they're pulling back land spend. Speaker 400:24:53Your projects are unique in that they're obviously very desirable in both good and bad markets. But a lot of management teams are talking about the possibility of achieving lower land prices from sellers and just getting some capitulation on that front. I'm curious when you think about the guidance for the land sale later this year, I know you kind of mentioned the reduction is more, I think, a timing thing, maybe some of those deals get pushed out to 26. But are you contemplating the possibility of potentially lower pricing in either Great Park or Valencia, either on a per lot basis or per acre basis compared to what you've achieved more recently given what we're hearing from the builders recently? Speaker 100:25:39Alan, I've actually been reading the same things you've been reading. But California is so supply constrained and unique. They can't really they can't replace the land that's here. But we are not we will work with our builder partners to the extent that they reach out to us. But I think at this point, we do think that we've got the ability to let this market kind of settle down hopefully and move our still move our land forward as we are planning. Speaker 100:26:19But at this point, I think that the uncertainty in the market is just going to have to play out just a little bit longer. And so we are at this point are thinking more about just trying to work with our existing builders and keep our land sales moving forward. Speaker 400:26:41Got it. That's helpful, Dan. Then final one for me on the land development cost side. When you think about Valencia and the development work out ahead of you there and then hopefully eventually San Francisco gets up and running. We've also heard a lot about potential for driving land development costs lower, kind of given everything that's going on in the market. Speaker 400:27:02And I know your Chairman who's on the line has talked a lot about potentially utilizing AI as a tool to also leverage that part of the business. So I'm curious if that longer term you're kind of optimistic that that might filter through to Five Points business specifically in the two projects that have a lot of development work out ahead of them? Speaker 100:27:24I think, Alan, the broad answer to that is that technology progresses. We're hoping it really helps us really try to be able to manage our land development work better, analyze it better. Ultimately, still we're going to be in a very kind of physical moving dirt is not going to change. But hopefully, can move it smarter and more efficiently. And I think there is some technology that people are working on that can help us there. Speaker 100:27:52But for this point, we haven't changed any of our budgeting or our thoughts around that, as we think about our future development. But we are hopeful that it can make us more efficient in moving the dirt. Speaker 400:28:05Great. Thanks a lot and good luck with everything. Speaker 100:28:07Thank you, Alan. Operator00:28:18Our next question is from David Lundgren, Private Investor. Speaker 500:28:24Yes. Hi. Thank you for taking my question. I had a question about the using your cash. I don't know if you consider using some of the cash to buy back shares? Speaker 300:28:38David, yes, thanks for asking. A number of people are interested in that question. Currently, our senior note indenture, we are not able to do that. So that's part of what we're looking at as we look to perhaps refinance those notes. Speaker 500:28:54Okay. And then I mean, I guess the elephant in the room that rarely gets discussed on these calls is that the stock price being well below book value. And I've been a shareholder for many years. And I'm curious like if you're ever going to try to address that or look into reasons why the market isn't valuing you where you should be. And I think as an investor, I think one of the reasons you're not valued at the appropriate stock price is because of your corporate structure, which is very confusing. Speaker 500:29:23And this recent deal to buy Hearthstone is making everything more confusing because you're buying 75%. So now you have you're adding like another serpentine layer. So I don't think that this new transaction helps with the corporate structure. I think if you could somehow simplify the corporate structure, maybe that might help the share price. But as a long term shareholder, I'm just wondering if you're is this a concern for you that the stock price doesn't reflect the true value, the fact that you're well below book value? Speaker 300:29:53David, I appreciate that question. First of all, I want to answer directly about Hearthstone. Hearthstone, when it since it will consolidate, it will not add to any complication, if you will. We'll own 75%, but we'll report 100%. But as it relates overall to the concern about the difference between the book value and the fair market value of the stock at this time, I appreciate the difficult structure that exists, but there are advantages to it from the tax side and other elements that are very important to the company. Speaker 300:30:33And additionally, I think at another time, we might go through kind of the elements that are associated with the stock going down in value. But we see it rising and continuing to rise over the next several years. Speaker 500:30:47Okay. Well, thank you for answering my questions. I think you guys are executing really well. I just I'm just always wondering why the stock price doesn't reflect that. So but thank you for answering my questions. Operator00:31:04Thank you. Our next question is from Ben Fader Ratner with Nexus Capital. Speaker 600:31:11Hi. I just wanted to clarify something that you said. You said that there would be some debt pay down when you eventually refi the bonds. I think previously, you talked about 100,000,000 to $200,000,000 of debt paydown. Is that still the right number? Speaker 300:31:31Ben, this is Kim. Thank you. That will be determined at the time when we enter into the transaction. I don't know what it will be at that time. Given that the market is changing daily, it's important for us to assess our needs and everything as that day comes. Operator00:32:00Thank you. There are no further questions at this time. I'd like to hand the floor back over to Dan Hetigan for any closing comments. Speaker 100:32:09Thank you, Paul. On behalf of our management team, we thank you for joining us on today's call. We look forward to speaking with you next quarter. Operator00:32:22This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.Read morePowered by Earnings DocumentsPress Release(8-K)Quarterly report(10-Q) Five Point Earnings HeadlinesFive Point anticipates year-end net income in line with $177.6M 2024 result while advancing Hearthstone acquisitionJuly 25 at 1:57 PM | msn.comFive Point Holdings LLC (FPH) Q2 2025 Earnings Call Highlights: Strategic Growth Amid Market ...July 25 at 1:57 PM | finance.yahoo.comYour Bank Account Is No Longer SafeWhat If Washington Declared That: YOUR Money ISN'T Actually Yours? Sounds insane, but that's exactly what the Department of Justice just admitted in court—claiming cash isn't legally your property. What does that mean? It means Washington thinks they can seize, freeze, or drain your accounts—whenever they want.July 25 at 2:00 AM | Priority Gold (Ad)Five Point Q2 Revenue Drops 85 PercentJuly 25 at 10:05 AM | fool.comFive Point Holdings, LLC (FPH) Q2 2025 Earnings Call TranscriptJuly 24 at 9:30 PM | seekingalpha.comFive Point Holdings, LLC Reports Second Quarter 2025 ResultsJuly 24 at 4:10 PM | businesswire.comSee More Five Point Headlines Get Earnings Announcements in your inboxWant to stay updated on the latest earnings announcements and upcoming reports for companies like Five Point? Sign up for Earnings360's daily newsletter to receive timely earnings updates on Five Point and other key companies, straight to your email. Email Address About Five PointFive Point (NYSE:FPH), through its subsidiary, Five Point Operating Company, LP, owns and develops mixed-use and planned communities in Orange County, Los Angeles County, and San Francisco County. The company operates in four segments: Valencia, San Francisco, Great Park, and Commercial. It sells residential and commercial land sites to homebuilders, commercial developers, and commercial buyers; operates and owns a commercial office, research and development, medical campus, and other properties; and provides development and property management services. The company was formerly known as Newhall Holding Company, LLC and changed its name to Five Point Holdings, LLC in May 2016. 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There are 7 speakers on the call. Operator00:00:00Greetings, and welcome to the Five Point Holdings Second Quarter twenty twenty five 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, acquisitions 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. Operator00:00:33Many 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 filings 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 ks 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 Hetigan, President and Chief Executive Officer. Speaker 100:01:09Thank you, Paul. Good afternoon, and thank you for joining our call. I have with me today Mike Alvarado, our Chief Operating Officer and Chief Legal Officer Kim Tobler, our Chief Financial Officer and Leo Key, 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, which reflects the company's consistent cadence of quarterly profitability. Speaker 100:01:38I'll provide a snapshot of the status of the company's current operations including our strategic priorities and expectations for remainder of 2025. I'll also provide a brief update on our announced acquisition of 75% of the Hearthstone land banking and residential advisory platform. Additionally, I've asked Mike to discuss the Hearthstone acquisition and Five Point's growth strategy in more detail. And finally, Kim will give an overview of the company's financial performance and condition with updated guidance for the remainder of 2025. We will then open the line for questions. Speaker 100:02:17I'd like to ask that you please limit yourself to one question and one follow-up. Turning to the second quarter, I'm pleased to report another profitable quarter for Five Point. We had anticipated that Q2 would be relatively quiet in comparison to the beginning and end of the year. However, we remained profitable and generated net income of $8,600,000 which is largely in line with our guidance for the quarter. The primary driver of this profitability was Great Park land sales. Speaker 100:02:47The Great Park Venture closed on a residential land sale consisting of 82 home sites on approximately 5.7 acres for aggregate purchase price of $63,600,000 This enabled the Great Park Venture to generate net income of $48,400,000 during the quarter, our share of which adjusted for basis differences was $16,700,000 From a balance sheet perspective, we finished the quarter with total liquidity of $581,600,000 comprised of cash and cash equivalents totaling $456,600,000 and borrowing availability of 125,000,000 under our unsecured revolving credit facility. Against that backdrop, residential markets in general have weakened as a result of higher interest rates and lower consumer confidence. This has been widely reported by many of our builder customers as they have reported in their earnings calls. Nevertheless, our results reflect our continued focus on generating revenue, controlling our expenses and managing our capital spend. As we look at the remainder of the year, we expect a strong finish to 2025 with anticipated residential land sale closings at the Great Park in Q3 and Q4, notwithstanding current uncertainty in the homebuilding industry. Speaker 100:04:12While these challenges are leading to slower new home sales by many of the public builders, to our benefit, our existing communities are located in California markets that are chronically undersupplied. Even with the current market conditions, there is continued interest in our communities. On my last call, I indicated that we believe we were on track to meet our prior guidance with estimated earnings for 2025 that would exceed twenty twenty four's net income of $177,600,000 Even in light of the current market environment, we believe that we will end the year with net income consistent with last year's earnings. Obviously, the market is very dynamic at this moment and we will continue to monitor evolving market conditions as the year progresses. Kim will provide more details on our guidance for the remainder of 2025 during his remarks. Speaker 100:05:07Now let me turn briefly to our current operating strategy. As a reminder, the key elements of this strategy are first, optimizing homesite value within our existing three premier master plan communities by matching homesite sales to current homebuilder demand. As I mentioned, homebuilder demand is softening currently. Now withstanding these current conditions, we are positioned to remain patient and continue to optimize the value in our uniquely positioned land, which should allow us to maintain the margins embedded in that value. Second, we are carefully managing our fixed costs and overhead even while we pursue growth opportunities. Speaker 100:05:47Although there are additional costs associated with our planned growth, we're maintaining our lean operating structure. We anticipate that our acquisition of Hearthstone will be accretive to earnings, notwithstanding the additional labor costs associated with the acquisition. Third, we're continuing to match development expenditures with revenue generation to ensure that we are not deploying cash too far out in front of the needs of the development. And fourth, while we anticipate closing Hearthstone in the third quarter and we'll be working to integrate its operations into our platform, we'll continue to seek growth opportunities on an opportunistic basis through new acquisitions, joint ventures and strategic relationships. Our focus will remain on these strategic elements of our operating platform as we produce recurring earnings along with sustainable long term growth. Speaker 100:06:39With that said, the members of our executive team have all been in this business long enough to know we'll need to navigate through uncertainty from time to time. Let me now provide you with some updates on our communities. Of note, across both are actually selling new home communities, Great Park and Valencia, we have seen a slowdown in new home sales since early April. At this time, given the housing shortage, we believe this is a temporary condition in the new home market, which will self correct over the next quarters. As I mentioned earlier, the market is very dynamic at this moment and we will continue to monitor and adjust as warranted by conditions at both the national and local levels. Speaker 100:07:22So let me turn first to our Great Park Neighborhoods community. During the second quarter, builders in this community sold 112 homes versus two thirty three homes in Q1 of twenty twenty five. We currently have 13 actually selling programs in the Great Park, roughly half of which we expect to be sold out by the end of twenty twenty five. 10 additional programs are anticipated to start sales later this year. I also previously reported the completion of bidding and contracting for a group of nine new residential programs at the Great Park totaling five seventy two homesites, which are being sold to six builders. Speaker 100:08:00We still anticipate that these land sales will close either late third quarter or early fourth quarter of this year. We'll have more to report on these sales next quarter. I've also previously reported that the City Of Irvine completed its state mandated regional housing needs assessment, general plan and zoning updates for the Great Park planning area, which will provide the Great Park Venture with the opportunity to convert some or substantial portions of its remaining commercial land holdings to a residential uses. We continue to work with the city to expand our residential opportunities on our remaining land consistent with the Arena program adopted by the city. Now let me discuss Valencia, our other active community. Speaker 100:08:42As a reminder, Valencia is in the early stages of its development and still has many future phases of land delivery ahead of it, which will enable us to provide much needed housing in the Los Angeles market. During the second quarter, our guest builders sold 49 new homes or 69 in quarter one. We currently have six actually selling programs in Valencia with one of those expected to sell out before year end. Additionally, we anticipate another four programs will open during the last 2025 providing a greater diversity of home offerings for prospective home buyers. We're continuing to work with builders on the potential sale of two new communities. Speaker 100:09:23As I previously discussed, we also continue to work with Los Angeles County and other agencies on our regulatory approvals for future development areas in Valencia that will allow us to deliver thousands of additional home sites in the county severely undersupplied market. In total, these developments are expected to consist of approximately 8,900 market rate home sites and 183 net acres of commercial land, approximately 139 of which is expected to cater towards industrial focused uses. Turning to San Francisco. We are currently working on our engineering for the next phase of infrastructure with the expectation of starting construction early next year. As we work on these plans, we continue to explore opportunities to bring in a strategic partner or other capital sources for this mixed use Bayfront community. Speaker 100:10:15So let me now move to the Hearthstone acquisition. As we recently announced, Five Point entered into an agreement to acquire controlling interest in newly formed entity that will include substantially all the business and operations of Hearthstone, a provider of capital solutions to The U. S. Homebuilding industry, a move that represents a meaningful step forward in our long term growth strategy. We believe that this acquisition provides Five Point with a number of benefits and opportunities. Speaker 100:10:43First, provides us with a platform to offer broader capital solutions for the many homebuilders that are already Five Point customers as they continue to adopt land light strategies. We believe this will help fortify their already strong relationship with these customers and will add new ones. Second, this acquisition enhances Five Point's evolution into a capital allocator and manager of institutional capital through joint venture structures which complements our deep land development expertise. Third, with a proven national platform, Harson allows us to immediately expand our geographic reach, client relationships and capabilities. Fourth and most importantly, it introduces recurring revenue streams while also connecting us to a broader network of institutional capital providers and builder clients. Speaker 100:11:36We're well on our way to obtaining all the necessary third party consents and we anticipate that the acquisition will close during the third quarter. Let me conclude by saying that while homebuilders are navigating the market uncertainty caused in part by reduced consumer confidence, our balance sheet and liquidity position allow us the flexibility to patiently optimize our land values while still working with our guest builders to ensure the prudent development of our master plan communities. Fundamentally, land is still about location and scarcity. We have well located land in extremely supply constrained markets. Now let me turn over Speaker 200:12:14to Mike, who will provide more information on the Hearthstone acquisition and will discuss Five Point's continued focus on additional growth opportunities. Thanks Dan. Let me briefly provide some additional information about our vision for the possibilities with a new Hearthstone venture, as well as our continued efforts to pursue additional growth opportunities. As Dan mentioned, this represents a targeted acquisition for Five Point and is the realization of our efforts to better serve the land light strategy that a number of publicly traded homebuilders have gravitated towards in recent years. It's been reported that over 70% of land pipelines for homebuilders are optioned rather than purchased outright and that the public homebuilders buy and develop over $35,000,000,000 in land per year. Speaker 200:13:02We believe our venture has the opportunity to capture a meaningful portion of that market. For those of you who may not be familiar with Hearthstone, they are a market leader in providing these off balance sheet capital solutions to U. S. Homebuilders, with current assets under management of approximately $2,600,000,000 Hearthstone started its slot option program back in 1996, and we believe they are the only lot option investor operating today that has been through multiple business cycles, including the great financial crisis. Over time, the land banking space has become increasingly important as homebuilders have strategically sought to avoid holding land on their balance sheets and have come to rely upon land banking and capital partnerships to secure homesites. Speaker 200:13:50Hearthstone's model is perfectly aligned with a shift and their proven platform provides Five Point with immediate scale and credibility in this space. Heartstone's disciplined underwriting and their focus on risk managed capital deployment aligned with Five Point's commitment to delivering strong long term returns for shareholders. Our Stone's experienced team combined with Five Point's public company infrastructure and development capabilities will allow us to grow the new venture efficiently and responsibly. For Five Point, this venture helps our transition into an asset light structure, where almost all of the capital for the lot option investments will be provided by third party capital sources through a joint venture arrangement. Hearthstone serves as the operator in these joint ventures and earns asset management fees that are payable monthly and additional performance based fees when certain financial hurdles are met, while typically only having to contribute 1% of the venture's equity needs. Speaker 200:14:59Beyond the immediate financial benefits, we believe that Hearthstone's relationships with capital providers and builders across the country will complement Five Point's existing relationships and will unlock additional strategic growth opportunities for Five Point. As part of that growth, we see a major opportunity in the mid term land market, a segment currently underserved by traditional capital providers. We have already had conversations with capital providers and builders who have expressed an interest in discussing joint ventures or acquisition opportunities for land that does not fit in the shorter term land banking model. These are the types of assets that fit into the core of what we do as a land development company. In sum, this is not just an acquisition. Speaker 200:15:49It's a strategic move that reinforces our position in the evolving housing ecosystem and positions us for long term sustainable growth. Now let me turn it over to Kim to report on our financial results for the quarter. Speaker 300:16:04Thank you, Mike. As Dan and Mike have shared, we are very excited about the progress Five Point is making in executing on our strategic priorities, including the Hearthstone transaction and the potential it provides to drive revenue growth for the company. I'm now going to review our second quarter financial results and some information about our expectations for the Hearthstone venture. Then I will conclude by updating the guidance of what we are expecting in 2025. In the second quarter, we recognized $8,600,000 of net income, bringing us to $69,200,000 for the six months ended June 30. Speaker 300:16:43The quarter's net income is made up of the following two components. We recognized $17,100,000 of equity and earnings from our unconsolidated entities, 16,700,000.0 of which came from the Great Park Venture. The equity and earnings from the Great Park Venture was attributable to net income of $48,400,000 which resulted from land sales revenue of $63,600,000 and a 75% gross margin. The venture also had $8,600,000 of price participation and profit participation revenue in the aggregate as the venture enjoys revenue streams that come from these different types of land sales structures. Five Point added $7,000,000 of management services revenue, 30,600,000.0 of which is associated with incentive compensation from the Great Park Venture. Speaker 300:17:38Our second quarter SG and A was $15,600,000 And finally, we recognized $1,300,000 of tax expense. Now let me provide a little detail about our liquidity and cash. As Dan mentioned, we ended the quarter with $456,600,000 of cash as well as $125,000,000 of availability on our revolving credit facility, resulting in total liquidity of $581,600,000 At the end of the quarter, our debt to total capitalization was 19.1% and our net debt was $68,400,000 During the quarter, our cash went down by $71,700,000 This was largely attributable to $32,000,000 of development costs at Valencia and interest on our senior notes of $27,500,000 While we had a sale at the Great Park Venture, the venture did not make a distribution this quarter and had a cash balance of $168,200,000 at quarter end. While Dan and Mike have shared a great deal about the Hearthstone transaction and the transformative nature of this acquisition, I thought I would give some limited information about the expected financial implications to Five Point. First, I want to emphasize that we haven't completed our accounting analysis for the transaction. Speaker 300:19:01So what I share is subject to the completion of that analysis after we close transaction. Since Five Point will own 75% of the common units in the Hearthstone Venture and will control the executive committee that manages the business and affairs of the Venture, we will be expecting to consolidate the activities of the Hearthstone Venture in our financial statements. These activities include asset management and co investment with the managed capital that is raised. As Mike mentioned, the Venture generally expects to invest 1% of the required capital alongside the capital that is raised to finance the lot option fund joint venture structures that it is managing. Please note that these fund structures are not expected to consolidate with Five Point. Speaker 300:19:51Some of those fund structures currently use limited amounts of borrowed capital to augment the equity capital. That indebtedness is not expected to be consolidated on Five Point's balance sheet. As I mentioned, this treatment is all subject to our final accounting analysis. Now if you reviewed our eight ks announcing the transaction, you may have noted that in addition to the $56,300,000 acquisition price, Five Point expects to contribute an additional $37,500,000 over time in order to fund the co investment as the assets under management grow, which as I mentioned is generally 1% of invested capital. Depending upon the amount of leverage that is utilized in the new funds, this would suggest that we can grow the assets under management from the current $2,600,000,000 to 7,000,000,000 or $8,000,000,000 We believe that this growth can occur over the next two to three years and that we can achieve that growth without materially increasing the personnel required to service those funds. Speaker 300:21:01The Hearthstone joint venture is expected to be profitable this year. However, we do not expect it to materially contribute to our results for 2025, but expect a larger contribution in 2026 and I will be giving more guidance in that regard at year end. I'd like to now update our guidance for the balance of 2025. We currently believe that we will end the year with net income consistent with last year's net income of $177,600,000 This change largely reflects the possibility that certain land sales might close in 2026 rather than 2025. As we mentioned last quarter, we continue to monitor the debt markets and remain ready to consummate a right refinance transaction for our senior notes, including a pay down of some amount of principal when we determine it is prudent to do so. Speaker 300:21:56With that, let me turn it back to the operator who will now open it up for questions. Operator00:22:03Thank you. We'll now be conducting a question and answer Thank you. Our first question is from Alan Ratner with Zelman and Associates. Speaker 400:22:37Hey guys, good afternoon. Congrats on the Hearthstone deal, exciting growth opportunity for company. I know you'll give more 26 color in a few months, but I just I'm curious in terms of the economics of it, should we just think broadly as that business kind of being a percentage of assets under management less some type of personnel expenses? Is that the right way to think about modeling that longer term? Speaker 300:23:03Yes. Alan. That's the way you should look at that. Speaker 400:23:07Okay, great. And then just in terms of the business itself, there's been quite a few new entrants into the land banking space over the last year or two and we've seen generally kind of terms and structures getting more competitive in that space. Think specifically with Millrose and smaller deposits and kind of smaller interest carry compared to what we've heard was kind of ongoing previously in the private arena. Have you given any contemplation to kind of products or new terms or financing vehicles that you're going to be offering the public community to get that assets under management up to 7,000,000,000 or 8,000,000,000 over the next few years? Speaker 100:23:53Thanks, Alan for that question. It's a very good question. You're right. There is a lot of let's just say movement in this space right now. But what I think what we see out there is that demand is much greater than current supply. Speaker 100:24:10So we don't need to really make any changes from what we're currently or what Hearthstone is currently doing. Working with them, we're going to hopefully expand their capital base and there should be a lot more there's a lot of need in this space in the homebuilding world. So we don't think we have to change anything. Hearthstone's got a great platform and business model and we think we can stay consistent with that. Speaker 400:24:36Great. I appreciate that, Dan. So pivoting to, I guess, the core business, if you will, just on the land side. We've been hearing from a lot of public builders the last few days about their business. It seems like everybody is pulling back starts, they're pulling back land spend. Speaker 400:24:53Your projects are unique in that they're obviously very desirable in both good and bad markets. But a lot of management teams are talking about the possibility of achieving lower land prices from sellers and just getting some capitulation on that front. I'm curious when you think about the guidance for the land sale later this year, I know you kind of mentioned the reduction is more, I think, a timing thing, maybe some of those deals get pushed out to 26. But are you contemplating the possibility of potentially lower pricing in either Great Park or Valencia, either on a per lot basis or per acre basis compared to what you've achieved more recently given what we're hearing from the builders recently? Speaker 100:25:39Alan, I've actually been reading the same things you've been reading. But California is so supply constrained and unique. They can't really they can't replace the land that's here. But we are not we will work with our builder partners to the extent that they reach out to us. But I think at this point, we do think that we've got the ability to let this market kind of settle down hopefully and move our still move our land forward as we are planning. Speaker 100:26:19But at this point, I think that the uncertainty in the market is just going to have to play out just a little bit longer. And so we are at this point are thinking more about just trying to work with our existing builders and keep our land sales moving forward. Speaker 400:26:41Got it. That's helpful, Dan. Then final one for me on the land development cost side. When you think about Valencia and the development work out ahead of you there and then hopefully eventually San Francisco gets up and running. We've also heard a lot about potential for driving land development costs lower, kind of given everything that's going on in the market. Speaker 400:27:02And I know your Chairman who's on the line has talked a lot about potentially utilizing AI as a tool to also leverage that part of the business. So I'm curious if that longer term you're kind of optimistic that that might filter through to Five Points business specifically in the two projects that have a lot of development work out ahead of them? Speaker 100:27:24I think, Alan, the broad answer to that is that technology progresses. We're hoping it really helps us really try to be able to manage our land development work better, analyze it better. Ultimately, still we're going to be in a very kind of physical moving dirt is not going to change. But hopefully, can move it smarter and more efficiently. And I think there is some technology that people are working on that can help us there. Speaker 100:27:52But for this point, we haven't changed any of our budgeting or our thoughts around that, as we think about our future development. But we are hopeful that it can make us more efficient in moving the dirt. Speaker 400:28:05Great. Thanks a lot and good luck with everything. Speaker 100:28:07Thank you, Alan. Operator00:28:18Our next question is from David Lundgren, Private Investor. Speaker 500:28:24Yes. Hi. Thank you for taking my question. I had a question about the using your cash. I don't know if you consider using some of the cash to buy back shares? Speaker 300:28:38David, yes, thanks for asking. A number of people are interested in that question. Currently, our senior note indenture, we are not able to do that. So that's part of what we're looking at as we look to perhaps refinance those notes. Speaker 500:28:54Okay. And then I mean, I guess the elephant in the room that rarely gets discussed on these calls is that the stock price being well below book value. And I've been a shareholder for many years. And I'm curious like if you're ever going to try to address that or look into reasons why the market isn't valuing you where you should be. And I think as an investor, I think one of the reasons you're not valued at the appropriate stock price is because of your corporate structure, which is very confusing. Speaker 500:29:23And this recent deal to buy Hearthstone is making everything more confusing because you're buying 75%. So now you have you're adding like another serpentine layer. So I don't think that this new transaction helps with the corporate structure. I think if you could somehow simplify the corporate structure, maybe that might help the share price. But as a long term shareholder, I'm just wondering if you're is this a concern for you that the stock price doesn't reflect the true value, the fact that you're well below book value? Speaker 300:29:53David, I appreciate that question. First of all, I want to answer directly about Hearthstone. Hearthstone, when it since it will consolidate, it will not add to any complication, if you will. We'll own 75%, but we'll report 100%. But as it relates overall to the concern about the difference between the book value and the fair market value of the stock at this time, I appreciate the difficult structure that exists, but there are advantages to it from the tax side and other elements that are very important to the company. Speaker 300:30:33And additionally, I think at another time, we might go through kind of the elements that are associated with the stock going down in value. But we see it rising and continuing to rise over the next several years. Speaker 500:30:47Okay. Well, thank you for answering my questions. I think you guys are executing really well. I just I'm just always wondering why the stock price doesn't reflect that. So but thank you for answering my questions. Operator00:31:04Thank you. Our next question is from Ben Fader Ratner with Nexus Capital. Speaker 600:31:11Hi. I just wanted to clarify something that you said. You said that there would be some debt pay down when you eventually refi the bonds. I think previously, you talked about 100,000,000 to $200,000,000 of debt paydown. Is that still the right number? Speaker 300:31:31Ben, this is Kim. Thank you. That will be determined at the time when we enter into the transaction. I don't know what it will be at that time. Given that the market is changing daily, it's important for us to assess our needs and everything as that day comes. Operator00:32:00Thank you. There are no further questions at this time. I'd like to hand the floor back over to Dan Hetigan for any closing comments. Speaker 100:32:09Thank you, Paul. On behalf of our management team, we thank you for joining us on today's call. We look forward to speaking with you next quarter. Operator00:32:22This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.Read morePowered by