Greetings, and welcome to the Five Point Holdings third quarter 2026 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 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. 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 Factor section of Five Point's most recent annual report on Form 10-K filed with the SEC.
Please note that Five Point assumes no obligation to update any forward-looking statements. Now, I would like to turn the call over to Dan Hedigan, President and Chief Executive Officer.
Thank you. Good afternoon, everyone, and thank you for joining us today for review of Five Point's third quarter results and a discussion of our outlook. I have with me today Mike Alvarado, our Chief Operating Officer and Chief Legal Officer, Kim Tobler, our Chief Financial Officer, and Leo Kij, our Senior Vice President of Finance and Reporting. Stuart Miller, our Executive Chairman, is joining us remotely. Today, I'll review our third quarter results and outlook for the remainder of the year. Mike will then discuss our operational highlights in more detail. After which, Kim will review our financial results. We will then open the line for questions. During the third quarter, we continued making progress on several important fronts, even as market conditions have remained uncertain, with higher interest rates driven by inflation concerns and weaker consumer confidence.
Against this backdrop, we are focused on maximizing the long-term value of our California master-planned communities, while we are also expanding our relationships with leading home builders for our Hearthstone Residential Land Banking platform. Our long-term strategy remains unchanged. We are focused on building a more diversified company that combines a significant embedded value in our strategic cash-generating assets, along with a growing stream of recurring asset-light fee-based income. We believe these complementary businesses provide Five Point with multiple avenues for long-term value creation. Perhaps most importantly, we continue to maintain a strong balance sheet, which gives us the financial flexibility to execute our strategy while navigating the current challenges in the housing market. Turning to our financial results. Five Point generated consolidated revenue of $14.6 million for the third quarter and a small consolidated net loss of $4.4 million.
As we detailed in our second quarter call, we did not close any significant land sale transactions at our active communities in the third quarter. As we have discussed previously, the timing and size of individual land sale transactions can create considerable variability in our reported quarterly earnings. Importantly, Great Park continued to generate meaningful cash for Five Point, with distributions and incentive compensation payments totaling $40.4 million during the quarter.
We ended September with $358.7 million in cash and cash equivalents, total liquidity of $576.2 million, and a debt to total capitalization ratio of 16.2%, which gives us a net debt to total capitalization ratio of just 3.8%. These metrics underscore the financial strength of our company and our ability to take a disciplined, long-term approach to managing our assets. As has been widely reported, the new home market has faced considerable challenges in recent months.
Higher mortgage rates driven by inflation and geopolitical uncertainty, along with weaker consumer confidence, have combined to pressure housing affordability and caused many prospective home buyers to delay purchasing decisions. Slowing home buyer demand influences our decisions regarding additional land sales as we carefully balance absorption and demand within our communities to preserve and maximize the value of our remaining land. As a result, we will likely elect to defer certain land sales that we previously anticipated closing in 2026 rather than transact in a less favorable market. Fortunately, as I said before, they're not making more land, and entitlements in California remain difficult to achieve, and land does not spoil. The strength of our balance sheet gives us the flexibility to be patient and pursue land sales when market conditions support the values we believe our assets deserve.
As a result, we now expect to generate a small amount of consolidated net income in the fourth quarter and to end the year with approximately $20 million in net income. I want to emphasize an important point. Our revised outlook reflects the anticipated timing of land transactions rather than a decision on our part to reduce land pricing to accelerate sales. While we cannot control market conditions, we can control how we manage our land portfolio and protect the value of our assets.
We remain focused on maximizing the long-term value of our land. We have consistently taken a disciplined and prudent approach to developing and monetizing our communities, and maintaining that discipline remains particularly important in the current environment. Despite the more challenging housing backdrop, we achieved several important milestones during the quarter. At Great Park, the venture renewed our development management agreement through December 31, 2028.
We believe this renewal reflects the value of our development expertise and our continued commitment to the successful execution of one of the country's premier master-planned communities. At Valencia, we made significant progress on entitlements, including approvals related to our Homestead South Village, which is planned for over 3,600 home sites. This represents an important step in expanding our inventory of entitled home sites and positions Valencia for future development and monetization. In San Francisco, we recently celebrated a groundbreaking for development activities at Candlestick, marking a significant milestone in advancing this unique waterfront property towards the next phase of development.
I've been involved in several master planned communities within California throughout my career, and I can say with conviction that opportunities to create an entire neighborhood of this scale from the ground up in a community as large and iconic as San Francisco simply do not come along very often. With 7,200 home sites, 2.8 million square feet of planned commercial space, and 550,000 sq f t of space for retail, hotel, entertainment, and other community uses, we envision creating a vibrant and multifaceted community that will contribute to San Francisco's future as a global hub of technology and innovation. Meanwhile, Hearthstone continues to broaden our participation in the home building industry nationally through strengthened relationships with institutional capital providers and home builders.
This asset management business adds an increasingly important source of recurring fee-based revenue and provides opportunities for growth that require substantially less direct balance sheet investment than traditional land development. Our balance sheet remains a cornerstone of our strategy. With more than $350 million in cash at quarter end, substantial additional borrowing capacity, and no scheduled debt maturities until 2030, we believe we are well-positioned to manage through the current housing cycle while continuing to invest in opportunities that create long-term value.
Our capital allocation philosophy remains focused on disciplined investment in our communities, expanding Hearthstone's capital-light business model, maintaining financial flexibility, and evaluating opportunities to enhance shareholder value. We believe strongly in the underlying value of our California land holdings and the long-term potential of Hearthstone. We remain committed to demonstrating that value through continued progress, thoughtful monetization of our assets, and growth in recurring fee-based income.
While the timing of ventures or transactions may affect quarterly earnings, we believe the fundamental strengths of our business remain intact. Our substantial portfolio of entitled California land, established relationships with leading home builders, growing national investment management platform, and strong financial position provide a solid foundation for future growth and shareholder value creation. We believe we have the right strategy, the right assets, and the financial flexibility to successfully navigate the current market environment. While we recognize the challenges facing the housing industry today, we remain optimistic about the opportunities ahead and confident in our ability to continue creating meaningful value for our shareholders. With that, I'll turn the call over to Mike for an update on our operating activities.
Thank you, Dan. I'll begin with an update on our California Master Plan communities, followed by a discussion of Hearthstone and the trends we're seeing across our home builder relationships. Starting with the Great Park, the venture continued advancing development activities during the third quarter. Builders sold 54 homes during the quarter, compared with 56 in the second quarter. While absorptions remain below the levels we would like to see, Great Park continues to benefit from its premier Orange County location, established infrastructure, and highly desirable residential communities. As Dan mentioned, we will likely elect to defer several land sale transactions that we previously anticipated closing in the fourth quarter. We continue to work closely with our builder partners to evaluate the timing and structure of land sales while remaining focused on protecting the long-term value of the land.
We also reached an important milestone with the renewal of our development management agreement through December of 2028. This agreement extends our role in managing the continued development of Great Park and provides an ongoing source of fee-based revenue. As a reminder, we are also entitled to incentive compensation payments equal to 9% of all distributions to the Great Park Venture partners. During the quarter, our Great Park Management Services business generated $7.4 million in revenue, bringing the year-to-date total to $23.4 million. We believe Great Park remains exceptionally well-positioned, supported by the scarcity of developable land in Orange County, the quality of the community, and the significant development opportunities that remain. Turning to Valencia, we made significant progress during the quarter on an important entitlement initiative that substantially expands our future development opportunities in Los Angeles.
In September, the Los Angeles County Board of Supervisors confirmed the approval of the Homestead South project that had first been approved by the Planning Commission earlier in the quarter. Homestead South encompasses approximately 752 acres and is planned for over 3,600 home sites. With this milestone, we have now more than 6,600 home sites in Los Angeles County that have approved subdivision maps, and we are working toward increasing that figure to approximately 10,000 over the coming quarters, subject to the remaining approval processes.
This represents an important addition to our portfolio of entitled land and supports our long-term strategy of creating value through the entitlement and development process. Importantly, securing entitlements across multiple villages provides us with optionality with respect to development sequencing and product segmentation that will allow us to thoughtfully allocate capital and optimize revenues at Valencia.
On the sales front, builders at Valencia sold 92 homes during the third quarter, compared with 78 homes in the second quarter. We continue working with our builder partners to manage inventory and position the community for future success. Valencia remains a significant revenue-generating opportunity for Five Point. Our continued investment in entitlements and infrastructure is designed to enhance the value and marketability of our land over time, while providing home builders with access to well-located home sites in a supply-constrained market. Moving up the coast, September marked an important milestone for our Candlestick development as we celebrated the groundbreaking for the next phase of development activities. The event was attended by San Francisco's Mayor Daniel Lurie and other prominent national and local officials, underscoring the importance of the project to the city and the surrounding community.
The groundbreaking marks an important transition from the planning and entitlement process toward physical development of the property. Like our work in our other active communities, we'll be grading and installing the fundamental infrastructure to support the future construction of homes, commercial space, parks, and community amenities that will create a vibrant and multifaceted destination that includes a mix of housing, employment, and recreation. We believe this project location, scale, and mix of residential and commercial uses provide an opportunity to create substantial value over the long term while contributing to the revitalization of San Francisco's southeastern waterfront. Although development and monetization will occur over an extended period, we view the progress made during the quarter as a meaningful step toward realizing the potential of this asset.
Finally, I'd like to discuss Hearthstone, which continues to represent an important component of our strategy to diversify Five Point's operations and expand our partnership in the national residential real estate market. During the third quarter, Hearthstone generated approximately $6.5 million in management services revenue. Hearthstone currently oversees approximately $3.4 billion in assets under management and provides land banking and residential investment management services through relationships with institutional capital providers and home builders across the country.
The business is designed to address an increasingly important need within the home building industry. Builders continue to seek ways to improve capital efficiency, reduce the amount of land carried on their balance sheets, and maintain flexibility in managing their future home site pipelines. For Five Point, the model creates opportunities to generate recurring management fees and potential performance-based income while limiting the amount of our own capital required to support the growth.
Our objective is to continue expanding Hearthstone's institutional relationships and home builder partnerships, building on its established platform and positioning the business for growth as demand for capital-efficient land solutions evolves. Overall, we're pleased with the progress we've made across our communities and at Hearthstone. Despite the challenges in today's housing market, our teams continue to move important initiatives forward, secure valuable entitlements, and advance development activities that will position us for future growth. We remain focused on executing our development plans, strengthening our builder relationships, and preparing our communities to take advantage of improving market conditions. We're optimistic about what lies ahead and confident in our ability to continue unlocking the significant value of our assets. With that, I'll turn the call over to Kim.
Thank you, Mike. As Dan mentioned, our strong balance sheet and liquidity give us flexibility to take a disciplined, long-term approach to managing our assets. As expected, we did not close any land sales during the quarter, and we reported a consolidated net loss of $4.4 million. Against that backdrop, I want to emphasize our strong cash and liquidity position.
At September 30th, we had $358.7 million in cash and cash equivalents, as well as $217.5 million of availability on our revolving credit facility, resulting in total liquidity of $576.2 million. This doesn't include $128.5 million of cash held by the Great Park Venture as of September 30th. Our debt to total capitalization ratio was set at 16.2%, and our net debt was $91.3 million, representing a net debt to total capitalization ratio of 3.8%. We have no borrowings outstanding under our revolving credit facility.
In addition, as Dan said, we do not have any material debt maturities until 2030. As we navigate the current market environment, we will continue to match our major development expenditures with near-term revenue opportunities. A little more detail about our cash flow for the quarter. In addition to the operating cash flow from our Great Park and Hearthstone management activities, the other significant sources of cash this quarter included the following: A $31.8 million distribution from the Great Park Venture, an $8.6 million incentive compensation payment from the Great Park Venture, $8.9 million of CFD reimbursements at the Valencia project, and $2.8 million of interest income.
The significant non-operating uses of cash during the quarter included $38.1 million of development costs at Valencia and San Francisco, and $1.6 million of EB-5 principal and interest payments, with $15.1 million remaining outstanding on this obligation at quarter end.
As I've already mentioned, we reported a consolidated net loss of $4.4 million for the quarter. Our third quarter results were driven primarily by our recurring management activities at The Great Park and Hearthstone. Management services revenue made up $13.9 million of the $14.7 million of consolidated revenues, including $7.4 million for our management of The Great Park Venture, of which $4 million represented incentive compensation and $6.5 million from our Hearthstone asset management platform.
We had $5.7 million of costs and expenses associated with our management services activities, $1.6 million of which was associated with The Great Park Venture and $4 million of which was associated with Hearthstone. We recognized $2.2 million of equity in loss from our unconsolidated entities, $2.7 million of which came from The Great Park Venture. Our third quarter SG&A was $12.5 million, compared with $14.3 million for the prior year third quarter.
Hearthstone Venture's assets under management and fee paying assets under management remained unchanged at $3.4 billion and $2.8 billion respectively at quarter end. Year to date, Hearthstone has provided $10.6 million of cash flow and $7.8 million of income from operations, which is tracking our expectations. As Dan mentioned, we will likely elect to defer certain land sales that we had previously anticipated closing in the fourth quarter of 2026. You may recall that in our initial guidance for 2026, we indicated that we expected to sell 20 acres of land in Valencia and 50 acres of land in The Great Park. We have already sold 17.7 acres this year at The Great Park. For purposes of updating our guidance, we have assumed no more sales at The Great Park and a sale of approximately 5 acres at Valencia.
Therefore, we now expect to generate a small amount of consolidated net income in the fourth quarter and end the year with approximately $20 million of consolidated net income. We also expect to finish the year with over $300 million of cash and cash equivalents. With that, let me turn it back to the operator who will open the line for questions.
Excellent. Thank you very much. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. We will now poll for questions. Our first question is from Alan Ratner of Zelman & Associates. Thank you, Alan. You may proceed with your question.
Hey, guys. Good afternoon. Appreciate all the details so far, recognizing it's a tricky environment. I guess first on the decision to delay lot sales, I think it makes sense in the current backdrop. I'm curious as you think through that, is that more a function of, as you've been having conversations with builders, their bid pricing was coming in lower than your expectations or what you're willing to sell at? Or is it more you kind of canvassing the home sale environment in these communities and deciding that you don't want to flood the projects with more lots as home sales are soft? I'm just curious if it's more based on a bid-ask spread that's widening or if this is more your view based on home sale transactions.
Hi, Alan. Thank you for the question. It is actually more about absorptions. It's not about land pricing. We've got fully negotiated transactions, but the builders are basically saying there's not a current need for the land. So it isn't that we can't come to a price. It's more about how much inventory they have right now and just really the slowing absorption. So that's really why we're looking at it and saying, "All right, we'll work with you. We'll push these land sales into 2027.
Got it. Okay. No, that's helpful and what I kind of figured. Second question on Hearthstone and land banking. So land banking's been a pretty discussed issue on a lot of the home builder conference calls lately. What we're hearing from some builders is that they are in the process of renegotiating some of their land banking contracts. Mostly it sounds like it's either pushing out takedowns or deferring interest payments. But in some cases, anecdotally, we're hearing some renegotiation on actual lot takedown prices as well. I was hoping you could just clarify or maybe explain your role in this situation, assuming that a builder that Hearthstone banks land with comes to you to renegotiate an option contract. How does that flow through to you as an asset manager there?
Meaning, if you decide to defer interest payments or even reduce the takedown price, outside of obviously some lower management fees, is there any ramifications for you from that standpoint?
Alan, I think what I am going to do is have Kim answer that question for you.
Hi, Alan. Yes. This is something that Hearthstone has had to deal with over the 30 years that they have been in operation. And they are managing capital, so they would be discussing all of those types of situations with their capital partners that they are managing, and they will come to a conclusion of what they think is best overall for that fund.
Got it. Okay. So it is done in concert with the capital providers. Are you able to, from a high level perspective, just give some color on how those conversations have been trending more recently as builders presumably are seeking some renegotiation?
You know what? Hearthstone has a national platform and over that platform, there will be lots of things going on. I have not seen any concentrations or anything like that that has occurred over the period. I am sure there are conversations going on, but we have not seen a material change in the outlook.
Got it. Okay. Appreciate that. One final one. Congrats on the groundbreaking in San Francisco. Appreciate the guidance at Valencia in terms of the lot sales. Is there any updated timeline you can give us as far as how we should think through both cash flow or cash expenses from development as well as when the first sales might start to take place in San Francisco?
Let me see if Kim can talk to you a little bit about the cash flow. Our expectation would be to have our first sales in San Francisco in 2028.
Yeah. Alan, as Dan said, we are planning towards the first sales in 2028, probably towards the latter part of that year. The spend is going to be a slow build-up with probably towards the end of 2027 getting into some larger amounts and going into 2028 to have things ready for sale in 2028.
Got it. That is really helpful. If this quarter's land spend was, I think you said, roughly $40 million between Valencia and San Francisco, should we think about that moderately increasing through 2027 on a quarterly basis as San Francisco gets a little bit more in the weeds?
It can. We're going to be trying to balance that out. I'm trying not to spend more than we've spent this year in total. I think I said last time we spoke it was about $125 million for the total for the year this year, and I'm trying to keep it around that next year as well. So it kind of balances back and forth between Valencia and San Francisco. At the same time, we're going to moderate any development spend to be in line with the revenue opportunities we see in the future.
That's great. Really appreciate all the detail. Thanks a lot.
Yeah.
Thank you. As a reminder, if you would like to join the question queue, please press star one on your telephone keypad and the confirmation tone will indicate that you are now in the queue. Our next question is from Michael O'Dell of MidOcean Partners. Michael, you may begin with your question. Thanks, guys. All my questions were actually answered. Thanks. Excellent. Thank you very much, Michael. Our next question is from Peter O'Keefe of O'Keefe Advisory. Peter, you may proceed with your question.
Hi. I have a couple questions for Kim. He mentioned that the Great Park Venture has $128 million. Does that all belong to Five Point, or does 37% of that belong to you?
It belongs to the venture, and we own 37.5% of the venture. That is the way I would think about it.
Okay. Regarding capital allocation, I think you have done some minor share repurchases, and with debt reduction, could you discuss the plans for capital allocation, say, for the next year or two?
I cannot speak towards next year. Right now we are monitoring things, and we think that our shares are still attractive at the level they are at, but we are balancing that buyback against the other capital needs. Given the current nature of the housing market, we believe that maintaining our financial flexibility is really important and is the right approach. However, we believe the authorization is an important tool in our efforts to maximize long-term shareholder value.
Okay, thank you.
Thank you. Our next question is from Eddie Liu of Kaiser Permanente. Eddie, you may proceed with your question.
Hi. Thank you guys. I have a question for Dan. This is in regards to San Francisco Candlestick Point development. Has there been any tech company or AI company approach you guys? Also, you said 2028, that's for the land sale, right? There's no residential, it's just the utilities don't lead at 2028, correct?
Correct. Yeah, Eddie, as a horizontal developer, what we're focused on is land deliveries, and our initial land deliveries should be in 2028 up in San Francisco. As far as the question about the development, we have elected not to go into the market. That's one of the things that we felt was important in that market, is to get the project started, hence the groundbreaking we had in September. We're now working on really a comprehensive plan for exploring a lot of market opportunities out there. San Francisco is an incredibly strong market right now with a lot of opportunities, and so we're actually just now getting ready to start exploring the next steps as far as the vertical development.
Okay, thank you.
Thank you. This concludes our question and answer section. I would like to turn the floor back over to Dan for closing comments.
Thank you. On behalf of our management team, we thank you for joining us on today's call. We look forward to speaking with you next year.
Ladies and gentlemen, thank you for your participation. This concludes today's teleconference. Please disconnect your lines and have a wonderful day.