Five Point - Q2 2023

Transcript

Operator (participant)

Welcome to the Five Point Business Second Quarter 2023 conference call. As a reminder, this call is being recorded. Today's conference may include forward-looking statements regarding Five Point's business, financial condition, operations, cash flow, strategy, and prospects. Forward-looking statements represent Five Point's estimates on the date of this conference call, and are not intended to give any assurance as to actual future results. Because forward-looking statements relate to matters that have not yet occurred, these statements are inherently subject to risks and uncertainties. Many factors could affect future results and may cause Five Point's actual activities or results to differ materially from the activities and results anticipated in forward-looking statements.

These factors include those described in today's press release and Five Point's SEC filings, including those in the Risk Factors section of Five Point's most recent annual report on Form 10-K, filed with the SEC. Please note that the Five Point assumes no obligation to update any forward-looking statements. Now, I'd like to turn the call over to Dan Hedigan, Chief Executive Officer.

Dan Hedigan (President and CEO)

Thank you. Good afternoon, everyone, thank you for joining our call. I have with me today Leo Kij, our Interim Chief Financial Officer, Mike Alvarado, our Chief Legal Officer, and Kim Tobler, our Vice President, Treasury and Tax. Stuart Miller, our Executive Chairman, is joining us remotely. I'm pleased to update you today on the progress of the company through the second quarter of 2023. I will also update you on our team's focus during the quarter and the steps we are taking to implement our strategic priorities in 2023. Leo will give an overview of the company's financial performance and conditions. We'll open the line for questions to our management team.

Let me begin by telling you, we have made considerable progress since I last spoke to you in advancing our business. To that end, we have continued focusing on controlling our business and executing on our three main priorities: generating revenue and other positive cash events, managing and rightsizing our SG&A, and managing and limiting our capital spend and matching those expenditures as much as possible to revenue events. As a result, we ended the quarter with consolidated net income of $50.6 million, as compared to a net loss of $9.7 million for the first quarter.

Our balance sheet reflects $193.2 million of cash on hand, versus $106.6 million at the end of the first quarter, with $0 drawn on our $125 million revolver, giving us a liquidity of $318.2 million today versus $231.6 million last quarter, and improving our debt-to-cap ratio to 24.7% versus 25.2% last quarter. We also have no principal debt repayment obligations on our senior notes this year or next. These results reflect the team's efforts and focus on our priorities. At the beginning of the year, we provided guidance that for the first half of the year, we expected negative cash flow of $24 million-$56 million.

In fact, for the first half of the year, we generated positive cash flow of $61.4 million, fortifying our balance sheet and positioning Five Point for future success. Along with significant improvement in revenue and cash flow, we've been able to hold our SG&A in check, with SG&A of $12.7 million this quarter, versus $13.8 million last quarter, and $26.5 million for the first six months of 2023, versus $29.4 million for the first six months of 2022. With respect to managing our capital spend, for the first six months, we spent $46.8 million before recoveries and capitalized interest, as compared to our guidance at the beginning of the year of $45 million-$55 million, and compared to $63.1 million for the first six months of 2022.

We are clearly controlling our business. In many ways, our strong financial results are due to a combination of focused management as well as a constructive economic environment. From an economic perspective, the challenges from interest rate increases and the banking crisis from earlier in the year began to dissipate during the second quarter, and the housing market began to stabilize as homebuyers adjusted to and accepted higher interest rates. Interest rate fluctuations have moderated, and we're seeing more measured rate movements that allow the market to adjust in an orderly fashion. Of particular note, resale home inventory remains very low, increasing interest in and demand for new homes. While affordability continues to be a challenge, housing continues to be in short supply in our California markets, and there is still demand for well-located homes in master planned communities.

On the commercial land side of our business, we're seeing strong interest in our unique commercial land offerings at The Great Park and Valencia. We continue to have low vacancy rates in the industrial market in our communities, which we expect will continue to drive demand in this preferred asset class, notwithstanding the adjustments that capital markets have made in the commercial market segment. I'll now provide some updates on each of our communities. The open builder neighborhoods at The Great Park continue to sell homes with a strong increase in sales in the first half of this year compared to the second half of 2022. During the second quarter, builders in our Great Park community sold 177 homes.

Solis Park, which is a primary community with multiple active offerings, had its first model complex open in July 2022, and currently has only 200 homes remaining to sell out of the original 849 homes. As we discussed last quarter, we're seeing strong home builder interest in acquiring home sites at Great Park. On our prior call, I mentioned that we were actively engaged in the process of selling the remaining 81 home sites in Rise community and 770 home sites in our next community, District Five South. The transaction closed in May of this year, and the Great Park Venture recognized $357.8 million of revenue. In the second quarter, the Great Park Venture received $61 million of CFD proceeds as reimbursement for public improvements the Venture had completed or paid for.

With this pace of new home sales, we are continuing to see strong builder interest in acquiring new home sites at Great Park. During the quarter, we entered escrow for the sale of another 82 homes program, which we anticipate closing by year-end. We're also negotiating the sale of another 104 home sites, with the close anticipated in early 2024. On top of the ongoing residential opportunities at Great Park, we continue to market and sell our commercial land, including the industrial land offerings that we brought to market in August last year, as well as other commercial-oriented uses. While not the most opportune time to enter the market, our location in the heart of Orange County has supported strong interest. Our commercial parcels are unique, are a limited resource, and offer to the South Orange County market, something that has not been available for years.

Large parcels of entitled land with flexible zoning that allows a multitude of uses, including industrial, distribution, life sciences, R&D, and office, amongst others. To that end, we anticipate closing sales on approximately 40 acres, either by the end of this year or early next year. After these residential and commercial sales, the Great Park Venture will have about 295 acres remaining. Depending on pace of sales, would expect to be through remaining inventory at Great Park in 5-8 years. In Valencia, new home sales by builders totaled 79 homes during the second quarter. As of mid-July, 1,100 homes from our initial offering of 1,268 homes have been sold, with only 168 homes remaining.

Builders have now opened the models in 2 of the 8 new neighborhoods in the next area of Valencia, which encompasses 598 homes. Like Irvine, builders are again engaged with us in Valencia, and we entered into 1 new land sale contract during the quarter, anticipate finalizing another, both of which we anticipate will close during the third quarter. We also anticipate signing a third land sale contract that we believe will close by year-end. We also continue to market a prime 35-acre commercial site in the community. We expect to have more to report on that later in the year. While we didn't have land sales in Valencia in the first half of the year, and instead are planning for sales to close in the second half of the year, we're still able to execute on some significant reimbursements and recoveries.

We recall that we reported a $17.7 million CFD reimbursement in the first quarter. Additionally, in the second quarter, we collected a $44.5 million recovery from a third party arising out of prior work they had performed at the project. From an accounting perspective, these amounts have been offset against our inventory costs, ultimately increase our gross margin of Valencia sales. As you've heard me state in the past, San Francisco remains a priority for Five Point. We are progressing our efforts to establish Candlestick as a standalone project, separate from, but complementary to, the ultimate development of the Hunters Point Shipyard site when it has completed its remediation by the Navy.

These efforts include working with the city and county agencies to rebalance the current development entitlements between the two areas, while concurrently working with the city to update the existing tax increment financing timelines to account for the Navy delays at Hunters Point. We believe that we are building momentum on resolving these issues, which will allow us to unlock the standalone development of Candlestick as the first phase of this larger mixed-use community, located on irreplaceable land along the San Francisco Bay. As we look ahead, we're starting to build confidence and certainty in our expectations for future accomplishments. Although our business is often dependent on government approvals and accomplishments can be pushed from one quarter to another, we are building visibility in the future quarters and years.

To that end, we expect in the second half of 2023 to be able to reduce and produce an additional $50 million-$70 million of net income and generate additional cash flow as well, ending the year with a cash balance of $250 million-$300 million. While some of these results can be pushed quarter to quarter or to next year, we're focused on generating revenue, managing SG&A, and managing our capital spend. We have positive momentum and remain optimistic about our future. Land development is a long game, and we are just at the beginning of the game at some of our communities, but they are not making any more land, and there will never be an abundance of entitled land in California.

Our efforts today are ensuring we are well-positioned for that long game, while recognizing the importance of focusing on creating and maintaining shareholder value. Let me turn over to Leo, who will report on the financial results.

Leo Kij (Interim CFO)

Thanks, Dan. A summary of our financial results was included in the earnings release issued earlier today, in which we reported consolidated net income of $50.6 million for the quarter. We recognized $21.3 million in revenue that was primarily generated by management services provided by our management company. Selling, General, and Administrative expenses were $12.7 million, which is consistent with the average of $12.9 million that we have reported over the past four quarters. Cost of management services was $9.7 million, which includes $8 million for intangible asset amortization expense at our Great Park segment. Equity and earnings from our unconsolidated entities for the quarter was $52.1 million, primarily represents our interest in net income generated at the Great Park Venture. Turning to the balance sheet and liquidity.

Our net decrease in inventory for the quarter was $5.7 million. This includes a decrease for a non-recurring forty-four and a half million recovery from a third party related to certain project development costs at our Valencia segment, and includes an increase for accrued capitalized interest on our senior notes of $12.3 million. Excluding the recovery and capitalized interest, the resulting increase in inventory of $26.5 million was consistent with prior quarter and 13% lower than the prior year increase of $30.6 million. In addition to $700,000 of interest, we paid $2.5 million against our San Francisco segment's related party reimbursement obligation during the quarter. Approximately $8.4 million of this reimbursement obligation that was previously expected to be paid in the second quarter has been deferred to 2024.

Our related party has a history of receiving maturity date extensions. We expect additional deferrals during the second half of 2023. Total liquidity was $318.2 million at quarter end, and is comprised of $193.2 million of cash and cash equivalents and $125 million of available borrowing capacity under our revolving credit facility. No borrowings or letters of credit were outstanding against the revolver as of June 30th. In addition, no principal payments are currently due on our senior notes, nor are any payments currently due on our payable pursuant to our tax receivable agreement. Our debt to total capitalization ratio was stable at 24.7%, and our net debt to capitalization ratio, after taking into account our cash balance, was 18.5%. Turning to our statement of operations.

The company has four reporting segments: Valencia, San Francisco, Great Park, and Commercial. Segment results are as follows: The Valencia segment recognized a $4.5 million loss for the quarter. As no sales were closed, most of this loss was comprised of selling, general and administrative expenses of $3.4 million, related to employee compensation, as well as selling and marketing expenses in support of our active development areas and the pursuit of 2023 land sales. The San Francisco segment recognized a loss of $885,000 for the quarter. This loss is comprised of general and administrative costs incurred to support the segment's continued focus on rebalancing the current entitlement between Candlestick and Hunters Point Shipyard sites, as well as working with the city to update the existing tax increment financing timelines.

Our Great Park segment reported net income of $179.1 million for the quarter. This was comprised of net income of $168.2 million for the Venture's operations and $10.9 million in net income generated by our management company. The Venture's operations recognized revenue of $360.6 million during the quarter. Most of this revenue is comprised of $357.8 million, recognized from the sale of 798 home sites on approximately 84 acres of land adjacent to the Venture's Solis and Rise neighborhoods. The Venture's land sale agreement was comprised of a fixed amount paid at closing and a price participation rate to be paid from future home builder sales.

Accordingly, the revenue recognized consists of $214.7 million paid at closing, plus $143 million for recognition of a contract asset, representing the venture's estimate of variable consideration from future price participation payments. The venture recognizes contract revenue upon satisfaction of contract performance obligations and records contract assets when there is a timing difference between recognition of revenue and the variable consideration becoming due. After completing the land sale, the Great Park Venture made aggregate distributions of $25.5 million to holders of Legacy Interests and $218 million to holders of Percentage Interest. We received $81.8 million for our thirty-seven and a half % Percentage Interest.

Offsetting these revenues were cost of sales of $165.7 million, SG&A of $1.8 million, and related party management fee expense of $27.4 million. Management fee expense is comprised of $3 million of monthly base fee payments and a $24.4 million increase in accrued incentive compensation, mostly resulting from a change in estimate of aggregate payments probable of being made as the venture makes future distributions. As it relates to the management company, Five Point recognized $20.7 million in management fee revenues during the quarter. $3 million of which was from monthly base fee payments, and a $17.7 million increase in its incentive compensation contract asset, most of which is related to changes in estimated incentive compensation payments expected to be received as future distributions are made from the venture.

Offsetting these revenues were expenses of $9.7 million, comprised of $1.7 million for the cost of providing management services, primarily the project team compensation, as well as $8 million of our development management agreement, intangible asset amortization expense, resulting from incentive compensation revenue recognized in the quarter. Concurrent with the venture's distributions paid to its holders of Legacy and Percentage Interest, we collected $22 million in incentive compensation payments due under our development management agreement. We own 37.5% interest of the Great Park Venture and 100% of the management company. Although the Great Park segment reports the full interest of the Great Park Venture, our investment is reported under equity method of accounting, and therefore, the assets, liabilities, results of operations, and cash flows are not consolidated within our financial statements.

The company's equity and earnings from the Great Park Venture, after adjusting for a basis difference, was $52.3 million for the quarter. The Great Park Venture is a self-funding operation with no debt and had a cash balance of $140.9 million at the end of the quarter. Our commercial segment venture is a self-funding operation and had a cash balance of $5.1 million at the end of the quarter. Like the Great Park Venture, we only own 75% of the Great Park Commercial Venture. Our investment in the venture is reported under the equity method of accounting. Therefore, the assets, liabilities, cash flows, and results of operations of the venture are not consolidated within our financial statements. With that, I'll turn it over to the operator for questions.

Operator (participant)

At this time, we'll be conducting a question-and-answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate line is in the current queue. You may press star 2 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. Our first question comes from the line of Alan Ratner with Zelman & Associates. Please proceed with your question.

Alan Ratner (Analyst)

Hey, guys. Good afternoon. Congrats on the success in the quarter, and thanks for all the detail and guidance so far. Dan, you know, I'd love to drill in a little bit on pricing power that you might have with home builders right now. Obviously, the land market has really shifted quite a bit over the last year. You know, it was pretty quiet in the back half of last year, and now it seems like builders have returned pretty aggressively. You know, I know it's always a little bit hard to tell just from your reported results, exactly what's going on with lot prices.

I look at your lot sale in Great Park this quarter, on a per acre basis, it looks like the price you guys got was a bit lower than kind of what you've received in prior offerings. I'm sure there's some mixed component to that. You know, you got the Valencia deals under contract. Any commentary and color you can give on what's going on with lot prices in your community would be helpful. Also, any guidance you can give on specifically the Valencia sales would be great as well.

Dan Hedigan (President and CEO)

Hello, Alan. Always good to hear from you. What was your? I got the first part on lot price. What was your last question about Valencia?

Alan Ratner (Analyst)

Just if you can, I know you mentioned you've got, I think, two deals under contract right now. I was just, you know, curious if you could give specifics surrounding that in terms of what we might expect in the back half of the year to flow through.

Dan Hedigan (President and CEO)

Okay. Well, first of all, just starting on our, all of our land, remember that we're using a POP or some type of participation with all of our builders. You know, as prices go up, obviously the revenue we receive is also gonna be going up. As far as what the market we're seeing today, you know, Alan, you're absolutely right. There is a lot of interest in land, which is driving up the price of land, you know. I think part of that, where we're also trying to work with the builders to really maximize value, is really trying to work the builders on product. As we've all talked about, there's a really a constraint in the market on resale homes, so there's some inter- a stronger interest in new homes.

We also have to worry about affordability. What we're finding is that being able to work with the builders, one-on-one, work with them on product and plotting, is allowing us actually to increase our land prices. It's really kind of, you know, unique around product and builders. On all of our transactions, we are getting participation. The larger transaction that you referenced, you know, there is a participation component in that if that participation comes through, the per acre land, there will be comparable to other land, other similar product and other similar land at the Great Park.

That one, you know, with what we've seen in the market and the fact that it actually will be producing revenue over the next couple of years or, you know, participation over the next couple of years, we think there's a real good opportunity to see additional revenue from that transaction. As far as Valencia goes, and there's a couple of sales we have there, you know, in some respects, we are, you know, we have some fixed pieces at all of our communities from the standpoint of past development. We're working with a couple of builders up there, on product that we think is very sellable in the current market. But, you know, I have other negotiations going on, so I don't necessarily want to get into how I'm valuing different sites.

It's kind of hard to negotiate these things in public, but, you know, what we're finding is that the more we can work with builders to come up with product that addresses the market and the market segments that have demand, it really is helping us generate stronger land revenue.

Alan Ratner (Analyst)

Got it. No, that's all really helpful, Dan. I guess just, I wanna make sure I'm thinking about it correctly. I think you had previously mentioned that the next phase in Valencia was roughly 600 home sites, I think eight communities. I'm assuming that's kind of the summation of these three deals that you're referencing, or am I mixing things up?

Dan Hedigan (President and CEO)

The next area that we talked about having eight communities, and you're right, your memory is very good. It is about 600 homes. Those sites were all sold to the builders at the end of 2021. We've had other land that actually was ready to go, and, you know, with all the homes we were selling in the first phase, which was close to 1,200 homes, we hadn't brought those to the market because of segmentation. Now, as that is really winding down, that first phase is winding down, we're now taking other land that we had prepared already, and we're moving forward with kind of individual transactions that fit well and is from a segmentation perspective.

Those, you know, those 600 homes, those will be coming on the next six sets of models will be coming on market over the remainder of the year. We find that there are segments we can address in other land we already have ready, and those are the two transactions we're talking about. We have some other opportunities on land that actually is ready to go, and we're really spending a lot of time on those because we're looking at product. I really wanna be sure that we're thoughtful about product as we move forward and maintain good segmentation.

Alan Ratner (Analyst)

I see. Okay, thank you for that clarification. If I could just squeeze in one more. The CFD reimbursements or the, I guess, the development reimbursements, that's been a nice, I guess, surprise. I'm not sure if it's a surprise for you, but surprise for us. You know, about $60 million year to date, and I know you referred to them as non-recurring, but I'm just curious if, you know, as you look out into the future, if you could give us any visibility on the, you know, the prospect of getting more reimbursements over the next couple of years.

Dan Hedigan (President and CEO)

In the context of, you know, our CFDs, absolutely. We talked about in Valencia as a 1-time recovery there, but all of our CFDs, there are, for the most part, our public improvements should be heavily funded by CFDs, both at Great Park and in Valencia. As we complete additional work, you know, invest additional capital here in Great Park, it will come back to us through the CFD. You know, at the same time, in Valencia, as we sell more homes, we're gonna have more opportunities to collect under the CFD.

Alan Ratner (Analyst)

Got it. Okay, great. Well, thanks for all the color and best of luck.

Dan Hedigan (President and CEO)

Thank you.

Operator (participant)

Our next question comes from the line of Terrence Balkin with Daimler Capital. Please proceed, sir.

Speaker 6

Hey, guys. Thanks for taking my question. Congrats on a good quarter.

Dan Hedigan (President and CEO)

Thank you.

Speaker 6

For the second half, maybe just piggybacking off the CFD reimbursement, it definitely was a nice surprise. When we think about the cash guide, which I think is implied to be $50 million-$100 million of cash flow generation over the back half, is there a way to understand what you expect to be from earnings versus maybe additional CFD reimbursement, and anything else we should be focused on?

Dan Hedigan (President and CEO)

I think, you know, we're certainly. You know, there'll be limited CFDs on time. You know, the numbers that we gave you, I think, you know, we're talking about a range on net revenue, and then we're also talking about our increase in our cash. Almost all of those are gonna be from transactions that we have, are working on today and entering into. We don't have a lot of CFD in those. Now, the CFD will kind of keep coming in over time as either work is completed or homes are completed that allow us to sell additional CFD bonds. For the most part, what we'll be looking at in the second half of the year are actual transactions that we're working on with various builders.

Speaker 6

Got it. That's helpful. For the sales that you're thinking about for the back half, it sounds like you have that land already prepared. Maybe you can help us just think about how we should be viewing CapEx spend for the back half, and then maybe as demand seems to be coming off of a trough, how you're thinking about it for 2024 across different developments.

Dan Hedigan (President and CEO)

Certainly. Well, once again, I'll start with Irvine because I think it's, you know, the Great Park. You know, if you've been out here, there are some backbone infrastructure is still being completed, mostly Marine Way. For the most part, all of the backbone is in, and the Great Park, once again, Marine Way is probably the biggest section that needs to be completed out there. On, from a standpoint of Great Park, almost all the sites we talk to or talk about, most of the backline infrastructure to get those sites are actually already in. Like I said, there's still some to be completed, and those would be reimbursed.

In Valencia, you're right, we have from past work, we have a number of areas that were graded, and we're just getting the opportunity to bring them to the market right now. For the most part, everything we're looking at this quarter, you know, has limited capital requirements. You know, there's a certain amount of work that has to be done whenever we deliver land, but for the most part, all the heavy lifting has been done on that, those sites. We look into 2024, we'll have additional needs to invest capital, but we're also looking at ways, as we talked about, is utilizing the builders. You know, working with our builders and having them invest some of that capital.

As we think about Valencia going forward, and say, we've got land that is mostly ready, and as we look at our future, we're really looking at, working with the builders to have them do a lot of that front-end capital investment, kind of tying us and them together, you know, for the kind of success of the project. We think that model will work pretty well because builders have a real need for pipeline, and so working with them on the capital side will help ensure their pipeline and also get our land, completed and developed. In all of these, as we talk about those transactions and, you know, in Valencia or other places, you know, we're always, you know, these can always move around quarter to quarter, just because there's always government approvals that are tied to all of these. You know, right now, we're feeling pretty good about what we're suggesting, but I don't ever want anyone to think that we aren't subject to a little bit of the government permitting requirements that everyone in our industry deals with.

Speaker 6

Makes sense. Maybe last one for me, going back to the CFDs. Just so the $60 million received year to date, can you give us a sense of when you completed the work that those CFDs were attached to, and then any guidance you can give us on what a reasonable number is for either the first half of 2024 or just the full year?

Dan Hedigan (President and CEO)

First, you know, going back to those, you know, as I think we've been on over kind of the last year, there was a lot of work done by our team with the city of Irvine to allow us to expand on the public improvements that we can you know, get reimbursed for through the CFD. A lot of those efforts that we put in, and that mostly happened last year, we were seeing those earlier this year, where we were literally catching up for work that we had done. I think as we go forward, and you have to understand the difference between Irvine and Valencia, that Irvine's got a lot of rooftops, so we can pretty much get reimbursed as the work is completed.

I would say that for the most part, we're close to caught up there. As we complete work, we'll be able to still achieve, get near-term reimbursements. In Valencia, we're actually out ahead, and so as we complete, that's about completing rooftops and getting buyers in, then we have the ability to issue additional bonds and get reimbursed. I don't actually have a number for next year on reimbursement, so I'm not gonna try to guess on that at this moment in time. You know, for the most part, we're kind of, we're moving through it as quickly as we can, both from a standpoint of completing work that is subject to reimbursement and then having the bonding capacity that's needed through the rooftops in place.

Speaker 6

Great, thanks. That's it for me for now, but I really appreciate it. Thank you.

Dan Hedigan (President and CEO)

You're welcome.

Operator (participant)

All right, next question comes from the line of Robert Cohen, a private investor. Please proceed with your question.

Robert Cohen (Chairman and CEO)

Hi, thanks for taking my questions. My first question is, are you planning on doing any actual development in Great Park, Valencia, or San Francisco, or are you just planning on doing land sales?

Dan Hedigan (President and CEO)

You know, Robert, that's actually a very good question. We have the opportunity, because of our kind of land positions, to look at vertical development in all of those communities. I think our near-term plan is to stick to the horizontal development, which is kind of where our expertise is. As we look at Valencia and San Francisco, we think there's some really unique opportunities, probably to partner people with that vertical expertise. You know, that's something we do look at, but it's not near term, but we think long term, there's some really interesting opportunities there.

Robert Cohen (Chairman and CEO)

Okay, you would be thinking about bringing in maybe larger real estate investments, larger real estate companies to maybe invest with you to fund these developments?

Dan Hedigan (President and CEO)

We, part of it is, you know, once again, if we're gonna, you know, if we were moving into an area, you know, we don't have necessary expertise to do industrial development. You'd want to work with somebody that has that expertise, both to develop and operate it, and we have the land. Those are the type of things that we look at as long-term opportunities. I think that rather than trying to develop all that expertise inside of the company, we think there's a lot of expertise in other places that we could tap into, which would be a good match between their expertise and our land positions.

Robert Cohen (Chairman and CEO)

Oh, okay. Do you have any timeframe for maybe doing, you know, some of that actual development?

Dan Hedigan (President and CEO)

I once again, I think that obviously, the thing that we are most focused on in that type of development would be in the commercial areas. Right now, you know, some of our bigger commercial opportunities in Valencia are going to be coming in some an area called Valencia Commerce Center, which we're in the process of processing the entitlement for that. In San Francisco, there'll be various opportunities in San Francisco when we get that community up and running, because it is a very, it's got a lot of mixed use across the entire site.

I think that, you know, we're a couple of years out simply because we really need to be in the right land position to do that from perspective of actually being in that segment of the market.

Robert Cohen (Chairman and CEO)

Okay. That, that would make sense. Just my final question is, you know, the stock price is down almost 80% since its IPO. Have you or the board of directors considered possibly selling the company since the assets of the company appear to greatly exceed, you know, the stock price, the stock valuation?

Dan Hedigan (President and CEO)

Yeah. You know, Robert, once again, I appreciate that question. You know, I think how I would comment on that is that the board is always looking at any type of opportunities that come their way to really enhance shareholder value. You know, whereas it's not something that, you know, we have on the table, we will consider all alternatives that may be presented to the board. At this point, you know, you know, we know that we want to look at opportunities to enhance shareholder value, and so if something like that came up, we would always look at those alternatives.

Okay, great. Those were my questions. I appreciate you answering them. Thank you.

You're welcome.

Operator (participant)

Our next question comes from the line of Arun Seshadri with BNP Paribas. Please proceed with your question.

Arun Seshadri (Analyst)

Yes, hi. Thanks for taking my question. It's just a couple from me. Your cash balance guidance for the rest of the year, the exiting, you know, 2023, does that include the Valencia land sale completed or expected to be completed post Q2, and then also the land parcel sales, as well as the, I guess, the third land sale contract that you expect to close in Q3?

Dan Hedigan (President and CEO)

Yes, it does.

Arun Seshadri (Analyst)

Okay. Got it. Thank you. As far as capital expenditure for the back half of the year and then capital expenditures for next year, do you have a rough sense for where they could shake out from where you stand right now?

Dan Hedigan (President and CEO)

You know, we really think it'll be similar to the first half of this year, is what we'd estimate. Once again, we're in a pretty good land position in Valencia from the standpoint of where we're at, and in Irvine, we're in a really good land position from the standpoint of finishing. I would say comparable over the same six-month period.

Arun Seshadri (Analyst)

Similar. Okay. Got it. Thank you. Then SG&A, a nice reduction again, sequentially. Do you think there are further opportunities in SG&A reduction, or should we expect this type of run rate for, I guess, the next few quarters?

Dan Hedigan (President and CEO)

Well, I will just tell you, we're always going to be very, you know, focused on managing our SG&A. I do think that we're kind of getting to a kind of a run rate. I think what number you're seeing there is kind of close to runway, right? That we think we'll look at going forward, but we're gonna continue to always look at opportunities to improve on that number. It's something that once again. When I talk about the three things that we're trying to focus on, we really are focusing on revenue, managing our SG&A, and managing our capital and, you know, really kind of keeping our heads down and running our business. We've got everyone heading in that direction.

Arun Seshadri (Analyst)

Got it. Thank you very much, and nice job this quarter. Appreciate it.

Dan Hedigan (President and CEO)

Thank you.

Operator (participant)

We have reached the end of the question and answer session. I'll now turn the call back over to the CEO, Dan Hedigan, for closing remarks.

Dan Hedigan (President and CEO)

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

Operator (participant)

This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.