Five Point Holdings, LLC — Q1 2017 Form 10-Q
Reporting period: Three months ended March 31, 2017; unaudited. Five Point develops and manages three coastal California master-planned communities: Newhall Ranch, The San Francisco Shipyard and Candlestick Point, and Great Park Neighborhoods. The May 2016 Formation Transactions added the San Francisco and Great Park interests and management operations, making year-over-year results not directly comparable. The IPO occurred after quarter-end, on May 15, 2017.
Key financial results
| Metric | Q1 2017 | Q1 2016 |
|---|---|---|
| Revenue | $92.3 million | $4.5 million |
| Loss before tax benefit | $23.1 million | $11.5 million |
| Income tax benefit | None | $3.4 million |
| Net loss | $23.1 million | $8.1 million |
| Net loss attributable to Five Point | $7.8 million; $0.20 per Class A share | $5.1 million; $0.14 per unit |
| Operating cash flow | $23.3 million provided | $13.3 million used |
| Investing cash flow | $4.5 million provided | $20.9 million provided |
| Financing cash flow | $7.7 million used | $0.1 million used |
Revenue growth primarily reflects a January related-party land sale in San Francisco, together with newly consolidated management services. The San Francisco sale generated $91.4 million gross proceeds; $10.4 million of revenue remained deferred pending infrastructure work. Selling, general and administrative expense rose to $27.2 million from $11.9 million, including $4.8 million of share-based compensation and costs from the expanded business. Five Point recorded a $2.9 million equity-method loss from Great Park. A meaningful consolidated gross-margin measure is not presented in the filing.
Balance sheet at March 31: Total assets were $2.029 billion, including $1.309 billion of inventories, a $414.9 million Great Park investment, $82.5 million of cash and cash equivalents, and $45.5 million of held-to-maturity securities. Total liabilities were $545.3 million; total capital was $1.483 billion. Cash and cash equivalents increased from $62.3 million at year-end. Notes payable were $69.5 million, comprising a $65.1 million Macerich note and a $4.4 million discounted settlement note. The company also reported a $102.7 million EB-5 reimbursement liability and a $201.8 million tax receivable agreement liability. The $65.1 million Macerich note is floating-rate and may become payable if specified joint-venture conditions are not met.
Changes, outlook, and material matters
- Comparability and revenue concentration: Q1 2017 includes businesses acquired in May 2016 that were absent from Q1 2016. Related-party land sales were $84.3 million versus $0.4 million a year earlier, making this quarter’s revenue unusually dependent on a related-party transaction.
- Liquidity and financing: Management said available capital was expected to meet liquidity needs for at least 12 months and fund planned horizontal development for several years, while noting that costs, delays, or plan changes could require additional capital. An undrawn $50 million revolving facility was entered into in April, with an accordion feature up to $100 million, subject to conditions. The filing reports IPO proceeds differently in separate sections: $319.7 million net of underwriting discounts but before offering expenses, and approximately $316.8 million after stated underwriting discounts and offering expenses. A concurrent Lennar-affiliate private placement raised $100 million.
- Potential major investment: Great Park Venture gave notice of intent to repurchase approximately 73 acres of commercial land for about $443 million, subject to adjustments. Financing was not finalized; a third-quarter 2017 closing was expected but not assured. Five Point’s anticipated ownership in the property could exceed its 37.5% Great Park interest.
- Development and legal risks: Newhall Ranch faces environmental approval and litigation risks concerning greenhouse-gas findings and protected fish. CDFW certified additional environmental analysis and reapproved the project in June 2017, after quarter-end; related appeals and separate federal permit litigation remained relevant. Delays or adverse outcomes could increase costs, delay development, or reduce developable homesites or commercial space. The San Francisco Shipyard also depends on environmental review and U.S. Navy land transfers, expected in stages from 2018 through 2022.
- Other commitments and contingencies: Outstanding performance bonds were $237.7 million. The company had $178.6 million of listed fixed-term contractual obligations, including operating leases, water purchases, interchange funding, the settlement note, and EB-5 reimbursements; this table excludes certain contingent obligations, including the Macerich note. The company reported no material off-balance-sheet arrangements.
- Other subsequent developments: The 1-for-6.33 reverse share and unit split took effect March 31. As of May 31, 2017, 62.3 million Class A and 81.5 million Class B shares were outstanding. The filing states disclosure controls were effective at March 31 and reports no material change in internal control over financial reporting.
Most important facts for investors to verify
- Reconcile the IPO net-proceeds figures ($319.7 million before offering expenses versus approximately $316.8 million after stated expenses) and confirm their intended use.
- Assess how much of reported revenue and operating cash flow depends on related-party land sales, and verify collection and completion requirements for deferred sale revenue.
- Track the $443 million Great Park repurchase proposal, financing, ownership allocation, and closing conditions.
- Monitor Newhall Ranch litigation, permitting, mitigation costs, and the timing and environmental status of San Francisco land transfers.
- Confirm the conditions and potential consequences tied to the Macerich note and mall milestones, alongside the EB-5 repayment schedule and other development commitments.
- Review capital needs against management’s outlook, including public-financing availability, project cost changes, and any future borrowing or equity issuance.