Five Point Holdings, LLC — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023. Five Point develops mixed-use master-planned communities in California. Its four segments are Valencia, San Francisco, Great Park and Commercial. Great Park and Gateway Commercial are equity-method investees, so their full operating results are not included in consolidated revenue.
Key financial results
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Consolidated revenue | $21.3 million | $5.4 million | $27.1 million | $10.3 million |
| Net income (loss) | $50.6 million | $(11.0) million | $40.8 million | $(47.7) million |
| Net income (loss) attributable to Five Point | $23.6 million | $(5.1) million | $19.0 million | $(22.2) million |
| Class A EPS, basic / diluted | $0.34 / $0.34 | $(0.07) / $(0.07) | $0.28 / $0.27 | $(0.32) / $(0.33) |
| Operating cash flow | Not separately reported for the quarter | $37.9 million | $(133.5) million |
- Q2 consolidated revenue rose mainly because related-party management-services revenue increased to $20.8 million from $2.7 million. Six-month SG&A fell 10.1% to $26.5 million; the prior-year period included $19.4 million of restructuring expense.
- Equity-method earnings were $52.1 million in Q2 and $53.2 million for the first half, versus $0.6 million and a $0.4 million loss, respectively, in 2022. The increase was principally Five Point’s share of Great Park Venture earnings from a large homesite sale.
- Great Park Venture recognized $357.8 million of revenue from selling 798 homesites in Q2: $214.7 million paid at closing and $143.1 million of estimated variable consideration tied to future home sales. This venture sale is not consolidated revenue at Five Point.
- Six-month operating cash flow was positive, but included a $44.5 million recovery from a third party related to Valencia development costs, $17.7 million of public infrastructure reimbursements and Great Park Venture distributions. Cash, cash equivalents and restricted cash increased $61.4 million to $194.2 million.
- At June 30, cash and cash equivalents were $193.2 million; the undrawn $125 million revolver brought reported total liquidity to $318.2 million. Inventory was $2.255 billion; total assets were $2.914 billion and total capital was $1.908 billion.
- Notes payable, net, were $621.4 million, consisting of $625 million of 7.875% senior notes due 2025, net of issuance costs and discount. No revolver borrowings or letters of credit were outstanding. The $125 million revolver matures in April 2024, with a conditional one-year extension option. The company reported no floating-rate consolidated debt.
Changes, outlook and notable items
- Management said homebuyer activity remained supported by limited existing-home inventory despite the higher mortgage-rate environment. Builders sold 79 homes at Valencia in Q2 versus 75 in Q1, and 177 at Great Park versus 255 in Q1; management attributed Great Park’s decrease largely to lower available inventory. The Great Park Venture sale and distributions contributed substantially to reported earnings and liquidity.
- Management’s priorities are generating revenue and positive cash flow, controlling SG&A, and matching capital spending to near-term opportunities. It expects to meet cash needs for at least 12 months from cash, venture distributions, management fees, land sales, public-financing reimbursements and financing access; it expects significant Valencia horizontal-development spending over the next 12 months. It provided no quantified earnings or revenue guidance.
- The $143.1 million variable-consideration estimate depends on future home sales. Management-services incentive compensation also depends on venture distributions and estimates; related incentive revenue and intangible-asset amortization contributed to period results.
- About $17.4 million of related-party reimbursement obligations previously expected to be paid in 2023 were deferred to 2024 following an extension of the related EB-5 loan maturity. Further extensions are not within Five Point’s control.
- Commitments include $307.3 million of performance bonds, $198.3 million of maximum San Francisco Venture guarantees for infrastructure and park/open-space obligations, and $10.2 million of other contractual payment guarantees. These are not all reported debt balances.
- The Hunters Point/Bayview litigation alleges misrepresented radiological testing and remediation at The San Francisco Shipyard; plaintiffs seek damages and an injunction against development. Five Point says it cannot predict the outcome and believes it has defenses. Navy retesting and transfer review have delayed conveyance of approximately 408 acres and may further affect development timing.
- The company carries a $173.2 million tax-receivable-agreement liability deemed probable and estimable, but reported no amounts currently payable and does not expect payments for several years based on current projections. No common-share distributions were declared.
Important facts for investors to verify
- How much of the Great Park sale’s $143.1 million estimated variable consideration is ultimately realized, and when cash is collected.
- Whether the large Great Park Venture sale and distributions recur, and how venture distributions and incentive fees affect future earnings and cash flows.
- Funding and refinancing plans for the 2025 senior notes and the revolver maturing in April 2024, alongside planned development spending and deferred related-party reimbursements.
- Progress, potential costs and timing effects from Shipyard environmental retesting, land transfers and the Bayview litigation; also monitor performance-bond and guarantee obligations.
- The basis for diluted EPS: Q2 diluted weighted-average Class A shares were 145.0 million versus 68.8 million basic, reflecting exchangeable interests and other potential shares.