Five Point Holdings, LLC — Q2 2020 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2020. Five Point is a California master-planned community developer, with operations across Valencia, San Francisco, Great Park and commercial properties. Figures below are in U.S. dollars; financial statement amounts are consolidated and unaudited.
Financial performance
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Revenue | $24.3m | $12.4m | $33.5m | $25.5m |
| Net income (loss) | $14.2m | ($22.6m) | ($39.0m) | $30.1m |
| Net income (loss) attributable to Five Point | $6.6m | ($10.5m) | ($18.2m) | $13.3m |
| Basic/diluted Class A EPS | $0.10 / $0.10 | ($0.16) / ($0.16) | ($0.27) / ($0.27) | $0.19 / $0.18 |
| Cash used in operating activities | Not separately presented by quarter | ($148.4m) | ($164.7m) |
- Q2 revenue rose 96% year over year, primarily from a $17.0m Valencia homesite sale. Q2 results also included $23.9m of equity earnings from unconsolidated entities, mainly reflecting Five Point’s share of the Gateway Commercial Venture’s City of Hope sale gain.
- Six-month revenue increased 32%, but the company swung to a net loss. Key factors included much lower Great Park land-sale activity and a $26.9m other-than-temporary impairment of the Great Park Venture investment, reflecting COVID-related delays to land sales and distributions.
- Q2 2020 consolidated net income included the impact of the commercial venture’s $37.4m gain on its City of Hope property sale; Five Point recognized $28.0m of equity earnings from that venture for the quarter. The gain is an unusual, non-recurring item.
- For the six months, cost of Valencia land sales was $11.9m against $17.0m of land-sales revenue. SG&A was $40.9m, down from $51.8m a year earlier. The filing does not present a single consolidated gross-margin percentage.
Financial position and liquidity
- At June 30, cash and cash equivalents were $215.1m, down from $346.8m at year-end 2019; inventories were $1.979bn and total assets were $2.908bn.
- Notes payable, net, were $616.8m, consisting primarily of $625m of 7.875% senior notes due 2025. The notes are fixed-rate; the company reported no floating-rate consolidated debt. The $125m revolving facility was undrawn, with $124.7m available after letters of credit.
- Operating cash outflow was $148.4m for the half-year. Investing activities provided $34.1m, including a $33.9m return of investment from the Gateway venture; financing activities used $17.5m. Cash, cash equivalents and restricted cash declined by $131.7m to $216.8m.
- Management said available cash, expected Valencia land-sale proceeds, distributions from unconsolidated ventures and management fees should meet cash needs for at least the next 12 months. It also said it currently expects capital to fund planned horizontal development for several years, while warning that prolonged COVID-19 effects could change that assessment.
Material developments and outlook
- In May, the Gateway Commercial Venture sold an 11-acre site and 189,000-square-foot building to City of Hope for $108m, paid down $30m of venture debt and distributed approximately $56.3m to Five Point.
- In June, the venture contracted to sell two Broadcom-leased buildings for $355m, with closing anticipated in August 2020. This was an expectation at the filing date, not a completed sale in the reported period.
- Five Point closed the sale of 70 previously contracted Valencia homesites for a $16.6m base price in May. A secured promissory note was substantially paid in July, with the balance due in December 2020.
- COVID-19 led the company to limit development to work supporting active homebuilding, defer variable expenditures and shift office staff to remote work. Management noted that Great Park sales rates had rebounded since late April and mortgage metrics remained favorable, but warned that renewed case increases could weaken demand.
- A related-party reimbursement amount of $12.6m was deferred until April 2025 and accrues interest at 6%. The company forecast reimbursement payments of $49.4m for the balance of 2020, $6.0m in 2021, $26.9m in 2022 and $12.6m in 2025, subject to extensions.
Risks, contingencies and other notable items
- Material uncertainties include the duration and economic effects of COVID-19, delayed land sales and distributions, development costs, California regulatory and entitlement processes, and access to financing.
- San Francisco Shipyard land transfers remain exposed to delays from Navy environmental resampling and related investigations. The company also faces lawsuits concerning alleged contamination and disclosures; it said it believes it has meritorious defenses but cannot predict the outcomes.
- Outstanding performance bonds were $243.7m; maximum guarantees for specified San Francisco park and open-space obligations were $198.3m. These are contingent obligations, not reported funded debt.
- The Valencia project approval judgment was affirmed on appeal, and the California Supreme Court denied review in July 2020; the filing says that matter is final. The settlement with other petitioners carries a remaining estimated maximum payment of $23.8m through 2026.
- No distributions were declared for the periods shown. Management reported effective disclosure controls and no material change in internal control over financial reporting.
Investor facts to verify
- Whether the $355m Gateway sale closed as expected and how proceeds were applied, including any debt reduction or distribution.
- Actual timing and amounts of Valencia and Great Park homesite sales, venture distributions and related management-fee revenue as COVID-19 effects develop.
- Whether the Great Park investment impairment or other asset values require further revisions as projected sale timing and cash flows change.
- Availability of liquidity against planned development spending, senior-note interest and related-party reimbursement payments.
- Developments in Shipyard environmental testing, land transfers and litigation, as well as potential exposure under bonds and guarantees.