Five Point Holdings, LLC — FY2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022; comparisons are with FY2021. This annual filing does not provide a clear standalone fourth-quarter summary. Five Point develops mixed-use planned communities in California, with revenue primarily from land sales and development-management services.
Financial performance and liquidity
| Metric | FY2022 | FY2021 |
|---|---|---|
| Revenue | $42.7 million | $224.4 million |
| Net income (loss) | $(34.8) million | $13.3 million |
| Net income (loss) attributable to the company | $(15.4) million | $6.6 million |
| Operating cash flow | $(188.3) million | $(81.4) million |
| Investing cash flow | $64.0 million | $75.3 million |
| Financing cash flow | $(9.7) million | $(26.6) million |
| Cash and cash equivalents at year-end | $131.8 million | $265.5 million |
Consolidated revenue fell 81% year over year, primarily because Valencia recorded no land-sale revenue in 2022 versus substantial sales in 2021, and Great Park management-services revenue declined. The company reported a loss despite higher equity earnings from unconsolidated entities, reflecting lower consolidated revenues, $54.6 million of SG&A, and $19.4 million of restructuring costs. The filing does not present a single consolidated operating-margin measure.
At December 31, 2022, the company reported $625.0 million principal amount of 7.875% senior notes due November 2025, with a net carrying value of $620.7 million. Its $125.0 million revolving facility was undrawn, bringing reported cash plus available revolver capacity to $256.8 million. Management cited $49.2 million of 2023 senior-note interest and approximately $50.4 million of expected 2023 principal payments under a related-party reimbursement obligation; some payments may be deferred if the associated EB-5 loan maturities are extended.
Inventories were $2.24 billion, total liabilities were $992.7 million, and total capital was $1.87 billion. The company used $188.3 million of operating cash, including continued development spending; cash declined by $133.7 million from year-end 2021. Cash interest paid was $52.3 million and was capitalized to inventory. The company received $52.7 million in Great Park Venture distributions, reported as a return of investment in investing cash flow.
Material changes and operating developments
- Higher interest rates and mortgage costs slowed home sales and caused builders to pause or halt some land acquisitions, according to management.
- The Great Park Venture sold approximately 42 acres of commercial land for a $240.0 million base price, recognizing about $238.0 million at closing and deferring $2.0 million related to potential future development work. It also sold 61 homesites and closed 22 fee-build home sales. Aggregate gross purchase price for these transactions was $304.4 million.
- Great Park Venture reported $323.9 million of revenue and $69.0 million of net income for 2022. These are venture-level figures, not consolidated Five Point revenue; Five Point accounts for its 37.5% Great Park interest using the equity method. Five Point reported $20.4 million of equity earnings from Great Park, after basis-difference amortization.
- Builders sold 594 homes at Valencia in 2022, bringing cumulative sales since May 2021 to 940. At Great Park, builders sold 326 homes during 2022.
- SG&A declined 29.2% to $54.6 million, with management attributing the reduction largely to lower employee-related costs. Headcount fell approximately 33% from year-end 2021. The company also recorded $19.4 million of restructuring costs, including advisory-agreement costs for former senior executives.
- Great Park distributions to Five Point were $52.7 million in 2022 versus $76.6 million in 2021. The Great Park Venture’s remaining participating legacy-interest distribution balance was $66.3 million at year-end.
Outlook, risks and contingencies
Management’s 2023 priorities are generating revenue, aligning capital spending with near-term revenue opportunities, and managing SG&A. It expressed optimism about commercial land-sale opportunities at Great Park and Valencia and expects builders may need to acquire land in 2023 for 2024 home sales. It did not provide a numeric 2023 sales or earnings forecast, citing market uncertainty. Management expects to fund at least the next 12 months through available cash, venture distributions, management fees, land-sale proceeds, public-financing reimbursements and potential borrowing. It said it currently expects sufficient capital for planned horizontal development for several years.
- San Francisco Shipyard: Transfer of approximately 408 acres remains dependent on the Navy’s environmental review and finding-of-suitability-to-transfer process. Alleged contractor misrepresentation of sampling results led to additional testing and has delayed transfers. Further delay, contamination findings, litigation or government action could affect development. The company’s lawsuits against the United States and Tetra Tech seek damages, but outcomes are uncertain.
- Litigation: A settlement of the Shipyard homeowners action was approved in March 2022, funded by insurance, and the company was dismissed. A separate Bayview action seeks damages and an injunction against development; the company says it cannot predict the outcome.
- Debt and funding: The senior notes mature in 2025. The company cautions that operating cash flow may not be sufficient to service debt and that refinancing or new financing may be unavailable or costly. The revolver matures in April 2024, subject to a conditional one-year extension.
- Development commitments: Outstanding performance bonds were $315.0 million; the San Francisco Venture had guarantees with maximum obligations of $198.3 million. These are contingent obligations, not amounts reported as funded debt. The company also has $31.2 million of minimum payments remaining under its Valencia water purchase agreement.
- Related-party and tax obligations: The company recorded $173.1 million payable under its tax receivable agreement, which generally entitles counterparties to 85% of specified realized tax savings; no amount was currently payable at year-end. Related-party reimbursement obligations were $63.0 million on the balance sheet, with payment timing subject to possible extensions.
- Other risks: California concentration, inflation and construction costs, homebuilder demand, interest rates, environmental remediation, permitting and entitlement challenges, natural disasters, and the company’s dependence on venture distributions could affect results and liquidity. No distributions on common shares have been declared or paid since formation, and the company does not expect to pay them in the foreseeable future.
Investor verification priorities
- Verify the timing, proceeds and cash conversion of expected 2023 land sales and the extent to which builders resume land purchases.
- Track cash burn, development spending, Great Park distributions, public-financing reimbursements and availability of the $125.0 million revolver.
- Confirm payment or further deferral of the approximately $50.4 million of 2023 related-party reimbursement principal and the associated EB-5 maturities.
- Monitor progress and cost implications of the Shipyard Navy retesting, parcel transfers, environmental reviews and pending litigation.
- Review refinancing plans for the $625.0 million senior notes due November 2025 and compliance with debt covenants.
- Assess the assumptions underlying land-inventory cost allocations, Great Park incentive compensation and impairment valuations; these rely on forecasts of prices, absorption, development costs and distributions.
Audit and controls: Deloitte issued an unqualified opinion on the financial statements and internal control over financial reporting. The audit identified the Great Park investment impairment assessment as a critical audit matter; no impairment was recorded for 2022.