Five Point Holdings, LLC — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020. Financial statement amounts below are in U.S. dollars; figures are rounded to millions unless stated otherwise. Five Point owns and develops master-planned communities in California, with operations reported across Valencia, San Francisco, Great Park and Commercial.
Financial performance and position
| Metric | Q1 2020 | Q1 2019 / prior date |
|---|---|---|
| Revenue | $9.2 million | $13.1 million |
| Net income (loss) | $(53.2) million | $52.7 million |
| Net income (loss) attributable to Five Point | $(24.8) million; $(0.36) basic and $(0.37) diluted per Class A share | $23.8 million; $0.35 per Class A share, basic and diluted |
| Operating cash flow | $(89.4) million | $(83.7) million |
| Cash and cash equivalents | $247.8 million at March 31 | $346.8 million at December 31, 2019 |
| Notes payable, net | $616.4 million | $616.0 million at December 31, 2019 |
Revenue fell 29.5%, mainly reflecting lower management-services revenue and substantially lower Great Park land-sale activity. Consolidated revenue included only $16,000 of land sales; the Great Park Venture, an equity-method investee, separately recorded $22.2 million in land-sale revenue. Total costs and expenses were $32.6 million, including $24.6 million of selling, general and administrative expense. The filing does not present a consolidated operating margin measure.
Equity in losses from unconsolidated entities was $30.9 million, including a $26.9 million impairment of the Great Park Venture investment. By comparison, Q1 2019 included $8.9 million of equity earnings and a $64.9 million gain from settling obligations related to a discontinued retail project. These items were key drivers of the year-over-year swing in reported results.
Investing cash flow was positive $1.0 million and financing cash flow was negative $10.7 million; cash, cash equivalents and restricted cash declined $99.1 million to $249.5 million. Inventory was $2.0 billion and total assets were $2.9 billion at quarter-end. The $625 million face-value senior notes bear fixed interest of 7.875% and mature in 2025. No revolving-credit borrowings were outstanding; $124.7 million of the $125 million facility remained available after letters of credit. The company reported no floating-rate debt.
Material changes and operating developments
- Great Park Venture land-sale revenue was $22.2 million versus $159.2 million in Q1 2019. A Q1 2020 sale covered 35 homesites and generated $20.3 million of gross proceeds; 38 additional homesites remained under contract, with closing anticipated in the second half of 2020.
- Great Park investment impairment reflected delayed expected land sales and distributions amid COVID-19 uncertainty. The company concluded a near-term recovery of the lost value was uncertain.
- The company’s consolidated cash declined from $346.8 million at December 31, 2019 to $247.8 million at March 31, 2020. Operating cash use increased by $5.8 million year over year.
- On April 1, 2020, the company paid $6.0 million of an $18.6 million related-party reimbursement obligation and deferred the remaining $12.6 million for five years at 6% annual interest.
Outlook, risks and contingencies
Management said COVID-19 had disrupted operations and limited community development to work essential to support active homebuilding. Employees shifted to remote work in mid-March, and information centers and builder sales moved mostly to virtual processes in April. Management modeled potential revenue delays of three, six or nine months, initially implemented a three-month delay, and said it would assess further action based on market and employment indicators. It expected sufficient cash to meet requirements for at least 12 months and, under the scenarios then considered, expected to fund planned horizontal development for several years. These expectations are subject to significant uncertainty; management noted that prolonged economic effects, cost increases or changed plans could require additional capital, which may not be available on attractive terms or at all. No formal revenue or earnings guidance was provided.
Key exposures include California real-estate and economic conditions, homebuilder demand, entitlement and development timing, COVID-19 impacts, and environmental and legal matters at The San Francisco Shipyard. The company disclosed $228.1 million of performance bonds and maximum guarantees of $197.8 million for certain San Francisco park and open-space obligations. The Valencia approval settlement liability was $17.7 million, with up to $23.9 million of remaining potential monetary payments under the related guaranty and a final payment due in 2026. Shipyard contamination-related lawsuits remained pending; the company said it could not predict their outcome. Separately, a California appeals court affirmed the judgment in the company’s favor in the Valencia Landmark Village/Mission Village case in April 2020.
Important facts for investors to verify
- Whether COVID-19 delays land sales, builder activity, distributions and development timelines beyond management’s modeled scenarios.
- Whether the Great Park investment’s estimated value and distribution timing recover, and whether further impairment charges arise.
- Cash use, available revolver capacity and funding needs, including the deferred related-party obligation and its 6% interest.
- Progress on the 38 contracted Great Park homesites and Valencia home-site sales, and the timing of Shipyard land transfers from the U.S. Navy.
- Developments in Shipyard litigation and environmental review, and any changes to the company’s guarantees, bonds or other contingent obligations.