Five Point Holdings, LLC — Form 10-Q Summary
Reporting period: Three and nine months ended September 30, 2023. Five Point develops mixed-use planned communities in California, including Valencia, Candlestick and The San Francisco Shipyard, and Great Park Neighborhoods. Unless otherwise noted, amounts below are in millions of dollars.
Financial performance and position
- Third quarter: Revenue was $65.9 million, versus $15.4 million in Q3 2022. Consolidated net income was $14.2 million, compared with a $9.5 million loss; net income attributable to the company was $6.6 million, versus a $4.4 million loss. Class A basic and diluted EPS were $0.10 and $0.09, respectively, versus losses per share of $0.06 and $0.07.
- First nine months: Revenue was $93.0 million, versus $25.7 million in 2022. Consolidated net income was $55.0 million, compared with a $57.3 million loss; company-attributable net income was $25.6 million, versus a $26.7 million loss. Class A basic and diluted EPS were both $0.37, versus a $0.39 loss per share.
- Cash flow: Operating cash flow was $65.1 million for the nine months, versus cash used of $175.0 million in 2022. Investing cash flow provided $29.9 million; financing activities used $8.5 million. Cash, cash equivalents and restricted cash increased $86.5 million to $219.3 million. Cash interest paid was $26.7 million, all capitalized to inventory.
- Liquidity: Cash and cash equivalents were $218.3 million at quarter-end, up from $131.8 million at December 31, 2022. The undrawn $125.0 million revolver brought reported total liquidity to $343.3 million. Restricted cash was $1.0 million.
- Debt and capital: Notes payable, net, were $621.8 million, comprising $625.0 million of 7.875% senior notes due November 2025, net of issuance costs and discount. No revolver borrowings or letters of credit were outstanding under the facility at quarter-end. The company reported a $173.2 million tax receivable agreement liability; no TRA payments were made in the period. No common-share distributions were declared.
- Assets and equity: Total assets were $2,934.5 million, including $2,252.8 million of inventory; total liabilities were $988.2 million and total capital was $1,921.4 million. These consolidated figures include substantial noncontrolling interests.
- Margins: The filing does not present a consolidated gross-margin percentage. Q3 Valencia land sales were $60.7 million with $39.0 million of associated costs.
Material changes versus prior comparable periods
- Q3 revenue growth primarily reflected $60.6 million of Valencia land sales from 146 homesites; Q3 2022 had no Valencia land sales. This was partly offset by lower Great Park management-services revenue.
- For the nine months, the major earnings driver was the Great Park Venture’s land sales. Five Point recorded $52.6 million of equity earnings from unconsolidated entities, versus a $4.7 million loss in 2022, primarily reflecting its share of Great Park Venture earnings.
- The Great Park Venture recognized $357.8 million of revenue from 798 homesites sold to an unaffiliated land bank. The reported amount included $143.1 million of estimated future price-participation payments, in addition to $214.7 million paid at closing. A related party retained an option to acquire the homesites from the land bank.
- Q3 2023 Great Park management-services revenue was $4.4 million, versus $12.0 million; for the nine months it was $29.5 million, versus $18.4 million. Incentive compensation estimates and timing contributed to period-to-period variation.
- SG&A was $11.9 million in Q3, broadly in line with $12.0 million a year earlier; nine-month SG&A declined to $38.4 million from $41.5 million. The 2022 comparison included $19.4 million of restructuring expense, including executive transition-related costs and severance.
Outlook, risks and unusual items
- Management’s priorities are generating revenue and positive cash flow, controlling SG&A, and matching capital spending to near-term revenue opportunities. It said builder demand for land in premier planned communities supported expectations for residential and commercial land sales during the remainder of 2023. No numerical earnings or revenue guidance was provided.
- Management expects to meet cash needs for at least the next 12 months using available cash, venture distributions, management fees, land-sale proceeds, public-financing reimbursements and financing sources. It expects significant Valencia horizontal-development spending over the next 12 months and stated it currently expects sufficient capital to fund planned horizontal development for several years.
- On October 19, 2023, after quarter-end, the revolver maturity was extended to April 2026, subject to possible acceleration to July 2025 if most senior notes are not refinanced, repaid or extended by then. A further extension to April 2027 is conditional. Management said it is evaluating alternatives for the senior notes due in November 2025.
- Cash flows included a nonrecurring $44.5 million recovery from a third party related to Valencia development costs and $17.7 million of public-financing reimbursements for Valencia infrastructure. Great Park distributions totaled $81.8 million; some were classified as operating cash flow and some as investing cash flow.
- Principal exposures include California real-estate and development conditions, elevated interest rates, permitting and environmental matters, construction costs, and the timing of land sales and reimbursements. The San Francisco Shipyard’s remaining approximately 408 acres have not been transferred by the U.S. Navy; environmental resampling has delayed the transfer and may further affect development.
- A Bayview Hunters Point putative class action alleges misconduct by the Navy’s testing contractor and seeks damages and an injunction affecting development. The company says it has meritorious defenses; it cannot predict the outcome. The San Francisco Venture also had maximum obligations of $198.3 million under infrastructure and park/open-space guarantees, and the company reported $307.2 million of performance bonds. These are contingent or performance obligations, not reported funded debt.
- Management reported no material changes to the risk factors in its 2022 Form 10-K. Disclosure controls were assessed as effective, with no material change in internal control over financial reporting reported.
Important facts for investors to verify
- How much of the Great Park Venture’s $143.1 million estimated future price participation will ultimately be realized, and when; also verify related-party involvement in the land-bank transaction.
- The sustainability and timing of Great Park Venture distributions and incentive-management fees, which materially influenced reported earnings and liquidity.
- Progress on refinancing or otherwise addressing the $625.0 million senior notes due November 2025 and compliance with the revolver’s maturity conditions.
- Timing of the Navy’s remaining Shipyard land transfer, environmental review, and developments in the Hunters Point litigation.
- Actual development spending, public-financing reimbursements, and land-sale activity relative to management’s liquidity expectations.