Five Point Holdings, LLC — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. Five Point develops mixed-use planned communities in California, with reportable segments in Valencia, San Francisco, Great Park and Commercial. Financial statement amounts below are in millions unless noted. The company owns approximately 62.5% of its operating company; reported results include noncontrolling interests.
Financial results and liquidity
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Consolidated revenue | $5.4 | $8.3 | $10.3 | $21.5 |
| Net loss | $11.0 | $4.9 | $47.7 | $26.0 |
| Net loss attributable to Five Point | $5.1 | $2.3 | $22.2 | $12.1 |
| Basic/diluted loss per Class A share | $(0.07)/$(0.07) | $(0.03)/$(0.03) | $(0.32)/$(0.33) | $(0.18)/$(0.18) |
Consolidated revenue is not a complete measure of activity at equity-method ventures: the Great Park and Gateway Commercial ventures’ operating results are generally excluded from consolidated revenue, while the company records its share of their earnings or losses.
- Six-month operating cash flow was negative $133.5 million, versus negative $117.8 million a year earlier. Investing activities provided $1.4 million, compared with $78.0 million in 2021, when the company received a $76.6 million Great Park Venture distribution. Financing activities used $5.5 million.
- Cash and cash equivalents were $127.8 million at June 30, versus $265.5 million at December 31, 2021. Cash, cash equivalents and restricted cash totaled $129.2 million.
- Notes payable had a $619.9 million carrying value, comprising $625 million of 7.875% senior notes due 2025, net of issuance costs and discount. The $125 million unsecured revolver was undrawn; $124.7 million remained available after letters of credit.
- Six-month cash interest paid was $26.1 million and was capitalized to inventory. The filing reports no floating-rate debt. No gross-margin figure is presented in the filing.
- Total assets were $2,889.6 million; total liabilities were $1,009.3 million. Inventories were $2,187.6 million. The tax receivable agreement liability was $173.1 million.
Material changes and operating developments
- Revenue fell 35% in Q2 and 52% for the first half, primarily because management-service revenue at Great Park declined and the prior-year comparison included substantial Great Park land sales. The Great Park Venture sold 774 homesites in 2021; no comparable land sale occurred in the first half of 2022.
- Equity earnings from unconsolidated entities fell to $0.6 million in Q2 from $12.1 million; for the first half, the company recorded a $0.4 million equity-method loss versus $8.6 million of earnings in 2021. Great Park Venture results shifted from strong prior-year land-sale income to a first-half 2022 loss.
- SG&A declined 34% in Q2 and 24% for the first half, partly reflecting lower employee-related costs. Management reported headcount was down approximately 29% from the start of 2022.
- First-half restructuring expense was $19.4 million, including approximately $3.0 million of accelerated share-based compensation related to former executives, severance, and costs associated with executive transitions. The company accrued $15.6 million for advisory-agreement payments to former senior executives.
- At Valencia, guest builders had sold 725 homes since sales began in May 2021, including 168 in Q2. At Great Park Neighborhoods, builders sold 37 homes in Q2; the new Solis Park neighborhood began opening homes for sale, with most builder collections planned for Q3.
Outlook, risks and contingencies
- Management said rising inflation and interest rates tightened residential markets and introduced uncertainty in the new-home market. It may defer some Valencia and Great Park land sales planned for 2022, along with related development costs, to align with builder sales pace and seek to maximize community value. Management nevertheless cited constrained California housing supply and a favorable long-term outlook for its markets.
- Management expected available cash, Valencia land-sale proceeds, distributions from unconsolidated ventures and Great Park management fees to cover cash needs for at least 12 months; it also expected to fund planned horizontal development for several years. These expectations depend on market conditions, sales timing, costs and collections.
- The Great Park development management agreement was extended through December 31, 2022, with a $12 million annual fixed fee for 2022 and elimination of variable cost reimbursements. Management expected renewal but gave no assurance. Non-renewal could reduce 2022 incentive compensation from 9% to 6.75% of applicable distributions and negatively affect short-term cash flow.
- San Francisco Shipyard land transfers remain subject to the Navy’s environmental review and finding-of-suitability process. Retesting and related investigations have delayed transfers and could further impede development.
- A settlement in the Shipyard homeowners’ action was approved in March 2022, providing for $6.3 million of damages from insurance proceeds and dismissal with prejudice for the company; Tetra Tech appealed the judgment in June. A separate Bayview Action remains pending, and the company said it could not predict its outcome.
- Outstanding performance bonds were $325.0 million; maximum guarantees for certain San Francisco infrastructure and park obligations were $198.3 million. The company also disclosed $18.2 million of other contractual payment guarantees. These are contingent obligations, not reported debt balances.
- Other principal risks include California real-estate and regulatory conditions, development and construction costs, interest-rate and financing-market changes, environmental exposure, litigation, and the timing of land sales. The filing reported no material change to the risk factors in the 2021 Form 10-K.
Most important facts for investors to verify
- Whether the Great Park management agreement is renewed after December 31, 2022, and the resulting fee and incentive-compensation terms.
- Whether higher rates and market uncertainty cause planned land sales to be deferred, and the effect on liquidity, development spending and cash receipts.
- Cash burn, available revolver capacity, and the timing of expected Valencia sales, venture distributions and management-fee collections.
- Progress and potential financial or schedule effects from Shipyard environmental retesting, Navy land transfers, and the Tetra Tech appeal and remaining litigation.
- Exposure from performance bonds, guarantees, related-party arrangements and the $173.1 million tax receivable agreement liability.
- Reported revenue and earnings attribution: Great Park and Gateway venture segment results include venture activity that is not consolidated, and Five Point’s ownership interest in its operating company was approximately 62.5%.