Five Point Holdings, LLC quarterly report, Q1 FY2022

Five Point Holdings, LLC — Q1 2022 Form 10-Q

Reporting period: Three months ended March 31, 2022. Five Point is a California-focused owner and developer of mixed-use planned communities, with operations across Valencia, Candlestick and The San Francisco Shipyard, Great Park Neighborhoods, and commercial properties. Financial amounts below are in U.S. dollars.

Financial performance and liquidity

Metric	Q1 2022	Q1 2021 / comparison
Consolidated revenue	$4.9 million	$13.2 million
Net loss	$36.8 million	$21.0 million
Net loss attributable to Five Point	$17.1 million; $0.25 per Class A share	$9.8 million; $0.14 per Class A share
Cash used in operating activities	$58.0 million	$52.5 million
Cash and cash equivalents at period end	$203.6 million	$265.5 million at Dec. 31, 2021
Notes payable, net	$619.5 million	$619.1 million at Dec. 31, 2021

• Revenue fell 62.9%, primarily because Great Park management-services revenue declined. The filing attributes this mainly to no incentive compensation revenue recognized in Q1 2022. Management-services costs also fell, largely because no intangible-asset amortization was recorded, compared with $7.8 million in Q1 2021.
• The net loss widened by $15.7 million. Q1 2022 included $19.4 million of restructuring expense, while Q1 2021 included none. Selling, general and administrative expense decreased to $16.8 million from $19.5 million.
• Cash used in operations increased by $5.5 million year over year, principally reflecting ongoing development investment and corporate costs. Cash, cash equivalents and restricted cash totaled $205.0 million at March 31, 2022; restricted cash and certificates of deposit were $1.3 million.
• Debt consists principally of $625 million of 7.875% senior notes due 2025, shown net of issuance costs and discount. The $125 million unsecured revolver was undrawn, with $124.7 million available after letters of credit. Management reported no floating-rate debt.
• Other notable balance-sheet items included $2.145 billion of inventory and a $173.1 million tax receivable agreement liability. Interest paid was $0.8 million and was capitalized to inventory.

Operations and changes versus prior period

• At Valencia, builders had opened 15 of the initial 18 neighborhoods and sold 211 homes in Q1; cumulative homes sold since May 2021 reached 557.
• At Great Park Neighborhoods, builders sold 94 homes in Q1. The venture reported $17.2 million of home-sale revenue, including nine homes closed under its fee-build arrangement. About 50 homes remained to sell in the Rise neighborhood; Solis Park, planned for approximately 850 homes, was expected to open for sales in summer 2022.
• Equity-method losses from unconsolidated entities improved to $1.0 million from $3.6 million, mainly because Great Park Venture generated income from home sales. The company’s 37.5% Great Park Venture and 75% Gateway Commercial Venture are accounted for under the equity method.
• The company’s Class A shares outstanding declined to 69.1 million from 70.1 million at year-end, primarily due to employee share withholding repurchases and forfeitures, partly offset by awards.

Outlook, management commentary and risks

• No formal full-year financial guidance was provided. Management said it expected available cash, Valencia land-sale proceeds, distributions from unconsolidated entities and Great Park management fees to meet cash requirements for at least the next 12 months. It also expected to have capital for planned horizontal development for several years.
• Management expects significant 2022 cost savings after headcount fell approximately 29% since the beginning of the year. The company continued to anticipate substantial Valencia development spending over the next 12 months.
• The Great Park development management agreement, whose initial term expired December 31, 2021, was extended through May 16, 2022 while renewal terms were discussed. Management expected renewal but cautioned there was no assurance of renewal or favorable terms; failure or less favorable terms could pressure near-term cash flows.
• Leadership changes drove unusual costs: Daniel Hedigan became CEO on February 9, 2022; former CEO Emile Haddad and former President/COO Lynn Jochim moved to three-year advisory agreements. The company accrued $15.6 million for advisory payments and recorded $19.4 million in total restructuring expense, including approximately $3.0 million for modified share awards and $0.9 million for estimated severance.
• Development and liquidity exposures include $288.0 million of performance bonds, $198.3 million of maximum guarantees for San Francisco park and open-space obligations, and $18.3 million of other contractual payment guarantees. The company cited uncertainty around reimbursement timing and future access to debt or equity financing.
• At The San Francisco Shipyard, environmental retesting and the U.S. Navy’s finding-of-suitability-to-transfer process have delayed transfers of approximately 408 acres and could further delay or impede development. The company also faces litigation related to alleged contamination and sampling work. A $6.3 million settlement of the Homeowners Action was approved in March 2022 and is to be funded from joint insurance proceeds; entry of judgment and possible appeal remained outstanding. The Bayview Action remained unresolved, and its outcome could not be predicted.
• Other stated risks include real-estate market and economic conditions, California regulatory and environmental requirements, construction and entitlement delays, interest-rate changes, litigation, weather and natural disasters, and availability of financing. Management reported no material change in the risk factors disclosed in its 2021 Form 10-K.

Most important facts for investors to verify

• Whether the Great Park development management agreement was renewed, and the resulting fee structure, timing and cash-flow effect.
• Whether the $6.3 million Homeowners Action settlement was finalized and whether the Bayview Action or environmental proceedings produced material developments.
• Actual cash use, land-sale and reimbursement proceeds, and development spending relative to management’s liquidity expectations.
• Progress on Navy land transfers and retesting at The San Francisco Shipyard, and any effect on project sequencing or costs.
• How the $19.4 million restructuring charge, $15.6 million advisory accrual, and expected headcount savings affect subsequent-period expenses.
• Debt service and refinancing plans for the 7.875% notes due 2025, alongside the company’s substantial performance bonds, guarantees and tax receivable agreement liability.