Five Point Holdings, LLC — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. Five Point owns and develops planned communities in California, including Valencia, Candlestick and The San Francisco Shipyard, and Great Park Neighborhoods. The Great Park and Gateway Commercial ventures are equity-method investments; their full operating results are not included in consolidated revenue or assets.
Financial performance and position
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Consolidated revenue | $8.3 million | $24.3 million | $21.5 million | $33.5 million |
| Net income (loss) | $(4.9) million | $14.2 million | $(26.0) million | $(39.0) million |
| Net income (loss) attributable to Five Point | $(2.3) million | $6.6 million | $(12.1) million | $(18.2) million |
| Class A diluted EPS | $(0.03) | $0.10 | $(0.18) | $(0.27) |
Q2 consolidated revenue fell 65.8%, mainly because Valencia recorded no land sales in the quarter, compared with a 2020 sale. Six-month revenue declined 35.9% for the same reason, partly offset by higher Great Park management-services revenue. Equity-method earnings were $12.1 million in Q2 and $8.6 million for the first half, versus $23.9 million and a $7.0 million loss, respectively, in 2020. The prior-year six-month result included a $26.9 million impairment of the Great Park investment.
In Q2, Great Park Neighborhoods closed sales of 774 homesites for an aggregate base price of $328.2 million. These venture sales are not consolidated revenue. The Great Park Venture distributed $76.6 million to Five Point and paid $20.7 million in incentive compensation; together with a $1.0 million distribution on an indirect legacy interest, Five Point reported receiving $98.3 million in cash during the quarter. Great Park segment land-sale costs were 74.6% of land-sale revenue in Q2 and 74.4% for the first half; these segment figures include the venture’s results.
At June 30, 2021, total assets were $2.919 billion, including $2.104 billion of inventories; cash and cash equivalents were $236.5 million. Notes payable, net, were $618.3 million, primarily $625 million of 7.875% senior notes due 2025. The company reported $1.037 billion of total liabilities and $172.7 million payable under its tax receivable agreement. Its $125 million unsecured revolving facility was undrawn, with $124.7 million available after letters of credit; maturity was extended to April 2024, with a conditional one-year extension option.
For the first half, operating cash flow was $(117.8) million, investing cash flow was $78.0 million, and financing cash flow was $(21.8) million. Cash, cash equivalents and restricted cash declined $61.6 million to $237.8 million. Management said cash needs for at least the next 12 months are expected to be met with available cash, Valencia land-sale proceeds, distributions from unconsolidated ventures and Great Park management-fee collections. No common-share distributions were declared.
Changes, outlook and risks
Management cited strong demand for new homes and limited supply of entitled land in its markets. As of August 1, builders at Great Park had sold 516 homes in 2021, compared with 291 over the same period in 2020. Valencia had opened ten of its first eighteen neighborhoods for sale, with first homeowners expected to move in during fall 2021. Infrastructure and amenity investment continued at Valencia and Great Park. The company plans to align development spending with expected builder demand and said it expects to fund horizontal development under its plans for several years. No specific financial guidance was provided.
Material uncertainties include variable timing of land sales, development costs and regulatory approvals; market and interest-rate conditions; and the availability of financing. The San Francisco Shipyard’s remaining land transfers depend on the U.S. Navy’s environmental review and retesting, which have delayed transfers and could further delay or impede development. Related lawsuits allege contamination and inadequate disclosure; the company says it has meritorious defenses but cannot predict outcomes. The filing also reports $228.9 million of performance bonds, $198.3 million of maximum guarantees for San Francisco park and open-space obligations, and $20.4 million of other contractual payment guarantees. Management reported no material change in risk factors from its 2020 Form 10-K and no material off-balance-sheet arrangements.
COVID-19 continued to affect workplace arrangements; employees were working remotely, with return timing dependent on applicable requirements and conditions. Management noted results are volatile because land-sale revenue depends on development sequencing and market conditions. The 2021 six-month loss generated no tax benefit, primarily because of a valuation allowance against deferred tax assets.
Investor verification points
- Confirm the distinction between consolidated results and Great Park venture-level homesite sales, earnings and distributions.
- Assess the timing and collectability of Great Park incentive compensation and other contract assets, including the $67.0 million related-party contract-asset balance.
- Track Shipyard environmental review, Navy land transfers, litigation and related guarantees for effects on development schedules and potential exposure.
- Review cash needs and development spending against land-sale timing, available liquidity, the 2025 senior-note maturity and the conditional revolver extension.