Five Point Holdings, LLC — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. The company develops mixed-use planned communities in California, principally Valencia, Candlestick and The San Francisco Shipyard, and Great Park Neighborhoods. Figures below are in U.S. dollars; financial-statement amounts are in millions unless stated otherwise.
Financial performance and liquidity
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Consolidated revenue | $20.7 | $8.4 | $42.2 | $41.9 |
| Net income (loss) | $(8.2) | $36.4 | $(34.2) | $(2.6) |
| Net income (loss) attributable to Five Point | $(3.8) | $17.0 | $(15.9) | $(1.2) |
| Class A loss (earnings) per share | $(0.06) | $0.25 | $(0.23) | $(0.02) |
- Q3 revenue increased by $12.3 million, mainly from $10.0 million of contingent consideration on a 2011 Valencia commercial-property sale and higher Great Park management-services revenue. Nine-month revenue was nearly flat: higher Great Park management revenue was offset by lower Valencia land-sale revenue.
- Equity earnings from unconsolidated entities were $0.5 million in Q3 versus $52.4 million in Q3 2020, and $9.0 million for nine months versus $45.4 million. The prior-year comparisons included large gains from Gateway Commercial Venture property sales; the nine-month 2020 result also included a $26.9 million Great Park investment impairment.
- Cash and cash equivalents were $191.1 million at September 30, down from $298.1 million at December 31, 2020. Operating cash flow was $(162.3) million; investing cash flow was $78.3 million and financing cash flow was $(23.0) million. The operating cash outflow principally reflected development investment and other operating costs.
- Inventory was $2.17 billion, compared with $1.99 billion at year-end 2020. Total assets were $2.94 billion and total liabilities $1.06 billion.
- Notes payable, net, were $618.7 million, consisting of $625.0 million of 7.875% senior notes due 2025, net of discount and issuance costs. The $125 million unsecured revolver had no borrowings and $124.7 million of available capacity after letters of credit. The revolver maturity was extended to April 2024, with a conditional one-year extension option. Senior-note interest is fixed-rate; the company reported no floating-rate consolidated debt.
- No common-share distributions were declared. Cash interest paid in the first nine months was $27.2 million, all capitalized to inventory. The filing does not provide a clear consolidated operating margin measure.
Material changes and operating developments
- Great Park Venture (equity-method investee) recorded $407.3 million of land-sale revenue in the first nine months, up from $23.1 million, including sales of 887 homesites. This venture’s operating results are not consolidated line by line; Five Point recognized its share through equity earnings and received a $76.6 million distribution. Great Park completed the $476.0 million priority distribution entitlement to Legacy Interest holders, with up to $82.7 million of further participating distributions remaining.
- At Great Park Neighborhoods, 135 homes were sold in Q3 and 591 year to date, versus 410 homes in the first nine months of 2020. At Valencia, home sales began in May 2021; 199 homes had been sold through Q3, and the first residents moved into completed homes.
- Great Park sold 113 homesites and eight homes in Q3 for an aggregate gross purchase price of $78.0 million. These venture-level sales should not be confused with Five Point’s consolidated revenue.
- Gateway Commercial Venture revenue declined after it sold three campus buildings and land in 2020. Those prior-year transactions generated substantial gains and distributions, materially affecting comparisons.
- Founder Emile Haddad stepped down as CEO, President and Chairman effective September 30, 2021, remaining a director and becoming Chairman Emeritus and senior advisor. Stuart Miller became Executive Chairman and Lynn Jochim became President while retaining her COO role. Haddad’s arrangements include a $3.8 million prorated 2021 bonus and a $5.0 million annual advisory retainer under an initial three-year agreement.
Outlook, risks and contingencies
- Management expects available cash, Valencia land-sale proceeds, distributions from unconsolidated ventures and Great Park management-fee collections to meet cash requirements for at least the next 12 months. It expects significant Valencia horizontal-development spending over the next year and says it currently expects to fund planned horizontal development for several years. These expectations depend on market conditions, development costs, timing and access to financing.
- Management cited strong demand for new homes and limited supply of entitled land in its markets, while stating that development spending will be managed to projected builder demand. The filing provides no numerical earnings or revenue guidance.
- Shipyard land transfers remain exposed to delays: environmental resampling and governmental review related to allegations concerning Navy contractors’ testing have delayed transfer of approximately 408 acres. Further delays could affect development plans. Related Hunters Point and Shipyard lawsuits seek damages and other relief; the company says it cannot predict outcomes and believes it has defenses.
- At September 30, outstanding performance bonds were $281.0 million; San Francisco Venture guarantees for infrastructure and park/open-space obligations had a maximum aggregate amount of $198.3 million. The company also disclosed $18.6 million of other contractual payment guarantees and a $174.1 million tax-receivable-agreement liability. These are not all recorded debt obligations.
- Other material risks include California land-use and environmental regulation, construction and development execution, real-estate demand and pricing, inflation and cost changes, interest rates, COVID-19, natural disasters, litigation, and the availability and cost of financing. Management reported no material change in previously disclosed risk factors, no material off-balance-sheet arrangements, and effective disclosure controls.
Important facts for investors to verify
- How much of reported performance and cash generation depends on Great Park distributions, incentive fees and other related-party arrangements, and how those amounts translate into cash available to Five Point.
- The timing, pricing and margins of future Valencia and Great Park land closings, including the impact of land-bank transactions and variable consideration.
- Progress and potential costs or delays associated with Shipyard environmental review, Navy land transfers and related litigation.
- Liquidity needs against planned development spending, including whether expected land-sale proceeds and venture distributions materialize as projected.
- The financial and governance implications of the CEO transition and Haddad’s bonus, advisory retainer, equity awards and termination provisions.