Five Point Holdings, LLC — FY2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020; filed March 9, 2021. This is an annual report, not a standalone fourth-quarter filing. Five Point develops master-planned communities in California, principally selling residential and commercial land and providing development-management services.
Financial and operating results
| Metric | FY2020 | FY2019 |
|---|---|---|
| Total revenue | $153.6 million | $184.4 million |
| Net income (consolidated) | $1.1 million | $22.3 million |
| Net income (loss) attributable to Five Point | $(0.4) million | $9.0 million |
| Operating cash flow | $(78.5) million | $(232.0) million |
| Cash and cash equivalents at year-end | $298.1 million | $346.8 million |
| Notes payable, net | $617.6 million | $616.0 million |
- Revenue fell 16.7%, primarily because of fewer land sales at Valencia and substantially lower land sales at Great Park. Reported revenue included $122.6 million of Valencia land sales and $28.1 million of related-party management-services revenue.
- Consolidated net income declined despite $42.4 million of equity earnings from unconsolidated ventures. This included an $83.9 million contribution from the Gateway Commercial Venture, partly offset by a $40.0 million equity-method loss from Great Park, including a $26.9 million other-than-temporary impairment.
- FY2019 results included a one-time $64.9 million gain from settlement of a related-party contingent consideration liability; there was no comparable gain in 2020. Five Point’s attributable result was a loss in 2020 versus income in 2019.
- Operating cash use improved year over year but remained negative. Cash declined by $49.1 million during 2020. Cash flows are affected by the timing of land closings and development spending.
- At year-end, the company had $625.0 million principal amount of 7.875% senior notes due 2025 and $124.7 million available under its $125.0 million revolving facility, with no revolver borrowings. The notes’ carrying value was $617.6 million. The company expected $49.2 million of 2021 senior-note interest payments.
- Gross margin, as a consolidated company-wide measure, is not clearly presented in the filing. Valencia’s cost of land sales was 69.9% of its land-sale revenue in 2020, versus 69.3% in 2019.
Material changes and operating developments
- Valencia closed escrow on 442 of 487 homesites sold in the fourth quarter for approximately $102.2 million in gross proceeds; the remaining 45 were expected to close in late 2021. The company reported 1,268 homesites sold or under contract since initial sales began in December 2019. Home sales at Valencia were expected to begin in summer 2021.
- The Gateway Commercial Venture sold three campus buildings and about 11 acres for $463.0 million in total gross proceeds, recording $112.3 million in net gains. It repaid $275.0 million of debt and distributed approximately $182.0 million to members, including $136.5 million to Five Point. It retained one building and about 50 acres with additional development rights.
- Great Park’s 2020 land sale activity was materially below 2019. Its venture had distributed $431.3 million toward $565.0 million of priority distributions to legacy-interest holders as of year-end; those priorities affect cash available to percentage-interest holders.
- Five Point invested $4.2 million for a 10% interest in the Valencia Landbank Venture, which purchased 210 homesites and arranged builder options.
Liquidity, outlook, and risks
- Management said available cash, Valencia land-sale proceeds, distributions from unconsolidated ventures, and management fees should meet cash requirements for at least the next 12 months. It also expected to have capital for planned horizontal development for several years, while emphasizing that spending would be adjusted to projected builder demand. These are management expectations, not quantified earnings guidance.
- Planned 2021 cash needs included continued Valencia development, $49.2 million of senior-note interest, and an expected $35.5 million of principal payments under a related-party reimbursement obligation. Payment timing may be deferred under specified circumstances.
- The U.S. Navy’s additional environmental sampling at The San Francisco Shipyard has delayed transfer of approximately 408 acres. The timing and outcome of transfers remain uncertain; associated litigation, contamination matters, and potential further delays could affect development.
- COVID-19 affected activity and prompted the company to defer some development spending. Management reported a recovery in builder sales at Great Park in the second half of 2020 and resumed regular development activity, while noting uncertainty about the pandemic’s duration and effects.
- Other material risks include California market concentration, entitlement and environmental challenges, development cost and schedule overruns, reliance on homebuilders, natural disasters, and the company’s ability to refinance or service debt. The company disclosed $229.6 million of performance bonds and San Francisco Venture guarantees with maximum obligations of $198.3 million.
- The company reported $173.2 million payable under its tax receivable agreement. It has no current plans to pay shareholder distributions; none have been declared or paid since formation.
Most important facts for investors to verify
- Progress, timing, and any new costs or claims related to Navy retesting and transfer of the remaining Shipyard parcels.
- Whether Valencia homesite closings and the expected summer 2021 home-sales launch occurred, and whether builder demand supports planned development spending.
- Great Park venture distributions and the remaining priority claims of legacy-interest holders, including the effect on cash available to Five Point.
- Cash generation, 2021 reimbursement-obligation payments, and the company’s ability to cover debt service while funding development.
- Assumptions supporting the $26.9 million Great Park investment impairment, estimated land-sale margins, and management-service incentive compensation.
- Related-party activity and revenue concentration: the Valencia Landbank Venture represented 35% of consolidated revenue and one third-party homebuilder 38% in 2020.
Audit and controls: Deloitte & Touche issued an unqualified opinion on the financial statements and internal control over financial reporting; management also concluded disclosure controls were effective.