Five Point Holdings, LLC — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. Amounts are in U.S. dollars; financial statement amounts below are in millions unless stated otherwise.
Business context
Five Point owns and develops planned communities in California through its operating company. Its four reporting segments are Valencia, San Francisco, Great Park and Commercial. The company consolidates some entities but accounts for the Great Park and Gateway Commercial ventures using the equity method, so reported consolidated revenue does not include all activity shown in segment results.
Financial performance and liquidity
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $15.4 | $20.7 | $25.7 | $42.2 |
| Net loss | $9.5 | $8.2 | $57.3 | $34.2 |
| Net loss attributable to Five Point | $4.4 | $3.8 | $26.7 | $15.9 |
| Operating cash flow | Not presented quarterly | $(175.0) | $(162.3) |
- Nine-month revenue fell 39%, principally reflecting substantially lower Great Park land sales and management-services revenue. Great Park Venture land sale revenue was $39.0 million, versus $407.3 million in the prior-year period; this is venture-level segment information, not consolidated revenue.
- For Q3, revenue declined 25.5%. Selling, general and administrative expense fell 42% year over year to $12.0 million, and the company reported an approximately 29% reduction in headcount since year-end 2021.
- Great Park Venture results shifted from $63.6 million net income in the first nine months of 2021 to a $19.7 million net loss in 2022. Five Point’s equity in losses from unconsolidated entities was $4.7 million for the nine months, versus $9.0 million in earnings a year earlier.
- Cash and cash equivalents were $86.4 million at September 30, 2022, down from $265.5 million at December 31, 2021. Operating activities used $175.0 million; investing activities provided $2.3 million and financing activities used $6.4 million. The filing cites development spending and lower venture distributions among cash-flow drivers.
- Notes payable, net, were $620.3 million, consisting of $625.0 million of 7.875% senior notes due 2025, net of issuance costs and discount. The company had no borrowings under its $125.0 million unsecured revolver; $124.7 million remained available after letters of credit. Debt is fixed-rate. Estimated fair value of notes payable was $499.7 million.
- Current assets are concentrated in inventories, reported at $2,229.5 million. The company also reported a $173.1 million tax receivable agreement liability. No distributions on common shares were declared in either comparison period.
The filing does not present a single consolidated operating-margin measure as a key performance metric; segment reporting includes unconsolidated venture activity that is removed in reconciling to consolidated results.
Changes, outlook and notable items
- Management said higher mortgage rates and softer homebuilder demand affected residential markets. It delayed some Valencia and Great Park residential land sales planned for 2022, aiming to align land sales with builders’ sales pace and preserve market pricing. Management cited limited California housing supply as support for the longer-term outlook.
- The company expected to meet cash needs for at least the next 12 months using cash, venture distributions, management fees, land-sale proceeds and financing access. It also said it expected to fund planned horizontal development for several years. These expectations depend on market conditions, sales timing, costs and access to financing.
- The Great Park development-management agreement was extended through December 31, 2022. Management expected renewal but said failure to renew, or less favorable terms, would negatively affect short-term cash flow. The agreement includes incentive compensation; the company reported $93.9 million in contract assets at September 30, 2022, including $87.0 million related to parties.
- Nine-month restructuring expense was $19.4 million, associated with executive transitions, accelerated share-based compensation and employee severance. The company accrued $15.6 million for advisory-agreement payments to former senior executives.
- Five Point reported $326.3 million of outstanding performance bonds and $198.3 million of maximum guarantees for San Francisco park and open-space obligations. These are contingent obligations, not reported debt balances.
- The San Francisco Shipyard remains subject to environmental and land-transfer uncertainty tied to Navy retesting. A homeowners’ action settlement for $6.3 million was to be paid from joint insurance proceeds; Tetra Tech’s appeal was dismissed in October 2022. A separate Bayview action remained pending, and the filing said its outcome could not be predicted.
- Management reported effective disclosure controls and no material change in internal control over financial reporting. It reported no material changes to the risk factors in its 2021 Form 10-K.
Important facts for investors to verify
- Whether deferred residential land sales close, and how higher mortgage rates and builder demand affect pricing, volume and development timing.
- Cash use, future land-sale proceeds and venture distributions, including the company’s ability to fund development and service its fixed-rate notes.
- Renewal terms for the Great Park management agreement and the timing, collectability and assumptions underlying incentive-compensation contract assets.
- Progress of Navy environmental retesting and land transfers, remaining litigation exposure, and the scope of insurance or indemnification coverage.
- Potential cash requirements from performance bonds, guarantees, related-party reimbursement obligations and the tax receivable agreement.