Five Point Holdings, LLC — FY 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019; filed March 13, 2020. This is an annual report, not a standalone fourth-quarter filing. Five Point develops master-planned communities in California; its main revenue sources are land sales and development-management services.
Business context and operations
The company reports four segments: Valencia, San Francisco, Great Park and Commercial. It owns or manages interests in communities in Los Angeles, San Francisco and Orange County. Five Point owned approximately 62.4% of its operating company at year-end. Great Park and the Gateway Commercial Venture are accounted for as equity-method investments, so segment results that include their full operations do not equal consolidated results.
Financial performance and liquidity
| Metric | FY 2019 | FY 2018 |
|---|---|---|
| Consolidated revenue | $184.4 million | $49.0 million |
| Income (loss) before tax | $24.7 million | $(58.8) million |
| Net income (loss) | $22.3 million | $(67.9) million |
| Net income (loss) attributable to Five Point | $9.0 million | $(34.7) million |
| Basic and diluted Class A EPS | $0.13 | $(0.53) |
| Cash from operating activities | $(232.0) million | $(343.3) million |
Revenue rose mainly because Valencia recorded land-sale revenue. Land sales were $140.0 million, while related-party management-services revenue was $39.6 million. The company reported $103.6 million of selling, general and administrative expense. Land-sale costs were $97.1 million; on reported land-sale revenue of $140.9 million, that implies an approximate 31% gross margin before other expenses.
Reported earnings included a $64.9 million gain from settling contingent consideration after termination of the Candlestick retail project. The gain was noncash and materially affected the year’s results. Fourth-quarter revenue was $146.9 million, pretax income was $16.3 million and income attributable to Five Point was $6.4 million; the annual filing does not provide a standalone adjusted fourth-quarter result excluding unusual items.
At December 31, 2019, cash and cash equivalents were $346.8 million, with $124.0 million available on the revolving credit facility, for total liquidity of $470.8 million. Inventories were $1.89 billion and total assets were $3.00 billion. Notes payable, net, were $616.0 million, reflecting $625.0 million principal of 7.875% senior notes due 2025. The revolving facility had a $125.0 million commitment, no borrowings and a maturity extended to April 2022, with a one-year extension option subject to conditions. Cash decreased from $495.7 million at 2018 year-end; operating cash use remained substantial as development continued.
The Gateway Commercial Venture, accounted for outside consolidated debt, reported $302.3 million of notes payable and a $5.1 million net loss for 2019. Five Point owns 75% of that venture and disclosed limited guarantees for specified customary bad acts and insolvency-related events.
Material changes versus 2018
- Valencia closed on 711 Mission Village homesites in the fourth quarter for approximately $135.2 million in base proceeds; 70 additional homesites under a separate agreement were expected to close in the first half of 2020.
- Great Park closed sales of 587 homesites during 2019 for approximately $255.4 million in gross proceeds at the venture level. Its reported segment revenue includes venture activity not consolidated by Five Point.
- Five Point and its partners terminated the planned Candlestick retail project, repaid the $65.1 million Macerich note and associated accrued interest, and obtained release from specified development and conveyance obligations. The settlement generated the $64.9 million gain.
- In October, San Francisco approved a revised first-phase Candlestick plan for approximately 1,600 homes, 750,000 square feet of office space and 300,000 square feet of lifestyle amenities.
- Five Point issued $125.0 million of additional 7.875% senior notes in 2019. Net cash used in operating activities improved by $111.3 million from 2018, but remained negative.
Outlook, risks and contingencies
Management expected available cash, Valencia land-sale proceeds, distributions from unconsolidated ventures and management fees to cover cash requirements for at least the next 12 months. It expected to fund horizontal development for several years under its existing plan, while noting that additional capital may be needed for vertical development or if costs, plans or circumstances change. San Francisco projects were not expected to generate significant liquidity within the next 12 months. No specific revenue or earnings guidance was provided.
- Shipyard transfer and environmental issues: Approximately 408 acres remained with the U.S. Navy pending the FOST process. Allegations that a Navy contractor misrepresented sampling results led to retesting, investigations, litigation and delayed transfers; further delays or development impacts are possible. Related lawsuits include claims against Five Point, and outcomes were not predictable. The company filed separate lawsuits against the United States and Tetra Tech in February 2020.
- Valencia litigation: Petitioners appealed a lower-court ruling that rejected their challenge to approvals for Mission Village and Landmark Village. The company could not predict the appeal’s outcome.
- Other exposures: Key risks include California market and regulatory concentration, entitlement and construction delays, environmental remediation, weather and wildfire events, homebuilder demand, litigation and financing availability. The filing also identifies potential effects of coronavirus on the economy, home demand and builder supply chains.
- Contractual commitments: The filing lists $1.12 billion of specified contractual obligations, including senior-note principal and interest, leases, water payments, Valencia settlement payments and a related-party reimbursement obligation. Performance bonds were $230.0 million; San Francisco Venture guarantees for park and open-space infrastructure had maximum obligations of $197.8 million. These amounts are not all equivalent to current debt or expected cash payments.
- Distributions: No distributions had been declared or paid since the company’s formation transactions, and management said it did not expect to pay them in the foreseeable future. Great Park legacy interests have priority distribution rights; $134.0 million remained after a $76.3 million distribution in early 2020, with the first $45.0 million of that balance payable before percentage-interest distributions.
Most important facts for investors to verify
- How much of reported 2019 earnings depended on the one-time $64.9 million gain, and what recurring earnings and cash generation look like without it.
- Whether Valencia’s 2020 contracted homesite closings occurred as expected, and the timing and economics of subsequent land sales.
- Updated Navy sampling, FOST and land-transfer milestones for the Shipyard, including litigation developments and potential schedule or cost impacts.
- Cash burn, development spending and funding needs relative to the stated liquidity runway; distinguish consolidated debt from debt and obligations at unconsolidated ventures.
- Great Park distribution priorities and the timing of cash available to Five Point after legacy interests and other priorities are satisfied.