Five Point(FPH) - 2020 Q2 - Quarterly Report

Form 10-Q Cover Page This section identifies the document as a Quarterly Report (Form 10-Q) for Five Point Holdings, LLC, detailing key filing information and share counts as of June 30, 2020 - The document is a Quarterly Report (Form 10-Q) for Five Point Holdings, LLC, filed for the quarterly period ended June 30, 2020[1][2] - The registrant is an accelerated filer, a smaller reporting company, and an emerging growth company, and has elected not to use the extended transition period for new accounting standards[3] - As of July 31, 2020, there were 69,056,591 Class A common shares and 79,233,544 Class B common shares outstanding[3] Class A Common Shares Listing Information | Title of each class | Trading Symbol(s) | Name of each exchange on which registered | | :------------------ | :---------------- | :---------------------------------------- | | Class A common shares | FPH | New York Stock Exchange | Cautionary Statement Regarding Forward-Looking Statements This section warns that the report contains forward-looking statements subject to various risks and uncertainties, including public health issues and real estate market fluctuations - The report contains forward-looking statements subject to risks and uncertainties, identified by words such as 'anticipate,' 'believe,' 'expect,' and 'intend'[8] - Key risks include public health issues (e.g., COVID-19), real estate industry risks, economic downturns, zoning and land use uncertainties, development and construction risks, and fluctuations in interest rates and real estate values[9][12] - Actual results may vary materially from projections if underlying assumptions prove incorrect, and the company undertakes no obligation to update these statements except as required by law[10][11] PART I. FINANCIAL INFORMATION This part presents the company's unaudited condensed consolidated financial statements and management's discussion and analysis of financial condition and results of operations ITEM 1. Financial Statements This section presents Five Point Holdings, LLC's unaudited condensed consolidated financial statements, including balance sheets, statements of operations, comprehensive income, capital, and cash flows, with detailed notes for the periods ended June 30, 2020, and December 31, 2019 Unaudited Condensed Consolidated Balance Sheets This statement provides a snapshot of the company's assets, liabilities, and capital as of June 30, 2020, and December 31, 2019 Condensed Consolidated Balance Sheets (in thousands) | ASSETS | June 30, 2020 | December 31, 2019 | | :-------------------------------- | :------------ | :---------------- | | INVENTORIES | $1,978,879 | $1,889,761 | | INVESTMENT IN UNCONSOLIDATED ENTITIES | 469,564 | 533,239 | | CASH AND CASH EQUIVALENTS | 215,085 | 346,833 | | TOTAL ASSETS | $2,908,303 | $3,004,700 | | LIABILITIES AND CAPITAL | | | | Notes payable, net | $616,814 | $616,046 | | Total liabilities | 1,043,711 | 1,095,900 | | Total capital | 1,839,592 | 1,883,800 | | TOTAL LIABILITIES AND CAPITAL | $2,908,303 | $3,004,700 | Unaudited Condensed Consolidated Statements of Operations This statement details the company's revenues, costs, and net income (loss) for the three and six months ended June 30, 2020 and 2019 Condensed Consolidated Statements of Operations (in thousands, except per share amounts) | Metric | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :------------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total revenues | $24,307 | $12,387 | $33,527 | $25,460 | | Total costs and expenses | $34,288 | $34,671 | $66,910 | $69,961 | | Equity in earnings (loss) from unconsolidated entities | $23,905 | $(2,669) | $(7,006) | $6,213 | | Net income (loss) attributable to the Company | $6,632 | $(10,512) | $(18,174) | $13,296 | | Basic EPS (Class A) | $0.10 | $(0.16) | $(0.27) | $0.19 | | Diluted EPS (Class A) | $0.10 | $(0.16) | $(0.27) | $0.18 | Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss) This statement presents the company's net income (loss) and other comprehensive income (loss) for the three and six months ended June 30, 2020 and 2019 Condensed Consolidated Statements of Comprehensive Income (Loss) (in thousands) | Metric | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :-------------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | NET INCOME (LOSS) | $14,238 | $(22,628) | $(38,981) | $30,105 | | OTHER COMPREHENSIVE INCOME—Net of tax | 24 | 35 | 48 | 70 | | COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO THE COMPANY | $6,647 | $(10,490) | $(18,144) | $13,340 | Unaudited Condensed Consolidated Statements of Capital This statement outlines changes in the company's total capital, including members' capital and noncontrolling interests, as of June 30, 2020, and December 31, 2019 Condensed Consolidated Statements of Capital (in thousands, except share amounts) | Metric | June 30, 2020 | December 31, 2019 | | :-------------------------------- | :------------ | :---------------- | | Total Members' Capital | $594,406 | $611,694 | | Noncontrolling Interests | 1,245,186 | 1,272,106 | | Total Capital | $1,839,592 | $1,883,800 | | Class A Common Shares Outstanding | 69,056,591 | 68,788,257 | | Class B Common Shares Outstanding | 79,233,544 | 79,233,544 | Unaudited Condensed Consolidated Statements of Cash Flows This statement summarizes the company's cash inflows and outflows from operating, investing, and financing activities for the six months ended June 30, 2020 and 2019 Condensed Consolidated Statements of Cash Flows (in thousands) | Activity | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Net cash used in operating activities | $(148,383) | $(164,725) | | Net cash provided by investing activities | $34,136 | $710 | | Net cash used in financing activities | $(17,500) | $(38,682) | | NET DECREASE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH | $(131,747) | $(202,697) | | CASH, CASH EQUIVALENTS, AND RESTRICTED CASH—End of period | $216,827 | $294,400 | Notes to Unaudited Condensed Consolidated Financial Statements These notes provide essential context and detailed disclosures for the condensed consolidated financial statements, covering business, accounting policies, equity investments, debt, leases, and segment reporting 1. Business and Organization This note describes Five Point Holdings, LLC's structure as an owner and developer of mixed-use communities in California, operating through its primary operating company - Five Point Holdings, LLC (the 'Holding Company') is an owner and developer of mixed-use, master-planned communities in California, operating through Five Point Operating Company, LP (the 'Operating Company')[28] - The Holding Company owned approximately 62.5% of the outstanding Class A Common Units of the Operating Company as of June 30, 2020[30] - The company has Class A and Class B common shares; Class B shares receive 0.0003 times the distribution amount per Class A share[29] 2. Basis of Presentation This note outlines the preparation of unaudited financial statements in accordance with U.S. GAAP, including consolidation principles and the impact of the COVID-19 pandemic - The financial statements are unaudited, prepared in accordance with U.S. GAAP for interim financial information, and include consolidated accounts of subsidiaries and variable interest entities (VIEs) where the Holding Company is the primary beneficiary[32][33] - The COVID-19 pandemic has severely impacted daily activities and economies, leading the Company to limit development activities and monitor government guidelines, with potential material changes to future results[35] - The Company adopted ASU No. 2016-13 (CECL model) on January 1, 2020, with no material impact on consolidated financial statements, and had no material allowance for credit loss at June 30, 2020[36][37] 3. Revenues This note details the company's consolidated revenues by source and segment, highlighting land sales, management services, and operating properties Consolidated Revenues by Source and Segment (in thousands) | Revenue Source | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2020 | | :------------------------ | :------------------------------- | :----------------------------- | | Land sales | $17,030 | $17,046 | | Management services | $6,314 | $14,558 | | Operating properties | $963 | $1,923 | | Total revenues | $24,307 | $33,527 | - Contract assets increased by $5.9 million for the six months ended June 30, 2020, primarily due to timing differences in revenue recognition for management services[38] - The estimated transaction price allocated to unsatisfied performance obligations for the A&R DMA with Great Park Venture was $21.8 million as of June 30, 2020, to be recognized ratably over the remaining contract term[40] 4. Investment in Unconsolidated Entities This note details the company's equity method investments in unconsolidated entities, including Great Park Venture and Gateway Commercial Venture, and their financial performance Great Park Venture This section details the company's 37.5% interest in Great Park Venture, including its financial performance and an impairment charge due to COVID-19 - The Operating Company owns a 37.5% Percentage Interest in the Great Park Venture, which develops Great Park Neighborhoods[41][42] - An other-than-temporary impairment charge of $26.9 million was recognized during the six months ended June 30, 2020, due to delays in projected distributions from Great Park Venture caused by the COVID-19 pandemic[44] Great Park Venture Statements of Operations (in thousands) | Metric | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :------------------------------------------ | :----------------------------- | :----------------------------- | | Land sale revenues | $22,826 | $192,579 | | Net (loss) income of Great Park Venture | $(16,277) | $31,575 | | Equity in (loss) earnings from Great Park Venture | $(34,452) | $7,948 | Great Park Venture Balance Sheet Data (in thousands) | Asset/Liability | June 30, 2020 | December 31, 2019 | | :------------------------------------------ | :------------ | :---------------- | | Inventories | $895,536 | $870,861 | | Total assets | $1,092,295 | $1,196,258 | | Total liabilities and capital | $1,092,295 | $1,196,258 | | The Company's investment in the Great Park Venture | $396,964 | $431,835 | Gateway Commercial Venture This section details the company's 75% interest in Gateway Commercial Venture, highlighting significant asset sales and related financial gains and distributions - The Company owns a 75% interest in the Gateway Commercial Venture and accounts for it using the equity method[50] - In May 2020, Gateway Commercial Venture sold 11 acres and a 189,000 sq ft building to City of Hope for $108.0 million, resulting in a $37.4 million gain and a $56.3 million distribution to the Company[52] - In June 2020, Gateway Commercial Venture entered an agreement to sell two buildings leased by Broadcom Inc. for $355.0 million, expected to close in August 2020[53] Gateway Commercial Venture Statements of Operations (in thousands) | Metric | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :------------------------------------------ | :----------------------------- | :----------------------------- | | Rental revenues | $16,982 | $17,134 | | Gain on asset sale, net | $37,413 | $— | | Net income (loss) of Gateway Commercial Venture | $36,594 | $(2,314) | | Equity in earnings (loss) from Gateway Commercial Venture | $27,446 | $(1,735) | Gateway Commercial Venture Balance Sheet Data (in thousands) | Asset/Liability | June 30, 2020 | December 31, 2019 | | :------------------------------------------ | :------------ | :---------------- | | Real estate and related intangible assets, net | $377,951 | $451,988 | | Total assets | $405,259 | $473,398 | | Notes payable, net | $273,845 | $302,344 | | The Company's investment in the Gateway Commercial Venture | $72,600 | $101,404 | 5. Noncontrolling Interests This note explains the company's accounting for noncontrolling interests in its operating company and other ventures, including exchange rights and tax distributions - The Holding Company owned approximately 62.5% of the Operating Company's Class A Common Units as of June 30, 2020, consolidating its financial results and recording a noncontrolling interest for the remaining 37.5%[56] - Holders of Operating Company Class A Common Units and San Francisco Venture Class A units have exchange rights for Class A common shares or cash, impacting the Holding Company's ownership[57][60] - In 2019, the San Francisco Venture issued 25.0 million Class C units to an affiliate of Lennar for $25.0 million, which are redeemable under specific conditions and included in redeemable noncontrolling interest[61] - A tax distribution payment of $4.6 million was made to the management partner in January 2020, treated as an advance distribution[58] 6. Consolidated Variable Interest Entity This note identifies the Operating Company, San Francisco Venture, FP LP, and FPL as consolidated Variable Interest Entities, with the Holding Company as the primary beneficiary - The Operating Company is a consolidated Variable Interest Entity (VIE), and the Holding Company conducts all operations through it[65] - The San Francisco Venture, FP LP, and FPL are also determined to be VIEs, with the Operating Company or its subsidiary identified as the primary beneficiary due to unilateral power over significant activities and economic benefits[66][71] San Francisco Venture Combined Assets and Liabilities (in thousands) | Metric | June 30, 2020 | December 31, 2019 | | :-------------------------------- | :------------ | :---------------- | | Total combined assets | $1,213,200 | $1,197,100 | | Total combined liabilities | $104,600 | $119,200 | FP LP and FPL Combined Assets and Liabilities (in thousands) | Metric | June 30, 2020 | December 31, 2019 | | :-------------------------------- | :------------ | :---------------- | | Total combined assets | $980,800 | $900,000 | | Total combined liabilities | $106,700 | $126,800 | 7. Intangible Asset, Net—Related Party This note describes the intangible asset representing incentive compensation from the Great Park Venture A&R DMA, including its gross carrying amount and amortization - The intangible asset represents the contract value of incentive compensation from the A&R DMA with the Great Park Venture, amortized over the contract period[75] Intangible Asset, Net (in thousands) | Metric | June 30, 2020 | December 31, 2019 | | :---------------------- | :------------ | :---------------- | | Gross carrying amount | $129,705 | $129,705 | | Accumulated amortization | $(54,076) | $(49,355) | | Net book value | $75,629 | $80,350 | Intangible Asset Amortization Expense (in thousands) | Period | 2020 | 2019 | | :-------------------------------- | :--- | :--- | | Three months ended June 30, | $2,300 | $4,500 | | Six months ended June 30, | $4,700 | $8,800 | 8. Related Party Transactions This note details the company's related party assets and liabilities, including a gain from a project settlement and deferred reimbursement obligations Related Party Assets and Liabilities (in thousands) | Category | June 30, 2020 | December 31, 2019 | | :------------------------------------------ | :------------ | :---------------- | | Related Party Assets | $97,373 | $97,561 | | Related Party Liabilities | $119,759 | $127,882 | - In early 2019, the San Francisco Venture recognized a $64.9 million gain from the settlement of contingent consideration related to the termination of a retail outlet shopping district project[77] - A related party affiliate agreed to defer $12.6 million of reimbursement obligations until April 2025, accruing interest at 6% per year[81] 9. Notes Payable, Net This note details the company's notes payable, including senior notes and the available capacity on its revolving credit facility Notes Payable, Net (in thousands) | Debt Instrument | June 30, 2020 | December 31, 2019 | | :-------------------------- | :------------ | :---------------- | | 7.875% Senior Notes due 2025 | $625,000 | $625,000 | | Unamortized debt issuance costs and discount | $(8,186) | $(8,954) | | Total | $616,814 | $616,046 | - The Operating Company's $125.0 million revolving credit facility had $124.7 million available capacity as of June 30, 2020, after accounting for $0.3 million in outstanding letters of credit[82] 10. Tax Receivable Agreement This note describes the company's Tax Receivable Agreement (TRA) with Class A unit holders, detailing the liability and payment status - The Company has a Tax Receivable Agreement (TRA) with certain Class A unit holders, with a liability of $173.2 million at June 30, 2020, and $172.6 million at December 31, 2019[83] - The TRA term continues until tax benefits are utilized or expire, or if the Company exercises its right to terminate[84] - No TRA payments were made during the six months ended June 30, 2020 and 2019[84] 11. Leases This note details the company's operating lease arrangements for office facilities and equipment, including lease costs and related balance sheet information - All of the Company's leasing arrangements, primarily for office facilities and equipment, are classified as operating leases as of June 30, 2020[85] Lease Costs (in thousands) | Lease Type | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Operating lease cost | $552 | $666 | $1,106 | $1,327 | | Related party operating lease cost | $788 | $783 | $1,577 | $1,567 | | Short-term lease cost | $182 | $119 | $308 | $251 | Supplemental Balance Sheet Information Related to Leases (in thousands) | Metric | June 30, 2020 | December 31, 2019 | | :------------------------------------------ | :------------ | :---------------- | | Operating lease right-of-use assets | $30,449 | $32,579 | | Operating lease liabilities | $25,640 | $27,206 | | Weighted average remaining lease term (operating lease) | 6.6 years | 7.1 years | | Weighted average discount rate (operating lease) | 5.9 % | 5.9 % | 12. Commitments and Contingencies This note outlines the company's various commitments and contingencies, including settlement payments, bonding agreements, guarantees, letters of credit, and ongoing legal proceedings Valencia Project Approval Settlement This section details the remaining estimated monetary payment of $23.8 million due by 2026 related to the Valencia project approval settlement - The Company reached a settlement in September 2017 regarding legal challenges to Valencia's regulatory approvals, with a remaining estimated maximum potential monetary payment of $23.8 million due by 2026[89] Performance and Completion Bonding Agreements This section reports outstanding performance bonds totaling $243.7 million as of June 30, 2020, ensuring completion of development obligations - Outstanding performance bonds totaled $243.7 million as of June 30, 2020, and $230.0 million as of December 31, 2019, to ensure completion of development obligations[90] Candlestick and The San Francisco Shipyard Disposition and Development Agreement This section notes outstanding guarantees of $198.3 million as of June 30, 2020, benefiting the San Francisco Agency for infrastructure and park obligations - The Company had outstanding guarantees of $198.3 million as of June 30, 2020, benefiting the San Francisco Agency for infrastructure and park/open space obligations[92] Letters of Credit This section reports outstanding letters of credit totaling $1.8 million at June 30, 2020, secured by $1.4 million in restricted cash - Outstanding letters of credit totaled $1.8 million at June 30, 2020, secured by $1.4 million in restricted cash and certificates of deposit[93] Legal Proceedings This section discusses ongoing legal challenges, including final judgment on Valencia project approvals and lawsuits concerning environmental contamination at The San Francisco Shipyard - The California Supreme Court denied a petition to review the Landmark Village/Mission Village project approvals, making the judgment in favor of Los Angeles County and the Company final[94] - Multiple lawsuits have been filed regarding alleged environmental contamination and misrepresentation of testing results by Tetra Tech at The San Francisco Shipyard, naming the Company and others as defendants[95][96] - The Company believes it has meritorious defenses and potential insurance/indemnification rights for the Hunters Point litigation, but cannot predict the outcome[97] 13. Supplemental Cash Flow Information This note provides additional details on cash flow items, including cash paid for interest, noncash recognition of TRA liability, and reconciliation of cash and restricted cash Supplemental Cash Flow Information (in thousands) | Metric | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :------------------------------------------ | :----------------------------- | :----------------------------- | | Cash paid for interest (capitalized to inventories) | $26,697 | $32,882 | | Recognition of TRA liability (noncash) | $615 | $3,124 | | Purchase of properties and equipment in accounts payable (noncash) | $530 | $— | Reconciliation of Cash, Cash Equivalents, and Restricted Cash (in thousands) | Metric | 2020 | 2019 | | :------------------------------------------ | :----- | :----- | | Cash and cash equivalents | $215,085 | $292,661 | | Restricted cash and certificates of deposit | $1,742 | $1,739 | | Total | $216,827 | $294,400 | 14. Segment Reporting This note presents financial information for the company's four reportable segments: Valencia, San Francisco, Great Park, and Commercial, detailing revenues, profit, and assets - The Company operates through four reportable segments: Valencia, San Francisco, Great Park, and Commercial[101][102][103][104] Segment Revenues (in thousands) | Segment | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :---------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Valencia | $17,861 | $820 | $18,657 | $2,435 | | San Francisco | $172 | $972 | $1,147 | $2,065 | | Great Park | $6,827 | $43,854 | $36,355 | $213,413 | | Commercial | $8,603 | $8,912 | $17,176 | $17,261 | | Total reportable segments | $33,463 | $54,558 | $73,335 | $235,174 | Segment Profit (Loss) (in thousands) | Segment | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :---------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Valencia | $1,677 | $(4,261) | $(3,117) | $(8,345) | | San Francisco | $(2,466) | $(4,465) | $(5,558) | $56,609 | | Great Park | $(10,185) | $(2,325) | $(12,727) | $37,943 | | Commercial | $37,426 | $(1,406) | $36,788 | $(2,187) | | Total reportable segments | $26,452 | $(12,457) | $15,386 | $84,020 | Segment Assets (in thousands) | Segment | June 30, 2020 | December 31, 2019 | | :---------------- | :------------ | :---------------- | | Valencia | $833,134 | $748,082 | | San Francisco | $1,213,156 | $1,197,081 | | Great Park | $1,253,477 | $1,356,417 | | Commercial | $405,291 | $473,409 | | Total reportable segments | $3,705,058 | $3,774,989 | 15. Share-Based Compensation This note details the company's incentive award plan, including RSU and restricted share activity, compensation expense, and unrecognized compensation cost - The Company has an incentive award plan granting RSUs and restricted share awards, with 4,683,907 Class A common shares available for future issuance as of June 30, 2020[111] Share-Based Equity Compensation Activity (Six Months Ended June 30, 2020) | Metric | Share-Based Awards (in thousands) | Weighted Average Grant Date Fair Value | | :-------------------------- | :------------------------------- | :------------------------------------- | | Nonvested at January 1, 2020 | 3,011 | $9.02 | | Granted | 677 | $8.09 | | Forfeited | (307) | $6.88 | | Vested | (1,071) | $12.64 | | Nonvested at June 30, 2020 | 2,310 | $7.36 | Share-Based Compensation Expense (in thousands) | Period | 2020 | 2019 | | :-------------------------------- | :--- | :--- | | Three months ended June 30, | $2,800 | $3,400 | | Six months ended June 30, | $5,800 | $6,800 | - Approximately $11.7 million of total unrecognized compensation cost is expected to be recognized over a weighted-average period of 1.6 years from June 30, 2020[114] 16. Employee Benefit Plans This note describes the Newhall Land and Farming Company Retirement Plan, a frozen defined benefit plan, and its net periodic benefit costs - The Newhall Land and Farming Company Retirement Plan is a frozen defined benefit plan, with the Company expecting to contribute $0.6 million in 2020[115] Net Periodic Benefit (in thousands) | Metric | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Interest cost | $164 | $208 | $328 | $416 | | Expected return on plan assets | $(276) | $(252) | $(552) | $(505) | | Amortization of net actuarial loss | $24 | $35 | $48 | $70 | | Net periodic benefit | $(88) | $(9) | $(176) | $(19) | 17. Income Taxes This note explains the company's income tax treatment, the absence of a tax provision due to valuation allowance, and the analysis of the CARES Act impact - The Holding Company is treated as a corporation for tax purposes, while most subsidiaries are pass-through entities[118] - No income tax provision or benefit was recorded for the three and six months ended June 30, 2020, due to the application of a valuation allowance against deferred tax assets[119][120] - The CARES Act was signed into law in March 2020, and the Company is analyzing its financial impact but does not believe any aspects are material to the tax provision for the reported periods[121] 18. Financial Instruments and Fair Value Measurements and Disclosures This note discusses the fair value of the company's financial instruments, primarily notes payable, and the absence of nonrecurring fair value measurements - The carrying amount of most financial instruments approximated fair value at June 30, 2020, and December 31, 2019[123] Fair Value of Notes Payable, Net (in thousands) | Metric | June 30, 2020 | December 31, 2019 | | :---------------------- | :------------ | :---------------- | | Estimated fair value | $600,000 | $631,100 | | Carrying value | $616,800 | $616,000 | - The Company had no assets measured at fair value on a nonrecurring basis during the periods, other than the investment in Great Park Venture[123] 19. Earnings Per Share This note details the company's earnings per share calculation using the two-class method, including basic and diluted EPS for Class A common shares - The Company uses the two-class method for EPS calculation, allocating net income/loss between Class A and Class B common shares based on distribution rates[124][125] Basic and Diluted Earnings Per Share (Class A common shares) | Metric | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :------------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Basic EPS | $0.10 | $(0.16) | $(0.27) | $0.19 | | Diluted EPS | $0.10 | $(0.16) | $(0.27) | $0.18 | Weighted Average Class A Shares Outstanding | Metric | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :------------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Basic | 66,731,233 | 66,256,961 | 66,690,550 | 66,234,066 | | Diluted | 142,851,412 | 66,256,961 | 68,854,356 | 145,403,189 | 20. Accumulated Other Comprehensive Loss This note details the company's accumulated other comprehensive loss, primarily consisting of unamortized defined benefit pension plan net actuarial losses - Accumulated other comprehensive loss (AOCI) attributable to the Company totaled $2.7 million at both June 30, 2020, and December 31, 2019, primarily consisting of unamortized defined benefit pension plan net actuarial losses[129] - Reclassifications from AOCI to net loss related to amortization of net actuarial losses were approximately $30,000 and $44,000 (net of taxes) for the six months ended June 30, 2020 and 2019, respectively[129] ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on Five Point Holdings, LLC's financial condition and operational results, covering key highlights, consolidated and segment-specific performance, liquidity, and the COVID-19 impact Overview This section outlines Five Point Holdings, LLC's operational structure, conducting business through its operating company and various equity interests in development ventures - Five Point Holdings, LLC conducts all business through its operating company, Five Point Operating Company, LP, in which it owned approximately 62.5% as of June 30, 2020[131] - The operating company directly or indirectly owns equity interests in FPL (Valencia), The San Francisco Venture (Candlestick and The San Francisco Shipyard), Great Park Venture, Gateway Commercial Venture, and the management company[131] - The Great Park Venture and Gateway Commercial Venture are accounted for using the equity method, while other entities are consolidated[131] Operational Highlights This section highlights key operational achievements, including significant asset sales by Gateway Commercial Venture, land sales at Valencia, and the company's response to COVID-19 - In May 2020, the Gateway Commercial Venture sold land and a building to City of Hope for $108.0 million, generating a $37.4 million gain and distributing $56.3 million to the Company[132] - In June 2020, the Gateway Commercial Venture agreed to sell two additional buildings for $355.0 million, with closing anticipated in August 2020[133] - The Company closed on 70 previously sold homesites at Valencia in May 2020 for $16.6 million[134] - In response to COVID-19, the Company limited development activities, shifted to remote work, and observed a rebound in sales rates at Great Park Neighborhoods since late April[135] Results of Operations This section analyzes the company's consolidated results, highlighting revenue changes from land sales and management services, and the impact of an unconsolidated entity gain and an impairment charge Three Months Ended June 30, 2020 and 2019 This section analyzes the company's financial performance for the three months ended June 30, 2020 and 2019, focusing on revenue, cost, and equity earnings changes - Total revenues increased by $11.9 million (96.2%) to $24.3 million, primarily due to land sales at the Valencia segment, partially offset by decreased management services revenue at Great Park[139] - Cost of management services decreased by $3.1 million (41.0%) to $4.4 million, mainly due to lower intangible asset amortization expense[141] - Selling, general, and administrative expenses decreased by $9.7 million (37.2%) to $16.3 million, mainly due to reduced employee-related expenses[142] - Equity in earnings from unconsolidated entities increased to $23.9 million from a $2.7 million loss, driven by the sale of a building and land at the Commercial segment[143] Six Months Ended June 30, 2020 and 2019 This section analyzes the company's financial performance for the six months ended June 30, 2020 and 2019, focusing on revenue, cost, and equity earnings changes - Total revenues increased by $8.1 million (31.7%) to $33.5 million, primarily due to land sales at the Valencia segment, offset by decreased management services revenue at Great Park[145] - Cost of management services decreased by $4.6 million (30.7%) to $10.5 million, mainly due to lower intangible asset amortization expense[146] - Selling, general, and administrative expenses decreased by $10.8 million (20.9%) to $40.9 million, mainly due to reduced employee-related expenses[147] - Equity in unconsolidated entities shifted from $6.2 million in earnings to a $7.0 million loss, primarily due to a $26.9 million other-than-temporary impairment charge on the Great Park Venture investment, partially offset by increased earnings from Gateway Commercial Venture[148] Segment Results and Financial Information This section details the performance of the Valencia, San Francisco, Great Park, and Commercial segments, highlighting revenue drivers, cost changes, and significant events like land sales and asset dispositions Valencia Segment (formerly Newhall) This section details the Valencia segment's land holdings, homesite and commercial space development, and revenue growth from land sales - The Valencia segment includes approximately 15,000 acres designed for 21,500 homesites and 11.5 million square feet of commercial space[150] - Revenues increased by $17.0 million to $17.9 million for the three months ended June 30, 2020, primarily from the sale of 70 homesites for a base purchase price of $16.6 million[154] - Selling, general, and administrative expenses decreased by $1.2 million (30.3%) for the three months ended June 30, 2020, mainly due to reduced employee-related expenses[157] San Francisco Segment This section covers the San Francisco segment's development projects, including Candlestick and The San Francisco Shipyard, and challenges related to land transfers and legal claims - The San Francisco segment includes Candlestick and The San Francisco Shipyard, designed for 12,000 homesites and 6.3 million square feet of commercial space, exempt from Proposition M growth control[161][164] - Land transfers from the U.S. Navy at The San Francisco Shipyard are delayed due to allegations of misrepresented sampling results by a contractor, leading to additional testing and potential legal claims[165] - Selling, general, and administrative expenses decreased by $2.6 million (49.4%) for the three months ended June 30, 2020, and by $3.5 million (35.9%) for the six months ended June 30, 2020, mainly due to reduced employee-related expenses[170][172] - In early 2019, the segment recognized a $64.9 million gain from the termination of a retail project and related development obligations[173] Great Park Segment This section details the Great Park segment's neighborhoods and development management services, highlighting revenue decreases due to fewer land sales and reduced management fees - The Great Park segment includes Great Park Neighborhoods (2,100 acres, 10,500 homesites) and development management services provided to the Great Park Venture, in which the Company holds a 37.5% interest[174][175] - Revenues decreased by $37.0 million for the three months and $177.1 million for the six months ended June 30, 2020, primarily due to fewer land sales and a reduction in management services revenue, impacted by COVID-19's effect on incentive compensation estimates[179][185] - Management fees incurred by the Great Park Venture decreased by $4.4 million (51.9%) for the three months and $12.4 million (74.8%) for the six months ended June 30, 2020, due to reduced estimates of incentive compensation probable of being paid[184][190] Equity in (Loss) Earnings from the Great Park Venture (in thousands) | Metric | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :------------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Segment net (loss) income from operations | $(10,185) | $(2,325) | $(12,727) | $37,943 | | Equity in (loss) earnings from the Great Park Venture | $(4,092) | $(1,496) | $(34,452) | $7,948 | Commercial Segment This section details the Commercial segment's Five Point Gateway Campus, highlighting significant asset sales by Gateway Commercial Venture and their impact on costs and expenses - The Commercial segment includes the Five Point Gateway Campus, with the Company holding a 75% interest in the Gateway Commercial Venture[194][195] - In May 2020, the Gateway Commercial Venture sold a building and land to City of Hope for $108.0 million, resulting in a $37.4 million gain[201][204] - Costs and expenses decreased by $1.7 million (16.7%) for the three months and $1.6 million (8.5%) for the six months ended June 30, 2020, primarily due to lower interest and depreciation expenses following the asset sale and debt payment[202][205] Equity in Earnings (Loss) from the Gateway Commercial Venture (in thousands) | Metric | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :------------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Segment net income (loss) from operations | $37,426 | $(1,406) | $36,788 | $(2,187) | | Equity in earnings (loss) from the Gateway Commercial Venture | $27,997 | $(1,173) | $27,446 | $(1,735) | Financial Condition, Liquidity and Capital Resources This section assesses the company's financial position, liquidity, and capital resources, including cash balances, credit facility availability, and expected short-term and long-term cash needs - As of June 30, 2020, the Company had $215.1 million in consolidated cash and cash equivalents, down from $346.8 million at December 31, 2019[208] - The Operating Company's $125.0 million revolving credit facility had $124.7 million available capacity as of June 30, 2020[208] - Short-term cash needs include general and administrative expenses, development expenditures, interest payments, and related party reimbursement obligations[209] - The Company expects to meet cash requirements for the next 12 months through available cash, land sales, distributions from unconsolidated entities, and management fees, despite potential delays from COVID-19[209] - Long-term cash needs relate to future horizontal development and investments, with funding expected from cash, community cash flows, and public financing, but additional capital may be sought[210][211] Summary of Cash Flows This section summarizes the company's cash flow activities for the six months ended June 30, 2020 and 2019, detailing changes in operating, investing, and financing cash flows Net Cash Provided by (Used in) Activities (in thousands) | Activity | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :---------------- | :----------------------------- | :----------------------------- | | Operating activities | $(148,383) | $(164,725) | | Investing activities | $34,136 | $710 | | Financing activities | $(17,500) | $(38,682) | - Net cash used in operating activities decreased by $16.3 million, primarily due to a $22.4 million return on investment from Gateway Commercial Venture in 2020[213] - Net cash provided by investing activities increased significantly to $34.1 million, driven by a $33.9 million return of investment from Gateway Commercial Venture in 2020[214][215] - Net cash used in financing activities decreased to $17.5 million, mainly due to the absence of the $65.1 million Macerich promissory note repayment made in 2019, partially offset by a $4.6 million noncontrolling interest tax distribution and $7.4 million related party reimbursement payment in 2020[216][217] Changes in Capital Structure This section details changes in the company's ownership in the Operating Company and the outstanding Class A and Class B common shares - The Company's ownership in the Operating Company increased to 62.5% during the six months ended June 30, 2020, primarily due to equity transactions related to its share-based compensation plan[218] Outstanding Class A Units (in thousands) | Entity | June 30, 2020 | December 31, 2019 | | :------------------------------------------ | :------------ | :---------------- | | Class A units of the operating company held by us | 69,056,591 | 68,788,257 | | Class A units of the operating company held by noncontrolling interest members | 41,363,271 | 41,363,271 | | Class A units of the San Francisco Venture held by noncontrolling interest members | 37,870,273 | 37,870,273 | - As of June 30, 2020, there were 79,233,544 Class B common shares outstanding, held by noncontrolling interest members, which convert to Class A common shares at a 0.0003 ratio upon redemption of Class A units[220] Contractual Obligations and Commitments This section outlines the company's contractual obligations, including deferred reimbursement payments, letters of credit, performance bonds, and municipal guarantees - A $12.6 million related party reimbursement obligation due April 2020 was deferred until April 2025, accruing 6% interest[222] - Expected reimbursement payments are $49.4 million in the balance of 2020, $6.0 million in 2021, $26.9 million in 2022, and $12.6 million in 2025[222] - Outstanding letters of credit totaled $1.8 million at June 30, 2020, with $1.4 million in restricted cash collateral[223] - Outstanding performance bonds were $243.7 million, and guarantees for municipal infrastructure/park obligations totaled $198.3 million as of June 30, 2020[223][224] Critical Accounting Policies This section confirms no significant changes to critical accounting policies during the six months ended June 30, 2020, compared to the prior annual report - No significant changes to critical accounting policies occurred during the six months ended June 30, 2020, compared to the Annual Report on Form 10-K for December 31, 2019[225] Recently Issued Accounting Pronouncements and Developments This section directs readers to Note 2 of the condensed consolidated financial statements for details on new accounting pronouncements - Refer to Note 2 of the condensed consolidated financial statements for a discussion of new accounting pronouncements applicable to the Company[226] Off-Balance Sheet Arrangements This section confirms that the company had no material off-balance sheet arrangements as of June 30, 2020 - The Company had no material off-balance sheet arrangements as of June 30, 2020[227] Seasonality This section states that the company's business and results of operations are not materially impacted by seasonality - The Company's business and results of operations are not materially impacted by seasonality[228] ITEM 3. Quantitative and Qualitative Disclosures About Market Risk This section addresses the company's market risk exposure, primarily from fixed-rate indebtedness, and its approach to managing interest rate risk without current derivative use - The Company's primary market risk stems from its $616.8 million consolidated net indebtedness, which bears interest at fixed rates as of June 30, 2020[229][230] - The Company does not currently use derivative financial instruments but may consider swap arrangements for floating-rate debt in the future to reduce interest rate exposure[229][230] ITEM 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of June 30, 2020, with no material changes in internal control over financial reporting - Management concluded that the Company's disclosure controls and procedures were effective as of June 30, 2020[232] - No changes in internal control over financial reporting materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting during the period[233] PART II. OTHER INFORMATION This part includes disclosures on legal proceedings, risk factors, equity security sales, defaults, mine safety, and other information ITEM 1. Legal Proceedings This section incorporates by reference disclosures on legal proceedings from Note 12, detailing ongoing litigation related to Valencia project approvals and environmental contamination at The San Francisco Shipyard - Disclosures of legal proceedings are incorporated by reference from Note 12 to the condensed consolidated financial statements[236] ITEM 1A. Risk Factors This section supplements existing risk factors with a new discussion on the material adverse effects of the COVID-19 pandemic, highlighting potential business disruptions and asset impairments - A new risk factor has been added to expand the discussion of risks related to public health issues, specifically the COVID-19 pandemic[237][238] - COVID-19 has disrupted the Company's business, leading to limited development activities, remote work, and potential negative impacts on consumer confidence, demand for homesites, and access to capital[238][239] - The extent and duration of COVID-19's impact are highly uncertain and could result in material asset impairments, similar to the $26.9 million impairment on the Great Park Venture investment[239] ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds This section confirms no unregistered sales of equity securities or use of proceeds to report for the period covered by this Form 10-Q - No unregistered sales of equity securities and use of proceeds to report[240] ITEM 3. Defaults Upon Senior Securities This section confirms no defaults upon senior securities to report for the period - No defaults upon senior securities to report[241] ITEM 4. Mine Safety Disclosures This section indicates that the disclosure requirements for mine safety are not applicable to the Company - Mine Safety Disclosures are not applicable[241] ITEM 5. Other Information This section states that there is no other information to report under this item - No other information to report[241] ITEM 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including various certifications and XBRL instance and taxonomy extension documents - Exhibits include certifications (31.1, 31.2, 32.1, 32.2) and Inline XBRL documents (101.INS, 101.SCH, 101.CAL, 101.DEF, 101.LAB, 101.PRE, 104)[241] Signatures This section provides the signatures of the Chairman, President, Chief Executive Officer, Chief Financial Officer, and Vice President, certifying the report - The report is signed by Emile Haddad, Chairman, President and Chief Executive Officer, and Erik Higgins, Chief Financial Officer and Vice President, on August 7, 2020[244][245]