Five Point(US:FPH)2020-11-06 23:01PART I. FINANCIAL INFORMATION Financial Statements Presents Five Point Holdings, LLC's unaudited condensed consolidated financial statements for Q3 and YTD 2020 and 2019 Unaudited Condensed Consolidated Balance Sheets As of September 30, 2020, total assets were $2.96 billion and liabilities $1.06 billion, both slightly down from year-end 2019 Condensed Consolidated Balance Sheets (as of Sep 30, 2020 and Dec 31, 2019) (in thousands) | | September 30, 2020 | December 31, 2019 | | :--- | :--- | :--- | | ASSETS | | | | INVENTORIES | $ 2,021,155 | $ 1,889,761 | | INVESTMENT IN UNCONSOLIDATED ENTITIES | 441,737 | 533,239 | | CASH AND CASH EQUIVALENTS | 270,580 | 346,833 | | OTHER ASSETS | 228,452 | 235,407 | | TOTAL ASSETS | $ 2,962,924 | $ 3,004,700 | | LIABILITIES AND CAPITAL | | | | Notes payable, net | $ 617,198 | $ 616,046 | | Accounts payable and other liabilities | 138,066 | 167,711 | | Payable pursuant to tax receivable agreement | 173,248 | 172,633 | | Other Liabilities | 130,525 | 139,510 | | Total liabilities | 1,059,037 | 1,095,900 | | Total capital | 1,878,887 | 1,883,800 | | TOTAL LIABILITIES AND CAPITAL | $ 2,962,924 | $ 3,004,700 | Unaudited Condensed Consolidated Statements of Operations Q3 2020 net income reached $36.4 million from a prior-year loss, driven by equity earnings, contrasting with a nine-month net loss of $2.6 million Condensed Consolidated Statements of Operations (in thousands) | | Three Months Ended Sep 30, 2020 | Three Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :--- | :--- | :--- | :--- | :--- | | Total revenues | $ 8,377 | $ 12,014 | $ 41,904 | $ 37,474 | | Total costs and expenses | 24,540 | 34,950 | 91,450 | 104,911 | | Equity in earnings (loss) from unconsolidated entities | 52,423 | (1,750) | 45,417 | 4,463 | | Gain on settlement of contingent consideration—related party | — | — | — | 64,870 | | Net income (loss) | 36,422 | (22,955) | (2,559) | 7,150 | | Net income (loss) attributable to the Company | $ 16,964 | $ (10,663) | $ (1,210) | $ 2,633 | | Diluted EPS (Class A) | $ 0.25 | $ (0.16) | $ (0.02) | $ 0.04 | Unaudited Condensed Consolidated Statements of Cash Flows Nine-month net cash used in operating activities improved to $115.7 million, with $57.1 million from investing and $18.1 million used in financing Summary of Cash Flows (Nine Months Ended Sep 30, in thousands) | Category | 2020 | 2019 | | :--- | :--- | :--- | | Net cash used in operating activities | $ (115,713) | $ (251,193) | | Net cash provided by investing activities | 57,129 | 517 | | Net cash (used in) provided by financing activities | (18,080) | 85,731 | | Net decrease in cash, cash equivalents, and restricted cash | (76,664) | (164,945) | | Cash, cash equivalents, and restricted cash—End of period | $ 271,910 | $ 332,152 | Notes to Unaudited Condensed Consolidated Financial Statements Detailed notes cover accounting policies, revenue recognition, unconsolidated entity investments, related party transactions, debt, and segment reporting - In March 2020, the company recognized a $26.9 million other-than-temporary impairment charge on its investment in the Great Park Venture. This was due to a delay in projected distributions resulting from the impacts of the COVID-19 pandemic47 - The Gateway Commercial Venture sold two buildings in August 2020 for $355.0 million, resulting in a gain of approximately $74.8 million. It also sold a building and land to City of Hope in May 2020 for $108.0 million, resulting in a gain of approximately $37.4 million5556 - In early 2019, the company terminated a retail project at Candlestick, resulting in the recognition of a $64.9 million gain from the settlement of contingent consideration and release from development obligations81 - As of September 30, 2020, the company had outstanding performance bonds of $229.3 million and guarantees for infrastructure and park obligations of $198.3 million related to its development projects9395 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial performance, operational highlights, segment results, liquidity, and capital resources, including asset sales and COVID-19 impacts Overview and Operational Highlights The company operates four segments, with a key highlight being the Gateway Commercial Venture's $355.0 million asset sale and $80.3 million distribution - The Gateway Commercial Venture sold two buildings for $355.0 million in August 2020, generating a gain of $74.8 million and a distribution of approximately $80.3 million to the company135 - The company has resumed regular development activities, citing favorable market conditions for homebuilders, and expects the first home sales at its Valencia community to close in the first half of 2021136 Results of Operations Q3 2020 revenues decreased, but equity earnings surged to $52.4 million, driving net income to $17.0 million, contrasting with a nine-month $1.2 million net loss Consolidated Results of Operations Summary (in thousands) | | Three Months Ended Sep 30, 2020 | Three Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :--- | :--- | :--- | :--- | :--- | | Total revenues | $ 8,377 | $ 12,014 | $ 41,904 | $ 37,474 | | Selling, general, and administrative | 17,656 | 25,863 | 58,594 | 77,629 | | Equity in earnings (loss) from unconsolidated entities | 52,423 | (1,750) | 45,417 | 4,463 | | Net income (loss) attributable to the company | $ 16,964 | $ (10,663) | $ (1,210) | $ 2,633 | - The increase in equity in earnings for the nine months ended Sep 30, 2020 was primarily due to gains from the sale of land and three buildings at the Gateway Commercial Venture, offset by an other-than-temporary impairment of $26.9 million on the investment in the Great Park Venture148 Segment Results Valencia revenue increased from land sales, San Francisco impacted by prior-year gain absence, Great Park revenue declined, and Commercial segment reported $112.4 million income Valencia Segment Results (in thousands) | | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :--- | :--- | :--- | | Total revenues | $ 18,897 | $ 2,586 | | Cost of land sales | 11,861 | — | | Segment loss | $ (6,348) | $ (13,237) | San Francisco Segment Results (in thousands) | | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :--- | :--- | :--- | | Total revenues | $ 1,285 | $ 3,015 | | Gain on settlement of contingent consideration | — | 64,870 | | Segment (loss) income | $ (7,387) | $ 52,947 | Great Park Segment Results (in thousands) | | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :--- | :--- | :--- | | Total revenues | $ 44,478 | $ 262,863 | | Segment (loss) income | $ (22,920) | $ 38,913 | Commercial Segment Results (in thousands) | | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :--- | :--- | :--- | | Total revenues | $ 22,439 | $ 25,934 | | Gain on asset sales, net | 112,260 | — | | Segment income (loss) | $ 112,383 | $ (3,500) | Financial Condition, Liquidity and Capital Resources As of September 30, 2020, the company held $270.6 million in cash and $124.7 million in credit, with sufficient liquidity for 12 months, funding long-term development - Cash and cash equivalents stood at $270.6 million as of September 30, 2020, down from $346.8 million at December 31, 2019207 - Net cash used in operating activities for the first nine months of 2020 decreased to $115.7 million from $251.2 million in the prior year, largely due to a $79.0 million return on investment distribution from the Gateway Commercial Venture212213 - The company has deferred a portion of its related party reimbursement obligations, with expected principal payments of $22.8 million in the remainder of 2020, $20.5 million in 2021, $38.5 million in 2022, and $12.6 million in 2025223 Quantitative and Qualitative Disclosures About Market Risk The company's $617.2 million fixed-rate net indebtedness minimizes exposure to interest rate fluctuations, with no derivative financial instruments in place - As of September 30, 2020, the company had $617.2 million in outstanding consolidated net indebtedness, all of which is fixed-rate debt, minimizing exposure to interest rate fluctuations233 Controls and Procedures Management concluded disclosure controls and procedures were effective as of September 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 September 30, 2020235 - No changes were identified in the company's internal control over financial reporting during the quarter that have materially affected, or are reasonably likely to materially affect, these controls236 PART II. OTHER INFORMATION Legal Proceedings Updates on legal proceedings include a final judgment favoring the company for Valencia projects and ongoing environmental litigation at Hunters Point - In July 2020, the California Supreme Court denied a petition to review a lower court's decision, making the judgment in favor of the company and Los Angeles County regarding the Valencia project approvals final97 - The company is a defendant in several lawsuits related to alleged environmental contamination and disclosure issues at The San Francisco Shipyard (Hunters Point), but believes it has meritorious defenses9899100 Risk Factors A new risk factor addresses the ongoing and potential material adverse effects of the COVID-19 pandemic on operations, capital access, and asset values - A new risk factor was added to address the ongoing disruption and potential material adverse effects from the COVID-19 pandemic240241 - Potential long-term impacts of COVID-19 include lower demand for homesites, impaired access to capital markets, and the risk of further asset impairments, similar to the $26.9 million charge already taken on the Great Park Venture investment242 Unregistered Sales of Equity Securities and Use of Proceeds There were no unregistered sales of equity securities during the period - None Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications and Inline XBRL data files - Exhibits filed include CEO and CFO certifications (31.1, 31.2, 32.1, 32.2) and Inline XBRL documents (101 series)244