Five Point(FPH) - 2020 Q4 - Annual Report

PART I Business Five Point Holdings, LLC develops large mixed-use communities in California, focusing on master planning, infrastructure, and land sales across four segments, subject to extensive regulation Company Structure and Formation Formed in 2009, the company operates through its subsidiary, Five Point Operating Company, LP (62.5% interest), and is treated as a corporation for U.S. federal income tax purposes - The company conducts all business through its operating company, in which it owned approximately 62.5% of outstanding Class A units as of December 31, 2020[23] - The company has elected to be treated as a corporation for U.S. federal income tax purposes, meaning shareholders receive Form 1099 for distributions, not a Schedule K-1[26] Business Model and Segments The company's business model focuses on planning and developing master-planned communities, generating revenue primarily from land sales, and operates through four distinct segments - The principal source of revenue is the sale of residential and commercial land sites to homebuilders and developers[27] - Residential land sales typically include participation provisions, allowing the company to share in homebuilders' profits[32] - The company operates through four reportable segments: Valencia, San Francisco, Great Park, and Commercial[37] Our Communities and Commercial Operations The company develops three major California communities: Valencia, San Francisco, and Great Park, with significant planned homesites and commercial space, alongside commercial asset sales Overview of Master-Planned Communities | Community | Location | Planned Homesites | Planned Commercial Space (sq. ft.) | | :--- | :--- | :--- | :--- | | Valencia | Los Angeles County | ~21,500 | ~11.5 million | | Candlestick & The SF Shipyard | San Francisco | ~12,000 | ~6.3 million | | Great Park Neighborhoods | Orange County | ~10,500 | ~4.9 million | - Development at The San Francisco Shipyard is delayed due to allegations against a U.S. Navy contractor (Tetra Tech) and subsequent resampling efforts, which has postponed the transfer of approximately 408 acres from the Navy[43] - In 2020, the Gateway Commercial Venture sold three buildings at the Five Point Gateway Campus, including one to City of Hope for a cancer care center, retaining one building and approximately 50 acres of land[50] Regulation The company's operations are heavily regulated, requiring extensive land use and environmental approvals, incurring significant costs and potential liability for contamination at former U.S. Navy sites - The company must obtain numerous discretionary entitlements and approvals for infrastructure and construction, a process that has incurred significant costs over the last 10-15 years and is subject to third-party challenges[57][59] - The company may be liable for costs related to hazardous substance contamination, particularly at former U.S. Navy sites like The San Francisco Shipyard and Great Park Neighborhoods, which are on the USEPA's National Priorities List for cleanup[61][63] - The transfer of remaining parcels at The San Francisco Shipyard from the U.S. Navy is dependent on the completion of the multi-stage FOST process, which includes remedial investigation, feasibility studies, and final cleanup documentation[69][77] Human Capital As of December 31, 2020, the company had approximately 160 employees, with a diverse workforce, and implemented remote work and safety protocols in response to COVID-19 Employee Statistics (as of Dec 31, 2020) | Metric | Value | | :--- | :--- | | Total Employees | ~160 | | Female Workforce | ~46% | | Ethnic & Racial Minorities | ~43% | - In response to COVID-19, the company shifted to remote work for most associates and implemented a new COVID-19 Prevention Program with safety protocols for on-site staff[93][94] Risk Factors The company faces significant risks from pandemics, project delays, California-specific economic and natural disaster exposures, regulatory complexities, substantial indebtedness, TRA obligations, and significant shareholder influence - The COVID-19 pandemic has disrupted business and led to a $26.9 million impairment charge on the company's investment in the Great Park Venture due to expected delays in land sales and distributions[104][106] - All of the company's communities are located in California, making it susceptible to risks specific to the state, including adverse economic, political, or regulatory changes, as well as natural disasters like earthquakes, droughts, and wildfires[112][113] - The company has substantial indebtedness, with approximately $625.0 million in 7.875% senior notes due 2025 as of December 31, 2020[166] - The company is party to a Tax Receivable Agreement (TRA) which requires it to pay certain investors 85% of cash savings from specific tax benefits; if terminated on December 31, 2020, the estimated payment would have been approximately $108.5 million[152][154] - As of December 31, 2020, major shareholders Lennar and Castlelake controlled approximately 39% and 17% of the voting power, respectively, allowing them to exercise significant influence over shareholder matters[148] Unresolved Staff Comments The company reports that it has no unresolved staff comments from the SEC - None[195] Properties The company leases its principal executive office in Irvine, California, with additional offices in Valencia and San Francisco, while its master-planned community properties are held as inventory - The company's three communities are designed to include approximately 40,000 residential homes and 23 million square feet of commercial space, with these properties held as inventory[197] Legal Proceedings In February 2020, the company filed lawsuits against the United States and Tetra Tech, seeking damages for financial harm resulting from delayed land delivery at The San Francisco Shipyard due to alleged fraudulent conduct - The company filed lawsuits against the U.S. government and contractor Tetra Tech in February 2020, alleging damages from delayed land transfers at The San Francisco Shipyard caused by Tetra Tech's allegedly fraudulent conduct[199] Mine Safety Disclosures This item is not applicable to the company - Not applicable[201] PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's Class A common shares trade on the NYSE under 'FPH', with no distributions paid or planned, and no share repurchases made in 2020 - Class A common shares are traded on the NYSE under the symbol 'FPH'[203] - No distributions have been declared or paid on common shares, and there are no current plans for a distribution policy[204] - There were no repurchases of the company's shares during the year ended December 31, 2020[206] Selected Financial Data This item is reserved, and no data is presented, in line with amendments to SEC disclosure requirements - Reserved[211] Management's Discussion and Analysis of Financial Condition and Results of Operations In 2020, total revenues decreased to $153.6 million, resulting in a net loss of $0.4 million, despite increased equity in earnings from asset sales, while the company maintained a solid liquidity position Operational Highlights and COVID-19 Response Key 2020 operational events included Valencia homesite sales, commercial building sales at Five Point Gateway Campus, and the formation of the Valencia Landbank Venture, alongside COVID-19 response measures - In 2020, the company sold 487 homesites at Valencia for a gross price of $115.4 million[215] - The Gateway Commercial Venture sold three buildings and land for a combined price of $463.0 million, resulting in a $112.2 million net gain and distributions of $136.5 million to the company[217] - The company formed the Valencia Landbank Venture with a 10% interest to facilitate land sales to homebuilders[219] Consolidated Results of Operations For 2020, total revenues decreased to $153.6 million due to lower land sales, leading to a net loss of $0.4 million, despite a significant increase in equity in earnings from unconsolidated entities Consolidated Statement of Operations Summary (in thousands) | Metric | 2020 (in thousands) | 2019 (in thousands) | | :--- | :--- | :--- | | Total Revenues | $153,619 | $184,380 | | Total Costs and Expenses | $194,870 | $234,756 | | Equity in Earnings from Unconsolidated Entities | $42,364 | $2,327 | | Net Income | $1,094 | $22,268 | | Net (Loss) Income Attributable to the Company | $(428) | $9,033 | - The increase in equity in earnings 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 Venture[237] Segment Results In 2020, Valencia's income decreased, San Francisco reported a loss after a prior-year gain, Great Park swung to a loss due to lower sales, while Commercial income surged from asset sales Segment Income (Loss) (in thousands) | Segment | 2020 (in thousands) | 2019 (in thousands) | | :--- | :--- | :--- | | Valencia | $21,193 | $25,779 | | San Francisco | $(10,355) | $49,890 | | Great Park | $(22,504) | $44,369 | | Commercial | $112,242 | $(4,818) | - The San Francisco segment's 2019 income was significantly impacted by a $64.9 million gain from the settlement of a contingent consideration liability related to a terminated retail project[256] - The Commercial segment's strong performance in 2020 was driven by a $112.3 million net gain on the sale of three buildings and land at the Five Point Gateway Campus[276][277][278] Liquidity and Capital Resources The company maintains solid liquidity with $298.1 million in cash and $124.7 million available credit, expecting to meet short-term obligations through cash, land sales, and distributions, with long-term needs funded by various sources Liquidity Overview (as of Dec 31, 2020) | Metric | Amount (in millions) | | :--- | :--- | | Cash and Cash Equivalents | $298.1 | | Available Revolving Credit | $124.7 | | 2021 Senior Note Interest Payments | $49.2 | | 2021 Related Party Reimbursement Payments | $35.5 | Contractual Obligations Summary (as of Dec 31, 2020) | Obligation | Total (in thousands) | Due in < 1 Year (in thousands) | | :--- | :--- | :--- | | Senior notes payable | $625,000 | $0 | | Interest on senior notes | $246,094 | $49,219 | | Operating lease obligations | $29,085 | $5,017 | | Related party reimbursement obligation | $95,144 | $38,543 | | Total | $1,053,007 | $104,456 | Critical Accounting Policies and Estimates The company's critical accounting policies involve significant judgment in consolidation, revenue recognition for land sales, cost allocation, impairment assessment of investments, and deferred tax asset valuation - Revenue recognition for land sales is complex, requiring estimates of variable consideration such as profit participation and marketing fees, with capitalized inventory costs allocated using the relative sales value method based on future cost and sales price estimates[313][314] - The company evaluates investments in unconsolidated entities for other-than-temporary impairment using discounted cash flow models, which rely on significant estimates of future distributions and appropriate discount rates[319][320] - Accounting for income taxes requires assessing the need for a valuation allowance against deferred tax assets, considering factors like cumulative losses and forecasts of future taxable income[322] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate risk, which is mitigated as its $617.6 million consolidated indebtedness bears fixed interest rates, and it does not use derivative financial instruments - The company's primary market risk is from its indebtedness; as of December 31, 2020, its $617.6 million of consolidated debt bears interest at fixed rates, mitigating exposure to prevailing market interest rate changes[328][329] Financial Statements and Supplementary Data This section presents the company's audited consolidated financial statements for 2020, including balance sheets, statements of operations, cash flows, and comprehensive notes detailing accounting policies, investments, and debt Consolidated Financial Statements The consolidated financial statements show total assets of $2.96 billion, total liabilities of $1.05 billion, and total capital of $1.89 billion as of December 31, 2020, with total revenues of $153.6 million and a net loss of $0.4 million for the year Consolidated Balance Sheet Highlights (as of Dec 31, 2020, in thousands) | Category | Amount (in thousands) | | :--- | :--- | | Total Assets | $2,961,985 | | Inventories | $1,990,859 | | Investment in Unconsolidated Entities | $442,850 | | Cash and Cash Equivalents | $298,144 | | Total Liabilities | $1,051,887 | | Notes payable, net | $617,581 | | Total Capital | $1,885,098 | Consolidated Statement of Operations Highlights (Year ended Dec 31, 2020, in thousands) | Category | Amount (in thousands) | | :--- | :--- | | Total Revenues | $153,619 | | Total Costs and Expenses | $194,870 | | Equity in Earnings from Unconsolidated Entities | $42,364 | | Net (Loss) Income Attributable to the Company | $(428) | Notes to Consolidated Financial Statements The notes detail revenue recognition, equity method investments (including a $26.9 million impairment), $625 million in senior notes, Tax Receivable Agreement obligations, and various commitments and contingencies - The company recognized a $26.9 million other-than-temporary impairment charge on its investment in the Great Park Venture in March 2020, primarily due to expected delays in land sales and distributions resulting from the COVID-19 pandemic[378][411] - As of December 31, 2020, the company had $625.0 million in aggregate principal of 7.875% senior notes due 2025[465][466] - The liability for payments under the Tax Receivable Agreement (TRA) was recorded at $173.2 million as of December 31, 2020[474] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[554] Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2020, a conclusion affirmed by the independent registered public accounting firm - Based on an evaluation as of December 31, 2020, the principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective[555] - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2020, based on the COSO 2013 framework, with an unqualified opinion issued by Deloitte & Touche LLP[556][559] Other Information This item is not applicable to the company - Not applicable[566] PART III Directors, Executive Officers and Corporate Governance Information regarding directors, executive officers, and corporate governance is incorporated by reference from the company's 2021 Proxy Statement - Information is incorporated by reference from the Proxy Statement for the 2021 Annual Meeting of Shareholders[568] Executive Compensation Information concerning executive compensation is incorporated by reference from the company's 2021 Proxy Statement - Information is incorporated by reference from the Proxy Statement[569] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Security ownership information is incorporated by reference from the 2021 Proxy Statement, with 4,689,214 securities remaining available for future issuance under approved equity compensation plans Equity Compensation Plan Information (as of Dec 31, 2020) | Plan category | Number of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted-average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuance under equity compensation plans | | :--- | :--- | :--- | :--- | | Equity compensation plans approved by shareholders | — | — | 4,689,214 | Certain Relationships and Related Transactions, and Director Independence Information regarding related party transactions and director independence is incorporated by reference from the company's 2021 Proxy Statement - Information is incorporated by reference from the Proxy Statement[572] Principal Accounting Fees and Services Information concerning principal accounting fees and services is incorporated by reference from the company's 2021 Proxy Statement - Information is incorporated by reference from the Proxy Statement[573] PART IV Exhibits, Financial Statement Schedules This section lists all financial statements, the Schedule III for Real Estate and Accumulated Depreciation, and all exhibits filed with the report or incorporated by reference - This section lists all financial statements, the Schedule III for Real Estate and Accumulated Depreciation, and all exhibits filed with the report[576][578] Form 10-K Summary The company indicates that there is no Form 10-K summary - None[589]