Five Point(FPH) - 2022 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Presents unaudited condensed consolidated financial statements and management's discussion and analysis for Five Point Holdings, LLC ITEM 1. Financial Statements Presents unaudited condensed consolidated financial statements, including balance sheets, statements of operations, comprehensive loss, capital, and cash flows, with detailed notes Unaudited Condensed Consolidated Balance Sheets Details the company's financial position, showing a decrease in total assets and capital, primarily due to reduced cash and cash equivalents | Metric | Sep 30, 2022 (in thousands) | Dec 31, 2021 (in thousands) | Change (vs. Dec 31, 2021) | | :----------------------------- | :-------------------------- | :-------------------------- | :------------------------ | | Total Assets | $2,885,093 | $2,942,910 | $(57,817) | | Inventories | $2,229,525 | $2,096,824 | $132,701 | | Cash and Cash Equivalents | $86,379 | $265,462 | $(179,083) | | Total Liabilities | $1,013,610 | $1,017,532 | $(3,922) | | Total Capital | $1,846,483 | $1,900,378 | $(53,895) | Unaudited Condensed Consolidated Statements of Operations Details the company's revenues, costs, and net loss for the three and nine months ended September 30, 2022 and 2021, showing a significant increase in net loss attributable to the company | Metric (in thousands) | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | Change (YoY) | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | Change (YoY) | | :-------------------- | :-------------------------- | :-------------------------- | :----------- | :-------------------------- | :-------------------------- | :----------- | | Total Revenues | $15,416 | $20,695 | $(5,279) | $25,695 | $42,179 | $(16,484) | | Total Costs & Expenses| $21,098 | $30,927 | $(9,829) | $79,078 | $89,311 | $(10,233) | | Net Loss | $(9,531) | $(8,210) | $(1,321) | $(57,272) | $(34,182) | $(23,090) | | Net Loss Attributable to the Company | $(4,439) | $(3,848) | $(591) | $(26,680) | $(15,916) | $(10,764) | | Basic EPS (Class A) | $(0.06) | $(0.06) | $0.00 | $(0.39) | $(0.23) | $(0.16) | Unaudited Condensed Consolidated Statements of Comprehensive Loss Reports the comprehensive loss for the three and nine months ended September 30, 2022 and 2021, including net loss and other comprehensive income components | Metric (in thousands) | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | Change (YoY) | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | Change (YoY) | | :-------------------- | :-------------------------- | :-------------------------- | :----------- | :-------------------------- | :-------------------------- | :----------- | | Net Loss | $(9,531) | $(8,210) | $(1,321) | $(57,272) | $(34,182) | $(23,090) | | Other Comprehensive Income | $13 | $27 | $(14) | $39 | $83 | $(44) |\n| Comprehensive Loss | $(9,518) | $(8,183) | $(1,335) | $(57,233) | $(34,099) | $(23,134) | | Comprehensive Loss Attributable to the Company | $(4,431) | $(3,831) | $(600) | $(26,656) | $(15,864) | $(10,792) | Unaudited Condensed Consolidated Statements of Capital Details changes in the company's capital structure, including common shares, contributed capital, retained earnings, and noncontrolling interests | Metric (in thousands) | Sep 30, 2022 | Dec 31, 2021 | Change | | :-------------------- | :----------- | :----------- | :----- | | Contributed Capital | $586,954 | $587,587 | $(633) | | Retained Earnings | $22,109 | $48,789 | $(26,680)| | Total Members' Capital| $607,146 | $634,424 | $(27,278)| | Noncontrolling Interests | $1,239,337 | $1,265,954 | $(26,617)| | Total Capital | $1,846,483 | $1,900,378 | $(53,895)| - The company's ownership interest in the Operating Company decreased to 62.5% during the nine months ended September 30, 2022, due to reacquisition of restricted Class A common shares for tax withholding and forfeiture of unvested shares, partially offset by new share-based compensation issuances[64][67][216] Unaudited Condensed Consolidated Statements of Cash Flows Provides a summary of cash flows from operating, investing, and financing activities, indicating a net decrease in cash, cash equivalents, and restricted cash | Metric (in thousands) | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | Change (YoY) | | :-------------------- | :-------------------------- | :-------------------------- | :----------- | | Net Cash Used in Operating Activities | $(175,023) | $(162,301) | $(12,722) | | Net Cash Provided by Investing Activities | $2,307 | $78,313 | $(76,006) | | Net Cash Used in Financing Activities | $(6,367) | $(23,022) | $16,655 | | Net Decrease in Cash, Cash Equivalents, and Restricted Cash | $(179,083) | $(107,010) | $(72,073) | | Cash, Cash Equivalents, and Restricted Cash—End of period | $87,709 | $192,464 | $(104,755) | Notes to Unaudited Condensed Consolidated Financial Statements Provides detailed explanations and disclosures for the condensed consolidated financial statements, covering business, accounting policies, and financial information Note 1. BUSINESS AND ORGANIZATION Describes Five Point Holdings, LLC as an owner and developer of mixed-use planned communities in California, operating through its subsidiary, Five Point Operating Company, LP - Five Point Holdings, LLC is a Delaware limited liability company that owns and develops mixed-use planned communities in California, conducting operations through Five Point Operating Company, LP[36] - The company has two classes of shares, Class A and Class B common shares, with Class B shares receiving 0.0003 times the distribution amount of Class A shares[37] - As of September 30, 2022, the Company owned approximately 62.5% of the outstanding Class A Common Units of the Operating Company, with noncontrolling interests representing equity interests held by partners in the Operating Company and members in The Shipyard Communities, LLC[40] Note 2. BASIS OF PRESENTATION Explains that the financial statements are unaudited, prepared in accordance with U.S. GAAP for interim financial information, and include consolidation of subsidiaries and VIEs - The condensed consolidated financial statements are unaudited and prepared in accordance with U.S. GAAP for interim financial information, consolidating subsidiaries and variable interest entities where the Holding Company is the primary beneficiary[42][43] - Restructuring costs of $19.4 million were recognized during the nine months ended September 30, 2022, including $15.6 million for advisory agreement payments to former executives and $3.0 million in share-based compensation expense, plus $0.9 million from severance benefits[45][46][47] Note 3. REVENUES Disaggregates the company's consolidated revenues by source and reporting segment, highlighting a decrease in total revenues for both periods | Revenue Source (in thousands) | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | Change (YoY) | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | Change (YoY) | | :---------------------------- | :-------------------------- | :-------------------------- | :----------- | :-------------------------- | :-------------------------- | :----------- | | Land sales | $72 | $10,000 | $(9,928) | $643 | $10,087 | $(9,444) | | Land sales—related party | $2,817 | $17 | $2,800 | $4,529 | $73 | $4,456 | | Management services—related party | $12,108 | $10,156 | $1,952 | $18,358 | $30,242 | $(11,884) | | Operating properties | $419 | $522 | $(103) | $2,165 | $1,777 | $388 | | Total Revenues | $15,416 | $20,695 | $(5,279) | $25,695 | $42,179 | $(16,484) | - The Development Management Agreement (A&R DMA) with Great Park Venture was extended through December 31, 2022, eliminating variable cost reimbursements and increasing the annual fixed base fee to $12.0 million for 2022[49] - Contract assets increased by $6.3 million for the nine months ended September 30, 2022, primarily due to additional incentive compensation revenue from changes in estimated transaction price, offset by marketing fees received from prior land sales[50] Note 4. INVESTMENT IN UNCONSOLIDATED ENTITIES Details the company's equity method investments in Great Park Venture, Gateway Commercial Venture, and Valencia Landbank Venture, including their financial performance - The Great Park Venture fully satisfied $476.0 million in priority distribution rights to Legacy Interest holders, with $82.7 million remaining for participating Legacy Interest distribution rights as of September 30, 2022[52][175] | Great Park Venture (in thousands) | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | Change (YoY) | | :-------------------------------- | :-------------------------- | :-------------------------- | :----------- | | Land sale and related party land sale revenues | $39,020 | $407,311 | $(368,291) | | Net (loss) income of Great Park Venture | $(19,658) | $63,604 | $(83,262) | | Equity in (loss) earnings from Great Park Venture | $(5,634) | $8,319 | $(13,953) | - The Gateway Commercial Venture recognized $6.2 million and $6.4 million in rental revenues for the nine months ended September 30, 2022 and 2021, respectively, from leasing arrangements with the Company and a Lennar subsidiary[60] - The Company's investment in Valencia Landbank Venture was $2.3 million at September 30, 2022, and it recognized $0.9 million in equity in earnings for the nine months ended September 30, 2022[63] Note 5. NONCONTROLLING INTERESTS Explains the nature of noncontrolling interests in the Operating Company and San Francisco Venture, including exchange rights and tax distribution provisions - Noncontrolling interests represent equity interests in the Operating Company (37.5% of Class A Common Units) and Class A units of the San Francisco Venture, held by affiliates of Lennar, Castlelake, and Emile Haddad[64][70] - Holders of Class A Common Units of the Operating Company and Class A units of the San Francisco Venture have exchange rights for Class A common shares or cash, subject to certain conditions[65][71] | Tax Distributions (in thousands) | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | Change (YoY) | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | Change (YoY) | | :------------------------------- | :-------------------------- | :-------------------------- | :----------- | :-------------------------- | :-------------------------- | :----------- | | Management Partner | $0 | $1,246 | $(1,246) | $435 | $2,932 | $(2,497) | | Other partners | $0 | $0 | $0 | $0 | $1,497 | $(1,497) | | Total Tax Distributions | $0 | $1,246 | $(1,246) | $435 | $4,429 | $(3,994) | - The San Francisco Venture has $25.0 million in redeemable noncontrolling interest from Class C units issued to an affiliate of Lennar, redeemable upon certain Mello-Roos reimbursements or at the San Francisco Venture's option[72] Note 6. CONSOLIDATED VARIABLE INTEREST ENTITY Explains that the Holding Company consolidates the Operating Company and its subsidiaries as Variable Interest Entities (VIEs) due to its primary beneficiary status - The Holding Company consolidates the Operating Company, San Francisco Venture, FP LP, and FPL as VIEs, as it is determined to be the primary beneficiary due to its unilateral power over significant economic activities and more-than-insignificant economic benefit[73][74][79] - As of September 30, 2022, the San Francisco Venture had total combined assets of $1.3 billion (primarily inventories) and liabilities of $72.0 million, with creditors having no recourse to the Company's assets[75][77] - As of September 30, 2022, FP LP and FPL had combined assets of $1.1 billion (primarily inventories and intangibles) and liabilities of $81.1 million[80] Note 7. INTANGIBLE ASSET, NET—RELATED PARTY Describes the intangible asset related to incentive compensation provisions of the Development Management Agreement with the Great Park Venture, amortized over the expected contract period - The intangible asset represents the contract value of incentive compensation from the A&R DMA with the Great Park Venture, amortized over the expected contract period based on economic benefit patterns[83] | Metric (in thousands) | Sep 30, 2022 | Dec 31, 2021 | Change | | :-------------------- | :----------- | :----------- | :----- | | Gross carrying amount | $129,705 | $129,705 | $0 | | Accumulated amortization | $(83,736) | $(78,300) | $(5,436)| | Net book value | $45,969 | $51,405 | $(5,436)| - Intangible asset amortization expense was $5.4 million for both the three and nine months ended September 30, 2022, and $4.9 million and $15.5 million for the three and nine months ended September 30, 2021, respectively, included in the cost of management services[84] Note 8. RELATED PARTY TRANSACTIONS Details various related party assets and liabilities, including contract assets from the Great Park Venture's development management agreement and accrued advisory fees | Related Party Assets (in thousands) | Sep 30, 2022 | Dec 31, 2021 | Change | | :---------------------------------- | :----------- | :----------- | :----- | | Contract assets | $87,003 | $79,082 | $7,921 | | Operating lease right-of-use asset | $17,006 | $18,715 | $(1,709)| | Total Related Party Assets | $104,887 | $101,818 | $3,069 | | | | | | | Related Party Liabilities (in thousands) | Sep 30, 2022 | Dec 31, 2021 | Change | | :----------------------------------- | :----------- | :----------- | :----- | | Reimbursement obligation | $66,341 | $69,536 | $(3,195)| | Accrued advisory fees | $11,975 | $0 | $11,975|\n| Total Related Party Liabilities | $99,913 | $95,918 | $3,995 | - The Development Management Agreement with Great Park Venture includes "Legacy Incentive Compensation" (max $9.0 million) and "Non-Legacy Incentive Compensation" (9% of distributions), with a potential clawback to 6.75% if the agreement is not extended beyond December 31, 2022[86] - Accrued advisory fees of $9.6 million for Emile Haddad and $2.4 million for Lynn Jochim were included in related party liabilities as of September 30, 2022, following their transitions to advisory roles[88][89] Note 9. NOTES PAYABLE, NET Details the company's notes payable, primarily consisting of 7.875% Senior Notes due 2025, and the status of its unsecured revolving credit facility | Notes Payable (in thousands) | Sep 30, 2022 | Dec 31, 2021 | Change | | :--------------------------- | :----------- | :----------- | :----- | | 7.875% Senior Notes due 2025 | $625,000 | $625,000 | $0 | | Unamortized debt issuance costs and discount | $(4,733) | $(5,884) | $1,151 | | Notes payable, net | $620,267 | $619,116 | $1,151 | - The Operating Company has a $125.0 million unsecured revolving credit facility maturing in April 2024, with $0.3 million issued in letters of credit, leaving $124.7 million available as of September 30, 2022[91] Note 10. TAX RECEIVABLE AGREEMENT States the company is party to a Tax Receivable Agreement (TRA) with certain unit holders, with a liability of $173.1 million as of September 30, 2022 - The company has a Tax Receivable Agreement (TRA) with holders of Class A Common Units of the Operating Company and Class A units of the San Francisco Venture[92] | TRA Liability (in thousands) | Sep 30, 2022 | Dec 31, 2021 | Change | | :--------------------------- | :----------- | :----------- | :----- | | Payable pursuant to tax receivable agreement | $173,068 | $174,126 | $(1,058)| - No TRA payments were made during the nine months ended September 30, 2022 or 2021[92] Note 11. COMMITMENTS AND CONTINGENCIES Outlines the company's various contractual obligations, including operating leases, performance bonds, guarantees, and ongoing legal proceedings | Commitments (in thousands) | Sep 30, 2022 | Dec 31, 2021 | Change | | :------------------------- | :----------- | :----------- | :----- | | Operating lease right-of-use assets | $20,267 | $23,779 | $(3,512)| | Operating lease liabilities | $16,814 | $20,034 | $(3,220)| | Other contractual payment guarantees | $10,500 | N/A | N/A | | Outstanding performance bonds | $326,300 | $279,600 | $46,700| | Guarantees benefiting San Francisco Agency | $198,300 | $198,300 | $0 | | Outstanding letters of credit | $1,300 | $1,300 | $0 | - The company is involved in legal proceedings (Bayview Action, Homeowners Action) concerning alleged environmental contamination and misrepresentation at The San Francisco Shipyard, with a settlement approved for the Homeowners Action in March 2022[98][99][100] Note 12. SUPPLEMENTAL CASH FLOW INFORMATION Provides additional details on cash flow activities, including cash paid for interest and noncash lease expense, and reconciles cash, cash equivalents, and restricted cash | Supplemental Cash Flow (in thousands) | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | Change (YoY) | | :------------------------------------ | :-------------------------- | :-------------------------- | :----------- | | Cash paid for interest (capitalized to inventories) | $26,902 | $27,177 | $(275) | | Noncash lease expense | $3,453 | $3,296 | $157 | | Adjustment to liability recognized under TRA | $(1,058) | $878 | $(1,936) | | Cash paid for income taxes | $0 | $775 | $(775) | | Cash Reconciliation (in thousands) | Sep 30, 2022 | Sep 30, 2021 | Change | | :--------------------------------- | :----------- | :----------- | :----- | | Cash and cash equivalents | $86,379 | $191,134 | $(104,755)| | Restricted cash and certificates of deposit | $1,330 | $1,330 | $0 | | Total cash, cash equivalents, and restricted cash | $87,709 | $192,464 | $(104,755)| Note 13. SEGMENT REPORTING Defines the company's four reportable segments: Valencia, San Francisco, Great Park, and Commercial, each representing distinct mixed-use planned communities or commercial operations - The company operates through four reportable segments: Valencia (northern Los Angeles County), San Francisco (Candlestick and The San Francisco Shipyard), Great Park (Orange County Great Park Neighborhoods), and Commercial (Five Point Gateway Campus)[105][106][107][108] | Segment Revenues (in thousands) | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | Change (YoY) | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | Change (YoY) | | :------------------------------ | :-------------------------- | :-------------------------- | :----------- | :-------------------------- | :-------------------------- | :----------- | | Valencia | $3,082 | $10,398 | $(7,316) | $6,809 | $11,506 | $(4,697) | | San Francisco | $226 | $141 | $85 | $528 | $431 | $97 | | Great Park | $47,195 | $92,486 | $(45,291) | $97,541 | $450,196 | $(352,655) | | Commercial | $2,297 | $2,210 | $87 | $6,560 | $6,661 | $(101) | | Total Reportable Segments | $52,800 | $105,235 | $(52,435) | $111,438 | $468,794 | $(357,356) | | Segment Assets (in thousands) | Sep 30, 2022 | Dec 31, 2021 | Change | | :---------------------------- | :----------- | :----------- | :----- | | Valencia | $977,974 | $878,399 | $99,575| | San Francisco | $1,303,826 | $1,275,510 | $28,316| | Great Park | $1,012,305 | $988,444 | $23,861| | Commercial | $103,746 | $104,400 | $(654) | | Total Reportable Segments | $3,397,851 | $3,246,753 | $151,098| Note 14. SHARE-BASED COMPENSATION Summarizes share-based equity compensation activity, including grants, forfeitures, and vesting, and details the share-based compensation expense recognized | Share-Based Awards (in thousands) | Nonvested at Jan 1, 2022 | Granted | Forfeited | Vested | Nonvested at Sep 30, 2022 | | :-------------------------------- | :----------------------- | :------ | :-------- | :----- | :------------------------ | | Number of Awards | 2,640 | 1,359 | (834) | (979) | 2,186 | | Weighted-Average Grant Date Fair Value | $6.38 | $1.92 | $2.96 | $7.80 | $3.79 | | Share-Based Compensation Expense (in thousands) | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | Change (YoY) | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | Change (YoY) | | :---------------------------------------------- | :-------------------------- | :-------------------------- | :----------- | :-------------------------- | :-------------------------- | :----------- | | Total Expense | $700 | $1,800 | $(1,100) | $5,500 | $4,200 | $1,300 | - For the nine months ended September 30, 2022, $3.0 million of share-based compensation expense was included in restructuring expense and $2.5 million in selling, general, and administrative expenses due to modification of awards for former officers[112] Note 15. EMPLOYEE BENEFIT PLANS Provides details on the company's frozen defined benefit Retirement Plan, including the components of net periodic benefit - The Newhall Land and Farming Company Retirement Plan is a frozen defined benefit plan, with no service cost component[114] | Net Periodic Benefit (in thousands) | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | Change (YoY) | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | Change (YoY) | | :---------------------------------- | :-------------------------- | :-------------------------- | :----------- | :-------------------------- | :-------------------------- | :----------- | | Interest cost | $136 | $128 | $8 | $408 | $384 | $24 | | Expected return on plan assets | $(261) | $(289) | $28 | $(783) | $(870) | $87 | | Amortization of net actuarial loss | $13 | $27 | $(14) | $39 | $83 | $(44) | | Total Net Periodic Benefit | $(112) | $(134) | $22 | $(336) | $(403) | $67 | Note 16. INCOME TAXES Explains the company's income tax treatment and notes that no significant income tax provision or benefit was recorded due to a valuation allowance against deferred tax assets - The Holding Company is treated as a corporation for tax purposes, while most subsidiaries are pass-through entities[115] - No significant income tax provision or benefit was recorded for the three and nine months ended September 30, 2022 and 2021, due to the application of an increase in the company's valuation allowance against its net deferred tax assets, driven by a history of book losses[116][117][118] Note 17. FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS AND DISCLOSURES Discusses the fair value measurement of financial instruments, noting that most carrying amounts approximate fair value, except for notes payable, net - The company uses a fair value hierarchy (Level 1, 2, 3) for financial instrument measurements[119] - The carrying amounts of most financial instruments (cash, restricted cash, certain related party assets/liabilities, accounts payable) approximated their fair value[119] | Notes Payable, Net (in thousands) | Sep 30, 2022 | Dec 31, 2021 | | :-------------------------------- | :----------- | :----------- | | Estimated Fair Value | $499,700 | $655,600 | | Carrying Value | $620,300 | $619,100 | Note 18. EARNINGS PER SHARE Explains the company's use of the two-class method for EPS calculation, allocating net income/loss between Class A and Class B common shares and considering dilutive potential securities - The company uses the two-class method for EPS, allocating net income/loss between Class A and Class B common shares, with Class B shares receiving 0.03% of Class A distributions[121] - No distributions on common shares were declared for the three and nine months ended September 30, 2022 or 2021[122] | EPS (Class A) | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Basic | $(0.06) | $(0.06) | $(0.39) | $(0.23) | | Diluted | $(0.07) | $(0.06) | $(0.39) | $(0.23) | Note 19. ACCUMULATED OTHER COMPREHENSIVE LOSS Details the components of accumulated other comprehensive loss attributable to the company, primarily unamortized defined benefit pension plan net actuarial losses - Accumulated other comprehensive loss attributable to the Company primarily consists of unamortized defined benefit pension plan net actuarial losses, totaling $1.9 million at September 30, 2022[125] - A full valuation allowance is held against the accumulated tax benefits related to these losses[125] ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Provides management's perspective on the company's financial condition and results of operations, discussing business, operational highlights, financial performance, liquidity, and capital structure Overview Five Point Holdings, LLC conducts all business through its operating company, Five Point Operating Company, LP, in which it holds approximately 62.5% ownership - Five Point Holdings, LLC operates through Five Point Operating Company, LP, owning approximately 62.5% of it as of September 30, 2022[127] - The operating company consolidates and controls entities developing Valencia, Candlestick, and The San Francisco Shipyard, while holding equity method interests in Great Park Venture and Gateway Commercial Venture[127][128] Operational Highlights The company experienced softening residential markets due to rising mortgage rates, leading to delays in some residential land sales, but commercial land offerings are progressing with significant cost savings - Residential markets were negatively impacted by rising mortgage rates, causing the company to delay some residential land sales at Valencia and Great Park Neighborhoods to match market pace and prices[129] - Commercial land offerings are moving forward at Great Park Neighborhoods and Valencia[130] - Guest builders sold 166 homes at Valencia in Q3 2022, totaling 891 homes since sales began in May 2021[130] - The Great Park Venture sold 61 homesites for $23.9 million in Q3 2022, and guest builders sold 82 homes at Great Park Neighborhoods[131] - Selling, general, and administrative costs decreased by 42% in Q3 2022 compared to Q3 2021, driven by cost rationalization and a 29% reduction in headcount since the end of 2021[132][138][145] Results of Operations The company experienced significant variability in its results of operations due to the timing of land sales and market conditions, leading to increased net loss attributable to the company - The timing of land sale revenues, influenced by planning, development, and market conditions, causes variability in results of operations[134] | Metric (in thousands) | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | Change (YoY) | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | Change (YoY) | | :-------------------- | :-------------------------- | :-------------------------- | :----------- | :-------------------------- | :-------------------------- | :----------- | | Total Revenues | $15,416 | $20,695 | $(5,279) | $25,695 | $42,179 | $(16,484) | | Total Costs & Expenses| $21,098 | $30,927 | $(9,829) | $79,078 | $89,311 | $(10,233) | | Net Loss Attributable to the Company | $(4,439) | $(3,848) | $(591) | $(26,680) | $(15,916) | $(10,764) | Three Months Ended September 30, 2022 and 2021 Revenues decreased by 25.5% due to lower land sales, while costs of management services and SG&A expenses decreased, and equity in loss from unconsolidated entities increased - Revenues decreased by $5.3 million (25.5%) to $15.4 million, primarily due to lower land sales at Valencia, offset by increased management services revenue at Great Park[136] - Cost of management services decreased by $0.6 million (7.3%) to $7.5 million, mainly due to reduced reimbursable project team expenses at Great Park[137] - Selling, general, and administrative expenses decreased by $8.7 million (42.0%) to $12.0 million, primarily due to a 29% reduction in headcount since the end of 2021[138] - Equity in loss from unconsolidated entities was $4.3 million, a decrease from earnings of $0.5 million in the prior year, mainly due to the Great Park Venture's net loss[140] Nine Months Ended September 30, 2022 and 2021 Revenues decreased by 39.1% due to lower management services revenue and land sales, while costs and SG&A expenses decreased, and restructuring costs were incurred - Revenues decreased by $16.5 million (39.1%) to $25.7 million, primarily due to lower management services revenue at Great Park and reduced land sales at Valencia[143] - Cost of management services decreased by $12.3 million (49.9%) to $12.4 million, mainly due to decreased reimbursable project team expenses and intangible asset amortization at Great Park[144] - Selling, general, and administrative expenses decreased by $18.0 million (30.3%) to $41.5 million, driven by a 29% reduction in headcount[145] - Restructuring costs of $19.4 million were incurred, including $15.6 million for executive advisory agreements and $3.0 million in share-based compensation expense due to award modifications, plus $0.9 million for severance benefits[146][147] - Equity in loss from unconsolidated entities was $4.7 million, a decrease from earnings of $9.0 million in the prior year, mainly due to the Great Park Venture's net loss[148] Segment Results and Financial Information The company's four reportable segments (Valencia, San Francisco, Great Park, and Commercial) showed varied performance, with Valencia and Great Park experiencing significant revenue declines - The company's reportable segments include Valencia, San Francisco, Great Park, and Commercial, each with distinct operational results[153] | Segment Revenues (in thousands) | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | Change (YoY) | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | Change (YoY) | | :------------------------------ | :-------------------------- | :-------------------------- | :----------- | :-------------------------- | :-------------------------- | :----------- | | Valencia | $3,082 | $10,398 | $(7,316) | $6,809 | $11,506 | $(4,697) | | San Francisco | $226 | $141 | $85 | $528 | $431 | $97 | | Great Park | $47,195 | $92,486 | $(45,291) | $97,541 | $450,196 | $(352,655) | | Commercial | $2,297 | $2,210 | $87 | $6,560 | $6,661 | $(101) | Valencia Segment Revenues for the Valencia segment significantly decreased due to lower variable land sale consideration, while selling, general, and administrative expenses also decreased - Valencia segment revenues decreased to $3.1 million (Q3 2022) from $10.4 million (Q3 2021) and to $6.8 million (9M 2022) from $11.5 million (9M 2021), mainly due to lower variable land sale consideration compared to a $10.0 million contingent payment received in 2021[163][165] - Selling, general, and administrative expenses decreased by 51.8% in Q3 2022 and 28.5% in 9M 2022, driven by reduced community-related selling, marketing, and employee expenses[164][166] San Francisco Segment The San Francisco segment's development is delayed due to environmental contamination allegations and resampling efforts by the U.S. Navy, with potential for further delays and legal claims - The San Francisco segment includes Candlestick and The San Francisco Shipyard, planned for approximately 12,000 homesites and 6.3 million square feet of commercial space[167][168][169] - Development at The San Francisco Shipyard is delayed due to allegations of misrepresented sampling results by contractors, leading to data reevaluation, government investigations, and additional resampling efforts by the U.S. Navy[170] - The company has been named in lawsuits regarding alleged contamination at The San Francisco Shipyard, with a settlement approved for the Homeowners Action in March 2022[171] Great Park Segment The Great Park segment experienced a significant decrease in land sales revenues due to fewer homesites sold, while management fee revenues increased due to revised estimates - The Great Park segment includes Great Park Neighborhoods (2,100 acres, 10,500 homesites, 4.9 million sq ft commercial) and development management services for the Great Park Venture, in which the company holds a 37.5% interest[173][174] - Land sales and related party land sales revenues decreased to $35.2 million (Q3 2022) from $69.5 million (Q3 2021) and to $39.0 million (9M 2022) from $407.3 million (9M 2021), primarily due to fewer homesites sold (61 in 2022 vs. 113 in Q3 2021; 61 in 2022 vs. 887 in 9M 2021)[176][185] - Management fee revenues increased due to a revised base fee and increased estimates of variable incentive compensation, while management services costs and selling, general, and administrative expenses decreased due to reduced project team and marketing expenses[181][182][183][191][192][193][194] | Great Park Venture Equity (in thousands) | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :--------------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Segment (loss) profit from operations | $(13,791) | $8,957 | $(13,984) | $68,842 | | Net (loss) income of the Great Park Venture | $(18,303) | $6,978 | $(19,658) | $63,604 | | Equity in (loss) earnings from the Great Park Venture | $(4,540) | $367 | $(5,634) | $8,319 | Commercial Segment The Commercial segment includes the Gateway Commercial Venture, which owns a commercial office building and land, managed by the company but accounted for using the equity method due to limited control - The Commercial segment includes the Gateway Commercial Venture, which owns one commercial office building and approximately 50 acres of commercial land at the Five Point Gateway Campus[197][198] - The company manages the Gateway Commercial Venture but accounts for its 75% interest using the equity method due to limited control, as major decisions require unanimous executive committee approval[197] | Gateway Commercial Venture Equity (in thousands) | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :----------------------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Segment (loss) profit from operations | $(8) | $48 | $441 | $903 | | Net (loss) income of the Gateway Commercial Venture | $(116) | $(54) | $129 | $599 | | Equity in (loss) earnings from the Gateway Commercial Venture | $(87) | $(41) | $97 | $449 | Liquidity and Capital Resources The company's cash and cash equivalents decreased significantly, with short-term needs including operating expenses and development, expected to be met through available cash, distributions, and credit facilities - Consolidated Cash and Cash Equivalents decreased to $86.4 million as of September 30, 2022, from $265.5 million at December 31, 2021[201] - The company has a $125.0 million unsecured revolving credit facility with $124.7 million available as of September 30, 2022[201] - Approximately $43.9 million of related party reimbursement obligations previously due in 2022 have been deferred to 2023[202] - Short-term cash needs include general and administrative expenses, development expenditures at Valencia and San Francisco, interest payments, and related party reimbursement obligations[202] - Long-term cash needs are for future horizontal development, investments in income-producing properties, debt service, and general and administrative expenses, expected to be funded by available cash, community cash flows, public financing, and potential capital raises[205][206] | Commitments (in thousands) | Sep 30, 2022 | Dec 31, 2021 | Change | | :------------------------- | :----------- | :----------- | :----- | | Outstanding performance bonds | $326,300 | $279,600 | $46,700| | San Francisco Venture guarantees | $198,300 | $198,300 | $0 | | Outstanding LOCs | $1,300 | $1,300 | $0 | Summary of Cash Flows Net cash used in operating activities increased, while net cash provided by investing activities decreased significantly, and net cash used in financing activities decreased | Cash Flow Activity (in thousands) | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | Change (YoY) | | :-------------------------------- | :-------------------------- | :-------------------------- | :----------- | | Operating activities | $(175,023) | $(162,301) | $(12,722) | | Investing activities | $2,307 | $78,313 | $(76,006) | | Financing activities | $(6,367) | $(23,022) | $16,655 | - The increase in cash used in operating activities was due to continued investment in horizontal development and SG&A costs, including $24.6 million in interest payments on senior notes for both periods[210] - The decrease in cash provided by investing activities was primarily due to a $76.6 million distribution from the Great Park Venture in 2021, which did not recur in 2022, offset by a $2.5 million distribution from Valencia Landbank Venture in 2022[212][213][214] - The decrease in cash used in financing activities was mainly due to lower related party reimbursement obligations ($3.2 million in 2022 vs. $15.9 million in 2021) and reduced noncontrolling interest tax distributions ($0.4 million in 2022 vs. $4.4 million in 2021)[215] Changes in Capital Structure The company's ownership percentage in the operating company decreased to 62.5% due to reacquisition and forfeiture of restricted Class A common shares, partially offset by new issuances - The company's ownership percentage in the operating company decreased to 62.5% during the nine months ended September 30, 2022[216] - This change was primarily driven by the reacquisition of 0.4 million restricted Class A common shares for tax withholding and the forfeiture of 0.8 million unvested restricted Class A common shares, partially offset by the issuance of 0.2 million restricted Class A common shares[216] | Outstanding Units/Shares | Sep 30, 2022 | Dec 31, 2021 | | :----------------------- | :----------- | :----------- | | Class A units of the operating company (Held by us) | 69,068,354 | 70,107,552 | | 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 | | Class B common shares outstanding | 79,233,544 | 79,233,544 | Critical Accounting Estimates No significant changes to the company's critical accounting estimates were reported during the nine months ended September 30, 2022 - No significant changes to critical accounting estimates were reported during the nine months ended September 30, 2022[219] ITEM 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk stems from its fixed-rate indebtedness, with no current use of derivative financial instruments, but potential future use for floating-rate debt exposure - The company's primary market risk is from its fixed-rate indebtedness[220] - As of September 30, 2022, consolidated net indebtedness was $620.3 million, all bearing fixed interest rates[221] - The company has not entered into derivative financial instruments but may use swap arrangements in the future to manage floating-rate debt exposure[220][221] ITEM 4. Controls and Procedures Management evaluated the effectiveness of the company's disclosure controls and procedures as of September 30, 2022, concluding they were effective with no material changes in internal control over financial reporting - Disclosure controls and procedures were evaluated and deemed effective as of September 30, 2022[222] - No material changes in internal control over financial reporting were identified during the period[223] PART II. OTHER INFORMATION Presents other information including legal proceedings, risk factors, sales of equity securities, defaults, mine safety disclosures, and exhibits ITEM 1. Legal Proceedings Refers to Note 11 of the financial statements for disclosures on legal proceedings, primarily involving lawsuits related to alleged environmental contamination at The San Francisco Shipyard - Legal proceedings are detailed in Note 11, primarily concerning alleged environmental contamination at The San Francisco Shipyard[226] ITEM 1A. Risk Factors States that there have been no material changes to the risk factors from those disclosed in the Annual Report on Form 10-K for the year ended December 31, 2021 - No material changes to risk factors were reported from the Annual Report on Form 10-K for the year ended December 31, 2021[227] ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds Reports no unregistered sales of equity securities or use of proceeds during the period - None reported[228] ITEM 3. Defaults Upon Senior Securities Reports no defaults upon senior securities during the period - None reported[228] ITEM 4. Mine Safety Disclosures States that this item is not applicable to the company - Not Applicable[228] ITEM 5. Other Information Reports no other information for the period - None reported[228] ITEM 6. Exhibits Lists the exhibits filed with the Form 10-Q, including certifications of the Principal Executive Officer and Principal Financial Officer, and Inline XBRL documents - Includes 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)[228] Signatures The report is duly signed on behalf of Five Point Holdings, LLC by Daniel Hedigan, Chief Executive Officer, and Leo Kij, Interim Chief Financial Officer, on October 28, 2022 - Report signed by Daniel Hedigan (CEO) and Leo Kij (Interim CFO) on October 28, 2022[231]