Five Point(US:FPH)2023-04-23 16:00markdown PART I. FINANCIAL INFORMATION [ITEM 1. Financial Statements](index=4&type=section&id=ITEM%201.%20Financial%20Statements) This section presents unaudited condensed consolidated financial statements for Q1 2023 and 2022, including balance sheets, statements of operations, comprehensive loss, capital, and cash flows, with detailed notes [Unaudited Condensed Consolidated Balance Sheets](index=4&type=page&id=Unaudited%20Condensed%20Consolidated%20Balance%20Sheets) Balance sheets show slight asset and capital decrease, marginal liability increase, with inventories and notes payable as key items | Metric (in thousands) | March 31, 2023 | December 31, 2022 | | :-------------------- | :------------- | :---------------- | | **ASSETS** | | | | INVENTORIES | $2,260,595 | $2,239,125 | | CASH AND CASH EQUIVALENTS | $106,577 | $131,771 | | TOTAL ASSETS | $2,878,482 | $2,885,784 | | **LIABILITIES** | | | | Notes payable, net | $621,035 | $620,651 | | Total liabilities | $996,681 | $992,737 | | **CAPITAL** | | | | Total capital | $1,856,801 | $1,868,047 | [Unaudited Condensed Consolidated Statements of Operations](index=5&type=page&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Operations) Net loss significantly reduced in Q1 2023 due to lower costs, reduced restructuring, and improved equity earnings | Metric (in thousands, except per share) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :------------------------------------ | :-------------------------------- | :-------------------------------- | | Total revenues | $5,701 | $4,886 | | Total costs and expenses | $17,290 | $40,751 |\ | Equity in earnings (loss) from unconsolidated entities | $1,048 | $(1,032) | | Net loss | $(9,734) | $(36,769) | | Net loss attributable to the Company | $(4,536) | $(17,130) | | Basic Net Loss per Class A Share | $(0.07) | $(0.25) | [Unaudited Condensed Consolidated Statements of Comprehensive Loss](index=6&type=page&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Loss) Comprehensive loss significantly decreased in Q1 2023, primarily reflecting the reduction in net loss from the prior year | Metric (in thousands) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :-------------------- | :-------------------------------- | :-------------------------------- | | Net loss | $(9,734) | $(36,769) | | Other comprehensive income | $41 | $13 |\ | Comprehensive loss | $(9,693) | $(36,756) | | Comprehensive loss attributable to the Company | $(4,510) | $(17,122) | [Unaudited Condensed Consolidated Statements of Capital](index=7&type=page&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Capital) Total capital decreased from December 2022 to March 2023, mainly due to net loss, partially offset by share-based compensation | Metric (in thousands) | December 31, 2022 | March 31, 2023 | | :-------------------- | :---------------- | :------------- | | Total Members' Capital | $618,131 | $614,590 | | Noncontrolling Interests | $1,249,916 | $1,242,211 | | Total Capital | $1,868,047 | $1,856,801 | - Net loss attributable to the Company for the three months ended March 31, 2023, was **$(4,536) thousand**, contributing to the decrease in retained earnings[23](index=23&type=chunk) - Share-based compensation expense of **$763 thousand** increased contributed capital during the period[23](index=23&type=chunk) [Unaudited Condensed Consolidated Statements of Cash Flows](index=8&type=page&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash used in operating activities significantly reduced in Q1 2023, driven by lower net loss and favorable changes | Metric (in thousands) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :-------------------- | :-------------------------------- | :-------------------------------- | | Net cash used in operating activities | $(21,638) | $(57,969) | | Net cash provided by investing activities | $68 | $484 | | Net cash used in financing activities | $(3,624) | $(4,330) | | Net decrease in cash, cash equivalents, and restricted cash | $(25,194) | $(61,815) | | Cash, cash equivalents, and restricted cash—End of period | $107,569 | $204,977 | [Notes to Unaudited Condensed Consolidated Financial Statements](index=9&type=page&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) Notes provide detailed explanations of business, accounting policies, segment performance, related party transactions, debt, and commitments [1. BUSINESS AND ORGANIZATION](index=9&type=page&id=1.%20BUSINESS%20AND%20ORGANIZATION) Five Point Holdings develops mixed-use communities in California via Five Point Operating Company, LP, with Class A/B shares and noncontrolling interests - The Company owns and develops mixed-use planned communities in California through Five Point Operating Company, LP[28](index=28&type=chunk) - As of March 31, 2023, the Company owned approximately **62.6%** of the outstanding Class A Common Units of the Operating Company[32](index=32&type=chunk) - Noncontrolling interests represent equity interests in consolidated subsidiaries held by partners in the Operating Company and members in The San Francisco Venture[30](index=30&type=chunk) [2. BASIS OF PRESENTATION](index=10&type=page&id=2.%20BASIS%20OF%20PRESENTATION) Unaudited financial statements prepared under U.S. GAAP consolidate controlled entities and VIEs, relying on management estimates - Condensed consolidated financial statements are unaudited and prepared in accordance with U.S. GAAP for interim financial information[35](index=35&type=chunk) - The Company consolidates entities where it has a controlling interest or is the primary beneficiary of a Variable Interest Entity (VIE)[34](index=34&type=chunk) [3. REVENUES](index=11&type=page&id=3.%20REVENUES) Total revenues increased by **16.7%** to **$5.7 million** in Q1 2023, primarily from higher management services revenue in the Great Park segment | Revenue Source (in thousands) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :---------------------------- | :-------------------------------- | :-------------------------------- | | Land sales | $(25) | $557 | | Land sales—related party | $624 | $1 | | Management services—related party | $4,236 | $3,547 | | Operating properties | $866 | $781 | | **Total revenues** | **$5,701** | **$4,886** | - The increase in total revenues was primarily due to a **$689 thousand** increase in management services—related party revenue[38](index=38&type=chunk) [4. INVESTMENT IN UNCONSOLIDATED ENTITIES](index=12&type=page&id=4.%20INVESTMENT%20IN%20UNCONSOLIDATED%20ENTITIES) Investments in Great Park, Gateway Commercial, and Valencia Landbank Ventures are equity method accounted, with Great Park improving net income [Great Park Venture](index=12&type=page&id=Great%20Park%20Venture) Great Park Venture, **37.5%** owned, recognized significant land sale revenues in Q1 2023, shifting to net income and improving equity earnings | Metric (in thousands) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :-------------------- | :-------------------------------- | :-------------------------------- | | Land sale and related party land sale revenues | $8,600 | $1,819 | | Net income (loss) of Great Park Venture | $2,743 | $(2,831) | | Equity in earnings (loss) from Great Park Venture | $1,162 | $(1,301) | - The Great Park Venture recognized **$5.5 million** in land sale revenues to related parties and **$3.1 million** to third parties in Q1 2023[42](index=42&type=chunk) [Gateway Commercial Venture](index=13&type=page&id=Gateway%20Commercial%20Venture) Gateway Commercial Venture, **75%** owned, reported a net loss in Q1 2023, a decline from prior year's net income despite increased rental revenues | Metric (in thousands) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :-------------------- | :-------------------------------- | :-------------------------------- | | Rental revenues | $2,154 | $1,938 | | Net (loss) income of Gateway Commercial Venture | $(283) | $112 | | Equity in (loss) earnings from Gateway Commercial Venture | $(212) | $84 | [Valencia Landbank Venture](index=13&type=page&id=Valencia%20Landbank%20Venture) Valencia Landbank Venture, a **10%** equity method investee, generated **$0.1 million** in equity earnings for Q1 2023 - The Company's investment in the Valencia Landbank Venture was **$1.9 million** at March 31, 2023, and it recognized **$0.1 million** in equity in earnings for the three months ended March 31, 2023[47](index=47&type=chunk) [5. NONCONTROLLING INTERESTS](index=14&type=page&id=5.%20NONCONTROLLING%20INTERESTS) Noncontrolling interests relate to Operating Company and San Francisco Venture, with Holding Company ownership increasing to **62.6%** due to share-based compensation - The Holding Company owned approximately **62.6%** of the outstanding Class A Common Units of the Operating Company as of March 31, 2023[48](index=48&type=chunk) - Tax distributions to partners of the Operating Company totaled **$1.974 million** for the three months ended March 31, 2023, up from **$435 thousand** in the prior year[53](index=53&type=chunk) - A redeemable noncontrolling interest of **$25.0 million** in Class C units of The San Francisco Venture was outstanding at March 31, 2023[57](index=57&type=chunk) [6. CONSOLIDATED VARIABLE INTEREST ENTITY](index=15&type=page&id=6.%20CONSOLIDATED%20VARIABLE%20INTEREST%20ENTITY) Operating Company, San Francisco Venture, FP LP, and FPL are consolidated VIEs, with significant inventories and non-recourse liabilities - The Operating Company, The San Francisco Venture, FP LP, and FPL are consolidated VIEs[58](index=58&type=chunk)[64](index=64&type=chunk) | San Francisco Venture (in thousands) | March 31, 2023 | December 31, 2022 | | :----------------------------------- | :------------- | :---------------- | | Total combined assets | $1,330,000 | $1,310,000 | | Inventories | $1,320,000 | $1,310,000 | | Total combined liabilities | $68,300 | $67,300 | | FP LP and FPL (in thousands) | March 31, 2023 | December 31, 2022 | | :--------------------------- | :------------- | :---------------- | | Total combined assets | $1,100,000 | $1,100,000 | | Inventories | $936,700 | $927,900 | | Total combined liabilities | $76,100 | $77,200 | [7. INTANGIBLE ASSET, NET—RELATED PARTY](index=16&type=page&id=7.%20INTANGIBLE%20ASSET,%20NET%E2%80%94RELATED%20PARTY) Intangible asset, representing Great Park Venture incentive compensation, slightly decreased due to amortization expense recognized in Q1 2023 | Metric (in thousands) | March 31, 2023 | December 31, 2022 | | :-------------------- | :------------- | :---------------- | | Gross carrying amount | $129,705 | $129,705 | | Accumulated amortization | $(90,095) | $(89,448) | | Net book value | $39,610 | $40,257 | - Intangible asset amortization expense was **$0.6 million** for the three months ended March 31, 2023, included in the cost of management services[68](index=68&type=chunk) [8. RELATED PARTY TRANSACTIONS](index=17&type=page&id=8.%20RELATED%20PARTY%20TRANSACTIONS) Related party assets and liabilities remained stable, with contract assets and management fee revenues from Great Park Venture increasing | Related Party (in thousands) | March 31, 2023 | December 31, 2022 | | :--------------------------- | :------------- | :---------------- | | **Assets:** | | | | Contract assets | $80,414 | $79,863 | | Total Related Party Assets | $97,114 | $97,126 | | **Liabilities:** | | | | Reimbursement obligation | $61,542 | $62,990 | | Accrued advisory fees | $9,075 | $10,525 | | Total Related Party Liabilities | $90,628 | $93,086 | - Management fee revenues under the A&R DMA with the Great Park Venture were **$4.1 million** for Q1 2023, up from **$3.4 million** in Q1 2022[71](index=71&type=chunk) [9. NOTES PAYABLE, NET](index=17&type=page&id=9.%20NOTES%20PAYABLE,%20NET) Notes payable, net, primarily comprise **7.875% Senior Notes due 2025**, with no borrowings on the **$125.0 million** revolving credit facility | Metric (in thousands) | March 31, 2023 | December 31, 2022 | | :-------------------- | :------------- | :---------------- | | 7.875% Senior Notes due 2025 | $625,000 | $625,000 | | Unamortized debt issuance costs and discount | $(3,965) | $(4,349) | | Notes payable, net | $621,035 | $620,651 | - No borrowings or letters of credit were outstanding on the Operating Company's **$125.0 million** unsecured revolving credit facility as of March 31, 2023[73](index=73&type=chunk) [10. TAX RECEIVABLE AGREEMENT](index=18&type=page&id=10.%20TAX%20RECEIVABLE%20AGREEMENT) A Tax Receivable Agreement (TRA) liability of **$173.2 million** exists, with no payments made or expected for several years | Metric (in thousands) | March 31, 2023 | December 31, 2022 | | :-------------------- | :------------- | :---------------- | | Payable pursuant to tax receivable agreement | $173,208 | $173,068 | - No TRA payments were made during the three months ended March 31, 2023 or 2022[74](index=74&type=chunk) - The company does not expect to make any TRA payments for the next several years based on current projections[163](index=163&type=chunk) [11. COMMITMENTS AND CONTINGENCIES](index=18&type=page&id=11.%20COMMITMENTS%20AND%20CONTINGENCIES) Commitments and contingencies include performance bonds, San Francisco Venture guarantees, and ongoing legal proceedings like Hunters Point Litigation [Performance and Completion Bonding Agreements](index=18&type=page&id=Performance%20and%20Completion%20Bonding%20Agreements) Outstanding performance bonds totaled **$320.0 million** as of March 31, 2023, primarily for Valencia community development obligations | Metric (in millions) | March 31, 2023 | December 31, 2022 | | :------------------- | :------------- | :---------------- | | Outstanding performance bonds | $320.0 | $315.0 | [Candlestick and The San Francisco Shipyard Disposition and Development Agreement](index=18&type=page&id=Candlestick%20and%20The%20San%20Francisco%20Shipyard%20Disposition%20and%20Development%20Agreement) San Francisco Venture has **$198.3 million** in outstanding guarantees for infrastructure and park obligations at Candlestick and The San Francisco Shipyard - The San Francisco Venture had outstanding guarantees of **$198.3 million** for infrastructure and park obligations as of March 31, 2023[78](index=78&type=chunk) [Letters of Credit](index=18&type=page&id=Letters%20of%20Credit) Outstanding letters of credit and restricted cash pledged as collateral each totaled **$1.0 million** as of March 31, 2023 | Metric (in millions) | March 31, 2023 | December 31, 2022 | | :------------------- | :------------- | :---------------- | | Outstanding letters of credit | $1.0 | $1.0 | | Restricted cash and certificates of deposit | $1.0 | $1.0 | [Legal Proceedings](index=18&type=page&id=Legal%20Proceedings) The company is a defendant in the Bayview Action lawsuit regarding alleged contamination at The San Francisco Shipyard, asserting strong defenses - The Bayview Action lawsuit alleges fraudulent misrepresentation of test results and remediation efforts by Tetra Tech at The San Francisco Shipyard, naming the Company as a defendant[80](index=80&type=chunk)[82](index=82&type=chunk) - Management believes it has meritorious defenses and potential insurance/indemnification rights regarding the Bayview Action[82](index=82&type=chunk) [Environmental Contamination](index=20&type=page&id=Environmental%20Contamination) Environmental contamination may require corrective action, but the company does not anticipate a material adverse effect on financial statements - The Company believes that any potential corrective actions for environmental contamination would not have a material adverse effect on its condensed consolidated financial statements[84](index=84&type=chunk) [12. SUPPLEMENTAL CASH FLOW INFORMATION](index=20&type=page&id=12.%20SUPPLEMENTAL%20CASH%20FLOW%20INFORMATION) Supplemental cash flow includes capitalized interest and noncash lease expense, with a reconciliation showing decreased total cash balances | Metric (in thousands) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :-------------------- | :-------------------------------- | :-------------------------------- | | Cash paid for interest (capitalized) | $706 | $776 | | Noncash lease expense | $1,116 | $1,301 | | Cash Reconciliation (in thousands) | March 31, 2023 | March 31, 2022 | | :--------------------------------- | :------------- | :------------- | | Cash and cash equivalents | $106,577 | $203,647 | | Restricted cash and certificates of deposit | $992 | $1,330 | | Total cash, cash equivalents, and restricted cash | $107,569 | $204,977 | [13. SEGMENT REPORTING](index=20&type=page&id=13.%20SEGMENT%20REPORTING) The company operates four segments: Valencia, San Francisco, Great Park, and Commercial, focusing on mixed-use developments and showing Great Park profit improvement - The company's reportable segments are Valencia, San Francisco, Great Park, and Commercial[87](index=87&type=chunk)[88](index=88&type=chunk)[89](index=89&type=chunk)[91](index=91&type=chunk) | Segment Operating Results (in thousands) | Revenues (Q1 2023) | Revenues (Q1 2022) | Profit (Loss) (Q1 2023) | Profit (Loss) (Q1 2022) | | :--------------------------------------- | :----------------- | :----------------- | :---------------------- | :---------------------- | | Valencia | $1,303 | $1,159 | $(2,439) | $(4,827) | | San Francisco | $162 | $180 | $(1,030) | $(669) | | Great Park | $12,729 | $22,424 | $4,506 | $(2,071) | | Commercial | $2,261 | $2,041 | $(176) | $215 | | Total reportable segments | $16,455 | $25,804 | $861 | $(7,352) | [14. SHARE-BASED COMPENSATION](index=22&type=page&id=14.%20SHARE-BASED%20COMPENSATION) Share-based compensation expense significantly decreased in Q1 2023 due to prior year's restructuring expense, while nonvested awards increased | Share-Based Compensation (in thousands) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :-------------------------------------- | :-------------------------------- | :-------------------------------- | | Share-based compensation expense | $763 | $4,103 | | Share-Based Awards Activity (in thousands) | Nonvested at Jan 1, 2023 | Granted | Vested | Nonvested at Mar 31, 2023 | | :----------------------------------------- | :----------------------- | :------ | :----- | :------------------------ | | Share-Based Awards | 2,166 | 3,040 | (636) | 4,570 | - In Q1 2022, **$3.0 million** of share-based compensation expense was included in restructuring expense due to a modification of awards for two former officers[97](index=97&type=chunk) [15. EMPLOYEE BENEFIT PLANS](index=22&type=page&id=15.%20EMPLOYEE%20BENEFIT%20PLANS) The frozen defined benefit Retirement Plan generated a net periodic cost in Q1 2023, shifting from a net benefit due to higher interest cost | Net Periodic Cost (Benefit) (in thousands) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :----------------------------------------- | :-------------------------------- | :-------------------------------- | | Interest cost | $202 | $136 | | Expected return on plan assets | $(222) | $(261) | | Amortization of net actuarial loss | $41 | $13 | | Net periodic cost (benefit) | $21 | $(112) | [16. INCOME TAXES](index=23&type=page&id=16.%20INCOME%20TAXES) Despite pre-tax losses, a minimal income tax provision was recorded due to a valuation allowance against deferred tax assets and pass-through entity structure | Metric (in thousands) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :-------------------- | :-------------------------------- | :-------------------------------- | | Loss before income tax provision | $(9,726) | $(36,764) | | Income tax provision | $(8) | $(5) | - The Company continues to record a valuation allowance against its federal and state net deferred tax assets due to a history of book losses[103](index=103&type=chunk) [17. FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS AND DISCLOSURES](index=23&type=page&id=17.%20FINANCIAL%20INSTRUMENTS%20AND%20FAIR%20VALUE%20MEASUREMENTS%20AND%20DISCLOSURES) Most financial instruments' carrying amounts approximated fair value, but notes payable, net, had a significantly lower fair value than carrying value - The carrying amount of most financial instruments (cash, restricted cash, certain related party assets/liabilities, accounts payable) approximated fair value[104](index=104&type=chunk) | Notes Payable, Net (in millions) | March 31, 2023 | December 31, 2022 | | :------------------------------- | :------------- | :---------------- | | Estimated fair value | $563.8 | $525.5 | | Carrying value | $621.0 | $620.7 | [18. EARNINGS PER SHARE](index=24&type=page&id=18.%20EARNINGS%20PER%20SHARE) Using the two-class method, basic and diluted loss per Class A share significantly decreased in Q1 2023 compared to Q1 2022 | Metric (per share) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :----------------- | :-------------------------------- | :-------------------------------- | | Basic loss per Class A common share | $(0.07) | $(0.25) | | Diluted loss per Class A common share | $(0.07) | $(0.25) | - No distributions on common shares were declared for the three months ended March 31, 2023 or 2022[107](index=107&type=chunk) [19. ACCUMULATED OTHER COMPREHENSIVE LOSS](index=25&type=page&id=19.%20ACCUMULATED%20OTHER%20COMPREHENSIVE%20LOSS) Accumulated other comprehensive loss attributable to the Company remained stable at **$3.0 million**, primarily from unamortized pension plan actuarial losses | Metric (in millions) | March 31, 2023 | December 31, 2022 | | :------------------- | :------------- | :---------------- | | Accumulated other comprehensive loss attributable to the Company | $3.0 | $3.0 | - Reclassifications from accumulated other comprehensive loss to net loss related to amortization of net actuarial losses were approximately **$25,000** for Q1 2023[110](index=110&type=chunk) [ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=26&type=section&id=ITEM%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses Q1 2023 financial performance, focusing on revenue, capital, and cost control, leading to improved results and reduced net loss [Forward-Looking Statements](index=26&type=page&id=Forward-Looking%20Statements) This section reiterates the cautionary statement on forward-looking statements, noting actual results may differ due to risks and uncertainties - The discussion contains forward-looking statements subject to risks and uncertainties, and actual results could differ materially[112](index=112&type=chunk) [Overview](index=26&type=page&id=Overview) The company operates through Five Point Operating Company, LP (**62.6%** owned), consolidating most entities but equity accounting for Great Park and Gateway Commercial Ventures - The company operates through Five Point Operating Company, LP, owning approximately **62.6%** as of March 31, 2023[113](index=113&type=chunk) - The operating company consolidates Five Point Land, LLC and The Shipyard Communities, LLC, but accounts for Great Park Venture and Gateway Commercial Venture using the equity method[113](index=113&type=chunk) [Operational Highlights](index=26&type=page&id=Operational%20Highlights) Q1 2023 focus on revenue, capital, and cost control led to an **18%** SG&A reduction, increased homebuyer activity, and **$231.6 million** in total liquidity - The company's three main priorities are generating revenue and positive cash flow, managing capital spend, and managing selling, general and administrative costs[114](index=114&type=chunk) - Selling, general and administrative costs decreased by **18%** in Q1 2023 compared to Q1 2022[114](index=114&type=chunk) - Home sales at Valencia increased to **75 homes** in Q1 2023 from **49** in Q4 2022, and at Great Park Neighborhoods to **255 homes** from **113**[115](index=115&type=chunk) - Total liquidity as of March 31, 2023, was **$231.6 million**, comprising **$106.6 million** in cash and **$125.0 million** available under the revolving credit facility[116](index=116&type=chunk) [Results of Operations](index=27&type=page&id=Results%20of%20Operations) Q1 2023 financial results significantly improved with reduced net loss, driven by increased revenues, decreased restructuring costs, and positive equity earnings | Metric (in thousands) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :-------------------- | :-------------------------------- | :-------------------------------- | | Total revenues | $5,701 | $4,886 | | Total costs and expenses | $17,290 | $40,751 | | Net loss attributable to the company | $(4,536) | $(17,130) | [Revenues](index=28&type=page&id=Revenues) Total revenues increased by **$0.8 million (16.7%)** in Q1 2023, primarily due to higher management services revenue from the Great Park segment - Revenues increased by **$0.8 million (16.7%)** to **$5.7 million** in Q1 2023, mainly due to increased management services revenue at the Great Park segment[120](index=120&type=chunk) [Selling, general, and administrative](index=28&type=page&id=Selling,%20general,%20and%20administrative) SG&A expenses decreased by **$3.0 million (18.1%)** in Q1 2023, driven by reduced employee and marketing costs following a **38%** headcount reduction - Selling, general, and administrative expenses decreased by **$3.0 million (18.1%)** to **$13.8 million** in Q1 2023[121](index=121&type=chunk) - The decrease was mainly due to reductions in employee-related and selling and marketing expenses, following an approximately **38%** headcount reduction since the end of 2021[121](index=121&type=chunk) [Restructuring](index=28&type=page&id=Restructuring) No restructuring costs in Q1 2023, a significant reduction from **$19.4 million** in Q1 2022, which included advisory payments and share-based compensation - Restructuring costs were **$0** in Q1 2023, down from **$19.437 million** in Q1 2022[18](index=18&type=chunk) - Q1 2022 restructuring costs included a **$15.6 million** related party liability for advisory agreement payments and **$3.0 million** in share-based compensation expense due to executive management changes[122](index=122&type=chunk) - An additional **$0.9 million** in severance benefits from layoffs was incurred in Q1 2022[123](index=123&type=chunk) [Equity in earnings (loss) from unconsolidated entities](index=28&type=page&id=Equity%20in%20earnings%20(loss)%20from%20unconsolidated%20entities) Equity in earnings from unconsolidated entities shifted from a **$1.0 million** loss in Q1 2022 to a **$1.0 million** gain in Q1 2023, driven by Great Park Venture's net income - Equity in earnings from unconsolidated entities increased to **$1.0 million** in Q1 2023 from a loss of **$1.0 million** in Q1 2022[125](index=125&type=chunk) - This increase was primarily driven by the Great Park Venture recognizing net income in Q1 2023 compared to a net loss in Q1 2022[125](index=125&type=chunk) [Income taxes](index=28&type=page&id=Income%20taxes) Minimal income tax provision recorded in Q1 2023 and Q1 2022 despite pre-tax losses, due to valuation allowance against deferred tax assets - Pre-tax losses of **$9.7 million** (Q1 2023) and **$36.8 million** (Q1 2022) resulted in no tax benefit due to the application of a valuation allowance[126](index=126&type=chunk) - The effective tax rate, before changes in valuation allowance, was substantially similar for both periods[126](index=126&type=chunk) [Net loss attributable to noncontrolling interests](index=28&type=page&id=Net%20loss%20attributable%20to%20noncontrolling%20interests) Net loss attributable to noncontrolling interests significantly decreased in Q1 2023, reflecting the overall reduction in the company's net loss | Metric (in thousands) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :-------------------- | :-------------------------------- | :-------------------------------- | | Net loss attributable to noncontrolling interests | $(5,198) | $(19,639) | - Noncontrolling interests represent interests held by other partners in the operating company and members of The San Francisco Venture[127](index=127&type=chunk) [Segment Results and Financial Information](index=29&type=page&id=Segment%20Results%20and%20Financial%20Information) Four segments (Valencia, San Francisco, Great Park, Commercial) show varied performance, with Great Park improving profit and Commercial shifting to loss - The Great Park segment reported a profit of **$4.5 million** in Q1 2023, a significant improvement from a **$2.1 million** loss in Q1 2022[92](index=92&type=chunk) - The Valencia segment's loss decreased to **$2.4 million** in Q1 2023 from **$4.8 million** in Q1 2022[92](index=92&type=chunk) - The Commercial segment shifted from a **$215 thousand** profit in Q1 2022 to a **$176 thousand** loss in Q1 2023[92](index=92&type=chunk) [Valencia Segment](index=30&type=page&id=Valencia%20Segment) Valencia segment's SG&A expenses decreased by **40.4%** in Q1 2023 due to lower marketing and employee-related costs for its mixed-use community - The Valencia property is designed to include approximately **21,500 homesites** and **11.5 million square feet** of commercial space[133](index=133&type=chunk) - Selling, general, and administrative expenses for the Valencia segment decreased by **$1.8 million (40.4%)** to **$2.6 million** in Q1 2023[134](index=134&type=chunk) [San Francisco Segment](index=31&type=page&id=San%20Francisco%20Segment) San Francisco segment's Candlestick and Shipyard development is exempt from Proposition M, but land transfers are delayed by environmental retesting and litigation - Candlestick and The San Francisco Shipyard are designed to include approximately **12,000 homesites** and **6.3 million square feet** of commercial space[135](index=135&type=chunk)[137](index=137&type=chunk) - Development at Candlestick and The San Francisco Shipyard is not subject to San Francisco's Proposition M growth control measure[137](index=137&type=chunk) - Land transfers from the U.S. Navy are delayed due to allegations of misrepresented sampling results by contractors and subsequent retesting efforts[138](index=138&type=chunk) [Great Park Segment](index=31&type=page&id=Great%20Park%20Segment) Great Park segment saw significant increases in land sales and management fees in Q1 2023, alongside decreased SG&A expenses - The Great Park Neighborhoods is designed to include approximately **10,500 homesites** and **4.9 million square feet** of commercial space[141](index=141&type=chunk) - Land sales and related party land sales revenues increased to **$8.6 million** in Q1 2023 from **$1.8 million** in Q1 2022, primarily due to an increase in profit participation[143](index=143&type=chunk) - Management fees—related party increased by **$3.0 million (196.7%)** to **$4.5 million** in Q1 2023, mainly due to a higher annual base fee of **$12.0 million**[148](index=148&type=chunk) - Selling, general, and administrative expenses decreased by **$4.2 million (56.0%)** to **$3.3 million** in Q1 2023, due to lower marketing expenses and the elimination of a variable cost reimbursement component[147](index=147&type=chunk) [Commercial Segment](index=33&type=page&id=Commercial%20Segment) Commercial segment, including Gateway Commercial Venture (**75%** owned), reported a loss in Q1 2023, with limited control due to unanimous approval requirements - The Gateway Commercial Venture owns one commercial office building and approximately **50 acres** of commercial land with additional development rights at the Five Point Gateway Campus[152](index=152&type=chunk) | Metric (in thousands) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :-------------------- | :-------------------------------- | :-------------------------------- | | Segment (loss) profit from operations | $(176) | $215 | | Equity in (loss) earnings from the Gateway Commercial Venture | $(212) | $84 | [Liquidity and Capital Resources](index=33&type=page&id=Liquidity%20and%20Capital%20Resources) The company had **$106.6 million** cash and **$125.0 million** credit facility available, with short-term needs for development and long-term needs for horizontal development - As of March 31, 2023, the company had **$106.6 million** in consolidated cash and cash equivalents and **$125.0 million** available under its revolving credit facility[155](index=155&type=chunk) - Short-term cash needs include general and administrative expenses, development expenditures at Valencia and San Francisco, interest payments, and related party reimbursement obligations[156](index=156&type=chunk) - Approximately **$9.0 million** in related party reimbursement obligations were deferred from Q1 2023 to Q1 2024[156](index=156&type=chunk) - Long-term cash needs primarily relate to future horizontal development expenditures and investments in income-producing properties[158](index=158&type=chunk) [Summary of Cash Flows](index=34&type=page&id=Summary%20of%20Cash%20Flows) Net cash used in operating activities significantly decreased in Q1 2023, partially offset by public financing reimbursements | Cash Flow Activity (in thousands) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Operating activities | $(21,638) | $(57,969) | | Investing activities | $68 | $484 | | Financing activities | $(3,624) | $(4,330) | - Net cash used in operating activities decreased by **$36.3 million** in Q1 2023, partially offset by **$17.7 million** in public financing reimbursements in Valencia[164](index=164&type=chunk) - Financing activities included **$0.2 million** for share-based compensation tax withholding and **$2.0 million** for noncontrolling interest tax distributions in Q1 2023[167](index=167&type=chunk) [Changes in Capital Structure](index=36&type=page&id=Changes%20in%20Capital%20Structure) Company ownership in the operating company increased to **62.6%** in Q1 2023 due to share-based compensation, with details on outstanding Class A and B units - The company's ownership percentage in the operating company increased to **62.6%** during Q1 2023[168](index=168&type=chunk) | Class A Units (in shares) | March 31, 2023 | December 31, 2022 | | :------------------------ | :------------- | :---------------- | | Held by us | 69,199,938 | 69,068,354 | | Held by noncontrolling interest members (Operating Company) | 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 March 31, 2023, **79,233,544 Class B common shares** were outstanding, held by noncontrolling interest members, convertible to Class A common shares at a **0.0003 ratio**[170](index=170&type=chunk) [Critical Accounting Estimates](index=36&type=page&id=Critical%20Accounting%20Estimates) No significant changes to critical accounting estimates occurred in Q1 2023 compared to those disclosed in the Annual Report on Form 10-K - No significant changes to critical accounting estimates occurred during the three months ended March 31, 2023[171](index=171&type=chunk) [ITEM 3. Quantitative and Qualitative Disclosures About Market Risk](index=36&type=section&id=ITEM%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Primary market risk stems from **$621.0 million** fixed-rate indebtedness; no derivative financial instruments are currently used, but swaps may be considered - The company's primary market risk results from its indebtedness, which bears interest at fixed rates[172](index=172&type=chunk) - As of March 31, 2023, outstanding consolidated net indebtedness was **$621.0 million**, none of which bears interest based on floating rates[173](index=173&type=chunk) - The company has not entered into any transactions using derivative financial instruments[173](index=173&type=chunk) [ITEM 4. Controls and Procedures](index=36&type=section&id=ITEM%204.%20Controls%20and%20Procedures) Disclosure controls and procedures were effective as of March 31, 2023, with no material changes in internal control over financial reporting [Evaluation of Disclosure Controls and Procedures](index=36&type=page&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) Certifying Officers concluded disclosure controls and procedures were effective as of March 31, 2023, ensuring timely and accurate reporting - Disclosure controls and procedures were evaluated and deemed effective as of March 31, 2023[175](index=175&type=chunk) [Changes in Internal Control Over Financial Reporting](index=37&type=page&id=Changes%20in%20Internal%20Control%20Over%20Financial%20Reporting) No material changes in internal control over financial reporting were identified during the period - No material changes in internal control over financial reporting were identified during the period[176](index=176&type=chunk) PART II. OTHER INFORMATION [ITEM 1. Legal Proceedings](index=38&type=section&id=ITEM%201.%20Legal%20Proceedings) This section refers to Note 11 for disclosures on legal proceedings, including the ongoing Hunters Point Litigation - Disclosures of legal proceedings are incorporated by reference from Note 11 to the condensed consolidated financial statements[179](index=179&type=chunk) [ITEM 1A. Risk Factors](index=38&type=page&id=ITEM%201A.%20Risk%20Factors) Readers are referred to the Annual Report on Form 10-K for risk factors, with no material changes reported - Readers should consider risk factors discussed in the Annual Report on Form 10-K for the year ended December 31, 2022[180](index=180&type=chunk) - There have been no material changes in risk factors from those disclosed in the Annual Report on Form 10-K[180](index=180&type=chunk) [ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=38&type=section&id=ITEM%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company repurchased **83,660 Class A common shares** in January 2023 at **$2.41** per share to settle employee tax withholding obligations | Period | Total number of shares purchased | Average price paid per share | | :---------------------- | :------------------------------- | :--------------------------- | | January 1, 2023 to January 31, 2023 | 83,660 | $2.41 | | Total | 83,660 | $2.41 | - Shares were repurchased to settle tax withholding obligations of employees upon vesting of restricted shares[181](index=181&type=chunk) [ITEM 3. Defaults Upon Senior Securities](index=38&type=section&id=ITEM%203.%20Defaults%20Upon%20Senior%20Securities) No defaults upon senior securities were reported during the period - No defaults upon senior securities occurred[182](index=182&type=chunk) [ITEM 4. Mine Safety Disclosures](index=38&type=section&id=ITEM%204.%20Mine%20Safety%20Disclosures) This item is not applicable - This item is not applicable[182](index=182&type=chunk) [ITEM 5. Other Information](index=38&type=section&id=ITEM%205.%20Other%20Information) No other information was reported for this item - No other information was reported[182](index=182&type=chunk) [ITEM 6. Exhibits](index=39&type=section&id=ITEM%206.%20Exhibits) Exhibits filed with Form 10-Q include certifications from CEO and CFO, and Inline XBRL documents - Exhibits include certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002[183](index=183&type=chunk) - Inline XBRL documents for the instance, schema, calculation, definition, label, and presentation linkbases are also filed[183](index=183&type=chunk) [Signatures](index=40&type=section&id=Signatures) The report was signed by Daniel Hedigan, CEO, and Leo Kij, Interim CFO, on April 21, 2023 - The report was signed by Daniel Hedigan, Chief Executive Officer, and Leo Kij, Interim Chief Financial Officer, on April 21, 2023[186](index=186&type=chunk)