Five Point(FPH) - 2023 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION ITEM 1. Financial Statements This section presents the unaudited condensed consolidated financial statements of Five Point Holdings, LLC for the three and nine months ended September 30, 2023 and 2022, including balance sheets, statements of operations, comprehensive income (loss), capital, and cash flows, along with detailed notes explaining the company's business, accounting policies, segment performance, and other financial disclosures Unaudited Condensed Consolidated Balance Sheets The company's total assets increased slightly from December 31, 2022, to September 30, 2023, driven primarily by an increase in cash and cash equivalents. Total liabilities saw a minor decrease, while total capital increased, reflecting improved financial health | Metric | Sep 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | | :-------------------------------- | :-------------------------- | :-------------------------- | | ASSETS | | | | Inventories | $2,252,783 | $2,239,125 | | Cash and Cash Equivalents | $218,264 | $131,771 | | Total Assets | $2,934,547 | $2,885,784 | | LIABILITIES AND CAPITAL | | | | Total Liabilities | $988,164 | $992,737 | | Total Capital | $1,921,383 | $1,868,047 | Unaudited Condensed Consolidated Statements of Operations The company reported a significant turnaround from net loss to net income for both the three and nine months ended September 30, 2023, primarily driven by a substantial increase in land sales revenue and equity in earnings from unconsolidated entities | Metric | Three Months Ended Sep 30, 2023 (in thousands) | Three Months Ended Sep 30, 2022 (in thousands) | Nine Months Ended Sep 30, 2023 (in thousands) | Nine Months Ended Sep 30, 2022 (in thousands) | | :------------------------------------------ | :--------------------------------------------- | :--------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Total Revenues | $65,923 | $15,416 | $92,973 | $25,695 | | Total Costs and Expenses | $54,627 | $21,098 | $96,107 | $79,078 | | Equity in (Loss) Earnings from Unconsolidated Entities | $(622) | $(4,265) | $52,554 | $(4,654) | | Net Income (Loss) Attributable to the Company | $6,603 | $(4,439) | $25,638 | $(26,680) | | Basic EPS (Class A Share) | $0.10 | $(0.06) | $0.37 | $(0.39) | | Diluted EPS (Class A Share) | $0.09 | $(0.07) | $0.37 | $(0.39) | Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss) The company reported comprehensive income for the three and nine months ended September 30, 2023, a significant improvement from comprehensive losses in the prior year periods, primarily reflecting the positive shift in net income | Metric | Three Months Ended Sep 30, 2023 (in thousands) | Three Months Ended Sep 30, 2022 (in thousands) | Nine Months Ended Sep 30, 2023 (in thousands) | Nine Months Ended Sep 30, 2022 (in thousands) | | :------------------------------------------------ | :--------------------------------------------- | :--------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Net Income (Loss) | $14,158 | $(9,531) | $54,979 | $(57,272) | | Other Comprehensive Income—Net of tax | $41 | $13 | $122 | $39 | | Comprehensive Income (Loss) Attributable to the Company | $6,628 | $(4,431) | $25,714 | $(26,656) | Unaudited Condensed Consolidated Statements of Capital Total capital increased from December 31, 2022, to September 30, 2023, primarily due to net income and share-based compensation expense, partially offset by tax distributions to noncontrolling interests | Metric | Balance Dec 31, 2022 (in thousands) | Balance Sep 30, 2023 (in thousands) | | :-------------------------------- | :---------------------------------- | :---------------------------------- | | Contributed Capital | $587,733 | $590,551 | | Retained Earnings | $33,386 | $59,024 | | Total Members' Capital | $618,131 | $646,661 | | Noncontrolling Interests | $1,249,916 | $1,274,722 | | Total Capital | $1,868,047 | $1,921,383 | - Net income for the nine months ended September 30, 2023, was $54,979 thousand, contributing to the increase in retained earnings and total capital[24] - Share-based compensation expense for the nine months ended September 30, 2023, was $2,610 thousand[24] Unaudited Condensed Consolidated Statements of Cash Flows The company generated significant net cash from operating activities for the nine months ended September 30, 2023, a substantial improvement from cash used in operating activities in the prior year, primarily due to land sales and distributions from unconsolidated entities | Metric | Nine Months Ended Sep 30, 2023 (in thousands) | Nine Months Ended Sep 30, 2022 (in thousands) | | :------------------------------------------------ | :-------------------------------------------- | :-------------------------------------------- | | Net Cash Provided by (Used in) Operating Activities | $65,064 | $(175,023) | | Net Cash Provided by Investing Activities | $29,946 | $2,307 | | Net Cash Used in Financing Activities | $(8,517) | $(6,367) | | Net Increase (Decrease) in Cash, Cash Equivalents, and Restricted Cash | $86,493 | $(179,083) | | Cash, Cash Equivalents, and Restricted Cash—End of period | $219,256 | $87,709 | - Operating activities benefited from $60.6 million in land sales at Valencia and $22.0 million in incentive compensation payments from the Great Park Venture in 2023[196] - Investing activities were positively impacted by $29.0 million return of investment from Great Park Venture in 2023[199] Notes to Unaudited Condensed Consolidated Financial Statements These notes provide detailed explanations of the company's accounting policies, business structure, segment information, related party transactions, debt, commitments, and other financial instruments, offering crucial context to the condensed consolidated financial statements Note 1. BUSINESS AND ORGANIZATION Five Point Holdings, LLC is a Delaware limited liability company focused on owning and developing mixed-use planned communities in California. It operates through Five Point Operating Company, LP, and has a complex organizational structure involving Class A and Class B common shares, noncontrolling interests, and equity interests held by major owners like Lennar Corporation and Castlelake, LP - The Holding Company owns approximately 62.6% of the outstanding Class A Common Units of the Operating Company as of September 30, 2023[35] - Class A Common Units of the Operating Company can be exchanged for Class A common shares or cash, and Class A units of the San Francisco Venture can be exchanged for Class A Common Units of the Operating Company[35][63] Note 2. BASIS OF PRESENTATION The financial statements are unaudited and prepared in accordance with U.S. GAAP for interim financial information, consolidating entities where the Holding Company has a controlling interest or is the primary beneficiary of VIEs. Management's estimates and assumptions are used, and actual results may differ - The company consolidates subsidiaries where it has a controlling interest and Variable Interest Entities (VIEs) where it is the primary beneficiary[37] - These condensed consolidated financial statements are unaudited and should be read in conjunction with the Annual Report on Form 10-K for the year ended December 31, 2022[38] Note 3. REVENUES Consolidated revenues significantly increased for both the three and nine months ended September 30, 2023, primarily driven by land sales in the Valencia segment and increased management services revenue in the Great Park segment | Revenue Source | Three Months Ended Sep 30, 2023 (in thousands) | Three Months Ended Sep 30, 2022 (in thousands) | Nine Months Ended Sep 30, 2023 (in thousands) | Nine Months Ended Sep 30, 2022 (in thousands) | | :-------------------------- | :--------------------------------------------- | :--------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Land sales | $60,694 | $72 | $60,685 | $643 | | Land sales—related party | $— | $2,817 | $595 | $4,529 | | Management services—related party | $4,502 | $12,108 | $29,512 | $18,358 | | Operating properties | $727 | $419 | $2,181 | $2,165 | | Total revenues | $65,923 | $15,416 | $92,973 | $25,695 | - The decrease in contract assets by $6.8 million for the nine months ended September 30, 2023, was mainly due to receipt of marketing fees and $24.6 million in incentive compensation payments from the Great Park Venture[43] Note 4. INVESTMENT IN UNCONSOLIDATED ENTITIES The company holds equity method investments in Great Park Venture, Gateway Commercial Venture, and Valencia Landbank Venture. The Great Park Venture significantly contributed to equity in earnings in 2023 due to substantial land sales, while Gateway Commercial Venture reported a net loss Great Park Venture The Great Park Venture, in which the company holds a 37.5% Percentage Interest, reported significant net income for the nine months ended September 30, 2023, primarily from land sales, a substantial improvement from a net loss in the prior year. The company's share of earnings from this venture was $53.1 million | Metric | Nine Months Ended Sep 30, 2023 (in thousands) | Nine Months Ended Sep 30, 2022 (in thousands) | | :------------------------------------ | :-------------------------------------------- | :-------------------------------------------- | | Land sale and related party land sale revenues | $372,472 | $39,020 | | Net income (loss) of Great Park Venture | $169,519 | $(19,658) | | Equity in earnings (loss) from Great Park Venture | $53,072 | $(5,634) | - The Great Park Venture made aggregate distributions of $25.5 million to Legacy Interests and $218.0 million to Percentage Interests during the nine months ended September 30, 2023, with the company receiving $81.8 million for its 37.5% share[45] Gateway Commercial Venture The Gateway Commercial Venture, where the company holds a 75% interest, reported a net loss for the nine months ended September 30, 2023, primarily due to interest expense, contrasting with a small net income in the prior year. The company's equity in loss was $1.0 million | Metric | Nine Months Ended Sep 30, 2023 (in thousands) | Nine Months Ended Sep 30, 2022 (in thousands) | | :------------------------------------------ | :-------------------------------------------- | :-------------------------------------------- | | Rental revenues | $6,329 | $6,248 | | Net (loss) income of Gateway Commercial Venture | $(1,357) | $129 | | Equity in (loss) earnings from Gateway Commercial Venture | $(1,018) | $97 | - The company is subject to certain guaranties of the Gateway Commercial Venture's mortgage note, including an interest and carry guaranty and a springing guaranty of 50% of the outstanding balance under specific conditions[54] Valencia Landbank Venture The company holds a 10% equity method interest in the Valencia Landbank Venture, which facilitates residential lot purchases and options for homebuilders. The company recognized $0.5 million in equity in earnings for the nine months ended September 30, 2023 | Metric | Sep 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | | :------------------------------------ | :-------------------------- | :-------------------------- | | Company's investment in Valencia Landbank Venture | $1,400 | $1,900 | | Equity in earnings (9 months ended Sep 30, 2023) | $500 | N/A | | Equity in earnings (9 months ended Sep 30, 2022) | N/A | $900 | Note 5. NONCONTROLLING INTERESTS Noncontrolling interests represent equity interests in the Operating Company and San Francisco Venture held by other partners, which can be exchanged for Class A common shares or cash. The company's ownership in the Operating Company increased to 62.6% due to share-based compensation activities The Operating Company The Holding Company's ownership in the Operating Company increased to approximately 62.6% as of September 30, 2023. Holders of Class A Common Units can exchange their units for Class A common shares or cash, and tax distributions are made to partners based on estimated income tax liabilities - The Holding Company's ownership interest in the Operating Company increased to approximately 62.6% as of September 30, 2023[56] - Class A Common Unit holders have the right to exchange units for Class A common shares (one-for-one) or cash, which is currently exercisable[57] | Tax Distributions (in thousands) | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :------------------------------- | :------------------------------ | :----------------------------- | :----------------------------- | | Management Partner | $2,059 | $4,033 | $435 | | Total Tax Distributions | $2,059 | $4,033 | $435 | The San Francisco Venture The Operating Company owns all Class B units of the San Francisco Venture, while Class A units, held by Lennar and Castlelake, are economically equivalent to Operating Company Class A Common Units and can be redeemed for them - Class A units of the San Francisco Venture are substantially economically equivalent to Class A Common Units of the Operating Company and can be redeemed for them on a one-for-one basis[62][63] Redeemable Noncontrolling Interest The San Francisco Venture has 25.0 million Class C units outstanding, issued to an affiliate of Lennar, which are redeemable for cash up to $25.0 million upon certain conditions related to reimbursements from a Mello-Roos district - 25.0 million Class C units were outstanding at September 30, 2023, and December 31, 2022, with a maximum redemption amount of $25.0 million[64] - Redemption is contingent on the company receiving reimbursements from the Mello-Roos community facilities district, up to 50% of reimbursements received[64] Note 6. CONSOLIDATED VARIABLE INTEREST ENTITY The Holding Company consolidates the Operating Company and its subsidiaries, including the San Francisco Venture, FP LP, and FPL, all identified as VIEs where the company is the primary beneficiary due to its power to direct significant activities and receive economic benefits - The San Francisco Venture is consolidated as a VIE because the Operating Company has unilateral power over its significant economic activities and receives 99% of distributions[66] | San Francisco Venture (in thousands) | Sep 30, 2023 | Dec 31, 2022 | | :----------------------------------- | :----------- | :----------- | | Total combined assets | $1,350,000 | $1,310,000 | | Total combined liabilities | $65,700 | $67,300 | | FP LP and FPL (in thousands) | Sep 30, 2023 | Dec 31, 2022 | | :--------------------------- | :----------- | :----------- | | Combined assets | $1,000,000 | $1,100,000 | | Combined liabilities | $68,700 | $77,200 | Note 7. INTANGIBLE ASSET, NET—RELATED PARTY The intangible asset, related to incentive compensation from the Great Park Venture's development management agreement, decreased due to amortization. Amortization expense is recognized as part of management services costs | Metric (in thousands) | Sep 30, 2023 | Dec 31, 2022 | | :-------------------- | :----------- | :----------- | | Gross carrying amount | $129,705 | $129,705 | | Accumulated amortization | $(98,676) | $(89,448) | | Net book value | $31,029 | $40,257 | - Intangible asset amortization expense was $9.2 million for the nine months ended September 30, 2023, and $5.4 million for the nine months ended September 30, 2022[76] Note 8. RELATED PARTY TRANSACTIONS Related party assets and liabilities include contract assets, operating lease assets/liabilities, and reimbursement obligations. Management fee revenues from the Great Park Venture decreased for the three months but increased for the nine months ended September 30, 2023, due to variable incentive compensation | Related Party Item (in thousands) | Sep 30, 2023 | Dec 31, 2022 | | :-------------------------------- | :----------- | :----------- | | Assets: | | | | Contract assets | $75,595 | $79,863 | | Total Related Party Assets | $91,103 | $97,126 | | Liabilities: | | | | Reimbursement obligation | $58,708 | $62,990 | | Total Related Party Liabilities | $81,547 | $93,086 | | Management Fee Revenues (in thousands) | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :------------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Management services—related party | $4,400 | $12,000 | $29,200 | $18,000 | - The Great Park Venture made a Legacy Incentive Compensation payment of $2.6 million and a Non-Legacy Incentive Compensation payment of $22.0 million to the company during the nine months ended September 30, 2023[79] Note 9. NOTES PAYABLE, NET The company's notes payable primarily consist of 7.875% Senior Notes due 2025. The $125.0 million unsecured revolving credit facility was amended in October 2023, extending its maturity to April 2026, with no outstanding borrowings as of September 30, 2023 | Debt Instrument (in thousands) | Sep 30, 2023 | Dec 31, 2022 | | :----------------------------- | :----------- | :----------- | | 7.875% Senior Notes due 2025 | $625,000 | $625,000 | | Unamortized debt issuance costs and discount | $(3,198) | $(4,349) | | Notes payable, net | $621,802 | $620,651 | - The $125.0 million unsecured revolving credit facility's maturity date was extended to April 2026 (potentially accelerated to July 2025 if senior notes are not refinanced)[83] - As of September 30, 2023, there were no borrowings or letters of credit outstanding on the revolving credit facility[82] Note 10. TAX RECEIVABLE AGREEMENT The company has a Tax Receivable Agreement (TRA) with certain unit holders, obligating it to pay 85% of realized cash tax savings from specific tax attributes. The liability for expected payments was $173.2 million as of September 30, 2023, with no payments made during the reported periods | TRA Liability (in thousands) | Sep 30, 2023 | Dec 31, 2022 | | :--------------------------- | :----------- | :----------- | | Payable pursuant to tax receivable agreement | $173,208 | $173,068 | - No TRA payments were made during the nine months ended September 30, 2023 or 2022[84] Note 11. COMMITMENTS AND CONTINGENCIES The company is subject to various commitments and contingencies, including performance bonds for development obligations, guarantees for the San Francisco Venture, letters of credit, and legal proceedings, notably the Hunters Point Litigation | Commitment (in thousands) | Sep 30, 2023 | Dec 31, 2022 | | :------------------------ | :----------- | :----------- | | Performance bonds | $307,200 | $315,000 | | San Francisco Venture guarantees | $198,300 | $198,300 | | Letters of credit | $1,000 | $1,000 | | Operating lease liabilities | $11,791 | $15,705 | Performance and Completion Bonding Agreements The company had outstanding performance bonds of $307.2 million as of September 30, 2023, primarily related to its Valencia community, to ensure completion of development obligations - Outstanding performance bonds totaled $307.2 million as of September 30, 2023, down from $315.0 million at December 31, 2022[86] Candlestick and The San Francisco Shipyard Disposition and Development Agreement The San Francisco Venture has agreed to reimburse the San Francisco Agency for costs and expenses and may share profits from development. It also has outstanding guarantees of $198.3 million for infrastructure and park obligations - The San Francisco Venture has outstanding guarantees of $198.3 million benefiting the San Francisco Agency for infrastructure and park/open space obligations[88] Letters of Credit The company had $1.0 million in outstanding letters of credit at September 30, 2023, secured by $1.0 million in restricted cash, to secure various development and financial obligations - Outstanding letters of credit totaled $1.0 million at September 30, 2023, secured by $1.0 million in restricted cash and certificates of deposit[89][94] Legal Proceedings The company is involved in the Hunters Point Litigation, a putative class action alleging fraudulent misrepresentation by a contractor regarding toxic waste remediation. The company believes it has meritorious defenses and insurance/indemnification rights - The Bayview Action lawsuit alleges fraudulent misrepresentation by Tetra Tech regarding toxic radiological waste testing and remediation at The San Francisco Shipyard[90] - Plaintiffs seek damages and an injunction to prevent development activities at The San Francisco Shipyard[90] Note 12. SUPPLEMENTAL CASH FLOW INFORMATION Supplemental cash flow information includes cash paid for interest, noncash lease expense, and noncash investing/financing activities. A reconciliation of cash, cash equivalents, and restricted cash is also provided | Metric (in thousands) | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :------------------------------------ | :----------------------------- | :----------------------------- | | Cash paid for interest | $26,668 | $26,902 | | Noncash lease expense | $3,086 | $3,453 | | Adjustment to TRA liability | $140 | $(1,058) | | Cash, Cash Equivalents, and Restricted Cash (in thousands) | Sep 30, 2023 | Sep 30, 2022 | | :------------------------------------------------------- | :----------- | :----------- | | Cash and cash equivalents | $218,264 | $86,379 | | Restricted cash and certificates of deposit | $992 | $1,330 | | Total | $219,256 | $87,709 | Note 13. SEGMENT REPORTING The company operates through four reportable segments: Valencia, San Francisco, Great Park, and Commercial, each focusing on distinct mixed-use planned communities or commercial developments in California. Segment results are reconciled to consolidated balances, with unconsolidated ventures removed - The Valencia segment includes the Valencia community and agricultural operations in northern Los Angeles County, California[95] - The San Francisco segment covers the Candlestick and The San Francisco Shipyard communities on bayfront property in San Francisco[96] - The Great Park segment includes Great Park Neighborhoods in Orange County and management services provided to the Great Park Venture, where the company holds a 37.5% equity interest[97] - The Commercial segment encompasses the Gateway Commercial Venture's operations at the Five Point Gateway Campus and property management services[98] Note 14. SHARE-BASED COMPENSATION The company's 2023 Incentive Award Plan increased available Class A common shares for issuance. Share-based compensation expense decreased for the three and nine months ended September 30, 2023, compared to the prior year, which included significant restructuring-related expenses - The 2023 Incentive Award Plan increased the aggregate number of Class A common shares available for issuance by 7,500,000[102] | Metric (in thousands, except shares) | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :----------------------------------- | :----------------------------- | :----------------------------- | | Nonvested at January 1 | 2,166 | N/A | | Granted | 3,947 | N/A | | Vested | (744) | N/A | | Nonvested at September 30 | 4,463 | N/A | | Share-based compensation expense | $2,600 | $5,500 | - For the nine months ended September 30, 2022, $3.0 million of share-based compensation expense was included in restructuring expense due to a modification of awards for former officers[103] Note 15. EMPLOYEE BENEFIT PLANS The company maintains a frozen defined benefit Retirement Plan. Net periodic cost for the plan was $21 thousand for the three months and $62 thousand for the nine months ended September 30, 2023, an increase from a net benefit in the prior year | Metric (in thousands) | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :-------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net periodic cost (benefit) | $21 | $(112) | $62 | $(336) | - The Retirement Plan was frozen in 2004 and does not include a service cost component[105] Note 16. INCOME TAXES The company recorded no significant income tax provision or benefit for the three and nine months ended September 30, 2023 and 2022, due to the application of a valuation allowance against its net deferred tax assets, largely stemming from a history of book losses - No significant income tax provision or benefit was recorded for the three and nine months ended September 30, 2023 and 2022, after applying a valuation allowance[107] - The effective tax rates differ from the 21% federal statutory rate primarily due to the valuation allowance, disallowance of executive compensation, and income/losses passed through to other partners[107] - The company continues to record a full valuation allowance against its federal and state net deferred tax assets due to a history of book losses[108] Note 17. FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS AND DISCLOSURES The carrying amounts of most financial instruments approximated their fair values. However, the fair value of the company's notes payable, net, was lower than its carrying value at both September 30, 2023, and December 31, 2022 - The carrying amount of most financial instruments, excluding notes payable, approximated fair value[109] | Metric (in thousands) | Sep 30, 2023 | Dec 31, 2022 | | :-------------------- | :----------- | :----------- | | Fair value of notes payable, net | $590,400 | $525,500 | | Carrying value of notes payable, net | $621,800 | $620,700 | Note 18. EARNINGS PER SHARE The company uses the two-class method for EPS calculation, allocating net income/loss between Class A and Class B common shares. Diluted EPS calculations consider convertible and exchangeable securities, with Class A basic EPS at $0.10 for Q3 2023 and $0.37 for the nine months - The company uses the two-class method for earnings per share, allocating net income/loss between Class A and Class B common shares, which have different distribution rates[111] | Metric | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :-------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Basic EPS (Class A common shares) | $0.10 | $(0.06) | $0.37 | $(0.39) | | Diluted EPS (Class A common shares) | $0.09 | $(0.07) | $0.37 | $(0.39) | - Diluted EPS calculations consider convertible Class B common shares, exchangeable Class A units of the San Francisco Venture, and exchangeable Class A Common Units of the Operating Company[113] Note 19. ACCUMULATED OTHER COMPREHENSIVE LOSS Accumulated other comprehensive loss attributable to the company primarily consists of unamortized defined benefit pension plan net actuarial losses, totaling $2.9 million at September 30, 2023, with a full valuation allowance against related tax benefits | Metric (in thousands) | Sep 30, 2023 | Dec 31, 2022 | | :------------------------------------ | :----------- | :----------- | | Accumulated other comprehensive loss attributable to the Company | $2,900 | $3,000 | | Accumulated other comprehensive loss included in noncontrolling interests | $1,800 | $1,900 | - Reclassifications from accumulated other comprehensive loss to net income (loss) related to amortization of net actuarial losses were approximately $76,000 for the nine months ended September 30, 2023[115] ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial performance and condition, highlighting a significant shift from net losses to net income, driven by increased land sales and effective cost management. It details operational achievements, segment-specific results, liquidity, and capital structure changes for the three and nine months ended September 30, 2023 Overview Five Point Holdings, LLC conducts all business through its operating company, Five Point Operating Company, LP, which directly or indirectly owns equity interests in various development entities across California, including Valencia, San Francisco, Great Park, and Gateway Commercial Ventures - The company, through a wholly owned subsidiary, is the sole managing general partner and owned approximately 62.6% of the operating company as of September 30, 2023[118] - The operating company consolidates and controls the management of Five Point Land, LLC, and The Shipyard Communities, LLC, but accounts for its interests in the Great Park Venture and Gateway Commercial Venture using the equity method[118][119] Operational Highlights The company achieved consolidated net income for Q3 and the nine months ended September 30, 2023, a significant improvement from prior year losses, by focusing on revenue generation, cost control, and capital management. Key activities included land sales at Valencia and public financing reimbursements at Great Park Venture | Metric (in thousands) | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2022 | | :-------------------- | :------------------------------ | :----------------------------- | :------------------------------ | :----------------------------- | | Consolidated Net Income (Loss) | $14,200 | $55,000 | $(9,500) | $(57,300) | | SG&A Expenses | $11,900 | $38,400 | $12,000 | $41,500 | - Closed the sale of 146 homesites on approximately 26 acres at Valencia for $60.6 million in Q3 2023[121] - Total liquidity was $343.3 million at September 30, 2023, including $218.3 million in cash and $125.0 million available under the revolving credit facility[123] Results of Operations The company experienced significant revenue growth and a shift from net loss to net income for both the three and nine months ended September 30, 2023, primarily due to increased land sales at Valencia and improved equity in earnings from unconsolidated entities, particularly the Great Park Venture | Metric | Three Months Ended Sep 30, 2023 (in thousands) | Three Months Ended Sep 30, 2022 (in thousands) | Nine Months Ended Sep 30, 2023 (in thousands) | Nine Months Ended Sep 30, 2022 (in thousands) | | :------------------------------------------ | :--------------------------------------------- | :--------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Total Revenues | $65,923 | $15,416 | $92,973 | $25,695 | | Total Costs and Expenses | $54,627 | $21,098 | $96,107 | $79,078 | | Equity in (Loss) Earnings from Unconsolidated Entities | $(622) | $(4,265) | $52,554 | $(4,654) | | Net Income (Loss) Attributable to the Company | $6,603 | $(4,439) | $25,638 | $(26,680) | Three Months Ended September 30, 2023 and 2022 Revenues surged by 327.6% to $65.9 million, driven by Valencia land sales. Cost of management services decreased by 68.3% due to lower intangible asset amortization. Equity in loss from unconsolidated entities improved, and net income attributable to the company turned positive - Revenues increased by $50.5 million (327.6%) to $65.9 million, primarily due to land sales at the Valencia segment[128] - Cost of management services decreased by $5.1 million (68.3%) to $2.4 million, mainly due to a decrease in intangible asset amortization expense[129] - Equity in loss from unconsolidated entities improved from $(4.3) million to $(0.6) million, primarily due to the Great Park Venture[131] Nine Months Ended September 30, 2023 and 2022 Revenues increased by 261.8% to $93.0 million, largely from Valencia land sales and Great Park management services. Selling, general, and administrative expenses decreased by 7.4%. Equity in earnings from unconsolidated entities significantly improved to $52.6 million, reversing a prior-year loss - Revenues increased by $67.3 million (261.8%) to $93.0 million, driven by land sales at Valencia and increased management services revenue at Great Park[134] - Selling, general, and administrative expenses decreased by $3.1 million (7.4%) to $38.4 million, mainly due to lower employee-related and selling/marketing expenses[136] - Equity in earnings from unconsolidated entities was $52.6 million, a significant increase from a loss of $4.7 million, primarily due to net income from Great Park Venture land sales[139] Segment Results and Financial Information The company's four reportable segments—Valencia, San Francisco, Great Park, and Commercial—show varied performance. Valencia and Great Park segments were key revenue drivers, with Great Park showing a substantial profit turnaround. San Francisco and Commercial segments reported losses Valencia Segment The Valencia segment experienced a significant increase in land sales revenues for both the three and nine months ended September 30, 2023, due to the sale of 146 homesites. This led to corresponding costs of land sales, while SG&A expenses decreased - Total land sales revenues increased by $57.8 million to $60.7 million for the three months ended September 30, 2023, due to the sale of 146 homesites[153] - For the nine months ended September 30, 2023, total land sales revenues increased by $56.1 million to $61.3 million[155] - Selling, general, and administrative expenses decreased by $2.0 million (18.6%) to $8.6 million for the nine months ended September 30, 2023, mainly due to lower community-related selling and marketing expenses[157] San Francisco Segment The San Francisco segment, developing Candlestick and The San Francisco Shipyard, continues to face delays in land transfers from the U.S. Navy due to environmental retesting allegations. The segment's development plans are designed for flexibility, but future impacts remain uncertain - Development at Candlestick and The San Francisco Shipyard is not subject to San Francisco's Proposition M growth control measure, allowing flexibility in commercial space construction[160] - Land transfers from the U.S. Navy at The San Francisco Shipyard are delayed due to allegations of misrepresented sampling results by contractors, leading to reevaluation and additional testing[161] - The company may be named in lawsuits seeking damages related to alleged contamination at The San Francisco Shipyard[162] Great Park Segment The Great Park segment, including the Great Park Neighborhoods and management services to the Great Park Venture, saw a significant increase in land sales revenues for the nine months ended September 30, 2023, leading to a substantial profit turnaround. Management fee revenues also increased due to higher variable incentive compensation - Land sales and related party land sales revenues increased to $372.5 million for the nine months ended September 30, 2023, from $39.0 million in the prior year, primarily from the sale of 798 homesites[172] - Management fee revenues increased for the nine months ended September 30, 2023, mainly due to a rise in variable incentive compensation revenue recognized ($20.2 million vs. $9.0 million YoY)[176] - Segment profit for the nine months ended September 30, 2023, was $184.3 million, a significant improvement from a loss of $14.0 million in the prior year[147] Commercial Segment The Commercial segment, encompassing the Gateway Commercial Venture and its Five Point Gateway Campus, reported a segment loss for both the three and nine months ended September 30, 2023. The company holds a 75% interest but has limited control over major decisions - The Commercial segment reported a segment loss of $(358) thousand for the three months and $(1,036) thousand for the nine months ended September 30, 2023[147] - The company holds a 75% interest in the Gateway Commercial Venture, but major decisions require unanimous approval by an executive committee, limiting the company's control[182] Liquidity and Capital Resources The company's liquidity improved significantly with $218.3 million in cash and $125.0 million available on its revolving credit facility as of September 30, 2023. Short-term cash needs include development expenditures and debt service, while long-term needs focus on future development and potential vertical construction. The company is evaluating alternatives for its senior notes due in 2025 - Consolidated cash and cash equivalents increased to $218.3 million at September 30, 2023, from $131.8 million at December 31, 2022[186] - The company had **$125.0