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Aug. 4, 2022, 5:21 p.m. EDT

10-Q: FIVE POINT HOLDINGS, LLC

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(EDGAR Online via COMTEX) -- ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

The following discussion contains management's discussion and analysis of our financial condition and results of operations and should be read in conjunction with our unaudited condensed consolidated financial statements and related notes included under Part I, Item 1 of this report and our audited consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021. "Us," "we," and "our" refer to Five Point Holdings, LLC, together with its consolidated subsidiaries. This discussion contains forward-looking statements and involves numerous risks and uncertainties, including but not limited to those described in the "Risk Factors" section of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, as well as other risks and uncertainties detailed from time to time in our subsequent Quarterly Reports on Form 10-Q and other filings with the Securities and Exchange Commission. Actual results could differ materially from those set forth in any forward-looking statements. See "Cautionary Statement Regarding Forward-Looking Statements."

Overview

We conduct all of our business in or through our operating company, Five Point Operating Company, LP (the "operating company"). We are, through a wholly owned subsidiary, the sole managing general partner and owned, as of June 30, 2022, approximately 62.5% of the operating company. The operating company directly or indirectly owns equity interests in:

Five Point Land, LLC, which owns The Newhall Land & Farming Company, a California limited partnership, the entity that is developing Valencia, our community in northern Los Angeles County, California;

The Shipyard Communities, LLC (the "San Francisco Venture"), which is developing Candlestick and The San Francisco Shipyard, our communities in the City of San Francisco, California;

Heritage Fields LLC (the "Great Park Venture"), which is developing Great Park Neighborhoods, our community in Orange County, California;

Five Point Office Venture Holdings I, LLC (the "Gateway Commercial Venture"), which owns portions of the Five Point Gateway Campus, a commercial office, research and development and medical campus located within the Great Park Neighborhoods; and

Five Point Communities, LP and Five Point Communities Management, Inc. (together, the "management company"), which provide development and property management services for the Great Park Neighborhoods and the Five Point Gateway Campus.

The operating company consolidates and controls the management of all of these entities except for the Great Park Venture and the Gateway Commercial Venture. The operating company owns a 37.5% percentage interest in the Great Park Venture and a 75% interest in the Gateway Commercial Venture and accounts for its interest in both using the equity method.

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Operational Highlights

In the second quarter, we saw residential markets tighten due in part to the actions taken by the Federal Reserve to combat rising inflation. While there is uncertainty generally in the new home market, we believe that the long-term outlook is favorable, especially in our markets in California in which housing supply remains severely limited. In response to the headwinds posed by rising inflation and interest rates, we may elect to delay the timing of some residential land sales originally anticipated to occur this year at our Valencia and Great Park Neighborhoods communities in order to maximize the value of our communities and to better match the pace of home sales by our guest builders. Changes to the timing of our anticipated land sales could also result in the deferment of related development costs.

At Valencia, by June 30, 2022, our guest builders were selling in all 18 of the initial neighborhoods, two of which were substantially sold out by the end of the second quarter. Guest builders sold 168 homes during the second quarter, increasing total homes sold to 725 since sales began in May 2021.

At the Great Park Neighborhoods, in which we have a 37.5% percentage interest and manage all aspects of the development cycle, guest builders at our newest neighborhood, "Solis Park," consisting of approximately 850 homes, began opening homes for sale during the second quarter of 2022. The majority of the builder collections at Solis Park, however, are planned to open in the third quarter of 2022, leaving a relatively low inventory of homes available for sale during the second quarter. As a result of the low inventory of homes available for sale, guest builders sold a total of 37 homes at the Great Park Neighborhoods during the three months ended June 30, 2022.

The initial term of our development management agreement with the Great Park Venture expired on December 31, 2021 but has been extended by mutual agreement of the parties through December 31, 2022 (the "2022 extension"). In connection with the 2022 extension, the variable cost reimbursement component under the development management agreement was eliminated and the annual fixed base fee was increased to $12.0 million for 2022. Under the development management agreement, as amended, we are entitled to incentive compensation payments equal to 9% of distributions available to be made by the Great Park Venture to holders of percentage interests of the Great Park Venture during the initial term. If, however, the development management agreement is not extended by mutual agreement of the parties beyond December 31, 2022 (a "non-renewal"), any incentive compensation payments received by us in calendar 2022 will be retroactively reduced from 9% of distributions to 6.75% of distributions (the "clawback amount"), the payment of which will be effected by reducing future incentive compensation payments made to us under the development management agreement. If a non-renewal occurs and we are no longer providing management services subsequent to December 31, 2022, we will continue to be entitled to 6.75% of distributions paid thereafter, subject to the clawback amount holdback described above. While we currently expect the development management agreement to be renewed following the expiration of the initial term, as extended, we can provide no assurance as to the terms or timing of any such renewal or that such renewal will be completed at all.

During the first quarter of 2022, we reassessed our staffing needs, resulting in layoffs affecting all of our locations. As a result of these layoffs and additional voluntary resignations, headcount has been reduced by approximately 29% since the beginning of 2022. We expect to continue to see significant cost savings in the balance of 2022 as a result of both our reduced headcount and our overall focus on cost management.

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Aug 04, 2022

COMTEX_411616115/2041/2022-08-04T17:21:05

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