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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