Five Point Holding
How Years of Cash Burn Are Beginning to Show Promise
Market Cap: $819,858,000
P/B: 0.37x
Net Debt: +$1,742,000
EV: $818,116,000
Shares Outstanding: 148,824,110
Business Overview
Five Point Holdings is a land development company based in the state of California. Five Point owns three main assets which include developable land in Orange County, developable land in San Fransico (Hunters Point Navy Shipyard), and developable land in LA County. The business fully owns both the LA County and San Fransico land and owns a 37.5% stake in the Orange County project. The companies process includes vertical construction (developing the infrastructure), entitlements, planning & development to include management fees earned from associated efforts, and participates in the sale of the homes sold on its land via fees as a percentage of final home sales price. In addition to this, the company owns a substantial amount of commercial property that helps to smooth earnings during times of capital outlays and has recently acquired Hearthstone Financial, one of the countries largest real estate development lenders in the country with $2.6B of AUM at the time of purchase. The company estimates over the next decade they will bring to market 40,000 new home plots and monetize twenty-three million acres of commercial property.
For a long time the business was burning significant amounts of cash to develop the Orange County property and the stock performed horribly however, the business has hit an inflection point in its cash flow generative abilities on a go forward basis with the monetization of the Great Parks project which still has significant cash flows being generated on an annual basis which has allowed the business to have a net cash balance sheet and have the capital to be able to being investing in the development of its other nascent assets in LA County and San Fransico, places where housing availability is persistently undersupplied leading to a persistent need to build out more capacity.
As it stands, the company has all of the entitlements it needs to develop and begin monetizing its assets including in San Fransico where the regulatory environment is increasingly challenging. San Fransico has a law known as Prop M that caps the amount of commercial development each year at 950,000 square foot which bottle necks new projects and largely is a disincentive in the addition of new projects as he costs associated and the time it takes to do this work is simply uneconomic. Importantly, Five Point and its Hunters Point property is exempt from Prop M regulation and it can develop and sell land undeterred by the exhaustive regulatory hurdles of the local government bodies.