Five Point Holdings Q2 Update

21% Earnings Yield With a Long Runway For Growth

Five Point Holdings hosted its Q2 Earnings yesterday, July 24th, 2025, and we could not be happier with the results. With that said, the market, as it usually does, disagrees with our assessment and has sold the stock off 15% on the news. It is a common theme in the investments that we make that we are early to the party and that is just fine by us. It turns out that when you are able to buy an asset base for twenty cents on the dollar you can be “wrong” for an awfully long time and still make market beating annualized returns when the latent earnings power finally manifests.

State of Housing

"While we continue to see softness in the housing market due to affordability challenges and a decline in consumer confidence, we adhered to our strategy of driving starts, sales, and closings in order to build long-term efficiencies in our business." – Stuart Miller, Executive Chairman and Co-Chief Executive Officer, Lennar

Through our investment in Five Point, we have spent a considerable amount of time studying home building in North America. All earnings calls from the major home builders and home building products businesses in Q2 essentially say the same thing. That is, interest rates remain elevated, demand is weak, consumers are being squeezed. Mortage rates in 2021 hit a low of 2.3 - 2.4% and if you locked in a mortgage at those rates why, unless an exogenous event forced you to, would you give up that rate and pay 6-7% which is todays going rate? This, in addition to a perception of a slowing effect in the US consumer has led to an expected weakness in new home construction across the board. While these developments do effect Five Point on the margin, given that the firm owns developable land in some of the most supply constrained markets in the most supply constrained state in the republic, they have a competitive price advantage versus the broader market.

This advantage is demonstrated through Five Points active bidding and contracting for 9 new homesites in its Great Parks development, talks with the City of Irvine to convert Five Points commercial land holdings to residential land, 6 active selling programs in Valencia with expectations to sell out of 1 and add 4 more by year end 2025, and expectations of construction for its San Fransico assets in early 2026.

In the meantime, the business continues to add to its strategic position with the acquisition of Hearthstone, a deal that we believe is incredibly attractive. Given the quality of Hearthstone as a standalone entity, the modest price paid, and the addition of recurring revenue to smooth earnings through times of capital outlay, we are excited about future prospects for Five Point overall and this deal in particular.

Hearthstone Acquistion

Hearthstone, for those who are not familiar finances home building activity through third party institutional capital. The business model is essentially Hearthstone puts up 1% of equity, they raise institutional capital to fund development projects via off balance sheet solutions for home builders through a land banking or “option” structure. In addition, Hearthstone is the only firm I can think of in this space that has been through multiple market down turns, none more importantly for housing that the Great Financial Crisis.

Current Assets Under Management (AUM) for Hearthstone is $2.6B and Five Point believes that given their national foot print alongside Five Points operating expertise that they can grow AUM to $7-$8B by the end of 2027/2028 which would generate significant performance fees and recurring revenues for Hearthstone and by extension, Five Point who owns 75% of the common units of the firm. Home builders are increasingly moving to the land banking/options market and Five Point in addition to its $56.3M purchase price added an additional $37M via co-investments to Hearthstones base which will directly fund the 1% equity contributions and allow the firm to scale faster than it would have otherwise been able.

All in all, the Hearthstone deal opens the door for Five Point to move into an allocator role offering capital solutions to home builders, many of which are already Five Point customers. We love the transaction and are excited to hear more in the coming years.

“Over the past few years, lot bankers have deployed over $40 billion in equity to hold land on behalf of homebuilders and cover the costs of horizontal development. These lot bankers are achieving an unlevered 10-14% IRR…on the other hand, land banking for long-term raw inventory has limited capital sources and has not been widely adopted in recent years. Nevertheless, more builders and new capital sources are exploring strategies to bank the raw land needed beyond four years of inventory. Given the longer duration and increased risk profile, higher IRRs (18-25%) and multiples on equity above two times will be demanded.” - Builder and Development Magazine July 25th 2025 Issue

Forward Guide & Financial Performance

In case you had not read the report here are a few figures that we found interesting:

• $32M of development spend on Valencia + $27M of interest paid to the Senior Secured notes

• $69M of YTD net income

• $456M of cash on the balance sheet and $125M of additional borrowing capacity through the RCF

In terms of guidance/management commentary there were two things that stood out. The first being that despite this “slow down” in activity, Five Point is still going to generate around $175M of net income for the full year 2025. I will remind you, that is a 21% earnings yield to the current market cap. Second, the current senior notes do not allow for Five Point to buy back stock, however, management expressed an interest in refinancing this debt in 2H 2025 which would allow them to reduce the float meaningfully at depressed prices.

All of this, before their two most valuable assets are even really adding to the bottom line. We think Five Point remains meaningful mispriced and are continuing to build out our position at these prices.