ikussain Posted May 30, 2019 Share Posted May 30, 2019 Anyone else is interested in Five Point Holdings? As of today they are trading at about 60% book value, on a fully diluted basis, and most of its assets are comprised of three lots of land in California and cash. They are the largest owner and developer of master planned communities in California, owning a combined 40000 acres of land designed to have about 40000 homes and and 20 million square feet of commercial property across three communities. The company creates value by increasing the value of land through designing all aspects of their communities, obtaining necessary approvals and entitlements for general infrastructure, preparing the land for and construction of required infrastructure, which includes building roads, trails, pavements, shared amenities and utility improvements. Company seems to have a very competent management. Five Point is a 2009 spinoff of Lennar, and its CEO, Emile Haddad used to work as a chief investment officer of Lennar prior to 2009. All three master planned communities' development has been managed by Haddad and his current team for about two decades, as a part of Lennar before and in Five Point after 2009. Five point operates in a very supply constrained market where incremental demand outpaces supply. In addition to that, company has outstanding relationships with homebuilders, Lennar owning about half of the company on a fully exchanged basis. What caught my eye is that before the IPO, company went through a formation transaction whereby it acquired for shares interest in venture that is developing a master planned community in San Francisco. At that time, on May 2 2016 the company's shares were estimated to have a fair value of 23.61$ based on discounted future distributions. Taking into consideration that the company's financial position has not materially deteriorated since then, it is not clear why the shares are trading around 8$ even after taking into account share dilution. It is very interesting to hear other members' opinion on that. Link to comment Share on other sites More sharing options...
thepupil Posted May 30, 2019 Share Posted May 30, 2019 I sold a super small starter position to buy more HHC on Christmas Eve, which allowed me to realize a tax loss, consolidate into an "easier" company to own. I say that in that HHC is more diversified and self funding, though I'm sure someone with more time, work ethic, and vision can build a NAV model that shows me FPH is much cheaper. My thesis never got beyond the level of insight you just pointed out "hey, large land owner, much cheaper than stated NAV, owned by Third Avenue Real Estate Fund who says stock price implied $20K per lot and then it went down more, I'll put 1-2% in it and do more work". Sorry, don't have anything more than that. I did some research on the delays and changes at Candlestick and it seemed like the problems were solveable and that the very long term view on their holdings was "California still needs more houses" seemed pretty intact. Link to comment Share on other sites More sharing options...
WayWardCloud Posted May 30, 2019 Share Posted May 30, 2019 No opinion on the company but FWIW you're riding along with Michael Burry :) FPH is his 2nd biggest position at around 9% of the Scion portfolio. edit: just looked more into it. Lots of reviews of their Shipyard District project near SF mention harmful toxic waste in the soil. Do you know what they're talking about? Link to comment Share on other sites More sharing options...
ikussain Posted May 31, 2019 Author Share Posted May 31, 2019 No opinion on the company but FWIW you're riding along with Michael Burry :) FPH is his 2nd biggest position at around 9% of the Scion portfolio. edit: just looked more into it. Lots of reviews of their Shipyard District project near SF mention harmful toxic waste in the soil. Do you know what they're talking about? They have an agreement that U.S. Navy transfers them the Shipyard land after cleaning it up and getting an approval. The company that they hired to do the soil sampling falsified results and is now being sued. But Five Point management says it has nothing to do with them and they should be safe from legal prosecution even though the transfer of land may be delayed. Micheal Burry was the reason I actually took a look at the company Link to comment Share on other sites More sharing options...
ikussain Posted May 31, 2019 Author Share Posted May 31, 2019 I sold a super small starter position to buy more HHC on Christmas Eve, which allowed me to realize a tax loss, consolidate into an "easier" company to own. I say that in that HHC is more diversified and self funding, though I'm sure someone with more time, work ethic, and vision can build a NAV model that shows me FPH is much cheaper. My thesis never got beyond the level of insight you just pointed out "hey, large land owner, much cheaper than stated NAV, owned by Third Avenue Real Estate Fund who says stock price implied $20K per lot and then it went down more, I'll put 1-2% in it and do more work". Sorry, don't have anything more than that. I did some research on the delays and changes at Candlestick and it seemed like the problems were solveable and that the very long term view on their holdings was "California still needs more houses" seemed pretty intact. I have spent last few days reading about the company but still have trouble wrapping my head around the business. It seems like in their business there is a lot of uncertainty and variability when it comes to cash in and out. In addition to selling land they also run a management company that that manages other companies' developments, and it is profitable. But apparently this is not enough and the company is still bleeding cash, mostly SG&A. The uncertainty in timing of distributions may be the reason why it is sold at a discount (assuming it is), at least it certainly makes me uncomfortable when I cannot estimate future FCF range narrow enough to be of any use. Plus, the longer it takes the company to get all their approvals in place and sell land, the more will SG&A slash the future profits. To add about the value of land, their biggest lot, Newhall Ranch, has not been stepped up to fair value at the time of formation transaction in 2016 and is still carried at 2009 value. Link to comment Share on other sites More sharing options...
LongTermView Posted May 31, 2019 Share Posted May 31, 2019 No opinion on the company but FWIW you're riding along with Michael Burry :) FPH is his 2nd biggest position at around 9% of the Scion portfolio. Yeah but he sold some shares in 1Q19 and we don't know what he's done so far in 2Q19. 1,323,626 shares Dec 31 1,238,381 shares Mar 31 ----------- 85,245 shares sold in 1Q19 Link to comment Share on other sites More sharing options...
mwtorock Posted May 31, 2019 Share Posted May 31, 2019 i think instead of forecasting FCF, you probably could estimate net asset values vs. equity value. The book value of land lots is below fair market value. Some concerns (just talking points from discussions) are related to where we are at the cycle of CA housing market. All the trade war talks with China and Mexico do not help either. West coast trade related businesses already cooling down a bit. Asian buyer related housing markets (even including Vancouver) are not seeing any boost from Asians any more. I don't know how much it would be worth in a doomsday scenario that CA market completely collapse, but by my guesstimate FPH should be able to survive with cash on hand and support from Lenar. So my estimate of intrinsic value is 16 per share, but i have low weight of doomsday scenario and high weight of that housing market in CA does continue moving upwards from here. Link to comment Share on other sites More sharing options...
ikussain Posted June 2, 2019 Author Share Posted June 2, 2019 i think instead of forecasting FCF, you probably could estimate net asset values vs. equity value. The book value of land lots is below fair market value. Some concerns (just talking points from discussions) are related to where we are at the cycle of CA housing market. All the trade war talks with China and Mexico do not help either. West coast trade related businesses already cooling down a bit. Asian buyer related housing markets (even including Vancouver) are not seeing any boost from Asians any more. I don't know how much it would be worth in a doomsday scenario that CA market completely collapse, but by my guesstimate FPH should be able to survive with cash on hand and support from Lenar. So my estimate of intrinsic value is 16 per share, but i have low weight of doomsday scenario and high weight of that housing market in CA does continue moving upwards from here. It may be a stupid question, but how can a trade war affect the California real estate market? Also, it would be interesting to learn how you got to that estimate of 16 dollars per share? The reason I mentioned FCF is that I am not quite comfortable basing my estimate on book value alone. They say land is worth this much because they paid so much for it. All land acquisitions were made between related parties, and I am afraid that it may be overstated. Plus the land has approvals for specific use, i.e. mixed use communities including affordable housing, so in case of liquidation it may be worth far less than that. Add to that the fact that if the company keeps operating at loss, the book value will keep decreasing. Please correct me if I am wrong, I am quite new to investing and all my knowledge is theory only so far Link to comment Share on other sites More sharing options...
TrashIsCash Posted April 3, 2020 Share Posted April 3, 2020 I think this is a screaming buy here: -They have tons of capital to ride out the C-19 storm. -They just started selling lots to home builders at Valencia. -Emile Haddad is well regarded and is a excellent human being.... He personally purchased n19 masks on the black market and delivered them to hospitals. -Luxor Capital, Christian Leone, is one of the largest shareholders and is buying all he can get his hands on. Link to comment Share on other sites More sharing options...
mwtorock Posted April 3, 2020 Share Posted April 3, 2020 I think this is a screaming buy here: -They have tons of capital to ride out the C-19 storm. -They just started selling lots to home builders at Valencia. -Emile Haddad is well regarded and is a excellent human being.... He personally purchased n19 masks on the black market and delivered them to hospitals. -Luxor Capital, Christian Leone, is one of the largest shareholders and is buying all he can get his hands on. it is just traded along with home builders, which all went down along with lumb. Link to comment Share on other sites More sharing options...
kab60 Posted October 1, 2020 Share Posted October 1, 2020 What is the bear case here? SF delayed over and over? Seems like the housing market in California is on fire, yet this thing trades at the March lows. Low rates, people moving out of the city, loads of tech millionaries. Couldn't help myself and bought some stock, even though I'm not quiet sure how to value this and don't like asset plays much, so surely I missed something. How are others thinking about valuation? Link to comment Share on other sites More sharing options...
Broeb22 Posted October 1, 2020 Share Posted October 1, 2020 What is the bear case here? SF delayed over and over? Seems like the housing market in California is on fire, yet this thing trades at the March lows. Low rates, people moving out of the city, loads of tech millionaries. Couldn't help myself and bought some stock, even though I'm not quiet sure how to value this and don't like asset plays much, so surely I missed something. How are others thinking about valuation? Was the pun intended with the California real estate on fire? Because I chuckled. Link to comment Share on other sites More sharing options...
kab60 Posted October 1, 2020 Share Posted October 1, 2020 What is the bear case here? SF delayed over and over? Seems like the housing market in California is on fire, yet this thing trades at the March lows. Low rates, people moving out of the city, loads of tech millionaries. Couldn't help myself and bought some stock, even though I'm not quiet sure how to value this and don't like asset plays much, so surely I missed something. How are others thinking about valuation? Was the pun intended with the California real estate on fire? Because I chuckled. I think it was a freudian slip... I meant to link to an article, which says the market is on fire - a minor part seems to be that 2.000 houses have burned down... Here you go: https://managecasa.com/articles/california-housing-market-report/ Link to comment Share on other sites More sharing options...
RVP Posted October 1, 2020 Share Posted October 1, 2020 The way I valued this (which is super unprecise) was to sum up the cash, inventories and investments, and subtract the debt. Then I further subtracted 7-10 years of SG&A, assuming that that's how long they'll take to sell everything. Link to comment Share on other sites More sharing options...
kab60 Posted October 2, 2020 Share Posted October 2, 2020 That is much more detailed than what I've done. I just figured 40k housing lots in California sounds cheap here considering the housing market and don't even bother with their commercial RE. What kinda number do you come up with if you don't mind? I think it trades at like 0,3xNAV whatever that is worth. It is a pretty complicated story and more so than I usually like, just seems like a lot of optionality and probably not a lot of downside with their low debt levels and recent liquidity event selling an office to Broadcom. Link to comment Share on other sites More sharing options...
RVP Posted October 2, 2020 Share Posted October 2, 2020 Around $7 - $8 / share if they really take that long, and there's no capital appreciation in the meantime. I think the bull case is that the land is worth meaningfully more than recorded on book, so I could be way off. Link to comment Share on other sites More sharing options...
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