Five Point Holdings' Q3 2025: Contradictions Emerge on Hearthstone Revenue, Valencia Sales Timing, and Insurance Risks

Date of Call: October 29, 2025

Financials Results

• Gross Margin: Approximately 75% (Great Park Venture land sales: $613.6M revenue resulting in ~75% gross margin, per CFO)

Guidance:

• Expect to close out 2025 with net income close to 2024's $176.3M.
• Anticipate additional Great Park residential land sale(s) closing later in Q4 and one expected early 2026; Valencia commercial sale closed post-quarter.
• Hearthstone expected to scale AUM (from ~$2.6B to ~$3B today) with potential incremental capital of $300M (could grow to >$1B) and increasing fee-based income over time.
• Refinancing reduces interest cost, saving over $20M annually and improving cash flow.

Business Commentary:

* Profitability and Land Sales: - Five Point Holdings reported consolidated net income of $55.7 million for Q3, marking another profitable quarter. - The quarter's results were primarily driven by the Great Park Venture, which sold 326 homesites for an aggregate base purchase price of $257.7 million, resulting in net income of $201.6 million for the venture. - The company's profitability was supported by strong land sales activity and disciplined lot sales strategy in supply-constrained markets.

• Financial Strength and Refinancing:
• As of Q3, Five Point had total liquidity of $47.6 million, comprised of $351.1 million in cash and equivalents and $125 million in borrowing availability.
• The company successfully refinanced its senior notes, issuing $450 million in new 8% senior notes due 2030 and using the proceeds to fund the repurchase and redemption of its prior senior notes.

• The refinancing reduced the outstanding principal on the notes and maintained substantial liquidity, enhancing the company's financial flexibility and long-term growth prospects.

• Hearthstone Acquisition and Integration:

• Five Point acquired a 75% ownership interest in the new Hearthstone Residential Holdings land banking venture for $57.6 million.
• The acquisition expanded Five Point's capabilities to manage capital solutions for the homebuilding industry, positioning the company as an active manager of capital solutions through investment fund structures.

• The integration of Hearthstone is expected to significantly enhance Five Point's fee-based income and provide it with a national platform for capital solutions.

• Market Conditions and Strategic Outlook:

• Despite pressure from higher interest rates and affordability headwinds, builders remain interested in maintaining a pipeline of home sites, supporting Five Point's land sale activity.
• The company remains cautiously optimistic, expecting an improvement in buyer confidence if mortgage rates ease and affordability loosens.
• Five Point continues to maintain a disciplined approach to land sales and capital deployment, focusing on aligning land sales with homebuilder demand and matching development expenditures with revenue generation.

Sentiment Analysis:

Overall Tone: Positive

• Management: "We generated consolidated net income of $55.7 million" and "our third quarter results reflect strong execution, continued profitability, balance sheet strength." Moody's upgraded ratings to B2 and the company: "saving over $20 million a year in cash flow" from refinancing — all indicate a constructive tone.

Q&A:

• Question from Alan Ratner (Zelman & Associates LLC): How have discussions been on Hearthstone's existing option/land-bank deals since close (any builder walkaways or renegotiations), and is the ~$1M for two months of segment profitability representative near-term?
  Response: Management: Hearthstone's historical underwriting discipline means no material issues in the existing book; the ~$1M two‑month contribution is a near‑term baseline expected to grow with increasing velocity into late Q2/next year.

• Question from Alan Ratner (Zelman & Associates LLC): When should we expect the next residential lot sale in Valencia given it's been about a year since the last transaction?
  Response: Management: No residential lot closings expected in 2025; targeting 2026 — programs are ready but management is waiting for improved pricing/market demand and can enter quickly if conditions change.

• Question from David Langran (Private Investor): Based on outstanding shares, what is your book value per share?
  Response: CFO: Initial off‑hand estimate was $8–$10, but after reconciliation noted shareholders' equity divided by diluted shares implies about $15.5 per share as of September 30, 2025; management will follow up with details.

• Question from Alan Ratner (Zelman & Associates LLC): What drove the ~$40–45M increase in the nonredeemable equity line on the balance sheet this quarter?
  Response: CFO: Increase reflects temporary equity related to the Hearthstone transaction (put/call on remaining 25%); it will remain on the balance sheet until exercised or amortized over time.

• Question from Alan Ratner (Zelman & Associates LLC): Is the ~149M diluted share count the appropriate denominator for calculating book value per share if other classes convert?
  Response: CFO: Yes — the diluted count is the appropriate denominator; reiterated the ~$15.5 per share figure as of 9/30/25 when using diluted shares.

Contradiction Point 1

Hearthstone Deal Structure and Revenue Expectations

It involves the structure and expected revenue contributions of the recently acquired Hearthstone business, which impacts financial projections and investor expectations.

Following the acquisition of Hearthstone, how have discussions with builders regarding existing option and bank deals progressed, and how should we assess Hearthstone's near-term revenue and income streams? - Alan Ratner (Zelman & Associates LLC)

2025Q3: Hearthstone has rigorous underwriting discipline and strong structuring in its deals, ensuring no issues with the existing book of business. The company expects revenue and income to grow as assets under management increase. - Daniel Hedigan(CEO)

How should we model the economics of the Hearthstone deal in terms of a percentage of AUM minus personnel expenses? - Alan Ratner (Zelman & Associates)

2025Q2: Yes, you should look at that business as a percentage of assets under management less some type of personnel expense. - Kim Tobler(CFO)

Contradiction Point 2

Valencia Residential Lot Sales

It relates to the timing and strategy for residential lot sales in the Valencia development, which affects revenue projections and market positioning.

When will the next residential lot sale in Valencia occur? - Alan Ratner (Zelman & Associates LLC)

2025Q3: The next residential lot sale in Valencia is expected in 2026. While there are programs ready to go, the company is monitoring the market and aims to sell when there is demand to optimize pricing. - Daniel Hedigan(CEO)

Are you considering lower land prices in Great Park or Valencia later this year? - Alan Ratner (Zelman & Associates)

2025Q2: We are not worried about land prices. California is supply-constrained. We are working with our builder partners, but at this point, we are not worried about land prices. - Daniel Hedigan(CEO)

Contradiction Point 3

Homebuilder Demand and Market Conditions

It involves differing perspectives on the demand from homebuilders and the overall market conditions, which could impact revenue projections and strategic decision-making.

How are the new builder programs pacing, and are they on track or ahead of schedule? - Alan Ratner (Zelman & Associates LLC)

2025Q3: Homebuilder demand remains strong, and we've been able to attract several new builders at our Great Park, which will now have 18 programs in the quarter. - Kim Tobler(CFO)

Can you elaborate on the growth component of the operating strategy? - Michael Alvarado

2025Q1: As we look ahead to the remainder of 2025, we recognize that we are currently navigating a challenging economic environment with market uncertainty created by shifting tariff policies, higher mortgage rates and associated affordability issues. - Daniel Hedigan(CEO)

Contradiction Point 4

Insurance Availability and Impact on Housing Units

It involves the impact of recent fires in California on insurance availability and its consequences for housing units, which could have implications for construction and sales.

How might recent California wildfires affect the insurance market and pose challenges for the company going forward? - Alan Ratner(Zelman & Associates LLC)

2025Q3: Although insurance for larger buildings may be impacted, individual insurance policies should remain stable for individual housing units. - Daniel Hedigan(CEO)

How might California’s recent wildfires affect the insurance market and challenge the company? - Alan Ratner(Zelman & Associates)

2024Q4: Five Point's master planned communities have proven fire resistance, which should help maintain insurance availability. - Daniel Hedigan(CEO)