Why Third Avenue Management Loves Five Point Holdings LLC (NYSE:FPH)

Five Point Holdings LLC (NYSE:FPH) is an $801.38-million market cap company that develops mixed-use, planned communities in coastal California. In its Q4 Small Cap Investor Letter, Third Avenue Management disclosed that it added FPH to its portfolio during the fourth quarter, calling it “a compelling opportunity.” Here is the Third Avenue’s commentary about the company:

Residential real estate is an area where the fundamentals remain compelling. New U.S. home starts continue to lag demand and inventories are depressed in many areas; California in particular. Five Point went public in May 2017 and we were able to purchase shares at a discount to the IPO price as investors initially struggled with the complexities of the business structure.

Five Point is a well-capitalized owner and developer of mixed-use planned communities in coastal California. Our Real Estate team suggested we review it as it’s an investment in their fund. The Real Estate team is intimately familiar with their assets through their investments in both Newhall Land Development LLC and Lennar Corp. Given the value of the assets and the strong financial position, we think it is a compelling opportunity. Our timing was fortuitous as projects are beginning to generate cash flow.

We were also greeted with good news in November as Five Point reached a settlement on various legal challenges to the development of the Newhall Ranch properties which is a high barrier-to-entry market. We believe Five Point is a perfect addition to our long-term compounder bucket.

Great Park Neighborhoods/Credit: Greatparkneighborhoods.com

Aliso Viejo, California-based Five Point Holdings LLC (NYSE:FPH) is developing communities in Orange County, Los Angeles County, and San Francisco County. The communities are Great Park Neighborhoods in Irvine, Newhall Ranch near Valencia in Los Angeles County, and The San Francisco Shipyard/Candlestick Point in the City of San Francisco. These communities are planned to include about 40,000 residential homes and about 21 million square feet of commercial space.

Five Point went public in May last year, offering 21 million shares at $14 per share. Since then, the stock has dropped 14.83%. On Friday, the stock closed down 0.39% at $12.81 per share.

For the three months ended September 30, 2017, Five Point had revenues of $11.6 million, up 4.5% from $11.1 million for the same period of 2016. Whereas, the company booked a loss of $10.3 million, versus a loss of $19.1 million in 2016.

Meanwhile, there were 13 hedge funds in Insider Monkey’s database with positions in Five Point Holdings LLC (NYSE:FPH) as of the end of September.

Disclosure: none