# Five Point Holdings, LLC: Form 10-Q for the period ended Mar 31, 2022

- Company: [Five Point Holdings, LLC](/companies/fph.md) (CIK 1574197)
- Form: 10-Q
- Filed: 2022-05-10
- Accepted by EDGAR: May 9, 2022, 19:19 ET
- Period: 2022-03-31
- Accession: 0001574197-22-000050
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1574197/000157419722000050/fph-20220331.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1574197/000157419722000050/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2022-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2022-01-01 to 2022-03-31 | $4.5m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Selling, general and administrative | 3 months, 2022-01-01 to 2022-03-31 | $16.8m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Income tax | 3 months, 2022-01-01 to 2022-03-31 | $5.0k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2022-01-01 to 2022-03-31 | −$17.1m | us-gaap:NetIncomeLoss |
| Operating cash flow | 3 months, 2022-01-01 to 2022-03-31 | −$58.0m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2022-01-01 to 2022-03-31 | $0 | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2022-03-31 | $203.6m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Total assets | at 2022-03-31 | $2.92bn | us-gaap:Assets |
| Total liabilities | at 2022-03-31 | $1.03bn | us-gaap:Liabilities |
| Shareholders' equity | at 2022-03-31 | $1.87bn | us-gaap:StockholdersEquityIncludingPortionAttributableToNoncontrollingInterest |

## Management's discussion and analysis

As filed, 42,680 characters.

### Forward-Looking Statements

*The following discussion contains management’s discussion and analysis of our financial condition and results of operations and should be read in conjunction with our unaudited condensed consolidated financial statements and related notes included under Part I, Item 1 of this report and our audited consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021. “Us,” “we,” and “our” refer to Five Point Holdings, LLC, together with its consolidated subsidiaries. This discussion contains forward-looking statements and involves numerous risks and uncertainties, including but not limited to those described in the “Risk Factors” section of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, as well as other risks and uncertainties detailed from time to time in our subsequent Quarterly Reports on Form 10-Q and other filings with the Securities and Exchange Commission. Actual results could differ materially from those set forth in any forward-looking statements. See “Cautionary Statement Regarding Forward-Looking Statements.”*

### Overview

We conduct all of our business in or through our operating company, Five Point Operating Company, LP (the “operating company”). We are, through a wholly owned subsidiary, the sole managing general partner and owned, as of March 31, 2022, approximately 62.5% of the operating company. The operating company directly or indirectly owns equity interests in:

- Five Point Land, LLC, which owns The Newhall Land & Farming Company, a California limited partnership, the entity that is developing Valencia, our community in northern Los Angeles County, California;
- The Shipyard Communities, LLC (the “San Francisco Venture”), which is developing Candlestick and The San Francisco Shipyard, our communities in the City of San Francisco, California;
- Heritage Fields LLC (the “Great Park Venture”), which is developing Great Park Neighborhoods, our community in Orange County, California;
- Five Point Office Venture Holdings I, LLC (the “Gateway Commercial Venture”), which owns portions of the Five Point Gateway Campus, a commercial office, research and development and medical campus located within the Great Park Neighborhoods; and
- Five Point Communities, LP and Five Point Communities Management, Inc. (together, the “management company”), which provide development and property management services for the Great Park Neighborhoods and the Five Point Gateway Campus.

The operating company consolidates and controls the management of all of these entities except for the Great Park Venture and the Gateway Commercial Venture. The operating company owns a 37.5% percentage interest in the Great Park Venture and a 75% interest in the Gateway Commercial Venture and accounts for its interest in both using the equity method.

### Operational Highlights

At Valencia, by March 31, 2022, our guest builders had opened 15 of our initial 18 neighborhoods for home sales and sold 211 homes during the first quarter, increasing total homes sold to 557 since sales began in May 2021.

At the Great Park Neighborhoods, in which we have a 37.5% percentage interest and manage all aspects of the development cycle, our guest builders are approaching sell-out of our currently selling, approximately 700 home, neighborhood, named “Rise.” At March 31, 2022, approximately 50 homes remained to be sold at Rise. Our next neighborhood, “Solis Park,” consisting of approximately 850 homes, is planned to open for home sales this summer. During the three months ended March 31, 2022, builders sold a total of 94 homes at the Great Park Neighborhoods.

The initial term of our development management agreement with the Great Park Venture expired on December 31, 2021 but has been extended by mutual agreement of the parties through May 16, 2022. We are currently in discussions with the other members of the Great Park Venture regarding renewal of the agreement. While we currently expect the development management agreement to be renewed, we can provide no assurance as to the terms or timing of any such renewal, or that such renewal will be completed at all.

In response to the COVID-19 pandemic, we took immediate steps to protect the health and well-being of our associates and to preserve the financial strength of the Company. Through two years of uncertainty and disruption on local, national and global economies, we were able to maintain steady staffing levels across all our California locations. During the first quarter of 2022, we reassessed our staffing needs, resulting in layoffs affecting all of our locations. As a result of these layoffs and additional voluntary resignations, headcount has been reduced by approximately 29% since the beginning of 2022. We expect to see significant cost savings in the balance of 2022 as a result of our reduced headcount. Beginning in mid-April, the substantial majority of our associates returned back to our offices on a hybrid schedule. When working remotely, our associates have access to necessary systems and resources to ensure business continuity.

### Results of Operations

The timing of our land sale revenues is influenced by several factors, including the sequencing of the planning and development process and market conditions at our communities. As a result, we have historically experienced, and expect to continue to experience, variability in results of operations between comparable periods.

The following table summarizes our consolidated historical results of operations for the three months ended March 31, 2022 and 2021.

*(in thousands)*

| Statement of Operations Data Revenues | Three Months Ended March 31, 2022 | 2021 |
| --- | ---: | ---: |
| Land sales | $557 | $22 |
| Land sales—related party | 1 | 19 |
| Management services—related party | 3,547 | 12,439 |
| Operating properties | 781 | 700 |
| Total revenues | 4,886 | 13,180 |
| Costs and expenses |  |  |
| Land sales | — | — |
| Management services | 2,684 | 10,777 |
| Operating properties | 1,839 | 1,585 |
| Selling, general, and administrative | 16,791 | 19,538 |
| Restructuring | 19,437 | — |
| Total costs and expenses | 40,751 | 31,900 |
| Other income |  |  |
| Interest income | 21 | 27 |
| Miscellaneous | 112 | 1,204 |
| Total other income | 133 | 1,231 |
| Equity in loss from unconsolidated entities | (1,032) | (3,556) |
| Loss before income tax (provision) benefit | (36,764) | (21,045) |
| Income tax (provision) benefit | (5) | — |
| Net loss | (36,769) | (21,045) |
| Less net loss attributable to noncontrolling interests | (19,639) | (11,266) |
| Net loss attributable to the company | $(17,130) | $(9,779) |

**Revenues.** Revenues decreased by $8.3 million, or 62.9%, to $4.9 million for the three months ended March 31, 2022, from $13.2 million for the three months ended March 31, 2021. The decrease in revenue during the three months ended March 31, 2022 was primarily due to a decrease in management services revenue at our Great Park segment.

**Cost of management services.** Cost of management services decreased by $8.1 million, or 75.1%, to $2.7 million for the three months ended March 31, 2022, from $10.8 million for the three months ended March 31, 2021. The decrease was primarily due to a decrease in intangible asset amortization expense at our Great Park segment.

**Selling, general, and administrative.** Selling, general, and administrative expenses decreased by $2.7 million, or 14.1%, to $16.8 million for the three months ended March 31, 2022, from $19.5 million for the three months ended March 31, 2021. The decrease was mainly attributable to a decrease in employee related expenses.

**Restructuring.** On February 9, 2022, Daniel Hedigan was appointed as our Chief Executive Officer. Preceding Mr. Hedigan’s appointment, Emile Haddad stepped down from his roles as Chairman, Chief Executive Officer and President effective as of September 30, 2021 and transitioned into a senior advisory role pursuant to a three-year advisory agreement. Mr. Haddad remains a member of the Board of Directors serving as Chairman Emeritus. Concurrent with Mr. Hedigan’s appointment, Lynn Jochim transitioned from her position as President and Chief Operating Officer into an advisory role pursuant to a three-year advisory agreement. Upon the appointment of Mr. Hedigan as our Chief Executive Officer, we accrued a related party liability of $15.6 million attributed to advisory agreement payments due to Mr. Haddad and Ms. Jochim. In addition, we determined the service condition associated with Mr. Haddad and Ms. Jochim’s unvested restricted share awards had been modified. As a result of this modification, we recognized approximately $3.0 million in additional restructuring costs during the three months ended March 31, 2022.

In addition to our executive management restructuring activities, we have had an approximately 29% reduction in headcount since the end of 2021. Most of the reductions were the result of company-wide layoffs that occurred at the end of the first quarter of 2022. During the three months ended March 31, 2022, we incurred $0.9 million in restructuring costs for estimated severance benefits from these layoffs.

**Equity in loss from unconsolidated entities.** Our consolidated results reflect our share in the earnings or losses of our interests in our unconsolidated entities, including the Great Park Venture and the Gateway Commercial Venture, within equity in earnings from unconsolidated entities on our condensed consolidated statement of operations. Our segment results for the Great Park segment and the Commercial segment present the results of the Great Park Venture and the Gateway Commercial Venture at the book basis of the ventures within the respective segments.

Equity in loss from unconsolidated entities decreased to $1.0 million for the three months ended March 31, 2022, from loss of $3.6 million for the three months ended March 31, 2021. The decrease was primarily due to a lower equity in loss from the Great Park Venture resulting from income generated from home sales by the Great Park Venture in 2022.

**Income taxes.** Other than a small tax provision incurred by one of our consolidated subsidiary corporations, pre-tax loss of $36.8 million for the three months ended March 31, 2022 resulted in no tax benefit (after application of an increase in the Company’s valuation allowance of $4.2 million). We assessed the realization of our net deferred tax asset and the need for a valuation allowance and determined that at March 31, 2022, it was more likely than not that the net deferred tax asset was not realizable and resulted in a net deferred tax liability after application of the valuation allowance. Pre-tax loss for the three months ended March 31, 2021 of $21.0 million resulted in no tax benefit (after application of an increase in the Company’s valuation allowance of $2.1 million). Our effective tax rate, before changes in valuation allowance, for the three months ended March 31, 2022 was substantially similar to our effective tax rate, before changes in valuation allowance, for the three months ended March 31, 2021.

**Net loss attributable to noncontrolling interests.** Until exchanged for our class A common shares or, at our election, cash, noncontrolling interests represent interests held by other partners in the operating company and members of the San Francisco Venture. Net loss attributable to the noncontrolling interests on the condensed consolidated statement of operations represents the portion of losses attributable to the interests in our subsidiaries held by the noncontrolling interests.

### Segment Results and Financial Information

Our four reportable operating segments include our three community segments, Valencia, San Francisco and Great Park, and our Commercial segment:

- Our Valencia segment includes operating results related to the Valencia community and agricultural operations in Los Angeles and Ventura Counties, California. Our investment in the Valencia Landbank Venture is also reported in the Valencia segment.
- Our San Francisco segment includes operating results for the Candlestick and The San Francisco Shipyard communities.
- Our Great Park segment includes operating results for the Great Park Neighborhoods community as well as development management services provided by the management company for the Great Park Venture.
- Our Commercial segment includes the operating results of the Gateway Commercial Venture’s ownership in the Five Point Gateway Campus as well as property management services provided by the management company for the Gateway Commercial Venture.

The following tables reconcile the results of operations of our segments to our consolidated results for the three months ended March 31, 2022 and 2021 (in thousands):

| REVENUES: | Three Months Ended March 31, 2022 Valencia | San Francisco | Great Park | Commercial | Total reportable segments | Corporate and unallocated | Total under management | Removal of unconsolidated entities(1) | Total consolidated |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Land sales | $557 | $— | $330 | $— | $887 | $— | $887 | $(330) | $557 |
| Land sales—related party | 1 | — | 1,489 | — | 1,490 | — | 1,490 | (1,489) | 1 |
| Home sales | — | — | 17,161 | — | 17,161 | — | 17,161 | (17,161) | — |
| Management services—related party(2) | — | — | 3,444 | 103 | 3,547 | — | 3,547 | — | 3,547 |
| Operating properties | 601 | 180 | — | 1,938 | 2,719 | — | 2,719 | (1,938) | 781 |
| Total revenues | 1,159 | 180 | 22,424 | 2,041 | 25,804 | — | 25,804 | (20,918) | 4,886 |
| COSTS AND EXPENSES: |  |  |  |  |  |  |  |  |  |
| Land sales | — | — | — | — | — | — | — | — | — |
| Home sales | — | — | 12,902 | — | 12,902 | — | 12,902 | (12,902) | — |
| Management services(2) | — | — | 2,684 | — | 2,684 | — | 2,684 | — | 2,684 |
| Operating properties | 1,839 | — | — | 440 | 2,279 | — | 2,279 | (440) | 1,839 |
| Selling, general, and administrative | 4,444 | 849 | 7,561 | 1,079 | 13,933 | 11,498 | 25,431 | (8,640) | 16,791 |
| Restructuring | — | — | — | — | — | 19,437 | 19,437 | — | 19,437 |
| Management fees—related party | — | — | 1,503 | — | 1,503 | — | 1,503 | (1,503) | — |
| Total costs and expenses | 6,283 | 849 | 24,650 | 1,519 | 33,301 | 30,935 | 64,236 | (23,485) | 40,751 |
| OTHER INCOME (EXPENSE): |  |  |  |  |  |  |  |  |  |
| Interest income | — | — | 155 | — | 155 | 21 | 176 | (155) | 21 |
| Interest expense | — | — | — | (307) | (307) | — | (307) | 307 | — |
| Miscellaneous | 112 | — | — | — | 112 | — | 112 | — | 112 |
| Total other income (expense) | 112 | — | 155 | (307) | (40) | 21 | (19) | 152 | 133 |
| EQUITY IN EARNINGS (LOSS) FROM UNCONSOLIDATED ENTITIES | 185 | — | — | — | 185 | — | 185 | (1,217) | (1,032) |
| SEGMENT (LOSS) PROFIT/LOSS BEFORE INCOME TAX PROVISION | (4,827) | (669) | (2,071) | 215 | (7,352) | (30,914) | (38,266) | 1,502 | (36,764) |
| INCOME TAX PROVISION | — | — | — | — | — | (5) | (5) | — | (5) |
| SEGMENT (LOSS) PROFIT/NET LOSS | $(4,827) | $(669) | $(2,071) | $215 | $(7,352) | $(30,919) | $(38,271) | $1,502 | $(36,769) |

(1) Represents the removal of the Great Park Venture and Gateway Commercial Venture operating results, which are included in the Great Park segment and Commercial segment operating results at 100% of each venture’s historical basis, respectively, but are not included in our consolidated results as we account for our investment in each venture using the equity method of accounting.

(2) For the Great Park and Commercial segments, represents the revenues and expenses attributable to the management company for providing services to the Great Park Venture and the Gateway Commercial Venture, as applicable.

| REVENUES: | Three Months Ended March 31, 2021 Valencia | San Francisco | Great Park | Commercial | Total reportable segments | Corporate and unallocated | Total under management | Removal of unconsolidated entities(1) | Total consolidated |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Land sales | $22 | $— | $741 | $— | $763 | $— | $763 | $(741) | $22 |
| Land sales—related party | 19 | — | 219 | — | 238 | — | 238 | (219) | 19 |
| Management services—related party(2) | — | — | 12,340 | 99 | 12,439 | — | 12,439 | — | 12,439 |
| Operating properties | 551 | 149 | — | 2,101 | 2,801 | — | 2,801 | (2,101) | 700 |
| Total revenues | 592 | 149 | 13,300 | 2,200 | 16,241 | — | 16,241 | (3,061) | 13,180 |
| COSTS AND EXPENSES: |  |  |  |  |  |  |  |  |  |
| Land sales | — | — | — | — | — | — | — | — | — |
| Management services(2) | — | — | 10,777 | — | 10,777 | — | 10,777 | — | 10,777 |
| Operating properties | 1,585 | — | — | 159 | 1,744 | — | 1,744 | (159) | 1,585 |
| Selling, general, and administrative | 4,040 | 1,125 | 7,568 | 1,159 | 13,892 | 14,373 | 28,265 | (8,727) | 19,538 |
| Management fees—related party | — | — | 6,118 | — | 6,118 | — | 6,118 | (6,118) | — |
| Total costs and expenses | 5,625 | 1,125 | 24,463 | 1,318 | 32,531 | 14,373 | 46,904 | (15,004) | 31,900 |
| OTHER INCOME (EXPENSE): |  |  |  |  |  |  |  |  |  |
| Interest income | — | — | 242 | — | 242 | 27 | 269 | (242) | 27 |
| Interest expense | — | — | — | (303) | (303) | — | (303) | 303 | — |
| Miscellaneous | 134 | 1,070 | — | — | 1,204 | — | 1,204 | — | 1,204 |
| Total other income (expense) | 134 | 1,070 | 242 | (303) | 1,143 | 27 | 1,170 | 61 | 1,231 |
| EQUITY IN LOSS FROM UNCONSOLIDATED ENTITIES | — | — | — | — | — | — | — | (3,556) | (3,556) |
| SEGMENT (LOSS) PROFIT/LOSS BEFORE INCOME TAX BENEFIT | (4,899) | 94 | (10,921) | 579 | (15,147) | (14,346) | (29,493) | 8,448 | (21,045) |
| INCOME TAX BENEFIT | — | — | — | — | — | — | — | — | — |
| SEGMENT (LOSS) PROFIT/NET LOSS | $(4,899) | $94 | $(10,921) | $579 | $(15,147) | $(14,346) | $(29,493) | $8,448 | $(21,045) |

(1) Represents the removal of the Great Park Venture and Gateway Commercial Venture operating results, which are included in the Great Park segment and Commercial segment operating results at 100% of each venture’s historical basis, respectively, but are not included in our consolidated results as we account for our investment in each venture using the equity method of accounting.

(2) For the Great Park and Commercial segments, represents the revenues and expenses attributable to the management company for providing services to the Great Park Venture and the Gateway Commercial Venture, as applicable.

### Valencia Segment

Our Valencia property consists of approximately 15,000 acres in northern Los Angeles County and is designed to include approximately 21,500 homesites and approximately 11.5 million square feet of commercial space. Valencia is the continuation of our community where already today approximately 20,000 households reside and approximately 60,000 people work. We began selling homesites in the first development area at Valencia in 2019.

**Selling, general, and administrative.** Selling, general, and administrative expenses increased by $0.4 million, or 10.0%, to $4.4 million for the three months ended March 31, 2022, from $4.0 million for the three months ended March 31, 2021. The increase was mainly attributable to an increase in community related selling and marketing expenses in support of the first development area in Valencia.

### San Francisco Segment

Located almost equidistant between downtown San Francisco and the San Francisco International Airport, Candlestick and The San Francisco Shipyard consist of approximately 800 acres of bayfront property in the City of San Francisco. Candlestick and The San Francisco Shipyard are designed to include approximately 12,000 homesites and approximately 6.3 million square feet of commercial space.

In October 2019, we received approval from the City of San Francisco on a revised development plan for the first phase of Candlestick that is currently planned to include approximately 750,000 square feet of office space, 1,600 homes, and 300,000 square feet of lifestyle amenities centered around retail and entertainment. As currently planned, Candlestick ultimately is expected to include approximately 7,000 homes.

Our development at Candlestick and The San Francisco Shipyard is not subject to San Francisco’s Proposition M growth control measure, which imposes annual limitations on office development and is applicable to all other developers with projects in the city. This means the full amount of permitted commercial square footage at Candlestick and The San Francisco Shipyard can be constructed as we determine, including all at once, even though Proposition M may delay new office developments elsewhere in San Francisco. In 2018, our disposition and development agreement with the City of San Francisco was amended to increase the total amount of commercial use at Candlestick and The San Francisco Shipyard by over two million square feet and to increase our total commercial space to approximately 6.3 million square feet.

At The San Francisco Shipyard, approximately 408 acres are still owned by the U.S. Navy and will not be conveyed to us until the U.S. Navy satisfactorily completes its finding of suitability to transfer, or “FOST,” process, which involves multiple levels of environmental and governmental investigation, analysis, review, comment and approval. Based on our discussions with the U.S. Navy, we had previously expected the U.S. Navy to deliver this property between 2019 and 2022. However, allegations that Tetra Tech, Inc. and Tetra Tech EC, Inc. (collectively, “Tetra Tech”), contractors hired by the U.S. Navy, misrepresented sampling results at The San Francisco Shipyard have resulted in data reevaluation, governmental investigations, criminal proceedings, lawsuits, and a determination by the U.S. Navy and other regulatory agencies to undertake additional sampling. As part of the 2018 Congressional spending bill, the U.S. Department of Defense allocated $36.0 million to help fund resampling efforts at The San Francisco Shipyard. An additional $60.4 million to fund resampling efforts was approved as part of a 2019 military construction spending bill. These activities have delayed the remaining land transfers from the U.S. Navy and could lead to additional legal claims or government investigations, all of which could in turn further delay or impede our future development of such parcels. Our development plans were designed with the flexibility to adjust for potential land transfer delays, and we have the ability to shift the phasing of our development activities to account for potential delays caused by U.S. Navy retesting, but there can be no assurance that these matters and other related matters that may arise in the future will not materially impact our development plans.

We have been, and may in the future be, named as a defendant in lawsuits seeking damages and other relief arising out of alleged contamination at The San Francisco Shipyard and Tetra Tech’s alleged misrepresentations of related sampling work. See Note 11 to our condensed consolidated financial statements included under Part I, Item 1 of this report.

**Selling, general, and administrative.** Selling, general, and administrative expenses decreased by $0.3 million, or 24.5%, to $0.8 million for the three months ended March 31, 2022, from $1.1 million for the three months ended March 31, 2021. The decrease was mainly attributable to a decrease in legal and employee related expenses.

### Great Park Segment

We have a 37.5% percentage interest in the Great Park Venture, and we account for our investment using the equity method of accounting. We have a controlling interest in the management company, an entity which performs development management services at Great Park Neighborhoods. We do not include the Great Park Venture as a consolidated subsidiary in our condensed consolidated financial statements. However, because of the relationship between the management company and the Great Park Venture, we assess our investment in the Great Park Venture based on the financial information for the Great Park Venture in its entirety, and not just our equity interest in it. As a result, our Great Park segment consists of the operations of both the Great Park Venture and the development management services provided by the management company at the Great Park Venture.

Great Park Neighborhoods consists of approximately 2,100 acres in Orange County and is being built around the approximately 1,300 acre Orange County Great Park, a metropolitan public park that is under construction. Great Park Neighborhoods is designed to include approximately 10,500 homesites and approximately 4.9 million square feet of commercial space.

Interests in the Great Park Venture are either “percentage interests” or “legacy interests.” Holders of the legacy interests were entitled to receive priority distributions in an aggregate amount equal to $476.0 million and up to an additional $89.0 million from participation in subsequent distributions. The holders of percentage interests are entitled to all other distributions. As of March 31, 2022, the Great Park Venture had fully satisfied the $476.0 million priority distribution rights, and the remaining maximum participating legacy interest distribution rights were $82.7 million. The remaining $82.7 million legacy interest will be paid on a pro-rata basis, with approximately 10% of future distributions paid to the holders of legacy interests and approximately 90% of such distributions paid to the holders of the percentage interests, until such time as the remaining balance has been fully paid.

**Home Sale Revenues.** The Great Park Venture has a fee build agreement with an unrelated third party (“Fee Builder”) that the Great Park Venture contracted to build and act as a sales agent for 38 homesites within the Great Park Neighborhoods. The Fee Builder initially incurs all costs to build, market and sell the residential homes, and the Great Park Venture reimburses the Fee Builder as construction progresses and pays the Fee Builder certain fees during the construction phase of the homes and when homes are sold to homebuyers. During the three months ended March 31, 2022, the Great Park Venture closed the sales of nine homes to homebuyers generating $17.2 million in home sale revenues.

**Cost of Home Sales.** Cost of home sales includes an allocation of land basis for each home sold in addition to home construction costs the Great Park Venture reimburses to the Fee Builder and fees paid to the Fee Builder for the services provided. During the three months ended March 31, 2022, the Great Park Venture recognized $12.9 million in cost of home sales.

**Management fee revenues.** Management fee revenues are revenues generated by the management company from development management services provided to the Great Park Venture. The decrease in management services related party revenue was mainly attributable to no variable incentive compensation revenue recognized during the three months ended March 31, 2022.

**Management services costs and expenses.** Included within management services costs and expenses are general and administrative costs and expenses incurred directly by the management company’s project team that is managing the development of the Great Park Neighborhoods. We also include amortization expense related to the intangible asset attributable to the incentive compensation provisions of the development management agreement with the Great Park Venture within management services costs and expenses. Corporate and non-project team salaries and overhead are not allocated to management services costs and expenses or to our reportable segments and are reported in selling, general, and administrative costs in the condensed consolidated statements of operations. Management services costs and expenses decreased by $8.1 million, or 75.1%, to $2.7 million for the three months ended March 31, 2022, from $10.8 million for the three months ended March 31, 2021. The decrease was mainly attributable to no intangible asset amortization expense recognized during the three months ended March 31, 2022.

**Management fees—related party.** Management fees decreased by $4.6 million, or 75.4%, to $1.5 million for the three months ended March 31, 2022, from $6.1 million for the three months ended March 31, 2021. Management fees incurred by the Great Park Venture are comprised of base development management fees and incentive compensation fees. In general, incentive compensation fees will be paid based on a percentage of distributions made to holders of the Great Park Venture’s percentage interests. When payments are deemed probable of being made, the Great Park Venture recognizes the expense ratably over the period services are expected to be provided. When estimates of the amount of incentive compensation probable of being paid change, the Great Park Venture records a cumulative adjustment in the period in which the estimate changes. The decrease in management fees—related party was mainly attributable to no incentive compensation fees recognized during the three months ended March 31, 2022.

The table below reconciles the Great Park segment results to the equity in loss from our investment in the Great Park Venture that is reflected in the condensed consolidated statements of operations for the three months ended March 31, 2022 and 2021.

*(in thousands)*

|  | Three Months Ended March 31, 2022 | 2021 |
| --- | ---: | ---: |
| Segment net loss from operations | $(2,071) | $(10,921) |
| Less net income of management company attributed to the Great Park segment | 760 | 1,563 |
| Net loss of the Great Park Venture | (2,831) | (12,484) |
| The Company’s share of net loss of the Great Park Venture | (1,062) | (4,682) |
| Basis difference (amortization) accretion | (239) | 766 |
| Equity in loss from the Great Park Venture | $(1,301) | $(3,916) |

28

### Commercial Segment

We have a 75% interest in the Gateway Commercial Venture that is held through a wholly owned subsidiary of the operating company, and we serve as the manager of the Gateway Commercial Venture. However, the manager’s authority is limited. Major decisions by the Gateway Commercial Venture generally require unanimous approval by an executive committee composed of two people designated by us and two people designated by another investor. Some decisions require approval by all of the members of the Gateway Commercial Venture. We do not include the Gateway Commercial Venture as a consolidated subsidiary in our condensed consolidated financial statements. However, as a result of our 75% economic interest and our role as manager, we assess our investment in the Gateway Commercial Venture based on the financial information of the Gateway Commercial Venture in its entirety, and we include the Gateway Commercial Venture’s financial results within the Commercial segment. Additionally, the management company has been engaged by the Gateway Commercial Venture to provide property management services to the Five Point Gateway Campus. We include the management company’s results of operations related to these property management services within the Commercial segment.

The Five Point Gateway Campus is a commercial campus consisting of approximately 73 acres of land in the Great Park Neighborhoods acquired by the Gateway Commercial Venture in 2017. The Five Point Gateway Campus currently includes approximately one million square feet planned for research and development, medical and office space in four buildings. In 2020, the Gateway Commercial Venture sold three of the buildings and approximately 11 acres of land at the campus, generating $463.0 million in gross proceeds. Our corporate headquarters are located in the fourth building, which remains owned by the Gateway Commercial Venture. In addition to the fourth building, the Gateway Commercial Venture owns approximately 50 acres of commercial land with additional development rights at the campus.

The table below reconciles the Commercial segment results to the equity in earnings from our investment in the Gateway Commercial Venture that is reflected in the condensed consolidated statements of operations for the three months ended March 31, 2022 and 2021.

*(in thousands)*

|  | Three Months Ended March 31, 2022 | 2021 |
| --- | ---: | ---: |
| Segment net income from operations | $215 | $579 |
| Less net income of management company attributed to the Commercial segment | 103 | 99 |
| Net income of the Gateway Commercial Venture | 112 | 480 |
| Equity in earnings from the Gateway Commercial Venture | $84 | $360 |

### Liquidity and Capital Resources

As of March 31, 2022, we had $203.6 million of consolidated cash and cash equivalents compared to $265.5 million at December 31, 2021. As of March 31, 2022, no funds had been drawn on the operating company’s $125.0 million unsecured revolving credit facility. However, letters of credit of $0.3 million are issued and outstanding under the revolving credit facility, thus reducing the available capacity to $124.7 million.

Our short-term cash needs consist primarily of general and administrative expenses and development expenditures at Valencia and the Candlestick and The San Francisco Shipyard communities, interest payments under our senior notes and payments under a related party reimbursement obligation. Reimbursement payments may be deferred when our related party receives an extension on the maturity date of the associated EB-5 loan liability. Our related party has a history of receiving maturity date extensions, however, such further extensions are not within our control and there can be no assurance that any such extensions will be obtained in the future.

The development stages of our communities continue to require significant cash outlays on both a short-term and long-term basis, and we expect to invest significant amounts on continued horizontal development at Valencia over the next 12 months. We manage our development activities and expenditures to coincide with projected demand for homesites by our guest builders with the objective of maintaining an appropriate level of liquidity. We expect to meet our cash requirements for at least the next 12 months with available cash, in addition to proceeds from land sales in Valencia, distributions from our unconsolidated entities and collection of management fees under our management agreement with the Great Park Venture. The initial term of our development management agreement has been extended by mutual agreement of the parties through May 16, 2022. While we currently expect the development management agreement to be renewed, if we are unable to reach agreement on a renewal, or if the terms of any such renewal are less favorable to the company, our short-term cash flows may be negatively impacted. We still expect, however, to be able to meet both short-term and long-term cash obligations with our other sources of cash.

Our long-term cash needs relate primarily to future horizontal development expenditures and investments in or vertical construction costs for properties that we may acquire or develop for our income-producing portfolio, along with debt service and general and administrative expenses. We budget our cash development costs on an annual basis. Budgeted amounts are subject to change due to delays or accelerations in construction or regulatory approvals, changes in inflation rates and other increases (or decreases) in costs. We may also modify our development plans or change the sequencing of our communities in response to changing economic conditions, consumer preferences and other factors, which could have a material impact on the timing and amount of our development costs. Budgeted amounts are expected to be funded through a combination of available cash, cash flows from our communities and reimbursements from public financing, including community facilities districts, tax increment financing and local, state and federal grants. Cash flows from our communities may occur in uneven patterns as cash is primarily generated by land sales and reimbursements, which can occur at various points over the life cycle of our communities.

We currently expect to have sufficient capital to fund the horizontal development of our communities in accordance with our development plan for several years. The level of capital expenditures in any given year may vary due to, among other things, the number of communities or neighborhoods under development and the number of planned deliveries, which may vary based on market conditions. We may seek to raise additional capital by accessing the debt or equity capital markets or with one or more revolving or term loan facilities or other public or private financing alternatives. These financings may not be available on attractive terms, or at all.

We are committed under various performance bonds and letters of credit (“LOCs”) to perform certain development activities and provide certain guarantees in the normal course of the entitlement and development process.

We had outstanding performance bonds of $288.0 million as of March 31, 2022 predominantly related to our Valencia community.

At March 31, 2022, the San Francisco Venture had outstanding guarantees benefiting a municipal agency for infrastructure and construction of certain park and open space obligations with aggregate maximum obligations of $198.3 million.

Outstanding LOCs totaled $1.3 million at both March 31, 2022 and December 31, 2021. At both March 31, 2022 and December 31, 2021, we had $1.0 million in restricted cash and certificates of deposit securing certain of our LOCs. Additionally, under our revolving credit facility, we are able to utilize undrawn capacity to support the issuance of LOCs. As of March 31, 2022, we were using approximately $0.3 million in capacity under the revolving credit facility to support LOCs.

### Summary of Cash Flows

The following table outlines the primary components of net cash (used in) provided by operating, investing and financing activities (in thousands):

|  | Three Months Ended March 31, 2022 | 2021 |
| --- | ---: | ---: |
| Operating activities | $(57,969) | $(52,496) |
| Investing activities | 484 | (48) |
| Financing activities | (4,330) | (15,930) |

**Cash Flows from Operating Activities.** Net cash used in operating activities increased by $5.5 million for the three months ended March 31, 2022 compared to the three months ended March 31, 2021. Major components of operating cash used in both periods consist of our continued investment in horizontal development at our communities and selling, general, and administrative costs.

**Cash Flows from Investing Activities.** Net cash from investing activities increased by $0.5 million for the three months ended March 31, 2022 compared to net cash used in investing activities for the three months ended March 31, 2021.

For the three months ended March 31, 2022, we received a distribution of $0.5 million from the Valencia Landbank Venture, which is reflected as a return of our investment in the statement of cash flows.

**Cash Flows from Financing Activities.** Net cash used in financing activities was $4.3 million for the three months ended March 31, 2022 compared to $15.9 million net cash used in financing activities for the three months ended March 31, 2021.

We used $2.7 million and $2.0 million during the three months ended March 31, 2022 and 2021, respectively, to net settle share-based compensation awards with employees for tax withholding purposes. For the three months ended March 31, 2022 and 2021, in accordance with the operating company's Limited Partnership Agreement, we made noncontrolling interest tax distributions of $0.4 million and $2.9 million (net of amounts distributable to us as a partner of the operating company), respectively. We also made payments of $1.2 million and $11.0 million to reduce our related party reimbursement obligation during the three months ended March 31, 2022 and 2021, respectively.

### Changes in Capital Structure

During the three months ended March 31, 2022, our ownership percentage in the operating company decreased to 62.5%, primarily due to our reacquisition of approximately 0.4 million restricted Class A common shares from employees for income tax withholding purposes upon vesting and the forfeiture of approximately 0.8 million restricted Class A common shares held by employees that did not vest. Offsetting was our issuance of shared-based compensation in the form of 0.2 million restricted Class A common shares. The issuances, settlements and forfeitures resulted in the operating company issuing to us an equal number of Class A units of the operating company or retiring an equal number of Class A units of the operating company that we previously held.

The table below summarizes outstanding Class A units of the operating company and Class A units of the San Francisco Venture (redeemable on a one-for-one basis for Class A units of the operating company) held by us and held by noncontrolling interest members at March 31, 2022 and December 31, 2021.

| Class A units of the operating company: | March 31, 2022 | December 31, 2021 |
| --- | ---: | ---: |
| Held by us | 69,068,354 | 70,107,552 |
| Held by noncontrolling interest members | 41,363,271 | 41,363,271 |
|  | 110,431,625 | 111,470,823 |
| Class A units of the San Francisco Venture held by noncontrolling interest members | 37,870,273 | 37,870,273 |
|  | 148,301,898 | 149,341,096 |

At March 31, 2022, we had 79,233,544 Class B common shares outstanding that were held by the noncontrolling interest members of the operating company and the Class A unitholders of the San Francisco Venture. The Class B common shares will automatically convert to Class A common shares at a ratio of 0.0003 Class A common shares for each Class B common share. The conversions will occur when the holders of Class A units of the operating company, including Class A units that have been issued upon redemption of Class A units of the San Francisco Venture, are redeemed at our election for our Class A common shares or cash.

### Critical Accounting Estimates

There have been no significant changes to our critical accounting estimates during the three months ended March 31, 2022 as compared to those disclosed in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” which is presented in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.

## Market risk

As filed, 1,146 characters.

Market risk is the risk of loss from adverse changes in market prices and interest rates. Our future earnings, cash flows and fair values relative to financial instruments are dependent upon prevailing market interest rates. Our primary market risk results from our indebtedness, which bears interest at fixed rates. Although we do not currently do so, we may in the future manage our market risk on floating rate debt by entering into swap arrangements to in effect fix the rate on all or a portion of the debt for varying periods up to maturity. This would, in turn, reduce the risks of variability of cash flows created by floating rate debt and mitigate the risk of increases in interest rates. Our objective when undertaking such arrangements would be to reduce our floating rate exposure, as we do not plan to enter into hedging arrangements for speculative purposes.

As of March 31, 2022, we had outstanding consolidated net indebtedness of $619.5 million, none of which bears interest based on floating interest rates.

We have not entered into any transactions using derivative financial instruments or derivative commodity instruments.

## Controls and procedures

As filed, 1,434 characters.

### Evaluation of Disclosure Controls and Procedures

Our management, with the supervision and participation of our Chief Executive Officer and our Interim Chief Financial Officer (the “Certifying Officers”), has evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of March 31, 2022. Our disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms and that such information is accumulated and communicated to management, including our Certifying Officers and our Board of Directors, as appropriate to allow timely decisions regarding required disclosure. Based upon that evaluation, the Certifying Officers concluded that our disclosure controls and procedures were effective as of March 31, 2022.

### Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting identified in management’s evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the period covered by this report on Form 10-Q that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 760 characters.

In addition to the other information set forth in this report, you should carefully consider the factors discussed in “Part I, Item 1A, Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021, which could materially affect our business, financial condition and results of operations. There have been no material changes in our risk factors from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021. The risks described in our Annual Report on Form 10-K are not the only risks facing our company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially adversely affect our business, financial condition and results of operations.

Filed May 10, 2022.
Source: SEC EDGAR, the filing index for accession 0001574197-22-000050. Last ingested by Listed: Nov 9, 2026, 23:40 ET. No prices; not investment advice.