What changed in this filing

/stocks — the workspaceLOADING

Item 1A. Risk Factors

2021-03-10 compared with 2020-03-13 · 147 added, 299 removed, 250 unchanged (64% of the section changed)

You should carefully consider the following material risks, as well as the other information contained in this Annual Report on Form 10-K, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and the related notes.

If any of the following risks actually occur, our business, financial condition, results of operations or prospects could be materially and

adversely affected.

If any of the following risks actually occur, our business, financial condition, results of operations or prospects could be materially and adversely affected.

In such an event, the trading price of our Class A common shares could decline and you could lose part or all of your investment.

Risks Related to Real Estate

Our performance is subject to risks associated with the real estate industry.

Our economic performance is subject to various risks and fluctuations in value and demand, many of which are beyond our control.

Certain factors that affect real estate generally and our properties specifically may adversely affect our revenue from land sales or leasing of retail or other commercial space.

The following factors, among others, may adversely affect the real estate industry, including our properties, and could therefore adversely impact our financial condition and results of operations:

downturns in economic conditions or demographic changes at the national, regional or local levels, particularly in the areas where our properties are located;

significant job losses and unemployment levels, which may decrease demand for our properties;

competition from other residential communities, retail properties, office properties or other commercial space;

inflation or increases in interest rates;

limitations on the availability, or increases in the cost, of financing for homebuilders, commercial builders or commercial buyers or mortgage financing for homebuyers;

limitations, reductions or eliminations of tax benefits for homeowners;

reductions in the level of demand for homes or retail or other commercial space in the areas where our properties are located;

issues affecting availability of construction materials or other supplies for homebuilders;

fluctuations in energy costs;

decreases in the underlying value of properties in the areas where our properties are located;

increases in the supply of homes or retail or other commercial space in the areas where our properties are located;

declines in consumer confidence and spending;

potential impact of the coronavirus, including on economic conditions, consumer home demand and homebuilder supply chains;

public perception that any of the above events may occur.

Risks Related to Our Business and Industry

Our business has been disrupted by the present outbreak and worldwide spread of COVID-19 and could be materially and adversely affected by COVID-19 or by a similar epidemic or pandemic, or similar public threat, or fear of such an event, and the measures that international, federal, state and local governments, agencies, law enforcement and/or health authorities implement to address it.

and other countries have experienced, and may experience in the future, outbreaks of contagious diseases that affect public health and public perception of health risk.

The current COVID-19 pandemic has resulted in federal, state and local governments and private entities mandating various restrictions, requiring closure of non-essential businesses and recommending people remain at home in all of the markets we serve.

In response to these steps, we temporarily limited development activities at our communities, shifted substantially all of our office functions to work remotely, placed restrictions on business travel for our employees, and imposed mandatory quarantine periods for employees who may have been exposed to COVID-19.

Our results of operations are affected by economic conditions, including macroeconomic conditions and levels of business confidence and consumer confidence.

There is significant uncertainty regarding the extent to which and how long COVID-19 and related government directives, actions and economic relief efforts will disrupt the U.S.

Our business could be negatively impacted over the medium-to-longer term if the disruptions related to COVID-19 continue.

Potential impacts could include asset impairments similar to the impairment of $26.9 million attributed to our investment in the Great Park Venture primarily as a result of expected delays in both the timing of land sales to builders and distributions to us causing a decline in the fair value of our investment in the Great Park Venture (see Part II, Item 7 of this report).

If COVID-19 has a significant negative impact on economic conditions over a prolonged period of time, our results of operations and financial condition could be adversely impacted.

COVID-19 also may have the effect of heightening many of the other risks described in the Risk Factors listed below.

There are significant risks associated with our development and construction projects that may prevent completion on budget and on schedule.

At our projects, we are engaged in extensive construction activity to develop each community’s infrastructure, including grading and installing roads, sidewalks, gutters, utility improvements (such as storm drains, water, gas, sewer, power and communications), landscaping and shared amenities (such as community buildings, neighborhood parks, trails and open spaces) and other actions necessary to prepare each residential and commercial lot for construction.

At our projects, we are engaged in extensive construction activity to develop each community’s infrastructure, including grading and installing roads, sidewalks, gutters, utility improvements, landscaping and shared amenities and other actions necessary to prepare each residential and commercial lot for construction.

In addition, although we primarily rely on homebuilders to purchase homesites at our communities and construct homes, we may in the future construct a portion of the homes ourselves.

For commercial or multi-family properties that we retain or acquire in the future, we may also construct the buildings ourselves.

Our development and construction activities entail risks that could adversely impact our financial condition and results of operations, including:

construction costs, which may exceed our original estimates due to increases in materials, labor or other costs, which could make the project less profitable;

permitting or construction delays, which may result in increased debt service expense and increased project costs, as well as deferred revenue;

unavailability of raw materials when needed, which may result in project delays, stoppages or interruptions, which could make the project less profitable;

federal, state and local grants to complete certain highways, interchange, bridge projects or other public improvements may not be available, which could increase costs and make the project less profitable;

claims for warranty, product liability and construction defects after a property has been built;

claims for injuries that occur in the course of construction activities;

poor performance or nonperformance by, or disputes with, any of our contractors, subcontractors or other third parties on whom we rely;

health and safety incidents and site accidents;

unforeseen engineering, environmental or geological problems, which may result in delays or increased costs;

labor stoppages, slowdowns or interruptions;

compliance with environmental planning and protection regulations and related legal proceedings;

Our development and construction activities entail risks that could make our projects less profitable and otherwise adversely impact our financial condition and results of operations, including:

• increased construction costs, unavailability of raw materials when needed, and permitting or construction delays;

• claims for construction-related injuries, as well as claims for warranty, product liability and construction defects;

• labor stoppages or slowdowns and/or disputes with contractors, subcontractors or other third parties on whom we rely;

• federal, state and local grants to complete certain highways, interchange, bridge projects or other public improvements may not be available;

• unforeseen engineering, environmental or geological problems, including the potential impacts of climate change;

• compliance with environmental planning and protection regulations and related legal proceedings, including governmental regulations intended to reduce greenhouse gas emissions or ameliorate projected climate change impacts;

• liabilities, expenses or project delays, stoppages or interruptions as a result of challenges by third parties in legal proceedings;

delay or inability to acquire property, rights of way or easements, which may result in delays or increased costs;

weather-related and geological interference, including landslides, earthquakes, floods, drought, wildfires and other events, which may result in delays or increased costs.

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.

Allegations that Tetra Tech, a contractor 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.

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.

At Valencia, we are party to royalty-based lease agreements with oil and gas operators.

Pursuant to the terms of these leases, the oil and gas operators are required to remediate certain environmental impacts caused by their operations following expiration of such leases.

In the event that they take longer than expected to complete such remediation or default in their obligation, such that we are required to complete such remediation, we may be forced to delay development areas of Valencia until such remediation is complete or incur additional costs that are currently obligations of the oil and gas operators.

• delay or inability to acquire property, rights of way or easements;

• weather-related and geological interference, including landslides, earthquakes, floods, drought, wildfires and other events, including rising sea-levels due to climate change.

We cannot assure you that projects will be completed on schedule or that construction costs will not exceed budgeted amounts.

Failure to complete development or construction activities on budget or on schedule may adversely affect our financial condition and results of operations.

We will have to make significant investments at our properties before we realize significant revenues.

We currently plan to spend material amounts on horizontal development at our communities.

We may experience cost increases, our plans may change, new regulations and regulatory plan modifications or court rulings may affect our ability to develop or the cost to develop the project or circumstances may arise that result in our needing additional capital to execute our development plan.

We are also required to provide performance bonds and letters of credit in the ordinary course of business to governmental authorities and others to ensure the completion of our projects or in support of obligations to build community improvements.

If we are not successful in obtaining additional financing to enable us to complete our projects or are unable to obtain performance bonds or letters of credit when required, we may experience further delays or increased costs, and our financial condition and results of our operations may be adversely affected.

Our communities are all located in California, which makes us susceptible to risks in that state.

Our communities are all located in California.

We have no current plans to acquire any additional properties or operations outside of California and we expect, at least for a number of years, to be dependent upon our existing projects for all of our cash flow.

As a result, we are susceptible to greater risks than if we owned a larger or more geographically diverse portfolio.

California also continues to suffer from severe budgetary constraints, which may result in the layoff or furlough of government employees, and California is regarded as more litigious and more highly regulated and taxed than many other states.

Any adverse change in the economic, political, competitive or regulatory climate in California, or the counties and cities where our properties are located, could adversely affect our real estate development activities and have a negative impact on our financial condition and results of operations.

In addition, historically, California has been subject to natural disasters, including earthquakes, droughts, floods, wildfires and severe weather, and coastal locations may be particularly susceptible to climate stress events or adverse localized effects of climate change, such as sea-level rise and increased storm frequency or intensity.

We therefore have greater exposure to the risks of natural disasters, which can lead to power shortages, shortages of labor and materials, increased costs, and delays in development.

The occurrence of natural disasters may also negatively impact the demand for new homes in affected areas.

If our insurance does not fully cover losses resulting from these events, our financial condition and results of operations could be adversely affected.

Additionally, if drought conditions continue in California, state and local authorities could enact restrictions or moratoriums on building permits and access to utilities, such as water and sewer taps, which could delay or prevent our construction activities, as well as the construction of homes and commercial buildings, even when we have obtained water rights for our communities.

We are highly dependent on homebuilders.

We are highly dependent on our relationships with homebuilders to purchase lots at our residential communities.

Our business will be adversely affected if homebuilders do not view our residential communities as

desirable locations for homebuilding operations.

Also, some homebuilders may be unwilling or unable to close on previously committed land parcel purchases due to factors outside of our control.

As a result, we may sell fewer land parcels and may have lower revenues from sales, which could adversely affect our financial condition and results of operations.

Title to our property may be impaired by title defects.

We cannot give any assurance that title to our properties will not be challenged or impugned, and we cannot be certain that we have or will acquire valid title to our properties.

Further, we cannot give any assurance that there are not any liens, encumbrances, mortgages, impositions, fines, violations, levies, superior title claims or other title defects or title issues (collectively, “title defects”) with respect to our properties.

The lack of good, marketable fee title, or the existence of any existing title defects with respect to our properties, could materially and adversely affect our properties, including by resulting in:

(1) chain of title issues (such as impediments to the potential sale, transfer, assignment or grant of any fee or leasehold interests in all or any portion of our properties);

(2) financing issues (such as impediments to qualifying for a line of credit, mortgage or private equity financing);

(3) development issues (such as impediments to qualifying for governmental licenses and permits or construction financing, delays in operations, or additional costs incurred in connection with any required corrective measures);

(4) foreclosure, forfeiture and loss of fee title (such as resulting from a mortgage foreclosure, tax levy or rescission rights);

(5) reduction of asset value;

or (6) loss of revenue, capital or anticipated profits.

Although the San Francisco Venture holds title insurance on the portions of Candlestick and The San Francisco Shipyard that it currently owns and the Great Park Venture holds title insurance on Great Park Neighborhoods, we do not hold title insurance on Valencia.

In any event, an owner’s title insurance policy only provides insurance coverage as of the issuance date of such policy and does not protect against transfers or other title defects that impact the properties from and after the title policy issuance dates.

Accordingly, for all of our properties, whether or not we hold title insurance, it is possible that there may be title defects for which we will have no title insurance coverage.

In addition, the title insurance policies we do hold may not insure for the current aggregate market value of our properties, and we do not intend to increase our title insurance coverage as the market value of our portfolio increases.

As a result, we may not have sufficient coverage against all losses that we may experience, including from adverse title claims.

Inflation may adversely affect us by increasing costs that we may not be able to recover.

Inflation can adversely affect us by increasing costs of materials and labor.

In addition, inflation is often accompanied by higher interest rates, which could have a negative impact on demand for homes and the cost of debt financing.

In a highly inflationary environment, depending on industry and other economic conditions, we may be unable to raise prices enough to keep up with the rate of inflation, which would reduce our profit margins.

Although the overall rate of inflation has been low for the last several years, we have been experiencing increases in the prices of labor and materials, especially at Candlestick and The San Francisco Shipyard, and there could be a significant increase in inflation in the future.

Significant competition could have an adverse effect on our business.

We compete with other residential, retail and commercial property developers in the development of properties in the Northern and Southern California markets.

We compete with a number of residential, retail and commercial developers, some with greater financial resources, in seeking resources for development and prospective purchasers.

Competition from other real estate developers may adversely affect our ability to attract purchasers and sell or lease residential, retail and commercial properties, attract and retain experienced real estate development personnel or obtain construction materials and labor.

These competitive conditions could make it difficult to sell properties at desirable prices and could adversely affect our financial condition and results of operations.

Fluctuations in real estate values may require us to write down the carrying value of our real estate assets or real estate investments.

Our industry is subject to significant variability and fluctuations in real estate values.

The valuation of our real estate assets or real estate investments is inherently subjective and based on the individual characteristics of each asset.

Factors such as competitive market supply and demand for inventory, changes in laws and regulations,

political and economic conditions and interest and inflation rate fluctuations subject our valuations to uncertainty.

Our valuations are made on the basis of assumptions that may not prove to reflect economic or demographic reality.

If the real estate market deteriorates, we may reevaluate the assumptions used in our analysis.

As a result, adverse market conditions may require us to write down the book value of certain real estate assets or real estate investments and some of those write-downs could be material.

Any material write-downs of assets could have a material adverse effect on our financial condition and results of operations.

Also, a material write-down of assets could adversely affect our ability to meet specified financial ratios or satisfy financial condition tests under the terms of our indebtedness and could adversely affect our ability to utilize certain exceptions from various debt covenants that impose operating restrictions on us, including limitations on our ability to:

pay dividends, redeem or repurchase capital stock or make other restricted payments;

make certain investments;

incur additional indebtedness or issue preferred stock;

create certain liens;

or consolidate, merge or transfer all or substantially all of our assets.

See “—Risks Related to Our Organization and Structure—Our substantial indebtedness may have a material adverse effect on our business, our financial condition and results of operations and our ability to secure additional financing in the future.”

Our property taxes could increase due to rate increases or reassessments or the imposition of new taxes or assessments, which may adversely impact our financial condition and results of operations.

We will be required to pay state and local real property taxes and assessments on our properties.

The real property taxes and assessments on our properties may increase as property or special tax rates increase or if our properties are assessed or reassessed at a higher value by taxing authorities.

If we are obligated to pay new taxes or if there are increases in the property taxes and assessments that we currently pay, our financial condition and results of operations could be adversely affected.

Risks Related to Laws and Regulations

Zoning and land use laws and regulations may increase our expenses, limit the number of homes or commercial square footage that can be built or delay completion of our projects and adversely affect our financial condition and results of operations.

Although there are agreements with the City of Irvine for Great Park Neighborhoods and the City and County of San Francisco for Candlestick and The San Francisco Shipyard that protect existing entitlements, our communities are subject to numerous local, state, and federal laws and other statutes, ordinances, rules and regulations concerning zoning, development, building design, construction and similar matters that impose restrictive zoning and density requirements in order to limit the number of homes or commercial square feet that can eventually be built within the boundaries of a particular area, as well as governmental taxes, fees and levies on the acquisition and development of land parcels.

Our communities are subject to numerous local, state, and federal laws and other statutes, ordinances, rules and regulations concerning zoning, development, building design, construction and similar matters that impose restrictive zoning and density requirements in order to limit the number of homes or commercial square feet that can eventually be built within the boundaries of a particular area, as well as governmental taxes, fees and levies on the acquisition and development of land parcels.

These regulations often provide broad discretion to the administering governmental authorities as to the conditions for our projects being approved, if approved at all.

Further, if the terms and conditions of the development agreements with the Cities of Irvine and San Francisco are not complied with, existing entitlements under those agreements could be lost, including (in the case of San Francisco) the right to acquire certain portions of the land on which development activity is expected.

Further, if the terms and conditions of our existing development agreements with the Cities of Irvine and San Francisco are not complied with, existing entitlements under those agreements could be lost, including (in the case of San Francisco) the right to acquire certain portions of the land on which development activity is expected.

New housing and commercial developments are often subject to determinations by the administering governmental authorities as to the adequacy of water and sewage facilities, roads and other local services, and may also be subject to various assessments for schools, parks, streets, affordable housing and other public improvements.

1 unchanged sentence

Due to building moratoriums, zoning changes or “slow-growth” or “no-growth” initiatives that could be implemented in the future in the areas in which our properties are located, our communities may also be subject to periodic delays, or we could be precluded entirely from developing in certain communities or otherwise restricted in our business activities.

Such moratoriums or zoning changes can occur prior or subsequent to commencement of our development operations, without notice or recourse.

Such moratoriums or zoning changes can occur either prior or subsequent to commencement of our development operations, without notice or recourse.

Local and state governments also have broad discretion regarding the imposition of development fees for projects in their jurisdictions.

1 unchanged sentence

As a result, revenue from land sales or leasing of retail or other commercial space may be adversely affected, or costs may increase, which could negatively affect our financial condition and results of operations.

In addition, laws and regulations governing the approval processes provide third parties the opportunity to challenge proposed plans and approvals.

Certain of our plans and approvals have been challenged by third parties, such as environmental groups, and are currently the subject of ongoing legal proceedings.

These and any future third-party challenges to our planned developments provide additional uncertainties in real estate development planning and entitlements.

Third-party challenges in the form of litigation could result in the denial of our right to develop in accordance with our current development plans or could adversely affect the length of time or the cost required to obtain the necessary governmental approvals to develop.

In addition, adverse decisions arising from any litigation could increase the cost and length of time to obtain ultimate approval of a project and could adversely affect the design, scope, plans and profitability of a project, which could negatively affect our financial condition and results of operations.

We incur significant costs, and may be subject to delays, in obtaining entitlements, permits and approvals before we can begin development or construction of our projects and begin to recover our costs.

1 unchanged sentence

It generally takes several years to complete this process and completion times vary based on complexity of the project and the community and regulatory issues involved.

We could also be subject to delays in construction, which could lead to higher costs and adversely affect our results of operations.

Changing market conditions during the entitlement and construction periods could negatively impact our revenue from land sales or leasing of retail or other commercial space.

Changing market conditions during the entitlement period could negatively impact our revenue from land sales or leasing of retail or other commercial space.

Historically, certain of our entitlements, permits and development approvals have been challenged by third parties, such as environmental groups.

Future entitlements, permits and development approvals that we will need to obtain for development areas within our communities may be similarly challenged.

As a result of the time and complexity involved in construction and obtaining approvals for our projects, we face the risk that demand for residential and commercial properties may decline, and we may be forced to sell or lease properties at prices or rates that generate lower profit margins than we anticipated or that would result in losses.

As a result of the time and complexity involved in obtaining approvals for our projects, we face the risk that demand for residential and commercial properties may decline, and we may be forced to sell or lease properties at prices or rates that generate lower profit margins than we anticipated or that would result in losses.

If values decline, we may be required to make material write-downs of the book value of our real estate assets or real estate investments.

We will have to make significant investments at our properties before we realize significant revenues.

We currently plan to spend material amounts on horizontal development at our communities.

Those expenditures primarily reflect the costs of developing the infrastructure at our properties, including grading and installing roads, sidewalks, gutters, utility improvements (such as storm drains, water, gas, sewer, power and communications), landscaping and shared amenities (such as community buildings, neighborhood parks, trails and open spaces) and other actions necessary to prepare each residential and commercial lot for construction.

We currently expect to have sufficient capital to fund the horizontal development of our communities in accordance with our development plan for several years.

However, we may experience cost increases, our plans may change, new regulations and regulatory plan modifications or court rulings may affect our ability to develop or the cost to develop the project or circumstances may arise that result in our needing additional capital to execute our development plan.

If we are not successful in obtaining additional financing to enable us to complete our projects, we may experience further delays or increased costs, and our financial condition and results of our operations may be adversely affected.

Our projects are subject to environmental planning and protection laws and regulations that require us to obtain permits and approvals that may be delayed, withheld or challenged by third parties in legal proceedings.

8 unchanged sentences

Future environmental permits and approvals that we will need to obtain for development areas within our communities may be similarly challenged.

We could incur significant costs related to regulation of and litigation over the presence of asbestos-containing materials at our properties.

Environmental laws govern the control, presence, maintenance and removal of ACM.

Such laws may impose fines and penalties, and, on occasion, we have had such penalties imposed against us, for failure to comply with these requirements.

Such laws require that owners or operators of buildings or properties containing ACM properly manage and maintain it, adequately notify or train those who may come into contact with it, and undertake special precautions including asbestos dust monitoring, removal or other abatement if asbestos would be disturbed

during construction, renovation or demolition activities.

Certain buildings on our properties that are being and will be demolished (or have already been demolished) in connection with our development plans and the soil at certain of our properties contain ACM, which must be handled in accordance with these laws.

Such laws may increase our development costs and subject us to fines and penalties and other liabilities and costs in the event compliance is not maintained.

We have also been exposed to legal proceedings initiated by third parties and may in the future be exposed to third party liability (such as liability for personal injury associated with exposure to asbestos).

As an owner and operator of real property, we could incur liability for environmental contamination issues.

We have incurred costs and expended funds, and may do so again in the future, to comply with environmental requirements, such as those relating to discharges or threatened discharges to air, water and land, the handling and disposal of solid and hazardous waste and the cleanup of properties affected by hazardous substances.

Under these and other environmental requirements, as a property owner or operator, we may be required to investigate and clean up hazardous or toxic substances or chemical releases at our communities or properties currently or formerly owned or operated by us, including as a result of the current and former oil and gas leasing operations at Valencia or as a result of prior activities conducted at the El Toro Base or The San Francisco Shipyard.

2 unchanged sentences

Although the U.S.

Navy has been primarily responsible for investigation and cleanup activities at these properties and will continue to have liability for future contamination that is discovered, we also may incur costs for investigation or cleanup of contamination that is discovered or disturbed during the course of our future development activities or otherwise.

disturbed during the course of our future development activities or otherwise.

Similarly, in the event that oil and gas operators at Valencia do not fully remediate contamination resulting from such operations, we may incur such costs.

5 unchanged sentences

While we currently have and may maintain insurance policies from time to time to mitigate some or all of these risks, insurance coverage for such claims may be limited or nonexistent.

In addition, to the extent that we have indemnification rights against third parties relating to any such environmental liability or remediation costs (such as, for example, the U.S.

Navy under certain federal laws as a former owner and operator of the El Toro Base and The San Francisco Shipyard and former oil and gas lessees under certain settlement agreements relating to portions of Valencia), the indemnification may not fully cover such costs or we may not be able to collect the full amount of the indemnification from the third party.

While investigation and cleanup activities have been substantially completed for the Great Park Neighborhoods, significant work is contemplated over the next few years for certain of The San Francisco Shipyard parcels, which will delay transfer of such parcels to us for development.

In addition, to the extent that we have indemnification rights against third parties relating to any such environmental liability or remediation costs, the indemnification may not fully cover such costs or we may not be able to collect the full amount of the indemnification from the third party.

Significant investigation and cleanup activities are contemplated over the next few years for certain of The San Francisco Shipyard parcels, which will delay transfer of such parcels to us for development.

Although most of our properties have been subjected to environmental assessments by independent environmental consultants or in the case of Great Park Neighborhoods and The San Francisco Shipyard, extensive environmental assessments by the U.S.

3 unchanged sentences

Compliance with such laws could have a material adverse effect on our results of operations and competitive position in the future.

Our communities are all located in California, which makes us susceptible to risks in that state.

Our communities are all located in California.

As a result, we are susceptible to greater risks than if we owned a larger or more geographically diverse portfolio.

California also continues to suffer from severe budgetary constraints, which may result in the layoff or furlough of government employees, and is regarded as more litigious and more highly regulated and taxed than many other states.

We therefore have greater exposure to the risks of natural disasters, which can lead to power shortages, shortages of labor and materials and delays in development.

The occurrence of natural disasters may also negatively impact the demand for new homes in affected areas.

If our insurance does not fully cover losses resulting from these events, our financial condition and results of operations could be adversely affected.

Drought conditions in California may, from time to time, cause us to incur additional costs and delay or prevent construction within our communities, which could have a material adverse impact on our financial condition and results of operations.

In recent years, California has faced persistent drought conditions.

In the past, the Governor of California has proclaimed a Drought State of Emergency warning that drought conditions may place drinking water supplies at risk in many California communities and, in some years, issued an executive order that, among other things, directed the State Water Resources Control Board (the “SWRCB”) and the Department of Water Resources (the “DWR”) to require urban water suppliers to report monthly information regarding water use, conservation and enforcement on a permanent basis.

In response to this executive order, the DWR and the SWRCB were required to engage in a public process and work with urban water suppliers, local governments and environmental groups to develop new water use efficiency targets as part of a long-term conservation framework for urban water agencies.

If drought conditions continue in California, there could be additional restrictions or moratoriums on building permits and access to utilities, such as water and sewer taps, which could delay or prevent our construction activities, as well as the construction of homes and commercial buildings, even when we have obtained water rights for our communities.

Further, drought emergency reduction targets and other measures that are instituted to respond to drought conditions could cause us to incur additional costs to develop each community’s infrastructure, as well as cause homebuilders and commercial builders to incur additional costs, which could reduce the price that they are willing to pay for our residential and commercial lots.

Simultaneous development projects may divert management time and resources.

Since all of our communities are being developed simultaneously, members of our senior management will be involved in planning and developing these projects, which may divert management resources from the construction, sale, lease or opening of any of these projects.

Management’s inability to devote sufficient time and attention to a project may delay the construction or opening of such project.

This type of delay could adversely affect our financial condition and results of operations.

We are highly dependent on homebuilders.

We are highly dependent on our relationships with homebuilders to purchase lots at our residential communities.

Our business will be adversely affected if homebuilders do not view our residential communities as

desirable locations for homebuilding operations.

Also, some homebuilders may be unwilling or unable to close on previously committed land parcel purchases due to factors outside of our control.

As a result, we may sell fewer land parcels and may have lower revenues from sales, which could adversely affect our financial condition and results of operations.

We may from time to time be subject to litigation, which could have a material adverse effect on our financial condition and results of operations.

21 unchanged sentences

Replacing insurance coverage at unfavorable rates and the potential of uncollectible claims due to carrier insolvency could adversely affect our financial condition and results of operations.

Title to our property may be impaired by title defects.

We cannot give any assurance that title to our properties will not be challenged or impugned, and cannot be certain that we have or will acquire valid title to our properties.