What changed in this filing

/stocks — the workspaceLOADING

Item 1A. Risk Factors

2022-03-11 compared with 2021-03-10 · 57 added, 42 removed, 355 unchanged (22% of the section changed)

5 unchanged sentences

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.

Federal, state and local governments and private entities in impacted regions have taken, and are continuing to take, actions in an effort to slow the spread of COVID-19 and variants of the virus.

In response to these steps, we have shifted a majority of our office functions to work remotely and implemented a COVID-19 Prevention Program, which sets forth COVID-19-related safety protocols and procedures and worksite-specific operational plans for the locations at which associates have returned to work on site.

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.

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

Potential impacts could include asset impairments similar to the impairment we recognized in 2020 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 continues to have 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.

34 unchanged sentences

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.

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.

19 unchanged sentences

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.

For example, we have been experiencing increases in the prices of labor and materials across all of our communities, which may adversely affect our financial condition and results of operations.

Significant competition could have an adverse effect on our business.

6 unchanged sentences

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.

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.

17 unchanged sentences

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 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.

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.

17 unchanged sentences

The particular environmental requirements that apply to a project vary depending on, among other things, location, environmental conditions, current and former uses of a property, the presence or absence of certain wildlife or habitats, and nearby conditions.

We expect that increasingly stringent environmental requirements will be imposed on developers in the future.

These future environmental requirements could affect the timing or cost of our development.

In addition, future environmental requirements could reduce the number of homesites or amount of commercial square feet we are able to develop, increase our financial commitments to local or state agencies or organizations or otherwise reduce the profitability of the project.

We expect that increasingly stringent environmental requirements will be imposed on developers in the future in light of growing concern from advocacy groups, government agencies and the general public over the effects of climate change on the environment.

Transition risks posed by new government restrictions, standards or regulations intended to reduce greenhouse gas emissions and potential climate change impacts are emerging and may increase in the future.

These future environmental requirements and restrictions could affect the timing or cost of our development and could increase our operating and compliance costs or require additional technology and capital investment, which could adversely affect our results of operations.

In addition, future environmental requirements or restrictions could reduce the number of homesites or amount of commercial square feet we are able to develop, increase our financial commitments to local or state agencies or organizations or otherwise reduce the profitability of the project.

Failure to comply with these laws, regulations and permit requirements may result in delays, administrative, civil and criminal penalties, denial or revocation of permits or other authorizations, other liabilities and costs, the issuance of injunctions to limit or cease operations and the imposition of additional requirements for future compliance as a result of past failures.

3 unchanged sentences

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, including asbestos-containing materials.

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.

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.

Some of our properties have been or may be impacted by contamination arising from these or other prior uses of these properties or adjacent properties.

1 unchanged sentence

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.

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.

12 unchanged sentences

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

Increasing scrutiny and evolving expectations from investors, regulators, and other stakeholders regarding our environmental, social and governance practices and reporting may impose additional costs on us or expose us to new or additional risks.

Companies are facing increasing scrutiny related to corporate responsibility practices and reporting.

Investor advocacy groups, investment funds and influential investors are also increasingly focused on these practices, especially as they relate to the environment, health and safety, board and workforce diversity, and human capital.

It is possible that stakeholders may not be satisfied with our practices or the speed at which we implement new initiatives.

New government regulations could also result in new or more stringent forms of oversight and could expand mandatory monitoring, reporting, diligence, and disclosure.

Increased compliance costs could result in increases to our overall operational costs, and any failure to adapt to or comply with regulatory requirements or investor or stakeholder expectations and standards could negatively impact our reputation, ability to do business with certain partners, and share price.

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.

5 unchanged sentences

Payment of any such costs, settlements, fines or judgments that are not insured or that exceed our insurance limits could have an adverse impact on our financial condition and results of operations.

In addition, certain litigation or the resolution of certain litigation may affect the availability or cost of some of our insurance coverage and adversely affect our results of operations, expose us to increased risks that would be uninsured or adversely impact our ability to attract officers and directors.

In addition, certain litigation or the resolution of certain litigation may affect the availability or cost of some of our insurance coverage and adversely

affect our results of operations, expose us to increased risks that would be uninsured or adversely impact our ability to attract officers and directors.

Such litigation could adversely affect the length of time and the cost required to obtain the necessary governmental approvals.

14 unchanged sentences

Risks Related to Our Organization and Structure

We depend on key personnel.

Our success depends to a significant degree upon the contributions of certain key personnel, including Mr.

Haddad, our Chairman and Chief Executive Officer.

These key personnel would be difficult to replace because of their experience in identifying, acquiring, developing, financing and managing real estate assets and their long-term relationships across, and strong reputation in, the real estate industry generally and for our communities specifically.

If any of our key personnel were to cease employment with us, our results of operations could suffer.

Our ability to retain our key personnel or to attract suitable replacements should any members of our management team leave is dependent on the competitive nature of the employment market.

The loss of services from key personnel or a limitation in their availability could materially and adversely impact our financial condition and results of operations.

In order to be successful, we must attract, engage, retain and integrate key personnel and have adequate succession plans in place, and failure to do so could have an adverse effect on our business.

Our success depends to a significant degree upon our ability to attract, engage, retain and integrate qualified executives and other key employees throughout all areas of our business.

Identifying, developing internally or hiring externally, training and retaining highly-skilled personnel, in particular with experience in identifying, acquiring, developing, financing and managing real estate assets, are critical to our future, and competition for experienced employees can be intense.

Failure to successfully hire executives and other key employees or the loss of any executives or key employees could materially and adversely impact our business, financial condition and results of operations.

Further, such a loss could be negatively perceived in the capital markets.

Effective succession planning is also important to our long-term success.

We have recently experienced numerous changes in our executive management team, including the appointments of Daniel Hedigan as our Chief Executive Officer in February 2022 and Stuart Miller as our Executive Chairman in 2021, the transition of Emile Haddad and Lynn Jochim to senior advisory roles, and the planned resignation of our Chief Financial Officer, Erik Higgins.

Failure to ensure effective transfer of knowledge and smooth transitions involving executives and other key employees could hinder our strategic planning, execution and future performance.

Further, changes in our management team may be disruptive to our business, and any failure to successfully integrate key new hires or promoted employees could adversely affect our business, financial condition and results of operations.

As a holding company, we are entirely dependent upon the operations of the operating company and its ability to make distributions to provide cash flow to us or to pay taxes and other expenses.

9 unchanged sentences

Under the terms of the limited partnership agreement for the operating company, the operating company is obligated to make tax distributions to its partners, including us, subject to the restrictions described below.

These tax distributions generally will be made on a pro rata basis.

These tax distributions are generally made on a pro-rata basis.

In addition to tax expenses, we also incur expenses related to our operations, including expenses under the tax receivable agreement (“TRA”), which we expect could be significant.

The ability of the operating company to make distributions in an amount sufficient to allow us to pay our taxes and operating expenses, including any payments under the TRA, is subject to the obligations of the operating company and its subsidiaries to their respective creditors.

In addition, future financing arrangements may contain

negative covenants limiting the ability of the operating company to make distributions to us.

respective creditors.

In addition, future financing arrangements may contain negative covenants limiting the ability of the operating company to make distributions to us.

Furthermore, the ability of the operating company’s subsidiaries and the Great Park Venture to pay distributions to the operating company may be limited by their obligations to their respective creditors and other investors.

57 unchanged sentences

In addition, our operating agreement provides that Section 203 of the General Corporation Law of the State of Delaware (the “DGCL”) will be deemed to apply to us as if we were a Delaware corporation.

Section 203 of the DGCL may affect the ability of an “interested shareholder” to engage in certain business combinations, including mergers, consolidations or acquisitions of additional shares, for a period of three years following the time that the shareholder becomes an “interested shareholder.” An “interested shareholder” is defined to include persons owning directly or indirectly 15% or more of the outstanding voting shares of a company.

Section 203 of the DGCL may affect the ability of an “interested shareholder” to engage in certain business combinations, including mergers, consolidations or acquisitions of additional

shares, for a period of three years following the time that the shareholder becomes an “interested shareholder.” An “interested shareholder” is defined to include persons owning directly or indirectly 15% or more of the outstanding voting shares of a company.

Risks Related to Financing and Indebtedness

60 unchanged sentences

In July 2017, the UK’s Financial Conduct Authority, which regulates LIBOR, announced its intent to phase out LIBOR by the end of 2021.

The Alternative Reference Rates Committee in the United States has proposed that the Secured

Overnight Financing Rate (“SOFR”) is the rate that represents best practice as the alternative to U.S.

The Alternative Reference Rates Committee in the United States has proposed that the Secured Overnight Financing Rate (“SOFR”) is the rate that represents best practice as the alternative to U.S.

dollar LIBOR for use in derivatives and other financial contracts that are currently indexed to LIBOR.

5 unchanged sentences

dollar LIBOR market, without the need to transition those contracts to SOFR.

Whether or not SOFR or another reference rate attains market traction as a LIBOR replacement remains a question, and the future of LIBOR at this time is uncertain.

Whether or not SOFR or another reference rate attains market traction

as a LIBOR replacement remains a question, and the future of LIBOR at this time is uncertain.

Even with the Federal Reserve Board’s announcement about the extension, if the method for calculation of LIBOR changes, LIBOR is no longer available or lenders have increased costs due to changes in LIBOR, we may suffer from potential increases in interest rates on our revolving credit facility.

2 unchanged sentences

Risks Related to Ownership of Our Class A Common Shares

We are an “emerging growth company” and a “smaller reporting company” and, as a result of the reduced disclosure requirements applicable to emerging growth and smaller reporting companies, our Class A common shares may be less attractive to investors.

We are an “emerging growth company” and, as a result of the reduced disclosure requirements applicable to emerging growth companies, our Class A common shares may be less attractive to investors.

We are an “emerging growth company,” as defined in the JOBS Act.

3 unchanged sentences

• reduced disclosure about the emerging growth company’s executive compensation arrangements.

We are also a “smaller reporting company” as defined under the Exchange Act.

Beginning with our Quarterly Report on Form 10-Q that we will file for the first quarter of 2021, however, we will no longer be considered a “smaller reporting company.” As a smaller reporting company, we have been subject to reduced disclosure obligations in our periodic reports and proxy statements.

As a result, the information that we provide shareholders in our filings with the SEC may be different than what is available with respect to many other public companies.

11 unchanged sentences

In the past, securities class action litigation has often been instituted against companies following periods of volatility in the price of their common shares.

This type of litigation could result in substantial costs and divert our management’s attention and resources, which could have an adverse effect on our financial

condition, results of operations, cash flow and per share trading price of our common shares.

This type of litigation could result in substantial costs and divert our management’s attention and resources, which could have an adverse effect on our financial condition, results of operations, cash flow and per share trading price of our common shares.

Any broad market fluctuations may adversely affect the trading price of our Class A common shares.

7 unchanged sentences

As of December 31, 2021, we had outstanding 70,107,552 Class A common shares.

In addition, 79,257,314 Class A common shares are reserved for issuance upon exchange of Class A units of the operating company (including 37,870,273 Class A units of the operating company issuable upon exchange of Class A units of the San Francisco Venture) and conversion of our Class B common shares.

In addition, 79,257,314 Class A common shares are reserved for issuance upon exchange of Class A units of the operating company (including 37,870,273 Class A units of the

operating company issuable upon exchange of Class A units of the San Francisco Venture) and conversion of our Class B common shares.

Holders of Class A units of the operating company may exchange their units for, at our option, either Class A common shares on a one-for-one basis (subject to adjustment for share splits and similar events) or cash in an amount equal to the market value of such shares at the time of exchange.

3 unchanged sentences

We are required to use our reasonable efforts to keep the Form S-3 registration statement (or a successor registration statement) effective until there are no longer any registrable securities other than Class A common shares that can be sold under Rule 144 without any limitation as to volume or manner of sale.

In addition, 4,689,214 Class A common shares are available for future issuance under our incentive award plan.

In addition, 3,324,488 Class A common shares are available for future issuance under our incentive award plan as of December 31, 2021.

We cannot predict whether future issuances or sales of our Class A common shares or the availability of shares for resale in the open market will decrease the per share trading price of our Class A common shares.

4 unchanged sentences

Any decision to declare and pay distributions in the future will be made at the sole discretion of our board of directors and will depend on, among other things, our financial condition, results of operations, cash requirements, contractual restrictions and other factors that our board of directors may deem relevant.

In addition, because we are a holding company and our only investment is our interest in the operating company, we will only be able to pay distributions from funds we receive from the

operating company.

In addition, because we are a holding company and our only investment is our interest in the operating company, we will only be able to pay distributions from funds we receive from the operating company.

Our board of directors has the authority to issue one or more series of preferred shares without action of our shareholders.

13 unchanged sentences

As a result, our operations and financial results and our share price could be adversely affected.

Unstable market and economic conditions may have serious adverse consequences on our business, financial condition and stock price.

From time to time, the global credit and financial markets have experienced extreme volatility and disruptions, including severely diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, increases in

unemployment rates and uncertainty about economic stability.

There can be no assurance that future deterioration in credit and financial markets and confidence in economic conditions will not occur.

Our business strategy and performance may be adversely affected by any such economic downturn, volatile business environment or continued unpredictable and unstable market conditions.

The financial markets and the global economy may also be adversely affected by the current or anticipated impact of military conflict, terrorism or other geopolitical events.

Sanctions imposed by the United States and other countries in response to such conflicts may also adversely impact the financial markets and the global economy, and any economic countermeasures by the affected countries or others could exacerbate market and economic instability.

If the current equity and credit markets deteriorate, it may make any necessary debt or equity financing more difficult, more costly and more dilutive.

Failure to secure any necessary financing in a timely manner and on favorable terms could have a material adverse effect on our business, financial condition, results of operations and stock price.

Unresolved Staff Comments

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors