Five Point Holdings, LLC 10-K

ITEM 9A. Controls and Procedures Evaluation of Disclosure Controls and Procedures We have established disclosure controls and procedures, as such term is defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act, that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to management, including our principal executive officer and principal financial officer as appropriate, to allow timely decisions regarding required disclosure. Our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2021. Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of December 31, 2021. Management’s Annual Report on Internal Control over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, conducted an assessment of the effectiveness of our internal control over financial reporting as of December 31, 2021 based on the framework established in the Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations (COSO) of the Treadway Commission (2013 Framework). Based on this framework, our management concluded that our internal control over financial reporting was effective as of December 31, 2021. The effectiveness of our internal control over financial reporting as of December 31, 2021 has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their attestation report which is included herein. Changes in Internal Control over Financial Reporting During the quarter ended December 31, 2021, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 75 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the shareholders and the Board of Directors of Five Point Holdings, LLC Opinion on Internal Control over Financial Reporting We have audited the internal control over financial reporting of Five Point Holdings, LLC and subsidiaries (the “Company”) as of December 31, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2021, of the Company and our report dated March 11, 2022, expressed an unqualified opinion on those financial statements. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ DELOITTE & TOUCHE LLP Costa Mesa, California March 11, 2022 76 Table of Contents ITEM 9B. Other Information Not applicable. ITEM 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections Not applicable. PART III ITEM 10. Directors, Executive Officers and Corporate Governance The information required by this item will be included in the Proxy Statement for our 2022 Annual Meeting of Shareholders to be filed by the Company with the Securities and Exchange Commission no later than 120 days after the close of our fiscal year ended December 31, 2021 (the “Proxy Statement”). The information in the Proxy Statement relevant to this item is incorporated herein by reference. ITEM 11. Executive Compensation The information in the Proxy Statement relevant to this item is incorporated herein by reference. ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The information in the Proxy Statement relevant to this item is incorporated herein by reference, except for the information required by Item 201(d) of Regulation S-K, which is provided below. The following table contains certain information with respect to our equity compensation plan in effect as of December 31, 2021. Plan category Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) Weighted-average exercise price of outstanding options, warrants and rights (b) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c) Equity compensation plans approved by shareholders — — 3,324,488 ITEM 13. Certain Relationships and Related Transactions, and Director Independence The information in the Proxy Statement relevant to this item is incorporated herein by reference. ITEM 14. Principal Accountant Fees and Services The information in the Proxy Statement relevant to this item is incorporated herein by reference. 77 Table of Contents PART IV ITEM 15. Exhibits, Financial Statement Schedules (a)(1) The following consolidated financial statements are contained in Part II, Item 8 of this Report. Financial Statements - Five Point Holdings, LLC Page in this Report Report of Independent Registered Public Accounting Firm (Public Company Accounting Oversight Board identification number 34 ) 40 Consolidated Balance Sheets as of December 31, 202 1 and 20 20 41 Consolidated Statements of Operations for the years ended December 31, 202 1 , 20 20 and 20 19 42 Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 202 1 , 20 20 and 20 19 43 Consolidated Statements of Capital for the years ended December 31, 202 1 , 20 20 and 20 19 44 Consolidated Statements of Cash Flows for the years ended December 31, 202 1 , 20 20 and 20 19 45 Notes to the Consolidated Financial Statements 46 (a)(2) The following financial statement schedules are included in this Report: Financial Statement Schedule - Five Point Holdings, LLC Schedule III—Real Estate and Accumulated Depreciation 84 Financial Statements - Heritage Fields LLC Independent Auditor’s Report 85 Consolidated Balance Sheets as of December 31, 2021 and 2020 87 Consolidated Statements of Operations for the years ended December 31, 2021, 2020 and 2019 88 Consolidated Statements of Capital for the years ended December 31, 2021, 2020 and 2019 89 Consolidated Statements of Cash Flows for the years ended December 31, 2021, 2020 and 2019 90 Notes to the Consolidated Financial Statements 91 Information required by other schedules has either been incorporated in the consolidated financial statements and accompanying notes or is not applicable. (a)(3) The following exhibits are filed with this Report or incorporated by reference: Exhibit Exhibit Description 3.1 Certificate of Formation of Registrant, as amended (Exhibit 3.1 to Registrant's Registration Statement on Form S-11 filed April 7, 2017 is incorporated herein by this reference) 3.2 Second Amended and Restated Limited Liability Company Agreement of Five Point Holdings, LLC (Exhibit 3.1 to Registrant's Current Report on Form 8-K dated May 15, 2017 is incorporated herein by this reference) 4.1 Description of Shares (Exhibit 4.1 of the Company's Annual Report on Form 10-K for the year ended December 31, 2019 is incorporated herein by this reference) 10.1 Limited Partnership Agreement of Five Point Operating Company, LP, dated as of October 1, 2017 (Exhibit 10.1 to the Current Report on Form 8-K filed on October 2, 2017 is incorporated herein by this reference) 78 Table of Contents 10.2 Fourth Amended and Restated Limited Liability Company Agreement of Heritage Fields LLC, dated as of April 21, 2017, by and among Five Point Heritage Fields, LLC, Heritage Fields Capital Co-Investor Member LLC, MSD Heritage Fields, LLC, LenFive, LLC, LNR HF II, LLC, and FPC-HF Venture I, LLC (Exhibit 10.17 to Amendment No. 1 to Registrant’s Registration Statement on Form S-11 filed April 24, 2017 is incorporated herein by this reference) 10.3 Second Amended and Restated Operating Agreement of The Shipyard Communities, LLC (Exhibit 10.2 to Registrant's Registration Statement on Form S-11 filed April 7, 2017 is incorporated herein by this reference) 10.4 First Amendment to the Second Amended and Restated Limited Liability Company Agreement of The Shipyard Communities, LLC (Exhibit 10.4 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 is incorporated herein by this reference) 10.5 Limited Liability Company Agreement of Five Point Office Venture Holdings I, LLC, dated as of August 4, 2017 (Exhibit 10.1 to the Current Report on Form 8-K filed on August 10, 2017 is incorporated herein by this reference) 10.6 Registration Rights Agreement, dated as of May 2, 2016, by and among the Registrant and the persons named therein (Exhibit 10.3 to Registrant's Registration Statement on Form S-11 filed April 7, 2017 is incorporated herein by this reference) 10.7 Amended and Restated Voting and Standstill Agreement, dated as of May 2, 2016, by and among the Registrant, Five Point Holdings, Inc., and the persons named on Exhibit A thereto (Exhibit 10.19 to Registrant's Registration Statement on Form S-11 filed April 7, 2017 is incorporated herein by this reference) 10.8 Amended and Restated Securities Purchase Agreement, dated as of April 3, 2017, by and among the Registrant, Five Point Operating Company, LLC, LenFive, LLC and Lennar Homes of California, Inc. (Exhibit 10.20 to Registrant’s Registration Statement on Form S-11 filed April 7, 2017 is incorporated herein by this reference) 10.9 Tax Receivable Agreement, dated as of May 2, 2016, by and among the Registrant and the other parties named therein (Exhibit 10.5 to Registrant's Registration Statement on Form S-11 filed April 7, 2017 is incorporated herein by this reference) 10.10* Amended and Restated 2016 Incentive Award Plan (Appendix A to the Company’s Proxy Statement filed April 26, 2019 is incorporated herein by this reference) 10.11* Five Point Holdings, LLC Senior Management Severance and Change in Control Plan (Exhibit 10.11 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 is incorporated herein by this reference) 10.12* Employment Transition Agreement, dated as of August 23, 2021, by and among Emile Haddad, Five Point Operating Company, LP, Five Point Communities Management, Inc., and Five Point Holdings, LLC (Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2021 is incorporated herein by this reference) 10.13* Advisory Agreement, dated as of August 23, 2021, by and between Emile Haddad and Five Point Operating Company, LP (Exhibit 10.2 of the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2021 is incorporated herein by this reference) 10.14 Form of Indemnification Agreement by and between the Registrant and each of its Directors and Executive Officers (Exhibit 10.7 to Registrant's Registration Statement on Form S-11 filed April 7, 2017 is incorporated herein by this reference) 10.15 Second Amended and Restated Contribution and Sale Agreement, dated as of July 2, 2015, and amended and restated as of May 2, 2016, by and among the Registrant, Five Point Holdings, Inc., Newhall Intermediary Holding Company, LLC, Newhall Land Development, LLC, The Shipyard Communities, LLC, Heritage Fields LLC, Five Point Communities Management, Inc., Five Point Communities, LP and the other parties named therein (Exhibit 10.4 to Registrant's Registration Statement on Form S-11 filed April 7, 2017 is incorporated herein by this reference) 10.16 Transition Services Agreement, dated as of May 2, 2016, by and between the Registrant and Lennar (Exhibit 10.8 to Registrant's Registration Statement on Form S-11 filed April 7, 2017 is incorporated herein by this reference) 10.17 Disposition and Development Agreement (Candlestick Point and Phase 2 of the Hunters Point Shipyard), dated June 3, 2010, by and between the Redevelopment Agency of the City and County of San Francisco and CP Development Co., LP (Exhibit 10.9 to Registrant's Registration Statement on Form S-11 filed April 7, 2017 is incorporated herein by this reference) 79 Table of Contents 10.18 First Amendment to Disposition and Development Agreement (Candlestick Point and Phase 2 of the Hunters Point Shipyard), dated December 19, 2012, by and between the Successor Agency to the Redevelopment Agency of the City and County of San Francisco and CP Development Co., LP (Exhibit 10.10 to Registrant's Registration Statement on Form S-11 filed April 7, 2017 is incorporated herein by this reference) 10.19 Second Amendment to Disposition and Development Agreement (Candlestick Point and Phase 2 of the Hunters Point Shipyard), dated December 1, 2014, by and between the Successor Agency to the Redevelopment Agency of the City and County of San Francisco and CP Development Co., LP (Exhibit 10.11 to Registrant's Registration Statement on Form S-11 filed April 7, 2017 is incorporated herein by this reference) 10.20 Third Amendment to Disposition and Development Agreement (Candlestick Point and Phase 2 of the Hunters Point Shipyard), dated as of August 10, 2018, by and between CP Development Co., LLC and the Successor Agency to the Redevelopment Agency of the City and County of San Francisco (Exhibit 10.1 to the Current Report on Form 8-K filed on August 16, 2018 is incorporated herein by this reference). 10.21 Interim Lease, dated as of December 3, 2004, by and between the Redevelopment Agency of the City and County of San Francisco and Lennar/BVHP, LLC (Exhibit 10.12 to Registrant's Registration Statement on Form S-11 filed April 7, 2017 is incorporated herein by this reference) 10.22 First Amendment to the Interim Lease, dated as of October 16, 2008, by and between Redevelopment Agency of the City and County of San Francisco and HPS Development Co., LP (Exhibit 10.13 to Registrant's Registration Statement on Form S-11 filed April 7, 2017 is incorporated herein by this reference) 10.23 Second Amendment to the Interim Lease, dated as of May 31, 2011, by and between Redevelopment Agency of the City and County of San Francisco and HPS Development Co., LP (Exhibit 10.14 to Registrant's Registration Statement on Form S-11 filed April 7, 2017 is incorporated herein by this reference) 10.24 Third Amendment to the Interim Lease, dated as of November 8, 2013, by and between the Successor Agency to the Redevelopment Agency of the City and County of San Francisco and HPS Development Co., LP (Exhibit 10.15 to Registrant's Registration Statement on Form S-11 filed April 7, 2017 is incorporated herein by this reference) 10.25 Fourth Amendment to the Interim Lease, dated as of September 1, 2015, by and among the Successor Agency to the Redevelopment Agency of the City and County of San Francisco, HPS Development Co., LP and CP Development Co., LP (Exhibit 10.16 to Registrant’s Registration Statement on Form S-11 filed April 7, 2017 is incorporated herein by this reference) 10.26 Fifth Amendment to the Interim Lease, effective as of March 1, 2017, by and among The Successor Agency to the Redevelopment Agency of the City and County of San Francisco, HPS Development Co., LP and CP Development Co., LLC (Exhibit 10.1 to Registrant's Current Report on Form 8-K dated May 15, 2017 is incorporated herein by this reference) 10.27 Entitlement Transfer Agreement, dated as of December 6, 2016, by and between CPHP Development Co., LLC and The Shipyard Communities, LLC (Exhibit 10.28 to Amendment No. 1 to Registrant's Registration Statement on Form S-11 filed April 24, 2017 is incorporated herein by this reference) 10.28 Second Amended and Restated Development and Management Agreement, dated as of April 21, 2017, by and among Heritage Fields El Toro, LLC, Five Point Communities Management, Inc., Five Point Operating Company, LLC and Five Point Communities, LP (Exhibit 10.32 to Amendment No. 1 to Registrant's Registration Statement on Form S-11 filed April 24, 2017 is incorporated herein by this reference) 10.29 Termination of Development Management Agreement (Candlestick Point Mixed-Use Project) (Exhibit 10.27 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 is incorporated herein by this reference) 10.30 Indenture, dated as of November 22, 2017, among Five Point Operating Company, LP, Five Point Capital Corp., the Guarantors party thereto and Wells Fargo Bank, National Association, as trustee (Exhibit 4.1 to the Current Report on Form 8-K filed on November 22, 2017 is incorporated herein by this reference). 10.31 First Supplemental Indenture, dated as of November 30, 2017, among Five Point Operating Company, LP, Five Point Capital Corp., the guarantors party thereto and Wells Fargo Bank, National Association, as trustee (Exhibit 4.2 to the Current Report on Form 8-K filed on November 30, 2017 is incorporated herein by this reference). 10.32 Second Supplemental Indenture, dated as of July 26, 2019, among Five Point Operating Company, LP, Five Point Capital Corp., the guarantors party thereto and Wells Fargo Bank, National Association, as trustee (Exhibit 4.3 to the Current Report on Form 8-K filed on July 26, 2019 is incorporated herein by this reference). 10.33 Credit Agreement, dated as of April 18, 2017, by and among Five Point Operating Company, LLC, ZB, N.A. dba California Bank & Trust and the lenders party thereto (Exhibit 10.31 to Amendment No. 1 to Registrant's Registration Statement on Form S-11 filed April 24, 2017 is incorporated herein by this reference) 80 Table of Contents 10.34 First Amendment to Credit Agreement, dated as of November 8, 2017, by and among Five Point Operating Company, LP, ZB, N.A., dba California Bank & Trust, Comerica Bank, N.A., JPMorgan Chase Bank, N.A., and Citibank, N.A. (Exhibit 10.5 of the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2017 is incorporated herein by this reference) 10.35 Second Amendment to Credit Agreement, dated as of May 10, 2019, by and among Five Point Operating Company, LP, Zions Bancorporation, N.A. (fka ZB, N.A.) dba California Bank & Trust, Comerica Bank, N.A., JPMorgan Chase Bank, N.A., and Citibank, N.A. (Exhibit 10.1 to the Current Report on Form 8-K filed on May 16, 2019 is incorporated herein by this reference) 10.36 Third Amendment to Credit Agreement, dated as of April 19, 2021, by and among Five Point Operating Company, LP, Zions Bancorporation, N.A. dba California Bank & Trust, Comerica Bank, JPMorgan Chase Bank, N.A., and Citibank, N.A. (Exhibit 10.1 to the Current Report on Form 8-K filed on April 20, 2021 is incorporated herein by this reference) 10.37 Guaranty Agreement, executed as of August 10, 2017, by Five Point Holdings, LLC for the benefit of SPT CA Funding 2, LLC (Exhibit 10.2 to the Current Report on Form 8-K filed on August 10, 2017 is incorporated herein by this reference) 10.38 Mezzanine Guaranty Agreement, executed as of August 10, 2017, by Five Point Holdings, LLC for the benefit of SPT CA Funding 2, LLC (Exhibit 10.3 to the Current Report on Form 8-K filed on August 10, 2017 is incorporated herein by this reference) 21.1 List of Subsidiaries** 23.1 Consent of Independent Registered Public Accounting Firm** 31.1 Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002** 31.2 Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002** 32.1 Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002** 32.2 Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002** 101.INS XBRL Instance Document - the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document 101.SCH XBRL Taxonomy Extension Schema Document 101.CAL XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF XBRL Taxonomy Extension Definition Linkbase Document 101.LAB XBRL Taxonomy Extension Label Linkbase Document 101.PRE XBRL Taxonomy Extension Presentation Linkbase Document 104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). * Management contract or compensatory plan or arrangement ** Filed herewith 81 Table of Contents ITEM 16. Form 10-K Summary None. 82 Table of Contents SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. FIVE POINT HOLDINGS, LLC By: /s/ Daniel Hedigan Daniel Hedigan Chief Executive Officer Date: March 11, 2022 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Principal Executive Officer: Daniel Hedigan /s/ Daniel Hedigan Chief Executive Officer Date: March 11, 2022 Principal Financial and Accounting Officer: Erik Higgins /s/ Erik Higgins Chief Financial Officer and Vice President Date: March 11, 2022 Directors: Kathleen Brown /s/ Kathleen Brown Gary Hunt /s/ Gary Hunt Date: March 11, 2022 Date: March 11, 2022 William Browning /s/ William Browning Stuart Miller /s/ Stuart Miller Date: March 11, 2022 Date: March 11, 2022 Evan Carruthers /s/ Evan Carruthers Michael Rossi /s/ Michael Rossi Date: March 11, 2022 Date: March 11, 2022 Jonathan Foster /s/ Jonathan Foster Michael Winer /s/ Michael Winer Date: March 11, 2022 Date: March 11, 2022 Emile Haddad /s/ Emile Haddad Date: March 11, 2022 83 Table of Contents SCHEDULE III—REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 2021 ($ in thousands) Initial Cost Costs Capitalized Subsequent to Acquisition (a) Gross Amounts at Which Carried at Close of Period (b) Description Location Encumbrances Land Buildings and Improvements Land Buildings and Improvements Land Buildings and Improvements Total Accumulated Depreciation Date of Construction Date Acquired / Completed Depreciation Life Valencia (formerly Newhall Ranch)- Land under development Los Angeles County, CA $ — $ 111,172 $ — $ 715,197 $ — $ 826,369 $ — $ 826,369 $ — 2009 N/A Candlestick and The San Francisco Shipyard- Land under development San Francisco, CA — 1,038,154 — 232,301 — 1,270,455 — 1,270,455 — 2016 N/A Agriculture- Operating property Los Angeles County, CA Ventura County, CA — 40,634 1,114 ( 13,477 ) 1,854 27,157 2,968 30,125 (c) 2,020 2009 (d) Total $ — $ 1,189,960 $ 1,114 $ 934,021 $ 1,854 $ 2,123,981 $ 2,968 $ 2,126,949 (e) $ 2,020 (e) (a) Costs capitalized subsequent to acquisitions are net of land sales for real estate development properties and net of disposals, transfers and impairment write-downs for operating properties. (b) The aggregate cost of land and improvements for federal income tax purposes is approximately $ 2.2 billion (unaudited). This basis does not reflect the Company’s deferred tax assets and liabilities as these amounts are computed based upon the Company’s outside basis in their partnership interest. (c) Included in properties and equipment, net in the consolidated balance sheet. (d) See Note 2 of the Notes to Consolidated Financial Statements for information related to depreciation. (e) Reconciliation of “Real Estate and Accumulated Depreciation”: Reconciliation of Real Estate 2021 2020 2019 (In thousands) Balance at beginning of year $ 2,020,976 $ 1,919,777 $ 1,726,059 Improvements and additions (1) 227,482 189,395 290,813 Inventory relief from real estate sold ( 116,393 ) ( 85,953 ) ( 96,897 ) Reimbursements ( 5,116 ) ( 2,243 ) ( 198 ) Balance at end of year $ 2,126,949 $ 2,020,976 $ 1,919,777 (1) Improvements and additions include noncash project accruals and capitalized interest. Reconciliation of Accumulated Depreciation 2021 2020 2019 (In thousands) Balance at beginning of year $ 1,891 $ 1,758 $ 1,587 Additions 129 133 176 Disposals — — ( 5 ) Balance at end of year $ 2,020 $ 1,891 $ 1,758 84 Table of Contents INDEPENDENT AUDITOR’S REPORT To the Members of Heritage Fields LLC Irvine, California Opinion We have audited the consolidated financial statements of Heritage Fields LLC, a Delaware limited liability company, and its subsidiaries (the "Company"), which comprise the consolidated balance sheets as of December 31, 2021 and 2020, and the related consolidated statements of operations, members’ capital, and cash flows for each of the three years in the period ended December 31, 2021, and the related notes to the consolidated financial statements. In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in accordance with accounting principles generally accepted in the United States of America. Basis of Opinion We conducted our audits in accordance with auditing standards generally accepted in the United States of America (GAAS). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of the Company and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audits. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Responsibilities of Management for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with accounting principles generally accepted in the United States of America, and for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. In preparing the consolidated financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern for one year after the date that the financial statements are available to be issued. Auditor’s Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with GAAS will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the consolidated financial statements. In performing an audit in accordance with GAAS, we: • Exercise professional judgment and maintain professional skepticism throughout the audit. • Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. Accordingly, no such opinion is expressed. • Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the consolidated financial statements. • Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern for a reasonable period of time. 85 Table of Contents We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control-related matters that we identified during the audit. /s/ DELOITTE & TOUCHE LLP Costa Mesa, California March 11, 2022 86 Table of Contents HERITAGE FIELDS LLC AND SUBSIDIARIES (A Delaware Limited Liability Company) CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2021 AND 2020 (In thousands) December 31, 2021 2020 ASSETS LAND UNDER DEVELOPMENT $ 668,967 $ 896,538 HOMES UNDER CONSTRUCTION 18,267 19,589 CASH AND CASH EQUIVALENTS 140,004 128,850 INVESTMENT IN JOINT VENTURE 2,985 — RECEIVABLES AND OTHER ASSETS—Net 29,566 24,449 TOTAL $ 859,789 $ 1,069,426 LIABILITIES, REDEEMABLE INTERESTS, AND MEMBERS’ CAPITAL LIABILITIES: Debt $ 3,667 $ 5,381 Accrued management fees and reimbursements 102,686 109,730 Accounts payable and other liabilities 22,324 24,818 Total liabilities 128,677 139,929 COMMITMENTS AND CONTINGENCIES (Note 8) REDEEMABLE LEGACY INTERESTS 82,719 133,695 MEMBERS’ CAPITAL 648,393 795,802 TOTAL $ 859,789 $ 1,069,426 See notes to consolidated financial statements. 87 Table of Contents HERITAGE FIELDS LLC AND SUBSIDIARIES (A Delaware Limited Liability Company) CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2021, 2020 AND 2019 (In thousands) Year Ended December 31, 2021 2020 2019 REVENUES: Land sales $ 409,555 $ 24,827 $ 270,970 Home sales 26,172 — — Total revenues 435,727 24,827 270,970 COSTS AND EXPENSES: Land sales 301,247 15,304 179,836 Home sales 20,022 — — Management fee 25,969 4,378 22,301 Selling, general and administrative 30,658 35,823 37,437 Total costs and expenses 377,896 55,505 239,574 EQUITY IN LOSS FROM JOINT VENTURE (1,409) — — INTEREST INCOME 496 1,272 3,489 NET INCOME (LOSS) $ 56,918 $ (29,406) $ 34,885 See notes to consolidated financial statements. 88 Table of Contents HERITAGE FIELDS LLC AND SUBSIDIARIES (A Delaware Limited Liability Company) CONSOLIDATED STATEMENTS OF MEMBERS’ CAPITAL FOR THE YEARS ENDED DECEMBER 31, 2021, 2020 AND 2019 (In thousands) MEMBERS’ CAPITAL— January 1, 2019 $ 791,441 Net income 34,885 MEMBERS’ CAPITAL— December 31, 2019 826,326 Cumulative effect of change in accounting principle (See Note 2) (1,118) Net loss (29,406) MEMBERS’ CAPITAL—December 31, 2020 795,802 Cash distributions (204,327) Net income 56,918 MEMBERS’ CAPITAL—December 31, 2021 $ 648,393 See notes to consolidated financial statements. 89 Table of Contents HERITAGE FIELDS LLC AND SUBSIDIARIES (A Delaware Limited Liability Company) CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2021, 2020 AND 2019 (In thousands) Year Ended December 31, 2021 2020 2019 CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 56,918 $ (29,406) $ 34,885 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Cost of land sales 301,247 15,304 179,836 Cost of home sales 20,022 — — Equity in loss of from joint venture 1,409 — — Changes in operating assets and liabilities: Land under development (73,676) (56,512) 9,020 Homes under construction (18,700) (4,058) — Receivables and other assets, net (5,117) 6,828 1,441 Accrued management fees and reimbursements (7,044) (2,896) 16,282 Accounts payable and other liabilities (2,494) (16,602) (9,125) Net cash provided by (used in) operating activities 272,565 (87,342) 232,339 CASH FLOWS FROM INVESTING ACTIVITIES: Contributions to joint venture (4,589) — — Distributions from joint venture 195 — — Net cash used in investing activities (4,394) — — CASH FLOWS FROM FINANCING ACTIVITIES: Legacy Interest distributions (50,976) (76,272) — Payments of debt (1,714) (538) — Percentage Interest distributions (204,327) — — Net cash used in financing activities (257,017) (76,810) — NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 11,154 (164,152) 232,339 CASH AND CASH EQUIVALENTS—Beginning of year 128,850 293,002 60,663 CASH AND CASH EQUIVALENTS—End of year $ 140,004 $ 128,850 $ 293,002 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION— Cash paid for interest, all of which was capitalized to inventories $ 12,037 $ 3,190 $ — See notes to consolidated financial statements. 90 Table of Contents HERITAGE FIELDS LLC AND SUBSIDIARIES (A Delaware Limited Liability Company) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. DESCRIPTION OF ORGANIZATION AND OPERATIONS Heritage Fields LLC, a Delaware limited liability company (the “Company”), was formed on January 20, 2005. On July 12, 2005, the Company purchased property that was the site of the former Marine Corps Air Station, El Toro from the United States Department of the Navy (“Navy”), located in Irvine, California (the “Property”). On December 22, 2005, the Company conveyed its rights, title, and interests in the Property to the Company's subsidiary, Heritage Fields El Toro, LLC, a Delaware limited liability company ("HF El Toro") at the Company’s original cost for the purpose of developing and selling homesites and certain commercial sites in a mixed-use and residential community located on the Company’s Property (the “Project”). The Company has two classes of membership interests, Percentage Interests and Legacy Interests. The Company is managed by an Executive Committee comprised of representatives appointed by only the holders of Percentage Interests. The holders of Legacy Interests are entitled to receive certain priority distributions (see Note 6). The holders of the Percentage Interests will receive all other distributions. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Consolidation —The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and include the Company’s accounts and all of its direct and indirect wholly-owned subsidiaries’ accounts. All intercompany transactions and balances have been eliminated in consolidation. Use of Estimates —The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates. Concentration of Credit Risk —The Company’s inventories are all located in Irvine, California. The Company is subject to risks incidental to the ownership, development, and operation of commercial and residential real estate. These include, among others, the risks normally associated with changes in the general economic climate in the communities in which the Company operates, trends in the real estate industry, availability of land for development, changes in tax laws, interest rate levels, availability of financing, and potential liability under environmental and other laws. The Company’s credit risk relates primarily to cash and cash equivalents, notes receivable and contract assets. Cash accounts at certain institutions are currently insured by the Federal Deposit Insurance Corporation up to $250,000 in aggregate. At various times the Company maintained cash account balances in excess of insured amounts. Cash equivalents —Cash equivalents are short-term investments that have original maturity dates of three months or less. The carrying amount approximates fair value due to the short-term nature of these investments. Land under development —Land under development is stated at cost, unless it is determined to be impaired, in which case the impaired land under development is written down to fair value. Land under development includes land, land development costs, real estate taxes, and interest related to development. Included in land development costs are costs to entitle and permit the land for its intended use; costs incurred for infrastructure projects, such as schools, sewer, and roads; and site costs such as grading and amenities to bring the land to a finished state. Certain land development costs are reimbursable through development or other agreements with City of Irvine (the “City”) or other agencies and offset costs when received. Total reimbursements were $52.1 million, $9.3 million and $127.0 million for the years ended December 31, 2021, 2020 and 2019, respectively. Development overhead and selling expenses are expensed as incurred. Cost of land sales are allocated to residential homesites and commercial sites within the Project using the relative sales value method. Since this method requires the Company to estimate future development costs and expected revenue for the entire Project, the profit margin on subsequent land sales will be affected by both changes in the estimated total revenues, as well as any changes in the estimated total development costs of the Project. Accordingly, these estimates are reviewed regularly and revised for changes in actual experience, changes in revenue and cost estimates and changes in development plans. Given that development expenditures are capitalized to land under development and reflected in the consolidated statements of operations over the periods in which the Company has land sales, which generally includes future periods, the non-cash cost of land sales are reflected as an add back to net income in the consolidated statements of cash flows. Land under development is reviewed for potential impairment when events or changes in circumstances indicate that the carrying value of land under development may not be recoverable. Impairment indicators for the Project include, but are not 91 Table of Contents limited to significant increases in land development costs, significant decreases in pace and pricing of home sales within the Project and surrounding areas, and political and societal events that may negatively impact the local economy. There were no impairments identified for the years ended December 31, 2021, 2020 and 2019. Homes under construction —Homes under construction are a result of a fee build agreement with an unrelated third-party ("Fee Builder") that the Company contracted to build and act as a sales agent for a population of residential homes within the Project. The Fee Builder initially incurs all costs to build, market and sell the residential homes and the Company reimburses the Fee Builder as construction progresses. The Company pays the Fee Builder a fixed monthly overhead allowance for its services to construct, manage and maintain the homes during the construction process that is capitalized to homes under construction as incurred. Land, land development, amenities and home construction costs attributed to the fee build agreement are capitalized to homes under construction and allocated to cost of sales using the relative sales value method when homes are sold. The Company sets and approves the price at which the completed homes will be sold to homebuyers and upon the closing of a residential home to a third-party homebuyer, the Fee Builder will receive additional fees that are expensed as a cost of the home sale. Costs incurred for tangible assets constructed solely for model homes directly used in the sale process such as sales offices, design studios, landscaping, and furnishings are capitalized to receivables and other assets, net on the accompanying consolidated balance sheets and were depreciated over the expected selling life of the fee build community which was substantially complete as of December 31, 2021. All other selling and marketing costs, such as commissions and advertising, are expensed as incurred. Homes under construction are reviewed for potential impairment when events or changes in circumstances indicate that the carrying value of the homes may not be recoverable. Impairment indicators for the homes include, but are not limited to significant increases in construction costs, significant decreases in pace and pricing of home sales for the Project and surrounding areas, and political and societal events that may negatively impact the local economy. No impairments were identified for the years ended December 31, 2021 and 2020. Investment in joint venture —For investments in entities that the Company does not control, but exercises significant influence, the Company uses the equity method of accounting. The Company's judgment with regard to control involves consideration of various factors including the form of ownership, representation of the entity's governance, and the ability to participate in policy-making decisions. Investments accounted for under the equity method of accounting are recorded at cost and adjusted for the Company's share of cash contributions, cash distributions, and gain or loss of the entity's earnings. The Company eliminates a portion of intra-entity profits resulting from land sales between the Company and the joint venture until the assets are sold to a third-party. Note Receivables —Note receivables held by the Company are reflected at principal and accrued interest amounts due, net of an allowance for expected credit losses or discounts, if any. Interest payments are accrued in the period earned based on the stated interest rate and the outstanding principal balance, less any interest discounts stipulated by the note. Included in receivables and other assets, net on the accompanying consolidated balance sheets are notes and accrued interest receivables that the Company has with builders that are constructing affordable housing apartments on the Project (“Affordable Notes”). The Company records a discount on the principal balance for Affordable Notes when the note is zero interest bearing or contains other terms that are below market rate. Any such discount on Affordable Notes is capitalized as a project cost. The Company monitors the payment provisions of each note when determining past due or delinquency status. Additionally, the Company evaluates the carrying value of note and interest receivables at each reporting date to determine the need for an allowance for credit losses. Revenue Recognition —Under Accounting Standards Codification ("ASC") Topic 606, Revenue From Contracts With Customers (“ASC 606”), revenues from land sales are recognized when the Company satisfies the performance obligation at a point in time, which typically occurs when the control of the land passes to its customers. Revenue is recognized in an amount that reflects the consideration the Company expects to be entitled to receive (i.e. the transaction price) in exchange for the transfer of land. The transaction price typically contains fixed and variable components in which the fixed consideration represents the stated purchase price for the land. Some of the Company’s purchase and sale agreements contain a profit participation provision, a variable form of consideration, whereby the Company receives from homebuilders a portion of profit after the builder has received an agreed-upon margin. If the project profitability falls short of the participation threshold, no additional revenues are received. In most contracts, at the time of the land sale, the Company's estimate of profit participation, if any, is constrained, as there are significant factors outside of the Company’s control that will impact whether participation thresholds will be met. In addition, some residential homesite sale agreements contain a provision requiring the homebuilder to pay a marketing fee per residence sold, as a percentage of the home sale price. Such fees are estimated as a variable consideration and the amount the Company expects to be entitled to receive is recognized as revenue at the time of land sale. A contract asset or liability is recognized when the timing of the satisfaction of a performance obligation is different from the timing of the payments made by customers. Contract assets typically consist of estimates of contingent or variable consideration that has been included in the transaction price and recognized as revenue before the contingency is resolved and the contractual payment is due. Contract liabilities typically consist of payments received prior to satisfying the associated performance obligation. Changes in estimates of variable components of transaction prices could result in cumulative catch-up adjustments to revenue in periods after the Company transfers control of the land to the builder. Profit participation revenue of 92 Table of Contents $6.7 million, $3.6 million and $8.8 million were recognized for the years ended December 31, 2021, 2020 and 2019, respectively. Home sale revenues are recognized at the time of escrow closing, when title to and possession of the home is transferred to the homebuyer, and the single performance obligation of the Company, the delivery of a completed home, has been satisfied. Fair Value Measurements —The accounting guidance for fair value measurements and disclosures emphasizes that fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, the guidance establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity and the reporting entity’s own assumptions about market participant assumptions. The hierarchy classifies the inputs used to determine fair value into three levels as follows: Level 1 —Quoted prices for identical instruments in active markets. Level 2 —Quoted prices for similar instruments in active markets or inputs, other than quoted prices, that are observable for the instrument either directly or indirectly. Level 3 —Significant inputs to the valuation model are unobservable. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and consideration of factors specific to the asset or liability. Income Taxes —The consolidated financial statements contain no provision for income taxes since the income or loss of the Company flows through to the members who are responsible for including their share of the taxable results of operations on their respective tax returns. Accounting Standards Updates —In June 2016, the Financial Accounting Standards Board issued Accounting Standards Update No. 2016-13 , Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("ASU No. 2016-13") which amends the guidance on the impairment of financial instruments, including most debt instruments, trade receivables and loans. ASU No. 2016-13 adds to GAAP an impairment model known as the current expected credit loss model that is based on expected losses rather than incurred losses. Under the new guidance, an entity recognizes as an allowance its estimate of expected credit losses for instruments measured at amortized cost, resulting in a net presentation of the amount expected to be collected on the financial asset. The Company adopted ASU No. 2016-13 on January 1, 2020 using a modified retrospective approach resulting in a cumulative adjustment to Members' Capital of $1.1 million upon adoption. 3. RECEIVABLES AND OTHER ASSETS, net Receivables and other assets, net as of December 31, 2021 and 2020, consisted of the following (in thousands): December 31, 2021 2020 Affordable notes, net $ 15,425 $ 15,101 Marketing fee contract assets 14,141 9,348 Total receivables and other assets, net $ 29,566 $ 24,449 Principal and interest collected on affordable notes, net, was $0.3 million, $2.4 million and $2.1 million for the years ended December 31, 2021, 2020 and 2019, respectively. Interest income on affordable notes, net, was $0.4 million, $0.2 million and $0.2 million for the years ended December 31, 2021, 2020 and 2019, respectively, and are included in interest income on the accompanying consolidated statements of operations. At both December 31, 2021 and 2020, the Company had an allowance for credit loss of $1.0 million associated with the affordable notes. For the years ended December 31, 2021, 2020 and 2019, marketing fee revenue of $9.5 million, $0.9 million and $6.8 million, respectively, is included in land sale revenues in the accompanying consolidated statements of operations. Of these amounts, $9.1 million, $0.5 million and $6.1 million, respectively, represent marketing fee estimates recorded as contract assets when escrow closed with the homebuilder. Receipts of contractual amounts were $4.3 million, $4.6 million and $5.9 million for the years ended December 31, 2021, 2020 and 2019, respectively and reduced the carrying amount of the contract assets. 93 Table of Contents 4. DEBT In 2010, HF El Toro entered into an unsecured cash flow participation agreement in connection with a series of transfers, payoffs, and pay downs related to its then outstanding loan facility (“Debt Restructure”). The cash flow participation agreement, was determined to be a new debt instrument and in accordance with ASC 470-50, Modifications and Extinguishments was recorded at its fair value on the date of the Debt Restructure. Under the terms of the participation agreement, 4.66% of capital distributions (as defined in the participation agreement) made by HF El Toro are due to the holder of the participation agreement. When a participation payment is made or reasonably assured to be made, the Company uses a proportional interest method to determine the portion of the payment that represents interest expense and the portion applied to the principal. The principal carrying balance of the participation agreement was $3.7 and $5.4 million as of December 31, 2021 and 2020, respectively, and is included in debt on the accompanying consolidated balance sheets. Total interest incurred related to the participation agreement during the years ended December 31, 2021 and 2019 was $12.0 million and $3.2 million, respectively, and was capitalized to land under development in the accompanying consolidated balance sheets. No interest was incurred during the year ended December 31, 2020. 5. ACCOUNTS PAYABLE AND OTHER LIABILITIES Accounts payable and other liabilities as of December 31, 2021 and 2020, consisted of the following (in thousands): 2021 2020 Accounts payable $ 5,289 $ 8,265 Other liabilities: Accrued liabilities 10,460 7,010 Development obligations 6,575 9,543 Total accounts payable and other liabilities $ 22,324 $ 24,818 6. REDEEMABLE LEGACY INTERESTS The Legacy Interest is classified as temporary equity and reported on the consolidated balance sheet as Redeemable Legacy Interests. The Legacy Interests are not reported as permanent equity within Members’ Capital as management believes that it is probable that the Legacy Interests will be fully redeemed through distributions of available cash in accordance with the terms of the amended and restated limited liability company agreement. The holders of Legacy Interests were entitled to receive i) $476.0 million in priority distributions over Percentage Interests, plus ii) an amount up to $89.0 million in distributions paid jointly with distributions to holders of Percentage Interests. Distributions of $51.0 million and $76.3 million were made to holders of the Legacy Interest during the years ended December 31, 2021 and 2020, respectively. No distributions were made to the holders of Legacy Interests during the year ended December 31, 2019. As of December 31, 2021, the $476.0 million priority distributions had been fully paid and $82.7 million in Legacy Interests to be paid jointly with distributions to holders of Percentage Interests were outstanding. After the cumulative distributions to the holders of Legacy Interests has reached $565.0 million, the Legacy Interest will no longer be deemed outstanding. 7. RELATED PARTY TRANSACTIONS Management Fee HF El Toro and Five Point Communities Management, Inc., as nominee for the benefit of Five Point Communities, LP (the “Management Company”), are parties to a development management agreement in which the Management Company has been engaged to manage the development of the Project and to generally supervise the day-to-day affairs of the Project. The Management Company is an affiliate of a member of the Company that holds a 37.5% Percentage Interest. The development management agreement was amended and restated on May 2, 2016 and subsequently amended and restated on April 21, 2017 (“A&R DMA”) to among other things, extend the initial term until December 2021 with up to five years of additional renewal periods, subject to a mutual agreement of parties. The A&R DMA’s initial term has been extended by mutual agreement of the parties to April 30, 2022 while the Company and the Management Company discuss the terms of a renewal. The base annualized management fee for the initial term of the A&R DMA was subject to annual increases for changes in a specified consumer price index. The total annual base management fee incurred for the years ended December 31, 2021, 2020 and 2019 was $6.8 million, $6.8 million and $6.6 million, respectively, and is included in management fee in the accompanying consolidated statements of operations. The A&R DMA also contains incentive compensation that becomes payable to the Management Company, calculated generally, as 9% of distributions in excess of the priority $476.0 million Legacy Interests. 94 Table of Contents Total incentive compensation management fee incurred with respect to the A&R DMA for the years ended December 31, 2021, 2020 and 2019 was $19.1 million, $2.0 million and $17.9 million, respectively, and is included in management fee in the accompanying consolidated statements of operations. The amount incurred for the years ended December 31, 2021, 2020 and 2019 represents an estimated amount of incentive compensation attributed to services provided during the periods that are determined to be probable of being paid. Management’s estimate is based on various underlying assumptions which include but are not limited to, the current and projected performance of the Project and the resulting cash that will be available for distributions. Changes in the estimated amount of aggregate payments probable of being made are recognized as a cumulative adjustment in the period the estimate changes. Actual payments of incentive compensation may differ materially from current estimates. During the year ended December 31, 2021, the Company paid $20.7 million in incentive compensation. No amounts were paid in 2020 and 2019. As of December 31, 2021 and 2020, $77.6 million and $79.2 million, respectively, was accrued for incentive compensation management fees, and is included in accrued management fees and reimbursements in the accompanying consolidated balance sheets. Included in selling, general and administrative costs and expenses in the accompanying consolidated statements of operations for the years ended December 31, 2021, 2020 and 2019 are $11.2 million, $11.4 million and $11.9 million, respectively, for general and administrative expenses incurred by the Management Company on behalf of the Company that are reimbursable under the A&R DMA. General and administrative expense reimbursements are settled in cash on a monthly basis. At December 31, 2021 and 2020, $2.9 million and $3.1 million, respectively, was accrued for general and administrative expense reimbursements and is included in accrued management fees and reimbursements in the accompanying consolidated balance sheets. Commercial Sub-Management Agreement Effective June 30, 2013, HF El Toro terminated its commercial development sub-management agreement (“Sub-MA”) with a member of the Company that holds a 12.5% Percentage Interest and a 12.5% Legacy Interest in the Company. Under the terms of the Sub-MA, certain incentive compensation provisions were vested upon termination. Incentive compensation payments become payable, calculated generally, as 2% of distributions (as defined in the Sub-MA) in excess of the first $476 million of priority Legacy Interests. As of December 31, 2021 and 2020, $23.0 million and $27.5 million, respectively, of incentive compensation management fee pertaining to the Sub-MA was accrued and is included in accrued management fees and reimbursements in the accompanying consolidated balance sheets. The amount accrued at December 31, 2021 and 2020 represents an estimated amount of incentive compensation determined to be earned and probable of being paid. Management’s estimate is based on various underlying assumptions which include but are not limited to, the current and projected performance of the Project and the resulting cash that will be available for distributions. Changes in the estimated amount of aggregate payments probable of being made in future periods will be recognized as a cumulative adjustment to management fee expense in the period the estimate changes. Actual payments of incentive compensation may differ materially from current estimates. During the year ended December 31, 2021, the Company paid $4.6 million in incentive compensation. No amounts were paid in 2020 and 2019. Purchase and Sale and Development Agreements In the normal course of business, the Company may enter into purchase and sale agreements, development agreements or other contracts with the Company's Joint Venture or the Company's members or affiliates of members. Land sale revenues recognized from related party transactions and included in the accompanying consolidated statements of operations during the years ended December 31, 2021, 2020 and 2019 are as follows (in thousands): 2021 2020 2019 Land sales $ 56,112 $ — $ 121,500 Profit participation 5,127 2,458 8,400 Marketing fees 1,558 204 3,400 Related party land sale revenues $ 62,797 $ 2,662 $ 133,300 Contract Asset Contract asset balances are recorded on the consolidated balance sheet in receivables and other assets, net. For each of the years ended December 31, 2021 and 2020, included in receivables and other assets, net on the accompanying consolidated balance sheets were related party contract assets of $3.6 million. Investment in Joint Venture In 2021, the Company made a capital contribution of $4.6 million to an entity (the “Landbank Venture”) organized for the purpose of taking assignment from homebuilders land purchase and sale agreements and purchasing residential lots within the Project while concurrently entering into option and development agreements with homebuilders in which the homebuilder retains the option to purchase the land to construct and sell homes. The Company has a 10% interest in the Landbank Venture, 95 Table of Contents and most major decisions require the Company’s approval in addition to the approval of the Landbank Venture’s other unaffiliated member. The Company does not have a controlling financial interest in the Landbank Venture but has the ability to significantly influence the Landbank Venture’s operating and financial policies and accounts for the Landbank Venture under the equity method of accounting. Subsequent to the Company’s investment, the Landbank Venture took assignment of certain purchase and sale agreements and purchased land from the Company for $56.1 million while concurrently entering into option and development agreements with third-party homebuilders. When the Company sells land to the Landbank Venture, it eliminates its pro-rata share of the intra-entity profits generated from the sale through earnings (loss) from unconsolidated entities until the land is sold by the Landbank Venture to third-party homebuilders. During the year ended December 31, 2021, the Company recognized equity in loss of $1.4 million from the Landbank Venture. At December 31, 2021, the carrying value of the Company’s investment in the Landbank Venture was $3.0 million. 8. COMMITMENTS AND CONTINGENCIES In the routine conduct of its business, the Company is subject to the usual obligations associated with entering into contracts for the purchase, development, and sale of real estate. In the ordinary course of business and as a part of the entitlement and development process, the Company is required to provide performance bonds to ensure completion of certain development obligations. The Company had outstanding performance bonds of $43.8 million and $70.0 million as of December 31, 2021 and 2020, respectively. On September 8, 2009, the Irvine City Council approved an Amended and Restated Development Agreement (the "ARDA") between HF El Toro and the City (on behalf of itself and now as successor agency to the dissolved Irvine Redevelopment Agency, which Irvine Redevelopment Agency was an original party to the ARDA). The ARDA became effective on December 27, 2010 and obligated the Company to construct certain defined public infrastructure improvements (i.e. joint backbone improvements) in and around the Project. The Company will have the right to reimbursement for a portion of the public infrastructure improvement costs from the City of Irvine Community Facilities District No. 2013-3 ("CFD"). The CFD is supported by special taxes levied on landowners within the improvement areas of the CFD. The CFD will also fund certain improvements, operations and maintenance costs of the Orange County Great Park (the "Park"). The Company, as a landowner within the improvement areas will be subject to the special taxes while it owns land within the improvement areas. On November 26, 2013, HF El Toro and the City entered into a second adjacent landowner agreement ("ALA II") in which HF El Toro committed to construct or cause the construction of a portion of the Park (the “Great Park Improvements”), which otherwise would have been an obligation of the City to construct under the terms of the ARDA. The ALA II stipulated that HF El Toro’s aggregate investment in the Great Park Improvements would total a minimum of $172.0 million. In addition to the Great Park Improvements, the ALA II and a memorandum of understanding regarding funding of Marine Way (“MOU”) infrastructure improvements committed HF El Toro to perform on certain other defined items in the amount of $19.5 million as well as it committed HF El Toro to make $20.0 million of certain direct payments to the City beginning in August 2016. As of December 31, 2021 and 2020, the carrying balance of amounts payable to the City totaled $2.4 million and $3.6 million, respectively, and the Company estimated the present value of the direct payments to equal their carrying amounts. The Company made $1.3 million in payments to the City under the ALA II and MOU for each of the years ended December 31, 2021 and 2020, respectively. Amortization expense, all of which was capitalized to inventories, totaled $0.1 million for each of the years ended December 31, 2021 and 2020. As also defined in the agreements, HF El Toro will have the right to receive up to an additional $40.0 million in CFD reimbursements for public infrastructure components of the Great Park Improvements. During 2019, the Company and the City entered into an amendment to ALA II. The amendment altered the scope of the Great Park Improvements to include water polo, basketball and volleyball facilities that would initially be paid for by the Company and ultimately reimbursed to the Company by the CFD. The amendment also altered the scope of the Great Park Improvements to consider the City's desire to eliminate the golf course currently contemplated and build a veteran's cemetery. The City is required to perform the necessary due diligence on the feasibility of a cemetery and complete its due diligence by October 2022. If the City concludes that a cemetery will ultimately be built, the Company agreed to pay an additional $28.0 million for the development and long-term maintenance of the cemetery. Due to the fact that the cemetery has not yet been approved by the City, the Company has not recorded any obligations on the accompanying consolidated balance sheets. If the City determines that a cemetery is not feasible, then both the Company and the City will revert back to building the golf course as originally contemplated in ALA II, with no additional obligation required by the Company. The Company may be a party to various claims, legal actions, and complaints arising in the ordinary course of business. The Company believes, the disposition of these other matters would not have a material adverse effect on the Company’s consolidated financial condition, results of operations, or cash flows. 96 Table of Contents As a significant landowner, developer, and holder of commercial properties, there exists the possibility that environmental contamination conditions exist that would require the Company to take corrective action. The Company believes any potential costs will not materially affect its consolidated financial statements. 9. SUBSEQUENT EVENTS The Company has evaluated subsequent events through March 11, 2022 the date the consolidated financial statements were issued, and has determined that, other than as disclosed, no events or transactions have occurred subsequent to December 31, 2021 that require adjustments to or disclosure in the Company’s consolidated financial statements. * * * * * * 97