What changed in this filing

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Item 1A. Risk Factors

2023-03-06 compared with 2022-03-11 · 31 added, 40 removed, 372 unchanged (16% of the section changed)

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Risks Related to Our Business and Industry

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

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

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

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.

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

In response to these steps, we initially 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 continue to disrupt the U.S.

There is significant uncertainty regarding the extent to which and how long the impacts of COVID-19 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.

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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.

In addition, the current conditions of high inflation and rising interest rates, which caused significant increases in mortgage rates during 2022, have resulted in decreased demand by homebuyers for new homes and a corresponding softening of demand by our guest builders for home sites.

Significant competition could have an adverse effect on our business.

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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.

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.

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.

housing and other public improvements.

As a result, the development of properties may be subject to periodic delays in certain areas due to the conditions imposed by the administering governmental authorities.

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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.

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.

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.

In this regard, certain portions of the El Toro Base and The San Francisco Shipyard have been or currently are listed on the USEPA’s National Priorities List as sites requiring cleanup under federal environmental law.

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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.

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

In addition, adverse decisions or publicity arising from any litigation could increase the cost and length of time to obtain

ultimate approval of a project, could require us to abandon all or portions of a project and could adversely affect the design, scope, plans and profitability of a project, any of which could negatively affect our financial condition and results of operations.

We may be subject to increased costs of insurance or limitations on coverage.

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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.

In recent years, we 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 transitions of our former Chief Executive Officer (Emile Haddad) and our former Chief Operating Officer (Lynn Jochim) to senior advisory roles, and the resignation of our former 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.

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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.

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.

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.

For example, the distribution rights of the holders of legacy interests in the Great Park Venture and the Class B partnership interests in Five Point Communities, LP will reduce the cash available for distribution to the operating company.

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We expect that during the expected term of the TRA, the payments that we make to the parties to the TRA could be substantial.

The actual amount and timing of any payments under the TRA will vary depending upon a number of factors, including the timing of exchanges of Class A units of the operating company, the price of our Class A common shares at the time of such exchanges, the extent to which such exchanges are taxable and our ability to use the potential tax benefits, which will depend on the amount and timing of our taxable income and the rate at which we pay income tax.

exchanges, the extent to which such exchanges are taxable and our ability to use the potential tax benefits, which will depend on the amount and timing of our taxable income and the rate at which we pay income tax.

Due to the various factors that will affect the amount and timing of the tax benefits we will receive, it is not possible to determine the exact amount of payments that will be made under the TRA.

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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

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We may decide to increase leverage to execute our development plan.

Our board of directors will consider a number of factors when evaluating our level of indebtedness and when making decisions regarding the incurrence of new indebtedness, including the estimated market value of our assets and the ability of particular assets, and our company as a whole, to generate cash flow to cover the expected debt service.

Our board of directors will consider a number of factors when evaluating our level of indebtedness and when making decisions regarding the incurrence of new indebtedness, including

the estimated market value of our assets and the ability of particular assets, and our company as a whole, to generate cash flow to cover the expected debt service.

Although the indenture relating to our senior notes limits our ability to incur additional indebtedness, our operating agreement does not limit the amount of debt we may incur, and our board of directors may change our target debt levels at any time without the approval of our shareholders.

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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.

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.

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.

Further, we may need to renegotiate our revolving credit facility or other agreements that reference LIBOR to replace LIBOR with the new standard that is established.

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Risks Related to Ownership of Our Class A Common Shares

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.

An emerging growth company may take advantage of specified exemptions from various requirements that are otherwise applicable generally to public companies in the United States.

These provisions include:

• an exemption from the auditor attestation requirement in the assessment of the emerging growth company’s internal control over financial reporting;

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

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.

If some investors find our Class A common shares less attractive as a result of our reliance on these exemptions, there may be a less active trading market for our Class A common shares and our share price may be adversely affected.

When we are no longer deemed to be an emerging growth company, we will not be entitled to the exemptions provided in the JOBS Act discussed above.

An active trading market for our Class A common shares may not be sustained and the price of our Class A common shares may be volatile.

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As of December 31, 2022, we had outstanding 69,068,354 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.

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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.

The per share trading price of our Class A common shares may decline significantly when the restrictions on resale by certain of our shareholders lapse or upon the registration of additional Class A common shares pursuant to registration rights granted to certain shareholders.

The per share trading price of our Class A

common shares may decline significantly when the restrictions on resale by certain of our shareholders lapse or upon the registration of additional Class A common shares pursuant to registration rights granted to certain shareholders.

We do not intend to pay distributions on our Class A common shares for the foreseeable future.

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Any attack on such systems that would result in the unauthorized release or loss of employee or other confidential or sensitive data could have a material adverse effect on our business.

The California Privacy Act of 2018 (“CCPA”), which became effective on January 1, 2020, provides a new private right of action for data breaches and requires companies that process information on California residents to make new disclosures to consumers about their data collection, use and sharing practices and allow consumers to opt out of certain data sharing with third parties.

If we fail, or are perceived to have failed, to properly respond to security breaches of our or third-party’s information technology systems or fail to properly respond to consumer requests under the CCPA, we could experience reputational damage, an increase in our costs and exposure to additional material legal claims and liability.

If we fail, or are perceived to have failed, to properly respond to security breaches of our or third-party’s information technology systems or fail to properly respond to consumer requests under applicable privacy laws, we could experience reputational damage, an increase in our costs and exposure to additional material legal claims and liability.

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.

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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