What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-03-06 compared with 2022-03-11 · 171 added, 170 removed, 364 unchanged (48% of the section changed)

9 unchanged sentences

The operating company directly or indirectly owns equity interests in:

• Five Point Land, LLC, which owns The Newhall Land & Farming Company, a California limited partnership, the entity that is developing Valencia (formerly known as Newhall Ranch), our community in northern Los Angeles County, California;

• Five Point Land, LLC, which owns The Newhall Land & Farming Company, a California limited partnership, the entity that is developing Valencia, our community in northern Los Angeles County, California;

• The Shipyard Communities, LLC (the “San Francisco Venture”), which is developing Candlestick and The San Francisco Shipyard, our communities in the City of San Francisco, California;

• Heritage Fields LLC (the “Great Park Venture”), which is developing Great Park Neighborhoods, our community in Orange County, California;

• Five Point Office Venture Holdings I, LLC (the “Gateway Commercial Venture”), which owns portions of the Five Point Gateway Campus, a commercial office and medical campus located within the Great Park Neighborhoods;

• Five Point Office Venture Holdings I, LLC (the “Gateway Commercial Venture”), which owns portions of the Five Point Gateway Campus, a commercial office, research and development and medical campus located within the Great Park Neighborhoods;

• Five Point Communities, LP and Five Point Communities Management, Inc.

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Please review “Structure and Formation of Our Company”, “Our Communities” and “Commercial” under Part I, Item 1 of this report for a description of our organizational structure, each of our communities and our commercial venture.

Changes to Board and Executive Positions

On February 9, 2022, Daniel Hedigan was appointed as our Chief Executive Officer.

Hedigan is an industry veteran with over 40 years of experience in the residential real estate sector and extensive expertise in mixed-use planned communities.

Preceding Mr.

Hedigan’s appointment, and effective as of September 30, 2021, our founder, Emile Haddad, stepped down from his roles as Chairman, Chief Executive Officer and President and transitioned to a senior advisory role.

Haddad remains a member of the Board of Directors, and as the company founder, the Board elected him as Chairman Emeritus.

Concurrent with Mr.

Haddad’s transition, the Board of Directors named Stuart Miller as Executive Chairman of the Board.

In January 2022, Erik Higgins, our Chief Financial Officer, informed us of his plans to resign following the filing of this annual report, and the Board of Directors appointed our Vice President and Corporate Controller, Leo Kij, to serve as interim Chief Financial Officer upon Mr.

Higgins’ resignation.

In addition, in February 2022, Lynn Jochim transitioned from her position as President and Chief Operating Officer into an advisory role pursuant to a three-year advisory agreement.

Operational Highlights

In 2021, our Valencia and Great Park Neighborhood communities saw significant homebuyer demand which in turn led to strong land sale activity.

At Valencia, we continued to invest in the development of infrastructure with a focus on completing utility improvements and community amenities in our initial neighborhoods.

By the end of 2021, our guest builders had opened 14 of our initial 18 neighborhoods for home sales and had sold 346 homes since sales began in May 2021.

Operational Highlights and Outlook

Despite the onset of a down real estate market in 2022, we finished 2022 by executing on a meaningful step in our commercial land sale strategy with the sale of a 42 acre site by the Great Park Venture.

The Federal Reserve's aggressive increase in interest rates in 2022 created a slowdown in residential home sales, which resulted in home builders either pausing or halting altogether on new land acquisitions in our communities and across California as pricing and absorption adjusted to the new market dynamics.

In 2023, we will be focused on three main priorities:

generating revenue, managing our capital spend to better align capital spending with near-term revenue opportunities, and managing our selling, general and administrative ("SG&A") costs.

Following the successful commercial land sale at the Great Park Neighborhoods in the fourth quarter of 2022, we remain optimistic in moving forward with our unique commercial land offerings at the Great Park Neighborhoods and Valencia, both of which are positioned within land constrained markets.

At Valencia, with a focus on managing capital spend to optimize the timing and amount of spending in relation to anticipated revenues, we continued to invest in the development of infrastructure in addition to completing community amenities in our initial neighborhoods.

By the end of 2022, our guest builders had opened our initial 18 neighborhoods and sold 594 homes during 2022, for a total of 940 homes sold since sales began in May 2021.

Homes in our initial neighborhoods consist of a wide mix of attached and detached single family homes that are attracting first time buyers along with trade-up buyers.

In the fourth quarter of 2021, homebuilders purchased 643 homesites from us on approximately 57 acres of land for an aggregate gross purchase price of $167.3 million.

At the Great Park Neighborhoods, in which we have a 37.5% percentage interest and manage all aspects of the development cycle, a robust demand for homes in our community drove home sales by builders to a total of 655 homes, an increase of approximately 11% over 589 homes sold in 2020.

The high-quality schools and amenities at Great Park Neighborhoods and a strong

local economy continue to attract homebuyers to our community.

Additionally, a limited supply of new home inventory in Orange County has led to strong price appreciation among the single family attached and detached products available at the Great Park Neighborhoods.

In 2021, the Great Park Venture closed the sale of 887 homesites on approximately 72 acres of land for an aggregate gross purchase price of $393.3 million.

The Great Park Venture made distributions and related payments with proceeds from the land sales, of which we received approximately $98.3 million for both our ownership interests and incentive management fee compensation.

The initial term of our development management agreement with the Great Park Venture expired on December 31, 2021 but has been extended by mutual agreement of the parties through April 30, 2022.

We are currently in discussions with the other members of the Great Park Venture regarding renewal of the agreement.

While we currently expect the development management agreement to be renewed, we can provide no assurance as to the terms or timing of any such renewal, or that such renewal will be completed at all.

In response to the COVID-19 pandemic, we took immediate steps to protect the health and well-being of our associates and to preserve the financial strength of the company.

The substantial majority of our associates are still working remotely with access to necessary systems and resources to ensure business continuity.

We will transition our associates back to our offices when we believe it is appropriate after taking into account all federal, state and local laws, rules and regulations.

At the Great Park Neighborhoods, in which we have a 37.5% percentage interest and manage all aspects of the development cycle, a limited supply of available homes during most of 2022 combined with a higher interest rate environment resulted in a reduced number of homes sold by builders.

Home sales by builders totaled 326 homes in 2022.

We believe the high-quality schools and amenities at the Great Park Neighborhoods and a strong local economy continue to attract homebuyers to our community.

Additionally, a limited supply of new home inventory in Orange County has led to strong historical price appreciation among the single family attached and detached products available at the Great Park Neighborhoods.

In 2022, the Great Park Venture closed the sales of (i) 42 acres of commercial land, (ii) 61 homesites on approximately three acres of land and (iii) 22 homes under a fee build program, for an aggregate gross purchase price of $304.4 million.

The Great Park Venture made distributions and related payments

with proceeds from the land sales, of which we received approximately $66.9 million for both our ownership interests and incentive management fee compensation.

We are diligently focused on managing our SG&A costs to fit the current size and needs of our operations.

We reduced our SG&A in 2022 by approximately 29% from 2021, largely driven by an approximately 33% headcount reduction over the course of the year, in addition to reduced marketing expenditures.

We are continuing to look for additional costs savings opportunities in 2023.

Although the uncertainty in the market makes it difficult to anticipate a range of homesites and commercial acres we expect to sell in 2023, we are encouraged about our commercial land sale opportunities in 2023 at Valencia and at the Great Park Neighborhoods.

In addition, housing is still in short supply in our California markets, and we believe that demand for well-located homes in planned communities will remain strong.

We expect that there will be a need for homebuilders to begin buying land in 2023 in order to position themselves for 2024 home sales.

At December 31, 2022, we had $131.8 million in cash and $125.0 million available under our revolving credit facility, giving us total liquidity of $256.8 million that will allow us to be patient and strategic with our land offerings in 2023.

Factors That May Influence our Results of Operations

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

• Our Valencia segment (formerly Newhall) includes operating results related to the Valencia community and agricultural operations in Los Angeles and Ventura Counties, California.

• Our Valencia segment includes operating results related to the Valencia community and agricultural operations in Los Angeles and Ventura Counties, California.

Our investment in the Valencia Landbank Venture is also reported in the Valencia segment.

• Our San Francisco segment includes operating results for the Candlestick and The San Francisco Shipyard communities, as well as results attributable to the development management services that we previously provided to affiliates of Lennar Corporation (“Lennar”) in the San Francisco Bay Area.

Our last remaining management agreement with Lennar was terminated in early 2020.

• Our San Francisco segment includes operating results for the Candlestick and The San Francisco Shipyard communities.

• Our Great Park segment includes operating results for the Great Park Neighborhoods community as well as development management services provided by the management company for the Great Park Venture.

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Land sales—related party

43,286 53,219

Management services—related party

10 unchanged sentences

54,591 77,118

Restructuring 19,437 —

Total costs and expenses

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EQUITY IN EARNINGS FROM UNCONSOLIDATED ENTITIES 21,513 6,188

INCOME BEFORE INCOME TAX PROVISION 12,985 2,838

INCOME TAX BENEFIT (PROVISION) 325 (1,744)

NET INCOME 13,310 1,094

LESS NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS 6,742 1,522

NET INCOME (LOSS) ATTRIBUTABLE TO THE COMPANY $ 6,568 $ (428)

Revenues increased by $70.8 million, to $224.4 million for the year ended December 31, 2021, from $153.6 million for the year ended December 31, 2020.

The increase in revenues was primarily due to more land sales at our Valencia segment in 2021 compared to 2020.

(LOSS) INCOME BEFORE INCOME TAX BENEFIT (36,245) 12,985

INCOME TAX BENEFIT 1,471 325

NET (LOSS) INCOME (34,774) 13,310

LESS NET (LOSS) INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS (19,371) 6,742

NET (LOSS) INCOME ATTRIBUTABLE TO THE COMPANY $ (15,403) $ 6,568

Revenues decreased by $181.7 million, to $42.7 million for the year ended December 31, 2022, from $224.4 million for the year ended December 31, 2021.

The decrease in revenues was primarily due to a decrease in management services revenue at our Great Park segment in 2022 and land sales revenues recognized at our Valencia segment in 2021 compared to no land sales in 2022.

Cost of land sales.

The cost of land sales increased by $20.3 million, to $106.0 million for the year ended December 31, 2021, from $85.8 million for the year ended December 31, 2020.

The increase in cost of land sales was attributable to more land sales at our Valencia segment in 2021 compared to 2020.

The cost of land sales decreased by $107.0 million, to a credit of $1.0 million for the year ended December 31, 2022, from $106.0 million for the year ended December 31, 2021.

The decrease in cost of land sales was attributable to land sales at our Valencia segment in 2021 compared to no land sales in 2022.

Cost of management services.

Cost of management services increased by $11.0 million, or 53.6%, to $31.5 million for the year ended December 31, 2021, from $20.5 million for the year ended December 31, 2020.

The increase was primarily due to an increase in intangible asset amortization expense at our Great Park segment.

Cost of management services decreased by $11.2 million, or 35.6%, to $20.3 million for the year ended December 31, 2022, from $31.5 million for the year ended December 31, 2021.

The decrease was primarily due to a decrease in project team expenses and intangible asset amortization expense at our Great Park segment.

Selling, general, and administrative.

Selling, general, and administrative expenses decreased by $6.4 million, or 7.6%, to $77.1 million for the year ended December 31, 2021, from $83.5 million for the year ended December 31, 2020.

The decrease was primarily attributable to a decrease in corporate employee related expenses, including share-based compensation, offset by an increase in selling and marketing costs at our Valencia segment.

SG&A expenses decreased by $22.5 million, or 29.2%, to $54.6 million for the year ended December 31, 2022, from $77.1 million for the year ended December 31, 2021.

The decrease was mainly attributable to a decrease in employee related expenses.

We have had an approximately 33% reduction in headcount since the end of 2021.

Most of the reductions were the result of layoffs that occurred at the end of the first quarter of 2022.

Restructuring.

On February 9, 2022, Daniel Hedigan was appointed as our Chief Executive Officer.

Preceding Mr.

Hedigan’s appointment, Emile Haddad stepped down from his roles as Chairman, Chief Executive Officer and President effective as of September 30, 2021 and transitioned into a senior advisory role pursuant to a three-year advisory agreement.

Haddad remains a member of our board of directors serving as Chairman Emeritus.

Concurrent with Mr.

Hedigan’s appointment, Lynn Jochim transitioned from her position as President and Chief Operating Officer into an advisory role pursuant to a three-year advisory agreement.

Upon the appointment of Mr.

Hedigan as our Chief Executive Officer, we accrued a related party liability of $15.6 million attributed to advisory agreement payments due to Mr.

Haddad and Ms.

Jochim over the term of the respective advisory agreements.

In addition, we determined the service condition associated with Mr.

Haddad’s and Ms.

Jochim’s unvested restricted share awards had been modified.

As a result of this modification, we recognized approximately $3.0 million in share-based compensation expense as a restructuring cost during the year ended December 31, 2022.

In addition to our executive management restructuring activities, during the year ended December 31, 2022, we incurred $0.9 million in restructuring costs for severance benefits from layoffs that occurred in March 2022.

Equity in earnings from unconsolidated entities.

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Our segment results for the Great Park segment and the Commercial segment present the results of the Great Park Venture and the Gateway Commercial Venture at the book basis of the ventures within the respective segments.

Equity in earnings from unconsolidated entities decreased by $36.2 million, to $6.2 million for the year ended December 31, 2021, from $42.4 million for the year ended December 31, 2020.

Equity in earnings for the year ended December 31, 2021 was primarily a result of recognizing our share of the net income of the Great Park Venture generated from land and home sales during the period.

At the end of the first quarter of 2020, we recognized an other-than-temporary impairment of $26.9 million attributed to our investment in the Great Park Venture, which is included in equity in earnings from unconsolidated entities in our consolidated statement of operations for 2020.

The impairment was primarily 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.

In determining that the impairment was other-than-temporary, we concluded at the time that it was uncertain if a near term recovery of value that was lost as a result of delays to expected land sales from the impacts at the onset of the COVID-19 pandemic would occur.

See Note 4 to our consolidated financial statements included under Part II, Item 8 of this report.

Offsetting the impairment loss for the year ended December 31, 2020 was our share of the gains from the sale of three buildings and land by the Gateway Commercial Venture.

Income tax provision.

Equity in earnings from unconsolidated entities increased by $15.3 million, to $21.5 million for the year ended December 31, 2022, from $6.2 million for the year ended December 31, 2021.

Equity in earnings for the years ended December 31, 2022 and 2021 was primarily a result of recognizing our share of the net income of the Great Park Venture generated from land and home sales during each period.

Income taxes.

All operations are carried on through our subsidiaries, the majority of which are pass-through entities that are generally not subject to federal or state income taxation, as all of the taxable income, gains, losses, deductions, and credits are passed through to the partners, including the partners of the operating company and the San Francisco Venture.

We are responsible for income taxes on our allocable share of the operating company's income or gain.

Pre-tax loss of $36.2 million for the year ended December 31, 2022 resulted in a tax benefit of $1.5 million.

The tax benefit was primarily the result of the increase in net deferred tax assets exceeding the net increase in deferred tax liabilities after changes in our valuation allowance.

We assessed the realization of the net deferred tax asset and the need for a valuation allowance, based on positive and negative evidence, and determined that at December 31, 2022 it was more likely than not that such net deferred tax assets would not be fully realized.

Pre-tax income of $13.0 million for the year ended December 31, 2021 resulted in a tax benefit of $0.3 million.

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We assessed the realization of the net deferred tax asset and the need for a valuation allowance, based on positive and negative evidence, and determined that at December 31, 2021 it was more likely than not that such net deferred tax assets would not be realized.

Pre-tax income of $2.8 million for the year ended December 31, 2020 resulted in a tax provision of $1.7 million.

The tax provision was primarily the result of a $2.9 million decrease to our net deferred tax asset offset by a $1.9 million decrease to our deferred tax asset valuation allowance.

Additionally, we recognized approximately $0.8 million of current state tax provision as a result of California Assembly Bill 85, which suspended the use of net operating losses in tax years 2020 through 2021.

Our effective tax rate, before changes in valuation allowance, for the year ended December 31, 2021 increased from the year ended December 31, 2020 due to an increase in executive compensation subject to limitations in 2021.

Net income attributable to noncontrolling interests.

Our effective tax rate, before changes in valuation allowance, for the year ended December 31, 2022 decreased from the year ended December 31, 2021 due to changes in permanent differences, including executive compensation subject to limitations, relative to the change to pre-tax loss from pre-tax income in 2021.

Net (loss) income attributable to noncontrolling interests.

Until exchanged for our Class A common shares or, at our election, cash, noncontrolling interests represent interests held by other partners in the operating company and other members of the San Francisco Venture.

Net income attributable to the noncontrolling interests on the consolidated statement of operations represents the portion of earnings attributable to the interests in our subsidiaries held by the noncontrolling interests.

Net loss or income attributable to the noncontrolling interests on the consolidated statement of operations represents the portion of losses or earnings attributable to the interests in our subsidiaries held by the noncontrolling interests.

Segment Results and Financial Information

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Selling, general, and administrative 13,602 4,087 18,127 4,289 40,105 36,902 77,007 (22,416) 54,591

Restructuring — — — — — 19,437 19,437 — 19,437

Management fees—related party — — 53,298 — 53,298 — 53,298 (53,298) —

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Interest expense — — — (1,541) (1,541) — (1,541) 1,541 —

Loss on extinguishment of debt — — — (89) (89) — (89) 89 —

Miscellaneous 245 — — — 245 — 245 — 245

Total other income (expense) 246 1 1,532 (1,630) 149 824 973 98 1,071

EQUITY IN (LOSS) EARNINGS FROM UNCONSOLIDATED ENTITIES (903) — (1,409) — (2,312) — (2,312) 8,500 6,188

SEGMENT PROFIT (LOSS)/INCOME BEFORE INCOME TAX BENEFIT 54,360 (3,572) 64,134 1,284 116,206 (52,516) 63,690 (50,705) 12,985

EQUITY IN EARNINGS FROM UNCONSOLIDATED ENTITIES 1,196 — 354 — 1,550 — 1,550 19,963 21,513

SEGMENT (LOSS) PROFIT/LOSS BEFORE INCOME TAX BENEFIT (8,823) (3,396) 79,708 249 67,738 (55,515) 12,223 (48,468) (36,245)

INCOME TAX BENEFIT — — — — — 1,471 1,471 — 1,471

SEGMENT PROFIT (LOSS)/NET INCOME $ 54,360 $ (3,572) $ 64,134 $ 1,284 $ 116,206 $ (52,191) $ 64,015 $ (50,705) $ 13,310

SEGMENT (LOSS) PROFIT/NET LOSS $ (8,823) $ (3,396) $ 79,708 $ 249 $ 67,738 $ (54,044) $ 13,694 $ (48,468) $ (34,774)

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

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Land sales—related party 43,286 — 62,797 — 106,083 — 106,083 (62,797) 43,286

Home sales — — 26,172 — 26,172 — 26,172 (26,172) —

Management services—related party (2)

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Land sales 106,012 — 301,247 — 407,259 — 407,259 (301,247) 106,012

Home sales — — 20,022 — 20,022 — 20,022 (20,022) —

Management services (2)

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Interest expense — — — (1,235) (1,235) — (1,235) 1,235 —

Loss on extinguishment of debt — — — (474) (474) — (474) 474 —

Gain on asset sales, net — — — 112,260 112,260 — 112,260 (112,260) —

Miscellaneous 1,672 1,070 — — 2,742 978 3,720 — 3,720

1 unchanged sentence

EQUITY IN (LOSS) EARNINGS FROM UNCONSOLIDATED ENTITIES (903) — (1,409) — (2,312) — (2,312) 8,500 6,188

SEGMENT PROFIT (LOSS)/LOSS BEFORE INCOME TAX BENEFIT 21,193 (10,355) (22,504) 112,242 100,576 (59,232) 41,344 (38,506) 2,838

INCOME TAX PROVISION — — — — — (1,744) (1,744) — (1,744)

SEGMENT PROFIT (LOSS)/NET LOSS $ 21,193 $ (10,355) $ (22,504) $ 112,242 $ 100,576 $ (60,976) $ 39,600 $ (38,506) $ 1,094

SEGMENT PROFIT (LOSS)/INCOME BEFORE INCOME TAX BENEFIT 54,360 (3,572) 64,134 1,284 116,206 (52,516) 63,690 (50,705) 12,985

INCOME TAX BENEFIT — — — — — 325 325 — 325

SEGMENT PROFIT (LOSS)/NET INCOME $ 54,360 $ (3,572) $ 64,134 $ 1,284 $ 116,206 $ (52,191) $ 64,015 $ (50,705) $ 13,310

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

Valencia Segment (formerly Newhall)

Valencia Segment

Our Valencia property consists of approximately 15,000 acres in northern Los Angeles County and is designed to include approximately 21,500 homesites and approximately 11.5 million square feet of commercial space.

Valencia is the continuation of our community where already today approximately 20,000 households reside and approximately 60,000 people work.

The current communities under development in Valencia complement the neighboring communities that were previously developed by us, where approximately 20,000 households reside and approximately 60,000 people work.

We began selling homesites in the first development area at Valencia in 2019, and as of December 31, 2022 we had sold 1,866 homesites for aggregate consideration of approximately $421.2 million.

Homebuilders sold 594 homes at Valencia during the year ended December 31, 2022 and have sold a total of 940 homes since home sales began in May 2021.

Land sales and related party land sales revenues.

Total land sales revenues increased by $60.2 million, or 49.1%, to $182.8 million for the year ended December 31, 2021, from $122.6 million for the year ended December 31, 2020.

The increase in total land sales revenues was attributable to the recognition of revenue from the sale of land entitled for an aggregate of 643 homesites on approximately 57 acres during the year ended December 31, 2021 compared to the recognition of revenue from the sale of land entitled for an aggregate of 512 homesites on approximately 52 acres during the year ended December 31, 2020.

Total land sales revenues decreased by $174.4 million, or 95.4%, to $8.4 million for the year ended December 31, 2022, from $182.8 million for the year ended December 31, 2021.

The decrease in total land sales revenues was attributable to the recognition of revenue from the sale of land entitled for an aggregate of 643 homesites on approximately 57 acres during the year ended December 31, 2021 compared to no land sales during the year ended December 31, 2022.

The base purchase price was $167.3 million for the 2021 sales.

We also recognized additional revenue of $5.1 million in the transaction price as an estimate of the amount of variable consideration from marketing fees that we expect to be entitled to receive.

The base purchase price was $118.7 million for the 2020 sales, and we also recognized additional revenue of $3.7 million in the transaction price as an estimate of the amount of variable consideration from marketing fees that we expect to be entitled to receive.

In 2021, we also recognized $10.0

million in land sale revenues associated with the receipt of $10.0 million in cash from a customer that acquired commercial property from us in 2011.

In 2021, we also recognized $10.0 million in land sale revenues associated with the receipt of $10.0 million in cash from a customer that

acquired commercial property from us in 2011.

The payment was contingent on the customer obtaining certain land use approvals for the property.

In 2021, 123 of the homesites sold were purchased by the Valencia Landbank Venture, in which we own a 10% equity interest, and in 2020, 210 of the homesites sold were purchased by the Valencia Landbank Venture.

In 2021, 123 of the homesites sold were purchased by the Valencia Landbank Venture, in which we own a 10% equity interest.

Revenues associated with these closings are reported as land sales — related party.

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Cost of land sales.

Cost of land sales during the years ended December 31, 2021 and 2020 were $106.0 million and $85.8 million, or 58.0% and 69.9% of total land sale revenues and land sales—related party revenues, respectively.

Cost of land sales during the year ended December 31, 2021 was $106.0 million, or 58.0% of total land sale revenues and land sales—related party revenues.

The cost of land sales includes both actual and estimated future capitalized costs allocated based upon relative sales values.

Since this method requires us to estimate future development costs and the expected sales prices for future land sales, the profit margin on subsequent parcels sold will be affected by both changes in the estimated total revenues, as well as any changes in the estimated total cost of the project.

In 2021, we exonerated development bonds attributed to accrued development obligations on previously sold property, and as a result we reversed approximately $10.6 million in accrued development obligations from these prior period land sales as reductions to the current period’s cost of sales.

In 2022, we recognized a similar credit to cost of land sales totaling $1.0 million.

Selling, general, and administrative.

Selling, general, and administrative expenses increased by $6.7 million, or 57.7%, to $18.3 million for the year ended December 31, 2021, from $11.6 million for the year ended December 31, 2020.

The increase was mainly attributable to an increase in community related selling and marketing expenses in preparation for and in support of builder model home openings at the first development area of Valencia that occurred in 2021.

Equity in loss from unconsolidated entity.

During the years ended December 31, 2021 and 2020, we recognized equity in loss of $0.9 million and $1.6 million, respectively, from the Valencia Landbank Venture primarily as a result of eliminating our pro-rata share of the intra-entity profits generated from land sales to the Valencia Landbank Venture, offset by recognition of our pro-rata share of profits from land sold by the Valencia Landbank Venture to third-party homebuilders.

SG&A expenses decreased by $4.7 million, or 25.8%, to $13.6 million for the year ended December 31, 2022, from $18.3 million for the year ended December 31, 2021.

The decrease was mainly attributable to a decrease in community related selling and marketing expenses and a decrease in employee related expenses.

Equity in earnings (loss) from unconsolidated entity.

Equity in earnings from the Valencia Landbank Venture increased to $1.2 million for the year ended December 31, 2022, from a loss of $0.9 million for the year ended December 31, 2021.

Equity in earnings for the year ended December 31, 2022 was primarily as a result of recognition of our pro-rata share of profits from land sold by the Valencia Landbank Venture to third-party homebuilders.

Equity in loss for the year ended December 31, 2021 was primarily as a result of eliminating our pro-rata share of the intra-entity profits generated from land sales to the Valencia Landbank Venture, offset by recognition of our pro-rata share of profits from land sold by the Valencia Landbank Venture to third-party homebuilders.

San Francisco Segment

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Navy and could lead to additional legal claims or government investigations, all of which could in turn further delay or impede our future development of such parcels.

Our development plans were designed with the flexibility to adjust for potential land transfer delays, and we have the ability to shift the phasing of our development activities to account for potential delays caused by U.S.

Our development plans were designed with the flexibility to adjust for potential land transfer delays, and we have the ability to shift the phasing of our development

activities to account for potential delays caused by U.S.

Navy retesting, but there can be no assurance that these matters and other related matters that may arise in the future will not materially impact our development plans.

2 unchanged sentences

Given the preliminary nature of the claims to date, we cannot predict the outcome of these matters.

Management services—related party revenues.

The decrease in management services—related party revenues was due to the termination in early 2020 of our management agreement with Lennar with respect to the Concord community.

In addition, in 2021, we amended certain other related party agreements, which resulted in recognition of a miscellaneous other income—related party gain of $1.1 million during the year ended December 31, 2021.

Selling, general, and administrative.

Selling, general, and administrative expenses decreased by $6.1 million, or 54.1%, to $5.2 million for the year ended December 31, 2021, from $11.3 million for the year ended December 31, 2020.

The decrease was mainly attributable to a decrease in employee related expenses as a result of reallocations of human capital resources among our projects resulting in lower cost allocations to the San Francisco Venture.

Great Park Segment

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Great Park Neighborhoods is designed to include approximately 10,500 homesites and approximately 4.9 million square feet of commercial space.

The Great Park Venture sold the first homesites in April 2013 and, as of December 31, 2021, had sold 7,099 homesites (including 709 affordable homesites) and commercial land allowing for development of up to 2 million square feet of commercial (research and development) space for aggregate consideration of approximately $3.0 billion.

The Great Park Venture sold the first homesites in April 2013 and, as of December 31, 2022, had sold 7,326 homesites (including 853 affordable homesites) and 115 acres of commercial land, including the Five Point Gateway Campus, allowing for development of up to approximately 2.8 million square feet of commercial office and research and development space for aggregate consideration of approximately $3.3 billion.

Interests in the Great Park Venture are either “percentage interests” or “legacy interests.” Holders of the legacy interests were entitled to receive priority distributions in an aggregate amount equal to $476.0 million and up to an additional $89.0 million from participation in subsequent distributions.

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The Company received $52.7 million for its 37.5% percentage interest.

With the distributions to the holders of legacy interests, the Great Park Venture fully satisfied the $476.0 million priority distribution rights and reduced the remaining maximum participating legacy interest distribution rights to $82.7 million.

As of December 31, 2021, the Great Park Venture had fully satisfied the $476.0 million priority distribution rights, and the remaining maximum participating legacy interest distribution rights at December 31, 2022 were $66.3 million.

The remaining $66.3 million legacy interest will be paid on a pro-rata basis, with approximately 10% of future distributions paid to the holders of legacy interests and approximately 90% of such distributions paid to the holders of the percentage interests, until such time as the remaining balance has been fully paid.

Land sales and related party land sales revenues.

Land sales and related party land sales revenues increased by $384.7 million to $409.6 million for the year ended December 31, 2021, from $24.8 million for the year ended December 31, 2020.

The increase was primarily attributable to the recognition of revenue from the sale of land entitled for an aggregate of 887 homesites on approximately 72 acres during the year ended December 31, 2021 compared to the recognition of revenue from the sale of land entitled for an aggregate of 35 homesites on approximately four acres during the same period in 2020.

Land sales and related party land sales revenues decreased by $126.2 million to $283.4 million for the year ended December 31, 2022, from $409.6 million for the year ended December 31, 2021.

In 2022, the Great Park Venture sold approximately 42 acres of commercial land and land entitled for an aggregate of 61 homesites on approximately three acres.

In 2021, the Great Park Venture sold land entitled for an aggregate of 887 homesites on approximately 72 acres.

The purchase price was $240.0 million for the 2022 commercial land sale.

The Great Park Venture recognized approximately $238.0 million in revenue at the close of the land sale and deferred $2.0 million in consideration related to potential development work on the sold land that will be completed by the Great Park Venture at a later date at the buyer’s discretion.

The base purchase price was $23.9 million for the 2022 homesite land sales.

The Great Park Venture also recognized $0.6 million in the transaction price as an estimate of the amount of variable consideration from marketing fees that it expects to be entitled to receive for the 2022 homesite sales.

The base purchase price was $393.3 million for the 2021 sales.

The Great Park Venture also recognized $9.1 million in the transaction price as an estimate of the amount of variable consideration from marketing fees that it expects to be entitled to receive.

The base purchase price was $20.3 million for the 2020 sales.

The Great Park Venture also recognized $0.5 million in the transaction price as an estimate of the amount of variable consideration from marketing fees that it expects to be entitled to receive for the 2020 sales.

In 2021, 117 of the homesites sold were purchased by the Great Park Landbank Venture, in which the Great Park Venture owns a 10% equity interest.

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Additionally, in 2021, 572 of the homesites sold were sold to an unaffiliated land banking entity whereby a related party retained the option to acquire the homesites in the future from the land bank entity.

During the years ended December 31, 2021 and 2020, revenues also included changes in estimates of variable consideration, including profit participation, from those amounts previously recorded by the Great

Park Venture.

During the years ended December 31, 2021 and 2020, the Great Park Venture recognized $6.7 million and $3.6 million in profit participation revenue, respectively.

During the years ended December 31, 2022 and 2021, revenues also included changes in estimates of variable consideration, including profit participation, from those amounts previously recorded by the Great Park Venture.

During the years ended

December 31, 2022 and 2021, the Great Park Venture recognized $19.6 million and $6.7 million in profit participation revenue, respectively.

Cost of land sales.

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During the year ended December 31, 2022, the Great Park Venture closed the sales of 22 homes to homebuyers generating $40.5 million in home sale revenues.

The remaining homes subject to the fee building agreement are expected to close in 2022.

With the 22 home sales that closed in the year ended December 31, 2022, all 38 homes subject to the fee build agreement have been sold and closed.

During the year ended December 31, 2021, the Great Park Venture closed the sales of 16 homes to homebuyers generating $26.2 million in home sale revenues.

Cost of home sales.

Cost of home sales includes an allocation of land basis for each home sold in addition to home construction costs the Great Park Venture reimburses to the Fee Builder and fees paid to the Fee Builder for the services provided.

During the year ended December 31, 2021, the Great Park Venture recognized $20.0 million in cost of home sales.

During the years ended December 31, 2022 and 2021, the Great Park Venture recognized $29.7 million and $20.0 million, respectively, in cost of home sales.

Management fee revenues.

Management fee revenues are revenues generated by the management company from development management services provided to the Great Park Venture.

The management company receives a base management fee, reimbursement for certain defined project team costs and the right to receive certain variable incentive compensation.

The increase in management services related party revenue was mainly attributable to changes in estimates of the amount of variable consideration pertaining to the incentive compensation.

Previously, the management company received a fixed base fee, reimbursement for certain variable costs and the right to receive certain variable incentive compensation.

The initial term of our development management agreement with the Great Park Venture expired on December 31, 2021 but had been extended by mutual agreement of the parties through December 31, 2022 (the "2022 extension") and further renewed by mutual agreement of the parties through December 31, 2024.

In connection with the 2022 extension of the development management agreement, the variable cost reimbursement component was eliminated and the annual fixed base fee was increased to $12.0 million for 2022.

For the year ended December 31, 2022, we recognized $12.0 million in revenues attributable to the revised base fee, and as a result of changes in estimates of the amount of variable incentive compensation, we recognized $19.0 million in additional revenue.

For the year ended December 31, 2021, we recognized $18.0 million attributed to the annual fixed based fee and variable cost reimbursement and $20.7 million attributed to incentive compensation.

Management services costs and expenses.

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We also include amortization expense related to the intangible asset attributable to the incentive compensation provisions of the development management agreement with the Great Park Venture.

Corporate and non-project team salaries and overhead incurred by us are not allocated to management services costs and expenses or to our reportable segments and are reported in selling, general, and administrative costs in the consolidated statement of operations.

During the year ended December 31, 2021, management services costs and expenses increased by $11.5 million, or 57.3%, to $31.5 million, from $20.0 million for the year ended December 31, 2020.

The increase was primarily a result of changes in estimates in the utilization of the intangible asset.

Intangible asset amortization expense was $20.3 million in 2021 compared to $8.6 million in 2020.

Corporate and non-project team salaries and overhead incurred by us are not allocated to management services costs and expenses or to our reportable segments and are reported in SG&A costs in the consolidated statement of operations.

During the year ended December 31, 2022, management services costs and expenses decreased by $11.2 million, or 35.6%, to $20.3 million, from $31.5 million for the year ended December 31, 2021.

The decrease was mainly attributable to decreased intangible asset amortization expense and decreased employee related project team expenses.

Selling, general, and administrative.

Selling, general, and administrative expenses are comprised of the Great Park Venture’s marketing related costs, property maintenance expenses, project team and other administrative costs.

Project team and certain other administrative costs that are reimbursed to the management company per the terms of the development management agreement are not eliminated for segment reporting.

Selling, general, and administrative costs decreased by $5.2 million, or 14.4%, to $30.7 million for the year ended December 31, 2021, from $35.8 million for the year ended December 31, 2020.

The lower expense during the year ended December 31, 2021 was mainly attributable to a decrease in community related selling and marketing expenses incurred at the Great Park Neighborhoods.

SG&A expenses are comprised of the Great Park Venture’s marketing related costs, property maintenance expenses and other administrative costs.

Prior to the 2022 extension of the development management agreement, project team and certain other administrative costs that were reimbursed to the management company were included in SG&A costs.

SG&A costs decreased by $12.5 million, or 40.9%, to $18.1 million for the year ended December 31, 2022, from $30.7 million for the year ended December 31, 2021.

The lower expense during the year ended December 31, 2022 was mainly attributable to a decrease in marketing expenses and the elimination of the variable cost reimbursement component under the development management agreement.

Management fees—related party.

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When estimates of the amount of incentive compensation probable of being paid change, the Great Park Venture records a cumulative adjustment in the period in which the estimate changes.

The increase in management fees — related party was mainly attributable to changes in estimates of the amount of incentive compensation probable of being paid.

The Great Park Venture recognized expense of $19.1 million and a credit of $2.4 million for incentive compensation fees during the years ended December 31, 2021 and 2020, respectively.

The table below reconciles the Great Park segment results for the years ended December 31, 2021 and 2020 to the equity in earnings (loss) from our investment in the Great Park Venture that is reflected in the consolidated statements of operations for the years ended December 31, 2021 and 2020, respectively.

The increase in management fees — related party was mainly attributable to an increased estimate of the amount of incentive compensation probable of being paid.

The Great Park Venture recognized expense of $44.0 million and $19.1 million for incentive compensation fees during the years ended December 31, 2022 and 2021, respectively.

The table below reconciles the Great Park segment results for the years ended December 31, 2022 and 2021 to the equity in earnings from our investment in the Great Park Venture that is reflected in the consolidated statements of operations for the years ended December 31, 2022 and 2021, respectively.

Year Ended December 31,

(in thousands)

Segment net income (loss) from operations $ 64,134 $ (22,504)

Segment profit from operations $ 79,708 $ 64,134

Less net income of management company attributed to the Great Park segment

Net income (loss) of Great Park Venture 56,918 (29,406)

The Company’s share of net income (loss) of the Great Park Venture 21,344 (11,027)

Net income of Great Park Venture 68,954 56,918

The Company’s share of net income of the Great Park Venture 25,858 21,344

Basis difference amortization

(5,414) (14,912)

Other-than-temporary investment impairment — (26,851)

Equity in earnings (loss) from Great Park Venture $ 6,432 $ (39,951)

Equity in earnings from Great Park Venture $ 20,444 $ 6,432

Commercial Segment

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In addition to the fourth building, the Gateway Commercial Venture owns approximately 50 acres of commercial land with additional development rights at the campus.

Revenues decreased by $15.8 million, or 64.0%, to $8.9 million for the year ended December 31, 2021, from $24.6 million for the year ended December 31, 2020.

The decrease in revenues was mainly attributable to the Gateway Commercial Venture no longer receiving rental income attributed to the buildings that were sold in 2020.

Other income.

In May 2020, the Gateway Commercial Venture closed on the sale of approximately 11 acres of land and an approximately 189,000 square foot building for a purchase price of $108.0 million.

The sale of this land and building, which had a carrying value of approximately $67.5 million, resulted in a gain of approximately $37.4 million, net of transaction costs.

Concurrently, the Gateway Commercial Venture made a debt payment of $30.0 million to its lender and made total distributions to its members of approximately $75.0 million, of which approximately $56.3 million was distributed to us.

In August 2020, the Gateway Commercial Venture closed on the sale of two buildings, comprising a total of approximately 660,000 square feet of research and development space for a purchase price of $355.0 million.

The sale of the buildings, which had a carrying value of approximately $278.0 million, resulted in a gain of approximately $74.8 million, net of transaction costs.

Concurrently, the Gateway Commercial Venture made a debt payment of $245.0 million to its lender and made total distributions to its members of approximately $107.0 million, of which approximately $80.3 million was distributed to us.

Costs and expenses and interest expense .

Costs and expenses decreased by $17.1 million, or 69.2%, to $7.6 million for the year ended December 31, 2021, from $24.7 million for the year ended December 31, 2020.

As a result of the Gateway Commercial Venture’s asset dispositions and related debt repayments in 2020, cost and expenses, including interest, depreciation, and amortization expenses, were lower for the year ended December 31, 2021.

The table below reconciles the Commercial segment results for the years ended December 31, 2021 and 2020 to the equity in earnings from our investment in the Gateway Commercial Venture that is reflected in the consolidated statements of operations for the years ended December 31, 2021 and 2020, respectively.

The table below reconciles the Commercial segment results for the years ended December 31, 2022 and 2021 to the equity in (loss) earnings from our investment in the Gateway Commercial Venture that is reflected in the consolidated statements of operations for the years ended December 31, 2022 and 2021, respectively.

Year Ended December 31,

(in thousands)

Segment net income from operations $ 1,284 $ 112,242

Segment profit from operations $ 249 $ 1,284

Less net income of management company attributed to the Commercial segment

Net income of Gateway Commercial Venture 878 111,845

Equity in earnings from Gateway Commercial Venture $ 659 $ 83,884

Net (loss) income of Gateway Commercial Venture (169) 878

Equity in (loss) earnings from Gateway Commercial Venture $ (127) $ 659

Liquidity and Capital Resources

At December 31, 2022, we had $131.8 million of consolidated cash and cash equivalents, compared to $265.5 million at December 31, 2021.

As of December 31, 2021, no funds had been drawn on the operating company’s $125.0 million revolving credit facility.

However, letters of credit of $0.3 million were issued and outstanding under the revolving credit facility as of December 31, 2021, thus reducing the available capacity to $124.7 million.

In April 2021, we entered into the third amendment to our unsecured revolving credit facility, which extended the maturity date of the revolving credit facility from April 2022 to April 2024, with one option to extend the maturity date by an additional year, subject to the satisfaction of certain conditions, including the approval of the administrative agent and lenders.

As of December 31, 2022, no funds had been drawn on and no letters of credit were outstanding on the operating company’s $125.0 million revolving credit facility.

Our short-term cash needs consist primarily of general and administrative expenses and development expenditures at Valencia and the Candlestick and The San Francisco Shipyard communities, interest payments under our senior notes and payments under a related party reimbursement obligation.

In 2022, we will make interest payments of $49.2 million on our $625.0 million senior notes due 2025, and we expect to make $56.3 million in principal payments under our related party reimbursement obligation.

In 2023, we will make interest payments of $49.2 million on our $625.0 million senior

notes due November 2025, and we expect to make $50.4 million in principal payments under our related party reimbursement obligation.

Reimbursement payments may be deferred when our related party receives an extension on the maturity date of the associated EB-5 loan liability.

Our related party has a history of receiving maturity date extensions, however, such further extensions are not within our control.

Approximately $49.8 million of the $56.3 million in related party reimbursement obligations that were previously expected to have been paid in 2022 have been deferred to 2023.

Our related party has a history of receiving maturity date extensions, however, such further extensions are not within our control and there can be no assurance that any such extensions will be obtained in the future.

The development stages of our communities continue to require significant cash outlays on both a short-term and long-term basis, and we expect to invest significant amounts on continued horizontal development at Valencia over the next 12 months.

We manage our development activities and expenditures to coincide with projected demand for homesites by our guest builders with the objective of maintaining an appropriate level of liquidity.

We expect to meet our cash requirements for at least the next 12 months with available cash, in addition to proceeds from land sales in Valencia, distributions from our unconsolidated entities and collection of management fees under our management agreement with the Great Park Venture.

The initial term of our development management agreement has been extended by mutual agreement of the parties through April 30, 2022.

While we currently expect the development management agreement to be renewed, if we are unable to reach agreement on a renewal, or if the terms of any such renewal are less favorable to the company, our short-term cash flows may be negatively impacted.

We still expect, however, to be able to meet both short-term and long-term cash obligations with our other sources of cash.

We expect to meet our cash requirements for at least the next 12 months with available cash, distributions from our unconsolidated entities, collection of management fees under our development management agreement with the Great Park Venture, proceeds from land sales, reimbursements from public financing in Valencia and access to financing sources, including our revolving credit facility.

Our long-term cash needs relate primarily to future horizontal development expenditures and investments in or vertical construction costs for properties that we may acquire or develop for our income-producing portfolio, along with debt service and general and administrative expenses.

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We are a party to a tax receivable agreement (“TRA”) with current and former holders of Class A units of the operating company and the holders of Class A units of the San Francisco Venture.

The TRA provides for payments by us to such investors or their successors in aggregate amounts equal to 85% of the cash savings, if any, in income tax that we realize as a result of (a) increases

in tax basis that are attributable to exchanges of Class A units of the operating company for our Class A common shares or cash or certain other taxable acquisitions of equity interests by us, (b) allocations that result from the application of the principles of Section 704(c) of the Code and (c) tax benefits related to imputed interest or guaranteed payments deemed to be paid or incurred by us as a result of the TRA.

The TRA provides for payments by us to such investors or their successors in aggregate amounts equal to 85% of the cash savings, if any, in income tax that we realize as a result of (a) increases in tax basis that are attributable to exchanges of Class A units of the operating company for our Class A common shares or cash or certain other taxable acquisitions of equity interests by us, (b) allocations that result from the application of the principles of Section 704(c) of the Code and (c) tax benefits related to imputed interest or guaranteed payments deemed to be paid or incurred by us as a result of the TRA.

We expect the TRA payments to be substantial, however, 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.

As of December 31, 2022, there were no amounts currently payable under the TRA.

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

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

Outstanding LOCs totaled $1.3 million at both December 31, 2021 and 2020.

Outstanding LOCs totaled $1.0 million and $1.3 million at December 31, 2022 and 2021, respectively.

At both December 31, 2022 and 2021, we had $1.0 million in restricted cash and certificates of deposit securing certain of our LOCs.

Additionally, under our revolving credit facility, we are able to utilize undrawn capacity to support the issuance of LOCs.

As of December 31, 2021, we were using approximately $0.3 million in capacity under the revolving credit facility to support LOCs.

As of December 31, 2022, no capacity under the revolving credit facility was used to support LOCs.

In 2004, our defined benefit pension plan was amended to cease future benefit accruals for services provided by participants of the plan and to close the plan to new participants.

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Summary of Cash Flows

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

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

Year Ended December 31,

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Cash flows from operating activities are primarily comprised of cash inflows from land sales, management services and operating property results.

Cash outflows are comprised primarily of cash outlays for horizontal development costs, employee compensation, and selling, general, and administrative costs.

Cash outflows are comprised primarily of cash outlays for horizontal development costs, employee compensation, and SG&A costs.

Our operating cash flows may vary significantly each year due to the timing of land sales and the development efforts related to our mixed-use planned communities.

Net cash used in operating activities increased by $106.9 million for the year ended December 31, 2022, compared to the year ended December 31, 2021.

Major components of operating cash used in both periods consist of our continued investment in horizontal development at our communities and selling, general, and administrative costs.

During the years ended December 31, 2021 and 2020, we received $167.0 million and $118.5 million, respectively, in net proceeds upon closing escrow from land sales at our Valencia segment.

Major components of operating cash used in both periods consist of our continued investment in horizontal development at our communities, SG&A costs and the payment of $49.2 million in each year for interest due on our senior notes.

During the year ended December 31, 2022, we received incentive compensation payments of $14.2 million under our development management agreement with the Great Park Venture.

The payment is net of $1.7 million that we concurrently distributed to the holders of the management company's Class B units.

Additionally, we received total distributions of $8.6 million from the Gateway Commercial Venture, of which $0.4 million is reflected as a return on our investment (operating activity) in the statement of cash flows with the balance reflected as an investing activity.

During the year ended December 31, 2021, we received $167.0 million in net proceeds upon closing escrow from land sales at our Valencia segment.

During the year ended December 31, 2021, we received incentive compensation payments of $20.7 million under our development management agreement with the Great Park Venture.

The payment is net of $0.6 million that we concurrently distributed to the holders of the management company's Class B units.

Additionally, we received $10.0 million in contingent consideration associated with a commercial land sale that closed in 2011.

During the year ended December 31, 2020, we received total distributions of $136.5 million from the Gateway Commercial Venture, of which $79.0 million is reflected as a return on our investment (operating activity) in the statement of cash flows with the balance reflected as an investing activity.

We made total interest payments of $49.2 million on our senior notes in each of the years ended December 31, 2021 and 2020.

Cash Flows from Investing Activities.

Net cash provided by investing activities was $64.0 million for the year ended December 31, 2022, compared to the net cash provided by investing activities of $75.3 million for the year ended December 31, 2021.

During the year ended December 31, 2021, we received a distribution of $76.6 million from the Great Park Venture, which is reflected as a return of our investment (investing activity) in the statement of cash flows.

During the year ended December 31, 2022 we received distributions of $52.7 million and $3.3 million from the Great Park Venture and Valencia Landbank Venture, respectively, which is reflected as a return of our investment (investing activity) in the statement of cash flows.

Additionally, we received total distributions of $8.6 million from the Gateway Commercial Venture, of which $8.3 million is reflected as a return of our investment (investing activity) in the statement of cash flows with the balance reflected as an operating activity.

For the year ended December 31, 2021, we received a distribution of $76.6 million from the Great Park Venture, which is reflected as a return of our investment (investing activity) in the statement of cash flows.

Additionally, we received a distribution of $1.0 million from our indirect legacy interest in the Great Park Venture.

For the year ended December 31, 2020, we received total distributions of $136.5 million from the Gateway Commercial Venture, of which $57.5 million is reflected as a return of our investment (investing activity) in the statement of cash flows with the balance reflected as an operating activity.

Cash Flows from Financing Activities.

Net cash used in financing activities was $9.7 million for the year ended December 31, 2022, compared to net cash used in financing activities of $26.6 million for the year ended December 31, 2021.

During the years ended December 31, 2021 and 2020, we made tax distributions of $4.4 million (net of amounts distributable to us as a partner of the operating company) and $4.6 million, respectively, to noncontrolling interests in accordance with the operating company's Limited Partnership Agreement (“LPA”).

During the years ended December 31, 2022 and 2021, we made tax distributions of $0.4 million and $4.4 million (net of amounts distributable to us as a partner of the operating company), respectively, to noncontrolling interests in accordance with the operating company's Limited Partnership Agreement (“LPA”).

The tax distribution is treated as an advance distribution under the LPA.

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We used $2.7 million and $2.0 million during the years ended December 31, 2022 and 2021, respectively, to net settle certain share-based compensation awards with employees for tax withholding purposes.

During the year ended December 31, 2022, we borrowed and repaid $15.0 million under our revolving credit facility.

Changes in Capital Structure

During the year ended December 31, 2021, our ownership percentage in the operating company increased to 62.9%, primarily due to our issuance of shared-based compensation in the form of 1.4 million restricted Class A common shares offset by our reacquisition of approximately 0.3 million restricted Class A common shares from employees for income tax withholding purposes.

The issuances and settlements resulted in the operating company issuing to us an equal number of Class A units of the operating company or retiring an equal number of Class A units of the operating company that we previously held.

During the year ended December 31, 2022, our ownership percentage in the operating company decreased slightly to 62.5%, primarily due to our reacquisition of approximately 0.4 million restricted Class A common shares from employees for income tax withholding purposes upon vesting and the forfeiture of approximately 0.8 million restricted Class A common shares held by employees that did not vest, partially offset by our issuance of shared-based compensation in the form of 0.2 million restricted Class A common shares.

The issuances, settlements and forfeitures resulted in the operating company issuing to us an equal number of Class A units of the operating company or retiring an equal number of Class A units of the operating company that we previously held.

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

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The conversions will occur when the holders of Class A units of the operating company, including Class A units that have been issued upon redemption of Class A units of the San Francisco Venture, are redeemed for our Class A common shares or cash, at our election.

Related Party Revenues

Significant Related Party and Third-Party Revenues

In the ordinary course of our business, we have sold and expect to continue to sell homesites to Lennar, which is our largest equity owner, or its affiliates, subsidiaries or joint ventures in which it is a member.

We did not sell homesites directly to Lennar during the years ended December 31, 2022, 2021, and 2020 but did recognize revenues related to certain fees or profit participation associated with homes sold by Lennar to homebuyers at Valencia.

During the years ended December 31, 2021 and 2019, we sold homesites to an unaffiliated land banking entity and recognized $76.5 million and $139.9 million of such revenue, respectively.

For the year ended December 31, 2022, we recognized $7.5 million of revenue from Lennar, which primarily consisted of profit participation.

During the year ended December 31, 2021, we sold homesites to an unaffiliated land banking entity and recognized $76.5 million of such revenue.

Lennar has retained the option to acquire these homesites in the future from the unaffiliated land banking entity.

During the years ended December 31, 2021 and 2020, we sold homesites to the Valencia Landbank Venture, our equity method investee, and recognized $43.2 million and $53.2 million of such revenue, respectively.

During the year ended December 31, 2021, we sold homesites to the Valencia Landbank Venture, our equity method investee, and recognized $43.2 million of such revenue.

We also provide management services to the Great Park Venture pursuant to a development management agreement.

In addition to our 37.5% percentage interest in the Great Park Venture, Lennar owns a 25% legacy interest in the Great Park Venture.

Lennar, along with an affiliate of Castlelake, also owns interests in an entity that owns a 12.5% legacy interest in the Great Park Venture.

Lennar, along with an

affiliate of Castlelake, also owns interests in an entity that owns a 12.5% legacy interest in the Great Park Venture.

For the years ended December 31, 2022 and 2021, we recognized $31.0 million and $38.7 million, respectively, of revenue from management services provided to the Great Park Venture.

Other than the Valencia Landbank Venture and the Great Park Venture, no related party customer accounted for more than 10% of our revenue during the years ended December 31, 2021 and 2020.

Other than Lennar and the Great Park Venture, no related party customer accounted for more than 10% of our revenue during the year ended December 31, 2022.

Other than the Valencia Landbank Venture and the Great Park Venture, no related party customer accounted for more than 10% of our revenue during the year ended December 31, 2021.

In addition to the related party revenues, during the year ended December 31, 2021, we also sold homesites to two third-party home builders and recognized $30.3 million and $22.5 million of revenue, respectively, which separately accounted for more than 10% of total consolidated revenues.

During the year ended December 31, 2020, we sold homesites to a third-party home builder and recognized $59.1 million of revenue, which accounted for more than 10% of total consolidated revenues.

Other than the third-party home builders and the unaffiliated land bank entity, no third-party customer accounted for more than 10% of our revenue during the years ended December 31, 2021 and 2020.

No third-party customer accounted for more than 10% of our revenue during the year ended December 31, 2022.

Other than the third-party home builders and the unaffiliated land bank entity, no third-party customer accounted for more than 10% of our revenue during the year ended December 31, 2021.

Critical Accounting Estimates

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Cash flows are significantly affected by estimates and assumptions related to market supply and demand, the local economy, projected pace of sales of homesites, pricing and price appreciation over the estimated selling period, the length of the estimated development and selling periods, remaining development obligations and the cost of completing development, general and administrative costs, and other factors.

In determining these estimates and assumptions, we utilize historical trends from our past development projects, in addition to internal and external market studies and trends, which generally include, but are not

limited to, statistics on population demographics and unemployment rates.

Using all available information, we calculate our best estimate of projected cash flows for each asset.

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Investments accounted for under the equity method of accounting are recorded at cost and adjusted for our share in the earnings (losses) of the venture and cash contributions and distributions.

We evaluate the recoverability of our investments in unconsolidated entities by first reviewing each investment for any indicators of impairment.

If indicators are present, we estimate the fair value of the investment.

We evaluate our investments in unconsolidated entities for other-than-temporary impairment by reviewing each investment for any indicators of impairment, including the fair value of such investments compared to their carrying amounts.

We typically estimate the fair value of our investments using a discounted cash flow of distributions we expect to receive from the venture.

Significant input assumptions used in estimating the distributions we expect to receive from the venture include revenue appreciation rates and cost appreciation rates.

The determination of fair value also requires discounting the estimated cash flows at a rate that we believe a market participant would determine to be commensurate with the inherent risks associated with the investment and related estimated cash flow streams.

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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 7. Management’s Discussion and Analysis