What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-03-04 compared with 2023-03-06 · 129 added, 139 removed, 396 unchanged (40% of the section changed)

19 unchanged sentences

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.

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.

In 2023, we continued to focus on three main priorities:

generating revenue and positive cash flow, managing our capital spend to match near-term revenue opportunities, and controlling our selling, general and administrative (“SG&A”) costs.

Our execution on these priorities allowed us to have a strong year, notwithstanding the challenging economic environment.

In 2023, California’s housing dynamics remained favorable for new home sales, driven in part by California’s housing shortage and compounded by production constraints created by the limited availability of land, labor and materials.

Based in part on these continuing dynamics, we believe that we will see strong demand in 2024 for our land from the homebuilders in our markets.

We are also cautiously optimistic that improvement in the capital markets will allow for commercial land demand to rebound potentially in the latter half of 2024.

At Valencia, we closed the sale of 729 homesites on approximately 72 acres for an aggregate purchase price of $162.4 million in 2023.

With a focus on managing capital spend to optimize the timing and amount of spending in relation to anticipated revenues, we were able to work with our homebuilder partners to shift some of the final land development costs to the builder, and we adjusted our sales pricing accordingly.

We will continue to look to minimize our capital spend between revenue opportunities.

Valencia guest homebuilders sold 297 homes during 2023, for a total of 1,244 homes sold since sales began in May 2021.

By the end of 2023, 12 of our initial 18 neighborhoods had sold out, and our guest homebuilders had also opened three additional neighborhoods at our newest development area.

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

At the Great Park Neighborhoods, in which we have a 37.5% percentage interest and manage all aspects of the development cycle, the Great Park Venture recognized land sale revenue of $532.0 million from the sale of 38 acres of commercial land and 798 homesites on approximately 84 acres of land.

For the homesite sales, the Great Park Venture recognized $357.8 million in revenue, consisting of $214.7 million paid at closing, plus $143.1 million of additional revenue representing estimated variable consideration

from future price participation payments expected to be received when homes are sold to homebuyers.

The Great Park Venture made distributions and related participating payments with proceeds from the land sales, of which we received approximately $195.8 million for both our ownership interests and incentive management fee compensation.

Home sales by guest homebuilders totaled 628 homes in 2023, with very limited inventory available at the end of the year.

Our next neighborhood, Luna Park, is comprised of 798 homes across 13 builder collections and is expected to open in phases from March 2024 through December 2024.

At December 31, 2023, we had $353.8 million in cash and $125.0 million available under our revolving credit facility, giving us total liquidity of $478.8 million.

In January 2024, we utilized a portion of our cash in completing a senior notes exchange transaction in which we exchanged $623.5 million of our existing 7.875% senior notes due November 2025 for $100.0 million in cash and $523.5 million in new 10.500% initial rate senior notes due January 2028.

The new senior notes due January 2028 will accrue interest at a rate of 10.500% until November 2025, at a rate of 11.000% from November 2025 to November 2026, and at a rate of 12.000% from November 2026 through the maturity date.

Factors That May Influence our Results of Operations

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The following tables and related discussions on the results of operations are for the fiscal years ended December 31, 2023 and 2022.

Refer to Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under Part II of our annual report on Form 10-K for the fiscal year ended December 31, 2021 for financial data and related comparative discussions on results of operations for the fiscal years ended December 31, 2021 and 2020.

Refer to Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under Part II of our annual report on Form 10-K for the fiscal year ended December 31, 2022 for financial data and related comparative discussions on results of operations for the fiscal years ended December 31, 2022 and 2021, which is incorporated herein by reference.

The following table summarizes our consolidated historical results of operations for the years ended December 31, 2023 and 2022.

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185,483 101,523

OTHER INCOME:

OTHER INCOME (EXPENSE):

Interest income

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EQUITY IN EARNINGS FROM UNCONSOLIDATED ENTITIES 76,595 21,513

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

INCOME (LOSS) BEFORE INCOME TAX BENEFIT 109,298 (36,245)

INCOME TAX BENEFIT 4,418 1,471

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.

NET INCOME (LOSS) 113,716 (34,774)

LESS NET INCOME (LOSS) ATTRIBUTABLE TO NONCONTROLLING INTERESTS 58,322 (19,371)

NET INCOME (LOSS) ATTRIBUTABLE TO THE COMPANY $ 55,394 $ (15,403)

Revenues increased by $169.0 million, to $211.7 million for the year ended December 31, 2023, from $42.7 million for the year ended December 31, 2022.

The increase in revenues was primarily due to land sales at our Valencia segment in 2023 compared to no land sales in 2022 and an increase in management services revenue at our Great Park segment in 2023.

Cost of land sales.

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.

The cost of land sales for the year ended December 31, 2023 was attributable to land sales at our Valencia segment.

Cost of management services.

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.

Cost of management services increased by $1.9 million, or 9.4%, to $22.2 million for the year ended December 31, 2023, from $20.3 million for the year ended December 31, 2022.

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

Selling, general, and administrative.

SG&A expenses decreased by $3.1 million, or 5.7%, to $51.5 million for the year ended December 31, 2023, from $54.6 million for the year ended December 31, 2022.

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.

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

Restructuring.

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Equity in earnings from unconsolidated entities increased by $55.1 million, to $76.6 million for the year ended December 31, 2023, from $21.5 million for the year ended December 31, 2022.

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.

Equity in earnings for the years ended December 31, 2023 and 2022 was primarily a result of recognizing our share of the net income of the Great Park Venture generated from land sales in 2023 and land and home sales in 2022.

Income taxes.

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

Pre-tax income of $109.3 million for the year ended December 31, 2023 resulted in a tax benefit of $4.4 million.

The tax benefit was primarily the result of the increase in net deferred tax assets exceeding the net increase in deferred tax liabilities including the $17.6 million release of 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, 2023, it was more likely than not that such net deferred tax assets would be fully realized, and our valuation allowance was released.

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

The tax benefit was primarily the result of a $0.8 million state tax benefit from a change in estimates when we filed our tax return for the tax year ended December 31, 2020 during 2021, offset by an increase in our net deferred tax liability 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, 2021 it was more likely than not that such net deferred tax assets would not be realized.

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.

Our effective tax rate for the year ended December 31, 2023 decreased from the year ended December 31, 2022 due to the release of the valuation allowance in the current period, net of changes in permanent differences, including executive compensation subject to limitations.

Net income (loss) 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 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.

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

Segment Results and Financial Information

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Land sales—related party 595 — 16,213 — 16,808 — 16,808 (16,213) 595

Home sales — — 40,475 — 40,475 — 40,475 (40,475) —

Management services—related party (2)

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Selling, general, and administrative 11,577 3,989 10,927 6,406 32,899 35,929 68,828 (17,333) 51,495

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

Management fees—related party — — 65,395 — 65,395 — 65,395 (65,395) —

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Interest expense — — — (2,531) (2,531) — (2,531) 2,531 —

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

Miscellaneous 1,012 — — — 1,012 (1,788) (776) — (776)

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EQUITY IN EARNINGS FROM UNCONSOLIDATED ENTITIES 562 — 1,926 — 2,488 — 2,488 74,107 76,595

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)

SEGMENT PROFIT (LOSS)/INCOME BEFORE INCOME TAX BENEFIT 41,636 (3,313) 275,630 (3,454) 310,499 (30,509) 279,990 (170,692) 109,298

INCOME TAX BENEFIT — — — — — 4,418 4,418 — 4,418

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

SEGMENT PROFIT (LOSS)/NET INCOME $ 41,636 $ (3,313) $ 275,630 $ (3,454) $ 310,499 $ (26,091) $ 284,408 $ (170,692) $ 113,716

(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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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) —

3 unchanged sentences

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)

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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.

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.

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

The actual commercial square footage and number of homesites are subject to change based on ultimate use and land planning.

The current communities under development in Valencia complement the neighboring communities that were previously developed by us.

We began selling homesites in the first development area at Valencia in 2019, and as of December 31, 2023 we had sold 2,595 homesites for aggregate consideration of approximately $583.7 million.

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Land sales and related party land sales revenues.

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.

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.

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

When we sell land to the Valencia Landbank Venture, we eliminate our pro-rata share of the intra-entity profits generated from the sale through earnings (loss) from unconsolidated entities until the land is sold by the Valencia Landbank Venture to third-party homebuilders.

Additionally, in 2021, 328 of the homesites 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.

Total land sales revenues increased by $153.0 million to $161.4 million for the year ended December 31, 2023, from $8.4 million for the year ended December 31, 2022.

The increase in total land sales revenues was attributable to the recognition of revenue from the sale of land entitled for an aggregate of 729 homesites on approximately 72 acres during the year ended December 31, 2023 compared to no land sales during the year ended December 31, 2022.

The aggregate base purchase price was $162.4 million for the 2023 sales.

In 2023, 583 of the homesites 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.

Cost of land sales.

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.

Cost of land sales during the year ended December 31, 2023 was $105.7 million, compared to a credit of $1.0 million to cost of land sales during year ended December 31, 2022.

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 2021 cost of sales.

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

Selling, general, and administrative.

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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.

Equity in earnings from unconsolidated entity.

Equity in earnings from the Valencia Landbank Venture of $0.6 million and $1.2 million for the years ended December 31, 2023 and 2022, respectively, was primarily a result of recognition of our pro-rata share of profits from land sold by the Valencia Landbank Venture to third-party homebuilders.

San Francisco Segment

Located almost equidistant between downtown San Francisco and the San Francisco International Airport, Candlestick and The San Francisco Shipyard consist of approximately 800 acres of bayfront property in the City of San Francisco.

Candlestick and The San Francisco Shipyard are designed to include approximately 12,000 homesites and approximately 6.3 million square feet of commercial space.

Candlestick and The San Francisco Shipyard can include up to approximately 12,000 homesites and approximately 6.3 million square feet of commercial space.

The actual commercial square footage and number of homesites are subject to change based on ultimate use and land planning.

In October 2019, we received approval from the City of San Francisco on a revised development plan for the first phase of Candlestick that is currently planned to include approximately 750,000 square feet of office space, 1,600 homes, and 300,000 square feet of lifestyle amenities centered around retail and entertainment.

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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.

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We do not include the Great Park Venture as a consolidated subsidiary in our consolidated financial statements.

However, because of the relationship between the management company and the Great Park Venture, we assess our investment in the Great Park Venture based on the financial information for the Great Park Venture in its entirety, and not just our equity interest in it.

However, because of the relationship between the management company and the Great Park Venture, we assess

our investment in the Great Park Venture based on the financial information for the Great Park Venture in its entirety, and not just our equity interest in it.

As a result, our Great Park segment consists of the operations of both the Great Park Venture and the development management services provided by the management company at the Great Park Venture.

Great Park Neighborhoods consists of approximately 2,100 acres in Orange County and is being built around the approximately 1,300 acre Orange County Great Park, a metropolitan public park that is under construction.

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

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

The actual commercial square footage and number of homesites are subject to change based on ultimate use and land planning.

The Great Park Venture sold the first homesites in April 2013 and, as of December 31, 2023, had sold 8,124 homesites (including 853 affordable homesites) and 153 acres of commercial land, including the Five Point Gateway Campus, allowing for development of up to approximately 3.5 million square feet of commercial office and research and development space for aggregate consideration of approximately $3.8 billion.

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Land sales and related party land sales revenues.

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.

Land sales and related party land sales revenues increased by $271.4 million to $554.8 million for the year ended December 31, 2023, from $283.4 million for the year ended December 31, 2022.

In 2023, the Great Park Venture closed 38 acres of commercial land and land entitled for an aggregate of 798 homesites on approximately 84 acres.

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.

Revenue recognized of $357.8 million for the 2023 homesite land sales consisted of $214.7 million paid at closing, plus $143.1 million in estimated variable consideration from future price participation payments expected to be received when homes are sold to homebuyers.

The 798 homesites 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.

The aggregate purchase price was $174.2 million for the 2023 commercial land sales.

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

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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.

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.

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

When the Great Park Venture sells land to the Great Park Landbank Venture, it eliminates its pro-rata share of the intra-entity profits generated from the sale through earnings (loss) from unconsolidated entities until the land is sold by the Great Park Landbank Venture to third-party homebuilders.

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, 2023 and 2022, 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.

During the years ended December 31, 2023 and 2022, the Great Park Venture recognized $21.0 million and $19.6 million in profit participation revenue, respectively.

Cost of land sales.

Cost of land sales during the years ended December 31, 2022 and 2021 were $155.7 million and $301.2 million, or 54.9% and 73.6% of total land sales revenues, respectively.

Cost of land sales during the years ended December 31, 2023 and 2022 were $237.1 million and $155.7 million, respectively.

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

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Home sale revenues.

The Great Park Venture has a fee build agreement with an unrelated third-party (“Fee Builder”) that the Great Park Venture contracted to build and act as a sales agent for 38 homesites within the Great Park Neighborhoods.

The Fee Builder initially incurs all costs to build, market and sell the residential homes, and the Great Park Venture reimburses the Fee Builder as construction progresses and pays the Fee Builder certain fees during the construction phase of the homes and when homes are sold to homebuyers.

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.

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.

The Great Park Venture had a fee build agreement with an unrelated third-party (“Fee Builder”) that the Great Park Venture contracted to build and act as a sales agent for 38 homesites within the Great Park Neighborhoods.

The Fee Builder initially incurred all costs to build, market and sell the residential homes, and the Great Park Venture reimbursed the Fee Builder as construction progressed and paid the Fee Builder certain fees during the construction phase of the homes and when homes were sold to homebuyers.

All homes subject to the fee build agreement had been sold and closed escrow as of December 31, 2022.

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.

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 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.

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

During the year ended December 31, 2022, the Great Park Venture recognized $29.7 million in cost of home sales.

Management fee revenues.

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For the year ended December 31, 2023, 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 $35.2 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.

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.

Management services costs and expenses.

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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.

During the year ended December 31, 2023, management services costs and expenses increased by $1.9 million, or 9.4%, to $22.2 million, from $20.3 million for the year ended December 31, 2022.

The increase was mainly attributable to an increase in intangible asset amortization expense recognized, partially offset by a decrease in employee related project team expenses during the year ended December 31, 2023.

Selling, general, and administrative.

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 $7.2 million, or 39.7%, to $10.9 million for the year ended December 31, 2023, from $18.1 million for the year ended December 31, 2022.

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.

The lower expense during the year ended December 31, 2023 was mainly attributable to a decrease in marketing expenses and property maintenance expenses and the elimination of the variable cost reimbursement component under the development management agreement that became effective in the second quarter of 2022.

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

Management fees—related party.

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Management fees incurred by the Great Park Venture were comprised of base development management fees and incentive compensation fees.

In general, incentive compensation fees will be paid as a percentage of distributions made to holders of the Great Park Venture’s percentage interests.

In general, incentive compensation fees will be paid as a percentage of distributions made to holders of the Great Park Venture’s membership interests.

When payments are deemed probable of being made, the Great Park Venture recognizes the expense ratably over the period services are expected to be provided.

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 an increased estimate of the amount of incentive compensation probable of being paid.

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

The Great Park Venture recognized expense of $53.4 million and $44.0 million for incentive compensation fees during the years ended December 31, 2023 and 2022, respectively.

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

25,020 10,754

Net income of Great Park Venture 250,610 68,954

The Company’s share of net income of the Great Park Venture 93,979 25,858

Basis difference amortization

(5,414) (14,912)

Basis difference amortization, net (15,032) (5,414)

Equity in earnings from Great Park Venture $ 78,947 $ 20,444

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The Five Point Gateway Campus currently includes approximately one million square feet planned for research and development, medical and office space in four buildings.

In 2020, the Gateway Commercial Venture sold three of the buildings and approximately 11 acres of land at the campus, generating $463.0 million in gross proceeds.

In 2020, the Gateway Commercial Venture sold three of the buildings and approximately 11 acres of land at the campus.

Our corporate headquarters are located in the fourth building, which remains owned by the Gateway Commercial Venture.

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

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.

The table below reconciles the Commercial segment results for the years ended December 31, 2023 and 2022 to the equity in loss from our investment in the Gateway Commercial Venture that is reflected in the consolidated statements of operations for the years ended December 31, 2023 and 2022, respectively.

Year Ended December 31,

(in thousands)

Segment profit from operations $ 249 $ 1,284

Segment (loss) profit from operations $ (3,454) $ 249

Less net income of management company attributed to the Commercial segment

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

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

Net loss of Gateway Commercial Venture (3,885) (169)

Equity in loss from Gateway Commercial Venture $ (2,914) $ (127)

Liquidity and Capital Resources

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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 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.

In January 2024, we exchanged $623.5 million of our existing 7.875% senior notes due November 2025 for $100.0 million in cash and $523.5 million in new 10.500% initial rate senior notes due January 2028.

The new senior notes due January 2028 will accrue interest at a rate of 11.000% starting in November 2025 and at a rate of 12.000% starting from November 2026 through the maturity date.

In 2024, we will make aggregate interest payments of $54.1 million on our existing and new senior notes, and $46.1 million in principal payments that were deferred from 2023 and are due 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.

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 manage our development activities and expenditures to coincide with projected demand for our residential and commercial land 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, 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.

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 an income-producing portfolio, along with debt service and

general and administrative expenses.

We budget our cash development costs on an annual basis.

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The level of capital expenditures in any given year may vary due to, among other things, the number of communities or neighborhoods under development and the number of planned deliveries, which may vary based on market conditions.

We may seek to raise additional capital by accessing the debt or equity capital markets or with one or more revolving or term loan facilities or other public or private financing alternatives.

We may seek to raise additional capital by accessing the debt or equity capital markets or with one or more revolving or term loan facilities or other public or private financing alternatives, including entering into joint ventures.

These financings may not be available on attractive terms, or at all.

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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.

As of December 31, 2023, there were no amounts currently payable under the TRA and based on current projections, we do not expect to make any payments for the next several years.

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, 2023, 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 $1.0 million and $1.3 million at December 31, 2022 and 2021, respectively.

Outstanding LOCs totaled $1.0 million at each of December 31, 2023 and 2022.

At both December 31, 2023 and 2022, we had $1.0 million in restricted cash and certificates of deposit securing certain of our LOCs.

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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.

We do not anticipate making contributions to our pension plan over the next twelve months.

We do not anticipate making material contributions to our pension plan over the next twelve months.

We believe the pension plan is currently appropriately funded, however, declines in the value of the plan’s assets could result in increased funding requirements in the long-term.

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$ 970,859 $ 206,083 $ 135,952 $ 606,317 $ 22,507

(1) In January 2024, we exchanged $623.5 million of our existing 7.875% senior notes due November 2025 for $100.0 million in cash and $523.5 million in new 10.500% initial rate senior notes due January 2028.

The new senior notes due January 2028 will

accrue interest at a rate of 11.000% starting in November 2025 and at a rate of 12.000% starting from November 2026 through the maturity date.

The table above reflects our material cash obligations and commitments after giving effect to the January 2024 exchange.

(2) We are subject to a water purchase agreement requiring annual payments in exchange for the delivery of water for our exclusive use.

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Summary of Cash Flows

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

The following table outlines the primary components of net cash provided by (used in) 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 SG&A costs.

Cash outflows are comprised primarily of cash outlays for horizontal development costs, net of reimbursements and recoveries, 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, 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.

Net cash provided by operating activities was $154.1 million for the year ended December 31, 2023, compared to $188.3 million net cash used in operating activities for the year ended December 31, 2022.

Our horizontal development costs for the year ended December 31, 2023 were offset by $18.9 million in public financing reimbursements for public infrastructure development costs we incurred in Valencia and a nonrecurring $44.5 million recovery from a third party related to certain project development costs in Valencia.

Our horizontal development costs for the year ended December 31, 2022 were offset by $27.7 million in public financing reimbursements for public infrastructure development costs we incurred in Valencia.

During the year ended December 31, 2023, we received $162.4 million from the sale of land at our Valencia segment.

We also received incentive compensation payments of $41.6 million under our development management agreement with the Great Park Venture.

The payment is net of $4.9 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.

Additionally, we received total distributions of $154.2 million from the Great Park Venture, of which $78.2 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, 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 $10.0 million in contingent consideration associated with a commercial land sale that closed in 2011.

Cash Flows from Investing Activities.

Net cash provided by investing activities was $77.1 million for the year ended December 31, 2023, compared to the net cash provided by investing activities of $64.0 million for the year ended December 31, 2022.

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.

During the year ended December 31, 2023, we received total distributions of $154.2 million from the Great Park Venture, of which $76.0 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.

Additionally, we received total distributions of $1.1 million from the Valencia Landbank Venture, which is reflected as a return of our investment (investing activity) in the statement of cash flows.

For 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.

Cash Flows from Financing Activities.

Net cash used in financing activities was $9.2 million for the year ended December 31, 2023, compared to net cash used in financing activities of $9.7 million for the year ended December 31, 2022.

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”).

During the years ended December 31, 2023 and 2022, we made tax distributions of $4.0 million and $0.4 million, 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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Changes in Capital Structure

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.

During the year ended December 31, 2023, our ownership percentage in the operating company increased slightly to 62.6%, primarily due to our issuance of shared-based compensation in the form of 0.2 million restricted Class A common shares, partially offset by our reacquisition of approximately 0.1 million restricted Class A common shares from employees for income tax withholding purposes upon vesting.

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.

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, 2023 and 2022 held by us and those held by noncontrolling interest members.

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We did not sell homesites directly to Lennar during the years ended December 31, 2023, 2022, and 2021 but did recognize revenues related to certain fees or profit participation associated with homes sold by Lennar to homebuyers at Valencia.

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

For the years ended December 31, 2023 and 2022, we recognized $0.6 million and $7.5 million, respectively, of revenue from Lennar, which primarily consisted of profit participation.

During the year ended December 31, 2023, we sold homesites to an unaffiliated land banking entity and recognized $101.8 million of such revenue.

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

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, 2023 and 2022, we recognized $47.2 million and $31.0 million, respectively, of revenue from management services provided to the Great Park Venture.

Other than the Great Park Venture, no related party customer accounted for more than 10% of our

revenue during the year ended December 31, 2023.

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.

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

In addition to the related party revenues, during the year ended December 31, 2023, we recognized an aggregate of $21.7 million and $39.4 million of revenue from two third-party home builders, respectively, which primarily consisted of homesites sold to the two third-party home builders and which separately 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 year ended December 31, 2023.

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

Critical Accounting Estimates

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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.

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

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