What changed in this filing

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Item 9A. Controls and Procedures

2024-03-04 compared with 2023-03-06 · 91 added, 109 removed, 488 unchanged (29% of the section changed)

7 unchanged sentences

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act.

Our management, with the participation of our Chief Executive Officer and Interim Chief Financial Officer, conducted an assessment of the effectiveness of our internal control over financial reporting as of December 31, 2022 based on the framework established in the Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations (COSO) of the Treadway Commission (2013 Framework).

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, conducted an assessment of the effectiveness of our internal control over financial reporting as of December 31, 2023 based on the framework established in the Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations (COSO) of the Treadway Commission (2013 Framework).

Based on this framework, our management concluded that our internal control over financial reporting was effective as of December 31, 2023.

57 unchanged sentences

Consolidated Statements of Operations for the years ended December 31, 202 3 , 202 2 and 20 21

Consolidated Statements of Comprehensive (Loss) Income for the years ended December 31, 2022, 2021 and 2020

Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 202 3 , 202 2 and 202 1

Consolidated Statements of Capital for the years ended December 31, 202 3 , 202 2 and 202 1

20 unchanged sentences

1 to Registrant’s Registration Statement on Form S-11 filed April 24, 2017 is incorporated herein by this reference)

First Amendment to Fourth Amended and Restated Limited Liability Company Agreement of Heritage Fields LLC, dated as of November 15, 2022, by and among Five Point Heritage Fields, LLC, Heritage Fields Capital Co-Investor Member LLC, MSD Heritage Fields, LLC, and LNR HF II, LLC (Exhibit 10.2 of the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2023 is incorporated herein by this reference)

Second Amended and Restated Operating Agreement of The Shipyard Communities, LLC (Exhibit 10.2 to Registrant's Registration Statement on Form S-11 filed April 7, 2017 is incorporated herein by this reference)

1 unchanged sentence

Limited Liability Company Agreement of Five Point Office Venture Holdings I, LLC, dated as of August 4, 2017 (Exhibit 10.1 to the Current Report on Form 8-K filed on August 10, 2017 is incorporated herein by this reference)

First Amendment to Limited Liability Company Agreement of Five Point Office Venture Holdings I, LLC, dated as of August 17, 2023, by and among FPOVHI Member, LLC, Irvine Office Member, L.L.C., and LNR BC, LLC (Exhibit 10.1 of the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2023 is incorporated herein by this reference)

Registration Rights Agreement, dated as of May 2, 2016, by and among the Registrant and the persons named therein (Exhibit 10.3 to Registrant's Registration Statement on Form S-11 filed April 7, 2017 is incorporated herein by this reference)

4 unchanged sentences

Amended and Restated 2016 Incentive Award Plan (Appendix A to the Company’s Proxy Statement filed April 26, 2019 is incorporated herein by this reference)

Five Point Holdings, LLC 2023 Incentive Award Plan (Appendix A to the Company’s Proxy Statement filed April 28, 2023 is incorporated herein by this reference)

Five Point Holdings, LLC Senior Management Severance and Change in Control Plan (Exhibit 10.11 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 is incorporated herein by this reference)

26 unchanged sentences

Second Supplemental Indenture, dated as of July 26, 2019, among Five Point Operating Company, LP, Five Point Capital Corp., the guarantors party thereto and Wells Fargo Bank, National Association, as trustee (Exhibit 4.3 to the Current Report on Form 8-K filed on July 26, 2019 is incorporated herein by this reference).

Credit Agreement, dated as of April 18, 2017, by and among Five Point Operating Company, LLC, ZB, N.A.

dba California Bank & Trust and the lenders party thereto (Exhibit 10.31 to Amendment No.

1 to Registrant's Registration Statement on Form S-11 filed April 24, 2017 is incorporated herein by this reference)

First Amendment to Credit Agreement, dated as of November 8, 2017, by and among Five Point Operating Company, LP, ZB, N.A., dba California Bank & Trust, Comerica Bank, N.A., JPMorgan Chase Bank, N.A., and Citibank, N.A.

(Exhibit 10.5 of the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2017 is incorporated herein by this reference)

Second Amendment to Credit Agreement, dated as of May 10, 2019, by and among Five Point Operating Company, LP, Zions Bancorporation, N.A.

(fka ZB, N.A.) dba California Bank & Trust, Comerica Bank, N.A., JPMorgan Chase Bank, N.A., and Citibank, N.A.

(Exhibit 10.1 to the Current Report on Form 8-K filed on May 16, 2019 is incorporated herein by this reference)

Third Amendment to Credit Agreement, dated as of April 19, 2021, by and among Five Point Operating Company, LP, Zions Bancorporation, N.A.

dba California Bank & Trust, Comerica Bank, JPMorgan Chase Bank, N.A., and Citibank, N.A.

(Exhibit 10.1 to the Current Report on Form 8-K filed on April 20, 2021 is incorporated herein by this reference)

Guaranty Agreement, executed as of August 10, 2017, by Five Point Holdings, LLC for the benefit of SPT CA Funding 2, LLC (Exhibit 10.2 to the Current Report on Form 8-K filed on August 10, 2017 is incorporated herein by this reference)

Mezzanine Guaranty Agreement, executed as of August 10, 2017, by Five Point Holdings, LLC for the benefit of SPT CA Funding 2, LLC (Exhibit 10.3 to the Current Report on Form 8-K filed on August 10, 2017 is incorporated herein by this reference)

Third Supplemental Indenture, dated as of December 22, 2023, among Five Point Operating Company, LP, Five Point Capital Corp., the Guarantors party thereto, and Computershare Trust Company, N.A., as trustee (Exhibit 4.1 to the Current Report on Form 8-K filed on December 26, 2023 is incorporated herein by this reference)

Indenture, dated as of January 16, 2024, among Five Point Operating Company, LP, Five Point Capital Corp., the Guarantors party thereto and Computershare Trust Company, N.A., as trustee (including the form of New Notes) (Exhibit 4.1 to the Current Report on Form 8-K filed on January 16 , 202 4 is incorporated herein by this reference)

Fifth Amendment to Credit Agreement, dated as of October 19, 2023, by and among Five Point Operating Company, LP, Zions Bancorporation, N.A.

dba California Bank & Trust, as administrative agent and as a lender, and Comerica Bank, JPMorgan Chase Bank, N.A.

and Citibank, N.A., as lenders (Exhibit 10.1 to the Current Report on Form 8-K filed on October 20, 2023 is incorporated herein by this reference)

List of Subsidiaries**

6 unchanged sentences

Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002**

Five Point Holdings, LLC Policy for Recovery of Erroneously Awarded Compensation**

101.INS XBRL Instance Document - the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document

20 unchanged sentences

Principal Financial and Accounting Officer:

Leo Kij /s/ Leo Kij

Interim Chief Financial Officer Date:

Kim Tobler /s/ Kim Tobler

Chief Financial Officer, Treasurer and Vice President

March 1, 2024

47 unchanged sentences

Inventory relief from real estate sold ( 106,397 ) — ( 116,393 )

Reimbursements ( 38,041 ) ( 5,116 ) ( 2,243 )

Reimbursements and recoveries ( 65,160 ) ( 38,041 ) ( 5,116 )

Balance at end of year $ 2,243,679 $ 2,269,325 $ 2,126,949

11 unchanged sentences

Irvine, California

We have audited the consolidated financial statements of Heritage Fields LLC, a Delaware limited liability company, and its subsidiaries (the "Company"), which comprise the consolidated balance sheets as of December 31, 2022 and 2021, and the related consolidated statements of operations, members’ capital, and cash flows for each of the three years in the period ended December 31, 2022, and the related notes to the consolidated financial statements.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in accordance with accounting principles generally accepted in the United States of America.

Basis of Opinion

We have audited the consolidated financial statements of Heritage Fields LLC, a Delaware limited liability company and subsidiaries (the “Company”), which comprise the consolidated balance sheets as of December 31, 2023 and 2022, and the related consolidated statements of operations, members’ capital, and cash flows for each of the three years in the period ended December 31, 2023, and the related notes to the consolidated financial statements (collectively referred to as the “financial statements”).

In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023 in accordance with accounting principles generally accepted in the United States of America.

Basis for Opinion

We conducted our audits in accordance with auditing standards generally accepted in the United States of America (GAAS).

2 unchanged sentences

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Responsibilities of Management for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with accounting principles generally accepted in the United States of America, and for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern for one year after the date that the financial statements are available to be issued.

Responsibilities of Management for the Financial Statements

Management is responsible for the preparation and fair presentation of the financial statements in accordance with accounting principles generally accepted in the United States of America, and for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern for one year after the date that the financial statements are available to be issued.

Auditor’s Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion.

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion.

Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with GAAS will always detect a material misstatement when it exists.

The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the consolidated financial statements.

In performing an audit in accordance with GAAS, we:

• Exercise professional judgment and maintain professional skepticism throughout the audit.

• Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks.

Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

• Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks.

Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control.

Accordingly, no such opinion is expressed.

• Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the consolidated financial statements.

• Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern for a reasonable period of time.

9 unchanged sentences

LAND UNDER DEVELOPMENT $ 391,352 $ 605,893

HOMES UNDER CONSTRUCTION — 18,267

CASH AND CASH EQUIVALENTS

1 unchanged sentence

INVESTMENT IN JOINT VENTURE — 2,287

RECEIVABLES AND OTHER ASSETS—Net

41,668 29,566

CONTRACT ASSETS, RECEIVABLES AND OTHER ASSETS—Net 166,793 41,668

$ 619,199 $ 799,174

1 unchanged sentence

$ 1,005 $ 2,843

Accrued management fees and reimbursements

124,349 102,686

Accrued management fees 120,971 124,349

Land sales deposits

Accounts payable and other liabilities

30 unchanged sentences

INTEREST INCOME 7,490 1,532 496

NET INCOME (LOSS) $ 68,954 $ 56,918 $ (29,406)

NET INCOME $ 250,610 $ 68,954 $ 56,918

See notes to consolidated financial statements.

5 unchanged sentences

MEMBERS’ CAPITAL—January 1, 2021

Cumulative effect of change in accounting principle (See Note 2) (1,118)

Net loss (29,406)

Cash distributions (204,327)

Net income 56,918

MEMBERS’ CAPITAL—December 31, 2021

14 unchanged sentences

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income (loss) $ 68,954 $ 56,918 $ (29,406)

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

Net income $ 250,610 $ 68,954 $ 56,918

Adjustments to reconcile net income to net cash provided by operating activities:

Cost of land sales

2 unchanged sentences

Equity in (earnings) loss of from joint venture (1,926) (354) 1,409

Return on investment from joint venture 871 — —

Changes in operating assets and liabilities:

1 unchanged sentence

Homes under construction (161) (11,425) (18,700)

Receivables and other assets, net (12,102) (5,117) 6,828

Accrued management fees and reimbursements

21,663 (7,044) (2,896)

Contract assets, receivables and other assets, net (125,125) (12,102) (5,117)

Accrued management fees (3,378) 21,663 (7,044)

Land sales deposits

Accounts payable and other liabilities 16,847 6,633 (2,494)

Net cash provided by (used in) operating activities 166,135 272,565 (87,342)

Net cash provided by operating activities 369,587 166,135 272,565

CASH FLOWS FROM INVESTING ACTIVITIES:

Contributions to joint venture (25) (255) (4,589)

Distributions from joint venture 1,243 195 —

Distributions from joint venture (return of investment) 3,351 1,243 195

Net cash provided by (used in) investing activities 3,326 988 (4,394)

5 unchanged sentences

(461,185) (157,801) (257,017)

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 9,322 11,154 (164,152)

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (88,272) 9,322 11,154

CASH AND CASH EQUIVALENTS—Beginning of year

35 unchanged sentences

and site costs such as grading and amenities to bring the land to a finished state.

Certain land development costs are reimbursable through development or other agreements with City of Irvine (the “City”) or other agencies or recoverable through insurance or other agreements and offset costs when received.

Certain land development costs are reimbursable through development agreements or other agreements with City of Irvine (the “City”) or other agencies or recoverable through insurance or other agreements and offset development costs when received.

Total reimbursements and recoveries were $89.6 million, $43.7 million and $52.1 million for the years ended December 31, 2023, 2022 and 2021, respectively.

8 unchanged sentences

Homes under construction —Homes under construction are a result of a fee build agreement with an unrelated third-party (“Fee Builder”) that the Company contracted to build and act as a sales agent for a population of residential homes within the Project.

The Fee Builder initially incurs all costs to build, market and sell the residential homes and the Company reimburses the Fee Builder as construction progresses.

The Company pays the Fee Builder a fixed monthly overhead allowance for its services to construct, manage and maintain the homes during the construction process that is capitalized to homes under construction as incurred.

Land, land development, amenities and home construction costs attributed to the fee build agreement are capitalized to homes under construction and allocated to cost of sales using the relative sales value method when homes are sold.

The Company sets and approves the price at which the completed homes will be sold to homebuyers and upon the closing of a residential home to a third-party homebuyer, the Fee Builder will receive additional fees that are expensed as a cost of the home sale.

Costs incurred for tangible assets constructed solely for model homes directly used in the sale process such as sales offices, design studios, landscaping, and furnishings are capitalized to receivables and other assets, net on the accompanying consolidated balance sheets and were depreciated over the expected selling life of the fee build community which was complete as of December 31, 2022.

All other selling and marketing costs, such as commissions and advertising, are expensed as incurred.

Homes under construction are reviewed for potential impairment when events or changes in circumstances indicate that the carrying value of the homes may not be recoverable.

The Fee Builder initially incurred all costs to build, market and sell the residential homes and the Company reimbursed the Fee Builder as construction progressed.

The Company paid the Fee Builder a fixed monthly overhead allowance for its services to construct, manage and maintain the homes during the construction process that was capitalized to homes under construction as incurred.

Land, land development, amenities and home construction costs attributed to the fee build agreement were capitalized to homes under construction and allocated to cost of sales using the relative sales value method when homes were sold.

The Company set and approved the price at which the completed homes were sold to homebuyers and upon the closing of a residential home to a third-party homebuyer, the Fee Builder received additional fees that were expensed as a cost of the home sale.

Costs incurred for tangible assets constructed solely for model homes directly used in the sale process such as sales offices, design studios, landscaping, and furnishings were capitalized to contract assets, receivables and other assets, net on the accompanying consolidated balance sheets and were depreciated over the expected selling life of the fee build community which was complete as of December 31, 2022.

All other selling and marketing costs, such as commissions and advertising, were expensed as incurred.

Homes under construction were reviewed for potential impairment when events or changes in circumstances indicate that the carrying value of the homes may not be recoverable.

Impairment indicators for the homes include, but are not limited to significant increases in construction costs, significant decreases in pace and pricing of home sales for the Project and surrounding areas, and political and societal events that may negatively impact the local economy.

No impairments were identified for the years ended December 31, 2022, 2021 and 2020 and, as of December 31, 2022, all homes subject to the fee build agreement had been sold to homebuyers and closed escrow.

As of December 31, 2022, all homes subject to the fee build agreement had been sold to homebuyers and closed escrow.

No impairments were identified for the years ended December 31, 2022 and 2021.

Investment in joint venture —For investments in entities that the Company does not control, but exercises significant influence, the Company uses the equity method of accounting.

4 unchanged sentences

Interest payments are accrued in the period earned based on the stated interest rate and the outstanding principal balance, less any interest discounts stipulated by the note.

Included in receivables and other assets, net on the accompanying consolidated balance sheets are notes and accrued interest receivables that the Company has with builders that are constructing affordable housing apartments on the Project (“Affordable Notes”).

Included in contract assets, receivables and other assets, net on the accompanying consolidated balance sheets are notes and accrued interest receivables that the Company has with builders that are constructing affordable housing apartments on the Project (“Affordable Notes”).

The Company records a discount on the principal balance for Affordable Notes when the note is zero interest bearing or contains other terms that are below market rate.

9 unchanged sentences

In most contracts, at the time of the land sale, the Company's estimate of profit participation, if any, is constrained, as there are significant factors outside of the Company’s control that will impact whether participation thresholds will be met.

In addition, some residential homesite sale agreements contain a provision requiring the homebuilder to pay a marketing fee per residence sold, as a percentage of the home sale price.

Such fees are estimated as a variable consideration and the amount the Company expects to be entitled to receive is recognized as revenue at the time of land sale.

Profit participation revenue of $21.0 million, $19.6 million and $6.7 million were recognized for the years ended December 31, 2023, 2022 and 2021, respectively.

In addition, some residential homesite sale agreements contain a price participation provision requiring the homebuilder to pay a “marketing fee” or additional consideration per residence sold to homebuyers, as a percentage of the home sale price.

The Company estimates the amount of variable price participation consideration it expects to be entitled to receive and recognizes revenue and a contract asset at the time of land sale to the extent

that it is not probable that a significant reversal of revenues would result when the contingency of the variable price participation consideration is resolved.

The Company utilizes current home sale pricing offered by homebuilders in the community along with estimates of price appreciation when determining the estimate of the amount of variable price participation consideration to recognize.

A contract asset or liability is recognized when the timing of the satisfaction of a performance obligation is different from the timing of the payments made by customers.

Contract assets typically consist of estimates of contingent or variable consideration that has been included in the transaction price and recognized as revenue before the contingency is resolved and

the contractual payment is due.

Contract assets typically consist of estimates of contingent or variable consideration that has been included in the transaction price and recognized as revenue before the contingency is resolved and the contractual payment is due.

Contract liabilities typically consist of payments received prior to satisfying the associated performance obligation.

Changes in estimates of variable components of transaction prices could result in cumulative catch-up adjustments to revenue in periods after the Company transfers control of the land to the builder.

Profit participation revenue of $19.6 million, $6.7 million and $3.6 million were recognized for the years ended December 31, 2022, 2021 and 2020, respectively.

Home sale revenues are recognized at the time of escrow closing, when title to and possession of the home is transferred to the homebuyer, and the single performance obligation of the Company, the delivery of a completed home, has been satisfied.

9 unchanged sentences

Income Taxes —The consolidated financial statements contain no provision for income taxes since the income or loss of the Company flows through to the members who are responsible for including their share of the taxable results of operations on their respective tax returns.

Accounting Standards Updates —In June 2016, the Financial Accounting Standards Board issued Accounting Standards Update No.

2016-13 , Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments ("ASU No.

2016-13") which amends the guidance on the impairment of financial instruments, including most debt instruments, trade receivables and loans.

2016-13 adds to GAAP an impairment model known as the current expected credit loss model that is based on expected losses rather than incurred losses.

Under the new guidance, an entity recognizes as an allowance its estimate of expected credit losses for instruments measured at amortized cost, resulting in a net presentation of the amount expected to be collected on the financial asset.

The Company adopted ASU No.

2016-13 on January 1, 2020 using a modified retrospective approach resulting in a cumulative adjustment to Members' Capital of $1.1 million upon adoption.

RECEIVABLES AND OTHER ASSETS, net

Receivables and other assets, net as of December 31, 2022 and 2021, consisted of the following (in thousands):

Accounting Standards Updates —Although there have been several new accounting pronouncements recently issued by the Financial Accounting Standards Board that the Company has adopted or will adopt, the Company does not believe any of these accounting pronouncements had or will have a material impact on the Company’s consolidated financial statements or disclosures.

CONTRACT ASSETS, RECEIVABLES AND OTHER ASSETS, net

Contract assets, receivables and other assets, net as of December 31, 2023 and 2022, consisted of the following (in thousands):

Affordable notes, net $ 16,022 $ 16,097

Marketing fee contract assets (see Note 7) 2,476 8,946

2023 residential land sale price participation contract asset 143,100 —

Other contract assets 5,195 16,625

Total receivables and other assets, net $ 41,668 $ 29,566

Total contract assets, receivables and other assets, net $ 166,793 $ 41,668

Principal and interest collected on affordable notes, net, was $0.9 million, $3.1 million and $0.3 million for the years ended December 31, 2023, 2022 and 2021, respectively.

Interest income on affordable notes, net, was $0.5 million, $0.3 million and $0.4 million for the years ended December 31, 2023, 2022 and 2021, respectively, and are included in interest income on the accompanying consolidated statements of operations.

At December 31, 2022 and 2021, the Company had an allowance for credit loss of $1.5 million and $1.0 million, respectively, associated with the affordable notes.

At December 31, 2023 and 2022, the Company had an allowance for credit losses of $1.5 million and $1.5 million, respectively, associated with the affordable notes.

For the years ended December 31, 2023, 2022 and 2021, marketing fee revenue of $1.8 million, $2.0 million and $9.5 million, respectively, is included in land sale revenues in the accompanying consolidated statements of operations.

Of these amounts,

$0.6 million, $9.1 million and $0.5 million, respectively, represent marketing fee estimates recorded as contract assets when escrow closed with the homebuilder.

Of these amounts, for the years ended December 31, 2022 and 2021, $0.6 million and $9.1 million, respectively, represent marketing fee estimates recorded as contract assets when escrow closed with the homebuilder.

Receipts of contractual amounts were $6.5 million, $5.8 million and $4.3 million for the years ended December 31, 2023, 2022 and 2021, respectively, and reduced the carrying amount of the contract assets.

The Company’s other contract assets as of December 31, 2022, consisted of consideration held in escrow from the sale of commercial land that closed during 2022.

The balance primarily relates to variable consideration from the commercial land sale that the Company expects to be entitled to receive.

In 2023, the Company closed a residential land sale which contained variable consideration in the form of price participation that will be payable when homes are sold to homebuyers.

At December 31, 2023, the Company had a contract asset of $143.1 million representing additional consideration from this transaction that the Company expects to be entitled to receive.

The Company’s other contract assets as of December 31, 2023 and 2022 primarily consisted of consideration held in escrow from the sale of commercial land that closed during 2023 and 2022 that the Company expects to be entitled to receive upon the satisfaction of certain contingencies or completion of administrative tasks or immaterial contract promises.

Funds released from escrow accounts totaled $15.0 million for the year ended December 31, 2023, and reduced the carrying amount of the other contract assets.

In 2010, HF El Toro entered into an unsecured cash flow participation agreement in connection with a series of transfers, payoffs, and pay downs related to its then outstanding loan facility (“Debt Restructure”).

3 unchanged sentences

The principal carrying balance of the participation agreement was $1.0 million and $2.8 million as of December 31, 2023 and 2022, respectively, and is included in debt on the accompanying consolidated balance sheets.

Total interest incurred related to the participation agreement during the years ended December 31, 2022 and 2021 was $7.8 million and $12.0 million, respectively, and was capitalized to land under development in the accompanying consolidated balance sheets.

No interest was incurred during the year ended December 31, 2020.

Total interest incurred related to the participation agreement during the years ended December 31, 2023, 2022 and 2021 was $23.4 million, $7.8 million and $12.0 million , respectively, and was capitalized to land under development in the accompanying consolidated balance sheets.

ACCOUNTS PAYABLE AND OTHER LIABILITIES

5 unchanged sentences

18,986 12,446

Development obligations

Development obligations (see Note 8) 19,238 4,182

Total accounts payable and other liabilities

11 unchanged sentences

The Management Company is an affiliate of a member of the Company that holds a 37.5% Percentage Interest.

The development management agreement was amended and restated on May 2, 2016 and subsequently amended and restated on April 21, 2017

(“A&R DMA”) to among other things, extend the initial term until December 2021 with up to five years of additional renewal periods, subject to a mutual agreement of parties.

The development management agreement was amended and restated on May 2, 2016 and subsequently amended and restated on April 21, 2017 (“A&R DMA”) to among other things, extend the initial term until December 2021.

The A&R DMA’s initial term was extended by mutual agreement of the parties to December 31, 2022 (the “2022 Extension”) and in December 2022, an amendment to the A&R DMA was entered into in which the A&R DMA was renewed through December 31, 2024 (the “First Renewal Term Amendment”).

Compensation under the A&R DMA includes a base fee, reimbursable general and administrative expenses and incentive compensation.

The base annualized management fee for the initial term of the A&R DMA was subject to annual increases for changes in a specified consumer price index.

The total annual base management fee incurred for the years ended December 31, 2023, 2022 and 2021 was $12.0 million, $9.3 million and $6.8 million, respectively, and is included in management fee in the accompanying consolidated statements of operations.

Incentive compensation payable to the Management Company is calculated generally as 9% of distributions in excess of the priority $476.0 million Legacy Interests.

The 2022 Extension and First Renewal Term Amendment of the A&R DMA did not change the incentive compensation provisions of the A&R DMA.

If the A&R DMA is not extended by mutual agreement of the Company and the Management Company beyond December 31, 2024, then the Management Company will remain entitled to future incentive compensation payments at a reduced rate equal to 6.75% of Distributions paid thereafter.

4 unchanged sentences

Actual payments of incentive compensation may differ materially from current estimates.

During the years ended December 31, 2022 and 2021, the Company paid $14.2 million and $20.7 million, respectively, in non-legacy incentive compensation and $1.7 million and $0.6 million, respectively, in legacy incentive compensation to the Management Company.

No amounts were paid in 2020.

As of December 31, 2022 and 2021, $95.9 million and $77.6 million, respectively, was accrued for incentive compensation management fees due to the Management Company, and is included in accrued management fees and reimbursements in the accompanying consolidated balance sheets.

Included in selling, general and administrative costs and expenses in the accompanying consolidated statements of operations for the years ended December 31, 2022, 2021 and 2020 are $3.1 million, $11.2 million and $11.4 million, respectively, for general and administrative expenses incurred by the Management Company on behalf of the Company that were reimbursable under the A&R DMA.

General and administrative expense reimbursements are settled in cash on a monthly basis.

During the years ended December 31, 2023, 2022 and 2021, the Company paid $41.6 million, $14.2 million and $20.7 million, respectively, in non-legacy incentive compensation and $4.9 million, $1.7 million and $0.6 million, respectively, in legacy incentive compensation to the Management Company.

As of December 31, 2023 and 2022, $92.8 million and $95.9 million, respectively, was accrued for incentive compensation management fees due to the Management Company, and is included in accrued management fees in the accompanying consolidated balance sheets.

Included in selling, general and administrative costs and expenses in the accompanying consolidated statements of operations for the years ended December 31, 2022 and 2021 are $3.1 million and $11.2 million, respectively, for general and administrative expenses incurred by the Management Company on behalf of the Company that were reimbursable under the A&R DMA prior to the 2022 Extension.

General and administrative expense reimbursements were settled in cash on a monthly basis.

In connection with the 2022 Extension of the A&R DMA, the variable cost reimbursement component was eliminated from the A&R DMA, and the annualized base fee was increased to a fixed $12.0 million.

At December 31, 2022, no balance was accrued for general and administrative expense reimbursements.

At December 31, 2021, $2.9 million was accrued for general and administrative expense reimbursements and is included in accrued management fees and reimbursements in the accompanying consolidated balance sheets.

At December 31, 2023 and 2022, no balance was accrued for general and administrative expense reimbursements.

Commercial Sub-Management Agreement

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Incentive compensation payments become payable, calculated generally, as 2% of distributions (as defined in the Sub-MA) in excess of the first $476 million of priority Legacy Interests.

As of December 31, 2022 and 2021, $28.4 million and $23.0 million, respectively, of incentive compensation management fee pertaining to the Sub-MA was accrued and is included in accrued management fees and reimbursements in the accompanying consolidated balance sheets.

As of December 31, 2023 and 2022, $28.1 million and $28.4 million, respectively, of incentive compensation management fee pertaining to the Sub-MA was accrued and is included in accrued management fees in the accompanying consolidated balance sheets.

The amount accrued at December 31, 2023 and 2022 represents an estimated amount of incentive compensation determined to be earned and probable of being paid.

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Actual payments of incentive compensation may differ materially from current estimates.

During the years ended December 31, 2022 and 2021, the Company paid $3.5 million and $4.6 million in incentive compensation pertaining to the Sub-MA.

No amounts were paid in 2020.

During the years ended December 31, 2023, 2022 and 2021, the Company paid $10.3 million, $3.5 million and $4.6 million in incentive compensation pertaining to the Sub-MA.

Purchase and Sale and Development Agreements

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Contract Asset

At December 31, 2022 and 2021, included in receivables and other assets, net on the accompanying consolidated balance sheets were related party contract assets of $4.9 million and $3.6 million, respectively, for variable land sale consideration attributed to marketing fees expected to be received.

At December 31, 2023 and 2022, included in contract assets, receivables and other assets, net on the accompanying consolidated balance sheets were related party contract assets of $1.0 million and $4.9 million, respectively, for variable land sale consideration attributed to marketing fees expected to be received.

Investment in Joint Venture

In 2021, the Company made a capital contribution of $4.6 million to an entity (the “Landbank Venture”) organized for the purpose of taking assignment from homebuilders land purchase and sale agreements and purchasing residential lots within the Project while concurrently entering into option and development agreements with homebuilders in which the homebuilder retains the option to purchase the land to construct and sell homes.

The Company has a 10% interest in the Landbank Venture, and most major decisions require the Company’s approval in addition to the approval of the Landbank Venture’s other unaffiliated member.

The Company does not have a controlling financial interest in the Landbank Venture but has the ability to significantly influence the Landbank Venture’s operating and financial policies and accounts for the Landbank Venture under the equity method of accounting.

In 2021, the Company made a capital contribution of $4.6 million and received a 10% interest in an entity (the “Landbank Venture”) organized for the purpose of taking assignment from homebuilders land purchase and sale agreements and purchasing residential lots within the Project while concurrently entering into option and development agreements with homebuilders in which the homebuilder retains the option to purchase the land to construct and sell homes.

Subsequent to the Company’s investment in 2021, the Landbank Venture took assignment of certain purchase and sale agreements and purchased land from the Company for $56.1 million while concurrently entering into option and development agreements with third-party homebuilders.

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

During the years ended December 31, 2022 and 2021, the Company recognized equity in earnings of $0.3 million and equity in loss of $1.4 million, respectively, from the Landbank Venture.

At December 31, 2022 and 2021, the carrying value of the Company’s investment in the Landbank Venture was $2.3 million and $3.0 million, respectively.

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

As of December 31, 2023, the third-party homebuilders had exercised all the options from the option and development agreements with the Landbank Venture, and the Landbank Venture had distributed all available cash.

The Company’s investment in the Landbank Venture had no carrying value at December 31, 2023, and at December 31, 2022, the carrying value of the Company’s investment in the Landbank Venture was $2.3 million.

COMMITMENTS AND CONTINGENCIES

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In addition to the Great Park Improvements, the ALA II and a memorandum of understanding (“MOU”) regarding funding of Marine Way infrastructure improvements committed HF El Toro to perform on certain other defined items as well as it committed HF El Toro to make $20.0 million of certain direct payments to the City beginning in August 2016.

As of December 31, 2022 and 2021, the carrying balance of amounts payable to the City totaled $1.2 million and $2.4 million, respectively, and is included within accounts payable and other liabilities on the consolidated balance sheets.

As of December 31, 2022, the carrying balance of amounts payable to the City related to ALA II totaled $1.2 million and is included within accounts payable and other liabilities on the consolidated balance sheets.

At December 31, 2022, the Company estimated the present value of the direct payments to equal their carrying amounts.

The Company made $1.3 million in payments to the City

under the ALA II and MOU for each of the years ended December 31, 2022 and 2021.

Amortization expense, all of which was capitalized to inventories, totaled $0.1 million for each of the years ended December 31, 2022 and 2021.

The Company made $1.3 million in payments to the City under the ALA II and MOU for the year ended December 31, 2022.

Amortization expense, all of which was capitalized to inventories, totaled $0.1 million for the year ended December 31, 2022.

As also defined in the agreements, HF El Toro will have the right to receive up to an additional $40.0 million in CFD reimbursements for public infrastructure components of the Great Park Improvements.

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Additionally, the Company agreed to pay $18.0 million to the City upon the City completing certain administrative steps but no sooner than 2025.

The FPIA will become effective after a series of approvals and administrative actions are completed in connection with the formation of the new City of Irvine Communities Facilities District No.

2013-3B (“CFD 2013-3B”), which is expected to occur in 2023.

CFD 2013-3B will replace the existing CFD for those development districts where development by the Company has not yet occurred.

Due to the fact that the FPIA is not yet effective as of December 31, 2022, the Company has not recorded any obligation for payment to the City on the accompanying consolidated balance sheet as of December 31, 2022.

The FPIA became effective on May 16, 2023, subsequent to the completion of a series of approvals and administrative actions in connection with the formation of the new City of Irvine Communities Facilities District No.

2013-3B (“CFD 2013-3B”).

CFD 2013-3B replaced the existing CFD for those development districts where development by the Company has not yet occurred.

Upon the effective date of the FPIA, the Company’s remaining obligations under the ALA II were terminated.

As of December 31, 2023, the carrying balance of amounts payable to the City related to the FPIA totaled $18.0 million and is included within accounts payable and other liabilities on the consolidated balance sheets.

The Company may be a party to various claims, legal actions, and complaints arising in the ordinary course of business.

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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 9A. Controls and Procedures