What changed in this filing

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Item 1A. Risk Factors

2025-02-24 compared with 2024-03-04 · 58 added, 47 removed, 333 unchanged (24% of the section changed)

15 unchanged sentences

• liabilities, expenses or project delays, stoppages or interruptions as a result of challenges by third parties in legal proceedings;

• changes in U.S.

trade policies (including the imposition of tariffs) and retaliatory responses from other countries, which could increase costs or limit the availability of materials and products used in development;

• delay or inability to acquire property, rights of way or easements;

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If we are not successful in obtaining additional financing to enable us to complete our projects or are unable to obtain performance bonds or letters of credit when required, we may experience further delays or increased costs, and our financial condition and results of our operations may be adversely affected.

Our communities are all located in California, which makes us susceptible to risks in that state.

Our communities are all located in California.

We have no current plans to acquire any additional properties or operations outside of California and we expect, at least for a number of years, to be dependent upon our existing projects for all of our cash flow.

Our existing communities are all located in California, which makes us susceptible to risks in that state.

Our existing communities are all located in California, and we expect, at least for the near term, to be dependent upon our existing projects for substantial portions of our cash flow.

As a result, we are susceptible to greater risks than if we owned a larger or more geographically diverse portfolio.

California also continues to suffer from severe budgetary constraints, which may result in the layoff or furlough of government employees, and California is regarded as more litigious and more highly regulated and taxed than many other states.

many other states.

Any adverse change in the economic, political, competitive or regulatory climate in California, or the counties and cities where our properties are located, could adversely affect our real estate development activities and have a negative impact on our financial condition and results of operations.

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We therefore have greater exposure to the risks of natural disasters, which can lead to power shortages, shortages of labor and materials, increased costs, and delays in development.

The occurrence of natural disasters may also negatively impact the availability of homeowners insurance and the demand for new homes in

affected areas.

If our insurance does not fully cover losses resulting from these events, our financial condition and results of operations could be adversely affected.

The occurrence of natural disasters may also negatively impact the availability of homeowners insurance and the demand for new homes in affected areas.

For example, the wildfires that have occurred in recent years in California, along with the increasing risk of future wildfires, have resulted in increased homeowners’ insurance costs and the unavailability of private homeowners’ insurance in certain high-risk areas.

We expect these issues may be exacerbated by the recent wildfires in Southern California.

Additionally, if drought conditions occur within California, state and local authorities could enact restrictions or moratoriums on building permits and access to utilities, such as water and sewer taps, which could delay or prevent our construction activities, as well as the construction of homes and commercial buildings, even when we have obtained water rights for our communities.

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In a highly inflationary environment, depending on industry and other economic conditions, we may be unable to raise prices enough to keep up with the rate of inflation, which would reduce our profit margins.

For example, we have been experiencing increases in the prices of labor and materials across all of our communities, which may adversely affect our financial condition and results of operations.

While inflation moderated somewhat in the latter half of 2023, interest rates and mortgage rates remain elevated relative to recent rate levels, which can decrease demand by homebuyers for new homes and soften demand by our guest builders for home sites.

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

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

Federal, state and local governments and private entities in impacted regions may take actions in an effort to slow the spread of such contagious diseases, including quarantines, restrictions on travel, stay-at-home orders, social distancing measures, restrictions on types of business that may continue to operate and/or restrictions on types of construction projects that may continue, which could adversely affect our ability to operate our business.

Our results of operations are affected by economic conditions, including macroeconomic conditions and levels of business confidence and consumer confidence, and our business could be negatively impacted by disruptions related to any such contagious disease.

In addition, these risks and uncertainties may also have the effect of heightening many of the other risks described in this section.

Significant competition could have an adverse effect on our business.

We compete with other residential, retail and commercial property developers in the development of properties in the Northern and Southern California markets.

We compete with a number of residential, retail and commercial developers, some with greater financial resources, in seeking resources for development and prospective purchasers.

Competition from other real estate

developers may adversely affect our ability to attract purchasers and sell or lease residential, retail and commercial properties, attract and retain experienced real estate development personnel or obtain construction materials and labor.

These competitive conditions could make it difficult to sell properties at desirable prices and could adversely affect our financial condition and results of operations.

Fluctuations in real estate values may require us to write down the carrying value of our real estate assets or real estate investments.

While inflation has moderated somewhat over the last year, interest rates and mortgage rates remain elevated relative to recent rate levels, which can decrease demand by homebuyers for new homes and soften demand by our guest builders for home sites.

Fluctuations in real estate values and changes in our development strategies may require us to write down (or impair) the carrying value of our real estate assets or real estate investments.

Our industry is subject to significant variability and fluctuations in real estate values.

The valuation of our real estate assets or real estate investments is inherently subjective and based on the individual characteristics of each asset.

Factors such as competitive market supply and demand for inventory, changes in laws and regulations, political and economic conditions and interest and inflation rate fluctuations subject our valuations to uncertainty.

The valuation of our real estate assets (e.g., our Valencia, Candlestick and The San Francisco Shipyard communities) or real estate investments (e.g., our investment in the Great Park Venture) is inherently subjective and based on the individual characteristics of each asset.

Factors such as competitive

market supply and demand for inventory, changes in laws and regulations, political and economic conditions and interest and inflation rate fluctuations subject our valuations to uncertainty.

Our valuations are made on the basis of assumptions that may not prove to reflect economic or demographic reality.

If the real estate market deteriorates, we may reevaluate the assumptions used in our analysis.

As a result, adverse market conditions may require us to write down the book value of certain real estate assets or real estate investments and some of those write-downs could be material.

In addition, we may be required to reevaluate the carrying value of our real estate assets in the event that we decide to pursue alternative development strategies that would accelerate the realization of the value of such assets, including contribution of the asset into a joint venture or an accelerated sale of the asset.

As a result of any such reevaluations, we may be required to write down (or impair) the book value of certain real estate assets or real estate investments and some of those write-downs could result in material reductions to our net income.

Any material write-downs of assets could have a material adverse effect on our financial condition and results of operations.

6 unchanged sentences

See “—Risks Related to Our Organization and Structure—Our substantial indebtedness may have a material adverse effect on our business, our financial condition and results of operations and our ability to secure additional financing in the future.”

Our pursuit of new growth strategies, including new business initiatives, acquisitions, investments, dispositions, joint ventures or other growth opportunities, could disrupt our ongoing business, present risks not originally contemplated and materially adversely affect our business, financial condition and results of operations.

Our growth strategy involves new potential joint ventures, acquisitions, investments and other transactions.

These transactions will take time to execute and may create additional costs, expose us to additional legal and compliance risks, cause disruption to our current business and impact our operating results.

Our ability to effectively pursue and manage anticipated ventures, acquisitions and investments may require significant capital and other expenditures, as well as allocation of valuable management resources, which may negatively impact our ongoing business.

Our future financial performance and ability to execute on our growth strategies will depend, in part, on our ability to effectively manage any future ventures, acquisitions or investments.

There are no guarantees that we will be able to do so in an effective or timely manner, or at all.

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

In addition, these risks and uncertainties may also have the effect of heightening many of the other risks described in this section.

Significant competition could have an adverse effect on our business.

We compete with other residential, retail and commercial property developers in the development of properties in the Northern and Southern California markets.

We compete with a number of residential, retail and commercial developers, some with greater financial resources, in seeking resources for development and prospective purchasers.

Competition from other real estate developers may adversely affect our ability to attract purchasers and sell or lease residential, retail and commercial properties, attract and retain experienced real estate development personnel or obtain construction materials and labor.

These competitive conditions could make it difficult to sell properties at desirable prices and could adversely affect our financial condition and results of operations.

Our property taxes could increase due to rate increases or reassessments or the imposition of new taxes or assessments, which may adversely impact our financial condition and results of operations.

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Changing market conditions during the entitlement period could negatively impact our revenue from land sales or leasing of retail or other commercial space.

Historically, certain of our entitlements, permits and

development approvals have been challenged by third parties, such as environmental groups.

Historically, certain of our entitlements, permits and development approvals have been challenged by third parties, such as environmental groups.

Future entitlements, permits and development approvals that we will need to obtain for development areas within our communities may be similarly challenged.

As a result of the time and complexity involved in obtaining approvals for our projects, we face the risk that demand for residential and commercial properties may decline, and we may be forced to sell or lease properties at prices or rates that generate lower profit margins than we anticipated or that would result in losses.

As a result of the time and complexity involved in obtaining approvals for our projects, we face the risk that we may not have entitled land available to sell to builders for certain periods of time.

We also face the risk that demand for residential and commercial properties may decline, and we may be forced to sell or lease properties at prices or rates that generate lower profit margins than we anticipated or that would result in losses.

If values decline, we may be required to make material write-downs of the book value of our real estate assets or real estate investments.

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The particular environmental requirements that apply to a project vary depending on, among other things, location, environmental conditions, current and former uses of a property, the presence or absence of certain wildlife or habitats, and nearby conditions.

We expect that increasingly stringent environmental requirements will be imposed on developers in the future in light of growing concern from advocacy groups, government agencies and the general public over the effects of climate change on the environment.

We expect that stringent environmental requirements may continue to be imposed on developers in light of ongoing concern from advocacy groups, government agencies and the general public over the effects of climate change on the environment.

Transition risks posed by new government restrictions, standards or regulations intended to reduce greenhouse gas emissions and potential climate change impacts are emerging and may increase in the future.

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The costs of investigation, remediation or removal of those substances, or fines, penalties and other sanctions and damages from third-party claims for property damage or personal injury, may be substantial, and the presence of those substances, or the failure to remediate a property properly, may impair our ability to sell, lease or otherwise use our property.

While we currently

have and may maintain insurance policies from time to time to mitigate some or all of these risks, insurance coverage for such claims may be limited or nonexistent.

While we currently have and may maintain insurance policies from time to time to mitigate some or all of these risks, insurance coverage for such claims may be limited or nonexistent.

In addition, to the extent that we have indemnification rights against third parties relating to any such environmental liability or remediation costs, the indemnification may not fully cover such costs or we may not be able to collect the full amount of the indemnification from the third-party.

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We may from time to time be subject to various claims and routine litigation arising in the ordinary course of business.

Among other things, we are, and are likely to continue to be, affected by litigation against governmental agencies related to environmental and similar approvals that we receive or seek to obtain or relating to historical contamination at our properties that have had prior industrial uses, such as The San Francisco Shipyard.

Among other things, we are, and are likely to continue to be, affected by litigation against governmental agencies related to

environmental and similar approvals that we receive or seek to obtain or relating to historical contamination at our properties that have had prior industrial uses, such as The San Francisco Shipyard.

For additional information on recent litigation relating to our properties, see “Item 3.

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Accordingly, we incur income taxes on our proportionate share of any net taxable income of the operating company.

Under the terms of the limited partnership agreement for the operating company, the operating company is obligated to make tax distributions to its partners, including us, subject to the restrictions described below.

Under the terms of the limited partnership agreement for the operating company, the operating company is obligated to make tax distributions to its partners, including us, subject to the restrictions

described below.

These tax distributions are generally made on a pro-rata basis.

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Furthermore, the ability of the operating company’s subsidiaries and the Great Park Venture to pay distributions to the operating company may be limited by their obligations to their respective creditors and other investors.

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

Similarly, we may be limited in our ability to move capital among the operating company and its subsidiaries as a result of future financing arrangements and obligations to creditors.

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As of December 31, 2024, Lennar owned Class A common shares and Class B common shares representing approximately 39% of our outstanding voting interests.

One of our directors is the Executive Chairman of Lennar.

One of our directors is the Executive Chairman and Co-Chief Executive Officer of Lennar.

Lennar is one of the nation’s largest homebuilders and has in the past purchased properties from us.

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Our operating agreement contains provisions that will permit Lennar to engage in such activities and transactions.

Lennar and Castlelake and their respective affiliates control approximately 56% of the voting power of our outstanding common shares and, as a result, are able to exercise significant influence over all matters requiring shareholder approval.

Lennar and GFFP and their respective affiliates control approximately 56% of the voting power of our outstanding common shares and, as a result, are able to exercise significant influence over all matters requiring shareholder approval.

Holders of our Class A common shares and our Class B common shares vote together as a single class on all matters (including the election of directors) submitted to a vote of shareholders, with a share of each class entitling the holder to one vote.

As of December 31, 2023, Lennar and Castlelake and their respective affiliates beneficially owned, in the aggregate, Class A common shares and Class B common shares representing approximately 39% and 17%, respectively, of the voting power of our outstanding common shares.

As of December 31, 2024, Lennar and GFFP and their respective affiliates beneficially owned, in the aggregate, Class A common shares and Class B common shares representing approximately 39% and 17%, respectively, of the voting power of our outstanding common shares.

As a result, if these shareholders act together (which they have not agreed to do), they and their affiliates are able to exercise significant influence over all matters requiring shareholder approval, including the election of directors and approval of significant corporate transactions, which may have the effect of delaying or preventing a third-party from acquiring control of us.

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Holders of Class A units of the operating company may exchange their units for, at our option, either Class A common shares on a one-for-one basis (subject to adjustment in the event of share splits, distributions of shares, warrants or share rights, specified extraordinary distributions and similar events), or cash in an amount equal to the market value of such shares at the time of exchange.

This exchange right is currently exercisable by all holders of outstanding Class A units of the operating company.

After a 12 month holding period, this exchange right is exercisable by holders of outstanding Class A units of the operating company.

We expect that basis adjustments resulting from these transactions, if they occur, will reduce the amount of income tax we would otherwise be required to pay in the future.

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Simultaneously with the completion of the formation transactions, we entered into a TRA with the holders of Class A units of the operating company and the holders of Class A units of the San Francisco Venture.

The TRA provides for payments by us to such investors or their successors equal to 85% of the amount of cash savings, if any, in income tax we realize as a result of the structure of the formation transactions.

The TRA provides for payments by us to such

investors or their successors equal to 85% of the amount of cash savings, if any, in income tax we realize as a result of the structure of the formation transactions.

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

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Risks Related to Financing and Indebtedness

We may need additional capital to execute our development plan, and we may be unable to raise additional capital on favorable terms.

We may need additional capital to execute our development plan with respect to vertical development.

We may need additional capital to execute our development plans, and we may be unable to raise additional capital on favorable terms.

We may need additional capital to execute our development plans.

There can be no assurance that we will be able to obtain new debt or equity financing on favorable terms, or at all, including as a result of volatility in the credit and capital markets, increases in interest rates or a decline in the value of our properties or portions thereof.

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Our substantial indebtedness may have a material adverse effect on our business, our financial condition and results of operations and our ability to secure additional financing in the future.

As of December 31, 2023, we had approximately $625.0 million of total indebtedness of our 7.875% senior notes due 2025.

As of December 31, 2024, we had approximately $525.0 million of total indebtedness, comprised of $523.5 million of our 10.500% initial rate senior notes due January 2028 and $1.5 million of our 7.875% senior notes due November 2025.

We also had $125.0 million available to be borrowed under our revolving credit facility as of December 31, 2024.

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.

Our indebtedness could subject us to many risks that, if realized, would adversely affect us, including the following:

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If we are unable to refinance our debt on acceptable terms, we may be forced to dispose of our assets on disadvantageous terms, postpone investments in the development of our properties or default on our debt.

In addition, to the extent we cannot meet any future debt service obligations, we will risk losing some or all of our assets that are pledged to secure such obligations.

In addition, to the extent we

cannot meet any future debt service obligations, we will risk losing some or all of our assets that are pledged to secure such obligations.

We may increase leverage in executing our development plan, which could further exacerbate the risks associated with our substantial indebtedness.

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Although our Class A common shares are listed on the NYSE, an active trading market for our Class A common shares may not be sustained.

Accordingly, no assurance can be given as to the liquidity of any market for our Class A common shares, the ability of our shareholders to sell their Class A common shares or the price at which such shares may be sold.

Accordingly, no assurance can be given as to the liquidity of any market for our Class A common shares, the ability

of our shareholders to sell their Class A common shares or the price at which such shares may be sold.

In addition, the trading market for our Class A common shares is influenced by whether industry or securities analysts publish research and reports about us, our business, our market or our competitors and, if any analysts do publish such reports, what they publish in those reports.

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In addition, because we are a holding company and our only investment is our interest in the operating company, we will only be able to pay distributions from funds we receive from the operating company.

Our board of directors has the authority to issue one or more series of preferred shares without action of our shareholders.

Our board of directors has the authority to issue one or more series of preferred shares

without action of our shareholders.

The issuance of preferred shares could have the effect of limiting distributions on our Class A common shares.

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Our business operations and information technology systems, and the information technology systems we use that are provided or managed by third-party service providers, may be attacked by individuals or organizations intending to disrupt our business operations and information technology systems and those of our third-party service providers, whether through cyber-attacks or cyber-intrusions over the Internet, malware, computer viruses, attachments to e-mails, persons inside our organization, or persons with access to systems inside our organization.

The risk of a security breach or disruption, particularly through cyber-attacks or cyber-intrusion, including by computer hackers, foreign governments, and cyber terrorists, has generally increased as the number, intensity

and sophistication of attempted attacks and intrusions from around the world have increased.

We rely on information technology systems to conduct important operational activities and to maintain our business and employee records and financial data.

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The financial markets and the global economy may also be adversely affected by the current or anticipated impact of military conflict, terrorism or other geopolitical events.

Sanctions imposed by the United States and other countries in response to such conflicts may also adversely impact the financial markets and the global economy, and any economic countermeasures by the affected countries or others could exacerbate market and economic instability.

Sanctions or tariffs imposed by the United States and other countries in response to such conflicts or events may also adversely impact the financial markets and the global economy, and any economic countermeasures by the affected countries or others could exacerbate market and economic instability.

If the current equity and credit markets deteriorate, it may make any necessary debt or equity financing more difficult, more costly and more dilutive.

1 unchanged sentence

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors