Five Point Holdings LLC

Previous wording

During the second quarter of 2024, we continued to focus on execution of our three main priorities: generating revenue and positive cash flow; controlling our selling, general and administrative (“SG&A”) costs; and managing our capital spend to match near-term revenue opportunities. Our consolidated net income was $38.2 million for the three months ended June 30, 2024, compared to net income of $50.6 million for the three months ended June 30, 2023. SG&A expenses totaled $12.2 million for the second quarter of 2024, compared to $12.7 million for the three months ended June 30, 2023. At June 30, 2024, we had $217.4 million in cash and $125.0 million available under our revolving credit facility, giving us total liquidity of $342.4 million.

Current wording

We generated consolidated net income of $12.3 million for the three months ended September 30, 2024, compared to net income of $14.2 million for the three months ended September 30, 2023. Our net income for the quarter was largely driven by incentive compensation revenue recognized, and equity in earnings from, the Great Park Venture. We also continued to focus on execution of our three main priorities: generating revenue and positive cash flow; controlling our selling, general and administrative (“SG&A”) costs; and managing our capital spend to match near-term revenue opportunities. SG&A expenses totaled $11.9 million for each of the three months ended September 30, 2024 and 2023. At September 30, 2024, we had $224.5 million in cash and $125.0 million available under our revolving credit facility, giving us total liquidity of $349.5 million.

Previous wording

Although the inflation and interest rate environment remained challenging during the three months ended June 30, 2024, we continued to see meaningful price appreciation in our land sale pricing at the Great Park Neighborhoods. The Great Park Venture, in which we have a 37.5% percentage interest and manage all aspects of the development cycle, closed the sale of 105 homesites on 12.3 acres at the Great Park Neighborhoods in the second quarter of 2024 for an aggregate gross purchase price of $96.1 million. We received $29.7 million in distributions and related payments from the Great Park Venture for both our ownership interests and incentive management fee compensation.

Current wording

Although the Federal Reserve announced a meaningful rate cut during the third quarter of 2024, mortgage rates generally remained elevated. Notwithstanding the challenging rate environment, we continued to see sustained demand for land from homebuilders at both of our active communities in Valencia and the Great Park Neighborhoods. The Great Park Venture, in which we have a 37.5% percentage interest and manage all aspects of the development cycle, closed two retail use commercial land sales totaling 12.8 acres at the Great Park Neighborhoods in the third quarter of 2024 for an aggregate gross purchase price of $25.4 million. We received $49.4 million in distributions and related payments from the Great Park Venture for both our ownership interests and incentive management fee compensation. We also extended the term of our development management agreement with the Great Park Venture through December 31, 2026, pursuant to which we increased the base management fee while maintaining incentive compensation at existing levels. We believe that the development management joint venture model we have utilized with the Great Park Venture can be extended to new communities and development projects.

Previous wording

At Valencia, guest builders sold 84 homes during the second quarter of 2024, compared to 62 homes during the first quarter of 2024, increasing total homes sold to 1,400 since sales began in May 2021. At the Great Park Neighborhoods, guest builders sold a total of 63 homes during the second quarter of 2024, compared to 69 homes during the first quarter of 2024. We believe the low quantity of home sales at the Great Park Neighborhoods was largely due to a lack of available inventory during the first half of 2024. We anticipate additional inventory will become available for sale over the second half of 2024, and we expect demand in our chronically undersupplied housing markets to remain strong and to drive a strong finish to the year. While we do not have any planned residential land sales in the third quarter, we expect to close land sales in the fourth quarter at both the Great Park Neighborhoods and Valencia.

Current wording

At Valencia, guest builders sold 89 homes during the third quarter of 2024, compared to 84 homes during the second quarter of 2024, increasing total homes sold to 1,525 since sales began in May 2021. At the Great Park Neighborhoods, guest builders sold a total of 166 homes during the third quarter of 2024, compared to 63 homes during the second quarter of 2024. During the third quarter of 2024, homebuilders opened 10 new collections at the Great Park Neighborhoods that were well received by homebuyers leading to the increase in home sales in the third quarter compared to the second quarter of 2024. We expect demand in our chronically undersupplied housing markets to remain strong and to drive a strong finish to the year. While we did not have any scheduled residential land sale closing in the third quarter of 2024, we expect to close residential land sales in the fourth quarter of 2024 at both the Great Park Neighborhoods and Valencia.

Previous wording

The following table summarizes our consolidated historical results of operations for the three and six months ended June 30, 2024 and 2023.

Current wording

The following table summarizes our consolidated historical results of operations for the three and nine months ended September 30, 2024 and 2023.

Previous wording

Revenues. Revenues increased by $29.8 million, or 139.8%, to $51.2 million for the three months ended June 30, 2024, from $21.3 million for the three months ended June 30, 2023. The increase in revenues was primarily due to an increase in management services revenue at our Great Park segment during the three months ended June 30, 2024.

Current wording

Revenues. Revenues decreased by $48.9 million, or 74.2%, to $17.0 million for the three months ended September 30, 2024, from $65.9 million for the three months ended September 30, 2023. The decrease in revenues was primarily due to land sales at our Valencia segment during the three months ended September 30, 2023 compared to no land sales during the same period in 2024, partially offset by an increase in management services revenue at our Great Park segment during the three months ended September 30, 2024.

Previous wording

Cost of management services. Cost of management services increased by $1.6 million, or 16.9%, to $11.3 million for the three months ended June 30, 2024, from $9.7 million for the three months ended June 30, 2023. The increase was primarily due to an increase in intangible asset amortization expense at our Great Park segment.

Current wording

Cost of management services. Cost of management services increased by $1.9 million, or 79.5%, to $4.3 million for the three months ended September 30, 2024, from $2.4 million for the three months ended September 30, 2023. The increase was primarily due to an increase in intangible asset amortization expense at our Great Park segment.

Previous wording

Equity in earnings from unconsolidated entities. Our consolidated results reflect our share in the earnings or losses of our interests in our unconsolidated entities, including the Great Park Venture and the Gateway Commercial Venture, within equity in earnings from unconsolidated entities on our condensed consolidated statement of operations. Our segment results for the Great Park segment and the Commercial segment present the results of the Great Park Venture and the Gateway Commercial Venture at the book basis of the ventures within the respective segments.

Current wording

Equity in earnings (loss) from unconsolidated entities. Our consolidated results reflect our share in the earnings or losses of our interests in our unconsolidated entities, including the Great Park Venture and the Gateway Commercial Venture, within equity in earnings (loss) from unconsolidated entities on our condensed consolidated statement of operations. Our segment results for the Great Park segment and the Commercial segment present the results of the Great Park Venture and the Gateway Commercial Venture at the book basis of the ventures within the respective segments.

Previous wording

Equity in earnings from unconsolidated entities was $15.5 million for the three months ended June 30, 2024, a decrease from earnings of $52.1 million for the three months ended June 30, 2023. Equity in earnings for the three months ended June 30, 2024 and 2023 was primarily a result of recognizing our share of the net income generated by the Great Park Venture from land sales during each quarter.

Current wording

Equity in earnings from unconsolidated entities was $12.0 million for the three months ended September 30, 2024, an increase from equity in loss of $0.6 million for the three months ended September 30, 2023. Equity in earnings for the three months ended September 30, 2024 was primarily a result of recognizing our share of the net income generated by the Great Park Venture from land sales during the quarter, and the equity in loss for the three months ended September 30, 2023 was primarily a result of recognizing our share of the net loss generated by the Great Park Venture during the period.

Previous wording

Income taxes. Pre-tax income of $44.1 million for the three months ended June 30, 2024 resulted in a $5.9 million tax provision. Pre-tax income of $50.6 million for the three months ended June 30, 2023 resulted in no tax provision (after application of a decrease in our valuation allowance of $6.9 million) other than a small tax provision incurred by one of our consolidated subsidiary corporations. We assessed the realization of our net deferred tax asset and the need for a valuation allowance and determined that at June 30, 2024, it was more likely than not that the net deferred tax asset would be realizable, and we had no valuation allowance recorded. Our effective tax rate for the three months ended June 30, 2024 was substantially similar to our effective tax rate, before changes in valuation allowance, for the three months ended June 30, 2023.

Current wording

Income taxes. Pre-tax income of $14.2 million for the three months ended September 30, 2024 resulted in a $1.9 million tax provision. Pre-tax income of $14.2 million for the three months ended September 30, 2023 resulted in no tax provision (after application of a decrease in our valuation allowance of $1.9 million) other than a small tax provision incurred by one of our consolidated subsidiary corporations. We assessed the realization of our net deferred tax asset and the need for a valuation allowance and determined that at September 30, 2024, it was more likely than not that the net deferred tax asset would be realizable, and we had no valuation allowance recorded. Our effective tax rate for the three months ended September 30, 2024 was substantially similar to our effective tax rate, before changes in valuation allowance, for the three months ended September 30, 2023.

Previous wording

Revenues. Revenues increased by $34.1 million, or 126.0%, to $61.1 million for the six months ended June 30, 2024, from $27.1 million for the six months ended June 30, 2023. The increase in revenues was primarily due to an increase in management services revenue at our Great Park segment during the six months ended June 30, 2024.

Current wording

Revenues. Revenues decreased by $14.8 million, or 16.0%, to $78.1 million for the nine months ended September 30, 2024, from $93.0 million for the nine months ended September 30, 2023. The decrease in revenues was primarily due to land sales at our Valencia segment during the nine months ended September 30, 2023 compared to no land sales during the same period in 2024, partially offset by an increase in management services revenue at our Great Park segment during the nine months ended September 30, 2024.

Previous wording

Cost of management services. Cost of management services increased by $3.2 million, or 26.3%, to $15.2 million for the six months ended June 30, 2024, from $12.0 million for the six months ended June 30, 2023. The increase was primarily due to an increase in intangible asset amortization expense at our Great Park segment.

Current wording

Cost of management services. Cost of management services increased by $5.0 million, or 35.0%, to $19.5 million for the nine months ended September 30, 2024, from $14.4 million for the nine months ended September 30, 2023. The increase was primarily due to an increase in intangible asset amortization expense at our Great Park segment.

Previous wording

Selling, general, and administrative. SG&A expenses decreased by $1.4 million, or 5.1%, to $25.1 million for the six months ended June 30, 2024, from $26.5 million for the six months ended June 30, 2023. The decrease was mainly attributable to a decrease in corporate general and administrative expenses.

Current wording

Selling, general, and administrative. SG&A expenses decreased by $1.4 million, or 3.6%, to $37.0 million for the nine months ended September 30, 2024, from $38.4 million for the nine months ended September 30, 2023. The decrease was mainly attributable to a decrease in corporate general and administrative expenses.

Previous wording

Equity in earnings from unconsolidated entities was $33.1 million for the six months ended June 30, 2024, a decrease from earnings of $53.2 million for the six months ended June 30, 2023. Equity in earnings for the six months ended June 30, 2024 and 2023 was primarily a result of recognizing our share of the net income generated by the Great Park Venture from land sales during each period.

Current wording

Equity in earnings from unconsolidated entities was $45.1 million for the nine months ended September 30, 2024, a decrease from earnings of $52.6 million for the nine months ended September 30, 2023. Equity in earnings for the nine months ended September 30, 2024 and 2023 was primarily a result of recognizing our share of the net income generated by the Great Park Venture from land sales during each period.

Previous wording

Income taxes. Pre-tax income of $51.1 million for the six months ended June 30, 2024 resulted in a $6.8 million tax provision. Pre-tax income of $40.8 million for the six months ended June 30, 2023 resulted in no tax provision (after application of a decrease in our valuation allowance of $5.5 million) other than a small tax provision incurred by one of our consolidated subsidiary corporations. We assessed the realization of our net deferred tax asset and the need for a valuation allowance and determined that at June 30, 2024, it was more likely than not that the net deferred tax asset would be realizable, and we had no valuation allowance recorded. Our effective tax rate for the six months ended June 30, 2024 was substantially similar to our effective tax rate, before changes in valuation allowance, for the six months ended June 30, 2023.

Current wording

Income taxes. Pre-tax income of $65.4 million for the nine months ended September 30, 2024 resulted in a $8.7 million tax provision. Pre-tax income of $55.0 million for the nine months ended September 30, 2023 resulted in no tax provision (after application of a decrease in our valuation allowance of $7.4 million) other than a small tax provision incurred by one of our consolidated subsidiary corporations. We assessed the realization of our net deferred tax asset and the need for a valuation allowance and determined that at September 30, 2024, it was more likely than not that the net deferred tax asset would be realizable, and we had no valuation allowance recorded. Our effective tax rate for the nine months ended September 30, 2024 was substantially similar to our effective tax rate, before changes in valuation allowance, for the nine months ended September 30, 2023.

Previous wording

The following tables reconcile the results of operations of our segments to our consolidated results for the three and six months ended June 30, 2024 and 2023 (in thousands):

Current wording

The following tables reconcile the results of operations of our segments to our consolidated results for the three and nine months ended September 30, 2024 and 2023 (in thousands):

Previous wording

Selling, general, and administrative. SG&A expenses decreased by $0.3 million, or 5.5%, to $5.7 million for the six months ended June 30, 2024, from $6.0 million for the six months ended June 30, 2023. The decrease was mainly attributable to a decrease in community related selling and marketing expenses and a decrease in lease expense.

Current wording

Selling, general, and administrative. SG&A expenses decreased by $0.5 million, or 5.4%, to $8.1 million for the nine months ended September 30, 2024, from $8.6 million for the nine months ended September 30, 2023. The decrease was mainly attributable to a decrease in community related selling and marketing expenses and a decrease in lease expense.

Previous wording

Interests in the Great Park Venture are either “percentage interests” or “legacy interests.” Holders of the legacy interests were entitled to receive priority distributions in an aggregate amount equal to $476.0 million and up to an additional $89.0 million from participation in subsequent distributions. The holders of percentage interests are entitled to all other distributions. During the six months ended June 30, 2024, the Great Park Venture made aggregate distributions of $14.8 million to holders of legacy interests and $126.2 million to holders of percentage interests. We received $47.3 million for our 37.5% percentage interest. As of December 31, 2021, the Great Park Venture had fully satisfied the $476.0 million priority distribution rights, and the remaining maximum participating legacy interest distribution rights at June 30, 2024 were $3.3 million. The remaining $3.3 million legacy interest will be paid on a pro-rata basis, with approximately 10% of future distributions paid to the holders of legacy interests and approximately 90% of such distributions paid to the holders of the percentage interests, until such time as the remaining balance has been fully paid.

Current wording

Interests in the Great Park Venture were previously either “percentage interests” or “legacy interests.” Holders of the legacy interests were entitled to receive priority distributions in an aggregate amount equal to $476.0 million and up to an additional $89.0 million from participation in subsequent distributions. The holders of percentage interests were entitled to all other distributions. During the nine months ended September 30, 2024, the Great Park Venture made aggregate distributions of $18.1 million to holders of legacy interests and $229.9 million to holders of percentage interests. We received $86.2 million for our 37.5% percentage interest. As of December 31, 2021, the Great Park Venture had fully satisfied the $476.0 million priority distribution rights, and with the distributions to the holders of legacy interests during the nine months ended September 30, 2024, the Great Park Venture fully satisfied the $89.0 million maximum participating legacy interest distribution rights, as a result of which, the legacy interests are no longer deemed to be outstanding.

Previous wording

During the three months ended June 30, 2024 and 2023, revenues also included changes in estimates of variable consideration, including profit participation and price participation, from those amounts previously recorded by the Great Park Venture. During the three months ended June 30, 2024 and 2023, the Great Park Venture recognized $6.4 million and $2.6 million, respectively, in profit participation revenues received from homebuilders. During the three months ended June 30, 2024, the Great Park Venture recognized additional estimated variable consideration of $36.6 million related to prior period land sales for future price participation payments expected to be received when homes are sold to homebuyers. The increase in estimated variable consideration reflects updated pricing and absorption assumptions used to calculate expected price participation payments.

Current wording

During the three months ended September 30, 2024 and 2023, revenues also included changes in estimates of variable consideration, including profit participation and price participation, from those amounts previously recorded by the Great Park Venture. During the three months ended September 30, 2024 and 2023, the Great Park Venture recognized $6.0 million and $2.8 million, respectively, in profit participation revenues received from homebuilders. During the three months ended September 30, 2024, the Great Park Venture recognized additional estimated variable consideration of $30.0 million related to prior period land sales for future price participation payments expected to be received when homes are sold to homebuyers. The increase in estimated variable consideration reflects updated pricing and absorption assumptions used to calculate expected price participation payments.

Previous wording

Cost of land sales. Cost of land sales for the six months ended June 30, 2024 was $59.0 million, compared to $165.7 million for the six months ended June 30, 2023. The cost of land sales includes both actual and estimated future capitalized costs allocated based upon relative sales values. Since this method requires the Great Park Venture 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.

Current wording

Cost of land sales. Cost of land sales for the three months ended September 30, 2024 was $8.1 million, compared to no cost of land sales for the three months ended September 30, 2023. The cost of land sales includes both actual and estimated future capitalized costs allocated based upon relative sales values. Since this method requires the Great Park Venture 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.

Previous wording

Management fee revenues. Management fee revenues are revenues generated by the management company from development management services provided to the Great Park Venture. The increase in management services related party revenue was mainly attributable to an increase in variable incentive compensation revenue recognized during the three months ended June 30, 2024. For the three months ended June 30, 2024 and 2023, we recognized $47.2 million and $17.7 million, respectively, attributable to variable incentive compensation, mostly as a result of changes in estimates of the amount of variable incentive compensation we expect to receive.

Current wording

Management fee revenues. Management fee revenues are revenues generated by the management company from development management services provided to the Great Park Venture. The increase in management services related party revenue was mainly attributable to an increase in variable incentive compensation revenue recognized during the three months ended September 30, 2024. For the three months ended September 30, 2024 and 2023, we recognized $12.9 million and $1.4 million, respectively, attributable to variable incentive compensation, mostly as a result of changes in estimates of the amount of variable incentive compensation we expect to receive.

Previous wording

Management services costs and expenses. Included within management services costs and expenses are general and administrative costs and expenses incurred by the management company’s project team that is managing the development of the Great Park Neighborhoods. We also include amortization expense related to the intangible asset attributable to the incentive compensation provisions of the development management agreement with the Great Park Venture within management services costs and expenses. Corporate and non-project team salaries and overhead are not allocated to management services costs and expenses or to our reportable segments and are reported in selling, general, and administrative costs in the condensed consolidated statements of operations. Management services costs and expenses increased by $1.6 million, or 16.9%, to $11.3 million for the three months ended June 30, 2024, from $9.7 million for the three months ended June 30, 2023. The increase was mainly attributable to an increase in intangible asset amortization expense recognized during the three months ended June 30, 2024.

Current wording

Management services costs and expenses. Included within management services costs and expenses are general and administrative costs and expenses incurred by the management company’s project team that is managing the development of the Great Park Neighborhoods. We also include amortization expense related to the intangible asset attributable to the incentive compensation provisions of the development management agreement with the Great Park Venture within management services costs and expenses. Corporate and non-project team salaries and overhead are not allocated to management services costs and expenses or to our reportable segments and are reported in selling, general, and administrative costs in the condensed consolidated statements of operations. Management services costs and expenses increased by $1.9 million, or 79.5%, to $4.3 million for the three months ended September 30, 2024, from $2.4 million for the three months ended September 30, 2023. The increase was mainly attributable to an increase in intangible asset amortization expense recognized during the three months ended September 30, 2024.

Previous wording

Selling, general, and administrative. SG&A expenses increased by $0.8 million, or 44.6%, to $2.6 million for the three months ended June 30, 2024, from $1.8 million for the three months ended June 30, 2023. The increase was mainly attributable to an increase in marketing expenses.

Current wording

Selling, general, and administrative. SG&A expenses increased by $0.9 million, or 37.4%, to $3.1 million for the three months ended September 30, 2024, from $2.3 million for the three months ended September 30, 2023. The increase was mainly attributable to an increase in marketing expenses and property maintenance expenses.

Previous wording

Management fees—related party. Management fees increased by $37.1 million to $64.5 million for the three months ended June 30, 2024, from $27.4 million for the three months ended June 30, 2023. Management fees incurred by the Great Park Venture are comprised of base development management fees and incentive compensation fees. In general, incentive compensation fees will be paid based on 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 a change in the estimate of the amount of incentive compensation fees probable of being paid that resulted in a cumulative adjustment recognized during the three months ended June 30, 2024.

Current wording

Management fees—related party. Management fees increased by $14.1 million to $18.8 million for the three months ended September 30, 2024, from $4.7 million for the three months ended September 30, 2023. Management fees incurred by the Great Park Venture are comprised of base development management fees and incentive compensation fees. In general, incentive compensation fees will be paid based on 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 a change in the estimate of the amount of incentive compensation fees probable of being paid that resulted in a cumulative adjustment recognized during the three months ended September 30, 2024.

Previous wording

Land sales and related party land sales revenues. Land sales and related party land sales revenues decreased to $232.1 million for the six months ended June 30, 2024, from $369.2 million for the six months ended June 30, 2023. The decrease was primarily attributable to the recognition of revenue from the sale of land at the Great Park Neighborhoods entitled for an aggregate of 187 homesites on 23.9 acres during the six months ended June 30, 2024, compared to the recognition of revenue from the sale of land at the Great Park Neighborhoods entitled for an aggregate of 798 homesites on approximately 84 acres during the six months ended June 30, 2023. The base purchase price was $170.7 million for the 2024 land sales. Revenue recognized of $357.8 million for the 2023 land sale 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.

Current wording

Land sales and related party land sales revenues. Land sales and related party land sales revenues decreased to $293.6 million for the nine months ended September 30, 2024, from $372.5 million for the nine months ended September 30, 2023. The decrease was primarily attributable to the recognition of revenue from the sale of 12.8 acres of commercial land planned for retail uses and land entitled for an aggregate of 187 homesites on 23.9 acres at the Great Park Neighborhoods during the nine months ended September 30, 2024, compared to the recognition of revenue from the sale of land at the Great Park Neighborhoods entitled for an aggregate of 798 homesites on approximately 84 acres during the nine months ended September 30, 2023. The base purchase price was $25.4 million and $170.7 million for the 2024 commercial land sales and homesite land sales, respectively. Revenue recognized of $357.8 million for the 2023 land sale 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.

Previous wording

During the six months ended June 30, 2024 and 2023, revenues also included changes in estimates of variable consideration, including profit participation and price participation, from those amounts previously recorded by the Great Park Venture. During the six months ended June 30, 2024 and 2023, the Great Park Venture recognized $24.0 million and $10.8 million, respectively, in profit participation revenues received from homebuilders. During the six months ended June 30, 2024, the Great Park Venture recognized additional estimated variable consideration of $36.6 million related to prior period land sales for future price participation payments expected to be received when homes are sold to homebuyers. The increase in estimated variable consideration reflects updated pricing and absorption assumptions used to calculate expected price participation payments.

Current wording

During the nine months ended September 30, 2024 and 2023, revenues also included changes in estimates of variable consideration, including profit participation and price participation, from those amounts previously recorded by the Great Park Venture. During the nine months ended September 30, 2024 and 2023, the Great Park Venture recognized $30.0 million and $13.6 million, respectively, in profit participation revenues received from homebuilders. During the nine months ended September 30, 2024, the Great Park Venture recognized additional estimated variable consideration of $66.6 million related to prior period land sales for future price participation payments expected to be received when homes are sold to homebuyers. The increase in estimated variable consideration reflects updated pricing and absorption assumptions used to calculate expected price participation payments.

Previous wording

Cost of land sales. Cost of land sales for the three months ended June 30, 2024 was $29.0 million, compared to $165.7 million for the three months ended June 30, 2023. The cost of land sales includes both actual and estimated future capitalized costs allocated based upon relative sales values. Since this method requires the Great Park Venture 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.

Current wording

Cost of land sales. Cost of land sales for the nine months ended September 30, 2024 was $67.1 million, compared to $165.7 million for the nine months ended September 30, 2023. The cost of land sales includes both actual and estimated future capitalized costs allocated based upon relative sales values. Since this method requires the Great Park Venture 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.

Previous wording

Management fee revenues. Management fee revenues are revenues generated by the management company from development management services provided to the Great Park Venture. The increase in management services related party revenue was mainly attributable to an increase in variable incentive compensation revenue recognized during the six months ended June 30, 2024. For the six months ended June 30, 2024 and 2023, we recognized $52.8 million and $18.8 million, respectively, attributable to variable incentive compensation, mostly as a result of changes in estimates of the amount of variable incentive compensation we expect to receive.

Current wording

Management fee revenues. Management fee revenues are revenues generated by the management company from development management services provided to the Great Park Venture. The increase in management services related party revenue was mainly attributable to an increase in variable incentive compensation revenue recognized during the nine months ended September 30, 2024. For the nine months ended September 30, 2024 and 2023, we recognized $65.7 million and $20.2 million, respectively, attributable to variable incentive compensation, mostly as a result of changes in estimates of the amount of variable incentive compensation we expect to receive.

Previous wording

Management services costs and expenses. Included within management services costs and expenses are general and administrative costs and expenses incurred by the management company’s project team that is managing the development of the Great Park Neighborhoods. We also include amortization expense related to the intangible asset attributable to the incentive compensation provisions of the development management agreement with the Great Park Venture within management services costs and expenses. Corporate and non-project team salaries and overhead are not allocated to management services costs and expenses or to our reportable segments and are reported in selling, general, and administrative costs in the condensed consolidated statements of operations. Management services costs and expenses increased by $3.2 million, or 26.3%, to $15.2 million for the six months ended June 30, 2024, from $12.0 million for the six months ended June 30, 2023. The increase was mainly attributable to an increase in intangible asset amortization expense recognized during the six months ended June 30, 2024.

Current wording

Management services costs and expenses. Included within management services costs and expenses are general and administrative costs and expenses incurred by the management company’s project team that is managing the development of the Great Park Neighborhoods. We also include amortization expense related to the intangible asset attributable to the incentive compensation provisions of the development management agreement with the Great Park Venture within management services costs and expenses. Corporate and non-project team salaries and overhead are not allocated to management services costs and expenses or to our reportable segments and are reported in selling, general, and administrative costs in the condensed consolidated statements of operations. Management services costs and expenses increased by $5.0 million, or 35.0%, to $19.5 million for the nine months ended September 30, 2024, from $14.4 million for the nine months ended September 30, 2023. The increase was mainly attributable to an increase in intangible asset amortization expense recognized during the nine months ended September 30, 2024.

Previous wording

Selling, general, and administrative. SG&A expenses increased by $0.4 million, or 8.2%, to $5.6 million for the six months ended June 30, 2024, from $5.1 million for the six months ended June 30, 2023. The increase was mainly attributable to an increase in marketing expenses.

Current wording

Selling, general, and administrative. SG&A expenses increased by $1.3 million, or 17.2%, to $8.7 million for the nine months ended September 30, 2024, from $7.4 million for the nine months ended September 30, 2023. The increase was mainly attributable to an increase in marketing expenses and property maintenance expenses.

Previous wording

Management fees—related party. Management fees increased by $40.8 million to $72.6 million for the six months ended June 30, 2024, from $31.8 million for the six months ended June 30, 2023. Management fees incurred by the Great Park Venture are comprised of base development management fees and incentive compensation fees. In general, incentive compensation fees will be paid based on 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 a change in the estimate of the amount of incentive compensation fees probable of being paid that resulted in a cumulative adjustment recognized during the six months ended June 30, 2024.

Current wording

Management fees—related party. Management fees increased by $54.9 million to $91.4 million for the nine months ended September 30, 2024, from $36.5 million for the nine months ended September 30, 2023. Management fees incurred by the Great Park Venture are comprised of base development management fees and incentive compensation fees. In general, incentive compensation fees will be paid based on 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 a change in the estimate of the amount of incentive compensation fees probable of being paid that resulted in a cumulative adjustment recognized during the nine months ended September 30, 2024.

Previous wording

The table below reconciles the Great Park segment results to the equity in earnings from our investment in the Great Park Venture that is reflected in the condensed consolidated statements of operations for the three and six months ended June 30, 2024 and 2023.

Current wording

The table below reconciles the Great Park segment results to the equity in earnings from our investment in the Great Park Venture that is reflected in the condensed consolidated statements of operations for the three and nine months ended September 30, 2024 and 2023.

Previous wording

The table below reconciles the Commercial segment results to the equity in loss from our investment in the Gateway Commercial Venture that is reflected in the condensed consolidated statements of operations for the three and six months ended June 30, 2024 and 2023.

Current wording

The table below reconciles the Commercial segment results to the equity in loss from our investment in the Gateway Commercial Venture that is reflected in the condensed consolidated statements of operations for the three and nine months ended September 30, 2024 and 2023.

Previous wording

As of June 30, 2024, we had $217.4 million of consolidated cash and cash equivalents, compared to $353.8 million at December 31, 2023. As of June 30, 2024, no funds had been drawn on and no letters of credit were outstanding on the operating company’s $125.0 million unsecured revolving credit facility.

Current wording

As of September 30, 2024, we had $224.5 million of consolidated cash and cash equivalents, compared to $353.8 million at December 31, 2023. As of September 30, 2024, no funds had been drawn on and no letters of credit were outstanding on the operating company’s $125.0 million unsecured revolving credit facility.

Previous wording

We had outstanding performance bonds of $299.0 million as of June 30, 2024 predominantly related to our Valencia community.

Current wording

We had outstanding performance bonds of $367.0 million as of September 30, 2024 predominantly related to our Valencia community.

Previous wording

Cash Flows from Operating Activities. Net cash used in operating activities was $49.7 million for the six months ended June 30, 2024, compared to $37.9 million net cash provided by operating activities for the six months ended June 30, 2023.

Current wording

Cash Flows from Operating Activities. Net cash used in operating activities was $67.6 million for the nine months ended September 30, 2024, compared to $65.1 million net cash provided by operating activities for the nine months ended September 30, 2023.

Previous wording

During the six months ended June 30, 2024, we received incentive compensation payments of $12.8 million under our development management agreement with the Great Park Venture. The payment is net of $1.5 million that we concurrently distributed to the holders of the management company’s Class B units. Additionally, we received total distributions of $47.3 million from the Great Park Venture, of which $33.1 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.

Current wording

During the nine months ended September 30, 2024, we received incentive compensation payments of $23.2 million under our development management agreement with the Great Park Venture. The payment is net of $1.8 million that we concurrently distributed to the holders of the management company’s Class B units. As of September 30, 2024, the holders of the management company’s Class B units had no further distribution rights. Additionally, we received total distributions of $86.2 million from the Great Park Venture, of which $45.2 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.

Previous wording

During the six months ended June 30, 2023, we received incentive compensation payments of $22.0 million under our development management agreement with the Great Park Venture. The payment is net of $2.6 million that we concurrently distributed to the holders of the management company’s Class B units. Additionally, we received total distributions of $81.8 million from the Great Park Venture, of which $52.7 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.

Current wording

During the nine months ended September 30, 2023, we received $60.6 million from the sale of land at our Valencia segment. We also received incentive compensation payments of $22.0 million under our development management agreement with the Great Park Venture. The payment is net of $2.6 million that we concurrently distributed to the holders of the management company’s Class B units. Additionally, we received total distributions of $81.8 million from the Great Park Venture, of which $52.7 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.

Previous wording

Major components of operating cash used in both periods consist of our continued investment in horizontal development at our communities and SG&A costs. During the six months ended June 30, 2024, we paid $8.3 million for interest accrued through the settlement date on our existing 7.875% senior notes due November 2025 that were exchanged. The exchange of $523.5 million of our existing senior notes for new senior notes was accounted for as a debt modification under ASC 470-50. Under debt modification accounting, third party costs are expensed as incurred and reported as operating cash flows. Included in operating cash outflows during the six months ended June 30, 2024 is $7.7 million in third party transaction and advisory costs incurred in connection with the senior notes exchange. During the six months ended June 30, 2024, an additional $18.2 million was paid for interest due on our existing 7.875% senior notes and new 10.500% initial rate senior notes. During the six months ended June 30, 2023, $24.6 million was paid for interest due on our existing 7.875% senior notes. Our horizontal development costs for the six months ended June 30, 2023 were partially offset by $17.7 million in public financing reimbursements for public infrastructure development costs we incurred in Valencia anda nonrecurring $44.5 million recovery from a third party related to certain project development costs in Valencia.

Current wording

Major components of operating cash used in both periods consist of our continued investment in horizontal development at our communities and SG&A costs. During the nine months ended September 30, 2024, we paid $8.3 million for interest accrued through the settlement date on our existing 7.875% senior notes due November 2025 that were exchanged. The exchange of $523.5 million of our existing senior notes for new senior notes was accounted for as a debt modification under ASC 470-50. Under debt modification accounting, third party costs are expensed as incurred and reported as operating cash flows. Included in operating cash outflows during the nine months ended September 30, 2024 is $7.7 million in third party transaction and advisory costs incurred in connection with the senior notes exchange. During the nine months ended September 30, 2024, an additional $18.2 million was paid for interest due on our existing 7.875% senior notes and new 10.500% initial rate senior notes. During the nine months ended September 30, 2023, $24.6 million was paid for interest due on our existing 7.875% senior notes. Our horizontal development costs for the nine months ended September 30, 2023 were partially offset by $17.7 million in public financing reimbursements for public infrastructure development costs we incurred in Valencia anda nonrecurring $44.5 million recovery from a third party related to certain project development costs in Valencia.

Previous wording

Cash Flows from Investing Activities. Net cash provided by investing activities was $14.5 million for the six months ended June 30, 2024, compared to $29.7 million net cash provided by investing activities for the six months ended June 30, 2023.

Current wording

Cash Flows from Investing Activities. Net cash provided by investing activities was $41.2 million for the nine months ended September 30, 2024, compared to $29.9 million net cash provided by investing activities for the nine months ended September 30, 2023.

Previous wording

During the six months ended June 30, 2024, we received total distributions of $47.3 million from the Great Park Venture, of which $14.2 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. During the six months ended June 30, 2023, we received total distributions of $81.8 million from the Great Park Venture, of which $29.0 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, for the six months ended June 30, 2024 and 2023, we received a distribution of $0.8 million and $0.6 million, respectively, from the Valencia Landbank Venture, which is reflected as a return of our investment (investing activity) in the statement of cash flows.

Current wording

During the nine months ended September 30, 2024, we received total distributions of $86.2 million from the Great Park Venture, of which $41.0 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. During the nine months ended September 30, 2023, we received total distributions of $81.8 million from the Great Park Venture, of which $29.0 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, for the nine months ended September 30, 2024 and 2023, we received a distribution of $0.9 million and $0.9 million, respectively, from the Valencia Landbank Venture, which is reflected as a return of our investment (investing activity) in the statement of cash flows.