ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
The following discussion contains management’s discussion and analysis of our financial condition and results of operations and should be read in conjunction with our unaudited condensed consolidated financial statements and related notes included under Part I, Item 1 of this report and our audited consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020. “Us,” “we,” and “our” refer to Five Point Holdings, LLC, together with its consolidated subsidiaries. This discussion contains forward-looking statements and involves numerous risks and uncertainties, including but not limited to those described in the “Risk Factors” section of our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, as well as other risks and uncertainties detailed from time to time in our subsequent Quarterly Reports on Form 10-Q and other filings with the Securities and Exchange Commission. Actual results could differ materially from those set forth in any forward-looking statements. See “Cautionary Statement Regarding Forward-Looking Statements.”
Overview
We conduct all of our business in or through our operating company, Five Point Operating Company, LP (the “operating company”). We are, through a wholly owned subsidiary, the sole managing general partner and owned, as of September 30, 2021, approximately 62.9% of the operating company. The operating company directly or indirectly owns equity interests in:
•Five Point Land, LLC, which owns The Newhall Land & Farming Company, a California limited partnership, the entity that is developing Valencia (formerly known as Newhall Ranch), our community in northern Los Angeles County, California;
•The Shipyard Communities, LLC (the “San Francisco Venture”), which is developing Candlestick and The San Francisco Shipyard, our communities in the City of San Francisco, California;
•Heritage Fields LLC (the “Great Park Venture”), which is developing Great Park Neighborhoods, our community in Orange County, California;
•Five Point Office Venture Holdings I, LLC (the “Gateway Commercial Venture”), which owns portions of the Five Point Gateway Campus, a commercial office and medical campus located within the Great Park Neighborhoods; and
•Five Point Communities, LP and Five Point Communities Management, Inc. (together, the “management company”), which provide development and property management services for the Great Park Neighborhoods and the Five Point Gateway Campus.
The operating company consolidates and controls the management of all of these entities except for the Great Park Venture and the Gateway Commercial Venture. The operating company owns a 37.5% percentage interest in the Great Park Venture and a 75% interest in the Gateway Commercial Venture and accounts for its interest in both using the equity method.
Changes to Board and Executive Positions
Effective as of September 30, 2021, our founder, Emile Haddad, stepped down from his roles as Chairman, Chief Executive Officer and President. Mr. Haddad will remain as a member of the Board of Directors, and as the company founder, the Board elected him as Chairman Emeritus. Along with these changes, the Board of Directors named Stuart Miller as Executive Chairman and named Lynn Jochim as President of the Company in addition to retaining her position as Chief Operating Officer.
Given his value to the Company going forward, the Company has engaged Mr. Haddad as a senior advisor under an agreement with an initial term of three years. In his role as a senior advisor, Mr. Haddad will focus on enhancing our communities to stay true to the Company’s vision and will maintain critical relationships at the state and local level, as well as focusing on new ventures and initiatives the Company may consider pursuing in order to enhance shareholder value.
Operational Highlights
In the third quarter of 2021, the Great Park Venture sold and closed escrow on 113 homesites and eight homes at the Great Park Neighborhoods for an aggregate gross purchase price of $78.0 million.
We continue to see a strong demand for new homes in our markets. We believe that the lack of supply of entitled land for new housing to meet that demand positions our communities for a continued steady pace of home sales and builder land sales. At Great Park Neighborhoods 135 homes were sold during the third quarter and 591 year-to-date as compared to 410 sold during the first nine months of 2020. At Valencia, 11 of our first 18 neighborhoods are open for sale, and 199 homes had been sold through the end of the third quarter since sales commenced in May 2021. In the third quarter of 2021, the first homebuyers in Valencia’s first phase moved into their new homes.
Investments in infrastructure and amenities at both Valencia and the Great Park Neighborhoods continued during the first half of 2021 to support the homebuilders in these communities and to put us in position for future land sales. We will continue to monitor
market conditions and will manage our development activities and expenditures to coincide with projected demand for homesites by our guest homebuilders.
In response to the COVID-19 pandemic, we took immediate steps to protect the health and well-being of our associates and to preserve the financial strength of the Company. The substantial majority of our associates are still working remotely with access to necessary systems and resources to ensure business continuity. We will transition our associates back to our offices when we believe it is appropriate after taking into account all federal, state and local laws, rules and regulations.
Results of Operations
The timing of our land sale revenues is influenced by several factors, including the sequencing of the planning and development process and market conditions at our communities. As a result, we have historically experienced, and expect to continue to experience, variability in results of operations between comparable periods.
The following table summarizes our consolidated historical results of operations for the three and nine months ended September 30, 2021 and 2020.
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
(in thousands)
|
Statement of Operations Data
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
Land sales
|
$
|
10,000
|
|
|
$
|
42
|
|
|
$
|
10,087
|
|
|
$
|
17,076
|
|
Land sales—related party
|
17
|
|
|
2
|
|
|
73
|
|
|
14
|
|
Management services—related party
|
10,156
|
|
|
7,999
|
|
|
30,242
|
|
|
22,557
|
|
Operating properties
|
522
|
|
|
334
|
|
|
1,777
|
|
|
2,257
|
|
Total revenues
|
20,695
|
|
|
8,377
|
|
|
42,179
|
|
|
41,904
|
|
Costs and expenses
|
|
|
|
|
|
|
|
Land sales
|
—
|
|
|
—
|
|
|
—
|
|
|
11,861
|
|
Management services
|
8,075
|
|
|
6,120
|
|
|
24,700
|
|
|
16,587
|
|
Operating properties
|
2,095
|
|
|
764
|
|
|
5,098
|
|
|
4,408
|
|
Selling, general, and administrative
|
20,757
|
|
|
17,656
|
|
|
59,513
|
|
|
58,594
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
30,927
|
|
|
24,540
|
|
|
89,311
|
|
|
91,450
|
|
Other income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
21
|
|
|
71
|
|
|
74
|
|
|
1,303
|
|
|
|
|
|
|
|
|
|
Miscellaneous
|
1,516
|
|
|
91
|
|
|
3,833
|
|
|
267
|
|
Total other income
|
1,537
|
|
|
162
|
|
|
3,907
|
|
|
1,570
|
|
Equity in earnings from unconsolidated entities
|
485
|
|
|
52,423
|
|
|
9,048
|
|
|
45,417
|
|
(Loss) income before income tax benefit (provision)
|
(8,210)
|
|
|
36,422
|
|
|
(34,177)
|
|
|
(2,559)
|
|
Income tax benefit (provision)
|
—
|
|
|
—
|
|
|
(5)
|
|
|
—
|
|
Net (loss) income
|
(8,210)
|
|
|
36,422
|
|
|
(34,182)
|
|
|
(2,559)
|
|
Less net (loss) income attributable to noncontrolling interests
|
(4,362)
|
|
|
19,458
|
|
|
(18,266)
|
|
|
(1,349)
|
|
Net (loss) income attributable to the company
|
$
|
(3,848)
|
|
|
$
|
16,964
|
|
|
$
|
(15,916)
|
|
|
$
|
(1,210)
|
|
Three Months Ended September 30, 2021 and 2020
Revenues. Revenues increased by $12.3 million, or 147.0%, to $20.7 million for the three months ended September 30, 2021, from $8.4 million for the three months ended September 30, 2020. The increase in revenue during the three months ended September 30, 2021 was primarily due to land sales revenues recognized at our Valencia segment (formerly Newhall) from variable consideration received in addition to an increase in management services revenue at our Great Park segment.
Cost of management services. Cost of management services increased by $2.0 million, or 31.9%, to $8.1 million for the three months ended September 30, 2021, from $6.1 million for the three months ended September 30, 2020. The increase was primarily due to an increase in intangible asset amortization expense at our Great Park segment.
Selling, general, and administrative. Selling, general, and administrative expenses increased by $3.1 million, or 17.6%, to $20.8 million for the three months ended September 30, 2021, from $17.7 million for the three months ended September 30, 2020. The increase was mainly attributable to an increase in selling and marketing expenses at our Valencia segment.
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 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.
Equity in earnings from unconsolidated entities decreased to $0.5 million for the three months ended September 30, 2021, from earnings of $52.4 million for the three months ended September 30, 2020. Equity in earnings for the three months ended September 30, 2021 was primarily a result of recognizing our share of the net income of the Great Park Venture generated from land and home sales during the quarter. For the three months ended September 30, 2020, our equity in earnings was primarily due to our share of the gain from the sale of two buildings by the Gateway Commercial Venture.
Income taxes. Pre-tax loss of $8.2 million for the three months ended September 30, 2021 resulted in no tax benefit (after application of an increase in the Company’s valuation allowance of $0.8 million). We assessed the realization of our net deferred tax asset and the need for a valuation allowance and determined that at September 30, 2021, it was more likely than not that the net deferred tax asset was not realizable and resulted in a net deferred tax liability after application of the valuation allowance. Pre-tax income for the three months ended September 30, 2020 of $36.4 million resulted in no tax provision (after application of a decrease in the Company’s valuation allowance of $5.0 million). Our effective tax rate, before changes in valuation allowance, for the three months ended September 30, 2021 was substantially similar to our effective tax rate, before changes in valuation allowance, for the three months ended September 30, 2020.
Net (loss) income attributable to noncontrolling interests. Until exchanged for our class A common shares or, at our election, cash, noncontrolling interests represent interests held by other partners in the operating company and members of the San Francisco Venture. Net (loss) income attributable to the noncontrolling interests on the consolidated statement of operations represents the portion of losses or income attributable to the interests in our subsidiaries held by the noncontrolling interests.
Nine Months Ended September 30, 2021 and 2020
Revenues. Revenues increased by $0.3 million, or 0.7%, to $42.2 million for the nine months ended September 30, 2021, from $41.9 million for the nine months ended September 30, 2020. The increase in revenue was primarily due to an increase in management services revenue at our Great Park segment offset by a decrease in land sales revenues recognized at our Valencia segment (formerly Newhall) during the nine months ended September 30, 2021.
Cost of land sales. The lower cost of land sales for the nine months ended September 30, 2021 was due to the closing of land sales at our Valencia segment during the nine months ended September 30, 2020, compared to no land sales closed during the same period in 2021.
Cost of management services. Cost of management services increased by $8.1 million, or 48.9%, to $24.7 million for the nine months ended September 30, 2021, from $16.6 million for the nine months ended September 30, 2020. The increase was primarily due to an increase in intangible asset amortization expense at our Great Park segment.
Selling, general, and administrative. Selling, general, and administrative expenses increased by $0.9 million, or 1.6%, to $59.5 million for the nine months ended September 30, 2021, from $58.6 million for the nine months ended September 30, 2020. The increase was mainly attributable to an increase in selling and marketing costs at our Valencia segment offset by a decrease in share-based compensation expense.
Equity in earnings from unconsolidated entities. Equity in earnings from unconsolidated entities decreased to $9.0 million for the nine months ended September 30, 2021, from earnings of $45.4 million for the nine months ended September 30, 2020. Equity in earnings for the nine months ended September 30, 2021 was primarily a result of recognizing our share of the net income of the Great Park Venture generated from land and home sales during the period. At the end of the first quarter of 2020, we recognized an other-than-temporary impairment of $26.9 million attributed to our investment in the Great Park Venture that is included in equity in earnings from unconsolidated entities in our condensed consolidated statement of operations. The impairment was primarily a result of expected delays in both the timing of land sales to builders and distributions to us causing a decline in the fair value of our investment in the Great Park Venture. In determining that the impairment was other-than-temporary, we concluded that it was uncertain if a near term recovery of value that was lost as a result of delays to expected land sales from the impacts of the COVID-19 pandemic would occur. Offsetting the impairment loss for the nine months ended September 30, 2020, was our share of the gain from the sale of three buildings and land by the Gateway Commercial Venture.
Income taxes. Other than a small tax provision incurred by one of our consolidated subsidiary corporations, pre-tax loss of $34.2 million for the nine months ended September 30, 2021 resulted in no tax benefit (after application of an increase in the Company’s valuation allowance of $3.4 million). We assessed the realization of our net deferred tax asset and the need for a valuation allowance and determined that at September 30, 2021, it was more likely than not that the net deferred tax asset was not realizable and resulted in a net deferred tax liability after application of the valuation allowance. Pre-tax loss for the nine months ended September 30, 2020 of $2.6 million resulted in no tax provision (after application of a decrease in the Company’s valuation allowance of $0.3 million). Our effective tax rate, before changes in valuation allowance, for the nine months ended September 30, 2021 was substantially similar to our effective tax rate, before changes in valuation allowance, for the nine months ended September 30, 2020.
Net loss attributable to noncontrolling interests. Until exchanged for our class A common shares or, at our election, cash, noncontrolling interests represent interests held by other partners in the operating company and members of the San Francisco Venture. Net loss attributable to the noncontrolling interests on the consolidated statement of operations represents the portion of losses attributable to the interests in our subsidiaries held by the noncontrolling interests.
Segment Results and Financial Information
Our four reportable operating segments include our three community segments, Valencia, San Francisco and Great Park, and our Commercial segment:
•Our Valencia segment (formerly Newhall) includes operating results related to the Valencia community and agricultural operations in Los Angeles and Ventura Counties, California. Our investment in the Valencia Landbank Venture is also reported in the Valencia segment.
•Our San Francisco segment includes operating results for the Candlestick and The San Francisco Shipyard communities, as well as results attributable to the development management services that we previously provided to affiliates of Lennar Corporation (“Lennar”) in the San Francisco Bay Area. Our management agreement with Lennar with respect to the Concord community was terminated in early 2020.
•Our Great Park segment includes operating results for the Great Park Neighborhoods community as well as development management services provided by the management company for the Great Park Venture.
•Our Commercial segment includes the operating results of the Gateway Commercial Venture’s ownership in the Five Point Gateway Campus as well as property management services provided by the management company for the Gateway Commercial Venture.
The following tables reconcile the results of operations of our segments to our consolidated results for the three and nine months ended September 30, 2021 and 2020 (in thousands):
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2021
|
|
Valencia
|
|
San Francisco
|
|
Great Park
|
|
Commercial
|
|
Total reportable segments
|
|
Corporate and unallocated
|
|
Total under management
|
|
Removal of unconsolidated entities(1)
|
|
Total consolidated
|
REVENUES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land sales
|
$
|
10,000
|
|
|
$
|
—
|
|
|
$
|
66,950
|
|
|
$
|
—
|
|
|
$
|
76,950
|
|
|
$
|
—
|
|
|
$
|
76,950
|
|
|
$
|
(66,950)
|
|
|
$
|
10,000
|
|
Land sales—related party
|
17
|
|
|
—
|
|
|
2,535
|
|
|
—
|
|
|
2,552
|
|
|
—
|
|
|
2,552
|
|
|
(2,535)
|
|
|
17
|
|
Home sales
|
—
|
|
|
—
|
|
|
12,947
|
|
|
—
|
|
|
12,947
|
|
|
—
|
|
|
12,947
|
|
|
(12,947)
|
|
|
—
|
|
Management services—related party(2)
|
—
|
|
|
—
|
|
|
10,054
|
|
|
102
|
|
|
10,156
|
|
|
—
|
|
|
10,156
|
|
|
—
|
|
|
10,156
|
|
Operating properties
|
381
|
|
|
141
|
|
|
—
|
|
|
2,108
|
|
|
2,630
|
|
|
—
|
|
|
2,630
|
|
|
(2,108)
|
|
|
522
|
|
Total revenues
|
10,398
|
|
|
141
|
|
|
92,486
|
|
|
2,210
|
|
|
105,235
|
|
|
—
|
|
|
105,235
|
|
|
(84,540)
|
|
|
20,695
|
|
COSTS AND EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land sales
|
—
|
|
|
—
|
|
|
49,827
|
|
|
—
|
|
|
49,827
|
|
|
—
|
|
|
49,827
|
|
|
(49,827)
|
|
|
—
|
|
Home sales
|
—
|
|
|
—
|
|
|
10,187
|
|
|
—
|
|
|
10,187
|
|
|
—
|
|
|
10,187
|
|
|
(10,187)
|
|
|
—
|
|
Management services(2)
|
—
|
|
|
—
|
|
|
8,075
|
|
|
—
|
|
|
8,075
|
|
|
—
|
|
|
8,075
|
|
|
—
|
|
|
8,075
|
|
Operating properties
|
2,095
|
|
|
—
|
|
|
—
|
|
|
596
|
|
|
2,691
|
|
|
—
|
|
|
2,691
|
|
|
(596)
|
|
|
2,095
|
|
Selling, general, and administrative
|
5,227
|
|
|
926
|
|
|
8,630
|
|
|
1,255
|
|
|
16,038
|
|
|
14,604
|
|
|
30,642
|
|
|
(9,885)
|
|
|
20,757
|
|
Management fees—related party
|
—
|
|
|
—
|
|
|
6,893
|
|
|
—
|
|
|
6,893
|
|
|
—
|
|
|
6,893
|
|
|
(6,893)
|
|
|
—
|
|
Total costs and expenses
|
7,322
|
|
|
926
|
|
|
83,612
|
|
|
1,851
|
|
|
93,711
|
|
|
14,604
|
|
|
108,315
|
|
|
(77,388)
|
|
|
30,927
|
|
OTHER INCOME (EXPENSE):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
—
|
|
|
—
|
|
|
83
|
|
|
—
|
|
|
83
|
|
|
21
|
|
|
104
|
|
|
(83)
|
|
|
21
|
|
Interest expense
|
—
|
|
|
—
|
|
|
—
|
|
|
(311)
|
|
|
(311)
|
|
|
—
|
|
|
(311)
|
|
|
311
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Miscellaneous
|
1,516
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,516
|
|
|
—
|
|
|
1,516
|
|
|
—
|
|
|
1,516
|
|
Total other income (expense)
|
1,516
|
|
|
—
|
|
|
83
|
|
|
(311)
|
|
|
1,288
|
|
|
21
|
|
|
1,309
|
|
|
228
|
|
|
1,537
|
|
EQUITY IN EARNINGS FROM UNCONSOLIDATED ENTITIES
|
159
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
159
|
|
|
—
|
|
|
159
|
|
|
326
|
|
|
485
|
|
SEGMENT PROFIT (LOSS)/LOSS BEFORE INCOME TAX BENEFIT
|
4,751
|
|
|
(785)
|
|
|
8,957
|
|
|
48
|
|
|
12,971
|
|
|
(14,583)
|
|
|
(1,612)
|
|
|
(6,598)
|
|
|
(8,210)
|
|
INCOME TAX BENEFIT
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
SEGMENT PROFIT (LOSS)/NET LOSS
|
$
|
4,751
|
|
|
$
|
(785)
|
|
|
$
|
8,957
|
|
|
$
|
48
|
|
|
$
|
12,971
|
|
|
$
|
(14,583)
|
|
|
$
|
(1,612)
|
|
|
$
|
(6,598)
|
|
|
$
|
(8,210)
|
|
(1) Represents the removal of the Great Park Venture and Gateway Commercial Venture operating results, which are included in the Great Park segment and Commercial segment operating results at 100% of each venture’s historical basis, respectively, but are not included in our consolidated results as we account for our investment in each venture using the equity method of accounting.
(2) For the Great Park and Commercial segments, represents the revenues and expenses attributable to the management company for providing services to the Great Park Venture and the Gateway Commercial Venture, as applicable.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2020
|
|
Valencia
|
|
San Francisco
|
|
Great Park
|
|
Commercial
|
|
Total reportable segments
|
|
Corporate and unallocated
|
|
Total under management
|
|
Removal of unconsolidated entities(1)
|
|
Total consolidated
|
REVENUES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land sales
|
$
|
42
|
|
|
$
|
—
|
|
|
$
|
141
|
|
|
$
|
—
|
|
|
$
|
183
|
|
|
$
|
—
|
|
|
$
|
183
|
|
|
$
|
(141)
|
|
|
$
|
42
|
|
Land sales—related party
|
2
|
|
|
—
|
|
|
87
|
|
|
—
|
|
|
89
|
|
|
—
|
|
|
89
|
|
|
(87)
|
|
|
2
|
|
Management services—related party(2)
|
—
|
|
|
—
|
|
|
7,895
|
|
|
104
|
|
|
7,999
|
|
|
—
|
|
|
7,999
|
|
|
—
|
|
|
7,999
|
|
Operating properties
|
196
|
|
|
138
|
|
|
—
|
|
|
5,159
|
|
|
5,493
|
|
|
—
|
|
|
5,493
|
|
|
(5,159)
|
|
|
334
|
|
Total revenues
|
240
|
|
|
138
|
|
|
8,123
|
|
|
5,263
|
|
|
13,764
|
|
|
—
|
|
|
13,764
|
|
|
(5,387)
|
|
|
8,377
|
|
COSTS AND EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land sales
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Management services(2)
|
—
|
|
|
—
|
|
|
6,120
|
|
|
—
|
|
|
6,120
|
|
|
—
|
|
|
6,120
|
|
|
—
|
|
|
6,120
|
|
Operating properties
|
764
|
|
|
—
|
|
|
—
|
|
|
1,275
|
|
|
2,039
|
|
|
—
|
|
|
2,039
|
|
|
(1,275)
|
|
|
764
|
|
Selling, general, and administrative
|
2,798
|
|
|
1,967
|
|
|
8,840
|
|
|
1,161
|
|
|
14,766
|
|
|
12,891
|
|
|
27,657
|
|
|
(10,001)
|
|
|
17,656
|
|
Management fees—related party
|
—
|
|
|
—
|
|
|
3,440
|
|
|
—
|
|
|
3,440
|
|
|
—
|
|
|
3,440
|
|
|
(3,440)
|
|
|
—
|
|
Total costs and expenses
|
3,562
|
|
|
1,967
|
|
|
18,400
|
|
|
2,436
|
|
|
26,365
|
|
|
12,891
|
|
|
39,256
|
|
|
(14,716)
|
|
|
24,540
|
|
OTHER INCOME (EXPENSE):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
—
|
|
|
—
|
|
|
84
|
|
|
—
|
|
|
84
|
|
|
71
|
|
|
155
|
|
|
(84)
|
|
|
71
|
|
Interest expense
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,605)
|
|
|
(1,605)
|
|
|
—
|
|
|
(1,605)
|
|
|
1,605
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on extinguishment of debt
|
—
|
|
|
—
|
|
|
—
|
|
|
(474)
|
|
|
(474)
|
|
|
—
|
|
|
(474)
|
|
|
474
|
|
|
—
|
|
Gain on asset sale, net
|
—
|
|
|
—
|
|
|
—
|
|
|
74,847
|
|
|
74,847
|
|
|
—
|
|
|
74,847
|
|
|
(74,847)
|
|
|
—
|
|
Miscellaneous
|
91
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
91
|
|
|
—
|
|
|
91
|
|
|
—
|
|
|
91
|
|
Total other income (expense)
|
91
|
|
|
—
|
|
|
84
|
|
|
72,768
|
|
|
72,943
|
|
|
71
|
|
|
73,014
|
|
|
(72,852)
|
|
|
162
|
|
EQUITY IN EARNINGS FROM UNCONSOLIDATED ENTITIES
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
52,423
|
|
|
52,423
|
|
SEGMENT (LOSS) PROFIT/INCOME BEFORE INCOME TAX PROVISION
|
(3,231)
|
|
|
(1,829)
|
|
|
(10,193)
|
|
|
75,595
|
|
|
60,342
|
|
|
(12,820)
|
|
|
47,522
|
|
|
(11,100)
|
|
|
36,422
|
|
INCOME TAX PROVISION
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
SEGMENT (LOSS) PROFIT/NET INCOME
|
$
|
(3,231)
|
|
|
$
|
(1,829)
|
|
|
$
|
(10,193)
|
|
|
$
|
75,595
|
|
|
$
|
60,342
|
|
|
$
|
(12,820)
|
|
|
$
|
47,522
|
|
|
$
|
(11,100)
|
|
|
$
|
36,422
|
|
(1) Represents the removal of the Great Park Venture and Gateway Commercial Venture operating results, which are included in the Great Park segment and Commercial segment operating results at 100% of each venture’s historical basis, respectively, but are not included in our consolidated results as we account for our investment in each venture using the equity method of accounting.
(2) For the Great Park and Commercial segments, represents the revenues and expenses attributable to the management company for providing services to the Great Park Venture and the Gateway Commercial Venture, as applicable.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2021
|
|
Valencia
|
|
San Francisco
|
|
Great Park
|
|
Commercial
|
|
Total reportable segments
|
|
Corporate and unallocated
|
|
Total under management
|
|
Removal of unconsolidated entities(1)
|
|
Total consolidated
|
REVENUES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land sales
|
$
|
10,087
|
|
|
$
|
—
|
|
|
$
|
346,417
|
|
|
$
|
—
|
|
|
$
|
356,504
|
|
|
$
|
—
|
|
|
$
|
356,504
|
|
|
$
|
(346,417)
|
|
|
$
|
10,087
|
|
Land sales—related party
|
73
|
|
|
—
|
|
|
60,894
|
|
|
—
|
|
|
60,967
|
|
|
—
|
|
|
60,967
|
|
|
(60,894)
|
|
|
73
|
|
Home sales
|
—
|
|
|
—
|
|
|
12,947
|
|
|
—
|
|
|
12,947
|
|
|
—
|
|
|
12,947
|
|
|
(12,947)
|
|
|
—
|
|
Management services—related party(2)
|
—
|
|
|
—
|
|
|
29,938
|
|
|
304
|
|
|
30,242
|
|
|
—
|
|
|
30,242
|
|
|
—
|
|
|
30,242
|
|
Operating properties
|
1,346
|
|
|
431
|
|
|
—
|
|
|
6,357
|
|
|
8,134
|
|
|
—
|
|
|
8,134
|
|
|
(6,357)
|
|
|
1,777
|
|
Total revenues
|
11,506
|
|
|
431
|
|
|
450,196
|
|
|
6,661
|
|
|
468,794
|
|
|
—
|
|
|
468,794
|
|
|
(426,615)
|
|
|
42,179
|
|
COSTS AND EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land sales
|
—
|
|
|
—
|
|
|
301,247
|
|
|
—
|
|
|
301,247
|
|
|
—
|
|
|
301,247
|
|
|
(301,247)
|
|
|
—
|
|
Home sales
|
—
|
|
|
—
|
|
|
10,187
|
|
|
—
|
|
|
10,187
|
|
|
—
|
|
|
10,187
|
|
|
(10,187)
|
|
|
—
|
|
Management services(2)
|
—
|
|
|
—
|
|
|
24,700
|
|
|
—
|
|
|
24,700
|
|
|
—
|
|
|
24,700
|
|
|
—
|
|
|
24,700
|
|
Operating properties
|
5,098
|
|
|
—
|
|
|
—
|
|
|
1,265
|
|
|
6,363
|
|
|
—
|
|
|
6,363
|
|
|
(1,265)
|
|
|
5,098
|
|
Selling, general, and administrative
|
14,750
|
|
|
2,988
|
|
|
24,834
|
|
|
3,572
|
|
|
46,144
|
|
|
41,775
|
|
|
87,919
|
|
|
(28,406)
|
|
|
59,513
|
|
Management fees—related party
|
—
|
|
|
—
|
|
|
19,393
|
|
|
—
|
|
|
19,393
|
|
|
—
|
|
|
19,393
|
|
|
(19,393)
|
|
|
—
|
|
Total costs and expenses
|
19,848
|
|
|
2,988
|
|
|
380,361
|
|
|
4,837
|
|
|
408,034
|
|
|
41,775
|
|
|
449,809
|
|
|
(360,498)
|
|
|
89,311
|
|
OTHER INCOME (EXPENSE):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
—
|
|
|
—
|
|
|
416
|
|
|
—
|
|
|
416
|
|
|
74
|
|
|
490
|
|
|
(416)
|
|
|
74
|
|
Interest expense
|
—
|
|
|
—
|
|
|
—
|
|
|
(921)
|
|
|
(921)
|
|
|
—
|
|
|
(921)
|
|
|
921
|
|
|
—
|
|
Miscellaneous—related party
|
—
|
|
|
1,070
|
|
|
—
|
|
|
—
|
|
|
1,070
|
|
|
978
|
|
|
2,048
|
|
|
—
|
|
|
2,048
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Miscellaneous
|
1,785
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,785
|
|
|
—
|
|
|
1,785
|
|
|
—
|
|
|
1,785
|
|
Total other income (expense)
|
1,785
|
|
|
1,070
|
|
|
416
|
|
|
(921)
|
|
|
2,350
|
|
|
1,052
|
|
|
3,402
|
|
|
505
|
|
|
3,907
|
|
EQUITY IN EARNINGS (LOSS) FROM UNCONSOLIDATED ENTITIES
|
280
|
|
|
—
|
|
|
(1,409)
|
|
|
—
|
|
|
(1,129)
|
|
|
—
|
|
|
(1,129)
|
|
|
10,177
|
|
|
9,048
|
|
SEGMENT (LOSS) PROFIT/LOSS BEFORE INCOME TAX PROVISION
|
(6,277)
|
|
|
(1,487)
|
|
|
68,842
|
|
|
903
|
|
|
61,981
|
|
|
(40,723)
|
|
|
21,258
|
|
|
(55,435)
|
|
|
(34,177)
|
|
INCOME TAX PROVISION
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(5)
|
|
|
(5)
|
|
|
—
|
|
|
(5)
|
|
SEGMENT (LOSS) PROFIT/NET LOSS
|
$
|
(6,277)
|
|
|
$
|
(1,487)
|
|
|
$
|
68,842
|
|
|
$
|
903
|
|
|
$
|
61,981
|
|
|
$
|
(40,728)
|
|
|
$
|
21,253
|
|
|
$
|
(55,435)
|
|
|
$
|
(34,182)
|
|
(1) Represents the removal of the Great Park Venture and Gateway Commercial Venture operating results, which are included in the Great Park segment and Commercial segment operating results at 100% of each venture’s historical basis, respectively, but are not included in our consolidated results as we account for our investment in each venture using the equity method of accounting.
(2) For the Great Park and Commercial segments, represents the revenues and expenses attributable to the management company for providing services to the Great Park Venture and the Gateway Commercial Venture, as applicable.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2020
|
|
Valencia
|
|
San Francisco
|
|
Great Park
|
|
Commercial
|
|
Total reportable segments
|
|
Corporate and unallocated
|
|
Total under management
|
|
Removal of unconsolidated entities(1)
|
|
Total consolidated
|
REVENUES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land sales
|
$
|
17,076
|
|
|
$
|
—
|
|
|
$
|
21,962
|
|
|
$
|
—
|
|
|
$
|
39,038
|
|
|
$
|
—
|
|
|
$
|
39,038
|
|
|
$
|
(21,962)
|
|
|
$
|
17,076
|
|
Land sales—related party
|
14
|
|
|
—
|
|
|
1,092
|
|
|
—
|
|
|
1,106
|
|
|
—
|
|
|
1,106
|
|
|
(1,092)
|
|
|
14
|
|
Management services—related party(2)
|
—
|
|
|
835
|
|
|
21,424
|
|
|
298
|
|
|
22,557
|
|
|
—
|
|
|
22,557
|
|
|
—
|
|
|
22,557
|
|
Operating properties
|
1,807
|
|
|
450
|
|
|
—
|
|
|
22,141
|
|
|
24,398
|
|
|
—
|
|
|
24,398
|
|
|
(22,141)
|
|
|
2,257
|
|
Total revenues
|
18,897
|
|
|
1,285
|
|
|
44,478
|
|
|
22,439
|
|
|
87,099
|
|
|
—
|
|
|
87,099
|
|
|
(45,195)
|
|
|
41,904
|
|
COSTS AND EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land sales
|
11,861
|
|
|
—
|
|
|
15,304
|
|
|
—
|
|
|
27,165
|
|
|
—
|
|
|
27,165
|
|
|
(15,304)
|
|
|
11,861
|
|
Management services(2)
|
—
|
|
|
488
|
|
|
16,099
|
|
|
—
|
|
|
16,587
|
|
|
—
|
|
|
16,587
|
|
|
—
|
|
|
16,587
|
|
Operating properties
|
4,408
|
|
|
—
|
|
|
—
|
|
|
4,530
|
|
|
8,938
|
|
|
—
|
|
|
8,938
|
|
|
(4,530)
|
|
|
4,408
|
|
Selling, general, and administrative
|
9,244
|
|
|
8,184
|
|
|
29,572
|
|
|
8,765
|
|
|
55,765
|
|
|
41,166
|
|
|
96,931
|
|
|
(38,337)
|
|
|
58,594
|
|
Management fees—related party
|
—
|
|
|
—
|
|
|
7,633
|
|
|
—
|
|
|
7,633
|
|
|
—
|
|
|
7,633
|
|
|
(7,633)
|
|
|
—
|
|
Total costs and expenses
|
25,513
|
|
|
8,672
|
|
|
68,608
|
|
|
13,295
|
|
|
116,088
|
|
|
41,166
|
|
|
157,254
|
|
|
(65,804)
|
|
|
91,450
|
|
OTHER INCOME (EXPENSE):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
1
|
|
|
—
|
|
|
1,210
|
|
|
—
|
|
|
1,211
|
|
|
1,302
|
|
|
2,513
|
|
|
(1,210)
|
|
|
1,303
|
|
Interest expense
|
—
|
|
|
—
|
|
|
—
|
|
|
(8,547)
|
|
|
(8,547)
|
|
|
—
|
|
|
(8,547)
|
|
|
8,547
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on extinguishment of debt
|
—
|
|
|
—
|
|
|
—
|
|
|
(474)
|
|
|
(474)
|
|
|
—
|
|
|
(474)
|
|
|
474
|
|
|
—
|
|
Gain on asset sale, net
|
—
|
|
|
—
|
|
|
—
|
|
|
112,260
|
|
|
112,260
|
|
|
—
|
|
|
112,260
|
|
|
(112,260)
|
|
|
—
|
|
Miscellaneous
|
267
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
267
|
|
|
—
|
|
|
267
|
|
|
—
|
|
|
267
|
|
Total other income (expense)
|
268
|
|
|
—
|
|
|
1,210
|
|
|
103,239
|
|
|
104,717
|
|
|
1,302
|
|
|
106,019
|
|
|
(104,449)
|
|
|
1,570
|
|
EQUITY IN EARNINGS FROM UNCONSOLIDATED ENTITIES
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
45,417
|
|
|
45,417
|
|
SEGMENT (LOSS) PROFIT/LOSS BEFORE INCOME TAX BENEFIT
|
(6,348)
|
|
|
(7,387)
|
|
|
(22,920)
|
|
|
112,383
|
|
|
75,728
|
|
|
(39,864)
|
|
|
35,864
|
|
|
(38,423)
|
|
|
(2,559)
|
|
INCOME TAX BENEFIT
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
SEGMENT (LOSS) PROFIT/NET LOSS
|
$
|
(6,348)
|
|
|
$
|
(7,387)
|
|
|
$
|
(22,920)
|
|
|
$
|
112,383
|
|
|
$
|
75,728
|
|
|
$
|
(39,864)
|
|
|
$
|
35,864
|
|
|
$
|
(38,423)
|
|
|
$
|
(2,559)
|
|
(1) Represents the removal of the Great Park Venture and Gateway Commercial Venture operating results, which are included in the Great Park segment and Commercial segment operating results at 100% of each venture’s historical basis, respectively, but are not included in our consolidated results as we account for our investment in each venture using the equity method of accounting.
(2) For the Great Park and Commercial segments, represents the revenues and expenses attributable to the management company for providing services to the Great Park Venture and the Gateway Commercial Venture, as applicable.
Valencia Segment (formerly Newhall)
Our Valencia property consists of approximately 15,000 acres in northern Los Angeles County and is designed to include approximately 21,500 homesites and approximately 11.5 million square feet of commercial space. Valencia is the continuation of our community where already today approximately 20,000 households reside and approximately 60,000 people work. We began selling homesites in the first development area at Valencia in 2019.
Three Months Ended September 30, 2021 and 2020
Revenues. Revenues were $10.4 million for the three months ended September 30, 2021 compared to $0.2 million for the three months ended September 30, 2020. During the three months ended September 30, 2021, we recognized $10.0 million in land sale revenues associated with the receipt of $10.0 million in cash consideration from a customer that acquired commercial property from us in 2011. The payment was contingent on the customer obtaining certain land use approvals for the property.
Selling, general, and administrative. Selling, general, and administrative expenses increased by $2.4 million, or 86.8%, to $5.2 million for the three months ended September 30, 2021, from $2.8 million for the three months ended September 30, 2020. The increase was mainly attributable to an increase in community related selling and marketing expenses in preparation for and in support of builder model home openings at the first development area in Valencia.
Nine Months Ended September 30, 2021 and 2020
Revenues. Revenues decreased by $7.4 million, or 39.1%, to $11.5 million for the nine months ended September 30, 2021, from $18.9 million for the nine months ended September 30, 2020. The decrease was primarily attributable to the recognition of revenue from the sale of land entitled for an aggregate of 70 homesites on approximately seven acres during the nine months ended September 30, 2020 compared to no land sales closed during the same period in 2021. The reduction in revenues from land sales closings was offset by our recognition of $10.0 million from a customer that acquired commercial property from us in 2011. The payment was contingent on the customer obtaining certain land use approvals for the property.
Cost of land sales. Cost of land sales for the nine months ended September 30, 2020 was $11.9 million, or 69.4% of total land sales revenues, compared to no cost of land sales recognized during the same period in 2021. The cost of land sales includes both actual and estimated future capitalized costs allocated based upon relative sales values. Since this method requires us to estimate future development costs and the expected sales prices for future land sales, the profit margin on subsequent parcels sold will be affected by both changes in the estimated total revenues, as well as any changes in the estimated total cost of the project.
Selling, general, and administrative. Selling, general, and administrative expenses increased by $5.5 million, or 59.6%, to $14.8 million for the nine months ended September 30, 2021, from $9.2 million for the nine months ended September 30, 2020. The increase was mainly attributable to an increase in community related selling and marketing expenses in preparation for and in support of builder model home openings at the first development area in Valencia.
San Francisco Segment
Located almost equidistant between downtown San Francisco and the San Francisco International Airport, Candlestick and The San Francisco Shipyard consist of approximately 800 acres of bayfront property in the City of San Francisco. Candlestick and The San Francisco Shipyard are designed to include approximately 12,000 homesites and approximately 6.3 million square feet of commercial space.
In October 2019, we received approval from the City of San Francisco on a revised development plan for the first phase of Candlestick that is currently planned to include approximately 750,000 square feet of office space, 1,600 homes, and 300,000 square feet of lifestyle amenities centered around retail and entertainment. As currently planned, Candlestick ultimately is expected to include approximately 7,000 homes.
Our development at Candlestick and The San Francisco Shipyard is not subject to San Francisco’s Proposition M growth control measure, which imposes annual limitations on office development and is applicable to all other developers with projects in the city. This means the full amount of permitted commercial square footage at Candlestick and The San Francisco Shipyard can be constructed as we determine, including all at once, even though Proposition M may delay new office developments elsewhere in San Francisco. In 2018, our disposition and development agreement with the City of San Francisco was amended to increase the total amount of commercial use at Candlestick and The San Francisco Shipyard by over two million square feet, most of which we anticipate will be for office use, and increases our total commercial space to approximately 6.3 million square feet.
At The San Francisco Shipyard, approximately 408 acres are still owned by the U.S. Navy and will not be conveyed to us until the U.S. Navy satisfactorily completes its finding of suitability to transfer, or “FOST,” process, which involves multiple levels of environmental and governmental investigation, analysis, review, comment and approval. Based on our discussions with the U.S. Navy, we had previously expected the U.S. Navy to deliver this property between 2019 and 2022. However, allegations that Tetra Tech, Inc. and Tetra Tech EC, Inc. (collectively, “Tetra Tech”), contractors hired by the U.S. Navy, misrepresented sampling results at The San Francisco Shipyard have resulted in data reevaluation, governmental investigations, criminal proceedings, lawsuits, and a determination by the U.S. Navy and other regulatory agencies to undertake additional sampling. As part of the 2018 Congressional spending bill, the U.S. Department of Defense allocated $36.0 million to help fund resampling efforts at The San Francisco Shipyard. An additional $60.4 million to fund resampling efforts was approved as part of a 2019 military construction spending bill. These activities have delayed the remaining land transfers from the U.S. Navy and could lead to additional legal claims or government investigations, all of which could in turn further delay or impede our future development of such parcels. Our development plans were designed with the flexibility to adjust for potential land transfer delays, and we have the ability to shift the phasing of our development activities to account for potential delays caused by U.S. Navy retesting, but there can be no assurance that these matters and other related matters that may arise in the future will not materially impact our development plans.
We have been, and may in the future be, named as a defendant in lawsuits seeking damages and other relief arising out of alleged contamination at The San Francisco Shipyard and Tetra Tech’s alleged misrepresentations of related sampling work. See Note 11 to our condensed consolidated financial statements included under Part I, Item 1 of this report. Given the preliminary nature of the claims to date, we cannot predict the outcome of these matters.
Three Months Ended September 30, 2021 and 2020
Selling, general, and administrative. Selling, general, and administrative expenses decreased by $1.0 million, or 52.9%, to $0.9 million for the three months ended September 30, 2021, from $2.0 million for the three months ended September 30, 2020. The decrease was mainly attributable to a decrease in employee related expenses as a result of reallocations of human capital resources among our projects.
Nine Months Ended September 30, 2021 and 2020
Management services—related party revenues. The decrease in management services—related party revenues was due to the termination in early 2020 of our management agreement with Lennar with respect to the Concord community. In addition, in 2021, we amended certain other related party agreements, which resulted in recognition of a miscellaneous other income—related party gain of $1.1 million during the nine months ended September 30, 2021.
Selling, general, and administrative. Selling, general, and administrative expenses decreased by $5.2 million, or 63.5%, to $3.0 million for the nine months ended September 30, 2021, from $8.2 million for the nine months ended September 30, 2020. The decrease was mainly attributable to a decrease in employee related expenses as a result of a reduction in employee headcount in addition to reallocations of human capital resources among our projects.
Great Park Segment
We have a 37.5% percentage interest in the Great Park Venture, and we account for our investment using the equity method of accounting. We have a controlling interest in the management company, an entity which performs development management services at Great Park Neighborhoods. We do not include the Great Park Venture as a consolidated subsidiary in our consolidated financial statements. However, because of the relationship between the management company and the Great Park Venture, we assess our investment in the Great Park Venture based on the financial information for the Great Park Venture in its entirety, and not just our equity interest in it. As a result, our Great Park segment consists of the operations of both the Great Park Venture and the development management services provided by the management company at the Great Park Venture.
Great Park Neighborhoods consists of approximately 2,100 acres in Orange County and is being built around the approximately 1,300 acre Orange County Great Park, a metropolitan public park that is under construction. Great Park Neighborhoods is designed to include approximately 10,500 homesites and approximately 4.9 million square feet of commercial space.
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 nine months ended September 30, 2021, the Great Park Venture made aggregate distributions of $51.0 million to holders of legacy interests and $204.3 million to holders of percentage interests. The Company received $76.6 million for its 37.5% percentage interest. With the distributions to the holders of legacy interests, the Great Park Venture fully satisfied the $476.0 million priority distribution rights and reduced the remaining maximum participating legacy interest distribution rights to $82.7 million. The remaining $82.7 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.
Three Months Ended September 30, 2021 and 2020
Land sales and related party land sales revenues. Land sales and related party land sales revenues increased to $69.5 million for the three months ended September 30, 2021, from $0.2 million for the three months ended September 30, 2020. The increase was primarily attributable to the recognition of revenue from the sale of land at the Great Park Neighborhoods entitled for an aggregate of 113 homesites on approximately 13 acres during the three months ended September 30, 2021, compared to no land sales during the same period in 2020. The base purchase price was $65.1 million for the 2021 land sales. The Great Park Venture also recognized $1.4 million in the transaction price as an estimate of the amount of variable consideration from marketing fees that it expects to be entitled to receive.
During the three months ended September 30, 2021 and 2020, segment land sales and related party land sales revenues also included changes in estimates of variable land sale consideration, including profit participation, from those amounts previously recorded by the Great Park Venture.
Cost of Land Sales. Cost of land sales for the three months ended September 30, 2021 was $49.8 million, or 71.7% of total land sales revenues. 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.
Home Sale Revenues. The Great Park Venture has a fee build agreement with an unrelated third party (“Fee Builder”) that the Great Park Venture contracted to build and act as a sales agent for 38 homesites within the Great Park Neighborhoods. The Fee Builder initially incurs all costs to build, market and sell the residential homes, and the Great Park Venture reimburses the Fee Builder as construction progresses and pays the Fee Builder certain fees during the construction phase of the homes and when homes are sold to homebuyers. During the three months ended September 30, 2021, the Great Park Venture closed the sales of eight homes to homebuyers generating $12.9 million in home sale revenues.
Cost of Home Sales. Cost of home sales includes an allocation of land basis for each home sold in addition to home construction costs the Great Park Venture reimburses to the Fee Builder and fees paid to the Fee Builder for the services provided. During the three months ended September 30, 2021, the Great Park Venture recognized $10.2 million in cost of home sales.
Management fee revenues. Management fee revenues are revenues generated by the management company from development management services provided to the Great Park Venture. The management company receives a base management fee, reimbursement for certain defined project team costs and the right to receive certain variable incentive compensation. The increase in management services related party revenue was mainly attributable to changes in estimates of the amount of variable consideration pertaining to the incentive compensation.
Management services costs and expenses. Included within management services costs and expenses are general and administrative costs and expenses incurred directly 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 $2.0 million, or 31.9%, to $8.1 million for the three months ended September 30, 2021, from $6.1 million for the three months ended September 30, 2020. The increase was mainly attributable to increased intangible asset amortization expense.
Selling, general, and administrative. Selling, general, and administrative expenses decreased by $0.2 million, or 2.4%, to $8.6 million for the three months ended September 30, 2021, from $8.8 million for the three months ended September 30, 2020.
Management fees—related party. Management fees increased by $3.5 million, or 100.4%, to $6.9 million for the three months ended September 30, 2021, from $3.4 million for the three months ended September 30, 2020. 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 percentage 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 changes in estimates of the amount of incentive compensation probable of being paid.
Nine Months Ended September 30, 2021 and 2020
Land sales and related party land sales revenues. Revenues increased by $384.3 million to $407.3 million for the nine months ended September 30, 2021, from $23.1 million for the nine months ended September 30, 2020. The increase was primarily attributable to the recognition of revenue from the sale of land at the Great Park Neighborhoods entitled for an aggregate of 887 homesites on approximately 72 acres during the nine months ended September 30, 2021, compared to the recognition of revenue from the sale of land entitled for an aggregate of 35 homesites on approximately four acres during the nine months ended September 30, 2020. The base purchase price was $393.3 million for the 2021 sales. The Great Park Venture also recognized $9.1 million in the transaction price as an estimate of the amount of variable consideration from marketing fees that it expects to be entitled to receive. The base purchase price was $20.3 million for the 2020 sales. The Great Park Venture also recognized $0.5 million in the transaction price as an estimate of the amount of variable consideration from marketing fees that it expects to be entitled to receive for the 2020 sales. In 2021, 117 of the homesites sold were purchased by the Great Park Landbank Venture, in which the Great Park Venture owns a 10% equity interest. Revenues associated with these closings are reported as land sales—related party. When the Great Park Venture sells land to the Great Park Landbank Venture, it eliminates its pro-rata share of the intra-entity profits generated from the sale through earnings (loss) from unconsolidated entities until the land is sold by the Great Park Landbank Venture to third party homebuilders. Additionally, in 2021, 572 of the homesites were sold to an unaffiliated land banking entity whereby a related party retained the option to acquire the homesites in the future from the land bank entity.
During the nine months ended September 30, 2021 and 2020, segment land sales and related party land sales revenues also included changes in estimates of variable land sale consideration, including profit participation, from those amounts previously recorded by the Great Park Venture.
Cost of Land Sales. Cost of land sales for the nine months ended September 30, 2021 was $301.2 million, or 74.0% of total land sales revenues. 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.
Home Sale Revenues. The Great Park Venture has a fee build agreement with an unrelated third party Fee Builder that the Great Park Venture contracted to build and act as a sales agent for 38 homesites within the Great Park Neighborhoods. The Fee Builder initially incurs all costs to build, market and sell the residential homes, and the Great Park Venture reimburses the Fee Builder as construction progresses and pays the Fee Builder certain fees during the construction phase of the homes and when homes are sold to homebuyers. During the nine months ended September 30, 2021, the Great Park Venture closed the sales of eight homes to homebuyers generating $12.9 million in home sale revenues.
Cost of Home Sales. Cost of home sales includes an allocation of land basis for each home sold in addition to home construction costs the Great Park Venture reimburses to the Fee Builder and fees paid to the Fee Builder for the services provided. During the nine months ended September 30, 2021, the Great Park Venture recognized $10.2 million in cost of home sales.
Management fee revenues. Management fee revenues are revenues generated by the management company from development management services provided to the Great Park Venture. The management company receives a base management fee, reimbursement for certain defined project team costs and the right to receive certain variable incentive compensation. The increase in management services related party revenue was mainly attributable to changes in estimates of the amount of variable consideration pertaining to the incentive compensation.
Management services costs and expenses. Included within management services costs and expenses are general and administrative costs and expenses incurred directly 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 $8.6 million, or 53.4%, to $24.7 million for the nine months ended September 30, 2021, from $16.1 million for the nine months ended September 30, 2020. The increase was mainly attributable to increased intangible asset amortization expense.
Selling, general, and administrative. Selling, general, and administrative expenses decreased by $4.7 million, or 16.0%, to $24.8 million for the nine months ended September 30, 2021, from $29.6 million for the nine months ended September 30, 2020. The lower expense during the nine months ended September 30, 2021 was mainly attributable to a decrease in marketing expenses incurred at the Great Park Neighborhoods.
Management fees—related party. Management fees increased by $11.8 million, or 154.1%, to $19.4 million for the nine months ended September 30, 2021, from $7.6 million for the nine months ended September 30, 2020. 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 percentage 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 changes in estimates of the amount of incentive compensation probable of being paid.
The table below reconciles the Great Park segment results to the equity in earnings (loss) 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, 2021 and 2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
(in thousands)
|
Segment net income (loss) from operations
|
$
|
8,957
|
|
|
$
|
(10,193)
|
|
|
$
|
68,842
|
|
|
$
|
(22,920)
|
|
Less net income of management company attributed to the Great Park segment
|
1,979
|
|
|
1,775
|
|
|
5,238
|
|
|
5,325
|
|
Net income (loss) of the Great Park Venture
|
6,978
|
|
|
(11,968)
|
|
|
63,604
|
|
|
(28,245)
|
|
The Company’s share of net income (loss) of the Great Park Venture
|
2,617
|
|
|
(4,488)
|
|
|
23,852
|
|
|
(10,592)
|
|
Basis difference (amortization) accretion
|
(2,250)
|
|
|
293
|
|
|
(15,533)
|
|
|
(1,204)
|
|
Other-than-temporary investment impairment
|
—
|
|
|
—
|
|
|
—
|
|
|
(26,851)
|
|
Equity in earnings (loss) from the Great Park Venture
|
$
|
367
|
|
|
$
|
(4,195)
|
|
|
$
|
8,319
|
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$
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(38,647)
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Commercial Segment
We have a 75% interest in the Gateway Commercial Venture that is held through a wholly owned subsidiary of the operating company, and we serve as the manager of the Gateway Commercial Venture. However, the manager’s authority is limited. Major decisions by the Gateway Commercial Venture generally require unanimous approval by an executive committee composed of two people designated by us and two people designated by another investor. Some decisions require approval by all of the members of the Gateway Commercial Venture. We do not include the Gateway Commercial Venture as a consolidated subsidiary in our consolidated financial statements. However, as a result of our 75% economic interest and our role as manager, we assess our investment in the Gateway Commercial Venture based on the financial information of the Gateway Commercial Venture in its entirety, and we include the Gateway Commercial Venture’s financial results within the Commercial segment. Additionally, the management company has been engaged by the Gateway Commercial Venture to provide property management services to the Five Point Gateway Campus. We include the management company’s results of operations related to these property management services within the Commercial segment.
The Five Point Gateway Campus is a commercial campus consisting of approximately 73 acres of land in the Great Park Neighborhoods acquired by the Gateway Commercial Venture in 2017. The Five Point Gateway Campus currently includes approximately one million square feet planned for research and development, medical and office space in four buildings, which are designed to accommodate thousands of employees. In 2020, the Gateway Commercial Venture sold three of the buildings and approximately 11 acres of land at the campus, generating $463.0 million in gross proceeds. Our corporate headquarters are located in the fourth building, which remains owned by the Gateway Commercial Venture. In addition to the fourth building, the Gateway Commercial Venture owns approximately 50 acres of commercial land with additional development rights at the campus.
Three Months Ended September 30, 2021 and 2020
Revenues. Revenues decreased by $3.1 million, or 58.0%, to $2.2 million for the three months ended September 30, 2021, from $5.3 million for the three months ended September 30, 2020. The decrease in revenues was mainly attributable to the Gateway Commercial Venture no longer receiving rental income from the buildings that were sold in 2020.
Other income. In August 2020, the Gateway Commercial Venture closed on the sale of two buildings, comprising a total of approximately 660,000 square feet of research and development space for a purchase price of $355.0 million. The sale of the buildings, which had a carrying value of approximately $278.0 million, resulted in a gain of approximately $74.8 million, net of transaction costs. Concurrently, the Gateway Commercial Venture made a debt payment of $245.0 million to its lender and made total distributions to its members of approximately $107.0 million, of which approximately $80.3 million was distributed to us.
Costs and expenses and interest expense. As a result of the Gateway Commercial Venture’s asset dispositions and related debt repayments in 2020, cost and expenses, including interest, depreciation, and amortization expenses, were lower in the three months ended September 30, 2021, compared to the same period in 2020.
Nine Months Ended September 30, 2021 and 2020
Revenues. Revenues decreased by $15.8 million, or 70.3%, to $6.7 million for the nine months ended September 30, 2021, from $22.4 million for the nine months ended September 30, 2020. The decrease in revenues was mainly attributable to the Gateway Commercial Venture no longer receiving rental income from the buildings that were sold in 2020.
Other income. In May 2020, the Gateway Commercial Venture closed on the sale of approximately 11 acres of land and an approximately 189,000 square foot building for a purchase price of $108.0 million. The sale of this land and building, which had a carrying value of approximately $67.5 million, resulted in a gain of approximately $37.4 million, net of transaction costs. Concurrently, the Gateway Commercial Venture made a debt payment of $30.0 million to its lender and made total distributions to its members of approximately $75.0 million, of which approximately $56.3 million was distributed to us.
In August 2020, the Gateway Commercial Venture closed on the sale of two buildings, comprising a total of approximately 660,000 square feet of research and development space for a purchase price of $355.0 million. The sale of the buildings, which had a carrying value of approximately $278.0 million, resulted in a gain of approximately $74.8 million, net of transaction costs. Concurrently, the Gateway Commercial Venture made a debt payment of $245.0 million to its lender and made total distributions to its members of approximately $107.0 million, of which approximately $80.3 million was distributed to us.
Costs and expenses and interest expense. As a result of the Gateway Commercial Venture’s asset dispositions and related debt repayments in 2020, cost and expenses, including interest, depreciation, and amortization expenses, were lower in the nine months ended September 30, 2021, compared to the same period in 2020.
The table below reconciles the Commercial segment results to the equity in earnings from our investment in the Gateway Commercial Venture that is reflected in the condensed consolidated statements of operations for the three and nine months ended September 30, 2021 and 2020.
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Three Months Ended
September 30,
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Nine Months Ended
September 30,
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2021
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2020
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2021
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2020
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(in thousands)
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Segment net income from operations
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$
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48
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$
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75,595
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$
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903
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$
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112,383
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Less net income of management company attributed to the Commercial segment
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102
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104
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304
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298
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Net (loss) income of the Gateway Commercial Venture
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(54)
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75,491
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599
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112,085
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Equity in (loss) earnings from the Gateway Commercial Venture
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$
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(41)
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$
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56,618
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$
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449
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$
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84,064
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Liquidity and Capital Resources
As of September 30, 2021, we had $191.1 million of consolidated cash and cash equivalents compared to $298.1 million at December 31, 2020. As of September 30, 2021, no funds had been drawn on the operating company’s $125.0 million unsecured revolving credit facility. However, letters of credit of $0.3 million are issued and outstanding under the revolving credit facility, thus reducing the available capacity to $124.7 million. In April 2021, we entered into the third amendment to our unsecured revolving credit facility, which extended the maturity date of the revolving credit facility from April 2022 to April 2024, with one option to extend the maturity date by an additional year, subject to the satisfaction of certain conditions, including the approval of the administrative agent and lenders.
Our short-term cash needs consist primarily of general and administrative expenses and development expenditures at Valencia and the Candlestick and The San Francisco Shipyard communities, interest payments under our senior notes and payments under a related party reimbursement obligation. The development stages of our communities continue to require significant cash outlays on both a short-term and long-term basis, and we expect to invest significant amounts on continued horizontal development at Valencia over the next 12 months. We manage our development activities and expenditures to coincide with projected demand for homesites by our guest builders with the objective of maintaining an appropriate level of liquidity. We expect to meet our cash requirements for at least the next 12 months with available cash, in addition to proceeds from land sales in Valencia, distributions from our unconsolidated entities and collection of management fees under our management agreement with the Great Park Venture.
Our long-term cash needs relate primarily to future horizontal development expenditures and investments in, or vertical construction costs for, properties that we may acquire or develop for our income-producing portfolio. We budget our cash development costs on an annual basis. Budgeted amounts are subject to change due to delays or accelerations in construction or regulatory approvals, changes in inflation rates and other increases (or decreases) in costs. We may also modify our development plans or change the sequencing of our communities in response to changing economic conditions, consumer preferences and other factors, which could have a material impact on the timing and amount of our development costs. Budgeted amounts are expected to be funded through a combination of available cash, cash flows from our communities and reimbursements from public financing, including community facilities districts, tax increment financing and local, state and federal grants. Cash flows from our communities may occur in uneven patterns as cash is primarily generated by land sales, which can occur at various points over the life cycle of our communities.
We currently expect to have sufficient capital to fund the horizontal development of our communities in accordance with our development plan for several years. The level of capital expenditures in any given year may vary due to, among other things, the number of communities or neighborhoods under development and the number of planned deliveries, which may vary based on market conditions. We may seek to raise additional capital by accessing the debt or equity capital markets or with one or more revolving or term loan facilities or other public or private financing alternatives. These financings may not be available on attractive terms, or at all.
Contractual Obligations and Commitments
Our contractual obligations have not changed materially from those reported in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, however, $10.0 million in related party reimbursement obligations that were previously due in 2021 were deferred to 2022.
We are committed under various letters of credit (“LOCs”) to perform certain development activities and provide certain guarantees in the normal course of business. Outstanding LOCs totaled $1.3 million at both September 30, 2021 and December 31, 2020. At both September 30, 2021 and December 31, 2020, we had $1.0 million in restricted cash and certificates of deposit securing certain of our LOCs. Additionally, under our revolving credit facility, we are able to utilize undrawn capacity to support the issuance of LOCs. As of September 30, 2021, we were using approximately $0.3 million in capacity under the revolving credit facility to support LOCs. In the ordinary course of business and as a part of the entitlement and development process, we are required to provide performance bonds to ensure completion of certain development obligations. We had outstanding performance bonds of $281.0 million as of September 30, 2021.
At September 30, 2021, the San Francisco Venture had outstanding guarantees benefiting a municipal agency for infrastructure and construction of certain park and open space obligations with aggregate maximum obligations of $198.3 million.
Summary of Cash Flows
The following table outlines the primary components of net cash provided by (used in) operating, investing and financing activities (in thousands):
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Nine Months Ended September 30,
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2021
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2020
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Operating activities
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$
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(162,301)
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$
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(115,713)
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Investing activities
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78,313
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57,129
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Financing activities
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(23,022)
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(18,080)
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Cash Flows from Operating Activities. Net cash used in operating activities increased by $46.6 million for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. Major components of operating cash used in both periods consist of our continued investment in horizontal development at our communities and selling, general, and administrative costs including $24.6 million in each of the nine months ended September 30, 2021 and 2020 for interest due on our senior notes.
During the nine months ended September 30, 2021, we received incentive compensation payments of $20.7 million under our development management agreement with the Great Park Venture. The payment is net of $0.6 million that we concurrently distributed to the holders of the management company's class B units. Additionally, we received $10.0 million in contingent consideration associated with a commercial land sale that closed in 2011. During the nine months ended September 30, 2020, we received a total distribution of $136.5 million from the Gateway Commercial Venture, of which $79.0 million is reflected as a return on our investment in the statement of cash flows with the balance reflected as an investing activity, and collected $13.9 million in principal on a note receivable from a home builder in connection with a land sale at Valencia that closed in the second quarter of 2020.
Cash Flows from Investing Activities. Net cash from investing activities increased by $21.2 million for the nine months ended September 30, 2021 compared to net cash from investing activities for the nine months ended September 30, 2020.
During the nine months ended September 30, 2021, we received a distribution of $76.6 million from the Great Park Venture, which is reflected as a return of our investment in the statement of cash flows. Additionally, we received a distribution of $1.0 million from our indirect legacy interest in the Great Park Venture. For the nine months ended September 30, 2020, we received a total distribution of $136.5 million from the Gateway Commercial Venture, of which $57.5 million is reflected as a return of our investment in the statement of cash flows with the balance reflected as an operating activity. For the nine months ended September 30, 2020, we also received a distribution of $1.7 million from our indirect legacy interest in the Great Park Venture. In both periods, the distributions were offset by our purchases of property and equipment.
Cash Flows from Financing Activities. Net cash used in financing activities was $23.0 million for the nine months ended September 30, 2021 compared to $18.1 million net cash used in financing activities for the nine months ended September 30, 2020.
We used $2.0 million and $5.5 million during the nine months ended September 30, 2021 and 2020, respectively, to net settle share-based compensation awards with employees for tax withholding purposes. For the nine months ended September 30, 2021 and 2020, in accordance with the operating company's Limited Partnership Agreement, we made noncontrolling interest tax distributions of $4.4 million (net of amounts distributable to us as a partner of the operating company) and $4.6 million, respectively. We also made payments of $15.9 million and $8.0 million to reduce our related party reimbursement obligation during the nine months ended September 30, 2021 and 2020, respectively.
Changes in Capital Structure
During the nine months ended September 30, 2021, our ownership percentage in the operating company increased to 62.9%, primarily due to our issuance of shared-based compensation in the form of 1.4 million restricted Class A common shares offset by our reacquisition of approximately 0.3 million restricted Class A common shares from employees for income tax withholding purposes. The issuances and settlements resulted in the operating company issuing to us an equal number of Class A units of the operating company or retiring an equal number of Class A units of the operating company that we previously held.
The table below summarizes outstanding Class A units of the operating company and Class A units of the San Francisco Venture (redeemable on a one-for-one basis for Class A units of the operating company) held by us and held by noncontrolling interest members at September 30, 2021 and December 31, 2020.
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September 30, 2021
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December 31, 2020
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Class A units of the operating company:
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Held by us
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70,107,552
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69,051,284
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Held by noncontrolling interest members
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41,363,271
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41,363,271
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111,470,823
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110,414,555
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Class A units of the San Francisco Venture held by noncontrolling interest members
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37,870,273
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37,870,273
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149,341,096
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148,284,828
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At September 30, 2021, we had 79,233,544 Class B common shares outstanding that were held by the noncontrolling interest members of the operating company and the Class A unitholders of the San Francisco Venture. The Class B common shares will automatically convert to Class A common shares at a ratio of 0.0003 Class A common shares for each Class B common share. The conversions will occur when the holders of Class A units of the operating company, including Class A units that have been issued upon redemption of Class A units of the San Francisco Venture, are redeemed at our election for our Class A common shares or cash.
Critical Accounting Policies and Estimates
There have been no significant changes to our critical accounting policies and estimates during the nine months ended September 30, 2021 as compared to those disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.
Off-Balance Sheet Arrangements
We had no material off-balance sheet arrangements as of September 30, 2021.
Seasonality
Our business and results of operations are not materially impacted by seasonality.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
Market risk is the risk of loss from adverse changes in market prices and interest rates. Our future earnings, cash flows and fair values relative to financial instruments are dependent upon prevailing market interest rates. Our primary market risk results from our indebtedness, which bears interest at fixed rates. Although we do not currently do so, we may in the future manage our market risk on floating rate debt by entering into swap arrangements to in effect fix the rate on all or a portion of the debt for varying periods up to maturity. This would, in turn, reduce the risks of variability of cash flows created by floating rate debt and mitigate the risk of increases in interest rates. Our objective when undertaking such arrangements would be to reduce our floating rate exposure, as we do not plan to enter into hedging arrangements for speculative purposes.
As of September 30, 2021, we had outstanding consolidated net indebtedness of $618.7 million, none of which bears interest based on floating interest rates.
We have not entered into any transactions using derivative financial instruments or derivative commodity instruments.
ITEM 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the supervision and participation of our President and Chief Operating Officer and our Vice President and Chief Financial Officer (the “Certifying Officers”), has evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2021. Our disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms and that such information is accumulated and communicated to management, including our Certifying Officers and our Board of Directors, as appropriate to allow timely decisions regarding required disclosure. Based upon that evaluation, the Certifying Officers concluded that our disclosure controls and procedures were effective as of September 30, 2021.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting identified in management’s evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the period covered by this report on Form 10-Q that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.