NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION
Five Point Holdings, LLC, a Delaware limited liability company (the “Holding Company”) was formed on July 21, 2009. Prior to the completion of the Formation Transactions (as defined below) on May 2, 2016, the Holding Company was named Newhall Holding Company, LLC and through the operations of its subsidiaries, was primarily engaged in the planning and development of Newhall Ranch, a master-planned community located in northern Los Angeles County, California (the Holding Company together with its subsidiaries, the “Company”). Following completion of the Formation Transactions, the Company owns interests in, plans, and manages the development of multiple mixed-use, master-planned communities in coastal California, which are expected to include residential homes, commercial space, as well as retail, education and recreational elements, civic areas and parks and open spaces. In August 2017, the Company acquired an investment in a commercial office and research and development campus (the “Five Point Gateway Campus”) located on one of its master-planned communities (see Note 4).
On October 1, 2017, the Holding Company converted its operating subsidiary, Five Point Operating Company, LLC, from a Delaware limited liability company to a Delaware limited partnership named Five Point Operating Company, LP (in either instance, the “Operating Company”). The Holding Company conducts all of its operations through the Operating Company. The Holding Company’s wholly owned subsidiary is the managing general partner of the Operating Company and at
December 31, 2017
and
2016
, the Holding Company and its wholly owned subsidiary owned approximately
58.6%
and
50.4%
, respectively, of the outstanding Class A Common Units of the Operating Company. The Holding Company also owned all of the outstanding Class B Common Units of the Operating Company at both
December 31, 2017
and
2016
.
Initial Public Offering
On May 15, 2017, the Holding Company completed an initial public offering (“IPO”) and sold
24,150,000
Class A common shares at a public offering price of
$14.00
per share, which included
3,150,000
shares pursuant to the full exercise by the underwriters of their over-allotment option, resulting in gross proceeds of
$338.1 million
. The Holding Company used the net proceeds of the IPO to purchase
24,150,000
Class A Common Units of the Operating Company. The aggregate net proceeds to the Company after deducting underwriting discounts and commissions and before offering expenses payable by the Company, was
$319.7 million
.
Concurrent with the IPO, the Company completed a private placement with an affiliate of Lennar Corporation (“Lennar”) in which the Operating Company sold
7,142,857
Class A Common Units of the Operating Company at a price per unit equal to the IPO public offering price per share, and the Holding Company sold an equal number of Class B common shares at a price of
$0.00633
per share. There were no underwriting fees, discounts or commissions, and aggregate proceeds from the private placement were
$100.0 million
. The Holding Company used the proceeds from the sale of the Class B common shares to purchase
7,142,857
Class B Common Units of the Operating Company at a price of
$0.00633
per unit.
Reverse Share Split
On March 30, 2017, the board of directors of the Holding Company (the “Board”) approved, and on March 31, 2017 the Company effected, (i) a 1 for
6.33
reverse share split of issued and outstanding Class A and Class B common shares of the Holding Company, (ii) a 1 for
6.33
reverse unit split of issued and outstanding Class A and Class B Common Units of the Operating Company, and (iii) a 1 for
6.33
reverse unit split of the issued and outstanding Class A and Class B Units of the Operating Company’s consolidated subsidiary, The Shipyard Communities, LLC (the “San Francisco Venture”) (the “Reverse Split”). All share, unit, per share, and per unit amounts in the accompanying consolidated financial statements give effect to the Reverse Split for all periods presented.
Formation Transactions
On May 2, 2016, the Company completed a series of transactions (the “Formation Transactions”) pursuant to a Second Amended and Restated Contribution and Sale Agreement (the “Contribution and Sale Agreement”). The principal organizational elements of these transactions were as follows:
• The Holding Company’s limited liability company agreement was amended and restated to, among other things (i) convert the membership interests previously designated as “Class A Units” into “Class A common shares” with each Class A Unit converted into
one
Class A common share, (ii) terminate and cancel the membership interests designated as “Class B Units,” and (iii) create a second class of shares designated as “Class B common shares.” The holders of Class A and Class B common shares are entitled to
one
vote per share, and the holders of Class B common shares receive distributions per share equal to
0.03%
of the per share distributions to the holders of Class A common shares;
• The Operating Company’s limited liability company agreement was amended and restated to, among other things, (i) create
two
classes of membership interests designated as “Class A Common Units” and “Class B Common Units,” (ii) convert all existing membership interests of the Operating Company into Class A Common Units, (iii) reflect the issuance of Class A Common Units per the Contribution and Sale Agreement, (iv) reflect the issuance of Class B Common Units to the Holding Company, and (v) appoint the Holding Company as the operating managing member;
• All noncontrolling interest members of the Company’s consolidated subsidiary Five Point Land, LLC (“FPL” formerly named Newhall Land Development, LLC) contributed to the Operating Company
7,513,807
units of FPL in exchange for
7,513,807
Class A Common Units of the Operating Company;
• The Company acquired
37.5%
of the Percentage Interest (as defined in Note 4) in Heritage Fields LLC (the “Great Park Venture”), the entity that is developing Great Park Neighborhoods in Irvine, California, in exchange for
17,749,756
Class A Common Units of the Operating Company;
• The Company acquired all of the Class B units of, and became the managing member of, the San Francisco Venture, the entity that is developing The San Francisco Shipyard and Candlestick Point in San Francisco, California, in exchange for
378,578
Class A Common Units of the Operating Company and other consideration;
• The limited liability company agreement of the San Francisco Venture was amended and restated to provide for the possible future exchange of all of the Class A units of the San Francisco Venture for Class A Common Units in the Operating Company;
• The Company acquired all of the limited partners’ Class A interests in Five Point Communities, LP and all of the stock in its general partner, Five Point Communities Management, Inc. (together, the “Management Company”), the entities which have historically managed the development of Great Park Neighborhoods and Newhall Ranch, in exchange for
798,161
Class A common shares of the Holding Company,
6,549,629
Class A Common Units of the Operating Company, and other consideration;
• The Holding Company sold
74,320,576
Class B common shares for aggregate consideration of
$0.5 million
to investors holding Class A Common Units of the Operating Company and holders of Class A units of the San Francisco Venture. Each investor was entitled to purchase one Class B common share for each unit held.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
— The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
Principles of consolidation
—The accompanying consolidated financial statements include the accounts of the Company and the accounts of all subsidiaries in which the Company has a controlling interest and the accounts of variable interest entities (“VIEs”) in which the Company is deemed to be the primary beneficiary. A VIE is an entity in which either (i) the equity investors as a group, if any, lack the power through voting or similar rights to
direct the activities of such entity that most significantly impact such entity’s economic performance or (ii) the equity investment at risk is insufficient to finance that entity’s activities without additional subordinated financial support. The Company identifies the primary beneficiary of a VIE as the enterprise that has both of the following characteristics: (i) the power to direct the activities of the VIE that most significantly impact the entity’s economic performance; and (ii) the obligation to absorb losses or receive benefits of the VIE that could potentially be significant to the entity. The Company consolidates its investment in a VIE when it determines that it is its primary beneficiary. The Company may change its original assessment of a VIE upon subsequent events such as the modification of contractual arrangements, or changes in influence and control over any entity, that affect the characteristics of the entity’s equity investments at risk and the disposition of all or a portion of an interest held by the primary beneficiary. The Company performs this analysis on an ongoing basis. All intercompany transactions and balances have been eliminated in consolidation.
The accounts and operating results of the consolidated businesses acquired in the Formation Transactions have been included in the accompanying consolidated financial statements from the acquisition date forward.
Use of estimates
—The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. Management evaluates its estimates on an ongoing basis and makes revisions to these estimates and related disclosures as experience develops or new information becomes known. Actual results could differ from those estimates.
Concentration of risk
—As of
December 31, 2017
, the Company’s inventories and the Company’s unconsolidated entities’ inventories and properties are all located in California. The Company is subject to risks incidental to the ownership, development, and operation of commercial and residential real estate. These include, among others, the risks normally associated with changes in the general economic climate in the communities in which the Company operates, trends in the real estate industry, availability of land for development, changes in tax laws, interest rate levels, availability of financing, and potential liability under environmental and other laws.
The Company’s credit risk relates primarily to cash, cash equivalents and restricted cash and certificates of deposit. Cash accounts at each institution are currently insured by the Federal Deposit Insurance Corporation up to $250,000 in the aggregate. At various times during the years ended
December 31, 2017
and
2016
, the Company maintained cash account balances in excess of insured amounts. The Company has not experienced any credit losses to date on its cash, cash equivalents, restricted cash and certificates of deposit, and marketable securities—held to maturity. The Company’s risk management policies define parameters of acceptable market risk and strive to limit exposure to credit risk.
Acquisitions
—The Company accounts for businesses it acquires in accordance with Accounting Standards Codification (“ASC”) Topic 805,
Business Combinations
. This methodology requires that assets acquired and liabilities assumed be recorded at their respective fair values on the date of acquisition. Accordingly, the Company recognizes assets acquired and liabilities assumed in business combinations, including contingent assets and liabilities and non-controlling interest in the acquiree, based on the fair value estimates as of the date of acquisition. Any excess of the purchase consideration over the net fair value of tangible and identified intangible assets acquired less liabilities assumed is recorded as goodwill. The costs of business acquisitions are expensed as incurred. These costs may include fees for accounting, legal, professional consulting and valuation specialists. Purchase price allocations may be preliminary and, during the measurement period, not to exceed one year from the date of acquisition, changes in assumptions and estimates that result in adjustments to the fair value of assets acquired and liabilities assumed are recorded in the period the adjustments are determined.
Contingent consideration assumed in a business combination is remeasured at fair value each reporting period and any change in the fair value from either the passage of time or events occurring after the acquisition date, is recorded in results from operations.
The estimated fair value of acquired assets and assumed liabilities requires significant judgments by management and are determined primarily by a discounted cash flow model. The determination of fair value using a discounted cash flow approach also requires discounting the estimated cash flows at a rate that the Company
believes a market participant would determine to be commensurate with the inherent risks associated with the asset and related estimated cash flow streams.
For acquisitions accounted for as an asset acquisition, the fair value of consideration transferred by the Company (including transaction costs) is allocated to all assets acquired and liabilities assumed on a relative fair value basis.
Noncontrolling interests
—The Company presents noncontrolling interests and classifies such interests within capital, but separate from the Company’s Class A and Class B members’ capital when the criteria for permanent equity classification has been met. Noncontrolling interests in the Company represent interests held owners, excluding the Operating Company, of consolidated subsidiaries of the Operating Company, and investors in the Operating Company excluding the Holding Company. Net income or loss of the Operating Company is allocated to noncontrolling interests based on substantive profit sharing arrangements within the operating agreements, or if it is determined that a substantive profit sharing arrangement does not exist, allocation is based on relative ownership percentage of the Operating Company and the noncontrolling interests.
Revenue recognition
—Revenues from land sales are recognized when a significant down payment is received, the earnings process is complete, title passes, and the collectability of any receivables is reasonably assured. When the Company has an obligation to complete development on sold property, it utilizes the percentage-of-completion method of accounting to record revenues and earnings. Under percentage-of-completion accounting, revenues and earnings are recognized based upon the ratio of development cost completed to the estimated total cost of the property sold, provided that required sales recognition criteria have been met. Estimated total costs include direct costs to complete development on the sold property in addition to indirect costs and certain cost reimbursement for infrastructure and amenities that benefit the entire project. Significant assumptions used to estimate total costs include engineering and construction estimates for such inputs as unit quantities, unit costs, labor costs, and development timelines. Currently, reimbursements received by the Company are predominantly funded from Community Facilities District (“CFD”) bond issuances, however other sources of reimbursements such as state and federal grants and tax increment financing are expected to offset development costs of the Company’s projects. The estimate of proceeds available from reimbursement sources are impacted by home sale absorption and pricing within the CFD and project area, assessed property tax values and market demand for financial instruments such as bonds issued by CFDs. Changes in estimated total cost of the property sold will impact the amount of revenue and profit recognized under percentage-of-completion accounting in the period in which they are determined and future periods. Estimated losses, if any, on sold property are recognized in the period in which such losses are determined.
Residential homesite sale agreements can contain a provision, whereby the Company would receive from builders a portion of the overall profitability of the homebuilding project after the builder has received an agreed-upon return (“profit participation”). If project profitability falls short of the participation thresholds, the Company would receive no additional revenues and has no financial obligation to the builder. Revenues from profit participation are recognized when sufficient evidence exists that the homebuilding project has met the participation thresholds and the Company has collected the profit participation or is reasonably assured of collection. The Company defers revenue on amounts collected in advance of meeting the recognition criteria. Profit participation agreements are evaluated each period to determine the portion earned and any such amounts are included in land sales in the consolidated statements of operations.
The Company records management services revenues over the period in which the services are performed, fees are determinable, and collectability is reasonably assured. The Company records revenues from annual fees ratably over the contract period using the straight-line method. In some of its development management agreements, the Company receives additional compensation equal to the actual general and administrative costs incurred by the Company’s project team. In these circumstances, the Company acts as the principal and records management fee revenues on these reimbursements in the same period that these costs are incurred. Lastly, the Company’s management agreements may contain incentive compensation fee provisions contingent on the performance of its client. The Company recognizes such revenue in the period in which the contingency is resolved and only to the extent other recognition conditions have been met.
Included in operating properties revenues in the consolidated statements of operations are revenues from the Company’s agriculture and energy operations and its golf club operation, Tournament Players Club at Valencia Golf Course.
Impairment of assets
—Long-lived assets are reviewed for impairment when events or changes in circumstances indicate that their carrying value may not be recoverable. Impairment indicators for long-lived inventory assets include, but are not limited to, significant increases in land development costs, significant decreases in the pace and pricing of home sales within the Company’s communities and surrounding areas and political and societal events that may negatively affect the local economy. For operating properties, impairment indicators may include significant increases in operating costs, decreased utilization, and continued net operating losses. If indicators of impairment exist, and the undiscounted cash flows expected to be generated by a long-lived asset are less than its carrying amount, an impairment charge is recorded to write down the carrying amount of such long-lived asset to its estimated fair value. If impairment indicators exist and it is expected that undiscounted cash flows generated by the asset are less than its carrying amount, an impairment provision is recorded to write-down the carrying amount of the asset to its fair value. The Company generally estimates the fair value of its long-lived assets using a discounted cash flow model or sales comparison approach of the underlying property or a combination thereof.
The Company’s projected cash flows for each long-lived inventory asset are significantly affected by estimates and assumptions related to market supply and demand, the local economy, projected pace of sales of homesites, pricing and price appreciation over the estimated selling period, the length of the estimated development and selling periods, remaining development costs, and other factors. For operating properties, the Company’s projected cash flows also include estimates and assumptions about the use and eventual disposition of such properties, including utilization, capital expenditures, operating expenses, and the amount of proceeds to be realized upon eventual disposition of such properties.
In determining these estimates and assumptions, the Company utilizes historical trends from past development projects of the Company in addition to internal and external market studies and trends, which generally include, but are not limited to, statistics on population demographics and unemployment rates.
Using all available information, the Company calculates its best estimate of projected cash flows for each asset. While many of the estimates are calculated based on historical and projected trends, all estimates are subjective and change as market and economic conditions change. The determination of fair value also requires discounting the estimated cash flows at a rate the Company believes a market participant would determine to be commensurate with the inherent risks associated with the asset and related estimated cash flow streams. The discount rate used in determining each asset’s fair value generally depends on the asset’s projected life and development stage.
Share-based payments
—On May 2, 2016, the Company adopted the Five Point Holdings, LLC 2016 Incentive Award Plan (the “Incentive Award Plan”), under which the Company may grant equity incentive awards to employees, consultants and non-employee directors. Share-based payments are recognized over the service period in the statement of operations based on their measurement date fair values. Forfeitures, if any, are accounted for in the period when they occur.
Cash and cash equivalents
—Included in cash and cash equivalents are short-term investments that have original maturity dates of three months or less. The carrying amount approximates fair value due to the short-term nature of these investments.
Restricted cash and certificates of deposit
—Restricted cash and certificates of deposit consist of cash, cash equivalents, and certificates of deposit held as collateral on open letters of credit related to development obligations or because of other legal obligations of the Company that require the restriction.
Marketable securities
—The Company’s investments in marketable securities are comprised of debt securities. The Company purchases each investment with the intent and ability to hold the investment until maturity. Investments are carried at amortized cost. Amortization and accretion of premiums and discounts are included in selling, general, and administrative costs and expenses in the accompanying consolidated statements of operations. The Company evaluates securities in unrealized loss positions for evidence of other-than-temporary impairment, considering, among other things, duration, severity, and financial condition of the issuer. No other-than-temporary impairments were identified during either the
year ended
December 31, 2017
,
2016
or
2015
.
Properties and equipment
—Properties and equipment primarily relate to the Company’s operating properties’ businesses, are recorded at cost. Properties and equipment, other than land, are depreciated over their
estimated useful lives using the straight-line method. At the time properties and equipment are disposed of, the asset and related accumulated depreciation, if any, are removed from the accounts, and any resulting gain or loss is credited or charged to earnings. The estimated useful life for land improvements and buildings is 10 to 40 years while the estimated useful life for furniture, fixtures, and equipment is two to 15 years.
Held for sale classification
—Assets to be disposed of together as a group in a single transaction and liabilities directly associated with those assets that will be transferred in the transaction are classified as held for sale on the Company’s consolidated balance sheet. Management evaluates certain criteria when determining held for sale classification including management’s authority to approve a disposal, management’s commitment to a plan to sell the disposal group, and the probability of completing the sale within one year. When initially classified as held for sale, assets and liabilities of assets held for sale are measured at the lower of carrying value or fair value less costs to sell. Included in the consolidated balance sheet at December 31, 2017 are assets and liabilities related to The Tournament Players Club at Valencia Golf Course that have been classified as held for sale. Assets held for sale of
$4.5 million
are comprised of property and equipment of
$3.7 million
, net of accumulated depreciation of
$1.9 million
, and other assets of
$0.8 million
. Liabilities of assets held for sale of
$5.4 million
consists of club membership liabilities totaling
$5.3 million
and other liabilities of
$0.1 million
. In January 2018, The Tournament Players Club at Valencia Golf Course was sold for cash proceeds of
$5.9 million
, and the buyer’s assumption of certain liabilities, including certain membership related liabilities. Results of operations of The Tournament Players Club at Valencia Golf Course are included in the Company’s Newhall segment. The property was operated by the Company as an amenity to the Company’s fully developed Valencia community.
Investments in unconsolidated entities
—For investments in entities that the Company does not control, but exercises significant influence, the Company uses the equity method of accounting. The Company’s judgment with regard to its level of influence or control of an entity involves consideration of various factors including the form of its ownership interest, its representation in the entity’s governance, its ability to participate in policy-making decisions, and the rights of other investors to participate in the decision-making process to replace the Company as manager or to liquidate the entity. Investments accounted for under the equity method of accounting are recorded at cost and adjusted for the Company’s share in the earnings (losses) of the venture and cash contributions and distributions. Any difference between the carrying amount of the equity method investment on the Company’s balance sheet and the underlying equity in net assets on the entity’s balance sheet results in a basis difference which is adjusted as the related underlying assets are depreciated, amortized, or sold and the liabilities are settled. The Company generally allocates income and loss from unconsolidated entities based on the venture’s distribution priorities, which may be different from its stated ownership percentage.
The Company evaluates the recoverability of its investment in unconsolidated entities by first reviewing each investment for any indicators of impairment. If indicators are present, the Company estimates the fair value of the investment. If the carrying value of the investment is greater than the estimated fair value, management makes an assessment of whether the impairment is “temporary” or “other-than-temporary.” In making this assessment, management considers the following: (1) the length of time and the extent to which fair value has been less than cost, (2) the financial condition and near-term prospects of the entity, and (3) the Company’s intent and ability to retain its interest long enough for a recovery in market value. If management concludes that the impairment is “other-than-temporary,” the Company reduces the investment to its estimated fair value. No other-than-temporary impairments were identified during either the
year ended
December 31, 2017
,
2016
or
2015
.
Inventories
—Inventories primarily include land held for development and sale. Inventories are stated at cost, less reimbursements, unless the inventory within a community is determined to be impaired, in which case the impaired inventory would be written down to fair market value. Capitalized direct and indirect inventory costs include land, land in which the Company has the rights to receive in accordance with a disposition and development agreement (see Note 3), land development costs, real estate taxes, and interest related to financing development and construction. During the years ended
December 31, 2017
,
2016
and
2015
, the Company incurred interest expense, including amortization of debt issuance costs, all of which was capitalized into inventories, of
$9.4 million
,
$3.5 million
and
$1.0 million
, respectively. Land development costs can be further broken down to costs incurred to entitle and permit the land for its intended use; costs incurred for infrastructure projects, such as schools, utilities, roads, and bridges; and site costs, such as grading and amenities, to bring the land to a saleable state. General and administrative costs related to project litigation are charged to expense when incurred. Costs that cannot be clearly associated with the acquisition, development, and construction of a real estate project and selling expenses are
expensed as incurred. The Company expenses advertising costs as incurred, which were
$4.3 million
and
$3.5 million
during the years ended
December 31, 2017
and
2016
, respectively. During the year ended
December 31, 2015
advertising costs were not significant. Certain public infrastructure project costs incurred by the Company are eligible for reimbursement, typically, from the proceeds of CFD bond debt, state and federal grants or property tax assessments.
A portion of capitalized inventory costs is allocated to individual parcels within a project using the relative sales value method. Under the relative sales value method, each parcel in the project under development is allocated costs in proportion to the estimated overall sales prices of the project such that each parcel to be sold reflects the same gross profit margin. Since this method requires the Company to estimate the expected sales price for the entire project, 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.
Intangible Asset
—In connection with the Company’s acquisition of the Management Company (see Note 3), the Company acquired an intangible asset related to the contract value of the incentive compensation provisions of the Management Company’s development management agreement with the Great Park Venture. The Company records amortization expense over the contract period based on the pattern in which the Company expects to recognize the economic benefits from the incentive compensation.
Receivables
—The Company evaluates the carrying value of receivables, which includes receivables from related parties, at each reporting date to determine the need for an allowance for doubtful accounts. As of both
December 31, 2017
and
2016
, the allowance for doubtful accounts was not significant.
Fair value measurements
—The Company follows guidance for fair value measurements and disclosures that emphasizes that fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, the guidance establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity and the reporting entity’s own assumptions about market participant assumptions.
Level 1
—Quoted prices for identical instruments in active markets
Level 2
—Quoted prices for similar instruments in active markets or inputs, other than quoted prices, that are observable for the instrument either directly or indirectly
Level 3
—Significant inputs to the valuation model are unobservable
In instances where the determination of the fair value measurements is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.
The carrying amount of the Company’s financial instruments, which included cash and cash equivalents, restricted cash and certificates of deposit, marketable securities, related party assets, accounts payable and other liabilities, and certain related party liabilities approximated the Company’s estimates of fair value at both
December 31, 2017
and
2016
. The fair value of the Company’s notes payable (see Note 11) and related party EB-5 reimbursement obligation (see Note 10), are estimated using level 2 inputs, by discounting the expected cash flows based on rates available to the Company as of the measurement date or using third-party market quotes derived from orderly trades. At
December 31, 2017
, the Company’s notes payable carrying value of
$560.6 million
(see Note 11) was less than the Company’s estimated fair value of
$568.1 million
. At
December 31, 2016
, the estimated fair value of notes payable approximated the Company’s carrying value of
$69.4 million
. The carrying amounts of the Company’s other financial instruments approximates the estimated fair value due to their short-term nature.
Other than contingent consideration (see Note 3 and Note 10), the Company had no other assets or liabilities that are required to be remeasured at fair value on a recurring basis at both
December 31, 2017
and
2016
.
Offering Costs
—Costs incurred by the Company, totaling
$2.9 million
, that were directly attributable to the IPO were deferred and charged against the gross proceeds of the offering as a reduction of members’ contributed capital. The Company had
$1.0 million
in deferred equity offering costs at
December 31, 2016
included in other assets on the accompanying consolidated balance sheet.
Income taxes
—The Company accounts for income taxes in accordance with ASC Topic 740,
Income Taxes
(“ASC 740”), which requires an asset and liability approach for measuring deferred taxes based on temporary differences between the financial statements and tax bases of assets and liabilities existing at each balance sheet date using enacted tax rates for the years in which taxes are expected to be paid or recovered.
The Holding Company has elected to be treated as a corporation for U.S. federal, state, and local tax purposes and determines the provision or benefit for income taxes on an interim basis using an estimate of its annual effective tax rate and the impact of specific events as they occur.
The Company’s estimate of the Holding Company’s annual effective tax rate is subject to change based on changes in federal and state tax laws and regulations, the Holding Company’s ownership interest in the Operating Company and the Operating Company’s ownership in the San Francisco Venture, and the Company’s assessment of its deferred tax asset valuation allowance. Cumulative adjustments are made in interim periods in which the Company identifies a change in its estimate of the amount of future tax benefit when it is more likely than not that some portion of the deferred tax assets will not be realized. Among other things, the nature, frequency and severity of prior cumulative losses, forecasts of future taxable income, the duration of statutory carryforward periods, the Company’s utilization experience with operating loss and tax credit carryforwards and tax planning alternatives are considered and evaluated when assessing the need for a valuation allowance. Any increase or decrease in a valuation allowance could have a material adverse effect or beneficial effect on the Holding Company’s income tax provision and net income or loss in the period the determination is made. The Holding Company recognizes interest or penalties related to income tax matters in income tax expense.
Recently issued accounting pronouncements
—In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09,
Revenue from Contracts with Customers (Topic 606)
, which supersedes most existing revenue recognition guidance, including industry-specific revenue recognition guidance. In August 2015, the FASB issued ASU No. 2015-14,
Revenue from Contracts with Customers
, which deferred the effective date of ASU No. 2014-09 by one year to interim and annual reporting periods beginning after December 15, 2017 for public entities. Further, the application of ASU No. 2014-09 permits the use of either the full retrospective approach or a modified retrospective approach that recognizes the cumulative effect of applying the new guidance at the date of application.
The Company has elected to adopt ASU No. 2014-09 on January 1, 2018 using the modified retrospective transition approach with the cumulative effect recorded as an adjustment to retained earnings. The new standard requires revenue to be recognized when promised goods or services are transferred to customers in amounts that reflect the consideration to which the Company expects to be entitled in exchange for those goods or services. Some of the Company’s land sale contracts include contingent amounts of variable consideration in the form of revenue or profit participation and marketing fees received from the homebuilders, which have historically been recognized as revenue in the period in which the contingency has been resolved. Under the new guidance the Company will be required to recognize at the time of the land sale, and update each reporting period, an estimate of the amount of such variable consideration that the Company expects to be entitled to receive from the homebuilder. Revenue recognition under the new standard for real estate sales is largely based on the transfer of control, which will result in the Company applying more judgment in both identifying performance obligations to the customer and in determining the timing of recognizing revenue. The Company also has various development management service contracts, one of which contains variable consideration in the form of incentive compensation. Under this contract, the Company has the right to receive certain defined incentive compensation upon the achievement of certain milestones and financial results. Due to the contingent nature of the timing and the ultimate amount of incentive compensation to be received, the Company has historically recognized such revenue in the period in which the contingencies are resolved. Under the new guidance, the Company is required to include its estimate of the amount of variable consideration that the Company expects to be entitled to receive in revenue amounts that are recognized over time as management services are provided. Based on the Company’s analysis, an estimated
$20 million
to
$25 million
will be recorded to increase retained earnings as a cumulative adjustment as a result of accelerated revenue
recognition from land sale and service contracts. The Company will also be required to provide more robust disclosure on the nature of the Company’s transactions, the economic substance of the arrangements and the judgments involved.
In February 2016, the FASB issued ASU No. 2016-02,
Leases (Topic 842)
. This ASU requires that lessees recognize assets and liabilities for leases with lease terms greater than twelve months in the balance sheet and also requires improved disclosures to help users of financial statements better understand the amount, timing and uncertainty of cash flows arising from leases. This update is effective for public entities in fiscal years beginning after December 15, 2018, including interim reporting periods within those fiscal years. In January 2018, the FASB issued a proposed amendment to ASU 2016-02 that would allow lessors to elect, as a practical expedient, not to separate lease and nonlease components (such as services rendered) in a contract for the purpose of revenue recognition and disclosure. The practical expedient as proposed can only be applied to leasing arrangements for which (i) the timing and pattern of revenue recognition are the same for the lease and nonlease components and (ii) the combined single lease component results in classification as an operating lease. The proposed amendment also would provide for an additional (and optional) transition method to adopt the new lease requirements by allowing entities to initially apply the requirements by recognizing a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. For leases in which the Company is the lessee, the Company will recognize a right-of-use asset and a lease liability equal to the present value of the minimum lease payments. The Company is still evaluating the full impact of the adoption of ASU 2016-02 on January 1, 2019 to its consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13,
Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments
which amends the guidance on the impairment of financial instruments, including most debt instruments, trade receivables and loans. ASU No. 2016-13 adds to U.S. GAAP an impairment model known as the current expected credit loss model that is based on expected losses rather than incurred losses. Under the new guidance, an entity recognizes as an allowance its estimate of expected credit losses for instruments measured at amortized cost, resulting in a net presentation of the amount expected to be collected on the financial asset. ASU No. 2016-13 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company is currently evaluating the impact of adopting ASU No. 2016-13 on its consolidated financial statements.
In August 2016, the FASB issued ASU No. 2016-15,
Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force)
which amends the guidance in ASC 230 on the classification of certain cash receipts and payments in the statement of cash flows. The primary purpose of ASU No. 2016-15 is to reduce the diversity in practice that has resulted from the lack of consistent principles on this topic. The amendments add or clarify guidance on eight cash flow issues:
• Debt prepayment or debt extinguishment costs;
• Settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing;
• Contingent consideration payments made after a business combination;
• Proceeds from the settlement of insurance claims;
• Proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies;
• Distributions received from equity method investees;
• Beneficial interests in securitization transactions; and
• Separately identifiable cash flows and application of the predominance principle.
For public entities, the guidance in ASU No. 2016-15 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company does not expect the adoption of this guidance on January 1, 2018 to have a material impact on the Company’s consolidated financial statements.
In November 2016, the FASB issued ASU No. 2016-18,
Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the Emerging Issues Task Force)
which requires entities to show the changes in the total of cash, cash equivalents, restricted cash and restricted cash equivalents in the statement of cash flow. The effective date of the standard is for fiscal years, and interim periods within those years, beginning after December 15, 2017 and should be retrospectively adopted. Early adoption is permitted. The Company adopted this guidance on January 1, 2018. After adoption, the Company’s beginning-of-period and end-of-period total amounts shown on the statement of cash flows will include restricted cash and restricted cash equivalents.
In March 2017, the FASB issued ASU No. 2017-07,
Compensation—Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost
which amends the guidance for the income statement presentation of the components of net periodic benefit cost for an entity’s sponsored defined benefit pension and other postretirement plans. ASU No. 2017-07 requires entities to report non-service-cost components of net periodic benefit cost outside of income from operations. The amendments are effective for interim and annual periods beginning after December 15, 2017. The adoption of ASU No. 2017-07 is not expected to materially impact the presentation of the Company’s consolidated statement of operations.
In May 2017, the FASB issued ASU No. 2017-09,
Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting
. ASU No. 2017-09 provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. ASU No. 2017-09 is effective for annual periods beginning after December 15, 2017 and interim periods within those years. The amendments of ASU No. 2017-09 are to be applied prospectively to an award modified on or after the adoption date, consequently the impact will be dependent on whether the Company modifies any of its share-based payment awards and the nature of such modifications.
Recently adopted accounting pronouncements
—In January 2017, the FASB issued ASU No. 2017-01,
Business Combinations (Topic 805), Clarifying the Definition of a Business
. ASU No. 2017-01 clarifies the definition of a business with the objective of addressing whether transactions should be accounted for as acquisitions of assets or of businesses. The Company early adopted ASU No. 2017-01 on July 1, 2017, and the standard will be applied to future transactions prospectively. Therefore, its impact will be dependent upon such transactions whereby the new definition of a business will be applied. Transaction costs for asset acquisitions will be capitalized while for business acquisitions such costs will be expensed.
3.
ACQUISITIONS
On May 2, 2016, the Company completed the Formation Transactions pursuant to the Contribution and Sale Agreement (see Note 1), in which the Company acquired a controlling financial interest in the San Francisco Venture and the Management Company. The acquisitions and the Company’s concurrent investment in the Great Park Venture (see Note 4) transformed the Company into an owner, manager and developer of real estate at three locations. In accordance with ASC 805, the Company has recorded the acquired assets (including identifiable intangible assets) and liabilities at their respective fair values as of the date of the Contribution and Sale Agreement.
The Company was a party to a cost sharing agreement related to the transactions that were consummated through the Contribution and Sale Agreement in which financial advisory, legal, accounting, tax and other consulting services were shared between the Company, the San Francisco Venture, the Great Park Venture and the Management Company. The Management Company acted as the administrative agent for all the parties. Transaction costs of
$1.8 million
and
$0.9 million
were incurred directly by the Company or allocated to the Company under the cost sharing agreement during the
year ended
December 31, 2016
and
2015
, respectively, and is included in selling, general, and administrative expense in the accompanying consolidated statements of operations.
The San Francisco Venture
On May 2, 2016, immediately prior to completion of the Formation Transactions, the San Francisco Venture completed a separation transaction (the “Separation Transaction”) pursuant to an Amended and Restated Separation and Distribution Agreement (“Separation Agreement”) in which the equity interests in a subsidiary of the San Francisco Venture known as CPHP Development, LLC (“CPHP”) were distributed directly to the members of the San Francisco
Venture: (i) an affiliate of Lennar and (ii) an affiliate of Castlelake, LP (“Castlelake”). The principal terms of the Separation Agreement included the following:
• CPHP was transferred certain acres of land where homes were being built, as well as all responsibility for current and future residential construction on the land;
• Once a final subdivision map is recorded, title to a parking structure parcel at Candlestick Point (“CP Parking Parcel”) will be conveyed to CPHP and CPHP will assume the obligation to construct the parking structure and certain other improvements at Candlestick Point;
• CPHP was transferred the membership interest in Candlestick Retail Member, LLC, (“Mall Venture Member”), the entity that has entered into a joint venture (“Mall Venture”) with CAM Candlestick LLC (the “Macerich Member”) to build a fashion outlet retail shopping center (“Retail Project”) above and adjacent to the parking structure that CPHP is to construct on the CP Parking Parcel;
• Once a final subdivision map is recorded, the San Francisco Venture will convey to the Mall Venture the property on which the Retail Project will be built (the “Retail Project Property”); and
• CPHP assumed all of the vertical construction loans and EB-5 loan liabilities of the San Francisco Venture, subject to a reimbursement agreement for the portion of the EB-5 loans that were used to fund development of the portion of The San Francisco Shipyard and Candlestick Point that was not transferred to CPHP.
Concurrent with and pursuant to the terms and conditions of the Contribution and Sale Agreement, the limited liability company agreement of the San Francisco Venture was amended and restated to reflect among other things (1) the conversion of the existing members’ interest into Class A units of the San Francisco Venture that are redeemable, at the holder’s option, subject to certain conditions, for Class A Common Units of the Operating Company, (2) the creation of Class B units of the San Francisco Venture and (3) the appointment of the Operating Company as the manager of the San Francisco Venture. In exchange for
378,578
of its Class A Common Units, the Operating Company acquired
378,578
Class A units of the San Francisco Venture that automatically converted into an equal number of Class B units of the San Francisco Venture. As the holder of all the outstanding Class B units of the San Francisco Venture, the Operating Company owns interests that entitle it to receive
99%
of all distributions from the San Francisco Venture after the holders of Class A units of the San Francisco Venture have received distributions equivalent to the distributions, if any, paid on the Class A Common Units of the Operating Company. The Company has a controlling financial interest and consolidates the accounts of the San Francisco Venture and reports noncontrolling interest attributed to the outstanding Class A units of the San Francisco Venture.
The equity issued for the San Francisco Venture consisted of the following (in thousands, except unit and per unit amounts):
|
|
|
|
|
Class A Common Units in the Operating Company
|
378,578
|
|
Class A units at the San Francisco Venture exchangeable for Class A Common Units in the Operating Company
|
37,479,205
|
|
Total units issued/issuable in consideration
|
37,857,783
|
|
Estimated fair value per Class A Common Unit of the Operating Company
|
$
|
23.61
|
|
Total equity consideration
|
$
|
893,856
|
|
Add: contingent consideration
|
64,870
|
|
Less: capital commitment from seller
|
(120,000
|
)
|
Total consideration issued for the San Francisco Venture
|
$
|
838,726
|
|
The estimated fair value per Class A Common Unit of the Operating Company was determined using a discounted cash flow method projected for the Operating Company to determine a per unit enterprise value as of the acquisition date. As the Class A units of the San Francisco Venture are exchangeable on a
one
-for-one basis for Class A Common Units of the Operating Company, it was determined that the unit value of a Class A unit of the San Francisco Venture is substantially equal to the unit value of a Class A Common Unit of the Operating Company. The fair value of the noncontrolling interest represented by the Class A units of the San Francisco Venture held by affiliates of Lennar and Castlelake is calculated as the product of the unit value of the Class A units of the San Francisco Venture and the number of Class A units of the San Francisco Venture outstanding and redeemable for Class A Common Units of the Operating Company.
Contingent consideration consists of the San Francisco Venture’s obligation (through a subsidiary) to convey the Retail Project Property to the Mall Venture and the CP Parking Parcel to CPHP. The Retail Project Property is to be
conveyed pursuant to a development and acquisition agreement, dated November 13, 2014, between the Mall Venture and the San Francisco Venture’s subsidiary (the “Mall DAA”). The former owners of the San Francisco Venture retained the rights to
49.9%
of the equity ownership in the Mall Venture through the Separation Agreement; therefore, the conveyance of the Retail Project Property to the Mall Venture represents additional consideration to the former owners, contingent upon the San Francisco Venture obtaining the appropriate governmental approvals required to subdivide and convey the Retail Project Property.
In connection with the Separation Transaction, the former owners agreed to make an aggregate capital commitment to the San Francisco Venture of
$120 million
, payable to the San Francisco Venture in
four
equal installments, with the first installment paid on May 2, 2016 and the second, third and fourth installments payable within
90
,
180
and
270
days thereafter. The second and third installments were paid and received by the San Francisco Venture on August 5, 2016 and November 3, 2016, respectively, and the fourth installment was received on February 2, 2017. The
$120 million
capital commitment from the selling members was determined to be an adjustment to purchase consideration since the amount is a cash inflow to the Company from the former owners of the San Francisco Venture in relation to the acquisition, thereby reducing the fair value of the consideration.
The estimated fair value of the assets acquired and liabilities assumed, as well as the fair value of the noncontrolling interest in the San Francisco Venture as of the acquisition date, is as follows (in thousands):
|
|
|
|
|
Assets acquired:
|
|
Inventories
|
$
|
1,038,154
|
|
Other assets
|
827
|
|
Liabilities assumed:
|
|
Macerich Note
|
(65,130
|
)
|
Accounts payable
|
(17,715
|
)
|
Related party liabilities
|
(117,410
|
)
|
Net assets acquired
|
$
|
838,726
|
|
Adjustment to equity consideration, net (see table above)
|
55,130
|
|
|
$
|
893,856
|
|
Noncontrolling interest in the San Francisco Venture
|
$
|
884,917
|
|
Inventories consist of land held for development and the right to receive land from the Office of Community Investment and Infrastructure, the Successor to the Redevelopment Agency of the City and County of San Francisco (the “San Francisco Agency”) in accordance with a disposition and development agreement between the San Francisco Venture’s subsidiary and the San Francisco Agency.
Accounts payable consists of payables related to normal business operations. Related party liabilities consist of (i)
$102.7 million
in EB-5 loan reimbursements to CPHP or its subsidiaries, pursuant to reimbursement agreements that the San Francisco Venture entered into as of May 2, 2016 to reimburse CPHP or its subsidiaries for the proceeds of the EB-5 loans that were used to fund development of the portion of The San Francisco Shipyard and Candlestick Point that were not transferred to CPHP; and (ii)
$14.6 million
closing cash adjustment payable to CPHP (see Note 10). The Macerich Note is a
$65.1 million
loan from an affiliate of the Macerich Member (see Note 11).
Management Company
The Management Company was formed in 2009 as a joint venture between Emile Haddad and an affiliate of Lennar. Since being formed, the Management Company has been engaged by the Company as an independent contractor to supervise the day-to-day affairs of the Company and the assets of its subsidiaries. The Company awarded the Management Company a
2.48%
ownership interest in the Company’s subsidiary FPL in connection with its engagement as development manager as well as a seat on the Company’s Board of Managers prior to the Formation Transactions. The Management Company has also acted as development manager for the Great Park Venture, under the terms of the development management agreement. Prior to the Formation Transactions, the Management Company also held an ownership interest in the Great Park Venture through an investment in a joint venture with an affiliate of Castlelake (“FPC-HF Venture I”). In 2014, the Management Company sold the rights to
12.5%
of all incentive compensation under the development management agreement to FPC-HF Venture I in exchange for its ownership interest in FPC-HF Venture I. Concurrent with and pursuant to the terms and conditions of the Contribution and Sale Agreement, the Management Company amended and restated its limited partnership agreement. Among other things, the principal organizational changes that occurred were as follows:
• Distribution of the Management Company’s ownership interest in FPC-HF Venture I (see Note 4), to its selling shareholders, Emile Haddad and an affiliate of Lennar;
• The partnership interests were converted into
two
classes of partnership interests, designated as Class A interests and Class B interests. Holders of the Management Company’s Class B interests are entitled to receive distributions from the Management Company equal to the amount of any incentive compensation payments the Management Company receives under the A&R DMA characterized as “Legacy Incentive Compensation.” Holders of Class A interests are entitled to all other distributions; and
• Admission of FPC-HF Venture I as a
12.5%
holder of the Management Company’s Class B interests in exchange for FPC-HF Venture I’s contribution of its right to
12.5%
of the Legacy Incentive Compensation, as defined and discussed in Note 10.
By acquiring all of the stock of Five Point Communities Management, Inc. and all of the Class A interests of Five Point Communities, LP, the Company obtained a controlling financial interest in the Management Company and is able to direct all business decisions of the Management Company.
The equity issued for the Management Company, consisted of the following (in thousands, except unit/share and per unit amounts):
|
|
|
|
|
Class A common shares of the Company
|
798,161
|
|
Class A Common Units of the Operating Company
|
6,549,629
|
|
Total units/shares issued in consideration
|
7,347,790
|
|
Estimated fair value per Class A Common Unit of the Operating Company and Class A common share of the Company
|
$
|
23.61
|
|
Total equity consideration
|
$
|
173,488
|
|
Add: available cash distribution
|
450
|
|
Total consideration issued for the Management Company
|
$
|
173,938
|
|
A Class A common share of the Company and a Class A Common Unit of the Operating Company issued as consideration were each valued at
$23.61
.
The estimated total purchase price was allocated to Management Company’s assets and liabilities based upon fair values as determined by the Company, as follows (in thousands):
|
|
|
|
|
Assets acquired:
|
|
Investment in FPL
|
$
|
70,000
|
|
Intangible asset
|
129,705
|
|
Cash
|
3,664
|
|
Legacy Incentive Compensation receivable from related party
|
56,232
|
|
Related party receivables
|
5,282
|
|
Prepaid expenses and other current assets
|
328
|
|
Liabilities assumed:
|
|
Other liabilities
|
(2,397
|
)
|
Related party liabilities
|
(81,996
|
)
|
Accrued employee benefits
|
(6,880
|
)
|
Net assets acquired
|
$
|
173,938
|
|
The intangible asset is a contract asset resulting from the incentive compensation provisions of the A&R DMA. The A&R DMA has an original term commencing on December 29, 2010 and ending on December 31, 2021, with options to renew for three additional years and then two additional years. The intangible asset will be amortized over the contract period based on the pattern in which the economic benefits are expected to be received. The investment in FPL, which was stepped up to fair value, will eliminate in consolidation as FPL is a consolidated subsidiary of the Company. Related party liabilities are comprised of the Class B distribution rights held by Emile Haddad, an affiliate of Lennar and FPC-HF Venture I. The Class B interests were determined to not be a substantive form of equity because the interests only entitle the holders to the Legacy Incentive Compensation payments, and does not expose the holders to the net assets or residual interest of Management Company. Class B distributions will be made when the Management Company receives Legacy Incentive Compensation payments under the A&R DMA. As of
December 31, 2017
, the Management Company had
received
$58.3 million
of the Legacy Incentive Compensation and made distributions in the same amount to the holders of Class B interests. Related party liabilities also includes an obligation to the Operating Company for
$14.1 million
representing
12.5%
of the Non-Legacy Incentive Compensation under the A&R DMA that the Management Company previously sold to FPC-HF Venture I and that the Operating Company acquired from FPC-HF Venture I in connection with the Contribution and Sale Agreement (see Note 10). This obligation and the Operating Company’s acquired asset are eliminated in the accompanying consolidated balance sheet as of
December 31, 2017
.
The Company recorded revenue and losses related to the acquisition of the Management Company and the San Francisco Venture for the
year ended
December 31, 2017
and
2016
as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
Revenue
|
$
|
107,864
|
|
|
$
|
15,223
|
|
Loss
|
$
|
(12,945
|
)
|
|
$
|
(11,992
|
)
|
Unaudited Pro Forma Information
The pro forma financial information presents combined results of operations for the
year ended
December 31, 2016
and
2015
, as if the Management Company and the San Francisco Venture had been acquired as of the beginning of fiscal year 2015. Nonrecurring pro forma adjustments directly attributable to the business combination include (i) share based compensation of
$20.5 million
, (ii) bonus expense of
$12.0 million
, and (iii) transaction costs of
$3.3 million
of which
$1.8 million
is recorded in the historical statement of operations. These costs were excluded from the pro forma earnings for the year ended
December 31, 2016
, and instead recognized in the pro forma earnings for the year ended
December 31, 2015
. The unaudited pro forma data presented below is for informational purposes only and is not necessarily indicative of the consolidated results of operations of the combined business had the acquisition actually occurred at the beginning of fiscal year 2015 or of the results of future operations of the combined business. The pro forma revenue and net loss for the
year ended
December 31, 2016
and
2015
is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
Pro forma revenues
|
$
|
45,893
|
|
|
$
|
56,369
|
|
Pro forma net loss
|
$
|
(69,103
|
)
|
|
$
|
(62,944
|
)
|
4.
INVESTMENT IN UNCONSOLIDATED ENTITIES
Great Park Venture
On May 2, 2016, concurrent with and pursuant to the terms and conditions of the Contribution and Sale Agreement, the Great Park Venture amended and restated its limited liability company agreement, which split the previous interests in Great Park Venture into two classes of interests—“Percentage Interests” and “Legacy Interests.” The pre-Formation Transaction owners of Great Park Venture retained the Legacy Interests, which entitle them to receive priority distributions in an aggregate amount equal to
$476 million
and up to an additional
$89 million
from subsequent distributions of cash depending on the performance of the Great Park Venture. In November 2017, the Great Park Venture made the first distribution to the holders of Legacy Interests in the aggregate amount of
$120 million
. The holders of the Percentage Interests will receive all other distributions. Pursuant to the Contribution and Sale Agreement, the Operating Company acquired
37.5%
of the Percentage Interests in exchange for issuing
17,749,756
Class A Common Units in the Operating Company to an affiliate of Lennar and to FPC-HF Venture I. Great Park Venture is the owner of Great Park Neighborhoods, a mixed-use, master planned community located in Orange County, California. The Company, through its acquisition of the Management Company, has been engaged to manage the planning, development and sale of the Great Park Neighborhoods and supervise the day-to-day affairs of the Great Park Venture. The Great Park Venture is managed by an executive committee comprised of representatives appointed by only the holders of Percentage Interest. The Company does not control the actions of the executive committee.
The cost of the Company’s investment in the Great Park Venture was
$114.2 million
higher than the Company’s underlying equity in the carrying value of net assets of the Great Park Venture (basis difference). The Company’s earnings from the equity method investment are adjusted by amortization and accretion of the basis differences as the assets and liabilities that gave rise to the basis difference are sold, settled or amortized.
The following table summarizes the statement of operations of the Great Park Venture for
year ended
December 31, 2017
and for the period from the acquisition date of May 2, 2016 to December 31, 2016 (in thousands):
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
Land sale revenues
|
$
|
480,934
|
|
|
$
|
22,505
|
|
Cost of land sales
|
(339,100
|
)
|
|
(12,093
|
)
|
Other costs and expenses
|
(105,772
|
)
|
|
(82,392
|
)
|
Net income (loss) of Great Park Venture
|
$
|
36,062
|
|
|
$
|
(71,980
|
)
|
The Company’s share of net income (loss)
|
$
|
13,523
|
|
|
$
|
(26,992
|
)
|
Basis difference (amortization) accretion
|
(7,763
|
)
|
|
25,636
|
|
Equity in earnings (loss) from Great Park Venture
|
$
|
5,760
|
|
|
$
|
(1,356
|
)
|
The following table summarizes the balance sheet data of the Great Park Venture and the Company’s investment balance as of
December 31, 2017
and
2016
(in thousands):
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
Inventories
|
$
|
1,089,513
|
|
|
$
|
1,115,818
|
|
Cash and cash equivalents
|
336,313
|
|
|
351,469
|
|
Receivable and other assets
|
21,778
|
|
|
28,815
|
|
Total assets
|
$
|
1,447,604
|
|
|
$
|
1,496,102
|
|
Accounts payable and other liabilities
|
$
|
225,588
|
|
|
$
|
190,148
|
|
Redeemable Legacy Interests
|
445,000
|
|
|
565,000
|
|
Capital (Percentage Interest)
|
777,016
|
|
|
740,954
|
|
Total liabilities and capital
|
$
|
1,447,604
|
|
|
$
|
1,496,102
|
|
The Company’s share of capital in Great Park Venture
|
$
|
291,381
|
|
|
$
|
279,514
|
|
Unamortized basis difference
|
132,111
|
|
|
138,218
|
|
The Company’s investment in the Great Park Venture
|
$
|
423,492
|
|
|
$
|
417,732
|
|
Gateway Commercial Venture
On August 4, 2017, the Company entered into the Limited Liability Company Agreement of Five Point Office Venture Holdings I, LLC, a Delaware limited liability company (the “Gateway Commercial Venture”), made a capital contribution of
$106.5 million
to the Gateway Commercial Venture, and received a
75%
interest in the venture. The Gateway Commercial Venture is governed by an executive committee in which the Company is entitled to appoint
two
individuals. One of the other members of the Gateway Commercial Venture is also entitled to appoint
two
individuals to the executive committee. The unanimous approval of the executive committee is required for certain matters, which limits the Company’s ability to control the Gateway Commercial Venture, however, the Company is able to exercise significant influence and therefore accounts for its investment in the Gateway Commercial Venture using the equity method. The Company is the manager of the Gateway Commercial Venture, with responsibility to manage and administer its day-to-day affairs and implement a business plan approved by the executive committee.
On August 10, 2017, through its wholly owned subsidiaries, the Gateway Commercial Venture completed the purchase of the Five Point Gateway Campus located in Irvine, California. The purchase price of
$443.0 million
was funded using capital contributions by the members of the Gateway Commercial Venture and
$291.2 million
in debt financing. The financing arrangement also provides for an additional
$48.0 million
to be borrowed for the cost of tenant improvements, leasing expenditures and certain capital expenditures. The debt obtained by the Gateway Commercial Venture is non-recourse to the Company other than in the case of customary “bad act” or bankruptcy or insolvency events.
The following table summarizes the statement of operations of the Gateway Commercial Venture from August 4, 2017 (the date of our initial investment) to
December 31, 2017
(in thousands):
|
|
|
|
|
Rental revenues
|
$
|
9,245
|
|
Rental operating expenses
|
(1,091
|
)
|
Depreciation and amortization
|
(4,504
|
)
|
Interest expense
|
(3,629
|
)
|
Net income of Gateway Commercial Venture
|
$
|
21
|
|
The Company’s share of net income
|
$
|
16
|
|
The following table summarizes the balance sheet data of the Gateway Commercial Venture and the Company’s investment balance as of
December 31, 2017
(in thousands):
|
|
|
|
|
Real estate and related intangible assets
|
$
|
448,795
|
|
Other assets
|
7,211
|
|
Total assets
|
$
|
456,006
|
|
Notes payable, net
|
$
|
286,795
|
|
Other liabilities
|
27,190
|
|
Members’ capital
|
142,021
|
|
Total liabilities and capital
|
$
|
456,006
|
|
The Company’s investment
|
$
|
106,516
|
|
5.
NONCONTROLLING INTERESTS
The Holding Company’s wholly owned subsidiary is the managing general partner of the Operating Company and at
December 31, 2017
, the Holding Company and its wholly owned subsidiary owned approximately
58.6%
of the outstanding Class A Common Units of the Operating Company,
100%
of the outstanding Class B Common Units of the Operating Company. The Holding Company consolidates the financial results of the Operating Company and its subsidiaries, and records a noncontrolling interest for the remaining
41.4%
of the outstanding Class A Common Units of the Operating Company.
After a
12
month holding period, holders of Class A Common Units of the Operating Company may exchange their units for, at the Company’s option, either (i) Class A common shares on a
one
-for-one basis (subject to adjustment in the event of share splits, distributions of shares, warrants or share rights, specified extraordinary distributions and similar events), or (ii) cash in an amount equal to the market value of such shares at the time of exchange. Whether such units are acquired by the Company in exchange for Class A common shares or for cash, if the holder also owns Class B common shares, then an equal number of that holder’s Class B common shares will automatically convert into Class A common shares, at a ratio of
0.0003
Class A common shares for each Class B common share. This exchange right is currently exercisable by all holders of outstanding Class A Common Units of the Operating Company, except for
7,142,857
units purchased by Lennar on May 15, 2017, as to which such right is exercisable after May 15, 2018.
The San Francisco Venture has
two
classes of units—Class A units and Class B units. The Operating Company owns all of the outstanding Class B units of the San Francisco Venture. All of the outstanding Class A units are owned by affiliates of Lennar and affiliates of Castlelake. The Class A units of the San Francisco Venture are intended to be substantially economically equivalent to the Class A Common Units of the Operating Company. The Class A units of the San Francisco Venture represent noncontrolling interests to the Operating Company.
Holders of Class A units of the San Francisco Venture can redeem their units at any time and receive Class A Common Units of the Operating Company on a one-for-one basis (subject to adjustment in the event of share splits, distributions of shares, warrants or share rights, specified extraordinary distributions and similar events). If a holder requests a redemption of Class A units that would result in the Holding Company’s ownership of the Operating Company falling below
50.1%
, the Holding Company has the option of satisfying the redemption with Class A common shares instead. The Company also has the option, at any time, to acquire outstanding Class A units of the San Francisco Venture in exchange for Class A Common Units of the Operating Company. The
12
month holding period for any Class A Common Units of the Operating Company issued in exchange for Class A units of the San Francisco Venture is calculated by including the period that such Class A units of the San Francisco Venture were owned. This exchange right is currently exercisable by all holders of outstanding Class A units of the San Francisco Venture.
Net (loss) income attributable to the noncontrolling interests on the consolidated statements of operations represents the portion of earnings attributable to the economic interest in the Company held by the noncontrolling interests. The Company allocates (loss) income to noncontrolling interests based on the substantive profit sharing provisions of the applicable operating agreements.
With each exchange of Class A Common Units of the Operating Company for Class A common shares, the Holding Company’s percentage ownership interest in the Operating Company and its share of the Operating Company’s cash distributions and profits and losses will increase (see Note 6). Additionally, other issuances of common shares of the Holding Company or common units of the Operating Company results in changes to the noncontrolling interest percentage as well as the total net assets of the Company. As a result, all equity transactions result in an allocation between equity and the noncontrolling interest in the Company’s consolidated balance sheets and statements of capital to account for the changes in the noncontrolling interest ownership percentage as well as the change in total net assets of the Company.
During the
year ended
December 31, 2017
, the Holding Company’s ownership interest in the Operating Company changed as a result of the Holding Company acquiring Class A Common Units of the Operating Company with the proceeds of the Holding Company’s IPO, the sale of Class A Common Units of the Operating Company in a private placement with Lennar, and equity transactions related to the Company’s share based compensation plan. The carrying amount of the Company’s noncontrolling interest has been adjusted by
$3.7 million
to reflect these changes in ownership interests during the
year ended
December 31, 2017
. As a result of changes in ownership interest of the Operating Company due to the Formation Transactions, an adjustment to members’ capital of
$119.6 million
occurred during the
year ended
December 31, 2016
. During the year ended December 31, 2015, units of the Operating Company were redeemed for Holding Company Class A Units that resulted in an allocation of
$0.2 million
to members’ capital.
6.
CONSOLIDATED VARIABLE INTEREST ENTITY
The Holding Company conducts all of its operations through the Operating Company, a consolidated VIE, and as a result, substantially all of the Company’s assets and liabilities represent the assets and liabilities of the Operating Company, other than items attributed to income taxes and the TRA related obligation, which was
$152.5 million
and
$201.8 million
at
December 31, 2017
, and
2016
respectively. The Operating Company has investments in and consolidates the assets and liabilities of the San Francisco Venture, Five Point Communities, LP and FPL, all of which have also been determined to be VIEs.
The San Francisco Venture is a VIE as the limited partners (or functional equivalent) of the venture, individually or as a group, are not able to exercise kick-out rights or substantive participating rights. The Company applied the variable interest model and determined that it is the primary beneficiary of the San Francisco Venture and, accordingly, the San Francisco Venture is consolidated in its results. In making that determination, the
Company evaluated that the Operating Company has unilateral and unconditional power to make decisions in regards to the activities that significantly impact the economics of the VIE, which are the development of properties, marketing and sale of properties, acquisition of land and other real estate properties and obtaining land ownership or ground lease for the underlying properties to be developed. The Company is determined to have more-than-insignificant economic benefit from the San Francisco Venture because the Operating Company can prevent or cause the San Francisco Venture from making distributions on its units, and the Operating Company would receive
99%
of any such distributions (assuming no distributions had been paid on the Class A Common Units of the Operating Company). In addition, the San Francisco Venture is only allowed to make a capital call on the Operating Company and not any other interest holders, which could be a significant financial risk to the Operating Company.
As of
December 31, 2017
, the San Francisco Venture had total combined assets of
$1,074.1 million
, primarily comprised of
$1,063.9 million
of inventories and
$8.4 million
in cash and total combined liabilities of
$269.2 million
including
$177.4 million
in related party liabilities and
$65.1 million
in notes payable.
As of
December 31, 2016
, the San Francisco Venture had total combined assets of
$1,134.2 million
, primarily comprised of
$1,080.1 million
of inventories,
$30.1 million
in related party assets and
$22.1 million
in cash and total combined liabilities of
$250.4 million
including
$167.6 million
in related party liabilities and
$65.1 million
in notes payable.
Those assets are owned by, and those liabilities are obligations of, the San Francisco Venture, not the Company. The San Francisco Venture is not a guarantor of the Company’s obligations, and the assets held by the San Francisco Venture may only be used as collateral for the San Francisco Venture’s debt. The creditors of the San Francisco Venture do not have recourse to the assets of the Operating Company, as the VIE’s primary beneficiary, or of the Holding Company.
The Company and other partners do not generally have an obligation to make capital contributions to the San Francisco Venture. In addition, there are no liquidity arrangements or agreements to fund capital or purchase assets that could require the Company to provide financial support to the San Francisco Venture. The Company did not guarantee any debt of the San Francisco Venture.
Five Point Communities, LP and FPL are VIEs as in each case the limited partners (or functional equivalent) have disproportionately fewer voting rights and substantially all of the activities of the entities are conducted on behalf of the limited partners and their related parties. The Operating Company, or a wholly owned subsidiary of the Operating Company, is the primary beneficiary of Five Point Communities, LP and FPL.
As of
December 31, 2017
, Five Point Communities, LP and FPL had combined assets of
$543.5 million
, primarily comprised of
$361.9 million
of inventories,
$127.6 million
of intangibles,
$3.1 million
in related party assets and
$12.3 million
in cash, and total combined liabilities of
$131.0 million
, including
$117.1 million
in accounts payable and other liabilities and
$9.1 million
in related party liabilities.
As of
December 31, 2016
, Five Point Communities, LP and FPL had combined assets of
$520.6 million
, primarily comprised of
$280.4 million
of inventories,
$127.6 million
of intangibles,
$51.0 million
in related party assets and
$22.6 million
in cash, and total combined liabilities of
$138.5 million
, including
$80.6 million
in accounts payable and other liabilities and
$53.6 million
in related party liabilities.
The Company evaluates its primary beneficiary designation on an ongoing basis and assesses the appropriateness of the VIE’s status when events have occurred that would trigger such an analysis. During the years ended
December 31, 2017
,
2016
and
2015
, respectively, there were no VIEs that were deconsolidated.
7.
PROPERTIES AND EQUIPMENT, NET
Properties and equipment as of
December 31, 2017
and
2016
, consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
Agriculture operating properties and equipment
|
$
|
29,689
|
|
|
$
|
29,636
|
|
Golf club operating properties (see Note 2)
|
—
|
|
|
5,611
|
|
Other
|
4,890
|
|
|
5,002
|
|
Total properties and equipment
|
34,579
|
|
|
40,249
|
|
Accumulated depreciation
|
(4,923
|
)
|
|
(5,840
|
)
|
Properties and equipment, net
|
$
|
29,656
|
|
|
$
|
34,409
|
|
Depreciation expense was
$1.1 million
(includes
$0.3 million
related to golf club operating properties),
$1.0 million
and
$0.6 million
for the years ended
December 31, 2017
,
2016
and
2015
respectively.
8.
INTANGIBLE ASSET, NET—RELATED PARTY
In connection with the Company’s acquisition of the Management Company (see Note 3), the Company acquired an intangible asset related to the contract value of the incentive compensation provisions of the Management Company’s development management agreement with the Great Park Venture. The carrying amount and accumulated amortization of the intangible asset as of
December 31, 2017
and
2016
were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
Gross carrying amount
|
$
|
129,705
|
|
|
$
|
129,705
|
|
Accumulated amortization
|
(2,112
|
)
|
|
(2,112
|
)
|
Net book value
|
$
|
127,593
|
|
|
$
|
127,593
|
|
No amortization expense was recorded for the
year ended
December 31, 2017
, as the Company did not recognize any economic benefits from incentive compensation. For the
year ended
December 31, 2016
, the Company recorded
$2.1 million
of amortization expense, included in cost of management services in the accompanying consolidated statement of operations, attributed to a portion of the Legacy Incentive Compensation recognized in the period.
9. MARKETABLE SECURITIES—HELD TO MATURITY
The Company’s investments in marketable securities is comprised of debt securities that are carried at amortized cost and are classified as “held to maturity” as the Company purchases the investments with the intent and ability to hold each investment until maturity. The cost of debt securities are adjusted for amortization of premiums and accretion of discounts to maturity, using the effective interest method or a method that approximates the effective interest method. Amortization and accretion is included in selling, general, and administrative costs and expenses in the accompanying consolidated statements of operations. At
December 31, 2017
, the Company had
no
investments in marketable securities. At
December 31, 2016
, investments in debt securities classified as held to maturity had a total carrying value of
$20.6 million
and matured in one year or less from the consolidated balance sheet date.
10. RELATED PARTY TRANSACTIONS
Related party assets and liabilities included in the Company’s consolidated balance sheets as of
December 31, 2017
and
2016
consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
Assets:
|
|
|
|
Capital commitment from seller
|
$
|
—
|
|
|
$
|
30,000
|
|
Legacy Incentive Compensation receivable
|
—
|
|
|
43,101
|
|
Transition services agreement
|
—
|
|
|
1,356
|
|
Builder fees and other
|
3,158
|
|
|
7,954
|
|
|
$
|
3,158
|
|
|
$
|
82,411
|
|
Liabilities:
|
|
|
|
EB-5 loan reimbursements
|
$
|
102,692
|
|
|
$
|
102,692
|
|
Contingent consideration—Mall Venture project property
|
64,870
|
|
|
64,870
|
|
Deferred land sale revenue
|
9,860
|
|
|
—
|
|
Payable to holders of Management Company’s Class B interests
|
9,000
|
|
|
52,102
|
|
Other
|
248
|
|
|
1,493
|
|
|
$
|
186,670
|
|
|
$
|
221,157
|
|
Capital Commitment from Seller
In connection with the Separation Transaction, the selling shareholders of the San Francisco Venture, affiliates of Lennar and Castlelake, made a capital commitment of
$120 million
, payable to the San Francisco Venture in
four
equal installments, with the first installment paid on May 2, 2016 and the second, third and final installments payable within
90
,
180
and
270
days thereafter. The final installment of
$30 million
was received in February 2017.
Development Management Agreement with the Great Park Venture (Legacy Incentive Compensation Receivable)
In 2010, the Great Park Venture, the Company’s equity method investee through the Formation Transactions, engaged the Management Company under a development management agreement to provide management services to the Great Park Venture. The compensation structure in place as per the development management agreement, as amended and restated, (the “A&R DMA”) consists of a base fee and incentive compensation. The base fee consists of an annual fee and a variable fee equal to general and administrative costs incurred by the Management Company on behalf of the Great Park Venture. Incentive compensation is characterized as “Legacy Incentive Compensation” and “Non-Legacy Incentive Compensation.” The Legacy Incentive Compensation consists of the following: (i)
$15.2 million
, which was received by the Management Company on May 2, 2016; (ii)
$43.1 million
received by the Management Company on January 3, 2017; and (iii) a maximum of
$9 million
of incentive compensation payments attributed to contingent payments made under a cash flow participation agreement the Great Park Venture is a party to. Generally, the Non-Legacy Incentive Compensation is
9%
of distributions made by the Great Park Venture, as defined in the A&R DMA, excluding the distributions to the holders of Legacy Interests of
$565 million
(see Note 4). Due to the contingencies associated with the portion of the Legacy Incentive Compensation (maximum of
$9 million
) that has not been received and the Non-Legacy Incentive Compensation, no receivable was recognized at the acquisition date for these components and instead an intangible asset at fair value, was recognized at the acquisition date (see Note 3). For the
year ended
December 31, 2017
, the Company recognized revenue from management services of
$16.2 million
included in management services—related party in the accompanying consolidated statement of operations related to all management fees under the A&R DMA. For the
year ended
December 31, 2016
, the Company recognized
$13.3 million
related to all
management fees under the A&R DMA. At
December 31, 2017
and
2016
, the Company had a receivable from the Great Park Venture of
$2.9 million
and
$2.8 million
, respectively, related to cost reimbursements under the A&R DMA. The current term of the A&R DMA ends in December 2021 and provides for term extensions at the mutual agreement of terms and provisions by both the Company and the Great Park Venture.
EB-5 Loan Reimbursements
The San Francisco Venture has entered into reimbursement agreements for which it has agreed to reimburse CPHP or its subsidiaries for a portion of the EB-5 loan liabilities and related interest that were assumed by CPHP or its subsidiaries pursuant to the Separation Agreement. At both
December 31, 2017
and
2016
, the balance of the payable to CPHP or its subsidiaries was
$102.7 million
. Interest is paid monthly and totaled
$4.2 million
and
$2.8 million
for the years ended
December 31, 2017
and
2016
, respectively. All of the incurred interest for the years ended
December 31, 2017
and
2016
was capitalized into inventories as interest on development and construction costs. The weighted average interest rate as of
December 31, 2017
was
4.1%
. Principal payments of
$39.4 million
and
$63.3 million
are due in 2019 and 2020, respectively.
Contingent Consideration to Class A Members of the San Francisco Venture
Under the terms of the Separation Agreement, the San Francisco Venture retained the obligation under the Mall DAA to subdivide and convey the Retail Project Property to the Mall Venture and the former owners of the San Francisco Venture retained the rights to
49.9%
of the equity ownership in the Mall Venture. The obligation to convey the Retail Project Property to the Mall Venture represents additional consideration as the conveyance of the Retail Project Property provides direct benefit to the former owners. After conveyance of the Retail Project Property to the Mall Venture and the CP Parking Parcel to CPHP, the contingent consideration liability and the Macerich Note (see Note 11) will be derecognized when the Company determines it no longer has a continuing involvement in the conveyed parcels.
Contingent consideration is carried at fair value and is remeasured on a recurring basis. The Company uses level 3 inputs to measure the estimated fair value of the contingent consideration arrangement based on the expected cash flows considering the use of the underlying property subject to the arrangement. The estimated cash flows are affected by estimates and assumptions related to development costs, retail rents, occupancy rates and continuing operating expenses.
Payables to Holders of Management Company’s Class B Interests
Holders of the Management Company’s Class B interests (an affiliate of Lennar, Emile Haddad, and FPC-HF Venture I) are entitled to receive all distributions from the Management Company that are attributable to any Legacy Incentive Compensation received by the Management Company. The Management Company made a
$43.1 million
payment to the holders of Class B interests of the Management Company in January 2017 in connection with the Management Company’s January 2017 collection of Legacy Incentive Compensation in the same amount.
Separation Agreement—Closing Cash Adjustment
The Separation Agreement contains a provision for a final accounting to be performed subsequent to closing in which certain expenditures incurred by the San Francisco Venture prior to the closing are allocated between CPHP and the San Francisco Venture. Per the terms of the closing cash adjustment provision, the Company recorded a related party liability for the closing cash adjustment on May 2, 2016 and paid the full obligation of
$14.6 million
to CPHP in July 2016.
Transition Services Agreement
The Operating Company has engaged a subsidiary of Lennar to provide certain services, support, and resources to the Company under a Transition Services Agreement (“TSA”). The services include the following: (i) secondment of certain Lennar subsidiary employees to the Company from May 2, 2016 to July 1, 2016;
(ii) licensing the use of certain office space; and (iii) transition services including accounting, payroll, finance, treasury, tax, employee benefits, human resources, and information technology support. The fees charged by subsidiaries of Lennar for transition services approximate the costs incurred by Lennar and its subsidiaries in providing such services and may be revised accordingly. The TSA will terminate on May 2, 2018 unless extended by written mutual agreement. For the years ended
December 31, 2017
and
2016
, the Company incurred
$1.8 million
and
$1.0 million
, respectively, in costs for office space licensing and transition services. As of
December 31, 2017
and
2016
, the Company had a related party payable of
$0.2 million
and a related party receivable of
$1.4 million
, respectively, related to the various components of the TSA.
San Francisco Bay Area Development Management Agreements
The Company has entered into development management agreements with affiliates of Lennar and Castlelake in which the Company will provide certain development management services to various real estate development projects located in the San Francisco Bay area. The agreements generally consist of a fixed management fee and in some cases a variable fee equal to general and administrative costs incurred by the Company. In most cases the management agreements terminate upon project development milestones. For the years ended
December 31, 2017
and
2016
, the Company recognized revenue from management services of
$5.8 million
and
$3.5 million
, respectively. Revenues related to management fees under the San Francisco Bay area development management agreements are included in management services—related party in the accompanying consolidated statements of operations.
Gateway Commercial Venture Property Management Agreement
The Company has entered into a property management agreement with Gateway Commercial Venture in which the Company will provide certain property management services to the Five Point Gateway Campus. The agreement consists of a base management fee, calculated as the greater of a determined fixed value or percentage of gross rent, plus additional fees, when applicable, pertaining to management of tenant improvements and securing tenants. For the year ended
December 31, 2017
, the Company recognized revenue from management services of $
0.5 million
and is included in management services—related party in the accompanying consolidated statement of operations.
Candlestick Point Purchase and Sale Agreements
The San Francisco Venture has entered into purchase and sale agreements with an affiliate of Lennar and Castlelake to sell
3.6
acres of land including one agreement for land where up to
390
for-sale homesites are planned to be built and one agreement for land that includes additional airspace parcels above the planned Retail Project where multi-family homesites are planned to be built. The Company is required to complete certain conditions prior to the close of escrow of the sale of the airspace parcels above the planned Retail Project, including recording the subdivision of the land and airspace parcels into separate legal parcels. The San Francisco Venture closed escrow on the first of these two sales in January 2017 resulting in gross proceeds of
$91.4 million
. As of
December 31, 2017
, the Company has deferred
$9.9 million
of revenue on this sale that will be recognized as the Company completes certain infrastructure improvements.
Entitlement Transfer Agreement
In December 2016, the San Francisco Venture entered into an agreement with an affiliate of Lennar and Castlelake pursuant to which an affiliate of Lennar and Castlelake agreed to transfer to the San Francisco Venture entitlements for the right to construct (1) at least
172
homesites (or, if greater, the number of entitled homesites that are not developed or to be developed by or on behalf of the San Francisco Agency or by residential developers on the land transferred to CPHP) and (2) at least
70,000
square feet of retail space (or, if greater, the amount of entitled retail space that is not developed or to be developed by or on behalf of the San Francisco Agency or by commercial developers on the land transferred to CPHP) for use in the development of other portions of The San Francisco Shipyard and Candlestick Point.
Builder Fees
In the normal course of business, the Company enters into purchase and sale agreements with related parties. The Company is a party to such purchase and sale agreements in which the related party homebuilder is obligated to pay the Company certain fees when obtaining a building permit. In some cases, the fees are passed through to local school districts or other government agencies or, in other cases, when the Company has previously satisfied the obligation directly with the local school district or other government agency, the fees are retained by the Company.
Development Management Agreement between FPL and the Management Company
The Company previously engaged the Management Company as an exclusive independent contractor to generally supervise the day-to-day affairs of the Company and the assets of its subsidiaries. The initial term of the management agreement commenced on July 31, 2009, and was for
five
years, with an option for two renewal terms of
three
years each. The Company elected to exercise the first renewal option in 2014. The development management fee was
$5.0 million
per annum in each renewal term, subject to annual increases determined by a consumer price index. The management agreement was terminated on May 2, 2016 when the Company acquired the Management Company. For the
year ended
December 31, 2016
, development management fees were
$1.7 million
.
11. NOTES PAYABLE, NET
At
December 31, 2017
and
2016
, notes payable consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
7.875 % Senior Notes due 2025
|
$
|
500,000
|
|
|
$
|
—
|
|
Macerich Note
|
65,130
|
|
|
65,130
|
|
Settlement Note
|
5,000
|
|
|
5,000
|
|
Unamortized debt issuance costs and discount
|
(9,512
|
)
|
|
(743
|
)
|
|
$
|
560,618
|
|
|
$
|
69,387
|
|
Senior Notes
In November 2017, the Operating Company and Five Point Capital Corp., a directly wholly owned subsidiary of the Operating Company (the “Co-Issuer” and, together with the Operating Company, the “Issuers”), offered, sold and issued
$500.0 million
aggregate principal amount of
7.875%
unsecured senior notes due November 15, 2025 at
100%
of par (the “Senior Notes”). Proceeds from the offering, after underwriting fees and offering expenses were
$490.7 million
. Interest on the notes is payable on May 15 and November 15 of each year, beginning May 15, 2018.
The Senior Notes are redeemable at the option of the Issuers, in whole or in part, at any time, and from time to time, on or after November 15, 2020, at a declining call premium as set forth in the indenture governing the Senior Notes, plus accrued and unpaid interest, if any, to, but excluding, the date of redemption. In addition, at any time prior to November 15, 2020, the issuers may redeem some or all of the Senior Notes at a price equal to
100%
of the aggregate principal amount of the Senior Notes redeemed, plus a “make-whole” premium, plus accrued and unpaid interest, if any, to, but excluding, the date of redemption. Lastly, prior to November 15, 2020, the Issuers may redeem up to
35%
of the aggregate principal amount of the Senior Notes with an amount equal to the net cash proceeds from certain equity offerings, at a redemption price equal to
107.875%
of the aggregate principal amount thereof, plus accrued and unpaid interest, if any, to, but excluding, the redemption date.
The Senior Notes are guaranteed jointly and severally, by certain direct and indirect subsidiaries of the Issuers (the “Guarantors”, other than the Co-Issuer), however the Issuers non-guarantor subsidiaries represent substantially all of the operations and total assets of the Issuers. The Senior Notes are senior in right of payment to
all of the Issuers’ and Guarantors’ subordinated indebtedness, equal in right of payment with all of the Issuers’ and the Guarantors’ senior indebtedness, without giving effect to collateral arrangements in the case of secured indebtedness, effectively subordinated to any of the Issuers’ and the Guarantors’ secured indebtedness, to the extent of the value of the assets securing such indebtedness, and structurally subordinated to all of the existing and future liabilities (including trade payables but excluding intercompany liabilities) or preferred equity of each of the Operating Company’s subsidiaries that do not guarantee the Senior Notes (other than the Co-Issuer).
Macerich Note
On November 13, 2014, in connection with entering into the Mall Venture and Mall DAA, a wholly-owned subsidiary of the San Francisco Venture issued a promissory note (the “Macerich Note”) to an affiliate of the Macerich Member in the amount of
$65.1 million
, bearing interest at
360
-day LIBOR plus
2.0%
(
4.11%
at
December 31, 2017
). Upon completion of certain conditions, including the conveyance of the Retail Project Property to the Mall Venture, the Macerich Member, in several steps, will cause the Macerich Note to be distributed to the Company, resulting in the extinguishment of the Macerich Note. Alternatively, under the terms of the Mall Venture and Mall DAA, if the San Francisco Venture or the Lennar-CL Venture fail to achieve certain milestones, including the conveyance to the joint venture of the land for the mall on or prior to December 31, 2017, subject to certain extensions, Macerich will have the right to terminate the joint venture, require the Company to repay the Macerich Note and
50%
of certain additional termination fees (the remainder would be paid by the Lennar-CL Venture). The additional termination fees, in addition to other amounts, include an amount equal to the incurred but unpaid interest on the Macerich Note. The unpaid interest totaled approximately
$6.8 million
as of December 31, 2017. The San Francisco Venture had not conveyed the land for the mall to the Mall Venture as of December 31, 2017. However, as of December 31, 2017, the Company deemed the possibility of repayment remote as the Company continued redesign efforts and evaluation of certain milestones, including the timing of the conveyance to the Mall Venture of the land for the mall, with the members of the Mall Venture. In light of the rapidly evolving retail landscape, subsequent to December 31, 2017 we have been evaluating, together with the members of the Mall Venture, the viability of the mall at the site and have been exploring potential alternative configurations of the site. At this time, the development plan for the site and any related impact on the joint venture are uncertain, but it is possible that the joint venture may be terminated or otherwise modified.
Settlement Note
The settlement note represents the settlement of an April 2011 third party dispute related to a prior land acquisition in which the Company issued a
$12.5 million
non-interest-bearing promissory note. At issuance, the Company recorded a discount on the face value of the promissory note at an imputed interest rate of approximately
12.8%
. Amortization expense of this discount is capitalized to the Company’s inventory each period. During the years ended
December 31, 2017
,
2016
and
2015
, the Company capitalized amortization expense of
$0.5 million
,
$0.7 million
and
$1.0 million
, respectively. The Company made a
$5.0 million
principal payment in April 2016 and as of
December 31, 2017
, the settlement note has one remaining principal paydown of
$5.0 million
due April 2018. The settlement note is secured by certain real estate assets of the Company with a carrying value of approximately
$25.0 million
and
$24.3 million
, at
December 31, 2017
and
2016
, respectively.
Revolving Credit Facility
In April 2017, the Company entered into the revolving credit facility (the “Revolving Credit Facility”), which initially provided for borrowings and issuances of letters of credit in an aggregate amount of up to
$50 million
and matured on April 18, 2019, with
two
options for the Company to extend the maturity date, in each case, by and additional year, subject to the satisfaction of certain conditions including the approval of the administrative agent and the lenders. On November 8, 2017, the Company amended the Revolving Credit Facility (the “Revolving Credit Facility Amendment”) to, among other things, increase the aggregate commitments to
$125 million
and extend the maturity date to April 18, 2020, 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 the lenders. Borrowings under the Revolving Credit Facility bear interest at LIBOR plus a margin ranging from
1.75%
to
2.00%
based on the Company’s leverage ratio. As of
December 31, 2017
, no funds have been drawn on the Revolving Credit Facility,
however letters of credit of
$1.0 million
are issued and outstanding under the Revolving Credit Facility as of December 31, 2017, thus reducing the available capacity by the outstanding letters of credit amount.
12.
TAX RECEIVABLE AGREEMENT
Simultaneous with, but separate and apart from the Formation Transactions on May 2, 2016, the Company entered into a TRA with all of the holders of Class A Common Units of the Operating Company and all the holders of Class A Units of the San Francisco Venture (as parties to the TRA, the “TRA Parties”). The TRA provides for payment by the Company to the TRA Parties or their successors of
85%
of the amount of cash savings, if any, in income tax the Company realizes as a result of:
(a) Increases in the Company’s tax basis attributable to exchanges of Class A Common Units of the Operating Company for Class A common shares of the Company or cash or certain other taxable acquisitions of equity interests by the Operating Company.
After a
12
month holding period, holders of Class A Common Units of the Operating Company will be able to exchange their units for, at the Company’s option, either Class A common shares on a
one
-for-one basis (subject to adjustment in the event of share splits, distributions of shares, warrants or share rights, specified extraordinary distributions and similar events), or cash in an amount equal to the market value of such shares at the time of exchange. The Company expects that basis adjustments resulting from these transactions, if they occur, are likely to reduce the amount of income tax the Company would otherwise be required to pay in the future.
(b) Allocations that result from the application of the principles of Section 704(c) of the Code.
Section 704(c) of the Code, and the U.S. Treasury regulations promulgated thereunder, require that items of income, gain, loss and deduction that are attributable to the Operating Company’s directly and indirectly held property, including property contributed to the Operating Company pursuant to the Formation Transactions and the property held by the Operating Company prior to the Formation Transactions, must be allocated among the members of the Operating Company to take into account the difference between the fair market value and the adjusted tax basis of such assets on May 2, 2016. As a result, the Operating Company will be required to make certain special allocations of its items of income, gain, loss and deduction that are attributable to such assets. These allocations, like the increases in tax basis described above, are likely to reduce the amount of income tax the Company would otherwise be required to pay in the future.
(c) Tax benefits related to imputed interest or guaranteed payments deemed to be paid or incurred by the Company as a result of the TRA.
At
December 31, 2017
and
2016
, respectively, the Company’s consolidated balance sheets include a
$152.5 million
and a
$201.8 million
liability for payments expected to be made under certain components of the TRA which the Company deems to be probable and estimable. Management deems a TRA payment related to the benefits expected to be received by the Company under the application of Section 704(c) of the Code to be probable and estimable when an event occurs that results in the Company measuring the Operating Company’s direct or indirectly held property at fair value in the Company’s consolidated balance sheet or the sale of such property at fair value. Either of these activities are indicators that the difference between the fair market value of the property and the adjusted tax basis has been or will be realized, resulting in special allocations of income, gain, loss or deduction that are likely to reduce the amount of income taxes that the Company would otherwise pay. The Company may record additional TRA liabilities related to properties not currently held at fair value when those properties are recognized or realized at fair value. Furthermore, the Company may record additional liabilities under the TRA if and when TRA Parties exchange Class A Common Units of the Operating Company for the Company’s Class A common shares or other equity transactions that impact the Holding Company’s ownership in the Operating Company. During the year ended December 31, 2017, the Company adjusted its recorded TRA liability as a result of equity transactions during the period, including the IPO and private placement. Changes in the Company’s estimates of the utilization of its deferred tax attributes and tax rates in effect may also result in subsequent changes to the amount of TRA liabilities recorded. At the end of the 2017, the Tax Act was enacted into law, which reduced the federal
corporate tax rate from 35% to 21%. As a result of this reduction, the value of the benefit that the Company will receive from tax attributes and tax items that are the subject of the TRA was reduced and, as a result, the TRA liability was also reduced.
The term of the TRA will continue until all such tax benefits under the agreement have been utilized or expired, unless the Company exercises its right to terminate the TRA for an amount based on an agreed value of payments remaining to be made under the agreement.
No
TRA payments were made during the years ended
December 31, 2017
and
2016
.
13.
COMMITMENTS AND CONTINGENCIES
The Company is subject to the usual obligations associated with entering into contracts for the purchase, development, and sale of real estate, which the Company does in the routine conduct of its business.
Operating Leases
The Company has entered into agreements to lease certain office facilities and equipment under operating leases. The Company also leases portions of its land to third parties for agricultural operations. In August 2017, the Company entered into a
130
-month full service gross lease with the Gateway Commercial Venture, a related party, and the Company will relocate its Orange County, California offices to the newly leased office space at the Five Point Gateway Campus. As of
December 31, 2017
, minimum lease payments to be made under operating leases with initial terms in excess of one year and minimum lease payments to be received under noncancelable leases are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
Years Ending December 31,
|
|
Rental
Payments
|
|
Rental
Receipts
|
2018
|
|
$
|
2,758
|
|
|
$
|
1,094
|
|
2019
|
|
4,837
|
|
|
827
|
|
2020
|
|
5,256
|
|
|
701
|
|
2021
|
|
5,238
|
|
|
—
|
|
2022
|
|
3,453
|
|
|
—
|
|
Thereafter
|
|
16,622
|
|
|
—
|
|
|
|
$
|
38,164
|
|
|
$
|
2,622
|
|
Rent expense for the years ended
December 31, 2017
,
2016
and
2015
, was
$2.7 million
,
$1.8 million
and
$0.8 million
, respectively.
Newhall Ranch Project Approval Settlement
In September 2017, the Company reached a settlement (the “Newhall Settlement”) with key national and state environmental and Native American organizations that were petitioners (the “Settling Petitioners”) in various legal challenges to Newhall Ranch’s regulatory approvals and permits (see Legal Proceedings below). The Settling Petitioners have agreed to (a) dismiss all pending claims regarding regulatory approvals and permits, (b) not oppose pending and certain future regulatory approvals, and (c) not seek protections for certain species of plants and animals under federal and state endangered species acts for specified time periods. The Company has agreed to fund certain environmental and cultural investments and protections at the Newhall Ranch project and surrounding region, including construction of a Native American cultural facility and museum, establishment of conservation programs to protect the San Fernando Valley spineflower, and establishment of an endowment to conserve endangered, threatened, and sensitive species that occur within the Santa Clara River watershed. The Company further agreed to (a) refrain from developing certain areas within Newhall Ranch and portions of the Company’s Ventura County landholdings and (b) provide construction monitoring programs and archaeological surveys designed to identify and preserve Native American cultural sites within Newhall Ranch. As of
December 31, 2017
, the Company has recorded a liability, included in accounts payable and other liabilities in the accompanying
consolidated balance sheets, of
$50.7 million
associated with certain obligations of the settlement. The Holding Company has provided a guaranty to the Settling Petitioners for monetary payments due from the Company as required under the Newhall Settlement. As of
December 31, 2017
, the remaining estimated maximum potential amount of monetary payments subject to the guaranty was
$58.7 million
with the final payment due in 2026. The Company did not reach a settlement with two local environmental organizations that have pending challenges to certain approvals for Newhall Ranch (the “Non-Settling Petitioners”).
Water Purchase Agreement
The Company is subject to a water purchase agreement requiring annual payments in exchange for the delivery of water for the Company’s exclusive use. The agreement has an initial
35
-year term, which expires in 2039 with an option for a second
35
-year term. During the
year ended
December 31, 2017
, the Company made a payment of
$1.2 million
. The annual minimum payments for years 2018 to 2022 are
$1.2 million
,
$1.2 million
,
$1.3 million
,
$1.3 million
, and
$1.4 million
respectively. At
December 31, 2017
, the aggregate annual minimum payments remaining under the initial term total
$37.5 million
.
Newhall Ranch Infrastructure Project
In January 2012, the Company entered into an agreement with Los Angeles County, in which the Company will finance up to a maximum of
$45.8 million
for the construction costs of an interchange project that Los Angeles County is managing. The interchange project is a critical infrastructure project that will benefit Newhall Ranch. As of
December 31, 2017
, the Company has made aggregate payments of
$37.0 million
, including a payment of
$15.0 million
made during the
year ended
December 31, 2017
. The interchange project is expected to be completed in 2018. There is also a provision for the Company to pay Los Angeles County interest on defined unreimbursed construction costs incurred prior to the reimbursement payment. Upon the final payment, Los Angeles County will credit the Company, in the form of bridge and thoroughfare construction fee district fee credits, an amount equal to the Company’s actual payments, exclusive of any interest payments. These credits are eligible for application against future bridge and thoroughfare fees the Company may incur. At
December 31, 2017
and
2016
, the Company had
$5.6 million
and
$16.4 million
, respectively, included in accounts payable and other liabilities in the accompanying consolidated balance sheets, representing unreimbursed construction costs payable to Los Angeles County.
Agreement Regarding Mall Venture
On May 2, 2016, the Company entered into an agreement with CPHP pursuant to which, upon completion of the Retail Project, CPHP will contribute all of its interests in the Mall Venture Member to the Operating Company in exchange for
2,917,827
Class A Common Units of the Operating Company. Additionally, CPHP will purchase an equal amount of Class B common shares from the Holding Company at a price of
$0.00633
per share. If the Company or CPHP fail to achieve certain milestones, including the conveyance to the Mall Venture of the Retail Project Property on or prior to December 31, 2017, subject to certain extensions, Macerich will have the right to terminate the joint venture, require the Company to repay the
$65.1 million
Macerich Note and to pay
50%
of certain termination fees (the remainder would be paid by CPHP). However, the Company would no longer be obligated to transfer the Retail Project Property to the Retail Project or the CP Parking Parcel to CPHP and instead would be obligated to issue
436,498
Class A Common Units of the Operating Company to CPHP and CPHP will purchase an equal amount of Class B common shares from the Holding Company at a price of
$0.00633
per share. The Retail Project Property had not been conveyed to the Mall Venture as of December 31, 2017. In light of the rapidly evolving retail landscape, subsequent to December 31, 2017 we have been evaluating, together with the members of the Mall Venture, the viability of the mall at the site and have been exploring potential alternative configurations of the site. At this time, the development plan for the site and any related impact on the Mall Venture are uncertain.
Candlestick Point Development Agreement
On May 2, 2016, the Company entered into a development agreement with CPHP whereby among other things, CPHP agreed to be responsible for all design and construction costs associated with the parking structure to
be built on the CP Parking Parcel, up to
$240 million
, and the Company agreed to reimburse CPHP for design and construction costs in excess of
$240 million
. Additionally, the Company agreed to remit to CPHP up to
$25 million
it realizes from CFD proceeds at Candlestick Point following completion of the parking structure; however, such obligation is subject to a dollar-for-dollar reduction by any amounts the Company pays for costs in excess of
$240 million
on the parking structure.
Performance and Completion Bonding Agreements
In the ordinary course of business and as a part of the entitlement and development process, the Company is required to provide performance bonds to ensure completion of certain development obligations. The Company had outstanding performance bonds of
$79.9 million
and
$62.8 million
as of
December 31, 2017
and
December 31, 2016
, respectively.
San Francisco Shipyard and Candlestick Point Disposition and Development Agreement
The San Francisco Venture is a party to a disposition and development agreement with the San Francisco Agency in which the San Francisco Agency will convey portions of The San Francisco Shipyard and Candlestick Point owned or acquired by the San Francisco Agency to the San Francisco Venture for development. The San Francisco Venture will reimburse the San Francisco Agency for reasonable costs and expenses actually incurred and paid by the San Francisco Agency in performing its obligations under the disposition and development agreement. The San Francisco Agency can also earn a return of certain profits generated from the development and sale of The San Francisco Shipyard and Candlestick Point if certain thresholds are met. As of
December 31, 2017
the thresholds have not been met.
In April 2014, the San Francisco Venture provided the San Francisco Agency with a guaranty of infrastructure obligations with a maximum obligation of
$21.4 million
and in March 2016 an additional guaranty of infrastructure obligations was made with a maximum obligation of
$8.1 million
. In June 2017, the Holding Company provided the San Francisco Agency with a guaranty related to construction of certain park and open space obligations with a maximum obligation of
$83.7 million
and in September 2017, provided an additional guaranty of infrastructure obligations with a maximum obligation of
$79.1 million
.
Letters of Credit
At
December 31, 2017
and
December 31, 2016
, the Company had outstanding letters of credit totaling
$2.4 million
and
$13.8 million
, respectively. These letters of credit were issued to secure various development and financial obligations. At
December 31, 2017
and
December 31, 2016
, the Company had restricted cash and certificates of deposit of
$1.4 million
and
$2.2 million
pledged as collateral under certain of the letters of credit agreements.
Legal Proceedings
California Department of Fish and Wildlife Permits
In January 2011, petitioners Center for Biological Diversity, California Native Plant Society, and Wishtoyo Foundation/Ventura Coastkeeper, Santa Clarita Organization for Planning and the Environment (“SCOPE”) and Friends of the Santa Clara River filed a complaint in Los Angeles County Superior Court (“Superior Court”) challenging the validity of certain aspects of the environmental impact report (“EIR”) portion of the EIR/Environmental Impact Statement (“EIR/EIS”) for the Newhall Ranch project. In November 2015, following lower court proceedings, the California Supreme Court (“Supreme Court”) reversed the Court of Appeal’s judgment on three issues raised in the case, namely: (i) the EIR’s greenhouse gas ("GHG") emissions significance findings, (ii) the EIR’s mitigation measures for a protected fish species (“Stickleback”), and (iii) the timeliness of public comments on impacts to cultural resources and another sensitive fish species; and remanded to the Court of Appeal for reconsideration and new decision. In July 2016, after the remand, the Court of Appeal issued a new decision in favor of CDFW and the Company as to the public comment issues. After further proceedings, the Court of Appeal remitted the case to the trial court, and that court issued the judgment and writ of mandate proposed by the
California Department of Fish and Wildlife (“CDFW”) as to the GHG and Stickleback issues. In February 2017, petitioners filed a notice of appeal challenging the scope of the trial court’s judgment and writ. In the interim, and in response to the Supreme Court's decision, CDFW conducted additional analysis on the GHG and Stickleback issues and, in June 2017, reapproved the EIR and Newhall Ranch project. Thereafter, the Court of Appeal issued an opinion affirming the scope of the trial court’s judgment and writ in favor of CDFW and the Company.
In September 2017, petitioners Center for Biological Diversity, California Native Plant Society, and Wishtoyo Foundation/Ventura Coastkeeper (collectively, “Settling Petitioners”) settled all of their respective claims in the case, leaving only two petitioners, SCOPE and Friends of the Santa Clara River (collectively, “Non-Settling Petitioners”). In October 2017, the two Non-Settling Petitioners objected to CDFW’s June 2017 reapproval of the Newhall Ranch EIR and project. The remaining action required to conclude this litigation is resolution of the Non-Settling Petitioners’ objections to CDFW’s request to discharge the trial court’s writ having complied with it. Until such objections are resolved, the Company cannot predict the final outcome of this matter.
Landmark Village and Mission Village
The Los Angeles County Board of Supervisors (“BOS”) approved the Newhall Ranch Landmark Village and Mission Village EIRs and permits in late 2011 and 2012. In 2012, petitioners filed two petitions (one for each village development) in the Superior Court challenging such approvals under certain state environmental and planning and zoning laws. In 2014, the Superior Court issued decisions in favor of the County and the Company, and in 2015, the Court of Appeal affirmed the Superior Court’s decisions in full. Petitioners then filed a petition for review, and in 2015, the Supreme Court granted petitioners’ request to review Los Angeles County’s GHG analysis, but ordered that further proceedings in the two actions be deferred pending disposition of the related GHG issue in the CDFW action noted above.
After the Supreme Court decision invalidating the GHG findings in the related CDFW action, in 2016, the Court of Appeal issued new decisions reversing the trial court judgments to the sole extent that Los Angeles County’s EIR did not support its GHG significance impact finding. The matters were remitted to the trial court and that court issued the judgment and writ requested by Los Angeles County. In May 2017, petitioners filed a notice of appeal challenging the scope of the trial court’s judgment and writ.
In July 2017, the BOS certified the final additional environmental analyses and reapproved the Landmark Village and Mission Village projects and related permits. In September 2017, Los Angeles County advised the trial court it had taken the actions required to fully comply with CEQA, the Fish and Game Code, and the writ, and requested that the Superior Court to discharge the writs. As explained in further detail below, the two Non-Settling Petitioners filed a new action challenging Los Angeles County
’
s reapproval of the additional environmental analyses and the Landmark Village and Mission Village projects and related permits.
As with the CDFW action above, in September 2017, the Settling Petitioners settled all of their respective claims in the Landmark Village and Mission Village cases with the Company, leaving only the two Non-Settling Petitioners.
In October 2017, the two Non-Settling Petitioners objected to Los Angeles County’s return to the writs, raising the same issues as to the scope of the trial court’s writ as they raised in the related CDFW action. As requested by the County and the Company, the trial court deferred its ruling on the Non-Settling Petitioners’ objections until the Court of Appeal’s opinion in the related CDFW action had been finalized and that court issued an opinion resolving the Landmark Village and Mission Village appeals as to the scope of the writs. As discussed above, in March 2018, the Supreme Court denied the Non-Settling Petitioners’ petition to review the Court of Appeal's decision in the CDFW action. The parties are now awaiting issuance of the related Court of Appeal opinions as to the scope of the writs in the Landmark Village and Mission Village cases. Based on currently available information, the opinions are expected to be issued in or before June 2018. The Company cannot predict the outcome of these matters until the Court of Appeal’s opinion is final.
Landmark Village/Mission Village
In August 2017, the two Non-Settling Petitioners filed a new petition for writ of mandate in the Superior Court. The petition challenges Los Angeles County’s July 2017 approvals of the Mission Village and Landmark
Village environmental analyses and the two projects based on claims arising under CEQA and the California Water Code. Until a trial court decision has been rendered, the Company cannot predict the outcome of this matter.
Other Permits
In August 2011, the Corps approved the EIS portion of the joint EIS/EIR and issued its provisional Section 404 Clean Water Act authorization (the “Section 404 Permit”) for the Newhall Ranch project. In September 2012, the Los Angeles Regional Water Quality Control Board (the “Regional Board”) unanimously adopted final Section 401 conditions and certified the Section 404 Permit. In October 2012, petitioners Center for Biological Diversity and Wishtoyo Foundation/Ventura Coastkeeper filed a petition for review and reconsideration of the Regional Board’s actions to the State Water Resources Control Board (“State Board”); however, that petition was withdrawn in September 2017 as part of the settlement referenced above in this action and the CDFW, Landmark Village, and Mission Village actions. On October 19, 2012, after consulting with the U.S. Environmental Protection Agency (the “USEPA”), the Corps issued the final Section 404 Permit.
In July 2014, plaintiffs, the Settling Petitioners and the Non-Settling Petitioners, filed a complaint against the Corps and the USEPA in the U.S. District Court, Central District of California (Los Angeles) (“U.S. District Court”). The complaint alleged that those two federal agencies violated various environmental and historic preservation laws in connection with the Section 404 Permit and requested, among other things, that the U.S. District Court vacate the federal agencies’ approvals and prohibit construction activities pending compliance with federal law. The Company was granted intervenor status by the U.S. District Court in light of its interests as the landowner and holder of the Section 404 Permit. In June 2015, the U.S. District Court issued a favorable order granting the Corps’ and the Company’s motions for summary judgment and denying plaintiffs’ summary judgment motion. In September 2015, plaintiffs filed a notice of appeal with the U.S. Court of Appeals for the Ninth Circuit (“Ninth Circuit”). The Ninth Circuit briefing is completed and oral argument occurred in February 2017.
Consistent with the terms of the settlement in this action and the CDFW, Landmark Village, and Mission Village actions, the Settling Petitioners moved to dismiss their claims on appeal and withdraw from the District Court litigation. In October 2017, the Ninth Circuit granted the motion to dismiss the appeal and the claims with prejudice as to the Settling Petitioners. The Ninth Circuit then ordered supplemental briefs to explain the impact of the dismissal, if any, on the remaining claims. The Corps and the Company, on the one hand, and the two Non-Settling Petitioners, on the other hand, filed supplemental briefs pursuant to the Court’s order. The Ninth Circuit has not yet issued its decision. Until a decision has been made by the Ninth Circuit, the Company cannot predict the outcome of this matter.
Other
Other than the actions outlined above, the Company is also a party to various other claims, legal actions, and complaints arising in the ordinary course of business, the disposition of which, in the Company’s opinion, will not have a material adverse effect on the Company’s consolidated financial statements.
As a significant land owner and developer of unimproved land it is possible that environmental contamination conditions could exist that would require the Company to take corrective action. In the opinion of the Company, such corrective actions, if any, would not have a material adverse effect on the Company’s consolidated financial statements.
14. SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental cash flow information for the years ended
December 31, 2017
,
2016
and
2015
is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
2015
|
SUPPLEMENTAL CASH FLOW INFORMATION:
|
|
|
|
|
|
Cash paid for interest, all of which was capitalized to inventories
|
$
|
4,211
|
|
|
$
|
2,807
|
|
|
$
|
—
|
|
|
|
|
|
|
|
NONCASH INVESTNG AND FINANCING ACTIVITIES:
|
|
|
|
|
|
Contingent consideration related to acquisition of the San Francisco Venture (see Note 3)
|
$
|
—
|
|
|
$
|
64,870
|
|
|
$
|
—
|
|
Accrued deferred equity and debt offering costs
|
$
|
—
|
|
|
$
|
1,038
|
|
|
$
|
—
|
|
Capital issued in acquisition of interest in the Management Company (see Note 3)
|
$
|
—
|
|
|
$
|
173,488
|
|
|
$
|
—
|
|
Capital issued in acquisition of interest in the San Francisco Venture (see Note 3)
|
$
|
—
|
|
|
$
|
8,939
|
|
|
$
|
—
|
|
Capital issued in acquisition of interest in the Great Park Venture
|
$
|
—
|
|
|
$
|
419,088
|
|
|
$
|
—
|
|
Capital issued in purchase of rights to 12.5% of Non-Legacy Incentive Compensation from FPC-HF Venture I (see Note 3)
|
$
|
—
|
|
|
$
|
14,110
|
|
|
$
|
—
|
|
Recognition of TRA liability
|
$
|
56,216
|
|
|
$
|
201,845
|
|
|
$
|
—
|
|
15.
SEGMENT REPORTING
As of and for the
year ended
December 31, 2017
, the Company’s reportable segments consist of:
• Newhall—includes the community of Newhall Ranch planned for development in northern Los Angeles County, California. The Newhall segment derives revenues from the sale of residential and commercial land sites to homebuilders, commercial developers and commercial buyers in addition to ancillary operations of operating properties.
• San Francisco—includes The San Francisco Shipyard and Candlestick Point community located on bayfront property in the City of San Francisco, California. The San Francisco segment derives revenues from the sale of residential and commercial land sites to homebuilders, commercial developers and commercial buyers in addition to management services provided to affiliates of a related party.
• Great Park—includes Great Park Neighborhoods being developed adjacent to and around the Orange County Great Park, a metropolitan park under construction in Orange County, California. This segment also includes management services provided by the Management Company to the Great Park Venture, the owner of the Great Park Neighborhoods. As of
December 31, 2017
, the Company had a
37.5%
Percentage Interest in the Great Park Venture and accounts for the investment under the equity method. The reported segment information for the Great Park segment includes the results of 100% of the Great Park Venture at the historical basis of the venture, which did not apply push down accounting in the Formation Transactions. The Great Park segment derives revenues from the sale of residential and commercial land sites to homebuilders, commercial developers and commercial buyers in addition to management services provided by the Company to the Great Park Venture.
• Commercial—includes Five Point Gateway Campus, an office and research and development campus within the Great Park Neighborhoods, consisting of
four
newly constructed buildings.
Two
of the
four
buildings are leased to one tenant under a
20
-year triple net lease which commenced in August 2017. The Company and a subsidiary of Lennar have entered into separate
130
-month full service gross leases. This segment also includes property management service provided by the Management Company to the Gateway Commercial Venture, the entity that owns the Five Point Gateway Campus. As of
December 31, 2017
, the Company had a
75%
interest in the Gateway Commercial Venture and accounts for the investment under the equity method. The reported segment information for the Commercial segment includes the results of 100% of the Gateway Commercial Venture.
Segment operating results and reconciliations to the Company’s consolidated balances are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2017
|
|
(in thousands)
|
|
Newhall
|
|
San Francisco
|
|
Great Park
|
|
Commercial
|
|
Total reportable segments
|
|
Removal of Great Park Venture (1)
|
|
Removal of Gateway Commercial Venture
|
|
Add investment in Great Park Venture
|
|
Add investment in Gateway Commercial Venture
|
|
Other eliminations (2)
|
|
Corporate and unallocated (3)
|
|
Total Consolidated
|
Revenues
|
$
|
31,568
|
|
|
$
|
91,187
|
|
|
$
|
497,173
|
|
|
$
|
9,682
|
|
|
$
|
629,610
|
|
|
$
|
(480,934
|
)
|
|
$
|
(9,245
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
139,431
|
|
Depreciation and amortization
|
553
|
|
|
316
|
|
|
—
|
|
|
4,504
|
|
|
5,373
|
|
|
—
|
|
|
(4,504
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
185
|
|
|
1,054
|
|
Interest income
|
3
|
|
|
—
|
|
|
2,226
|
|
|
—
|
|
|
2,229
|
|
|
(2,226
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,574
|
|
|
2,577
|
|
Interest expense
|
—
|
|
|
—
|
|
|
—
|
|
|
3,628
|
|
|
3,628
|
|
|
—
|
|
|
(3,628
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Segment profit (loss)/net profit (loss)
|
(12,358
|
)
|
|
(19,268
|
)
|
|
42,219
|
|
|
458
|
|
|
11,051
|
|
|
(36,061
|
)
|
|
(21
|
)
|
|
5,760
|
|
|
16
|
|
|
—
|
|
|
43,451
|
|
|
24,196
|
|
Other significant items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment assets
|
444,407
|
|
|
1,123,266
|
|
|
1,578,142
|
|
|
456,292
|
|
|
3,602,107
|
|
|
(1,447,604
|
)
|
|
(456,006
|
)
|
|
423,492
|
|
|
106,516
|
|
|
(80,890
|
)
|
|
830,740
|
|
|
2,978,355
|
|
Inventory assets and real estate related assets, net
|
361,943
|
|
|
1,063,949
|
|
|
1,089,513
|
|
|
448,795
|
|
|
2,964,200
|
|
|
(1,089,513
|
)
|
|
(448,795
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,425,892
|
|
Expenditures for long-lived assets (4)
|
84,024
|
|
|
62,188
|
|
|
311,932
|
|
|
446,072
|
|
|
904,216
|
|
|
(311,932
|
)
|
|
(446,072
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
146,213
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2016
|
|
(in thousands)
|
|
Newhall
|
|
San Francisco
|
|
Great Park
|
|
Commercial
|
|
Total reportable segments
|
|
Removal of Great Park Venture (1)
|
|
Removal of Gateway Commercial Venture
|
|
Add investment in Great Park Venture
|
|
Add investment in Gateway Commercial Venture
|
|
Other eliminations (2)
|
|
Corporate and unallocated (3)
|
|
Total Consolidated
|
Revenues
|
$
|
22,044
|
|
|
$
|
3,999
|
|
|
$
|
35,830
|
|
|
$
|
—
|
|
|
$
|
61,873
|
|
|
$
|
(22,505
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
39,368
|
|
Depreciation and amortization
|
492
|
|
|
195
|
|
|
2,113
|
|
|
—
|
|
|
2,800
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
58
|
|
|
2,858
|
|
Interest income
|
91
|
|
|
—
|
|
|
11,723
|
|
|
—
|
|
|
11,814
|
|
|
(11,723
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
77
|
|
|
168
|
|
Segment loss/net loss
|
(22,703
|
)
|
|
(14,204
|
)
|
|
(67,668
|
)
|
|
—
|
|
|
(104,575
|
)
|
|
71,980
|
|
|
—
|
|
|
(1,356
|
)
|
|
—
|
|
|
—
|
|
|
(62,666
|
)
|
|
(96,617
|
)
|
Other significant items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment assets
|
416,445
|
|
|
1,134,196
|
|
|
1,669,679
|
|
|
—
|
|
|
3,220,320
|
|
|
(1,496,102
|
)
|
|
—
|
|
|
417,732
|
|
|
—
|
|
|
(69,462
|
)
|
|
42,094
|
|
|
2,114,582
|
|
Inventory assets
|
280,377
|
|
|
1,080,074
|
|
|
1,115,818
|
|
|
—
|
|
|
2,476,269
|
|
|
(1,115,818
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,360,451
|
|
Expenditures for long-lived assets (4)
|
21,686
|
|
|
42,113
|
|
|
123,008
|
|
|
—
|
|
|
186,807
|
|
|
(123,008
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
461
|
|
|
64,260
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2015
|
|
(in thousands)
|
|
Newhall
|
|
San Francisco
|
|
Great Park
|
|
Commercial
|
|
Total reportable segments
|
|
Removal of Great Park Venture (1)
|
|
Removal of Gateway Commercial Venture
|
|
Add investment in Great Park Venture
|
|
Add investment in Gateway Commercial Venture
|
|
Other eliminations (2)
|
|
Corporate and unallocated (3)
|
|
Total Consolidated
|
Revenues
|
$
|
35,582
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
35,582
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
35,582
|
|
Depreciation and amortization
|
722
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
722
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
722
|
|
Interest income
|
246
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
246
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
246
|
|
Segment profit/net loss
|
3,188
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3,188
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(7,010
|
)
|
|
(3,822
|
)
|
(1) Represents the removal of the Great Park Venture’s and Gateway Commercial Venture’s operating results and balances that are included in the Great Park segment and Commercial segment operating results and balances, respectively, but are not included in the Company’s consolidated results and balances.
(2) Represents intersegment balances that eliminate in consolidation.
(3) Corporate and unallocated activity is primarily comprised of corporate general, and administrative expenses and income taxes. Corporate and unallocated assets consist of cash, marketable securities, receivables, and deferred equity offering and financing costs.
(4) Expenditures for long-lived inventory assets are net of cost reimbursements and include noncash project accruals and capitalized interest.
Lennar and several of its affiliates represented one of the Company’s major customers for the years ended December 31, 2017, 2016 and 2015, and accounted for approximately
$93.4 million
or
67%
,
$6.0 million
or
15%
and
$6.1 million
or
17%
, respectively, of total consolidated revenues. These revenues represented land sales and management services revenues, and were reported in the Newhall and San Francisco segments. The Great Park Venture represented another of the Company’s major customers for the years ended December 31, 2017 and 2016, and accounted for approximately
$16.2 million
or
12%
and
$13.3 million
or
34%
, respectively, of total consolidated revenues. These revenues represented management services revenues and were reported in the Great Park segment.
16.
SHARE-BASED COMPENSATION
On May 2, 2016, the Board of the Company authorized and approved the Company’s Incentive Award Plan. In doing so, the Board authorized the issuance of up to
8,500,822
Class A common shares of the Holding Company under the Incentive Award Plan. The Incentive Award Plan provides for the grant of share options, restricted shares, restricted share units, performance awards (which include, but are not limited to, cash bonuses), distribution equivalent awards, deferred share awards, share payment awards, share appreciation rights, other incentive awards (which include, but are not limited to, LTIP Unit awards (as defined in the Incentive Award Plan) and performance share awards. As of
December 31, 2017
, there were
5,697,244
remaining Class A common shares available for future issuance under the Incentive Award Plan.
Restricted Share Units
As part of the authorization and approval of the Incentive Award Plan on May 2, 2016, the Board of the Company also authorized and approved the issuance, grant, and delivery of up to
2,350,406
Restricted Share Units (“RSUs”), all of which have been granted as of
December 31, 2017
. A portion of the RSUs were granted to management and had no requisite service period and were fully vested at the grant date. The remaining portion of the RSUs were granted to management and non-employee consultants and are subject to
three
or
four
year vesting terms. All of the RSUs settle on a
one
-for-one basis in Class A common shares in
four
equal annual installments with the first settlement having occurred on January 15, 2017. The RSUs may not be sold or transferred prior to settlement. In general, RSUs which have not vested are forfeited upon termination of employment or consulting arrangements. No RSUs were forfeited during the
year ended
December 31, 2017
. The Company measured the value of RSUs at fair value by applying a discount against the estimated fair value of the Company’s underlying outstanding Common shares attributed to a lack of marketability of the RSUs due to the deferred settlement dates. The Company utilized the Protective Put, Finnerty Put and the Asian Put models as well as certain market inputs to calculate the discount for post-vesting restrictions. The discount applied to the RSUs ranged from
12%
to
19%
. The Company amortizes the fair value of outstanding RSUs as share-based compensation expense over the requisite service period, if any, on a straight-line basis.
In January 2017, in connection with the first settlement of RSUs, the Company reacquired
282,555
vested RSUs for
$6.5 million
for the purpose of settling tax withholding obligations of employees.
Restricted Shares
In January 2017, the Company granted
396,028
restricted shares to executive officers of the Company, entitling the holders to non-forfeitable dividends. The restricted shares vest in three equal annual installments beginning in January 2018. In general, the restricted shares which have not vested are forfeited upon termination of employment. No restricted shares were forfeited during the
year ended
December 31, 2017
. The Company measured the fair value of the restricted shares based on the estimated fair value of the Company’s underlying Class A common shares determined using a discounted cash flow analysis. The inputs utilized in the Company’s estimate were selected by the Company based on information available to the Company, including relevant information obtained after the measurement date, as to the assumptions that market participants would make at the measurement date. The Company amortizes the grant date fair value over the requisite service period on a straight-line basis.
Share Payments
In September 2017, the Company granted
57,144
Class A common shares to certain directors as compensation for service on the Board. The shares were fully vested on the grant date. The fair value of the compensation was determined based on the closing market price of the Company’s Class A common shares on the grant date.
The following table summarizes share-based equity compensation activity for the years ended
December 31, 2017
and
2016
:
|
|
|
|
|
|
|
|
|
Share Based Awards
(in thousands)
|
|
Weighted-
Average Grant
Date Fair Value
|
Nonvested at January 1, 2016
|
—
|
|
|
$
|
—
|
|
Granted
|
2,350
|
|
|
$
|
19.81
|
|
Vested
|
(1,045
|
)
|
|
$
|
19.62
|
|
Nonvested at December 31, 2016
|
1,305
|
|
|
$
|
20.00
|
|
Granted
|
453
|
|
|
$
|
15.52
|
|
Vested
|
(673
|
)
|
|
$
|
19.26
|
|
Nonvested at December 31, 2017
|
1,085
|
|
|
$
|
18.57
|
|
Share-based compensation expense was
$18.5 million
for the
year ended
December 31, 2017
and
$27.7 million
for the
year ended
December 31, 2016
. Share-based compensation expense is included in selling, general, and administrative expenses in the accompanying consolidated statements of operations. Approximately
$6.2 million
of total unrecognized compensation cost related to non-vested awards is expected to be recognized over a weighted–average period of
1.9
years from
December 31, 2017
. The estimated fair value at vesting of share-based awards that vested during the years ended
December 31, 2017
and
2016
was
$10.5 million
and
$20.5 million
, respectively.
17.
EMPLOYEE BENEFIT PLANS
Retirement Plan
—The Newhall Land and Farming Company Retirement Plan (the “Retirement Plan”) is a defined benefit plan that is funded by the Company and qualified under the Employee Retirement Income Security Act. Generally, all associates were eligible to participate in the Retirement Plan after
one
year of employment and attainment of age
21
. Participants’ benefits equal (a) plus (b) plus (c), not less than the greater of (d) and (e):
|
|
a.
|
1.35%
of the participant’s average monthly compensation up to Social Security-covered compensation, plus
2%
of average monthly compensation in excess of covered compensation, all times credited service through December 31, 1996, up to
30 years
.
|
|
|
b.
|
1.08%
of the participant’s average monthly compensation up to Social Security-covered compensation, plus
1.60%
of average monthly compensation in excess of covered compensation, all times credited service after December 31, 1996. Credited service for (a) and (b) cannot exceed
30 years
.
|
|
|
c.
|
The employee provided benefit based on the participant’s contribution account.
|
|
|
d.
|
For employees who were participants as of January 1, 1985,
$11
per month for each year of service up to a maximum of
30 years
of service.
|
|
|
e.
|
The accrued benefit as of December 31, 1988, under the terms of the plan in effect on that date.
|
On January 30, 2004, associates participating in the Retirement Plan received notice that the Retirement Plan was amended to cease future benefit accruals effective March 17, 2004. The amendment did not affect any benefit earned for service through March 17, 2004, for all existing and retired associates.
The Company’s contribution to the Retirement Plan is determined by consulting actuaries on the basis of customary actuarial considerations, including total covered payroll of participants, benefits paid, earnings, and appreciation in the Retirement Plan’s funds. The Company’s funding policy is to contribute no more than the maximum tax-deductible amount.
The Retirement Plan’s funded status and amounts recognized in the Company’s consolidated financial statements for the Retirement Plan as of and for the years ended
December 31, 2017
and
2016
are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
Change in benefit obligation:
|
|
|
|
Projected benefit obligation—beginning of year
|
$
|
20,919
|
|
|
$
|
20,471
|
|
Interest cost
|
818
|
|
|
859
|
|
Benefits paid
|
(929
|
)
|
|
(631
|
)
|
Actuarial loss
|
814
|
|
|
220
|
|
Projected benefit obligation—end of year
|
$
|
21,622
|
|
|
$
|
20,919
|
|
Change in plan assets:
|
|
|
|
|
|
Fair value of plan assets—beginning of year
|
$
|
16,778
|
|
|
$
|
15,774
|
|
Actual gain on plan assets
|
2,450
|
|
|
894
|
|
Employer contributions
|
530
|
|
|
741
|
|
Benefits paid
|
(929
|
)
|
|
(631
|
)
|
Fair value of plan assets—end of year
|
$
|
18,829
|
|
|
$
|
16,778
|
|
Funded status
|
$
|
(2,793
|
)
|
|
$
|
(4,141
|
)
|
Amounts recognized in the consolidated balance sheet—liability
|
$
|
2,793
|
|
|
$
|
4,141
|
|
Amounts recognized in accumulated other comprehensive loss—net actuarial loss
|
$
|
(4,266
|
)
|
|
$
|
(4,988
|
)
|
The accumulated benefit obligation for the Retirement Plan was
$21.6 million
and
$20.9 million
at
December 31, 2017
and
2016
, respectively.
The components of net periodic benefit and other amounts recognized in accumulated other comprehensive loss as of
December 31, 2017
,
2016
and
2015
, are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
2015
|
Net periodic benefit:
|
|
|
|
|
|
Interest cost
|
$
|
818
|
|
|
$
|
859
|
|
|
$
|
817
|
|
Expected return on plan assets
|
(1,024
|
)
|
|
(1,007
|
)
|
|
(1,042
|
)
|
Amortization of net actuarial loss
|
113
|
|
|
91
|
|
|
81
|
|
Net periodic benefit
|
(93
|
)
|
|
(57
|
)
|
|
(144
|
)
|
Adjustment to accumulated other comprehensive loss:
|
|
|
|
|
|
|
|
|
Net actuarial (gain) loss
|
(611
|
)
|
|
332
|
|
|
189
|
|
Amortization of net actuarial loss
|
(113
|
)
|
|
(91
|
)
|
|
(81
|
)
|
Total adjustment to accumulated other comprehensive loss
|
(724
|
)
|
|
241
|
|
|
108
|
|
Total recognized in net periodic benefit and accumulated other comprehensive loss
|
$
|
(817
|
)
|
|
$
|
184
|
|
|
$
|
(36
|
)
|
Net actuarial losses of
$0.1 million
are estimated to be amortized from accumulated other comprehensive loss into net periodic pension cost over the next fiscal year.
The weighted-average assumptions used to determine benefit obligations as of
December 31, 2017
and
2016
were as follows:
|
|
|
|
|
|
2017
|
|
2016
|
Discount rate
|
3.55%
|
|
4.10%
|
Rate of compensation increase
|
N/A
|
|
N/A
|
The weighted-average assumptions used to determine net periodic expense for the years ended
December 31, 2017
,
2016
and
2015
, were as follows:
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
2015
|
Discount rate
|
4.10%
|
|
4.35%
|
|
4.00%
|
Rate of compensation increase
|
N/A
|
|
N/A
|
|
N/A
|
Expected long-term return on plan assets
|
6.33%
|
|
6.32%
|
|
6.68%
|
To develop the long-term rate of return on assets assumption, the Company considered the current level of expected return on risk-free investments (primarily U.S. government bonds), the historical level of the risk premium associated with the other asset classes in which the portfolio is invested, and the expectations for future returns of each asset class.
Plan Assets
—The Company’s investment policy and strategy for the Retirement Plan is to ensure the appropriate level of diversification and risk. The asset allocation targets were approximately
55%
in equity investments (Standard & Poor’s Large Cap Index Funds, Small Cap Equity, Mid Cap Equity, and International Equity) and approximately
45%
in fixed-income investments (U.S. bond funds and domestic fixed income). In accordance with the policy, the Retirement Plan assets are monitored and the investments rebalanced quarterly if there was more than
5%
deviation from target allocation for the Retirement Plan. The Retirement Plan’s assets consist of pooled or collective investment funds that have more than one investor. The Retirement Plan estimates the fair value of its interest in such funds at a net asset value (“NAV”) per unit reported by the trustee. The NAV per unit is the result of accumulated values of the underlying investments held by the fund, which are valued daily. NAV is utilized by the Company as a practical expedient as of the consolidated balance sheet date. No adjustments were
made to the NAV of the funds. The Retirement Plan’s assets may be redeemed at the NAV per unit with no restrictions.
The Retirement Plan’s assets at fair value as of
December 31, 2017
and
2016
, are as follows (in thousands):
|
|
|
|
|
|
|
|
|
Asset Category
|
2017
|
|
2016
|
Pooled and/or collective funds:
|
|
|
|
|
|
Equity funds:
|
|
|
|
Large cap
|
$
|
6,068
|
|
|
$
|
5,058
|
|
Mid cap
|
1,197
|
|
|
1,022
|
|
Small cap
|
1,777
|
|
|
1,597
|
|
International
|
2,060
|
|
|
1,621
|
|
Fixed-income funds—U.S. bonds and short term
|
7,727
|
|
|
7,480
|
|
Total
|
$
|
18,829
|
|
|
$
|
16,778
|
|
The Company expects to contribute
$0.5 million
to the Retirement Plan in 2018 and expects future benefit payments to be paid as follows (in thousands):
|
|
|
|
|
2018
|
999
|
|
2019
|
968
|
|
2020
|
2,267
|
|
2021
|
930
|
|
2022
|
1,472
|
|
2023-2026
|
9,980
|
|
|
$
|
16,616
|
|
Employee Savings Plan
—The Company has an employee savings plan under Section 401(k) of the Internal Revenue Code, which is available to all eligible associates. Certain associate contributions may be supplemented by the Company. The Company’s contributions were
$0.7 million
,
$0.2 million
and
$0.2 million
for the years ended
December 31, 2017
,
2016
and
2015
, respectively.
18. INCOME TAXES
The Company accounts for income taxes in accordance with ASC 740, which requires an asset and liability approach for measuring deferred taxes based on temporary differences between the financial statements and tax bases of assets and liabilities existing at each balance sheet date using enacted tax rates for the years in which taxes are expected to be paid or recovered.
Upon formation, the Holding Company elected to be treated as a corporation for U.S. federal, state, and local tax purposes. All operations are carried on through the Holding Company’s subsidiaries, the majority of which are pass-through entities that are generally not subject to federal or state income taxation, as all of the taxable income, gains, losses, deductions, and credits are passed through to the partners. The Holding Company is responsible for income taxes on its allocable share of the Operating Company’s income or gain.
The (expense) benefit for income taxes for the years ended
December 31, 2017
,
2016
and
2015
was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
2015
|
Deferred income tax (expense) benefit:
|
|
|
|
|
|
Federal
|
$
|
(28,643
|
)
|
|
$
|
13,021
|
|
|
$
|
1,006
|
|
State
|
(6,501
|
)
|
|
3,826
|
|
|
279
|
|
Total deferred income tax (expense) benefit
|
(35,144
|
)
|
|
16,847
|
|
|
1,285
|
|
Decrease (increase) in valuation allowance
|
35,146
|
|
|
(8,901
|
)
|
|
—
|
|
Expiration of unused loss carryforwards
|
(2
|
)
|
|
(58
|
)
|
|
(739
|
)
|
(Expense) benefit for income taxes
|
$
|
—
|
|
|
$
|
7,888
|
|
|
$
|
546
|
|
Due to the Holding Company generating federal and state tax losses, the Holding Company had no current federal or state income tax provision for the years ended
December 31, 2017
,
2016
and
2015
.
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of the assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The tax effects of significant temporary differences are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
Deferred tax assets
|
|
|
|
Net operating loss carryforward
|
$
|
91,742
|
|
|
$
|
110,433
|
|
Tax receivable agreement
|
42,668
|
|
|
82,256
|
|
Other
|
1,043
|
|
|
1,410
|
|
Valuation allowance
|
(7,891
|
)
|
|
(15,707
|
)
|
Total deferred tax assets
|
127,562
|
|
|
178,392
|
|
Deferred tax liabilities-investments in subsidiaries
|
(127,562
|
)
|
|
(178,392
|
)
|
Deferred tax asset, net
|
$
|
—
|
|
|
$
|
—
|
|
As a result of business combination accounting, the Holding Company’s investment balance related to its investment in the Operating Company increased by approximately
$170.4 million
over the Holding Company’s tax basis in the Operating Company. As a result of this temporary basis difference, the Holding Company recorded a deferred tax liability of
$69.5 million
on the acquisition date of May 2, 2016.
A reduction of the carrying amounts of deferred tax assets by a valuation allowance is required, if based on the available evidence; it is more likely than not that such assets will not be realized. In the continual assessment of the requirement for a valuation allowance, appropriate consideration is given to all positive and negative evidence related to the realization of the deferred tax assets. This assessment considers, among other matters, the nature, frequency, and severity of current and cumulative losses; forecasts of future profitability; the duration of statutory carryforward periods; the Holding Company’s experience with loss carryforwards not expiring unused; and tax-planning alternatives. The amount of the valuation allowance recorded against the deferred tax asset could be adjusted if there are changes to the positive and negative factors discussed above.
At December 31, 2015, the Holding Company did not have a valuation allowance. As a result of the Holding Company’s assessment of positive and negative evidence, it was determined that a valuation allowance of
$12.5 million
should be recognized directly to contributed capital in connection with the initial recording of the TRA liability and the associated deferred tax asset. Following that assessment, the valuation allowance was reduced by
$5.7 million
associated with an increase in deferred tax liabilities resulting from the issuance of RSUs; during the balance of the year ended December 31, 2016, the Holding Company recognized an additional valuation allowance of $
8.9 million
as a component of deferred income tax benefit. During the year ended December 31, 2017, the
valuation allowance decreased by
$29.8 million
and
$5.3 million
as a result of operating income and a decrease in deferred taxes attributable to federal tax rate reductions enacted as part of the Tax Cuts and Jobs Act, respectively. Also during 2017, the valuation allowance increased by
$27.3 million
as a result of deferred taxes established through adjustments to contributed capital principally associated with increases in the payable pursuant to the tax receivable agreement. The net decrease in the valuation allowance for the year ended December 31, 2017 is
$7.8 million
.
With the enactment of the Tax Cuts and Jobs Act (the “Tax Act”), the corporate federal income tax rate dropped from 35% to a flat 21% rate effective January 1, 2018. The SEC staff issued the Staff Accounting Bulletin 118 (“SAB 118”), which provides guidance on accounting for the tax effects of the Tax Act and provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASC 740. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Tax Act for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the Tax Act.
As of December 31, 2017, we have completed the majority of our accounting for the tax effects of the Tax Act. As a result of the rate change, the Company was required to revalue its deferred tax asset at December 31, 2017 and recorded a provisional adjustment to reduce its value by
$5.3 million
, which is included in the tax provision for 2017. The provisional amount recorded is subject to revisions as we complete our analysis of the Tax Act, correct and prepare necessary data, and interpret any additional guidance issued by the U.S. Treasury Department, Internal Revenue Service (“IRS”), FASB, and other standard-setting and regulatory bodies. Our accounting for the tax effects of the Tax Act will be completed during the one-year enactment period.
At December 31, 2017, the Holding Company had federal tax effected NOL carryforwards totaling
$70.7 million
, and various state tax effected NOL carryforwards, net of federal income tax benefit, totaling
$21.1 million
. Federal and California NOLs may be carried forward up to 20 years to offset future taxable income and begin to expire in 2029.
The Internal Revenue Code generally limits the availability of NOLs if an ownership change occurs within any three-year period under Section 382. If the Holding Company were to experience an ownership change of more than 50%, the use of all NOLs (and potentially other built-in losses) would generally be subject to an annual limitation equal to the value of the Holding Company’s equity before the ownership change, multiplied by the long-term tax-exempt rate. The Holding Company estimates that after giving effect to various transactions by members who hold a 5% or greater interest in the Holding Company, it has not experienced an ownership change as computed in accordance with Section 382. In the event of an ownership change, the Holding Company’s use of the NOLs may be limited and not fully available for realization.
With regard to the TRA (see Note 12), the Holding Company has established a liability for the payments considered probable and estimable that would be required under the TRA based upon, among other things, the book value of its assets. This liability is not currently recognized for tax purposes and will give rise to tax deductions as payments are made. Accordingly, a deferred tax asset has been reflected for the net effect of this temporary difference.
A reconciliation of the statutory rate and the effective tax rate for 2017, 2016, and 2015 is as follows:
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
2015
|
Statutory rate
|
35.00
|
%
|
|
35.00
|
%
|
|
35.00
|
%
|
State income taxes-net of federal income tax benefit
|
5.75
|
|
|
5.75
|
|
|
5.75
|
|
Statutory federal tax rate change
|
21.30
|
|
|
—
|
|
|
—
|
|
Noncontrolling interests
|
82.58
|
|
|
(24.63
|
)
|
|
(10.61
|
)
|
Other
|
0.67
|
|
|
—
|
|
|
(0.72
|
)
|
Deferred tax asset valuation allowance
|
(145.31
|
)
|
|
(8.51
|
)
|
|
—
|
|
Expiration of unused loss carryforwards
|
0.01
|
|
|
(0.06
|
)
|
|
(16.92
|
)
|
Effective rate
|
—
|
%
|
|
7.55
|
%
|
|
12.50
|
%
|
At December 31, 2017 and 2016, the Holding Company did not have any gross unrecognized tax benefits, and did not require an accrual for interest or penalties.
For the year ended
December 31, 2017
, the Company recorded
no
benefit for income taxes (after application of a
$35.1 million
decrease in the Company’s valuation allowance). For the years ended December 31, 2016 and 2015, the Company recorded a benefit for income taxes of
$7.9 million
and
$0.5 million
, respectively, due to the Holding Company generating federal and state tax losses. The effective tax rates for the years ended
December 31, 2017
,
2016
and 2015, differ from the
35%
federal statutory and applicable state statutory tax rates primarily due to the Company’s valuation allowance on its book losses and to the pre-tax portion of income and losses that are passed through to the other partners of the Operating Company and the San Francisco Venture and from the expiration of unused capital loss carryforwards in 2015 and from the change in the statutory federal tax rate in 2017.
The Holding Company files income tax returns in the U.S. federal jurisdiction and in the state of California. As a result of tax net operating losses incurred by the Holding Company for the years ended December 31, 2009 through December 31, 2016, the Holding Company is subject to U.S. federal, state, and local examinations by tax authorities for the years beginning 2009 through 2016. The Company is not currently under examination by any tax authority. The Company classifies any interest and penalties related to income taxes assessed by jurisdiction as part of income tax expense. The Company has concluded that there were no significant uncertain tax positions requiring recognition in its financial statements, nor has the Company been assessed interest or penalties by any major tax jurisdictions related to any open tax periods.
19.
EARNINGS PER SHARE
The Company uses the two-class method in its computation of earnings per share. Pursuant to the terms of the Five Point Holdings, LLC Agreement, the Class A common shares and the Class B common shares are entitled to receive distributions at different rates, with each Class B common share receiving
0.03%
of the distributions paid on each Class A common share. Under the two-class method, the Company’s net income available to common shareholders is allocated between the two classes of common shares on a fully-distributed basis and reflects residual net income after amounts attributed to noncontrolling interests. In the event of a net loss, the Company determined that both classes of common shares share in the Company’s losses, and they share in the losses using the same mechanism as the distributions. For the years ended
December 31, 2017
and
2016
, the Company is operating in a net income and net loss position, respectively. No distributions were declared for either periods, as such, net income and losses attributable to the parent were allocated to the Class A common shares and Class B common shares at an amount per Class B common share equal to
0.03%
multiplied by the amount per Class A common share. Basic income or loss per Class A common share is determined by dividing net income or loss allocated to Class A Common shareholders by the weighted average number of Class A common shares outstanding for the period. Basic
income or loss per Class B common share is determined by dividing net income or loss allocated to the Class B common shares by the weighted average number of Class B common shares outstanding during the period.
Diluted income or loss per share calculations for both Class A common shares and Class B common shares contemplate adjustments to the numerator and the denominator under the if-converted method for the convertible Class B common shares, the exchangeable Class A Units of the San Francisco Venture and Class A Common Units of the Operating Company, and the treasury stock method for RSUs and restricted shares, and are included in the calculation if determined to be dilutive.
The following table summarizes the basic and diluted earnings per share/unit calculations for the
year ended
December 31, 2017
,
2016
and
2015
(in thousands, except unit/shares and per unit/share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
2015
|
Numerator:
|
|
|
|
|
|
Net income (loss) attributable to the Company
|
$
|
73,235
|
|
|
$
|
(33,266
|
)
|
|
$
|
(2,685
|
)
|
Adjustments to net income (loss) attributable to the Company
|
(750
|
)
|
|
(505
|
)
|
|
—
|
|
Net income (loss) attributable to common shareholders
|
$
|
72,485
|
|
|
$
|
(33,771
|
)
|
|
$
|
(2,685
|
)
|
Numerator
—
basic common shares:
|
|
|
|
|
|
Net income (loss) attributable to common shareholders
|
$
|
72,485
|
|
|
$
|
(33,771
|
)
|
|
$
|
(2,685
|
)
|
Net income (loss) allocable to participating securities
|
$
|
(506
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
Allocation of net income (loss) among common shareholders
|
$
|
71,979
|
|
|
$
|
(33,771
|
)
|
|
$
|
(2,685
|
)
|
Numerator for basic net income (loss) available to Class A Common Shareholders/Unitholders
|
$
|
71,947
|
|
|
$
|
(33,755
|
)
|
|
$
|
(2,685
|
)
|
Numerator for basic net income (loss) available to Class B Common Shareholders
|
$
|
32
|
|
|
$
|
(16
|
)
|
|
—
|
|
Numerator
—
diluted common shares:
|
|
|
|
|
|
Net income (loss) attributable to common shareholders
|
$
|
72,485
|
|
|
$
|
(33,771
|
)
|
|
$
|
(2,685
|
)
|
Reallocation of income (loss) to Company upon assumed exchange of common units
|
$
|
(48,289
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
Net income allocated to participating securities
|
$
|
(69
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
Allocation of net income (loss) among common shareholders
|
$
|
24,127
|
|
|
$
|
(33,771
|
)
|
|
$
|
(2,685
|
)
|
Numerator for diluted net income (loss) available to Class A Common Shareholders/Unitholders
|
$
|
24,123
|
|
|
$
|
(33,755
|
)
|
|
$
|
(2,685
|
)
|
Numerator for diluted net income (loss) available to Class B Common Shareholders
|
$
|
4
|
|
|
$
|
(16
|
)
|
|
$
|
—
|
|
Denominator:
|
|
|
|
|
|
Basic weighted average Class A common shares outstanding
|
54,006,954
|
|
|
37,795,447
|
|
|
36,613,190
|
|
Diluted weighted average Class A common shares outstanding
|
133,007,828
|
|
|
37,795,447
|
|
|
36,613,190
|
|
Basic and diluted weighted average Class B common shares outstanding
|
78,821,553
|
|
|
49,547,050
|
|
|
—
|
|
Basic earnings (loss) per share/unit:
|
|
|
|
|
|
Class A common shares/Unit
|
$
|
1.33
|
|
|
$
|
(0.89
|
)
|
|
$
|
(0.07
|
)
|
Class B common shares
|
$
|
0.00
|
|
|
$
|
(0.00
|
)
|
|
—
|
|
Diluted earnings (loss) per share/unit:
|
|
|
|
|
|
Class A common shares/Unit
|
$
|
0.18
|
|
|
$
|
(0.89
|
)
|
|
$
|
(0.07
|
)
|
Class B common shares
|
$
|
0.00
|
|
|
$
|
(0.00
|
)
|
|
—
|
|
|
|
|
|
|
|
Anti-dilutive potential RSUs
|
—
|
|
|
1,304,804
|
|
|
—
|
|
Anti-dilutive potential Class A common shares/Units
(weighted average)
|
—
|
|
|
53,826,230
|
|
|
12,807,605
|
|
20.
ACCUMULATED OTHER COMPREHENSIVE LOSS
Accumulated other comprehensive loss attributable to the Company consists of unamortized defined benefit pension plan net actuarial losses that totaled
$2.5 million
at both
December 31, 2017
and
2016
, net of tax
benefits of
$0.7 million
and
$0.3 million
, respectively. At
December 31, 2017
and
2016
, the Company held a full valuation allowance related to the accumulated tax benefits, respectively. Accumulated other comprehensive loss of
$1.8 million
and
$2.5 million
is included in noncontrolling interests at
December 31, 2017
and
2016
, respectively. Net actuarial gains or losses are re-determined annually or upon remeasurement events and principally arise from changes in the rate used to discount benefit obligations and differences between expected and actual returns on plan assets. Reclassifications from accumulated other comprehensive loss to net loss related to amortization of net actuarial losses were approximately
$64,000
,
$33,000
, and
$35,000
, net of taxes, and are included in selling, general, and administrative expenses on the accompanying consolidated statements of operations for the years ended
December 31, 2017
,
2016
, and
2015
, respectively.
21. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter
|
|
(in thousands, except per share/unit amounts)
|
|
First
|
|
Second
|
|
Third
|
|
Fourth
(1)
|
2017
|
|
|
|
|
|
|
|
Revenues
|
$
|
92,303
|
|
|
$
|
13,246
|
|
|
$
|
11,619
|
|
|
$
|
22,263
|
|
Income (loss) before income tax benefit
|
(23,124
|
)
|
|
(24,289
|
)
|
|
(10,311
|
)
|
|
81,920
|
|
Net income (loss) attributable to the Company
|
(7,842
|
)
|
|
(9,783
|
)
|
|
(4,467
|
)
|
|
95,327
|
|
Net income (loss) attributable to the Company per Class A Share/Unit (Basic)
|
(0.20
|
)
|
|
(0.19
|
)
|
|
(0.07
|
)
|
|
1.50
|
|
Net income (loss) attributable to the Company per Class A Share/Unit (Diluted)
|
(0.20
|
)
|
|
(0.19
|
)
|
|
(0.07
|
)
|
|
0.56
|
|
Net income (loss) attributable to the Company per Class B Share/Unit (Basic and diluted)
|
(0.00
|
)
|
|
(0.00
|
)
|
|
(0.00
|
)
|
|
0.00
|
|
2016
|
|
|
|
|
|
|
|
Revenues
|
$
|
4,498
|
|
|
$
|
7,219
|
|
|
$
|
11,122
|
|
|
$
|
16,529
|
|
Loss before income tax benefit
|
(11,465
|
)
|
|
(54,494
|
)
|
|
(19,081
|
)
|
|
(19,465
|
)
|
Net loss attributable to the Company
|
(5,124
|
)
|
|
(18,661
|
)
|
|
(6,394
|
)
|
|
(3,087
|
)
|
Net loss attributable to the Company per Class A Share/Unit (Basic and diluted)
|
(0.14
|
)
|
|
(0.50
|
)
|
|
(0.17
|
)
|
|
(0.08
|
)
|
Net loss attributable to the Company per Class B Share/Unit (Basic and diluted)
|
—
|
|
|
(0.00
|
)
|
|
(0.00
|
)
|
|
(0.00
|
)
|
(1) Included in the quarterly financial results for the fourth quarter of 2017 is other income of
$105.6 million
related to a reduction in the Company’s payable pursuant to tax receivable agreement, primarily as a result of the Tax Act’s reduction in the corporate tax rate.