Five Point Holdings, LLC

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.



�	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

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.



�	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	�%

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.