HOMEFED CORPORATION (OTCMKTS:HOFD) Files An 8-K Material ImpairmentsItem 2.06
Material Impairments
HomeFed Corporation (“we” “us,” or “our”) previously reported that we may not develop the Pacho Property unless we are able to obtain fee title from Pacific Gas & Electric (“PG&E”) within a reasonable period of time. The original 99-year lease term to the Pacho Property expires in 2067. The lease includes an option to renew it for an additional 99-year term.
We have made no progress in obtaining the fee title from PG&E. Moreover, because of questions recently raised in the media as to whether the term of our leasehold validly runs until 2166 (including the option term), in August we notified PG&E that we formally exercised the option and that we intend to commence a declaratory relief proceeding to confirm our leasehold is valid until 2166 and is not rendered shorter by the provisions of California Civil Code section 718. In September, PG&E responded and asserted for the first time that it contends California Civil Code section 717 ends the lease in 2019, which we will dispute.
Based on the foregoing, on October 10, 2018, we concluded that our Pacho leasehold has been impaired and that we will take a $17.5 million pre-tax charge (the entire carrying value of the leasehold), of which $1.75 million is attributable to the non-controlling interest, in the third quarter of 2018.
We intend to proceed with the declaratory relief action. We will also continue our efforts to obtain fee title from PG&E, although we believe it is unlikely that we will be able to do so on acceptable terms. We will not develop the Pacho Property unless we obtain fee title or are successful in finally establishing the validity of the leasehold until 2166. An adverse determination in that proceeding will further our already asserted, but unrecognized claims against the insurer of leasehold title and the real estate counsel that represented us in our 2014 purchase of the leasehold interest.
Cautionary Note Regarding Forward-Looking Statements
This Current Report on Form 8-K contains forward-looking statements which are made to safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include statements, among other things, concerning our ability to obtain fee title in the Pacho Property and other claims and proceedings related thereto described herein. These forward-looking statements are often characterized by the use of words such as “intend,” “consider,” “will,” or “may.” Although we believe that the expectations reflected in such forward-looking statements are reasonable, such statements involve risks and uncertainties and undue reliance should not be placed on such statements.
About HOMEFED CORPORATION (OTCMKTS:HOFD)
HomeFed Corporation is a developer and owner of residential and mixed-use real estate projects in California, Virginia, South Carolina, Florida, Maine and New York. The Company operates through three segments: real estate, farming and corporate. Its real estate operations consist of a range of residential and commercial land development projects and other unimproved land, all in various stages of development, and retail and office operating properties. Real estate also includes the equity method investments in Brooklyn Renaissance Holding Company LLC (BRP Holding) and Brooklyn Renaissance Hotel LLC (BRP Hotel). Its farming operations consist of the Rampage property, which includes an operating grape vineyard. The Company, as the owner of development projects, is engaged in a range of activities, including design engineering, grading raw land, constructing public infrastructure and finishing individual lots for home sites or other facilities.
