Temporary Equity represents ownership interests held in the form of Class C Common Stock and Sitio OpCo Partnership Units. Pursuant to the Merger Agreement, Desert Peak became a subsidiary of Sitio OpCo Partnership. In connection with the Merger, the Predecessor’s equity holders received 62 million shares of the Company’s Class C Common Stock and a corresponding number of Sitio OpCo Partnership Units. In connection with the Merger, a prior Class C common stockholder in the Company received 10 million Class C shares and a corresponding number of Sitio OpCo Partnership Units.

Class C Common Stock is classified as temporary equity in the consolidated balance sheet as the redemption rights of each holder of Sitio OpCo Partnership Units Holder for either shares of Class A Common Stock or an equivalent amount of cash is not solely within the Company’s control. This is due to the fact that the holders of Class C Common Stock control a majority of the votes of the board of directors through ownership of a majority of the voting stock, which allows the holders of Class C Common Stock to effectively control the determination of whether a redemption would be settled in shares of Class A Common Stock or an equivalent amount of cash. Temporary equity is recorded at the greater of the carrying value or redemption amount with a corresponding adjustment to retained earnings or if a retained deficit to additional paid-in capital. From the date of the Merger through June 30, 2022, the Company recorded adjustments to the value of temporary equity as presented in the table below (in thousands):


	Temporary equity adjustments
Balance – June 7, 2022 (1)	$	1,395,799
Share-based compensation		148
Conversion of Class C shares to Class A shares		(11,909	)
Net income attributable to temporary equity		26,271
Adjustment of temporary equity to redemption amount (2)		254,368
Balance – June 30, 2022	$	1,664,677

(1) Based on 71,752,285 shares of Class C Common Stock outstanding at June 7, 2022.

(2) Based on 71,140,064 shares of Class C Common Stock outstanding and Class A Common Stock 5-day volume-weighted average price of $23.40 at June 30, 2022.