Real estate impairment

9 Months Ended

Sep. 30, 2011

Real estate impairment

Real estate impairment

5.             Real estate impairment

Real estate assets at September 30, 2011 and 2010 included condominiums and marina slips remaining to be sold at Porto Cupecoy on the Dutch side of St. Martin. OEH records impairment charges against the carrying value of real estate assets if the carrying value exceeds the fair value less costs to sell.  During the third quarter of 2011, OEH determined that the fair value less costs to sell of real estate assets was less than the carrying value, which resulted in the recognition of a non-cash impairment charge of $36,869,000 (2010 - $24,616,000) (computed using Level 3 inputs, namely the estimated selling prices and estimated selling costs based on OEH’s recent experience with sales of condominiums and marina slips already completed). This impairment charge resulted primarily from changes in the estimates of price and pace of future sales as a result of current market conditions. Additionally as part of an overall impairment calculation, property, plant and equipment at the Porto Cupecoy development with a carrying value of $1,677,000 were written down to a fair value of $Nil. See Note 7.

The total impairment charge of $38,546,000 relates to the real estate and property development segment, and is reported within impairment of real estate assets, goodwill and property, plant and equipment in the statement of condensed consolidated operations.

The determination of impairment incorporates various assumptions and uncertainties that OEH believes are reasonable and supportable considering all available evidence, such as the future cash flows, future sales prices and the related discount rate. However, these assumptions and uncertainties are, by their very nature, highly judgmental.  If the assumptions are not met, OEH may be required to recognize additional impairment losses.