Land Held for Divestiture

On January 31, 2012, the Board of Directors of the Company approved a strategic decision by senior management to reposition portions of the Company's investment in the Land Development Group as part of a greater focus on core rental properties in core markets. The Company's land holdings subject to strategic divestiture are included in both fully consolidated entities and joint ventures accounted for on the equity method of accounting. As of January 31, 2012, the Company planned to retain its land investments in only two land development projects; its consolidated Stapleton project in Denver, Colorado and its Central Station project in downtown Chicago, Illinois, which is accounted for under the equity method of accounting.

During the three months ended April 30, 2012, the Company established an execution strategy relating to the land divestiture effort. For land projects that are not wholly-owned, the initial strategy was to negotiate with current partners to sell the Company's partnership interests to them, or acquire theirs, which would enable the Company to go to market with 100% ownership of the land development opportunity. The Company began preliminary discussions with numerous different potential buyers ranging from large national investment funds to regional land developers as part of the divestiture strategy.

During the three months ended July 31, 2012, the Company entered into more specific and detailed negotiations with interested parties and closed on the divestiture of several land projects. Ongoing negotiations continue on the remaining land projects with current partners and potential national, regional and local land buyers. The Company has varying levels of interest from potential buyers on many of its land projects, and as a result, at July 31, 2012, the Company has committed deals on certain land projects, which are expected to close during the year ending January 31, 2013, and has several offers and letters of intent currently being evaluated by the Company.

During the three and six months ended July 31, 2012, the Company recorded the land held for divestiture activities for fully consolidated land projects and those accounted for on the equity method of accounting on their own separate financial statement line items in the Consolidated Statements of Operations. These activities primarily represent sales of bulk land projects held for divestiture, the associated cost of sales and impairment of land held for divestiture.

The following table summarizes the net loss on land held for divestiture activities of consolidated entities:



	Three Months Ended July 31,					Six Months Ended July 31,
	2012			2011		2012			2011
	(in thousands)
Sales of land held for divestiture	$	34,510		$	—	$	34,510		$	—
Cost of sales of land held for divestiture	(25,172		)	—		(25,172		)	—
Net gain on sales of land held for divestiture	9,338			—		9,338			—
Impairment of land held for divestiture	(15,796		)	—		(15,796		)	—
Net loss on land held for divestiture activities	$	(6,458	)	$	—	$	(6,458	)	$	—

The net gain on sales of land held for divestiture for the three and six months ended July 31, 2012 primarily relates to the sale of the Company's 51% ownership interest in a land project in Prosper, Texas. The transaction, which had a sale price of $29,800,000, resulted in a gain of approximately $7,600,000 ($3,900,000, net of noncontrolling interest).

Through the competitive bid process and the negotiation process of taking informal expressions of interest to bona fide purchase offers, the Company obtained additional information regarding the value of its specific projects as viewed by current market participants. Based on the various levels of interest from potential buyers and information obtained from preliminary sales contracts, letters of intent and other negotiations on the remaining land projects discussed above, the Company reviewed its assumptions used to estimate the fair value of the land held for divestiture. As a result, the Company has recorded an additional impairment charge of $15,796,000 during the three and six months ended July 31, 2012.

The following table presents quantitative information about the significant unobservable inputs used to determine the fair value of non-recurring impairment of land held for divestiture for the six months ended July 31, 2012:



	Quantitative Information about Level 3 Fair Value Measurements
	Fair Value July 31, 2012		Valuation Technique	Unobservable Input	Range of Input Values
	(in thousands)
Impairment of land held for divestiture	$	15,663	Indicative bids	Indicative bids	N/A⁽¹⁾
Impairment of land held for divestiture	$	926	Undiscounted cash flows⁽²⁾	N/A	N/A


(1)	These fair value measurements were developed by third party sources, subject to the Company’s corroboration for reasonableness.


(2)	The Company used an undiscounted cash flow technique due to its estimated holding period being less than twelve months.

The following table summarizes the net loss on investments in unconsolidated entities which are part of the land divestiture strategy:



	Three Months Ended July 31,					Six Months Ended July 31,
	2012			2011		2012			2011
	(in thousands)
Net loss on sales of land held for divestiture of unconsolidated entities	$	(1,481	)	$	—	$	(1,481	)	$	—
Impairment of investments in unconsolidated entities	(40,406		)	—		(40,406		)	—
Net loss on land held for divestiture activities of unconsolidated entities	$	(41,887	)	$	—	$	(41,887	)	$	—

During the three months ended July 31, 2012, the Company received an unsolicited offer to purchase its ownership interest in the remaining land parcels at Central Station for approximately $30,000,000. The Company evaluated the offer and made a decision to divest its equity method investment in Central Station as part of its formal land divestiture activities. The proposed sale would support the continued strategic efforts to focus on core rental products in core markets and delever its balance sheet and as a result, the Company signed a letter of intent. Based on the terms of the letter of intent, the Company recorded an impairment charge of approximately$17,000,000 during the three and six months ended July 31, 2012, which is included in impairment of land held for divestiture of unconsolidated entities.

During the three months ended July 31, 2012, the Company continued to market its equity method ownership interest in a land project in Mesa del Sol, New Mexico to several potential buyers. Mesa del Sol is a large 3,000 acre development opportunity in the beginning stage of residential land development and is not expected to generate positive cash flow in the near-term due to the expected level of development expenditures needed to prepare the first phase of lots for sale. During the extensive marketing activities, there were few buyers that expressed interest in taking on the long-term development risk, and those that were, expected larger returns than previously estimated. As a result, based on these negotiations and other market information obtained from these potential buyers and other industry data, the Company updated its assumptions used in estimating the fair value of the investment, including discount rates, absorption rates and commercial and residential land pricing. Based on the updated valuation model, the Company recorded an additional impairment charge of approximately $15,000,000 during the three and six months ended July 31, 2012, which is included in impairment of land held for divestiture of unconsolidated entities.