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. Accordingly, the consolidated land assets associated with the land divestiture effort and related nonrecourse mortgage debt have been reclassified as land held for divestiture on the Consolidated Balance Sheets at December 31, 2013 and January 31, 2013. 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 was accounted for under the equity method of accounting.

The Company recorded the land held for divestiture activity 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. The following table summarizes the net gain (loss) on land held for divestiture activity of consolidated entities:



	11 Months Ended			Years Ended
	December 31, 2013			January 31, 2013			January 31, 2012
	(in thousands)
Sales of land held for divestiture	$	1,941		$	74,150		$	—
Cost of sales of land held for divestiture	(323		)	(56,247		)	—
Gain on extinguishment of debt of land held for divestiture	—			4,373			—
Net gain on closed transactions of land held for divestiture	1,618			22,276			—
Bad debt expense	(9,000		)	—			—
Impairment of land held for divestiture	—			(15,796		)	(115,654		)
Net gain (loss) on land held for divestiture activity	$	(7,382	)	$	6,480		$	(115,654	)

Held for sale assets are required to be recorded at fair value less cost to sell. As a result of the Company's strategic decision to divest, it dramatically shortened the estimated holding periods of the land projects held for divestiture. This reduced estimate of future undiscounted cash flows was not sufficient to recover the carrying value of the assets, resulting in an impairment charge of $115,654,000 during the year ended January 31, 2012.

During the year ended January 31, 2013, the Company established and executed upon its strategy relating to the land divestiture effort, resulting in the disposition of the majority of land held for divestiture. These activities primarily represent sales of bulk land projects, the associated cost of sales, gain on extinguishment of debt and impairment of land held for divestiture. Through the competitive bid process and the negotiation process of moving from 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 recorded an additional impairment charge of $15,796,000 during the year ended January 31, 2013.

During the 11 months ended December 31, 2013, the Company continued to dispose of the balance of its remaining land held for divestiture. As of December 31, 2013, the Company has $1,934,000 of remaining carrying value of this land. Ongoing negotiations continue on the few remaining land projects.

The Company had a note receivable (the “Note”) collateralized by a 1,000 acre land parcel in North Carolina that was in default at July 31, 2013. Negotiations were ongoing to cure the default; however, the Company had no assurance the payee has the intent to pay the Note in full. Accordingly, the Company established a reserve on the Note to reflect the estimated fair value of the underlying collateral of approximately $4,100,000. As a result, bad debt expense of $9,000,000 ($8,300,000, net of noncontrolling interest and $4,980,000, after tax) was recorded during the 11 months ended December 31, 2013. On December 31, 2013, the Company received the underlying collateral in a deed in lieu transaction in full satisfaction of the Note.

The following table presents quantitative information about the significant unobservable inputs used to determine the fair value of impairment of consolidated land held for divestiture for the year ended January 31, 2013:



	Quantitative Information about Level 3 Fair Value Measurements
	Fair Value January 31, 2013		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	Discounted 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 a discounted cash flow technique to estimate fair value, however due to the estimated holding period being less than twelve months, the impact of discounting was deemed immaterial.

The Company also has investments held in unconsolidated entities. The following table summarizes the net gain (loss) on investments in unconsolidated entities which are part of the land divestiture strategy:



	11 Months Ended		Years Ended
	December 31, 2013		January 31, 2013			January 31, 2012
	(in thousands)
Net gain (loss) on sales of land held for divestiture of unconsolidated entities	$	1,338	$	(371	)	$	—
Impairment of investments in unconsolidated entities	—		(40,406		)	(41,902		)
Net gain (loss) on land held for divestiture activity of unconsolidated entities	$	1,338	$	(40,777	)	$	(41,902	)

During the customary due diligence in arriving at the strategic decision, the Company had in-depth interactions with industry consultants, brokers and other land owners. Based on the due diligence, it was apparent that land values for the residential housing market continued to deteriorate in the fourth quarter of 2011, specifically in the southwestern United States. The Company revised its assumptions used to arrive at the estimate of fair value, including future discounted cash flows, comparable sales prices and market discount rates by geographic region. As a result, the Company recorded an impairment charge of $41,902,000 during the year ended January 31, 2012.

During 2012, the Company received an unsolicited offer to purchase its ownership interest in the remaining land parcels at Central Station. 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. Based on the terms of the letter of intent, the Company recorded an impairment charge of approximately $17,000,000, which is included in impairment of investments in unconsolidated entities during the year ended January 31, 2013. The divestiture of Central Station, which closed during the three months ended January 31, 2013, had a sale price of $29,525,000.

During 2012, the Company continued to market its equity method ownership interest in Mesa del Sol, a land project in Albuquerque, 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, which is included in impairment of investments in unconsolidated entities during the year ended January 31, 2013.