NOTE 20 – Asset Impairment and Other Losses Recoverable through Insurance Claim

On November 14, 2016, Wellington, New Zealand experienced a severe 7.8-magnitude earthquake that damaged our parking structure adjacent to our Courtenay Central ETC. Prior to the earthquake damage, this parking structure, which was reported as part of our Real Estate segment, provided customer convenience when visiting our Courtenay Central ETC. In December 2016, the Wellington City Council and structural engineers retained by us inspected the extent of the earthquake damage and both concluded that our parking structure should be demolished for safety reasons. Our insurance company concurred with this assessment and has since approved the commencement of the demolition activities. As a result, we fully wrote down its remaining carrying value of $9.9 million (NZ$14.2 million) during the fourth quarter of 2016.

Based on the City Council’s requirement to demolish our parking structure, we have recognized a liability for demolition costs. It is our policy to accrue for any loss contingencies if the following two conditions are satisfied: (i) there is a “probable” likelihood that the liability had been incurred, and (ii) the amount of the loss can be reasonably estimated. We believe it is highly probable that we will ultimately make certain cash outlays as our final determination to demolish the parking structure due to earthquake damage created an obligating event for us. We have reliably estimated the eventual cost of completing the demolition plan at an aggregate amount of $5.9 million (NZ$8.5 million) based on actual proposals from third parties and our experience in dealing with similar events in the past. Our initial estimate of the demolition costs is comprised of the following: (i) estimated payments to third party vendors to demolish the actual structure, (ii) ancillary costs to clean up and subsequently backfill the underlying landholding, and (iii) other necessary expenses to administer and execute the demolition plan. We have also provided for cautionary amounts in our estimate to cover expenses not previously anticipated. In measuring and recognizing the demolition costs as part of “Other current liabilities” in our 2016 Consolidated Financial Statements, we did not apply the discounting process as we expect to incur these amounts during 2017.

We filed an insurance claim with our Insurer shortly after the earthquake incident. Our policy allows us to record a recoverable asset (to the extent of incurred losses) only when we determined that the collectability is deemed probable. We have concluded that the total incurred losses, consisting of the (i) written down carrying value of the damaged parking structure and (ii) a significant portion of the derivative loss contingencies on demolition activities, to have probable likelihood of recovery through our insurance claim based on the following considerations:

our valid insurance policy covering the insured event provided for an earthquake coverage sublimit of $25.0 million (NZ$35.9 million) per occurrence and annual aggregate combined for all locations;

the assigned Claims Examiner of our submitted insurance claim confirmed, in writing, that the loss and damage known and verified by the Insurer arising out of the November 14, 2016 earthquake in Wellington, New Zealand is covered under our valid insurance policy with the Insurer, subject to all applicable terms, conditions and earthquake liability sublimit of $25.0 million;

we received advanced claims settlement of $5.0 million (NZ$7.1 million) in December 2016;

our policy covered several reimbursable costs and expenses, which, among others, include demolition costs, expenses incurred relating to enforcement of applicable building ordinances or laws, defense costs and expenses incurred for preparing and certifying details of a claim, as well as coverage for ancillary property damages, loss of business income and incurrence of emergency and other extraordinary operating expenses;

we also have potential additional insurance available through a contract works policy taken out by the contractor working on the parking structure at the time of the earthquake which would cover our interest as principal; and,

there were no other earthquake incidents which caused physical damage to our other properties during 2016.

The table below provides the calculation of the total incurred losses and the determination of the recoverable amounts under our insurance claim:


(mainly New Zealand Dollars in thousands, unless otherwise noted)	Total			Less: Recorded to Statement of Operations(5)			Recoverable Asset under Insurance Claim(6)
Written down value of parking structure(1)	NZ	$	14,246	NZ	$	(795)	NZ	$	13,451
Estimated demolition costs(2)			8,500			(1,224)			7,276
Total expected incurred losses			22,746			(2,019)			20,727
Less:
Advance payment from Insurer(3)(4)			(7,103)			--			(7,103)
Insurance Recoverable for Incurred Losses (in local currency)	NZ	$	15,643	NZ	$	(2,019)	NZ	$	13,624
Insurance Recoverable for Incurred Losses (in U.S. Dollars)(4)	US	$	10,884	US	$	(1,421)	US	$	9,480

(1) Recorded land value was excluded in the impairment determination. The reduction to the written down value represents the 5% deductible calculated based on the estimated value of the insured damaged parking structure for insurance purposes.

(2) $862,000 (NZ$1.2 million) or 14% of total estimated demolition costs was preliminarily assessed as expenses not reimbursable under our insurance policy and hence, we recorded in profit and loss.

(3) This represents the advanced claims settlement from the Insurer of $5.0 million (NZ$7.1 million).

(4) In line with our standard translation policy, the recoverable asset of NZ$13.6 million was translated into U.S. dollars based on the spot exchange rate as of December 31, 2016, while the impact on our statement of operations was translated using the average exchange rate for the month of December 2016.

(5) Total impact to current income of $1.4 million (NZ$2.0 million) is presented as a separate line in our Statement of Operations.

(6) The recoverable asset of $9.5 million (NZ$13.6 million) is presented as part of “Other non-current assets” as the timing of the insurance claim receipt is not fixed nor reliably determinable.