Liability for Estimated Costs in Excess of Estimated Receipts During Liquidation

9 Months Ended

Sep. 30, 2017

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Liability for Estimated Costs in Excess of Estimated Receipts During Liquidation

Plan of Dissolution:

The Plan of Dissolution provides for an orderly sale of the Company's assets, payment of the Company's liabilities and other obligations, the winding up of operations, the payment of liquidating distributions to stockholders and dissolution of the Company. The Company is permitted to provide for the payment of any unascertained or contingent liabilities and may do so by purchasing insurance, establishing a reserve fund, transacting with a third party or in other ways.

In April 2017, the Company completed the Sale of its 36 remaining properties and made an Interim Liquidating Distribution to stockholders. The Company is in the process of settling obligations by establishing a reserve fund, transacting with a third party or in other ways, and anticipates paying a final liquidating distribution to its stockholders by the end of 2017. The dissolution process and the amount and timing of liquidating distributions to stockholders involves risks and uncertainties. Accordingly, it is not possible to predict the timing or aggregate amount which will ultimately be distributed to stockholders and no assurance can be given that the distributions will equal or exceed the estimate of net assets presented in the Condensed Consolidated Statement of Net Assets as of September 30, 2017.

The Company expects to continue to qualify as a REIT through dissolution. The Board shall use commercially reasonable efforts to continue to cause the Company to maintain its REIT status, provided however, the Board may elect to terminate the Company's status as a REIT if it determines that such termination would be in the best interest of the stockholders.

Net Assets in Liquidation:

The Company adopted the Liquidation Basis of Accounting effective March 31, 2017 upon approval by the Company's stockholders of the Company's Plan of Dissolution. The following is a reconciliation of Stockholders' Equity under the Going Concern Basis of accounting to net assets in liquidation under the Liquidation Basis of Accounting as of March 31, 2017:



Stockholders' Equity as of March 31, 2017	$	649,048

Increase due to estimated liquidation value of investments in real estate	145,822
Decrease due to adjustment of assets and liabilities to net realizable value	(36,300		)
Liability for estimated costs in excess of estimated receipts during liquidation	(4,935		)
Adjustment to reflect the change to the liquidation basis of accounting	104,587

Estimated value of net assets in liquidation as of March 31, 2017	$	753,635

As of September 30, 2017, net assets in liquidation were approximately $52.0 million. Net assets in liquidation decreased by approximately $701.7 million during the period March 31, 2017 through September 30, 2017, primarily due to an Interim Liquidating Distribution to stockholders declared and paid in April 2017 totaling approximately $705.2 million (consisting of approximately $32.5 million, or $0.10 per share, in cash and 8,851,264 common shares of beneficial interest of EPR valued at approximately $672.7 million or $2.07 per share of Company common stock. This decline was partially offset by an increase in net assets in liquidation due to the remeasurement of the Company's remaining liabilities primarily as a result of revised estimates related to net outflows from investments in real estate and net outflows for corporate expenditures.

Liability for Estimated Costs in Excess of Estimated Receipts During Liquidation:

The Liquidation Basis of Accounting requires the Company to estimate net cash flows from operations and to accrue all costs associated with implementing and completing the Plan of Dissolution. The Company currently estimates that it will have costs in excess of estimated receipts during the liquidation. These amounts can vary significantly due to, among other things, direct costs incurred to complete the sale of our real estate investment properties, the timing and amounts associated with discharging known and contingent liabilities and the costs associated with the winding up of operations. These costs are estimated and are anticipated to be paid out over the liquidation period.

Upon transition to the Liquidation Basis of Accounting on March 31, 2017, the Company accrued the following revenues and expenses expected to be incurred during liquidation:



Rental income from operating leases	$	1,279
General and administrative expenses	(15,509		)
Purchase price adjustments	(10,707		)
Appreciation of common stock of beneficial interest of EPR during holding period	25,296
Liquidation transaction costs	(5,294		)
Liability for estimated costs in excess of estimated receipts during liquidation	$	(4,935	)


5.	Liability for Estimated Costs in Excess of Estimated Receipts During Liquidation (continued):

The following table reflects the changes in the liability for estimated costs in excess of estimated receipts during liquidation from March 31, 2017 to September 30, 2017:



	March 31, 2017			Payments (Receipts)		Realized Gain on Appreciation of EPR Stock			Remeasurement of Liabilities		September 30, 2017
Assets:
Estimated net outflows from investments in real estate	$	(9,428	)	$	7,208	$	—		$	2,220	$	—
Estimated appreciation of common stock of beneficial interest of EPR during holding period	25,296			—		(25,296		)	—		—
	15,868			7,208		(25,296		)	2,220		—
Liabilities:
Liquidation transaction costs	(5,294		)	4,997		—			297		—
Corporate expenditures	(15,509		)	9,175		—			1,026		(5,308		)
	(20,803		)	14,172		—			1,323		(5,308		)
Total liability for estimated costs in excess of estimated receipts during liquidation	$	(4,935	)	$	21,380	$	(25,296	)	$	3,543	$	(5,308	)

CNL LIFESTYLE PROPERTIES INC 10-Q