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Real Estate Development Assets
6 Months Ended
Apr. 30, 2017
Real Estate [Abstract]  
Real Estate Disclosure [Text Block]
8. Real Estate Development Assets
 
Real estate development assets consist of the following:
 
 
 
April 30, 
2017
 
 
October 31, 2016
 
East Areas I and II
 
$
69,809,000
 
 
$
66,097,000
 
Templeton Santa Barbara, LLC
 
 
10,919,000
 
 
 
11,039,000
 
 
 
$
80,728,000
 
 
$
77,136,000
 
 
East Areas I and II
 
In fiscal year 2005, the Company began capitalizing the costs of two real estate development projects east of Santa Paula, California, for the development of 550 acres of land into residential units, commercial buildings and civic facilities. During the three months ended April 30, 2017 and 2016, the Company capitalized $1,516,000 and $829,000, respectively, of costs related to these real estate development projects. During the six months ended April 30, 2017 and 2016, the Company capitalized $3,712,000 and $4,279,000, respectively, of costs related to these real estate development projects. Additionally, in relation to these projects, the Company incurred expenses of zero and $4,000 in the three-months ended April 30, 2017 and 2016, respectively and $37,000 and $1,155,000 in the six months ended April 30, 2017 and 2016, respectively.
 
On November 10, 2015, (the “Transaction Date”) the Company entered into a joint venture with The Lewis Group of Companies (“Lewis”) for the residential development of its East Area I real estate development project. To consummate the transaction, the Company formed Limoneira Lewis Community Builders, LLC (the “LLC” or “Joint Venture”) as the development entity, contributed its East Area I property to the LLC and sold a 50% interest in the LLC to Lewis for $20,000,000, comprised of a $2,000,000 deposit received in September 2015 and $18,000,000 received on Transaction Date. The Company received net cash of approximately $18,800,000 after transaction costs of approximately $1,200,000, which were expensed in the first quarter of fiscal year 2016. In addition, on the Transaction Date, the Company incurred a Success Fee with Parkstone Companies, Inc., in the amount of $2,100,000, which was paid on January 28, 2016 and capitalized as a component of the Company’s investment in the East Area I.
 
On the Transaction Date, the LLC and Lewis also entered into a limited liability company agreement (the “LLC Agreement”) providing for the admittance of Lewis as a 50% member of the Joint Venture. The LLC Agreement provides that Lewis will serve as the manager of the Joint Venture with the right to manage, control, and conduct its day-to-day business and development activities. Certain major decisions, which are enumerated in the LLC Agreement, require approval by an executive committee comprised of two representatives appointed by Lewis and two representatives appointed by the Company.
 
Pursuant to the LLC Agreement, the Joint Venture will own, develop, subdivide, entitle, maintain, improve, hold for investment, market and dispose of the Joint Venture’s property in accordance with the business plan and budget approved by the executive committee.
 
Further, on the Transaction Date, the Joint Venture and the Company entered into a Lease Agreement (the "Lease Agreement"), pursuant to which the Joint Venture will lease certain of the contributed East Area I property back to the Company for continuation of agricultural operations, and certain other permitted uses, on the property until the Joint Venture requires the property for development. The Lease will terminate in stages corresponding to the Joint Venture's development of the property, which is to occur in stages pursuant to a phased master development plan. In any event, the Lease will terminate five years from the Transaction Date.
 
The Company and the Joint Venture also entered into a Retained Property Development Agreement on the Transaction Date (the "Retained Property Agreement"). Under the terms of the Retained Property Agreement, the Joint Venture will transfer certain contributed East Area I property, which is entitled for commercial development, back to the Company (the "Retained Property") and arrange for the design and construction of certain improvements to the Retained Property, subject to certain reimbursements by the Company.
 
The Company’s sale of an interest in the LLC in which the Company’s contributed property comprises the LLC’s primary asset, combined with the Lease Agreement is considered a sale-leaseback transaction under FASB ASC 840, Leases because of the Company’s continuing involvement in the property in the form of its agricultural operations.  Accordingly, the property continues to be carried on the consolidated balance sheet as real estate development, rather than being classified as an equity investment and a sale-leaseback deferral has been recorded for the $20,000,000 payment made by Lewis for the purchase of the LLC interest. Lease expense associated with the Lease Agreement is not required under sale-leaseback accounting since the Company is treated as though it continues to own the property. During the three months ended April 30, 2017 and 2016, the Company recorded $1,147,000 and $477,000, respectively, of real estate development costs and corresponding increases in the sale-leaseback deferral to recognize real estate development costs capitalized by the LLC. During the six months ended April 30, 2017 and 2016, the Company recorded $2,980,000 and $1,591,000, respectively, of real estate development costs and corresponding increases in the sale-leaseback deferral to recognize real estate development costs capitalized by the LLC. There are no repayment requirements for the sale-leaseback deferral and as the Lease Agreement is terminated in connection with the staged development of the property, a corresponding amount of real estate development and the sale-leaseback deferral will be adjusted to equity investments on the consolidated balance sheet.
 
In connection with the LLC Agreement, the Company is to be reimbursed $250,000 by the Joint Venture on February 1, 2018 for Initial Public Safety Facility Payments made to the City of Santa Paula in October 2015. This amount is included in prepaid expenses and other current assets in the consolidated balance sheets. Additionally, beginning March 2016, the Company leases office space to Lewis and received rental income of $8,000 and $3,000 in the six months ended April 30, 2017 and 2016, respectively.
 
The Company determined the Joint Venture to be a Variable Interest Entity (“VIE”) under ASC 810, Consolidation, because the Joint Venture will require additional subordinated financial support to finance its operations. The Company further determined that it is not the primary beneficiary of the VIE, as the Company and Lewis have joint control over all significant decisions affecting the Joint Venture’s economic performance. Accordingly, contributions made by the Company to the LLC, the Company’s proportionate share of Joint Venture’s results of operations and distributions received by the Company from the LLC will be accounted for under the equity method. The Company made contributions of zero and $450,000 to the LLC in the three months ended April 30, 2017 and 2016, respectively and $4,450,000 and $450,000 in the six months ended April 30, 2017 and 2016, respectively. Additionally, the Company recorded an equity loss of $54,000 in the six months ended April 30, 2017 related to the Joint Venture.
 
In connection with facilitating the annexation of East Area I into the City of Santa Paula, during February 2014 the Company entered into a Capital Improvement Cost Sharing Agreement for Improvements to Santa Paula Creek Channel (the “Cost Sharing Agreement”) with the Ventura County Watershed Protection District (the “District”). The Cost Sharing Agreement requires the Company to reimburse the District 28.5% of the costs of the improvements, up to a maximum of $5,000,000. Additionally, the Company is required to pay the cost of preparing a study to determine a feasible scope of work and budget for the improvements. No cost reimbursements have been incurred to date in relation to this agreement.
 
Templeton Santa Barbara, LLC
 
The three real estate development parcels within the Templeton Santa Barbara, LLC project are described as Centennial Square (“Centennial”), The Terraces at Pacific Crest (“Pacific Crest”), and Sevilla. The net carrying values of Centennial, Pacific Crest and Sevilla at April 30, 2017 and October 31, 2016 were $2,983,000, $3,250,000 and $4,686,000, respectively. These projects were idle during the six months ended April 30, 2017 and 2016 and, as such, no costs were capitalized. Additionally, in relation to these parcels, the Company incurred expenses of $41,000 and $40,000 in the three months ended April 30, 2017 and 2016, respectively, and $88,000 and $83,000 in the six months ended April 30, 2017 and 2016, respectively.
 
On March 27, 2017, the Company entered into an agreement to sell its Centennial property for $3,200,000, which based on estimated transaction costs, will result in a gain of approximately $100,000. An estimated closing date of July 28, 2017 is contingent upon the buyer completing due diligence by July 14, 2017. In addition, the Company expects to accept an offer on its Pacific Crest property for a sales price of approximately $3,500,000, which after estimated transaction costs, is anticipated to result in a loss of approximately $120,000. Such loss has been recognized as an impairment in the second quarter of fiscal year 2017.  The transaction is subject to buyer due diligence and is expected to close on approximately October 31, 2017.