Comstock Holding Companies, Inc. — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019. The company is a real estate development and services business primarily operating in the Washington, D.C. metropolitan area. In 2018 it began shifting from for-sale homebuilding toward asset management and real estate services; it reported that it entered into agreements on April 30, 2019 to exit homebuilding and land development.
Key financial results
| Metric | Q1 2019 | Q1 2018 |
|---|---|---|
| Revenue | $11.358 million | $8.799 million |
| Gross profit | $825,000 | $586,000 |
| Operating income (loss) | $372,000 | ($636,000) |
| Net income (loss) | $369,000 | ($628,000) |
| Net income (loss) attributable to common stockholders | $69,000 | ($723,000) |
| Basic and diluted EPS | $0.02 | ($0.21) |
| Cash provided by (used in) operating activities | $2.882 million | ($49,000) |
Revenue comprised homebuilding of $6.978 million, asset management of $3.652 million, and real estate services of $728,000. Total gross margin was approximately 7.3%, versus 6.7% a year earlier. Homebuilding gross margin improved to 3.67% from 1.19%. No impairment charge was recorded in Q1 2019, compared with $558,000 in Q1 2018.
Financial position and liquidity
- At March 31, 2019, cash and cash equivalents were $5.755 million and restricted cash was $1.138 million. Total assets were $30.921 million; total liabilities were $23.826 million; total equity was $7.095 million.
- Total notes payable were $15.563 million, down from $18.930 million at December 31, 2018. This included $10.033 million secured by real estate inventories, $4.935 million of unsecured affiliate debt, and $595,000 of other unsecured financing.
- Cash, restricted cash and cash equivalents declined $118,000 during the quarter. Operating cash flow benefited mainly from inventory releases and receivable collections; financing cash outflow of $2.995 million reflected $5.256 million of debt payments, partly offset by $2.289 million of borrowing proceeds.
- The company said it expected sufficient resources for the next 12 months, conditional on successful debt extensions, private-placement capital, available cash and settlement proceeds; it cautioned that success was not assured. It reported that the $4.9 million affiliate loan, originally maturing April 16, 2019, was subsequently extended to April 16, 2020. It also said it had extended or repaid lender obligations through May 15, 2019.
Changes, outlook and risks
- Revenue increased 29% year over year. Homebuilding revenue rose as 10 units settled versus 8; however, new orders fell to 4 units and $2.3 million from 18 net units and $12.1 million. Backlog fell to $7.0 million from $21.2 million at March 31, 2018, reflecting the planned wind-down.
- Asset-management and real-estate-services revenue increased, alongside higher associated costs. The filing describes the asset-management portfolio as including major transit-oriented developments at Reston Station and Loudoun Station.
- The April 30, 2019 amended asset-management agreement is with an entity wholly owned by the CEO. It establishes alternative market-rate or cost-plus annual fees, plus possible incentive and other fees, and extends the agreement’s initial term to December 31, 2027. The related-party relationship and fee terms are important to assess.
- The filing provides no quantified earnings or revenue guidance. Management’s outlook emphasizes transition to an asset-light, fee-based model and potential growth, while acknowledging reliance on lender extensions, capital raising and project settlement proceeds.
- Risks include debt covenants, maturities and potential cross-defaults; real estate market and development risks; labor and material costs; governmental approvals; and dependence on affiliate relationships. The company disclosed $1.1 million of outstanding letters of credit and $7.7 million of performance bonds, none drawn, and said it was not subject to material legal proceedings.
- The company had approximately $147 million of federal and state net operating losses; use may be limited if an ownership change triggers Section 382. It adopted lease accounting in 2019 and recognized lease assets and liabilities; at quarter-end, lease liabilities were $156,000.
Important facts for investors to verify
- Reconcile the asset-management revenue disclosure: the statements report $3.652 million, while MD&A refers to $3.9 million for the quarter.
- Review the completed homebuilding and land-development exit transaction, including assets, liabilities, consideration and any continuing obligations; the supplied filing text does not provide a clear transaction-value figure.
- Confirm the status and terms of all debt extensions, covenant compliance and the company’s ability to meet maturities using operating cash flow and available financing.
- Assess the economics, termination provisions and governance safeguards of the CEO-affiliated asset-management agreements, and the degree of reliance on those arrangements.
- Track homebuilding backlog and settlements, fee-based revenue growth, operating costs, and whether the company converts reported earnings into sustainable cash flow.