Comstock Holding Companies, Inc. — Q1 2016 Form 10-Q
Reporting period: Three months ended March 31, 2016; balance-sheet amounts are as of March 31, 2016. Dollar amounts below are in millions unless stated otherwise. Comstock is a real estate development and construction services company focused on the Washington, D.C. metropolitan area, with Homebuilding, Multi-family, and Real Estate Services segments. Q1 revenue was almost entirely from Homebuilding and Real Estate Services.
Financial performance
| Metric | Q1 2016 | Q1 2015 |
|---|---|---|
| Total revenue | $9.706 | $10.317 |
| Gross profit | $0.970 | $1.562 |
| Operating loss | $(1.271) | $(0.930) |
| Net loss | $(1.288) | $(0.668) |
| Net loss attributable to Comstock | $(1.724) | $(0.943) |
| Net loss applicable to common stockholders | $(1.810) | $(0.943) |
| Basic and diluted loss per share | $(0.55) | $(0.31) |
| Cash used in operating activities | $(0.385) | $(3.775) |
Homebuilding revenue was $9.523 million, down from $10.010 million. Homebuilding gross margin declined to 9.2% from 14.2%; management attributed the reduction primarily to the mix of units settled and higher land and overhead costs at newer communities. Company-wide gross margin was approximately 10.0%, compared with 15.1% a year earlier. General and administrative expense declined to $1.542 million from $1.897 million, while sales and marketing expense rose to $0.483 million from $0.425 million.
Balance sheet, debt, and liquidity
- Cash and cash equivalents were $4.613 million, down from $12.448 million at year-end 2015; restricted cash was $2.541 million. Total assets were $48.424 million, versus $58.478 million.
- Total notes payable were $39.581 million, down from $45.399 million; total liabilities were $45.633 million. Stockholders’ equity was $2.791 million, including a $2.962 million deficit attributable to Comstock.
- Debt maturities and/or curtailment obligations totaled $17.111 million in 2016, $19.820 million in 2017, and $2.650 million in 2018. The company reported $37.0 million of unused commitments under construction revolvers, subject to borrowing-base and other conditions.
- Cash used in investing activities was $0.080 million. Financing activities used $7.370 million, principally reflecting $11.175 million of debt repayments and a $1.400 million distribution to a non-controlling interest, partly offset by $5.209 million of borrowing proceeds. Cash fell by $7.835 million during the quarter.
Changes, outlook, and risks
- Homebuilding orders improved: net new orders rose to 35 from 24, and net new order revenue increased to $14.933 million from $11.916 million. Settlements were 22 units versus 21. Backlog increased to 38 units and $16.264 million of revenue, from 27 units and $14.346 million.
- Management said it was actively seeking extensions or modifications for loans maturing in 2016. It reported compliance with financial covenants and debt-service obligations at quarter-end, but cautioned that extensions were not assured. Management expected available cash, private-placement capital, settlement proceeds, and successful debt extensions to support operations for the next 12 months; this expectation was expressly conditional. It also cited potential cost reductions or expense deferrals to conserve cash. No specific earnings or revenue guidance was provided.
- After quarter-end, the Yorkshire facility was extended to May 8, 2017, and the New Hampshire Avenue facility was extended to July 31, 2016. The company made a $1.6 million principal curtailment on its Comstock Growth Fund borrowing on April 14. It also made $0.9 million of distributions to Comstock VIII investors in April.
- Debt agreements include operating restrictions, curtailment requirements, and financial covenants. Failure to meet obligations or extend loans could trigger defaults and cross-default provisions, potentially making debt immediately due. The company also disclosed $1.9 million of letters of credit and $4.8 million of performance and payment bonds outstanding; none had been drawn as of March 31.
- Related-party arrangements include a corporate-office lease from an entity wholly owned by the CEO and financing from affiliated entities. The CGF loan carried a 10.9% interest rate at March 31; Series B preferred stock held by a CEO-affiliated entity accrues an 8.75% dividend. Q1 included $0.086 million of paid-in-kind preferred dividends.
- The filing reported no material legal proceedings, no off-balance-sheet arrangements, and no material changes to previously disclosed risk factors. Management concluded disclosure controls were effective as of March 31, 2016.
Important facts for investors to verify
- Whether the remaining 2016 maturities and curtailment obligations were extended, refinanced, or repaid on acceptable terms.
- Liquidity available after restricted cash, debt service, project commitments, and distributions, and whether the stated 12-month operating runway was achieved.
- Whether order growth and the $16.264 million backlog convert into settlements and cash at margins sufficient to improve profitability.
- The terms, availability, and related-party implications of affiliate financing and private placements, including accrued preferred dividends and investor returns.
- Potential exposure from letters of credit, performance bonds, guarantees, and covenant or cross-default provisions.