Comstock Homebuilding Companies, Inc. — Q1 2012 Form 10-Q
Reporting period: Three months ended March 31, 2012. The filing identifies the registrant as Comstock Homebuilding Companies, Inc. It is a Washington, D.C.-area real estate development and services company. Unless noted otherwise, financial amounts below are in millions of dollars.
Financial results and liquidity
| Metric | Q1 2012 | Q1 2011 |
|---|---|---|
| Total revenue | $3.935 | $4.586 |
| Gross profit (revenue less cost of sales) | $0.117 | $0.590 |
| Gross margin | 3.0% | 12.9% |
| Operating loss | $(2.369) | $(1.119) |
| Loss from continuing operations | $(1.428) | $(0.843) |
| Net income (loss) attributable to Comstock | $3.951 | $(1.025) |
| Basic net income (loss) per share | $0.19 | $(0.05) |
| Cash flow from operations | $(1.095) | $1.370 |
- Revenue comprised $3.186 million of homebuilding and $0.749 million of other revenue. Homebuilding deliveries rose to 17 homes from 7; average revenue per delivered home fell to about $187,000 from $431,000, reflecting a different unit mix.
- Cash and cash equivalents were $7.913 million at quarter-end, up from $5.639 million at year-end; restricted cash was $3.101 million. The filing does not provide a clear current-liabilities or working-capital figure.
- Balance-sheet notes payable totaled $17.524 million, down from $29.815 million at December 31, 2011. The debt maturity schedule reports $17.987 million, excluding the SunBridge discount. Debt is primarily project-related; SunBridge debt carries a fixed 12.5% rate, while much of the remaining debt is variable-rate.
- Operating cash flow was negative $1.095 million; investing cash flow was positive $18.400 million, primarily from the Cascades Apartments sale; financing cash flow was negative $15.031 million, mainly reflecting debt repayments and distributions to non-controlling interests. Cash increased by $2.274 million.
Material changes and unusual items
- On March 7, 2012, the company sold its 103-unit Cascades Apartments project for $19.35 million. It reported a $6.516 million gain, presented in discontinued operations, and approximately $4.7 million of net proceeds after settling project debt and the non-controlling investment. The sale drove reported net income; continuing operations remained loss-making.
- Total revenue declined 14% year over year, while gross profit fell to $0.117 million from $0.590 million. SG&A rose to $1.886 million from $1.364 million, and inactive-project carrying costs rose to $0.600 million from $0.345 million. Management attributed higher SG&A to payroll, taxes, consulting and costs of pursuing new opportunities.
- Other revenue fell by about $0.8 million, mainly due to lower contracting revenue and fewer rental units as condominium inventory was sold. Management said rental operating losses could continue as remaining units at Penderbrook and Eclipse are absorbed.
- The Cascades sale repaid its Cardinal Bank loan and retired the related non-controlling investment. The sale proceeds were partly subject to warranty and claims escrows totaling $0.950 million.
Outlook, risks and contingencies
- Management anticipated sufficient resources to sustain operations through 2012 using available cash, sale proceeds and cash from settlements, but cautioned that capital-raising efforts may not succeed. It reported ongoing discussions with lenders and potential equity investors. No formal earnings or revenue guidance is provided.
- Management cited improving Washington, D.C.-area market conditions, while warning that deterioration could lead to further impairment charges. Eclipse and Penderbrook are held for sale and valued using discounted cash-flow estimates, including assumed sales prices, sales pace and a 13% discount rate; no impairment was recorded in Q1.
- Risks include substantial debt and ability to service it, variable-rate exposure, access to debt and equity capital, real estate market conditions, construction costs and labor availability. Debt maturities and curtailments include $5.108 million in 2013 and $8.577 million in 2014.
- The company had $0.528 million of letters of credit and $2.133 million of performance and payment bonds outstanding, none drawn. It warned that a call or default could materially affect financial position, results or cash flows. No material legal proceedings were reported.
- The company reported approximately $106 million of federal and state net operating losses, subject to potential ownership-change limitations, and maintains a full valuation allowance against deferred tax assets. Related-party matters include affiliate debt and service arrangements, including a $5.008 million unsecured affiliate note.
- As a subsequent event, on May 10, 2012, the company completed a study period for an Eastgate One land option and deposited a further non-refundable $0.300 million toward finished lots.
Important facts for investors to verify
- Whether cash generation from home and condominium settlements can support operations and scheduled debt payments through 2012 and beyond.
- How the Cascades sale gain, net cash proceeds and escrow balances reconcile, and whether escrow amounts are released or claims arise.
- Sales pace, pricing and rental losses at Eclipse and Penderbrook, and whether updated assumptions trigger impairment charges.
- Debt maturities, variable-rate exposure, lender covenants and the company’s ability to obtain additional financing or equity capital.
- The status of performance bonds and letters of credit, related-party obligations, and the potential effect of ownership changes on use of tax-loss carryforwards.