Comstock Holding Companies, Inc. — 2016 Form 10-K
Reporting period: Fiscal year ended December 31, 2016; filed April 17, 2017. The filing is an annual report, not a standalone fourth-quarter filing. Unless otherwise noted, amounts below are in millions of dollars.
Business context
Comstock is a real estate development and services company concentrated in the Washington, D.C. metropolitan area. Its segments are Homebuilding, Multi-family, and Real Estate Services. In 2016, reported revenue came primarily from homebuilding; the Multi-family segment reported no revenue. At year-end, the project pipeline listed 928 estimated units at completion, including 35 units in backlog, 262 owned unsold units, and 214 units under control through land options.
Financial results and key metrics
| Metric | 2016 | 2015 |
|---|---|---|
| Total revenue | $41.6 | $61.4 |
| Operating loss | $(6.9) | $(3.6) |
| Net loss | $(6.8) | $(2.0) |
| Net loss attributable to Comstock | $(9.0) | $(4.6) |
| Net loss attributable to common stockholders | $(9.3) | $(4.6) |
| Basic and diluted loss per share | $(2.81) | $(1.43) |
| Net cash from (used in) operating activities | $(11.8) | $2.6 |
| Cash and cash equivalents at year-end | $5.8 | $12.4 |
| Total notes payable at year-end | $43.7 | $45.1 |
- Homebuilding revenue fell 32% to $40.7 million. Settlements declined to 94 units from 123, and average settlement price decreased to $433,000 from $489,000.
- Homebuilding gross margin declined to 6.0% from 14.2%, attributed to the number and mix of settlements and higher construction and overhead costs in certain communities. Total revenue also included $0.9 million of other revenue, down from $1.2 million.
- Operating cash use primarily reflected $11.1 million of net real estate inventory purchases for projects that commenced during the year. Financing activities provided $4.9 million, including $14.5 million of non-controlling-interest contributions, partly offset by debt repayments.
- Year-end assets were $59.8 million, liabilities $51.4 million, and total equity $8.4 million. Real estate inventories were $49.8 million. The filing does not provide a clear current-asset/current-liability breakdown in the supplied text, so a current ratio cannot be stated.
Material changes and unusual items
- Revenue declined $19.8 million year over year, while operating loss widened by $3.3 million. Lower home closings and average settlement prices were key drivers.
- Net impairment charges were $1.7 million in 2016, versus $2.8 million in 2015. The 2016 figure included $2.4 million of write-offs of project-related costs and a $0.7 million refund of a previously impaired deposit.
- The company raised $14.5 million through a project-level private placement with an entity wholly owned by the CEO. The investor was entitled to a 6% cumulative preferred return; the placement also included warrants.
- Series B preferred stock dividends of $0.35 million were paid in kind in 2016. Subsequent to year-end, the Series B shares were exchanged for Series C preferred stock with discretionary dividends.
- At year-end, the company had $43.7 million of notes payable, including $26.9 million secured by real estate inventories and $15.9 million owed to affiliates. Reported maturities were $37.4 million in 2017 and $6.3 million in 2018.
Liquidity, outlook, and risks
Management said it expected available cash, private-placement proceeds, project settlement cash, and successful debt extensions to provide sufficient resources to sustain operations for the next 12 months, but gave no assurance. At December 31, 2016, $21.7 million of secured project notes were scheduled to mature through 2017, and $15.8 million of affiliate notes were due at year-end 2017. Management was seeking extensions and modifications. It reported that all lender obligations had been extended or repaid through April 27, 2017, as of the filing date, while longer-term resolutions remained under discussion. A secured line of credit had received a waiver for failure to meet its minimum EBITDA covenant; the company said it met the line’s minimum liquidity and net-worth requirements.
Principal risks include refinancing and debt-service capacity, lender covenant defaults and potential cross-defaults, limited access to capital, Washington-area concentration, mortgage availability and interest rates, home-price and demand volatility, land and inventory impairment, construction costs and subcontractor availability, permitting and environmental restrictions, warranty and construction-defect claims, and weather. The company reported $1.1 million of letters of credit and $4.2 million of performance and payment bonds outstanding, with none drawn at year-end. It reported no material legal proceedings. Management reported effective disclosure controls and internal control over financial reporting; the 2016 auditor issued an unqualified opinion on the financial statements.
Most important facts for investors to verify
- Progress and terms of refinancing or extending the 2017–2018 maturities, including any covenant waivers, defaults, collateral releases, or changes since April 17, 2017.
- Cash availability and the timing and net proceeds of settlements relative to operating cash burn, project funding needs, and debt service.
- Whether new-community sales, closings, average selling prices, and homebuilding margins recover from 2016 levels; 2016 net new orders were 104 versus 124 in 2015.
- Project-level returns, impairment exposure, and obligations or priority returns associated with private placements and related-party financing.
- Effects of the subsequent Series B-to-Series C exchange and the 2017 Class B share transactions on preferred claims, voting control, and common-stock dilution.