Comstock Holding Companies, Inc. — Q2 2014 Form 10-Q
Reporting period: Three and six months ended June 30, 2014; filed August 13, 2014. Unless stated otherwise, financial amounts below are in millions of dollars. The company develops and builds residential real estate and provides real estate services, primarily in the Washington, D.C. metropolitan area.
Financial results
| Metric | Q2 2014 | Q2 2013 | Six months 2014 | Six months 2013 |
|---|---|---|---|---|
| Total revenue | $11.800 | $12.213 | $19.754 | $23.770 |
| Operating income (loss) | $(0.624) | $(0.017) | $(1.448) | $1.018 |
| Net income (loss) | $(0.669) | $0.114 | $(1.512) | $1.176 |
| Net loss attributable to Comstock | $(1.664) | $(0.838) | $(3.243) | $(0.115) |
| Basic and diluted loss per share | $(0.08) | $(0.04) | $(0.15) | $(0.01) |
| Homebuilding gross margin | 19% (company-reported) | 19% | 19.7% (company-reported) | 21.2% |
Homebuilding generated nearly all revenue. In Q2, it recorded $11.657 million of revenue and $2.198 million of gross profit; six-month figures were $19.488 million and $3.773 million. The filing reports no Multi-family segment revenue for these periods. Real Estate Services revenue was $0.143 million in Q2 and $0.266 million for six months.
Liquidity, cash flow and debt
- At June 30, cash and cash equivalents were $4.814 million, down from $11.895 million at year-end 2013; restricted cash was $2.956 million. Total assets were $55.506 million and total equity was $12.747 million.
- Six-month operating cash use was $3.304 million, compared with $2.825 million provided in the prior-year period. Investing cash use was $0.209 million. Financing cash use was $3.568 million, including $5.012 million of distributions to non-controlling interests. Cash declined by $7.081 million.
- Total notes payable were $31.935 million, up from $29.968 million at December 31, 2013: $25.151 million secured by real estate inventories, $4.462 million unsecured affiliate debt, and $2.322 million other unsecured debt. The filing lists $6.644 million of maturities or curtailments in 2014 and $18.507 million in 2015.
- Secured construction facilities had approximately $21.1 million of unused commitments, subject to borrowing-base restrictions; acquisition and development loans had approximately $13.1 million of commitments not drawn. Weighted-average rates were 5.2% on construction debt and 4.9% on development/acquisition debt. Mezzanine loans carried rates of 12% and 13.5%.
- Real estate inventories rose to $43.387 million from $39.843 million at year-end. Accounts payable and accrued liabilities increased to $10.791 million from $7.506 million.
Changes versus prior periods
- Revenue declined 3.4% in Q2 and 16.9% for the first half. Six-month homebuilding revenue fell about 16.7%; management cited fewer and differently priced settlements, adverse weather delays, and increased carrying costs.
- Six-month homebuilding gross margin fell to 19.7% from 21.2%, while Q2 margin remained 19%. General and administrative expense increased to $2.318 million in Q2 from $1.704 million and to $4.207 million for six months from $3.259 million.
- Net new orders decreased to 36 units in Q2 from 44 and to 67 for six months from 77. Backlog improved to 48 units worth $24.817 million at June 30, versus 43 units and $18.842 million a year earlier.
- The first half of 2013 included a $0.722 million impairment reversal; there was no comparable reversal in 2014. Comstock also recorded a $0.480 million net severance and restructuring charge related to the former president and COO’s departure.
Outlook, risks and notable items
- Management said it expected available cash, settlement proceeds, debt financing and project-level equity raises to provide sufficient resources to service debt, fund projects and cover overhead and working capital for the next 12 months. This is a forward-looking expectation, not formal numerical guidance.
- After quarter-end, the company obtained a $5.0 million line of credit; it had drawn $2.3 million by the filing date. It also entered a $6.1 million Falls Grove loan agreement, with no draws by the filing date. A $1.7 million deposit was made under an option for land intended for an age-restricted Maryland community.
- Key disclosed risks include real estate market and interest-rate conditions, servicing debt, availability and cost of land, labor and materials, project and governmental approval delays, ability to raise capital, and dependence on key employees. Management identified no material change to previously disclosed risk factors other than key-person risk.
- Outstanding third-party letters of credit and performance/payment bonds were $4.3 million each; none had been drawn. The company disclosed no material legal proceedings and no off-balance-sheet arrangements. It also reported a $4.3 million unsecured note payable to an entity owned by its CEO, and a headquarters lease with a CEO-owned affiliate.
- Non-controlling investors in consolidated project entities are entitled to preferred returns of 20% annually, compounded. The company made $5.012 million of distributions to non-controlling interests during the first half.
- Management reported disclosure controls and procedures were effective as of June 30, 2014, and no material quarter-period change in internal control over financial reporting.
Important facts for investors to verify
- Whether the company can meet near-term debt maturities and maintain sufficient liquidity, including compliance with covenants on the new credit line.
- How much of reported cash is available for operations after restrictions, project needs and required escrow balances.
- Whether backlog converts to settlements on expected timing and pricing, and whether weather or other delays continue to affect margins and cash use.
- The terms, repayment priority and effective cost of project-level preferred equity, mezzanine financing and related-party debt.
- The adequacy of warranty reserves and the potential obligations under outstanding letters of credit, bonds and other project commitments.