Comstock Holding Companies, Inc. — Q1 2013 Form 10-Q
Reporting period: Three months ended March 31, 2013. Unless noted otherwise, financial amounts below are in millions of dollars; the filing presents amounts in thousands. Comstock is a real estate development and services company focused on the Washington, D.C. metropolitan area, operating in homebuilding, apartment buildings and real estate services.
Key financial results and position
| Metric | Q1 2013 | Q1 2012 / prior period |
|---|---|---|
| Total revenue | $11.56 | $3.94 |
| Operating income (loss) | $1.04 | ($2.37) |
| Net income (loss), consolidated | $1.06 | $4.05 |
| Net income attributable to Comstock | $0.72 | $3.95 |
| Basic / diluted earnings per share | $0.04 / $0.03 | $0.19 / $0.19 |
| Net cash from operating activities | $4.08 | ($1.10) |
| Cash and cash equivalents at period end | $9.34 | $3.54 at Dec. 31, 2012 |
| Total debt at period end | $22.29 | $27.63 at Dec. 31, 2012 |
Homebuilding revenue was $11.40 million. Segment gross profit was $2.42 million for homebuilding and $0.12 million for real estate services; reported consolidated operating margin was approximately 9%. Restricted cash was $3.31 million at March 31. Total liabilities were $27.43 million and total equity was $14.64 million. The filing does not present a clear current-liquidity ratio or a separately stated cash interest expense for the quarter; it reports net interest paid of ($30,000), reflecting the cash-flow disclosure as presented.
Operating cash flow benefited in part from a $3.16 million reduction in real estate held for development and sale. Investing cash flow was $0.25 million, including receipt of the remaining Cascades Apartments sale escrow; financing cash flow was $1.47 million, including private-placement proceeds and borrowing activity. Cash increased by $5.80 million during the quarter.
Material changes versus the prior comparable period
- Revenue rose to $11.56 million from $3.94 million, principally as homebuilding revenue increased to $11.40 million from $3.19 million. The company delivered 21 homes versus 17; average revenue per delivered home also increased, reflecting unit mix.
- Operating results improved from a $2.37 million loss to $1.04 million of income. The 2013 quarter included a $0.72 million reversal of a prior impairment on the Eclipse project; 2012 had no impairment reversal.
- Consolidated net income was lower than in 2012, when results included a $6.52 million gain on the sale of Cascades Apartments and $5.48 million of after-tax discontinued-operations income. Q1 2013 included a $4,000 discontinued-operations loss.
- Debt declined by $5.34 million from year-end, while cash increased by $5.80 million. The company raised $6.995 million in a project-focused private placement during the quarter.
- Non-controlling interest increased from $0.94 million to $8.13 million, primarily reflecting the Investors VII private placement and related project interests.
Outlook, commentary, risks and unusual items
- Management said it expected available cash, settlement proceeds and cash generated by settlements at communities under development to provide sufficient resources to sustain operations through 2013. The filing provides no formal earnings or revenue guidance.
- At March 31, backlog was 22 units valued at $9.7 million: two Eclipse units ($1.0 million), five Hampshires units ($3.3 million) and 15 Eastgate units ($5.4 million). Management noted that Hampshires and Eastgate deliveries generally take 90–120 days after contract execution.
- The Investors VII private placement carried a cumulative, compounded preferred return of 20% annually. The company reported an initial $6.995 million raise and said the remaining $0.300 million of the planned $7.295 million raise was received after quarter-end. Warrants were also issued to certain non-affiliated investors.
- Debt includes project-specific loans, including high-cost secondary loans carrying 12% interest (6% payable currently and 6% accrued), and secured project financing with varying maturities and principal-curtailment requirements. Total scheduled maturities and curtailments were $22.29 million, including $0.40 million in 2013 and $9.69 million in 2015.
- The $5.064 million unsecured note owed to Stonehenge, an entity owned by the CEO, was extended to January 1, 2016; monthly payments of $50,000 began in April 2013. The filing also describes related-party office leasing and service arrangements, and participation by company insiders in the Investors VII placement.
- Subsequent to quarter-end, the company closed on the Falls Grove project and obtained additional financing, including a $5.2 million acquisition and development loan and a $2.5 million revolving construction loan. The filing describes company and limited executive guarantees.
- Risks highlighted include real estate market and interest-rate conditions, debt-service capacity, access to capital, construction costs and labor availability, land availability, project approvals and development delays, and affiliate relationships. Management reported no material legal proceedings; outstanding letters of credit were $66,000 and performance/payment bonds were $1.039 million, with no amounts drawn. Disclosure controls were concluded effective as of March 31, 2013.
- The company had approximately $116 million of federal and state net operating losses, with a full valuation allowance on deferred tax assets; use of the tax attributes may be limited by ownership-change rules.
Important facts for investors to verify
- Whether the $9.7 million backlog converts to completed settlements on the anticipated schedule and at margins consistent with the quarter.
- Liquidity needs and the timing of project-loan maturities, curtailments, and required financing for ongoing development.
- The economic cost and potential cash-repurchase obligation associated with the Investors VII 20% preferred return, as well as the status of the final placement proceeds.
- Project-level exposure to guarantees, secondary financing, and related-party debt and transactions.
- The sustainability of operating cash generation, which was supported by real-estate inventory reductions, and the extent to which 2012 comparisons were affected by the Cascades sale gain.