Comstock Holding Companies, Inc. — Q1 2015 Form 10-Q
Reporting period: Three months ended March 31, 2015; balance-sheet figures are as of March 31, 2015, unless otherwise noted. Amounts are in thousands of dollars except per-share data and unit counts. The company develops and provides real estate services primarily in the Washington, D.C. metropolitan area, through Homebuilding, Multi-family and Real Estate Services segments. Q1 revenue was generated by Homebuilding and Real Estate Services; Multi-family reported no revenue.
Financial performance and liquidity
- Revenue: $10,317, up 30% from $7,954 in Q1 2014. Homebuilding revenue was $10,010, up from $7,831; other revenue was $307, up from $123.
- Profitability: Gross profit was $1,562 versus $1,605. Homebuilding gross margin fell to 14.2% from 20.1%, which management attributed to the mix of units settled. Operating loss was $930 versus $824. Net loss was $668 versus $843; the loss attributable to Comstock was $943 versus $1,579. Basic and diluted loss per share was $0.04 versus $0.08.
- Cash flow: Operating activities used $3,775, compared with $2,591 used in Q1 2014, primarily reflecting investment in real estate inventories, including the Stone Ridge land acquisition. Investing activities used $163. Financing activities provided $1,870, including CGF loan proceeds and offset by distributions to non-controlling interests. Cash and cash equivalents declined $2,068 to $5,430. Restricted cash was $1,891.
- Debt and balance sheet: Notes payable totaled $48,558, up from $45,931 at year-end 2014; $28,923 was secured by real estate inventories, $17,700 was unsecured affiliate debt net of discount, and $1,935 was other unsecured financing. Total liabilities were $58,299 and total assets were $58,858. Total equity was $559, including a $2,852 deficit attributable to Comstock. Real estate inventories were $44,674.
- Maturities and liquidity: Borrowings with maturities or curtailment obligations in 2015 totaled $26,762. Cash and operating cash flow indicate limited liquidity relative to debt obligations; the filing says the company was seeking lender extensions and additional capital. The secured line of credit was in compliance with its financial covenants at March 31.
- Operating activity: The company settled 21 homes versus 19 in Q1 2014; average settlement price rose to $477 from $412. Net new orders were 24 versus 32, and backlog was 27 units valued at $14,346 versus 41 units and $18,517.
Material changes and notable items
- Revenue increased with more homes settled and higher average settlement prices, but gross profit declined and homebuilding margins narrowed due to unit mix. The company reported $170 of interest and real estate tax expense, compared with $2 in Q1 2014.
- CGF, an affiliate-managed funding vehicle, provided $3.1 million of loan proceeds during the quarter; the company reported a further $0.5 million after quarter-end through the report date. The related affiliate loan carried a 10% rate at March 31 and was subject to annual principal curtailments. The company also recorded a $154 gain related to the fair value of a derivative associated with the CGF arrangement.
- On April 20, the company extended a $2.7 million Yorkshire project loan by one year, with a possible additional extension subject to conditions. On April 29, it entered a $2.3 million secured construction loan for Estates at Leeland, maturing in October 2017.
- Nasdaq notified the company in April of deficiencies in the $1.00 minimum bid-price requirement and the $2.5 million stockholders’ equity requirement. The notices had no immediate effect on listing, but failure to regain compliance could lead to delisting. The company planned a possible 1-for-5 to 1-for-7 reverse split, additional capital-raising steps, and a plan to Nasdaq. It launched a private placement expected to raise up to $3 million for Stone Ridge, and disclosed issuance of 1.5 million Class A shares to CGF purchasers on May 12.
- The company recorded a $70 net tax benefit in Q1 2015, including a $121 deferred tax benefit tied to the New Hampshire Avenue project and a $51 tax expense. The filing’s Q1 2014 tax figures are inconsistent: the statements of operations show a $74 tax expense, while the tax note and MD&A refer to a $137 provision.
Outlook, risks and contingencies
Management expected that successful resolution of lender discussions, private placements, available cash and settlement proceeds would provide sufficient resources to sustain operations for the next 12 months, while expressly cautioning that success was not assured. It also said it may reduce costs or defer operating expenses. The company cited refinancing and capital-raising needs, Nasdaq compliance, real estate market and execution risks, construction cost and labor availability, permitting delays, and dependence on affiliate relationships. No material litigation was reported. Outstanding letters of credit were $3.7 million and performance/payment bonds were $3.8 million; none had been drawn. The company reported no off-balance-sheet arrangements.
Important facts for investors to verify
- Progress on the $26.8 million of 2015 maturities, extensions, and compliance with loan terms.
- Cash runway, operating cash use, and whether expected private-placement and home-settlement proceeds materialize.
- Nasdaq bid-price and equity compliance plans, deadlines, and potential dilution from equity, warrants, or debt conversion.
- CGF and other affiliate financing terms, share and warrant issuances, and related-party transactions.
- The tax disclosure discrepancy for Q1 2014 and the sustainability of reported homebuilding margins and backlog.