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Comstock Homebuilding Companies Inc. Reports Operating Results (10-Q)

May 14, 2010 | About:
10qk

10qk

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Comstock Homebuilding Companies Inc. (CHCI) filed Quarterly Report for the period ended 2010-03-31.

Comstock Homebuilding Companies Inc. has a market cap of $38.2 million; its shares were traded at around $2.45 with and P/S ratio of 1.5. CHCI is in the portfolios of Chuck Royce of Royce& Associates, Jim Simons of Renaissance Technologies LLC.

Highlight of Business Operations:

Our core market of Washington, D.C. has experienced significant job and population growth over the past two decades, creating demand for a wide range of housing products. Our expertise in developing traditional and non-traditional housing products enables us to focus on a wide range of opportunities within our core market. We have built homes in suburban communities, where we focus on low density products such as single family detached homes, and in urban areas, where we focus on high density multi-family and mixed use products. We develop properties with the intent that they be sold either as fee-simple properties or condominiums to individual unit buyers or as investment properties sold to private or institutional investors. Currently we operate only in the Washington, D.C. market where we target first-time, early move-up, and secondary move-up buyers. We focus on products that we are able to offer for sale in the middle price points within the markets where we operate, avoiding the very low-end and high-end products. We believe our middle market strategy positions our products such that they are affordable to a significant segment of potential home buyers in our market. In 2007, 2008, and 2009 the average price of the homes we delivered was $263,000, $300,000, and $289,000, respectively. For the three months ended March 31, 2010, the average price of the homes we delivered was $356,000.

Gross new order revenue for the three months ended March 31, 2010 increased $0.9 million, or 16.1%, to $6.5 million on 19 homes as compared to $5.6 million on 12 homes for the three months ended March 31, 2009. Net new order revenue for the quarter ended March 31, 2010 was $6.1 million on 18 homes as compared to $5.6 million on 12 homes for the quarter ended March 31, 2009. Average gross new order revenue per unit for the three months ended March 31, 2010 decreased $126,000 to $342,000, as compared to $468,000 for the three months ended March 31, 2009. This decrease is due to all orders in the first quarter of 2010 were for condominium units whereas orders in the first quarter of 2009 included single family homes and condominium units.

Revenue from homebuilding increased by $1.5 million, or 35.7%, to $5.7 million for the three months ended March 31, 2010 as compared to $4.2 million for the three months ended March 31, 2009. This is primarily due to 16 homes were settled in Q1 2010 versus 8 settled in Q1 2009.

Other revenue for the three months ended March 31, 2010 increased by $2.6 million to $3.4 million, as compared to $0.8 million for the three months ended March 31, 2009. Other revenue for the three months ended March 31, 2010 includes $2.8 million related to the sale of land at our Station View project in Q1 2010. Rental revenue from our Penderbrook and Eclipse communities in Q1 2010 was $0.6 million as compared to $0.7 million in Q1 2009.

Cost of sales for the three months ended March 31, 2010 increased by $1.6 million, or 39.0%, to $5.7 million, or 100.0% of homebuilding revenue, as compared to $4.2 million, also 100.0% of homebuilding revenue, for the three months ended March 31, 2009. The absence of gross margin in the first quarter of 2010 is a result of our minimum unit settlement requirements in the KeyBank and Guggenheim loan agreements. We are required to settle 9 units a quarter at our Potomac Yard project and 10 units a quarter at our Penderbrook project. With the severity of the weather in Q1 2010, complying with these covenants required us to sell units at prices which eroded our Q1 2010 margins.

The Plan also identified real estate projects which it deemed to be non-essential to future growth. The strategic approach to debt secured by non-essential real estate projects was to pursue foreclosure agreements with the related lenders with the goal of transferring the real estate to the lender in return for a release from the related debt obligation. As detailed in the December 31, 2010 Form 10-K, the Company has made significant progress in that regard. As of March 31, 2010 the Company had successfully negotiated settlements with all of its lenders regarding the loans guaranteed by the Company and had reduced the outstanding balance of debt from $102.8 million at December 31, 2008 to $67.6 million at December 31, 2009 to $37.9 million at March 31, 2010. In most cases the Company has been released from the obligations under the loan in return for its agreement to cooperate in the banks foreclosure on the real estate assets securing the loan. In a limited number of cases, the Company provided the lenders with non-interest bearing deficiency notes with three year maturities in an amount equal to a fraction of the original debt. The balance of the deficiency notes at March 31, 2010 was $1.1 million.

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