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| CHCI > SEC Filings for CHCI > Form 10-Q on 14-Aug-2009 | All Recent SEC Filings |
14-Aug-2009
Quarterly Report
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS AND FACTORS THAT MAY AFFECT RESULTS
The following discussion of our financial condition and results of operations should be read in conjunction with the accompanying unaudited consolidated interim financial statements and the notes thereto appearing elsewhere in the this report and our audited consolidated financial statements and the notes thereto for the year ended December 31, 2008, appearing in our Annual Report on Form 10-K for the year then ended (the "2008 Form 10-K").
This report includes forward-looking statements that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by the use of words such as "anticipate," "believe," "estimate," "may," "intend," "expect," "will," "should," "seeks" or other similar expressions. Forward-looking statements are based largely on our expectations and involve inherent risks and uncertainties, many of which are beyond our control. You should not place undue reliance on any forward-looking statement, which speaks only as of the date made. Some factors which may affect the accuracy of the forward-looking statements apply generally to the real estate industry, while other factors apply directly to us. Any number of important factors which could cause actual results to differ materially from those in the forward-looking statements include, without limitation: general economic and market conditions, including interest rate levels; our ability to service our substantial debt; inherent risks in investment in real estate; our ability to compete in the Washington, D.C. and Raleigh, North Carolina and Atlanta, Georgia real estate and home building markets; regulatory actions; fluctuations in operating results; our anticipated growth strategies; shortages and increased costs of labor or building materials; the availability and cost of land in desirable areas; natural disasters; our ability to raise debt and equity capital and grow our operations on a profitable basis; and our continuing relationships with affiliates. Additional information concerning these and other important risk and uncertainties can be found under the heading "Risk Factors" in our Form 10-K filed for the fiscal year ended December 31, 2008. Our actual results could differ materially from these projected or suggested by the forward-looking statements.
Overview
We are a residential real estate developer that has substantial experience building a diverse range of products including single-family homes, townhouses, mid-rise condominiums, high-rise multi-family buildings and mixed-use (residential and commercial) developments in suburban communities and high density urban infill areas. We have historically built projects with the intent that they be sold either as fee-simple properties, condominiums, or investment properties. We focus on geographic areas, products and price points where we believe there will be continuing demand for new housing and potential for attractive returns. We have operated in the Washington, D.C., Raleigh, North Carolina, and Atlanta, Georgia markets where we target first-time, early move-up, secondary move-up, and empty nester move-down buyers. However, during the first half of 2009, we have halted operations in Atlanta, Georgia and substantially suspended operations in Raleigh, N.C. We focus on the "middle-market" meaning that we tend to offer products in the middle price points in each market, 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 markets. Since our founding in 1985, and as of December 31, 2008, we have built and delivered more than 5,170 homes generating revenue in excess of $1.3 billion.
Our markets have historically been characterized by strong population and economic growth trends that have led to strong demand for traditional housing. However, the housing industry is in an unprecedented and prolonged cyclical downturn, suffering the effects of reduced demand brought on by significant increases in existing home inventory, resistance to appreciating prices of new homes, turmoil in the mortgage markets, reduced liquidity levels in the world financial markets, increasing unemployment and concerns about the health of the national and global economics. We believe over the past two decades we have gained experience that will be helpful to us as we seek to manage our business through the current difficult market environment. We believe we have taken, and are continuing to take, steps that will assist us in managing our business through the current cycle until market conditions stabilize and eventually improve. There can be no assurances, however, that we will be able to generate and maintain sufficient cash resources to survive long enough for market conditions to improve.
As a result of deteriorating market conditions, we have adjusted certain aspects of our business strategy. In 2008, we focused our energy on repositioning projects, reducing debt, reducing costs, managing liquidity, renegotiating loans with current period and near-term maturities, refinancing projects and enhancing our balance sheet. We have cancelled or postponed plans to start several new projects and either renegotiated or cancelled contracts to purchase certain other projects. As a result, we purchased no new land in 2008 or so far in 2009. We have sold certain land and other assets and taken steps to significantly reduce our inventory of speculative homes as well. Until market conditions stabilize, we will continue to focus on working through the inventory we own. This will include continuing efforts to either turn over to our lenders or sell certain land parcels where we believe it is the best strategy relative to that particular asset.
While we have always preferred to purchase finished building lots that are developed by others, we have also been active in entitling and developing land for many of our home building projects. We believe it is important to have the in-house capabilities to manage the entitlement and development of land in order to position our company to be able to recognize opportunities to enhance the value of the real estate we develop and to be opportunistic in our approach to acquisitions. Nonetheless, our interest in acquiring new development projects will be focused on finished building lots until market conditions and circumstances warrant otherwise. As such, we have significantly reduced our in-house development staff.
During the past several years our business has included the development, redevelopment and construction of residential mid-rise and high-rise condominium complexes. The majority of our multi-family projects are in our core market of the greater Washington, D.C. area. We believe the demographics and housing trends in the Washington, DC area will continue to generate demand for high density housing and mixed-use developments over the long term. However, condominium sales in the greater Washington, D.C. area have declined significantly as a result of current economic conditions. In order to reduce the cost associated with carrying our condominium inventory in the Washington, DC region we are temporarily operating two of our multi-family projects as hybrid for-sale and for-rent properties. This approach provides us regular cash flow which we use to offset a portion of the carry costs associated with the applicable multi-family assets. In addition, we believe the value of the assets will increase over time as market conditions stabilize or improve. In Raleigh, North Carolina we continue to be focused on lower density housing principally single family homes. We have halted our operations in Atlanta, Georgia and substantially suspended operations in Raleigh, N.C. in an effort to concentrate resources in the Washington, D.C. market and on reorganizing our debt.
In today's real estate market our general operating business strategy has the following key elements:
• protect liquidity and maximize capital availability;
• maximize the realized value of our real estate owned;
• utilize technology to streamline operations, reduce costs, enhance customer communications and facilitate sales
• rationalize overhead expenses;
• focus on our core markets in the Washington, D.C. metropolitan area;
• focus on our current land inventory in our core markets;
• focus on a broad segment of the home buying market, aka the "middle market";
• create opportunities in areas overlooked by our competitors;
• maximize our economies of scale;
• aggressively prosecute existing litigation to recover costs and damages caused by others.
Our business was founded in 1985 by Christopher Clemente, our current Chief
Executive Officer, as a residential land developer and home builder focused on
the move-up home market in the Northern Virginia suburbs of the Washington, D.C
area. Prior to our initial public offering in December 2004, we operated our
business through four primary holding companies. In connection with our initial
public offering, these primary holding companies were consolidated and merged
into Comstock Homebuilding Companies, Inc., which was incorporated in Delaware
in May 2004. Our principal executive offices are located at 11465 Sunset Hills
Road, Suite 510, Reston, Virginia 20190, and our telephone number is
(703) 883-1700. Our Web site is www.comstockhomebuilding.com. References to
"Comstock," "we," "our" and "us" refer to Comstock Homebuilding Companies, Inc.
together in each case with our subsidiaries and any predecessor entities unless
the context suggests otherwise.
COMSTOCK HOMEBUILDING COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
At June 30, 2009, we owned approximately 1,300 building lots. The following
table summarizes certain information related to new orders, settlements, and
backlog for the three and six month period ended June 30, 2009 and 2008:
Three months ended June 30, 2009
Washington North
Metro Area Carolina Georgia Total
Gross new orders 22 - - 22
Cancellations 5 3 1 9
Net new orders 17 (3 ) (1 ) 13
Gross new order revenue $ 5,396 $ - $ - $ 5,396
Cancellation revenue $ 1,669 $ 570 $ 386 $ 2,625
Net new order revenue $ 3,727 $ (570 ) $ (386 ) $ 2,771
Average gross new order price $ 245 $ - $ - $ 245
Settlements 6 2 - 8
Settlement revenue - homebuilding $ 1,777 $ 359 $ - $ 2,136
Average settlement price $ 296 $ 180 $ - $ 267
Backlog units 18 7 - 25
Backlog revenue $ 4,138 $ 2,053 $ - $ 6,191
Average backlog price $ 230 $ 293 $ - $ 248
Three months ended June 30, 2008
Washington North
Metro Area Carolina Georgia Total
Gross new orders 18 12 4 34
Cancellations 8 3 3 14
Net new orders 10 9 1 20
Gross new order revenue $ 5,971 $ 3,502 $ 1,395 $ 10,868
Cancellation revenue $ 1,761 $ 899 $ 975 $ 3,635
Net new order revenue $ 4,210 $ 2,603 $ 420 $ 7,233
Average gross new order price $ 332 $ 292 $ 349 $ 320
Settlements 17 15 6 38
Settlement revenue - homebuilding $ 5,684 $ 3,825 $ 1,926 $ 11,435
Average settlement price $ 334 $ 255 $ 321 $ 301
Backlog units 10 21 9 40
Backlog revenue $ 3,094 $ 6,732 $ 3,174 $ 13,000
Average backlog price $ 309 $ 321 $ 353 $ 325
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COMSTOCK HOMEBUILDING COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Six months ended June 30, 2009
Washington North
Metro Area Carolina Georgia Total
Gross new orders 34 13 - 47
Cancellations 5 6 1 12
Net new orders 29 7 (1 ) 35
Gross new order revenue $ 11,009 $ 2,319 $ - $ 13,328
Cancellation revenue $ 1,669 $ 1,093 $ 386 $ 3,148
Net new order revenue $ 9,340 $ 1,226 $ (386 ) $ 10,180
Average gross new order price $ 324 $ 178 $ - $ 284
Settlements 14 6 - 20
Settlement revenue - homebuilding $ 5,936 $ 926 $ - $ 6,862
Average settlement price $ 424 $ 154 $ - $ 343
Backlog units 18 7 - 25
Backlog revenue $ 4,138 $ 2,053 $ - $ 6,191
Average backlog price $ 230 $ 293 $ - $ 248
Six months ended June 30, 2008
Washington North
Metro Area Carolina Georgia Total
Gross new orders 42 30 13 85
Cancellations 12 11 7 30
Net new orders 30 19 6 55
Gross new order revenue $ 14,206 $ 7,711 $ 4,188 $ 26,105
Cancellation revenue $ 3,140 $ 3,625 $ 1,930 $ 8,695
Net new order revenue $ 11,066 $ 4,086 $ 2,258 $ 17,410
Average gross new order price $ 338 $ 257 $ 322 $ 307
Settlements 33 37 16 86
Settlement revenue - homebuilding $ 11,746 $ 10,299 $ 5,330 $ 27,375
Average settlement price $ 356 $ 278 $ 333 $ 318
Backlog units 10 21 9 40
Backlog revenue $ 3,094 $ 6,732 $ 3,174 $ 13,000
Average backlog price $ 309 $ 321 $ 353 $ 325
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COMSTOCK HOMEBUILDING COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
We currently have communities under development in multiple counties throughout
the markets we serve. The following table summarizes certain information for our
current and planned communities as of June 30, 2009:
As of June 30, 2009
Lots under
Estimated Lots Option
Product Units at Units Owned Agreement Average New Order
Project State Type (2) Completion Settled Backlog (3) Unsold Unsold Revenue to Date
Status: Active (1)
Allen Creek GA SF 26 23 - 3 - $ 204,987
Arcanum GA SF 34 24 - 10 - $ 376,173
Falling Water GA SF 22 18 - 4 - $ 422,513
Gates at Luberon GA SF 6 3 - 3 - $ 618,259
Glenn Ivey GA SF 20 18 - 2 - $ 227,039
James Road GA SF 10 9 - 1 - $ 339,847
Post Road GA SF 60 - - 60 - n/a
Wyngate GA SF 4 3 - 1 - $ 416,990
Sub-Total / Weighted Average (4) 182 98 - 84 - $ 322,440
Emerald Farm MD SF 84 78 - 6 - $ 452,347
Sub-Total / Weighted Average (4) 84 78 - 6 - $ 452,347
Allyn's Landing (5) NC TH 108 82 2 24 - $ 237,231
Brookfield Station (5) NC SF 62 15 - 47 - $ 222,757
Haddon Hall NC Condo 90 30 - 60 - $ 158,399
Holland Road (5) NC SF 81 18 2 61 - $ 438,324
Providence-SF (5) NC SF 68 24 3 41 - $ 195,452
Riverbrooke NC SF 66 47 - 19 - $ 166,608
Wakefield Plantation (5) NC TH 77 49 - 28 - $ 483,042
Wheatleigh Preserve NC SF 28 18 - 10 - $ 279,204
Sub-Total / Weighted Average (4) 580 283 7 290 - $ 270,999
Commons on Potomac Sq VA Condo 191 87 1 103 - $ 231,935
Commons on Williams Sq VA Condo 180 141 8 31 - $ 333,869
Penderbrook VA Condo 424 303 6 115 - $ 255,437
River Club II VA Condo 112 9 - 103 - $ 257,464
The Eclipse on Center Park VA Condo 465 373 3 89 - $ 403,918
Sub-Total / Weighted Average (4) 1,372 913 18 441 - $ 325,754
Total Active 2,218 1,372 25 821 - $ 321,224
Status: Development (1)
Shiloh Road I GA SF 60 - - 60 - n/a
Tribble Lakes GA SF 167 - - 167 - n/a
Sub-Total / Weighted Average (4) 227 - - 227 - n/a
Massey Preserve NC SF 187 - - 187 - n/a
Sub-Total / Weighted Average (4) 187 - - 187 - n/a
Station View VA TH 47 - - 47 - n/a
Sub-Total / Weighted Average (4) 47 - - 47 - n/a
Total Development 461 - - 461 - n/a
Total Active & Development 2,679 1,372 25 1,282 - $ 321,224
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(1) "Available for Sales" communities have built or partially built inventory available for sales. "Development" communities are in the development process or are on hold and have no building inventory available for sales.
(2) "SF" means single family home, "TH" means townhouse and "Condo" means condominium.
(3) "Backlog" means we have an executed order with a buyer but the settlement has not yet taken place.
(4) "Weighted Average" means the weighted average new order sale price.
(5) Considered 'active' for accounting purposes - see Note 5 of the accompanying financial statements.
Results of Operations
Three and six months ended June 30, 2009 compared to three and six months ended June 30, 2008
Orders, cancellations and backlog
Gross new order revenue for the three months ended June 30, 2009 decreased $5.5 million, or 50.3%, to $5.4 million on 22 homes as compared to $10.9 million on 34 homes for the three months ended June 30, 2008. For the six months ended June 30, 2009, gross new order revenue decreased $12.8 million, or 48.9% to $13.3 million on 47 homes, as compared to $26.1 million on 85 homes for the six months ended June 30, 2008. Net new order revenue for the three months ended June 30, 2009 decreased $4.4 million, or 61.7%, to $2.8 million on 13 homes as compared to $7.2 million on 20 homes for the three months ended June 30, 2008. Net new order revenue for the six months ended June 30, 2009 decreased $7.2 million, or 41.5%, to $10.2 million on 35 homes as compared to $17.4 million on 55 homes for the six months ended June 30, 2008. The decrease in gross new orders and net new orders are attributable to current market conditions in the homebuilding industry which are characterized by a general excess supply of homes available for sale and reduced buyer confidence.
Average gross new order revenue per unit for three months ended June 30, 2009 decreased $75,000 to $245,000, as compared to $320,000 for the three months ended June 30, 2008. The average gross new order revenue per unit for the six months ended June 30, 2009 decreased $23,000 to $284,000, as compared to $307,000 for the six months ended June 30, 2008.
For the three months ended June 30, 2009 we experienced 9 order cancellations totaling $2.6 million of cancellation revenue as compared to 14 orders totaling $3.6 million for the three months ended June 30, 2008. For the six months ended June 30, 2009 we experienced 12 order cancellations totaling $3.1 million of cancellation revenue as compared to 30 order cancellations totaling $8.7 million for the six months ended June 30, 2008. Cancellations in the second quarter of 2009 were spread amongst our various communities with most occurring in the greater Washington, DC Market. This is consistent with the second quarter of 2008.
Our cancellation rate for the six months ended June 30, 2009 was 25.5%, or 12 cancellations on 47 gross new orders compared to a cancellation rate of 35.2%, or 30 cancellations on 85 gross new orders for the six months ended June 30, 2008. The cancellation rate in the greater Washington, DC market was 14.7%, or 5 cancellations on 34 gross new orders. In the Raleigh market our cancellation rate was 46.1%, or 6 cancellations on 13 gross new orders, and in the Atlanta market we had 1 cancellation with 0 gross new orders. Cancellation rates in general are being fueled by the tightening of the mortgage credit markets and by extended selling periods for resale homes. Our buyers' inabilities to obtain mortgage financing and/or to resell their homes are significant contributors to cancellations.
Our backlog at June 30, 2009 decreased $6.8 million, or 52.4%, to $6.2 million on 25 homes as compared to our backlog at June 30, 2008 of $13.0 million on 40 homes. The reduction of backlog is indicative of the generally slow market conditions in the homebuilding industry.
Revenue - homebuilding
We delivered 8 homes during the three months ended June 30, 2009 as compared to 38 homes for the three months ended June 30, 2008. For the six months ended June 30, 2009 we delivered 20 homes as compared to 86 homes delivered during the six months ended June 30, 2008. The reduction in new home deliveries was largely attributable to the overall real estate industry contraction. Average revenue per home delivered decreased by approximately $34,000 or 11.3% to $267,000 for the three months ended June 30, 2009 as compared to $301,000 for the three months ended June 30, 2008. This decrease is a result of price reductions and concessions necessary in a market characterized by an imbalance in the supply and demand of homes available for sale. Average revenue per home delivered increased by approximately $25,000 or 7.9% to $343,000 for the six months ended June 30, 2009 as compared to $318,000 for the six months ended June 30, 2008. This increase in the average revenue per home delivered is due to (1) the settlement of five affordable dwelling units during the six months ended . . .
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