Comstock Holding Companies Inc (CHCI) 2007 Q3 法說會逐字稿

Good day, ladies and gentlemen. My name is Joe, and I will be your conference coordinator for today's call. I'd like to welcome everyone to Comstock Homebuilding Companies Inc. third quarter 2007 earnings conference call. Throughout the duration of this presentation today, all audio participants will remain in a listen only format. However, at the conclusion of today's presentation we will be conducting an interactive question-and-answer session via telephone lines.

This conference may contain forward-looking statements as defined in section 27A subsection 1 of the Securities Act of 1933 as amended including statements regarding, among other things, the Company's business strategy and growth strategy. Expressions which identify forward-looking statements speak only as of the date the statement is made. These forward-looking statements are based largely on this Company's expectations and are subject to a number of risks and uncertainties. Some of which cannot be predicted or quantified and are beyond their control. Future developments and actual results could differ materially from those set forth in, contemplated by, or underlying the forward-looking statements. In light of these risks and uncertainties there can be no assurance that the forward-looking information will prove to be accurate. This conference call does not constitute an offer to purchase any securities, nor a solicitation of a proxy, consent, authorization, or agent designation with respect to a meeting of Company stockholders.

At this time I would like to turn the call over to Chris Clemente, Founder and CEO of Comstock. Chris, you may now proceed.

Thank you. Hello and thank you for joining us today. This is Chris Clemente, Chairman and CEO of Comstock Homebuilding Companies. With me today is Bruce Labovitz, our CFO.

Once again I want to take a moment to thank Comstock team members for their continued dedication and perseverance in such a difficult market. I also want to recognize their continued commitment to our critical cost reduction initiatives. As a result of the market deterioration, we have had to make staff reductions of almost 40%, which has impacted every department of the Company and requires everyone here to take on additional responsibilities. I also want to thank our vendors for continuing to work with to us reduce costs while maintaining a commitment to quality and customer service. While we have made significant progress in reducing costs in every aspect of our business, we must continue to push down costs until equilibrium exists between market pricing, expectations, and our cost to produce housing products.

I should also recognize the fact that our lenders have been willing to modify the terms and the covenants of our various loan facilities in order to allow us time to work through issues brought on by current weak market conditions. When 2007 began, we had just over $205 million worth of debt obligations coming due during 2007. As of now, that number has been reduced to approximately $15 million. During the first half of 2008, there will be approximately another $82 million of debt obligations that are scheduled to come due. That includes $38 million at the Eclipse project. While we have satisfactorily amended terms of many loan facilities to meet current market realities we continue working on others.

Now I'd like to clarify an important fact about sales results during the third quarter. Initial news reports seeking to sensationalize the impact the housing downturn has had on Comstock made it sound as if we had only sold three houses in July, August, and September. While it is true that we had had 78 cancellations while generating 81 new orders, the fact ignored in the news reports is that 67 of the cancellations were of contracts written as much as two years ago at the Eclipse project. That represented defaults by original purchasers on their contracts when we called them to settlement as construction was completed in July. Only a dozen or so recently written non Eclipse contracts were canceled during the third quarter representing an Eclipse adjusted cancellation rate of approximately 14% during the quarter, rather than the 96% referred -- inferred in those news reports.

Now that construction is essentially complete at Eclipse we're able to market to consumers with near-term housing feeds rather than purchasers signing contracts as much as two years advance of closing. This results in contracts that settle in as little as 30 days. Accordingly, we believe that our cancellation rate overall will be much lower than in previous periods. Indeed our overall cancellation rate outside of the Eclipse project has been in the 10 to 20% range all year. Previous uncertainty regarding the number of original Eclipse contracts that would settle raised concerns about our ability to generate sufficient revenue to pay off the loan by the time it matures in January of 2008. The uncertainty about which original purchasers would settle and which ones would not also impacted our marketing efforts for the balance of the units at the project. With the significant -- with these significant cancellations of original contracts behind us now, we are better able to focus marketing efforts on the -- at the project on the 123 units that remain available as of today.

Based on the overall performance of the Eclipse, the continued pace of new orders at the project which total 68 year to date, we believe will -- we will either secure new funding or negotiate an extension of the current loan maturity, thereby allowing sufficient time to sell through the remaining units. Based on our ability to date to maintain prices at the Eclipse, and based on the current manageable loan balance we are confident that we will be able to satisfy the Eclipse debt over time and generate significant cash flow from the project in 2008 and 2009. However, our continued enthusiasm about the Eclipse project could change if we're not able to secure the necessary loan extension or refinance the current loan or if the overall economic conditions or market -- economic conditions or market conditions weaken further.

As reported in our recent press release, while we have been operating at a near break-even basis this year, we recorded significant impairments and write-offs during the third quarter. This is in keeping with our effort to accurately reflect the recoverability of our assets in our financial statements. Given the near-term outlook for the market, the lack of consumer confidence in housing, recent turmoil in mortgage markets, and the levels of price concessions needed to move inventory at many projection, we believe these steps were necessary and the resulting valuations appropriate.

If our as assumptions prove accurate the 17% discount rate we utilized in our impairment modeling will afford us the opportunity to recover much of the impaired value as we complete the subject properties. If market conditions improve, results could be enhanced. However, if conditions deteriorate further in 2008, additional adjustments may be needed in future periods. Nonetheless, we believe that based on current market conditions, the impairments taken to date, coupled with the operational changes and cost reductions that we have achieved so far, that we have the ability to protecting against future value erosion and have the potential of generating positive results in future periods, especially if market conditions show any improvement.

Last year when we began taking steps to protect our business from continued market deterioration. Since then we have talked about our need to renegotiate and reduce our debt, reduce our inventory, reduce our land position, reduce our overhead, reduce construction costs, and continually monitor our book value of assets. We have made significant progress on all of these fronts. Since the end of last year we have reduced our overall debt from $295 million to approximately $201 million. We've sold close to $70 million worth of assets in bulk to reduce our inventory and lower the associated debt and carry costs. We've reduced our controlled land position by approximately 2,000 lots. We've reduced our operating expenses through staff reductions that produce significant annual savings. We've reduced construction costs on most stick-frame products by as much as 24%, and reduced the recorded value of the assets we hold for development to attractive levels, even based on current market conditions.

Clearly any hopes for improvement -- improving market conditions this year were dashed when the mortgage market began to meltdown this past summer. However, demand does exist in the market at the right price. Following through on our commitment to reduce levels of spec inventory and reduce the associated debt, we launched a new aggressive marketing campaign at the beginning of October, designed to move spec inventory before year end. I'm pleased to report that we are finding success with this initiative in all three of our markets. Net new orders during October at 67 were the highest level of any single month so far this year and included the sale of approximately -- of 47 spec homes and the sale of other to-be built units. Additionally, cancellation rates were much improved. Although this is the result of aggressive selling concessions and not the sign of improving market conditions, it does indicate that pent-up demand does exist in the market.

The current high levels of existing homes listed for sale in the markets continues to negatively impact new home sales. Because of the general lack of consumer confidence in housing, it is not possible to predict accurately when the inventory of existing homes will be reduced. As a result, it is likewise impossible to tell when market conditions for new homes will improve. It is because of that uncertainty that we cut so deep with the impairment models and write-offs. Every quarter we assess stet recoverability of our assets based on then current market conditions. Based on the continued deterioration of pricing power and market conditions in general, we determined it was necessary to reevaluate recoverability with the skeptical view, in which -- which explains the significant reductions to our carrying values. It is also because of the continued uncertainty in the market that we remain focused on steps that will ensure our ability to survive this downturn and to position Comstock for improved results in future periods.

During the balance of this year, and well into 2008, we will continue to work diligently to reduce debt by selling inventory units and certain land holdings, work with our lenders to adjust loan maturities and financial covenants to reflect market realities, work with existing and new lenders to enhance our access to capital, enhance our balance sheet by reducing our debt, maximizing recovery of previously paid taxes and preserving cash, and maximizing sales while managing our assets in a conservative manner. While it is unclear when we can expect market conditions to improve, we continue to see signs that this cycle will lead to a recovery just as previous cycles have done. Operating costs are being reduced throughout the industry. Construction cost reductions have become the norm. Land values are coming down as evidenced by the sweeping impairments by many companies, and previously planned projects are being delayed or canceled. And finished lot opportunities are increasingly available and reduced home prices are beginning to attract buyers. It is reasonable to expect that as the market continues to adjust to reduced overall demand, the costs of producing homes will continue to decrease and eventually demand will improve. Historically improving demand first occurs in markets that demonstrate continued job growth and population growth. We believe the Comstock is well positioned to benefit early in the recovery because of our concentration on just three markets, all of which have continued to demonstrate job growth and population growth.

Now I'm going to ask Bruce to discuss our financial results in detail. After that we will both be available to answer questions. Bruce.

All right, thank you, Chris, and good afternoon, everybody. Today I am going to focus on the results of operations for the third quarter and year to date. The results at the Eclipse, changes in our balance sheet and cash flows including impairments, credit facilities, covenant compliance, and bank negotiations, and finally our outlook for Q4 and beyond. So I'll start with results of operations.

For the three and nine months ended September 30, 2007, we generated $52 million of total revenue with a net loss of $42.5 million, or a loss of $2.63 per share basic and diluted. On 16.2 million weighted average shares outstanding. For the nine months ended September 30, we've generated $213 million with a net loss of $48.8 million or a loss of $3.04 per share basic and diluted on 16 million weighted average shares outstanding. Total issued and outstanding shares to date are approximately 17.8 million as of September 30.

During the third quarter we recorded impairment charges of $61.4 million spread over 26 communities throughout our markets with $25 million in the Washington, D.C. area, $27 million in the Atlanta area, and $9 million in Raleigh. On an after-tax basis using our implied tax rate for the quarter, these impairments represented $42.1 million of our $42.5 million current period after-tax loss. Net of these impairments we generated a pretax operating loss of approximately $1.3 million. The credit crisis that occurred over the summer generated enormous chaos in the homebuilding business.

At the beginning of the summer there appeared to be some price stability returning to the market but developing concerns about mortgage liquidity, declining consumer confidence and aggressive price discounting among our competition set the market back again. Where previous impairment models had been based on a belief that we were at or near pricing floors we found that the floor had dropped and our pricing was no longer generating sufficient results. We concluded that in order to attract more sales and continue deleveraging our balance sheet we had to further reduce prices. The dramatic changes in market conditions that occurred this summer were viewed by us as triggering events for all of our projects. As such we required our regional and divisional management to reforecast each of their projects. In 26 out of 41 projects we identified the need to impair our carrying value based on prolonged lower pricing and extended sell-out time assumptions.

Some of the larger impairments included Triple Road and Highland Avenue in Atlanta for 9.5 million and 5.6 million respectively. Belmont Bay 8 and 9 and Barrington in Washington for 5.6 million and 6.9 million respectively. And Haddon Hall and Wakefield in Raleigh, for approximately $2.6 million each. As Chris mentioned, in connection with these impairments we used a 17% discount rate to calculate the net present value of the asset's cash flow. The discount rate in these models contemplates a benchmark rate of return that outside investors would require when purchasing an asset and deploying capital into that asset. We'll continue to evaluate our inventory and assess the recoverability of our net investment in our projects on a quarterly basis in light of evolving market conditions.

One of the impairment charges taken this quarter is an $8 million charge at the Eclipse retail complex. Throughout the course of the project it has been our assumption that the retail condos would be delivered to the buyer in the same time period as the bulk of the East Tower, and as such the two complexes, the residential and the retail, were treated as one project with one aggregate cost basis, one P&L, and one impairment model. Because of the assumed timing, the retail has always been treated as a component of the total square footage of the project and was allocated its share of the capitalized costs on a pro rata basis, based on its percentage of the overall square footage. Even though its sales price per square foot was significantly lower than the residential.

Given the prolonged delivery period at the Eclipse, and the anticipated divergence in the anticipated timing of delivery of the retail from the residential, we've elected this quarter to separate them as if they were two projects. When we reallocated the cost basis of the retail away from residential and considered it against the anticipated revenue it became clear that we needed to impair the retail. It's important that we're extremely clear about something. The overall projected profitability of the Eclipse has not changed. What has changed is the timing of that profitability and how we expect it will be derived. As a result of this impairment in Q3, the settlement of the retail, which we hope to occur in the fourth quarter, should generate 14.5 million of gross revenue and 8.5 million of debt reduction while having no meaningful impact on the Q4 P&L.

As for the 7.6 million in write-offs, we terminated option agreements and/or wrote down the $4.5 million of invested option feasibility and pre acquisition costs at Brandy Station, Herndon, Aldy, and Loudon Station in the DC area. The 2 million at Cedars Road, Hopewell, and Kelly Millen, Atlanta, and $950,000 between Providence and Brookfield, in Raleigh. In contrast we closed on the $3.1 million sale of Blake Crossing in August. And in October we reached a settlement with the sellers of Lake Pellum whereby we recovered $1.3 million of our $2 million deposit. We had previously written off $1 million of deposits so we will recover $300,000 of income in the fourth quarter from that settlement. As a result of these transactions at Brandy, Blake, and Lake Pellum we no longer having any investment in the challenging Culpeper, Virginia market.

It's important to remind everyone that impairments and write-offs while having a negative impact on our book, value in the near term will have no impact on our coverage ratio covenants as currently documented. The recognition of these impairments lowers our cost on a discounted basis and should in the future contribute towards debt service coverage tests.

Our gross margin from homebuilding this quarter was up by 580 basis points to 12.6% as compared to 6.8% for the three months ended September 30, 2006. For the nine months our gross margin from homebuilding was down by 760 basis points to 9.8% from 17.4% last year. Adjusted to account for the 0 margin sale of Bellemeade condominium units this year, our gross margin from homebuilding was 12.8%.

SG&A for the third quarter was down $2 million to just under $7.9 million, representing 15% of total revenue, as compared to $9.9 million or 28% of total revenue during the third quarter of last year. SG&A for the first nine months of 2007 was down $1.8 million to $24.2 million or 11% of total revenue as compared to $26 million or 21% of total revenue for the first nine months of 2006.

As I have discussed in the past SG&A includes both selling and overhead expenses. For the third quarter, selling expenses were $2.5 million, and G&A was $5.3 million, as compared to $3.5 million and $6.4 million in the third quarter of 2006. For the nine months, selling expenses were $9.2 million and G&A was $15.1 million, as compared to $9 million and $17 million in 2006.

Now let's turn quickly to the Eclipse. For the third quarter we recorded $25.2 million of revenue and generated an 18% gross margin. Average settled revenue per square foot was $508 which is up from $499 per square foot in Q2 and $424 per square foot back in the fourth quarter of last year. At September 30, the backlog at the Eclipse was $5.2 million on 14 units. Since September 30, we've written eight new contracts and settled six units for $4.5 million of new order revenue and just over $2.4 million of settlement revenue. As of Friday we had backlog of $7.2 million on 16 units. This leaves us with 25 units in the West Tower and 95 units in the East Tower for a total of 123 remaining units to sell, for a total of 132,000 square feet with a current average list price of $535 per square foot.

At September 30, the loan balance at the Eclipse was just over $38 million with $8.5 million of paydown expected from the retail settlement in Q4. While this loan matures in January of 2008, we're confident that we have options which will ensure continuation of funding at the project.

Turning to the balance sheet, our book value at September 30, was $80.8 million, or $4.54 per share, based on 17.8 million total issued and outstanding shares including all unvested stock grants. During the third quarter, as a result of the impairment and write-off charges that we incurred, we recorded a $27 million tax benefit on our income statement and a $25 million increase to our deferred tax assets. As of September 30, we believed that this deferred tax asset was recoverable based both on our ability to apply current year net operating losses against 2005 taxes paid and our belief that we can manage our banking relationships to be able to return to profitability in the future. While this is our position with respect to the third quarter situations may arise beyond our control which could compromise the recoverability of this asset. If that becomes the case we would be required to record a valuation allowance against the deferred tax asset in the future. If recorded a valuation allowance would negatively impact booked value at that time.

Unrestricted cash on hand at the end of the quarter was just under $9 million. It remains relatively unchanged today. Cash and liquidity continue to be our primary focus. This year we have generated $87 million of cash from operating activities by disposing of large assets, closing nearly $80 million of revenue at the Eclipse, and curtailing our spending on new acquisitions and pre sale speculative construction. The positive cash flow we've generated has been applied to financing activities where we have used $99.6 million this year reducing our debts. We continue to believe that through continued asset sales and available debt financing alternatives we have access to the liquidity we need to manage our day to day cash flow requirements.

With regards to our banking relationships, we've reduced our outstanding borrowings to $201 million of which $171 million is secured and $30 million is unsecured. This represents a $94 million reduction from the end of 2006 and a $28 million reduction from last quarter. Reducing debt continues to be a high priority initiative. As we discussed in the 10-Q, we've received waivers of financial covenants as necessary in connection with the current impairments which compromise our compliance with tangible net worth covenants. These waivers are from KeyBanc, M&T basic and the note holder of our unsecured notes. As a result, the next time we will be tested on the tangible net worth covenant is in March 2008 in connection with the audit results from December 31, 2007.

As for the debt service coverage ratio, we're in compliance with these covenants as they stand this quarter. Two important trends have been positively impacting this covenant. First, we have dramatically reduced our debt, especially our high-cost debt at the Eclipse which significantly lowers our debt service, or the incurrence part of the test. Second, as a result of settlements at the Eclipse we've been releasing capitalized interest into cost of goods sold which improves our EBITDA. To date we have been successful in managing the various requirements of our loans as they come up. The varied nature of these requirements makes this a complicated process.

One of our principal objectives in the near term is the synchronization of the terms and covenants among our secured lenders which we believe will afford better flexibility to meet our lending and resource requirements while allowing us to plan for the future. It should be noted that our unsecured notes, based on the current waiver, provide the note holders the right to acquired a $2 million principal curtailment after November 29. We are currently working with the note holders of the unsecured debt to try and extend that option. Please be assured, however, negotiating amended terms for all of our debt which are more consistent with today's market realities is among our highest priorities. Given the continued volatility and unpredictability of the residential real estate markets where we operate we will continue to withhold guidance at this time. Thank you. At this point I believe we're going to open up the call to questions. So I will turn it back over to the moderator.

Thank you. (OPERATOR INSTRUCTIONS) The first question will be from Chris Lucas of Robert W. Baird. Please go ahead.

Good afternoon, guys.

Good morning, Chris. Afternoon.

Can you -- Chris, you mentioned that you had gone through and reduced staff by about 40%. Is that at the corporate level or is that across the board, and if it's--?

It's across the board, Chris.

And so what's the corporate overhead staff reduction been? From a headcount perspective?

I'd have to look that up. If we could circle back to that we'll try to find the answer while we're here.

Probably in the 20 to 30 range.

Let's find out what that number is while we're--.

Okay, can you just -- let's move on. Can you give us a sense as to the traffic that you're seeing, given your sales promotions and what your -- what you're seeing in terms of the customers that are coming through right now?

Well, we're -- the customers we're seeing now are responding to the advertising we've been doing, which focuses on the available savings in the market. For instance, our approach was, this fall, to make sure that we were aggressive enough to move product and, while trying to maximize the value as well, of course. Our highest advertised discount was $250,000 on one house that was in the -- in Northern Virginia, and it had originally been priced at 850. We marked it to 599 and had multiple offers on the first day that ad ran. And sold it for something above 599.

Across the board what we've been finding is that if you price the projects, or the products, appropriately, there is demand in the market. There are people that want to bay houses now that have just been waiting for an opportunity to do it at a number that they don't feel uncomfortable paying. I think that's going to continue. I think you'll continue to see demand at reduced prices to what you saw six months or a year ago. And our intention is to meet that market demand, which is why we've approached our impairments the way that we have.

On the -- on these contracts that you've written over the last -- since the quarter end, are there -- are you taking contracts that are contingent on the buyer selling their existing home?

No, when we get contingent sales like that, if they're written, they stay in what we call the pending sales, so the numbers I discussed were not -- did not include any contingent sale that we're waiting to see if they're for real.

Okay. And then can you kind of walk through the -- not necessarily community by community, but just sort of the major spec inventory that you guys are carrying at this point, which communities -- sort of account for the majority of the spec inventory and--?

On a unit basis, of course, the majority is the Eclipse. There's 123 units available there. We have 28 units -- 26 units, I think, at Belmont Bay.

Meadowbrook's got about 49. If it's a unit in the rental pool that's actively rented right now that we have not hold an open for sale we don't include it as a spec.

Keep in mind we are managing some of the properties as rentals right now. Barrington, for instance, we have a bunch of units out there that we are simply renting, and we'll decide what to do with them at some later date. In the meantime, we're going to continue marketing that project to institutional buyers.

System-wide, we only have 33 single -- speculative substantially complete single-family homes at this point.

What's it show for towns snow.

Seven on the town houses, then the majority of it is going to be in the condos, particularly with the Eclipse.

What are you showing at both the Potomac Square and Williams Square?

There's no speculative inventory at Williams Square, and at Potomac Square I believe we're down to like, sub 5, 3, or 4, something like that.

Okay.

We have not started the last two buildings there.

At Potomac Square?

At Potomac Square. We sold through the first two buildings. We have a couple of units left there. We had the ADUs, the affordable dwelling units that are current in the County's system that are being marketed through the ADU program. There's about 12 of those, but those are -- in fact, the County guarantees the purchase of them through the program. And in market rates, like I said, there's only a couple of units left there.

But those -- those ADUs, the actual physical units have not been built?

They are built.

They are built. Okay. So whatever vacancy is in there is because they haven't closed on those?

Well, you have to go through a process with the County of making them available to a list of qualified buyers, and that -- if you go through that list in order, then what you can't start on the next list until that list has been completed, so it can take several months to work through the process, once you have the ADUs in the system.

Okay. And then in terms of the loan waivers and other activities with your lenders, what sort of cost are you seeing -- I mean is this a regular quarterly thing or are we just -- are you guys just exchanging paper at this point?

When you say regularly -- I'm sorry, I don't understand.

I guess I'm wondering what kind of costs are implied or what kind of costs are implied, or what kind of costs are you coming across in terms of renegotiating or gaining waivers from your lenders?

This quarter there was no costs associated with any of the waivers that we received from the banks. In past quarters where there have been renegotiations of debt, or wholesale changes, you may see some cost to -- a quarter points in terms of closing. You may have seen shifting in the way interest rate, but nothing that I would call a dramatic change, anyway, to the overall cost of the debt.

Okay. And then as it relates to the unsecured notes, when did the creditors take control of the note holders' interest? Do you know?

We don't know exactly when that happened. It happened at the end of the summer. It was a process ultimately. We were informed of it in September, although we were aware that it was a possibility at the end of the summer and into September.

Coming back to your first question, Chris, the Corporate staff has been reduced approximately 50%.

Okay. And then I guess, just a follow-up on the G&A question, you break out sort of the unallocated corporate but then you offset it by, I guess, interest income in the Q. Is that right, Bruce?

In other income?

Well, reading the footnote as it relates to unallocated overhead, which is essentially, I read as the Corporate overhead number, the footnote suggests that you are offsetting that number with interest income.

Well, on deposits -- on deposited cash, the income that -- the interest that is earned is considered -- is counted on the bottom half of our P&L. It's not commingled into G&A, but from a -- I guess from a consolidated operating perspective in the disclosure where you take unallocated corporate G&A and you would -- the interest income would be considered a -- sort of a corporate income item.

Do you have a -- I guess more of a pure corporate overhead sequential and year-over-year reduction excluding that--?

The numbers that I gave as I was talking through represent pure G&A, corporate G&A.

Can you -- do you mind repeating those?

I do not. Just give me one second to find it here where I was. For the third quarter, G&A was $5.3 million as compared to $6.4 million in the third quarter of 2006. For the nine months, G&A was $15.1 million as compared to $17 million last year.

Okay. Given the staff reductions that you had, was -- that quarterly number still seems relatively large. Were there significant one-time expenses this quarter related to staff reductions?

A big portion of the staff reductions that went into effect trailed into the third quarter.

Okay.

We expect to continue to see improvement.

Is a roughly $5 million run rate reasonable, then, at Corporate, or are you expecting it to continue to decline?

I think that you will see it stabilize in the near term, and then depending on where the market goes, we'll have to reassess and determine whether it needs to find additional room or not.

I'm going to hop back in the queue. I have other questions, but I'll let somebody else ask some questions first.

Fair enough.

Thank you. The next question will be from Alex Barron of Agency Trading Group. Please go ahead.

Hey, guys. Can you talk about what market conditions have been like in the last three months in Georgia and in the Carolinas?

Well, I think what we have seen is that there has been a general slowing in all the markets. There's been -- traffic has not died off, but the ability to convert traffic to near-term sales has become more difficult, as I mentioned earlier, I think the discounts are attracting some people back into the market, but the -- it's not -- it's not at sufficient levels that make us feel comfortable that the market has stabilized.

I think we' seeing the price competition -- the substantial price reductions have been throughout all the markets. To the extent that we have kept up that trend we've seen good results in those markets. I think that there's similarity in that where there's product -- where there's an existing home to move that's the most difficult part of the market, where it's a move down that the buyer is willing to take some reduction in what they thought their equity was, or if it's a first-time buyer or a relo to the market, we're seeing good traffic and good conversion. And roughly what -- I guess if you look at it from a net pricing, including incentives, price cuts, whatever, roughly how much are the houses in those two markets down relative to peak levels?

To peak levels in -- pick a tame frame.

I don't know, '05.

You got to keep in mind, it's hard to fix a number on that, because part of what happens is you start trading off of -- you start down-specing the houses. What might have had a rec room or some such thing last year is now gone as a standard feature. So you're able to offer the product at a much lower price. On an advertised basis, I'd say that pretty much across the board, you're seeing advertised prices that are 20, 25% lower than they were a year ago. On a -- and this is just a gut check number, but I would say on a -- adjusted for what's in and what's out of the deal, it's probably something like 10 to 15% change.

How does that--?

Washington has been steeper than the other two markets that we're in.

That's what I was going to say. How does that compare to DC?

DC's been at the higher end of that range.

You're dealing with a peak that was so aggressively grown that to say against 2005, is a -- is going to be a deceiving number. If you said against 2003, 2004, you're probably stable.

Right. One last question. How many units are still unsold at Eclipse after all the cancellations and so forth?

123.

Okay. Thanks a lot.

You're welcome.

Thank you. The next question will be from David Shapiro of Aegis Financial.

Hi, guys. On the Eclipse, did I get it right? Did you guys say 132,000 square feet?

Approximately, yes.

Okay. And that was at 535 per square foot is the estimated sell-out there?

That's the list price today.

Okay. In regards to your impairments, how much was devoted really just to the land positions that you have in Georgia versus the development communities? I'm talking about Highlands and other properties like that.

if you look at -- I think I touched on a couple of those numbers, to go back and pull them up, within the impairments -- sorry, just running back. At Triple and Highland, it was just above 15 million of the total amount there. And I think it was like 27 was our number in that market, 27 in Atlanta. In DC, between Belmont Bay, which is -- that's a constructed building, Barrington is a constructed building. There really was no land impairment other than a small one at station view which we really think of as a development job that's about to get started. And then in Raleigh, really not a land position. More of a constructed, or in the process of operating projects mostly.

When you take a look at your Georgia land position, after this impairment, approximately how much value are you attributing to your land position? What is it on the balance sheet for at this point, approximately?

I'd have to get the breakdown between the land position and the construction position. We do disclose in the Q what our asset carry is for the Atlanta market.

Roughly what percentage maybe would be that undeveloped land?

Yes, I would look to say that about 30% of it, somewhere maybe in the 30 to 35% range is going to represent pure land position.

You mean across all the developments or just the?

No, I'm talking about jobs that are only just land.

Okay.

The Triples, as I think you brought it up.

Even after the 15 million impairment?

Well, yes, I think the impairment was well distributed across a number of projects there. They're currently carrying -- $56 million of inventory in Atlanta. 27 of impairment. Right, prior to that number. And out of that 56, say probably 15 to -- 15 maybe or so. Have to add it up more specifically, but 15 is just raw land.

In that separated category?

Yes. That would not contemplate like the land at Gates of Luberon, where it's land but it's an active construction project. It's an open project. That's really limited to the Setting Downs, Trible, Highland Avenue. Let me just think what else might be included in that, just as a raw land position in Atlanta. Other than those three. Those would be the three most significant players in it. I'll take a quick look at the lot table. A Shiloh.

Okay. Then maybe, what was the inventory value on the Eclipse at this point? After this 8 million write-down what is it?

We had about 30 -- you want to pull that up for me, Jeff? We'll get that for you in a second.

All right. Then maybe on to another one, while you get that one, do you have an update on the operating income and the rental status at Barrington and Penderbrook?

I don't have that in front of me. As you were just starting to ask that question I realize I don't have that with me. But we have, both of them are roughly 90% occupied. At the current moment, at Penderbrook, we're running -- we have about 95 units that are rented at that project, running a little over 100,000 and 125,000 a month in gross revenue, and probably, on a pre debt service basis there running at probably 40,000, 50,000 of NOI.

Are you covering your debt service?

No, not at Penderbrook. If you remember, at Penderbrook, we took out a project loan there that included an $11 million cash-out refinance that was effectively equity back to the Company. So the -- from a pure project perspective, no, we're not covering the debt at Penderbrook, and at Barrington we're not, either, because that project is still under construction and we don't have the -- there are four buildings that will be available for rent, two of them are completed. Two are about 80% completed, and there's also two more pads of land out there. So there, no, we're not covering our debt service, but it certainly helps.

On the remaining -- the 20% left on the last buildings, how much more capital has to be devoted there, approximately?

It's about a $1.5 million.

Total?

Yes. To complete those two projects those two buildings, and that funding is being provided 100% by BB&T.

And that adds how many more units to the -- those are going to be sales or rentals?

Those will be rentals in the short term. The strategy at Barrington is to complete the four buildings, rent them for an undetermined period of time, until we decide whether there's either a buyer for that project as a rental project in the future, where I don't think that there's one in the very near term, or the market improves and we go back and start selling the four buildings as condominiums, because we haven't lost that designation, and then start on the last two buildings once those four buildings have been substantially sold through.

So after 41 units you're going to be -- will that roughly double? That will take you up to about 82?

Yes.

Okay. And what were your gross margins per region before -- I'm excluding impairments.

Let me pull that up for you. We produce it on an operating basis. I've disclosed it on a regional basis for gross profit.

You don't have the regional figures?

I'd have to pull them up.

I'll get back in the queue and wait on the Eclipse inventory and the gross margins by region. Thank you.

Thank you. The next question will be from Chuck Griege of Blue Lion Capital. Please go ahead.

Good afternoon, guys. Just a quick question for you. You may have covered this already. Could you just reviewing again your total spec inventory, single family and condo, as it stands today?

There's 33 single family homes, 7 townhomes, and 123 condos at the Eclipse, and elsewhere, what's the total, Bruce, elsewhere?

Well, what we consider a spec to be, a unit that's been started. There's a difference between out of the ground and substantially complete. As Chris said, 33 substantially complete single family, another 12 that are out of the ground, maybe halted at foundation. Five are at foundation, two from framing, from foundation to framing, and five from framing to drywall complete, and then there are seven townhouses, all in the Raleigh market, that are finished standing inventory. In Raleigh, we have 20 condominiums that are standing inventory. None in Atlanta, and then in the D.C. market, you have 49 at Penderbrook, you've got 26 at Belmont Bay. You've got 123--.

Hang on a second. You said 49 at Penderbrook.

49 at Penderbrook, 26 at Belmont Bay.

Okay.

123 at the Eclipse.

Right.

I don't include Barrington in that count because of its status as a rental.

And how many rental units do you have currently?

There are 42 out there. And then there are another 44, I believe it is, that are started -- that are in those last two buildings that will be completed soon, and they are already being pre leased.

So 42 units currently rented, and another 42 to be rented?

44.

Those are all at the Barrington project. And there's -- we have rental units at Penderbrook as well.

Right. But 49 are the nonrental.

How many are in the rental pool at Penderbrook?

About 90.

About 90 units at Penderbrook that we're operating as rental property.

Okay. And then I just had a quick question for you, looking at your balance sheet. Your other assets of 18 million are what?

Let me pull that schedule up.

18.4 million?

Do you have the schedule in front of you? The Lake Pellum deposit which is a $1 million that will be reversed in the fourth quarter based on the settlement out there. The $3 million that's in there related to the dispute over the loan finders fee at Potomac Yard, which is currently on appeal, we had that posted as an escrow. We have income tax receivable based on current year to date NOLs, and that's about $8.5 million. That number will fluctuate based on what taxable income is through the fourth quarter.

Thank you very much.

Thank you.

Thank you. We have a follow-up question at this time from Chris Lucas. Please go ahead.

Can you guys just kind of walk through again the Eclipse impairment? I'm just trying to understand that, and what occupancy has taken place, and if you could walk us through what's happening with the rental there.

Sure. The retail is 80,000 square feet. It's built into the building. 50,000 square feet of that is the Harris Teeter, and the remaining is chopped up into multiple retail locations which will include various other retailer, dry cleaners, sandwich, I think there's a shipping store going in there.

Is that all leased at this point?

That is not something that's done by Comstock, so I don't know that the exact status of all of the leasing. It is -- Harris Teeter is open and operating.

It's an ongoing process. The bank and the grocery are open.

The laundry, the dry cleaners is open.

And there might be -- there's a Quiznos there. I don't know if they're still under construction or not.

So the way that's worked, Chris, is that the retail -- the operation of the retail has been turned over to the buyer. We are limited in our ability to settle that until such time as we have reached a certain outstanding balance per square foot under the loan with chorus. We have a outstanding plus committed has to be $200 a square foot. We're still a little bit shy of that, hoping that we're going to achieve that in the fourth quarter. The impairment of the retail is based on the cancellation rate that occurred in the East Tower, based on the assumption going throughout the project that all of this would kind of settle at the same time, and that, therefore, the differential between the price per square foot that the retail is sold for and the residential would all fall out in the wash, and they're all being allocated the same cost based on their pro rata square footage within the building.

With the third quarter, we recognize that there was going to be, obviously a big differential between the settlements of the residual residential, and the retail. And when we looked at what the cost per square foot would be to the retail, if it settled on its own, relative to the income that would be generated from it, it would be a loss, although it's always been factored into the overall cost and the overall revenue of the project, that discrete settlement would generate a loss in the fourth quarter that would be substantial, and, therefore, it was decided that the appropriate thing to do was impair that in the quarter when we recognized that was coming, and, therefore, put it into the noncash bucket, into the impairment bucket, and have it be P&L neutral when the actual settlement occurs.

I'm going to have to get to you off-line, because it's still -- wouldn't you have known going in that the timing of the original transaction was consummated, that the costs--?

Yes, but it was always considered that it was going to all settle contemporaneously, and therefore it was thought of--.

If you imagine that those 123 units that we still have available had all settled sometime earlier this year when they should have, then everything would have gone to closing all in the same period. And, therefore, running it as one project was he right way to do it. Now that we know that the -- that there's a lag, because of the 123 units that are still there, there will be a lag in when we deliver the retail, and when we deliver the balance of the condo units, so we felt it was more appropriate to manage it on a book basis as two separate project.

By treating it consistently with other assets it falls into the impairment bucket and outside the EBITDA test bucket for covenant calculations, which was a concern that would have arisen in the fourth quarter given the change in the amount of revenue and profitability that would have been generated had it been a loan in the fourth quarter.

Does this imply, or can I then back in and understand that the rough sort of shell cost construction for the project all in total is approximately $300 a foot?

Roughly.

Okay. And then the last question I'm going to ask is related to just the Loudon--?

Are you talking about just hard costs or are you talking about all softs included?

Well, I'm assuming that there's a difference between the condominium space that you build out for the retail, which was essentially shelf space, right, versus the condo finished space, the improvements you made to the individual units, right?

Well, that's correct, although it all falls under the GC contract. The specific -- again, I'm not sure if I'm answering the question you're asking, but the specific cost associated with each unit is allocated with -- there are specific option selections for a unit. Those are allocated on a unit basis. Otherwise, the entire GC contract is allocated over the entirety of the quarter footage.

Okay. I guess I'm wondering, is that an apples to oranges pro pro rata comparative? Because you're really just--?

That's one of the reasons we separated it.

It is in one respect, because, of course, the condominium units, the residential condominiums are fully functioning, livable space, when they transfer to the buyer, and the retail condominiums are not. Those tenants actually finish out their respective spaces on their dime.

Right. Okay. And then the last question that has to with just Loudon Station, that's off the list. What's the status?

We wrote off our feasibility costs associated with that project, and at the moment it is our determination that the way the preliminary plan was approved for that project and the requirements that were created for the construction of units there, the--.

The density requires structured parking.

It's just not priced practical in today's market. We don't see how under the current architectural requirements it is price -- price practical for us, and we'll reevaluate it some day in the future.

Do you all still hold an option on that then, or what's the status of that parcel?

We've released our option on it.

It's still owned by related parties.

Okay. Very good. Thank you, guys.

All right.

Thank you. The next question will be from [Carter Noble] of [Scott Stringfellow]. Please go ahead.

Hey, guys.

Hi there.

I was wanting to know, I know in the past that even though that Comstock cannot buy back stock, but the insider buyers have bought back stock. What is your thought on the actual insiders starting to buy back stock here at $1.25 when I know in the past you all paid around $4.00?

Well, the -- guess the best way to answer that is the, personally, we view the stock as very -- at very attractive levels. While the stock that is -- or the restriction on buying back stock that you mentioned is relative to financial covenants with some of our loans, it is something we would like to do at some point in the future as a Company. The Board authorized 1 million share buyback. We have not used the full authorization. At some point we may actually be in a position to do that again when cash flow permits to bay back more shares when cash flow permits. As far as a -- on a personal basis, the -- we view it as an attractive level as well. But nobody has -- no one in the position to buy back any significant amount of shares has been free to do that most of the time.

The window has been closed for a variety of reasons, pretty much ever since we went public with the various open window times that come during the year. We're continually looking at it, and on an individual basis, although I can't speak for everybody, you may see some of that in the future. When you say that, do you mean in the next year, or in the next week, or can you sort of specify the time when the window would be open? Yes, the window's closed now.

The window is closed now. I think it would be inappropriate for us to suggest a specific time that anybody might be in the market buying stock. Our trading policy as a Company is that the window for insiders does not open until 72 hours after the release of earnings and market digestion of them, so that would be after today. To the extent that there are no material transactions in the works, and that is, as you know, a somewhat ambiguous term in the world today, given where we are with debt, certain -- any significant debt renegotiations could impact the openness of the window, and it's something we counsel with, counsel on, and we'll do so this week, later this week to see whether or not the window opens, and at that time it will be a personal decision of the insiders as to what they do.

How long is it open for?

It stays open for 30 days from when it could open. It doesn't stay open 30 days from when it does open. So 72 hours after earnings, 30 days thereafter, then it closes.

Okay. That's what I needed to know.

Not a problem.

Thank you. We have some follow-up questions from David Shapiro of Aegis Financial.

Hi, guys. One follow-up. The 2005 taxes, there was about $22 million payment, and you were saying -- how much of that were you guys planning on recovering as part of the tax asset? The full amount?

As much as we can in the current period.

Well, again, it's going to depend on activity in the fourth quarter. We -- we believe that in the near term we could qualify for as much as 12 million to 14 million, but that will go up and down, based on performance in the quarter.

Depends on which assets sell. Suffice it to say that the -- if you have an asset that a loss is likely to occur on, better to sell it this year and utilize that to offset future, or previously paid taxes than to let it wait into a future period. So you're picking up on a piece of the strategy that is simply to maximize the recoverability of the previously paid taxes.

Understandable, but right now you're in sort of the low teens, is where you're thinking the potential is at least for this year?

Well, right now we're below 10, is where we are.

Okay.

We're sitting on eight. But then--.

The maximum potential is about 14.

Okay.

But again, with every profitable settlement, you lose one. With every unprofitable, you gain it.

We sold a unit at the Eclipse a couple weeks ago that was a $1.3 million sale.

The balance is being--.

Which is probably going to settle before the end of this year, and that -- there would be a significant value profit recorded on that sale, so that kind of sets you back a little bit farther in being able to recover the full tax. But we're working -- we're viewing everything these days based on -- a view towards managing our cash flow. So the tax strategy is a part of that. Another question in regards to managing cash. Are you guys actively marketing at this point your Atlanta positions and maybe even your DC capital land position?

We have identified assets that we would certainly be interested in selling.

There are certain assets that we've tried to sell, and some that we have.

We are actively marketing projects to see what market rate is for them. To the extent that it's attractive, and that's a term that certainly has been compromised lately, but to the extent that they're attractive, yes, we would certainly be in a position to sell them in some of our larger land positions, deals like a Trible Road -- Trible Lakes that we're certainly interested in identifying whether there's market for it. The East Capital Street project here in Washington. However, they've also all been impaired to significantly lower levels of carry than they were before, to the extent they don't sell they become more attractive buildouts for us over time.

It also depends how, as you can imagine, the more anxious you are to sell something, the lower the market price is. For instance, there's been -- I know there's been questions in the past about why we weren't selling bulk units at the Eclipse. And we have worked on that several times. The disparity between the retail pricing and the discount sought by bulk buyers of condominiums for repositioning, it just makes it not worth it on that particular asset. On assets like Bellemeade, we were able to get a, relatively speaking, a good price for the 316 units there. So we actually bought back units from the public in order to ensure that we could package that as a complete rental property and sell it with the -- to an institutional buyer.

Okay. Thank you.

Thank you.

Before we take -- if there are any other questions, just going to jump back to a question asked earlier. The current carry value at the Eclipse, after the impairment, is $59 million, of which 43 is associated -- just above 43 with the residential, and below 16 on the retail. And then the question was about margins. Between the different regions. Gross margin, ex impairment, in Virginia was around 12%. North Carolina approximately 7%, and in Georgia was negative 1.5%.

Gentlemen, there are no further questions registered at this time.

Okay. This is Chris Clemente again. I want to assure the market that we continue to focus on the things we need to be doing to survive this downturn and to position this Company to benefit early when the market recovers. We believe that our accomplishments this year are positively impacting results now, and will contribute to our ability to deliver enhanced results in the future. We appreciate your participation today. Look forward to talking to you next time. Thank you.

Thank you. The conference call has ended. You may disconnect your telephone lines at this time. We thank you very much for your participation, and have a great day.