Comstock Holding Companies Inc (CHCI) 2007 Q4 法說會逐字稿

Good afternoon and welcome to Comstock Homebuilding Companies' fourth-quarter 2007 year-end conference call. Your host for today will be Mr. Bruce Labovitz. Please go ahead, Mr. Labovitz.

Good afternoon. I am joined today by Chris Clemente. I am going to start by reading the Safe Harbor language. This conference may contain forward-looking statements as defined in Section 27A, subsection one 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 our expectations and are subject to a number of risks and uncertainties, some of which cannot be predicted or quantified and are beyond our 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.

With that, I would like to turn the call over to Chris Clemente, founder and CEO of Comstock. Chris?

Hello and thank you for joining us today. This is Chris Clemente, Chairman and CEO of Comstock Homebuilding Companies. I want to start by thanking every member of the Comstock team for their continued perseverance. As the market has deteriorated over the last couple of years, we have been forced to make significant reductions of staff and to cut budgets for outsourcing thereby requiring everyone to take on additional responsibilities.

The accomplishments that I will summarize today are the result of a team effort and demonstrate the commitment of every member of the Comstock team to do more with less. I also want to thank our vendors for continuing to work with us to reduce construction costs and thank the vast majority of our lenders for their willingness to modify terms and covenants of our various loan facilities in recognition of current market realities. I also want to thank KeyBank for demonstrating their confidence in our Company by providing the new credit facility that we recently announced.

By early 2007, the housing recession was well underway, forcing our industry to focus on reducing debt and modifying financial covenants. Along with maximizing project performance, our primary goals in 2007 were reducing debt and negative cash flow associated with debt service, maximizing our 2007 tax refund while preserving liquidity, reducing our land and unit inventory, reducing costs across all aspects of our business, accelerating future period expenses into 2007 to reduce future expenses and to expand opportunity for margin growth in 2008 and beyond and continually reevaluating the prospects of each asset in light of deteriorating market conditions.

When 2007 began, Comstock's total debt was approximately $295 million with approximately $205 million coming due during 2007. To reduce debt and the negative cash flow associated with debt service, we sold certain multifamily assets and repositioned others as rental properties. We sold land positions and canceled contracts to buy additional land in order to reduce future obligations and recovered cash deposits. We aggressively sold our inventory of completed units, utilizing available cash flow to reduce debt.

By the end of the year, we had reduced our total debt by more than $124 million. In addition, we were able to refinance or otherwise modify the terms and maturities of the balance of our debt, ending the year in compliance or with waivers in hand regarding all financial covenants. It should be noted that at year-end, we were in continuing dialogue with lenders concerning two loans with a total balance of approximately $6.6 million that hadn't matured, but remained outstanding.

Additionally, we entered into an agreement to restructure the terms and reduced the balance due on our $30 million senior unsecured notes. As recently reported, we have now closed on that restructuring transaction and in the process, received a 50% discount in the total amount due under the notes and generated $15 million of reportable income to be recognized in Q1 2008.

Upon closing that transaction, our total outstanding debt stood at approximately $161 million with approximately $80 million of those debt obligations coming due during the balance of 2008. The negative cash flow associated with servicing our debt has been significantly reduced. This is the result of the significant reduction of total debt, the offsetting revenue from our rental properties, newly established interest reserves on certain loans and the lower cost of borrowing.

By way of example, we estimate that our total debt service in April of this year will be approximately $1 million while interest reserves and rental revenue are expected to offset approximately half of that cost, leaving a negative cash flow associated with monthly debt service of approximately $500,000. A year earlier, the negative cash flow associated with debt service was approximately $1.4 million per month.

Market conditions remain difficult. Accordingly, we continue working to restructure debt obligations that come due in the balance of 2008. This includes a $4.8 million obligation of one of our single asset real estate subsidiaries in Atlanta where the lender has chosen to initiate foreclosure proceedings. While we may be unable to reach accord with the lender, we believe in the potential of the project and we will continue our efforts to avoid a foreclosure or otherwise to protect our equity in the property.

We achieved our goal of maximizing our 2007 tax refunds by aggressively selling inventory units and strategically selling certain other assets. We also accelerated unavoidable future expenses into 2007 wherever we could. These included project design costs and certain future non-cash compensation expenses associated with previously issued equity grants. We recognized losses on all projects that we canceled or deemed questionable given current market conditions and focused significant energy on delivering properties with built-in losses. By expediting the filing of our 2007 tax return, we were able to obtain the federal and state refunds totaling approximately $13.9 million earlier this month.

We took several steps to preserve liquidity in 2007, including a determined approach to reducing all unfunded project expenses, the elimination of additional land purchase obligations, the conversion of certain condo projects to rental properties, the renegotiation of most debt obligations, reductions in office lease obligations, the utilization of equity in lieu of cash to satisfy accrued 2006 compensation expenses that were due during 2007 and certain other 2007 compensation expenses and the elimination of all 2007 executive bonus compensation, which would have been paid this year.

During all of 2007, we were focused on reducing our inventory of land and spec units. While this required selling concessions at several communities, we believe it was a critical step towards improving future results.

In the fourth quarter, we succeeded in selling and settling most of our remaining non-condo spec inventory. Aggressive marketing resulted in increased traffic and sales making the last quarter the best of 2007. More than 80 inventory units were sold in the fourth quarter with the majority of those sales closing before year-end. In addition, the fall marketing campaign generated approximately 25 new orders that were added to backlog at year-end. In all, 111 units were sold during the fall marketing campaign.

At year-end, our inventory of started but unsold units totaled 390. This included 17 model homes, 20 townhouses, 26 single-family units and 327 condos. Of the 327 condos, 247 were substantially complete and 131 of those were rented to tenants. It is our intent to focus operations on constructing presold units for the foreseeable future in an effort to continue reducing the burden of carrying spec inventory.

With construction complete at the Eclipse, we're able to market to consumers with near-term housing needs. 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.

As with our other multifamily projects, if the pace of sales slows at the Eclipse, we will temporarily physicians some of the units as rentals to offset debt service on the project. Based on the overall performance of the Eclipse in the continued pace of new orders at the projects -- 72 new orders were received in 2007 -- we were able to secure new funding for the project from KeyBank and fully repaid the remaining balance of the Corus loan earlier this month.

The new financing has a three-year term, thereby allowing sufficient time to deliver the current backlog of sold units and sell through the remaining 116 unsold units. Based on our ability to date to maintain prices at the Eclipse and based on the current manageable loan balance, we're confident that we will be able to satisfy the Eclipse debt well within its term and generate significant cash flow from the project.

In addition to spec unit sales, we reduced our land inventory through strategic sales in the Raleigh market and the Washington D.C. market. Additionally, we repositioned the Bellemeade condo conversion project at Leesburg, Virginia as a rental property, and sold it to an institutional investor. Revenue from these transactions was primarily used to reduce debt.

Through a determined approach to cost reductions, we were able to reduce construction costs by as much as 25% on certain products. While these cost reductions vary by product and market, we believe that we will obtain additional cost reductions this year as labor and material suppliers compete for a smaller pool of work.

We continue to focus on reducing other costs as well, and have made significant reductions in costs such as payroll and related expenses, marketing and advertising expenses, office rents, insurance costs and other general and administrative expenses.

In addition, our borrowing costs have come down as the Federal Reserve moves to stimulate the economy with interest rate reductions. As you probably know, the prime rate has come down by three full percentage points since June of last year. As part of our strategy to maximize our tax refunds, we accelerated approximately $4.2 million of future non-cash expenses associated with previously-issued equity grants into 2007.

In spite of this added non-cash expense during the period, we reduced SG&A during the year. Equally important is that we will not be burdened with those expenses during 2008 to 2010, as was previously scheduled. Bruce will provide additional details regarding these accomplishments in a few minutes.

As summarized in the press release we issued yesterday and detailed in our 10-K, the vast majority of the reported loss during 2007 was the result of recorded impairments. 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 in price concessions needed to move inventory at many projects, we believe these steps were necessary and the resulting valuations appropriate.

If our assumptions prove accurate, the 17% discount rate we utilize in our impairment modeling will afford us the opportunity to recover much of the impaired value as we complete the subject projects. If market conditions improve, results could be enhanced. However, if market conditions deteriorate further in 2008, additional adjustments may be needed in future periods.

Nonetheless, we believe the impairments taken to date coupled with the operational changes and cost reductions achieved so far that we have the ability to protect against future value erosion and have the potential of generating positive results in future periods.

The increase in existing home sales reported by the National Association of Realtors yesterday gives us some small hope that demand for housing will improve this year as consumers take advantage of historically low interest rates and depressed sales prices. Traffic has remained at reasonable levels throughout our markets. However, the level of inventory of existing homes available for sale including the high number of foreclosed homes in some areas is paralyzing the market.

Until home buyers are better able to sell their existing home, the market for new homes will be negatively impacted. However, improving demand typically first occurs in markets that demonstrate continued job growth and population growth. We believe that Comstock is well-positioned to benefit early in a recovery because of our concentration on just three markets, all of which have continued to demonstrate job growth and population growth.

That said, the lack of consumer confidence in housing and the economy in general continues to concern me. Therefore, we remain focused on steps that we believe will insure our ability to survive this downturn and position Comstock for improved operating results in future periods.

During the balance of this year, 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, work with existing and new lenders to enhance our access to capital, work to reduce and control costs in every aspect of our business, and work to maximize sales while managing our assets in a conservative manner.

Now I am going to ask Bruce to discuss our financial results in detail, and after that we will be available to answer questions. Bruce?

Thanks, Chris. Good afternoon. Fiscal year 2007, which ended on December 31st, was a difficult year with numerous challenges and disappointing financial results. For the year, we posted a net loss after tax of $87.5 million or a loss of $5.42 per share, both basic and dilutive, and total revenue of $266.2 million.

Our total impairment charges for the year totaled us $78.3 million or $4.85 per share pretax, and $2.96 per share on a pro forma after-tax basis, based on what would have been a 39% effective tax rate.

During the fourth quarter, we recorded an additional $863,000 of write-offs, no impairments, associated with various small charges to multiple completed projects, and one charge of approximately $860,000 to our Glenn Ivey project in connection with a receivable from another homebuilder.

Taxable loss for the year was approximately $40.2 million, of which $35.9 million was carried back to 2005. As a result of these losses, we filed for and received a federal and state tax refund of approximately $13.9 million relating to taxes paid in fiscal 2005.

Coming into 2008, we are carrying forward $4.3 million of recognized net operating losses or NOLs, which can be applied to offset future taxable income over the next 20 years. As part of our year-end closing process and in connection with FIN 48 which we adopted in January 2007, we evaluated the recoverability of our deferred tax asset based on foreseeable prospects for near-term profitability.

In connection with this evaluation, we elected to maintain a $29.2 million valuation allowance against that portion of our deferred tax asset that remained after accounting for the filing of our tax refund. This $28.7 million increase in our valuation allowance, which resulted in a reduction in the income tax benefit associated with impairments, write-offs and other losses, represented $1.78 per share of our loss for the year.

In connection with the increase valuation allowance recorded in the fourth quarter, there was a corresponding 1-to-1 reduction of our shareholder equity. As we settle on each of the individual and bulk assets we have impaired, which creates the non-cash losses which are underlying the deferred tax asset, we will ratably release the valuation allowance.

This release will offset future tax expenses associated with these impaired assets, assuming our impaired models hold and we are able to recognize future book profits on the impaired inventory.

Total revenue for 2007 increased by $20.3 million or 8% to $266.2 million, as compared to $245.9 million for 2006. This includes revenue in the fourth quarter of $53.2 million. Revenue from homebuilding for the year decreased by $7.3 million or 3% to $232.8 million, while revenue from bulk sales, land sales and others sources increased by $27.6 million or 476% to $33.4 million.

The bulk of our other revenue came from sales of Potomac Yard retail complex for $14.5 million, the East Capitol Street condo project for approximately $6 million, developed lots at Massey Preserve for approximately $7 million, and the land as Blake Crossing for approximately $3.7 million.

On a book basis, these sales generated negative gross profit of approximately $900,000 net of impairments, but on a cash basis they generated a significant portion of our carryback loss and accounted for approximately $6 million of the cash we received from our tax refund.

Gross margin on homebuilding, excluding impairments and write-off charges, was 9.3% for the 12 months ended December 31, 2007, or 260 basis points lower than it was in 2006. This compression of margin was the result of many factors, including longer project lifecycles and lower pricing, principally in the fourth quarter in an effort to sell through standing speculative inventory.

SG&A for the year was $34.7 million or 15.3% of total revenue, down $2.8 million as compared to 2006. This includes a onetime non-cash charge of $4.2 million associated with the acceleration of approximately 840,000 shares of restricted stock in December. Net of this onetime acceleration charge, SG&A was down $7 million or nearly 19% to $30.2 million, which was in keeping with the $5 million to $10 million decrease we targeted earlier in the year.

We remain committed to rightsizing our SG&A if market conditions fail to improve. For 2007, net of all non-cash charges, SG&A was approximately $27 million with approximately $11.5 million of selling expenses and $15.8 million of general and administrative. During the first quarter of 2008, we've continued to reduce our G&A costs by reducing our workforce and eliminating an additional $2 million of salary cost.

Payroll expense now is approximately $8 million per year. This year we will have virtually no non-cash stock comp expenses. In addition, we continue to reevaluate every cost we incur, and have been successful in reducing operating costs at the divisional level by consolidating sales operations, cutting back on advertising expenditures, and reducing merchandising expenses associated with multiple model homes.

We expect that overall, we can reduce SG&A for 2008 by at least $10 million as compared to 2007. As disclosed in the 10-K, we are temporarily operating certain condominium properties as rentals until market conditions improve. These projects are still held for sale as condominiums, and as such, all NOI or NOL is still recorded as an adjustment to our inventory costs and not charged as current period income or expense.

At Penderbrook, we currently have 124 remaining units, with 99 of those units rented. Monthly revenue from rentals is approximately $122,000, with $92,000 of NOI for debt service of approximately $120,000 per month. The interest shortfall is funded by an interest reserve.

At Barrington, we have 65 units completed, of which 42 units are rented. Monthly revenue from rentals is $61,000, with $33,000 of NOI for debt service of approximately $142,000 per month.

On the balance sheet front, our single biggest accomplishment of 2007 was the $116.5 million of operating cash flow we generated, which resulted in more than $124 million of debt reduction. Having started the year with over $295 million in debt, we were able to end the year with just over $171 million outstanding and a commitment to an additional $15 million of discounted principal.

We started 2007 with over $205 million of debt obligations occurring during the year. By the end of the year, we had dealt with almost all of those obligations, having started 2008 with approximately $6.5 million past due from 2007, and $92 million of debt obligations scheduled for 2008. At this point in time, we have made significant progress on those obligations, having already reduced the 2008 hurdle to approximately $60 million for the balance of the year.

While this is still a daunting number which will require cooperation from all of our lenders to manage, we believe that we have proven ourselves to our lenders and are positioned to manage our way through the obligations. As a result of current market conditions and our unresolved current year maturities, our auditors, PricewaterhouseCoopers, felt it necessary to include language in their otherwise unqualified opinion, suggesting that there was reason for substantial doubt that the Company will continue as a going concern.

In spite of their position on the matter, the Company has chosen to present its financials as though it would continue to operate through 2008 as a going concern. While there are no guarantees that our lenders will continue to cooperate or that the markets will improve, we continue to believe in ourselves and our prospects and, therefore, felt it was appropriate to present our financials in this manner. We intend to work diligently throughout this year to continue to renegotiate and restructure our debts in partnership with our lenders.

Last week we announced that we had entered into a new three-year $40 million loan with KeyBank, carrying an interest rate of LIBOR plus 400 basis points. The proceeds of this loan were used to fund the $22 million refinance of the Corus loan at Potomac Yard and the $2.8 million KeyBank project loan at Station View, to pay approximately $3.7 million of fees and expenses associated with the loan; to pay $6 million to JPMorgan ventures for the restructure of our unsecured notes and to establish a $1 million interest reserve; and to provide us with discretionary working capital to fund operations.

We believe that this new relationship and new loan both demonstrate our credit worthiness and provide us with a new source of capital to work with as we navigate the market. Concurrent with the closing of the new loan, we executed on our option to restructure the senior unsecured notes. In connection with the restructuring, we entered into an amended and restated indenture for $9 million, released $866,000 of capital that was tied up in an interest reserve escrow to JPMorgan as a prepayment of interest through year-end, issued JPMorgan a seven-year warrant to purchase 1.5 million shares of our Class A common stock at $0.70 per share, and secured a $15 million discount to the outstanding balance of the indenture.

Having accomplished this restructuring, we will save close to $6 million in cash flow that would have otherwise gone out to service that note this year. We're currently working through the rules of FAS 15, troubled debt restructuring, with our auditors to calculate the GAAP related gain associated with the restructuring and determine the timing of its recognition.

In connection with this accounting principle, the current period gain associated with restructured debt is reduced by the projected total expense of the new debt, including future interest. The balance of the gain is recognized over the life of the restructured debt, thereby eliminating substantially all future book interest cost.

At this time, I estimate that we will record between $7 million and $10 million of the gain in Q1, but that is a rough estimate at this point. As a result of our NOLs, however, much of the gain will be reduced for tax purposes, thereby resulting in much of the gain dropping to shareholder equity undiscounted for tax expense.

Shareholder equity at December 31, 2007 was $46.5 million, which reflects our impairments in valuation allowance and represents $2.61 per share. Unrestricted cash on hand at December 31st was $6.8 million. Today it is approximately $12 million. The increase in unrestricted cash during Q1 is the result of having received the 2007 tax refund and having closed on the refinance of Potomac Yard and Station View.

While the market continues to be difficult and visibility is murky at best, we're proud of our recent accomplishments and feel that we are taking all of the right steps in an effort to weather the current market cycle. I look forward to continuing to report our accomplishments throughout the year.

With that, Chris and I will open up the call to questions. Operator?

(OPERATOR INSTRUCTIONS) Chris Lucas, Robert W. Baird.

Chris, can you kind of give us an update on the health of the three primary markets you are in, sort of more recent data over the last couple of weeks, what you are seeing in terms of traffic and just the overall condition, and which of the three markets is right now poised for sort of a best 2008, in your mind?

It remains difficult to be able to predict which market is going to perform better than the others right now. In general, Raleigh has performed better than Washington or Atlanta over the last year or two. We don't expect that to be any different. But it is -- we get into a little bit of gray matter because the Eclipse is doing well in the Washington market, and it is generating numbers that Raleigh can't do. So, in that regard, Washington is doing reasonably well, but I think Raleigh will certainly be the better of the three markets if I had to pick one at this point.

Then you mentioned the Eclipse. Can you give me a breakdown on the settled units and revenues for the East and West buildings through year-end?

Yes, just give me one second. Let me pull that up, Chris.

Can you do the same thing for inventory between the East and the West? While, Bruce, you are pulling that up, Chris, can you comment on where things are for first-quarter sales or settlements I should say at the Eclipse?

First-quarter settlements?

Yes, where we are to date?

Hold on one second.

Q1 settlements revenue? Settlement revenue at the Eclipse for Q1 so far is $2.7 million of which $2.2 million is in the East Tower, $500,000 is in the West Tower.

Bruce, are you still looking up the year-end?

I was just waiting for you. I was giving you the first quarter.

Yes, I was looking actually for the cumulative year-end split between settled units and revenues for the East and West buildings at this point?

Yes, my report is current, so let me just run you through it in a little detail if you don't mind.

No, that's fine.

In the West Tower, I will give you the four quarters of revenue. That is the way I have it broken down. West Tower, Q1 of '07, $23.8 million; Q2 is $8 million and these are rounded; in Q3, it is $1.6 million; and in Q4, it was zero for the West Tower.

In the East Tower, you have none in the first quarter because it wasn't open yet; $21.6 million in the second quarter; $23.5 million in the third quarter and $8.2 million in the fourth quarter. If you add all of the total revenue that has been generated project to date, settled revenue for the East Tower -- this includes through Q1 so far -- is $55.5 million and the West Tower is $80.1 million for a total of $135.7 million.

And that is exclusive of the retail condo?

That is correct. That is units only.

Okay. What is the inventory split remaining now between the East and the West Tower?

Right now, unsold inventory, which is 117 units, you have 93 in the East Tower, 24 in the West Tower. There is backlog that exists -- four in the East Tower and one in the West Tower. Timing is slightly different from the reference points Chris had in his speech.

That is very helpful.

Last bit of information, if it is helpful, in the East Tower, the settled revenue per square foot project to date is $506 average and settled per square foot in the West Tower is $448 average.

On the balance sheet on the liability side, what is the dollar split between the secured and the unsecured debt?

The unsecured at year-end was the $30 million of the senior unsecured.

So it's $9 million today?

That is correct. Plus there was $1.8 million of corporate borrowing that is unsecured.

And then the rest --?

Into the Belmont Bay project.

And then the remainder is all secured --?

The remainder is all secured through various entities or assets.

So with the secured debt, do these loans have recourse beyond the assets they are securing?

Yes.

Okay. So they are --?

They are all fully guaranteed by Comstock.

Okay. So they can go back to the parent?

Yes, they are not cross-defaulted, but they are -- they are not cross-collateralized between lenders. They are recoursed to the parent.

Okay. So in the circumstance with the Gates at Luberon, so can you kind of walk me through what the process in worst case is --?

The situation at Gates at Luberon is we have a bank called Haven Trust in Atlanta, a small regional bank in that area that is lending to us on one asset and the borrower in that case is a subsidiary special-purpose entity that is a single asset entity. It is an LLC.

This is a loan we acquired or adopted this loan as part of the acquisition of Parker Chandler.

The loan matured in November. We tried to negotiate an appropriate amount of time for everybody to recover what value they have in that asset. Haven, for whatever reason, was not willing to give the time necessary to allow for the recovery of that asset. The market is going to take some time. We noticed them that we did not intend to pay them off right away. It was impractical. They noticed us that they did not intend to extend and that they were initiating foreclosure proceedings. We have been negotiating with them I would say somewhat unsuccessfully at this point to try and find common ground. We believe there is equity in the project. The worst-case scenario is that prior to -- well, I'll take two steps. Prior to their conclusion of foreclosure, we can use rights under the bankruptcy laws for that special-purpose entity and that identity alone to stay the process while we work out a plan that allows us to recover the equity that we believe is in that asset.

If for some reason you are unsuccessful in all of your efforts and the project goes to foreclosure and ultimately liquidation, the exposure to the parent company becomes whatever the deficiency would be between the sale price of the asset and the amount owed. The amount owed is $4.8 million. At this point, I can't necessarily predict what the underlying sale price would be. That is why we want to protect ourselves from allowing them to liquidate an asset that has value in it. So could it be $1 million of deficiency? I don't know at this point, but I don't regard it as material in the grand scheme of the debts that we have.

Can you provide some additional color on the KeyBank term loan that you just executed in terms of the terms, the fees and the payment conditions?

Not sure what more there is. There are documents filed along with the Q relative to that loan. I think affectively it is a $40 million revolving facility that is principally put in place for the uses that we outlined -- Potomac Yard, Station View, provide financing for the restructuring of the unsecured and provide us with some working capital based on the cash equity that is currently tied up in Potomac Yard based on how accelerated the paydown has been there under the Corus loan.

It is a three-year term loan. Starting in 2009, there are target reductions in the outstanding balance there over time. It has got a LIBOR plus 4 rate. It carries fees and costs of roughly $3.7 million and there are various mechanics to it, but once the loan is reduced and the outstanding exposure at Potomac Yard is down to certain threshold levels of per square foot exposure, more cash comes to the Company and less goes to pay off, although at the beginning, like any loan, it is a sweep payoff. Also once the loan is retired to, I believe it is like $30 million, may not be exact on that. We can start the process of revolving it, which is -- again, subject to lender approval, new projects can come in and revolve that available capacity in the loan. Anything else perhaps I haven't covered?

No, no, that is great.

The thing you didn't mention is with respect to the Station View project, the current loan covers the holding of the land; it does not provide for development funds at this point. The project is basically approved and ready for development, but with the current market conditions, we don't think it is prudent to start development of the property at this point anyway. So we are holding that property, waiting for a reason to start development on it.

Then I guess you have at least, if memory serves me correct from reading the K quickly last night, you have some debt maturing next week. Is there any other news that you can comment on that and what is the amount?

We have continuing obligations. One of our lenders that we have obligations coming due is with BB&T. They have been very accommodating so far with respect to working with the Company, being one of our longest standing lenders and I have every expectation that we will reach an accommodation with them. Like most banks, they have been overwhelmed by efforts from the market that they have had to deal with. So we are oftentimes happy when we are not the first call on their list every day.

It sounds like, just from the good news, bad news there, it sounds like the larger, regional and national banks are -- you have had more success with than your local lenders. Is that a generalization --?

Really other than Haven Trust Bank, I would have to characterize all of our lenders as accommodating and cooperative. I don't know what pressures are on Haven Trust at this point and I wouldn't want to speculate, but in general, I can certainly say we bank with BB&T, with M&T, with Wachovia, with B of A, with KeyBank, with RBC and I think there is a general tone in the market of cooperation that we are all in it together, we are all trying to figure out the best way to work out the assets, minimize our exposures and potential losses and really we would have to say, at this point, at least in the last several months, exclusive of Haven, we've had pretty good relationships.

Just a couple of questions about what your anticipated first-quarter accounting and tax issues are as it relates to -- you talked about the reduction in the unsecured note balance. I guess the question there is the reported gain from tax purposes, is that going to be offset by your NOLs at this point?

The first $4.2 million or $4.3 million of it, yes. To the extent that there are settlements in the first quarter of inventory that was previously impaired, you will then release additional tax losses that can then be utilized. Now if timing doesn't work out and for instance you don't have enough release of impaired inventory in the first quarter, you may reflect as of first quarter a tax expense associated with whatever the residual gain is that we record associated with the discount, but it may then be reversed in the second quarter as you release more impaired inventory.

As far as the cash tax refund is concerned, is there any income recognition there?

No, no.

Okay. Just on the tax refund, just a quick point of clarification. You both have referred to the amount as $13.9 million, which was the amount indicated in the press release. The 10-K indicates $13.0 million.

There are two different tax refunds -- federal tax refund and a state.

The K has $11.2 million for federal and $1.8 million for state and that is why I am -- I know that's why it says approximately, so I guess I'm just --.

Yes, the cash that we have received was $13.9 million.

Okay. Lastly, I have got to ask this question, Chris. What sort of signal do you think it sends to employees and shareholders when you're willing to charge and profit from the Company by $200,000 for a three-week tax refund loan?

Keep in mind, that loan was provided for a six-month term and at the time it was made, nobody had any way of knowing how quickly the Company would be in a position to repay it.

Let me answer that one if I could, Chris, because I was the advocate for taking the loan. So I may be in a good position to answer it. We knew we were filing for the tax refund and we had filed for it. We didn't know how long it would take. According to PWC that assisted in walking it through, it could have been anywhere from two weeks to six months, but the estimates were somewhere around six to eight weeks. We needed liquidity at the time. We looked at it as receivables financing. It was not a market that was anxious to be lending on affectively unsecured -- although it was secured by the tax refund -- there was substantial risk in the Company and the Board reviewed the proposal and determined that we needed the capital and that was the cost that was associated with it. We did compete that to see if there were alternatives. There were some much more expensive alternatives, so the Board elected to go there. We didn't expect it to only be a 10-day loan, but I think it worked out in our favor that it was.

I appreciate the answer for that question and all of the other questions. I will hop off now after dominating for so long.

[Jeff Matthews], [Ram Partners].

Thank you. I am just curious, in terms of the renters who you have in some of the condos, are they likely buyers down the road or not at all?

We sure hope so. I think that there is definitely a dynamic in the market today -- Jeff, this is Bruce by the way -- I think there is a dynamic in the market today that is really not -- consumers are making the decision to rent because they can't afford, there are making the rent decision because they are just unsure. We look at it as a way to get people familiar with one of our communities, to get them attached to it and invested in it and hopefully we can convert them in the medium term to buyers.

As of now, we haven't seen a huge conversion of renters to buyers, but I don't think it is necessarily because there is a lack of desire to buy. It is just the market is still somewhat skittish about buying.

So the credit quality characteristics of those renters is akin to those who would be buying the units down the road if they're able to do so?

Not always. Some people are renting because they can't qualify for a loan, especially with the way that industry has been shaken up over the last year. Some people, like Bruce said, are renting by choice or just making a temporary housing selection. The best benefit that we get from renting those units is a couple of things. We are able to cover our interest carry or at least part of it on the project debt and we are also able to carry the properties and not be forced to sell them into a depressed market and additionally reduces the amount of units available for sale at the projects, which helps us put a floor on the pricing.

Sure. And then if I could just follow up and ask if you have seen the actual cost of mortgages coming down to potential buyers yet, which hasn't seemed to have happened thus far by the Fed?

It seems like with rates coming down, we still haven't necessarily seen the long part of the curve coming down and from what we are able to discern, it still seems like liquidity among the lenders is the concern and there is a limited supply. We are hoping that some of the actions last week that opened up the availability of capital for loan purchases will help and we certainly think that the regionalization of the jumbo limits will help the cost of mortgages over time as the Washington D.C. area probably benefits the most from that.

Okay, thanks very much. Good luck.

[Chris Semple], [Capital].

Can you maybe provide a breakout of the inventory in terms of raw land, developed land, homes being built and finished property?

Not quickly and off the top of my head here on the call. I will say in the K, we do provide a schedule that breaks down the valuation of inventory between raw land and land under construction or construction activities.

What page is that on?

That is F17 and you can see that the breakdown is land and land development costs represent $84.4 million of the $203.9 million of total inventory cost and therefore, cost of construction, which is purely the vertical component of a project, is $119.4 million.

Of that $203 million or of the two buckets you provide, how much of that has been impaired and to what degree?

When we take impairment charges, we record them against land and so the impairments -- cumulatively this year, we took $78 million of impairment.

Right. But of this $84 million of land, how much has been impaired that you still have?

We still have it all.

Okay.

It would have been higher -- the carry cost of it would have been higher had there not been impairments.

With no impairments, this piece of land would have been $150 million -- your land portfolio would be $150 million or more?

Correct.

We have impaired most of the projects and I don't know if that helps your assessment of the situation.

Okay, thank you.

(OPERATOR INSTRUCTIONS) David Shapiro, Aegis.

Just a quick question, I think I missed it. On Barrington, what was the status of that regarding how many units fully constructed and how many units unconstructed as of now?

Sure, one second. That is -- find that section again. There are 148 total units there. Give me one second here, David. Shuffling through. Okay. There are 148 total units at Barrington. 65 of them are constructed and that is made up of four buildings at the project. The fourth building just recently coming to conclusion. We have 42 units rented there. Out of what we consider to be 62 available for rent, three of them are models or offices.

Okay. And the remaining units are in what stage at this point?

Developed land at this stage. We have remaining pads that we have at this point elected not to commence construction on.

Okay. I don't know if you went over this either. I joined late here on the Comstock. What is your remaining square footage and the estimated blended sellout for square foot?

At what project?

Comstock. I'm sorry. Not Comstock, the Eclipse. Sorry.

Not a problem, David. Right now, unsold square footage in the East Tower is 99,172. In the West, it is 25,133 for a total of 124,305 square feet.

And that is as of the end of the first quarter?

As of now, as of today.

Or Monday.

Right. Currently, we are projecting $538 a square foot as our gross ask price on the remaining inventory.

That is helpful. What was the carried asset value at 12/31 for the project, for the Eclipse project?

Just a second, we are pulling that up. If you have another question, go ahead. We're just pulling it up. It'll take a minute.

Sure. The Gates at Luberon project, the one that you are sort of in foreclosure negotiations on, what is the carrying value of that project right now? I know you reported the debt.

Yes, the carry value on that one is -- going back to the previous question, the carry value on Potomac Yard is $48.5 million today.

Today, okay.

At 12/31, excuse me. The carry value at Gates at Luberon I believe is in the fours as well.

So what approximates the debt?

The carry value, it is impaired, has been impaired. As we said, we still believe that it is a good project in a good location. We are retooling the product. We were in the process of retooling the product there. That project was originally introduced with houses that were in the $600,000 and $700,000 price points.

Before we purchased the Company.

We worked through the inventory that was under construction for those price points and have since designed a product and have plans to bring $400,000 to $500,000 product to that location and $4.8 million was the carry value at 12/31 at that project.

Okay. When you take a look at your Atlanta land positions, the ones that you don't really have in your active category, what is your approximate exposure there on carrying value roughly for all your undeveloped land projects?

Well, if we go to, again, back to the K to schedule segment reporting, we can look at -- we can look at what the asset carry values are in each of the --.

Right. I think you have about $50 million in Atlanta. I am just wondering what is really the non-active land portion.

Inactive portion of the land there? If I have to approximate it, I would say probably a third to a half of that I would characterize today as inactive by choice. There are projects in Atlanta that we think are still going to be good projects, but today is not the day to be investing in them. Road as an example, very nice project, just not the right time to be investing capital in it. So we have, in many cases, we have made the determination to sit on these land assets. They are still active in the sense that we still monitor them. We protect their entitlements, but we are not actively developing there.

Okay. As we go out here, we are looking at a 2008 year and by all accounts, it is probably going to be very weak again, at least for the first three quarters. You indicated you are at a $24 million SG&A run rate for '08. I am assuming -- how much of that are you including stock comp in or is that really $24 million of cash?

There will be no stock comp charge other than a very di minimus amount associated with some residual options.

Because you accelerated that?

Because we accelerated all of that. I am hopeful that we will see more. I am just not yet in a position to be able to commit. I think really the area where we have -- where we are really doing a lot of hard work on what is the right spending level is in marketing, advertising, merchandising. Recently we have undertaken an effort to consolidate selling operations that used to be in three or four different disparate models in individual communities and consolidated them into one community.

That will certainly help and so I think our biggest focus continues to be on keeping the right size staff because we still are in the business and there is still a lot of critical functions that need to be done here and looking at where you can save money because the market is just not responding anyway. I think that is where you will see the next round of compression.

I guess I am just -- as I go out and take a look at this, I'm taking a look at a $24 million SG&A run rate off and essentially you're not getting any margin outside of the Eclipse on any gross margin that is on a material amount of your homebuilding activities right now.

Keep in mind, David, that in a post-impairment, you create gross margin on assets. You have been seeing the assets as they have been pre and in the process of being impaired. Now that we're hopefully in a post-impairment world, there is margin room in the sale of the assets.

Okay, because even before the impairment for the most recent quarter, you were still at essentially zero gross margin.

And in the third quarter, we took a substantial impairment. Keeping in mind, the impairments get spread over the residual assets in each project and so there is $70 million of reduced carry costs that, if models hold and markets either stay static or improve even a little bit, should generate positive gross margin. I think the answer is that we certainly have our eye the overheads. We don't want to overreact and we don't want to underreact; it is a balancing act.

It just seems after this year, you have a nice gain coming from the step transaction. You have another nice gain coming through the eventual sale out of the Eclipse, which hopefully will happen this year. But after that, it is sort of a case where the SG&A is going to run the equity down pretty quickly unless, of course, you have a pickup in the market. So I guess does management have a goal in mind where they say maybe it is time to put the Company up for sale?

That is an interesting question, especially the way you present it. The truth is that we will continue to focus on the fundamentals of our business while we explore every option for increasing shareholder value and if that includes -- if the best decision is to sell the Company, we will sell the Company. But if we honestly believe that we have a way to increase shareholder value over time without doing that, then we won't. We don't rule anything out. We have always grown our business over the last 20 some years with an opportunistic view towards the operations and the projects that we do. We certainly cannot guarantee market improvement, but we can look at historical trends and be relatively comfortable that it will come in time.

The market will come back in time and our job as managers of this Company and the equity that the shareholders hold in it is to do everything we can now while we are waiting for markets to recover to ensure that we are positioned appropriately when the time comes. We spent last year doing everything we possibly could to reduce costs, to accelerate costs so that we could get out of future periods to impair projects. I feel far better today than I did a year ago about the prospects of this Company.

Now like I said, we can't estimate and we certainly can't guarantee market recoveries, but we are in a far better position today in terms of debt balances, in terms of cash burn, in terms of overhead structures than we were at anytime previously since this downturn began.

Okay, thank you very much and good luck on hunkering down here.

Why don't we turn the call back over to Chris and conclude.

I think we will bring the call to a close. I'd like to reassure the market that we are committed to taking the steps necessary to survive this downturn and to position our Company to benefit early in the eventual market recovery.

As I just said, we will continue to focus on the fundamentals of our business and we will explore every available option for increasing shareholder value in the short term and the long term. We believe that our accomplishments during '07 are positive and speak to the dedication of member of the Comstock team to achieving our objective of restoring profitability and shareholder value and I thank you for your participation today. Have a nice day.

Thank you. The conference has now ended. Please disconnect your lines at this time. Thank you for your participation.