Comstock Holding Companies, Inc. (CHCI)

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Comstock Homebuilding Companies, Inc. (CHCI)

Q4 2007 Earnings Call

March 25, 2008 1:00 pm ET

Executives

Bruce J Labovitz –Chief Financial Officer

Christopher Clemente – Chairman and Chief Executive Officer

Analysts

Christopher Lucas – Robert W. Baird

Jeffrey L. Matthews – Ram Partners

Chris [Semple] – Capital

David L. Shapiro - EGIS

Operator

All participants please stand by; your conference is ready to begin. Good afternoon and welcome to Comstock Homebuilding Company’s fourth quarter, 2007 Year-End Conference Call. Your host for today will be Mr. Bruce L. Labovitz. Please go ahead, Mr. Labovitz.

Bruce L. Labovitz

Good afternoon. I’m joined today by Chris Clemente. I’m going to start by reading the Safe Harbor language. This conference may contain forward-looking statements as defined in Section 27-A. 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 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 could 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’d like to turn the call over to Chris Clemente, Founder and CEO of Comstock. Chris.

Christopher Clemente

Hello and thank you for joining us today. This is Chris Clemente, Chairman and CEO of Comstock Homebuilding Company. 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’ve 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 KeyBanc 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 with or with waivers in hand regarding all financial covenants. It should be noted that at year-end we were in continuing dialog with lenders concerning two loans with a total balance of approximately $6.6 million that had matured but remained outstanding.

Additionally, we entered into an agreement to restructure the terms and reduce 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 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.

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