From the Wires
California Coastal Communities, Inc. Reports Third Quarter Results
- Third quarter revenues of $13.9 million, up $8.7 million year-over-year, reflects delivery of 17 homes, including seven Brightwater coastal homes, compared with 12 homes at our inland projects in third quarter 2007.
Nov. 7, 2008 04:28 PM
IRVINE, Calif., Nov. 7 /PRNewswire-FirstCall/ -- California Coastal
Communities, Inc. (Nasdaq: CALC) reported $3.3 million of gross operating
profit before impairment charges for the quarter ended September 30, 2008
compared with $200,000 of gross operating profit before impairment charges for
the comparable period of 2007. The net loss for the quarter was $21.1 million,
or $1.94 per diluted share compared with a net loss of $17.5 million or $1.61
per diluted share for the third quarter of 2007. Results for the third
quarter of 2008 reflect the delivery of 17 homes at the Company's homebuilding
projects in Southern California (including seven homes at its Brightwater
coastal development project) compared to delivery of only 12 homes at our
inland projects in the third quarter of 2007.
Homebuilding gross operating profit was offset by impairment charges of
$29.1 million in the third quarter of 2008 and net operating expenses of $2.3
million, compared with $1.7 million of net operating expenses and $28.0
million of impairment charges in the third quarter of 2007. The increase in
net operating expenses primarily reflects interest and property taxes charged
to operations for inland projects no longer under construction. The Company
reported a pretax loss of $28.1 million and $29.5 million for the quarters
ended September 30, 2008 and 2007, respectively.
Impairment charges of $29.1 million recorded during the third quarter of
2008 primarily reflect fair value write-downs for the Hearthside Lane project
in Corona and Las Colinas project in Lancaster of $24.1 million and $1.5
million, respectively, and a $3.4 million charge related to our Woodhaven
project in Beaumont. Subsidiaries of Hearthside Homes, Inc. are currently in
default on the loans secured by the Hearthside Lane and Las Colinas projects
and they are attempting to negotiate a consensual resolution of the loans
which is likely to involve turnover of the properties securing these loans to
the lender. Therefore, under GAAP the Company was required to reduce the
carrying value of the Hearthside Lane and Las Colinas projects to their
estimated fair values during the quarter ended September 30, 2008. After these
impairment charges, the related debt exceeds the carrying value of these
assets by approximately $18.5 million. If the Hearthside Lane property is
transferred to the lender in full settlement of that loan, the Company will
recognize a substantial gain as a result of debt cancellation. If the gain is
equal to the amount that the recorded debt exceeds the carrying value of the
assets, the $18.5 million pretax gain would result in a gain of $10.9 million
after tax, or $1.00 per share. Both of these loans are guaranteed by
Hearthside Homes, Inc.; however, they are not guaranteed by and do not
otherwise constitute obligations of California Coastal Communities, Inc. There
can be no assurance that the lender will agree to a consensual resolution of
these loans.
The Company completed amendments to its $210.0 million aggregate principal
amount revolving and term loans during the quarter, which will preserve an
additional $100.0 million of borrowing capacity until September 2009. The
amendments enable the Company to finance construction at Brightwater and repay
the loans on a schedule that better reflects the Company's current
expectations about home sales at Brightwater given the continuing downturn in
the housing market.
Raymond J. Pacini, CEO of the Company commented: "While conditions in the
housing and credit markets have continued to deteriorate during the quarter,
we are pleased to have successfully negotiated amendments to our revolving
credit line and term loan, and we appreciate the continued support and
cooperation of our lenders. We continue to experience reluctance among
prospective home buyers due, in large part, to the significant economic
uncertainty that exists today. Despite the challenges of the current national
homebuilding market, the national credit market crisis and the continued
erosion of our inland markets, we believe the potential for our Brightwater
project remains strong."
The Company's 105-acre Brightwater project is located in Huntington Beach,
California near the corner of Pacific Coast Highway and Warner Avenue, and
overlooks the Pacific Ocean and the 1,300-acre Bolsa Chica Wetlands. It is
the largest asset in the Company's portfolio, representing approximately 90%
of real estate inventories as of September 30, 2008. Due to the Company's low
carrying value in Brightwater, the project is currently expected to generate
gross margins of approximately 25%-38%, depending on the size of the homes
sold and other factors; however, there can be no assurance that such margins
will be realized.
Third quarter homebuilding revenues of $13.9 million reflect an $8.7
million increase compared with the third quarter of 2007. This increase is
primarily due to seven deliveries at Brightwater compared with no Brightwater
deliveries in the comparable period of 2007. The average sales price of homes
delivered in the third quarter of 2008 increased to $817,600 from $433,300 in
2007, primarily reflecting the first five deliveries of the larger homes (The
Cliffs and The Breakers) at Brightwater, in addition to two deliveries of the
smaller homes (The Trails and The Sands), compared with deliveries only at
inland communities in 2007.
Homebuilding gross margin before impairment charges for the third quarter
of 2008 was 23.7%, compared with 3.8% in the third quarter of 2007. The
Company generated $3.1 million more in homebuilding gross operating profit
before impairment charges during the third quarter of 2008 compared with the
comparable period in 2007, primarily as a result of seven deliveries at
Brightwater which generated a 32.8% gross margin and gross operating profit
of $3.2 million. This was partially offset by reduced margins for 10
deliveries at our inland projects due to the prolonged real estate downturn
which has resulted in lower selling prices and greater incentives at the
Inland Empire and Lancaster projects.
During the third quarter of 2008, net new orders decreased 39% to 14 homes
(including six sales orders generated at Brightwater) compared with 23 homes
during the comparable period of 2007, primarily due to reduced sales activity
at the Company's inland communities. Net new orders for the first nine months
of 2008 were 55 homes (including 28 net orders at Brightwater) compared with
47 homes during the comparable period of 2007. The 17% increase in year-to-
date orders reflects increased activity at Brightwater, partially offset by
reduced activity at the Company's inland communities. Cancellations as a
percentage of new orders were 25% (20% at Brightwater and 30% at our inland
projects) during the nine months ended September 30, 2008, compared with the
30% cancellation rate during the comparable period of 2007.
Backlog as of September 30, 2008 decreased to 20 homes compared with 28
homes as of September 30, 2007. The total value of our backlog increased 45%
from $21.4 million a year ago to $31.0 million as of September 30, 2008 due to
12 Brightwater homes in backlog, including 10 of the larger homes (The Cliffs
and The Breakers). The average sales price of homes in backlog increased from
$765,000 to $1.5 million, primarily reflecting the Brightwater homes in escrow
as of September 30, 2008 at an average sales price of $2.4 million. The
Company's standing inventory at its inland projects was reduced from 33 homes
as of December 31, 2007 to seven homes as of September 30, 2008. Total
standing inventory as of September 30, 2008 was 12 homes, including five
completed and unsold homes at Brightwater.
The Company also reported a net loss of $24.9 million or $2.28 per diluted
share for the first nine months of 2008. Results for the first nine months of
2008 reflect $6.6 million of homebuilding gross operating profit before
impairment charges from the delivery of 40 homes (including 16 at
Brightwater), reduced by impairment charges of $34.1 million and net operating
expenses of $6.9 million, which were partially offset by an income tax benefit
of $9.5 million.
The results for the third quarter of 2008 continue to reflect the downturn
in the homebuilding industry and the national economy. The weakness in the
housing market reflects a supply-demand imbalance and the national credit
market crisis which substantially worsened this quarter. Further, potential
homebuyers remain reluctant to purchase homes due to significant deterioration
in consumer confidence and concerns about the effects of a global recession,
ongoing turmoil in consumer mortgage lending and other credit markets
resulting in limited availability of mortgage financing, expectations that
home prices will continue to fall, their inability to sell existing homes at a
perceived fair price, and increased foreclosures. In view of present
circumstances, the Company expects the real estate market downturn to continue
throughout the remainder of 2008 and into 2009.
The Company currently has active homebuilding projects in Huntington Beach
in Orange County, Corona and Beaumont in Riverside County, and Lancaster in
northern Los Angeles County. As of September 30, 2008, the Company has an
inventory of 680 owned lots, reduced by 11% compared with the 761 lots owned
and controlled a year ago. This decrease reflects deliveries and the absence
of acquisitions since 2005.
The nature of the Company's business is such that the number, location and
specific market conditions of active selling communities over any given time
period may cause significant fluctuations in operating results from quarter-
to-quarter and from year-to-year.
On November 4, 2008, in response to the Company's October 17, 2008 notice
to Nasdaq and Form 8-K filed with the SEC on October 20, 2008 disclosing that
the departure of one of its directors, who was also a member of its audit
committee, had reduced that committee to only two independent directors as
opposed to the minimum three independent directors required for continued
listing by Nasdaq Stock Market Rule 4350(d)(2)(A); Nasdaq sent the Company a
written notice of its audit committee deficiency and that the deficiency must
be cured by the earlier of October 16, 2009 or the date of the Company's next
annual meeting of stockholders. The Company intends to appoint a third
independent director to its audit committee prior to the date of its next
annual meeting.
The Company is a residential land development and homebuilding company
operating in Southern California. The Company's principal subsidiaries are
Hearthside Homes which is a homebuilding company, and Signal Landmark which
owns 110 acres on the Bolsa Chica mesa where sales commenced in August 2007 at
the 356-home Brightwater community. Hearthside Homes has delivered over 2,100
homes to families throughout Southern California since its formation in 1994.
Safe Harbor Statement under the Private Securities Litigation Reform Act of
1995 Certain of the foregoing information contains forward-looking statements
that relate to future events or the Company's future financial performance.
These statements involve known and unknown risks, uncertainties and other
factors which may cause the Company's actual results, performance or
achievements to be materially different from any future results, performances
or achievements expressed or implied by the forward-looking statements. In
some cases, you can identify forward-looking statements by terminology such as
"may," "will," "should," "expects," "plans," "anticipates," "believes,"
"estimates," "predicts," "potential," "continue," or the negative of such
terms or other comparable terminology. These forward-looking statements
include, but are not limited to, statements about the Company's plans,
objectives, goals, expectations and intentions, the number and types of homes
and number of acres of land that the Company may develop and sell, the timing
and outcomes of any such development, the timing and outcomes of regulatory
approval processes or administrative proceedings, cash flows or sales, and
other statements contained herein that are not historical facts.
These statements also include but are not limited to statements regarding:
the Company's platform for continued growth; demographic trends driving long-
term demand; the outlook for the housing sector, including the relative impact
of interest rates, jobs, land constraints, demographic trends, and the
availability of mortgage financing; the employment outlook; housing market
conditions in the markets in which the Company operates; orders and backlog;
the Company's lot supply; the Company's expected earnings, home deliveries and
revenues; expected average home prices; the Company's expected homebuilding
gross margin percentage; anticipated buyer demand; and expected home
deliveries.
Forward-looking statements are based on current expectations or beliefs
regarding future events or circumstances, and you should not place undue
reliance on these statements. Such statements involve known and unknown
risks, uncertainties, assumptions and other factors - many of which are out of
the Company's control and difficult to forecast - that may cause actual
results to differ materially from those that may be described or implied.
Such factors include but are not limited to: local and general economic and
market conditions, including consumer confidence, employment rates, interest
rates, the cost and availability of mortgage financing, and stock market, home
and land valuations; the impact on economic conditions of the national credit
market crisis, oil prices, recession and inflation, terrorist attacks or the
outbreak or escalation of armed conflict involving the United States; the cost
and availability of suitable undeveloped land, building materials and labor;
the cost and availability of construction financing and corporate debt and
equity capital; the demand for residential real estate; cancellations of
purchase contracts by homebuyers; the cyclical and competitive nature of the
Company's business; governmental regulation; including the impact of "slow
growth" or similar initiatives; delays in the land entitlement process,
development, construction, or the opening of new home communities; the
significant amount of the Company's debt and the impact of restrictive
covenants in its loan agreements; adverse weather conditions and natural
disasters such as earthquakes and wildfires; environmental matters; future
business decisions and the Company's ability to successfully implement its
operational, growth and other strategies; litigation and warranty claims; and
other risks. For a further discussion of these and other risks and
uncertainties applicable to the Company's business, see the Company's Annual
Report on Form 10-K for the year ended December 31, 2007 and its other future
and past public filings with the Securities and Exchange Commission ("SEC"),
all of which may be obtained free of charge through the website maintained by
the SEC at http://www.sec.gov or at the Company's website at
http://www.californiacoastalcommunities.com.
The Company assumes no, and hereby disclaims any, obligation to update any
of the foregoing or any other forward-looking statements. The Company
nonetheless reserves the right to make such updates from time to time by press
release, periodic report or other method of public disclosure without the need
for specific reference to this press release. No such update shall be deemed
to indicate that other statements not addressed by such update remain correct
or create an obligation to provide any other updates.
***TABLES FOLLOW***
CALIFORNIA COASTAL COMMUNITIES, INC.
Selected Financial and Operating Information
($ in millions, except per home data)
(unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2008 2007 2008 2007
Homes delivered 17 12 40 36
Home sales revenue $13.9 $5.2 $29.3 $21.6
Cost of sales 10.6 5.0 22.7 20.3
Loss on impairment of real
estate inventories 29.1 28.0 34.1 32.0
39.7 33.0 56.8 52.3
Gross operating (loss) profit $(25.8) $(27.8) $(27.5) $(30.7)
Gross margin percentage before
loss on impairment 23.7% 3.8% 22.5% 6.0%
PER HOME DATA
Average sales price (a) $817,600 $433,300 $732,500 $600,000
Average gross margin before loss
on impairment (b) $194,100 $16,700 $165,000 $36,100
NUMBER OF ACTIVE COMMUNITIES 4 7 4 7
NET NEW ORDERS 14 23 55 47
LOT INVENTORY AND BACKLOG
Backlog of homes sold, but not
completed at end of period 11 23
Completed homes in inventory,
and in escrow 9 5
Total backlog 20 28
Completed homes in inventory,
unsold 12 21
Entitled lots owned at end of
period (c) 648 712
Total homes and lots 680 761
ESTIMATED VALUE OF BACKLOG
Backlog of homes sold, but not
completed at end of period $26.6 $19.6
Completed homes in inventory,
and in escrow 4.4 1.8
Total value of backlog $31.0 $21.4
(a) Changes are primarily due to changes in product mix and location, as
well as inland home sales price reductions that were necessary to be
competitive under current market conditions.
(b) Changes are primarily due to higher margins at Brightwater in 2008,
partially offset by the effects of the industry-wide slowdown in our
inland markets.
(c) Includes 331 and 356 homes and lots, respectively, at the Brightwater
project in Huntington Beach.
CALIFORNIA COASTAL COMMUNITIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share amounts)
(unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2008 2007 2008 2007
Revenues
Homebuilding $13.9 $5.2 $29.3 $21.6
Costs of sales
Homebuilding 10.6 5.0 22.7 20.3
Loss on impairment of real
estate inventories 29.1 28.0 34.1 32.0
39.7 33.0 56.8 52.3
Gross operating (loss) profit (25.8) (27.8) (27.5) (30.7)
Selling, general and administrative
expenses 1.5 1.7 5.0 4.8
Interest expense .6 .1 .6 .1
Income from unconsolidated joint
ventures (.1) (.1) (.2) (.5)
Other expense, net .3 -- 1.5 .1
Loss before income taxes (28.1) (29.5) (34.4) (35.2)
Benefit from income taxes (7.0) (12.0) (9.5) (14.3)
Net loss $ (21.1) $(17.5) $(24.9) $(20.9)
Net loss per common share:
Basic $ (1.94) $ (1.61) $ (2.28) $(1.92)
Diluted $ (1.94) $ (1.61) $ (2.28) $(1.92)
Common equivalent shares:
Basic 10.9 10.9 10.9 10.9
Diluted 10.9 10.9 10.9 10.9
CALIFORNIA COASTAL COMMUNITIES, INC.
BALANCE SHEETS
(in millions, except per share amounts)
(unaudited)
September 30, December 31,
2008 2007
ASSETS
Cash and cash equivalents $7.0 $24.3
Restricted cash 5.9 6.0
Real estate inventories 262.3 286.4
Deferred tax assets 53.8 44.4
Other assets, net 10.0 6.5
Total assets $339.0 $367.6
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued liabilities $5.3 $12.5
Senior secured project revolver 93.9 76.0
Senior secured term loan 116.0 121.8
Other project debt 40.9 48.8
Other liabilities 6.3 7.0
Total liabilities 262.4 266.1
Stockholders' equity 76.6 101.5
$339.0 $367.6
Shares outstanding (a) 10.9 10.9
Stockholders' equity per common share (b) $7.03 $9.31
(a) Includes outstanding options for 17,500 shares.
(b) The Company believes that stockholders' equity per common share,
which is computed by dividing stockholders' equity by common shares
outstanding at the end of each period, is a useful supplemental
measure of the strength of the Company's balance sheet and an
indicator of the historical carrying value of the Company's net
assets.
SOURCE California Coastal Communities, Inc.
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