Earnings Transcript for CHCI - Q4 Fiscal Year 2007

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

Bruce Labovitz: 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 in that loss, after tax of $87.5 million or a loss of $5.42 per share both basic and dilutive, a total revenue of $266.2 million. Our total impairment charges for the year totaled $78.3 dollars, 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 Glen Ivy Project in connection with the 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’re 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 evaluation 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 increased valuation allowance recorded in the fourth quarter, there was a corresponding one-to-one 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’re able to recognize future bulk 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 other 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 at Blake’s Crossing for approximately $3.7 million. On a bulk 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 carry-back 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 life cycles 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 one-time non-cash charge of $4.2 million associated with the acceleration of approximately 840,000 shares of restricted stock in December. Net of this one-time acceleration charge, SG&A was down $7 million, or nearly 19%, to $30.2 million, which was in keeping with the $5- to $10 million decrease we targeted earlier in the year. We remain committed to right-sizing 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 costs. 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, 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’re 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 $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 they 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’ve 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’ve proven ourselves to our lenders and our position 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 KeyBanc, 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 KeyBanc project loan at Station View to pay approximately $3.7 million of fees and expenses associated with the loan, to pay $6 million to JP Morgan 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 JP Morgan as a prepayment of interest through year-end, issued JP Morgan a 7-year warrant to purchase 1.5 million shares of our Class A Common Stock at $0.70 per share, and secure a $15 million discount to the outstanding balance of the indenture. Having accomplished this structuring, 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 bulk interest costs. At this time, I estimate that we will record between $7 million and $10 million at the gain in Q1, but that’s 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 drop into shareholder equity undiscounted for tax expense. Shareholder activity at December 31, 2007 was $46.5 million, which reflects our impairments and valuation allowance, and represents $2.61 per share. Unrestricted cash on hand at December 31 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’re taking all 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: The first question is from Chris Lucas of Robert Baird. Please go ahead.

Bruce L. Labovitz : Chris, are you there?

Christopher Lucas – Robert W. Baird: Hello.

Bruce L. Labovitz : Chris?

Christopher Lucas – Robert W. Baird: Yeah.

Bruce L. Labovitz : We got you.

Christopher Lucas – Robert W. Baird: You got me?

Bruce L. Labovitz : We can hear you.

Christopher Lucas – Robert W. Baird: Okay, good. Chris, could you kind of give us an update on the health of the three primary markets you’re in, sort of more recent data over the last couple of weeks, what you’re seeing in terms of traffic and just the overall condition, and which of the three markets is right now poised for sort of the best 2008, if you don’t mind?

Christopher Clemente : It remains difficult to be able to predict which market’s 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 we get into a little bit of grey matter because the Eclipse is doing well in the Washington market and it’s generating numbers that Raleigh can’t do. So in that regard, Washington’s 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.

Christopher Lucas – Robert W. Baird: Then you mentioned the Eclipse. Can you give me a breakdown on the settled units in revenues for the east and west buildings through yearend?

Bruce L. Labovitz : Yeah, just give me one second. Let me pull that up, Chris.

Christopher Lucas – Robert W. Baird: Can you do the same thing for Inventory, between the east and the west? And while, Bruce, while you’re pulling that up, Chris, can you comment sort of where things are for first quarter sales, or settlements, I should say, at the Eclipse?

Christopher Clemente: First quarter settlements?

Christopher Lucas – Robert W. Baird: Yeah, just where we are to date.

Christopher Clemente: Hold on one second.

Bruce L. Labovitz : So far as Q1 Settlements Revenue?

Christopher Clemente: Yeah, go ahead.

Bruce L. Labovitz : Settlement Revenue at the Eclipse for Q1 so far is $2.7 million, of which $2.3 million is in the East Tower and $500,000 is in the West Tower.

Christopher Lucas – Robert W. Baird: Bruce, are you still looking up the yearend?

Bruce L. Labovitz : I was just waiting for you. I was giving you the first quarter.

Christopher Lucas – Robert W. Baird: Yeah, I was looking, actually, for the cumulative yearend of splits between settled units and revenues for the east and the west buildings at this point.

Bruce L. Labovitz : Yeah, my report is current so let me just run you through it in a little detail, if you don’t mind.

Christopher Lucas – Robert W. Baird: Yeah, that’s fine.

Bruce L. Labovitz : In the West Tower, I’ll give the four quarters of revenue. That’s the way I have it broken down. West Tower, Q1 of ’07, 23.8, Q2 is 8 million, and these are rounded. In Q3, it’s 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 in the second quarter, 23.5 in the third quarter, and 8.2 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.

Christopher Lucas – Robert W. Baird: And that’s exclusive of the retail condo?

Bruce L. Labovitz : That’s correct. That’s units only.

Christopher Lucas – Robert W. Baird: What’s the inventory split remaining now between the East and the West Tower?

Bruce L. Labovitz : Right now, unsold inventory, which is 117 units. You have 93 in the East Tower, 24 in the West Tower. There’s backlog that exists for in the East Tower and one in the West Tower. Its timing is slightly different from the reference points Chris had in his speech which he described.

Christopher Lucas – Robert W. Baird: That’s very helpful. Then…

Bruce L. Labovitz : And then just last bit of information if it’s helpful

Christopher Lucas – Robert W. Baird: On the balance sheet, on the liability side, what’s the dollar split between the secured and the unsecured debt?

Bruce L. Labovitz : The unsecured at year-end was the $30 million of the senior unsecured.

Christopher Lucas – Robert W. Baird: Plus $9 million today.

Bruce L. Labovitz : That’s correct. Plus there was $1.8 million of corporate borrowing that is unsecured.

Christopher Lucas - Robert W. Baird: Then the rest…

Bruce L. Labovitz : It went into the Belmont Bay project.

Christopher Lucas - Robert W. Baird: Then the remainder is all secured.

Bruce L. Labovitz : The remainder is all secured through various entities or assets.

Christopher Lucas - Robert W. Baird: So with the secured debt, do these loans have recourse beyond the asset they are securing?

Bruce L. Labovitz : Yes.

Christopher Lucas - Robert W. Baird: So they are…

Bruce L. Labovitz : They’re all fully guaranteed by Comstock.

Christopher Lucas - Robert W. Baird: Okay, so they can go back to the parent?

Bruce L. Labovitz : Yes. They are not cross-defaulted, but they’re not cross-collateralized between lenders. They are recourse to the parent.

Christopher Lucas - Robert W. Baird : So in the circumstance with the Gates At Liberon, can you kind of walk me through what the process in say, worse case is, or worse case…

Bruce L. Labovitz : Yeah, the situation at Gates At Liberon, 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’s an LLC.

Christopher Clemente: We acquired or adopted this loan as part of the acquisition of Park Ridge/Anway*.

Bruce L. Labovitz : The loan matured in November. We tried to negotiate an appropriate amount of time for everybody to recover what the 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. I mean the market’s going to take some time. We noticed then that we did not intend to pay them off right away, it wasn’t practical. 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 our rights under the bankruptcy laws for that special purpose entity, and that entity alone, to stay the process while we work a plan that allows us to recover the equity that we believe is in that asset. If for some reason you’re unsuccessful in all of your efforts and the project goes to foreclosure and ultimately liquidation, there’d be 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’s 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.

Christopher Lucas – Robert W. Baird: Then can you provide some additional color on the KeyBanc term loan that you just executed in terms of the terms, the fees, and the payment conditions?

Bruce L. Labovitz : I’m not sure what more there is there. There are documents filed along with the Q, relative to that loan. I think effectively it is a $40 million revolving facility that is principally put in place for the uses that we outlined

Christopher Lucas - Robert W. Baird: No, that’s great.

Christopher Clemente: The thing that you didn’t mention is that 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’s prudent to start development of the property at this point anyway. So we’re holding that property, waiting for a reason to start development on it.

Christopher Lucas - Robert W. Baird: Then I guess you have, at least if my memory serves me correctly 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 kind of what’s the amount that…?

Bruce L. Labovitz : Yeah, we have continuing obligations. One of our lenders that we have obligations coming due, which is BB&T, they’ve been very accommodating so far, with respect with working with the company, have been one of our longest standing lenders, and I have every expectation that we’ll reach an accommodation with them. Like most banks, they have been overwhelmed by efforts from the market that they’ve had to deal with. So we’re oftentimes happy when we’re not the first call on their list every day.

Christopher Lucas - Robert W. Baird: Is that… I mean it sounds like just from sort of the good news/bad news there, is that it sounds like the larger sort of regional and national banks, that you’ve had more success with than your local lenders. Is that a generalization?

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

Christopher Lucas - Robert W. Baird: Then it’s on just a couple of questions about what your anticipated first quarter sort of accounting and tax issues are, as it relates to

Bruce L. Labovitz : Well, 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 be then 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 second quarter as you release more impaired inventory.

Christopher Lucas - Robert W. Baird: Then as far as the cash tax refund is concerned, is there any income recognition there?

Bruce L. Labovitz : No.

Christopher Lucas - Robert W. Baird: And then, I guess, 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.

Bruce L. Labovitz : There’s two different tax refunds. You have federal tax refund at a state…

Christopher Lucas - Robert W. Baird: The (k) has 11.2 for federal, and 1.8 for state, and that’s why I’m… I know that’s what it says, approximately, so I guess I’m just…

Bruce L. Labovitz : Yeah, the cash that we’ve received was 13.9.

Christopher Lucas - Robert W. Baird: Then lastly, I’ve got to ask this question, Chris

Christopher Clemente: 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.

Bruce L. Labovitz : Can I jump in? 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 need liquidity at the time. We looked at it as receivables financing. It was not a market that was anxious to be lending on, effectively, unsecured, although it was secured by the tax refund, there was substantial risk in the company. 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 ten-day loan, but I think it worked out in our favor that it was.

Christopher Lucas - Robert W. Baird: I appreciate the answer for that question and all of the questions. I’ll hop off now after dominating for so long.

Operator: Thank you. Our next question is from Jeff Matthews of Ram Partners. Please go ahead.

Jeffrey L. Matthews – Ram Partners: Hi, thank you. I’m 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?

Bruce L. Labovitz : Well we sure hope so. I think that there’s definitely a dynamic in the market today, Jeff, (This is Bruce by the way.) I think there’s a dynamic in the markets today that’s really not that consumers aren’t making the decision to rent because they can’t afford, they’re making the rent decision because they’re 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 median term to buyers. As of now, we haven’t seen a huge conversion of renters to buyers, but I don’t think it’s necessarily because there’s a lack of desire to buy, it’s just the market is still somewhat skittish about buying.

Jeffrey L. Matthews - Ram Partners: So the sort of 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?

Christopher Clemente: Not always. I mean 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

Jeffrey L. Matthews - Ram Partners: Sure, and then if I could just follow-up and ask if you’ve seen the actual cost of mortgages coming down to the potential buyers yet, which hasn’t seemed to have happened thus far despite the Fed.

Bruce L. Labovitz : It seems like with the rates coming down, we still haven’t necessarily seen the long part of the curve coming down, and from what we’re able to discern, it still seems like liquidity among the lenders is the concern, and the limited supply. We’re hoping that some of the actions last week that opened up the availability of capital for loan purchases will help. I would 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.

Jeffrey L. Matthews - Ram Partners: Thanks very much. Good luck.

Operator: Thank you. The next question is from Chris Semple of Capital. Please go ahead.

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?

Bruce L. Labovitz : 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.

Chris Semple - Capital: What page is that on?

Bruce L. Labovitz : 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.

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

Bruce L. Labovitz : When we take impairment charges, we record them against land. So the impairments, cumulatively this year, we took $78 million of impairment.

Chris Semple - Capital: But of this $84 million of land, how much has been impaired that you still have?

Bruce L. Labovitz : We still have it all. It would have been higher, the carry cost of it would have been higher had there not been impairments.

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

Bruce L. Labovitz : Correct.

Christopher Clemente: We’ve impaired most of the projects and I don’t know if that helps your assessment of the situation.

Chris Semple - Capital: Thank you.

Bruce L. Labovitz : Thank you.

Operator: Thank you. (Operator instructions) The next question is from David Shapiro of EGIS. Please go ahead.

David L. Shapiro - EGIS: Hi, how are you doing? Just a quick question

Bruce L. Labovitz : Sure, one second, let me find that section again. There are 148 total units there. Give me one second here, David, I’m shuffling through. There are 148 total units at Barrington. 65 of them are constructed. That’s made up from 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.

David L. Shapiro - EGIS: And the remaining units are in what stage at this point?

Bruce L. Labovitz : It is developed land at this stage. We have remaining pads that we have, at this point, elected not to commence construction on.

David L. Shapiro - EGIS: 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 of square foot?

Bruce L. Labovitz : At what project?

David L. Shapiro - EGIS: Comstock. I’m sorry, not Comstock, Eclipse. Sorry.

Bruce L. Labovitz : Not a problem dude. Right now, unsold square footage in the East Tower is 99,172. In the West Tower is 25,133, for a total of 124,305 square feet.

David L. Shapiro - EGIS: And that’s as of the end of the first quarter?

Bruce L. Labovitz : Right now, as of today.

Christopher Clemente: Monday.

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

David L. Shapiro - EGIS: That’s helpful. What was the carried asset value at 12/31 for the project, for the Eclipse project?

Bruce L. Labovitz : Just a second, we’re pulling that up. If you have another question, go ahead. We’re just pulling it up.

David L. Shapiro - EGIS: Sure. The Gates At Liberon project, the one that you’re sort of in foreclosure negotiations on, what was the carrying value of that project right now? I know you reported the debt.

Bruce L. Labovitz : Yeah, the carry value on that one is, I’m sorry, going back to the previous question, the carry value on Potomac Yard is $48.5 million today.

David L. Shapiro - EGIS: Today, okay.

Bruce L. Labovitz : Yeah, at 12/31, excuse me.

David L. Shapiro - EGIS: Oh 12/31, all right.

Bruce L. Labovitz : And the carry value at Gates At Liberon, I believe is in the fours as well.

David L. Shapiro - EGIS: So it approximates the debt?

Bruce L. Labovitz : The carry value, it has been impaired. As I said, we still believe that it’s a good project, in a good location. We are retooling the product. We are 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.

Christopher Clemente: Before we purchased the Company…

Bruce L. Labovitz : Yeah, 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. So 4.8 was the carry value at 12/31 at that project.

David L. Shapiro - EGIS: When you take a look at your Atlanta land positions, the ones that you don’t really have in your active category, what’s your approximate exposure there on carrying value, for roughly, for all your undeveloped land projects?

Bruce L. Labovitz : Well if we go to, again, back to the (k) to schedule segment reporting, we can look at what the asset carry values are in each of the…

David L. Shapiro - EGIS: Right, I think you have about 50 million in Atlanta. I’m just sort of wondering what is really the non active land portion.

Bruce L. Labovitz : The inactive portion of the land there, if I have to sort of 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’s not the day to be investing in them, Rhode* as an example, a very nice project, just not the right time to be investing capital in it, so in many cases we have made the determination to sit on these land assets. They’re still active in the sense that we still monitor them, we protect their entitlements, but we’re not actively developing there.

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

Bruce L. Labovitz : There will be no stock comp charge, other than a very diminutive amount associated with some residual options.

David L. Shapiro - EGIS: Did you accelerate of that?

Bruce L. Labovitz : Because we accelerated all of that, and I’m hopeful that we’ll see more, I’m not just yet at a position to be able to commit. I think really the area where we’re really doing a lot of hard work on what’s the right spending level is in marketing advertising and merchandising. Recently we’ve undertaken an effort to consolidate selling operations that used to be in three or four different disparent* models in individual communities and consolidated them into one community, and that will certainly help. So I think our biggest focus continues to be on keeping the right size staff because we still are in the business, and there’s still a lot of critical functions that need to be done here, and looking at where you can save money because the market’s just not responding anyway. I think that’s where you’ll see the next round of compression.

David L. Shapiro - EGIS: I guess I’m 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 the material amount of your homebuilding activities right now.

Bruce L. Labovitz : Keep in mind, David, in a post-impairment, you create gross margin on assets. So you’ve been seeing the assets as they’ve been pre and in the process of being impaired. Now that we’re hopefully in a post-impairment world, there’s margin room in the sale of the assets.

David L. Shapiro - EGIS: Okay, because even before the impairment for the most recent quarter ticket, you were still at essentially zero gross margin.

Bruce L. Labovitz : In the third quarter we took a substantial impairment, keeping in mind the impairments gets spread over the residual assets in each project. So there’s $70 million of reduced carry costs that will, 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 on the overheads. We don’t want to overreact, we don’t want to under react. It’s a balancing act.

David L. Shapiro - EGIS: I mean 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’s 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’s time to put the Company up for sale.”

Christopher Clemente: That’s an interesting question, especially the way that you present it. The truth is that we’ll 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’ll sell the Company. 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’ve always run 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’re waiting for markets to recover, to insure that we’re positioned appropriately when the time comes. We spent last year doing everything we possible could to reduce cost, to accelerate costs so that we could get an out of future periods to impair projects. I feel far better today, than I did a year ago, about the prospects of this Company. Like I said, we can’t estimate, and we certainly can’t guarantee market recoveries, but we’re 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 any time previously since this downturn began.

David L. Shapiro - EGIS: Thank you very much, and good luck on hunkering down here.

Operator: Thank you.

Bruce L. Labovitz : Why don’t we turn the call back over to Chris and we’ll conclude.

Christopher Clemente: 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’ll 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 every member of the Comstock team to achieving our objective of restoring profitability and shareholder value. I thank you for participation today. Have a nice day.

Operator: Thank you. The conference is now ended. (Operator instructions) Thank you for your participation.