10-Q: HOMEFED CORP (San Elijo Hills Development Company) Annual Report-February 17, 2011

HOMEFED CORP Annual Report-February 17, 2011

Current Development Projects: San Elijo Hills

In 2002, the Company purchased from Leucadia National Corporation (together with its subsidiaries, “Leucadia”) all of the issued and outstanding shares of capital stock of CDS Holding Corporation (“CDS”), which through its majority-owned subsidiaries is the owner of the San Elijo Hills project (title is owned in fee simple). The San Elijo Hills project, a master-planned community located in the City of San Marcos in San Diego County, California, will be a community of approximately 3,500 homes and apartments, as well as a commercial and residential Towncenter. Since August 1998, the Company has been the development manager for this project, with responsibility for the overall management of the project, including, among other things, preserving existing entitlements and obtaining any additional entitlements required for the project, arranging financing for the project, coordinating marketing and sales activity, and acting as the construction manager. The development management agreement provides that the Company receive fees for the field overhead, management and marketing services it provides (“development management fees”), based on the revenues of the project. Through its ownership interest in CDS, the Company has an effective 68% indirect equity interest in the San Elijo Hills project, after considering noncontrolling interests held by former owners of the project before CDS acquired its interest. Before amounts are distributed to the noncontrolling shareholders, the Company has the right to receive repayment of any amounts advanced by it to the project and to receive a preferred return on any advances. For more information on the noncontrolling interests, see Note 6 of Notes to Consolidated Financial Statements.

Current Market Developments: Throughout much of the period that the Company has been developing the San Elijo Hills project, the Company’s sales efforts greatly benefited from a strong regional and national residential housing market. However, beginning in 2006, residential property sales volume, prices and new building starts declined significantly in many U.S. markets, including California and the greater San Diego region, which negatively affected sales and profits. The slowdown in residential sales was exacerbated by the turmoil in the mortgage lending and credit markets, which resulted in stricter lending standards and reduced liquidity for prospective home buyers. Sales of new homes and re-sales of existing homes declined substantially from the early years of the project’s development; based on information obtained from homebuilders and other public sources, the Company estimates that total home sales (both new and re-sales) at the San Elijo Hills project were approximately 194 in 2010 as compared to 860 in 2004. As of December 31, 2010, the San Elijo Hills project has sold 2,007 of its 2,364 single family lots and 1,068 of its 1,099 multi-family units.

During the past two years San Elijo Hills received increased interest from homebuilders concerning certain of the project’s remaining single family lots and multi-family units, and the Company was able to sell some single family lots and multi-family units at acceptable prices. Although these developments are encouraging, it is too soon to determine if the long slump in the housing market is coming to an end, or when the Company will be able to sell its remaining inventory. The Company has substantially completed development of all of its remaining residential single family lots at the San Elijo Hills project, many of which are “premium” lots which are expected to command premium prices if, and when, the market fully recovers. The Company believes that by exercising patience and waiting for market conditions to improve it can best maximize shareholder value with its remaining residential lot inventory. However, on an ongoing basis the Company evaluates the local real estate market and economic conditions in general, and updates its expectations of future market conditions as it continues to assess the best time to market its remaining residential lot inventory for sale.

Estimates of future property available for sale, the timing of the sales, selling prices and future development costs are based upon current development plans for the project and will change based on the strength of the real estate market or other factors that are not within the control of the Company.

During the past two years San Elijo Hills received increased interest from homebuilders concerning certain of the project’s remaining single family lots and multi-family units, and the Company was able to sell some single family lots and multi-family units at acceptable prices.  Although these developments are encouraging, it is too soon to determine if the long slump in the housing market is coming to an end, or when the Company will be able to sell its remaining inventory.  The Company has substantially completed development of all of its remaining residential single family lots at the San Elijo Hills project, many of which are “premium” lots which are expected to command premium prices if, and when, the market fully recovers.  The Company believes that by exercising patience and waiting for market conditions to improve it can best maximize shareholder value with its remaining residential lot inventory.  However, on an ongoing basis the Company evaluates the local real estate market and economic conditions in general, and updates its expectations of future market conditions as it continues to assess the best time to market its remaining residential lot inventory for sale.

The parent company’s principal sources of funds are cash and cash equivalents and investments, proceeds from the sale of real estate, fee income from the San Elijo Hills project, dividends and tax sharing payments from its subsidiaries and borrowings from or repayment of advances by its subsidiaries.  As of December 31, 2010, the Company had consolidated cash and cash equivalents and marketable securities aggregating $82,100,000, substantially all of which was held by the parent company and available to be used without restriction.

The Company expects that its cash and cash equivalents and marketable securities classified as available for sale, together with the other sources described above, will be sufficient for both its short and long term liquidity needs.  Residential sales at the San Elijo Hills project are expected to be a source of funds to the Company in the future; however, the amount and timing is uncertain due to current market conditions.   The Company is not relying on receipt of funds from Otay Land Company for the foreseeable future, since the timing of sales of undeveloped property, development activity and sales of developable and undevelopable property cannot be predicted with any certainty.   However, with the possible exception of the environmental remediation matter discussed below, Otay Land Company is not expected to require material funds in the short term, and long term needs will not be determined until a development plan is established.  The Company is currently marketing the Rampage property for sale; however, if the property is not sold, property development expenditures, if any, are not expected to be significant for the next few years.  In the interim, the Company has been conducting farming activities at the vineyard and in 2010 generated positive cash flows from selling grapes. Except for the acquisition of the Fanita Ranch property discussed below, the Company is not committed to acquire any new real estate projects, but it believes it has sufficient liquidity to take advantage of appropriate acquisition opportunities if they are presented.

During 2010, the Company closed on the sale of one neighborhood in the San Elijo Hills project consisting of 52 single family lots for aggregate sales proceeds of $13,600,000, net of closing costs.   In addition, the Company sold 131 multi-family units at the San Elijo Hills project for aggregate cash proceeds of $18,000,000, net of closing costs.  The Company also sold nine condominium units in the San Elijo Hills Towncenter for aggregate cash proceeds of $4,100,000, net of closing costs.  As of December 31, 2010, the Company had completed all required improvements to these and previously sold properties.

As of December 31, 2010, the remaining land at the San Elijo Hills project to be sold or leased consists of the following (including real estate under contract for sale):

Single family lots
357
Multi-family units
31
Square footage of commercial space
51,200

In January 2011, the Company sold 32 single family lots to a homebuilder for aggregate cash proceeds of $7,000,000, pursuant to which it had previously received a non-refundable option payment of $650,000 in 2009.

The Towncenter includes multi-family residential units and commercial space, which are being constructed in phases.  The Company has completed construction of the first phase of the Towncenter, which includes 12 residential condominium units and 11,000 square feet of commercial space.  Nine of the twelve condominium units were sold during 2010, and seven of the nine phase one retail spaces covering 8,800 square feet have been leased.  The Company has decided that it will not proceed with its existing plan for phase two of the Towncenter, which included a mixture of retail and office space, and it will have to develop a new plan for phase two.

Estimates of future property available for sale, the timing of the sales, selling prices and future development costs are based upon current development plans for the project and will change based on the strength of the real estate market or other factors that are not within the control of the Company.

Read more: http://www.faqs.org/sec-filings/110217/HOMEFED-CORP_10-K/#ixzz1EjnwVFgd

7 comments

  • Pingback: Tweets that mention 10-Q: HOMEFED CORP (San Elijo Hills Development Company) Annual Report-February 17, 2011 « San Elijo Life -- Topsy.com

  • “The Company has decided that it will not proceed with its existing plan for phase two of the Towncenter, which included a mixture of retail and office space, and it will have to develop a new plan for phase two.”

    Well, that sucks. I knew they’d changed the plan from retail/residential mix to retail/office mix, but I didn’t know that THAT plan has also been killed. So, now what? And how long until there’s a NEW phase 2 plan?

  • We need our phase 2 of retail! I agree that SUCKS! I hope someone hires an attorney to stand up for what we were promised when we purchased in this community!

  • We need a CLASS ACTION LAWSUIT!

    Phase 1 would become successful with an actual TOWN & CENTER.

    I am Home Fed Up!

  • We need to contact TURKO files on KUSI. This project started in 2001 and 10 yrs later, still not completed. Green fences in the town square is tacky. This developer needs to sell the rest of the town square and lots for homes to another who can actually complete the project. Bressi Ranch in Carlsbad appears to be developed by LNR Property LLC and their assoc. is Walters Management. They have almost completed there large retail area in it in 2 yrs. Or the city needs to buy the town square area for a nice park. The city and Walters Management needs to push the developer to sell or complete ASAP. It states San Elijo Hills project has sold 2,007 of its 2,364 single family lots and 1,068 of its 1,099 multi-family units. This is 85% of the single family lots and 97% of the muti family units. Together that is 89% sold in the community. It is time to get this town square completed as promised for 10 yrs.

    • JB,

      You seem to know many facts and figures about SEH, and can present a reasonable case.

      Please take the initiative to contact TURKO files on behalf of all of us.

      Thank you in advance.

      • Don’t waste your time.

        We tried to hold the developer to account in the last HOA election, got a board that ran on working ON the developer and Walters, as opposed to WITH them, elected; and they got their shills to mount a recall, and elected a board more amenable to their will. We won’t have a chance to change that, unless we do another recall (which I don’t advocate, having been against the first one) until the next 3 year HOA board election (although there is one seat up next year) in 2013.

        Google “Leucadia National”, “Paul Borden” and read deeper into the reports from prior years.

        We were all sold a bill of goods.

        The developer is investing their capital elsewhere (in Texas), and the one unified voice we might have, our HOA, is still beholden to them.

        This blog is run by a developer shill, and frequently astroturfed by the developer marketing department.

        The SEH vision is great. The execution is sorely lacking, and there is nothing we can do about it.

        Make your personal decisions on what you see in the here and now, because the hand waving is just that.

Leave a Reply