10-Q: HOMEFED CORP Quarterly Report


Quarterly Report

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Interim Operations.

Liquidity and Capital Resources

For the nine month periods ended September 30, 2010 and 2009, net cash was used for operating activities, principally for real estate expenditures at the San Elijo Hills and Otay Ranch projects, general and administrative expenses and farming operations at the Rampage property. In addition, net cash was used for estimated federal and state tax payments during the nine month 2010 period. The Company’s principal sources of funds are proceeds from the sale of real estate, fee income from the San Elijo Hills project, proceeds from the sale of grapes at the Rampage project, dividends and tax sharing payments from its subsidiaries, borrowings from or repayment of advances by its subsidiaries and cash and cash equivalents and investments. As of September 30, 2010, the Company had aggregate cash, cash equivalents and investments of $59,600,000 to meet its current liquidity needs and for future investment opportunities.

As of September 30, 2010, the remaining land at the San Elijo Hills project to be developed and sold or leased consisted of the following (including real estate under contract for sale):


Single family lots                        409
Multi-family units                        162
Square footage of commercial space     50,100


As of September 30, 2010, the Company has entered into three sales agreements with homebuilders that have not closed. The Company has agreed to sell 32 single family lots for aggregate cash proceeds of $7,000,000, 131 multi-family units for aggregate cash proceeds of $18,500,000 and 52 single family lots for aggregate cash proceeds of $13,600,000. The Company received non-refundable option deposits with respect to these agreements of $650,000 in 2009 and $2,850,000 in 2010 (of which $500,000 was received in October 2010). These option payments are non-refundable if the Company fulfills its obligations under the agreements, and will be applied to reduce the amount due from the purchasers at closing. Although these agreements are binding on the purchasers, should the Company fulfill its obligations under the agreements within the specified timeframes and the purchasers decide not to close, the Company’s recourse will be primarily limited to retaining the option payments.

As more fully discussed in the 2009 10-K, residential property sales volume, prices and new building starts have declined significantly in many U.S. markets, including California and the greater San Diego region, which have negatively affected sales and profits at the San Elijo Hills project. The slowdown in residential sales has been exacerbated by the turmoil in the mortgage lending and credit markets, which has resulted in stricter lending standards and reduced liquidity for prospective home buyers. Sales of new homes and re-sales of existing homes have declined substantially from the early years of the project’s development; there has been only one sale of residential lots at the San Elijo Hills project since June 2006.

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 recovers. Although the Company has received unsolicited offers, the Company is not actively soliciting bids for its remaining inventory of single family lots and is unable to predict when local residential real estate market conditions might improve. 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, the Company evaluates the local real estate market and economic conditions in general on an ongoing basis, 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 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 the nine month period ended September 30, 2010. The Company has entered into leases for eight of the nine phase one retail spaces covering 9,900 square feet; all of the tenants have opened for business. The Company is currently evaluating design options for phase two of the Towncenter, which is expected to be comprised of office and retail space.

In October 2010, the Company engaged a real estate brokerage firm to sell the Rampage property. The listing price for the property is $25,000,000; however, no assurance can be given that the Company will be successful in selling the Rampage property, or if the property is sold whether it will be sold for the asking price. READ MORE



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