Executives of Centennial Group Inc., a real estate development firm based in Orange, said Tuesday that they had reached agreements to sell more than $80 million of property in the next 60 days in an effort to solve a serious cash-flow problem.
In addition, the firm has decided to refocus its basic business strategy on home construction and has abandoned plans to move its headquarters to the new Birtcher Xerox Centre in Santa Ana.
"To this point we've been mostly in raw land," said David Cheshier, Centennial's chief financial officer. "But now we want to pay down some of the debt and reinvest in home building."
Cheshier said the company expects to complete a $39-million sale of two large tracts of land near Sacramento in the next two to three weeks to H.C. Elliott Inc., a Sacramento home builder. He said Centennial purchased the land for less than $16 million.
The sale could nearly double Centennial's revenue for its fiscal year, which ends June 30. The firm had posted revenue of $39.5 million by March 31, the end of the company's third quarter.
Cheshier said another $45 million in land in Sacramento, San Bernardino and Riverside counties should be sold within the next two months. Those sales will reduce the company's landholdings to about $200 million, he said.
Proceeds from the sales will be used to pay down Centennial's debt, which was about $170 million as of March 31, and to expand the firm's home construction operation.
Centennial was formed as a public company in 1987 from the consolidation of several limited partnerships created by Ronald R. White and John B. Joseph. The firm has purchased land and developed properties in California and Arizona.
Signs of Centennial's cash-flow problems have become more evident in recent months. In May, the company announced that earnings for the nine months ended March 31 had fallen to $1.8 million, down sharply from $8.2 million during the same period a year earlier. The bad news has caused Centennial's stock price to collapse from a high of $7.50 per share to $2.125 Tuesday.
The problems forced Centennial to back out of an agreement to lease three floors of the Birtcher Xerox Centre, a new office complex in Santa Ana. Brandon Birtcher, a partner in the project, said the company paid a sizable settlement to cancel the agreement.
While Centennial officials and analysts hope the property sales will reduce the firm's immediate financial problems, its future prospects will be determined by its success as a home builder.
"This week the company is in better shape than it has been in over the entire past year," said Mark Matheson, an analyst for Cruttenden & Co. in Newport Beach. "They're coming to the housing market late, but I think they'll do well."