What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-11-16 compared with 2020-08-14 · 40 added, 53 removed, 201 unchanged (32% of the section changed)

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Our real estate services business platform allows us to generate positive fee income from our highly-qualified personnel and serves as a potential catalyst for joint venture and strategic acquisition opportunities.

• Quality and Depth of Management - We have a highly-qualified and experienced management team with a broad base of deep expertise and a proven track record of providing services to our clients.

Our services platform leverages the diverse capabilities and relationships of our management team developed over more than thirty years.

• Geographic Focus - Unlike many of our competitors with a national or international presence, we focus our efforts primarily on the greater Washington, D.C.

metropolitan market, one of the most compelling real estate markets in the United States, with a near-term focus on the transit-oriented areas surrounding or proximate to the new Silver Line on Washington, D.C.’s Metro.

The Company believes its significant presence in the Dulles Corridor and its in-depth understanding of high-density, mixed-use developments that are encouraged in these high-density transportation nodes give us unmatched insight into emerging trends that provide both short and long-term opportunities in these locales.

• The Company’s various business units work in concert to leverage the collective skill sets of our organization - The talent and experience of our personnel allow workflow flexibility and a multitasking approach to managing various projects.

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• Economic Drivers - Significant growth trends in demand for cyber security and other technology services in the government sector, as well as in the private sector, have generated substantial growth and attracted to Northern Virginia large tech companies, such as Microsoft, Google, and Amazon.

In 2018, Northern Virginia was selected by Amazon as the location for its highly publicized “HQ2” search for a location to develop its second headquarters, which it has said will create tens of thousands of new jobs over the next several years.

In 2018, Northern Virginia was selected by Amazon as the location for its highly publicized “HQ2” second headquarters, which it has said will create tens of thousands of new jobs over the next several years.

The Northern Virginia market has for a number of years captured a majority of the new jobs created in the Washington, D.C.

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• Metro’s Silver Line - Phase I of Metro’s Silver Line opened in 2014, connecting Tysons Corner and Reston to Arlington, Virginia and downtown Washington, D.C.

Phase II is scheduled to open in late 2020 or early 2021 and will extend service from the terminus of Phase I located in the center of the

Company’s Reston Station development to Herndon, Dulles International Airport, and Loudoun County, Virginia, terminating at the Company’s Loudoun Station development.

Phase II is scheduled to open in late 2020 or early 2021 and will extend service from the terminus of Phase I located in the center of the Company’s Reston Station development to Herndon, Dulles International Airport, and Loudoun County, Virginia, terminating at the Company’s Loudoun Station development.

• Regional Land Use Plans - Recent changes to Comprehensive Land Use Plans of Fairfax County and Loudoun County encourage high-density and mixed-use development proximate to the new Silver Line Metro Stations, resulting in compelling growth opportunities for the Company and its managed portfolio.

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For a period of twenty-four months after the April 30, 2019 effective date of the 2019 AMA, CDS is entitled to terminate the 2019 AMA without cause upon 180 days advance written notice to the Company.

In the event of such a termination and in addition to

the payment of any accrued annual fees due and payable as of the termination date under the 2019 AMA, in the event of any such termination, CDS is required to pay a termination fee to the Company equal to (i) the Market Rate Fee or the Cost Plus Fee paid to the Company for the calendar year immediately preceding the termination, and (ii) a one-time payment of the Incentive Fee as if the Anchor Portfolio were liquidated for fair market value as of the termination date, or at CDS’ election, the continued payment of the Incentive Fee as if a termination had not occurred.

In the event of such a termination and in addition to the payment of any accrued annual fees due and payable as of the termination date under the 2019 AMA, in the event of any such termination, CDS is required to pay a termination fee to the Company equal to (i) the Market Rate Fee or the Cost Plus Fee paid to the Company for the calendar year immediately preceding the termination, and (ii) a one-time payment of the Incentive Fee as if the Anchor Portfolio were liquidated for fair market value as of the termination date, or at CDS’ election, the continued payment of the Incentive Fee as if a termination had not occurred.

Other Asset Management Agreements .

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Results of Operations

Three and six months ended June 30, 2020 compared to the three and six months ended June 30, 2019

Three and nine months ended September 30, 2020 compared to the three and nine months ended September 30, 2019

Revenue – asset management

Revenue from asset management for the three months ended June 30, 2020 and 2019 was $4.1 million and $4.4 million, respectively.

This represents a decrease of $299 thousand, or 6.7%, compared to prior year.

Revenue decreased primarily due to proceeds from the Company's Paycheck Protection Plan loan (the "PPP Loan").

The proceeds from this PPP Loan were utilized primarily to cover employee costs that were not passed through to CDS.

$1.2 million of the PPP Loan proceeds that otherwise would have been charged to customers were recognized as a contra-payroll expense, resulting in lower payroll costs and lower billable revenue.

The revenue decrease was partially offset by increased headcount and other costs that are reimbursable from CDS under the 2019 AMA and were recognized as revenue along with growth in our property management business and other asset management fee streams including the BMA.

Revenue from asset management for the six months ended June 30, 2020 and 2019 was $9.6 million and $8.6 million, respectively.

This represents an increase of $982 thousand, or 11.4%, compared to the prior year.

Revenue from asset management for the three months ended September 30, 2020 and 2019 was $5.9 million and $4.7 million, respectively.

This represents an increase of $1.2 million, or 24.5%, compared to prior year.

Revenue increased primarily due to increased headcount and other costs that are reimbursable from CDS under the 2019 AMA and recognized as revenue along with growth in our property management business and other asset management fee streams including the BMA.

Revenue from asset management for the nine months ended September 30, 2020 and 2019 was $15.5 million and $13.3 million, respectively.

This represents an increase of $2.1 million, or 16.1%, compared to the prior year.

Revenue increases were partially offset by proceeds from the PPP Loan.

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Revenue – real estate services

Revenue from real estate services for the three months ended June 30, 2020 and 2019 was $2.3 million and $0.9 million, respectively.

Revenue from real estate services for the three months ended September 30, 2020 and 2019 was $1.4 million and $0.9 million, respectively.

This represents an increase in quarter over quarter revenues of $0.5 million or 52% growth.

Revenue from real estate services for the six months ended June 30, 2020 and 2019 was $3.9 million and $1.6 million, respectively.

Revenue from real estate services for the nine months ended September 30, 2020 and 2019 was $5.3 million and $2.6 million, respectively.

This represents an increase in year-to-date revenues of $2.7 million or 106% growth.

The increase in real estate services revenue for the three and six months ended June 30, 2020 is primarily attributable to continued organic growth of the size and count of customer contracts as well as increases in billable environmental consulting staff within our Comstock Environmental business unit.

The increase in real estate services revenue for the three and nine months ended September 30, 2020 is primarily attributable to continued organic growth in the number of jobs being performed while average revenue per job has remained relatively flat.

Direct costs – asset management

Direct costs – asset management for the three months ended June 30, 2020 and 2019 was $3.2 million and $3.9 million, respectively.

This 18.4% decrease amounts to a $0.7 million reduction to direct costs - asset management.

The decrease in costs for the three months ended June 30, 2020 compared to 2019 was primarily attributable to recognition of the PPP Loan as a government grant.

The grant was recognized during the quarter as the related payroll costs were incurred, and the Company has complied with all conditions attached to the grant.

Direct costs – asset management for the six months ended June 30, 2020 and 2019 was $7.8 million and $7.6 million, respectively.

Direct costs – asset management for the three months ended September 30, 2020 and 2019 was $5.1 million and $4.2 million, respectively.

This 20.7% increase amounts to a $0.9 million increase to direct costs - asset management.

The increase in costs for the three months ended September 30, 2020 compared to 2019 was primarily attributable to an increase in personnel expenses, primarily from headcount increases, as well as from the continued growth of our asset management operations

Direct costs – asset management for the nine months ended September 30, 2020 and 2019 was $12.9 million and $11.8 million, respectively.

This 9.4% increase amounts to a $1.1 million increase to direct costs - asset management.

This increase was primarily related to an increase in personnel expenses, primarily from headcount increases, as well as from the continued growth of our asset management operations.

The increased costs was partially offset by the recognition of the PPP Loan as a government grant.

The grant was recognized during the quarter as the related payroll costs were incurred, and the Company has complied with all conditions attached to the PPP Loan.

The grant was recognized during the second quarter as the related payroll costs were incurred, and the Company has complied with all conditions attached to the PPP Loan.

Direct costs – real estate services

Direct costs – real estate services for the three months ended June 30, 2020 and 2019 was $1.1 million and $0.9 million, respectively.

Direct costs – real estate services for the six months ended June 30, 2020 and 2019 was $2.5 million and $1.4 million, respectively.

For the three and six months ended June 30, 2020 and 2019 direct costs - real estate services increased $0.2 million and $1.1 million, respectively.

Direct costs – real estate services for the three months ended September 30, 2020 and 2019 was $0.6 million and $0.9 million, respectively.

Direct costs – real estate services for the nine months ended September 30, 2020 and 2019 was $3.1 million and $2.3 million, respectively.

For the nine months ended September 30, 2020 and 2019 direct costs - real estate services increased $0.8 million, respectively.

The increase is primarily due to increased employment costs relating to our expanding footprint in the real estate consulting and environmental study fields partially offset by the recognition of the PPP Loan as a government grant.

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General and administrative

General and administrative expenses for the three months ended June 30, 2020 and 2019 was $634 thousand and $477 thousand, respectively.

General and administrative expenses for the six months ended June 30, 2020 and 2019 was $1.2 million and $0.8 million, respectively.

For the three and six months ended June 30, 2020 and 2019, general and administrative costs increased $157 thousand and $451 thousand, respectively.

General and administrative expenses for the three months ended September 30, 2020 and 2019 was $1,029 thousand and $353 thousand, respectively.

General and administrative expenses for the nine months ended September 30, 2020 and 2019 was $2.3 million and $1.0 million, respectively.

For the three and nine months ended September 30, 2020 and 2019, general and administrative costs increased $676 thousand and $1.3 million, respectively.

The increase is primarily attributable to increased headcount and associated equity compensation and personnel cost, that are not billable to customers within our Asset Management and Real Estate Services segments.

Selling and Marketing

Selling & marketing expenses for the three and six months ended June 30, 2020 was $216 thousand and $380 thousand, respectively.

There were no selling and marketing expenses for the three and six months ended June 30, 2019.

Selling & marketing expenses for the three and nine months ended September 30, 2020 was $127 thousand and $507 thousand, respectively.

There were no selling and marketing expenses for the three and nine months ended September 30, 2019.

The increase is attributable to increased sales development programs launched by our Environmental business unit to grow the business.

Interest Expense

For the three months ended June 30, 2020 and 2019, the Company’s interest expense was $93 thousand and $116 thousand, respectively.

For the three months ended September 30, 2020 and 2019, the Company’s interest expense was $63 thousand and $170 thousand, respectively.

The 62.9% reduction to interest expense quarter over quarter amounted to $107 thousand.

The reduction in interest expense is primarily related to the retiring of the Comstock Growth Fund loan during the three months ended June 30, 2020.

For the six months ended June 30, 2020 and 2019, the Company’s interest expense was $257 thousand and $134 thousand, respectively.

For the nine months ended September 30, 2020 and 2019, the Company’s interest expense was $320 thousand and $134 thousand, respectively.

The 138.8% increase in interest expense for the year-to-date period amounted to a $186 thousand increase in interest expense.

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After the MTA this interest expense is no longer capitalized into homebuilding projects.

For the three and six months ended June 30, 2020, the Company recognized deferred income tax expense of $13 thousand and $14 thousand, respectively.

For the three and six months ended June 30, 2019 the Company did not recognize deferred income tax expense from continuing operations.

For the three and nine months ended September 30, 2020, the Company recognized deferred income tax expense of $1 thousand and $15 thousand, respectively.

For the three and nine months ended September 30, 2019 the Company did not recognize deferred income tax expense from continuing operations.

Liquidity and Capital Resources

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The amount of loan forgiveness will be reduced if the borrower terminates employees or reduces salaries during the forgiveness period.

As of June 30, 2020, the Company has used the entire loan proceeds to fund its payroll and rent expenses.

As of September 30, 2020, the Company has used the entire loan proceeds to fund its payroll and rent expenses.

As a result, the Company believes that it has met the PPP eligibility criteria for forgiveness and has concluded that the loan represents, in substance, a government grant that is expected to be forgiven.

As such, in accordance with IAS 20 “Accounting for Government

Grants and Disclosure of Government Assistance”, the Company has recognized the entire loan amount as a reduction to the associated expenses as at June 30, 2020.

As such, in accordance with IAS 20 “Accounting for Government Grants and Disclosure of Government Assistance”, the Company has recognized the entire loan amount as a reduction to the associated expenses as at September 30, 2020.

The Company does not anticipate taking any action that would cause any portion of the PPP Loan to be ineligible for forgiveness.

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We finance our Asset Management and Real Estate Services operations, capital expenditures, and business acquisitions with internally generated funds, borrowings from our credit facilities and long-term debt.

For the six months ended June 30, 2020, net cash used in operating activities was $656 thousand.

Net cash used in operations activities was primarily related to the payment of accrued personnel costs.

For the six months ended June 30, 2019, net cash provided by operating activities was $1.0 million primarily related to $1.6 million provided by discontinued operations.

Net cash provided by investing activities for the six months ended June 30, 2020 was $(73) thousand.

This was primarily attributable to distributions from equity method investments of $717 thousand.

Net cash used in investing activities was immaterial for the six months ended June 30, 2019.

Net cash used in financing activities for the six months ended June 30, 2020 was $1.0 million.

This was primarily attributable to proceeds under the Revolver of $5.5 million partially offset by the retirement of debt.

Net cash used in financing activities was immaterial for the six months ended June 30, 2019.

For the nine months ended September 30, 2020, net cash provided by operating activities was $2.7 million.

Net cash provided by operations activities was primarily related to the collection of revenue earned within the period along with the collection of receivables outstanding as of December 31, 2019.

Net cash provided by operating activities was partially offset by the payment of accrued personnel costs and accounts payable.

For the nine months ended September 30, 2019, net cash provided by operating activities was $6.9 million primarily related to $7.4 million provided by discontinued operations.

Net cash used in investing activities was immaterial for the nine months ended September 30, 2020 and September 30, 2019.

Net cash used in financing activities for the nine months ended September 30, 2020 was $1.6 million.

This was primarily attributable to the retirement of debt partially offset by proceeds under the Revolver of $5.5 million.

Net cash used in financing activities of continuing operations was immaterial for the nine months ended September 30, 2019.

Critical Accounting Policies and Estimates

There have been no other significant changes to our critical accounting policies and estimates during the three months ended June 30, 2020 from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2019.

There have been no other significant changes to our critical accounting policies and estimates during the three months ended September 30, 2020 from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2019.

Recently Issued Accounting Standards

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis