What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-05-14 compared with 2020-11-16 · 76 added, 191 removed, 50 unchanged (84% of the section changed)

10 unchanged sentences

Some factors which may affect the accuracy of the forward-looking statements apply generally to the real estate industry, while other factors apply specifically to us.

Any number of important factors could cause actual results to differ materially from those in the forward-looking statements including, without limitation:

Any number of important factors which could cause actual results to differ materially from those in the forward-looking statements include:

general economic and market conditions, including interest rate levels;

our ability to service our debt;

changes in the real estate markets;

inherent risks in investment in real estate;

our ability to attract and retain clients;

our ability to compete in the markets in which we operate;

economic risks in the markets in which we operate, including actions related to government spending;

delays in governmental approvals and/or land development activity at our projects;

regulatory actions;

our ability to maintain compliance with stock market listing rules and standards;

fluctuations in operating results;

our anticipated growth strategies;

shortages and increased costs of labor or building materials;

natural disasters;

shortages and increased costs of labor or materials;

adverse weather conditions and natural disasters;

public health emergencies, including potential risks and uncertainties relating to the coronavirus (COVID-19) pandemic;

our ability to raise debt and equity capital and grow our operations on a profitable basis;

and our continuing relationships with affiliates.

On January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency because of a new strain of coronavirus originating in Wuhan, China (the “COVID-19 outbreak”) and the risks to the international community as the virus spreads globally beyond its point of origin.

In March 2020, the WHO classified the COVID-19 outbreak as a pandemic, based on the rapid increase in exposure globally.

At this time, we cannot foresee whether the outbreak of COVID-19 will be effectively contained, nor can we predict the severity and duration of its impact.

If the outbreak of COVID-19 is not effectively and timely controlled, our business operations and financial condition may be materially and adversely affected as a result of the deteriorating market outlook for the segments and the markets in which we operate, the slowdown in regional and national economic growth, weakened liquidity and financial condition of our customers or other factors that we cannot foresee.

Some of the uncertainties related to the Company’s operations that are directly related to COVID-19 include, but are not limited to, the severity of the virus, the duration of the outbreak, governmental, business or other actions and their impacts on the Company and our clients, along with short and long term effects of consumer demand that may affect our clients financial position and consequently necessitate changes to our operations.

As discussed in Note 15, the Company derives a substantial portion of its revenues from various related party entities associated with real estate properties.

Any of these factors and other factors beyond our control could have an adverse effect on the overall business environment and cause our business to suffer in ways that we cannot predict at this time and that may materially and adversely impact our business, financial condition and results of operations.

While we have not seen a significant impact to our results from COVID-19 to date, if the virus continues to cause significant negative impacts to economic conditions or consumer confidence, our revenues including our property management revenues, trade receivables, related party receivables, goodwill and our fair value investment in Investors X, results of operations, financial condition and liquidity could be adversely impacted.

Our actual results could differ materially from these projected or suggested by the forward-looking statements.

5 unchanged sentences

metropolitan area, where we focus primarily on select high-growth urban and transitioning “sub-urban” markets.

We provide a broad range of real estate asset management services, including development, construction management, leasing and property management services, to owners of real estate properties that we manage.

We invest capital on behalf of our asset management clients and institutional real estate investors in office, retail, residential and mixed-use properties, generally retaining an economic interest for the Company and providing management services to those properties, enabling the Company to increase its assets under management (“AUM”) in order to realize competitive advantages of scale and enhance our overall returns.

We provide a broad range of real estate asset management services, including development and construction management services, leasing and property management services, debt and equity financing origination, and other real estate related services.

Our customers primarily include private and institutional owners and investors in the real estate properties that we manage and various governmental bodies that have a vested interest in public-private partnerships responsible for the development of certain properties that we develop and manage.

We also invest capital on behalf of our asset management clients and institutional real estate investors in office, retail, residential and mixed-use properties, generally retaining an economic interest for the Company and providing management services to those properties, thereby enabling the Company to increase its assets under management (“AUM”) in order to realize competitive advantages of scale and enhance our overall returns.

The Company also provides additional fee-based real estate services, including corporate planning, capital markets, brokerage, title insurance, design, and environmental consulting and engineering services, to properties in the Company’s managed portfolio and to other clients in the U.S.

Mid-Atlantic Region.

As of March 31, 2021, our AUM consisted of 26 operating assets comprising 13 commercial assets totaling approximately 1.9 million square feet and 4 multifamily assets totaling 1,123 units, and 9 commercial garages comprised of over

8,000 parking spaces.

Additionally, we have:

(i) one commercial asset currently under-construction and scheduled for delivery in 2022 totaling approximately 250,000 square feet that is 99% pre-leased;

and (ii) 18 development pipeline assets consisting of approximately 2.0 million square feet of additional planned commercial development, approximately 1,700 multifamily units and 2 hotel assets that will include 370 keys.

As a vertically integrated real estate operating and investment company, we earn revenue from multiple sources, including fees generated from asset management services that we provide to our managed portfolio of real estate assets on behalf of our asset management clients, and fees from additional real estate related services, including environmental consulting and engineering services provided to our managed properties and unrelated third party clients in the Mid-Atlantic Region.

In addition, the Company expects to generate revenue from co-investments with our partners in certain property acquisitions and from performance-based incentive compensation from certain assets in our managed portfolio.

The Company can earn these incentive-based fees upon the occurrence of certain transaction-related events or when the performance of the subject properties meets defined performance metrics.

The services we provide pursuant to the asset management agreements covering our AUM properties vary by property, and include property management, development and construction management, leasing management, acquisition and disposition management, origination and negotiation of debt and equity facilities, risk management, and various other property-specific services.

Substantially all of the properties included in our managed portfolio are covered by full-service asset management agreements encompassing substantially all aspects of development, construction, and operations management relating to the subject properties.

Our long-term asset management contracts generally include material early termination payments to us in the event the contract is prematurely terminated by the asset owner.

A limited number of properties in our managed portfolio are covered by service-specific asset management contracts that focus our services on defined critical elements of operations, such as marketing, leasing, and construction management, where the property owner continues to manage other operating functions.

The full-service asset management agreement for our Anchor Portfolio as defined below is a long-term contract with an original term of 10 years that provides for significant payments to Comstock in the case of early termination by the asset owner.

The asset management agreement for the Hartford acquired in December 2019 as described below, the Company’s initial co-investment asset, is medium term in duration, and the duration of co-investment asset management agreements generally are expected to align with the duration of the applicable co-investment business plan.

The co-investment business plans are property specific and therefore vary in expected duration but are generally expected to be between four and seven years.

Our limited-service asset management agreements generally are anticipated to be short term in nature and do not include material early termination penalties.

Presently, there are only one co-investment management agreement and one limited-service management agreement in place in addition to the management agreements covering our Anchor Portfolio.

Anchoring the Company’s asset management services platform is a long-term full service asset management agreement (the “2019 AMA”) with an affiliate of the Company’s Chief Executive Officer, Christopher Clemente, that encompasses the Anchor Portfolio.

The 2019 AMA provides the Company fee based revenue based on a general formula charging the greater of (i) the defined operating costs of the Company plus a base fee of $1,000,000 per annum and various supplemental fees or (ii) market rate fees delineated in the 2019 AMA.

Reston Station - Strategically located mid-way between Tysons Corner and Dulles International Airport, Reston Station is among the largest mixed use, transit-oriented developments in the Washington, DC area.

Located at the terminus of Phase I of Metro’s Silver Line and encompassing nearly 40 acres spanning the Dulles Toll Road and surrounding Reston’s first Metro Station, Reston Station is already home to more than 1,000 residents and numerous businesses, including multiple retail establishments and popular restaurants.

With more than one million square feet of completed and stabilized buildings, approximately four million square feet of additional development in various stages of entitlement, development and construction,

and a 3,500-space underground parking garage and bus transit facility adjacent to the Wiehle-Reston-East Metro Station, the Reston Station neighborhood is leading the urban transformation of the Dulles Corridor.

Loudoun Station - Located at the terminus station on Metro’s Silver Line, minutes from Dulles International Airport, Loudoun Station represents Loudoun County’s first (and currently its only) Metro-connected development.

Loudoun Station has approximately 600,000 square feet of mixed-use development completed, including hundreds of rental apartments, approximately 125,000 square feet of retail, restaurants, and entertainment venues, 50,000 square feet of Class A office, and a 1,500+ space commuter parking garage.

Approximately two million square feet of additional development is slated for Loudoun Station.

Located adjacent to Metro’s Ashburn Station, the Loudoun Station neighborhood represents Loudoun County’s beginning transformation into a transit connected community with direct connectivity to Dulles International Airport, Reston, Tysons Corner and downtown Washington, DC.

Our Business Strategy

In early 2018, the Company transitioned our business strategy and operating platform from being focused on the development and sale of residential homes to our current fee-based services model focused on commercial and mixed-use real estate primarily in the greater Washington, D.C.

We generate base fees, incentive fees and profit participation by providing a broad range of real estate asset management services, including development, construction management, leasing and property management services, as well as acquisition and disposition services, employing our substantial experience in entitling, designing, developing, and managing a diverse range of properties.

While our Anchor Portfolio, concentrated primarily along the rapidly growing Dulles Corridor in Northern Virginia, provides a stable, cost-plus fee structure foundation under the 2019 AMA, our business strategy includes expanding our total AUM by identifying high-quality office, retail, residential and mixed-use properties in the greater Washington, D.C.

region and identifying institutional real estate investors that seek investment opportunities in such real estate assets while lacking the operational or local expertise needed to manage such properties.

This approach enables the Company to generate earnings through the management of the Anchor Portfolio and provides the opportunity to increase earnings through the expansion of our managed portfolio of properties through additional acquisitions and related management agreements.

Our acquisition strategy is currently focused on value-add, core, and core-plus opportunities and other opportunistic asset acquisitions.

In addition to our asset management services, we provide a suite of real estate-related services to our managed real estate portfolio and to additional third-party clients, and we may seek to expand the services we offer through organic growth.

We believe that we have several strengths that distinguish our new business focus and strategy:

• Revenue Base .

Our revenues are generated primarily from recurring asset management fees and additional real estate services fees.

Our asset management agreements provide a highly visible and reliable source of revenue and position the Company to enhance bottom line results as the Company’s Anchor Portfolio and other assets under management expand.

• Management Services – During recent years, we have made several changes to our management team as we refocused our operating platform from residential home building to commercial real estate and asset management.

As a result of this effort, our current management team has significant experience managing large-scale portfolios of real estate assets, including rental apartments, office buildings, hotels, commercial garages, leased lands, retail properties, mixed-use developments, and transit-oriented developments.

• Geographic Focus - The properties included in our Anchor Portfolio that we currently manage are located primarily in the Dulles Corridor, which is the location of the Silver Line, the first new rail line added to Washington D.C.’s Metro rail system in almost 20 years, which serves or will serve Arlington, Fairfax and Loudoun Counties in Virginia.

Our property acquisition initiatives with institutional partners are focused on multiple high-growth areas throughout the Washington, D.C.

region, and our first such acquisition, which closed in December 2019, is located in Arlington County, Virginia.

We also provide environmental consulting and engineering services throughout a wider region stretching from the Washington, D.C.

region to the Philadelphia, Pennsylvania, and New Jersey regions.

• Real Estate Services – In addition to the asset management services we provide in connection with our AUM, we also provide a variety of supplemental real estate services in the areas of strategic corporate planning, capital markets and financial consulting, commercial mortgage brokerage, title, design and environmental consulting and engineering services, and industrial hygiene services.

Our environmental services group provides consulting and engineering services, environmental studies, remediation management services and site-specific solutions for properties that may require or benefit from

environmental due diligence, site-specific assessments, and industrial hygiene services.

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.

• 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.

We believe that our focus and our business network in the Washington, D.C.

market provides us with a competitive advantage in sourcing and executing on investment opportunities.

While the Company has previously developed numerous properties in multiple key markets throughout the southeastern United States, and our management team has experience managing large national portfolios, we believe the greater Washington, D.C.

market provides compelling growth opportunities for our business.

• Long Track Record - The Company and its management team have been active in the metropolitan Washington, D.C.

region since 1985 and have developed, acquired, and managed thousands of residential units and millions of square feet of mixed-use properties throughout the region and in other key markets in the United States.

• Multiple Public-Private Partnerships - Affiliates of the Company have been selected by multiple local governments (including Fairfax County, Loudoun County, and the Town of Herndon, Virginia) to develop and manage large-scale mixed-use and transit facility developments through public-private partnerships at a time when local jurisdictions are focused on public-private partnerships as a means of leveraging private sector capabilities to meet public infrastructure development needs.

• 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” 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.

metropolitan area, including corporate relocations and expansions, as well as numerous start-ups.

Further, Northern Virginia’s significant data infrastructure, capable of serving the needs of the federal government and its defense and information contractors, has spurred the expansion and/or relocation of several federal government agencies, including the FBI, CIA, NSA, and the Customs and Border Patrol agency, to the Dulles Corridor.

The Dulles Corridor has become known as the “Internet Capitol of the World”, because of its tremendous network of data centers, primarily located in Loudoun County, Virginia in the western portion of the Dulles Corridor.

Loudoun County has experienced tremendous growth in data center development and has become the global leader in data center space while accounting for more than 40% of national data center space absorption in recent years.

• Diverse Employment Base - The diverse and well-educated employment base in the greater Washington, D.C.

region, coupled with proximity to the federal government and the presence of well-established government contractors, is contributing to the attractiveness of the region to technology companies.

• 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.

• 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.

• Increased Demand for Transit-Oriented and Mixed-Use Developments - Recent trends indicate commercial tenants are increasingly seeking to locate (or relocate) offices to urban, mixed-use developments in “sub-urban” markets, such as Northern Virginia’s Dulles Corridor, and have demonstrated willingness to pay premium rents for commercial space at the Metro-accessible sites, such as those that make up a significant portion of the Company’s portfolio of managed assets.

Additionally, demand for housing in transit-oriented, mixed-use neighborhoods has increased steadily over the past decade while home ownership rates have decreased and demand for high-quality rental housing has increased.

The Company has been focused on these emerging trends for more than two decades and the Company, through the 2019 AMA, controls the development and asset management of a significant portfolio of high-profile assets at the forefront of the urban transformation taking place in the Dulles Corridor.

With a stabilized portfolio and development pipeline that include millions of square feet of mixed-use and transit-oriented properties located at key Metro stations in the Dulles Corridor, the Company is well positioned to capitalize on trends that we believe will shape the future commercial real estate landscape and provide opportunities for significant growth and attractive returns to the Company.

Asset Management Services

Effective January 1, 2019, the Company entered into an Amended and Restated Master Asset Management Agreement with CDS, an entity owned and controlled by the Company’s Chief Executive Officer, which provides the Company significant fees for services related to the development, marketing, and operations of the Anchor Portfolio of commercial and residential mixed-use real estate owned by CDS affiliates.

The 2019 AMA covers two large-scale, transit-oriented, mixed-use developments in the Dulles Corridor:

Reston Station and Loudoun Station, Virginia, as well as a mixed-use development asset located in Herndon, Virginia and other properties designated pursuant thereto from time to time.

Separately, the Company also is party to fee-based management services arrangements with unrelated third parties, covering properties in Tysons Corner, Virginia and Rockville, Maryland.

Pursuant to the 2019 AMA, the Company provides asset management services related to the build out, lease-up and stabilization, and management of the Anchor Portfolio.

CDS pays the Company and its subsidiaries annual fees equal to the greater of either (i) an aggregate amount equal to the sum of (a) an asset management fee equal to 2.5% of revenues generated by properties included in the Anchor Portfolio;

(b) a construction management fee equal to 4% of all costs associated with Anchor Portfolio projects in development;

(c) a property management fee equal to 1% of the Anchor Portfolio revenues, (d) an acquisition fee equal to up to 0.5% of the purchase price of acquired assets;

and (f) a disposition fee equal to 0.5% of the sales price of an asset on disposition (collectively, the “Market Rate Fee”);

or (ii) an aggregate amount equal to the sum of (x) the employment expenses of personnel dedicated to providing services to the Anchor Portfolio pursuant to the 2019 AMA, (y) the costs and expenses of the Company related to maintaining the public listing of its shares and complying with related regulator and reporting obligations, and (z) a fixed annual payment of $1,000,000 (collectively the “Cost Plus Fee”).

The Company believes that the Cost-Plus Fee feature of the 2019 AMA provides a stable foundation of revenue to enable the Company to further expand its asset management business and AUM.

In addition to the annual payment of the greater of either the Market Rate Fee or the Cost Plus Fee, the Company also is entitled on an annual basis to the following additional fees:

(i) an incentive fee equal to 10% of the free cash flow of each of the real estate assets comprising the Anchor Portfolio after calculating a compounding preferred return of 8% on CDS invested capital (the “Incentive Fee”);

(ii) an investment origination fee equal to 1% of raised capital, (iii) a leasing fee equal to $1.00/sf for new leases and $0.50/sf for renewals;

and (iv) mutually agreeable loan origination fees related to the Anchor Portfolio.

The 2019 AMA is a long-term agreement, with an initial term until December 31, 2027 (“Initial Term”), and will automatically renew for successive additional one-year terms (each, an “Extension Term”) unless CDS delivers written notice of non-renewal of the 2019 AMA at least 180 days prior to the termination date of the Initial Term or any Extension Term.

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.

Other Asset Management Agreements .

The duration of our fee-based service agreements varies in nature.

In addition to the long term nature of the 2019 AMA, our other asset management agreements for our co-investment opportunities are intended to cover the duration of the expected investment cycle of the portfolio property managed and are generally expected to last between four and seven years.

However, these arrangements do not typically contain significant early-termination penalties.

We also administer many various task-specific limited-service asset management agreements under short-term arrangements generally terminable at will.

Hartford Asset Management Agreement

On December 30, 2019, the Company made an investment related to the purchase of a stabilized commercial office building located at 3101 Wilson Boulevard in the Clarendon area of Arlington County, Virginia (the “Hartford”).

The Company will retain a 2.5% equity interest in the asset at a cost of approximately $1.2 million.

The Company has entered into management arrangements for the Hartford under which the Company will receive asset management, property management and construction management fees for the Company’s management and operation of the property and certain incentive fees relating to the performance of the investment.

Residential, Commercial and Parking Property Management Agreements

During the period of December 2017 through and including April 2020, the Company entered into separate residential property management agreements with properties in our Anchor Portfolio under which the Company receives fees to manage and operate the properties including tenant communications, leasing of apartment units, rent collections, building maintenance and day-to-day operations, engagement and supervision of contractors and vendors providing services for the buildings, and budget preparation and oversight.

During the period of May 2019 through and including April 2020, the Company entered into separate commercial property and parking management agreements with properties in our Anchor Portfolio under which the Company receives fees to manage and operate the office, retail and parking portions of the properties, including tenant communications, rent collections, building maintenance and day-to-day operations, engagement and supervision of contractors and vendors providing services for the buildings, and budget preparation and oversight.

These property management agreements are each for one year initial terms with successive, automatic one year renewal terms, unless sooner terminated.

The Company generally receives base management fees under these agreements based upon a percentage of gross rental revenues for the portions of the buildings being managed in addition to reimbursement of specified expenses, including employment expenses of personnel employed by the Company in the management and operation of each property.

Construction Management Agreements

The Company has entered into construction management agreements with properties in our Anchor Portfolio under which the Company receives fees to provide certain construction management and supervision services, including construction supervision and management of the buildout of certain tenant premises.

The Company receives a flat construction management fee for each engagement under a work authorization based upon the construction management or supervision fee set forth in the applicable tenant’s lease, which fee is generally 1% to 4% of the total costs (or total hard costs) of construction of the tenant’s improvements in its premises, or as otherwise agreed to by the parties.

Real Estate Services

In addition to the asset management services that the Company provides related to the Anchor Portfolio and other managed assets, the Company’s wholly owned subsidiaries, Comstock Real Estate Services and Comstock Environmental Services, LC (“Comstock Environmental”), provide real estate-related services to our asset management clients and third-party customers.

These services include environmental consulting and engineering services, industrial hygiene services, and other consulting services in the U.S.

Anchoring the Company’s asset management services platform is a long-term full service asset management agreement (the “2019 AMA”) with an affiliated company owned by the Company’s Chief Executive Officer, Christopher Clemente, that encompasses the majority of the properties we currently manage, including two of the largest transit-oriented, mixed-use developments in the Washington, DC area:

Reston Station, a 5 million square foot transit-oriented, mixed-use development located in Reston, VA, and Loudoun Station, a nearly 2.5 million square foot transit-oriented, mixed-use development in Ashburn, VA, as well as other additional development assets, which together constitute our anchor portfolio (the “Anchor Portfolio”).

The 2019 AMA for our Anchor Portfolio is a long-term agreement with an original term of 10 years that provides for significant financial payments to Comstock in the case of early termination by the asset owner.

In addition to the various recurring asset management fee-based revenue received by the Company, we also generate additional revenue from co-investments with our investment partners in certain property acquisitions and expect to receive performance-based incentive compensation from assets in our Anchor Portfolio and other assets in our managed portfolio.

The Company can earn these incentive-based fees upon the occurrence of certain transaction-related events, including asset acquisitions or dispositions, asset related capital market transactions, leasing, marketing and property management, development and construction management, real title services, and environmental services, and when the performance of a subject property meets defined performance metrics.

The co-investment business plans are property specific and therefore vary in expected duration but are generally expected to be between four and seven years;

but may be accelerated or extended depending upon market conditions or the strategic objectives of the subject joint venture.

Although the long-term impact of the COVID-19 pandemic on the commercial real estate market in the greater Washington, DC area remains uncertain, we believe that our Anchor Portfolio is well positioned to withstand potential negative impact of the COVID-19 pandemic.

We also believe that our management team is properly aligned with the interests of the Company and its shareholders and is committed to the Company’s objectives of providing exceptional experiences for those that we do business with while enhancing shareholder value.

Further, we believe that we are properly staffed for current market conditions and the foreseeable future and that our Company has the ability to manage risk and pursue opportunities for additional growth as market conditions warrant.

Our real estate development and management operations are primarily focused on the greater Washington, D.C.

region, where we believe our 30-plus years of experience provides us the best opportunity to continue leveraging our significant experience acquiring, developing, and managing high quality real estate assets and capitalizing on positive growth trends, while our environmental consulting and remediation management services business is well positioned to capitalize on opportunities to continue its recent growth throughout the entire U.S.

Mid-Atlantic region.

Managed Portfolio

Reston Station

Reston Station, located at the terminus of Phase I of Metro’s Silver Line, is strategically located midway between Tysons Corner and Dulles International Airport.

Reston Station is among the largest mixed-use, transit-oriented developments in the Washington, DC area and the Reston Station neighborhood spans the Dulles Toll Road and surrounds the first, and currently only, Metro rail station in the Dulles Corridor.

Covering a total of approximately 60 acres, assets included in Comstock’s managed portfolio cover approximately 37 of the 60-acre neighborhood and will, upon full build-out, include approximately five million square feet of mixed-used development.

Currently, Comstock’s managed portfolio of Reston Station has approximately 1.7 million square feet of mixed-use development completed, including 448 residential units, approximately 1.2 million square feet of office, approximately 40,000 square feet of retail and more than 6,000 parking spaces, including one of the largest underground commuter parking garages and bus transit facilities in the region.

The Company is providing a wide variety of its real estate and asset management services to the project pursuant to the 2019 AMA, including development and construction management services, leasing management services, property management services, capital markets services, and environmental services.

Loudoun Station

Loudoun Station, located at the terminus of Phase II of Metro’s Silver Line, is Loudoun County’s first Metro connected development and represents Loudoun County’s beginning transformation into a transit connected community with direct metro rail connectivity to Dulles International Airport, Reston, Tysons Corner, and downtown Washington, D.C.

Currently, Loudoun Station has approximately 1,000,000 square feet of mixed-use development completed, including 675 residential units, approximately 50,000 square feet of Class-A office space, approximately 150,000 thousand square feet of retail spaces including an 11-sceen AMC Cinema, and a 1,500-space Metro commuter parking garage.

The Metro Garage is the focus of a public-private partnership between an affiliate of the Company and Loudoun County, Virginia and is managed by a subsidiary of the Company.

Phase II of Metro’s Silver Line is under construction and expected to commence passenger service in late 2021 or early 2022.

The Company is providing a variety of its real estate and asset management services related to the existing buildings and the future development pursuant to the 2019 AMA, including development and construction management services, leasing management services, property management services, and capital markets services.

Herndon Station

Herndon Station will include up to approximately 340,000 square feet of residential, retail and entertainment spaces, including a performing arts center, and an approximately 700 space parking garage in the historic downtown portion of the Town of Herndon in western Fairfax County, Virginia.

The commercial Garage is the focus of a public private partnership between an affiliate of the Company and the Town of Herndon.

The development will also include improvements to existing connections to the adjacent WO&D trail, a popular pedestrian and bicycle route managed by Northern Virginia Regional Parks Authority and Fairfax County Parks Department.

The Company is providing a variety of asset management and development services related to the Herndon Station development pursuant to the 2019 AMA.

International Gateway

Since 2018 the Company has, pursuant to an asset management agreement with an unaffiliated property owner, provided asset management, property management, leasing management, and consulting services for a privately owned portfolio of two mixed-use retail/office buildings in Tysons Corner, Virginia, known as International Gateway.

The Hartford Building

In late 2019, the Company partnered with Comstock Partners, LC (“Partners”), an entity that is controlled by our CEO, and wholly owned by Mr.

Clemente and certain family members, to acquire a Class-A office building immediately adjacent to Clarendon Station on Metro’s Orange Line in Arlington County’s premier transit-oriented office market, the Rosslyn-Ballston Corridor.

Built in 2003, the 211,000 square foot mixed-use LEED GOLD building is approximately 78% leased to multiple high-quality tenants.

In February 2020, the Company arranged for DivcoWest to purchase a majority ownership stake in the Hartford Building and secured a $87 million loan facility from MetLife.

As part of the transaction, the Company entered into asset management and property management agreements to manage the property.

Results of Operations

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

Three months ended March 31, 2021 compared to the three months ended March 31, 2020

Revenue – asset management

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

Revenue from asset management for the three months ended March 31, 2021 and 2020 was $6.8 million and $5.4 million, respectively.

This represents an increase of $1.4 million, or 25.9%, 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.

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

$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.

Revenue increased primarily due to costs that are reimbursable from CDS under the 2019 AMA and recognized as revenue along with the growth in assets under management.

Revenue – real estate services

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 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 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.

Revenue from real estate services for the three months ended March 31, 2021 and 2020 was $1.48 million and $1.53 million, respectively.

The slight decrease in quarter over quarter revenues of $54 thousand or 4% was primarily attributable to non-recurring COVID-19 environmental remediation projects in the three months ended March 31, 2020.

Direct costs – asset management

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

Direct costs – asset management for the three months ended March 31, 2021 and 2020 was $6.1 million and $4.6 million, respectively.

This 31.2% increase amounts to a $1.45 million increase to direct costs - asset management was primarily attributable to an increase in personnel expenses due to the growth of our property management business.

Direct costs – real estate services

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.

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.

Direct costs – real estate services for the three months ended March 31, 2021 and 2020 was $1.1 million and $1.2 million, respectively.

For the three months ended March 31, 2021 direct costs - real estate services decreased $0.1 million or 10.6% primarily due to decreased personnel and subcontractor costs associated with non-recurring COVID-19 environmental remediation projects.

General and administrative

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.

General and administrative expenses for the three months ended March 31, 2021 and 2020 was $694 thousand and $727 thousand, respectively.

For the three months ended March 31, 2021, general and administrative costs decreased $33 thousand or 4.5% primarily attributable to a decrease in headcount within our Real Estate Services segment.

Selling and Marketing

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.

Selling & marketing expenses for the three months ended March 31, 2021 and 2020 was $158 thousand and $200 thousand, respectively.

The decrease is attributable to a slight decrease in selling and marketing expenses for our Environmental business unit.

Interest Expense

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 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.

This is primarily driven by the MTA effective April 30, 2019.

Prior to the MTA certain interest expense was capitalized to homebuilding projects and expensed when the projects were sold.

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

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.

For the three months ended March 31, 2021 and 2020, the Company’s interest expense was $58 thousand and $164 thousand, respectively.

The 64.6% reduction to interest expense quarter over quarter amounts to an $106 thousand decrease in interest expense primarily related to the retiring of the Comstock Growth Fund loan during the three months ended June 30, 2020.

For the three months ended March 31, 2021 and 2020, the Company recognized deferred income tax expense of $2 thousand and $1 thousand, respectively.

Liquidity and Capital Resources

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.

Pursuant to the MTA, the Company transferred to CDS management of its Class A membership interests in Investors X, the entity owning the Company’s residual homebuilding operations in exchange for residual cash flows.

The associated debt obligations were also transferred to CDS.

We finance our Asset Management and Real Estate Services operations, capital expenditures, and business acquisitions with internally generated funds, distributions from our equity method investments, and borrowings from our credit facilities.

See Note 6 in the accompanying consolidated financial statements for more details on our debt and credit facilities.

On March 19, 2020, the Company entered into a Revolving Capital Line of Credit Agreement (the “Loan Documents”) with CDS, pursuant to which the Company secured a $10.0 million capital line of credit (the “Revolver”).

Under the terms of the Loan Documents, the Revolver provides for an initial variable interest rate of the WSJ Prime Rate plus 1.00% per annum on advances made under the Revolver, payable monthly in arrears.

The five-year term facility allows for interim draws that carry a maturity date of 12 months from the initial date of the disbursement unless a longer initial term is agreed to by CDS.

On March 27, 2020 the Company borrowed $5.5 million under the Revolver.

The $5.5 million borrowing has a maturity date of April 30, 2023.

On April 10, 2020, the capital provided to the Company by the Revolver was utilized to retire all of the Company’s 10% corporate indebtedness maturing in 2020 owed to Comstock Growth Fund, L.C.

On April 20, 2020, the Company was granted the PPP Loan in the aggregate amount of $1.95 million pursuant to the PPP under the CARES Act, which was enacted March 27, 2020.

Under the terms of the PPP, PPP loans and accrued interest are forgivable after twenty-four weeks as long as the borrower uses the loan proceeds for eligible purposes, including payroll, benefits, rent and utilities, and maintains its payroll levels.

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

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 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.

However, to the extent that any amount is deemed unforgivable, such amount is payable over 2 to 5 years at an interest rate of 1%, with a deferral of payments for the first 6 months.

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.

For the three months ended March 31, 2021, net cash used in operating activities was $1.9 million, primarily related to the increase in related party receivables and the payment of accrued personnel costs.

Fo r the three months ended March 31, 2020, net cash used in operating activities was $1.9 million, primarily related to payment of accrued personnel costs and accounts payable.

Net cash provided by investing activities of $1.7 million and $135 thousand for the three months ended March 31, 2021 and 2020, respectively was primarily related to distributions from equity method investments.

Net cash used in financing activities for the three months ended March 31, 2021 was $104 thousand which was primarily related to taxes paid related to net share settlement of equity awards net of proceeds from notes payable.

Net cash provided by financing activities was $5.4 million for the three months ended March 31, 2020 which was primarily related to proceeds from the Revolver of $5.5 million.

Critical Accounting Policies and Estimates

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.

There have been no other significant changes to our critical accounting policies and estimates during the three months ended March 31, 2021 from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2020.

Recently Issued Accounting Standards

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Item 2. Management’s Discussion and Analysis