What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-11-15 compared with 2021-08-16 · 40 added, 38 removed, 99 unchanged (44% of the section changed)

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adverse weather conditions and natural disasters;

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

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

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

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The Company also provides additional fee-based real estate services, including capital markets, brokerage, and title insurance to properties in the Company’s managed portfolio.

As of June 30, 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.

As of September 30, 2021, our AUM consisted of 28 operating assets comprising 13 commercial assets totaling approximately 1.9 million square feet and 4 multifamily assets totaling 1,123 units, and 11 commercial garages comprised of over 10,000 parking spaces.

Additionally, we have:

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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.

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.

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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.

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

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The following discussion relates to our results from continuing operations.

Three and six months ended June 30, 2021 compared to the three and six months ended June 30, 2020

Revenue for the three months ended June 30, 2021 and 2020 was $6.3 million and $4.5 million, respectively.

Three and nine months ended September 30, 2021 compared to the three and nine months ended September 30, 2020

Revenue for the three months ended September 30, 2021 and 2020 was $10.2 million and $5.9 million, respectively.

This represents an increase of $4.3 million, or 72.5%, compared to prior year.

Revenue for the six months ended June 30, 2021 and 2020 was $13.2 million and $9.9 million, respectively.

Revenue for the nine months ended September 30, 2021 and 2020 was $23.3 million and $15.8 million, respectively.

This represents an increase of $7.5 million, or 47.4%, compared to prior year.

Revenue increased in all periods primarily due to increased costs that are reimbursable from CDS under the 2019 AMA and recognized as revenue along with the growth in assets under management, which were primarily parking garages, and

construction management fees.

The prior period revenue was also reduced by $1.4 million due to the PPP loan under the CARES Act.

Direct costs for the three months ended June 30, 2021 and 2020 was $5.5 million and $3.2 million, respectively.

This 71.3% increase amounts to a $2.3 million increase to direct costs and is primarily attributable to an increase in personnel expenses due to the growth of our property management and asset management businesses.

The prior period payroll and rent expense was also reduced by $1.9 million due to the PPP loan under the CARES Act.

Direct costs for the six months ended June 30, 2021 and 2020 was $11.6 million and $7.8 million, respectively.

Revenue increased in all periods primarily due to $2.6 million of capital markets fees earned in the third quarter of 2021 along with increased costs that are reimbursable from CDS under the 2019 AMA and recognized as revenue along with the growth in the number of managed commercial properties and parking facilities.

The prior year to date revenue was also reduced by $1.4 million due to the PPP Loan.

Direct costs for the three months ended September 30, 2021 and 2020 was $6.7 million and $5.1 million, respectively.

This 32.2% increase amounts to a $1.6 million increase to direct costs and is primarily attributable to co-broker fees incurred in connection with the capital markets transaction that closed in the third quarter of 2021 as well as an increase in rent expense for the Company's new headquarters and personnel expenses due to the growth of our property management and asset management businesses.

Direct costs for the nine months ended September 30, 2021 and 2020 was $18.3 million and $12.9 million, respectively.

This 41.5% increase amounts to a $5.4 million increase to direct costs.

This is primarily attributable to an increase in personnel expenses due to the growth of our property management and asset management businesses.

The prior period payroll and rent expense was also reduced by $1.9 million due to the PPP loan under the CARES Act.

This is primarily attributable to co-broker fees incurred in connection with the capital markets transaction that closed during the third quarter of 2021 as well as an increase in rent expense for the Company's new headquarters and personnel expenses due to the growth of our property management and asset management businesses.

The prior period payroll and rent expense was also reduced by $1.9 million due to the PPP Loan.

General and administrative

General and administrative expenses for the three months ended June 30, 2021 and 2020 was $322 thousand and $390 thousand, respectively.

For the six months ended June 30, 2021 and 2020, general and administrative costs decreased $76 thousand or 10.7%.

The reductions in both periods are primarily attributable to a decrease in stock compensation expense.

General and administrative expenses for the three months ended September 30, 2021 and 2020 was $329 thousand and $323 thousand, respectively.

For the nine months ended September 30, 2021 and 2020, general and administrative costs decreased $69 thousand or 6.7% primarily attributable to a decrease in stock compensation expense.

Selling and marketing

Selling & marketing expenses for the three months ended June 30, 2021 and 2020 was $8 thousand and $1 thousand, respectively.

The expenses for the six months ended June 30, 2021 and 2020 was $18 thousand and $1 thousand, respectively.

The increase is attributable to an increase in selling and marketing expenses in the property management business.

Selling & marketing expenses for the three months ended September 30, 2021 and 2020 was $3 thousand and $0, respectively.

The expenses for the nine months ended September 30, 2021 and 2020 was $21 thousand and $1 thousand, respectively.

The increase is attributable to an increase in selling and marketing expenses as the Company invests in further expansion of its property management business.

Interest expense

For the three months ended June 30, 2021 and 2020, the Company’s interest expense was $58 thousand and $77 thousand, respectively.

The 24.6% reduction to interest expense quarter over quarter amounts to an $19 thousand decrease in interest expense primarily related to the remaining interest expense on the Comstock Growth Fund loan which was retired in the prior year.

For the six months ended June 30, 2021 and 2020, the Company’s interest expense was $116 thousand and $226 thousand, respectively.

The 48.6% reduction to interest expense quarter over quarter amounts to an $110 thousand decrease in interest expense primarily related to the retiring of the Comstock Growth Fund loan during the three months ended March 30, 2020.

For the three months ended June 30, 2021 and 2020, the Company recognized a deferred income tax benefit of $11.3 million and income tax expense of $13 thousand, respectively.

For the six months ended June 30, 2021 and 2020, the Company recognized a deferred income tax benefit of $11.3 million and income tax expense of $14 thousand, respectively.

The significant decrease in income tax expense is due to the release of the valuation allowance against the Company's NOL carryforwards at June 30, 2021.

For the three months ended September 30, 2021 and 2020, the Company’s interest expense was approximately equivalent.

For the nine months ended September 30, 2021 and 2020, the Company’s interest expense was $176 thousand and $286 thousand, respectively.

The 38.5% reduction to interest expense amounts to an $110 thousand decrease in interest expense as a result of the repayment of the Comstock Growth Fund loan during the three months ended March 30, 2020.

For the nine months ended September 30, 2021, the Company recognized an income tax benefit of $11.3 million.

The income tax benefit resulted from applying an estimated annual effective tax benefit rate of 0.85% to pre-tax consolidated loss reported during the period, as well as the net effects of certain discrete items occurring which impact our income tax provision in the period in which they occur primarily related to the release of $11.3 million valuation allowance in the second quarter of 2021.

There were no other material discrete items occurring during the nine months ended September 30, 2021.

For the three months ended September 30, 2021, the Company recognized an income tax expense of $25 thousand.

The income tax expense resulted from applying an estimated annual worldwide effective tax benefit rate of 0.80% to pre-tax consolidated loss reported during the period, as well as the net effects of certain discrete items occurring which impact our income tax provision in the period in which they occur.

There were no material discrete items occurring during the three months ended September 30, 2021.

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

The effective tax rate for the three and nine months ended September 30, 2020 is 0% and -0.11%, respectively.

Income (loss) from discontinued operations

For the three and six months ended June 30, 2021, the loss from discontinued operations of $443 thousand and $587 thousand, respectively, represents the loss generated by CES primarily due to the impairment loss recognized on the reclassification to held for sale.

The income from discontinued operations of $382 thousand and $89 thousand for the three and six months ended June 30, 2020, respectively, represents the income generated by CES primarily due to the reduction of payroll expense as a result of the PPP Loan.

For the three and nine months ended September 30, 2021, the loss from discontinued operations of $137 thousand and $724 thousand, respectively, represents the loss generated by CES primarily due to the impairment loss recognized on the reclassification to held for sale.

The income from discontinued operations of $23 thousand and $112 thousand for the three and nine months ended September 30, 2021, respectively, represents the income generated by CES primarily due to the reduction of payroll expense as a result of the PPP Loan.

Liquidity and Capital Resources

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Cash Flow from Continuing Operations

For the six months ended June 30, 2021, net cash provided by operating activities was $822 thousand, which is primarily related to increases in non-cash expenses of the amortization of the right-of-use lease asset and stock compensation.

The increase was further attributable to a decrease in related party receivables offset by an increase in deferred income taxes related to the release of the valuation allowance as well as payments of accrued personnel costs.

Fo r the six months ended June 30, 2020, net provided by operating activities was $628 thousand, primarily related to non-cash stock compensation and increases in trade receivables offset by a decrease in personnel costs.

Net cash provided by investing activities of $2.5 million and $674 thousand for the six months ended June 30, 2021 and 2020, respectively, was primarily related to distributions from equity method investments.

Net cash used in financing activities for the six months ended June 30, 2021 was $168 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 $246 thousand for the six months ended June 30, 2020 which was primarily related to proceeds from the Revolver of $5.5 million offset by the retirement of the Comstock Growth Fund loan.

For the nine months ended September 30, 2021, net cash provided by operating activities was $3.1 million, which is primarily related to fees earned in the quarter for the capital markets transaction offset by an increase in related party receivables.

Fo r the nine months ended September 30, 2020, net provided by operating activities was $1.8 million, primarily related to non-cash stock compensation and increases in trade receivables offset by a decrease in personnel costs.

Net cash used in investing activities of $0.6 million for the nine months ended September 30, 2021 is primarily due to deposits paid for the Company's multifamily acquisition in Rockville, Maryland offset by distributions from Investors X.

Net cash provided by investing activities of $1.2 million for the nine months ended September 30, 2020 was primarily related to distributions from equity method investments.

Net cash used in financing activities for the nine months ended September 30, 2021 was $215 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 $269 thousand for the nine months ended September 30, 2020 which was primarily related to proceeds from the Revolver of $5.5 million offset by the repayment of the Comstock Growth Fund loan.

Critical Accounting Policies and Estimates

There have been no other significant changes to our critical accounting policies and estimates during the six months ended June 30, 2021 from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2020.

There have been no other significant changes to our critical accounting policies and estimates during the nine months ended September 30, 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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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