What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-03-21 compared with 2024-03-21 · 61 added, 81 removed, 163 unchanged (47% of the section changed)

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We primarily operate under long-term asset management and property management agreements that provide recurring fee-based revenue streams.

Our asset management services platform is anchored by a long-term, full-service asset management agreement with an affiliate that includes a cost-plus fee structure and covers all of the properties in our Anchor Portfolio (the "2022 AMA" - see below for additional details).

• Our asset management services platform is anchored by a long-term, full-service asset management agreement with Comstock Partners, LC ("CP"), an affiliate entity controlled by our Chief Executive Officer Christopher Clemente, which includes a cost-plus fee structure and covers all of the properties in our Anchor Portfolio (the "2022 AMA" - See Note 13 in the Notes to Consolidated Financial Statements for additional information).

We have entered into separate asset management agreements for non-Anchor Portfolio assets.

We provide asset management services for market-rate fees to all the commercial and residential assets in our managed portfolio, as well as to certain assets managed by ParkX (see below).

• As a vertically integrated real estate services company, we perform all property management services through three wholly owned subsidiaries:

CHCI Commercial, CHCI Residential, and ParkX Management ("ParkX").

All properties included in our managed portfolio have entered into property management agreements with our operational subsidiaries that provide for market-rate fees related to our services.

All properties in our managed portfolio have entered into property management agreements that provide for market-rate fees related to our services.

Our asset-light, debt-free business model allows us to substantially mitigate risks that are typically associated with real estate development and operation.

The fee-based approach we have adopted helps drive consistent, predictable top-line growth and provides us with a streamlined balance sheet that grants us maximum flexibility to explore potential growth opportunities outside of our core business operations.

We distinguish ourselves from industry peers through an established standard of excellence that extends from who we hire to how we deliver our broad suite of real estate services.

We are able maintain this high standard because We Show Up - every day, in person, in a collaborative environment that is structured to deliver on our mission to make a difference for our customers, our stakeholders, and in the communities that we serve.

The fee-based approach we have adopted helps drive consistent top-line growth that, along with our streamlined balance sheet, provides maximum flexibility to explore growth opportunities outside of our core business operations.

We have directly aligned the equity ownership of our Company with the ownership interests of the affiliated assets that we manage in our Anchor Portfolio.

This relationship, along with the baseline cost-plus feature and supplemental performance-based revenue opportunities provided by the 2022 AMA, provides us with a stable business platform on which we can (i) produce consistent, positive financial results, (ii) mature and expand our real estate service offerings, (iii) diversify and grow our managed portfolio of assets, both organically and through additional third-party relationships, (iv) pursue strategic investments and complimentary acquisitions, and (v) deliver exceptional value to our shareholders.

We distinguish ourselves from industry peers through an established standard of excellence that extends from who we hire to how we deliver our comprehensive suite of real estate services.

We are able to maintain this high standard because We Show Up - every day, in person, in a collaborative environment that is structured to deliver on our mission to make a difference for our customers, our stakeholders, and in the communities that we serve.

Managed Portfolio

The following table summarizes the operating assets that are included in our managed portfolio:

The focus of our managed portfolio revolves primarily around high quality, mixed-use real estate properties and developments that are strategically located adjacent to Metro rail stations, providing convenient access to public transportation.

Our Anchor Portfolio (see below for details) includes, or will soon include, millions of square feet of Trophy and Class A office towers, luxury multi-family residential buildings, luxury hotels with branded condominium residences, high-end retail and entertainment options, associated public spaces, and commercial parking garages to serve all the properties.

In 2024, Anchor portfolio assets generated a well over $100.0 million of gross revenue for the property owners.

The following table summarizes the operating assets that are included in our managed portfolio as of December 31, 2024:

Type # of Assets Size/Scale % Leased

Commercial 13 2.0 million sqft.

Commercial (1)

14 2.3 million sqft.

Residential 6 1.8 million sqft.

/ ~1,700 units 96%

18,000+ spaces

1 Total includes 13 commercial parking garages owned by unaffiliated parties and managed by ParkX.

ParkX - Garages 32 22,000+ spaces

ParkX - Security & Other (2)

20 ~2,500 hrs/week

Commercial % leased includes Q1 2024 delivery of a new office tower located in The Row at Reston Station.

Excluding that impact, the % leased for stabilized assets is 93%.

# of assets total excludes 12 properties where both parking & other services are provided to avoid double-counting.

In addition, we manage the following assets that are under construction and scheduled for delivery in the next 12 to 24 months:

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Loudoun Station Operating +

In Development Loudoun County’s first fully integrated mixed-use, transit-oriented development located at the terminus station, Metro's Ashburn Station on the Silver Line in Ashburn, Va (Loudoun County, Va.)

Herndon Station In Development Located in the Historic Downtown District of the Town of Herndon, Va., this planned mixed-use development is subject of a public-private partnership with the Town of Herndon

In Development Loudoun County’s first and only mixed-use, Metro-connected development that is located adjacent to Ashburn Station at the terminus of Metro's Silver Line in Ashburn, Va (Loudoun County, Va.)

Other Portfolio Assets

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provides an excellent opportunity for significant value enhancement through by-right entitlements for approximately 117 residential units

Investors X Operating Investment in Comstock Investors X, LC that owns legacy homebuilding assets that are currently being monetized through market-rate sales expected to be completed in 2024

Parking Operating Commercial parking garages & spaces managed by ParkX Management, LC located at affiliated properties and third-party locations

Investors X Operating Investment in Comstock Investors X, LC that owns legacy homebuilding assets that were monetized through market-rate sales that were completed in March 2024

ParkX Operating Commercial parking garages & spaces managed by ParkX Management that are located at/around affiliated managed properties as well as a growing number of third-party locations

Comstock 41 - Additional Information

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In conjunction with the acquisition, we entered into a contingent fee agreement with BLVD 44 should these pursuits prove successful (See Note 13 in the Notes to Consolidated Financial Statements for additional information).

We intend to maintain a limited financial role in any future development activities that may occur at this site and plan to only offer fee-based development and asset management services to any affiliate or suitable third-party financial sponsor of any potential future developments.

Significant Developments

CES Divestiture

On March 31, 2022, we completed the sale of Comstock Environmental Services, LLC ("CES"), a wholly owned subsidiary, to August Mack Environmental, Inc.

("August Mack").

This strategic divestiture was based on the continued growth and future prospects of our asset management business.

Accordingly, we have reflected CES as a discontinued operation in our consolidated financial statements for all periods presented, and unless otherwise noted, all amounts and disclosures relate solely to our continuing operations.

(See Note 3 in the Notes to Consolidated Financial Statements for additional information).

Series C Preferred Stock Redemption and 2022 Asset Management Agreement

On June 13, 2022, we completed two separate significant transactions to further deleverage our balance sheet and enhance our long-term revenue outlook and growth potential.

The first one with CP Real Estate Services, LC (“CPRES”), an entity owned by Christopher Clemente, Comstock’s Chief Executive Officer, redeemed all outstanding Series C preferred stock at a significant discount to carrying value.

Secondly, we executed a new asset management agreement with Comstock Partners, LC ("CP"), an entity controlled by Mr.

Clemente and wholly owned by Mr.

Clemente and certain family members, which covers our Anchor Portfolio of assets (the "2022 AMA").

The 2022 AMA increased the base fees we collect, expanded the services that qualify for additional supplemental fees, extended the term through 2035, and most notably introduced a mark-to-market incentive fee based on the imputed profit of Anchor Portfolio assets, generally as each is stabilized and as further specified in the agreement.

(See Notes 10 and 14 in the Notes to Consolidated Financial Statements for additional information).

In November 2024, we entered into a definitive purchase agreement for Comstock 41 with SCG Development Holdings, LLC ("SCG") that is contingent upon the successful rezoning of the property to allow for the development of an affordable housing project at the site.

Upon closing, we will enter into an operating agreement and a development agreement with SCG, under which we will provide construction management services for the affordable housing project that will be fully financed by SCG.

We will also be entitled to provide property management services once the development is ready for occupancy.

Our management team is committed to executing our goal to provide exceptional experiences to those we do business with while maximizing shareholder value.

We believe that we are properly staffed for current and foreseeable market conditions and will maintain the ability to manage risk and pursue additional growth as opportunities arise.

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

area, where we believe our decades of experience provides us with the best opportunity to continue developing, managing, and investing in high-quality real estate assets and capitalizing on positive growth trends.

Our growth will continue to be fueled by our Anchor Portfolio, which will continue to generate revenue as development and construction efforts are completed for all the planned Anchor Portfolio assets, allowing us to then lease, stabilize, and arrange permanent financing for each property.

Importantly, the long-term asset management agreements covering the properties included in the Anchor Portfolio, when combined with our asset-light and debt-free business model, provide us with visibility to future revenue and earnings growth while mitigating the risk for potential losses.

We aspire to be among the most admired real estate asset managers, operators, and developers by creating extraordinary places, providing exceptional experiences, and generating excellent results for all stakeholders.

Our commitment to this mission drives our ability to expand our managed portfolio of assets, grow revenue, and deliver value to our shareholders.

Our real estate development and asset management operations are primarily located in the greater Washington, D.C.

We plan to pursue further expansion of our wholly owned property management subsidiaries to increase recurring, fee-based revenue streams as we continue to develop additional relationships with new customers that require the expert real estate asset management, development management, construction management and other services that we routinely provide.

We believe that we are properly staffed for current market conditions and feel that we will maintain the ability to manage risk and pursue additional growth across each of our operational subsidiaries.

Given current market conditions, we feel more opportunities to acquire distressed properties at below market prices may arise.

We remain well-positioned to capitalize on such opportunities due to our asset-light, debt-free business model that has strengthened our balance sheet and provided us with the flexibility to pursue unique growth opportunities across all facets of our vertically integrated operating platform.

COVID-19 Update

On May 11, 2023, the U.S.

Department of Health and Human Services declared an end to the public health emergency for COVID-19.

While we never experienced any significant impacts on our business resulting from COVID-19, future regional or global health emergencies may have a negative impact on our results of operations and financial condition.

Although the long-term impact of the COVID-19 pandemic on the greater Washington, D.C.

area real estate market remains uncertain, we believe that our Anchor Portfolio is well positioned to withstand any future potential negative impacts.

Results of Operations

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Other income (expense):

Interest income (expense), net 96 (222)

Interest income 672 96

Gain (loss) on real estate ventures (297) (1,187)

Other income (expense), net 63 79

Income (loss) from continuing operations before income tax 8,152 7,853

Income (loss) from operations before income tax 10,725 8,152

Provision for (benefit from) income tax (3,835) 368

Net income (loss) from continuing operations 7,784 7,728

Net income (loss) from discontinued operations, net of tax — (381)

Net income (loss) $ 14,560 $ 7,784

Impact of Series C preferred stock redemption — 2,046

Net income (loss) attributable to common stockholders $ 7,784 $ 9,393

Comparison of the Years Ended December 31, 2024 and 2023

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Revenue increased 14.7% in 2024.

The $5.4 million comparative increase was primarily driven by the continued expansion of our managed portfolio, which included 8 additional assets in 2023.

Recurring asset management and property management fee-based revenue increased by a combined $3.0 million, or 12.6%, and reimbursable staffing charges increased $2.1 million, or 25.3%.

Incentive fee revenue also increased 22.7% to $4.8 million, however that increase was offset by a $0.8 million decrease in supplemental leasing, acquisition, and development fee revenue due to higher transactional volume in 2022.

The $6.6 million comparative increase was primarily driven by a $4.8 million, or 101.4%, increase in recurring, fee-based revenue from our property and parking management services due to the continued expansion of our managed portfolio.

Also contributing to the increase was $3.1 million of additional supplemental fees stemming from leasing activity and refinancing fees, as well as a $1.8 million increase in fee-based asset management services.

Partially offsetting these increases was a $3.3 million decrease in incentive fees earned.

A previously scheduled October 1, 2024 incentive fee trigger event for seven specified managed portfolio assets was deferred.

(See Note 13 in the Notes to Consolidated Financial Statements for additional information).

Operating costs and expenses

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Operating costs and expenses increased 15.3% in 2024.

The $4.2 million comparative increase was primarily due to a $2.6 million increase in personnel expenses from increased headcount and employee compensation.

Also driving the variance were a $0.4 million increase in rent expense stemming from the corporate headquarters lease expansion that was executed in 2022, a $0.3 million increase in regulatory and compliance costs, and a $0.2 million increase in IT expenditures.

The $5.5 million comparative increase was primarily due to a $3.6 million increase in personnel expenses from increased headcount and employee compensation and a net $1.9 million increase in reimbursable/billable expenses.

Other income (expense)

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2024 2023 $ %

Interest income (expense), net $ 96 $ (222) $ 318 (143.2) %

Gain (loss) on real estate ventures (1,187) 121 (1,308) N/M

Other income (expense), net 79 2 77 N/M

Total other income (expense) $ (1,012) $ (99) $ (913) N/M

Other income (expense) changed by $(0.9) million in 2023, primarily driven by primarily driven by a $1.3 million net decrease in mark-to-market valuations of equity method investments in real estate ventures, primarily due to the increased interest rate environment.

The decrease was partially offset by a $0.3 million increase in interest income (expense) that stemmed from interest earned on money market sweep accounts in 2023 and the full pay down of our outstanding debt in 2022.

Provision for income tax was $0.4 million in 2023, compared to 0.1 million in 2022.

The $0.3 million increase was primarily due to higher pre-tax book income given that valuation allowance releases and the net total of book-to-tax adjustments were comparatively flat.

Interest income $ 672 $ 96 $ 576 600.0 %

Gain (loss) on real estate ventures (297) (1,187) 890 (75.0) %

Other income (expense), net 63 79 (16) (20.3) %

Total other income (expense) $ 438 $ (1,012) $ 1,450 (143.3) %

Other income (expense) changed by $1.5 million in 2024, primarily driven by primarily driven by a combined $0.9 million improvement in mark-to-market valuation impacts of equity method investments in real estate ventures and a $0.6 million increase in interest income stemming from interest earned on money market sweep accounts that were not active for all of 2023.

We recorded a $3.8 million income tax benefit in 2024, compared to a provision for income tax of $0.4 million in 2023.

The $4.2 million net change was primarily driven by a $6.5 million valuation allowance release in the current period, partially offset by the impact of higher taxable income from operations.

As of December 31, 2024, we had $111.1 million of net operating loss (“NOL") carryforwards.

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While we believe that Adjusted EBITDA is useful to investors when evaluating our business, it is not prepared and presented in accordance with GAAP, and therefore should be considered supplemental in nature.

Adjusted EBITDA should not be considered

in isolation, or as a substitute for other financial performance measures presented in accordance with GAAP.

Adjusted EBITDA should not be considered in isolation, or as a substitute for other financial performance measures presented in accordance with GAAP.

Adjusted EBITDA may differ from similarly titled measures presented by other companies.

The following table presents a reconciliation of net income (loss) from continuing operations, the most directly comparable financial measure as measured in accordance with GAAP, to Adjusted EBITDA (in thousands):

The following table presents a reconciliation of net income (loss), the most directly comparable financial measure as measured in accordance with GAAP, to Adjusted EBITDA (in thousands):

Year Ended December 31,

Net income (loss) from continuing operations $ 7,784 $ 7,728

Interest (income) expense, net (96) 222

Net income (loss) $ 14,560 $ 7,784

Interest income (672) (96)

Income taxes (3,835) 368

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Adjusted EBITDA $ 11,597 $ 10,423

The increases in Adjusted EBITDA for the year ended December 31, 2024 were primarily driven by significant increases in recurring fee-based property and parking management revenue and supplemental asset management fee revenue.

Seasonality and Quarterly Fluctuations

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Our principal sources of liquidity as of December 31, 2024, were our cash and cash equivalents of $28.8 million and our $10.0 million of available borrowings on our Credit Facility.

(See Note 6 in the Notes to Consolidated Financial Statements for additional information).

Significant factors which could affect future liquidity include the adequacy of available lines of credit, cash flows generated from operating activities, working capital management and investments.

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Our primary sources of working capital are cash from operations and distributions from investments in real estate ventures.

We have historically financed our operations with internally generated funds and borrowings from our credit facilities.

(See Note 7 in the Notes to Consolidated Financial Statements for additional information).

We believe we currently have adequate liquidity and availability of capital to fund our present operations and meet our commitments on our existing debt.

We have historically financed our operations with internally generated funds and, more rarely and only when necessary, borrowings from our Credit Facility.

We believe we currently have adequate liquidity and availability of capital to fund our present operations.

The following table summarizes our cash flows for the periods indicated (in thousands):

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2024 2023 Change

Continuing operations

Net cash provided by (used in) operating activities $ 10,675 $ 9,003 $ 1,672

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Net cash provided by (used in) financing activities (352) (390) 38

Total net increase (decrease) in cash - continuing operations 7,066 (3,770) 10,836

Discontinued operations, net — (331) 331

Net increase (decrease) in cash and cash equivalents $ 9,973 $ 7,066 $ 2,907

Operating Activities

The $0.6 million variance in net operating cash activity was primarily driven by a $1.9 million increase in net income from continuing operations after adjustments for non-cash items, partially offset by a $1.3 million incremental cash outflow stemming from changes to our net working capital that was primarily due to decreased accrued personnel costs.

The $1.7 million variance in net operating cash activity was primarily driven by a $1.7 million increase in net income from continuing operations after adjustments for non-cash items.

The comparative net changes to our net working capital balances were immaterial.

Investing Activities

The $0.6 million variance net investing cash activity was primarily driven by a $1.1 million decrease in investments in real estate ventures and a $0.4 million decrease in fixed asset purchases, partially offset by $1.0 million in proceeds received from the CES divestiture that was finalized in the first quarter of fiscal year 2022.

The $1.2 million variance in net investing cash activity was primarily driven by a $1.4 million decrease in investments in real estate ventures, partially offset by a $0.4 million increase in purchases of securities to fund non-qualified deferred compensation plan liabilities.

Financing Activities

The $9.7 million variance in net financing cash activity was primarily driven by a $4.0 million cash payment made in 2022 related to the early redemption of Series C Preferred Stock and a $5.5 million payment made in 2022 to satisfy the outstanding balance of our credit facility.

Off-Balance Sheet Arrangements

From time to time, we may have off-balance-sheet unconsolidated investments in real estate ventures and other unconsolidated arrangements with varying structures.

(See Note 5 in the Notes to Consolidated Financial Statements for additional information).

The immaterial variance in net financing cash activity was primarily driven by $0.2 million of proceeds in conjunction with the issuance of common stock related to equity awards, which was almost entirely offset by a $0.2 million increase in cash paid for taxes related to the net share settlement of equity awards.

Critical Accounting Policies and Estimates

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Revenue - Incentive Fees

Pursuant to the 2022 AMA, we are entitled to earn incentive compensation fees revenue ("Incentive Fees") on certain managed real estate assets if defined triggering events, which are differentiated based on the classification of the assets, are achieved.

(See Note 13 for additional information).

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For the years ended December 31, 2024 and 2023, we recognized revenue from Incentive Fees of $1.5 million and $4.8 million, respectively.

These operating asset triggering events are part of a series of annual operating asset triggering events that began on October 1, 2022, and are scheduled each October 1 through 2024.

Subsequent to these scheduled triggering events, and in accordance with terms pursuant to the 2022 AMA, incentive fees may be recognized on assets currently under development upon the achievement of future triggering events tied to various metrics that indicate stabilization, such as occupancy and leasing rates.

(See Note 14 in the Notes to Consolidated Financial Statements for additional information).

Income taxes are accounted for under the asset and liability method.

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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-K

Item 7. Management’s Discussion and Analysis