Comstock Holding Companies, Inc. 10-K

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis should be read in conjunction with our consolidated financial statements, the related notes thereto, and other financial information appearing elsewhere in this Annual Report on Form 10-K. Unless otherwise indicated, references to “2025” and “2024” are referring to the twelve-month period ended December 31 for each of those respective fiscal years. The following discussion may contain forward-looking statements that reflect our plans and expectations. Our actual results could differ materially from those anticipated by these forward-looking statements. We do not undertake, and specifically disclaim, any obligation to update any forward-looking statements to reflect the occurrence of events or circumstances after the date of such statements except as required by law. Overview We are a leading asset manager, developer, and operator of mixed-use and transit-oriented properties in the Washington, D.C. region. We have become one of the area’s premier real estate services companies by creating extraordinary places, delivering exceptional experiences, and generating excellent results for all stakeholders. We provide a comprehensive suite of real estate services to our asset-owning clients, including asset management, property management, development and construction management, and more. Our client base is composed primarily of institutional real estate investors, high net worth family offices, financial institutions, and governmental bodies seeking to develop real estate they own through public-private partnerships. We employ a talented staff of real estate professionals that are led by our seasoned management team and are tasked with delivering high-quality services to the premium, strategically located assets in our managed portfolio. 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 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 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 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. 12 Table of Contents 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 2025, Anchor portfolio assets generated over $120.0 million of gross revenue for the property owners. The following table summarizes the operating assets, categorized by asset type, that were included in our managed portfolio as of December 31, 2025: Type # of Assets Size/Scale % Leased Commercial (1) 15 2.6 million sqft. 87% Residential (2) 7 2.0 million sqft. / 1,700+ units 93% Hospitality (3) 1 290,000+ sqft. / 248 keys ParkX - Garages (4) 34 ~26,000 spaces ParkX - Security & Other (5) 35 ~8,000 hrs/week Total 92 (1) Commercial % leased includes 2024 delivery of a new Trophy-class office tower located in The Row at Reston Station that is not yet stabilized. The % leased for stabilized commercial assets is 93%. (2) Includes JW Marriott Residences - Reston Station, luxury condominiums that were delivered in September 2025 for which we are providing property management services. (3) JW Marriott Reston Station, Virginia's only and first-ever JW Marriott Hotel, delivered in September 2025. (4) # of Assets includes 17 garages owned by unaffiliated third-party asset-owners (5) Includes parking/janitorial; # of assets excludes 41 properties already counted in the categories above to avoid double-counting, therefore total # of assets where Security & Other services are provided is 76; hours/week statistic represents estimated total amount billed across all managed properties. In addition, we manage the following assets that are under construction and scheduled for delivery in the next 6 to 12 months: • 1 commercial asset that represents approximately 6,000 square feet; and • 1 residential asset with 419 units representing approximately 430,000 square feet. Our development pipeline currently includes 5 commercial assets that represent approximately 1.5 million square feet, 5 residential assets with more than 2,300 units that represent approximately 2.5 million square feet, and 1 dual-use hotel with 240 keys that represents approximately 220,000 square feet. At full build out, our managed portfolio of assets is currently projected to total 105 assets representing approximately 10 million square feet. The following tables provide further details on the operating assets included in our managed portfolio: Anchor Portfolio Name Status Description Reston Station Operating + Under Construction + In Development Among the largest mixed-use, transit-oriented developments in the Washington, D.C. region, covering nearly 90 acres spanning the Dulles Toll Road and surrounding the Wiehle Reston-East Metro Station and strategically located mid-way between Tysons, Va. and Dulles International Airport on Metro's Silver Line (Fairfax County, Va.). Nearing completion of Phase II of five planned development phases. Includes Trophy-class office towers, luxury residential buildings and JW Marriott-brand luxury condominiums, premier retail offerings, and Virginia's first and only JW Marriott Hotel. Loudoun Station Operating + 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. Includes premier office and residential buildings as well as a diverse array of retail and entertainment options. 13 Table of Contents Other Portfolio Assets Name Status Description The Hartford Operating Acquired in 2019, this 211,000 square foot mixed-use building is located adjacent to the Clarendon Station on Metro's Orange Line and is the subject of a joint venture with DivcoWest and Comstock Partners, LC. The premier office tower in the Ballston Corridor submarket of Arlington County, Va. BLVD Forty Four Operating Acquired in 2021, this 15-story, mixed-use 250-unit, luxury high-rise apartment tower is located adjacent to BLVD Ansel and just 1 block from the Rockville Station on Metro’s Red Line in Rockville, Md (Montgomery County) and is the subject of a joint venture with Comstock Partners, LC. The two-building complex is the premier residential offering in Rockville Town Center. BLVD Ansel Operating Acquired in 2022, this 18-story, mixed-use 250-unit, luxury high-rise apartment tower is located adjacent to BLVD Forty Four and just 1 block from the Rockville Station on Metro’s Red Line in Rockville, Md (Montgomery County) and is the subject of a joint venture with Comstock Partners, LC. The two-building complex is the premier residential offering in Rockville Town Center. Comstock 41 Operating Acquired in 2023, this 18,150 square foot parcel located at 41 Maryland Ave. in Rockville, Md. and is adjacent to BLVD Forty Four; currently a surface parking lot operated by ParkX Management, LC; 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 were monetized through market-rate sales that were completed in March 2024 ParkX Operating Parking garages & buildings/public spaces for which ParkX Management provides supplemental property management services that include parking management, security, porter/janitorial, and more. Comstock 41 - 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 given the opportunity to provide property management services upon delivery. In December 2025, we received legislative approval from the City of Rockville for the affordable housing development and the relocation of certain moderately-priced dwelling units (MPDUs) from BLVD Forty Four to Comstock 41. The rezoning approval triggered an entitlement success fee based on a contingent fee agreement with BLVD Forty Four that was recognized as revenue for the year ended December 31, 2025. (See Note 13 in the Notes to Consolidated Financial Statements for additional information). Outlook 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. 14 Table of Contents Results of Operations The following tables set forth consolidated statement of operations data for the periods presented (in thousands): Year Ended December 31, 2025 2024 Revenue $ 62,861 $ 51,294 Operating costs and expenses: Cost of revenue 48,080 38,630 Selling, general, and administrative 2,545 2,075 Depreciation and amortization 306 302 Total operating costs and expenses 50,931 41,007 Income (loss) from operations 11,930 10,287 Other income (expense): Interest income 807 672 Gain (loss) on real estate ventures (1) (297) Other income (expense), net 141 63 Income (loss) from operations before income tax 12,877 10,725 Provision for (benefit from) income tax (4,174) (3,835) Net income (loss) $ 17,051 $ 14,560 Comparison of the Years Ended December 31, 2025 and 2024 Revenue The following table summarizes revenue by line of business (in thousands): Year Ended December 31, 2025 2024 Change Amount % Amount % $ % Asset management $ 36,620 58.3 % $ 31,497 61.4 % $ 5,123 16.3 % Property management (1) 11,879 18.9 % 11,612 22.6 % 267 2.3 % ParkX management 14,362 22.8 % 8,185 16.0 % 6,177 75.5 % Total revenue $ 62,861 100.0 % $ 51,294 100.0 % $ 11,567 22.6 % (1) CHCI Commercial and CHCI Residential Revenue increased 22.6% in 2025. The $11.6 million variance was primarily driven by the growth of our managed portfolio, which expanded by net total of 20 assets. This expansion resulted in a combined $5.0 million, or 51.1%, increase in recurring, fee-based revenue across our three operating property management subsidiaries and a $3.3 million, or 13.7%, increase in fee-based asset management revenue. Also contributing to the increase was a $3.9 million, or 85.5%, net increase in supplemental fee revenue, stemming primarily from a $3.7 million increase in leasing fees earned. Operating costs and expenses The following table summarizes operating costs and expenses (in thousands): Year Ended December 31, Change 2025 2024 $ % Cost of revenue $ 48,080 $ 38,630 $ 9,450 24.5 % Selling, general, and administrative 2,545 2,075 470 22.7 % Depreciation and amortization 306 302 4 1.3 % Total operating costs and expenses $ 50,931 $ 41,007 $ 9,924 24.2 % 15 Table of Contents Operating costs and expenses increased 24.2% in 2025. The $9.9 million variance was primarily due to an $8.4 million increase in personnel expenses from increased headcount and employee compensation, which includes a $4.8 million increase in onboarding and payroll expenses from the 265 new ParkX employees that were hired in 2025 to meet the staffing needs for our expanding customer base. Other income (expense) The following table summarizes other income (expense) (in thousands): Year Ended December 31, Change 2025 2024 $ % Interest income $ 807 $ 672 $ 135 20.1 % Gain (loss) on real estate ventures (1) (297) 296 99.7 % Other income (expense), net 141 63 78 123.8 % Total other income (expense) $ 947 $ 438 $ 509 116.2 % Other income (expense) changed by $0.5 million in 2025, primarily driven by a combined $0.3 million improvement in mark-to-market valuation impacts of equity method investments in real estate ventures and a $0.1 million increase in interest income stemming from interest earned on money market sweep accounts. Income taxes We recorded a $4.2 million income tax benefit in 2025, compared to a $3.8 million tax benefit in 2024. The $0.4 million net change was primarily driven by a valuation allowance release that was $1.0 million higher in the current period, partially offset by the impact of higher taxable income from operations. As of December 31, 2025, we had $96.5 million of net operating loss (“NOL") carryforwards. Non-GAAP Financial Measures To provide investors with additional information regarding our financial results, we prepare certain financial measures that are not calculated in accordance with generally accepted accounting principles in the United States (“GAAP”), specifically Adjusted EBITDA. We define Adjusted EBITDA as net income (loss) from continuing operations, excluding the impact of interest expense (net of interest income), income taxes, depreciation and amortization, stock-based compensation, and mark-to-market valuation gain (loss) on equity method investments in real estate ventures. We use Adjusted EBITDA to evaluate financial performance, analyze the underlying trends in our business and establish operational goals and forecasts that are used when allocating resources. We expect to compute Adjusted EBITDA consistently using the same methods each period. We believe Adjusted EBITDA is a useful measure because it permits investors to better understand changes over comparative periods by providing financial results that are unaffected by certain non-cash items that are not considered by management to be indicative of our operational performance. 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 may differ from similarly titled measures presented by other companies. 16 Table of Contents 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, 2025 2024 Net income (loss) $ 17,051 $ 14,560 Interest income (807) (672) Income taxes (4,174) (3,835) Depreciation and amortization 306 302 Stock-based compensation 1,060 945 (Gain) loss on real estate ventures 1 297 Adjusted EBITDA $ 13,437 $ 11,597 The increase in Adjusted EBITDA for the year ended December 31, 2025 was primarily driven by significant increases in recurring fee-based revenue from our three operating property management subsidiaries and supplemental fee revenue from leasing activity. Seasonality and Quarterly Fluctuations None. Liquidity and Capital Resources Liquidity is defined as the current amount of readily available cash and the ability to generate adequate amounts of cash to meet the current needs for cash. We assess our liquidity in terms of our cash and cash equivalents on hand and the ability to generate cash to fund our operating activities. Our principal sources of liquidity as of December 31, 2025, were our cash and cash equivalents of $31.3 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. Our primary capital needs are for working capital obligations and other general corporate purposes, including investments and capital expenditures. 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, 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. Cash Flows The following table summarizes our cash flows for the periods indicated (in thousands): Year Ended December 31, 2025 2024 Change Net cash provided by (used in) operating activities $ 4,797 $ 10,675 $ (5,878) Net cash provided by (used in) investing activities (1,762) (350) (1,412) Net cash provided by (used in) financing activities (514) (352) (162) Net increase (decrease) in cash and cash equivalents $ 2,521 $ 9,973 $ (7,452) Operating Activities The $5.9 million variance in net operating cash activity was driven by an $7.8 million incremental cash outflow stemming from changes to our net working capital, partially offset by a $1.9 million increase in net income from continuing operations after 17 Table of Contents adjustments for non-cash items. The net working capital decrease was primarily influenced by a decrease in related party accounts receivable collections. Investing Activities The $1.4 million variance in net investing cash activity was driven by $1.2 million of capitalized costs in 2025 related to a potential multifamily property acquisition. Financing Activities The $0.2 million variance in n et financing cash activity was driven by a $0.1 million decrease in equity award-related proceeds collected and an immaterial increase in cash paid for taxes related to the net share settlement of equity awards. Critical Accounting Policies and Estimates Our consolidated financial statements are prepared in accordance with GAAP. Accounting policies, methods and estimates are an integral part of the preparation of consolidated financial statements in accordance with U.S. GAAP and, in part, are based upon management’s current judgments. Those judgments are normally based on knowledge and experience with regard to past and current events and assumptions about future events. Certain accounting policies, methods and estimates are particularly sensitive because of their significance to the consolidated financial statements and because of the possibility that future events affecting them may differ from management’s current judgments. While there are a number of accounting policies, methods and estimates affecting our consolidated financial statements, areas that are particularly significant include: • Investments in real estate ventures • Revenue - Incentive Fees • Income taxes Investments in real estate ventures For investments in real estate ventures that we have elected to report at fair value, we maintain an investment account that is increased or decreased each reporting period by contributions, distributions, and the difference between the fair value of the investment and the carrying value as of the balance sheet date. These fair value adjustments are reflected as gains or losses in our consolidated statements of operations. The fair value of these investments as of the balance sheet date is generally determined using a discounted cash flow analysis, income approach, or sales-comparable approach, depending on the unique characteristics of the real estate venture. In addition, we perform a two-step analysis to determine if our investments in real estate ventures qualify as a variable interest entity (“VIE”) and need to be consolidated. We first analyze if the entity lacks sufficient equity to finance its activities without additional subordinated financial support or if the equity holders, as a group, lack the characteristics of a controlling financial interest in order to determine VIE qualification. If an entity is determined to be a VIE, we then analyze if it is the primary beneficiary to determine if the entity needs to be included in its consolidated financial results. The primary beneficiary has both (i) the power to direct the activities that most significantly impact the VIE’s economic performance, and (ii) the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could potentially be significant to the entity. We consider a variety of factors in identifying the entity that holds the power to direct matters that most significantly impact the VIE’s economic performance, including evaluating the nature of relationships and activities of the parties involved and, where necessary, determining which party within a related-party group is most closely associated with the VIE and would therefore be considered the primary beneficiary. We determine primary beneficiary status of a VIE at the time of investment and perform ongoing reassessments to evaluate whether changes in the entity’s capital structure or changes in the nature of its involvement with the entity result in a change to the VIE designation or a change to its consolidation conclusion. We have minority voting and economic interests in our investments in real estate ventures that we have elected to report at fair value and do not control the activities that most significantly impact their economic performance. We have determined we are not the primary beneficiary in these investments, and therefore do not consolidate them into our balance sheets as of December 31, 2025 and 2024 or into our statements of operations for the years ended December 31, 2025 and 2024. 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 and defined in the agreement, are achieved. (See Note 13 for additional information). 18 Table of Contents Incentive Fees are calculated as a percentage of the imputed profit that would be realized upon the hypothetical sale or recapitalization of the asset (or assets) for which triggering event criteria were met. The calculation of imputed profit is based on a fair market value assessment that includes highly variable financial inputs and must also consider macro-economic and environmental factors that may affect fair market value. Due to the subjective and potentially volatile nature of this variable consideration, we only recognize revenue on Incentive Fees for each managed asset when 1) any material uncertainties associated with the valuation of real estate assets that drive Incentive Fees are substantially resolved and 2) it is probable that a significant reversal in the amount of related cumulative Incentive Fee revenue recognized will not occur. As a result, we only recognize Incentive Fees at or near each asset's respective triggering event (as detailed in the 2022 AMA) when imputed profit can be reasonably calculated and the calculation has received consent from all parties, thereby confirming it can relied upon to not materially change. We recognized no revenue from Incentive Fees for the year ended December 31, 2025. For the year ended December 31, 2024, we recognized $1.5 million of revenue from Incentive Fees. Income taxes Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. The deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates on the deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. We provide a valuation allowance when we consider it “more likely than not” (greater than a 50% probability) that a deferred income tax asset will not be fully recovered. Adjustments to the valuation allowance are a component of the income tax provision or benefit in our consolidated statements of operations. For the years ended December 31, 2025 and 2024, we recorded net decreases to our deferred tax valuation allowance of $7.5 million and $6.5 million, respectively. Item 7A. Quantitative and Qualitative Disclosures About Market Risk Not applicable. 19 Table of Contents