Comstock Holding Companies, Inc. 10-Q

Item 2. 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 Management’s Discussion and Analysis included in our 2025 Annual Report on Form 10-K, as well as our condensed consolidated financial statements and the related notes thereto included elsewhere in this document. Unless otherwise indicated, references to “2026” refer to the three months ended March 31, 2026 and references to “2025” refer to the three months ended March 31, 2025. 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 company 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. 20 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, amenity-rich public spaces, and commercial parking garages to serve all the properties. Over the twelve months of fiscal year 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 March 31, 2026: Type # of Assets Size/Scale % Leased Commercial (1) 15 2.6 million sqft. 87% Residential (2) 8 2.5 million sqft. / 2,100+ units 94% Hospitality (3) 3 1 JW Marriott Hotel + 2 Food & Beverage ParkX - Garages (4) 34 26,000 spaces ParkX - Security & Other (5) 40 9,500 hrs/week Total 100 (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 for which we provide property management services. (3) Includes JW Marriott Reston Station, Virginia's first and only JW Marriott Hotel, and two Starbucks locations managed by ParkX. (4) # of Assets includes 17 garages owned by unaffiliated third-party asset-owners (5) Includes porter/janitorial; # of assets excludes 46 properties where parking management services are also provided to avoid double-counting, therefore total # of assets where Security & Other services are provided is 86; hours/week statistic represents estimated total amount billed across all managed properties where Security & Other services are provided. In addition, we manage the following assets that are under construction and scheduled for delivery in the next 6 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 113 assets that represent over 10 million square feet. The following tables provide further details on the operating assets included in our managed portfolio: Anchor Portfolio Name Asset 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. 21 TABLE OF CONTENTS Other Portfolio Assets Name Asset 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. BLVD Forty Four Operating Acquired in 2021, this 15-story, mixed-use 263-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. and is the subject of a joint venture with Comstock Partners, LC. 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. and is the subject of a joint venture with Comstock Partners, LC. 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, the parcel is the subject of an executed purchase agreement with SCG Development Holdings, LLC to develop an affordable housing project on the site. The Reed Operating Acquired in 2026, this 417-unit Class A multifamily building is located adjacent to the Shady Grove Station on Metro's Red Line in Rockville, Md. and is the subject of a joint venture with Comstock Partners, LC and a third-party institutional fund advised by Benefit Street Partners, LLC. 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. Importantly, the long-term asset management agreement covering the properties included in the Anchor Portfolio provides us with visibility to future revenue and earnings growth while mitigating the risk for potential losses. Our fee-based, asset-light, debt-free business model will continue to generate cash and provide us with the flexibility and resources needed to capitalize on additional strategic growth opportunities as they arise. 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. 22 TABLE OF CONTENTS Results of Operations The following tables set forth consolidated statement of operations data for the periods presented (in thousands): Three Months Ended March 31, 2026 2025 Revenue $ 17,446 $ 12,639 Operating costs and expenses: Cost of revenue 14,671 10,287 Selling, general, and administrative 1,163 535 Depreciation and amortization 72 80 Total operating costs and expenses 15,906 10,902 Income (loss) from operations 1,540 1,737 Other income (expense): Interest income 129 184 Gain (loss) on real estate ventures 72 9 Gain (loss) on equity investments 435 — Other income (expense), net 12 (18) Income (loss) from operations before income tax 2,188 1,912 Provision for (benefit from) income tax 199 323 Net income (loss) $ 1,989 $ 1,589 Comparison of the Three Months Ended March 31, 2026 and 2025 Revenue The following table summarizes revenue by line of business (in thousands): Three Months Ended March 31, 2026 2025 Change Amount % Amount % $ % Asset management $ 8,756 50.2 % $ 7,127 56.4 % $ 1,629 22.9 % Property management (1) 3,424 19.6 % 2,958 23.4 % 466 15.8 % ParkX management 5,266 30.2 % 2,554 20.2 % 2,712 106.2 % Total revenue $ 17,446 100.0 % $ 12,639 100.0 % $ 4,807 38.0 % (1) CHCI Commercial and CHCI Residential Revenue increased 38.0% in 2026. The $4.8 million comparative increase was driven by the continued expansion of our managed portfolio, resulting in a $2.6 million, or 89.6%, increase in recurring, fee-based property management services revenue from our Commercial, Residential, and ParkX operating subsidiaries and a $1.6 million increase in asset management services revenue. ParkX alone executed 13 new service contracts in 2026, five of which were with third-party customers. Operating costs and expenses The following table summarizes operating costs and expenses (in thousands): Three Months Ended March 31, Change 2026 2025 $ % Cost of revenue $ 14,671 $ 10,287 $ 4,384 42.6 % Selling, general, and administrative 1,163 535 628 117.4 % Depreciation and amortization 72 80 (8) (10.0) % Total operating costs and expenses $ 15,906 $ 10,902 $ 5,004 45.9 % 23 TABLE OF CONTENTS Operating costs and expenses increased 45.9% in 2026. The $5.0 million comparative increase was primarily due to a $3.5 million increase in personnel expenses from increased headcount and employee compensation, including a $0.9 million increase in annual bonus expense. Other income (expense) The following table summarizes other income (expense) (in thousands): Three Months Ended March 31, Change 2026 2025 $ % Interest income $ 129 $ 184 $ (55) (29.9) % Gain (loss) on real estate ventures 72 9 63 700.0 % Gain (loss) on equity investments 435 — 435 N/M Other income (expense), net 12 (18) 30 166.7 % Total other income (expense) $ 648 $ 175 $ 473 270.3 % Other income (expense) changed by $0.5 million in 2026, primarily driven by a $0.4 million unrealized gain on equity investments stemming from the mark-to-market valuation of the initial $1.5 million investment in Jericho Energy Ventures, Inc. equity securities (see Note 4 in the Notes to Consolidated Financial Statements for additional information). Income tax Provision for income tax was $0.2 million in 2026, compared to $0.3 million in 2025. The $0.1 million decrease is primarily the result of higher stock compensation windfall adjustments. 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 unrealized gains (losses) on real estate ventures and equity investments. 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. 24 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): Three Months Ended March 31, 2026 2025 Net income (loss) $ 1,989 $ 1,589 Interest income (129) (184) Income taxes 199 323 Depreciation and amortization 72 80 Stock-based compensation 546 251 (Gain) loss on real estate ventures (72) (9) (Gain) loss on equity investments $ (435) $ — Adjusted EBITDA $ 2,170 $ 2,050 The increase in Adjusted EBITDA for the three months ended March 31, 2026 is primarily driven by significant increases in recurring fee-based revenue from our three operating property management subsidiaries and higher asset management fee revenue from the continued expansion of our managed portfolio. 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 March 31, 2026 were our cash and cash equivalents of $19.6 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): Three Months Ended March 31, 2026 2025 Change Net cash provided by (used in) operating activities $ (5,777) $ 543 $ (6,320) Net cash provided by (used in) investing activities (5,183) (515) (4,668) Net cash provided by (used in) financing activities (691) (492) (199) Net increase (decrease) in cash and cash equivalents $ (11,651) $ (464) $ (11,187) Operating Activities The $6.3 million variance in net operating cash activity was driven by a $6.4 million incremental cash outflow stemming from changes to our net working capital, partially offset by a $0.1 million increase in net income after adjustments for non-cash items. The net working capital decrease was primarily influenced by a decrease in related party accounts receivable collections and annual bonus payouts in January 2026. 25 TABLE OF CONTENTS Investing Activities The $4.7 million variance in net investing cash activity was driven by a $3.4 million increase in investments in real estate ventures due to the completed acquisition of The Reed. Also contributing to the increase was the initial $1.5 million investment in Jericho Energy Ventures, Inc. equity securities. Financing Activities The $0.2 million variance in n et financing cash activity was driven by a $0.2 million increase in cash paid for taxes related to the net share settlement of equity awards. Item 3. Quantitative and Qualitative Disclosures About Market Risk Not Applicable.