COMSTOCK HOLDING COMPANIES, INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

The following discussion and analysis should be read in conjunction with our
Consolidated Financial Statements and the notes thereto and Management's
Discussion and Analysis included in our 2021 Annual Report on Form 10-K and our
Condensed Consolidated Financial Statements and the notes thereto included
elsewhere in this document. Unless otherwise indicated, references to "2022"
refer to the three or six months ended June 30, 2022 and references to "2021"
refer to the three or six months ended June 30, 2021. 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 developer and manager of mixed-use and transit-oriented
properties in the Washington, D.C. metropolitan area. As a vertically integrated
and multi-faceted asset management and real estate services company, we have
designed, developed, constructed, acquired, and managed thousands of residential
units and millions of square feet of commercial and mixed-use properties in
since 1985.

We provide a broad range of asset management and real estate services, including
services related to the acquisition, development, and operation of real estate
assets. Our customers and partners are composed primarily of private and
institutional owners, investors in commercial, residential, and mixed-use real
estate, and various governmental bodies seeking to leverage the potential of
public-private partnerships.

Our revenue is primarily generated by fees from the asset management and real
estate services that we provide. In addition, we invest capital both on our own
account and on behalf of clients and institutional investors seeking above
average risk-adjusted returns. These strategic real estate investments tend to
focus on office, retail, residential and mixed-use properties in which we
generally retain an economic interest while also providing property management
and other real estate services.

Our managed portfolio is currently composed of 40 operating assets, including 15
commercial assets totaling approximately 2.2 million square feet, 6 multifamily
assets totaling 1,636 units, and 19 commercial garages with over 13,000 parking
spaces. Included in our managed portfolio are Reston Station and Loudoun
Station, two of the largest transit-oriented, mixed-use developments in the
Washington, D.C. metropolitan area. The following tables provide a high-level
summary of our managed portfolio:

                                            Anchor Portfolio
Reston Station                  Mixed-use development on Metro's Silver Line (Phase I); strategically
                                located between Tyson's Corner, Va. and Dulles International Airport
Loudoun Station                 Mixed-use development on Metro's Silver Line (Phase II); first
                                Metro-connected development in Loudoun County, Va.
Herndon Station                 Mixed-use development in the historic

downtown portion of Herndon, Va.;

                                focus of public-private partnership with Town of Herndon

                                  Investments/Assets Under Management
The Hartford Building           Joint venture; 211,000 square foot

mixed-use building on Metro’s Orange

                                Line in Arlington, Va.
                                Joint venture; 15-story, luxury high-rise apartment building near
BLVD Forty Four                 Rockville Metro Station in Montgomery 

County, Md.; adjacent to BLVD

                                Ansel
                                Joint venture; 18-story, luxury high-rise apartment building near
BLVD Ansel                      Rockville Metro Station in Montgomery 

County, Md.; adjacent to BLVD

                                Forty Four
International Gateway           Various real-estate services provided for 

two privately-owned mixed-use

                                buildings located in Tyson's Corner, Va.
Investors X                     Investment in company that owns residual homebuilding operations


Additionally, we have the following assets under construction: (i) one
commercial asset totaling approximately 330,000 square feet, (ii) one
multifamily asset with 415 units and (iii) one hotel/condominium asset with 240
keys and 95 condos. Our development pipeline consists of 13 assets consisting of
approximately 1.5 million square feet of additional planned commercial
development, approximately 2,600 multifamily units and one hotel asset that will
include 140 keys.
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Substantially all the properties included in our managed portfolio are covered
by long-term, full-service asset management agreements encompassing all aspects
of design, development, construction, and operations management relating to the
subject properties. The services we provide pursuant to the asset management
agreements covering our managed portfolio vary by property and client.

Anchoring our asset management services platform is a long-term full service
asset management agreement with an affiliated company owned by our Chief
Executive Officer, Christopher Clemente (the "2022 AMA"). The 2022 AMA
encompasses the majority of the properties we currently manage, including Reston
Station and Loudoun Station, two of the flagship properties that comprise our
Anchor Portfolio. See Note 14 in the Notes to Consolidated Financial Statements
for additional information.

CES Divestiture

On March 31, 2022, we completed the sale of Comstock Environmental Services, LLC
("CES"), a subsidiary of Comstock, to August Mack Environmental, Inc. ("August
Mack") in accordance with the Asset Purchase Agreement for approximately $1.4
million of total consideration, composed of $1.0 million in cash and $0.4
million of cash held in escrow that is subject to net working capital and other
adjustments. We executed this divestiture to enhance its focus pursue continued
future growth initiatives for its core asset management business.

We have reflected CES as a discontinued operation in its consolidated statements
of operations for all periods presented. Unless otherwise noted, all amounts and
disclosures relate to our continuing operations. See Note 3 in the Notes to
Consolidated Financial Statements for additional information.

Series C Preferred Stock Redemption


On June 13, 2022, we entered into a Share Exchange and Purchase Agreement
("SEPA") with CP Real Estate Services, LC ("CPRES"), an entity owned by Mr.
Clemente, to redeem all outstanding Series C preferred stock for (i) 1,000,000
shares of the Company's Class A common stock, par value $0.01 per share and (ii)
$4.0 million in cash. The Series A common stock was valued at the consolidated
closing bid price of Comstock shares on Nasdaq on the business day immediately
preceding the entry into the SEPA. The $8.3 million fair value of the
consideration paid upon redemption was less than the $10.3 million carrying
value of the Series C preferred stock at the time of the transaction. This $2.0
million discount compared to the carrying value was added to net income for the
three and six months ended June 30, 2022 to arrive at income available to common
stockholders and calculate net income (loss) per share. See Note 10 in the Notes
to Consolidated Financial Statements for additional information.

COVID-19 Update


We continue to monitor the ongoing impact of the COVID-19 pandemic, including
the effects of recent notable variants of the virus. While we have not
experienced a significant impact on our business resulting from COVID-19 to
date, future developments may have a negative impact on our results of
operations and financial condition. The health and safety of our employees,
customers, and the communities in which we operate remains our top priority.
Although the long-term impact of the COVID-19 pandemic on the commercial real
estate market in the greater Washington, D.C. area remains uncertain, we believe
that our Anchor Portfolio is well positioned to withstand any future potential
negative impacts of the COVID-19 pandemic.

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 market conditions and the
foreseeable future and feel that we will maintain the ability to manage risk and
pursue opportunities for additional growth as market conditions warrant. Our
real estate development and asset management operations are primarily focused on
the greater Washington, D.C. area, where we believe our 35-plus years 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.
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Results of Operations

The following tables set forth consolidated statement of operations data for the
periods presented (in thousands):

                                                Three Months Ended June 30,                   Six Months Ended June 30,
                                                  2022                 2021                    2022                 2021
Revenue                                     $       8,467          $   6,324             $      17,198          $  13,164
Operating costs and expenses:
Cost of revenue                                     6,831              5,502                    13,766             11,580
Selling, general, and administrative                  469                308                       856                607
Depreciation and amortization                          50                 22                        94                 42
Total operating costs and expenses                  7,350              5,832                    14,716             12,229
Income (loss) from operations                       1,117                492                     2,482                935
Other income (expense):
Interest expense                                      (69)               (58)                     (128)              (116)
Gain (loss) on real estate ventures                    17               (100)                      269                (94)
Other income                                            1                 (1)                        1                  -
Income (loss) from continuing operations
before income tax                                   1,066                333                     2,624                725
Provision for (benefit from) income tax               352            (11,316)                     (104)           (11,314)
Net income (loss) from continuing
operations                                            714             11,649                     2,728             12,039
Net income (loss) from discontinued
operations                                            (10)              (444)                     (277)              (587)
Net income (loss)                                     704             11,205                     2,451             11,452
Impact of Series C preferred stock
redemption                                             2,046               -                        2,046               -
Net income (loss) attributable to common
shareholders                                $       2,750          $  11,205             $       4,497          $  11,452


Comparison of the Three Months Ended June 30, 2022 and June 30, 2021

Revenue

The following table summarizes revenue by line of business (in thousands):


                                         Three Months Ended June 30,
                                       2022                               2021                     Change
                                Amount                  %         Amount          %            $            %
Asset management      $       5,538                   65.4  %    $ 4,257        67.3  %    $ 1,281        30.1  %
Property management           2,192                   25.9  %      1,712        27.1  %        480        28.0  %
Parking management              737                    8.7  %        355         5.6  %        382       107.6  %
Total revenue         $       8,467                  100.0  %    $ 6,324       100.0  %    $ 2,143        33.9  %

Revenue increased 33.9% in 2022. The $2.1 million comparative increase was
primarily driven by the growth and improved performance of our managed
portfolio, which included 7 additional properties in 2022 and produced $0.7
million
of additional asset management fees and a $0.6 million increase in
reimbursable staffing charges. Also contributing to the comparative growth was a
$0.5 million increase in leasing fees.

Operating costs and expenses

The following table summarizes operating costs and expenses (in thousands):

                                                  Three Months Ended June 30,                          Change
                                                    2022                   2021                 $                  %
Cost of revenue                             $        6,831             $   5,502           $   1,329               24.2  %
Selling, general, and administrative                   469                   308                 161               52.3  %
Depreciation and amortization                           50                    22                  28              127.3  %
Total operating costs and expenses          $        7,350             $   5,832           $   1,518               26.0  %


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Operating costs and expenses increased 26.0% in 2022. The $1.5 million
comparative increase was primarily due to a $1.3 million increase in personnel
expenses stemming from market and merit-based compensation increases along with
increases in our headcount.

Other income (expense)

The following table summarizes other income (expense) (in thousands):

                                               Three Months Ended June 30,                            Change
                                                 2022                    2021                 $                   %
Interest expense                        $         (69)               $     (58)          $     (11)               19.0  %
Gain (loss) on real estate ventures                17                     (100)                117              (117.0) %
Other income                                        1                       (1)                  2              (200.0) %
Total other income (expense)            $         (51)               $    (159)          $     108               (67.9) %


Other income (expense) increased $0.1 million in 2022, primarily driven by
higher overall mark-to-market valuations of the fixed-rate debt associated with
our equity method investments in the current period as well as the impact of a
loss on our Investors X investment in 2021 that was driven by lower expected
cash flows in the prior period valuation.

Income tax


Provision for income tax was $0.4 million in 2022, compared to an tax benefit of
$11.3 million in 2021. The large year-over-year change was primarily driven by a
higher release of deferred tax asset valuation allowances in 2021. All
recognized tax benefits stemming from valuation allowance releases are supported
by our recent trend of positive net income from continuing operations and our
current expectation that our operations will continue to generate future taxable
income.

Comparison of the Six Months Ended June 30, 2022 and June 30, 2021

Revenue

The following table summarizes revenue by line of business (in thousands):


                                        Six Months Ended June 30,
                                     2022                            2021                      Change
                             Amount                %          Amount          %            $            %
Asset management      $     11,535               67.1  %    $  9,150        69.5  %    $ 2,385        26.1  %
Property management          4,323               25.1  %       3,342        25.4  %        981        29.4  %
Parking management           1,340                7.8  %         672         5.1  %        668        99.4  %
Total revenue         $     17,198              100.0  %    $ 13,164       100.0  %    $ 4,034        30.6  %

Revenue increased 30.6% in 2022. The $4.0 million comparative increase was
primarily driven by the growth and improved performance of our managed
portfolio, which included 7 additional properties in 2022 and produced $1.2
million
of additional asset management fees and a $1.1 million increase in
reimbursable staffing charges. Also contributing to the comparative growth were
$0.8 million of additional leasing fees and a $0.5 million increase in
acquisition fee income.

Operating costs and expenses

The following table summarizes operating costs and expenses (in thousands):

                                                 Six Months Ended June 30,                         Change
                                                  2022                 2021                 $                  %
Cost of revenue                             $      13,766          $  11,580           $   2,186               18.9  %
Selling, general, and administrative                  856                607                 249               41.0  %
Depreciation and amortization                          94                 42                  52              123.8  %

Total operating costs and expenses $ 14,716 $ 12,229

           $   2,487               20.3  %


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Operating costs and expenses increased 20.3% in 2022. The $2.5 million
comparative increase was primarily due to a $2.4 million increase in personnel
expenses stemming from market and merit-based compensation increases along with
increases in our headcount.

Other income (expense)

The following table summarizes other income (expense) (in thousands):

                                             Six Months Ended June 30,                           Change
                                              2022                  2021                 $                   %
Interest expense                        $         (128)         $    (116)          $     (12)               10.3  %
Gain (loss) on real estate ventures                269                (94)                363              (386.2) %
Other income                                         1                  -                   1                    N/M
Total other income (expense)            $          142          $    (210)          $     352              (167.6) %


Other income (expense) increased $0.4 million in 2022, primarily driven by
higher mark-to-market valuations of the fixed-rate debt associated our equity
method investments in the current period as well as additional gains on the
performance of our title insurance joint venture with Superior Title Services,
Inc., driven by higher volume as compared to the prior period. Also contributing
to the increase was the impact of a loss on our Investors X investment in 2021
that was driven by lower expected cash flows in the prior period valuation.

Income taxes


Benefit from income tax was $0.1 million in 2022, compared to a tax benefit of
$11.3 million in 2021. The large year-over-year change was primarily driven by a
higher release of deferred tax asset valuation allowances in 2021. All
recognized tax benefits stemming from valuation allowance releases are supported
by our recent trend of positive net income from continuing operations and our
current expectation that our operations will continue to generate future taxable
income.

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 gain (loss) on
equity method 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.

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):

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                                          Three Months Ended June 30,                  Six Months Ended June 30,
                                            2022                 2021                  2022                  2021
Net income (loss) from continuing
operations                            $         714           $ 11,649            $      2,728           $  12,039
Interest expense                                 69                 58                     128                 116
Income taxes                                    352            (11,316)                   (104)            (11,314)
Depreciation and amortization                    50                 22                      94                  42
Stock-based compensation                        220                154                     417                 306
(Gain) loss on real estate ventures             (17)               100                    (269)                 94
Adjusted EBITDA                       $       1,388           $    667            $      2,994           $   1,283

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 June 30, 2022 were our cash and cash
equivalents of $8.4 million and our $4.5 million of available borrowings on our
credit facility.

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 borrowings from our credit
facilities. The outstanding balance of $5.5 million on our credit facility is
scheduled to mature in April 2023, at which point we plan to extend the life of
the facility or pay down the outstanding balance in full. For further
information on our debt, see Note 7 in the Notes to Consolidated Financial
Statements.

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

Cash Flows


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

                                                                    Six Months Ended June 30,
                                                                   2022                   2021
Continuing operations
Net cash provided by (used in) operating activities          $         (590)         $        822
Net cash provided by (used in) investing activities                  (2,067)                   2,483
Net cash provided by (used in) financing activities                  (4,488)                 (168)

Total net increase (decrease) in cash – continuing
operations

                                                           (7,145)                   3,137
Discontinued operations, net                                           (251)                   36

Net increase (decrease) in cash and cash equivalents $ (7,396) $ 3,173



Operating Activities

Net operating activity cash decreased $1.4 million in 2022, primarily driven by
a $3.1 million incremental cash outflow stemming from changes to our net working
capital, partially offset by a $1.7 million increase in net income from
continuing operations after adjustments for non-cash items. The net working
capital impact included decreased accounts receivable and accrued personnel
costs.
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Investing Activities


Net cash used investing activities was $2.1 million in 2022, compared to
$2.5 million provided by investing activities in 2021. The net $4.6 million
change was primarily driven by our $2.7 million real estate investment in BLVD
Ansel and a $2.5 million decrease in distributions from real estate investments,
partially offset by $1.0 million in proceeds received from the CES divestiture.

Financing Activities

Net cash used in financing activities increased by $4.3 million in 2022,
primarily driven by a $4.0 million cash payment made in connection with the
early redemption of our Series C preferred stock.

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