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 months ended March 31, 2022 and references to "2021" refer to
the three months ended March 31, 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 composed of 36 operating assets, including 15
commercial assets totaling approximately 2.2 million square feet, 6 multifamily
assets totaling 1,636 units, and 15 commercial garages with over 12,000 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 12 assets consisting of
approximately 1.4 million square feet of additional planned commercial
development, approximately 2,600 multifamily units and one hotel asset that will
include 160 keys.

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
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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 the Comstock's
Chief Executive Officer, Christopher Clemente (the "2019 AMA"). The 2019 AMA
encompasses the majority of the properties we currently manage, including Reston
Station and Loudoun Station. For additional details on the 2019 AMA, see Note 13
in the Notes to Consolidated Financial Statements.

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 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. For additional information, see
Note 3 in the Notes to Consolidated Financial Statements.

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 March 31,
                                                                     2022                   2021
Revenue                                                        $        8,731          $      6,840
Operating costs and expenses:
Cost of revenue                                                         6,935                 6,078
Selling, general, and administrative                                      387                   299
Depreciation and amortization                                              44                    20
Total operating costs and expenses                                      7,366                 6,397
Income (loss) from operations                                           1,365                   443
Other income (expense)
Interest expense                                                          (59)                  (58)
Gain (loss) on equity method investments                                  252                     6
Other income                                                                -                     1
Income (loss) from continuing operations before income tax              1,558                   392
Provision for (benefit from) income tax                                  (456)                    2
Net income (loss) from continuing operations                            2,014                   390
Net income (loss) from discontinued operations, net of tax               (267)                 (143)
Net income (loss)                                              $        1,747          $        247

Comparison of the Three Months Ended March 31, 2022 and March 31, 2021

Revenue

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

                                                     Three Months Ended March 31,
                                              2022                                   2021                                 Change
                                  Net Sales                %              Net Sales              %                 $                  %
Asset management               $       5,997              68.7  %       $    4,893              71.5  %       $   1,104              22.6  %
Property management                    2,131              24.4  %            1,630              23.8  %             501              30.7  %
Parking                                  603               6.9  %              317               4.7  %             286              90.2  %
Total revenue                  $       8,731             100.0  %       $    6,840             100.0  %       $   1,891              27.6  %


Revenue increased 27.6% in 2022. The $1.9 million comparative increase was
primarily driven by a $0.5 million increase in acquisition fees, a $0.4 million
increase in leasing fees, and growth in our managed portfolio, including the
addition of 2 managed residential projects, 1 commercial project, and 4 parking
garages. Also driving the increase was the improved performance of our managed
portfolio, as property management fees are generally billed as a percentage of
revenue of the managed project, as well as comparative increases in reimbursable
staffing charges due to market and merit-based compensation increases for our
allocated employees.
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Operating costs and expenses

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

                                                Three Months Ended March 31,                        Change
                                                  2022                  2021                 $                  %
Cost of revenue                             $        6,935          $   6,078           $     857               14.1  %
Selling, general, and administrative                   387                299                  88               29.4  %
Depreciation and amortization                           44                 20                  24              120.0  %

Total operating costs and expenses $ 7,366 $ 6,397

           $     969               15.1  %


Operating costs and expenses increased 15.1% in 2022. The $1.0 million
comparative increase was primarily due a $1.1 million increase in personnel
expenses stemming from market and merit-based compensation increases along with
increases in our headcount, partially offset by a $0.2 million decrease in
recoverable expenses.

Other income (expense)

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

                                             Three Months Ended March 31,                          Change
                                                2022                  2021                 $                   %
Interest expense                         $           (59)         $     (58)          $      (1)                1.7  %
Gain (loss) on equity method investments             252                  6                 246              4100.0  %
Other income                                           -                  1                  (1)             (100.0) %
Total other income (expense)             $           193          $     (51)          $     244              (478.4) %


Other income (expense) increased $0.2 million in 2022, primarily driven by
higher mark-to-market valuations of the fixed-rate debt associated our equity
method investments that brought comparative gains. We also recognized 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.

Income taxes


Benefit from income taxes was $0.5 million in 2022, compared to an immaterial
expense in 2021. The benefit in 2022 was due to the tax impact from a $0.7
million release of a deferred tax asset valuation allowance in the period. This
recognized tax benefit was supported by our recent trend of positive net income
from continuing operations and our expectation that current 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
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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):


                                                          Three Months 

Ended March 31,

                                                                                   2022        2021
Net income (loss) from continuing operations                                     $ 2,014      $ 390
Interest expense, net                                                                 59         58
Income taxes                                                                        (456)         2
Depreciation and amortization                                                         44         20
Stock-based compensation                                                             197        153
(Gain) loss on equity method investments                                            (252)        (6)
Adjusted EBITDA                                                                  $ 1,606      $ 617

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, 2022 were our cash and cash
equivalents of $11.6 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. For further information on our debt, see Note 6 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):

                                                                   Three Months Ended March 31,
                                                                    2022                   2021
Continuing operations
Net cash provided by (used in) operating activities          $        (1,952)         $     (2,040)
Net cash provided by (used in) investing activities                   (1,785)                   1,653
Net cash provided by (used in) financing activities                     (297)                 (105)

Total net increase (decrease) in cash – continuing
operations

                                                            (4,034)                   (492)
Discontinued operations, net                                            (229)                  117

Net increase (decrease) in cash and cash equivalents $ (4,263) $ (375)



Operating Activities

Net cash used in operating activities decreased by $0.1 million in 2022,
primarily driven by a $1.0 million increase in net income from continuing
operations after adjustments for non-cash items, partially offset by a $0.9
million
incremental cash outflow stemming from changes to our net working
capital. The net working capital impact included increased accounts receivable
and accrued personnel costs, partially offset by decreases in accounts payable.

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Investing Activities


Net cash used investing activities was $1.8 million in 2022, compared to
$1.7 million provided by investing activities in 2021. The net $3.4 million
change was primarily driven by our $2.7 million real estate investment in BLVD
Ansel and a $1.6 million decrease in distributions from real estate investments,
partially offset by $1.0 million in proceeds from the CES divestiture.

Financing Activities

Net cash used in financing activities increased by $0.2 million in 2022,
primarily driven by a $0.1 million decrease in net loan activity and a $0.1
million
increase in tax payments related to the net share settlement of equity
awards.

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