Comstock Holding Companies, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021. Comstock is a real estate asset management and services company focused primarily on the Washington, D.C. region. It reports Asset Management and Real Estate Services segments.
Financial performance
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Revenue | $8.317 million | $6.966 million |
| Operating income | $300 thousand | $191 thousand |
| Net income (loss) | $247 thousand | ($12 thousand) |
| Diluted earnings per share | $0.03 | $0.00 |
| Operating cash flow | ($1.923 million) | ($1.908 million) |
| Investing cash flow | $1.652 million | $135 thousand |
- Revenue rose 19.4% year over year. Asset Management revenue increased 25.9% to $6.840 million; Real Estate Services revenue fell about 4% to $1.477 million.
- Operating margin was approximately 3.6%, up from 2.7%. Net margin was approximately 3.0%, versus a small loss in the prior-year quarter.
- Cash and cash equivalents were $6.657 million at March 31, down from $7.032 million at year-end. Current assets were $13.343 million and current liabilities $3.551 million.
- Notes payable totaled $5.596 million, including $5.5 million owed to an affiliate and due in 2023. Operating lease liabilities totaled $7.792 million. The company reported no off-balance-sheet arrangements.
- Investing cash inflow primarily reflected $1.660 million in distributions from equity-method investments. Operating cash use primarily reflected higher related-party receivables and payment of accrued personnel costs.
Changes and notable items
- Asset Management revenue growth reflected reimbursable costs under the 2019 Asset Management Agreement (AMA) and growth in assets under management. Related-party customers generated $6.939 million, about 83% of total revenue, compared with $5.484 million in Q1 2020.
- Asset Management direct costs rose 31.2%, primarily due to personnel costs as the property management business grew. Real Estate Services revenue and costs declined, partly due to non-recurring COVID-19 remediation projects in the prior-year period.
- Interest expense declined 64.6% to $58 thousand, primarily following retirement of the Comstock Growth Fund loan in 2020.
- The fair value of real estate venture investments declined to $4.665 million from $6.307 million at year-end, principally after $1.660 million in distributions. The company recorded an $18 thousand fair-value gain for the quarter.
- In April 2021, the lender notified Comstock that the $1.95 million PPP loan had been fully forgiven by the SBA. This was a subsequent event, not a Q1 cash receipt.
Outlook, risks and contingencies
- No numerical earnings or revenue guidance was provided. Management said the long-term effect of COVID-19 on the regional commercial real estate market remained uncertain, but believed the Anchor Portfolio was positioned to withstand potential impacts and that the company was staffed for current and foreseeable conditions.
- As of March 31, the managed portfolio included 26 operating assets. One commercial asset under construction was 99% pre-leased and scheduled for delivery in 2022; the development pipeline included commercial, multifamily and hotel projects.
- Key stated risks include economic and real estate market conditions, interest rates, COVID-19, competition, labor or material cost pressures, capital availability, and dependence on continuing affiliate relationships.
- The 2019 AMA covers most managed properties and is with an affiliate owned by the CEO. Related-party receivables were $4.9 million at quarter-end; the company did not record an allowance, citing the related-party nature of the balances. The agreement includes termination provisions and fees.
- The company reported no material pending legal proceedings. It had approximately $146 million in federal and state net operating loss carryforwards, which may be limited if an ownership change triggers Section 382.
- The company concluded disclosure controls were effective as of March 31, 2021. Management cautioned that controls provide reasonable, not absolute, assurance.
Important facts for investors to verify
- Collection timing and recoverability of related-party receivables, and the company’s reliance on affiliate-generated revenue and agreements.
- Cash generation and liquidity, given recurring operating cash outflows and reliance on investment distributions.
- Terms, interest rate and repayment conditions of the $5.5 million affiliate line of credit, as well as lease commitments, including the CEO-affiliated headquarters lease.
- Progress and occupancy of development projects, the Anchor Portfolio, and the effects of regional commercial real estate conditions.
- Final accounting and any implications of the PPP loan forgiveness, and the potential availability and use of NOL carryforwards.