As with almost all due diligence that gets performed the name must show certain qualities on the surface before diving deeper. This comes down to management, future potential, growth potential and much more. Comstock Holding Companies, Inc has many of the same qualities that have lead to some monster moves in the future pending one has the patience to let the name do most of the heavy lifting.
Within the past couple of months, this name has been very busy consolidating all assets of the business under one roof. The commercial and residential are all trading under $CHCI which allows them to leverage over 30+ years of experience toward future projects in a more consolidated approach. The main difference here is that they are transitioning away from homebuilding to a service focused platform (this allows for more revenue creating from for-sale buildings and the elimination of risky balance sheet assets.) Furthermore, their management team has a proven track record of successfully completing countless developments encompassing thousands of residential units and I do not see that slowing down any time soon.
There are several different growth aspects that become apparent upon an initial analysis which include: the changing core business structure, tax asset shelter, revenue shift, emerging DC and domestic market space and long-term asset management approach.
The core business shift may be the most important change that Comstock has done in the last decade or more. With the new focus on commercial development, asset management, and real estate related services they are able to generate predictable revenue streams and cash flow, something that was not previously possible. The transition from for-sale homebuilding as their primary source of revenue will rapidly de-lever their existing balance sheet while enhancing performance and stability. This was directly apparent on the most recent earnings call with revenue from real estate services increasing 120% and G&A expenses decreasing 71% allowing them to focus on growth and expansion.
Assets under management include more than 5.5M square feet of investment-grade, mixed-use, transit-oriented assets in highly sought after locations adjacent to key Metro Stations. This includes Reston Station, Loudoun Station, and Herndon Downtown Redevelopment.
They will also be looking to utilize their significant tax asset, approximately $143M NOL, to shelter income generated through new business models and future capital raising initiatives. NOL represent approximately $36M in future cash savings. This allows to shelter future earnings, providing greater liquidity, accelerated balance sheet enhancement, great financial flexibility and a competitive advantage in the marketplace.
Below are several of the current/future developments that Comstock is currently working on.
With Tim Steffan at the helm a 30+ year veteran of the commercial real estate, they are positioning themselves correctly for the massive growth that they are expecting. They also recently closed on $11M in funding to help drive forward growth and given the commencement of 700+ rental units in the next twelve months as well as 200,000 square foot office building they are well on their way of putting their money where their mouth is.
So with all of that talk about future action, growth, strategic shifting where does that place $CHCI in the future as that is the golden ticket question that everyone would like to know. Well, with any transformation it does not take place overnight but I think that is the best value that $CHCI offers at the moment. They realize that the shift is not immediate but they are by no means dragging their feet as they have already brought in key executives to turn things around and have massive projects already underway to drive growth.
With Assets Under Management at full build-out totaling around $2.5 to $3.0B and a market cap of 11.23M and Enterprise value of 55.63M, there is a massive market discrepancy between future value and the current value (this is what I like to see when looking for monster movers in the future). Now what truly intrigues me is that these are current deals, build-outs, and areas that are already in the works. As they continue to show success in the future one can only assume that assets will continue to grow as well as developments, buildings, and sales (5-10B or more).
It seems that for the longest time $CHCI was looked down upon which is 100% far. They have for the past 30 years continued to deliver less than stellar results, burned cash and delivered very little return that was in line with shareholder value. I think, however, that it is very clear with what is taking place inside the company that values and backing up that talk is finally starting to happen. The strategic transition marked by a new leadership team, fresh development, and a new vision will be the driving force for months and years to come.
As a reversal company, these are oftentimes the most difficult to hold with conviction. There are very few traders looking at these and we tend to find information bias is a good thing while when trading stocks that is largely from the truth. The less a name is talked about the more you see it climbing to new highs $TNDM $ECYT etc. Many of the best names beat to the tune of their own drum as traders and investors alike overlook what is taking place directly under their noise. Some might see names like $MTH and compare them but it is difficult as they are at completely different stages in the journey. With the gorgeous weekly chart (massive reversal + building action) taking place as well as the massive internal transition taking place it becomes difficult to truly put a price target on this name. If they continue to deliver growth results, finishing projects, increasing revenue and backlog growth a 100% move would seem almost small in nature. If they are able to deliver on everything the company has discussed in ER, conference calls, and corporate presentations this name could be trading in the teens if not more. For a 2M float name with a 12M market cap that could be trading at future build-out levels of 3M plus I find it difficult to say that patience does not become your friend here.
As always the market is a wild place and anything can happen. If you would like to discuss in more detail about anything presented here please feel free to reach out to me. Happy Trading friends and let’s keep the huge wins coming.