Harbor Custom Development, Inc.

First-quarter 2023 sales were $9.2 million, down from $28.6 million in the prior-year period. Gross loss was $2.0 million versus $6.1 million gross profit a year ago, and gross margin was -22.3% compared with +21.2% in Q1 2022. Net loss was $4.9 million versus net income of $1.6 million in Q1 2022; net loss attributable to common stockholders was $6.8 million, or $9.39 basic loss per share, versus a $0.4 million net loss, or $0.56 basic loss per share, last year. EBITDA declined from $3.5 million to a loss of $4.5 million, while adjusted EBITDA was a loss of $4.4 million versus adjusted EBITDA of $3.9 million a year ago. Net cash used in operating activities was $11.6 million, and real estate assets were $217.8 million as of March 31, 2023, levered approximately 60%. Management said it is not providing financial guidance at this time because near-term conditions remain uncertain.

Sterling Griffin framed the quarter as one pressured by higher interest rates, weaker demand and lower pricing, but emphasized that the company is actively repositioning toward multifamily and preserving liquidity. He highlighted that multifamily projects now make up about 64% of real estate assets and pointed to progress on rent-up, completed construction at Pacific Ridge, and the pending Mills Crossing sale. He also stressed the executive transition, saying Jeff Habersetzer is the right leader for the next phase and that Harbor will keep focusing on rebuilding shareholder value.

Lance Brown said the revenue decline was mainly due to lower developed lot, home, entitled land and fee build sales, partially offset by $0.4 million of multifamily rental revenue. He pointed to a $2.0 million gross loss, $1.6 million of impairment charges, and lower operating expenses of $2.9 million, down from $3.8 million, driven by reductions in professional fees, insurance, depreciation and stock compensation. He also noted $11.6 million of cash used in operations, real estate assets of $217.8 million, leverage of about 60%, and that the 1-for-20 reverse stock split plus the BankUnited restructuring helped the company regain NASDAQ compliance.

Analysts asked about the additional impairment on Pacific Ridge and whether more write-downs should be expected; management said Pacific Ridge was reviewed again in quarter-end procedures, while Darkhorse and Bunker Ranch were impaired after list prices were reduced below cost, and that all properties are still expected to be profitable as of March 31. Management declined to give margin guidance or 2023 financial guidance, citing uncertainty around rates, affordability and sales timing. On liquidity and asset sales, they said Harbor wants to sell multifamily assets but could hold them if needed with more permanent financing, and confirmed Mills Crossing has waived contingencies, released $400,000 of earnest money, and is expected to close on or before June 16, 2023.