Q2 2022 Harbor Custom Development Inc Earnings Call

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Okay.

Thank you for standing by and welcome to the Harbor Custom Development, Inc. Second quarter 2022 earnings Conference call.

Speaker 1: Thank you for standing by and welcome to the Harbor Custom Development Inc. 2nd quarter 2022 earnings conference call.

At this time all participants are in a listen only mode.

Speaker 1: At this time, all participants are on a listen-only mode. A question-and-answer session from previously submitted questions will follow the formal presentation. As a reminder, this conference is...

<unk> and answer session from previously submitted questions will follow the formal presentation.

As a reminder, this conference is being recorded.

Speaker 1: I would now like to introduce today's presenters, Starling Griffin, CEO , President and Chairman of the Board, and Lance Brown, Chief Financial Officer.

I would now like to introduce today's presenters Sterling Griffin CEO , President and chairman of the board and Lance Brown Chief Financial Officer.

I will now turn the call conference over to Mr. Brown.

Speaker 1: I will now turn the conference over to Mr. Brown. Thank you, operator. Thank you all for joining us today. Welcome to Harbor Custom Development's second quarter 2022 earnings conference call. During our discussion today, we will be referring to our earnings press release and presentation that were made available prior to the call. The release and presentation can be found in the investor relations section of the Harbor website at www.harborcustomhomes.com.

Thank you operator, thank you all for joining US today welcome to Harbor custom development second quarter 2022 earnings Conference call.

During our discussion today, we will be referring to our earnings press release and presentations that were made available prior to the call.

The release and presentation can be found in the Investor Relations section of the Harbor website at Www Dot Harbor custom homes Dot com.

Before we begin I would like to remind everyone that today's call includes forward looking statements.

Speaker 2: Before we begin, I would like to remind everyone that today's call includes forward looking statements.

Speaker 2: Any forward-looking statements contained in these earnings release or discussed today are subject to the safe harbor provisions of the private securities litigation Reform Act of 1995.

Any forward looking statements contained in the earnings release or discussed today are subject to the safe Harbor provisions of the private Securities Litigation Reform Act of 1995.

Speaker 2: Such statements involve a number of risks, uncertainties, and other factors that could cause actual results to differ materially from these forward-looking statements.

Such statements involve a number of risks uncertainties and other factors that could cause actual results to differ materially from these forward looking statements.

Speaker 2: specifically included our statements regarding our industry and our outlook for 2022.

Specifically included our statements regarding our industry and our outlook for 2022.

Speaker 2: Please see our recent SEC filings, which identify the principal risks and uncertainties which can affect future performance. We assume no obligation to update you.

Please see our recent SEC filings, which identify the principal risks and uncertainties, which can affect future performance.

We assume no obligation to update any forward looking statements in.

Speaker 2: In addition, we will be discussing or providing certain non-GAAP financial measures today, including EBITDA, adjusted EBITDA, and adjusted EBITDA margin. Please see the appendix of our earnings presentation for a reconciliation of these non-GAAP measures to their most direct comparable GAAP measure. I would now like to turn to the next slide.

In addition, we will be discussing or providing certain non-GAAP financial measures today, including EBITDA adjusted EBITDA and adjusted EBITDA margin.

Do you see the appendix of our earnings presentation for a reconciliation of these non-GAAP measures to their most direct comparable GAAP measure.

I would now like to turn the call over to Sterling.

Thank you Lance and thanks to everyone for joining the call today.

Speaker 2: Thank you, Lance and thanks to everyone for joining the call today. We appreciate your interest in Harvard.

We appreciate your interest in harbor custom development.

Speaker 2: I am thankful for our team's hard work and dedication during the second quarter. Despite results coming in below internal expectations.

I am thankful for our team's hard work and dedication during the second quarter despite results coming in below internal expectations.

Speaker 2: The primary drivers impacting Q2 results were the significant cost overruns on our fee build projects, primarily due to increase in material costs and record-setting rainfall in western Washington, which caused substantial delays. In addition, the cancellation of a high margin entitled land sale in our Horizon subdivision that was previously under contract also had a substantial impact to our financial results.

The primary drivers impacting Q2 results were the significant cost overruns on our fee build projects, primarily due to increase in material costs and a record setting rainfall in western Washington, which caused substantial delays. In addition, the cancellation of a high margin entitled land sale in our Horizon subdivision that was previously under.

<unk> also had a substantial impact to our financial results.

While these events impacted our financial results for the quarter, we made a number of accomplishments that position us well for the remainder of the year and into 2023. These accomplishments include the listing of six multifamily projects totaling $278 million with Kidder Mathews.

Speaker 2: While these events impacted our financial results for the quarter, we made a number of accomplishments that position us well for the remainder of the year and into 2023. These accomplishments include the listing of 6 multi-family projects, totaling 278 million, with Kidder Matthews, significantly progressing the construction of those projects, and continuing to close more Texas home sales at attractive prices and margins.

Significantly progressing the construction of those projects and continuing to close more Texas home sales at attractive prices and margins.

As we enter a challenging macro economic environment, including a slowing economy weakened consumer buying behavior higher interest rates and inflation.

Speaker 2: As we enter a challenging macroeconomic environment, including a slowing economy, weakened consumer buying behavior, higher interest rates and inflation,

We are staged and ready for the future.

Speaker 2: We are staged and ready for the future. We expect that our distinct business plan, which is focused on serving multiple segments of the residential market within a 20 to 60 minute commute in some of the nation's fastest growing regions, will continue to provide us with a consistent stream of revenue generated from multi-family apartments, single-family homes, land and lot sales.

We expect that our distinct business plan, which is focused on serving multiple segments of the residential market within a 20 to 60 minute commute and some of the nation's fastest growing regions. We will continue to provide us with a consistent stream of revenue generated from multifamily apartments single family homes land and lot sales.

Our diversified product portfolio enables us to build to the demands of the different communities as we continue to navigate a challenging and dynamic market environment. Our unique model will allow us to meet the needs of our diverse customers.

Speaker 2: Our diversified product portfolio enables us to build to the demands of the different communities. As we continue to navigate a challenging and dynamic market environment, our unique model will allow us to meet the needs of our diverse customers.

Speaker 2: As we previously communicated, we began a strategic transition of our inventory to multifamily housing in 2021. We believe this transition occurred at the opportune time, as multifamily properties have historically fared very well in economic downturns.

As we previously communicated we began a strategic transition of our inventory of multifamily housing in 2020. One we believe this transition occurred at the opportune time as multifamily properties have historically fared very well in economic downturns. Furthermore, multifamily properties are a more affordable alternative than PERC.

Speaker 2: Furthermore, multi-family properties are a more affordable alternative than purchasing a single-family home, particularly now as the economy takes on inflation, rising mortgage rates, and continued low levels of housing inventory in our geographic markets.

Are you seeing a single family home.

Particularly now as the economy takes on inflation rising mortgage rates and continued low levels of housing inventory in our geographic markets.

Speaker 2: During Q2, we announced the listing of six multifamily properties in western Washington.

During Q2, we announced the listing of six multifamily properties in Western Washington.

Speaker 2: Those projects are Pacific Ridge, Mills Crossing, Belfair View, Windstone, Meadowscape, formerly known as Tanglewild, and Bridgeview Trails.

Those projects are Pacific Ridge Mills crossing Bell Fair view, Winstone Meadow scape, formerly known as tangle Wild Enbridge you trails.

Speaker 2: Our initial target was to have Mills Crossing, Pacific Ridge, Windstone, and Bell Fair Phase 1 sold during the fourth quarter of 2022. But one or more of these properties may close in 2023.

Our initial target was to have knows crossing Pacific Ridge winds down and Bell Fair Phase one sold during the fourth quarter of 2022, but one or more of these properties may close in 2023.

Now I would like to transition the commentary to our single family home segment.

Speaker 2: Now I would like to transition the commentary to our single family home segment. In Q2 of 2022, we closed on the sale of our final two homes in Soundview Estates. This was the last of our single family home projects in Washington.

In Q2 of 2022, we closed on the sale of our final two homes in some of your states. This was the last of our single family home projects in Washington, We.

Speaker 2: We also sold five single family homes in the Austin, Texas, MSA.

We also sold five single family homes in the Austin, Texas MSA.

Speaker 2: Texas home sale prices range from 1.3 million to 1.6 million, or approximately 400 per square foot, with average margins of approximately 23 percent.

Texas home sale prices range from $1 3 million to $1 6 million or approximately 400 per square foot with average margins of approximately 23%.

Although the second quarter did not meet our expectations. We have continued our growth story for the first half of the year, recognizing $38 9 million of revenues for the six months ended June 32022.

Speaker 2: Although the second quarter did not meet our expectations, we have continued our growth story for the first half of the year, recognizing $38.9 million of revenues for the six months ended June 30, 2022. This is an increase of $10.9 million compared to the prior year period.

This is an increase of $10 9 million compared to the prior year period.

As of June 32022, our backlog of fully executed contracts for the sale of developed a residential lots and single family homes was 15 million compared to $14 2 million as of June 32021, our fee build backlog as of June 32022 was $5 8 million compared to $5 5 million as of June 30.

Speaker 2: As of June 30, 2022, our backlog of fully executed contracts for the sale of developed residential lots and single-family homes was $15 million, compared to $14.2 million as of June 30, 2021. Our fee-build backlog as of June 30, 2022 was $5.8 million compared to $5.5 million as of June 30, 2021.

2021.

Our financial condition remains stable and we continue to take a prudent approach in managing our financial health. We ended the second quarter with $22 million of unrestricted cash an increase compared to the $12 8 million at the end of the second quarter of 2021, we.

Speaker 2: Our financial condition remains stable, and we continue to take a prudent approach to managing our financial health. We ended the second quarter with 22 million of unrestricted cash, and increased compared to the 12.8 million at the end of the second quarter of 2021. We continue to...

We continue to invest in our business.

We've grown our real estate assets to $154 6 million as of June 32022, the majority of our investment during the second quarter was allocated to the development and construction of our multifamily properties.

Speaker 2: We've grown our real estate assets to 154.6 million as of June 30, 2022. The majority of our investment during the second quarter was allocated to the development and construction of our multifamily property.

Before I turn the call back to Lance I want to address the timing of projects as I mentioned earlier at the end of the quarter, we had a customer withdraw from a previously contracted entitled land sale during the final stages, which impacted our revenue for the second quarter by approximately $5 million.

Speaker 2: Before I turn the call back to LAMPS, I want to address the timing of projects. As I mentioned earlier, at the end of the quarter we had a customer withdraw from a previously contracted entitled land sale during the final stages which impacted our revenue for the second quarter by approximately $5 million.

It is worth remembering that the realization of revenue and gross profit related to unrealized sales has not disappeared rather the property remains in our inventory for future sale and monetization. We will continue to take a diligent approach to our guidance practices and maintain open communications sharing any key changes to our expected tar.

Speaker 2: It is worth remembering that the realization of revenue and gross profit related to unrealized sales has not disappeared. Rather, the property remains in our inventory for future sale and monetization. We will continue to take a diligent approach to our guidance practices and maintain open communication sharing any key changes to our expected target.

Speaker 2: I will now turn the conference call back to Lance Brown, our Chief Financial Officer, to further discuss our financial details.

I will now turn the conference call back to Lance Brown, our Chief Financial Officer to further discuss our financial details.

Thank you Sterling during the second quarter sales decreased by 27, 2% to $10 3 million as compared to $14 1 million for the prior year period.

Speaker 3: Thank you, Sterling. During the second quarter, sales decreased by 27.2% to 10.3 million as compared to 14.1 million for the prior year period.

Speaker 3: The decrease in sales is mostly driven by a decrease in entitled land sales of 9.3 million, primarily offset by an increase in homes.

The decrease in sales was mostly driven by a decrease in entitled land sales of $9 3 million.

Primarily offset by an increase in home sales of $5 3 million.

Speaker 3: The entitled land sales in Q2 2021 did not recur in Q2 2022.

The entitled Land sales in Q2, 2021 did not recur in Q2 2022.

Speaker 3: Our gross loss for the second quarter of 2022 was 1.9 million, compared to gross profit of 3.3 million for the second quarter of 2021.

Our gross loss for the second quarter 2022 was $1 9 million compared to gross profit of $3 3 million for the second quarter of 2021.

We had a gross margin loss of 18, 8% for the three months ended June 32022, compared to 23, 5% gross margin for the three months ended June 32021.

Speaker 3: We had a gross margin lost 18.8% for the three months into June 30th, 2022, compared to 23.5% gross margin for the three months into June 30th, 2021.

The $5 3 million decrease in gross profit and 42, 3% decrease in gross margin was primarily due to significant cost overruns on our build projects and the non recurrence of higher margin entitled land sales.

Speaker 3: The 5.3 million decrease in gross profit and 42.3% decrease in gross margin was primarily due to significant cost overruns on our fee build projects and the non recurrence of higher margin entitled land.

Our female cost overruns, which were primarily attributable to inflation and record setting rainfall in western Washington resulted in a $3 2 million gross loss.

Speaker 3: Our fee-bill cost overruns, which were primarily attributable to inflation and record-setting rainfall in western Washington, resulted in a 3.2 million gross loss and 212.9% gross margin loss in the second quarter of 2022 as compared to 0.2 million gross profit and 11.8% gross margin in the second quarter of 2021.

212, 9% gross margin loss in the second quarter of 2022 as compared to point 2 million gross profit and 11, 8% gross margin in the second quarter 2021.

Speaker 3: The entitled land sales in the second quarter 2021 provided 2.4 million gross profit dollars at a gross margin of 25.5% that did not recur in the second quarter 2022.

The entitled Land sales in the second quarter 2021 provided $2 4 million gross profit dollars at a gross margin of 25, 5% that did not recur in the second quarter 2022.

Our operating expenses increased to $3 7 million for the three months ended June 32022, as compared to $2 3 million for the three months ended June 32021.

Speaker 3: Our operating expenses increased to 3.7 million for the 3 months ended June 30, 2022. As compared to 2.3 million for the 3 months ended June 30, 2021.

Speaker 3: This anticipated increase in total operating expenses is primarily attributable to increases associated with our continued investment in public company infrastructure. In our future growth plan.

This anticipated increase in total operating expenses is primarily attributable to increases associated with our continued investment in public company infrastructure and our future growth plans.

Speaker 3: $0.8 million increase in payroll related costs was the largest contributor of our operating expense increase.

<unk> 8 million increase in payroll related cost was the largest contributor of our operating expense increases.

Less significant increases in professional fees marketing and advertising insurance expense Investor relations right of use expense for our new corporate office and depreciation expense also contributed to the increase over the prior year period.

Speaker 3: less significant increases in professional fees, marketing and advertising, insurance expense, investor relations, right of use expense for a new corporate office, and appreciation expense also contributed to the increase over the prior year period.

Speaker 3: In the second quarter of 2022, operating expenses as a percentage of sales increased to 35.5% compared to 16% for the second quarter of 2021.

In the second quarter of 2022 operating expenses as a percentage of sales increased to 35, 5% compared to 16% for the second quarter of 2021.

The increase in operating expenses as a percentage of sales is primarily due to the increase in public company infrastructure expenses and cost to support our growth plans that were previously mentioned and lower sales in Q2 2022 compared to Q2 2021.

Speaker 3: The increase in operating expenses as a percentage of sales is primarily due to the increase in public company infrastructure expenses and cost to support our growth plans that were previously mentioned and lower sales in Q2 2022 compared to Q2 2021.

We believe we are now sufficiently staffed to fully support our public company reporting requirements and meet our near term growth plans.

Speaker 3: We believe we are now sufficiently staff to fully support a public company reporting requirements. and meet our near term growth plan.

Speaker 3: We expect operating expenses as a percentage of sales to decline. As sales increase from selling our multifamily property.

We expect operating expenses as a percentage of sales to decline as sales increase from selling our multifamily properties.

Net loss was $4 5 million for the three months ended June 32022, as compared to net income of $1 1 million for the three months ended June 32021.

Speaker 3: Net loss was 4.5 million for the three months in the June 30th, 2022, as compared to net income of 1.1 million for the three months in the June 30th, 2021.

Speaker 3: The decrease in net income was primarily attributable to decreases in sales, cost of sales overruns, and increased operating expenses in the second quarter of 2022.

The decrease in net income was primarily attributable to decreases in sales cost of sales overruns and increased operating expenses in the second quarter of 2022.

For the three months ended June 32022, we had a loss per share of <unk> 46, compared to earnings per share of <unk> for the three months ending June 32021.

Speaker 3: For the three months ended June 30, 2022, we had a loss per share of 46 cents compared to earnings per share of 6 cents for the three months ending June 30, 2021.

Speaker 3: EBITDA loss for the second quarter of 2022 was $4.9 million, compared to $2 million of EBITDA income in the second quarter of 2021.

EBITDA loss for the second quarter of 2022 was $4 9 million compared to 2 million of EBITDA income in the second quarter of 2021.

Adjusted EBITDA loss in the second quarter of 2022 was $4 8 million compared to $2 1 million of adjusted EBITDA income in the second quarter of 2021.

Speaker 3: Adjusted EBITDA loss in the second quarter of 2022 was $4.8 million, compared to $2.1 million of adjusted EBITDA income in the second quarter of 2021.

Speaker 3: Adjusted EBITDA loss as a percentage of sales was negative 46.5% for the second quarter of 2022, compared to 14.7% for the second quarter of 2021.

Adjusted EBITDA loss as a percentage of sales was negative 46, 5% for the second quarter of 2022 compared to 14, 7% for the second quarter of 2021.

Net cash used in operating activities for the quarter ended June 32022 was $26 1 million compared to cash used by operating activities of $44 6 million for the quarter ended June 32021.

Speaker 3: Net cash used an operating activities for the quarter ended June 30th, 2022, was 26.1 million, compared to cash used by operating activities of 44.6 million for the quarter ended June 30th, 2021.

The primary use of cash during the quarter related to the development of construction of our real estate assets.

Speaker 3: primary use of cash during the quarter related to the development of construction of our real estate assets, the majority of which were focused on our normal.

The majority of which were focused on our multifamily projects.

Our real estate assets have continued to increase to $154 6 million as of June 32022 from $122 1 million as of December 31, 2021.

Speaker 3: Our real estate assets have continued to increase to 154.6 million as of June 30, 2022 from 122.1 million as of December 31, 2021.

As of June 32022, our real estate assets were levered approximately 45%.

Speaker 3: As of June 30th, 2022, our real estate assets were levered approximately 45%.

Now turning to year to date results.

Sales for the first half of 2022 increased by 38, 8%.

Speaker 3: Sales for the first half of 2022 increased by 38.8% to 38.9 million compared to 28 million for the first half of 2022.

$38 9 million.

Compared to $28 million for the first half of 2021.

Sales improvement in 2022 was primarily due to increases in home sales of $10 7 million.

Speaker 3: Sales improvement in 2022 is primarily due to increases in home sales of 10.7 million.

Speaker 3: He billed revenues of 2.9 million and developed lot sales of 2.1 million. Partially offset by a decrease in tidal land sales of 4.8 million.

<unk> revenues of $2 9 million and developed lot sales of $2 1 million.

Partially offset by a decrease in entitled land sales of $4 8 million.

Gross profit for the first half of 2022 was $4 1 million compared to $3 9 million for the first half of 2021.

Speaker 3: Gross profit for the first half of 2022 was 4.1 million, compared to 3.9 million for the first half of 2021.

Gross margin for the first half of 2022 was 10, 6% compared to 14% for the first half of 2021.

Speaker 3: Gross margin for the 1st, half of 2022 was 10.6%. Compared to 14% for the 1st, half of 2021.

Speaker 3: The 0.2 million increase in gross profit in 2022 was primarily due to increases in home gross profit of 1.8 million and entitled land gross profit of 1.6 million, which was partially offset by the decrease in fee billed gross profit of 3.2 million.

Point 2 million increase in gross profit in 2022 was primarily due to increases in home gross profit of $1 8 million and entitle land gross profit of $1 6 million, which was partially offset by the decrease in <unk> gross profit of $3 2 million.

The three 4% decrease in gross margin was primarily driven by the significant cost overruns with our T build projects and was partially offset by the margins attained with the sale of entitled land in the first quarter of 2022.

Speaker 3: The 3.4% decrease in gross margin was primarily driven by the significant cost overruns with our fee-billed projects and was partially offset by the margins attained with the sale of entitled land in the first quarter of 2022.

Speaker 3: Our operating expenses for the first half of 2022 were $7.5 million compared to $4.3 million for the first half of 2021.

Our operating expenses for the first half of 2022 were $7 5 million compared to $4 3 million for the first half of 2021.

Speaker 3: This expected increase is primarily attributable to increases in the continued investment of public company infrastructure. And personnel to support our future growth plan.

This expected increase is primarily attributable to increases and the continued investment of public company infrastructure and personnel to support our future growth plans.

Payroll related cost and professional fees were the largest contributors to the increase in operating expenses at $1 6 million and $5 million respectively.

Speaker 3: Herald-related cost and professional fees were the largest contributors to the increase in operating expenses at $1.6 million and $0.5 million respectively.

Speaker 3: right of use expense for a new corporate office, depreciation expense, marketing and advertising, stock compensation, and direct rupees also contributed to the increase over the prior year period.

Right of use expense for our new corporate office depreciation expense marketing and advertising stock compensation and direct your fees also contributed to the increase over the prior year period.

Operating expenses as a percentage of sales for the first half of 2022 were 19, 3% compared to 15, 4% for the first half of 2021.

Speaker 3: Operating expenses as a percentage of sales for the first half of 2022 were 19.3% compared to 15.4% for the first half of 2021.

The increase in operating expenses as a percentage of sales is primarily due to the increase in operating expenses as described earlier, which have increased faster than the increase in sales.

Speaker 3: The increase in operating expenses as a percentage of sales is primarily due to the increase in operating expenses as described earlier, which have increased faster than the increase in sales.

Net loss for the first half of 2022 was $2 9 million compared to net loss of <unk> 5 million for the first half of 2021.

Speaker 3: Net loss for the first half of 2022 was 2.9 million. Compared to net loss of 0.5 million for the first half of 2021.

Speaker 3: The decline in net income was primarily attributable to cost of sales overruns with our fee build projects and increased operating expenses in the first half of 2022.

The decline in net income was primarily attributable to cost of sales overruns with our T build projects and increased operating expenses in the first half of 2022.

For the first half of 2022, we had a loss per share of <unk> 50 cents compared to a loss per share of <unk> for.

Speaker 3: For the first half of 2022, we had a loss per share of 50 cents compared to a loss per share of 4 cents for the first half of 2021.

For the first half of 2021.

EBITDA loss for the first half of 2022 was $1 4 million compared to EBITDA of $2 3 million for the first half of 2021.

Speaker 3: EBITDA loss for the first half of 2022 was 1.4 million, compared to EBITDA of 2.3 million for the first half of 2021.

Adjusted EBITDA loss for the first half of 2022 was <unk> 9 million compared to $2 5 million of adjusted EBITDA for the first half of 2021.

Speaker 3: Adjusted EBITDA loss for the first half of 2022 was 0.9 million compared to 2.5 million of adjusted EBITDA for the first half of 2021.

Speaker 3: Adjusted EBITDA as a percentage of sales was negative 2.3% for the first half of 2022 Compared to 8.9% for the first half of 2021. I will now turn the call back

Adjusted EBITDA as a percentage of sales was negative two 3% the first half of 2022 compared to eight 9% for the first half of 2021.

I will now turn the call back to Sterling.

Thank you Lance.

Speaker 2: Looking forward to the remainder of 2022, we are confident in the momentum we have generated during the first six months of the year. As discussed earlier, we believe that the timing of certain multifamily projects factored into our prior full year 2022 outlook could move from Q4 2022 into 2023. Because of these factors, along with the previously mentioned headwinds, we are adjusting our outlook for the full year into December 31, 2022 to assume the following.

Looking forward to the remainder of 2022, we are confident in the momentum we have generated during the first six months of the year as.

As discussed earlier, we believe that the timing of certain multifamily projects factored into our prior full year 2022 outlook could move from Q4 2022 into 2023 because of these factors along with the previously mentioned headwinds we are adjusting our outlook for the full year ended December 31, 2022 to assume.

Following.

Speaker 2: Full year revenue in the range of $80 to $90 million. And adjusted EBITDA, which is expected to be at or around break even.

Full year revenue in the range of $80 million to $90 million and adjusted EBITDA, which is expected to be at or around breakeven.

While our outlook assumes a degree of near term uncertainty primarily related to timing. We believe this updated guidance has room for upside while the sales timing of our listed multifamily properties is uncertain. We are confident the monetization of these assets will drive future shareholder value.

Speaker 2: While our outlook assumes a degree of near-term uncertainty primarily related to timing, we believe this updated guidance has room for upside. While the sales timing of our listed multi-family properties is uncertain, we are confident the monetization of these assets will drive future shareholder value. With that, I will turn it...

With that I will turn it back to the operator.

Speaker 4: We will now switch to the question and answer session. Prior to the call, inquiries were submitted to ir at harborcustomdev.com. I will now read the previously submitted questions for Mr. Griffin and Mr. Brown to respond to. Thank you to everyone who submitted questions.

We will now switch to the question answer session. Prior to the call inquiries were submitted to IR at Harbor custom does dot Com I will now read the previously submitted questions for Mr. Griffin and Mr. Brown to respond to you. Thank you to everyone who submitted questions.

Speaker 4: What is the construction pipeline of multi-family units and what are the cap rate trends for those projects?

What is the construction pipeline of multifamily units and what are the cap rate trends.

Jack.

We previously announced the lifting of six properties with Kidder Mathews for $278 million in our pipeline behind those listed properties. We have approximately 600 units in various stages of the due diligence process.

Speaker 2: We previously announced the listing of six properties with Kitter Matthews for 278 million. In our pipeline behind those listed properties, we have approximate 600 units in various stages of the due diligence process.

Regarding cap rates, we've seen them rise from the 4% range for new construction in our target markets to 4.5% to 5%. Fortunately we have also seen corresponding rises in rental rates that have helped offset the cap rate increases.

Speaker 2: Regarding cap rates, we've seen them rise from the 4% range for new construction in our target markets to 4.5 to 5%

Speaker 2: Fortunately, we have also seen corresponding rises in rental rates that have helped offset the cap rate increase.

Do you still expect the sale of apartment units to contribute to a substantial portion of your topline for 2022 and 2023.

Speaker 4: Do you still expect the sale of apartment units to contribute to substantial portion of your top line for 2022 and 2023?

Based on our updated guidance, we do not expect the sale of our multifamily projects to contribute a substantial portion of our 2022 revenues as we think several of those projects could slide into 2023 for.

Speaker 3: Based on our updated guidance, we do not expect the sale of our multi-family project to contribute a substantial portion of our 2022 revenues as we think several of those projects could slide into 2023.

Speaker 3: In 2023, we expect our multifamily segment to be the largest contributor to our top line sales.

For 2023, we expect our multifamily segment to be the largest contributor to our top line sales.

What is the anticipated full year mix of developed lots entitled land Seatbelt and home sales and the resulting gross margin.

Speaker 4: What is the anticipated full year mix of developed lots entitled land, feed bills and home sales and the resulting gross margin?

It is hard to predict the exact sales mix that each of the segments will contribute to 2022 due to the unknown timing of the closings.

Speaker 3: It is hard to predict the exact sales mix that each of the segments will contribute at 2022 due to the unknown timing of the closing.

Speaker 3: However, we have a pipeline for all of our segments and expect each segment to further contribute to overall sales during the remainder of the year. As far as margins go, the key comes from a

We have a pipeline for all of our segments and expect each segment to further contribute to overall sales during the remainder of the year.

As far as margins go they tend to be project specific.

Speaker 3: In general, margins are declining based on current market conditions.

In general margins are declining based on current marketing conditions.

Speaker 3: We expect entitled land sales to provide the highest gross margins of all of our segments.

We expect entitled Land sales to provide the highest gross margins of all of our segments.

Speaker 3: Our multi-family property sales in Washington and single-family home sales in Texas should generate gross margins on average in the low to mid 20% range.

Our multifamily property sales in Washington, and single family home sales in Texas should generate gross margins on average in the low to mid 20% range.

Speaker 3: As we discussed on the call, we have incurred cost overruns on the fee build projects and as a result, we expect future margins to be at or near break even for that segment.

As we discussed on the call. We are encouraged cost overruns on the fee build projects and as a result, we expect future margins to be at or near breakeven for that segment.

Speaker 4: What is your forecast could normalize annual operating expenses for 2022?

What is your forecasted normalized annual operating expenses for 2022.

We are estimating operating expenses for 2022 to be in the 16 million to $17 million range.

Speaker 3: We are estimating operating expenses for 2022 to be in the 16 million to 17 million range.

Speaker 3: We believe that we are now sufficiently staffed to fully support our public company reporting requirements and meet our near term growth.

We believe that we are now sufficiently staffed to fully support our public company reporting requirements and meet our near term growth plans.

Speaker 3: We expect operating expenses as a percentage of sales to decline in future years.

We expect operating expenses as a percentage of sales to decline in future years.

Speaker 4: For the multi-family projects listed, are they one under construction, two completed but unoccupied, or three occupied to some degree?

For the multifamily projects listed are they one under construction two completed but unoccupied or three occupied to some degree.

Speaker 4: Which do you prefer in a sale or do all three stages work?

Which do you prefer in a sale.

All three stages work.

For the six multifamily projects.

Speaker 2: For the six multifamily projects we have listed with Kidder Matthews for $278 million, all are under construction at this time. One of those projects, Mills Crossing, is currently in the rent up stage.

We have listened with Kidder Mathews for $278 million all are under construction at this time one of those projects Mills crossing is currently in the ramp up stage.

Speaker 2: Our objective is to sell each multifamily project at the earliest possible opportunity. In the current market, newly constructed projects typically need to achieve a certain level of occupancy ranging from 70 to 90% before a buyer will close.

Our objective is to sell each multifamily project at the earliest possible opportunity in the current market newly constructed projects typically need to achieve a certain level of occupancy ranging from 70% to 90% before a buyer will close.

Speaker 4: Would it ever be a viable plan or option to hold, flesh, own the multi-family properties for the rental income revenue stream?

Would it ever be a viable plan or option to hold cash on the multifamily properties for the rental income revenue stream.

Speaker 2: Yes, in the future it is our objective to hold some of our multifamily projects. The company would benefit both from the monthly revenue created by the project while adding an appreciating asset to the balance sheet.

Yes in the future. It is our objective to hold some of our multifamily projects. The company would benefit both from the monthly revenue created by the project, while adding an appreciating asset to the balance sheet.

What this site, where it can mean exactly for the Florida condo project.

Speaker 4: What does site work mean exactly for the Florida condo project?

Site work typically refers to horizontal development regarding Punta gorda, when we refer to as site work. It is the beginning of construction and refers to the clearing of the land installation of roads underground utilities and building pad preparation.

Speaker 2: Site work typically refers to horizontal development. Regarding Punta Gorda, when we refer to site work, it is the beginning of construction and refers to the clearing of the land, installation of roads, underground utilities, and building pad preparation.

Speaker 4: Can you give an update on the Austin area real estate market, which some say has become very difficult?

Can you give an update on the Austin area real estate market, which some say has become very difficult.

Speaker 2: Like most single-family markets in the U.S., the Austin market has also slowed down. We will continue to assess the Austin market dynamics and use our unique business model to monetize our real estate assets at the most opportune stage.

Like most single family markets in the U S. A the Austin market has also slowed down we will continue to assess the Austin market dynamics and use our unique business model to monetize our real estate assets at the most opportune stage.

Speaker 4: Since there still appears to be a nationwide housing shortage, is there still going to be a focus on single-family home development over the long term?

Since there still appears to be a nationwide housing shortage is there still going to be a focus on single family home development over the long term.

Speaker 2: There does continue to be a nationwide housing shortage. Our focus today is on multifamily housing, which also has a significant shortage across the U.S. And we believe multifamily housing provides better opportunities for the company long term.

There does continue to be a nationwide housing shortage. Our focus today is on multifamily housing, which also has a significant shortage across the U S. And we believe multifamily housing provides better opportunities for the company long term.

Will you. Please provide an update on your dark horse property in California, and your plans for that project.

Speaker 4: Will you please provide an update on your Dark Horse property in California and your plans for that project?

Speaker 2: We are currently working to sell the remaining 63 lots in the dark horse development and at this time we do not plan on building any single family homes in the subdivision.

We are currently working to sell the remaining 63 lots in the dark horse development and at this time, we do not plan on building any single family homes in the subdivision.

This concludes our question and answer session I will now turn the call back to Mr. Griffin for closing remarks.

Speaker 4: This concludes the question and answer session. I will now turn the call back to Mr. Griffin for closing remarks.

Thank you everyone for participating on today's call, we look forward to providing additional updates soon.

Speaker 2: Thank you everyone for participating on today's call. We look forward to providing additional updates soon. You can find more information about the presentation and future events on our investor relations page under the tab events on our website, harbocustomhomes.com. For the most recent updates on company news, we encourage you to sign up for email notifications on the investor resources tab of our website.

You can find more information about the presentation in future events on our Investor Relations page under the tab events on our website Harbor custom homes Dot com for the most recent updates on company news, we encourage you to sign up for email notifications on the Investor resources tab of our website.

If anyone has further questions. We can be reached at 8667440974 or at IR at Harbor custom Dev dotcom.

Speaker 2: If anyone has further questions, we can be reached at 866-744-0974 or at ir at harborcustomdev.com. Thank you again for joining us today. We appreciate your time.

Thank you again for joining us today, we appreciate your time.

This does conclude the conference call.

Speaker 1: This does include his conference call. Thank you for your participation. You may disconnect your lines at this time and have a wonderful day.

Thank you for your participation you may disconnect. Your lines at this time and have a wonderful day.