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Harbor Custom Development Inc. HCDI reported 2nd quarter results and updated investors on its recent strategic shift to construct and market multi-family projects.
Sales for the 2nd quarter of 2022 decreased by 27.2% to $10.3 million, compared to sales of $14.1 million for the 2nd quarter of 2021. This decrease was largely due to a lower level of entitled land sales of $9.3 million, primarily offset by an increase in home sales of $5.3 million.
Gross loss for the quarter decreased to $(1.9) million compared to $3.3 million in the prior year period. Gross margin for the quarter was a negative (18.8)% compared to 23.5% for the 2nd quarter of 2021. The decrease in gross profit and gross margin were primarily due to significant cost overruns on the company's fee build projects and the non-recurrence of higher margin entitled land sales in 2022.
The fee build cost overruns were primarily attributable to labor and cost inflation and record setting rainfall in Western Washington which resulted in an unusually high $(3.2) million gross loss. The entitled land sales in the 2nd quarter 2021 provided $2.4 million gross profit dollars at a gross margin of 25.5% that did not recur in the 2nd quarter 2022.
Operating expenses for the 2nd quarter were $3.7 million compared to $2.3 million for the 2nd quarter of 2021. This expected increase in operating expenses is largely attributable to increases related to the company's ongoing investment in public company infrastructure and future growth plans. A $0.8 million increase of payroll related costs was the largest contributor of operating expense increases. Also contributing to the increase was professional fees, marketing and advertising, insurance expense, investor relations, right of use expenses for a new corporate office, and depreciation expense.
The company generated an EBITDA loss for the quarter totaling $(4.9) million compared to EBITDA of $2.0 million in the prior year period. Adjusted EBITDA, which excludes the impact of stock compensation and non-recurring costs was a loss of $(4.8) million compared to $2.1 million for the 2nd quarter of 2021.
The company's liquidity position remains stable with unrestricted cash of $22.0 million and $4.7 million available on the line of credit. Stockholders' equity was $93.3 million, or $6.50 per share. Based on construction related loans of $69.8 million and total real estate values of $154.6 million, the company real estate leverage ratio was 45.2%.
Operating results for the 2nd quarter were below expectations as the company faced a slowing national economy, weakened consumer buying behavior, higher interest rates and inflationary pressures. In addition, Harbor had a customer withdraw from previously contracted entitled land sales which were in the final stages which impacted revenue for the 2nd quarter by approximately $5 million.
The company reiterated its strategic focus on developing and marketing multi-family housing projects which began in 2021. Multi-family properties have historically fared well in economic downturns and in addition, multi-family properties are usually a more affordable alternative for housing needs than purchasing a single-family home. This is more pronounced now due to high home prices, a slower economy, higher mortgage rates and low levels of single-family housing inventory in the company geographic markets.
During the 2nd quarter, Harbor announced the listing of six multi-family properties in Western Washington. Those projects include Pacific Ridge, Mills Crossing, Belfair View, Wyndstone, Meadowscape (formally known as Tanglewilde) and Bridgeview Trails. The company's initial target was to have Mills Crossing, Pacific Ridge, Wyndstone and Belfair Phase 1 sold during the fourth quarter of 2022, but the closing of most of these projects will likely occur in 2023. Mills Crossing, located in Bremerton, will possibly close in 2022 and is incorporated into our projections and the company's revised guidance.
On May 3rd, the company announced it was in the process of developing additional multi-family projects totaling approximately 640 units. These will be located in the Puget Sound region of Washington in the cities of Silverdale, Port Orchard, Poulsbo, Bremerton, Tacoma and Edmonds. These projects are in various stages of the permitting and entitlement and should be completed during the 2024 calendar year.
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