10-K: Dream Homes & Development Corp. Reports Mixed Results in 2023 Amid Strategic Shift to Build-to-Lease

Dream Homes & Development Corporation's 2023 annual report reveals a decrease in revenue but a strategic pivot towards build-to-lease properties, alongside ongoing challenges in internal controls.

Summary

• Dream Homes & Development Corporation reported a decrease in revenue from $6,310,883 in 2022 to $5,656,452 in 2023.
• The company experienced a net loss of $97,379 in 2023, compared to a net income of $154,090 in 2022.
• Operating expenses increased to $1,016,747 in 2023 from $874,203 in 2022, primarily due to higher legal and professional fees.
• The company is shifting its focus to build-to-lease developments, converting 155 multi-family units in Ocean County from build-for-sale to build-for-lease.
• Dream Homes anticipates this new strategy will create a significant revenue stream.
• The company has secured a $1,000,000 line of credit at 12% APR for working capital and real estate investments.
• Dream Homes has identified potential for 400-800 additional lots/units, which could yield $120,000,000 $240,000,000 in gross revenue and $25,000,000 $50,000,000 in earnings over 5 years.
• The company estimates a $3.4 billion market for new construction and elevation projects in its area due to Superstorm Sandy.
• The company has 4 construction contracts outstanding with home owners and investors with contract prices totaling $2,121,128.
• The company has 2 construction management contracts with investors and equity partners with contract prices totaling $1,114,547.
• The company has 2 contracts with national builders to deliver improved building pads in 2 developments the company owns with gross contract prices totaling $9,712,500 and $7,492,500.

Sentiment

Score: 4

Explanation: The document presents a mixed picture with a strategic shift to build-to-lease, but also a decrease in revenue, a net loss, and internal control weaknesses. The company has a large market opportunity but faces significant risks and challenges.

Positives

• The company is strategically shifting to a build-to-lease model, which is expected to provide a stable revenue stream.
• Dream Homes has secured a $1,000,000 line of credit for working capital and real estate investments.
• The company has identified significant growth opportunities with potential for substantial revenue and earnings from new developments.
• The company has a strong reputation as a trusted builder in the region, particularly for coastal construction and elevation projects.
• The company has a large market opportunity due to the ongoing need for rebuilding and elevation projects following Superstorm Sandy.

Negatives

• The company experienced a decrease in revenue and a net loss in 2023.
• Operating expenses increased significantly, impacting profitability.
• The company has identified material weaknesses in its internal controls over financial reporting.
• The company is involved in several minor lawsuits, although management believes they are without merit.
• The company's financial statements are unaudited.

Risks

• The company's business operations could be materially and adversely affected by the outbreak of COVID-19.
• The company's home sales and operating revenues could decline due to macro-economic factors.
• The homebuilding industry is cyclical and significantly affected by changes in economic conditions.
• A substantial increase in mortgage interest rates or unavailability of mortgage financing may reduce consumer demand for the company's homes.
• The company may not be able to compete effectively against its homebuilding competitors.
• The company could experience a reduction in new home sales and revenues due to an inability to acquire land.
• The company is subject to extensive government regulation which could cause it to incur significant liabilities or restrict its business activities.
• The company may be subject to significant potential liabilities because of construction defect, product liability, and warranty claims.
• Raw material and labor shortages and price fluctuations could delay or increase the cost of new home construction.
• The company may experience fluctuations and variability in its operating results on a quarterly basis.
• The company's future growth may include additional acquisitions of companies that may not be successfully integrated.
• The occurrence of natural disasters could increase the company's operating expenses and reduce its revenues and cash flows.
• Future terrorist attacks against the United States or increased domestic or international instability could have an adverse effect on the company's operations.
• Compliance with changing regulation of corporate governance and public disclosure may result in additional expenses.
• Failure to achieve and maintain effective internal controls could have a material adverse effect on the company's business and operating results.
• The company may need additional capital in the future, but there is no assurance that funds will be available on acceptable terms.
• The company's common stock is a penny stock, and compliance with requirements for dealing in penny stocks may make it difficult for holders to resell their shares.
• The company's stock price may fluctuate significantly, and investors may not be able to resell their shares at or above the current market price.
• Sales of substantial amounts of the company's common stock in the public markets could reduce the price of the common stock.
• Insiders have substantial control over the company and could limit the ability of other shareholders to influence the outcome of key transactions.

Future Outlook

Management anticipates steady growth in the coastal construction and build-to-lease divisions, with new home construction and development expected to represent over 70% of revenue by mid-2023. The company also sees significant opportunities in the market due to the ongoing need for rebuilding and elevation projects following Superstorm Sandy.

Management Comments

• Management anticipates steady growth in this division of the company, since the rebuilding process will continue indefinitely.
• Management recognized that the effects of Super Storm Sandy would be far reaching and cause an almost unlimited demand for construction services, as well as specific construction information.
• Management feels that focusing on the construction field will continue to provide a stable revenue stream for the company.
• Management is very positive about these new developments, as well as the cutting-edge construction technologies being employed to create healthier, safer, more energy efficient homes.
• The management team has never failed to complete a project in over 29 years in the industry.

Industry Context

The company's shift to build-to-lease aligns with a growing trend in the real estate market, driven by a shortage of rental properties and increased interest from institutional investors. The company's focus on coastal construction and elevation also positions it well in the New Jersey market, where there is a significant need for these services due to the impact of Superstorm Sandy and changes in FEMA flood maps.

Comparison to Industry Standards

• The company's revenue decline contrasts with the general trend of growth in the construction industry, particularly in the residential sector, although the shift to build-to-lease may be a strategic move to improve long-term revenue.
• The company's net loss is concerning, as many competitors in the homebuilding industry have reported profits, although the company's focus on elevation and renovation work may have different profit margins than new construction.
• The company's reliance on a private lender for a line of credit at 12% APR is higher than typical bank financing rates, which may impact profitability.
• The company's internal control weaknesses are a significant concern, as most public companies of similar size have established internal controls.
• The company's lack of an audit committee and a financial expert on the board is not in line with best practices for public companies.

Corporate Governance

Legal Proceedings

• The Company recently had two non-binding arbitration awards assessed against its subsidiary, Shore Custom Homes Corp.
• The Company has filed for trial de novo in both cases and intends to vigorously defend its position in court.
• The Company is involved in several other minor lawsuits in which it also expects to prevail.

Related Party Transactions

• The company uses the services of Dream Homes Ltd. (DHL) personnel for its operations.
• Loans payable to related parties include loans from Rich Pezzullo, Dream Homes, LTD, and GPIL.

Stakeholder Impact

• Shareholders may be concerned about the company's net loss and internal control weaknesses.
• Employees may be affected by the company's strategic shift and potential changes in operations.
• Customers may benefit from the company's focus on build-to-lease properties and its reputation for quality construction.
• Suppliers and creditors may be impacted by the company's financial performance and its ability to meet its obligations.

Next Steps

• The company intends to continue to pursue opportunities in the construction and real estate field, specifically in new home construction, home elevations and renovations.
• The company will focus on the build-to-lease strategy and hold properties upon completion and lease-up for an indeterminate period of time.
• The company will continue to develop properties currently owned and in the development stage.
• The company will continue to pursue opportunities in the real estate field, specifically in new home construction, home elevations and renovations.
• The company will address the material weaknesses in its internal controls over financial reporting.

Key Dates

Keywords

real estate development, home construction, coastal construction, modular homes, home elevation, build to lease, new jersey, residential development, FEMA, renovation