Q3 2024 Caliber Cos Inc Earnings Call

Operator 2: Ladies and gentlemen, welcome to Caliber's Q3 2024 Earnings Call. As a reminder, today's call is being recorded for replay purposes. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. I would now like to turn the call over to Maura Conlon, investor relations for Caliber. Please go ahead.

Speaker Change: Ladies and gentlemen, welcome to Caliber's third quarter 2024 earnings call. As a reminder, today's call is being recorded for replay purposes.

Speaker Change: At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press star zero for the operator.

Speaker Change: I would now like to turn the call over to Maura Conlon, Investor Relations for Caliber. Please go ahead.

Maura Conlon: Thank you, Camille. Good afternoon, everyone. Thanks for joining us for Caliber's Q3 2024 financial results conference call. I'm here today with Chris Loeffler, Chief Executive Officer and Co-founder, and Jade Leung, Chief Financial Officer. Please note that we have a quarterly earnings presentation, which will serve as a supplement to today's prepared remarks. You can access the presentation on the investor relations section of our website at www.caliberco.com. After management's commentary, we will open the call up to your questions. As a reminder, the information discussed today may include forward-looking statements that involve risks and uncertainties. Words like believe, accept, and anticipate refer to our best estimates as of this call, and there can be no assurances that these will actually take place. Our actual future results could differ significantly from these statements.

Maura Conlon: Thank you, Camille. Good afternoon, everyone, and thanks for joining us for Caliber's third quarter 2024 financial results conference call.

Speaker Change: I'm here today with Chris Loeffler, Chief Executive Officer and Co-Founder, and Jade Leung, Chief Financial Officer. Please note that we have a quarterly earnings presentation, which will serve as a supplement to today's prepared remarks.

Speaker Change: You can access the presentation on the Investor Relations section of our website at www.caliberco.com. After management's commentary, we will open the call up to your questions.

Speaker Change: As a reminder, the information discussed today may include forward-looking statements that involve risks and uncertainties.

Speaker Change: Words like believe, accept, and anticipate refer to our best estimates as of this call, and there can be no assurances that these will actually take place. So our actual future results could differ significantly from these statements.

Maura Conlon: Further information on the company's risk factors is contained in the company's quarterly and annual reports and filed with the Securities and Exchange Commission. It is now my pleasure to turn the call over to Chris. Chris, please go ahead.

Speaker Change: Further information on the company's risk factors is contained in the company's quarterly and annual reports and filed with the Securities and Exchange Commission. It is now my pleasure to turn the call over to Chris. Chris, please go ahead.

Chris Loeffler: Thank you, Maura. Thank you everyone for joining the call today. For those of you who are new to Caliber, we are a real estate asset manager in the business of investing, developing, and managing real estate through private funds and similar vehicles. We generate income through recurring asset management fees and one-time performance fees that continue through the life of the investments we manage, which typically spans from five to 10 years. We invest in attractive markets, namely Arizona, Colorado, and Texas, for our non-hospitality commercial and residential real estate, and nationally through our hospitality investment platform. Investors can choose to participate with Caliber as a client of the firm, investing in our various private real estate funds, or as a stockholder in Caliber, owning a proportionate share of our operating business, also known as the sponsor of our private funds.

Chris Loeffler: Thank You Maura and thank you everyone for joining the call today. For those of you who are new to Caliber, we are a real estate asset manager in the business of investing in developing and managing real estate through private funds and similar vehicles.

Chris Loeffler: We generate income through recurring asset management fees and one-time performance fees that continue through the life of the investments we manage, which typically spans from five to ten years.

Chris Loeffler: We invest in attractive markets namely Arizona, Colorado, and Texas for our non-hospitality commercial and residential real estate and nationally through our hospitality investment platform.

Chris Loeffler: Investors can choose to participate with Caliber as a client of the firm, investing in our various private real estate funds, or as a stockholder in Caliber, owning a proportionate share of our operating business, also known as the sponsor of our private funds.

Chris Loeffler: Caliber became public in May 2023 by listing on the NASDAQ through a traditional IPO. Wanted to turn now to our quarterly results. I'm very pleased with our progress this past quarter, and through a combination of well-placed cost savings and solid revenue growth, we've achieved positive adjusted EBITDA and positive platform earnings during the quarter. We also nearly doubled our asset management revenues over the quarters. In our earnings release, we provided a definition of our platform results, which management believes that directly shows the business performance that Caliber stockholders benefit from. Jade will provide you with some further detail on this during his comments when we get to his section. On our Q2 earnings call, we shared that we thought we would achieve positive platform adjusted EBITDA in Q4 2024 and positive platform net operating income in 2025.

Speaker Change: Calvert became public in May of 2023 by listing on the NASDAQ through traditional IPO.

Speaker Change: And I wanted to turn now to our quarterly results. I'm very pleased with our progress this past quarter, and through a combination of well-placed cost savings and solid revenue growth, we've achieved positive adjusted EBITDA and positive platform earnings during the quarter.

Speaker Change: And we also nearly doubled our asset management revenues over the quarters.

Speaker Change: In our earnings release, we provided a definition of our platform results, which we believe, management believes, that directly shows the business performance that Caliber stockholders benefit from.

Speaker Change: Jay will provide you with some further detail on this during his comments when we get to his section.

Speaker Change: On our second quarter earnings call, we shared that we thought we would achieve positive platform-adjusted EBITDA in Q4 of 2024 and positive platform net operating income in 2025.

Chris Loeffler: We are pleased to see that Caliber is tracking slightly ahead of our objectives that you all may now see what we see for Caliber's future. Prior to that, we shared with you that Caliber's expenses had grown ahead of our planned revenue growth, and that we needed to take some austere measures to right-size our business and return to consistent profitable growth. This quarter's results show that we were not as far away from that goal as some may have thought. Having said that, we still face some volatility in our business, and long term, we expect to achieve our strategic objectives with business results generally flowing up and to the right, albeit not perfectly linear.

Speaker Change: We are pleased to see that Caliber is tracking slightly ahead of our objectives, that you all may now see what we see for Caliber's future.

Speaker Change: Prior to that we shared with you that Caliber's expenses had grown ahead of our planned revenue growth and that we needed to take some austere measures to right-size our business and return to consistent profitable growth.

Speaker Change: This quarter's results show that we were not as far away from that goal as some may have thought.

Speaker Change: Having said that, we still face some volatility in our business.

And long-term, we expect to achieve our strategic objectives.

Speaker Change: with business results generally flowing up and to the right, albeit not perfectly linear.

Chris Loeffler: As you know, some of our prior headwinds have been caused by macro trends, such as the rapid rise in interest rates, corresponding decrease in commercial real estate values, and decrease in the pace of fundraising into private real estate funds. While these trends continue, we are also noticing countervailing information, such as the expectation from Deloitte's recent survey of real estate industry experts showing that 88% of surveyed participants expect revenues in commercial real estate to grow next year. What has changed in the market? With the recent reduction in interest rates, asset prices, which had been falling rapidly, are now decelerating in their decline, and in some cases, they're finding their bottom. When we look at the data and we combine that with our on-the-ground knowledge, we think that we've reached an inflection point where it makes sense for us to buy real estate again.

Speaker Change: As you know, some of our prior headwinds have been caused by macro trends, such as the rapid rise in interest rates, corresponding decrease in commercial real estate values, and decrease in the pace of fundraising into private real estate funds.

Speaker Change: While these trends continue, we are also noticing countervailing information, such as the expectation from Deloitte's recent survey of real estate industry experts, showing that 88% of surveyed participants expect revenues in commercial real estate to grow next year.

So what has changed in the market?

Speaker Change: With the recent reduction in interest rates, asset prices, which had been falling rapidly, are now decelerating in their decline, and in some cases, they're finding their bottom.

Speaker Change: When we look at the data and we combine that with our on-the-ground knowledge,

Speaker Change: We think that we've reached an inflection point where it makes sense for us to buy real estate again.

Chris Loeffler: The timing is not dissimilar to what we saw in 2009 following the 2008 financial crisis, where asset values found a floor quickly, but the ability to buy those assets at a newly discounted price occurred slowly for years to come. Some of the fees associated with us gearing up for our investment engine came through in this quarter, which partially drove our results, and we saw an improvement in the debt financing fundamentals, which allowed us to close some financings despite the ongoing challenged debt environment. We are cautiously optimistic that better deal terms will continue to trend favorably for Caliber. Moving to Caliber's inner workings, we've mostly been very busy this quarter.

Speaker Change: The timing is not dissimilar to what we saw in 2009 following the 2008 financial crisis.

Speaker Change: where asset values found a floor quickly, but the ability to buy those assets at a newly discounted price occurred slowly for years to come.

Speaker Change: Some of the fees associated with us gearing up for our investment engine came through in this quarter, which partially drove our results, and we saw an improvement in the debt financing fundamentals, which allowed us to close some financings despite the ongoing challenged debt environment.

Speaker Change: We are cautiously optimistic that better deal terms will continue to trend favorably for Calibre.

Speaker Change: Moving to Caliber's inner workings, we've mostly been very busy this quarter.

Chris Loeffler: Sometimes the announcements and activity can be hard to follow, so I would like to take some time to weave together some of our most recent announcements as they relate to our objective to increase revenue growth through three strategic priorities. The first priority is to acquire more income-generating real estate investments. As I mentioned, the real estate market has seen a significant drop in value from its most recent valuation peak, and we believe now is the time to start acquiring more attractive priced assets. One way we are doing this is through our planned roll-up of the Caliber Hospitality Trust, or CHT, targeting middle-market income-producing hotels throughout the United States. We recently reached a definitive agreement with the Satori Collective to contribute seven hotels to the trust for a combined value of $120 million.

Speaker Change: Sometimes the announcements and activity can be hard to follow so I would like to take some time to weave together some of our most recent announcements as they relate to our objective to increase revenue growth through three strategic priorities.

Speaker Change: The first priority is to acquire more income-generating real estate investments.

Speaker Change: As I mentioned, the real estate market has seen a significant drop in value from its most recent valuation peak.

Speaker Change: And we believe now is the time to start acquiring more attractive priced assets.

Speaker Change: One way we are doing this is through our planned roll-up of the Caliber Hospitality Trust, or CHT.

targeting middle-market income-producing hotels throughout the United States.

Speaker Change: We recently reached a definitive agreement with the Satori Collective to contribute seven hotels to the Trust for a combined value of $120 million.

Chris Loeffler: These properties include a mix of middle-market, full-service, flex service, and extended stay hotels in the Midwestern and Southern US and represent well-known brands including Marriott, Hilton, and IHG. With these Satori properties, CHT now has 15 hotels in the closing process, including the eight from L.T.D. we announced previously. Assuming all these properties close, CHT will have a total of 22 hotels in its portfolio, and we will have expanded CHT's assets under management from $234 million to $530 million. In addition, with all 22 properties in CHT, we expect Caliber's asset management revenue run rate to increase by approximately $2.4 million or 42%, given the value of the portfolios contributed and the terms of the contribution and management agreements.

Speaker Change: These properties include a mix of middle-market, full-service, select-service, and extended-stay hotels in the Midwestern and Southern U.S. and represent well-known brands including Marriott, Hilton, and IHG.

Speaker Change: With these Satori properties, CHT now has 15 hotels in the closing process, including the 8 from LTD we announced previously.

Speaker Change: Assuming all these properties close, CHT will have a total of 22 hotels in its portfolio and we will have expanded CHT's asset center management from $234 million to $530 million.

Speaker Change: In addition, with all 22 properties in CHT, we expect Caliber's asset management revenue run rate to increase by approximately 2.4 million, or 42%, given the value of the portfolios contributed and the terms of the contribution and management agreements.

Chris Loeffler: Another avenue for bolstering our income-generating AUM is the elevated experience we have created for 1031 exchange investors seeking quality income-generating assets. If you're not familiar with the 1031 exchange, it's a program that allows an investor to sell real estate and avoid capital gains taxes by buying new real estate within 180 days of the sale date. The short window investors have to sell an asset, identify a new asset, and close drives challenges for many investors seeking to reduce their tax liabilities. We believe Caliber provides a solution for these persistent challenges. Caliber offers a unique white glove experience for investors seeking a quality partner to complete their exchange, and we expect to close our first exchange investment in Q4 2024.

Speaker Change: Another avenue for bolstering our income-generating AUM is the elevated experience we have created for 1031 exchange investors seeking quality income-generating assets.

Speaker Change: If you're not familiar with the 1031 exchange, it's a program that allows an investor to sell real estate and avoid capital gains taxes by buying new real estate within 180 days of the sale date.

Speaker Change: The short window investors have to sell an asset, identify a new asset, and close drives challenges for many investors seeking to reduce their tax liabilities.

Speaker Change: We believe Caliber provides a solution for these persistent challenges. Caliber offers a unique white-glove experience for investors seeking a quality partner to complete their exchange, and we expect to close our first exchange investment in the fourth quarter of 2024.

Chris Loeffler: We've also created a 1031-focused page on our website, and we have been pleasantly surprised with the early results of incoming inquiries for seven-figure exchange candidates. Our second revenue growth priority is to create more single asset investment offerings. We believe we'll be able to attract more investment capital in this format, and we have a series of projects ready to present to investors who are seeking to build wealth with real estate. For example, in September, we acquired the Canyon Corporate Center in Phoenix, which features over 300,000 square feet of Class A, but mostly vacant office space, as well as two parking garages and nine acres of development property.

Speaker Change: We've also created a 1031-focused page on our website, and we have been pleasantly surprised with the early results of incoming inquiries for seven-figure exchange candidates.

Speaker Change: Our second revenue growth priority is to accelerate is to create more single asset investment offerings.

Speaker Change: We believe we'll be able to attract more investment capital in this format.

Speaker Change: And we have a series of projects ready to present investors who are seeking to build wealth with real estate.

Speaker Change: For example, in September, we acquired the Canyon Corporate Center in Phoenix.

Speaker Change: which features over 300,000 square feet of Class A, but mostly vacant office space, as well as two parking garages and nine acres of development property.

Chris Loeffler: We were able to purchase this property at a very attractive price point and plan to renovate the two buildings into a minimum of 400 apartment units, with the potential to go up to 700 units on the project site. Additionally, there is an adjacent vacant parcel of land that we will evaluate for future development. The property is ideally located near the redevelopment of Metro Center Shopping Mall and is in close proximity to Taiwan Semiconductors' North Phoenix campus, making it an attractive housing option for their expanding workforce. Canyon is an exciting single asset investment opportunity that is well positioned in the multifamily asset class, where demand continues to exceed supply as the housing shortage in this country persists. Another example is our PURE Pickleball & Padel project at Riverwalk in Scottsdale, Arizona.

Speaker Change: We were able to purchase this property at a very attractive price point and plan to renovate the two buildings into a minimum of 400 apartment units.

Speaker Change: with the potential to go up to 700 units on the project site.

Speaker Change: Additionally, there is an adjacent vacant parcel of land that we will evaluate for future development.

Speaker Change: The property is ideally located near the redevelopment of Metro Center Shopping Mall.

Speaker Change: and is in close proximity to Taiwan Semiconductor's North Phoenix campus, making it an attractive housing option for their expanding workforce.

Speaker Change: Canyon is an exciting single asset investment opportunity that is well positioned in the multi-family asset class, where demand continues to exceed supply as the housing shortage in this country persists.

Another example is our Pure Pickleball and Padel project.

at Riverwalk in Scottsdale, Arizona.

Chris Loeffler: On an 11-acre parcel, we plan to build a state-of-the-art pickleball facility, including 50 indoor courts for daily open play as well as large tournaments, a clubhouse, fitness center, pro shop, teen center, office, restaurant, cafe, and locker rooms. We expect to break ground in 2025 and complete construction in 2026. Single asset offerings boost fundraising as they offer multiple ways for investors to participate, including as a diversified fund investor, direct project investor, a 1031 investor, an opportunity zone investor, or as a self-directed IRA investor. Our third priority to drive revenue growth is what we call Build What We Own. Recent macro improvements to the construction financing environment and Caliber's recent on-the-ground success in gaining approval from the town of Johnstown, Colorado's council to issue special improvement bonds or SIDs bonds is driving our ability to keep projects moving forward in attractive markets.

Speaker Change: On an 11-acre parcel, we plan to build a state-of-the-art pickleball facility, including 50 indoor courts for daily open play, as well as large tournaments, a clubhouse, fitness center, pro shop, teen center, office, restaurant, cafe, and locker rooms.

Speaker Change: We expect to break ground in 2025 and complete construction in 2026.

Speaker Change: Single-asset offerings boost fundraising as they offer multiple ways for investors to participate, including as a diversified fund investor, direct project investor, a 1031 investor, an opportunity zone investor, or as a self-directed IRA investor.

Speaker Change: Our third priority to drive revenue growth is what we call build what we own.

Speaker Change: Recent macro improvements to the construction financing environment and Caliber's recent on-the-ground success in gaining approval from the Town of Johnstown Colorado's Council to issue special improvement bonds or SIDS bonds is driving our ability to keep projects moving forward in attractive markets.

Chris Loeffler: Where our competitors may not be finding a path forward, Caliber has tapped its creativity to uncover unique, complex, and accretive financing sources. Speaking of unique, complex, and accretive financing sources, this quarter, Caliber announced the launch of its innovative new Qualified Opportunity Zone Fund roll-up program, or QOF, which is what we name opportunity zone funds to save us some words here. We completed our first merger with a third-party fund, resulting in a $14 million increase in managed capital in Caliber's existing QOF, the Caliber Tax Advantaged Opportunity Zone Fund, LP, or CTAF I. This program offers a potential solution for investors who have not previously been able to realize the benefits of these complex investment vehicles. For Caliber, the program offers a unique way for us to raise larger investments into our opportunity zone strategy without sourcing capital in small amounts over time.

Speaker Change: Where our competitors may not be finding a path forward, Caliber has tapped its creativity to uncover unique, complex, and accretive financing sources.

Speaker Change: Speaking of unique, complex, and accretive financing sources, this quarter, Caliber announced the launch of its innovative new Qualified Opportunity Zone Fund Roll-Up Program, or QOF, which is what we name Opportunity Zone Funds to save us some time.

Speaker Change: Some words here. And we completed our first merger with a third-party fund, resulting in a $14 million increase in managed capital in Caliber's existing QLF, the Caliber Tax Advantage Opportunity Zone Fund, LP, or CTAF1.

Speaker Change: This program offers a potential solution for investors who have not previously been able to realize the benefits of these complex investment vehicles.

Speaker Change: For Caliber, the program offers a unique way for us to raise larger investments into our Opportunity Zone strategy without sourcing capital in small amounts over time.

Chris Loeffler: For investors who manage their own fund, our new QOF roll-up program solves many problems for a single asset or single family funds. Many of these funds have investment capital to deploy, but they lack access to quality investment targets. Additionally, some funds have made investments and are facing challenges to finish their projects. Caliber was one of the first firms in the United States to create and successfully fund a QOF, and we are uniquely positioned to rapidly deploy a new QOF capital into potentially attractive projects, particularly the acquisition and development of distressed real estate properties. Caliber's platform includes in-house development and construction management, allowing our team to efficiently assess projects midstream and continue or improve the existing plans. Turning to a few high-level comments about the quarter.

Speaker Change: For investors who manage their own fund, our new QOF roll-up program solves many problems for single asset or single family funds.

Speaker Change: Many of these funds have investment capital to deploy, but they lack access to quality investment targets.

Speaker Change: Additionally, some funds have made investments and are facing challenges to finish their projects.

Speaker Change: Caliber was one of the first firms in the United States to create and successfully fund a QOF.

Speaker Change: And we are uniquely positioned to rapidly deploy a new QOF capital into potentially attractive projects, particularly the acquisition and development of distressed real estate properties.

Speaker Change: Caliber's platform includes in-house development and construction management, allowing our team to efficiently assess projects midstream and continue or improve the existing plans.

Speaker Change: Turning to a few high-level comments about the quarter, as I mentioned in my opening remarks, in Q3 2024, we achieved positive adjusted EBITDA and platform earnings one quarter ahead of our plan.

Chris Loeffler: As I mentioned in my opening remarks, in Q3 2024, we achieved positive adjusted EBITDA and platform earnings one quarter ahead of our plan. The cost savings we implemented in the H1, combined with the healthy revenue growth in the quarter, drove these strong results. We remain on track to continue realizing the initial $6 million of annualized savings in the Q4 2024, with the benefit of cost improvements anticipated in 2025 for the full year. We also stand by our target to achieve positive net operating income at the platform level for the full year 2025. Moreover, we remain confident in Caliber's medium and long-term growth prospects, and we are acting to ensure that we can achieve our previously announced three-year goals. I will now turn the call over to Jade, who will take you through our Q3 financials in greater detail.

Speaker Change: The cost savings we implemented in the first half combined with the healthy revenue growth in the quarter drove these strong results.

Speaker Change: We remain on track to continue realizing the initial $6 million of annualized savings in the final quarter of 2024.

Speaker Change: with the benefit of cost improvements anticipated in 2025 for the full year. We also stand by our target to achieve positive net operating income at the platform level for the full year 2025.

Speaker Change: Moreover, we remain confident in Caliber's medium and long-term growth prospects.

Speaker Change: And we are acting to ensure that we can achieve our previously announced three-year goals.

Speaker Change: I will now turn the call over to Jade, who will take you through our third quarter financials in greater detail.

Jade Leung: Thank you, Chris. Good afternoon, everyone. Before I begin, I wanted to respond to feedback we received from our partners and investors who are unsure how Caliber's financial performance is impacted by the changes that were reflected in our consolidated financial presentation. I'd like to take a moment to simplify what that change is and how it impacts our results. Consolidation is very simply the process of combining the activities of individual businesses and presenting their results altogether in one view or presentation. Any activities that are generated between those individual businesses are removed in this presentation to avoid inflating or double-counting results. Consolidation generally occurs when one company owns more than 50% of the equity of another company. However, it can also be required for other reasons that have nothing to do with equity ownership.

Thank you, Chris. Good afternoon, everyone.

Jade Leung: Before I begin I wanted to respond to feedback we received from our partners and investors who are unsure how Caliber's financial performance is impacted by the changes that were reflected in our consolidated financial presentation.

Jade Leung: I'd like to take a moment to simplify what that change is and how it impacts our results.

Jade Leung: Consolidation is very simply the process of combining the activities of individual businesses and presenting their results all together in one view or presentation.

Jade Leung: Any activities that are generated between those individual businesses are removed in this presentation to avoid inflating or double-counting results. Consolidation generally occurs when one company owns more than 50% of the equity of another company.

Jade Leung: However, it can also be required for other reasons that have nothing to do with equity ownership.

Jade Leung: An investor in Caliber, the CWD, is invested in an entity which provides management and related services platform, if you will, to real estate investment funds. These real estate investment funds each have their own separate investors who are themselves only exposed to the risks and the benefits of their respective fund. Because of this, being an investor in CWD is very different than being an investor in one of these real estate investment funds. CWD is required to include some of the real estate investment funds we manage in our consolidated results, simply because we were a guarantor of debt that is secured by the real estate asset held in that fund. This financing structure, and as a result, this requirement to consolidate, is not uncommon in the asset management and private equity industries.

Jade Leung: An investor in Caliber, the CWD, is invested in an entity which provides management and related services.

platform, if you will, to real estate investment funds.

Jade Leung: These real estate investment funds each have their own separate investors who are themselves only exposed to the risks and the benefits of their respective fund.

Jade Leung: Because of this, being an investor in CWD is very different than being an investor in one of these real estate investment funds.

Jade Leung: CWD is required to include some of the real estate investment funds we manage in our consolidated results simply because we were a guarantor of debt that is secured by the real estate asset held in that fund.

Jade Leung: This financing structure and as a result this requirement to consolidate is not uncommon in the asset management and private equity industries.

Jade Leung: Some of these assets were, in the normal course of business, refinanced in the current year, and the terms of that new debt did not require CWD to be a guarantor anymore. Guarantor requirements can vary by lender, and the necessity to have a guarantor can be impacted by the strength and health of the underlying real estate. As a result of this event, we are no longer required to include these real estate funds in our consolidated results. As we have previously discussed, beginning in Q1 of this year, we are no longer required to consolidate Caliber Hospitality LP and the underlying six Caliber hotels. In Q2, we are also no longer required to consolidate Elliot and 51st Street LLC and its underlying asset, which is being converted from a hotel to a multifamily apartment.

Jade Leung: Some of these assets were, in the normal course of business, refinanced in the current year, and the terms of that new debt did not require CWD to be a guarantor anymore.

Jade Leung: Guarantor requirements can vary by lender and the necessity to have a guarantor can be impacted by the strength and health of the underlying real estate.

Jade Leung: As a result of this event, we are no longer required to include these real estate funds in our consolidated results.

Jade Leung: As we have previously discussed, beginning in Q1 of this year, we are no longer required to consolidate Caliber Hospitality LP and the underlying six Caliber hotels.

Jade Leung: In Q2, we are also no longer required to consolidate Elliot and 51st Street LLC and its underlying asset, which is being converted from a hotel to a multifamily apartment.

Jade Leung: Now in Q3, we are also no longer required to consolidate DT Mesa and its underlying commercial properties. As a result, our comparative financial information is less meaningful since the prior year's results continue to include the historical performance of these assets. It's for these reasons that we continue to include unconsolidated platform performance information in these updates to provide a clear understanding of the performance and growth of the company over time. We use the term platform interchangeably with unconsolidated in this regard. With that, I'll now turn to our results for Q3 2024. Q3 total consolidated revenue was $12 million, a decrease of 29.5% versus the same period a year ago, primarily due to a decrease in consolidated fund revenues.

Jade Leung: And now in Q3, we are also no longer required to consolidate DT Mesa and its underlying commercial properties.

As a result, our comparative financial information is less meaningful.

Jade Leung: since the prior year's results continue to include the historical performance of these assets.

Jade Leung: It's for these reasons that we continue to include unconsolidated platform performance information in these updates to provide a clearer understanding of the performance and growth of the company over time.

Jade Leung: We use the term platform interchangeably with unconsolidated in this regard.

Jade Leung: With that, I'll now turn to our results for the third quarter of 2024.

Jade Leung: Third quarter total consolidated revenue was $12 million, a decrease of 29.5% versus the same period a year ago, primarily due to a decrease in consolidated fund revenues.

Jade Leung: This decrease was due to the deconsolidation of Caliber Hospitality LP and the Caliber Hospitality Trust in March of Elliot and 51st Street and DT Mesa in Q2 and Q3 respectively, and was partially offset by an increase in asset management revenue due to an increase in fund management revenues. Consolidated expenses for Q3 declined by 60.8% to $11.1 million. The decrease was primarily due to a decrease in consolidated fund expenses, which was due to the deconsolidation of the same assets noted prior. For Q3 2024, net income attributed to CaliberCos Inc., which excludes net loss attributable to non-controlling interest, was $0.1 million or $0.10 per diluted share. This compares to net loss attributed to CaliberCos Inc. of $3.4 million or $0.16 per diluted share in the same period a year ago. Total platform revenue increased 98.9% to $7.4 million.

Jade Leung: This decrease was due to the deconsolidation of Caliber Hospitality LP and the Caliber Hospitality Trust in March.

Jade Leung: Elliott and 54th Street and DT Mesa in Q2 and Q3 respectively and was partially offset by an increase in asset management revenue due to an increase in fund management revenues.

Jade Leung: Consolidated expenses for the third quarter declined by 60.8% to $11.1 million. The decrease was primarily due to a decrease in consolidated fund expenses, which was due to the deconsolidation of the same assets noted prior.

Jade Leung: For the third quarter of 2024, net income attributed to Calvert, which excludes net loss attributable to non-controlling interest, was $0.1 million, or

Jade Leung: or 0.1 per diluted share. This compares to net loss attributed to caliber of 3.4 million or 16 cents per diluted share in the same period a year ago.

Total platform revenue.

increased 98.9 percent to 7.4 million.

Jade Leung: The increase in platform revenue was primarily driven by development and construction fees due to the commencement of two new development projects, in addition to the achievement of milestones related to existing activities. The increase was also driven by higher fund management fees related to an increase in managed capital and fees earned from the growth in the Caliber Hospitality Trust impacted by the acquisition of one hotel property. Fund management fees were based on 1% to 1.5% of the unreturned capital contributions in each fund and a fund management fee of 0.7% of the Caliber Hospitality Trust enterprise value.

Jade Leung: The increase in platform revenue was primarily driven by development and construction fees due to the commencement of two new development projects, in addition to the achievement of milestones related to existing activities.

Jade Leung: The increase was also driven by higher fund management fees related to an increase in managed capital and fees earned from the growth in the Caliber Hospitality Trust impacted by the acquisition of one hotel property.

Jade Leung: Fund management fees were based on one to one and a half percent of the unreturned capital contributions in each fund, and a fund management fee of

0.7% of the Caliber Hospitality Trust Enterprise value.

Jade Leung: The increase in fund setup fees is due to capital raise fees earned related to an existing fund during the three months ended 30 September 2024, as well as revenue earned from two new fund offerings during the nine months ended 30 September 2024, for which revenue was not recognized in 2023. Performance allocations during Q3 were nominal. Total platform expenses in Q3 were $6.5 million, a decrease of 2.4% compared to Q3 last year, primarily due to a decrease in expenses resulting from our cost reduction campaign implemented in May 2024, which reduced both operating expenses or payroll and general and admin expenses, which included a decrease in legal fees and some accounting fees. Platform interest expense in Q3 was $1.3 million, essentially flat compared to the year ago period.

Jade Leung: The increase in fund setup fees is due to capital raise fees earned related to an existing fund during the three months ended September 30th, 2024, as well as revenue earned from two new fund offerings during the nine months ended September 30th, 2024.

Jade Leung: September 30, 2024, for which revenue was not recognized in 2023.

Performance allocations during the quarter were nominal.

Jade Leung: Total platform expenses in Q3 were $6.5 million, a decrease of 2.4% compared to Q3 last year.

Jade Leung: primarily due to a decrease in expenses resulting from our cost reduction campaign implemented in May of 2024, which reduced both operating expenses or payroll and general and admin expenses, which included a decrease in legal fees and some accounting fees.

Jade Leung: Platform interest expense in the third quarter was $1.3 million, essentially flat compared to the year ago, period.

Jade Leung: platform adjusted EBITDA for Q3 was $2.4 million compared to platform adjusted EBITDA loss of $1.5 million during the same period a year ago, due to the improvements in the platform's performance noted above. Managed capital was $485.3 million, a 10.9% increase compared to 31 December 2023, with originations of $61.4 million, partially offset by redemptions of $13.8 million. Turning to an update on our platform balance sheet. As Chris mentioned and as we've discussed previously, we have approximately $33 million of corporate debt consisting of 211 individual unsecured notes coming due within the next 12 months. Each note generally has a 12-month term with an option to extend for an additional 12 months. Although we have historically been able to extend a significant number of these notes, our lack of available cash on hand is causing pressure in terms of cash flow in the company.

Jade Leung: Platform-adjusted EBITDA for the third quarter was $2.4 million, compared to platform-adjusted EBITDA loss of $1.5 million during the same period a year ago, due to the improvements to the platform's performance noted above.

Jade Leung: Managed capital was $485.3 million, a 10.9% increase compared to December 31, 2023, with originations of $61.4 million, partially offset by redemptions of $13.8 million.

Turning to an update on our platform balance sheet.

Speaker Change: As Chris mentioned and as we've discussed previously, we have approximately 33 million of corporate debt consisting of 211 individual unsecured notes coming due within the next 12 months.

Speaker Change: Each note generally has a 12-month term with an option to extend for an additional 12 months.

Speaker Change: Although we have historically been able to extend a significant number of these notes, our lack of available cash on hand is causing pressure in terms of cash flow in the company.

Jade Leung: In an effort to manage and improve our cash flow position, during the nine months ended 30 September 2024, we collected $8.2 million of notes receivable and $2.7 million of accounts receivable. The company also executed a reduction in force of approximately 10% of its employees in May, with an expected annual compensation and benefits expense saving of $4 million. The company has also executed on a cost reduction plan with an estimated annual savings of $2.5 million. We have seen the impact of these efforts and their contribution to our positive performance demonstrated in Q3. We continue to look for opportunities to refinance and recapitalize our balance sheet and are confident in our ability to achieve our goals. I'll now turn it back to Chris for his final remarks before we take your questions.

Speaker Change: In an effort to manage and improve our cash flow position, during the nine months ended September 30, 2024, we collected $8.2 million of notes receivable and $2.7 million of accounts receivable.

Speaker Change: The company also executed a reduction in force of approximately 10% of its employees in May with an expected annual compensation and benefits expense saving of $4 million. The company has also executed on a cost reduction plan with an estimated annual savings of $2.5 million.

Speaker Change: We have seen the impact of these efforts and their contribution to our positive performance demonstrated in the third quarter. We continue to look for opportunities to refinance and recapitalize our balance sheet and are confident in our ability to achieve our goals.

Chris Loeffler: I'll now turn it back to Chris for his final remarks before we take your questions.

Chris Loeffler: Thank you, Jade. Before turning to the Q&A session, I'd like to recap the progress we've made. As a management team, we're pleased to see that Caliber is on track, making progress to achieve consistent, profitable growth. For those of you who have run a business in the past or participated in companies growing through change, I'm sure it comes as no surprise to you that the heroes of this story are the employees at Caliber who have worked incredibly hard and made sacrifices to help us achieve these goals, and the investment clients of Caliber who have been our steadfast partners through the ups and downs of many cycles. It is with heartfelt thanks from our leadership team to our employees and clients that I conclude this call and turn it over to the Q&A.

Chris Loeffler: Thank you, Jade. Before turning to the Q&A session, I'd like to recap the progress we've made. As a management team, we're pleased to see that Caliber is on track making progress to achieve consistent profitable growth.

Chris Loeffler: For those of you who have run a business in the past or part or participated in companies going through growing through change

Chris Loeffler: I'm sure it comes as no surprise to you that the heroes of this story are the employees at Caliber who have worked incredibly hard and made sacrifices to help us achieve these goals, and the investment clients of Caliber who have been our steadfast partners through the ups and downs of many cycles.

Chris Loeffler: It is with heartfelt thanks from our leadership team to our employees and clients that I conclude this call and turn over to the Q&A. Thank you to the listeners for joining, and Jade and I look forward to taking your questions now.

Chris Loeffler: Thank you to the listeners for joining, and Jade and I look forward to taking your questions now.

Operator 2: Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the one on your touch-tone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, press the star followed by the two. If you are using a speakerphone, please lift the handset before pressing any keys. One moment, please, for your first question. Your first question comes from the line of Brendan McCarthy from Sidoti.

Thank you.

Speaker Change: Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the one on your touchtone phone.

Speaker Change: You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, press the star followed by the two. If you are using a speakerphone, please lift the handset before pressing any keys.

One moment, please, for your first question.

Your first question comes from the line

Brendan McCarthy: Great. Hey, Chris. Hey, Jade. Congratulations on the results. Just want to start off looking at CHT. I believe that we previously discussed there were some hotels in the end now with remaining eight contracts that close by the end of this year. Is that still a reasonable expectation? Can you also comment on the preferred equity environment there for raising preferred equity to ultimately bring those deals to close?

Speaker Change: Hey, Chris. Hey, James. Congratulations on the results. I just wanted to start off looking at CHT. I believe that we

Speaker Change: Previously discussed, there were seven hotels in the entity now with a remaining eight on track to close by the end of this year. Is that still a reasonable expectation? And then can you also comment on the

Speaker Change: Preferred equity environment there for raising preferred equity to ultimately bring those that deal for those deals to close.

Chris Loeffler: Sure. Thank you for the question, Brendan. I think we are still on track for those eight assets through year-end. Subject to the natural ups and downs of the holidays, of course. We did announce on our previous call that we had signed a definitive term sheet for the majority of the equity necessary to close on that transaction, and we have recently done the same on the debt side to refinance their debt. We feel like we're in good shape to get that closed on time. The Satori Collective transaction I just announced as well is rapidly moving behind them. Subject to all the customary closing conditions, we hope to get that closed very quickly as well.

Speaker Change: Sure. Thank you for the question, Brendan. I think we are still on track for those eight assets.

Speaker Change: through year end and subject to the natural ups and downs of the holidays, of course, we didn't announce on our previous call that we had signed a definitive term sheet for the

Speaker Change: The majority of the equity necessary to close on that transaction, and we have recently done the same on the debt side to refinance their debt, and so we feel like we're in good shape to get that closed on time.

Speaker Change: And then the Satori Collective transaction I just announced, as well, is rapidly moving behind them. So, you know, subject to all the customary closing conditions, we hope to get that closed very quickly as well.

Brendan McCarthy: Great. Thanks, Chris. Thanks for the insight. Looking at the Q3 results, the roughly 99% increase in platform revenue. Can you just go into detail on the higher fee income from the loan placements and offerings and how that came about?

Speaker Change: Great. Thanks, Chris. Thanks for the insight. Looking at the third quarter results,

Speaker Change: Roughly 99% increase in platform revenue. Can you just go into detail on the higher fee income from the loan placements and offerings and what that – or how that came about?

Chris Loeffler: Sure. I think one thing I'll state, and then I'll actually turn it over to Jade to go through some of the detail, is that I put in my prepared remarks the note that you're getting a chance to see the company through our eyes, and we're starting to see those results come through as part of our long-term business plan. While it's certainly a sizable jump quarter over quarter than it has been in the past, we are working very hard to generate higher levels of revenue consistently. Like I said, to the best of our ability and up into the right fashion, but of course, there's nothing linear in the type of market environment that we're in. We'll see. We're pushing hard with the management team to continue to show this kind of growth and performance.

Speaker Change: Sure, I mean I think one thing I'll state and then I'll actually turn it over to Jade to go through some of the detail is that

Speaker Change: Well, it's certainly a sizable jump, quarter over quarter, than it has been in the past. We are working very hard to generate higher levels of revenue consistently.

Speaker Change: Like I said, to the best of our ability and up into the right fashion, but of course, there's nothing linear in the type of market environment that we're in. So we're pushing hard with the management team to continue to show this kind of growth and performance.

Chris Loeffler: I'll let Jade get into the details on specifically the drivers there.

Speaker Change: But I'll let Jade get into the details on specifically the drivers there.

Jade Leung: Hey, Brendan. I think the one thing that I will comment on is as the managed capital that we have grows, there's a direct impact on our fund management fees. As that fundraising continues to advance and move forward, our fees are growing at the same rate. How those fees are being deployed into different assets then stimulates other areas of the business. What I highlighted there earlier was around some of the positive momentum that we are seeing in our development and construction activities, which we think will continue to move forward in the same fashion through the end of the year.

Jade Leung: Hey, Brendan, I think the 1 thing that I will comment on is as the as the. Uh, the managed capital, uh, port.

managed capital that we have grows.

Jade Leung: there's a direct impact on our fund management fees. So as that fundraising continues to advance and move forward, our fees are growing at the same rate.

Jade Leung: And then how those fees are being deployed into different assets then stimulates other areas of the business. So, what I highlighted there earlier was around

Jade Leung: some of the positive momentum that we're seeing in our development and construction activities, which we think will continue to move forward in the same fashion through the end of the year.

Brendan McCarthy: Got it. Thanks, Jade. You mentioned fundraising. It looked like there was a solid origination of roughly $61 million in the quarter. I guess, are you starting to see a nice benefit from the wholesale channel, or I guess from which channels has the bulk of that fundraising came from?

Speaker Change: Got it. Thanks Chris. Thanks Jade. And you mentioned fundraising, it looks like there's a...

solid originations of roughly 61 million in the quarter.

Speaker Change: I guess, are you starting to see a nice benefit from the wholesale channel, or I guess, where – from which channels has most of that fundraising kind of came from?

Chris Loeffler: Yeah, I'm happy to share that we actually have started to see. As you know, we started the wholesale channel about a year ago, and we're starting to see actual checks come through from a fundraising perspective. We've seen investment advisors really take to our products, specifically independent registered investment advisors and some in the broker-dealer channel. We're starting to see some pickup. It's probably still the minority of the capital we're raising for the quarter, but we're starting to realize what we hope to see as a good path going forward. The other thing I'd add to that on the fundraising side is that year-over-year, fundraising across the industry has been down in private real estate funds and significantly up in private lending funds.

Speaker Change: Yeah, I'm happy to share that we actually have started to see, as you know, we started the Wholesale Channel about a year ago, and we're starting to see actual checks come through from a fundraising perspective.

Speaker Change: We've seen investment advisors really take to our products, specifically independent registered investment advisors and some in the broker-dealer channel and we're starting to see some pickup.

Speaker Change: It's probably still the minority of the capital we're raising for the quarter.

Speaker Change: But we're starting to realize what we we hope to see is a good path going forward

Speaker Change: The other thing I'd add to that on the fundraising side is that year over year, fundraising across the industry has been down in private real estate funds and significantly up in private lending funds.

Chris Loeffler: Again, with the decrease in real estate values that we talked about and the expectation that revenues on those assets are going to start growing again, it does beg the question: when does the reversal happen? That's something we're watching closely. We think that it's the right time to invest in private real estate, and we're prepared for that. In order to achieve our fundraising goals, we've been introducing some of these unique programs like the 1031 program and the QOF merger program to attract more capital.

Speaker Change: But again, with the decrease in real estate values that we talked about, and the expectation that revenues on those assets are going to start growing again,

Speaker Change: It does beg the question, when does the reversal happen? That's something we're watching closely, so

Speaker Change: We think that it's the right time to invest in private real estate and we're prepared for that. In order to achieve our fundraising goals, we've been introducing some of these unique programs like the 1031 program and the QOF merger program to attract more capital.

Brendan McCarthy: Got it. Thanks, Chris. That's helpful. One more from me, and then I'll turn it back over. Just looking at performance allocations, I know it could be a material part of the business, but I think it makes sense at this point that it's trended roughly flat, just considering the environment that you described in your prepared remarks. How can investors think about performance allocations looking out next couple years?

Speaker Change: Got it. Thanks, Chris. That's helpful. One more from me and then I'll turn it back over. Just looking at performance allocations, I know it can be a material part of the business, but I think it makes sense at this point that it's been.

Speaker Change: trying to roughly apply just considering the environment that you described in your prepared remarks. But how can investors kind of think about performance allocations looking out? Next couple of questions right here.

Chris Loeffler: Yeah, I think you cut out a little bit. I think your question is sort of around the concept of how do investors think about performance allocations. It's a difficult thing to predict because when's the right time to sell an asset and when is the environment going to be good for that? With prices declining, we've been hesitant to sell anything that we currently manage that doesn't have a story around it on why we want to sell it. With interest rates coming down, the decline is starting to find their footing. We are starting to see opportunities to harvest some of the embedded gains that we have in our asset pool. I think that performance allocations looking forward are still something that is difficult for us to predict and to share any forward-looking information on.

Speaker Change: Yeah, I think you cut out a little bit, but I think your question is sort of around the concept of how do investors think about performance allocations. You know, it's a difficult thing to predict because when's the right time to sell an asset and when's the environment going to be good for that. With prices declining, we've been hesitant to sell anything that we currently manage that...

Speaker Change: You know, it doesn't have a story around it and why we want to sell it, but with interest rates coming down

The decline starting to find their footing.

Speaker Change: we are starting to see opportunities to harvest some of the embedded gains that we have in our asset pool, so.

I think that performance allocations...

Speaker Change: Looking forward are still something that is difficult for us to predict

and to share any forward-looking information on.

Chris Loeffler: I can tell you that the growth in our NOI for next year and our expectation to be profitable next year that we've announced is driven primarily by ongoing growth in our asset management fee income and that mix of different fees that Jade mentioned.

But I can tell you that, you know.

Speaker Change: The growth in our NOI for next year and our expectation to be profitable next year that we've announced is driven primarily by ongoing growth in our asset management fee income and that mix of different fees that Jade mentioned.

Brendan McCarthy: Got it. That's helpful. Thanks, Chris. Thanks, Jade. That's all from me.

That's helpful. Thanks, Chris. Thanks, Jay. That's all for me.

Chris Loeffler: Thanks, Brendan.

Operator 2: Thank you. There are no further questions at this time. I'd now like to turn the call over to the presenters for final closing comments.

Speaker Change: Thank you. There are no further questions at this time. I'd now like to turn the call over to the presenters for final closing comments.

Chris Loeffler: Thank you. I'd just like to reiterate our gratitude, as you heard, to our employees for their ongoing dedication and commitment, and thank our loyal investors and partners for your continued interest and investment with Caliber. Thank you for your time today. If you want to follow along with our story, the best way to do so is to sign up on our website under the CWD public investors section. Make sure that many of you have followed us for a long time in our private real estate funds. If you weren't signed up on that CWD page, you may miss some of the announcements around us as a public company. If you have any additional questions, please reach out to our investor relations team at Financial Profiles. Thanks very much.

Speaker Change: Thank you. So I'd just like to reiterate our gratitude, as you heard, to our employees for their ongoing dedication and commitment and thank our loyal investors and partners for your continued interest and investment with Caliber. Thank you for your time today. If you want to follow along with our story, the best way to do so is to sign up on our website.

Speaker Change: under the CWD or sort of public investors section, make sure that.

Speaker Change: Many of you have followed us for a long time in our private real estate funds, but if you weren't signed up on that CWD page, you may miss some of the announcements around us as a public company. And if you have any additional questions, please reach out to our investor relations team at Financial Profiles. Thanks very much.

Operator 2: Thank you. Ladies and gentlemen, this concludes your conference call today. We thank you for participating and ask that you please disconnect your lines.

Speaker Change: Thank you. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.