CaliberCos Inc. Q3 FY2024 earnings call

• Achieved positive adjusted EBITDA and platform earnings during the quarter, nearly doubling asset management revenues over quarters.
• Tracking slightly ahead of objectives for positive platform adjusted EBITDA in Q4 2024 and positive platform net operating income in 2025.
• Implemented cost savings to right size the business.
• Strategic priorities: Acquire more income-generating real estate (e.g., CHT acquisition, 1031 exchange solutions), accelerate single asset investment offerings (e.g., Canyon Corporate Center, Pure Pickleball project), and build what we own using creative financing (e.g., QOF Roll Up Program).
• Market trends: Interest rates reduced, asset prices decelerating in decline, 88% of real estate industry experts expect commercial real estate revenues to grow next year.
• Deconsolidation of certain real estate funds due to changes in guarantor requirements for debt.

Total consolidated revenue for the third quarter was $12 million, a decrease of 29.5% versus the same period a year ago. Platform revenue increased 98.9% to $7.4 million. Platform expenses in Q3 were $6.5 million, a decrease of 2.4% compared to Q3 last year. Platform adjusted EBITDA for the third quarter was $2.4 million compared to a platform adjusted EBITDA loss of $1.5 million during the same period a year ago. 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.

• Tracking slightly ahead of objectives for positive platform adjusted EBITDA in Q4 2024 and positive platform net operating income in 2025.
• Remain on track to realize initial $6 million of annualized savings in Q4 2024, with cost improvements anticipated in 2025.
• Target to achieve positive net operating income at the platform level for the full year 2025.
• Confident in medium and long-term growth prospects and acting to achieve three-year goals.

• Volatility in business.
• Macro trends like rapid rise in interest rates, decrease in commercial real estate values, and slow fundraising into private real estate funds.
• Cash flow pressure due to $33 million of corporate debt coming due within 12 months and lack of available cash on hand.
• Uncertainty in predicting performance allocations due to market conditions and asset sale decisions.

Q: Congratulations on the results. Just wanted to start off looking at CHT. I believe that we previously discussed, there were 7 hotels in the end now with remaining 8 contracts to close by the end of this year that still a reasonable expectation. And then can you also comment on the preferred equity environment there for raising preferred equity to ultimately bring those deals to close?

A: Sure, thank you for the question. Brendan. I think we are still on track for those 8 assets through year end, and 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 on the debt side, to refinance their debt. And so we feel like we're in good shape to get that closed on time. And then the Satori Collective transaction I just announced as well is rapidly moving behind them. So subject to all the customary closing conditions, we hope to get that closed very quickly as well.

Q: Great Thanks, Chris. Thanks for the insight and looking at third quarter 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 with that kick or how that came about.

A: 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, you know, I put in the in my prepared remarks, the note that you're getting to see a chance, 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. So while sit's certainly a sizable jump quarter over quarter, than it has been in the past. It is, you know, we are working very hard to generate higher levels of revenue consistently, and, like I said, you know, to the best of our ability, in up into the right fashion. But of course, you know, there's nothing linear in the type of market environment that we're in. So we'll see. We're pushing hard with the management team to continue to show this kind of growth and performance but I'll let Jade get into the details on specifically the drivers there.

Q: Hey, Brennan, I think the one thing that I will comment on is as the managed capital, managed capital that we grows there's a direct impact on our fund management fees. And so as those -- as that fundraising continues to advance and move forward, our fees are growing at the same rate, 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 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.

Q: Got it. Thanks, Chris, thanks, Jade, I mentioned fundraising. It looks like there's 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 where -- from which channels have both of that fundraising kind of came from?

A: 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, and 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. 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, it does beg the question, when does the reversal happen? That's something we're watching closely. So we think that it's the right time to invest in private real estate, and we're prepared for that and 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.

Q: Thanks, Chris, that's helpful. One more for me, and then I'll turn it back over just looking at performance allocations. I know, yes, it can be mature part of the business, but I think it makes sense at this point that it's been roughly flat, just considering the environment that you described in your prepared remarks. But how can investors kind of think about now, next couple years?

A: Yeah, I think you cut out a little bit, but I think your question is sort of around the concept of how to 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, you know, it doesn't have a story around it on why we want to sell it. But with interest rates coming down, the decline 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. So 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 but I can tell you that you know the growth in our NOI for next year and our expectation to be profitable next year that we've announced is driven by ongoing growth in our asset management fee income and that mix of different fees that Jade mentioned.