CaliberCos Inc. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. Unaudited results are prepared under U.S. GAAP. Caliber is an alternative real estate asset manager with Fund Management, Development, and Brokerage segments. Consolidated fund activity is included gross in the financial statements, so reported revenue, expenses, assets, and debt include amounts attributable to fund investors.
Financial performance and position
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Total revenue | $17.0 million | $19.5 million | $67.0 million | $62.5 million |
| Total expenses | $28.4 million | $21.4 million | $88.8 million | $66.1 million |
| Net income (loss) | $(12.2) million | $(0.7) million | $(23.5) million | $19.1 million |
| Net income (loss) attributable to Caliber | $(3.4) million | $4.4 million | $(10.3) million | $4.5 million |
| Basic EPS | $(0.16) | $0.24 | $(0.53) | $0.25 |
- Revenue mix: Nine-month revenue included $52.0 million of consolidated fund hospitality revenue, $6.3 million of fund other revenue, $3.8 million of asset management fees, $2.5 million of performance allocations, and $2.5 million of transaction and advisory fees.
- Cash flow: Nine-month operating cash use was $11.1 million, investing cash use $44.0 million, and financing cash provided $57.6 million. Cash and restricted cash totaled $18.4 million at September 30, including $1.0 million of corporate cash and $2.5 million of corporate restricted cash. Fund cash and restricted cash are not generally available for corporate purposes.
- Debt: At September 30, notes payable, net, were $54.3 million for the Company and $147.8 million for consolidated funds. The Company reported $38.2 million of corporate notes, generally bearing 10%–12% interest and averaging 11.42% weighted interest; reported corporate debt also included a $16.3 million headquarters real estate loan and $1.3 million of convertible notes.
- Balance sheet: Total assets were $324.7 million, total liabilities $250.0 million, and total stockholders’ equity $74.8 million. Accumulated deficit was $34.5 million.
- Operating indicators: Managed capital reached $412.4 million, up from $383.2 million at year-end 2022; fair-value AUM was approximately $822.5 million, up from $745.5 million.
Material changes versus prior periods
- Third-quarter revenue fell 12.7%, chiefly as transaction and advisory fees declined $4.8 million from the year-ago quarter, which included substantial fund organization and offering fees. Consolidated fund revenue rose, partly reflecting Hilton Tucson East, consolidated in 2023.
- Nine-month revenue increased 7.2%, but expenses rose 34.5%; the Company moved from $19.1 million net income in 2022 to a $23.5 million net loss in 2023. The prior-year period included a $21.5 million consolidated fund property-sale gain.
- Interest expense increased to $3.4 million for the first nine months from $0.7 million, primarily due to higher corporate notes outstanding and real estate debt. Operating costs also rose, including payroll, bonus, and IPO-related stock compensation costs.
- The Company acquired its headquarters building for $19.5 million and assumed a $16.3 million loan. Five hospitality funds were contributed to Caliber Hospitality, LP and subsequently consolidated, along with other VIE consolidations; these changes affect reported financial scale and comparability.
- On May 19, 2023, the Company completed its IPO of 1.2 million Class A shares at $4.00 per share, with $4.8 million gross proceeds. The buyback obligation was relieved upon listing.
Outlook, risks, contingencies, and unusual items
- Management stated that it believes available capital is sufficient for current liquidity needs for at least 12 months, while noting significant refinancing and extension needs. The Company had $38.1 million of individual corporate notes maturing within the 12 months after issuance of the statements; management expects to seek extensions by mutual agreement. It also guaranteed five consolidated-fund loans totaling $28.8 million with maturities in that period and was pursuing extensions, repayment, or refinancing.
- Management cited inflation, higher interest rates, construction and labor costs, market volatility, fundraising uncertainty, and availability and cost of refinancing as business risks. It gave no numerical earnings or revenue guidance.
- At September 30, the DT Mesa fund was out of compliance with its debt-service-coverage covenant; the lender could declare default. Management was negotiating with the lender. Subsequent to quarter-end, the maturity was extended to February 7, 2024. Other near-term loan maturities also received extensions after quarter-end, including Holiday Inn Ocotillo to February 1, 2024; a Four Points loan had matured in September and was not called as of November 9 while negotiations continued.
- Four Points by Sheraton ceased hotel operations as the property was being converted to multifamily use. The filing also reports $12.8 million of related-party notes payable at consolidated funds and management’s expectation to extend those notes at maturity.
- On October 13, 2023, a consolidated-fund property sold for $27.4 million, generating approximately $12.2 million net cash proceeds after debt repayment, costs, and fees, and an estimated $5.0 million gain before an approximately $0.2 million debt-extinguishment loss.
- Management reported disclosure controls and procedures were effective at a reasonable assurance level as of September 30, 2023. No material change in internal control was reported for the quarter. No material change to previously disclosed risk factors was reported.
Most important facts for investors to verify
- Near-term corporate note maturities, lender extensions, and the Company’s ability to refinance or repay guaranteed fund debt.
- Liquidity available to the parent company, separately from fund cash and restricted cash, and the timing of interest and other cash obligations.
- Whether hospitality operations and cost inflation can improve fund-level economics after expenses grew faster than revenue.
- Fundraising, asset-sale, and development execution assumptions supporting managed capital and fair-value AUM, including the financing needed for the stated $2.2 billion development pipeline.
- Related-party receivables, notes, guarantees, and fund consolidations, and their effects on cash availability and reported results.