CaliberCos Inc. — Q2 2023 Form 10-Q
Business context and period. Unaudited results for the three and six months ended June 30, 2023. Caliber is a vertically integrated real estate asset manager, with Fund Management, Development, and Brokerage segments. Consolidated results include funds and properties Caliber controls for accounting purposes; fund assets and cash are generally not available for corporate use.
Key financial results
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $20.4m | $18.7m | $50.0m | $43.0m |
| Net income (loss) | $(11.6)m | $(2.0)m | $(11.3)m | $19.7m |
| Net income (loss) attributable to Caliber | $(5.7)m | $(0.5)m | $(6.9)m | $0.1m |
| Basic and diluted EPS | $(0.29) | $(0.03) | $(0.37) | $0.01 |
| Operating cash flow | Not separately stated for Q2 | $(3.5)m | $1.0m | |
| Investing cash flow | Not separately stated for Q2 | $(42.9)m | $(17.9)m | |
| Financing cash flow | Not separately stated for Q2 | $51.9m | $27.3m |
- Q2 revenue increased 9.4%, but expenses rose 53.5% to $31.4m; expenses exceeded revenue by $11.0m. Six-month expenses increased 35.3% to $60.4m.
- Six-month total revenue included $39.5m of consolidated-fund hospitality revenue and $4.1m of other consolidated-fund revenue. Asset management fees were $2.5m; performance allocations were $2.4m; transaction and advisory fees were $1.4m.
- At June 30, total assets were $329.0m and total liabilities $246.4m. Caliber-attributable equity was $7.9m; total equity including noncontrolling interests was $82.6m.
- Caliber reported $1.3m of corporate cash and $2.3m of corporate restricted cash. Consolidated funds held $7.2m cash and $10.5m restricted cash. Cash and restricted cash combined were $21.4m; fund cash is generally unavailable for corporate purposes.
- Corporate notes payable, net, were $55.0m, including $37.5m of corporate notes bearing 10%–12% and $1.3m of convertible notes. Consolidated-fund notes payable, net, were $147.3m, plus $10.4m of fund notes payable to related parties. Debt maturities and terms vary substantially by facility.
- The filing does not provide a single consolidated operating-margin measure; reported expenses substantially exceeded revenue in Q2.
Changes versus comparable periods
- Q2 net loss widened to $11.6m from $2.0m. Six-month results shifted from $19.7m net income to an $11.3m net loss. The 2022 six-month comparison included a $21.5m gain on the sale of GC Square Apartments; there were no consolidated-fund property sales in the first half of 2023.
- Consolidated hospitality revenue rose, partly reflecting Hilton Tucson East’s consolidation in Q1 2023 and recovering hotel operations. Consolidation also added fund expenses. Changes in which funds are consolidated reduce period-to-period comparability.
- Corporate operating costs increased, which management attributed to headcount, compensation, growth initiatives, bonus timing, and IPO-related restricted-stock vesting. Interest expense rose to $1.3m in Q2 and $2.1m for the first half, largely due to higher corporate borrowing and, for the half-year, additional real estate debt.
- First-half investing outflow included the $19.5m purchase of Caliber’s headquarters and $6.6m of consolidated-fund property acquisitions. Financing inflows included $42.8m of corporate note proceeds and $3.2m net proceeds from common-stock issuance.
- Caliber completed its IPO on May 19, 2023, issuing 1.2m Class A shares at $4 per share for $4.8m gross proceeds. The buyback obligation was relieved, and the company reported no remaining obligation under the program. Series B preferred shares were converted to Class A common stock.
Outlook, risks, and unusual items
- Management stated that it believes current capital is sufficient for corporate liquidity needs for at least 12 months. It also expects to extend or refinance debt, but this is not assured. Five loans guaranteed by Caliber and held by consolidated funds totaled $28.8m and mature within 12 months after the financial statements were issued.
- Corporate notes totaled $37.5m at June 30, with maturities from July 2023 to March 2025; management said July maturities were extended or repaid and it was working to extend August maturities. The consolidated-fund maturity schedule shows $29.4m due in the second half of 2023.
- DT Mesa Holdco II was not in compliance with its debt-service-coverage covenant at June 30, 2023 and December 31, 2022. The lender could declare default; management was negotiating a solution, with no assurance of agreement. Other loans carry near-term maturities, including hotel loans due in September and November 2023.
- Management cited inflation, higher interest rates, market volatility, financing availability, fundraising, construction costs, and asset valuations as business risks. A 100-basis-point move in variable rates was estimated to change annual interest expense by $0.8m.
- Caliber reported $825.3m of fair-value AUM and $401.8m of managed capital at June 30. Its active development pipeline included estimated total project costs of $2.2bn if completed; funding is expected from multiple sources, is not assured, and Caliber is not obligated to complete the projects.
- Other notable items: Caliber consolidated and deconsolidated multiple variable-interest entities during the period; related-party notes receivable included $31.7m held by consolidated funds. Management reported effective disclosure controls as of June 30. It reported no material change in previously disclosed risk factors and no legal proceedings believed likely to have a material effect.
Important facts for investors to verify
- Near-term maturities, extensions, refinancing status, and the resolution of the DT Mesa covenant noncompliance and potential default.
- How much cash is actually available to the parent company, versus restricted or held within consolidated funds, and whether corporate liquidity remains adequate.
- Drivers and sustainability of operating-cost growth, cash burn, and higher interest expense; distinguish Caliber’s corporate economics from gross consolidated-fund results.
- Effects of VIE consolidation changes on revenue, expenses, debt, guarantees, and comparability; also review the related-party lending exposures and repayment terms.
- Assumptions, funding availability, and execution risk behind the $2.2bn development pipeline and management’s AUM valuations.